Appreciate Group — Return to profitability in H2 as expected

Appreciate Group (LN: APP)

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27.80

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Market capitalisation

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Research: Financials

Appreciate Group — Return to profitability in H2 as expected

Appreciate Group’s (APP’s) FY21 results remained positive despite a significantly negative impact from the pandemic and business transformation, with the usual strong seasonal rebound to profitability in H2. The robust H221 sales performance has been followed by a little more customer hesitancy year to date but management expects a pick-up. Significant strategic progress leaves APP well placed to respond to market recovery and to achieve further growth.

Martyn King

Written by

Martyn King

Director, Financials

Financials

Appreciate Group

Return to profitability in H2 as expected

FY21 results

Financial services

6 July 2021

Price

31p

Market cap

£58m

Net cash (£m) at 31 March 2021

31.4

Shares in issue

186.3m

Free float

100%

Code

APPS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(22.1)

(13.1)

(1.6)

Rel (local)

(23.1)

(18.3)

(18.0)

52-week high/low

46p

24p

Business description

Appreciate Group is a specialised financial services business and is the UK’s leading provider of multi-retailer redemption products to the corporate and consumer markets. Consumers can access these products directly through its market-leading Christmas savings offering. Corporate customers use these products to supply a range of incentive and reward products, often tailor made

Next events

H122 period-end

30 September 2021

Analyst

Martyn King

+44 (0)20 3077 5745

Appreciate Group is a research client of Edison Investment Research Limited

Appreciate Group’s (APP’s) FY21 results remained positive despite a significantly negative impact from the pandemic and business transformation, with the usual strong seasonal rebound to profitability in H2. The robust H221 sales performance has been followed by a little more customer hesitancy year to date but management expects a pick-up. Significant strategic progress leaves APP well placed to respond to market recovery and to achieve further growth.

Year end

Billings*
(£m)

Revenue
(£m)

Adjusted PBT** (£m)

Adjusted EPS*** (p)

DPS
(p)

P/E
(x)

Yield
(%)

03/20

419.9

112.7

11.4

4.9

0.00

6.3

0.0

03/21

406.5

106.8

4.2

2.0

1.00

15.1

3.2

03/22e

385.7

97.4

6.5

2.8

1.35

11.0

4.4

03/23e

422.6

106.7

9.1

3.9

1.80

7.9

5.8

Note: *Billings is a non-statutory measure of sales defined as the face value of voucher sales and the net amount of value loaded on prepaid cards/digital products. **PBT is adjusted for non-recurring & exceptional items. ***Adjusted EPS is fully diluted.

Pick-up expected from slower recovery in early FY22

PBT of £1.3m included exceptional costs of c £1.1m and c £1.9m net of non-recurring losses in respect of discontinued business as part of the strategic repositioning programme. Excluding these, adjusted PBT was c 4.2m. H221 underlying billings increased 5.7% y-o-y (vs a 28.8% y-o-y decline in H121) with December a record month. For the seasonally less significant Q122, billings were well ahead of Q121 but c 9% down on Q120. Management expects a pick-up as corporate customers focus once more on employee engagement and customer acquisition and as consumers return to the shops. With the Christmas savers orders for the current year already in place, pandemic restrictions on agent activity was the main contributor to a c 14% y-o-y order book decline. Our revised forecasts assume a slower FY22 recovery (adj. PBT -9%) but for this to be largely recovered in FY23. Our DPS forecasts, assuming a c 50% pay-out, are similarly reduced.

Positioning for growth despite the pandemic

Despite the pandemic APP continued to progress its strategic business plan, which is aimed at building a more robust and scalable business model capable of capitalising on growth opportunities in the large and fragmented market in which the group operates. The progress made to date, enhancing operating systems and processes and putting a greater focus on digital products and services, mitigated the pandemic’s effects, delivered growth in H221 and better positions APP to exploit existing industry trends and deliver sustainable growth. Having disposed of, or withdrawn from, FMI, hamper production, third-party contract packaging and the small operation in the Republic of Ireland, APP is now fully focused on growing its more profitable core business of own branded multi-retailer product.

