Preliminary Results

RNS Number : 5453M

Shoe Zone PLC

09 January 2019

 

09 January 2019

Shoe Zone plc

Preliminary Results

Shoe Zone plc ("Shoe Zone", the "Company" or the "Group"), the leading UK value footwear retailer, is pleased to announce its Preliminary Results for the 52 weeks ended 29 September 2018.

Financial Highlights

·      Revenue up 1.8% to £160.6m (2017: £157.8m)

·      Product gross margin at 62.9% (2017: 63.2%)

·      Statutory Profit before tax increased 18.4% to £11.3m (2017: £9.5m)

·      Earnings per share up 20.7% to 19.0p (2017: 15.8p)

·      Strong cash conversion with cash balance of £15.7m (2017: £11.8m)

·      Proposed final dividend raised 17.6% to 8.0p per share (2017: 6.8p per share)

·      Special dividend of 8.0p (2017: Nil)

·      Total dividend increased 91.2% to 19.5p per share (2017: 10.2p per share)

Operational Highlights

·      19 Big Box stores at period end contributing £7.1m sales

o  25 Big Box stores at publication date with further 20 targeted in 2019

·      Developed and launched new store equipment in-house, saving c.£50k per refit

·      Successful roll out of new till system across retail estate

·      Rent on renewals fell on average by 23.1%, equivalent to a full year saving of £431k

·      Outstanding average lease length of 2.1 years

·      Digital revenue increased 19.9% to £9.8m (2017: £8.2m) achieving profit contribution of £2.6m (2017: £2.0m)

Nick Davis, Chief Executive of Shoe Zone plc, said:

"I am pleased to report that 2018 has been another successful year for Shoe Zone with the Group delivering a record Profit before Tax since IPO driven from a strong performance throughout the business while operating in a challenging consumer environment.

"This positive performance is testament to the strength of the core business model and the effective focus on growing the Big Box and Digital channels. As a result of the strong performance, the Board is pleased to again return excess cash to shareholders by way of special dividend.

"We continue to make good progress against our strategic objectives and the Board remains positive about the outlook for the Group. We are incredibly proud of all of our team's effort in delivering this progress and would like to thank them for all of their hard work."

There will be a presentation for analysts at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD, at 9:30am on 09 January 2019.

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

For further information, please call:

Shoe Zone plc Anthony Smith (Chairman) Nick Davis (CEO) Jonathan Fearn (CFO)	Tel: [phone]
FinnCap Limited (Nominated Adviser & Broker) Matt Goode Carl Holmes Hannah Boros	Tel: [phone]
FTI Consulting (Financial PR) Jonathon Brill Alex Beagley Eleanor Purdon Alice Newlyn	Tel: [phone]

About Shoe Zone

Shoe Zone is the largest specialist value footwear retailer, offering low price and high quality footwear for the whole family.

The Group operates from a portfolio of around 500 stores and employs approximately 3,500 employees across the UK and the Republic of Ireland.

Shoe Zone's website, www.shoezone.com, combined with our extensive store portfolio, gives customers the opportunity to shop across multiple channels.

Shoe Zone sells approximately 20 million pairs of shoes per annum with an average retail price per pair of shoes of around £10. The Group maintains low retail prices due to high volumes ordered, direct sourcing from factories and a low product line count.

Chief Executive's report

I am pleased to report that 2018 has been another successful year for Shoe Zone plc. The strength of the core business model, combined with the focus on growth through the Big Box roll out and Digital channels, gives me confidence that Shoe Zone will continue to deliver positive results and returns for shareholders in the future.

The business delivered revenue growth of 1.8% at £160.6m (2017: £157.8m) and continues to generate cash effectively with cashflow from operations up 7.2% to £15.0m (2017: £14.0m) from a robust debt free balance sheet.

Statutory profit before tax has increased 18.4% from £9.5m to £11.3m, the highest annual performance since flotation in 2014, reflecting strong performance throughout the business. Diluted earnings per share increased 20.7% from 15.8p to 19.0p.

