-- Stores trade for substantially all of FY22 following the reopening of those European markets whichremained closed at the start of the financial year. Trading is assumed to recover steadily over the duration ofFY22 as stores reopen and consumer demand returns, reflecting the macroeconomic uncertainties in FY22 and theongoing channel shift towards online. Profitability will be delivered through full price trading margins, therecurring benefits of renegotiated leases and store payroll optimisation in FY21, but with store revenues remainingbelow pre-Covid levels in FY22.

-- UK property rates are conservatively assumed to return from April 2022 (GBP16m annualised cost), followingthe end of the current rates relief measures announced by the government.

-- Ecommerce trading benefits from the underlying and recently accelerated channel shift towards digitalfrom physical retailing, together with planned investments to improve the website user experience. However, theplan reflects a tougher comparable period in 2021 and an element of targeted promotional activity to clear excessstock and generate cash, with modest growth forecast in the balance of FY22.

-- Wholesale performance begins to recover in FY22, reflecting the latest forward order book and thecontinuation of FY21 trends such as increased in-season orders to online partners, recovering to pre-Covid-19levels over the medium term.

-- Gross margin rate recovers as we reduce the level of promotional activity from FY21 and return to a fullprice stance in FY22. Channel mix benefits will be realised as stores (our highest margin channel) trade for theduration of the year.

-- Increased marketing spend in FY22 to reflect increased performance marketing in the short term togetherwith longer-term brand investment as part of the turnaround.

-- As a consequence of the impact of Covid-19 on global trade, the Group and the Company are aware ofconstraints to the global supply of containers for shipping goods from Asia to Europe and, while the Group remainsconfident that the majority of goods will be shipped, it is expected that the cost of these shipments will increasein FY22.

Reverse stress test

Given the base case reflects both the results of the turnaround plan, and the uncertainties surrounding forecasts due to Covid-19, the Group has modelled a 'reverse stress test' scenario.

A reverse stress test calculates the shortfall to forecast sales in the Plan that the Group would be able to absorb, after implementing feasible mitigating actions, before either: a. requiring additional sources of financing, in excess of those that are committed; or b. breaching the lending covenants on our committed facility.

Given the projected headroom over our covenants, and our proven ability to manage cash, management considers the likelihood of breaching our facilities to be remote.

This assessment is linked to a robust assessment of the principal risks facing the Group, and the reverse stress test reflects the potential impact of these risks being realised.

Mitigating actions

If performance deviates materially from the Base Case Plan, the impact could result in a reduction in liquidity and/ or a longer period of lower profitability, which in turn could risk covenant breaches. Management has considered what plausible mitigating actions are available to them, including:

-- a reduction in uncommitted capital expenditure;

-- a reduction in Head Office costs and discretionary spend; and

-- reducing the purchase quantities of new season stock in line with the lower sales projections.

Consequently, management believes that the likelihood of further downsides in revenue, beyond those modelled in the reverse stress test, that cannot be mitigated adequately, to be remote. However, should the mitigating actions outlined above not be sufficient, management would likely adapt the current store portfolio strategy to exit a greater proportion of stores.

Covenant testing

Our facilities include an Asset Backed Lending ('ABL') Facility for up to GBP70m, together with a GBP10m uncommitted overdraft.

Our relationship with our lending group remains strong, with covenant resets agreed in both January and July 2021 as the macroeconomic impact of social distancing and lockdown restrictions continued to extend past initial expectations when the financing was agreed in August 2020.

The amended covenants in the ABL facility are tested quarterly and are based around the Group's adjusted EBITDAR (relative to the Base Case Plan) until the end of Q2 22 and fixed charge (rent and interest) cover thereafter. The covenants are tested on a 'frozen GAAP' basis and hence accounting under IFRS 16 does not impact them.

Under the reverse stress test, which tests for the breakeven point against our borrowing facilities (liquidity and covenants are tested separately), the July 2022 (Q2 23) covenant test would breach first. However, management considers the likelihood of experiencing revenue shortfall required to cause this breach to be remote. The Directors are confident that under the mitigated reverse stress test there is sufficient liquidity headroom over the going concern period.

If this scenario was to occur, management would approach lenders for a covenant waiver. Whilst there would be no guarantee that such a waiver would be made available, in making their assessment management notes that it currently has a good relationship with the Group's lenders and has held positive discussions throughout the year. These lenders have been made aware of all key inputs into the Base Case Plan, as well as the implications of the short-term disruption, and have now agreed to re-gear the covenants on two occasions, to reflect the unforeseen duration and magnitude of the impact from Covid-19. In addition, it should be noted that the Group expects to be cash positive for most of the year, allowing for the normal seasonal working capital cycle, with substantial liquidity maintained throughout the going concern period.

Significant judgements

In using these financial forecasts for the going concern assessment, the Group's Directors recognise that significant judgement was required to decide what assumptions to make regarding the impact of the coronavirus pandemic on the retail sector and wider economy and specifically to Superdry, and the ability to execute the turnaround plans required to recover brand health and return the business to profitable growth. Consequently, though the level of visibility has improved year on year, there remains more uncertainty than would usually be the case in making the key judgements and assumptions that underpin the financial forecasts for the business. The Directors believe that this uncertainty is reflected in the Base Case Plan, and trading year to date continues to give us confidence that we are through the worst effects of the pandemic.

The Plan does not anticipate a further, extended period of store closures, and the likelihood of this scenario is deemed remote. While it is conceivable that there is a further territory-wide lockdown, key factors in making this judgement include:

-- vaccine rollouts are progressing well in many of our core markets;

-- social distancing restrictions have been relaxed far more significantly than in between previouslockdowns, with broader cultural acceptance of the need for hygiene measures (e.g. mask-wearing and handsanitising);

-- government communications reflect an increasing pressure to re-open economies, with furlough supportcoming to an end on 30 September 2021 in the UK.

In the event that this were to happen, it could cause revenue declines to exceed those in the reverse stress test, however, this would likely result in corresponding government support (e.g. in the form of furlough and rent moratorium) being available to mitigate the worst effects, together with implementing similar cash preservation measures as were deployed in FY21.

Summary

After considering the forecasts, sensitivities and mitigating actions available to management and having regard to the risks and uncertainties to which the Group is exposed, the Directors have a reasonable expectation that the Company and the Group has adequate resources to continue operating for the foreseeable future, and to operate within its borrowing facilities and covenants for a period of at least 12 months from the date of signing the financial statements, taking into account the working capital troughs in both FY21 and FY22. Accordingly, the financial statements continue to be prepared on the going concern basis.

Viability

In line with the UK Corporate Governance Code, the Directors have assessed the prospects of the Group over a longer period than that required by the 'going concern' provision. The Directors have assessed the viability of the Group over the five-year period through to FY26 using the medium-term financial plan (the 'Medium Term Plan'). This Medium Term Plan is in its early stages of implementation (having been delayed due to the Covid-19 pandemic). It assumes the successful execution of the turnaround strategy to reset the brand, reversing the decline in performance which began in FY19 and return the Group to FY18 revenues and profitability over the medium/longer-term horizon.

The five-year viability period coincides with the Group's strategic review period. Furthermore, beyond this period, performance is increasingly difficult to predict, exacerbated by the impact of Covid-19.

The viability assessment has considered the potential impact of the principal risks on the business in particular future performance (including the success of the brand reset and turnaround strategy, and the broader economic recovery) and liquidity over the Plan. In making this statement, the Directors have considered the resilience of the Group under varying market conditions together with the effectiveness of any mitigating actions and the availability of financing facilities.

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