Valuation: Recovery and growth prospects

The c 20% share price decline since the results increases the upside to our modified DCF valuation, unchanged at 60p/share. This implies a CY21 P/E of c 23x and c 16x for CY22, reasonable in a ‘peer group’ context and supported by an attractive prospective yield and potential for future growth.

Return to profitability in H221

Pandemic lockdown measures throughout the year, as well as costs related to the continued business transformation programme, had a significant negative impact on the statutory results reported under IFRS. The IFRS annual result nonetheless remained positive and showed a strong rebound in H2 (H2 PBT was a positive £8.8m vs a H1 loss of £7.5m), in part reflecting the normal seasonal pattern but also the steady recovery in year-on-year billings from the initial sharp decline during the first pandemic lockdown. The impact of the pandemic was similarly apparent in the FY21 adjusted/underlying earnings although on this basis the financial performance was noticeably more robust. Exhibit 1 provides a summary of the IFRS results with PBT declining to £1.3m (FY20: £7.7m) including c £1.0m (£3.7m) of net negative exceptional and non-recurring items. Not shown separately within the IFRS exceptional and non-recurring items are the temporary, up-front negative impacts of the business transformation programme on the trading performance, particularly in relation to non-core activities that have been wound down or disposed of. We do not expect these negative impacts to be repeated, while future business growth and profitability should benefit from the measures undertaken.

Exhibit 1: Summary of statutory (IFRS) financial performance

Year end March (£m unless stated otherwise)

FY21

FY20

Consumer billings

205.3

222.2

-8%

Corporate billings

201.3

197.7

2%

Total billings

406.5

419.9

-3%

Revenue

106.8

112.7

-5%

Cost of sales excluding exceptional impairment

(82.1)

(79.8)

Exceptional impairment of stock

(0.4)

(0.1)

Gross profit

24.3

32.8

-26%

Distribution costs

(1.8)

(2.8)

Admin costs

(21.1)

(20.0)

Other exceptional items

(0.9)

(3.6)

Gain on disposal

0.2

0.0

Operating profit

0.8

6.4

-87%

Net finance income

0.4

1.3

PBT

1.3

7.7

-84%

Tax

(0.4)

(2.2)

Net profit after tax

0.9

5.5

-85%

Basic and diluted EPS (p)

0.46

2.96

DPS (p)

1.00

0.00

Total cash - including monies held in trust

163.5

132.3

Period end group cash (excluding overdraft)

31.4

29.6

Source: Appreciate Group data

In Exhibit 2 we show a reconciliation to adjusted earnings of £4.2m before tax. This adds back the exceptional and non-recurring items that are contained in the IFRS results (and shown in Exhibit 1 above), as well as management adjustments for the temporary impact on trading performance of the wind-down of hamper production, the sale of the FMI subsidiary and the group relocation to its new head office in central Liverpool. Adjusted PBT of £4.2m compared with our forecast of £4.5m on the same basis.

Exhibit 2: Reconciliation to adjusted PBT

Year end March (£m unless stated otherwise)

FY21

FY20

IFRS PBT (as per Exhibit 1)

1.3

7.7

Adjustment for:

Impairment of obsolete stock

0.4

0.1

Redundancy costs

0.6

0.4

Impairment of goodwill

0.2

1.3

Impairment of property/assets held for sale

0.0

1.8

Gain on disposal

(0.2)

0.0

PBT before exceptional & non-recurring items

2.3

11.4

Other management adjustments:

Loss/(profit) on close-down of hamper business and office relocation*

1.8

(0.1)

Loss/(profit) in discontinued FMI*

0.1

(0.1)

Adjusted underlying management profit*

4.2

11.2

Source: APP Group data. Note: The Edison adjusted PBT shown on the front page and in Exhibit 10 does not make a retrospective adjustment for the previously reported FY20 profits for the hamper business (net of office relocation costs) or FMI.

