SCS GROUP P.L.C - Accounts, 2023 - ESMA ESEF 2022

Helping

create

the home

you love

ScS Group plc

Annual Report and Accounts

2023

ScS Group plc Annual Report and Accounts 2023

We continue

to take market

share and

make strategic

progress.”

Our strategy

Continuing to drive the business

forward.

Read more on page 13

ScS Group plc

45-49 Villiers Street, Sunderland

SR1 1HA

Tel: 0191 731 3000

www.scs.co.uk

* See alternative performance measures

on pages 55 to 56.

** Dividend includes 4.5p interim paid and 10.0p

proposed final dividend.

Financial highlights

Underlying profit before tax*

£7.2m

2022: £13.8m

Statutory earnings per share

12.8p

2022: 36.2p

Cash

£69.5m

2022: £70.8m

Dividend**

14.5p

2022: 13.5p

1ScS Group plc Annual Report and Accounts 2023

Gross sales*

£343.5m

2022: £344.7m

Gross margin*

44.4%

2022: 45.3%

ScS is one of the UK’s

leading furniture and

flooringretailers

Our mission is to be the UK’s best value home retailer.

Delivering outstanding value, quality and choice with

a seamless customer experience.

About ScS

Strategic report

IFC Financial highlights

03 At a glance

06 Chair’s letter

08 Chief Executive Officer’s review

10 Our market

13 Our business model

16 Our strategy

24 Key performance indicators

26 Responsibility and sustainability report

38 Task Force on Climate-related

Financial Disclosures report

48 Section 172 statement

50 Financial review

55 Alternative performance measures (APMs)

57 Risk and risk management

59 Principal risks and uncertainties

65 Viability statement

Corporate governance

68 Board of Directors

72 Corporate governance statement

72 Introduction from the Chair

73 Compliance with the UK Corporate

Governance Code

75 Board leadership and company purpose

79 Division of responsibilities

82 Composition, succession and evaluation

86 Nomination Committee report

89 Audit Committee report

97 Directors’ remuneration report

120 Directors’ report

124 Statement of Directors’ responsibilities

Financial statements

126 Independent auditors’ report to the members of

ScSGroup plc

133 Consolidated statement of comprehensive income

134 Consolidated statement of financial position

135 Consolidated statement of changes in equity

136 Consolidated statement of cash flows

137 Notes to the consolidated financial statements

156 Company statement of financial position

157 Company statement of changes in equity

158 Notes to the Company financial statements

162 Company information

* See alternative performance measures on pages 55 to 56.

2 ScS Group plc Annual Report and Accounts 2023

Strategic

report

03 At a glance

06 Chair’s letter

08 Chief Executive Officer’s

review

10 Our market

13 Our business model

16 Our strategy

24 Key performance indicators

26 Responsibility and

sustainability report

38 Task Force on Climate-related

Financial Disclosures report

48 Section 172 statement

50 Financial review

55 Alternative performance

measures (APMs)

57 Risk and risk management

59 Principal risks and

uncertainties

65 Viability statement

S S

3ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

At a glance

Helping create the

home you love

ScS Group plc is a sofa, flooring and furniture

specialist. We have over 125 years of furniture

and retailing experience and have established

ourselves as one of the leading furniture and

flooring retailers in the UK.

Where we are

Customer

support centre

SCS stores

SCS stores with

Snug concession

Snug stores

Distribution centres

100

showrooms across

the UK

Providing an engaging experience,

showcasing our latest great value

products and giving our customers

the chance to find the perfect

addition to their home.

distribution

centres across

the UK

Delivering to thousands

of customers every week.

customer

support centre

Supporting the business

and customers from our

base in Sunderland.

Snug showrooms

Three standalone stores and 23

concessions (a mixture of internal

and external). Each showcasing

our Snug offering.

4 ScS Group plc Annual Report and Accounts 2023

Our RIGHT Values

Responsive

To our customers,

colleagues,

markets and new

ways of working

Trusted

Operating with

fairness, respect,

honesty and

integrity

Inclusive

Working and communicating

with each other to achieve

common goals

Hard working

Passionate, committed

and driven with a

winning attitude

Get it right

Doing things right

first time

Our purpose

Helping create the home you love

Our clear purpose drives strategic priorities and

supports our ambitions and commitments. It guides

us in delivering the best combination of customer

service, value for money, quality and product choice

for our customers. Our customers and our people

are at the heart of everything we do and are central

to our purpose.

See pages 16 to 22 for more information on our

strategy

Highlights

• Delivered a resilient financial performance

despite a challenging macroeconomic

environment.

• Following significant quantitative and qualitative

customer research, launched our new ‘Feel the

hug of home’ brand creative.

• Acquired the business and assets of Snug which

complements the Group’s existing proposition,

diversifies our customer base and increases our

market share.

• Opened two new stores in Swindon and York.

• Implemented our refreshed store design into

eight further stores taking the total to nine.

• Exceeded 440,000 reviews on Trustpilot and

maintained the maximum 5-star ‘Excellent’ rating.

• Completed £7m share buyback programme.

• Launched partnership with Shelter, the national

housing and homelessness charity.

• Improved our employee satisfaction score and

colleague retention rates.

At a glance continued

Our values

Our RIGHT values, together with our purpose, shape

and bring our culture to life.

Our colleagues are key to our success, and we are

committed to creating a great place for them to

work.

Our responsibility

At ScS, we recognise that as a responsible business

we have an obligation to operate in a manner that

is both ethical and sustainable. We continue to

align our environmental, social and governance

(ESG) ambitions with our business strategy and have

commenced development of our Net Zero strategy.

See pages 26 to 37 for more information on ESG

* See alternative performance measures on pages 55 to 56.

5ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Trustpilot rating

‘Excellent’

Average number

of employees

1,801

(FY22: 1,802)

Gross

sales*

£343.5m

(FY22: £344.7m)

Store: 50% (2022: 51%)

Customer support centre:

25% (2022: 23%)

Distribution: 25%

(2022: 26%)

In-store furniture sales:

£276.6m (2022: £279.9m)

In-store flooring sales:

£30.1m (2022: £32.6m)

Online sales: £36.8m

(2022: £32.2m)

6 ScS Group plc Annual Report and Accounts 2023

Chair’s letter

acquisition in its long history, acquiring Snug. The

Board visited Snug’s contemporary Leeds store and

met the team, including CEO Rob Bridgman, and heard

about their exciting plans. Snug’s strong brand and

differentiated digital-first offering complements our

existing proposition, further diversifies our customer

base and increases our market share. I look forward

to watching the business grow in the coming years.

Together with other members of the Board I have

also visited a number of our new format stores and

was impressed with how the team has adapted the

design following the learnings gained from our initial

locations. It has been pleasing to see their strong

performance and we plan to continue to invest in

modernising our stores as long as we continue to

see the targeted returns.

I was excited to see the positive reaction to the

refresh of our ScS brand and modernised product

range, making the customer proposition more

welcoming and appealing to a wider audience.

None of this progress would have been possible

without a fully engaged team and the results of the

latest annual employee survey showed an increase

in colleague satisfaction by four points to 75, ahead

of the UK benchmark. This increase is reflected in our

improved employee retention rates.

We continue to recognise the importance of

embedding our purpose and strategy in both an

ethical and sustainable manner and have progressed

towards our ESG objectives. These efforts continue,

with our ESG committee establishing a Net Zero

strategy.

Shareholder returns

We continue to maintain a strong balance sheet, with

£69.5m of cash and no debt at the year end, providing

resilience in the current environment. Combined with

the strategic progress, the Board has confidence in

the Group’s future.

Dear Shareholder,

This is my final review and I would like to start by

thanking the talented people I have had the pleasure

and privilege to work with throughout my nine years. I

am extremely proud of what has been achieved during

this time.

I am equally pleased that ScS has maintained its core

identity, providing excellent value and delivering first-

class service to our customers, things I am certain will

be the foundations for future successes.

FY23 was a challenging year, impacted by the

continued economic pressures consumers and

businesses face across the UK. Profits fell in the

year, driven by a reduction in our gross margin in our

ScS business due to the increased cost of providing

credit to our customers. Whilst navigating the

uncertain external environment, the Group made

notable strides implementing our strategy. I was very

pleased with the progress Steve and his team made

in the year and would like to thank them for their

stewardship and determination, as well as thanking

all my colleagues for their continued commitment,

application of our RIGHT values and pursuit of our

ultimate purpose, ‘to help create the home you love’.

Following the year end, on 24 October 2023, a wholly-

owned subsidiary of Poltronesofà S.p.A. announced

a recommended cash offer for the Company of 270p

per share. In addition, the Group’s shareholders will

also be entitled to receive a final dividend in respect

of the year ended 29 July 2023 of 10p per share.

Purpose and strategy

I have been delighted with the progress made in

the second year of our refreshed strategy. I am

confident that this will ensure ScS is in a position

to weather the current turbulent economic

environment, continue to take market share and

prosper when the economy improves.

During the year the team delivered the Group’s first

We continue to recognise

the importance of

embedding our purpose

and strategy in both an

ethical and sustainable

manner.”

7ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Summary

We enter the new financial year cautiously optimistic,

acknowledging the uncertain economic outlook and

the pressures currently and prospectively facing

household incomes. However, with the combination

of the resilient business model we operate and

the strategic progress we have made, alongside

targeted investments, we are confident that the

Group has improved its offering and is well positioned

to compete for market share and to continue to

deliver for our stakeholders.

On behalf of the Board, I would like to thank our

shareholders, suppliers and customers for their

continued support as well as our colleagues

for their loyalty and hard work. With our proven

steadfast operational resilience, continuing

strategic progress and strong future prospects, I am

confident in handing over the Chair to John Walden.

Ido so certain in the knowledge that I am leaving ScS

and all of its stakeholders in good hands.

It only remains for me to say a very sincere thank you

to everyone who has supported me throughout my

time with ScS, and to wish you all the very best for the

future.

Yours sincerely,

Alan Smith

Chair

24 October 2023

With the notification from Chris Muir of his intention

to step down as Chief Financial Officer (CFO), and

following a comprehensive recruitment process, Iwas

delighted to welcome Mark Fleetwood to the Group

as Chris’s successor on 4 September 2023. Chris has

been a vital part of the success of ScS since his

appointment in 2016 and I’d like to thank him for his

contribution. Chris will remain as an Executive Director

on the Board to assist with the conclusion of the offer

for the Company.

Offer for the Company

Following the year end, on 24 October 2023, a wholly-

owned subsidiary of Poltronesofà S.p.A. announced a

recommended cash offer for the Company of 270p per

share. In addition, the Group’s shareholders will also

be entitled to receive afinal dividend in respect of the

year ended 29 July 2023 of 10p per share.

Established in Forli in 1995, Poltronesofà S.p.A. has

become the leading sofa retailer in Italy and one of

the leading sofa retailers in Europe. It designs and

sells sofas and armchairs, as well as sofa beds and

decorative accessories and retails them through

its 166 stores in Italy, 104 stores in France and 26

further stores across Europe (14 in Belgium, nine

in Switzerland, two in Cyprus and one in Malta).

Poltronesofà S.p.A. is widely recognised for its focus

on a high-quality customer experience while offering

Italian-manufactured products at affordable prices.

Poltronesofà’s customers appreciate the extensive

optionality for customisation, with the wide range

of models and versions being customisable through

Poltronesofà’s extensive range of upholsteries. This

customer-centric offering is made available at a very

convenient price range.

It is intended that the acquisition will be implemented

by way of a Court-sanctioned scheme of

arrangement under Part 26 of the Companies Act and

is expected to complete in the first quarter of 2024.

In the year we completed our share buyback

programme, returning a total of £7.0m to our

shareholders and in addition, completed the cash

acquisition of Snug. The Board actively reviews the

allocation of capital, considering potential external

and internal investment opportunities and returns to

shareholders.

As we reflect on the robust performance for the year,

the Board is pleased to propose a final dividend of

10.0p subject to approval at the AGM. Upon approval,

this would mean a full year dividend of 14.5p.

Board changes

Last year we reported the appointment of three

new Non-Executive Directors. Carol Kavanagh, who

joined the Board on 26 September 2022, Andy Kemp

who joined the board on 1 February 2023 and John

Walden who joined as Chair Designate on 1 March

2023. Additionally, I was pleased to welcome Swarupa

Pathakji to the Board as Non-Executive Director on

2 May 2023.

Carol, Andy, John and Swarupa have all held a number

of relevant senior positions and have extensive

listed company experience that will strengthen

the Board’s capabilities whilst playing a crucial role

in the advancement of our strategy. They have all

undertaken a comprehensive induction process and

are making valuable contributions to the Group.

The original plan was that both Ron McMillan and

I would step down from our positions upon the

conclusion of the AGM on 1 December 2023, both

having served nine years on the Board, the maximum

term recommended under the UK Corporate

Governance Code. The current intention is that

Ron and I will remain as Non-Executive Directors on

the Board for a short period post the AGM to assist

with the conclusion of the offer for the Company

that was announced on the 24 October 2023 and

further updates with regards to this will be made as

appropriate.

8 ScS Group plc Annual Report and Accounts 2023

Chief Executive Officer’s review

first half saw a like-for-like order intake reduction

of 4.7%, largely due to the first 16 weeks of the

year experiencing a 9.1% reduction due to the

comparative period benefitting from strong pent-

up demand following the last national lockdown.

The 10 weeks to 28 January 2023 saw a return to

order intake growth of 2.6%, which included the key

winter sale. The ScS business refreshed its brand

in February 2023 and like-for-like order growth

subsequently improved to 5.9% in H2, resulting in FY23

order intake being in line with the prior year.

Whilst all market commentary indicates that big-

ticket discretionary purchases remain subdued

it was pleasing to see that for the second year

running, the ScS business continued to gain market

share, cementing its position as the UK’s second

largest upholstered furniture retailer.

Gross delivered sales was £343.5m (2022: £344.7m),

with the ScS business seeing a £5.4m reduction

due to a larger order book unwind in FY22. This was

partially offset by £4.2m of sales from Snug. Gross

profit was £152.4m (2022: £156.3m) with underlying

profit before tax*of £7.2m (2022: £13.8m), including a

£1.9m loss before tax from Snug.

Gross margin for the year was 44.4% (2022: 45.3%). This

was impacted by an increase in the cost of providing

credit to customers and the level of display stock

Overview

The year ended 29 July 2023 marks the conclusion of

the second year of our refreshed strategy, mission

and purpose which has driven our priorities. Like most

companies, we have faced a challenging trading

environment resulting from the economic pressures

households are facing throughout the UK. Our strong

foundations and core values alongside diligent

responsive actions have enabled us to maintain a

resilient financial performance and gain market share.

I am proud to lead this special business which has

always had a family feel, and I would like to thank

all of our teams for their ongoing dedication,

enthusiasm and contributions in a challenging

year. Our colleagues continue to demonstrate the

Group’s values and put the customers at the centre

of everything we do. This hard work and dedication

continues to be recognised by our customers, and I

am delighted to see that come through in our 5-star

‘Excellent’ Trustpilot rating.

Results

Positive trading and effective cost management

have helped us to navigate a challenging

macroeconomic environment to deliver profit

ahead of market expectations.

The ScS like-for-like order intake* momentum

improved significantly throughout the year. The

It was pleasing to see

that for the second

year running, the Group

continued to gain

market share.”

The Snug acquisition presents

us with a great opportunity to

increase market share

* This report includes alternative performance measures (APMs) which are defined and reconciled to IFRS information, where applicable, within

the Financial review on pages 55 to 56.

9ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

sales as we completed the store ‘declutter’

programme to improve the look and feel of our

stores. The cost of credit and level of display stock

sales were partially offset by price rises in the year.

Strategic progress

The second year of our refreshed strategy has seen

solid progress across a number of areas and would

not have been possible without the commitment

and support of our colleagues across the Group. The

actions we have taken are designed to increase our

competitiveness in the marketplace and to position

the business to gain market share, doing so in a

measured way to ensure the Group remains resilient.

The prior year saw the Group implement a new

design concept at our existing Coventry store.

Two further stores were invested in at the start of

FY23, followed by a period of reflection to measure

and refine these initial design concepts. The three

concept stores have outperformed the rest of

the estate, seeing increased sales, employee

satisfaction and a reduction in employee turnover.

Taking learnings from the first three stores we then

invested in a further six stores in final quarter of the

year. Our intention is to invest in at least a further 12

stores in FY24, with the possibility of increasing this

if returns are as expected.

Following a period of detailed research, the

Group modernised the ScS brand and marketing

approach. Our updated marketing tone, style and

logo showcase our products in a warm, welcoming

manner which we believe is more aligned with our

customers and the market, and dovetails well with

our new store look and new product ranges. This

was a big decision given the positioning and tone

of the existing branding and marketing style and we

were pleased to see the sales response and market

share gain since launch at the start of H2.

To improve our product offering, we have elevated

and modernised the ranges on offer in our stores,

thus attracting a wider customer demographic as

we broaden our appeal. This comes on the back of

collaborations, including Ideal Home, with whom

we have launched eight exclusive Ideal Home

branded sofa ranges, and our new collection with

Paloma Faith. We have also expanded our hard floor

proposition across laminate, luxury vinyl tiling and

engineered wood. As well as improving the range

we offer, in recognition of our product quality,

we achieved Kitemark certification for domestic

furniture by the British Standards Institute. We are

one of only a handful of furniture retailers in the UK

to hold this stamp of approval.

I remain delighted with our acquisition of Snug

in January 2023. Snug is an exciting and young

business with great potential. It has a strong and

recognisable brand, a differentiated product

and targets a market that complements our

proposition. In that regard, it presents us with a

great opportunity to further increase market share.

We therefore view it as a fantastic strategic and

cultural fit, which reinforces our commitment to

helping our customers create the home they love.

Snug’s order growth was initially slower than we

had hoped, but I am encouraged to see current run

rates that are in line with our expectations.

Snug’s focus since acquisition has been on re-

establishing operations from an effective standing

start, including rebuilding supplier relationships,

restoring stock levels, re-launching the brand and

online presence, and building order momentum.

Snug’s strategy for the future closely aligns

with the wider Group, focused on the aims of

improving brand awareness and continuing to grow

sales. Alongside a focus on improving the online

experience for customers, Snug will also increase

its offline presence, both with new standalone

stores where the opportunity presents itself,

together with ScS’s new modernised store rollout

each incorporating a Snug concession.

Environmental, social and governance (ESG)

Since developing our ESG strategy last year, we

have made progress against the targets and

objectives set. I am particularly pleased with some

of the differences we have been able to make as

part of our work in this area. We have worked hard

to implement a number of wellbeing initiatives

throughout the year and it was particularly

gratifying to receive the Bronze ‘Better Health at

Work’ award along with the ‘Best Newcomer’ award

resulting from all of these fantastic initiatives.

Our ESG steering group has also been working with

external consultants on the development of a

roadmap towards achieving our Net Zero strategy.

Board changes

Alan Smith, Ron McMillan and Chris Muir will leave the

business in the coming year. All three have been

supportive and provided wise counsel during my time

in the business and I wish them well in their future

endeavours. Mark Fleetwood joined the Group in

September 2023 as CFO and I am very much looking

forward to working with him.

Current trading and outlook

We remain cognisant of the challenging economic

environment facing our customers which is

expected to continue throughout FY24. We

therefore believe that continuing to focus on our

value driven proposition is extremely important so

that everyone is able to create the home they love.

The Board is confident that the Group’s strategy and

strong balance sheet will enable ongoing trading

resilience and we continue to expect to grow

market share while investing in stores, in our digital

proposition, and other strategic growth opportunities.

