8 February 2022

 

Joules Group plc

("Joules", the "Group")

 

Interim Results for the 26 weeks ended 28 November 2021 ("H1 FY22" or the "Period")

 

H1 FY22 Highlights:

26 weeks ended	28 November 2021	(LY) 29 November 2020	(LY-1) 24 November 2019	Variance to LY	Variance to LY-1
Group Revenue	£127.9m	£94.5m	£111.6m	+35%	+15%
Gross Margin %	50.4%	50.2%	54.8%	+0.2%pts	-4.4%pts
PBT pre adjusting items	£2.6m	£3.7m	£8.4m	-£1.1m	-£5.8m
Statutory PBT	£2.6m	£1.3m	£1.7m	+£1.3m	+£0.9m
Net (Debt) / Cash	(£5.4m)	£15.6m	£2.1m	-£21.0m	-£7.5m

-      Joules' brand awareness¹ increased 2.0%pts to reach record levels (+2.9%pts increase on a two-year basis) and active customers² increased by nearly 160,000 in the Period to total over 1.9m

-      Group revenue increased by 35% to £127.9m (H1 FY21: £94.5m)

o  Store revenue increased by more than 80% to £35.5m (H1 FY21: £19.7m), reflecting a very strong recovery in retail demand to almost pre-pandemic levels

o  Total e-commerce sales across the Group's websites and third-party e-commerce partners increased by 14% against the prior period, and 53% on a two-year basis, driven by Garden Trading (acquired in February 2021) and strong performance through the Group's digital partners

-     Gross margin increased by 0.2%pts to 50.4% (H1 FY21: 50.2%) due to an improved mix of full price sales and recovery of higher margin store revenue, offset by significant increases to freight costs and outbound Brexit duties and taxes

-      Operating expenses increased by 52.6% to £52.2m (H1 FY21: £34.2m, H1 FY20: £41.7m), reflecting:

o  The end of government support and other COVID related savings in the prior year;

o  Increased wage costs in our distribution centre;

o  Increased digital marketing costs; and

o  The acquisition of Garden Trading

-      Statutory PBT after adjusting items of £2.6m represented an increase of £1.3m on the prior year (H1 FY21: £1.3m)

-     Net debt of £5.4m (H1 FY21: net cash of £15.6m). Cash outflow was driven by normalisation of inventory and the acquisition of Garden Trading

 

Nick Jones, Chief Executive Officer, commented:

"Whilst the Group experienced strong levels of customer demand that resulted in good revenue growth against the prior two comparative periods, Group profitability in the first half was impacted by various factors, most notably the severe inflationary cost environment. We have a clear plan of action to simplify the business, enhance efficiencies and mitigate the cost pressures that will enable the Group to convert the strong levels of customer demand into sustainable, profitable growth.

 

"Whilst we acknowledge that there are areas within the business where we need to simplify our operations and improve profitability, we remain very excited in our long-term growth prospects. We have continued to see improvements in brand awareness and customer numbers, and we are confident that our broadened lifestyle proposition - which benefits from increased product and category diversification through Friends of Joules and Garden Trading - is more relevant than ever to consumers."

1.        Brand Awareness & Brand Health metrics are from the YouGov industry panel survey

2.        An active customer is a customer that is registered on the Joules or Garden Trading database and has transacted in the last 12 months

 

Enquiries:

 

Joules Group plc	Tel: +44 (0) 1858 435 255
Nick Jones, CEO Caroline York, CFO
Hudson Sandler (Financial PR)	Tel: +44 (0) 20 7796 4133
Alex Brennan Lucy Wollam
Peel Hunt LLP, Nominated Advisor and Joint Broker	Tel: +44 (0) 20 7418 8900
George Sellar Andrew Clark
Liberum Capital Limited, Joint Broker	Tel: +44 (0) 20 3100 2000
John Fishley Edward Thomas

 

Joules - a premium lifestyle group with an authentic British heritage

Joules is a premium lifestyle brand and group with an authentic heritage and values of family, fun and joy in the countryside.

Joules creates and curates exceptional products that brighten the lives of its customers, delivered through leading digital platforms and supported by enticing experiences and stores that are located in desirable locations relevant to the Joules customer's lifestyle. 

The Joules story began in 1989, when Tom Joule started selling clothing on a stand at a country show in Leicestershire. Today, the business designs and sells Joules-branded clothing, footwear and accessories for women, men and children as well as collections of homeware, toiletries, lifestyle and pet product ranges that are carefully designed and developed through selected licensing partnerships. Each collection comprises Joules' distinctive use of humour, colour and unique prints, each of which is hand-drawn by the brand's talented in-house print design team at its headquarters in Market Harborough, Leicestershire.

In 2021, Joules acquired leading digital home and garden retailer The Garden Trading Company, strengthening its position in the important and fast-growing home, garden & outdoor category. Similarly inspired by the British countryside, Garden Trading designs and sells distinctive products through its own e-commerce platform and wholesale partnerships with more than 1,000 stockists across the UK.

Joules' distinctive design-led products are complemented by an increasingly broad customer offer provided through its digital marketplace 'Friends of Joules' that enables third-party brands to offer curated, complementary products to the Joules customer base, enhancing Joules' digital platform with thousands of products from hundreds of creative businesses to give customers everything they could ever need for a contemporary country lifestyle.

The Joules group caters to its 1.9 million active customers through its own digital platforms, its retail stores in the UK and at country shows and events. Joules extends its brand reach through well-established third-party relationships - concessions, online marketplaces, and traditional wholesale - in the UK and internationally.

 

www.joules.com                                                          

www.gardentrading.co.uk                                         

www.joulesgroup.com 

 

 

 

CEO'S STRATEGIC REVIEW

 

H1 PERFORMANCE OVERVIEW

 

To provide a better view of the Group's underlying performance, in parts of this report the Group is providing both year on year and two-year comparative figures. The prior year comparable period (H1 FY21) was characterised by boosted e-commerce demand, reflecting COVID-related social restrictions and the enforced closure of stores (both Joules' own stores and those of its wholesale partners) for 10 weeks of the 26-week period.

 

Customer demand for the Group's products remained strong during the Period, resulting in record levels of brand awareness as well as further good growth in revenues and the active customer base. Revenue in the Period increased by 35% year on year to £127.9m, which also represented growth against pre-pandemic revenue levels (H1 FY21: £94.5m; H1 FY20: £111.6m). This revenue performance reflects the Group's increasingly diversified lifestyle product offering, which now includes Garden Trading and our growing Friends of Joules digital marketplace, as well as the Group's flexible, multi-channel model.

 

We are pleased by the performance of our stores during the Period, which reflects the attractive locations of our retail estate. Alongside this strong rebound in store revenue, total e-commerce sales increased by 14%, with growth driven by a very strong performance through Joules' digital retail partners as well as the contribution from Garden Trading. As a result, 63% of total Group retail sales were generated through digital channels, reflecting the transformational growth of the Group's e-commerce presence over recent years.

 

Despite the good revenue growth, the Group's profitability for the Period was behind the Board's initial expectations, impacted by several factors:

 

·   Widely documented global supply chain issues resulted in delays to the arrival of stock at both Joules and Garden Trading, and significant additional costs associated with container rates were higher than the prior year and significantly higher than pre-pandemic levels;

·    Additional Brexit-related duties and taxes impacted Joules' EU business, leading to a re-focusing of the Group's EU growth strategy going forward;

·   Local labour shortages affected the productivity and costs associated with our third-party operated distribution centre (DC), as it experienced a higher turnover of staff and higher wage rates than expected. This productivity also impacted the throughput of the DC and the time taken to service customer orders. To address this, temporary staff were secured from further afield, which incurred additional cost but helped to secure resources during the peak trading period and ensure customer orders were fulfilled before Christmas; and

·     The cost of acquiring customers through digital channels also experienced inflation.

 

The Group is taking a series of near- and long-term actions aimed at mitigating these cost pressures and improving profitability, which are detailed below. Notwithstanding the disappointing profit outcome in the Period, we remain encouraged by the strong levels of customer demand, the appeal of our core Joules brand, and the good levels of revenue growth and, as a result, remain very confident in the Group's long-term growth strategy.

 

H1 STRATEGIC REVIEW

 

During the Period, the Group continued to focus on the four pillars of its long-term growth strategy, which are underpinned by the Group's Responsibly Joules sustainability framework as well as an increased focus on efficient operations.

 

Growth pillar 1: Increasing active customers

The appeal of the Joules brand remains a cornerstone of the Group's growth strategy. During the Period, Joules' brand awareness increased by a pleasing 2.0%pts against the prior year, reaching record levels.

