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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Scs Group Plc | LSE:SCS | London | Ordinary Share | GB00BRF0TJ56 | ORD 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 270.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSCS
RNS Number : 5946C
ScS Group PLC
02 October 2018
For Immediate Release 2 October 2018
ScS Group plc
("ScS" or the "Group")
Preliminary results for the 52 weeks ended 28 July 2018
A strong year of profitable growth and increased resilience
ScS, one of the UK's largest retailers of upholstered furniture and floorings, is pleased to announce its Preliminary Results for the 52 weeks ended 28 July 2018.
Financial highlights:
-- Gross sales improved GBP2.8m to GBP352.3m (2017: GBP349.5m) -- Revenue improved GBP4.3m to GBP337.3m (2017: GBP333.0m) -- Gross margin improved to 44.7% (2017: 44.0%) -- EBITDA increased 8.1% to GBP18.8m (2017: GBP17.4m) -- Operating profit increased 10.5% to GBP13.2m (2017: GBP12.0m) -- Like-for-like orders increased 0.2% -- Earnings per share of 26.8p (2017: 23.5p), an increase of 14.0% -- Free cash flows in the year of GBP15.2m -- Strong balance sheet with cash of GBP48.2m (2017: GBP40.1m) and no debt
-- Recommended final dividend of 10.90p per share, full year dividend of 16.20p per share (2017: 14.70p), an increase of 10.2%
Operational highlights:
-- Strategy reviewed, providing focus and priorities for the business for the next three years
-- Became the first UK furniture retailer to achieve 100,000 Trustpilot reviews, maintaining our 5-star "Excellent" rating
-- Online gross sales up 22.6% to GBP13.8m (2017: GBP11.3m) -- New ScS store opened in Chelmsford - now trading from 101 stores -- GBP12.0m committed revolving credit facility extended to November 2021
Current trading and outlook:
-- Sales order intake up 2.1% on a like-for-like basis for the 9 weeks to 29 September 2018
-- Group trading since the start of the year has been pleasing and in line with the Board's expectations
David Knight, Chief Executive Officer of ScS, commented:
"2018 has been another strong year. Despite a prolonged period of economic uncertainty and challenging trading conditions, we have continued to grow the business. I believe this is due to our continued focus on what we do best - ensuring that we offer an excellent customer experience with outstanding value, quality and choice. The downturn in sales in our House of Fraser concessions has been more than offset by growth in our core ScS business. This has been aided by record results from our online channel, which has seen a 22.6% increase in gross sales.
The Group saw a GBP4.3m (1.3%) increase in revenue in the year to GBP337.3m (2017: GBP333.0m). Gross profit increased to GBP157.3m (2017: GBP153.7m), with our gross margin percentage increasing 67bps to 44.7% (2017: 44.0%). EBITDA increased 8.1% to GBP18.8m (2017: GBP17.4m) and profit before tax rose 10.5% to GBP13.2m (2017: GBP12.0m).
Since the start of the current financial year, the overall trading performance of the Group has been in line with our expectations. Due to the ongoing changes at House of Fraser, trading within our concessions, which represented 7.1% of FY18 gross sales, remains challenging and we are working with the new owners to address this as a priority. Performance in our core ScS business has been encouraging.
We will continue to focus on our value offering and we believe the Group's increasing resilience and strong cash flow dynamics will enable us to manage the continued economic uncertainty and take advantage of opportunities as they arise, allowing us to continue to deliver value for our shareholders."
Enquiries:
ScS Group PLC c/o Buchanan +44 (0)20 7466 David Knight, Chief Executive Officer 5000 Chris Muir, Chief Financial Officer Buchanan Tel: +44 (0)20 7466 5000 Richard Oldworth scs@buchanan.uk.com Madeleine Seacombe Tilly Abraham
Investor and Analyst Meeting
A meeting for analysts will be held at the office of Buchanan, 107 Cheapside, London, EC2V 6DN on 2 October 2018 commencing at 9.30am. ScS Group plc's Preliminary Results 2018 are available at www.scsplc.co.uk.
An audio webcast will be available on:
http://webcasting.buchanan.uk.com/broadcast/5b6036dcd3653708d12fdd0b
Notes to Editors
ScS is one of the UK's largest retailers of upholstered furniture and floorings, promoting itself as the "Sofa Carpet Specialist", seeking to offer value and choice through a wide range of upholstered furniture and flooring products. The Group's product range is designed to appeal to a broad customer base with a mid-market priced offering and is currently traded from 101 stores.
The Company's upholstered furniture business specialises primarily in fabric and leather sofas and chairs. ScS sells a range of branded products which are not sold under registered trade marks and a range of branded products which are sold under registered trade marks owned by ScS (such as Endurance and SiSi Italia). The Group also offers a range of third party brands (which include La-Z-Boy, G Plan and Parker Knoll). The Company's flooring business includes carpets, as well as laminate and vinyl flooring.