Steve Carson

Chief Executive Officer

24 October 2023

10 ScS Group plc Annual Report and Accounts 2023

-38.5000-33.6875-28.8750-24.0625-19.2500-14.4375-9.6250-4.81250.0000

-9.5

-12.7

-25.9

-14.5

-38.5

-31.9

2019

2018

2021

2020

2023

2022

-4 -2 0 2 4 6 8 10

9.2%

6 .5%

-1.9%

-3.4%

+6.1%

+7. 5%

2019

2018

2021

2020

YTD 2023

2022

-2.8%

-11.7%

-1.1%

-19.4%

+43.3%

0.00 0.36 0.72 1.08 1.44 1.80

1.19m

1.18m

1.04m

1.48m

1.27m

2019

2018

2021

2020

2023

2022

-11.7%

-14.7%

Market commentary

Both the furniture and flooring markets continue to

feel the challenges being faced across the wider

economy. Over the past year we have continued to

work closely with our manufacturing suppliers to

combat cost inflation and to improve product lead

times. We have also worked with our credit suppliers

to ensure that we are able to continue to provide

affordable interest free credit to our customers,

ensuring they can continue to ‘create the home

they love’.

Following a valiant recovery post the Covid-19

pandemic, which saw the upholstery market grow by

17.3% in 2021, growth slowed to 2.3% in 2022, reflecting

inflationary pressures which had an adverse impact

on both the supply chain and consumer spending

power. GlobalData’s analysis suggests that 2023

will see a 6.6% contraction in the market due to the

continuation of the cost-of-living crisis, leading

customers to defer non-essential big-ticket

purchases. However, with the Bank of England

holding interest rates in September 2023 after 14

consecutive rate hikes, in response to the rate

of inflation falling, there are signs that economic

sentiment and outlook could be getting close to a

turning point. How the consumer reacts to these

latest market developments is yet to be seen, but

the most recent consumer confidence data should

be seen as a positive.

Similarly, following a 13.4% increase in the size of the

flooring market through 2021, growth slowed to 2.2%

in 2022. Likewise, whilst GlobalData are forecasting

inflationary pressures will have an impact on the

flooring market in 2023, predicting a contraction of

3.8%, there remains a sense of cautious optimism

going into Q4 of 2023.

Highlighting the challenges of the current economic

environment noted above, GlobalData’s consumer

sentiment survey showed an increasing proportion

of shoppers intend to delay buying furniture

and floorcoverings in response to economic

pressures. However, the furniture and flooring

sector has historically returned similar results in

these surveys and yet has still seen growth in both

markets over the past two years. With a return

to real wage growth, there is cautious optimism

that the sector can continue to grow, albeit at a

subdued pace. Further, businesses, such as ours,

with strong design and value offerings look set to

be well positioned in what is set to become a key

battleground.

Our market

Strategic progress provides

solid foundations for the Group

to grow market share

Current UK market

We operate in both the furniture and flooring markets.

Consumer confidence

-31.9

GfK Consumer Confidence Index – Average of individual scores for each

year. Research carried out by GfK on behalf of the European Commission.

Housing market

-19.4%

HMRC UK Property Transaction statistics – Total number of

residential property transactions completions with a value

over £40,000 within the UK, seasonally adjusted.

Net consumer credit lending

+7.5%

Bank of England – Average 12-month growth rate for the calendar

year of total (excluding the Student Loans Company) sterling

net consumer credit lending to individuals (in percent),

seasonally adjusted.

11ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Key drivers

Both of our core markets are heavily influenced by

similar key factors:

Consumer confidence

Consumer confidence is intrinsically linked to

consumer appetite for big-ticket purchases and GfK

monitor this through their Consumer Confidence

Index. Throughout the year this reflected ongoing

economic uncertainty and inflationary pressures,

reaching a record low of -49 in September 2022, the

same time as the pound fell to a 37 year low against

the dollar. Since then confidence has improved,

reaching -25 in August 2023. This is an improvement

of 19 points compared to the same point a year ago

and reflects improving economic stability despite

the impact of rising interest rates and higher food

and fuel costs.

Housing market

The purchase of new furniture and flooring often

emanates from a property move and as mortgage

approvals remain significantly down on pre-

pandemic levels, there is a risk of reduced demand.

Although property transaction levels to July 2023 are

down 19.4% compared to the same point in 2022, the

total number of housing transactions remain strong

when compared with historical data post-2007.

Further confidence should be taken from the Bank

of England’s decision to hold rates in September

2023, which could stimulate buyer confidence to

transact in the back half of the year.

2023 upholstery

market share*

2023 floor coverings

market share*

11.0%

(2022: 10.7%)

2.0%

(2022: 1.9%)

ScS Other ScS Other

Retailer 2022 (%) 2023e (%)

Competitor A 28.4% 28.5%

ScS 10.7% 11.0%

Competitor B 9.0% 9.3%

Competitor C 7.1% 7.5%

Competitor D 5.3% 5.8%

Competitor E 4.9% 5.0%

Competitor F 2.4% 2.5%

Competitor G 1.7% 1.8%

Competitor H 1.7% 1.7%

Competitor I 1.6% 1.5%

Retailer 2022 (%) 2023e (%)

Competitor A 14.9% 14.6%

Competitor B 9.3% 9.9%

Competitor C 7.3% 7.3%

Competitor D 4.6% 4.9%

Competitor E 4.1% 4.3%

Competitor F 3.3% 3.4%

Competitor G 2.8% 3.2%

Competitor H 3.2% 3.0%

Competitor I 2.3% 2.4%

ScS (12th) 1.9% 2.0%

Forecast 2023 market size:

Furniture**

£3,026m

-6.6%

* Market share data provided by GlobalData. ** Source: GlobalData

(as of 20 September 2023).

Forecast 2023 market size:

Flooring**

£1,888m

-3.8%

12 ScS Group plc Annual Report and Accounts 2023

Our market continued

Consumer credit

The availability of consumer credit helps facilitate

sales, and provides opportunities for upselling, with

nearly half of our customers choosing to utilise

this option as a way to pay for their purchase. Given

the economic challenges seen throughout 2023,

there seems to be a consumer led uptake in finance

as consumers look for more affordable solutions.

The savings accumulated during the Covid-19

restrictions have also been eroded by the cost of

living challenges in the aftermath. We are continuing

to expand our finance offerings to facilitate

consumer purchases by introducing interest

bearing credit allowing our customers to spread the

cost over longer terms and reduce their monthly

payments. Within the year our approval percentage

of those requesting finance to purchase with us

continues to remain in line with prior years.

Our place in the market

Increasing market share

Following a challenging year which has seen

significant pressures on both the upholstered

furniture and flooring markets, it is encouraging that

we have been able to grow our market share. Our

share of the upholstery market grew by 0.3% to 11.0%,

despite the size of the market reducing by 6.6%. Our

flooring market share increased 0.1% to 2.0%, with the

size of the flooring market reducing by 3.8%.

Value retailer

We have a differentiated value-focused proposition

with a reputation for providing our customers with

a design led range of products at low to middle

entry price points. We have a clear view of our core

customer demographic, which consists of a broad

population of aspiring homemakers, families and

retired couples.

Opportunities for further growth

Our in-store offering remains the spine of our

business and provides the platform for our

continued success. Our strategy includes further

expansion and improvement to our store network

where appropriate, in line with our rebrand. We

also continue to invest in our online presence, with

sales this year up 14.3% through this channel and an

ongoing expectation that the significant majority

of our customers will begin their journey on our

website. The execution of our strategic plan will

provide further improvements to our people, our

product, our showrooms and our customer journey

which, in spite of a tightening economy, will provide

opportunities to continue to take market share.

13ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Our business model

Delivering outstanding value, quality and choice

with a seamless customer experience

product offering. Snug specialises in modular, re-

configurable sofas and sofa beds with a unique

delivery in a box proposal, offering customers

an alternative solution to the traditional sofa.

We hold stock of our Snug range enabling quick

delivery and ease of reconfiguration or expansion

tailored to our customers’ needs.

• Our flooring offering ranges from carpets and

rugs to wood, laminate and luxury vinyl tiling.

• Our variety of dining and occasional ranges offer

something for every home.

• We continuously refresh our product offering,

observing market trends and exploring new

design aesthetics and brands.

Digital

• We continue to expand our online offering,

enhancing digital growth through investment in

people, technology and working with carefully

selected partners, including collaborations with

social media influencers.

• We offer an extensive range of furniture and

flooring online, including web exclusive products

which extend our range beyond that available in

our showrooms.

• We have optimised our website to increase digital

engagement and enhance the customer journey

including the introduction of visualisation tools

to enable customers to picture how our products

will look in their homes.

• ScS’s online presence supports it’s showroom

network providing an omnichannel experience

necessary for the modern consumer. Snug uses a

digital-first approach built upon its strong online

brand with an excellent track record in digital

engagement and a social media audience of over

300,000.

Delivery

• ScS delivery teams provide an in-home two-

person delivery and installation service for

our furniture products from each of our nine

distribution centres across the UK, delivering an

efficient and friendly service as reflected in our

‘Excellent’ Trustpilot rating.

• Working with trusted partners we are able to

offer our customers reduced lead times through

contracting delivery partners and enabling home

delivery direct from the supplier.

• Snug offers a variety of quick-delivery, ‘stocked-

in’ models, a standout feature in an industry

typically associated with ‘made-to-order’ goods

that have lead times measured in weeks rather

than days. The modular nature of all Snug sofas

means they are designed to fit through even the

tightest doorways.

• Our flooring products are supported by a full

fitting service through our third-party network of

fitting experts. Our flooring is cut, delivered and

fitted to our customers’ specifications.

What we do

Showrooms

• Our passionate and skilled retail professionals

utilise expert product knowledge to ensure

customers choose the right product to help

create a home they love.

• Our showrooms allow us to create an inspiring

experience for our customers, showcasing our

product ranges and giving our customers the

opportunity to purchase their furniture and

flooring under a single roof. Snug concessions

are integrated into 23 ScS showrooms and

third-party stores. Snug also has three stand

alone stores showcasing the brand’s innovative

and contemporary offering in fittingly stylish

environments.

• Our showrooms complement our online channel,

providing our customers with the opportunity

to engage with our products and explore our

ranges.

• We provide a free surveying service so that

flooring customers can be assured they have

ordered the correct quantity of floor covering for

their home.

Product

• We have established, long-term relationships

with leading furniture and flooring brands,

ensuring the quality and variety of our product

offering at a range of price points.

• The majority of our furniture products are made-to-

order and tailored to meet our customers’ needs.

• Our acquisition of Snug has diversified our

14 ScS Group plc Annual Report and Accounts 2023

Employee satisfaction

score

Colleague survey score

(2022: 71)

Dividend

per share

14.5p

Dividend includes a 4.5p

interim paid and 10.0p

proposed final dividend

(2022: 13.5p)

Trustpilot

rating

5-star

Rating achieved from

over 440,000 reviews

(2022: 5-star)

Number of days

volunteered by

employees

365

including 94 days to

Shelter

(2022: metric not

tracked)

Sustainability

In order to operate effectively and responsibly,

we ensure that sustainability underpins our

business model by:

• Reducing our impact on the environment.

• Taking care of our colleagues.

• Contributing to the communities in which

we operate.

• Delivering value through strong governance.

Our key

ingredients

Brands

Long-term

relationships with

leading furniture

and flooring brands

Customer

experience

5-star service

delivered by our

passionate and

trusted colleagues

Prime

locations

High-quality

stores in prime

locations

Digital

Supporting

omnichannel

consumer

experience

Easy ways

to pay

Long-term

credit options

making buying

affordable

Range of

price points

Our sofa ranges start

from £299 and go up to

over £6,500, offering

value and choice for

our customers

Our business model continued

15ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Our people

We offer inspiring careers in a purpose-driven business

with a culture of inclusivity, where our colleagues are

motivated and encouraged to develop their skills in a

supportive environment.

Our customers

We provide our customers with a first-class experience

either in our showrooms or online. We take pride in ensuring

our customers get the right product together with a high

standard of aftercare service, helping them to create the

home they love.

Our suppliers

We have built strong and enduring relationships with our

long-standing suppliers. We also continue to develop our

supplier network, enhancing our product offering and

driving further improvements in quality and value. The vast

majority of products that we sell are exclusive to us. We are

delighted to be able to offer our customers a great range

of well-recognised third-party brands, alongside our own

in-house brands.

The value we create for our stakeholders

Our communities

As a responsible business, it is important to us that we give

back to our local communities where we live and work. We

do this through employment opportunities, donating funds

to a range of charities and supporting our colleagues with

the opportunity to volunteer their time to charities.

Our shareholders

We are committed to delivering long-term growth

and returns for our shareholders. This commitment is

demonstrated by the Group’s robust balance sheet and our

progressive shareholder returns.

Our regulators

We deliver and maintain high standards of business

conduct through full compliance with applicable laws and

regulations. We embrace co-operative and constructive

relationships with external regulatory bodies.

16 ScS Group plc Annual Report and Accounts 2023

Digitally

optimised

Customer

driven

Outstanding

team

Engaging

showrooms

Inspiring

ranges

Strengthen

theCore

Our strategy

To achieve our mission, we continue to deliver progress on

our strategy. The Board is pleased with the strategic progress

made in 2023 and looks forward to the year ahead.

Our mission is to be

the UK’s best value-

for-money home

retailer, delivering

outstanding value,

quality and choice

with a seamless

customer experience

17ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Ensuring our colleagues feel valued remains a top

priority for the Board and at the start of the year,

we invested £2.0m in our colleagues’ take home pay,

both through an increase in their basic salaries and

a one-off cost of living support payment.

Attracting and retaining talent is imperative to

ensure we have the capabilities within our teams to

deliver our strategy. We have:

• Welcomed 53 new colleagues from Snug into the

Group and supported the business through the

transition period to ensure the brand is set up for

growth;

• Achieved the Bronze ‘Better Health at Work Award’

as we continue to focus on health and wellbeing;

• Supported our colleagues’ participation in

charitable endeavours by launching a new

volunteering policy;

• Established a women’s leadership network,

encouraging support and collaboration between

our female leaders; and

• Reviewed our overall reward offering including:

• Overhauling our family friendly policies including

enhanced maternity and paternity pay;

• Introducing a 24-hour virtual general

practitioner (GP) service;

• Offering access to low-cost health plans; and

• Improving our colleague discount policy and

extending it to family and friends.

The skills, experience and development of our

colleagues are paramount to enabling us to provide

outstanding levels of customer service.

We have invested in our people team, including

the appointment of a new Head of Learning and

Development and we have a comprehensive

catalogue of learning and development initiatives

ongoing throughout the business including:

• Our ‘Moving up’ programme, which has seen a

second year of colleagues progress to Business

Manager positions within our retail stores;

• Launching leadership development programmes

for our senior management team and distribution

centre teams; and

• Rolled out our ‘art of selling’ and flooring training

to ensure our sales colleagues feel equipped,

empowered and confident in advising customers

on the most suitable products to meet their

requirements.

Increasing engagement and enhancing our culture

continues to be a top priority for the Board. The

results of the latest annual employee survey

were encouraging, receiving a higher response

rate and containing more constructive ideas and

comments than ever before, demonstrating that

our colleagues are engaged and are confident

in sharing their thoughts and ideas. By reviewing

the feedback, we hope to implement meaningful

changes to drive improvements across the

business.

see page 24 for

further detail

Looking forward

• Improve the diversity and mix of our retail base by

ensuring all stores have a blend of colleagues on

flexible working hours coupled with a workforce

reflective of the communities we serve.*

• Review of our retail operation, including

consideration of structure, reward and

succession planning.

• Launch our new performance review framework.

• Introduce a new internal communication and

engagement platform for all our colleagues.

• Further investment into our learning and

development team and systems to support

investment in our colleagues’ knowledge

and development.

KPI

Colleague survey score

(2022: 71)

1. Outstanding team

Our colleagues are the cornerstone of our business and our aim is to ‘be a place

people love to work’, where our colleagues feel they belong, are listened to and

are given the opportunity to develop.

* Details of current workforce gender diversity can be found on pages 82-83.

18 ScS Group plc Annual Report and Accounts 2023

The new branding and refined marketing messaging

showcases our products and offers following a

meticulous data collection and review process,

including a number of customer research groups,

receiving feedback on a range of topics such as

marketing and promotional style and store design.

We have seen improved trading since we launched

the new marketing campaign at the start of the

second half of the year.

As we aim to provide great product quality to our

customers, we were delighted in the year to achieve

Kitemark certification for domestic furniture from

the British Standards Institute (BSI). The BSI Kitemark

is a recognised symbol of outstanding quality,

safety and trust around the world and we are one of

only a handful of furniture retailers in the UK to have

this stamp of approval.

The year saw the Group implement a new end-to-

end technology solution that delivers significant

improvements to our aftersales processes, such

as a virtual queue in which customers have the

option for one of the team to call them back as

opposed to waiting on hold. The system allots calls

to an appropriate handler based on their skills. To

optimise efficiency, the system links into our social

media platforms thereby increasing visibility of

customer queries. It was pleasing to see that post-

order customer contacts reduced 23% in the year.

Our strategy continued

KPI

Trustpilot score

4.8

(2022: 4.8)

2. Customer driven

For our customers, our refreshed brand and advertising, launched in the second half

of FY23, is likely to be the clearest indicator of the evolution of ScS and the direction

we are heading as a business.

Further improvements to help our customers

included:

• Creating a central continuous improvement team,

dedicated to the customer journey, identifying

opportunities for improvement and delivering

change; and

• Expanding the breadth and depth of our

aftercare technician services through a new

nationwide provider.

A key part of delivering a seamless customer

experience is the monitoring of our customers’

reviews on Trustpilot in order to understand what

we are doing well and also identify areas for

improvement. We now have over 440,000 reviews

and we maintained our maximum 5 stars ‘Excellent’

rating. At a local store level, over 80% of our stores

achieved the full 5-star rating, with all other stores

attaining a minimum of 4.5 stars. This external

validation is critical to ensure the actions

we are taking are having the right impact.

Looking forward

• Target increased customer knowledge and brand

sentiment through use of ongoing customer

research and brand performance tracking.

• Use customer segmentation data to drive

marketing ‘tone of voice’ and media channels, in-

store training and range selection.

• Rebalance media mix using econometric

modelling.

• Increase customer service levels in our customer

experience team following new technology

implementation in FY23.

• Continuous improvement programme to target

increased quality in product and delivery service.

19ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

As part of the ongoing development of our product

ranges, we have been delighted to announce some

exciting collaborations in the year. Our partnership

with Ideal Home, the most popular home publication

in the UK, saw the launch of eight exclusive ‘Ideal

Home’ branded sofa ranges. Each range has been

developed in collaboration with the team at Ideal

Home bringing our customers affordably stylish

products. We also launched the ‘Paloma Home’

range – a collection of sofas, chairs, footstools and

cushions designed by singer and style icon, Paloma

Faith. The ‘Paloma Home’ line includes 5 ranges

exclusive to ScS, carefully created to add character

to any living space. Furthermore, throughout the

year, we have launched 112 new upholstery ranges

bringing our customers varied styles, fabrics and

colours.

Our acquisition of Snug has enhanced the Group’s

product portfolio and widened our target audience

with its modular and reconfigurable sofas with

quick delivery, excellent quality and customer

service.

Our ongoing commitment to help our customers

create the home they love continues to drive our

product procurement decisions.

We are delighted to have worked closely with

suppliers in the year to return our furniture lead

times to historic levels, ensuring our customers get

their made-to-order product as quickly as possible,

increasing their satisfaction and decreasing the

likelihood of cancellations. Cancellations have

fallen by over a third in the year.

We have focused our flooring products through

the introduction of 20 ‘star buy’ ranges, whilst also

streamlining our offering and supply base to deliver

unbeatable value for money for our customers.

We also launched a new hard flooring proposition

across laminate, luxury vinyl tiling and engineered

wood. We have worked to develop the expertise

and confidence of our retail colleagues in advising

upon and selling our flooring products including

producing additional training material for both

hard floor and carpet. In addition, we made

several enhancements to our customer

journey by upgrading the service provided

by our external fitters, leading to a

reduction in customer queries.

* This report includes alternative performance measures

(APMs) which are defined and reconciled to IFRS information, where

applicable, within the Financial Review on pages 55 to 56.