 

We continue to focus on growing the Group's active customer base, as well as increasing those customers' frequency of interaction and spend with the brand. Active customers - being customers registered on the Joules or Garden Trading databases who have transacted in the last 12 months - increased by almost 160,000 against the comparable period, to stand at more than 1.9 million. This increase was driven primarily by growth in Joules-brand active customers, underpinned by the reopening of our store estate, digital acquisition of new customers and improved customer retention. We continue to believe that there is headroom for further customer growth in the UK and target international markets.

 

We are in the process of bringing our customer data back in-house, having previously been managed by an external provider, which will give us a richer understanding of customer behaviour. It will also power increased personalisation and relevance to our customer communications. These initiatives will improve decision making and allow for more targeted promotions both online and in store, with a view to improving our mix of full price sales.

 

Over the Period, the Group has invested further in its digital marketing, to support e-commerce and active customer acquisition.

 

Growth pillar 2: Broadening the product offer

We continue to see significant growth opportunities for the Group through expanding the ranges of the products we sell across Joules, Friends of Joules and Garden Trading, to both existing and new customers.

 

In February 2021, we acquired The Garden Trading Company, a digitally-led retailer of home and garden products inspired by the British countryside and lifestyle trends. The acquisition has added approximately 1,500 new home, garden, and outdoor lines to the Group's product offering. In the Period, Garden Trading continued to grow well, with revenue increasing by 4% versus the prior period, reflecting growth of 77% on a two-year basis. This performance was in line with the Board's expectations despite disruption caused by sector-wide supply chain issues.

 

The Friends of Joules online marketplace continued to perform very strongly, with revenue growing by 69% in the Period. The marketplace now offers more than 20,000 complementary products from 500 sellers across product categories including home, outdoor and garden, gifting, pets and clothing.

 

During the Period, the Group further expanded its licensing partnerships, with a new 'Gruffalo' childrenswear product collaboration and a new formal wear collection with Next, both of which were very well received by customers. Furthermore, the Group has been progressing with additional collaborations, including with Next Nursery and Graham & Brown wallpaper and paint, both of which will launch in the second half of FY22. Existing licensed product ranges, including the Joules brand's sofa range with DFS, continued to perform well.

 

Growth pillar 3: strengthening the digital platform

We continue to invest in the Group's digital platform so that it offers customers the best possible user experience as we transition to a fully integrated lifestyle marketplace platform.

 

During the Period we continued to invest in several customer experience-focused web developments including a new delivery and returns portal, as well as continuing to progress a customer data project to increase our levels of customer insight.

 

Traffic to Joules' websites (excluding Garden Trading) increased by 6% against a very strong prior year performance, representing growth of 52% on a two-year basis and reflecting the brand's increased active customer base as well as its broadened product offering.

 

During the Period, conversion decreased to 4.2% (4.5% in H1 FY21). This represents an increase of 0.51%pts on a two-year basis, reflecting the investments we made to enhance digital merchandising and user experience.

 

Total e-commerce sales, including owned and third-party platforms, increased by 14% year on year, representing growth of 53% on a two-year basis. This strong performance reflects the contribution from Garden Trading and a strong performance through Joules' digital retail partners.

 

Growth pillar 4: leveraging third-party partnerships

In addition to expanding the Joules brand through our own retail channels, we continue to develop attractive opportunities to grow in the UK and internationally through selected third-party digital and physical retail partners. Our systems and infrastructure have been developed to support a range of third-party models including the more traditional wholesale and retail concession models as well as the emerging marketplace, drop-ship and 'fulfilled by' models. 

 

Digital retail partnerships have been a standout area of growth, up over 100% in the Period, with Next and Zalando performing particularly well. Joules deepened its existing relationship with Next by evolving to its Platform Plus model, allowing for greater flexibility and inclusion of additional products on the Next.com website. Alongside this, Joules will be transitioning from a traditional wholesale model to a commission-based model with Marks & Spencer from February 2022.

 

Wholesale revenue, excluding Garden Trading, increased by 16% year on year, reflecting the reopening of the Group's wholesale partners in the UK and internationally. However, revenue remained significantly down (-35%) on a two-year basis as expected, due to the slower recovery from the pandemic, and was exacerbated by stock delays in the first half.

 

RESPONSIBLY JOULES

 

Also underpinning our growth strategy is the Group's sustainability framework, Responsibly Joules.

 

During the Period we continued to make good progress against our goals to increase the mix of sustainable materials used within our collections, including cotton, leather, rubber and denim, and implemented even more sustainable materials into our existing packaging. The first half of FY22 contained more sustainable materials than ever seen in a Joules range. We also graduated to full Ethical Trading Initiative (ETI) membership in July 2021, reflecting our commitment to ethical trading. We signed up to the BRC Climate Action Roadmap in October and we have now fully launched TrusTrace, which increases supply chain transparency & traceability. 88% of our tier 1 suppliers are currently on the system with our aim to achieve 100% by the end of FY22.

 

OPERATIONAL SIMPLIFICATION

 

Whilst the Group continues to experience strong levels of customer demand and good revenue growth, the Board recognises the need to take actions to improve profitability in the near, medium, and long-term by taking actions across the following areas of the business:

 

1.    Channel

In an increasingly digital retail environment, we have identified a need to simplify our distribution channels, particularly around our wholesale segment, and focus on developing partnerships only where we see long-term, profitable success.

 

Actions have been taken to terminate arrangements with stockists and EU sales agents that did not meet our profitability criteria. We are also evolving our USA wholesale product ranges with c25% fewer options in AW22 than AW21 and reviewing our partner base to focus on those partners giving the greatest customer reach and growth. Our focus remains with those partners that offer profitable distribution channels going forward and we expect to see the benefits from AW22 onwards.

 

As we continue to respond to global supply chain challenges, we have reviewed and increased our minimum wholesale order values across all markets to ensure that we invest in our most profitable partnerships going forward.

 

2.    Product and Pricing

The Group currently operates with long design lead times, in part to help satisfy the need for wholesale samples. In addition, the Group has a legacy product lifecycle management (PLM) system.

 

We are undertaking a review of our end-to-end product process in order to identify simplification opportunities. We will be shortening the product design lifecycle and we are implementing a new PLM system. In addition, we are reducing the need for physical wholesale samples by moving to a digital selling solution for wholesale partners.

 

Having kept our prices flat for several seasons, we are now increasing them from SS22, where necessary, to reflect the industry-wide increases seen in raw materials, production and freight costs. We expect to make further rises for AW22. We are confident that these increases will not impact our competitive pricing position, given the general inflationary pressures in the market, and that the brand will continue to represent great value for consumers.

 

Finally, we believe that we can benefit from recent investments in customer data systems to use promotions in a more targeted way. This will reduce our reliance on category wide, multi-channel promotional events and allow us to evolve our approach from FY23.

 

3.    Sourcing and supply chain

The Group has a long-standing, ethically sourced supplier base historically focused in China, but this is diversifying.

 

We are in the process of evolving our supply base and product cycles, which will help address the cost pressures from our supply chain. This includes sourcing more products closer to home, such as from Turkey, to reduce lead times and freight costs; and increasing the use of our digital wholesale selling platform, all of which allows us to develop products for all channels much closer to the selling season.

 

4.    Distribution Centre (DC)

In response to the significant issues experienced during peak trading, which are now behind us, the Group worked closely with its third-party distribution centre provider to put in place additional management support and improve productivity via process improvement and automation. We anticipate seeing the benefit of implementing these changes over the next 12 months.

 

In addition, we expect to benefit from the actions we are taking to simplify our channels (outlined above) to improve efficiencies within the DC.

OUTLOOK

As announced in the Group's trading update on 1 February, assuming the Board's base case for trading in the second half of the financial year is met, adjusted PBT for FY22 is not expected to be less than £5.0m (FY 2021: £6.1m).

We remain encouraged by the growth in Joules' brand awareness and the Group's customer numbers, as well as the continued good levels of revenue growth which reflects the ongoing strength of our customer proposition. Whilst profitability has been impacted by certain cost pressures, we have identified a number of areas to enhance efficiencies, simplify operations, and improve profitability going forward.

We believe that Joules remains a very strong, differentiated brand with excellent customer appeal, and the Group has an increasingly relevant lifestyle product proposition. Underpinned by these strengths, as well as a simplified, digital-led, multi-channel distribution model, we remain confident in our ability to deliver profitable growth for FY23 and beyond. 

