Final Results

RNS Number : 6639L

Shoe Zone PLC

13 January 2016

 

13 January 2016

Shoe Zone plc

Final Results

Shoe Zone plc ("Shoe Zone", the "Company" or the "Group"), a leading UK specialist value footwear retailer, is pleased to announce its Final Results for the 52 weeks ended 3 October 2015.

Financial Highlights

·      Revenue reduced by 3.5% to £166.8m (2014: £172.9m) reflecting the planned closure of loss making stores and difficult trading conditions in H1 2015

·      Product gross margin strengthened to 61.5% (2014: 61.3%)

·      Profit before tax reduced by 3.4% to £10.1m (2014: £10.5m)

·      Earnings per share flat at 16.2p (2014: 16.1p)

·      Strong cash conversion with cash balance of £14.2m (2014: £9.1m)

·      Board proposing two dividends to be paid:

o  Final dividend of 6.5p per share

o  Special dividend of 6.0p per share

Operational Highlights

·      Excellent progress on strategic objectives:

o  Store portfolio management improving profitability, with rents at lease renewal down 27.2%

o  Product orders placed directly with overseas factories increased to 62.1% (2014: 53.1%), driving margin improvements

o  12 new store openings, 40 store refits creating an additional 28 Grade 1 stores

o  Fully responsive upgraded website launched; mobile and tablet visits represented 66% of online traffic with conversion rates increasing across all devices

o  Started selling in over 30 additional countries via Amazon and eBay

·      Post period end, opened six new stores with a further four refits

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

"Although 2015 was a difficult year for the footwear industry, we have achieved a solid performance. We have continued our focus on our strategic objectives and this has ensured we are well placed for the future. There is extensive work underway to increase the Grade 1 store portfolio and we are targeting an additional 56 stores to be operational by the beginning of February.

"We are also excited to be trialling "Project Big Box" in August 2016 which will involve three stores that will be twice the average size of a Grade 1 store. The trial stores will benefit from an extended product range, higher priced footwear and will allow us to benefit from the out of town market. This trial will create a strong avenue for new growth outside of Shoe Zone's traditional portfolio."

There will be a meeting for analysts at 9:30am on 13 January 2016 at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD.

For further information please call:

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

 

Chief Executive's report

Introduction

I am delighted to deliver my Chief Executive's report on another satisfying year for Shoe Zone. Whilst it was a difficult year for the footwear industry, I believe we have achieved a solid performance. Our key strengths have been cost control, managing our property portfolio and delivering strong profit margins through increased direct sourcing and better inventory control, leading to an improved cash position.

The financial position of the business remains very sound, with our debt-free balance sheet providing a solid foundation for the future. These results are in line with expectations that were reset during the year, with profit before tax decreasing by 3.4% to £10.1m (2014: £10.5m), while earnings per share increased to 16.2p (2014: 16.1p).

Dividends

As a result of our performance in the year and strong cash position, the Board is proposing two dividends to be paid being a final dividend of 6.5 pence per share, resulting in a total dividend for the year of 9.7p per share and a special dividend of 6.0 pence per share.

The board is proposing a special dividend in order to distribute surplus cash generated from our strong cash conversion.  We believe that £11m is currently the maximum level of cash that the business requires to operate effectively and so excess above this level will be paid to shareholders by way of a special dividend when appropriate.  Therefore, the special dividend of £3m, being 6.0 pence per share is being proposed.

The dividends will be paid to shareholders on the register on 26 February 2016, payable on 16 March 2016 if approved at the Annual General Meeting to be held on 4 March 2016. The shares will be ex-dividend on 25 February 2016.

Product range development

We continue to make good progress in the development of our product ranges. Following a slow start to the financial year we made some adjustment to our future ranges to ensure greater diversity of product and also to give us future confidence about average price and average transaction value. These stabilised in the second half and have reverted to historic levels post the year end.

We appointed a new merchandise director in April 2015 with a focus on improving stock management and cash generation. The full impact of this appointment will be realised in 2016 and beyond.

