Half Year Results

23 November 2021

Appreciate Group plc

Half Year Unaudited Results for the six months ended 30 September 2021

A resilient performance as trading returns to pre-pandemic levels

Q2 ahead of FY2020 and FY2021

Appreciate Group plc, a leading UK multi-redemption product provider to corporate and consumer markets, is pleased to announce its Half Year Unaudited Results for the six months ended 30 September 2021.

 Appreciate Group's highly seasonal business typically sees a loss in the first half of the financial year. The loss has significantly improved on H1 FY2021 which had been heavily impacted from the introduction of initial lockdowns. We have therefore provided some additional comparisons with H1 FY2020, the financial period prior to the pandemic.

Financial Highlights

· Billings up 19.6% to £118.2m (H1 FY2021: £98.8m), broadly similar to H1 FY2020 (£120.2m), the last period of normal trading prior to the pandemic

· Revenue increased 49.6% to £41.0m (H1 FY2021: £27.4m) benefiting from redemptions, which had been deferred as a result of lockdowns, being realised as anticipated. Revenue was 23.5% higher than the pre-pandemic period (H1 FY2020: £33.2m)

· Significant reduction in pre-tax loss to £2.0m (H1 FY2021: £6.2m loss) (H1 FY2020: £1.3m loss)

· Proposed interim dividend of 0.6p (H1 FY2021: 0.4p)

· Financial position:

- Cash balances, including cash held in trust, at 30 September 2021, were £207.1m (H1 FY2021: £227.3m)

- Free cash lower at £2.9m (H1 FY2021: £24.9m) - this is typically the low point in our cash cycle and also reflected growth in regulatory billings (which require customer monies to be held in trust until redemption)

- Free cash at 31 October 2021 was £34.0m, (31 October 2020:£39.1m) as monies held in trust were released as Christmas Savers product was dispatched

Operational highlights

Corporate

· Billings increase of 20.9% to £80.5m (H1 FY2021: £66.6m), and marginally ahead of H1 FY2020 (£80.1m)

· Revenue up 46.3% to £27.8m (H1 FY2021: £19.0m); 14.4% above the pre-pandemic period (H1 FY2020: £24.3m)

· Continued to strengthen redemption proposition with 54 partners added across the product range including new additions such as Greggs, Habitat, Carpetright and Canvas Holidays

Consumer

· Billings up 16.7% to £37.7m (H1 FY2021: £32.3m); down 6.0% on H1 FY2020 (£40.1m)

· Revenue increased 59.0% to £13.2m (H1 FY2021: £8.3m) benefiting from deferred redemptions and up by 48.3% from H1 FY2020 (£8.9m)

· Christmas Savings order book completed (14% down as predicted), with billings of £164.0m (FY2021 £191.5m), having been impacted by lockdown restrictions affecting face-to-face agent activity last winter

Continued strategic progress

The Group focused on delivering a number of key strategic initiatives during the first half of the financial year:

· Operational improvements - enhancements in productivity and operational efficiencies have led to reduced use of overtime and seasonal temps during current peak trading period

· Growth in digital continues - digital billings up 15.7% to £28.0m (H1 FY2021 £24.2m), whilst paper fell from 19.2% to 14.5% within the product mix

· Leveraging our hero brand - we have launched our first campaign specifically promoting Love2shop, the brand which underpins all our products. The campaign got underway earlier this month and will support all Consumer and Corporate business lines during the key Q3 trading period 

· Enhanced digital marketing approach - strengthened our marketing with greater use of insight and digital marketing to support further growth in digital products

· Redemption range strengthened - continued broadening of the redemption range by expanding the choice of leisure, hospitality and food options 

· Reinvigorating Christmas Savings - enhanced advertising, marketing campaigns and engagement with agents to retain and recruit savers for Christmas 2022

· PayPoint partnership - continued to build awareness through PayPoint's 28,000 UK retailers and customers, and explore opportunities to enhance services offered through its network

· Enterprise Resource Planning (ERP) programme - further progress made, the next implementation phase has been rescheduled for Q4 avoiding any potential disruption during our peak trading period

· Underlining our ESG commitments - our flagship programme with Everton in the Community, which helps teach young people technology skills, has reached over 500 schoolchildren. We are also focusing on setting realistic future emissions' reduction targets following the move to the new head office.

