BAE.L Regulatory News (BAE)

BEALE PLC

26 January 2012

Beale PLC, the specialist department store operator, announces Preliminary Results for the 52 weeks ended 29 October 2011 (comparative period - 52 weeks ended 30 October 2010).

• Transformational acquisition of 19 new stores from the Anglia Regional Co-operative Society Limited ("ARCS") in May 2011 (the "Transaction").

• Group revenue £62.0m (2010: £48.6m) up 27.6%, core Group revenue (excluding stores acquired in the year) level at £48.6m, like for like revenue (excluding Hexham and Rochdale stores acquired in 2010) 9.3% down.

• Gross margins declined primarily due to product mix in acquired stores from 53.7% to 51.3%; core Group margin 53.1%.

• Net exceptional income from the Transaction of £4.8m (2010: £nil).

• Pre tax profit after exceptional income of £0.54m (2010: loss £0.67m).

• Gross sales including VAT (including the acquired stores) during the key five week trading period ending on 14 January 2012 were 54.3% above the previous year, like for like gross sales were 2.9% below previous year.

• Gross sales including VAT for the first eleven weeks of the current trading year to 14 January 2012 were 47.7% higher than the previous year, like for like gross sales were 7.0% below previous year.

Keith Edelman, Chairman commented: "The Transaction has enabled Beales to increase its portfolio and was structured in a manner that ensured the cash requirement to effect the Transaction was available to the Group. The resultant inflow of funds has strengthened the balance sheet of Beales, helping to withstand an extremely adverse retail environment that currently persists."

Tony Brown, Chief Executive commented: "The Transaction has resulted in a 51.6% increase in gross sales for the second 6 months of trading of the Group. The pre-tax profit for the year was £0.5m (2010: £0.7m loss). This included net exceptional income of £4.8 million arising from the Transaction and the trading loss from the acquired ARCS stores for the 23 weeks of £1.8m. We continue to review our cost base and to strive to realise the synergies from the integration."

For further information:

Beale PLC Shore Capital

Tony Brown, Chief Executive Anita Ghanekar

Ken Owst, Finance Director Edward Mansfield

Tel: 01202 552022 Tel: 02074 084090

Chairman's Statement

Overview

The year was one of the most important in Beales' history with the acquisition of 19 stores from the Anglia Regional Co-operative Society Limited (ARCS) (the "Transaction"). This was approved at the EGM on 17th May 2011 when the shareholders also approved the issuing of 8.5 million new redeemable preference shares of £1 each to ARCS. The Board had realised that in order for the Group to return to profitability in the medium term, that it needed to increase its scale of operations as it was becoming ever more challenging to operate profitably from 13 stores given the investment required in central costs. The Transaction has enabled Beales to benefit from the resultant economies of scale. The Transaction was structured in a manner that ensured the cash requirement to effect the Transaction was available to the Group. The resultant the inflow of funds has strengthened the balance sheet of Beales, helping to withstand an extremely adverse retail environment that currently persists.

Results

The Group profit before taxation was £0.5m (2010: £0.7m loss). This includes losses from the ARCS stores of £1.8m for the period in which they traded. These losses are offset by exceptional income resulting from the Transaction of £4.8m, further details the relating to the exceptional income are set out in the Finance Director's Review.

Gross sales (including VAT and concessional sales) for the Group for the 52 weeks ended 29 October 2011 were £110.0m being 26.1% above the previous year (2010: £87.2m). This includes £22.7m of gross sales relating to the acquired stores. Gross profit for the year was £31.8m (2010: £26.1m) and was achieved at a margin of 51.3% (2010: 53.7%). This includes the gross profit generated by the acquired stores of £6.0m. The acquired stores trade at a lower margin of 45.0% due to the product mix, which is predominantly electrical. Even though the Group has experienced an unprecedented year of expansion through acquisition, every effort has been made to maintain a close focus on administrative expense control. The total expenses for the year of £35.6m (2010: £26.5m) include £7.8m attributable to the acquired stores.