Dividends

The board remains committed to delivering positive dividend growth to shareholders. In recent years, the strategy has been to pay out approximately 60% of post-tax earnings as a normal dividend and any surplus cash above £11m as a special dividend. 

For the year ended 29 September 2018, the board is proposing to pay out 60% of post-tax earnings as a normal dividend. This results in a final dividend of 8p per share (2017: 6.8p), giving a total dividend for the year of 11.5p (2017: 10.2p) per share. 

In addition, I am pleased to confirm a special dividend of 8p per share, returning £4m of surplus cash to shareholders.

The dividends will be paid to shareholders on the register on 1 March 2019, payable on 20 March 2019 if approved at the Annual General Meeting which will be held on 7 March 2019. The shares will go ex-dividend on 28 February 2019.

Strategy

The Shoe Zone strategy has three key objectives

·      Growth through Big Box

·      Growth through Operational Excellence

·      Growth through Digital

Growth through Big Box

The Big Box portfolio has expanded by 10 stores to a total of 19 stores operational at year end (25 stores operational by 31 December 2018). Following the successful trial, the concept now provides a clear path for growth through diversification into out of town retail and a proposition attractive to a more affluent customer base. The pipeline of new store openings is well developed and it is anticipated that this will further grow and accelerate during 2019, with a target of 20 stores opening during the coming calendar year. Big Box stores are already delivering a significant contribution to the Group's revenue and profits with £7.1m of revenue and £0.4m of profit contribution in the period, representing 4.4% of total revenue and over 2.3% of branch cash contribution during 2018.

The profitability and payback of the Big Box stores continue to be a focus for the business. During 2018 we redesigned the in-store fixtures so that they can be used across the full Shoe Zone estate. The new 'Unity' equipment has resulted in capital expenditure savings of over £50k per Big Box.

During the year we also added new brands into the Big Box range. Wrangler and Crocs have now joined Skechers and Clarks amongst others, to provide a premium offering that complements the core own-brand Shoe Zone styles. In the Spring Summer range for 2019 we will also offer an own label premium range 'Lilley and Skinner' in Ladies shoes, which will provide a higher gross margin.

Growth through Operational Excellence

Systems

During 2018 we successfully rolled out new till hardware and software upgrades which improved the speed of transactions in store, reduced the need for paper forms and increased digital integration in store. Customers wishing to join the email database are now able to enter their own details using the new customer facing touch screens.

The software upgrades further enhance our already market leading systems, all of which are programmed and managed by our in house IT department. During 2019 we will bring the Group's warehouse management system in house meaning that all operational systems will be controlled within Shoe Zone.

Systems across the business are fully integrated so that we have a single view of stock across retail, the warehouse and digital. We can also identify when we need to recall stock from stores with low sales or a fragmented size range and consolidate and reallocate to better stores. On average we recall 30,000 pairs per week.

During the past 12 months we have also further enhanced our stock and picking systems to enable consolidation of digital and main warehouse stock therefore increasing picking efficiency and supporting flexibility of tasks within the warehouse teams. Within our Distribution Centre, we hold on average 1,000,000 pairs with throughput of 800,000 pairs per week. We achieved a pick accuracy of 99.96% in 2018.

Product

We remain committed to offering our customers the best possible value and have maintained key price points for our core value lines. We have increased the number of lines in "Multi-Buy" deals (e.g. '2 for £20'), which alongside on-going range improvements has increased average transaction value by 4.7% during the year to £12.98.

Direct sourcing continues to grow with footwear orders placed directly with overseas factories increasing to 85.0% (2017: 84.7%) of total footwear orders. Working closely with our source of manufacture has helped maintain high gross product margins as well as improving communication and control across the supply chain.  A demonstration of our commitment to quality is shown by our complaints level of less than 1%, which is half of the industry average.

Our 'right price, first time' strategy which helps control the amount of markdown value as a percentage of turnover, continues to ensure we remain one of the industry leaders in low levels of markdown at 7.9% (2017: 7.6%).

