Interim Results - 26 weeks ended 27 November 2016

31 January 2017

Joules Group plc

("Joules", the "Group")

Interim Results for the 26 weeks ended 27 November 2016

"Continued development of the Joules brand across channels and target markets"

· Group revenue increased 16.2% year on year driven by growth across retail and wholesale channels

§ Retail revenue increased 15.8% with E-commerce sales up 30.3% and store sales up 11.2%

§ Wholesale revenue increased 17.1%, reflecting the growing appeal of the Joules brand in the UK and target international markets

· International revenue increased 39.3% and now represents 10.6% of Group revenue

· Underlying EBITDA increased by 19.6% year on year with EBITDA margin increasing 40 basis points to 13.4%

· Net cash at the end of the Period was £1.6 million, an improvement of £1.5m on the prior year

· Active3 customer base increased by 30% to 922,000

· Post-period end the brand continues to trade well with retail sales over the Christmas period (seven weeks to 8 January 2017) up 22.8% year on year

· Maiden interim dividend of 0.6 pence (FY16: nil)

Colin Porter, Chief Executive, commented:

"Joules has continued to perform well during the first half of the financial year with strong growth delivered across the brand's distribution channels and target markets. This significant progress reflects the quality and design of our products and the growing demand for the Joules brand, both in the UK and internationally.

Group trading over the Christmas period and in the second half of the year to date has been strong and in line with expectations. The Board remains confident in the brand's continued development both in the UK and internationally."

1 Underlying excludes share based payments, exceptional costs and non-recurring items. In FY16, these primarily relate to the costs of admission to AIM and the capital structure in place prior to admission. A reconciliation to reported (IFRS) results is included in the financial review below.

2 Underlying EPS: underlying PBT less tax at statutory rate divided by the number of shares on a pro forma basis, i.e. assuming that the number of shares in issue immediately post-IPO were in issue through the entire comparative period.

3 Active customer is a customer registered on our database who has transacted in the last 12 months.

4 Financial information in the front of this report has been rounded to the nearest decimal place. Totals in the tables may not equal the arithmetic sum of presented numbers. Percentages are calculated on non-rounded numbers and may not conform to the percentage derived from the rounded components.

5 This announcement contains inside information.

Enquiries:

About Joules

Joules is a British, premium lifestyle brand. The Company designs and sells Joules branded clothing, footwear, accessories and homeware and operates a balanced multi-channel proposition which encompasses retail (stores, E-commerce and country shows & events), wholesale and other emerging channels such as licensing.

Joules has 107* UK and ROI stores, a customer database of approximately 2.3 million* customers, an established E-commerce platform and a fast growing international presence. Joules is also a top selling wholesale brand in major UK retailers such as John Lewis and Next Label. In November 2016, Joules won the prestigious "Mainstream Brand of the Year" award at the 2016 Drapers Awards. This followed the business's recognition as "Fashion Retail Business of the Year"** at the 2015 awards. 

The Joules brand is at the heart of the business and encompasses values of "time-off", heritage, countryside, Britishness, family and fun. These brand values are reflected in the product designs, which are recognisable for their distinctive colours, prints, detail and quality.

www.joules.com

www.joulesgroup.com

* Figures are stated as at 27 November 2016

** £30-£100 million turnover category

CHIEF EXECUTIVE'S REPORT

I am pleased to report a period of further progress for the Joules brand during the 26 weeks to 27 November 2016 (the "Period" or "first half") which resulted in a 16.2% increase in revenue to £81.4 million from £70.1 million in the prior year and a 19.9% increase in underlying profit before tax to £7.5 million from £6.2 million last year.

This strong performance was driven by the brand's continued expansion across distribution channels and target markets. Joules delivered growth across all product categories with strong performance in the core Womenswear category - with outerwear, dresses and tops all proving particularly popular with our customers. Further development of our accessories, footwear and childrenswear categories also contributed to the strong growth.

The success and popularity of the brand across channels, markets and product categories underpins the exciting growth potential for Joules as it continues to grow as a multi-channel lifestyle brand.

FINANCIAL REVIEW

Group results

Group revenue increased by 16.2% to £81.4 million (H1 FY16: £70.1m). Retail revenue increased by 15.8% and Wholesale revenue increased by 17.1%.

To provide comparability across reporting periods, the results within this financial review are presented on an "underlying" basis, adjusting for, primarily, the impact of last year's IPO transaction and the financing structure in place prior to the IPO. A reconciliation between underlying and reported (IFRS) results is provided at the end of this Chief Executive's report.

