Source - RNS
RNS Number : 8895B
Park Group PLC
12 June 2019
 

12 June 2019

 

PARK GROUP PLC

("Park", "Park Group" or "the Group")

Preliminary Final Results for the Year Ended 31 March 2019

 

Summary

 

Park Group plc, the UK's leading multi-retailer redemption product provider to corporate and consumer markets, today announces its final results for the financial year ended 31 March 2019. These are Park's first annual results presented under a new accounting standard (IFRS 15 Revenue from Contracts with Customers), with 2018 comparatives restated accordingly.

 

Financial highlights

 

·      Billings increased 3.4 per cent to £426.9m (2018 - £412.8m)

·      Revenue decreased marginally to £110.4m (2018 restated - £111.1m)

·      Total cash balances, including monies held in trust and deposits were £134.0m (2018 - £121.4m)

·      Adjusted* operating profit of £10.9m (2018 restated - £11.3m)

·      Adjusted* profit before tax of £12.5m (2018 restated - £12.6m)

·      Adjusted* earnings per share of 5.43p (2018 restated - 5.50p)

·      Proposed final dividend raised to 2.15p per share (2018 - 2.05p) making a total dividend for the year up 4.9 per cent to 3.20p per share (2018 - 3.05p).  Dividend levels continue to grow, despite investment during a period of transformation, reflecting the board's confidence.

 

*before £1.21m of exceptional items related to the impairment of our land and buildings

 

Statutory results

 

·      Operating profit of £9.7m (2018 restated - £11.3m)

·      Profit before tax of £11.3m (2018 restated - £12.6m)

·      Earnings per share of 4.78p (2018 restated - 5.50p)

 

Operational highlights

 

·      Corporate:

-    Good growth in billings of 8.1 per cent to £194.8m (2018 - £180.2m)

-    Revenues from new clients who were billed more than £100,000 increased fivefold

-    Park's own brand products grew from 85 per cent of total billings to 89 per cent

·      Consumer:

-    Record volume of new customer accounts for Christmas 2018

-    Significant 83 per cent increase in web users interacting via a mobile device last year

 

Implementation of the strategic business plan

 

·      Strengthened our management team through important senior appointments

·      Signed a lease for our new offices in Liverpool city centre

·      Separated the hampers business, under a new discrete management team

·      Invested significantly in technology to enhance scalability, resilience and efficiency 

·      Continued to work on the development of a new product

 

Ian O'Doherty, Chief Executive Officer, commented:

 

"Park delivered another good performance last year, continuing to build upon our position as the UK's leading multi-retailer redemption product provider to the corporate and consumer markets.   

 

"Our outlook for the current financial year is unchanged, as we anticipate continued good growth in our Corporate business to be partially offset by a slower Consumer Christmas savings market. 

 

"In summary, we are pleased with the considerable progress that we are making and we are confident that delivery of the strategic business plan will lay the foundations for strong and sustained growth in future years."

 

 

Please follow the link below to access a short video of Ian O'Doherty, Chief Executive Officer, summarising the results.

 

http://bit.ly/PARK_FY19

 

 

Park will host a presentation for analysts at MHP Communications' offices (6 Agar Street, London, WC2N 4HN) at 9.30am this morning.

 

If you would like to attend, please contact MHP on 020 3128 8193 or [email protected].

 

For further information please visit http://www.parkgroup.co.uk/ or contact:

 

Park Group plc

Liberum

(NOMAD and broker)

MHP Communications

Ian O'Doherty, CEO

Tim Clancy, CFO

Richard Crawley

Jamie Richards

Reg Hoare

Katie Hunt

Patrick Hanrahan

Charles Hirst

 

Tel: 0151 653 1700

 

Tel: 020 3100 2251

 

Tel: 020 3128 8193

 

The information contained within this announcement is deemed by Park Group to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

 

Notes to Editors:

Park is the UK's leading multi-retailer redemption product provider to corporate and consumer markets.  Park is dedicated to providing its new and existing customers access to its offering through easy to use products, supported by intuitive and innovative digital platforms combined with its sales and customer services teams.  As part of its strategic plan the company has pledged to put digital first, exploring technology solutions to broaden its physical and virtual payment capabilities. Park recently unveiled its new Love2Shop app, which gives consumers access to one integrated mobile platform.

 

Consumers can access Park's multi-retailer redemption product directly or via its leading Christmas Savings offering, which currently helps over 426,000 families budget for Christmas.  Park also provides around 37,000 business customers with market-leading incentive, recognition and rewards options for an estimated 2 million recipients through 189 retail partners with over 25,000 outlets.

 

Park Group plc's shares are traded on AIM, a market operated by the London Stock Exchange.

 

For further information on Park Group please visit: www.parkgroup.co.uk

 

The Park Prepayments Protection Trust is designed to increase protection for customers' prepayments. The Trust has three directors, two of whom are independent of Park. Details of the trust are set out here: https://www.getpark.co.uk/CORPORATE/declaration.pdf 

 

Business and Operating Review

 

Introduction

 

Park delivered another good performance last year, continuing to build upon our position as the UK's leading multi-retailer redemption product provider to the corporate and consumer markets.

 

In December 2018, at the time of Park's half year results, we announced our new strategic business plan and the initial actions we were undertaking to deliver it.  We are pleased to report that we have already made tangible progress in delivering the initial actions, in terms of investment in our people, premises and technology. This investment is establishing a more robust and scalable business model that will strengthen our ability to take advantage of the growth opportunities in our markets.

 

Overall, we are confident that the steps we are taking will strengthen the group's proposition for consumers, businesses and retailers alike, and ensure we are able to capitalise on opportunities in the fast-evolving markets that we serve.  Importantly our plan will significantly improve the efficiency of our operations, leading to enhanced profitability in future years following the investments we are making in the current financial year.

 

Results for the year

 

These are Park's first annual results presented under a new accounting standard (IFRS 15 Revenue from Contracts with Customers) which, in summary, requires us to report revenue on a 'net' rather than 'gross' basis for Love2shop vouchers.  Furthermore, the standard leads to a deferment of revenue and operating profit in respect of multi-retailer redemption products.  The accounting treatment does not impact billings, change the underlying profitability of the business model or impact reported or future cash flows. All figures for the year are presented on an IFRS15 basis, with the prior years restated accordingly. 

 

Billings* increased by 3.4 per cent in the year to 31 March 2019 to £426.9m (2018 - £412.8m), despite not repeating a low margin product through our intermediary channel (which contributed £6.2m of billings in the prior year).  Revenue decreased marginally by 0.6 per cent to £110.4m (2018 restated - £111.1m) reflecting good growth from our Corporate business, notwithstanding the removal of the aforementioned product, and a stable performance from our Consumer business.  This was offset by a higher proportion of revenues being deferred to the current financial year than in prior years due to a change in our revenue mix. 

 

Operating profit for the year was £9.7m (2018 restated - £11.3m).  Interest receipts were £1.6m (2018 - £1.3m) on average cash balances (including cash held in trust) of £174.0m (2018 - £165.0m), after which profit before tax was £11.3m (2018 restated - £12.6m).  Underlying profit before tax was £12.5m (2018 restated - £12.6m) before an exceptional charge of £1.2m relating to the impairment of our land and buildings (2018 - no exceptional items).  Total cash balances, including monies held in trust and bank deposits, at 31 March 2019 were £134.0m (2018 - £121.4m).

 

Dividend

 

The Board is recommending a final dividend of 2.15p, a 4.9 per cent increase on the prior year (2018 - 2.05p), which together with the interim dividend of 1.05p per share (2018 - 1.00p) gives a total dividend of 3.20p (2018 - 3.05p), a 4.9 per cent increase compared to the prior year.  Dividend levels continue to grow, despite investment and a period of transformation, reflecting the Board's confidence.

 

The final dividend will be payable on 1 October 2019 to shareholders on the register on 23 August 2019, with an ex-dividend date of 22 August 2019.

 

Park's dividend policy is linked to the cash we generate and business performance.  It is noteworthy that the total dividend has more than doubled over the last nine years, reflecting this. The Board will keep Park's dividend policy under review as the business develops, including considering bringing forward payment and record dates.

 

Divisional review

 

We continue to operate in dynamic and growing markets, serving customers in both corporate and consumer channels. There has been an encouraging rate of growth in the UK gift card market during the calendar year 2018, with growth in the second half at 12 per cent**. Key market trends include strong growth in the B2B segment, a significant shift towards digital, an increase in experiences as well as product and demand for more personalisation.

This industry growth and key trends are aligned to our strategic plans and these reinforce our decision to invest in the future of Park.

**Source: UK Gift Card and Voucher Association

Corporate (47 per cent of group revenue in the year ended 31 March 2019)

 

Park's Corporate business provides around 37,000 business customers with market-leading incentive, recognition and rewards options for an estimated 2m recipients through 189 retail partners with over 25,000 outlets. 