We are very pleased with the progress of our non-footwear ranges, which were gradually introduced from the Spring/Summer 2013 season. In 2015, non-footwear sales growth was up 33% with annual sales of £5.5m. We have tailored the ranges to enhance performance in 2016 and this strategy is already showing good signs of further growth. We have also extended the full non-footwear range to our Grade 3 stores which has had a great start.

Store portfolio management

We ended the year operating from 535 stores with 12 new store openings (including seven relocations). We also completed 40 store refits during the year, at a total capital expenditure of £1.9m. We continue to rationalise our store portfolio and will close further temporary/ loss making stores in 2016, reducing total sales but helping to improve profitability.

Our rents at lease renewal in the 12 months fell by 27.2%. We still see opportunities to reduce rents and relocate to better sites and therefore continue to open larger, more profitable Grade 1 stores while closing smaller Grade 3 stores (see table). Our average lease length is now 2.7 years and provides us with the flexibility to best manage the portfolio, with secondary locations continuing to show limited signs of rental recovery outside the M25.

Movement in Grade changes during the year were in line with management forecasts. In addition, we have been trialling new equipment during the year to increase store densities without the need for refitting. This has been extremely successful and will rapidly increase the number of Grade 1 stores from February 2016 as shown in the following table.

	Estimate 1 February 2016		Stores at 3 October 2015		Stores at 4 October 2014
Grade 1 (large)	287		231		203
Grade 2 (medium)	123		168		178
Grade 3 (small)	115		136		164
TOTAL	525		535		545

Operational improvements

Product orders placed directly with overseas factories increased in 2015 to 62.1% (2014: 53.1%). The margin gains from this approach are partially being reinvested to ensure we can provide our customers with the best value product, with the remainder improving margin achieved for the year.

We continue to implement our "right price, first time" strategy, which helps control the amount of markdown value as a percentage of turnover. Following big improvements in 2014 (6.44%) we continued this well controlled trend and reduced this to 6.25% in 2015.

We launched our updated store proposition at our new Meadowhall store in Sheffield in June. This new format has been a great success and this concept is now being rolled out to new stores and refits.

E-commerce

shoezone.com continues to evolve and grow with an upgraded fully responsive site launched in 2015. Our database has grown by 47% which has helped e-mail campaign sales increase by 65% on the prior year. Mobile and tablet visits represented 66% (2014: 56%) of all visits with conversion rates increasing on all devices, including desktop. I am pleased that our overall e-commerce growth was significantly ahead of e-commerce market expectations (13.9% Mintel 2015).

Our 200 web exclusive products now account for 13.4% (2014: 8.1%) of shoezone.com sales. This has even greater potential as we buy greater volumes of these styles.

In addition to our own website, which represents over 60% of all e-commerce sales, we also sell via Amazon and eBay.

New sales opportunities

We started selling to over 30 additional countries, including Germany, Italy, Spain and France, in the year via Amazon and eBay. We will continue to increase the number of countries in which our products are offered and we are also working on further developments during 2016 that will improve the delivery options for our international customers via shoezone.com.

Our promotional links with other value retailers are very encouraging. During our 'Back to School' campaign, we generated over £900,000 in a seven week period through such promotions, representing a 10% increase on the previous year.

Employees and Charity

We are immensely proud of the significant effort our fantastic staff have put in to achieve these results and want to thank them for their continued hard work, loyalty and commitment. We are also extremely thankful for their diligence throughout the year in raising £200,000 for our chosen charity BBC Children in Need. Our 2016 fundraising efforts will result in us raising an amazing £500,000 over the last three years for this charity.

Current trading and Outlook

Shoe Zone's trading in the first quarter of the year has been challenging, amid the well documented high street trading conditions for clothing and footwear retailers. Despite this we have continued to make progress against our strategic objectives. Our stock position is well controlled and we have achieved strong gross margins choosing not to discount stock before Christmas as is usual for our business. We anticipate the full year effect of our new merchandise director will continue to improve our stock and cash position.