 

 

 

H1 FINANCIAL REVIEW

 

The first half of our FY22 financial year showed good revenue growth and customer demand, reflecting the strength of the Joules brand, the flexibility of the Group's distribution model, and the increasingly broad range of the Group's product proposition, including the addition of the Garden Trading business acquired by the Group in February 2021. However, profits have been impacted by factors including cost increases related to global supply chain issues, labour shortages, and digital marketing inflation as described in the Strategic Review above.

 

Financial position and liquidity

At 28 November 2021 the Group had net debt of £5.4m compared to net cash of £15.6m last year and net cash of £4.1m at the end of FY21.

 

Group results

 

26 weeks ended £million	28 November 2021	29 November 2020	24 November 2019
Revenue	127.9	94.5	111.6
Gross profit	64.4	47.4	61.2
Operating expenses	(52.2)	(34.2)	(41.7)
Depreciation & amortisation	(4.6)	(4.1)	(2.6)
Depreciation: right-of-use assets	(3.9)	(3.8)	(6.4)
Share-based compensation	(0.4)	(0.7)	(1.2)
Admin expenses	(61.1)	(42.8)	(51.9)
Operating Profit	3.3	4.6	9.3
Net finance costs	(0.8)	(0.9)	(0.9)
PBT before adjusting items	2.6	3.7	8.4
Adjusting items	0.0	(2.4)	(6.7)
Statutory PBT	2.6	1.3	1.7
Gross margin %	50.4%	50.2%	54.8%
Memo: EBITDA	11.8	12.5	18.3

 

Group revenue increased by 35% to £127.9m from £94.5m, reflecting a strong recovery across our own retail stores as well as those of our wholesale partners, further total e-commerce growth from our third-party e-commerce partners; and the inclusion of Garden Trading, acquired in February 2021. Excluding the impact of Garden Trading, revenue grew 25% in the Period.

 

Group gross margin of 50.4% was 0.2%pts higher than the prior year. The increase in the year was largely attributable to our store estate trading for the full Period; stores are naturally one of our higher margin channels and normal trading facilitated a higher mix of full price sales than in the comparative period last year. There were further benefits from the inclusion of Garden Trading and strong gross margin performance through our third-party partners, the commission for which is captured within our sales costs. Offsetting those good trading margins was the impact of increased inbound freight costs, which reduced the gross margin rate by 2.4%, with a further 1.0% impact from Brexit related increased duty and taxes.

 

PBT before adjusting items decreased by £1.1m to £2.6m (H1 FY21: £3.7m) as revenue growth was more than offset by a significant increase in operating expenses. This was specifically driven by the reversal of COVID related costs savings in the prior period, cost inflation as a result of labour shortages, and digital marketing inflation.

 

Statutory PBT increased by £1.3m to £2.6m (H1 FY21: £1.3m). This includes the prior year impact of non-cash adjusting items of £2.4m, relating to the impairment of right-of-use assets and other fixed assets.

 

 

 

Channel review - sales and margins

 

26 weeks ended £million	28 November 2021	29 November 2020	24 November 2019
E-commerce	62.7	54.8	40.9
Stores	35.5	19.7	36.2
Shows	1.6	0.8	2.7
Retail	99.8	75.3	79.9
Wholesale	25.1	17.1	30.8
Other	3.0	2.0	0.9
Group revenue	127.9	94.5	111.6
Gross margin %	50.4%	50.2%	54.8%
Retail	54.6%	52.8%	60.8.%
Wholesale	27.5%	33.0%	38.1%

 

RETAIL

Total retail revenue of £99.8m was 33% higher than the prior year (FY21: £75.3m) and 25% higher than the two-year comparative. Excluding Garden Trading, the growth was 25% versus last year and 18% on a two-year basis.

 

The Group's retail segment comprises:

-     E-commerce: the sale of Joules and Garden Trading branded products through the Group's own websites and via carefully selected third-party websites including Next and Zalando. H1 FY21 was characterised by boosted e-commerce demand, reflecting COVID-related social restrictions and the enforced closure of stores (both Joules' own stores and those of its wholesale partners) for 10 weeks of the Period. As a result, the Group's e-commerce business delivered transformational growth in H1 FY21. (Note, third-party Friends of Joules products sold through the Joules website are reported within the 'Other' revenue segment based on the net commission received)

-     Stores: the sale of Joules branded products through the Group's own retail stores and a small number of concessions within John Lewis for Joules womenswear. Notice to terminate the John Lewis concession arrangements was served by Joules during the Period, and all concessions are now closed. Stores were open and trading for the entire first half of the financial year compared to being closed for approximately 10 weeks of the previous period (H1 FY21). Store footfall during the Period and the prior period remained lower than pre-pandemic levels, however this was partially offset by high conversion rates and full-price sell-through in stores.

-       Country shows & events: Joules has retail presence at events such as Badminton, Burghley and Carfest. This channel continued to be impacted during the Period with fewer events taking place than in prior years as well as lower footfall at those events that did take place.

 

E-commerce

Total e-commerce sales increased by 14% to £62.7m (H1 FY21: £54.8m) and represented 63% of the Group's retail revenue during the Period (H1 FY21: 73%). The growth was led by sales of Joules products through the brand's third-party online trading partners as well as the impact of the acquisition of Garden Trading in the second half of FY21. Excluding the contribution from Garden Trading, e-commerce sales increased by 5% in the Period and by 41% on a comparable two-year period.

 

Traffic to the Joules owned websites (excluding Garden Trading) increased by just over 6% year on year and grew over 52% compared to two years ago. The conversion rate declined year on year but showed growth on a two-year basis. Both traffic and conversion were boosted in H1 FY21 from the temporary closures of the Group's stores. As a result of these trends, sales of Joules-branded products through the Group's own websites declined year on year, albeit still represented growth on a two-year basis.

 

Revenue through third-party online trading partners performed particularly well and more than doubled against the prior year (representing growth of 88% on a two-year basis). These platforms provide an opportunity to expose the brand to a wider audience in the UK and abroad, and the performance reflects the strength and appeal of the Joules brand and the broader range of Joules products now offered on these platforms.

 

Garden Trading's retail revenue, which is all e-commerce, performed in line with management expectations and contributed £5.4m to the total e-commerce revenue in the Period, growing by 13% on a proforma basis compared to the prior period and representing transformational growth of more than 100% on a two-year basis. The growth in H1 FY22 was achieved despite significant supply chain issues impacting product availability.

 

Stores

Overall store sales increased by 80% to £35.5m (H1 FY21: £19.7m), almost returning to pre-pandemic levels (H1 FY20: £36.2m). In the Period, three higher-rent stores were closed, and five new stores were opened, all in lifestyle locations where our customers like to shop.

 

Retail gross margin

Retail gross margin increased by approximately 1.8%pts to 54.6% in the Period. This increase was the result of the higher proportion of store sales in the Period reflecting the enforced store closures in the prior year. Store sales generate a higher gross margin than e-commerce sales and represented 36% of total Retail revenue in the Period compared to 26% in the prior year comparable period. The Retail gross margin also benefitted from an increase in full price mix, particularly within stores, as the Retail channel returned to a more normal, pre-pandemic level of promotional activity. These benefits were offset by increases in freight and duty costs, which reduced Retail gross margins by over 3%pts.

 

WHOLESALE

Wholesale revenue in the Period was £25.1m, a 47% increase year on year (H1 FY21: £17.1m). This growth reflects a partial demand recovery from the impact of COVID from many of the Group's wholesale partners both in the UK and internationally as well as the acquisition of Garden Trading in the second half of the prior year (FY21). Excluding Garden Trading, wholesale growth was 16% compared to last year.

 

Wholesale gross margin reduced by 5.5%pts to 27.5%, with the wholesale channel impacted by increased freight costs and     the EU wholesale business impacted by increased duty and taxes arising from Brexit.

 

OTHER REVENUE

Other revenue consists of royalties from the sale of licensed products sold within third-party partner channels and the commission received on the sale of Friends of Joules digital marketplace products.

 

The Friends of Joules digital marketplace provides customers with a broader online offer, and by the end of the Period was home to over 20,000 products curated from 500 third-party sellers.

 

Other revenue increased by 48% to £3.0m (H1 FY21: £2.0m), reflecting strong growth in the Friends of Joules digital marketplace (Friends of Joules revenue increased by 69% to £1.3m (H1 FY21: £0.8m) and continued growth across licensed product categories.

 

International

International revenue grew by 20% year on year primarily reflecting good growth within the Group's international websites. However, international revenue remains 15% lower compared to two years ago reflecting the sluggish recovery of demand from our international wholesale partners. International revenue represented 12.5% of Group sales (H1 FY21: 14.2%).

