SIGNET JEWELERS LTD
FORM 20-F (Annual and Transition Report (foreign private issuer))
Filed 05/03/05 for the Period Ending 01/29/05
Telephone 44-207-317-9700 CIK 0000832988 Symbol SIG SIC Code 5944 - Jewelry Stores Industry Retail (Specialty) Sector Services Fiscal Year 02/29
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SIGNET GROUP PLC
FORM 20-F (Annual and Transition Report (foreign private issuer))
Filed 5/3/2005 For Period Ending 1/29/2005
Address ZENITH HOUSE THE HYDE COLINDALE LONDON NW9 6EW ENGLA, 00000 CIK 0000832988 Industry Retail (Specialty) Sector Services Fiscal Year 01/31 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 20-F
Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended January 29, 2005
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______to ______.
Commission file number 0-16945 SIGNET GROUP plc (Exact name of Registrant as specified in its charter)
ENGLAND (Jurisdiction of incorporation or organization)
Zenith House The Hyde London NW9 6EW England (Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered Ordinary Shares, nominal value £0.005 each New York Stock Exchange*
American Depositary Shares, New York Stock Exchange each representing 10 ordinary shares
Not for trading, but only in connection with the registration of the ADSs pursuant to the requirements of the Securities and Exchange * Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Ordinary Shares of 0.5 pence each 1,735,615,152
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18
Explanatory Note
This document comprises the annual report on Form 20-F and the annual report to shareholders for the year ended 29 January 2005 of Signet Group plc (the “2004/05 Form 20-F”). Reference is made to the Cross Reference to Form 20-F table beginning on page 137 hereof (the “Cross Reference to Form 20-F Table”). Only (i) the information in this document that is referenced in the Cross Reference to Form 20-F Table, (ii) the cautionary statement concerning forward-looking statements on page 1 and (iii) the Exhibits, shall be deemed to be filed with the Securities and Exchange Commission for any purpose, including incorporation by reference into the Registration Statements on Form S-8 of Signet Group plc (No. 333-12304, 333-9634, 333-8764 and 033-42119), and any other documents, including documents filed by Signet Group plc pursuant to the Securities Act of 1933, as amended, which purport to incorporate by reference the 2004/05 Form 20-F. Any information herein which is not referenced in the Cross Reference to Form 20-F Table, or the Exhibits themselves, shall not be deemed to be so incorporated by reference.
2004/05 Group highlights
R eported At constant exchange rates basis (1)(2)
Like for like sales: up 5.0% Sales: £1,614.4mup 0.6% (2) up 7.8% Operating profit: £218.9m up 4.1% (2) up 11.3% Profit before tax: £210.3m up 5.3% (2) up 12.1% Earnings per share (3) : 8.2p up 9.3% (2) up 15.5% Dividend per share: 3.0p up 20.0%
Return on capital employed (3) 26.5% up from 25.9% (2) down from (3) 11.8% Gearing 11.3% (2)
(1) See page 29 for reconciliation to Generally Accepted Accounting Principles (“GAAP”) figures. (2) 2000/01 to 2003/04 restated for the implementation in 2004/05 of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’. (3) Earnings per share, return on capital employed and gearing are defined on page 130. (4) 53 week year.
Annual Report & Accounts Year ended 29 January 2005
Contents 2 Chairman’s statement 69 Consolidated cash flow statement 3 Group Chief Executive’s review 69 Reconciliation of net cash flow to 6 Five year financial summary movement in net debt 7 US operating review 70 Consolidated statement of total recognised 17 UK operating review gains and losses 23 Description of property & Group employees 70 Note of consolidated historical cost profits 24 Financial review including IFRS information and losses 35 Risk and other factors 71 Consolidated shareholders’ funds 41 Directors, officers and advisers 72 Notes to the accounts including US GAAP 43 Report of the directors reconciliation 45 Corporate governance statement 115 Social, ethical and environmental matters 51 Directors’ remuneration report 120 Shareholder information 64 Statement of directors’ responsibilities 127 Selected financial data 65 Report of Independent Registered 129 Quarterly results Public Accounting Firm 130 Definitions 66 Consolidated profit and loss account 131 Glossary of terms 67 Consolidated balance sheet 132 Shareholder contacts 68 Company balance sheet 133 Index 134 Signatures 135 Exhibits 137 Cross Reference to Form 20F
This Annual Report contains translations of certain pound Signet Group plc is an English public limited company, sterling amounts into US dollars at a rate of $1.89 = £1, whose shares are listed on the London Stock Exchange which was the Noon Buying Rate in New York City for cable (under the symbol “SIG”) and whose American transfers in pounds sterling as certified for customs purposes Depositary Shares are listed on the New York Stock by the Federal Reserve Bank of New York (the “Noon Buying Exchange (under the symbol “SIG”). Rate”) on 29 January 2005. These translations should not be construed as representations that the pound sterling amounts actually represent such US dollar amounts or could be converted into US dollars at the rate indicated. On 6 April 2005 the Noon Buying Rate was $1.88 = £1. This document comprises the Annual Report & Accounts of the Group in accordance with United Kingdom requirements. Cautionary statement regarding forward-looking statements
In this Annual Report, “2000/01”, “2001/02”, “2002/03”, The Company desires to take advantage of the “safe harbor” “2003/04”, “2004/05” and “2005/06”, refer to, as provisions of the United States Private Securities Litigation appropriate, the 52 weeks ended 27 January 2001, the Reform Act of 1995 with respect to the forward-looking 53 weeks ended 2 February 2002, the 52 weeks ended statements about its financial performance and objectives in 1 February 2003, the 52 weeks ended 31 January this Annual Report. Readers are referred to “Risk and other 2004, the 52 weeks ended 29 January 2005 and the factors” on pages 35 to 40. 52 weeks ending 28 January 2006.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 1
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Chairman’s statement
Group results In the year to 29 January 2005 the Group further extended its Principles (“GAAP”) being replaced by International Financial growth record. On a reported basis profit before tax rose by Reporting Standards (“IFRS”), and both converging with US 5.3% to £210.3 million (2003/04: £199.8 million restated, see GAAP. The process this year has resulted in a restatement note 17) reflecting an underlying increase of 12.1% at relating to the revenue recognition of extended service constant exchange rates. Like for like sales advanced by agreements in the US (see note 17, page 85) and the 5.0%. Total sales rose by 7.8% at constant exchange rates: replacement in 2005/06 of UK GAAP by IFRS as explained in reported sales were broadly unchanged at £1,614.4 million more detail in the Financial review (page 33). (2003/04: £1,604.9 million restated). The tax rate fell to 32.9% from 35.1%. Earnings per share were 8.2p (2003/04: 7.5p Dividend restated), up by 9.3% on a reported basis and 15.5% at The Board is pleased to recommend a 21.5% increase in the constant exchange rates. final dividend to 2.625p per share (2003/04: 2.160p), the total for the year being 3.000p per share (2003/04: 2.501p). The These results reflect the continuing successful implementation dividend cover is 2.7 times (2003/04: 3.0 times restated). The of the Group’s strategies on both sides of the Atlantic. Board will continue to review regularly its distribution policy However the full extent of the Group’s progress has not been taking into account earnings, cash flow, gearing and the reflected in the reported results due to further weakening of needs of the business. See note 8 regarding dividends to US the average US dollar exchange rate from $1.68/£1 to $1.86/ holders of ordinary shares and ADSs. £1. This had a significant adverse impact on the translation of the US division’s sales and operating profit into sterling, People thereby affecting Group profit before tax by some £12 million. I would like to thank our staff and management for their The results also included a restructuring charge in the UK of invaluable contribution to the continued success of the Group. £1.7 million. Robert Walker joined the Board as a non-executive director in The US division had a very strong start to 2004/05 with an November 2004. I am confident that his broad experience of excellent performance during the Valentine’s Day period. international business will enable him to make a significant Although the retail environment became less predictable as contribution to the Group. the year progressed, the business had a strong fourth quarter with like for like sales up by 4.7%. For the year as a whole the Rob Anderson, Chief Executive of Signet’s UK division, joined division again out-performed its main competition and gained the Board as an executive director in April 2005 and I am sure further market share. 2004 saw the Group’s nationwide Kay will make a valuable contribution at Group level. chain become the largest speciality retail jewellery brand by sales in the US. I have also recently announced my intention to retire from the Board no later than at the Company’s annual general meeting The UK division also had a particularly strong first quarter but in June 2006. faced a softening trend in the trading environment during the rest of the year. Annual like for like sales increased by 3.0%; a good performance in an increasingly difficult marketplace. The Current trading Christmas period proved to be particularly challenging and In the year to date Group like for like sales growth has been in both H.Samuel and Ernest Jones did well to out-perform the low single digits after taking account of the change in the general retail market. timing of Easter. This reflects a US like for like increase a little ahead of the fourth quarter last year partly offset by negative mid single digit like for like sales in the UK following a marked The Group continued to utilise its cash flow and strong deterioration in the general trading environment. Both balance sheet to invest in the growth of the business. £159.1 businesses were up against particularly strong prior year million was invested in fixed and working capital during the comparatives. year. There was an acceleration in new store space growth in the US and a major store refurbishment programme in the UK. Gearing (net debt to shareholders’ funds) at 29 January 2005 was 11.3% (31 January 2004: 11.8% restated).
Accounting standards developments A period of significant and rapid change in accounting is currently taking place with UK Generally Accepted Accounting
James McAdam Chairman 6 April 2005
2 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Group Chief Executive’s review
Introduction Group operating profit rose to £218.9 million from £210.2 UK division million (restated), an increase of 11.3% at constant exchange Against the background of an increasingly difficult trading rates or 4.1% on a reported basis. The operating margin environment UK operating profit advanced by 2.1% to £78.2 increased to 13.6% (2003/04: 13.1% restated), and the return million (2003/04: £76.6 million), the compound five year on capital employed (“ROCE”) was 26.5% (2003/04: 25.9% annual growth rate being 15.8%. There was a restructuring restated). charge of £1.7 million reflecting the relocation and consolidation of central administration functions to enhance The Group’s medium term objectives are to set leading efficiency that should generate future cost savings of about performance standards in its sector of the jewellery market on £0.6 million per annum. Like for like sales rose by 3.0%, the both sides of the Atlantic, to increase new store space in the compound annual growth rate during the last five years being US and store productivity in the UK, and to be broadly cash 6.3%. The business continues to be strongly cash generative flow neutral after funding the needs of the business and and enjoyed a ROCE of over 40% in 2004/05. dividend payments. The drive to increase diamond sales as a proportion of total US division sales showed further success and remains central to the In 2004/05 the business continued to build on its competitive future strategy of both H.Samuel and Ernest Jones. Diamonds strengths. It again out-performed its main competition and now account for 28% of the division’s product mix compared gained further market share. Operating profit rose by 17.1% at with 22% five years ago. The objective is to leverage both constant exchange rates and by 5.7% on a reported basis to chains’ strong market positions by increasing average £147.3 million (2003/04: £139.3 million restated). The five transaction values which have risen by 42% in H.Samuel and year annual compound growth was 12.2% at constant by 29% in Ernest Jones in the last five years. exchange rates. Central to selling diamonds is the interaction between the Like for like sales rose by 5.9% and total dollar sales by customer and the salesperson. The roll-out of the new store 10.3%. The mall stores reported solid growth and Jared, the format, which facilitates such interaction, was implemented as off-mall destination concept, performed particularly strongly. part of the store refurbishment cycle in 2004/05. The focus on Over the last five years the US division’s like for like sales customer service was also evident in the priority given to staff have grown at an annual compound rate of 4.5% and total training. The significant changes taking place in the UK dollar sales by 11.0%. During the same period, the US business are being supported by increased marketing division’s share of the speciality jewellery market has expenditure. In implementing these initiatives the UK business increased from 5.1% to 7.2%. is able to draw on the US division’s best practices.
New store space rose by 8% during 2004/05 further US (68% of Group sales) leveraging both central overhead costs and marketing Details of the US division’s performance are set out below: expenditure. In the last five years new store selling space has increased by some 60%, with the number of Kay stores up by Change At over a third to 742. Over the same period the number of Jared constan t Like stores has more than tripled to 93. exchange for like (1) Reported (2) change 2004/05 2003/04 rates Growth in new store space and further development of the £m £m % % % division’s competitive strengths in the critical areas of merchandising, store operations and marketing have Sales 1,100.0 1,103.9 –0.4 +10.3 +5.9 contributed significantly to the out-performance of the Operating profit 147.3 139.3 +5.7 +17.1 business and remain key elements of future strategy. Given the continuing consolidation in the speciality jewellery sector, Operating margin 13.4 % 12.6 % there should be opportunities to gain further market share ROCE 22.4 % 21.3 % both organically and, if appropriate, by acquisition. The US division is now targeting organic space growth of 7% - 9% in (1) Restated for amendment to FRS 5, ‘Application Note G – Revenue future years (previously 6% - 8%). Recognition’. (2) See page 29 for reconciliation.
The operating margin improved on last year, reflecting leverage of like for like sales growth partly offset by the adverse impact of immature store space. Gross margin was maintained at last year’s level, as a range of supply chain initiatives and pricing actions counter-balanced commodity cost increases. Commodity costs continue to rise and further initiatives are being implemented in
Signet Group plc Annual Report & Accounts year ended 29 January 2005 3 Back to Contents
Group Chief Executive’s review (continued) the current year to help again offset the impact. The bad debt charge was towards the bottom of the range of the last five the Kay brand are currently being opened in lifestyle and years at 2.9% of total sales (2003/04: 2.8%). The proportion of power strip centres. Ten such stores were opened in 2004/05 sales through the in-house credit card was 50.1% (2003/04: and a similar number are planned in 2005/06. In the current 49.3%). year it is anticipated that up to four stores will be trialled in metropolitan areas. In the jewellery sector superior customer service and product knowledge are important competitive advantages readily Currently 321 mall stores trade under strong regional brand identified by the consumer, and the division now has at least names. Sales in the year were over $450 million, reflecting one certified diamontologist in every store. Also during average sales per store of $1.533 million. The regional stores 2004/05 all sales staff were coached using the “Ultimate could provide the potential to develop a second mall brand of Diamond Presentation” training course. Procedures for sufficient size to justify the cost of national television recruitment were strengthened and staff retention was also advertising. This would require about 550 stores which could improved. The multi-year initiative to enhance store systems be achieved in the medium term by a mixture of store saw the introduction of improved repair and special order openings and acquisitions. In 2005/06 it is planned that 20-30 services. new stores will be opened under the regional brand names.
In mall stores the upper end of the diamond selection was Jared now has sales of just over $400 million and a portfolio of enhanced and the Leo Diamond range was successfully 93 stores, equivalent in space terms to about 400 mall stores. expanded. The gold category was reinvigorated by the The Jared concept is the primary vehicle for US space growth development of fashion gold merchandise in conjunction with and in 2004/05 a further 14 stores were opened. The chain is the World Gold Council. In Jared sales of loose diamonds, the still relatively immature with some 70% of stores not yet Leo Diamond range, luxury watches such as Rolex, Tag having traded for five full years. Excluding the three prototype Heuer and Raymond Weil all performed well. Cartier watches stores the 25 Jared stores that have reached maturity will be tested in certain Jared stores in 2005/06. Average unit achieved, in aggregate, the target level of sales and store selling prices in both the mall stores and Jared increased by contribution (set at the time of investment) in their fifth year of some 10% reflecting not only consumer movement to higher trading. During 2005/06 it is intended to increase the number value merchandise such as the Leo Diamond range, but also of Jared openings to 15 - 20 per annum, from the 12 - 15 per the changes in retail prices implemented during the year. The annum opened in the last six years. division’s competitive advantage obtained by sourcing loose stones for about 55% of diamond merchandise proved to be The change in store numbers by chain is shown in the particularly beneficial during a period of higher rough diamond following table: costs.
Total Kay Regional Jared Strong marketing programmes again contributed to the sales growth out-performance. Kay television advertising impressions were increased by 11% over the Christmas 31 January 2004 1,103 717 307 79 period and national radio advertising was successfully Store openings 68 34 20 14 introduced. Some 90% of Jared stores benefited from Store closures (15 ) (9 ) (6 ) – television advertising compared with around 75% in the prior 29 January 2005 1,156 742 321 93 year. The annual gross marketing spend amounted to 6.6% of sales (2003/04: 6.5%) and dollar marketing expenditure has doubled over the last five years. In 2004/05 total fixed and working capital investment in the US Kay, with a turnover of $1,155.5 million, became the number business was $228.3 million (2003/04: $138.3 million) and one speciality jewellery brand by sales during 2004/05 having new store space increased by a net 8% as planned. consistently out-performed its major competitors. Over the last five years the number of Kay stores has increased by almost Recent investment in the store portfolio is set out below: 200 to a total of 742 and average sales per store have grown to $1.584 million from $1.355 million. Brand name recognition Number of stores 2004/05 2003/04 2002/03 2001/02 2000/01 has risen very significantly since the introduction of the “Every kiss begins with Kay” advertising campaign in 2000/01. It is planned to increase Kay’s representation in malls by between Store refurbishment 20 and 30 new stores in 2005/06. In addition to mall locations, and relocations 76 61 71 91 99 stores under New mall stores 44 47 36 41 40 New off-mall Kay 10 10 – – – stores New Jared stores 14 12 12 12 15 Store fixed capital investment $53m $42m $38m $51m $60m Store total investment (1) $140m $98m $92m $96m $107m
(1) Fixed and working capital investment in new space and refurbishments/relocations.
4 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents In 2005/06 net new store space growth of 7% - 9% is planned reflecting the increased rate of Jared store openings, an outcomes. Particular benefit from improved staff training was acceleration in the expansion of stores under regional brand gained in the diamond category. During the year a new names, the continued growth of Kay stores and the closure of incentive scheme, which drew on the Group’s US experience, some 15 mall stores. Total US fixed capital expenditure is was tested and will be expanded further in 2005/06. expected to be some $90-$100 million in 2005/06 (2004/05: $77.6 million), including the refurbishment or relocation of Catalogues remain the main marketing tool, with design and approximately 90 stores. Total store investment, including distribution being strengthened during the period. The working capital, is planned to be some $155 million in television advertising test was extended during Christmas 2005/06. 2004 with H.Samuel national coverage increasing to about 65% from around 40% in the prior year. Ernest Jones’ UK (32% of Group sales) coverage was doubled to some 60%. It is planned to continue Details of the UK division’s performance are set out below: the trial in 2005/06. Ernest Jones successfully launched a customer relationship marketing programme during 2004/05. Like Over the last five years marketing expenditure has increased for like at an annual compound rate of 20% and represented 3.0% of 2004/05 2003/04 Change change £m £m % % sales in 2004/05 (2003/04: 2.5%).
Sales In 2004/05 total fixed and working capital investment in the UK business was £36.3 million (2003/04: £27.5 million), a H.Samuel 285.5 285.8 –0.1 +1.9 significant increase reflecting the roll-out of the new store Ernest Jones 223.4 209.4 +6.7 +4.5 format. At the year end, 142 stores, mostly H.Samuel, traded Other 5.5 5.8 in the new format, accounting for about 30% of the UK division’s sales over the Christmas period. There were seven Total 514.4 501.0 +2.7 +3.0 Ernest Jones and two H.Samuel new store openings. 11 H.Samuel stores were closed. At the year end there were 602 stores (398 H.Samuel and 204 Ernest Jones). Operating profit 78.2 (1) 76.6 +2.1 % Recent investment in the store portfolio is set out below: Operating margin 15.2 (1) 15.3 %
ROCE 44.7 % 47.1 % Number of stores 2004/05 2003/04 2002/03 2001/02 2000/01
(1) After charging a restructuring expense of £1.7 million. Store
refurbishments The division’s gross margin benefited from the effect of the and relocations 81 32 42 93 24 New H.Samuel lower dollar exchange rate on dollar denominated commodity 2 – 4 10 9 costs. The operating margin at 15.2% was little changed after stores New Ernest absorbing a restructuring charge of £1.7 million. Like for like 7 5 8 9 3 sales were up by 1.9% in H.Samuel, while total sales were Jones stores Store fixed similar to last year due to nine net store closures and a significant increase in the number of temporary closures for capital refurbishment. H.Samuel’s sales per store increased to investment £ 23m £ 13m £ 14m £ 15m £ 6m £0.723 million (2003/04: £0.707 million). Ernest Jones had another strong performance with like for like sales up by 4.5%, total sales increasing by 6.7% and sales per store reaching A similar pattern of store investment is planned for 2005/06 £1.150 million (2003/04: £1.101 million). with total capital expenditure expected to be some £30-£35 million in 2005/06 (2004/05: £28.8 million). This reflects the Diamond jewellery assortments were enhanced during the continued roll-out of the new store format with about 90 stores year and continued to perform strongly, accounting for 20% of planned to be refurbished or relocated during 2005/06, again sales in H.Samuel and 38% in Ernest Jones. The Leo predominantly H.Samuel. Diamond range was expanded in Ernest Jones and the Forever Diamond selection is now in all H.Samuel stores. White metal jewellery also proved popular. In H.Samuel the fashion watch range was increased whilst the gift and collectibles selection continued to be rationalised. The average selling price in H.Samuel was £37 (2003/04: £35) and in Ernest Jones £141 (2003/04: £139).
The focus on diamonds requires a higher level of customer service and greater product knowledge by the store staff. New training practices continued to be enhanced in 2004/05 involving a weekly programme of centrally prepared material, regular feedback from supervisors and emphasis on Terry Burman measurable Group Chief Executive 6 April 2005
Signet Group plc Annual Report & Accounts year ended 29 January 2005 5 Back to Contents
Five year financial summary
2004/05 2004/05 (1) 2003/04 2002/03 2001/02 2000/01 as restated (2) as restated (2) as restated(2)(3) as restated(2) £m $m £m £m £m £m
Sales 1,614.4 3,051.2 1,604.9 1,593.6 1,562.4 1,373.3
Operating profit 218.9 413.7 210.2 199.9 183.4 163.8 Net interest payable (8.6 ) (16.3 ) (10.4 ) (14.0 ) (15.0 ) (12.7 )
Profit before tax 210.3 397.4 199.8 185.9 168.4 151.1 Taxation (69.1 ) (130.5 ) (70.2 ) (65.7 ) (57.9 ) (48.4 )
Profit for the period 141.2 266.9 129.6 120.2 110.5 102.7
Earnings per share (4) 8.2p $0.15 7.5p 7.0p 6.5p 6.1p Dividend per share (£) 3.000p 2.501p 2.110p 1.789p 1.625p Dividend per share ($) $0.0558 $0.0420 $0.0323 $0.0258 $0.0242
Capital expenditure 70.5 133.2 50.9 49.5 59.8 56.2 Investment in fixed and working capital 159.1 300.7 97.7 105.0 113.2 137.2 Depreciation and amortisation 42.3 79.9 40.4 37.8 34.7 30.6 Net debt 83.5 157.8 79.9 140.1 201.7 229.1 Shareholders’ funds 739.1 1,396.9 674.9 627.6 634.4 544.5 Shares in issue (million) 1,735.6 1,726.2 1,713.8 1,706.0 1,685.7
Gearing (4) 11.3% 11.8% 22.3% 31.8% 42.1% Return on capital employed (4) 26.5% 25.9% 25.0% 23.7% 25.8%
Store numbers (at end of period): US 1,156 1,103 1,050 1,025 999 UK 602 604 610 606 605 Percentage increase in like for like sales: US 6% 5% 5% 1% 6% UK 3% 6% 5% 9% 9% Average sales per store (£’000s) (5) : US 976 1,028 1,074 1,095 1,078 UK 866 824 747 735 665 Number of employees (full-time equivalents) 15,145 14,502 14,160 13,525 12,520
(1) Amounts in pounds sterling are translated into US dollars solely for the convenience of the reader, at a rate of £1.00 to $1.89, the Noon Buying Rate on 28 January 2005. (2) Restated for the implementation in 2004/05 of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’. The adoption of the standard resulted in a prior year adjustment (see note 17 on page 85). (3) 53 week year. The impact of the additional week on sales was £22.4 million, operating profit £4.0 million, net interest payable £0.4 million and profit before tax £3.6 million. (4) Earnings per share, gearing and return on capital employed are defined on page 130. (5) Including only stores operated for the full financial period.
The financial data included in the Five year financial summary above has been derived, in part, from the consolidated Further selected financial data is shown on pages 127 and accounts for such periods included elsewhere in this Annual 128. The accounts of the Group have been prepared in Report. The financial data should be read in conjunction with accordance with UK GAAP, which differ in certain respects the accounts, including the notes thereto, and the Financial from US GAAP. See pages 103 to 114 for information on the review included on pages 24 to 34. material differences between UK GAAP and US GAAP that affect the Group’s profit and shareholders’ funds.
6 Signet Group plc Annual Report & Accounts year ended 29 January 2005
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US operating review
Overview Signet’s US division is the second systems. The division now has at least largest speciality retail jeweller in the one certified diamontologist in each of United States with an approximate its stores. market share of 7.2% of the speciality jewellery market. Total US sales in the • Real estate year to 29 January 2005 were $2,046 Strict criteria are followed when million (2003/04: $1,855 million evaluating real estate investment, and restated). At the year end the division management believes that the quality had 1,156 stores comprising 1,043 of the store portfolio is superior to that mall jewellery stores as well as 93 off- of its competitors. The trading record mall category killer destination and the strength of the Group balance superstores (equivalent in space terms sheet make Signet an attractive to about 400 mall stores) and 20 tenant. stores being trialled in off-mall shopping centres. The division’s mall Merchandising stores target the middle market while • Management believes that in the off-mall superstores target the comparison to its competitors Signet upper middle market. Its mall stores has greater experience and capacity to trade nationwide as Kay Jewelers direct source diamonds (i.e. to (“Kay”), and regionally under a number purchase loose polished diamonds of well established and recognised from diamond cutters and supply them names. Kay Jewelers is the largest to contract manufacturers who speciality retail jewellery brand in the produce finished merchandise). This US by sales. The destination sourcing strategy allows the Group to superstores trade as Jared The Galleria Of Jewelry (“Jared”), and are provide superior value and quality to the nation’s largest and fastest the consumer. Diamond jewellery accounts for approximately 70% of growing chain of off-mall category total annual merchandise sales. The killer destination jewellery stores. A division’s sophisticated merchandising category killer store offers a wider systems test, track, forecast and selection of merchandise at highly respond to consumer preferences and competitive prices. provide competitive advantage by helping to ensure high in-stock Over the longer term the division’s aim positions of key merchandise is to gain further profitable market assortments and faster moving items. share through like for like sales growth, and by focusing on proven Marketing competitive strengths. It aims also to • increase US new store space by about Kay is one of a very limited number of 7% – 9% per annum, with Jared US speciality retail jewellery brands accounting for the majority of the with a presence large enough to justify national television advertising, which is planned space growth. the most cost effective way to attract customers, enter new markets and Competitive advantages increase brand recognition. Management attributes the division’s success in the US speciality retail It is anticipated that Jared will have jewellery market to a range of sufficient scale to use national competitive advantages in store television advertising for Christmas operations, real estate, merchandising 2006. and marketing. These advantages are reflected in the above average sales per store and operating profit margin. Initiatives in 2004/05 The principal competitive advantages Specific initiatives taken during are summarised below, and all are 2004/05 to strengthen the Group’s explained in greater detail on pages 9 competitive position included: to 15. Store operations and personnel • Store operations and personnel • strengthened field recruitment The sales associate’s ability to organisation communicate and explain the value • enhanced diamond selling skills of and quality of the merchandise plays a store personnel significant part in a retail jewellery • developed systems for greater purchase. Therefore, the US division operational efficiency in special has developed specialised training for orders and repairs its retail personnel, and its size Signet Group plc Annual Report & Accounts year ended 29 January 2005 7 provides leverage of training resources and
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US operating review (continued)
Real estate • increased number of Jared openings and testing of new Signet’s total US dollar sales rose (excluding the acquisition of locations Marks & Morgan) at a compound annual growth rate of 11.6%. • expanded testing of Kay off-mall store format by opening ten additional stores
Merchandising • improved supply chain efficiency and pricing changes • further developed the diamond ranges, including expansion of the Leo Diamond, diamond right-hand rings and solitaire diamonds • introduced new programmes to reinvigorate the gold category • further expanded the Jared luxury watch range
Marketing • further increased national TV advertising for Kay • expansion of Jared TV advertising programme
Marketplace Total US jewellery sales, including watches and fashion jewellery, are estimated by the US Department of Commerce to have been $57 billion in 2004 (2003: $54 billion) and are believed to account for about 50% of worldwide diamond jewellery sales according to Rapaport Research. In the US market diamond jewellery sales account for just over 50% of total jewellery sales. The US jewellery market has grown at a compound annual growth rate of 5.5% over the last 20 years. Management believes that the longer term outlook for In the last ten years the growth in diamond jewellery sales has jewellery sales is encouraging given the growth in disposable been more than twice that of the total jewellery market. In incomes and the increasing number of women in the work 2004 the total jewellery market grew by about 6.9%. Signet force. has an approximate 3.6% share of the total US jewellery market. Speciality retailers accounted for about 50% of the The US division competes on the basis of the quality of its total jewellery market over the last ten years and the US personalised customer service, merchandise selection, division has an approximate 7.2% market share of the availability, quality and value. Brand recognition, trust and speciality sector. store locations are also competitive advantages as is the ability to offer private label credit card programmes to Jewellery sector sales have, over the longer term, grown customers. The US division holds no material patents, faster than retail sales (source: US Department of Commerce licenses, franchises or concessions but has a range of trading and US Census Bureau) and the rate of growth accelerates agreements with suppliers, the most important being in regard and slows in line with retail sales in general (see graph of the Leo Diamond. The established trademarks and trade below). Management believes that a major contributor to the names of the division are essential to maintaining its relationship with other retail categories is that the majority of competitive position in the retail jewellery industry. jewellery sales are made in the middle mass market for bridal related or annual gift giving events. Retail jewellery sales have The US retail jewellery industry is very competitive and highly risen at a compound annual growth rate of 4.9% from 1997 to fragmented. The broader total US retail jewellery market 2004 (see graph below), outperforming other comparable includes formats such as department stores, discount outlets, sectors in the more buoyant late 1990’s, and over the last four television home shopping, internet shopping, other general more challenging years performing in line with the general merchandise stores, apparel stores and accessory stores. The retail sector. Over the same period largest jewellery
8 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents retailer is believed to be Wal-Mart Stores, Inc., which includes a wide assortment of costume jewellery. Management America. Over 50% of full time sales staff who have believes that the business also competes with non-jewellery completed their probationary period are certified retailers for consumers’ discretionary spending. diamontologists or are training to become certified. Employees often continue their professional development through The US division’s largest speciality jewellery competitor is completion of correspondence courses on gemstones. For Zale Corporation, which has a speciality market share of Christmas 2004 there was at least one certified diamontologist about 7.5%. Competition is also encountered from a limited in each store. In addition, during 2004/05, a major four-month number of large regional retail jewellery chains, and smaller training programme to improve the knowledge and selling regional chains and independent retail jewellery stores (those skills of sales personnel called “The Ultimate Diamond operating fewer than 100 stores), which account for over 75% Presentation” was implemented across all stores ahead of the of the speciality market. In 2003 the Jewelers Board of Trade important fourth quarter. estimated that there were 24,888 speciality jewellery stores in the US, compared to 27,156 in 1998, a decrease of 2,268 All store personnel are required to meet daily performance stores. The number of stores operated by the five largest standards and commit to goals. After completion of basic speciality jewellery retailers increased by about 900 over the training, sales staff are paid a commission based on their same period and reflects the continuing consolidation taking individual sales performance and on meeting monthly store place in the sector. Management believes that the five largest sales targets. Sales contests and incentive programmes also speciality jewellery retailers have increased their market share reward the achievement of specific goals with travel or from about 15% to about 22% of speciality jewellery sales additional cash awards. In addition to sales based incentives, over the last five years. This trend provides significant bonuses are paid to store managers and district managers opportunity for those businesses with competitive strengths in based on the achievement of key performance objectives. In the sector, and it is believed that Signet is well positioned to 2004/05 approximately 23% (2003/04: 23%) of store gain further market share. personnel remuneration was commission and incentive- based. Store operations and personnel A retail jewellery sale normally requires face-to-face Each store is led by a store manager who is responsible for interaction between the customer and the sales associate, various store level operations including overall store sales and during which the items being considered for purchase are branch level variable costs; certain personnel matters such as removed from the display cases and presented one at a time recruitment and training; and customer service. Administrative while their respective qualities are explained to the customer. matters, including purchasing, merchandising, payroll, Consumer surveys indicate that a key factor in the retail preparation of training materials, credit operations and purchase of jewellery is the customer’s confidence in the sales divisional operating procedures are consolidated at divisional associate. level. This allows the store manager to focus on those tasks that can be best executed at the store level while enabling the Providing knowledgeable and responsive customer service is business to benefit from economies of scale in administrative a priority, and is regarded by management as a key point of matters and to help ensure consistency of execution across all differentiation. It is believed that highly trained store sales staff the stores. with the necessary product knowledge to communicate the competitive value of the merchandise are critical to the Staff recruitment is primarily the responsibility of store and success of the business. The US division’s substantial training district managers. In 2004/05 the division began to develop a and incentive programmes for all levels of store staff are central recruitment facility that supplies field recruiters from designed to play an important role in recruiting, educating and the home office, and uses methods such as internet retaining qualified store staff. The preferred practice is to recruitment to provide stores with a larger number of better promote managers of all levels from within the organisation in qualified candidates from which to select new staff. order to maintain continuity and familiarity with the division’s practice. Management believes that the retention and recruitment of highly qualified and well-trained staff in the US head office in Retail sales personnel are encouraged to become certified Akron, Ohio is essential to supporting the stores. A diamontologists by graduating from a comprehensive diamond comprehensive in-house curriculum supplements specific job correspondence course provided by the Diamond Council of training and emphasises the importance of the working partnership between stores and the head office.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 9 Back to Contents
US operating review (continued)
US head office bonuses are mainly based on the performance of the division against predetermined annual profit targets. Criteria for investment in mall real estate remain stringent. Promotion decisions for all non-management head office Signet seeks sites in superior malls, in particular units located personnel are based on performance against service level and on busy centre court locations. production goals; for managers they are based on annual objectives and performance against individual job In 2004/05 there was a net increase in the US division’s new requirements. store selling space of approximately 8%, at the top end of the target range. Real estate The vast majority of Signet US stores are located in suburban In 2005/06 it is planned to open approximately 15-20 Jared areas. Kay and the regional chains are predominantly located stores. 40-50 mall stores, up to ten additional off-mall Kay and in regional and super-regional enclosed malls, with up to four metropolitan stores will also be opened. Around 20 approximately 50% of the stores being in prime centre court mall stores are planned for closure. The programme should locations. The average mall store contains approximately result in a net increase in new store space of about 8% by the 1,160 square feet of selling space and 1,460 square feet of end of 2005/06. total space. The design and appearance of stores is standardised within each chain. Signet may consider selective purchases of mall stores that meet its acquisition criteria regarding location, quality of real Jared locations are typically free-standing sites in shopping estate, customer base and return on investment for both the complexes with high visibility and traffic flow, and positioned Kay and regional brands. close to major roads. The retail centres in which Jared stores operate normally contain strong retail co-tenants, including other category killer destination stores such as Borders Kay The expansion of Kay as a nationwide chain is an important Books, Best Buy, Home Depot and Bed, Bath & Beyond. element of the US growth strategy. Kay, with 742 primarily mall stores in 50 states at 29 January 2005 (31 January 2004: Details of recent investment in the store portfolio are set out 717 stores), is targeted at the middle income consumer. below: During 2004/05 Kay became the largest speciality retail jewellery brand in the US based on sales. It is believed that in Number of stores 2004/05 2003/04 2002/03 the longer term there is potential to expand the Kay chain to some 1,400 stores, including off-mall locations. Store refurbishments and relocations 76 61 71 The development of Kay stores in suburban off-mall shopping centres, such as “lifestyle” and “power strip” centres, New mall stores 44 47 36 commenced in 2003/04 with the opening of ten stores. A New off-mall stores further ten were opened in 2004/05, and it is intended that ten – Jared stores 14 12 12 will be opened in 2005/06. A lifestyle centre is an open air – Kay off-mall stores 10 10 – shopping centre where the retail mix is biased toward fashion Store fixed capital investment $53m $42m $38m and leisure stores and is also likely to have a large number of restaurants. A power strip centre is also an open air shopping (1) $98m $92m Store total investment $140m centre but the retail mix is predominantly category killer superstores with some smaller speciality units. Kay stores in (1) Fixed and working capital investment in new space and refurbishments/relocations. these suburban centres are expected to have a lower capital expenditure, lower rents and lower sales per store at maturity than that of the Kay chain average. In 2005/06 up to four Kay stores are planned to be opened in traditional metropolitan Management believes that the US division’s prime real estate locations in cities such as Boston, Chicago, San Francisco portfolio, together with its regular investment in mall store and New York. Kay stores in large metropolitan locations are refurbishments and relocations, are competitive advantages anticipated to have higher capital expenditure, higher rents that help build store traffic. Superior like for like sales growth and higher sales per store at maturity than those of the Kay is normally achieved for a number of years following such chain average. Management believes that the expansion of investment. The typical benefits from mall store Kay in these new locations refurbishments, which normally occur on a ten year cycle, include an increase in linear footage of display cases positioned on the store frontage, improved lighting and better access to the store. When relocating a store to a better location in a mall, such as a centre court corner site from an in-line location, an increase in like for like sales is expected due to improved visibility to the customers, improved lighting and more display cases being positioned on the lease line between the store and the mall common areas.
10 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
The following table sets out information concerning the US stores operated by Signet during the period indicated:
2004/05 2003/04 2002/03
Number of stores:
Total opened during the year (1) 68 69 48 Kay (2) 34 49 22 Regional chains 20 8 14 Jared 14 12 12
Total closed during the year (15 ) (16 ) (23 ) Kay (9 ) (8 ) (13 ) Regional chains (6 ) (8 ) (10 ) Jared – – –
Total open at the end of the year 1,156 1,103 1,050 Kay (2) 742 717 676 Regional chains 321 307 307 Jared 93 79 67
Average retail price of merchandise sold $320 $288 $267 Kay $282 $257 $242 Regional chains $304 $281 $265 Jared $644 $586 $558
Average sales per store in thousands (3)(4) $1,816 $1,727 $1,643 Kay $1,584 $1,528 $1,470 Regional chains $1,533 $1,532 $1,536 Jared $4,975 $4,573 $4,277
Increase in net new store space 8% 7% 6% Percentage increase in like for like sales 5.9% 4.6% 5.4%
(1) Figures for stores opened during the year are adjusted for the impact of conversions of format between Kay and regional chains. (2) Includes test of Kay stores in off-mall shopping centres. (3) Based upon stores operated for the full financial year. (4) Restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’.
presents a potential opportunity to reach new customers currently not served, and gain further leverage from its marketing expenditure and the US division’s central overhead.
Regional chains Signet also operates US mall stores under a variety of established regional trade names (see Description of property, page 23). The leading brands include JB Robinson Jewelers, Marks & Morgan Jewelers and Belden Jewelers. At 29 January 2005 321 regional stores operated in 31 states (31 January 2004: 307 stores).
In recent years, new regional chain stores have been opened if real estate satisfying the investment criteria becomes available in their respective trading areas or in adjacent areas where marketing support can be cost effective. Areas in which the scale to support cost-effective marketing can be built over a reasonable time span are now also considered for store openings. This is part of a strategy to potentially develop a second mall-based brand of sufficient size to take advantage of national television advertising. This strategy may also include the acquisition of small or large regional chains of speciality jewellery stores that meet the Group’s strict operational and financial criteria.
Jared Jared is the leading off-mall destination speciality retail jewellery chain in its sector of the market. Its main competitors are independent operators, with the next largest chain having about 25 stores. If Jared was a stand-alone operation it would be the sixth largest US speciality jewellery retail brand by sales.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 11 Back to Contents
US operating review (continued)
The following map shows the number and locations of Kay, Regional and Jared stores at 29 January 2005.
Jared targets an under-served sector at the upper end of the middle market. The customer profile is of a more mature, A private viewing room is available for customers when higher income customer than that of Signet’s US mall stores. required. There are also complimentary refreshments and a An important advantage of a destination store is that the children’s play area. potential customer visits the store with the intention of making a jewellery purchase, whereas in a mall there is a greater There were 93 Jared stores at 29 January 2005 (31 January possibility of the intended spend being diverted to non- 2004: 79 stores). The average retail price of merchandise sold jewellery purchases. The typical Jared store has about 4,700 in Jared stores during 2004/05 was $644 (2003/04: $586), square feet of selling space and 5,900 square feet of total which was more than double that of a Signet US mall store. space. Its size permits significantly expanded product ranges and enhanced customer services, including in-store repair and In the first five years of trading a Jared store is projected to custom design facilities. have a faster rate of like for like sales growth than that of a mall store
12 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
during the same period. At the end of this period the projected operating margin is expected to have risen to around that of Sophisticated inventory management systems for the mall store at maturity, with a greater return on capital merchandise testing, assortment planning, allocation and employed. Excluding the three prototype stores the average replenishment have been developed and implemented. sales of the 25 Jared stores that have reached maturity is $5.6 Approximately two-thirds of the merchandise is common to all million in their fifth full year. At 29 January 2005 some 70% of US division mall stores, with the remainder allocated to reflect the Jared stores had been open for less than five years. The demand in particular markets. It is believed that the average sales per Jared store opened for the whole of the merchandising and inventory management systems, as well 2004/05 financial year were $4,975,000 (2003/04: $4,573,000) as improvements in the productivity of the centralised and reflects the immaturity of Jared. distribution centre, have allowed the division to achieve inventory turns comparable to those of most of its quoted Since the first Jared store opened in 1993, the concept has competitors although it has a less mature store base and been continually evaluated, developed and refined. undertakes more direct sourcing of merchandise. Management believes that in addition to the competitive advantages possessed by the division as a whole, Jared also Programmes have been developed in conjunction with certain benefits from leveraging the division’s established vendors for the provision of branded jewellery merchandise. infrastructure, access to a pool of experienced store For example, the Leo Diamond range is sold exclusively by management, and availability of capital required to develop Signet in the US and the UK. Management believes that the and grow the brand. US division’s merchandising process, market share and relationship with suppliers position the business as an ideal Management believes that the Jared concept has partner to launch branding initiatives. considerable growth potential and over 100 suitable markets have been identified, with many of these markets able to Other merchandising initiatives offer a distinctive product support multiple locations. Accordingly, in the longer term, the selection. For example, a major continuing initiative is being chain has the potential to expand nationwide to over 225 undertaken to increase the number of Jared stores that stock stores, generating annual sales of over $1 billion based on the premium watch brands, including Rolex, Tag Heuer and current performance of existing Jared stores. Some Jared Omega. Cartier will be introduced in 2005/06. Another stores are being opened to test new real estate selection example is the promotion of “right-hand rings”, diamond criteria that may increase the potential number of sites fashion rings intended to be worn on the right-hand rather suitable for a Jared store. These include opening Jared stores than as bridal jewellery, which is traditionally worn on the left- nearer to each other in established markets with above- hand ring finger. De Beers marketed this product in its average population density (such as Atlanta, Georgia); nationwide print and television advertising throughout entering smaller markets where national television advertising 2004/05. would make marketing support cost -effective (such as Tulsa, Oklahoma); and locating stores attached to the exterior of In 2004/05 the bridal category accounted for over 40% of covered malls (such as Des Moines, Iowa). merchandise sold and continued its steady growth of the past five years. Merchandising and purchasing It is believed that selection, availability and value for money of The table below sets out Signet’s US merchandise sales mix merchandise are all factors that are critical to success. In the as a percentage of sales: US business the range of merchandise offered and the high level of stock availability are supported centrally by extensive and continuous research and testing. Best-selling products Merchandise mix are identified and their rapid replenishment ensured through Merchandise mix Percentage of sales analysis of sales by stock keeping unit. This approach enables 2004/05 2003/04 2002/03 the division to deliver a focused assortment of merchandise to % % % maximise sales, minimise the need for discounting and accelerate inventory turn. The US division is able to offer superior value and consistency of merchandise due to its Diamonds and diamond jewellery 70 70 69 industry leading direct sourcing capability. Gold jewellery 7 8 8 Gemstone jewellery 10 10 10 Watches 7 6 6 Repairs 6 6 7
Signet Group plc Annual Report & Accounts year ended 29 January 2005 13 Back to Contents
US operating review (continued)
It is believed that the US division has a competitive cost and quality advantage as approximately 55% of its diamond percentage of sales was 6.6% (2003/04: 6.5%) reflecting the merchandise sold is sourced through contract manufacturing; increasing proportion of sales from Jared which has a higher Signet purchases loose polished diamonds on the world percentage of sales spent on marketing than the mall stores. market and outsources the casting, assembly and finishing This ratio was little changed in the mall and Jared stores. operations to third parties. By using this approach the cost of merchandise is reduced and this cost advantage is largely Advertising activities are concentrated on periods when used to provide superior quality to the consumer which helps customers are expected to be most receptive to the marketing to increase market share. Contract manufacturing is generally message. During the 2004 Christmas trading period the utilised on basic items with proven non-volatile historical sales number of Kay television impressions increased by 11%. The patterns that represent lower risk of over or under purchasing. proportion of television advertising expenditure to sales This purchasing strategy also allows the buyers to gain a continues to grow, and the cost of network television detailed understanding of the manufacturing cost structure advertising is leveraged as the number of stores increases. and improves the prospects of negotiating better pricing for The romance and appreciation based theme of its advertising the supply of finished products. programme continues to utilise the tag line “Every kiss begins with Kay ”, which has improved name recognition of the chain. Merchandise is purchased complete as a finished product In addition advertising in USA Today was again utilised. where the manufacturer ’s price is more competitive than using National radio advertising was used for the first time in direct sourcing, or the complexity of the product is great or the 2004/05. merchandise is considered likely to have a less predictable sales pattern. This strategy provides the opportunity to Seasonal promotion campaigns for the regional chains use reserve stock held by vendors and to make supplier returns or local radio advertising as the primary medium to support and exchanges, thereby reducing the risk of over or under enhance name recognition. Direct mail and telephone purchasing. marketing are also used to encourage repeat purchases by current customers. The regional brands’ marketing support is Merchandise held on consignment is used to enhance product a similar proportion of sales as for Kay. selection and test new designs. This minimises exposure to changes in fashion trends and obsolescence and provides the Jared advertising on local radio takes place for most of the flexibility to return non-performing merchandise. At 29 January year and is complemented by advertising on regional 2005 the US division held approximately $158 million (31 television in nearly all markets. Management believes that January 2004: $144 million) of merchandise on consignment when the Jared chain reaches the critical mass to justify (see note 12 on page 83). national television advertising, which is considered to be the most efficient and cost-effective form of marketing, brand In 2004/05 the five largest suppliers collectively accounted for name recognition will be enhanced nationwide, thus providing approximately 25% (2003/04: 26%) of the total US division’s increased marketing leverage and improved access to prime purchases, with the largest supplier accounting for store real estate sites in large, high cost advertising markets. approximately 12% (2003/04: 10%). This is expected to occur in 2006/07. Jared has a higher advertising to sales ratio than the division’s mall stores Marketing and advertising because it is a destination store and is still at an early stage of Store brand name recognition by consumers is believed to be development. The objective in Jared advertising is to build an important factor in jewellery retailing, as the products name recognition and visit intent through an emphasis on themselves are predominantly unbranded. Signet continues to selection and service. strengthen and promote its US brands and build store brand name recognition through an integrated marketing campaign. In 2004/05 the US division produced 12 mall store catalogues The marketing channels used include television, radio, print, that featured a wide selection of merchandise and were catalogues, direct mail, telephone marketing, customer prominently displayed in stores and are also mailed directly to relationship marketing, point of sale signage, in-store displays targeted customers. Statistical and technology based systems and the internet. Gross advertising and marketing expenditure are employed to support a direct marketing programme that was increased by 13.0% to $135.5 million in 2004/05 uses a proprietary database of over 22 million names to (2003/04: $119.9 million), primarily to support total mall sales strengthen the relationship with customers. The programme growth and the continued expansion of the Jared concept. targets current customers with special savings and Gross expenditure as a merchandise offers during the
14 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents key trading periods. In addition, invitations to special promotional in-store events are extended throughout the year. end of the range over the last eight years. In-house credit Special catalogues featuring ranges such as luxury watches sales represented 50.1% of total US sales in 2004/05 are produced for Jared. (2003/04: 49.3%). A number of programmes offer interest-free financing, subject to certain conditions. In most states There are informational web sites for Kay, JB Robinson and customers are offered optional third party credit insurance. Jared that display a selection of merchandise assortments, provide store locations, and allow for on-line customer Authorisation and collections are all performed centrally at the registration and credit application. The division continues to US headquarters on an automated basis, rather than by store research and monitor the development and execution of e- staff. The majority of credit applications can be processed and commerce as a channel for distribution in conjunction with the approved in less than two minutes; they can be made via in- marketing and advertising programmes. When it is anticipated store terminals, through a toll-free phone number or on-line that there is sufficient customer demand to financially justify through the marketing web sites. All applications are the necessary investment, an e-commerce facility will be evaluated by the scoring of credit data and data obtained added to each web site. through third party credit bureaux. In 2004/05 collection information systems were enhanced, and collection Credit operations productivity was improved through work flow automation. Management regards the provision of an in-house credit During the year the ability to test alternative authorisation programme as a competitive advantage for a number of strategies was expanded and new applicant scorecards were reasons. It allows management to establish and implement updated. In addition to the in-house credit card, the US stores customer service standards appropriate for the business, and accept major credit cards. Third-party credit card sales are also provides a database of regular customers and their treated as cash sales and accounted for approximately 36% of spending patterns. Investment in systems and management of total US sales during the year. credit offerings appropriate for the business can also be facilitated in a more cost-efficient manner than if managed by Investment in staff, training and systems to maintain or a third party provider. Furthermore it is believed that the improve the quality of the credit portfolio continued throughout various credit programmes help to establish long-term 2004/05. A new customised, collection system using the latest relationships with customers and complement the marketing available technology began to be implemented in 2004/05, strategy by encouraging additional purchases and higher unit replacing a system that was initially installed when credit sales. operations were centralised. It is planned that the new system will be fully implemented during 2005/06. The table below presents data related to the in-house credit business for the past three financial years. Since credit The new system will provide management with increased authorisation and collection systems were centralised in 1994 flexibility to implement and/or modify collection strategies, and the credit offer and performance have been relatively a more user-friendly platform. Collection strategies and efforts consistent over the economic cycle. The average outstanding continued to include increased emphasis on risk-based calling balance at the year end was $792 (2003/04: $729). and first call resolution. In authorisations, new applicant scorecards were updated to provide improved separation in The credit portfolio turns approximately every seven months evaluating high and low-risk applicants. and the monthly collection rate in 2004/05 was 14.8%. The bad debt charge for the year, at 5.7% of credit sales, was near the bottom
2004/05 2003/04 2002/03
Credit sales ($m) 1,035.8 924.3 859.6 Credit sales as % of total sales 50.1% 49.3% 49.5% Number of active credit accounts at year end 838,916 807,272 798,761 Average outstanding account balance ($) 792 729 688 Average monthly collection rates 14.8% 14.8% 14.5% Bad debt as % of total sales 2.9 % 2.8% 3.0% (1) Bad debt as % of credit sales 5.7% 5.7 % 6.0% (1)
(1) Before a $2.2 million benefit from the better than anticipated performance of the residue of the acquired Marks & Morgan receivables portfolio.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 15 Back to Contents
US operating review (continued)
Management tools and communications The US division’s highly integrated and comprehensive information systems provide detailed, timely information to monitor and evaluate virtually every aspect of the business and are designed to decrease the time sales staff spend on administrative tasks and increase time spent on sales activities. They also support merchandise testing, loss prevention and inventory control.
All stores are supported by the internally developed Store Information System, which includes electronic point of sale (“EPOS”) processing, in-house credit authorisation and support, a district manager information system and a satellite- based communications system that supports data transmissions and company-wide e-mail. The EPOS system updates sales, in-house credit and perpetual inventory replenishment systems from data captured throughout the day for each store.
In order to allow staff more time for selling and customer service, further steps in the “World Class Store Systems” initiatives were taken. These have resulted in improvements in special orders and repair services procedures.
Regulation While there are many regulations within which Signet US operates, the speciality jewellery sector is generally a lightly regulated business. Signet US is required to comply with numerous US federal and state laws and regulations covering areas such as consumer protection, consumer privacy, consumer credit, consumer credit insurance, truth in advertising and employment legislation. Management endeavours to monitor changes in these laws to ensure that its practices comply with applicable requirements.
16 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
UK operating review Overview Signet is the largest speciality retailer • Real estate of fine jewellery in the UK, with 602 Strict criteria are followed when stores and a total market share of evaluating real estate investment, and approximately 17%. It trades as management believes that the quality H.Samuel (17.6% of Group sales), of its store portfolio is superior to that targeting the middle market, and of many of its competitors. The Ernest Jones (13.8% of Group sales), strength of the Group’s balance sheet positioned at the upper end of the and the division’s trading record middle market. Total sales during makes it an attractive tenant. The well 2004/05 were £514.4 million (2003/04: tested revised store format, which is £501.0 million). more suited to selling diamonds, enables the division to take better At 29 January 2005 there were 398 advantage of one of the fastest H.Samuel stores and 204 Ernest growing major categories within the Jones stores (including 16 Leslie UK jewellery market. Davis stores). Approximately 48% of these are located in prime “High • Merchandising Streets” (main shopping streets with Management believes that the high pedestrian traffic) and 52% are in division’s leading position in the UK covered or enclosed shopping malls. jewellery sector is a commercial High Street stores accounted for 40% advantage when sourcing of total UK division sales and shopping merchandise and enables delivery of mall stores for 60%. H.Samuel is the better value to the customer. An largest chain of speciality retail example of this is its capacity to jewellers in the UK and its stores are contract with jewellery manufacturers located in virtually every medium and to assemble products, utilising directly large retail centre. Ernest Jones, the sourced gold and loose polished second largest speciality retail diamonds. In addition the division has jewellery chain, is represented in most the scale to utilise sophisticated large retail centres. merchandising systems to test, track, forecast and respond to consumer The UK strategy is to increase the preferences. average transaction value by focusing on fast growing product categories, • Marketing particularly diamond jewellery, thereby The UK division has strong and well improving store productivity and established brands and leverages achieving operational leverage. To them with advertising (both print and achieve this the division has a series television), catalogues and the of initiatives in the key areas of retail development of customer relationship execution that are designed to grow marketing techniques. Few of its the sales of diamonds. competitors have sufficient scale to utilise these marketing methods Competitive advantages successfully. Signet has a range of advantages in store operations and personnel, real • Access to US expertise estate, merchandising, marketing and The UK business also benefits from its access to US expertise compared to close relationship with Signet’s US competitors within the UK speciality operations. Synergies are gained by jewellery retail market. The principal sharing knowledge in merchandising, competitive advantages are marketing, operations, systems and summarised below and explained in best practice procedures. None of the greater detail on pages 18 to 21. UK division’s competitors has similar access to a leading operator in the • Store operations and personnel world ’s largest jewellery market. The division’s scale enables it to develop and invest in training Initiatives in 2004/05 procedures tailored to its own Specific initiatives taken to strengthen requirements. This is particularly the division’s competitive position important, as the sale of diamond included: jewellery requires increased standards Store operations and personnel of product knowledge and customer • enhanced recruitment processes service from sales associates. The division also enjoys economies of scale in recruitment and store administration.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 17 Back to Contents
UK operating review (continued)
• increased by over 10% the proportion of store managers and assistant store managers with externally accredited (169 stores); Beaverbrooks (57 stores); and MW Group jewellers qualifications (33 stores). • tested new sales commission system Based on surveys, management believes that customers are Real estate attracted to H.Samuel because they have confidence in the • rolled-out revised store design to an additional 90 stores brand and its staff is perceived to be friendly, helpful and • opened three retail park locations knowledgeable. Ernest Jones is perceived to offer high quality merchandise and premium service from a professional and Merchandising knowledgeable staff. • increased the size, quality and range of settings of diamond jewellery Store operations and personnel • further widened the Leo Diamond range in Ernest Jones Management regards customer service as an essential • expanded the Forever Diamond range from 120 stores to all element in the success of its business. During 2003/04 the H.Samuel stores “Signet Jewellery Academy,” a multi-year training programme and framework for measuring standards of capability, was Marketing introduced for all store staff. As part of this programme just • expanded the television advertising for H.Samuel and over two-thirds of all store managers and assistant store Ernest Jones managers have now passed the National Association of • introduced customer relationship marketing by Ernest Jones Goldsmiths accredited Jewellery Education & Training Level 1 • continued the development of catalogue design and qualification. Upon completion of each of the five levels of the distribution Academy, the staff member normally takes on increasing responsibilities. Training programmes have contributed to the Marketplace improvement in the quality, performance and retention of UK Although reliable figures on the size of the UK jewellery staff. market are difficult to obtain, management estimates that in calendar year 2004 the size of the total UK market for fine The new recruitment procedures continue to improve the jewellery, costume jewellery and watches was approximately suitability of new store personnel helping to ensure that they £3.6 billion ($6.7 billion) (including VAT of 17.5%). The market meet key basic requirements and are motivated to work within includes speciality retail jewellers and non-speciality jewellery the jewellery store environment. Field and human resources retailers such as mail order catalogues, catalogue showrooms management are responsible for the recruitment, performance and jewellery departments in department stores. In the UK the review, training and development of sales staff, thereby value of diamond sales are estimated by De Beers to have ensuring consistency in operating standards and procedures increased by a compound annual rate of 7.1% over the last 5 throughout the business. All new store personnel must years (2004 growth is a management estimate). complete a “selling skills” learning programme during their probationary period and thereafter undertake additional The UK retail jewellery market is very fragmented and training in selling, product knowledge and customer care. competitive, with a substantial number of independent speciality jewellery retailers. Management believes there are All store personnel have daily performance targets. They are approximately 7,000 speciality retail jewellery stores in the given training and weekly feedback on their performance from UK. store and field management to help them achieve these targets. In the middle market H.Samuel competes with a large number of independent jewellers, the only competitor of significant In conjunction with the Signet Jewellery Academy, training for size being F Hinds (108 stores). Competition at the lower end all tiers of store operations management was developed of the H.Samuel product range also comes from catalogue further last year to support the initiative to improve customer showroom outlets such as Argos and discount jewellery service. In 2004/05 the number of training courses completed retailers such as Warren James (119 stores). nearly doubled. The preferred policy is to promote store managers from within the business; approximately 70% of In the upper middle market Ernest Jones’ competition is from store management appointed in 2004/05 were promoted from independent speciality retailers and a limited number of other within the organisation. At any given time each chain has a upper middle market jewellery groups such as Goldsmiths number of sales staff who are qualified to advance to store Group management level, thus assuring the availability of newly trained managers familiar with operating standards and procedures.
18 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents In order to increase staff selling time and to improve efficiency, operating procedures are routinely reviewed to total to 142, accounting for about 30% of the UK division’s identify opportunities to enhance customer service and reduce sales. A multi-year rollout plan for the new format is being in-store administrative tasks. The Signet intranet, introduced implemented as part of the normal refurbishment cycle; it is in all stores in 2003, provides a computer-based platform for planned to refurbish or relocate 80 to 90 stores in 2005/06, the improved communication between stores and head office, with majority again being H.Samuel. sales floor and back office administrative functions being simplified and standardised through this medium. The new format features open frontages which are intended to make the store more accessible and inviting to the customer, Various incentive schemes are operated to motivate and as well as improved presentation of the merchandise. The reward performance in the stores including bonuses based on design draws on the Group’s mall store experience in the US, key performance targets. In 2004/05 a commission-based and for mall locations include display cases on the frontage remuneration test was carried out designed to increase the with the concourse, rather than the traditional window proportion of performance-related payments over time. The presentation. The High Street stores have wide floor-to-ceiling level of commission paid is dependent on the sales achieved windows that provide views directly into the store. by the individual and the overall sales of the store. During 2005/06 this commission system will be introduced more Much of the merchandise is presented in low level display widely across the division. units that also serve as service counters and allow the sales associate to present an assortment of merchandise to the Management also believes that successful recruitment, customer without having to break away to select additional training and retention of head office staff is essential. merchandise from the window displays, as in the traditionally Comprehensive recruitment, training and incentive designed store. programmes for head office staff are in place in the Colindale and Birmingham offices. Programmes to provide employees Details of recent investment in the store portfolio are set out with structured development plans, training and career paths below: have been implemented. Internal career advancement is encouraged and is supported by a succession planning process. Teamwork and service to the stores are encouraged Number of stores 2004/05 2003/04 2002/03 through a performance bonus plan for head office staff, which is based on the division’s results. Store refurbishments and relocations 81 32 42 New H.Samuel stores 2 – 4 Opportunities for improving employment practices were New Ernest Jones stores 7 5 8 identified through a “Staff Opinion Survey”. It is believed that Store fixed capital investment £ 23m £ 13m £ 14m the results provide a basis for further improvement in the motivation and retention of staff.
Real estate H.Samuel In 2001/02 a revised store design better suited to the sale of H.Samuel, accounting for 17.6% of Group sales in 2004/05 diamonds and fine jewellery was developed as part of the (2003/04: 17.8%), offers a range of jewellery, gold, watches programme to increase sales and store productivity by and gifts (see page 20, Merchandise mix). At 29 January 2005 focusing on the fast growing diamond category. The design average selling space was 1,113 square feet per store. allows greater interaction between sales associates and customers and better presentation of merchandise. The H.Samuel store data design was tested during 2002/03 and 2003/04 and a roll-out 2004/05 2003/04 2002/03 programme commenced in 2004/05. Number of stores: The performance of the new format has continued to be Opened during year 2 – 4 encouraging. The increase in sales from the additional investment meets the well established Group investment Closed during year (11 ) (11 ) (8 ) criteria. The reformatted stores achieved a rise in both Open at end of year 398 407 418 diamond sales and average retail price. An additional 90 Percentage increase in like for like 1.9% 3.5 % 2.6 % stores, primarily H.Samuel, were trading in the new format at sales 29 January 2005, bringing the Average retail price of items sold (1) £ 37 £ 35 £ 33 Average sales per store in thousands (exc. VAT) (2) £ 723 £ 707 £ 677
(1) Excluding accessories, repairs and warranties. (2) Including only stores operated for the full financial year.
The average retail price of items sold has increased at a compound annual growth rate of 7.3% over the last five years. This upward trend is expected to continue as the sales mix of diamonds is anticipated to rise and that of gifts to decline as a percentage of sales. Average sales per store have increased at a compound annual growth rate of 4.7% over the same period.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 19 Back to Contents
UK operating review (continued)
Ernest Jones (including Leslie Davis) Ernest Jones sales accounted for 13.8% of Group sales in Signet UK diamond sales was 13.9% over the period, nearly 2004/05 (2003/04: 13.0%). Where local market size and the double that of the UK diamond market. availability of suitable watch agencies permit, the Ernest Jones chain follows a two-site strategy, using the trade names Merchandise mix Ernest Jones and Leslie Davis. Percentage of sales 2004/05 2003/04 2002/03 The principal product categories are diamonds, branded watches and gold jewellery, which are all merchandised and marketed to appeal to the more affluent upper middle market Gold and silver jewellery customer (see Merchandise mix table). Ernest Jones retails H.Samuel 37 37 36 an extensive range of diamond and gold jewellery as well as Ernest Jones 27 26 26 prestige watches such as Cartier, Omega, Rado, Raymond
Weil, Rolex, and Tag Heuer. It also sells contemporary fashion watches such as Calvin Klein, DKNY, Emporio Signet UK 32 33 32 Armani, Gucci, Hugo Boss and a range of traditional watches including Rotary, Seiko and Tissot. Watches H.Samuel 23 23 24 At 29 January 2005 the chain had average selling space of Ernest Jones 29 31 32 852 square feet per store. The average retail price of items sold has increased at a compound annual growth rate of 5.3% Signet UK 26 26 27 over the last five years. Over the same period average sales per store increased at an annual compound growth rate of 10.4% and were the most productive mall stores in the Group. Diamond jewellery Management considers that there is potential to increase the H.Samuel 20 19 18 number of Ernest Jones stores to approximately 225 as Ernest Jones 38 36 35 suitable sites and watch agencies become available.
Signet UK 28 26 25 (1) Ernest Jones store data 2004/05 2003/04 2002/03 Gifts H.Samuel 13 14 14 Number of stores: Ernest Jones 2 3 3 Opened during year 7 5 8 Closed during year – – – Signet UK 8 9 10 Open at end of year 204 197 192 Percentage increase in like for like 4.5% 8.4% 9.4% Repairs and accessories sales H.Samuel 7 7 8 Average retail price of items sold (2) £141 £139 £130 Ernest Jones 4 4 4 Average sales per store in
thousands (exc. VAT) (3) £1,150 £1,101 £1,030 Signet UK 6 6 6
(1) Including Leslie Davis stores. (2) Excluding accessories, repairs and warranties. (3) Including only stores operated for the full financial year. Merchandise is purchased from a range of suppliers and manufacturers. In 2004/05 the five largest of these all watch Merchandising and purchasing suppliers together accounted for approximately 21% of total The division retails an extensive range of merchandise UK division purchases, with the largest accounting for including gold and silver jewellery, watches, diamond and approximately 6%. Only a small percentage of merchandise is gemstone set jewellery and gifts. As with other UK speciality purchased on consignment (see note 12 on page 83). retail jewellers, most gold jewellery sold is 9 carat. However, sales of 18 carat gold jewellery, particularly white gold, have Economies of scale continued to be achieved by combining been increasing. the volume of purchases for H.Samuel and Ernest Jones. Some 23% of the UK business’ gold jewellery is manufactured The merchandise mix of the UK division is given below. In on a contract basis in Italy through a buying office in Vicenza, 2004/05 diamond jewellery sales accounted for 28% of total Italy, thereby eliminating the costs associated with Signet UK sales versus 20% five years ago. In line with the intermediaries. strategy of the UK division to increase the percentage of diamonds in the merchandise sales mix, the compound annual growth rate of Signet UK also employs contract manufacturers for approximately 31% of the diamond merchandise sold, thereby achieving cost savings. Both H.Samuel and Ernest Jones employ experienced buyers who concentrate on product development, sourcing and supplier management appropriate to their particular needs. Overseas direct sourcing capability in most product areas has been increased. Such purchases have grown by 175% in value since 1999/00, and now account for 30% of the merchandise mix.
Merchandising teams work in conjunction with the buyers and focus on assortment planning, branch grading, repeat orders, inventory levels and margin management. Product category reviews are regularly carried out with a focus on increasing potential gross margin return on investment. Rigorous test marketing procedures are used to trial products, and their
20 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
subsequent distribution is made strictly against rates of sale. The merchandise ranges have been rationalised, with greater up to Valentine’s Day and Christmas. During 2004/05 focus on key items, and a wider choice in the most popular customer relationship marketing was successfully trialled for categories is offered whilst peripheral merchandising is Ernest Jones and will be developed further in 2005/06. reduced. During 2004/05 the content and interactivity of the UK The size and quality of diamond jewellery available to marketing web sites (www.hsamuel.co.uk, customers was enhanced during the year, with a greater www.ernestjones.co.uk and www.lesliedavis.co.uk) continued proportion of precious white metals. Branded diamonds to be developed. The sites have again seen a substantial exclusive to Signet have been developed in recent years, an increase in visitor traffic. The division continues to monitor the example of which is the Leo Diamond available in all Ernest development and execution of e-commerce as a distribution Jones stores with an increased range offered in 2004/05. The channel and to investigate the economic feasibility of Forever Diamonds range is now sold in all H.Samuel stores; it introducing an e-commerce capability to the division’s web was available in 50 stores in 2002/03 and 120 in 2003/04. sites. There is an increasing use of e-commerce by Both the Leo Diamond and the Forever Diamond have unique consumers in the UK. When it is anticipated that there is cuts that provide greater sparkle and brilliance than an sufficient customer demand to financially justify the necessary ordinarily cut diamond of similar size, colour and clarity. The investment, an e-commerce facility will be added to each web Leo Diamond utilises a higher quality diamond and therefore site as appropriate. retails at a higher price than the Forever Diamond. Insurance loss replacement business Each store is assigned a range of merchandise that reflects Management believes that Signet is the leading UK jewellery local buying patterns. Display equipment and layouts are retailer in the insurance loss replacement business, which constantly reviewed and updated, and new display formats involves the settlement of insurance claims by product that draw upon the US division’s experience have been replacement through jewellery stores rather than by cash implemented. settlements from the insurance company. This allows the division to benefit from the resulting higher customer traffic in Marketing and advertising the stores and the opportunity to create and build relationships Gross expenditure on marketing and advertising amounted to with new customers. Given its nationwide store portfolio, 3.0% of sales in 2004/05 (2003/04: 2.5% and 2002/03: 2.2%), breadth of product range and ability to invest in systems to reflecting the increased trialling of television advertising. support the business, the division is well positioned to benefit Marketing campaigns have been tailored to reinforce and from insurance companies settling claims in this manner. develop further the distinct brand identities of H.Samuel as a middle market jewellery chain and Ernest Jones as a more Credit operations upmarket diamond and watch specialist. Both campaigns aim Whilst the division does not have an in-house credit operation, to expand the overall customer base and improve customer it does accept major credit cards. Credit card sales are treated loyalty. as cash transactions and accounted for approximately 31% of sales during 2004/05 (2003/04: 31%). During the period The primary marketing and advertising medium employed in approximately 3% (2003/04: 3%) of sales in the UK were 2004/05 consisted of a series of catalogues for each brand, made pursuant to interest-free programmes available for distributed as inserts in newspapers and magazines and purchases above a particular price. The receivables for the available in all stores. The quality of catalogues was improved interest-free programmes are sold at a discount on a limited and their distribution was better targeted. recourse basis and administered by an unaffiliated company.
The trial of television advertising was further expanded for Management tools and communications both chains during Christmas 2004. It was the second year of EPOS equipment, retail management systems, purchase a large-scale test and took place in regions representing about order management systems and merchandise planning 65% of the H.Samuel store base and 60% of the Ernest Jones processes are in place to support financial management, store base. It is planned to continue the development of inventory planning and control, purchasing, merchandising, television advertising in 2005/06. replenishment and distribution and can ensure replacement within 24 hours of any merchandise sold. These systems have been upgraded to enable the implementation of “chip and pin” Public relations initiatives resulted in greater coverage by technology to reduce credit national and consumer lifestyle media titles. Targeted marketing was increased to publicise special promotional events in the run-
Signet Group plc Annual Report & Accounts year ended 29 January 2005 21 Back to Contents
UK operating review (continued)
and debit card fraud. The first phase of an electronic “Business To Business” communications project, developed to improve the efficiency and effectiveness of dealing with suppliers, was implemented.
A perpetual inventory process allows store managers to check stock by product category. These systems are designed to assist control of shrinkage, fraud prevention, financial analysis of retail operations, merchandising and inventory control.
New systems have been introduced to enhance control over cash banking to support financial management. Major computer hardware upgrades have taken place to improve resilience and capacity, particularly during the peak Christmas season.
The administration centre at Colindale in North London is the head office for UK store operations and houses the division’s senior management, financial planning, marketing, and buying and merchandising functions. The facilities for payroll, human resources, information technology, certain finance functions, distribution and customer services, as well as the insurance replacement business and call centre, are located in Birmingham.
During 2004/05 various central administrative functions were relocated from Colindale and consolidated in Birmingham to enhance efficiency and should result in future cost savings.
Regulation While there are many regulations within which the UK division operates it is generally a lightly regulated business. Various laws and regulations affect Signet’s UK operations. These cover areas such as consumer protection, consumer credit, data protection, health and safety, waste disposal, employment legislation and planning and development standards. Management monitors changes in these laws with a view to ensuring that its practices comply with legal requirements.