Underlying operating profit increased by 16.3% to £7.6 million (H1 FY16: £6.6m) and underlying EBITDA increased by 19.6% to £10.9 million (H1 FY16: £9.1m). The underlying EBITDA margin increased by 40 basis points from 13.0% to 13.4%.

Underlying profit before tax ("PBT") increased by 19.9% to £7.5 million (H1 FY16: £6.2m).

Segment revenue

Retail

Retail revenue increased by 15.8% to £56.7 million (H1 FY16: £49.0m), driven by good growth across both Stores and E-commerce channels.

Retail - Stores

Store revenue increased by 11.2% to £34.5 million (H1 FY16: £ 31.0m). During the first half of the year a net 10 stores were opened. We operated 107 stores at the end of the Period (H1 FY16: 96) and, we also had three franchises at the end of the Period (H1 FY16: 4).

Retail - E-commerce

E-commerce revenue increased by 30.3% to £19.7 million (H1 FY16: £15.1m). The E-commerce channel benefited from increased customer acquisition and retention activity in the preceding period, improved inventory availability and increased website visitors and higher conversion following the re-launch of the content rich, mobile-optimised website at the end of the first half in FY16.

Wholesale

Wholesale revenue increased by 17.1% to £24.5m (H1 FY16: £20.9m). Our products and brand continue to resonate strongly with wholesale customers in the UK as well as within our targeted international markets: North America and Germany.

International revenues

The growth of international wholesale, up more than 50% in the Period, helped drive a 39.3% increase in the Group's total international sales (including international retail) to represent 10.6% of total sales (H1 FY16: 8.8%).

Gross margin

Gross margin increased by 101 basis points to 55.5% against the comparable period in the prior year. Gross margin in the Period benefited from disciplined promotional activity, enhanced distribution efficiencies and a favourable product mix within international wholesale.

Foreign currency hedging

The majority of our product purchases are US Dollar denominated. To mitigate the uncertainty created by movements in currency and to support our commercial planning and sourcing activity, we maintain a hedging programme with an objective of hedging the full anticipated US Dollar requirements for a minimum of two seasons ahead. We have currently hedged our expected US Dollar requirement for the balance of the current and subsequent (FY18) financial year.

Administration expenses

Underlying administrative expenses increased by 18.8% from £31.6 million to £37.6 million, representing 46.2% of revenue (H1 FY16: 45.1%). The Group invested in strengthening several central functions in the second half of the prior year, particularly design, commercial and internal photo-shoot capability to support the retail and wholesale channels, resulting in cost increases versus the first half last year. In addition, the Group increased investment in digital marketing including customer acquisition and retention activities that continue to provide healthy returns.

Depreciation and amortisation increased by £0.7 million to £3.2 million (H1 FY16: £2.5m), as anticipated, following the completion of a number of IT projects last year and the increased number of stores.

Finance costs

Underlying net finance costs of £0.1 million (H1 FY16: £0.3m) related to interest and facility charges on the Group's revolving credit facility with Barclays Bank plc.

Earnings per share

Basic earnings per share for the Period were 6.05 pence per share (H1 FY16: 2.96 pence).

Underlying basic earnings per share for the Period were 6.8 pence (H1 FY16: 5.7 pence). Underlying EPS is calculated using underlying profit before tax less tax at the effective statutory rate.

To facilitate meaningful comparison of earnings per share the weighted average number of shares in issue has been restated on a pro forma basis, for the first half FY16, to reflect the post-IPO capital structure. The pro forma assumes that the number of shares in issue post-IPO were in issue throughout.

Dividends

The Board is pleased to declare a maiden interim dividend of 0.6 pence (FY16: nil). The interim dividend will be paid on 6 April 2017 to those shareholders on the register at the close of business on 10 March 2017.

Cash flow and cash position

Net cash flow from operating activities was £5.5 million (H1 FY16: £10.6m). The year-on-year reduction in cash flow from operating activities reflects the anticipated higher capital expenditure of £7.2 million (H1 FY16: £4.4m) and net working capital outflow of £5.3 million against a £1.1 million inflow in the comparable period.

Major areas of capital expenditure in the Period were new store openings and a store relocation, and IT projects, including phase two of the company-wide ERP implementation programme.

The net working capital outflow reflected the continued growth of the business and the impact of receiving Spring/ Summer 2017 ranges earlier than in the comparable period.

Net cash/(debt) at the end of the Period was £1.6 million (H1 FY16: £0.1m), an improvement of £1.5 million.

