Studio Retail : Half-year Report

16 December 2019

Studio Retail Group plc ('SRG' or 'the Group'), formerly named Findel plc

Interim Results for the 26 weeks ended 27 September 2019

Clear strategic progress in becoming a digital-first value retailer

Record sales from Studio in peak Black Friday and Christmas period

SRG, the digital value retailer, today announces its Interim Results for the 26-week period ended 27 September 2019.

Financial Summary

	26 weeks ended 27.09.19	26 weeks ended 28.09.18 (restated^)	Change
Revenue - total Group	£228.1m	£228.2m	-0.0%
Revenue - continuing operations	£181.3m	£180.7m	+0.3%
Adjusted profit before tax - total Group*	£13.0m	£11.6m	+12%
Profit before tax from continuing operations	£2.6m	£15.5m	-83%
Core net debt*	£70.8m	£80.9m	-£10.2m

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

^ restated to show the results of Education as a discontinued operation - see note 2.

Strategic highlights

· Post period-end, conditional agreement to sell Education for headline cash consideration of £50m, representing 10.3x its adjusted EBITDA for FY19. Education is presented as a discontinued operation

· Simplification of the Group, the change of group name to Studio Retail Group plc in July 2019 and the appointment today of Paul Kendrick (Managing Director - Studio) to the Board all aligned with the continued focussed development of the Studio digital business

· Successful deployment of the Studio app with over 200,000 downloads to date; Online sales in H1 represent 81% of total sales, up from 72% at September 2018

Financial highlights

· H1 total revenue for Studio flat to prior year, with online product sales for the main Studio brand up 12.8%

· Studio product gross profit up 2.5%, with margin % up 160bp through improved buying practices, stock control and control over discounting

· Financial services revenue up 5.9% and gross profit up 9.4% through a combination of credit receivables balance growth and improved arrears

· Income capture processes introduced in November 2018 have slowed the rate of credit recruitment, as anticipated. New tools to be introduced in Q4 to streamline processes and restore growth

· Adjusted profit before tax* for the total Group for H1 up by 12%, with positive contribution from both businesses

· Profit before tax from continuing operations of £2.6m (2018: £15.5m) after recognition of additional provision PPI claims announced in September estimated at £7.9m

· Core net debt* of £70.8m at half year reduced by £10.2m vs. September 2018;

o Total net debt, including securitisation borrowings and the first-time recognition of £44m of finance leases per IFRS 16, of £285.2m (2018: £238.7m)

o Studio securitisation facility recently increased to £200m, up from £185m, to accommodate sales and receivables growth and extended to December 2022

Current trading and outlook

We saw more customers waiting for Black Friday and Christmas than in previous years but when they arrived post period-end, they did so in record numbers. Record levels of online sessions in a single day (781k on Black Friday), daily dispatches exceeding 100k parcels for the first time ever, and product sales in the last 11 weeks up 10% on prior year underlines Studio's digital growth trajectory.

We remain encouraged by the medium-term prospects for the Studio business.

Phil Maudsley, Group CEO, commented:

'This has been another period of strategic progress as we strengthen our position as a digital-first value retailer.

'We are pleased to have reported a strong increase in Adjusted PBT* in the first half, followed in Q3 by a record sales performance from Studio during our peak seasonal trading period.

'We know that Studio's customers look for value all year round, so we do not need to chase promotional trends to maintain our market position. In support of this approach, we look forward to further initiatives coming on stream next year to enhance our digital-led value offer.

'We will look to refund the remaining customers' PPI claims during the second half of the year.

'Education has delivered on the foundations laid last year and its leadership team should be congratulated on their hard work. We are delighted to have agreed the terms of a sale with YPO and we look forward to this completing in 2020.

'The retail marketplace is undoubtedly challenging, but Studio's unique position as a digital-first, value-focused retailer with an integrated credit option gives us great confidence for the future.'

As separately announced today, the Group has entered into a conditional agreement to sell its Education business to the owners of YPO (Yorkshire Purchasing Organisation), conditional upon, amongst other matters, both approval of the Group's shareholders and clearance from the competition authorities. At the balance sheet date of 27 September 2019, the conditions set out in IFRS 5Non-current Assets Held for Sale and Discontinued Operationsfor Education to be classified as 'held for sale' were met. Education is therefore presented in these interim results as a discontinued operation. References to 'total group' include both continuing and discontinued operations to aid comparability. A reconciliation to this Alternative Performance Measure is set out within the statement.

The group will be using the modified retrospective method of adopting IFRS16 (Leases), which materially alters the presentation of lease costs for the current period but does not require the prior period numbers to be restated. In order to aid comparability, the current period results have also been shown under the previous IAS 17 methodology within Adjusted profit before tax. A reconciliation to this Alternative Performance Measure is set out within the statement.

Enquiries

Studio Retail Group plc 0161 303 3465

Phil Maudsley, Group CEO

Stuart Caldwell, Group CFO

Tulchan Communications 020 7353 4200

Will Smith

Notes to Editors

Studio Retail Group currently contains market leading businesses in the UK digital retailing and education supplies markets. It is primarily a retailer and distributor, handling and supplying specialist products manufactured by third parties.

The Group's activities are currently focused in two main operating segments:

· Studio - a leading UK digital value retailer, primarily trading via the Studio brand; and

· Education - the second largest listed independent supplier of resources and equipment (excluding information technology and publishing) to schools in the UK and overseas.

INTERIM MANAGEMENT REPORT

Summary

The first half of FY20 has seen further good progress with our strategic plans to transform the group into being a digital-first value retailer.

The change in the group's name to Studio Retail Group plc in July 2019 and the announcement of today's conditional agreement to sell Education to YPO demonstrates our ongoing focus on investing behind the Studio business. We believe that Studio's unique position as a digital-first, value-focussed retailer with an integrated credit option is both resilient in a challenging retail market, but also one capable of delivering significant growth in the coming years.

We expect the sale of Education to complete in 2020 subject to receiving the necessary approvals and clearances, with the proceeds being used initially to reduce core net debt and significantly strengthen the position of the legacy pension scheme. We will give additional details on our plans for investing more into Studio's digital and infrastructure at the year end.

Much of the peak trading period for Studio is now behind us, which gives us sustained confidence for the medium-term prospects for the Group.

Studio

Studio is our core digital value retail business, primarily trading under the Studiobrand (the other smaller brand is Ace). Its strategy for medium-term growth has three core elements:

· Improving retail profitability;

· Maximising the financial services opportunity; and

· Building strong foundations for the future.

Retail profitability

Increasing the retail profitability in Studio in the medium-term will be achieved by growing sales through having more customers, who each spend more with us, and by improving how we plan and source our ranges to improve product margins.

We have continued to transfer more of our marketing away from traditional paper-based catalogues towards digital, billboard and TV advertising, in part to raise the brand profile of Studio. Our capital investment has been focussed upon migrating legacy mainframe systems into versatile, data-rich applications that will enable us to promote the most suitable products to our customers and provide them with the level of service they expect.

The first half of the year has seen notable successes with the launch of the Studio app which currently has over 200,000 downloads and the deployment of the Salesforce marketing cloud solution which will enable us to use deeper business intelligence to promote more efficiently. Online ordering levels have increased from 72% to 81% over the last year, with over 97% of new customers using one or more of our digital channels.

Product sales from online channels in the Studio brand increased strongly in H1, up by 12.8%, with average spend per customer - particularly from the app channel - up by 3.1%. Orders from legacy channels and from the secondary Ace brand have been weaker, down 23%, representing around 8% of total sales. Within that group, there are a high number of non-credit taking customers who have tended to shop for highly-promotional items.