 

 

 

 

ADMINISTRATIVE EXPENSES - PRE-ADJUSTING ITEMS

Administrative expenses before adjusting items increased by 43% to £61.1m (H1 FY21: £42.8m). Compared to two years ago, which excludes the impact of the Garden Trading acquisition, administrative expenses grew by 12%.

 

26 weeks ended  £million	28 November 2021	29 November 2020	24 November 2019
Operating expenses	52.2	34.2	41.7
Sales	9.0	4.8	6.9
Marketing	7.9	4.9	5.2
Store costs	8.5	5.2	9.4
Distribution	8.3	5.9	5.2
Head office	18.5	13.4	14.9
Depreciation & amortisation	4.6	4.1	6.4
Depreciation: Right-of-use asset	3.9	3.8	2.6
Share-based compensation	0.4	0.7	1.2
Administrative expenses	61.1	42.8	51.9

 

Operating expenses

Operating expenses increased by 53% to £52.2m (H1 FY21: £34.2) reflecting the higher revenue performance, the normalisation of store and head office costs post-COVID, marketing investment and inflation, and increased costs in the distribution centre as previously outlined.

-      Sales costs, which primarily relate to commissions paid to third-party retail partners and wholesale sales agents, increased by 88% to £9.0m (H1 FY21: £4.8m), in line with the higher third-party sales in the Period

-      Marketing expenditure increased by 61% to £7.9m (H1 FY21: £4.9m) reflecting increased investment in digital and social marketing, in both the UK and international markets, to drive both revenue and customer acquisition, as well as inflationary pressures across digital marketing channels

-      Store costs increased by 63% to £8.5m (H1 FY21: £5.2m). Store revenues increased by over 80% as stores were open throughout the Period compared to being closed for 10 weeks of the prior period (H1 FY21). In addition, the UK Government's furlough support as well as the temporary reduction of Business Rates in the prior year impacted the growth of store costs year on year. Store costs are 9% reduced on a two-year basis due to ongoing Business Rates relief and turnover rent re-negotiations. (Note: Store costs now exclude rent expenditure which is accounted for under IFRS 16 - Leases, with the exception of turnover only store rent and short-term leases of £0.8m (H1 FY21: £0.2m))

-     Distribution costs increased by 41% to £8.3m (H1 FY21: £5.9m) reflecting increased revenue volumes alongside the impact of local labour shortages in our third-party operated distribution centre (DC), which increased wage rates and led to lower productivity due to staff turnover

-     Head office costs increased by 38% to £18.5m (H1 FY21: £13.4m) reflecting an additional £3m from the inclusion of Garden Trading and investment in the Joules team as well the impact of the UK Government's Coronavirus Job Retention Scheme ('CJRS') in the prior year

 

Depreciation and amortisation

Depreciation and amortisation increased to £4.6m (H1 FY21: £4.1m), due to the amortisation of several technology initiatives completed in the prior financial year, including further developments to our digital platform, and depreciation in relation to the Group's new head office which is now fully in use.

 

Right-of-use asset depreciation increased by £0.1m to £3.9m (H1 FY21: £3.8m). The increase was the result of renegotiated store leases completed in the Period and the lease of the Garden Trading DC and offices, offset by a reduced right of use asset base from store leases that were impaired at FY21 year end.

 

Share-based compensation

Share-based compensation was £0.4m in the Period (H1 FY21: £0.7m). The lower charge reflects a reduction in the number of shares under option following the vesting of the FY21 colleague share plan, with no further significant options vesting due to performance criteria not being met.

 

Whilst share plan awards are largely comparable between periods, the charge in each period can fluctuate based on projected performance outcomes, the share price at reporting date and movement in the charge required for National Insurance Contributions.

 

ADJUSTING ITEMS

Adjusting items of £nil (H1 FY21: £2.4m relating to impairment of right-of-use assets and other fixed assets) were recognised by the Group in the Period. The Group regularly conducts an assessment of its assets to identify if there are any indicators of impairment which would impact the carrying value of the assets. Following this assessment at the Period end, no impairment charge or reversals were recognised as there were no indicators identified. An impairment review of assets will be performed at the year end.

 

NET FINANCE COSTS

Net finance costs were £0.8m (H1 FY21: £0.9m). Net finance costs consist of £0.2m interest and facility charges on the Group's revolving credit facility and term loan with Barclays Bank Plc (H1 FY21: £0.2m) and £0.6m interest on lease liabilities (H1 FY21: £0.7m).

 

TAXATION

The tax charge for the Period was £0.3m (H1 FY21: £0.2m). The tax charge for the Period benefitted from an adjustment in relation to the prior financial year. Excluding the prior year adjustment, the effective tax rate would have been 22.4%, which is higher than the statutory corporate tax rate due to expenses and professional fees that are non-deductible for tax purposes.

 

CASH FLOW

Cash flow before financing was an outflow of £10.0m in the Period (H1 FY21: £11.3m inflow).

 

The movement in the Period reflects a significant change in net working capital when compared to the prior year period (outflow of £10.2m in the Period versus an inflow of £8.8m in H1 HY21).

 

The key drivers of this change were borne from management's decisions in the comparable period to preserve cash and improve the short-term liquidity position in response to COVID-19. The Group had agreed with its landlords and HMRC to defer certain payments, which is considered exceptional in nature, and these deferred sums have now been fully repaid. The change was further impacted by the rebuild of inventories which were unusually low at the start of the Period. This increased stock buy, together with the acquisition of Garden Trading in H2 FY21 (net cash outflow of £4.2m), contributes to the year on year increases in both inventory and payables. The recovery of the wholesale channel also impacts cash resulting in increased receivables in the Period, alongside a decrease in payables when compared to H1 FY21.

 

In the prior period the Group benefitted from a corporation tax refund of £2.9m relating to a loss carry back claim compared to tax paid of £0.4m in the Period.

 

Capital expenditure in the first half was £5.6m (H1 FY21: £6.3m). Major areas of capital expenditure included store openings and refits (total store numbers were H1 FY22: 135 stores, H1 FY21: 128 stores), developments to the Joules website and continued IT investment to support future growth.

 

Also included within capital expenditure is the development of our new head office, which is now complete with minimal spend in the Period compared to £3.5m in the comparable period last year.

 

26 weeks ended £million	28 November 2021		29 November 2020
EBITDA	11.8		12.5
Share-based compensation	0.4		0.7
Capital lease repayments - IFRS 16	(5.3)		(5.8)
Cash adjusting items	-		(0.6)
Net working capital - change	(10.2)		8.8
Operating free cashflow	(3.3)		15.6
Interest paid - borrowings	(0.2)		(0.2)
Interest paid - lease liability	(0.6)		(0.6)
Tax (paid)/received	(0.4)		2.9
Capital expenditure	(5.6)		(6.3)
Cash flow before financing	(10.0)		11.3
Net (debt)/cash	(5.4)		15.6

 

NET (DEBT)/CASH AND LIQUIDITY 

Net debt at the end of the Period was £5.4m (FY21: £15.6m net cash), representing cash of £17.0m (FY21: £28.6m) and borrowings of £22.4m (FY21: £12.9m). The reduction in cash is reflective of cash preservation in FY21 H1 as a result of COVID-19, of which payments were realised in H2 FY21 alongside the cost of acquisition of Garden Trading. Also affecting the net cash position is an increase in the Group's stock buy in preparation for future growth.

 

The Group's total liquidity headroom at 28 November 2021 was £28.1m, comprising £17.0m cash balances and £11.1m undrawn committed financing facilities.

 

Lease liability (IFRS 16)

The Group's total lease liability at 28 November 2021 was £38.2m, a reduction of £1.6m since the year ended 30 May 2021 and £6.7m lower than at 29 November 2020.

 

Repayment of lease liabilities (including interest) of £5.9m in the Period was partly offset by lease additions of £3.6m, primarily relating to entering a lease agreement for the Garden Trading warehouse and the renegotiation of a number of store leases on more favourable terms.

 

Lease liability by type:
£million	28 Nov 2021	30 May 2021	Increase / (decrease)
Store leases	30.2	31.8	(1.6)
Commercial property leases	7.8	7.4	0.4
Other leases	0.2	0.6	(0.4)
Total liability	38.2	39.8	(1.6)

 

DIVIDEND

Given cash requirements of rebuilding the Group's working capital post the COVID-19 pandemic impacts, and the continued uncertain outlook, the Board has not declared an interim dividend (H1 FY21: £nil). The Board will continue to review the financial position of the Group and intends to recommence dividend payments when it is considered financially appropriate to do so.

 

FINANCING FACILITIES

At the end of the Period the Group had total available facilities of £33.5m of which £22.4m was drawn.