FY21 billings recovery from pandemic, but cautious start to FY22

FY21 group billings fell by 3% to £406.5m. This is comprised of core billings of £402.5m and ‘other’ billings (fees and services) of £4.0m. This included a £23m contribution from the successful free summer school meals partnership with Iceland, one-off in nature and relatively low margin, as well as a £7.8m reduction in billings related to the strategic wind-down of the hamper and packaging operations. Excluding both these items, billings were 8% lower.

Exhibit 3: Breakdown of billings by product

£m

FY21

FY20

FY21/FY20

Christmas savers

193.3

204.8

-6%

HSV.com

10.1

8.4

20%

Total core consumer

203.4

213.2

-5%

Customer incentives

46.4

45.3

2%

Staff rewards

83.3

82.8

1%

Employee benefits

14.2

17.2

-17%

Intermediaries

55.2

48.0

15%

Total core corporate

199.1

193.3

3%

Other/rounding

4.0

13.4

-70%

Total group billings

406.5

419.9

-3%

Source: Appreciate Group data

To provide a clearer picture of trading performance, APP has throughout the year published data on underlying billings. This measure of billings excludes Christmas savers (where billings are driven by the timing of order despatch, primarily in the second half of the year, ahead of Christmas), as well as the ‘other’ group billings, and the £23.0m of one-off billings related to the free school meals scheme. Hence, underlying billings comprise corporate billings (less free school meals billings) plus HSV.com. Based on redemption products only (ie excluding hampers) Christmas mas savers billings were down by c 6%. If hampers are included, the decline was c 8%. The order book for the current year is currently predicted to be down by 14% (compared with the 11% predicted in May), having been held back by lockdown restrictions impacting face-to-face agent activity.

Underlying billings fell sharply during the first lockdown, but the year-on-year comparison improved during Q2 (July-September) and was strongly positive in Q3 (September-December), seasonally the most important trading period in the year (c 70% of the annual total). December 2020 was APP’s busiest ever month, with corporate customers seeking ways to reward employees as an alternative to Christmas parties. The post-Christmas Q4 period is typically the quietest quarter of the year (although it was stronger than Q1 during FY21 due to the pandemic) and although billings were 11% lower year-on-year, in absolute terms the drop was only c £4m. For the year, underlying billings were c 8% lower, with H2 growth of c 6% year-on-year.

Exhibit 4: Year-on-year change in underlying billings through FY21

Source: APP Group data

Q122 billings are up strongly compared with a very weak Q121 (82.7%) but are down by 8.6% compared with Q120, not affected by the pandemic. While billings performance since the start of CY21 is a little weaker than management had anticipated it is important to remember that due to seasonality these are normally the weakest quarters. We estimate that an 8.6% decline in Q122 billings versus Q120 is likely to represent less than £4m. APP believes that since the strong pre-Christmas period, corporate customers have likely been focused on operational planning for their business in the post-lockdown environment and expects that demand related to employee recognition and customer acquisition will increase during the year.

Other key features of the FY21 results

Revenues followed the trend in billings although at with a slightly higher c 5% decline, reflecting the winding down of hampers and packaging and sale of FMI, as well as deferred redemptions, the trigger for revenue and profit recognition.

Gross margin (excluding exceptional obsolete stock impairment) was 23.2% versus 29.1% in FY20, negatively affected by product mix, particularly the free school meals scheme, but also an increase in single retailer product, reported on a gross basis. Maintained promotional costs (hence representing a higher share of revenues) also had an impact. Gross profit was 26% lower.

Distribution costs were lower, reflecting reduced billings and a mix switch towards digital product, and administrative costs were higher by a similar amount. The increase in administrative costs reflected professional fees in respect of the sale of the Valley Road site and sale of FMI, costs related to the closure of the hamper business, and costs in respect of the arrangement of the £15m five-year unsecured revolving credit facility (RCF).

Net finance income was lower due to reduced deposit rates on cash balances and facility fees (c £0.2m) relating to the undrawn RCF.