The year-end bank net indebtedness of £2.4m (2010: £8.1m) is significantly below the previous year as a result of the Transaction approved by shareholders. A more detailed review of Group performance can be found in the Chief Executive's Statement. The financial results are discussed in greater detail in the Finance Director's Review.

Trading update

Retail sales in November this year showed unprecedented declines which we believe was driven by uncertainty regarding Europe and compounded by an unseasonal warm spell. The momentum of Christmas growth gave a lift to the year. Gross sales (including concessions and VAT) for the first eleven weeks of the current trading year to 14 January 2012 were 47.7% higher than the previous year including the acquired stores, like for like gross sales were 7.0% below previous year. For the key five week period from 11 December 2011 to 14 January 2012 gross sales (including concessions and VAT) were 54.3%, above the previous year, like for like gross sales were 2.9% below previous year

Dividend

No dividend is proposed for the year.

Shareholders and Board

On 8th November 2011 Mike Killingley retired from the Board and I was appointed Chairman. I would like to put on record the outstanding contribution that Mike has made to Beales since he joined the Board in March 2004. He has led the Group through a very difficult period and the strategic positioning of the Group has improved beyond all recognition. I would like to take this opportunity of thanking Mike for his contribution over the last seven years.

Tony Richards joined the Board on the 1 September 2011 as Trading Director, having been involved in the ARCS acquisition since January 2011. Tony has a wealth of retail knowledge that has already benefitted the Group. I welcome Tony to the Board. 

Under the terms of the Transaction, for as long as ARCS is the holder of the issued preference shares with a nominal value of at least £4.25 million, ARCS have the right to appoint one non-executive director to the Board. Accordingly John Chillcott, the CEO of ARCS, joined the Board on 24th August 2011. I welcome John to the Board.

Will Tuffy joined the Board on the 8th November 2011 and is already making a real contribution. Following my appointment as Chairman, Will Tuffy has taken up the chairmanships of both the Remuneration and Audit Committees and will be the senior independent non-executive director. I welcome Will to the Board.

Staff

I would like to firstly take this opportunity of welcoming all of the ARCS staff into the Beales' family. I thank them and all the Beales staff for their dedication and commitment ensuring the stores are set up every day to maximise our sales and for their outstanding customer service. We operate predominantly in market towns and I believe that our staff and the service they offer customers can be a real competitive advantage.

Banking facilities and going concern

As I have said this is a really difficult economic and retail environment and as with many retail businesses we rely on our bank HSBC for financial support through the provision of a £9 million term loan facility and an operating overdraft. We keep close contact with our relationship team at HSBC who were very supportive in assisting us to complete the ARCS acquisition. The Group manages its cash very closely and has traded within its cash and loan limits. Beales is operating in a very challenging and competitive trading environment and there are a number of risks and uncertainties facing the Group which are likely to impact its future development, performance and position. The Board continues to assess the Groups performance and is managing these risks and uncertainties in considering the appropriate resources required for the Group. The Board believes that the Group should be able to operate within its borrowing facilities and the Board has therefore continued to adopt the going concern basis in preparing the annual report and accounts, as detailed in the Finance Director's Review.

Outlook

We live in extremely uncertain times and the outlook for the retail market is that 2012 will be another challenging year. Against this background we have the opportunity of improving the performance of the ARCS stores to match that of the existing Beales stores. Also we will not, this year, have the additional challenge of the ARCS acquisition which consumed our senior management's priorities for a significant period. We will approach the market with caution and focus our efforts on margin, cost control and cash management.

Keith Edelman

Chairman

Chief Executive's Statement

Introduction

This year has been a seminal year for Beales with the purchase of 19 stores from ARCS. The year has seen a much reported challenging retail environment as ongoing retrenchment in government spending takes hold, combined with depressed economic growth and the continued increase in unemployment which has unsettled consumers. Our gross sales (including VAT and concessions) for the year, excluding the acquired stores, were £87.4m (2010:£87.2m). Sales including the new stores were £110.0m. This resulted in a 51.6% increase in gross sales for the second 6 months of trading of the enlarged Group. The pre-tax profit for the year was £0.5m (2010: £0.7m loss). This included the net exceptional income of £4.8m arising from the Transaction and the trading loss from the ARCS stores for the 23 weeks of £1.8m. We continue to review our cost base and to strive to realise the synergies from the integration.