 

Facility £million	Available Facility 28 November 2021	Drawn Facility 28 November 2021	Maturity
Revolving Credit Facility (RCF)	25.0	13.9	September 2024
Term Loan	8.5	8.5	September 2024
Total facilities / borrowings	33.5	22.4

 

The Group has a £25m revolving credit facility (RCF) provided by Barclays Bank PLC ('Barclays') to fund seasonal working capital requirements. This facility matures in September 2024.

 

The development of the Group's new head office was funded, in part, by way of a £9.0m loan from Barclays. The loan is repayable by way of quarterly payments of £264,000 and a final bullet payment in September 2024.

 

EARNINGS PER SHARE

Statutory basic earnings per share for the Period were 2.06 pence (H1 FY21: 1.12 pence). The weighted number of ordinary shares in issue for the Period was 110.3m, an increase of 7.5m ordinary shares compared to the prior period. The increase in ordinary shares is largely due to the acquisition of The Garden Trading Company Limited in February 2021.

 

BREXIT

The Group was well prepared for the additional operational and administrative requirements that came into effect at the end of the transitional arrangement with the EU on 1 January 2021. Notwithstanding this preparation, the Group's sales to EU customers, wholesale and consumers were impacted by logistics disruption and higher costs to serve. Disruption related to Brexit has been minimal in the Period but higher costs to service customers and increased administrative expenses remain.

 

The Group will continue to evaluate and implement options to mitigate the adverse impact including a potential increase in selling prices and structural changes to the Group's logistics and operating models. As already mentioned, the Group has taken the decision to withdraw from a number of EU agent and stockist arrangements which are part of our wholesale business in order to improve both profitability and efficiency within the business.

 

GOING CONCERN

As at 28th November 2021, the date of the interim financial statements, the Group had net debt of £5.4m and liquidity headroom of £28.1m. 

 

As reported in the trading update on 1st February 2022, trading in the first two months of the second half was below expectations and liquidity headroom had reduced to £11.5m as at 31st January 2022. The reduction in liquidity headroom is consistent with normal seasonal working capital fluctuations, although the reduction was greater than anticipated due to the timing of sales over Black Friday and revenue shortfall in January. 

 

The Directors have taken account of this position when considering forecasts to support their going concern conclusion. The following have been considered: 

 

·      Base Case cash flow forecast to May 2023 

·      Downside cash flow forecast to May 2023 

·      Mitigating actions available 

 

Base Case scenario 

For avoidance of doubt, the Base Case forecast reviewed by the Directors is consistent with the profit guidance for FY22 (i.e. not less than £5m PBT), which was given in the Trading update on 1st February 2022. The revenue assumptions in the Base Case forecast are consistent with recent trends in online traffic and store footfall; cost assumptions reflect changes in revenue as well as gradual improvements in warehouse efficiency. 

 

Under this scenario, the Group will remain within its committed borrowing facilities and will meet relevant banking covenants. 

 

Downside scenario and mitigating actions 

The Directors consider that the major risks in the Base Case forecast relate to UK e-commerce and UK wholesale. Therefore, a downside scenario has been constructed which assumes a 5% underperformance in these channels, a further fall in gross margin rate (c.1%pt) as well as a slower rate of improvement in warehouse efficiency. 

 

Under this scenario, and without mitigating actions, all banking covenants would still be met, but the Group would breach its current borrowing facilities for three months in FY23. 

 

However, if this scenario were to develop, the Group has numerous mitigating actions available, including (but not limited to): 

 

·      reducing capital expenditure 

·      reducing discretionary revenue expenditure (not including performance marketing)

·      rapid clearance of aged stock

 

The Directors are confident that the impact of these mitigating actions would give the Group adequate headroom within its current banking facilities throughout the forecast period. 

 

Additionally, a further shortfall of revenue of 4% can be accommodated without breaching our headroom on the assumptions that c.70% of the mitigations fully within management control are achieved. 

 

The Directors have also considered wider macro-economic risks that the business could face that are not explicitly modelled, which nevertheless could have an adverse impact on the business including further disruption from COVID, global trade wars and other disruptions to global supply chains.

 

In addition to the mitigating actions listed above, further steps could be taken to conserve cash in the event that one or more of these additional risks were to crystallise. Such steps could include, for example, cancellation or rephasing of orders for inventory, and/or further accelerated clearance of aged stock, as well as agreeing an extension of current borrowing facilities.

 

Ongoing governance

The Board has established a committee which will meet weekly to oversee the Group's financial position, to sanction mitigating actions if needed, and to consider options to increase the lines of funding available to the Group.

 

Conclusion

Having considered the forecast scenarios, including the main risks within them and the available mitigating actions described above, the Directors believe that the likelihood of the Group being in breach of its facilities over the twelve months from the date of this report is low and that mitigating actions available are sufficient to address these risks. Therefore, there is a reasonable expectation that the Group has adequate financial resources to continue to operate for at least the next twelve months from the date of this report. Accordingly, the financial statements have been prepared under the going concern basis of accounting.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

We confirm to the best of our knowledge that:

 

-    The condensed interim set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union;

-     The Interim Report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

-     The Interim Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

 

 

 

  

 

Joules Group plc
Condensed Consolidated Income Statement
For the 26 weeks ended 28 November 2021
	Note		Unaudited 26 weeks ended 28 November 2021 £'000	Unaudited 26 weeks ended 29 November 2020 £'000	Audited 52 weeks ended 30 May 2021 £'000
REVENUE	2		127,871	94,452	199,007
Cost of sales	4		(63,484)	(47,005)	(101,505)
GROSS PROFIT			64,387	47,447	97,502
Administrative expenses	4		(60,675)	(44,531)	(92,288)
Share-based compensation	4		(396)	(703)	(1,653)
Total administrative expenses			(61,071)	(45,234)	(93,941)
OPERATING PROFIT			3,316	2,213	3,561
Finance costs			(766)	(885)	(1,583)
PROFIT BEFORE TAX			2,550	1,328	1,978
Income tax expense	5		(278)	(177)	(1,085)
PROFIT FOR THE PERIOD			2,272	1,151	893
Basic earnings per share (pence)	13		2.06	1.12	0.82
Diluted earnings per share (pence)	13		2.02	1.11	0.81

 

 

  

 

 

 

Joules Group plc
Condensed Consolidated Statement of Comprehensive Income
For the 26 weeks ended 28 November 2021
		Note			Unaudited 26 weeks ended 28 November 2021 £'000		Unaudited 26 weeks ended 29 November 2020 £'000			Audited 52 weeks ended 30 May 2021 £'000
Profit for the Period					2,272		1,151			893
Items that may be reclassified subsequently to profit or loss:
Net gains/(losses) arising on changes in fair value of hedging instruments entered into for cash flow hedges		10			5,535		(2,235)			(4,286)
(Losses)/gains arising during the Period on deferred tax on cash flow hedges		10			(1,123)		364			753
Gains arising during the Period on deferred tax on share options					123		48			123
Exchange difference on translation of foreign operations		10			759		(707)			(1,900)
TOTAL COMPREHENSIVE INCOME/(EXPENSE) FOR THE PERIOD					7,566		(1,379)			(4,417)

 

 

 

 

 

 

 

Joules Group plc - Condensed Consolidated Statement of Financial Position
			Unaudited		Restated Unaudited		Audited
As at 28 November 2021			28 November		29 November		30 May
			2021		2020		2021
	Note		£'000		£'000		£'000
NON-CURRENT ASSETS
Goodwill			5,531		-		5,531
Intangibles	6		25,598		18,748		25,566
Property, plant and equipment	6		29,561		23,668		27,737
Right-of-use assets	7		28,315		32,344		28,287
Derivative financial instruments	12		93		20		-
Deferred tax asset			-		2,831		908
TOTAL NON-CURRENT ASSETS			89,098		77,611		88,029
CURRENT ASSETS
Inventories			61,878		42,704		46,624
Right of return asset			1,591		1,614		925
Trade and other receivables	12		21,268		13,471		14,996
Cash and cash equivalents	12		17,032		28,577		17,997
Derivative financial instruments	12		2,226		131		-
Asset held for sale			-		-		4,800
TOTAL CURRENT ASSETS			103,995		86,497		85,342
TOTAL ASSETS			193,093		164,108		173,371
CURRENT LIABILITIES
Trade and other payables	12		69,251		56,731		58,750
Lease liabilities	7		9,754		10,485		9,360
Current tax payable			98		998		520
Borrowings	12		14,149		4,396		6,196
Provisions			2,902		2,465		2,940
Right of return provision			3,700		3,768		2,026
Asset held for sale - lease liability			-		-		2,400
Derivative financial instruments	12		-		-		3,129
Other financial liabilities	8		3,455		-		5,646
TOTAL CURRENT LIABILITIES			103,309		78,843		90,967
NON-CURRENT LIABILITIES
Borrowings	12		8,252		8,533		7,724
Lease liabilities	7		28,397		34,460		30,451
Deferred tax liabilities			491		-		-
Derivative financial instruments	12		-		1,228		-
TOTAL NON-CURRENT LIABILITIES			37,140		44,221		38,175
TOTAL LIABILITIES			140,449		123,064		129,142
NET ASSETS			52,644		41,044		44,229
EQUITIES
Share capital			1,119		1,085		1,116
Hedging reserve	10		1,934		(1,855)		(2,804)
Translation reserve	10		109		543		(650)
EBT reserve	11		(768)		(769)		(769)
Merger reserve			(125,807)		(125,807)		(125,807)
Retained earnings			144,721		141,339		141,818
Share premium			26,519		26,508		26,508
Other reserve			4,817		-		4,817
TOTAL EQUITY			52,644		41,044		44,229
Note on prior period restatement: For further details on prior period balances, refer to page 88 of the FY21 Annual Report.   These financial statements of Joules Group plc (Company Registration Number 10164829) were approved by the Board of Directors and authorised for issue on 08 February 2022 and were signed on behalf of the Board of Directors by
CAROLINE YORK - Chief Financial Officer