In 2014 ScS began to operate the furniture and carpet concession ranges for House of Fraser. ScS currently operates in 27 House of Fraser stores across the UK.
CHAIRMAN'S STATEMENT
I am pleased to report a third consecutive year of progress, with growth in sales and margins, coupled with increased resilience in the business. These results are particularly encouraging given the ongoing uncertainty in the UK retail sector.
In light of this challenging environment, a review of the Group's strategy was completed during the year. This has provided increased focus on the areas we feel will continue to deliver value to our customers, colleagues and shareholders.
Financial and strategic objectives
The strategy continues to pursue the same key objectives:
-- Deliver profitable and sustainable growth; -- Improve the quality of earnings; -- Improve business resilience through the economic cycle, and -- Increase shareholder returns.
The business has continued to deliver against these objectives, further increasing revenue, gross profit, EBITDA and margins, whilst diligently controlling overheads. The continued strong cash flow generation has also strengthened our balance sheet and further enhanced the resilience of the Group.
Our relentless focus on the customer experience and our value offering is a key part of the current and future strategy. Reaching the milestone of 100,000 customer reviews on Trustpilot was a considerable achievement for the Group; maintaining our 5-star 'Excellent' rating provides further evidence that customers enjoy shopping with us.
Results and dividend
I am once again pleased to report that the Group has delivered results ahead of market expectations. This is particularly pleasing given the continued challenging trading environment, and demonstrates the resilience of the business and the success of our focus on offering an excellent customer experience with outstanding value, quality and choice.
The first half of the financial year saw the Group trade strongly, with overall like-for-like performance growth of 2.2%. However, the second half of the year brought more challenging conditions across the market. Extreme bad weather at the end of February and exceptionally warm weather through June and July, coupled with the World Cup, resulted in like-for-like orders in the second half declining by 2.6%. Given these headwinds, it is encouraging that we have delivered a full-year like-for-like order increase of 0.2%.
As part of our continued aim to improve profitability, we have continued to identify and implement various business efficiencies, both within gross margin and overhead costs, and these initiatives have helped to increase our EBITDA margin, resulting in a 14.0% increase in earnings per share (EPS) from 23.5p to 26.8p.
During the year we successfully opened one new ScS store in Chelmsford and this, along with the full year impact of new stores opened during the previous financial year, has helped to drive the increase in revenue in the year. As part of our ongoing reviews to ensure we have the best stores in the best locations we also took the decision to not renew the lease on one of our Edinburgh stores, which was not achieving the level of return the Group desires for the capital invested.
Our concession within House of Fraser, which represented 7.1% of gross sales, has had a particularly challenging year. The ongoing uncertainty throughout the year as to the viability of the House of Fraser business culminated in their business going into administration shortly after our year end. The business and assets were subsequently bought by Sports Direct International plc and, whilst we continue to trade from all 27 concessions, order performance has continued to be disappointing. We are currently in discussions with the new owners with a view to agreeing a mutually beneficial arrangement, which will allow us to continue trading in a profitable manner in as many of the current concessions as possible.
The Group continues to hold no debt, had cash reserves of GBP48.2m at 28 July 2018 (2017: GBP40.1m) and, after paying out a further GBP6.0m (2017: GBP5.9m) in dividends in the year, generated net cash flows in the year of GBP8.0m (2017: GBP17.7m). The Group continues to maintain a GBP12.0m committed revolving credit facility, which was extended during the year to November 2021. This provides further resilience, whilst also allowing the Group to take advantage of opportunities as they arise.
Whilst the continued uncertain economic environment means that we expect trading to continue to be challenging, the improved results year-on-year, coupled with the strength of the Group's balance sheet, has resulted in the Board proposing a final dividend of 10.90p. If approved, this would give a full year dividend of 16.20p, an increase of 10.2% on the full-year dividend for 2017.
Conclusion
The continued strength and resilience of the Group is built on the hard work, dedication and expertise of all of the people who work for the business. On behalf of the Board, I would like to thank all of our 1,932 team members throughout the business, in particular for their determination and commitment in helping us to continue to grow despite the continued challenging trading conditions. This is a particularly difficult time for our 124 employees working across our House of Fraser concessions, and I would especially like to thank them for their professionalism and patience whilst we do our very best to agree a way forward with the new owners.
The Group has a clear strategy, underpinned by strong cash flows and the increasing resilience of the Group's balance sheet. The Group is positioned to take advantage of future opportunities and whilst there remains a level of uncertainty in the wider economy and within our House of Fraser concessions, the Board remains positive about the long-term prospects for the business.
CHIEF EXECUTIVE'S REPORT
Overview
2018 has been another strong year. Despite a prolonged period of economic uncertainty and challenging trading conditions, we have continued to grow the business. I believe this is due to our continued focus on what we do best - ensuring that we offer an excellent customer experience with outstanding value, quality and choice. The downturn in sales in our House of Fraser concessions has been more than offset by growth in our core ScS business. This has been aided by record results from our online channel, which has seen a 22.6% increase in gross sales.