KPI

Gross sales*

£343.5m

(2022: £344.7m)

3. Inspiring ranges

We are always looking to build upon and enhance our product offering and have introduced

new design aesthetics mixing contemporary and stylish, chic and colour, whilst maintaining

our value focus. This has resulted in the launch of 125 new furniture models and 39 new

flooring options during the year.

Looking forward

• Continue to refine and expand our product

proposition, including increasing our range of

corner sofas and sofa beds.

• Develop and grow existing and new brands,

partnerships and collaborations.

• Review of sourcing arrangements.

• Drive increased sales in dining and occasional

through increased investment in store, online

and media.

• Further improve customer journey for flooring

customers.

• Development of complementary product

categories.

20 ScS Group plc Annual Report and Accounts 2023

In FY23, we have begun to see the rewards of this

investment and the subsequent actions taken by

the team in the year.

Online sales have increased 14.3% year-on-year

and now represent 10.7% (FY22: 9.3%) of gross sales,

with Snug being a key driver behind this increase.

Supporting this, in addition to rolling out our new

branding across our digital portfolio, we have

increased digital engagement with our customers

and, to improve the customer journey and

conversion, we have:

• Enhanced our item visualisation enabling

customers to add multiple items into one image

via our ‘visual bundling solution’;

• Redesigned and relaunched brand pages with our

refreshed brand creative;

• Expanded product content and data visible on

product pages;

• Included a ‘question and answer’ section to the

product pages on our website; and

• Developed an online wish list allowing customers

to save their favourite products which can be

shared with our retail teams to create a more

seamless customer journey.

Our approach to digital marketing has also

continued to develop and we continue to build

our social media presence with increased

collaborations with influencers throughout the

year as we continue to see increasing engagement

through this channel. We have also been trialling

competitions on our social media platforms,

which have also seen pleasing engagement. As a

result of these, the second half of the year saw

our highest ever brand engagement across our

social platforms. The team at Snug bring with

them a wealth of knowledge in this area, with a

large social media following and excellent track

record in social commerce through the use of

innovative and creative ways to further customer

engagement such as the UK’s first ‘Extreme Relaxing

Championship’ held in August. We look forward to

the digital team at ScS working closely with the team

at Snug and both brands taking advantage of the

resulting synergies.

We have continued to implement our integrated

channel strategy, using data to track customers

researching online and then visiting offline as

we continue to evolve our customer relationship

management to aid the customer journey and

improve our conversion rates. Our retail colleagues

within our stores have been working hard to

ensure that customers remain informed about

any product they are interested in but may not be

ready to purchase by taking their details, allowing

for targeted and focused marketing. The digital

team has also launched a clearance section on our

website to improve the visibility of discounted store

stock, and excess distribution centre stock, to

anybody accessing the site.

During the period we engaged the support of a

third-party specialist to work with our teams as

we look to invest in the future technology

stack to support the Group. We view this

upgrade as key to enhancing business

capability with the ultimate aim of increasing

efficiency within our teams, allowing for improved

data analysis and enhanced system agility. We are

excited to see the benefits of the project as it

progresses.

Looking forward

• Continue to develop our understanding of the

needs of our customers by reviewing customer

feedback and improving data collection.

• Generate increased high-quality digital PR and

content.

• Accelerate social media drive to increase

followers and engagement, learning from Snug.

• Enhance our internal analytics tools and

capabilities, aligning channel data to enrich our

view of customer trends.

• Commence the implementation of our future

technology stack across the Group including an

enriched view of customer data and integration

layer.

• Continue to improve our website through

completion of a site taxonomy project and

customer journey enhancements.

Our strategy continued

KPI

Online sales

£36.8m

(2022: £32.2m)

4. Digitally optimised

To support our digital growth ambitions, in the prior year we invested to expand our team

and to improve our skills and capabilities in research and development, merchandising and

marketing. This included opening a hub in our Coventry concept store as a base for our digital

team and appointing a Chief Marketing andDigital Officer to leadthe digital strategy.

21ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

In addition to the initial Coventry store we launched

in July FY22, we refitted two further stores

during the year in Gateshead and Uddingston.

All three concept stores have seen higher sales

performance when compared to the rest of the

store network. We were equally delighted by the

increase in staff engagement and staff retention

levels. We obtained valuable insights from the

concept stores, through performance and

customer feedback, such as understanding which

layouts are most successful, where certain brands

are best displayed and how technology can support

the customer journey.

Following the success of our initial concept stores,

we built upon the insights gained to develop a

refined concept store model. The refined model

intends to deliver the positive outcomes of the

initial concept stores in a more cost-effective

manner. At the end of the financial year we

implemented this revised design in six of our stores,

bringing our total refreshed store portfolio to nine.

At the start of the financial year, and to enhance

our in-store experience, we took the decision to roll

out the ‘declutter’ programme that we successfully

trialled in FY22 across the entire store network. This

included reducing the amount and size of the point

of sale materials and being more selective around

some of the ranges on display to appropriately

showcase our quality products.

Highlight

New format stores

(2022: 1)

5. Engaging showrooms

During FY22 and FY23 a key focus for the business related to the launch of our

concept stores where we could trial improvements to the look and feel of our

showrooms, new technology and ideas.

During the year we reviewed our store network to

ensure our showrooms are in the best possible

locations. We were pleased to open two new stores

in York and Swindon on Boxing Day. The year also

saw us relocate our Northampton store to a more

modern unit in an improved location and take an

opportunity leave our underperforming Cambridge

store. We continue to consider further expansion

through utilising customer demographic data and

a purpose-built model which helps us to identify

the optimum store footprint, location and likely

performance of potential new stores.

Looking forward

• Invest in at least a further 12 new format stores in

FY24, (increasing this if returns are as expected).

• Continue to seek further opportunities to expand

our store footprint in line with our demographic

profiling. We currently have a handful of options

being considered and progressed, for potential

openings in FY24.

• Actively consider relocations to improved retail

parks if returns support this.

• Continue to focus on actively managing rent

costs as part of lease negotiations.

22 ScS Group plc Annual Report and Accounts 2023

These tools are increasingly useful as we contend

with inflationary challenges and are invaluable when

comparing performance as we progress in other

areas of our strategy.

We have strengthened our retail team, including

senior management, through recruitment,

structural changes and investment in training.

These measures, coupled with increased analytical

support, have contributed to improved conversion

rates, with in-store furniture conversion increasing

by 8% and flooring by 7%.

As we strive to deliver a seamless customer

experience we have delivered significant operational

and supply chain improvementsincluding:

• Implementation of ‘track my driver’ technology

into our final mile delivery provision;

• Reduction in delivery lead times from 14 weeks to

8 weeks;

• On time and complete deliveries improved from

57% to 75%; and

• Reduction in cancellations by 36%.

Faced with inflationary cost pressures, we

have operated strict cost control and budget

management across the business. We reviewed

internal and external resourcing requirements,

particularly within the distribution operation, and

took measures to maximise cost efficiency. We

have seen significant improvements in distribution

staff turnover which is reflective of our increased

colleague survey score and has the added benefit

of significant cost reductions.

A number of measures have been implemented in

the year to mitigate the impact of the rising cost of

finance on our gross margin, whilst still delivering

the best possible value for money for our customer.

Despite these improvements and focus, we have not

been able to fully mitigate inflationary pressures,

resulting in a reduction in margin. Measures taken

include:

• Refining our finance house partner mix to achieve

best value;

• Reduced our interest-free credit option from 48

months to 36 months, whilst still maintaining our

market leading offer;

• Introduction of interest-bearing credit up to

60 months for customers who wish to spread

payments over a longer period;

• Option of monthly finance intervals offered

to customers, resulting in a reduction to the

average finance period taken; and

• Revised our pricing strategy whilst maintaining

our entry price point to drive value for our

customers.

We remain focused on improving the success of the

core business model we have operated for many

years, with strong cost management as reflected

in the achievement of a 44.4% gross margin* despite

cost pressures; a resilient balance sheet with cash

of £69.5m; and informed decision making.

Looking forward

• Drive lead capture and conversion rates via

refined resource plans, increased training and

the use of CRM.

• Build on FY23 supply chain improvements,

including lead times and on time deliveries.

• Embed joint business plans with all suppliers.

• Deliver +45% gross margin via retail price

increases, improved sourcing, landed cost

reductions and quality of sale metrics.

• Target further distribution efficiencies, including

site space optimisation, mix of LCV to HGV in fleet,

driving first time delivery success, enhanced

route planning, damage reduction and resource

planning.

• Continued diligent cost management to budget

across all functions, identify and execute

efficiencies from new technology stack.

Our strategy continued

KPI

Profit before tax

£6.0m

(2022: £16.4m)

6. Strengthen the core

The success of our product ranges are regularly reviewed and we have continued to advance

our line level margin analysis tools.This allows us to better manage the profitability of our

product offering as well as optimise our customer experience.

* This report includes alternative performance

measures (APMs) which are defined and reconciled

to IFRS information, where applicable, within the

Financial Review on pages 55 to 56.

23ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statementsStrategic report Governance report Financial statements

24 ScS Group plc Annual Report and Accounts 2023

2023

2022

2021

4.7

4.8

2023

2022

2021

6,527t

6,836t

6,376t

2023

2022

2021

Key

The KPIs set out in this summary are fundamental to understanding the progress we are making with

our strategy, and to monitor the ongoing performance of the business over time. The definition of

these KPIs and our performance over the last three years is detailed below, as well as how each KPI

links to our strategic priorities.

Trustpilot customer satisfaction

4.8

Colleague survey score

emissions (tonnes)

6,376t

Why it’s important

Customers want confidence that their retailer of choice can

deliver on their promises. We focus on our TrustScore to ensure

we maintain our ‘Excellent’ rating.

What we measure

Our TrustScore, marked out of 5, is a measure provided by

Trustpilot, an independent review platform used by our

customers which asks them to rate our customer service.

Why it’s important

As a retailer we recognise that our operations will impact the

environment, and we have a duty to ensure that both now and in

the future we seek to minimise this.

What we measure

Scope 1 (direct), Scope 2 (indirect) and Scope 3 (business travel)

as reported under the TCFD report.

(Note: actual data updated from previous disclosure for FY22)

See further detail on page 45

Why it’s important

Our colleagues play a pivotal role in the success of our business,

and we aim to ensure they benefit as we do. It is of utmost

importance for us to listen to our colleagues and to get their

thoughts and opinions to ensure that our colleagues are

engaged. We take pride in being a place where colleagues can

thrive and progress whilst feeling supported.

What we measure

Our ‘Colleague survey score’ measures the overall eSAT score

of the annual survey sent to all colleagues for their feedback.

The eSAT score is an average score used to provide insight into

how happy our colleagues are working at ScS. We measure our

performance against an external benchmark and are pleased to

be ahead by four points.

Link to strategic priorities Link to strategic priorities Link to strategic priorities

Non-financial KPIs

Outstanding team

Customer driven

Inspiring ranges

Digitally optimised

Engaging showroom

Strengthen the core

* This report includes alternative performance measures (APMs) which are defined and reconciled to IFRS information, where applicable, within the Financial Review on pages 55 to 56.

Key performance indicators (KPIs)

1 3 52 4 6 1 3 52 4 61 3 52 4 6

25ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

2023

2022

2021

£305.2m

£331.6m

£325.9m

2023

2022

2021

-1.5%

3.9%

-0.3%

2023

2022

2021

£46.5m

£32.2m

£36.8m

2023

2022

2021

46.1%

45.3%

44.4%

2023

2022

2021

£22.7m

£16.4m

£6.0m

2023

2022

2021

50.4p

36.2p

12.8p

Revenue

£325.9m

Like-for-like order intake*

-0.3%

Why it’s important

Sustainable growth in delivered sales is key to our long-term

success, increasing market share and creating opportunities.

What we measure

Revenue is a measure taken directly from our primary statement

of accounts, and is the combined total of all furniture and

flooring delivered sales made, excluding VAT and the costs of

interest-free credit, both online and across all of our showrooms.

Why it’s important

Whilst overall delivered sales growth is important, understanding

how the same showrooms perform year-on-year provides a guide

to underlying showroom performance. Due to lead times, order

growth also gives a view as to future delivered sales performance.

What we measure

Like-for-like order intake* growth compares year-on-year trading

performance from comparable showrooms. It therefore excludes

new and closed showrooms. Order value is a combined total of all

furniture and flooring orders booked, including VAT, both online

and across all of our showrooms.

Gross margin % of gross sales*

44.4%

Why it’s important

To grow profitably, the Group must ensure that sales growth is

supported by maintaining or growing the gross margin.

What we measure

Gross margin % of gross sales is a measure taken directly from our

primary statement of accounts and is the total margin made from

sales of product, excluding VAT, as a proportion of total gross sales*.

Earnings per share (EPS)

12.8p

Why it’s important

EPS is key to the business to understand the return being

generated from profits to our shareholders.

What we measure

EPS is calculated by dividing profit attributable to shareholders

by the average number of outstanding shares.

Financial KPIs – Group

Link to strategic priorities

1 3 52 4 6

Online sales

£36.8m

Why it’s important

The Group needs to maximise its share of customers wanting to

transact online.

What we measure

Online sales growth is the portion of the gross sales* figure

attributable to our website and telesales.

Link to strategic priorities

1 3 52 4 6 1 3 52 4 6

1 3 52 4 6

Profit before tax (PBT)

£6.0m

Why it’s important

Delivering profitable growth is essential as we aim to create value

for all stakeholders over the long term. Movements since prior

year are explained in this report. The 2021 result was exceptional

as it included £10.2m (2023: £nil) of business rates relief and £4.3m

of impairment reversal (2023: charge of £2.4m).

What we measure

Profit before tax reflects the performance of the Group before

tax is deducted.

Link to strategic priorities

1 3 52 4 6

26 ScS Group plc Annual Report and Accounts 2023

Responsibility and sustainability report

Strategy area Material issue Definition

Environmental

Climate change and

Net Zero strategy,

greenhouse gas

emissions (Scope 1,2 & 3)

Monitoring emissions produced by our operations, with the aim to reduce our impact.

Developing and embarking on a Net Zero strategy to address climate change and

reduce carbon emissions.

Environmental

Waste management and

circular economy

Reducing waste from our operations, including plastic and packaging. Improving the

volume of waste recycled and diverted from landfill alongside continuing to develop an

end-of-life process (circular approach) for our products.

Environmental,

Governance

Responsible sourcing,

ethical business

practices, policy and

compliance

Carefully selecting and working closely with our suppliers to improve sustainability

within the supply chain. All suppliers are expected to adhere to the guidelines set out in

our supplier handbook, including specific details on modern slavery and human rights.

Social

Community engagement

and economic impact

Investing in our people through employment, charitable donations, and volunteering to

make a positive contribution and improve the quality of life in our communities.

Social

Employee development

and wellbeing

Nurturing a culture where our colleagues feel supported to achieve their potential,

take pride in their work, and understand how their role contributes to our success.

Prioritising colleague wellbeing and ensuring senior members of the team lead by

example and live by the Group’s values.

Social

Customer satisfaction

and quality

Continuously listening to customers and utilising data to determine satisfaction,

allowing us to improve our services and products.

Social,

Governance

Diversity and inclusion Creating an inclusive and diverse team where all colleagues are treated with respect

and there are equal opportunities for all.

Governance

Health and safety Monitoring guidelines, improving procedures, and continuous improvement of training

programmes to protect the safety and welfare of our colleagues and customers

throughout our operations.

Governance

Compliance and ethical

business practices and

monitoring thereof

Promoting high levels of compliance to existing business practices. Applying new

guidance and best practices to support strong governance throughout the Group.

We are committed to operating the business in a way that all our

stakeholders can be proud of. At the core of our ESG strategy lies our

purpose of helping customers create the home they love and our RIGHT

values. Our ESG strategy centres on delivering not only good value

products but also upholding our values in all aspects of our operations.

Progress during the year

During the past year, we have made significant

progress in advancing our ESG initiatives. In the

prior year, we conducted a thorough materiality

assessment and have continued to develop a

robust ESG strategy throughout the current year.

With the guidance of specialist consultants,

we embarked on our journey to establish a

comprehensive roadmap towards achieving net-

zero emissions.

ESG is an ever-evolving field and we are committed

to maintaining the momentum we have built. We

will consistently align and review our ESG strategy,

ensuring sustainability is seamlessly integrated into

all areas of our operations and is embedded in our

wider strategy.

Looking forward

Our ability to generate sustainable social and

economic value hinges upon embracing a long-

term perspective. Sustainability is increasingly

a key factor in the decision-making processes

of our customers. With this understanding, we

are dedicated to continuously prioritising and

advancing our sustainability efforts, ensuring they

remain integral to our business strategies and

operations.

Materiality assessment

27ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

In the prior year we conducted a materiality

assessment, which was a crucial step in shaping our

ESG strategy, aiming to pinpoint the most significant

issues that hold relevance for both our business

and our stakeholders. This initial assessment, which

Target Initial

target

date

Progress

(against

initial target)

Revised/

additional

target

Comment

Environmental

100% renewable electricity used across the Group July 2022 Achieved Ongoing

Deliverable was first achieved by initial

target date. The Group has an ongoing

commitment to continually meet these

objectives.

Achieve Furniture Industry Sustainability Programme (FISP) certification July 2022 Achieved Ongoing

100% of laminate flooring timber to be from responsible sources July 2022 Achieved Ongoing

95% post-consumer waste diverted from landfill for recycling July 2022 Achieved Ongoing

100% post-consumer recyclable waste for all ScS delivered product including the

removal of polystyrene from all packaging

July 2022 Achieved Ongoing

100% of leather to be from certified sources via the Leather Working Group July 2023 Achieved Ongoing

Replace all gas-fired appliances with energy-efficient air source heat pumps July 2026 On track

Continue to work with our suppliers to ensure all sofas, dining and flooring containing

timber are from responsible or certified sources

December

2026

On track

Social

Work towards a 25% increase in the number of females in management retail roles July 2023 Behind July 2024 Considerable progress has been made

since setting this objective. The increase

was at 21% at July 2023. The initial target is

expected to be achieved by the revised

date.

5% increase in the value of donations and support to local and national charitable

and community organisations

July 2023 Achieved July 2024 Achieved in FY23. We aim to deliver a

further increase of 5% in FY24.

A minimum of 1,000 volunteering days to be completed by colleagues July 2026 On track – Excellent progress in FY23.

Governance

Over 30% of Board positions to be held by a woman July 2022 Achieved Ongoing Deliverable was first achieved by initial

target date. The Group has an ongoing

commitment to continue to meet this

objective.

ESG measures to be introduced into remuneration performance targets July 2022 Achieved Ongoing

Obtain ISO 14001 Environmental management certification for head office July 2024 On Track – Good progress has been made to date.

At least one of the senior Board positions (including Chair, CEO, CFO or Senior

Independent Director roles) is held by a woman

July 2023 Behind Dec 2023 This will be achieved on 1 December 2023

when Angela Luger is appointed as Senior

Independent Director.

Our Group ESG targets

During the year the Group has set the below targets to ensure the business continues to develop and stays on track to meet its long-term ESG objectives.

is shown on the materiality assessment on the

previous page, has been reviewed over the last year.

To maintain a strategy that is credible, meaningful,

and aligned with global sustainability priorities, we

have closely aligned our focus areas with the United

Nations Sustainable Development Goals (UN SDGs).

By doing so, we ensure our efforts are targeted

towards addressing the most pressing challenges

and achieving sustainable outcomes that matter to

our stakeholders and the wider society.

28 ScS Group plc Annual Report and Accounts 202328 ScS Group plc Annual Report and Accounts 2023

Sustainable supply chain

Ensuring a sustainable supply chain is crucial,

particularly for our furniture and flooring products

which rely on materials such as timber, leather

and textiles. We acknowledge the significance of

traceability throughout our supply chain and are

fully committed to advancing sustainable sourcing

practices whilst reducing our environmental

impact. By prioritising responsible and ethical

practices within our supply chain we aim to

improve sustainable sourcing, whilst minimising our

ecological footprint.