 

 

 

 

Joules Group plc Unaudited Condensed Consolidated Statement of Changes in Equity As at 28 November 2021
		Merger reserve	Other Reserve	Hedging reserve	Translation reserve	EBT Reserve		Share capital	Share premium	Retained earnings			Total equity
		£'000	£'000	£'000	£'000	£'000		£'000	£'000	£'000			£'000
Restated Balance at 30 May 2020		(125,807)	-	999	1,250	(769)		1,081	26,508	139,496			42,758
Profit for the period		-	-	-	-	-		-	-	1,151			1,151
Other comprehensive income for the period		-	-	(2,235)	(707)	-		-	-	-			(2,942)
Gains arising during the period on deferred tax on cash flow hedges		-	-	364	-	-		-	-	-			364
Gains arising during the period on deferred tax on share options		-	-	-	-	-		-	-	48			48
Total comprehensive (expense) for the period		-	-	(1,871)	(707)	-		-	-	1,199			(1,379)
Shares issued		-	-	-	-	-		4	-	-			4
Basis adjustment to hedged inventory		-	-	(983)	-	-		-	-	-			(983)
Credit to equity for equity-settled share-based compensation		-	-	-	-	-		-	-	644			644
Restated Balance at 29 November 2020		(125,807)	-	(1,855)	543	(769)		1,085	26,508	141,339			41,044
(Loss) for the period		-	-	-	-	-		-	-	(258)			(258)
Other comprehensive income for the period		-	-	(2,051)	(1,193)	-		-	-	-			(3,244)
Gains arising during the period on deferred tax on cash flow hedges		-	-	389	-	-		-	-	-			389
Gains arising during the period on deferred tax on share options		-	-	-	-	-		-	-	75			75
Total comprehensive (expense) for the period		-	-	(1,662)	(1,193)	-		-	-	(183)			(3,038)
On acquisition of subsidiary		-	4,817	-	-	-		-	-	-			4,817
Basis adjustment to hedged inventory		-	-	713	-	-		-	-	-			713
Shares issued		-	-	-	-	-		31	-	-			31
Credit to equity for equity-settled share-based compensation		-	-	-	-	-		-	-	662			662
Balance at 30 May 2021		(125,807)	4,817	(2,804)	(650)	(769)		1,116	26,508	141,818			44,229
Profit for the period		-	-	-	-	-		-	-	2,272			2,272
Other comprehensive income for the period		-	-	5,535	759	-		-	-	-			6,294
(Losses) arising during the period on deferred tax on cash flow hedges		-	-	(1,123)	-	-		-	-	-			(1,123)
Gains arising during the period on deferred tax on share options		-	-	-	-	-		-	-	123			123
Total comprehensive income for the period		-	-	4,412	759	-		-	-	2,395			7,566
Shares issued		-	-	-	-	1		3	11	-			15
Basis adjustment to hedged inventory		-	-	326	-	-		-	-	-			326
Credit to equity for equity- settled share-based compensation		-	-	-	-	-		-	-	508			508
Balance at 28 November 2021		(125,807)	4,817	1,934	109	(768)		1,119	26,519	144,721			52,644
Note: For further details on the restatement of prior period balances, refer to page 88 of the FY21 Annual Report.
	Joules Group plc
	Consolidated Statement of Cash Flows
	For the 26 weeks ended 28 November 2021						Unaudited		Unaudited			Audited
							26 weeks		26 weeks			52 weeks
							ended 28		ended 29			ended 30
							November		November			May
							2021		2020			2021
						Note	£'000		£'000			£'000
	Cash generated from operations
	Profit for the Period						2,272		1,151			893
	Adjustments for:
	Depreciation of property, plant and equipment					4	1,679		1,243			2,583
	Depreciation of right-of use assets					4	3,865		3,819			7,995
	Amortisation of intangible assets					4	2,912		2,811			5,432
	Impairment charge (net of reversals)						-		1,833			2,896
	Share-based compensation					4	396		703			1,653
	Finance cost expense						766		885			1,583
	Income tax expense					5	278		177			1,085
	Operating cash flows before movements in working capital						12,168		12,622			24,120
	(Increase)/decrease in inventory and right of return asset						(15,506)		(9,016)			(10,065)
	(Increase)/decrease in receivables						(6,044)		(4,245)			(3,708)
	Increase/(decrease) in payables						11,387		22,053			18,078
	Cash generated by operations						2,005		21,414			28,425
	Bank interest paid						(215)		(237)			(340)
	Interest paid on lease liabilities					7	(551)		(648)			(1,243)
	Tax (paid)/received						(376)		2,924			2,989
	Net cash from operating activities						863		23,453			29,831
	Cash flow from investing activities
	Purchase of property, plant and equipment and intangible assets						(5,678)		(6,323)			(13,562)
	Acquisition of subsidiary						-		-			(4,156)
	Proceeds on disposal of asset held for sale						2,300		-			-
	Payment of contingent consideration					8	(2,191)		-			-
	Net cash used in investing activities						(5,569)		(6,323)			(17,718)
	Cash flow from financing activities
	Issue of shares						12		-			-
	Capital element of lease repayments					7	(5,324)		(5,790)			(11,299)
	Repayment of borrowings						-		(8,775)			(7,784)
	Proceeds from borrowings						8,481		-			-
	Net cash from/(used in) financing activities						3,169		(14,565)			(19,083)
	Net (decrease)/increase in cash and cash equivalents						(1,537)		2,565			(6,970)
	Cash and cash equivalents at beginning of Period						17,997		26,243			26,243
	Effect of foreign exchange rate changes						572		(231)			(1,276)
	Cash and cash equivalents at end of Period						17,032		28,577			17,997

 

 

 

 

Notes to the condensed consolidated financial statements

For the 26 weeks ended 28 November 2021

 

Reporting entity

Joules Group plc is a company domiciled in the United Kingdom limited by shares. The condensed interim financial statements of Joules Group plc as at, and for the 26 weeks ended, 28 November 2021 comprise the Company and its subsidiaries (together referred to as the "Group").

 

The Group financial statements as at, and for the 52 weeks ended, 30 May 2021 are available on request from the Company's registered office at The Joules Barn, Rockingham Road, Market Harborough, Leicestershire, LE16 7QD or at www.joulesgroup.com.

 

1.   Basis for preparation

 

The unaudited interim financial statements have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS) and interpretations issued by the International Accounting Standards Board (IASB), adopted by the European Union.

 

The accounting policies adopted in the preparation of the interim financial statements are the same as those set out in the Group's financial statements for the 52 weeks ended 30 May 2021. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not effective.

 

This report is prepared in accordance with IAS 34. The unaudited interim financial statements do not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. Statutory accounts for Joules Group plc for the year ended 30 May 2021 have been delivered to the Registrar of Companies. The auditor's report on those accounts was unmodified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

 

Going concern

 

As at 28th November 2021, the date of the interim financial statements, the Group had net debt of £5.4m and liquidity headroom of £28.1m. 

 

As reported in the Trading Update on 1st February 2022, trading in the first two months of the second half was below expectations and liquidity headroom had reduced to £11.5m as at 31st January 2022. The reduction in liquidity headroom is consistent with normal seasonal working capital fluctuations, although the reduction was greater than anticipated due to the timing of sales over Black Friday and revenue shortfall in January. 