 

Corporate billings of £194.8m were 8.1 per cent ahead of the prior year (2018 restated - £180.2m) despite not continuing a low margin product through our intermediary channel (which contributed £6.2m of billings in the prior year). Corporate revenue was £51.5m (2018 restated - £49.8m) representing growth of 3.4 per cent, despite £6.2m of low margin business in the prior year  which has not been repeated and a higher proportion of revenues being deferred in to the current financial year due to the greater proportion of revenues being generated through cards and e-codes.  These trends were also reflected in a segmental profit which increased by £1.1m to £7.8m (2018 restated - £6.7m), with an underlying improvement in the mix of products towards those generating higher gross margin, offset by a greater proportion deferred in to the current financial year.

 

The strong underlying performance from our Corporate business was driven through a combination of sales growth and a more profitable product mix, including: 

·      A concerted marketing effort to recruit larger businesses saw billings derived from new clients who were billed more than £100,000 increase from £2m in 2017/18 to £10m in 2018/19. 

·      Greater emphasis on account management also resulted in a growth of sales from established customers despite the removal of some low margin single store products in favour of Park's higher margin multi-retailer redemption products. 

·      Park's own brand products grew from 85 per cent of total billings to 89 per cent, with profit further enhanced by a shift from paper vouchers to cards and e-codes.

Consumer (53 per cent of group revenue in the year ended 31 March 2019)

 

Consumers can access Park's multi-retailer redemption product directly from our website highstreetvouchers.com or via our leading Christmas savings offering, which currently helps over 428,000 families budget for Christmas. 

 

Our Consumer business billings were £232.1m compared to £232.6m in the prior year. Consumer revenue was £58.9m (2018 restated - £61.3m) which produced a segmental profit of £6.8m versus £7.2m (restated) in the prior year.

 

Park achieved a record volume of new customer accounts for Christmas 2018, whilst also implementing a number of initiatives to improve the customer experience, attract customers into the business and provide them with an attractive range of spending options. This was a good performance given the evolving Christmas savings market, where consumers are engaging less through traditional channels and more through digital channels.

 

In terms of improving the customer experience, the expansion of the 'self-serve' functionality of our website and app has given customers greater flexibility in managing their payments and orders directly, which has led to a doubling of 'self' management of orders compared to the prior year.   In addition, enhancements to our mobile user experience mean that 83 per cent of customers now choose to interact with us via phone or tablet. Overall, the strength of our customers' experience is demonstrated by our 9.8/10 Trustpilot Score.

 

To attract more customers into the business, and to respond to how TV viewing habits have changed, we have broadened our marketing into several new channels including digital and social media.  We have also launched a comprehensive review of our media buying and creative agencies in order to further refine the customer proposition and increase our future marketing efficiency.

 

We have continued to improve the range of spending options for our customers with over 70 online retailers and more than 20 restaurants and experiences added to our Love2shop gift card in the last year, whilst sales of the Your Choice Mastercard, which can be spent in-store and online, have grown very strongly.

 

As the market continues to evolve, we expect to realise the benefits of these initiatives for Christmas 2020.

 

Progress with our strategic business plan

 

In December 2018, we set out our new strategic business plan; it aims to build on the high regard in which Park is held by existing customers to capture more of the available market in the future. The plan has been designed to deliver this through improving the customer experience, simplifying our offer, making our products and services available to a wider customer base, and developing our digital platforms to meet the needs of our customers both now and in the future.

 

The four principal pillars of the new strategic business plan are set out below, alongside the progress we have made in delivering the initial steps in the plan:

 

1.   Productivity: we will be more efficient and effective

Progress to date:

·      We have signed a lease for our new offices in Liverpool city centre, which we believe will ensure a modern, collaborative working culture as well as helping us to retain and attract talented staff.  We expect to move in during late summer 2019.

 

·      Investment in our technology has already enhanced our capabilities, capacity, functionality and performance to benefit our customers.

 

2.   Appeal: we will broaden our customer appeal

Progress to date:

·      We have continued to work on the development of a new product, in order to target currently untapped demand from a broader audience.

 

·      Having completed much of the work to develop the product concept, we expect to move to a phase of comprehensive market testing during the second half of the year.  We will update further on this later in the year.

 

3.   Clarity: we will focus on our multi-retailer redemption proposition 

Progress to date:

 

·      We have separated the hamper business, under a new discrete management team.

·      We have further simplified our product range by reducing the number of Love2shop flexecash® schemes available whilst maintaining customer choice.

 

·      We have made good progress with migrating customers from paper vouchers to card sales, through a phased approach of offering fewer paper products through our catalogues and encouraging both Christmas savers and corporate accounts to make the switch.

 

·      We have commenced a review of our brand architecture and will communicate the results of this review later in the year.

 

Progress to date:

·      We continue to drive product and customer innovation, by anchoring the organisation on digital, having put in place new personalised e-delivery, an enhanced app capability and a new mobile digital enablement agreement with Mastercard.

 

·      We have selected a new Enterprise Resource Planning (ERP) system, Microsoft Dynamics 365, which will give us the scalability, resilience and efficiency required for a more seamless and automated back office support functions across the business. 

 

Investing in our people to deliver growth

 

Board succession planning

We were pleased to confirm in April 2019 that our Chairman, Laura Carstensen, will continue in her role for a further three years, ensuring she will remain fully involved in guiding the executive directors and management team as they deliver the strategic business plan.

 

Following six years' as a non-executive director, Michael de Kare-Silver intends to retire by rotation from the Board at the time of the group's AGM in September 2019. We are actively seeking a new independent non-executive director and will provide a further update in due course. We thank Michael for his significant contribution during his tenure, most recently during a period of great change for the group in terms of its leadership and strategy.

 

As previously reported, Tim Clancy became Chief Financial Officer (CFO) during the financial year, and his extensive board level experience in businesses and sectors which are extremely relevant to Park has already brought benefits to the business.

 

Enhancing our management team

To support the effective implementation of our new strategic plan, we have broadened and enhanced our management team including a number of newly created roles to help deliver the strategic business plan and future growth: these appointments included a new Chief Information Officer (CIO), to drive our technology strategy; a Chief Transformation Officer (CTO), to help execute the changes we are making; and a new Human Resources Director, to ensure we attract, nurture and retain great talent.

 

Investing in our people

We would like to thank all our employees, whose experience, ambition and dedication to delivering on our customers' expectations are at the heart of our success. We are highly focussed on doing the very best for our people; by providing them with the necessary tools, support, training and development opportunities to succeed and by establishing a strong culture that supports them in working together with clarity and purpose as we deliver our growth plans.

 

Outlook

 

Our outlook for the current financial year is unchanged, as we anticipate continued good growth in our Corporate business to be partially offset by a slower Consumer Christmas savings market. 

 

As we stated in our trading update in April 2019, we expect additional costs (net of initial expected cost savings) of £2.0m associated with implementing the strategic business plan in the current financial year, which will supress profitability this financial year (19/20). These costs (which are both one off and recurring) relate to running two sites as we transition to the new offices, as well as additional technology and marketing investment. 

 

This investment and the transformation we are undertaking are expected to result in enhanced future growth prospects and a more robust and scalable business model, putting us in a much stronger position.

 

In summary, we are pleased with the considerable progress that we are making and we are confident that delivery of the strategic business plan will lay the foundations for strong and sustained growth in future years.

 

Laura Carstensen, Chairman

Ian O'Doherty, Chief Executive

12 June 2019

 

* See page 26 in accounting policies for a reconciliation of billings to revenue

 

Financial Review

 

With effect from 1 April 2018 the group adopted IFRS15.  The group applied the full retrospective approach when transitioning to the new standard. The adoption of IFRS15 does not impact billings to external customers or clients or cash flow, nor does it change the overall profitability of the business model.  However, it has led to the group recognising significantly lower revenues, a relatively small deferment in operating profit and a reduced net asset position for all restated periods.

 

Billings and Revenue

 

The group's products are split into the following categories:

 

·      Multi-retailer redemption products - Love2shop vouchers, flexecash® cards, Mastercards and  e-codes

·      Single retailer redemption products - third party retailer vouchers, cards and e-codes

·      Other - hampers, merchandise and consultancy fees

 

For multi-retailer redemption products, billings are the gross value of goods and services shipped and invoiced to customers during the year.  Revenue for multi-retailer redemption products is the net service fee received on redemption, cardholder fees and breakage which are recognised when multi-retailer redemption products are redeemed.

 

For single retailer redemption products and other, both billings and revenue are the gross value of goods and services shipped and invoiced to customers during the year.

 

Further details can be found in accounting policies on pages 20 to 26.