Improvements to our sourcing and merchandising systems have contributed to gross margin in H1 being up 160bp on prior year, which more than compensated for total product sales being 2.1% lower in H1 and produced an increase in gross profit from product sales of 2.5% - evidence that this element of the strategy to increase retail profitability is working.

Given the strong progress seen during the early weeks of the peak trading period, with Q3 product sales up 10%, we remain confident in the medium-term prospects for growth in this area.

Financial Services

One of the key differences between Studio's model and many other retailers is its flexible affordable credit option, which allows customers to pay for their goods over an extended period. Whilst we have seen growth in short-term deferred payment solutions adopted by some high-street retailers, that type of product is generally less well suited to the Studio customer base and our broader product offering. The revolving account model continues to provide a valuable second revenue stream for Studio, which increased by 5.9% in H1.

New regulations were introduced in late 2018 requiring more detailed information to be captured on customer incomes to assess the affordability of taking on new or additional credit from us. That process has, as expected, reduced the number of new credit customers being accepted during H1. To offset that effect, we introduced a cash-at-point-of-sale (CAPOS) option for customers during the year and will be introducing a new streamlined affordability assessment tool during Q4 that should reduce attrition during the application process and improve the customer journey.

As reported on 25 September 2019, Studio saw a large increase in the level of PPI claims and enquiries in the days leading up to the FCA's deadline for claims of 29 August. This included a large block of previously unseen claims from the Official Receiver acting on behalf of bankrupt customers. The business continues to work through these claims and expects that the majority of these will be rejected. However, a provision of £7.9m has been recognised in H1 as an individually significant item in respect of these cases (in line with the range of £6-10m indicated in the 25 September announcement). The majority of this is likely to relate to Plevin refunds, rather than mis-sold policies, and includes the cost of reviewing and administering the claims.

Building Strong foundations

The transformation of Studio from a catalogue retailer to a digitally-focussed retailer requires ongoing investment, as we aim to meet customers' expectations and those of our regulators and other stakeholders. Our legacy mainframe systems are being replaced with versatile, data-rich solutions which can integrate seamlessly with each other to drive greater business intelligence. Examples of solutions that have come on stream during H1 include the Salesforce marketing cloud solution, an update to our underwriting technology, and the deployment of Mulesoft systems integration software to link them together.

This part of our strategy also covers our internal processes, for which a key element this year has been preparing our HR and training processes ahead of the introduction of the Senior Manager & Certification Regime (SMCR) to consumer credit businesses in December 2019, which was completed ahead of time during October. We also completed the modernisation of our office reception areas to incorporate the rebranding from Express Gifts to Studio Retail.

Financial results

Total revenue in H1 was marginally ahead of prior year at £181.3m (FY18: £180.7m) with gross profit increasing more strongly by 6.0% to £88.0m (FY18: £83.0m). The arrears performance of the credit receivables improved during Q2 and market prices for the sale of defaulted accounts were slightly better than we had anticipated. Therefore, the bad debt charge for H1 was slightly lower than prior year at £13.3m (FY18: £13.9m) despite the growth in both balances and financial services revenue.

Marketing costs in H1 increased by £2.3m, although this is primarily intra-year phasing to improve the brand awareness. Investment in strengthening systems and processes, including preparations for SMCR, led to the business producing an adjusted operating profit* of £14.8m, up marginally on prior year. After taking account of the additional provision for PPI refunds (see above) of £7.9m, and the transition to IFRS 16, the reported operating profit for H1 was £7.1m (FY18: £14.7m).

Education

Our Education business is one of the leading independent suppliers of school and early years resources to schools in the UK and overseas. It has undergone a substantial transformation over the last two years focussed upon overhauling its digital solutions for teachers, improving its pricing strategy, underpinning this with cost reductions.

A key aspect of this transformation has been to offer schools lower prices on around 4,000 items when they order online, compared to the printed catalogue and offline ordering channels. This approach has led to online ordering levels increasing from less than 20% in March 2017 to over 70% by September 2019. Customers have also increasingly switched away from high-cost branded products towards our own-brand Classmates ranges, which have a lower average selling price but a higher level of gross profit. Hence, whilst revenue in H1 edged back by 1.4%, gross profit increased by £0.5m or 3%.

Reductions in overhead costs totalling £0.5m in H1, including reductions in marketing and promotional spend which are less necessary when pricing is lower and simplified, helped to produce an adjusted operating profit* for H1 of £2.6m, being £1m or 64% higher than last year.

Full details of the proposed sale of Education to YPO are set out in a separate announcement released today and will be expanded upon in a shareholder circular to be published in due course.

Central

Underlying central costs in H1 were £0.1m lower than last year after taking account of IFRS 16. The recognition of a lease impairment on the Hyde property connected to the disposal of Education resulted in reported central costs being £1.5m. We do not anticipate any significant reduction in central costs in the near-term after the sale of Education given the relatively small plc-team, but will keep this under close review.

Current trading and Outlook

We saw more customers waiting for Black Friday and Christmas than in previous years but when they arrived, post period-end they did so in record numbers. Record levels of online sessions in a single day (781k on Black Friday), daily dispatches exceeding 100k parcels for the first time ever, and product sales in the last 11 weeks up 10% on prior year underlines Studio's digital growth trajectory.

We remain encouraged by the medium-term prospects for the Studio business.

FINANCIAL REVIEW

Summary income statement

The group produced an Adjusted profit before tax* of £13.0m in the period, up 12% on the prior year, as set out below.

		26 weeks ended 27.09.19			26 weeks ended 28.9.18		Variance
	As reported	Exclude IFRS16	Like-for-like
	£'000	£'000	£'000		£'000		£'000
Studio	15,030	(226)	14,804		14,650		154
Central	(368)	463	95		24		71
Adjusted operating profit from continuing operations	14,662	237	14,899		14,674		225
Findel Education	2,714	(89)	2,625		1,603		1,022
Adjusted operating profit from total group*	17,376	148	17,524		16,277		1,247
Finance costs	(5,701)	1,179	(4,522)		(4,664)		142
Adjusted profit before tax*	11,675	1,327	13,002		11,613		1,389

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

The profit before tax from continuing operations was £2.6m (2018: £15.5m).

Borrowings and finance costs

The seasonality of working capital investment in both of the Group's businesses mean that core net debt* is at its peak around the half-year point. Core net debt* stood at £70.8m at the end of September 2019, down by £10.2m from September 2018 despite continued growth in Studio's credit receivables. The mid-year core net debt position is approximately £13m higher than at the previous year-end. We would anticipate that this intra-year movement will be significantly more muted in 2020 following the sale of Education.

The securitisation facility that supports Studio's credit receivables has recently been increased by a further £15m to £200m and has been extended to mature in December 2022. The balance drawn on the securitisation facility stood at £170.3m at September 2019 (September 2018: £157.0m).

The core net debt facilities were recently extended by 3 months to mature at the end of March 2021. We anticipate that a longer-term refinancing of those facilities will be undertaken after the completion of the sale of Education.

Finance costs of £5.3m (September 2018: £4.7m) were incurred by continuing operations in the first half of the year, of which £0.8m relates to the adoption of IFRS 16. So, on a like-for-like basis, underlying finance costs for continuing operations were £0.2m lower than prior year. Within this is a refund of £0.6m in respect of historic overpaid interest from one of the group's bankers. Finance costs of £0.4m (September 2018: £0.0m) were incurred by the discontinued operation, which almost entirely related to the adoption of IFRS 16.