Results
The Group saw a GBP4.3m (1.3%) increase in revenue in the year to GBP337.3m (2017: GBP333.0m). Gross profit increased to GBP157.3m (2017: GBP153.7m), with the gross margin percentage increasing 67bps to 44.7% (2017: 44.0%). EBITDA increased 8.1% to GBP18.8m (2017: GBP17.4m) and profit before tax rose 10.5% to GBP13.2m (2017: GBP12.0m).
Strategic priorities
In light of the challenging and changing retail environment, the Group reviewed its strategy during the year. This has allowed the business to reflect on its current focus, identify where opportunities exist and led to a refinement in priorities, mission statement and core values. Eight priority areas were identified:
-- Building and inspiring an outstanding team; -- Delivering an exceptional customer experience; -- Optimising our product strategy; -- Driving sales densities within our ScS network; -- Creating a market-leading website and digital awareness; -- Maximising the opportunity with House of Fraser customers; -- Accelerating our flooring growth, and -- Improving our profitability.
Building and inspiring an outstanding team
The Group is fortunate to have very experienced and dedicated employees. However, if we are to continue to move the business forward, it is critical that we continue to improve our ability to attract, retain and recruit the right people. Core to this was a review of the Group's culture and the launch of its new core values. Progress in this area has already occurred, with an increase in staff retention rates, coupled with increased staff engagement, alignment and communication as evidenced by the recently completed staff survey, which had an 81% response rate. Further progress is targeted in 2019, with the implementation of new recruitment strategies and technology and additional strengthening of the senior management team.
Delivering an exceptional customer experience
The Group has held a 5-star 'Excellent' Trustpilot rating for three years and this continues to be a key priority for us. The Group is one of a handful of businesses in the UK to have achieved over 100,000 reviews since we started using the independent review site, and whilst we are delighted to have achieved the maximum star rating, there are still areas we believe we can improve. This priority will include a review of the customer journey, from when customers start researching online or visiting a store, to the point of delivery and aftercare. The aim is to identify where we can further enhance the experience. This will include the use of mobile technology and the continued incentivisation of our teams to provide an excellent customer experience.
Optimising our product strategy
Key to the Group's mission is providing product that gives the customer outstanding value, quality and choice. We feel our wide range of price points, together with market leading brands, core ranges and credit options delivers a market leading offer. The Group's long term relationships with its supplier base means we can react quickly to emerging trends and can focus on product quality and service. The ongoing development and management of this supply chain will be a key competitive advantage in the future.
Driving sales densities in our ScS network
In-store sales remain the most significant element of the Group's business, making up 89.0% (2017: 88.9%) of the Group's turnover. Despite the significant pressure on consumer spending in the year, and the consequential impact on 'big-ticket' purchases, gross furniture sales were in-line with prior year, at GBP270.9m, and flooring sales in-store grew 7.1%, to GBP42.8m.
This increase was mainly driven by the increase in the store estate size, following the opening of four stores in the previous year, and a further store in Chelmsford in 2018. With regards to future plans, we continue to pursue a number of new locations across the UK, where we feel there are opportunities for expansion with the right level of return on investment. Conversely, there are a small number of our current stores where we would consider an exit should the opportunity arise. We review our store network on an ongoing basis in order to optimise the estate. As part of this ongoing process we may also look to take advantage of relocations within a town from one park to another.
The Group has continued to optimise our branded range of products, and this has helped maximise our average order value, with furniture order values rising 0.4% in the year to GBP1,582, and flooring order values rising 7.9% to GBP679. We continue to do this through our use of brand-focused advertising campaigns and the ongoing improvements we are making in store to showcase brand areas.
We continue to invest in our online capability, resulting in both the benefit of direct sales through the website noted separately below, but also the indirect benefit of improving the quality of footfall, with the majority of customers now entering our stores having already researched their choices. This has ensured that, despite continued decreases in footfall noted industry-wide, customers are more engaged and more likely to place an order. The Group continues to operate in an increasingly competitive and challenging marketplace. Driving customers to both our website and, ultimately, our stores via TV, press, radio and digital marketing remains a key strategic priority. In-store customer conversion remains a key measure for the Group, and in the current year this conversion rate increased by 4.8%.
Following the exercise to refresh aged display stock in FY17, stock sales were GBP2.2m lower in FY18, which is the main reason that the sales density per square foot at our ScS stores for the year ended 28 July 2018 decreased GBP2 or 0.9% per square foot to GBP224 (2017: GBP226). Excluding stock sales, the underlying sales per square foot has remained the same and whilst we are disappointed to see this, industry data indicates that we have outperformed the overall market.
Creating a market leading website and digital awareness
An ever increasing proportion of our customers visit our website to research our products prior to visiting a store to make their final purchase. Additionally, whilst, as a big ticket retailer, we believe that having a store network where customers can come in and see the products is essential, we also appreciate that an increasing number of customers are choosing to transact online. Continued website investment has therefore been a key part of the Group's strategy. To this end, we have strengthened our E-commerce team and have continued our investment in website development and maintenance and increased digital marketing spend, which has successfully driven improvements in our website visitor count and conversion.
