Findel : Final Results

6 June 2018

Findel plc ('Findel' or 'the Group')

A year of growth and strategic progress

Results for the 52 weeks ended 30 March 2018

Findel, the online value retail and Education business, today announces its Full Year Results for the 52-week period ended 30 March 2018.

Financial Highlights

Summary

· Group revenue up 4.8% to £479.0m and adjusted operating profit* up 15.4% to £36.0m

· Further strengthening of online value proposition in both businesses

· Express Gifts drove Group performance and produced strong growth in customer numbers and sales:

· Express Gifts' active customer base at 1.8 million, up by 0.2m on 2017 and up by a third over last two years

· Product revenue growth of 9.6% on a like-for-like basis* to £285.1m (8.7% on a reported basis)

· Clothing sales particularly strong, up 14.2%, with over half of new customers buying from these ranges during the year

· Increase in online customer ordering to 68% (FY17: 63%) with over 84% of new customers placing their first orders online (FY17: 71%)

· Like for like* financial services revenue up 9.0% to £108.1m

· Bad debt as a % of revenue reduced from 7.7% to 7.2% driven by strong collections and recoveries

· New financial services platform successfully implemented across the whole customer base

· Customer redress programme at Express Gifts proceeding to plan and within current provisions, on track to be completed in the coming months

· Education delivering early progress against turnaround strategy:

· Transformation in online sales following strategic pricing changes in September 2017; exit run-rate of c.50% of orders coming online, up from 19% in March 2017

· Revenue fell by 6.2% on a like-for-like* basis (6.7% reduction on a reported basis) with the rate of decline in core school brands slowing from 10% in H1 to 2% in H2

· Increased levels of Far East sourcing underway, to mitigate impact on margin of further investment

· Cost base reductions delivered across the business, bringing the overheads/sales ratio down by 50bp to 31.0% after absorbing implementation costs

· No individually significant items; adjusted profit before tax* up 21% to £26.8m

· Core net debt* down by £7.1m to £73.8m, with nearly all net debt* now funding paying trade receivables

Phil Maudsley, Group Chief Executive, commented:

'This has been a year of good sales growth and improved profitability through our focus on delivering great-value products to our customers across all channels. The year has also seen significant progress against our strategic objectives and both businesses continue to transform their digital sales offering.

'I am delighted to report that we have more customers shopping with Studio than ever before, that our Education business has seen a transformational shift in the last year towards online ordering, and that our improved results for FY18 were delivered without adjustment for individually significant items.

'We are encouraged by the start to the new financial year from both businesses, and remain confident in the opportunities for future profitable growth.'

Enquiries

Findel plc

Phil Maudsley, Group CEO

Stuart Caldwell, Group CFO

0161 303 3465

Tulchan Communications
Catherine James

Will Smith
020 7353 4200

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below

Chairman's Statement

I am pleased to report on a successful year of delivery and progress against our strategic plans. Express Gifts saw particularly strong growth in operating profit, leading to growth in the overall adjusted profit before tax* for the Group, of 21% on the previous year. The Group reported a profit for the year of £19.6m (FY17: loss of £57.7m).

Our businesses are focussed on delivering great-value products to their customers across all channels. In particular, both businesses continue to make good progress in their digital transformations, in line with the ongoing shift in their separate customer bases preferring to shop online. Express Gifts, led by its Studio brand, has seen this pattern for several years and now has 68% of its 1.8m customers ordering online. However, for Education this has been a more rapid change with online orders increasing from c.19% to approximately 50% over the last year. These are trends that we anticipate will continue.

Financial performance

Our largest business, Express Gifts saw its customer base grow by 13%, which helped revenue for the group to grow by 5.9% in the year on a like-for-like basis* (4.8% on a reported basis vs. the 53-week period last year). with adjusted profit before tax* increasing to £26.8m (FY17: £22.2m). Unlike previous years, there were no individually significant items to report, with cash outflows from provisions booked in previous years occurring in line with our expectations.

Core net debt* fell by £7.1m to £73.8m, despite debt supporting the growth in customer receivables* increasing by £21.1m to £221.8m (FY17: £200.8m) and a c. £17m outflow in respect of the legacy customer refund programme.

Dividends

The Board continues to prioritise investment in improving digital capabilities and in strengthening the financial position of each of the operating subsidiaries' balance sheets and that of the parent company, which has accumulated losses £95.5m. As such, the Company does not have plans to reinstate dividend payments at this stage.

Management and Board

The changes that we made to our executive team in April 2017, led by our CEO Phil Maudsley, have contributed to the strong performance seen over the last year. Stuart Caldwell was appointed permanent Group CFO in July 2017 having acted in the role since April.

Eric Tracey, our Senior Independent Director, will be retiring from the Board after the AGM in July 2018 having served for almost nine years. He has made a major contribution to the reshaping of the Group during that period. We wish him well for the future.

Elaine O'Donnell joined the Board in February 2018 as a non-executive director and will succeed Eric as chair of the Audit Committee in July. Greg Ball will assume the role of Senior Independent Director at the same time.

Employees

On behalf of the Board, I would like to thank all of our employees for their ongoing commitment and hard work in transforming Findel into a digital-first business, which has underpinned the Group's improved performance this year.

Current trading

The early weeks of our financial year are always relatively quiet trading periods for our businesses. However, the performance to date has been encouraging and in line with our expectations. A fuller update on trading will be given at our AGM, which will be held at the end of July.

Outlook

We are confident in the medium-term prospects for the Group, with Express Gifts able to see further growth in its customer base through its clear focus on providing great value products to its customers and transforming itself for a digital future. Express Gifts aims to be forward-looking and proactive in its approach to financial services regulation and risk management to ensure that it achieves sustainable returns.

The operational turnaround of Education continues to show encouraging results, but we will learn more about the likely pace of translation into profit once the seasonal back-to-school peak period has been completed in September.

We are encouraged by the start to the new financial year from both businesses, and remain confident in the opportunities for future profitable growth.

Ian Burke

Chairman

5 June 2018

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below

Chief Executive's review

A year ago, I said that my challenge as the new CEO was to build on the good work achieved in recent years and put in place the strategies to unlock the potential in our two businesses. It was also important to eliminate individually significant charges that have undermined our performance in previous years.

I am delighted to report that we have more customers shopping with Studio than ever before, that our Education business has seen a transformational shift in the last year towards online ordering, and that our improved results for FY18 were delivered cleanly without unpleasant surprises.

We are excited by the potential within both businesses for further growth in the coming years and have clear strategies in place aimed at securing that growth. A clear focus on the needs of the customer and a forward-thinking approach to digital developments are critical to our future success.

Customers are at the heart of our businesses

The way our customers shop and the world of online retail has changed dramatically over the last decade. New ways of online ordering have developed, initially via desktop computers and now increasingly via mobile phones. While catalogues remain an important marketing tool for us, online has increasingly become the channel of choice.

New skills and technologies have emerged for web-based shops such as Studio. New levels of customer expectation are being set, often driven by new competitors in the market, especially for online payment channels and management of customer queries. Artificial intelligence tools that harness our data and trends can now be deployed in many aspects of our business, by monitoring price competition to ensure Studio maintains its value proposition, personalising the shopping experience of customers based on past purchases, and aiding customer experience tools.

This combined view of catering for customers' evolving needs in a digital world is at the forefront of our development. Express Gifts has made many key infrastructure changes over the last few years, and whilst the use of online ordering in Education's market has been much slower to emerge, we have seen rapid transformation there over the last few months.

Building strategies for growth

Express Gifts, with its Studio brand, has a clear focus on being a leading online value retailer with a broad offer covering clothing and footwear, home and leisure and gifts products along with flexible payment options. This is proving to be a sweet spot in the market, resulting in its customer base increasing by over a third in the last two years to stand at 1.8m, with further room for growth in both customer numbers and our share of their wallet. Having battled headwinds from rising import costs in recent years, the business is now aiming to improve its retail profitability, as well as profit, through better buying practices and range expansion.

Express Gifts' financial services activities provide a valuable second revenue stream. However, as a responsible lender in this regulated market, we need to remain alert to changes in our customers' circumstances to ensure they can afford to pay for the products they buy. We apply tight underwriting standards to ensure that we maximise the sustainable opportunity and plan to build on the implementation of the Financier platform in October 2017 by offering new financial services products to certain customers in the coming months. We also recognise the challenges presented to our sector by the FCA's recent consultation paper regarding high cost credit and will continue to support that consultation process through our trade bodies, whilst at the same time continuing to make appropriate incremental adjustments to our business processes. We continue to plan proactively in response to the developing regulatory landscape.