Foreign exchange contracts

The Group's policy on hedging its foreign exchange risks remains to cover its planned exposures over the next 12 months on a rolling basis by the use of forward contracts. At the end of September 2019, the Group was committed to contracts for $86m, contracted at US dollar exchange rates between £1/$1.23 and £1/$1.35, with maturity dates covering the period to September 2020. The fair value of these contracts at the period end was a net asset of £3.1m. Fair value movements in the first half have resulted in a credit of £2.4m (September 2018: £5.5m), which has been recorded in the condensed consolidated income statement.

Taxation

The group recorded a tax charge of £0.6m from continuing operations in the first half (September 2018 - £3.1m), based on an estimated underlying effective tax rate for the full year of 21.9% (September 2018 - 19.8%). When adjusted to exclude the impact of individually significant items, the group's underlying effective tax rate* was 21.0% (2018: 19.8%). We do not anticipate any material changes to the tax charge as a result of the sale of Education.

Balance sheet

Net assets at the end of September 2019 stood at £50.8m, up from £43.5m at the year end with £3.9m resulting from net profit for the period and most of the rest resulting from movements in the legacy defined benefit pension scheme asset which, measured on an IAS 19 basis was valued at £7.0m, up from a deficit of £0.1m at the year end.

Deficit reduction contributions totalling £2.3m have been made in the first half. The triennial valuation of the scheme's assets as at April 2019 is expected to be completed during H2 following the completion of the sale of Education. As part of the sale, the group is contributing a lump sum of £13m into the Scheme, with ongoing contributions in the Scheme reducing from their current level of £5m p.a. to £3.75m p.a. until March 2024. We anticipate that this will bring all four sections of the scheme up to, or close to, self-sufficiency within 3-4 years.

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 these Interim Results are set out below.

Adjusted operating profit and adjusted profit before tax

The proposed sale of Education satisfied the conditions of IFRS 5 Non-current Assets Held for Sale and Discontinued Operationsshortly before the period-end date (although the sale has yet to occur) and consequently it is necessary to report the results of Education separately from those of the rest of the group. The results of the total group for H1 are considered to be meaningful to judge the group's performance during that period and as such Education's results are included within this measure.

In addition, during the current period, the group adopted IFRS 16 Leases. The full impact of adopting this new accounting standard is detailed in note 2 to the interim financial statements. Management has excluded the impact of adopting this new accounting standard to better demonstrate underlying trends in the group's trading performance. IFRS 16 Leasesdid not impact the 26 weeks to 28 September 2018.

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.

Finally, the group has disclosed individually significant items which are disclosed separately due to their nature or scale and should therefore be excluded to allow meaningful comparisons of the group's underlying performance between periods.

The reconciliation to profit before tax is as follows:

	26 weeks ended 27.9.19	26 weeks ended 28.9.18
	£'000	£'000
Adjusted operating profit from total group	17,524	16,277
Less adjusted operating profit from discontinued operation	(2,625)	(1,603)
Adjusted operating profit from continuing operations	14,899	14,674
Impact of IFRS16 on operating profit from continuing operations	(237)	-
Individually significant items	(9,107)	-
Fair value movements on derivatives	2,427	5,469
Finance costs	(5,343)	(4,642)
Profit before tax from continuing operations	2,639	15,501

	26 weeks ended 27.9.19	26 weeks ended 28.9.18
	£'000	£'000
Adjusted profit before tax from total group	13,002	11,613
Less adjusted profit before tax from discontinued operation	(2,617)	(1,581)
Adjusted profit before tax from continuing operations	10,385	10,032
Impact of IFRS16 on profit before tax from continuing operations	(1,066)	-
Individually significant items	(9,107)	-
Fair value movements on derivatives	2,427	5,469
Profit before tax from continuing operations	2,639	15,501

Studio Product Gross Margin %

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

		26 weeks ended 27.9.19	26 weeks ended 28.9.18
		£000	£000
Product revenue		122,311	124,987
Less product cost of sales		(80,009)	(83,723)
Gross product margin		42,302	41,264
Product gross margin %		34.6%	33.0%

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:

		27.9.19	28.9.18
		£000	£000
Total bank loans		265,346	256,992
Lease liabilities		44,083	786
Less cash and cash equivalents		(24,233)	(19,065)
Net debt		285,196	238,713

Core net debt

This measure excludes lease liabilities 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 as it is aligned to the definitions used in lending facilities for covenant purposes.

It is calculated as follows:

		27.9.19	28.9.18
		£000	£000
Net debt		285,196	238,713
Less lease liabilities		(44,083)	(786)
Less securitisation borrowings*		(170,346)	(156,992)
Core net debt		70,767	80,935

*Disclosed within bank loans

Debt funding consumer receivables

The majority of Studio's trade receivables 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, together with an element of funding from core net debt.

It is calculated as follows:

		27.9.19	28.9.18
		£000	£000
Portion funded from securitisation borrowings		170,346	156,992
Portion funded from core net debt		61,514	64,123
Debt funding consumer receivables		231,680	221,115

Finance costs

Finance costs are affected by the introduction of IFRS 16 Leases(see note 2). In addition, finance costs relating to the discontinued operation not disclosed within finance costs within the condensed consolidated income statement. Therefore, to aid comparability, a like-for-like measure is shown calculated as follows:

		26 weeks ended 27.09.19			26 weeks ended 28.9.18
	As reported	Exclude IFRS16	Like-for-like
	£'000	£'000	£'000		£'000
Continuing operations	(5,343)	829	(4,514)		(4,642)
Discontinued operation	(358)	350	(8)		(22)-
Total finance costs	(5,701)	1,179	(4,522)		(4,664)

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 7 of the condensed consolidated financial statements.

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. This measure allows management to assess underlying trends in the group's tax rate. It is calculated as follows:

		26 weeks ended 27.9.19	26 weeks ended 28.9.18
		£000	£000
Tax charge (from continuing operations)		(578)	(3,061)
Exclude impact of individually significant items		(1,893)	-
Adjusted tax charge		(2,471)	(3,061)
Profit before tax and individually significant items		11,746	15,479
Underlying effective tax rate		21.0%	19.8%

Studio Retail Group plc

Group Financial Information

Condensed Consolidated Income Statement

26-week period ended 27 September 2019

			Before individually significant items	Individually significant items	Total
			£000	£000	£000
Continuing operations
Revenue			132,059	-	132,059
Credit account interest			49,225	-	49,225
Total revenue (including credit interest)			181,284	-	181,284
Cost of sales			(80,009)	-	(80,009)
Impairment losses on customer receivables			(13,270)	-	(13,270)
Gross profit			88,005	-	88,005
Trading costs			(73,343)	(9,107)	(82,450)
Analysis of operating profit:
- EBITDA*			21,043	(7,948)	13,095
- Depreciation, amortisation and impairment			(6,381)	(1,159)	(7,540)
Operating profit			14,662	(9,107)	5,555
Finance costs			(5,343)	-	(5,343)
Profit before tax and fair value movements on derivative financial instruments			9,319	(9,107)	212
Fair value movements on derivative financial instruments			2,427	-	2,427
Profit before tax			11,746	(9,107)	2,639
Tax (expense)/income			(2,471)	1,893	(578)
Profit from continuing operations			9,275	(7,214)	2,061
Discontinued operation
Profit from discontinued operation, net of tax			1,878	-	1,878
Profit for the period			11,153	(7,214)	3,939
Earnings per ordinary share
from continuing operations
Basic					2.39
Diluted					2.39
from discontinued operation
Basic					2.18
Diluted					2.18
total attributable to ordinary shareholders
Basic					4.57
Diluted					4.57

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

Condensed Consolidated Income Statement

26-week period ended 28 September 2018 (restated - refer to note 2)