Online was a significant success for the business in the year, with gross sales increasing 22.6% to GBP13.8m (2017: GBP11.3m). We continue to see further potential and online growth will remain a key strategic priority. We also took the decision in the year to commit to a re-platforming of our website in 2019, with the expectation this will greatly improve our customer's experience through increased speed and functionality, and dramatically improve the look and feel, in particular on mobile devices.
Maximising the opportunity with House of Fraser customers
The Group operates 27 House of Fraser concessions, targeting those customers who prefer to shop in department stores and town centres, and enabling the Group to access a wider demographic. On 10 August 2018, shortly after our year end, House of Fraser was placed into administration. Uncertainty as to the viability of House of Fraser's own business throughout the year meant that trading conditions were very difficult, and this resulted in gross sales decreasing by 9.4% to GBP24.8m (2017: GBP27.4m). This decline in gross sales has resulted in a reduction in the contribution of the concessions to the overall Group EBITDA.
As noted in the Chairman's statement, the House of Fraser business and assets were bought out of administration by Sports Direct International plc and we are currently still trading from all 27 concessions. We remain in discussions with the new owners in an attempt to agree new terms of trade, mindful of the 124 employees who work in these concessions, but also of the need to protect and enhance shareholder value.
Accelerating our flooring growth
Since adding flooring as a sales channel in 2012, it has continually helped drive increased turnover and profitability. We are very proud to have recently been awarded the coveted "Best Flooring Retailer 2018" from Interiors Monthly, a leading industry magazine. Customers increasingly see ScS as a destination for their flooring needs, with flooring sales in-store increasing 7.1% to GBP42.8m (2017: GBP39.9m). Flooring still remains a key growth area and the Group is committed to continuing to invest in its success. During the year ended 28 July 2018, we also ran our first flooring specific advertising campaign, as we continue to look to increase customer awareness and highlight the product offering. We also continue to improve and invest in the space allocated to our flooring offer across our network of stores, and look forward to this helping to further grow our market share.
Improving our profitability
Delivering profitable growth and increasing our quality of earnings are two of our four financial objectives. With the Group's high level of operational gearing, modest changes in revenue and gross profit margins can have a significant impact on earnings. The Group saw its gross profit margin increase to 44.7% (2017: 44.0%) and the EBITDA margin increased to 5.3% (2017: 5.0%). This is covered in more detail in the Financial Review.
Current trading and outlook
Since the start of the current financial year, the overall trading performance of the Group has been in line with our expectations. Due to the ongoing changes at House of Fraser, trading within our concessions, which represented 7.1% of FY18 gross sales, remains challenging and we are working with the new owners to address this as a priority. Performance in our core ScS business has been encouraging.
We will continue to focus on our value offering and we believe the Group's increasing resilience and strong cash flow dynamics will enable us to manage the continued economic uncertainty and take advantage of opportunities as they arise, allowing us to continue to deliver value for our shareholders.
David Knight
Chief Executive Officer
FINANCIAL REVIEW
Hot Features
Premium
Year ended Year ended
28 July 2018 29 July 2017
------------- ---------------
GBPm GBPm
Gross sales 352.3 349.5
============= ===============
Revenue 337.3 333.0
============= ===============
Gross profit 157.3 153.7
------------- ---------------
Distribution costs (17.9) (16.5)
Administration expenses (126.2) (125.2)
------------- ---------------
Total operating expenses (144.1) (141.7)
------------- ---------------
Operating profit 13.2 12.0
Net finance costs - -
Profit before tax 13.2 12.0
Tax (2.5) (2.6)
------------- ---------------
Profit after tax 10.7 9.4
============= ===============
Earnings per share 26.8p 23.5p
============= ===============
EBITDA 18.8 17.4
------------------------- ------------- ---------------
Gross sales and revenue
Gross sales increased by GBP2.8m (0.8%) to GBP352.3m (2017: GBP349.5m) and is attributable to:
-- Furniture sales in ScS stores in-line with prior year at GBP270.9m; -- An increase in flooring sales in ScS stores of 7.1% to GBP42.8m; -- An increase in online sales of 22.6% to GBP13.8m; and -- A decrease in sales from the House of Fraser concession of 9.4% to GBP24.8m.
The four new stores opened in the prior year, plus the new store in Chelmsford in the current year, contributed an additional GBP6.0m to gross sales year on year. The decrease in gross sales for existing ScS stores was due to a reduction in the opening order book, following the downturn in trading experienced towards the end of the prior year, and a reduction in the number of lower margin stock sales of GBP2.2m following the display refresh in the prior year. Gross sales in the House of Fraser concessions reduced due to the combination of a lower opening order book and the trading difficulties experienced by House of Fraser as a whole during the financial year.
