Appreciate Group says final results will be in line with forecasts

Appreciate Group CEO Ian O'Doherty

Appreciate Group, the rewards vouchers to Christmas hampers business, said it expects its annual results to be broadly in line with expectations, but warned the coronavirus pandemic will impact the current year’s performance.

The Liverpool-based business, formerly Park Group, issued a trading update for its financial year ended March 31, 2020.

It expects revenues to be £118m, and adjusted pre-tax profits to be around £11.5m, subject to audit and restricted data due to COVID-19-related delays.

These figures exclude a non-cash impairment charge expected to be around £2-3m and exceptional items of £500,000.

The impairmant charge includes land and buildings at Valley Road, in Birkenhead, the previous company HQ, currently held as an asset held for sale – the previously planned sale of which has now been postponed – and the investment in brand engagement agency, FMI, acquired in 2016.

Also, following a management restructure in the fourth quarter, Appreciate expects to include £500,000 of redundancy costs in exceptional items for the 2019/20 financial year.

These relate to 11 redundancies, including two technology and nine marketing roles.

Today’s upate revealed year-end free cash of £30m (excluding funds required to be held in trust), and projected adequate liquidity at least until March 31, 2021, covering a range of financial scenarios.

It said actions are being taken to mitigate the impact of the lockdown on trading in the new financial year.

There is also continued progress on implementing the strategic business plan and pivoting to digital products to position the group to emerge from the lockdown a stronger business.

During March the business followed Government health and safety advice and temporarily closed its distribution and warehouse facilities to protect employees and local communities by limiting the spread of COVID-19.

In the meantime, the group’s focus has been to accelerate its digital offering with a number of new products launched, helping to partially mitigate the fact that its ability to distribute physical product has been limited.

It said that, although immediate demand is significantly reduced, the group is well placed for when market conditions normalise.

Redemption rates of Appreciate’s rewards products currently in circulation have also been affected, as the number of outlets open to use them has decreased.

However, lower redemption rates in March, as a consequence of lower consumer spending, have had a financial impact on the results for the year ended March 31, 2020, amounting to around £300,000 on profitability. Conversely, this delay in spending has a positive impact on cashflow.

The board said it remains positive about the prospects of the business and the long-term benefits of the group’s strategic business plan which is currently being implemented.

While the UK remains in lockdown and the timing of a return to normal market conditions remains unknown, it is difficult to assess the overall impact of COVID-19 on the new financial year ending March 31, 2021.

In the short-term, demand in the corporate and other consumer areas is approximately 70% below last year.

Additions to the order book for the Christmas savings business are normally completed by now and it is currently 10% below the prior year.

Appreciate said that, following the decision by the Bank of England to reduce the base rate, there will be an adverse annualised impact to interest income of £1.5m, if the rate remains at this level for the whole of the new financial year.

It said it remains focused on reducing costs and delaying any discretionary spend or capital projects.

It has have cancelled annual pay reviews, postponed the leadership team’s share incentive awards and will be reviewing all bonus schemes.

As previously announced, Appreciate decided to cancel the interim dividend payable in April 2020, conserving £2m of cash, and will review the full year dividend at the time of the announcement of the annual results, which is still to be determined.

Around 80 staff have been furloughed, and their pay topped up to 100%, while Appreciate’s remaining 230 employees are working from home.

Today’s statement said: “Looking further ahead we remain confident in our growth plan.

“The board has reviewed several financial scenarios of the likely impact of COVID-19 on the business and, in each of those scenarios, we have positive free cash this financial year.

“However, in order to accelerate our medium and long-term growth, as well as invest in the continued switch to digital, we have commenced a bank financing exercise and we will provide an update on progress with our annual results.”

Chief executive, Ian O’Doherty, added: “Appreciate delivered another good performance last year.

“COVID-19 has impacted everyone, but we are safeguarding our staff, preserving cash, reducing costs, switching emphasis to our digital offerings and preparing carefully for the resumption of full operations post-lockdown supported by our strong balance sheet.

“We have also established a recovery plan whilst accelerating strategic change already under way. This includes enhancing our sales and marketing capabilities, improving internal business practices and ensuring that we deliver ongoing initiatives.

“Overall, we believe this will enable us to emerge from the lockdown a stronger business.”