			Before individually significant items	Individually significant items	Total
			£000	£000	£000
Continuing operations
Revenue			133,762	-	133,762
Credit account interest			46,954	-	46,954
Total revenue (including credit interest)			180,716	-	180,716
Cost of sales			(83,744)	-	(83,744)
Impairment losses on customer receivables			(13,942)	-	(13,942)
Gross profit			83,030	-	83,030
Trading costs			(68,356)	-	(68,356)
Analysis of operating profit:
- EBITDA*			18,880	-	18,880
- Depreciation and amortisation			(4,206)	-	(4,206)
Operating profit			14,674	-	14,674
Finance costs			(4,642)	-	(4,642)
Profit before tax and fair value movements on derivative financial instruments			10,032	-	10,032
Fair value movements on derivative financial instruments			5,469	-	5,469
Profit before tax			15,501	-	15,501
Tax expense			(3,061)	-	(3,061)
Profit from continuing operations			12,440	-	12,440
Discontinued operation
Profit from discontinued operation, net of tax			1,269	-	1,269
Profit for the period			13,709	-	13,709
Earnings per ordinary share
from continuing operations
Basic					14.41
Diluted					14.41
from discontinued operation
Basic					1.47
Diluted					1.47
total attributable to ordinary shareholders
Basic					15.88
Diluted					15.88

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

Condensed Consolidated Statement of Comprehensive Income

26-week period ended 27 September 2019

	26 weeks to 27.9.2019	26 weeks to 28.9.2018
	£000	£000
Profit for the period	3,939	13,709
Other comprehensive income
Items that may be reclassified to profit or loss
Cash flow hedges	20	(12)
Currency translation loss arising on consolidation	(329)	(382)
	(309)	(394)
Items that will not subsequently be reclassified to profit and loss
Remeasurements of defined benefit pension scheme	4,791	(1,218)
Tax relating to components of comprehensive income	(1,726)	509
	3,065	(709)
Total comprehensive income for period	6,695	12,606

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

Condensed Consolidated Balance Sheet

At 27 September 2019

		27.9.2019	28.9.2018	29.3.2019
		£'000	£'000	£'000
Non-current assets
Other intangible assets		10	25,755	24,952
Property, plant and equipment		79,183	44,542	45,511
Derivative financial instruments		-	5	6
Retirement benefit surplus		7,027	2,273	-
Deferred tax assets		6,860	10,852	10,556
		93,080	83,427	81,025
Current assets
Inventories		60,089	67,107	48,757
Trade and other receivables		226,500	233,206	235,923
Derivative financial instruments		3,138	1,322	604
Cash and cash equivalents		24,233	19,065	37,603
Current tax assets		525	-	-
Current assets excluding assets held for sale		314,485	320,700	322,887
Assets held for sale		64,204	-	-
Total current assets		378,689	320,700	322,887
Total assets		471,769	404,127	403,912
Current liabilities
Trade and other payables		(77,407)	(92,650)	(72,592)
Lease liabilities		(5,902)	(585)	(498)
Derivative financial instruments		(106)	-	-
Current tax liabilities		-	(1,274)	(1,762)
Provisions		(8,043)	(3,150)	(3,325)
Current liabilities excluding liabilities held for sale		(91,458)	(97,659)	(78,177)
Liabilities held for sale		(20,070)	-	-
Total current liabilities		(111,528)	(97,659)	(78,177)
Non-current liabilities
Bank loans		(265,346)	(256,992)	(270,545)
Lease liabilities		(38,181)	(201)	-
Provisions		-	(11,002)	(7,753)
Retirement benefit obligation		-	-	(68)
Deferred tax liabilities		(5,867)	(3,978)	(3,849)
		(309,394)	(272,173)	(282,215)
Total liabilities		(420,922)	(369,832)	(360,392)
Net assets		50,847	34,295	43,520
Equity
Share capital		48,644	48,644	48,644
Translation reserve		435	735	764
Hedging reserve		(34)	(47)	(54)
Retained earnings/(accumulated losses)		1,802	(15,037)	(5,834)
Total equity		50,847	34,295	43,520

Condensed Consolidated Cash Flow Statement

26-week period ended 27 September 2019

		26 weeks to 27.9.2019	26 weeks to 28.9.2018
		£000	£000
Profit for the period		3,939	13,709
Adjustments for:
Income tax		1,056	3,373
Finance costs		5,701	4,664
Depreciation of property, plant and equipment		7,231	4,520
Impairment of property, plant and equipment		1,159	-
Amortisation of intangible assets		1,159	1,062
Share-based payment expense		632	229
Fair value movements on financial instruments net of premiums paid		(2,427)	(5,469)
Pension contributions less income statement charge		(2,292)	(1,250)
Operating cash flows before movements in working capital		16,158	20,838
Increase in inventories		(23,030)	(12,927)
Increase in receivables		(7,914)	(23,597)
Increase in payables		18,889	25,564
Increase/(decrease) in provisions		5,266	(5,877)
Cash generated from operations		9,369	4,001
Income taxes paid		(3,346)	(19)
Interest paid		(5,478)	(5,035)
Net cash from/(used in) operating activities		545	(1,053)
Investing activities
Purchases of property, plant and equipment and software and IT development costs		(6,260)	(5,357)
Net cash used in investing activities		(6,260)	(5,357)
Financing activities
Repayment of amounts owing under lease arrangements		(2,458)	(283)
Securitisation loan repaid		(5,199)	(512)
Net cash used in financing activities		(7,657)	(795)
Net decrease in cash and cash equivalents		(13,372)	(7,205)
Cash and cash equivalents at the beginning of the period		37,603	26,244
Effect of foreign exchange rate changes		2	26
Cash and cash equivalents at the end of the period		24,233	19,065

Condensed Consolidated Statement of Changes in Equity

26-week period ended 27 September 2019

	Share capital	Translation reserve	Hedging reserve	Retained earnings/ (accumulated losses)	Total equity
	£000	£000	£000	£000	£000
Balance at 29 March 2019	48,644	764	(54)	(5,834)	43,520
Total comprehensive income	-	(329)	20	7,004	6,695
Share-based payments	-	-	-	632	632
At 27 September 2019	48,644	435	(34)	1,802	50,847

	Share capital	Translation reserve	Hedging reserve	Accumulated losses	Total equity
	£000	£000	£000	£000	£000
Balance at 30 March 2018 (adjusted to reflect IFRS 9 adoption)	48,644	1,117	(35)	(28,266)	21,460
Total comprehensive income	-	(382)	(12)	13,000	12,606
Share-based payments	-	-	-	229	229
At 28 September 2018	48,644	735	(47)	(15,037)	34,295

The total equity is attributable to the equity shareholders of the parent company Studio Retail Group plc.

Notes to the Condensed Consolidated Financial Statements

1. General Information

The condensed consolidated financial statements have been approved by the board on 16 December 2019.

Statement of compliance

These condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reportingas adopted by the European Union ('EU') and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority. As required by the latter, the condensed consolidated financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the 52 weeks ended 29 March 2019 except for the impact of adoption of IFRS 16 Leases, see note 2. They do not include all the information required for full annual financial statements and should be read in conjunction with the group's consolidated financial statements as at and for the 52 weeks ended 29 March 2019.

The financial information for the period ended 29 March 2019 is not the company's statutory accounts for that financial year. Those accounts which were prepared under IFRS as adopted by the EU ('adopted IFRS') have been reported on by the company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor draws attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under sections 498(2) or (3) of the Companies Act 2006.

Going concern basis

In determining whether the group's condensed consolidated financial statements for the period ended 27 September 2019 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 cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities in the current economic climate. The financial position of the group, its cash flows, liquidity position and borrowing facilities and details of those key risks and uncertainties are set out in further detail in the Finance Review on pages 18 to 20 of the group's annual report and accounts for the 52-week period ended 29 March 2019.