22 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Description of property & Group employees
Signet attributes great importance to the location and appearance of its stores. Accordingly, in both Signet’s US and that it enters into in order to improve the flexibility of its lease UK operations, investment decisions on selecting sites and commitments. Rents are usually subject to upward review refurbishing stores are made centrally, and strict real estate every five years if market conditions so warrant. An increasing criteria are applied. proportion of rents are related to sales of the store, subject to a minimum annual value. At the end of the lease period, The Group has sufficient distribution capacity to meet its subject to certain limited exceptions, leaseholders generally current requirements and plans to increase capacity in have statutory rights to enter into a new lease of the premises 2005/06 to support future sales growth. on negotiated terms. At 29 January 2005 the average unexpired lease term of Signet’s leased premises in the UK was 12 years. As current leases expire, Signet believes that it US will be able to renew leases, if desired, for present store Substantially all of Signet’s US stores are leased. In addition locations or to obtain leases in equivalent or improved to a minimum annual rental, a significant number of stores will locations in the same general areas. Signet has not also pay turnover related rent based on sales above a experienced difficulty in securing leases for suitable locations specified base level. Under the terms of the typical lease, the for its UK stores. It is not believed that any of the store leases US business is required to conform and maintain its usage to are individually material to the Group’s UK operations. agreed standards, including meeting required advertising expenditure as a percentage of sales, and is responsible for its proportionate share of expenses associated with common Signet owns a 255,000 square foot warehouse and area maintenance, utilities and taxes of the mall. The initial distribution centre in Birmingham. Following the relocation and term of a mall store lease is generally ten years. At 29 consolidation of certain of the UK division’s central January 2005 the average unexpired lease term of US leased administration functions to Birmingham to enhance efficiency, premises was six years and some 47.6% of leases had terms a contract to sell the 120,000 square foot administration expiring within five years. The Jared stores are normally on 20 centre at Colindale in North London has been entered into and year leases with options to extend the lease and their rents is expected to be completed in August 2005. are not turnover related. Trademarks and trade names The US division leases 17% of its store locations from Simon Signet is not dependent on any material patents or licenses in Property Group and 15% from General Growth Management, either the US or the UK; however, it does have several well Inc. Otherwise, the division has no relationship with any lessor established trademarks and trade names which are significant relating to 10% or more of its store locations. in maintaining its reputation and competitive position in the jewellery retailing industry in both the US and the UK. These registered trademarks and trade names include the following During the past five financial years the US business has been in Signet’s US operations: Kay Jewelers; Jared The Galleria generally successful in renewing its store leases as they Of Jewelry; JB Robinson Jewelers; Marks & Morgan Jewelers; expire and has not experienced difficulty in securing suitable Belden Jewelers; Weisfield Jewelers; Osterman Jewelers; locations for its stores. It is not believed that any of the store Shaw’s Jewelers; Rogers Jewelers; LeRoy’s Jewelers; leases are individually material to the Group’s US operations. Goodman Jewelers; Friedlander’s Jewelers; Every kiss begins with Kay; and Perfect Partner. Trademarks and trade names A 340,000 square foot head office facility is leased in Akron, include the following in Signet’s UK operations: H.Samuel; Ohio. In addition a 19,000 square foot repair centre is being Ernest Jones; Leslie Davis; and Forever Diamonds. established in Akron. This facility is leased and is expected to open in 2005/06. The relocation of the US division central Group employees repair facility from the head office premises will enable the In 2004/05 the average number of full-time equivalent persons further expansion of the distribution capacity during 2005/06. employed (including directors) was 15,145 (UK: 4,477; US: 10,668). The Company usually employs a limited number of UK temporary employees during each Christmas season. At 29 January 2005 Signet UK held seven freehold premises, five premises where the lease had a remaining term in excess None of Signet’s employees in the UK and less than 1% of of 25 years and 590 other leasehold premises. As is typically Signet’s employees in the US are covered by collective the case in retailing in the UK, the division’s stores are leased bargaining agreements. Signet considers its relationship with for terms of up to 25 years, generally under full repairing and its employees to be excellent. insuring leases (equivalent to triple net leases in the US). Wherever possible Signet is shortening the length of new leases
Signet Group plc Annual Report & Accounts year ended 29 January 2005 23 Back to Contents Financial review for the 52 weeks ended 29 January 2005
2004/05 2003/04 (1) 2002/03 (1) £m % £m % £m %
Sales US 1,100.0 68.1 1,103.9 68.8 1,120.0 70.3 UK 514.4 31.9 501.0 31.2 473.6 29.7
Total 1,614.4 100.0 1,604.9 100.0 1,593.6 100.0
Operating profit: US 147.3 70.0 139.3 69.7 141.2 76.0 UK 78.2 37.2 76.6 38.3 64.7 34.8 Group central costs (6.6 ) (3.1 ) (5.7 ) (2.9 ) (6.0 ) (3.2 )
218.9 104.1 210.2 105.1 199.9 107.6 Net interest payable (8.6 ) (4.1 ) (10.4 ) (5.1 ) (14.0 ) (7.6 )
Profit before tax 210.3 100.0 199.8 100.0 185.9 100.0
(1) Restated for the implementation in 2004/05 of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’.
Introduction The key drivers of operating profitability are the: on the proportion of the merchandise cost accounted for by the value of the diamonds, and the greater the proportion, the • rate of sales growth, lower the gross margin. In addition, the gross margin in a Jared store is slightly below that of a mall store, although at maturity the store contribution percentage of a Jared store is • balance between like for like sales growth and sales from similar to that of a mall store. A change in merchandise mix new store space, will therefore impact the Group ’s UK and US division’s gross • achieved gross margin, margin and a change in the proportion of sales from Jared will impact the gross margin of both the US division and Group. • level of cost increases experienced by the Group, To maintain the operating profit margin the Group needs to • level of net bad debt charge relating to the in-house credit achieve like for like sales growth sufficient to offset any card in the US, and adverse movement in gross margin, the increase in operating • movements in the US dollar to pound sterling exchange costs and the impact of immature selling space. There are not rate, since the majority of the Group’s profits are generated any known trends or uncertainties in future rent or in the US and the Group reports in pounds sterling. amortisation expenses that could materially affect operating results or cash flows. Like for like sales growth above the level The gross margin percentage in retail jewellery is above the required to offset the factors outlined above, allows the Group average for speciality retailers reflecting the slow inventory to achieve leverage of its fixed cost base and improve turn. The trend in gross margin depends on Signet’s pricing operating margin; slower sales growth results in reduced policy and movements in the cost of merchandise sold and the operating margin. direct cost of providing services such as repairs. The cost of goods sold that is used to arrive at gross profit takes into Signet’s longer term strategy of 7% – 9% new store space account all costs incurred in the purchase, processing and growth in the US, with minimal net new space in the UK, distribution of the merchandise and all costs directly incurred means lower like for like sales growth is required in the UK in the operation and support of the retail outlets. The than in the US to maintain operating margin. classification of distribution and selling costs under UK GAAP varies from company to company and therefore the gross The impact on operating profits of sales variances (either profit percentage may not be comparable from one company adverse or favourable) is less in the US division than the UK, to another. as certain expense items are more related to sales volumes in the US. In general, gross margin on gold jewellery is above the Group’s average, while that of diamond jewellery is broadly in A key factor in driving operating margin is the level of average line with the Group’s average. The gross margin on watches sales per store, with higher productivity allowing leverage of and gift products is normally below that of diamond jewellery. expenses both in store and in central functions. Within the diamond jewellery category the gross margin varies depending
24 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Movements in the US dollar to pound sterling exchange rate impact the reported results of the Group as the US division’s to 2004/05 with an excellent performance during the results are translated into pounds sterling. The Board believes Valentine ’s Day period. Although the retail environment it is inappropriate to hedge this exposure as the US division’s became less predictable as the year progressed the business sales and costs are dollar denominated and the cash flow had a strong fourth quarter with like for like sales up by 4.7%. from the US division is largely reinvested in the US space The contribution from new store space and the impact of expansion or used to pay down US dollar denominated exchange rate movements is shown in the table above. borrowings. The Group therefore would be putting in place a cash exposure to hedge a translation risk. UK In the UK the rate of growth in retail sales slowed as the year 52 weeks ended 29 January 2005 progressed. This was reflected by the performance of the UK Total Group sales rose to £1,614.4 million (2003/04: £1,604.9 division with like for like sales growth slowing from 6.7% in the million restated), up by 0.6% on a reported basis and 7.8% at first quarter to 1.4% in the fourth quarter. For the year as a constant exchange rates. Group like for like sales were up by whole like for like sales increased by 3.0% and total sales by 5.0% and new space contributed 2.7% (see table below). 2.7%.
Group operating margin increased to 13.6% (2003/04: 13.1% Operating profit restated), with leverage from like for like sales growth more than offsetting the impact of immature space growth with Operating margin movement gross margin little changed. The growth in total sales and the US % UK % Group % increased operating margin resulted in Group operating profit advancing to £218.9 million (2003/04: £210.2 million restated), up by 4.1% on a reported basis and 11.3% at constant 2003/04 margin 12.6(1) 15.3 13.1(1) exchange rates. Gross margin – 0.6 0.2 Expenses 1.2 (0.4 ) 0.7 Net interest payable and similar charges decreased to £8.6 New store space (0.4 ) – (0.3 ) million (2003/04: £10.4 million). The reduction was principally Restructuring charge – (0.3 ) (0.1 ) due to exchange translation and an increase in net interest credit on the UK defined benefits pension scheme. 2004/05 margin 13.4 15.2 13.6
Group profit before tax increased to £210.3 million (2003/04: (1) Restated for the implementation in 2004/05 of the amendment to FRS 5, £199.8 million restated), up by 5.3% on a reported basis and ‘Application Note G – Revenue Recognition’. 12.1% at constant exchange rates. After a tax charge of 32.9% (2003/04: 35.1% restated) profit for the financial period rose by 9.0% to £141.2 million (2003/04: £129.6 million US restated), an increase of 16.0% at constant exchange rates. It The operating margin in the US division increased to 13.4% is anticipated that the tax charge for 2005/06 will be (2003/04: 12.6% restated), with the leverage from like for like approximately 34.0%. Earnings per share was 8.2p (2003/04: sales growth more than offsetting the impact of immature 7.5p restated), up by 9.3% on a reported basis and 15.5% at store space (see table above). The ratio of net bad debt to constant exchange rates. sales was little changed at 2.9%. Operating profit was £147.3 million (2003/04: £139.3 million restated), up by 5.7% on a Sales reported basis and 17.1% at constant exchange rates.
2004/05 sales growth UK The division’s gross margin benefited from lower sterling US % UK % Group % commodity costs. The operating margin at 15.2% was little changed after absorbing a restructuring expense of £1.7 Like for like 5.9 3.0 5.0 million and higher advertising, depreciation and training costs. New store space 4.4 (0.3 ) 2.7 These increases reflect the execution of the UK growth Exchange translation (10.7 ) – (7.2 ) strategy and may be repeated in future years. Operating profit grew by 2.1% to £78.2 million (2003/04: £76.6 million).
Total sales growth (0.4 ) 2.7 0.5 Group costs Group central costs amounted to £6.6 million (2003/04: £5.7 million), the increase primarily reflecting costs associated with US new corporate governance practices and a net property Like for like sales for the US division increased by 5.9% and provision of £0.4 million (2003/04: £nil). In 2005/06 a further total US dollar sales by 10.3%. The US division had a very increase in Group costs is anticipated. strong start
Signet Group plc Annual Report & Accounts year ended 29 January 2005 25
Back to Contents
Financial review (continued)
Prior year adjustment The accounting policy in respect of extended service share for 2004/05, which, subject to shareholder approval, is agreements in the US was changed following an amendment to be paid on 8 July 2005 to those shareholders on the to FRS 5 ‘Reporting the Substance of Transactions’ in the register of members at close of business on 10 June 2005. form of ‘Application Note G – Revenue Recognition’. The Future distribution policy will continue to take account of Group now spreads the revenue arising, net of incremental earnings, cash flow, gearing and the needs of the business. costs arising, from the initial sale, in proportion to anticipated claims arising. Previously the Group recognised the revenue Liquidity and capital resources from such plans at the date of sale with provision being made It is the objective of the Group to be broadly cash flow neutral for the estimated cost of future claims arising. annually, subject to timing differences and dividend payments, after implementing its 7% – 9% new store space growth As a result of this change the Group has restated prior years. strategy in the US together with the continuing programme of Therefore the previously reported 2003/04 results now reflect store refurbishments and relocations on both sides of the a decrease in sales of £12.3 million and a reduction in profit Atlantic. Factors which could affect this objective would be if a before tax of £12.1 million. The difference of £0.2 million business was acquired or the Group’s distribution policy to represents the movement in the incremental cost provision shareholders changed. applied under the previous accounting policy. Consequently, restated profit before tax for the 52 weeks ended 31 January The cash flow performance of the Group depends on a 2004 is £199.8 million. The effect on brought forward reserves number of factors such as the: at 31 January 2004 is a reduction of £52.7 million net of deferred tax, with shareholders’ funds at 31 January 2004 • operating performance of the business, therefore restated to £674.9 million. The adjustment does not • rate of space expansion, which influences both fixed and affect cash flows from operations. working capital investment, • level of store refurbishment and relocations, Return on capital employed • level of inventory investment, and The Group’s ROCE was 26.5% (2003/04: 25.9% restated). In • proportion of sales made on the in-house credit card and the the US the ROCE was 22.4% (2003/04: 21.3% restated) average monthly collection rate of the credit balances. reflecting the impact of an increased proportion of immature space largely from new Jared stores partially offsetting the Investment in new space requires significant investment in improved operating profit. In the UK there was a slight working capital, as well as fixed capital investment, due to the decrease to 44.7% (2003/04: 47.1%) reflecting the roll-out of slow inventory turn, and the additional investment required to the revised store format and increased investment in diamond fund sales in the US utilising the in-house credit card. jewellery inventory. US capital employed included in -house credit card debtors of £319.0 million at 29 January 2005 (2003/04: £292.6 million at 31 January 2004). In years when the rate of new store space expansion in the US is towards the lower end of the planned 7% – 9% range, or the level of store refurbishment and relocation is below Depreciation and capital expenditure normal, the Group will have reduced levels of investment in Depreciation charges were £41.3 million (2003/04: £39.3 fixed and working capital. In 2004/05 a faster rate of new store million): £23.9 million (2003/04: £23.6 million) in the US and space growth in the US and an increased level of £17.4 million (2003/04: £15.7 million) in the UK. Capital refurbishment in the UK, together with increased dividend expenditure in the US was £41.7 million (2003/04: £33.1 payments and the purchase of shares to satisfy the exercise million) and in the UK was £28.8 million (2003/04: £17.8 of share options, meant that cash flow was broadly neutral. million). The additional capital expenditure in the US is primarily due to the increase in the rate of new store space growth. The increase in the depreciation charge and capital The Group’s working capital requirements fluctuate during the expenditure in the UK reflected the roll-out of the revised store year as a result of the seasonal nature of its business. As format. inventory is purchased for the Christmas season there is a working capital outflow which reaches its highest levels in the late autumn. This position then reverses over the key selling Dividends period of November and December. The working capital In November 2004 an interim dividend of 0.375p per share needs of the business are then relatively stable from January was paid (2003/04: 0.341p). The Board is recommending to to August. The timing of the payment of the final dividend, shareholders a final dividend of 2.625p (2003/04: 2.160p) per normally in July, is also material.
26 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
The Board considers that the capital resources currently available are sufficient for both its present and near term In April 2004 the Group terminated its $70 million Conduit requirements. The primary borrowing facilities are a $251 securitisation facility as it was no longer required. million securitisation against the US customer receivables which amortises between December 2005 and October 2006 On 28 September 2004 Signet entered into a $390 million and a $390 million unsecured multi-currency revolving credit unsecured multi-currency five year revolving credit facility facility which expires in September 2009. Further details of agreement (the “Facility Agreement”). This replaced the $410 these and other facilities are given below. million facility that was due to expire in August 2006. The terms of the new facility are broadly similar to those of the In 2004/05 cash generated from operating activities amounted facility being replaced, but with a reduction in loan margin to £172.6 million (2003/04: £203.8 million), reflecting the pricing. Under the Facility Agreement, a syndicate of banks funding of working capital investment. It is anticipated that in made facilities available to the Group in the form of multi- 2005/06 there will be a further increase in working capital due currency cash advances and sterling acceptance credits on, to planned store openings. Net financing costs of £9.8 million inter alia, the following terms: (2003/04: £11.0 million) and tax of £56.5 million (2003/04: £69.0 million) were paid. Cash flow before investing activities • the Facility Agreement bears a maximum margin of 0.55% was £106.3 million (2003/04: £123.8 million). above LIBOR, though the margin may be lower dependent upon the performance of the Group. Since the Group capital expenditure was £70.5 million (2003/04: £50.9 commencement of the facility the margin has been 0.40% million, £47.7 million at constant exchange rates). The level of above LIBOR; and capital expenditure was some 1.7 times the depreciation • the Facility Agreement is guaranteed by the Group’s charge. Capital expenditure in 2005/06 is expected to be principal holding and operating subsidiaries. between £80 million and £90 million, most of which will be store related. Equity dividends of £43.8 million (2003/04: The continued availability of the Facility Agreement is £36.7 million) were paid. conditional upon the Group achieving certain financial performance criteria (see note 16 on page 84). It also has Net debt certain provisions which are customary for this type of Net debt at 29 January 2005 was £83.5 million (31 January agreement, including standard “negative pledge” and “pari 2004: £79.9 million, £73.9 million at constant exchange rates). passu” clauses. At 29 January 2005 and 6 April 2005 the Group gearing (net debt to shareholders’ funds) at the year amount outstanding under the Facility Agreement was $nil. end was 11.3% (31 January 2004: 11.8% restated). Under UK GAAP, bank loans and overdrafts at 29 January 2005 include In July 1998 the Group entered into a $60 million unsecured a $251.0 million borrowing secured against the Group’s US seven year senior note issue (“Loan Note”), bearing a 7.25% customer receivables (31 January 2004: $251.0 million). fixed coupon. The Loan Note is also guaranteed by the Excluding this $251.0 million facility net cash was £49.3 Group’s principal holding and operating subsidiaries. The million (31 January 2004: net cash £58.0 million). continued availability of the Loan Note is conditional upon the Group achieving certain financial performance criteria (see The Company funds part of its private label credit card note 16 on page 84). The Loan Note also has certain receivables programme through a privately placed receivables provisions which are customary to this type of agreement, securitisation. Under this securitisation, interests in the US including standard “negative pledge” and “pari passu” clauses. receivables portfolio, held by a trust were sold principally to At 29 January 2005 and 6 April 2005 the amount outstanding institutional investors in the form of fixed-rate Class A, Class B under the Loan Note was $15 million (31 January 2004: $30 and Class C investor certificates. The aggregate outstanding million). It is anticipated that the outstanding balance of the principal amount of the certificates totalled $251.0 million at 29 Loan Note will be repaid in July 2005. January 2005 and 6 April 2005. The certificates have a weighted average interest rate of 5.42% and interest is paid The principal financial covenants on each of these facilities monthly in arrears from the finance charges collections are set out in note 16 on page 84. generated by the receivables portfolio. The revolving period of the securitisation ends in December 2005, with a final It is the policy of the Group to enter into interest rate expected principal payment date in November 2006. protection agreements in respect of at least 75% of its forecast US dollar borrowings. At 29 January 2005 the interest rate of forecast US dollar borrowings for 2005/06 was capped effectively at 5.5%.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 27 Back to Contents
Financial review (continued)
Pensions An actuarial valuation of the UK defined benefit pension additional properties were sub-let at that date. Should the scheme the (“Group Scheme”) was carried out at 5 April 2003. assignees or sub-tenants fail to fulfil any obligations in respect The market value of the Group Scheme’s assets at that date of those leases or any other leases which have at any other was £82.2 million, a deficit of £6.7 million on the Group time been assigned or sub-let, the Group or one of its UK Scheme’s accrued liabilities. As a result of the valuation the subsidiaries may be liable for those defaults. The number of Group has recommenced contributions to the Group Scheme such claims arising to date has been small, and the liability, which in 2004/05 amounted to £3.7 million (2003/04: £1.2 which is charged to the profit and loss account as it arises, million). It is anticipated that the Group’s contribution in has not been material. 2005/06 will be some £3.8 million. The Group adopted FRS 17 – ‘Retirement Benefits’ in 2003/04 and the FRS 17 valuation Contractual obligations at 29 January 2005 showed a deficit in the Group Scheme of Long term debt comprises borrowings with an original maturity £1.9 million (gross of deferred tax). of greater than one year. Purchase obligations comprise contracts entered into for the forward purchase of gold and US Contingent property liabilities dollars with an original maturity of greater than one year. Approximately 145 UK property leases had been assigned by These contracts are taken out to manage market risks. It is the Group up to 29 January 2005 (and remained unexpired expected that operating commitments will be funded from and occupied by assignees at that date) and approximately 35 future operating cash flows and no additional facilities will be required to meet these obligations.
As at 29 January 2005 Less than Between one Between three More than one year and three years and five years five years Total £m £m £m £m £m
Long term debt obligations 7.9 132.8 – – 140.7 Operating lease obligations 127.9 239.0 213.9 565.0 1,145.8 Purchase obligations 9.8 – – – 9.8 Fixed interest and commitment fee payments 7.8 6.1 0.2 – 14.1 Creditors falling due after one year – – – 12.3 12.3
Total 153.4 377.9 214.1 577.3 1,322.7
(1) As at 29 January 2005 the Group has no outstanding floating rate indebtedness. (2) The Group expects to make pension contributions of some £3.8m to the Group Scheme in 2005/06. This has been excluded from the table as have obligations for subsequent years, as the level of future pensionable salaries and the future funding rate are yet to be determined.
28 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Impact of constant exchange rates The Group has historically used constant exchange rates to analysing and explaining changes and trends in the Group’s compare period to period changes in certain financial data. results. The impact of the recalculation of sales, operating This is referred to as “at constant exchange rates” throughout profit, profit before tax, profit for the financial period, earnings these accounts. The Group considers this to be a useful per share and net debt at constant exchange rates, including measure for a reconciliation to the Group’s GAAP results, is analysed below.
Growth 2003/04 at Growth at at actual Impact of constant constant exchange exchange exchange 2003/04 exchange rate rates rates 2004/05 as restated (1) rates movement (non-GAAP) (non-GAAP) £m £m % £m £m %
Sales by origin and destination: UK 514.4 501.0 2.7 – 501.0 2.7 US 1,100.0 1,103.9 (0.4 ) (106.8 ) 997.1 10.3
1,614.4 1,604.9 0.6 (106.8 ) 1,498.1 7.8
Operating profit: UK – Trading 78.2 76.6 2.1 – 76.6 2.1 – Group central costs (6.6 ) (5.7 ) n/a – (5.7 ) n/a
71.6 70.9 1.0 – 70.9 1.0 US 147.3 139.3 5.7 (13.5 ) 125.8 17.1
218.9 210.2 4.1 (13.5 ) 196.7 11.3
Profit before tax 210.3 199.8 5.3 (12.2 ) 187.6 12.1
Profit for the financial period 141.2 129.6 9.0 (7.8 ) 121.8 16.0
Earnings per share 8.2p 7.5p 9.3 (0.4p ) 7.1 p 15.5
Impact of At constant exchange exchange 29 January 31 January rate rates 2005 2004 movement (non-GAAP) £m £m £m £m
Net debt (83.5 ) (79.9 ) 6.0 (73.9 )
(1) Restated for the implementation in 2004/05 of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17).
Signet Group plc Annual Report & Accounts year ended 29 January 2005 29 Back to Contents
Financial review (continued) Prior year review of the 52 weeks ended 31 January 2004 The results for 2003/04 and 2002/03 have been restated for like sales rose by 6.7%. For the year as a whole like for like the amendment to FRS 5 in the form of ‘Application Note G – sales increased by 5.5% and total sales by 5.8%. Revenue Recognition‘ (see note 17). Total Group sales rose to £1,604.9 million (2002/03: £1,593.6 million), up 0.7% on a Operating profit reported basis and 7.5% at constant exchange rates. Group like for like sales were up 4.9% and new space contributed US 2.6%. The operating margin in the US division was unchanged at 12.6% (2002/03: 12.6%), with the leverage from like for like Group operating margin increased to 13.1% (2002/03: 12.5%), sales growth offsetting the impact of slightly lower gross with leverage from like for like sales growth more than margins and immature store space. The ratio of net bad debt offsetting the impact of immature space growth with gross to sales decreased to 2.8% (2002/03: 3.0%). Operating profit margin little changed. The growth in total sales and the was £139.3 million (2002/03: £141.2 million), down 1.3% on a increased operating margin resulted in Group operating profit reported basis but up 8.3% at constant exchange rates advancing to £210.2 million (2002/03: £199.9 million), up 5.2% reflecting the movement in sales. on a reported basis and 12.2% at constant exchange rates. UK Net interest payable decreased to £10.4 million (2002/03: An increase in gross margin and leverage from improved store £14.0 million). £1.5 million of the reduction was due to productivity meant that the UK operating margin increased to exchange translation, the balance attributable to lower levels 15.3% (2002/03: 13.7%). Operating profit grew by 18.4% to of net debt which more than offset the decrease in net interest £76.6 million (2002/03: £64.7 million). credit on the UK defined benefit pension scheme. Operating margin movement Group profit before tax increased to £199.8 million (2002/03: US % UK % Group % £185.9 million), up 7.5% on a reported basis and 14.3% at constant exchange rates. After a tax charge of 35.1% (2002/03: 35.3%) profit for the financial period rose to £129.6 2002/03 margin 12.6 13.7 (1) 12.5(1) million (2002/03: £120.2 million). Earnings per share was 7.5p Gross margin (0.7 ) 1.0 (0.1 ) (2002/03: 7.0p), up 7.1% on a reported basis and 13.6% at Expenses 1.0 0.6 0.9 constant exchange rates. New space (0.3 ) – (0.2 ) 2003/04 sales growth 2003/04 margin 12.6 15.3 13.1 US % UK % Group %
(1) Restated for the implementation of FRS 17 – ‘Retirement Benefits’. Like for like 4.6 5.5 4.9 New space 3.6 0.3 2.6 Exchange translation (9.6 ) – (6.8 ) Group costs Group costs amounted to £5.7 million (2002/03: £6.0 million Total sales growth (1.4 ) 5.8 0.7 which included a property provision of £0.5 million).
Prior year adjustment Sales The Group adopted FRS 17 – ‘Retirement Benefits’ in 2003/04. Under the market-based approach of FRS 17 there US was a £6.7 million Group Scheme deficit at 1 February 2003 in Like for like sales for the US division increased by 4.6% and comparison to a balance sheet asset of £19.1 million under total US dollar sales by 8.2%. Trading in the first half was SSAP 24. Consequently a non-cash charge of £18.1 million, adversely affected by the geo-political situation, however the net of deferred tax, was accounted for by way of a prior year second half saw a marked improvement in the retail adjustment charged directly to reserves to reflect this change, environment culminating in a particularly strong fourth quarter representing 2.7% of shareholders’ funds at 1 February 2003. when like for like sales rose by 7.2%. The contribution from new space and the impact of exchange rate movements is Return on capital employed shown in the table above. The Group’s ROCE increased to 25.9% (2002/03: 25.0%). In the US the ROCE was 21.3% (2002/03: 21.9%) reflecting the UK impact of an increased proportion of immature space largely As in the US, trading in the first half of the year in the UK was from new Jared stores. In the UK there was an increase to also affected by geo-political factors, but the second half saw 47.1% (2002/03: 41.2%) due to improved store productivity. improved trading with a strong Christmas season when like for US capital employed included in-house credit card debtors of £292.6 million at 31 January 2004 (2002/03: £299.2 million at 1 February 2003).
30 Signet Group plc Annual Report & Accounts year ended 29 January 2005
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Depreciation and capital expenditure Depreciation charges were £39.3 million (2002/03: £36.6 Impact of constant exchange rates million): £23.6 million (2002/03: £24.1 million) in the US and The Group has historically used constant exchange rates to £15.7 million (2002/03: £12.5 million) in the UK. Capital compare period to period changes in certain financial data. expenditure in the US was £33.1 million (2002/03: £33.1 This is referred to as “at constant exchange rates” throughout million) and in the UK was £17.8 million (2002/03: £16.4 these accounts. The Group considers this a useful measure million). for analysing and explaining changes and trends in the Group’s results. The impact of the recalculation of sales, Dividends operating profit, profit before tax and net income at constant In November 2003 an interim dividend of 0.341p per share exchange rates, including a reconciliation to the Group’s was paid (2002/03: 0.310p). Additionally, a final dividend of GAAP results, is analysed below. 2.160p (2002/03: 1.800p) per share for 2003/04 was paid on 2 July 2004 to those shareholders on the register of members at close of business on 4 June 2004.
Growth 2002/03 at Growth at at actual Impact of constant constant exchange exchange exchange exchange 2003/04 2002/03 rate rates rates as restated (1) as restated (1) rates movement (non-GAAP ) (non-GAAP ) £m £m % £m £m %
Sales by origin and destination: UK 501.0 473.6 5.8 – 473.6 5.8 US 1,103.9 1,120.0 (1.4 ) (100.0 ) 1,020.0 8.2
1,604.9 1,593.6 0.7 (100.0 ) 1,493.6 7.5
Operating profit: UK – Trading 76.6 64.7 18.4 – 64.7 18.4 – Group central costs (5.7 ) (6.0 ) n/a – (6.0 ) n/a
70.9 58.7 20.8 – 58.7 20.8 US 139.3 141.2 (1.3 ) (12.6 ) 128.6 8.3
210.2 199.9 5.2 (12.6 ) 187.3 12.2
Profit before tax 199.8 185.9 7.5 (11.1 ) 174.8 14.3
Earnings per share 7.5p 7.0p 7.1 (0.4p ) 6.6p 13.6
Impact of At constant exchange exchange 1 February 31 January rate rates
2004 2003 movement (non-GAAP) £m £m £m £m
Net debt (79.9 ) (140.1 ) 17.5 (122.6 )
(1) Restated for the implementation in 2004/05 of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17).
Critical accounting policies Critical accounting policies covering areas of greater Revenue recognition complexity or those particularly subject to the exercise of Following the adoption in 2004/05 of the amendment to FRS judgement are listed below. There are no material off -balance 5, ’Reporting the substance of transactions’ in the form of sheet structures under UK GAAP. The principal accounting ‘Application Note G – Revenue Recognition’, revenue from the policies are set out in note 1 on pages 72 to 75. sale of extended service agreements in the US is now deferred and recognised, net of incremental costs arising from the initial
Signet Group plc Annual Report & Accounts year ended 29 January 2005 31
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Financial review (continued)
sale in proportion to anticipated claims arising. This period is based on the historical claims experience of the US business, In the UK, there are circumstances where scheduled which has been consistent since these products were refurbishments are carried out close to the end of the lease launched. The Group reviews the pattern of claims at the end term, such that the expected life of the newly installed of each year to determine any significant trends that may leasehold improvements will exceed the lease term. Where require changes to revenue recognition rates. The treatment the renewal of the lease is reasonably assured, such of US extended service agreements is now the same under shopfronts, fixtures and fittings are depreciated over a period UK and US GAAP. equal to the lesser of their economic useful life, or the remaining lease term plus the period of reasonably assured Stock valuation renewal. Reasonable assurance is gained through evaluation Stock is valued on a first-in, first-out basis and includes of the right to enter into a new lease, the peformance of the appropriate overheads. Overheads allocated to inventory cost store and potential availability of alternative sites. are only those directly related to bringing inventory to its present location and condition. These include relevant Where appropriate, provision is made on assets that have a warehousing, distribution and certain buying, security and lower economic value than net book value. Additionally, data processing costs. potentially impaired assets are identified by reviewing the cash contribution of individual stores where trading since the Where necessary provision is made for obsolete, slow-moving initial opening of the store has reached a mature stage. Where and damaged stock. This provision represents the difference such stores deliver a low or a negative cash contribution, the between the cost of the stock and its estimated market value, related store assets are considered for impairment by based upon stock turn rates, market conditions and trends in reference to the higher of net realisable value and value in consumer demand. For further detail on the provisions for use. The Group’s policy is only to reverse through the profit inventory and the amount of reserves recorded each year, and loss account impairment losses arising because of refer to note 12 on page 83 in the notes to the accounts. changes in economic conditions or a change in the expected use of the asset. To date these have been immaterial. In the US stock losses are recognised at the mid-year and fiscal year end based on complete physical inventories. In the Lease costs and incentives UK stock losses are recorded as identified on a perpetual Operating lease costs are charged to the profit and loss inventory system and an estimate is made of losses for the account as incurred. Predetermined rent increases are period from the last stock count date to the end of the financial recognised when they fall due, reflecting that these are year on a store by store basis. These estimates are based on generally intended to compensate for the expected cost of the overall divisional stock loss experience since the last stock inflation. Amounts payable in respect of turnover leases are count. charged in the period to which the turnover relates. Premiums paid to acquire short leasehold properties are amortised over their lease period and incentives received relating to leased Foreign currency translation properties are amortised over the period to the next rent The results of overseas subsidiary undertakings are translated review. into pounds sterling at the weighted average rates of exchange, based on US sales, during the period and their balance sheets and attributable goodwill at the rates at the In accordance with FRS 12, where the Group has onerous balance sheet date. Exchange differences arising from the lease obligations, provision is made for the discounted cash translation of the net assets and attributable goodwill of outflow that is expected to arise under the lease. Account is overseas subsidiary undertakings are charged or credited to taken of any sublet income received or reasonably expected, reserves. Other exchange differences arising from foreign incentives to be received or paid and the time to lease expiry currency transactions are included in profit before taxation. or reversal of the net cash outflow, whichever is the later.
Depreciation and impairment The Group policy is to recognise a provision for onerous Depreciation is provided on freehold and long leasehold leases when the leased property ceases to be used by the premises over a useful life not exceeding 50 years. Freehold Group. land is not depreciated. Depreciation is provided on other 1 fixed assets at rates between 10% and 33 / 3 %. Shopfit Receivables depreciation rates have been set based on the refit cycle for Full provision is made for debts that are 90 days past their due each store fascia and the useful lives of each individual date on a recency basis. A provision is also made based on element of the shopfit. Tills and other IT equipment have the historic performance of the receivables portfolio. The bad separately determined depreciation rates. debt experience of the US division has been relatively stable over the past five years at between 2.8% and 3.4% of sales.
32 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
UK retirement benefits The surplus or deficit on the Group Scheme that is charged to The most significant elements contributing to the change in shareholders’ funds through the Statement of Recognised financial information are: Gains and Losses is subject to a number of assumptions and uncertainties. A qualified actuary is engaged to calculate the • the inclusion of a charge for share-based payments, expected liabilities of the Group Scheme based on assumptions regarding salary and pension increases, inflation • the cessation of goodwill amortisation, rates, discount rates and the long term rate of return expected on the Group Scheme’s assets. Details of these assumptions are given in note 20 on page 88. The value of the assets of • the timing of dividend recognition, the Group Scheme is measured as at the balance sheet date, this being particularly dependent on the value of equity • the disclosures relating to taxation, investments held by the Group Scheme at that date. However the impact on the Group balance sheet is significantly • the treatment of leases, and mitigated as the members of the Group Scheme are only in the UK and account for less than 12% of UK employees. The • revenue recognition. Group Scheme closed to new members in 2004/05.
Advertising and promotional costs These changes have no impact on the Group’s historical or Advertising costs are expensed as incurred. In accordance future net cash flow, the timing of cash received or the timing with the guidance issued in the US under EITF 02 -16, where of payments. vendor contributions are received in respect of identifiable promotional events, these are matched against the costs of these promotions. Vendor contributions that are received as Transitional arrangements general contributions and not against specific promotional The rules for the first time adoption of IFRS are set out in events are allocated against stock. IFRS 1 “First-time Adoption of International Financial Reporting Standards”. In general a company is required to determine its IFRS accounting policies and apply these International Financial Reporting Standards retrospectively to determine its opening balance sheet under Signet currently prepares its primary financial statements IFRS. A number of exceptions from retrospective application under UK GAAP. For financial years commencing on or after 1 are allowed to assist companies in their transition to reporting January 2005 the Group is required to report in accordance under IFRS. Where Signet has taken advantage of the with International Accounting Standards ( “IAS”) and IFRS as exemptions they are noted below. adopted by the European Union. Therefore Signet will in future prepare its results under IFRS, commencing with the 13 weeks to 30 April 2005. That announcement will contain Changes in accounting policies comparative information for the year ended 29 January 2005 IFRS 2 Share-based payments prepared under IFRS, which may continue to be revised and In accordance with IFRS 2, Signet has recognised a charge to be subject to new interpretations. Based on current income in respect of the fair value of outstanding employee expectations of the standards that the Group will need to share options. The fair value has been calculated using the adopt, an overview of the principal changes from UK GAAP to binomial options valuation model and is charged to income IFRS to the accounts for the year ended 29 January 2005 is over the relevant option vesting period. The optional set out below. transitional arrangements, which allow companies to apply IFRS 2 fully retrospectively to all options granted but not fully vested at the relevant reporting date, have been used. The Overview of impact in 2004/05 operating profit impact in 2004/05 is a charge of £3.9 million. UK IFRS GAAP £m £m IFRS 3 Business combinations IFRS 3 requires goodwill to be carried at cost with impairment Sales 1,614.4 1,606.1 reviews both annually and when there are indications that the Operating profit 218.9 212.5 carrying value may not be recoverable. Under the transitional arrangements Signet will apply IFRS 3 prospectively from the Profit on ordinary activities before tax 210.3 203.9 transition date. As a result, all prior business combination Profit for the financial period 141.2 134.8 accounting is frozen at the transition date of 31 January 2004, Earnings per share 8.2p 7.8p and the value of goodwill is frozen, subject to exchange rate Net assets 739.1 769.2 movements, at £16.8 million with amortisation previously reported under UK GAAP for 2004/05 of £1.0 million not charged for the IFRS presentation.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 33 Back to Contents
Financial review (continued)
IAS 10 Proposed dividend Under IAS 10 a dividend is not provided for until it is IAS 18 Revenue recognition approved. As a result net assets are increased by the amount IAS 18 requires that revenue is only recognised when all of the final proposed dividend of £45.5 million. significant risks of ownership have been transferred to the buyer. There is no impact on profit before tax for 2004/05 IAS 12 Income tax although net assets are reduced by £6.0 million before The application of IAS 12 results in the separate disclosure of deferred tax. deferred tax assets and liabilities on the Group’s balance sheet. Opening balance sheet adjustments will be made to There are a number of other presentational changes that do reclassify these assets and liabilities. not have an impact on the profit or net assets of the Group. Insurance income and voucher promotions in the US and only IAS 17 leasing the commission element of warranty sales in the UK, will be IAS 17 requires that where operating leases include clauses in recognised in sales. Interest receivable from the US in-house respect of predetermined rent increases, those rents are credit programme will be classified as other operating income. charged to the profit and loss account on a straight line basis over the lease term, including any construction period or other IAS 32 and IAS 39 Financial instruments rental holiday. Such lease clauses are commonly found in the The Group has taken the exemption not to restate US and will result in an acceleration of lease charges for comparatives for IAS 32 ‘Financial Instruments: Disclosure accounting purposes from the later to the earlier years of the and Presentation’ and IAS 39 ‘Financial Instruments: lease term. In addition, Standard Interpretations Committee Recognition and Measurement’. As a result, the comparative (“SIC”) 15 requires inducements to enter into a lease to be information in the 2005/06 accounts will be presented on the recognised over the lease term rather than over the period to existing UK GAAP basis. IAS 32 and IAS 39 will apply from the next rent review as under UK GAAP. the start of the financial year ending 28 January 2006. The Group intends to apply the hedge accounting provisions of These result in an additional charge to the profit and loss IAS 39 as they relate to forward currency and commodity account of £3.5 million and a decrease in net assets of £17.9 contracts to the extent practically and economically million before deferred tax. There is no impact on cash flows. appropriate in order to minimise future volatility arising from its implementation.
Reconciliation of UK GAAP sales and profit before tax
to IFRS sales and profit before tax for the 52 weeks ended 29 January 2005 Profit before Reconciliation of UK GAAP net assets to IFRS net
Sales tax assets £m £m at 29 January 2005
As reported in accordance with UK Net 1,614.4 210.3 GAAP assets £m
Principal accounting adjustments: As reported in accordance with UK GAAP 739.1 Share-based payments – (3.9 )
Goodwill amortisation – 1.0 Principal adjustments: Leases – (3.5 ) Share-based payments –
Goodwill amortisation 1.0 Principal presentational adjustments: Leases (17.9 ) US insurance income 10.4 – Revenue recognition (6.0 ) Voucher promotions (12.0 ) – Deferred taxation 7.5 UK warranty sales (6.7 ) – Dividend recognition 45.5
Proposed reporting in accordance with 1,606.1 203.9 IFRS
Proposed reporting in accordance with IFRS 769.2
34 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Risk and other factors
Forward-looking statements All statements, other than statements of historical fact • regulatory requirements; included in this document, are or may be deemed to be • acquisitions; forward-looking statements within the meaning of the United • pensions actuarial assumptions and investment returns; States Private Securities Litigation Reform Act of 1995. These • the cost and availability of borrowings and equity capital; statements, based upon management’s beliefs as well as on and assumptions made by and data currently available to • financial market risks, including fluctuations in exchange management, appear in a number of places throughout this rates between the pound sterling and the US dollar which document and include statements regarding, among other may affect reported revenues, costs, the value of the things, our results of operation, financial condition, liquidity, Group’s consolidated borrowings, and the cost of capital. prospects, growth, strategies and the industry in which the Group operates. The use of the words “expects,” “intends,” Actual results may differ materially from those anticipated in “anticipates,” “estimates,” “may,” “forecast,” “objective,” “plan” such forward-looking statements even if experience or future or “target,” and other similar expressions are intended to changes make it clear that any projected results expressed or identify forward-looking statements. These forward-looking implied therein may not be realised. The Group undertakes no statements are not guarantees of future performance and are obligation to update or revise any forward-looking statements subject to a number of risks and uncertainties. Important to reflect subsequent events or circumstances. factors that could cause actual results to differ materially from those discussed in such forward-looking statements include: Impact of general economic conditions Jewellery purchases are discretionary and may be particularly • adverse trends in the general economy which may impact affected by adverse trends in the general economy. negatively on discretionary consumer spending, including unemployment levels, the level of consumers’ disposable The success of the Group’s operations depends to a income, consumer confidence, business conditions, interest significant extent upon a number of factors relating to rates, consumer debt levels, availability of credit and levels discretionary consumer spending. These include economic of taxation; conditions and perceptions of such conditions by consumers, • the Group’s ability to anticipate consumer preferences and employment, the rate of change in employment, the level of the merchandising, pricing and inventory policies it follows; consumers’ disposable income, business conditions, interest • the reputation of the Group and its trading names, together rates, consumer debt levels, availability of credit and levels of with the success of the Group ’s marketing and promotional taxation for the economy as a whole and in regional and local programmes; markets where the Group operates. There can be no • the ability to recruit, train and retain staff; assurance that consumer spending on jewellery will not be • the extent and results of the Group’s net store expansion adversely affected by changes in general economic and refurbishment strategy together with the availability of conditions. However, due to the limited seasonality in the suitable real estate; product mix, the risk of having to discount inventory in order to • the level of competition in the selling of jewellery and the be correctly stocked for the next selling season is more limited development of new distribution channels in competition than for some other retail sectors. While the level of consumer with the Group; expenditure may vary, the occasions when jewellery is • the level of dependence on particular suppliers of purchased – engagements, weddings and events such as merchandise; Christmas, wedding anniversaries, birthdays, Valentine’s Day • fluctuations in the supply, price and availability of diamonds, and Mothers’ Day – occur on a regular basis. gold and other precious and semi-precious metals and stones as well as the consumer attitude to those and other products; As a substantial proportion of the Group’s US sales are made • the seasonality of the Group’s business, the risk of on credit, any significant deterioration in general economic disruption during the Christmas trading period, and the conditions or consumer debt levels may inhibit consumers’ availability of inventory during the three months leading up use of credit and cause a material adverse effect on the to the Christmas season; Group’s revenues and profitability. Furthermore, any downturn • social, ethical and environmental risks; in general or local economic conditions in the markets in • the suitability and reliability of the Group’s systems and which the Group operates may adversely affect its collection procedures, including its information technology, of outstanding credit accounts receivable and hence the net warehousing and distribution systems; bad debt charge. Currently there are all-time high levels of consumer debt in the US, however, the level of net bad debt charge as a percentage of credit sales in the Group’s US division in 2004/05 was towards the bottom end of the range.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 35 Back to Contents
Risk and other factors (continued)
Merchandise selection, pricing, inventory and purchasing Staff In speciality jewellery retailing, the level and quality of The Group depends on consumer fashions, preferences for customer service is largely determined by the effectiveness of jewellery in general and the demand for particular products. recruitment, training and retention of suitably qualified sales Design trends in jewellery normally only change over relatively staff and this will help determine sales and profitability. The long periods and there is little seasonality in the merchandise support provided to the Group’s store employees by staff at mix. The ability to predict accurately future changes in taste, the divisional head offices and in the corporate functions will respond to changes in consumer preferences, carry the also influence the performance of the Group. Consequently inventory demanded by customers, deliver the appropriate the Group has in place comprehensive recruitment, training quality, price products correctly and implement effective and incentive programmes, and employee attitude surveys purchasing procedures, all have an important influence on (see pages 9 and 18 for more details). determining sales performance and achieved gross margin (see pages 13 and 20 for more details of the Group’s Store portfolio merchandising and purchasing procedures). The future growth of sales is partly dependent on the extent and results of the Group’s net space expansion and The Group’s operating experience suggests that while the refurbishment strategy. The Group has followed a steady price of jewellery is a consideration for consumers, it is not programme of space expansion and refurbishment and has among the top three factors in determining where they buy established capital expenditure procedures with investment jewellery. The Group believes these factors to be the level of criteria set by the Board. The projections used for investment service provided to the customer, the quality, together with the decisions are reviewed and adjusted based on experience selection, of merchandise offered and the reputation of the and economic conditions. retailer. Therefore while discounting price may increase sales, it may not increase profit. In particular, the success of the Jared off-mall destination store concept, which accounts for the majority of the Group’s Reputation and marketing net increase in new store space, will influence the future Primary factors in determining customer buying decisions in performance of the Group. This concept has been tested and the jewellery sector include customer confidence in the retailer developed over a number of years and its performance and the merchandise sold, together with the level and quality against the investment model is regularly reviewed. The rate of customer service. The Group carries out quality control and of new store development is dependent on a number of staff training procedures and provides customer service factors including obtaining suitable real estate, the capital facilities to help protect its reputation (see page 116 for details resources of the Group and the availability of appropriate staff of the processes by which the Group obtains an and management. understanding of customer attitudes). The Group’s results are dependent on a number of factors The ability to differentiate the Group’s stores from competitors relating to its stores. These include the availability of property, by its branding, marketing and advertising programmes is a the location of the mall or shopping centre, the availability of factor in attracting consumers. Therefore these programmes attractive locations within a mall or High Street, the terms of are carefully tested and their success monitored by methods leases, the Group’s relationship with major landlords and the such as market research (see pages 14 and 21 for more design and maintenance of the stores. In addition, the Group’s details). operations, particularly in the US, are dependent upon the continued popularity of malls as a shopping destination and The Diamond Trading Company (“DTC”), a subsidiary of De the ability of malls, their tenants and other mall features to Beers Consolidated Mines Limited (“De Beers”), promotes attract customers. diamonds and diamond jewellery in the US and the UK. The level of support provided by the DTC and the success of the Competition promotions influence the size of the total jewellery market in Competitive factors in the jewellery sector are discussed in the those countries. US and UK operating reviews (see pages 7 to 22).
The Group’s reputation in the financial markets can influence If the Group falls behind competitors with respect to one or the availability of capital, the cost of capital and the share more of these factors, the Group’s operating results or price. financial condition could be adversely affected. In the US the Group has an estimated 7.2% market share of the speciality jewellery sector
36 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
and has only one major national competitor. While another supply of rough diamonds and sells diamonds to diamond major national brand could develop, the sector is highly cutters in quantities and at prices determined at its sole fragmented. In the UK the Group has an estimated 17% share discretion. In 2000 De Beers announced a change in of the total jewellery sector and has only limited scope to corporate strategy designed to improve the efficiency of the increase sales by opening new stores. supply chain and increase the level of marketing support for diamonds. The channels through which consumers buy jewellery continually evolve and a major non-speciality retailer could The availability of diamonds to the DTC and the Group’s enter the wider jewellery market. In the US, for example, sales suppliers is to some extent dependent on the political situation by discount retailers have increased, while those of the in diamond producing countries. Until alternative sources can department stores have been in relative decline and catalogue be developed, any sustained interruption in the supply of retailers have withdrawn from the market. In the UK a number diamonds from the significant producing countries could of fashion and general retailers have introduced jewellery into adversely affect the Group and the retail jewellery industry as their ranges whilst others have reduced their selection. In both a whole. the US and the UK, internet retailers sell jewellery and watches. The Group monitors the competitive environment Consumer confidence in diamonds, gold and other metals and and the development of possible new channels of distribution gemstones also influences the level of Group sales. such as the internet. As part of this process there are Confidence could be affected by a variety of issues including marketing web sites for each of the Group’s major brands, and the availability and consumer awareness of substitute regular exercises to “shop the competition” take place. products such as cubic zirconia, moisanite and of laboratory created diamonds; labour conditions in the supply chain; and Supply chain concern over the source of raw materials. The Group, During 2004/05 the Group had one supplier that accounted for therefore, has a Supplier Code of Conduct which sets out the 8% of its merchandise. No other supplier accounted for more Group’s expectations of its suppliers. An example of an issue than 4% of its merchandise. Although the Group believes that that could affect confidence in this way is that of conflict alternative sources of supply are available, the abrupt loss of diamonds, which is the term used for diamonds sold by rebel any significant supplier during the three month period (August movements to raise funds for military campaigns. There have to October) leading up to the Christmas season could result in been a number of United Nations resolutions regarding a material adverse effect on the Group’s business. The Group conflict diamonds and an international agreement, known as is therefore in regular dialogue with suppliers and uses its the Kimberley Process, was signed in November 2002. This merchandising systems to test and predict its future inventory was designed to exclude conflict diamonds from the legitimate needs. diamond trade. During 2003 legislation was passed, in the European Union and the US, implementing the Kimberley Raw materials Process. The impact of the Kimberley Process and its The jewellery industry generally is affected by fluctuations in associated legislation has not resulted in any disruption to the the price and supply of diamonds, gold and, to a lesser extent, supply of rough diamonds to date and has helped to improve other precious and semi-precious metals and stones. The the integrity of the supply chain. Group undertakes some hedging of its requirement for gold through the use of options, forward contracts and outright The Group reviews its procedures and documentation for commodity purchasing. It does not hedge against fluctuations compliance with the Kimberley Process and makes in the cost of diamonds. The Group does hedge the exposure appropriate amendments. In addition, staff are briefed and of the UK division to the US dollar with regard to diamond and suppliers reminded about the procedures. During the year the other costs of goods sold. The cost of raw materials is only Group’s internal audit function and mystery shopper part of the costs involved in the retail selling price of jewellery programmes check for compliance. See page 116 for further with labour costs also being a significant factor. information on the Supplier Code of Conduct, the Kimberley Process and the Group’s policy on conflict diamonds. Diamonds are the largest product category sold by the Group. The supply and price of diamonds in the principal world Seasonality markets are significantly influenced by a single entity. The The Group’s business is highly seasonal, with a very DTC (and its predecessor, the Central Selling Organisation) significant proportion of its sales and operating profit has for many years controlled the marketing of a substantial generated during its fourth quarter, which includes the majority of the world’s Christmas season. The Group expects to continue to experience a seasonal fluctuation in its sales and profit. Therefore the Group has limited ability to compensate for shortfalls in fourth quarter sales or earnings by
Signet Group plc Annual Report & Accounts year ended 29 January 2005 37 Back to Contents
Risk and other factors (continued) changes in its operations and strategies in other quarters, or updating or introducing new systems that have an impact on a to recover from any extensive disruption, for example due to function critical to the Group. inclement weather conditions. A significant shortfall in results for the fourth quarter of any financial year would thus be Regulatory requirements expected to have a material adverse effect on the Group’s Regulations govern various areas of business activity and annual results of operations. However, due to the limited changes in regulations can therefore influence the Group’s seasonality in the product mix, the risk of having to discount performance. For example in the US approximately 50% of inventory in order to be correctly stocked for the next selling sales utilise the Group’s in-house credit programmes therefore season is more limited than for some other retail sectors. any change in the regulations or application of regulations Disruption at more minor peaks in sales at Valentine’s Day relating to the provision of credit and associated services and Mothers’ Day would impact the results of the Group to a could affect the Group’s results. lesser extent. The presentation of the Group’s accounts can also be affected Social, ethical and environmental risks by changes to generally accepted accounting policies, such as Social, ethical and environmental (“SEE”) matters influence the adoption of International Accounting Standards for the Group’s reputation, demand for merchandise by 2005/06 (see pages 33 to 34 for details). Such changes may consumers, the ability to recruit staff, relations with suppliers influence the valuation of the Group’s shares. and standing in the financial markets. Signet, therefore, is committed to managing the SEE risks and responsibilities facing the Group. This commitment stems from the Acquisitions The Group may in the future make acquisitions and any understanding that Signet’s success is dependent on the difficulty integrating an acquisition may result in expected strength and effectiveness of its relationships with its various returns and other projected benefits from the acquisition not stakeholders: shareholders, customers, employees and being realised. A significant acquisition could also disrupt the suppliers. operation of the Group’s current activities. The Group’s growth strategy does not depend on acquisitions and an acquisition In recent years stakeholder expectations of public companies would be intended to accelerate the implementation of that have increased. Managing and responding as a business to strategy. these changing expectations, including with regard to SEE issues, is part of the normal responsibilities of corporate management. Pensions In the UK the Group operates a defined benefit pension scheme. This Group Scheme was closed to new employees in The Group regularly carries out SEE risk reviews and 2004/05. The valuation of the Group Scheme’s assets and benchmarking exercises with the assistance of an external liabilities partly depends on assumptions based on the adviser. Such reviews include an assessment of Group financial markets as well as longevity rates and staff retention policies, procedures and controls in respect of SEE matters. rates. Funding requirements and the profit and loss items Reports are regularly made to the Group’s Risk Committee relating to this Group Scheme are also influenced by financial and to the Board. The greatest SEE risks are judged to relate market factors. At 29 January 2005 there was a net pension to the integrity of the merchandise and to the SEE standards liability of £1.3 million compared with a net asset of £1.2 in the Group’s supply chain. million at the prior year end (see pages 87 to 89 for more details). In the UK the Group introduced a defined contribution On 21 October 2001 the Association of British Insurers plan which replaced the Group Scheme for new employees. published guidelines on Socially Responsible Investment. In The US also operate a defined contribution plan. line with that guidance the Board confirms that it has identified and assessed the Group’s SEE risks and that these are being Equity and debt financing managed. The Group is dependent upon the availability of equity and debt financing to fund its operations and growth. Therefore it SEE matters are dealt with in more detail on pages 115 to 119 prepares annual budgets, medium term plans and headroom and in the corporate social responsibility section on models which help to identify the future capital requirements www.signetgroupplc.com. so that appropriate facilities can be put in place on a timely basis. If these models are inaccurate adequate facilities may Systems not be available. The Group is dependent on the suitability and reliability of its systems and procedures, including its information technology, warehousing and distribution systems. The Group has emergency procedures which are regularly tested. The Group carries out evaluation, planning and implementation analysis before
38 Signet Group plc Annual Report & Accounts year ended 29 January 2005
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Financial market risks The Group’s policy is to manage financial risk resulting from The Group publishes its consolidated annual accounts in exposure to currency and interest rate fluctuations. pounds sterling. The Group held approximately 65% of its total Translation exposure relating to non-pound sterling assets in US dollars at 29 January 2005 and generated denominated assets in the US is partially hedged by approximately 68% of its sales and 68% of its operating profit borrowing in US dollars. Interest rate exposure is managed in US dollars for the financial year then ended. Thus, although through the use of swaps, caps and floors. the Group’s US operations make substantially all of their sales and incur substantially all of their expenses in US dollars, in A committee of the Board is responsible for the translating the results of its US operations, the Group’s results implementation of treasury policies and guidelines which are are subject to fluctuations in the exchange rate between the considered to be appropriate by the Board for the pound sterling and the US dollar. Accordingly, depreciation in management of financial risk. The Group’s funding, liquidity the weighted average value of the US dollar against the pound and exposure to interest rate and exchange rate risks are sterling could decrease reported revenues and operating profit managed by the Group’s treasury department. The Group (as was the case in 2002/03, 2003/04 and 2004/05), and uses derivative instruments for risk management purposes appreciation in the weighted average value of the US dollar only, and these are transacted by specialist treasury against the pound sterling could increase reported revenues personnel. and operating profit (as was the case in 2000/01 and 2001/02). The Board has chosen not to hedge the translation For financial instruments held, the Group has used a effect of exchange rate movements on the results of the sensitivity analysis technique that measures the change in the Group given that there is little movement of cash between the fair value of the Group’s financial instruments from Group’s two divisions. hypothetical changes in market rates and this is shown in the table overleaf. As part of its long-term strategy, the Group seeks to finance its US net assets with borrowings denominated in US dollars The amounts generated from the sensitivity analysis are as a hedge against the impact of exchange rate fluctuations forward-looking estimates of market risk assuming certain on its US operating profit. Currently nearly all of the Group’s adverse market conditions occur. Actual results in the future borrowings are denominated in US dollars. Therefore may differ materially from those projected due to changes in fluctuations in the exchange rate between the pound sterling and the US dollar affect the amount of the Group’s the portfolio of financial instruments held and actual developments in the global financial markets. These may consolidated borrowings. cause fluctuations in interest and exchange rates to exceed the hypothetical amounts disclosed in the table overleaf. In addition, the prices of materials and certain products bought on the international markets by the UK division are denominated in US dollars, and therefore the Group has an exposure to exchange rates on the cost of goods sold which will have an opposite effect to its exposure on US operating profit. The Group does use hedging operations in respect of purchases of US dollars by its UK division, within the treasury guidelines approved by the Group’s Board.
Cash dividends paid by the Group in respect of the shares will be in pounds sterling and fluctuations in the exchange rate between the pound sterling and the US dollar will affect the dollar amount received by holders of ADSs upon conversion of such dividends. Moreover, fluctuations in the exchange rate between the pound sterling and the US dollar will affect the US dollar equivalents of the pound sterling price of the shares on the London Stock Exchange and, as a result, are likely to affect the market price of the ADSs in the US.
The table overleaf sets out, for the calendar years indicated, the average, high, low and period end exchange rates for the pound sterling expressed in US dollars per £1.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 39 Back to Contents
Risk and other factors (continued)
Exchange rates between the pound sterling and the US dollar (1)
Average High Low At period end
Calendar year 2000 1.51 1.65 1.40 1.50 2001 1.44 1.50 1.38 1.45 2002 1.51 1.61 1.41 1.61 2003 1.62 1.79 1.55 1.77 2004 1.79 1.96 1.75 1.92 2005 (cumulative to 6 April) 1.90 1.93 1.85 1.88
Month September 2004 1.80 1.82 1.77 1.81 October 2004 1.81 1.84 1.77 1.84 November 2004 1.85 1.90 1.84 1.91 December 2004 1.92 1.96 1.90 1.92 January 2005 1.89 1.89 1.85 1.88 February 2005 1.88 1.93 1.85 1.92 March 2005 1.90 1.93 1.85 1.89
(1) Based on unweighted data points sourced from Reuters.
The example shown for changes in the fair values of are based on an instantaneous decrease of 1% (100 basis borrowings and associated derivative financial instruments at points) in the specific rate of interest applicable to each class 29 January 2005 is set out in the table below. The fair values of financial instruments from the levels effective at 29 January of borrowings and derivative financial instruments are 2005 with all other variables remaining constant. The estimated by discounting the future cash flows to net present estimated changes in the fair value for foreign exchange rates values using appropriate market rates prevailing at the period are based on an instantaneous 10% weakening of the pound end. sterling against the US dollar from the levels applicable at 29 January 2005 with all other variables remaining constant. The estimated changes in fair values for interest rate movements
Fair value changes arising from: Estimated fair 10% weakening Estimated fair value at 1% decrease in in £ against $ value at 29 January interest rates favourable/ 31 January 2005 (unfavourable) (unfavourable) 2004 £m £m £m £m
Borrowings (180.3 ) (2.4 ) (20.1 ) (207.9 ) Foreign currency receivable 319.0 – (35.4) 292.6 Foreign exchange contracts (0.8 ) – 1.3 (2.9 ) Commodity hedging contracts – – – (2.1 )
The analysis above should not be considered a projection of likely future events.
40 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Directors, officers and advisers
Directors Brook Land *, 56, appointed in 1995 and first elected to the James McAdam CBE , 74, Chairman, appointed in 1992. He Board in 1996. Until 1996 he was a senior partner of, and is was also Group Chief Executive from 1992 until March 2000. now a consultant to, solicitors Nabarro Nathanson. He is also From 31 March 2001, while continuing as Chairman, he non-executive Chairman of RPS Group plc and Medal ceased to be a full-time executive. Mr. McAdam is the non- Entertainment & Media plc. Mr. Land was nominated as the executive Chairman of Bisley Office Equipment Company senior independent director of Signet in June 2002. Limited, Chairman of the British Clothing Industry Association Limited and Chairman of the British Apparel & Textile Robert Walker *, 60, appointed in November 2004. He was Confederation; he devotes approximately 25% of his time to Group Chief Executive of Severn Trent Plc, from August 2000 these latter roles. Mr. McAdam has indicated his intention to until his retirement in February 2005. Prior to this Mr. Walker retire from the Board no later than at the conclusion of the had been a Division President of PepsiCo International and annual general meeting in 2006. had previously worked for McKinsey and Company and Procter & Gamble. He is non-executive Chairman of WH Robert Anderson , 46, appointed in April 2005 (after Smith PLC and Williams Lea Group Limited and a non- completion of the period under review). He was appointed executive director of Wolseley Plc. He is also an adviser to Chief Executive of the Group’s UK division in January 2003 Cinven. having joined the Group as Chief Operating Officer of the UK division in August 2000. Prior to joining the Group Mr. Russell Walls *, 61, appointed in 2002. He was Group Anderson had worked at Marks & Spencer Plc for 19 years, Finance Director of BAA plc until his retirement in August latterly as Business Unit Director. 2002 and was the senior independent director of Hilton Group plc until May 2003. Mr. Walls is the senior independent Robert Blanchard *, 60, appointed in 2000. He was a Group director of Stagecoach Group plc and a non-executive director Vice President of Procter & Gamble and President of its of Aviva plc. He is a Fellow of the Association of Chartered Global Skin Care and Cosmetics business until his retirement Certified Accountants. in 1999. He is a non-executive director of Bandag Inc. and is a non-executive director of Best Buy Co. Inc. although he has Committees indicated his intention to retire from that board in June 2005. Remuneration Robert Blanchard (Chairman), Russell Walls, Brook Land (until 1 March 2005) and Robert Walker (from 1 Walker Boyd , 52, appointed Group Finance Director in 1995. March 2005). He is a member of the Institute of Chartered Accountants of Scotland. From 1992 he was Finance Director of the Group’s Audit Russell Walls (Chairman), Dale Hilpert and Brook Land. UK division. Mr. Boyd was appointed a non-executive director of WH Smith PLC in March 2004 but resigned in January 2005 in order to meet good corporate governance requirements on Nomination Brook Land (Chairman), Robert Blanchard and the appointment of Robert Walker as Chairman of WH Smith James McAdam. PLC. Under the Company’s Articles of Association, directors appointed by the Board since the last annual general meeting, Terry Burman , 59, appointed Group Chief Executive in 2000. He is also Chief Executive Officer of the Group’s US division. either to fill a vacancy or as an additional director, must retire at the next annual general meeting. Mr. Burman was appointed to the Board in 1996. Prior to joining the Group in 1995 he was Chief Executive Officer of Barry’s Jewelers, Inc. The Articles also specify that every director is required to retire at the annual general meeting in the third calendar year after he was last elected or re-elected, except for directors Dale Hilpert *, 62, appointed in 2003. He was Chief Executive over the age of 70 who are required to retire at every annual of Williams-Sonoma, Inc. from April 2001 until his retirement in general meeting. Similarly the Combined Code requires non- January 2003. Prior to this he was Chairman and Chief executive directors who have served longer than nine years; if Executive of Foot Locker, Inc. (formerly the Venator Group, they are to continue to serve, to do so subject to annual re- Inc.) which he joined as President and Chief Operating Officer election. Such directors may, in these circumstances, seek re- in 1995. election.
* Non-executive directors, all of whom satisfied the definitions of independence in the revised Combined Code (“the Combined Code”) and are viewed as independent by the Board.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 41
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Directors, officers and advisers (continued)
Messrs. Anderson, Burman, Land, McAdam and Walker retire Advisers from the Board at the forthcoming annual general meeting. Auditor Following consideration by the Board of the recommendations KPMG Audit Plc, of the Nomination Committee, they offer themselves for re- 8 Salisbury Square, London EC4Y 8BB. election. Financial adviser Officers Lazard Brothers & Co. Limited, Mark Jenkins , 47, Group Company Secretary, appointed 50 Stratton Street, London W1 J 8LL. March 2004. Previously he was a director and Company Secretary at COLT Telecom Group plc and Group Company Stockbrokers Secretary at Peek plc. He is a barrister. Deutsche Bank AG, Winchester House, Liam O’Sullivan , 33, Group Treasurer, appointed 2003. 1 Great Winchester Street, London EC2N 2DB. Previously he was Group Treasury Manager at Rank Group Plc. He is a member of the Institute of Chartered Accountants JP Morgan Cazenove Ltd, in England and Wales and a member of the Association of 20 Moorgate, London EC2R 6DA Corporate Treasurers. UK lawyer Timothy Jackson , 46, Investor Relations Director, appointed Herbert Smith LLP, in 1998. He is a Fellow of the Association of Chartered Exchange House, Certified Accountants. In March 2004 he resigned as Primrose Street, London EC2A 2HS. Company Secretary to focus on his duties as Investor Relations Director. US lawyer Weil, Gotshal & Manges, No director or officer has any family relationship with any other One South Place, London EC2M 2WG. director or officer. Principal bankers Barclays Bank PLC, 5 The North Colonnade, Canary Wharf, London E14 4BB.
HSBC Bank plc, 8 Canada Square, Canary Wharf, London E14 5HQ.
Royal Bank of Scotland plc, 135 Bishopsgate, London EC2M 3UR.
Wachovia Bank N.A., London Branch, 3 Bishopsgate, London EC2N 3AB.
Registrar Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.
42 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Report of the directors
Business review proposals in a positive and constructive way. This is an The principal activity of the Group is the retailing of jewellery, essential requirement of a strong independent non-executive watches and gifts with branches throughout the UK and the director and the Board continues to value Mr. Land’s US. A review of the Group’s performance during the year, with contribution. comments on the financial results and likely future developments, is set out on pages 7 to 34 and forms part of Mr. Land will offer himself for re-election to the Board at the this Report. forthcoming annual general meeting.
Going concern Directors’ remuneration, service contracts and share On the basis of current financial projections and facilities interests available, the directors have a reasonable expectation that the Details of directors’ remuneration, service contracts and the Group has adequate resources to continue in operational interests in the share capital of the Company of the directors existence for the foreseeable future and, accordingly, consider and their immediate families at 29 January 2005 are given in that it is appropriate to continue to adopt the going concern the Directors’ remuneration report on pages 51 to 63. basis in preparing its annual accounts. Allotment of equity securities Results and dividends There were no equity securities allotted save in relation to the The results of the Group for the year appear on page 66. The exercise of options as set out in note 27 on page 95. directors recommend the payment of a final dividend of 2.625p per share, to be paid on 8 July 2005 to shareholders on the register of members at close of business on 10 June Social, ethical and environmental matters Matters relating to these issues, including employees, 2005. An interim dividend of 0.375p per share was paid in payment of creditors and charitable and political donations, November 2004 making a total of 3.000p for the year are set out on pages 115 to 119. (2003/04: 2.501p). See note 8 on page 80 for waiver of dividends. Substantial shareholdings and control of the Company Details of substantial shareholdings and control of the Directors Company are as set out on pages 122 and 123. The directors who served during the period were James McAdam (Chairman), Robert Blanchard, Walker Boyd, Terry Burman, Dale Hilpert, Brook Land, Robert Walker and Russell Purchase of own shares Walls. Details of the current directors are shown on page 41. At 29 January 2005 there was outstanding an authority, granted by the shareholders at the annual general meeting in 2004, to purchase, in the market, up to 172,640,523 shares of Independence of non-executive directors 0.5p each in the Company at a minimum price of 0.5p per Mr. Land was first elected to the Board as a director in June share and a maximum price of 105% of the average of the 1996, and therefore under the terms of the Combined Code market values derived from the London Stock Exchange Daily maintenance of his “independent” status needs to be re- affirmed from June of this year. The Board has considered Mr. Official List for the preceding five business days. During the Land’s position and has concluded that he continues to be financial year no purchases were made under this authority or proposed to be made and no purchases or options or independent for the following reasons. contracts to make purchases have been made or entered into since the end of the financial year. The authority expires at the Mr. Land has no relationship with the Company, nor with any forthcoming annual general meeting and a resolution to renew of the directors, which could impact his ability to remain it will be proposed at the meeting. objective or independent of mind. He does not provide any service to the Company and has no connections or ties to the Company other than in his capacity as a member of the Pension funds Information about the Group’s pension schemes is set out in Board. note 20 on page 87. Information about pension arrangements for executive directors is set out in the Directors’ remuneration Having been a practising lawyer Mr. Land comes from a report on pages 51 to 63. professional background used to taking an independent approach. He, where appropriate, challenges and questions
Signet Group plc Annual Report & Accounts year ended 29 January 2005 43 Back to Contents
Report of the directors (continued)
Auditor The auditor, KPMG Audit Plc, is willing to continue in office and a resolution for its re-appointment as auditor of the Company will be submitted to the annual general meeting.
New York Stock Exchange (“NYSE”) The Company’s shares were listed on the NYSE with effect from 16 November 2004 in the form of American Depositary Shares (“ADS”) having been until that date listed on the Nasdaq National Market (“Nasdaq”). Each ADS represents ten ordinary shares. Prior to 18 October 2004, the ratio of ordinary shares per ADS had been 30:1.
Annual general meeting The annual general meeting is to be held at 11.00 am on 10 June 2005 at The Café Royal, 68 Regent Street, London W1B 5EL. A description of the business to be transacted at the annual general meeting is included with the notice of the meeting.