Furniture Industry Sustainability Programme

(FISP)

FISP is an independently certified sustainability

initiative designed specifically for the furniture

industry’s supply chain. FISP focuses on promoting

best practices that drive positive social, economic

and environmental changes through continuous

improvement in business operations.

We take pride in being the first national upholstery

and carpet retailer to obtain FISP certification,

demonstrating our commitment to sustainability.

ScS has diligently adhered to the stringent

requirements outlined by FISP, maintaining our

certification status. We actively collaborate with

our suppliers, encouraging their participation in

FISP and supporting their certification journey. By

fostering broader FISP membership, we aim to adopt

industry-wide sustainability and drive collective

positive change in the furniture sector.

Sustainable timber supply – from forest to

front room

Our commitment to sustainable timber supply is

evident in our increased sales of FSC-certified

timber. This year, we achieved 83% sales growth

in products containing FSC timber, highlighting

our dedication to promoting responsible forest

management.

PEFC (the Programme for the Endorsement of Forest

Certification) and FSC

(Forest Stewardship Council

)

are renowned international forest certification

programmes that prioritise the preservation

of forests through sustainable practices.

Certification from these organisations provides

added assurance that our products originate from

environmentally and socially responsible sources.

In 2023, 100% of our wood flooring was from certified

sources, ensuring that it adheres to the highest

sustainability standards. Additionally, three of our

furniture brands feature FSC

certified timber. We

remain committed to offering customers products

that align with their environmental values.

Sustainable leather sourcing

We are committed to sustainable leather

sourcing and are active members of the Leather

Working Group (LWG), a not-for-profit community

organisation focused on promoting excellence in

sustainable leather production.

As a member of the LWG, our objective is to ensure

that all leather sourced by our Group adheres

to ethical practices. To achieve this, we have

established partnerships with tanneries in our

supply chain that are certified by the LWG.

Responsibility and sustainability report continued

Our environment

The environment remains a paramount concern

for both our colleagues, customers and wider

stakeholders, with climate change posing

increasing challenges. Recognising the urgent

climate emergency we all face, it is imperative that

we acknowledge our environmental impact and

work towards achieving net-zero emissions.

As we progress on our sustainability journey,

we have established interim targets that will

serve as stepping stones towards developing

a comprehensive Net Zero strategy. By actively

addressing our environmental footprint, we aim

to contribute to mitigating climate change and

safeguarding the planet for future generations.

29ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

All leather used in our products now originate from

these certified tanneries. This commitment allows

us to contribute to raising industry standards and

reducing environmental impacts associated with

leather production. This ensures our entire leather

supply chain aligns with the LWG’s sustainability

principles.

Additionally, our Group actively participates in

the LWG traceability working group, collaborating

with other industry stakeholders to enhance

transparency and traceability throughout the

leather supply chain.

Other production initiatives

In line with our sustainable flooring initiatives, we

offer our customers the choice of SpringBond

underlay. This innovative underlay is composed of

85% recycled materials, predominantly sourced from

plastic bottles. During the year, approximately 10% of

our flooring customers opted for SpringBond when

purchasing their carpets.

We remain dedicated to exploring further

advancements in upholstery interiors and textile

production and incorporating sustainable practices

into our business operations.

Engagement with suppliers

Collaborating with our suppliers is crucial in

delivering on our ESG strategy and we are therefore

committed to working closely with them to align

our ESG targets and drive sustainable practices

throughout our supply chain.

We have updated our supplier handbook

to incorporate our Net Zero and long-term

environmental strategy. This ensures that our

suppliers are fully aware of our sustainability goals

and are actively involved in their implementation.

Our supplier handbook not only requires suppliers

to adhere to the labour standards outlined in the

Ethical Trading Initiative Base Code, but it also

includes additional reporting requirements for

enhanced transparency.

During the year, we held an annual supplier

conference. The conference provided a platform to

discuss quality assurance, supply chain processes,

and, importantly, communicate our ESG strategy and

how it will be implemented throughout our supply

chain.

As members of Sedex, one of the world’s most

renowned ethical data platforms, we actively

participate in promoting ethical practices and

responsible supply chain management.

By engaging with our suppliers and upholding high

standards of ethical and sustainable practices,

we create partnerships that align with our ESG

objectives.

Human rights and modern slavery

Our responsibilities for the welfare of people goes

beyond those we employ directly. We aim to ensure

that roles we support directly and through our

supply chain, are decent, fair and safe and that

human rights are always respected.

We leverage insights from our Sedex risk

assessment tool and collaborate with industry

associations to identify and assess areas of risk.

This collaborative effort enables us to stay informed

and responsive to emerging challenges. While

external audits play a crucial role, we recognise

their limitations in uncovering deeply entrenched or

systemic issues such as modern slavery that may

exist further upstream in our supply chain.

In 2022 we established our own internal supplier audit

programme to gain a comprehensive understanding of

our supply chain, support us in identifying any potential

hidden risks, and ensure compliance with our ethical

standards. In line with our strategy, we have allocated

additional resources in 2023 and implemented

enhanced due diligence processes to address the

evolving risks associated with our supply chains.

30 ScS Group plc Annual Report and Accounts 2023

This proactive risk-based approach ensures we

remain vigilant and focused on mitigating potential

risks. The supplier audit process is subject to review

by our audit, risk and compliance function. In line with

our rolling audit programme we have completed13

supplier audits in the year.

Sustainable packaging

Packaging is essential to safeguard our products.

However, we recognise our responsibility to

minimise its environmental impact. Striking the

right balance between sustainability and product

protection is key. Throughout the year, we have

taken significant steps towards more sustainable

packaging, including:

• Eliminating unnecessary or problematic

packaging, such as polystyrene. This has been

achieved through our product specification

policies and rigorous packaging audits;

• All of our sofa packaging is now 100% recyclable;

• Our customers continue to support our

packaging recycling scheme, which is provided as

part of our home delivery service, where we offer

to remove and recycle all packaging. We have

been offering this service for over 20 years; and

• In accordance with our requirements, our

suppliers have sourced plastic packaging with

a minimum of 30% post-consumer recycled

content. By incorporating recycled materials

into our packaging, we reduce reliance on virgin

resources promoting a more circular approach.

By implementing these measures, we are actively

working towards sustainable packaging solutions

that align with our commitment to environmental

responsibility.

Fleet

The Group has continued to focus on reducing

the environmental impact of our delivery and

company car fleet. Progress in increasing the

proportion of electric cars in our fleet has been

slower than expected. This has been driven by

the well-publicised challenges impacting electric

car adoption across the UK including, vehicle

availability, increasing purchase costs and the

underdeveloped UK charging infrastructure. Despite

the macro challenges, we have continued to focus

our efforts in the following areas:

• Continued investment in our light and heavy

goods vehicles, ensuring the fleet is operating

efficiently, safely and is compliant with latest

emissions standards. This practice allows

the business to maintain a modern and

environmentally friendly fleet. Additionally, we

leverage route optimisation software to minimise

the distance travelled by our trucks and vans,

thereby reducing our CO

emissions;

• Increased focus, monitoring and performance of

driver behaviour. Through our fleet management

system, we closely track and evaluate the driving

performance of our drivers. They are assessed

against predefined targets, and both drivers and

management are incentivised to improve their

adherence to our high standards of safe and

responsible driving; and

• Introduction of electric car options for all

categories of our car fleet.

Over the next 12 months, we will conduct a

comprehensive review of our entire fleet. This

evaluation aims to identify opportunities for

further sustainability improvements, particularly

in the realm of electric vehicles. Our commitment

is to reduce carbon emissions and transition to a

greener fleet.

Responsibility and sustainability report continued

31ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Energy

Throughout the year, we have remained committed

to enhancing our energy efficiency through

an ongoing initiative focused on LED lighting

installations and the replacement of outdated

equipment with energy-efficient alternatives. These

investments contribute to reducing our overall

energy consumption and carbon footprint.

We have continued to maintain a sustainable energy

supply by sourcing 100% renewable electricity

for all ScS sites. This significant step allows us to

operate on a zero-carbon basis, aligning our energy

usage with our commitment to environmental

sustainability.

As part of our sustainability initiatives, all new

format store investments deploy modern energy-

efficient lighting and we have initiated a programme

to replace all gas-fired appliances with energy-

efficient air source heat pumps by the end of FY26.

Additionally, we plan to replace outdated appliances

with modern energy-efficient alternatives. To

further support and guide our energy reduction

endeavours, we maintain active collaborations with

the Carbon Trust and other advisors.

By securing a renewable electricity contract,

we have effectively avoided the emission of

approximately 2,582 tonnes of carbon.

Waste

In conjunction with our facilities management

partners, we have taken concerted steps to assess

our environmental impact, with a particular focus

on water and waste management. Our ongoing

collaboration with industry experts ensures we

stay at the forefront of energy conservation and

waste management, consistently improving our

environmental performance.

Our commitment to responsible waste practices

remains steadfast, as we strive to maintain a high

percentage of waste diversion from landfill. We

continuously re-evaluate our waste management

processes, seeking opportunities to enhance

efficiency and minimise our environmental footprint.

The Group also introduced waste reduction as one

of the 2023 ESG targets for the senior management

bonus scheme.

“Here at ScS, we want to create a business that

cares not only about quality, value and service

but the environment we operate in. That’s why our

ESG strategy incorporates waste management.

Whilst we already had recycling processes

in place, we took the time to re-evaluate

how we did things and understand areas for

improvement. We have since refreshed and

refocused colleagues on the importance of

recycling and how can we all can play our part.

We want everyone here at ScS to be waste

aware – by ensuring our colleagues know which

bins to place their recycling in and that waste is

segregated correctly, we as individuals and as a

business are taking responsibility for the waste

we generate through our operations and how

this impacts our environment.

As part of my role as Internal Communications

Advisor, I was able to produce guidance

toolkits, Company-wide communications and

help to introduce the facilities to enable our

colleagues to play their part and support clear

waste recycling processes. Our aim was to have

engaged colleagues that share our commitment

and values towards environmental stewardship

and I think we have made great progress.

I really enjoyed bringing this to life and seeing

colleagues’ passion and enthusiasm for a

greener future at ScS.”

Louise Marshall

Engagement and Internal Communications

Manager

CASE STUDY

Waste

32 ScS Group plc Annual Report and Accounts 2023

Recruitment and induction

Strengthening our employer brand has been a key

area of focus for the Group in the year. We have now

implemented a digital solution for the recruitment

and on-boarding journey via a new careers website

and applicant tracking system. It is important to

us that our colleagues feel valued from day one

and on joining, colleagues now receive their very

own welcome pack and attend our foundation

workshops to get to know all about ScS.

Learning and development

To support our ambition of developing and retaining

colleagues with the appropriate skills, behaviours

and attitudes, we have strengthened our learning

and development team, delivering a number of key

programmes throughout the year, including:

• A senior leadership programme enabling

senior managers to gain 360 feedback, focus

on key areas for development and build strong

relationships to support our strategy and

leadership ambitions for the future;

• A management development programme being

run across our distribution centres;

• Our ‘Moving up’ programme continued, aimed at

helping those wishing to be future retail managers;

• A behavioural training programme ‘The

difference is you’ has been developed which has

impacted positively on colleague turnover and

engagement;

• Refreshing our on-boarding with the introduction

of foundation workshops has seen all of our

new colleagues joining the business get the

best possible start, learning all about how we do

things here at ScS, setting them up for success in

their role;

• We held a number of ‘Know more to grow more’

sessions to help improve awareness and

colleague knowledge in a wide range of areas; and

• Working with our apprenticeship provider, we

currently have 25 active apprentices and we plan

to increase this during FY24.

Talent

To enable our colleagues to be the best they can be

we have reviewed both our talent and performance

approach and are launching new frameworks as we

head into the new financial year. We have clearly

defined our leadership and behaviours framework

throughout every level of our business, which will

integrate into all aspects of our people operations

from attraction, performance and reward. This will

underpin our talent pipeline and support our future

succession. We have also invested in new senior

hires to help support our strategy plans including

the appointment of a Director of Retail Operations

and a Head of Learning and Development. In

addition, we have strengthened the support in retail

by introducing a divisional structure.

Wellbeing

In order to add rigour to our approach to improving

the health and wellbeing of our colleagues, we

signed up to the ‘Better Health at Work Award’. The

award recognises the efforts of North East and

Cumbria based employers in addressing health

issues within the workplace. A number of wellbeing

initiatives across the business were introduced,

focusing on physical and mental health. This

included educational campaigns covering mental

health, cancer and the menopause. In addition,

we signed up and are committed to being a

‘menopause friendly employer’ and have a policy

and education sessions in place. We continue

to have mental health first aiders supporting

colleagues across the business alongside our

health advocates to help us raise more awareness

and make positive steps towards fostering a

better place to work. Our colleagues have access

to further support through a free, confidential

employee assistance programme which is available

24/7.

Responsibility and sustainability report continued

Our colleagues

Our people are what makes our business successful

and developing an outstanding team is at the

forefront of our business strategy. At ScS our aim is

to ‘Create a workplace where people love to work’,

where colleagues feel they belong, are listened

to and are given the opportunity to develop.

Attracting, developing and retaining colleagues with

the appropriate skills, behaviours and attitudes and

from a variety of backgrounds is the focus of our

people strategy.

33ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

We were delighted to achieve the Bronze ‘Better

Health at Work Award’ and the ‘Best Newcomer’

Special Recognition Award and now have our sights

set on achieving the Silver Award.

Engaging with colleagues

To help shape our plans to making ScS a great place

to work it is key that we actively take on board

feedback we receive from colleagues. Throughout

the year we have engaged with our colleagues in a

number of ways:

• Conducted two colleague engagement surveys.

We were pleased to see an increase in our eSat

score from 71 to 75;

• Kept our colleagues well informed via our ‘ScS

Essentials’ communications cascade, which

provides updates on key strategy progress and

any other matters across the business;

• Implemented face-to-face colleague listening

groups, hosted by Non-Executive Directors

providing an opportunity for open and honest

feedback in a relaxed environment;

• Engaged external consultants to facilitate

conversations with colleagues in order to further

understand feedback from our engagement

survey; and

• Held multiple campaigns across the business

to engage colleagues, including supporting a

number of key charities that are important to our

people.

We have acted on feedback received throughout

the year and made a number of changes, including:

• Introducing improved family friendly policies

increasing maternity and paternity leave

payments, promoting part-time opportunities

and improving benefits;

• Reviewing opening hours (including promotional

event days) which has helped support our

colleagues’ work-life balance; and

• Reducing the amount of manual handling required

by store colleagues, improving wellbeing and

enabling more customer focus.

We will continue to engage with and listen to our

people to drive our thinking on key changes needed

to support being a great place to work.

Gender diversity

Our gender pay gap report is available on our

corporate website. From data we can see that

stores being led by female managers, on average

perform better than their male counterparts.

To highlight the focus on this, we set a specific

ESG target to increase female representation

in management roles by the end of FY23 by 25%

against a September 2021 baseline. We achieved

a 21% increase and have revised our target date

of achieving 25% to the end of FY24. Details of our

current gender diversity split are set out on pages

82 to 83.

In support of our ESG strategy, we launched our

female leadership group whereby 25 female leaders

across the business came together to celebrate

and discuss key topics supporting females in the

workplace. The insights gained will help us progress

towards our targets in the year ahead.

Suzanne Coyle, Business Manager, has been

part of the ScS team for an incredible 19

years. After a successful year on our ‘Moving

up’ programme, Suzanne was one of our first

cohorts to take over the running of our store

in Edinburgh. Suzanne tackled it with the

same drive and determination she has shown

throughout her whole career at ScS; you can

see this in the significantly improved results.

Since taking over, the store’s employee

satisfaction score has jumped from 79 to

83, one of the highest in the Group. Suzanne

not only fosters an inclusive and friendly

work environment, but a fun one as well

where accomplishments are celebrated and

colleagues are rewarded for their hard work.

CASE STUDY

Moving up

programme

The ‘Moving up’ programme has been

an integral part of my career at ScS. It

helped give me the tools to be the best

manager I can be. It gave me a greater

understanding of how to get the best out

of people and how to work together in

order to achieve a common goal.

It showed me that it was ok to be pushed

out of my comfort zone and that this is

where you can achieve great results.”

34 ScS Group plc Annual Report and Accounts 2023

Our customers

Our customers remain at the heart of everything

we do and as a business we seek to offer our

customers outstanding value, quality and choice

with a seamless customer experience.

The year saw a number of improving customer

metrics across the business, including maintaining

our Trustpilot TrustScore. We maintained our 5-star

‘Excellent’ rating. At a local level, the number of

stores rated as five stars increased 65% meaning

over 80% of our stores are rated at the maximum.

Modernising the range has been a key focus in the

year and we have launched 125 furniture ranges

and 39 flooring options. This has included the

introduction of new suppliers from the UK, Europe

and the Far East as we aim to provide the best

value products we can source. Pleasingly, we saw

product lead times reduce significantly and are now

operating at lead times in line with those seen pre-

pandemic.

Customer engagement

The year saw the business invest time and

resources in increasing its understanding of

existing customers but also those consumers who

chose not to shop with the Group. This included

detailed qualitative and quantitative research

covering the in-store experience, our product

offering and our promotional and advertising style.

This feedback has helped shape our new store

format and has played an important part in our

new branding and advertising campaign. We are

now starting to collect more customer data and

feedback that will help shape our customer strategy

in the future.

Seamless customer experience

To ensure we deliver the highest levels of customer

service we invest significantly in training and

developing our colleagues. We are members of

the Furniture and Home Improvement Ombudsman,

giving additional assurance to our customers.

The year saw the business invest in leading

edge contact centre technology operated by

our customer experience team, delivering more

functionality to our team and improving our service

to customers. We have also reviewed our upholstery

services and have outsourced the delivery of this

service to a specialist provider, who are committed

to delivering a swift, efficient and effective service

for our customers.

We strive to provide an excellent customer

experience and our customers are encouraged

to rate their experience with us on Trustpilot. We

regularly review our customers’ feedback and

use it to reward our colleagues, identify areas for

improvement and discuss with suppliers to drive

further product quality. We are proudly, one of the

most reviewed businesses in the UK.

Responsibility and sustainability report continued

35ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Our Communities

Making a meaningful contribution to our

communities has been a key focus at ScS and for

our colleagues. As a socially responsible business

and with operations spread across the UK we have

been supporting in many different ways.

Our partnerships with charities continues to be

successful, partnering with three key charities to

help and make a difference in the communities we

serve.

Shelter partnership

We are delighted to now be officially supporting

Shelter as a corporate partner. Our ‘It all starts

with home’ partnership builds on the work we did

with Shelter in FY22. Shelter’s purpose of ‘home is

everything’ aligns to ScS’s of ‘Creating the home

you love’ perfectly, and we look forward to the

opportunities this will provide for families within our

communities.

As part of our partnership with Shelter, we donate

surplus and returned stock to the charity. The

charity are able to resell the stock through

their own store network or utilise it to support

their service users. This contributes to Shelter’s

charitable purposes but also ensures that stock we

no longer need is repurposed rather than disposed

of. For FY23 we donated 483 products which has

generated £56,000 in sales of donated goods for

Shelter.

The Group has also supported our colleagues

who have spent 94 days in total across the year

volunteering, supporting different Shelter causes

such as delivery of donated stock, supporting in

stores/pop up stores and finally with their charity

supermarket.

Step up for Shelter

Our colleagues embarked on our annual May

wellbeing challenge. Throughout the month we

challenged colleagues to ‘Step up for Shelter’ and

take part in activities such as walking, cycling,

running – you name it, to achieve a combined

total of 27,000 miles. Our colleagues embraced

the challenge with 100 more colleagues than FY22

participating. The target was achieved a week

ahead of schedule and by the end of the month we

had a grand total of 34,305 miles.