Current trading and outlook

· The Group has seen the usual seasonal increase in demand for its products in its key Q3 trading period to date, with a good pipeline of business; and the Love2shop marketing campaign, which is now underway, expected to support activity levels

· However, these are currently below levels seen in FY2021 and FY2022 due largely to our decision not to supply low margin business to a direct competitor. Billings for Q3 so far would be 3.2% ahead for Q3 FY2021; and 2.0% below Q3 FY2020 on a like-for-like basis

· Overall, billings for Q3 FY2022 up to 21 November are £37.0m (FY2021: £39.4m) (FY2020: £43.9m), with an improvement in November to a level which is closer to the previous years

· Uncertainty persists and we continue to see fluctuations in billings trends as we emerge from the lockdowns

· Overall, this performance is in line with our expectations for the full year

Ian O'Doherty, Chief Executive Officer, at Appreciate Group plc, said:

"I am pleased to report a robust performance in the first half of the year, bouncing back strongly from the impact of last year's lockdowns, and continued progress in delivering on our strategic plans.

"We typically see about a quarter of billings in the first half of the financial year and around three quarters coming in our second half, and I am confident that we will deliver our expectations for the financial year.

"Whilst economic uncertainties remain - particularly from wider supply chain issues and potential rises to the cost of living - we are now in a stronger position to deliver as we are a more efficient business, with an improved digital offering and a platform which is more robust and scalable."

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

Appreciate Group will host a webcast presentation for analysts at 9.00am this morning.

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

Notes to Editors:

Appreciate Group is one of the UK's leading gifting, pre-payment and engagement companies, and experts at creating joyful experiences and connecting people to the things in life they enjoy the most.

Everything Appreciate Group does is focused on creating more joy in the world, and it is proud to be trusted to help its customers create moments they can treasure and remember, whether they are giving, celebrating or rewarding.

Appreciate Group is a financial services business with a wide portfolio of brands which provide solutions for its consumer and business customers. Its consumer-facing brands meet a range of prepayment and gifting needs, while its business products help corporate customers reward and recognise their employees and clients.

Appreciate Group is home to many of the country's most-loved gifting, pre-payment and engagement solutions including Park Christmas Savings, highstreetvouchers.com and Love2shop, and we are fast-becoming the home of digital innovation in gifting.

Whether it's saving towards the perfect family Christmas or celebrating with gift cards and vouchers, we create and supply products that millions of people trust when it comes to giving and receiving with family, friends or colleagues.

Park Christmas Savings: As the UK's largest family Christmas savings club, Park Christmas Savings has helped over 2.7 million families budget for Christmas on a short-term or year-round basis.

Love2shop: Love2shop offers gift cards and gift vouchers available to spend at stores and attractions across the UK. They are also used through our Love2shop Business Services providing corporate partners with incentives and rewards for their employees and clients.

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

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

Business review for the six months ended 30 September 2021

Introduction

Appreciate Group is a leading UK gifting, pre-payment and engagement company which provides solutions for consumer and business customers. Its portfolio of brands include Love2shop, Appreciate Business Services, Park Christmas Savings, and Highstreetvouchers.com.

As a seasonal business, we traditionally report a loss for the first half of the year. The loss in the current year has significantly reduced compared to H1 FY2021 which was heavily affected by the disruption caused when lockdowns were first introduced. There have also been no exceptional costs incurred in the first half of the current financial year.

We typically see about a quarter of billings in the first half of the financial year and around three quarters coming in the second half of the year. The Group expects its performance for the full year to be in line with expectations.

Improved H1 performance

A pre-tax loss of £2.0m (H1 FY2021: £6.2m loss) is markedly lower than H1 FY2021 when the Group was initially unable to dispatch physical products due to the first lockdown. This performance was despite £0.5m one off pension reorganisation costs incurred in the first half, and therefore compares well to a loss of £1.3m in H1 FY2020, normal trading prior to the pandemic.

Billings are up 19.6% for the six months to 30 September to £118.2m (H1 FY2021: £98.8m), and were broadly flat compared to H1 FY2020 at £120.2m. Whilst Q1 was slower than anticipated, Q2 was ahead of both Q2 FY2021 and Q2 FY2020. This is despite Q2 performance in FY2021 benefiting from higher levels of low margin billings via the free school meals initiative.