By order of the Board Mark Jenkins Group Company Secretary
6 April 2005
44 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Corporate governance statement
The Board The Board has as its prime objective the sustainable developments within the business and shareholders’ attitude enhancement of business performance and shareholder to the Group; and value. It carries the responsibility for determining all major • the reputation of the Group, and representing it both policies, for ensuring that effective strategies and internally and externally. management are in place, for assessing the performance of The Chairman is also a member of the Nomination the Group and its senior management and for reviewing the Committee. system of internal controls, including those relating to social, ethical and environmental matters (see pages 115 to 119). In summary, the Group Chief Executive is responsible for: The Board also seeks to present to shareholders, potential investors and other interested parties a balanced and • the executive leadership of the Group; coherent assessment of the Company’s strategy, financial • the development, and presentation to the Chairman and the position and prospects. The Board retains responsibility for a Board, of strategy, medium term plans and budgets; range of specific matters including approval of the annual • within this framework, for the performance of the business; report and other documents circulated to shareholders by the • compliance with legal and corporate governance Company; quarterly and annual results announcements; other requirements, together with the social, ethical and trading statements; distribution policy; acquisitions, disposals, environmental principles of the Group; and material agreements and capital expenditures outside • making recommendations on the appointment and predetermined limits set by the Board; risk management; remuneration of senior executives and management budgets; long range plans; senior executive appointments; development. succession planning; corporate governance and the setting of social, ethical and environmental policies. The Group Chief Executive is also Chief Executive of the US division. The Board monitors all developments in corporate governance, including the Combined Code and changes due to the Sarbanes-Oxley Act of 2002 in the US. The Board The Board met eight times in 2004/05, including three reviews its performance and procedures in the light of extended sessions of more than one day. All directors changing expectations regarding best practice and makes attended all meetings of the Board with the sole exception of amendments, where it believes appropriate, to take account of one meeting at which Mr. Walls was unable to attend. them. The Board currently consists of nine directors: the Chairman, The formal schedule of matters reserved for the Board was three executive directors (the Group Chief Executive, the updated in early 2004 and reviewed in 2005, and the division Group Finance Director and the Chief Executive of the UK of responsibilities between the Chairman and the Group Chief division), and five independent non-executive directors, one of Executive was set out in writing and agreed by the Board. In whom is nominated as the senior independent director. summary, the Chairman is responsible for: Incumbents are identified on page 41. Directors are subject to election at the first annual general meeting after appointment and then to re-election by shareholders at no more than three • the effective running of the Board, including the evaluation yearly intervals. The Board is of the view that fixed term or of its performance and that of the individual directors, the age limits should not be set for non-executive directors as it balance of the Board and the Board’s compliance with considers it important that the particular contribution being corporate governance; made by individual directors be taken into account in deciding • the review, prior to their presentation to the Board by their tenure of office and that the performance of each director executive management, of strategy, medium term plans and be reviewed annually. Any non-executive director who has annual budget; served on the Board for nine years since first being elected as • reviewing, prior to their presentation to the Remuneration a non-executive director must stand for annual re-election; Committee, the recommendations of the Group Chief also any director over the age of 70 must stand annually for Executive regarding the remuneration of senior executives re-election. and for making a recommendation regarding that of the Group Chief Executive; • maintaining contact with major shareholders to understand The mix of skills and business experience of the directors is directly their issues and concerns; considered to be appropriate for the proper and efficient • keeping the non-executive directors appropriately informed functioning of the Board. The terms of reference of the of Nomination Committee include the regular review of the composition and balance of the Board. No one individual has unfettered powers of decision and no individual or grouping is in
Signet Group plc Annual Report & Accounts year ended 29 January 2005 45 Back to Contents
Corporate governance statement (continued)
a position to unduly influence the Board’s decision making. At The Audit Committee’s responsibilities include the review of least once a year the non-executive directors meet without the the appropriateness and effectiveness of the Group’s executive directors being present. They also meet accounting policies and financial procedures and oversight of occasionally without the Chairman being present. the external auditor’s work, including the scope and result of the audit. The Audit Committee also reviews the effectiveness On appointment new directors take part in an induction of the internal auditors, the Disclosure Control Committee and programme and are given an opportunity to familiarise the Group’s whistleblowing procedures. The review of the themselves with the Group’s business, procedures and whistleblowing procedures includes receiving reports on all investor perceptions. In addition to meeting with management matters raised and on actions taken. The Audit Committee this process includes briefings from the Group’s external also reviews the effectiveness of the Group’s internal control auditors, lawyers, financial advisers and stockbrokers. and risk management procedures and reports to the Board on Directors are kept informed of the latest developments and these matters. The Audit Committee reviews, discusses with best practice in corporate governance and attend relevant management and approves for submission to the Board all courses or receive appropriate training to equip them to carry Group audited accounts, trading statements and selected out their duties. The non-executive directors are given regular internal financial reports. It also reviews reports submitted to opportunities to see the operations of the business and to the Board by the Group’s external auditor. meet management and staff. The external auditor’s objectivity and independence is All directors receive written reports in a timely manner prior to monitored by the Audit Committee having primary each meeting which enables them to make informed decisions responsibility for making a recommendation on the on the issues under consideration. appointment of the external auditor, the determination of their fees and making an annual assessment of their independence (including consideration of a written disclosure by the external The performance of the Board, its Committees and individual auditor of all relationships that they have with the Group). The members is rigorously monitored to ensure that each director planned rotation of partners and staff of the external auditor, continues to contribute effectively and demonstrate together with a “cooling off” period before anyone from the commitment to the role. The Board has agreed a formal external auditor joins the Group, also assist in maintaining the written procedure for the evaluation process which is independence of the external auditor. The Audit Committee conducted by the Chairman, in conjunction with the senior has reviewed and approved a policy for the provision of audit independent director and the Group Company Secretary. It and non-audit services by the auditor which is compliant with consists of a structured discussion based upon a number of the requirements of the Sarbanes-Oxley Act in relation to non- suggested questions and a questionnaire, completed by audit work. The policy requires that the Audit Committee directors before the discussion session, designed to help in approves in advance all audit and non-audit work carried out assessing the future development needs of the Board and the by the external auditor (subject to a de minimis amount, this directors. The performance evaluation of the Chairman is led being then reported to the Audit Committee on a quarterly by the senior independent director and takes into account the basis). The approval process requires disclosure of the views of both the non-executive and executive directors. objectives and scope of services to be performed in addition to the fee structure. The Audit Committee also reviews all The Group Company Secretary is responsible, through the approved services and fees at subsequent meetings. See Chairman, for advising the Board on all governance matters page 77 for details of fees paid to the external auditor. and ensuring that Board procedures are followed. All directors have access to his advice and service. There is also a The Audit Committee has an established channel of direct procedure for directors to take independent advice in the communication with the external auditor who normally attends course of their duties, if considered appropriate, at the meetings except in relation to certain aspects of their own Group’s expense. appointment, assessment of their independence and determination of their fees. The Chairman, the Group Chief Board committees Executive, the Group Finance Director and others attend the Certain matters are delegated to Board committees, each with meeting by invitation. The Audit Committee meets at least defined terms of reference, procedures, responsibilities and once a year with both the external auditor and internal powers. The principal committees are as follows: auditors without executive management being present. The Audit Committee also meets on two occasions during the year The Audit Committee has written terms of reference which for the purpose of being briefed on business and technical are available on request from the Group Company Secretary developments and to meet with divisional management to and on the Group’s web site. The terms of reference were assess the risk and updated during 2003 and further reviewed during 2005.
46 Signet Group plc Annual Report & Accounts year ended 29 January 2005
Back to Contents internal audit functions of both of the divisions. During 2004 a The senior independent director chairs the Nomination Business Risk Assurance Manager was appointed who Committee. During the year the Nomination Committee reports to the Committee on the processes in relation to the consisted of Robert Blanchard, Brook Land, and James mitigation and review of business risks. McAdam. The Group Company Secretary acts as secretary to the Nomination Committee. The Nomination Committee met All members of the Audit Committee are independent, as six times in 2004/05 and there was full attendance at all defined by the Combined Code, the SEC and the NYSE and meetings. the only remuneration members of the Audit Committee receive, from the Group, is as directors. Russell Walls is The role of the Remuneration Committee is discussed in the Chairman and an “audit committee financial expert” as defined Board report on remuneration on page 51. by the applicable SEC regulations. During the year the Audit Committee consisted of Dale Hilpert, Brook Land and Russell Further details regarding the chairmen and members of these Walls with all having significant financial experience either as Committees are set out on page 41. a result of positions held in other companies or from advising on such matters. The Audit Committee met nine times in 2004/05, including a meeting entirely dedicated to the Executive management The Group comprises two separate operating divisions, one in consideration of corporate governance matters. All directors attended all Audit Committee meetings except for Mr. Walls the US and one in the UK, each with a separate executive committee which meets regularly. The Group Chief Executive who was unable to attend one meeting. is also Chief Executive of the Group’s US division. The Group Finance Director and the Chief Executive of the UK division The Nomination Committee terms of reference were revised report to the Group Chief Executive. in early 2004 to reflect corporate governance developments in the UK and the US. The terms of reference were reviewed in 2005 and are available on request from the Group Company The executive management is responsible to the Board for the performance of the Group and its compliance with the internal Secretary and on the Group’s web site. The Nomination policies and procedures set by the Board. As part of this Committee has responsibility for reviewing the composition responsibility the executive management regularly reports to and balance of the Board, as well as Board and senior the Board on the performance of the Group, the competitive management succession. It also makes recommendations to environment and its relations with stakeholders. the Board on all new Board appointments and nominations for re-election as directors. Once the Nomination Committee has agreed a job specification, the services of external recruitment Business strategies; long range plans; budgets; acquisitions, agencies are used to identify suitable candidates for senior disposals, material agreements and capital expenditures executive posts and for all Board appointments. The outside predetermined limits set by the Board; and internal Nomination Committee carries out interviews with such policies and procedures are presented to the Board by individuals. The re-election procedures have been reviewed executive management for consideration. Within this approved and formalised, particularly with regard to the performance framework the executive management is responsible for the evaluation procedures for individual directors. The review of day to day running of the business including: merchandising; any non-executive director, who is serving beyond six years store operations; human resource management and planning; from first being elected to the Board, is considered with marketing; real estate; financial reporting; treasury particular care. No director is involved in any decision about management; risk management; tax management; social, his own re-appointment. The procedure for the election of ethical and environmental matters; and communications with directors is laid out on page 41. investors.
When the role of the Group Chairman or any matter relating to Code of Conduct and Code of Ethics succession to that role is discussed, the Chairman may be Signet strives to act in accordance with the laws and customs consulted, but the responsibility for preparing a job of each country in which it operates; to adopt proper specification and making any recommendation to the Board standards of business practice and procedure; to operate with rests solely with the independent non-executive directors of integrity; and to observe and respect the culture of each the Nomination Committee. The Nomination Committee also country in which it operates. To that end, the Group has reviews a number of other senior appointments within the adopted a Statement of Social, Ethical and Environmental Group, such as that of the Group Company Secretary. Principles and supporting policies applicable to all officers and employees of the Group and substantially complies with the requirements of the NYSE. In
Signet Group plc Annual Report & Accounts year ended 29 January 2005 47 Back to Contents
Corporate governance statement (continued) addition, it has a policy on business integrity, as well as more Report and corporate governance developments in the US. detailed guidance and regulations in the Group’s staff Based on that review the Board agreed a programme of action induction, training and operational procedures. During 2004 that was completed during 2004/05. A further review of US the Group reviewed these policies in order to meet the requirements was undertaken when the Group moved its US recently revised corporate governance requirements of the listing for its ADSs to the NYSE from Nasdaq. The NYSE Nasdaq, and implemented a code of business conduct and requirements are not mandatory for foreign issuer companies ethics. The Company moved its US listing for its ADSs to the such as Signet, but the Group has chosen in general to NYSE with effect from 16 November 2004, for which a similar comply as a matter of best practice. code is required. In a limited number of areas the Group, as is permitted by the A code of ethics meeting the requirements of the Sarbanes- NYSE rules, has elected to defer to the UK corporate Oxley Act, covering the Chairman, the Group Chief Executive, governance practices. This is permissible provided significant the Group Finance Director and senior officers, is also in variations are explained. The explanation of those variations place. These codes are available on request from the Group can be found on the Group’s web site. Company Secretary and on the Group’s web site. The Board considers that it has complied throughout the year Relations with shareholders with the provisions of the Combined Code required to be The Board recognises the importance of relations with observed by companies. shareholders and communicates regularly with them about the Group’s strategy, financial performance and prospects. It does Internal controls this through documents distributed to shareholders, stock The Combined Code requires that the directors review the exchange announcements and in meetings. Presentations on effectiveness of the Group’s system of internal controls quarterly and annual results and the Christmas trading including the following areas: statement are open to all interested parties, including private shareholders, through the use of teleconferences and web • Financial casting. Other presentations are available on the Group web site. • Operational The Board recognises that the prime opportunity for private investors to question the Board is at a general meeting of • Compliance shareholders. At the annual general meeting the chairmen of the Audit, Nomination and Remuneration Committees, in • Risk management addition to the Chairman of the Board, are required to be available for questions relating to the function of their respective Committees and all directors are expected to Internal Control: Guidance for Directors on the Combined attend. Code (“the Turnbull guidance”) was published in September 1999. The Board of Directors considers that it has complied The Group Chief Executive, the Group Finance Director and with the Turnbull guidance throughout the year and up to the the Investor Relations Director carry out an extensive date of approval of this Annual Report & Accounts. In addition, programme of meetings with institutional investors. The during 2004/05 the Board continued to review the implications Chairman and the senior independent director are also of the Sarbanes-Oxley Act and took steps to ensure available to meet with investors from time to time. Major compliance. shareholders are offered an opportunity to meet new non- executive directors following the appointment of the individual. The Board exercises ultimate responsibility for the Group’s system of internal controls and for monitoring its effectiveness. The Board is kept informed of investment market attitudes to The internal controls system is designed to safeguard the Group by receiving regular reports on investor relations, shareholders’ investments and the Group’s assets, both copies of brokers’ research, press cuttings and third party tangible and intangible, including the reputation of the Group surveys of investor perceptions. with its various stakeholders. Procedures are in place to ensure the maintenance of proper accounting records, the Compliance statement and Combined Code reliability of the financial information used within the business In July 2003 the Combined Code was issued that applies for or for publication and the determination of disclosure reporting years starting on or after 1 November 2003. During obligations and of materiality. These procedures also cover 2003/04 the Board reviewed the Combined Code, the Smith disclosure on a timely
48 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents basis of information to the investment markets. However, such increasing demands of corporate governance, to comply procedures are designed to manage rather than wholly with the Sarbanes -Oxley Act, to monitor and address eliminate the risk of failure to achieve business objectives and evolving and more complex accounting standards, including can provide only reasonable, not absolute, assurance against changes in the application and interpretation of US GAAP material misstatement or loss. and the transition from UK GAAP to IFRS. Accordingly during the year, the Group has separated the roles of Group Signet’s disclosure control procedures are designed to help Company Secretary and Investor Relations Director. In ensure that processes and procedures for information addition, a Business Risk Assurance Manager was management are in place at all levels of the Group. The appointed to co-ordinate risk management information and disclosure control procedures aim to ensure that any processes; he is responsible for assessing the risk information disclosed by the Group is recorded, processed, management and internal controls for the Group, ensuring and summarised appropriately. The procedures are also such processes satisfy the applicable standards in both the designed to ensure that information is accumulated and UK and the US and he reports his findings to the Group communicated to management to allow timely decisions to be Audit Committee. At the divisional level in both the UK and made regarding required disclosure. The Group’s Disclosure the US, the internal audit functions have been strengthened Control Committee consists of the Group Finance Director, the with particular focus on review of internal control processes. Group Company Secretary, the Investor Relations Director In the near term, the Group also intends to strengthen its and the Group Financial Controller who consult with the Group Finance function reflecting the increasing demands of Group’s external advisers and auditor, as necessary. These IFRS accounting and US GAAP requirements. procedures are designed to enable Signet to make timely and accurate public disclosures. The Group issues both sales and financial results on a quarterly basis. The external auditor reviews the quarterly Key procedures designed to provide effective internal controls and half year statements, and Christmas trading statement are: and presents reports to the Audit Committee for consideration. • Control environment – control is exercised through an organisational structure with clearly defined levels of • Risk management – the identification of major business risks is carried out in conjunction with operational responsibility and authority together with appropriate management and appropriate steps are taken to monitor reporting procedures, particularly with respect to financial and mitigate risks. The Risk Management Committee, information, capital expenditure, investment, granting of whose members include the Group Finance Director, the guarantees and the use of treasury products (see page 39 Business Risk Assurance Manager and senior divisional for more detail) as well as health, safety, environmental and executives, meets on a regular basis, at least four times a customer service issues. year. Matters considered by the Risk Management Committee include reviews of the Group’s risk register, • Reporting and information systems – the Group has a emerging issues, new regulations and the activity of the comprehensive budgeting and five year strategic planning internal audit function. The external auditor receive copies of system with an annual budget and strategic plan approved the papers submitted to the Committee. A report from each by the Board. Reported monthly trading results and balance Risk Management Committee meeting, and any material sheets include the corresponding figures for the budget or non-compliance or emerging issue, is considered by the revised forecast and for the previous year. Any significant Board in a timely manner. variances are examined by divisional operating management and discussed with Group management, with • – each operating division maintains action being taken as appropriate. A forecast of the full Control procedures documented financial and operating controls as well as year’s results is updated regularly, based on performance to procedures appropriate to its own business environment and date and any changes in outlook. The executive directors in conformity with Group guidelines. Each of the operating regularly report to the Board on the development of the divisions has an internal audit function which primarily business, the competitive environment and any material reviews the processes in the store operations but also breaches of procedure. Through these mechanisms, the reviews central service functions. The work of the internal Group’s performance is continually monitored, risks identified in a timely manner and their implications audit function is monitored by senior divisional executives, assessed. Group management, the Risk Management Committee and the Audit Committee.
The Group as part of its ongoing review of procedures has taken steps to strengthen resources committed to meet the
Signet Group plc Annual Report & Accounts year ended 29 January 2005 49 Back to Contents
Corporate governance statement (continued)
Other than as discussed under “Reporting and Information Sarbanes-Oxley Act of 2002 Systems” above, there have been no changes in the Group’s As a Foreign Private Issuer, Signet is required to comply with internal controls over financial reporting during the period Section 404 of the Sarbanes-Oxley Act of 2002 (“the Act”) for covered by this Annual Report & Accounts that have fiscal years ending on or after 15 July 2006. The primary materially affected, or are reasonably likely to materially affect requirement of the Act is that management perform those controls. appropriate due diligence to conclude on the design and operating effectiveness of internal controls over financial • Reviews of effectiveness – the Board, in addition to reporting. To date, significant effort has been afforded to receiving the Risk Management Committee reports, annually establish structured project teams within the UK and US reviews the effectiveness of the internal controls system on divisions and at the corporate level. The overall project is the basis of a report submitted to the Risk Management coordinated by the Business Risk Assurance Manager who Committee. This report is based on annual written self- communicates closely with the Group Finance Director and certification statements prepared by the operating divisions manages relationships with the Group adviser Ernst & Young, and head office departments which confirm the extent of KPMG as auditor and the Audit Committee on all issues their compliance with all material internal financial operating relating to Sarbanes-Oxley. and disclosure controls. These statements are prepared by the divisional finance directors on behalf of each operating The initial step of the project was the production of a detailed division and are reviewed by senior divisional executives, Risk Assessment and Mapping document, which carefully Group management and the Board. The Disclosure Control scoped out the work required based on an analysis of the Committee reports to the Audit Committee on a quarterly financial statements for the year ended 2003/04. Following basis as to the effectiveness of the disclosure control this detailed scoping assessment, significant individual procedures. accounts were linked to relevant process streams that would be documented and assessed going forward. Based on their review of the Group’s disclosure controls and procedures, as of the end of the period covered by this Annual Consistent with the Group’s structure, the project effort is Report & Accounts, the Group Chief Executive and Group focused predominantly within the divisions, additional work Finance Director have concluded that the Group’s current being required to complete those processes that are unique to disclosure controls and procedures are effective in achieving the corporate function. In total, 11 key process streams are their objective of ensuring that information regarding the identified to be within scope in the US division, compared with Group is recorded, processed, summarised and reported and ten in the UK. The corporate function effort involves three that the information is accumulated and communicated to unique key process streams. management to allow timely decisions regarding required disclosure. The documentation phase is well underway with a significant amount of the documentation required for the key process In reaching the conclusion on effectiveness of disclosure streams now completed. Key controls have been identified for controls, the Group Chief Executive and Group Finance each of the process streams involved and these will form the Director considered the disclosure controls in light of the basis of the testing phase of the project following which any restatement of the US GAAP reconciliation for adjustments for identified gaps will be prioritised for remediation on a timely lease accounting and accounting for extended service plans basis. described in note 31 to the financial statements. After considering the materiality, timing and nature of the information relating to restatements they continued to conclude that the disclosure controls were effective as of the evaluation date.
It should be noted that while the Group Chief Executive and Group Finance Director conclude that its disclosure controls and procedures are effective to provide a reasonable level of assurance, they recognise such disclosure controls cannot eliminate all error and fraud. They are designed to provide only reasonable, not absolute, assurance that the objectives of this control system are met.
50 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Directors’ remuneration report
Information contained in sections and figures marked ß has determined by the Chairman and the executive members of been audited. the Board following a recommendation by the Chairman after consideration of, among other factors, external comparisons, 1. The role of the Remuneration Committee the time commitment and responsibilities. The prime purpose of the Remuneration Committee is to set the remuneration policy for executive directors and senior The Remuneration Committee consists of Robert Blanchard managers and to ensure that they are fairly rewarded for their (Chairman), Brook Land (until 1 March 2005), Russell Walls individual contribution to the Group’s overall performance, and Robert Walker (from 1 March 2005). The Committee met having due regard to the interests of shareholders, and the eight times during 2004/05 and there was full attendance at all financial and commercial health of the Group. meetings.
The Company’s remuneration policy seeks, by application of The terms of reference for the Remuneration Committee are the six principles detailed below, to provide an overall available on request from the Group Company Secretary and remuneration package to a value within a specific range. The are on the Group’s web site. way that each package as a whole is structured, and the components that make it up, may differ. Due to the significant 2. Remuneration policy differences in remuneration practices in the two countries in The Remuneration Committee believes that the Group’s which the Group operates, the level of remuneration is based remuneration policy must be based on sound, clearly stated upon surveys which are undertaken in both the UK and the principles which recognise the long term interests of the US. Group, its shareholders and employees. After careful consideration during 2002/03, the Remuneration Committee All members of the Remuneration Committee are independent formally adopted a set of six principles. Following a further non-executive directors who do not have any personal review by the Remuneration Committee in early 2005 these financial interest (other than as shareholders) in matters principles remain unaltered and they are set out below: decided by the Committee. No executive director or senior manager is involved in determining his or her own (i) Signet’s primary business objective is to deliver results remuneration. which should consistently outperform the average of the industry sector. The Remuneration Committee sets the remuneration of the Chairman of the Board. It also sets that of the Group Chief (ii) It is recognised that to consistently deliver above industry Executive after consultation with the Chairman. The average performance Signet will need to retain, and where remuneration of the other executive directors and certain necessary attract, executives of well above industry senior managers is set by the Committee based on average ability and leadership potential. recommendations made by the Group Chief Executive after consultation with the Chairman of the Board. Performance (iii) It is also recognised that retaining, and where necessary targets are set by the Committee in consultation with the recruiting, senior executives of this calibre will require that Chairman of the Board and, where appropriate, external the Group provide above industry average total professional consultants. Where executive directors are remuneration. involved in assisting the Remuneration Committee, care is taken to recognise and avoid possible conflicts of interest. (iv) Therefore, Signet’s executive directors and other senior executives should be remunerated in a range beginning The Remuneration Committee draws on external professional with the 51st and ending with the 75th percentiles of advice on a regular basis and makes use of relevant and industry total remuneration, based on current surveys of reliable independent market surveys. The Committee has relevant companies appropriate to the executive’s position retained Towers Perrin as advisers to assist it and they are and geographic location. The remuneration of each not retained in any other capacity within the Group. In addition executive within this range will be based on performance Herbert Smith (on UK aspects) and Weil, Gotshal & Manges (both of the Group and the individual executive), potential (on US aspects) advised the Remuneration Committee on (i.e. the executive’s potential to grow in responsibility and legal matters. These firms also provide general legal advice to performance), and scarcity (i.e. the availability of Signet. candidates to replace the executive should he/she leave the Group). The remuneration of the non-executive directors is not within the remit of the Remuneration Committee. Such remuneration is
Signet Group plc Annual Report & Accounts year ended 29 January 2005 51
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Directors’ remuneration report (continued)
(v) Total remuneration for executive directors and other senior important element in motivating executives to deliver the long executives should be highly geared towards performance term performance needed to generate strong returns to with the proportion of “at risk” pay increasing shareholders. disproportionately according to: a) the level of performance achieved, and b) the seniority of the executives and their It is the policy of the Remuneration Committee that all ability to influence results. Excluding pension contributions, employees, including directors, who satisfy certain qualifying the provision of a company car and private health conditions, should have the opportunity to participate in the insurance, there should be only one element of guaranteed equity of the Company through a savings-related share option remuneration; base salary. The performance related plan, and annual invitations are normally made. Under the portion of total remuneration should reward short term and relevant legislation the exercise of these share options is not long term performance separately, with the potential level subject to performance criteria. of payment being heavily weighted in favour of the latter. Short term achievement should be recognised through the annual bonus plan with long term achievement being (d) Long term incentive plan (“LTIP”) The Remuneration Committee believes that, in addition to the rewarded through executive share option awards and provision of share options, it is appropriate to operate an LTIP participation in long term incentive plans. to encourage executive directors, senior members of the divisional executive management committees and certain (vi) Surveys will be undertaken on a regular basis to ensure other senior executives with a similar level of responsibility, to that total remuneration packages remain in the percentile meet long term strategic and financial objectives set by the range described in (iv) above. Recognising that some 70% Board. The policy is to make annual awards subject to the of Signet’s sales and profits are generated in the US and general principles explained in paragraphs 2(iv) and 2(v) that significant differences in remuneration practices exist above. Vesting is dependent on the achievement of between the US and the UK, separate surveys will be challenging performance conditions set by the Committee at conducted in each country. the time the awards are made and such awards do not normally vest within three years from the date the award is The components of total remuneration are: granted.
(a) Base salary (e) Performance criteria The base pay of each senior executive is intended to reflect The Remuneration Committee believes that where the size and scope of that executive’s responsibilities. Base performance criteria are used they should be: salary is reviewed annually, taking into account factors such as the level of individual performance, experience over time in • easily understood, the post, relevant external comparative data, the geographic • able to be directly linked to the performance of the Group or location of the post and the general movement of base pay relevant business unit and to be influenced by within the Group. management’s own actions, • designed to motivate management to increase profitability (b) Annual bonus plan significantly beyond the rate of inflation, Individual annual bonus targets are set each year to take • designed to incentivise senior management to make efficient account of the role of the executive and current business use of capital and to increase shareholder value, plans. Annual bonus awards for executive directors are based • equity based for long term schemes, and on the achievement of growth in pre-tax profit in the year at a • consistent with the overall objectives of the Group. rate above inflation measured using constant exchange rates. There is a cap set each year on such awards and a threshold The criteria used to measure performance are based on the performance below which no payments are made. The bonus results of the Group (subject to minor adjustments that are rate increases after an intermediate target rate of profit approved by the Remuneration Committee) so as to provide growth, which is set each year, is achieved. clarity and objectivity.
(c) Share option plans (f) Pensions for executive directors The Remuneration Committee believes that an executive UK based executive directors are normally members of the share option plan is an appropriate part of the total Group Scheme. remuneration package necessary to execute the remuneration principles set out on pages 51 and 52, and that a well constructed plan forms an
52 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
At the present time there are two such directors, the Group (ii) Service contracts Finance Director and the Chief Executive of the UK division. It is the policy of the Remuneration Committee that an The Group Scheme is a funded, Inland Revenue approved, executive director’s contract should be a rolling contract with final salary, occupational pension scheme and has a separate the period of notice to terminate the contract to be given by category of membership for directors (although only the Group either side not exceeding one year and that, if it is necessary Finance Director is in this category currently). Pensionable to grant a longer period of notice when recruiting from outside salary is the member’s base salary, excluding all bonuses. All the Group, this should reduce to a maximum of one year after Group Scheme benefits are subject to Inland Revenue limits. an initial period. No director has a service contract of more Where such limitation is due to the Inland Revenue earnings than one year. cap the Signet Group Funded Unapproved Retirement Benefit Scheme (the “FURBS”) is used to supplement pension (iii) Early termination benefits. This is a defined contribution arrangement. The Remuneration Committee believes that the circumstances of early termination vary. Only in very exceptional The main features of the Group Scheme for a director circumstances will explicit terms for compensation for early (currently only the Group Finance Director) are: termination be included in contracts for new directors. Where no explicit compensation terms are included, departing (i) a normal pension age of 60; directors or senior managers are expected to mitigate their (ii) pension at normal pension age of two-thirds of final loss within the framework of individual circumstances. pensionable salary, subject to completion of 20 years’ service; (iv) Executive directors – outside appointments (iii) life assurance cover of four times pensionable salary; and The Group recognises the benefits to the individual and to the (iv) spouse’s pension on death. Group when executive directors of the Company also act as non-executive directors of other companies not associated The Group Chief Executive receives, proportionately to base with Signet. Subject to certain conditions, unless otherwise salary, equivalent pension contributions to the Group Finance determined by the Board, executive directors are permitted to Director. These pension benefits are provided through an accept one appointment as a non-executive director of unfunded, unqualified deferred compensation plan and the another company. The executive director is permitted to retain Sterling Jewelers Inc. 401(k) Retirement Savings Plan. This is any fees paid for such service. a defined contribution arrangement. 3. Directors’ remuneration In the context of impending changes to pension taxation in the The remuneration package of the Group Chief Executive, the UK in 2006, no changes have yet been made to the pension highest paid director, is determined with regard to the fact that arrangements of executive directors or senior executives. The he is a US citizen, based in the US and his remuneration is Remuneration Committee will be consulting with its set in US dollars and not pounds sterling. Some 70% of Group professional advisers on the appropriateness of any changes sales and profits are generated in the US. which may be proposed for future pension provision in due course. (a) Salary and benefits The Remuneration Committee normally reviews the salary Apart from remuneration itself, there are certain other allied and benefits of executive directors annually. Details of the policy matters which are the concern of the Remuneration salaries received by executive directors are shown on page Committee. These are: 54. Following the 2005 annual reviews the Remuneration Committee increased the Group Chief Executive’s basic salary from $1,283,000 to $1,354,000 and that of the Group (i) Companies used for comparison Finance Director from £330,000 to £350,000. The Chairman’s In assessing all aspects of pay and benefits, the remuneration was increased from £327,000 to £350,000. The Remuneration Committee takes account of the packages basic salary of the Chief Executive of the UK division is offered by a range of other retailers and, where appropriate, £295,000, having been increased from £280,000 as part of the companies outside the retail sector. Different companies are review. used for comparison for executives in Group functions, and in the UK and the US divisions. These companies are chosen on the basis of turnover, market capitalisation, profits, number of (b) Annual bonus plan employees and the nature and geographic spread of their In 2004/05 an annual bonus of 71.0% (maximum 100%) of operations. base salary was paid to the Group Chief Executive and 53.3% (maximum 75%) to the Group Finance Director, reflecting the 12.1% increase
Signet Group plc Annual Report & Accounts year ended 29 January 2005 53 Back to Contents
Directors’ remuneration report (continued)
Directors’ emoluments ß Details of directors’ emoluments for the year to 29 January 2005 were as follows:
Benefits Basic salary or fees (1) Short term bonuses Total
2005 2004 2005 2004 2005 2004 2005 2004 £000 £ 000 £000 £ 000 £ 000 £ 000 £000 £000
Executive: (2) James McAdam Chairman 323 296 24 23 – – 347 319 Walker Boyd Group Finance Director 327 308 23 22 176 116 526 446 Terry Burman (3) Group Chief Executive 683 714 26 26 490 360 1,199 1,100
Non -executive: Lee Abraham (4) – 35 – – – – – 35 Robert Blanchard 43 38 – – – – 43 38 Brook Land 44 38 – – – – 44 38 Dale Hilpert 42 17 – – – – 42 17 Robert Walker (5) 12 – – – – – 12 – Russell Walls 43 38 – – – – 43 38
Total 1,517 1,484 73 71 666 476 2,256 2,031
(1) Benefits incorporate all benefits arising from employment by the Group, which in the main relate to the provision of a company car and private health insurance. (2) Robert Anderson was appointed as a director on 6 April 2005 with a basic salary of £295,000. In 2004/05 his basic salary was £277,500, benefits were £32,605 and a short term bonus of £22,680 is payable. In 2003/04 his basic salary was £253,750, benefits were £29,802 and short term bonus was £198,750. (3) Terry Burman’s emoluments are specified and paid in US dollars and an average exchange rate of US$1.86 was used (2003/04:US$1.68). (4) Until his retirement on 8 January 2004. (5) From his appointment on I November 2004. The figures above represent emoluments earned as directors during the relevant financial year. Such emoluments are paid in the same financial year with the exception of bonus payments, which are paid in the year following that in which they are earned.
in profit before tax at constant exchange rates. The bonus (i) Executive share option plans payments for the Group Chief Executive and the Group In July 2003, following consultation with the Association of Finance Director were calculated for 2004/05 on the basis of British Insurers and a significant number of major the following formula: shareholders, approval was given by shareholders at an extraordinary general meeting to the Signet Group plc 2003/04 pre-tax profit + inflation: 0% of base salary International Share Option Plan 2003, the Signet Group plc 2003/04 pre-tax profit + 10%: 50% of base salary UK Inland Revenue Approved Share Option Plan 2003 and 2003/04 pre-tax profit + 15%: 100% of base salary. the Signet Group plc US Share Option Plan 2003 (“2003 Plans”). Of the votes cast by proxy at the meeting 87% were in favour of the proposal. 1,160,619,434 votes were cast (68% Increase in pre-tax profit is calculated on a constant exchange of the issued share capital) and abstentions in respect of 7% rate basis and is earned on a pro-rata basis for performance of the issued share capital were received. between the targets. The 2003 Plans replaced the Signet Group plc 1993 Executive An annual bonus of 8.1% (maximum 75%) was paid to the Share Option Scheme (the “1993 Scheme”), under which no Chief Executive of the UK division on the same formula but further options may be granted. based on operating profit of the UK division. The 2003 Plans allow the Remuneration Committee discretion Bonus targets for 2005/06 are unchanged. to set performance conditions. The performance conditions under the 2003 Plans were set out in the circular to (c) Share option and long term incentive plans shareholders seeking approval for the 2003 Plans and no Share option and long term incentive plan grants to directors significant change in those conditions will be made without are set out on pages 60 and 61 respectively. See page 52 for prior consultation with major shareholders. the factors influencing the choice of performance criteria and for the basis of measurement.
54 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
The Remuneration Committee is fully aware that re-testing of US executives share option performance criteria is increasingly thought not to For US executives there is a pre-grant test based on both be UK best practice and has therefore given careful personal and corporate performance as described later, as consideration as to how this issue might be addressed. well as a post -grant exercise condition requiring that the annual compound growth in earnings per share be more than The present share option plans came into effect less than two 3% above inflation. years ago, (July 2003) and the Remuneration Committee believes that removal of the re-tests for the Signet 2005/06 The post-grant performance condition will be measured over grants would be inappropriate at such an early stage. The three years from the start of the financial year in which the Committee also believes that account must be taken of the award is made, and may then be measured from the same present adverse impact of the US exchange rate on the Group start point only to the end of the fourth or fifth years if not results, which is not within the control of the executives and previously satisfied. could well be the sole reason for options failing to vest. In April 2004 options of five times salary were awarded to the However, the Remuneration Committee concluded that a full Group Chief Executive. The Group Finance Director was review of all aspects of remuneration, including the elimination awarded options amounting to one and a half times salary. of re-testing of share options, should be undertaken later this Awards to the Group Chief Executive are based on principles year, following the expiry of the LTIP in June 2005. Major 2(iv), 2(v), 2(vi) (set out on pages 51 and 52), a comparative shareholders will of course, be consulted and all shareholders remuneration survey and a review of the performance of both will be able to vote on the new arrangements as appropriate at the Group and the executive over the prior three years. the 2006 annual general meeting. Before any share option grant is made to the Group Chief Executive, the Remuneration Committee has to satisfy itself The Remuneration Committee made the 2005/06 option that the demanding pre-grant conditions, mentioned above, grants on the same basis as in 2003/04 and 2004/05. Options have been achieved. This requires affirmation: (1) that the granted under the executive share option plans that have Group’s business performance has been superior to that of its passed the necessary performance conditions are normally industry sector; and (2) that the Group Chief Executive’s only exercisable between three and ten years from the date of personal performance continues to be of the highest standard. grant, after which the options lapse. On a divisional basis this business performance review The conditions are set out below: includes a three year comparison of compound like for like as well as total sales growth compared in the US to that of the US quoted jewellery sector and in the UK to the UK quoted UK executives general retail sector. Further there is a similar comparison of For UK executives the personal performance of participants operating margin compared to the Group’s principal will be assessed on each occasion that share option grants competitors in the US and the UK. take place and will be reflected in the level of the individual awards. On a Group basis the review includes a comparison of compound three year earnings per share growth, at constant In addition, grants are subject to exercise conditions as exchange rates, like for like as well as total sales of the UK follows: general retail sector of FTSE 100 companies. Further there is a similar comparison of total shareholder return against that of Required annual rate of the FTSE 350 companies (excluding investment trusts) and compound growth in earnings the FTSE general retailers index. Level of grant per share (1) above inflation (2)
The Remuneration Committee concluded that the review had Up to 200% of base salary +3% confirmed in 2005/06 that the pre-grant conditions had been 201% to 400% of base salary +4% achieved reflecting performance at the top end of the scale. Above 400% of base salary +5% On the basis of sustained out-performance and with (1) Normalised earnings per share as defined by the Institute of Investment management achievements acknowledged by industry Management and Research. (2) Defined as the UK Retail Prices Index. followers, the Committee concluded that the Group Chief Executive and Group Finance Director continued to merit total remuneration towards the upper end of the range determined Performance will be measured over three years from the start by the remuneration of the financial year in which the grant is made, and may then be measured from the same start point only to the end of the fourth or fifth years if not previously satisfied.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 55 Back to Contents
Directors’ remuneration report (continued)
principles. Based on the surveys conducted, this indicated a this plan were granted at a price approximately 15% below the base salary increase as detailed on page 53 and a share middle market price of the shares on the London Stock option grant equivalent to 5 times base salary, the same level Exchange on the date of grant. The period of exercise and the as awarded in the previous year, for the Group Chief discount allowed vary from the UK due to different legal Executive. Similar surveys undertaken in the UK indicated a regulations in the US. base salary, increase as detailed on page 53 for the Group Finance Director and options amounting to one and a half (iii) Long term incentive plan times salary, the same level as awarded in the previous year. Shareholders gave approval, in June 2000, to the Signet Similarly the Chief Executive of the UK division was awarded Group plc 2000 Long Term Incentive Plan (“LTIP”). options amounting to one times salary. Awards were made to executive directors and other senior Certain provisions of all the share option plans may be executives in 2002/03, 2003/04 and 2004/05. All these awards amended by the Board, but certain basic provisions (and in are subject to fulfilment of minimum performance conditions particular most of the limitations on individual participation, the set at the time of the award as to: number of shares and the percentage of share capital that can be issued thereunder) cannot be altered to the advantage of the participants except with the approval of shareholders or in • compound annual growth in the profit before tax of the Group using a constant exchange rate or as in the case of accordance with the adjustment provisions in the 2003 plans. the Chief Executive of the UK division the operating profit of the relevant division as appropriate (“Profit Growth”) and The Remuneration Committee has approved an amendment • the return on capital employed (“ROCE”) of the Group or to the 2003 Plans (other than the Inland Revenue Approved relevant division as appropriate Plan) to provide that, on exercise, options may be satisfied by the Company providing to the optionholder shares with a in each case over a fixed period of three successive financial value equal only to the gain on exercise, without the years starting with the one in which the award was made. requirement of a payment of the exercise price. This does not Nothing is payable under the award unless both minimum provide any financial benefit to either the Company or performance conditions are achieved. The minimum Profit optionholders, but results in less dilution for shareholders. Growth is set at a threshold level after taking account of inflation. The conditions were selected to ensure that awards (ii) All-employee share plans would only vest provided that growth in profits exceeded the In 1998/99 the Group introduced an Inland Revenue approved rate of inflation and that the business’s targeted ROCE is savings related share option scheme for UK employees (the achieved. “Sharesave Scheme”), a US Section 423 Plan (the “Employee Stock Savings Plan”) and a savings related share option scheme for employees in the Republic of Ireland (the “Irish If the performance conditions are achieved the award will vest Sharesave Scheme”), (together, the “All-employee and its value will depend on the extent to which the minimum Schemes”). These schemes give those employees with performance conditions are exceeded: qualifying service the opportunity to participate in the equity of the Company, with the aim of aligning the interests of • if Profit Growth exceeds the minimum threshold inflation employees with those of shareholders. level, the amount of the award will be calculated on a straight line basis from that level up to a specified inflection point, i.e 10% at which point 37.5% of the award will vest, The options granted under the Sharesave Scheme and the and then at an accelerated rate on a straight line basis up to Irish Sharesave Scheme are normally exercisable between 36 the maximum level of award at 15%. This maximum is equal and 42 months from the date of the relevant savings contract. to a specified percentage of base salary at the time at which Options were granted under these schemes at a price the award vests. The maximum award for the Group Chief approximately 20% below the middle market price of the Executive is equal to 70% of base salary at vesting and for shares on the London Stock Exchange on the dealing day the Group Finance Director and the Chief Executive of the prior to the date that employees were invited to participate in UK division 50% of base salary at vesting. The maximum them. award for him in 2002/03 was 20% of base salary at vesting reflecting his position of Chief Operating Officer of the UK The options granted under the Employee Stock Savings Plan, division at that time. which is for employees in the US, are normally exercisable between 24 and 27 months from the date of grant, such date being the first business day of any period during which savings may be accumulated under a savings contract. The options under
56 Signet Group plc Annual Report & Accounts year ended 29 January 2005
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2000 LTIP performance criteria
2005/06 award (1) 2004/05 award 2003/04 award 2002/03 award Group UK Group UK Group UK Group UK
Minimum performance for any vesting: Profit measure Profit Growth in excess of threshold inflation level ROCE measure 22.8 % 42.3 % 22.2 % 43.0 % 21.0 % 35.0 % 20.5% 35.0%
Profit Growth performance measure: Profit measure 10.0 % 10.0 % 10.0 % 10.0 % 10.0 % 10.0 % 10.0% 10.0% ROCE measure 15.0 % 15.0 % 15.0 % 15.0 % 15.0 % 15.0 % 15.0% 15.0%
ROCE performance measure: Specified ROCE required 23.8 % 43.3 % 23.2 % 44.5 % 22.0 % 36.5 % 21.5% 37.0%
(1) 2005/06 award criteria will be reviewed after the adoption of IFRS.
• if the minimum threshold inflation level of Profit Growth is In 2005/06 awards under the LTIP have been made to the achieved but the maximum award has not been earned by Group Chief Executive and the Group Finance Director at a reference to Profit Growth, then, in addition to the similar level to that of previous years, the share price to be percentage of base salary which has been earned on the fixed following the announcement of the preliminary results. above basis, the amount of the award earned on the basis The Chief Executive of the UK division has also received an of Profit Growth may be increased on the basis of the ROCE award on the same basis the performance criteria being increase. In the case of the Group Chief Executive, for each related to the UK division. 0.5% by which the ROCE exceeds the level specified in the award, the amount of the award would increase by an (d) Employee trusts amount equal to 5% of base salary (at vesting) up to a The share option plans may be operated in conjunction with maximum increase equal to 35% of such base salary. one or more employee share ownership trusts (the Signet Similarly in the case of the Group Finance Director, for each Group plc Employee Share Trust (“ESOT”), the Signet Group 0.5% by which the ROCE exceeds the specified level the Qualifying Employee Share Trust (“QUEST”) or the Signet amount of the award would increase by an amount equal to Group plc 2004 Employee Share Trust (“2004 ESOT”)) which 3% and in the case of the Chief Executive of the UK division may acquire shares in the Company for the purposes of 2% (1% for the award made in 2002/03) of such base salary satisfying the exercise of options. up to a maximum increase equal to 25% of such base salary. In no event, however, can any such increase result in The LTIP operates in conjunction with the ESOT and the 2004 the applicable maximum award amount stated in the ESOT which may be funded by the Group to acquire shares in preceding paragraph being exceeded. the Company for the purposes of meeting the Company’s obligation to provide shares on the exercise of options. The table above shows the percentages and the inflection points which have been specified for the existing awards and The trustees of the ESOT, QUEST and 2004 ESOT have indicates the relevant profits and ROCE to be used for waived their rights to any dividends declared on shares held in measurement. the trusts. When the performance conditions have been satisfied 50% of the amount which vests will be payable in cash and the other (e) Share scheme limits The executive share option plans are subject to the following 50% will consist of the grant of an option to acquire shares in limits on the number of shares that may be issued: the Company, the number of shares being determined by using the middle market price on the day preceding the grant of the award. For the 2002/03, 2003/04 and 2004/05 awards, (i)the maximum number of shares that have been or may be that share price was 121.00p, 83.50p and 112.50p issued pursuant to options granted under the executive respectively. Due to the deferred equity nature of the share share option plans and any other discretionary share option linked element of the award, the exercise price of the total scheme adopted by the Company may not exceed 5% of option grant is a nominal amount of £1 or $1, as appropriate. the shares from time to time in issue in any ten year period; The participants can normally exercise their option at any time after vesting, until the tenth anniversary of the grant of the award.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 57 Back to Contents
Directors’ remuneration report (continued)
(ii) the maximum number of shares that have been or may be (g) Service contracts issued pursuant to options granted under the executive The Group Chief Executive has a rolling service contract share option plans and any other employees’ share (dated 20 December 2000) with a US subsidiary, which can scheme adopted by the Company may not exceed 10% of be terminated on one year’s notice in writing by either party. the shares from time to time in issue in any ten year The Group Finance Director has a rolling service contract period; and (dated 14 June 1995 and amended on 15 May 2000) with the Company, which can be terminated on one year’s notice in (iii) the maximum of 171,376,839 shares (representing 10% of writing by either party or terminates on his 60th birthday. The the issued share capital on 8 July 2003) may be issued service contracts for the Group Chief Executive and the Group pursuant to incentive options granted under the US Plan. Finance Director provide for termination payments in the cases of early termination by the Group or in the event of certain changes of control. In these circumstances the amount In any ten year period not more than 10% of the issued share of termination payments due to the Group Chief Executive capital of the Company from time to time may in aggregate be would equal, in summary, the aggregate of (i) 100% of his issued or issuable pursuant to options granted under the All- base salary at the time of termination, (ii) 25% of his base employee Schemes or any other employees’ share schemes salary in respect of pension and other benefits, (iii) his adopted by the Company. outstanding entitlement to a cash bonus under the annual bonus plan referred to on page 53 in respect of the proportion The number of shares which may be issued or issuable of the fiscal year prior to the effective date of termination, and pursuant to the LTIP (including to the ESOT and the 2004 (iv) a sum equal to a variable percentage (currently 79.6%) of ESOT), when aggregated with any shares issued or issuable the cash bonus to which he would have become entitled under by the Company in the preceding ten years under any the annual bonus plan during the notice period. The amount of employees’ share scheme, participation in which is at the termination payments due to the Group Finance Director discretion of the Board, is limited to 5% of the Company’s would equal, in summary, the aggregate of (i) his annual issued share capital from time to time. The number of shares salary at the time of termination, (ii) the market value of the which may be issued or issuable pursuant to the LTIP contractual benefits in kind (including any pension (including to the ESOT and the 2004 ESOT), when contribution) to which he would have become entitled during aggregated with all shares issued or issuable by the Company the following 12 months, and (iii) all payments to which he in the preceding ten years under any other employees’ share would have become entitled under the annual bonus plan scheme, is limited to 10% of the Company’s issued share during the same 12 month period. The Chief Executive of the capital from time to time. UK division has a rolling service contract (dated 1 March 2003) with a UK subsidiary which can be terminated on one No more than 5% of the issued share capital of the Company year’s notice in writing by either party or terminates on his may be held by the trustee of the ESOT or the 2004 ESOT 65th birthday. In the case of early termination, the contract without prior approval of shareholders. provides for salary to be paid in lieu of notice, or where notice has been given, for any balance of the notice period. (f) Shareholding guidelines Entitlement to any share options or LTIP awards is governed When the 2003 Plans were introduced, shareholding by the rules of the relevant scheme. The contracts contain guidelines were set for executive directors and senior confidentiality and non-competition clauses. executives of the Group. The Group Chief Executive is expected to build a holding of shares equal to at least twice The Chairman has a letter of appointment (dated 20 June salary and the Group Finance Director to at least one times 2001), with no fixed term. The appointment can be terminated salary. Until these levels have been achieved, half of any post in writing by either party on reasonable notice and does not tax option gains under the 2003 Plans should be held in provide for compensation for loss of office. Each non- Signet shares. Since December 2004 future non-executive executive director has a letter of appointment from the directors will be required to build a holding of 10,000 shares Company which does not have a termination clause and does within two years of appointment and maintain that holding not provide for compensation for loss of office. The duration of whilst they remain a director of the Company. Similarly the any such appointment is subject to the terms of the Articles of existing non-executive directors have agreed to adhere to the Association and normally runs until such director is next same shareholding guidelines within the two year period for required to stand for election or re-election. compliance running from December 2004.
58 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
The letters of appointment are dated as set out below: during the period totalled £1,653 ß (2003/04: £1,786 ß ) and £134,024 ß (2003/04: £140,091 ß ) respectively. Robert Blanchard 5 September 2000 Dale Hilpert 15 July 2003 Pension benefits in respect of the UK based directors are set Brook Land 16 October 1995 out below. Robert Walker 21 September 2004 Russell Walls 29 May 2002 (i) Aggregate emoluments for the year to 29 January 2005 The total emoluments for directors of the Company and officers of the Group (excluding amounts due under the LTIP), (h) Company pension as listed on pages 41 and 42, for services in all capacities was The Chairman does not receive any pension provision. The £2,510,000 (2003/04: £2,403,000). The amounts due under amount paid in respect of life assurance for him in the period the LTIP for directors of the Company and officers of the ß ß was £19,100 (2003/04: £19,100 ). Group was £694,000 (2003/04: £794,000, restated to reflect the market value at vesting). 50% of the amounts due under The Group Chief Executive is a member of the Sterling the LTIP are payable in cash and the other 50% consists of Jewelers Inc. 401(k) Retirement Savings Plan and an the grant of an option to acquire shares in the Company. unfunded, unqualified deferred compensation plan. Details of the directors’ emoluments are given on page 54. Contributions made by Signet’s US division in respect of the Group Chief Executive
Pension benefits for the UK based executive directors ß
Robert Anderson Walker Boyd Chief Executive UK division Group Finance Director
2004/05 2003/04 2004/05 2003/04
Change in accrued benefits during the year (gross of inflation) 2,245 2,067 4,564 3,934 Change in accrued benefits during the year (net of inflation) 2,037 1,937 3,371 2,955 Accrued benefits at the end of the year 9,010 6,765 43,452 38,888 Transfer value of change in accrued pension (net of inflation) 7,997 5,579 44,369 35,071 Transfer value of accrued benefits at the beginning of the year 38,707 25,773 408,530 400,303 Transfer value of accrued benefits at the end of the year 58,367 38,707 510,434 408,530 Change in transfer value of accrued benefits (1) 14,585 7,999 101,904 8,227 Group payments to the FURBS 35,200 31,010 45,033 41,760 Life assurance contributions 858 1,197 2,582 2,508
(1) Calculated in accordance with the Actuarial Guidance Note GN 11.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 59 Back to Contents
Directors’ remuneration report (continued)
4. Directors’ interests in shares ß (a) Directors’ interest in share options ß Number of shares under option
At 31 At 29 Date from January January Exercise which Expiry
(1) Director 2004 Granted Forfeited Exercised 2005 price exercisable date (1)
Robert Anderson (2) 232,558 – – – 232,558 75.25p 2.5.04 1.5.11 (3)(7) 19,000 – – (19,000 ) – 50.00p – – 160,416 – – – 160,416 120.00p 11.4.05 10.4.12 322,188 – – – 322,188 82.25p 25.4.06 24.4.13 (4) – 251,685 – – 251,685 111.25p 5.4.07 4.4.14 £1 in (5) – 35,452 – – 35,452 15.4.04 3.5.11 total (3) – 10,985 – – 10,985 86.25p 1.1.08 30.6.08
Total 734,162 298,122 – (19,000 ) 1,013,284 90.99p (6)
Walker Boyd (2) (10) 837,037 – – (837,037 ) – 33.75p – – (10) 745,665 – – (745,665 ) – 43.25p – – 429,648 – – – 429,648 49.75p 10.4.02 31.3.09 611,842 – – – 611,842 57.00p 8.5.03 7.5.10 179,401 – – – 179,401 75.25p 2.5.04 1.5.11 (3)(8) 19,000 – – (19,000 ) – 50.00p – – 225,000 – – – 225,000 120.00p 11.4.05 10.4.12 £1 in (5) 133,484 – – – 133,484 15.4.03 18.7.10 total (4) 397,435 – – – 397,435 97.50p 14.7.06 13.7.13 (4) – 444,943 – – 444,943 111.25p 5.4.07 4.4.14 (3) – 10,985 – – 10,985 86.25p 1.1.08 30.6.08 £1 in (5) – 87,505 – – 87,505 15.4.04 3.5.11 total
Total 3,578,512 543,433 – (1,601,702 ) 2,520,243 73.78p (6)
Terry Burman (2) (9) 1,094,239 – – (1,094,239 ) – $0.80 – – (9) 2,217,280 – – (2,217,280 ) – $0.87 – – 496,289 – – – 496,289 $1.08 2.5.04 1.5.11 1,242,019 – – – 1,242,019 $1.72 11.4.05 10.4.12 (3)(8) 8,670 – – (8,670 ) – $1.10 – – (4) 3,807,426 – – – 3,807,426 $1.59 14.7.06 13.7.13 (4) – 3,129,267 – – 3,129,267 $2.05 5.4.07 4.4.14 (3) – 5,850 – – 5,850 $1.64 1.11.06 31.1.07 $1 in (5) – 344,829 – – 344,829 15.4.04 3.5.11 total
Total 8,865,923 3,479,946 – (3,320,189 ) 9,025,680 $1.68 (6)
James McAdam (10) 1,075,145 – – (1,075,145 ) – 43.25p – – 869,347 – – – 869,347 49.75p 10.4.02 31.3.09 (3)(8) 19,000 – – (19,000 ) – 50.00p – – (3) – 10,985 – – 10,985 86.25p 1.1.08 30.6.08
Total 1,963,492 10,985 – (1,094,145 ) 880,332 50.21p (6)
All options were granted to directors while they were directors apart from Mr Anderson who was appointed a director on 6 April 2005. The performance conditions for grants made under the 2003 Plans are set out on page 56. The conditions set by the Remuneration Committee for exercise of options granted under the 1993 Executive Share Option Scheme (“1993 Scheme”) were that for vesting to take place a post inflation minimum growth in earnings per share of 10% over any consecutive three year period had to be achieved. This performance condition was chosen as the Remuneration Committee believed it to be in line with market practice. This condition has been met in respect of the options granted between October 1997 and April 2002; the performance criteria having been satisfied in each case over the first three year period following the grant of the options. The Black-Scholes option-pricing model fair value is given on page 111 for options granted in the last three years. (1) The dates from which options are exercisable and the expiry dates are the dates that normally apply. Other dates apply in certain circumstances, such as an option holder ceasing to be employed. (2) See page 57 regarding awards that will be made in 2005/06. (3) & (5) The options above were all granted under the 1993 Scheme except those marked (3) which were granted under the terms of the Sharesave Scheme or, in the (4) case of Terry Burman, the Employee Stock Savings Plan, (the 8,670 shares granted under this Plan that became exercisable in November 2004 increased to 8,690 shares as a result of a rounding difference, as the shares were delivered as ADRs and the ADR ratio changing from 30:1 to 10:1), those marked (4) which were granted under the 2003 Plans, and those marked (5) awarded under the LTIP. (6) These are weighted averages of the exercise prices per share for the options held at the year end. (7) Exercised on 14 January 2005, when the market price was 110.00p. (8) Exercised on 17 January 2005, when the market price was 110.00p. (9) Exercised on 30 March 2004, when the market price was 109.25p. (10) Exercised on 15 June 2004, when the market price was 112.75p. The aggregate amount of gains made by directors on the exercise of options during the year amounted to £4,051,882 (2003/04: £1,934,651).
60 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Except as set out in tables (a), (b) and (c) on pages 60 to 62, the Companies Act 1985 nor in any right to subscribe for or in the notes under these tables, no director nor any shares in, or debentures of, the Company. member of any director’s immediate family had an interest in, or was granted or exercised any right to subscribe for, shares At 1 February 2004, 29 January 2005 and 6 April 2005, or debentures of the Company or any subsidiary, nor did any according to the register kept by the Company under section such right to subscribe lapse during the financial year, nor was 325 of the Companies Act 1985, the directors held interests in there any change between the end of the financial year and 6 the shares of the Company as indicated in tables (a), (b) and April 2005 in the interests of any director of the Company (c) on pages 60 to 62. As explained on page 57 the value of disclosed to the Company under the provisions of section 324 the awards that vest under the LTIP depends upon the extent (duty of directors to disclose shareholdings in own company) to which the performance conditions are met. The awards are as extended by section 328 (extension of section 324 to also capped by reference to a percentage of the recipient’s spouses and children) of base salary.
b) Directors’ interests in LTIPs ß Awards subject to Awards where the performance performance conditions conditions have been satisfied (1)
Option Cash and Cash and Expiry of options Cash Option Cash Option portion options award or total Date of portion portion portion portion (current current total vested (grant (2) (2) (grant (3) (3) (4) (6) award (number) (number) value) value (4)(5) vested option value) value) Director £ £ £ £ £
Robert Anderson (7) 2001/02 award (8) 4.5.01 – – – – – – 67,004 3.5.11 2002/03 award (8) 26.4.02 – – 28,000 23,140 26,554 54,554 – 25.4.12 2003/04 award (8) 30.4.03 70,000 83,832 – – – 166,197 – –(9) 2004/05 award 5.4.04 70,000 62,222 – – – 141,400 – –(9)
Awards at end of year 140,000 146,054 28,000 23,140 26,554 362,151 67,004
Walker Boyd (7) 2001/02 award (8) 4.5.01 – – – – – – 165,384 3.5.11 2002/03 award (8) 26.4.02 – – 82,500 68,182 78,239 160,739 – 25.4.12 2003/04 award (8) 30.4.03 82,500 98,802 – – – 195,875 – –(9) 2004/05 award 5.4.04 82,500 73,333 – – – 166,650 – –(9)
Awards at end of year 165,000 172,135 82,500 68,182 78,239 523,264 165,384
Terry Burman (7) 2001/02 award (8) 4.5.01 – – – – – – 600,761 3.5.11 2002/03 award (8) 26.4.02 – – 238,856 254,485 292,022 530,878 – 25.4.12 2003/04 award (8) 30.4.03 238,856 335,403 – – – 623,731 – –(9) 2004/05 award 5.4.04 238,856 217,903 – – – 488,901 – –(9)
Awards at end of year 477,712 553,306 238,856 254,485 292,022 1,643,510 600,761
All grants were made to directors while they were directors, apart from Mr Anderson who was appointed on 6 April 2005, and the performance conditions relating to the awards are set out on page 57. (1) In respect of the 2002/03 awards the Group performance achieved was a three year compound annual growth in profit before tax of 15% per annum. The UK division performance achieved was a three year compound annual growth in operating profit of 11.7% and a three year average ROCE of 44.3%. This resulted in 100% of the award vesting for the Group Chief Executive, 100% for the Group Finance Director and 100% for the Chief Executive of the UK division. (2) Assumes maximum performance conditions are satisfied and is calculated using salary at 28 February 2005 a share price at the time of grant in 2003 of 83.5p and in 2004 of 112.5p and in the case of Terry Burman an exchange rate of $1.88. (3) Calculated using salary at 28 February 2005 and a share price at the time of grant in 2002 of 121p. The LTIP payment is made in the year following the last year in respect of which the performance condition was set. (4) Calculated using share price as at 6 April 2005 of 114.75p. (5) Cash portion plus option portion value at 6 April 2005. For awards where the level of performance is currently unknown, no payment, or a reduced payment may be made. In respect of awards where the performance is known the base salary may be different at the date of vesting. (6) Vesting took place on 15 April 2004 and the cash portion was worth £26,500, £65,410 and £206,794 respectively for Robert Anderson, Walker Boyd and Terry Burman. The option interest was over 35,452 shares for Robert Anderson, 87,505 shares for Walker Boyd and 344,829 shares for Terry Burman and are included in the table of directors’ interests in share options on page 60. The share price on the day of vesting was 114.25p. For Terry Burman an exchange rate of $1.79 was used. (7) The Remuneration Committee approved grants of LTIP awards to Terry Burman (maximum of 70% of salary at vesting), both Walker Boyd and Robert Anderson (maximum of 50% of salary at vesting) on 5 April 2005. (8) Awards at start of year. (9) Expiry dates of awards will be known within 60 days after the announcement of the preliminary results for the last financial year in the performance period.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 61 Back to Contents
Directors’ remuneration report (continued) c) Directors’ interests in shares ß
Number of shares
At start At end At 6 April Director of year of year 2005
Robert Anderson (1) – 19,000 19,000 Robert Blanchard 6,360 6,360 6,360 Walker Boyd 433,495 452,495 452,495 Terry Burman 460,866 710,601 710,601 Dale Hilpert – 20,000 20,000 Brook Land 25,000 25,000 25,000 James McAdam (2) 242,088 261,088 261,088 Robert Walker – – – Russell Walls 4,000 4,000 4,000
(1) Appointed as a director 6 April 2005.
(2) 22,000 of those shares held were, at each date, held by Mr. McAdam’s wife in trust for their grandchildren and, while Mr. McAdam is taken to have an interest in them for Companies Act purposes, neither he nor his wife has a beneficial interest in them.
Although the minimum performance conditions for the 2002/03 5. Share price award have been exceeded, vesting will only occur within 60 days of the preliminary results announcement for the year The middle market price of a Signet share on the London ended 29 January 2005. Stock Exchange was 109.75p on 29 January 2005 and was 94.50p on 31 January 2004. During the 52 weeks ended 29 The Group operates the QUEST, which is currently used in January 2005, the middle market prices on the London Stock connection with the Sharesave Scheme, the ESOT and the Exchange ranged between a low of 93.75p and a high of 2004 ESOT. Robert Anderson, Walker Boyd, Terry Burman 119.75p. On 6 April 2005 the middle market price was and James McAdam, at 1 February 2004, 29 January 2005 114.75p. and 6 April 2005, were, in common with all other employees of the Group, deemed to have an interest in the shares held by 6. Total shareholder return (“TSR”) the QUEST, the ESOT and the 2004 ESOT. The QUEST held 110,857 shares on 1 February 2003, 41,065 on 31 January The graph on page 63 (left) shows the cumulative annual total 2004, nil on 29 January 2005 and nil on 6 April 2005. The return (share price movement and dividends) to shareholders ESOT held nil shares on 1 February 2003, nil on 31 January 2004, 4,610,839 on 29 January 2005 and 4,443,869 on 6 April of the Group since 29 January 2000 based on the 30 day 2005. The 2004 ESOT held nil shares on 29 January 2005 average of value of the share price compared to the FTSE and nil shares on 6 April 2005. No director had been granted 350 index. This index was chosen as a suitable comparator as it is a major market index of which the Group is a member. any specific interest in such shares. Also shown on a similar basis on the graph on page 63 (right), is the Group’s performance compared to the FTSE general The Company’s register of directors’ interests, which is open retail sector. to inspection at the registered office, contains full details of directors’ shareholdings and share options.
62 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
The directors’ remuneration report was approved by the Board on 6 April 2005, and signed on its behalf by:
Robert Blanchard , Chairman, Remuneration Committee
Signet Group plc Annual Report & Accounts year ended 29 January 2005 63 Back to Contents
Statement of directors’ responsibilities
The directors are required to prepare accounts for each financial period which give, in accordance with the Companies Act 1985, a true and fair view of the state of affairs of the Company and the Group as at the end of that financial period and of the profit or loss of the Group for that period. In preparing those accounts, the directors are required to:
• select suitable accounting policies and then apply them consistently; • make judgements and estimates that are in their opinion reasonable and prudent; and • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts; and prepare the accounts on a going concern basis unless in their view, based on the information then available to them, that basis of preparation would not be appropriate.
The directors are responsible for ensuring that the Company complies with the requirements of the Companies Act 1985 in regard to keeping adequate accounting records which disclose with reasonable accuracy, at any time, the financial position of the Company and to enable them to ensure that the accounts comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
64 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and shareholders of Signet Group plc As discussed in note 17 to the consolidated financial statements, the Company has adopted Application Note (G) of We have audited the accompanying consolidated balance FRS 5 ‘Reporting the Substance of Transactions’ resulting in sheets of Signet Group plc and subsidiaries as at 29 January the restatement of the financial position of Signet Group plc 2005 and 31 January 2004, and the related consolidated profit and subsidiaries as at 31 January 2004 and the results of and loss accounts, consolidated cash flow statements, operations and cash flows for the 52 week period ended 31 consolidated statements of total recognised gains and losses January 2004 and the 52 week period ended 1 February and consolidated shareholders’ funds statement for the 52 2003. week period ended 29 January 2005, the 52 week period ended 31 January 2004, and the 52 week period ended 1 Accounting principles generally accepted in the United February 2003 presented on pages 66 to 114. These Kingdom vary in certain significant respects from accounting consolidated financial statements are the responsibility of the principles generally accepted in the United States of America. Company’s management. Our responsibility is to express an Information relating to the nature and effect of such opinion on these consolidated financial statements based on differences is presented in note 31 to the consolidated our audits. financial statements.
We conducted our audits in accordance with the standards of As discussed in note 31 to the consolidated financial the Public Company Accounting Oversight Board (United statements, the US GAAP information as at 31 January 2004 States). Those standards require that we plan and perform the and 1 February 2003 and for the 52 week periods ended 31 audit to obtain reasonable assurance about whether the January 2004 and 1 February 2003 has been restated for financial statements are free of material misstatement. An corrections related to revenue recognition attributable to audit includes examining, on a test basis, evidence supporting extended service agreements and lease accounting. the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used KPMG Audit Plc and significant estimates made by management, as well as Chartered Accountants evaluating the overall financial statement presentation. We London, England believe that our audits provide a reasonable basis for our opinion. 6 April 2005 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Signet Group plc and subsidiaries as of 29 January 2005 and 31 January 2004, and the results of their operations and their cash flows for 52 week period ended 29 January 2005, the 52 week period ended 31 January 2004, and the 52 week period ended 1 February 2003 in conformity with generally accepted accounting principles in the United Kingdom. Signet Group plc Annual Report & Accounts year ended 29 January 2005 65 Back to Contents
Consolidated profit and loss account for the 52 weeks ended 29 January 2005
52 weeks ended 52 weeks ended 52 weeks ended 29 January 31 January 2004 1 February 2003 2005 as restated (1) as restated (1) £m £m £m Notes
Sales 1,614.4 1,604.9 1,593.6 2 Cost of sales (1,329.6 ) (1,330.7 ) (1,331.2 )
Gross profit 284.8 274.2 262.4 Administrative expenses (65.9 ) (64.0 ) (62.5 )
Operating profit 218.9 210.2 199.9 2 Net interest payable and similar charges (8.6 ) (10.4 ) (14.0 ) 3
Profit on ordinary activities before taxation 210.3 199.8 185.9 4 Tax on profit on ordinary activities (69.1 ) (70.2 ) (65.7 ) 7
Profit for the financial period 141.2 129.6 120.2 Dividends (52.0 ) (43.2 ) (36.1 ) 8
Retained profit attributable to shareholders 89.2 86.4 84.1
Earnings per share – basic 8.2p 7.5p 7.0p 9 Earnings per share – diluted 8.1p 7.5p 7.0p 9
All of the above relate to continuing activities during the current and previous periods.
(1) Restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17).
66 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Consolidated balance sheet at 29 January 2005
29 January 31 January 2004 2005 (1) as restated £m £m Notes
Fixed assets: Intangible assets 15.2 16.8 10 Tangible assets 226.8 202.8 11
242.0 219.6
Current assets: Stocks 578.3 541.5 12 Debtors (2) 375.3 365.2 13 Cash at bank and in hand 102.4 128.0 14
1,056.0 1,034.7 Creditors: amounts falling due within one year (351.6 ) (365.6 ) 15
Net current assets (2) 704.4 669.1
Total assets less current liabilities 946.4 888.7 Creditors: amounts falling due after more than one year (200.2 ) (208.6 ) 16 Provisions for liabilities and charges: other provisions (5.8 ) (6.4 ) 19 Pension (liability)/asset (1.3 ) 1.2 20
Total net assets 739.1 674.9
Capital and reserves – equity: Called up share capital 8.7 8.6 21 Share premium account 68.0 60.7 22 Revaluation reserve 4.3 3.1 22 Special reserves 155.9 142.2 22 Profit and loss account 502.2 460.3 22
Shareholders’ funds 739.1 674.9
(1) Restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17). (2) Debtors and net current assets include amounts recoverable after more than one year of £4.3 million (2004: £26.9 million) (see note 13).
These accounts were approved by the Board of Directors on 6 April 2005, and were signed on its behalf by:
James McAdam Director Walker Boyd Director
Signet Group plc Annual Report & Accounts year ended 29 January 2005 67 Back to Contents Company balance sheet at 29 January 2005
29 January 31 January 2004 2005 £m £m Notes
Fixed assets: Tangible assets 65.4 53.9 30(b) Investments 766.8 766.8 30(j)
832.2 820.7
Current assets: Debtors (1) 425.5 375.3 30(c) Cash at bank and in hand 100.2 98.3 30(d)
525.7 473.6 Creditors : amounts falling due within one year (600.1 ) (536.8) 30(e)
Net current liabilities (1) (74.4 ) (63.2 )
Total assets less current liabilities 757.8 757.5 Creditors: amounts falling due after more than one year – (8.3 ) 30(f)
Total net assets 757.8 749.2
Capital and reserves – equity: Called up share capital 8.7 8.6 21(g) Share premium account 68.0 60.7 30(g) Special reserves 565.1 565.1 30(g) Profit and loss account 116.0 114.8 30(g)
Shareholders ’ funds 757.8 749.2
(1) Debtors and net current liabilities include amounts recoverable after more than one year of £3.1 million (2004: £2.2 million) (see note 30(c)).