Product sales

The expansion of the Group has provided the Group with a significant increase in buying power which has provided more opportunities to buy volume lines. We have also been able to bring more own bought product groups such as electrical and occasional furniture into the core business and these new areas are delivering incremental sales and performing above management expectations. In addition due to our increase in scale, as a result of the Transaction, we have become an increasingly important partner to certain of our concession partners, becoming one of their largest five partnerships. This has helped in discussions to open new doors and build closer ties. A number of the former ARCS concession partners which were not in core Beales stores have opened in new locations in our existing stores and are performing above management expectations.

We continue to build our own label portfolio: Whitakers Fine Linens is a high thread-count sheeting and towel range. Home Basics provides entry price point towels, sheeting, duvets and pillow ranges. In fashions we have introduced two own labels Gem by George Davies and The Collection, which outperformed other own bought fashions and are delivering improving margins. We have expanded our Broadbents & Boothroyds formal menswear brand into a casual life style brand which is now our biggest performing menswear brand. We continue to add to the successful All Cooks range in kitchen-ware plus have introduced Whitakers Fine Dining into glass and table-ware; and in our Bournemouth store we have launched an American style ice-cream sundae, waffle and pancake parlor.

We continue to develop our internet sales with the introduction of many new ranges. The Board sees the continued growth in this sales medium as an important part of our future sales strategy especially as we now have stronger geographical presence in many parts of the country. We will continue to develop our email address base to help grow such internet sales.

Buying in margin

Our buying in margin has been affected by the mix of product of the acquired stores, many of which have large electrical departments which generate higher revenues as a result of the larger ticket prices but operate on considerably lower margins. In addition, the core margin has been affected slightly by the increase of VAT impacting on purchase prices early in 2011. However, we continue to exploit opportunities to enhance the achieved margin by the growth in our own label products which has been helped considerably by the increase in scale of our business.

Service and people

Customer service is pivotal to our proposition and a core value. We have invested considerable time, energy and money in training programmes aimed at improving our levels of customer service. We continue to invest in our stores to improve the customer experience whilst shopping with us and our ambition continues to be to deliver levels of service that our customers simply cannot get anywhere else.

The Board wishes to thank all of our staff for their hard work and contribution throughout the year and welcomes our new members to the Beales' family.

Cost controls

We continue to challenge all our cost areas and it remains uppermost in our minds whilst ensuring that we balance this ambition with maintaining our service levels, sales drive, operating systems and central support. We will continue to look for cost savings opportunities and further synergy benefits throughout the coming year.

Principal risks and uncertainties

All retailers face a very challenging and competitive trading environment. Sound risk management is an essential discipline for running the business efficiently. The nature of risk is that no list can be totally comprehensive, though the directors believe the principal risks and uncertainties faced and the mitigating actions taken to manage these risks and uncertainties are as follows:

A sustained economic downturn with the need for increased discounting and promotions adversely impacts on revenues and margins. In mitigation we:

• Continually review the markets and performances of the trading environment

• Balance our exposure by managing product mix, supplier mix and profit margins

• Regularly monitor strategic key performance indicators

• Seek to enhance our sourcing margins and improve commercial terms

The Group strategy for enhanced profitability from acquisition benefits is delayed. In mitigation we:

• Undertake regular reviews and reappraisals of integration plans

• Seek to capture the identified synergy benefits from acquisitions

• Continually challenge the supply base to deliver enhanced margins

• Regularly monitor performance to ensure the expected economies of scale are delivered

In uncertain economic conditions the level of resources may be inappropriate to deliver the expected business benefits. In mitigation we:

• Regularly review the group corporate plan against expectation

• Monitor our cost controls against structured financial plans and act accordingly

• Invest in appropriate systems to cost effectively monitor performance and add value