Revenue, which represents gross sales less charges relating to interest-free credit sales (see note 3 - Segment information), increased by 1.3% to GBP337.3m (2017: GBP333.0m). This was driven mainly by increased volume, but also benefitted from work undertaken to reduce the cost of interest free credit provided by the Group's finance houses.
Gross profit
Gross margin (gross profit as a percentage of gross sales) increased to 44.7% (2017: 44.0%). The increase of 67bps is attributable to a number of actions including reducing the cost of interest free credit we pay to finance houses, a reduction in the volume of lower margin stock sales following the display refresh in the prior year, and an increased focus and insight on made to order sales.
The increase in gross margin, coupled with the higher volume year on year, resulted in an increase in gross profit of GBP3.6m or 2.3%.
Distribution costs
Distribution costs comprise the total cost of the in-house distribution function and includes employment costs, the cost of leasing vehicles and related running costs and property costs (principally rent, rates and utilities) for the nine distribution centres, as well as costs of third party delivery services contracted to support peak delivery periods.
Distribution costs expressed as a percentage of revenue for the year were 5.3%, 0.3% higher than the prior year. The higher costs in the year reflect cost pressure experienced in remuneration for drivers and increased expenditure surrounding the opening of the Group's new distribution centre in Basildon.
Administrative expenses
Administrative expenses comprise:
-- Store operating costs, principally employment costs, property related costs (rent and rates, utilities, store repairs and depreciation) and costs associated with the concession agreement with House of Fraser;
-- Marketing expenditure; and
-- General administrative expenditure, which includes the employment costs for the directors, senior management and all head office-based support functions and other central costs.
Administration costs for the year totalled GBP126.2m, compared to GBP125.2m in the prior year. Administrative costs as a percentage of revenue were 37.4%, compared to 37.6% in the prior year.
The year saw an increase in administrative costs of GBP1.0m, with the increase being driven by the following:
-- GBP2.2m increase in payroll costs largely driven by a GBP2.0m increase in performance related bonuses following the Group's improved EBITDA;
-- GBP0.8m decrease to marketing investment, and
-- GBP0.4m decrease in website development and maintenance costs following a strengthening of the on-line team who have been able to add in-house development.
Marketing costs decreased to GBP23.9m in the year (2017: GBP24.7m) as, following the decision to re-phase some of our half-one spend into half-two in order to enhance returns, we then decided to reduce the overall level of spend in light of the benign market conditions. The control of costs remains a key focus area as does increasing the level of flexibility in our cost base.
Flexible costs
The nature of the Group's business model, where almost all sales are made to order, results in the majority of costs being proportional to sales. This provides the Group with the ability to flex its cost base as revenue changes, protecting the business should there be wider economic pressures. As shown below, the proportion of cost variability remained consistent year-on-year.
Total costs before interest, tax, depreciation and amortisation across for the year were GBP333.5m (2017: GBP332.1m).
Of this total, 75% (2017: 75%), or GBP251.5m (2017: GBP249.7m), are variable or discretionary, and are made up of:
-- GBP195.0m cost of goods sold, including finance and warranty costs (2017: GBP195.8m); -- GBP17.9m distribution costs (2017: GBP16.5m); -- GBP23.9m marketing costs (2017: GBP24.7m), and -- GBP14.7m performance related payroll costs (2017: GBP12.7m).
Semi-variable costs total GBP45.5m, or 14% of total costs, for the year (2017: GBP46.3m; 14%) and are predominately other non-performance related payroll costs and store costs. Rent, rates, heating, and lighting then make up the remaining GBP36.5m (11%) of total costs (2017: GBP36.1m; 11%).
The Group has reduced the average remaining lease tenure of our store portfolio. This has been achieved by targeting lower tenures on existing lease renewals and on new stores. This provides the Group with increased flexibility to exit or relocate stores where required. The majority of recent leases entered into are 10 years in length. Average remaining tenure length for the Group has dropped from 8.4 years at the end of FY16 to 6.8 years at the end of FY18 (FY17: 7.6 years).
Operating profit
Operating profit for the year increased by 10.5% to GBP13.2m (2017: GBP12.0m).
EBITDA
An analysis of EBITDA is as follows:
Year ended Year ended
28 July 29 July
2018 2017
---------- ----------
GBPm GBPm
Operating profit 13.2 12.0
Depreciation 5.1 4.8
Amortisation 0.5 0.6
EBITDA 18.8 17.4
========== ==========
Taxation
The tax charge for the financial year is higher (2017: higher) than if the standard rate of corporation tax had been applied, mainly due to charges not deductible for tax purposes, principally depreciation on capital expenditure that does not qualify for capital allowances, offset by a benefit on the exercise of share options by management awarded upon listing.
Earnings per share (EPS)
EPS for the year ended 28 July 2018 was 26.8p compared to earnings per share of 23.5p in the previous year, an increase of 14.0%.