These accounts were approved by the Board of Directors on 6 April 2005, and were signed on its behalf by:
James McAdam Director Walker Boyd Director
68 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Consolidated cash flow statement for the 52 weeks ended 29 January 2005
52 weeks ended 52 weeks ended 52 weeks ended 29 January 31 January 2004 1 February 2003 2005 £m £m £m Notes
Net cash inflow from operating activities 172.6 203.8 182.2 25(a)
Returns on investments and servicing of finance Interest received 1.8 0.9 1.1 Interest paid (11.6 ) (11.9 ) (17.6 )
Net cash outflow from returns on investments and servicing of (9.8 ) (11.0 ) (16.5 ) finance
Taxation paid (56.5 ) (69.0 ) (57.3 )
Capital expenditure: Purchase of tangible fixed assets (70.5 ) (50.9 ) (49.5 ) Proceeds from sale of tangible fixed assets 0.2 0.2 1.3
Net cash outflow from capital expenditure (70.3 ) (50.7 ) (48.2 )
Equity dividends paid (43.8 ) (36.7 ) (30.8 )
Cash (outflow)/inflow before use of liquid resources and (7.8 ) 36.4 29.4 financing
Management of liquid resources: Decrease/(increase) in bank deposits 24.5 (42.4 ) (29.9 )
Financing: Proceeds from issue of shares 7.3 6.3 4.3 Purchase of own shares by ESOT (9.5 ) – – Repayment of bank loans (8.1 ) (12.1 ) (12.1 )
Cash outflow from financing (10.3 ) (5.8 ) (7.8 )
Increase/(decrease) in cash in the period 6.4 (11.8 ) (8.3 )
Reconciliation of net cash flow to movement in net debt
52 weeks ended 52 weeks ended 52 weeks ended 29 January 31 January 2004 1 February 2003 2005 £m £m £m Notes
Increase/(decrease) in cash in the period 6.4 (11.8 ) (8.3 ) Cash outflow from decrease in debt 8.1 12.1 12.1 Cash (inflow)/outflow from (decrease)/increase in liquid resources (24.5 ) 42.4 29.9
Change in net debt resulting from cash flows (10.0 ) 42.7 33.7 Translation difference 6.4 17.5 27.9
Movement in net debt in the period (3.6 ) 60.2 61.6 Opening net debt (79.9 ) (140.1 ) (201.7)
Closing net debt (83.5 ) (79.9 ) (140.1) 25(b)
Signet Group plc Annual Report & Accounts year ended 29 January 2005 69 Back to Contents
Consolidated statement of total recognised gains and losses for the 52 weeks ended 29 January 2005
52 weeks 52 weeks 52 weeks
ended ended ended 29 January 31 January 1 February
2005 2004 2003 (1) (1) as restated as restated
£m £m £m
Profit for the financial period 141.2 129.6 120.2 Translation differences (net of £0.3 million tax charge (2004: £nil; 2003: £0.7 million (33.0 ) (91.0 ) (135.8 ) credit)) Actuarial (loss)/gain arising on pension asset (net of £1.7 million tax credit (2004: £2.8 million charge; 2003: £9.5 million credit)) (3.9 ) 6.4 (22.3 )
Total recognised gains and losses relating to the period 104.3 45.0 (37.9 ) Prior year adjustments (note 17) – amendment to FRS 5 (adopted in 2004/05) (52.7 ) – – – FRS 17 (adopted in 2003/04) – (18.1) –
Total recognised gains and losses since last Annual Report 51.6 26.9 (37.9 )
Note of consolidated historical cost profits and losses
52 weeks ended 52 weeks ended 52 weeks ended 29 January 31 January 2004 1 February 2003 2005 as restated(1) as restated(1) £m £m £m
Profit on ordinary activities before taxation 210.3 199.8 185.9 Realisation of property revaluation deficit – – (0.1 )
Historical cost profit on ordinary activities before taxation 210.3 199.8 185.8
Historical cost retained profit attributable to equity shareholders 89.2 86.4 84.0
(1) Restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17).
70 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Consolidated shareholders’ funds
Ordinary Deferred Share Profit share share premium Revaluation Special and loss capital capital account reserve reserves account Total £m £m £m £m £m £m £m
Balance at 2 February 2002 – as previously stated 8.5 0.1 48.3 3.0 38.3 585.5 683.7 – prior year adjustment (note 17) – – – – – (49.3 ) (49.3 )
– as restated 8.5 0.1 48.3 3.0 38.3 536.2 634.4 Retained profit attributable to equity shareholders – – – – – 84.1 84.1 Shares issued to QUEST/ESOT – – 1.9 – – (1.9 ) – Exercise of share options 0.1 – 3.7 – – – 3.8 Redemption of deferred share capital – (0.1 ) – – – 0.1 – Transfer on property disposals – – – 0.1 – (0.1 ) – Actuarial loss recognised – – – – – (22.3 ) (22.3 ) Translation differences – – – – 63.4 (135.8 ) (72.4 )
Balance at 1 February 2003 8.6 – 53.9 3.1 101.7 460.3 627.6 Retained profit attributable to equity shareholders – – – – – 86.4 86.4 Shares issued to QUEST/ESOT – – 1.8 – – (1.8 ) – Exercise of share options – – 5.0 – – – 5.0 Actuarial gain recognised – – – – – 6.4 6.4 Translation differences – – – – 40.5 (91.0 ) (50.5 )
Balance at 31 January 2004 8.6 – 60.7 3.1 142.2 460.3 674.9 Retained profit attributable to equity shareholders – – – – – 89.2 89.2 Shares issued to QUEST/ESOTs – – 2.5 – – (2.5 ) – Exercise of share options 0.1 – 4.8 – – 1.6 6.5 Purchase of own shares by ESOT – – – – – (9.5 ) (9.5 ) Transfer on property disposals – – – 1.2 – – 1.2 Actuarial loss recognised – – – – – (3.9 ) (3.9 ) Translation differences – – – – 13.7 (33.0 ) (19.3 )
Balance at 29 January 2005 (1) 8.7 – 68.0 4.3 155.9 502.2 739.1
(1) Shareholders’ funds at 29 January 2005 include cumulative losses of £119.5 million (2004: £100.2 million losses, 2003: £49.7 million losses) in respect of translation differences (see note 22).
Signet Group plc Annual Report & Accounts year ended 29 January 2005 71 Back to Contents
Notes to the accounts
1. Principal accounting policies The consolidated accounts of Signet Group plc and its subsidiary companies (“the Group”) are prepared in accordance with generally accepted accounting principles in the UK (“UK GAAP”). These principles differ in certain significant respects from generally accepted accounting principles in the US (“US GAAP”). Application of US GAAP would have affected shareholders’ funds and results of operations at and for the 52 weeks ended 29 January 2005, the 52 weeks ended 31 January 2004 and the 52 weeks ended 1 February 2003 to the extent summarised in note 31. The following accounting policies are applied consistently in dealing with items which are considered material in relation to the accounts of the Group:
(a) Basis of preparation The Group is a speciality jewellery retailer in both the UK and the US.
The consolidated accounts have been prepared in accordance with applicable UK accounting standards and under the UK historical cost convention as modified by the revaluation of freehold and long leasehold properties.
The preparation of consolidated accounts in conformity with UK GAAP and US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the accounts and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The consolidated accounts comply with the Accounting Standards issued by the Accounting Standards Board. The amendment to FRS 5, ‘Application Note G – Revenue Recognition’ has been implemented during 2004/05 which has resulted in a prior year adjustment as described in note 17.
(b) Consolidation The Group accounts include the accounts of the Company and its subsidiary undertakings made up for the 52 week period ended 29 January 2005 (the comparatives are for the 52 week period ended 31 January 2004 and the 52 week period ended 1 February 2003). Unless otherwise stated, the acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired or disposed of in the year are included in the consolidated profit and loss account from the date of acquisition or up to the date of disposal.
Under section 230(3) of the Companies Act 1985 the Company is exempt from the requirement to present its own profit and loss account.
(c) Goodwill Purchased goodwill (representing the excess of the fair value of the consideration given and associated costs over the fair value of the separable net assets acquired) arising on consolidation in respect of acquisitions since 1 February 1998 is capitalised. Positive goodwill is amortised to nil by equal annual instalments over its estimated useful life, normally 20 years.
In the Company’s accounts, investments in subsidiary undertakings are stated at cost less any impairment in value.
Impairment reviews are carried out annually to ensure goodwill and intangible assets are not carried at above their recoverable amounts. Wherever events or changes in circumstances indicate that the carrying amount may not be recoverable, the Group performs discounted cash flow analyses to compare discounted estimated future operating cash flows to the net carrying value of goodwill. Any amortisation or impairment write downs identified are charged to the profit and loss account.
(d) Sales Sales represent sales to customers outside the Group, exclusive of value added and sales taxes. Repair revenues are recognised when the service is complete and the merchandise is delivered to the customer.
72 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Revenue from the sale of extended service agreements in the US is deferred and recognised, net of incremental costs arising from the initial sale, in proportion to anticipated claims arising. This period is based on the historical claims experience of the US business, which has been consistent since these products were launched. The Group reviews the pattern of claims at the end of each year to determine any significant trends that may require changes to revenue recognition rates.
Prior to the adoption of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ in 2004/05, the Group recognised the revenue from such extended service agreements at the date of sale, with provision being made for the estimated cost of future claims arising.
(e) Cost of sales Cost of sales includes all costs incurred in the purchase, processing and distribution of the merchandise and all costs directly incurred in the operation and support of the retail outlets. This includes inbound freight charges, purchasing and receiving costs, inspection and internal transfer costs.
(f) Foreign currency translation The results of overseas subsidiary undertakings are translated into pounds sterling at the weighted average rates of exchange during the period and their balance sheets and attributable goodwill at the rates at the balance sheet date. Exchange differences arising from the translation of the net assets and attributable goodwill of overseas subsidiary undertakings and matched foreign currency borrowings less deposits are charged or credited to reserves. Other exchange differences arising from foreign currency transactions are included in profit before taxation.
(g) Depreciation and amortisation Depreciation is provided on freehold and long leasehold retail premises over an estimated useful life not exceeding 50 years. Long leaseholds relate to leases that have an original and unexpired lease term of greater than 25 years. Freehold land is not depreciated.
Premiums paid to acquire short leasehold properties are amortised over their lease periods (up to 25 years) while incentives received are amortised over the period to the first rent review. Provision is made for future net lease obligations in respect of onerous leases of vacant, partially vacant or sublet properties. Depreciation on other fixed assets is provided on a straight line basis at the following annual rates:
1 Plant, machinery and vehicles – 10%, 20%, 33 / 3 %, 1 Shopfronts, fixtures and fittings – rates up to 33 / 3 %.
Where the renewal of a lease is reasonably assured, the depreciation period for shopfronts, fixtures and fittings may exceed the remaining lease term.
Where appropriate, provision is made on assets that have a lower economic value than book value. Potentially impaired assets are identified by reviewing the cash contribution of individual stores where trading since the initial opening of the store has reached a mature stage. Where such stores deliver a low or negative cash contribution, the related store assets are considered for impairment by reference to the higher of net realisable value and value in use. Additionally, provision is made against tangible fixed assets relating to stores planned for closure.
(h) Stocks Stocks represent goods held for resale and are valued at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method and includes overheads directly related to bringing stocks to their present location and condition. These include relevant warehousing, distribution and certain buying, security and data processing costs. Provision is made for obsolete, slow moving or defective items.
(i) Vendor contributions Where vendor contributions are received in respect of identifiable promotional events, these are matched against the costs of these promotions. Vendor contributions which are received as general contributions and not against specific promotional events are allocated against stocks.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 73 Back to Contents
Notes to the accounts (continued)
(j) Debtors Full provision is made for debts that are 90 days past their due date on a recency basis. A provision is also made based on the historical performance of the receivables portfolio.
(k) Shares in subsidiary undertakings Shares in subsidiary undertakings are stated at cost, less amounts written off for any impairment in value.
(l) Leases Rentals paid under operating leases are charged to the profit and loss account as incurred. Predetermined rent increases are recognised when they fall due, reflecting that these are generally intended to compensate for the expected cost of inflation. Amounts payable in respect of turnover leases are recognised in the period to which the turnover relates.
Assets held under finance leases, which are leases where substantially all the risks and rewards of the asset have passed to the Group, are capitalised in the balance sheet and depreciated over their estimated useful lives. Future instalments under such leases, net of finance charges, are included within creditors. Rental payments are apportioned between the finance element, which is charged to the profit and loss account, and the capital element which reduces the outstanding obligation for future instalments.
(m) Deferred taxation Deferred taxation is provided on a full provision basis, without discounting, on all timing differences which have arisen but not reversed at the balance sheet date. Except where otherwise required by UK Accounting Standards no timing differences are recognised in respect of:
(a) property revaluation surpluses where there is no commitment to sell the asset; and (b) additional tax which would arise if profits of overseas subsidiaries were distributed.
(n) Pension schemes The Group Scheme, covering one of the executive directors and all participating eligible employees, provides benefits based on members’ salaries at retirement. The Group Scheme’s assets are held by the trustees and are completely separate from those of the Group.
The full service cost of pension provisions relating to the period is charged to ‘administrative expenses’ in the profit and loss account. The expected return on the Group Scheme’s assets is credited and the interest element of the increase in the present value of the Group Scheme’s liabilities is charged to ‘net interest payable and similar charges’ in the profit and loss account.
The difference between the market value of the assets of the Group Scheme and the present value of accrued pension liabilities is shown as an asset or liability on the balance sheet, net of deferred tax. The difference between the expected return on assets and that actually achieved is recognised in the statement of total recognised gains and losses along with any differences that may arise from experience or assumption changes.
The pension cost is assessed in accordance with the advice of independent qualified actuaries. Where appropriate, supplementary pensions and life assurance benefits for UK directors and senior executives are provided through the Signet Group Funded Unapproved Retirement Benefits Scheme. Cash contributions under the Group’s defined contribution plans are charged to the profit and loss account as incurred.
(o) Net interest payable and similar charges Purchased interest rate protection agreements are amortised to interest payable and similar charges over the term of the relevant agreement. All such interest rate protection agreements must be related to an asset or liability and must change the character of the interest rate by converting a variable rate to a fixed rate, or vice versa, to qualify for accrual accounting. In addition the term and notional amount of the swap, cap or floor must not exceed the term and principal amount of the debt or asset. Amounts payable or receivable under such agreements are accrued within net interest payable and similar charges in the profit and loss account and recorded as current assets or liabilities on the balance sheet.
74 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
(p) Liquid resources Liquid resources comprise money market deposits and amounts placed with external fund managers with an original maturity of three months or less, and are carried at cost which approximates to fair value.
(q) Foreign exchange risk management The Group enters into forward purchases of foreign currencies, principally the US dollar and the Euro in order to limit the impact of movements in foreign exchange rates on its forecast foreign currency purchases.
The forward currency purchases are recognised on the balance sheet when the contracts mature. They are accounted for in line with the forward asset underlining the hedged transition, whereby the gain or loss is recognised within the profit and loss account only when the future transaction is also accounted for through the profit and loss account.
(r) Commodity risk management In order to ensure that values of assets and revenue protection should not be unnecessarily exposed to significant movements in the price of underlining precious metal raw material, the Group may enter into forward purchase contracts for commodities.
The overall amount and duration of such forward commodity contracts are dependent on the underlying buying needs of the operating companies and prevailing commodity prices. The forward commodity purchases are recognised on the balance sheet when the contracts mature. They are accounted for in line with the forward asset underlying the hedged transaction, whereby the gain or loss is recognised within the profit and loss account only when the future transaction is also accounted for through the profit and loss account.
(s) Share schemes Options granted to employees to subscribe for the Group’s shares where the exercise price of the option is linked to performance, do not result in any compensation costs being recorded by the Group if the stated exercise price is equal to, or in excess of, the fair value of the underlying shares at the date of grant. The cost of the cash and share award elements of the Long Term Incentive Plan is charged to the profit and loss account evenly over the period from the award date to vesting, based on the level of award that is expected to be achieved.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 75 Back to Contents
Notes to the accounts (continued)
2. Segment information The Group’s results derive from one business segment – the retailing of jewellery, watches and gifts. The Group is managed as two operating segments, being the US and UK divisions. Both divisions are managed by executive committees, which report through the Group Chief Executive to the Group Board. Each divisional executive committee is responsible for operating decisions within guidelines set by the Group Board.
2005 2004 2003 £m £m £m
Sales by origin and destination (1) : UK 514.4 501.0 473.6 US 1,100.0 1,103.9 1,120.0
1,614.4 1,604.9 1,593.6
Operating profit (1) : UK – Trading 78.2 76.6 64.7 – Group central costs (2) (6.6 ) (5.7 ) (6.0 )
71.6 70.9 58.7 US 147.3 139.3 141.2
218.9 210.2 199.9
Depreciation and amortisation: UK 17.4 15.7 12.5 US 24.9 24.7 25.3
42.3 40.4 37.8
Net interest payable/(receivable) and similar charges: UK (5.6 ) (2.3 ) (1.2 ) US 14.2 12.7 15.2
8.6 10.4 14.0
Additions to tangible fixed assets: UK 28.8 17.8 16.4 US 41.7 33.1 33.1
70.5 50.9 49.5
Tangible fixed assets: UK 84.1 72.6 70.5 US 142.7 130.2 135.0
226.8 202.8 205.5
Total assets (3) : UK 449.8 446.3 375.3 US 843.9 782.3 819.4
1,293.7 1,228.6 1,194.7
Net assets (1)(4) : UK 222.9 209.9 126.2 US 599.7 544.9 641.5 Net debt (83.5 ) (79.9 ) (140.1 )
739.1 674.9 627.6
(1) 2004 and 2003 restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17). (2) Group central costs for 2005 include a net charge of £0.4 million relating to a property provision (2004: £nil; 2003: £0.5 million). (3) Total assets includes fixed and current assets but excludes current liabilities and debt. (4) Net debt has been excluded from the two operating segments.
76 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
3. Net interest payable and similar charges
2005 2004 2003 £m £m £m
Interest on bank loans and overdrafts 2.1 1.9 4.7 Interest expense of US securitisation facility 7.4 8.2 9.0 Interest on loan notes 0.9 1.7 2.5 Facilities fees and related costs 1.2 0.9 1.4
11.6 12.7 17.6 Interest receivable (1.8 ) (1.7 ) (1.1 )
9.8 11.0 16.5 Net interest credit on defined benefit pension scheme (note 20) (1.2 ) (0.6 ) (2.5 )
8.6 10.4 14.0
4. Profit on ordinary activities before taxation
2005 2004 2003 £m £m £m
Profit on ordinary activities before taxation is stated after charging: Depreciation – owned assets 41.3 37.6 34.8 Depreciation – assets held under finance leases – 1.7 1.8 Goodwill amortisation 1.0 1.1 1.2 Fees payable to KPMG Audit Plc and their associates: Audit services (1) 0.4 0.4 0.4 Further assurance services (2) 0.3 0.1 0.1 Tax services – – 0.3 Other services – – – Advertising 78.0 73.7 69.4 UK restructuring cost 1.7 – – Operating lease rentals – plant, machinery and vehicles 2.1 2.2 2.1 Operating lease rentals – property 133.9 136.7 135.5
(1) Audit services include the fee for the statutory audit of the Company and of its subsidiaries. (2) Further assurance services were for work carried out in respect of the quarterly reviews and Christmas trading review, and, in 2005, includes advice given in respect of work on Section 404 of the Sarbanes -Oxley Act of 2002 and the implementation of International Financial Reporting Standards.
5. Foreign currency translation
The exchange rates used for translation of US dollar transactions and balances in these accounts are as follows:
2005 2004 2003
Profit and loss (average rate) 1.86 1.68 1.53 Balance sheet (year end rate) 1.89 1.82 1.64
The effect of translation on foreign currency borrowings less deposits in the period was to decrease the Group’s net borrowings by £6.4 million (2004: £17.5 million decrease, 2003: £27.9 million decrease). The net effect of exchange rate movements on foreign currency investments (excluding goodwill) and foreign currency borrowings less deposits in the period was a loss of £19.3 million (2004: £50.5 million loss, 2003: £72.4 million loss). This amount has been taken to reserves in accordance with SSAP 20.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 77 Back to Contents
Notes to the accounts (continued)
6. Directors and employees
2005 2004 2003 £m £m £m
Directors’ emoluments 2.3 2.0 2.6 Directors’ LTIP – cash 0.3 0.3 0.4 Directors’ LTIP (1) – share options (at market value) 0.4 0.5 0.6 Contributions to pension schemes in respect of directors 0.2 0.2 0.2
(1) The market value of those options has been calculated using the share price as at 6 April 2005. The amount included for 2004 has been restated to reflect the market value of the option grant at vesting on 15 April 2004 rather than the market value as at 24 March 2004.
Details of directors’ emoluments are shown in the Board report on remuneration on page 54.
The aggregate emoluments (excluding amounts due under the LTIP) of the highest paid director, Terry Burman, as US Chief Executive and as Group Chief Executive were £1,199,000 (2004: £1,100,000; 2003: £1,217,000). The amounts due to him under the LTIP were £531,000 (2004: £601,000, restated; 2003: £631,000). For 2005, 50% of the amount due under the LTIP, £239,000, is payable in cash (2004: £201,000; 2003: £256,000) and the other 50% consists of the grant of an option to acquire shares in the Company (market value at 6 April 2005: £292,000). Additionally, pension contributions of £136,000 (2004: £142,000; 2003: £147,000) were made to money purchase schemes on his behalf. The gain made by him on the exercise of options in the Group was £2,090,959 (2004: £1,934,651; 2003: £4,364).
2005 2004 2003 Number Number Number of persons of persons of persons
Retirement benefits are accruing to the following numbers of directors under: Money purchase schemes 1 1 1 Defined benefit schemes 1 1 1
The average number of full-time equivalent persons employed (including directors) during the period, analysed by category and division, was: Total Group: Management 562 530 512 Administration 1,391 1,314 1,296 Distribution and sales staff 13,192 12,658 12,352
15,145 14,502 14,160
UK: Management 418 389 377 Administration 210 231 240 Distribution and sales staff 3,849 3,942 4,129
4,477 4,562 4,746
US: Management 144 141 135 Administration 1,181 1,083 1,056 Distribution and sales staff 9,343 8,716 8,223
10,668 9,940 9,414
£m £m £m
The aggregate Group staff costs were as follows: Wages and salaries 281.4 276.9 282.5 Social security costs 23.2 22.5 22.1 Pension costs 4.7 4.4 4.2
309.3 303.8 308.8
78 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
7. Taxation
2005 2004 (1) 2003 (1) £m £m £m
Profit on ordinary activities before taxation: UK 77.2 73.2 59.9 US 133.1 126.6 126.0
210.3 199.8 185.9
2005 2004 (1) 2003 (1) £m £m £m
Taxes on profit: UK corporation tax payable 19.8 26.2 22.6 US taxes 25.9 36.2 55.6 Deferred taxation: UK 0.5 0.5 (0.7 ) US 22.9 7.3 (11.8 )
69.1 70.2 65.7
2005 2004 (1) 2003 (1) £m £m £m
Sources of deferred taxation are as follows: UK fixed assets (capital allowances) 0.4 (0.4 ) 0.1 US fixed assets 4.1 7.7 (3.9 ) Stock valuation 2.5 4.3 (0.5 ) Allowances for doubtful debts (1.0 ) (0.3 ) – Revenue deferral (extended service agreements) 13.3 (4.5 ) (5.1 ) Other timing differences 4.1 1.0 (3.1 )
23.4 7.8 (12.5 )
The differences between the standard rate of corporation tax in the UK and the current and effective tax rates for the Group are explained below:
2005 2004 (1) 2003 (1) % % %
UK statutory tax rates 30.0 30.0 30.0 Expenditure permanently disallowable for tax purposes, net of permanent undercharges 0.2 0.4 0.8 Differences between UK and US (including state) standard tax rates 4.8 5.2 4.7 Over provision in respect of previous periods (2.1 ) (0.4 ) (0.2 ) UK fixed assets (capital allowances) (0.2 ) 0.2 (0.1 ) US fixed assets (1.9 ) (3.9 ) 2.1 Stock valuation (1.2 ) (2.2 ) 0.3 Allowances for doubtful debts 0.4 0.2 – Revenue deferral (extended service agreements) (6.3 ) 2.2 2.7 Other timing differences (1.9 ) (0.5 ) 1.7
Current tax rate 21.8 31.2 42.0 Deferred tax rate 11.1 3.9 (6.7 )
32.9 35.1 35.3
(1) Restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17).
Signet Group plc Annual Report & Accounts year ended 29 January 2005 79 Back to Contents
Notes to the accounts (continued)
The effective tax rate for the Group is higher than the UK statu tory tax rate because the significant proportion of the Group’s business is conducted in the US where the combined federal and state tax rate approaches 40%. The Group’s future effective tax rate is also dependent on the movement in foreign exchange translation rates. It is anticipated that the effective tax rate for the Group in 2005/06 will be approximately 34%.
8. Dividends
2005 2004 2003 £m £m £m
Interim dividend paid of 0.375p per share (2004: 0.341p; 2003: 0.310p) 6.5 5.9 5.3 Final dividend proposed of 2.625p per share (2004: 2.160p; 2003: 1.800p) 45.5 37.3 30.8
52.0 43.2 36.1
The interim dividend was paid on 5 November 2004. Subject to shareholder approval, the proposed final dividend is to be paid on 8 July 2005 to those shareholders on the register of members at close of business on 10 June 2005.
Signet Group QUEST Limited, the trustee of the Signet Group Qualifying Employee Share Trust, has waived its right to participate in any dividends declared by the Company in respect of shares held by it in the Company. The trustee has not held any shares since 16 July 2004 and no future dividend will be paid in respect of any shares held by it unless the Company shall have directed the trustee to accept any particular dividend.
Dividends received by individual US shareholders from qualified foreign corporations are subject to US federal income tax at a reduced rate of 15%. Dividends paid by the Group to individual US holders of shares or ADSs should qualify for this preferential dividend tax treatment. This US tax legislation only applies to individuals subject to US federal income taxes and therefore the tax position of UK shareholders is unaffected. Individual US holders of shares or ADSs are urged to consult their tax advisers regarding the application of this US tax legislation to their particular circumstances.
9. Earnings per share
2005 2004 (1) 2003 (1)
Profit for the financial period (£m) 141.2 129.6 120.2
Basic weighted average number of shares in issue (million) 1,731.6 1,718.4 1,710.7 Dilutive effect of share options (million) 6.0 12.5 16.4
Diluted weighted average number of shares (million) 1,737.6 1,730.9 1,727.1
Earnings per share – basic 8.2 p 7.5 p 7.0 p Earnings per share – diluted 8.1 p 7.5 p 7.0 p
The basic weighted average number of shares in issue excludes those shares held in the QUEST (see note 21).
(1) Restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17) .
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10. Intangible fixed assets
Purchased goodwill £m
Cost: At 31 January 2004 20.4 Translation differences (0.7 )
At 29 January 2005 19.7
Amortisation: At 31 January 2004 3.6 Charged in period 1.0 Translation differences (0.1 )
At 29 January 2005 4.5
Net book value:
At 29 January 2005 15.2
At 31 January 2004 16.8
The purchased goodwill above arose on the acquisition of Marks & Morgan on 31 July 2000 and will be amortised over 20 years. Consequently, under current UK GAAP, the amortisation expense would be expected to be £1.0 million for each of the subsequent financial years to 2019/20. This may be affected by movements in exchange rates. An impairment review was performed at 29 January 2005, concluding that the carrying value of £15.2 million does not require an impairment adjustment.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 81 Back to Contents
Notes to the accounts (continued)
11. Tangible fixed assets
Land and buildings Plant, Shopfronts machinery fixtures and Long Short Freehold and vehicles fittings Total leasehold leasehold £m £m £m £m £m £m
Cost or valuation: At 31 January 2004 17.4 1.9 121.2 60.2 252.8 453.5 Additions – – 14.2 11.7 44.6 70.5 Disposals – – (1.2 ) (0.4 ) (3.2 ) (4.8 ) Translation differences – – (4.5 ) (1.6 ) (5.7 ) (11.8 )
At 29 January 2005 17.4 1.9 129.7 69.9 288.5 507.4
Amortisation: At 31 January 2004 1.7 0.1 63.7 43.2 142.0 250.7 Charged in period 0.2 – 9.2 6.2 25.7 41.3 Disposals – – (1.2 ) (0.3 ) (3.1 ) (4.6 ) Translation differences – – (2.4 ) (1.3 ) (3.1 ) (6.8 )
At 29 January 2005 1.9 0.1 69.3 47.8 161.5 280.6
Net book value:
At 29 January 2005 15.5 1.8 60.4 22.1 127.0 226.8
At 31 January 2004 15.7 1.8 57.5 17.0 110.8 202.8
Cost or valuation All fixed assets are stated at cost with the exception of all UK freehold and long leasehold properties which are stated on the basis of their latest professional valuation. An external valuation was undertaken by NAI Gooch Webster, Chartered Surveyors, at 2 February 2002. The valuation was in accordance with the Royal Institute of Chartered Surveyors’ Appraisal and Valuation Manual. A total of 14 were valued on an existing use basis and are stated at net realisable value, and one was valued on an open market basis and is stated on that basis. At 29 January 2005, an internal interim valuation was carried out by a professionally qualified surveyor. The valuation was in accordance with the Royal Institute of Chartered Surveyors’ Appraisal and Valuation Manual. The results of the valuation show no significant differences to the 2002 valuation.
Freehold properties in the consolidated balance sheet include £7.4 million of depreciable assets (2004: £7.5 million). The net book value of shopfronts, fixtures and fittings held under finance leases is £nil (2004: £7.5 million).
2005 2004 £m £m
Freehold and long leasehold land and buildings are stated at: Cost 1.5 1.5 Valuation 17.8 17.8
19.3 19.3
The net book value of freehold and long leasehold land and buildings on an historical cost basis would be: Cost 26.0 26.0
Depreciation (7.9 ) (7.7 )
18.1 18.3
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12. Stocks Stocks constitute goods held for resale.
Subsidiary undertakings held £87.2 million of consignment stocks at 29 January 2005 (2004: £83.1 million) which is not recorded on the balance sheet. The principal terms of the consignment agreements, which can generally be terminated by either side, are such that the Group can return any or all of the stocks to the relevant suppliers without financial or commercial penalties and the supplier can vary stock prices.
Stock provisions Balance at Balance at beginning of Charged to period profit Utilised end of period 52 weeks ended £m £m £m £m
1 February 2003 7.9 19.5 (21.3 ) 6.1 31 January 2004 6.1 16.8 (18.4 ) 4.5 29 January 2005 4.5 18.4 (18.0 ) 4.9
Stock provisions have been made for obsolete, slow-moving and damaged stock on a consistent basis.
13. Debtors
2005 2004 £m £m
Trade debtors (net of allowances): – US receivables programme 319.0 292.9 – Other 10.8 8.7
329.8 301.6 Other debtors 25.4 22.5 Corporation tax recoverable 1.1 0.6 Prepayments and accrued income 14.7 13.6
Debtors recoverable within one year 371.0 338.3 Debtors recoverable after more than one year (1) – deferred taxation (note 18) 4.3 26.9
375.3 365.2
(1) 2004 restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17).
Allowances for doubtful debts Balance at
beginning of Charged to Balance at period profit Utilised(1) end of period 52 weeks ended £m £m £m £m
1 February 2003 26.3 39.1 (44.1 ) 21.3 31 January 2004 21.3 36.9 (38.4 ) 19.8 29 January 2005 19.8 37.4 (35.6 ) 21.6
(1) Including the impact of foreign exchange translation between opening and closing balance sheet dates.
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Notes to the accounts (continued)
14. Cash at bank and in hand
2005 2004 £m £m
Bank deposits 101.8 127.4 Other cash 0.6 0.6
102.4 128.0
15. Creditors: amounts falling due within one year
2005 2004 as restated(1) £m £m
Bank overdrafts 42.8 51.1 Bank loans falling due within one year 2.4 – Loan notes 7.9 8.2 Obligations under finance leases – 2.4 Trade creditors 41.4 55.6 Corporation tax 43.8 54.2 Social security and PAYE 2.8 1.4 Other taxes 22.1 23.5 Deferred income from extended service agreements 42.1 38.8 Other creditors 4.1 5.3 Accruals and other deferred income 96.7 87.8 Proposed dividend 45.5 37.3
351.6 365.6
(1) Restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17).
The weighted average interest rate on short-term borrowings at 29 January 2005 was 2.39% (31 January 2004: 1.85%).
16. Creditors: amounts falling due after more than one year
2005 2004 as restated(1) £m £m
Loan notes falling due between one and two years – 8.3 Bank loans falling due between one and two years 132.8 137.9 Deferred income from extended service agreements 55.1 51.4 Other creditors 12.3 11.0
200.2 208.6
(1) Restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17).
In September 2004 the Group entered into an unsecured $390 million multi-currency revolving credit facility with a syndicate of banks for a period of five years at a variable interest rate at a maximum margin of 0.55% above LIBOR. The facility replaced the $410 million facility that was due to expire August 2006. From commencement, the applicable margin has been 0.40% above LIBOR. At 29 January 2005 the amount outstanding under this facility was $nil.
Commitment fees are paid on the undrawn portion of this credit facility at a rate of 40.0% of the applicable margin.
84 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
The principal financial covenants on this facility are as follows: • The ratio of Consolidated Net Debt to Consolidated EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) shall not exceed 3:1; • Consolidated Net Worth (total net assets) must not fall below £400 million; and • The ratio of Consolidated EBITARR (Earnings Before Interest, Tax, Amortisation, Rents, Rates and Operating Lease Expenditure) to Consolidated Net Interest Expenditure plus Rents, Rates and Operating Lease Expenditure shall be equal to or greater than 1.4:1.
In July 1998 the Group entered into a $60 million seven year unsecured note issue with a fixed interest rate of 7.25%. This note issue is repayable in four equal annual instalments of $15 million, which commenced in July 2002. At 29 January 2005 the amount outstanding under this note issue was $15 million.
The principal financial covenants on this note issue are as follows: • Gearing (net debt, excluding the US receivables funding, expressed as a percentage of total net assets) must not exceed 60.0%; • Consolidated net worth (total net assets) must not fall below £300 million; and • Interest cover must not fall below three times.
In the US, in November 2001, the Company refinanced its private label credit card receivables programme through a privately placed receivables securitisation. Under this securitisation, interests in the US receivables portfolio held by a trust were sold principally to institutional investors in the form of fixed-rate Class A, Class B and Class C investor certificates. The certificates have a weighted average interest rate of 5.42% and interest is paid monthly in arrears from the finance charges collections generated by the receivables portfolio. The revolving period of the securitisation ends in December 2005, with a final expected principal payment date in November 2006. The aggregate outstanding principal amount of the certificates amounted to $251 million at 29 January 2005 (31 January 2004: $251 million).
Undrawn committed borrowing facilities 2005 2004 £m £m
Expiring within one year – 38.5 Expiring between two and five years 206.4 225.3
206.4 263.8
17. Prior year adjustments Adoption of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ The accounting policy in respect of extended service agreements in the US was changed following an amendment to FRS 5 ‘Reporting the Substance of Transactions’ in the form of ‘Application Note G – Revenue Recognition’. The Group now spreads the revenue arising from the sale of such agreements, net of incremental costs arising from the initial sale, in proportion to anticipated claims arising. Previously the Group recognised the revenue from such plans at the date of sale with provision being made for the estimated cost of future claims arising.
As a result of the change the Group has restated prior years. Therefore the previously reported 2003/04 results now reflect a decrease in sales of £12.3 million (2002/03: £14.4 million) and a reduction in profit before tax of £12.1 million (2002/03: £14.0 million). Consequently, restated profit before tax for the 52 weeks ended 31 January 2004 is £199.8 million (2002/03: £185.9 million). The effect on brought forward reserves at 31 January 2004 is a reduction of £52.7 million net of deferred tax, with shareholders’ funds at 31 January 2004 therefore restated to £674.9 million.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 85 Back to Contents
Notes to the accounts (continued)
Adoption of FRS 17 – ‘Retirement Benefits’ in 2003/04 It was previously the Group’s policy, in compliance with SSAP 24, to spread the pension valuation surplus arising under its UK defined benefit pension scheme (the “Group Scheme”) over the average service life of the employees. In compliance with this standard, a pension scheme prepayment of £19.1 million was included in the balance sheet at 1 February 2003 within debtors falling due after more than one year. An associated deferred tax liability of £5.7 million was also carried on the balance sheet at 1 February 2003.
The adoption of FRS 17 – ‘Retirement Benefits’ led to the write-off of the £19.1 million pension asset previously recognised under SSAP 24 and provision for the deficit of £6.7 million in the Group Scheme as at 1 February 2003. This £6.7 million deficit has been classified as a creditor falling due after more than one year. The £5.7 million deferred tax liability associated with the SSAP 24 pension asset has been written back and a £2.0 million deferred tax asset has been recognised in respect of the deficit provided for under FRS 17 at 1 February 2003. The total net adjustment of £18.1 million arising from the adoption of FRS 17 has been accounted for as a prior year adjustment charged directly to shareholders’ funds as at 1 February 2003.
The consolidated statement of total recognised gains and losses has been restated for the 52 weeks ended 1 February 2003 to include the actuarial losses on pension assets arising during that period net of deferred tax, calculated in accordance with FRS 17. This amounted to £22.3 million.
The profit and loss account for the 52 weeks ended 1 February 2003 was restated to reflect a reduction in operating profit of £2.3 million, and a non-cash credit of £2.5 million to net interest payable and similar charges resulting in a net increase in profit before tax of £0.2 million.
18. Deferred taxation
29 January 2005 31 January 2004 (1)
Assets (Liabilities) Total Assets (Liabilities) Total £m £m £m £m £m £m
UK fixed assets (capital allowances) 0.8 – 0.8 1.1 – 1.1 US fixed assets – (12.4 ) (12.4 ) – (8.7 ) (8.7 ) Stock valuation – (16.3 ) (16.3 ) – (14.4) (14.4 ) Allowances for doubtful debts 7.7 – 7.7 7.0 – 7.0 Revenue deferral (extended service agreements) 17.3 – 17.3 32.3 – 32.3 Other timing differences 7.2 – 7.2 9.6 – 9.6 UK property related, net 1.6 – 1.6 1.9 – 1.9 Value of UK capital losses carried forward 15.8 – 15.8 16.1 – 16.1
Total deferred tax asset/(liability) 50.4 (28.7 ) 21.7 68.0 (23.1 ) 44.9 Valuation allowance (17.4 ) – (17.4 ) (18.0 ) – (18.0)
Deferred tax asset/(liability) 33.0 (28.7 ) 4.3 50.0 (23.1 ) 26.9
UK 3.3 2.6 US 1.0 24.3
Deferred tax asset 4.3 26.9
The difference on translation in respect of deferred tax posted directly to reserves in the period ended 29 January 2005 was £0.5 million (2004: £0.6 million).
(1) Restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17)
86 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Movement in deferred tax asset:
Total £m
At 31 January 2004 (1) 26.9 Transfers 1.3 Charge in the period to the profit and loss account (23.4 ) Difference on translation (0.5 )
At 29 January 2005 4.3
(1) Restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17).
19. Provisions for liabilities and charges: other provisions
Total £m
At 31 January 2004 6.4 Charge in the period to the profit and loss account (0.1 ) Utilisation (0.5 )
At 29 January 2005 5.8
The provision is for onerous leases and includes the discounted cash flows of future net obligations in respect of vacant properties and the rental shortfall on properties which are sublet at below the current rent.
20. Pension schemes The Group operates one defined benefit pension scheme in the UK, the Group Scheme, for all eligible employees who meet minimum age and service requirements. The assets of the Group Scheme, which is a funded scheme, are held in a separate trustee administered fund which is independently managed. The trustees of the Group Scheme during the year were Walker Boyd, John Gillum, John Hartwright (to 30 October 2004) and The Law Debenture Pension Trust Corporation p.l.c. (independent trustee). Contributions to the Group Scheme are assessed in accordance with the advice of independent qualified actuaries using the attained age method of valuation. Where appropriate, supplementary pension and life assurance for UK directors and senior executives is provided through the Signet Group Funded Unapproved Retirement Benefits Scheme.
An actuarial valuation of the Group Scheme was carried out as at 5 April 2003. Results of that valuation have been updated to January 2005 by an independent qualified actuary.
As the Group Scheme is closed to new entrants, under the projected unit method the current service cost will increase as a percentage of salaries as its members approach retirement.
In the US, the Group sponsors a defined contribution 401(k) retirement savings plan for all eligible employees who meet minimum age and service requirements. The assets of this plan are held in a separate trust managed by KeyBank and under it, the Group matches 25% of up to the first 6% of employee elective salary deferrals. The Group has also established, in the US, an unfunded, unqualified deferred compensation plan which permits certain management employees to elect annually to defer all or a portion of their remuneration and earn a guaranteed interest rate on the deferred amounts. The plan also provides for a Group matching contribution based on each participant’s annual remuneration deferral. In connection with this plan, the Group has invested in trust owned life insurance policies. In June 2004 the Group introduced a defined contribution plan which replaced the Group Scheme for new UK employees.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 87 Back to Contents
Notes to the accounts (continued)
2005 2004 2003 £m £m £m
The Group pension cost for the period comprises: Charge to operating profit UK net service cost (2.9 ) (2.5 ) (2.3 ) US retirement savings plan (1.8 ) (1.9 ) (1.9 )
(4.7 ) (4.4 ) (4.2 ) Credit to net interest payable and similar charges Expected return on Group Scheme assets 6.6 5.3 7.1 Interest on Group Scheme liabilities (5.4 ) (4.7 ) (4.6 )
(3.5 ) (3.8 ) (1.7 )
The financial assumptions used by the actuary to calculate the Group Scheme liabilities were:
2005 2004 2003
Rate of increase in salaries 4.3 % 4.3 % 3.9 % Rate of increase in deferred pensions during deferment 2.8 % 2.8 % 2.4 % Rate of increase in pensions in payment (1) 2.8 % 2.8 % 2.4 % Discount rate 5.3 % 5.6 % 5.4 % Inflation assumption 2.8 % 2.8 % 2.4 %
(1) For the majority of members.
The assets in the Group Scheme and the expected rates of return (net of administration expenses) were:
Long-term Long-term rate Long-term rate rate of return of return of return expected Value at expected Value at expected Value at 2005 2005 2004 2004 2003 2003 % £m % £m % £m
Equities and property 7.3 74.8 7.5 70.0 7.1 65.4 Bonds 4.7 28.4 4.9 26.3 4.5 15.3 Cash 4.5 3.3 4.0 3.4 3.6 1.5
Total market value of assets 106.5 99.7 82.2 Present value of Group Scheme liabilities (108.4 ) (97.9 ) (88.9 )
(Deficit)/surplus in the Group Scheme (1.9 ) 1.8 (6.7 ) Related deferred tax asset/(liability) 0.6 (0.6 ) 2.0
Net pension (liability)/asset (1.3 ) 1.2 (4.7 )
Analysis of pension costs charged to operating profit
2005 2004 2003 £m £m £m
Current service cost 2.9 2.5 2.3 Past service cost – – –
Total operating charge 2.9 2.5 2.3
88 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Analysis of amounts included in net interest payable and similar charges 2005 2004 2003 £m £m £m
Expected return on Group Scheme assets 6.6 5.3 7.1 Interest on Group Scheme liabilities (5.4 ) (4.7 ) (4.6 )
Net return 1.2 0.6 2.5
Analysis of amount recognised in the statement of total recognised gains and losses (“STRGL”) 2005 2004 2003 £m £m £m
Actual return less expected return on Group Scheme assets (0.3 ) 15.3 (29.0 ) Experienced gains and losses arising on Group Scheme liabilities – (3.3 ) – Changes in assumptions (5.3 ) (2.8 ) (2.8 )
Actuarial (loss)/gain (5.6 ) 9.2 (31.8 ) Deferred tax 1.7 (2.8 ) 9.5
Recognised in STRGL (3.9 ) 6.4 (22.3 )
The movement in the surplus during the year was as follows: 2005 2004 £m £m
Surplus/(deficit) in Group Scheme at beginning of year 1.8 (6.7 ) Current service cost (2.9 ) (2.5 ) Contributions paid 3.6 1.2 Past service cost – – Interest return 1.2 0.6 Actuarial (loss)/gain (5.6 ) 9.2
(Deficit)/surplus in the Group Scheme at end of year (1.9 ) 1.8
History of experience gains and losses 2005 2004 2003 2002
Difference between expected and actual return on Group Scheme assets (£ million) 0.3 15.3 (29.0 ) (19.7 ) Percentage of Group Scheme assets 0% 15% -35% -18% Experience gains and losses on Group Scheme liabilities (£ million) – (3.3 ) – 2.1 Percentage of Group Scheme liabilities 0% -3% – 3% Total amount recognised in STRGL – gross (£ million) (5.6 ) 9.2 (31.8 ) (20.4 ) Percentage of Group Scheme liabilities -5% 9% -36% -25%
Signet Group plc Annual Report & Accounts year ended 29 January 2005 89 Back to Contents
Notes to the accounts (continued)
21. Share capital
2005 2004 £m £m
Authorised: 5,929,874,019 Ordinary shares of 0.5p each (2004: 5,929,874,019) 29.6 29.6
Number of £m shares
Allotted, called up and fully paid: Ordinary shares of 0.5p each At 31 January 2004 1,726,190,848 8.6 Shares issued to QUEST 44,019 – Shares issued to ESOT 249,485 – Shares issued to 2004 ESOT 3,053,404 – Other share options exercised 6,077,396 0.1
At 29 January 2005 total allotted, called up and fully paid 1,735,615,152 8.7
The consideration received in respect of the 9.4 million shares issued during the year was £4.8 million (2004: £6.3 million).
The trustee of the QUEST, Signet Group QUEST Limited (a subsidiary of the Company), held 41,065 shares at 31 January 2004. In the year ended 29 January 2005 the trustee subscribed in cash for 44,019 shares at 113p per share on 14 June 2004. This subscription price was the market price on 11 June 2004, the last business day before the dates on which the respective terms of issue were fixed. These shares were all subscribed for in order to provide shares to satisfy the exercise of options under the Group’s savings-related share option scheme for UK employees. In aggregate the subscription monies amounted to £49,741. In the year ended 29 January 2005 the trustee transferred 85,084 shares to holders of savings-related options pursuant to the exercise of such options. The trustee held nil shares at 29 January 2005 and nil shares at 6 April 2005. The aggregate market value of the shares at 29 January 2005 was £nil (31 January 2004: £0.04 million). The investment in these shares is recorded as £nil in the Company’s accounts.
In the year ended 29 January 2005 the trustee of the ESOT subscribed in cash for a total of 249,485 shares at an average price of 109.94p per share. The subscription prices were the market prices on the last business days before the dates on which the respective terms of issue were fixed and varied between 103.00p and 114.00p per share. These shares were all subscribed for in order to provide shares to satisfy the exercise of executive share options granted to UK employees. In aggregate the subscription monies amounted to £105,000.
In the year ended 29 January 2005 the trustee of the 2004 ESOT subscribed in cash for a total of 3,053,404 shares at an average price of 112.61p per share. The subscription prices were the market prices on the last business days before the dates on which the respective terms of issue were fixed and varied between 106.25p and 117.25p per share. These shares were all subscribed for in order to provide shares to satisfy the exercise of executive share options granted to US employees. In aggregate the subscription monies amounted to £1,726,499.
On various dates during the year ended 29 January 2005 a total of 6,077,396 shares were subscribed for in cash by holders of options, at prices between 33.75p and 75.25p per share. The subscription prices were the market prices at the various times at which the options were granted. The market prices on the dates of issue varied between 102.25p and 117.75p and in aggregate the subscription monies amounted to £2,937,537. Details of options in respect of shares are shown in note 27 on page 95.
The trustee of the ESOTs, Mourant & Co. Trustees Limited, did not hold any shares at 31 January 2004. In the year ended 29 January 2005 the trustee subscribed in cash for a total of eight million shares at an average price of 118p per share. These shares were all purchased in the market in order to provide shares to satisfy the exercise of executive share options granted to UK employees. In the year ended 29 January 2005 the trustee transferred 3,389,161 shares to holders of such options. At 29 January 2005 the trustee held 4,610,839 shares and 4,443,869 at 6 April 2005.
90 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
22. Reserves
Share premium Revaluation Special Profit and loss account reserve reserves account £m £m £m £m
At 31 January 2004 – as previously stated 60.7 3.1 142.2 513.0 Prior year adjustment (note 17) – – – (52.7)
At 31 January 2004 60.7 3.1 142.2 460.3 Retained profit attributable to equity shareholders – – – 89.2 Shares issued to QUEST/ESOTs 2.5 – – (2.5 ) Exercise of share options 4.8 – – 1.6 Purchase of own shares – – – (9.5 ) Transfer on property disposals – 1.2 – – Actuarial loss recognised – – – (3.9 ) Translation differences – – 13.7 (33.0 )
At 29 January 2005 68.0 4.3 155.9 502.2
The revaluation reserve represents the unrealised surplus arising from revaluing freehold and long leasehold properties.
Exchange gains of £0.3 million (2004: £1.6 million gain) on foreign currency loans have been offset in reserves against exchange movements on the net investment in overseas subsidiary undertakings.
Following the 1997 capital reduction, the holding company, Signet Group plc, is permitted to make distributions (including dividends, share buy-backs and other transactions classed as distributions) out of profits earned after 2 August 1997, the end of its 1997/98 half year. The undertakings given to the High Court at the time of the capital reduction included the requirement that the Company transfer to a new special reserve any dividend paid by a subsidiary from profits earned prior to that date. The new special reserve is, for as long as the Company is a public company, treated as a non-distributable reserve for the purposes of section 264 of the Companies Act 1985.
In accordance with undertakings given by the Company to the High Court in connection with previous reductions of the share premium account, an earlier special reserve is available to write-off existing goodwill resulting from acquisitions and otherwise only for purposes permitted in the case of the share premium account. Under English law, dividends can only be paid out of profits available for distribution (generally defined as accumulated realised profits less accumulated realised losses less net unrealised losses) and not out of share capital or share premium (generally equivalent in US terms to paid-in surplus).
At 29 January 2005, after taking into account the recommended final dividend of 2.625p per share, the holding company had distributable reserves of £116.0 million (31 January 2004: £114.8 million). There are additional potentially distributable reserves held in subsidiary companies.
Exchange differences arising on the retranslation of purchased goodwill have been written off against the profit and loss account reserve. This amount has been transferred to the special reserve where the initial purchased goodwill had previously been eliminated. Cumulative goodwill write-offs at underlying foreign currency amounts included in the special reserve amount to £556.1 million (31 January 2004: £569.8 million).
The Group’s total recognised gains and losses differ from the net profit for the period (as set out in the Group profit and loss account) in respect of foreign currency translation adjustments amounting to an aggregate loss of £19.3 million for the period ended 29 January 2005 (2004: £50.5 million loss; 2003: £72.4 million loss). The foreign currency translation adjustments are set out in the statement of total recognised gains and losses.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 91 Back to Contents
Notes to the accounts (continued)
The cumulative exchange gains and losses on the translation of foreign currency financial statements into pounds sterling are set out in the table below:
2005 2004 2003 £m £m £m
Balance at end of previous period (100.2 ) (49.7 ) 22.7 Movement in period (19.3 ) (50.5 ) (72.4 )
Balance at end of period (119.5 ) (100.2) (49.7 )
The cumulative adjustments to property valuations are £8.1 million (2004: £6.9 million; 2003: £6.9 million). The tax effect of the cumulative adjustments to property valuations is £nil.
23. Commitments The Group occupies certain properties and holds plant, machinery and vehicles under operating leases. The property leases usually include renewal options and escalation clauses and in the US generally provide for contingent rentals based on a percentage of lease defined revenues.
The minimum payments in respect of operating leases for the 52 weeks to 28 January 2006 to which the Group was committed as at 29 January 2005 were as follows:
Plant machinery Leasehold & vehicles premises Total £m £m £m
Operating leases which expire: Within one year 0.2 4.7 4.9 In the second to fifth years 1.8 30.9 32.7 Over five years – 90.3 90.3
At 29 January 2005 2.0 125.9 127.9
At 31 January 2004 2.2 118.2 120.4
The future minimum payments for operating leases having initial or non-cancellable terms in excess of one year are as follows:
£m
Period ending on or about 31 January: 2006 127.9 2007 122.4 2008 116.6 2009 111.3 2010 102.6 Thereafter 565.0
1,145.8
Capital commitments at 29 January 2005 for which no provision has been made in these consolidated accounts were as follows:
2005 2004 £m £m Contracted 16.1 16.8
92 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
24. Contingent liabilities The Group is not party to any legal proceedings considered to be material to profit, financial position or cash flow including any bankruptcy, receivership or similar proceedings involving the Group or any of its significant subsidiaries. No director, officer or affiliate of the Group or any associate of any such director, officer or affiliate has been a party adverse to the Group or any of its subsidiaries or has a material interest adverse to the Group or any of its subsidiaries.
The Group has assigned or sub-let UK property leases in the normal course of business. Should the assignees or sub-tenants fail to fulfil any obligations in respect of these leases, the Group may be liable for those defaults. The number of such claims arising to date has been small, and the liability, which is charged to the profit and loss account as it arises, has not been material.
The Group’s US operation gives its customers the option of purchasing a lifetime service plan on most of the products sold. Such service plans cover the costs of repair, subject to certain terms and conditions.
25. Notes to the consolidated cash flow statement (a) Reconciliation of operating profit to operating cash flows
2005 2004 (1) 2003 (1) £m £m £m
Operating profit 218.9 210.2 199.9 Depreciation and amortisation charges 42.3 40.4 37.8 Increase in stocks (2) (52.3 ) (44.9 ) (44.9 ) Increase in debtors (2) (44.5 ) (31.1 ) (26.5 ) Increase in creditors (2) 8.8 30.3 15.4 (Decrease)/increase in other provisions (2) (0.6 ) (1.1 ) 0.5
Net cash inflow from operating activities 172.6 203.8 182.2
(1) Restated for the implementation in 2004/05 of the amendment to FRS 5, ’Application Note G – Revenue Recognition’ (see note 17). (2) The change in each year is stated after eliminating the impact of foreign exchange translation between opening and closing balance sheet dates.
(b) Analysis of net debt
At 31 January Exchange Other At 29 January 2004 Cash flow movement movements 2005 £m £m £m £m £m
Cash at bank and in hand 0.6 – – – 0.6 Bank overdrafts (51.1 ) 6.4 1.9 – (42.8)
(50.5 ) 6.4 1.9 – (42.2)
Debt due after more than one year (146.2 ) – 5.5 7.9 (132.8 ) Debt due within one year (10.6 ) 8.1 0.1 (7.9 ) (10.3 ) Bank deposits 127.4 (24.5 ) (1.1 ) – 101.8
(29.4 ) (16.4 ) 4.5 – (41.3)
Total (79.9 ) (10.0 ) 6.4 – (83.5)
Signet Group plc Annual Report & Accounts year ended 29 January 2005 93 Back to Contents
Notes to the accounts (continued)
26. Financial instruments The Group may enter into various interest rate protection agreements, particularly interest rate caps and floors, in order to limit the impact of movements in interest rates on its borrowings. It is the policy of the Group to enter into interest rate protection agreements on at least 75% of its forecast US dollar borrowings. The Group does not hold or issue derivative financial instruments for the purpose of trading those instruments. Details of borrowings are shown in note 16 on page 84.
The weighted average interest rate of the fixed rate financial liabilities is 5.5%. The weighted average period for which interest rates on the fixed rate financial liabilities are fixed is 1.7 months. There are no interest-free financial liabilities.
The Group also enters into the forward purchase of foreign currencies, principally the US dollar and the Euro, in order to limit the impact of movements in foreign exchange rates on its forecast foreign currency purchases. It is the policy of the Group to ensure that identified foreign currency exposures are hedged to at least the following levels:
100% – for exposures of less than three months; 75% – for exposures of between three and six months; and 50% – for exposures of between six and 12 months.
The Group also enters into forward purchase contracts for commodities in order to ensure that values of assets and revenue protection should not be unnecessarily exposed to significant movements in the price of underlying precious metal raw material.
The overall amount and duration of such forward commodity contracts are dependent on the underlying buying needs of the operating companies and prevailing commodity prices.
Fair value of financial instruments These financial instruments involve varying degrees of off-balance sheet market risk whereby changes in interest rates, foreign currency exchange rates or market values of the underlying financial instruments may result in changes in the value of the financial instrument. The Group is exposed to credit-related losses in the event of non-performance by counterparties to financial instruments. It is the policy of the Group only to transact such financial instruments with financial institutions rated ‘A’ or higher, to ensure that the potential for credit-related losses is minimised. Concentrations of credit risk exist due to the Group operating customer receivables programmes in the US as part of its trading strategy. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement, and therefore cannot be determined precisely. Changes in assumptions could significantly affect the estimates. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value.
Forward purchases of foreign currencies and commodities The fair value of outstanding forward purchases of foreign currencies was estimated to be a liability of £0.8 million at 29 January 2005 (31 January 2004: £2.9 million liability). The net carrying amount of these forward purchases at 29 January 2005 was £nil (31 January 2004: £nil). The fair value of outstanding forward purchases of commodities was estimated to be a liability of £0.02 million on 29 January 2005 (31 January 2004: £2.1 million liability). The net carrying amount of these forward purchases at 29 January 2005 was £nil (31 January 2004: £nil). Fair values are calculated with reference to the contracted commodity prices or foreign currency exchange rates and those prevailing at the balance sheet date.
Cash at bank and in hand, and trade accounts payable The carrying amount is considered to approximate to fair value because of the short maturity of these instruments.
Accounts receivable Accounts receivable primarily represent credit card receivables. The carrying value of credit card receivables is considered to approximate to fair value because of their short-term nature and the interest rates being used approximating current market origination rates. Other accounts receivables’ carrying amounts are considered to approximate to fair value because of their short maturity.
94 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Debt The fair value of the Group’s debt is considered to approximate to carrying value at 29 January 2005 since the rates associated with the debt at that time are consistent with the facilities agreements entered into in August 2001 and January 2002. The rates in the facilities agreements are deemed to be current market rates.
Currency profile The Group’s net debt includes the following balances denominated in foreign currency:
2005 2004 £m £m
US dollars – cash 62.8 67.4 US dollars – debt (180.4) (192.9 )
Interest rate protection agreements No interest rate protection agreements were in place at 29 January 2005 because more than 75% of the Group’s forecast US dollar borrowings were covered by fixed rate borrowings.
27. Share options At 29 January 2005 options in respect of 42,602,756 shares were outstanding (including 12,009,124 for directors and officers of the Group) under the Company’s executive share option schemes and sharesave schemes as follows:
Date granted Number Exercise of shares price
October 1997 237,036 33.75p October 1997 80,734 $0.55 April 1998 570,868 43.25p April 1998 88,704 $0.72 April 1999 2,329,410 49.75p April 1999 273,013 $0.80 May 2000 1,425,228 57.00p May 2000 411,036 $0.87 May 2001 1,347,394 75.25p May 2001 1,406,310 $1.08 October 2001 248,000 62.50p November 2001 (1) 379,240 50.00p November 2001 (1) 12,723 50.00p April 2002 1,743,098 120.00p April 2002 4,358,638 $1.72 November 2002 (1) 50,970 $1.10 November 2002 (1) 2,286,958 67.00p November 2002 (1) 25,723 67.00p April 2003 2,723,037 82.25p April 2003 4,541,986 $1.30 July 2003 397,435 97.50p July 2003 4,059,156 $1.59 November 2003 (1) 646,020 $1.60 November 2003 (1) 1,020,777 90.00p November 2003 (1) 8,141 90.00p April 2004 6,486,983 $2.05 April 2004 2,672,045 111.25p September 2004 108,489 106.00p November 2004 (1) 898,350 $1.64 November 2004 (1) 1,751,544 86.25p November 2004 (1) 13,710 86.25p
42,602,756
(1) The Company has taken advantage of the exception currently permitted under UITF 17 not to take account of the discounts on market price under the sharesave schemes as a charge to the profit and loss account.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 95 Back to Contents
Notes to the accounts (continued)
The Company’s share option schemes comprise four executive share option schemes (the “1993 Scheme”, the “2003 Approved Plan”, the ‘’2003 International Plan’’ and the “2003 US Plan”, together the “Executive Schemes”) and three all-employee share option schemes (a savings related share option scheme for the UK employees (the “Sharesave Scheme”), a US Section 423 Plan (the “Employee Stock Savings Plan”) and a savings related share option scheme for employees in the Republic of Ireland (the ‘’Irish Sharesave Scheme”), together the “Sharesave Schemes”).
Options granted under the Executive Schemes are generally only exercisable between three and ten years from the date of grant. Performance conditions are attached to all the executive options granted under the Executive Schemes. No further options may be granted under the 1993 Scheme.
Options granted under the Sharesave Scheme and the Irish Sharesave Scheme are generally only exercisable between 36 and 42 months of the commencement of the relevant savings contract. Options granted under the Employee Stock Savings Plan are generally only exercisable between 24 and 27 months of the grant date.
The Executive Schemes and Sharesave Schemes may be operated in conjunction with one or more employee share ownership trusts (the “ESOT’’, “2004 ESOT” or “QUEST”) which may acquire shares in the Company for the purposes of satisfying the exercise of options.
Executive directors and some senior executives have also been granted awards under the Signet Group plc 2000 Long Term Incentive Plan (“LTIP”). The vesting of these awards and the extent of vesting depends on the achievement of specified performance conditions. On vesting, 50% of an award is to be made in cash and the other 50% by the grant of an option to acquire shares for a nominal amount. In the event of an award vesting the number of shares to be placed under option would be calculated by dividing 50% of the value of the vested award by the middle market share price on the London Stock Exchange on the dealing day prior to the grant of the award. As the final value of an award cannot be calculated until it vests, the total number of shares over which options might eventually be granted is at present not known and therefore not shown in the above table. The LTIP operates in conjunction with an employee share ownership trust which may be funded by the Group to acquire shares in the Company for the purposes of meeting the Company’s obligation to provide shares on the exercise of options.
Certain provisions of all the share option schemes may be amended by the Board, but certain basic provisions (and in particular most of the limitations on individual participation, the numbers of shares and the percentage of share capital that may be issued thereunder) cannot be altered to the advantage of the participants except with the approval of the shareholders of the Company or in accordance with the adjustment provisions in the schemes.
The following table summarises the status of rights granted under the Company’s share option schemes at 29 January 2005, 31 January 2004 and 1 February 2003, and changes during the years ended on those dates. For the reason explained above the total number of shares which might be placed under option under the LTIP is not known.
Number of shares (million)
2005 2004 2003
Outstanding at beginning of period (at prices from 33.75p to 120.00p) 44.7 43.9 43.0 Granted at 86.25p, 106.00p, 111.25p, $1.64 and $2.05 (2004: 82.25p, 90.00p, 97.50p, $1.31, $1.59 and $1.60) 12.1 14.0 10.4 Exercised (including through QUEST, ESOT and 2004 ESOT) (12.9 ) (11.8 ) (7.7 ) Lapsed or forfeited (1.3 ) (1.4 ) (1.8 )
42.6 44.7 43.9
96 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Share scheme limits The Executive Schemes are subject to the following limits on the number of shares that may be issued:
(a) the maximum number of shares that have been or may be issued pursuant to options granted under the Executive Schemes and any other discretionary share option scheme adopted by the Company may not exceed 5% of the shares from time to time in issue in any ten year period;
(b) the maximum number of shares that have been or may be issued pursuant to options granted under the Executive Schemes and any other employees’ share scheme adopted by the Company may not exceed 10% of the shares from time to time in issue in any ten year period; and
(c) a maximum of 171,376,839 shares (representing 10% of the issued share capital on 8 July 2003) may be issued pursuant to incentive options granted under the US Plan (the equivalent 10% limit for incentive stock options under the US section of the 1993 Scheme as at 8 June 2000 was 167,996,844 shares).
In any ten year period not more than 10% of the issued share capital of the Company from time to time may in aggregate be issued or issuable pursuant to options granted under the Sharesave Schemes or any other employees’ share schemes adopted by the Company.
2000 LTIP limits The number of shares which may be issued or issuable pursuant to the LTIP (including to the ESOT and 2004 ESOT), when aggregated with any shares issued or issuable by the Company in the preceding ten years under any employees’ share scheme, participation in which is at the discretion of the Board, is limited to 5% of the Company’s issued share capital from time to time. The number of shares which may be issued or issuable pursuant to the LTIP (including to the ESOT and 2004 ESOT), when aggregated with all shares issued or issuable by the Company in the preceding ten years under any other employees’ share scheme, is limited to 10% of the Company’s issued share capital from time to time.
Outstanding options The following table summarises certain information concerning options outstanding under the Company’s share option schemes as at 29 January 2005:
Number of Weighted shares Range of average Range of issuable exercise prices exercise prices expiration upon exercise per share per share dates
10/2007 – 1993 Scheme 21,784,492 33.75p – 120.00p 73.40p 4/2013 10/2007 – $0.55 – $1.72 $1.40 4/2013 4/2014 – 2003 Approved Plan 474,958 106.00p – 111.25p 110.94p 9/2014 7/2013 – 2003 International Plan 2,703,011 97.50p – 111.25p 109.07p 9/2014 7/2013 – 2003 US Plan 10,546,139 $1.59 – $2.05 $1.87 4/2014 6/2005 – Sharesave Scheme 5,438,519 50.00p – 90.00p 76.33p 6/2008 1/2004 – Employee Stock Savings Plan 1,595,340 $1.10 – $1.64 $1.61 1/2007 6/2005 – Irish Sharesave Scheme 60,297 50.00p – 90.00p 70.90p 6/2008
Performance criteria
(i) Executive share option schemes – UK executives For UK executives the personal performance of participants will be assessed on each occasion that share option grants take place. Grants will be subject to a minimum required annual rate of compound growth in earnings per share above inflation of 3%.
Performance will be measured over three years from the start of the financial year in which the award is made, and may then be measured from the same start point to the end of the fourth and fifth years if not previously satisfied. Signet Group plc Annual Report & Accounts year ended 29 January 2005 97 Back to Contents
Notes to the accounts (continued)
– US executives For US executives there is a pre-grant test based on both personal and corporate performance. In addition there is a post-grant exercise condition that annual compound growth in earnings per share will be more than 3% above inflation. The post-grant performance condition will be measured over three years from the start of the financial year in which the award is made, and may then be measured from the same start point to the end of the fourth and fifth years if not previously satisfied.
(ii) Long term incentive plan Awards under the plan are subject to the fulfilment of minimum performance conditions set at the time of the award as to:
• compound annual profit growth in the profit before tax of the Group using a constant exchange rate or, as in the case of the Chief Executive of the UK division, the operating profit of the relevant division as appropriate (“Profit Growth”) • the ROCE of the Group or relevant division as appropriate. in each case over a fixed period of three successive financial years starting with the one in which the award was made. Nothing is payable under the award unless both minimum performance conditions are achieved. The minimum Profit Growth is set at threshold level after taking account of inflation. The conditions were selected to ensure that awards would only vest provided that growth in profits exceeded the rate of inflation and that the business’s targeted ROCE is achieved.
Fixed share option schemes The Company has three fixed option schemes, which are the Sharesave Schemes.
A summary of the status of the Company’s fixed share option schemes at 29 January 2005, 31 January 2004 and 1 February 2003 and changes during the years ended on those dates is presented below:
29 January 2005 31 January 2004 1 February 2003
Weighted Weighted Weighted average average average Number of exercise Number of exercise Number of exercise Fixed options shares price shares price shares price
million pence million pence million pence
Outstanding at beginning of period 7.8 67 8.4 56 8.0 44 Granted 2.7 86 2.0 89 3.8 67 Exercised (2.6 ) 51 (1.8 ) 41 (2.6 ) 36 Lapsed – – – – – – Forfeited (0.8 ) 73 (0.8 ) 57 (0.8 ) 42
Outstanding at end of period 7.1 78 7.8 67 8.4 56
Options exercisable at end of period 0.4 51 0.2 42 0.4 40
The following table summarises the information about fixed stock options outstanding at 29 January 2005:
Weighted average Weighted remaining average Number contractual exercise Range of exercise prices of shares life price
million years pence
50p – 80p 2.8 0.6 64 81p – 90p 4.3 3.3 116
50p – 90p 7.1 2.2 96
98 Signet Group plc Annual Report & Accounts year ended 29 January 2005
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Performance-based share option schemes In addition to the LTIP, the Company has four performance-based share option schemes (the Executive Schemes).
A summary of the status of the Company’s performance-based shares options at 29 January 2005, 31 January 2004 and 1 February 2003 and changes during the years ended on those dates is presented below:
29 January 2005 31 January 2004 1 February 2003
Weighted Weighted Weighted average average average Number of exercise Number of exercise Number of exercise Performance-based options shares price shares price shares price
million pence million pence million pence
Outstanding at beginning of period 36.9 69 35.5 62 35.0 56 Granted 9.4 109 12.0 80 6.6 110 Exercised (10.3 ) 47 (10.0 ) 44 (5.1 ) 45 Lapsed – – – – – – Forfeited (0.5 ) 87 (0.6 ) 65 (1.0 ) 87
Outstanding at end of period 35.5 85 36.9 69 35.5 62
Options exercisable at end of period 8.4 55 13.1 46 15.1 45
The following table summarises the information about performance-based share options outstanding at 29 January 2005:
Weighted average Weighted remaining average Number contractual exercise Range of exercise prices of shares life price
million years pence
33.75p to 60p 6.8 4.8 51 60p to 120p 28.7 8.3 92
33.75p to 120p 35.5 7.6 84
Signet Group plc Annual Report & Accounts year ended 29 January 2005 99 Back to Contents
Notes to the accounts (continued)
28. Principal subsidiary undertakings Share
capital issued and fully paid £m
Retail jewellers Ernest Jones Limited 70.8 H.Samuel Limited 23.3 Leslie Davis Limited 14.5 Signet Trading Limited 162.1 Sterling Inc. (US) – Sterling Jewelers Inc. (US) – Sterling Jewelers LLC (US) –
Intermediate holding companies Signet Holdings Limited 656.5 Signet US Holdings, Inc. (US) 0.5
Property holding company Checkbury Limited (1) 16.4
(1) Holds only UK freehold and long leasehold retail and warehouse premises. All these companies are wholly owned subsidiary undertakings and are included in the consolidation. The information given in this note is only with respect to such undertakings as are described in section 231(5) of the Companies Act 1985. Unless otherwise stated, all companies are domiciled in the UK.
29. Related party transactions There are no related party transactions which require disclosure in these accounts.
30. Company balance sheet (a) Profit for the financial period The profit attributable to shareholders dealt with in the accounts of the Company is £61.2 million (2004: £127.1 million; 2003: £37.3 million). The profit is stated after foreign exchange losses of £2.6 million, net of tax, (2004: £3.9 million gains; 2003: £1.7 million losses).
Audit and non-audit fees are borne by the Group on behalf of the Company.
100 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
(b) Tangible fixed assets
Short Plant, Shop front leasehold land and machinery fixtures and buildings and vehicles fittings Total £m £m £m £m
Cost: At 31 January 2004 4.3 19.5 102.9 126.7 Additions 0.1 3.7 24.5 28.3 Disposals (0.1 ) (0.3 ) (1.9 ) (2.3 )
At 29 January 2005 4.3 22.9 125.5 152.7
Depreciation: At 31 January 2004 1.6 13.2 58.0 72.8 Charged in period 0.3 2.7 13.8 16.8 Disposals (0.1 ) (0.3 ) (1.9 ) (2.3 )
At 29 January 2005 1.8 15.6 69.9 87.3
Net book value:
At 29 January 2005 2.5 7.3 55.6 65.4
At 31 January 2004 2.7 6.3 44.9 53.9
(c) Debtors
2005 2004 £m £m
Debtors recoverable within one year – amounts owed by subsidiary undertakings 421.4 372.6 – corporation tax recoverable 1.0 0.5 Debtors recoverable after more than one year – deferred taxation 3.1 2.2
425.5 375.3
(d) Cash at bank and in hand
2005 2004 £m £m
Bank deposits 100.2 98.3
(e) Creditors: amounts falling due within one year
2005 2004 £m £m
Bank overdrafts 10.5 1.6 Loan notes 7.9 8.2 Amounts owed to subsidiary undertakings 529.7 485.3 Corporation tax 5.9 3.1 Accruals and deferred income 0.6 1.3 Proposed dividend 45.5 37.3
600.1 536.8 The number of days’ purchases outstanding at 29 January 2005 was nil.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 101 Back to Contents
Notes to the accounts (continued)
(f) Creditors: amounts falling due after more than one year
2005 2004 £m £m
Loan notes falling due between one and two years – 8.3
Details of loan notes are shown in note 16 on page 84.
(g) Reserves
Share Profit and Special premium loss account reserves account £m £m £m
At 31 January 2004 60.7 565.1 114.8 Retained profit attributable to equity shareholders – – 9.1 Shares issued to QUEST/ESOTs 2.5 – – Exercise of share options 4.8 – 1.6 Purchase of own shares – – (9.5 )
At 29 January 2005 68.0 565.1 116.0
(h) Commitments The Company does not occupy any property or hold any plant, machinery and vehicles under operating leases.