Capital expenditure for the full year will be increased to c.£3m from the original £2m expectation to allow increased investment in stores, warehouse and IT. This includes refitting an additional 10 stores; significant investment in the Distribution Centre to allow for the increasing volume of e-commerce sales; and a roll out of new point of sale terminals which will be completed by 2018.

We have continued to make progress on the property portfolio having opened six new stores, with a further four stores having been refitted to our new concept so far this year. There are currently four new stores with provisional opening dates and a further 41 refits planned for 2016.

By February 2016, there will be an additional 56 Grade 1 stores converted through the introduction of new layouts and equipment. There will also be 33 enhanced Grade 1 stores that will have their style count increased from 400 to 450. The extra styles will predominantly be higher priced and consist of more fashionable footwear.

In August 2016, a trial "Project Big Box" will be launched in three stores. This will be twice the size of an average Grade 1 Shoe Zone store. The stores will benefit significantly from an extended product range, higher priced footwear and an enhanced environment. This will allow Shoe Zone to benefit from the out of town market as well as creating a strong new avenue for growth.

Our successful e-commerce offering continues to grow successfully. E-commerce exclusive styles are being increased to 275 per season from the current 200, to satisfy the increasing demand for higher priced products.

The falling oil price is already having a positive impact on the cost of logistics and should also impact the price of raw materials thereby improving gross margins for the remainder of the year.

Financial review

In the 52 weeks to 3 October 2015, revenues declined 3.5% to £166.8 million (2014: £172.9 million), firstly due to the planned closure of loss making stores and secondly as a result of difficult trading conditions in the first half. Despite volumes increasing, revenue slowed during the first half of the year and this was largely attributable to a reduction in achieved average price caused by a warmer season than was anticipated.

Group profit before tax ("PBT") reduced by 3.4% to £10.1 million (2014: £10.5 million). PBT margin was maintained at 6.1%.

Store numbers reduced by a net 10 branches to 535 at the year-end (2014: 25 branches closed leaving a total of 545).

Online revenues (excluding store orders) have grown by 44.7% (2014: 20.6%) during the year and online sales represented 3.3% of total sales (2014: 2.3%).

Product gross margin strengthened to 61.5% (2014: 61.3%) reflecting further increases in direct sourcing and a reduction in stock mark down.

Operating expenses reduced to £17.0 million (2014: £17.1 million). In the current year the directors have carried out a detailed review of the allocation of distribution costs and administrative expenses to ensure a more accurate allocation of these costs given the growth of our online offering. Accordingly the comparative charge for distribution costs have increased by £0.75 million and administrative expenses have reduced by the same amount. There is no impact on the results or net assets from this restatement.

During the year there were no costs that required classification as 'exceptional' (2014: £0.9m relating to the May 2014 IPO).

The effective rate of corporation tax for the year was 20.1% (2014: 21.6%).

Earnings per share were 16.2 pence (2014: 16.1 pence).

During the year we have opened 12 new stores and completed 40 refits, spending £1.9 million on capital expenditure.

The Group supports two defined benefit schemes that deteriorated by £0.4 million during the year.

During 2015 the Board adopted a cash flow hedging policy relating to committed stock purchases from overseas with the overall objective of protecting the product gross margin. The Group uses derivative financial instruments (usually forward exchange purchase contracts) to hedge the risk of future foreign currency fluctuations relating to the stock import schedules.  Further information can be seen in accounting policies note 1 of the financial statements.

The business has a debt free financial structure and generated £11.6 million from operations, resulting in a net cash position of £14.2 million (2014: 9.1 million) at the year end, underpinning a strong balance sheet. 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.