Sustainable growth needs to be built on strong foundations, so we are also focussed upon improving aspects of Express Gifts' infrastructure over the next few years. This encompasses physical aspects in our warehousing and logistics network, increasing our cyber-resilience and management of data, as well as improved rigour in our change management and customer experience processes.

Our Education business needed to change its strategic direction during the last year to prevent further loss of market share. It introduced a strong incentive for schools and nurseries to shift their ordering away from traditional catalogue channels in favour of upgraded websites, by offering reductions of up to 30% against catalogue prices on many key items when ordering online. At the same time, additional online tools were developed to help teachers save time by automatically comparing our prices against the competition to demonstrate best prices and encouraging switching to our own brand Classmates range to save money. The investment in product margin will be mitigated in the next few months as more Far-East sourced product arrives. The business has also seen an overhaul of its cost base as it strives to achieve a 10% return on sales in the medium term. We are encouraged by the progress being made by Education in the last six months.

Leadership

It is vital that we have strong and experienced leadership teams in place to deliver on these opportunities. Express Gifts has made several key executive appointments over the last year, notably in HR, finance and IT to build stronger foundations for future growth. Additional investment has been made in our Far-East sourcing operation to support that important aspect of our strategic plans, and we have recently transferred the leadership of that function from Hong Kong to Shanghai. Finally, we have transferred skills and leadership from Express Gifts over to Education to accelerate its development of Far-East buying, commercial and digital marketing.

Brexit

At the current time, there remains little clear guidance on how leaving the European Union will affect our businesses. We have weathered the immediate impact following the referendum in June 2016 upon import costs and we continue to hedge our planned foreign-currency purchases on a rolling 12-month basis to mitigate the impact of further currency fluctuations on our supply chain.

The majority of Express Gifts' supplies are sourced, either directly or indirectly, from outside the European Union. All of Express Gifts' customers are based in the UK, and Education's international customers transact in Sterling. Therefore, any imposition of customs tariffs is not anticipated to have a material impact on our operations at this stage.

Potential collaboration with Sports Direct

We announced in March 2018 that we were exploring possibilities for commercial supply arrangements between Express Gifts and our largest shareholder, Sports Direct International plc. Certain licenced menswear ranges have been included within the Studio Spring/Summer season and we will evaluate their success in the coming months. We are also exploring the potential for access to other Sports Direct owned brands in future seasons, as well as ways in which Sports Direct can help to improve our own supply chains.

Focus for the future

Both businesses have made promising starts to the new financial year, although both have their key trading months ahead of them. Over the next couple of years, Express Gifts aims to grow its retail profits and margins, whilst maximising a sustainable level of profit from financial services and ensuring strong foundations are being built for the future. Education aims to continue regaining lost customers by saving schools time and money from online purchases.

Remaining focussed upon our customers' needs, investing in digital technologies and delivery of our strategic objectives will enable profitable growth over the medium term.

Phil Maudsley

Chief Executive Officer

5 June 2018

DIVISIONAL OVERVIEW

Express Gifts

Summary income statement

# 2017 figures are stated before individually significant items

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below

A Digital First, Value Retailer with the Customer at the Heart of Everything We Do

Express Gifts has its heritage as a catalogue business, originally in gifts, cards and Christmas goods, but has transformed itself over the last few years to be an online retailer with a broad product offer, targeting value-conscious customers.

It has around 70% of sales transacted online and predominantly trades under the 'Studio' brand (which accounts for c. 90% of turnover) as well as the smaller 'Ace' title. Through its websites and catalogues it offers everyday exceptional value across clothing, home and leisure, toys and gift products, with many items personalised free through an in-house facility. Alongside the value product offer, Express Gifts provides a flexible credit proposition for customers, which creates a point of difference to other retailers.

A new management team has been put in place at Express Gifts over the last year and they have clarified future plans around three strategic pillars:

· Improving Retail Profitability

· Maximising the Financial Services Opportunity

· Building Strong Foundations for the Future

On the back of this, a transformation programme has been initiated to deliver against the three strategic pillars. This re-shapes processes to meet the needs of an online world and utilises data and digital technologies to enable future growth.

Retail Profitability

Improving retail profitability is driven by increasing our customer base, through brand, customer experience and range development and, at the same time, improving product planning and sourcing processes to drive margins whilst keeping tight control of costs to ensure the value proposition for customers is maintained.

By offering exceptional value products and increasing use of digital technologies, Express Gifts is continuing to appeal to a wider audience, with its core target customers aged 25-55.

In the year, 1.8m customers shopped with us which is 13%, or 200,000 more than the prior year. This builds on the success seen over the last few years as we have continued to focus on promoting our 'showcase products', and increased use of digital marketing and TV advertising has resulted in more new customers being attracted to our principal 'Studio' brand. We have also seen the benefit from this marketing activity on the established customer base and we consider that this has had a 'halo effect'.. This strong customer base gives a platform for revenue growth in future, although there is further capacity for expansion in this marketplace so we will continue to invest in marketing and new customer acquisition.

We know that it often takes time for customers to develop an established shopping pattern with us, and for us to recoup our acquisition costs. New customer segmentations have been introduced allowing improved targeting of marketing communications. Through information gained via our Net Promoter Score survey and root cause analysis of customer issues, we are making changes to policies and processes to enhance customer experience. We are also focussed more generally on improving how we engage customers and their experience with Studio. This will deliver better customer retention and spend and therefore improve the lifetime value of customers.

Further success in the year has also been achieved in terms of online growth. Investment in developing our websites' functionality and particular focus on the mobile experience has seen the percentage of sales online grow from 63% to 68% in the year. For new customers this went up from 71% to 84% and for our youngest customer group (under 25) it increases further to 97%.

In 2016, Express Gifts moved its websites to IBM's Commerce platform and then introduced Qubit technology, allowing us to begin to personalise to the customer experience and increase the versatility of our online shops. In 2017, we continued to improve functionality and the way products are presented to customers via our websites, as well as introducing Aura which enhanced the mobile experience though product recommendations. For 2018, we have a roadmap of further digital developments, including use of artificial intelligence tools, with regular releases throughout the year. Our objective remains to make Studio the leading online value retailer and to be the destination of choice for our value-conscious customers.

To attract customers to visit our websites we use a mix of activities, which still include catalogues and direct mailings. We view these now as marketing contacts and, given the high online penetration that has developed, we are running a variety of tests to optimise the use of these. For some customers smaller books are just as effective as the traditional larger catalogue and this also helps reduce costs. Using our experience in data analytics we can then drive better targeting and cost efficiency.

Within Express Gifts' product offering, we have developed our ranges over the last few years so that Studio gives customers a wide department store offer, all focused around fantastic value for money. Clothing has been a significant growth sector in recent years and potential still remains within clothing, given it accounts for only 28.9% of total sales. It also helps to increase customer order frequency.

Following the Brexit vote in June 2016 and the subsequent depreciation in Sterling, we took action to mitigate the impact on cost prices. We actively reduced the number of stock lines within the business to concentrate our buying and have worked with suppliers as well as our own Far-East offices to find further efficiency in sourcing. These actions mitigated the exchange rate impact upon the product gross profit margin to just 40bp during FY18, slightly better than our expectations, whilst continuing to maintain the value offer for our customers.

Moving forward, we are introducing a new seasonal planning process and continuing to improve sourcing which will allow the margin rate to recover without significant price increases for customers.

In January 2018, we launched a trial offering product facilitated via our largest shareholder Sports Direct to our customer base. This will be evaluated during next year and further opportunities identified.

As a value retailer, Express Gifts has a constant focus on its cost base and balancing this against the need to invest in new systems and capabilities to further drive the digital transformation. One area which we have recently reviewed is our Far-East sourcing offices, where we currently have a presence in both Shanghai and Hong Kong. It has been decided to close the Hong Kong office and focus our in-house sourcing through the Shanghai office to improve our buying capabilities whilst reducing administration costs. We also migrated the majority of our parcel deliveries to Hermes during the year which generated cost savings and improves customer experience through better tracking of their order. In 2018, we are trialling further options for customers to track orders, which should increase satisfaction scores and reduce costs through fewer customers queries about order delivery.