Including the exceptional costs discussed above, statutory earnings were £0.9m (FY20: £5.5m) or EPS of 0.46p (H120: £1.0m loss).

The final dividend per share was 0.6p, taking the annual total to 1.0p. Although this was not covered by statutory earnings it was more than fully covered by adjusted earnings (Edison adjusted EPS of 2.0p) and reflects management confidence in the company’s prospects.

Free cash increased slightly during the year to £31.4m and benefitted from the slowdown in voucher redemptions, adding c £4.1m to short-term cash flow.

More detail by product and business division

Looking more closely at the trends by business division and product, we note the following:

Consumer billings were 7.6% lower at £205.3m due to the reduction in Christmas savers orders and billings, partly offset by c 20% growth in online billings through HSV.com. The Christmas savers 2020 order book was largely built before the pandemic and mainly reflects the continued decline of agency distribution business. APP indicates that the predicted 14% decline in the current year order book is primarily driven by the impact of the pandemic on face-to-face agent activity and perhaps also by the increase in unspent vouchers from 2020 that customers may intend to use in the current year.

Corporate billings were up by 1.8% to £201.2m including £23.0m from the free school meal scheme, but 9.8% lower excluding this. Customer incentives and staff rewards showed modest growth, the latter benefitting from substitution for traditional Christmas parties, while employee benefits was held back by the lockdown. Growth in the intermediary channel reflects the free school meal scheme.

The share of billings represented by the group’s own higher margin multi-retailer product (cards, vouchers and digital) increased further to 86.5%. The reduced share of ‘other’ reflects the winding down of hampers and storage and the sale of FMI. In terms of revenues, an increased volume of digital code product was converted, at the option of customers, to single store product. Management believes that the increased use of this flexible option built into the digital codes reflects customer behaviour during the lockdown.

Exhibit 5: Own brand multi-retailer product increased share of billings

Year end March (£m)

FY21

FY20

Change

Billings

Multi-retailer

351.8

354.3

-0.7%

Single retailer

50.8

52.9

-3.9%

Other

3.9

12.7

-69.2%

Total billings

406.5

419.9

-3.2%

Multi-retailer

86.5%

84.4%

Single retailer

12.5%

12.6%

Other

1.0%

3.0%

Total billings

100.0%

100.0%

Revenue

Multi-retailer

24.7

37.9

34.7%

Single retailer

78.2

62.1

25.9%

Other

3.9

12.7

-69.3%

Total revenue

106.8

112.7

-5.2%

Multi-retailer

23.2%

33.6%

Single retailer

73.2%

55.1%

Other

3.7%

11.3%

Total revenue

100.1%

100.0%

Source: Appreciate Group data

The movement away from paper product to higher margin card and digital product continued, with the pandemic accelerating the trend change in customer buying patterns and facilitated by APP’s accelerated digitalisation. The growth in the share of digital product partly reflects the free school meal scheme but even excluding this the share almost tripled to 12.0% from 4.4% in FY20.

Exhibit 6: Accelerated growth of digital format billings

Year end March (£m)

FY21

FY20

Change

Paper

91.1

170.2

-46.5%

Card

243.0

218.4

11.3%

Digital

68.5

17.7

286.6%

Total multi- and single-retailer billings

402.6

406.4

-0.9%

Paper

22.6%

41.9%

Card

60.4%

53.7%

Digital

17.0%

4.4%

Total

100.0%

100.0%

Source: Appreciate Group data

Strategic repositioning accelerated during the pandemic

Decisive action was taken during the past year to adapt to the new environment. This included a further acceleration in digitalisation, in step with market developments, as evidenced by the strong growth in digital product billings and further reduction in paper product. The strategic actions taken by management in the past two years both mitigated the worst impacts of the pandemic and left the group in a better position to capitalise on the market recovery and exploit growth opportunities.