One of the best parts of the challenge (despite all

of the health benefits and colleagues enjoying the

outdoors) was seeing the chat section in our app

where colleagues were sharing stories and pictures

of their adventures. This activity supported our

focus on mental health during May and will support

our ‘Better health at work’ silver campaign.

Colleagues raised £1,325 in fundraising and the

Group donated £27,000 to Shelter to support

this great cause and really make a difference to

supporting their purpose of ‘It all starts with home’.

Our first year of partnership with Shelter has seen

us raise £100,000 for the charity.

Foundation of Light

As a business we have partnered with the

Foundation of Light for over a decade and we

extended our long-standing relationship with the

Foundation (the official charity of Sunderland

AFC) supporting the charity’s ‘Wear Together’

programme. The programme is aimed at supporting

those over 50 within the local Sunderland, South

Tyneside and County Durham communities help

feel more connected. A number of colleagues have

volunteered their time to help facilitate and join in

on many activities as part of the programme during

FY23.

36 ScS Group plc Annual Report and Accounts 2023

St Oswald’s

ScS partnered with St Oswald’s hospice in FY23 for

a three-year period as a supporter of their charity

fundraising programme, including their biggest

event in the calendar, The Great North Run. In

September, a number of ScS colleagues took part

on behalf of St Oswald’s and we were please to raise

money to support this great cause.

Charity fund

Across the year we have supported 25 charities,

donating a total of £67,000. Some of these donations

have arisen following colleague nomination, which

makes it even more special. Donations have been

made to Marie Curie, Alzheimer’s society, SeeScape,

Bright Red Charity and many more.

Volunteering

As part of our ESG strategy, we are encouraging

all ScS colleagues to get involved in volunteering

activity. ScS aim to support a minimum of 1,000

volunteering days before the end of FY26.

A total of 365 days of activity have taken place this

year and we are really proud of how our colleagues

have stepped up to support some amazing

community work. Some examples include:

• Royal British Legion – supporting selling poppies

and manning a stall on 11 November 2023;

• The MCA Trust with building a Santa’s grotto to

support a children’s party;

• A number of food banks within local communities;

• RSPCA – supporting with painting chicken coops,

fixing flooring and taking dogs for a walk;

• Alderhey – supporting with collections of large

furniture from house clearances;

• Shelter – supporting with stock donation

deliveries, volunteering in store and with their

pop up events;

• Love Amelia – supporting with raising money

and preparing donations to support babies and

children experiencing hardship; and

• Changing lives – supported in various locations

with cleaning, decorating and gardening.

Other activities continue to be planned in by

colleagues and we take great pride in

sharing these stories across

the business in our weekly

newsletter – ScS news.

Everyone deserves the right to a safe place to

call home, so this year we created a partnership

with Shelter, supporting their efforts to tackle

homelessness and provide help and support to

those that need them. We share the belief that

home is everything.

As well as monetary donations to Shelter we

worked alongside their team in a number of

ways. We have donated furniture and flooring

stock to Shelter. Shelter have been able to retail

this stock through their stores, raising £56,000

during the year. These products were priced to

be affordable to Shelter customers and service

users.

When delivering product to Shelter stores our

distribution colleagues have been delighted

CASE STUDY

Shelter partnership

to assist Shelter teams; moving stores round to

accommodate product as needed. Across our wider

business we have contributed 94 volunteer days to

Shelter, and aim to increase this number next year.

In May over 300 colleagues took up the challenge

to ‘Step-Up for Shelter’. A team target was set of

27,000 miles. The team exceeded the target and

£27,000 was donated to Shelter in recognition of the

challenge the team took on.

Our first year of partnership has seen ScS donate

over £100,000 to Shelter and provide meaningful

volunteer time to the organisation. It has been

wonderful to see this partnership start to flourish

and we are excited to continue to grow our

partnership with this amazing charity.

Responsibility and sustainability report continued

37ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Our Shareholders

Achieving sustainable long-term growth and

returns is a key objective of the Group and our

shareholders. We aim to secure these outcomes

by delivering our strategy and making informed

decisions. We have two main shareholder groups;

institutional investors and individual shareholders.

The majority of our shareholders are institutional

investors.

ScS Group plc has just one class of share in issue

and so all shareholders benefit from the same

rights as set out in the Company’s Articles of

Association and the Companies Act 2006. The

Board recognises it’s legal and regulatory duties

and does not take any decisions or actions, such

as selectively disclosing confidential or inside

information that would provide any shareholder or

group of shareholders with any unfair advantage or

position compared to the shareholders as a whole.

Engaging with our shareholders

We engage with our shareholders through a range

of channels including:

• The Annual Report and trading updates through

our dedicated corporate website;

• Our Annual General Meeting (AGM) in which

shareholders can direct questions to the Board;

• The Group’s CEO and CFO participate in both

virtual and face-to-face investor (existing

and potential) meetings throughout the year,

including store visits with investors if requested;

• Face-to-face analyst/investor presentations

covering the interim and preliminary results. A

webcast of these meetings is published on our

website for those unable to attend;

• The Board receives investor views through the

Group’s corporate brokers who provide feedback

on market reaction and investor views after full

and half year results announcements; and

• Independent investment research analysts have

access to our Executive Directors as part of their

investment advisory roles. The analysts’ research

publications provide timely feedback on financial

performance, strategy and share valuation.

Investors’ views were taken into consideration

as part of the Board’s decision-making process

throughout FY23 including:

• The purchase of the business and assets of Snug

out of administration;

• The Board’s proposal for a final dividend of 10.0p

per share taking the full-year dividend to 14.5p;

• The decision to complete the £7m buyback

scheme and to not launch a new programme; and

• The investment in a refreshed store design

across a further eight stores in the year, taking

the total to nine.

“Achieving sustainable

long-term growth and

returns is a key objective

of the Group and our

shareholders.”

38 ScS Group plc Annual Report and Accounts 2023

Task Force on Climate-related Financial Disclosures (TCFD)

Statement of Compliance

The Financial Stability Board’s Task Force on

TCFD has set out an important framework for

understanding and analysing climate-related risks,

and we are committed to regular, consistent and

transparent reporting to help communicate our

performances and track our progress. We have

outlined our key climate-related disclosures in this

report. We recognise that further work lies ahead as

we continue to develop our reporting capabilities,

but we have made some progress and enhanced

our disclosures.

We considered our compliance obligation

under the UK’s Financial Conduct Authority (FCA)

Listing Rules and can confirm that we have made

disclosures consistent with all TCFD pillars and

recommendations, however we accept that there

are areas where we feel the disclosure we have

made can be improved on.

We have complied with the governance

recommendation but there are improvements to

be made to enhance Board oversight on climate-

related risks and opportunities. On the strategy

pillar, we have identified compliance gaps in

describing the impact of climate-related risks and

opportunities to the Group and financial planning as

well as the procedures in place to identify emerging

risks, and as such have not completely met the

recommended disclosure, but work is in progress to

address this.

Climate risk is part of our supplier chain audit

criteria and the risk assessment of our supply chain

has been subject to senior management oversight.

However, there is a scope for improvement here,

particularly with having a formal process for

integrating, identifying and assessing climate-

related risks, and we are working towards defining

and implementing that process. Although we

report on risks, we have not fully adopted the risk

taxonomies aligned with TCFD recommendations.

We are working to address all of this and to ensure

that our disclosure under this pillar is consistent

with the TCFD recommended disclosures on risk

management.

In terms of the recommended disclosures under the

metrics and targets pillar, while we have not entirely

met the requirements consistent with TCFD under this

pillar, we have fully disclosed where we are and are

working towards improving the metrics used to assess

and manage relevant climate risks and opportunities,

where such information is material, and have set

quantifiable targets against specific metrics.

We have disclosed our emissions across scopes 1,

2 and 3, and aim to implement recommendations

and targets from our recently completed Net Zero

strategy work.

This FCA compliance statement is only set out in our

standalone TCFD report.

Climate-related disclosures

Disclosure of the actual and potential impacts

of climate-related risks and opportunities on an

organisation is fundamental to understanding how

the business strategy may be influenced. Climate-

related issues are top of regulatory, investor and

corporate agendas and climate-related risks

make up four of the five biggest risks faced by

businesses. It can affect several important aspects

of an organisation’s financial performance and

position, both now and in the future.

The Task Force provides recommendations for

climate-related financial disclosures structured

around four thematic areas:

1. Governance

2. Risk management

3. Strategy

4. Metrics and targets

The four overarching recommendations are

supported by 11 specific recommended disclosures

focusing on assessing climate-related risks

and opportunities. The Group recognises the

importance of adopting the TCFD recommendations

and reports climate-related information consistent

with this framework to ensure high-quality and

decision-useful disclosures that enable users to

understand the impact of climate change on the

organisation.

Governance

The governance disclosure considers an

organisation’s governance around climate-related

risks and opportunities.

The strategic oversight of action on climate change

is owned by the Board, with decision-making

delegated to the Executive Board. Climate change

is addressed in a standing agenda item of Executive

Board meetings on a monthly basis.

The Group’s day-to-day governance of climate

change is overseen by our ESG steering group,

which is comprised of cross-functional senior

representation, including the Chief Financial Officer.

The ESG steering group meets on a monthly basis.

Climate change is covered within the remit of the

ESG steering group under four working themes:

1. Operational carbon

2. Value chain

3. Climate change and business strategy

4. Engagement and accountability

39ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

The ESG steering group reports on its activities to

the Executive Board. Executive remuneration at ScS

includes links to progress on our environmental,

social and governance (ESG) targets, including

targeted reductions in waste for the Executive

Board and senior managers.

Board oversight

The Group considers climate change to be a

significant Board-level strategic issue.

Overall responsibility for climate-related risks

and opportunities sits with the Board. As part of

our activities to address risk, climate change is a

standing Board agenda item included within the ESG

update.

Climate-related financial issues fall in scope of

the Audit Committee, which will review and take

action as required on risk management policies and

business planning. The Audit Committee will meet

four times per year.

The Board has undertaken carbon literacy training

to support understanding in this area and its risks

and opportunities.

Management’s role

At management level, the climate change agenda is

managed as part of the delivery of our ESG strategy.

It is now being driven by our Net Zero strategy, which

is currently being finalised, and has clear goals,

metrics and targets to operationalise our approach.

The ESG steering group and Net Zero strategy is

coordinated by the People Director, who presents

monthly updates and reports to the Executive

Board.

Each year we will undertake a planning cycle to

assess climate-related issues and ensure that our

Net Zero strategy is fit for purpose in addressing

climate-related risk and to deliver for the business.

We retain a specialist consultant on an ongoing

basis who supports our sustainability ambitions

and provides any specific technical advice that is

required in relation to climate-related risk, as well

as mitigation, adaption and transition.

Next steps

We are committed to disclosing information

relating to our governance approach, the

Board’s oversight of climate-related risks

and opportunities, and management’s role in

assessing and managing climate-related risks and

opportunities on an ongoing basis in line with the

TCFD recommendations. We will continue to engage

at both Board and management level on climate-

related issues, considering how we can fully

integrate best practice into our internal governance

structure and processes.

Strategy

The strategy disclosure looks at the actual and

potential impacts of climate-related risks and

opportunities on the organisation’s businesses,

strategy and financial planning.

We acknowledge that climate-related risks and

opportunities have an impact on our business. We

are therefore implementing a clear strategy to

respond to that. Our focus is on:

• Mitigation of our impact, by reducing our

emissions; and

• Managing any transition or physical risks in

relation to adaptation.

We have finalised our Net Zero strategy, and this

will provide us with a clear framework of how we

manage our climate-related risks and opportunities,

going forward.

Emissions reduction strategy

As part of our Net Zero strategy, we will adopt six key

principals to guide our approach:

1. Make sustainability central to everything we do;

2. Take proactive action by incorporating the Net

Zero strategy into our business strategy and

applying the improvement recommendations

to our business to reduce our impact on the

environment;

3. Engage with and report to our key stakeholders;

4. Become environmentally efficient and

sustainable by design (including products,

packaging and buildings);

5. Renew our approach and leverage on technology

where required to address the climate

sustainability challenge; and

6. Rebalance our impact (through carbon

offsetting) where the other actions taken do not

address it sufficiently.

We have two headline commitments in relation to

emissions reduction:

• We have committed to Net Zero by 2050 across

all three scopes of emission. As we get more

confident with climate reporting and data

gathering strategies, there is a possibility that we

could bring this target date forward. We believe

that this will provide us the right framework for

managing our transition to Net Zero and support

our reputation by aligning with best practice; and

• We have finalised and aligned our Net Zero

strategy with climate science and will look

to have this validated externally by relevant

initiatives as soon as possible.

These are reinforced by resource level targets,

which are further detailed in the metrics and

targets section. We have estimated the cost of

implementing our Net Zero strategy as approximately

£500,000 per annum between now and 2030. We also

expect to be able to achieve an interim target date

of Net Zero for Scope 1 and 2 by 2038.

40 ScS Group plc Annual Report and Accounts 2023

Task Force on Climate-related Financial Disclosures (TCFD) continued

Our most significant climate-related risks and opportunities identified from our process are:

Supply chain The transition to Net Zero Reputation

Top risks Top opportunities Top risks Top opportunities Top risks Top opportunities

Resilience to physical

impacts (sea level rise/

flood risk)

Resilient supply chain and

business continuity

Increased costs

associated with carbon

pricing and taxes

Carbon footprint

reduction/reducing

operating costs/reduced

carbon tax impact

Changing consumer

behaviour

Supporting consumers in

their transition

Products efficiency

policy and standards

New market opportunities

and customer base

expansion

Cost of decarbonisation Positive environmental

impact through improved

efficiency and reduced

carbon footprint

Negative perception from

stakeholders

Attractiveness to

stakeholders

We have conducted a risk assessment based on three climate change scenarios:

Scenario Early Late Business as usual (BAU)

Description Smooth transition whereby global warming

is <2°C

Disruptive transition whereby global warming is <2°C No acceleration of action whereby global

warming is >3°C

Overview Transition to a carbon-neutral economy

starts early and the increase in global

temperatures stays well below 2°C, in line

with the Paris Agreement.

Global climate goal of keeping temperatures well

below 2°C is met but the transition is delayed and

must be more severe to compensate for the late

start.

No policy action beyond that which has already

been announced is delivered, resulting in above

3°C of warming. Therefore, the transition is

insufficient for the world to meet its climate goal.

Outcomes of

our analysis

We experience a high level of impact from

transition risks in this scenario, with higher

levels of policy and legislation impacting

the business in the short to medium term.

The physical risks are least extreme, and

these mitigates medium to long-term

challenges across our supply chain.

Physical risks under this scenario are higher than

the smooth transition as there are significant

differences in the impact on the environment,

impacting our supply chain more severely. The

transition risks are high and disruptive and are likely

to have a material impact because of the pace and

nature of the interventions required.

Whilst we experience much more limited

transition risks in this scenario, the physical

risks are much more severe. This has significant

impacts on our supply chain in the medium to long

term as the world will have to adjust to much more

significant change and environmental damage

from the impacts of the global temperature rise

and the consequent effects on our climate.

Assumptions There is early and decisive action to

reduce global emissions gradually, with

clearly signposted government policies

and initiatives implemented relatively

smoothly.

To compensate for the delayed start a deeper

adjustment is required, as evidenced by a steeper

increase in global carbon prices in a late attempt to

meet climate target. Under this scenario, physical

risks rise more quickly than in the early policy action

scenario and transition risks are severe.

This scenario tests organisations’ resilience to

both chronic changes in weather (e.g. rising sea

levels), as well as more frequent and extreme

weather events (e.g. flash floods). Therefore,

under this scenario, there are limited transition

risks, but physical risks are significant.

41ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Risk management

The risk management disclosure looks at the

processes used to identify, assess and manage

climate-related risks.

Identifying and assessing risk

The Group identifies climate-related risks and

opportunities and defines materiality based on the

‘We Mean Business’ risk taxonomy, TCFD guidance

and our existing climate-related risk and opportunity

assessments.

Risks are grouped into two categories; transition

risks, which relate to the transition to a low-carbon

economy and physical risks, which relates to the

physical impacts of climate change. These are then

grouped into further sub-categories. We consider

our climate change risk between now and 2050 as a

timeframe.

Managing risk

Our risk management process in relation to climate-

related risk can be summarised by the following

steps:

• Identify risks and opportunities and define

materiality based upon:

• ‘We Mean Business’ taxonomy;

• TCFD guidance; and

• Existing climate-related risks and opportunity

assessments.

• Assess the risks and opportunities and any

required action in a short-term timeframe (<5

years).

• Model through scenario analysis (where

relevant) the potential impact of the risks and

opportunities against three climate change

scenarios.

• Manage by way of developing and implementing

internal risk control measures.

• Monitor risks on an ongoing basis and improve

management controls.

Integrating risk

To assess, manage and integrate risk, we maintain

a climate-related risks and opportunity register

and we plan to fully align to all the risk taxonomies

recommended by the TCFD. The risk taxonomy

structure is aligned to the ‘We Mean Business’

structure and is described below. The register

summarises our actions in relation to each areas of

the risks identified. Quantified figures are included

in the risk and opportunity table for those risks and

opportunities considered most material (>£1m per

year materiality threshold).

42 ScS Group plc Annual Report and Accounts 2023

Task Force on Climate-related Financial Disclosures (TCFD) continued

Risk taxonomy and assessment

Our risk taxonomy (in relation to climate-related risk) is shown below, with the underlying level of risk we believe that they present.

Key

Timeframes Scenario analysis

S Next 3 years # Quantitative/detailed

M Between 3 and 10 years



High level assessment

L After 10 years, and before 2050

Risk and opportunity table

Strategic risk/

opportunity

Risk/opportunity

category Description Significant

Timeframe

impacted

Scenario

analysis

Transition risk – Risks associated with transitioning to a low-carbon economy, e.g. new regulations or reporting requirements, disruptive technology,

changing consumer preferences

Brand and

reputation

Reputation The potential impacts of stakeholder perceptions of our carbon performance and climate change

position. Real or perceived inaction on climate change may affect the Group’s access to funding

and investment and its ability to attract and retain talent, causing loss of revenue and damaging the

reputation the Group has with its customer base and other stakeholders. The quantified maximum

probable loss from reputational impacts on share prices is £3.0m.

Yes S, M, L



Economic

environment

Customer

demand

The change in demand for a product or service due to a shift in preferences because of climate change

and sustainability. Customers may change demand to lower-emission and sustainable products, such as

alternatives to leather goods and ethical products with lower carbon footprints or higher sustainability

ratings.

M, L



Regulation and

compliance

Policy Changes or improvement to regulation, standards or incentives relating to climate change including

decarbonisation and adaptation could see additional operational changes and costs borne by the

Group.

S, M



Regulation and

compliance

Transition

to Net Zero

costs/taxes

Increased costs associated with decarbonisation ambitions and requirements to offset our emissions

footprint that are increasingly expensive and unreliable. The quantified implications for capex and other

investments to achieve our Net Zero strategy is a probable maximum of £8.1m.

There is a risk that carbon taxes will continue to be introduced in the future, which will increase the

cost of products and services both purchased and sold by the Group. This risk has been quantified as a

probable maximum loss of £150,000.

Yes S, M #

Regulation and

compliance

International

treaties/

sector

agreements

Actions or targets for companies determined by internationally binding agreements within United

Nations international conventions or any other internationally recognised protocol or agreement setting

specific emissions targets may impact the Group’s Net Zero strategy and result in increased costs.

- S, M, L



43ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Strategic risk/

opportunity

Risk/opportunity

category Description Significant

Timeframe

impacted

Scenario

analysis

Physical risk – Increasing global surface temperatures and changing weather patterns can lead to the increased intensity of flooding in some areas,

impacting the supply chain

Economic

environment

Social

impacts

Changes to social order, culture and prosperity of our communities because of physical climate or

regulation change. There may be an increase in the number and intensity of hot days impacting the

physical health of our colleagues, partners and suppliers. There may be workforce shortages hampering

productivity and communities impacted if operations are forced to relocate, resulting in supply chain

disruption.