 

Billings*

2019

£m

2018

£m

Change

%

Multi-retailer redemption products

362.4

340.9

+6.3

Single retailer redemption products

50.8

57.5

-11.7

Other

13.7

14.4

-4.9

Total

426.9

412.8

+3.4

 

Multi-retailer redemption product billings includes billings in respect of e-codes which are capable of being converted into either multi-retailer redemption products or single retailer redemption products.  Revenue figures below reflect the product into which the e-code is converted by the cardholder.

 

Revenue

 

2019

£m

Restated

2018

£m

 

Change

%

Multi-retailer redemption products

41.1

36.1

+13.9

Single retailer redemption products

55.6

60.6

-8.2

Other

13.7

14.4

-4.8

Total

110.4

111.1

-0.6

 

The value of multi-retailer billings has increased by 6.3 per cent reflecting the strategy to promote the group's own brand product. The mix of multi-retailer redemption products increased from 82.7 per cent to 84.9 per cent due to the increased volume and the strategic curtailment of some low margin single retailer business. 

 

Revenue decreased marginally by 0.6 per cent to £110.4m due to not repeating some low margin single retailer redemption product business offset by a greater volume of multi-retailer redemption products with an increased mix of higher value card revenue.

 

Profit from operations

 

The group's operations are divided into two principal operating segments:

 

·      Consumer - which represents  sales to consumers, utilising the group's Christmas savings offering and our website, highstreetvouchers.com; and

·      Corporate - comprising sales to businesses, offering primarily sales of the Love2shop voucher, flexecash® cards, Mastercards and e-codes in addition to other retailer vouchers.

 

All other segments comprise central costs and property costs which are shown separately in order to give a more meaningful view of divisional performance.

 


2019

£'000

Restated

2018

£'000

Change

£'000

Consumer

6,809

7,246

(437)

Corporate

7,789

6,700

1,089

All other segments

(4,866)

(2,629)

(2,237)

Operating profit

9,732

11,317

(1,585)

 

Consumer

 

In the Consumer business, customer billings have decreased marginally by 0.2 per cent from £232.6m to £232.1m.  Billings for Christmas savers were down marginally but this was offset by stronger other Consumer billings, derived through the hightstreetvouchers.com website.  Revenue has decreased by 3.9 per cent to £58.9m (2018 restated - £61.3m), primarily due to more deferred revenue as a consequence of a higher card mix and slower redemption of paper vouchers.

 

The mix of card billings increased in Consumer from 41.9 per cent in the prior year to 44.4 per cent in 2018/19 with a billings value of £98.9m (2018 - £93.2m).  Card revenue increased marginally to £37.5m from £37.0m with more multi-retailer redemption products on a net basis.

 

Operating profit was £6.8m, a decrease of £0.4m (6.0 per cent) from the £7.2m achieved in the prior year.  This was primarily due to a reduction in revenue as noted above.

 

Corporate

 

In the Corporate business customer billings have increased strongly by 8.1 per cent, from £180.2m to £194.8m.  This growth was driven by multiple new clients, with two new large clients accounting for £7.9m of billings in 2018/19.  Corporate revenue grew by 3.4 per cent over the prior year, from £49.8m to £51.5m.  Additional volume was offset by greater multi-retailer redemption product reported on a net basis and more revenue deferred due to a higher card mix, which grew from 43.1 per cent to 51.8 per cent.  Overall our customer incentive market grew but this was offset by a reduction in the intermediary channel where we did not repeat some low margin business from the previous year.

 

Operating profit improved by 16.3 per cent to £7.8m (2018 restated - £6.7m) reflecting the higher level of billings and an improved mix of products sold, principally flexecash® cards.

 

All other segments

 

Central and property costs increased by 85.1 per cent from £2.6m to £4.9m. This includes the impairment of the Valley Road site at £1.2m and £0.5m of development costs attributable to the new strategic business plan including the use of consultants and a customer research exercise (2018 - no impairment or development costs). These development costs will continue at a lower level in the current financial year together with additional costs of implementing the revised strategy. Additional payroll costs of £0.5m were incurred relating to the new management team.

 

Reconciliation of adjusted to statutory profit measures

 

The Board believes that adjusted profit (excluding impairment) is the best measure of the underlying performance of the group.

 

 

2019

Operating profit

Profit before tax

Profit for the year


£'000

£'000

£'000

Profit before exceptional item

10,942

12,514

10,092

Impairment of property, plant and equipment

(1,210)

(1,210)

(1,210)

Statutory profit

9,732

11,304

8,882





2018




Statutory profit

11,317

12,587

10,188





 

 

Impairment of the Valley Road site

 

In December 2018, the group announced its intention to relocate the majority of the workforce to a new head office location in central Liverpool.  A small number of staff will remain at Valley Road and the Board are currently considering options for the site that could include the sale of the site and lease-back of areas which are still required.  Following a review of the value of land and buildings at Valley Road, undertaken with our property consultants, we have decided to reduce the book value of the site by £1.2m to £5.0m.

 

Finance income

 

Finance income increased by 23.8 per cent to £1.6m from £1.3m. Average total cash held by the group, including cash held in trust during the year increased by over 5 per cent to £174m (2018 - £165m), and the yield achieved on this higher cash balance improved due to the increase in base rates.

 

Taxation

 

The effective tax rate for the year was 21.4 per cent (2018 - 19.1 per cent) of profit before tax.  The increase compared to the prior year was primarily due to the fact that the impairment charge in respect of the Valley Road site did not attract tax relief.

 

Earnings per share

 

Basic earnings per share (EPS) fell by 13.1 per cent from 5.50p (restated) in 2018 to 4.78p. Excluding the exceptional impairment charge basic EPS is 5.43p (2018 restated - 5.50p), down 1.3 per cent.

 

Dividends

 

The Board has recommended a final dividend of 2.15p per share. An interim dividend of 1.05p per share was paid on 8 April 2019. Subject to approval of the final dividend at the AGM, the total dividend for 2019 will be 3.20p per share representing an increase of 4.9 per cent over the prior year.

 

Cash flows and treasury

 

Cash flows from operating activities were £6.9m, £3.7m (34.8 per cent) lower than the prior year, due to an increase in monies held in trust, offset by a cash inflow in respect of working capital.  Monies in trust grew from £87.0m in 2018 to £99.3m. This growth was primarily in the Park Card Services Limited E money Trust (PCSET) to support the e-money float in accordance with regulatory requirements. This increased by £10.7m to £36.6m due to higher levels of card business.

 

In addition, £60.9m (2018 - £60.1m) was held by the Park Prepayments Trustee Company Limited. The trust holds payments received in respect of orders for delivery the following Christmas. The conditions for the release of this money to the group are detailed in the trust deed, which is available at www.getpark.co.uk.

 

Also, at 31 March 2019, the group held £1.8m of other ring fenced funds (2018 - £1.0m).

 

At the end of March 2019 £36.9m (2018 - £40.3m) of cash was held by the group. This was £3.4m (8.5 per cent) lower than the prior year due to higher funds held as monies in trust.

 

The total amount of cash and deposits net of any overdraft position held by the group, combined with the monies held in trust, has increased in the year by 10.4 per cent to £134.0m from £121.4m. These total balances peaked at just under £236m in the year, representing an increase of over £7m from the prior year. This was principally due to the higher level of cash receipts into the PCSET due to higher Corporate card business.

 

Trade and other payables

 

Included within trade and other payables is deferred income in respect of multi-retailer redemption products (vouchers, cards and e-codes).  Revenue is deferred for service fees and breakage, net of discount.  The amount of revenue deferred at March 2019 has increased to £7.0m from £5.8m in the prior year due to an increase in card mix, an increase in final quarter billings and slower redemption of paper vouchers.  The increase in card mix, where breakage levels are higher, has resulted in greater deferred revenue.  A shift to card schemes with higher levels of breakage has further increased deferred revenue.

 

Provisions

 

At 31 March 2019, provisions had increased to £58.3m from £48.0m. This was mainly due to an increase in the amounts provided in respect of flexecash® cards of £9.8m and for unspent vouchers of £0.4m. The value of unspent vouchers included in the provision, arises primarily from sales in the Corporate business. 

 

Pensions

 

The group continues to operate two defined benefit pension schemes, where pensions at retirement are based on service and final salary. These schemes are now closed to future accrual of benefit arising from service with the group. These schemes have a net pension surplus of £1.9m based on the valuation under IAS19 performed at 31 March 2019 (2018 - surplus of £2.7m).

 

Following a High Court ruling in October 2018 the group is required to equalise Guaranteed Minimum Payments (GMPs) for men and women.  Our actuaries have calculated that the expected impact of this for the group is £0.3m and this has been recognised in the statement of profit or loss.

 

The group has recognised interest income of £73,000 (2018 - £32,000) in the statement of profit or loss in respect of the pension schemes. In addition, the group has recognised a re-measurement loss in the statement of comprehensive income (SOCI) of £0.8m (2018 - gain of £0.9m) net of tax.