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 and associated mitigation 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. Under certain of these downside sensitivities, at certain times during the forecast period, the level of facility and covenant headroom may reduce to a level which requires cost and cash flow mitigations to be implemented to ensure that the funding requirements do not exceed the committed facilities and covenant requirements. Such mitigating actions, which are not expected to significantly impact on future revenue generation, may include a reduction in expenditure on non-committed capital projects and other measures within the control of the Directors. The Directors are confident that such actions are supportable and could be implemented if required. The group's current banking facilities mature in March 2021.

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 has adequate resources to continue in operational existence for the foreseeable future.

Accordingly, they continue to adopt the going concern basis in preparing the group's condensed consolidated financial statements.

Risks and uncertainties

The principal risks and uncertainties which could impact the group's long-term performance are:

· Pressures on the levels of disposable income available to lower socio-economic groups, who from a core part of Studio's customer base;

· Growth in credit income could slow within the financial services business of Studio;

· Potential disruption to our business support systems and the storage and protection of our customers' data;

· Execution and liquidity risks from a substantial three-year plan of transformation and growth at Studio;

· Attracting and retaining the right talent in the business, particularly in the highly competitive areas of digital marketing, IT development and cyber security, to support the development of our high growth digital strategy; and

· Any inability to operate from one of our key warehouse facilities centres.

For further details please refer to pages 24 to 25 of the group's annual report and accounts for the 52-week period ended 29 March 2019, a copy of which is available on the group's websitewww.studioretail.group.

The risks remain valid as regards their potential to impact the group during the second half of the current financial year.

Brexit

We have completed our work to assess the likely impact of the United Kingdom's exit from the European Union ('EU') and continue to work to mitigate, where possible, its effects. In light of recent political developments, the outcome remains unclear, and it is therefore difficult to enact specific mitigating activities, however our work is focused on the following key risk areas:

· Supply chain - the majority of goods sold by the group are sourced, either directly or indirectly, from outside the UK, with a high proportion originating from Asia. There is a risk that lead times for the supply of goods may lengthen due to delays at ports caused by a no-deal Brexit scenario. There may also be additional administrative burdens and costs in respect of goods imported from the EU. Since most of our products are sourced from outside the EU, we do not currently expect to see a material change in import tariffs, however to the extent that the UK falls out of any arrangements between the EU and countries from which we import, it is possible that this may lead to additional tariffs becoming payable;

· Foreign exchange - the exit process may prompt a further depreciation in the GBP/USD exchange rate. We continue to hedge our planned USD purchases on a rolling 12-month basis to mitigate the impact of any such depreciation; and

· Colleagues - a significant number of colleagues, particularly within our distribution centres, are non-UK EU nationals. Brexit may result in changes to UK immigration policy which increases the risks around the availability, recruitment and retention of these individuals.

Seasonality

The nature of the businesses within the Studio Retail Group mean that profits have shown, and will continue to show, a significant seasonal bias with the majority of profit being earned in the second half.

2. Accounting Policies

As required by the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority, this condensed set of financial statements has been prepared applying the same accounting policies and computation methods that were applied in the preparation of the company's published consolidated financial statements for the year ended 29 March 2019, with the exception of those impacted by the adoption of IFRS 16, which are described below.

Discontinued operation

Findel Education Limited

At 27 September 2019 the group's education business, Findel Education Limited met the criteria to be accounted for as held for sale and as a discontinued operation as defined by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Results from this discontinued operation have therefore been separated out in the condensed consolidated income statement for the 26-week period ended 27 September 2019, and its assets and liabilities have been classified as held for sale in the condensed consolidated balance sheet at 27 September 2019. In addition, the comparative figures given in the condensed consolidated income statement for the 26 week period ended 28 September 2018 has been restated to show the results from this discontinued operation separately, in order to enhance the comparability of the results of the group's ongoing businesses. Further details are given in note 5.

IFRS 16 Leases ('IFRS 16')

IFRS 16 is effective for all accounting periods beginning on or after 1 January 2019. For Studio Retail Group plc this is the first reported accounting period under IFRS 16. The group adopted this standard using the modified retrospective approach with a date of initial application of 30 March 2019.

Under IFRS 16, lease agreements give rise to both a right of use asset and a lease liability for future lease rentals. The right of use asset is depreciated on a straight-line basis over the life of the lease. Interest is recognised on the lease liability, resulting in a higher interest expense in the earlier years of the lease term. The total expense recognised over the life of the lease will be unaffected by the new standard, however, IFRS 16 results in the timing of lease expense recognition being accelerated for leases which would be currently accounted for as operating leases.

The group has applied the practical expedient to 'grandfather' the definition of a lease on transition and applied the recognition exemption for both short term and low value assets. The group has also applied a single discount rate to a portfolio of leases with reasonably similar characteristics. Previous assessments of whether leases are onerous in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assetsimmediately before the date of initial application have been relied upon as an alternative to performing an impairment review.

The modified retrospective approach does not require a restatement of the prior period comparatives and consequently, there will be no adjustment to opening retained earnings. Studio Retail Group plc has recognised an opening right of use asset of £43.2m and a lease liability of £52.2m at 30 March 2019. The most significant lease liabilities relate to property.

The £9.0m difference between the opening right use asset and lease liability is due to the portion of the onerous lease provision held at 29 March 2019 relating to lease rentals of £8.3m being reclassified against the opening right of use asset. In addition, £0.7m has been reclassified from other creditors in respect of a rent free period on one of the group's properties, which was being amortised to the income statement over the life of the lease under IAS 17 but under IFRS 16, forms part of the right of use asset.

Operating profit in the current period has been reduced by £0.2m as operating lease rental costs of £1.7m have been replaced by £2.0m of depreciation of right of use assets under IFRS 16. Finance costs have increased by £0.8m reflecting interest charged on lease liabilities under IFRS 16. The net impact on profit before tax was therefore £1.1m.

There is no impact on total cash flows, although from a presentation perspective, whilst operating lease rentals formed part of net cash from operating activities, lease payments under IFRS 16 now form part of net cash used in financing activities.

We do not expect the adoption of IFRS 16 to have a material impact on the group's effective tax rate.

Full details of the impact of adopting IFRS 16 on the condensed consolidated income statement and balance sheet are given in the tables below:

Impact on the Condensed Consolidated Income Statement and Comprehensive Income

26-week period ended 27 September 2019

			Amounts prior to adoption of IFRS 16	Impact of IFRS 16 adoption	As reported
			£000	£000	£000
Continuing operations
Revenue			132,059	-	132,059
Credit account interest			49,225	-	49,225
Total revenue (including credit interest)			181,284	-	181,284
Cost of sales			(80,009)	-	(80,009)
Impairment losses on customer receivables			(13,270)	-	(13,270)
Gross profit			88,005	-	88,005
Trading costs			(82,213)	(237)	(82,450)
Analysis of operating profit:
- EBITDA*			11,348	1,747	13,095
- Depreciation, amortisation and impairment			(5,556)	(1,984)	(7,540)
Operating profit			5,792	(237)	5,555
Finance costs			(4,514)	(829)	(5,343)
Profit before tax and fair value movements on derivative financial instruments			1,278	(1,066)	212
Fair value movements on derivative financial instruments			2,427	-	2,427
Profit before tax			3,705	(1,066)	2,639
Tax expense			(578)	-	(578)
Profit from continuing operations			3,127	(1,066)	2,061
Discontinued operation
Profit from discontinued operation, net of tax			2,139	(261)	1,878
Profit for the period			5,266	(1,327)	3,939
Total comprehensive income for period			8,022	(1,327)	6,695
Earnings per ordinary share
from continuing operations
Basic		3.62		(1.23)	2.39
Diluted		3.62		(1.23)	2.39
from discontinued operation
Basic		2.48		(0.30)	2.18
Diluted		2.48		(0.30)	2.18
total attributable to ordinary shareholders
Basic		6.10		(1.53)	4.57
Diluted		6.10		(1.53)	4.57