Store Portfolio

We ended the year operating from 492 stores having opened 16 and closed 20 during the period. 10 of the openings were the continued roll out of Big Box and the remaining six were the new Unity Town Centre format.

The core estate continues to be invested in and refreshed. Total capital spend of £5.1m included the 16 new openings, 23 full refits, continued rebranding of the estate and the roll out of new tills. This capital outlay was partially offset by £1.5m in rent free during the first year of opening.

The focus on managing property costs has resulted in rents at the lease renewal date falling by 23.1% in the 12 month period (2017: reduction of 24.5%) delivering £431k of annual savings. We expect that this trend will continue as supply in the retail property market continues to outstrip demand.

The business continues to benefit from a flexible portfolio with an average lease length of 2.1 years which gives us significant opportunity to respond to changes in shopping patterns in any retail locations at short notice.

Growth through Digital

Digital continues to be a key area of focus and growth for the business. Our market leading customer offer provides the choice of ordering on-line or in-store, and to have products delivered free of charge, with no minimum spend limit, or to click and collect from a Shoe Zone store.  Returns can be made either free to store or our Distribution Centre.

Digital revenue has increased 19.9% year on year to £9.8m, (2017: £8.2m) representing 6.1% of revenue and now delivers over £2.6m (2017: £2.0m) profit contribution before Head Office apportioned costs, representing 23.1% of total profit.

Shoezone.com has had another successful year and we continue to see the gradual shift towards mobile devices. Mobile and tablet visits now represent 79.0% (2017: 78.9%) of all website visits.

We continue to focus on engaged customers and emails sent have increased by 26.2%, resulting in a sales increase of 18.8% on the prior year, now accounting for 7.8% of all site revenue. The new in-store tills rolled out as part of the Operational Excellence strategy allow customers to enter their own email addresses using the customer facing touch screen, therefore reducing the time required to register new customers.

Overall conversion rates remained broadly static at 4.13% over the full year (2017: 4.18%). The 'mobile first' design and implementation continues to deliver strong results with an increase in conversion to 3.68% (2017: 3.55%), however desktop conversion has fallen marginally. 

In addition to growth in sales, we continue to manage the profitability of our Digital channel. During 2018, we have introduced an integrated management structure under our new Operations Director, aligning both Retail and Digital warehouse activities and consolidation of stock into single pick locations.

Digital purchase returns continue to be low at less than 11% of online sales with 90% of these returns being taken back to store rather than the Distribution Centre.

Social Responsibility

We are incredibly proud of all of our team's effort in achieving these results and want to thank them for their on-going commitment and hard work.

During 2018 Shoe Zone plc donated over £100,000 to charitable causes. We also continue to support BBC Children in Need and the enthusiasm and commitment of our colleagues has resulted in us collectively raising over £650,000 for our chosen charity in the last five years.

We recognise the impact of our activities on the environment and recycle as much of our waste as possible. We are actively reducing the use of plastic within our stores and the delivery lorries return used cardboard, plastics, fluorescent lighting tubes and obsolete equipment for reuse or recycling.

In our refits we are now using LED lighting in order to reduce energy consumption and are also working with the shoe manufacturers to reduce the use of single use plastics in packaging of new products.

We are also transitioning our car fleet to hybrid cars wherever possible.

Current trading and Outlook

The outlook for consumer spending remains challenging with the difficult economic conditions likely to continue. Despite this, we are well positioned given our strong value retail proposition that has proven to be robust in challenging market conditions.

We have continued to manage the store portfolio having opened six new Big Box stores and refitted a further four Shoe Zone stores since year-end. In total, we are targeting to have 45 Big Box stores open by December 2019 of which there are currently 12 with provisional opening dates. A further 35 full refits are planned for the remainder of the year

We expect the business to continue to have strong cash conversion and anticipate capital expenditure will continue at current levels as we maintain the standard of the store portfolio.