*Includes billings through free school meal scheme H1 FY2021: £10.3m; H1 FY2022: £8.3m

Group revenue increased 49.6% to £41.0m (H1 FY2021: £27.4m) as the expected deferred redemption was realised as lockdown restrictions eased and customer spending patterns began to return to more normal levels. Revenue was 23.5% higher than H1 FY2020 (£33.2m).

Digital billings increased by 15.7% from £24.2m to £28.0m. This has been achieved despite reduced billings in FY2022 through the free school meals initiative and a period in FY2021 when physical products could not be dispatched. Card billings as a percentage of total billings in the period went up from 55.8% to 61.7%, reflecting the continued move towards card and digital from paper, which is down from 19.2% to 14.5%. The growth in digital should enhance the Group's margin mix in the medium-term.

The Group continues to focus on driving its own, more profitable multi-redemption product. Multi-redemption billings increased by 20.3% to £103.1m (H1 FY2021: £85.7m). Single store billings increased to £14.3m (H1 FY2021: £10.9m) but are down on H1 FY2020 (£16.8m), showing that the underlying trend is a shift towards multi-redemption and away from single store.

Our financial position remains robust with cash balances, including cash held in trust, of £207.1m (H1 FY2021: £227.3m) as at 30 September 2021. Free cash stood at £2.9m as at 30 September 2021, lower than H1 FY2021 (£24.9m) reflecting growth in regulatory billings which require customer monies to be held in trust until redemption, and a catch up in customer spending patterns. This is also typically the low point in our cash cycle. Free cash as at 31 October 2021 was £34.0m as monies held in trust were released as the Christmas Savings product was dispatched.

We are yet to utilise the £15m revolving credit facility (RCF) put in place during FY2021 with Santander UK, and do not forecast it being used during the remainder of the financial year. This arrangement supports the Group's long-term strategy to grow regulatory products and continues to provide additional financial flexibility should it be required, along with an additional uncommitted accordion of £10m.

We continued to broaden our redemption range by expanding the choice to leisure, hospitality and food options, with 54 partners added across the range, including new additions such as Greggs, Habitat, Carpetright and Canvas Holidays.

In order to leverage high levels of awareness for our hero brand - Love2shop, which underpins all our products - we have initiated our first campaign to specifically promote the brand. The campaign launched during our critical Q3 trading period and is expected to support all our Consumer and Corporate business lines.

Segmental performance

Corporate

Corporate billings rose by 20.9% to £80.5m (H1 FY2021: £66.6m). The Q2 performance was ahead of the same period for both FY2021 and FY2020, showing positive momentum as we head into our peak Q3 trading period. Excluding the free school meals scheme, Corporate billings rose by 28.2% to £72.2m (H1 FY2021: £56.3m), albeit behind H1 FY2020 (£80.1m).

Business from medium to larger clients has returned to pre-Covid levels whereas billings from smaller clients are taking longer to recover. The Group continued to enjoy good levels of new business, above the level seen prior to the pandemic; whilst recurring business from existing clients has returned to pre-pandemic levels of above 90% following a temporary reduction in FY2021.

Corporate revenue was up by 46.3% to £27.8m (H1 FY2021: £19.0m); and 14.4% above the pre pandemic period (H1 FY2020: £24.3m).

Overall, the Group believes the Corporate business is benefiting from the investments made to strengthen the proposition and delivering underlying growth.

Consumer

Consumer billings were up 16.7% to £37.7m (H1 FY2021: £32.3m) and down on H1 FY2020 (£40.1m). Revenue increased 59% to £13.2m (H1 FY2021: £8.3m) following an uplift in redemptions. Compared to the pre-pandemic period, revenue was up 48.3% (H1 FY2020: £8.9m).

The 2021 Christmas Savings order book has completed (down 14% - in line with previous expectations) having been held back by lockdown restrictions impacting face-to-face agent activity. Although billings from Christmas Savings have been in decline for several years, we remain determined to reverse the trend in the number of customers saving with us. We continue to believe this business offers an invaluable solution to help consumers budget towards the cost of Christmas. We are focused on retention of our existing agents and encouraging them to recruit more of their family and friends to save through them; and growing our Directs business (direct to consumer rather than via an agent). Our campaign for Christmas 2022 gets underway next month and will use a more targeted approach to optimise media spend, combining increased social and digital focus with traditional media including our usual TV advertising. This will be supported by a programme to engage agents.