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

Impact on the Condensed Consolidated Balance Sheet

at 27 September 2019

		Amounts prior to adoption of IFRS 16	Impact of IFRS 16 adoption	As reported
		27.9.2019	27.9.2019	27.9.2019
		£'000	£'000	£'000
Non-current assets
Other intangible assets		10	-	10
Property, plant and equipment		43,658	35,525	79,183
Derivative financial instruments		-	-	-
Retirement benefit surplus		7,027	-	7,027
Deferred tax assets		6,860	-	6,860
		57,555	35,525	93,080
Current assets
Inventories		60,089	-	60,089
Trade and other receivables		226,500	-	226,500
Derivative financial instruments		3,138	-	3,138
Cash and cash equivalents		24,233	-	24,233
Current tax assets		525	-	525
Current assets excluding assets held for sale		314,485	-	314,485
Assets held for sale		59,093	5,111	64,204
Total current assets		373,578	5,111	378,689
Total assets		431,133	40,636	471,769
Current liabilities
Trade and other payables		(78,112)	705	(77,407)
Lease liabilities		-	(5,902)	(5,902)
Derivative financial instruments		(106)	-	(106)
Current tax liabilities		-	-	-
Provisions		(8,075)	32	(8,043)
Current liabilities excluding liabilities held for sale		(86,293)	(5,165)	(91,458)
Liabilities held for sale		(14,130)	(5,940)	(20,070)
Total current liabilities		(100,423)	(11,105)	(111,528)
Non-current liabilities
Bank loans		(265,346)	-	(265,346)
Lease liabilities		-	(38,181)	(38,181)
Provisions		(7,323)	7,323	-
Retirement benefit obligation		-	-	-
Deferred tax liabilities		(5,867)	-	(5,867)
		(278,536)	(30,858)	(309,394)
Total liabilities		(378,959)	(41,963)	(420,922)
Net assets		52,174	(1,327)	50,847
Equity
Share capital		48,644	-	48,644
Translation reserve		435	-	435
Hedging reserve		(34)	-	(34)
Retained earnings		3,129	(1,327)	1,802
Total equity		52,174	(1,327)	50,847

Impact on the Condensed Consolidated Balance Sheet

at 30 March 2019

		As reported (prior to adoption of IFRS 16)	Impact of IFRS 16 adoption	Opening balance sheet
		29.3.2019	30.3.2019	30.3.2019
		£'000	£'000	£'000
Non-current assets
Other intangible assets		24,952	-	24,952
Property, plant and equipment		45,511	43,192	88,703
Derivative financial instruments		6	-	6
Retirement benefit surplus		-	-	-
Deferred tax assets		10,556	-	10,556
		81,025	43,192	124,217
Current assets
Inventories		48,757	-	48,757
Trade and other receivables		235,923	-	235,923
Derivative financial instruments		604	-	604
Cash and cash equivalents		37,603	-	37,603
Current tax assets		-	-	-
Current assets excluding assets held for sale		322,887	-	322,887
Assets held for sale		-	-	-
Total current assets		322,887	-	322,887
Total assets		403,912	43,192	447,104
Current liabilities
Trade and other payables		(72,592)	741	(71,851)
Lease liabilities		(498)	(6,761)	(7,259)
Derivative financial instruments		-	-	-
Current tax liabilities		(1,762)	-	(1,762)
Provisions		(3,325)	978	(2,347)
Current liabilities excluding liabilities held for sale		(78,177)	(5,042)	(83,219)
Liabilities held for sale		-	-	-
Total current liabilities		(78,177)	(5,042)	(83,219)
Non-current liabilities
Bank loans		(270,545)	-	(270,545)
Lease liabilities		-	(45,473)	(45,473)
Provisions		(7,753)	7,323	(430)
Retirement benefit obligation		(68)	-	(68)
Deferred tax liabilities		(3,849)	-	(3,849)
		(282,215)	(38,150)	(320,365)
Total liabilities		(360,392)	(43,192)	(403,584)
Net assets		43,520	-	43,520
Equity
Share capital		48,644	-	48,644
Translation reserve		764	-	764
Hedging reserve		(54)	-	(54)
Accumulated losses		(5,834)	-	(5,834)
Total equity		43,520	-	43,520

Estimates

The preparation of condensed consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing the condensed consolidated financial statements, the significant judgements made by management in applying the group's accounting policies and key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 29 March 2019 except as noted below.

Provisions for Financial Services redress (note 8)

At 27 September 2019 a provision of £7.8m (29 September 2018: £3.5m, 29 March 2019: £2.2m) is held in the balance sheet in respect of redress and refunds for flawed financial services products.

As reported on 25 September 2019, Studio saw a large increase in the level of PPI claims and enquiries in the days leading up to the FCA's deadline for claims of 29 August. This included a large block of previously unseen claims from the Official Receiver acting on behalf of bankrupt customers.

An increase in provision of £7.9m has been recorded in the current period based on management's assessment of estimated uphold rates from the population of claims received and average claim values expected to be paid in respect of claims upheld. These assumptions are based on historic performance from previous refund exercises and and the results of initial work undertaken to triage the claims received in advance of the FCA's August deadline.

Due to the scale of the charge incurred, and the fact that the issues to which the redress and refund programmes relate did not arise in the current period, management have concluded that the additional charge should be separately disclosed as an individually significant item in the condensed consolidated income statement.

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.

3. Segmental analysis

26 weeks to 27 September 2019

	Continuing operations			Discontinued operation	Group
	Studio	Central	Total	Education	Total
	£000	£000	£000	£000	£000
Product revenue	122,311	-	122,311	46,847	169,158
Other financial services revenue	9,748	-	9,748	-	9,748
Credit account interest	49,225	-	49,225	-	49,225
Financial services revenue	58,973	-	58,973	-	58,973
Sourcing revenue	-	-	-		-
Reportable segment revenue	181,284	-	181,284	46,847	228,131
Product cost of sales	(80,009)	-	(80,009)	(30,305)	(110,314)
Financial services cost of sales	(13,270)	-	(13,270)	-	(13,270)
Sourcing costs of sales	-	-	-	-	-
Total cost of sales	(93,279)	-	(93,279)	(30,305)	(123,584)
Gross profit	88,005	-	88,005	16,542	104,547
Marketing costs	(22,436)	-	(22,436)	(1,590)	(24,026)
Distribution costs	(16,946)	-	(16,946)	(3,004)	(19,950)
Administrative (costs)/income	(27,897)	317	(27,580)	(7,225)	(34,805)
EBITDA*	20,726	317	21,043	4,723	25,766
Depreciation and amortisation	(5,696)	(685)	(6,381)	(2,009)	(8,390)
Operating profit/(loss) before individually significant items	15,030	(368)	14,662	2,714	17,376
Individually significant items	(7,948)	(1,159)	(9,107)	-	(9,107)
Operating profit/(loss)	7,082	(1,527)	5,555	2,714	8,269
Finance costs			(5,343)	(358)	(5,701)
Profit before tax and fair value movements on derivative financial instruments			212	2,356	2,568
Fair value movements on derivative financial instruments			2,427		2,427
Profit before tax			2,639		4,995