Financial Services

The majority of Express Gifts customers open a flexible account that allows them to either pay for their purchases within a month or spread the costs using the credit facility. This makes it easier for our customers to manage their budgets and provides an additional income stream as interest is charged on outstanding balances. This consumer credit activity is regulated by the Financial Conduct Authority (FCA).

In October 2017, we implemented our new 'Financier' system which manages customer credit accounts. This was a major investment and provides customers with improved and clearer statements, simpler account management through our websites and contact centres, and allows new, relevant financial service products to be introduced in the future. In 2018 we will be seeking to trial these products to gauge customer response.

The programme to refund customers in respect of historical credit and insurance products that were flawed has been substantially completed, with c.£21m of the c.£29m provision being utilised to date. The activities are expected to be fully completed by the end of 2018 with no adjustments to the existing provisions anticipated at this stage.

As we have grown the business, financial income has also increased in FY18 by 9.0% on a like-for-like* basis (7.0% on a reported basis). Our bad debt model was updated at the end of FY17 and we now have better clarity and granularity on the quality and performance of the receivables book, allowing us to more proactively manage collection strategies. We continue to sell non-performing receivables to third-parties and have seen improved recovery rates during the year, albeit at levels that may not continue into future periods. These improved rates have encouraged us to amend our strategy to accelerate the point at which certain type of debt are sold compared to FY17 by around six months, and also test the sale of additional types of debt. This has resulted in an additional £3.5m benefit in overall recoveries from debt sales in FY18 which, together with underlying improved collections, helped the bad debt charge as a % of revenue reduce to 7.2% (FY17: 7.7%), a level which may therefore increase in future periods.

Building Strong Foundations

The final strategic pillar is to invest in the business infrastructure, improve our processes and develop our people so that Express Gifts is a professional and sustainable business into the future.

During peak season, in the period from Black Friday to Christmas, we saw record sales and order volumes with significant increases in website visitors, particularly in response to our TV advertising campaigns. I am pleased to report that our systems performed effectively throughout this peak and our warehouse operations delivered to customers within our service levels. Our customer service operation continues to build upon the capability created in our own Philippines-based contact centre as well as in our UK operation. We also agreed with our outsourcing partners to rationalise the number of third-party centres used, which delivers consistency of service and cost benefits. Increasingly, we will provide customers with the ability to manage enquiries online or utilise other self-serve technology, whilst still providing an expert advisor should they require further help.

To drive and deliver the Express Gifts transformation we have continued to build the senior team. Paul Kendrick took on the role of Managing Director for the business in April 2017, having joined Express Gifts in 2016. Under Paul, we now have a robust executive team with experience in digital transformation, home shopping and financial services. A series of new senior recruits during the last year have complemented the existing team and will be joined by a new Digital Marketing Director later in 2018, who will further help in driving digital and cultural transformation across the business.

We have also commenced an organisational design project across all aspects of Express Gifts to align roles and accountabilities and identify development opportunities for people within the business.

FY18 Performance and Progress

The on-going growth of our customer base produced strong revenue growth in what has remained a challenging retail market. Product sales for the year of £285.1m were up 9.6% on a like-for-like basis* (8.7% on a reported basis). Increased costs of imported goods led to a reduction in the gross profit margin rate by 40bp to 30.5%, although this was slightly less than anticipated and the increase in sales volume more than outweighed this leading to gross profit from product sales increasing by 7.4% to £87.0m.

The number of new customers opening a credit accounts increased by 23%, leading to a sharp increase in financial services income of 9% on a like-for-like basis* (7.0% on a reported basis). Underlying levels of collections from customers performed well, particularly through the period after Christmas. The business also benefited from a greater level of disposal of non-performing receivables and at improved prices throughout the year. As a result, the bad debt charge for the year was 7.2% of total revenue, down from 7.7% in FY17.

The change in carrier during the year led to a small reduction in distribution costs, despite the growth in sales. Marketing costs increased broadly in line with the growth in product sales, within which an increased proportion was allocated towards digital and TV advertising. Administrative costs increased by 6.1% due to the investments made in improving the resilience of the business.

The strong growth and clear management of the business has delivered an adjusted operating profit* of £36.3m, up on prior year by £6.2m or 20%. There were no individually significant charges in the year and therefore operating profit was £36.3m compared to a loss of £21.3m in FY17

Findel Education

Summary income statement

# 2017 figures are stated before individually significant items

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below

Our business model

Education is one of the largest independent suppliers of school and early years resources (excluding IT and publishing) to primary, secondary and nursery educational establishments both in the UK and Internationally (over 130 countries).

It offers three distinct brand propositions: School, Classroom and Specialist each of which supports differing educational resources requirements within schools and nurseries. The School brands (GLS, A-Z and WNW) are primarily focussed on servicing the basic commodity needs of all educational establishments with products such as stationery, janitorial supplies, furniture and arts & crafts materials. The Classroom brands (primarily Hope Education) focus on the supply of specialist curriculum and early years teaching aids to Primary School and Nurseries. The Specialist brands (Davies Sports, Philip Harris Scientific, and Learning Development Aids - LDA) are specialists in their respective fields and focus on both Primary and Secondary school establishments.

These products, brands and service strengths also combine to sell resources to International Schools and UK Academy Groups under the Findel Education brand.

Historically, the main channel to market for schools has been via an annual printed catalogue. However, this is changing and at pace with digital procurement now becoming the main ordering channel for School Business Managers. The importance of time saving and convenient online solutions is key to the future of how schools will engage with resources suppliers.

Our business strategy 'Saving Schools Time and Money'

· Value - Delivering everything you need at everyday low prices

· Solutions - Our digital solutions make shopping easy

· Product - High quality own brand product offering

· Service - Our service is the best in the marketplace

Market structure

The educational resources market in the UK has historically developed along regional geographic lines, with relatively few national brands. Our business has long had market-leading positions in London and the South East, as well as strongholds in Scotland and Northern Ireland. Players in this market have typically either remained under some form of local authority control, typically operating on a non-for-profit basis, or in private sector ownership such as us. This has historically led to different pricing strategies being adopted, with our prices typically being 15-20% higher than comparable not-for-profit suppliers.

It has also been a market that has been relatively slow to adopt digital technologies, unlike other retail and B2B industries. For many years, this has meant that these pricing differentials have been tolerated by the market, as customers have rarely used online price lists to search out best prices. This has now changed.

The need for operational turnaround

At the start of 2017, our transactional websites were significantly inferior to those of our peers. However, increasing use of online ordering from schools and price comparisons searches were revealing that our prices appeared relatively expensive compared to non-for-profit suppliers. Consequently, the business was seeing a loss of market share to our competitors at a faster rate than it had done for several years.

We also recognised that our own-brand alternative products, which should be an attractive way of enabling schools to save money, were poorly regarded by the marketplace on grounds of both relative price and quality. This in turn caused us to challenge ourselves more generally on why we were not making better use of the Group's in-house sourcing capabilities in the Far-East to reduce buying costs.

Finally, we identified that our operational cost base continued to be significantly higher than our peers. Good work had been undertaken in 2016 to consolidate our two warehouse operations into one site. However, it was clear that much more needed to be done to allow the business to deliver a peer-comparable 10% return on sales in the medium term.

How are we delivering the operational turnaround

We have a developed a clear strategy based on delivering value and digital solutions to our customers, with quality product and service underpinned by overhead cost reduction

Our Customer Insight programme has been invaluable in understanding and identifying what our customers truly need to make a difference as to how they will do business both now and in the future.

Value 'Delivering everything you need at everyday low prices'.

The significant changes in school funding and budgets over an extended period have made teachers and bursars realise that budgets need to go further. In September 2017 we introduced our Online Value proposition, significantly reducing prices of our 800 best-selling products online compared to our offline catalogue prices. Customers are only able to access those lower prices if they shift their ordering patterns online, but this now brings those online prices to comparable levels with the lowest in the marketplace.

We have continued to expand on this value proposition with over 2,000 products now reduced online. This has been a significant investment in margin for the business and is a strategy that we will continue to invest in over the coming year to help us regain market share. This will save schools money.

This Online Value proposition has made strong impact and customer feedback is very positive. Customer numbers have grown by 5% since the launch in September 2017.