The Group has inadequate financial resources to deliver the planned business benefits. In mitigation we:

• Maintain a strong relationship with major stake-holders

• Ensure consistent and disciplined monitoring of working capital

• Maintain a sound relationship with our bank, seeking to renew the term loan facility in 2012

• Review the allocation of Group resource and capital investment

The Group may lose expertise that is key to delivering success: In mitigation we:

• Seek to motivate all colleagues to fulfil Group targets

• Have an ethos of candid and honest communication

• Relevant review of remuneration appropriate to all areas of the business

• Seek to develop our people to take on greater responsibility

We have continued to work within our banking facilities. However, the Group is subject to a number of risks and uncertainties, the principal ones being set out above, which we continually review in determining that the Group continues to operate as a going concern, as explained in the Finance Directors Review.

Environment

We believe in working with and supporting the communities in which we operate and we are closely involved with the town centre and councils in many of the towns in which we trade. We continue to seek ways to reduce product packaging and bag usage in addition to increasing the recycling of cardboard, plastic and other waste. We also continue to pay particular attention to reducing the environmental impact of the Group's carrier bags and with assistance from the Carbon Trust seek opportunities for greater energy efficiency in our stores, service buildings and offices. The financial implications of the government policy in relation to the carbon limits will be a continued burden on all businesses, we continue to seek to reduce our carbon footprint by working with the relevant government agencies.

Outlook and summary

Since my last statement, the economic outlook has changed significantly, with the reality of the government's spending now starting to have an effect on the economy. We have seen big ticket items such as electrical (i.e. TVs and white goods and furniture) become more aggressively promoted across the retail sector. Quite simply it is very difficult to accurately forecast consumers' attitude to retail spending set against a backdrop of increasing media speculation on jobs losses, the overall UK economic conditions and the possible impact of financial contagion caused by fall-out from the Eurozone.

We will therefore focus our attention on what we can control. We will continue to monitor our customers' reaction to any changes and adjust our trading strategy accordingly but in my view the uncertain economic environment will continue to make our customers cautious throughout the year. Our increased focus on commercial direct purchasing has assisted us to date, benefitting our input margins. Our balance sheet remains strong and we continue to enjoy a strong and healthy relationship with our bank, HSBC. As a management team, we are continuously and rigorously focused on improving our business not just for today, but also for tomorrow when the economic upturn comes. The Board will work hard to deliver the improvement in results, with the ultimate objective of returning the Group to operational profitability in the medium term.

Tony Brown

Chief Executive

Finance Director's Review

Overview of the Year

The year 2011 was most significant in the Group's recent history; the acquisition in May of 19 department stores from Anglia Regional Co-operative Society Limited (ARCS) (the "Transaction") not only substantially increased the Group's trading space, but also significantly enhanced the balance sheet. The new stores vary significantly in trading square footage from 6,000 sq.ft. in Diss to 94,000 sq.ft. in Mansfield. In total the new stores have increased the trading space for the Group from 550,000 sq. ft. to in excess of 1,000,000 sq. ft. This has provided for the scale that the business needed to leverage its central function.

The final acquisition price of £6.7m and the additional working capital for the acquired stores was financed from resources provided by ARCS through a deal incentive of £2.3m, a five year term loan of £2.5m and subscription for preference shares repayable after five years, with a nominal value of £8.5m, an inception fair value of £6.0m and a year-end amortised cost of £6.1m. In addition to these initial commitments ARCS will continue to make ongoing financial contributions to support the integration of a number of the stores. The acquisition was approved by shareholders in an extraordinary general meeting held on 17 May 2011. After taking into account the incentives provided by ARCS to complete the transaction, the fair value of assets and liabilities acquired is greater than the fair value of net consideration paid and incentives received. This has resulted in negative goodwill arising of £6.6m, which has been credited to the income statement and is shown net of the exceptional costs of completing the transaction and integrating the two businesses.