 

The Directors have taken account of this position when considering forecasts to support their going concern conclusion. The following have been considered: 

 

·      Base Case cash flow forecast to May 2023 

·      Downside cash flow forecast to May 2023 

·      Mitigating actions available 

 

Base Case scenario 

 

For avoidance of doubt, the Base Case forecast reviewed by the directors is consistent with the profit guidance for FY22 (i.e. not less than £5m PBT), which was given in the trading update on 1st February 2022. The revenue assumptions in the Base Case forecast are consistent with recent trends in on-line traffic and store footfall; cost assumptions reflect changes in revenue as well as gradual improvements in warehouse efficiency. 

 

Under this scenario, the Group will remain within its committed borrowing facilities and will meet relevant banking covenants. 

 

Downside scenario and mitigating actions 

 

The Directors consider that the major risks in the Base Case forecast relate to UK e-commerce and UK wholesale. Therefore, a downside scenario has been constructed which assumes a 5% underperformance in these channels, a further fall in gross margin rate (c1%pt) as well as a slower rate of improvement in warehouse efficiency. 

 

Under this scenario, and without mitigating actions, all banking covenants would still be met, but the Group would breach its current borrowing facilities for three months in FY23. 

 

However, if this scenario were to develop, the Group has numerous mitigating actions available, including (but not limited to): 

 

·      reducing capital expenditure 

·      reducing discretionary revenue expenditure (not including performance marketing)

·      rapid clearance of aged stock

 

The Directors are confident that the impact of these mitigating actions would give the Group adequate headroom within its current banking facilities throughout the forecast period. 

 

Additionally, a further shortfall of revenue of 4% can be accommodated without breaching our headroom on the assumptions that c.70% of the mitigations fully within management control are achieved. 

 

The Directors have also considered wider macro-economic risks that the business could face that are not explicitly modelled, which nevertheless could have an adverse impact on the business including further disruption from COVID, global trade wars and other disruptions to global supply chains.

 

In addition to the mitigating actions listed above, further steps could be taken to conserve cash in the event that one or more of these additional risks were to crystallise. Such steps could include, for example, cancellation or rephasing of orders for inventory, and/or further accelerated clearance of aged stock, as well as agreeing an extension of current borrowing facilities.

 

Ongoing governance

 

The Board has established a committee which will meet weekly to oversee the Group's financial position, to sanction mitigating actions if needed, and to consider options to increase the lines of funding available to the Group.

 

Conclusion

 

Having considered the forecast scenarios, including the main risks within them and the available mitigating actions described above, the Directors believe that the likelihood of the Group being in breach of its facilities over the twelve months from the date of this report is low and that mitigating actions available are sufficient to address these risks. Therefore, there is a reasonable expectation that the Group has adequate financial resources to continue to operate for at least the next twelve months from the date of this report. Accordingly, the financial statements have been prepared under the going concern basis of accounting.

 

​New significant accounting policies

 

There are several standards and interpretations issued by the IASB that are effective for financial statements after this reporting period. Of these new standards, amendments and interpretations, there are none which are expected to have a material impact on the Group's consolidated financial statements.

 

Critical accounting judgements and key sources of estimation uncertainty



Drawing up the financial statements in accordance with IFRS requires management to make the necessary estimates and assessments. Estimates are based on past experience and other reasonable assessment criteria. However, actual results may differ from these estimates and assessments will bring about an adjustment in the value of the assets and liabilities in the next financial year.

 

In accordance with IAS 1 the Group is required to disclose critical accounting judgements and key sources of estimation uncertainty. The Directors do not consider there to be any material critical accounting judgements, and have identified the following key estimates below:

 

Returns provision - rate of return

In preparing the financial statements the Directors have made estimates with regard to the variable consideration element within product sales as a result of returns. The Directors have used their accumulated historical knowledge of returns to model the level of provision required and have also taken into account the changes in the returns policy over time. The rate of returns expected in relation to e-commerce sales is considered to be a source of estimation uncertainty.

 

 

2. Revenue

 

An analysis of turnover by geographical market is given below:

 

	UK	International	Total
	£'000	£'000	£'000
26 weeks ended 28 November 2021 (Unaudited)	111,800	16,071	127,871
26 weeks ended 29 November 2020 (Unaudited)	81,060	13,392	94,452
52 weeks ended 30 May 2021 (Audited)	174,000	25,007	199,007

 

 

3. Segment Reporting

The Group has three reportable segments; Retail, Wholesale and Other. For each of the three segments, the Group's chief operating decision maker (the "Board") reviews internal management reports on a monthly basis. Each segment can be summarised as follows:

·   Retail: Retail includes sales and costs relevant to owned stores, e-commerce, shows, third-party concessions and franchises.

·   Wholesale: Wholesale includes sales and costs relevant to the sale of products to other retail businesses or distributors for onward sale to their customer.

·   Other: Other includes income from licensing and the 'Friends of Joules' digital marketplace, central costs and items that are not distinguishable into segments above.

The accounting policies of the reportable segments are the same as described in note 1. Information regarding the results of each reportable segment is included below. Operating results, being earnings before adjusting items, share-based compensation, interest, and taxation are used to measure performance as management believes that such information is the most relevant in evaluating the performance of certain segments relative to other entities that operate within these industries. Performance of The Garden Trading Company Limited has been allocated appropriately within the Retail and Wholesale segments.

 

All income and expenses are allocated to reportable segments with the exception of share-based compensation, adjusting items and finance costs. There were no discontinued operations in the Period.

 

26 weeks ended 28 November 2021	Retail	Wholesale	Other	Total
	£'000	£'000	£'000	£'000
Revenue	99,774	25,105	2,992	127,871
Cost of sales	(45,275)	(18,209)	-	(63,484)
GROSS PROFIT	54,499	6,896	2,992	64,387
Administration expenses (excl. depreciation and amortisation)	(30,673)	(5,430)	(16,116)	(52,219)
Depreciation and amortisation	(4,473)	(127)	(3,856)	(8,456)
OPERATING RESULT	19,353	1,339	(16,980)	3,712
Costs unallocated to segments:
Share-based compensation (incl. NI)				(396)
Finance costs and similar charges				(766)
Adjusting items				-
PROFIT BEFORE TAX				2,550

 

 

26 weeks ended 29 November 2020	Retail	Wholesale	Other	Total
	£'000	£'000	£'000	£'000
Revenue	75,302	17,128	2,022	94,452
Cost of sales	(35,534)	(11,471)	-	(47,005)
GROSS PROFIT	39,768	5,657	2,022	47,447
Administration expenses (excl. depreciation and amortisation)	(18,701)	(4,451)	(11,088)	(34,240)
Depreciation and amortisation	(4,793)	(137)	(2,945)	(7,875)
OPERATING RESULT	16,274	1,069	(12,011)	5,332
Costs unallocated to segments:
Share-based compensation (incl. NI)				(703)
Finance costs and similar charges				(885)
Adjusting items				(2,416)
PROFIT BEFORE TAX				1,328

 

 

 

4. Profit for the Period

      Profit before tax is stated after charging/(crediting):

	Unaudited 26 weeks	Unaudited 26 weeks		Audited 52 weeks
	ended 28	ended 29		ended 30
	November	November		May
	2021	2020		2021
	£'000	£'000		£'000
Cost of inventories recognised as expense	53,493	39,741		83,223
Write down of inventory in the Period	273	292		1,556
Transportation, carriage and packaging	8,940	6,114		14,597
Property, rent and service charges	879	265		1,133
Government business rates relief	(1,607)	(579)		(2,251)
Depreciation of property, plant and equipment	1,679	1,243		2,583
Depreciation of right-of-use assets	3,865	3,819		7,995
Amortisation of intangible assets	2,912	2,811		5,432
Staff costs*	19,553	14,372		30,522
Share-based compensation	396	703		1,653
Adjusting items	-	2,416		4,162

 

* Staff costs above are net amounts received in respect of government job retention scheme grants totalling £nil (Nov 20: £1.9m).

 

 

5. Tax

The Group's tax expense for the Period of £0.3m (November 2020: £0.2m) represents an effective tax rate of 10.9% compared to 13.4% in the comparative Period. The difference between the Group's tax rate for the Period of 10.9% and the UK statutory rate of 19.0% relates to a £0.1m prior year credit arising from a deferred tax rate change in respect of share-based compensation and a £0.2m reduction in the provision for chargeable gains tax due on the Garden Trading property disposal, net of the impact of expenses not deductible for tax purposes and other permanent differences. The impact of the expenses not deductible and other permanent differences is lower than usual due to the benefit of the capital allowances super-deduction. The Effective Tax Rate for the Period excluding the impact of the £0.3m prior year credits is 22.4%.