 

In the year ended 31 March 2019, contributions by the group to the schemes totalled £0.5m (2018 -  £0.7m). The latest triannual scheme funding reports, performed as at 31 March 2016, indicated that one scheme had a technical provisions deficit (reflecting the liabilities to pay pension benefits in relation to past service as they fall due) of £1.9m and one had a surplus on the same basis of £0.9m. Future group contributions to the scheme that is in deficit have been agreed with the Trustee at £0.5m for the year to March 2019, with no further contributions to the scheme after that date.  The next triannual valuation will be undertaken as at 31 March 2019 when the positions will be reassessed.

 

Tim Clancy

Chief Financial Officer

12 June 2019

 

* See page 26 in accounting policies for a reconciliation of billings to revenue

 

Risk Factors

 

Financial risks

Risk area


Potential impact


Mitigation

Group funding


The Group, like many other companies, depends on its ability to continue to service its debts as they fall due and to have access to finance where this is necessary.


The Group manages its capital to safeguard its ability to operate as a going concern. The Group has access to funds for working capital from the Park Prepayments Protection Trust (PPPT) for a defined period in the year, although the Group has not used this facility in either of the last two years and is not forecasting to do so.

In addition the Group has a high level of visibility of future revenue streams from its Consumer business. The funding requirements of the business are continually reforecast to ensure that sufficient liquidity exists to support its operations and future plans.  The Group will arrange bank facilities to assist with liquidity management if necessary.

Treasury risks


The Group has significant funds on deposit and as such is exposed to interest rate risk, counterparty risk and exchange rate movements.


The Group treasury policy ensures that funds are only placed with, and spread between, high quality counterparties and where appropriate any exchange rate exposure is managed, utilising forward contracts, to minimise any potential impact. Some funds are placed on fixed term deposits to mitigate interest rate fluctuations.

Banking system


Disruption to the banking system would adversely impact on the Group's ability to collect payments from customers and could adversely affect the Group's cash position.


The Group seeks, wherever possible, to offer the widest possible range of payment options to customers to reduce the potential impact of failure of a single payment route.

Pension funding


The Group may be required to increase its contributions to cover any funding shortfalls.


The Group's pension schemes are closed to future benefit accrual related to service. Funding rates are in accordance with the agreements reached with the trustees after consultation with the scheme actuary.

Financial services and other market regulation


The business model may be compromised by changes in existing regulation or by the introduction of new regulation. Possible new regulation could include a requirement to ring fence funds for vouchers sold to consumers. This would adversely affect the Group's cash position.


The Group has a regulatory team that monitors and enforces compliance with existing regulations and keeps the Group up to date with impending regulation. The Group shares the objectives of Government in treating customers fairly and in the protection of customer prepayments. The Group operates a number of trusts to safeguard funds held on behalf of customers. In the event of new regulation being introduced that requires additional cash to be segregated, the Group potentially has access to other sources of funds, if required.

Credit risks


Failure of one or more customers and the risk of default by credit customers due to reduced economic activity.


Customers are given an appropriate level of credit based on their trading history and financial status, a prudent approach is adopted towards credit control.

Credit insurance is used in the majority of cases where customers do not pay in advance.

 

Operational risks

Risk area


Potential impact


Mitigation

Business continuity and IT systems


Failure to provide adequate service levels to customers, retail partners or other suppliers, resulting in a failure to maintain services that generate revenue.

There is a cyber risk to our business which means that there is a risk that an attack on our infrastructure by an individual or group could be successful and impact the availability of critical systems.


The Group plans and tests its business continuity procedures in preparation for catastrophic events and for the existence of counterfeit vouchers or cards.

Our focus is on the elimination of any single point of failure in our IT systems. Our critical infrastructure has been designed to prevent unauthorised access and reduce the likelihood and impact of a successful attack.

The Group maintains three separate data centres in relation to its core infrastructure to ensure that service is maintained in the event of a disaster at its primary data centre. Developed software is extensively tested prior to implementation. We also manage the risk of malicious attacks on our infrastructure by continuously monitoring our systems.

The Group has decided to upgrade its IT systems by implementing a new Enterprise Resource Planning (ERP) system, Microsoft Dynamics, which will provide scalability, resilience and efficiency.

Loss of key management


The Group depends on its directors and key personnel. The loss of the services of any directors or other key employees could damage the Group's business, financial condition and results.


Existing key appointments are rewarded with competitive remuneration packages including long term incentives linked to the Group's performance and shareholder return.

Relationships with high street and online retailers


The Group is dependent upon the success of its Love2shop voucher and flexecash® card. These products only operate provided the participating retailers continue to accept them as payment for goods or services provided. The failure of one or more participating retailers could make these products less attractive to customers.


The Group has a dedicated team of managers whose role it is to ensure that the Group's products have a full range of retailers. They also work closely with all retailers to promote their businesses to Park's customers who utilise Park's vouchers and cards to drive forward incremental sales to their retail outlets. Contracts which provide minimum notice periods for withdrawal are in place with all retailers and are designed to mitigate any potential impact on Park's business.

Failure of the distribution network


The failure of the distribution network during the Christmas period, for example a Post Office strike, road network disruption or fuel shortages could adversely impact the results and reputation of Park's brands.


Wherever possible the Group seeks to utilise a wide range of geographically spread carriers to mitigate the failure of a single operator.

Brand perception and reputation


Adverse market perception in relation to the Group's products or services, for example, following the collapse of a competitor. This could result in a downturn in demand for its products and services.


Operation of a process of continual review of all marketing media, material and websites to promote transparency to customers.

Extensive testing and rigorous internal controls exist for all group systems to maintain continuity of online customer service.

Our brand strategy has been thoroughly reviewed.

Promotional activity


The success of the Group's annual promotional campaign is essential to ensure the continued recruitment of customers. Failure to recruit would result in loss of revenue to the Group. Promotional activity must also be cost effective.


Detailed management processes that are designed to optimise the cost of recruiting customers are in place.

Competition


Loss of margins or market share arising from increased activity from competitors.


The Group has a broad base of customers and no single customer represents more than 4 per cent of total customer billings.

Significant resources are dedicated to developing and maintaining strong relationships with customers and to developing new and innovative products which meet their precise needs.

Brexit


The Group currently takes advantage of the FCA's passporting regime to issue regulated cards in Ireland.  There is a risk that the Group will be unable to issue cards in Ireland after the revised Brexit deadline.


There is a project in place to plan for a hard Brexit, to clarify processes and procedures in the scenario of no longer being able to issue and maintain cards within the ROI.

 

 

 

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE YEAR TO 31 MARCH 2019

 




Restated* 


2019 


2018 


£'000 


£'000 





Billings

426,901 


412,786 





Revenue




-     Goods - Single retailer redemption products

55,624 


60,621 

-     Other goods

7,511 


8,497 

-     Services - Multi-retailer redemption products

41,111 


36,087 

-     Other services

6,119 


5,777 

-     Other

29 


72 


110,394 


111,054 





Cost of sales

(79,117)


(79,628)

Gross profit

31,277 


31,426 

Distribution costs

(2,934)


(3,002)

Administrative expenses

(17,401)


(17,107)

Operating profit before exceptional item

10,942 


11,317 





Impairment of property, plant and equipment

(1,210)


Operating profit

9,732 


11,317 





Finance income

1,572 


1,274 

Finance costs


(4)

Profit before taxation

11,304 


12,587 

Taxation

(2,422)


(2,399)

Profit for the year attributable to equity holders of the parent

8,882 


10,188 

 

 

Earnings per share (see note 8)



:  basic

4.78p

5.50p

:  diluted

4.77p

5.48p




* Restated for implementation of IFRS15, see revenue recognition accounting policy

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR TO 31 MARCH 2019

 


2019 


Restated* 

2018 


£'000 


£'000 





Profit for the year

8,882 


10,188 

Other comprehensive (expense)/income




Items that will not be reclassified to profit or loss:

Remeasurement of defined benefit pension schemes

(1,009)


1,142 

Deferred tax on defined benefit pension schemes

172 


(194)


(837)


948 

Items that may be reclassified subsequently to profit or loss:




Foreign exchange translation differences

(3)


(20)





Other comprehensive (expense)/ income for the year net of tax

(840)


928 





Total comprehensive income for the year attributable to equity holders of the parent

8,042 


11,116 

 

* Restated for implementation of IFRS15, see revenue recognition accounting policy

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2019

 


As at 


Restated*

As at 


Restated*

As at 


31.03.19 


31.03.18 


01.04.17 


£'000 


£'000 


£'000 

Assets






Non-current assets






Goodwill

2,168 


2,185 


2,202 

Other intangible assets

2,295 


2,278 


2,682 

Property, plant and equipment

6,216 


7,684 


7,688 

Deferred tax assets


237 


654 

Retirement benefit asset

1,927 


2,721 


1,827 


12,606 


15,105 


15,053 

Current assets






Inventories

4,574 


3,808 


2,632 

Trade and other receivables

12,582 


10,917 


9,236 

Other financial assets

200 


200 


200 

Monies held in trust

99,251 


86,992 


83,018 

Cash

36,868 


40,311 


34,236 


153,475 


142,228 


129,322 







Total assets

166,081 


157,333 


144,375 

 