Digital'Our market-leading digital solutions make shopping easy'

Our transactional websites were overhauled earlier in the year, to improve search capabilities and introduce other online tools to help save teachers time. By combining it with the Online Value proposition, we have seen online ordering levels increase from 19% at the start of the year to around 50% by the end of the year.

Some of the market-leading digital e-procurement solutions that have been developed include WebFMS and WebFlow, which integrate seamlessly with schools' in-house administration systems and encourage greater customer loyalty.

Our customer insight has identified a clear pipeline of new and easy procurement solutions that will see us become the clear digital leader of the market over the next 12 months.

Product 'High Quality own brand offering'

We have challenged our supply chain to reduce prices and improve quality, by making use of our Far-East sourcing office to benchmark prices and/or source alternative products directly from Asia. There is further work that can be done here, building on the increased volumes that we have seen in recent months.

In April 2018 we re-launched our Classmates big brand alternative range, containing over 500 Far-East and UK sourced products of high quality that are up to 45% lower in price than their big brand comparable.

Service'Our service is the best in the marketplace'

We have continued to maintain our impressive Net Promoter score which stood at 87% at the end of March 2018. Convenience is fast becoming the key factor for a customer when selecting an educational resources provider. We continue to invest in systems, processes and digital techniques that support our market-leading service capabilities.

Profitability'simplifying our business operations to improve the return on sales to peer-levels'

The second phase of the warehouse rationalisation programme, to eliminate duplicated processes and stock, was successfully delivered during the year. We have also continued to reduce our cost base with over £1.3mof additional overhead benefits delivered in FY18 with an additional £1.3mof benefits in place for FY19. Further opportunities are being identified as part of the business's transition from being a traditional catalogue retailer to being an online digital market leader - much as Express Gifts has done in recent years. We have transferred some skills and leadership from Express Gifts to Education to assist with this transition.

FY18 Performance and Progress

In a year of strategic realignment, revenue was down by 6.2% on a like-for-like basis* against the prior year (6.7% on a reported basis). Product margins were slightly lower at 36.1%, although the effect of operational cost savings helped to lift the adjusted operating profit* by 8.9% to £2.9m (FY18: £2.7m). During the year Education successfully re-tendered for the Scotland Excel and NI Library board contracts. These were important wins in two of our key regions where we hold a high percentage of market share and will help to offset the effect for FY19 of Sainsbury's decision to cease the current Active Kids Scheme after 12 years.

The performance in the second half of the year is more instructive as a guide to the future given the introduction of the lower Online Value prices in September 2017 and the strong recovery in performance seen particularly towards the end of the year. H2 revenue fell by 5.2% overall, compared to a like-for-like* decline of 6.9% in H1. Within this, the demand on the core brands moved from being a decline of 10% in H1 to just 2% in H2. This has been achieved through investment in the gross profit margin rate during H2, although this is expected to recover during FY19 as Far-East sourcing benefits are realised. Cost saving initiatives introduced during the year, such as changes to distribution tariffs and reduced headcount, will largely benefit FY19 due to implementation costs being recognised within operating profit in FY18.

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below

FINANCE REVIEW

Group profit before tax

The Group has produced an adjusted profit before tax* of £26.8m in FY18, up by 21% from £22.2m in FY17, as summarised below.

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below.

The key elements of this improved performance are discussed above.

The segmental reporting was modified at the start of FY18 to reflect how management view the business and allow a more granular analysis of the Group's cost base. Details of the changes to the operating segments, which have no impact on the overall Group results, are available on the Group's website (www.findel.co.uk).

There were no individually significant items to report in FY18 (FY17: £82.2m). The fair value movement on derivative financial instruments was a charge of £4.7m (FY17: credit of £0.6m). This is presented below the adjusted profit before tax* on the income statement as it relates to hedging contracts that will unwind during FY19.

Pensions

The net valuation on the Group's legacy defined benefit scheme at the end of FY18, measured in accordance with IAS19, moved from a deficit of £5.4m as at March 2017 to a surplus of £2.2m due to changes in longevity expectations, the adoption of a revised approach to the calculation of the discount rate applied to the scheme's liabilities and the additional employer contributions. However, the valuation as measured on an ongoing funding basis, remains in a small deficit position. Therefore, as agreed with the scheme's trustees, the Group has made additional voluntary contributions totalling £2.5m in FY18. It will continue to do so at this level, rising to £5.0m from FY20 until FY23.

Taxation

The Group posted a charge of £2.5min the year in respect of taxation (FY17: credit of £1.7m). This includes a credit of £2.8m within deferred tax from the recognition of additional tax losses for Education, offset by £0.8m of charge relating to deferred tax liabilities on surpluses within the legacy defined benefit schemes. Adjusting for these two factors, the underlying effective tax rate* for the year was 20.9% (FY17: 21.1%).

Earnings per share

The adjusted earnings per share* for the year increased to 28.12p in FY18 from 20.19p in FY17. The basic earnings per share was 22.68p per share (FY17: loss per share of 66.85p).

Summary balance sheet

Consolidated net assets amounted to £39.7mat the period end (FY17: £16.7m), reflecting the net profit reported and the actuarial gains in respect of the pension deficit. The net assets are equivalent to 46p per ordinary share (FY17: 19p per ordinary share).

Cash flow and borrowings

A part of management's variable incentive plans relates to the generation of free cashflow, as defined in the table below. Free cashflow generation was £16.4m(FY17: £13.3m). After taking account of interest and the net impact of finance leases, the Group's core net debt reduced by £7.1mto £73.8m(FY17: £80.8m), as summarised below.

Total net debt* at the year-end was as follows:

The securitisation facility was increased during the year from £155m to £170m to cater for the continued growth in Express Gifts' trade receivables.

Dividends and capital structure

The Company has not received any dividends from its subsidiaries during the period and its balance sheet as at 30 March 2018 shows a deficiency of £95.5mon its retained reserves (FY17: deficiency of £95.3m).

Our ambition over the next few years is to invest in our digital capabilities in order to increase the level of potentially distributable reserves within the primary operating subsidiary, Express Gifts Limited, to enable it to remit dividends to Findel plc. Whilst the subsidiary's reserves have improved during the year, it is anticipated that the adoption of IFRS 9 'Financial Instruments' in FY19 will have an adverse impact upon its reserves of c.£21m as discussed below. Furthermore, the adoption of IFRS16 'Leases' in FY20 is also likely to have an adverse impact upon the distributable reserves of Findel plc.

Findel plc is therefore not yet in a position to declare a dividend and does not have plans to reinstate dividend payments at this stage. The directors have determined that no interim dividend will be paid (FY17: £nil) and are not recommending the payment of a final dividend (FY17: £nil).

Indicative impact of new accounting standards

IFRS 9 'Financial Instruments'

This new standard replaces IAS 39 'Financial instruments: recognition and measurement' and will apply to the Group for FY19. Its main impact will be upon the level of bad debt provision and impairment charge required against Express Gifts' trade receivables, by moving from the current approach of an incurred loss model to an expected loss model.

Under IAS 39, impairment provisions are only reflected when there is objective evidence of impairment, which is normally a missed payment. However, the expected loss approach of IFRS 9 is instead based upon the probability of default over the next 12 months, regardless of whether a missed payment has occurred. Consequently, impairment provisions under IFRS 9 are recognised earlier than under IAS 39, with the recognition of profits being delayed. There will also be a one-time adjustment to both receivables, deferred tax and reserves upon adoption.

It is important to note that the lifetime profitability of a customer and the cash received from the customer is unaffected by this change in accounting standard.

An illustration of the impact of IFRS 9 using an unaudited pro forma FY18 income statement and balance sheet as at 30 March 2018 is shown below.

In assessing the estimated impact, management has applied a number of judgements and assumptions, particularly around the methodology used to calculate Group's exposure at default. Since interpretations of the requirements of the new standard around this and other technical aspects differ, these judgements and assumptions are subject to change, which could have material impact on the estimated figures quoted.

The change in accounting standards has no impact upon the Group's debt covenants, which in the case of the revolving bank facility are calculated by reference to IAS 39, and in the case of the securitisation facility by reference to the gross balances owed by the customer.

IFRS 15 'Revenue from contracts with customers'

This new standard replaces several current standards and aims to standardise aspects of revenue recognition. It also applies to the Group for FY19. Its main effect on the Group will be to change the point of recognition of product sales from the point of despatch to the point of delivery to the customer. For most of the Group, the impact will result in a one-time delay of between 1-3 days in the recognition of revenue.