Results

Gross sales (including VAT and concessional sales) for the enlarged Group for the 52 weeks ended 29 October 2011 were £110.0m being 26.1% above the previous year (2010: £87.2m). This includes £22.7m of gross sales relating to the acquired stores. The core Group (excluding the 19 stores acquired in the year) comparison shows a small increase of 0.1%. Due to acquisitions of Hexham and Rochdale being made part way through the previous financial year, the like for like Group gross sales were 8.4% below previous year. It should be noted that own bought sales, excluding VAT, in the year increased by 29.3%, while concession sales, excluding VAT, increased by 17.3%. Due to the increase in the VAT rate to 20.0% (2010: 17.5%) in January 2011 the gross sales increase of 26.1% resulted in total sales, excluding VAT, being 23.8% up on previous year. This, coupled with an improvement in concession margins, resulted in the revenue increase being 27.6%. The Group revenue was £62.0m, being 27.6% above the previous year (2010: £48.6m). The core Group (excluding the 19 stores acquired in the year) revenue increased by 0.1%, like for like revenue was 9.3% below previous year.

Gross profit for the year was £31.8m (2010: £26.1m) and was achieved at a margin of 51.3% (2010: 53.7%). This includes the gross profit generated by the acquisitions of £6.0m. The acquired stores traded at a lower margin of 45.0% due to the mix, of lower margin products, which is predominantly electrical. During the year the Group has continued to work on improving the buying in margins to negate the effect of increases in VAT imposed from 4 January 2011. The core Group gross margin achieved was 53.1%, only marginally down on the previous year despite the variation in VAT rates.

Even though the Group has experienced an unprecedented year of expansion through acquisition, every effort has been made to maintain a close focus on administrative expense control. The total expenses for the year of £35.6m include £7.8m attributable to the acquired stores. The core Group expenses of £27.8m are 4.8% higher than the previous year (2010: £26.5m). However this increase includes administrative expenses in relation to operating the acquisitions made in 2010 for a full year. Like for like comparison shows administrative expenses were reduced by 4.1%. As noted above, net exceptional income of £4.8m resulted from the acquisitions in the year.

Operating profit for the Group was £968,000 (2010: £421,000 loss) including the adverse impact of absorbing and operating the new acquisitions, attributed to be £1,826,000 (prior to adding the exceptional income) in the 23 weeks of trading. The analysis of the acquisition trading for the Group is shown in the following table:

Summary Financial Performance

The net cost of financing the business of £425,000 (2010: £247,000) increased primarily as a result of the finance charge attributable to the preference shares during the period. The profit on ordinary activities before taxation was £543,000 (2010: £668,000 loss).

Noting the requirements of IFRS 8, the Board considers that the Group operates as a single operating segment.

Taxation

Due to the reduction in the deferred tax liability associated with the result for the year and the reduction of the tax rate to 26% from April 2011 and a further 1% in future years, the tax credit for the year arising from movements in deferred tax was £58,000 (2010: £85,000 credit), calculated at 25%.

The profit for the period after taxation was £601,000 (2010: £583,000 loss).

Earnings

The earnings per share was 2.93p (2010: 2.84p loss) and the diluted earnings per share was 2.80p (2010: 2.84p loss). Earnings before interest, depreciation and amortisation in the year were £2,787,000 (2010: £1,418,000).

No dividends were paid during the year (2010: nil per share). The Board considers that a significant trading improvement will be necessary before further dividends are paid.

Pensions

The Group offers new employees the opportunity to join the Beales defined contribution pension scheme. During April 2009 the Group closed its defined benefit pension scheme to future accrual, having been closed to new entrants since April 1997. The scheme is operated by the main trading subsidiary, J E Beale PLC, which also has responsibility for the Denners pension scheme. That scheme was closed to new members and future accrual when Denners Limited was acquired by the Group in 1999. The net liability for both schemes remains on balance sheet.

The Group's total final salary net pension liability under IAS 19 at the year-end reduced by £2.3m to £0.2m (2010: £2.5m). The total actuarial gains for the period were £0.7m (2010: £1.2m gain). The Beales scheme has an IAS 19 deficit of £0.7m (2010: £2.9m deficit). The Denners scheme has an IAS 19 surplus of £0.5m (2010: £0.4m surplus).