Cash and cash equivalents
A strong cash flow has been generated from operations reflecting the negative working capital business model whereby:
-- For cash/card sales, customers pay deposits at the point of order and settle outstanding balances before delivery;
-- For consumer credit sales, the loan provider pays ScS two working days after delivery, and
-- The majority of product suppliers are paid at the end of the month following the month of delivery into the distribution centres.
A summary of the Group's cash flows is shown below:
Year ended Year ended
28 July 29 July
2018 2017
---------- ----------
GBPm GBPm
Cash generated from operating
activities 21.0 30.1
Net capital expenditure (2.9) (5.2)
Net taxation and interest
payments (2.9) (1.3)
---------- ----------
Free cash flow 15.2 23.6
Dividends (6.0) (5.9)
Purchase of own shares (1.2) -
Net cash generated 8.0 17.7
========== ==========
Cash generated from operating activities in the previous year benefited by GBP10.6m from the timing of the July 2017 supplier payment run when compared to the year ended 30 July 2016.
Net capital expenditure in the year includes GBP0.8m on the new Chelmsford store and new Basildon distribution centre following the consolidation of the Thetford and West Thurrock distribution centres (2017: GBP3.1m on four new stores).
Dividend
The Board recognise the importance of a dividend to investors and has set a progressive policy, with the intention to:
-- Keep earnings cover in the range of 1.25x to 2.00x; -- Ensure cash cover remains in the range of 1.75x to 2.25x through the economic cycle, and -- Pay an interim dividend that will be approximately one third of the total dividend.
The Board considers this policy appropriate given the strength of the balance sheet, whilst ensuring the Group has sufficient resources to pursue potential future opportunities to deliver growth.
An interim dividend of 5.30p per ordinary share was paid in May 2018. The Group has continued to strengthen and deliver positive results, with very strong cash generation and a balance sheet that is growing in resilience. Additionally, the Group continues to maintain a GBP12.0m committed revolving credit facility, which was extended during the year to November 2021.
Therefore, despite the continued uncertain economic environment, the Board is confident in the outlook for the Group and proposes a full-year dividend of 16.20p, a 10.2% increase on the full-year dividend for 2017. If approved, this would result in a final dividend of 10.90p. The divided, if approved, will be paid on 26 November 2018 to shareholders on the register on 2 November 2018. The ex-dividend date in 1 November 2018.
The total dividend paid is in line with target earnings per share cover, and cash cover through the economic cycle.
Consolidated statement of comprehensive income for the year ended 28 July 2018
2018 2017
Note GBP'000 GBP'000
--------------------------------------- ------ ----------------------- -----------------------
Gross sales 3 352,317 349,502
======================================= ====== ======================= =======================
Revenue 3 337,313 332,965
Cost of sales (179,975) (179,224)
--------------------------------------- ------ ----------------------- -----------------------
Gross profit 157,338 153,741
Distribution costs (17,873) (16,503)
Administrative expenses (126,223) (125,249)
--------------------------------------- ------ ----------------------- -----------------------
Operating profit 13,242 11,989
======================================= ====== ======================= =======================
Finance costs 4 (228) (96)
Finance income 5 205 70
--------------------------------------- ------ ----------------------- -----------------------
Net finance costs (23) (26)
--------------------------------------- ------ ----------------------- -----------------------
Profit before taxation 13,219 11,963
Taxation 6 (2,541) (2,561)
--------------------------------------- ------ ----------------------- -----------------------
Profit and total comprehensive income
for the year attributable to owners
of the parent 10,678 9,402
--------------------------------------- ------ ----------------------- -----------------------
Earnings per share (expressed in pence
per share):
Basic 7 26.8p 23.5p
Diluted 7 26.0p 22.9p
======================================= ====== ======================= =======================
All results arise from continuing operations. There are no other sources of comprehensive income.
