BRIGHTENING LIVES ANNUAL REPORT & ACCOUNTS 2019/2020 BRIGHTENING LIVES ANNUAL REPORT & ACCOUNTS 2019/2020 2 CONTENTS 3 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS CONTENTS Certain information contained in this document, including any information as to the Group’s strategy, plans or future financial or operating performance, constitutes ‘‘forward-looking statements’’. These forward-looking statements may be identified by the use of forward-looking terminology, including the terms ‘‘believes’’, ‘‘estimates’’, ‘‘anticipates’’, ‘‘projects’’, ‘‘expects’’, ‘‘intends’’, ‘‘aims’’, ‘‘plans’’, ‘‘predicts’’, ‘‘may’’, ‘‘will’’, ‘‘seeks’’, ‘‘could’’, ‘‘targets’’, ‘‘assumes’’, ‘‘positioned’’ or ‘‘should’’ or, in each case, their negative or other variations or comparable terminology, HIGHLIGHTS 5 or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding the intentions, beliefs or current expectations of the Directors concerning, among other things, the Group’s results of operations, financial condition, prospects, growth, strategies and CHAPTER 1 - STRATEGIC REPORT the industries in which the Group operates. Chairman’s Statement 11 - 12 By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or Chief Executive’s Report 13 - 20 may not occur in the future or are beyond the Group’s control. Forward-looking statements are not guarantees of future performance. Even if the Group’s actual results of operations, financial condition and the development of the industries in which the Group operates are consistent with the Financial Review 22 - 29 forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent Principal Risks and Uncertainties 30 - 33 periods. Accordingly, undue reliance should not be placed on these statements. Social Responsibility 34 - 41 The forward-looking statements contained in this document speak only as of the date of this document. The Group and its Directors expressly disclaim any obligation or undertaking to update or revise publicly any forward-looking statements, whether as a result of new information, future events or Section 172 Statement 43 - 45 otherwise, unless required to do so by applicable law, the AIM Rules for Companies or the Disclosure and Transparency Rules. Note: The financial information contained in this document, including the financial information presented in a number of tables in this document, has been rounded to the nearest whole number or the nearest decimal place. Therefore, the actual arithmetic total of the numbers in a column or row in a CHAPTER 2 - CORPORATE GOVERNANCE certain table may not conform exactly to the total figures given for that column or row. In addition, certain percentages presented in the tables in this Board of Directors 48 document reflect calculations based upon the underlying information prior to rounding, and accordingly, may not conform exactly to the percentages Governance Framework 49 - 51 that would be derived if the relevant calculations were based upon the rounded numbers. Audit Committee Report 52 - 53 Nomination Committee Report 54 Directors’ Remuneration Report 55 - 71 Directors’ Report 72 - 74 Statement of Directors’ Responsibilities 75 CHAPTER 3 - CONSOLIDATED FINANCIAL STATEMENTS Auditor’s Report 79 - 85 Consolidated Income Statement 86 Consolidated Statement of Comprehensive Income 86 Consolidated Statement of Financial Position 87 Consolidated Statement of Changes in Equity 88 Consolidated Cash Flow Statement 89 Notes to the Consolidated Financial Statements 90 - 120 Company Statement of Financial Position 121 Company Statement of Changes in Equity 122 Notes to the Company Financial Statements 123 - 125 Company Information 127 Company Secretary: Jonathan William Dargie Registered Office: Joules Building, The Point, Rockingham Road, Market Harborough, Leicestershire, LE16 7QU Nominated Adviser: Peel Hunt LLP, Moor House, 120 London Wall, London, EC2Y 5ET Broker: Liberum Capital Limited, Ropemaker Place, Level 12, 25 Ropemaker Street, London, EC2Y 9LY Corporate PR: Hudson Sandler, 25 Charterhouse Square, London, EC1M 6AE Legal Advisors: Eversheds LLP, 115 Colmore Row, Birmingham, B3 3AL Auditor: Deloitte LLP, Four Brindleyplace, Birmingham, B1 2HZ Registrars: Equiniti Limited, Aspect House, Spencer Road, Lancing, BN99 6DA Joules Group plc - Registered in England and Wales number: 10164829. Website - www.joulesgroup.com 4 HIGHLIGHTS 5 HIGHLIGHTS Business well positioned to navigate existing and potential COVID-19 challenges: • Trading performance ahead of management's expectations1 after the first nine weeks of FY21 - E-commerce demand2 up more than 