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

26 weeks to 28 September 2018

	Continuing operations			Discontinued operation	Group
	Studio	Central	Total	Education	Total
	£000	£000	£000	£000	£000
Product revenue	124,987	-	124,987	47,518	172,505
Other financial services revenue	8,747	-	8,747	-	8,747
Credit account interest	46,954	-	46,954	-	46,954
Financial services revenue	55,701	-	55,701	-	55,701
Sourcing revenue	28	-	28	-	28
Reportable segment revenue	180,716	-	180,716	47,518	228,234
Product cost of sales	(83,723)	-	(83,723)	(31,443)	(115,166)
Financial services cost of sales	(13,942)	-	(13,942)	-	(13,942)
Sourcing costs of sales	(21)	-	(21)	(61)	(82)
Total cost of sales	(97,686)	-	(97,686)	(31,504)	(129,190)
Gross profit	83,030	-	83,030	16,014	99,044
Marketing costs	(20,179)	-	(20,179)	(1,629)	(21,808)
Distribution costs	(17,518)	-	(17,518)	(4,769)	(22,287)
Administrative (costs)/income	(26,653)	200	(26,453)	(6,637)	(33,090)
EBITDA*	18,680	200	18,880	2,979	21,859
Depreciation and amortisation	(4,030)	(176)	(4,206)	(1,376)	(5,582)
Operating profit before individually significant items	14,650	24	14,674	1,603	16,277
Individually significant items	-	-	-	-	-
Operating profit	14,650	24	14,674	1,603	16,277
Finance costs			(4,642)	(22)	(4,664)
Profit before tax and fair value movements on derivative financial instruments			10,032	1,581	11,613
Fair value movements on derivative financial instruments			5,469		5,469
Profit before tax			15,501		17,082

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

4. Individually significant items

An analysis of individually significant items arising during the current period is as follows:

	26 weeks to 27.9.19
	£000
Continuing operations
Financial services redress and refunds in Studio	(7,948)
Impairment of right of use asset	(1,159)
	(9,107)
Tax credit in respect of individually significant items	1,893
Total from continuing operations	(7,214)

A charge of £7,948,000 has been recorded in the current period in respect of an increase in provisions for redress and refunds for flawed financial services products. For further details, please refer to the Estimates section in note 2.

A charge of £1,159,000 has been recorded in respect of the impairment of the right of use asset for the group's property at Hyde in connection with the disposal of Education.

There were no individually significant items identified in the 26-week period to 28 September 2018.

5. Discontinued operation

On 15 December 2019 the group entered into an agreement for the sale of Findel Education Limited to the Council of the City of Wakefield acting in its capacity as the lead authority of the joint committee known as Yorkshire Purchasing Organisation ('YPO') for a gross consideration of £50.0m on a debt free, cash free basis. The transaction is subject to, amongst other matters, obtaining shareholder approval and clearance from the Competition and Markets Authority. Management consider that the disposal transaction will reduce the group's indebtedness and allow a greater level of investment and focus on growing the core Studio business.

Findel Education's results for the 26-week period to 27 September 2019 and the 26-week period to 28 September 2018 have been presented to show the discontinued operation separately from continuing operations and are summarised below:

		26 weeks ended 27.9.19	26 weeks ended 28.9.18
		£000	£000
Revenue		46,847	47,518
Expenses		(44,491)	(45,937)
Profit before tax		2,356	1,581
Tax charge		(478)	(312)
Profit for the period		1,878	1,269

The major classes of assets and liabilities of Findel Education as at 27 September 2019 were as follows:

			27.9.19
			£000
Assets
Intangible assets			24,086
Tangible assets			7,094
Deferred tax assets			3,990
Inventories			11,698
Trade and other receivables			17,336
			64,204
Liabilities
Trade and other payables			(13,879)
Lease liabilities			(6,191)
			(20,070)
Net assets of disposal group			44,134

The net cash flows (used in)/generated from Findel Education were as follows:

			26 weeks ended 27.9.19
			£000
Operating cash flows			(7,341)
Investing cash flows			(636)
Financing cash flows			1,595
Net cash flow			(6,382)

6. Taxation

Income tax from continuing operations for the 26-week period ended 27 September 2019 is based on an estimated effective tax rate for the full year of 21.9% (26-week period ended 28 September 2018 - restated: 19.8%), giving rise to a tax charge of £578,000 in the period (26-week period ended 28 September 2018 - restated: £3,061,000).

7. Earnings per share

Earnings per share figures for the 26-week period ended 28 September 2018 have been restated to reflect the presentation of the results of Findel Education Limited as a discontinued operation as defined by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Weighted average number of shares
		26 weeks to 27.9.2019	26 weeks to 28.9.2018
		No. of shares	No. of shares
Ordinary shares in issue		86,442,534	86,442,534
Effect of own shares held		(114,808)	(114,808)
Weighted average number of shares - basic and diluted		86,327,726	86,327,726

From continuing operations

Earnings attributable to ordinary shareholders
	26 weeks to 27.9.2019	26 weeks to 28.9.2018
	£000	£000
Net profit attributable to equity holders for the purposes of basic earnings per share	2,061	12,440
Individually significant items (net of tax)	7,214	-
Fair value movements on derivative financial instruments (net of tax)	(1,966)	(4,430)
Net profit attributable to equity holders for the purposes of adjusted earnings per share	7,309	8,010
Earnings per share
Earnings per share - basic	2.39	14.41
Earnings per share - adjusted* basic	8.47	9.28
Earnings per share - diluted	2.39	14.41
Earnings per share - adjusted* diluted	8.47	9.28

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

From discontinued operation

Earnings attributable to ordinary shareholders
	26 weeks to 27.9.2019	26 weeks to 28.9.2018
	£000	£000
Net profit attributable to equity holders for the purposes of basic earnings per share	1,878	1,269
Net profit attributable to equity holders for the purposes of adjusted earnings per share	1,878	1,269
Earnings per share
Earnings per share - basic	2.18	1.47
Earnings per share - adjusted* basic	2.18	1.47
Earnings per share - diluted	2.18	1.47
Earnings per share - adjusted* diluted	2.18	1.47

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

Total attributable to ordinary shareholders

Earnings attributable to ordinary shareholders
	26 weeks to 27.9.2019	26 weeks to 28.9.2018
	£000	£000
Net profit attributable to equity holders for the purposes of basic earnings per share	3,939	13,709
Individually significant items (net of tax)	7,214	-
Fair value movements on derivative financial instruments (net of tax)	(1,966)	(4,430)
Net profit attributable to equity holders for the purposes of adjusted earnings per share	9,187	9,279
Earnings per share
Earnings per share - basic	4.57	15.88
Earnings per share - adjusted* basic	10.65	10.75
Earnings per share - diluted	4.57	15.88
Earnings per share - adjusted* diluted	10.65	10.75

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

The earnings per share attributable to convertible ordinary shareholders is £nil.

