Preliminary Results

RNS Number : 0774C

Shoe Zone PLC

14 January 2015

 



14 January 2015

Shoe Zone plc

Preliminary Results

Shoe Zone plc ('Shoe Zone', the 'Company' or the 'Group'), a leading UK specialist value footwear retailer, is pleased to announce its maiden Preliminary Results for the 52 weeks ended 4 October 2014.

Financial Highlights

·      Revenue reduced by 10.8% to £172.9m (2013: £193.9m) reflecting the planned closure of a number of temporary stores

·      Product gross margin strengthened to 61.3% (2013: 59.4%)

·      Profit before tax excluding exceptional items increased by 124% to £11.4m (2013: £5.1m)

·      Earnings per share growth, excluding exceptional items, of 160% to 18.0p (2013: 6.9p)

·      Strong cash conversion with cash balance of £9.1m (2013: £6.6m)

·      Maiden dividend of 3.6p per share proposed

Operational Highlights

·      Successful IPO on AIM on 23 May 2014

·      Excellent progress on strategic objectives:

o  Ongoing development of product range receiving positive consumer response

o  Strategic store portfolio management improving profitability

o  Multichannel developments, including Amazon and eBay platform launches, driving a 41% increase in online participation

o  Success in new initiatives including 15 factory outlets

·      Two non-executive Board appointments providing valuable guidance and expertise

o  Non-Executive Chairman, Ian Filby and Non-Executive Director, Charlie Caminada

·      Post period end, opened six new stores with a further 10 under offer. Total number of stores is 545

Anthony Smith, Chief Executive of Shoe Zone plc, said:

"I am delighted to report our first full year results as a public company and am very pleased with our strong financial performance.  We have delivered a year of solid profit growth and are continuing to deliver on our self-help strategies outlined at IPO.

"Despite the well documented warm start to the Autumn/Winter season we believe that 2015 will be a further year of growth for the Group.  The Board continues to see significant opportunities ahead and remains confident that the business will perform in line with market expectations."

There will be a meeting for analysts at 9:30am on 14 January 2015 at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD.

For further information please call:

Shoe Zone plc	Tel: [phone]
Anthony Smith (CEO)
Charles Smith (COO)
Nick Davis (CFO)
Numis Securities Limited (Nominated Adviser & Broker)		Tel: [phone]
Oliver Cardigan
Mark Lander
Huw Jeremy
FTI Consulting (Financial PR)	Tel: [phone]
Jonathon Brill
Alex Beagley

Chief Executive's report

Introduction

I am delighted to deliver my first Chief Executive's report on a very exciting year for Shoe Zone. Having successfully listed the business on the Alternative Investment Market of the London Stock Exchange in May, we have delivered a year of strong profit growth as we continue to deliver on our core strategic objectives.

During the year we welcomed a new Non-Executive Chairman, Ian Filby, and Non-Executive Director, Charlie Caminada, both of whom have brought a wealth of experience to the Executive Board.

We are pleased to announce that our results are in line with market expectations with profit before exceptional items increasing 160% from £3.5m to £9.0m and earnings per share at 16.1p.

As a result of this strong performance, our proposed maiden dividend is 3.6p, in line with our dividend policy. This final dividend, if approved by shareholders, will be paid on 11th March 2015 to shareholders on the register on 13th February 2015. The shares will be ex-dividend on 12th February 2015.

I will now provide an update on the following core strategic objectives:

·      Product range development

·      Store portfolio management

·      Operational improvements

·      Online investment

·      New sales opportunities

Product range development

We have continued to make good progress in the development of our product ranges. 

In the past year, we placed a greater emphasis on our 'Back to School' and 'Comfort' shoe ranges. The 5-9 year old age group is forecast to grow by 12% between 2012 and 2017 and the expected growth in the ageing population is well documented.

As a consequence, we had an extremely strong 'Back to School' with trading in August being the best in the Group's history. We will continue to be more aggressive on price and marketing in both these areas in the next 12 months. 