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

Consolidated income statement for the 52 weeks ended 3 October 2015 (audited)

	Note				Restated
			52 weeks ended 3 October 2015		52 weeks ended 4 October 2014
			£'000		£'000
Revenue	1,2		166,819		172,861
Cost of sales			(139,503)		(144,303)
Gross profit			27,316		28,558
Administration expenses			(10,939)		(12,000)
Distribution costs			(6,095)		(5,989)
Profit from operations			10,282		10,569
Analysed as:
Operating profit before exceptional items			10,282		11,505
Exceptional items in administration expenses			-		(936)
Finance income			44		33
Finance expense			(186)		(103)
Profit before taxation			10,140		10,499
Taxation			(2,039)		(2,459)
Profit attributable to equity holders of the parent			8,101		8,040
Earnings per share - basic and diluted	6		16.20p		16.08p

Consolidated statement of total comprehensive income for the 52 weeks ended 3 October 2015 (audited)

	Note		52 weeks ended 3 October 2015		52 weeks ended 4 October 2014
			£'000		£'000
Profit for the period			8,101		8,040
Items that will not be reclassified subsequently to the income statement
Remeasurement losses on defined benefit pension scheme			(499)		(2,371)
Movement in deferred tax on pension schemes			100		474
Cash flow hedges
Fair value movements in other comprehensive income			314		-
Tax on cash flow hedges			(63)		-
Other comprehensive expense for the period			(148)		(1,897)
Total comprehensive income for the period attributable to equity holders of the parent			7,953		6,143

Consolidated statement of financial position as at 3 October 2015 (audited)

	Note	52 weeks ended 3 October 2015		52 weeks ended 4 October 2014
		£'000		£'000
Assets
Non-current assets
Property, plant and equipment		18,688		21,233
Total non-current assets		18,688		21,233
Current assets
Inventories		29,172		29,181
Trade and other receivables		8,148		8,377
Derivative financial assets		553		741
Cash and cash equivalents		14,221		9,114
Total current assets		52,094		47,413
Total assets		70,782		68,646
Current liabilities
Trade and other payables		(23,649)		(25,920)
Provisions		(802)		(959)
Corporation tax liability		(1,373)		(518)
Total current liabilities		(25,824)		(27,397)
Non-current liabilities
Trade and other payables		(3,037)		(3,766)
Provisions		(363)		(470)
Employee benefit liability		(5,150)		(4,766)
Deferred tax liability		(124)		(516)
Total non-current liabilities		(8,674)		(9,518)
Total liabilities		(34,498)		(36,915)
Net assets		36,284		31,731
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		251		-
Retained earnings		32,871		28,569
Total equity and reserves		36,284		31,731

Consolidated statement of changes in equity for the 52 weeks ended 3 October 2015 (audited)

	Share capital		Merger reserve		Cash flow hedge reserve		Retained earnings		Total
	£'000		£'000		£'000		£'000		£'000
At 5 October 2013	500		2,662		-		29,886		33,048
Profit for the period	-		-		-		8,040		8,040
Other comprehensive income	-		-		-		(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	-		-		-		(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
Profit for the period	-		-		-		8,101		8,101
Other comprehensive expense	-		-		251		(399)		(148)
Total comprehensive income for the period	-		-		251		7,702		7,953
Dividends paid during the year (note 3)	-		-		-		(3,400)		(3,400)
Total contributions by and distributions to owners	-		-		-		(3,400)		(3,400)
At 3 October 2015	500		2,662		251		32,871		36,284

Share capital comprises nominal value of shares subscribed for.