Liabilities






Current liabilities






Trade and other payables

(89,952)


(94,592)


(87,201)

Tax payable

(580)


(704)


(1,272)

Provisions

(58,286)


(48,012)


(46,164)


(148,818)


(143,308)


(134,637)

Non-current liabilities






Deferred tax liability

(553)


-


-

Retirement benefit obligation

-


-


(924)


(553)


-


(924)







Total liabilities

(149,371)


(143,308)


(135,561)













Net assets

16,710 


14,025 


8,814 

 

Equity attributable to equity holders of the parent












Share capital

               3,727 


               3,711 


3,687 

Share premium

6,470 


6,137 


6,137 

Retained earnings

6,824 


4,488 


(699)

Other reserves

(311)


(311)


(311)







Total equity

16,710 


14,025 


8,814 

 

  * Restated for implementation of IFRS15, see revenue recognition accounting policy

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 


Share

capital

Share

Premium

Other 

reserves 

Retained 

earnings 

Total 

equity 


£'000

£'000

£'000 

£'000 

£'000 







Balance at 1 April 2018

3,711

6,137

(311)

4,488 

14,025 







Total comprehensive income for the year






Profit

-

-

8,882 

8,882 







Other comprehensive expense






Remeasurement of defined benefit pension schemes

-

-

(1,009)

(1,009)

Tax on defined benefit pension schemes

-

-

172 

172 

Foreign exchange translation adjustments

-

-

(3)

(3)

Total other comprehensive expense

-

-

(840)

(840)

Total comprehensive income for the year

-

-

8,042 

8,042 







Transactions with owners, recorded directly in equity






Equity settled share-based payment transactions

-

-

11 

11 

Tax on equity settled share-based payment transactions

-

-

(45)

(45)

Exercise of share options

12

333

345 

LTIP shares awarded

4

-

(4)

Dividends

-

-

(5,668)

(5,668)

Total contributions by and distribution to owners

16

333

(5,706)

(5,357)







Balance at 31 March 2019

3,727

6,470

(311)

6,824 

16,710 







Balance at 1 April 2017 as originally reported

3,687

6,137

(311)

2,912 

12,425 

Restatement due to adoption of IFRS15 (see revenue recognition policy)

-

-

-

(3,611)

(3,611)

Restated balance at 1 April 2017

3,687

6,137

(311)

(699)

8,814 







Total comprehensive income for the year






Profit as restated

-

-

10,188 

10,188 







Other comprehensive income/(expense)






Remeasurement of defined benefit pension schemes

-

-

1,142 

1,142 

Tax on defined benefit pension schemes

-

-

(194)

(194)

Foreign exchange translation adjustments

-

-

(20)

(20)

Total other comprehensive income

-

-

928 

928 

Total comprehensive income for the year

-

-

11,116 

11,116 







Transactions with owners, recorded directly in equity






Equity settled share-based payment transactions

-

-

(620)

(620)

Tax on equity settled share-based payment transactions

-

-

85 

85 

LTIP shares awarded

24

-

(24)

Dividends

-

-

(5,370)

(5,370)

Total contributions by and distribution to owners

24

-

(5,929)

(5,905)







Balance at 31 March 2018

3,711

6,137

(311)

4,488 

14,025 

Other reserves relate to the acquisition of a minority interest in a subsidiary.

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR TO 31 MARCH 2019



2019 


2018 



£'000 


£'000 

Cash flows from operating activities





Cash generated from operations


6,874 


10,540 

Interest received


1,497 


1,271 

Interest paid



(4)

Tax paid


(1,576)

 

(2,537)

Net cash generated from operating activities


6,795 


9,270 

 

Cash flows from investing activities





Proceeds from sale of property, plant and equipment



Purchase of intangible assets


(781)


(361)

Purchase of property, plant and equipment


(371)


(659)






Net cash used in investing activities


(1,152)


(1,019)






Cash flows from financing activities





Proceeds from exercise of share options


345 


Dividends paid to shareholders


(5,668)


(5,370)

Net cash used in financing activities


(5,323)


(5,370)

Net increase in cash and cash equivalents


320 


2,881 






Cash and cash equivalents at beginning of period


34,243 


31,362 






Cash and cash equivalents at end of period


34,563 


34,243 






Cash and cash equivalents comprise:





Cash


36,868 


40,311 

Bank overdrafts


(2,305)


(6,068)



34,563 


34,243 

 

NOTES TO THE PRELIMINARY RESULTS

 

(1) Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS's) as adopted by the European Union (EU) including International Financial Reporting Interpretations Committee (IFRIC) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

Park Group plc is incorporated and domiciled in the United Kingdom. The financial statements have been prepared under the historical cost convention, as modified by the accounting for financial instruments at fair value where required by IAS 39 Financial Instruments: Recognition and Measurement. The Group financial statements are presented in sterling and all values are rounded to the nearest thousand (£'000) except where otherwise stated.

 

The accounting policies have been applied consistently to all periods presented in these financial statements and by all Group entities.

 

(2) Going concern

The Group's business activities, together with factors likely to affect its future development, performance and position, are set out in the Business and Operating Review. The financial position of the Group, its cash flows, liquidity and solvency position and financial risks are described in the Financial Review.

 

The Group's forecasts and projections, taking into account reasonably possible changes in trading performance and customer behaviour, show that the Group has sufficient financial resources to fund the business for the foreseeable future. Whilst funds are available for working capital purposes as permitted under the terms of the PPPT, the Group does not envisage accessing these funds in the period covered by these forecasts. The Group's working capital requirements are dependent upon a continuing level of prepaid sales to corporate customers. The Group continues to trade profitably and early indications for growth in the current year are positive. Accordingly, the directors continue to adopt the going concern basis in preparing the consolidated financial statements.

 

(3) Changes to International Financial Reporting Standards

Interpretations and standards which became effective during the year

The following accounting standards and interpretations, that are relevant to the Group, became effective during the period:




 



Effective from accounting period  beginning on or after:

IFRS 2

Classification and measurement of share based payment transactions (amendments)

 

1 Jan 2018

IFRIC 22

Foreign currency transactions and advances considerations

1 Jan 2018

IFRS 9

Financial Instruments

1 Jan 2018

IFRS 15

Revenue from Contracts with Customers

1 Jan 2018

 

The impact of IFRS15 on the financial statements is shown below.

 

The adoption of IFRS9 has had an immaterial impact on the Group's financial performance or position.

 

Adoption of the remaining amendment and interpretation to standards has not had a material impact upon the Group's financial performance or position.

 

Interpretations and standards which have been issued and are not yet effective

The following standards have been adopted by the EU but are not yet effective for the year ended 31 March 2019 and have not been applied in preparing the financial statements. Those standards that have relevance to the Group are mentioned below:



Effective from accounting period  beginning on or after:

IFRIC 23

Uncertainty over Income Tax Treatment

1 Jan 2019

IFRS 16

Leases

1 Jan 2019

 

 

IFRS 16 replaces IAS 17 Leases.  It will become effective for the Group from 1 April 2019 and the Group has decided to take a modified retrospective approach to implementation of the standard.  Under this approach, the cumulative effect of initial application of the standard is recognised at the date of adoption, ie 1 April 2019.  The Group is in the process of finalising the impact the new standard will have on the financial statements but currently do not believe a material adjustment will be required in respect of leases in place at 31 March 2019 given the current value of operating leases payable.  Under the standard, the Group will recognise right-of-use assets and lease liabilities for all operating and finance leases unless the lease term is 12 months or less or the underlying asset has a low value.

 

The largest impact of the new standard is expected to be on the accounting treatment of property rentals payable, once the lease is completed. This will create a right-of-use asset and a lease liability. Rental charges will be reclassified as finance charges and depreciation. Key accounting judgements will be an appropriate discount rate and the level of certainty of exercising lease options.

 

(4)   Accounting policies

The financial information in this preliminary announcement has been prepared in accordance with the accounting policies described in the annual report and accounts for the year ended 31 March 2018, except for those policies described below. The annual report and accounts for the year ended 31 March 2018 can be found on our website at www.parkgroup.co.uk.

 

Revenue recognition

With effect from 1 April 2018 the group adopted IFRS 15 Revenue from Contracts with Customers.  The group applied the full retrospective approach when transitioning to the new standard and as a consequence the date of transition to IFRS15 was 1 April 2017.  The group prepared its opening statement of financial position as at that date.

 

The group recognises revenue from contracts with customers when control over the goods and services is transferred to the customer.  Revenue is recognised at an amount that reflects the consideration to which the group expects to be entitled in exchange for those goods and services, net of VAT, rebates and discounts. 

