ANNUAL REPORT & ACCOUNTS 2020
Studio is a market-leading
digital value retailer
offering its UK customers
a broad range of products
and a flexible repayment
proposition.
Contents
1.
Strategic Report
1
4
6
8
Highlights
Chairman’s Statement
Chief Executive’s Review
Studio
14
Finance Review
18
Alternative Performance
Measures
22 Principal Risks and Uncertainties
24
Our people, our products,
community and the environment
2. Governance
29 Directors and Officers
30 Directors’ Report
35 Corporate Governance Report
39
Board Report on Directors’
Remuneration Report
66 Nomination Committee Report
67 Audit Committee Report
71 Risk Committee Report
73
79
Corporate Social Responsibility
Report
Statement of Directors’
Responsibilities
80
Independent Auditor’s Report
3.
Financial Statements
90 Consolidated Income Statement
92
Consolidated Statement of
Comprehensive Income
93 Consolidated Balance Sheet
94
95
96
Consolidated Cash Flow
Statement
Consolidated Statement of
Changes in Equity
Notes to the Consolidated
Financial Statements
4.
Company Financial Statements
146 Company Balance Sheet
147
Company Statement of Changes
in Equity
148
Notes to the Company Financial
Statements
Highlights
Group
Studio
Education
• Conditional sale to YPO agreed
in December 2019 for headline
consideration of £50m. Awaiting
clearance from the Competition
& Markets Authority.
• Continued improvement in digital
activity and improved product
sourcing during the year, although
the final weeks were materially
affected by school closures in the
UK and overseas.
• Adjusted operating profit* of £3.3m,
marginally ahead of prior year
(FY19 restated**: £3.2m).
• Statutory divisional operating profit
of £2.5m (FY19 restated**: £3.2m).
• Total group revenue* of £514.8m,
• Studio revenue of £434.9m, up 3.1%
up 2.2% (FY19 restated**: £503.7m).
(FY19 restated**: £421.7m).
• Revenue from continuing
operations of £434.9m, up 3.1%
(FY19 restated**: £421.7m).
• Adjusted operating profit* for
the total group measured on a
constant-GAAP basis up by 3.9%
to £39.9m.
• Operating profit from continuing
operations was down by 52.7% to
£14.7m largely as a result of £20m
estimated impact of COVID-19
on the bad debt charge and the
adoption of IFRS 16.
• Adjusted profit before tax* for
the total group measured on a
constant-GAAP basis up by 8.6%
to £31.2m.
• Profit before tax from
continuing operations of £6.8m
(FY19 restated**: £26.2m).
• Core net debt* reduced by £5.6m
to £51.8m.
– Product revenue of £311.7m
(FY19 restated:** £304.2m),
growth of 2.5%, with a strong
performance during its peak
trading period offset by a less
consistent performance at
other times.
– Competitive market conditions
and a disappointing retail
trading performance during
Q4 resulted in product
margins reducing slightly to
33.0% (FY19 restated**: 33.4%),
although gross profit from retail
increased by 1.0% to £102.8m
(FY19 restated**: £101.7m).
– Financial services revenue
increased by 4.9% to £123.2m.
• Adjusted operating profit*
for the business of £39.0m
(FY19 restated**: £39.4m) after
investment in upgraded systems
and processes.
• Individually significant items
reported in respect of incremental
PPI costs in August 2019 of £5.6m.
• Statutory divisional operating profit
of £17.1m (FY19 restated**: £36.5m)
largely as a result of £20m estimated
impact of COVID-19 on the bad debt
charge.
* This is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found on pages 18 to 21.
** Balances have been restated as set out in note 1 to the financial statements.
Studio Retail Group plc Annual Report 2020
1
Financial Highlights
2020
2019
(restated)**
Change
Revenue from continuing operations
£434.9m
£421.7m
+3.1%
Revenue from total group*
£514.8m
£503.7m
+2.2%
Adjusted operating profit* from total group
£39.9m
£38.4m
+3.9%
Adjusted operating profit* from continuing operations
£36.6m
£35.2m
+4.1%
Adjusted operating profit margin %* from total group
7.8%
7.6%
+20bps
Operating profit from total group*
£17.2m
£34.3m
-49.8%
Operating profit margin from total group*
Operating profit margin from continuing operations
3.3%
3.4%
6.8%
-350bps
7.4%
-400bps
Adjusted profit before tax* from total group
£31.2m
£28.8m
+8.6%
Adjusted profit before tax* from continuing operations
£27.4m
£25.6m
+7.1%
Profit before tax from continuing operations
£6.8m
£26.2m
-74.0%
Profit for the year
£8.8m
£23.3m
-62.4%
Adjusted free cash flow generation*
£23.7m
£28.9m
-17.8%
Cash generated from operating activities
before interest and tax paid
Core net debt*
£16.5m
£22.4m
-26.1%
£51.8m
£57.4m
-9.7%
Overall net debt* (including IFRS 16)
£292.9m
£233.4m
+25.5%
* This is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found on pages 18 to 21.
** Balances have been restated as set out in note 1 to the financial statements.
Our Brands
Studio Retail Group plc Annual Report 2020
3
Chairman’s Statement
“ Our overall strategy to grow the Studio
customer base and increase our customers’
spend with us, supported by our flexible
credit offer, is essentially unchanged by
the pandemic.”
Ian Burke
Chairman
Dear Shareholder,
Welcome to our 2020 Annual Report and
Accounts.
FY20 was a year of transition and further
operational progress for the Group. During
the period, we continued to focus on
strengthening our online value offer at our
core Studio retail business, which continues
to resonate with customers, while we also
reached an agreement to dispose of our
Education business.
Since our March year end, the impact
of COVID 19 has continued to have a
significant impact on people’s everyday
lives and on the way that the business
operates. With this in mind, I would like to
take this opportunity to thank each and
every one of our colleagues for their hard
work and dedication during this period.
We have kept their health and safety as
our clear priority throughout, and it is
thanks to them that we have been able
to continue to serve our customers and
handle the disruption during lockdown.
Change of name
The Group changed its name from Findel plc
to Studio Retail Group plc at its AGM in July
2019 to strengthen the Group’s identity and
align it with our primary trading brand. This
follows the change in the trading subsidiary
name from Express Gifts to Studio Retail
at the start of 2019, and a modernisation
of the Studio brand designed to make it
more appealing in an increasingly digital
marketplace for our customers’ shopping
preferences.
Disposal of Findel Education
Our ambition to focus our resources
around the Studio business was the
primary reason behind our decision to
sell Education in December 2019 to YPO
for headline consideration of £50m. We
are continuing to work with YPO to obtain
clearance from the Competition and
Markets Authority for the transaction,
which we anticipate will be granted in
December 2020. The results for Education
are generally presented within our FY20
results as a discontinued operation,
although as analysts and management
incentive schemes for FY20 were focused
upon the results of the Group including
Education, we have also presented an
adjusted profit before tax on a like-for-like
basis* for the year with Education’s results
included within it.
Financial performance
Total revenue from Studio increased
by 3.1% to £434.9m (FY19 restated**:
£421.7m), with a strong performance in
the period leading up to Christmas but
a more inconsistent retail performance
during typically quieter periods given the
challenging UK retail market and Brexit-
related uncertainties. Adjusted profit before
tax on a like-for-like basis* from the total
group, which was the measure of profit
most closely monitored by management
during the year, increased by 8.6% from
£28.8m to £31.2m. The statutory profit
before tax from continuing operations was
£6.8m (FY19 restated**: £26.2m).
The accounting standard for bad debt
provisioning, IFRS 9, requires the business
to use external economic forecasts to
estimate the likely level of future credit
losses, using only the information that
was available at the balance sheet date.
The UK lockdown, which was a consequence
of Covid-19, came into force shortly before
the year-end. The resulting deterioration
in the economic outlook, particularly in
relation to unemployment, increased the
level of provision indicated by our modelling
by approximately £20m.
The unprecedented level of uncertainty
around the impact of Covid-19 on the UK
economy as a whole, and subsequently
on our customer base, continues to
cause challenges in assessing bad debt
on a forward-looking basis. It should
therefore be noted that that £20m figure
quoted represents our best estimate of
the incremental impact of the Covid-19
on the bad debt provision based on the
information available at the end of March.
At the time of writing, we have not seen a
significant increase in the level of customer
arrears resulting from the pandemic, nor
have we seen a material reduction in
customer payment rates.
Impact of Covid-19
The investments in modernising Studio’s
warehouse facilities and its supporting
digital infrastructure enabled the business
to react to the challenges of lockdown at
the end of March 2020 from a position of
strength. A significant number of colleagues
were able to work effectively from home
and Covid-19-safe processes and working
conditions were implemented across our
* This is an Alternative Performance Measure, for which the reconciliation
to the equivalent GAAP measure can be found on pages 18 to 21.
** Balances have been restated as set out in note 1 to the financial statements.
4
Studio Retail Group plc Annual Report 2020
premises. The business has therefore been
able to operate effectively throughout the
lockdown period.
The Group initially took a very cautious
approach to liquidity management, reducing
stock intake, deferring discretionary capital
projects and marketing expenditure whilst
the position became clearer. As people
remained at home during lockdown, it
quickly emerged that Studio was seeing
particularly strong demand for ranges such
as toys, games, electricals, fitness and garden
as consumers moved the majority of their
purchasing online. This improved the Group’s
liquidity position, and enabled the reversal of
the precautionary measures put in place in
response to the introduction of lockdown.
We continue to retain a cautious stance in
respect of customer repayments as, despite a
modest number of requests for forbearance
caused by disruption to household incomes,
we anticipate that the level of customer
arrears may worsen later in the year if
unemployment levels increase materially.
Education’s business experienced a greater
reduction in demand due to the closure
of UK and international schools, although
the position has started to return towards
normal seasonal patterns.
Management and Board
Paul Kendrick, who has been Managing
Director of Studio since April 2017, was
appointed to the Board in December 2019.
We subsequently announced that Paul
would be appointed as Group CEO upon the
retirement of Phil Maudsley in March 2021.
By then, Phil will have spent more than
33 years with the Group, overseeing
the development of the Studio brand as
Managing Director and, since 2017, driving
the Group’s significant progress as CEO.
He will leave the Group with our thanks
and best wishes for the future. I look
forward to working more closely with Paul
in his new role.
Colleagues
This has been an unprecedented period
in which our colleagues’ hard work and
commitment has shone through. As a token
of the Board’s appreciation and recognition
of our front-line colleagues who came into
work during the challenging early period
of lockdown, we introduced a temporary
scheme giving those colleagues shopping
vouchers between April 2020 and June
2020. On behalf of the Board, I would like
to extend our thanks to them for their
outstanding efforts.
into its traditional peak trading period up to
Christmas. We expect that more competitive
market conditions will return in the
coming months, alongside additional costs
associated with new working practices. Our
planning assumes that sales growth for the
remainder of FY21 will moderate to nearer
the levels seen in recent years. Our intention
would be to reinvest any benefits from
exceptional growth into further growing the
customer base and accelerating our digital
transformation. We are not yet in a position
to provide a detailed assessment of how the
rest of FY21 will develop and we will aim to
provide greater clarity in due course.
Outlook
Whilst Covid-19 is likely to present material
challenges for the UK economy and the
broader retail landscape for several years,
Studio is well positioned with its digital-first
strategy focused upon delivering great value
to its customers. Our overall strategy to
grow the Studio customer base and increase
our customers’ spend with us, supported
by our flexible credit offer, is essentially
unchanged by the pandemic. Whilst it is
too early to restore detailed guidance for
FY21, we continue to believe that Studio’s
recent performance provides the basis for
sustainable medium-term profit growth.
Dividends
The Board continues to prioritise investment
in improving digital capabilities and in
strengthening its financial position in light
of the broader economic environment.
In addition, the parent company has
accumulated losses of £73.3m and, as
such, the Company does not have plans to
reinstate dividend payments at this stage.
Current trading
Studio’s trading performance in the first
20 weeks of the year has been exceptional,
with product sales up 42% on prior year and
financial services revenue, which inherently
lags behind product sales growth, up 6.4%.
The business passed the milestone of having
over 2 million active customers in June, which
positions the business ideally as it heads
Ian Burke
Chairman
22 August 2020
Studio Retail Group plc Annual Report 2020
5
Chief Executive’s Review
“ The competitive
landscape has
undoubtedly changed
in Studio’s favour.”
Phil Maudsley
Chief Executive Officer
The majority of the financial information
within this annual report relates to the
financial year ended 27 March 2020 – the
end of the first week of the UK’s general
lockdown caused by Covid-19 and the start
of an overnight transformation of what we
see as “normality”. At the time of writing,
without an effective vaccine, it looks like the
necessary changes to our day-to-day lives
caused by the virus will be with us for some
time, and the longer-term impacts on how
we shop, how we work and how prosperous
we all are will be substantially different from
anything we’ve seen before.
Back at the beginning of March before the
start of lockdown, as I was looking back on
my 33-year career with the Group, it was
almost unbelievable to think that so many
aspects of the Studio we know today didn’t
exist when I first joined back in 1987. The
internet hadn’t been developed, the flexible
credit account had yet to be introduced,
our main warehouse in Accrington was still
focused on picking Christmas cards and
wrapping, and the Group contained a very
broad array of operational interests both
in the UK and overseas including a range
of physical shops for its greetings card
operation.
Today’s Group is tightly focused upon
developing Studio as a substantial digital
value retailer, building on the new
opportunities in the marketplace. Since
becoming CEO in 2017, I have often
commented that Studio is in a digital sweet-
spot in the retail market. Our medium-term
ambition remains to increase Studio’s
customer base beyond 3 million customers
and to see revenue in excess of £1bn. In
a post-Covid-19 world, that opportunity is
greater than ever, but continued change
and agility will be needed too.
Studio has thrived in the period since
lockdown. Its digital offering of great value
products appeals to families who truly know
the value of the pound in their pocket.
We have attracted more new customers,
bringing our active customer base beyond
2 million. We have also successfully adapted
our warehousing and support facilities to
ensure our colleagues can work in a Covid-
19-secure environment, with many able to
work from home.
However there are key parts of the business
that will require investment over the
next few years to realise the medium to
long-term ambition for Studio. The ability
to fully utilise the information available to
join up our marketing, trading and financial
services activities and optimise performance
to offer customers an even better shopping
experience. We can improve our customer
journey with improved stock availability and
better integration where we ship products
direct from third party suppliers giving even
more opportunity for an enhanced range.
And by improving the delivery options for
our customers by updating our warehouse
capabilities.
At the same time, the competitive landscape
has undoubtedly changed in Studio’s favour.
The traditional high-street shopping model
was already under sustained pressure
well before Covid-19 but, as others have
commented, online shopping is now the
default option for the majority of people.
Families often respond to periods of
financial uncertainty by seeking great value
and welcome the opportunity to spread
the cost of their shopping over a number
of months. We have seen these advantages
come to the fore during lockdown, with
product sales in the first 20 weeks of the
year up 42% on last year. That has left us in
a strong liquidity position to build on as we
move into our peak trading period in the
run up to Black Friday and Christmas.
This will be my last report as Group CEO and
it has been a privilege to work with so many
talented colleagues over the years. Paul
Kendrick joined the business in 2016 as my
deputy in the Studio division, before taking
charge of the division in April 2017. He has
shown his strengths over the last three
years in delivering Studio’s growth, building
a largely new and very capable executive
team around him. I wish him every success
as I hand over to him as CEO in the coming
months. I have thoroughly enjoyed my long
career at Fine Art Developments, Findel
and now Studio Retail Group and look
forward to seeing it reach its medium-term
ambitions as soon as possible.
Phil Maudsley
Chief Executive Officer
22 August 2020
6
Studio Retail Group plc Annual Report 2020
Studio
Summary income statement
£000
Product revenue
Other financial services revenue
Credit account interest
Financial services revenue
Sourcing revenue
Reportable segment revenue
Product cost of sales
Financial services cost of sales
Sourcing cost of sales
Total cost of sales
Gross profit
Marketing costs
Distribution costs
Administrative costs
EBITDA
Depreciation and amortisation
Operating profit stated on a like-for-like basis*
Estimated COVID-19 bad debt impact
Change in bad debt accounting estimate
Impact on IFRS 16
Adjusted operating profit
Product margin %
Underlying impairment loss as % of revenue
Operating profit stated on a like-for-like basis %
Adjusted operating profit %
2020
311,697
18,617
104,542
123,159
38
434,894
2019
(restated)**
304,176
19,332
98,119
117,451
26
421,653
(208,924)
(37,605)
—
(202,435)
(36,623)
(18)
(246,529)
(239,076)
188,365
(31,661)
(37,372)
(71,361)
47,971
(8,975)
38,996
(20,000)
3,675
55
22,726
33.0%
8.6%
9.0%
5.2%
182,577
(31,693)
(36,423)
(66,533)
47,928
(8,480)
39,448
—
—
—
39,448
33.4%
8.7%
9.4%
9.4%
Key Investment Features
1. A strong record of increasing the
customer base and improving
product sales.
% change
2.5%
2. Ongoing buying and supply
chain efficiency improvements
help to deliver better value to
our customers whilst sustaining
margins.
3. The in-house managed credit
facility provides additional
revenue and further enables
retail sales growth.
4. Advanced in our digital
transformation programme
with over 90% of sales made
online and a fast-growing App
(launched in September 2019),
now accounting for 18% of total
sales.
5. A clear strategy with scaled
investment in data science
and technology, alongside a
strengthened management team
lead to medium-term growth
opportunities in the online value
retail sector.
4.9%
3.1%
-3.2%
-2.7%
-3.1%
3.2%
0.1%
-2.6%
-7.3%
-0.1%
-5.8%
-1.1%
-42.4%
-40bp
-10bp
-40bp
-410bp
* This is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure
can be found on pages 18 to 21.
* * Balances have been restated as set out in note 1 to the financial statements.
KPIs – measuring our progress
Customer base
1.83m
Spend per customer
Online ordering
£171
84.3%
Credit customers
1.02m
2.0m
1.8m
1.6m
1.4m
1.2m
1.0m
FY
16
FY
17
FY
18
FY
19
FY
20
£175
£170
£165
£160
£155
£150
FY
16
FY
17
FY
18
FY
19
FY
20
90%
80%
70%
60%
50%
40%
FY
16
FY
17
FY
18
FY
19
FY
20
1.1m
1.0m
0.9m
0.8m
0.7m
0.6m
0.5m
0.4m
FY
16
FY
17
FY
18
FY
19
FY
20
How it is measured?
Active customer accounts
at the end of each calendar
year.
Why is it used?
To show the base from which
future sales can be made.
How it is measured?
Total product sales divided by
active customers.
Why is it used?
To illustrate the level of
future sales that can be made
from the customer base.
How it is measured?
Proportion of the year’s
product sales placed using an
online route – financial year.
Why is it used?
To show the changing
nature of customer ordering
patterns.
How it is measured?
Number of customers who
have incurred an interest
charge at least once in the
last financial year.
Why is it used?
To show the base from which
financial services income can
be made.
8
Studio Retail Group plc Annual Report 2020
O
R C
U
O
A T E G Y
R
R E S T
CUSTOMER
AT THE
HEART
W
e
h
u
n
t
f
o
r
t
h
O
U
R
V
A
L
U
E
S
Value
Give our customers access
to unbelievable value
Choice
Give our customers access to the
products and brands they want
Payment
Focus on customers who
want flexible ways to pay
Enabled By
• Data Expertise
• Operational
Efficiency
• Compliance
• Service to meet
expectations
£1bn
Turnover
UK’s #1 value
destination for
families wanting
flexible ways
to pay
#INCLUSIVE
We are one team
#TRUSTED
We deliver our promises
#AMAZING
We think BIG
#SAVVY
We are commercial
e b
est VALUE so our customers don’t have to
Studio is becoming a leading digital value
retailer with a broad product offer of clothing
and footwear alongside home and electrical
products plus the more seasonal ranges,
many of which can be personalised for free.
Over 90% of sales are generated online and,
although catalogues are still used, they are
just a part of the wider marketing activity
which includes growing investment into
broadcast and digital media. Underpinning all
this, is the drive to hunt for the best value so
our customers don’t have to, whilst providing
them with a range of payment options.
Following the start of the lockdown in
March 2020, Studio has seen very rapid
sales growth as customers browse online,
including using our new app, to find
products that help make family life that
bit easier. New customers have found
the combination of a broad, value driven
product range and financial services
creates a point of difference to other
retailers. With no physical stores to service
and virtually all orders now coming online
(a small minority still being phone and
postal orders), it is now striving to utilise
data and technology across all aspects of
the business to improve decision making,
becoming a truly digital retailer. With the
Customer at the Heart of the business,
ongoing improvements to customer
experience and service means our 2 million
customers love the Studio offer and continue
to shop with us more frequently.
Our medium-term ambition is to increase
the customer base to over 3 million and
achieve over £1 billion of revenue. By
continuing to increase our market share
whilst also increasing the annual spend
per customer to peer-equivalent levels, we
believe this is an achievable ambition and
so continue with a strategy built around
three key pillars:
•
Improve Retail Profitability.
• Maximise Financial Services
Opportunity.
• Build Strong Foundations.
We will be reviewing these pillars in the
coming months to ensure that they continue
to be focused on our customers’ needs. The
plans and priorities underpinning them have
been sharpened over two years with many
initiatives delivered or in flight and serving
us well during the pandemic, combined with
our clearly defined values to our customers
and colleagues to deliver on our brand line
We Do WoW.
These values came through customer
research and by involving 700 colleagues
across the business:
•
Inclusive (We) – the broad product
range has wide customer appeal, and
the flexible payment option opens up
our retail offer to customers who may
prefer to spread the cost of purchases.
To deliver this we act as one team, with
no departmental silos.
•
Trusted (Do) – customers have to be
able to trust us to deliver the value
and quality they expect, to deliver for
those important family moments, like
Christmas, and also that we make
responsible decisions when we lend
money. We do this by being positive
and delivering against our promises.
• Amazing (Wow) – we amaze customers
with our value and product range,
along with targeted offers and service.
To do this we are innovative, think big
and are creative.
•
Savvy (Wow) – for customers, shopping
with Studio is clever – with its great
range and value, there is no reason to
buy elsewhere. For colleagues it means
we are commercial, we hunt for great
value and use the tools available to be
even better at our jobs and deliver for
our customers.
The strategic pillars frame the business
plans and a transformation programme to
invest in new technology, process change
and enhancing the capabilities of our
people to enable Studio to continue to
grow into the future.
Studio Retail Group plc Annual Report 2020
9
Studio continued
Retail Profitability
Increasing retail profitability will be achieved
by growing sales through having more
customers, who shop more frequently, and
by improving how we plan and source our
ranges to improve product margins.
The actions we are taking to deliver this are:
• Build the Studio brand as the online
destination for value and raise its profile
within our target audience of value-
conscious families.
•
Focus on Customer Experience with a
single view of the customer to improve
how we target and service them,
alongside a programme to continually
make Studio easier, faster and more
trusted to shop with.
• Product development – changing our
buying processes to improve product
planning and sourcing to in turn
improve margins, with particular focus
on attracting customers with great value
own-brand clothing and household
products, our Wow ranges (larger
volume lines, offering exceptional value)
and gift offer – especially where we can
add value through free personalisation.
During FY20, 1.8 million customers shopped
with Studio. That base has since grown
beyond 2.0 million during lockdown and
builds upon the success in recent years
where new customers have been recruited
through increased use of TV advertising
and digital marketing, with customers then
being retained through data-driven CRM
programmes utilising catalogue mailings
and targeted digital activity. Over the last
two years, we have updated the creative
look and feel of Studio for customers with a
revamped website, new advertising creative
and a new Studio App featuring “shop the
look” ideas.
Our business model is built around customer
lifetime value, with initial acquisition
costs taking time to pay back. The credit
account acts as a loyalty mechanic, even
for customers who pay in full when they
get a statement and retention is further
enabled by range development, targeted
marketing and improving service levels to
deliver a better overall experience. Our net
promoter score (NPS) reduced at the start of
lockdown as processes were adapted to new
ways of working. Our customer experience
colleagues and partners in the Philippines
and in South Africa saw significantly tighter
lockdown restrictions than we saw in the UK,
which took longer to overcome. Restoring
the NPS to pre-Covid-19 levels will be an
important objective for the coming months.
Some recruitment channels have become
less profitable in recent years, with the use
of targeted marketing lists in particular
becoming less prominent following the
introduction of GDPR in 2018. The decision
to move away from unprofitable routes,
combined with lower level of credit account
applicants discussed below, was the key
driver behind product sales during H1
being 2.1% below the first half of FY19.
Within that, sales from online channels in
the Studio brand increased strongly, up by
12.8%, with average spend per customer –
particularly from the app channel – up by
3.1% which reflects the changing customer
base and targeting. Orders from legacy
channels (phone and written) declined
in the period, whilst orders from the
secondary Ace brand were also weaker,
down 23%, representing around 8% of total
sales. Within both groups, there are a high
number of non-credit taking customers who
have tended to shop for highly-promotional
items with lower levels of loyalty.
As we moved into the peak trading
season of Black Friday and Christmas,
the digital performance of Studio was
particularly strong, with an improved
performance from the legacy channels.
This contributed to record levels of online
orders and dispatches during the key Q3
period. However, retail market conditions
particularly for high-street stores were
very competitive during the second half of
December. As a result, the margins achieved
at the very end of Q3 were disappointing.
Conditions in the final quarter of the year
remained challenging and so product sales
growth of just 2.5% for the year as a whole
was considered to be disappointing.
In sharp contrast, the retail performance of
Studio since the start of lockdown has been
exceptional and was enabled by much of the
strategic investment that has been made
to date both in our digital transformation
and market positioning as a leading online
value retailer. For a period, we operated as
a pureplay digital retailer. The challenge to
the business remains to harness the positive
trends seen during lockdown and to ensure
that we use these as a base to drive growth
in future years.
Financial Services
The second of our strategic pillars is
maximising the financial services opportunity,
whilst ensuring the credit offered is
relevant, appropriate and affordable for our
customers, and meets regulatory guidelines.
The majority of Studio customers have a
revolving credit account that allows them to
either pay for their purchases within a month
when their statement arrives, or to roll their
balance and spread payments to help with
their household budgeting.
The benefit to Studio of the credit
proposition is not just an additional revenue
stream through financial income when
customers choose to roll a balance, but also
in that the account facility drives higher
10
Studio Retail Group plc Annual Report 2020
loyalty for the retail part of the business and
acts as a regular prompt for the customer
to revisit the website and app to service
their accounts. As we move forward, we will
continue to deliver actions to underpin:
• Payment proposition – provide a range
of repayment options to make shopping
with Studio easy, and to enhance the
benefits of the credit account to be an
ideal option for all customers.
•
Lending approach – ensure that when we
lend money to our customers it is done
in a responsible way, with appropriate
credit limits and that customers are
treated fairly should they subsequently
find they have repayment issues.
• Operational efficiency – to utilise new
technologies to improve efficiency and
how we service customer accounts.
Studio’s consumer credit activity is regulated
by the Financial Conduct Authority (FCA), and
there are a number of guidelines which they
have issued to ensure firms treat customers
fairly, and that lenders take responsible steps
to ensure loans are affordable and avoid any
customer harm. Studio constantly reviews
its processes to ensure it remains aligned
with the FCA guidelines and is utilising
new robust systems, datasets and risk
management tools to help in this area. Credit
limit strategies are regularly reviewed and
more detailed information is now captured
where relevant on income to assess whether
our customer can afford to take on new or
additional credit from us.
Some of these processes have led to
a higher level of both declined and
withdrawn applications over the last couple
of years, in part due to some elements
of the process being seen as excessive
to some applicants. The new application
and decision platform that we introduced
in November 2019 is more bespoke to
Studio Retail Group plc Annual Report 2020
customers’ circumstances and has led
to a good recovery in applications being
accepted in recent months. We have also
tightened our acceptance criteria to riskier
applicants, leading to a reduction in the
overall average interest rate applied but a
consequential improvement in the overall
level of arrears and bad debt, producing
a better outcome for customers and
improved profitability for the business.
Several further phases of system
enhancement are due to be implemented
later this year, including the introduction of
open banking data into our decisioning.
Customer balances typically move in line
with the seasonal patterns of product
purchases. It is normal for balances to peak
at Christmas before gradually reducing from
then until the following summer. Customers
receive a monthly statement and can then
choose whether to repay their balance in
full each month, in which case they do not
incur any interest charges, or whether to
pay an amount they choose between a
minimum level and the outstanding balance.
Financial income in the year was up by 4.9%,
below the 9.9% growth in live customer
balances due to the reduction in average
interest rate charged and also the more
pronounced peak in product sales during
the year compared to FY19. Improvements
in the quality of the receivables book and
continued strong recoveries from the sale of
defaulted receivables led to underlying bad
debt charges only increasing by 2.7%, slower
than the level of income and balance growth.
This underlying position retained a cautious
level of judgement on future recovery rates,
even before the onset of the pandemic.
IFRS 9 requires the bad debt provision
to incorporate future macroeconomic
conditions using a variety of possible
scenarios, based on information that is
available at the balance sheet date. The
deterioration in the economic outlook
caused by Covid-19, particularly in relation
to unemployment, increased the level of
provision indicated by our modelling by
approximately £20m. The unprecedented
level of uncertainty around the impact of
Covid-19 on the UK economy as a whole,
and subsequently on our customer base,
continues to cause challenges in assessing
bad debt on a forward-looking basis. It
should therefore be noted that that £20m
figure quoted represents our best estimate
of the incremental impact of the Covid-19
on the bad debt provision based on the
information available at the end of March.
Whilst we have not yet seen a significant
increase in the level of customer arrears
resulting from the pandemic, nor have
we seen a material reduction in customer
payment rates, we expect that the
Coronavirus Job Retention Scheme and
other support from government have
delayed any deterioration in performance.
We anticipate that arrears will increase
when these schemes are phased out in
the coming months.
During the period, the Group refined its
impairment models to make use of more up
to date customer data that is more reflective
of current credit policies and operational
processes. The availability of this more
granular and up to date information has
enabled management to refine its estimate
in respect of the level of impairment
provision required and has resulted in
reduction in the provision required by £3.8m.
The FCA set a deadline of 29 August 2019 for
customers to lodge enquiries and complaints
about historic sales of PPI. In common with
other institutions, Studio experienced a
large and sudden inflow of enquiries in the
weeks leading up to that deadline, having
11
Studio continued
only received a nominal stream of new
enquiries in the previous months. We have
now substantially completed our evaluation
of those enquiries, which required an
incremental charge of £5.6m to be recorded
during FY20, a reduction of £2.3m vs. the
£7.9m estimated cost included in our half-
year results. This charge was recorded as an
individually significant item.
Strong Foundations
The third strategic pillar is Strong Foundations,
where we are investing in the infrastructure
to support our future growth, improve
processes and how we manage the business
and develop our people and culture for the
future. Key action areas here are:
• Warehouse development – ensure our
current operations are robust and create
a clear plan to improve service and scale
to manage our sales ambitions.
• Data and technology – data is one of our
most valuable assets and we will ensure
it is kept safe and secure as well as
building new capabilities to drive greater
business intelligence. We will also
modernise our technology architecture
to be agile and scalable.
• Cost efficiency – continually look at ways
to be more efficient and keep costs down
so we can deliver on our value promise.
• People and culture – we need to have
people with the right skills to deliver our
plans and a culture that makes Studio a
great place to work.
Studio has made progress over the last
few years in gradually replacing its legacy
mainframe systems and IT architecture
through the development of a clear IT
strategy around data, application and
infrastructure architectures. This is aligned
to the projects we are delivering, and new
ways of working have been introduced,
Our governance structures were enhanced
during FY20 as we completed the work
to introduce the Senior Manager &
Certification Regime from the FCA in
December 2019, designed to improve
individual accountability in key areas to
protect against customer harm.
Since the start of 2020, we have appointed
a new Trading Director to improve the
consistency of our retail performance, a
new Director of HR, and a Transformation
Director to drive through our investment
plans. We have also expanded our
procurement function and appointed
specialist advisors to review our overhead
base and identify opportunities for
future efficiency.
Brexit
The Group has continued to prepare for the
end of the Brexit transition period at the end
of 2020. The majority of Studio’s supplies
are sourced, either directly or indirectly,
from outside the European Union. All of
Studio’s customers are based in the UK and
therefore, any imposition of customs tariffs
or import duties is not anticipated to have
a material impact on our operations. There
is a broader risk that consumer confidence
suffers if there continues to be a lack of
clarity over Brexit, but we believe that more
customers will seek Studio’s value offer
if economic conditions weaken further
from these grounds. Our foreign exchange
hedging policy has locked in the buying price
of our US$ imports for the next 12 months,
which should allow time for market
conditions to stabilise.
Performance and Progress
As noted above, product sales were strong
in the weeks leading up to Black Friday and
Christmas 2019, but disappointed at other
times of the year. In part this was due
to tough market conditions for retailers.
However, there were also aspects of the
pricing and marketing strategies that were
less successful than we anticipated and
response levels from some of our older
customers fell as we migrated activity
from paper to digital channels and shifted
our target customer younger. We have
introduced strategies to better balance
these for FY21. Product margins at the
end of the Christmas season and then
into the final quarter were particularly
disappointing. As a result, product revenue
for the full year of £311.7m was only
2.5% ahead of the prior year, compared
to growth rates of 8-9% in the two
previous years. Gross profit from product
sales increased by 1.0% to £102.8m
(FY19 restated**: £101.7m).
Adjusted financial services gross profit
increased by 5.8%, leading to the total
adjusted gross profit for the business
increasing by 3.2% to £188.4m (FY19
restated**: £182.6m).
Continued marketing efficiencies, as we
moved investment from print/paper into TV
and Digital advertising meant that marketing
costs for the year were unchanged at
£31.7m. Distribution costs moved in line
with product sales. We have continued
to invest resource particularly within our
IT functions to modernise the business,
resulting in administrative costs increasing
at a faster rate than activity.
Adjusted operating profit on like-for-like
basis* for the year was £39.0m, down from
£39.4m in FY19. Individually significant
costs totalling £5.6m related to the increase
to the provision for PPI redress as noted
above (FY19: £2.9m). Operating profit was
£17.1m (FY19: £36.5m).
12
Studio Retail Group plc Annual Report 2020
Finance Review
“ The Group has produced an adjusted
profit before tax* of £31.2m in FY20, up
by 8.6% from £28.8m in FY19.”
2020
2019
(restated)** Change
£000
£000
£000
The key elements of this improved
performance are discussed earlier in the
Strategic Report.
Stuart Caldwell
Group CFO
Adjusted operating
profit on a
like-for-like basis*:
Studio
Central
Total continuing
operations
Education
(discontinued
operation)
Adjusted operating
profit* from total
group
Net finance costs*
Adjusted profit
before tax* from
total group
Impact of adopting
IFRS 16
Impact of discontinued
operation on
depreciation in H2
Individually
significant costs
Exclude estimated
COVID-19 bad debt
impact
Exclude change in
bad debt estimate
Fair value movement
on derivative financial
instruments
38,996
(2,370)
39,448
(4,248)
(452)
1,878
36,626
35,200
1,426
3,287
3,217
70
39,913
(8,679)
38,417
(9,656)
1,496
977
31,234
28,761
2,473
(1,759)
—
(1,759)
1,393
—
1,393
(8,342)
(4,158)
(4,184)
(20,000)
—
(20,000)
3,675
—
3,675
2,608
4,750
(2,142)
Profit before tax
8,809
29,353
(20,544)
* This is an Alternative Performance Measure, for
which the reconciliation to the equivalent GAAP
measure can be found on pages 18 to 21.
** Balances have been restated as set out in note 1
to the financial statements.
Adjusted profit before tax on a
like-for-like basis
The Group has been focused throughout
the year upon delivering an adjusted
profit before tax for the total group*
including Education. This is because the
decision to sell Education was only made
partway through the year, and then with
an expectation that completion would take
place after the year-end. In addition, IFRS 16
has been applied for the first time this year
using the modified retrospective transition
approach that makes comparability with
prior year figures challenging.
The decision to sell Education in December
2019 means that its results for the year
are presented as a discontinued operation.
Having also presented the operation in this
way with our interim results, IFRS 5 requires
that the fixed assets of the discontinued
operation are not subjected to depreciation
or amortisation beyond the end of H1.
However, for internal purposes and in the
interests of consistency, we continued
to accrue such charges during H2 in the
adjusted profit figures.
The adjusted profit before tax on a like-for-
like basis for the total group* was £31.2m,
up from £28.8m in FY19 as set out in the
table below. Full reconciliations between the
adjusted figures presented below and their
statutory equivalents are shown on pages
18 to 21.
Individually significant items totalling £8.3m
(FY19: £4.2m) were incurred, as discussed
in more detail below and set out in note 4.
The fair value movement on derivative
financial instruments was a credit of £2.6m
(FY19: £4.8m). This is presented below the
adjusted profit before tax* on the income
statement as it relates to the reversal of
prior year fair value movements net of the
revaluation of hedging contracts that will
unwind during FY21.
Individually significant items
During the year, Studio saw a large and
unexpected increase in the level of PPI
claims and enquiries in the days leading
up to the FCA’s deadline for claims of
29 August 2019. This included a large
block of previously unseen claims from
the Official Receiver acting on behalf of
bankrupt customers. A provision of £7.9m
was recognised in H1 as an individually
significant item in respect of these cases
with the majority of the provision relating
to Plevin refunds, rather than mis-sold
policies, and included the cost of reviewing
and administering the claims. Although
the exercise was not fully completed at
the balance sheet date, it has now been
substantially completed and the additional
charge required in FY20 has reduced
to £5.6m.
14
Studio Retail Group plc Annual Report 2020
Covid-19
The impact of Covid-19 upon the Group’s
operations was relatively limited until the
start of lockdown, as noted in the Strategic
Report. The exception to this was the bad
debt charge which, under IFRS 9 requires
the bad debt provision to incorporate future
macroeconomic conditions using a variety
of possible scenarios, based on information
that is available at the balance sheet date.
The deterioration in the economic outlook
caused by Covid-19, particularly in relation
to unemployment, increased the level of
provision indicated by our modelling by
approximately £20m. The unprecedented
level of uncertainty around the impact of
Covid-19 on the UK economy as a whole,
and subsequently on our customer base,
continues to cause challenges in assessing
bad debt on a forward-looking basis.
It should therefore be noted that the
£20m figure quoted represents our best
estimate of the incremental impact of
the Covid-19 on the bad debt provision
based on the information available at
the end of March and, as noted in the
strategic report, the business is yet to see
any material indications of this increased
provision being converted into cash loss.
The £20m estimated impact of Covid-19 has
been excluded when arriving at adjusted
operating profit for Studio on a like-for-like
basis* to enable comparability with the
results of prior periods and to allow a fair
(although estimated) assessment of the
business’ underlying trading performance
prior to Covid-19.
It is also important to note that the
increase to the bad debt provision does not
represent the full impact of Covid-19 on the
Group as we saw an increase in product
sales in Studio in the aftermath of the
lockdown announcement, but lost revenue
in Education. Incremental costs were also
incurred in both businesses as we moved
to implement social distancing measures. It
is not possible to quantify the net effect of
these impacts reliably in accordance with
IFRS and so separate presentation has not
been made.
Discontinued operation – Education
Education reported an adjusted operating
profit on a like-for-like basis* for the year of
£3.3m, up slightly on the equivalent result
of £3.2m from FY19. Revenue for the year
fell by 2.6% to £79.9m, due primarily to the
gradual closure of international schools
from the second half of February and the
closure of UK schools in mid-March. The
business continued to see encouraging
progress in delivering on its strategic
objectives to increase online sales and
improve its sourcing processes.
Change in accounting estimate
During the period, the Group refined its
impairment models to make use of more
up to date customer data that is more
reflective of current credit policies and
operational processes. The availability
of this more granular and up to date
information has enabled management to
refine its estimate in respect of the level
of impairment provision required and has
resulted in a reduction in the provision
required by £3.8m. Since this change is not
reflective of the underlying performance
of the receivables portfolio, it has been
excluded when arriving at adjusted
operating profit for Studio on a like-for-
like basis* to enable a fair and balanced
assessment of the business’ underlying
trading performance in FY20.
As noted above, the decision to sell the
business during the year means that its
segmental profit for the year is increased
by the cancellation of depreciation and
amortisation totalling £1.4m during
the second half of the year. This has
been added back in arriving at adjusted
operating profit on a like-for-like basis*
in order to enable comparability with the
results of prior periods and to allow a fair
assessment of the business’ underlying
trading performance. Individually
significant costs relating to the planned
disposal of £1.5m were incurred and
recorded against the discontinued
operation. It therefore reported a
statutory operating profit of £2.5m for
the year.
Studio Retail Group plc Annual Report 2020
15
Finance Review continued
Pensions
The net valuation of the Group’s legacy
defined benefit scheme at the end of
FY20, measured in accordance with IAS 19,
increased significantly from a small deficit
of £0.1m at March 2019 to a surplus of
£31.7m. The use of hedging within the
asset portfolio alongside a decision by the
trustees to de-risk the investment strategy
by reducing the holding of equities in
February 2020, before lockdown, was a
key cause of the improved position. There
were also favourable improvements to the
liability profile and the demographic profile
of scheme members.
The IAS 19 valuation has no bearing on the
contributions made by the Group to the
scheme, which is instead derived from the
triennial valuation of the scheme. The most
recent valuation measured as at April 2019
is currently in progress. In the meantime, as
previously agreed with the scheme’s trustees,
the Group made contributions totalling
£5.0m in respect of FY20 (FY19: £2.5m) and
will continue at this level for the time being.
As part of the agreement to sell Education,
the Group has agreed an alternative level of
contributions that will apply once the sale
has completed. The Group will pay £13m
into the scheme shortly after completion,
with the rate of annual contributions falling
from £5.0m to £3.75m backdated to the
start of FY21.
Taxation
The Group posted a credit of £0.2m in the
year in respect of taxation for continuing
operations, compared to a £5.7m charge
(restated**) seen in FY19. The decrease
was the result of the revaluation of the
group’s deferred tax assets (principally
relating to capital allowances) from 17% to
19%, and the valuation of the deferred tax
liability on the surplus in the group section
of the pension scheme at the prevailing
corporation tax rate of 19%, rather than
the 35% rate used in FY19.
Earnings per share
The adjusted earnings per share* for the
year from continuing operations was 12.10p
(FY19 restated**: 23.20p). The basic earnings
per share from continuing operations was
8.16p per share (FY19 restated**: 23.70p).
Impact of new accounting standards
IFRS 16 “Leases”
The Group adopted IFRS 16 for FY20 and has
decided to adopt the modified retrospective
transition approach. As such the standard’s
requirements have been applied only
from 30 March 2019, so there has been no
adjustment to opening reserves and the
comparative figures for FY19 have not been
restated.
Following the adoption of IFRS 16, lease
agreements now give rise to both a right
of use asset and a lease liability for future
lease payables. Whilst the new standard has
no effect on the cash payable or on the total
cost recognised over the course of a lease,
under IFRS 16 the lease cost will be higher in
the early years of the lease. The lease cost is
also now split between depreciation of the
right of use asset and interest on the lease
liability in the income statement. The new
standard does not impact on the Group’s
cash flows under lease arrangements
but there have been some changes to
presentation in the cash flow statement.
The impacts of adopting IFRS 16 on the
consolidated financial statements are set
out in note 1. The adoption of IFRS 16
has reduced profit before tax for the total
group* by £1.8m.
Summary balance sheet
2020
£000
2019
£000
24,952
Intangible fixed assets
9
Tangible fixed assets 80,007
45,511
Net working capital** 215,811 201,010
Net debt*
(292,924) (233,440)
—
Assets held for sale
5,487
Other net assets
35,886
36,592
Change
£000
(24,943)
34,496
14,801
(59,484)
35,886
31,105
Net assets
75,381
43,520
31,861
* This is an Alternative Performance Measure, for
which the reconciliation to the equivalent GAAP
measure can be found on pages 18 to 21.
** Net working capital comprises of inventories, trade
receivables and other receivables, trade and other
payables and provisions.
Consolidated net assets amounted to
£75.4m at the period end (FY19: £43.5m),
reflecting the net profit reported and the
actuarial remeasurements in respect of
the pension surplus. The net assets are
equivalent to 87p per ordinary share
(FY19: 50p per ordinary share).
Cash flow and borrowings
A part of management’s variable incentive
plans for FY20 related to the generation
of free cashflow, as defined in the table
below. Free cashflow generation was
£23.7m (FY19: £28.9m). After taking
account of interest and the net impact of
lease liabilities, including the adoption of
IFRS 16, the Group’s core net debt reduced
by £5.6m to £51.8m (FY19: £57.4m), as
summarised below.
13,610
2020
£000
Total group EBITDA** 41,097
Decrease/(increase)
in Studio’s receivables
net of securitisation
inflows
(Increase)/decrease
in other working
capital
Capital expenditure
Cash flows in respect
of individually
significant items
Pension scheme
contributions
Other
(6,615)
(14,822)
(4,792)
650
(5,390)
2019
£000
Change
£000
50,022
(8,925)
(6,926)
20,536
10,799
(11,545)
(17,414)
(3,277)
(11,983)
6,593
(2,500)
1,011
(2,292)
(361)
Adjusted free
cashflow*
Income tax
Net interest payable
Repayment of lease
liabilities
Movement in core
net debt
Opening core
net debt*
Closing core
net debt*
23,738
(3,717)
(8,495)
28,878
(1,931)
(10,017)
(5,140)
(1,786)
1,522
(5,966)
(571)
(5,395)
5,560
16,359
(10,799)
(57,397)
(73,756)
16,359
(51,837)
(57,397)
5,560
* This is an Alternative Performance Measure, for
which the reconciliation to the equivalent GAAP
measure can be found on pages 18 to 21.
** For further details on the calculation of total group
EBITDA please refer to note 3 to the consolidated
financial statements.
16
Studio Retail Group plc Annual Report 2020
Total net debt* at the year-end was as
follows:
2020
£000
2019
£000
Change
£000
External bank
borrowings
(excluding
securitisation facility) 85,000
(33,163)
Less total cash
Core net debt*
Securitisation
drawings
Lease liabilities
Net debt*
51,837
43,496
95,000
(37,603)
(10,000)
4,440
57,397
(5,560)
197,591 175,545
498
292,924 233,440
22,046
42,998
59,484
* This is an Alternative Performance Measure, for
which the reconciliation to the equivalent GAAP
measure can be found on pages 18 to 21.
The Group’s revolving credit facility was
amended during the year with the available
level of facilities now scheduled to be £85m
until the end of December 2020, before
reducing to £70m until its new maturity date
of 31 December 2021. The securitisation
facility was restructured during the year
with its maximum available amount
increasing from £185m to £200m to cater
for the continued growth in Studio’s trade
receivables. Its maturity date was also
extended to 31 December 2022.
Dividends and capital structure
The Group restructured its Asian sourcing
operations during 2018, moving away from
its Hong Kong based subsidiary to a new
Shanghai based entity. The affairs of the
Hong Kong entity are in the process of being
wound up and the Company received a first
and final dividend of £15.0m (HKD150.5m)
during the period (FY19: £nil).
No other dividends were received by the
Company from its subsidiaries during the
period and its balance sheet as at 27 March
2020 shows a deficiency of £73.3m on
its retained reserves (FY19: deficiency of
£99.9m).
Studio Retail Group plc is therefore not
yet in a position to declare a dividend
and does not have plans to reinstate
dividend payments in the near future
since it continues to prioritise investment
in growing its customer base, improving
digital capabilities, and in strengthening
its financial position in light of the broader
economic environment. The directors have
determined that no interim dividend will be
paid (FY19: £nil) and are not recommending
the payment of a final dividend (FY19: £nil).
Treasury and risk management
The Group’s central treasury function
seeks to reduce or eliminate exposure to
foreign exchange, interest rate and other
financial risks, to ensure sufficient liquidity
is available to meet foreseeable needs and
to invest cash assets safely and profitably. It
does not engage in speculative transactions
and transacts only in relation to underlying
business requirements in accordance with
approved policies.
Interest rate risk management
The Group’s interest rate exposure
is managed by the use of derivative
arrangements as appropriate, details of
which are set out in note 19 to the financial
statements. The Group has purchased
interest rate caps covering the period to
July 2021 to protect against the risk of
unforeseen increases to LIBOR rates.
Finance costs for the year for the total
group were £11.0m*, of which £2.3m related
to the introduction of IFRS 16 (split £1.8m
within continuing operations and £0.5m in
discontinued operations). Net finance costs*
of £8.7m are down slightly from the £9.7m
seen in FY19 due primarily to a refund
of £0.6m in respect of historic overpaid
interest from one of the group’s bankers,
together with a reduction in the borrowing
margin and lower pension scheme interest.
This underlying charge was covered
4.6 times by adjusted operating profit on a
like-for-like basis* (FY19: 4.0 times).
Currency risk management
A significant proportion of the products
sold, principally through Studio, are
procured through the Group’s Far-East
buying operations and beyond. The
currency of purchase for these goods is
principally the US dollar.
The Group’s hedging policy aims to cover
anticipated future exposures on a rolling
12-month basis. As at the balance sheet
date, the Group had forward contracts with
an outstanding principal of $91m (FY19:
$93m) and an average rate of £1/$1.286
(FY19: $1.326). The market value and
unrealised loss on those contracts as at the
balance sheet date, less the reversal of the
equivalent valuation as at the end of March
2019, was a gain of £2.6m (FY19: £4.8m).
This is presented separately on the Income
Statement as it represents an element of
product costs to be realised in FY21 as the
contracts unwind. The Group currently
has forward contracts in place with an
outstanding principal of $82.5m covering
the period to July 2021.
In addition to this direct exposure, the
divisions face a significant level of indirect
exposure from supplies made by UK
suppliers who in turn source goods from
overseas. That risk is normally mitigated
through a combination of supplier
agreements and fixed term pricing,
although from time to time there may be a
requirement to increase prices to customers
to maintain margins.
Borrowing and counterparty risk
The Group’s exposure to borrowing and
cash investment risk is managed by dealing
only with banks and financial institutions
with strong credit ratings.
* This is an Alternative Performance Measure, for
which the reconciliation to the equivalent GAAP
measure can be found on pages to 18 to 21.
Studio Retail Group plc Annual Report 2020
17
Alternative Performance Measures
•
The directors use several Alternative
Performance Measures (“APMs”) that are
considered to provide useful information
about the performance and underlying
trends facing the Group. As these APMs
are not defined by IFRS, they may not be
comparable with APMs shown in other
companies’ accounts. They are not intended
to be a replacement for, or be superior to,
IFRS measures.
The £20m estimated impact of Covid-19
on the impairment charge in Studio has
been excluded in reaching like-for-like
adjusted operating profit and profit
before tax to enable comparability
with the results of prior periods and
to allow a fair (although estimated)
assessment of the business’ underlying
trading performance prior to Covid-19.
Further details can be found in the
Finance Review.
•
• During the period, the Group refined
The principal APMs used in this Annual
Report are set out below.
Adjusted operating profit and adjusted
profit before tax on a like-for-like basis
These measures are used by management
to assess the underlying trading
performance of the Group from period to
period.
In both the current and prior period, the
following items have been excluded in
arriving at these measures:
•
•
Individually significant items are, due to
their nature or scale, not reflective of the
underlying performance of the Group.
The directors believe that presenting
these items separately aids year on year
comparability of performance.
The Group’s foreign exchange hedging
policy means that there will be
unrealised fair value gains or losses
at the period end relating to contracts
intended for future periods. Those
fair value movements are therefore
excluded from the underlying
performance of the Group until realised.