- M, L



Responsible

sourcing and

supply

Supply chain The effect of the changing climate may trigger extreme weather events including flooding and snow/ice,

which may result in damage to key supplier locations and general logistics.

The assessment of the supply chain indicates a long-term risk due to the physical impacts of climate

change on three of the 22 strategic facilities reviewed. Some key supplier locations and general logistics

are expected to be impacted. We are monitoring the proportion of our supply chain that this could

impact and considering the mitigation actions that may be necessary. The quantified probable average

loss is £6.9m.

Yes M, L #

Responsible

sourcing and

supply

Access

to natural

resources

Changes in the availability of natural resources, e.g. water and food, because of climate change may

impact our ability to source raw materials.

- M, L



Opportunities associated with transitioning to a low-carbon economy, e.g. increasing resource efficiency, developing low-carbon products/business

models, access to green capital

Responsible

sourcing and

supply

Supply chain Enhancing our supply chain standards can create opportunities to: deploy lower emission technologies

in our manufacturing process; identify the most efficient transport routes; and source raw materials

from markets most resilient to the physical impacts of climate change. The quantified opportunity

arising from the reduction in operating costs is a probable maximum gain of £1.75m.

- M, L



Economic

environment

Customer

demand

Development of low-emission and ethical products from low-carbon production facilities and

sustainable materials may result in increasing demand for products. This will open up new markets and

expand our customer base, translating to revenue growth.

Strong climate change management can help strengthen relationships with investors, customers,

consumers and other stakeholders, and potentially lead to new opportunities.

- M, L



Regulation and

compliance

Energy Investment in renewable energy technologies across our stores and distribution network could help the

Group increase its resilience to future energy/price shocks as well as reduce emissions and impact the

environment positively.

- S, M, L



Brand and

reputation

Reputation Making clear our commitment to climate action may increase our attractiveness to our stakeholders and

enhance our reputation amongst out customers.

S, M, L



44 ScS Group plc Annual Report and Accounts 2023

Task Force on Climate-related Financial Disclosures (TCFD) continued

Metrics and targets

The metrics and targets disclosure looks at the metrics and targets used to assess and manage relevant climate-related risks and opportunities.

Metrics used

Our operational management of climate-related risk is measured through the metrics below. We have made good progress towards four of the six metrics, including

continuing to purchase 100% renewable energy, diverting 100% of waste from landfill, engaging actively with our suppliers, and reducing the carbon impact per product sold.

While we continue to seek energy efficiencies across our operations and improve our logistics performance, we still have work to do in these areas to meet our targets.

Metric 2021-22 2022-23

Net Zero strategy

target (2022-23) Variance

On track for Net

Zero by 2050?

Supply chain engagement (% of suppliers active in programme) 46.02% 46.02% 40.00% +6.02% Y

Renewables (% renewable) 100% 100% 100% 0.0% Y

Waste targets (% landfill avoidance) 100% 100% 100% 0.0% Y

Net Zero annual

reduction target* Variance

Energy efficiency (kwh/m

building floor area) 155.40 153.33 -2.15% -1.33% Y

Logistics performance (kgCO

e per km) 0.0226 0.0231 -4.60% +2.25% Y

Product lifecycle (kgCO

e per product sold) 122.31 113.42 -4.00% -7.27% Y

* Target represents linear progress year on year. Despite being slightly behind on a linear basis, we expect to achieve all targets by 2050. Our actions in our strategy towards achieving Net Zero are not linear and varying levels

of progress will be seen year on year.

45ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Greenhouse gas emissions

Emissions data in respect of the 2022-23 reporting period, based on operational control, are disclosed as follows:

Scope Category Current year** tCO

e (Location) Current year** tCO

e (Market) Previous year* (Location) Variance (+/-) Variance (%)

Scope 1 Combustion 2,796 2,796 2,712

Scope 1 F Gas*** 156 156 589

Scope 1 TOTAL 2,952 2,952 3,301 (349) (10.5)

Scope 2 Electricity/heat/steam/cooling 2,582 - 2,941

Scope 2 TOTAL 2,582 - 2,941 (359) (12.2)

Scope 3 Business travel 842 842 594

Scope 3 Employee commuting 1,270 1,270 1,259

Scope 3 Fuel and energy-related activities 1,520 1,520 1,696

Scope 3 Purchased goods and services 84,310 84,310 83,960

Scope 3 Waste generated in operations 58 58 67

Scope 3 Transportation/distribution 4,087 4,087 5,113

Scope 3 Capital goods 2,448 2,448 1,900

Scope 3 TOTAL 94,535 94,535 94,589 (54) (0.05)

All TOTAL 100,069 97,487 100,831 (762) (0.75)

* Actual data updated from previous disclosure for FY21-22.

** Current year footprint includes estimated data to end of FY.

*** F Gas included in disclosure as data sources confirmed.

(Location) refers to location-based reporting; (Market) refers to market-based reporting. Both definitions are in line with the Greenhouse Gas Protocol. All stated

variances are of our location-based emissions.

The UK emissions, in relation to Scope 1 combustion, Scope 2 electricity/heat/steam/cooling and Scope 3 business travel, measured in kWh total 28,072,887 (2022:

28,899,091). The Group has no overseas usage therefore the global energy use is nil (2022: nil).

46 ScS Group plc Annual Report and Accounts 2023

Task Force on Climate-related Financial Disclosures (TCFD) continued

Greenhouse gas emissions intensity ratio

Total footprint (Scope 1, Scope 2 and expenses claims) – CO

e tonnes

Previous year (2021-22) Current year (2022-23) Year-on-year variance

Turnover (£m) 344,710 343,457 -0.4%

Intensity ratio (tCO

e/£100,000) 29.3 29.1 -0.7%

Emission reporting notes

• Our methodology has been based on the

principals of the Greenhouse Gas Protocol, taking

account of the 2015 amendment which sets out

a ‘dual reporting’ methodology for the reporting

of Scope 2 emissions. In the ‘Total footprint’

summary above, purchased electricity is reported

on a location-based method.

• We have reported on all the measured emissions

sources required under The Companies Act

2006 (Strategic Report and Directors’ Report)

Regulations 2013 and The Companies (Directors’

Report) and Limited Liability Partnerships (Energy

and Carbon Report) Regulations 2018 except

where stated.

• The period of our report is 1 August 2022 to 30 July

2023.

• This report includes emissions under Scope 1 and

2, except where stated, and includes emissions

from Scope 3 sources relating to business travel,

purchased good and services, capital goods,

employee commuting, fuel- and energy-related

activities, water and waste.

• All material emissions have been included within

this disclosure.

• Conversion factors for UK electricity (location-

based methodology), gas and other emissions

are those published by the Department for

Environment, Food and Rural Affairs for 2021-22.

• Conversion factors for UK electricity (market-

based methodology) are published on the fuel mix

disclosures on each supplier’s website.

Statement of exclusions

• Business acquisition (Snug) – We have excluded

emissions from Snug. The exclusion is based

on Snug’s operational strategy, materiality

assessment and revenue screening approach

to determine the significance of its emissions.

Snug is determined to be immaterial due to falling

beneath the revenue percentage threshold for

materiality and inclusion (currently representing

1% of revenue). Snug has not recorded any

previous emissions data and falls outside of

mandatory reporting requirements due to its size.

Depending on materiality Snug will be considered

for inclusion in FY24.

47ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Energy efficiency actions

During this reporting year, we have undertaken

several energy efficiency actions across our asset,

property portfolio and estate in general. These

include:

• Replacement of gas fired air conditioning systems

with all electric air conditioning systems at

multiple sites;

• Continued rollout of LED lighting;

• All our sites use 100% renewable energy;

• All non-recyclable waste is diverted from landfill

and used in energy production;

• Efficiency initiatives and actions to decarbonise

our fleet and make business travel more

sustainable; and

• We intend to deploy air source heat pumps as a

replacement for traditional boilers going forward.

Our ambitions and targets

Although we face some technological dependencies

to realise some of our Net Zero ambitions, most

importantly, advancements in fleet and shipping

decarbonisation, we are committed to achieving our

goals. Our new ESG and Net Zero strategy will drive

our work towards the below targets:

• Achieve Net Zero date of 2050; and

• Align our Net Zero strategy with climate science

and look to have that validated externally by the

relevant initiatives.

Next steps

We will continue to drive forward to deliver

significant carbon reductions and improve our

climate resilience wherever we can. We are on

track for all of the decarbonisation targets (shown

above) and will continue to reduce our impact on

the environment across all three emission scopes in

line with climate science, whilst demonstrating good

environmental stewardship to our stakeholders.

48 ScS Group plc Annual Report and Accounts 2023

Section 172 statement

The Board recognises the importance

of engaging with stakeholders

The Board recognises the importance of engaging

with stakeholders and taking their views into

account when making decisions, although the Board

acknowledges that not every decision it makes will

necessarily result in a positive outcome for all of

the Group’s stakeholders. Details on how the Board

operates and the way in which it reaches decisions

are set out on pages 68 to 123.

Details of our key stakeholders and engagement

with these stakeholders are set out on pages 26 to

37. Examples of how the Directors have oversight

of stakeholder matters and had regard for these

matters when making decisions are included in the

table below and discussed throughout the Strategic

report and in the Governance section on pages 2 to

123.

Section 172 of the Companies Act 2006 requires a

director of a company to act in the way he or she

considers, in good faith, would most likely promote

the success of the company for the benefit of its

members as a whole but having regard to a range

of factors set out in section 172(1)(a)-(f) in the

Companies Act 2006. This report is presented in

compliance with The Companies (Miscellaneous

Reporting) Regulations 2018 and the UK Corporate

Governance Code July 2018.

The table below identifies where, in the Annual

Report, information on the issues, factors and

stakeholders the Board has considered in respect

of Section 172(1).

Section 172 duty Key examples Page

(a) The likely consequences of any decision in the long term

Example: The Board reviewed the progress made in year two of the Group’s three-year strategy and ensured that both decisions taken

and future plans continued to support the long-term success of the Group, with regard to allocating the Group’s capital in the most

beneficial way.

Our business model

Our strategy

Key performance indicators

Financial review

Risk and risk management

Viability statement

Corporate governance statement

Directors’ remuneration report

13 to 15

16 to 22

24 to 25

50 to 56

57 to 64

65 to 66

72 to 82

97 to 119

(b) The interests of the company’s employees

Example: To enable us to deliver our strategy we are determined to build a culture that enables our colleagues to perform at their very

best in a collaborative, innovative and inclusive environment where they can thrive. The Board has ultimate responsibility for ensuring

the Group’s decisions consider our employees’ interests. During the year colleagues have taken part in discussion forums held by

members of the Board to raise concerns or issues directly.

Chair’s letter

Our business model

Chief Executive Officer’s review

Our strategy

Key performance indicators

Responsible business

Risk and risk management

Corporate governance statement

Directors’ remuneration report

6 to 7

13 to 14

8 to 9

16 to 22

24 to 25

26 to 37

57 to 64

72 to 81

97 to 119

Example: Managing our supplier relationships is critical in ensuring the Group’s ability to deliver on its strategy. In FY23, through close

collaboration with our suppliers, we achieved the Kitemark certification for domestic furniture by the British Standards Institute.

We also became a member of the Furniture & Home Improvement Ombudsman, providing additional assurance for our customers

through the Ombudsman’s alternative dispute resolution services.

Chair’s letter

Our business model

Chief Executive Officer’s review

Our strategy

Responsible business

Corporate governance statement

Directors’ remuneration report

6 to 7

13 to 14

8 to 9

16 to 22

26 to 37

72 to 81

97 to 119

49ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Section 172 duty Key examples Page

(d) The impact of the company’s operations on the community and the environment

Example: As a responsible business, the Group is committed to acting in the best interests of our communities and in a sustainable

manner. During the year the Group supported local charities donating a total of £67,000 to support our local communities. Our

colleagues continued their fantastic volunteering effort, with 365 days volunteered throughout the year. We have also enhanced our

relationship with housing and homelessness charity Shelter, donating stock worth £56,000. The group has commenced development of

a Net Zero strategy to complement our existing Environmental, Social and Governance (ESG) strategy.

Chair’s letter

Our business model

Chief Executive Officer’s review

Our strategy

Responsible business

Principal risks and uncertainties

Corporate governance statement

6 to 7

13 to 14

8 to 9

16 to 22

26 to 37

57 to 64

72 to 81

(e) The desirability of the company maintaining a reputation for high standards of business conduct

Example: Our colleagues received mandatory online training throughout the year on a wide array of topics including equality &

diversity, data protection and anti-bribery. We have introduced foundation workshops for all new starters and have various ongoing

training and development programmes to upskill and empower our workforce. All suppliers are required to comply with our Supplier

Code of Conduct which sets out our expectations in relation to health and safety procedures, anti-bribery and corruption policies,

product quality standards and much more.

Our business model

Our strategy

Responsible business

Corporate governance statement

Directors’ remuneration report

13 to 14

16 to 22

26 to 37

72 to 81

97 to 119

(f) The need to act fairly as between members of the company

Example: The Board seeks to ensure that communications are clear and its actions promote the long-term success of the Group.

During the course of the year, the Group has engaged with its stakeholders and as a result, the Board have been able to take their

views and interests into account when making decisions.

Responsible business

Corporate governance statement

26 to 37

72 to 81

Non-financial information statement

The table below sets out where stakeholders can find information in our Strategic report that relates to non-financial matters, as required by the Non-Financial

Reporting requirements as detailed in the Companies Act 2006.

Reporting requirement Our policies Where you can find out more

Environmental matters

Regulatory and compliance

Responsible sourcing and supply chain

Sustainability

Monitoring our carbon footprint

Page 60

Pages 26 to 31 and page 61

Pages 26 to 31

Pages 38 to 47

Employees

Diversity and inclusion

Wellbeing

Engagement

Code of business conduct

Composition, succession and evaluation

Page 87

Pages 32

Page 33

Page 122

Page 82

Social matters

Apprenticeship programmes

Supporting local communities and charities

Pages 32

Page 35 to 36

Human rights

Responsible sourcing and supply chain

Modern slavery policy

Pages 26, 43 and 61

Pages 29 and 60 and visit our website

Anti-bribery and anti-corruption

Political donations

Whistle-blowing

Anti-bribery and corruption statement

Page 123

Page 122

Description of business model

N/A Pages 13 to 14

Non-financial KPIs

N/A Page 24

Risk and risk management

N/A Pages 57 to 64

50 ScS Group plc Annual Report and Accounts 2023

Financial review

We are pleased to be

delivering a resilient

set of numbers that

were ahead of market

expectations.”

Group

52 weeks

ended

29 July 2023

£m

Snug

29 weeks

ended

29 July 2023

£m

Group excl. Snug

52 weeks

ended

29 July 2023

£m

Group

52 weeks

ended

30 July 2022

£m

Gross sales* 343.5 4.2 339.3 344.7

Revenue 325.9 4.1 321.7 331.6

Gross profit 152.4 2.8 149.6 156.3

Distribution costs (21.8) (1.2) (20.7) (21.3)

Administration expenses (121.0) (3.5) (117.4) (117.3)

Total operating expenses (142.8) (4.7) (138.1) (138.6)

Underlying operating profit/(loss)* 9.6 (1.9) 11.5 17.6

Adjusting items (1.2) (0.8) (0.4) 2.6

Operating profit/(loss) 8.3 (2.8) 11.1 20.2

Net finance expense (2.4) - (2.4) (3.8)

Profit/(loss) before tax 6.0 (2.8) 8.8 16.4

Underlying profit/(loss) before tax* 7.2 (1.9) 9.2 13.8

EBITDA* 34.0 (2.8) 36.7 46.8

Underlying EBITDA* 35.2 (1.9) 37.1 44.2

Statutory earnings per share 12.8p 36.2p

Underlying earnings per share* 15.9p 30.7p

Overview

The Group faced a challenging trading environment

throughout FY23. Whilst we were disappointed to not

see progress in our financial results, we are pleased

to be delivering a resilient set of numbers that were

ahead of market expectations. Including Snug, gross

sales were in line with the prior year. However, we

saw increased pressure on gross margin largely

due to the increased costs of providing interest-

free credit. The ScS business saw a 1.6% reduction

in gross sales, which, coupled with the 44.1% gross

margin (FY22: 45.3%), saw gross profit reduce by

£6.6m. This was partially offset by a £0.6m reduction

in operating costs and a £1.5m reduction in net

finance costs due to monies received from cash on

deposit.

Shareholder returns have increased in the year, with

a proposed full year ordinary dividend increase of

7.4%, coupled with the completion of the £7.0m share

buyback programme announced in March 2022.

The Board is mindful of the challenging economic

environment we face and remain committed to

retaining a robust balance sheet in these uncertain

times.

* This report includes alternative performance measures

(APMs) which are defined and reconciled to IFRS

information, where applicable, within the Financial review

on pages 55 to 56.

51ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

On 10 January 2023, we acquired the business and

assets of Snug. Initial post-acquisition trading was

slower than we originally forecast as the business

rebuilt from a standing start and Snug made an

underlying loss before tax of £1.9m in the year.

Trading in Snug improved significantly in the final

quarter of the year.

Given Snug’s relative size, and the fact it has

sufficiently similar characteristics to the rest of

the ScS Group to allow aggregation under IFRS 8, we

have aggregated Snug into the rest of the Group as

one reportable segment. However, to provide clarity

and comparability in the first year, the following

narrative is split: ScS, Snug and Group.

ScS

FY23 FY22 Variance

Gross sales* £339.3m £344.7m (1.6%)

Revenue £321.7m £331.6m (3.0%)

Gross profit £149.6m £156.3m (4.2%)

Gross margin* 44.1% 45.3% (1.2%)

Profit before tax £8.8m £16.4m (£7.6m)

Underlying profit

before tax* £9.2m £13.8m (£4.6m)

Gross sales* and revenue

Gross sales* in the period decreased by £5.4m

(1.6%) to £339.3m when compared to prior year

(FY22: £344.7m). Like-for-like* order intake remained

in line with FY22 despite a challenging economic

environment and encouragingly we saw order

growth in the second half of the year. The

movement on gross sales* is further analysed as

follows:

• A decrease in furniture sales in ScS stores of 1.5%

to £275.6m (FY22: £279.9m);

• A decrease in flooring sales in ScS stores of 7.7%

to £30.1m (FY22: £32.6m); and

• An increase in online sales of 4.1% to £33.6m (FY22:

£32.2m).

Revenue, which represents gross sales* less

charges relating to interest-free credit sales,

decreased by 3.0% from FY22 to £321.7m. Revenue

for the period has been adversely impacted by an

increase in the cost of finance due to increased

customer adoption and a number of rate increases

across the year.

Gross profit

Gross margin* was 44.1% (FY22: 45.3%). The decrease

of 120 basis points was largely due to an increase

in the cost of providing credit to customers, with a

higher proportion of customers utilising credit when

compared to the prior year, further compounded

by an increase in the underlying interest rates in

the UK. As a proportion of gross sales* the cost of

interest-free credit has increased by 1.4% to 5.2%.

The business also experienced a lower margin on

display stock sales as part of the rollout of our

‘decluttering’ programme. The cost of credit and

stock impacts were partially offset by product price

rises in the year.

Distribution costs

Distribution costs comprise the total cost of

our in-house distribution function and includes

employment costs, vehicle running costs, property

and utility costs for the nine distribution centres,

as well as costs of third-party delivery services

contracted to support peak delivery periods.

Distribution costs decreased by £0.6m in the period

to £20.7m (FY22: £21.3m). As a percentage of gross

sales* for the period, distribution costs were 6.1%

(FY22: 6.2%). The reduction was driven by improved

inbound planning and performance, coupled with

fewer deliveries which resulted in the lower use of

outside carriers and agency staff.