Capital commitments at 29 January 2005 for which no provision has been made in these accounts were as follows:
2005 2004 £m £m
Contracted 3.7 5.4
(i) Contingent liabilities The Company is not party to any legal proceedings considered to be material to its profit, financial position or cash flow including any bankruptcy, receivership or similar proceedings involving the Company or any of its significant subsidiaries. No director, officer or affiliate of the Company or any associate of any such director, officer or affiliate has been a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.
The Company has assigned or sub-let UK property leases in the normal course of business. Should the assignees or sub-tenants fail to fulfil any obligations in respect of these leases, the Company may be liable for those defaults. The number of such claims arising to date has been small, and the liability, which is charged to the profit and loss account as it arises, has not been material.
(j) Investments
Shares in subsidiary undertakings £m
Cost at 29 January 2005 and 31 January 2004 766.8
Principal subsidiaries are shown in note 28 on page 100.
102 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
31. Summary of differences between UK and US generally accepted accounting principles The Group’s consolidated accounts are prepared in accordance with generally accepted accounting principles in the United Kingdom (“UK GAAP”), which differ in certain respects from generally accepted accounting principles in the United States (“US GAAP”). Differences which have a significant effect on the consolidated net profit and shareholders’ funds of the Group are set out below. While this is not a comprehensive summary of all differences between UK and US GAAP, other differences would not have a significant effect on the consolidated net profit or shareholders’ funds of the Group.
The differences have been shown as gross of tax with the related taxation shown separately.
Cost of sales Under UK GAAP, selling costs have been included in cost of sales. Under US GAAP, gross profit is determined before deducting selling costs, as they are not included in cost of sales. Selling costs which have been included under UK GAAP for the 52 weeks ended 1 February 2003 were £361.5 million, for the 52 weeks ended 31 January 2004 were £366.5 million and for the 52 weeks ended 29 January 2005 were £360.3 million.
Goodwill Under UK GAAP the Group has implemented FRS 10 in respect of acquisitions since 1 February 1998, amortising goodwill by equal annual instalments over its estimated useful life, normally 20 years. Prior to the issue of FRS 10, in the Group’s consolidated accounts prepared under UK GAAP, goodwill arising on the acquisition of a subsidiary was written off against reserves in the consolidated balance sheet in the year in which the acquisition was made.
Under US GAAP, prior to the issue of Statement of Financial Accounting Standards (“FAS”) 142, such goodwill was capitalised and amortised through the consolidated profit and loss account over its estimated useful life (not to exceed 40 years). FAS 142, effective for the Group from 3 February 2002, requires that goodwill be tested annually for impairment in lieu of amortisation.
Additionally, UK GAAP requires that on subsequent disposal or closure of a previously acquired subsidiary, any goodwill previously taken directly to shareholders’ funds is then charged to the profit and loss account as part of profit or loss on disposal or closure. Under US GAAP the appropriate balance to be written off on the disposal of the business is the remaining unamortised balance for goodwill.
Under UK GAAP, impairment reviews are carried out annually to ensure goodwill is not carried at above its recoverable level. Whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, the Group performs discounted cash flow analyses to compare discounted estimated future operating cash flows to the net carrying value of goodwill. Any amortisation or impairment write downs identified are charged to the profit and loss account.
Under US GAAP, annual impairment reviews are performed by comparing the carrying amount of goodwill with its fair value on an undiscounted basis.
In the years ended 29 January 2005, 31 January 2004 and 1 February 2003, the goodwill arising on the acquisition of Marks & Morgan has been capitalised in line with UK GAAP and is amortised through the consolidated profit and loss account over a life of 20 years.
At 29 January 2005 the Group had goodwill on its balance sheet of £15.2 million under UK GAAP and £290.9 million under US GAAP. Net income for the year ended 29 January 2005 includes a charge for goodwill amortisation of £1.0 million under UK GAAP and £nil under US GAAP.
Sale and leaseback transactions In the Group’s consolidated accounts prepared under UK GAAP, sale and leaseback transactions of freehold and long leasehold properties are accounted for by including in profit before taxation the full gain arising in the financial year in which the transaction took place. Under US GAAP the gain arising is credited to the consolidated profit and loss account in equal instalments over the life of the lease. Adjustments to the amortisation are reflected in periods when the leases are disposed of.
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Notes to the accounts (continued)
Extended service agreements Prior to the adoption of the amendment to FRS 5 ‘Application Note G – Revenue Recognition’, the Group recognised for UK GAAP purposes all revenue arising from the sale of extended service agreements in the US at the date of sale with provision being made for the estimated cost of future claims arising under these warranties.
Following the adoption of the above, under UK GAAP revenue from the sale of extended service agreements in the US is now deferred and recognised, net of incremental costs arising from the initial sale, in proportion to anticipated claims arising. This period is based on the historical claims experience of the US business, which has been consistent since these products were launched. The Group reviews the pattern of claims at the end of each year to determine any significant trends that may require changes to revenue recognition rates.
Under US GAAP, the Group historically recognised revenue immediately on a proportion of contracts where analysis of past experience showed that no claim or cost arose, and deferred the balance of revenue over the estimated period of future claims. The Group’s US GAAP policy has now been corrected so that the policies applied under UK and US GAAP are now consistent, with no future GAAP differences expected to arise.
Pensions FRS 17 – ‘Retirement Benefits’ was adopted by the Group for 2003/04. For the UK Group Scheme, a defined benefit scheme, the current service cost is charged to operating profit and the interest on Group Scheme liabilities and the expected return on Group Scheme assets are included within the interest cost in the profit and loss account.
Movements in the Group Scheme’s funding position arising from changes in actuarial assumptions, in the expected scheme liabilities and between the actual and expected return on the Scheme’s assets are recognised in the statement of total recognised gains and losses. The Scheme surplus or deficit is carried on the Group’s consolidated balance sheet.
Under US GAAP, the pension cost for the period is determined based on an actuarial valuation at the start of the financial period. The current service cost, the interest cost and the expected return on assets (based on a smoothed market value of assets) are all included within operating profit. The cumulative amounts arising from changes in actuarial assumptions and those arising between the actual and expected return on Group Scheme assets are amortised through operating profit over the average service lives of the employees. If the Group Scheme is in surplus, consolidated net assets will include the difference between the cumulative profit and loss account charges and cumulative cash contributions made to the Group Scheme. The Group recognises a pension liability in the financial statements when the accumulated benefit obligation exceeds the fair value of the plan assets, less the unrecognised net actuarial gain/loss and the unrecognised prior service costs. The Group Scheme does not currently have such a liability under US GAAP.
An unrecognised prior service cost arises from the 15% and 5% benefit increases granted in November 1996 and November 1999 respectively. The cost is being amortised on a straight line basis over the average remaining employee service life which was 10.76 years at 29 January 2005.
Additional disclosures are now required under FAS 132 and are included on pages 111 to 113.
Under US GAAP, the estimated accumulated benefit obligation of the Group Scheme was higher than the fair value of the assets at 1 February 2003. The difference between the two, plus the balance sheet prepayment as defined under US GAAP, is disclosed as an accrued benefit liability and written off to Other Comprehensive Income. An intangible asset is recognised on the balance sheet under US GAAP, reflecting the unrecognised prior service cost element of the prepaid pension cost.
As set out in note 20 on page 87, the Group has established, in the US, an unfunded, unqualified deferred compensation plan. Under US GAAP the plan is accounted for as a defined contribution plan in accordance with SFAS 87, ‘Employers’ Accounting for Pensions’. The accounting for the deferred compensation plan is consistent under both UK and US GAAP.
Recognition of lease expense US GAAP requires that where operating leases include clauses in respect of predetermined rent increases, those rents are charged to the profit and loss account on a straight line basis over the lease term, including any construction period or other rental holidays. Such clauses are more commonly found in US leases. This will generally result in an acceleration of lease expenses from the later to the earlier years of the lease term. 104 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Under UK GAAP predetermined rent increases are recognised when they fall due, reflecting that these are generally intended to compensate for the expected cost of inflation and are equivalent to UK periodic rent reviews.
Stock compensation Under UK GAAP, options granted to employees by the Group to subscribe for the Group’s shares where the exercise price of the option is linked to performance, do not result in any compensation costs being recorded by the Group if the stated exercise price is equal to, or in excess of, the fair value of the underlying shares at the date of grant.
Under US GAAP, the Group can account for employee stock options in accordance with Accounting Principles Board Opinion No. 25 (“APB 25”) ‘Accounting for Stock Issued to Employees’ or FAS 123, ‘Accounting for Stock-Based Compensation’ as amended by FAS 148 ‘Accounting for Stock-Based Compensation – Transition and Disclosure’. Under APB 25, there are two types of stock option schemes, fixed plans or variable plans. Fixed plans have terms which fix and provide means for determining, at the date of grant or award, both the number of shares or stock that may be acquired by or awarded to an employee and the cash, if any, to be paid by the employee. Variable plans have characteristics which prevent the determination of either the number of shares or stock that may be acquired by or awarded to an employee and the cash, if any, to be paid by the employee, or both. For fixed plans, compensation cost must be recognised at the grant date to the extent that the fair value is greater than the exercise price. Compensation expense, the amount by which the fair value exceeds the exercise price for variable plan awards, shall be measured using terms the employee is most likely to receive based upon the facts available each period over the vesting period. All executive share option plans receive variable plan accounting treatment under APB 25.
The Group’s share option plans are described in note 27 on page 95. The Group recognises compensation cost for US GAAP purposes in accordance with the requirements of APB 25.
Revaluation of properties Under UK GAAP, properties may be restated on the basis of appraised values in consolidated accounts prepared in all other respects in accordance with the historical cost convention. Increases in value are credited directly to the revaluation reserve. When revalued properties are sold the gain or loss on sale is calculated based on revalued carrying amounts. Under US GAAP, properties are only revalued if a permanent impairment is deemed to have occurred. Upward revaluations are not permitted.
Depreciation of properties Following the adoption of FRS 15 in the year ended 29 January 2000, under UK GAAP depreciation is charged on freehold buildings and long leasehold properties based on the revalued amounts. Under US GAAP, depreciation is calculated based on the historic cost of the assets.
Securitised customer receivables Under UK GAAP securitised US Customer receivables of £132.8 million (2004: £137.9 million; 2003: £153.1 million) are included within trade debtors and bank loans, as the related financing is of a revolving nature and therefore not considered to be an outright sale of such accounts receivable.
Under US GAAP these amounts qualify for off-balance sheet treatment. This is because the receivables were first sold to a special purpose qualifying entity, Sterling Jewellers Receivables Corporation (“the Transferor”), which then sold-on the receivables to a special purpose unconsolidated qualifying trust, Sterling Jewellers Receivables Master Note Trust. The trust has been legally isolated from the Group; the majority of the interests in the US receivables portfolio held by the trust were principally sold on to institutional investors in the form of fixed-rate investor certificates; and the Group does not maintain control over the receivables portfolio transferred to the trust.
As defined in the Transfer and Servicing Agreement, the Group may, through the exercise by the Transferor of a Return on Accounts Provision, remove random accounts from the trust on a restricted basis. This ability is limited to one removal per month and the amount of accounts that can be removed is restricted to the principal amount of the total Transferor’s Interest that is in excess of the Required Transferor Interest.
The Group receives servicing fees of £2.9 million (2004: £3.1 million; 2003 £3.4 million) which offset its costs of fulfilling its servicing responsibilities to the trust.
The main commercial terms of the securitisation are disclosed in summary within the Financial Review and in note 16 on page 85.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 105 Back to Contents
Notes to the accounts (continued)
Dividends Under UK GAAP, dividends are provided for in the year in respect of which they are declared or proposed. Under US GAAP, dividends are given effect only in the period in which they are formally approved.
Earnings per share (“EPS”)/ADS Following the adoption of FRS 14 in the UK and FAS 128 in the US, the computation of the weighted average number of shares and adjusted weighted average number of shares outstanding is generally consistent. The calculation of fully diluted EPS for the year ended 29 January 2005 excludes options to purchase 5,800,831 shares (2004: 7,237,016 excluded; 2003: 6,293,903 excluded) under share options on the basis that their effect on basic EPS was anti-dilutive.
Effect on profit for the financial period of differences between UK and US GAAP
52 weeks ended 52 weeks ended 52 weeks ended 29 January 2005 31 January 2004 1 February 2003 as restated as restated £m £m £m
Profit for the financial period in accordance with UK GAAP (1) 141.2 129.6 120.2
US GAAP adjustments: Goodwill amortisation 1.0 1.1 1.2 Sale and leaseback transactions 1.0 0.8 0.8 Pensions (0.9 ) (1.9 ) (0.5 ) Leases (3.5 ) (3.5 ) (3.4 ) Depreciation of properties – – 0.2 Stock compensation (3.9 ) 0.7 1.3
US GAAP adjustments before taxation (6.3 ) (2.8 ) (0.4 ) Taxation 2.6 0.6 (0.3 )
US GAAP adjustments after taxation (3.7 ) (2.2 ) (0.7 )
Retained profit attributable to shareholders in accordance with US GAAP 137.5 127.4 119.5
Earnings per ADS in accordance with US GAAP – basic 79.4p 74.1p 69.9p Earnings per ADS in accordance with US GAAP – diluted 79.1p 73.6p 69.2p Weighted average number of ADSs outstanding (million) – basic 173.2 171.8 171.1 Weighted average number of ADSs outstanding (million) – diluted 173.8 173.1 171.2
(1) 2004 and 2003 restated under UK GAAP for the implementation of the amendment to FRS 5, ’Application Note G – Revenue Recognition’ (see note 17).
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Effect on shareholders’ funds of differences between UK and US GAAP
29 January 31 January 2004 1 February 2003 2005 as restated as restated £m £m £m
Shareholders’ funds in accordance with UK GAAP (1) 739.1 674.9 627.6
US GAAP adjustments: Goodwill in respect of acquisitions (gross) 476.8 490.5 531.2 Adjustment to goodwill (56.1 ) (58.2 ) (64.5 ) Accumulated goodwill amortisation (145.0 ) (149.9) (162.6 ) Sale and leaseback transactions (7.9 ) (8.9 ) (9.7 ) Pensions 28.2 21.5 12.0 Depreciation of properties (2.5 ) (2.5 ) (2.5 ) Leases (17.9 ) (14.9 ) (12.9 ) Revaluation of properties (4.3 ) (3.1 ) (3.1 ) Dividends 45.5 37.3 30.8
US GAAP adjustments before taxation 316.8 311.8 318.7 Taxation 0.6 1.8 1.2
US GAAP adjustments after taxation 317.4 313.6 319.9
Shareholders’ funds in accordance with US GAAP (2) 1,056.5 988.5 947.5
Shareholders’ funds in accordance with US GAAP at beginning of period 988.5 947.5 978.2 Net income in accordance with US GAAP 137.5 127.4 119.5 (Purchase)/issue of shares, net (3.1 ) 4.9 3.8 Increase/(decrease) in additional paid-in capital 2.5 (0.5 ) (0.8 ) Dividends paid (43.8 ) (36.7 ) (30.8 ) Other comprehensive income (3) 1.4 17.3 (15.7 ) Translation differences (26.5 ) (71.4 ) (106.7 )
Shareholders’ funds in accordance with US GAAP at end of period 1,056.5 988.5 947.5
(1) 2004 and 2003 restated under UK GAAP for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition (see note 17). (2) Debtors recoverable after more than one year of £4.3m as at 29 January 2005 and £26.9m as at 31 January 2004, would be classified as non-current under US GAAP. (3) Other comprehensive income relates only to the Group’s defined benefit pension scheme.
Prior year restatements The Group has identified two errors in its US GAAP reconciliation relating to revenue recognition attributable to extended service agreements in the US and lease accounting for predetermined rent increases which are commonly found in the US. The US GAAP reconciliation for prior years has been restated as the cumulative effect on shareholders’ funds of these corrections, if taken in 2004/05, would have been material. The impact on retained profit attributable to shareholders, earnings per ADS and shareholders’ funds is shown overleaf:
Signet Group plc Annual Report & Accounts year ended 29 January 2005 107 Back to Contents
Notes to the accounts (continued)
Impact on profit attributable to shareholders
52 weeks ended 52 weeks ended 31 January 2004 1 February 2003 £m £m
Retained profit attributable to shareholders in accordance with US GAAP – as previously reported 135.0 128.3 Revenue recognition – net of tax (5.4 ) (6.7 ) Lease accounting – net of tax (2.2 ) (2.1 )
As restated 127.4 119.5
Impact on earnings per ADS – basic
pence pence
As previously reported 78.6 75.0 Effect of restatements (4.5 ) (5.1 )
As restated 74.1 69.9
Impact on earnings per ADS – diluted
pence pence
As previously reported 78.0 74.3 Effect of restatements (4.4 ) (5.1 )
As restated 73.6 69.2
Impact on shareholders’ funds
£m £m
As previously reported 1,034.8 995.3 Effect of restatements (46.3 ) (47.8 )
As restated 988.5 947.5
Revenue recognition The Group has corrected its accounting policy to spread the revenue arising from extended service agreements in the US in proportion to anticipated claims arising, net of incremental costs arising from the initial sale. Previously the revenue from such agreements was recognised immediately on a proportion of contracts where analysis of past experience showed no claim or cost arose, and deferred the balance of revenue over the estimated period of future claims. As a consequence of this correction and the change in accounting policy for UK GAAP (see note 17), the previously reported 2003/04 and 2002/03 US GAAP adjustments are restated as follows:
52 weeks ended 52 weeks ended 31 January 2004 1 February 2003 £m £m
UK GAAP prior period adjustment (12.1 ) (14.1 ) US GAAP adjustment – as previously reported 3.5 3.5
(8.6 ) (10.6 ) Tax 3.2 3.9
US GAAP adjustment – as restated (5.4 ) (6.7 )
108 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Impact on profit and loss account US GAAP differences
52 weeks ended 52 weeks ended 31 January 2004 1 February 2003 £m £m
As previously reported – before tax (3.5 ) (3.5 ) Adjustment required – before tax 3.5 3.5
As restated – before tax – –
The policies applied under UK and US GAAP are now consistent and no future GAAP differences are expected to arise. There is no impact on cash flow.
Lease accounting Following the letter by the Securities and Exchange Commission on 7 February 2005 to the American Institute of Certified Public Accountants, the Group has reviewed its lease accounting policy and corrected it for predetermined rent increases and any construction period or other rental holidays. For operating leases that include clauses in respect of predetermined rent increases, it is required that those rents are charged to the profit and loss account on a straight line basis over the lease term. Also, inducements to enter into a lease are required to be recognised over the lease term. Previously, predetermined lease increases were recognised when they fell due and lease inducements were recognised over the period to the next rent review. As a result, the previously reported 2003/04 and 2002/03 US GAAP adjustments are restated to reflect a reduction in US GAAP retained earnings attributable to shareholders of £2.2 million (£3.5 million before tax) and £2.1 million (£3.4 million before tax) respectively. There is no impact on cash flow.
Impact on profit and loss account US GAAP differences
52 weeks ended 52 weeks ended 31 January 2004 1 February 2003 £m £m
As previously reported – before tax – – Adjustment required – before tax (3.5 ) (3.4 )
As restated – before tax (3.5 ) (3.4 )
The Group did not amend its previously filed Annual Report on Form 20-F or its Form 6-K containing interim financial information, and the financial statements and related financial information contained in those reports should no longer be relied upon.
Cash flows Under UK GAAP the Group complies with ‘Financial Reporting Standard (Revised 1996) Cash Flow Statements’ (FRS 1 (Revised)). Its objective and principles are similar to those set out in FAS 95 ‘Statement of Cash Flows’. The principal difference between the standards is in respect of classification. Under FRS 1 (Revised), the Group presents its cash flows for (a) operating activities; (b) returns on investments and servicing of finance; (c) taxation; (d) capital expenditure and financial investment; (e) management of liquid resources; and (f) financing activities. FAS 95 requires only three categories of cash flow activity (a) operating; (b) investing; and (c) financing.
Cash flows arising from taxation and returns on investments and servicing of finance under FRS 1 (Revised) would be included as operating activities and cash flows arising from management of liquid resources would be included as cash and cash equivalents under FAS 95. In addition, under FRS 1 (Revised) cash includes only cash in hand plus deposits repayable on demand, less overdrafts repayable on demand. Under FAS 95 cash and cash equivalents include all highly liquid short term investments with original maturities of three months or less.
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Notes to the accounts (continued)
52 weeks ended 52 weeks ended 52 weeks ended 29 January 2005 31 January 2004 1 February 2003 £m £m £m
Net cash flow from operating activities under UK GAAP 172.6 203.8 182.2 Returns on investment and servicing of income (9.8 ) (11.0 ) (16.5 ) Taxation (56.5 ) (69.0 ) (57.3 )
Net cash flow from operating activities under US GAAP 106.3 123.8 108.4
Cash flow from financing under UK GAAP (10.3 ) (5.8 ) (7.8 ) Dividends (43.8 ) (36.7 ) (30.8 )
Cash flow from financing under US GAAP (54.1 ) (42.5 ) (38.6 )
Movement in cash in the period under UK GAAP 6.4 (11.8 ) (8.3 ) Management of liquid resources (24.5 ) 42.4 29.9
Movement in cash in the period under US GAAP (18.1 ) 30.6 21.6
Employee share schemes A description of the terms of the Group’s employee share schemes is set out in note 27 on pages 95 to 99.
For the year ended 29 January 2005, in compliance with the disclosure requirements of FAS 123, ‘Accounting for Stock-Based Compensation’ as amended by FAS 148, ‘Accounting for Stock Based Compensation-Transition and Disclosure’, the fair value of options granted during the year has been computed. FAS 123 as amended by FAS 148 sets out an alternative methodology for recognising the compensation expense based on the fair value at grant date. Had the Group adopted this methodology, earnings per ADS and earnings per share under US GAAP would have been decreased/increased to the pro forma amounts indicated below for the financial periods ended 29 January 2005, 31 January 2004 and 1 February 2003:
2005 2004 2003 £m £m £m as restated (1) as restated(1)
Net income in accordance with US GAAP: As reported 137.5 127.4 119.5 Add/(deduct): Stock-based employee compensation expense included in reported net income – net of tax 3.2 (0.7 ) (1.3 ) Deduct: Stock-based employee compensation expense determined under fair value based method for all awards – net of tax (2.6 ) (1.7 ) (1.8 )
138.1 125.0 116.4
2005 2004 2003 pence pence pence as restated (1) as restated(1)
Earnings per ADS in accordance with US GAAP: As reported – basic 79.4 74.1 69.9 As reported – diluted 79.1 73.6 69.2 Pro forma – basic 79.8 72.7 68.0 Pro forma – diluted 79.5 72.2 67.4
Restated under UK GAAP for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17) and restated under US GAAP (1) as set out on pages 107-109. These pro forma amounts may not be representative of future results as they are subjective in nature and involve uncertainties and matters of judgement, and therefore cannot be determined precisely. Changes in assumptions could affect the estimates.
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The fair value of options granted which, in determining the pro forma impact, is assumed to be amortised in the profit and loss account over the option vesting period, is estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted average assumptions for the financial periods ended 29 January 2005, 31 January 2004 and 1 February 2003.
2005 2004 2003
Weighted average price of options whose exercise price equals the market price on the grant date 111p 88p 120p Weighted average assumptions: Risk free interest rate 4.75% 4.0% 3.75% Expected life of options 4 years 4 years 4 years Expected volatility 14% 19% 31% Dividend yield 2.7% 2.6% 2.8% Weighted average grant date fair value of option over one share 23p 20p 37p
2005 2004 2003
Weighted average price of options whose exercise price is less than the market price on the grant date 86p 89p 67p Weighted average assumptions: Risk free interest rate 4.75% 4.0% 3.75% Expected life of options 3 years 3 years 3 years Expected volatility 14% 19% 31% Dividend yield 2.7% 2.6% 2.8% Weighted average grant date fair value of option over one share 31p 34p 29p
Post employment benefits The following table shows a reconciliation of the opening and closing balances of the projected benefit obligation under the Group Scheme:
2005 2004 £m £m
At beginning of period 97.9 88.9 Service cost 3.1 2.7 Interest cost 5.3 4.7 Members’ contributions 0.6 0.6 Actuarial gain 5.4 5.9 Benefits paid (3.9 ) (4.9 )
At end of period 108.4 97.9
The following tables show the change in Group Scheme assets: 2005 2004 £m £m
At beginning of period 99.6 82.2 Actual return on assets 6.6 20.6 Employer contributions 3.6 1.1 Members’ contributions 0.6 0.6 Benefits paid (3.9 ) (4.9 )
At end of period 106.5 99.6
Signet Group plc Annual Report & Accounts year ended 29 January 2005 111 Back to Contents
Notes to the accounts (continued)
2005 2004 £m £m
Funded status (1.9 ) 1.8 Unrecognised prior service cost 5.9 6.5 Unrecognised net actuarial loss 22.3 16.9
Net amount recognised 26.3 25.2
The amounts recognised in the statement of financial position consist of: 2005 2004 £m £m
Prepaid pension cost 26.3 25.2 Accrued pension liability – – Intangible asset – – Accumulated other comprehensive income – –
Net amount recognised 26.3 25.2
The accumulated benefit obligation of the Group Scheme at 29 January 2005 was £102.3 million (2004: £92.9 million).
The components of pension expense which arise under FAS 87 for the Group’s pension plans are estimated to be as follows:
2005 2004 2003 £m £m £m
Service cost 3.1 2.7 2.3 Interest cost 5.3 4.7 4.5 Expected return on Group Scheme assets (6.9 ) (5.5 ) (7.1 ) Amortisation of transition assets – – – Amortisation of prior service cost 0.6 0.6 0.6 Recognised actuarial loss 0.5 1.4 –
Net periodic pension cost 2.6 3.9 0.3
2005 2004 £m £m
Increase in minimum liability included in other comprehensive income – (22.6)
Assumptions used to determine benefit obligations (at the end of the year): 2005 2004
Discount rate 5.3% 5.6% Consumer Price Index 2.8% 2.8% Salary increases 4.3% 4.3%
Assumptions used to determine net periodic pension costs (at the start of the year): 2005 2004
Discount rate 5.6% 5.4% Long term rate of return on assets 7.0% 6.9% Salary increases 4.3% 3.9% Consumer Price Index 2.8% 2.4%
112 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
The composition of the assets in the Group Scheme was as follows:
2005 2004
Equities 70% 70% Bonds 27% 26% Cash 3% 4%
Total 100% 100%
The long term target allocation for the Group Scheme’s assets are: equities 70% and bonds 30%.
The Trustees’ investment strategy is set out in their Statement of Investment Principles. To guide them in their management of the assets and control of the risks to which the Group Scheme is exposed, the Trustees have adopted the following objectives:
• To make sure that obligations to the beneficiaries of the Group Scheme can be met; • To maintain funds above the level required to meet the Minimum Funding Requirement of the Pensions Act 1995; and • To acknowledge the Group’s interest on the size and incidence of its contribution payments.
To develop the long term rate of return on assets assumption, the Trustees considered the historical returns and the future expected returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 6.9% per annum long term rate of return on assets assumption from 2 February 2003, and 7.0% per annum from 1 February 2004.
The Group expects to make contributions of some £3.8 million to the Group Scheme in 2005/06.
Projected benefit payments are as follows: £m
2005/06 4.1 2006/07 4.2 2007/08 4.3 2008/09 4.5 2009/10 4.7 2010/11 to 2014/15 4.9
See note 20 for further information on the Group’s pension plans. For US GAAP purposes, the pension fund asset included in the Group’s consolidated balance sheet would be classified as a non-current asset.
New US accounting standards not yet adopted FAS 151, ‘Inventory Costs – an amendment to ARB No. 43’ was issued in November 2004 to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. This statement requires that those items be recognised as current period charges and that the allocation of fixed production overheads to the costs of conversion is based on the normal capacity of the production facilities. The Group believes that the adoption of FAS 151 will not have a significant impact on its consolidated accounts.
FAS 152 ‘Accounting for Real Estate Time-sharing Transaction’ amends FAS 66 ‘Accounting for Sale of Real Estate’ to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time- sharing transactions. This statement is effective for fiscal year beginning after 15 June 2005. The Group believes that the adoption of FAS 152 will not have a significant effect on its consolidated accounts.
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Notes to the accounts (continued)
FAS 153 ‘Exchanges of Non-monetary Assets – an amendment of APB Opinion No. 29’. This statement eliminates the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. This statement is effective for fiscal years beginning after 15 June 2005. The Group believes that the adoption of FAS 153 will not have a significant effect on its consolidated accounts.
FAS 123 (revised 2004), ‘Share-Based Payment’ requires that the compensation cost relating to share-based payment transactions be recognised in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The impact on the Group’s US GAAP financial statements is not expected to be material, but the adoption of IFRS reporting in the UK is expected to reduce the stock compensation adjustment from the UK/US GAAP reconciliation. This statement is effective for fiscal years beginning after 15 June 2005.
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Social, ethical and environmental matters
Introduction Signet has important relationships with a wide range of Signet recognises that many different stakeholders have an different stakeholders, including shareholders, customers, interest in its activities, and that the Group’s success is employees, suppliers and communities. The Group engages dependent on the strength and effectiveness of its relationship with these stakeholders in a number of ways, including with those stakeholders. Signet ’s approach to the governance consumer research, customer service facilities, employee of social, ethical and environmental (“SEE”) matters, its attitude surveys, supplier relationship management systems, framework of principles and policies, its relationship with key investor relations programmes and participation in civic and stakeholder groups and major initiatives that have occurred in community activities. In addition, Jewelers Of America (the US 2004/05 are set out below. speciality jewellery retail trade association) engages with stakeholders in the industry, including non-governmental Governance of SEE matters organisations, trade unions, producers and manufacturers, The Group has a formal SEE governance framework with SEE governments and consumer groups, on major issues. The matters being included in the schedule of matters reserved for Group Chief Executive is on the Board of Jewelers of America the Board. The Group Chief Executive has been designated and chairs its Ethical Initiatives and Executive Committees. as the director responsible for SEE matters and reports to the Board on SEE issues on a regular basis. Principles and policies framework The Board has a Statement of SEE Principles (“Principles”) A SEE Committee, chaired by the Group Company Secretary, outlining the Group’s policy to operate as a profitable and and consisting of senior managers from the UK and US, has reputable speciality jewellery retailer, the Group’s responsibilities for the implementation of the various aspects responsibilities to various stakeholders and the SEE principles of the SEE principles and policies. The Committee members by which it operates. The Principles cover the following areas: are drawn from the merchandising and buying, human resource, corporate communication, finance and internal • accountability to stakeholders; control functions. It meets at least four times a year. The • business integrity; Group Company Secretary reports to the Group Chief human rights; Executive regarding the Committee’s work in implementing • labour standards; the SEE programme that has been approved by the Board. • • health and safety; Matters for which the SEE Committee has responsibility • the environment; and include: • community.
• identification of significant risks to the Company’s short and The Group has a Supplier Code of Conduct (“Supplier Code”) long term value arising from SEE matters; which was reviewed and updated in 2004 and policies on • ensuring that the Board has adequate information to take business integrity, health and safety, the environment and account of material SEE matters; labour standards. The Principles, Supplier Code and other • development of relevant SEE principles and policies for policies are now incorporated, as appropriate, into the Group’s consideration and approval by the Board; staff induction process and operational procedures within the • implementation of the SEE programme agreed by the business. More detailed information is available on the Board; Group’s web site ( www.signetgroupplc.com ). • reviewing systems for managing significant SEE risks; • benchmarking the SEE performance and report of the Signet’s principles and policies are intended to provide a Group against other general retail sector companies; and framework with which the divisional policies and procedures • preparation, for review and approval by the Board, of public conform. They do not replace detailed divisional policies and SEE disclosures and reporting. procedures.
The procedures for SEE risk management are embedded within the management structure of the Group. SEE risks are discussed on pages 35 to 40 ‘Risk and other factors’.
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Social, ethical and environmental matters (continued)
Developments in 2004/05 Employees During the year the Group: Employees are key to Signet’s ability to achieve its objectives and mission. Therefore teamwork, integrity, communication, • enhanced the controls around the Kimberley Process which and fair treatment of employees all play an important part in was designed to eliminate conflict diamonds from the the way the Group operates. Furthermore, Signet’s ability to legitimate diamond trade, details of which are set out on operate in accordance with its Principles is dependent on its page 37; employees’ understanding of them and the way in which the • improved its environmental management systems; and Principles impact on their respective roles and responsibilities.
• reviewed its communications with stakeholders. Signet considers its relationship with its employees to be excellent and values honest, open and constructive “two-way” communication throughout the organisation. This is achieved The Group has continued to work closely with Jewelers of through store, area and regional management meetings in America to establish industry working groups, where the addition to staff opinion surveys, feedback reports and staff Group believes it can be most effective considering meetings. These procedures facilitate consultation during environmental and supply chain issues and with other industry which the views of employees can be expressed and taken constituents to promote responsible business practices in into account in decisions likely to affect their interests. Staff order to maintain customer confidence and the integrity of the are kept informed of the Group’s performance and objectives product. through management contact supplemented by staff publications in both the UK and US. The involvement of employees in the Group’s performance is encouraged through Our stakeholders participation in performance-related incentive payment Signet’s commitments to various stakeholders are articulated schemes and savings-related share option schemes which in the Principles. These are summarised below: cover all Group employees subject to minimum employment requirements. The Group does not restrict or discriminate Shareholders against employees who wish to be covered by collective Signet’s aim is to deliver an acceptable growth in value to bargaining agreements. shareholders which is sustainable, thereby protecting shareholders’ short and longer term interests. The Group’s The Group’s policy is not to tolerate any form of unlawful responsibilities to shareholders are set out in more detail in discrimination on any grounds or at any level. In respect of the Corporate governance statement on page 45. The Group people with disabilities, full and fair consideration is given to is committed to maintaining open dialogue with its employment, opportunities for training, career development shareholders on SEE and other matters. Signet has been a and promotion according to their skills and capacity. The member of the FTSE4Good UK Index since its launch and services of any existing employees who become disabled are, endeavours to meet the changing criteria of the Index. During where possible, retained and appropriate training is arranged 2004/05 the Group again met the enhanced requirements of for them wherever possible. inclusion by strengthening its environmental management systems and data collection processes. The Group assigns responsibility for human resource matters, including health and safety, to the divisional executive Customers management committees. Both the UK and US operations Signet’s mission is to meet, and where possible exceed, have established systems which include the provision of customer expectations through a high standard of customer training and development opportunities at all levels of the service, high store standards, and by offering real choice and organisation. See pages 9 and 18 for further details. value. In doing so the Group endeavours to maintain product integrity by ensuring the quality of Signet’s products and by offering merchandise that is responsibly sourced, and is in Suppliers compliance with the Kimberley Process. The Group recognises that stakeholders expect companies to exert influence, where they can, over suppliers to ensure that SEE standards are upheld throughout the supply chain. The The Group’s policy is that all customers should be treated with Supplier Code outlines Signet’s commitment to its suppliers, respect and warmth. Sales training programmes include and the expectations it has of them. The Supplier Code modules on treating all customers with respect generally. The applies to suppliers and agents with whom Signet deals Group has customer service departments, complaint directly and Signet resolution processes, mystery shopper programmes and conducts market research to better understand customer requirements.
116 Signet Group plc Annual Report & Accounts year ended 29 January 2005
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regularly discusses its implementation with them. Those Since the formal adoption of the KPCS in November 2002, suppliers and agents are encouraged to ensure that this further steps to assist in the implementation have included: Supplier Code is communicated throughout the supply chain. • establishing formal rules of procedure for KPCS operation, Most of the raw and processed materials for the merchandise enabling formal confirmation of participant status of the sold by Signet are traded on commodity exchanges or through initial group of participant countries; multiple brokers and traders making the original source • enabling a system of peer review of adherence to requisite difficult to trace. Signet believes that SEE risks at the mining, provisions of national legislation and import/export controls; trading and secondary processing phases of the supply chain • enabling collection of statistics from all participant countries are more effectively managed through co-operation within the in accordance with standard formats and procedures; industry. Signet therefore actively participates in Jewelers of • enabling annual peer review of comprehensive reporting of America in considering what action Jewelers of America can information and statistical data that must be submitted by all take on behalf of its members to set SEE standards and participant countries; influence matters throughout the supply chain. In 2002 • enabling the dispatch of review visits to any participant Jewelers of America adopted a Statement of Principles country on a voluntary basis; relating to SEE matters and adopted a programme to • enabling the dispatch of special review missions where communicate those principles to its members. Jewelers of there are credible indications of significant non-compliance America has developed a Supplier Code for the industry that with the KPCS; was launched in the first quarter of 2004. • dispatching the first special review mission to the Republic of Congo (formerly Central African Republic) in order to Signet is also working, where appropriate, with other trade assess the effectiveness of the control measures; and bodies such as the Jewelers Vigilance Committee to be better • confirming review of the entire KPCS is to take place not able to respond to SEE issues at an industry level. later than July 2006.
One of the specific issues facing the Group and the diamond In 2004 over 40 countries (including the European Union as a sector is conflict diamonds, which are diamonds sold by rebel single entity) were participants in the KPCS and participants movements to fund military campaigns. The Group is a non- accounted for over 99% of world diamond production. While voting member of the World Diamond Council which, together the overwhelming trade in rough diamonds was between with Jewelers of America, has worked with the United Nations, participants in the KPCS, it is difficult to assess the precise government bodies, commercial interests and civil society to level of participation. However anecdotal evidence suggests introduce a workable system for the certification of the source that the unscrupulous diamond dealers are finding it of uncut diamonds. This system, known as the Kimberley increasingly difficult to sell non-certified stones. Process, and Kimberley Process Certification System (“KPCS”) was formally adopted in November 2002 and came The first voluntary peer review visit took place in March 2004 into operation during 2003. Details regarding the Kimberley annual reports having been received from all participants and Process are available at www.kimberleyprocess.com . by the end of 2004 review visits were made covering nearly two thirds of global rough diamond production, more than 80% Following the adoption of the KPCS process, Signet wrote to of global exports and more than 90% of global imports. The all its trade diamond and diamond jewellery suppliers. The Republic of Congo (Congo-Brazzaville) was suspended from text, based on the Jewelers of America guidance, requires membership in 2004 following the visit by a special review them to supply the Group with merchandise that complies with mission, and the Kimberley Process Participation Committee the KPCS. Signet has amended its systems, procedures and addressed issues relating to three other countries. A documentation to take account of the KPCS so that only comprehensive statistical database is now available and diamonds that are warranted to comply with the KPCS on general baselines for the identification of anomalies have invoices, annual agreements, or both are accepted from trade been established. While the quality of data has substantially suppliers. The Group also trained its buying staff with regard improved, further progress needs to be made and steps to do to the KPCS requirements and briefed its sales associates on so are being implemented. its operation. During the year an internal audit of these procedures was carried out, confirming the Group’s compliance with Jewelers of America’s recommendations even though Signet is not directly governed by the KPCS.
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Social, ethical and environmental matters (continued)
While Signet is the world’s largest speciality jeweller, its share (d) Signet’s supply chain originates with the producers of the of the worldwide jewellery and watch market amounts only to raw materials with whom the Group does not have a direct about 2% of the total. Therefore it is the Group’s belief that it relationship but it is recognised that the extraction of can be most effective in influencing improvements to the minerals has an environmental impact that requires careful supply chain by working together with other industry management by mining companies. representatives, who together can by concentration into a single industry voice be representative of many aspects of the During 2003/04 Signet developed and tested data collection supply chain, and use their combined influence in working to systems for its energy usage, greenhouse gas emissions and improve it as a whole. water usage in both the US and the UK. Signet strengthened its environmental management systems during 2004/05 by During the year the Group worked actively with other further developing its data collection process of key companies representative of the industry and was one of the performance indicators for the purpose of validating the signatories to a Statement of Intent that formed the basis of an previous year’s results and then benchmarked the results agreement for further co-operation to promote increased against published data from UK competitors. The consumer confidence and integrity in the product by promoting benchmarking process showed that when compared with its responsible business practices throughout the industry. peers, the Group has a broadly similar impact in terms of energy usage, emission of greenhouse gases and water In respect of supplier payment, Group policy is that the consumption. operating businesses are responsible for agreeing the terms and conditions under which business transactions with their For 2005/06 the Board has endorsed environmental suppliers are conducted, rather than following any particular performance targets for the UK and US divisions and code or standard on payment practice (see note 30(e) on approved the following environmental work programme: page 101 regarding the number of days purchases outstanding). Accordingly suppliers are aware of the terms of • continue to collect baseline data for energy usage and payment and it is Group policy to ensure that payments to greenhouse gas emissions, and validate existing data for suppliers are made in accordance with these agreed terms. water usage; • undertake an energy audit in representative stores in the Environment US; and Whilst the direct environmental impact of its operations is • undertake a review of the energy efficiency opportunities of judged to be relatively low compared to many business the new model store designs in the UK. sectors and to other retailers, Signet recognises that there may be opportunities to improve its performance. An Further, Signet will continue to work with Jewelers of America environmental impact review confirmed that: who are currently exploring ways in which the jewellery industry can use its influence to improve environmental (a) Jewellery has a very long life and is highly recyclable. performance related to mining of minerals, in particular of Recycling takes place in respect of trade-ins, obsolete gold. The Group will also continue with the work commenced inventory, used watch batteries and certain packaging. in 2004/05 to enhance consumer confidence and credibility of the product working together with industry constituents, (b) Jewellery and watches have an extremely high value to through the initiatives described above. weight ratio and value to volume ratio making transportation through the supply chain relatively low Community impact. The Group makes use of third party distributors Signet’s prime benefit to society is through the contribution it and reusable containers for merchandise distribution. makes to the success and efficiency of the economies in which it operates, through the employment it generates both (c) The Group occupies relatively little space compared to within the business and throughout its supply chain, the taxes other retailers of a similar market capitalisation and its it pays and the value it creates for shareholders. sales density is above the jewellery sector average, and therefore the Group has a smaller physical impact on the environment.
118 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
The Group is committed to the support of charitable US administrative and distribution centre in Northeast Ohio, organisations. Signet believes it is best to give support to a such as United Disabilities Services, Mature Services and the small number of specific charities rather than fragment its Urban League. charitable giving. In the US support is primarily given to The United Way, St. Jude Children’s Research Hospital and The No political donations were made in the US or the UK by the Jeweler’s Charity Fund. In the UK the Group primarily Group in the period (2003/04: £nil). supports the Princess Royal Trust for Carers. During the period the Group made provision for total charitable givings of
£1,467,000 (2003/04: £1,305,000). This included direct Human rights Signet supports the Fundamental Conventions of the charitable contributions of £478,000 (2003/04: £338,000); of International Labour Organisation and the UN Declaration of which £279,000 (2003/04: £177,000) was in the UK and Human Rights. The Group encourages the support and £199,000 (2003/04: £161,000) was in the US and marketing respect for the protection of human rights within its sphere of initiatives on both sides of the Atlantic which resulted in influence. The Supplier Code sets out the Group’s expectation additional charitable contributions of £989,000 (2003/04: £967,000). In January 2005 a donation of £100,000 was made that suppliers should respect the Fundamental Conventions of to the Tsunami Appeal Fund. Support is also given to the the International Labour Organisation and the UN Declaration of Human Rights. Signet is working at a senior executive level management of Carer Centres operated by the Princess to address human rights in the jewellery supply chain on an Royal Trust for Carers. Assistance is also given to industry wide basis, through the initiative described above. organisations that help the disadvantaged into employment in the vicinity of the Group’s
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Shareholder information
History the Companies Act 1985 (as amended). The Company‘s Signet Group plc, an English public limited company, has Memorandum and Articles of Association, which were adopted operations in the US and the UK. The Company was on 13 June 2002, are available on the Group’s web site and a incorporated in England and Wales on 27 January 1950 under summary of them was filed with the SEC on a form 6-K on 30 the name Ratners (Jewellers) Limited. The name of the July 2002. The Company’s registered number is 477692. The Company was changed on 10 December 1981 to Ratners Company’s registered office is Zenith House, The Hyde, (Jewellers) Public Limited Company, on 9 February 1987 to London NW9 6EW. Ratners Group plc and on 10 September 1993 to Signet Group plc and is governed by
Significant events that have occurred in the last five years are detailed below:
31 Jul 2000 Acquisition of Marks & Morgan completed.
Marks & Morgan, a privately owned company, was the ninth largest speciality retail jeweller in the US. The business consisted of 137 stores predominantly positioned in prime mall locations in the southeast region of the US.
Signet paid $ 161.3 million (£107.5 million) in cash to acquire all the outstanding share capital and to repay outstanding debt.
The acquisition substantially increased Signet’s presence in a key geographic area of the US where it had been under-represented. Approximately 81 stores were converted to either the Kay Jewelers brand or regional brands. The remaining stores continued to trade as Marks & Morgan and were integrated into Signet’s division of regional mall stores.
31 Mar 2001 James McAdam continued as Chairman but ceased to be a full-time executive.
30 Aug 2001 The Group entered into a $410 million unsecured multi-currency five year revolving credit facility agreement. This replaced the $250 million and the $100 million facilities that were due to expire in July 2003. The terms of this agreement were broadly similar to those of the facilities being replaced (see note 16 on page 84).
2 Nov 2001 The Group put in place a five year facility of $251 million secured on its US credit card receivables at a fixed rate of 5.42%. The terms were similar to the previous facility of $191.5 million which amortised during the year and had a fixed rate of 7.26% (see note 16 on page 84).
13 Jun 2002 David Wellings retired as a non-executive director.
1 Aug 2002 Russell Walls was appointed to the Board as a non-executive director.
30 Sep 2002 Ian Dahl resigned from the Board and as Chief Executive Officer of the UK division.
9 Jan 2003 Robert Anderson was appointed as Chief Executive Officer of the UK division.
1 Sept 2003 Dale Hilpert was appointed to the Board as a non-executive director.
8 Jan 2004 Lee Abraham retired from the Board as a non-executive director.
28 Sept 2004 The Group entered into a $390 million unsecured multi-currency five year revolving credit facility agreement. This replaced the $410 million facility that was due to expire in August 2006. The terms of this agreement were broadly similar to those of the facility being replaced.
8 Oct 2004 Announcement of change in American Depositary Share Ratio from 30:1 to 10:1 to become effective from 18 October 2004.
18 Oct 2004 The Group announced its intention to list its ADSs on the NYSE from 16 November 2004, under the ticker symbol SIG. It was confirmed that the ADS ratio change had become effective on 18 October and that Deutsche Bank had recently been appointed as the depositary bank for Signet’s ADSs.
1 Nov 2004 Robert Walker was appointed to the Board as a non-executive director.
6 Apr 2005 James McAdam announced his intention to retire from the Board no later than at the conclusion of the annual general meeting in 2006. Robert Anderson was appointed to the Board.
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Nature of trading market The table below sets out, for the calendar years and quarters The shares of the Company are traded on the London Stock indicated, (i) the reported high and low middle market Exchange (symbol: SIG) and the American Depositary Shares quotations for the shares of the Company based on the Daily (“ADSs”) representing the shares are quoted on the NYSE Official List of the London Stock Exchange and (ii) the (symbol: SIG). Prior to 16 November 2004 the ADSs were reported high and low closing sales prices of the ADSs on the traded on the Nasdaq (symbol: SIGY). The ADSs are Nasdaq or the NYSE, as applicable, as reported by evidenced by ADRs issued pursuant to an Amended and Datastream. Restated Deposit Agreement, dated 23 September 2004, and made between the Company, Deutsche Bank Trust Company At 6 April 2005, 28,467 shares and 5,729,993 ADSs Americas, as depositary (the “Depositary”) and the holders (representing 57,299,930 shares) were held of record in the from time to time of the ADRs. Each ADS represents ten US. These shares and ADSs were held by 28 record holders shares. Prior to 18 October 2004 the ratio of shares per ADS and 715 record holders, respectively and collectively had been 30:1 and prior to 4 September 1997 the ratio of represented approximately 3.3% of the total numbers of shares per ADS had been 3:1. shares outstanding. Since certain of the shares and ADSs are held by brokers or other nominees, the number of record holders in the US is not representative of the number of beneficial holders or of where the beneficial holders are resident.
London Stock Exchange Nasdaq/NYSE pence per share US dollars per ADS
High Low High Low
3 / 3 / Calendar 2000 60 43 11 7 4 8
1 / 1 / 1 / Calendar 2001 95 51 13 7 2 2 4
1 / 1 / 1 / Calendar 2002 132 65 19 10 4 4 4
Calendar 2003 1 / 3 / First quarter 82 66 13 10 2 4 1 / 3 / Second quarter 93 73 16 11 2 4 3 / 3 / 3 / Third quarter 113 89 19 14 4 4 4 1 / 7 / 1 / Fourth quarter 114 96 19 17 2 8 4
Calendar 2004 3 / 3 / 1 / First quarter 110 93 20 17 4 8 4 3 / 1 / 1 / Second quarter 119 107 22 19 4 4 4 1 / 3 / 1 / 1 / Third quarter – July 115 103 21 19 2 4 4 2 1 / 1 / 5 / Aug 110 102 20 18 4 2 8 1 / 1 / 3 / 5 / Sept 114 102 20 18 2 2 4 8 Oct 119 103 21 19 Fourth quarter 1 / 1 / 1 / 1 / – 2 4 4 2 3 / 1 / Nov 109 104 20 19 4 2 3 / 3 / 3 / Dec 110 104 21 20 4 4 8
Calendar 2005 1 / 5 / 1 / First quarter – Jan 112 106 21 20 4 8 2 3 / 1 / 1 / Feb 115 111 22 21 4 4 2 1 / 1 / 3 / Mar 112 107 22 20 2 2 4 Second quarter 3 / 1 / (up to 6 April) 114 108 22 20 – 4 2
(1) Following the change in the ADS ratio from thirty ordinary shares per ADS to ten ordinary shares per ADS on 18 October 2004, prior figures have been restated.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 121 Back to Contents
Shareholder information (continued)
Dividends • AMVESCAP PLC had a non-beneficial holding of 11.0% on Under English law, dividends can only be paid out of profits 10 April 2002, 12.0% on 26 March 2003, and fell below available for distribution (generally defined as accumulated 10.0% on 14 August 2003. These figures include the interest realised profits less accumulated realised losses less net of its subsidiary, INVESCO Perpetual High Income Fund, unrealised losses) and not out of share capital or share which had a non -beneficial holding of 6.0% on 10 April premiums (generally equivalent in US terms to paid-in 2002, 5.8% on 26 March 2003 and fell below 3.0% on 14 surplus). At 29 January 2005, after taking into account the August 2003. subsequently recommended final dividend of 2.625p per • The Capital Group Companies, Inc. had a beneficial holding, share, the holding company had a distributable reserves of 13.3% on 10 April 2002, 14.0% on 26 March 2003, 12.2% balance of £116.0 million (31 January 2004: £114.8 million). on 24 March 2004 and, as stated in the table on page 123, 12.97% on 6 April 2005. In order to make further distributions in excess of this figure, • FMR Corp. and Fidelity International Limited had a non- the holding company would first need to receive dividends beneficial holding of 3.3% on 24 March 2004 and, as stated from its subsidiaries. In addition to restrictions imposed at the in the table on page 123, 5.98% on 6 April 2005. time of the 1997 capital reduction on the distribution of • Standard Life Group had a beneficial holding of 3.7% on 10 dividends received from subsidiaries, the payments of April 2002, and fell below 3.0% on 8 November 2002. dividends from other tax jurisdictions, such as the US, may not • Government of Singapore Investment Corporation Pte Ltd be tax efficient. Furthermore, there may be other reasons why had a beneficial holding of 4.1% on 26 March 2003 and fell dividends may not be paid by subsidiaries to the holding below 3.0% on 29 May 2003. company. • Legal & General Investment Management Limited had a beneficial holding of 3.1% on 26 March 2003, 3.1% on 24 If declared by the Board (and, in the case of a final dividend, if March 2004 and, as stated in the table on page 123, 3.1% approved by shareholders in general meeting) dividends are on 6 April 2005. paid to holders of shares as at record dates that are decided • Harris Associates L.P. had a beneficial holding of 3.0% on by the Board. 14 April 2003, 4.0% on 24 March 2004 and, as stated in the table on page 123, 6.03% on 6 April 2005. • Schroder Investment Management Limited had a non- Substantial shareholdings and control of the Company beneficial holding of 10.157% on 3 December 2004, and fell So far as the Company is aware, it is neither directly nor below 10.0% on 10 March 2005. indirectly owned by or controlled by one or more corporations • Aviva plc and Morley Fund Management Limited had a or by any government. beneficial holding of 3.12% on 8 November 2004 and, as stated in the table on page 123, 3.12% on 6 April 2005. As at 6 April 2005 the interests in the issued shares set out in • Lloyds TSB Group Plc had a beneficial holding of 3.11% on the table on page 123 had been notified to the Company in 14 March 2005 and, as stated in the table on page 123, accordance with sections 198 to 208 of the Companies Act 3.11% on 6 April 2005. 1985 (including interests represented by the ADSs). Shareholders are obliged to notify the Company of their interests in such shares if they hold 3.0% or more beneficially At 6 April 2005, the total amount of the Company’s voting or 10.0% or more in the case of certain shareholders, such as securities owned by directors of the Company as a group was 1,498,544, all of which securities were shares. investment managers.
The Company’s major shareholders as listed in the table on The Company does not know of any arrangements, the page 123 do not have different voting rights per share than operation of which, might result in a change of control of the Company. other holders of the Company’s shares.
The following shareholders had significant changes in their percentage ownership of the Company’s issued share capital since 2 February 2002. This is based on disclosure made in the accounts for each of the three years since 2 February 2002 and notification received by the Company.
122 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Substantial shareholdings
Number of Percentage of shares issued shares
The Capital Group Companies, Inc. (1) 225,130,421 12.97 Harris Associates L.P. 104,581,400 6.03 FMR Corp. and Fidelity International Limited 103,753,777 5.98 Aviva plc and Morley Fund Management Limited 54,066,150 3.12 Lloyds TSB Group Plc 54,062,844 3.11 Legal & General Investment Management Limited 53,017,838 3.10
(1) Includes interest of Capital International Limited in 203,773,985 of such shares, notified on their behalf by the Capital Group Companies, Inc.
Exchange controls and other limitations affecting security to exercise primary supervision over the administration of the holders trust and one or more US persons have the authority to There are currently no UK laws, decrees or regulations control all substantial decisions of the trust. restricting the import or export of capital or (save as to taxation) affecting the remittance of dividends or other This summary deals only with shares and ADSs held as payments to holders of shares or ADSs who are non residents capital assets and does not address any special tax of the UK, subject to a few limited exceptions. Such consequences that may be applicable to US holders who are exceptions apply where there are sanctions or similar orders subject to special treatment under the US Internal Revenue issued by the United Nations, the European Union or the UK Code of 1986, as amended, such as dealers in securities or Government. foreign currency, traders who elect mark-to-market accounting, financial institutions or financial services entities, Subject to those exceptions, under English law and the insurance companies, persons subject to the alternative Company’s Memorandum and Articles of Association, persons minimum tax, tax-exempt entities or private foundations, who are neither residents nor nationals of the UK may freely persons that hold the shares or ADSs as part of a straddle, hold, vote and transfer shares (or other securities) in the same hedge, conversion or constructive sale transaction or other manner as UK residents or nationals. The Articles of integrated financial transaction, persons whose functional Association provide that a shareholder with a registered currency is other than the US dollar, certain expatriates or address outside the UK is not entitled to receive notice of any former long-term residents of the US, persons who alone, or general meeting of the Company unless the shareholder has together with one or more associated persons, control or provided the Company with a UK address, or (in the case of controlled (directly, indirectly or constructively) 10% or more of any notice issued electronically) an appropriate electronic the voting shares of the Company or persons who acquire address, at which notices may be delivered. shares or ADSs as compensation for services.
Taxation Prospective investors are advised to consult their tax advisers Taxation for US residents with respect to the tax consequences of the purchase, The following summary sets out the principal US federal and ownership and disposition of shares or ADSs, including UK tax consequences of the purchase, ownership and specifically the consequences under state and local tax laws. disposition of the Company’s shares or ADSs in respect of The statements regarding US and UK tax laws set out below such shares by a ”US Holder” (as defined below) and is not are based on US federal and UK tax laws and UK Inland intended to be a complete analysis or listing of all the possible Revenue practice in force on the date of this Annual Report tax consequences of such purchase, ownership or disposition. and are subject to change after that date. This summary does not address the tax consequences to partnerships, other As used herein, a US holder means a beneficial owner of the pass-through entities or persons who hold shares or ADSs Company’s shares or ADSs that is: a citizen or resident of the through a partnership or other pass-through entity. US; a corporation (or other entity taxable as a corporation for US federal income tax purposes) created or organised in or US holders of ADSs will be treated as the owners of the under the laws of the US, or any state thereof; an estate underlying shares for purposes of the double taxation whose income is includible in gross income for US federal conventions relating to income and estate and gift taxes income tax purposes regardless of its source; or a trust, if a between the US and the UK and for the purposes of the US court within the US is able Internal Revenue Code of 1986, as amended.
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Shareholder information (continued)
In addition, the following summary assumes that US holders and/or its ownership, the Company does not believe that it are residents of the US for purposes of the current convention would be treated as a foreign investment company or a relating to income taxes between the US and the UK (“the foreign personal holding company. In addition, the Company Convention”) and are entitled to the benefits of the does not believe it is a passive foreign investment company. Convention. Accordingly, dividend distributions with respect to the Company’s shares or ADSs should be treated as qualified Taxation of dividends dividend income and, subject to the US holder’s satisfaction of Any dividend paid by the Company will generally be included the requirements described below, should be eligible for the in the gross income of a US holder as dividend income for US reduced 15% US federal income tax rate. A US holder will not federal income tax purposes to the extent made from the be entitled to the reduced rate: (a) if the US holder has not Company’s current or accumulated earnings and profits, as held the shares or ADSs for at least 61 days of the 121-day determined under US federal income tax principles. period beginning on the date which is 60 days before the ex- Distributions in excess of such current and accumulated dividend date; (b) to the extent the US holder is under an earnings and profits will be applied against and will reduce the obligation to make related payments on substantially similar or US holder’s tax basis in the shares or ADSs and to the extent related property; or (c) if the US holder elects to treat the in excess of such tax basis will be treated as a gain from the dividend income as “investment income” pursuant to Section sale or exchange of the shares or ADSs. 163(d)(4) of the US Internal Revenue Code. Any days during which a US holder has diminished its risk of loss on the shares or ADSs are not counted towards meeting the 61-day The amount of any dividend paid in pounds sterling will equal holding period required by the statute. the US dollar value of the pounds sterling received calculated by reference to the exchange rate in effect on the day that the dividend is received by the US holder, in the case of shares, The UK does not currently apply a withholding tax on or by the Depositary (or its Custodian), in the case of ADSs, dividends under its internal laws. If the UK were to impose a regardless of whether the dividend payment is converted into withholding tax, as permitted under the Convention, the rate of US dollars. Foreign currency exchange gain or loss, if any, such withholding tax will not exceed 15% of the dividend paid realised on a subsequent sale or other disposition of pounds to a US holder. In such circumstances, subject to applicable generally will be treated as US source ordinary income or loss limitations, a US holder who was subject to any withholding to the US holder. should be entitled to claim a deduction for withheld tax or, subject to the holding period requirements mentioned below, a credit for such withholding tax, against the US holder’s federal Dividends received on the shares or ADSs generally will be income tax liability. The US foreign tax credit limitation may be foreign source passive income for US foreign tax credit reduced to the extent that dividends are eligible for the purposes and generally will not be eligible for the dividends reduced rate described above. Special rules apply to foreign received deduction allowed to US corporations under Section tax credits relating to qualified dividend income. US holders 243 of the US Internal Revenue Code. should consult their tax advisers as to the method of claiming such foreign tax credit or deduction and compliance with A non-corporate US holder’s “qualified dividend income” is special tax return disclosure requirements that apply to US subject to tax at a reduced rate of tax of 15%. For this holders who claim the benefit of the foreign tax credit on such purpose, qualified dividend income includes dividends from US holders’ US federal income tax returns. foreign corporations paid prior to 1 January 2009 if (a) the shares of such corporation with respect to which such A US holder will be denied a foreign tax credit (and instead dividend is paid are readily tradeable on an established allowed a deduction) for foreign taxes imposed on a dividend securities market in the US, or (b) such corporation is eligible if the US holder has not held the shares or ADSs for at least for the benefits of a comprehensive tax treaty with the US that 16 days in the 31-day holding period beginning 15 days before includes an information exchange programme and is the ex-dividend date. Any days during which a US holder has determined to be satisfactory to the US Secretary of the substantially diminished its risk of loss on the shares or ADSs Treasury. The US Secretary of the Treasury has indicated that are not counted towards meeting the 16-day holding period the Convention is satisfactory for this purpose. Dividends will required by statute. A US holder that is under an obligation to not however qualify for the reduced rate if such corporation is make related payments with respect to the shares or ADSs (or treated for the tax year in which dividends are paid (or in the substantially similar or related property) also is not entitled to prior year) as a “foreign investment company”, a “foreign claim a foreign tax credit with respect to a foreign tax imposed personal holding company”, or a “passive foreign investment on a dividend. company” for US federal income tax purposes. Based on the nature of the Company’s operations
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Taxation of capital gains Under the Convention, a US holder who is resident or Upon a sale, exchange or other disposition of shares or ADSs, ordinarily resident for tax purposes in the UK, a US a US holder will recognise a gain or loss for US federal corporation which is resident in the UK by reason of being income tax purposes in an amount equal to the difference managed and controlled in the UK, or a US holder who, or a between the US dollar value of the amount realised and the US corporation which, has a permanent establishment, where US holder’s tax basis (determined in US dollars) in such shares or ADSs are or have been acquired, used or held for shares or ADSs. Generally, such gain or loss will be a capital the purposes of such permanent establishment, may be liable gain or loss and will be a long-term capital gain or loss if the for both UK tax and US federal income tax on a gain on the US holder’s holding period for such shares or ADSs exceeds disposal of the shares or ADSs. Such US holders are advised one year. Any such gain or loss generally will be income or to consult their tax adviser. loss from sources within the US for foreign tax credit limitation purposes. Long-term capital gains of a non-corporate US US information reporting and US backup withholding tax holder are generally subject to a maximum tax rate of 15%. Under US Treasury regulations, dividends paid on shares or The deductibility of a capital loss recognised on the sale or ADSs may be subject to US information reporting exchange of shares or ADSs is subject to limitations. requirements and backup withholding tax (currently 28%). In addition, under US Treasury regulations, the payment of the If the shares or ADSs are publicly traded, a disposition of such proceeds of a sale, exchange or redemption of shares or shares or ADSs will be considered to occur on the “trade ADSs to a US holder or non-US holder in the US, or through date”, regardless of the US holder’s method of accounting. A US or US-related persons, may be subject to US information US holder that uses the cash method of accounting calculates reporting requirements and backup withholding tax (currently the US dollar value of the proceeds received on the sale on 28%). the date that the sale settles. However, a US holder that uses the accrual method of accounting is required to calculate the US holders can avoid the imposition of backup withholding tax value of the proceeds of the sale on the “trade date” and, by reporting their taxpayer identification number to their broker therefore, may realise a foreign currency gain or loss, unless or paying agent on US Internal Revenue Service Form W-9. such US holder has elected to use the settlement date to Non-US holders can avoid the imposition of backup determine its proceeds of sale for purposes of calculating withholding tax by providing a duly completed US Internal such foreign currency gain or loss. In addition, a US holder Revenue Service Form W-8BEN, W-8ECI or W-8IMY, as that receives foreign currency upon the sale or exchange of appropriate, to their broker or paying agent. Any amounts the shares or ADSs and converts the foreign currency into US withheld under the backup withholding rules from a payment dollars subsequent to receipt will have a foreign exchange to a holder will be allowed as a refund or a credit against such gain or loss based on any appreciation or depreciation in the holder’s US federal income tax liability, provided that the value of the foreign currency against the US dollar. A foreign required returns are filed with US Internal Revenue Service on exchange gain or loss will generally be US source ordinary a timely basis. income or loss. Inheritance tax Generally a US holder who is neither resident nor ordinarily Shares or ADSs held by an individual who is domiciled in the resident for tax purposes in the UK will not be liable for UK tax US for the purposes of the double taxation convention relating on capital gains realised on the sale or other disposal of to estate and gift taxes between the US and the UK, and for shares or ADSs unless, in the year of assessment in which the purposes of the convention is not a national of the UK, will the gain accrues to such holder, that US holder has a not be subject to UK inheritance tax on the individual’s death permanent establishment in the UK and the shares or ADSs or on a lifetime transfer of shares or ADSs, except in certain are or have been used by, held by, or acquired for use by, or cases where the shares or ADSs are placed in trust (other for the purpose of, such permanent establishment. However, a than by a settlor domiciled in the US who is not a national of US holder who has been resident in the UK for at least four the UK) and, in the exceptional case, where the shares or years and held shares or ADSs at that time may, in certain ADSs are part of the business property of a UK permanent circumstances, become liable to UK capital gains tax on his establishment of an enterprise or pertains to a UK fixed base return to the UK following a disposal of such shares or ADSs. of an individual used for the performance of independent Any US holders whose circumstances are such that they may personal services. fall within such provisions are advised to consult their tax adviser. The convention generally provides a credit for the amount of any tax paid in the UK against the US federal tax liability in a case where the shares or ADSs are subject both to UK inheritance tax and to US federal gift or estate tax. However, the terms of the US/UK estate and gift tax convention are currently being
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Shareholder information (continued)
reviewed and possibly renegotiated. Further advice should be sought by any holder who is likely to need to rely upon the provisions of the convention.
UK stamp duty and stamp duty reserve tax Stamp duty is (subject to certain exceptions including for charities) currently payable on any instrument transferring shares to the Custodian of the Depositary at the rate of 1.5% on the value of such shares. In accordance with the terms of the Deposit Agreement relating to the shares, any tax or duty payable by the Depositary or the Custodian of the Depositary on future deposits of shares will be charged by the Depositary to the party to whom ADSs are delivered against such deposits.
No UK stamp duty will be payable on transfer of an ADS, provided that the ADS (and any separate instrument of transfer) is executed and retained at all times outside the UK. A transfer of an ADS in the US will not give rise to UK stamp duty provided the instrument of transfer is not brought into the UK. A transfer of an ADS in the UK may attract stamp duty at a rate of 0.5% of the consideration. Any transfer (which will include a transfer from the Depositary to an ADS holder) of the shares, including shares underlying an ADS, may result in a stamp duty liability at the rate of 0.5% of the consideration. There is no charge to ad valorem stamp duty on gifts. On a transfer of shares from a nominee to the beneficial owner (the nominee having at all times held the shares on behalf of the transferee) under which no beneficial interest passes and which is neither on sale, nor arises under or following a contract of sale, nor is in contemplation of sale, a fixed stamp duty of £5 will be payable.
Stamp duty reserve tax generally at a rate of 0.5% of the consideration is currently payable on any agreement to transfer shares or any interest therein unless: (i) an instrument transferring the shares is executed; (ii) stamp duty, generally at a rate of 0.5%, is paid; and (iii) generally the instrument is stamped on or before the accountable date for stamp duty reserve tax. The duty will, however, be refundable if within six years the agreement is completed by an instrument which has been duly stamped, generally at the rate of 0.5%. Stamp duty reserve tax will not be payable on any agreement to transfer ADSs which represent interests in depositary receipts.
126 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Selected financial data
2003/04 2002/03 2001/02 2000/01 2004/05 2004/05 (1) as restated (2) as restated (2) as restated(2)(3) as restated(2) £m $m £m £m £m £m
Amounts under UK GAAP: Profit and loss account Sales 1,614.4 3,051.2 1,604.9 1,593.6 1,562.4 1,373.3 Cost of sales (4) (1,329.6 ) (2,512.9 ) (1,330.7 ) (1,331.2 ) (1,317.9 ) (1,157.9 )
Gross profit 284.8 538.3 274.2 262.4 244.5 215.4 Administrative expenses (65.9 ) (124.6 ) (64.0 ) (62.5 ) (61.1 ) (51.6 )
Operating profit 218.9 413.7 210.2 199.9 183.4 163.8 Net interest payable (8.6 ) (16.3 ) (10.4 ) (14.0 ) (15.0 ) (12.7 )
Profit before tax 210.3 397.4 199.8 185.9 168.4 151.1 Taxation (69.1 ) (130.5 ) (70.2 ) (65.7 ) (57.9 ) (48.4 )
Profit for the period 141.2 266.9 129.6 120.2 110.5 102.7
Earnings per – basic 8.2p $0.15 7.5p 7.0p 6.5p 6.1p share – diluted 8.1p $0.15 7.5p 7.0p 6.5p 6.1p Earnings per – basic 81.5p $1.54 75.4p 70.3p 65.4p 61.2p ADS – diluted 81.3p $1.54 74.9p 69.6p 64.9p 60.7p
Balance sheet data (at period end) Working capital (5) 700.1 1,323.2 642.2 613.0 635.4 383.8 Total assets 1,293.7 2,445.1 1,228.6 1,194.7 1,221.9 1,114.2 Total debt 185.9 351.4 207.9 229.3 268.2 266.6 Long-term debt 132.8 251.0 146.2 174.0 215.3 51.5 Cash at bank and in hand 102.4 193.5 128.0 89.2 66.5 37.5 Shareholders’ funds (as restated) (2) 739.1 1,396.9 674.9 627.6 634.4 544.5
Store data: Store numbers (at end of period): US 1,156 1,103 1,050 1,025 999 UK 602 604 610 606 605 Percentage increase in like for like sales: US 6% 5% 5% 1% 6% UK 3% 6% 5% 9% 9% Average sales per store (£’000s) (6) : US 976 1,028 1,074 1,095 1,078 UK 866 824 747 735 665
Amounts under US GAAP: Profit and loss account data Operating income 211.5 399.7 206.6 198.7 163.3 151.8 Net income 137.5 259.9 127.4 119.5 90.9 89.2p Income per – basic 7.9p $0.15 7.4p 7.0p 5.4p 5.3p share – diluted 7.9p $0.15 7.4p 6.9p 5.3p 5.3p Income per – basic 79.4p $1.50 74.1p 69.9p 53.8p 53.2p ADS – diluted 79.1p $1.49 73.6p 69.2p 53.4p 52.8p Balance sheet data (at period end) Total assets 1,477.0 2,791.5 1,417.8 1,353.8 1,417.0 1,363.9 Total debt 53.1 100.4 70.0 76.3 91.4 161.3 Long-term debt – – 8.3 24.2 38.7 51.5 Cash at bank and in hand 102.4 193.5 128.0 89.2 66.5 37.5 Shareholders’ funds 1,056.0 1,995.8 988.5 947.5 977.5 881.1
Explanatory notes referred to in the above table are on page 128.
Signet Group plc Annual Report & Accounts year ended 29 January 2005 127 Back to Contents
Selected financial data (continued)
The selected consolidated financial data set out on the preceding page for 2000/01, 2001/02, 2002/03, 2003/04 and 2004/05 has been derived, in part, from the audited consolidated accounts for such periods included elsewhere in this Annual Report & Accounts. The selected consolidated financial data should be read in conjunction with the accounts, including the notes thereto, and the Financial review included on pages 24 to 34 of this Annual Report & Accounts.
The accounts of the Group have been prepared in accordance with UK GAAP which differ in certain respects from US GAAP.
See pages 103 to 114 for information on the material differences between UK and US GAAP that affect the Group’s profit and shareholders’ funds.