The group is a principal if it controls the promised good or service before transferring it to the customer. The group is an agent if its role is to arrange for another entity to provide the good or service.  The group acts as an agent in the sale of multi-retailer redemption products and travel agency services and therefore fees that are retained for its agency service are recorded in revenue on a net basis.  For all other products and services, the group acts as a principal and revenues are recorded on a gross basis.

 

As described below, the majority of revenues are recognised at a point in time.  For multi-retailer redemption products revenue is recognised when the products are redeemed; for single retailer redemption products and other goods revenue is recognised when the goods are received by the customer.  Revenue for other services is recognised over time or at a point in time depending on the nature of the revenue stream, as described further in (ii) below.

 

The group's multi-retailer redemption products may be partially or fully redeemed, and the unused amount (ie the non-refundable unredeemed or unspent funds on a voucher, card or e-code at expiry) is referred to as breakage.  Where the end user has no right of redemption (corporate gifted cards), the group may expect to earn a breakage amount and this is recognised as revenue in proportion to the actual timing of redemptions.   Where the customer has the right of redemption, breakage is recognised as revenue when the card has expired and the right of redemption has lapsed. 

 

Significant accounting judgements and estimates relating to revenue are described on pages 27 and 28.

 

Impact of the adoption of IFRS15

The adoption of IFRS15 does not impact billings to external customers or clients or cash flow, nor does it change the overall profitability of the business model.  However, it has led to the group recognising significantly lower revenues, an immaterial movement in operating profit and a reduced net asset position in retained earnings for all restated periods.

 

The effects of adopting IFRS15 on the Consolidated Statement of Financial Position at 1 April 2017 are detailed below:

 

Consolidated Statement of Financial Position











 

01.04.2017

As

Previously

Reported

IFRS15

Revenue

Classification

& Presentation

Adjustments

 

IFRS15

Revenue

Timing

Adjustments

 

 

 

01.04.2017

Restated


£'000

£'000

£'000

£'000






Key impacts


(i) & (iii)

(ii)







Assets





Non-current assets





Deferred tax

(194)

-

848

654






Current assets





Trade and other receivables

9,096

-

140

9,236






Liabilities





Current liabilities





Trade and other payables

(82,602)

-

(4,599)

(87,201)






Equity attributable to equity holders of the parent





Retained earnings

2,912

-

(3,611)

(699)

 

The effects of adopting IFRS15 on the financial year ended 31 March 2018 are detailed below:

 

Consolidated Statement of Profit or Loss











 

2018

As

Previously

Reported

IFRS15

Revenue

Classification

& Presentation

Adjustments

 

IFRS15

Revenue

Timing

Adjustments

 

 

 

2018

Restated


£'000

£'000

£'000

£'000






Key impacts


(i) & (iii)

(ii)







Revenue





Goods - Single retailer redemption products

60,621

-

-

60,621

Other goods

8,497

-

-

8,497

Services - Multi-retailer redemption products

221,136

(184,797)

(252)

36,087

Other services

5,862

-

(85)

5,777

Other

72

-

-

72


296,188



111,054






Cost of sales

(264,490)

184,797

65

(79,628)

Gross profit

31,698

-

(272)

31,426






Operating profit

11,589

-

(272)

11,317






Profit before taxation

12,859

-

(272)

12,587

Taxation

(2,450)

-

51

(2,399)

Profit for the year attributable to equity holders of the parent

 

10,409

 

-

 

(221)

 

10,188






Earnings per share





 - basic (p)

5.62

-

(0.12)

5.50

 - diluted (p)

5.60

-

(0.12)

5.48











Consolidated Statement of Financial Position











 

2018

As

Previously

Reported

IFRS15

Revenue

Classification

& Presentation

Adjustments

 

IFRS15

Revenue

Timing

Adjustments

 

 

 

2018

Restated


£'000

£'000

£'000

£'000






Key impacts


(i) & (iii)

(ii)







Assets





Non-current assets





Deferred tax

(662)

-

899

237






Current assets





Trade and other receivables

10,872

-

45

10,917






Liabilities





Current liabilities





Trade and other payables

(89,816)

-

(4,776)

(94,592)






Equity attributable to equity holders of the parent





Retained earnings

8,320

-

(3,832)

4,488

 

Key impacts of IFRS15

Having applied the principles of IFRS15, the directors have concluded that the key impacts for the group are:

(i)    Principal and Agent classification (affecting 'gross' and 'net' revenue recognition).

(ii)   Timing of revenue recognition.

(iii)  Presentation and disclosure.

 

The primary driver of the reduction in revenue and cost of sales is the presentation of Love2Shop vouchers, where the group is now deemed to act as the agent and revenue is based on service fees received, rather than the face value of the vouchers sold.  This has no impact on profit.  Further details are provided in (i) below.

 

The IFRS15 profit impacts, marked as (ii) above, relate principally to the deferral of service fee for vouchers and breakage for vouchers, cards and e-codes which are now recognised in proportion to actual redemption timing, rather than on despatch or load.  Further details are provided in (ii) below.

 

The adjustment to retained earnings at 01.04.17 and at 31.03.18 represents the cumulative effect of the revenue, and profit, timing adjustments (ii) for all restated periods.

 

Adjustments in respect of other revenue streams are immaterial.

 

The impact of the IFRS15 adjustments on the tax expense and deferred tax is also reflected above.

 

The adoption of IFRS15 does not impact Other Comprehensive Income or the Statement of Cash Flows.

 

The group's primary revenue streams are as follows:

1.   Services - multi-retailer redemption products

a)   Love2shop vouchers

b)   flexecash® cards and e-codes

c)   Mastercards

2.   Goods - single retailer redemption products

a)   third party vouchers, cards and e-codes

3.   Other goods

a)   hampers and gifts

4.   Other services

a)   brand engagement

b)   packing

c)   collection and delivery

d)   travel agency

e)   other services

 

Customers are offered standard business credit terms or pay in advance for their products and services.

 

The adoption of IFRS15 has significantly impacted the reporting of revenue in respect of the group's multi-retailer redemption products.  The revenue associated with these products is as described below.

 

For multi-retailer redemption products, the group now recognises revenue for service fees, cardholder fees and breakage.

 

The group has contractual relationships with each of the redeemers.  The group earns a service fee from the redeemer when a consumer redeems their voucher, card or e-code with that redeemer.

 

Cardholder fees are earned for services provided to cardholders such as issue, dealing with lost/stolen/damaged cards and maintenance.

 

The multi-retailer redemption products may be partially or fully redeemed, and the unused amount (ie the non-refundable unredeemed or unspent funds on a voucher, card or e-code at expiry) is referred to as breakage.  Where the end user has no right of redemption (corporate gifted cards), the group may expect to earn a breakage amount.  However, where the customer has the right of redemption, no breakage is recognised until the card has expired and the right of redemption has lapsed.

 

IFRS15 also impacts the following costs:

·      discounts provided to corporate clients; and

·      commission rewards paid to Park Christmas Savings agents for their orders.

These are described further within (ii) and (iii) below.

 

(i) Principal and Agent

Under IFRS15, the group is a principal (and records revenue on a gross basis) if it controls the promised good or service before transferring it to the customer.

 

The group is an agent (and records as revenue the net amount that it retains for its agency services) if its role is to arrange for another entity to provide the good or service.

 

The directors have concluded that the group acts as an agent when it supplies multi-retailer redemption products in exchange for a service fee from the redeemer.  This results in the restatement of revenues from the sale of Love2shop vouchers.

 


Revenue stream

Principal / Agent

Gross / Net revenue

Revenue based on

Previous basis

1a)

Love2shop vouchers

Agent

Net

Service fees received from redeemers

Gross face value of the vouchers

1b)

flexecash® cards and e-codes

Agent

Net

Service fees received from redeemers

No change

1c)

Mastercards

Agent

Net

Service fees received from redeemers

No change

2a)

Third party vouchers, cards and e-codes

Principal

Gross

Values invoiced to external customers for goods

No change

3a)

Hampers and gifts

Principal

Gross

Values invoiced to external customers for goods

No change

4a)

Brand engagement

Principal

Gross

Values invoiced to external customers for services

No change

4b)

Packing

Principal

Gross

Values invoiced to external customers for services

No change

4c)

Collection and delivery

Principal

Gross

Values invoiced to external customers for services

No change

4d)

Travel agency

Agent

Net

Agent's commission received

No change

4e)

Other services

Principal

Gross

Values invoiced to external customers for services

No change

 

For multi-retailer redemption products, in addition to the service fees noted above, the group also earns cardholder fees and breakage as follows:

 


Revenue stream

Principal / Agent

Gross / Net revenue

Revenue based on

Previous basis

1.

Cardholder fees

Principal

Gross

Charges levied

No change

1.

Breakage

Principal

Gross

Non-refundable unredeemed funds

No change*

 

* See (iii) below for presentational change.