•
In the current period, owing to the impact
of Covid-19, the ongoing disposal process
in respect of Education and the adoption of
IFRS 16 Leases (“IFRS 16), further items have
been adjusted for to ensure the figures are
presented on a consistent basis:
its impairment models to make use of
more up to date customer data that
is more reflective of current credit
policies and operational processes.
The availability of this more granular
and up to date information has
enabled management to refine its
estimate in respect of the level of
impairment provision required and has
resulted in reduction in the provision
required by £3.8m. Since this change
is not reflective of the underlying
performance of the receivables
portfolio, it has been excluded when
arriving at like-for-like adjusted
operating profit and profit before tax
to enable to allow a fair and balanced
assessment of the business’ underlying
trading performance in FY20.
IFRS 16 was adopted for the first time in
FY20 using the modified retrospective
adoption approach. In effect, this means
that the FY20 income statement is
presented on an IFRS 16 basis, whilst the
FY19 comparative is still stated based
on the requirements of IAS 17 Leases
(“IAS 17”). In order to allow for a like-for-
like comparison, and to present results
on a consistent basis with that used to
formulate market consensus, the impact
of IFRS 16 has been excluded in reaching
like-for-like adjusted operating profit
and profit before tax.
IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations (“IFRS 5”).
Since the Group was engaged in an
active sale process at 27 September
2019, Education met the criteria to
classified as held for sale from half-
year onwards. As a result, Education’s
FY20 results are presented separately
in a single, post-tax “result from
discontinued operation” line in the
income statement. In addition, the
amortisation of intangible assets
relating to Education, which arise
upon consolidation, and are normally
disclosed within Central costs, are
included within the result from
discontinued operation. IFRS 5 also
requires that no depreciation or
amortisation be recorded against
Education once it is classified as
held for sale. As such, depreciation
and amortisation charged in H2 for
comparability, has been reversed.
In order to make the presentation
of results fair, balanced and
understandable, and since Education
has been run as an active part of the
Group throughout FY20, all IFRS 5
adjustments have been reversed when
arriving at the like-for-like adjusted
operating profit and profit before tax.
These figures therefore present the
Group’s results as they would have been
presented had the Group not been
engaged in a sale process (i.e. a whole-
group measure).
The adjusted and like-for-like figures are
derived as follows:
18
Studio Retail Group plc Annual Report 2020
Studio
Central
Adjusted operating profit from continuing operations
Education
Adjusted operating profit from total group
Net finance costs from total group†
Adjusted profit before tax
MTM on derivatives
Individually significant items
Profit before tax
Tax
Profit after tax
As
reported
£000
22,726
(1,235)
21,491
4,050
25,541
(10,998)
14,543
2,608
(8,342)
8,809
(54)
8,755
Exclude
Exclude
IFRS 5
IFRS 16 reallocation
£000
£000
Reinstate
H2 Depn
(IFRS 5)
£000
—
—
—
(1,393)
(1,393)
—
(55)
(15)
(70)
(490)
(560)
2,319
1,759
—
—
1,759
—
(1,120)
(1,120)
1,120
—
—
—
—
—
—
2020
2019
Exclude
estimated
COVID-19
bad debt
impact
£000
20,000
—
20,000
—
Exclude
change in
bad debt
estimate
£000
Like-
for-like
basis
£000
Reported
figures
£000
(3,675)
—
38,996
(2,370)
(3,675)
36,626
—
3,287
20,000
(3,675)
39,913
—
—
(8,679)
(1,393)
20,000
(3,675)
31,234
—
—
—
—
—
—
2,608
(8,342)
(1,393)
20,000
(3,675)
25,500
39,448
(4,248)
35,200
3,217
38,417
(9,656)
28,761
4,750
(4,158)
29,353
(6,064)
23,289
† Like-for-like net finance costs for the total group excludes the net impact of IFRS 16.
Adjusted profit before tax on a like-for-
like basis from continuing operations
Continuing operations
Adjusted profit before tax on
a like-for-like basis
Individually significant items
MTM on derivatives
Impact of IFRS 16 adoption
Estimated impact of COVID-19
on impairment charge
Change in accounting estimate
Profit before tax
2020
£000
2019
£000
27,395
(6,807)
2,608
(70)
25,582
(4,158)
4,750
—
(20,000)
3,675
—
—
6,801
26,174
Revenue, EBITDA before individually
significant items, adjusted operating
profit, finance costs, and adjusted profit
before tax from total group
The calculation of revenue, EBITDA before
individually significant items, adjusted
operating profit, finance costs, and adjusted
profit before tax from total group includes
continuing and discontinued operations
and is set out in note 3 to the consolidated
financial statements.
Adjusted operating profit margin %
This is used a measure of the adjusted
operating profit made by the Group as a
whole. It is derived as follows:
Total Group revenue
including discontinued
operation
Adjusted operating profit
on like-for-like basis
Adjusted operating
profit margin on a
like-for-like basis
2020
2019
(Restated)*
£000
£000
514,834 503,734
39,913
38,417
7.8%
7.6%
* Balances have been restated as set out in note 1
to the financial statements.
Studio Product Gross Margin %
This is used a measure of the gross profit
made by Studio on the sale of products only,
which shows progress against one of Studio’s
strategic pillars. It is derived as follows:
2020
2019
(Restated)*
£000
£000
Product revenue
Less product cost of sales
311,697 304,176
(208,924) (202,435)
Gross product margin
102,773 101,741
Gross product gross margin %
33.0%
33.4%
* Balances have been restated as set out in note 1
to the financial statements.
Studio underlying impairment loss as
a % of revenue
This is an assessment of the underlying
impairment loss incurred in respect of
Studio’s trade receivables, which enables
management to assess the quality and
performance of its trade receivables from
period to period. The estimated impact of
COVID-19 and the change in accounting
estimate (detailed above) are excluded
from the reported impairment loss when
calculating this measure, as they are not
reflective of the underlying performance of
the receivables portfolio.
Studio Retail Group plc Annual Report 2020
19
Alternative Performance Measures continued
2020
2019
(Restated)*
£000
£000
Reported impairment loss
53,930
36,623
Exclude estimated impact of
COVID-19
Exclude change in accounting
estimate
Underlying impairment loss
Studio total revenue
(20,000)
—
3,675
37,605
—
36,623
434,894 421,653
Core net debt
This measure excludes lease liabilities and
securitisation borrowings from net debt to
show borrowings under the revolving credit
facility net of cash held by the Group. This is
our preferred measure of the indebtedness
of the Group and is relevant for covenant
purposes.
Adjusted free cash flow generation
Free cash flow generation is a key
operational metric and is of interest to
investors. Consequently, it formed part
of the remuneration targets for the
Executive Directors.
Adjusted free cash flow is reconciled to
cash generated by operations as follows:
Studio underlying impairment
loss as a % of revenue
8.6%
8.7%
It is calculated as follows:
Net Debt
Lease liabilities*
Less securitisation
borrowings**
Core net debt*
2020
£000
2019
£000
292,924 233,440
(498)
(43,496)
(197,591) (175,545)
51,837
57,397
* 2020 figures reflect the requirements of IFRS 16.
** Disclosed within bank loans.
Debt funding consumer receivables
The majority of the trade receivables of
Studio are eligible to be funded in part from
the securitisation facility, with the remainder
being funded from core net debt. This
measure indicates the face value of those
trade receivables (before any impairment
provision) capable of being funded from
the securitisation facility. It is useful to
management as it demonstrates the
proportion of net debt that is supported by
paying customer receivables.
It is calculated as follows:
Funded from securitisation
loans
Funded from cash and bank
Eligible receivables
Securitisation %
2020
£000
2019
£000
197,591 175,545
64,075
65,864
263,455 239,620
75%
73%
* Balances have been restated as set out in note 1
to the financial statements.
Studio marketing costs to sales ratio
This measure allows management to assess
the efficiency of our marketing spend as we
pursue our stated strategy of increasing the
profile of the Studio brand. It is calculated
by dividing marketing costs by product
revenue.
Marketing costs
Product revenue
2020
2019
(Restated)*
£000
£000
31,661
31,693
311,697 304,176
Marketing costs to sales ratio
10.2%
10.4%
* Balances have been restated as set out in note 1
to the financial statements.
Overall net debt
This measure takes account of total
borrowings less cash held by the Group
and represents our total indebtedness.
Management use this measure for
assessing overall gearing.
It is calculated as follows:
Total bank loans
Lease liabilities*
Less cash and
cash equivalents
Overall net debt*
Exclude impact of IFRS 16
adoption
Overall net debt on a
like-for-like basis
2020
£000
2019
£000
282,591 270,545
498
43,496
(33,163)
(37,603)
292,924 233,440
(42,902)
—
250,022 233,440
* 2020 figures reflect the requirements of IFRS 16.
Adjusted free cash flow
generation
Securitisation loans drawn
Purchases of property plant
and equipment and software
Other
Cash generated from
operating activities before
interest and tax paid
2020
£000
2019
£000
23,738
(22,046)
28,878
(18,041)
14,822
—
11,545
(26)
16,514
22,356
Adjusted earnings per share
This measure shows the earnings per share
given when individually significant items
and fair value movements on derivative
financial instruments are excluded from the
profit after tax figure. Details of how the
adjusted earnings per share are calculated
can be found in note 10 to the consolidated
financial statements.
Underlying effective tax rate
This measure shows the Group’s effective
tax rate when the tax impact of individually
significant items and other non-recurring
items are adjusted for. This measure allows
management to assess underlying trends
in the Group’s tax rate. It is calculated as
follows:
Tax credit/(charge)
Exclude tax impact of
individually significant items
Exclude impact of change in
corporation tax rate on deferred
tax assets and liabilities
Adjusted tax charge
Profit before tax and
individually significant
items
2020
£000
2019
£000
241
(5,715)
(1,293)
(741)
(1,427)
—
(2,479)
(6,456)
13,608
30,332
Underlying effective tax rate
18.2%
21.3%
20
Studio Retail Group plc Annual Report 2020
APPROVE D 2 0 2
0
Principal Risks and Uncertainties
Risk
Root cause
Key mitigating controls
Pressures on the levels of disposable
income available to lower socio-
economic groups, who form a core
part of Studio’s customer base.
The economic outlook is uncertain,
particularly in relation to the impact
of Covid-19, Brexit and more broadly
changes in unemployment, interest
rates and inflation and wage restraint.
Growth in credit income could slow
within the financial services business
of Studio.
Regulatory changes impacting
customer acquisition and credit limit
management; and our strategy to
put the customer at the heart of
the business by balancing financial
performance and customer conduct
risks.
Potential disruption to our business
support systems and the storage
and protection of our customers’
data.
The business remains highly
dependent upon legacy systems both
in the support of running the business
on a daily basis and the storage and
protection of customer data.
The combination of increasing cyber
activity, fraud rings and the level
of change being deployed in the
business makes this an area of higher
potential risk.
The expansion of our digital activity
and a shift in customer acquisition
strategy has broadened the overall
customer footprint and reduced our
dependency on older, lower socio-
economic customer segments.
Successful implementation of our
strategies to recruit and retain
customers, thereby increasing our
customer base, will dilute this impact.
Management information tools,
alongside Studio’s governance
framework, identify trends within
the receivables portfolio enabling
strategic changes to be proposed and
implemented promptly.
Studio has reviewed its integrated
model of retail and financial services
in terms of both customer conduct
risk and financial performance and
developed a business plan on this
basis. The review included stress
testing various scenarios.
These factors will require an
evolutionary change in our business
model placing a greater requirement
on the profitability arising from the
retail side of Studio. The plans set out
in this Strategic Report reflect this.
Resilience testing and recovery plans
are in place.
The business has continued to invest
to update its technology solutions as
it seeks to lower its dependency on
legacy systems.
Notable examples include the
enhancement in website capabilities
at Education and the development of
the Financier platform at Studio.
In addition, an enhanced fraud
solution accompanied by improved
operational practices within Studio’s
customer and financial services
departments are being deployed.
22
Studio Retail Group plc Annual Report 2020
Risk
Root cause
Key mitigating controls
Execution and liquidity risks from
a substantial multi-year plan of
transformation and growth at Studio.
Funding growth within our integrated
retail and credit business model
is dependent on the continued
availability of debt facilities.
Appropriate facilities are in place
for the medium term and regular
and rigorous viability exercises are
undertaken.
Any weakness in project and change
management in the delivery of key
priorities.
Fiscal controls, including business
forecasting in support of stock and
cash flow management.
High level of demand on planning
and resource management to ensure
timely and on budget delivery.
Attracting and retaining the right
talent in the business, particularly in
the highly competitive areas of digital
marketing, IT development and cyber
security, to support the deployment of
our high growth digital strategy.
Limited available experienced staff in
key business and technical areas and
high demand for those people.
A material interruption to the product
supply chain could reduce the level of
retail trading.
Any inability to operate from one of
our key warehouse facilities centres.
Brexit could lead to new barriers to
trade with some overseas countries.
In particular, Studio imports a
relatively high proportion of its retail
products from China, either sourced
directly or indirectly. A further rise
in geopolitical tensions with China
could lead to legislative or economic
barriers to trade being introduced.
While Studio has a number of
warehouse facilities, there is a high
dependency on its main facility in
Accrington.
The consolidation of Education’s
warehousing into its facility at
Nottingham has concentrated its
fulfilment activities into a single
location that could also potentially
become a point of failure risk.
A Change Board has been established
to scrutinise, prioritise and
oversee resourcing and delivery of
transformation projects.
We are adopting an enhanced process
of integrated cash management
to meet the demands of (i) change
and capital deployment within
the business; alongside (ii) daily
operational requirements.
Significant progress has been made
in attracting new talent to the
business resulting in the renewal
of the senior management teams
throughout the Group.
Developing the business as a regional
employer of choice is a key objective
and as such, enhanced personnel
frameworks and reward strategies are
being developed.
Studio’s Shanghai sourcing office is
actively seeking to widen the number
of countries that it sources products
from, whilst retaining appropriate
quality standards.
Appropriate disaster recovery plans
have been developed and are
periodically reviewed and upgraded.
Studio Retail Group plc Annual Report 2020
23
Our people, our products, community
and the environment
Stakeholder Engagement and Gender
Diversity
Directors’ section 172 statement
Section 172 of the Companies Act 2006
sets out the directors’ duty to promote the
success of the Company for the benefit of
shareholders as a whole, having regard
to a number of broader matters including
the likely consequence of decisions for
the long term, the need to act fairly
between members of the Company, and
the Company’s wider relationships. The
approach required is sometimes referred
to as ‘enlightened shareholder value’.
For periods commencing after 1 January
2019, the strategic report must include a
statement explaining how the directors have
had regard to the matters in section 172 in
performing their duties.
Purpose and Business Model
The purpose of the Company is to search
for value products for our customers and
help them spread the cost with flexible
payment options. A secondary purpose, for
so long as the Findel Education business
remains part of the Group, is to save
schools time and money.
Our business model is based on a central
holding company with separate operational
subsidiary boards and management
structures for each of the Group’s businesses.
At Studio Retail Group plc, we operate with
a slim plc executive team with a high degree
of delegation to our business management
teams and corporate bodies. The plc team
covers group finance, tax and treasury;
internal audit; legal services for the Group;
executive oversight; and plc and subsidiary
governance matters. The key deliverables
of the plc team are capital and resource
allocation, leadership and oversight, and
shared service provision.
Studio is becoming a leading digital value
retailer with a broad product offer of
clothing and footwear alongside home and
electrical products plus the more seasonal
ranges, many of which can be personalised
for free. Underpinning all this, is the drive
to amaze our customers with value and
provide them with a range of payment
options, including our flexible credit facility.
Our ambition is to increase the customer
base to over 3 million and achieve over
£1 billion of revenue.
Studio Retail Ltd is a regulated entity
for consumer credit purposes. The
Studio Retail Ltd board performs a
strategic and oversight function and is
chaired by the Group CEO with the other
members being the Group CFO, the
Group Secretary (providing the link up
to the plc board), and the Studio MD. An
Executive board led by the Studio MD is
primarily responsible for the day to day
implementation of strategy.
Key elements of the integrated retail and
credit business model include:
• An intimate appreciation of and insight
into our target customers’ needs and
aspirations.
•
Sourcing of great value goods selected
to satisfy those needs and aspirations,
including through our Far East Sourcing
operations.
• Both general brand awareness
activity (e.g.TV ads) and specifically
tailored digital marketing to our target
demographics.
• But understanding that for the
foreseeable future the role of printed
catalogues and marketing materials will
continue to have a role to play alongside
the digital marketing.
•
Financial Services operations with an FS
Director and subject experts in areas
such as the Credit Function to enable
customers to spread the cost of their
purchases.
• A digital approach to business including
but not limited to customer interface
and transactions.
• All supported by a mix of internal and
external customer service centres.
• A second line function covering
compliance, risk management, QA and
DPO.
Findel Education Ltd is a leading supplier of
resources/equipment to schools in the UK
and overseas and its governance structure
effectively mirrors that at Studio Retail Ltd.
Its business model is predicated on sector
leading resourcing of value, own label and
branded products aligned to an intimate
understanding of the educational resource
market – to save schools money; and sector
leading web sites and software ordering
systems – to save schools time.
Culture and Values
The Board has approved a clear statement
of our Studio values which describe our
desired culture. These values came through
customer research and by involving 700
colleagues across the business. We put the
Customer at the Heart of everything we do
by demonstrating the following values in
everything we do:
24
Studio Retail Group plc Annual Report 2020
#Inclusive – the broad product range has
wide customer appeal, and the flexible
payment option opens up our retail offer
to customers who may prefer to spread the
cost of purchases. To deliver this we act as
one team, with no departmental silos.
#Trusted – customers have to be able to
trust us to deliver the value and quality
they expect, to deliver for those important
family moments, like Christmas, and
also that we make responsible decisions
when we lend money. We do this by
being positive and delivering against
our promises.
#Amazing – we amaze customers with
our value and product range, along with
targeted offers and service. To do this we
are innovative, think big and are creative.
#Savvy – for customers, shopping with
Studio is clever – with its great range and
value, there is no reason to buy elsewhere.
For colleagues it means we are commercial,
we hunt for great value and use the tools
available to be even better at our jobs and
deliver for our customers.
We are also developing a risk culture
under which all our colleagues understand
and work within acceptable levels of risk
in carrying out their roles; know how
and when to escalate risk issues; and
feel comfortable doing so – and where
management are consistently proactive in
identifying, assessing and mitigating risk
within the business and support the board
in setting appropriate risk appetites.
Our Key Relationships
The Board has identified the following
stakeholders as having the key
relationships in supporting the Board
achieve its long-term objectives.
Customers
We have the customer as the core focus
of our strategy, understanding what it is
that our customers need and want and
seeking to satisfy those requirements and
delighting our customers with the quality
and value of our products and service. This
focus was a strong theme throughout the
Board’s review of strategy during the year,
including periodic presentations from the
Studio Retail Marketing & E-commerce
Director on feedback from customer
surveys, focus groups and other market
information. As part of this focus, the
governance, resourcing and awareness
needs of the business to avoid customer
detriment were a key feature of the Board’s
discussions during the year, with regular
updates being presented by financial
services executives from Studio Retail Ltd.
In line with the priorities of our financial
services regulator, the FCA, recurring
features of those discussions have been
to review current and proposed business
initiatives against our need to promote
affordable lending, avoid persistent debt
and deal appropriately with vulnerable
customers. And the KPIs reported to and
discussed by the Board include measures
tracking performance against expected
customer service levels.
Colleagues (Employees)
Elaine O’Donnell is the Board’s nominated
director for colleague engagement and her
activities during the year are set out in the
Directors Report on page 33. She reports
periodically to the Board on these matters.
In addition, the Remuneration Committee
receives a report from management
twice per year regarding remuneration,
benefits and terms and conditions of
employment across the Group and this
is taken into account by that committee
when considering executive remuneration
matters. The Board also receives regular
reports regarding health & safety
performance and compliance activities.
Suppliers
The respective MDs of Studio Retail
Ltd and Findel Education Ltd include
in their monthly reports to the Board,
KPIs and commentary regarding buying
and merchandising and relationships
with key suppliers. During the year,
payment practices have been the subject
of discussion at the board table when
considering cash flow projections and
funding requirements. Increasingly,
Studio is seeking to pass on our values
through our supply chain and to develop
clearer approaches to ethical sourcing
and this is supported by the Board and
in particular in the deliberations of its
Risk Committee.
Studio Retail Group plc Annual Report 2020
25
Our people, our products, community
and the environment continued
Banks
Relationships with our group of banks is
managed on behalf of the Board by the
CFO, who holds regular discussions with
the key lenders and also reports regularly
to the Board on these matters. The Group’s
revolving credit facility was amended during
the year with a new maturity date of 31
December 2021. The securitisation facility
was also restructured during the year to
cater for the continued growth in Studio’s
trade receivables and its maturity date
was also extended to 31 December 2022.
These facility amendments/extensions
speak to the good working relationships we
have with our banks. Further details of the
facilities can be found in the Finance Review
on pages 14 to 17.
Pension Trustees
The CFO and the Secretary manage the
relationship with the trustees of the closed
defined benefit pension fund and report
to the Board on these matters, where
appropriate with the support of external
advisers. FY2019/20 saw a particularly
intense period of interaction with the
trustees given the interplay of the triennial
valuation and the sale of the Findel
Education business, The Board considered
these issues during our third quarter leading
to a commitment to allocate £13m of the
net proceeds of sale towards reducing the
pension scheme deficit, whilst agreeing to
defer the finalisation of the valuation until
completion of the sale transaction.
Regulators
The Company and its subsidiaries are
overseen by several regulators, including
the FCA (both as the UK Listing Authority
and as a financial services regulator), HMRC,
the ICO and the HSE, amongst others.
Appropriate levels of executive management
are responsible for these relationships
and the Board receives regular updates on
interactions with these key regulators via
the executive directors and the Secretary.
The Board requires management to be
transparent and cooperative with all its
regulators.
During FY2019/20 the oversight of Studio
Retail Ltd’s response to the first phase of the
introduction of the FCA’s Senior Managers &
Certification Regime to solo regulated firms
such as Studio was an important feature
of the Board’s work. The Board received
and discussed with management regular
updates on the progress of the compliance
project. That work is continuing through
2020/21 as the certification and conduct
rules are introduced in the second stage of
implementation.
As stated in the Finance Review and in
the Directors’ Report, the Board is not
recommending the payment of a dividend
at the present time. Studio Retail Group
plc is not yet in a position to declare a
dividend and does not have plans to
reinstate dividend payments at this stage
since it continues to prioritise investment
in growing its customer base, improving
digital capabilities, and in strengthening
its financial position in light of the broader
economic environment.
The Community
This covers our relationships with
wider society, whether local, national
or international. Our activities on local
sponsorships, apprenticeships, charitable
work, energy efficiency and waste package
initiatives and our carbon footprint and
other environmental matters are all reported
in our CSR Report on pages 73 to 78.
Shareholders
Shareholders are the ultimate beneficiaries
of the output (increased shareholder value)
from our success in delivering on our
strategy.
In Fraser Group plc the Company has a
controlling shareholder for the purposes of
the UK Listing Rules (holding more than 30%
of the Company’s shares) and the Board
has entered into a relationship agreement
with Fraser Group as required under those
Listing Rules, which is intended to protect
the interests of other shareholders. The
Board has also arranged for Fraser Group
to appoint a Board Observer to attend
our Board meetings (although he has not
attended such meetings since January 2020)
alongside a non-disclosure agreement
to protect the Company’s confidential
information.
Further details regarding the Board’s
relationships with shareholders can be
found in the Corporate Governance Report
on pages 35 to 38.
Corporate Social Responsibility Report
Our Corporate Social Responsibility Report
is set out on pages 73 to 78 and covers the
following principal areas:
•
•
•
•
examples of initiatives in place within
the Group’s businesses to support and
develop our employees;
an outline of the structures in place and
examples of activities during the period
to manage the health and safety risks
inherent in the Group’s activities:
the Group’s approach to product safety
and sourcing;
the impact of the Group’s activities on
the environment, measures we take
to mitigate those impacts and our
environmental performance over the
period; and
•
examples of the social and community
related activities around the Group.
Gender Diversity and Pay Gap Reporting
Each of our operating subsidiaries, Studio
Retail Ltd and Findel Education Ltd, has
reported the required data on Gender
Pay Gaps on the Government website and
have also included those details within a
longer narrative report on their respective
websites (www.studioretail.co.uk and
www.findel-education.co.uk). In accordance
with the regulations Studio Retail and
Findel Education will continue to calculate
and publish these numbers annually.
26
Studio Retail Group plc Annual Report 2020
Although not required under the reporting
regime we have compiled a consolidated
view of all UK employees within the group
including the small head office team of less
than 20 employees. In reading the results
set out below it is important to remember
the difference between gender pay and
equal pay. Gender pay gap measures the
difference in average male and female pay
across the whole business on 5 April each
year. Equal pay is a longstanding set of
regulations which ensures that men and
women are paid equally and fairly for doing
the same work. As a result, a difference in
the gender pay gap does not mean that we
are rewarding people unfairly or treating
people unequally.
And, by way of explanation, in the table
below a positive number means that pay is
in favour of men whilst a negative means
that pay is in favour of women.
Consolidated
Studio Retail Group
2018
2017
2019
17.5%
9.8%
13.5%
-0.1%
-0.4%
-0.1%
39.7%
55.3%
80.2%
62.5%
65.1%
24.9%
We are pleased to be able to continue to
report no significant median gender pay
gap across the group as a whole, but we
have work to do around the mean gender
pay gap, which has seen an increase this
year. Different parts of our organisation
face differing challenges resulting from their
respective workforce profiles. However,
taking the group picture as a whole, our
workforce remains well balanced with
51% of our workforce being male and
49% female. A higher proportion of male
colleagues are in both the lower and upper
quartiles, and whilst we have more women
in the lower and upper middle quartiles, it
is the upper quartile that drives our mean
gender pay gap.
Our management teams continue to
develop a range of strategies to seek to
address our gender pay gap but the issue
is a complex one and reaching parity is a
long-term challenge for most businesses,
including Studio Retail Group. These
strategies will be specifically tailored to the
different challenges faced in each area of
our business, but some examples which will
feature in appropriate areas include:
• Reviews of our organisational design
to reinforce our corporate culture and
values.
Our aim, across the business, is to ensure
that we reward our people based on the
role they are asked to perform and their
performance in that role. Progression
opportunities will be open to all regardless
of any personal characteristics or personal
working pattern. Furthermore, we will
continue to review our reward policies and
their application to ensure they are based
on personal merit and that the potential for
any bias is removed.
Finally, we have maintained our boardroom
diversity with 2 female members on the
Board throughout the financial year.
Following Bill Grimsey’s retirement from
the Board in July 2019, and Paul Kendrick’s
appointment to the Board in December
2019, we have 25% female representation
on the Board.
This Strategic Report is approved on behalf
of the Board.
Ian Burke
Chairman
Phil Maudsley
Chief Executive Officer
22 August 2020
Hourly Pay & Bonus
Summary
Mean Gender
Pay Gap
Median Gender
Pay Gap
Mean Bonus
Gender Pay Gap
Median Bonus
Gender Pay Gap
Proportion of
Males with a bonus
Proportion of
Females with a bonus
Gender Split
Females
Males
Quartile Summary
Lower
Lower Middle
Upper Middle
Upper
3.1%
1.6%
5.1%
• Recruitment processes: whilst we
5.1%
4.0%
7.1%
Combined
Consolidated
Studio
Retail Group
759
790
(49%)
(51%)
Combined
Consolidated
Studio
Retail Group
Men Women
59.4%
42.9%
46.8%
54.9%
40.6%
57.1%
53.2%
45.1%
will always look to employ the best
person for the job based on their skills
and experience, we will broaden our
attraction methods to improve the
number of applications received from
women at senior levels.
• Continual training, development and
progression planning across our
workforce to help raise aspirations and
challenge gender stereotypes.
•
•
Steps to identify and remove
unconscious bias.
“Returnships” – the targeting of
recruitment activities at those who are
looking to return to work after career
breaks and provision of appropriate
workplace support.
•
Seeking to become more agile in our
working arrangements.
Studio Retail Group plc Annual Report 2020
27
Contents
2
Governance
29
30
35
39
66
67
71
73
79
Directors and Officers
Directors’ Report
Corporate Governance Report
Board Report on Directors’
Remuneration
Nomination Committee Report
Audit Committee Report
Risk Committee Report
Corporate Social Responsibility
Report
Statement of Directors’
Responsibilities
80
Independent Auditor’s Report
Directors, Officers, Statutory Information
and Board of Directors
Mr M I Burke (a)
Chairman
Mr P B Maudsley
Chief Executive Officer
Mr S M Caldwell
Chief Financial Officer
Ian Burke joined the Board on
12 January 2017. He has spent the
majority of his career in the leisure
industry most recently as Chairman
of The Rank Group, having previously
overseen the growth of that business
as Chief Executive. He is also
Chairman of Pets at Home Group
plc. Until recently he was a non-
executive director of Intu Properties
plc and previously served as Chief
Executive of Thistle Hotels and
Managing Director at both Holiday Inn
Worldwide and Gala Clubs.
Phil Maudsley joined the Group
in 1987 as general manager of
a manufacturing subsidiary. He
became managing director of the
Home Shopping Division in 1994
and was appointed to the Board
on 6 April 2004. He was appointed
Managing Director of Express Gifts
in 2010 before being appointed as
Group Chief Executive Officer in
April 2017.
Stuart Caldwell joined the group
finance team in October 2010 and
held the post of Acting CFO from
April 2017 before his appointment
to the Board on 13 July 2017. He is
a qualified Chartered Accountant
and a fellow of the Association
of Corporate Treasurers. After
qualifying within the profession,
he held a number of roles with
Provident Financial plc before moving
to Studio Retail Group.
Mr P R Kendrick
Managing Director, Studio Retail Ltd
Paul Kendrick was appointed to
the Board on 16 December 2019.
He joined the Group in May 2016
initially as Commercial and Deputy
Managing Director of Studio Retail
Ltd before being promoted to his
current role in April 2017. Prior to
joining Studio, he was Marketing and
Ecommerce Director at Bonmarche,
and held various roles at N Brown
Group including leading Marketing,
Financial Services, International and
Group Development functions. Much
of Paul’s early career was spent
within the travel industry, at both
Thomson (now Tui) Travel and The
Co-operative Group.
Mr G F Ball (a) (b) (c) (d)
Senior Independent Director
Ms C V Askem (a) (b) (d)
Non-Executive Director
Mr F-R M Coumau (a) (c) (d)
Non-Executive Director
Ms E M O’Donnell (a) (b) (c) (d)
Non-Executive Director
Greg Ball was appointed to the Board
on 23 February 2016. He has held
a number of executive and non-
executive roles in retail and regulated
financial services, including senior
positions at Home Retail Group
plc and Littlewoods Organisation
plc. He is currently a non-executive
director of Ageas UK, chairman of
Ingelby (2016) Ltd, trading as Panther
Logistics and of Asset Solutions
Group. He is also a director of GF Ball
Consultancy Ltd.
Clare Askem was appointed to the
Board on 21 March 2019. She was
until recently Managing Director of
Habitat within the Sainsbury’s group
of companies, having previously
held numerous senior management
positions at PC World, Dixons
Retail plc and Home Retail Group/
Sainsbury’s.
Francois Coumau was appointed to
the Board on 12 August 2013. He was
previously Group Managing Director
at Immediate Media Company
Limited having also held a series of
senior roles at eBay, most recently
as General Manager for Continental
Europe. Prior to this, his career
included senior roles at L’Oreal
and Mars. He is also non-executive
chairman of Story Terrace as well as
a consultant and coach for a number
of early stage businesses in the
digital consumer space.
Elaine O’Donnell was appointed to
the Board on 1st February 2018.
She is a former Partner at EY with
over 20 years’ experience operating
in a senior advisory capacity
across a range of industry sectors
and situations. She is currently a
non-executive director at Games
Workshop Group plc and On The
Beach plc. Elaine was also formerly
a non-executive Director at The
Manufacturing Institute, a charity
focused on promoting and improving
manufacturing in the UK and MSIF,
a not for profit organisation offering
business funding in the North West.
(a) Member of the Nomination Committee
(b) Member of the Audit Committee
(c) Member of the Risk Committee
(d) Member of the Remuneration Committee
Secretary and Registered Office
Mr M Ashcroft
Church Bridge House
Henry Street
Accrington
Lancashire
BB5 4EE
Auditor
KPMG LLP
1 St Peter’s Square
Manchester
M2 3AE
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Company Number
549034
Studio Retail Group plc Annual Report 2020
29
The directors present their annual report and accounts on the affairs of the Group, together with the financial statements and Auditors’
report for the 52-week period ended 27 March 2020. The Corporate Governance Report set out on pages 35 to 38 forms part of this report.
Strategic Report
Pursuant to sections 414A-D Companies Act 2006, the Strategic Report can be found on pages 1 to 27. This includes a review of the Group’s
activities; the principal risks and uncertainties facing the Group; the main trends and factors likely to affect the future development,
performance or position of the Group’s business; and the key performance indicators identified by management. The Directors’ Report and the
Strategic Report also comprises the management report for the purposes of the FCA Disclosure and Transparency Rules (DTR 4.1.8R). All such
information as is required to be contained in this report by s.417 of the Companies Act 2006 is incorporated by reference into this report.
Going concern
The directors have adopted the going concern basis in preparing these financial statements after assessing the principal risks and having
considered the impact of severe but plausible downside scenarios for COVID-19. The Group is financed by a securitisation facility and a
Revolving Credit Facility (“RCF”) as disclosed in note 18. The directors considered the impact of the current COVID-19 environment on the
business, as disclosed in the strategic report, for the next 12 months, the viability period and the longer term. Whilst there is inherent
uncertainty in forecasts caused by COVID-19, the directors have considered a number of impacts on sales, profits and cash flows.
The directors have assumed that the Group’s operations remain open and that we will continue to be able to serve our customers,
as we have done through the lockdown period, with only temporary disruptions to operations being experienced in the downside
scenarios. The downside sensitivities considered include a reduction in the level of future forecast revenue and gross margin growth
and the impact of economic factors (particularly unemployment rates) on the ability of the Group’s customer base to continue to shop
with us and to service their credit accounts. The directors also considered the impact of these sensitivities occurring in combination.
In the event that one of or a number of these downside scenario arise at the same time the directors consider they are able to take
reasonable mitigating actions, which include but are not limited to, a reduction in discretionary capital expenditure and a reduction
in discretionary marketing spend. Implementing these mitigating actions would enable the Group to continue to operate within its
existing facilities during the forecast period.
The directors believe that the Group is well placed to manage its financing and other business risks satisfactorily, noting that its revolving
credit facility matures on 31 December 2021, and have a reasonable expectation that the Group will have adequate resources to
continue in operation for at least 12 months from the signing date of these consolidated financial statements. They therefore consider
it appropriate to adopt the going concern basis of accounting in preparing the financial statements.
Covid-19 Pandemic
The Government’s lockdown in response to the Covid-19 pandemic was introduced just a week before the end of the financial
year. Since lockdown was introduced the main focus of management has been to secure the continued health and wellbeing of our
colleagues and customers.
At Studio, following an urgent and comprehensive risk assessment we enabled as many of our colleagues as possible to work from
home and introduced a comprehensive suite of hygiene and safety measures alongside strict social distancing within our offices and
warehouses. This has enabled the business to continue to service our customers’ needs, throughout the period. Our online retail model
has proven to be resilient with sales significantly ahead of prior year throughout the lockdown period.
The Education business faced an abrupt period of disruption with the closure of the majority of educational establishments and tentative
steps back to school in the final weeks of the Summer term. The business mothballed its office facilities with approximately half the staff
working from home and others being furloughed on full pay. The warehouse continued to operate on reduced volumes, although these
have now returned to normal seasonal levels, given the full return to school in September is expected to return the business to more
normal levels of activity.
Brexit
We have completed our work to assess the likely impact of the United Kingdom’s exit from the European Union (“EU”) and continue to
work to mitigate, where possible, its effects. In light of recent political developments, the outcome remains unclear, and it is therefore
difficult to enact specific mitigating activities, however our work is focused on the following key risk areas:
•
Supply chain – the majority of goods sold by the Group are sourced, either directly or indirectly, from outside the UK, with a high
proportion originating from Asia. There is a risk that lead times for the supply of goods may lengthen due to delays at ports caused
by a no-deal Brexit scenario. There may also be additional administrative burdens and costs in respect of goods imported from the
EU. Since most of our products are sourced from outside the EU, we do not currently expect to see a material change in import tariffs,
however to the extent that the UK falls out of any arrangements between the EU and countries from which we import, it is possible
that this may lead to additional tariffs becoming payable;
•
Foreign exchange – the exit process may prompt a further depreciation in the GBP/USD exchange rate. We continue to hedge our
planned USD purchases on a rolling 12-month basis to mitigate the impact of any such depreciation; and
• Colleagues – a significant number of colleagues, particularly within our distribution centres, are non-UK EU nationals. Brexit may result
in changes to UK immigration policy which increases the risks around the availability, recruitment and retention of these individuals.
30
Studio Retail Group plc Annual Report 2020
Directors’ Report Viability Statement
While the financial statements have been prepared on a going concern basis, the provisions of the UK Corporate Governance Code require the
directors to make a statement in the annual report with regard to the viability of the Group, including explaining how they have assessed the
prospects of the Group, the period of time for which they have made the assessment and why they consider that period to be appropriate.
The Board has reviewed the viability of the Group for the three-year period up to March 2023. The Board selected this period of review as
it aligns with the Group’s normal strategic planning process which results in the development and approval by the Board of medium-term
business plans each year. These plans consider the Group’s future projections of sales growth, profitability, cash flows, capital requirements and
resources for each of its divisions, together with covenant compliance and other relevant financial and regulatory ratios over the forecast period.
The plans were then subjected to sensitivity analyses that considered the Group’s resilience to the occurrence of severe but plausible
downside scenarios taking account of the impact of COVID-19, which amongst other matters, addressed the impact of economic factors
(particularly unemployment rates) on the ability of our customer base to continue to shop with us and to service their credit accounts.
Consideration was also given to the likely impact of the Group’s principal risks over that planning horizon after taking account of the
mitigation actions that could be taken to reduce the impact or occurrence of those risks, which are set out in the principal risks and
uncertainties section on pages 22 to 23. In particular, it was noted that the Group’s committed borrowing facilities fall due for renewal
during the three-year period ending March 2023. The Board formed the view that it was reasonable to assume that the Group would be
able to access the debt capital markets on broadly similar terms at the appropriate time.
Dividends
The directors have determined that no interim dividend will be paid (FY19: nil) and are not recommending the payment of a final dividend
(FY19: nil).
The Board will focus on strengthening the financial position of the Studio Retail Ltd balance sheet and that of the parent company. As
such the Company does not have plans to re-instate dividend payments at this stage.
The rights of the holders of convertible shares to restrict dividends are set out below.
Financial Risk Management
Policies on financial risk management are set out in note 26, on page 69 of the Report of the Audit Committee, on pages 71 and 72 of the
Report of the Risk Committee and on page 17 of the Strategic Report.
Capital Structure
Details of the issued share capital, together with details of the movements in the Company’s issued share capital during the year are
shown in note 23 and such information is incorporated into this report.
The Company has two classes of share, neither of which carries rights to fixed income. The rights and obligations attaching to both
classes of share are contained in the Articles of Association, a copy of which is available for inspection at the registered office of the
Company. The ordinary shares carry the right to attend and speak at general meetings of the Company, to one vote on each resolution
at such meetings, to appoint proxies to exercise full voting rights and to participate in any distribution of income or capital. The holders
of convertible shares have a right to attend meetings but no voting rights (save in respect of any resolution relating to the rights of the
convertible shares). The following rights and restrictions attach to the convertible shares:
•
•
•
•
rights attaching to the convertible shares may only be varied by resolution passed by the holders of 85% or more of the nominal value
of the convertible shares then in issue;
consent of 85% of the holders of convertible shares is required before the Company declares any dividend or distribution in excess of
50% of the Group’s net income in respect of any accounting reference period, and the convertible shares have the right to participate
in any dividend to the extent that it exceeds 50% of the Group’s net income in respect of any accounting reference period;
the right to elect to participate in any return of capital on a voluntary winding-up of the Company as if the convertible shares had been
converted into ordinary shares;
the right to convert the convertible shares into ordinary shares between 28 February 2013 and 28 February 2021 (Conversion Period)
if the volume weighted average ordinary share price over a one month period is greater than 479.4p;
•
the convertible shares will automatically be converted into ordinary shares in the event of a takeover offer which is declared unconditional;
• on conversion into new ordinary shares the convertible shares will rank pari passu with existing ordinary shares;
• until expiry of the Conversion Period, or earlier conversion, the Company is subject to certain restrictions including that it shall not,
without the consent of 85% of the holders of convertible shares:
–
–
–
–
vary the rights attached to the ordinary shares;
create a new class of shares ranking ahead of the ordinary shares;
convert the Company from a public company to a private company (other than pursuant to a takeover offer);
issue loan stock or debt instruments or enter into any borrowing save on arm’s length terms.
Studio Retail Group plc Annual Report 2020
31
If the convertible shares have not converted into ordinary shares within the Conversion Period they will automatically convert into non-
voting deferred shares with no voting or profit participation rights.
There are no specific restrictions on the size of a holding or on the transfer of ordinary shares or convertible shares and there are no
requirements for prior approval of any transfers; all such matters are governed by the general provisions of the Articles of Association
and prevailing legislation. The directors are not aware of any agreements between holders of the Company’s shares that may result
in restrictions on the transfer of securities or on voting rights. The Articles of Association may only be changed with agreement of
shareholders.
Details of employee share schemes are set out in note 22. Shares held by the Company’s Employee Benefit Trust rank pari passu with the
ordinary shares in issue and have no special rights, but abstain from voting.
No person has any special rights of control over the Company’s share capital and all issued shares are fully paid.
There are a number of agreements that take effect, alter or terminate upon a change of control of the Company such as commercial
contracts, bank loan agreements, property lease arrangements and employees’ share plans. Any such situation would be carefully
managed to ensure that any effect on the business was minimised. Furthermore, the directors are not aware of any agreements between
the Company and its directors or employees that provide for compensation for loss of office or employment that occurs as a consequence
of a takeover bid, other than as disclosed in the Board Report on Directors’ Remuneration.
Acquisition of own shares
The Company did not obtain authority from shareholders at the AGM held in July 2019 to purchase its own shares. The Company made
no purchases of its own shares during the financial year and no shares were acquired by forfeiture or surrender or made subject to a lien
or charge.
Directors
The directors of the Company at the date of this report are shown on page 29. Information concerning their interests in the share
capital of the Company as at 27 March 2020 and as at 24 August 2020 is included in the Board Report on Directors’ Remuneration on
page 64. All the directors served throughout the year save that Paul Kendrick was appointed to the Board as an executive director
on 16 December 2019 and Bill Grimsey retired from the Board at the conclusion of the AGM held on 25 July 2019. We also announced
on 3 July 2020 that Phil Maudsley will retire from the Board at the end of March 2021 following more than 30 years with the Group
and that Paul Kendrick will take over as CEO of the Company at that time. This is the outcome from a structured development and
succession plan implemented by the Board working with both Mr Maudsley and Mr Kendrick over the past two years. Mr Maudsley is
fully involved with the transition.
A summary of the rules relating to the appointment and removal of directors by shareholders and details regarding the powers of
the directors are set out in the Corporate Governance Report on pages 35 to 38. Notwithstanding those rules, and in line with the UK
Corporate Governance Code, the Board has decided that all continuing members of the Board will continue to put themselves up for
election or re-election on an annual basis.
Following the annual performance evaluation, the Chairman confirms that the performance of each of the directors has been effective
throughout the period, or throughout the period since their appointment, and that they have continued to demonstrate commitment to
their roles.
In addition to their general independence of mind and approach, the non-executive directors each bring their own perspectives,
experience and strengths to the direction of the Company, together comprising a balanced team. Clare Askem brings significant and
relevant retail executive management experience; Mr Ball brings previous home shopping retail and consumer credit experience and
current financial services activity; Mr Coumau’s consumer product background and web based business activities add to the Board’s
breadth of views; and Elaine O’Donnell brings her accountancy background and business consulting expertise to the Group. The
Nomination Committee endorses their proposed reappointment at the forthcoming 2020 Annual General Meeting.
Mr Maudsley has served the Company for over 30 years, the last 3 of which as CEO, and has successfully led the executive group during
those 3 years. He has been a member of the Board since 2004. He will retire from the Company and the Board on 26 March 2021 and
in the meantime will manage a planned transition to his successor, Paul Kendrick. Over the same 3-year period, Paul Kendrick has
successfully led and managed the transition of Studio Retail Ltd to a digital home retail business whilst maintaining its year on year
growth trajectory. He joined the Board in December 2020 as a preparatory stage of his planned succession to the CEO role in March
2021. Since his appointment as CFO in 2017, Mr Caldwell has demonstrated his capability in his first such role with a plc, and continues to
perform well supporting the CEO, the Chairman and the Board in developing and financing the business. The Nomination Committee also
endorses their respective proposed appointment/reappointment at the forthcoming 2020 Annual General Meeting.
The Board considers that Mr Burke’s leadership experience at both executive and non-executive levels is enabling him to chair the Board
with a clear focus and purpose whilst providing both support and robust challenge to the executive team. His time at Rank, leading
a significant player in a regulated industry is a further important feature of his previous experience and is valued by the Board. The
members of the Committee (other than the Chairman) having reviewed the performance and continued commitment of the Chairman
also recommend the reappointment of the Chairman at that meeting.
32
Studio Retail Group plc Annual Report 2020
Directors’ Report Each of Phil Maudsley, Stuart Caldwell, and Paul Kendrick has a service contract with the Company which provides a six-month notice
period. Ian Burke as non-executive chairman does not have a service contract with the Company but has a one-month notice period
under his letter of appointment. The other non-executive directors do not have service contracts with the Company and their letters of
appointment do not provide for a period of notice.
The appointment of non-executive directors is normally for an initial period of three years, subject to review and re-election in General
Meeting. In the normal course non-executive directors will be asked to serve two terms of three years although the Board reserves to
itself the discretion to extend terms beyond the two terms of three years, on an annual basis, if the particular circumstances warrant it,
up to a maximum of 9 years. Further details of the service contracts and letters of appointment of directors can be found on page 62
of the Board’s Report on Directors’ Remuneration.
Directors’ and Officers’ Insurance and Indemnity
The Group maintained insurance for directors and officers of the Group during the financial year, indemnifying them (to the extent
permitted by law and the Company’s Articles of Association) against certain liabilities incurred by them when acting on behalf of the
Group. The Company has executed deeds of indemnity for the benefit of each director in respect of liabilities which may attach to them in
their capacity as directors of the Company. Neither the insurance nor the deeds of indemnity provide cover where the relevant director or
officer has acted fraudulently or dishonestly.
Colleagues and Colleague Engagement
The Company recognises its social and statutory duty to employ disabled persons and pursues a policy of providing, wherever possible,
the same employment opportunities to disabled persons as to others, and training for employees who have become disabled during the
period when they were employed by the Group.
Information is provided to colleagues regarding the Company and factors affecting its performance and that of its subsidiaries is provided
through normal management channels and regular consultation. Further information regarding our colleagues can be found in the
Directors’ section 172 statement on pages 24 to 27 and in the Corporate Social Responsibility Report on pages 73 to 78.
Elaine O’Donnell took up the role of director for employee engagement with effect from 1 April 2019 and her engagement programme
has been developed during the year. This has included attendance at a number of “coffee and cake” sessions with groups of Studio
Retail employees, participation in a Q&A session at group senior leaders event, and reviews with divisional HR Directors of periodic
colleague engagement surveys. Elaine has reported back to the Board on these activities and both she and senior management have been
encouraged by the level of interaction and open dialogue which these initiatives have produced. The engagement programme will be
developed further over the coming year.
Environmental matters
Information on environmental matters, including our greenhouse gas emissions is disclosed in the Corporate Social Responsibility Report
on page 73 to 78.
Overseas Branches
The Group does not have any branches outside the United Kingdom.
UK Corporate Governance Code
The Company’s statement on corporate governance can be found in the Corporate Governance Report on pages 35 to 38. The Corporate
Governance Report forms part of this Directors’ Report and is incorporated into it by its cross reference.
Political donations, expenditure and contributions
No political donations, expenditure or contributions were made during the financial year (2019: £nil).
Substantial Shareholdings
As at 27 March 2020 the Company had been notified pursuant to the Disclosure and Transparency Rules and/or pursuant to the Takeover
Code of the following material interests of 3% or more in its share capital:
Frasers Group plc
(formerly Sports Direct International plc)
Schroders plc.
FIL Ltd and FMR LLC
Lombard Odier Asset Management
Ennismore Fund Management
Number
of shares
31,850,000
16,399,128
7,666,057
3,631,689
2,735,867
Proportion
of share
capital
36.84%
18.971%
8.86%
4.20%
3.16%
Number of voting rights
Direct
Indirect
31,850,000
—
—
—
—
—
16,399,128
7,666,057
3,631,689
2,735,867
There have been no further notifications between 27 March 2020 and 24 August 2020.
Studio Retail Group plc Annual Report 2020
Proportion
of voting
rights
36.84%
18.971%
8.86%
4.20%
3.16%
33
Auditor
KPMG having served 10 years as the Company’s auditor, the audit committee has carried out an Article 16(3) selection procedure and
recommended its first and second choices to the Board. The Board has accepted the audit committee’s first choice recommendation,
concluding that Mazars LLP be recommended for appointment by shareholders. Mazars LLP has notified its willingness to as auditor
to the Company and a resolution concerning their appointment will be proposed at the Annual General Meeting together with a
resolution to authorise the directors to set the remuneration of the auditor. In making their recommendation to the Board, the audit
committee considered Mazars LLP to offer a highly professional and competitively priced service, as well as a comprehensive and
pragmatic approach to transition from the incumbent auditor. An analysis of audit and non-audit fees earned by the auditors during
the year is set out in note 8 to the accounts.
Disclosure of information to the auditor
In the case of each of the persons who are directors of the Company at the date when this report was approved:
•
•
so far as each of the directors is aware, there is no relevant audit information (as defined in the Companies Act 2006) of which the
Company’s auditor is unaware; and
each of the directors has taken all the steps that he or she ought to have taken as a director to make himself or herself aware of any
relevant audit information and to establish that the Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
Annual General Meeting
A separate circular comprising the notice of annual general meeting to be held on 30 September 2020 is being posted to shareholders
with this Annual Report & Accounts and includes details of the business to be transacted at the meeting and an explanation of all
resolutions to be considered at the Annual General Meeting. The AGM will include, in addition to the ordinary business of an annual
general meeting, resolutions to allow political donations and to enable the Board to convene general meetings on short notice.
In light of the current UK Government measures in response to the Covid-19 pandemic and the Company’s desire to protect the health
and safety of our shareholders and employees, our annual general meeting this year will be held as a closed meeting and as such
shareholders will not be permitted to attend in person. Any shareholder seeking to attend the meeting will not be permitted entry.
The Company will make arrangements such that the legal requirements to hold the meeting will be satisfied through the attendance
of a minimum number of directors and members (facilitated by the Company) in order to satisfy quorum requirements. The format
of the meeting will be purely functional and will comprise of only the formal votes on each resolution as set out in the notice, without
any business update or Q&A. Shareholders will have the opportunity to submit questions on the annual general meeting resolutions
electronically before the meeting and such questions, limited to matters relating to the business of the annual general meeting itself,
should be sent to SRLGroupEnquiries@studio.co.uk and answers to questions on key themes will be made available on our website –
www.studioretail.group/investor-centre/shareholder-centre.