Consolidated statement of changes in equity for the year ended 28 July 2018
Capital
Share Share Redemption Retained
capital premium reserve Merger reserve Treasury shares earnings Total equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- ----------------- -------------- --------------- --------- ----------------
At 31 July 2016 40 16 13 25,511 - 4,036 29,616
Total
comprehensive
income - - - - - 9,402 9,402
Share-based
payments - - - - - 154 154
Dividend paid - - - - - (5,893) (5,893)
-------- -------- ----------------- -------------- --------------- --------- ----------------
At 29 July 2017 40 16 13 25,511 - 7,699 33,279
-------- -------- ----------------- -------------- --------------- --------- ----------------
At 30 July 2017 40 16 13 25,511 - 7,699 33,279
Total
comprehensive
income - - - - - 10,678 10,678
Share-based
payments - - - - - 542 542
Purchase of own
shares (note 10) - - - - (268) (897) (1,165)
Dividend paid - - - - - (6,032) (6,032)
-------- -------- ----------------- -------------- --------------- --------- ----------------
At 28 July 2018 40 16 13 25,511 (268) 11,990 37,302
-------- -------- ----------------- -------------- --------------- --------- ----------------
Consolidated statement of financial position as at 28 July 2018
2018 2017
Note GBP'000 GBP'000
------ -------- --------
Non-current assets
Intangible assets 1,151 1,077
Property, plant and equipment 21,450 23,878
Total non-current assets 22,601 24,955
-------- --------
Current assets
Inventories 21,865 22,084
Trade and other receivables 8,536 9,699
Cash and cash equivalents 48,162 40,126
-------- --------
Total current assets 78,563 71,909
-------- --------
Total assets 101,164 96,864
======== ========
Current liabilities
Current income tax liabilities 1,650 2,121
Trade and other payables 8 54,566 53,794
Total current liabilities 56,216 55,915
-------- --------
Non-current liabilities
Trade and other payables 7,001 7,140
Deferred tax liability 645 530
Total non-current liabilities 7,646 7,670
-------- --------
Total liabilities 63,862 63,585
-------- --------
Capital and reserves attributable
to the owners of the parent
Share capital 40 40
Share premium 16 16
Capital redemption reserve 13 13
Treasury reserve (268) -
Merger reserve 25,511 25,511
Retained earnings 11,990 7,699
-------- --------
Equity attributable to the owners
of the parent 37,302 33,279
-------- --------
Total equity 37,302 33,279
-------- --------
Total equity and liabilities 101,164 96,864
======== ========
Consolidated statement of cash flows for the year ended 28 July 2018
2018 2017
GBP'000 GBP'000
-------- ---------
Cash flows from operating activities
Profit before taxation 13,219 11,963
Adjustments for:
Depreciation of property plant and equipment 5,035 4,806
Amortisation of intangible assets 518 599
Share-based payments 542 154
Finance costs 228 96
Finance income (205) (70)
-------- ---------
19,337 17,548
Changes in working capital:
Decrease in inventories 219 1,104
Decrease / (increase) in trade and other
receivables 1,163 (685)
Increase in trade and other payables 314 12,123
Cash generated from operating activities 21,033 30,090
Interest paid (228) (96)
Income taxes paid (2,896) (1,220)
-------- ---------
Net cash flow generated from operating
activities 17,909 28,774
-------- ---------
Cash flows used in investing activities
Purchase of property, plant and equipment (2,306) (4,728)
Payments to acquire intangible assets (575) (476)
Interest received 205 70
-------- ---------
Net cash flow used in investing activities (2,676) (5,134)
-------- ---------
Cash flows used in financing activities
Dividends paid (6,032) (5,893)
Purchase of own shares (note 10) (1,165) -
-------- ---------
Net cash flow used in financing activities (7,197) (5,893)
-------- ---------
Net increase in cash and cash equivalents 8,036 17,747
Cash and cash equivalents at beginning
of year 40,126 22,379
Cash and cash equivalents at end of year 48,162 40,126
======== =========
Notes to the audited consolidated financial statements
1. General information
ScS Group plc (the "Company") is a company limited by shares incorporated and domiciled in England, within the UK (Company registration number 03263435). The Company's principal activity is to act as a holding company for its subsidiaries. The Company and its subsidiaries' (the 'Group') principal activity is the provision of furniture and flooring, trading under the names ScS, Sofa Carpet Specialist, and "House of Fraser Made to Order Sofas, Furniture and Flooring".
2. Accounting Policies
Basis of preparation
The Board approved the preliminary announcement on 1 October 2018.
The results for the year ended 28 July 2018, including comparative financial information, have been prepared in accordance with EU endorsed International Financial Standards ("IFRS"), IFRIC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. ScS Group plc will publish full financial statements that comply with IFRS in October 2018.
The financial information does not constitute the Company's statutory accounts for the years ended 2017 or 2018, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.
The financial information presented in respect of the year ended 28 July 2018 has been prepared on a basis consistent with that presented in the annual report for the year ended 29 July 2017.
Going concern
The Group generates strong cash flows, reflecting the negative working capital requirements of the business model. In addition, the Group has a committed GBP12.0m revolving credit facility in place. The Group's forecasts and projections show that the Group has adequate resources to continue in operational existence for the foreseeable future.
Having considered the Group's current trading and cash flow generation including severe but plausible stress testing scenarios, the Directors have concluded that it is appropriate to prepare the Group Financial statements on a going concern basis.
New standards, amendments and interpretations
A number of new standards and interpretations and amendments to existing standards have been issued but not are yet effective nor adopted by the EU, including IFRS 15 'Revenue from Contracts with Customers', IFRS 9 'Financial Instruments' and IFRS 16 'Leases', and have not been applied in preparing these consolidated financial statements. Management have completed a full assessment of the impact of each of these standards, and of these, only IFRS 16 is expected to have a material impact to the Group.