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

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 3 October 2015 (audited)

	Note	52 weeks ended 3 October 2015		52 weeks ended 4 October 2014
		£'000		£'000
Operating activities
Profit after taxation		8,101		8,040
Corporation tax		2,039		2,459
Finance income		(44)		(33)
Finance expense		186		103
Pension contributions paid		(300)		(425)
Depreciation of property, plant and equipment		3,713		4,527
Impairment of property, plant and equipment		459		-
Loss on disposal of property, plant and equipment		46		108
		14,200		14,779
Decrease in trade and other receivables		303		329
Decrease/(increase) in foreign exchange contract		501		(1,269)
Decrease in inventories		9		778
(Decrease)/increase in trade and other payables		(3,148)		1,084
Decrease in provisions		(264)		(200)
		(2,599)		722
Cash generated from operations		11,601		15,501
Income taxes paid		(1,538)		(2,512)
Net cash flows from operating activities		10,063		12,989
Investing activities
Purchase of property, plant and equipment		(1,879)		(2,008)
Sale of property, plant and equipment		280		703
Interest received		44		33
Net cash used in investing activities		(1,555)		(1,272)
Financing activities
Distribution prior to group reorganisation		-		(2,458)
Dividends paid prior to group reorganisation	3	-		(5,002)
Dividends paid during the year	3	(3,400)		-
Interest paid		(1)		(27)
Repayment of loans		-		(1,668)
Net cash used in financing activities		(3,401)		(9,155)
Net increase in cash and cash equivalents		5,107		2,562
Cash and cash equivalents at beginning of period		9,114		6,552
Cash and cash equivalents at end of period		14,221		9,114

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 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 3 October 2015.

The announcement of results for the Group for the 52 weeks ended 3 October 2015 was authorised for issue in accordance with a resolution of the directors on 12 January 2016.

The Group financial statements for the 52 weeks ended 3 October 2015 included in this report do not constitute the Group's statutory accounts for the 52 weeks ended 3 October 2015, or the 52 weeks ended 4 October 2014 but is derived from those accounts.  The auditor has reported on these accounts; their report was unqualified, did not draw any matters by way of emphasis without qualifying their report and did not contain statements under s498 (2) or (3) Companies Act 2006 or equivalent preceding legislation.  The statutory accounts for the 52 weeks ended 4 October 2014 have been filed with the Registrar of Companies.

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.

Basis of consolidation

The consolidated financial statements incorporating the financial statements of Shoe Zone plc and its subsidiary undertakings are all made up to 3 October 2015. 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.

·      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

In the prior year, 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.  

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 was accounted for as a capital reorganisation using the merger accounting principles prescribed under current UK GAAP. Therefore the consolidated financial statements of 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.

As part of the reorganisation distributions were made to Humberzone Group Limited (formerly known as Shoe Zone Group Limited) prior to the reorganisation itself taking place.

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.

Exceptional items

Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide clearer understanding of the underlying financial performance of the Group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

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 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, 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.

 

Derivative financial instruments and hedging activities

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 cost of sales in the income statement in the periods when the hedged item affects profit or loss, matching when the hedged transaction occurs.

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.

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

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 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 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.

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 curtailment are recognised immediately in profit or loss.

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

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 3 October 2015		52 weeks ended 4 October 2014
	£'000		£'000
External revenue by location of customers:
United Kingdom	161,761		167,146
Republic of Ireland	5,058		5,715
	166,819		172,861

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

	52 weeks ended October 2015		52 weeks ended October 2014
	£'000		£'000
Non-current assets by location:
United Kingdom	18,688		21,233

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

3       Dividends

	52 weeks ended 3 October 2015		52 weeks ended 4 October 2014
	£'000		£'000
Dividends paid prior to group reorganisation	-		5,002
Dividends paid during the year	3,400		-

A final dividend of 6.5 pence per share (£3,250,000) is proposed for shareholders on the register on 26 February 2016 payable on 16 March 2016 following approval at the Annual General Meeting on 4 March 2016.

A special dividend of 6 pence per share (£3,000,000) is proposed for shareholders on the register on 26 February 2016 payable on 16 March 2016 following approval at the Annual General Meeting on 4 March 2016.

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 (4 October 2014: £1,600,000).

5       Share Capital

 

	3 October 2015		4 October 2014
	£'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 3 October 2015		52 weeks ended 4 October 2014
	£'000		£'000
Numerator
Profit for the year and earnings used in basic and diluted EPS	8,101		8,040

	3 October 2015		4 October 2014
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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