During the year the Group continued to meet the contribution schedules agreed for both schemes, contributing £1.6m (2010: £1.1m). Agreement has been reached with the trustees of the Beales scheme regarding the triennial valuation based upon the year end of October 2010 and a new schedule of contributions has been agreed, which maintains the previous rate of contributions at £1.55m per annum.

The Denners scheme next triennial valuation and a new schedule of contributions will be based upon the year end to October 2011. Agreement with the Denners trustees must be reached by January 2013.

Group systems

I am pleased to report that during the year the Group's systems have continued to operate in an efficient and consistent manner. The upgrade of its major systems in earlier years has provided the Group with the platform to acquire new stores and quickly assimilate accounting of the new businesses into a consistent Group format. The acquisition of the 19 stores has put a significantly increased load on the Group's IT function and internal systems. In preparation for the acquisition and subsequent to it there has been considerable investment. Part of the agreement with ARCS was that certain systems, primarily linked to store electronic point of sale, would be supported by the ARCS IT function for a period of up to four years from the date of acquisition. The intention is that over this period these systems will be replaced by Beales' managed systems in a planned approach. It is testament to the commitment of both IT teams that the acquisition and operation of the stores has to date been seamless from a customer perspective.

Treasury and banking

Treasury activities are governed by procedures and policies approved by the Board. The Group's policy is to take a conservative stance on treasury matters and no speculative positions are taken in financial instruments. The treasury function manages the Group's financial resources in the most appropriate and cost-effective manner.

In negotiating the acquisition of the stores from ARCS, the Group negotiated a five year term loan facility of £2.5m and the issuing of £8.5m of preference shares at their nominal value. The term loan is repayable at a rate of £0.5m per annum. The Board considers the term of this loan to be at market rates. The 8.5m £1 preference shares issued on 22 May 2011 are interest free for a period of five years, then interest is payable at a rate of 8.0% percent for four years, there after interest is payable at 9.0% for the residual life. They are to be redeemed at a rate of £0.5m bi-annually from year five. The Group has the option to redeem the preference shares at any time without any penalty for settlement. The specific terms of the preference shares create an embedded derivative for the Group. The fair value of the preference shares and the valuation of the embedded derivative have been included in calculating the negative goodwill arising from the acquisition. There will be non-cash charges and/or credits in the financial statements for future years relating to accreted interest on the preference shares and fair value gains and/or losses in relation to the contracts' embedded derivative.

At the time of negotiating the Transaction the Group reached agreement with HSBC Bank to vary some of the covenants relating to its existing facility. HSBC have continued to be supportive of the Group's strategy. The facilities are secured on the Group's freehold properties which were independently revalued at year-end at £12.6m, a value well in excess of the current bank facility. The Group has continued to operate within its banking facility, which comprises a £9.0m term loan which is due to expire in February 2013, following a negotiated extension, and an operating overdraft of £112,000. The Group net bank debt at year-end was £2.4m (2010: £8.1m).

Going concern

As noted in the Chief Executive's Statement all retailers face a very challenging and competitive trading environment and there are a number of risks and uncertainties facing the Group which are likely to impact its future development, performance and position. We are continually assessing our performance and managing these risks and uncertainties in considering the appropriate resources required for the Group. 

The existing bank facilities include a number of financial covenants which require testing at specific dates determined by the bank. The major covenants are the operating result after interest and after taxation which will not be tested before the next year end and the loan to value covenant. The Board is aware of the challenging and uncertain economic conditions and the risks and uncertainties facing the Group and has prepared forecast information for the 2011/12 and 2012/13 years. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the company should be able to operate within the level of its current facility. Based on current forecasts the Group is forecast to breach one of the covenants in its existing facility at 31 October 2012, however the Group's bankers have confirmed to the Board, in writing, that it would not be their intention to enforce any covenant breach at 31 October 2012 should it occur at current forecast levels. As noted below the Group is planning to renew its banking facilities prior to the forecast breach occurring.