Full retrospective adoption will be applied in the FY19 accounts, with comparative figures for FY18 restated and an adjustment to the opening reserves estimated at £0.7m. It is unlikely to have a material effect upon the restated income statement for FY18.

An illustration of the combined impact of IFRS 9 and 15 on the pro forma balance sheet as at 30 March 2018 is shown below.

Treasury and risk management

The Group's central treasury function seeks to reduce or eliminate exposure to foreign exchange, interest rate and other financial risks, to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. It does not engage in speculative transactions and transacts only in relation to underlying business requirements in accordance with approved policies.

Interest rate risk management

The Group's interest rate exposure is managed by the use of derivative arrangements as appropriate. The Group has purchased interest rate caps covering the period to November 2019 to protect against the risk of unforeseen increases to LIBOR rates.

Net interest costs for the year were £9.1m, slightly higher than the £8.9m from FY17, reflecting higher LIBOR rates in the second half of the year offset by lower pension scheme interest. This charge was covered 3.9 times by adjusted operating profit* (FY17: 3.5 times).

Currency risk management

A significant proportion of the products sold, principally through the Group's Express Gifts division, are procured through the Group's Far-East buying operations and beyond. The currency of purchase for these goods is principally the US dollar.

The Group's hedging policy aims to cover anticipated future exposures on a rolling 12-month basis. As at the balance sheet date, the Group had forward contracts with an outstanding principal of $86m (FY17: $52m) and an average rate of £1/$1.311. The market value and unrealised loss on those contracts as at the balance sheet date when the prevailing rate was £1/$1.40 was £4.7m (FY17: gain of £0.6m), and is presented separately on the Income Statement as it represents an element of product costs to be realised in FY19 as the contracts unwind. The Group currently has forward contracts in place with an outstanding principal of $89m covering the 12 months to May 2019.

In addition to this direct exposure, the divisions face a significant level of indirect exposure from supplies made by UK suppliers who in turn source goods from overseas. That risk is normally mitigated through a combination of supplier agreements and fixed term pricing, although from time to time there may be a requirement to increase prices to customers to maintain margins.

Borrowing and counterparty risk

The Group's exposure to borrowing and cash investment risk is managed by dealing only with banks and financial institutions with strong credit ratings.

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below

Alternative Performance Measures

The directors use several Alternative Performance Measures ('APMs') that are considered to provide useful information about the performance and underlying trends facing the group. As these APMs are not defined by IFRS, they may not be comparable with APMs shown in other companies' accounts. They are not intended to be a replacement for, or be superior to, IFRS measures.

The principal APMs used in this Annual Report are set out below.

Adjusted EBITDA, adjusted operating profit and adjusted profit before tax

Individually significant items are non-recurrent and therefore not reflective of the underlying performance of the group. We therefore exclude them when assessing segment performance. The group's foreign exchange hedging policy means that there will be unrealised fair value gains or losses at the period end relating to contracts intended for future periods. Those fair value movements are therefore excluded from the underlying performance of the group until realised.

The reconciliation to both operating profit and loss before tax are as follows:

Like-for-like revenue

The group's businesses operate to a weekly reporting cycle, rather than a calendar month cycle. Consequently, it normally reports upon a 52-week period. For the year ended 31 March 2017, the Group reported on a 53-week period to ensure that the year-end date remained consistent with its accounting reference date of 31 March in accordance with the Companies Act 2006. The current accounting period ending on 30 March 2018 is reported on a 52-week period.

A like-for-like comparison of revenue in a 52-week period has been selected as being the 52 weeks ended on 31 March 2017 against the 52 weeks ended on 30 March 2018, as follows:

Express Gifts Product Gross Margin %

This is used a measure of the gross profit made by Express Gifts on the sale of products only, which shows progress against one of Express Gifts' strategic pillars. This derived as follows:

Express Gifts bad debt as a % of revenue

This is an assessment of the impairment charges incurred in respect of Express Gifts' trade receivables, which enables management to assess the quality and performance of its trade receivables. It is calculated using the impairment loss for the year before individually significant items, as follows:

Net debt

This measure takes account of total borrowings less cash held by the Group and represents our total indebtedness. Management use this measure for assessing overall gearing.

It is calculated as follows:

Core net debt

This measure excludes obligations under finance leases and securitisation borrowings from net debt to show borrowings under the revolving credit facility net of cash held by the Group. This is our preferred measure of the indebtedness of the group and is relevant for covenant purposes.

It is calculated as follows:

*Disclosed within bank loans

Debt funding consumer receivables

The majority of the trade receivables of Express Gifts are eligible to be funded in part from the securitisation facility, with the remainder being funded from core net debt. This measure indicates the value of trade receivables (before any impairment provision) capable of being funded from the securitisation facility.

It is calculated as follows:

Free cashflow

Free cash flow generation is a key operational metric which forms part of the remuneration targets for the Executive Directors.

Free cash flow is reconciled to cash generated by operations as follows:

Adjusted earnings per share

This measure shows the earnings per share given when individually significant items and fair value movements on derivative financial instruments are excluded from the profit after tax figure. Details of how the adjusted earnings per share are calculated can be found in note 4 below.

Underlying effective tax rate

This measure shows the Group's effective tax rate when the tax impact of individually significant items and other non-recurring items are adjusted for. It is calculated as follows:

Principal risks and uncertainties

Findel plc

Group financial information

Financial Statements

Consolidated Income Statement

52-week period ended 30 March 2018

The accompanying notes are an integral part of this consolidated income statement.

*Earnings before interest, tax, depreciation, amortisation and fair value movements on derivative financial instruments.

Consolidated Income Statement

53-week period ended 31 March 2017 (restated - refer to note 1)

The accompanying notes are an integral part of this consolidated income statement.

*Earnings before interest, tax, depreciation, amortisation and fair value movements on derivative financial instruments.

Consolidated Statement of Comprehensive Income

52-week period ended 30 March 2018

The total comprehensive income for the period is attributable to the equity shareholders of the parent company Findel plc.

The accompanying notes are an integral part of this consolidated statement of comprehensive income.

Consolidated Balance Sheet Company Number: 549034

at 30 March 2018

The accompanying notes are an integral part of this consolidated balance sheet.

Consolidated Cash Flow Statement

52-week period ended 30 March 2018

The accompanying notes are an integral part of this consolidated cash flow statement.

Consolidated Statement of Changes in Equity

52-week period ended 30 March 2018

The total equity is attributable to the equity shareholders of the parent company Findel plc.

The accompanying notes are an integral part of this consolidated statement of changes in equity.

Findel plc

Notes to the Group Financial Information

1 Basis of preparation of consolidated financial information

The financial information set out herein does not constitute the Company's statutory financial statements for the periods ended 30 March 2018 or 31 March 2017, but is derived from those financial statements. Statutory financial statements for 2017 have been delivered to the Registrar of Companies, and those for 2018 will be delivered in due course. The financial statements were approved by the Board of directors on 5 June 2018. The auditors have reported on those financial statements; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

Copies of the Company's statutory financial statements will be available on the Group's corporate website. Additional copies will be available upon request from Findel plc, Church Bridge House, Accrington, BB5 4EE.

The Group financial information has been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted for use within the European Union and in accordance with the accounting policies included in the Annual Report for the period ended 31 March 2017 except as stated below.

Going concern

In determining whether the Group's financial statements for the period ended 30 March 2018 can be prepared on a going concern basis, the directors considered all factors likely to affect its future development, performance and its financial position, including its cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities in the current economic climate.

The directors have reviewed the Group's trading and cash flow forecasts as part of their going concern assessment, including considering the potential impact of reasonably possible downside sensitivities which take into account the uncertainties in the current operating environment, including, amongst other matters, demand for the Group's products, its available financing facilities, and regulatory licensing and compliance. Although at certain times the level of facility and/or covenant headroom reduces to a level which requires cash flow initiatives to be introduced to ensure that the funding requirements do not exceed the committed facilities or result in non-compliance with covenants, management are confident that such actions are supportable, and that further controllable mitigating actions are available that could be implemented if required. The Group's current banking facilities mature in November 2019.

Taking into account the above circumstances, the directors have formed a judgement that there is a reasonable expectation, and there are no material uncertainties, that the Group and the Company have adequate resources to continue in operational existence for a period of at least 12 months.