Gifting billings via Highstreetvouchers.com were £12.1m, up 68.1% (H1 FY2021: £7.2), albeit down 9.0% on H1 FY2020 at £13.3m. The growth in this sector is yet to materialise and we have therefore adjusted our approach by reducing marketing spend, and targeting actions on strengthening margins, rather than driving transaction volumes.

Nevertheless, overall visits to Highstreetvouchers.com were up 31.8% from 1.95m to 2.57m with conversion rates stable at 4.4%. We are focused on using our enhanced insight and digital capability to optimise sales and conversions. Billings from the partnership with PayPoint have been much slower than anticipated during the early stages of the initiative; however, we continue to believe this partnership offers a medium-term growth opportunity and are working to build retailer and customer awareness.

Costs

Having made significant investments in transformation over the last two years, the one off costs incurred for major initiatives such as the head office relocation, company rebranding, IT upgrades, consultancy and pension costs are largely complete.

The progress on transformation has also enabled us to take the opportunity to carry out a rigorous review of our ongoing costs, focused on optimising the efficiencies derived from the transformation and ensuring we have the most efficient cost base in place. This has included streamlining to a smaller leadership team, shaped to support our growth plans; not hiring for vacant roles unless they were critical to our strategy; and a reduced use of overtime and seasonal temps during peak periods.

As a result, the Group expects administration costs to reduce to c.£20m for current financial year (FY2021: £21.1m); and to c.£19m for the following year.

The ERP implementation phase that had been planned during the first half has been rescheduled for Q4 avoiding any potential disruption during our peak trading period. This is expected to add £0.2m to the cost of the programme.

Evolution of strategic business plan

Since December 2018, we have been implementing our strategic business plan under four pillars of Productivity, Appeal, Clarity and Experience. This has successfully delivered a more robust and scalable business model, and with the majority of the transformation completed, the strategic focus is now shifting to leveraging the investments made and delivering on our growth ambitions.

Our strategy has always been to support delivery of growth, and we will therefore focus on growth by emphasising four key areas:

· Performance - focusing on understanding our customers better and delivering for them, delivering growth in our core products; whilst remaining efficient on costs

· Products - providing customers with market-leading products, integrated across channels, with a digital-first focus whilst responding to their needs and demands

· Partnerships - enhancing our services to customers through partnerships and brands they value, meeting their needs and enhancing our reach

· Platform - developing our websites, apps, services and back-office processes to enhance the end-to-end customer experience and be easy to deal with, enabling customers to interact with us at a time and place of their choosing

Interim dividend

The Board has declared an interim dividend of 0.6p per share, an increase of 50% on last year (H1 FY2021 0.4p). The dividend will be paid on 6 April 2022 to shareholders on the register on 25 February 2022, with an ex-dividend date of 24 February 2022. Appreciate Group's dividend policy seeks to reflect the Group's strong underlying cash flow and profit generation, whilst retaining sufficient capital to fund investment in the business.

ESG

We continue to focus on our ESG commitments; we are proud that our flagship community programme with Everton in the Community is helping to teach young people technology skills and has now reached over 500 schoolchildren.

Following the move to our modern offices in the centre of Liverpool, we are also focusing on setting realistic future emissions reduction targets for the forthcoming financial year. We also plan to broaden our use of more environmentally friendly paper cards in place of plastic cards following a successful pilot.

Board

As announced at the time of the AGM in September 2021, Laura Carstensen intends to step down as Chairman as part of the Board's succession plan. A search is underway to appoint a successor and enable an orderly handover. A further update will be provided as and when appropriate.

Outlook

Whilst economic uncertainties remain, we are confident we will see the usual swing in profitability in our important second half trading period. In the early weeks of Q3, we have seen the encouraging trends of Q2 continue with the usual increase in demand for our products in our peak trading period, providing us with the confidence that we will deliver in line with our expectations for the full year.