Following a negotiated extension, the current Group banking facilities are set to expire in February 2013 and the Board are in discussion with the Group's bankers regarding the extension and renewal of those facilities, which would incorporate new covenant levels. The Group has maintained a strong relationship with HSBC and it anticipates renewing its banking facilities before announcement of the half year results in June 2012.

Based upon the forecasts and projections, coupled with the strategies set out in the Chairman's and Chief Executive's Statements and the support of the Group's bankers, the Board has a reasonable expectation that the Group and Company has adequate resources to continue in operational existence for the foreseeable future. On this basis the directors continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Balance sheet and cash flow

The consolidated cash flow shows Group capital expenditure in the year to be £2.3m (2010: £1.6m) with the major spending relating to investment in the newly acquired stores. The sum excludes the fair value on acquisition of £996,000 for the fixed assets in the stores acquired.

 Inventories valued at cost were £16.5m (2010: £9.5m) an increase of 73.7%, which is largely attributable to the stock in the acquired stores. This sum includes the peak stock volumes prior to Christmas. Trade and other receivables were £5.7m (2010: £4.4m), with £1.3m of the increase attributable to prepayments relating to the enlarged group. Trade payables at year-end increased to £8.3m (2010: £5.5m). Accruals and deferred income increased to £6.8m (2010: £2.6m) primarilyas a result of the fact that the October 2011 salaries unlike in the previous year, were not scheduled to be paid until the Monday after year-end. These liability increases had a consequential favourable impact on borrowings in the year under review. The Group has continued to ensure that creditor payments have been prioritised in order to benefit from maximum early settlement discount. Borrowings of £3.9m (2010: nil) are included in current liabilities, resulting in the net current assets at year end decreasing to £3.2m (2010: £5.8m).

As noted earlier within the treasury and banking section, the funding of the acquired stores was facilitated by ARCS through a loan and the issue of preference shares. As a result of the borrowings received to fund the corporate expansion in the year, coupled with the reduction in the IAS19 pension liability and the increase in lease incentives, the year end long-term liabilities, including the fair value of the preference shares on issue, decreased by £1.1m to £15.1m (2010: £16.2m).

Group net assets at year-end increased to £16.9m (2010: £14.6m) primarily as a result of the exceptional benefits derived from the acquisition in the year and variation in retirement benefits obligations offsetting the trading loss. The value of net asset per share at year end was 82.1p (2010: 71.1p).

Ken Owst

Finance Director

 Statement of Directors' Responsibilities

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and have also chosen to prepare the parent company financial statements under IFRSs as adopted by the EU. Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, International Accounting Standard 1 requires that directors:

• properly select and apply accounting policies;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

• make an assessment of the company's ability to continue as a going concern.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement

We confirm that to the best of our knowledge:

the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

Keith Edelman Ken Owst

Chairman Finance Director

Consolidated Income Statement

For the 52 weeks ended 29 October 2011

* Gross sales reflect revenue from concession sales and VAT from continuing operations.

Consolidated Balance Sheet

As at 29 October 2011

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

For the 52 weeks ended 29 October 2011

Notes to the financial statements

1. Accounting policies

General Information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 29 October 2011 or 30 October 2010. The financial information for 2011 and 2010 is derived from the statutory accounts for those years. The statutory accounts for 2010 have been delivered to the Registrar of Companies. The statutory accounts for 2011 will be delivered to the Registrar of Companies following the Company's annual general meeting. The Group auditors, Deloitte LLP, have reported on the 2011 and 2010 accounts, their reports were unqualified and did not contain any statements required under either s498 (2) or s498 (3) of the Companies Act 2006. The preliminary announcement has been prepared on the basis of the accounting policies as stated in the financial statements for the 52 week period ended 29 October 2011. While the information included in this preliminary announcement is based on the Company's financial statements which are prepared in accordance with International Financial Reporting Standards (IFRS), as adopted for use in the EU. The Company expects to publish full financial statements that comply with IFRS on 14 February 2012.