In addition, we have increased our focus on Men's footwear following recent research that shows men are now as likely as women to have bought footwear in the last three months. Our Men's multi-buy, '2 pairs for £25' offer which includes selected lines throughout the year performed very well and has been extended in recent months.

We are pleased with the progress of our handbag and shoe care ranges, introduced for the Spring/Summer 2013 season. In 2014, handbag sales growth was up 73% with annual sales of £2.5m. Sales growth for shoe care products was up 94% with annual sales of £1.4m. While constantly reviewing our performance in these areas, we have amended the ranges to enhance performance in 2014/15 and this strategy is already showing good signs of further growth. We are also looking to introduce our handbag range into our Grade 3 stores where we have recently carried out a successful trial.

The introduction of 200 web exclusive products in the Spring/Summer 2014 season far exceeded expectations, accounting for 5% of online sales for that season. Recognising the potential in this area, we have bought product for the Autumn/Winter season in greater volume and are already seeing the benefit of this. We are now in detailed discussions with our supply partners about extending our online offer further in 2015.

Store portfolio management

We ended the year operating from 545 stores and the management of our store portfolio has resulted in improved profitability in 2014. We have opened 17 new stores (including six relocations) and completed 45 store refits, spending £1.9m on capital expenditure to achieve this. We have closed a number of temporary stores reducing total sales but helping improve profitability.

We continue to open our largest, most profitable Grade 1 stores while closing smaller Grade 3 stores (see table below). Our short average lease length provides us with the flexibility tobest manage the portfolio while also providing plenty of good opportunities, with secondary locations showing limited signs of rental recovery outside the M25.

	12 months to 4 October 2014		12 months to 5 October 2013
Grade 1 (large)	203		196
Grade 2 (medium)	178		188
Grade 3 (small)	164		186
TOTAL	545		570

Operational improvements

In line with our strategy, orders placed directly with overseas factories increased from 38% in 2013 to 53% in 2014. Where there are margin gains from this approach, these are being reinvested to ensure we can provide our customers with the best value product.

We are pleased with the significant progress we have achieved by following our 'right price, first time' strategy, resulting in a reduction in the amount of markdown value as a percentage of turnover from 8.2% in 2013 to 6.4% in 2014. This has given us a sensible and realistic benchmark for future years.

Our new promotional material, launched in May 2014, has modernised the look of the stores and re-emphasised our strong price message. We are working on a trial evolution of the store refit due to be implemented in 2015 at our new Meadowhall (Sheffield) store.

Training is at the heart of what we do - an example of this is our apprentice scheme, which once again had a 100% success rate this year. All eighteen trainees who completed their apprenticeship have gone on to permanent employment with us, bringing the total apprentices successfully trained by the Company since 2012 to 37.

Online investment

shoezone.com continues to evolve at a vigorous pace with considerable focus having been placed on customer experience in the past year. Significant changes have been made to the design and the customer journey including an improved checkout. Alongside the visual changes, we have ensured that the site is robust to respond efficiently to the increased traffic which rose 25% year on year. A fully responsive site will be launched in 2015 following a recent trial that resulted in a 24% increase in mobile conversion rates.  

We launched on Amazon in November 2013. This has been a very successful source of revenue, equating to 8% of online sales in 2014. Following the success of the Amazon venture, we launched on eBay in July 2014. We are very impressed with the performance so far and expect this to be at least as profitable as Amazon in 2015.

Our e-mail club has grown by 52% in 2014, giving us greater access to our customers and allows us to continue to further develop our successful email marketing.

Our continued emphasis on customer experience has also resulted in the introduction of enhanced delivery and returns options.

The addition of two new members to our in-house team of software developers has increased capacity by 33% enabling us to further drive multichannel growth.

Management will continue to focus on online sales growth in 2015 via shoezone.com, Amazon and eBay.