Administrative expenses

Administrative expenses comprise:

• Store operating costs, principally employment

costs and property-related costs (depreciation,

rates, utilities and store repairs);

• Marketing expenditure; and

• General administrative expenditure, which

includes the employment costs for the Directors,

senior management and all customer support

functions and other central costs.

Administration costs for the year totalled £117.4m, in

line with the prior year. Administration costs were

34.6% of gross sales*, up from 34.0% in the prior year.

Key movements in the year included:

• £0.4m decrease in marketing investment, however

spend remained consistent at 6.8% of gross

sales*;

• £0.4m reduction in performance-related pay due

to a decrease in bonuses accrued for senior

management as a result of the performance

levels achieved;

• £2.4m increase in other payroll costs, largely due

to the impact of wage inflation;

• £1.5m reduction in property costs, largely due to a

decrease in depreciation charges on the right of

use assets as a result of rent reductions, with a

further benefit from rate reductions; and

• £0.1m reduction in other costs.

52 ScS Group plc Annual Report and Accounts 2023

ScS continued

Flexible costs

The nature of ScS’s business model, where almost

all sales are made to order, results in the majority

of costs being proportional to sales. This provides

the Group with the ability to flex its cost base as

revenue changes, protecting the business should

there be wider economic pressures. As shown

below, the proportion of cost variability remained

consistent year-on-year.

Total underlying costs before tax for the period

were £330.1m (FY22: of £330.9m).

Of this total, 74.4% (FY22: 74.3%), or £245.7m (FY22:

£245.9m), are variable or discretionary, and are made

up of:

• £189.6m cost of goods sold, including finance and

warranty costs (FY22: £188.4m);

• £20.7m distribution costs (FY22: £21.3m);

• £22.9m marketing costs (FY22: £23.3m); and

• £12.5m performance-related payroll costs (FY22:

£12.9m).

Semi-variable costs totalled £45.0m, or 13.6% of

total costs, for the year (FY22: £42.7m; 12.9%) and are

predominantly other non-performance-related

payroll costs. Depreciation, interest, rates, heating

and lighting make up the remaining £39.4m (11.9%) of

total costs (FY22: £42.3m; 12.8%).

Snug

Following the acquisition of Snug in January 2023, we

have re-established operations from an effective

standing start. This included rebuilding supplier

relationships, restoring stock levels, improving brand

awareness, and ultimately building order momentum.

These challenges meant order growth was initially

slower than we had hoped but we are pleased that

current run rates are now in line with our expectations.

Snug made a loss before tax in FY23 of £2.8m; removing

pre-trading costs gives an underlying loss before

tax of £1.9m in H2. Gross sales* in H2 were £4.2m and a

gross profit of £2.8m was achieved, delivering a gross

margin* of 65.8%. This gross margin was supported by

sales of stock purchased at a reduced cost as part

of the administration. Whilst we expect gross margin

to reduce in FY24, we still expect it to exceed the

ScS margin due to the sourcing profile of the Snug

business.

Distribution costs totalled £1.2m. Administration costs

were £3.5m, with the main elements being:

• Marketing costs were £1.6m, this equated to 39%

of gross sales* as we invested in re-establishing

the brand online;

• Payroll costs totalled £1.3m; and

• Other costs (including property, legal,

technology, depreciation and general running

expenses) totalled £0.6m.

• Recent trading indicates that the investment and

efforts deployed over the final six months of FY23

are proving successful.

Group

Underlying operating profit*

Operating profit before adjusting items was £9.6m

for the year, compared to £17.6m last year, driven

by the £1.9m loss incurred in Snug and the £6.6m

decrease in ScS gross profit, partially offset by a

reduction in ScS distribution costs of £0.6m.

Adjusting items

In the current year the Group has adopted an

adjusting items APM to exclude certain costs

and incomes that are material in size or unusual/

non-recurring in nature, from statutory measures

to reflect management’s view of the underlying

performance of the Group and to aid the reader of

the accounts.

Financial review continued

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

Impairment charge

associated with stores (2,438) -

Snug acquisition and pre-

trading costs (849) -

Business interruption

insurance claim 1,250 -

Exit of Cambridge store 790 -

Business rates relief - 2,570

(1,247) 2,570

Adjusting items (non-GAAP) comprise:

• £2.4m charge in relation to the impairment of the

Group’s property plant and equipment and right

of use assets as a consequence of the current

view on longer-term store performance in a

potentially weakened economic environment;

• Snug pre-trading costs of £0.8m, including

acquisition costs such as legal and professional

fees;

• Receipt of a £1.3m business interruption

insurance payment relating to loss of profit as

a result of the initial lockdown period during the

COVID-19 pandemic;

• An early termination payment from the landlord

to exit the Cambridge store earlier than the lease

end date, coupled with the associated gain on

disposal from the lease £0.8m; and

• During the prior year, the Group benefitted from

£2.6m of retail business rates relief provided in

response to the COVID-19 outbreak. No further

benefit was received in the year ended 29 July

2023.

* This report includes alternative performance measures

(APMs) which are defined and reconciled to IFRS information, where

applicable, within the Financial Review on pages 55 to 56.

53ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

For further information, see note 6 to the financial

statements.

Net finance cost

The net finance cost has decreased by £1.5m to

£2.4m compared to FY22 as a result of increased

interest income earned on the Group’s significant

cash balances.

Taxation

The tax charge for the financial year is higher (2022:

lower) than if the standard rate of corporation

tax had been applied, mainly due to the impact of

non-qualifying depreciation on assets, and non-

deductible expenses.

Earnings per share (EPS)

EPS for the year ended 29 July 2023 was 12.8p (2022:

36.2p) and underlying EPS* which excludes adjusting

items, was 15.9p (2022: 30.7p).

A full reconciliation of EPS is shown in note 10 to the

financial statements.

Cash and cash equivalents

The Group operates a negative working capital

business model whereby:

• For cash/card sales, customers pay deposits

at the point of order and settle outstanding

balances before delivery;

• For consumer credit sales, the loan provider pays

ScS within two working days of delivery; and

• The majority of product suppliers are paid at the

end of the month following the month of delivery

into the distribution centres.

Cash decreased by £1.3m in the year to £69.5m (2022:

£70.8m). A summary of cash flows is shown below:

52 weeks

ended

29 July

2023

£m

52 weeks

ended

30 July

2022

£m

Cash generated from operating

activities 41.8 28.5

Payment of capital and interest

elements of leases (23.3) (28.6)

Net capital expenditure (9.3) (4.7)

Net taxation and interest

payments - (3.9)

Free cash flow 9.2 (8.7)

Acquisition of business

combination (0.9) -

Dividends (4.7) (4.4)

Purchase of own shares (4.9) (3.6)

Net cash outflow (1.3) (16.8)

The Group continued to be cash generative in

the period with a net cash inflow from operating

activities of £41.8m.

Cash generated from operating activities is £13.3m

higher than FY22 due to the following:

• FY22 saw a large working capital outflow due

to a reduction in customer deposits as lead

times shortened, coupled with the timing of VAT

payments;

• The current year has seen a working capital inflow

as a result of the timing of month end supplier

payments. This was partially offset by a reduction

in customer deposits as lead times normalised to

pre pandemic levels;

• FY23 also saw an increase in stock levels following

the investment in our Snug business; and

• The working capital movements noted above

were partially offset by profit being higher in FY22.

The payment of capital and interest elements

of leases decreased by £5.4m due to the prior

year including the repayment of rent deferrals

previously negotiated with landlords when stores

were temporarily closed due to the Government’s

imposed lockdown response to COVID-19.

Net taxation and interest payments reduced by

£3.8m, due to a reduction in tax payable of £1.7m (in

line with the reduction in profit) and an increase in

interest received on cash deposits of £1.9m. Interest

payable reduced £0.2m following the renegotiation

of the Group’s revolving credit facility.

Net capital expenditure increased in the year as

the Group invested in modernising the ScS store

network and technology stack.

Cash outflow in relation to the purchase of own

shares has increased £1.3m in the year driven by a

£2.6m increase in share buybacks, partially offset

by a £1.3m reduction in shares bought by the Group’s

Employee Benefit Trust.

Capital allocation

The Group’s objectives when managing capital are

to safeguard the Group’s ability to continue as a

going concern whilst retaining financial flexibility to

both invest in the business where economic returns

are attractive and provide returns to shareholders.

We aim to allocate capital, subject to strict returns

criteria, to meet the strategic needs of the

business. Our target is gross capital expenditure of

under 4.0% of total sales per annum, on average.

During the year we invested in implementing our

new store format in eight locations as part of the

‘Engaging showrooms’ pillar of our strategy.

* This report includes alternative performance measures

(APMs) which are defined and reconciled to IFRS information, where

applicable, within the Financial Review on pages 55 to 56.

54 ScS Group plc Annual Report and Accounts 2023

Group continued

Return to shareholders

The Board recognises the importance of a dividend

to investors and is keen to reinstate a progressive

policy, with the intention to:

• Keep earnings cover in the range of 1.25x to 2.00x;

• Ensure cash cover remains in the range of 1.75x to

2.25x through the economic cycle; and

• Pay an interim dividend that will be approximately

one-third of the total dividend.

The Board considers this policy appropriate given

the strength of the balance sheet, whilst ensuring

the Group has sufficient resources to pursue

potential future opportunities to deliver growth.

The Board is confident the Group can continue

to take market share and build on the strategic

progress experienced in the past two years. The

Group paid an interim dividend of 4.5p in May 2023

(2022: 4.5p). The Board is confident in the outlook

for the Group and proposes a final dividend of 10.0p

(2022: 9.0p). If approved, this would give a full-year

dividend of 14.5p (2022: 13.5p). The final dividend,

if approved, will be paid on 15 December 2023 to

shareholders on the register on 17 November 2023.

The ex-dividend date is 16 November 2023.

In March 2022 the Group announced a share buyback

programme which was completed in February 2023

returning £7.0m to our shareholders.

Offer for the Company

Following the year end, on 24 October 2023 a wholly-

owned subsidiary of Poltronesofà S.p.A. announced

a recommended cash offer for the Company of 270p

per share. It is intended that the acquisition will be

implemented by way of a Court-sanctioned scheme

of arrangement under Part 26 of the Companies Act

and is expected to complete in the first quarter of

2024. The Group’s existing committed debt facilities

contain a standard change of control clause that

will be triggered once the acquisition completes.

This could result in the existing committed debt

facilities being withdrawn. The Group does not

have visibility of the post completion funding for

the Group at this time. Therefore, this could create

some uncertainty as to the Group’s going concern.

The Directors note the detailed intention

statements by Poltronesofà S.p.A. included within

the announcement on 24 October 2023, which

state that following completion of the acquisition,

Poltronesofà S.p.A. intends to support the Group

by leveraging its significant, pan-European industry

expertise and providing the capital necessary

to accelerate the Group’s strategy. Poltronesofà

S.p.A. is highly supportive of management’s vision

for the business and the long-term ambitions

of being the UK’s best value-for-money home

retailer and recognises and values the strong

strategic, operational and product positioning and

setup of the Group, as well as the expertise of its

management team and employees. Poltronesofà

S.p.A. therefore intends to work closely with

the Group’s senior management to undertake a

strategic review of the Group in order to determine

how its short and long-term objectives can best be

delivered or exceeded.

Notwithstanding Poltronesofà S.p.A.’s stated

intentions, the current Directors will not have full

control over the acquired Group and therefore they

do not currently have full knowledge of the new

ultimate parent undertaking’s future intentions and

funding plans in relation to the Group. Therefore

the change of control position indicates a material

uncertainty which may cast significant doubt upon

the Group and the Company’s ability to continue as

a going concern. The financial statements do not

include the adjustments that would result if the

Group and the Company were unable to continue as

a going concern.

Having considered all of the above, the Board is of

the opinion that the going concern basis adopted in

the preparation of the consolidated statements is

appropriate.

Chris Muir

Executive Director

24 October 2023

Financial review continued

55ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

In the reporting of financial information, the Board has adopted alternative performance measures (APMs). APMs should be considered in addition to IFRS

measurements. The Board believe that these APMs assist in providing useful information on the underlying performance and position of the Group and enhance the

comparability of information between reporting periods by adjusting for non-underlying items which affect IFRS measures and are used internally by the Board to

measure the Group’s performance.

Consequently, APMs are used by the Board and management for performance analysis, planning, reporting and incentive setting purposes and have remained

consistent with prior period. The measures are also used in discussions with the investment community. The key APMs used by the Group are summarised in the table

below.

APM Definition Reconciliation

Like-for-like order intake ‘Like-for-like’ order intake comprises total orders

(inclusive of VAT) in a financial period compared to

total orders achieved in a prior period excluding

new or closed stores to ensure comparability.

N/A

Gross sales Gross sales represents turnover on the sale of

goods and commission on warranties before

deduction of interest-free credit.

FY23

£’000

FY22

£’000

Revenue 325,865 331,569

Add back: costs of interest-free credit 17,592 13,141

Gross sales (note 3) 343,457 344,710

Gross margin Gross profit as a percentage of gross sales.

FY23

£’000

FY22

£’000

Revenue 325,865 331,569

Add back: costs of interest-free credit 17,592 13,141

Gross sales (note 3) 343,457 344,710

Gross profit 152,398 156,264

Gross margin 44.4% 45.3%

Adjusting items Certain costs or incomes that are material in size

and unusual/non-recurring in nature are excluded

from statutory measures to reflect management’s

view of the underlying performance of the Group.

FY23

£’000

FY22

£’000

Adjusting items (note 5) (1,247) 2,570

Alternative performance measures (APMs)

56 ScS Group plc Annual Report and Accounts 2023

APM Definition Reconciliation

EBITDA and underlying

EBITDA

Earnings before interest, tax, depreciation and

amortisation (EBITDA). Underlying EBITDA is before

the effect of adjusting items in the year.

FY23

£’000

FY22

£’000

Statutory operating profit 8,346 20,199

Depreciation of tangible fixed assets 4,179 4,162

Depreciation of right-of-use assets 20,269 21,523

Amortisation of intangible assets 1,185 882

EBITDA 33,979 46,766

Adjusting items 1,247 (2,570)

Underlying EBITDA 35,226 44,196

Underlying operating

profit

Underlying operating profit is based on operating

profit before the effect of adjusting items in the

year.

FY23

£’000

FY22

£’000

Statutory operating profit 8,346 20,199

Adjusting items 1,247 (2,570)

Underlying operating profit 9,593 17,629

Underlying profit before

tax

Underlying profit before tax is based on profit

before tax before the effect of adjusting items in

the year.

FY23

£’000

FY22

£’000

Statutory profit before tax 5,985 16,358

Adjusting items 1,247 (2,570)

Underlying profit before tax 7,232 13,788

Underlying basic

earnings per share (EPS)

Underlying basic EPS is based on earnings per share

before the effect of adjusting items in the year.

FY23

£’000

FY22

£’000

Profit for the year 4,450 13,584

Adjusting items net of tax 1,055 (2,082)

Underlying profit after tax 5,505 11,502

Number of shares (000’s) 34,691 37,499

Underlying EPS 15.9p 30.7p

Alternative performance measures (APMs) continued

57ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Risk and risk management

Our approach to risk management

Our approach to risk management is regularly benchmarked against best practice and strengthened

where necessary.

Risk identification and evaluation

The Board, Executive Board and senior management

team are actively engaged in a continuous process

to manage risks and internal controls.

This process encompasses the following key

activities:

• Identifying, evaluating, measuring and disclosing

risks;

• Maintaining detailed functional risk registers and

ensuring mitigation measures are in place;

• Testing and refining of mitigating controls on a

regular basis;

• Actively identifying, controlling and reporting of

emerging risks;

• Tracking key performance metrics;

• Regular review of the principal risks and related

mitigation measures by the Executive Board,

which includes the Chief Executive Officer and

Chief Financial Officer;

• Formal assessment three times a year of the key

risks and uncertainties by the Audit Committee

and the Board;

• Regular presentations to the Board, Executive

Board and Audit Committee on key risk areas by

the Head of Audit, Risk & Compliance; and

• Reviewing the Group’s viability statement on an

annual basis.

Risk appetite

Risk appetite is the level of risk that the Group is

willing to take to meet our strategic and operational

objectives. In determining this, we recognise that

there is a balance between a prudent approach

to risk and sufficient flexibility to take appropriate

opportunities when they arise.

Risk appetite is set by the Board in consultation with

the senior management team and is aligned to the

Group’s strategic goals and priorities. During the

year, we agreed that from next year, we will increase

the frequency of review of our risk appetite to

twice per annum. These reviews will be completed

in line with our half-year and year-end reporting

timescales.

Our appetite for taking risks is determined by the

category of risk. The Board typically has a lower

appetite for risk in areas such as regulation and

finance, but is more willing to accept a higher appetite

for risks in relation to corporate transactions.

Key roles and responsibilities

The Board establishes strategic goals, determines

risk appetite and oversees performance. It also

has ultimate responsibility for the leadership of risk

management.

Approving and communicating risk policies is the

responsibility of the Executive Board. Additionally,

the Executive Board is responsible for managing

risks, promoting open dialogue about risks (both

existing and emerging) and taking ownership of

each major risk across the entire Group.

Internal controls and risk management are

governed by the Audit Committee. The Committee

evaluates the internal controls system for the

Group, establishes goals and monitors the

effectiveness and efficiency of the audit, risk and

compliance teams. The Committee also reviews and

monitors the professionalism and independence of

the external auditors.

Managing risks internally

Risks are identified, assessed and managed at

a departmental level. Risks, mitigating controls

and emerging risks, identified by the senior

management team with input from the relevant

director, are documented on functional risk

registers. The audit, risk and compliance teams

complete quarterly reviews of these registers to

reflect any relevant changes and ensure the level of

risk remains consistent with our risk appetite.

The functional risk registers are consolidated into

the corporate risk register which is subject to

formal quarterly review by the Executive Board and

at every Audit Committee meeting.

58 ScS Group plc Annual Report and Accounts 2023

Process for preparing consolidated

financial statements

The Group has established internal controls

and risk management systems in relation to the

process for preparing consolidated financial

statements.

The key features of this are:

• Management regularly monitors and

considers developments in reporting

regulation and, where appropriate, reflects

developments in the consolidated financial

statements. The external auditors and

the Audit Committee also keep the Board

appraised of these developments;

• The Audit Committee and the Board review

the consolidated financial statements. This

review takes into account reports from

management and the external auditors

on significant judgements, changes in

accounting policies, changes in accounting

estimates and other relevant matters to the

consolidated financial statements; and

• The full-year financial statements are subject

to external audit and the half-year financial

statements are reviewed by the external

auditors.

The Board’s assessment of the long-term

viability of the Group is also reviewed annually,

taking account of the principal risks faced. The

approach for assessing long-term viability is set

out on page 65.

Risk management framework

The graphic below illustrates how our risk

management framework enables us to maintain

governance over risk management activities across

the Group.

Principal risks and uncertainties

A principal risk is a risk or combination of risks that

could seriously affect our future performance,

strategic ambitions and/or reputation. Our principal

risks and uncertainties have been assessed in

accordance with our framework.

Key risks and

emerging

risks

identified

Risk evaluated

and rating

assigned

Identify the

required

actions

against each

risk

Implement

agreed

processes

and

mitigation

Review,

monitor and

report to

the Audit

Committee

Top-down

Corporate level oversight of risk

Board, Executive Board and the

Audit Committee

Bottom-up

Functional and operational level risk

Audit, risk and compliance team, Executive Board

and senior management team

Identifying risks

The identification and review of emerging risks are

embedded into our risk management process, and

our principal risks are updated accordingly.

The Board confirms that it has performed a robust

assessment of the emerging and principal risks and

mitigating controls.

Management of ESG risks

We continue to work towards building a sustainable

business model, both in terms of our impact on

climate, the environment and protecting the

long-term success of the Group. ESG is considered

throughout the Group’s risk management process.

This year, we have added climate change as a new

principal risk.

Further information on our approach to tackling

these issues is set out in our Responsibility and

sustainability report on pages 26 to 37.