Shoe Zone has made a solid start to the year and is trading ahead of previous market expectations. We are making good progress against our strategic objectives and the Board remains positive about the outlook for the remainder of the year. 

Financial review

In the 52 weeks to 29 September 2018, Profit before Tax increased from £9.5m to £11.3m, an increase of 18.4%.  This is due to strong trading in all areas of the business, supported by stability in the exchange rate across the year.  Earnings per share increased by 20.7% to 19.0p (2017: 15.8p)

Revenues increased by 1.8% to £160.6m (2017: £157.8m). This reflects solid trading throughout the portfolio supported by digital growth and new openings of Big Box stores. 

Overall store numbers reduced by a net four branches to 492 at the year end (2017: net 14 branches closed leaving a total of 496).

Digital growth has proved strong with revenues increasing by 19.9% (2017: 34.5%), and this has now developed to account for 6.1% of total sales (2017: 5.3%). Profit contribution from Digital increased to £2.6m (2017: £2.0m) in the year.

Product gross margin remained strong at 62.9% (2017: 63.2%), reflecting a continued focus in direct sourcing, successful negotiations with suppliers and management of write downs. The slight fall year on year reflects an increase in multi buy promotions for example 2 for £20 and the impact of lower branded margins.

Operating expenses decreased to £19.1m (2017: £20.3m). Administration expenses decreased by £1.4m primarily due to the reduced impact of foreign exchange differences and a reduction in professional charges offset by planned increases in digital operational costs. Distribution Costs remained broadly flat year on year with staff cost increases being partially offset by warehouse efficiencies.

The effective rate of corporation tax for the year was 19.4% (2017: 19.8%).

During the year capital expenditure was £5.0m (2017: £5.1m). This included on-going investment in the portfolio, opening 16 new stores, 23 refits, and the roll out of a new till system across all stores.

The pension liability has fallen by £0.8m from £7.1m to £6.3m due mainly to an increase in the yield performance of corporate bonds.

The derivative financial asset of £1.4m, compared to a £2.5m liability in prior year, represents the mark to market valuation of the derivative hedges in place at the end of the financial year. As outlined in the annual report, Shoe Zone only hedges against future dollar purchases of goods for resale, all hedges in place will be effective upon their delivery date.

The Group uses derivative financial instruments, typically forward exchange contracts, to hedge the risk of future foreign currency fluctuations. The hedging policy enables the effective portion of changes in the fair value of designated derivatives to be recognised in other comprehensive income. Historically these movements would have been recognised in the Income Statement. Further information can be seen in accounting policies in note 1 of the financial statements.

The Company generated £15.0m cash from operations, a year on year increase of £1.0m resulting in a net cash position of £15.7m (2017: £11.8m) at the year end, underpinning a strong debt free balance sheet. The Group's current bank facilities consist of an on demand overdraft facility of £5.0m with HSBC. This facility has not been used within the year. 

The Board is proposing a final dividend of 8.0p (2017: 6.8p) per share, resulting in a total dividend for the year of 11.5p (2017: 10.2p) per share. In addition, the closing cash position of £15.7m gives surplus cash of £4m which will be returned to shareholders in the form of a special dividend of 8p per share. The Board continues to believe the business can operate on an opening/closing cash position of £11m and any excess above this level will be paid out to shareholders unless there is a change in business requirement. 

The dividends will be paid to shareholders on the register on 1 March 2019, payable on 20 March 2019 if approved at the Annual General Meeting to be held on 7 March 2019. The shares will go ex-dividend on 28 February 2019.