New sales opportunities

Our promotional links with other value retailers are very encouraging. During our 'Back to School' campaign, we generated over £800,000 in a seven week period through such promotions. We are confident that this brings new customers to Shoe Zone and has good long-term benefits for both parties. We are looking to develop these links further with other retailers in 2015.

We have had early success with business to business transactions and quoting for footwear contracts and our Customer Services team will continue to develop this offering in 2015.

The launch of factory outlets in 15 stores in Spring 2014 has been very successful and is selling our clearance product at a faster rate.

Our investigations into bricks and mortar international opportunities in Poland and Spain are ongoing but remain a longer term strategic goal rather than an immediate sales growth opportunity. 

However, online international sales have now commenced and we are working on further developments during 2015 that will improve the delivery options for our international customers via shoezone.com as well as launching in other countries via Amazon.

Employees

We are very proud of the effort that our amazing staff have put in to achieve these results and thank them for their continued hard work, loyalty and commitment.  We are also extremely proud of the whole team at Shoe Zone for their commitment throughout the year, in raising £200,000 for our chosen charity BBC Children in Need.

Outlook

Despite the well publicised warm start to the Autumn/Winter season we believe that 2015 will be a year of continued growth for the Group.

We have continued to optimise our store portfolio and so far we have opened six stores (two relocations, four new) and have agreed terms on 10 stores (seven relocations, three new). 

Our successful multi-channel offering continues to grow ahead of forecast. The falling oil price is already having a positive impact on the cost of logistics and should also impact the price of raw materials. 

The Board continues to see significant opportunities ahead and remains confident that the business will perform in line with market expectations.

Financial review

In the 52 weeks to 4 October 2014, Group profit before tax excluding exceptional items increased by 124% to £11.4 million (2013: £5.1 million). This was driven by an improvement in gross margin, strong cost control, online growth and the continued optimisation of the store portfolio.

After reflecting exceptional costs of £0.9 million, primarily relating to the IPO, Group profit before tax was up 106% to £10.5 million (2013: £5.1 million).

Revenues of £172.9 million (2013: £193.9 million) declined by 10.8% due to the reduction in store numbers following the rationalisation programme. Store numbers reduced by 25 branches to 545 at the year end (2013: 158 branches closed leaving a total of 570).

Online revenues have grown by 26% during the year, online sales being 3.1% of total sales (2013: 2.2%).

Product gross margin strengthened to 61.3% (2013: 59.4%) reflecting improvements in sourcing.

Operating expenses before exceptional expenses reduced to £17.1 million (2013: £22.1 million).

The effective rate of corporation tax for the year was 23.4% on profits after exceptional items (2013: 31.7%). The Group has re-calculated deferred tax balances to be in line with the new lower corporation tax rate of 20%.

Earnings per share are 16.1 pence (2013: 6.9 pence) and 18.0 pence (2013: 6.9 pence) on a pre-exceptional basis.

The Group's balance sheet has significantly strengthened during the year with net working capital increasing by £2.9 million to £20.0 million. The Group has invested £1.9 million in store refit spend during the year. The Group supports two defined benefit schemes and these have suffered a net loss of £2.0 million during the year.

The Group's current bank facilities include a Rolling Credit Facility for £5.0 million and an on demand overdraft facility for £1.0 million, both with HSBC. Neither facility has been used during the year. The business has a debt free financial structure and generated £13.0 million from operations, resulting in a net cash position of £9.1 million (2013: 6.6 million) at the year end.

A final dividend of 3.6 pence per share is proposed for shareholders on the register on 12 February 2015, payable on 11 March 2015 if approved at the Annual General Meeting to be held on 27 February 2015.

The Group continues to focus on cash generation giving it the strength and resource for positive yield and growth.