The Group has access to a £25 million revolving credit facility provided by Barclays Bank plc to fund seasonal working capital requirements. This facility matures in May 2020.

Reconciliation of Underlying and Reported (IFRS) results

Non-underlying administration expenses: £0.6 million (H1 FY16: £0.1m), included exceptional costs of £0.3 million (H1 FY16: £nil), share based payment expense of £0.3 million (H1 FY16: £nil) and Non-recurring costs of £nil (H1 FY16: £0.1m).

Exceptional costs of £0.3m (H1 FY16: £nil) related to the cost of the Company's admission to AIM (the 'IPO transaction') that was completed just prior to the end of the last financial year. The directors do not anticipate any further costs in relation to the IPO transaction.

Share based payment expense of £0.3 million (H1 FY16: nil) related to new share based compensation plans established following the IPO, as detailed in the AIM admission document. The associated income statement expense (calculated in accordance with IFRS2) is excluded from underlying results within this financial review.

Non-recurring costs of £nil (H1 FY16: £0.1m). The prior period costs related to the pre-IPO ownership structure.

Non-underlying net finance costs:  £nil (H1 FY16: £2.4m). The prior period included interest on shareholder loan notes that were converted to equity immediately prior to the IPO transaction.

A reconciliation between Underlying and Reported results is provided below:

BUSINESS REVIEW

During the period, we continued to deliver excellent progress against our strategy for the sustainable, long-term development of Joules as a premium lifestyle brand, both in the UK and internationally.

The brand's continued expansion and success was recognised at the 2016 Drapers Awards where Joules won Mainstream Brand of Year against strong competition from other leading lifestyle brands, representing a real stamp of approval from the fashion industry for our brand and our talented and enterprising team.

Our strategy is built on four key pillars, underpinned by a relentless focus on product quality and design.

1. Increasing customer value

One of our key strategic priorities is to increase our customer base and further enhance brand loyalty and value.

Joules has a fast-growing and highly engaged customer community and awareness of the Joules brand continued to grow in the Period with active customers increasing 30% against the prior year to 922,000 (H1 FY16: 709,000). Joules' total customer database now stands at 2.3 million (H1 FY16: 1.9m).

We continued to strengthen the team to further develop our capability to increase customer value across all channels with the appointment of Lysa Hardy as Chief Customer Officer in September 2016.  

2. UK & Republic of Ireland store roll out

We increased our store portfolio by a net 10 stores during the Period, in line with our previous guidance of 10-12 for the year as a whole. At the end of the Period, Joules had 107 stores across the UK and ROI.

During the Period we opened 11 new stores and closed one store. We also successfully relocated our popular Edinburgh store to a new and significantly larger site.

New openings were across our different store location types, including Lifestyle - Barnstaple; Local - Ashbourne, Ludlow and Woodbridge; Metro - Leeds and Derby; High Street - Chelmsford and Stratford-upon-Avon; and Premium Outlet - Swindon and Bridgend.

The payback on new stores, opened for more than one year, was less than 12 months.

3. International expansion 

The Joules brand and our products continue to resonate well internationally and, during the Period we made further progress in our target North American and German markets.

In the US, we have further expanded our sell-through in leading department stores with Dillards launching childrenswear in the Autumn/Winter 16 season and Nordstrom increasing product range listings in response to their customers' appetite for the brand.

We have started the process to transfer US distribution to independent accounts, in-house. This will commence from the Spring/Summer 2018 season, under the management of our New York based sales and marketing team. The transition from the current third party distributor will provide us with greater control over the growth of the brand within the US.

Our German wholesale business has performed in line with expectations with good performance in the independent retailer segment.

4. Product extension

In the Period, we continued to progress the development of accessories and a targeted childrenswear offer, from baby through to toddler, younger and older girls and boys. Our footwear offer also expanded with good growth from our leather Chelsea Boot range.

Range extension through our licensed partners including toiletries, bedding and eyewear, continue to perform well, although they are still a small contributor to the Group.

Our focus is on continuing to build, develop and explore licensing opportunities which align to Joules' distinctive brand values. To support and manage the brand's expansion into new product categories, we were pleased to appoint a new Head of Licensing in November 2016.

Platform for long term growth

Integral to the successful delivery of our strategy is an outstanding team and well-invested infrastructure. During the first half of this year, notable benefits of this investment included:

· the September 2015 relaunch of the E-commerce platform - which has supported higher conversion rates, most notably from the increased mobile traffic to the website; and

· the strengthening of our US wholesale sales team, trade showroom and IT systems - that has supported the development of new and existing department store accounts as well as facilitating the transition of the third-party distributor activity in-house.