The situation surrounding the outbreak of COVID-19 is constantly evolving. The Board may reconsider whether shareholders should
be allowed to attend the annual general meeting in the event that updated public health guidance or legislation is issued by the UK
Government (taking into account first and foremost the health and safety of attendees). Any changes to the annual general meeting will
be communicated to shareholders before the meeting through our website - www.studioretail.group/investor-centre/shareholder-centre
and where appropriate, by RNS announcement. We trust that all our shareholders will understand the need for these precautions in light
of Government public health guidelines on Covid-19.
Voting
Full details as to how to vote will be contained in the Notice of AGM and associated Form of Proxy to be issued to shareholders with this
2020 Annual Report & Accounts.
Recommendation
The Board considers that all business to be proposed at the 2020 AGM is in the best interests of the Company and its shareholders as a
whole and unanimously recommends that shareholders vote in favour of each resolution at the AGM. The full recommendation of the
Board will be included in the Notice of AGM to be issued to shareholders with this 2020 Annual Report & Accounts.
By order of the Board
Mark Ashcroft
Company Secretary
22 August 2020
34
Studio Retail Group plc Annual Report 2020
Directors’ Report Corporate Governance Report
Compliance
The Board considers that throughout the year under review the Company has complied with the relevant provisions of the 2018 issue
of the UK Corporate Governance Code (the “Code”), and with the rules of the UK Listing Authority. A copy of the Code can be located at
https://www.frc.org.uk.
Application of the principles of the Code
At the heart of the Code is an updated set of Principles that emphasise the value of good corporate governance to long-term
sustainable success. By applying the Principles, following the more detailed Provisions and using the associated guidance, the Company
can now demonstrate through this report how the governance of the Company contributes to its long-term sustainable success and
achieves wider objectives.
Board Leadership and Company Purpose
At 27 March 2020, the Board was made up of eight members comprising the Chairman, Ian Burke; three executive directors, namely the
Chief Executive, Phil Maudsley; the Chief Financial Officer, Stuart Caldwell; and the Managing Director of Studio Retail Ltd, Paul Kendrick;
together with four non-executive directors. The non-executive directors are each considered by the Board to be independent of management
and free of any relationship which could materially interfere with the exercise of their independent judgement. Biographical details of each
of the directors, which illustrate their range of experience, are set out on page 29.
The Chairman, Ian Burke, joined the Board on 12 January 2017. The Board considers Ian Burke to have been independent at the time
of his appointment as Non-Executive Chairman. Ian Burke’s other commitments are summarised in the biographical details on page 29.
Ian took up the non-executive chair role at Pets at Home Group plc in May 2020 and retired from the chairmanship of Rank plc during
the year. Since the year end his directorship at Intu Properties plc has also come to an end. The Board considers that Ian’s other
commitments are not a constraint on his agreed time commitment to the Company.
Bill Grimsey retired from the Board at the conclusion of the 2019 AGM, following 7 years of service and Francois Coumau took over the
chair of the Remuneration Committee at that time.
Paul Kendrick, was appointed to the Board on 16 December 2019. Paul joined the Group in May 2016 initially as Commercial Director and
Deputy Managing Director of Studio Retail Ltd (SRL). He took over as Managing Director of SRL in April 2017 and has successfully managed
the first part of SRL’s transition from a catalogue-based business into a truly digital company, whilst maintaining significant profitable growth.
On 3 July 2020 we announced that Phil Maudsley will retire from the Board at the end of March 2021 following more than 30 years with
the Group and that Paul Kendrick will take over as CEO of the Company at that time. This is the outcome from a structured development
and succession plan implemented by the Board working with both Mr Maudsley and Mr Kendrick over the past two years. Mr Maudsley is
fully involved with the transition.
The non-executive directors meet at least annually without the executive directors being present and meet separately to review the
Chairman’s performance after each financial year end.
The Board assesses annually whether each non-executive director is independent against the criteria set out in the Code and confirms
that it has concluded that each of the non-executive directors is independent on that basis.
The Board considers that Mr Burke’s leadership experience at both executive and non-executive levels is enabling him to chair the Board
with a clear focus and purpose whilst providing both support and robust challenge to the executive team. His time at Rank, leading a
significant player in a regulated industry is a further important feature of his previous experience and is valued by the Board.
In addition to their general independence of mind and approach the non-executive directors each bring their own perspectives,
experience and strengths to the direction of the Company, together comprising a balanced team. Clare Askem brings significant and
relevant retail executive management experience; Mr Ball brings previous home shopping retail and consumer credit experience and
current financial services activity; Mr Coumau’s consumer product background and web based business activities add to the Board’s
breadth of views; and Elaine O’Donnell brings her accountancy background and business consulting expertise to the group.
Directors are subject to election at the next annual general meeting following their appointment and are subject to reappointment at least
every three years. The Board has determined that in the normal course non-executive directors will be asked to serve two terms of three
years. However, the Board reserves to itself the discretion to extend terms beyond the two terms of three years, on an annual basis, if the
particular circumstances warrant it, up to a maximum of 9 years.
The appointment and replacement of directors of the Company is governed by the Company’s Articles of Association, the Code, the
Companies Act 2006 and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The
powers of directors are described in the Articles and the Terms of Reference of the main Board committees, copies of which are available
on request, and are summarised in this Corporate Governance Report on pages 35 to 38.
Notwithstanding the above, and in line with the UK Corporate Governance Code, the Board has determined that all directors should stand
for election or re-election on an annual basis and this approach will continue to be adopted at the 2020 Annual General Meeting.
Studio Retail Group plc Annual Report 2020
35
Conflicts of Interest
The Company has a procedure for the disclosure, review, authorisation and management of directors’ conflicts of interest and potential
conflicts of interest, in accordance with the provisions of the Companies Act 2006. The procedure is included in the Articles of Association
and has been adhered to by the Board since its introduction. In deciding whether to authorise a conflict or potential conflict of interest,
the directors must have regard to their general duties under the Companies Act 2006. The authorisation of any conflict matter, and the
terms of authorisation are reviewed by the Board as appropriate and, as a minimum, on an annual basis.
Mr Ball is non-executive chairman of Ingelby (2016) Ltd, trading as Panther Logistics and Asset Solutions, and has notified the Board of
his interest in a contract between that company and Studio Retail Ltd for “two man” deliveries of Studio products to its customers. The
contract was negotiated at arm’s length between the two companies and without any involvement from Mr Ball, who has no personal
financial interest in the contract. During the period ended 27 March 2020, no director had any other material interest in any significant
contract to which the Company or any subsidiary was a party.
Board Procedures
The Board and each of its standing committees has an annual programme of scheduled meetings with dates settled well in advance of
the start of each year. In addition, meetings can be called at short notice as and when circumstances dictate. The Board receives adequate
and timely information to enable the directors to discharge their duties. In addition to matters statutorily reserved for a board, there is an
agreed schedule of matters reserved for the Board for collective decision including:
• determining the strategy and control of the Group;
•
•
•
•
•
amendments to the structure and capital of the Group;
approval of financial reporting and internal controls;
approval of capital and revenue expenditure of a significant size;
acquisitions and disposals above a prescribed level; and
corporate governance matters and approval of Group policies and risk management strategies.
The Board delegates to management the day to day management of the Company’s businesses and other matters not specifically
reserved to the Board.
Further details relating to the Company’s internal control and risk management systems in relation to the financial reporting process can
be found in the Report of the Audit Committee on pages 67 to 70 and in the Report of the Risk Committee on pages 71 to 72. The Reports
of the Audit Committee and the Risk Committee form part of this Corporate Governance Report and are incorporated into this Corporate
Governance Report by reference.
To enable the Board to perform its duties effectively all directors have full access to all relevant information and to the services of the
Company Secretary whose responsibility it is to ensure, through the Chairman, that Board procedures are followed. The appointment and
removal of the Company Secretary is a matter reserved for the Board. There is an agreed procedure whereby directors wishing to take
independent legal advice in the furtherance of their duties may do so at the Company’s expense. Appropriate training is available to all
directors on appointment and on an ongoing basis as required.
The terms of reference for each of the Board Committees are available on request from the Company Secretary or on the Company’s
website (www.studioretail.group).
Attendance at Board and Committee Meetings
The Board held nine scheduled meetings during the financial year with full attendance by all Board members in each case. In addition,
the Board held a total of six meetings at short notice by telephone conference call during the year. These impromptu meetings took
place in the run up to the exchange of conditional contracts for the sale of Findel Education Ltd in December 2019, and towards
the end of the financial year in response to the Covid-19 pandemic. Again, there was full board attendance at each of these short
notice meetings.
The Audit Committee held 4 scheduled meetings during the year; the Remuneration Committee held 5 scheduled meetings; the
Risk Committee 3 scheduled meetings and the Nomination Committee two scheduled meetings. The Audit Committee also held one
unscheduled meeting during the period at short notice which could not be arranged at a time when all members were available and
consequently Clare Askem could not attend that meeting. On this occasion Elaine O’Donnell, the Chair of the Committee, discussed the
issues covered with Clare Askem.
36
Studio Retail Group plc Annual Report 2020
Corporate Governance Report Board Effectiveness
In 2017 the Board completed its first independently facilitated review of its effectiveness, and the effectiveness of its standing committees.
The review was facilitated by Mr Tom Bonham Carter of Armstrong Bonham Carter LLP. The Board accepted the conclusions of the review
at that time and has implemented further improvements in its processes and performance identified in that evaluation process.
During the current year, the Board continued to build on the outcomes from that external assessment and towards the end of the
financial year the Chairman held one to one reviews by telephone with each of the non-executive directors. The Covid-19 pandemic struck
at the time when the Board would ordinarily carry out its annual review of effectiveness and the Board restricted its review at this time to
these one to one discussions, concerned that the focus of the executive team should be directed solely to the Group’s management of the
Covid-19 crisis.
The Senior Independent Director, Greg Ball, chairs annual meetings of the independent non-executive directors to discuss the
performance of the Chairman. The Senior Independent Director then discusses the results of the assessment with the Chairman.
Relations with Shareholders
The Company recognises the importance of communicating with its shareholders, to ensure that its strategy and performance are
understood. This is achieved principally through the Interim Report, periodic trading statements, the Annual Report and the Annual General
Meeting. In addition, a range of corporate information is available to investors on the Company’s website (www.studioretail.group).
The Chairman, the CEO and the CFO are primarily responsible for investor relations. The Company has a concentrated share register,
with Frasers Group (36.8%), Schroders (16.7%) and Fidelity (8.9%) having significant voting rights (figures correct as at 27 March 2020).
Feedback from major shareholders is reported to the Board and discussed at its meetings and from time to time the Chairman also
discusses the views of the Company’s major shareholders with the non-executive directors. Formal presentations are made to institutional
shareholders following the announcement of the Company’s full year and half year results and the slides used in those presentations
are published on the Company’s website (www.studioretail.group). The Chairman of the Remuneration Committee also writes to major
shareholders and the main proxy voting agencies ahead of the annual non-binding AGM vote on the Remuneration Report when there
are any significant changes to the basis of incentive arrangements for executive directors, and ahead of the triennial vote on the Directors’
Remuneration Policy.
As noted above, Frasers Group holds 36.8% of the Company’s listed shares. Consequently, as required under the Listing Rules of the UK
Listing Authority, the Company has entered into a Relationship Agreement with Frasers Group, which seeks to protect the interests of
other shareholders.
In addition, Mr Liam Rowley has been nominated as Board Observer of the Company’s Board meetings on behalf of Frasers Group.
Mr Rowley receives board papers (redacted as appropriate to address conflict issues) and attends but has no right to vote at Board
meetings. He does not attend Committee meetings. The terms of this arrangement are set out in an exchange of letters between the
Chairmen of the two companies and is also regulated by a Non-Disclosure Agreement between the two companies. Mr Rowley attended
4 Board meetings during the year but has not attended meetings, nor (at his request) has he received board papers, since January 2020.
The Board has sought to maintain its constructive relationship with Frasers Group, despite its vote against the re-appointment of
Mr Caldwell at the Company’s 2019 AGM. That resolution was nevertheless passed with 58.06% voting in favour of the resolution and
with only 2,059 shares voting against in addition to Frasers Group. In January 2020, the Company issued an update on this substantial
vote against. It was the Board’s understanding at the time of the 2019 AGM that Frasers Group had concerns regarding the Company’s
accounting policies, and in particular, the treatment of Frasers Group as a related party in the Company’s 2019 Statutory Accounts and
its inventory and depreciation policies. The Audit Committee had reviewed these areas as part of the 2019 annual audit process and fully
agreed with the accounting and reporting positions taken in each case, as did the entire Studio Board. The Board stated that it continued
to have full confidence in Mr Caldwell, who continues as our CFO.
The Company continued to engage with representatives from Frasers Group to understand their concerns more fully and exchanged
views on the relevant issues. During the review of the Company’s Interim Report in December 2019, the Audit Committee again reviewed
the Company’s accounting policies and the judgements made in applying those policies in recent years as well as the recommendations
from Frasers Group. The Board remains fully supportive of the existing policies and judgements in the context of the Company’s business
model and activities and continues to have full confidence in Mr Caldwell.
The Board recognises that the Annual General Meeting is the principal forum for dialogue with private shareholders. All directors normally
attend the Annual General Meeting and are available to answer any questions that shareholders may wish to raise. The Notice of Meeting
is sent to shareholders at least 20 working days before the meeting. Shareholders vote on a poll and the results are announced to the
market and on the Company’s website after the close of the meeting.
In light of the current UK Government measures in response to the Covid-19 pandemic and the Company’s desire to protect the health
and safety of our shareholders and employees, our annual general meeting this year will be held as a closed meeting and as such
shareholders will not be permitted to attend in person. Further detail of the arrangements for this year’s annual general meeting is set out
in the Directors’ Report on page 34.
Studio Retail Group plc Annual Report 2020
37
Powers of the Board
The directors manage the business of the Company subject to the Companies Act 2006 and the Articles of Association of the Company
and subject to such directions as are prescribed by the Company by special resolution.
The Board may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property,
assets and uncalled capital and to issue debentures and other securities whether outright or as collateral security, for any debt,
liability or obligation of the Company or of any third party. The Board must restrict the borrowings of the Company and exercise all
powers of control exercisable over its subsidiaries (if any) so that the total amount of the Findel Group’s borrowings (exclusive of
inter-group borrowings) do not exceed £450,000,000. However, the Company may pass an ordinary resolution allowing borrowings
to exceed such limit.
The Board may, subject to the provisions of the Companies Act and shareholder approval where required, exercise its authority to allot
shares, grant rights to subscribe for shares or to convert any security into shares. Shares may be issued with such rights or restrictions
as may be approved by resolution of the shareholders and shares may be issued on terms that they are, or at the option of the Company
may be liable to be, redeemed. The Board may, prior to allotment, determine the terms, conditions and manner in which shares can be
redeemed by the Company.
Nominated Directors
Greg Ball is the Company’s Senior Independent Director.
Elaine O’Donnell is the director with a particular focus on colleague (employee) engagement. A programme of work has been
developed by her with the executive team during the current year and is reported on in the Stakeholder Engagement and Gender
Diversity section of this report on pages 24 to 27.
Committee Membership
During the year the membership of the Board’s standing committees remained as before, save that:
• On 25 July 2019, upon his retirement from the Board, Bill Grimsey also stepped down from membership of the Audit Committee, the
Risk Committee, the Remuneration Committee (as Chair) and the Nomination Committee;
•
Francois Coumau took over the Chair of the Remuneration Committee on Bill’s retirement.
• Clare Askem joined the Audit Committee on 23 September 2019 and the Remuneration Committee on 27 February 2020.
Since the year end Clare Askem has also been appointed to the Nomination Committee.
Details of the membership of the committees as at the end of the period under review are included on page 29.
Audit Committee
The Audit Committee operates under written terms of reference which are available on the Company’s website (www.studioretail.group)
and is comprised solely of independent non-executive directors. It is chaired by Elaine O’Donnell. The Committee’s report is set out on
pages 67 to 70. The Audit Committee as a whole has the required competence relevant to the sectors in which the Group operates.
Risk Committee
The Risk Committee operates under written terms of reference and is comprised solely of independent non-executive directors. It is
chaired by Greg Ball. The Committee’s report is set out on pages 71 to 72.
Remuneration Committee
The Remuneration Committee operates under written terms of reference. It is comprised solely of independent non-executive directors
and is chaired by Francois Coumau. The Committee’s report is set out on pages 39 to 65.
Nomination Committee
The Nomination Committee operates under written terms of reference and is comprised of the Chairman, and the independent non-
executive directors. It is chaired by the Chairman, Ian Burke. The Committee’s report is set out on page 66.
Terms of Reference and Role Statements
The terms of reference for each of the above Committees, together with Role Statements for the Chairman, the Chief Executive and the
Senior Independent Director are available on the Company’s website (www.studioretail.group)
On behalf of the Board
Mark Ashcroft
Company Secretary
22 August 2020
38
Studio Retail Group plc Annual Report 2020
Corporate Governance Report Board Report on Directors’ Remuneration
Dear Shareholder
On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for the year ended 27 March 2020.
This report is divided into three parts: this letter providing a summary of key information, a detailed Director’s Remuneration Policy
Report that sets out proposed 2020 policy changes (‘the 2020 Policy’), and an Annual Report on Remuneration which sets out how the
remuneration policy will be applied over the year ending 26 March 2021 and how it was implemented over the year ended 27 March 2020.
Our approach to remuneration is governed by our directors’ remuneration policy which received binding shareholder approval at the
2017 AGM and came into formal effect from that date. In line with regulatory requirements the policy is subject to a vote at the 2020
AGM. During the year, the Committee conducted a full policy review in the light of the growth strategy for the business over the lifetime of
the new policy, developments in remuneration governance and market best practice.
The 2020 Remuneration Policy and key changes
The Committee believes that the current policy has served the Company and its shareholders well. The current remuneration framework
consists of a base salary, modest benefits and pension provision, and annual and long-term incentive arrangements designed to provide a
simple, performance-based package that supports sustainable value creation for our shareholders.
To ensure that packages are sufficiently competitive and drive performance to further strengthen the alignment between shareholders
and executives, the main change proposed is in relation to a rebalancing of the short- and long-term incentive opportunities. However,
recognising current economic climate and volatility, the Committee does not intend to implement increases to incentive opportunities
during the 2020/21 financial year.
Summary of key policy changes
• Rebalancing of the short- and long-term incentive opportunities and introduce bonus deferral as follows:
–
–
Increase the maximum bonus opportunity from 100% of salary to 125% of salary
25% of any bonus will be taken in shares which (after settlement of any tax or withholdings) must be held for three years and will
be subject to malus and clawback
– Decrease the normal PSP policy grant limit from 150% of salary to 125% of salary. The current intention is that normal PSP grants
will remain at 100% of salary
Increase in-post shareholding requirements from 100% of salary to 150% of salary
Introduce post-cessation shareholding requirements so that leavers will have a requirement to hold 50% of their pre-cessation
shareholding requirement (or the actual shareholding if lower) for two years from leaving. This requirement will apply to shares
vesting under the PSP programme granted from 2020 onwards. Any shares purchased by an executive will be excluded from the
requirement
For new directors, a pension contribution in line with the workforce (currently 6.5% of salary) may be made. Pension provision for the
current CEO (who will retire at the end of the current financial year) and CFO will be capped in-line with their existing entitlements. The
Committee is working with the CFO to ensure that his pension contributions transition to the level of the workforce by 2022/23
•
•
•
While not part of the policy, the Committee has also undertaken a review of the metrics attached to PSP awards, currently equally
weighted between EPS and absolute TSR growth. Given the volatile share price and the relative lack of free float, the Committee concluded
that a greater weighting on EPS would be more appropriate and that therefore the TSR element should be reduced to one third of the
award with EPS correspondingly increased to two thirds.
Performance and remuneration for 2019/20
FY2019/20 was an eventful year. We made further progress on our strategic objectives to transition Studio to a digital value retail
business and the disposal of Findel Education, and trading performance at Studio was strong in the period leading up to Christmas but
more inconsistent at other times. In making its assessment of performance against annual bonus plan objectives, the Committee noted
that the Group’s financial performance represented growth in Group revenue of 2.2%, adjusted profit before tax growth of 8.6% but an
adjusted free cash flow decline of 17.8%. Overall, this shows the resilience of our business model in a challenging retail environment. The
Committee gave careful consideration to the formulaic outturn of the annual bonus in the context of overall business performance and
wider economic considerations. It concluded that notwithstanding the performance achieved against a number of the measures, no bonus
would be payable for the year under review.
With regards to our longer-term performance, the FY17 Performance Share Plan (“PSP”) awards which were granted on 4 July 2017 to
the Chief Executive and on 20 July 2017 to the Chief Financial Officer were subject to absolute share price appreciation and adjusted
EPS targets. Adjusted EPS grew by 19.2% p.a. over the performance period, and as a result, vesting was 49% of maximum. In assessing
the result of the performance condition, the Committee exercised its discretion to ensure that any adjustments made in the calculation
of EPS were appropriate in light of changes in accounting standards and group accounting policies since the targets were set. Full
details of the adjustments made can be found on page 60 and 61. The absolute share price targets applicable to these awards were not
met and none of the share price element vested. For the Managing Director, Studio, his award was based on Studio operating profit
targets, with 44% of the award vesting.
Studio Retail Group plc Annual Report 2020
39
Implementation of remuneration policy for 2020/21
The remuneration package for our executive directors will continue to be made up of base salary, plus pension contributions and
benefits, and, subject to stretching performance conditions, an annual bonus that from 2020/21 will be delivered in a mix of cash
and awards of shares under the PSP. Within this framework we will be taking the following approach to the implementation of the
remuneration policy for the year ending 26 March 2021:
•
Salary – In line with the position for employees generally, there will be no salary increase for Executive Directors on 1 August 2020.
The Company may revisit this position later in the year, which is in line with the position for the wider population
• Bonus – Although it is proposed the Policy maximum is increased, the maximum annual bonus will remain at 100% of salary for all
executive directors. 25% of any bonus paid will be taken in shares which (after settlement of any tax or withholdings) must be held
for three years. 55% of the bonus will be subject to financial performance which will be based on the achievement of targeted levels
of Adjusted Profit Before Tax. For the CFO and MD, Studio, a further 30% will be based on growth in active credit customers (with
appropriate conditionality to ensure appropriate lending activities), reflecting its importance as a base for potential future growth.
These will operate alongside a minority element (15%) based on pre-agreed personal objectives. For the CEO, 10% will be based on
growth in active credit customers and 10% based on CMA clearance of the FEL sale, with the remainder based on pre-agreed personal
objectives. These will include an element of assessment relating to a successful transition to the new CEO. Any pay-out under the
bonus (including for the personal performance element) will be subject to Adjusted PBT being above the threshold target and there
being no material incidence of bad behaviour in relation to Treating Customers Fairly during the year.
• PSP – It is intended that the executive directors will receive PSP awards of 100% of salary in 2020/21. As noted above, the 2020 PSP
awards will be subject to performance conditions measured over a period of three years with two thirds based on EPS targets and
one third based on absolute total shareholder return (TSR) targets.
•
Enhancing shareholder alignment – In addition to ensuring that the short- and long-term performance measures and targets we set
are closely linked to the achievement of the Company’s key strategic and business objectives, a proportion of bonus will be delivered
in shares, pay is subject to recovery and withholding provisions, a two-year post-vesting holding period operates for PSP awards,
increased in-post share ownership requirements apply and a post-cessation shareholding requirement has been introduced – all
features intended to further enhance the alignment of interest between executive directors and shareholders and to contribute to an
appropriate level of risk mitigation.
The Board is satisfied that the proposed policy continues to provide a good balance between potential rewards to executive directors on
the one hand, and, on the other, measures and targets which are appropriately stretching and that are aligned with the delivery of the
overall long-term success of the Company.
Changes to the Board
On 16 December 2019 we welcomed Paul Kendrick to the Board in the role of Managing Director, Studio. He receives a base salary of
£350,000, a car allowance of £15,000, private medical insurance, and a pension contribution aligned to that of the general workforce at
6.5% of salary. His bonus opportunity for FY2019/20 was 100% of salary and, in line with the approach for other Executive Directors, this
will remain at 100% of salary in FY 2020/21. He will receive a PSP award with a face value of 100% of salary in FY 2020/21.
As announced on 3 July 2020, Phil Maudsley will retire following more than 30 years of service with the Company, with Paul Kendrick then
assuming the role of CEO. Phil will remain CEO until the end of the financial year, 26 March 2021. He will continue to receive base salary,
pension and benefits up until that date. He will be eligible for an annual bonus for the financial year which, in line with our policy for
departing directors, will be paid in cash subject to performance over the period. He will receive a PSP award with a face value of 100% of
salary in FY 2020/21. Reflecting his retirement, tenure and leadership, the Board intends to grant good leaver status, in which event his
outstanding PSP awards remain eligible to vest subject to performance conditions, which will be measured over the original performance
period, with time pro-rating applied. Paul Kendrick’s package for the role as CEO will be finalised closer to the time when he takes up the
role and will therefore be disclosed in due course. His package will be set in line with the approved policy in place at the time.
On behalf of the Board, I would like to thank shareholders for their continued backing and look forward to your support for our
remuneration report at the 2020 AGM.
Francois Coumau
Chair of the Remuneration Committee
22 August 2020
40
Studio Retail Group plc Annual Report 2020
Board Report on Directors’ Remuneration Remuneration Policy Report
Introduction
This report has been prepared in accordance with the requirements of the Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2013 (as amended) (the ‘Regulations’). The report also meets the relevant requirements of the Listing Rules
of the Financial Conduct Authority and describes how the Board has applied the principles of good governance relating to directors’
remuneration.
This policy report will be subject to a binding vote at the 2020 AGM and, if it is approved, will be effective from the date of approval. The
policy will run until the 2023 AGM, unless a further policy is submitted for shareholder approval prior to that meeting. In 2019/20 we have
operated under our previous remuneration policy (approved at the 2017 AGM). The previous policy is included in our 2016/17 Directors’
Remuneration Report and can be accessed from our website at www.studioretail.group.
The Annual Report on Remuneration, along with the Annual Statement from the Committee Chairman, will be put to a single advisory
vote at the 2020 AGM. The regulations require the auditors to report to the Company’s members on the ‘auditable parts’ of the directors’
remuneration report and to state whether, in their opinion, the parts of the report that have been subject to audit have been properly
prepared in accordance with the relevant legislation. The parts of this report which have been audited have been highlighted accordingly.
Policy on Remuneration of Executive Directors
The key objectives of the remuneration policy for Executive Directors are:
•
•
•
•
To provide a competitive remuneration package which will attract and retain the highest calibre of executive;
To ensure that individual rewards and incentives drive behaviours that are consistent with the company strategy and values, are
properly aligned with personal performance, the performance of the Group, and the interests of shareholders;
To structure remuneration packages so a significant proportion is performance related, does not reward poor performance or
encourage undue risk-taking;
To operate simple, transparent incentive structures which allows clear understanding by executives and external stakeholders, with a
clear aim to reward for long-term shareholder value creation; and
•
To set executive pay packages having had due regard to pay and employment conditions in the wider workforce.
In forming this policy, the Committee has taken into account the 2018 UK Corporate Governance Code (‘the Code’) together with guidance
from the FCA, institutional investors and investor bodies (including Glass Lewis, ISS and the Investment Association). The Committee
endeavours to structure remuneration for Executive Directors and senior executives so that it should not raise environmental, social or
governance (ESG) risks by inadvertently motivating irresponsible behaviour and that it should reward sustainable, long-term, performance
and sound risk management.
The remuneration policy is reviewed regularly and the Committee is satisfied that the current policy does not encourage undue risk taking
(e.g. due to the range of performance metrics used in incentive plans and the substantial weighting towards long-term performance) and
that it is not in conflict with the company’s policies on internal controls that are used to manage risk more generally.
The Committee takes due account of remuneration structures elsewhere in the Group when setting pay for the Executive Directors (for
example, consideration is given to the overall salary increase budget).
Changes to the remuneration policy approved by shareholders at the 2017 AGM
The Committee has undertaken a review of the existing remuneration policy taking account the Group’s strategic objectives and
developments in the executive pay environment and the requirements of the Code. The current policy already includes a number of
features that are in line with the updated Code. However, in order to maintain flexibility over the next three years and to enable us to
retain and attract executive talent, several changes are proposed to both policy and its implementation:
•
•
•
the pension policy for new executive director appointees has been amended to ensure that the level of Company contributions they
may receive will be line with those offered to the wider UK workforce: currently up to a maximum of 6.5% of salary. The Committee
is working on a transition plan to align current Executive Director pension contributions to that of the general workforce over time;
increase in the annual bonus Policy maximum from 100% of salary to 125% of salary with 25% of any bonus taken in shares which
(after settlement of any tax or withholdings) must be held for three years and will be subject to malus and clawback. Note that in light
of current economic circumstances the maximum annual bonus will be held at 100% of salary for 2020/21;
reduction to normal maximum annual grant limit under the PSP from up to 150% of salary to up to 125% of salary (current normal
grant levels are at 100% of salary); and
increase of in-post shareholding requirements from 100% of salary to 150% of salary, to be built up over a 5-year period, and the
introduction of a post-cessation shareholding requirement.
Studio Retail Group plc Annual Report 2020
41
Policy table
Purpose
and Link to
Strategy
Base Salary
To attract
and retain
high calibre
executives.
Amendments to
previous policy
No changes proposed.
Operation
Maximum
Performance Metrics
Normally reviewed on an
annual basis with increases
effective from 1 August.
Takes into account:
• pay levels in companies
of comparable size
and complexity,
skills, knowledge and
experience of the
individual;
•
•
•
individual performance
and development
within the role;
any change in
responsibilities;
rates of inflation and
market wide wage
increases in comparable
companies; and
• pay and employment
conditions elsewhere in
the Group.
Salary levels are normally
reviewed annually and
are eligible for increases
during the three-year policy
period.
A broad assessment of
individual and corporate
performance is considered
as part of the annual review
process.
While no maximum
applies, the Committee
will be guided by the
salary increase budget (in
percentage of salary terms)
set across the workforce
generally.
Increases beyond those
linked to the workforce (in
percentage of salary terms)
may be awarded in certain
circumstances such as
where there is a change in
responsibility, experience
or a significant sustained
increase in the scale of the
role and/or size, value and/
or complexity of the Group
or where salary levels have
become out of line with
market rates for fulfilling
similar roles in companies
of comparable size and
complexity.
42
Studio Retail Group plc Annual Report 2020
Remuneration Policy Report Amendments to
previous policy
Current Executive
Director pension
contributions will
transition to the level
of the workforce by
2022/23.
Minor amendment to
payment of business-
related expenses if
these are deemed to
be taxable benefits.
Purpose
and Link to
Strategy
Pension
To provide
market
competitive
long-term
retirement
benefits
and reward
mechanisms.
Benefits
To provide
cost effective
employee
benefits.
Operation
Maximum
Performance Metrics
None.
None.
The Company’s policy,
other than in the case of
legacy arrangements, is to
limit pension contributions
to 15% of salary, reducing
to the level of the
workforce by 2022/23.
Phil Maudsley’s company
pension contribution is set
at £83,020.
For Paul Kendrick and
new directors, a pension
contribution in line with the
workforce (currently 6.5%
of salary) may be made.
The value of insured
benefits may vary year-
on-year based on the cost
of providing the insured
benefit and is included in
the single total figure table.
Any all-employee share
incentive will be operated
within the limits set by
HMRC from time to time.
Pension benefits are
typically provided either
through
(i) a contribution to
a personal pension
arrangement or
(ii) a cash supplement in
lieu of pension provision or
a mix of both.
Only basic salary is
pensionable.
Benefits include a company
car or car allowance, fuel,
private medical insurance,
home telephone costs
and participation in any all
employee share incentive
plan adopted by the
Company.
The Committee may elect
to offer Executive Directors
other employee benefits
on broadly similar terms as
other employees.
In the event that an
Executive Director is
required to relocate,
reasonable expenses or an
allowance may be payable.
Any reasonable business-
related expenses can be
reimbursed, including tax
thereon.
Studio Retail Group plc Annual Report 2020
43
Amendments to
previous policy
Increase in bonus
maximum from 100%
of salary to 125% of
salary.
Delivery of 25% of any
bonus in shares which
must be held for three
years.
Purpose
and Link to
Strategy
Operation
Maximum
Performance Metrics
Performance-related bonus
Bonus opportunity of up to
125% of salary.
To incentivise
and reward
for the
achievement
of short-
term targets
linked to the
company’s
annual KPIs.
A bonus is paid based
on the achievement of
performance conditions
set at the beginning of the
financial year.
Annual bonuses will
normally be paid part in
cash and part in shares.
At least 25% of any bonus
paid will normally be
delivered in shares which
(other for any sales to pay
tax of statutory deductions)
must be held for 3 years.
Participants may be entitled
to dividend equivalents in
respect of vested shares.
Clawback provisions
enable the Committee to
reclaim any bonus paid
(as cash or shares) as a
result of performance
that is later the subject
of a restatement of the
Company’s results within
a three-year period, an
error, serious reputational
damage, corporate failure
or gross misconduct.
Annual bonus will
be earned based on
performance against
metrics linked to the
Company’s strategy, key
performance indicators and
other operational goals.
A majority of annual bonus
will be earned against a
challenging graduated
scale of financial targets
(e.g. profit) with the targets
set with reference to the
Company’s planning for the
year.
A minority of the bonus
may be based upon the
achievement of a number
of key business objectives
tailored to the individual
executive (e.g. personal
targets, strategic objectives
or business unit objectives).
For achieving the threshold
performance targets,
typically no more than 20%
of the maximum bonus
opportunity is payable.
Maximum payment can
only be earned as a result
of performance above
the Company’s business
plan for the year with a
graduated scale operating
between threshold and
maximum performance
levels.
The Committee will review
the bonus outcome to
ensure that it reflects
underlying Company
performance over the year.
The Committee may amend
the pay-out to better reflect
performance or any other
circumstances if it feels it is
appropriate to do so.
44
Studio Retail Group plc Annual Report 2020
Remuneration Policy Report Amendments to
previous policy
Reduction of maximum
normal policy grant
limit from 150% of
salary to 125% of
salary.
Purpose
and Link to
Strategy
Operation
Maximum
Performance Metrics
Performance Share Plan ('PSP')
PSP grants of up to 125% of
salary (or 200% of salary in
exceptional circumstances
such as recruitment).
To incentivise
and reward
for the
achievement
of long-term
targets which
support the
business
strategy.
Aligns
Executives’
interests
with those of
shareholders.
Annual grant of share-
based awards which are
subject to performance
conditions and normally
vest three years from grant.
A holding period applies
which requires all vested
shares (net of tax) to be
held by the executive for a
period of two years.
Participants may be entitled
to dividend equivalents in
respect of vested shares.
Clawback provisions
enable the Committee to
reclaim any amount paid
as a result of performance
that is later the subject
of a restatement of the
Company’s results within
a three-year period, an
error, serious reputational
damage, corporate failure
or gross misconduct.
PSP awards vest subject
to the achievement of
performance conditions
linked to Company strategy.
The current performance
conditions are based on
absolute TSR and EPS
growth targets.
If alternative measures are
introduced in conjunction
with or in place of EPS and
TSR, this would be subject
to prior consultation with
major investors.
Up to 20% of an award
may vest for threshold
performance with full
vesting taking place for
equalling, or exceeding, the
maximum performance
targets.
The Committee will review
the vesting outcome to
ensure that it reflects
underlying Company
performance over the
performance period. The
Committee may amend the
pay-out to better reflect
performance or any other
circumstances if it feels it is
appropriate to do so.
Studio Retail Group plc Annual Report 2020
45
Purpose
and Link to
Strategy
Operation
Maximum
Performance Metrics
Share ownership Guidelines
None.
In-post requirements
The share ownership
guideline is currently set
at 150% of salary, built up
over a 5-year period, for
directors and this shall be
kept under review over the
life of the policy.
Post-cessation
requirement
75% of salary (or the actual
shareholding if lower) on
departure for two years.
To provide
a continued
focus on
long-term
sustainable
value creation
and to
further align
executives’ and
shareholders’
interests.
In-post requirements
Executive Directors are
expected to retain no fewer
than 50% of any shares
delivered under the PSP
net of taxes until such
time as their target share
ownership guideline has
been achieved.
Post-cessation
requirement
For shares acquired from
vested PSPs granted from
2020 onwards, leavers
will be expected to retain
shares at a level equal
to the lesser of half their
in-post requirement or
the actual shareholding
on departure for two
years post-cessation of
employment. Any shares
purchased by an Executive
will not count towards the
requirement.
Amendments to
previous policy
Increase of in-post
share ownership
requirement from
100% of salary to 150%
of salary.
Introduction of a
timeframe under
which executives
are to build the in-
post shareholding
requirements.
Introduction of post-
cessation shareholding
requirement.
46
Studio Retail Group plc Annual Report 2020
Remuneration Policy Report Amendments to
previous policy
Minor amendment to
payment of business-
related expenses if
these are deemed to
be taxable benefits.
Purpose
and Link to
Strategy
Operation
Maximum
Performance Metrics
Non-Executive Director’s Fees
None.
The current fee levels may
be increased during the
three-year period that
the remuneration policy
operates to ensure they
continue to appropriately
recognise the time
commitment of the role,
increases to fee levels for
Non-Executive Directors in
general and fee levels in
companies of a similar size
and complexity.
Non-Executives are not
eligible to participate in any
incentive arrangements.
To attract
and retain
individuals
with relevant
experience and
knowledge to
enhance the
Board.
The Committee is
responsible for setting the
Company Chairman’s fee.
The Chairman receives a
single consolidated fee,
paid in cash, encompassing
all his responsibilities.
The Board as a whole
(excluding the Non-
Executive Directors) is
responsible for setting the
level of remuneration for
Non-Executive Directors.
Non-Executives’ fees are
paid in cash and comprise
a base fee and additional
fees for chairing Board
committees or holding the
senior independent director
role or other similar roles.
Fee levels are reviewed
periodically and take into
account:
•
•
skills, knowledge and
experience of the
individual;
the expected time
commitments, scope
and responsibilities of
each role; and
• market rates at
companies of a
comparable size and
complexity.
Non-Executive Directors
are excluded from any
discussions relating to their
own fees.
Any reasonable business-
related expenses can
be reimbursed, and
hospitality/travel or
other benefits linked to
performance of the role
may also be met by the
Company including any tax
thereon.
Studio Retail Group plc Annual Report 2020
47
Operation of the Annual Bonus Plan & LTIP Policy
The Committee will operate the annual bonus plan and PSP according to their respective rules and in accordance with the Listing Rules
and HMRC rules where relevant. The Committee retains discretion, consistent with market practice, in a number of regards to the
operation and administration of these plans. For example, these include the following (albeit with quantum and performance targets
restricted to the descriptions detailed in the policy table above):
• Participants of the plans;
•
•
•
The timing of grant of award and/or payment;
The size of an award and/or a payment;
The determination of vesting, including discretion to override formulaic outcomes;
• Discretion required when dealing with a change of control (e.g. the timing of testing performance targets and basis of measurement)
or restructuring of the Group;
• Determination of a good/bad leaver for incentive plan purposes based on the rules of each plan and the appropriate treatment
chosen;
• Whether malus and/or clawback shall be applied to any award and, if so, the extent to which they shall apply;
• Adjustments required in certain circumstances (e.g. rights issues, corporate restructuring, events and special dividends); and
•
The annual review of performance measures weighting, and targets for the annual bonus plan and Performance Share Plan from year
to year.
The Committee also retains the ability to adjust the targets (up or down) and/or set different measures and alter weightings for the annual
bonus plan and to adjust targets for the bonus or PSP if events occur (e.g. material divestment of a Group business or events relating to
the Company’s issued share capital) which cause it to determine that the conditions are no longer appropriate in the circumstances and
the amendment is required so that the conditions achieve their original purpose and are not, in the opinion of the Committee, materially
more or less challenging to satisfy in the circumstances.
All historic PSP awards that were granted but remain outstanding (detailed on page 62 of the Annual Report on Remuneration) remain
eligible to vest based on their original award terms.
Choice of performance measures and approach to target setting
The performance metrics that are used for annual bonus and long-term incentive plan are a subset of the Group’s key performance
indicators.
Under the annual bonus plan, reflecting the Company’s focus on delivering profitable growth and generating cash in its businesses, whilst
operating within defined risk parameters the majority of bonus is normally subject to the achievement of challenging financial targets
such as profit and free cash flow. For FY2020/21, Adjusted Profit Before Tax and growth in active credit customers have been selected
as these provide a balance between in year delivery of profit for shareholders and laying the foundations for future profit growth as the
economy returns to normal in future years. A minority of the bonus will be based on non-financial and personal objectives reflecting
individual areas of responsibility with, exceptionally in the case of Phil Maudsley, an increased weighting on personal non-financial goals
related to completion of CMA clearance of the FEL sale and the effective transition of his responsibility to the new CEO.
In addition to challenging financial targets, a minority of bonus may be set subject to business objectives tailored to each individual’s role
and responsibilities (e.g. individual targets are set to provide reward opportunity for delivering specific in-year objectives) the achievement
of which will enable the Company to maintain or improve its upward trajectory in delivering against its business plans.
In terms of long-term performance targets, awards currently vest subject to (i) challenging EPS growth targets that are aligned with the
long-term levels of earnings growth targeted by the Company and (ii) absolute TSR targets which provide clear alignment of interests
between shareholders and executives in terms of delivering successful progress in the Group’s businesses. Other measures which are
aligned to the Company’s medium to long term strategy may be introduced in future and will be subject to prior consultation with leading
investors.
Targets are generally set based on graduated scales that take account of internal planning and external market expectations for the
Company. Only modest rewards are available for delivering threshold performance levels with maximum rewards requiring substantial
out-performance of the challenging plans approved at the start of each year over one and up to three-year time periods.
How Executive Directors’ remuneration policy relates to the wider Group
The remuneration policy described in the policy table provides an overview of the structure that operates for Executive Directors.
Outside the Executive Director population, different structures and incentive quantum apply that take due account of the Company’s
overall remuneration policy, the specific objectives of individual’s roles and practice in companies of comparable size.
48
Studio Retail Group plc Annual Report 2020
Remuneration Policy Report Base salaries for employees are set by reference to industry specific comparator groups. Consideration is given to the overall salary
increase budget and general employment conditions, when setting Executive Director base salaries.
The performance-related bonus scheme operates with targets and quantum that are set by reference to individual role and responsibility.
More emphasis on divisional performance and/or personal performance is included at less senior levels.
The PSP is offered on a discretionary annual basis to senior executives. Awards are limited to this grade of employees as they are
anticipated as having the most potential to influence performance at a Group level. These awards are generally subject to the same
performance conditions as detailed in the remuneration policy table.
How employees’ views are taken into account
The Committee does not directly consult with employees on executive remuneration.
However, the Committee is provided with an overview of employee and executive remuneration structures at the Company. The
Committee is kept up to date, more generally, with pay and employment conditions elsewhere in the Company and is informed of the
salary increase budget for the Group as a whole when setting Executive Directors’ pay increases (if any) each year. The relatively new
role of the nominated NED for employee engagement (who is a member of the Remuneration Committee) is also a potential conduit for
increased access to the views of colleagues on executive pay.
How shareholders views are taken into account
As a matter of course, after the AGM, the Committee will consider feedback from shareholders this, plus any additional feedback received
from time to time, is considered as part of the Committee’s annual review of remuneration policy. The Committee also closely monitors
developments in institutional investors’ best practice expectations.
The Committee will also seek feedback from shareholders from time to time as part of a wider shareholder dialogue if considered
appropriate. Indeed, the process surrounding the formulation of the new policy included a programme of engagement with the
Company’s largest institutional investors representing over 80% of the Company’s issued shares and major investor bodies and proxy
agencies in order to understand their views on the proposed approach.
Illustration of application of policy
The Company’s policy results in a significant portion of remuneration received by executive directors being dependent on Company
performance. The graph below illustrates how the total pay opportunities for the Chief Executive vary under four different performance
scenarios: below threshold, on-target, maximum and maximum including 50% share price growth. When reviewing the charts that follow,
it should be noted that these have been prepared based on the policy detailed in the table above.
)
s
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
R
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Fixed Pay
Annual Bonus
Long-Term Incentives
£1,644
£1,424
31%
40%
£850
10%
26%
£541
31%
27%
£1,027
40%
£889
31%
£529
10%
26%
£335
31%
27%
£390
£1,265
42%
£1,090
32%
32%
28%
£635
10%
28%
100%
64%
38%
33%
100%
63%
38%
33%
100%
61%
36%
31%
Minimum
Target
Maximum Maximum
Minimum
Target
Maximum Maximum
Minimum
Target
Maximum Maximum
+50%
share price
growth
+50%
share price
growth
+50%
share price
growth
Chief Executive
Chief Financial Officer
Managing Director, Studio
Studio Retail Group plc Annual Report 2020
49
Assumptions
• Below threshold – fixed pay only being 2020/21 base salary, the value of 2019/20 benefits and assumed 2020/21 pension contribution
•
Target – fixed pay plus 50% of 2020/21 maximum bonus and 20% vesting of 2020 PSP award
• Maximum – fixed pay plus 100% of 2020/21 maximum bonus and 100% vesting of 2020 PSP award
• Maximum (plus 50% share price growth) – fixed pay plus 100% of 2020/21 maximum bonus and 100% vesting of 2020 PSP award with
50% share price growth
Recruitment and Promotion Policy
For Executive Director recruitment and promotion situations the Committee will use the following guidelines:
Remuneration Element
Policy
Base Salary
Base salary levels will be set by reference to the experience of the individual, taking into account
relevant market data and internal relativities.
Benefits
If a new recruit has a below market salary set on appointment, they may experience phased multi-
period increases in excess of other Executive Directors (and the wider workforce) to bring them into
line with the market as they develop in the role, subject to continued performance in post.
Benefits as provided to current Executive Directors. Where necessary the Committee may approve
the payment of relocation expenses to facilitate recruitment and flexibility is retained for the
Company to pay for legal fees and other costs incurred by the individual in relation to their
appointment.
Pension
A defined contribution or cash supplement limited to that of the workforce (currently 6.5% of salary).
Annual Bonus
The maximum ongoing incentive opportunity under the Company’s policy is 125% of salary.
The annual bonus will operate as outlined for current executives, with the respective maximum
opportunity, albeit pro-rated for the period of employment.
Dependent on the timing of the appointment and the nature of the role, it may be necessary to set
different performance measures and targets for the first year of operation.
Long-Term Incentives
PSP awards will be granted in line with the policy outlined for the current Executive Directors.
An award may be made shortly after an appointment (subject to the Company not being in a
prohibited period). The maximum ongoing annual award level is 125% of salary under the PSP but an
award, in exceptional circumstances (as determined by the Committee), may be granted up to 200%
of salary under the rules of the PSP.
For an internal hire, existing awards would continue over their original vesting period and remain
subject to their terms as at the date of grant.
Buy-out Awards
To facilitate an external hire, the Committee may be required to offer additional cash and/or share-
based elements which includes the use of awards made under 9.4.2 of the Listing Rules.
Any such payments would be made to compensate for remuneration forfeit when leaving a former
employer or role and would take into account where possible, the type of remuneration forfeit, the
time horizon to vesting and the impact of any performance conditions.
The Committee will make an announcement to shareholders, detailing the remuneration
arrangements, at the time of appointment.
50
Studio Retail Group plc Annual Report 2020
Remuneration Policy Report Service Contracts & External Appointments
Executive Directors
Future Contract Policy
It is the Committee’s policy that service agreements for Executive Directors should be terminable on not more than 12 months’ notice,
which is in line with current market practice and will provide the Company with additional flexibility if it needed to recruit externally.
Contractual notice periods for the current Executive Directors are 6 months from either party. Contracts will not include liquidated
damages clauses guaranteeing a specified level of remuneration on termination. Contracts will, at the Company’s discretion, enable the
Company to make a payment in lieu of notice comprising up to 12 monthly instalments of base salary which would reduce to the extent
that alternative employment was taken up.
New contracts will not provide enhanced protection in relation to contractual terms on a change of control.
General provisions
In certain circumstances such as gross misconduct, the Company may terminate employment immediately without notice or payment for
each of the current or future Executive Directors. In the event of early termination of a service agreement, the Committee would consider
appropriate use of mitigation and phased compensation payments where possible. In addition, any statutory entitlements or payments
to settle or compromise claims in connection with a termination of any existing or future Executive Director would be made as necessary.
The Committee also retains the discretion to meet any reasonable legal fees or outplacement costs if deemed necessary.
Unless the Committee determines otherwise, annual bonuses are not normally payable if an Executive Director has left or is under notice
at the payment date. Any annual bonus payments would normally only be made to an Executive Director who has left or is under notice if
the Committee determines him a ‘good leaver’ (e.g. death, injury or disability, redundancy, serious long-term illness, transfer or sale of the
employing company, retirement with the Company’s agreement or other circumstances at the discretion of the Committee), in which case
a bonus entitlement would be calculated based on the period of active employment and performance and normally paid wholly in cash.
The treatment for share-based incentives previously granted to an Executive Director will be determined based on the relevant plan rules.
The default treatment will be for outstanding awards to lapse on cessation of employment.
However, In relation to awards granted under the share schemes, in certain prescribed ‘good leaver’ circumstances (e.g. death, injury or
disability, redundancy, serious long-term illness, transfer or sale of the employing company, retirement with the Company’s agreement
or other circumstances at the discretion of the Committee) awards may remain eligible to vest. For PSP awards, these remain subject to
performance conditions, which will be measured over the original performance period or up to the date of cessation, with time pro-rating
applied unless the Committee considers it inappropriate to do so.
Outside appointments
The Company currently allows the Executive Directors to undertake outside interests and appointments, subject to the prior approval of
the Board, in which instances they are allowed to retain any fees that they receive in respect of such activities.
Non-Executive Directors
The appointment of Non-Executive Directors is for an initial period of three years, subject to review and re-election in General Meeting.
They do not have service agreements. In the normal course Non-Executive Directors will be asked to serve two terms of three years.
The Board reserves to itself the discretion to extend terms beyond the two terms of three years, on an annual basis, if the particular
circumstances warrant it, up to a maximum aggregate term of 9 years
The service contracts for Chief Executive and letters of appointment for the Chairman and the Non-Executive Directors are available for
inspection at the Company’s registered office during normal business hours and at the AGM (for 15 minutes prior to the meeting and
during the meeting).
Studio Retail Group plc Annual Report 2020
51
Annual Report on Remuneration
The regulations require the Auditor to report to the Company’s members on the ‘auditable parts’ of the annual report on remuneration
and to state whether, in their opinion, the parts of the report that have been subject to audit have been properly prepared in accordance
with the relevant legislation. The parts of this report which have been audited have been highlighted accordingly.
Remuneration Committee
The remuneration of the Executive Directors and the Chairman is determined by the Committee.
The members of the Committee during the year were all independent Non-Executive Directors. Mr Grimsey chaired the Committee until
25 July 2019, when he retired from the Board and was replaced as chair of the Committee by Mr Coumau. Mr Coumau, Mr Ball and Ms
O’Donnell were members of the Committee throughout the year. Ms Askem joined the Committee on 27 February 2020. No member of
the Committee has any personal financial interest, other than as a shareholder, in the matters to be decided, nor any potential conflict of
interest arising from cross-directorships, nor any day-to-day involvement in running the business throughout the period. The Chairman
of the Company and the Chief Executive normally attend meetings of the Committee by invitation except when matters concerning their
own remuneration are discussed. The Committee is assisted when required by its advisors who are appointed by the Committee. During
the year under review, the Committee was advised by Aon plc. Following the year end, after the lead advisor moved from Aon to A&M,
the Committee appointed A&M to act as its advisors. Both Aon and A&M are members of the Remuneration Consultants Group and have
signed up to its Code of Conduct. Apart from providing advice in respect of the design, establishment and operation of remuneration
arrangements, Aon plc provided no other services to the Company and during the year charged fees of £75,287 (excluding VAT) (FY19:
£40,435). The Committee has reviewed the operating processes in place at Aon and A&M and is satisfied that the advice it receives is
independent and objective.