 

Factors affecting the tax expense for the Period are as follows:

 

	Unaudited 26 weeks	Unaudited 26 weeks	Audited 52 weeks
	ended 28 November	ended 29 November	ended 31 May
	2021	2020	2020
	£'000	£'000	£'000
Profit before income tax	2,550	1,328	1,978
Profits multiplied by the standard rate in the UK - 19.0%	485	253	376
Expenses not deductible for tax purposes and other permanent differences	40	75	134
Differences in overseas tax rates	-	(6)	9
Effect of adjustment in deferred tax rate	(105)	-	212
Adjustment in respect of prior period	(188)	(145)	231
Share-based compensation	46	-	123
Total income tax expense	278	177	1,085

6. Property, plant and equipment and intangibles

 

During the Period the Group made additions of £6.3m (November 2010: £6.4m) and impairments of £nil (November 2020: £0.9m). During the Period the Group's capital expenditure consisted of new stores and investment in IT systems to support e-commerce and stores. Completion of the Group's new head office took place in June 2021; amounts spent to date including fixtures and fittings total £20.9m.

 

 

7.   Leases

 

The movements in the Period ended 28 November 2021 were as follows:

 

Right-of-use assets:	Land and buildings		Fixtures and Fittings		Motor Vehicles		IT Equipment		Total
	£'000		£'000		£'000		£'000		£'000
Balance as at 30 May 2021	28,039		21		99		128		28,287
Additions	3,848		-		-		-		3,848
Disposals	-		-		-		-		-
Modifications	45		-		-		-		45
Depreciation of right-of-use assets	(3,771)		(21)		(49)		(24)		(3,865)
Balance as at 28 November 2021	28,161		-		50		104		28,315
Lease liabilities:	Land and buildings		Fixtures and Fittings		Motor Vehicles		IT Equipment		Total
	£'000		£'000		£'000		£'000		£'000
Balance as at 30 May 2021	39,556		84		39		132		39,811
Additions	3,619		-		-		-		3,619
Disposals	-		-		-		-		-
Interest expense related to lease liabilities	548		1		1		1		551
Modifications	45		-		-		-		45
Repayment of lease liabilities (including interest)	(5,779)		(41)		(31)		(24)		(5,875)
Balance as at 28 November 2021	37,989		44		9		109		38,151

 

 

8.   Other financial liabilities

 

The movement of the contingent consideration liability since 30 May 2021 is as follows:

 

		Contingent
		consideration
		£'000
	Balance as at 30 May 2021	5,646
	Amounts paid on sale of property	(2,191)
	Balance as at 28 November 2021	3,455

 

Contingent consideration arose as a result of the acquisition of 100% of the issued share capital of The Garden Trading Company Limited on 9 February 2021. The contingent consideration arrangement consists of two elements. The first element requires two earn-out targets to be met, and the second element was contingent on the sale of a property, which was sold in the Period. The potential undiscounted amount of all remaining payments that Joules Group plc could be required to make under the contingent consideration arrangement is between £nil and £3.5m.

 

9.   Dividends

 

In the Period no dividend was paid (November 2020: £nil) in respect of the year ended 30 May 2021. The Board has not declared an interim dividend for the year ending 29 May 2022.

 

 

10.   Hedging and Translation reserve

 

		Hedging	Translation
		reserve	reserve
		£'000	£'000
	Balance as at 31 May 2020	999	1,250
	Other comprehensive (expense) for the Period	(2,235)	(707)
	Income tax relating to losses recognised in other comprehensive income	(983)	-
	Deferred tax related to gains recognised in other comprehensive income during the Period	364
	Balance as at 29 November 2020	(1,855)	543
	Other comprehensive (expense) for the Period	(2,051)	(1,193)
	Income tax relating to losses recognised in other comprehensive income	983
	Deferred tax related to gains recognised in other comprehensive income during the Period	389	-
	Basis adjustment to hedged inventory	(270)	-
	Balance as at 30 May 2021	(2,804)	(650)
	Other comprehensive income for the Period	5,535	759
	Deferred tax related to (losses)/gains recognised in other comprehensive income during the Period	(1,123)	-
	Basis adjustment to hedged inventory	326
	Balance as at 28 November 2021	1,934	109

 

 

Hedging reserve

The reserve represents the cumulative gains and losses on hedging instruments in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in profit or loss only when the hedge transaction impacts the profit or loss or is included as a basis adjustment to the non-financial hedged item, consistent with the applicable accounting policy.

 

Translation reserve

Exchange differences relating to the translation of the net assets of the Group's foreign operations which relate to subsidiaries only, from their functional currency into the Group's presentational currency being Sterling, are recognised directly to the translation reserve.

 

11.   EBT Reserve

 

During the year ended 26 May 2019 the Group set up an Employee Benefit Trust ("EBT"). The EBT has an independent trustee resident in Jersey.

 

At 28 November 2021 the EBT held 153,757 (November 2020: 291,469) ordinary shares of 1p each in the Company purchased for a total net consideration of £768,000 (November 2020: £769,000).

 

The table below shows the movements in equity from EBT share purchases during the Period:

 

 

		EBT	EBT
		Reserve	Reserve
		Shares	£'000
	Balance as at 30 May 2021	172,882	769
	Shares purchased by EBT in the year	-	-
	Shares issued on employee option exercises	(19,125)	(1)
	Balance as at 28 November 2021	153,757	768

 

 

12.   Financial instruments

 

Derivative financial instruments and cash flow hedges

The Group holds derivative financial instruments to hedge its foreign currency exposures. These derivatives, classified as cash flow hedges, are initially recognised at fair value, and then re-measured at fair value at the end of each reporting date. Hedging instruments are documented at inception and effectiveness is tested throughout their duration. Changes in the value of cash flow hedges are recognised in other comprehensive income and any ineffective portion is immediately recognised in the statement of comprehensive income. If the firm commitment or forecast transaction that is the subject of a cash flow hedge results in the recognition of a non-financial asset or liability, then at the time the asset is recognised, the associated gains or losses on the derivative that had been previously recognised on other comprehensive income are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or liability, amounts deferred in other comprehensive income are recognised in the statement of comprehensive income in the same period in which the hedged item affects net profit.

 

 

	Unaudited		Unaudited		Audited
	as at 28		as at 29		as at 30
	November		November		May
	2021		2020		2021
CATEGORIES OF FINANCIAL INSTRUMENTS	£'000		£'000		£'000
Carrying value of financial assets at amortised cost:
Cash and cash equivalents	17,032		28,577		17,997
Trade receivables	12,282		9,101		9,539
	29,314		37,678		27,536
Cash flow hedges	2,319		151		-
Asset held for sale	-		-		4,800
TOTAL FINANCIAL ASSETS	31,633		37,829		32,336
Financial liabilities held at amortised cost:
Trade payables	(25,704)		(31,170)		(25,505)
Accruals	(27,916)		(19,259)		(26,053)
Borrowings	(22,401)		(12,929)		(13,920)
Lease liabilities	(38,151)		(44,945)		(39,811)
	(114,172)		(108,303)		(105,289)
Carrying value of financial liabilities at amortised cost:
Cash flow hedges	-		(1,228)		(3,129)
Contingent consideration	(3,455)		-		(5,646)
Asset held for sale - lease liability	-		-		(2,400)
TOTAL FINANCIAL LIABILITIES	(117,627)		(109,531)		(116,464)

 

 

 

13.   Earnings per share

	Unaudited		Unaudited		Audited
	26 weeks		26 weeks		52 weeks
	ended 28		ended 29		ended 30
	November		November		May
	2021		2020		2021
Basic earnings per share (pence)	2.06		1.12		0.82
Diluted earnings per share (pence)	2.02		1.11		0.81
Earnings
Earnings for the purpose of basic and diluted earnings per share (£'000)	2,272		1,151		893
Number of shares
Weighted number of ordinary shares for the purpose of basic earnings per share	110,294,684		102,780,107		109,185,216
Potentially dilutive share awards	1,911,145		920,039		1,047,593
Weighted number of ordinary shares for the purpose of diluted earnings per share	112,205,829		103,700,146		110,232,809

 

 

14.  Post-balance sheet event

 

Since the Period end, the Group has terminated various contracts with third-party EU wholesale agents. Amounts received on sales sourced by these agents contributes to the Group's wholesale channel. The liability which will arise on severance of these contracts has been provided for since the Period end, which is when the present obligation arose. The total amount of the obligation is yet to be finalised but is expected to be approximately £0.5m and is also expected to be recognised as an adjusting item.