Results of operations The following table sets out certain consolidated financial data as a percentage of reported sales:
Percentage of sales
2004/05 2003/04 (2) 2002/03 (2) % % %
Sales 100.0 100.0 100.0 Cost of sales (4) (82.4 ) (82.9 ) (83.5 )
Gross profit 17.6 17.1 16.5 Administrative expenses (4.1 ) (4.0 ) (3.9 )
Operating profit 13.5 13.1 12.6 Net interest expense (0.5 ) (0.7 ) (0.9 )
Profit before taxation 13.0 12.4 11.7 Taxation (4.3 ) (4.3 ) (4.2 )
Net profit 8.7 8.1 7.5
(1) Amounts in pounds sterling are translated into US dollars solely for the convenience of the reader, at a rate of £1.00 to $1.89, the Noon Buying Rate on 29 January 2005. (2) During 2004/05 the Group adopted the amendment to FRS 5, ‘Application Note G – Revenue Recognition’. The adoption of these standards has resulted in prior year adjustments affecting UK GAAP shareholders’ funds for 2000/01, 2001/02, 2002/03 and 2003/04 (see note 17). (3) 53 week year. (4) Cost of sales includes all costs incurred in the purchase, processing and distribution of the merchandise and all costs directly in the operation and support of the retail outlets. (5) Working capital represents current assets (excluding amounts recoverable after more than one year) less current liabilities. (6) Includes only stores operated for the full financial year.
128 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Quarterly results (unaudited)
For the 52 week period ended 29 January 2005 (1)
13 weeks ended 13 weeks ended 13 weeks ended 13 weeks ended 52 weeks ended 29 January 1 May 2004 31 July 2004 30 October 2004 29 January 2005 2005 £m £m £m £m £m
Sales 342.4 326.1 287.6 658.3 1,614.4
Operating profit 28.6 26.8 6.8 156.7 218.9 Net interest payable and similar charges (2.1 ) (2.6 ) (2.9 ) (1.0 ) (8.6 )
Profit on ordinary activities before taxation 26.5 24.2 3.9 155.7 210.3 Tax on profit on ordinary activities (9.1 ) (8.2 ) (1.2 ) (50.6 ) (69.1 )
Profit for the financial period 17.4 16.0 2.7 105.1 141.2
For the 52 week period ended 31 January 2004 (1) 13 weeks ended 13 weeks ended 13 weeks e nded 13 weeks ended 52 weeks ended 1 November 3 May 2003 2 August 2003 31 January 2004 31 January 2004 2003 £m £m £m £m £m
Sales 340.3 322.6 287.4 654.6 1,604.9
Operating profit 25.3 24.9 6.3 153.7 210.2 Net interest payable and similar charges (3.1 ) (3.0 ) (3.2 ) (1.1 ) (10.4 )
Profit on ordinary activities before taxation 22.2 21.9 3.1 152.6 199.8 Tax on profit on ordinary activities (7.9 ) (7.7 ) (0.9 ) (53.7 ) (70.2 )
Profit for the financial period 14.3 14.2 2.2 98.9 129.6
(1) Restated for the implementation of the amendment to FRS 5, ‘Application Note G – Revenue Recognition’ (see note 17).
Signet Group plc Annual Report & Accounts year ended 29 January 2005 129 Back to Contents
Definitions
In this document the following words and expressions shall, unless the context otherwise requires, have the following meanings:
ADR American Depositary Receipt evidencing title to an ADS
ADS American Depositary Share representing 10 Signet Group plc shares
APB Accounting Principles Bulletin (US) c.a.g.r. compound annual growth rate
Company Signet Group plc
Depositary Deutsche Bank Trust Company Americas, depositary under the amended and restated deposit agreement for the issue of ADRs
Directors The directors of the Company
Earnings per share (EPS) Profit attributable to shareholders divided by the weighted average number of shares in issue
ESOT Signet Group Employee Share Trust
FAS Statement of Financial Accounting Standards (US)
FRS Financial Reporting Standard (UK)
FURBS Signet Group Funded Unapproved Retirement Benefit Scheme
GAAP (UK or US) Generally Accepted Accounting Principles
Gearing Net debt as a percentage of shareholders’ funds
Group Signet Group plc and its subsidiary undertakings
IAS International Accounting Standard
IFRS International Financial Reporting Standard
Independent (directors) Considered to be independent under the Combined Code
LIBOR London Inter-Bank Offered Rate
LTIP Long Term Incentive Plan
NASD National Association of Securities Dealers
Nasdaq National Association of Securities Dealers Automated Quotations
NYSE New York Stock Exchange
Pounds, £, pound sterling, Units of UK currency pence or p
QUEST Signet Group Qualifying Employee Share Trust
Return on capital employed Operating profit divided by monthly average capital employed (ROCE)
SEC Securities and Exchange Commission
Shares Ordinary shares of 0.5 pence each in Signet Group plc
SIC Standard Interpretation Committee
Signet Signet Group plc and its subsidiary undertakings
SSAP Statement of Standard Accounting Practice (UK)
UK or United Kingdom United Kingdom, Channel Islands, Isle of Man and the Republic of Ireland
US or United States United States of America
US dollar, $ or cents Units of US currency
130 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Glossary of terms
Terms used in Annual Report & Accounts US equivalent or brief description
Accounts Financial statements
Allotted Issued
Called up share capital Shares, issued and fully paid
Capital allowances Tax term equivalent to US tax depreciation allowances
Cash at bank Cash
Creditors Payables
Debtors Receivables
Finance lease Capital lease
Freehold Ownership with absolute rights in perpetuity
Interest receivable Interest income
Interest payable Interest expense
Like for like sales Same store sales at constant exchange rates
Loans Long-term debt
Net asset value Book value
Profit Income
Profit and loss account Income statements
Profit and loss account reserve Retained earnings
Profit attributable to shareholders Net income
Share capital Capital stock or common stock
Share option Stock option
Shareholders’ funds Shareholders’ equity/net assets
Share premium account Additional paid-up capital or paid-in surplus (not distributable)
Shares in issue Shares outstanding
Stocks Inventories
Tangible fixed assets Property and equipment
Value Added Tax (VAT) UK sales tax Signet Group plc Annual Report & Accounts year ended 29 January 2005 131 Back to Contents
Shareholder contacts
UK shareholders Registered office Enquiries concerning the following matters should be Zenith House addressed to: The Hyde London NW9 6EW Capita Registrars Telephone: 0870 909 0301 The Registry 34 Beckenham Road Investor Relations Director Beckenham Timothy Jackson Kent BR3 4TU Telephone: 0870 909 0301 Telephone: 0870 162 3100 e-mail: [email protected] Telephone (overseas): +44 208 639 2157 e-mail: [email protected] Group Company Secretary web site: www.capitaregistrars.com Mark Jenkins Telephone: 0870 909 0301 • Dividend payments e-mail: [email protected] • Dividend mandate instructions • Dividend reinvestment plan Corporate web site • Loss of share certificates Further information about the Group including the Annual and • Notification of change of address or name interim reports, public announcements and share price data • Transfer of shares to another person are available in electronic format from the Group’s corporate • Amalgamation of shareholdings: if you receive more than web site at www.signetgroupplc.com. one copy of the full Annual Report & Accounts, you may wish to amalgamate your accounts on the share register. Unsolicited mail As the Company’s share register is, by law, open to public ADS information inspection, shareholders may receive unsolicited mail from The ADS programme is administered on behalf of the organisations that use it as a mailing list. To limit the amount Company by Deutsche Bank Trust Company Americas. Any of unsolicited mail you receive, write to: enquiries, including those to do with change of address or dividend payments, should be addressed to: Mailing Preference Service FREEPOST 22 Deutsche Bank Trust Company Americas London W1E 7EZ 85 Challenger Road Ridgefield Park New Jersey Documents on display Documents referred to in this Annual Report are available for NJ 07660 inspection at the registered office of the Company. USA Telephone toll-free from US: +1 866 249 2593 web site: www.adr.db.com
The Company is subject to the regulations of the SEC as they apply to foreign private issuers and files with the SEC its Annual Report on Form 20-F and other information as required.
Printed on Revive Special Silk, which is FSC accredited and contains a minimum of 30% post consumer waste. 132 Signet Group plc Annual Report & Accounts year ended 29 January 2005 Back to Contents
Index
Page Page Accounting policies 72-75 Glossary of terms 131 Addresses for correspondence 132 Goodwill 81 Advisers 42 Group Chief Executive’s review 3 Annual general meeting 44 Information systems 16,21 Audit Committee Interest payable 77 – constitution 46 Legal proceedings 93 – members of 41 Marketing and advertising 14,21 Auditor’s report 65 Net debt 93 Balance sheet Nomination Committee – Company 68 – constitution 47 – consolidated 67 – members of 41 Board of directors Non–executive directors 41 – changes in constitution 45 Notes to the accounts 72-114 – names and biographical details 41 Officers 42 Cash flow and funding 26 Operating review Cash flow statements – US 7-16 – consolidated 69 – UK 17-22 – notes 93 Other provisions 87 Chairman’s statement 2 Pension schemes 52,87 Charitable and community support 118 Prior year adjustments 85 Commitments Profit and loss account – capital 92 – consolidated 66 – operating leases 92 Quarterly results 129 Competition 7,17,36 Regulation 16,22 Contingent liabilities 93 Related part transactions 100 Corporate governance statement 45-50 Remuneration Committee Creditors 84 – constitution 51 Debtors 83 – members of 41 Deferred taxation 86 Report of the directors 43 Definitions 130 Reserves 91 Description of property 23 Risk and other factors 35-40 Directors ROCE 26 – incentive plans 52 Segment information 76 – interests in shares 62 Selected financial data 127 – other information 41-42 Share capital 90 – pensions 52,59 Shareholder – remuneration 54 – contacts 132 – remuneration policy 51 – information 120 – share option plans 52,60 Shareholders’ funds Directors’ statements of responsibility in relation to the – movements in 71 64 accounts Share options 95 Dividends 80 Share premium account 91 Earnings per share 80 Share price 121 115- Employees Social, ethical and environmental matters – costs 78 119 – numbers 78 Statement of total recognised gains and losses 70 Exchange controls 39 Stocks 83 Exchange rates 40,77 Subsidiary undertakings 100 Financial instruments 94 Substantial shareholdings 123 Financial review 24 Taxation 79 Financial summary 6 Treasury policies 39,77 Fixed assets US accounting principles 103- – intangible 81 – summary of differences between UK and US GAAP – tangible 82 114
Signet Group plc Annual Report & Accounts year ended 29 January 2005 133 Back to Contents
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Signatures
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
SIGNET GROUP PLC
By: /s/ Walker Boyd Name: Walker Boyd Title: Group Finance Director
Date: May 3, 2005
Exhibits
Number Description of Exhibit
1.1* Articles of Association of Signet Group plc, adopted by Special Resolution passed on June 13, 2002 (incorporated herein by reference to Exhibit 1.1 to the Company’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on April 24, 2003 (File No. 0 -16945)).
4.1* $410 million Multicurrency Revolving Facilities Agreement, dated as of August 30, 2001, between Signet Group plc, Barclays Capital, HSBC Investment Bank plc, First Union National Bank, The Royal Bank of Scotland plc and HSBC Investment Bank plc (incorporated herein by reference to Exhibit 4.1 to the Company’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on May 16, 2002 (File No. 0 -16945)).
4.2* $60 million Senior Unsecured Loan Notes Agency Agreement, dated as of July 27, 1998, between Signet Group plc; H.Samuel Limited; Ratners US Holdings, Inc.; Sterling Inc.; Sterling Jewelers Inc.; James Walker, Goldsmith and Silversmith, Limited; Checkbury Limited; Sterling Jewelers LLC; and De Nationale Investeringsbank N.V. (incorporated herein by reference to Exhibit 4.5 to the Company’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on May 11, 2001 (File No. 0 -16945)).
4.3* Deed of Guarantee, dated as of August 12, 1999, with respect to Signet Group plc U.S. $60,000,000 Senior Unsecured Loan Notes due 2005 (incorporated herein by reference to Exhibit 4.6 to the Company’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on May 11, 2001 (File No. 0 -16945)).
4.4* Letter of NIB Capital Bank to Signet Group plc, dated as of November 24, 2000, with respect to U.S. $60,000,000 Senior Unsecured Loan Notes due 2005 (incorporated herein by reference to Exhibit 4.7 to the Company’s Annual Report on Form 20 -F, as filed with the Securities and Exchange Commission on May 11, 2001 (File No. 0 -16945)).
4.5* Transfer and Servicing Agreement, dated as of November 2, 2001, between Sterling Receivables Corp., Sterling Jewelers Inc., and Sterling Jewelers Receivables Master Note Trust (incorporated herein by reference to the Company’s Annual Report on Form 20 -F, as filed with the Securities and Exchange Commission on April 22, 2004) (File No. 0 -16945)).
4.6* Executive Service Agreement, dated as of June 14, 1995, between the Company and Walker Boyd, as amended May 15, 2000 (incorporated herein by reference to Exhibit 4.8 to the Company’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on May 11, 2001 (File No. 0 -16945)).
*Incorporated by reference.
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Number Description of Exhibit
4.7 * Amended and Restated Employment Agreement, dated as of December 20, 2000, between Sterling Jewelers Inc. and Terry Burman (incorporated herein by reference to Exhibit 4.10 to the Company’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on May 11, 2001 (File No. 0 -16945)).
4.8* Signet Group plc 2000 Long-Term Incentive Plan (incorporated herein by reference to the Company’s Registration Statement on Form S -8, as filed with the Securities and Exchange Commission on July 17, 2000 (File No. 333 -12304)).
4.9* Signet Group plc Employee Stock Savings Plan (incorporated herein by reference to the Company’s Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on November 18, 1998 (File No. 333- 9634)).
4.10* Signet Group plc 1993 Executive Share Option Scheme (incorporated herein by reference to the Company’s Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on June 17, 1998 (File No. 333 -8764)).
4.11* Ratners Group Executive Share Option Scheme for Residents of the United States of America (incorporated herein by reference to the Company’s Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on August 6, 1991 (File No. 033 -42119)).
4.12 $390 million Multicurrency Revolving Facilities Agreement, dated as of September 28, 2004, among Signet Group plc, Barclays Capital, HSBC Bank plc, The Royal Bank of Scotland plc and Wachovia Bank, N.A.
4.13 Employment Agreement between Signet Trading Limited and Robert Anderson dated March 1, 2003
8.1* List of Significant Subsidiaries of Signet Group plc (incorporated herein by reference to the Company’s Annual Report on Form 20 -F, as filed with the Securities and Exchange Commission on April 22, 2004) (File No. 0 -16945)).
12.1 Section 302 Certification of Walker Boyd
12.2 Section 302 Certification of Terry Burman
13.1 Certification of Walker Boyd pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
13.2 Certification of Terry Burman pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
14.1 Consent of KPMG Audit plc
*Incorporated by reference.
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Cross reference to Form 20-F
The information in this document that is referenced in the following table shall be deemed to be part of the Annual Report on Form 20-F for the financial year ended 29 January 2005 and to be filed with the Securities and Exchange Commission.
Item Page Item Page 1 Identity of directors, Description of property 23 management and Financial review 24 Advisors Risk and other factors - Not applicable - Raw Materials 37 Risk and other factors - 2 Offer statistics and Seasonality 37 expected timetable Shareholder information 120 Not applicable - Note to the accounts – Note 2 (Segment information) 76 3A Key information - Note to the accounts – Note 28 Selected financial data (Principal subsidiary undertakings) 100 Five year financial summary 6 Risk and other factors 5 Operating and financial review - Financial market risks 39 and prospects Risk and other Factors - US Operating review 7 Exchange Rates 40 UK Operating review 17 Selected financial data 127 Financial review 24 Risk and other factors - 3B Key information - Financial market risks 39 Capitalisation and Note to the accounts – Note 26 Indebtedness (Financial instruments) 94 Not applicable - 6 Directors, senior management 3C Key information - and employees Reasons for the offer Group employees 23 and use of proceeds Social, ethical and Not applicable - environmental matters - Employees 116 3D Key information - Directors, officers and advisers 41 Risk factors Directors’ remuneration report 51 Risk and other factors 35 Corporate governance statement 45
4 Information on the Company 7A Major shareholders Chairman’s statement 2 Shareholder information - Group Chief Executive’s Nature of trading market 121 Review 3 Shareholder information - US Operating review 7 Substantial shareholdings and UK Operating review 17 control of the Company 122
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Item Page Item Page 7B Related party 9F Expenses of the Issuer Transactions Not applicable - Note to the accounts - Note 29 (Related party 10A Additional information – transactions) 100 Share capital Not applicable - 7C Interest of experts and Counsel 10B Additional information - Not applicable - Memorandum and Articles of Association 8 Financial information Shareholder information 120 Consolidated balance sheet 67 Consolidated cash flow 10C Additional information - statement 69 Material contracts Consolidated statement Financial review – Liquidity of total recognised gains and Capital resources 26 and losses 70 Note of consolidated 10D Additional information - historical cost profits Exchange controls and losses 70 Shareholder information - Note to the accounts - Dividends 122 Note 24 (Contingent – liabilities) 93 10E Additional information - Note to the accounts - Taxation Note 25 (Notes to the Shareholder information - consolidated cash flow Taxation 123 statement) 93 10F Additional information - 9A Offer and listing details Shareholder information Dividends and paying agents - Nature of trading market 121 Not applicable -
9B Plan of distribution 10G Additional information - Not applicable - Statement by experts Not applicable - 9C Markets Shareholder information 10H Additional information - - Nature of trading market 121 Documents on display Shareholder contacts - 9D Selling shareholders Documents on display 132 Not applicable - 10I Additional information - 9E Dilution Subsidiary information Not applicable - Not applicable - Back to Contents
Item Page Item Page 11 Quantitative and 16C Principal Accountant qualitative disclosures Fees and Services about market risk Note to the accounts - Financial review 24 Note 4 (Profit on ordinary Note to the accounts - activities before transaction-Fees Note 26 (Financial payable to KPMG Audit plc and instruments) 94 their associates) 77
12 Description of securities 16D Exemptions from the Listing other than equity Standards for Audit securities Committees - Note applicable - Not Applicable
13 Defaults, dividend 16E Purchase of Equity Securities arrears and by the Issuer and Affiliated delinquencies Purchasers None - Not applicable -
14 Material modifications 17 Financial Statements to the rights of Report of Independent Registered securities holders and Public Accounting Firm 65 use of proceeds Consolidated profit and loss None - account 66 Consolidated balance sheet 67 15 Controls and procedures Company balance sheet 68 Corporate governance Consolidated cash flow statement – Internal statement 69 control 48 Consolidated statement of total recognised gains and losses 70 16A Audit Committee Consolidated shareholders’ Financial Expert funds 71 Corporate governance Note to the accounts – statement – The Audit Note 31 (Summary of Committee 46 differences between UK and US generally accepted accounting 16B Code of ethics principles) 103 Corporate governance statement – Code of 18 Financial Statements Conduct and Code of Not applicable - Ethics 47 19 Exhibits 134
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Exhibits
Number Description of Exhibit
1.1* Articles of Association of Signet Group plc, adopted by Special Resolution passed on June 13, 2002 (incorporated herein by reference to Exhibit 1.1 to the Company’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on April 24, 2003 (File No. 0 -16945)).
4.1* $410 million Multicurrency Revolving Facilities Agreement, dated as of August 30, 2001, between Signet Group plc, Barclays Capital, HSBC Investment Bank plc, First Union National Bank, The Royal Bank of Scotland plc and HSBC Investment Bank plc (incorporated herein by reference to Exhibit 4.1 to the Company’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on May 16, 2002 (File No. 0 -16945)).
4.2* $60 million Senior Unsecured Loan Notes Agency Agreement, dated as of July 27, 1998, between Signet Group plc; H.Samuel Limited; Ratners US Holdings, Inc.; Sterling Inc.; Sterling Jewelers Inc.; James Walker, Goldsmith and Silversmith, Limited; Checkbury Limited; Sterling Jewelers LLC; and De Nationale Investeringsbank N.V. (incorporated herein by reference to Exhibit 4.5 to the Company’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on May 11, 2001 (File No. 0 -16945)).
4.3* Deed of Guarantee, dated as of August 12, 1999, with respect to Signet Group plc U.S. $60,000,000 Senior Unsecured Loan Notes due 2005 (incorporated herein by reference to Exhibit 4.6 to the Company’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on May 11, 2001 (File No. 0 -16945)).
4.4* Letter of NIB Capital Bank to Signet Group plc, dated as of November 24, 2000, with respect to U.S. $60,000,000 Senior Unsecured Loan Notes due 2005 (incorporated herein by reference to Exhibit 4.7 to the Company’s Annual Report on Form 20 -F, as filed with the Securities and Exchange Commission on May 11, 2001 (File No. 0 -16945)).
4.5* Transfer and Servicing Agreement, dated as of November 2, 2001, between Sterling Receivables Corp., Sterling Jewelers Inc., and Sterling Jewelers Receivables Master Note Trust (incorporated herein by reference to the Company’s Annual Report on Form 20 -F, as filed with the Securities and Exchange Commission on April 22, 2004) (File No. 0 -16945)).
4.6* Executive Service Agreement, dated as of June 14, 1995, between the Company and Walker Boyd, as amended May 15, 2000 (incorporated herein by reference to Exhibit 4.8 to the Company’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on May 11, 2001 (File No. 0 -16945)).
*Incorporated by reference. Back to Contents
Number Description of Exhibit
4.7 * Amended and Restated Employment Agreement, dated as of December 20, 2000, between Sterling Jewelers Inc. and Terry Burman (incorporated herein by reference to Exhibit 4.10 to the Company’s Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on May 11, 2001 (File No. 0 -16945)).
4.8* Signet Group plc 2000 Long-Term Incentive Plan (incorporated herein by reference to the Company’s Registration Statement on Form S -8, as filed with the Securities and Exchange Commission on July 17, 2000 (File No. 333 -12304)).
4.9* Signet Group plc Employee Stock Savings Plan (incorporated herein by reference to the Company’s Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on November 18, 1998 (File No. 333- 9634)).
4.10* Signet Group plc 1993 Executive Share Option Scheme (incorporated herein by reference to the Company’s Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on June 17, 1998 (File No. 333 -8764)).
4.11* Ratners Group Executive Share Option Scheme for Residents of the United States of America (incorporated herein by reference to the Company’s Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on August 6, 1991 (File No. 033 -42119)).
4.12 $390 million Multicurrency Revolving Facilities Agreement, dated as of September 28, 2004, among Signet Group plc, Barclays Capital, HSBC Bank plc, The Royal Bank of Scotland plc and Wachovia Bank, N.A.
4.13 Employment Agreement between Signet Trading Limited and Robert Anderson dated March 1, 2003
8.1* List of Significant Subsidiaries of Signet Group plc (incorporated herein by reference to the Company’s Annual Report on Form 20 -F, as filed with the Securities and Exchange Commission on April 22, 2004) (File No. 0 -16945)).
12.1 Section 302 Certification of Walker Boyd
12.2 Section 302 Certification of Terry Burman
13.1 Certification of Walker Boyd pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
13.2 Certification of Terry Burman pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
14.1 Consent of KPMG Audit plc
*Incorporated by reference.
Exhibit 4.12
LIMITED LIABILITY PARTNERSHIP
CONFORMED COPY
$390,000,000
FACILITIES AGREEMENT
dated 28 September 2004
for
SIGNET GROUP plc and others
and
BARCLAYS CAPITAL, HSBC BANK plc, THE ROYAL BANK OF SCOTLAND plc and WACHOVIA BANK, N.A . as Mandated Lead Arrangers
With
HSBC BANK plc acting as Agent
MULTICURRENCY REVOLVING FACILITIES AGREEMENT
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CONTENTS Clause Page
1. Definitions and Interpretation 4
2. The Facility 22
3. Purpose 22
4. Conditions of Utilisation 22
5. Utilisation 24
6. Optional Currencies 25
7. Repayment 26
8. Prepayment and Cancellation 26
9. Interest 29
10. Interest Periods 30
11. Changes to the Calculation of Interest 30
12. Fees 31
13. Tax Gross up and Indemnities 33
14. Increased Costs 36
15. Other Indemnities 37
16. Mitigation by the Lenders 38
17. Costs and Expenses 38
18. Guarantee and Indemnity 40
19. Representations 43
20. Information Undertakings 48
21. Financial Covenants 53
22. General Undertakings 54
23. Events of Default 59
24. Changes to the Lenders 64
25. Changes to the Obligors 67
26. Role of the Agent and the Mandated Lead Arrangers 69
27. Conduct of Business by the Finance Parties 73
28. Sharing among the Lenders 74
29. Payment Mechanics 76
30. Set-Off 78
31. Notices 78
32. Calculations And Certificates 80
33. Partial Invalidity 80
34. Remedies and Waivers 80
35. Amendments and Waivers 80
36. Counterparts 81
37. Governing Law 82
38. Enforcement 82
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Schedule 1 T HE O RIGINAL P ARTIES 83
Part I The Original Obligors 83 Part II The Original Lenders 84
Schedule 2 M ARGIN 85
Schedule 3 C ONDITIONS P RECEDENT 86
Part I Conditions Precedent to Initial Utilisation 86 Part II Conditions Precedent required to be delivered by an Additional Obligor 88
Schedule 4 R EQUESTS 90
Schedule 5 M ANDATORY C OST F ORMULAE 91
Schedule 6 F ORM OF T RANSFER C ERTIFICATE 94
Schedule 7 F ORM OF A CCESSION L ETTER 96
Schedule 8 F ORM OF R ESIGNATION L ETTER 97
Schedule 9 F ORM OF C OMPLIANCE C ERTIFICATE 98
Schedule 10 L MA F ORM OF C ONFIDENTIALITY U NDERTAKING 100
Schedule 11 T IMETABLES 104
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THIS AGREEMENT is dated 28 September 2004 and made between:
(1) SIGNET GROUP plc (Co. Reg. No. 00477692) whose registered office is at Zenith House, The Hyde, London, NW9 6EW (as the " Company " and " Original Borrower ");
(2) THE SUBSIDIARIES of the Company listed in Part I of Schedule 1 ( The Original Parties ) as original guarantors (together with the Company the " Original Guarantors ");
(3) BARCLAYS CAPITAL, HSBC BANK plc, THE ROYAL BANK OF SCOTLAND plc and WACHOVIA BANK, N.A . (whether acting individually or together the " Mandated Lead Arrangers ");
(4) THE FINANCIAL INSTITUTIONS listed in Part II of Schedule 1 ( The Original Parties ) as lenders (the " Original Lenders "); and
(5) HSBC BANK plc as agent of the Lenders (the " Agent ").
IT IS AGREED as follows:
SECTION 1 INTERPRETATION
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Agreement:
" Accession Letter " means a document substantially in the form set out in Schedule 7 ( Form of Accession Letter ).
" Additional Guarantor " means a company which becomes an Additional Guarantor in accordance with Clause 25.2 ( Additional Guarantors ).
" Additional Obligor " means an Additional Borrower or an Additional Guarantor.
" Affiliate " means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company.
" Agent's Spot Rate of Exchange " means the Agent's spot rate of exchange for the purchase of the relevant currency with the Base Currency in the London foreign exchange market at or about 11:00 a.m. on a particular day.
" Authorisation " means an authorisation, consent, approval, resolution, licence, exemption, filing or registration.
" Availability Period " means the period from and including the date of this Agreement to and including the day falling one Month before the Termination Date.
" Available Commitment " means a Lender's Commitment minus:
(a) the Base Currency Amount of its participation in any outstanding Loans; and
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(b) in relation to any proposed Utilisation, the Base Currency Amount of its participation in any Loans that are due to be made on or before the proposed Utilisation Date,
other than that Lender's participation in any Loans that are due to be repaid or prepaid on or before the proposed Utilisation Date.
" Available Facility " means the aggregate for the time being of each Lender's Available Commitment.
" Base Currency " means dollars.
" Base Currency Amount " means, in relation to any Utilisation, the amount specified in the Utilisation Request delivered by a Borrower for that Utilisation (or, if the amount requested is not denominated in the Base Currency, that amount converted into the Base Currency at the Agent's Spot Rate of Exchange on the date which is three Business Days before the Utilisation Date or, if later, on the date the Agent receives the Utilisation Request) adjusted to reflect any repayment or prepayment of the Utilisation.
" Borrower " means the Company as Original Borrower or an Additional Borrower unless it has ceased to be a Borrower in accordance with Clause 25 ( Changes to the Obligors ).
" Break Costs " means the amount (if any) by which:
(a) the interest which a Lender should have received for the period from the date of receipt of all or any part of its participation in a Loan or Unpaid Sum to the last day of the current Interest Period in respect of that Loan or Unpaid Sum, had the principal amount or Unpaid Sum received been paid on the last day of that Interest Period;
exceeds:
(b) the amount which that Lender would be able to obtain by placing an amount equal to the principal amount or Unpaid Sum received by it on deposit with a leading bank in the Relevant Interbank Market for a period starting on the Business Day following receipt or recovery and ending on the last day of the current Interest Period.
" Business Day " means a day (other than a Saturday or Sunday) on which banks are open for general business in London and New York: and
(a) (in relation to any date for payment or purchase of a currency other than euro) the principal financial centre of the country of that currency; or
(b) (in relation to any date for payment or purchase of euro) any TARGET Day.
“Class 1 Transaction” means, taking into account, as applicable, the assets, profits, turnover, gross capital and aggregate market value of the Group as a whole, a Class 1 transaction for the purposes of Paragraph 10.4() of the UK Listing Rules as in force on the date of this Agreement.
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" Code " means, at any date, the U.S. Internal Revenue Code of 1986 (or any successor legislation thereto) as amended from time to time, and the regulations promulgated and rulings issued thereunder, all as the same may be in effect at such date.
" Commitment " means:
(a) in relation to an Original Lender, the amount in the Base Currency set opposite its name under the heading " Commitment " in Part II of Schedule 1 ( The Original Parties) and the amount of any other Commitment transferred to it under this Agreement; and
(b) in relation to any other Lender, the amount in the Base Currency of any Commitment transferred to it under this Agreement
to the extent not cancelled, reduced or transferred by it under this Agreement.
" Compliance Certificate " means a certificate substantially in the form set out in Schedule 9 ( Form of Compliance Certificate) .
" Confidentiality Undertaking " means a confidentiality undertaking substantially in a recommended form of the LMA as set out in Schedule 10 ( LMA Form of Confidentiality Undertaking ) or in any other form agreed between the Company and the Agent.
" Consolidated Earnings Before Interest and Tax " means, in respect of any Relevant Period, the total operating profit for continuing operations, acquisitions (as a component of continuing operations) and discontinued operations as set out in FRS3 excluding, for the avoidance of doubt, any exceptional profits or losses on the sale of or termination of any operation, exceptional costs of a fundamental reorganisation or restructuring and any exceptional profits or losses on the disposals of fixed assets and extraordinary items for such Relevant Period all as set out in FRS3.
" Consolidated EBITDA " means, for any Relevant Period, Consolidated Earnings Before Interest and Tax before any amount attributable to the amortisation of intangible assets and depreciation of tangible assets for such Relevant Period, adjusted by:
(a) including the EBITDA (determined on the same basis as "Consolidated EBITDA") of a member of the Group acquired during that Relevant Period for that part of that Relevant Period when it was not a member of the Group and/or the business or assets were not owned by a member of the Group; and
(b) including the EBITDA (determined on the same basis as "Consolidated EBITDA") attributable to any member of the Group or to any business sold during that Relevant Period.
" Consolidated Net Debt " means at any time the aggregate amount of all obligations of the Group (and for the purposes of paragraph (l) of the definition of Financial Indebtedness the relevant entity, if not a member of the Group, which has incurred such Financial Indebtedness) for or in respect of Indebtedness for Borrowed Money but excluding any such obligation to any other member of the Group, adjusted to take account of the aggregate amount of freely available cash and cash equivalents held by any member of the Group (and so that no amount shall be included or excluded more than once).
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" Consolidated Net Interest Expenditure " means, in respect of any Relevant Period, the aggregate amount of the interest (including, without limitation, the interest element of leasing and hire purchase payments and capitalised interest), commission and other finance payments payable by the Group (including any periodic commission, fees, discounts and other finance payments payable by the Group under any interest rate and/or currency hedging arrangement or instrument) net of interest receivable by any member of the Group (including, without limitation, any periodic commission, fees, discounts and other finance payments receivable by any member of the Group under any interest rate and/or currency hedging agreements or instruments).
" Consolidated Tangible Net Worth " means at any time the aggregate of the amounts paid up or credited as paid up on the issued share capital of the Company (other than any Redeemable Shares) and the aggregate amount of the reserves of the Group including but not limited to:
(a) any amount credited to the share premium account;
(b) any capital redemption reserve fund; and
(c) any balance standing to the credit of the consolidated profit and loss account of the Group,
but deducting:
(i) any debit balance on the consolidated profit and loss account of the Group;
(ii) (to the extent included) any amount shown in respect of goodwill (including goodwill arising only on consolidation) or other intangible assets of the Group and interests of non -Group members in Group subsidiaries;
(iii) (to the extent included) any amount set aside for taxation, deferred taxation or bad debts; and
(iv) (to the extent included) any amounts arising from an upward revaluation of assets made at any time after 31 January 2004,
and so that no amount shall be included or excluded more than once.
" Contractual Obligation " means with respect to any person, any provision of any agreement, instrument or undertaking to which such person is a party and by which it or any of its property is bound.
" Default " means an Event of Default or any event or circumstance specified in Clause 23 ( Events of Default ) which would (with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing) be an Event of Default.
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" EBITARR " means Consolidated Earnings Before Interest and Tax before any amount attributable to the amortisation of intangible assets after adding back Rents, Rates and Operating Lease Expenditure.
" Employee Plan " means an employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which a U.S. Group Company or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
" Environmental Claim " means any claim, proceeding or investigation by any person in respect of any Environmental Law.
" Environmental Law " means any applicable law in any jurisdiction in which any member of the Group conducts business which relates to the pollution or protection of the environment or harm to or the protection of human health or the health of animals or plants.
" Environmental Permits " means any permit, licence, consent, approval and other authorisation and the filing of any notification, report or assessment required under any Environmental Law for the operation of the business of any member of the Group conducted on or from the properties owned or used by the relevant member of the Group.
" ERISA " means, at any date, the United States Employee Retirement Income Security Act of 1974 (or any successor legislation thereto) as amended from time to time, and the regulations promulgated and rulings issued thereunder, all as the same may be in effect at such date.
" ERISA Affiliate " means any person that for purposes of Title I and Title IV of ERISA and Section 412 of the Code would be deemed at any relevant time to be a single employer with a U.S. Group Company, pursuant to Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.
" ERISA Event " means:
(a) any reportable event, as defined in Section 4043 of ERISA, with respect to an Employee Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified of such event which is reasonably likely to have a Material Adverse Effect;
(b) the filing of a notice of intent to terminate any Employee Plan, if such termination would require material additional contributions in order to be considered a standard termination within the meaning of Section 4041(b) of ERISA, the filing under Section 4041(c) of ERISA of a notice of intent to terminate any Employee Plan or the termination of any Employee Plan under Section 4041(c) of ERISA if such termination would require any material additional contributions to such plan which is reasonably likely to have a Material Adverse Effect;
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(c) the institution of proceedings under Section 4042 of ERISA by the PBGC for the termination of, or the appointment of a trustee to administer, any Employee Plan which is reasonably likely to have a Material Adverse Effect;
(d) the failure to make a required contribution to any Employee Plan that would result in the imposition of an encumbrance under Section 412 of the Code or Section 302 of ERISA or the filing of any request for a minimum funding waiver under Section 412 of the Code with respect to any Employee Plan or Multiemployer Plan which is reasonably likely to have a Material Adverse Effect;
(e) an engagement in a non-exempt prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA which is reasonably likely to have a Material Adverse Effect;
(f) the complete or partial withdrawal of any U.S. Group Company or any ERISA Affiliate from a Multiemployer Plan which is reasonably likely to have a Material Adverse Effect; and
(g) an Obligor or an ERISA Affiliate incurring any liability under Title IV of ERISA with respect to any Employee Plan (other than premiums due and not delinquent under Section 4007 of ERISA) which is reasonably likely to have a Material Adverse Effect.
" Event of Default " means any event or circumstance specified as such in Clause 23 ( Events of Default ).
" Executive Order " has the meaning ascribed to it in Clause 19.21 ( Anti -Terrorism Laws ).
" Existing Facilities " means the $410,000,000 revolving credit facility (as amended, supplemented, varied or restated from time to time) and made between, inter alia , the Company, HSBC Investment Bank plc as agent and the financial institutions named therein.
" Facility " means the revolving loan facility made available under this Agreement as described in Clause 2 ( The Facility ).
" Facility Office " means the office or offices notified by a Lender to the Agent in writing on or before the date it becomes a Lender (or, following that date, by not less than five Business Days' written notice) as the office or offices through which it will perform its obligations under this Agreement.
" Fee Letter " means any letter or letters dated on or about the date of this Agreement between the Agent and/or the Mandated Lead Arrangers and the Company setting out any of the fees referred to in Clause 12 ( Fees).
" Finance Document " means this Agreement, any Fee Letter, any Accession Letter and any other document designated as such by the Agent and the Company.
" Finance Party " means the Agent, the Mandated Lead Arrangers or a Lender.
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" Financial Indebtedness " means any indebtedness for or in respect of:
(a) moneys borrowed;
(b) any amount raised by acceptance under any acceptance credit facility;
(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP, be treated as a finance or capital lease;
(e) receivables sold or discounted (other than any receivables to the extent they are sold on a non -recourse basis);
(f) any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing;
(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the then mark to market value shall be taken into account) but a member of the Group shall not be construed as incurring indebtedness if it simply pays an up-front fee in respect of any such transaction in respect of which it has no continuing financial obligations;
(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution;
(i) any amount which would be payable in the event of the redemption of Redeemable Shares;
(j) any amount of any liability in respect of any purchase price for assets or services the payment of which is deferred for a period in excess of ninety days;
(k) (without double counting) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (j) above.
(l) (without double counting) amounts owing in respect of the Securitisation or any Permitted Securitisation.
" GAAP " means generally accepted accounting principles in the UK (in the case of the Company) and means generally accepted accounting principles in the jurisdiction of incorporation in respect of each Obligor (excluding the Company).
" Governmental Authority " means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
" Group " means the Company and its Subsidiaries for the time being.
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" Guarantor " means an Original Guarantor or an Additional Guarantor, unless it has ceased to be a Guarantor in accordance with Clause 25 ( Changes to the Obligors ) provided that in relation to each Guarantor which is also a Borrower such Guarantor's guarantee shall not extend to such Guarantor's obligation hereunder in its capacity as a Borrower.
" Holding Company " means, in relation to a company or corporation, any other company or corporation in respect of which it is a Subsidiary.
" Indebtedness for Borrowed Money " means Financial Indebtedness save for any indebtedness for or in respect of paragraphs (g) and (h) of the definition of " Financial Indebtedness ".
" Interest Period " means, in relation to a Loan, each period determined in accordance with Clause 10 ( Interest Periods ) and in relation to an Unpaid Sum, each period determined in accordance with Clause 9.3 ( Default Interest ).
" IRS " means the United States Internal Revenue Service or any successor thereto.
" Lender " means:
(a) any Original Lender; and
(b) any bank or financial institution which has become a Party in accordance with Clause 24 ( Changes to the Lenders ),
which in each case has not ceased to be a Party in accordance with the terms of this Agreement.
" LIBOR " means, in relation to any Loan or Unpaid Sum:
(a) the applicable Screen Rate; or
(b) (if no Screen Rate is available for the currency or Interest Period of that Loan) the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Agent at its request quoted by the Reference Banks to leading banks in the Relevant Interbank Market,
as of the Specified Time on the Quotation Day for the offering of deposits in the currency of that Loan and for a period comparable to the Interest Period for that Loan.
" LMA " means the Loan Market Association.
" Loan " means a loan made or to be made under the Facility or the principal amount outstanding for the time being of that loan.
" Loan Notes " means the $60,000,000 senior unsecured loan notes of the Company due 2005.
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" Majority Lenders " means:
2 (a) until the Total Commitments have been reduced to zero, a Lender or Lenders whose Commitments aggregate more than 66 / 3 % of the Total Commitments (or, if the Total Commitments have been reduced to zero and there are no Loans then outstanding, aggregated 2 more than 66 / 3 % of the Total Commitments immediately prior to the reduction); or
2 (b) at any other time, a Lender or Lenders whose participations in the Outstandings aggregate more than 66 / 3 % of the Outstandings.
" Mandatory Cost " means the percentage rate per annum calculated by the Agent in accordance with Schedule 5 ( Mandatory Cost Formulae ).
" Margin " means in relation to a Loan 0.40 per cent. per annum but if the ratio of Consolidated Net Debt to Consolidated EBITDA in respect of the immediately preceding Relevant Period falls within an amount set out in Schedule 2 ( Margin ), the Margin will reduce from (provided no Default has occurred and is continuing) or increase to the relevant rate set out in Schedule 2 ( Margin ) against the relevant Consolidated Net Debt to Consolidated EBITDA ratio in Schedule 2 ( Margin ) and any such reduction or increase in the Margin shall take effect on the date falling three Business Days after receipt by the Agent of the Compliance Certificate for the Relevant Period pursuant to Clause 21.2 ( Financial Testing ) only in respect of any Utilisation or Rollover Utilisation to be made on or after such date provided that if an Event of Default has occurred the Margin shall be 0.55 per cent per annum until such time as the Event of Default is no longer continuing when the Margin shall again be determined in accordance with the provisions set out above.
" Margin Stock " means "margin stock" or "margin security" as defined in Regulations T, U and X.
" Material Adverse Effect "means a material adverse effect on:
(a) the business, operations, property, condition (financial or otherwise) or prospects of the Group taken as a whole; or
(b) the ability of the Obligors (taken as a whole) to perform their payment obligations under the Finance Documents or to comply with the financial covenants in Clause 21.1 (Financial Condition) .
" Material Company " means, at any time, a Subsidiary of the Company which:
(a) has profits before interest and tax (calculated on the same basis as Consolidated Earnings Before Interest and Tax), representing 10 per cent. or more of Consolidated Earnings Before Interest and Tax; and/or
(b) has gross assets representing 10 per cent. or more of the gross assets of the Group; and/or
(c) has turnover representing 10 per cent, or more of consolidated turnover of the Group,
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in each case calculated on a consolidated basis (but excluding Sterling Jewelers Receivables Corp.).
Compliance with the conditions set out in paragraphs (a), (b) and (c) shall be determined by reference to the most recent Compliance Certificate supplied by the Company and/or the latest financial statements of that Subsidiary (consolidated in the case of a Subsidiary which itself has Subsidiaries) and the latest consolidated financial statements of the Group delivered pursuant to Clause 20 ( Information undertakings ) provided that :
(a) if a Subsidiary has been acquired since the date as at which the latest consolidated financial statements of the Group were prepared, the financial statements shall be adjusted in order to take into account the acquisition of that Subsidiary (that adjustment being certified by the Group's auditors as representing an accurate reflection of the revised Consolidated Earnings Before Interest and Tax, gross assets or turnover of the Group);
(b) if, in the case of any Subsidiary which itself has Subsidiaries, no consolidated financial statements are prepared, its consolidated earnings before interest and tax, gross assets and turnover shall be determined on the basis of pro forma consolidated financial statements of the relevant Subsidiary, prepared for this purpose by the auditors of the Company or the auditors for the time being of the relevant subsidiary; and
(c) if any intra-group transfer or re-organisation takes place, the latest audited consolidated financial statements of the Group shall be adjusted by the auditors of the Company in order to take into account such intra -group transfer or re -organisation.
Other than in relation to any Subsidiary designated by the Company as a Material Company, a report by the auditors of the Company that a Subsidiary is or is not a Material Company shall, in the absence of manifest error, be conclusive and binding on all Parties.
" Month " means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that:
(a) if the numerically corresponding day is not a Business Day, that period shall end on the next Business Day in that calendar month in which that period is to end if there is one, or if there is not, on the immediately preceding Business Day; and
(b) if there is no numerically corresponding day in the calendar month in which that period is to end, that period shall end on the last Business Day in that calendar month.
The above rules will only apply to the last Month of any period.
" Multiemployer Plan " means a "multiemployer plan" (as defined in Section (3)(37) of ERISA) contributed to for any employees of a U.S. Group Company or any ERISA Affiliate.
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" Obligor " means a Borrower or a Guarantor.
" Operating Lease Expenditure " means in respect of a Relevant Period all payments made by the Group under operating leases under which a member of the Group is lessee.
" Optional Currency " means a currency (other than the Base Currency) which complies with the conditions set out in Clause 4.3 ( Conditions relating to Optional Currencies ).
" Original Financial Statements " means:
(a) in relation to the Company, the audited consolidated financial statements of the Group for the financial year ended 31 January 2004;
(b) in relation to each Original Obligor other than the Company, Sterling Inc, and Sterling Jewelers Inc. its audited financial statements for its financial year ended 31 January 2004;
(c) in relation to Sterling Jewelers Inc., its audited consolidated financial statements for its financial year ended 31 January 2004; and
(d) in relation to Sterling Inc, its unaudited financial statements for its financial year ended 31 January 2004.
" Original Obligor " means an Original Borrower or an Original Guarantor.
" Outstandings " means the aggregate of the Base Currency Amounts of the outstanding Loans.
" Participating Member State " means any member state of the European Communities that adopts or has adopted the euro as its lawful currency in accordance with legislation of the European Community relating to Economic and Monetary Union.
" Party " means a party to this Agreement and includes its successors in title, permitted assigns and permitted transferees.
" PBGC " means the U.S. Pension Benefit Guaranty Corporation, or any entity succeeding to all or any of its functions under ERISA.
" Permitted Indemnities " means:
(a) any indemnities and/or guarantees given under, to, pursuant to or in relation to:
(i) engagement letters entered into with financial or professional advisors of any member of the Group;
(ii) trust instruments or indentures (to the extent that such indemnities are payable to any trustee(s) under such documents);
(iii) underwriting, placing, book building or other agreements relating to the issue, subscription or sale of securities of any description;
(iv) acquisition or sale agreements permitted pursuant to this Agreement;
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(v) agreements or instruments of any description constituting financial indebtedness of any member of the Group which is permitted pursuant to this Agreement;
(vi) the Securitisation which are subsisting at the date of this Agreement or any Permitted Securitisation provided that in relation to any Permitted Securitisation such guarantees or indemnities are not in respect of Financial Indebtedness (other than indebtedness incurred under paragraph (l) of the definition of Financial Indebtedness to the extent that such indebtedness is not for or in respect of moneys borrowed);
(vii) agency agreements of any nature;
(viii) directors or officers of any member of the Group whether under the constitutional documents of any member of the Group or otherwise;
(ix) depositary or custodian arrangements;
(x) share registration arrangements;
(xi) securities transactions and settlement arrangements; and
(xii) the Loan Notes.
(b) any loans made, credit granted or guarantees or indemnities given by one member of the Group to another member of the Group or any liabilities, whether actual or contingent, of one member of the Group voluntarily assumed by another member of the Group; or
(c) any credit granted by any U.S. Group Company to employees of such member of the U.S. Group Company pursuant to staff purchasing arrangements; or
(d) any loans made, credit granted or guarantees or indemnities given by any member of the Group to directors or employees of such member of the Group not falling within (c) above, up to an aggregate amount of £250,000 (or its equivalent); or
(e) any loans made, credit granted or guarantees or indemnities given by the Company not falling within (a) to (d) above, provided that the aggregate amount when aggregated with the amount of secured indebtedness outstanding which is permitted to subsist by virtue of paragraph (c)(vii) of Clause 22.3 ( Negative Pledge ) does not exceed the Threshold Amount.
" Permitted Securitisation " means:
(a) one or more securitisations of the Receivables provided that:
(i) the proceeds of such securitisations are applied first to refinance all or part of the Securitisation; and
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(ii) such securitisations have a maturity date after the Termination Date, (other than any securitisation which is substantially on the same terms as the Sterling Jewelers Receivables Conduit Facility (other than as to price and tenor)) and are on substantially the same terms as the Securitisation which shall for the avoidance of doubt include the Sterling Jewelers Receivables Conduit Facility and Sterling Jewelers Receivables Master Note Trust Series 2001-2 (other than as to price and tenor) or are on a non-recourse basis and have a maturity date after the Termination Date; and
(b) one or more securitisations of receivables owned by a company which becomes a member of the Group after the date of this Agreement provided that :
(i) the acquisition of such company by the relevant member of the Group is permitted under this Agreement;
(ii) the value of such company's receivables which are securitised is no more than 50% of the total value of the receivables of such company; and
(iii) such securitisations are on a non -recourse basis and have a maturity date after the Termination Date.
" Qualifying Lender " has the meaning given to it in Clause 13 ( Tax Gross -up and Indemnities ).
" Quotation Day " means, in relation to any period for which an interest rate is to be determined:
(a) (if the currency is sterling) the first day of that period;
(b) (if the currency is euro) two TARGET Days before the first day of that period; or
(c) (for any other currency) two Business Days before the first day of that period,
unless market practice differs in the Relevant Interbank Market for a currency, in which case the Quotation Day for that currency will be determined by the Agent in accordance with market practice in the Relevant Interbank Market (and if quotations would normally be given by leading banks in the Relevant Interbank Market on more than one day, the Quotation Day will be the last of those days).
" Rates " means, in respect of a Relevant Period, all payments made by a member of the Group in respect of business rates levied by a local authority or other competent body in respect of freehold or leasehold premises owned or occupied by a member of the Group.
" Receivables " means receivables under credit card accounts of Sterling Jewelers Inc., Sterling Inc., Sterling of Columbus Inc. and/or Sterling Jewelers LLC.
" Redeemable Shares " means any issued shares in the capital of the Company (other than any deferred shares which are redeemable by the Company for an amount not exceeding £1,000 (or its equivalent) for the entire class of deferred shares) which are redeemable (other than solely at the option of the Company or for the purposes of conversion pursuant to which the entire amount payable to the shareholder is provided out of the proceeds of a fresh issue of shares for that purpose) on or before the Termination Date.
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" Reference Banks " means, in relation to LIBOR the principal London offices of HSBC Bank plc, The Royal Bank of Scotland plc and Barclays Bank PLC or such other banks as may be appointed by the Agent in consultation with the Company.
" Regulations T, U and X " means, respectively, Regulations T, U and X of the Board of Governors of the Federal Reserve System of the United States (or any successor) as now and from time to time hereafter in effect.
" Relevant Interbank Market " means the London Interbank Market.
" Relevant Period " means each period of twelve months ending on the last day of the Company's financial year and each period of twelve months ending on the last day of the first half of the Company's financial year.
" Rents " means, in respect of a Relevant Period, all payments made by a member of the Group in respect of rents, licence fees and other moneys payable in respect of freehold or leasehold premises in which a member of the Group has an interest as lessee or licensee less all such payments made to the Group as lessor or licensor of such premises (but shall not to the extent thereof include any such payments that are linked to the turnover of any member of the Group).
" Repeating Representations " means each of the representations set out in Clauses 19.1 ( Status ) to 19.6 ( Governing Law and Enforcement ), Clause 19.9 ( No Default ), Clause 19.10 ( No Misleading Information ), paragraph (c) of Clause 19.11 ( Financial Statements ), Clause 19.12 ( Pari Passu Ranking ) to Clause 19.14 (No Security) and Clause 19.17 ( ERISA and Multiemployer Plans ) to Clause 19.20 ( Intellectual Property ).
" Resignation Letter " means a letter substantially in the form set out in Schedule 8 ( Form of Resignation Letter) .
" Rollover Utilisation " means a Utilisation by way of Loan:
(a) made or to be made on the same day that a maturing Utilisation by way of Loan is due to be repaid;
(b) the aggregate amount of which is equal to or less than the maturing Utilisation by way of Loan;
(c) in the same currency as the maturing Utilisation by way of Loan (unless it arose as a result of the operation of Clause 6.2 ( Unavailability of a Currency )); and
(d) made or to be made to the same Borrower for the purpose of refinancing a maturing Utilisation by way of Loan.
" Screen Rate " means in relation to LIBOR, the British Bankers' Association Interest Settlement Rate for the relevant currency and period displayed on the appropriate page of the Telerate screen. If the agreed page is replaced or service ceases to be available, the Agent may specify another page or service displaying the appropriate rate after consultation with the Company and the Lenders.
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" SEC " means the United States Securities and Exchange Commission or any successor thereto.
" Security " means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.
" Securitisation " means each of (i) the private placement pursuant to which Sterling Jewelers Receivables Master Note Trust has issued Class A, Class B, Class C and Class D Asset Backed Certificates (Series 2001-A) in a maximum aggregate amount of $251,000,000 in respect of such Class A, Class B and Class C Asset Backed Certificates and $26,348,100 in respect of such Class D Asset Backed Certificates, (ii) the Sterling Jewelers Receivables Conduit Facility and (iii) the Sterling Jewelers Receivables Master Note Trust, Series 2001 -2.
" Specified Time " means a time determined in accordance with Schedule 11 ( Timetables ).
" Sterling Jewelers Receivables Conduit Facility " means the facility entered into by certain U.S. Group Companies on 18 May 2001 and which comprises the securitisation of the Receivables for a fluctuating amount.
" Sterling Jewelers Receivables Master Note Trust, Series 2001-2 " means the facility entered into by certain of the U.S. Group Companies on 2 November 2001 which comprises the securitisation of the Receivables for fixed amounts.
" Subsidiary " means a subsidiary undertaking within the meaning of section 258 of the Companies Act 1985.
" TARGET " means Trans -European Automated Real -time Gross Settlement Express Transfer payment system.
" TARGET Day " means any day on which TARGET is open for the settlement of payments in euro.
" Tax " means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same).
" Taxes Act " means the Income and Corporation Taxes Act 1988.
" Termination Date " means the date falling 60 Months after the date hereof.
“Threshold Amount ” means the greater of:
(a) $50,000,000; and
(b) 5% of Consolidated Tangible Net Worth.
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" Total Commitments " means the aggregate of the Commitments being $390,000,000 at the date of this Agreement.
" Transfer Certificate " means a certificate substantially in the form set out in Schedule 6 ( Form of Transfer Certificate ) or any other form agreed between the Agent and the Company.
" Transfer Date " means, in relation to a transfer, the later of:
(a) the proposed Transfer Date specified in the Transfer Certificate; and
(b) the date on which the Agent executes the Transfer Certificate.
" UK Listing Rules " means the Listing Rules as published by the UK Listing Authority in its Sourcebook of rules and guidance from time to time.
" Unfunded Pension Liability " means the excess of an Employee Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that plan's assets, determined in accordance with the assumptions used for funding the Employee Plan pursuant to Section 412 of the Code for the applicable plan year.
" Unpaid Sum " means any sum due and payable but unpaid by an Obligor under the Finance Documents.
" U.S. " and " United States " means the United States of America, its territories, possessions and other areas subject to the jurisdiction of the United States of America.
" U.S. Borrower " means a Borrower whose jurisdiction of organisation is a state of the United States of America or the District of Columbia.
" U.S. Group Company " means any U.S. Borrower or U.S. Guarantor.
" U.S. Guarantor " means a Guarantor whose jurisdiction of organisation is a state of the United States of America or the District of Columbia.
" Utilisation " means a utilisation of the Facility and any Loan issued or to be issued pursuant to that utilisation.
" Utilisation Date " means the date of a Utilisation, being the date on which the relevant Loan is to be made.
" Utilisation Request " means a notice substantially in the form set out in Schedule 4 ( Requests ).
" VAT " means value added tax as provided for in the Value Added Tax Act 1994 and any other tax of a similar nature.
1.2 Construction
(a) Unless a contrary indication appears a reference in this Agreement to:
(i) " assets " includes present and future properties, revenues and rights of every description;
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(ii) " Barclays Capital " is a reference to Barclays Capital, the investment banking division of Barclays Bank PLC;
(iii) a " Finance Document " or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended, restated, varied or novated;
(iv) " indebtedness " includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;
(v) a " person " includes any person, firm, company, corporation, government, state or agency of a state or any association, trust or partnership (whether or not having separate legal personality) of two or more of the foregoing;
(vi) a " regulation " includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation;
(vii) save in relation to the definition of the UK Listing Rules, a provision of law is a reference to that provision as amended or re- enacted;
(viii) a Party shall be construed so as to include its successors in title, permitted assigns and permitted transferees;
(ix) a time of day is a reference to London time; and
(x) indebtedness incurred on a " non-recourse basis " means any indebtedness incurred in connection with any receivables in respect of which the person or persons to whom such indebtedness is or may be owed by the relevant debtor (whether or not a member of the Group) have no recourse whatsoever for the repayment of or payment of any sum relating to such indebtedness other than:
(A) recourse to such debtor for amounts limited to the amount of such receivables; and/or
(B) recourse to such debtor for the purpose only of enabling amounts to be claimed in respect of such indebtedness in an enforcement of any encumbrance given by such debtor over such receivables or other proceeds deriving therefrom to secure such indebtedness; and/or
(C) recourse to such debtor generally, which recourse is limited to a claim for damages (other than liquidated damages and damages required to be calculated in a specified way) for breach of an obligation (not being a payment obligation or an obligation to procure payment by another or an obligation to comply or to procure compliance by another with any financial ratios or other test of financial condition) by the person against whom such recourse is available.
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(b) Section, Clause and Schedule headings are for ease of reference only.
(c) Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement.
(d) A Default (other than an Event of Default) is " continuing " if it has not been remedied or waived and an Event of Default is " continuing " if it has not been remedied or waived.
1.3 Currency Symbols and Definitions
" $ " and " dollars " denote lawful currency of the United States of America, " £ " and " sterling " denotes lawful currency of the United Kingdom and " EUR " and " euro " means the single currency unit of the Participating Member States.
1.4 Third party rights
A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or enjoy the benefit of any term of this Agreement.
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SECTION 2 THE FACILITY
2. THE FACILITY
2.1 The Facility
Subject to the terms of this Agreement, the Lenders make available to the Borrowers a multicurrency revolving loan facility in an aggregate amount equal to the Total Commitments.
2.2 Lenders' rights and obligations
(a) The obligations of each Lender under the Finance Documents are several. Failure by a Lender to perform its obligations under the Finance Documents does not affect the obligations of any other Party under the Finance Documents. No Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents.
(b) The rights of each Lender under or in connection with the Finance Documents are separate and independent rights and any debt arising under the Finance Documents to a Lender from an Obligor shall be a separate and independent debt.
(c) A Finance Party may, except as otherwise stated in the Finance Documents, separately enforce its rights under the Finance Documents.
3. PURPOSE
3.1 Purpose
Each Borrower shall apply all amounts borrowed by it under the Facility:
(a) towards the refinancing (directly or indirectly) of existing indebtedness of the Group (including the Existing Facilities); and
(b) for working capital requirements and general corporate purposes of the Group,
and each Borrower shall apply all amounts raised by it hereunder in or towards satisfaction of such purposes.
3.2 Monitoring
No Finance Party is bound to monitor or verify the application of any amount borrowed pursuant to this Agreement.
4. CONDITIONS OF UTILISATION
4.1 Initial conditions precedent
No Borrower may deliver a Utilisation Request unless the Agent has received all of the documents and other evidence listed in Part I of Schedule 3 ( Conditions Precedent ) in form and substance satisfactory to the Agent. The Agent shall notify the Company and the Lenders promptly upon being so satisfied.
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4.2 Further conditions precedent
The Lenders will only be obliged to comply with Clause 5.4 ( Lenders' Participation ) if on the date of the Utilisation Request and on the proposed Utilisation Date:
(a) in the case of a Rollover Utilisation, no Event of Default is continuing or would result from the proposed Utilisation, and, in the case of any other Utilisation, no Default is continuing or would result from the proposed Utilisation; and
(b) the Repeating Representations to be made by each Obligor are true in all material respects.
4.3 Conditions relating to Optional Currencies
(a) A currency will constitute an Optional Currency in relation to a Loan if:
(i) it is readily available in the amount required and freely convertible into the Base Currency in the Relevant Interbank Market on the Quotation Day and the Utilisation Date for that Loan; and
(ii) it is sterling or euros or has been approved by the Agent (acting on the instructions of all the Lenders) on or prior to receipt by the Agent of the relevant Utilisation Request for that Loan.
(b) If the Agent has received a written request from the Company for a currency to be approved under paragraph (a)(ii) above, the Agent will confirm to the Company by the Specified Time:
(i) whether or not the Lenders have granted their approval; and
(ii) if approval has been granted, the minimum amount (and, if required, integral multiples) for any subsequent Utilisation in that currency.
(c) If the euro constitutes an Optional Currency at any time, a Loan will only be made available in the euro unit or any other units of the euro agreed by the Majority Lenders.
4.4 Maximum number of Utilisations
(a) A Borrower may not deliver a Utilisation Request if as a result of a proposed Utilisation the total number of Loans outstanding would exceed 12.
(b) Any Loan made by a single Lender under Clause 6.2 ( Unavailability of a Currency ) shall not be taken into account in this Clause 4.4.
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SECTION 3 UTILISATION
5. UTILISATION
5.1 Delivery of a Utilisation Request
A Borrower may utilise the Facility by delivery to the Agent of a duly completed Utilisation Request not later than the Specified Time.
5.2 Completion of a Utilisation Request
(a) Each Utilisation Request is irrevocable and will not be regarded as having been duly completed unless:
(i) the proposed Utilisation Date is a Business Day within the Availability Period;
(ii) the currency and amount of the Utilisation comply with Clause 5.3 ( Currency and Amount ); and
(iii) the proposed Interest Period complies with Clause 10 ( Interest Periods ).
(b) Only one Utilisation may be requested in each Utilisation Request.
5.3 Currency and amount
(a) The currency specified in a Utilisation Request must be the Base Currency or an Optional Currency.
(b) The amount of the proposed Utilisation must be an amount whose Base Currency Amount is not more than the Available Facility and which is:
(i) if the currency selected in relation to a Loan is the Base Currency, a minimum of $5,000,000 and thereafter an integral multiple of $1,000,000 or if less, the Available Facility; or
(ii) if the currency selected in relation to a Loan is sterling, a minimum amount of £2,500,000 and thereafter in integral multiples of £500,000 or if less, a Base Currency Amount equal to the Available Facility; or
(iii) if the currency selected in relation to a Loan is euros, a minimum amount of euros 5,000,000 and thereafter in integral multiples of euros 1,000,000 or, if less, a Base Currency Amount equal to the Available Facility; or
(iv) if the currency selected is an Optional Currency other than sterling, the minimum amount (or an integral multiple, if required) specified by the Agent pursuant to paragraph (b)(ii) of Clause 4.3 ( Conditions relating to Optional Currencies ) or, if less, a Base Currency Amount equal to the Available Facility.
5.4 Lenders' participation
(a) If the conditions set out in this Agreement have been met, each Lender shall make its participation in each Utilisation available through its Facility Office.
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(b) The amount of each Lender's participation in each Utilisation will be equal to the proportion borne by its Available Commitment to the Available Facility immediately prior to making the Utilisation.
(c) The Agent shall notify each Lender of the amount, currency and the Base Currency Amount of each Utilisation at the Specified Time.
6. OPTIONAL CURRENCIES
6.1 Selection of currency
A Borrower (or the Company on behalf of a Borrower) shall select the currency of a Loan in a Utilisation Request.
6.2 Unavailability of a currency
If before the Specified Time on any Quotation Day:
(a) the Agent has received notice from a Lender that the Optional Currency requested is not readily available to it in the amount required; or
(b) a Lender notifies the Agent that compliance with its obligation to participate in a Loan in the proposed Optional Currency would contravene a law or regulation applicable to it,
the Agent will give notice to the relevant Borrower to that effect by the Specified Time on that day. In this event, any Lender that gives notice pursuant to this Clause 6.2 will be required to participate in the Loan in the Base Currency (in an amount equal to that Lender's proportion of the Base Currency Amount or, in respect of a Rollover Utilisation by way of Loan, an amount equal to that Lender's proportion of the Base Currency Amount of the maturing Loan that is due to be repaid to the extent it is re-drawn) and its participation will be treated as a separate Loan denominated in the Base Currency during that Interest Period.
6.3 Participation in a Loan
Each Lender's participation in a Loan will be determined in accordance with paragraph (b) of Clause 5.4 ( Lenders' Participation).
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SECTION 4 REPAYMENT, PREPAYMENT AND CANCELLATION
7. REPAYMENT
7.1 Repayment of Loans
Each Borrower which has drawn a Loan shall repay that Loan on the last day of its Interest Period.
8. PREPAYMENT AND CANCELLATION
8.1 Illegality
If it becomes unlawful in any applicable jurisdiction for a Lender to perform any of its obligations as contemplated by this Agreement or to fund its participation in any Loan or to allow them to remain outstanding:
(a) that Lender shall promptly notify the Agent upon becoming aware of that event;
(b) upon the Agent notifying the Company, the Commitment of that Lender will be immediately cancelled; and
(c) each Borrower shall repay that Lender's participation in the Loans made to that Borrower on the last day of the Interest Period for each Loan occurring after the Agent has notified the Company or, if earlier, the date specified by the Lender in the notice delivered to the Agent (being no earlier than the last day of the applicable grace period permitted by law).
8.2 Change of control
(a) If any persons or group of persons acting in concert gains control of the Company:
(i) the Company shall promptly notify the Agent upon becoming aware of that event;
(ii) if the Majority Lenders so require, the Agent shall, by not less than five days notice to the Company, cancel the Facility and declare all Outstandings, together with accrued interest, and all other amounts accrued under the Finance Documents immediately due and payable, whereupon the Facility will be cancelled and all such Outstandings will become immediately due and payable.
(b) For the purpose of paragraph (a) above " control " means:
(i) the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to:
(A) cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the Company; or
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(B) appoint or remove all, or the majority, of the directors or other equivalent officers of the Company; or
(C) give directions with respect to the operating and financial policies of the Company which the directors or other equivalent officers of the Company are obliged to comply with; or
(ii) the holding of more than one-half of the issued share capital of the Company (excluding any part of that issued share capital that carries no right to participate in a distribution of either profits or capital or whose right to so participate is to participate only up to a specified amount).
(c) For the purpose of paragraph (a) above, "acting in concert" means a group of persons who, pursuant to an agreement or understanding (whether formal or informal) actively co-operate, through the acquisition by any of them, either directly or indirectly, of shares in the Company to obtain or consolidate control of the Company.
8.3 Unlawfulness
If it is or it becomes unlawful for an Obligor to perform any of its obligations under the Finance Documents then the Company shall promptly notify the Agent upon becoming aware of that event and, if the Majority Lenders so require, the Agent shall, by not less than five days notice to the Company, cancel the Facility and declare all Outstandings, together with accrued interest, and all other amounts accrued under the Finance Documents immediately due and payable, whereupon the Facility will be cancelled and all such Outstandings will become immediately due and payable.
8.4 Voluntary cancellation
The Company may, if it gives the Agent not less than three days (or such shorter period as the Majority Lenders may agree) prior notice which is then irrevocable, cancel the whole or any part (being a minimum amount of $5,000,000 (and an integral multiple of $1,000,000 thereafter)) of the Available Facility. Any cancellation under this Clause 8.4 shall reduce the Commitments of the Lenders rateably.
8.5 Voluntary prepayment of Loans
A Borrower to which a Loan has been made may, if it gives the Agent not less than 3 Business Days' (or such shorter period as the Majority Lenders may agree) prior notice, prepay the whole or any part of any Loan (but, if in part, being in a minimum amount of $5,000,000).
8.6 Right of repayment and cancellation in relation to a Lender
(a) If:
(i) any sum payable to any Lender by an Obligor is required to be increased under paragraph (c) of Clause 13.2 ( Tax Gross -up ); or
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(ii) any Lender claims indemnification from the Company under Clause 13.3 ( Tax indemnity ) or Clause 14.1 ( Increased Costs ),
the Company may, whilst the circumstance giving rise to the requirement or indemnification continues, give the Agent notice of cancellation of the Commitment of that Lender and its intention to procure the repayment of that Lender's participation in the Loans.
(b) On receipt of a notice referred to in paragraph (a) above, the Commitment of that Lender shall immediately be reduced to zero.
(c) On the last day of each Interest Period which ends after the Company has given notice under paragraph (a) above (or, if earlier, the date specified by the Company in that notice), each Borrower to which a Loan is outstanding shall repay that Lender's participation in that Loan.
8.7 Restrictions
(a) Any notice of cancellation or prepayment given by any Party under this Clause 8 shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the relevant cancellation or prepayment is to be made and the amount of that cancellation or prepayment.
(b) Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs, without premium or penalty.
(c) Unless a contrary indication appears in this Agreement, any part of the Facility which is prepaid may be reborrowed in accordance with the terms of this Agreement.
(d) The Borrowers shall not repay or prepay all or any part of the Loans or cancel all or any part of the Commitments except at the times and in the manner expressly provided for in this Agreement.
(e) No amount of the Total Commitments cancelled under this Agreement may be subsequently reinstated.
(f) If the Agent receives a notice under this Clause 8 it shall promptly forward a copy of that notice to either the Company or the affected Lender, as appropriate.
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SECTION 5 COSTS OF UTILISATION
9. INTEREST
9.1 Calculation of interest
The rate of interest on each Loan for each Interest Period is the percentage rate per annum which is the aggregate of the applicable:
(a) Margin;
(b) LIBOR; and
(c) Mandatory Cost, if any.
9.2 Payment of interest
The Borrower to which a Loan has been made shall pay accrued interest on that Loan on the last day of each Interest Period, (and, if the Interest Period is longer than six Months, on the dates falling at six Monthly intervals after the first day of the Interest Period).
9.3 Default interest
(a) If an Obligor fails to pay any amount payable by it under a Finance Document on its due date, interest shall accrue on the overdue amount from the due date up to the date of actual payment (both before and after judgment) at a rate which, subject to paragraph (b) below, is one per cent higher than the rate which would have been payable if the overdue amount had, during the period of non- payment, constituted a Loan in the currency of the overdue amount for successive Interest Periods, each of a duration selected by the Agent (acting reasonably). Any interest accruing under this Clause 9.3 shall be immediately payable by the Obligor on demand by the Agent.
(b) If any overdue amount consists of all or part of a Loan which became due on a day which was not the last day of an Interest Period relating to that Loan:
(i) the first Interest Period for that overdue amount shall have a duration equal to the unexpired portion of the current Interest Period relating to that Loan; and
(ii) the rate of interest applying to the overdue amount during that first Interest Period shall be one per cent. higher than the rate which would have applied if the overdue amount had not become due.
(c) Default interest (if unpaid) arising on an overdue amount will be compounded with the overdue amount at the end of each Interest Period applicable to that overdue amount but will remain immediately due and payable.
9.4 Notification of rates of interest
The Agent shall promptly notify the Lenders and the relevant Borrower of the determination of a rate of interest under this Agreement.
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10. INTEREST PERIODS
10.1 Selection of Interest Periods
(a) A Borrower (or the Company on behalf of a Borrower) may select an Interest Period for a Loan in the Utilisation Request for that Loan.
(b) Subject to this Clause 10, a Borrower (or the Company) may select an Interest Period of fourteen days or, one, two, three or six Months or any other period agreed between the Company and the Agent (acting on the instructions of all the Lenders).
(c) During the period from 15 November to 24 December (inclusive) in any year and at any time during the period of one month commencing on the date hereof, a Borrower (or the Company) may select an Interest Period for a Loan of 7 days.
(d) An Interest Period for a Loan shall not extend beyond the Termination Date.
(e) The Interest Period for a Loan shall start on its Utilisation Date.
(f) A Loan has one Interest Period only.
10.2 Non-Business Days
If an Interest Period would otherwise end on a day which is not a Business Day, that Interest Period will instead end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not).
11. CHANGES TO THE CALCULATION OF INTEREST
11.1 Absence of quotations
Subject to Clause 11.2 ( Market Disruption ), if LIBOR is to be determined by reference to the Reference Banks but a Reference Bank does not supply a quotation by the Specified Time on the Quotation Day, the applicable LIBOR shall be determined on the basis of the quotations of the remaining Reference Banks.