A E P Smith	N J Davis
Chief Executive Officer	Chief Financial Officer

Consolidated income statement for the 52 weeks ended 4 October 2014 (unaudited)

	Note		Before Exceptional items		Exceptional items
			52 weeks ended 4 October 2014		52 weeks ended 4 October 2014		52 weeks ended 4 October 2014		53 weeks ended 5 October 2013
			£'000		£'000		£'000		£'000
Revenue	1, 2		172,861		-		172,861		193,882
Cost of sales			(144,303)		-		(144,303)		(166,439)
Gross profit			28,558		-		28,558		27,443
Administration expenses			(11,813)		-		(11,813)		(16,108)
IPO costs			-		(936)		(936)		-
Distribution costs			(5,240)		-		(5,240)		(6,028)
Profit from operations			11,505		(936)		10,569		5,307
Finance income			33		-		33		36
Finance expense			(103)		-		(103)		(285)
Profit before taxation			11,435		(936)		10,499		5,058
Taxation			(2,459)		-		(2,459)		(1,601)
Profit attributable to equity holders of the parent			8,976		(936)		8,040		3,457
Earnings per share - basic and diluted	6						16.08p		6.91p

 

Consolidated statement of total comprehensive income

for the 52 weeks ended 4 October 2014 (unaudited)

			52 weeks ended 4 October 2014		53 weeks ended 5 October 2013
			£'000		£'000
Profit for the period			8,040		3,457
Items that will not be reclassified subsequently to the income statement
Remeasurement (losses)/gains on defined benefit pension scheme			(2,371)		3,288
Movement in deferred tax on pension schemes			474		(850)
Other comprehensive (expense)/income for the period			(1,897)		2,438
Total comprehensive income for the period attributable
to equity holders of the parent			6,143		5,895

 

Consolidated statement of financial position as at 4 October 2014 (unaudited)

	Note	4 October 2014		5 October 2013		29 September 2012
		£'000		£'000		£'000
				Restated		Restated
Assets
Non-current assets
Property, plant and equipment		21,233		24,636		28,851
Deferred tax asset		-		-		157
Total non-current assets		21,233		24,636		29,008
Current assets
Inventories		29,181		29,959		33,416
Trade and other receivables		8,377		8,693		10,077
Derivative financial assets		741		-		-
Cash and cash equivalents		9,114		6,552		8,685
Total current assets		47,413		45,204		52,178
Total assets		68,646		69,840		81,186
Current liabilities
Trade and other payables		(25,920)		(23,889)		(31,841)
Loan and borrowings		-		(1,668)		(2,933)
Provisions		(959)		(764)		(3,167)
Derivative financial liabilities		-		(528)		(189)
Corporation tax liability		(518)		(1,217)		(2,041)
Total current liabilities		(27,397)		(28,066)		(40,171)
Non-current liabilities
Trade and other payables		(3,766)		(4,773)		(5,561)
Loan and borrowings		-		-		(1,000)
Provisions		(470)		(866)		(879)
Employee benefit liability		(4,766)		(2,744)		(6,422)
Deferred tax liability		(516)		(343)		-
Total non-current liabilities		(9,518)		(8,726)		(13,862)
Total liabilities		(36,915)		(36,792)		(54,033)
Net assets		31,731		33,048		27,153
Equity attributable to equity holders of the company
Called up share capital	5	500		500		500
Merger reserve		2,662		2,662		2,662
Retained earnings		28,569		29,886		23,991
Total equity and reserves		31,731		33,048		27,153

 

Consolidated statement of changes in equity

for the 52 weeks ended 4 October 2014 (unaudited)

	Share capital		Merger reserve		Retained earnings		Total
	£'000		£'000		£'000		£'000
At 29 September 2012	500		2,662		23,991		27,153
Profit for the period	-		-		3,457		3,457
Other comprehensive income	-		-		2,438		2,438
Total comprehensive income for the period	-		-		5,895		5,895
At 5 October 2013	500		2,662		29,886		33,048
Profit for the period	-		-		8,040		8,040
Other comprehensive expense	-		-		(1,897)		(1,897)
Total comprehensive income for the period	-		-		6,143		6,143
Distribution prior to group reorganisation	-		-		(2,458)		(2,458)
Dividends paid prior to group reorganisation (note 3)	-		-		(5,002)		(5,002)
Total contributions by and distributions to owners	-		-		(7,460)		(7,460)
At 4 October 2014	500		2,662		28,569		31,731

The distribution prior to group reorganisation was made to enable Shoe Zone Group Limited to repurchase its own shares prior to the listing on AIM.