Consolidated income statement for the 52 weeks ended 29 September 2018

	Note
			52 weeks ended 29 September 2018		52 weeks ended  30 September 2017
			£'000		£'000
Revenue	2		160,615		157,777
Cost of sales			(130,086)		(127,657)
Gross profit			30,529		30,120
Administration expenses			(13,070)		(14,454)
Distribution costs			(6,048)		(5,872)
Profit from operations			11,411		9,794
Finance income			31		15
Finance expense			(187)		(306)
Profit before taxation			11,255		9,503
Taxation			(1,738)		(1,620)
Profit attributable to equity holders of the parent			9,517		7,883
Earnings per share - basic and diluted			19.03p		15.77p

Consolidated statement of total comprehensive income for the 52 weeks ended 29 September 2018

	Note		52 weeks ended 29 September 2018		52 weeks ended 30 September 2017
			£'000		£'000
Profit for the period			9,517		7,883
Items that will not be reclassified subsequently to the income statement
Remeasurement gains on defined benefit pension scheme			295		5,608
Movement in deferred tax on pension schemes			(50)		(1,217)
Items that will be reclassified subsequently to the income statement
Fair value movements on cash flow hedges			232		(934)
Cash flow hedges recognised in inventories			2,958		(1,233)
Tax on cash flow hedges			(548)		377
Other comprehensive income for the period			2,887		2,601
Total comprehensive income for the period attributable to equity holders of the parent			12,404		10,484

 

Consolidated statement of financial position as at 29 September 2018

 

	Note	52 weeks ended 29 September 2018		52 weeks ended 30 September 2017
		£'000		£'000
Assets
Non-current assets
Property, plant and equipment		21,103		20,783
Deferred tax asset		703		861
Total non-current assets		21,806		21,644
Current assets
Inventories		27,804		28,017
Trade and other receivables		6,229		6,108
Derivative financial assets		1,383		-
Cash and cash equivalents		15,682		11,786
Total current assets		51,098		45,911
Total assets		72,904		67,555
Current liabilities
Trade and other payables		(25,016)		(23,576)
Provisions		(689)		(829)
Derivative financial liability		-		(2,546)
Corporation tax liability		(550)		(474)
Total current liabilities		(26,255)		(27,425)
Non-current liabilities
Trade and other payables		(1,649)		(1,742)
Provisions		(290)		(120)
Employee benefit liability		(6,296)		(7,108)
Total non-current liabilities		(8,235)		(8,970)
Total liabilities		(34,490)		(36,395)
Net assets		38,414		31,160
Equity attributable to equity holders of the company
Called up share capital	5	500		500
Merger reserve		2,662		2,662
Cash flow hedge reserve		1,123		(1,520)
Retained earnings		34,129		29,518
Total equity and reserves		38,414		31,160

Consolidated statement of changes in equity for the 52 weeks ended 29 September 2018

	Share capital		Merger reserve		Cash flow hedge reserve		Retained earnings		Total
	£'000		£'000		£'000		£'000		£'000
At 1 October 2016	500		2,662		270		26,344		29,776
Profit for the period	-		-		-		7,883		7,883
Defined benefit pension movements	-		-		-		5,608		5,608
Cash flow hedge movements	-		-		(2,167)		-		(2,167)
Deferred tax on other comprehensive income	-		-		377		(1,217)		(840)
Total comprehensive income for the period	-		-		(1,790)		12,274		10,484
Dividends paid during the year (note 3)	-		-		-		(9,100)		(9,100)
Total contributions by and distributions to owners	-		-		-		(9,100)		(9,100)
At 30 September 2017	500		2,662		(1,520)		29,518		31,160
Profit for the period	-		-		-		9,517		9,517
Defined benefit pension movements	-		-		-		295		295
Cash flow hedge movements	-		-		3,191		-		3,191
Deferred tax on other comprehensive income	-		-		(548)		(51)		(599)
Total comprehensive income for the period	-		-		2,643		9,761		12,404
Dividends paid during the year (note 3)	-		-		-		(5,150)		(5,150)
Total contributions by and distributions to owners	-		-		-		(5,150)		(5,150)
At 29 September 2018	500		2,662		1,123		34,129		38,414

Share capital comprises nominal value of shares subscribed for.

The merger reserve has arisen as a result of the application of merger accounting to the group reorganisation of 26 March 2014.

The cash flow hedge reserve comprises of gains/losses arising on the effective portion of hedging instruments and is carried at fair value in a qualifying cash flow hedge.