11.2 Market disruption
(a) If a Market Disruption Event occurs in relation to a Loan for any Interest Period, then the rate of interest on each Lender's share of that Loan for the Interest Period shall be the rate per annum which is the sum of:
(i) the Margin;
(ii) the rate notified to the Agent by that Lender as soon as practicable and in any event before interest is due to be paid in respect of that Interest Period, to be that which expresses as a percentage rate per annum the cost to that Lender of funding its participation in that Loan from whatever source it may reasonably select; and
(iii) the Mandatory Cost, if any, applicable to that Lender's participation in the Loan.
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(b) In this Agreement " Market Disruption Event " means in relation to a Loan:
(i) at or about noon on the Quotation Day for the relevant Interest Period the Screen Rate is not available and none or only one of the Reference Banks supplies a rate to the Agent to determine LIBOR for the relevant currency and Interest Period; or
(ii) before close of business in London on the Quotation Day for the relevant Interest Period, the Agent receives notifications from a Lender or Lenders (whose participations in a Loan exceed 35 per cent. of that Loan) that the cost to it of obtaining matching deposits in the Relevant Interbank Market would be in excess of LIBOR.
11.3 Alternative basis of interest or funding
(a) If a Market Disruption Event occurs and the Agent or the Company so requires, the Agent and the Company shall enter into negotiations (for a period of not more than thirty days) with a view to agreeing a substitute basis for determining the rate of interest.
(b) Any alternative basis agreed pursuant to paragraph (a) above shall, with the prior consent of all the Lenders and the Company, be binding on all Parties.
11.4 Break Costs
(a) A Borrower shall, within three Business Days of demand by a Finance Party, pay to that Finance Party its Break Costs attributable to all or any part of a Loan or Unpaid Sum being paid by that Borrower on a day other than the last day of an Interest Period for that Loan or Unpaid Sum.
(b) Each Lender shall, as soon as reasonably practicable after a demand by the Agent, provide a certificate confirming the amount of its Break Costs for any Interest Period in which they accrue.
12. FEES
12.1 Commitment fee
(a) The Company shall pay to the Agent (for the account of each Lender) a fee in dollars computed at the rate of 40 per cent. of the applicable Margin per annum from time to time on that Lender's Available Commitment for the Availability Period.
(b) The accrued commitment fee is payable on the last day of each successive period of three Months which ends during the Availability Period, on the last day of the Availability Period and on the cancelled amount of the relevant Lender's Commitment at the time the cancellation is effective.
12.2 Front End Fee
The Company shall pay to the Agent (for account of each of the persons who are Lenders on the date of this Agreement) a front end fee in the amount and at the times agreed in a Fee Letter.
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12.3 Agency Fee
The Company shall pay to the Agent (for its own account) an agency fee in the amount and at the times agreed in a Fee Letter.
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SECTION 6 ADDITIONAL PAYMENT OBLIGATIONS
13. TAX GROSS UP AND INDEMNITIES
13.1 Definitions
(a) In this Clause 13:
" Protected Party " means a Finance Party which is or will be, for or on account of Tax, subject to any liability or required to make any payment in relation to a sum received or receivable (or any sum deemed for the purposes of Tax to be received or receivable) under a Finance Document.
" Qualifying Lender " means (on the date a payment falls due) a Lender which is beneficially entitled to interest payable to that Lender in respect of an advance under a Finance Document and which is:
(i) within the charge to the United Kingdom corporation tax as respects that payment and that is a Lender in respect of an advance made by a person that was a bank (as defined for the purpose of Section 349 of the Taxes Act in Section 840A of the Taxes Act) at the time that advance was made; or
(ii) a Treaty Lender with respect to the United Kingdom.
" Tax Credit " means a credit against, relief or remission for, or repayment of any Tax.
" Tax Deduction " means a deduction or withholding for or on account of Tax from a payment under a Finance Document.
" Tax Payment " means an increased payment made by an Obligor to a Finance Party under Clause 13.2 ( Tax Gross-up ) or a payment under Clause 13.3 ( Tax Indemnity ).
" Treaty Lender " means, in respect of a jurisdiction, a Lender entitled under the provisions of a double taxation treaty to receive payments of interest from a person resident in such jurisdiction without a Tax Deduction (subject to the completion of any necessary procedural formalities).
(b) In this Clause 13 a reference to " determines " or " determined " means a determination made in the absolute discretion (acting reasonably) of the person making the determination.
13.2 Tax gross -up
(a) Each Obligor shall make all payments to be made by it without any Tax Deduction, unless a Tax Deduction is required by law.
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(b) The Company or a Lender shall promptly upon becoming aware that an Obligor must make a Tax Deduction (or that there is any change in the rate or the basis of a Tax Deduction) notify the Agent in reasonable detail of the event by reason of which such Obligor must make a Tax Deduction provided that nothing in this Clause 13.2 shall require such Lender to disclose any confidential information relating to the organisation of its affairs. If the Agent receives such notification from a Lender it shall notify the Company and that Obligor.
(c) If a Tax Deduction is required by law to be made by an Obligor in one of the circumstances set out in paragraph (d) below, the amount of the payment due from that Obligor shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required.
(d) The circumstances referred to in paragraph (c) above are where a person entitled to the payment:
(i) is the Agent (on its own behalf); or
(ii) is a Qualifying Lender, unless such Lender is a Treaty Lender and the Obligor making the payment is able to demonstrate that the Tax Deduction is required to be made as a result of the failure of such Lender to comply with paragraph (g) below of this Clause 13.2; or
(iii) would have been a Qualifying Lender but for any change after the date of this Agreement in (or in the general interpretation, administration, or application of) any law or double taxation agreement or any published practice or published concession of any relevant taxing authority.
For the avoidance of doubt, no Obligor shall be obliged to make any payment under this Clause 13.2 ( Tax gross-up ) to a Lender which is not a Qualifying Lender save when such Lender is not or ceases to be a Qualifying Lender to the extent referred to in paragraph (d) (iii) above.
(e) If an Obligor is required to make a Tax Deduction, that Obligor shall make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed and in the minimum amount required by law.
(f) Within thirty days of making either a Tax Deduction or any payment required in connection with that Tax Deduction, the Obligor making that Tax Deduction shall deliver to the Agent for the Finance Party entitled to the payment evidence reasonably satisfactory to that Finance Party that the Tax Deduction has been made or (as applicable) that any appropriate payment has been paid to the relevant taxing authority.
(g) A Treaty Lender and each Obligor which makes a payment to which that Treaty Lender is entitled shall co-operate promptly in completing any procedural formalities necessary for that Obligor to obtain authorisation to make that payment without a Tax Deduction.
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13.3 Tax indemnity
(a) The Company shall (within three Business Days of demand by the Agent) pay to a Protected Party an amount equal to the loss, liability or cost which that Protected Party determines will be or has been (directly or indirectly) suffered for or on account of Tax by that Protected Party in respect of a Finance Document.
(b) Paragraph (a) above shall not apply:
(i) with respect to any Tax assessed on a Finance Party:
(A) under the law of the jurisdiction in which that Finance Party is incorporated and if different, the jurisdiction (or jurisdictions) in which that Finance Party is treated as resident for tax purposes; or
(B) under the law of the jurisdiction in which that Finance Party's Facility Office is located in respect of amounts received or receivable in that jurisdiction,
if that Tax is imposed on or calculated by reference to the net income received or receivable (but not any sum deemed to be received or receivable) by that Finance Party;
(ii) to any Tax Deduction required by law.
(c) A Protected Party making, or intending to make a claim pursuant to paragraph (a) above shall promptly notify the Agent in reasonable detail of the event which will give, or has given, rise to the claim, following which the Agent shall notify the Company provided that nothing in this Clause 13.3 shall require a Protected Party to disclose any confidential information relating to the organisation of its affairs.
(d) A Protected Party shall, on receiving a payment from an Obligor under this Clause 13.3, notify the Agent.
13.4 Tax Credit
If an Obligor makes a Tax Payment and the relevant Finance Party determines that:
(a) a Tax Credit is attributable to that Tax Payment; and
(b) that Finance Party has obtained, utilised and retained that Tax Credit,
the Finance Party shall pay an amount to the Obligor which that Finance Party determines will leave it (after that payment) in the same after -Tax position as it would have been in had the Tax Payment not been made by the Obligor.
13.5 Stamp taxes
The Company shall pay and, within three Business Days of demand, indemnify each Finance Party against any cost, loss or liability that Finance Party incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document save where such cost, loss or liability is attributable to the default or negligence of any Finance Party.
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13.6 Value added tax
(a) All consideration payable under a Finance Document by an Obligor to a Finance Party shall be deemed to be exclusive of any VAT. If VAT is chargeable, the Obligor shall, subject to provision of a VAT invoice, pay to the Finance Party (in addition to and at the same time as paying the consideration) an amount equal to the amount of the VAT.
(b) Where a Finance Document requires an Obligor to reimburse a Finance Party for any costs or expenses, that Obligor shall also at the same time, subject to provision of a VAT invoice, pay and indemnify that Finance Party against all VAT incurred by that Finance Party in respect of the costs or expenses save to the extent that that Finance Party is entitled to repayment or credit in respect of the VAT.
14. INCREASED COSTS
14.1 Increased costs
(a) Subject to Clause 14.3 ( Exceptions ) the Company shall, within three Business Days of a demand by the Agent, pay for the account of a Finance Party the amount of any Increased Costs incurred by that Finance Party or any of its Affiliates as a result of (i) the introduction of or any change in (or in the interpretation or application of) any law or regulation or (ii) compliance with any law or regulation, in each case made after the date of this Agreement.
(b) In this Agreement " Increased Costs " means:
(i) a reduction in the rate of return from the Facility or on a Finance Party's (or its Affiliate's) overall capital;
(ii) an additional or increased cost; or
(iii) a reduction of any amount due and payable under any Finance Document,
which is incurred or suffered by a Finance Party or any of its Affiliates to the extent that it is attributable to that Finance Party having entered into its Commitment or funding or performing its obligations under any Finance Document.
14.2 Increased cost claims
(a) A Finance Party intending to make a claim pursuant to Clause 14.1 ( Increased Costs ) shall notify the Agent in reasonable detail of the event giving rise to the claim, following which the Agent shall promptly notify the Company provided that nothing in this Clause 14.2 shall require such Finance Party to disclose any confidential information relating to the organisation of its affairs.
(b) Each Finance Party shall, as soon as practicable after a demand by the Agent, provide a certificate confirming the amount of its Increased Costs.
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14.3 Exceptions
(a) Clause 14.1 ( Increased Costs ) does not apply to the extent any Increased Cost is:
(i) attributable to a Tax Deduction required by law to be made by an Obligor;
(ii) compensated for by Clause 13.3 ( Tax Indemnity ) (or would have been compensated for under Clause 13.3 ( Tax Indemnity ) but was not so compensated solely because the exclusion in paragraph (b) of Clause 13.3 ( Tax Indemnity ) applied);
(iii) compensated for by the payment of the Mandatory Cost; or
(iv) attributable to the wilful breach by the relevant Finance Party or its Affiliates of any law or regulation or arises from a failure by the relevant Finance Party or its Affiliates to comply with any request from or requirement of any central bank or other fiscal, monetary or other authority (whether or not having the force of law).
(b) In this Clause 14.3, a reference to a "Tax Deduction" has the same meaning given to the term in Clause 13.1 ( Definitions ).
15. OTHER INDEMNITIES
15.1 Currency indemnity
(a) If any sum due from an Obligor under the Finance Documents (a " Sum "), or any order, judgment or award given or made in relation to a Sum, has to be converted from the currency (the " First Currency ") in which that Sum is payable into another currency (the " Second Currency ") for the purpose of:
(i) making or filing a claim or proof against that Obligor; or
(ii) obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings,
that Obligor shall as an independent obligation, within three Business Days of demand, indemnify each Finance Party to whom that Sum is due against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between (A) the rate of exchange used to convert that Sum from the First Currency into the Second Currency and (B) the rate or rates of exchange available to that person at the time of its receipt of that Sum.
(b) Each Obligor waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency or currency unit other than that in which it is expressed to be payable.
15.2 Other indemnities
The Company shall (or shall procure that an Obligor will), within three Business Days of demand, indemnify each Lender against any cost, loss or liability incurred by that Lender as a result of:
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(a) the occurrence of any Event of Default;
(b) a failure by an Obligor to pay any amount due under a Finance Document on its due date, including without limitation, any cost, loss or liability arising as a result of Clause 28 ( Sharing among the Lenders );
(c) funding, or making arrangements to fund, its participation in a Loan requested by a Borrower in a Utilisation Request but not made by reason of the operation of any one or more of the provisions of this Agreement (other than by reason of default or negligence by that Lender or the Agent); or
(d) a Loan (or part of a Loan) not being prepaid in accordance with a notice of prepayment given by a Borrower or the Company.
15.3 Indemnity to the Agent
The Company shall promptly indemnify the Agent against any cost, loss or liability incurred by the Agent (acting reasonably) as a result of:
(a) investigating any event which it reasonably believes is a Default; or
(b) acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorised.
16. MITIGATION BY THE LENDERS
16.1 Mitigation
(a) Each Finance Party shall, in consultation with the Company, take all reasonable steps to mitigate any circumstances which arise and which would result in any amount becoming payable under, pursuant to, or cancelled pursuant to, any of Clause 8.1 ( Illegality ), Clause 13 ( Tax Gross-up and Indemnities ), or paragraph 3 of Schedule 5 (Mandatory costs formulae) or Clause 14 ( Increased Costs ) including (but not limited to) transferring its rights and obligations under the Finance Documents to another Affiliate or Facility Office.
(b) Paragraph (a) above does not in any way limit the obligations of any Obligor under the Finance Documents.
16.2 Limitation of liability
(a) The Company shall indemnify each Finance Party for all costs and expenses reasonably incurred by that Finance Party as a result of steps taken by it under Clause 16.1 ( Mitigation ).
(b) A Finance Party is not obliged to take any steps under Clause 16.1 ( Mitigation ) if, in the opinion of that Finance Party (acting reasonably), to do so might be prejudicial to it.
17. COSTS AND EXPENSES
17.1 Transaction expenses
The Company shall promptly on demand pay the Agent and the Mandated Lead Arrangers the amount of all costs and expenses (including legal fees) reasonably incurred by any of them in connection with the negotiation, preparation, printing, execution and syndication of:
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(a) this Agreement and any other documents referred to in this Agreement; and
(b) any other Finance Documents executed after the date of this Agreement,
subject to the limit specified in a letter dated 23 September 2004 from the Agent to the Company.
17.2 Amendment costs
If (a) an Obligor requests an amendment, waiver or consent or (b) an amendment is required pursuant to Clause 29.9 ( Change of Currency ), the Company shall, within five Business Days of demand, reimburse the Agent for the amount of all costs and expenses (including legal fees) reasonably incurred by the Agent in responding to, evaluating, negotiating or complying with that request or requirement.
17.3 Enforcement costs The Company shall, within three Business Days of demand, pay to each Finance Party the amount of all costs and expenses (including legal fees) incurred by that Finance Party in connection with the enforcement of, or the preservation of any rights under, any Finance Document.
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SECTION 7 GUARANTEE
18. GUARANTEE AND INDEMNITY
18.1 Guarantee and indemnity
Each Guarantor irrevocably and unconditionally jointly and severally:
(a) guarantees to each Finance Party punctual performance by each Borrower of all that Borrower's obligations under the Finance Documents;
(b) undertakes with each Finance Party that whenever a Borrower does not pay any amount when due under or in connection with any Finance Document, that Guarantor shall immediately on demand pay that amount as if it was the principal obligor; and
(c) indemnifies each Finance Party immediately on demand against any cost, loss or liability suffered by that Finance Party if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal. The amount of the cost, loss or liability shall be equal to the amount which that Finance Party would otherwise have been entitled to recover.
18.2 Continuing guarantee
This guarantee is a continuing guarantee and will extend to the ultimate balance of sums payable by any Obligor under the Finance Documents, regardless of any intermediate payment or discharge in whole or in part.
18.3 Reinstatement
If any payment by an Obligor or any discharge given by a Finance Party (whether in respect of the obligations of any Obligor or any security for those obligations or otherwise) is avoided or reduced as a result of insolvency or any similar event:
(a) the liability of each Obligor shall continue as if the payment, discharge, avoidance or reduction had not occurred; and
(b) each Finance Party shall be entitled to recover the value or amount of that security or payment from each Obligor, as if the payment, discharge, avoidance or reduction had not occurred.
18.4 Waiver of defences
The obligations of each Guarantor under this Clause 18 will not be affected by an act, omission, matter or thing which, but for this Clause, would reduce, release or prejudice any of its obligations under this Clause 18 (without limitation and whether or not known to it or any Finance Party) including:
(a) any time, waiver or consent granted to, or composition with, any Obligor or other person;
(b) the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any member of the Group;
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(c) the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Obligor or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security;
(d) any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor or any other person;
(e) any amendment (however fundamental) or replacement of a Finance Document or any other document or security;
(f) any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security; or
(g) any insolvency or similar proceedings.
18.5 Immediate recourse
Each Guarantor waives any right it may have of first requiring any Finance Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person before claiming from that Guarantor under this Clause 18. This waiver applies irrespective of any law or any provision of a Finance Document to the contrary.
18.6 Appropriations
Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full, each Finance Party (or any trustee or agent on its behalf) may:
(a) refrain from applying or enforcing any other moneys, security or rights held or received by that Finance Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and no Guarantor shall be entitled to the benefit of the same; and
(b) hold in an interest-bearing suspense account any moneys received from any Guarantor or on account of any Guarantor's liability under this Clause 18.
18.7 Deferral of Guarantors' rights
Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full and unless the Agent otherwise directs, no Guarantor will exercise any rights which it may have by reason of performance by it of its obligations under the Finance Documents:
(a) to be indemnified by an Obligor;
(b) to claim any contribution from any other guarantor of any Obligor's obligations under the Finance Documents; and/or
(c) to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under the Finance Documents or of any other guarantee or security taken pursuant to, or in connection with, the Finance Documents by any Finance Party.
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18.8 Additional security
This guarantee is in addition to and is not in any way prejudiced by any other guarantee or security now or subsequently held by any Finance Party.
18.9 Limitation on U.S. Guarantors
Any term or provision of this Clause 18 or any other term in this Agreement or any Finance Document notwithstanding, the maximum aggregate amount of the obligations for which any U.S. Guarantor shall be liable hereunder shall in no event exceed an amount equal to the largest amount that would not render such U.S. Guarantor's obligations hereunder, subject to avoidance under applicable United States federal or state law relating to fraudulent transfer (including section 548 of the Bankruptcy Code of the U.S. or any applicable provisions of comparable state law).
18.10 Release of Guarantors' right of contribution
If any Guarantor (a " Retiring Guarantor ") ceases to be a Guarantor in accordance with the terms of this Agreement then on the date such Retiring Guarantor ceases to be a Guarantor:
(a) that Retiring Guarantor is released by each other Guarantor from any liability (whether past, present or future and whether actual or contingent) to make a contribution to any other Guarantor arising by reason of the performance by any other Guarantor of its obligations under the Finance Documents; and
(b) each other Guarantor waives any rights it may have by reason of the performance of its obligations under the Finance Documents to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under any Finance Document or of any other security taken pursuant to, or in connection with, any Finance Document where such rights or security are granted by or in relation to the assets of the Retiring Guarantor.
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SECTION 8 REPRESENTATIONS, UNDERTAKINGS AND EVENTS OF DEFAULT
19. REPRESENTATIONS
Each Obligor makes the representations and warranties set out in this Clause 19 to each Finance Party on the date of this Agreement with respect to itself and the Company makes the representations set out in this Clause 19 with respect to each member of the Group to each Finance Party on the date of this Agreement.
19.1 Status
(a) It is a corporation, duly incorporated and validly existing under the law of its jurisdiction of incorporation.
(b) It and each of its Subsidiaries has the power to own its assets and carry on its business as it is being conducted.
19.2 Binding obligations
The obligations expressed to be assumed by it in each Finance Document to which it is a party are, subject to any general principles of law limiting its obligations, which are specifically referred to in any legal opinion delivered pursuant to Clause 4 ( Conditions of Utilisation ) or Clause 25 ( Changes to the Obligors ) legal, valid, binding and enforceable obligations.
19.3 Non -conflict with other obligations
The entry into and performance by it of, and the transactions contemplated by, the Finance Documents to which it is a party do not and will not conflict with:
(a) any law or regulation applicable to it;
(b) the constitutional documents of any member of the Group;
(c) any agreement or instrument binding upon it or any Material Company or any of its or any Material Company's assets; or
(d) any agreement or instrument binding upon any member of the Group (other than an Obligor or a Material Company) or any member of the Group's (other than an Obligor's or a Material Company's) assets in any material respect.
19.4 Power and authority
It has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents.
19.5 Validity and admissibility in evidence
All Authorisations required:
(a) to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party; and
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(b) to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation,
have been obtained or effected and are in full force and effect.
19.6 Governing law and enforcement
(a) The choice of English law as the governing law of the Finance Documents to which it is a party will be recognised and enforced in its jurisdiction of incorporation.
(b) Any judgment obtained in England in relation to a Finance Document to which it is a party will be recognised and enforced in its jurisdiction of incorporation.
19.7 Deduction of Tax
Provided that each Original Lender is a Qualifying Lender and the necessary procedural formalities in the case of a Treaty Lender to make payments without deduction of tax have been completed prior to the date of such payment, it is not required under the law of its jurisdiction of incorporation to make any deduction for or on account of Tax from any payment it may make under any Finance Document to which it is a party.
19.8 No filing or stamp taxes
Under the law of its jurisdiction of incorporation it is not necessary that the Finance Documents be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents or the transactions contemplated by the Finance Documents.
19.9 No default
(a) No Event of Default is continuing or will result from the making of any Utilisation.
(b) No other event or circumstance is outstanding which constitutes a default under any other agreement or instrument which is binding on it or any of the Subsidiaries or to which its (or its Subsidiaries') assets are subject which would have a Material Adverse Effect.
19.10 No misleading information
All written information supplied by any member of the Group is true, complete and accurate in all material respects (to the best of the Company's knowledge and belief) as at the date it was given and is not misleading in any material respect as at such date.
19.11 Financial statements
(a) Its Original Financial Statements were prepared in accordance with GAAP consistently applied.
(b) Its Original Financial Statements give a true and fair view and fairly represent its financial condition and operations (consolidated in the case of the Company) during the relevant financial year.
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(c) There has been no change in its business or financial condition (or the business or consolidated financial condition of the Group, in the case of the Company) since the date of the latest financial statements made available to the Agent pursuant to Clause 20.1 ( Financial Statements ) which would have a Material Adverse Effect.
19.12 Pari passu ranking
Its payment obligations under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.
19.13 No proceedings pending or threatened
No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency which, if adversely determined, might reasonably be expected to have a Material Adverse Effect have (to the best of its knowledge and belief) been started or threatened against it or any of its Subsidiaries.
19.14 No Security
Save as permitted pursuant to Clause 22.3 ( Negative Pledge ), no Security exists over all or any of the present or future revenues or assets any member of the Group.
19.15 Environmental compliance
Each member of the Group has performed and observed in all material respects all Environmental Law, Environmental Permits and all other material covenants, conditions, restrictions or agreements directly or indirectly concerned with any contamination, pollution or waste or the release or discharge of any toxic or hazardous substance in connection with any real property which is or was at any time owned, leased or occupied by any member of the Group or on which any member of the Group has conducted any activity where failure to do so might reasonably be expected to have a Material Adverse Effect.
19.16 Environmental Claims
No Environmental Claim has been commenced or (to the best of its knowledge and belief) is threatened against any member of the Group where that claim would be reasonably likely, if determined against that member of the Group, to have a Material Adverse Effect.
19.17 ERISA and Multiemployer Plans
(a) Neither any U.S. Group Company nor any ERISA Affiliate is making or accruing an obligation to make contributions or has within any of the five calendar years immediately preceding the date of this Agreement made or accrued an obligation to make contributions to any Multiemployer Plan to an extent or in a manner which would reasonably be expected to have a Material Adverse Effect.
(b) Each Employee Plan is in compliance in form and operation with ERISA and the Code and all other applicable laws and regulations save where any failure to comply would not reasonably be expected to have a Material Adverse Effect.
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(c) Each Employee Plan which is intended to be qualified under Section 401(a) of the Code has been determined by the IRS to be so qualified or is in the process of being submitted to the IRS for approval or will be so submitted during the applicable remedial amendment period, and, to the knowledge of the U.S. Group Company, nothing has occurred since the date of such determination that would be reasonably likely to adversely affect such determination (or, in the case of an Employee Plan with no determination, nothing has occurred that would materially adversely affect such qualification save where any such event would not reasonably be expected to have a Material Adverse Effect).
(d) The fair market value of the assets of each Employee Plan subject to Title IV of ERISA is at least equal to the present value of all accumulated benefit obligations under each such Employee Plan (based on the assumptions used for funding the Employee Plan pursuant to Section 412 of the Code) for the applicable plan year as of the date of the most recent financial statement reflecting such amounts or, if additional contributions are required to make the Employee Plan sufficient, the U.S. Group Company does not believe that such would reasonably be expected to have a Material Adverse Effect.
(e) There are no actions, suits or claims pending against an Employee Plan (other than routine claims for benefits) or, to the knowledge of the Company, any U.S. Group Company or any ERISA Affiliate threatened, which would reasonably be expected to be asserted successfully against any Employee Plan and, if so asserted successfully, would reasonably be expected either singly or in the aggregate to have a Material Adverse Effect.
(f) Each U.S. Group Company and any ERISA Affiliate has made all material contributions to or under each such Employee Plan required by law within the applicable time limits prescribed thereby, the terms of such Employee Plan, or any contract or agreement requiring contributions to an Employee Plan save where any failure to comply would not reasonably be expected to have a Material Adverse Effect.
(g) Neither any U.S. Group Company nor any ERISA Affiliate has ceased operations at a facility so as to become subject to the provisions of Section 4068(a) of ERISA, withdrawn as a substantial employer so as to become subject to the provisions of Section 4063 of ERISA or ceased making contributions to any Employee Plan subject to Section 4064(a) of ERISA to which it made contributions, which actions would not reasonably be expected to have a Material Adverse Effect.
(h) Neither any U.S. Group Company nor any ERISA Affiliate has incurred or reasonably expects to incur any liability to PBGC save for any liability for premiums due in the ordinary course or other liability which would not reasonably be expected to have a Material Adverse Effect.
19.18 Margin Stock
(a) No U.S. Group Company is engaged in the business of extending credit for the purpose of "purchasing" or "carrying" any Margin Stock.
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(b) None of the proceeds of the Loans or other extensions of credit under this Agreement will be used, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Indebtedness that was originally incurred to buy or carry any Margin Stock or for any other purpose which might cause all or any Loans or other extensions of credit under this Agreement to be considered a "purpose credit" within the meaning of Regulation U or Regulation X.
(c) No U.S. Group Company or any agent acting on its behalf has taken or will take any action which might cause the Finance Documents to violate any regulation of the Board of Governors of the Federal Reserve System of the United States.
19.19 Investment Companies
No U.S. Group Company is an "investment company" or an "affiliated person" of an "investment company" as such terms are defined in the Investment Company Act of 1940 of the United States nor a "holding company" or an "affiliate" as each such term is defined and used in the Public Utility Holding Company Act of 1935, as amended, of the United States.
19.20 Intellectual Property
The Company and each Material Subsidiary owns, is licensed to use or has the right to use, all trade marks, trade names, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted (the " Intellectual Property ") except for those the failure to own or licence or have the right to use could not reasonably be expected to have a Material Adverse Effect. No claim which could reasonably be expected to be adversely determined and, if adversely determined, to have a Material Adverse Effect has been asserted and is pending by any person challenging the use of any such Intellectual Property, nor does the Company know of any valid basis for such a claim. The use of such Intellectual Property by the Company and each Material Subsidiary does not infringe on the rights of any person, except for such claims and infringements that, in aggregate, could not reasonably be expected to have a Material Adverse Effect.
19.21 Anti -Terrorism Laws
(a) None of the Obligors or, to the knowledge of any of the Obligors, any of their Affiliates, is in violation of the U.S. Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (the "Executive Order"), and the U.S. Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (together the " Anti -Terrorism Laws ").
(b) No Obligor or, to the knowledge of any of the Obligors, any of their Affiliates, or their respective brokers or other agents acting or benefiting in any capacity in connection with the Facility, is any of the following:
(i) a person or entity that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;
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(ii) a person or entity owned or controlled by, or acting for or on behalf of, any person or entity that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;
(iii) a person or entity with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti- Terrorism Law;
(iv) a person or entity that commits, threatens or conspires to commit or supports "terrorism" as defined in the Executive Order; or
(v) a person or entity that is named as a "specially designated national and blocked person" on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list.
(c) No Obligor or, to the knowledge of any Obligor, any of its brokers or other agents acting in any capacity in connection with the Facility (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any person described in clause (b) above, (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order, or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti -Terrorism Law.
19.22 Repetition
The Repeating Representations are deemed to be made by each Obligor (by reference to the facts and circumstances then existing) on:
(a) the date of each Utilisation Request and the first day of each Interest Period; and
(b) in the case of an Additional Obligor, the day on which the company becomes (or it is proposed that the company becomes) an Additional Obligor.
20. INFORMATION UNDERTAKINGS
The undertakings in this Clause 20 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.
20.1 Financial statements
The Company shall supply to the Agent in sufficient copies for all the Lenders:
(a) as soon as the same become available, but in any event within 120 days (or, in the case of each Obligor other than the Company, 180 days) after the end of each of its financial years:
(i) its audited consolidated financial statements for that financial year; and
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(ii) subject to paragraph (a) of Clause 20.3 ( Requirements as to financial statements ) the audited and in the case of Sterling Jewelers Inc. only consolidated financial statements of each Obligor for that financial year; and
(b) as soon as the same become available, but in any event within 60 days after the end of each half of each of its financial years, its consolidated financial statements for that financial half year.
20.2 Compliance Certificate
(a) The Company shall supply to the Agent, with each set of financial statements delivered pursuant to paragraph (a)(i) or (b) of Clause 20.1 ( Financial Statements ), a Compliance Certificate as to compliance with Clause 21 ( Financial Covenants ) as at the date as at which those financial statements were drawn up.
(b) Each Compliance Certificate shall be signed by a director of the Company.
20.3 Requirements as to financial statements
(a) Each set of financial statements delivered by the Company pursuant to Clause 20.1 ( Financial statements ) (other than those for Sterling Inc. and Sterling Jewelers Inc. which shall only be required to be audited in accordance with this paragraph (a) if so required by law) has been audited by KPMG Audit Plc or (in the case of a U.S. Group Company an affiliate of KPMG Audit Plc in the United States) or another internationally recognised firm or company of independent auditors.
(b) The Company shall ensure that the accounting reference period for each Obligor is not changed except with the prior written consent of the Agent (such consent not to be unreasonably withheld or delayed).
(c)
(i) The Company shall procure that each set of financial statements of an Obligor delivered pursuant to Clause 20.1 ( Financial statements ) is prepared using GAAP and accounting practices and financial reference periods consistent with those applied in the preparation of the Original Financial Statements for that Obligor unless, in relation to any such set of financial statements, it notifies the Agent that an Obligor wishes to prepare its financial statements on a different basis from the basis used in the preparation of the Original Financial Statements (other than by reason of a change in GAAP or the accounting practices generally accepted in the United Kingdom) and its auditors (or, if appropriate, the auditors of the Obligor) deliver to the Agent:
(A) a description of any change necessary for those financial statements to reflect the GAAP, accounting practices and reference periods upon which that Obligor's Original Financial Statements were prepared; and
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(B) sufficient information, in form and substance as may be reasonably required by the Agent, to enable the Lenders to determine whether Clause 21 ( Financial Covenants ) has been complied with and make an accurate comparison between the financial position indicated in those financial statements and that Obligor's Original Financial Statements.
(ii) If the Company notifies the Agent of a change in accordance with paragraph (c)(i) above then the Company and Agent shall enter into negotiations in good faith with a view to agreeing:
(A) whether or not the change might result in any material alteration in the commercial effect of any of the terms of this Agreement; and
(B) if so, any amendments to this Agreement which may be necessary to ensure that the change does not result in any material alteration in the commercial effect of those terms,
and if any amendments are agreed they shall take effect and be binding on each of the Parties in accordance with their terms.
If no such agreement is reached within 30 days of that notification of change, the Agent shall (if so requested by the Majority Lenders) instruct the auditors of the Company or independent accountants (approved by the Company or, in the absence of such approval within 5 days of request by the Agent of such approval, a firm with recognised expertise) to determine any amendment to Clause 21 ( Financial covenants ), Clause 1.1 ( Definitions ) and any other terms of this Agreement which the auditors or, as the case may be, accountants (acting as experts and not arbitrators) consider appropriate to ensure the change does not result in any material alteration in the commercial effect of the terms of this Agreement. Those amendments shall take effect when so determined by the auditors, or as the case may be, accountants. The cost and expense of the auditors or accountants shall be for the account of the Company.
Any reference in this Agreement to those financial statements shall be construed as a reference to those financial statements as adjusted to reflect the basis upon which the Original Financial Statements were prepared.
20.4 Information: miscellaneous
The Company shall supply to the Agent (in sufficient copies for all the Lenders, if the Agent so requests):
(a) all documents (other than those that deal with routine matters) dispatched by the Company to its shareholders (or any class of them) or its creditors generally at the same time as they are dispatched;
(b) promptly upon becoming aware of them, the details of any litigation, arbitration or administrative proceedings which are current or, to its knowledge, threatened or pending against any member of the Group, and which would, if adversely determined, have a Material Adverse Effect; and
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(c) promptly, such further information regarding the financial condition, business and operations of any member of the Group as any Finance Party (through the Agent) may reasonably request.
20.5 Notification of default
(a) The Company shall notify the Agent of any Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence (unless the Company is aware that a notification has already been provided by another Obligor).
(b) Promptly upon a request by the Agent, the Company shall supply to the Agent a certificate signed by one of its directors on its behalf certifying that no Default is continuing (or if a Default is continuing, specifying the Default and the steps, if any, being taken to remedy it).
(c) The Company shall ensure that each member of the Group will promptly inform the Agent of any (i) default or event of default under any Contractual Obligation of any member of the Group or (ii) litigation, investigation or proceeding which exists at any time between any member of the Group and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, would have a Material Adverse Effect.
20.6 ERISA-Related Information
The Company shall supply to the Agent (in sufficient copies for all the Lenders, if the Agent so requests):
(a) promptly and in any event within thirty days after any U.S. Group Company and each ERISA Affiliate (each, a " Relevant Company ") knows or has reason to know that any ERISA Event which, individually or when aggregated with any other ERISA Event, would reasonably be expected to have a Material Adverse Effect has occurred, the written statement of the Chief Financial Officer of such Relevant Company describing such ERISA Event and the action, if any, which it proposes to take with respect thereto and a copy of any notice filed with the PBGC or the IRS pertaining thereto; providing that, in the case of ERISA Events under paragraph (d) of the definition thereof, the 15-day period set forth above shall be a 10-day period, and, in the case of ERISA Events under paragraph (b) of the definition thereof, in no event shall notice be given later than the occurrence of the ERISA Event;
(b) promptly, and in any event within thirty days, after becoming aware that there has been (A) a material increase in Unfunded Pension Liabilities, taking into account only Employee Plans with positive Unfunded Pension Liabilities; (B) the existence of potential withdrawal liability under Section 4201 of ERISA, if the Company and its ERISA Affiliates were to completely or partially withdraw from all Multiemployer Plans; (C) the adoption of, or the commencement of contributions to, any Employee Plan subject to Section 412 of the Code by any Obligor or any ERISA Affiliate; or (D) the adoption of any amendment to an Employee Plan subject to Section 412 of the Code which results in a material increase in contribution obligations of any Obligor, the detailed written description thereof from the Chief Financial Officer of each Relevant Company; and
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(c) simultaneously with the date that any Relevant Company files a notice of intent to terminate any Title IV Plan, if such termination would require material additional contributions in order to be considered a standard termination within the meaning of Section 4041(b) of ERISA, a copy of each notice.
20.7 "Know your customer" checks
(a) If:
(i) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;
(ii) any change in the status of an Obligor after the date of this Agreement; or
(iii) a proposed assignment or transfer by a Lender of any of its rights and obligations under this Agreement to a party that is not a Lender prior to such assignment or transfer,
obliges the Agent or any Lender (or, in the case of paragraph (iii) above, any prospective new Lender) to comply with "know your customer" or similar identification procedures in circumstances where the necessary information is not already available to it, each Obligor shall promptly upon the request of the Agent or any Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Lender) or any Lender (for itself or, in the case of the event described in paragraph (iii) above, on behalf of any prospective new Lender) in order for the Agent, such Lender or, in the case of the event described in paragraph (iii) above, any prospective new Lender to carry out and be satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.
(b) Each Lender shall promptly upon the request of the Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself) in order for the Agent to carry out and be satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.
(c) The Company shall, by not less than 10 Business Days' prior written notice to the Agent, notify the Agent (which shall promptly notify the Lenders) of its intention to request that one of the Subsidiaries becomes an Additional Obligor pursuant to Clause 25 (Changes to the Obligors).
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(d) Following the giving of any notice pursuant to paragraph (c) above, if the accession of such Additional Obligor obliges the Agent or any Lender to comply with "know your customer" or similar identification procedures in circumstances where the necessary information is not already available to it, the Company shall promptly upon the request of the Agent or any Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Lender) or any Lender (for itself or on behalf of any prospective new Lender) in order for the Agent or such Lender or any prospective new Lender to carry out and be satisfied it has complied with the results of all necessary "know your customer" or other similar checks under all applicable laws and regulations pursuant to the accession of such Subsidiary to this Agreement as an Additional Obligor.
20.8 Anti -Terrorism Law
No Obligor shall (i) conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any person described in paragraph (b) of Clause 19.21 ( Anti-Terrorism Laws ) above, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order or any other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purposes of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law (and the Original Borrower shall deliver to the Agent a certificate in a form to be agreed requested from time to time by the Agent in its reasonable discretion, confirming the Obligors' compliance with this Clause 20.8).
20.9 Embargoed Person
At all times through the term of the Facility, the Obligors will use reasonable efforts to ensure that the funds or assets that are used to repay the Facility shall not, to such Obligor's knowledge, constitute property of, or be beneficially owned directly or indirectly by, any person subject to sanctions or trade restrictions under U.S. law that is identified on (1) the "List of Specially Designated Nationals and Blocked Persons" maintained by the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury or on any other similar list maintained by OFAC pursuant to any authorising statute including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. Sections 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any executive order or regulation promulgated thereunder or (2) the Executive Order, any related enabling legislation or any other executive order issued for the same general purpose as the Executive Order.
20.10 Anti -Money Laundering
At all times throughout the term of the Facility, the Obligors will use reasonable efforts to ensure that none of the funds of such Obligor that are used to pay the Facility shall be derived from any unlawful activity.
21. FINANCIAL COVENANTS
21.1 Financial Condition
The Company shall ensure that from the date of this Agreement up to and including the Termination Date:
(a) Consolidated Tangible Net Worth shall not at any time be less than £400,000,000;
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(b) the ratio of Consolidated Net Debt to Consolidated EBITDA for each Relevant Period shall not exceed 3:1;
(c) the ratio of EBITARR to Consolidated Net Interest Expenditure plus Rents, Rates and Operating Lease Expenditure for the Relevant Period shall be or shall exceed 1.4:1.
21.2 Financial testing
The financial covenants set out in Clause 21.1 ( Financial Condition ) shall be tested by reference to each of the financial statements and/or each Compliance Certificate delivered pursuant to Clause 20.2 ( Compliance Certificate ).
22. GENERAL UNDERTAKINGS
The undertakings in this Clause 22 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.
22.1 Authorisations
Each Obligor shall promptly:
(a) obtain, comply with and do all that is necessary to maintain in full force and effect; and
(b) on request, supply certified copies to the Agent of,
any Authorisation required under any law or regulation of its jurisdiction of incorporation to enable it to perform its obligations under the Finance Documents and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of any Finance Document.
22.2 Compliance with laws
Each Obligor shall comply in all respects with all laws to which it may be subject, if failure so to comply would materially impair its ability to perform its obligations under the Finance Documents.
22.3 Negative pledge
(a) No Obligor shall (and the Company shall ensure that no other member of the Group will) create or permit to subsist any Security over any of its assets.
(b) No Obligor shall (and the Company shall ensure that no other member of the Group will):
(i) enter into any arrangement under which money or the benefit of a bank or other account may be applied, set-off or made subject to a combination of accounts; or
(ii) enter into any other preferential arrangement having a similar effect,
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in circumstances where the arrangement or transaction is entered into primarily as a method of raising Financial Indebtedness or of financing the acquisition of an asset.
(c) Paragraphs (a) and (b) above do not apply to:
(i) any netting or set-off arrangement entered into by any member of the Group in the ordinary course of its banking arrangements for the purpose of netting debit and credit balances or the netting or set-off of payments under any derivative transaction documented on market standard terms using an ISDA Master Agreement and entered into in the ordinary course of business of the relevant member of the Group in connection with the protection against or benefit from the fluctuation in any rate or price;
(ii) any lien arising by operation of law and in the ordinary course of business;
(iii) any Security over or affecting (or transaction (" Quasi-Security ") described in paragraph (b) affecting) any asset acquired by a member of the Group concluded after the date of this Agreement if:
(A) the Security or Quasi -Security was not created in contemplation of the acquisition of that asset by a member of the Group;
(B) the principal amount secured has not been increased in contemplation of or since the acquisition of that asset by a member of the Group; and
(C) the Security or Quasi -Security is removed or discharged within six months of the date of acquisition of such asset;
(iv) any Security or Quasi-Security over or affecting any asset of any company which becomes a member of the Group after the date of this Agreement, where the Security or Quasi-Security is created prior to the date on which that company becomes a member of the Group, if:
(A) the Security or Quasi -Security was not created in contemplation of the acquisition of that company;
(B) the principal amount secured has not increased in contemplation of or since the acquisition of that company; and
(C) the Security or Quasi -Security is removed or discharged within six months of that company becoming a member of the Group;
(v) any Security created or arising in the ordinary course of business of the relevant member of the Group as conducted at the date hereof which is specified below:
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(A) title transfer or retention arrangements provided for under the terms and conditions applicable to stock supplies made to the relevant member of the Group in the ordinary course of trading;
(B) Security over or affecting any assets of any member of the Group incorporated in any state of the United States of America where the Security is created for the purpose of securing the payment of any taxes of such Subsidiary which are not yet due and payable or which are being contested in good faith and by appropriate proceedings diligently prosecuted provided that adequate reserves with respect thereto are maintained in the accounts of such Subsidiary in accordance with generally accepted accounting principles in the United States of America, unless and until any lien resulting therefrom attaches to its property and becomes enforceable against its other creditors;
(C) carriers', warehousemen's, mechanics', materialmens', repairmens' or other liens arising in the ordinary course of business of any member of the Group which are not overdue for a period of more than 90 days or which are being contested in good faith by appropriate proceedings diligently prosecuted;
(D) subordinations of leaseholders' interests in retail property to the interest of mortgagees of the fee interests therein in the ordinary course of business of any member of the Group incorporated in any state of the United States of America;
(E) pledges or deposits by any member of the Group incorporated in any state of the United States of America where the pledges or deposits are created for the purpose of securing the payment of any workmen's compensation, unemployment insurances, social security or other similar public or statutory payment which that member of the Group is required to make pursuant to the federal, or as the case may be state or municipal, laws of the United States;
(F) liens or other Security in respect of accounts receivable arising under and in accordance with the terms of receivables financing arrangements provided that (except in relation to any Security referred to in paragraph (vi) below) such terms have been fully disclosed to the Agent prior to the date hereof or are previously approved by the Majority Lenders; or
(G) Security over rental or other deposits made in the ordinary course of business of any member of the Group aggregating together not more than £1,000,000 (or the equivalent thereof);
(vi) any Security arising under the terms of or constituted by the Securitisation and/or any Security over any receivables and/or the rights relating thereto arising under the terms of or constituted by any Permitted Securitisation; and
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(vii) any Security securing indebtedness not permitted under paragraphs (i) to (vi) above up to an aggregate principal amount which when aggregated with the amount which is permitted to be outstanding by virtue of paragraph (e) of the definition Permitted Indemnities does not exceed the Threshold Amount (or its equivalent in another currency or currencies).
22.4 Disposals
(a) No Obligor shall (and the Company shall ensure that no other member of the Group will), enter into a single transaction or a series of transactions (whether related or not) and whether voluntary or involuntary to sell, lease, transfer or otherwise dispose of any asset.
(b) Paragraph (a) above does not apply to any sale, lease, transfer or other disposal:
(i) of stock in trade in the ordinary course of trading;
(ii) on arm's length terms of businesses, subsidiaries or other assets, the value of which do not in aggregate in any one financial year of the Company exceed the level of a Class 1 Transaction;
(iii) of assets to an Obligor;
(iv) of cash;
(v) of shop premises in the ordinary course of business and on arm's length commercial terms;
(vi) of Receivables in connection with the Securitisation;
(vii) of Receivables or any receivables, as the case may be, in connection with any Permitted Securitisation; or
(viii) of assets in exchange for other assets comparable or superior as to type, value or quality.
22.5 Merger
No Obligor shall (and the Company shall ensure that no other member of the Group will) enter into any amalgamation, demerger, merger or corporate reconstruction other than a solvent reconstruction or reorganisation or any amalgamation, demerger, merger or corporate reconstruction to which the Agent has consented in writing acting on the instructions of the Majority Lenders (such consent and instructions not to be unreasonably withheld or delayed).
22.6 Change of business
The Company shall procure that no substantial change is made to the general nature of the business of the Group as a whole from that carried on at the date of this Agreement.
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22.7 Insurance
Each Obligor shall (and the Company shall ensure that each member of the Group will) maintain insurances on and in relation to its business and assets with reputable underwriters or insurance companies against those risks and to the extent as is usual for companies carrying on the same or substantially similar business.
22.8 Acquisitions
No Obligor shall (and the Company shall ensure no other member of the Group shall) acquire or invest in any assets, revenues, shares, business or undertaking without the prior written consent of the Majority Lenders other than (a) stock in trade in the normal course of trading or (b) assets the aggregate value of which in any financial year of the Company does not exceed an amount (or its equivalent in sterling) equal to a Class 1 Transaction provided that the amount of any indebtedness acquired as part of any such acquisition or investment shall be treated as part of the cost of such acquisition or investment.
22.9 Loans and Guarantees
No Obligor shall (and the Company shall ensure that no member of the Group will) (save in the ordinary course of business including, without limitation, the giving of guarantees of leasehold obligations in the ordinary course of business) make any loans, grant any credit or give any guarantee or indemnity (except as required under any of the Finance Documents) to or for the benefit of any person or otherwise voluntarily assume any liability, whether actual or contingent, in respect of any obligation of any person save in each case for Permitted Indemnities.
22.10 Federal Reserve Regulations
Each U.S. Borrower will use the Facilities without violating Regulations T, U and X.
22.11 Compliance with ERISA
No Obligor shall:
(a) allow, or permit any of its ERISA Affiliates to allow, (i) any Employee Plan with respect to which any U.S. Group Company or any of its ERISA Affiliates may have any liability to terminate, (ii) any U.S. Group Company or ERISA Affiliates to withdraw from any Employee Plan or Multiemployer Plan, (iii) any ERISA Event to occur with respect to any Employee Plan, or (iv) any Accumulated Funding Deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, to exist involving any of its Employee Plans; to the extent that any of the events described in (i), (ii), (iii) or (iv), singly or in the aggregate, is reasonably likely to have a Material Adverse Effect;
(b) allow, or permit any of its ERISA Affiliates to allow, (i) an Unfunded Pension Liability (taking into account only Employee Plans with positive Unfunded Pension Liability); or (ii) any potential withdrawal liability under Section 4201 of ERISA, if the Company and its ERISA Affiliates were to completely or partially withdraw from all Multiemployers Plans to the extent that any of the events described in (i) or (ii), singly or in the aggregate, is reasonably likely to have a Material Adverse Effect; or
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(c) fail, or permit any of its ERISA Affiliates to fail, to comply in any material respect with ERISA or the related provisions of the Code, if such non -compliances, singly or in the aggregate, would be reasonably likely to have a Material Adverse Effect.
22.12 Compliance with U.S. Regulations
No Obligor shall (and the Company shall ensure that no other member of the Group will) become an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the 1940 Act. Neither the making of any Loan, or the application of the proceeds or repayment thereof by any U.S. Group Company nor the consummation of the other transactions contemplated hereby will violate any provision of such act or any rule, regulation or order of the SEC thereunder.
22.13 Guarantor Cover
(a) If the aggregate gross assets, consolidated turnover, or Consolidated Earnings Before Interest and Tax (determined pursuant to Clause 21 ( Financial Covenants )) of the Guarantors (excluding intra-Group items) are at any time less than 75 per cent. of the gross assets, consolidated turnover or Consolidated Earnings Before Interest and Tax of the Group at that time, then within 30 days of becoming aware of this fact the Company shall procure that sufficient Additional Guarantors accede to this Agreement in accordance with Clause 25.2 ( Additional Guarantors ) to ensure that after such accession the aggregate, gross assets, consolidated turnover and Consolidated Earnings Before Interest and Tax of the Guarantors (excluding intra-Group items) are not less than 75 per cent. of the gross assets, consolidated turnover and Consolidated Earnings Before Interest and Tax of the Group at such time.
(b) For the purpose of this Clause:
(i) gross assets, consolidated turnover and Consolidated Earnings Before Interest and Tax will be determined from the most recently financial statements delivered pursuant to Clause 20 ( Information undertakings );
(ii) if a company becomes a member of the Group after the latest audited financial statements of the Group have been prepared the gross assets, consolidated turnover or Consolidated Earnings Before Interest and Tax of that Company shall be determined from its latest financial statements;
(iii) the gross assets, consolidated turnover or Consolidated Earnings Before Interest and Tax of the Group will be determined from the latest financial statements of the Group delivered pursuant to Clause 20 ( Information undertakings ) adjusted to reflect the disposal of any company disposed of or acquired after the date of such financial statements; and
(iv) gross assets does not include goodwill.
23. EVENTS OF DEFAULT
Each of the events or circumstances set out in this Clause 23 is an Event of Default.
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23.1 Non -payment
An Obligor does not pay on the due date any amount payable pursuant to a Finance Document at the place at and in the currency in which it is expressed to be payable unless:
(a) its failure to pay is caused by administrative or technical error; and
(b) payment is made within two Business Days of its due date.
23.2 Financial Covenants
Any requirement of Clause 21 ( Financial Covenants ) is not satisfied.
23.3 Other obligations
(a) An Obligor does not comply with any provision of the Finance Documents (other than those referred to in Clause 23.1 ( Non- payment ) or Clause 23.2 ( Financial Covenants )).
(b) No Event of Default under paragraph (a) above will occur if the failure to comply is capable of remedy and is remedied within twenty - one days of the Agent giving notice to the Company or the Company becoming aware of the failure to comply.
23.4 Misrepresentation
Any representation or statement made or deemed to be made by an Obligor in the Finance Documents or any other document delivered by or on behalf of an Obligor under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.
23.5 Cross default
(a) Any Financial Indebtedness of any Obligor or Material Company is not paid when due nor within any originally applicable grace period.
(b) Any Financial Indebtedness of any Obligor or Material Company is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default (however described).
(c) Any commitment for any Financial Indebtedness of any Obligor or Material Company is cancelled or suspended by a creditor of any Obligor or Material Company as a result of an event of default (however described).
(d) Any creditor of any Obligor or Material Company becomes entitled to declare any Financial Indebtedness of that Obligor or Material Company due and payable prior to its specified maturity as a result of an event of default (however described).
(e) No Event of Default will occur under this Clause 23.5 if the aggregate amount of Financial Indebtedness or commitment for Financial Indebtedness falling within paragraphs (a) to (d) above is less than $10,000,000 (or its equivalent).
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23.6 Insolvency
(a) An Obligor or Material Company is unable or admits inability to pay its debts as they fall due, suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors with a view to rescheduling any of its indebtedness.
(b) The value of the assets of any Obligor or Material Company is less than its liabilities (taking into account contingent and prospective liabilities).
(c) A moratorium is declared in respect of any indebtedness of any Obligor or Material Company.
(d) Any U.S. Group Company which is a Material Company shall:
(i) apply for, or consent to, the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its property;
(ii) make a general assignment for the benefit of its creditors;
(iii) commence a voluntary case under Title 11 of the United States of America Code entitled Bankruptcy (or any successor thereof), as amended;
(iv) file a petition with respect to itself seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganisation, liquidation, dissolution, arrangement or winding up, or composition or readjustment of debts; or
(v) take any corporate action for the purpose of effecting any of the foregoing with respect to itself.
23.7 Insolvency proceedings
Any corporate action, legal proceedings or other procedure or step is taken in relation to:
(a) the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of any Obligor or Material Company (other than
(i) a solvent reorganisation of any Obligor or Material Company (other than the Company)); or
(ii) in respect of any corporate action, legal proceedings or other procedure or step in connection with a winding-up which is frivolous or vexatious and which is stayed, discharged, dismissed or satisfied within 14 days of the date on which the relevant Obligor or Material Company became aware of the same;
(b) a composition, assignment or arrangement with any creditor of any Obligor or Material Company;
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(c) the appointment of a liquidator (other than in respect of a solvent liquidation of any Obligor or Material Company (other than the Company)), receiver, administrator, administrative receiver, compulsory manager or other similar officer in respect of any Material Company (other than the Company) or a substantial part of its assets; or
(d) enforcement of any Security over any assets of any Obligor or Material Company;
(e) in respect of any U.S. Group Company, a proceeding or case shall be commenced, without the application or consent of such U.S. Group Company, in any court of competent jurisdiction, seeking:
(i) its reorganisation, liquidation, dissolution, arrangement or winding -up or the composition or readjustment of its debts;
(ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the U.S. Group Company or of all or any substantial part of its property; or
(iii) similar relief in respect of the U.S. Group Company under any law relating to the bankruptcy insolvency, reorganisation, winding- up or composition or adjustment of debts,
and any such proceeding or case referred to in paragraphs (i) – (iii) above shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 30 or more days, or an order for relief against the U.S. Group Company shall be entered in an involuntary case under Title 11 of the United States of America Code entitled Bankruptcy (or any successor thereto) as amended.
or any analogous procedure or step is taken in any jurisdiction.
23.8 Creditors' process
Any expropriation, attachment, sequestration, distress or execution affects the whole or any substantial part of the assets of an Obligor or Material Subsidiary having an aggregate value of at least $10,000,000 and is not discharged within 14 days.
23.9 Ownership of the Obligors
An Obligor (other than the Company) is not or ceases to be a Subsidiary of the Company.
23.10 Repudiation
An Obligor repudiates a Finance Document.
23.11 Material adverse change
Any ERISA Event shall have occurred, or Clause 22.11 ( Compliance with ERISA ) shall be breached and the liability of a U.S. Group Company or its ERISA Affiliates either individually or in the aggregate related to such ERISA Event or breaches, individually or when aggregated with all other ERISA Events, and all such breaches would have or would be reasonably expected to have a Material Adverse Effect.
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23.12 Acceleration
On and at any time after the occurrence of an Event of Default which is continuing the Agent may, and shall if so directed by the Majority Lenders, by notice to the Company:
(a) cancel the Total Commitments whereupon they shall immediately be cancelled; and/or
(b) declare that all or part of the Loans, together with accrued interest, and all other amounts accrued under the Finance Documents be immediately due and payable, whereupon they shall become immediately due and payable; and/or
(c) declare that all or part of the Loans be payable on demand, whereupon they shall immediately become payable on demand by the Agent on the instructions of the Majority Lenders; and/or
(d) at any time after the occurrence of an Event of Default under Clause 23.6 ( Insolvency ) or Clause 23.7 ( Insolvency Proceedings ) in respect of any U.S. Group Company, the loans made to such U.S. Group Company shall automatically become immediately due and payable without notice from the Agent (together with accrued interest and commission thereon and any other sums then owed by such U.S. Group Company hereunder).
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SECTION 9 CHANGES TO PARTIES
24. CHANGES TO THE LENDERS
24.1 Assignments and transfers by the Lenders
Subject to this Clause 24, a Lender (the " Existing Lender ") may:
(a) assign any of its rights; or
(b) transfer by novation any of its rights and obligations,
in each case subject to a minimum amount assigned or transferred of $7,500,000 (or its equivalent) to another bank or financial institution (the " New Lender ").
24.2 Conditions of assignment or transfer
(a) The consent of the Company is required for an assignment or transfer by a Lender, unless the assignment or transfer is to another Lender or an Affiliate of a Lender or whilst an Event of Default is continuing.
(b) The consent of the Company to an assignment or transfer must not be unreasonably withheld or delayed. The Company will be deemed to have given its consent ten Business Days after the Lender has requested it unless consent is expressly refused by the Company within that time.
(c) The consent of the Company to an assignment or transfer must not be withheld solely because the assignment or transfer may result in an increase to the Mandatory Cost.
(d) An assignment will only be effective on:
(i) receipt by the Agent of written confirmation from the New Lender (in form and substance satisfactory to the Agent) that the New Lender will assume the same obligations to the other Finance Parties as it would have been under if it was an Original Lender; and
(ii) performance by the Agent of all "know your customer" or other checks relating to any person that it is required to carry out in relation to such assignment to a New Lender, the completion of which the Agent shall promptly notify to the Existing Lender and the New Lender.
(e) A transfer will only be effective if the procedure set out in Clause 24.6 ( Procedure for Transfer ) is complied with.
(f) If:
(i) a Lender assigns or transfers any of its rights or obligations under the Finance Documents or changes its Facility Office; and
(ii) as a result of circumstances existing at the date the assignment, transfer or change occurs, an Obligor would be obliged to make a payment to the New Lender or Lender acting through its new Facility Office under Clause 13 ( Tax Gross-up and Indemnities ) or Clause 14 ( Increased Costs ),
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then the New Lender or Lender acting through its new Facility Office is only entitled to receive payment under those Clauses to the same extent as the Existing Lender or Lender acting through its previous Facility Office would have been if the assignment, transfer or change had not occurred.
24.3 Assignment to Federal Reserve Bank
In addition to any other assignments or participation rights provided in this Clause 24, each Lender may assign and pledge all or any portion of its Loans and the other obligations owed to such Lender, without notice to or consent of any Party, to any Federal Reserve Bank pursuant to Regulation A of the Board of Governors of the Federal Reserve Bank and any operating circular issued by such Federal Reserve Bank; provided, however, that , (a) no Lender shall, as between the relevant Borrower and such Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (b) in no event shall such Federal Reserve Bank be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder.
24.4 Assignment or transfer fee
The New Lender shall, on the date upon which an assignment or transfer takes effect, pay to the Agent (for its own account) a fee of $1,750.
24.5 Limitation of responsibility of Existing Lenders
(a) Unless expressly agreed to the contrary, an Existing Lender makes no representation or warranty and assumes no responsibility to a New Lender for:
(i) the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any other documents;
(ii) the financial condition of any Obligor;
(iii) the performance and observance by any Obligor of its obligations under the Finance Documents or any other documents; or
(iv) the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document or any other document,
and any representations or warranties implied by law are excluded.
(b) Each New Lender confirms to the Existing Lender and the other Finance Parties that it:
(i) has made (and shall continue to make) its own independent investigation and assessment of the financial condition and affairs of each Obligor and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it by the Existing Lender in connection with any Finance Document; and
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(ii) will continue to make its own independent appraisal of the creditworthiness of each Obligor and its related entities whilst any amount is or may be outstanding under the Finance Documents or any Commitment is in force.
(c) Nothing in any Finance Document obliges an Existing Lender to:
(i) accept a re -transfer from a New Lender of any of the rights and obligations assigned or transferred under this Clause 24; or
(ii) support any losses directly or indirectly incurred by the New Lender by reason of the non-performance by any Obligor of its obligations under the Finance Documents or otherwise.
24.6 Procedure for transfer
(a) Subject to the conditions set out in Clause 24.2 ( Conditions of Assignment or Transfer ) a transfer is effected in accordance with paragraph (b) below when the Agent executes an otherwise duly completed Transfer Certificate delivered to it by the Existing Lender and the New Lender. The Agent shall, as soon as reasonably practicable after receipt by it of a duly completed Transfer Certificate appearing on its face to comply with the terms of this Agreement and delivered in accordance with the terms of this Agreement, execute that Transfer Certificate.
The Agent shall only be obliged to execute a Transfer Certificate delivered to it by the Existing Lender and the New Lender once it is satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations in relation to the transfer to such New Lender.
(b) On the Transfer Date:
(i) to the extent that in the Transfer Certificate the Existing Lender seeks to transfer by novation its rights and obligations under the Finance Documents each of the Obligors and the Existing Lender shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another shall be cancelled (being the " Discharged Rights and Obligations ");
(ii) each of the Obligors and the New Lender shall assume obligations towards one another and/or acquire rights against one another which differ from the Discharged Rights and Obligations only insofar as that Obligor and the New Lender have assumed and/or acquired the same in place of that Obligor and the Existing Lender;
(iii) the Agent, the New Lender and other Lenders shall acquire the same rights and assume the same obligations between themselves as they would have acquired and assumed had the New Lender been an Original Lender with the rights and/or obligations acquired or assumed by it as a result of the transfer and to that extent the Agent and the Existing Lender shall each be released from further obligations to each other under this Agreement; and
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(iv) the New Lender shall become a Party as a "Lender".
24.7 Disclosure of information
Any Lender may disclose to any of its Affiliates and any other person:
(a) to (or through) whom that Lender assigns or transfers (or may potentially assign or transfer) all or any of its rights and obligations under this Agreement;
(b) with (or through) whom that Lender enters into (or may potentially enter into) any sub-participation in relation to, or any other transaction under which payments are to be made by reference to, this Agreement or any Obligor; or
(c) to whom, and to the extent that, information is required to be disclosed by any applicable law or regulation,
any information about any Obligor, the Group and the Finance Documents as that Lender shall consider appropriate if, in relation to paragraphs (a) and (b) above, the person to whom the information is to be given has entered into a Confidentiality Undertaking.
25. CHANGES TO THE OBLIGORS
25.1 Assignments and transfer by Obligors
No Obligor may assign any of its rights or transfer any of its rights or obligations under the Finance Documents.
25.2 Additional Guarantors
(a) Subject to compliance with the provisions of paragraphs (c) and (d) of Clause 20.7 ( "Know your customer" checks ), the Company may request that any of its Subsidiaries become an Additional Guarantor. That Subsidiary shall become an Additional Guarantor if:
(i) the Company delivers to the Agent a duly completed and executed Accession Letter; and
(ii) the Agent has received all of the documents and other evidence listed in Part II of Schedule 3 ( Conditions precedent ) in relation to that Additional Guarantor, each in form and substance satisfactory to the Agent (acting reasonably).
(b) The Agent shall notify the Company and the Lenders promptly upon being satisfied that it has received (in form and substance satisfactory to it (acting reasonably)) all the documents and other evidence listed in Part II of Schedule 3 ( Conditions precedent ).
25.3 Repetition of Representations
Delivery of an Accession Letter constitutes confirmation by the relevant Subsidiary that the Repeating Representations are true and correct in relation to it as at the date of delivery as if made by reference to the facts and circumstances then existing.
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25.4 Resignation of a Guarantor
The Company may request that a Guarantor (other than the Company) ceases to be a Guarantor by delivering to the Agent a Resignation Letter. The Agent shall accept a Resignation Letter and notify the Company and the Lenders of its acceptance if no Default is continuing or would result from the acceptance of the Resignation Letter (and the Company has confirmed this is the case).
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SECTION 10 THE FINANCE PARTIES
26. ROLE OF THE AGENT AND THE MANDATED LEAD ARRANGERS
26.1 Appointment of the Agent
(a) Each of the Mandated Lead Arrangers and the Lenders appoints the Agent to act as its agent under and in connection with the Finance Documents.
(b) Each of the Mandated Lead Arrangers and the Lenders authorises the Agent to exercise the rights, powers, authorities and discretions specifically given to the Agent under or in connection with the Finance Documents together with any other incidental rights, powers, authorities and discretions.
26.2 Duties of the Agent
(a) The Agent shall promptly forward to a Party the original or a copy of any document which is delivered to the Agent for that Party by any other Party.
(b) If the Agent receives notice from a Party referring to this Agreement, describing a Default and stating that the circumstance described is a Default, it shall promptly notify the Lenders.
(c) The Agent shall promptly notify the Lenders of any Default arising under Clause 23.1 ( Non -payment ).
(d) The Agent's duties under the Finance Documents are solely mechanical and administrative in nature.
26.3 Role of the Mandated Lead Arrangers
Except as specifically provided in the Finance Documents, the Mandated Lead Arrangers have no obligations of any kind to any other Party under or in connection with any Finance Document.
26.4 No fiduciary duties
(a) Nothing in this Agreement constitutes the Agent as a trustee or fiduciary of any other person.
(b) The Agent shall not be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account.
26.5 Business with the Group
The Agent may accept deposits from, lend money to and generally engage in any kind of banking or other business with any member of the Group.
26.6 Rights and discretions of the Agent
(a) The Agent may rely on:
(i) any representation, notice or document believed by it to be genuine, correct and appropriately authorised; and
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(ii) any statement made by a director, authorised signatory or employee of any person regarding any matters which may reasonably be assumed to be within his knowledge or within his power to verify.
(b) The Agent may assume (unless it has received notice to the contrary in its capacity as agent for the Lenders) that:
(i) no Default has occurred (unless it has actual knowledge of a Default arising under Clause 23.1 ( Non -payment ));
(ii) any right, power, authority or discretion vested in any Party or the Majority Lenders has not been exercised; and
(iii) any notice or request made by the Company (other than a Utilisation Request) is made on behalf of and with the consent and knowledge of all the Obligors.
(c) The Agent may engage, pay for and rely on the advice or services of any lawyers, accountants, surveyors or other experts.
(d) The Agent may act in relation to the Finance Documents through its personnel and agents.
26.7 Majority Lenders' instructions
(a) Unless a contrary indication appears in a Finance Document, the Agent shall (a) act in accordance with any instructions given to it by the Majority Lenders (or, if so instructed by the Majority Lenders, refrain from acting or exercising any right, power, authority or discretion vested in it as Agent) and (b) not be liable to the Lenders for any act (or omission) if it acts (or refrains from taking any action) in accordance with such an instruction of the Majority Lenders.
(b) Unless a contrary indication appears in a Finance Document, any instructions given by the Majority Lenders will be binding on all the Lenders.
(c) The Agent may refrain from acting in accordance with the instructions of the Majority Lenders (or, if appropriate, the Lenders) until it has received such security as it may require for any cost, loss or liability (together with any associated VAT) which it may incur in complying with the instructions.
(d) In the absence of instructions from the Majority Lenders, (or, if appropriate, the Lenders) the Agent may act (or refrain from taking action) as it considers to be in the best interest of the Lenders.
(e) The Agent is not authorised to act on behalf of a Lender (without first obtaining that Lender's consent) in any legal or arbitration proceedings relating to any Finance Document.
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26.8 Responsibility for documentation
Neither the Agent nor the Mandated Lead Arrangers:
(a) are responsible for the adequacy, accuracy and/or completeness of any information (whether oral or written) supplied by the Agent, an Obligor or any other person given in or in connection with any Finance Document; or
(b) are responsible for the legality, validity, effectiveness, adequacy or enforceability of any Finance Document or any other agreement, arrangement or document entered into, made or executed in anticipation of or in connection with any Finance Document.
26.9 Exclusion of liability
(a) Without limiting paragraph (b) below, the Agent will not be liable for any action taken by it under or in connection with any Finance Document, unless directly caused by its gross negligence or wilful misconduct.
(b) No Party may take any proceedings against any officer, employee or agent of the Agent in respect of any claim it might have against the Agent or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Finance Document and any officer, employee or agent of the Agent may rely on this Clause.
(c) The Agent will not be liable for any delay (or any related consequences) in crediting an account with an amount required under the Finance Documents to be paid by the Agent if the Agent has taken all necessary steps as soon as reasonably practicable to comply with the regulations or operating procedures of any recognised clearing or settlement system used by the Agent for that purpose.
(d) Nothing in this Agreement shall oblige the Agent or a Mandated Lead Arranger to carry out any "know your customer" or other checks in relation to any person on behalf of any Lender and each Lender confirms to the Agent and the Mandated Lead Arrangers that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Agent or the Arranger.
26.10 Lenders' indemnity to the Agent
Each Lender shall (in proportion to its share of the Total Commitments or, if the Total Commitments are then zero, to its share of the Total Commitments immediately prior to their reduction to zero) indemnify the Agent, within three Business Days of demand, against any cost, loss or liability incurred by the Agent (otherwise than by reason of the Agent's gross negligence or wilful misconduct) in acting as Agent under the Finance Documents (unless the Agent has been reimbursed by an Obligor pursuant to a Finance Document).
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26.11 Resignation of the Agent
(a) The Agent may resign and appoint one of its Affiliates acting through an office in London, England as successor by giving notice to the Lenders and the Company.
(b) Alternatively the Agent may resign by giving notice to the Lenders and the Company, in which case the Majority Lenders (with the consent of the Company, not to be unreasonably withheld or delayed and not to be required if an Event of Default is continuing,) may appoint a successor Agent.
(c) If the Majority Lenders have not appointed a successor Agent in accordance with paragraph (b) above within 30 days after notice of resignation was given, the Agent (with the consent of the Company, not to be unreasonably withheld or delayed and not to be required if an Event of Default is continuing,) may appoint a successor Agent (acting through an office in London, England).
(d) The retiring Agent shall, at its own cost, make available to the successor Agent such documents and records and provide such assistance as the successor Agent may reasonably request for the purposes of performing its functions as Agent under the Finance Documents.
(e) The Agent's resignation notice shall only take effect upon the appointment of a successor.
(f) Upon the appointment of a successor, the retiring Agent shall be discharged from any further obligation in respect of the Finance Documents but shall remain entitled to the benefit of this Clause 26. Its successor and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party.
(g) After consultation with the Company, the Majority Lenders may, by notice to the Agent, require it to resign in accordance with paragraph (b) above. In this event, the Agent shall resign in accordance with paragraph (b) above.
26.12 Confidentiality
(a) In acting as agent for the Finance Parties, the Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments.
(b) If information is received by another division or department of the Agent, it may be treated as confidential to that division or department and the Agent shall not be deemed to have notice of it.
(c) Notwithstanding any other provision of any Finance Document to the contrary, neither the Agent nor the Mandated Lead Arrangers are obliged to disclose to any other person (i) any confidential information or (ii) any other information if the disclosure would or might in its reasonable opinion constitute a breach of any law or a breach of a fiduciary duty.
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26.13 Relationship with the Lenders
(a) The Agent may treat each Lender as a Lender, entitled to payments under this Agreement and acting through its Facility Office unless it has received not less than five Business Days prior notice from that Lender to the contrary in accordance with the terms of this Agreement.
(b) Each Lender shall supply the Agent with any information required by the Agent in order to calculate the Mandatory Cost in accordance with Schedule 5 ( Mandatory Cost formulae ).
26.14 Credit appraisal by the Lenders
Without affecting the responsibility of any Obligor for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms to the Agent and the Mandated Lead Arrangers that it has been, and will continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Finance Document including but not limited to:
(a) the financial condition, status and nature of each member of the Group;
(b) the legality, validity, effectiveness, adequacy or enforceability of any Finance Document and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document;
(c) whether that Lender has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; and
(d) the adequacy, accuracy and/or completeness of any information provided by the Agent, any Party or by any other person under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document.
26.15 Reference Banks
If a Reference Bank (or, if a Reference Bank is not a Lender, the Lender of which it is an Affiliate) ceases to be a Lender, the Agent shall (in consultation with the Company) appoint another Lender or an Affiliate of a Lender to replace that Reference Bank.