The Company Secretary acts as the secretary to the Committee.
The Committee meets three or more times per year and met five times in 2019/20. Individual attendance details can be found
within the Corporate Governance Report on page 36. The Committee’s terms of reference are available on the Company’s website
(www.studioretail.group). During the year the key matters which were discussed were:
•
•
•
•
•
The salary levels of the Executive Directors;
The bonus out-turn for the 2018/19 annual bonuses;
The terms of the 2019/20 annual bonus plan;
The quantum and performance targets for the 2019/20 Performance Share Plan awards;
Testing of the 2016 Performance Share Plan award’s performance targets;
• Approval of remuneration changes and the remuneration of new appointments of any employee within the remit of the Committee
including the MD Studio on his appointment to the Board;
• Detailed review of the 2017-2020 Directors’ Remuneration Policy;
• Consideration of the Company’s Gender Pay Gap data and its impact on the Company;
• Remuneration structures for the wider workforce;
• Review of the regulatory guidance on remuneration;
• Approval of the 2018/19 Directors’ Remuneration Report;
•
•
•
•
Initial design of the 2020/21 annual bonus plan
The annual self-evaluation of the effectiveness of the Committee;
The terms of reference of the Committee;
The potential introduction of all-employee share plans; and
• Consideration of developments in market and best practice.
52
Studio Retail Group plc Annual Report 2020
Board Report on Directors’ Remuneration Shareholder Voting at the 2019 AGM
At last year’s AGM, the Annual Report on Remuneration received the following votes from shareholders:
Resolution
For
Against
Total votes cast (for and against)
Withheld votes
Total votes (including withheld votes)
At the 2017 AGM the Directors’ Remuneration Policy received the following votes from shareholders:
Resolution
For
Against
Total votes cast (for and against)
Withheld votes
Total votes (including withheld votes)
Annual Report on Remuneration
Total number of votes
% of votes cast
75,902,133
10,608
75,912,741
42,214
75,954,955
100%
0%
100%
N/A
N/A
Directors’ Remuneration Policy
Total number of votes
% of votes cast
80,003,710
37,903
80,041,613
1,354
80,042,967
100.0%
0.0%
100%
N/A
N/A
Performance Graph
The following graphs contrast the total shareholder return of the Company with the FTSE Small Cap Index and FTSE All Share General
Retailers Index. These indices were selected as being, in the opinion of the Committee, the most appropriate for comparison because
Studio Retail Group plc is currently a constituent member of each.
The first graph shows the total shareholder return over the ten financial years to 27 March 2020 as required by the reporting requirements.
However, the Committee considers that the total shareholder return over the nine financial years to 27 March 2020 to be a relevant
additional disclosure since this timeframe relates to the period during which the executive team were executing the Board’s recovery
and growth strategy for the Group.
Studio Retail
FTSE Small Cap Index
FTSE All Share General Retailers Index
)
d
e
s
a
b
e
r
(
)
£
(
e
u
a
V
l
300
250
200
150
100
50
0
3 A pril 2009
2 A pril 2010
1 A pril 2011
30 M arch 2012
29 M arch 2013
28 M arch 2014
27 M arch 2015
25 M arch 2016
31 M arch 2017
30 M arch 2018
29 M arch 2019
27 M arch 2020
This graph shows the value, by 27 March 2020, of £100 invested in Studio Retail Group plc on 3 April 2009, compared with the value of £100 invested in the
FTSE Small Cap and FTSE All Share General Retailers Indices on the same date. The other points plotted are the values at intervening financial year-ends.
Source: FactSet
Studio Retail Group plc Annual Report 2020
53
Performance Graph
Studio Retail
FTSE Small Cap Index
FTSE All Share General Retailers Index
)
d
e
s
a
b
e
r
(
)
£
(
e
u
a
V
l
300
250
200
150
100
50
0
1 A pril 2011
30 M arch 2012
29 M arch 2013
28 M arch 2014
27 M arch 2015
25 M arch 2016
31 M arch 2017
30 M arch 2018
29 M arch 2019
27 M arch 2020
This graph shows the value, by 27 March 2020, of £100 invested in Studio Retail Group plc on 1 April 2011 compared with the value of £100 invested in the
FTSE Small Cap and FTSE All Share General Retailers Indices on the same date. The other points plotted are the values at intervening financial year-ends.
Source: FactSet
The table below sets out the total remuneration figure for the Chief Executive role over the last ten years.
Year ending
Executive
P B Maudsley(1)
2011
2011
2012
R W J Siddle(2)
2014
2013
2015
2016
D Sugden(3)
2017
2017
M I Burke(4)
2018
2018
P B Maudsley(5)
2020
2019
Total Remuneration (£000)
Annual bonus (as % of maximum)
LTIP vesting (as % of maximum)
£607 £484 £496 £745 £2,650 £509 £428 £332
14.9% 64.9% 0.0% 62.3% 67.9% 0.0% 0.0% 0.0%
n/a
0.0% 0.0% 0.0% 0.0% 36.3% 0.0%
n/a
£55
n/a
n/a
£3 £864 £926 £781
0%
n/a 82.3%
95%
49%
n/a 0.0% 0.0%
1. Stepped down as Chief Executive in September 2010 (figures are the total annual remuneration received during each full financial year).
2. Appointed Chief Executive in September 2010 and stepped down from the position of Chief Executive at the conclusion of the 2014/15 financial year.
3. With effect from the start of the 2015/16 financial year, David Sugden became Executive Chairman. As detailed in the 2017 Remuneration Report David Sugden did
not receive any long-term incentives in light of his appointment to the role being for a short-term period. David Sugden left the Board on 12 January 2017.
4.
Joined the Board as Executive Chairman on 12 January 2017 and received base salary only and reverted to non-executive status on 5 April 2017.
5. Appointed CEO on 5 April 2017.
54
Studio Retail Group plc Annual Report 2020
Board Report on Directors’ Remuneration
Emoluments of the directors (subject to audit)
The emoluments of the directors in the period ended 27 March 2020 is shown below:
Salary
and fees(2)
Taxable
benefits(3)
Pensions(4)
Total
fixed pay
Annual
bonus(5)
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Long-term
incentives(6)
2019
2020
Total
variable pay
2019
2020
Total(7)
2020
2019
Chairman
M I Burke
153
150
—
—
—
—
153
150
—
—
—
—
—
—
153
150
Executive Directors
S M Caldwell
P R Kendrick(1)
P B Maudsley
275
103
438
263
—
427
Non-Executive Directors
C V Askem
G F Ball
F R M Coumau
E M O’Donnell
41
61
47
51
Previous Directors
W Grimsey(1)
E F Tracey(1)
16
—
1
57
40
47
50
19
17
4
17
—
—
—
—
—
—
17
—
17
—
—
—
—
—
—
41
7
83
—
—
—
—
—
—
40
—
83
—
—
—
—
—
—
333
114
538
320
—
527
41
61
47
51
16
—
1
57
40
47
50
19
Totals
Notes:
1,185 1,054
38 1,054
131
123 1,354 1,218
—
—
—
—
—
—
—
—
—
—
243
—
399
157
119
243
—
—
—
—
—
—
—
—
—
—
—
—
642
519
—
—
—
—
—
—
—
—
—
—
157
119
243
243
—
399
490
233
781
563
—
926
—
—
—
—
—
—
—
—
—
—
—
—
41
61
47
51
16
—
1
57
40
47
50
19
519
642 1,873 1,860
1. P R Kendrick was promoted to the Board in the position of MD, Studio on 16 December 2019; E F Tracy retired from the Board on 26 July 2018 and W Grimsey retired
from the Board on 25 July 2019.
2. Mr Kendrick’s salary was £350,000 on promotion to the Board.
3. Taxable benefits comprise the private use of a motor car (or a cash allowance in its place), fuel, private health insurance and home telephone costs.
4. Pension values include contributions to defined contribution pension plans or cash allowances in lieu of pension contributions.
5. Further details of the annual bonuses payable to the Executive Directors in relation to the year under review are set out below.
6. As detailed on pages 60 and 61, the 2017 PSP awards which were based on a performance period ending at the conclusion of the 2019/20 financial year partially
vested. See pages 60 and 61 for further details, including details of the value attributable to share price growth.
7. The figures above represent emoluments paid to directors during their tenure in the relevant financial period, with the exception of annual bonus payments and Long-
Term Incentives, which relate to performance in the period under review but paid/expected to vest after the year-end.
Studio Retail Group plc Annual Report 2020
55
2019/20 Annual bonus
The information below provides details of the formulaic outcome of the annual bonus for FY2019/20. As outlined in the Chairman’s letter
of this report, the Committee have determined that notwithstanding the performance achieved, having considered overall business
performance and wider economic considerations no bonuses will be payable. Therefore, this section is presented for information only.
However, full details of performance against each of the annual bonus objectives is provided below in the interests of transparency.
The 2019/20 performance-related bonus plan maximum was 100% of salary for the Chief Executive, Chief Financial Officer and MD, Studio.
With regards to the proportion of the total bonus that could be earned against each element, 75% of the maximum opportunity was
based on financial performance (37.5% Adjusted Group Profit Before Tax and 37.5% Group Free Cash Flow), with 25% based on a number
of individually tailored personal objectives.
The entire bonus was subject to an underpin of threshold profitability. In addition, the bonus was also subject to a further underpin that
enables the Committee to scale back the bonus (including to zero) if there were any material instances of inappropriate outcomes for
customers.
Performance against targets
The 2019/20 financial targets were:
Profit Performance
Group profit before tax*
Group free cash flow**
Threshold
Max
£29.6m
£16.5m
£35.5m
£23.8m
FY2019/20
Actual
£31.2m
£23.7m
% of salary
payable
nil
nil
* Adjusted Group profit before tax is calculated as per the Alternative Performance Measure described on pages 18 to 21 and is stated before individually significant
items and fair value movements on foreign currency derivative financial instruments.
** Free Cash Flow (‘FCF’) is calculated as per the Alternative Performance Measure described on pages 18 to 21 and stated as net cash flow generated from operations,
plus securitisation inflows, capital expenditure and exceptional items, but before tax, interest, finance lease repayments and investments.
Whilst the threshold performance level was exceeded, as noted above, no bonuses (maximum of 75% of salary) were paid in respect of
2019/20 financial performance.
The performance metrics for the MD Studio were set prior to his appointment to the Board and related to the performance of Studio as
follows:
Profit Performance
Studio adjusted operating profit
Studio adjusted free cash flow
Threshold
Max
£40.6m
£19.3m
£46.3m
£27.0m
FY2019/20
Actual
£39.0m
£23.7m
% of salary
payable
nil
nil
Since the underpin of threshold profitability was not met, 0% of salary (out of a maximum of 75% of salary) was payable for 2019/20
financial performance.
Non-financial objectives
The Executive Directors had a number of personal objectives set at the beginning of 2019/20. Achievement against these objectives was
assessed by the Committee based on demonstrated progress against agreed milestones.
Whilst the Chief Executive, the Chief Financial Officer and MD, Studio delivered a strong performance against their personal objectives,
as noted above, no bonuses were payable in this regard for 2019/20 (maximum 25% of salary).
56
Studio Retail Group plc Annual Report 2020
Board Report on Directors’ Remuneration
Details of the non-financial objectives are set out in the tables below:
Chief Executive
Objective
Threshold
Target
Maximum
Achievement
Weighting
% payable
Improve brand
awareness and gross
dispatch margin
Active credit customer
increased from
1,441,659
Findel Education
operating profit
Credit account
transactions from
“Good” customer
definition
Findel Education
reduction in Discounts
Advance the business’
risk management
maturity
Achieve key
milestones in our
cyber security
enhancements.
Improve employee
engagement by set
number of points
5%
7.5%
10%
Increased brand awareness
from 37% to 40.5% and Brand
Consideration from 14% to 20%
Partly achieved
2.5%
nil
+1.5%
+2.5%
+3.5%
Decline in active credit customers
2.5%
Not achieved
£4.5m
£4.75m
£5m
£3.3m
72%
73.5%
75%
Not achieved
Ahead of plan throughout
2019/20 but significant decline
in number of Good Credit
Customers in March
Partly achieved
5%
2.5%
£0.8m
£1m
£1.2m
£1.0m reduction in discounts
2.5%
—
Tier 3
Tier 4
Achieved
Risk project progressed and new
frameworks and reporting in
place. The evidence-based risk
maturity score for the business at
year end was 3
2.5%
Achieved
nil
nil
nil
nil
nil
—
Level 3
score for
CIS 1-6
Level 3
score on
additional 6
measures
Cyber+ progresses and improves
our position but suffering from
constant replans and Covid 19
Partly achieved
0 point
increase
2 point
increase
4 point
increase
2.5%
nil
2.5%
nil
2.5%
nil
Increase in Colleague engagement
for UK sites was 74.8 (vs 74.4) and
cross functional working fell from
58.4 to 57.8
Partly achieved
Phase 1 implemented ahead of
plan and phase 2 will complete to
plan despite Covid19 disruption
Fully achieved
Implement an
appropriate SMCR
regime for Studio
senior managers and
certified functions
Assessment
by Risk
Committee
Studio Retail Group plc Annual Report 2020
57
Chief Financial Officer
Objective
Threshold
Target
Maximum
Achievement
Weighting
% payable
Refinancing of facility
0.5% above
current
0.25%
above
current
Current
levels
Facilities extended in light of sale
of Education
5%
Deliver a significant
improvement in risk
management
—
Tier 3
Tier 4
Achieved
Risk project progressed and new
frameworks and reporting in
place. The evidence-based risk
maturity score for the business at
year end was 3
5%
Achieved
Minimum risk
management
Findel Education
operating profit
Improve brand
awareness and gross
dispatch margin
Active credit customer
increased from
1,441,659
Credit account
transactions from
“Good” customer
definition
Implement an
appropriate SMCR
regime for Studio
senior managers and
certified functions
—
Tier 3
Tier 4
As above
Achieved
£4.5m
£4.75m
£5m
£3.3m
5%
7.5%
10%
Not achieved
Increased brand awareness
from 37% to 40.5% and Brand
Consideration from 14% to 20%
Margin declined slightly from
33.3% to 33.0%
Partly achieved
2.5%
5%
2.5%
+1.5%
+2.5%
+3.5%
Decline in active credit customers
2.5%
72%
73.5%
75%
Not achieved
2.5%
Ahead of plan throughout
2019/20 but significant decline
in number of Good Credit
Customers in March 0.75%
Partly achieved
Assessment by Risk Committee
Implemented
2.5%
nil
Achieved
nil
nil
nil
nil
nil
nil
nil
58
Studio Retail Group plc Annual Report 2020
Board Report on Directors’ Remuneration MD, Studio
Objective
Threshold
Target
Maximum
Achievement
Weighting
% payable
Brand awareness
tracking established
and improvement
on base case level
achieved
Increase average
spend per customer
5%
7.5%
10%
1.25%
nil
Increased brand awareness
from 37% to 40.5% and Brand
Consideration from 14% to 20%
Salesforce Marketing Cloud was
delivered ahead of plan and
showing Service Cloud partly
delivered
App successfully re-launched
Partly achieved
2.5%
5%
7.5%
7% increase
1.25%
Fully achieved
7%
NPS decline in year
Not achieved
+2.5
Gross margin decreased
during FY20
Not achieved
33%
35%
37%
37.8%
Fully achieved
+1.5%
+2.5%
+3.5%
Decline in active credit customers
2.5%
NPS increased
3%
Increase gross
dispatch margin
+1.5
5
+2
Increase customer
online enquiries
Active credit customer
increased from
1,441,659
Historic remediation
programmes fully
complete
Fully
complete
Not achieved
Plevin and Credit balances
complete. Nosia started but
completion in July (delay due
to Covid19)
Partly achieved
Ahead of plan throughout
2019/20 but significant decline
in number of Good Credit
Customers in March 0.75%
Partly achieved
Risk project progressed and new
frameworks and reporting in
place. The evidence-based risk
maturity score for the business at
year end was 3
Achieved
72%
73.5%
75%
—
Tier 3
Tier 4
Credit account
transactions from
“Good” customer
definition
Advance the business’
risk management
maturity
Achieve key
milestones in our
cyber security
enhancements
Improve employee
engagement by set
number of points
—
Level 3
score for
CIS 1-6
Level 3
score on
additional 6
measures
Cyber+ progresses and improves
our position but suffering from
constant replans and Covid 19
Partly achieved
0 point
increase
2 point
increase
4 point
increase
Increase in Colleague
engagement for UK sites was
74.8 (vs 74.4) and cross functional
working fell from 58.4 to 57.8
Partly achieved
nil
nil
nil
nil
nil
nil
2.5%
2.5%
2.5%
2.5%
2.5%
nil
2.5%
nil
2.5%
nil
2.5%
nil
Studio Retail Group plc Annual Report 2020
59
Directors’ pension entitlements (subject to audit)
No director was a member of a defined benefit scheme during FY2020.
Directors’ Share Options and Long-Term Incentive Plans (subject to audit)
Awards vesting in relation to FY2019/20
The performance conditions for the awards granted in FY2017/18 for the Chief Executive and the Chief Financial Officer were based on
compound growth in EPS and TSR targets as set out in the table below:
Annual Compound Growth in TSR
(to 31 March 2020 from the 31 March 2017 base year) –
50% of award
Annual Compound Growth in EPS
(to 31 March 2019 from the 31 March 2016 base year) –
50% of award
Percentage of Shares
subject to the Award that vests
Below 10% p.a.
10% p.a.
Below 10% p.a.
10% p.a.
Between 10% and 18.5% p.a.
Between 10% and 19.4% p.a.
Above 18.5% p.a.
Above 19.4% p.a.
Actual achieved 2.1% resulting in no awards vesting
Actual achieved 19.2% resulting in 49% of awards vesting
0%
20%
Between 20% and 100%
on straight-line basis
100%
When the awards were granted in 2017/18, the targets for adjusted EPS, which excluded the impact of individually significant items and
the impact of fair value movements on the Group’s foreign currency forward contracts, were set by reference the accounting standards
prevailing at that point. In the intervening period, the group has adopted IFRS 9 Financial Instruments (“IFRS 9”), IFRS 15 Revenue from
Contracts with Customers (“IFRS 15”) and IFRS 16 Leases (“IFRS 16”), all of which impact upon the adjusted EPS measure. In addition, the
sale of Findel Education to YPO was not envisaged IN 2017/18 so no allowance was made for the impact of IFRS 5 Non-current Assets
Held for Sale and Discontinued Operations (“IFRS 5”). In measuring the Company’s performance against targets set, the Committee has
therefore made the following adjustments to ensure that the 2019/20 adjusted EPS is derived on an equivalent basis to that assumed
then awards were granted:
For purposes of ordinary EPS
(1) Exclude impact of individually significant items
(2) Fair value movements on derivative financial instruments
For purposes of adjusted EPS
(3) Exclude IFRS 16 adoption
(4) Exclude impact of IFRS 5
(5) Exclude estimated COVID-19 bad debt impact
(6) Exclude impact of change in accounting estimate
(7) Other GAAP changes (IFRS 9 and 15)
For purposes of LTIP assessment
No of shares in issue (excluding treasury shares)
Adjusted EPS purposes of LTIP assessment
Base adjusted EPS
CAGR
Notes
Profit before tax
Taxation
Profit after tax
8,809
8,342
(2,608)
14,543
1,759
(1,393)
20,000
(3,675)
3,519
34,753
(54)
(1,585)
496
(1,143)
(334)
—*
(3,800)
699
(690)*
(5,269)
8,755
6,757
(2,112)
13,400
1,425
(1,393)
16,200
(2,976)
2,829
29,485
86,327,726
34.15p
20.19
19.2%
•
•
•
•
Adjustments 1) and 2) are the same as those made in arriving at net profit attributable to ordinary shareholders for the purposes of adjusted earnings per share in
accordance with IAS 33 Earnings Per Share (“IAS 33”). See note 10 to the consolidated financial statements for details.
Adjustments 3), 4), 5), and 6) are the same as those made in arriving at Adjusted profit before tax on a like-for like basis. Please refer to the calculation of Alternative
Performance Measures on pages 18 to 21 for details.
Adjustment 7) represents the estimate impact of adopting IFRS 9 and IFRS 15 in 2019/20.
The tax impact of the adjustments has been calculated at the prevailing corporation tax rate of 19%, except where indicated with an asterisk (*). In these instances, a
deferred tax impact has been reflected.
As a result of performance against the above targets, 49.0% of the award vested.
60
Studio Retail Group plc Annual Report 2020
Board Report on Directors’ Remuneration
The award granted to the MD, Studio award in FY2017/18 was subject to Studio specific operating profit targets as follows:
Studio – adjusted operating profit
Below £37.7m
£37.7m
Between £37.7m and £44.1m
Above £44.1m
Percentage of Shares
subject to the Award that Vests
0%
30%
Between 30% and 100%
on a straight-line basis
100%
Actual achieved £39.0m resulting in 44% of award vesting
As a result of performance against the above targets, 44% of the award vested.
As a result of the performance outlined above, the following numbers of shares have vested:
Director
S M Caldwell
P R Kendrick
P B Maudsley*
Type of
award
PSP
Vesting
date
14 August 2020
14 August 2020
14 August 2020
Number
of shares
awarded
137,873
115,999
212,982
Percentage
of award
vesting
49%
44%
49%
Number
of shares
vesting
67,557
51,039
104,361
Value at
vesting
£157,070
£118,666
£242,639
Value
attributable
to share
price growth
£34,589
£18,017
£36,839
These awards have been valued using the closing price on the date of vesting of 232.5p. The share prices on the original date of grant
were 197.2p (awards to P Kendrick and PB Maudsley) and 181.3p (award to SM Caldwell), respectively. The earliest date that the awards
could have vested was on the third anniversary of grant, i.e. in July 2020, however, vesting did not occur until the Committee finalised the
vesting outcome, which occurred on 14 August 2020.
PSP Awards granted in FY2019/20
During FY2019/20 the following awards of nil-cost options were made under the PSP to Executive Directors. They were eligible for PSP
awards of 100% of salary, however the number of shares granted was based on a share price of 250p:
Executive
Chief Executive
Chief Financial Officer
MD, Studio(2)
Award
(as a % of salary)
Share price(1)
100%
100%
N/A
250p
250p
250p
Number of
shares subject
to award
172,200
108,000
96,000
Face value
of award
£430,500
£270,000
N/A
% of face
value which
vests at
threshold
20%
20%
20%
1. As disclosed in the FY2018/19 report awards were to be based on the higher of the market value of Company’s shares at the date of grant and a share price of 250p, as the
average share price over the 5 trading days immediately preceding 12 June 2019, being the date of grant was 222.4p grant levels were based on a share price of 250p.
2. The MD, Studio was not an Executive Director at the time his PSP award was made.
As set out in the FY2018/19 report, the award is subject to Absolute TSR growth (50% of the award) and EPS targets (50% of the award).
EPS remains the primary measure of our long-term financial success with TSR providing clear alignment with shareholders. Targets for the
FY2019/20 grants are:
Annual Compound Growth in TSR
(to 31 March 2022 from the 31 March 2019 base year)
Annual Compound Growth in EPS
(to 31 March 2022 from the 31 March 2019 base year)
Percentage of Shares
subject to the Award that vests
Below 12.5% p.a.
12.5% p.a.
Below 7.5% p.a.
7.5% p.a.
Between 12.5% and 22.5% p.a.
Between 7.5% and 15% p.a.
Above 22.5% p.a.
Above 15% p.a.
0%
20%
Between 20% and 100%
on straight-line basis
100%
TSR is measured based on a three-month averaging at the start and the end of the performance period. The above ranges of targets were
calibrated after taking into account both internal and external growth expectations such that they were felt to provide a balance between
being realistic at the bottom end of the range and very demanding at the top end of the range.
Studio Retail Group plc Annual Report 2020
61
The award is also subject to an underpin that there are no material breaches of our commitment to “treating customers fairly” during
the performance period. When assessing the outcome of the performance conditions the Committee will also have regard to the overall
performance of the Group and has the discretion to reduce the award (including to zero) if it is felt that the outcome does not reflect
underlying performance.
A two-year holding period will apply to any vested shares (net of tax).
Details of all directors’ outstanding interests in shares under the Performance Share Plan (subject to audit)
The table below details the current outstanding share awards under the PSP:
S M Caldwell
P R Kendrick
P B Maudsley*
31 March 2019
Granted
Exercised
Lapsed
27 March 2020
Award date
Vesting date
44,771
137,873
91,241
131,497
115,999
83,485
96,000
212,982
153,285
—
—
—
—
108,000
—
—
172,200
—
—
—
—
—
—
—
(44,771)
—
—
—
(131,497)
—
—
—
—
137,873
91,241
108,000
—
115,999
83,485
96,000
212,982
153,285
172,200
5 Aug 16
20 Jul 17(1)
13 Jun 18
12 Jun 19
5 Aug 16
4 Jul 17(1)
13 Jun-18
12 Jun 19
4 Jul 17(1)
13 Jun 18
12 Jun 19
5 Aug 19
20 Jul 20
13 Jun 21
12 Jun 22
5 Aug 19
4 Jul 20
13 Jun 21
12 Jun 22
4 Jul 20
13 Jun 21
12 Jun 22
1 These awards have vested at 49% for Stuart Caldwell and Phil Maudsley and at 44% for Paul Kendrick following an assessment against the performance conditions
carried out since the year end.
Compensation for loss of office (subject to audit)
No payments were made during the period under review. Phil Maudsley will retire following more than 30 years of service with the Company,
at the end of the financial year, 26 March 2021. He will continue to receive base salary, pension and benefits up until that date. He will be
eligible for an annual bonus for the financial year which will be paid in cash subject to performance over the period. This will include an
element of assessment against a successful transition to the new CEO. He will receive a PSP award with a face value of 100% of salary in FY
2020/21. Reflecting his retirement, tenure and leadership, the Board intends to grant good leaver status, in which event his outstanding PSP
awards remain eligible to vest subject to performance conditions, which will be measured over the original performance period, with time
pro-rating applied. In accordance with the policy, no further payments will be made.
Payments to former directors (subject to audit)
No payments to former directors were made during the period under review.
Service contracts and letters of appointment
The service contract of Mr Maudsley dated 6 October 1997 (amended 18 January 2011) was further amended on 5 April 2017 to reflect
his promotion to Chief Executive. Mr Maudsley’s contract contained a 12-month notice period from either party until 31 March 2018,
after which time it has reduced to a 6-month notice period from either party. There are no express provisions included in the contract on
termination other than the Company may require the employee to remain away from work during his notice period during which time he
would continue to be remunerated.
Mr Caldwell has a service agreement dated 13 July 2017 and Mr Kendrick has a service agreement dated 15 December 2019. Each of
these agreements contain a 6-month notice period from either party and there are no express provisions included in the contract on
termination other than the Company may require the employee to remain away from work during his notice period during which time he
would continue to be remunerated.
Mr Burke joined as Executive Chairman on 12 January 2017 under a service agreement dated 16 December 2016. The employment was
subject to a 6-month notice period from either party. Mr Burke subsequently became Non-Executive Chairman on 5 April 2017 and his
service agreement was terminated by mutual consent and without compensation. This was replaced by a letter of appointment, dated
5 April 2017 which includes an initial term of 3 years, unless terminated by either party giving one months’ notice.
The letter of appointment for Mr Coumau, 2 August 2013; for Mr Greg Ball, 16 February 2016; for Ms O’Donnell, 24 January 2018; and for
Ms Askem 27 February 2019.
The letters of appointment of the Non-Executive Directors are terminable at will. There is no entitlement to compensation for loss of office
in connection with the termination of the services of the Non-Executive Directors.
62
Studio Retail Group plc Annual Report 2020
Board Report on Directors’ Remuneration
Percentage increase in the remuneration of the Chief Executive
Chief Executive (£000)
Salary
Benefits
Bonus
Long-term incentives
Total
Average of comparator group*
Salary
Benefits
Bonus
Long-term incentives
Total
2019/20
2018/19
% Change
438
100
—
243
781
172
26
—
36
234
427
100
399
—
926
174
29
90
—
293
3%
—
-100%
n/a
-16%
-1%
-10%
-100%
n/a
-20%
* The comparator group chosen comprises the most senior managers in the Company who participate in a similar annual incentive structure and so this population has
been chosen to best provide a consistent like-for-like comparison. The decrease in the average values for the comparator group 2019/20 reflects staff changes during
the period, including a member of the group working a reduced working week.
The table above shows the movement in the salary, benefits and annual bonus for the Chief Executive between the current and previous
financial year compared to total employee cost for the same elements for the senior management level.
Relative importance of the spend on pay
Staff Costs (£m)
Distributions to shareholders (£m)
Adjusted profit before tax* (£m)
2019/20
2018/19
% Change
67.0
—
31.2
61.0
—
28.8
9.8%
n/a
8.6%
* Please refer to the calculation of Alternative Performance Measures on pages 18 to 21 for detail of how Adjusted profit before tax is derived.
Chief Executive Officer pay ratio
The table below shows the relevant data for Studio Retail Group UK employees for 2019, calculated using Option A as set out in the
legislation.
Year
2019/20
Method of calculation
adopted
25th percentile pay ratio
(Chief Executive: UK employees)
Median pay ratio
(Chief Executive: UK employees)
75th percentile pay ratio
(Chief Executive: UK employees)
Option A
48 : 1
39 : 1
24 : 1
Pay details for the individuals whose 2019 remuneration is at the median, 25th percentile and 75th percentile amongst UK based
employees are as follows:
Salary
Total pay and benefits
£438,000
£781,000
£16,002
£16,306
Chief Executive
25th percentile
Median
£19,413
£19,810
75th percentile
£30,991
£32,125
The median, 25th percentile and 75th percentile figures used to determine the above ratios were calculated by reference to the full-time
equivalent annualised remuneration (comprising [salary, benefits, pension, annual bonus and long-term incentives]) of all UK based
employees of the Group as at 27 March 2020 (i.e. “Option A” under the Regulations). The Committee selected this calculation methodology
as it was felt to produce the most statistically accurate result.
The Remuneration Committee is steadfastly committed to ensuring that the reward of the CEO and other senior executives is
commensurate with performance. Accordingly, as laid out graphically in the Remuneration Policy, a significant element of the Chief
Executive’s total pay is variable and is determined based on the performance of the Company and is dependent on share price
performance. This is reflected in our CEO pay ratio, which the Committee is satisfied is consistent with the pay, reward and progression
policies for the Company’s UK employees taken as a whole.
Studio Retail Group plc Annual Report 2020
63
Directors’ interests (subject to audit)
The beneficial interests of the directors, together with non-beneficial interests, in the ordinary shares of the Company are shown below
(the interests in shares have been stated based on the equivalent post consolidation number at each reporting date).
Executive directors
P B Maudsley
S M Caldwell
P R Kendrick
Beneficially
27.03.20
Legally Owned
29.03.19
Unvested
Vested but
not exercised
Total
27.03.20
PSP Awards
292,436
52,359
15,175
292,436
52,359
n/a
538,467
337,114
295,484
—
—
—
830,903
389,473
310,659
* Based on current beneficially owned shares and the year-end share price of 145.0p, Mr Maudsley did not satisfy the Company’s 100% of salary share ownership
guideline. Using an average share price for the year (207p), Mr Maudsley satisfies the requirement. Neither Mr Caldwell, nor Mr Kendrick yet satisfy this same guideline.
There have been no changes in the interests of executive directors during their service with the Company since the end of the financial year.
Non-Executive Directors
M I Burke
F R Coumau
G F Ball
E M O’Donnell
C V Askem
W Grimsey
Beneficially
27.03.20
Legally Owned
29.03.19
60,000
40,558
18,570
9,722
—
47,064
60,000
40,558
—
—
—
25,000
PSP Awards
Unvested
Vested
—
—
—
—
—
—
—
—
—
—
—
—
Total
27.03.20*
60,000
40,558
18,570
9,722
—
—
* There have been no changes in the above interests since the end of the financial year.
Company Share Price
The market price of the ordinary shares at 27 March 2020, being the last day of stock market trading before the period end, was 145.0p
and the range during the period was 143.5p up to 260.0p.
Implementation of Policy for FY2020/21
Executive Directors
Salary
The Committee has recently carried out their annual review of the salaries of the Executive Directors taking into account the role,
responsibilities, performance and experience of the individual, the overall employee salary increase budget and wider inflationary
indicators. In line with the position for employees generally, there will be no salary increase for Executive Directors on 1 August 2020.
The Company may revisit this position later in the year, in line with the approach for the wider population.
The base salaries effective 1 August 2019 and 1 August 2020 are as follows:
Director
Chief Executive
Chief Financial Officer
MD, Studio
* Salary as at date of appointment.
1 August 2020
1 August 2019
% change
£441,263
£276,750
£350,000
£441,263
£276,750
£350,000*
0%
0%
0%
For comparison, the average salary increase awarded across the Company for 2020/21 is 0%.
64
Studio Retail Group plc Annual Report 2020
Board Report on Directors’ Remuneration
Performance-related bonus
In 2020/21, the Executive Directors will be eligible for annual bonus awards up to 100% of salary. For the CFO and MD, Studio
performance will be assessed against the following measures:
• 55% Group adjusted profit before tax
• 30% based on growth in active credit customers (with appropriate conditionality to ensure appropriate lending activities)
• 15% non-financial/strategic measures
For the CEO, performance will be assessed against the following measures and weightings reflecting the year of transition:
• 55% Group adjusted profit before tax
• 10% based on growth in active credit customers (with appropriate conditionality to ensure appropriate lending activities)
• 10% for CMA phase 2 clearance of the FEL sale
• 25% non-financial/strategic measures, which will relate to the CEO transition
Any pay-out under the bonus will be subject to Group adjusted profit before tax being above the threshold target and there being
no material incidence of breaches of our commitment to Treating Customers Fairly during the year. Disclosure of the exact targets is
commercially sensitive but it is expected that there will be full disclosure of the targets and performance against them in the FY2020
Annual Report on Remuneration. 25% of any bonus paid will be taken in shares which (after settlement of any tax or withholdings) must
be held for three years.
Long-term incentive awards
In 2020/21, the Executive Directors will be eligible for PSP awards of 100% of salary. Awards will continue to be based on Absolute TSR and
EPS performance conditions.
As outlined in the Chairman’s letter, given the volatile share price and the relative lack of free float, the Committee concluded that a
greater weighting on EPS would be more appropriate and that therefore the TSR element should be reduced to one third of the award
with EPS correspondingly increased to two thirds.
The EPS compound annual growth rates (CAGR) used are the same as those which applied to the previous year’s awards and continue
to be considered stretching for the Company relative to internal and external forecasts. The TSR targets have been set at the same level
as the EPS targets, which is consistent with previous years. Last year this element of the plan had threshold targets of 12.5% CAGR and a
maximum bonus target of 22.5% CAGR, reflecting the exceptional circumstances surrounding the share price at that time. The Committee
considers that the targets are at least as stretching as the targets set for the previous year’s awards and are as follows:
EPS targets
Absolute TSR targets
Weighting
2/3rds
1/3rd
Threshold
(20% vesting)
7.5% p.a. CAGR
7.5%p.a. CAGR
Maximum
(100% vesting)
15% p.a. CAGR or higher
15% p.a. CAGR or higher
Any vested shares (net of tax) will be subject to a two-year holding period and any incentive payments will be subject to recovery and
withholding provisions as set out in the Directors’ Remuneration Policy.
Non-executive directors
In line with the workforce, no increase will apply to the fees for the Chairman and Non-Executive Directors. Therefore the fees remain as
follows:
• Chairman fee: £153,750 (no change);
• Base fee for other Non-Executive Directors: £41,000 (no change);
•
Senior Independent Director fee: £10,000 (no change);
• Chairman of the Audit Committee fee: £10,000 (no change);
• Chairman of the Risk Committee fee: £10,000;(no change) and
• Chairman of the Remuneration Committee fee: £10,000 (no change).
On behalf of the Board
Francois Coumau
Chairman of the Remuneration Committee
22 August 2020
Studio Retail Group plc Annual Report 2020
65
The Nomination Committee operates under written terms of reference which are available on the Company’s website (www.studioretail.
group). The Committee’s principal duties are to review periodically the composition of the Board and to recommend suitable candidates
for approval by the Board to fill executive and non-executive vacancies and to oversee succession plans and the development of talent
pools across all levels of management within the Group.
During the year the Committee comprised the Chairman and the following independent non-executive directors, namely Greg Ball,
Francois Coumau and Elaine O’Donnell. Bill Grimsey was also a member of the Committee until his retirement from the Board on 25 July 2019.
The general approach of the Committee in relation to Board appointments is to engage external recruitment specialists to carry out a
search for appropriate candidates. Committee members meet a short list of candidates before discussing and agreeing a recommended
candidate to the Board. Where there are appropriate internal candidates they are included in the external assessment process.
The Board has adopted a policy on Board diversity and inclusivity which recognises that diversity (including but not restricted to gender)
and inclusivity are important factors in ensuring that the profile of Board members provides the necessary range of perspectives and skill-
sets to ensure effective stewardship.
The Committee has worked through another year of planned Board change and refreshment in FY2020. Clare Askem joined the Board
immediately prior to the start of the year and underwent a structured and comprehensive induction process during the first two months
of the year under review. Following this initial period, the Committee recommended that she join the Audit Committee and the Board
confirmed that appointment with effect from 25 July 2019. Also on that date, and as previously reported, Bill Grimsey retired from
the Board, and the Board accepted the Committee’s recommendation that Francois Coumau be appointed chair of the Remuneration
Committee in his place.
During the year the Committee also reviewed the progress made by Paul Kendrick over the 3 years since joining the Group, the last
2 years as Managing Director of the Group’s largest business, Studio Retail Ltd. This review also extended to the development over this
period of specific skills and attributes appropriate for a plc board director. In November 2019 the Committee recommended to the Board
that he be appointed as an additional executive director of the Company, and the Board confirmed that appointment in December 2019.
In January 2020, as Clare Askem approached the anniversary of her appointment to the Board, the Committee recommended that she join
the Remuneration Committee and the Board confirmed that appointment. Clare Askem was also appointed to the Nomination Committee
on 14th August 2020.
Since the end of the year the Committee has concluded its leadership succession planning with the announcement on 3 July 2020
of Mr Maudsley’s retirement from the Company with effect from the end of FY20/21 and the appointment of Paul Kendrick as his
replacement as CEO. This was the outcome from a structured development and succession plan implemented by the Board working with
both Mr Maudsley and Mr Kendrick over the past two years. Mr Maudsley will be fully involved with the transition during the remainder
of this financial year.
In the month immediately following the end of FY2020 , the Committee reviewed the size and balance of skills on the Board and each of
its Committees, concluding that, the Board and its Committees were appropriately constituted for the time being, although noting that
Mr Coumau’s second term of 3 years would expire at the end of the 2020 Annual General Meeting and recommending that his tenure be
extended a further year to the conclusion of the 2021 Annual General Meeting.
The Committee has also continued its review of development and succession planning for directors and senior executives and expects
that progress will be made during the coming year, particularly for senior executives immediately below Board level and in the
development of wider talent pools at all levels of management within the group.
The Committee has reviewed and re-confirmed its policy that in normal circumstances non-executive directors would serve two terms
of three years, with the potential to extend annually thereafter if circumstances warranted it, up to a maximum aggregate term of office
of 9 years. The Committee has a schedule of succession measures to put this policy into effect.
The planned annual review of effectiveness of the Board and its Committees in the final quarter of FY2020 was affected by the early
weeks of the Covid-19 pandemic crisis. Given the level of stress which the entire Studio organisation was put under during this time, this
process was confined to a series of one to one discussions between the Chairman and Board members, the outcomes from which have
been shared and discussed by the Committee and the Board. The Committee considers this to be the most appropriate way to build on
previous more formal review processes, given these exceptional circumstances.
That process has enabled the Committee to review the performance and commitment of each of the directors, all of whom are to be
proposed for election/re-election at the 2020 AGM and on the recommendation of the Committee the Board is recommending those
elections/re-elections to shareholders. Further details can be found in the personal biographies on pages 29 and in the Directors Report
on pages 32 to 33.
The Committee met on four occasions during FY2020. All members have a 100% attendance record for the year. The Committee plans to
hold at least two scheduled meetings during FY20/21.
Ian Burke
Chairman of the Nomination Committee
22 August 2020
66
Studio Retail Group plc Annual Report 2020
Nomination Committee Report Audit Committee Report
On behalf of the Committee, I am pleased to present this year’s Audit Committee Report, which provides an overview of how we, as
a Committee, have discharged our responsibilities, setting out the significant issues we have reviewed and concluded on in the year.
This report focuses mainly on:
• Committee governance;
•
The key risks facing the business;
• Our focus since the last annual report, including the impact of changes in the UK corporate governance regime;
•
•
Internal controls; and
The operation of the internal and external audit functions.
Committee Governance
The Audit Committee operates under written terms of reference, which were reviewed during the year and are available on the Company’s
website (www.studioretail.group).
From the start of the year until 25 July 2019, the Committee was comprised of three independent Non-Executive Directors, reducing to two
after the retirement of Bill Grimsey from the Board after the 2019 AGM. Clare Askem was appointed to the Committee on 23 September
2019. Brief biographical details of the Committee members, including their expertise and experience, are set out on page 29 and the
number of meetings and attendance are set out on page 36. The Executive Directors, the Chairman of the Board and the Head of Internal
Audit attended each meeting by invitation. Divisional executives were also invited to meetings during the year in relation to some of the
specific matters under review listed below. The external auditor also attended all meetings.
The Committee has not used its powers to engage external advisers other than those appointed in conjunction with management in the
year under review. Private meetings are held at least twice a year with the external auditor and with the Head of Internal Audit. In these
meetings the Committee probed the efficiency and effectiveness of the internal and external audit, including the co-operation received by
the auditor, recommendations for improvements to processes and timeliness of addressing control and process recommendations.
The Committee’s agenda is linked to events in the Company’s financial calendar and its assessment of key business risk as well as
other matters for review recommended by the Board, the Risk Committee and the Remuneration Committee in their meetings. The
effectiveness of the Committee is assessed as part of the annual Board and Committee effectiveness review, further detail on which is
contained in the report on corporate governance on pages 35 to 38.
Our focus since the last annual report – accounting and audit
The most significant matters relating to the annual accounts considered were:
(a) Recoverability of trade receivables in Studio, particularly in light of Covid-19;
(b) Financial services redress provisions;
(c) Appropriate disclosure of discontinued operations (and carrying value of the disposal group);
(d) Going Concern and the Viability Statement, particularly in light of Covid-19
(e) Brexit and its potential effects on other key judgements;
(f) Carrying amount of inventories, particularly in light of Covid-19;
(g) The incorporation of new accounting standards for FY20; and
(h) Appropriate disclosure of Alternative Performance Measures.
The Committee received a paper from the Group CFO supporting his judgements in each of these areas and another report from the
external auditor setting out their opinions and subjective assessments of the key judgements made by management. The Committee
challenged the robustness of these reports. In all cases, the Committee was guided by the overriding mantras of “fair, balanced and
understandable” and “true and fair view”.
Studio Retail Group plc Annual Report 2020
67
The particular challenges by the Committee in relation to the matters listed above were:
(a) Receivables provisioning – The bad debt provisioning model was refined during the year to incorporate more recent customer data
to improve the quality of its prediction of future customer defaults. We needed to challenge whether the model’s new output was
producing reasonable outcomes and whether any management overlays needed to be applied.
Following the lock-down in March 2020 resulting from Covid-19, the economic forecasts used to determine the future expected level
of customer defaults deteriorated materially. The outlook for recovery rates on future sales of non-performing receivables to third
parties also deteriorated due to Covid-19. As the output from the provisioning model required greater judgement than normal, given
the unusually high level of economic strain being assumed, we needed to challenge whether the model’s output was reasonable, and
whether the separate disclosure of the impact of Covid-19 on the level of provision required was adequate and appropriate. Were
appropriate sensitivities and disclosures around these key judgements made?
The Committee received satisfactory responses to all these challenges.
(b) Financial Services redress provisioning – Following the incremental provision for PPI and associated redress booked during the
year, the Committee challenged whether the residual provision outstanding at the period end was sufficient in light of the level of
outstanding claims and the interactions of the Company with the FCA. Had the business’s internal control framework identified any
other areas of potential exposure to legacy refunds? Did it remain appropriate to record the incremental provision as an individually
significant item? The Committee received satisfactory responses to these challenges.
(c) Discontinued operations – Following the exchange of contracts for the conditional sale of Findel Education in December 2019, and
noting that the sale had not completed at the period end, we challenged whether the classification of Education’s assets and liabilities
as held for sale, and the separate presentation of its income statement results as discontinued operations was appropriate. Were the
IFRS 5 disclosures relating to Education appropriate? Was the carrying value of disposal group appropriately tested for impairment
with appropriate disclosures? The Committee received satisfactory responses to its challenges.
(d) Going Concern and Viability Statement – in light of the uncertainties caused by Covid-19, the Committee challenged whether the
Group could withstand various severe but plausible downside sensitivities to its central estimates and remain a going concern. We
also challenged the choice of three years as the period over which to assess viability and examined the extent of contingency built into
the second and third years of the forward projections, the key risks or threats to the Group’s viability and the amount of disclosure
proposed around the key risks. The Committee was satisfied with the responses received.
(e) Brexit – had the Company undertaken an assessment of the potential risks associated with Brexit and the impact that those risks
could have on other key areas of judgement, such as going concern, impairment of receivables and recoverability of intangible assets?
Were adequate disclosures made in the Strategic Report about these risks and judgements? The Committee was satisfied with the
responses to its challenges.
(f) Stock provisioning – were the stock provisions adequate given the Company’s continued reduction in the volume of slow-moving items
and the continued increase in the proportion of clothing sold by Studio? Was the incremental level of provision required following
the lock-down relating to Covid-19 in both divisions sufficient and appropriately disclosed? The Committee was satisfied with the
responses to its challenges.
(g) New accounting standards for FY20 – The new accounting standard for lease accounting, IFRS 16, was adopted by the Group in FY20.
The Committee reviewed the implementation of this standard and the disclosures and challenged whether they were appropriate. The
Committee also reviewed whether any other new accounting standards that became effective would have a material impact on the
Group’s financial statements. The Committee received satisfactory responses to these challenges.
(h) Alternative performance measures (“APMs”) – The combination of discontinued operations, new accounting standards affecting the
presentation of leases, and individually significant items meant that additional APMs were used by management in the Annual Report
and Accounts. The Committee challenged whether these APMs were appropriate to ensure a fair, balanced and understandable
presentation to the reader of the accounts. Were adequate reconciliations to GAAP measures provided with suitable explanations? The
Committee received satisfactory responses to those challenges.
68
Studio Retail Group plc Annual Report 2020
Audit Committee Report
The Committee also considered:
(a) at the planning stage of the audit, how the auditor defined and applied materiality in their audit. The Committee was satisfied with the
responses.
(b) towards the conclusion of the audit, the materiality of adjusted and unadjusted errors as reported by the external auditor to the
Committee; and.
(c) the appropriateness of management’s key judgements and estimates – how consistent were the judgements and estimates with
the equivalent judgements and estimates the previous year? Were the key judgements and assessments consistent with the Board
discussions of the businesses’ performance throughout the year and with the conclusions of the Board’s annual strategic review?
The Committee was satisfied on each of these points.
In reviewing the annual report on behalf of the Board and making recommendations that were adopted by the Board in relation to the
overall “fair, balanced and understandable” test, the Committee considered the report in the light of the tone and content of papers
presented to the Board over the year by the Chairman, Head of Internal Audit, business heads and the Group CFO, and assessed the
balance of positive and negative comments on each business in the light of the business’s performance for the year.
The Committee also considered and accepted management’s review of group accounting policies.
Our focus since the last annual report - internal control
The Committee has responsibility for the regular review of the Group’s system of internal control and its effectiveness and reports
its findings to the Board. It is the role of management to implement the Board’s policies on risk and control through the design and
operation of appropriate internal control systems. Operating management is charged with the ongoing responsibility for identifying risks
facing each of the operating units and for putting in place procedures to mitigate, manage and monitor risks. The system of internal
control is designed to manage rather than eliminate the risk of failing to achieve business objectives and can provide only reasonable and
not absolute assurance against material misstatement or loss.
Management uses a ‘three lines of defence’ approach, where the first line of defence is in the management of the business units, who
are responsible for ensuring that a robust risk and control environment is established as part of their daily operations. The second line
of defence is provided by the oversight functions within the business and at group level, setting policies, procedures, and compliance and
governance frameworks. The third line of defence is the internal and external auditors who offer independent challenge to the levels of
assurance provided by the business operations and oversight functions.
In the year since the last annual report, the committee has also monitored and challenged:
(a) The effectiveness of the Internal Audit Function as measured through a robust peer review based on the Institute of Internal Audit
Standards. The review concluded that the function is effective with all 5 areas (Environment, Right Quality, Right Coverage, Right
Outcomes and Right Resource) scoring a rating of Established or higher. The Audit Committee will continue to monitor the continuous
improvement plan which aims to earn a rating of “matured” within the next 12-24 months;
(b) the pace of progress on the Risk Management Improvement program and the alignment across all three lines of defence. The RMFI
project is nearing completion and the focus for the committee in the year ahead will be ensuing that the Risk Framework becomes
embedded setting the foundation’s to build a risk centric culture;
(c) the ability of business to leverage the knowledge gained in transitioning over to the Senior Managers regime to facilitate the successful
implementation of the Certified Regime; and
(d) the ability of the Business to balance the competing demands of Internal Control Actions, Risk Mitigation and Transformation activity,
and the appropriateness of agreed timescales in respect of this.
The Committee used the experience and expertise of its members to meet with management outside of Committee meetings to ensure
that their experience was available to management. In relation to all of these matters the Committee also had presentations from the
Studio management team, at which plans were reviewed and challenged. The Committee noted that significant progress has been
achieved and that the culture and behavioural changes are becoming embedded.
The Committee oversees the adequacy of the Group’s whistleblowing arrangements, ensuring that they are proportionate for the Group
and enable staff and contractors to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters.
The Committee considered the effectiveness of the relaunch communications approach and the enhancements made to ensure that the
Whistleblowing arrangements met best practise as recommended by the Financial Conduct Authority.
The Chairman of the Committee also received her annual report on the whistleblowing service by the independent external service
provider and no issues were raised.
The Committee has conducted its annual review of the effectiveness of the Group’s system of internal control.
Studio Retail Group plc Annual Report 2020
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External auditor
The Committee reviewed the independence of the external auditor and the safeguards that they have in place, including partner and staff
rotation and extent of non-audit services, to avoid such independence and objectivity being compromised.
The Company’s policy is that the Company should tender the audit at least once every ten years and could not retain the same audit firm
for a period of longer than twenty years, in line with The Mandatory Firm Rotation (MFR) rules in the UK for EU Public Interest Entities
(PIEs). With KPMG having been first appointed in 2011, a compulsory tender in auditor was required ahead of the 2020 Annual General
Meeting to appoint the auditor for FY21. Notwithstanding that the FCA has used its powers under the Companies Act 2006 to permit
an extension of up to two years for compulsory tenders due to Covid-19, the Committee felt that the process could still be conducted
effectively and so a tender process was instigated.