The merger reserve is the nominal value of shares that have been repurchased.

Retained earnings are all other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

 

Consolidated statement of cash flows for the 52 weeks ended 4 October 2014 (unaudited)

		52 weeks ended 4 October 2014		53 weeks ended 5 October 2013
		£'000		£'000
Operating activities
Profit after taxation		8,040		3,457
Corporation tax		2,459		1,601
Finance income		(33)		(36)
Finance expense		103		285
Pension contributions paid		(425)		(600)
Depreciation of property, plant and equipment		4,527		6,497
Loss on disposal of property, plant and equipment		108		50
		14,779		11,254
Decrease in trade and other receivables		329		1,722
Decrease in inventories		778		3,457
Decrease in trade and other payables		(185)		(8,577)
Decrease in provisions		(200)		(2,416)
		722		(5,814)
Cash generated from operations		15,501		5,440
Income taxes paid		(2,512)		(2,774)
Net cash flows from operating activities		12,989		2,666
Investing activities
Purchase of property, plant and equipment		(2,008)		(2,827)
Sale of property, plant and equipment		703		332
Interest received		33		36
Net cash used in investing activities		(1,272)		(2,459)
Financing activities
Distribution prior to group reorganisation		(2,458)		-
Dividends paid prior to group reorganisation (note 3)		(5,002)		-
Interest paid		(27)		(76)
Repayment of loans		(1,668)		(2,264)
Net cash used in financing activities		(9,155)		(2,340)
Net increase/(decrease) in cash and cash equivalents		2,562		(2,133)
Cash and cash equivalents at beginning of period		6,552		8,685
Cash and cash equivalents at end of period		9,114		6,552

Notes to the financial statements for the 52 weeks ended 4 October 2014

1        Accounting policies

General information

Shoe Zone plc (the Company) is a public company incorporated and domicile in England and Wales. The registered office is at Haramead Business Centre, Humberstone Road, Leicester, LE1 2LH. The company registered number of the Company is 8961190.

The Company and its subsidiaries' (collectively the Group) principal activity is a footwear retailer in the United Kingdom and the Republic of Ireland.

Basis of preparation

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied for the 52 weeks ended 4 October 2014.

The Group financial statements for the 52 weeks ended 4 October 2014 included in this report do not constitute the Group's statutory accounts for the 52 weeks ended 4 October 2014, or the 53 weeks ended 5 October 2013. The results for 2014 are unaudited.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs.

The Group expects to publish statutory financial statements for the 52 weeks ended 4 October 2014 that comply with both IFRSs as adopted for use in the European Union based on the information presented in this announcement. The independent Auditors' Report will be based on those statutory accounts once they are complete.

The preliminary results announcement was approved by the Board on 13 January 2015.

As the Group financial statements have been prepared under merger accounting these are the first financial statements for Shoe Zone Plc. The component parts of the financial statements for the 53 weeks ended 5 October 2013 are Shoe Zone Retail Limited, Castle Acres Development Limited, Zone Property Limited and Zone Group Limited have been delivered to the registrar of companies. The Independent Auditors' Report on the Annual Report and Financial Statements for 2013, in relation to all the above, was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of Shoe Zone plc and its subsidiary undertakings are all made up to 4 October 2014. The results for all subsidiary companies are consolidated using the acquisition method of accounting. 

Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

De-facto control exists in situations where the company has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights. In determining whether de-facto control exists the company considers all relevant facts and circumstances, including:

·      The size of the company's voting rights relative to both the size and dispersion of other parties who hold voting rights

·      Substantive potential voting rights held by the company and by other parties

·      Other contractual arrangements

·      Historic patterns in voting attendance.

The consolidated financial statements present the results of the company and its subsidiaries ('the Group') as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.

Changes in accounting policies

As these are the first financial statements of the Group under IFRS, the group has applied all IFRSs that are effective for the 52 weeks ended 4 October 2014 and the 53 weeks ended 5 October 2013. The Group has not early adopted the following new standards, amendments or interpretations that have been issued but are not yet effective. The Directors anticipate that the adoption of these standards will not result in significant changes to the Group's accounting policies. The Group has commenced its assessment of the impact of these standards but is not yet in a position to state whether these standards would have a material impact on its results of operations and financial position.

·      Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32)

·      Recoverable amounts disclosures for non-financial assets (Amendments to IAS 36)

·      Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39)

·      Defined Benefit Plans: Employee Contributions: Amendments to IAS 19

·      Annual Improvements to IFRSs 2010-2012 Cycle

·      Annual Improvements to IFRSs 2011-2013 Cycle

·      Annual Improvements to IFRSs 2012-2014 Cycle

·      IFRS 15 Revenue from Contracts with Customers

·      IFRS 9 Financial Instruments

Capital reorganisation and the merger reserve

On 26 March 2014 the Company was formed to become the new holding company for the Group. This was put into effect through a share-for-share exchange as described in note 5.  

The accounting treatment for group reorganisations is scoped out of IFRS 3. Accordingly, as required under IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors the Group has referred to current UK GAAP to assist its judgement in identifying a suitable accounting policy. The introduction of the new holding company has been accounted for as a capital reorganisation using the merger accounting principles prescribed under current UK GAAP. Therefore the consolidated financial statements Shoe Zone plc are presented as if Shoe Zone plc has always been the holding company for the Group and the share capital treated as if issued in the earliest year presented.

The use of merger accounting principles has resulted in a balance on Group capital and reserves which has been classified as a merger reserve and included in the Group's shareholders' funds. The consolidated financial statements include the results of the Company and all its subsidiary undertakings made up to the same accounting date.

The Company has recognised the value of its investment in Shoe Zone Retail Limited, Castle Acre Developments Limited and Zone Property Limited at fair value based upon the initial share placing price on admission to AIM. This is a Level 2 valuation within the fair value hierarchy. As permitted by S612 of the Companies Act 2006 the amount attributable to share premium has been transferred to the merger reserve. The investment in the Company is recorded at fair value.

Revenue

Revenue is measured at the fair value of consideration received or receivable net of discounts, returns and VAT. Revenue from the sale of footwear is recognised when the company has transferred the significant risks and rewards of ownership to the buyer at the point of sale in the shop. At the point of sale a provision is made for the level of expected returns based on previous experience.

Internet sales are recognised when the goods have been paid for, despatched and received by the customer.

Investments

Investments held as fixed assets are stated at cost, less any provision for impairment.

Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost. As well as purchase price, cost includes directly attributable costs.

Depreciation is provided on all items of property, plant and equipment so as to write off their carrying value over the expected useful economic lives. It is provided at the following rates:

Leasehold improvements  -      5-10 years on a straight line basis

Fixtures and fittings         -      5-10 years on a straight line basis

Motor vehicles                 -      3-5 years on a straight line basis

No depreciation is provided against freehold land. Depreciation is provided against freehold shop properties writing off the original cost less estimated residual value over the useful economic life of the property which is estimated to be 50 years.

Leased assets

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Shoe Zone plc Group (a 'finance lease'), the asset is treated as if it had been purchased outright.

The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated income statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an 'operating lease'), the total rentals payable under the lease are charged to the consolidated income statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.