27. CONDUCT OF BUSINESS BY THE FINANCE PARTIES
No provision of this Agreement will:
(a) interfere with the right of any Finance Party to arrange its affairs (tax or otherwise) in whatever manner it thinks fit;
(b) oblige any Finance Party to investigate or claim any credit, relief, remission or repayment available to it or the extent, order and manner of any claim; or
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(c) oblige any Finance Party to disclose any information relating to its affairs (tax or otherwise) or any computations in respect of Tax.
28. SHARING AMONG THE LENDERS
28.1 Payments to Lenders
If a Lender (a " Recovering Lender ") receives or recovers any amount from an Obligor other than in accordance with Clause 29 ( Payment Mechanics ) and applies that amount to a payment due under the Finance Documents then:
(a) the Recovering Lender shall, within three Business Days, notify details of the receipt or recovery, to the Agent;
(b) the Agent shall determine whether the receipt or recovery is in excess of the amount the Recovering Lender would have been paid had the receipt or recovery been received or made by the Agent and distributed in accordance with Clause 29 ( Payment Mechanics ), without taking account of any Tax which would be imposed on the Agent in relation to the receipt, recovery or distribution; and
(c) the Recovering Lender shall, within three Business Days of demand by the Agent, pay to the Agent an amount (the " Sharing Payment ") equal to such receipt or recovery less any amount which the Agent determines may be retained by the Recovering Lender as its share of any payment to be made, in accordance with Clause 29.5 ( Partial Payments ).
28.2 Redistribution of payments
The Agent shall treat the Sharing Payment as if it had been paid by the relevant Obligor and distribute it between the Finance Parties (other than the Recovering Lender) in accordance with Clause 29.5 ( Partial Payments ).
28.3 Recovering Lender's rights
(a) On a distribution by the Agent under Clause 28.2 ( Redistribution of Payments ), the Recovering Lender will be subrogated to the rights of the Finance Parties which have shared in the redistribution.
(b) If and to the extent that the Recovering Lender is not able to rely on its rights under paragraph (a) above, the relevant Obligor shall be liable to the Recovering Lender for a debt equal to the Sharing Payment which is immediately due and payable.
28.4 Reversal of redistribution
If any part of the Sharing Payment received or recovered by a Recovering Lender becomes repayable and is repaid by that Recovering Lender, then:
(a) each Lender which has received a share of the relevant Sharing Payment pursuant to Clause 28.2 ( Redistribution of Payments ) shall, upon request of the Agent, pay to the Agent for account of that Recovering Lender an amount equal to its share of the Sharing Payment (together with an amount as is necessary to reimburse that Recovering Lender for its proportion of any interest on the Sharing Payment which that Recovering Lender is required to pay); and
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(b) that Recovering Lender's rights of subrogation in respect of any reimbursement shall be cancelled and the relevant Obligor will be liable to the reimbursing Lender for the amount so reimbursed.
28.5 Exceptions
(a) This Clause 28 shall not apply to the extent that the Recovering Lender would not, after making any payment pursuant to this Clause, have a valid and enforceable claim against the relevant Obligor.
(b) A Recovering Lender is not obliged to share with any other Lender any amount which the Recovering Lender has received or recovered as a result of taking legal or arbitration proceedings, if:
(i) it notified the other Lenders of the legal or arbitration proceedings; and
(ii) the other Lender had an opportunity to participate in those legal or arbitration proceedings but did not do so as soon as reasonably practicable having received notice or did not take separate legal or arbitration proceedings.
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SECTION 11 ADMINISTRATION
29. PAYMENT MECHANICS
29.1 Payments to the Agent
(a) On each date on which an Obligor or a Lender is required to make a payment under a Finance Document, that Obligor or Lender shall make the same available to the Agent (unless a contrary indication appears in a Finance Document) for value on the due date at the time and in such funds specified by the Agent as being customary at the time for settlement of transactions in the relevant currency in the place of payment.
(b) Payment shall be made to such account in the principal financial centre of the country of that currency (or, in relation to euro, in a principal financial centre in a Participating Member State or London) with such bank as the Agent specifies.
29.2 Distributions by the Agent
Each payment received by the Agent under the Finance Documents for another Party shall, subject to Clause 29.3 ( Distributions to an Obligor ) and Clause 29.4 ( Clawback ) be made available by the Agent as soon as practicable after receipt to the Party entitled to receive payment in accordance with this Agreement (in the case of a Lender, for the account of its Facility Office), to such account as that Party may notify to the Agent by not less than five Business Days' notice with a bank in the principal financial centre of the country of that currency (or, in relation to euro, in the principal financial centre of a Participating Member State or London).
29.3 Distributions to an Obligor
The Agent may (with the consent of the Obligor or in accordance with Clause 30 ( Set-off )) apply any amount received by it for that Obligor in or towards payment (on the date and in the currency and funds of receipt) of any amount due from that Obligor under the Finance Documents or in or towards purchase of any amount of any currency to be so applied.
29.4 Clawback
(a) Where a sum is to be paid to the Agent under the Finance Documents for another Party, the Agent is not obliged to pay that sum to that other Party (or to enter into or perform any related exchange contract) until it has been able to establish to its satisfaction that it has actually received that sum.
(b) If the Agent pays an amount to another Party and it proves to be the case that the Agent had not actually received that amount, then the Party to whom that amount (or the proceeds of any related exchange contract) was paid by the Agent shall on demand refund the same to the Agent together with interest on that amount from the date of payment to the date of receipt by the Agent, calculated by the Agent to reflect its cost of funds.
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29.5 Partial payments
(a) If the Agent receives a payment that is insufficient to discharge all the amounts then due and payable by an Obligor under the Finance Documents, the Agent shall apply that payment towards the obligations of that Obligor under the Finance Documents in the following order:
(i) first , in or towards payment pro rata of any unpaid fees, costs and expenses of the Agent and the Mandated Lead Arrangers under the Finance Documents;
(ii) secondly , in or towards payment pro rata of any accrued interest or commission due but unpaid under this Agreement;
(iii) thirdly , in or towards payment pro rata of any principal due but unpaid under this Agreement; and
(iv) fourthly , in or towards payment pro rata of any other sum due but unpaid under the Finance Documents.
(b) The Agent shall, if so directed by the Majority Lenders, vary the order set out in paragraphs (a)(ii) to (iv) above.
(c) Paragraphs (a) and (b) above will override any appropriation made by an Obligor.
29.6 No set-off by Obligors
All payments to be made by an Obligor under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set -off or counterclaim.
29.7 Business Days
(a) Any payment which is due to be made on a day that is not a Business Day shall be made on the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not).
(b) During any extension of the due date for payment of any principal or an Unpaid Sum under this Agreement interest is payable on the principal at the rate payable on the original due date.
29.8 Currency of account
(a) Subject to paragraphs (b) to (e) below, the Base Currency is the currency of account and payment for any sum due from an Obligor under any Finance Document.
(b) A repayment of a Loan or Unpaid Sum or a part of a Loan or Unpaid Sum shall be made in the currency in which that Loan or Unpaid Sum is denominated on its due date.
(c) Each payment of interest shall be made in the currency in which the sum in respect of which the interest is payable was denominated when that interest accrued.
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(d) Each payment in respect of costs, expenses or Taxes shall be made in the currency in which the costs, expenses or Taxes are incurred.
(e) Any amount expressed to be payable in a currency other than the Base Currency shall be paid in that other currency.
29.9 Change of currency
(a) Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognised by the central bank of any country as the lawful currency of that country, then:
(i) any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be translated into, or paid in, the currency or currency unit of that country designated by the Agent (after consultation with the Company); and
(ii) any translation from one currency or currency unit to another shall be at the official rate of exchange recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Agent (acting reasonably).
(b) If a change in any currency of a country occurs, this Agreement will, to the extent the Agent (acting reasonably and after consultation with the Company) specifies to be necessary, be amended to comply with any generally accepted conventions and market practice in the Relevant Interbank Market and otherwise to reflect the change in currency.
30. SET -OFF
Whilst an Event of Default is continuing a Finance Party may set off any matured obligation due from an Obligor under the Finance Documents (to the extent beneficially owned by that Finance Party) against any matured obligation owed by that Finance Party to that Obligor, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set -off.
31. NOTICES
31.1 Communications in writing
Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax or letter.
31.2 Addresses
The address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with the Finance Documents is:
(a) in the case of the Company and the Original Obligors, that identified with its name below;
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(b) in the case of each Lender, that notified in writing to the Agent on or prior to the date on which it becomes a Party; and
(c) in the case of the Agent, that identified with its name below,
or any substitute address, fax number, or department or officer as the Party may notify to the Agent (or the Agent may notify to the other Parties, if a change is made by the Agent) by not less than five Business Days' notice.
31.3 Delivery
(a) Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective:
(i) if by way of fax, when received in legible form; or
(ii) if by way of letter, when it has been left at the relevant address or five Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address;
and, if a particular department or officer is specified as part of its address details provided under Clause 31.2 ( Addresses ), if addressed to that department or officer.
(b) Any communication or document to be made or delivered to the Agent will be effective only when actually received by the Agent and then only if it is expressly marked for the attention of the department or officer identified with the Agent's signature below (or any substitute department or officer as the Agent shall specify for this purpose).
(c) All notices from or to an Obligor shall be sent through the Agent.
31.4 Notification of address and fax number
Promptly upon receipt of notification of an address and fax number or details of a specified department or officer or change of address or fax number or details of a specified department or officer pursuant to Clause 31.2 ( Addresses ) or changing its own address or fax number or details of a specified department or officer, the Agent shall notify the other Parties.
31.5 English language
(a) Any notice given under or in connection with any Finance Document must be in English.
(b) All other documents provided under or in connection with any Finance Document must be:
(i) in English; or
(ii) if not in English, and if so required by the Agent, accompanied by a certified English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other official document.
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32. CALCULATIONS AND CERTIFICATES
32.1 Accounts
In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by a Finance Party are prima facie evidence of the matters to which they relate.
32.2 Certificates and Determinations
Any certification or determination by a Finance Party of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates.
32.3 Day count convention
Any interest, commission or fee accruing under a Finance Document will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days (or in the case of any Utilisation in sterling, 365 days) or, in any case where the practice in the Relevant Interbank Market differs, in accordance with that market practice.
33. PARTIAL INVALIDITY
If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.
34. REMEDIES AND WAIVERS
No failure to exercise, nor any delay in exercising, on the part of any Party, any right or remedy under the Finance Documents shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.
35. AMENDMENTS AND WAIVERS
35.1 Required consents
(a) Subject to Clause 35.2 ( Exceptions ) any term of the Finance Documents may be amended or waived only with the consent of the Majority Lenders and the Obligors and any such amendment or waiver will be binding on all Parties.
(b) The Agent may effect, on behalf of any Finance Party, any amendment or waiver permitted by this Clause.
35.2 Exceptions
(a) An amendment or waiver that has the effect of changing or which relates to:
(i) the definition of " Default ", " Event of Default ", " Financial Indebtedness ", " Indebtedness for Borrowed Money ", " Majority Lenders ", " Material Company " and " Security " in Clause 1.1 ( Definitions );
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(ii) the definition of "indebtedness" in Clause 1.2 ( Construction );
(iii) an extension to the date of payment of any amount under the Finance Documents;
(iv) a reduction in the Margin or the amount of any payment of principal, interest, fees or commission payable;
(v) a change in Commitment;
(vi) a change to the Borrowers or Guarantors other than in accordance with Clause 25 ( Changes to the Obligors );
(vii) any provision which expressly requires the consent of all the Lenders;
(viii) Clause 2.2 ( Lenders' Rights and Obligations ), Clause 3 ( Purpose ), Clause 4 ( Conditions of Utilisation ), Clause 5 ( Utilisation ), Clause 15 ( Other Indemnities ), Clause 21.1 ( Financial Condition ), Clause 22.3 ( Negative Pledge ), Clause 23.1 ( Non-payment ), Clause 24 ( Changes to the Lenders ), Clause 28.2 ( Redistribution of Payments ) or this Clause 35 ( Amendments and Waivers ),
shall not be made without the prior consent of all the Lenders.
(b) An amendment or waiver which relates to the rights or obligations of the Agent or the Mandated Lead Arrangers may not be effected without the consent of the Agent or the Mandated Lead Arrangers.
36. COUNTERPARTS
Each Finance Document may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document.
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SECTION 12 GOVERNING LAW AND ENFORCEMENT 37. GOVERNING LAW
This Agreement is governed by English law.
38. ENFORCEMENT
38.1 Jurisdiction of English courts
(a) The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a " Dispute ").
(b) The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.
(c) This Clause 38.1 is for the benefit of the Finance Parties only. As a result, no Finance Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Finance Parties may take concurrent proceedings in any number of jurisdictions.
38.2 Service of process
Without prejudice to any other mode of service allowed under any relevant law, each Obligor (other than an Obligor incorporated in England and Wales):
(a) irrevocably appoints the Company at Zenith House, The Hyde, Colindeep Lane, Colindale, London NW9, marked for the attention of the Group Treasurer as its agent for service of process in relation to any proceedings before the English courts in connection with any Finance Document; and
(b) agrees that failure by a process agent to notify the relevant Obligor of the process will not invalidate the proceedings concerned.
38.3 Waiver of Jury Trial
EACH OF THE FINANCE PARTIES IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER FINANCE DOCUMENT.
This Agreement has been entered into on the date stated at the beginning of this Agreement.
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SCHEDULE 1 T HE O RIGINAL P ARTIES
Part I The Original Obligors
Name of Original Borrower Registration number (or equivalent, if any)
Signet Group plc 00477692
Name of Original Guarantor Registration number (or equivalent, if any)
Signet Group plc 00477692
H. Samuel Limited 00146570
Sterling Inc. an Ohio corporation
Sterling Jewelers Inc. a Delaware corporation
Checkbury Limited 01131608
Signet Holdings Limited 03769622
Ernest Jones Limited 03768966
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Part II The Original Lenders
Name of Original Lender Commitment ($)
Barclays Bank PLC 75,000,000
HSBC Bank plc 75,000,000
The Royal Bank of Scotland plc 75,000,000
Wachovia Bank, N.A. 75,000,000
Fifth Third Bank 30,000,000
Mizuho Corporate Bank, Ltd 30,000,000
National City Bank 30,000,000
Total Commitments $3 90,000,000
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SCHEDULE 2 M ARGIN
Margin (per cent. per annum) Consolidated Net Debt: Consolidated EBITDA for the Relevant Period
Equal to or less than 1:1 Greater than 1:1 but equal to or less Greater than 1.5:1 but equal to or less Greater than 2:1 than 1.5:1 than 2:1
0.40 0.45 0.50 0.55
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SCHEDULE 3 C ONDITIONS P RECEDENT
Part I Conditions precedent to initial Utilisation
1. Original Obligors
(a) A copy of the constitutional documents of each Original Obligor.
(b) A copy of a good standing certificate (including verification of tax status) with respect to each U.S. Group Company, issued as of a recent date by the Secretary of State or other appropriate official of each U.S. Group Company's jurisdiction of incorporation or organisation.
(c) A copy of a resolution of the board of directors of each Original Obligor:
(i) approving the terms of, and the transactions contemplated by, the Finance Documents to which it is a party and resolving that it execute the Finance Documents to which it is a party;
(ii) authorising a specified person or persons to execute the Finance Documents to which it is a party on its behalf; and
(iii) authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices (including, if relevant, any Utilisation Request) to be signed and/or despatched by it under or in connection with the Finance Documents to which it is a party.
(d) A specimen of the signature of each person authorised by the resolution referred to in paragraph (c) above.
(e) A letter from the Company to its subsidiaries which are to become Original Guarantors under this Agreement consenting, where necessary, under the articles of association of each such company to it entering into this Agreement as a Guarantor.
(f) A certificate from each Original Obligor (signed by a director) confirming that borrowing or guaranteeing, as appropriate, the Total Commitments would not cause any borrowing, guaranteeing or similar limit binding on such Original Obligor to be exceeded.
(g) A certificate of an authorised signatory of the relevant Original Obligor certifying that each copy document relating to it specified in this Part I of Schedule 3 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement.
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2. Legal opinions
(a) A legal opinion of Clifford Chance, legal advisers to the Agent in England, substantially in the form distributed to the Original Lenders prior to signing this Agreement.
(b) A legal opinion from Weil, Gotshal & Manges LLP, special U.S. counsel to the Company.
(c) A legal opinion of the in -house counsel of Sterling Inc.
3. Other documents and evidence
(a) The Original Financial Statements of each Original Obligor.
(b) Evidence that the fees then due from the Company pursuant to Clause 12 ( Fees ) have been paid or will be paid by the first Utilisation Date.
(c) Evidence that the Company has given notice of prepayment and cancellation pursuant to, and to the extent permitted under, the Existing Facilities and has delivered an authorisation to the Agent to apply the proceeds of the First Utilisation hereunder in discharge of all outstandings under the Existing Facilities.
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Part II Conditions Precedent required to be delivered by an Additional Obligor
1. An Accession Letter, duly executed by the Additional Obligor and the Company.
2. A copy of the constitutional documents of the Additional Obligor.
3. Each Obligor which is a U.S. Group Company, a certificate of the Chief Financial Officer of such Obligor stating that the respective company is Solvent after giving effect to the initial Loans, the application of the proceeds thereof in accordance with Clause 3 ( Purpose ) and the payment of all estimated legal, accounting and other fees related to this Agreement and the consummation of the other transactions contemplated hereby. For purposes of this certificate, "Solvent" means with respect to such Obligor on any date of determination that (a) the fair value of the property of such person is greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such person; (b) the present fair saleable value of the assets of such person is not less than the amount which will be required to pay the probable liability of such person on its debts as they become absolute and mature; (c) such person does not intend to, and does not believe that it will, incur debts or liabilities beyond such person's ability to pay as such debts and liabilities mature; and (d) such person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such person's property would constitute unreasonably small capital. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual and matured liability.
4. A copy of a resolution of the board of directors of the Additional Obligor:
(a) approving the terms of, and the transactions contemplated by, the Accession Letter and the Finance Documents and resolving that it execute the Accession Letter;
(b) authorising a specified person or persons to execute the Accession Letter on its behalf; and
(c) authorising a specified person or persons, on its behalf, to sign and/or despatch all other documents and notices (including, in relation to an Additional Borrower, any Utilisation Request) to be signed and/or despatched by it under or in connection with the Finance Documents.
5. A specimen of the signature of each person authorised by the resolution referred to in paragraph 4 above.
6. A copy of a resolution signed by all the holders of the issued shares of the Additional Guarantor, approving the terms of, and the transactions contemplated by, the Finance Documents to which the Additional Guarantor is a party if required by the laws of its jurisdiction of incorporation provided that no such resolution will be required for an Obligor incorporated in England and Wales.
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7. A certificate of the Additional Obligor (signed by a director) confirming that borrowing or guaranteeing, as appropriate, the Total Commitments would not cause any borrowing, guaranteeing or similar limit binding on it to be exceeded.
8. A certificate of an authorised signatory of the Additional Obligor certifying that each copy document listed in this Part II of Schedule 3 is correct, complete and in full force and effect as at a date no earlier than the date of the Accession Letter.
9. A copy of any other Authorisation or other document, opinion or assurance which the Agent considers to be necessary in connection with the entry into and performance of the transactions contemplated by the Accession Letter or for the validity and enforceability of any Finance Document as regards the Additional Obligor.
10. If available, the latest audited financial statements of the Additional Obligor.
11. A legal opinion of Clifford Chance, legal advisers to the Agent in England.
12. If the Additional Obligor is incorporated in a jurisdiction other than England and Wales, a legal opinion of the legal advisers to the Additional Obligor in the jurisdiction in which the Additional Obligor is incorporated.
13. If the proposed Additional Obligor is incorporated in a jurisdiction other than England and Wales, evidence that the process agent specified in Clause 38.2 ( Service of Process ), if not an Obligor, has accepted its appointment in relation to the proposed Additional Obligor.
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SCHEDULE 4 R EQUESTS
Utilisation Request
From: [ Borrower ]/[ The Company ]
To: [ Agent ]
Dated:
Dear Sirs
Re: $390,000,000 Multicurrency Revolving Facilities Agreement (the "Facilities Agreement")
We refer to the Facilities Agreement. This is a Utilisation Request. Terms defined in the Facilities Agreement have the same meaning in this Utilisation Request unless given a different meaning in this Utilisation Request.
1. We request a Utilisation by way of a Loan on the following terms:
Proposed Utilisation Date: [ ] (or, if that is not a Business Day, the next Business Day)
Currency of Loan: [ ]
Amount: [ ] or, if less, the Available Facility
Interest Period: [ ]
2. We confirm that each condition specified in Clause 4.2 ( Further Conditions Precedent ) is satisfied on the date of this Utilisation Request.
3. The proceeds of this Loan should be credited to [ account ].
4. This Utilisation Request is irrevocable.
Yours faithfully
………………………………… authorised signatory [for]/[by]
[ name of relevant Borrower ]/[ The Company on behalf of [name of relevant Borrower ]]
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SCHEDULE 5 M ANDATORY C OST F ORMULAE
1. The Mandatory Cost is an addition to the interest rate to compensate Lenders for the cost of compliance with (a) the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions) or (b) the requirements of the European Central Bank.
2. On the first day of each Interest Period (or as soon as possible thereafter) the Agent shall calculate, as a percentage rate, a rate (the " Additional Cost Rate ") for each Lender, in accordance with the paragraphs set out below. The Mandatory Cost will be calculated by the Agent as a weighted average of the Lenders' Additional Cost Rates (weighted in proportion to the percentage participation of each Lender in the relevant Loan) and will be expressed as a percentage rate per annum.
3. The Additional Cost Rate for any Lender lending from a Facility Office in a Participating Member State will be the percentage notified by that Lender to the Agent. This percentage will be certified by that Lender in its notice to the Agent to be its reasonable determination of the cost (expressed as a percentage of that Lender's participation in all Loans made from that Facility Office) of complying with the minimum reserve requirements of the European Central Bank in respect of loans made from that Facility Office.
4. The Additional Cost Rate for any Lender lending from a Facility Office in the United Kingdom will be calculated by the Agent as follows:
(a) in relation to a sterling Loan:
AB + C ( B – D ) + E × 0.01 per cent. per annum 100 – ( A + C )
(b) in relation to a Loan in any currency other than sterling:
E × 0.01 per cent. per annum. 300
Where:
A is the percentage of Eligible Liabilities (assuming these to be in excess of any stated minimum) which that Lender is from time to time required to maintain as an interest free cash ratio deposit with the Bank of England to comply with cash ratio requirements.
B is the percentage rate of interest (excluding the Margin and the Mandatory Cost and, if the Loan is an Unpaid Sum, the additional rate of interest specified in paragraph (a) of Clause 9.3 ( Default interest )) payable for the relevant Interest Period on the Loan.
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C is the percentage (if any) of Eligible Liabilities which that Lender is required from time to time to maintain as interest bearing Special Deposits with the Bank of England.
D is the percentage rate per annum payable by the Bank of England to the Agent on interest bearing Special Deposits.
E is designed to compensate Lenders for amounts payable under the Fees Rules and is calculated by the Agent as being the average of the most recent rates of charge supplied by the Reference Banks to the Agent pursuant to paragraph 7 below and expressed in pounds per £1,000,000.
5. For the purposes of this Schedule:
5.1 " Eligible Liabilities " and " Special Deposits " have the meanings given to them from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England;
5.2 " Fees Rules " means the rules on periodic fees contained in the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits;
5.3 " Fee Tariffs " means the fee tariffs specified in the Fees Rules under the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fees Rules but taking into account any applicable discount rate); and
5.4 " Tariff Base " has the meaning given to it in, and will be calculated in accordance with, the Fees Rules.
6. In application of the above formulae, A, B, C and D will be included in the formulae as percentages (i.e. 5 per cent. will be included in the formula as 5 and not as 0.05). A negative result obtained by subtracting D from B shall be taken as zero. The resulting figures shall be rounded to four decimal places.
7. If requested by the Agent, each Reference Bank shall, as soon as practicable after publication by the Financial Services Authority, supply to the Agent, the rate of charge payable by that Reference Bank to the Financial Services Authority pursuant to the Fees Rules in respect of the relevant financial year of the Financial Services Authority (calculated for this purpose by that Reference Bank as being the average of the Fee Tariffs applicable to that Reference Bank for that financial year) and expressed in pounds per £1,000,000 of the Tariff Base of that Reference Bank.
8. Each Lender shall supply any information required by the Agent for the purpose of calculating its Additional Cost Rate. In particular, but without limitation, each Lender shall supply the following information on or prior to the date on which it becomes a Lender:
8.1 the jurisdiction of its Facility Office; and
8.2 any other information that the Agent may reasonably require for such purpose.
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Each Lender shall promptly notify the Agent of any change to the information provided by it pursuant to this paragraph.
9. The percentages of each Lender for the purpose of A and C above and the rates of charge of each Reference Bank for the purpose of E above shall be determined by the Agent based upon the information supplied to it pursuant to paragraphs 7 and 8 above and on the assumption that, unless a Lender notifies the Agent to the contrary, each Lender's obligations in relation to cash ratio deposits and Special Deposits are the same as those of a typical bank from its jurisdiction of incorporation with a Facility Office in the same jurisdiction as its Facility Office.
10. The Agent shall have no liability to any person if such determination results in an Additional Cost Rate which over or under compensates any Lender and shall be entitled to assume that the information provided by any Lender or Reference Bank pursuant to paragraphs 3, 7 and 8 above is true and correct in all respects.
11. The Agent shall distribute the additional amounts received as a result of the Mandatory Cost to the Lenders on the basis of the Additional Cost Rate for each Lender based on the information provided by each Lender and each Reference Bank pursuant to paragraphs 3, 7 and 8 above.
12. Any determination by the Agent pursuant to this Schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to a Lender shall, in the absence of manifest error, be conclusive and binding on all Parties.
13. The Agent may from time to time, after consultation with the Company and the Lenders, determine and notify to all Parties any amendments which are required to be made to this Schedule in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all Parties.
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SCHEDULE 6 F ORM OF T RANSFER C ERTIFICATE
To: HSBC Bank plc as Agent
From: [ The Existing Lender ] (the " Existing Lender ") and [ The New Lender ] (the " New Lender ")
Dated:
Re: $390,000,000 Multicurrency Revolving Facilities Agreement (the "Facilities Agreement")
We refer to the Facilities Agreement. This is a Transfer Certificate. Terms defined in the Facilities Agreement have the same meaning in this Transfer Certificate unless given a different meaning in this Transfer Certificate.
1. We refer to Clause 24.6 ( Procedure for Transfer ):
(a) The Existing Lender and the New Lender agree to the Existing Lender and the New Lender transferring by novation all or part of the Existing Lender's Commitment, rights and obligations referred to in the Schedule in accordance with Clause 24.6 ( Procedure for Transfer ).
(b) The proposed Transfer Date is [ ].
(c) The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of Clause 31.2 ( Addresses ) are set out in the Schedule.
2. The New Lender expressly acknowledges the limitations on the Existing Lender's obligations set out in paragraph (c) of Clause 24.5 ( Limitation of Responsibility of Existing Lenders ).
3. [The New Lender confirms that the person beneficially entitled to interest payable to that Lender in respect of an advance under a Finance Document is either:
(a) a company resident in the United Kingdom for United Kingdom tax purposes;
(b) a partnership each member of which is:
(i) a company so resident in the United Kingdom; or
(ii) a company not so resident in the United Kingdom which carries on a trade in the United Kingdom through a permanent establishment and which brings into account in computing its chargeable profits (for the purposes of section 11(2) of the Taxes Act) the whole of any share of interest payable in respect of that advance that falls to it by reason of sections 114 and 115 of the Taxes Act; or
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(c) a company not so resident in the United Kingdom which carries on a trade in the United Kingdom through a permanent establishment and which brings into account interest payable in respect of that advance in computing the chargeable profits (for the purposes of section 11(2) of the Taxes Act) of that company.] 1
4. This Transfer Certificate is governed by English law.
THE SCHEDULE
Commitment/rights and obligations to be transferred
[ insert relevant details ] [ Facility Office address, fax number and attention details for notices and account details for payments, ]
[Existing Lender] [New Lender]
By: By:
This Transfer Certificate is accepted by the Agent and the Transfer Date is confirmed as [ ].
HSBC Bank plc
By:
1 Include if New Lender comes within sub-paragraph [(i)(B) of the definition of Qualifying Lender].
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SCHEDULE 7 F ORM OF A CCESSION L ETTER
To: HSBC Bank plc as Agent
From: [ Subsidiary ] and Signet Group plc
Dated:
Dear Sirs
Re: $390,000,000 Multicurrency Revolving Facilities Agreement (the "Facilities Agreement")
We refer to the Facilities Agreement. This is an Accession Letter. Terms defined in the Facilities Agreement have the same meaning in this Accession Letter unless given a different meaning in this Accession Letter.
1. [ Subsidiary ] agrees to become an Additional Guarantor and to be bound by the terms of the Facility Agreement as an Additional Guarantor pursuant to Clause 25.2 ( Additional Guarantors ) of the Facilities Agreement. [ Subsidiary ] is a company duly incorporated under the laws of [ name of relevant jurisdiction ].
2. [ Subsidiary's ] administrative details are as follows:
Address:
Fax No:
Attention:
3. This letter is governed by English law.
[This Guarantor Accession Letter is entered into by deed.]
Signet Group plc [Subsidiary]
By: By:
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SCHEDULE 8 F ORM OF R ESIGNATION L ETTER
To: HSBC Bank plc as Agent
From: [ resigning Obligor ] and Signet Group plc
Dated:
Dear Sirs
Re: $390,000,000 Multicurrency Revolving Facilities Agreement (the "Facilities Agreement")
We refer to the Facilities Agreement. This is a Resignation Letter. Terms defined in the Facilities Agreement have the same meaning in this Resignation Letter unless given a different meaning in this Resignation Letter.
1. Pursuant to Clause 25.4 ( Resignation of a Guarantor ), we request that [ resigning Obligor ] be released from its obligations as a Guarantor under the Facilities Agreement.
2. We confirm that:
(a) no Default is continuing or would result from the acceptance of this request; and
(b) Clause 22.13 (Guarantor Cover) would not be breached as a result of such resignation.
(c) [ ]*
3. We enclose a certificate setting out our calculations which confirm that the aggregate gross assets, consolidated turnover and Consolidated Earnings Before Interest and Tax of the Guarantors (excluding intra-Group items) following the resignation is [ ] per cent. of the gross assets, consolidated turnover and Consolidated Earnings Before Interest and Tax of the Group.
4. This letter is governed by English law.
Signet Group plc [Subsidiary]
By: By:
* Insert any other conditions required by the Facility Agreement.
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SCHEDULE 9 F ORM OF C OMPLIANCE C ERTIFICATE
To: HSBC Bank plc as Agent
From: Signet Group plc
Dated:
Dear Sirs
Re: US$390,000,000 Multicurrency Revolving Facilities Agreement (the "Facilities Agreement")
1. We refer to the Facilities Agreement. This is a Compliance Certificate. Terms defined in the Facilities Agreement have the same meaning when used in this Compliance Certificate unless given a different meaning in this Compliance Certificate.
2. We confirm that:
(a) Consolidated Tangible Net Worth as at [ ] was £[ ],
(b) As at [ ], Consolidated Net Debt was [ ].
For the Relevant Period ending on [ ], Consolidated EBITDA comprises:
Consolidated Earnings Before Interest and Tax [ ] plus Amount attributable to amortisation of intangible assets [ ] plus Amount attributable to depreciation of tangible assets [ ] [Adjustment for EBITDA of acquired/disposal of companies [ ]]
Total
The ratio of Consolidated Net Debt to Consolidated EBITDA for the Relevant Period was [ ].
(c) For the Relevant Period ending on [ ], EBITARR is determined as follows:
Consolidated Earnings Before Interest and Tax [ ] plus Amount attributable to amortisation of intangible assets [ ] plus Rents [ ] plus Rates [ ] plus Operating Lease Expenditure [ ]
Total
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For the Relevant Period ending on [ ], Consolidated Net Interest Expenditure plus Rents, Rates and Operating Lease Expenditure is as follows:
Consolidated Net Interest Expenditure [ ] plus Rents [ ] plus Rates [ ] plus Operating Lease Expenditure [ ]
Total
The Ratio of EBITARR to Consolidated Net Interest Expenditure plus Rents, Rates and Operating Lease Expenditure for the Relevant Period was therefore [ ].
(d) In accordance with the figures set out in paragraph (a), (b) and (c) above the Margin will be [ • ] per cent. which shall take effect on the date falling three business days after the date on which this compliance certificate is received by the Agent in respect of any Utilisation or Rollover Utilisation to be made on or after that date.
3. [We confirm that no Default is continuing.]*
Signed: …...... ……………
Director of Signet Group plc
* If this statement cannot be made, the certificate should identify any Default that is continuing and the steps, if any, being taken to remedy it.
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SCHEDULE 10 LMA F ORM OF C ONFIDENTIALITY U NDERTAKING
[Letterhead of Seller/Seller’s agent/broker]
To:
[insert name of Potential Purchaser/Purchaser ’s agent/broker]
Re: The Agreement
Borrower: Date: Amount: Agent:
Dear Sirs
We understand that you are considering [acquiring]/[arranging the acquisition of] an interest in the Agreement (the " Acquisition "). In consideration of us agreeing to make available to you certain information, by your signature of a copy of this letter you agree as follows:
1. Confidentiality Undertaking You undertake (a) to keep the Confidential Information confidential and not to disclose it to anyone except as provided for by paragraph 2 below and to ensure that the Confidential Information is protected with security measures and a degree of care that would apply to your own confidential information, (b) to use the Confidential Information only for the Permitted Purpose, (c) to use all reasonable endeavours to ensure that any person to whom you pass any Confidential Information (unless disclosed under paragraph 2[(c)/ (d)] below) acknowledges and complies with the provisions of this letter as if that person were also a party to it, and (d) not to make enquiries of any member of the Group or any of their officers, directors, employees or professional advisers relating directly or indirectly to the Acquisition.
2. Permitted Disclosure We agree that you may disclose Confidential Information:
(a) to members of the Purchaser Group and their officers, directors, employees and professional advisers to the extent necessary for the Permitted Purpose and to any auditors of members of the Purchaser Group;
(b) [subject to the requirements of the Agreement, in accordance with the Permitted Purpose so long as any prospective purchaser has delivered a letter to you in equivalent form to this letter;]
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[(b/c)] subject to the requirements of the Agreement, to any person to (or through) whom you assign or transfer (or may potentially assign or transfer) all or any of the rights, benefits and obligations which you may acquire under the Agreement or with (or through) whom you enter into (or may potentially enter into) any sub-participation in relation to, or any other transaction under which payments are to be made by reference to, the Agreement or the Borrower or any member of the Group so long as that person has delivered a letter to you in equivalent form to this letter; and
[(c/d)] (i) where requested or required by any court of competent jurisdiction or any competent judicial, governmental, supervisory or regulatory body, (ii) where required by the rules of any stock exchange on which the shares or other securities of any member of the Purchaser Group are listed or (iii) where required by the laws or regulations of any country with jurisdiction over the affairs of any member of the Purchaser Group.
3. Notification of Required or Unauthorised Disclosure You agree (to the extent permitted by law) to inform us of the full circumstances of any disclosure under paragraph 2[(c)/(d)] or upon becoming aware that Confidential Information has been disclosed in breach of this letter.
4. Return of Copies If we so request in writing, you shall return all Confidential Information supplied to you by us and destroy or permanently erase all copies of Confidential Information made by you and use all reasonable endeavours to ensure that anyone to whom you have supplied any Confidential Information destroys or permanently erases such Confidential Information and any copies made by them, in each case save to the extent that you or the recipients are required to retain any such Confidential Information by any applicable law, rule or regulation or by any competent judicial, governmental, supervisory or regulatory body or in accordance with internal policy, or where the Confidential Information has been disclosed under paragraph 2[(c)/(d)] above.
5. Continuing Obligations The obligations in this letter are continuing and, in particular, shall survive the termination of any discussions or negotiations between you and us. Notwithstanding the previous sentence, the obligations in this letter shall cease (a) if you become a party to or otherwise acquire (by assignment or sub-participation) an interest, direct or indirect, in the Agreement or (b) twelve months after you have returned all Confidential Information supplied to you by us and destroyed or permanently erased all copies of Confidential Information made by you (other than any such Confidential Information or copies which have been disclosed under paragraph 2 above (other than sub -paragraph 2(a)) or which, pursuant to paragraph 4 above, are not required to be returned or destroyed).
6. No Representation; Consequences of Breach, etc You acknowledge and agree that:
(a) neither we, [nor our principal] nor any member of the Group nor any of our or their respective officers, employees or advisers (each a " Relevant Person ") (i) make any representation or warranty, express or implied, as to, or assume any responsibility for, the accuracy, reliability or completeness of any of the Confidential Information or any other information supplied by us or the assumptions on which it is based or (ii) shall be under any obligation to update or correct any inaccuracy in the Confidential Information or any other information supplied by us or be otherwise liable to you or any other person in respect to the Confidential Information or any such information; and
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(b) we [or our principal] or members of the Group may be irreparably harmed by the breach of the terms hereof and damages may not be an adequate remedy; each Relevant Person may be granted an injunction or specific performance for any threatened or actual breach of the provisions of this letter by you.
7. No Waiver; Amendments, etc This letter sets out the full extent of your obligations of confidentiality owed to us in relation to the information the subject of this letter. No failure or delay in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise of any right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privileges hereunder. The terms of this letter and your obligations hereunder may only be amended or modified by written agreement between us.
8. Inside Information You acknowledge that some or all of the Confidential Information is or may be price-sensitive information and that the use of such information may be regulated or prohibited by applicable legislation relating to insider dealing and you undertake not to use any Confidential Information for any unlawful purpose.
9. Nature of Undertakings The undertakings given by you under this letter are given to us and (without implying any fiduciary obligations on our part) are also given for the benefit of [our principal,] the Borrower and each other member of the Group.
10. Third party rights
(a) Subject to this paragraph 10 and to paragraphs 6 and 9, a person who is not a party to this letter has no right under the Contracts (Rights of Third Parties) Act 1999 (the " Third Parties Act ") to enforce or to enjoy the benefit of any term of this letter.
(b) The Relevant Persons may enjoy the benefit of the terms of paragraphs 6 and 9 subject to and in accordance with this paragraph 10 and the provisions of the Third Parties Act.
(c) The parties to this letter do not require the consent of the Relevant Persons to rescind or vary this letter at any time.
11. Governing Law and Jurisdiction This letter (including the agreement constituted by your acknowledgement of its terms) shall be governed by and construed in accordance with the laws of England and the parties submit to the non -exclusive jurisdiction of the English courts.
12. Definitions In this letter (including the acknowledgement set out below) terms defined in the Agreement shall, unless the context otherwise requires, have the same meaning and:
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" Confidential Information " means any information relating to the Borrower, the Group, the Agreement and/or the Acquisition provided to you by us or any of our affiliates or advisers, in whatever form, and includes information given orally and any document, electronic file or any other way of representing or recording information which contains or is derived or copied from such information but excludes information that (a) is or becomes public knowledge other than as a direct or indirect result of any breach of this letter or (b) is known by you before the date the information is disclosed to you by us or any of our affiliates or advisers or is lawfully obtained by you thereafter, other than from a source which is connected with the Group and which, in either case, as far as you are aware, has not been obtained in violation of, and is not otherwise subject to, any obligation of confidentiality;
" Group " means the Borrower and each of its holding companies and subsidiaries and each subsidiary of each of its holding companies (as each such term is defined in the Companies Act 1985);
" Permitted Purpose " means [subject to the terms of this letter, passing on information to a prospective purchaser for the purpose of] considering and evaluating whether to enter into the Acquisition; and
" Purchaser Group " means you, each of your holding companies and subsidiaries and each subsidiary of each of your holding companies (as each such term is defined in the Companies Act 1985).
Please acknowledge your agreement to the above by signing and returning the enclosed copy.
Yours faithfully
………………………………
For and on behalf of
[Seller/Seller’s agent/broker]
To: [Seller]
[Seller’s agent/broker]
The Borrower and each other member of the Group
We acknowledge and agree to the above:
………………………………
For and on behalf of
[ Potential Purchaser/Purchaser’s agent/broker ]
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SCHEDULE 11 T IMETABLES
Loans in euro or dollars Loans in domestic Loans in other sterling currencies
Agent notifies the Company if a currency is approved as an Optional — — U-4 Currency in accordance with Clause 4.3 ( Conditions relating to Optional Currencies )
Delivery of a duly completed Utilisation Request (Clause 5.1 ( Delivery U-3 U-1 U-3 of a Utilisation Request ) 4.00pm 4.00pm 4.00pm
Agent determines (in relation to a Utilisation) the Base Currency U-3 U-1 U-3 Amount of the Loan, if required under Clause 5.4 ( Lenders' Upon receipt of Upon receipt of Upon receipt of Participation ) Utilisation Request Utilisation Request Utilisation Request
Agent notifies the Lenders of the Loan in accordance with Clause 5.4 U-3 U-1 U-3 ( Lenders' Participation ) 5.30pm 5.30pm 5.30pm
Agent receives a notification from a Lender under Clause 6.2 U-2 U U-2 ( Unavailability of a Currency ) 10.00am 10.00am 10.00am
Agent gives notice in accordance with Clause 6.2 ( Unavailability of a U-2 U U-2 Currency ) 10.30am 10.30am 10.30am
LIBOR is fixed Quotation Day as Quotation Day as Quotation Day as of 11:00 a.m. of 11:00 a.m. of 11:00 a.m.
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SIGNATURES
THE COMPANY AND ORIGINAL BORROWER AND ORIGINAL GUARANTOR
SIGNET GROUP PLC
By: LIAM O'SULLIVAN WALKER BOYD
Address: Zenith House The Hyde Colindeep Lane Colindale London NW9
Fax: 0208 242 8578
THE ORIGINAL GUARANTORS
H. SAMUEL LIMITED
By: LIAM O'SULLIVAN WALKER BOYD
Address: Zenith House The Hyde Colindeep Lane Colindale London NW9
Fax: 0208 242 8578
STERLING INC.
By: LIAM O'SULLIVAN WALKER BOYD
Address: 375 Ghent Road Akron OH 44333 USA
Fax: +1 330 668 5191
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STERLING JEWELERS INC .
By: LIAM O'SULLIVAN WALKER BOYD
Address: 375 Ghent Road Akron OH 44333 USA
Fax: +1 330 668 5191
CHECKBURY LIMITED
By: LIAM O'SULLIVAN WALKER BOYD
Address: Zenith House The Hyde Colindeep Lane Colindale London NW9
Fax: 0208 242 8578
SIGNET HOLDINGS LIMITED
By: LIAM O'SULLIVAN WALKER BOYD
Address: Zenith House The Hyde Colindeep Lane Colindale London NW9
Fax: 0208 242 8578
ERNEST JONES LIMITED
By: LIAM O'SULLIVAN WALKER BOYD
Address: Zenith House The Hyde Colindeep Lane Colindale London NW9
Fax: 0208 242 8578
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THE AGENT
HSBC BANK plc
By: ED FLANDERS
Address: Level 24 8 Canada Square London E14
Fax: 0207 991 4348
Attention: Corporate Trust and Agency Loans
THE MANDATED LEAD ARRANGERS
HSBC BANK plc
By: ED FLANDERS
BARCLAYS CAPITAL
By: NIELS PEDERSEN
THE ROYAL BANK OF SCOTLAND plc
By: BRIAN MCINNES
WACHOVIA BANK, N.A .
By: STEPHEN J. SMITH
THE LENDERS
BARCLAYS BANK PLC
By: NIELS PEDERSEN
HSBC BANK plc
By: STEPHEN BRADE
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THE ROYAL BANK OF SCOTLAND plc
By: BRIAN MCINNES
WACHOVIA BANK, N.A .
By: STEPHEN J. SMITH
FIFTH THIRD BANK
By: RAIMO J. DE VRIES
MIZUHO CORPORATE BANK, LTD
By: RICHARD ALLEN
NATIONAL CITY BANK
By: DONALD J. PAVLIK
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Exhibit 4.13 DATED MARCH 2003
SIGNET TRADING LIMITED
and
ROB ANDERSON
CONTRACT OF SERVICE
THIS AGREEMENT is made the 1st day of March, 2003
BETWEEN:
(1) SIGNET TRADING LIMITED of Zenith House, The Hyde, London NW9 6EW registered in England with registered number 03768979 (the “Company” ); and
(2) ROB ANDERSON of 29 Holst Mansions, 96 Wyatt Drive, Barnes, London (the “Executive” ).
THIS AGREEMENT provides :
1. INTERPRETATION
In this Agreement the following expressions, unless otherwise expressly stated, have the following respective meanings:
1.1.1 “the 1996 Act ” means the Employment Rights Act 1996;
1.1.2 “the Board” means the directors for the time being of the Company, present at a duly convened and quorate meeting of the directors or of a committee of the directors duly appointed for the purpose in question;
1.1.3 “the Group Chief Executive ” means the Chief Executive for the time being of the UK Jewellery Division of Signet Group PLC;
1.1.4 “the Commencement Date ” means 9 January 2003;
1.1.5 “the Employment” means the employment of the Executive under this Agreement;
1.1.6 “Group” means the Company, any Holding Company or Companies for the time being of the Company and any subsidiary or subsidiaries for the time being of the Company or of any such Holding Company or Companies. “Holding Company” and “Subsidiary” have the meanings assigned to them respectively by Section 736 of the Companies Act 1985 as amended by the Companies Act 1986. The expressions “Group Company ” and “Group Companies ” shall be construed accordingly;
1.1.7 “Incapacity” means sickness or injury rendering the Executive incapable of performing services in accordance with the provisions of this Agreement;
1.1.8 “Intellectual Property Rights” means any rights conferred by English law in respect of any patent, registered design, design right, copyright, trade mark, plant breeder’s right and semi-conduct product right together with any analogous right conferred by the law of any country other than England;
1 1.1.9 “LTIP ” means the Signet Group PLC 2000 Long Term Incentive Plan;
1.1.10 “Pension Scheme ” means the Signet Group Pension Scheme;
1.1.11 “PLC Board” means the Board of Signet Group PLC present at a duly convened and quorate meeting of the directors or of a committee of the directors duly appointed for the purpose in question;
1.1.12 “Property” means any idea, invention, modification, improvement, process, formula, material, knowhow, design, model, prototype, mark, sketch, drawing, plan or other matter;
1.1.13 “Recognised Investment Exchange” means a body which is a recognised investment exchange for the purposes of the Financial Services and Markets Act 2000;
1.1.14 “Remuneration Committee” means the remuneration committee of the PLC Board or any committee of the PLC Board performing the functions of the Remuneration Committee;
1.1.15 “Share Scheme” means any share option or share incentive scheme which may be established from time to time by the Company or any Group Company and for the avoidance of doubt “Share Scheme ” shall be deemed to include the LTIP;
1.1.16 “Salary ” means salary paid pursuant to Clause 7, as reviewed from time to time;
1.1.17 “Signet Group PLC” means the Company registered in England with registered number 477692 and of which the Company is a Subsidiary.
1.2 In this Agreement:
1.2.1 the masculine gender includes the feminine and the singular number includes the plural and vice versa;
1.2.2 references to persons include bodies corporate;
1.2.3 references to Clauses are references to clauses of this Agreement; and
1.2.4 references to United Kingdom statutes shall be deemed to refer to such statutes as amended or re-enacted after the Commencement Date.
1.3 Headings are included for ease of reference only and shall not affect the interpretation of this Agreement.
1.4 No modification, variation or amendment to this Agreement shall be effective unless such modification, variation or amendment is in writing and has been signed by or on behalf of the parties.
2 2. COMMENCEMENT
This Agreement supersedes all previous arrangements (if any) relating to the employment of the Executive by the Company and takes effect on the Commencement Date. The Executive has continuous employment from 11 August 2000.
3. CAPACITY
The Executive shall be employed as Chief Executive Officer of the UK Jewellery Division of Signet Group PLC/the Company.
4. DURATION
4.1 The Employment shall commence on the Commencement Date and unless previously terminated in accordance with Clauses 12 or 13, the Employment shall continue until terminated by the Company giving to the Executive not less than 12 months’ prior notice in writing or by the Executive giving to the Company not less than 12 months’ prior notice in writing or if earlier the date on which the Executive reaches the age of 65.
4.2 The Company reserves the right to terminate the Employment without notice and to pay to the Executive Salary (at the rate in force at the date of termination for the purposes of Clause 7.1) in lieu of notice of termination of the Employment or (where notice has been given) of any balance of the notice period. For the avoidance of doubt, if the Executive is paid Salary in lieu of notice, he shall not be entitled to any additional payment in respect of holiday which would otherwise have accrued during such notice period or the balance thereof.
5. FULL TIME AND ATTENTION
5.1 Unless otherwise directed by the Company or prevented by ill health, accident or other incapacity the Executive shall devote his full time to the businesses of the Company and such Group Companies for whom he is required to perform services by the Company pursuant to Clause 3 during both the Company’s normal business hours and such other hours as may be necessary to perform his duties to the satisfaction of the Company.
5.2 The Executive shall report to the Group Chief Executive or such other person as is designated by the Group Chief Executive or the Board of PLC. The Executive shall perform such services as may be required for the Company or any Group Company. The Executive shall, during the continuance of the Employment, well and faithfully serve the Company and use his best endeavours to promote the interests of the Company and the Group.
5.3 The Executive shall observe and comply with the Articles of Association of the Company and shall comply with all resolutions, regulations, directions and instructions made or given by the Board and/or the PLC Board and/or the Group Chief Executive or such other person as the Board and/or the PLC Board and/or the Group Chief Executive shall determine (which are not inconsistent with this Agreement).
5.4 The Company shall be entitled pursuant to Clause 5.1 to direct the Executive to perform no duties and to direct that the Executive shall not enter or remain on any (or any specified) premises of the Company or any Company and any such direction may be given subject to any condition which the Company in its discretion shall determine.
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6. OTHER INTERESTS
6.1 The Executive shall not without the prior written consent of the Group Chief Executive engage or be concerned or interested directly or indirectly in any other business, trade, profession or occupation during the Employment.
6.2 Clause 6.1 shall not prohibit the Executive from holding or being interested in securities (whether quoted or unquoted) in any company whose securities are quoted on a Recognised Investment Exchange provided that such company is not in competition with the business of the Company and/or any Group Company and provided further that the Executive shall not hold or be interested in more than five (5) per cent of the issued securities of any class of any one company.
6.3 The Executive shall comply with such code of practice issued by the Company as shall from time to time be in force relating to transactions in securities and shall comply with all requirements, recommendations or regulations of The London Stock Exchange or any other authority or body authorised to regulate transactions in securities.
7. REMUNERATION
7.1 The Company shall pay to the Executive during the continuance of the Employment a salary (the “Salary”) at the rate of £265,000 per annum.
7.2 The Salary shall be reviewed by the Remuneration Committee with effect from 1 April 2004 and each subsequent 1 April and may be increased by such amount as the Remuneration Committee thinks fit.
7.3 The Salary shall accrue from day to day and shall be payable by equal monthly instalments on the twenty-fifth day of each month (or the next working day following the twenty-fifth day if the twenty-fifth day is not a working day) in respect of that calendar month, payment in respect of a period of less than a month being apportioned in proportion to the number of days of the Employment in that month.
7.4 Bonus
7.4.1 The Company shall pay to the Executive during the continuance of the Employment such Bonus (if any) in respect of the financial year of the Company ending 31 January 2004 and each subsequent financial year (currently ending on 31 January) as the Remuneration Committee may determine from time to time in accordance with the targets set by the Remuneration Committee for each financial year relating to the UK Jewellery Division of Signet Group PLC. The maximum amount of bonus in respect of the financial year ending 31 January 2004 is 75% of Salary. The bonus is intended to retain as well as incentivise and it is therefore a strict condition that the Executive must be employed on the last day of the financial year in order to qualify for a bonus.
7.4.2 In the event that the Remuneration Committee determines that no bonus is payable pursuant to Clause 7.4.1 in respect of any financial year the Executive may qualify, at the discretion of the Remuneration Committee, for any Company fall back bonus scheme.
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Any payment made under any fall back bonus scheme shall not exceed 5% of Salary in any one year.
7.5 Share Options
The Executive shall be considered for a phased award of share options. The grant of all options is at the discretion of the Remuneration Committee.
7.6 The Salary shall be inclusive of directors or any other fees or remuneration payable to the Executive by reason of his holding of other office in the Company and/or any Group Company.
7.7 The Company shall be entitled, pursuant to Part II of the 1996 Act, at any time during the Employment and upon its termination (howsoever arising), to deduct from the Salary and/or the Bonuses and/or any other sums due to the Executive under this Agreement, any sums owed by the Executive to the Company.
7.8 LTIP
The Executive may also qualify at the discretion of the Remuneration Committee to participate in the LTIP subject to the rules thereof and may receive an LTIP award of an amount not more than 50 per cent of Salary.
7.9 Share save scheme
The Executive will be eligible to participate in the Signet Group PLC share save scheme subject to the rules thereof including without limitation any rule relating to a required minimum period of continuous employment with the Group.
8. EXPENSES AND MOTOR CAR
8.1 The Executive shall be reimbursed all reasonable travelling, hotel, entertainment and other out-of-pocket expenses reasonably incurred in the performance of the duties of the Employment PROVIDED THAT the Group Chief Executive shall be entitled to such evidence of expenditure as he may reasonably require.
8.2 The Company shall, for so long as the Executive continues to perform the duties of the Employment provide and from time to time replace a car for the use of the Executive. The car to be provided initially to the Executive shall be a Jaguar XJR 4.2 automatic or equivalent and continued provision of the car or an alternative car shall be in accordance with and subject to the policy of the Company as to the provision and replacement of cars determined by the Chief Executive and/or the Remuneration Committee from time to time. The Company shall maintain, license and insure the car and shall pay for all fuel and other running expenses whilst the car is being used in the performance of the duties of the Executive and used for private purposes.
5 9. PENSION AND INSURANCE
9.1 The Executive shall, during the Employment, be entitled to become and remain a member of the Pension Scheme for so long as the Pension Scheme shall continue, subject to the rules of the Pension Scheme as replaced or amended from time to time (the “Rules” ) including, without limitation, the Rule or Rules providing for the discontinuance of the Pension Scheme. Where in the ordinary course an employee contribution is required by the Rules the Company will bear the cost of (and will pay on behalf of the Executive the employee contribution subject to a maximum of five per cent of the cap imposed under Section 590C of the Income and Corporation Taxes Act 1988 (the “Cap” ).
9.2 The Company shall also provide additional pension benefits to the Executive under a Funded Unapproved Retirement Scheme ( “FURB” ) and shall contribute to this scheme currently at the rate of 20% of Salary in excess of the sum determined from time to time in accordance with the Cap or such other rate as may be determined in accordance with the Trust Deed and Rules of the FURB.
9.3 The Executive shall, during the Employment, and for so long as such cover is available on terms which the Remuneration Committee considers to be reasonable be entitled to membership for him, his wife and unmarried dependent children below the age of 21 and in full time education of a Private Patients medical plan at “B” level of benefit or such other group medical insurance as the Company shall from time to time procure.
10. EMPLOYEE SHARE SCHEME RIGHTS
If during the Employment the Executive is granted participation in a Share Scheme, any extinction or curtailment of any rights or benefits under the Share Scheme by reason of any transfer of his employment or its termination, howsoever arising, shall not form part of any claim for damages for breach of this Agreement or compensation for unfair dismissal and the effect of any such transfer, suspension or termination on the Executive’s rights or benefits under the Share Scheme shall be determined in accordance with the rules, terms and conditions of the Share Scheme and not in accordance with the provisions (other than this Clause) of this Agreement.
11. HOLIDAYS
11.1 The Executive shall be entitled to public holidays and to twenty five (25) working days’ paid holiday in each period of twelve months commencing on 1 January in each year during the Employment (the “Holiday Year ” ).
11.2 Holiday shall be taken at such time or times as may be approved by the Group Chief Executive and the Executive may not without the consent of the Group Chief Executive carry unused holiday entitlement from one Holiday Year to another.
11.3 Holiday entitlement in the Holiday Year in which the Employment begins and ends shall be proportionate to the period of service during the Holiday Year and the Executive shall be paid in lieu of any entitlement untaken at the date of termination and conversely any holiday taken in excess of holiday accrued shall result in a deduction from the final payment of the Salary equal to the excess holiday taken.
6 12. INCAPACITY
12.1 The Executive shall, subject to compliance with the Company’s rules governing notification and evidence of absence by reason of Incapacity for the time being in force, be entitled to payment of Salary (which shall include any entitlement to statutory sick pay) in respect of absence by reason of Incapacity as follows:
12.1.1 full Salary but for the avoidance of doubt not Bonus in respect of the first six months’ absence whether or not continuous in any period of twelve months;
12.1.2 no Salary in respect of any following period of absence within the said period of twelve months should the absence continue;
12.1.3 for the avoidance of doubt the sickness year is measured by reference to the Commencement Date
PROVIDED THAT: whilst the Executive is entitled to be paid during Incapacity there shall be deducted therefrom the aggregate of any amounts receivable by the Executive by virtue of any sickness, accident benefit or permanent health scheme operated by or on behalf of the Company (except insofar as such amounts represent reimbursement of medical or nursing fees or expenses incurred by the Executive) and the amount of any social security sickness or other benefit to which the Executive may be entitled.
12.2 If the Executive shall be absent by reason of Incapacity for more than an aggregate of one hundred and eighty two (182) days (whether working days or not) in any period of three hundred and sixty five (365) consecutive days, the Company may at any time thereafter by not less than three months’ notice in writing to the Executive terminate the Employment and the Executive shall have no claim for damages or otherwise against the Company in respect of such termination.
12.3 The Executive shall submit to regular medical examinations at such time or times and by such registered medical practitioner as the Company may select and shall disclose the outcome of such medical examination to the Company PROVIDED ALWAYS that the Company shall meet any costs and/or expenses incurred by the Executive in respect of any such examination.
13. SUMMARY TERMINATION
13.1 The Company may summarily terminate the Employment so that the Executive shall have no claim for damages or otherwise against the Company in respect of such termination (but without prejudice to any other remedy or remedies which it may have against the Executive) if the Executive shall:
13.1.1 become the subject of a bankruptcy order or an interim order under the Insolvency Act 1986; or
13.1.2 become a patient for the purposes of Part VII of the Mental Health Act 1983; or
13.1.3 be convicted of any criminal offence (other than an offence under road traffic legislation in the United Kingdom or elsewhere for which a penalty other than imprisonment for more than twelve months is imposed); or
7 13.1.4 commit or reasonably be believed by the Group Chief Executive and/or the Board and/or the PLC Board to have committed any act of dishonesty, any serious misconduct or any other act which may seriously affect his ability to discharge his duties as Chief Executive Officer, UK Jewellery; or
13.1.5 be guilty of any serious or persistent neglect in the discharge of his duties or commit any wilful or persistent breach of any of the provisions of this Agreement (other than by reason of Incapacity as is referred to in Clause 12); or
13.1.6 fails to follow the resolutions, regulations, directions and instructions made or given by the Group Chief Executive or such other person as has been determined by the Group Chief Executive; or
13.1.7 commit any act or so conduct himself in a manner which might or does bring the reputation of the Company and/or any Group Company into question or disrepute.
13.2 The Company may at any time, by written notice, suspend with pay the Executive for the purpose of investigating any misconduct or neglect alleged against the Executive for a period not exceeding one month and during any such period, the Executive shall not, except with the consent in writing of the Group Chief Executive – UK Jewellery, attend at any premises of the Company or any Group Company or contact any employee of the Company or any Group Company (other than a director of the Company) or any customer or supplier of the Company or any Group Company.
14. TRANSFER OF UNDERTAKING
In the event of the Company and/or Signet Group PLC going into voluntary liquidation for the purpose of amalgamation or reconstruction or transferring the whole or any substantial part of its business to any other company, the Executive shall not for that reason, or by reason of any consequent termination of the Employment, have any claim for damages or otherwise for breach of this Agreement so long as the Executive shall be offered employment on terms overall no less favourable than those contained in this Agreement by any company succeeding to the whole or any part of the business of the Company.
15. DUTIES ON TERMINATION
Upon termination of the Employment for any reason the Executive shall without prejudice to any claim for damages or other remedy which either party might have against the other immediately deliver up to the Company the company car provided to the Executive pursuant to Clause 8 above and all correspondence, documents, specifications, papers, magnetic disks, tapes or other software storage media and property belonging to the Company or any Group Company which may be in the Executive’s possession or under his control (including such as may have been made or prepared by or has come into the possession or under the control of the Executive and relate in any way to the business or affairs of the Company or any company in the Group or any of their suppliers, agents, distributors or customers) and the Executive shall not without the written consent of the Board retain any copies thereof.
8 16. CONFIDENTIAL INFORMATION
16.1 The Executive shall not, during the continuance of the Employment or at any time after its termination, for any reason use (other than for the purposes of the Company and/or any Group Company) or disclose to any person or persons whatsoever (except the proper officers of the Company or under the authority of the Board) any trade secrets or confidential or secret information relating to the business, technical processes, designs or finances of the Company and any Group Company and their suppliers, agents, distributors or customers or any confidential or secret information relating to Property or connected with the services provided or products manufactured, marketed or under development by the Company or any Group Company all of which he may in the course of the Employment become possessed.
16.2 Clause 16.1 shall not apply to information disclosed pursuant to any order of any court of competent jurisdiction or any information which, except through any breach of this or any other agreement by the Executive, is in the public domain.
17. POST -EMPLOYMENT RESTRICTIONS
17.1 For the purposes of this Clause 16 the following expressions have the following respective meanings:
17.1.1 the “Termination Date” means the date of termination for any reason of the Employment;
17.1.2 the “Prior Period” means the period of 12 months immediately preceding the Termination Date.
17.2 The Executive understands and acknowledges that his senior position with the Company and the Group gives him access to and the benefit of confidential information vital to the continued success of the Company and the Group and influence over and connection with the Company’s customers, suppliers, distributors, agents, employees and directors and those of the Group in or with which the Executive is engaged or in contact and hereby acknowledges and confirms that he agrees that the provisions appearing in subclause 17.4 below are reasonable in their application to him and necessary but no more than sufficient to protect the interests of the Company and the Group.
17.3 In the event that any restriction contained in subclause 17.4 below shall be found to be void, but would be valid if some part of the relevant restriction were deleted, the relevant restriction shall apply with such modifications as may be necessary to make it valid and effective.
17.4 The Executive shall not without the prior written consent of the Group Chief Executive whether alone or jointly with or as principal, partner, agent, director, employee or consultant of any other person, firm or corporation, and whether directly or indirectly, in competition with any of the businesses of the Company or any Group Company carried on at the Termination Date in the United Kingdom and the Republic of Ireland:
17.4.1 during the period of twelve (12) months immediately following the Termination Date solicit the services or custom of or otherwise deal with any person, firm or corporation who or which at any time during the Prior Period was a customer, client, supplier, agent or distributor of the Company or any Group Company and with whom or which the Executive was personally concerned during the Prior Period; or
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17.4.2 during the period of twelve (12) months immediately following the Termination Date entice or endeavour to entice away from the Company or any Group Company or employ any person who at any time during the Prior Period was an employee or director of the Company or any Group Company earning not less than £40,000 per annum (which figure is to be increased annually in line with the general index of Retail Prices maintained by the Central Statistical Office or any equivalent index which may replace that index) and with whom the Executive was materially engaged or for whom the Executive had material responsibility; and/or
17.4.3 during the period of nine (9) months immediately following the Termination Date engage or be interested in any capacity (whether as an individual or otherwise and whether by investing or working or allowing his name to be used or otherwise) in the business of jewellery retailing and selling and/or any other business which materially competes or is liable materially to compete with any business of the Company or any Group Company carried on at the Termination Date and in which the Executive was materially engaged during the Prior Period where the competing business carries on business within the United Kingdom and the Republic of Ireland.
17.5 Nothing in Clause 17 shall prevent the Executive holding securities in a company listed on a Recognised Investment Exchange where his holding does not exceed five (5) per cent of the investment class of securities concerned.
18. INTELLECTUAL PROPERTY
18.1 The Executive shall promptly communicate to the Group Chief Executive all Property (whether or not capable of protection by any Intellectual Property Right) which at any time during the subsistence of the Employment the Executive alone or jointly with one or more others might conceive, create, devise, produce, discover or formulate either during working hours or in the normal course of his duties or in the course of duties falling outside his normal duties but specifically assigned to him or with the Company’s and/or any Group Company’s materials and/or facilities which relate to the Company’s and/or any Group Company’s business or in which the Company and/or any Group Company is interested.
18.2 The Executive agrees that all right, title and interest to Property (including all rights in connection with it which arise whether before or after the Employment terminates) throughout the world EXCEPT any such Property which by virtue of the Patents Act 1977 (as amended) belongs to the Executive shall, without payment, belong to the Company absolutely.
18.3 When instructing any person, firm or company to carry out work (including the supply of goods and/or services) for the Company or any Group Company or in connection with the Company’s business or the business of any Group Company the Executive shall ensure that such person, firm or company first assigns to the Company or any Group Company all future Intellectual Property Rights in any Property which they conceive, create, devise, produce, discover or formulate in the course of carrying out the work which they are instructed to perform.
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18.4 The Executive shall, during the Employment and thereafter at the direction and expense of the Company, apply for and do all acts and things necessary to obtain and maintain any Intellectual Property Right that may subsist in any Property which by virtue of this Clause or any statute affecting Property belongs to the Company or any Group Company in any part of the world as the Company may require and shall vest all such Intellectual Property Rights in the Company or as the Company may direct.
18.5 The Executive hereby irrevocably appoints the Company to be his attorney in his name and on his behalf to do and execute all acts, deeds, matters and things and generally to use for the purpose of giving to the Company (or its nominee) the full benefit of the provisions of this Clause and in favour of any third party a certificate in writing signed by any director or secretary of the Company that any instrument or act falls within the authority hereby conferred shall be conclusive evidence that such is the case.
18.6 The Executive hereby irrevocably waives all moral rights arising under the Copyright, Designs and Patents Act 1988 in any copyright work written or created by him in the course of the Employment and all moral rights in all other countries in which copyright (including future copyright) in any work subsists or may subsist except to the extent that the Executive shall exercise such moral rights at the Company ’s request provided that the Company shall pay the Executive ’s expenses in so doing.
19. PRESCRIBED INFORMATION
19.1 The following information is set forth for the purposes of section 3 of the 1996 Act:
19.1.1 If the Executive shall have a grievance relating to the Employment or is dissatisfied with any disciplinary decision relating to him he may apply to the Group Chief Executive and if dissatisfied with his decision his application will be dealt with by the Group Chairman at a meeting at which the Executive shall be entitled to be present.
19.1.2 The disciplinary rules and procedure applicable to the Executive are as set out in the Company Policies and Procedures Manual, a copy of which is available from the Human Resources Department.
19.1.3 Any changes to the documents referred to in this Clause will be entered in the reference documents (which are available for inspection at Zenith House, The Hyde, London NW9 6EW) held by the Human Resources Department of Signet Group PLC within one month thereof.
20. JOB TITLE
The job title of the Executive shall not confer any right on the Executive to be appointed a director or to the Board of the Company or any company in the Group.
21. NOTICES
Any notice shall be duly served under this Agreement if, in the case of the Company, it is handed to a director of the Company or sent by recorded or first class post to the Company at its registered office for the time being and if in the case of the Executive it is handed to him or sent or recorded or first class post to him at this address specified in this Agreement or such other address as he may notify to the Company. A notice sent by recorded or first class post shall be deemed served on the working day next following posting.
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22. SEVERABILITY
The Company and the Executive acknowledge that the Clauses and sub-Clauses of this Agreement are severable. If any Clause, sub- Clause or identifiable part of any Clause or sub-Clause is held to be invalid or unenforceable by an English court, then such invalidity or unenforceability shall not affect the validity or enforceability of the remaining Clauses or sub-Clauses or the identifiable parts of such Clauses or sub -Clauses.
23. COUNTERPARTS
This Deed may be entered into in any number of counterparts and by the parties to it on separate counterparts, each of which when so executed and delivered shall be an original, but all the counterparts shall together constitute one and the same agreement.
24. GOVERNING LAW AND JURISDICTION
This construction, interpretation and performance of this Agreement shall be governed by the laws of England to the jurisdiction of whose courts the parties hereto agree to submit.
AS WITNESS the hand of a duly authorised representative of the Company and the execution and delivery of this agreement as a Deed by the Executive the day and year first before written.
SIGNED by ) for and on behalf of ) SIGNET TRADING LIMITED ) in the presence of: )
Signature
Witness Tim Jackson Name:
Address: The Moat Moat Lane Cowden Kent TN8 7DP
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SIGNED as a DEED by ) ROB ANDERSON ) in the presence of: )
Signature
Witness Susanne Black Name:
Address: 23 Newnham Road London N22 5SS
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Exhibit 12.1 CERTIFICATION
I, Walker Boyd, certify that:
1. I have reviewed this annual report on Form 20 -F of Signet Group plc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d -15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
5. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
Date: May 3, 2005 By: /s/ Walker Boyd Name: Walker Boyd Title: Group Financial Director
Exhibit 12.2 CERTIFICATION
I, Terry Burman, certify that:
1. I have reviewed this annual report on Form 20 -F of Signet Group plc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d -15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
5. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
Date: May 3, 2005 By: /s/ Terry Burman Name: Terry Burman Title: Chief Executive Officer
Exhibit 13.1 CERTIFICATION PURSUANT TO 18 USC SECTION 1350, AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Walker Boyd, as Group Financial Director of Signet Group plc (the “Company”), hereby certify, pursuant to 18 U.S.C. § 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the accompanying Annual Report on Form 20-F for the period ending January 29, 2005, as filed with the U.S. Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 3, 2005 By: /s/ Walker Boyd Name: Walker Boyd Title: Group Financial Director
A signed original of this written statement required by Section 906 has been provided to Signet Group plc and will be retained by Signet Group plc and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 13.2 CERTIFICATION PURSUANT TO 18 USC SECTION 1350, AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Terry Burman, as Chief Executive Officer of Signet Group plc (the “Company”), hereby certify, pursuant to 18 U.S.C. § 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the accompanying Annual Report on Form 20-F for the period ending January 29, 2005, as filed with the U.S. Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 3, 2005 By: /s/ Terry Burman Name: Terry Burman Title: Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to Signet Group plc and will be retained by Signet Group plc and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 14.1 Consent of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Signet Group plc
We consent to the incorporation by reference in the registration statements (No. 333-12304, 333-9634, 333-8764 and 033-42119) on Form S-8 of Signet Group plc of our report dated 6 April 2005, with respect to the consolidated balance sheets of Signet Group plc and subsidiaries as at 29 January 2005 and 31 January 2004, and the related consolidated profit and loss accounts, consolidated cash flow statements, consolidated statements of total recognised gains and losses and consolidated shareholders’ funds statements for the 52 week periods ended 29 January 2005, 31 January 2004 and 1 February 2003, which report appears in the Annual Report on Form 20-F of Signet Group plc for the 52 weeks ended 29 January 2005.
Our report refers to the adoption of Application Note (G) of FRS 5 ‘Reporting the Substance of Transactions’ resulting in the restatement of the financial position of Signet Group plc and subsidiaries as at 31 January 2004 and the results of operations and cash flows for the 52 week periods ended 31 January 2004 and 1 February 2003. Our report also refers to the restatement of the US GAAP information as at 31 January 2004 and 1 February 2003 and for the 52 week periods ended 31 January 2004 and 1 February 2003 for corrections related to revenue recognition attributable to extended service agreements and lease accounting.
/s/ KPMG Audit Plc
KPMG Audit Plc London, England May 3, 2005
End of Filing
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