 

For all revenue streams, intra-group sales are eliminated and revenue is recorded net of VAT, rebates and discounts.

 

(ii) Timing of revenue recognition

Under IFRS15, revenue is recognised when (or as) an entity satisfies an identified performance obligation by transferring a promised good or service to a customer.  A good or service is considered to be transferred when the customer obtains control.

 

As summarised below, the adoption of IFRS15 has resulted in the deferral of service fees relating to Love2shop vouchers and breakage relating to multi-retailer redemption products, until the point at which the products have been redeemed.  Previously they were recognised on despatch. 

 


Revenue stream

Revenue recognised

Previously recognised

1a)

Love2shop vouchers

Service fees - when product is redeemed.

On despatch of product.



Breakage - in proportion to actual redemption timing.

On despatch of product.

1b)

flexecash® cards and e-codes

Service fees - when product is redeemed.

No change



Cardholder fees - when fees are levied.

No change



Breakage (where end user has no right of redemption) - in proportion to actual redemption timing.

On despatch or load of product.



Breakage (where end user has the right of redemption) - when product has expired and the right of redemption has lapsed.

No change

1c)

Mastercards

Service fees - when product is redeemed.

No change



Cardholder fees - when fees are levied.

No change



Breakage (where end user has no right of redemption) - in proportion to actual redemption timing.

On despatch or load of product.



Breakage (where end user has the right of redemption) - when product has expired and the right of redemption has lapsed.

No change

2a)

Third party vouchers, cards and e-codes

When the customer obtains control of the goods - usually the date on which they are received by the customer.

No change

3a)

Hampers and gifts

When the customer obtains control of the goods - usually the date on which they are received by the customer.

No change

4a)

Brand engagement

Over time.  As the services provided are unique to each client, the group's performance creates an asset with no alternative use to the group.  Additionally, the group has an enforceable right to payment for work performed.  Revenue continues to be recognised using input methods, as this is the measure of progress which most faithfully depicts the group's performance towards complete satisfaction of the performance obligation.  The majority of projects are less than 12 months in duration.

No change

4b)

Packing

When the customer obtains control of the service - usually the date on which they are received by the customer.

No change

4c)

Collection and delivery

When the customer obtains control of the service - usually the date on which they are received by the customer.

No change

4d)

Travel agency

When the commission is paid by the third party agent.

At the point of travel booking.

4e)

Other services

When the customer obtains control of the service - usually the date on which they are received by the customer.

No change

 

Travel commission represents variable consideration contingent on future events (as travel plans can be changed or cancelled after the original booking date).  Accordingly, the group does not recognise revenue until it is highly probable that a significant reversal in the amount of cumulative revenue will not occur.

 

The timing of the following costs is also impacted by IFRS15.

 

Cost

Timing of recognition

Previously recognised

Discounts for multi-retailer redemption products provided to corporate clients

In proportion to actual redemption timing.

Voucher discounts were recognised on despatch.  No change for cards and e-codes.

Commission rewards for multi-retailer redemption products

In proportion to actual redemption timing.

Expensed as incurred.

 

(iii) Presentation and disclosure

The group's implementation of IFRS15 has introduced some presentational changes as follows:

 


Presentation

Previous presentation

Breakage on multi-retailer redemption products

Presented as revenue in the Statement of Profit or Loss.

Voucher breakage was presented in cost of sales.
No change for cards and e-codes.

Deferred revenue for multi-retailer redemption products - service fees

Presented as deferred income in the Statement of Financial Position for vouchers, cards and e-codes.

Presented as deferred income for cards and e-codes only.

Deferred revenue for multi-retailer redemption products - breakage

Presented as deferred income in the Statement of Financial Position for vouchers, cards and e-codes.

Not deferred.

Discounts

Discounts form part of the  transaction price and are therefore presented as deductions from revenue in the Statement of Profit or Loss.

No change.

 

Deferred discounts for multi-retailer redemption products

Netted against deferred income in the Statement of Financial Position for vouchers, cards and e-codes.

Netted against deferred income for cards and e-codes only.

Agents' commission

Incremental cost of obtaining customer contracts, presented in cost of sales in the Statement of Profit or Loss.

No change.

 

Deferred agents' commission for multi-retailer redemption products

Commission costs for multi-retailer redemption products are included in prepayments in the Statement of Financial Position

Not deferred.

 

Prepaid costs and deferred income are not discounted to take into account the expected timing of redemption as the impact is not considered to be material.  This is due to the fact that over 90 per cent of multi-retailer redemption products are redeemed within 12 months of issue.

 

Contract balances

Trade Receivables

A receivable represents the group's right to an amount of consideration that is unconditional (ie only the passage of time is required before payment of that consideration is due).

 

Contract Liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the group has received consideration (or an amount of consideration is due) from the customer.  Contract liabilities are presented as deferred income within trade and other payables.

 

Billings

Billings represents the value of goods and services shipped and invoiced to customers during the year and is recorded net of VAT, rebates and discounts.  Billings is an alternative performance measure, which the directors believe provides a more meaningful measure of the level of activity of the group than revenue.  This is due to revenue from multi-retailer redemption products being reported on a 'net' basis, whilst revenue from single retailer redemption products and other goods are reported on a 'gross' basis.

 

The reconciliation between billings and revenue is as follows:

 


2019

2018


£'000

£'000

Billings

426,901

412,786

Multi-retailer redemption products - gross to net revenue recognition

(315,305)

(301,271)

Timing of revenue recognition

(1,202)

(461)

Revenue

110,394

111,054

 

Financial instruments (selected policies where changed)

Financial assets and liabilities are recognised in the group's statement of financial position when the group becomes party to the contractual provisions of the instrument.

 

Financial assets

Financial assets are classified, at initial recognition, and subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.  The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the group's business model for managing them.

 

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are 'solely payments of principal and interest (SPPI)' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

 

The group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

 

The group only holds financial assets that are classified as loans and receivables and are measured at amortised cost.   The group measures financial assets at amortised cost if both of the following conditions are met:

 • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and

• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding

 

 Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

 

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the group's statement of financial position) when:

• The rights to receive cash flows from the asset have expired; or

• The group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either:

(a) the group has transferred substantially all the risks and rewards of the asset, or

(b) the group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

 

When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the group continues to recognise the transferred asset to the extent of its continuing involvement.

 

Trade and other receivables

For trade and other receivables the group applies the simplified approach permitted by IFRS9, with lifetime expected credit losses (ECLs) recognised from initial recognition of the receivable. These assets are assessed based on the group's historical credit loss experience adjusted for forward looking information.  The group uses historical trends to then apply this to an assessment of the likely credit losses in the future.  The group's experience has shown that aging of receivable balances is primarily due to normal collection process issues rather than increased likelihood of non-recoverability, and therefore IFRS9 has had an immaterial impact on the group's financial performance or position.  At each reporting date, management reviews the carrying amount of its receivables to determine whether there is any indication that those assets had suffered an impairment loss. 

 

In respect of receivables from subsidiaries, management's assessment of the impact of IFRS9 has focused on the change in IFRS9 around ECLs on intercompany balances.  The loans to the subsidiary companies are classified as repayable on demand.  Management have considered the probability of default, the loss given default, when the borrower is not capable of repaying on demand, and the discount rate when calculating ECLs.  As the intercompany loans have no terms and the company expects a full recovery of the loan, there is no credit loss per time value lost.  Therefore no ECLs have been recognised on intercompany balances.

 

Provisions

Unredeemed vouchers and cards

Unredeemed vouchers and unspent balances on flexecash® cards and e-codes where the cardholder does not have the right of redemption (corporate gifted cards), are included at their present value at the date of recognition. This comprises the anticipated amounts payable to retailers on redemption, after applying an appropriate discount rate to take into account the expected timing of payments. Anticipated payments to retailers are assessed by reference to historical data as to voucher and card redemption rates and timings. The key estimates used in deriving the provision include the future service fees paid by retailers, interest rates used for discounting and the timing and amount of the future redemption of vouchers and cards. The future cash payments are discounted as required under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as the amounts are considered to be material. The service fee and breakage revenue associated with multi-retailer redemption products is deferred as described in the revenue recognition accounting policy.

 

(5)   Key judgements and estimates

The preparation of financial statements in conformity with IFRS requires the use of estimates and judgements that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.  New judgements and estimates for the year to 31 March 2019 are shown below.

 

Judgements

In applying the accounting policies, management has made the following judgements:

 

Revenue

In applying the principles of IFRS15, management have considered whether the group is a principal or agent when it supplies multi-retailer redemption products.  Having assessed the nature of the group's contractual relationships with retailers, the directors have concluded that the group acts as an agent in exchange for a service fee as it does not control the transfer of goods or services by the retailer to the product holder upon redemption.  This results in 'net' revenue recognition as described in the revenue recognition accounting policy.