Billings during Q3 up to 21 November 2021 are currently below levels seen in FY2021 and FY2022 due largely to our decision not to supply low margin business to a direct competitor. Billings for Q3 so far would be 3.2% ahead for Q3 FY2021; and 2.0% below Q3 FY2020 on a like-for-like basis. Overall, billings for Q3 FY2022 up to 21 November are £37.0m (FY2021: £39.4m) (FY2020: £43.9m), with an improvement in November to a level which is closer to the previous years.

The investments in infrastructure and technology mean we are better positioned to serve our customers through our expanded distribution channels, digital-first approach and a more efficient business. With this transformation phase in our strategy now moving to the final stages, we enter a new phase that will seek to exploit the benefits and efficiencies provided, and deliver growth supported by an economy recovering from the pandemic.

Overall, we remain determined to deliver sustainable returns to our shareholders by fulfilling our long-term ambitions and leveraging the progress we have made.

I would like to again thank all my colleagues across the business for their continued commitment to support our customers. This gives me great confidence that we will deliver on our plans notwithstanding the challenges the external environment may bring.

Laura CarstensenChairman23 November 2021

NOTES TO THE HALF YEAR RESULTS

(1) Basis of preparation

The financial information in this interim report has been prepared in accordance with international accounting standards in conformity with the Companies Act 2006 and on the basis of the accounting policies described in the Group’s annual report and accounts for the year ended 31 March 2021. These accounting policies have been based on the current standards and interpretations expected to be effective at 31 March 2022. The Group does not expect there to be a significant impact on the results from standards, amendments or interpretations which are available for early adoption but which have not yet been adopted.

The financial statements have been prepared under the historical cost convention, as modified by the accounting for financial instruments at fair value. In addition, this interim financial report does not comply with IAS34 Interim Financial Reporting, which is not currently required to be applied under AIM rules.

The Directors are of the opinion that the financial information should be prepared on a going concern basis, in the light of current trading and the forecast positive cash balances for the foreseeable future, taking into account reasonably possible changes in trading performance and customer behaviour. The Group has prepared three forecast scenarios (low, medium and high billings volume) for the next year and applied five plausible downside scenarios to the 'low' forecast. The forecasts take account of the transfer to free cash of £11m which was previously held as ring fenced funds (see note 5). In all scenarios the Group maintains positive free cash and does not utilize the agreed RCF during the period to 31 March 2023.

The unaudited interim condensed consolidated financial statements do not constitute statutory financial statements as defined in section 435 of the Companies Act 2006 and therefore do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 March 2021. The financial information for the preceding year is based on the statutory financial statements for the year ended 31 March 2021. These financial statements, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. These financial statements did not require a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

(2) Taxation

The taxation credit for the six months to 30 September 2021 has been calculated using an overall effective tax rate of 19.0%, which has been applied to the taxable income (half year to 30 September 2020: 19.0%).

(4) Other intangible assets

Additions during the period include £1,867k related to the new Enterprise Resource Planning (ERP) system (H1 FY2021: £1,812k). This will be the cornerstone of the business to build on going forward, utilising new, cloud-based technology. It is expected that amortisation will commence in the year ending 31 March 2022, as this is when it is expected the Group will commence deriving an economic benefit from the asset.

(5) Monies held in trust

During the six months to 30 September 2021 a review of the ring fencing of balances in relation to digital code was undertaken. These products are not regulated products but the balances had historically been segregated from AG cash balances and the amounts segregated had grown significantly over the last 18 months. The review concluded that there was no regulatory requirement to ring fence balances and no contractual requirement, other than for one particular customer. Therefore, in September 2021 £11m of ring fenced funds were transferred to free cash.

(6) Cash and cash equivalents

The bank overdraft at 30 September 2021 is a cashbook balance that has arisen due to the timing of unpresented cheques.

(8) Approval

This statement was approved by the board on 22 November 2021.

(9) Reports

A copy of this announcement will be available on the Group's website from today www.appreciategroup.co.uk and will be mailed to shareholders on or before 17 December 2021. Copies will also be available for members of the public at the Company's registered office - Valley Road, Birkenhead CH41 7ED and also at the offices of the Company's registrars, Computershare Investor Services PLC, P O Box 82, The Pavilions, Bridgwater Road, Bristol BS99 7NH.