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 29 September 2018

	Note	52 weeks ended 29 September 2018		52 weeks ended 30 September 2017
		£'000		£'000
Operating activities
Profit after taxation		9,517		7,883
Corporation tax		1,738		1,620
Finance income		(31)		(15)
Finance expense		187		306
Depreciation of property, plant and equipment		3,097		2,962
Fixed asset impairment and loss on disposal of property, plant and equipment		430		188
Pension contributions paid		(704)		(649)
		14,234		12,295
(Increase) / decrease in trade and other receivables		(146)		1,084
(Increase) / decrease in foreign exchange contract		(709)		321
Decrease in inventories		182		2,767
Increase / (decrease) in trade and other payables		531		(2,467)
Increase / (decrease) in provisions		859		(48)
		717		1,657
Cash generated from operations		14,951		13,952
Income taxes paid		(2,096)		(2,990)
Net cash flows from operating activities		12,855		10,962
Investing activities
Purchase of property, plant and equipment		(5,094)		(5,137)
Sale of property, plant and equipment		1,254		-
Interest received		31		15
Net cash used in investing activities		(3,809)		(5,122)
Financing activities
Dividends paid during the year	3	(5,150)		(9,100)
Net cash used in financing activities		(5,150)		(9,100)
Net increase in cash and cash equivalents		3,896		(3,260)
Cash and cash equivalents at beginning of period		11,786		15,046
Cash and cash equivalents at end of period		15,682		11,786

1     Accounting policies

General information

Shoe Zone plc (the 'Company') is a public company incorporated and domiciled 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 08961190.

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 29 September 2018.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and Interpretations (collectively IFRSs) issued by the Internal Accounting Standards Board (IASB) as adopted by the European Union ('adopted IFRSs') and those parts of the Companies Act 2006 that are applicable to companies that prepare financial statements in accordance with IFRS.

The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified for the revaluation of certain financial assets and financial liabilities at fair value.

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the company's accounting policies.

The consolidated financial statements are presented in Sterling, which is also the Group's functional currency.

Amounts are rounded to the nearest thousand, unless otherwise stated.

Basis of consolidation

The consolidated financial statements incorporating the financial statements of Shoe Zone plc and its subsidiary undertakings are all made up to 29 September 2018. 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

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.

Standards, amendments and interpretations which are not effective or early adopted by the Group

Standards or amendments that are applicable but that are not effective and have not been early adopted are as follows:

IFRS 16 'Leases'. This Standard is effective for the Group for the 52 week financial period ending 3 October 2020 and will require a significant change in the accounting and reporting of leases for the Group. The standard will require lessees to recognise assets and liabilities for all leases, with the exception of low value leases or where the lease term is 12 months or less. The impact on the Group is currently being assessed and it is not yet practicable to quantify the effect of the standard on these consolidated financial statements.

IFRS 9 'Financial Instruments' replaces IAS 39 'Financial Instruments: Recognition and Measurement' and is effective for the Group for the 53 week financial period ending 5 October 2019. The main change for the Group is a simplification of hedge accounting rules. As a result, the impact of the change on the Group is minimal, and will result in no changes in disclosure.

IRFS 15 'Revenue from Contracts with Customers'. This is effective for the 53 week financial period ending 5 October 2019, and requires revenue generated from contracts with customers to more accurately reflect the economic reality. This standard will not have any impact on the Group's revenues, as all of the Group's revenue relates to the sale of products made directly to customers either in store or online, no contracts are in place for any revenue generated.

The group has not early adopted any IFRSs or IFRS interpretations.

There have been no changes to standards during the year that affect the Group.

Revenue

Revenue is measured at the fair value of consideration received or receivable net of discounts, returns and VAT. Revenue 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.

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 interest and capital. 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 in cost of sales, 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.

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Loans and receivables

Cash and cash equivalents include cash in hand and deposits held at call with banks.