The tender process was led by a selection panel comprising of the members of Audit Committee, the Chief Financial Officer, The Company
Secretary, and the Group Financial Controller. Following the completion of a robust selection process, the Audit Committee recommended
its first and second choices to the Board. The Board has accepted the Audit Committee’s first choice recommendation, concluding that
Mazars LLP be recommended for appointment by shareholders. Mazars LLP has notified its willingness to act as auditor to the Company
and a resolution concerning their appointment will be proposed at the Annual General Meeting together with a resolution to authorise
the directors to set the remuneration of the auditor. In making their recommendation to the Board, the Audit Committee considered
Mazars LLP to offer a highly professional and competitively priced service, as well as the most comprehensive and pragmatic approach
to transition from the incumbent auditor.
The Group’s policy on the provision by the external auditor of audit and non-audit services is based on the principle that the external
auditor should not also provide non-audit services unless exceptional circumstances convince the Committee to make an exception to the
policy. The policy is reviewed annually by the Audit Committee and approved by the Board.
The detailed disclosure of the fees payable to KPMG LLP for both audit and non-audit services performed during the year is set out in
note 8 to the consolidated financial statements and reflects the Committee’s recommendation that greater explanation be provided than
is required by law.
During the year, the Group was required to issue a shareholder circular to seek approval for the sale of Findel Education, which needed
to include a report from Reporting Accountants on both historic financial information disclosed within the circular and the sufficiency of
working capital. The Committee noted that it was customary for the Group’s auditor to perform the role of Reporting Accountant for these
purposes and that it was expedient for KPMG LLP to undertake that assignment. The Committee approved the fees for that assignment
noting that, when combined with the review of the Group’s interim accounts, non-audit fees paid to KPMG LLP in the year did not exceed
the cap of 70% of the average audit fee from the preceding three years. The assignment was also undertaken by a different team from
within KPMG LLP. The Committee was therefore satisfied with the level of fees, independence, objectivity and effectiveness of KPMG LLP.
The Committee reviewed the effectiveness of the external audit of the FY19 financial statements by discussing the audit separately with
the executive directors and senior finance officers, the Company Secretary and the external auditors. A review of the effectiveness of the
FY20 audit will be carried out following the issue of this annual report.
Internal audit
The role of internal audit combines an in-house internal audit department together with an appropriate level of co-sourcing of specialised
internal audit services in the areas of financial services and IT. The head of internal audit holds discussions with the Chairman of the
Committee at least four times each year and has direct access to her at any time.
The Committee approved the internal audit programme for the FY21 financial year, including the limited use of independent third parties.
Elaine O’Donnell
Chair of the Audit Committee
22 August 2020
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Studio Retail Group plc Annual Report 2020
Audit Committee Report Risk Committee Report
On behalf of the Committee I am pleased to present the Studio Risk Committee report for the financial year ended 27 March 2020 (FY20).
The Board operates a separate Risk Committee to provide assurance and advice on the adequacy, effectiveness and execution of risk
management. It does so through the monitoring and assessment of strategic risks in the context of approved appetite levels, with a focus
on those risk outside of appetite. The Committee’s written terms of reference are available on the Company’s website.
Governance
At the start of the year the Committee was comprised of five independent non-executive directors, myself as Committee Chairman
together with Bill Grimsey, Francois Coumau and Elaine O’Donnell. Mr Grimsey retired from the Board and the Committee at the end
of the AGM in July 2019. Brief biographical details of the Committee members are set out on page 29 and the number of meetings and
attendance records are set out on page 36. The executive directors, the Chairman of the Board, the Company Secretary, the Studio
Retail Ltd Director of Risk & Compliance and the Head of Internal Audit attended each meeting by invitation, together with other senior
managers as appropriate.
In terms of the broader approach to risk management within the business, a combination of structured governance including oversight
committees, capture and reporting tools, alongside a programme of education are being utilised. In particular over the last two years, the
business has engaged a project team to embed and up skill the first and second-line risk management teams within Studio, introducing an
enhanced level of reporting of risk appetites, Key Risk Indicators (KRI), measures and tolerances.
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Independent and objective assurance on the
overall effectiveness of the risk governance
framework.
External Audit
Internal Audit
Legal Services
PLC Chief Risk
Officer
Studio Retail Group plc
Risk Committee
• Assists in determining risk capacity,
appetite, policies/ procedures for
managing risk;
• Provides oversight and support;
• MI, monitoring and reporting;
• Tools including Risk Wizard, Risk Champions.
FS Executive Risk
Committee
SRL Chief Risk
Officer
SRL Board Risk
Committee
FEL Leadership
Oversight
FEL Chief Risk
Officer
PLC Management
Oversight
DIVISIONAL EXECUTIVE DIRECTORS/FUNCTIONAL DIRECTORS
• Has primary responsibility for day-to-day risk management;
• Operational and performance MI used to assess risk;
• Risk registers used;
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Key Risks Facing the Business.
The business continuously reviews its key risks and these are summarised below:
•
•
The economic outlook is uncertain, particularly in relation to the ongoing impact of Covid-19 and the upcoming impact of Brexit.
In particular, the business is sensitive to changes in unemployment, interest rates and inflation, impacting the levels of disposable
income available to lower socio-economic groups and their subsequent capacity to make repayments on their credit account. These
customers form an important part of the overall Studio customer base.
The FCA continues to apply principles-based regulation towards consumer lending, with interpretation of those principles requiring
regular monitoring. Recent changes to rules on affordability and avoiding persistent debt have affected customer acquisition and
credit limit management, which will impact on credit income in the coming periods. This places a greater requirement on the
profitability arising from the retail side of Studio. The plans set out in the Strategic Report reflect this.
• Notwithstanding recent investments in new systems, the business remains highly dependent upon some legacy systems both in
the support of running the business on a daily basis and the storage and protection of customer data. Whilst resilience testing and
recovery plans are in place, the combination of increasing cyber activity and the level of change being deployed in the business makes
this an area of higher potential risk.
Studio Retail Group plc Annual Report 2020
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•
•
•
Studio imports a relatively high proportion of its retail products from China, either sourced directly or indirectly. A further rise in
geopolitical tensions with China could lead to legislative or economic barriers to trade being introduced. Studio’s Shanghai sourcing
office is actively seeking to widen the number of countries that it sources products from, whilst retaining appropriate quality
standards.
Studio will continue to invest in modernising its systems and processes over the coming years. These plans require robust project and
change management in the delivery of priorities, placing a high level of demand on planning and resource management to ensure
delivery. As part of this, we are adopting an enhanced process of integrated cash management to meet the demands of change and
capital deployment within the business alongside daily operational requirements.
Studio’s main warehouse facility in Accrington is potentially a single point of failure, although has proven to be a versatile and Covid-
secure facility. Whilst the risks of the facility failing are low, appropriate disaster recovery plans have been developed.
Progress During the Year
During the course of the year significant progress has been made in our assessment of key risks. Examples of the key mitigating actions
taken during the year include:
• Regular reporting from the project team tasked with enhancing the business’s cybersecurity defences given recent system updates
and the deployment of an app.
• Overseeing the implementation of changes to the financial services processes needed to adapt to new regulations, including the
Senior Managers and Certification Regime.
• Receiving regular updates from the risk framework management project team deploying enhanced KRI reporting into the business,
alongside structured reviews of documented policies and procedures. In addition new business incident management reporting has
been deployed to aid root cause analysis.
•
Ensuring that the Group’s data architecture is designed in a way that optimises its use within the business whilst also meeting the high
standards of data security set by the new GDPR legislation; and
• Overseeing the business’s response to the challenges posed by Covid-19, including assessment of new risks arising from the pandemic
and new mitigating controls required to respond to the challenges effectively.
Effectiveness
The executive team have fully engaged in the development of the risk plan, which is supported by senior management, such that:
•
Financial and operational authorisation levels, alongside the application of risk appetite, can continue to be enhanced in line with core
risks, and
•
Escalation and de-escalation is clearly communicated as necessary to decision makers.
This work enabled the Committee to report to the Board on the key business risks facing the Company. The Board then used this
reporting as a basis to carry out a robust assessment of the principal risks facing the Company, including those that would threaten its
business model, future performance, solvency, liquidity, regulatory breach and adverse impacts on customer outcomes. The principal risks
and uncertainties that could impact the performance of the Group are set out on pages 22 and 23.
Future Developments of the Risk Management Capability
As with all operational functions, the business is keeping its risk management framework and approach to risk modelling under constant
review to ensure it is not only operating effectively but is as reliable as possible. To this end, over the next 12 months the Committee will:
•
Strengthen the 1st line risk team to support the reporting of KRIs and general oversight of risks.
• Use that team to provide focus on an appropriate rolling programme of in depth presentations and discussions of selected core
business risks.
•
Enhance its understanding of longer-term risks and their potential impacts on the company and its businesses, particularly in light of
the challenging economic environment.
Greg Ball
Chairman of the Risk Committee
22 August 2020
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Studio Retail Group plc Annual Report 2020
Risk Committee Report Corporate Social Responsibility Report 2020
The Board recognises the important role that Corporate Social Responsibility has in the ongoing success of the Studio Group. We remain
committed to improvement in all our interactions with customers, colleagues, suppliers, the environment and the wider community.
Our customers
Studio
Studio is a leading UK digital value retailer with a broad offer covering home and leisure, clothing and footwear, and gift products along
with flexible payment options, focused on fantastic value for money. We hunt for the best value, so our customers don’t have to! We
continue to develop our product categories by listening to our customers and using improved Merchandise Financial Planning for value
and on-trend products. Studio also provides options on how to shop; customers can either pay cash at point of sale or open a flexible
credit account that allows customers to either pay for their purchases within a month or spread the cost. This makes it easier for our
customers to manage their budgets. This business model has proven very attractive to our customer base and during the year ended
March 2020 over 1.8m customers shopped with Studio.
Studio is driving the business values, #Inclusive, #Trusted, #Savvy and #Amazing and seeks to keep its customers at the heart of all
business decisions and activities as its core value. Examples of initiatives driven by these values include:
•
•
•
•
Further improved website functionality, plus the introduction of the Studio App in September, allows our customers to shop at ease in
whichever ways suit them best.
The use of information gained via our customer survey to inform policy and process changes to enhance the customer experience.
The creation of an Agent Performance Score as part of our customer survey to help drive customer service agent performance
improvement.
Enhanced online returns journey that was originally delivered in 2018 with 30K customers self-serving through our website to date.
December 2019 saw an increase of users by 290% compared to December 2018.
•
Extension of our contact centre estate to include South Africa, with a high performing, engaged group of advisors at CCI Global.
• Complaints per order at an all-time low with improved training around first time resolution.
• A customer experience forum that brings a cross functional team together to understand the root cause of complaints and customer
pain points and then develop plans to address these issues.
• At point of sale, cash purchasing options via debit and credit cards introduced in October 2019, which has addressed a key source of
customer dissatisfaction.
• A new risk decisioning system was introduced that will enable customers to get credit in a quicker and more compliant way with
Studio.
•
Improvements in credit risk strategies and lending policies in line with new regulatory requirements to further enhance our ability to
ensure our customers’ credit is affordable and sustainable for them.
It has been a challenging year across the retail industry in respect of customer experience satisfaction and this was reflected in our
recent benchmark survey with the Institute of Customer Service which had seen a drop of 1.3 to the average retail (non-food) score, from
82.1 in July 18 to 80.9 in July 19. Our own satisfaction score of 81.8 was down on last year’s score of 83.5, however we are still 4.7 points
ahead of the UK all sector average and 0.9 points ahead of the ‘Retail non-food’ sector average. Our net promoter score (NPS) of 48.0 as
at September 2019 was 6.0 points ahead of the UK ‘Retail non-food’ sector average score that includes our industry peers such as Next,
M&S and Argos. We use the independent data/benchmarking from the Institute of Customer Services to track trends whilst continuing
with our customer experience improvement plan.
We also proactively contact customers who could be in financial difficulties even when we are not seeing direct signs of this through non-
payment with us, to seek to ensure that their overall financial situation remains sustainable for them.
We have recruited a dedicated team of procurement professionals to support the Studio buying team in the procurement of goods and
services to enhance our ability to achieve value for money, and undertake our due diligence in respect of modern slavery and anti-bribery.
The procurement team also supports the business on corporate social responsibility by seeking to ensure that our third-party suppliers
actively share Studio values. This is achieved by sharing ethical policies and completing supplier due diligence as part of the sourcing
process.
Studio Retail Group plc Annual Report 2020
73
Studio is in the process of undertaking a refurbishment of its offices in Clayton le Moors to enhance the workplace environment. This will
include elements such as multi faith facilities, exercise room, showers and a large social space that includes a café operated by an external
supplier. We have selected a contractor Overbury, who is passionate about minimising the environmental impacts associated with fit
out and refurbishment and take a proactive hands-on approach. They are proud to have achieved a series of ‘firsts’ on environmentally
assessed projects, including the largest BREEAM ‘Outstanding’ fit out to date, the first SKA Gold rated project and the first LEED Gold office
fit out in the UK.
Looking forward into FY20/21 Studio will continue to progress its IT strategy roadmap of further digital developments. We will continue to
develop our ability to tailor our engagement with customers to their particular requirements, continually improving our Financier system
and wider FS systems to enhance our customer experience and product offerings and be better suited to some of our customers’ needs
and circumstances. Furthermore, we continue to improve our other customer facing applications and IT infrastructure (e.g. website, App,
Customer services) to improve customer experience and overall online and self-serve technology.
Findel Education
Through our commitment to ‘saving schools time and money’, we have invested in providing time saving digital solutions for customers,
creating innovative new ranges and offering bestselling products at the lowest possible prices. As a result of this strategy and by
continuing to provide unbeatable service, our customers have continued to provide positive feedback through an expanded ‘Customer
Voice’ programme. Customer Voice is our company-wide initiative, which measures our customer experience. This programme of activity
is used to communicate findings from our regular customer research to our colleagues. We have also introduced new metrics so that we
can benchmark our performance, simply by asking our customers:
• Were you happy with your recent shopping experience with us?
• Would you shop with us again?
• Would you recommend us to a friend or colleague? (Net Promoter Score)
Our net promoter score consistently exceeds 80 and there are plans to expand the ‘Customer Voice’ programme further over the coming
months, to capture feedback at every stage of the customer journey. In addition to this there is planned further investment into our
growth strategy by ensuring we are providing the best possible experience across the customer lifecycle; this will include the introduction
of an improved CRM system and reorganisation of our customer-facing teams.
Our Colleagues
Studio
2019 saw the introduction of the Senior Manager and Certification Regime (SM&CR) for Senior Managers, with the Certification part of
the regime going ‘live’ during 2020. The aim of SM&CR is to raise the standards of conduct for everyone who works in financial services,
and by making senior people in firms more responsible and accountable for their conduct, actions and competence. The regime shifts
the responsibility of activities within a firm onto senior managers. Whilst we have been testing the process for the Certified population,
we continue to look for ways to improve colleague engagement and understand what our colleagues need, to help their development
within Studio. We launched our externally led mid-year ‘pulse’ survey in September and the end of year ‘full’ survey ran in March which
had a participation of 84.6%, an increase of 2.4% compared to September 2019 and 0.6% more than February 2019. We put action
planning sessions in place within each functional area of the business to make sure that we are focusing on and addressing key areas
of dis-engagement. Regular question and answer sessions with colleagues and senior executives throughout the year encourage a good
exchange of ideas and the raising of issues to help improve the workplace and ways of working. The colleague retention rate within
Studio has remained at a steady level of around 85% throughout the reporting period.
Learning and development is central to our colleague plans. Studio have introduced a centralised Learning & Development function
which is supported by dedicated functional training teams, ensuring we deliver high standards of learning experiences consistently across
the business. A key outcome will be to improve our ability to identify and address development and succession planning requirements,
guaranteeing business continuity in line with the aspirations of our high performing colleagues.
Studio offers role-specific training programmes and apprenticeship programmes to both strengthen and continuously upskill our existing
workforce and is also part of a Career Pathways development initiative. This year we are committing to supporting approximately
30 managers across our Operations Warehouse team with Institute of Leadership and Management Levels 3 and 5. Our aim is to fulfil
the potential of our colleagues to set the business up for success and attract, recruit and retain the best talent.
We offer flexible working solutions where we can, which helps to maintain a balance between work and life outside of the workplace.
Our response to the Covid-19 pandemic has highlighted a number of potential areas where greater flexibility for colleagues may be
possible on a more permanent basis and these will be investigated during the coming year. Studio operates a standard annualised
flexi-year contract for many of its warehouse colleagues. Our part-time workers (working 30 hours or less) represent just over 11% of our
permanent headcount.
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Studio Retail Group plc Annual Report 2020
Corporate Social Responsibility Report 2020 We continue to offer a number of benefit schemes for our colleagues, including retail discounts and vouchers, an Employee Assistance
Programme and reduced cost gym membership. During the Covid-19 pandemic we recognised the efforts of all colleagues in adapting to
the extraordinary circumstances and in maintaining the supply of products and the servicing of our customers. This included the issue of
weekly £25 vouchers to help with family budgets.
Health and wellbeing has been a key focus for Studio this year which has seen support from the NHS with health checks for the over 40’s
and a smoking cessation promotion, with great feedback received about both services. Studio also partnered with Salary Finance whose
aim is to support colleagues from a financial wellbeing perspective, helping them transition from borrowers to savers. Through Advisor
plus, Studio trained over 200 of their first line Managers and Senior Leaders on mental health wellbeing and trained 24 colleagues to
become Mental Health First Aiders. Studio aims to continue the focus on health and wellbeing into 2020.
Our colleagues actively support Mind, a national charity supporting mental wellbeing, and local charities with a host of fundraising and
social activities throughout the year.
We have published our 2019 gender pay gap and diversity reviews for both Studio and Findel Education on the government website and
on the respective company websites. A group wide gender pay gap report can be found on pages 24 and 27.
Within Studio, 45% of colleagues are female, compared to 46% last year and 44% of colleagues in the upper quartile are female, compared
to 45% last year. We recognise the difference between gender pay and equal pay. The gender pay gap measures the difference in average
male and female pay across the whole business on 5th April each year. Equal pay is a longstanding set of regulations which ensures that
men and women are paid equally and fairly for doing the same work. As a result, the gender pay gap within the group does not mean that
we are rewarding people unfairly or treating people unequally.
Within the group, we have a well-balanced male to female ratio split with 49% of our headcount being female, which has remained static
vs last year. Our female split across the lower middle and upper middle groups remains slightly above 50%, in line with what we reported
last year. Although our mean gender pay gap has increased slightly by just over three percentage points vs last year, we’re confident that
we’re moving in the right direction with the work we’ve been doing across all group companies.
We have obligations to protect our customers and other stakeholders when making appointments to sensitive roles and our selection
processes for those roles include using the Disclosure Barring Service (DBS). For example, within Studio, this extends to all roles in the
Financial Services and Customer Services functions, our photography studio and roles which have access to customer, colleague or
business sensitive data. And the entire Findel Education sales force is covered by DBS checks, given their direct access to schools and
nurseries.
The Group is predominantly a UK-based employer, although a small proportion of colleagues are located in Asia. Many of our sites are in
multi-cultural areas of the UK and we operate a fair, equal opportunities employment culture which embraces multi-culturalism, equality
and diversity. The needs of specific groups are identified and addressed, for example, by offering prayer facilities, which will be enhanced
following the Clayton office refurbishment, and by providing colleague information in foreign languages where appropriate.
Findel Education
Our colleagues are key to driving our strategy to ‘Provide Amazing Products and Solutions for Education’ and to ‘Save Schools Time and
Money’, providing customers with the best service, best digital solutions and best products at everyday low prices. They are proud to be
part of one of the largest educational supplies business in the sector helping schools make a difference and helping children reach their
full potential.
Our colleagues are essential to the success of our business. We pride ourselves on having strong skills, a diverse workforce and people
focussed behaviours (#BePassionate, #BeAmbitious, #TakeOwnership, #WeCare) that encourage and support our business to be a great
place to work. We are continuing to progress our people initiatives and have secured solid commitment with Leaders at all levels within
Findel Education to progress both our people and change agendas throughout 2020 and beyond.
Colleague turnover at 13.5% during FY2019/20 continues to be in-line with our expectations and market norms and averaged
approximately 1% across each month within the reporting year.
Our induction process is designed to support new colleagues joining us and sets high standard expectations, whilst making the process as
easy and as fun as possible. Retention planning in terms of remuneration, benefits and incentives in addition to employee development,
engagement and succession all contribute to the Findel Education HR strategy, helping us to sustain employment as far as practicable.
Feedback on the reasons for employee turnover is collected and reviewed with a view to improve and retain the best talent within our
business and to improve our working environment and arrangements.
Health and Safety
The Group has a comprehensive system to assess, monitor and mitigate Health and Safety risk within the business which is subject
to continuous improvement and review. Our regularly updated Group Health & Safety Policy and business specific Health and Safety
Handbooks are available to all colleagues and are covered in our induction processes.
Studio Retail Group plc Annual Report 2020
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We operate a twelve-month rolling risk assessment programme across the group run by qualified Health and Safety professionals. This
approach allows for greater focus on individual areas of Health and Safety. Each site receives several inspections during the year. These
assessments and inspections have also been developed to include both environmental and site security aspects.
Findel Education has certifications in ISO9001 and OHSAS18001, the internationally recognised standard for Occupational Health and
Safety Management Systems. Studio Retail Group plc is a member of the British Safety Council and a member of the Royal Society for the
Prevention of Accidents (RoSPA).
We are proud of our longstanding safety record especially given the operation of a number of very busy warehouses. However, we are
never complacent and constantly look to improve performance in this area. During the year a total of 82 accidents were recorded across
the Group’s sites, the vast majority of which were minor, and of which 7 were reportable to the Environmental Agency under the RIDDOR
regulations. During the year one Improvement Notice was issued by the Environmental Agency as a result of a RIDDOR incident which had
resulted in an impact injury to a colleague’s elbow. Remedial action was taken immediately, and the notice was withdrawn as fully and
promptly fulfilled. A Behavioural Safety Programme is planned to be rolled out across Studio starting in FY2020/21, which will concentrate
heavily on individual behavioural actions which is intended to reduce further the current accident statistics within SRL.
We have also continued to work closely with our employers’ liability insurers Aviva in reviewing and improving risk mitigation across
the business. Aviva and our independent insurance brokers have advised that our claim rates for health and safety related incidents is
comparatively low for the type and size of our operations.
Business Continuity
Studio continues to review and challenge its Business Continuity and Operational Resilience Framework, investing time and resource
to protect its business from unplanned events. Last year’s test to recover critical IT systems and communications will be repeated in
2020 along with the inclusion of key 3rd party service providers such as Rackspace and Welcom. The arrangements to enable up to 250
colleagues to work remotely from a 3rd party office facility in Manchester remains in place. Since the outbreak of the Covid-19 pandemic
the group has enabled over 500 members of staff to work from home and this further enhances our flexibility and ability to react to
unforeseen circumstances.
The business continues to invest heavily in its Risk Management Framework initiative, taking its already established model to higher levels
of maturity and reporting. The business recognises the criticality of this key business tool and its ability to help the business succeed in
the delivery of its overall strategy. The permanent Risk team has been supplemented during the year with experienced industry-experts
who have focussed on education, reporting, management information, and governance. For further details please see pages 71 to 72 for
the Risk Committee Report.
Findel Education has continued to review all aspects of its Business Continuity planning, with a particular focus on evaluating and
improving both protection and recovery from an IT perspective. Site power backup recovery times have also been improved, alongside
implementing further measures for influenza pandemic planning.
Our Products and Supply Base
The Group sells a range of c.100,000 stock lines across an extensive range of categories. Our suppliers are diverse and range from
individual factories to large multinational companies. Product safety and quality is at the forefront when selecting any product for our
range. Appropriate safety certification is obtained (backed by independent third-party testing where necessary) and each business has a
team dedicated to maintaining these standards.
Studio and Findel Education each operates its own comprehensive Trading Manual with which all suppliers are required to comply. This
includes our ethical trading expectations, including compliance with the Modern Slavery Act. They are supported by standard terms and
conditions of purchase, which are regularly reviewed and updated, and also include appropriate provisions to require compliance with the
Modern Slavery Act and General Data Protection Regulation. We strongly support the Modern Slavery Act and have published appropriate
statements on our websites.
Studio and Findel Education require new suppliers to produce an ethical trading statement of compliance as part of the account set-up
process with independent third-party ethical sourcing certificates also required depending on the risk profile and product type. Studio has
updated its Ethical Sourcing Policy which clearly defines what is expected of our supply chain in respect of ethical practices and includes
a minimum ‘Standard’ to be worked to and controls to ensure compliance. The recently formed Studio Procurement Team will further
enhance Studio’s compliance processes in these areas.
Findel Asia Sourcing, our office in Shanghai, was rebranded to Studio Asia earlier this year, and has been sourcing products for group
companies and third parties for over 30 years and requires that each of the c.240 factories they deal with has a valid audit certificate
in place covering the time of manufacture of our products. The Supplier must be able to demonstrate compliance with our policy by
submitting an Ethical Audit Report, which is less than 2 years old if no expiry date, or within the expiry date and is based on SMETA, BSCI,
SA8000 or ICTI audit methodology, undertaken by a reputable 3rd party audit company, such as BV, Intertek, SGS or Verisio.
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Studio Retail Group plc Annual Report 2020
Corporate Social Responsibility Report 2020 There is a programme for ensuring continued compliance by evidencing renewal and remediation of any non-conformances reported.
A further level of scrutiny applied, is for factories with improvement works required through the audit process to provide photographic
evidence of the remediation and resulting compliance. This is in line with the Studio Ethical Sourcing Policy.
It is of paramount importance that all products offered for sale to our customers are safe and fit for purpose. Both Studio and Findel
Education have Quality Assurance teams in place to ensure that all own brand products are consistently good quality, safe, fit for purpose,
adhere to all applicable legislation and company standards and will therefore meet our customer’s expectations. The improved focus on
the product approval process is evident in a returns rate that is trending down year on year and improved star ratings within our Power
Reviews.
Studio places the utmost importance on the safety and quality of its products and the returns rate remains similar to the previous year
and is significantly lower than our peers. Findel Education saw a 7.6% reduction in overall returns for the current period compared to last
year. Within Findel Education, the Nottingham Logistics Centre (NLC) continues to align itself with education supply chain partners who
take their responsibility for corporate social matters seriously. From an inbound perspective we work closely with Agility Logistics who are
award winners in both sustainability and corporate social responsibility, and from an outbound point of view our main parcel carrier DPD
who has set new levels in carbon neutral delivery by offsetting 100% of parcel delivery emissions, voluntarily. The Education team are also
actively working on new solutions to reduce the count of outbound parcels, resulting in less repeated journeys to customers whilst also
reducing overall packaging usage. A large part of this is achieved by maintaining service levels to a very high standard, resulting in fewer
backorders and therefore parcels, whilst also delivering customer service excellence.
The Environment
As a digital value retailer and education supplies business, the Group’s environmental impact is predominantly through utility
consumption and our use and disposal of paper and packaging, although as a non-manufacturing company, our emissions remain
relatively low.
The Group’s Scope 1 emissions from its vehicle fleet in 2019/20 were 66 tonnes of CO2 compared to 85 tonnes in 2018/19 which will
be further reduced in the coming years as the contraction of our fleet continues. The Scope 2 emissions from our energy usage were
5,944 tonnes of CO2 which is an increase of 3.36% from 5,744, tonnes in 2018/19, broadly in line with the Group’s turnover trend.
The high number of relatively low-value individual despatches in our businesses continues to make it economically and environmentally
efficient to use third party carriers to transport products to our customers. Prior to appointment and on a regular basis thereafter, we ask
our third-party carriers to demonstrate their environmental credentials.
Findel Education continues to increase its range of eco-friendly products, including Classmates stationery brand re-introduced last year,
which includes products made from recycled paper, Fairtrade, energy efficiency A-rated appliances, environmentally friendly products and
lower carbon footprint UK-sourced products. All sites within Findel Education have ISO14001 accreditation, an internationally recognised
standard for environmental management which ensures each location has a fully compliant Environmental Management System. As part
of Findel Education’s certification to ISO14001:2015, product life cycle is continuously reviewed. This, combined with customer demand to
deliver products which are sustainable, eco-friendly and where possible biodegradable, has seen further developments in the selection
process.
In addition, some suppliers are working with the Woodland Trust or finding other ways to plant forestry to either replace trees used for
production or to offset their carbon footprint.
Studio are working with Restore PLC in respect of the disposal of business confidential information. Restore meet internationally
recognised business standards and are ISO 9001:2015, 14001 and 27001 certified, and are members of and contributors to many industry
associations and groups. Restore is committed to minimising the impact of its activities on the environment, prevention of pollution and
the protection of the environment as part of our business resources.
Energy
The Group’s major use of energy continues to be the heating and lighting of buildings, powered conveyor equipment and in our vehicle
fleet. An Energy Saving Opportunities Scheme (ESOS) survey was carried out across our UK locations during the year various energy saving
initiatives were suggested. One quick win was the installation of LED lighting across some sites which will reduce costs on electricity.
Energy efficiency is a material consideration when procuring vehicles, equipment or services. Our major sites all benefit from centralised
control of heating and ventilation systems and are subject to regular monitoring to ensure they are operating as efficiently as possible.
The Group Company Car Policy focuses on lower carbon emission vehicles and has continued to apply a CO2 limit of 130g/km for new
vehicles. The average fleet emissions remain low at 113g/km in 2019/20. We plan to further reduce the size of our company car fleet
during the next year which should see our emissions fall again.
Studio Retail Group plc Annual Report 2020
77
Paper
The tonnage of paper used in Studio’s catalogues and brochures has shown a reduction from 8,688 tonnes in 2018/19 to 4,325 tonnes
in 2019/20; a significant reduction of nearly 50% as our digital offerings become the dominant customer preference. All paper used for
printing by our divisions is manufactured at mills which have a Programme for the Endorsement of Forest Certification (PEFC) chain of
custody certification.
Packaging
The Group is constantly seeking innovative ways to minimise the level of packaging used, whilst ensuring that products are received by
our customers undamaged. Studio plans are in place to review all despatch packaging during 2020/21 to move to more environmentally
friendly solutions. Findel Education continue to operate an on-demand packaging solution, minimising the use of card by making custom
cartons for every delivery. All card used by the Group for making our boxes is FSC certified and the small amount of packaging infill we do
use is not only FSC, but all natural, 100% renewable, recyclable and reusable.
In the current year, Studio increased the recycled content of the customer despatch bags from 20% to 50%. There is currently no
minimum level but the target for 2022, is for single-use plastics in the UK to have a minimum of 30% recycled content
Waste
All Studio sites continue to be zero to landfill sites and have been since May 2012. In the last 12 months, 2,224 tonnes of waste was
collected compared to 2,285 tonnes in the year 2018/19, marginally down year on year. 63% was recycled and 37% was recovered via an
Energy from Waste (EFW) plant. By partnering with contractors who utilise refuse-derived fuel, Findel Education have also now achieved
zero to landfill across all sites.
Community Support
Our local communities are important to us and the Group and its colleagues continue to support a number of local and national charities
nominated by our colleagues, together with local communities and organisations close to our various bases of operation. Studio sees
Accrington and the surrounding towns and villages as vital to maintain our success as a digital retailer and major employer. We support
the local community by donating furniture, clothes, toys and other gifts to charities and helping those in need. Throughout the Covid 19
crisis we have supported local communities and have donated:
•
thousands of towels and pillowcases to local hospital trusts to help frontline NHS staff across Lancashire with their increased hygiene
routines;
• over 20,000 stationery and home learning items to 24 local schools;
• £1,000 towards roof repairs to Derian House Children’s Hospice charity shop following a burglary;
•
essential clothing items, such as socks, t-shirts and underwear, to CityCo in support of The Manchester Homelessness Partnership;
• duvets donated to a local sewing group to make PPE for local hospital trusts;
• 10% of sales of all Rainbow and Heart products will be donated to the NHS Charities Together; and
• personalised pencils to a local school – with more support planned when all children fully return.
Both Studio and Findel Education are partnering local schools providing support and guidance to staff and students. Findel Education also
support the Greggs Breakfast Club at Moston Lane Primary School in Manchester which helps the children get a great start to their day
and promotes health, well-being and development.
Findel Education is, for a fifth year, supporting the Go4SET scheme. Go4Set is a 10-Week STEM (Science, Technology, Engineering &
Maths) project for 12 to 14-year olds administered by the Engineering Development Trust (a registered charity). Its mission is to inspire
students towards STEM related careers by linking with industry in real life situations using hands on learning and skills development.
A small team of employees will work with a team of students to develop a project that will help enhance their technical, personal and
employability skills.
Both Studio and Findel Education also support various colleague-managed social events that act as charity events to support several
much-needed local charities. In addition to charitable donations, including a Maundy Pop Up Christmas Shop in Accrington (providing
low cost toys for budget stretched local families). Studio has also been visible in the local community through partnership with
#Amazingaccrington and sponsorship of the Accrington Stanley Football Club’s family stand.
Signed on behalf of the Board
Phil Maudsley
Chief Executive
22 August 2020
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Studio Retail Group plc Annual Report 2020
Corporate Social Responsibility Report 2020 Statement of Directors’ Responsibilities in respect of the
Annual Report and Accounts
The Directors are responsible for preparing the Annual Report and the group and parent company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare group and parent company financial statements for each financial year. Under that law
they are required to prepare the group financial statements in accordance with International Financial Reporting Standards as adopted
by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent company financial
statements in accordance with UK Accounting Standards, including FRS 101 Reduced Disclosure Framework.
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 Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent
Company financial statements, the Directors are required to:
•
select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant and reliable;
•
•
•
for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any
material departures disclosed and explained in the parent company financial statements;
assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters relating to going
concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or Parent Company or to cease operations,
or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure
that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and
have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
Responsibility statement of the directors in respect of the
Annual Report
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a
whole; and
the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that
they face.
We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s position and performance, business model and strategy.
The directors of Studio Retail Group plc are detailed on page 29.
By order of the Board
Ian Burke
Chairman
22 August 2020
Phil Maudsley
Chief Executive
Studio Retail Group plc Annual Report 2020
79
Independent
auditor’s report
to the members of Studio Retail Group plc
(formerly Findel plc)
1. Our opinion is unmodified
We have audited the financial statements of Studio
Retail Group plc (formerly Findel plc) (“the Company”)
for the year ended 27 March 2020 which comprise
the consolidated income statement, the consolidated
statement of other comprehensive income, the
consolidated balance sheet, the consolidated statement of
changes in equity, the consolidated cash flow statement,
the Company balance sheet and the Company statement
of changes in equity and the related notes, including the
accounting policies in note 1.
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 27 March 2020 and of the Group’s profit for the
year then ended;
— the Group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards as adopted by the European Union;
— the parent Company financial statements have been
properly prepared in accordance with UK accounting
standards, including FRS 101 Reduced Disclosure
Framework; and
— the financial statements have been prepared in
accordance with the requirements of the Companies Act
2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable
law. Our responsibilities are described below. We believe
that the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion. Our audit opinion is
consistent with our report to the audit committee.
We were first appointed as auditor by the directors
in September 2010. The period of total uninterrupted
engagement is for the ten financial years ended 27 March
2020. We have fulfilled our ethical responsibilities under,
and we remain independent of the Group in accordance
with, UK ethical requirements including the FRC Ethical
Standard as applied to listed public interest entities. No
non-audit services prohibited by that standard were
provided.
Overview
Materiality:
Group financial
statements as
a whole
Coverage
£1.5m (2019: £1.5m)
0.3% of Group revenue
(2019: 4.5% of normalised Group
profit before tax)
100% of Group revenue
(2019: 99% of normalised Group
profit before tax)
Key audit matters
vs 2019
Recurring
risks
Impairment
allowances on trade
receivables in Studio
Retail Limited
New: Valuation
of defined benefit
pension obligations
– parent Company
Event driven
Going concern
Brexit
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Studio Retail Group plc Annual Report 2020
2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements
and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, 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. We summarise below the key audit matters in arriving at our audit opinion above, together with our key audit
procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were
addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial
statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide
a separate opinion on these matters.
The risk
Our response
The impact of
uncertainties
due to the UK
exiting the
European Union
on our audit
Refer to pages
22 and 23
(Principal Risks
and Uncertainties),
page 30
(Directors’ Report)
and page 68
(Audit Committee
Report)
We developed a standardised firm-wide approach to the
consideration of the uncertainties arising from the UK’s
departure from the EU in planning and performing our audits.
Our procedures included:
— Our knowledge of the business: We considered the
directors’ assessment of risks arising from different
outcomes to the trade negotiations for the Group’s
business and financial resources compared with our own
understanding of the risks. We considered the directors’
plans to take action to mitigate the risks.
— Sensitivity analysis: When addressing going concern
and impairment allowances on trade receivables in Studio
Retail Limited and other areas that depend on forecasts,
we compared the directors’ analysis to our assessment of
the full range of reasonably possible scenarios resulting
from these uncertainties and, where forecast cash flows
are required to be discounted, considered adjustments to
discount rates for the level of remaining uncertainty.
— Assessing transparency: As well as assessing individual
disclosures as part of our procedures on addressing
going concern and impairment allowances on trade
receivables in Studio Retail Limited we considered all of the
disclosures concerning uncertainties related to the UK’s
future trading relationships together, including those in the
strategic report, comparing the overall picture against our
understanding of the risks.
Our results
— As reported under impairment allowances on trade
receivables in Studio Retail Limited, we found the resulting
estimates and related disclosures of impairment allowances
on trade receivables in Studio Retail Limited and disclosures
in relation to going concern to be acceptable. However no
audit should be expected to predict the unknowable factors
or all possible future implications for a company and this
is particularly the case in relation to the impact of the UK’s
departure from the EU.
Extreme levels of uncertainty:
The UK left the European Union (EU)
on 31 January 2020 and entered an
implementation period which is due to
operate until 31 December 2020. At that
point current trade agreements with the
European Union terminate. The UK is
entering negotiations over future trading
relationships with the EU and a number
of other countries. Where new trade
agreements are not in place World Trade
Organisation (WTO) arrangements will
be in force, meaning among other things
import and export tariffs, quotas and border
inspections, which may cause delivery delays.
Different potential outcomes of these trade
negotiations could have wide ranging impacts
on the Group’s operations and the future
economic environment in the UK and EU.
All audits assess and challenge the
reasonableness of estimates, in particular
as described in impairment allowances on
trade receivables in Studio Retail Limited
below, and related disclosures; and the
appropriateness of the going concern
basis of preparation of the financial
statements (see below). All of these depend
on assessments of the future economic
environment and the Group’s future
prospects and performance.
In addition, we are required to consider
the other information presented in the
Annual Report including the principal risks
disclosure and the viability statement and
to consider the directors’ statement that
the annual report and financial statements
taken as a whole is fair, balanced and
understandable and provides the
information necessary for shareholders
to assess the Group’s position and
performance, business model and strategy.
The uncertainty over the UK’s future trading
relationships with the rest of the world
and related economic effects give rise to
extreme levels of uncertainty, with the full
range of possible effects currently unknown.
Studio Retail Group plc Annual Report 2020
81
Impairment
allowances
on trade
receivables in
Studio Retail
Limited
(£317.9m,
allowance for
expected credit
loss £101.8m;
2019: £304.3m,
allowance for
expected credit
loss £88.0m)
Refer to page 68
(Audit
Committee Report),
page 106
(accounting policy)
and pages
123 to 125
(financial
disclosures).
The risk
Our response
Subjective estimate:
Our procedures included:
The Group has a significant level of trade
receivables which are due to be recovered
by instalments as a result of credit terms
offered to customers by the Studio Retail
Limited business.
The provision held against trade receivables
is calculated by a series of models which
have been re-designed in the current
year. This impacted the determination of
a significant increase in credit risk and the
resulting impact on staging, the probability
of accounts falling into arrears and
subsequently defaulting, and the exposure
at default.
Small changes in the assumptions and
estimates within the provisioning model
can have a significant effect on the results
of the Group. Given the emergence of
COVID19, the provision is most sensitive to
assumptions around the macro-economic
variables within the economic scenarios,
the weightings applied to the range of
economic scenarios and the level of cash
recoveries. As a consequence, adequate
disclosure of the assumptions and the
areas of estimation uncertainty are also
important.
The effect of these matters is that, as part
of our risk assessment, we determined
that the impairment allowances on trade
receivables had a high degree of estimation
uncertainty, with a potential range of
reasonable outcomes greater than our
materiality for the financial statements
as a whole, and possibly many times that
amount. The financial statements (note 15)
disclose the sensitivity estimated by the
Company.
Disclosure quality
The disclosures regarding the Group’s
application of IFRS 9 are key to
understanding the key judgements
involved.
— Control re-performance: Testing key controls over
the monitoring of the provisioning model and the key
assumptions.
— Operating effectiveness of controls: Where data controls
were found to be ineffective, we performed direct testing
over the relevant data elements within the provisioning
models to gain comfort over the completeness and accuracy
of the data. This involved testing attributes back to source
documentation. This allowed us to gain comfort that the
data flowing into the models was appropriate. Where
management review controls were found to be ineffective,
substantive procedures challenging assumptions with the
provisioning models were performed.
— Our financial risk modelling expertise: Using our financial
risk modelling specialists to evaluate the application of
management’s methodology within the revised models.
Documentation review, independent recoding and model
code reviews have been performed where relevant across
the various models with replication testing performed
across all models to assess the output of the models.
— Historical comparison: Using our historical experience to
critically challenge the Group’s forecast of prices obtained in
respect of debt sales.
— Sector knowledge: Using our knowledge of the sector
and the current prices obtained in respect of debt sales,
to challenge management’s forecasts of expected future
prices, and ultimately the recoveries Studio will make.
— Benchmarking assumptions: Benchmarking the Group’s
key assumptions, including probability of default and criteria
used to determine whether there has been a significant
increase in credit risk, to comparable lenders. We also used
our economic specialists to challenge the economic scenarios
in the model and the weighting the model uses to build the
provision through comparison’s with market peers, market
publications and analysis from the Bank of England in respect
of the impact of COVID-19. Further, consideration of the
sector’s approach to accounting for COVID-19 allowed us to
benchmark Studio’s approach to that of the wider market.
— Assessing transparency: Considering the adequacy of the
Group’s disclosures of the key assumptions and the areas
of estimation uncertainty in relation to the impairment
provision. This includes disclosure of the sensitivity of
the impairment provision to movements in the economic
scenarios and debt sale prices.
Our results
— Our testing identified some weaknesses in the design and
implementation of controls. As a result we expanded the
extent of our detailed testing over and above that originally
planned. The results of this testing were satisfactory and
we found the impairment allowances recognised and the
associated disclosures made to be acceptable (2019 result:
acceptable).
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Studio Retail Group plc Annual Report 2020
Independent Auditor’s Report The risk
Our response
Going concern
Disclosure quality:
Our procedures included:
Refer to page 68
(Audit
Committee Report)
and page 101
(financial
disclosures).
The financial statements explain how the
Board has formed a judgement that it is
appropriate to adopt the going concern
basis of preparation for the Group and
Company.
— Funding assessment: Assessed the committed level of
financing available to the Group for at least the next twelve
months through considering the facility agreements and
assessing the Group’s ability to comply with covenant
requirements.
That judgement is based on an evaluation
of the inherent risks to the Group’s and
Company’s business model and how
those risks might affect the Group’s and
Company’s financial resources or ability to
continue operations for a period of at least
twelve months from the date of approval of
these financial statements.
The risks most likely to affect the Group’s
and Company’s available financial
resources over this period were:
— The level of financing available and
the ability of the Group to comply with
financial covenants at certain points
within the year; and
— The risk, increased due to the impact of
COVID-19 uncertainty, that the Group
will recover less cash than expected
from the Studio trade receivables.
There are also less predictable but realistic
second order impacts, such as the impact
of Brexit and the erosion of customer
confidence, which could result in a rapid
reduction of available financial resources.
The risk for our audit was whether those
risks were such that they amounted to a
material uncertainty that may have cast
significant doubt over the Group’s ability
to continue to operate as a going concern.
Had they been such, then that fact would
have been required to have been disclosed.
— Historical comparisons: Considered the Group’s historical
budgeting accuracy, by assessing actual performance
against budget and analysing the Group’s explanations for
variances between actual and budgeted results.
— Our sector experience: Used our experience of the sector
to challenge management’s assumptions over forecast
customer default ratios and cash flow forecasts.
— Key dependency assessment: Assessing the Group’s cash
flow forecasts to identify key inputs for further enquiry. The
key inputs included forecast revenue growth and forecast
customer default ratios.
— Sensitivity analysis: Considered sensitivities over the level
of available financial resources indicated by the Group’s
financial forecasts taking account of severe but plausible
downside sensitivities that could arise, including a reduction
in forecast revenue growth, a reduction in forecast
gross profit margin, a potential COVID-19 related second
lockdown and its effects on the Group’s cash flows, and an
increase in forecast customer default ratios.
— Assessing transparency: Assessed the completeness
and accuracy of the matters covered in the going concern
disclosure by assessing the reasonableness of the risks and
uncertainties specified by the disclosure against our findings
from our evaluation of management’s assessment of going
concern.
Our results
— We found the going concern disclosure without any material
uncertainty to be acceptable (2019 result: acceptable).
Studio Retail Group plc Annual Report 2020
83
Valuation of
gross defined
benefit pension
obligations –
parent Company
risk
£98.8m
(2019: £107.9m)
Refer to page 109,
(accounting policy)
and pages
157 to 160
(financial
disclosures).
The risk
Our response
Subjective valuation:
Our procedures included:
— Our actuarial expertise: We used our own actuarial
specialists to challenge key assumptions and estimates used
in the calculation of the retirement benefit obligations;
— Methodology assessment: We used our own actuarial
specialists to assess the appropriateness and consistency of
the methodology applied by management in setting the key
assumptions;
— Benchmarking assumptions: We performed a comparison
of key assumptions against our own benchmark ranges
derived from externally available data;
— Assessing external actuary’s credentials: We assessed
the competence and independence of the external actuary
engaged by the Company; and
— Assessing transparency: We considered the adequacy of
the Company’s disclosure in respect of retirement benefits,
in particular the gross defined benefit pension obligation and
the assumptions used and the sensitivity of the liabilities to
these assumptions, which are set out in note 14 to the parent
company financial statements.
Our results:
— We found the resulting estimate of the defined benefit
pension obligations to be acceptable (2019: acceptable).
The valuation of defined benefit pension
obligations depends on a number of
estimates, including the discount rates used
to calculate the current value of the future
payments the Company expects to pay
pensioners, the rate of inflation that must
be incorporated in the estimate of future
pension payments, and the life expectancy
of pension scheme members.
There is a considerable amount of
estimation uncertainty involved in setting
the above assumptions and a small change
in the assumptions may have a significant
impact on the defined benefit pension
obligations.
The effect of these matters is that, as part
of our risk assessment, we determined
that the gross defined benefit pension
obligation of £98.8m has a high degree of
estimation uncertainty, with a potential
range of reasonable outcomes greater than
materiality for the financial statements
as a whole, and possibly many times
that amount. The financial statements
(note 14 to the Parent company financial
statements) disclose the sensitivity
estimated by the Company.
This risk is included as a key audit
matter for the first time this year as it is
now considered to be the area of most
significance in our audit of the parent
company.
We continue to perform procedures over recoverability of non-amortising intangible assets and recoverable amount of investment in
subsidiary. However, following the agreement to sell the Findel Education CGU at a price exceeding the carrying amount of the cash
generating unit and above the carrying amount of the parent’s investment in subsidiary, we have not assessed these as areas of the most
significant risks in our current year audit and, therefore, they are not separately identified in our report this year.
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Studio Retail Group plc Annual Report 2020
Independent Auditor’s Report 3. Our application of materiality and an overview of the
scope of our audit
Group revenue
£434.9m (2019: £506.8m)
Group materiality
£1.5m (2019: £1.5m)
Materiality for the Group financial statements as a whole was set
at £1.5m (2019: £1.5m), determined by reference to a benchmark
of Group revenue of which it represents 0.3% (2019: 4.5% of
normalised Group profit before tax). We consider Group revenue
to be the most appropriate benchmark as it provides a more
stable measure year on year than Group profit before tax. The
change in the benchmark from the prior period is because
Group revenue provides a more stable measure year on year
than group profit before tax for the period for which business
performance has been affected by the COVID-19 pandemic.
Materiality for the parent Company financial statements as a
whole was set at £0.7m (2019: £1m), determined with reference
to a benchmark of Company total assets, of which it represents
0.5% (2019: 1%).
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding £75,000,
in addition to other identified misstatements that warranted
reporting on qualitative grounds.
Of the Group’s four (2019: four) reporting components, we
subjected three (2019: three) to full scope audits for Group
purposes. The components within the scope of our work
accounted for the percentages illustrated opposite.
The work on the three (2019: three) components, including the
audit of the parent Company, was performed by the Group team.
Component materialities ranged from £0.5m – £1.3m, having
regard to the mix of size and risk profile of the Group across the
components.
£1.5m
Whole financial
statements materiality
(2019: £1.5m)
£1.3m
Range of materiality
at three components
(£0.5m – £1.3m)
(2019: £0.2m – £1.3m)
Group revenue
Group materiality
£75,000
Misstatements reported to the
audit committee (2019: £75,000)
Group revenue
Group profit before tax
from continuing operations
1
1
99%
(2019: 99%)
99
99
100%
(2019: 100%)
Group total assets
1
1
99%
(2019: 100%)
99
Full scope for Group audit purposes 2020
Residual components 2020
Full scope for Group audit purposes 2019
Residual components 2019
Studio Retail Group plc Annual Report 2020
85
4. We have nothing to report on going concern
5. We have nothing to report on the other information in the
The directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the
Company or the Group or to cease their operations, and as they
have concluded that the Company’s and the Group’s financial
position means that this is realistic. They have also concluded
that there are no material uncertainties that could have cast
significant doubt over their ability to continue as a going concern
for at least a year from the date of approval of the financial
statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of the
directors’ conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this
audit report. However, as we cannot predict all future events or
conditions and as subsequent events may result in outcomes
that are inconsistent with judgements that were reasonable at
the time they were made, the absence of reference to a material
uncertainty in this auditor’s report is not a guarantee that the
Group and the Company will continue in operation.
We identified going concern as a key audit matter (see section 2
of this report). Based on the work described in our response to
that key audit matter, we are required to report to you if:
— we have anything material to add or draw attention to
in relation to the directors’ statement in note 1 to the
financial statements on the use of the going concern basis
of accounting with no material uncertainties that may cast
significant doubt over the Group and Company’s use of that
basis for a period of at least twelve months from the date of
approval of the financial statements; or
— the related statement under the Listing Rules set out on
page 30 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
Annual Report
The directors are responsible for the other information presented
in the Annual Report together with the financial statements. Our
opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements
audit work, the information therein is materially misstated
or inconsistent with the financial statements or our audit
knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
— we have not identified material misstatements in the strategic
report and the directors’ report;
— in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
— in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of emerging and principal risks and longer-term
viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw
attention to in relation to:
— the directors’ confirmation within the viability statement on
page 31 that they have carried out a robust assessment of
the emerging and principal risks facing the Group, including
those that would threaten its business model, future
performance, solvency and liquidity;
— the Principal Risks and Uncertainties disclosures describing
these risks and explaining how they are being managed and
mitigated; and
— the directors’ explanation in the viability statement of how
they have assessed the prospects of the Group, over what
period they have done so and why they considered that
period to be appropriate, and their statement as to whether
they have a reasonable expectation that the Group will
be able to continue in operation and meet its liabilities as
they fall due over the period of their assessment, including
any related disclosures drawing attention to any necessary
qualifications or assumptions.