Having disposed of, or withdrawn from, FMI, hamper production, third-party contract packaging and the small operation in the Republic of Ireland, APP is now fully focused on growing its more profitable core business of own branded multi-retailer product. Clarity of the product offering has increased significantly with more than 400 product variations removed. The stability of core systems has been greatly improved, allowing a significant increase in online transactions to be handled with zero system outages.

The next stage of the new enterprise resource planning system, the cornerstone of APP’s plans to build a robust and scalable business platform, remains on track to be delivered in the summer of 2021, with the following phase to be delivered in the second half of the year.

PayPoint partnership provides a physical sales presence

A new partnership with PayPoint will see APP’s gifting products offered to customers across PayPoint’s 28,000 UK retail partner store outlets. This is APP’s first physical distribution presence for Love2Shop e-gift cards, which management sees as adding additional depth to how customers can access the group’s products. APP is also working with PayPoint to provide marketing support for its retailer partner stores to maximise their awareness of, and familiarity with, the product. At this early stage management has not provided any guidance on the potential impact of this novel distribution development. However, given the size of the PayPoint network the potential for incremental sales growth is clear.

Financials

FY21 billings had been previously reported. Our FY21 revenue forecast did not account for the £23m free school meal scheme revenues and adjusted for this were lower than we had assumed due to product mix and redemption patterns. As indicated by management in its 29 April trading update, adjusted PBT was within the range of market forecasts at that time (£4.1 to £4.8m) but at the low end, and below our £4.5m forecast. DPS of 1.0p reflected a 50% pay-out of adjusted earnings, in line with the historical pay-out ratio but below the 1.2p that we forecast, assuming higher earnings and that the 0.4p paid for H121 would be reflected in a ‘one-third/two-third’ DPS pattern for the year.

Our forecasts reflect a more cautious appraisal of the likely speed of the trading recovery, with billings and revenues both lower in FY22 but substantially offset by stronger than previously forecast growth in FY23.

Exhibit 7: Changes to billings and revenue forecasts

New forecast (£m)

Previous forecast (£m)

Change (%)

FY22e

FY23e

FY22e

FY23e

FY22e

FY23e

Consumer billings

176.4

182.1

179.7

182.1

-1.8%

0.0%

Corporate billings

209.3

240.5

220.9

243.0

-5.3%

-1.0%

Total billings

385.7

422.6

400.6

425.0

-3.7%

-0.6%

Total revenues

97.4

106.7

103.4

108.0

-5.9%

-1.2%

Source: Edison Investment Research

The impact on adjusted PBT is somewhat larger due to operational gearing, and also reflects a more cautious assumption on gross margin, reflecting the FY21 data. Our DPS forecasts reflect a c 50% pay-out and are reduced in line with forecast earnings.

Exhibit 8: Performance versus forecast/forecast changes

Billings (£m)

Revenues (£m)

Adj. PBT (£m)*

Adj. EPS (p)

DPS (p)

Act.

F'cast

Diff.

Act.

F'cast

Diff.

Act.

F'cast

Diff.

Act.

F'cast

Diff.

Act.

F'cast

Diff.

03/21

406.5

406.5

0.0%

106.8

93.9

13.7%

4.2

4.5

-6.7%

2.0

2.3

-10.1%

1.00

1.20

-16.7%

New

Old

Chg.

New

Old

Chg.

New

Old

Chg.

New

Old

Chg.

New

Old

Chg.

03/22e

385.7

400.6

-3.7%

97.4

103.4

-5.9%

6.5

7.2

-9.4%

2.8

3.1

-9.4%

1.35

1.50

-10.0%

03/23e

422.6

425.0

-0.6%

106.7

108.0

-1.2%

9.1

9.4

-3.9%

3.9

4.1

-3.9%

1.80

2.10

-14.3%

Source: Appreciate Group FY21 data, Edison Investment Research

Our cash flow forecasts continue to reflect our expectation of a cash outflow as paper voucher redemptions pick up with lockdown easing and as the share of paper vouchers in the billings mix continues to decline in favour of higher margin but less immediately cash generating card and digital product. Should this occur at a faster pace than we allow, the £15m undrawn revolving credit facility is in place to provide financial flexibility during peak trading periods. As we explain in the next section, the cash outflow associated with the run-off of voucher provision balances has no impact on our valuation.