8. Provisions

	Onerous Leases	FS Redress	Total
	£000	£000	£000
At 29 March 2019	8,843	2,235	11,078
Adoption of IFRS 16	(8,301)	-	(8,301)
At 30 March 2019	542	2,235	2,777
Provided during the period	-	7,948	7,948
Utilised in the period	(348)	(2,334)	(2,682)
At 27 September 2019	194	7,849	8,043

At 27 September 2019

Analysed as:

	Onerous Leases	FS Redress	Total
	£000	£000	£000
Current	194	7,849	8,043
Non-current	-	-	-
	194	7,849	8,043

At 29 March 2019

Analysed as:

	Onerous Leases	FS Redress	Total
	£000	£000	£000
Current	1,090	2,235	3,325
Non-current	7,753	-	7,753
	8,843	2,235	11,078

	Onerous Leases	FS Redress	Total
	£000	£000	£000
At 30 March 2018	11,407	8,622	20,029
Utilised in the period	(731)	(5,146)	(5,877)
At 28 September 2018	10,676	3,476	14,152

At 28 September 2018

Analysed as:

	Onerous Leases	FS Redress	Total
	£000	£000	£000
Current	1,643	1,507	3,150
Non-current	9,033	1,969	11,002
	10,676	3,476	14,152

At 30 March 2018

Analysed as:

	Onerous Leases	FS Redress	Total
	£000	£000	£000
Current	802	8,622	9,424
Non-current	10,605	-	10,605
	11,407	8,622	20,029

Onerous lease provisions

The onerous lease provision at 27 September 2019 relates to (non-rent related) unavoidable costs in respect of the unused areas of the group's properties at Enfield and Hyde. The onerous lease provision at 30 March 2019 was reduced by £8.3m (being the portion of the provision related to rental costs) which was offset against the right of use asset recognised on the initial adoption of IFRS 16.

Studio financial services redress and refunds

At 27 September 2019 a provision of £7.8m (28 September 2018: £3.5m, 29 March 2019: £2.2m) is held in the balance sheet in respect of redress and refunds for flawed financial services products. Please refer to the Estimates section of note 2 for further details.

9. Derivative financial instruments

At 27 September 2019 the group had outstanding derivative financial instruments as follows:

Non-current assets

	27.9.2019	28.9.2018	29.3.2019
	£000	£000	£000
Interest rate cap	-	5	6

Current assets

	27.9.2019	28.9.2018	29.3.2019
	£000	£000	£000
Interest rate cap	1	-	-
Forward foreign exchange contracts	3,137	1,322	604
	3,138	1,322	604

Current liabilities

	27.9.2019	28.9.2018	29.3.2019
	£000	£000	£000
Forward foreign exchange contracts	(106)	-	-

Forward foreign exchange contracts

Exchange rate exposures are managed utilising forward foreign exchange contracts. At the balance sheet date, details of the notional value of outstanding US dollar forward foreign exchange contracts that the group has committed to are as follows:

	27.9.2019	28.9.2018	29.3.2019
	£000	£000	£000
Notional amount - Sterling contract value	66,394	65,762	69,783
Fair value of asset recognised	3,137	1,322	604
Fair value of liability recognised	(106)	-	-

Forward contracts outstanding at 27 September 2019 are contracted at US dollar exchange rates between £1/$1.35 and £1/$1.23 (28 September 2018: £1/$1.44 and £1/$1.25).

Changes in fair value of forward foreign exchange contracts for the 26-week period ended 27 September 2019 amounted to a credit of £2,427,000 (26-week period ended 28 September 2018: credit of £5,469,000) and have been recorded in the condensed consolidated income statement.

Interest rate cap

Under interest rate cap contracts, the group agrees to cap the LIBOR element of its interest cost at an agreed level calculated on agreed notional principal amounts. Such contracts enable the group to mitigate the risk of rising interest rates on its variable rate debt.

The following caps were in place at 27 September 2019:

	At 27 September 2019
Maturity	Notional borrowing amount	Cap rate	Fair value
	£000		£000
Less than 12 months	100,000	1.590%	-
Less than 12 months	95,000	1.477%	1
			1

The first cap was purchased on 15 March 2018 and matured in November 2019. The second cap was purchased on 12 March 2019 and matures in August 2020. Both caps were designated as cash flow hedges from inception. The movement in the fair value of interest rate caps during the current and prior periods was as follows:

		27.9.2019	28.9.2018
		£000	£000
At the beginning of the period		6	47
Movement in fair value charged to the hedging reserve		20	(12)
Movement in fair value of ineffective element charged to finance costs		(25)	(30)
At the end of the period		1	5

Basis for determining fair values

The fair value of both interest rate caps and forward foreign exchange contractsis their market value at the balance sheet date. Market values are based on the duration of the derivative instrument together with the quoted market data including interest rates, foreign exchange rates and market volatility at the balance sheet date.

The financial instruments held by the group at the balance sheet date are valued under the Level 2 measurement basis of the fair value hierarchy: (i.e. based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)).There were no transfers between Level 1 and Level 2 during the period.

10. 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 considered to be a related party as it is a significant shareholder in the ultimate parent company, Studio Retail Group plc. The group also provided consultancy services to Sports Direct International plc itself in the prior period on arm's-length terms.

The value of purchases made, and consultancy fees charged in the current and prior periods and amounts owed at 27 September 2019, 28 September 2018 and 29 March 2019 were as follows:

Brands Inc. Limited

	27.9.2019	28.9.2018	29.3.2019
	£000	£000	£000
Purchases	23	115	196
Amounts owed	1	34	22

Firetrap Limited

	27.9.2019	28.9.2018	29.3.2019
	£000	£000	£000
Purchases	-	158	176
Amounts owed	-	29	-

Sports Direct International plc

	27.9.2019	28.9.2018	29.3.2019
	£000	£000	£000
Consultancy fees received	-	-	93
Amounts due	-	-	-

Transactions between Studio Retail Group plc and its subsidiaries, which are related parties of Studio Retail Group 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.

11. Events after the Reporting Period

On 15 December 2019 the group entered into an agreement for the sale of Findel Education Limited to the Council of the City of Wakefield acting in its capacity as the lead authority of the joint committee known as Yorkshire Purchasing Organisation ('YPO') for a gross consideration of £50.0m on a debt free, cash free basis. The transaction is subject to, amongst other matters, obtaining shareholder approval and clearance from the Competition and Markets Authority.

Responsibility Statement

We confirm that to the best of our knowledge:

(a) the condensed consolidated financial statements have been prepared in accordance with IAS 34

Interim Financial Reporting as adopted by the European Union;

(b) the interim management report and condensed consolidated financial statements include a fair review of the information required by:

(i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

S M Caldwell	P B Maudsley
Chief Financial Officer	Chief Executive Officer
15 December 2019	15 December 2019

This document may contain forward looking statements. In particular, but without limitation, nothing contained in this document should be relied upon or construed as a promise or a forecast, including any projection or management estimate, any statements which contain the words 'anticipate', 'believe', 'intend', 'estimate', 'expect', 'forecast' and words of a similar meaning, reflect the management of the company's current beliefs and expectations and are subject to risks and uncertainties that may cause actual results to differ materially. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on such statements. Any forward-looking statements speak only as at the date of this document, and except as required by applicable law, Studio Retail Group plc undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information or otherwise.

No profit forecast

No statement in this announcement is intended as a profit forecast or estimate for any period and no statement in this announcement should be interpreted to mean that earnings, earnings per share or income, cash flow from operations or free cash flow for Studio Retail Group plc for the current or future financial years would necessarily match or exceed the historical published earnings, earnings per share or income, cash flow from operations or free cash flow for Studio Retail Group plc.

INDEPENDENT REVIEW REPORT TO STUDIO RETAIL GROUP PLC (FORMERLY FINDEL PLC)

Conclusion

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 26-week period ended 27 September 2019 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated cash flow statement, the condensed consolidated statement of changes in equity and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26-week period ended 27 September 2019 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reportingas adopted by the EU and the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA').

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

The impact of uncertainties due to the UK exiting the European Union on our review

Uncertainties related to the effects of Brexit are relevant to understanding our review of the condensed financial statements. Brexit is one of the most significant economic events for the UK, and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. An interim review cannot be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Mick Davies

for and on behalf of KPMG LLP

Chartered Accountants

1 St Peter's Square, Manchester, M2 3AE

15 December 2019