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:

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

Derivative financial instruments and hedging activities

Hedge accounting is applied to financial assets and financial liabilities only where all of the following criteria are met:

At the inception of the hedge there is formal designation and documentation of the hedging relationship and the Group's risk management objective and strategy for undertaking the hedge.

·      For cash flow hedges, the hedged item in a forecast transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss.

·      The cumulative change in the fair value of the hedging instrument is expected to be between 80-125% of the cumulative change in the fair value or cash flows of the hedged item attributable to the risk hedged (i.e. it is expected to be highly effective).

·      The effectiveness of the hedge can be reliably measured.

·      The hedge remains highly effective on each date tested.  Effectiveness is tested quarterly

The Group uses derivative financial instruments such as forward foreign exchange contracts to hedge its risks associated with foreign currency fluctuations. Such derivative financial instruments are initially measured at fair value and subsequently remeasured at fair value. The fair value of forward foreign exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in cost of sales in the income statement.

Amounts accumulated in equity are reclassified to inventories in the period when the purchase occurs, matching the hedged transaction. The cash flows are expected to occur and impact on profit and loss within 12 months from the year end.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss previously recognised in equity is retained in equity and is recognised when the forecast transaction is ultimately recognised in cost of sales in the income statement.  When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

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 are offset when the Group has legally enforceable rights to set off current tax assets against current tax liabilities and the deferred tax 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 current market assessments of the time value of money and risks specific to the liability.  A dilapidation provision is only recognised on those properties which are likely to be exited.  Where such property is identified the full costs expected are recognised.  This provision relates to the liability of wear and tear incurred on the leasehold properties and does not include any removal of shop refits as experience indicates that liabilities do not arise for removal of shop refits. 

Foreign exchange

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

Foreign exchange differences are recognised in the profit and loss account.

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.

Net interest expense (income) is recognised in profit or loss, and is calculated by applying the discount rate used to measure the defined benefit obligation (asset) at the beginning of the annual period to the balance of the net defined benefit obligation (asset), considering the effects of contributions and benefit payments during the period.

Gains or losses arising from changes to scheme benefits or scheme curtailments are recognised immediately in profit or loss.

Settlements of defined benefit schemes are recognised in the period in which the settlement occurs.

Dividends

Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the directors. In the case of final dividends, this is when approved by the shareholders at the AGM. 

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 Chairman, Chief Executive Officer, Chief Financial Officer and Chief Operating 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 29 September 2018		52 weeks ended 30 September 2017
	£'000		£'000
External revenue by location of customers:
United Kingdom	156,165		152,562
Republic of Ireland	4,220		4,991
Other	230		224
	160,615		157,777

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

	52 weeks ended 29 September 2018		52 weeks ended 30 September 2017
	£'000		£'000
Non-current assets by location:
United Kingdom	21,091		20,499
Republic of Ireland	12		284
	21,103		20,783

The group has only one operating and reporting segment which reflects the group's management and reporting structure as viewed by the board of directors.

3     Dividends

		52 weeks ended 29 September 2018		52 weeks ended 30 September 2017
	£'000			£'000
Dividends paid during the year at 10.3p (2017: 18.2p) per share	5,150			9,100

A final dividend of 8.0p (2017: 6.8p) per share is proposed for shareholders on the register on 1 March 2019 payable on 20 March 2019 following approval at the Annual General Meeting on 7 March 2019.

A special dividend of 8.0p (2017: Nil) per share is proposed for shareholders on the register on 1 March 2019 payable on 20 March 2019 following approval at the Annual General Meeting on 7 March 2019.

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 £800,000 (30 September 2017: £800,000).

5     Share Capital

 

	29 September 2018		30 September 2017
	£'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..

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.

	52 weeks ended 29 September 2018		52 weeks ended 30 September 2017
	£'000		£'000
Numerator
Profit for the year and earnings used in basic and diluted EPS	9,517		7,883

	29 September 2018		30 September 2017
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 the Smith family albeit there is not a single controlling party

 

END

 

 

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