Accordingly, they continue to adopt the going concern basis in preparing the Group's annual consolidated financial statements

Impact of accounting standards not yet effective

No standards have been adopted for the first time that affect the reported results or financial position.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective. Their adoption is not expected to have a material effect on the financial statements unless otherwise indicated. The Group does not intend to early adopt these standards:

· IFRS 9 'Financial Instruments' ('IFRS 9')

IFRS 9 was published in July 2014 and will be effective for the Group from the period beginning 31 March 2018.The standard will be applied prospectively and prior year comparatives will not be restated. IFRS 9 replaces IAS 39 'Financial Instruments: Recognition and Measurement' ('IAS 39')and prescribes:

o classification and measurement of financial instruments;

o expected loss accounting for impairment; and

o hedge accounting.

The only area which materially affects the Group is expected loss accounting for impairment of trade receivables in Express Gifts.

The impairment approach under IFRS 9 differs from IAS 39 as follows:

o IAS 39 adopted an incurred loss methodology whereby provision for impairment was made only when there was objective evidence of impairment at the year-end date, whereas under IFRS 9, provision for impairment is made based on an expected loss basis, utilising a 12-month probability of default ('PD'), based on historic experience.

o IFRS 9 also requires additional impairment provisions to be made against accounts which have suffered a significant deterioration in credit risk but have not defaulted utilising a lifetime PD, based on historic experience,and recognised on the gross receivable before impairment provision.

o Under IFRS 9 provisions for impairment are calculated based on an unbiased probability-weighted outcome which takes into account historic performance and considers the outlook for macro-economic conditions.

The changes above lead to impairment provisions under IFRS 9 being recognised earlier than those under IAS 39, which results in a one-off adjustment to trade receivables, deferred tax and retained earnings on adoption and will result in delayed recognition of profits, whilst the business is in growth. Whilst our modelling and analysis is still being finalised ahead of adoption, the estimated impact at 31 March 2018 is to reduce trade receivables by approximately £25m, to increase the Group's deferred tax asset by approximately £4m, resulting in a net reduction to retained earnings of approximately £21m. In assessing the estimated impact, management has applied a number of judgements and assumptions, particularly around the methodology used to calculate Group's exposure at default. Since interpretations of the requirements of the new standard around this and other technical aspects differ, these judgements and assumptions are subject to change, which could have material impact on the estimated figures quoted.

Despite the adjustments required to trade receivables, deferred tax and retained earnings, it is important to note that IFRS 9 only changes the timing of profits made on trade receivables. Express Gifts' underwriting and scorecards will be unaffected by the change in accounting, the ultimate profitability of trade receivables is the same under both IAS 39 and IFRS 9 and more fundamentally the cash flows and capital generation over the life of a trade receivable remain unchanged. The calculation of the Group's bank covenants is unaffected by IFRS 9, as they are based on accounting standards in place at the time they were set.

· IFRS 15 'Revenue from Contracts with Customers' ('IFRS 15')

IFRS 15 was published in May 2014 and will be effective for the Group from the period beginning 31 March 2018. The Group will apply the fully retrospective approach for transition set out in the standard and consequently the balance sheet at 1 April 2017 will restated along with the results for the period ended 30 March 2018.

The standard introduces a five-step approach to the recognition of revenue as follows:

1. Identify the contract(s) with a customer;

2. Identify the performance obligations in the contract;

3. Determine the transaction price;

4. Allocate the transaction price to the performance obligations in the contract; and

5. Recognise revenue when (or as) the entity satisfied a performance obligation.

The Group has performed a detailed impact assessment, identifying all current sources of revenue in scope of the new standard and assessing their treatment under the five-step model.

The principal impact of adopting the new standard will be a change in the point at which revenue is recognised in respect of the supply of products to customers (including delivery charges) from the point of despatch to the point of delivery. This is on the basis that the performance obligations identified in these transactions are the supply and delivery of products and that these obligations are not deemed to be completed until the customer obtains control of the products (i.e. on delivery). The supply and delivery of products are not deemed to be separable performance obligations as the customer is obliged to make use of the Group's delivery arrangements.

The impact of this change will be to delay the recognition of revenue (and gross profit) by an average of 1 to 3 days, reflecting the Group's standard delivery timeframes. Whilst our modelling and analysis is still being finalised, it is estimated that the impact of this change on the balance sheet at 1 April 2017 will result in a reduction to trade receivables of approximately £0.9m, offset by a £0.2m increase in the Group's deferred tax asset, resulting in a net reduction to retained earnings of £0.7m. The profit impact on the period ended 30 March 2018 (and in future periods) is expected to be minimal since revenue (and gross profit) deferred at the end of the period will be approximately equal to the revenue being deferred into the start of the period.

In addition, certain minor income streams, which are currently netted off against costs, will be recognised as statutory revenue upon adoption of IFRS 15, however the impact on reported revenue is expected to be minimal and the profit impact will be £nil.

· IFRS 16 'Leases' ('IFRS 16')

IFRS 16 was published in January 2016 and will be effective for the Group from the period beginning 30 March 2019, replacing IAS 17 'Leases'. The main principle of the standard is to eliminate the dual accounting model for lessees under IAS 17, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases, and to provide a single model for lessee accounting.On the adoption of IFRS 16, lease agreements will give rise to both a right-of-use asset and a lease liability for future lease payables. The right-of-use asset will be depreciated on a straight-line basis over the life of the lease. Interest will be recognised on the lease liability, resulting in a higher interest expense in the earlier years of the lease term. There will be no impact on cash flows although the presentation of the Cash Flow Statement will change significantly.

The Group is currently in the process of assessing the impact of the new standard and deciding on which of the permitted transition approaches it intends to take. The initial phase of work, which is still in progress, has involved modelling the impact of the new standard on the Group's existing lease commitments, collecting the relevant data and assessing process and system changes which will be required.

The Group has not yet concluded on a transition approach and as such it is not possible to fully quantify the impact of IFRS 16 at this stage.

Segmental reporting

IFRS 8 requires operating segments to be identified on the basis of the internal financial information reported to the CODM who is primarily responsible for the allocation of resources to segments and the assessment of performance of the segments. The CODM is the Board of Findel plc.

Following a review of the operating segments at the start of the financial year, management made the decision to change the presentation of the internal information presented to the CODM to more accurately reflect how segmental performance and the allocation of resources to the segments is managed. Consequently, the Group's operations are now organised into a central cost centre and two operating segments as follows:

· Express Gifts; and

· Education.

The CODM now assess the operating performance of each segment by reference to revenue and gross margin by revenue stream, and operating profit after distribution, marketing and administration costs, depreciation and amortisation.

Changes in classification of costs

During the current period management has disclosed the impairment charge in respect of Express Gifts' trade receivables of £28,156,000 within cost of sales, rather than within trading costs as it was disclosed in prior periods. Management believe that this presentation more accurately presents the performance of the business. The comparative figures have been restated on an equivalent basis to allow for a meaningful comparison. Consequently, for the 53-week period to 31 March 2017 an impairment charge of £63,178,000 (of which £35,215,000 was presented as an individually significant item) has been reclassified from trading costs to cost of sales. The net impact on reported profit is £nil.

In addition, in the current period management has disclosed gains made by its treasury function on the purchase of foreign currencies and subsequent sale to trading divisions of £837,000 within cost of sales, rather than within trading costs as it was disclosed in prior periods. Management believe that this presentation gives a more accurate view of gross margin from a group perspective. The comparative figures have been restated on an equivalent basis to allow for a meaningful comparison. Consequently, for the 53-week period to 31 March 2017 foreign exchange losses of £5,730,000 have been reclassified from trading costs to cost of sales. The net impact on reported profit is £nil.

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimates, which are dealt with below).

Recognition of deferred tax assets

Recognition of deferred tax assets is based on management's assumptions that it is probable that the Group's subsidiary entities will have taxable profits against which the unused tax losses and deductible temporary timing differences can be utilised. In the current period, management have increased the value of deferred tax recognised in respect of tax losses in Education, based on management's judgement that it is probable that Education will have sufficient future taxable profits against which to use these losses.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

Valuation of indefinite-lived intangibles

The Group has significant investments in indefinite-lived intangible assets at 30 March 2018 as a result of acquisitions of businesses and purchases of such assets. The carrying value of indefinite-lived intangible assets at 30 March 2018 was £17.3m (2017: £17.3m). These assets are held at cost less provisions for impairment and are tested annually for impairment. Tests for impairment are primarily based on the calculation of a value in use for each cash generating unit. This involves the preparation of discounted cash flow projections, which require an estimate of both future operating cash flows and an appropriate discount rate. Estimated future operating cash flows are uncertain so sensitivity analysis is provided in note 5.