Under the Listing Rules we are required to review the viability
statement. We have nothing to report in this respect.
86
Studio Retail Group plc Annual Report 2020
Independent Auditor’s Report Our work is limited to assessing these matters in the context of
only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were
made, the absence of anything to report on these statements is
not a guarantee as to the Group’s and Company’s longer-term
viability.
Corporate governance disclosures
We are required to report to you if:
— we have identified material inconsistencies between the
knowledge we acquired during our financial statements
audit and the directors’ statement that they consider that
the annual report and financial statements taken as a whole
is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
position and performance, business model and strategy; or
— the section of the annual report describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report in these respects.
6. We have nothing to report on the other matters on which
we are required to report by exception
Under the Companies Act 2006, we are required to report to you
if, in our opinion:
— adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
— the parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited 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.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 79,
the directors are responsible for: the preparation of the
financial statements including being satisfied that they give a
true and fair view; such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud
or error; assessing the Group and 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 they 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
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 other irregularities (see
below), or error, and to issue our opinion in an auditor’s report.
Reasonable assurance is a high level of assurance, but does
not guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud, other irregularities or error
and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our general commercial and sector experience and
through discussion with the directors and other management
(as required by auditing standards), and from inspection of the
Group’s regulatory and legal correspondence and discussed
with the directors and other management the policies and
procedures regarding compliance with laws and regulations. We
communicated identified laws and regulations throughout our
team and remained alert to any indications of non-compliance
throughout the audit.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation (including related companies legislation), distributable
profits legislation, pensions legislation and taxation legislation
and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial
statement items.
Studio Retail Group plc Annual Report 2020
87
8. The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and
the Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
Mick Davies (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 St Peter’s Square
Manchester
M2 3AE
23 August 2020
Secondly, the Group is subject to many other laws and regulations
where the consequences of non-compliance could have a material
effect on amounts or disclosures in the financial statements, for
instance through the imposition of fines or litigation or the loss of
the Group’s licence to operate. We identified the following areas
as those most likely to have such an effect: health and safety,
anti-bribery, employment law and certain aspects of Company
legislation recognising the financial and regulated nature of the
Group’s activities.
Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of the
directors and other management and inspection of regulatory
and legal correspondence, if any. Through these procedures,
we became aware of actual or suspected non-compliance and
considered the effect as part of our procedures on the related
financial statement items. The identified actual or suspected non-
compliance was not sufficiently significant to our audit to result
in our response being identified as a key audit matter however
we performed procedures to assess the completeness and
accuracy of the Group’s regulatory provisions. This work included
reviewing correspondence with the Financial Conduct Authority,
assessing provision methodology against regulator guidelines
and our market experience, re-performing the provision
model calculations and performing sensitivity analysis on key
assumptions.
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we
have properly planned and performed our audit in accordance
with auditing standards. For example, the further removed non-
compliance with laws and regulations (irregularities) is from the
events and transactions reflected in the financial statements,
the less likely the inherently limited procedures required by
auditing standards would identify it. In addition, as with any audit,
there remained a higher risk of non-detection of irregularities,
as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. We are
not responsible for preventing non-compliance and cannot be
expected to detect non-compliance with all laws and regulations.
88
Studio Retail Group plc Annual Report 2020
Independent Auditor’s Report Contents
3
Financial Statements
90
92
93
94
95
96
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Cash Flow
Statement
Consolidated Statement of
Changes in Equity
Notes to the Consolidated
Financial Statements
Consolidated Income Statement
52-week period ended 27 March 2020
Continuing operations
Revenue
Credit account interest
Total revenue (including credit interest)
Cost of sales
Impairment losses on customer receivables
Gross profit
Trading costs
Analysis of operating profit:
– EBITDA*
– Depreciation, amortisation and impairment
Operating profit
Finance costs
Profit before tax and fair value movements on
derivative financial instruments
Fair value movements on derivative financial instruments
Profit before tax
Tax (expense)/income
Profit from continuing operations
Discontinued operation
Profit from discontinued operation, net of tax
Profit for the period
Earnings per ordinary share
from continuing operations
Basic
Diluted
from discontinued operation
Basic
Diluted
total attributable to ordinary shareholders
Basic
Diluted
Before
individually
significant
items
£000
330,352
104,542
434,894
(208,924)
(53,930)
172,040
(150,549)
35,037
(13,546)
21,491
(10,491)
11,000
2,608
13,608
(1,052)
12,556
2,956
15,512
Individually
significant
items
£000
—
—
—
—
—
—
(6,807)
(5,648)
(1,159)
(6,807)
—
(6,807)
—
(6,807)
1,293
(5,514)
(1,243)
(6,757)
Notes
3
3
6
7
8
10
10
10
Total
£000
330,352
104,542
434,894
(208,924)
(53,930)
172,040
(157,356)
29,389
(14,705)
14,684
(10,491)
4,193
2,608
6,801
241
7,042
1,713
8,755
8.16p
8.12p
1.98p
1.97p
10.14p
10.09p
The accompanying notes are an integral part of this consolidated income statement.
* Earnings before interest, tax, depreciation, amortisation and fair value movements on derivative financial instruments.
90
Studio Retail Group plc Annual Report 2020
Consolidated Income Statement
52-week period ended 29 March 2019 (restated – refer to note 1)
Continuing operations
Revenue
Credit account interest
Total revenue (including credit interest)
Cost of sales
Impairment losses on customer receivables
Gross profit
Trading costs
Analysis of operating profit:
– EBITDA*
– Depreciation, amortisation and impairment
Operating profit
Finance costs
Profit before tax and fair value movements
on derivative financial instruments
Fair value movements on derivative financial instruments
Profit before tax
Tax (expense)/income
Profit from continuing operations
Discontinued operation
Profit from discontinued operation, net of tax
Profit for the period
Earnings per ordinary share
from continuing operations
Basic
Diluted
from discontinued operation
Basic
Diluted
total attributable to ordinary shareholders
Basic
Diluted
Before
individually
significant
items
£000
323,534
98,119
421,653
(202,453)
(36,623)
182,577
(147,377)
45,147
(9,947)
35,200
(9,618)
25,582
4,750
30,332
(6,456)
23,876
2,830
26,706
Individually
significant
items
£000
—
—
—
—
—
—
(4,158)
(4,158)
—
(4,158)
—
(4,158)
—
(4,158)
741
(3,417)
—
(3,417)
Notes
3
3
6
7
8
10
10
10
Total
£000
323,534
98,119
421,653
(202,453)
(36,623)
182,577
(151,535)
40,989
(9,947)
31,042
(9,618)
21,424
4,750
26,174
(5,715)
20,459
2,830
23,289
23.70p
23.70p
3.28p
3.28p
26.98p
26.98p
The accompanying notes are an integral part of this consolidated income statement.
* Earnings before interest, tax, depreciation, amortisation and fair value movements on derivative financial instruments.
Studio Retail Group plc Annual Report 2020
91
Consolidated Statement of Comprehensive Income
52-week period ended 27 March 2020
Profit for the period
Other Comprehensive Income
Items that may be reclassified to profit or loss
Cash flow hedges
Currency translation loss arising on consolidation
Items that will not subsequently be reclassified to profit or loss
Remeasurements of defined benefit pension scheme (note 25)
Tax relating to components of other comprehensive income (note 7)
Total comprehensive income for period
2020
£000
8,755
28
(443)
(415)
26,915
(4,043)
22,872
31,212
2019
£000
23,289
(19)
(353)
(372)
(2,374)
643
(1,731)
21,186
The total comprehensive income for the period is attributable to the equity shareholders of the parent company Studio Retail Group plc.
The accompanying notes are an integral part of this consolidated statement of comprehensive income.
92
Studio Retail Group plc Annual Report 2020
Consolidated Balance Sheet
at 27 March 2020
Company Number: 549034
Non-current assets
Other intangible assets
Property, plant and equipment
Derivative financial instruments
Retirement benefit surplus
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Current tax assets
Current assets excluding assets held for sale
Assets held for sale
Total current assets
Total assets
Current liabilities
Trade and other payables
Lease liabilities
Derivative financial instruments
Provisions
Current tax liabilities
Current liabilities excluding liabilities held for sale
Liabilities held for sale
Total current liabilities
Non-current liabilities
Bank loans
Lease liabilities
Provisions
Retirement benefit obligation
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Translation reserve
Hedging reserve
Retained earnings/(accumulated losses)
Total equity
Approved by the Board and authorised for issue on 22 August 2020.
P B Maudsley
Group CEO
S M Caldwell
Group CFO
Notes
2020
£000
2019
£000
11
12
19
25
21
14
15
19
16
7
5
17
13
19
20
5
18
13
20
25
21
23
9
80,007
2
31,695
—
111,713
42,827
235,227
3,250
33,163
1,718
316,185
60,570
376,755
488,468
(57,908)
(6,035)
(36)
(4,335)
—
(68,314)
(24,684)
(92,998)
(282,591)
(37,461)
—
—
(37)
(320,089)
(413,087)
75,381
48,644
321
(26)
26,442
75,381
24,952
45,511
6
—
10,556
81,025
48,757
235,923
604
37,603
—
322,887
—
322,887
403,912
(72,592)
(498)
—
(3,325)
(1,762)
(78,177)
—
(78,177)
(270,545)
—
(7,753)
(68)
(3,849)
(282,215)
(360,392)
43,520
48,644
764
(54)
(5,834)
43,520
The accompanying notes are an integral part of this consolidated balance sheet.
Studio Retail Group plc Annual Report 2020
93
Consolidated Cash Flow Statement
52-week period ended 27 March 2020
Profit for the period
Adjustments for:
Income tax credit
Finance costs
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Amortisation of intangible assets
Share-based payment expense
Fair value movements on financial instruments net of premiums paid
Pension contributions less income statement charge
Operating cash flows before movements in working capital
(Increase)/decrease in inventories
Increase in receivables
Increase in payables
Increase/(decrease) in provisions
Cash generated from operations before interest and tax paid
Income taxes paid
Interest paid
Net cash from operating activities
Investing activities
Purchases of property, plant and equipment, software and IT development costs and intangible assets
Net cash used in investing activities
Financing activities
Payments of lease liabilities (2019: Repayments of obligations under finance leases)
Bank loans repaid
Securitisation loan drawn
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of foreign exchange rate changes on cash held
Cash and cash equivalents at the end of the period
2020
£000
8,755
54
10,998
14,393
1,300
1,163
649
(2,621)
(4,792)
29,899
(10,068)
(9,317)
4,442
1,558
16,514
(3,717)
(8,495)
4,302
(14,822)
(14,822)
(5,966)
(10,000)
22,046
6,080
(4,440)
37,603
—
33,163
2019
£000
23,289
6,064
9,656
9,438
—
2,167
926
(4,784)
(40)
46,716
5,618
(26,549)
5,522
(8,951)
22,356
(1,931)
(10,017)
10,408
(11,545)
(11,545)
(571)
(5,000)
18,041
12,470
11,333
26,244
26
37,603
The accompanying notes are an integral part of this consolidated cash flow statement.
94
Studio Retail Group plc Annual Report 2020
Consolidated Statement of Changes in Equity
52-week period ended 27 March 2020
At 30 March 2018
Total comprehensive income for the period
Transactions with owners
Share-based payments
At 29 March 2019
Total comprehensive income for the period
Transactions with owners
Share-based payments
At 27 March 2020
Share
capital
£000
48,644
—
—
48,644
—
—
48,644
Translation
reserve
£000
1,117
(353)
—
764
(443)
—
321
Hedging
reserve
£000
(Accumulated
losses)/
retained
earnings
£000
(35)
(19)
—
(54)
28
—
(26)
(28,318)
21,558
926
(5,834)
31,627
649
26,442
Total
equity
£000
21,408
21,186
926
43,520
31,212
649
75,381
The total equity is attributable to the equity shareholders of the parent company Studio Retail Group plc.
The accompanying notes are an integral part of this consolidated statement of changes in equity.
Studio Retail Group plc Annual Report 2020
95
1 General information and accounting policies
Studio Retail Group plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered
office is given on page 29. The nature of the Group’s operations and its principal activities are set out in the Strategic Report on pages 1 to 27.
These financial statements are presented in sterling because that is the currency of the primary economic environment in which the
Group operates. Foreign operations are included in accordance with the accounting policies set out below.
The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”). The parent
company financial statements present information about the Company as a separate entity and not about its group.
Basis of accounting
The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted for use in
the European Union and therefore comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared on the
going concern basis as set out below. The financial statements have been prepared on the historical cost basis except for the revaluation
of certain financial instruments.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these group
financial statements. In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the comparative income
statement has been re-presented so that the disclosures in relation to discontinued operations relate to all operations that have been
discontinued by the balance sheet date (see note 5).
Judgements made by the directors, in the application of these accounting policies that have significant effect on the financial statements
and estimates with a significant risk of material adjustment in the next year are discussed in note 2.
Impact of accounting standards that have become effective during the current period
The accounting standards that have come into effect this year are as follows:
•
•
•
•
•
•
IFRS 16 Leases
IFRIC 23 Uncertainty over Income Tax treatments
Amendments to IFRS 9 Financial Instruments
Amendments to IAS 28 Long-term interests in associates and Joint Ventures (not applicable to Studio)
Annual improvements to IFRSs – 2015-2017 Cycle
Amendments to IAS 19 employee benefits
There has been no impact from the above accounting standards except for IFRS 16 which has been disclosed below.
96
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements 1 General information and accounting policies – continued
IFRS 16 Leases
IFRS 16 is effective for all accounting periods beginning on or after 1 January 2019. For Studio Retail Group plc this is the first reported
accounting period under IFRS 16. The Group adopted this standard using the modified retrospective approach with a date of initial
application of 30 March 2019.
Under IFRS 16, lease agreements give rise to both a right of use asset and a lease liability for future lease rentals. The right of use asset
is depreciated on a straight-line basis over the life of the lease. On transition, lease liabilities were measured at the present value of
the remaining lease payments, discounted at the Group’s incremental borrowing rate as at 30 March 2019. The right of use assets are
measured at an amount equal to the lease liability adjusted by the amount of any prepaid or accrued lease payments. The interest is
recognised on the lease liability, resulting in a higher interest expense in the earlier years of the lease term. The total expense recognised
over the life of the lease will be unaffected by the new standard, however, IFRS 16 results in the timing of lease expense recognition being
accelerated for leases which would be currently accounted for as operating leases.
The Group has applied the practical expedient to “grandfather” the definition of a lease on transition and applied the recognition
exemption for both short-term and low-value assets. Consequently, the definition of a lease under IFRS 16 was applied only to contracts
entered into or changed on or after 30 March 2019. The Group has also applied a single discount rate to a portfolio of leases with
reasonably similar characteristics. Previous assessments of whether leases are onerous in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets immediately before the date of initial application have been relied upon as an alternative to performing an
impairment review.
The modified retrospective approach does not require a restatement of the prior period comparatives and consequently, there will be
no adjustment to opening retained earnings. Additionally, the disclosure requirements of IFRS 16 have not generally been applied to
comparative information. The Group recognised an opening right of use asset of £43.2m and a lease liability of £52.3m at 30 March 2019.
The most significant lease liabilities relate to property.
The £9.0m difference between the opening right use asset and lease liability is due to the portion of the onerous lease provision held at
29 March 2019 relating to lease rentals of £8.3m being reclassified against the opening right of use asset. In addition, £0.7m has been
reclassified from other creditors in respect of a rent free period on one of the Group’s properties, which was being amortised to the
income statement over the life of the lease under IAS 17 but under IFRS 16, is netted off the right of use asset.
Operating profit from continuing operations in the current period has increased by £0.1m as operating lease rental costs of £4.3m have
been replaced by £4.2m of depreciation of right of use assets under IFRS 16. Finance costs have increased by £1.8m reflecting interest
charged on lease liabilities under IFRS 16. The net impact on profit before tax was therefore £1.7m.
There is no impact on total cash flows, although from a presentation perspective, whilst operating lease rentals formed part of net cash
from operating activities, lease payments under IFRS 16 now form part of net cash used in financing activities.
We do not expect the adoption of IFRS 16 to have a material impact on the Group’s effective tax rate.
A reconciliation from the operating lease commitments as at 29 March 2019 to the opening lease liabilities as at 30 March 2020 is as follows:
Operating lease commitments disclosed as at 29 March 2019
Discounted using the incremental borrowing rate at the date of application
Less: low value and short-term leases not recognised as a liability
Lease liability recognised as at 30 March 2019
£000
(57,841)
7,993
(2,931)
(52,779)
Full details of the impact of adopting IFRS 16 on the consolidated income statement and balance sheet are given in the tables below:
Studio Retail Group plc Annual Report 2020
97
1 General information and accounting policies – continued
Impact on the Consolidated Income Statement and Comprehensive Income
52-week period ended 27 March 2020
Continuing operations
Revenue
Credit account interest
Total revenue (including credit interest)
Cost of sales
Impairment losses on customer receivables
Gross profit
Trading costs
Analysis of operating profit:
– EBITDA*
– Depreciation, amortisation and impairment
Operating profit
Finance costs
Profit before tax and fair value movements
on derivative financial instruments
Fair value movements on derivative financial instruments
Profit before tax
Tax income
Profit from continuing operations
Discontinued operation
Profit from discontinued operation, net of tax
Profit for the period
Total comprehensive income for period
Earnings per ordinary share
from continuing operations
Basic
Diluted
from discontinued operation
Basic
Diluted
total attributable to ordinary shareholders
Basic
Diluted
Amounts prior
to adoption
of IFRS 16
£000
Impact of
IFRS 16
adoption
£000
330,352
104,542
434,894
(208,924)
(53,930)
172,040
(157,426)
25,088
(10,474)
14,614
(8,668)
5,946
2,608
8,554
241
8,795
1,719
10,514
32,971
10.19p
10.14p
1.99p
1.98p
12.18p
12.12p
—
—
—
—
—
—
70
4,301
(4,231)
70
(1,823)
(1,753)
—
(1,753)
—
(1,753)
(6)
(1,759)
(1,759)
(2.03)p
(2.02)p
(0.01)p
(0.01)p
(2.04)p
(2.03)p
As reported
£000
330,352
104,542
434,894
(208,924)
(53,930)
172,040
(157,356)
29,389
(14,705)
14,684
(10,491)
4,193
2,608
6,801
241
7,042
1,713
8,755
31,212
8.16p
8.12p
1.98p
1.97p
10.14p
10.09p
* Earnings before interest, taxation, depreciation, amortisation and fair value movements on derivative financial instruments.
98
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
1 General information and accounting policies – continued
Impact on the Consolidated Balance Sheet
at 27 March 2020
Non-current assets
Other intangible assets
Property, plant and equipment
Derivative financial instruments
Retirement benefit surplus
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Current tax assets
Current assets excluding assets held for sale
Assets held for sale
Total current assets
Total assets
Current liabilities
Trade and other payables
Lease liabilities
Derivative financial instruments
Current tax liabilities
Provisions
Current liabilities excluding liabilities held for sale
Liabilities held for sale
Total current liabilities
Non-current liabilities
Bank loans
Lease liabilities
Provisions
Retirement benefit obligation
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Translation reserve
Hedging reserve
Retained earnings
Total equity
Amounts prior
to adoption
of IFRS 16
£000
9
45,840
2
31,695
—
77,546
42,827
235,227
3,250
33,163
1,718
316,185
55,459
371,644
449,190
(57,908)
(175)
(36)
(4,335)
—
(62,454)
(19,704)
(82,158)
(282,591)
(419)
(6,845)
—
(37)
(289,892)
(372,050)
77,140
48,644
321
(26)
28,201
77,140
Impact
of IFRS 16
adoption
£000
—
34,167
—
—
—
34,167
—
—
—
—
—
—
5,111
5,111
39,278
—
(5,860)
—
—
—
(5,860)
(4,980)
(10,840)
—
(37,042)
6,845
—
—
(30,197)
(41,037)
(1,759)
—
—
—
(1,759)
(1,759)
As reported
£000
9
80,007
2
31,695
—
111,713
42,827
235,227
3,250
33,163
1,718
316,185
60,570
376,755
488,468
(57,908)
(6,035)
(36)
(4,335)
—
(68,314)
(24,684)
(92,998)
(282,591)
(37,461)
—
—
(37)
(320,089)
(413,087)
75,381
48,644
321
(26)
26,442
75,381
Studio Retail Group plc Annual Report 2020
99
1 General information and accounting policies – continued
Impact on the Consolidated Balance Sheet
at 30 March 2019*
Non-current assets
Other intangible assets
Property, plant and equipment
Derivative financial instruments
Retirement benefit surplus
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Current tax assets
Current assets excluding assets held for sale
Assets held for sale
Total current assets
Total assets
Current liabilities
Trade and other payables
Lease liabilities
Derivative financial instruments
Current tax liabilities
Provisions
Current liabilities excluding liabilities held for sale
Liabilities held for sale
Total current liabilities
Non-current liabilities
Bank loans
Lease liabilities
Provisions
Retirement benefit obligation
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Translation reserve
Hedging reserve
Retained earnings
Total equity
Amounts prior
to adoption
of IFRS 16
£000
Impact of
IFRS 16
adoption
£000
Opening
balance sheet
30.3.2019
£000
24,952
45,511
6
—
10,556
81,025
48,757
235,923
604
37,603
—
322,887
—
322,887
403,912
(72,592)
(498)
—
(3,325)
(1,762)
(78,177)
—
—
43,239
—
—
—
43,239
—
—
—
—
—
—
—
—
43,239
741
(6,771)
—
—
978
(5,052)
—
24,952
88,750
6
—
10,556
124,264
48,757
235,923
604
37,603
—
322,887
—
322,887
447,151
(71,851)
(7,269)
—
(3,325)
(784)
(83,229)
—
(78,177)
(5,052)
(83,229)
(270,545)
—
(7,753)
(68)
(3,849)
(282,215)
(360,392)
43,520
48,644
764
(54)
(5,834)
43,520
—
(45,510)
7,323
—
—
(38,187)
(43,239)
—
—
—
—
—
—
(270,545)
(45,510)
(430)
(68)
(3,849)
(320,402)
(403,631)
43,520
48,644
764
(54)
(5,834)
43,520
* This balance sheet discloses the initial impact of adopting IFRS 16 as at 30 March 2019, this is not a restatement of the comparative balance sheet as at 29 March 2019.
100
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
1 General information and accounting policies – continued
Impact of accounting standards not yet effective
At the date of authorisation of these financial statements, the following Standard and Interpretations which have not been applied in
these financial statements were in issue but not yet effective. Their adoption is not expected to have a material effect on the financial
statements unless otherwise indicated. The Group does not intend to early adopt these standards:
•
•
•
•
•
Amendments to references to the conceptual framework in IFRS standards – EU effective date 1 January 2020
Amendment to IFRS 3 business combinations – not yet endorsed
Amendments to IAS 1 and IAS 8 – EU effective date 1 January 2020
Amendments to IFRS 7, IFRS 9 and IAS 39 – EU effective date 1 January 2020
IFRS 17 insurance contracts – Not yet endorsed
Going concern
The directors have adopted the going concern basis in preparing these financial statements after assessing the principal risks and having
considered the impact of severe but plausible downside scenarios for COVID-19. The Group is financed by a securitisation facility and a
Revolving Credit Facility (“RCF”) as disclosed in note 18. The directors considered the impact of the current COVID-19 environment on the
business, as disclosed in the strategic report, for the next 12 months, the viability period and the longer term. Whilst there is inherent
uncertainty in forecasts caused by COVID-19, the directors have considered a number of impacts on sales, profits and cash flows.
The directors have assumed that the Group’s operations remain open and that we will continue to be able to serve our customers,
as we have done through the lockdown period, with only temporary disruptions to operations being experienced in the downside
scenarios. The downside sensitivities considered include a reduction in the level of future forecast revenue and gross margin growth
and the impact of economic factors (particularly unemployment rates) on the ability of the Group’s customer base to continue to shop
with us and to service their credit accounts. The directors also considered the impact of these sensitivities occurring in combination.
In the event that one of or a number of these downside scenario arise at the same time the directors consider they are able to take
reasonable mitigating actions, which include but are not limited to, a reduction in discretionary capital expenditure and a reduction
in discretionary marketing spend. Implementing these mitigating actions would enable the Group to continue to operate within its
existing facilities during the forecast period.
The directors believe that the Group is well placed to manage its financing and other business risks satisfactorily, noting that its revolving
credit facility matures on 31 December 2021, and have a reasonable expectation that the Group will have adequate resources to
continue in operation for at least 12 months from the signing date of these consolidated financial statements. They therefore consider
it appropriate to adopt the going concern basis of accounting in preparing the financial statements.
Basis of consolidation
Subsidiaries
Subsidiaries are consolidated from the date on which control is transferred to the Group. They cease to be consolidated from the date
that the Group no longer has control.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation.
Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The financial statements of all subsidiaries are prepared to the same reporting date as the parent company.
Changes in classification of costs
During the current period management has changed presentation of Studio’s trade discounts received on purchases to show them within
cost of sales rather than within trading costs. Extended warranty credits have been deducted from revenue rather than shown within cost
of sales. In addition, management has removed grossed up revenue and trading costs recognised in respect of free delivery services to its
customers. The comparative figures have been restated to reduce revenue by £3,073,000, cost of sales by £5,909,000 and increase trading
costs by £2,836,000. These adjustments have no effect on the profit for the year.
Segmental reporting
IFRS 8 requires operating segments to be identified on the basis of the internal financial information reported to the CODM who is
primarily responsible for the allocation of resources to segments and the assessment of performance of the segments. The CODM is the
Board of Studio Retail Group plc.
The Group’s operations are organised into a central cost centre and two operating segments as follows:
•
•
Studio (formerly Express Gifts); and
Education.
The CODM assess the operating performance of each segment by reference to revenue and gross margin by revenue stream, and
operating profit after distribution, marketing and administration costs, depreciation and amortisation.
Studio Retail Group plc Annual Report 2020
101
1 General information and accounting policies – continued
Income statement presentation
Individually significant items
As permitted by IAS 1 ‘Presentation of financial statements’, an item is disclosed separately if it is considered unusual by its nature or
scale and is of such significance that separate disclosure is required in the financial statements in order to fairly present the financial
performance of the Group. Such items are referred to as individually significant items and are described in note 4.
Non-current assets held for sale and discontinued operations
A non-current asset or a group of assets containing a non-current asset (a disposal group) is classified as held for sale if its carrying
amount will be recovered principally through sale rather than through continuing use, it is available for immediate sale and sale is highly
probable within one year.
On initial classification as held for sale, non-current assets and disposal groups are measured at the lower of previous carrying amount
and fair value less costs to sell with any adjustments taken to profit or loss. The same applies to gains and losses on subsequent
remeasurement although gains are not recognised in excess of any cumulative impairment loss. Any impairment loss on a disposal group
first is allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories,
financial assets, deferred tax assets, employee benefit assets and investment property, which continue to be measured in accordance with
the Group’s accounting policies. Intangible assets and property, plant and equipment once classified as held for sale or distribution are
not amortised or depreciated.
A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area
of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification
as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier.
When an operation is classified as a discontinued operation, the comparative income statement is restated as if the operation has been
discontinued from the start of the comparative period.
Findel Education
At 27 March 2020 the Group’s Education business met the criteria to be accounted for as held for sale and as a discontinued operation
as defined by IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations. Results from this discontinued operation have therefore
been separated out in the consolidated income statement for the 52-week period ended 27 March 2020, and its assets and liabilities
have been classified as held for sale in the consolidated balance sheet at 27 March 2020. In addition, the comparative figures given
in the consolidated income statement for the 52-week period ended 29 March 2019 has been restated to show the results from this
discontinued operation separately, in order to enhance the comparability of the results of the Group’s ongoing businesses. Further details
are given in note 5.
Fair value movements on derivative financial instruments
Fair value movements in respect of foreign currency derivative financial instruments are presented separately in the Consolidated Income
Statement on the basis that they represent gains or losses that may be recognised in future periods as the instruments in place unwind.
Alternative performance measures (“APM’s”)
The directors use several Alternative Performance Measures that are considered to provide useful information about the performance
and underlying trends facing the Group. As these APMs are not defined by IFRS, they may not be comparable with APMs shown in other
companies’ accounts. They are not intended to be a replacement for, or be superior to, IFRS measures.
Revenue recognition
Revenue comprises the fair value of the sale of products and services to external customers, net of value added tax, rebates, discounts
and returns. Revenue is recognised according to the five-step model set out in IFRS 15 as follows:
(1) Identify the contract(s) with a customer;
(2) Identify the performance obligations in the contract;
(3) Determine the transaction price;
(4) Allocate the transaction price to the performance obligations in the contract; and
(5) Recognise revenue when (or as) the entity satisfied a performance obligation.
102
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements 1 General information and accounting policies – continued
Product revenue
Revenue is recognised when the Group has completed its performance obligations which are the supply and delivery of products and
that these obligations are deemed to be completed when the customer obtains control of the products (i.e. on delivery). The supply and
delivery of products are not deemed to be separable performance obligations as the customer is obliged to make use of the Group’s
delivery arrangements in most cases.
A provision for estimated returns is made based upon past experience and trends and is included within trade and other payables,
representing the profit on products sold during the period which will be returned and refunded after the period end.
Financial services revenue
Financial services revenue, which includes interest charged on trade receivables in Studio Retail and non-interest related financial income
is recognised on a time-proportion basis, using the effective interest method in the case of interest charged and when the relevant service
has been provided to the customer in the case of non-interest related financial income.
Volume based discounts and other arrangements with suppliers
Studio Retail entered into volume-based discount agreements with suppliers in both the current and prior period. Discounts are
calculated annually based upon an agreed percentage of purchases made from suppliers with which an agreement is in place. Discounts
are agreed with suppliers prior to being recorded in the Consolidated Income Statement. In most cases, the discount is set off against
outstanding invoices.
Studio Retail also receive contributions from suppliers in exchange for their products being listed in publications. These contributions are
agreed with suppliers on a case by case basis.
The value of volume-based discounts and contributions received in the period ended 27 March 2020 was approximately £3.2m
(2019 restated: £2.7m) which represents approximately 1.5% (2019 restated: 1.3%) of product cost of sales.
Foreign currency translation
Functional and presentational currency
Both the consolidated and Company’s financial statements are presented in sterling, which is the Company’s and most of its subsidiaries’
functional and presentational currency. Items included in the financial statements of each of the Group’s entities are measured using the
currency of the primary economic environment in which the entity operates (the functional currency).
Transactions and balances
Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. At each balance sheet date,
monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rate prevailing at the balance sheet
date. Translation differences on monetary items are recorded in the income statement.
Translation differences on non-monetary items are reported as part of the fair value gain or loss and are included in either equity or the
income statement as appropriate.
Overseas operations
The results and financial position of the Group’s overseas operations are translated into sterling as follows:
•
•
assets and liabilities are translated at the closing rate at the date of that balance sheet;
income and expenses are translated at the average exchange rate for the period, being an approximation for the prevailing exchange
rate at the date of those transactions; and
•
all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in overseas operations are recorded
in other comprehensive income. Tax charges and credits attributable to those exchange differences are recorded in other
comprehensive income.
Studio Retail Group plc Annual Report 2020
103
1 General information and accounting policies – continued
Share-based payments
The Group operates a number of equity-settled, share-based compensation plans.
The Group has applied the requirements of IFRS 2 Share-based payments.
The Group principally issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are
measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the
grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s
estimate of shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions.
Fair value is usually measured by use of the Stochastic Valuation (aka “Monte-Carlo”) model. The expected life used in the model has
been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural
considerations.
Where the parent company grants rights to its equity instruments to the Group’s or the Company’s employees, which are accounted for
as equity-settled in the consolidated accounts of the parent, the Group or the Company as the case may be account for these share-based
payments as equity-settled. Amounts recharged by the parent are recognised as a recharge liability with a corresponding debit to equity.
Property, plant and equipment
Property, plant and equipment are held at cost less accumulated depreciation and any impairment in value.
Depreciation is charged on a straight-line basis as follows:
•
•
Freehold properties are depreciated over 50 years;
Leasehold premises with lease terms of 50 years or less are depreciated over the remaining period of the lease;
• Plant and equipment is depreciated over 3 to 20 years according to the estimated life of the asset;
•
•
Equipment on hire or lease is depreciated over the period of the lease; and
Land is not depreciated.
Assets held in the course of construction are not depreciated until they are brought into use.
Software and IT development costs
Expenditure on IT software development is recognised as an internally-generated intangible asset up to the point where the main projects
cease to involve external contractors, and only if all of the following conditions are met:
•
•
•
an asset is created that can be identified (such as software and new processes);
it is probable that the asset created will generate future economic benefits; and
the development cost of the asset can be measured reliably.
Internally-generated intangible assets are amortised on a straight-line basis over their useful lives of 3 to 7 years. Where no internally-
generated intangible asset can be recognised, expenditure is recognised as an expense in the period in which it is incurred.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of acquisition is measured at the aggregate of
the fair values, at the date of purchase, of consideration given in exchange for control of the acquiree. The acquiree’s identifiable assets
and liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the
acquisition date.
Acquisition costs are expensed as incurred.
Intangible assets
Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill, if those assets are separable
and their fair value can be measured reliably.
The cost of intangible assets with finite useful economic lives is amortised on a straight-line basis over that period. The carrying values
of intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be
recoverable.
104
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements 1 General information and accounting policies – continued
Brand names
Legally protected or otherwise separable trade names acquired as part of a business combination are capitalised at fair value on
acquisition. The fair value of brand names with finite useful economic lives is amortised on a straight-line basis over that period. Brand
names that are assumed to have an indefinite life and are not amortised, but are subject to annual impairment tests.
Customer relationships
Contractual and non-contractual customer relationships acquired as part of a business combination are capitalised at fair value on
acquisition and amortised on a straight-line basis over a period of between 2 and 20 years, representing the directors’ best estimate of
their useful economic lives.
Financial instruments
(i) Recognition and initial measurement
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair
value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a
significant financing component is initially measured at the transaction price.
(ii) Classification and subsequent measurement
Financial Assets
On initial recognition, a financial asset is classified as measured at amortised cost, fair value through other comprehensive income
(“FVOCI”) and fair value through profit and loss (“FVTPL”).
A financial asset will be measured at amortised cost if both the following conditions are met and it has not been designated as at FVTPL:
•
•
the asset is held within a business model whose objective is to hold the asset to collect its contractual cash flows; and
the contractual terms of the financial asset give rise to cash flows on specified dates that represent payments of solely principal and
interest on the outstanding.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all
derivative financial assets.
Financial assets – business model assessment – policy applicable from 31 March 2018
The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this
best reflects the way the business is managed and information is provided to management. The information considered includes:
•
The stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether
management’s strategy focuses on earning contractual interest income or realising cash flows from the sale of assets;
• How the performance of the portfolio is evaluated and reported to the Group’s management;
•
The risks that affect the performance of the business model and how those risks are managed;
• How managers of the business are compensated; and
•
The frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about
future sales activity.
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined
as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular
period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms
of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount
of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:
•
•
contingent events that would change the amount or timing of cash flows; and
terms that may adjust the contractual coupon rate.
Studio Retail Group plc Annual Report 2020
105
1 General information and accounting policies – continued
Impairment of financial assets
Assets that are not individually significant are assessed for impairment on a collective basis in accordance with the expected credit loss
(“ECL”) prescribed by IFRS 9.
As the Group has determined there is a significant financing component, the ECL model requires that assets are assessed for impairment
using the following staging criteria:
•
•
•
Stage 1: Where there is no evidence of significant increase in credit risk since the origination of the financial asset. Stage 1 applies
from the initial recognition of the financial asset unless it was credit impaired when purchased or originated;
Stage 2: Where there is evidence of significant increase in credit risk since origination of the financial asset; and
Stage 3: Where the financial asset becomes credit impaired.
Impairment loss allowances are measured on the following bases:
• 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and
•
lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.
12-month ECLs are used for Stage 1 performing assets and a lifetime ECL is used for stages 2 and 3. An asset will move from Stage 1 to
Stage 2 when there is evidence of significant increase in credit risk since the asset originated and into Stage 3 when it is credit impaired.
Should the credit risk improve so that the assessment of credit risk at the reporting date is considered not to be significant any longer,
assets return to an earlier stage in the ECL model.
Significant increase in credit risk
A financial asset is considered to have experienced a significant increase in credit risk since initial recognition where there has been a
significant increase in the remaining lifetime probability of default of the asset.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due, has been placed
on an arrangement to pay less than the standard required minimum payment or has had interest suspended.
In line with IFRS 9, a financial asset is considered to be in default when it is more than 90 days past due and/or when the borrower is
unlikely to pay its obligations in full.
Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which the minimum
payment has not been received. Due dates are determined without considering any grace period that might be available to the borrower.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating
ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This
includes both quantitative and qualitative information and analysis based on the Group’s historical experience and informed credit
assessment including forward looking information.
Estimation uncertainty
The key assumptions in the ECL calculations are:
Probability of Default (“PD”) – an estimate of the likelihood of default over 12 months and the expected lifetime of the debt;
Exposure at Default (“EAD”) – an estimate of the exposure at a future default date, taking into account expected changes in the exposure
after the reporting date, including repayments of principal and interest, whether scheduled by the contract or otherwise and accrued
interest from missed payments; and
Loss Given Default (“LGD”) – an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference
between the contractual cash flows due and those that the Group would expect to receive, discounted at the original effective interest
rate. The key areas of estimation are around the value that the Group will recover in respect of the defaulted debt and the timing of such
recoveries.
Incorporation of forward-looking information
The Group incorporates forward-looking information into its measurement of ECLs. This is achieved by developing four potential
economic scenarios and modelling ECLs for each scenario. The outputs from each scenario are combined; using the estimated likelihood
of each scenario occurring to derive a probability weighted ECL.
Management judgement is required in setting assumptions around probabilities of default and the weighting of economic scenarios in
particular which have a material impact on the results indicated by the ECL model.
106
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements 1 General information and accounting policies – continued
Presentation
Loss allowances for financial assets are deducted from the gross carrying amount of the asset. Impairment losses related to Studio Retail’s
trade receivables are separately disclosed in the consolidated income statement.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity
instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Where financial liabilities are extinguished by equity instruments issued the difference between the carrying value of the debt
extinguished and the fair value of the equity instrument issued is recorded in the income statement.
Financial liabilities
The Group’s financial liabilities are classified as either “fair value through profit and loss” or “other financial liabilities”.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are
subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield
basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the
expected life of the financial liability, or, where appropriate, a shorter period.
Finance costs
Finance costs principally include interest payable on bank loans and interest on lease liabilities (prior to 30 March 2019 finance charges
on finance leases under IAS 17). Finance costs are recognised in profit or loss as they accrue using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
(iii) Derecognition
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the
rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial
asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it
does not retain control of the financial asset.
The Group enters into transactions whereby it transfers assets recognised in its balance sheet, but retains either all or substantially all of
the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised.
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. On
derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any
non-cash assets transferred or liabilities assumed) is recognised in profit or loss.
(iv) Derivative financial instruments
The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Derivatives are initially
measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally
recognised in profit or loss.
The Group designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable
forecast transactions arising from changes in foreign exchange rates and interest rates.
At inception of designated hedging relationships, the Group documents the risk management objective and strategy for undertaking the
hedge. The Group also documents the economic relationship between the hedged item and the hedging instrument, including whether
the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Studio Retail Group plc Annual Report 2020
107
1 General information and accounting policies – continued
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative
is recognised in OCI and accumulated in the hedging reserve. The effective portion of changes in the fair value of the derivative that
is recognised in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from
inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised,
then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that
has been accumulated in the hedging reserve remains in equity until, for a hedge of a transaction resulting in the recognition of a
non-financial item, it is included in the non-financial item’s cost on its initial recognition or, for other cash flow hedges, it is reclassified
to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss. If the hedged future
cash flows are no longer expected to occur, then the amounts that have been accumulated in the hedging reserve are immediately
reclassified to profit or loss.
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk,
including foreign exchange forward contracts, interest rate caps and swaps and foreign currency options. Further details of derivative
financial instruments are disclosed in note 19 to the financial statements.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than
12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or
current liabilities.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Cost is calculated on a weighted average cost basis, and where applicable includes those costs that have been incurred in bringing the
inventories to their present location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation but are tested annually for impairment. Assets that are subject
to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment,
assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Taxation
The tax currently payable or receivable is based on taxable profit or loss for the period. Taxable profit differs from net profit as reported
in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred taxation is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements. However, if the deferred taxation arises from initial recognition of an asset or liability in
a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it
is not accounted for. No deferred tax liability is recognised in respect of the initial recognition of goodwill. Deferred taxation is calculated
using tax rates that are expected to apply when the related deferred taxation asset is realised or the deferred taxation liability is settled.
Deferred taxation assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate
to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current
tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
108
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements 1 General information and accounting policies – continued
Leases (policy applicable from 30 March 2019)
At inception of a contract, the Group assesses whether or not a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. When a lease is
recognised in a contract the Group recognises a right of use asset and a lease liability at the lease commencement date.
The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease
prepayments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and
remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The
right of use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of
the useful life of the right of use asset or the end of the lease term. The estimated useful lives of right of use assets are determined on the
same basis as those of property, plant and equipment. In addition, the right of use asset is periodically reduced by impairment losses, if
any, and adjusted for certain re-measurements of the lease liability.
The lease liability is initially measured at the present value of fixed lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing
rate. The weighted average incremental borrowing rate used to measure the lease liability at initial application was 4.9%. Lease payments
are allocated between principal and finance cost. The finance cost is charged to the income statement over the lease period so as to
produce a constant periodic rate of interest on the remaining balance of the liability for each period.
The lease liability is measured at amortised cost using the effective interest method. It is re-measured when there is a change in future
lease payments arising from a change in an index or rate, or if the Group changes its assessment of whether it will exercise a purchase,
extension or termination option. Lease interest is presented as Payments of lease liabilities (2019: Repayments of obligations under
finance leases) within the consolidated cash flow statement.
The Group presents right of use assets in property, plant and equipment and leased liabilities in lease liabilities in the balance sheet.
The Group has applied the recognition exemption of low value leases. For these leases, the lease payments are charged to the income
statement on a straight-line basis over the term of the lease.
Finance leases (policy applicable prior to 30 March 2019)
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as
finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased asset and the present
value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a
constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other
long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under
finance leases is depreciated over the shorter of the anticipated useful life of the asset and its lease term.
Operating leases (policy applicable prior to 30 March 2019)
Leases in which a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.
Incentives from lessors are recognised as a systematic reduction of the charge over the lease term.
Retirement benefit costs
The Group has both defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of
pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and
compensation.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into an independently administered fund.
The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all
employees the benefits relating to employee service in the current and prior periods. The cost of providing these benefits, recognised in
the income statement, comprises the amount of contributions payable to the schemes in respect of the year.
For defined benefit retirement plans, the cost of providing benefits is determined using the Projected Unit Credit method, with actuarial
valuations being carried out at each balance sheet date.
Studio Retail Group plc Annual Report 2020
109
2 Critical accounting judgements and key sources of estimation uncertainty
In the course of preparing the consolidated financial statements, management has made judgements and estimates that affect the
application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as
follows:
Studio’s trade receivables (note 15)
Studio’s trade receivables are recognised on the balance sheet at amortised cost (i.e. net of provision for expected credit loss).
At 27 March 2020 trade receivables with a gross value of £317.8m (2019: £295.5m) were recorded on the balance sheet, less a provision
for impairment of £101.8m (2019: £87.9m).
An appropriate allowance for expected credit loss in respect of trade receivables is derived from estimates and underlying assumptions
such as the Probability of Default and the Loss Given Default, taking into consideration forward looking macro-economic assumptions.
Changes in the assumptions applied such as the value and frequency of future debt sales in calculating the Loss Given Default, and the
estimation of customer repayments and Probability of Default rates, as well as the weighting of the macro-economic scenarios applied to
the impairment model could have a significant impact on the carrying value of trade receivables.
The impairment model was not designed to take into account changes to customer payment and default performance arising as a result
of the Covid-19 pandemic. The deterioration in the economic outlook caused by Covid-19, particularly in relation to unemployment, has led
management to increase the level of provision for expected credit loss by approximately £20m, based on information available at the end
of March 2020. Whilst we have not yet seen a significant increase in the level of customer arrears resulting from the pandemic, nor have
we seen a material reduction in customer payment rates, we expect that the Coronavirus Job Retention Scheme and other support from
government have delayed any deterioration in performance. We anticipate that arrears will increase when these schemes are phased out in
the coming months. We note that the unprecedented level of uncertainty around the impact of Covid-19 on the UK economy as a whole, and
subsequently on our customer base, continues to cause challenges in assessing bad debt on a forward-looking basis.
These assumptions are continually assessed for relevance and adjusted appropriately. Revisions to estimates are recognised
prospectively. Sensitivity analysis is given in note 15.
The macro-economic drivers that impact the bad debt charge are as follows:
• Annual changes in unemployment rate;
• Actual unemployment rate; and
• Changes in average weekly earnings.
The latest economic scenarios are heavily influenced by the impact of COVID19 on the UK economy, in particular the impact on
unemployment.
We consider four economic scenarios, and apply a weighting based on probability. These are:
• Upside
Assumes the UK economy will make a rapid recovery following COVID19 lockdown restrictions and will therefore have the least
detrimental impact on unemployment.
• Baseline
A short, sharp shock is expected to the economy with ongoing consumer caution and a ‘V’ shaped recovery to GDP. Assumes a
consensus view on unemployment.
• Downside
A prolonged downturn in the economy, as ongoing consumer caution means that they do not return to pre-lockdown levels of activity
for an extended period. Very high unemployment levels.
•
Stress
Prolonged, deep downturn, with continued COVID19 outbreaks. Large numbers of corporate failures cause unemployment not seen
since the 1930’s.
The table below summarises the peak employment levels assumed within each scenario, with the weightings we have applied to each.
Scenario
Upside
Baseline
Downside
Stress
110
2020
2019
Unemployment
Peak
Weighting
Applied
Unemployment
Peak
Weighting
Applied
c.8%
c.10%
c.14%
c.20%
25%
60%
10%
5%
c.4%
c.4.4%
c.6.6%
c.9.5%
5%
30%
50%
15%
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
2 Critical accounting judgements and key sources of estimation uncertainty – continued
Discount rate for pension scheme liabilities (note 25)
At 27 March 2020 the Group’s defined benefit pension scheme showed a surplus of £31.7m (2019: deficit of £0.1m). Management makes
use of the PwC Single Agency corporate bond yield curve to derive the discount rate applied to the scheme’s projected cash flows, in the
calculation of its liabilities under IAS 19. Changes to the discount rate applied could lead to significant changes in the level of liabilities
recognised. Sensitivity analysis in this regard can be found in note 25.
The carrying amounts of the assets and liabilities detailed above are sensitive to the underlying assumptions used by management in
their calculation. It is reasonably possible that the outcomes within the next financial year could differ from the assumptions made, which
would impact upon the carrying values assumed.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimates are revised and in any of the future periods affected.
Other key accounting estimates which, although important estimates, are not considered to be a significant risk of resulting in a material
adjustment within the next financial year are as follows:
Inventory provisioning (note 14)
The Group carries significant amounts of inventory against which there are provisions for slow moving and delisted products. At 27 March
2020 a provision of £1.3m (2019: £2.5m) was held against a gross inventory value of £44.1m (2019: £51.2m).
Provisions are made against inventory based upon its location, the planned method of sale and the level of holding compared to forecast
sales levels. The provisioning calculations require a high degree of judgement in assessing which lines require provisioning against and the
use of estimates around historical recovery rates for slow moving and delisted products.
If a further 10% of lines were assessed as being slow moving, then the provision required would increase by approximately £150,000. If
the recovery rate assumed decreased by 10% then the provision would increase by approximately £450,000. These sensitivities reflect
management’s assessment of reasonably possible changes to key assumptions which could result in adjustments to the level of provision
within the next financial year.
Provisions for Financial Services redress (note 20)
At 27 March 2020 an amount of £4.1m (2019: £2.2m) remains provided in the balance sheet in respect of redress and refunds for flawed
financial services products. Studio saw a large increase in the level of PPI claims and enquiries in the days leading up to the FCA’s deadline
for claims of 29 August. This included a large block of previously unseen claims from the Official Receiver acting on behalf of bankrupt
customers.
An increase in provision of £7.9m was recorded as at September 2019, which was based on management’s assessment of estimated
uphold rates from the population of claims received and average claim values expected to be paid in respect of claims upheld. All claims,
other than those due to the Official Receiver have now been processed and refunded. The uphold rates were lower than we anticipated in
September, resulting in a £2.3m release of provision (net, £5.6m increase in the year). A method of calculation has been agreed with the
Official Receiver for those claims, and they are expected to be processed by the end of September 2020.
The Product Protection/Parcel Insurance refund programme is now complete, and decommissioning work at our outsourcer, Capita, was
completed in June 2020. We continue to receive very low volumes of response to the mailings which were completed in 2018, and these
will now be handled internally.
The Notice of Sums in Arrears (NOSIA) refund programme has begun, with contact mailings expected to be issued in the early part of
FY21. This programme addresses a technical breach of the Consumer Credit Act (CCA), whereby a number of customers did not receive a
NOSIA following two consecutive missed payments. This breach rendered the credit agreement unenforceable, and therefore interest and
fees from this point must be refunded. An incremental £1.3m was provided in this regard in FY20.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimates are revised and in any of the future periods affected.
Carrying value of right of use assets (note 13)
The Group has rights of use assets of £31.3m as at 27 March 2020 which is primarily made up of property leases. These assets are held at
cost less accumulated depreciation and are tested annually for impairment. Tests for impairment are primarily based on the calculation of
a value in use for each cash generating unit. This involves the preparation of discounted cash flow projections, which require an estimate
of both future operating cash flows and an appropriate discount rate.
Judgements
Judgements made in applying accounting policies that have the most significant effect on the amounts recognised in the financial
statements are as follows:
Held for sale classification (note 5)
At 27 September 2019 the Group’s Education business, met the criteria to be accounted for as held for sale and as a discontinued
operation as defined by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
The disposal is now subject to CMA phase 2 clearance and is likely to be completed more than twelve months after initial classification as
at 27 September 2019. Therefore, as at 27 March 2020, judgement was required over whether the disposal continued to meet the criteria
to be recognised as held for sale and as a discontinued operation. The Group remains committed to the disposal of Findel Education and
the events that have delayed the disposal were outside of the Group’s control. Whilst the disposal is delayed, it is expected to be completed
within twelve months of the year end date of 27 March 2020.
Studio Retail Group plc Annual Report 2020
111
3 Segmental analysis
Operating segments
IFRS 8 requires operating segments to be identified on the basis of the internal financial information reported to the CODM who is
primarily responsible for the allocation of resources to segments and the assessment of performance of the segments. The CODM is the
Board of Studio Retail Group plc.
The Group’s continuing operations are organised into a central cost centre and Studio.
The CODM assess the operating performance of each segment by reference to revenue and gross margin by revenue stream, EBITDA and
operating profit after distribution, marketing and administration costs, depreciation and amortisation. Information about these operating
segments is presented below.