70% on the comparable period in prior year - All stores now re-opened with overall performance ahead of expectations - Wholesale performing in line with expectations • Strong financial position with net cash7 of £5.4 million and liquidity headroom of £54 million at 2 August 2020, significantly ahead of management’s expectations1 • Continued progress on strategic initiatives: - ‘Friends of Joules’ digital marketplace providing increased range and choice to Joules’ customers - UK and US distribution centre transformation initiatives complete, providing improved capacity, service levels and productivity - New store point of sale platform implemented, further integrating the store experience with our digital channels under our flexible ‘Total Retail’ model • Joules brand health3 and engagement scores at record highs with Joules ranked 12th out of 278 consumer brands in KPMG Nunwood’s 2020 Consumer Experience Excellence report FY20 performance: • Group revenue decreased by 12.5% to £190.8 million (FY19: £218.0m) adversely impacted by COVID-19 and the previously reported e-commerce stock availability issue over the Christmas trading period - Revenue impact of COVID-19 in the final quarter is estimated at c.£31 million4 - E-commerce performed well with Joules’ own e-commerce channel revenue up c.11% for the year - E-commerce represented nearly 57% of retail sales (FY19: 49.5%). For the first nine months, pre-COVID-19, it represented nearly 51% of retail sales -Store revenue declined 21.4% for the year. Over the first 9 months, pre-COVID-19, store sales declined c.8%, reflecting structural industry trends and reduced promotional activity - Wholesale revenue declined 25.3%, with the final quarter experiencing a reduction of c.75% as wholesale customers globally closed their operations in response to COVID-19 • Loss before tax (pre-IFRS16 and exceptional items)5 of £2.0 million (FY19: £12.9m profit) • Statutory loss before tax of £25.3 million (FY19: £12.9m profit) - IFRS16 (Leases) net impact £(1.8) million (FY19: na) - Exceptional costs £(21.5) million (FY19: nil) including £21.0 million non-cash impairment charge • Group gross margin 50.7%, down 4.1%pts, impacted by sales channel mix and increased promotional activity in the final quarter • Basic earnings per share loss 22.07 pence (FY19: 11.6 pence) • 1.43 million active customers6 and record brand awareness and brand health3 metrics achieved during the final quarter of the year • Net cash7 of £4.5 million (FY19: £5.8m) and liquidity headroom of £53 million at 31 May 2020 Reconciliation to statutory profit/loss before tax: £MILLION FY20 F Y 19 PBT pre-IFRS16 and exceptional costs5 (2.1) 12.9 IFRS16 (net PBT impact) (1.8) na PBT - before exceptional costs (3.9) 12.9 Exceptional costs (21.5) - Statutory (loss)/profit before tax (25.3) 12.9 1 Expectations is stated with reference to management's most recent forecast being the ‘base case’ used for the Directors’ assessment of going concern and as the basis for the Group’s FY21 financial year budget 2 Demand is a non-GAAP measure. It states the total sales value (inclusive of sales tax) of customer orders received in the relevant period, excluding any returns received or provision for potential returns 3 Brand Awareness and Brand Health are measured as part of an independent YouGov consumer survey 4 COVID-19 revenue impact is estimated based on management’s revenue forecast for the final quarter prepared just prior to the start of Q4 with consideration to sales run rates, prior year sales, wholesale order book and planned promotional activity 5 LBT/PBT - pre-IFRS16 and exceptional costs is a non-GAAP measure provided to facilitate comparison across periods, it is stated prior to the impact of IFRS16 (Leases) adopted for the first time in FY20, and prior to exceptional costs that are primarily related to non-cash asset impairments in the Period 6 Customer registered on our database who has transacted in the last 12 months. Prior years restated to reflect improved database matching (FY19: 1.39 million active customers) 7 ‘Net cash’ represents gross cash & cash equivalents less total borrowings. 6 OUR BRAND VALUES OUR BRAND VALUES 7 OUR BRAND VALUES OUR BRAND VALUES CONTEMPORARY COUNTRY LOVING We celebrate our rural roots by designing clothing, accessories and homeware for today’s family lifestyle. INSPIRED BY NATURE We take inspiration from all of the flora and fauna that can be found in the countryside and along the coasts of Britain. RESPECT THE ENVIRONMENT As a brand that was established in the countryside, we see it as our responsibility