Valuation

Assuming a return to more normal trading conditions, as reflected in our near-term forecasts, and considering the longer-term growth potential, we continue to see significant value in APP shares. The price discount to our unchanged fair value of 60p has widened since the FY21 results to c 50%. In our view the poor reaction of the share price to the results reflects indications at this early stage of the financial year that the sales and profitability improvement in FY22 may not be as strong as the market (and we) had previously anticipated. This is reflected in our revised estimates and the c 20% decline in the share price since the results compares with a c 4% reduction in our FY23 forecasts. Evidence of continued improvement in trading as the economy begins to fully open has the potential to act as a catalyst for a significant re-rating.

DCF valuation supported by ‘peer’ comparison

A satisfactory direct valuation comparison of APP with quoted competitors is not possible. There are no direct quoted comparators for the Christmas savings business, and competitor employee benefits and service providers are either private companies or relatively small parts of larger groups, complicating any attempt at a relative valuation approach. In incentive and rewards products, Sodexo and Edenred are both much larger and more international, and the overlap between APP and Sodexo is limited (Sodexo Benefits and Rewards Services is only a minor part of Sodexo Group). We nevertheless include these in our quoted comparator group along with a selection of prepaid card and payments service providers (Euronet Worldwide, FleetCor Technologies, Green Dot Corp and EML Payments).

Our DCF value is unchanged at 60p as FY21 drops out of our rolling 10-year time horizon and offsets the impact of reductions in FY22 and FY23 forecasts. The DCF valuation of 60p implies a ‘target’ P/E multiple (using adjusted earnings) of c 22.8x for CY21 and 16.4x for CY22. Although relatively high due to near-term earnings pressures, we believe these multiples are reasonable in the context of the comparator stocks, despite the comparatively low market capitalisation and implied lower liquidity.

Exhibit 9: Peer comparison

Share price

Market

P/E (x)

EV/EBITDA (x)

Dividend

 

(local)

cap (£m)

CY20

CY21

CY22

CY20

CY21

CY22

Yield (%)

Incentive

 

 

 

 

 

 

 

 

 

Edenred SA

48

10,165

43.8

38.5

32.6

22.5

20.4

18.0

1.6

Sodexo SA

79

9,880

45.3

30.2

17.3

15.6

13.3

9.9

0.0

Incentive average

 

 

44.6

34.3

24.9

19.0

16.9

13.9

0.8

FleetCor Technologies

256

15,435

23.2

20.5

17.9

19.5

16.7

14.4

N/A

Green Dot Corp

47

1,844

23.5

22.4

17.4

19.0

17.9

14.5

N/A

EML Payments

4

712

42.7

34.8

24.8

8.9

6.1

4.4

N/A

Euronet Worldwide Inc

135

5,168

54.9

N/A

N/A

23.2

14.6

8.9

N/A

Prepaid card and payment services average

 

 

36.1

25.9

20.0

17.6

13.8

10.5

N/A

Total group average

 

 

38.9

29.3

22.0

18.1

14.8

11.7

0.8

Appreciate Group

31

58

11.3

11.9

8.5

14.5

10.8

7.5

3.2

Source: Refinitiv, Edison Investment Research estimates for Appreciate Group. Note: Earnings data on a calendar year basis, using adjusted EPS. Appreciate’s enterprise value (EV) excludes voucher provision balance from cash. Prices at 1 July 2021.