Inventory provisioning

The Group carries significant amounts of inventory against which there are provisions for slow moving and delisted products. At 30 March 2018 a provision of £1.9m (2017: £1.9m) was held against a gross inventory value of £55.0m (2017: £59.0m).

Provisions are made against inventory based upon its location, the planned method of sale and the level of holding compared to forecast sales levels. The provisioning calculations require a high degree of judgement in assessing which lines require provisioning against and the use of estimates around historical recovery rates for slow moving and delisted products.

The gross value of stock against which no provision is held is £50.4m, of which £10.0m will require more than 12 months' forecast sales to clear but is not provided for on the basis of historic evidence that supports the assumption that it can be sold at greater than cost.

If a further 10% of lines were assessed as being slow moving, then the provision required would increase by approximately £200,000. If the recovery rate assumed decreased by 10% then the provision would increase by approximately £600,000.

Express Gifts' trade receivables

Express Gifts' trade receivables are recognised on the balance sheet at original invoice amount less provisions for impairment. At 30 March 2018 trade receivables with a gross value of £260.8m(2017: £270.1m) were recorded on the balance sheet, less a provision for impairment of £55.1m (2017: £83.4m).

Provisions for impairment of receivables within Express Gifts are established when there is objective evidence that the Group will not be able to collect all amounts due. The provision for impairment represents management's best estimate of losses incurred in the portfolio at the balance sheet date. In determining the required level of impairment provisions, the Group uses the output from a statistical impairment model developed and implemented during FY17, which assesses the probability of default at a customer account level based on customer risk scoring, and uses this estimate of probability to calculate an estimated loss based on the level of exposure at the balance sheet date, adjusted for an estimate of future cash flows, and the timing of those cash flows, expected to be recovered from defaulted accounts including those through the sale of non-performing trade receivables.

Provisions for Financial Services redress

At 30 March 2018 a provision of £8.6m (2017: £25.5m) was recorded in the balance sheet in respect of redress and refunds for flawed financial services products.

Due to the scale of the charge incurred in increasing the provision in FY17 (£14.7m), and the fact that the issues to which the redress and refund programmes relate did not arise in FY17, management concluded that the additional charge should be separately disclosed as an individually significant item in the income statement. No further charges have been incurred in FY18.

The provision amount represents an estimate of the remaining premiums, interest and fees to be refunded to customers, based on a review of affected customer accounts using an account level calculator developed for the exercise. The affected population falls into two broad categories; those who have a live relationship with the business and those that do not. The former group have now largely been refunded however the remaining population, some of whom may not have traded with the business for a significant period, are in the process of being contacted. In calculating the provision amount at 30 March 2018, an assumed response rate has been applied, taking account of the actual response seen to date. An increase of 5% in this assumed response rate would increase the provision required by c.£0.8m.

Provisions for onerous leases

At 30 March 2018 a provision of £11.4m (2017: £13.9m) was recorded in the balance sheet in respect of onerous leases for unoccupied areas of the Group's premises at Enfield and Hyde. The provisions were calculated as the net of the remaining unavoidable lease rentals, less an assumed level of sublet income over the remaining terms of the leases of between ten and sixteen years. Because of the long-term nature of the liabilities, the cash flows were discounted using a discount rate that reflects the risks inherent in the future cash flows. Cash outflows were discounted at a risk-free rate of 3%, whilst the inflows were discounted at 6%.

Management have made estimates as to the timing and quantum of sublet income expected to be received based on an assessment of local market conditions, as well as applying judgement in discounting the cash inflows at 6%. The level of provision required is sensitive to these key assumptions. If the properties remained vacant for one further year than planned then the provision required would increase by approximately £1.1m, whilst 1% increase in the discount rate applied would increase the provision by approximately £0.7m.

Discount rate for pension scheme liabilities

At 30 March 2018 the Group's defined benefit pension scheme showed a surplus of £2.2m (2017: deficit of £5.4m). In the current period management have adopted the PwC Single Agency corporate bond yield curve to derive the discount rate applied to the scheme's projected cash flows, in the calculation of its liabilities under IAS 19 Employee Benefits('IAS 19'). This curve regards a corporate bond with a 'AA' rating from a single agency as being 'high quality' in compliance with IAS 19, rather than requiring a AA rating from two agencies as the previous Merrill Lynch curve required. This allows more bonds to be used in the calculation of an appropriate discount rate. Management believe that the use of this curve will allow for a more robust discount rate going forwards in an environment where the number of corporate bonds available to be referenced for this purpose is declining. The discount rate indicated by the Merrill Lynch curve was 2.55% vs. the 2.65% indicated by the PwC curve. The use of the Merrill Lynch discount rate would have increased the scheme's liabilities by £2.4m.

The carrying amounts of the assets and liabilities detailed above are sensitive to the underlying assumptions used by management in their calculation. It is reasonably possible that the outcomes within the next financial year could differ from the assumptions made, which would impact upon the carrying values assumed.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any of the future periods affected.

2 Segmental analysis

weeks ended 30 March 2018

*Earnings before interest, tax, depreciation, amortisation and fair value movements on derivative financial instruments.

53 weeks ended 31 March 2017**

*Earnings before interest, tax, depreciation, amortisation and fair value movements on derivative financial instruments.

** Restated - refer to note 1.

3 Current tax

(a) Tax charged/(credited) in the income statement

^{(1) The prior period adjustment in FY18 relates to the tax treatment of a post balance sheet event recorded in the statutory accounts of Express Gifts Limited, which resulted in the Group's current tax liability for 2016/17 being lower than the level assumed in the FY17 accounts. This led a to a reduction in the level of brought forward losses, which resulted in a corresponding adjustment to deferred tax. In FY17 the prior year adjustment related to capital allowances not claimed in respect of 2015/16 which had both a current tax impact and a corresponding deferred tax impact.}

^{(2) This relates to the recognition of deferred tax liabilities in respect of the group section of the Findel Group Pension Fund, which is in surplus. In FY18, the deferred tax liability has been calculated at a tax rate of 35%, which reflects the rate of tax payable on any return of defined benefit pension surpluses, rather than the 17% rate assumed in the prior period.}

The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience.

(b) Tax recognised directly in other comprehensive income

(c) Reconciliation of the total tax charge/(income)

The tax expense in the income statement for the period differs from the standard rate of corporation tax in the UK of 19% (2017: 20%).

The differences are reconciled below:

^{(3) In FY17, expenses not deductible for tax purposes related predominantly to impairment of goodwill of £17,319,000.}

(4) ^{In FY18, the group has increased the value of deferred tax recognised in respect of tax losses in Education, based on management's judgement that it is probable that Education will have sufficient future taxable profits against which to use these losses.}

4 Earnings/(loss) per share

* Adjusted to remove the impact individually significant items and fair value movements on derivative financial instruments.

The earnings/(loss) per share attributable to convertible ordinary shareholders is £nil.

5 Goodwill and other intangible assets

(a) Goodwill

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. After recognition of impairment losses, the carrying amount of goodwill has been allocated as follows:

During the prior period the group acquired 100% of the share capital of SPA 4 Schools Limited for total consideration of £1,600,000. This constituted a business combination as defined by IFRS 3 and consequently goodwill of £628,000, being the difference between the fair value of the consideration payable and the fair value of the net assets acquired, was recognised. This goodwill was allocated to the Education CGU, which was the CGU that would benefit from the synergies of the combination.

Following the annual impairment review at March 2017, the carrying amount of the Education CGU was determined to be higher than the recoverable amount and an impairment loss of £19,800,000 was recognised. Consequently £16,999,000 of goodwill allocated to the Education CGU was fully impaired.

£320,000 of goodwill allocated to the Express Gifts CGU was also impaired during the prior period, as this related to a brand which was no longer in use within the business and therefore considered to have a fair value of £nil.

(b) Other intangible assets

Brand names, which arise from the acquisition of businesses, and are deemed to have an indefinite life, are subject to annual impairment tests, on the basis that they are expected to be maintained indefinitely and are expected to continue to drive value for the Group.