52 weeks ended 27 March 2020
Product revenue
Other financial services revenue
Credit account interest
Financial services revenue
Sourcing revenue
Reportable segment revenue
Product cost of sales
Financial services cost of sales
Sourcing costs of sales
Total cost of sales
Gross profit
Marketing costs
Distribution costs
Administrative costs
EBITDA* before individually significant items
Depreciation and amortisation
Operating profit before individually
significant items
Individually significant items
Operating profit
Finance costs
Profit before tax and fair value movements
on derivative financial instruments
Fair value movements on derivative
financial instruments
Profit before tax
Studio
£000
311,697
18,617
104,542
123,159
38
434,894
(208,924)
(53,930)
—
(262,854)
172,040
(31,661)
(37,372)
(70,508)
32,499
(9,773)
22,726
(5,648)
17,078
Continuing operations
Central
£000
—
—
—
—
—
—
—
—
—
—
—
—
—
2,538
2,538
(3,773)
(1,235)
(1,159)
(2,394)
Total
£000
311,697
18,617
104,542
123,159
38
434,894
(208,924)
(53,930)
—
(262,854)
172,040
(31,661)
(37,372)
(67,970)
35,037
(13,546)
21,491
(6,807)
14,684
(10,491)
Discontinued
operations
Education
£000
79,940
—
—
—
—
79,940
(51,573)
—
—
(51,573)
28,367
(3,161)
(5,121)
(14,025)
6,060
(2,010)
4,050
(1,535)
2,515
(507)
4,193
2,008
2,608
6,801
—
2,008
Group
Total
£000
391,637
18,617
104,542
123,159
38
514,834
(260,497)
(53,930)
—
(314,427)
200,407
(34,822)
(42,493)
(81,995)
41,097
(15,556)
25,541
(8,342)
17,199
(10,998)
6,201
2,608
8,809
* Earnings before interest, tax, depreciation, amortisation, fair value movements on derivative financial instruments and individually significant items.
112
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
3 Segmental analysis – continued
52 weeks ended 29 March 2019 (restated)
Product revenue
Other financial services revenue
Credit account interest
Financial services revenue
Sourcing revenue
Reportable segment revenue
Product cost of sales
Financial services cost of sales
Sourcing costs of sales
Total cost of sales
Gross profit
Marketing costs
Distribution costs
Administrative costs
EBITDA* before individually significant items
Depreciation and amortisation
Operating profit before individually significant items
Individually significant items
Operating profit
Finance costs
Profit before tax and fair value movements
on derivative financial instruments
Fair value movements on derivative
financial instruments
Profit before tax
Studio
£000
304,176
19,332
98,119
117,451
26
421,653
(202,435)
(36,623)
(18)
(239,076)
182,577
(31,693)
(36,423)
(66,533)
47,928
(8,480)
39,448
(2,918)
36,530
Continuing operations
Central
£000
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,781)
(2,781)
(1,467)
(4,248)
(1,240)
(5,488)
Total
£000
304,176
19,332
98,119
117,451
26
421,653
(202,435)
(36,623)
(18)
(239,076)
182,577
(31,693)
(36,423)
(69,314)
45,147
(9,947)
35,200
(4,158)
31,042
(9,618)
Discontinued
operations
Education
£000
82,081
—
—
—
—
82,081
(53,015)
—
—
(53,015)
29,066
(2,803)
(8,836)
(12,552)
4,875
(1,658)
3,217
—
3,217
(38)
Group
Total
£000
386,257
19,332
98,119
117,451
26
503,734
(255,450)
(36,623)
(18)
(292,091)
211,643
(34,496)
(45,259)
(81,866)
50,022
(11,605)
38,417
(4,158)
33,259
(9,656)
21,424
3,179
24,603
4,750
26,174
—
3,179
4,750
29,353
* Earnings before interest, tax, depreciation, amortisation and fair value movements on derivative financial instruments.
2020
Other information
Additions to property plant and equipment
and software and IT development costs
13,688
1
13,689
1,133
14,822
Continuing operations
Studio
£000
Central
£000
Total
£000
Discontinued
operations
Education
£000
Group
Total
£000
Balance Sheet
Assets
Segment assets
Central adjustments
Consolidated total assets
Liabilities
Segment liabilities
Central adjustments
Consolidated total liabilities
373,887
—
373,887
(262,837)
—
(262,837)
—
54,011
54,011
—
(125,566)
(125,566)
373,887
54,011
427,898
(262,837)
(125,566)
(388,403)
60,570
—
60,570
(24,684)
—
(24,684)
434,457
54,011
488,468
(287,521)
(125,566)
(413,087)
Studio Retail Group plc Annual Report 2020
113
3 Segmental analysis – continued
2019
Other information
Additions to property plant and equipment
and software and IT development costs
10,585
2
10,587
958
11,545
Continuing operations
Studio
£000
Central
£000
Total
£000
Discontinued
operations
Education
£000
Group
Total
£000
Balance Sheet
Assets
Segment assets
Central adjustments
Consolidated total assets
Liabilities
Segment liabilities
Central adjustments
Consolidated total liabilities
368,696
—
368,696
(250,014)
—
(250,014)
—
(31,760)
(31,760)
—
(54,330)
(54,330)
368,696
(31,760)
336,936
(250,014)
(54,330)
(304,344)
66,976
—
66,976
(56,048)
—
(56,048)
435,672
(31,760)
403,912
(306,062)
(54,330)
(360,392)
The segment assets and liabilities above include intercompany balances which eliminate on consolidation but appear in the information
presented to the CODM. Central adjustments primarily relate to the elimination of intercompany balances on consolidation, intangible
assets arising on consolidation, defined benefit pension surplus as well as current tax balances and deferred tax. These are shown against
the central cost centre in the information presented to the CODM.
Geographical segments
The Group’s operations are located in the United Kingdom and Asia.
The following table provides an analysis of the Group’s revenue (including credit account interest) by geographical market, irrespective of
the origin of the goods/services.
United Kingdom
Europe
Asia
Other
Continuing
operations
£000
434,856
—
38
—
434,894
2020
Discontinued
operations
£000
71,870
2,184
4,806
1,080
79,940
Total
£000
506,726
2,184
4,844
1,080
514,834
Continuing
operations
£000
421,596
30
27
—
421,653
2019
Discontinued
operations
£000
74,713
1,812
4,209
1,347
82,081
Total
£000
496,309
1,842
4,236
1,347
503,734
The following is an analysis of the carrying amount of non-current assets analysed by geographical area in which the assets are located.
United Kingdom
Asia
2020
£000
111,366
347
111,713
2019
£000
80,656
369
81,025
Major customers
The Group has no transactions with any single customer that amounts to more than 10% of the Group’s total revenue in either the period
ended 27 March 2020, or the period ended 29 March 2019.
114
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
4 Individually significant items
An analysis of individually significant items arising during the current and prior periods is as follows:
Continuing operations
Impairment of right of use asset
Studio financial services redress and refund costs
Reduction in onerous lease provisions
GMP equalisation adjustment
Tax credit in respect of individually significant items
Total
Discontinued operation
Disposal costs
Tax credit in respect of individually significant items
Total
2020
£000
(1,159)
(5,648)
—
—
(6,807)
1,293
(5,514)
2020
£000
(1,535)
(1,535)
292
(1,243)
2019
£000
—
(2,918)
1,220
(2,460)
(4,158)
741
(3,417)
2019
£000
—
—
—
—
AA charge of £1,159,000 has been recorded in respect of the impairment of the right of use asset for the group’s property at Hyde
following a re-assessment of the assumptions made subsequent to transition to IFRS 16 as a result of Education being classified as held
for sale from September 2019 onwards. The right of use asset in respect of the Hyde property was assessed for impairment individually
rather than part of a cash generating unit.
A charge of £5,648,000 has been recorded in the current period (2019: £2,918,000) in respect of an increase in provisions for redress and
refunds for flawed financial services products. For further details, please refer to the Estimates section in note 2.
Disposal costs of £1,535,000 were incurred during current period in relation to the sale of Education. These costs have been disclosed
within the result from discontinued operation in accordance with IFRS 5.
During the prior period, an agreement was reached to sublease the vacant property at Enfield. Since the level of sublet income was higher
than anticipated, and the reduced risk around the sublease inflows has led to a reduced 4% discount rate being applied, a reduction in
provision of £1.2m was indicated. Consequently, a credit was recorded in the Consolidated Income Statement in this regard.
In October 2018, the High Court handed down a judgement involving the Lloyds Banking Group’s defined benefit pension schemes. The
judgement concluded that the schemes should be amended to equalise pension benefits for men and women in relation to guaranteed
minimum pension (“GMP”) benefits. The issues determined by the judgement arose in relation to many other defined benefit pension
schemes, including the Findel Group Pension Fund. After discussion with the trustees, actuaries and legal advisors of our fund, a past
service cost of £2,460,000 was recognised in the prior period to address this historical issue.
Studio Retail Group plc Annual Report 2020
115
5 Discontinued operation
On 15 December 2019 the Group entered into an agreement for the sale of Findel Education Limited and its subsidiaries to the Council
of the City of Wakefield acting in its capacity as the lead authority of the joint committee known as Yorkshire Purchasing Organisation
(“YPO”) for a gross consideration of £50m on a debt free, cash free basis. The transaction is subject to clearance from the Competition and
Markets Authority. Management consider that the disposal transaction will reduce the Group’s indebtedness and allow a greater level of
investment and focus on growing the core Studio business.
Education’s results for the 52-week period to 27 March 2020 and the 52-week period to 29 March 2019 have been presented to show the
discontinued operation separately from continuing operations and are summarised below:
Revenue
Expenses
Profit before tax
Tax charge
Profit for the period
52 weeks
ended
27.3.20
£000
79,940
(77,932)
2,008
(295)
1,713
52 weeks
ended
29.3.19
£000
82,081
(78,902)
3,179
(349)
2,830
No gain or loss on remeasurement has been recorded on the assets and liabilities of Education. The major classes of assets and liabilities
as at 27 March 2020 were as follows:
Assets
Intangible assets
Tangible assets
Deferred tax assets
Inventories
Trade and other receivables
Liabilities
Trade and other payables
Lease liabilities
Net assets of disposal group
The net cash flow used in Education during the period was as follows:
Operating cash flows
Investing cash flows
Financing cash flows
Net cash flow
6 Finance costs
Interest on bank loans
Net interest income on defined benefit pension obligations (note 25)
Fair value movements on interest rate caps
Interest expenses on leases
27.3.20
£000
24,310
7,365
2,884
15,998
10,013
60,570
(19,035)
(5,649)
(24,684)
35,886
52 weeks ended
27.3.20
£000
(492)
(1,131)
730
(893)
2019
£000
(9,623)
61
(56)
—
(9,618)
2020
£000
(8,677)
56
(45)
(1,825)
(10,491)
116
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
7 Current taxation
(a) Tax (credited)/charged in the income statement
Current tax expense:
Current period (UK tax)
Current period (overseas tax)
Adjustments in respect of prior periods (UK tax)(1)
Deferred tax expense:
Origination and reversal of temporary differences
Adjustments in respect of prior periods(1)
Impact of change in rate of corporation tax
Tax (credit)/expense from continuing operations
2020
£000
1,104
166
(986)
284
(96)
998
(1,427)
(525)
(241)
2019
(restated)
£000
3,879
123
185
4,187
1,382
146
—
1,528
5,715
1. The prior period adjustment in FY20 relates to the tax treatment of a post balance sheet event recorded in the statutory accounts of Studio Retail Limited, which
resulted in the Group’s current tax liability for 2018/19 being lower than the level assumed in the FY19 accounts. This led to a reduction in the level of brought
short-term timing differences, which resulted in a corresponding adjustment to deferred tax.
The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors,
including interpretations of tax law and prior experience. As at 27 March 2020 the Group held current tax assets of £1,718,000
(2019: current tax liabilities £1,762,000).
(b) Tax recognised directly in other comprehensive income
Deferred tax:
Tax on defined benefit pension plans
2020
£000
2019
£000
4,043
(643)
(c) Reconciliation of the total tax (income)/charge
The tax expense in the income statement for the period differs from the standard rate of corporation tax in the UK of 19% (2019: 19%).
The differences are reconciled below:
Profit before tax
Tax calculated at standard corporation tax rate of 19% (2019: 19%)
Effects of:
Expenses not deductible for tax purposes
Higher tax rates on overseas earnings
Deferred tax asset not previously recognised
Impact of change in rate of corporation tax on deferred tax balances
Adjustments in respect of prior periods
Total tax (credit)/expense for the period
2020
£000
6,801
1,292
21
144
(283)
(1,427)
12
(241)
2019
(restated)
£000
26,174
4,973
347
178
(114)
—
331
5,715
Studio Retail Group plc Annual Report 2020
117
8 Profit for the period
Stated after (charging)/crediting:
Cost of inventories recognised as expense
Impairment charge for inventories (note 14)
Fair value movements on derivate
financial instruments:
– forward foreign currency contracts
– Interest rate caps
Depreciation of property, plant
and equipment
– owned
– held under finance lease
– right of use assets
Expenses relating to short or
low value asset leases
(2019: Operating lease rentals)
Impairment of property, plant
and equipment
Amortisation of intangible assets
Impairment charge for receivables (note 15)
Staff costs (note 9)
Continuing
operations
£000
2020
Discontinued
operations
£000
Total
£000
Continuing
operations
£000
2019
Discontinued
operations
£000
Total
£000
(206,608)
(1,169)
(48,864)
(83)
(255,472)
(1,252)
(198,635)
(985)
(51,343)
(295)
(249,978)
(1,280)
2,608
(45)
(9,069)
—
(4,473)
—
—
(373)
—
(478)
2,608
(45)
(9,442)
—
(4,951)
4,750
(56)
(7,788)
—
—
—
—
(1,502)
(148)
—
4,750
(56)
(9,290)
(148)
—
(6,043)
(337)
(6,380)
(10,856)
(1,010)
(11,866)
(1,300)
(4)
(53,929)
(53,350)
—
(1,159)
—
(13,631)
(1,300)
(1,163)
(53,929)
(66,981)
—
(2,159)
(36,623)
(47,501)
—
(8)
(55)
(13,463)
—
(2,167)
(36,678)
(60,964)
Auditor’s remuneration
The analysis of auditor’s remuneration is as follows:
Audit of these financial statements
Amounts receivable by the Company’s auditor and its associates in respect of:
Audit of financial statements of subsidiaries of the Company
Total audit fees
Half year review
Services relating to corporate finance transactions
Total audit and non-audit fees
9 Staff costs and directors’ emoluments
(a) Staff costs
The average monthly number of employees (including executive directors) was as follows:
2020
£000
155
347
502
45
210
757
Administration
Selling and distribution
Wages and salaries
Social security costs
Other pension costs
Share-based payments expense
Continuing
operations
No.
996
614
1,610
Continuing
operations
£000
46,992
4,164
1,627
567
53,350
2020
Discontinued
operations
No.
199
94
293
2020
Discontinued
operations
£000
12,244
992
313
82
13,631
Continuing
operations
No.
844
586
1,430
Continuing
operations
£000
42,128
3,483
1,066
824
47,501
2019
Discontinued
operations
No.
197
102
299
2019
Discontinued
operations
£000
12,071
977
313
102
13,463
Total
No.
1,195
708
1,903
Total
£000
59,236
5,156
1,940
649
66,981
2019
£000
115
260
375
43
—
418
Total
No.
1,041
688
1,729
Total
£000
54,199
4,460
1,379
926
60,964
118
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
9 Staff costs and directors’ emoluments – continued
(b) Directors’ emoluments
Directors’ emoluments, which are included in the above and are detailed further in the Directors’ Remuneration Report on pages 39 to 65,
are as follows:
Short-term employee benefits
Company pension contributions
Long-term incentives
Termination payments
2020
£000
1,223
131
519
—
1,873
2019
£000
1,730
123
—
7
1,860
One (2019: One) of the directors is accruing pension benefits under the Group’s defined contribution pension scheme. No directors
(2019: none) are accruing benefits under the Group’s defined benefit pension scheme.
In the current period 376,200 (2019: 244,526) £nil cost options over ordinary shares were granted to directors in respect of the
Performance Share Plan.
10 Earnings per share
Earnings per share figures for the 52-week period ended 29 March 2019 have been restated to reflect the presentation of the results of
Education as a discontinued operation as defined by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Weighted average number of shares
Ordinary shares in issue (note 23)
Effect of own shares held
Weighted average number of shares – basic
Impact of potentially dilutive share options
Weighted average number of shares – diluted
From continuing operations
Earnings attributable to ordinary shareholders
Net profit attributable to equity holders for the purposes of basic earnings per share
Individually significant items (net of tax)
Fair value movements on derivative financial instruments (net of tax)
Net profit attributable to equity holders for the purposes of adjusted earnings per share
Earnings per share
Earnings per share – basic
Earnings per share – adjusted* basic
Earnings per share – diluted
Earnings per share – adjusted* diluted
* Adjusted to remove the impact of individually significant items and fair value movements on derivative financial instruments.
2020
No. of shares
86,442,534
(114,808)
2019
No. of shares
86,442,534
(114,808)
86,327,726
86,327,726
412,383
—
86,740,109
86,327,726
2020
£000
7,042
5,514
(2,112)
10,444
8.16p
12.10p
8.12p
12.04p
2019
£000
20,459
3,417
(3,847)
20,029
23.70p
23.20p
23.70p
23.20p
Studio Retail Group plc Annual Report 2020
119
10 Earnings per share – continued
From discontinued operation
Earnings attributable to ordinary shareholders
Net profit attributable to equity holders for the purposes of basic earnings per share
Individually significant items (net of tax)
Fair value movements on derivative financial instruments (net of tax)
Net profit attributable to equity holders for the purposes of adjusted earnings per share
Earnings per share
Earnings per share – basic
Earnings per share – adjusted* basic
Earnings per share – diluted
Earnings per share – adjusted* diluted
* Adjusted to remove the impact of individually significant items and fair value movements on derivative financial instruments.
Total attributable to ordinary shareholders
Earnings attributable to ordinary shareholders
Net profit attributable to equity holders for the purposes of basic earnings per share
Individually significant items (net of tax)
Fair value movements on derivative financial instruments (net of tax)
Net profit attributable to equity holders for the purposes of adjusted earnings per share
Earnings per share
Earnings per share – basic
Earnings per share – adjusted* basic
Earnings per share – diluted
Earnings per share – adjusted* diluted
2020
£000
1,713
1,243
—
2,956
1.98p
3.42p
1.97p
3.41p
2020
£000
8,755
6,757
(2,112)
13,400
10.14p
15.52p
10.09p
15.45p
2019
£000
2,830
—
—
2,830
3.28p
3.28p
3.28p
3.28p
2019
£000
23,289
3,417
(3,847)
22,859
26.98p
26.48p
26.98p
26.48p
* Adjusted to remove the impact of individually significant items and fair value movements on derivative financial instruments.
The earnings per share attributable to convertible ordinary shareholders is £nil. The convertible shares have not converted at 27 March 2020
or subsequently and are therefore not dilute from an earnings per share perspective.
11 Intangible assets
(a) Other intangible assets
Cost
At 30 March 2018
Additions
Transfer from tangible assets
At 29 March 2019
Additions
Disposal
Transfer to assets held for sale
At 27 March 2020
Accumulated amortisation and impairment
At 30 March 2018
Amortisation for the period
At 29 March 2019
Amortisation for the period
Disposal
Transfer to assets held for sale
At 27 March 2020
Software and IT
development costs
£000
Brand names
£000
Customer
relationships
£000
18,574
684
1,260
20,518
349
(925)
(19,905)
37
15,911
1,039
16,950
594
(925)
(16,591)
28
21,704
—
—
21,704
181
—
(21,885)
—
4,022
108
4,130
59
—
(4,189)
—
20,940
—
—
20,940
—
—
(20,940)
—
16,110
1,020
17,130
510
—
(17,640)
—
Total
£000
61,218
684
1,260
63,162
530
(925)
(62,730)
37
36,043
2,167
38,210
1,163
(925)
(38,420)
28
120
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
11 Intangible assets – continued
Carrying amount
Net book value at 27 March 2020
Net book value at 29 March 2019
9
3,568
—
17,574
—
3,810
9
24,952
Brand names, which arise from the acquisition of businesses, and are deemed to have an indefinite life, are subject to annual
impairment tests, on the basis that they are expected to be maintained indefinitely and are expected to continue to drive value for
the Group. The Spa 4 Schools brand is being amortised over a useful economic life of 5 years.
The amortisation period for customer relationships, which arose from the acquisition of businesses, is between 2 and 20 years.
Management do not consider that any customer relationships are individually material.
Brand names acquired in a business combination are allocated, at acquisition, to the CGUs that are expected to benefit from that business
combination. The carrying amount of brand names has been allocated as follows:
Education
2020
£000
—
—
2019
£000
17,574
17,574
During the current period Education’s assets and liabilities including indefinite lived brands with carrying value of £17.3m have been
transferred to assets and liabilities held for sale. See note 5.
(b) Impairment testing
The Group tests indefinite-lived brand names for impairment annually, or more frequently if there are indicators of impairment.
The recoverable amount of the Education CGU was determined from the fair value less cost to sell (FVLCS) calculation. FVLCS has been
based on the agreed sale price less disposal costs incurred. The estimated recoverable amount exceeds its carrying value by £11.7m
and as such no impairment of intangible assets, customer relationships or relevant tangible assets was necessary.
12 Property, plant and equipment
Land and buildings
Freehold
£000
Leasehold
£000
Plant and
equipment
£000
Assets under
construction
£000
Cost
At 30 March 2018
Additions
Exchange differences
Transfer to intangible assets
At 29 March 2019
Adoption of IFRS 16
At 30 March 2019
Additions
Exchange differences
Transfer to assets held for sale
At 27 March 2020
Accumulated depreciation and impairment
At 30 March 2018
Provision for the period
Exchange differences
At 29 March 2019
Provision for the period
Exchange differences
Impairment
Transfer to assets held for sale
At 27 March 2020
Carrying amount
Net book value at 27 March 2020
Net book value at 29 March 2019
Details of the right of use assets are set out in note 13.
17,219
—
1
—
17,220
—
17,220
—
—
436
17,656
8,235
329
—
8,564
328
—
4
36
8,932
8,724
8,656
3,158
—
8
—
3,166
41,628
44,794
—
8
(8,057)
36,745
2,704
53
1
2,758
4,343
—
1,276
(2,944)
5,433
95,502
10,861
13
(1,260)
105,116
1,611
106,727
8,000
19
(29,454)
85,292
59,590
9,056
23
68,669
9,722
4
20
(27,253)
51,162
—
—
—
—
—
—
—
6,292
—
(451)
5,841
—
—
—
—
—
—
—
—
—
Total
£000
115,879
10,861
22
(1,260)
125,502
43,239
168,741
14,292
27
(37,526)
145,534
70,529
9,438
24
79,991
14,393
4
1,300
(30,161)
65,527
31,312
408
34,130
36,447
5,841
—
80,007
45,511
Studio Retail Group plc Annual Report 2020
121
13 Leases
The Group lease assets including buildings and plant and equipment that are held within property, plant and equipment. The Group also
has certain leases of plant and equipment with lease terms of 12 months or less and leases of office equipment with low value. The Group
applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases.
Information about leases for which the Group is a lessee is presented below.
Net book value of property, plant and equipment owned
Net book value of right of use assets/assets held under finance leases
Net book value right of use assets
At 29 March 2019
Transfer from assets held under finance leases
IFRS 16 transition
At 30 March 2019
Additions
Impairment
Depreciation
Transfer to discontinued operation
At 27 March 2020
Land and
buildings –
Leasehold
£’000
—
—
41,628
41,628
—
(1,159)
(4,322)
(4,876)
31,271
Lease liabilities in the balance sheet
A maturity analysis of contractual undiscounted cash flows relating to lease liabilities is as follows:
Within one year
In the second to fifth years
After five years
Current
Non-current
2020
£000
45,397
34,610
80,007
Plant and
equipment
£’000
—
1,750
1,611
3,361
842
—
(629)
(235)
3,339
2019
£000
43,761
1,750
45,511
Total
£’000
—
1,750
43,239
44,989
842
(1,159)
(4,951)
(5,111)
34,610
At
27 March 2020
£000
At
30 March 2019
£000
6,926
23,341
33,170
63,437
6,890
25,639
37,798
70,327
At
27 March 2020
£000
At
30 March 2019
£000
(6,035)
(37,461)
(43,496)
(7,269)
(45,510)
(52,779)
122
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
14 Inventories
Inventories at cost
Provision for impairment
Movement in the provision for impairment:
Balance at beginning of period
Provision made in the period
Provision utilised in the period
Amount reclassified to assets held for sale
Balance at end of period
2020
£000
44,120
(1,293)
42,827
2020
£000
2,476
1,169
(1,747)
(605)
1,293
2019
£000
51,233
(2,476)
48,757
2019
£000
1,891
1,280
(695)
—
2,476
Inventories recognised as cost of sales from continuing operations in the year amounted to £206,608,000 (2019 restated: £198,635,000).
The methodology for calculating the provision for impairment is detailed in note 2.
15 Trade and other receivables
Gross trade receivables
Allowance for expected credit loss
Trade receivables
Other debtors
Prepayments
2020
£000
317,891
(101,782)
216,109
4,623
14,495
235,227
2019
£000
304,279
(88,030)
216,249
5,347
14,327
235,923
Trade receivables are measured at amortised cost. The directors consider that the Group’s maximum exposure to credit risk is the
carrying value of the trade and other receivables and that their carrying amount approximates their fair value.
Certain of the Group’s trade receivables are funded through a securitisation facility with HSBC Bank plc and is secured against
those receivables. The finance provider will seek repayment of the finance, as to both principal and interest, only to the extent that
collections from the trade receivables financed allows and the benefit of additional collections remains with the Group. At the period
end, receivables of £263,455,000 (2019: £239,620,000) were funded through the securitisation facility, and the facilities utilised were
£197,591,000 (2019: £175,545,000).
Studio
The average credit period taken on sales of goods is 222 days (2019 restated: 213 days). On average, interest is charged at 3.5%
(2019: 3.4%) per month on the outstanding balance.
Before accepting any new customer, Studio uses an external credit scoring system to assess the potential customer’s credit quality and
affordability of the credit and defines credit limits by customer. Limits and scoring attributed to customers are continually reviewed. There
are no customers who represent more than 1% of the total balance of the Group’s trade receivables.
The Group uses a number of forbearance measures to assist those customers approaching, or at the point of experiencing, financial
difficulties. Such measures include arrangement to pay less than the minimum payment and the suspension of interest charges to help
the customer pay off their debt. We expect customers to resume normal payments where they are able. At the balance sheet date
forbearance measures were in place on 11,685 accounts (2019: 16,922) with total gross balances of £7,656,000 (2019: £10,429,000).
Provisions are assessed as detailed above.
During the current period, overdue receivables with a gross value of £56,586,000 (2019: £35,492,000) were sold to third party debt
collection agencies. As a result of the sales, the contractual rights to receive the cash flows from these assets were transferred to the
purchasers. Any gain or loss between actual recovery and expected recovery is reflected within the bad debt charge.
Studio Retail Group plc Annual Report 2020
123
15 Trade and other receivables – continued
The following tables provide information about the exposure to credit risk and ECLs for trade receivables from individual customers as at
27 March 2020:
Ageing of trade receivables
Not past due
Past due:
0 – 60 days
60 – 120 days
120+ days
Gross trade receivables
Allowance for expected credit loss
Carrying value
Gross trade receivables
Allowance for expected credit loss
Opening balance
Impairment charge
Utilised in the period
Closing balance
Carrying value
2020
Trade
receivables
on forbearance
arrangements
£000
Trade
receivables
£000
Total
£000
Trade
receivables
£000
2019
Trade
receivables
on forbearance
arrangements
£000
Total
£000
236,980
6,524
243,504
214,837
8,454
223,291
30,972
12,572
29,605
310,129
(96,135)
213,994
928
204
—
7,656
(5,647)
2,009
31,900
12,776
29,605
317,785
(101,782)
216,003
Stage 1
£000
Stage 2
£000
151,252
122,481
(9,260)
(12,834)
—
(22,094)
129,158
(30,267)
(8,907)
—
(39,174)
83,307
2020
27,060
12,640
30,507
285,044
(81,358)
203,686
Stage 3
£000
44,052
(48,379)
(32,188)
40,053
(40,514)
3,538
1,541
434
—
10,429
(6,548)
3,881
Total
£000
28,601
13,074
30,507
295,473
(87,906)
207,567
2019
Total
£000
317,785
295,473
(87,906)
(53,929)
40,053
(101,782)
216,003
(76,512)
(36,623)
25,229
(87,906)
207,567
Allowance for expected credit loss
An appropriate allowance for expected credit loss in respect of trade receivables is derived from estimates and underlying assumptions
such as the Probability of Default and the Loss Given Default, taking into consideration forward looking macro-economic assumptions.
Changes in the assumptions applied such as the value and frequency of future debt sales in calculating the Loss Given Default, and the
estimation of customer repayments and Probability of Default rates, as well as the weighting of the macro-economic scenarios applied to
the impairment model could have a significant impact on the carrying value of trade receivables.
Sensitivity analysis
Management judgement is required in setting assumptions around probabilities of default, cash recoveries and the weighting of macro-
economic scenarios applied to the impairment model, which have a material impact on the results indicated by the model.
A 1% increase/decrease in the probability of default would increase/decrease the provision amount by approximately £2.9m.
A 1p increase in the assumed recoveries rate would result in the impairment provision decreasing by approximately £1.2m.
Changing the weighting of macro-economic scenarios applied to the impairment model so that the baseline scenario weighting is reduced
to 50%, upside scenario to 25%, downside to 20%, and the stress scenario to 5% would result in the impairment provision decreasing by
approximately £1.2m.
These sensitivities reflect management’s assessment of reasonably possible changes to key assumptions which could result in a material
adjustment to the level of provision within the next financial year.
124
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
15 Trade and other receivables – continued
Rest of the Group
Trade receivables are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past
default experience.
Given the nature of the customer base within the rest of the Group, it is not considered necessary to utilise formal credit scoring.
However, credit references are sought for all new customers prior to extending credit. There are no customers who represent more than
1% of the total balance of the Group’s trade receivables.
Included in the rest of the Group’s trade receivables balance in the prior period were debtors with a carrying amount £123,000 which
were past due at the reporting date and were partially provided against. There had not been a significant change in credit quality and
the amounts were still considered recoverable. The Group did not hold any collateral over these balances. The average age of these
receivables was 152 days.
The carrying value of not past due trade receivables which are unimpaired is £nil (2019: £5,593,000).
The aged analysis of the carrying values of past due trade receivables which are unimpaired is as follows:
0 – 60 days
60 – 120 days
120+ days
Total
The aged analysis of the carrying values of past due trade receivables which are impaired is as follows:
0 – 60 days
60 – 120 days
120+ days
Total
Movement in allowance for expected credit losses
Balance at 30 March 2018
Adjustment to opening balance on adoption of IFRS 9
Impairment losses recognised
Amounts written off as uncollectible
Balance at 29 March 2019
Impairment losses recognised
Amounts written off as uncollectible
Impact of classification as held for sale
Balance at 27 March 2020
16 Cash and cash equivalents
Cash at bank and in hand
Studio
Retail
£000
55,084
21,428
36,623
(25,229)
87,906
53,929
(40,053)
—
101,782
2020
£000
33
40
33
106
2020
£000
—
—
—
—
Rest of
Group
£000
125
—
55
(56)
124
—
—
(124)
—
2019
£000
1,909
849
208
2,966
2019
£000
—
—
123
123
Total
£000
55,209
21,428
36,678
(25,285)
88,030
53,929
(40,053)
(124)
101,782
2020
£000
2019
£000
33,163
37,603
Cash and cash equivalents comprises cash held by the Group, and short-term bank deposits with an original maturity of three months or
less. The carrying amount of these assets approximates their fair value.
Studio Retail Group plc Annual Report 2020
125
17 Trade and other payables
Trade payables
Other payables
Accruals
2020
£000
35,275
2,117
20,516
57,908
2019
£000
46,195
2,374
24,023
72,592
The average credit period taken for trade purchases is 51 days (2019 restated: 69 days). No interest is charged on trade payables. The
Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.
The directors consider that the carrying amount of trade and other payables approximates their fair value.
18 Loans and borrowings
(a) Secured bank loans (at amortised cost)
Bank loans
Amount due for settlement within one year
Amount due for settlement after one year
The average interest rates paid on the loans were as follows:
Bank loans
2020
£000
282,591
—
282,591
282,591
2019
£000
270,545
—
270,545
270,545
3.18%*
3.62%*
* The average interest rates quoted in the current and prior period includes fees relating to the extension of the Group’s lending facilities (described below). The average
interest rate excluding these fees was 3.33% (2019: 3.50%).
Bank loans comprise of securitisation of £197,591,000 (2019: £175,545,000) and the Revolving Credit Facility of £85,000,000
(2019: £95,000,000).
All bank loans are arranged at floating rates, thus exposing the Group to cash flow interest rate risk. The Group manages this risk by
undertaking interest rate hedging as described in note 26.
All the bank loans are denominated in sterling.
The directors consider that the carrying value of bank loans approximates their fair value.
The maturity of the Group’s revolving credit facility was extended to 31 March 2021 during the year and to 31 December 2021 since the
year end. The facility currently stands at £85m and will reduce to £70m from 31 December 2020. The securitisation facility restructured
during the year with its maximum available amount increasing from £185m to £200m to cater for the continued growth in Studio’s trade
receivables. Its maturity date was also extended to 31 December 2022.
Borrowing facilities
The Group had undrawn committed borrowing facilities as follows:
Expiring in one year or less
Expiring in more than two years but not more than five years
2020
£000
—
—
—*
2019
£000
—
—
—*
* This figure represents drawn headroom against the available facilities. Total headroom (i.e., including cash and cash equivalents) at 27 March 2020 was £33,163,000
(2019: £37,603,000).
126
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
18 Loans and borrowings – continued
(b) Reconciliation of movements in assets/(liabilities) arising from financing activities
Interest rate caps
Loans and borrowings
Lease liabilities
At
29 March 2019
£000
Adoption
of IFRS 16
£000
Cash
outflow/(inflow)
£000
6
(270,545)
(498)
(271,037)
—
—
(52,281)
(52,281)
13
(12,046)
5,966
(6,067)
Fair value
movements
recorded in
finance costs
£000
(45)
—
(1,825)
(1,870)
Fair value
movements
recorded
through other
comprehensive
income
£000
Impact of
classification
as held for sale
£000
At
27 March 2020
£000
28
—
—
28
—
—
5,142
5,142
2
(282,591)
(43,496)
(326,085)
Interest rate caps
Loans and borrowings
Lease liabilities
At
30 March 2018
£000
Cash
outflow/(inflow)
£000
47
(257,504)
(1,069)
(258,526)
34
(13,041)
571
(12,436)
19 Derivative financial instruments
At 27 March 2020 the Group had outstanding derivative financial instruments as follows:
Non-current assets
Interest rate cap
Current assets
Forward foreign exchange contracts
Current liabilities
Forward foreign exchange contracts
Fair value
movements
recorded in
finance costs
£000
Fair value
movements
recorded
through other
comprehensive
income
£000
(56)
—
—
(56)
(19)
—
—
(19)
2020
£000
2
2020
£000
3,250
2020
£000
(36)
At
29 March 2019
£000
6
(270,545)
(498)
(271,037)
2019
£000
6
2019
£000
604
2019
£000
—
Information about the Group’s exposure to credit and market risks, and fair value measurement, is included in note 26.
Studio Retail Group plc Annual Report 2020
127
20 Provisions
At 30 March 2018
Released during the period
Provided during the period
Utilised in the period
At 29 March 2019
Adoption of IFRS 16
Provided during the period
Utilised in the period
At 27 March 2020
2020
Analysed as:
Current
Non-current
2019
Analysed as:
Current
Non-current
Onerous leases
£000
Studio financial
services redress
and refunds
£000
11,407
(1,220)
—
(1,344)
8,843
(8,301)
—
(350)
192
192
—
192
1,090
7,753
8,843
8,622
—
4,157
(10,544)
2,235
—
6,948
(5,040)
4,143
4,143
—
4,143
2,235
—
2,235
Total
£000
20,029
(1,220)
4,157
(11,888)
11,078
(8,301)
6,948
(5,390)
4,335
4,335
—
4,335
3,325
7,753
11,078
Onerous leases
A provision was made in prior periods for onerous leases regarding vacated leasehold properties.
Studio financial services redress and refunds
Provisions in excess of £30m were built up in previous years in relation to the anticipated refund of premiums and interest to customers
in respect of historic flawed credit and insurance products. The amount provided was increased by £6,948,000 in the current period. Refer
to note 2 for details. The provision is expected to be utilised within 12 months.
128
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
21 Deferred tax
Recognised deferred tax
Short-term
timing
differences
£000
Fixed asset
timing
differences
£000
Retirement
benefit
obligations
£000
Net balance at 30 March 2018
Adjustments in respect of prior periods
Recognised in other comprehensive income
Charge/(credit) for the period
Net balance at 29 March 2019
Adjustments in respect of prior years
Impact of change in rate of corporation tax
Recognised in other comprehensive income
Charge/(credit) for the period
Impact of classification as held for sale (note 5)
Net balance at 27 March 2020
At 27 March 2020
Deferred tax liabilities
Deferred tax assets
At 29 March 2019
Deferred tax liabilities
Deferred tax assets
(3,531)
—
—
484
(3,047)
992
(242)
—
(1,325)
(42)
(3,664)
—
(3,664)
—
(3,047)
(5,420)
(12)
—
797
(4,635)
7
(545)
—
841
2,012
(2,320)
—
(2,320)
—
(4,635)
2,723
—
(643)
(109)
1,971
—
(914)
4,043
921
—
6,021
6,021
—
3,849
(1,878)
Tax
losses
£000
(5,345)
156
—
772
(4,417)
253
(490)
—
—
4,654
—
—
—
—
(4,417)
Other
intangible
assets
£000
3,590
—
—
(169)
3,421
(1)
402
—
(82)
(3,740)
—
—
—
Total
£000
(7,983)
144
(643)
1,775
(6,707)
1,251
(1,789)
4,043
355
2,884
37
6,021
(5,984)
3,421
—
7,270
(13,977)
The movements in deferred tax recorded in the income statement in respect of the year ended 27 March 2020 represent a £525,000
decrease in deferred tax liabilities relating to continuing operations and a £342,000 increase in deferred tax assets relating to discontinued
operation.
Certain deferred tax assets and liabilities have been offset in accordance with the Group’s accounting policies.
The following is the analysis of the deferred tax balances as they are presented in the consolidated balance sheet following the offset:
At 27 March 2020
Deferred tax liabilities
Deferred tax assets
At 29 March 2019 (restated)
Deferred tax liabilities
Deferred tax assets
Short-term
timing
differences
£000
Fixed asset
timing
differences
£000
Retirement
benefit
obligations
£000
—
(3,664)
—
(3,047)
—
(2,320)
—
(4,635)
—
6,021
3,849
(1,878)
Tax
losses
£000
—
—
—
Other
intangible
assets
£000
—
—
—
(4,417)
3,421
Total
£000
—
37
3,849
(10,556)
A UK corporation tax rate of 19% (effective 1 April 2020) was substantively enacted on 17 March 2020, reversing the previously enacted
reduction in the rate from 19% to 17%. This will increase the Company’s future current tax charge accordingly. The deferred tax assets
and liabilities at 27 March 2020 have been calculated at 19% (2019: 17%).
Unrecognised deferred tax
The aggregate value of deferred tax assets which have not been recognised is £7,142,000 (2019: £6,391,000). These amounts primarily
relate to carried forward tax losses in the parent company, Studio Retail Group plc. No asset has been recognised in respect of these
differences because there is insufficient evidence that Studio Retail Group plc will make sufficient future taxable profits against which
these assets may be utilised.
At 30 March 2018
Adjustments in respect of prior periods
Movements during the period
At 29 March 2019
Adjustments in respect of prior periods
At 27 March 2020
Studio Retail Group plc Annual Report 2020
Short-term
timing
differences
£000
Fixed asset
timing
differences
£000
(42)
(91)
133
—
—
—
(7)
(1)
8
—
—
—
Tax
losses
£000
(6,467)
76
—
(6,391)
(751)
(7,142)
Total
£000
(6,516)
(16)
141
(6,391)
(751)
(7,142)
129
22 Share-based payments
Performance Share Plan (equity settled)
(i) Description of scheme
The Group has issued to certain senior employees nil cost options under the Performance Share Plan (PSP) that require the Group to
award shares to the employee on the vesting of the award subject to the achievement of certain predetermined performance conditions.
The performance period in respect of all outstanding awards is three years after the awards were granted.
The performance conditions that apply to the awards granted since 2016 have been based upon the following bases:
• Awards made during FY17 were subject to a number of vesting criteria, including division-specific criteria for divisional management.
The criteria applicable to the Executive Directors was that half the awards were linked to total shareholder return over the three-year
period to March 2019 and half were linked to the adjusted earnings per share for the year to March 2019.
• Awards made during FY18 were subject to a number of vesting criteria, including division-specific criteria for divisional management.
The criteria applicable to the Executive Directors was that half the awards were linked to total shareholder return over the three-year
period to March 2020 and half were linked to the adjusted earnings per share for the year to March 2020.
• Awards made during FY19 were subject to the same vesting criteria as those for the Executive Directors, which were that half the
awards were linked to total shareholder return over the three-year period to March 2021 and half were linked to the adjusted
earnings per share for the year to March 2021.
• Awards made during FY20 were subject to the same vesting criteria as those for the Executive Directors, which were that half the
awards were linked to total shareholder return over the three-year period to March 2022 and half were linked to the adjusted
earnings per share for the year to March 2022.
(ii) Measurement of fair values
The estimated fair value of the awards granted during the period is £1,792,000 (2019: £1,761,000). In each case these costs are expensed
over the three years from the date of the relevant grant.
The fair values of the awards in the current period and prior year were calculated using a Stochastic valuation (aka “Monte-Carlo”) or
Black-Scholes valuation model. The inputs into the models were as follows:
Weighted average fair value (pence)
Share price at issue (pence)
Weighted average exercise price (pence)
Expected volatility (%)
Expected life (years)
Risk free rate (%)
Expected dividend yield (%)
2020
176.0
247.0
—
40.6
3.0
0.6
—
2019
217.5
274.0
—
44.5
3.0
0.6
—
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years.
(iii) Reconciliation of outstanding options
Outstanding at the beginning of the period
Granted during the period
Lapsed during the period
Exercised during the period
Outstanding at the end of the period
2020
No. of shares
2019
No. of shares
2,547,159
1,020,462
(1,180,148)
—
2,757,732
823,882
(1,034,455)
—
2,387,473
2,547,159
The weighted average exercise price of all options is £nil.
(iv) Charge recognised in the income statement
The Group recognised a charge of £649,000 (2019: £926,000) related to equity-settled share-based payment transactions in the year
reflecting the charge arising in the period being offset by the reversal of charges on non-market related performance criteria share
options which are no longer expected to vest.
130
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
23 Share capital
The Company has two classes of ordinary shares, neither of which carry any right to fixed income.
Ordinary shares of 10p each
At the beginning of the period
At the end of the period
Convertible ordinary shares of 23.97p each
At the beginning of the period
At the end of the period
The following rights are attached to convertible shares:
2019
Number of shares Number of shares
2020
86,442,534
86,442,534
86,442,534
86,442,534
2019
Number of shares Number of shares
2020
166,878,704
166,878,704
166,878,704
166,878,704
2020
£000
8,644
8,644
2020
£000
40,000
40,000
2019
£000
8,644
8,644
2019
£000
40,000
40,000
•
•
•
The shares may be converted into 8,343,935 ordinary shares at the option of the holders of the convertible share in the event that:
(i) the Company’s volume weighted average ordinary share price rises above 479.4p for a period of one month during the period
commencing on 22 March 2013 and ending on 22 March 2021; (ii) an offer is made for the Company that is declared unconditional
(regardless of the share performance of the Company).
The holders of the shares are entitled to attend but not vote at the general meetings (save in respect of any resolution relating to the
convertible shares).
The shares may participate in dividends or other distributions declared in excess of 50% of the net income in a particular accounting
reference period.
•
The shares are freely transferable and the terms may be varied only with the approval of 85% of the convertible shareholders.
If the shares have not been converted by 22 March 2021 they will automatically convert into non-voting deferred shares. The Company
will have the right to buy back such deferred shares for a nominal value at that time.
24 Capital commitments
At 27 March 2020, amounts contracted for but not provided in the financial statements for continuing operations in respect of property,
plant and equipment amounted to £1,348,000 (2019 restated: £962,000).
Studio Retail Group plc Annual Report 2020
131
25 Pensions
Defined contribution schemes
The Group operates a defined contribution retirement benefit plan for all qualifying employees. The assets of the plan are held separately
from those of the Group in funds under the control of trustees. The only obligation of the Group with respect to the retirement benefit
plan is to make the specified contributions. The total expense recognised in the income statement of £1,940,000 (2019: £1,379,000)
represents contributions payable at rates specified by the rules of the plan.
Defined benefit schemes
The Group sponsors the Findel Group Pension Fund which is a defined benefit pension scheme with four sections. The four sections were
merged into a single scheme on 30 June 2012 with the aim of reducing administrative costs. Studio Retail Group plc (the parent company)
is currently the principal sponsor of two of the sections, the Galt and Group sections, and will become the principal sponsor for the
Findel Education and Philip and Tacey sections once the disposal of Findel Education Limited, the previous principal sponsor, has been
completed. The scheme is closed to future accrual. The latest triennial valuation of the scheme was completed at 5 April 2016 by Barnett
Waddingham LLP using a “market related basis” method. The principal actuarial assumptions adopted in that valuation were a pre-
retirement discount rate of 4.05% per annum and a post retirement discount rate of 2.55% per annum. The actuarial value of the assets
was sufficient to cover 85% of the benefits that had accrued to members, after allowing for expected future increases in pensionable
remuneration. The market value of the scheme’s assets at the date of valuation was £129.2m. The next formal valuation has an effective
date of 5 April 2019 and is underway, it is expected to be completed later in 2020.
The most recent valuation of the plan for IAS 19 purposes was carried out at 27 March 2020 by PricewaterhouseCoopers LLP. The present
value of the defined benefit obligation was measured using the projected unit credit method. The results of the IAS 19 valuation are
summarised as follows:
Fair value of scheme assets
Present value of funded obligations
Surplus/(deficit) in the scheme
The weighted average duration of the Scheme’s IAS 19 liabilities is 16 years.
Plan assets
Plan assets comprise:
Equities
Bonds
Other
Movement in the present value of defined benefit obligations
At beginning of the period
Past service cost(1)
Interest cost
Effect of changes in demographic assumptions
Effect of changes in financial assumptions
Effect of experience adjustments
Benefits paid
At end of the period
Movement in the fair value of plan assets
At beginning of the period
Interest on assets
Remeasurements – return on scheme assets
Employer contributions
Benefits paid
At end of the period
2020
£000
164,942
(133,247)
31,695
2019
£000
148,346
(148,414)
(68)
2020
£000
46,548
97,717
20,677
2019
£000
58,143
88,996
1,207
164,942
148,346
2020
£000
(148,414)
—
(3,558)
2,395
5,271
5,197
5,862
(133,247)
2020
£000
148,346
3,614
14,052
4,792
(5,862)
164,942
2019
£000
(143,124)
(2,460)
(3,739)
(5,924)
1,346
(367)
5,854
(148,414)
2019
£000
145,329
3,800
2,571
2,500
(5,854)
148,346
132
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
25 Pensions – continued
Movement in the pension deficit
(Deficit)/surplus at the beginning of the period
Past service cost(1)
Net interest income
Remeasurements
Employer contributions
Surplus/(deficit) at the end of the period
Expense recognised in the Consolidated Income Statement
(i) Included within individually significant items – trading costs
Past service cost(1)
(ii) Included within finance costs
Net interest income
Amounts recognised in other comprehensive income
Total remeasurements
2020
£000
(68)
—
56
26,915
4,792
31,695
2020
£000
—
56
2020
£000
26,915
2019
£000
2,205
(2,460)
61
(2,374)
2,500
(68)
2019
£000
(2,460)
61
2019
£000
(2,374)
1.
In October 2018, the High Court handed down a judgement involving the Lloyds Banking Group’s defined benefit pension schemes. The judgement concluded
that the schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum pension (“GMP”) benefits. The issues
determined by the judgement arise in relation to many other defined benefit pension schemes, including the Findel Group Pension Fund. After discussion with
the trustees, actuaries and legal advisors of our fund, a past service cost of £2,460,000 was recognised in the prior period, increasing the total scheme liabilities
by approximately 1.7%, to address this historical issue.
Actuarial Assumptions
The following are the principal actuarial assumptions at the reporting date:
Financial Assumptions
Discount rate for scheme liabilities
RPI Price Inflation
CPI Price Inflation
Rate of increase to pensions in payment in line with RPI inflation (up to 5% per annum)
Rate of increase to pensions in payment in line with CPI inflation (up to 5% per annum)
Rate of increase to deferred pensions
Post retirement mortality (in years)
Current pensioners at 65 – male
Current pensioners at 65 – female
Future pensioners at 45 – male
Future pensioners at 45 – female
Demographic Assumptions
Cash Commutation (members taking cash lump sum)
Proportion of members that are married at retirement
Proportion of members taking TPIE option*
Age at which members are assumed to take TPIE option*
2020
2019
2.50%
2.75%
1.85%
2.75%
1.90%
1.85%
86.5 yrs
88.3 yrs
87.8 yrs
89.7 yrs
60%
70%
15%
61.0 yrs
2.45%
3.30%
2.30%
3.20%
2.30%
2.30%
87.0 yrs
89.0 yrs
88.3 yrs
90.5 yrs
80%
75%
15%
61.0 yrs
Assumptions regarding post retirement mortality are based on published statistics and mortality tables – 113% S3NMA/124%
S3NFA – CMI 2019 1.25% p.a. (2019: 100% S2NXA – CMI 2018 1.25% p.a.)
* The Scheme has an embedded option at retirement for members to take TPIE (Total Pension Increase Exchange), following bulk exercises carried out in late 2014 and
early 2015. Since this option is a formalised ongoing process, allowance has been made for this in calculating the IAS 19 liability. A 15% take up at an average age of
61.0 years has been assumed, based upon take up rates seen to date.
Studio Retail Group plc Annual Report 2020
133
25 Pensions – continued
Sensitivities
The sensitivities regarding the principal assumptions used to measure the Scheme’s liabilities are set out below:
Assumption
Discount rate
RPI Inflation
CPI Inflation
Salary increase
Longevity
TPIE take up %
TPIE age
Change in assumption
If assumption increases
If assumption decreases
Impact on scheme liabilities
0.5%
0.5%
0.5%
0.5%
1 year
5%
1 year
Decrease by 7.2%
Increase by 3.2%
Increase by 2.8%
No change
Increase by 4.5%
Decrease by £575,000
Increase by £500,000
Increase by 8.1%
Decrease by 3.0%
Decrease by 2.6%
No change
Decrease by 4.3%
Increase by £575,000
Decrease by £500,000
The above sensitivities are approximate and show the likely increase to the Scheme’s liabilities under IAS 19 if an assumption is adjusted
whilst all other assumptions remain the same. The sensitivities are for illustration purposes only and do not necessarily represent the
directors’ view of the expected changes to the assumptions in the future.
There have been no changes to the methods and assumptions used to calculate the sensitivity analyses between the current period and
prior period.
Risks
Investment risk
Allowance is made in the assumptions for the expected long-term performance of asset classes such as equities. There is a risk that
these returns will not be achieved in practice, which would result in an increase in the Scheme’s liabilities and further contributions being
required. Further, the value of the Scheme’s assets may not move in line with the Scheme’s liabilities – either because the Scheme invests
in volatile assets whose value might fall, or because the value of the liabilities has increased due to falling interest rates and the assets are
not of sufficient duration to keep up (or a combination of these).