IFRS 16 'Leases' will be effective for the year ending 25 July 2020 onwards and the impact on the financial statements will be significant. IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments and a right-of-use asset for all lease contracts. Therefore, the substantial majority of the Group's operating lease commitments (GBP166,540,000 on an undiscounted basis) would be brought on to the balance sheet. Depreciation of the right of use asset will be recognised in the income statement on a straight-line basis, with interest recognised on the lease liability. This will result in a change to the profile of the net charge taken to the income statement over the life of the lease. Depreciation and interest charges will replace the lease costs currently charged to the income statement and consequently there will be a significant adjustment to the quoted unadjusted Group EBITDA. There will be no impact on cash flows, although the presentation of the cash flow statement will change significantly. Management has begun to model and quantify the expected impact using the current lease portfolio and presented initial thoughts on the expected impact to the Board, however the impact will greatly depend on the facts and circumstances at the time of adoption and upon transition choices adopted. It is therefore not yet practicable to provide a reliable estimate of the financial impact on the Group's consolidated results.
Critical accounting judgements and estimates
The preparation of the financial statements under IFRS requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Relevant accounting judgement and estimates which relate to volume rebates, stock provisions and loss making stores and onerous leases will be disclosed in full in the 2018 annual financial statements.
3. Segment information
The Directors have determined the operating segments based on the operating reports reviewed by the senior management team (the Executive Directors and the other Directors of the trading subsidiary, A. Share & Sons Limited) that are used to assess both performance and strategic decisions. The Directors have identified that the senior management team are the chief operating decision makers in accordance with the requirements of IFRS 8 'Segmental reporting'.
The Directors consider the Group operates one type of business generating gross sales and revenue from the retail of furniture and flooring. All gross sales and revenue, profit before taxation, assets and liabilities are attributable to the principal activity of the Group and other related services. All gross sales and revenues are generated in the United Kingdom.
An analysis of gross sales and revenue is as follows:
Year ended Year ended
28 July 2018 29 July 2017
GBP'000 GBP'000
------------- ---------------
Sale of goods 329,571 326,534
Associated sale of warranties 22,746 22,968
------------- ---------------
Gross sales 352,317 349,502
------------- ---------------
Less: costs of interest free credit (15,004) (16,537)
------------- ---------------
Revenue 337,313 332,965
============= ===============
4. Finance costs
Year ended Year ended
28 July 2018 29 July
GBP'000 2017
GBP'000
------------- ----------
Bank facility renewal fees 132 -
Bank facility non-utilisation fees 96 96
------------- ----------
228 96
============= ==========
5. Finance income
Year ended Year ended
28 July 2018 29 July
GBP'000 2017
GBP'000
------------- ----------
Bank interest received 205 70
============= ==========
6. Taxation
The total tax charge for the financial year of GBP2.5m (2017: GBP2.6m) comprises a corporation tax charge of GBP2.4m (2017: GBP3.2m) and a deferred tax charge of GBP0.1m (2017: credit GBP0.6m). The tax charge is an effective rate of 19.2%, which is higher (2017: 21.4% - higher) than if the standard rate of corporation tax had been applied mainly due to charges not deductible for tax purposes, principally depreciation on capital expenditure that does not qualify for capital allowances, offset by a benefit on the exercise of share options by management awarded upon listing.
7. Earnings per share
Year ended Year ended
28 July 2018 29 July
GBP'000 2017
GBP'000
-------------- ----------
Profit attributable to owners of the Company 10,678 9,402
-------------- ----------
Weighted average number of shares in issue
for the purposes of basic earnings per share 39,804,480 40,009,109
------------- ----------
Effect of dilutive potential Ordinary shares:
* share options 1,220,656 1,085,096
Weighted average number of Ordinary shares
for the purpose of diluted earnings per
share 41,025,136 41,094,205
Basic earnings per share 26.8p 23.5p
------------- ----------
Diluted earnings per share 26.0p 22.9p
============= ==========
8. Trade and other payables
Year ended Year ended
28 July 2018 29 July
GBP'000 2017
GBP'000
------------- ----------
Trade payables 26,294 29,142
Payments received on account 12,232 11,506
Other taxation and social security payable 4,492 4,775
Accruals 11,548 8,371
------------- ----------
54,566 53,794
============= ==========
The fair value of financial liabilities approximates their carrying value due to short maturities. Financial liabilities are denominated in pounds sterling.
9. Dividends
A final dividend for year ended 29 July 2017 of 9.80p was paid on 27 November 2017. It has been recognised in shareholders' equity in the year ended 28 July 2018.
An interim dividend of 5.30p per ordinary share was declared by the Board of Directors on 21 March 2018 and paid on 10 May 2018. It has been recognised in shareholders' equity in the year ended 28 July 2018.
A final dividend for the year ended 28 July 2018 of 10.90p per ordinary share was proposed by the Board of Directors.
At 28 July 2018 the retained earnings of the Company amounted to GBP64.3m.
10. Treasury shares
During the year the Group's Employee Benefit Trust purchased 544,154 ordinary shares of 0.1 pence each in the Group at an average price of 214.2 pence per Ordinary Share for the purposes of satisfying management share incentive awards. As at 28 July 2018, 418,581 of these shares had been used to satisfy awards, with the remainder held as treasury shares.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR FSDFIFFASELS
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