Upon the acquisition of SPA 4 Schools Limited in the prior period, a brand name with a fair value of £500,000 and customer relationships with a fair value of £450,000 were recognised. These are both being amortised over a useful economic life of 5 years.

The amortisation period for customer relationships, which arose from the acquisition of businesses, is between 2 and 20 years. Management do not consider that any customer relationships are individually material.

Brand names acquired in a business combination are allocated, at acquisition, to the CGUs that are expected to benefit from that business combination. The carrying amount of brand names has been allocated as follows:

(c) Impairment testing

The Group tests goodwill and indefinite-lived brand names for impairment annually, or more frequently if there are indicators of impairment.

The recoverable amount the EducationCGU was determined from a value in use calculation.

Significant judgements, assumptions and estimates

In determining the value in use of the Education CGU it is necessary to make a series of assumptions to estimate the present value of future cash flows. These key assumptions have been made by management reflecting past experience, current trends, and where applicable, are consistent with relevant external sources of information. The key assumptions are as follows:

Operating Cash flows

Management has prepared cash flow forecasts for a three-year period derived from the approved budget for financial year 2018/19. These forecasts include assumptions around sales prices and volumes, specific customer relationships and operating costs and working capital movements.

Risk adjusted discount rates

The pre-tax rate used to discount the forecast cash flows is 17.7% (2017: 17.9%). This discount rate is derived from the Group's weighted average cost of capital as adjusted for the specific risks related to the Education CGU.

Long term growth rate

To forecast beyond the detailed cash flows into perpetuity, a long-term average growth rate of 1.6% (2017: 1.9%) has been used. This is not greater than the published International Monetary Fund average growth rate in gross domestic product for the next five-year period in the territories where the CGU operates.

Results

The estimated recoverable amount of Education CGU exceeded the carrying value by approximately £4,931,000 (2017: deficiency of £19,800,000) and as such no impairment was necessary (2017: impairment of £19,800,000).

Sensitivity analysis

The results of the Group's impairment tests are dependent upon estimates and judgements made by management, particularly in relation to the key assumptions described above. A reasonably possible change in key assumptions could lead to the carrying value of the Education CGU exceeding its recoverable amount. Sensitivity analysis to potential changes in operating cash flows and risk adjusted discount rates has therefore been reviewed.

The table below shows the risk adjusted discount rate and forecast operating cash flow assumptions used in the calculation of value in use for the Education CGU and the changes in these assumptions required for the recoverable amount to equal the carrying value:

The carrying value of goodwill and indefinite-lived brands allocated to the Express Gifts CGU was fully impaired during the prior period as this related to a brand which was no longer in use within the business and was therefore considered to have a fair value of £nil. Management have considered the continuing appropriateness of the impairment of the indefinite-lived brands and have concluded that this remains appropriate.

6 Trade and other receivables

Certain of the Group's trade receivables are funded through a securitisation facility arranged by HSBC Bank plc and funded through a vehicle owned by GRE Trust Company (Ireland) Limited. The facility is secured against those receivables and is without recourse to any of the Group's other assets. The finance provider will seek repayment of the finance, as to both principal and interest, only to the extent that collections from the trade receivables financed allows and the benefit of additional collections remains with the Group, since the assets are charged but not transferred. At the period end, receivables of £221,837,000 (2017: £200,752,000) were funded through the securitisation facility, and the facilities utilised were £157,504,000 (2017: £142,534,000).

Due to the different nature of trade receivables within the Express Gifts operating segment compared to those in the rest of the Group, the following analysis of trade receivables has been split between Express Gifts and the rest of the Group.

Express Gifts

The average credit period taken on sales of goods is 202 days (2017: 226 days). Interest is charged at 3.1% (2017: 3.1%) per month on the outstanding balance.

Provisions for impairment of trade receivables within Express Gifts are established when there is objective evidence that the Group will not be able to collect all amounts due. The provision for impairment represents management's best estimate of losses incurred in the portfolio at the balance sheet date. In determining the required level of impairment provisions, the Group uses the output from a statistical impairment model developed and implemented during FY17, which assesses the probability of default at a customer account level based on customer risk scoring, and uses this estimate of probability to calculate an estimated loss based on the level of exposure at the balance sheet date, adjusted for an estimate of future cash flows expected to be recovered from defaulted accounts. An emergence period is incorporated to provide the estimated level of incurred losses at each reporting date.

Sensitivity analysis

Management judgement is required in setting assumptions around probabilities of default, cash recoveries and the emergence period which have a material impact on the results indicated by the model.

A 1% increase/decrease in the probability of default would increase/decrease the provision amount by approximately £1.8m.

A 1p increase in the assumed recoveries rate would result in the impairment provision decreasing by approximately £0.6m.

A one-month increase/decrease in the assumed emergence period would result in the impairment provision increasing/decreasing by approximately £3.5m-£4m.

Before accepting any new customer, Express Gifts uses an external credit scoring system to assess the potential customer's credit quality and defines credit limits by customer. Limits and scoring attributed to customers are continually reviewed. There are no customers who represent more than 1% of the total balance of the Group's trade receivables.

Rest of Group

The average credit period taken on sales of goods is 33 days (2017: 28 days). Trade receivables are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience.

Given the nature of the public-sector customer base within the Educationoperating segment, it is not considered necessary to utilise formal credit scoring. However, credit references are sought for all new customers prior to extending credit. There are no customers who represent more than 1% of the total balance of the Group's trade receivables.

Included in the rest of the Group's trade receivables balance are debtors with a carrying amount of £125,000 (2017: £184,000) which are past due at the reporting date which are partially provided against. There has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 155 days (2017: 150 days).

Movement in the allowance for doubtful debts:

*FY17 figure includes £35,215,000 of costs classified within individually significant items.

Express Gifts

There are no not past due trade receivables which are unimpaired (2017: none).

The aged analysis of the carrying values of not past due and past due trade receivables is as follows:

Rest of Group

The carrying value of not past due trade receivables which are unimpaired is £5,541,000 (2017: £5,924,000).

The aged analysis of the carrying values of past due trade receivables which are unimpaired is as follows:

The aged analysis of the carrying values of past due trade receivables which are impaired is as follows:

In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers.

The directors consider that the Group's maximum exposure to credit risk is the carrying value of the trade and other receivables and that their carrying amount approximates their fair value.

The Group uses a number of forbearance measures to assist those customers approaching, or at the point of experiencing, financial difficulties. Such measures include arrangement to pay less than the minimum payment and the suspension of interest charges to help the customer pay off their debt. We expect customers to resume normal payments where they are able. At the balance sheet date forbearance measures were in place on 19,429 accounts (2017: 35,716) with total gross balances of £10,973,000 (2017: £22,859,000). Provisions are assessed as detailed above.

During the current period, overdue receivables with a gross value of £69,889,000 (2017: £25,993,000) were sold to third party debt collection agencies. As a result of the sales, the contractual rights to receive the cash flows from these assets were transferred to the purchasers.

7 Provisions

Onerous Leases

A provision was made in prior periods for onerous leases regarding vacated leasehold properties. Refer to note 1 for further details.

Express Gifts financial services redress and refunds

In the prior period, a provision was made in respect of redress and refunds for flawed financial services products on the basis set out in note 1. The provision is expected to be utilised within 12 months.

Restructuring provision

A provision was made in the prior period in respect of the restructuring exercise undertaken to relocate the head office function from Hyde to Express Gifts' offices in Accrington. The provision was fully utilised in the current financial year.

8 Related parties

During the current and prior periods, the Group made purchases in the ordinary course of business from Brands Inc. Limited and Firetrap Limited, subsidiaries of Sports Direct International plc, which is a significant shareholder in the ultimate parent company, Findel plc. The value of purchases made in the current and prior periods and amounts owed at the 30 March 2018 and 31 March 2017 were as follows:

Brands Inc. Limited

Firetrap Limited

Transactions between Findel plc and its subsidiaries, which are related parties of Findel plc, have been eliminated on consolidation and are not discussed in this note. All transactions and outstanding balances between group companies are priced on an arms-length basis and are settled in the ordinary course of business.

Compensation of key management personnel

The remuneration of the directors including consultancy contracts and share-based payments is summarised below:

By order of the board

P B Maudsley S M Caldwell

Group CEO Group CFO

5 June 2018 5 June 2018