Inflation
In projecting the expected future benefit payments, assumptions are made regarding future price inflation. There is a risk that the actual
rate of inflation will be higher than assumed which will increase the cost of providing the benefits and thus the liability. This would result
in additional contributions being required and a deterioration in the solvency position unless investment returns are similarly higher than
expected.
Mortality
It is not possible to predict with any certainty how long members of the Scheme will live, and if members live longer than expected,
additional contributions will be required and the Scheme’s solvency position will deteriorate.
Managing risk
To manage the risks of the Scheme, TPIE exercises were carried out during 2015 and 2016, which resulted in a number of members
transferring out of the Scheme. The TPIE option has now been embedded within the scheme.
IFRIC 14
IFRIC 14 is an interpretation relating to IAS 19 that covers whether pension scheme surpluses can be recognised on the balance sheet.
Based on the circumstances of the Fund and in line with the prior period, management do not believe that IFRIC 14 impacts the IAS
19 results since the Company has a right to a refund of surplus assets at some point in the future, and as such have not made any
adjustments to the results.
134
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
25 Pensions – continued
Funding
The Scheme is funded by Studio Retail Group plc and its subsidiaries. During the current period, the Group contributed £4,792,000 to the
scheme (2019: £2,500,000). The Group expects to make contributions of £5,000,000 in the financial year ended March 2021, in line with
the agreed schedule of contributions.
The following table shows the expected future benefit payments for the Findel Group Pension Fund:
Findel Group Pension Fund (expected future benefit payments)
2020 – 2029
2030 – 2039
2040 – 2049
2050 – 2059
2060 – 2069
2070 – 2079
2080 – 2089
2090 – 2099
After 2099
Total
£’000
51,481
60,687
49,546
28,749
7,090
488
6
—
—
198,047
26 Financial instruments
The Group holds and uses financial instruments to finance its operations and to manage its interest rate and liquidity risks. The Group
primarily finances its operations using share capital and borrowings. The main risks arising from the Group’s financial instruments are
credit, interest rate, foreign currency and liquidity risk.
The Board reviews and agrees the policies for managing each of these risks on an annual basis. A full description of the Group’s approach
to managing these risks is set out in the Risk Committee Report on pages 71 to 72.
The Group does not engage in trading or speculative activities using derivative financial instruments. A group offset arrangement exists
for cash balances to take advantage of the most rewarding short-term investment opportunities.
Capital risk management
The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to
stakeholders through the optimisation of the net debt and equity balance. The Board of Directors reviews the capital structure of the
Group regularly considering both the costs and risks associated with each class of capital. The capital structure of the Group consists of:
Net debt
Borrowings (note 18)
Cash at bank and in hand (note 16)
Leases liabilities (note 13)
Total equity
Share capital (note 23)
Translation reserve
Hedging reserve
Retained earnings/(accumulated losses)
2020
£000
2019
£000
282,591
(33,163)
43,496
292,924
48,644
321
(26)
26,442
75,381
270,545
(37,603)
498
233,440
48,644
764
(54)
(5,834)
43,520
Gearing (being net debt divided by total equity)
3.89
5.36
Studio Retail Group plc Annual Report 2020
135
26 Financial instruments – continued
Externally imposed capital requirement
Revolving credit facility
The Group is subject to two financial covenants based on debt-based ratios (Interest Cover and Net Debt: EBITDA). These covenants are
tested quarterly against pre-agreed limits.
Securitisation facility
The Group is subject to a number of covenants in relation to the quality of receivables securitised, of which the principal measures are
the collection ratio, the default ratio, the excess spread ratio and the dilution ratio. The covenants are tested monthly against pre-agreed
targets, testing for compliance on a three-month rolling basis.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and
the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument
are disclosed in note 1 to the financial statements.
Fair value of financial assets and liabilities
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Bank loans
Lease liabilities
Derivative financial instruments
Unrecognised gain/(loss)
2020
Carrying
value
£000
220,732
33,163
(37,392)
(282,591)
(43,496)
3,216
(106,368)
2020
Fair
value
£000
220,732
33,163
(37,392)
(282,591)
(43,496)
3,216
(106,368)
—
2019
Carrying
value
£000
221,596
37,603
(48,569)
(270,545)
(498)
610
(59,803)
2019
Fair
value
£000
221,596
37,603
(48,569)
(270,545)
(498)
610
(59,803)
—
Basis for determining fair values
The following summarises the principal methods and assumptions used in estimating the fair value of financial instruments reflected in
the table above:
(a) Derivatives
Broker quotes are used for all interest rate swaps, caps and foreign currency exchange contracts where relevant.
(b) Interest-bearing loans and borrowings
Fair value is calculated based on discounted expected future principal and interest cash flows.
(c) Trade and other receivables/payables
Trade receivables are held at amortised cost (i.e. net of provision for expected credit loss). At Studio an appropriate allowance for
expected credit loss in respect of trade receivables is derived from estimates and underlying assumptions such as the Probability of
Default and the Loss Given Default, taking into consideration forward looking macro-economic assumptions.
The main risks arising from the Group’s financial instruments are credit, interest rate, foreign currency, and liquidity risk. The Board
reviews and agrees the policies for managing each of these risks on an annual basis.
Fair value hierarchy
The different levels of valuation method for financial instruments carried at fair value have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices)
or indirectly (i.e., derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The derivative financial instruments held by the Group at 27 March 2020 and 29 March 2019, namely the interest rate caps and forward
foreign exchange contracts, were valued under level 2 measurement bases.
136
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
26 Financial instruments – continued
Financial risk management objectives
The Group’s financial risks include market risk (including currency risk and interest risk), credit risk, liquidity risk and cash flow interest
rate risk.
The Group seeks to minimise the effects of these risks by using derivative financial instruments to manage its exposure. The use of
financial derivatives is governed by the Group’s policies approved by the Board of Directors.
Market risk
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group
enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including:
•
•
forward foreign exchange contracts to hedge the exchange rate risk arising on the purchase of inventory principally in US dollars; and
interest rate caps to mitigate the risk of rising interest rates.
Foreign currency risk management
A proportion of the products sold through Studio and Education are procured through the Group’s Far-East sourcing operations. The
currency of purchase for these goods is principally the US Dollar. Hence, exposures to exchange rate fluctuations arise. Exchange
rate exposures are managed utilising forward foreign exchange contracts. The Group has a policy of hedging these foreign currency
denominated transactions by entering into forward exchange purchase contracts for the purchases forecast for the next 12 months. At
the balance sheet date, details of the notional value of outstanding US dollar forward foreign exchange contracts that the Group has
committed to are as follows:
Less than 6 months
6 to 12 months
2020
£000
36,683
34,056
70,739
2019
£000
32,137
37,646
69,783
Forward contracts outstanding at the period end were contracted at US dollar exchange rates between £1/$1.32 and £1/$1.23. Hedge
accounting has not been applied to these derivatives.
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as
follows:
Euro
US Dollar
Chinese Yuan Renminbi
Hong Kong dollar
Assets
Liabilities
Net exposure
2020
£000
3,377
6,260
75
213
9,925
2019
£000
217
4,156
—
36
4,409
2020
£000
—
(205)
(253)
(57)
(515)
2019
£000
(104)
(6,682)
—
—
(6,786)
2020
£000
3,377
6,055
(178)
156
9,410
2019
£000
113
(2,526)
—
36
(2,377)
Foreign currency sensitivity analysis
A significant proportion of products sold through Studio and Education are procured through the Group’s Far-East sourcing operations.
The currency of purchase for these goods is principally the US dollar, with a proportion being in Hong Kong dollars.
The following table details the Group’s sensitivity to a 10% increase or decrease in the Sterling against the relevant foreign currencies.
10% represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes
only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in
foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the
denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number below indicates an
increase in profit and other equity where Sterling strengthens 10% against the relevant currency. For a 10% weakening of Sterling against
the relevant currency, there would be an equal and opposite impact on the profit and other equity, and the balances below would be
negative.
Euro
currency impact
US dollar
currency impact
Chinese Yuan Renminbi
currency impact
Hong Kong dollar
currency impact
Profit or loss and equity
(307)
2020
£000
2019
£000
(10)
2020
£000
(550)
2019
£000
230
2020
£000
16
2019
£000
(21)
2020
£000
(14)
2019
£000
(3)
Studio Retail Group plc Annual Report 2020
137
26 Financial instruments – continued
Forward foreign exchange contracts
The Group enters into forward foreign exchange contracts to manage the risk associated with anticipated sales and purchase transactions
on a rolling twelve-month basis.
At 27 March 2020, the Group was committed to forward foreign exchange contracts for a notional sterling contract value of £70,739,000.
Notional amount – Sterling contract value
Fair value of net asset recognised
2020
£000
70,739
3,214
2019
£000
69,783
604
The fair value of the net derivative asset recognised in the balance sheet at 27 March 2020 in this regard was £3,214,000 (2019: asset
£604,000). Changes in fair value of forward foreign exchange contracts amounted to a credit of £2,608,000 (2019: credit of £4,750,000)
which has been recorded separately in the Consolidated Income Statement.
The fair value of foreign currency derivatives contracts is their market value at the balance sheet date. Market values are based on the
duration of the derivative instrument together with the quoted market data including interest rates, foreign exchange rates and market
volatility at the balance sheet date.
Interest rate risk management
The Group is exposed to interest rate risk as the Group borrows funds at floating interest rates. The risk is managed by the Group by the
use of interest rate cap contracts when considered necessary. The Group has two interest rate caps in place at 27 March 2020. Hedging
activities are evaluated regularly to align with interest rate views and defined risk appetite; ensuring hedging strategies are applied, by
either positioning the balance sheet or protecting interest expense through different interest rate cycles.
The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of
this note.
Interest rate sensitivity analysis
The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative
instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding
at balance sheet date was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk
internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s profit and equity reserves
for the period ended 27 March 2020 would decrease/increase by £1,364,000 (2019: £1,328,000). This is mainly attributable to the Group’s
exposure to interest rates on its variable rate borrowings.
Interest rate cap contracts
Under interest rate cap contracts, the Group agrees to cap the LIBOR element of its interest cost at an agreed level calculated on agreed
notional principal amounts. Such contracts enable the Group to mitigate the risk of rising interest rates on its variable rate debt.
The following caps were in place at 27 March 2020:
Maturity
Less than 12 months
1 to 2 years
At 27 March 2020
Notional borrowing
amount
£000
Cap rate
Fair value
£000
95,000
50,000
1.477%
1.117%
—
2
2
The Group has two caps in place. The first cap was purchased on 12 March 2019 and matures in August 2020. The second cap was
purchased on 14 February 2020 and matures in July 2021. Both caps were designated as cash flow hedges from inception. The movement
in the fair value of interest rate caps during the current and prior periods was as follows:
At the beginning of the period
Purchase of interest rate caps
Movement in fair value credited/(charged) to the hedging reserve
Movement in fair value of ineffective element charged to finance costs
At the end of the period
2020
£000
6
13
28
(45)
2
2019
£000
47
34
(19)
(56)
6
138
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
26 Financial instruments – continued
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The
Group’s credit risk is primarily attributable to its trade receivables. At Studio an appropriate allowance for expected credit loss in respect
of trade receivables is derived from estimates and underlying assumptions such as the Probability of Default and the Loss Given Default,
taking into consideration forward looking macro-economic assumptions. A more detailed commentary of the Group’s exposure to credit
risk within its trade receivables, and the procedures employed to manage this risk, is set out in note 15.
The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar
characteristics. The Group defines counterparties as having similar characteristics if they are connected entities. Concentration of
credit did not exceed 5% of gross monetary assets at any time during the year. The credit risk on liquid funds and derivative financial
instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.
The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the directors’
best estimate of the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk
management framework for the management of the Group’s short, medium and long-term funding and liquidity management
requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by
continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in
note 18 is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.
Liquidity and interest risk tables
The following tables detail the Group’s remaining contractual maturity for its financial assets and financial liabilities. The tables have been
drawn up based on the undiscounted cash flows of the financial assets and financial liabilities based on the earliest date on which the
Group can be required to pay. The table includes both estimated interest and principal cash flows.
2020
Financial liabilities
Non-interest bearing
Variable interest rate instruments
Lease liabilities
2019
Financial liabilities
Non-interest bearing
Variable interest rate instruments
Lease liabilities
Weighted
average
effective
interest rate
%
3.18
3.62
Weighted
average
effective
interest rate
%
3.62
4.72
Less than
1 year
£000
(37,392)
(282,591)
(6,035)
(326,018)
Less than
1 year
£000
(48,569)
(270,545)
(498)
(319,612)
1 to 5
years
£000
—
—
(37,461)
(37,461)
1 to 5
years
£000
—
—
—
—
Total
£000
(37,392)
(282,591)
(43,496)
(363,479)
Total
£000
(48,569)
(270,545)
(498)
(319,612)
The Group has access to financing and securitisation facilities, the total unused amount of which was £nil* (2019: £nil*) at the balance sheet
date. The Group expects to meet its other obligations from operating cash flows. Borrowings drawn under the Group’s revolving credit facility
are shown above as being repaid within one year as drawings are made on one-month or three-month loan periods. The Group may then
redraw these amounts until the contractual maturity of the underlying facility which expires in December 2021. The Group may draw up to
£200m subject eligible receivables to support borrowings.
The Group enters into derivative financial instruments relating to gross settled foreign exchange contracts and net settled interest rate
caps. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the interest and
foreign currency rates prevailing at the balance sheet date.
* This figure represents drawn headroom against the available facilities. Total headroom (i.e., including cash and cash equivalents) 27 March 2020 is £33,163,000
(2019: £37,603,000).
Studio Retail Group plc Annual Report 2020
139
27 Related parties
During the current and prior periods, the Group made purchases in the ordinary course of business from Brands Inc. Limited and Firetrap
Limited, subsidiaries of Frasers Group plc (formerly Sports Direct International plc), which is a significant shareholder in the ultimate
parent company, Studio Retail Group plc. In the prior period, the Group also provided consultancy services to Frasers Group plc itself in
the current period on arm’s-length terms. The value of purchases made, and consultancy fees charged in the current and prior periods
and amounts owed at the 27 March 2020 and 29 March 2019 were as follows:
Brands Inc. Limited
Purchases
Amounts owed
Firetrap Limited
Purchases
Amounts owed
Frasers Group plc (formerly Sports Direct International plc)
Consultancy fees received
Amounts due
2020
£000
43
17
2020
£000
—
—
2020
£000
—
—
2019
£000
196
22
2019
£000
176
—
2019
£000
93
—
Transactions between Studio Retail Group plc and its subsidiaries, which are related parties of Studio Retail Group plc, have been
eliminated on consolidation and are not discussed in this note. All transactions and outstanding balances between group companies are
priced on an arm’s-length basis and are settled in the ordinary course of business.
Compensation of key management personnel
The remuneration of the Directors including consultancy contracts and share-based payments, who are the key management of the
Group, is set out in the audited part of the Directors’ Remuneration Report on pages 39 to 65 and is summarised below.
Short-term employee benefits
Company pension contributions
Long-term incentives
Termination payments
Share-based payments charge
2020
£000
1,223
131
519
—
1,873
318
2,191
2019
£000
1,730
123
—
7
1,860
642
2,502
140
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
28 Subsidiaries
The subsidiaries of Studio Retail Group plc, the Group’s ultimate parent company, at 27 March 2020 were as follows:
Name
Findel Education Limited
Studio Retail Limited
Findel Sourcing (Shanghai) Limited
Findel Asia Sourcing Limited
Express Gifts Philippines Inc.
Findel Europe B.V.
SPA 4 Schools Limited
Findel Wholesale Limited
TCC1 Limited
Hope Holdings (U.K.) Limited
2Care4 Limited
Ace of Clubs Limited
Alternative Choice Limited
Burley House Weddings Limited
C.& S.(SUTTON)LIMITED
Care 4 Schools Limited
Care Cards Limited
Care4Free Limited
Cascade Party Toys Limited
Christmas-E Limited
Dean’s Childsplay Toys Limited
Dee Textiles Limited
Designed For Giving Limited
Designed For You Limited
Designers File Limited(THE)
Durban Mills Limited
Registered Office Address
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Unit 1506, Tower A, Financial Street Hailun Center No.440,
Hailun Road, Shanghai, PRC
Room 1102, Two Harbourfront, 22 Tak Fung Street,
Hunghom, Kowloon, Hong Kong
Second Floor, Clark Center 7, Berthaphil Clark Center,
Jose Abad Santos Avenue, Clark Freeport Zone,
Pampanga, Philippines
2 Gregory St, Hyde, Cheshire, United Kingdom, SK14 4TH
Units 1-2, Down Business Centre, 55 Antrim Road,
Ballynahinch, Co Down, BT24 8AN
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Activity
Trading entity
Trading entity
Overseas entity*
Overseas entity
Overseas entity*
Overseas entity
Non-dormant entity*
Non-dormant entity
Non-dormant entity
Non-dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity*
Dormant entity
Dormant entity
Dormant entity*
Dormant entity
Studio Retail Group plc Annual Report 2020
141
28 Subsidiaries – continued
Name
E.J. Arnold & Son Limited
E.J. Arnold Limited
EB2C Limited
Estore Fulfilment Limited
Express Gifts Limited
Express Home Shopping Limited
FD1 Limited
Findel (Toys) Limited
Findel 2010 Limited
Findel Education Group Limited
Findel Educational Supplies Limited
Findel Fundraising Limited
Findel Gifts Limited
Findel Healthcare Limited
Findel Home Shopping Limited
Findel Interactive Limited
Findel Properties Limited
Findel Services Limited
Findel Stationery Limited
Fine Art Designs Limited
Fine Art Developments (Marketing) Limited
Fine Art Developments (Supplies) Limited
Fine Art Developments Employee Trust Limited
Fine Art Developments Limited
Registered Office Address
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Activity
Dormant entity
Dormant entity
Dormant entity*
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity*
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
142
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
28 Subsidiaries – continued
Name
Friends of Nature Limited
Fundraising Direct Limited
Galt Education Limited
GLS Educational Supplies Limited
Hamsard 3278 Limited
Heron Educational Limited
Hope Adventureplay Limited
Hope Education Limited
Hope Export Limited
International Schools Supply Limited
Ivory Cards Limited
Jones Williams Limited
Letterbox Mail Order Limited
Living and Learning, Limited
Matchmaker Parties Limited
Miller Leswyn Limited
Minitogs Limited
Mistrale Limited
Natural Reflections Limited
Naturally Direct Limited
NES Arnold Limited
Philip & Tacey Limited
Philip Harris Limited
Philograph Publications Limited
Registered Office Address
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Activity
Dormant entity
Dormant entity
Dormant entity
Dormant entity*
Dormant entity
Dormant entity
Dormant entity*
Dormant entity
Dormant entity*
Dormant entity*
Dormant entity
Dormant entity*
Dormant entity
Dormant entity*
Dormant entity*
Dormant entity
Dormant entity
Dormant entity*
Dormant entity*
Dormant entity
Dormant entity
Dormant entity*
Dormant entity
Dormant entity*
Studio Retail Group plc Annual Report 2020
143
28 Subsidiaries – continued
Name
Registered Office Address
Pippa Dee International Limited
Pippa Dee Parties Limited
Premier Educational Supplies Limited
Protus Plastics Limited
Rock Bottom Limited
Rosgill Group Limited
Rosgill Holdings Limited
Say It with Ease.com Limited
Standard Debt Collections Limited
Step By Step Limited
Studio Cards Limited
Studio Dee Limited
Studio Retail Group Limited
Sutcliffe Sport Limited
The Dee Group P.L.C.
The Findel Educational Company Limited
Tradersgate Limited
Unilab Science Limited
Webb Ivory Limited
World Class Learning Limited
Xpress Gifts Limited
* Indirectly held.
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Church Bridge House, Henry Street, Accrington,
United Kingdom, BB5 4EE
Activity
Dormant entity*
Dormant entity*
Dormant entity*
Dormant entity*
Dormant entity
Dormant entity*
Dormant entity*
Dormant entity
Dormant entity*
Dormant entity
Dormant entity
Dormant entity*
Dormant entity*
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
Dormant entity
All subsidiary undertakings are wholly owned (meaning ownership of 100% of all issued share capital), either directly or indirectly, by
Studio Retail Group plc and operate mainly in the jurisdiction in which they are registered. There are no other related undertakings to
disclose.
144
Studio Retail Group plc Annual Report 2020
Notes to the Consolidated Financial Statements
Contents
4
Company Financial Statements
146
Company Balance Sheet
147
Company Statement of Changes
in Equity
148
Notes to the Company Financial
Statements
Company Balance Sheet
at 27 March 2020
Company Number: 549034
Fixed assets
Tangible assets
Investment property
Investments
Derivative financial instruments
Deferred tax asset
Current assets
Derivative financial instruments
Debtors: amounts falling due after one year
Debtors: amounts falling due within one year
Cash at bank and in hand
Derivative financial instruments
Creditors: amounts falling due within one year
Net current assets/(liabilities)
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Provisions for liabilities
Deferred tax liability
Other provisions
Net liabilities
Capital and reserves
Share capital
Accumulated losses
Total equity
Approved by the Board and authorised for issue on 22 August 2020.
P B Maudsley
S M Caldwell }
Directors
Notes
3
5
6
7
8
9
10
11
12
13
2020
£000
29,810
8,371
59,228
2
—
97,411
3,248
29,931
14,008
1,438
48,625
(36)
(45,254)
3,335
100,746
(119,557)
(5,680)
(192)
(5,872)
(24,683)
48,644
(73,327)
(24,683)
2019
£000
56
8,697
59,228
6
426
68,413
604
8,538
35,228
783
45,153
—
(57,128)
(11,975)
56,438
(95,000)
(3,849)
(8,843)
(12,692)
(51,254)
48,644
(99,898)
(51,254)
The accompanying notes are an integral part of this balance sheet.
146
Studio Retail Group plc Annual Report 2020
Company Statement of Changes in Equity
52-week period ended 27 March 2020
At 30 March 2018
Loss for the period
Remeasurements in respect of defined benefit pension plan, net of tax
Transactions with owners
Share-based payments
Amounts credited to reserves in respect of cash flow hedge
At 29 March 2019
Profit for the period
Remeasurements in respect of defined benefit pension plan, net of tax
Amounts charged to reserves in respect of cash flow hedge
Transactions with owners
Share-based payments
At 27 March 2020
Share
capital
£000
48,644
—
—
—
—
48,644
—
—
—
Accumulated
losses
£000
(95,516)
(3,735)
(1,037)
409
(19)
(99,898)
9,311
16,825
28
Total
equity
£000
(46,872)
(3,735)
(1,037)
409
(19)
(51,254)
9,311
16,825
28
—
407
407
48,644
(73,327)
(24,683)
The total equity is attributable to the equity shareholders of the parent company Studio Retail Group plc.
Accumulated losses at 27 March 2020 included a special reserve in respect of the capital reduction exercise which became effective on
15 March 2016 amounting to £15,447,000 which is not distributable (March 2019: £15,447,000).
The accompanying notes are an integral part of this statement of changes in equity.
Studio Retail Group plc Annual Report 2020
147
1 Significant accounting policies
Basis of accounting
Studio Retail Group plc is a public limited company incorporated in England. The results of Studio Retail Group plc are included in the
consolidated accounts of Studio Retail Group plc which are available from Church Bridge House, Henry Street, Accrington, Lancashire,
BB5 4EE. These financial statements present information about the Company as an individual undertaking and not about its group. The
separate financial statements of the Company are prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (“FRS 101”) and the Companies Act 2006.
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of International
Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”), but makes amendments where necessary in order to comply with
Companies Act 2006.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
• Company cash flow statement and related notes
• Disclosures in respect of transactions with wholly owned subsidiaries
• Disclosures in respect of capital management
•
The effects of new but not yet effective IFRSs
• Disclosures in respect of the compensation of key management personnel
As the consolidated financial statements of Studio Retail Group plc include equivalent disclosures, the Company has also taken
exemptions under FRS 101 available in respect of the following disclosures:
• Certain disclosures required by IFRS 13 Fair Value Measurement
• Disclosures required by IFRS 7 Financial Instrument Disclosures
•
Share-based payments – IFRS 2 is being applied to equity instruments that were granted after 7 November 2002 and that had not
vested by 28 March 2014.
The accounts are presented in Sterling, rounded to the nearest thousand.
Significant accounting policies
The accounting policies adopted by the Company are consistent with those used in the Group’s consolidated financial statements as set
out on pages 96 to 109, except for the following items which are only relevant for the Company as a standalone entity.
Investment properties
Investment properties (which include land and buildings) are stated at cost, net of depreciation, and any provision for impairment.
Depreciation is calculated to write off all investment properties on a straight-line basis over their estimated useful economic lives. For
buildings, the estimated useful economic life is assessed at 50 years. No depreciation is charged in respect of land.
148
Studio Retail Group plc Annual Report 2020
Notes to the Company Financial Statements 1 Significant accounting policies – continued
Judgements and key sources of estimation
The preparation of accounts in accordance with generally accepted accounting principles requires management to make judgements,
estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these estimates.
The principal judgements made by the directors, in the application of these accounting policies that have significant effect on the financial
statements and estimates with a significant risk of material adjustment in the next year are discussed below:
•
IAS 36 ‘Impairment of assets’. In testing for impairment of investments and other assets, the directors have made certain assumptions
concerning the future development of its subsidiary businesses that are consistent with their annual budgets and forecasts into
perpetuity. Should these assumptions regarding the discount rate or growth in the profitability be unfounded then it is possible that
investments included in the balance sheet could be impaired.
The recoverable amount of the Education CGU was determined from the fair value less cost to sell (FVLCS) calculation. FVLCS has been
based on the agreed sale price less disposal costs incurred.
• Discount rate for pension scheme liabilities (note 14)
At 27 March 2020 the Group and Galt sections of the Findel Group Pension Fund, of which the Company is the sponsoring
employer, showed a net surplus of £29.9m (2019: £8.5m). Management makes use of the PwC Single Agency corporate bond yield
curve to derive the discount rate applied to the scheme’s projected cash flows, in the calculation of its liabilities under IAS 19.
Changes to the discount rate applied could lead to significant changes in the level of liabilities recognised. Sensitivity analysis in
this regard can be found in note 14.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised and in any of the future periods affected.
Adoption of IFRS 16
IFRS 16 is effective for all accounting periods beginning on or after 1 January 2019. For Studio Retail Group plc this is the first reported
accounting period under IFRS 16. The Company adopted this standard using the modified retrospective approach with a date of initial
application of 30 March 2019. The modified retrospective approach does not require a restatement of the prior period comparatives and
consequently, there will be no adjustment to opening retained earnings. Additionally, the disclosure requirements of IFRS 16 have not
generally been applied to comparative information.
Under IFRS 16, lease agreements give rise to both a right of use asset and a lease liability for future lease rentals. The right of use asset
is depreciated on a straight-line basis over the life of the lease. On transition, lease liabilities were measured at the present value of
the remaining lease payments, discounted at the Group’s incremental borrowing rate as at 30 March 2019. The right of use assets are
measured at an amount equal to the lease liability adjusted by the amount of any prepaid or accrued lease payments. The interest is
recognised on the lease liability, resulting in a higher interest expense in the earlier years of the lease term. The total expense recognised
over the life of the lease will be unaffected by the new standard, however, IFRS 16 results in the timing of lease expense recognition being
accelerated for leases which would be currently accounted for as operating leases.
The £8.3m difference between the opening right use asset and lease liability is due to the portion of the onerous lease provision held at
29 March 2019 relating to lease rentals being netted off against the opening right of use asset.
Studio Retail Group plc Annual Report 2020
149
1 Significant accounting policies – continued
Impact on the Company Balance Sheet
At 27 March 2020
Fixed assets
Tangible assets
Investment property
Investments
Derivative financial instruments
Deferred tax asset
Current assets
Derivative financial instruments
Debtors: amounts falling due after one year
Debtors: amounts falling due within one year
Cash at bank and in hand
Derivative financial instruments
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Provisions for liabilities
Deferred tax liability
Other provisions
Net liabilities
Capital and reserves
Share capital
Accumulated losses
Total equity
Amounts prior
to adoption
of IFRS 16
£000
43
8,371
59,228
2
—
67,644
3,248
29,931
14,008
1,438
48,625
(36)
(40,333)
8,256
75,900
(85,000)
(5,680)
(7,037)
(12,717)
(21,817)
48,644
(70,461)
(21,817)
Impact of
IFRS 16
adoption
£000
29,767
—
—
—
—
29,767
—
—
—
—
—
—
(4,921)
(4,921)
24,846
(34,557)
—
6,845
6,845
As reported
£000
29,810
8,371
59,228
2
—
97,411
3,248
29,931
14,008
1,438
48,625
(36)
(45,254)
3,335
100,746
(119,557)
(5,680)
(192)
(5,872)
(2,866)
(24,683)
—
(2,866)
(2,866)
48,644
(73,327)
(24,683)
150
Studio Retail Group plc Annual Report 2020
Notes to the Company Financial Statements
1 Significant accounting policies – continued
Impact on the Company Balance Sheet
At 30 March 2019
Fixed assets
Tangible assets
Investment property
Investments
Derivative financial instruments
Deferred tax asset
Current assets
Derivative financial instruments
Debtors: amounts falling due after one year
Debtors: amounts falling due within one year
Cash at bank and in hand
Derivative financial instruments
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Provisions for liabilities
Deferred tax liability
Other provisions
Net liabilities
Capital and reserves
Share capital
Accumulated losses
Total equity
Amounts prior
to adoption
of IFRS 16
£000
56
8,697
59,228
6
426
68,413
604
8,538
35,228
783
45,153
—
(57,128)
(11,975)
56,438
(95,000)
(3,849)
(8,843)
(12,692)
(51,254)
48,644
(99,898)
(51,254)
Impact of
IFRS 16
adoption
£000
26,970
—
—
—
—
26,970
—
—
—
—
—
—
(4,846)
(4,846)
22,124
(30,425)
—
8,301
8,301
—
—
—
—
Opening
balance sheet
£000
27,026
8,697
59,228
6
426
95,383
604
8,538
35,228
783
45,153
—
(61,974)
(16,821)
78,562
(125,425)
(3,849)
(542)
(4,391)
(51,254)
48,644
(99,898)
(51,254)
Studio Retail Group plc Annual Report 2020
151
2 Profit for the period
As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own income statement for the year.
The Company reported a profit for the financial period ended 27 March 2020 of £9,311,000 (2019: loss of £3,735,000).
The Auditor’s remuneration for audit services to the Company was £155,000 (2019: £115,000).
3 Tangible fixed assets
Cost
At 30 March 2018
Additions
At 29 March 2019
Impact of IFRS 16
At 30 March 2019
Additions
At 27 March 2020
Accumulated depreciation
At 30 March 2018
Charge for the period
At 29 March 2019
Impairment
Charge for the period
At 27 March 2020
Carrying amount
Net book value at 27 March 2020
Net book value at 29 March 2019
4 Leases
Leasehold land
and buildings
£000
Fixtures and
equipment
£000
404
—
404
26,970
27,374
7,389
34,763
355
9
364
1,159
3,439
4,962
29,801
40
81
2
83
—
83
1
84
57
10
67
—
8
75
9
16
Total
£000
485
2
487
26,970
27,457
7,390
34,847
412
19
431
1,159
3,447
5,037
29,810
56
The Company leases assets including buildings and plant and equipment that are held within property, plant and equipment. The
Company also has certain leases of plant and equipment with lease terms of 12 months or less and leases of office equipment with low
value. The Company applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases.
Information about leases for which the Company is a lessee is presented below.
Net book value of property, plant and equipment owned
Net book value right of use assets
Net book value of right of use assets
At 30 March 2019
Additions
Impairment
Depreciation
At 27 March 2020
2020
£000
43
29,767
29,810
2019
£000
56
—
56
Land and
buildings –
Leasehold
£000
26,970
7,389
(1,159)
(3,433)
29,767
152
Studio Retail Group plc Annual Report 2020
Notes to the Company Financial Statements
4 Leases – continued
Lease liabilities in the balance sheet
A maturity analysis of contractual undiscounted cash flows relating to lease liabilities is as follows:
Within one year
In the second to fifth years
After five years
Current
Non-current
5 Investment Property
Cost
At 30 March 2018
At 29 March 2019
At 27 March 2020
Accumulated depreciation
At 30 March 2018
Charge for the period
At 29 March 2019
Charge for the period
At 27 March 2020
Carrying amount
Net book value at 27 March 2020
Net book value at 29 March 2019
At
27 March 2020
£000
At
30 March 2019
£000
5,115
17,863
29,908
52,886
5,219
19,250
33,636
58,105
At
27 March 2020
£000
At
30 March 2019
£000
(5,058)
(34,557)
(39,615)
(4,846)
(30,425)
(35,271)
Land and buildings
£000
17,234
17,234
17,234
8,208
329
8,537
326
8,863
8,371
8,697
Investment property relates to a freehold property held by the Company for the purposes of obtaining rental income from a subsidiary
undertaking. Rental income of £805,000 (2019: £805,000) was recorded in the income statement in the current period.
The fair value of the property at 25 March 2016 was determined by an external, independent expert with the appropriate professional
qualifications and experience and was assessed at £9,700,000. This remains appropriate in the current year, given that there has been no
indication that the assumptions used in the valuation have changed significantly.
Investment property includes land costing £800,000 (2019: £800,000) on which no depreciation is charged.
Studio Retail Group plc Annual Report 2020
153
6 Investments
Cost
At 27 March 2020, 29 March 2019 and 30 March 2018
Provisions
At 27 March 2020, 29 March 2019 and 30 March 2018
Carrying amount
Net book value at 27 March 2020, 29 March 2019 and 30 March 2018
Shares in subsidiary
undertakings
£000
181,461
122,233
59,228
A full listing of subsidiary undertakings can be found in note 28 to the consolidated financial statements.
7 Debtors: amounts falling due after one year
Debtors: amounts falling due after one year comprises the net surplus in respect of the Group and Galt sections of the Findel Group
Pension Fund of which Studio Retail Group plc is the main sponsor. Further details can be found in note 14.
8 Debtors: amounts falling due within one year
Amounts due from subsidiary undertakings
Trade debtors
Other debtors
Corporation tax
Prepayments and accrued income
2020
£000
10,080
106
982
1,718
1,122
14,008
2019
£000
32,676
195
584
—
1,773
35,228
Loans between the Company and its trading subsidiaries are repayable on demand and attract interest at a rate of 4.6% per annum.
The application of IFRS 9 impairment requirements from 31 March 2018, results in no material additional impairment allowance.
9 Creditors: amounts falling due within one year
Bank loans and overdrafts
Trade creditors
Amounts due to subsidiary undertakings
Lease liabilities
Other creditors
Corporation tax
Accruals and deferred income
2020
£000
19,889
943
16,959
5,058
871
—
1,534
45,254
2019
£000
23,082
484
28,249
—
104
1,762
3,447
57,128
Loans between the Company and its trading subsidiaries are repayable on demand and attract interest at a rate of 4.6% per annum.
154
Studio Retail Group plc Annual Report 2020
Notes to the Company Financial Statements
10 Creditors: amounts falling due after more than one year
Lease liabilities
Bank loans
The average interest rates paid on the bank loans were as follows
2020
£000
34,557
85,000
119,557
3.83%*
2019
£000
—
95,000
95,000
4.00%*
* The average interest rates quoted in the current and prior period includes fees relating to the extension of the Company’s lending facilities (described in note 18 to the
consolidated financial statements). The average interest rate excluding these fees was 3.41% (2019: 3.68%).
11 Deferred tax
Recognised deferred tax
At 30 March 2018
Recognised in other comprehensive income
Charge recognised in the income statement
At 29 March 2019
Recognised in other comprehensive income
Credit recognised in the income statement
Effect of corporation tax rate change
At 27 March 2020
At 27 March 2020
Deferred tax liabilities
Deferred tax assets
At 29 March 2019
Deferred tax liabilities
Deferred tax assets
Retirement
benefit
obligations
£000
Fixed
asset timing
differences
£000
4,564
(504)
(630)
3,430
2,624
371
(738)
5,687
5,687
—
3,849
(419)
—
—
(7)
(7)
—
—
—
(7)
—
(7)
—
(7)
Total
£000
4,564
(504)
(637)
3,423
2,624
371
(738)
5,680
5,687
(7)
3,849
(426)
The deferred tax liability in respect of the defined benefit pension plan surplus has been calculated using the prevailing corporation tax
rate of 19% (2019: 35%).
Deferred tax liabilities are recognised in full. Recognition of deferred tax assets is based on management’s assumptions that it is probable
that the Company will have taxable profits against which the unused tax losses and deductible temporary timing differences can be
utilised. Generally, in determining the amounts of deferred tax assets to be recognised, management uses profitability information and
forecasted operating results based on approved business plans.
In the current period, management has deemed it appropriate to recognise deferred tax assets of £282,000 in respect of the Galt section
of the Findel Group pension Fund, which is in a deficit position (this is shown net of the deferred tax liability in respect of the Group
section of the fund which is in a surplus position) and £7,000 in respect of fixed asset timing differences. This is on the basis that current
tax relief obtained on the payment of pension contributions and claiming of capital allowances can be surrendered to the Company’s
subsidiaries via group relief.
The aggregate value of deferred tax assets which have not been recognised is £7,142,000 (2019: £6,391,000). These amounts primarily
relate to carried forward tax losses. No asset has been recognised in respect of these differences because there is insufficient evidence
that the Company will make suitable future taxable profits against which these assets may be utilised.
A UK corporation tax rate of 19% (effective 1 April 2020) was substantively enacted on 17 March 2020, reversing the previously enacted
reduction in the rate from 19% to 17%. This will increase the Company’s future current tax charge accordingly. The deferred tax assets and
liabilities at 27 March 2020 have been calculated at 19% (2019: 17%).
Studio Retail Group plc Annual Report 2020
155
12 Other provisions
At 30 March 2018
Utilised during the period
Provision reversed during the period
Unwind of discount
At 29 March 2019
Impact of IFRS 16
Utilised during the period
At 27 March 2020
Analysed as:
Non-current
Current
Onerous leases
£000
5,893
(624)
3,502
72
8,843
(8,301)
(350)
192
—
192
Onerous lease provisions
The onerous lease provision at 27 March 2020 relates to (non-rent related) unavoidable costs in respect of the unused areas of the
Group’s properties at Enfield and Hyde. The onerous lease provision at 30 March 2019 was reduced by £8.3m (being the portion of the
provision related to rental costs) which was offset against the right of use asset recognised on the initial adoption of IFRS 16.
13 Called-up share capital
The Company has two classes of ordinary shares, neither of which carry any right to fixed income.
Ordinary shares of 10p each
At the beginning of the period
At the end of the period
Convertible ordinary shares of 23.97p each
At the beginning of the period
At the end of the period
The following rights are attached to convertible shares:
2019
Number of shares Number of shares
2020
86,442,534
86,442,534
86,442,534
86,442,534
2019
Number of shares Number of shares
2020
166,878,704
166,878,704
166,878,704
166,878,704
2020
£000
8,644
8,644
2020
£000
40,000
40,000
2019
£000
8,644
8,644
2019
£000
40,000
40,000
•
•
•
The shares may be converted into 8,343,935 ordinary shares at the option of the holders of the convertible share in the event that:
(i) the Company’s volume weighted average ordinary share price rises above 479.4p for a period of one month during the period
commencing on 22 March 2013 and ending on 22 March 2021; (ii) an offer is made for the Company that is declared unconditional
(regardless of the share performance of the Company).
The holders of the shares are entitled to attend but not vote at the general meetings (save in respect of any resolution relating to the
convertible shares).
The shares may participate in dividends or other distributions declared in excess of 50% of the net income in a particular accounting
reference period.
•
The shares are freely transferable and the terms may be varied only with the approval of 85% of the convertible shareholders.
If the shares have not been converted by 22 March 2021 they will automatically convert into non-voting deferred shares. The Company
will have the right to buy back such deferred shares for a nominal value at that time.
156
Studio Retail Group plc Annual Report 2020
Notes to the Company Financial Statements
14 Retirement benefits
Defined contribution pension scheme
The Company operates a defined contribution retirement benefit plan for all qualifying employees. The pension cost for the period
represents contributions payable by the Company to the scheme and amounted to £207,000 (2019: £202,000).
There were no outstanding contributions payable to the scheme at 27 March 2020 (2019: £nil).
Defined benefit pension schemes
Studio Retail Group plc is the main sponsor of two sections of the Findel Group Pension Fund, a defined benefit pension plan, the Group
section and the Galt section. The other two sections are the Education section and the Philip and Tacey section. The combined scheme is
administered by Barnet Waddingham LLP. Only the costs and liabilities associated with the Group section and Galt section of the Findel
Group Pension Fund scheme relate to Studio Retail Group plc. There is no contractual agreement or stated policy for charging the net
defined benefit cost of the Group and Galt sections and so Studio Retail Group plc has recognised the entire net benefit cost of these two
sections in its financial statements.
Group Section
The last funding valuation of the Scheme was undertaken at 5 April 2016 and recorded a deficit of £4,937,000 in respect of the Group
section. The Company agreed to pay deficit reduction contributions of: £615,000 p.a. for the period to 31 March 2019, £1,230,000 p.a.
between 31 March 2019 and 31 March 2023 and £615,000 between 1 April 2023 and 30 September 2023. The latest full actuarial valuation
has been updated for IAS 19 purposes to 27 March 2020 by PricewaterhouseCoopers LLP (‘PwC’) using the assumptions detailed below.
Company contributions to the Group section for the upcoming financial year are expected to be around £1,230,000, in line with the
current Schedule of Contributions.
Galt Section
The last funding valuation of the Scheme was undertaken at 5 April 2016 and recorded a deficit of £2,640,000 in respect of the Galt
section. The Company agreed to pay deficit reduction contributions of: £280,000 p.a. for the period to 31 March 2019, £560,000 p.a.
between 31 March 2020 and 31 March 2023 and £280,000 between 1 April 2023 and 30 September 2023. The latest full actuarial valuation
has been updated for IAS 19 purposes to 27 March 2020 by PwC using the assumptions detailed below.
Company contributions to the Galt section for the upcoming financial year are expected to be around £560,000, in line with the current
Schedule of Contributions.
The results of the IAS 19 valuation for both sections are summarised as follows:
Fair value of scheme assets
Present value of funded obligations
Surplus/(deficit) in the scheme
Group
£000
125,176
(93,761)
31,415
2020
Galt
£000
3,565
(5,049)
(1,484)
Total
£000
128,741
(98,810)
29,931
Group
£000
113,108
(102,111)
10,997
2019
Galt
£000
3,334
(5,793)
(2,459)
Total
£000
116,442
(107,904)
8,538
The weighted average duration of the Scheme’s IAS 19 liabilities is 16.0 years in respect of the Group section and 16.0 years in respect of
the Galt section.
Plan assets
Plan assets comprise:
Equities
Bonds
Other
Group
£000
33,704
79,452
12,020
125,176
2020
Galt
£000
1,947
366
1,252
3,565
Total
£000
35,651
79,818
13,272
Group
£000
40,117
72,213
778
128,741
113,108
2019
Galt
£000
3,086
148
100
3,334
Total
£000
43,203
72,361
878
116,442
Studio Retail Group plc Annual Report 2020
157
14 Retirement benefits – continued
Movement in the present value of defined benefit obligations
Group
£000
At beginning of period
Past service cost(1)
Interest expense
Effect of changes in demographic assumptions
Effect of changes in financial assumptions
Effect of experience adjustments
Benefits paid
(102,111)
—
(2,454)
1,366
3,562
2,302
3,574
At end of period
(93,761)
Movement in the fair value of plan assets
At beginning of period
Interest on assets
Return on scheme assets – remeasurements
Company contributions
Benefits paid
At end of period
Movement in the pension surplus/(deficit)
At beginning of period
Past service cost(1)
Net interest income/(cost)
Remeasurements
Company contributions
At end of period
Group
£000
113,108
2,737
11,726
1,179
(3,574)
125,176
Group
£000
10,997
—
283
18,956
1,179
31,415
Amounts recognised in the income statement
Past service cost(1)
Net interest income/(cost)
Group
£000
—
283
283
Amounts recognised in other comprehensive income
Total Remeasurements
Group
£000
18,956
2020
Galt
£000
(5,793)
—
(140)
17
238
495
134
(5,049)
2020
Galt
£000
3,334
86
(258)
537
(134)
3,565
2020
Galt
£000
(2,459)
—
(54)
492
537
(1,484)
2020
Galt
£000
—
(54)
(54)
2020
Galt
£000
492
Total
£000
(107,904)
—
(2,594)
1,383
3,800
2,797
3,708
Group
£000
(98,781)
(1,660)
(2,575)
913
(4,164)
(269)
4,425
(98,810)
(102,111)
Total
£000
116,442
2,823
11,468
1,716
(3,708)
128,741
Total
£000
8,538
—
229
19,448
1,716
29,931
Total
£000
—
229
229
Total
£000
19,448
Group
£000
111,822
2,908
2,177
626
(4,425)
113,108
Group
£000
13,041
(1,660)
333
(1,343)
626
10,997
Group
£000
(1,660)
333
(1,327)
Group
£000
(1,343)
2019
Galt
£000
(5,417)
(90)
(143)
50
(228)
(96)
131
(5,793)
2019
Galt
£000
3,028
82
76
279
(131)
3,334
2019
Galt
£000
(2,389)
(90)
(61)
(198)
279
(2,459)
2019
Galt
£000
(90)
(61)
(151)
2019
Galt
£000
(198)
Total
£000
(104,198)
(1,750)
(2,718)
963
(4,392)
(365)
4,556
(107,904)
Total
£000
114,850
2,990
2,253
905
(4,556)
116,442
Total
£000
10,652
(1,750)
272
(1,541)
905
8,538
Total
£000
(1,750)
272
(1,478)
Total
£000
(1,541)
1.
In October 2018, the High Court handed down a judgement involving the Lloyds Banking Group’s defined benefit pension schemes. The judgement concluded
that the schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum pension (“GMP”) benefits. The issues
determined by the judgement arise in relation to many other defined benefit pension schemes, including the Findel Group Pension Fund. After discussion with
the trustees, actuaries and legal advisors of our fund, a past service cost of £1,750,000 has been recognised, increasing the total scheme liabilities to address this
historical issue.
158
Studio Retail Group plc Annual Report 2020
Notes to the Company Financial Statements
14 Retirement benefits – continued
Actuarial Assumptions – Group and Galt sections
The following are the principal actuarial assumptions at the reporting date:
Financial Assumptions
Discount rate for scheme liabilities
RPI Price Inflation
CPI Price Inflation
Rate of increase to pensions in payment in line with RPI inflation (up to 5% per annum)
Rate of increase to pensions in payment in line with CPI inflation (up to 5% per annum)
Rate of increase to deferred pensions
Post retirement mortality (in years)
Current pensioners at 65 – male
Current pensioners at 65 – female
Future pensioners at 45 – male
Future pensioners at 45 – female
Demographic Assumptions
Cash Commutation (members taking cash lump sum)
Proportion of members that are married at retirement
Proportion of members taking TPIE option*
Age at which members are assumed to take TPIE option*
2020
2019
2.50%
2.75%
1.85%
2.75%
1.90%
1.85%
86.5 yrs
88.3 yrs
87.8 yrs
89.7 yrs
60%
70%
15%
61.0 yrs
2.45%
3.30%
2.30%
3.20%
2.30%
2.30%
87.0 yrs
89.0 yrs
88.3 yrs
90.5 yrs
80%
75%
15%
61.0 yrs
Assumptions regarding post retirement mortality are based on published statistics and mortality tables – 113% S3NMA/124% S3NFA – CMI
2019 1.25% p.a. (2019: S2NXA – CMI 2018 1.25% p.a.)
* The Scheme has an embedded option at retirement for members to take TPIE (Total Pension Increase Exchange), following bulk exercises carried out in late 2014 and
early 2015. Since this option is a formalised ongoing process, allowance has been made for this in calculating the IAS 19 liability. A 15% take up at an average age of
61.0 years has been assumed, based upon take up rates seen to date.
Sensitivities
The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:
Group section
Assumption
Discount rate
Inflation
Salary increases
Longevity
Galt section
Assumption
Discount rate
Inflation
Salary increase
Longevity
Change in assumption
If assumption increases
If assumption decreases
Impact on scheme liabilities
0.50%
0.50%
0.50%
1 year
Decrease by 7.3%
Increase by 3.2%
No change
Increase by 4.5%
Increase by 8.3%
Decrease by 3.0%
No change
Decrease by 4.3%
Change in assumption
If assumption increases
If assumption decreases
Impact on scheme liabilities
0.50%
0.50%
0.50%
1 year
Decrease by 7.2%
Increase by 3.5%
No change
Increase by 3.8%
Increase by 8.0%
Decrease by 3.7%
No change
Decrease by 3.7%
The above sensitivities are approximate and show the likely increase to each section’s liabilities under IAS 19 if an assumption is adjusted
whilst all other assumptions remain the same. The sensitivities are for illustration purposes only and do not necessarily represent the
directors’ view of the expected changes to the assumptions in the future.
Studio Retail Group plc Annual Report 2020
159
14 Retirement benefits – continued
Risks
Investment risk
Allowance is made in the assumptions for the expected long-term performance of asset classes such as equities. There is a risk that
these returns will not be achieved in practice, which would result in an increase in the Scheme’s liabilities and further contributions being
required. Further, the value of the Scheme’s assets may not move in line with the Scheme’s liabilities – either because the Scheme invests
in volatile assets whose value might fall, or because the value of the liabilities has increased due to falling interest rates and the assets are
not of sufficient duration to keep up (or a combination of these).
Inflation
In projecting the expected future benefit payments, assumptions are made regarding future price inflation. There is a risk that the actual
rate of inflation will be higher than assumed which will increase the cost of providing the benefits and thus the liability. This would result
in additional contributions being required and a deterioration in the solvency position unless investment returns are similarly higher than
expected.
Mortality
It is not possible to predict with any certainty how long members of the Scheme will live, and if members live longer than expected,
additional contributions will be required and the Scheme’s solvency position will deteriorate.
Managing risk
To manage the risks of the Scheme, TPIE exercises were carried out during 2015 and 2016, which resulted in a number of members
transferring out of the Scheme. The TPIE option has now been embedded within the scheme.
IFRIC 14
IFRIC 14 is an interpretation relating to IAS 19 that covers whether pension scheme surpluses can be recognised on the balance sheet.
Based on the circumstances of the Fund and in line with the prior period, management do not believe that IFRIC 14 impacts the IAS
19 results since the Company has a right to a refund of surplus assets at some point in the future, and as such have not made any
adjustments to the results.
The following table shows the expected future benefit payments for the Group and Galt sections of the Findel Group Pension Fund:
Findel Group Pension Fund (expected future benefit payments)
2020 – 2029
2030 – 2039
2040 – 2049
2050 – 2059
2060 – 2069
2070 – 2079
2080 – 2089
2090 – 2099
After 2099
Total
Group
£000
34,954
42,481
36,145
21,349
4,992
308
3
—
—
140,232
Galt
£000
1,792
2,453
2,026
968
180
6
—
—
—
7,425
160
Studio Retail Group plc Annual Report 2020
Notes to the Company Financial Statements
Registered Office:
Studio Retail Group plc
Church Bridge House
Henry Street
Accrington
BB5 4EE
T +44 (0)161 303 3465
F +44 (0)161 367 2139
www.studioretail.group