DCF value unchanged at 60p

Our modified DCF valuation differs from a standard DCF in that we include the interest earned on segregated customer cash balances (but not on group cash balances), recognising this is an integral part of the returns the company generates (although the contribution is greatly reduced at current low interest rates). The customer cash itself is excluded from the overall valuation and we also exclude the voucher provisions balance, as this will eventually flow out in settlement of vouchers that have been issued but not yet redeemed. Our key assumptions have been held constant for an extended period, including an assumed 10% discount rate and 10x terminal multiple. Beyond the forecast period (to end-FY23), we use a two-stage growth assumption to allow for the potential medium-term benefits of the strategic business plan investment. For the first two years beyond the forecast period (years three and four), we assume 10% growth in underlying free cash flows, followed by a reversion to a long-term growth rate of 5% up until year 10. We continue to assume an eventual ‘normalisation’ in interest rates and assume a stepped increase in market deposit rates to 1.5% in FY24 and 3% from FY25 and, as noted above, we deduct upfront from the DCF valuation the amount of voucher provisions (an estimated £34.8m at end-FY21) on the basis that the matching cash is only temporarily available to the group, albeit on a revolving basis. As a result of this methodology, the DCF value is not enhanced by the current voucher provision balance, nor does the expected future decline in the voucher provision balance have any impact.

Exhibit 10: Financial summary

Year end 31 March (£m)

2017

2018

2019

2020

2021

2022e

2023e

PROFIT & LOSS

Consumer billings

216.8

232.6

232.1

222.2

205.3

176.4

182.1

Corporate billings

187.7

180.2

194.8

197.7

201.3

209.3

240.5

Total Billings

404.5

412.8

426.9

419.9

406.5

385.7

422.6

Revenue

119.6

111.1

110.4

112.7

106.8

97.4

106.7

Cost of sales

(89.9)

(79.6)

(79.1)

(79.8)

(82.1)

(69.1)

(75.7)

Impairment of obsolete stock

(0.1)

(0.4)

Gross profit

29.7

31.4

31.3

32.8

24.3

28.2

30.9

Gross margin as % billings

7.3%

7.6%

7.3%

7.8%

6.0%

7.3%

7.3%

Distribution costs

(2.9)

(3.0)

(2.9)

(2.8)

(1.8)

(1.7)

(1.7)

Administrative expenses excluding depreciation & amortisation

(14.9)

(15.7)

(16.0)

(18.4)

(19.3)

(18.0)

(18.2)

EBITDA

11.8

12.7

12.3

11.6

3.3

8.5

11.1

Depreciation & amortisation

(1.4)

(1.4)

(1.4)

(1.7)

(1.8)

(2.4)

(2.4)

Exceptional items

0.0

0.0

(1.2)

(3.6)

(0.9)

0.0

0.0

Non-recurring items

0.0

0.0

0.0

0.0

0.2

0.0

0.0

Operating profit

10.4

11.3

9.7

6.4

0.8

6.2

8.7

Net Interest

1.5

1.3

1.6

1.3

0.4

0.3

0.3

Profit before tax

11.9

12.6

11.3

7.7

1.3

6.5

9.1

Adjust for:

Exceptional & non-recurring items as above

0.0

0.0

1.2

3.6

0.7

0.0

0.0

Impairment of obsolete stock as above

0.0

0.0

0.0

0.1

0.4

0.0

0.0

Other non-recurring items

0.0

0.0

0.0

0.0

1.9

0.0

0.0

Adjusted Profit Before Tax

11.9

12.6

12.5

11.4

4.2

6.5

9.1

Tax

(2.4)

(2.4)

(2.4)

(2.2)

(0.4)

(1.2)

(1.7)

Profit after tax (IFRS)

9.5

10.2

8.9

5.5

0.9

5.3

7.3

Adjusted profit after tax

9.5

10.2

10.1

9.1

3.4

5.3

7.3

Average number of shares (m)

183.9

185.3

186.0

186.3

186.3

186.3

186.3

Fully diluted average number of shares (m)

187.2

185.9

186.1

186.3

186.3

186.3

186.3

Basic EPS - IFRS (p)

5.2

5.5

4.8

3.0

0.5

2.8

3.9

Fully diluted EPS - IFRS (p)

5.1

5.5

4.8

3.0

0.5

2.8

3.9

Adjusted EPS (excludes exceptional/nonrecurring items) (p)