Impairment of non-financial assets

The carrying values of non-financial assets are reviewed for impairment when there is an indication that assets might be impaired. When the carrying value of an asset exceeds its recoverable amount, the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash generating unit (i.e. the smallest group of assets in which the asset belongs for which there are separable identifiable cash flows).

Impairment charges are included in the consolidated income statement, except to the extent they reverse previous gains recognised in the consolidated statement of comprehensive income.

Inventories

Inventories are initially recognised at cost on a first in first out basis, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Financial assets

The Group classified its financial assets into the categories, discussed below, due to the purpose for which the asset was acquired. The Group has not classified any of its financial assets as held to maturity.

Loans and receivables

Loans and receivable assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents included within the consolidated statement of financial position.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the consolidated income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Financial liabilities

The Group classified its financial liabilities as other financial liabilities which include the following:

·      bank loans which are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost ensuring the interest element of the borrowing is expensed over the repayment period at a constant rate; and

·      trade payables, other borrowings and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Deferred taxation

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement of financial position differs from its tax base.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities or assets are settled or recovered. Deferred tax balances are not discounted.

Deferred tax assets and liabilities are offset when the Group has legally enforceable or substantially current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

·      the same taxable group company; or

·      different company entities which intend to either settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets and liabilities are expected to be settled or recovered.

Provisions

Provision for dilapidations is made at the best estimate of the expenditure required to settle the obligation at the reporting date, where material, discounted at the pre-tax rate reflecting currently market assessments of the time value of money and risks specific to the liability. This provision relates to the liability of wear and tear incurred on the leasehold properties and do not include any removal of shop refits as experience indicates that liabilities do not arise for removal of shop refits.

In case of onerous leases, the provision takes into account the potential that the properties in question may be sublet for some or all of the remaining lease term.

Derivative financial assets / liabilities

The fair value of any forward foreign exchange contracts is recognised within current assets/liabilities and any movement in the fair value is recognised through finance income/expense.

Foreign exchange

Transactions entered into the group entities in a currency other than the functional currency are recorded at the average rate prevailing during the period. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date.

Retirement benefits - defined contribution and benefit schemes

The Group operates both defined benefit and defined contribution funded pension schemes. The schemes are administered by trustees and are independent of the Group.

Contributions to defined contribution schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

Defined benefit scheme surpluses and deficits are measured at:

·      the fair value of plan assets at the reporting date; less

·      plan liabilities calculated using the projected unit credit method discounted to its present value using yields available on high quality corporate bonds that have maturity dates approximating to the terms of the liabilities; plus

·      unrecognised past service costs; less

·      the effect of minimum funding requirements agreed with scheme trustees.

Re-measurements of the net defined obligation are recognised directly within equity. These include actuarial gains and losses, return on plan assets (interest exclusive), and any asset ceilings (interest exclusive).

Service costs are recognised in the income statement, and include current and past service costs as well as gains and losses on curtailments.

2     Segmental information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the management team including the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer.

The Board considers that each store is an operating segment but there is only one reporting segment as the stores qualify for aggregation, as defined under IFRS 8. Management reviews the performance of the Group by reference to total results against budget. The total profit measures are operating profit and profit for the year, both disclosed on the face of the consolidated income statement. No differences exist between the basis of preparation of the performance measures used by management and the figures in the Group financial statements.

	52 weeks ended 4 October 2014		53 weeks ended 5 October 2013
	£'000		£'000
External revenue by location of customers:
United Kingdom	167,146		187,562
Republic of Ireland	5,715		6,320
	172,861		193,882

There are no customers with turnover in excess of 10% or more of total turnover.

	52 weeks ended 4 October 2014		53 weeks ended 5 October 2013
	£'000		£'000
Non-current assets by location:
United Kingdom	21,233		24,636

Non-current assets held in the Republic of Ireland are not disclosed on the grounds of materiality.