 

For cardholder fees and breakage associated with multi-retailer redemption products, the group acts as a principal in its contractual relationship with the product holders.  This results in 'gross' revenue recognition as described in the revenue recognition accounting policy.

 

Under IFRS15, entities are required to disclose disaggregated revenue information to illustrate how the nature, amount, timing and uncertainty about revenue and cash flows are affected by economic factors.  Management have considered this requirement and have disclosed information with regard to type of good or service, market or type of customer, timing of transfer of goods or services and geographical region.  Management believe that this level of disaggregation is sufficient to satisfy the disclosure requirements of the standard.

 

Unredeemed cards

The directors have assessed the features of the group's multi-retailer redemption products and concluded that unredeemed balances on corporate gifted cards do not meet the definition of a financial liability within the scope of IFRS9.  This is because the cards have expiry dates after which the card cannot be redeemed.  The cards can also be redeemed with the group for certain goods or services and cannot be redeemed in cash.  As a result, the liabilities relating to these products are not within the scope of IFRS9 and are instead measured in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.  

 

Land and buildings

Subsequent to an assessment of the value of the Valley Road property conducted in early 2019 an assessment was made whether the property asset was an asset held for sale at 31 March 2019. As the sale of the property is not considered to be highly probable within 12 months, the property will continue to be classified as property, plant and equipment within non-current assets and impaired to the level of the current valuation indication.

 

Estimates

The key assumptions and other sources of estimation uncertainty at the reporting date are described below:

 

Breakage

For multi-retailer redemption products where the end user has no right of redemption (corporate gifted cards), the group may expect to earn a breakage amount.  In order to calculate the expected breakage amount, the group estimates how many products will be fully redeemed and how many will be partially redeemed.  For those which are partially redeemed, the group estimates projected balances remaining on the products at expiry.  Historical data and current trends regarding patterns of redemption and expiry are used to prepare the estimates.  As redemption behaviour may differ by market, historical data and current trends are reviewed at this level.  If the expected level of breakage were to change by 0.1 per cent, the impact on revenue for the reporting period would be £0.2m.  Management have considered the sensitivity of this estimate and do not foresee that any likely change to the estimate will have a material impact on either the level of deferred income held in the statement of financial position or the amount of revenue for the reporting period.

 

Deferred income - Love2shop voucher redemption timing

Revenue for multi-retailer redemption products is recognised in proportion to actual redemption timing, generating deferred income balances until the point of redemption.  For Love2shop vouchers, there is a time delay between the point of redemption and when they are physically returned to the group for validation and accounting purposes.  To negate the effects of this delay, an adjustment is made at the end of the reporting period, which estimates the value of vouchers already redeemed but not yet returned to the group and records the associated revenue.  Historical data over a number of years and current trends are used to prepare the estimate.  Management have considered the sensitivity of this estimate and do not foresee that any likely change to the estimate will have a material impact on either the level of deferred income held in the statement of financial position or the amount of revenue for the reporting period.

 

Property, plant and equipment - Value of Valley Road site

In December 2018 Park Group plc announced their intention to relocate the majority of their operations from the current site in Valley Road, Birkenhead to a modern city centre location in Liverpool. Subsequent to this, Glenbrook Property made an assessment of the value of the site. This took into account an assessment of the worth at sale, as well as the likely rental for spaces retained by Park and an assessment of the vacant space. This assessment has now been completed and the value of the site has been impaired to £5.0m, which is management's best estimate of market value.  Any differences to this estimate may necessitate a material adjustment to the value of the property, plant and equipment held in the statement of financial position. 

 

(6)   Segmental analysis

The Group's operations are divided into two principal operating segments:

 

·      Consumer - which represents sales to consumers, utilising the Group's Christmas savings offering and our website, highstreetvouchers.com; and

·      Corporate - comprising sales to businesses, offering primarily sales of the Love2shop voucher, flexecash® cards, Mastercards and e-codes in addition to other retailer vouchers.

 

All other segments are those items relating to the corporate activities of the group which it is felt cannot be reasonably allocated to either business segment. 

 

The amount included within the other segments/elimination column reflects products sold by the corporate segment to the consumer segment.  They have been included in other segments/elimination so as to show the total revenue for both segments.

 

Finance income, finance costs and taxation are not allocated to individual segments as they are managed on a group basis.

 


Consumer

Corporate

All other 

segments/ 

elimination 

2019 

Total 

Consumer

Corporate

All other 

segments/ 

elimination 

Restated*2018 

Total 


£'000

£'000

£'000 

£'000 

£'000

£'000

£'000 

£'000 

Billings









External billings

232,096

194,805

426,901 

232,635

180,151

412,786 

Inter-segment billings

-

134,714

(134,714)

-

140,751

(140,751)

Total billings

232,096

329,519

(134,714)

426,901 

232,635

320,902

(140,751)

412,786 










Revenue









External revenue

58,886

51,508

110,394 

61,250

49,804

111,054 

Inter-segment revenue

-

38,204

(38,204)

-

39,462

(39,462)

Total revenue

58,886

89,712

(38,204)

110,394 

61,250

89,266

(39,462)

111,054 










Inter-segment sales are entered into under normal arm's length commercial terms and conditions.

Result









Segment operating profit/(loss)

 

6,809

 

7,789

 

(4,866)

 

9,732 

 

7,246 

 

6,700 

 

(2,629)

 

11,317 

 

Finance income




1,572 




1,274

Finance costs







(4)

Profit before taxation




11,304 




12,587 

Taxation




(2,422)




(2,399)

Profit




8,882 




10,188 

 

* Revenue, operating profit, profit before taxation and profit have been restated for implementation of IFRS15, see revenue recognition accounting policy.  As well as restating the prior year results for the effects of IFRS15, there has also been a movement from the corporate segment to the consumer segment in respect of the consumer element of our website highstreetvouchers.com.  This movement amounted to £8,093,000 of billings, £2,649,000 of revenue and £68,000 of operating profit.

 

(7)   Taxation


 

2019

£'000



Restated*

2018

£'000

Charge for the year - current and deferred


2,422



2,399

 

Comments on the effective tax rate can be found in the Financial Review.

 

* Restated for implementation of IFRS15, see revenue recognition accounting policy

 

(8)   Earnings per share

The calculation of basic and diluted EPS is based on the profit on ordinary activities after taxation of £8,882,000 (2018 - £10,188,000) and on the weighted average number of shares, calculated as follows:


2019



2018

Basic EPS - weighted average number of shares

185,964,433



185,268,587

Diluting effect of employee share options

112,540



601,293

Diluted EPS - weighted average number of shares

186,076,973



185,869,880

 

(9)   Impairment of property, plant and equipment

 

In December 2018 Park Group plc announced their intention to relocate the majority of their operations from the current site in Valley Road, Birkenhead to a modern city centre location in Liverpool.  Subsequent to this, Glenbrook Property made an assessment of the value of the site.  This took into account an assessment of the worth at sale, as well as the likely rental for spaces retained by Park and an assessment of the vacant space.  This assessment has now been completed and the value of the site has been impaired by £1.2m to £5.0m, which is management's best estimate of market value.

 

(10)   Reconciliation of profit for the year to net cash inflow from operating activities

 



2019


Restated* 

2018 



£'000


£'000 

Profit for the year


8,882


10,188






Adjustments for:





Tax


2,422


2,399

Interest income


(1,572)


(1,274)

Interest expense


-


4

Research and development tax credit


(54)


(121)

Depreciation and amortisation


1,394


1,428

Impairment of property, plant and equipment


1,210


-

Impairment of goodwill


17


17

Profit on sale of other intangibles and property, plant and equipment


-


(1)

Increase in inventories


(766)


(1,176)

Increase in trade and other receivables


(1,589)


(1,678)

(Decrease)/increase in trade and other payables


(877)


4,197

Increase in provisions


10,274


1,848

Increase in monies held in trust


(12,259)


(3,974)

Decrease in retirement benefit obligation


(215)


(676)

Translation adjustment


(3)


(20)

Taxes paid on share-based payments


(116)


(851)

Share-based payments


126


230

Net cash inflow from operating activities


6,874


10,540

 

* Restated for implementation of IFRS15, see revenue recognition accounting policy

 

(11)   Responsibility Statement

 

To the best of each director's 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 management 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.

 

 

(12)   The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 March 2019 or 2018 but is derived from those accounts.

 

Statutory accounts for 2018 have been delivered to the registrar of companies.  The auditor, Ernst & Young LLP, has reported on the 2018 accounts; the report (i) was unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.  

 

The statutory accounts for 2019 will be delivered to the registrar of companies following the AGM. The auditors have reported on these accounts; their report is unqualified and does not include a statement under either section 498(2) or (3) of the Companies Act 2006.

 

The annual report will be posted to shareholders on or before 1 August 2019 and will be available from that date on the Group's website: www.parkgroup.co.uk.

 

-ends


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