5.1

5.5

5.4

4.9

2.0

2.8

3.9

Dividend per share (p)

2.90

3.05

3.20

0.00

1.00

1.35

1.80

Pay-out ratio (Adj. earnings)

57.1%

55.5%

59.0%

0.0%

48.8%

47.9%

45.7%

BALANCE SHEET

Non-current assets

14.4

14.9

12.6

16.2

18.1

19.5

21.0

Goodwill

2.2

2.2

2.2

0.8

0.6

0.6

0.6

Other intangible assets

2.7

2.3

2.3

4.8

8.9

10.1

11.4

Property, plant, & equipment

7.7

7.7

6.2

2.7

2.2

2.4

2.6

Retirement benefit asset

1.8

2.7

1.9

4.2

2.1

2.1

2.1

Other non-current assets

0.0

0.0

0.0

3.8

4.4

4.4

4.4

Current assets

129.3

142.4

153.5

148.0

179.3

146.8

154.9

Inventories

26.3

38.1

45.7

2.8

3.6

2.5

25.0

Trade & other receivables

9.2

10.9

12.6

9.5

11.4

9.6

11.4

Monies held in trust

83.0

87.0

99.3

102.7

132.1

116.0

126.7

Cash & equivalents

34.2

40.3

36.9

29.6

31.4

17.9

13.6

Other current assets

(23.5)

(33.9)

(41.0)

3.4

0.7

0.7

(21.8)

Current liabilities

(133.8)

(142.6)

(148.8)

(140.7)

(174.2)

(139.8)

(143.9)

Trade & other payables

(872.0)

(945.9)

(611.9)

(57.2)

(52.8)

(54.0)

(60.0)

Tax payable

(0.4)

0.0

(0.6)

0.0

0.0

0.0

0.0

Provisions

(46.2)

(48.0)

(58.3)

(53.8)

(77.9)

(58.8)

(55.9)

Non-current liabilities

(1.1)

(0.7)

(0.6)

(5.3)

(5.4)

(5.4)

(5.4)

Deferred tax liability

(.2)

(.7)

(.6)

(1.1)

(.8)

(.8)

(.8)

Retirement benefit obligation

(.9)

0.0

0.0

0.0

0.0

0.0

0.0

Lease liabilities

0.0

0.0

0.0

(4.1)

(4.7)

(4.7)

(4.7)

Net assets

8.8

14.0

16.7

18.3

17.7

21.1

26.5

CASH FLOW

Operating Cash Flow

9.6

10.5

6.9

6.9

4.9

(6.9)

2.8

Net interest

1.5

1.3

1.5

1.6

0.4

0.3

0.3

Tax paid

(2.3)

(2.5)

(1.6)

(2.9)

(0.6)

(1.2)

(1.7)

Capex

(0.7)

(1.0)

(1.2)

(5.0)

(5.7)

(3.8)

(3.8)

Acquisitions/disposals

(0.9)

0.0

0.0

0.0

0.0

0.0

0.0

Dividends paid

(5.1)

(5.4)

(5.7)

(6.0)

0.0

(1.9)

(2.0)

Other

0.3

0.0

0.3

0.4

2.8

0.0

0.0

Net cash flow

2.5

2.9

0.3

(4.9)

1.8

(13.5)

(4.3)

Opening net (debt)/cash

28.8

31.4

34.2

34.6

29.6

31.4

17.9

Closing net (debt)/cash

31.4

34.2

34.6

29.6

31.4

17.9

13.6

Overdraft

2.9

6.1

2.3

0.0

0.0

0.0

0.0

Closing net (debt)/cash as per balance sheet

34.2

40.3

36.9

29.6

31.4

17.9

13.6

Source: Appreciate Group historical data, Edison Investment Research forecasts

General disclaimer and copyright

This report has been commissioned by Appreciate Group and prepared and issued by Edison, in consideration of a fee payable by Appreciate Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Appreciate Group and prepared and issued by Edison, in consideration of a fee payable by Appreciate Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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