Our company-wide ERP replacement programme is progressing well. The migration to the Microsoft Dynamics AX ERP platform is planned to go live in FY18.

The creativity and energy of our entire team remains critical to driving the business forward and expanding the Joules brand. I would like to take this opportunity to thank everyone in the Joules team across the world for their outstanding efforts throughout the Period.

OUTLOOK

Joules is a strong and growing brand with clear growth opportunities across all distribution channels and target markets. Since the end of the Period we have continued to trade well. Retail sales through the Christmas trading season for the seven weeks to 8 January 2017 were up by 22.8% against the prior year. Overall Group trading in the second half of the financial year to date has been in line with our expectations and the business remains on track to meet the Board's expectations for the full year.

Looking further ahead, the headwinds facing UK retailers are well documented and are generally projected to drive input cost inflation and margin pressure across the sector. With a strong brand, differentiated product offer, loyal and growing customer base, exceptional team and well-invested infrastructure, Joules is well positioned to face this period of sector uncertainty. These core qualities, combined with a strong product sourcing capability, long term partnerships with core suppliers and effective foreign currency hedging programme, underpin the Board's confidence in the Group's continued progress. 

Notes to the consolidated financial statements

For the six months ended 27 November 2016

Reporting entity

Joules Group plc is a company domiciled in the United Kingdom. The condensed interim financial statements of Joules Group plc as at, and for the 26 weeks ended, 27 November 2016 comprise the Company and its subsidiaries (together referred to as the "Group").

The Group financial statements as at, and for the 52 weeks ended, 29 May 2016 are available on request from the Company's registered office at Joules Group plc, 16 The Point, Rockingham Road, Market Harborough, Leicestershire, LE16 7QU or at www.joulesgroup.com.

1. Basis for preparation

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

The accounts have been prepared in accordance with accounting policies that are consistent with the May 2016 Report and Accounts and that are expected to be applied in the Report and Accounts of the year ended 28 May 2017. There are new or revised standards or interpretations that apply periods beginning after 30 May 2016 but they do not have a material effect on the interim statements for the period ended 27 November 2016.

This report is prepared in accordance with IAS 34. The interim financial statements do not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. Statutory accounts for Joules Group plc for the year ended 29 May 2016 have been delivered to the Registrar of Companies. The auditor's report on those accounts was unmodified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

Critical accounting judgements and key sources of estimation uncertainty



Producing financial statements in accordance with IFRS requires management to make necessary estimates and assessments. Estimates are based on past experience and other reasonable assessment criteria. There remains a probability of further adjustments in the value of the assets and liabilities in future financial years.

Significant accounting judgements are applied in the following areas:

Impairment: Stores are identified for further impairment testing primarily on the basis of current performance, with growth assumptions based on directors' knowledge and experience. The directors have used forecast models and an appropriate pre-tax weighted average cost of capital in their property, plant and equipment impairment calculations.

Inventory valuation: Inventory is carried in the financial statements at the lower of cost and net realisable value. Varying consumer demand creates a risk that the cost of inventory exceeds its net realisable value. Management calculate the inventory provision based on the ageing profile of stock, with further adjustments made based on director's knowledge and experience of the provisioning required.

Merger Reserve: The group reconstruction in May 2016 fell outside the scope of IFRS 3 and has therefore been accounted for using reverse acquisition accounting in accordance with UKGAAP.

2. Revenue

An analysis of turnover by geographical market is given below:

3. Segmental review

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

· Retail: Retail includes sales and costs relevant to Stores, E-commerce, Shows and Franchises.

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

· Other: Other includes income from licensing, central costs and items that are not distinguishable into categories above.

The accounting policies of the reportable segments are the same as described in note 1. Information regarding the results of each reportable segment is included below.

4. Expenses by nature

Other expenses include £300,265 (November 2015: £nil) of IPO related exceptional expenses, which has been disclosed separately on the face of the income statement in order to summarise the underlying results.

5. Property, Plant and Equipment and Intangibles

During the period the Group made additions of £7,136,000 (H1 FY16 £4,396,000) and disposals of £nil (H1 FY16 £nil).

6. Dividends

The Board has declared an Interim Dividend. No Dividend have been paid in the period (H1 FY16 nil). The interim dividend of 0.6p per share will be paid on 6 April 2017 to those shareholders on the register at the close of business on 10 March 2017.

7. Hedging and Translation Reserve

Hedging reserve

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

Translation reserve

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

8. Financial Instruments

9. Earnings Per Share