3     Dividends

	52 weeks ended 4 October 2014		53 weeks ended 5 October 2013
	£'000		£'000
Dividends paid prior to group reorganisation	5,002		-

A final dividend of 3.6 pence per share is proposed for shareholders on the register on 12 February 2015 payable on 11 March 2015 following approval at the Annual General Meeting on 27 February 2015.

4     Contingent liabilities

The Shoe Zone plc Group and subsidiary undertakings have given a duty deferment guarantee in favour of HM Revenue and Customs amounting to £1,600,000 (5 October 2013: £1,600,000).

5     Share capital

	4 October 2014		5 October 2013
	£'000		£'000
Share capital issued and fully paid
50,000,000 ordinary shares of 1p each	500		500
	500		500

Ordinary shares carry the right to one vote per share at general meetings of the company and the rights to share in any distribution of profits or returns of capital and to share in any residual assets available for distribution in the event of a winding up.

Shoe Zone plc authorised share capital is unlimited.

The Company was incorporated on 26 March 2014 as a private company limited by shares under the name Shoe Zone (Holdings Limited. On 30 April 2014, the Company was re-registered as a public limited company with the name Shoe Zone plc.

The Company was incorporated with an issued share capital of £1.00 comprising one ordinary share of £1.00 which was issued to the Selling Shareholder on incorporation.

The following changes to the issued share capital of the Company have taken place between 26 March 2014 (being the date of the Company's incorporation) and 20 May 2014:

1. on 24 April 2014, the Company allotted and issued 13 ordinary shares of £1.00 each, fully paid up, to the Selling Shareholder, the entire issued share capital of the Company immediately following that allotment and issue was consolidated into one ordinary share of £14.00 and, thereafter, subdivided into 10 ordinary shares of £1.40 each;

2. on 24 April 2014, the Company allotted and issued 49,999,990 ordinary shares of £1.40 each, fully paid up, in consideration of the acquisition by the Company of the entire issued share capital of Shoe Zone Retail Limited, Castle Acres Development Limited and Zone Group Limited pursuant to the Share Exchange Agreement. The aggregate premium paid on such shares was £585,576.54; and

3. on 28 April 2014, the Company undertook a share capital reduction by way of solvency statement pursuant to which the Company (i) reduced the amount paid up on each ordinary share of £1.40 by £1.39; and (ii) reduced the entire amount standing to the credit of its share premium account. Following this share capital reduction, the Company's issued share capital was £500,000 comprising 50,000,000 Ordinary Shares.

		Total issued share capital (number)						Total issued share capital (£)
	Ordinary £1 shares		Ordinary £1.40 shares			New  ordinary 1p shares		Ordinary £1 shares		Ordinary £1.40 shares		New  ordinary 1p shares
Issued share capital on incorporation	1		-			-		1		-		-
Allocated and issued shares to the Selling Shareholders	13		-			-		13		-		-
Shares subdivided	(14)		10			-		(14)		14		-
Share for share exchange	-		49,999,990			-		-		69,999,986		-
	-		50,000,000			-		-		70,000,000		-
Capital reduction by £1.39 and re-designate as new shares	-		(50,000,000)			50,000,000		-		(70,000,000)		500,000
Shoe Zone plc shares as at 4 October 2014	-		-			50,000,000		-		-		500,000

6     Earnings per share

Earnings per share is calculated by dividing profit for the year by the weighted average number of shares outstanding during the year.

	4 October 2014		5 October 2013
	£'000		£'000
Numerator
Profit for the year and earnings used in basic and diluted EPS	8,040		3,457

	4 October 2014		5 October 2013
Denominator
Weighted average number of shares used in basic and diluted EPS	50,000,000		50,000,000

7     Ultimate controlling party

The company is controlled by Shoe Zone Group Limited. Shoe Zone Group Limited is controlled by the Smith family albeit there is not a single controlling party.

 

END

 

 

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