-- An increase of 200bps in the gross margin rate in all years for each territory would decrease netimpairment by GBP5.9m

-- A decrease of 200bps in the gross margin rate in all years for each territory would increase netimpairment by GBP6.1m

-- An increase of 10% in the year 1 sales growth for each territory would decrease net impairment by GBP5.7m

-- A decrease of 10% in the year 1 sales growth for each territory would increase net impairment by GBP5.8m

-- A 15% change in the central costs being allocated to the store CGUs would increase net impairment byGBP3.1m

In addition, the Group has considered a range of reasonably possible outcomes within the medium-term financial plan period. The scenario modelled is consistent with the sensitivities applied for the viability assessment. This would increase the net impairment charge by GBP41.3m.

Onerous property related contracts provisions

Management has also assessed whether impaired and unprofitable stores require an onerous provision for the property related contracts. An onerous property related contracts provision is recognised when the Group believes that the unavoidable costs of meeting or exiting the property related obligations exceed the benefits expected to be received under the lease. The property related contracts relate primarily to service charges. Onerous property related contracts provisions are no longer recognised on fixed rental expenses, following the transition to IFRS 16.

The calculation of the net present value of future cash flows is based on the same assumptions for growth rates and expected changes to future cash flows as set out above for store impairments, discounted at the appropriate risk adjusted rate. The costs of exiting property related contracts as set out in the lease agreement, either at the end of the lease or the lease break date (whichever is shorter), have been considered in the calculation.

The onerous property related contracts provision charge has been recognised within adjusting items within selling, general and administrative expenses. Further significant costs (or credits) may be recorded in future years dependent on the longer-term impact of Covid-19 and the success of the Brand reset.

Risk free rates are not considered a sensitive assumption - a 20% change in the risk-free rates, which is not considered to be reasonably possible, would result in a GBP8.5m increase or GBP3.5m decrease in the net impairment.

The Group has performed sensitivity analysis on the onerous property related contract provisions using possible scenarios based on recent market movements, consistent with those sensitivities disclosed above in the 'store impairment' section:

-- An increase of 1,000bps in the margin rate in all years for each territory would decrease the onerousproperty related contracts charge by GBP3.5m

-- A decrease of 1,000bps in the margin rate in all years for each territory would increase the onerousproperty related contracts charge by GBP10.2m

-- An increase of 40% in year 1 sales growth for each territory would decrease the onerous property relatedcontracts charge by GBP3.7m

-- A decrease of 40% in year 1 sales growth for each territory would increase the onerous property relatedcontracts charge by GBP8.3m

The downside scenario modelled in the viability assessment, would increase the onerous property related contracts charge by GBP16.1m.

Recoverability of trade debtors

The impairment of trade and other receivables is based on management's estimate of the ECL. These are calculated using the Group's historical credit loss experience, with adjustments for general economic conditions and an assessment of conditions at the reporting date. The estimation uncertainty relates to the allowance for expected credit losses of GBP8.6m, which includes a specific provision and an ECL provision.

The specific provision of GBP6.0m is calculated for higher risk trade receivables, relating to customers who have balances over GBP30k that are at least 30 days overdue. This provision is calculated based on a specific review of the exposure to each customer, net of credit enhancements and taking into consideration their payment history. There is a range of possible outcomes for the specific provision; an indication of the maximum possible exposure is that the specific provision of GBP6.0m covers gross debtors of GBP10.5m.

The ECL provision of GBP2.6m is calculated for the aggregated remaining debtors profiled by country, net of credit enhancements, and assuming country-specific default rates. The country-specific default rates were prepared using externally generated data which reflects the higher credit risk of the Group's debtor book, taking into consideration the impact of the Covid-19 pandemic. A range of possible outcomes for the ECL provision using a range of 60-90% insurance recoveries and 5-20% probability of default gives an ECL provision of GBP1.0m to GBP4.8m.

Uncertain tax position

The Group is subject to tax laws in a number of jurisdictions and given the scale of its operations, it is subject to periodic challenges by local tax authorities on a range of tax matters. The group's transfer pricing policies aim to allocate profits and losses to each operating entity on an arm's length basis. In the past two years, the group has experienced an already challenging retail environment, exacerbated by the business disruption caused by the global COVID-19 pandemic.

It is uncertain how different tax authorities may view the impact of the pre-COVID challenging trading environment, and the challenges presented by COVID on the Group's internal transfer pricing policies.

Given this uncertainty, the group has recognised a net GBP1.3m provision (2020: GBPnil) in respect of uncertain tax positions as required under IAS12, with due consideration to guidance contained within IFRIC 23. The key estimate in this provision is the possible level of adjustment required by each jurisdiction. A range of possible outcomes for this provision is GBPnil to GBP4m.

4. Critical judgements in applying the Group's accounting policies

Management consider that judgements made in the process of applying the Group's accounting policies that could have a significant effect on the amounts recognised in the Group financial statements are as follows:

Attributing Ecommerce sales and costs to stores

Judgement is required to determine whether Ecommerce sales (and associated costs) could be attributed to stores for the purposes of impairment testing when calculating the value in use of each store CGU. The basis of such attribution is considered difficult to determine, due to insufficient evidence to reliably estimate. For this reason, Ecommerce sales attributable to stores have not been calculated. The continuation of Ecommerce sales during the period of Covid-19 enforced store closures further supports this judgement.

Store impairment judgements

Store assets (as with other financial and non-financial assets) are subject to impairment based on whether current or future events and circumstances suggest that their recoverable amount may be less than their carrying value. The impairment review involves critical accounting judgements, in addition to the significant estimates discussed above.

The medium-term financial plan is prepared on a 'top down' basis and has been attributed to individual stores based on their historic performance relative to the rest of the store estate, as well as the store's sensitivity to the impact of the Covid-19 pandemic. Judgement is involved in this revenue and cost attribution exercise in defining the parameters of the store characteristics. The outcome of this exercise affects the value in use associated with each store CGU.

Similarly, judgement is required in determining which central costs are directly involved in the store operations and therefore should be apportioned to each store CGU. Central costs are attributed to store CGUs where they can be allocated on a reasonable and consistent basis.

Judgement is also involved in defining the lease term used in the store impairment calculations. Lease extensions have only been assumed in the modelling where they have been agreed with landlords.

Adjusting items

Judgements are required as to whether items are disclosed as adjusting items, with consideration given to both quantitative and qualitative factors. Further information about the determination of adjusting items in financial year 2021 is in note 22.

5. New accounting pronouncements

The accounting policies set out have been applied consistently throughout the Group and to all years presented in these consolidated accounts except if mentioned otherwise. For the financial year 2021, the following amendments were adopted by the Group:

-- Amendments to References to the Conceptual Framework in IFRS Standards.

-- Amendments to IFRS 3: Definition of a business.

-- Amendments to IAS 1 and IAS 8: Definition of Material.

The group also elected to adopt the following amendment early:

-- Amendment to IFRS 16 Covid-19-Related Rent Concessions.

The impact of early adopting the amendment to IFRS 16 is described below. The adoption of the other standards and interpretations listed above has not led to any changes to the Group's accounting policies or had any other material impact on the financial position or performance of the Group.

IFRS 16: Covid-19-Related Rent Concessions

The Group has applied Covid-19-Related Rent Concessions, as permitted under amended IFRS 16, issued by the IASB in May 2020. The practical expedient is only applicable to rent concessions provided as a direct result of the Covid-19 pandemic with no other substantive changes to other terms and condition of the lease.

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September 16, 2021 02:00 ET (06:00 GMT)