Economic environment

The ‘Economic environment’ principal risk is directly

impacted by ongoing low consumer confidence in

the UK.

The significant increases in energy prices, general

price inflation and interest rates have all continued

to place pressure on household budgets, which

is negatively affecting consumer confidence. The

cost of living crisis has become part of people’s

daily financial reality and is continuing to have an

impact on their decisions in relation to spending

on non-essential items, and in particular big ticket

items.

Risk and risk management continued

59ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Risk description Mitigation Risk profile

Risk

appetite

Management

responsibility and

performance indicator

Link to strategic

priorities

ECONOMIC ENVIRONMENT - Strategic risk

Demand for our products is heavily influenced by

factors affecting the economic environment in

which the Group operates.

Increases in interest rates and associated

higher costs of borrowing may further reduce

levels of discretionary spend. The Group’s ability

to offer interest-free credit to customers may

be impaired because of high default levels or

increased interest rates.

Exchange rates fluctuations and cost of

borrowing could also lead to cost pressure on

our suppliers, which in turn could be passed on

to the Group.

Over the year we have continually improved our product range of furniture,

flooring, dining and occasional furniture. Our range caters for a wide range

of budgets, ensuring that we can continue to offer an excellent product at

all price points. We have invested significantly in our showrooms and our

new look stores have performed well.

The Group provides a range of flexible finance solutions to customers to

make the purchasing of our products easier.

We purchase our products on a sterling basis which reduces our exposure

to exchange rate movement. We work closely with our suppliers to

minimise any impact on our cost base.

↑

Medium Executive Board

reporting to PLC

Board

• Gross sales

COMPETITION – Strategic risk

The Group operates in a fragmented competitive

market (including independents, direct purchase

from manufacturers and pure online companies),

which could lead to reduced market share.

Failure to respond quickly and effectively to

changing consumer needs could lead to reduced

sales and impact profitability.

We have expanded our offering to customers through the introduction of

new brands, products with shorter lead times, new designs and ranges

which has ensured that we have remained a competitive and attractive

proposition for our customers. Our inclusion of a new hard flooring

proposition across laminate, luxury vinyl tiling and engineered wood has

increased the products offered to our flooring customers.

We continue to invest in detailed product line level margin analysis,

allowing us to monitor the success of our product ranges and make

informed decisions and changes to our offering.

We are leaders in our market for gathering feedback from our customers

throughout the customer journey and across a number of platforms.

We continue to invest in enhancing the customer experience and the

success of this strategy is reflected in our ‘Excellent’ Trustpilot score.

We acquired the business and assets of Snug, an innovative digital-first

sofa and sofa-bed business specialising in modular and reconfigurable

sofas. Its differentiated digital-first offering has complemented the

Group’s existing proposition.

↔

Medium Executive Board

reporting to PLC

Board

• Gross sales

Key

Outstanding team

Customer driven

Inspiring ranges

Digitally optimised

Engaging showroom

Strengthen the core

↔

Risk unchanged

↑

Increased risk

↓

Reduced risk

High risk

Medium risk

Low risk

60 ScS Group plc Annual Report and Accounts 2023

Risk and risk management continued

Risk description Mitigation Risk profile

Risk

appetite

Management

responsibility and

performance indicator

Link to strategic

priorities

REGULATION & COMPLIANCE – Strategic risk

The Group activities are subject to a number

of compliance requirements, including

the Financial Conduct Authority (FCA), the

Information Commissioner’s Office (ICO) and the

Financial Reporting Council (FRC), environmental

regulations, employment law, advertising

standards and competition law. We are also

subject to health and safety legislation, and

other product-related regulation.

Failure to meet any of our regulatory obligations

or guidelines could result in a financial impact,

such as fines and reputational damage.

Internal policies are in place with guidelines and procedures covering

our code of conduct, information security, anti-bribery and corruption,

anti-money laundering and whistle-blowing. All our policies are subject

to annual review and are updated and re-issued as required. Adherence

to these policies forms part of our independent compliance monitoring

programme.

Our dedicated health and safety team carry out regular inspections at all

our retail and distribution sites, to confirm that the required compliance

and health and safety standards are being met. A monthly report of the

results of all audits and inspections is provided to the Executive Board.

Health and safety reports are shared with the Board at each meeting.

Training programmes are in place to ensure that all staff are provided with

relevant training for regulated activities, in line with their role.

The Group actively monitors any other areas for future guidance or

regulations that may affect the Group’s activities and will implement any

changes, if required. In particular, we continue to monitor the Department

for Business and Trade (previously Department for Business, Energy

and Industrial strategy) publications on audit, reporting and corporate

governance reform, and the guidelines issued by the FCA on ‘Consumer

Duty’.

Our independent confidential whistle-blower hotline is in place and

reports are sent directly to the Head of Audit, Risk & Compliance, who in

turn reports any concerns to the Executive Board and the Board.

All our suppliers of products for resale are required to be members of

Sedex. This process gives us assurance that the risk of modern slavery

is reduced and compliance with relevant legislation and best practice is

monitored.

↔

Low Corporate

Services Director

reporting to CEO

• Prosecution or

regulatory

action

Key

↔

Risk unchanged

↑

Increased risk

↓

Reduced risk

High risk

Medium risk

Low risk

61ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Risk description Mitigation Risk profile

Risk

appetite

Management

responsibility and

performance indicator

Link to strategic

priorities

RESPONSIBLE SOURCING AND SUPPLY CHAIN – Strategic risk

The supply chain could be affected by capacity,

availability or by an increase in the cost of raw

materials, labour shortages and transport

delays, which may result in a reduction in margin

or lead to a less competitive price point.

Failure to reduce the environmental impact of

our business, including those linked to our supply

chain, could result in reputational damage,

impacting the future performance of the Group.

Failure of suppliers to obtain credit insurance

could have a significant impact on our suppliers’

working capital requirements, which may have a

material impact on the Group’s cash position and

overall financial position.

Over the past year we have expanded our supply base to reduce reliance on

key suppliers or any particular location.

To ensure new suppliers comply with our standards, we carry out due

diligence checks covering quality management systems, ethical labour

sourcing, health and safety processes, environmental stewardship and

sustainability. Details of our expectations as a supplier to ScS are set out

within our supplier handbook.

The Group has a programme to carry out regular independent product

testing, to ensure ongoing compliance to current regulations. We are

working with our suppliers to attain Forest Stewardship Council

(FSC

)

accreditation, which has already been achieved on a number of ranges.

During the year, we achieved Kitemark certification for domestic furniture

by the British Standards Institute (BSI). We are one of only three furniture

retailers in the UK to hold this stamp of approval.

We are a member of the Furniture Industry Research Association (FIRA)

compliance scheme and achieve continued accreditation. We are also

working with our suppliers and the Leather Working Group, which we

joined in 2021.

↔

Low to

medium

Commercial

Director

reporting to CEO

• Gross sales

• Customer

feedback

• Delivery

optimisation

BUSINESS SYSTEMS AND INFRASTRUCTURE – Infrastructure risk

Our business operations are heavily dependent

on our systems being available, meaning a

significant data breach or cyber-attack could

adversely impact our reputation, result in legal

exposure including significant fines, business

disruption, loss of information for our customers

or employees and potential loss of customer

confidence.

The Group is reliant upon key IT systems and

failure of our IT infrastructure or disruption to

such systems could result in the Group’s inability

to operate effectively, resulting in disruption to

our sales process and limit our ability to deliver

goods to our customers.

Our in-house IT team ensure that all relevant software and hardware

updates are installed when required, along with an established third-party

regular penetration testing programme to monitor the Group’s resilience

against cyber-attacks.

We also have a monitoring programme in place to check access to

networks and systems is appropriately controlled and access to sensitive

data is limited.

Information security and data protection policies are in place and training

for information security (GDPR) is mandatory for all staff.

During the past year, we commenced a significant project to invest in

updated technology that will support the Group and our future growth

plans. This project will continue over the next two years and will improve

systems resilience, whilst delivering efficiencies and increased insight

across the business.

↔

Low to

medium

Chief Marketing

& Digital Officer

reporting to CEO

• System

performance

Outstanding team

Customer driven

Inspiring ranges

Digitally optimised

Engaging showroom

Strengthen the core

62 ScS Group plc Annual Report and Accounts 2023

Risk and risk management continued

Risk description Mitigation Risk profile

Risk

appetite

Management

responsibility and

performance indicator

Link to strategic

priorities

OUR PEOPLE AND CULTURE – Infrastructure risk

The ongoing success of our business is

dependent upon our ability to attract, retain and

develop the right talent, skills and capabilities

and to embed our values in our culture. Failure to

meet any of these objectives could impact the

delivery of our strategy.

The Group strives to ensure colleague remuneration is competitive,

conducting regular function-specific benchmarking and business-wide

annual salary reviews. We continually review our terms and conditions

of employment, incentives and benefit packages, to ensure they remain

competitive across the sector.

Regular employee surveys are carried out to understand whether our

colleagues are engaged and have a clear understanding of the Group’s

culture and strategy.

We continue to maintain our accreditation as an ‘Investor in People’

employer helping support a wider strategy for ‘Building and inspiring an

outstanding team’. We also achieved the Bronze ‘Better Health at Work

Award’.

As part of the Group’s ESG strategy and in support of our colleagues

participating in charitable activities, we launched our volunteering

policy. Our colleagues are actively encouraged to volunteer with local

organisations and charities. We aim to support a minimum of 1,000

volunteering days before the end of FY25.

‘Within our ESG strategy we continue to progress with our target of

increasing the number of female colleagues in management and Board

roles.’

We have a number of staff trained in mental health first aid and all

colleagues have access to free counselling services.

We are delighted to see our eSAT score increase from 71 to 75 when

compared to FY22. This was coupled with a 12.8% improvement in staff

turnover.

↔

Low to

medium

People Director

reporting to CEO

• Colleague

retention

• Team

engagement

surveys

Key

↔

Risk unchanged

↑

Increased risk

↓

Reduced risk

High risk

Medium risk

Low risk

63ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Risk description Mitigation Risk profile

Risk

appetite

Management

responsibility and

performance indicator

Link to strategic

priorities

BRAND & REPUTATION – Reputation risk

Failure to protect our brand could result in a loss

of confidence by customers, colleagues and

other key stakeholders.

Our reputation could be damaged if we do

not provide an excellent customer service

throughout the customer journey, from the first

contact in our stores or online, to customer

deliveries and aftercare.

All of our colleagues are trained to ensure they give the highest possible

care to our customers and to each other.

We have a number of strategies in place to deliver great customer service

including a newly improved induction process, refresher online training

and external training.

We continue to review colleague engagement and feedback through

completion of staff surveys.

As part of our continued efforts to improve our customer experience, we

implemented a new end-to-end technology solution, in our dedicated

customer contact centre, that delivers significant improvements in

workflow management.

We are leaders in our market for gathering feedback from our customers

throughout the customer journey and across a number of platforms

and our continually updated website now allows us to have oversight of

our customers’ opinions on our products, so we can ensure that we are

meeting their expectations and identify areas for improvement.

We are full members of the Furniture Ombudsmen, which has improved our

customer outcomes and the efficiency of dispute handling.

Product performance is monitored by our commercial and customer

service teams and regular meetings are held with suppliers to identify

areas of improvement, including working to ensure our suppliers source

sustainable products.

We share all our policies, procedures and code of conduct on our

intranet, which set out the expectations and behaviours required from

all our colleagues. The Group’s audit, risk and compliance teams monitor

standards throughout the business.

↔

Low to

medium

Corporate

Services Director

reporting to CEO

• Trustpilot

• Negative press

Outstanding team

Customer driven

Inspiring ranges

Digitally optimised

Engaging showroom

Strengthen the core

64 ScS Group plc Annual Report and Accounts 2023

Risk and risk management continued

Risk description Mitigation Risk profile

Risk

appetite

Management

responsibility and

performance indicator

Link to strategic

priorities

KEY TRADING PERIODS – Strategic risk

Furniture retailing has historically relied on key trading periods.

Extreme weather conditions or showroom closures, due to

unexpected events, may reduce footfall in our showrooms over

these key periods, resulting in reduced sales and potentially

adverse effects on profitability.

Our econometric model, which uses our customer data to

establish the most appropriate investment in our marketing

channels, and our flexible approach to marketing, has

enabled us to react quickly to unexpected disruptive events.

We continually review our marketing strategies, ensuring our

investment into relevant advertising channels maximises

our opportunity to reach our customers.

We continue to monitor the impact of the cost of living

crisis on our key trading periods and have taken appropriate

action in response.

We have invested in our digital platform to improve the

online shopping experience for the customer, allowing us

to continue to trade successfully throughout any impact of

adverse periods of weather or showroom closures.

↔

Medium Executive Board

reporting to PLC

Board

• Sales

performance

CLIMATE CHANGE – Reputational risk

Our key stakeholders, including customers, employees, investors

and regulators, as well as the media, continue to focus on the

Group’s policies and management regarding environmental, social

and governance (ESG) risks.

Failure to meet customer demand for sustainable products could

result in reduced sales revenue. Ensuring the sustainability of

the products that we sell could come with increased costs for

both the development and the production of these items. Either

scenario could impact negatively on business results.

Not adapting to public interest in social and environmental

concerns may impact customer demand and potentially

demotivate colleagues.

As a UK premium listed company, the Group is required to make

TCFD disclosures in its annual report.

Please see our detailed TCFD report on pages 38 to 47 and our

Responsibility and sustainability report on pages 26 to 37.

The following are some key points from our ESG strategy:

• We have a programme in place to reduce waste at

source and at all points throughout the product

journey;

• We are reviewing how electric delivery vehicles could

be used in our distribution network;

• Committed to renewable electricity;

• Developing a Net Zero strategy with an external

consultant;

• Continuing to introduce further sustainable products

into our range; and

• Encouraging staff to reduce wastage in our

operational and support centres.

NEW

↑

Low Executive Board

reporting to PLC

Board

Key

Outstanding team

Customer driven

Inspiring ranges

Digitally optimised

Engaging showroom

Strengthen the core

↔

Risk unchanged

↑

Increased risk

↓

Reduced risk

High risk

Medium risk

Low risk

65ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Viability statement

The UKCorporate Governance Code requires the Group to issue a ‘viability statement’ articulating whether we

believe the Group can continue to operate and meet its liabilities, after accounting for its principal risks in the

medium to longer term.

Due to the inherent pace of change in the wider

economy, which is often amplified in the retail

sector, the Group continues to ensure focus on

delivery of short to medium-term goals.

The strategy, and associated principal risks,

underpin the Group’s three-year strategic planning

process (‘the Strategic Plan’), which is updated

annually. This process accounts for current and

prospective macroeconomic conditions in the

UK and the competitive tension that exists within

the markets we trade. The defined period of

three years, set out within the Strategic Plan, is

considered appropriate for business planning,

and measuring performance, as it aligns with the

payback requirements of any significant capital

investment (new stores).

As part of measuring the Group’s financial

performance against the Strategic Plan, sensitivity

analysis over the main assumptions which underpin

the plan is conducted. The plans are approved

by the Directors and performance is continually

tracked throughout the year against financial

budgets and key performance indicators (KPIs). In

order to remain agile and responsive to the pace

of change in the environment which the Group

operates in, management pertinently updates its

financial forecast and reassesses it at each Board

meeting.

In evaluating the Group’s future prospects the

following was considered:

Economic environment

Uncertainty remains over macroeconomic risks

brought on by headwinds such as inflation, interest

rates and cost pressures which include a reduction

in consumer confidence and changing customer

spending behaviours.

Our strategic progress

The Group is reliant on its detailed strategy in order

to achieve its forecasts. We have continued to make

progressive strides in the year against our strategy,

and remain confident that the execution of the next

phase will continue to provide opportunities to grow

market share.

Supplier resilience and capacity

If a supplier was unable to keep pace with demand,

or cease to be able to trade, this would disrupt

supply to our customers. We continue to maintain,

and continually strive to better our relationships,

allowing us to closely monitor both their financial

stability and production capacities.

Group financial position

The Group continues to maintain a strong financial

position and at the year end had cash of £69.5m,

no financial debt and access to a revolving credit

facility of £12.0m which remains undrawn.

The Board is satisfied with the resilience of our

business model and is confident we are able to

continue to leverage this to achieve sustainable

long-term growth.

Variable or discretionary

total Group costs

74%

Cash balance as at 29 July 2023

£69.5m

Undrawn committed

revolving credit facility

£12.0m

66 ScS Group plc Annual Report and Accounts 2023

Assessment of viability

The Strategic Plan is stress tested for severe but

plausible scenarios and the effectiveness of any

mitigating actions that would reasonably be taken.

Macroeconomic indicators such as price inflation

and interest rate increases have led to a downturn in

consumer confidence which may present challenges

for the Group as customers household budgets are

stretched they respond by reigning in discretionary,

big ticket spend. Our finance providers become

more expensive due to increases in the current and

forecasted interest rates and our supplier’s credit

insurance, which they use to support their current

payment terms, may be adjusted or withdrawn,

accelerating the timing of cash payments. The

Strategic Plan was therefore specifically stress tested

against the key risks identified, with attention to the

principal risks and uncertainties highlighted on pages

57 to 64. The scenarios ran are shown above.

Due to the significant cash reserves held, and

the flexibility of the cost base of the Group, the

outcome of this stress testing satisfied the

Directors in regard to the ongoing liquidity and

solvency of the Group over the three-year period

under review. 74% of total Group costs are variable

or discretionary allowing the Group to remain agile

and reduce costs safeguarding against challenging

trading conditions. Significant cash reserves

combined with the aforementioned cost reductions

supplemented with the appropriate, proportional

mitigating actions would ensure the Group could

continue to meet its liabilities.

In addition to the modelled scenarios, the Directors

are comfortable that the work done to minimise

the risk to the supply chain, principally ensuring

we maintain a diverse portfolio of suppliers, and

the ability of multiple factories to produce similar

Scenarios modelled Links to principal risks

Scenario 1: Economic downturn resulting in a decrease in revenue whilst maintaining gross margin

A challenging economic environment takes a toll on consumer confidence, reducing customers’

discretionary spend and causing a decline in sales volume. It is assumed that the gross margin remains

consistent with the base case scenario and that the decrease in sales volume will be partially offset

through minor management of our flexible cost base.

Assumptions

Sales: Reduction in volume for a period of 36 months.

Gross margin: Remains in-line with the base case scenario for a period of 36 months.

Economic environment

Competition

Responsible sourcing and

supply chain

Scenario 2: Economic downturn resulting in a decrease in gross margin

A challenging economic environment has resulted in an increase in product cost and the costs of

providing credit to our customers. The Group is unable to fully pass on costs. This results in reduced

performance over the 36-month period being assessed.

Assumptions

Sales: Remain in-line with the base case for a period of 36 months.

Gross margin: Decreases for a period of 36 months to levels lower than seen historically.

Economic environment

Competition

Responsible sourcing and

supply chain

Scenario 3: Severe economic downturn and the withdrawal of supplier credit insurance

A severe downturn in economic conditions resulting in both a reduction in revenue and gross margin,

together with the assumption that our suppliers have the credit insurance they use to support their

payment terms with the Group withdrawn, seeing our suppliers request earlier payment dates to

alleviate their working capital challenges.

Assumptions

Sales: Severe reductions for a period of 24 months with a partial recovery in the final 12 months.

Gross margin: Significant reduction for 24 months remaining flat thereafter.

Working capital: Cash required to pay suppliers in advance of delivery of product (and therefore in

advance of receipt of final balances from customers).

Economic environment

Competition

Responsible sourcing and

supply chain

product ranges, would be sufficient to limit the

Group’s reliance on a single supplier.

The Strategic Plan makes certain assumptions

about the normal level of capital recycling likely to

occur and, therefore considers whether additional

financing will be required. The Group continues to

hold a significant cash balance and an undrawn

£12.0m committed revolving credit facility which

has never been utilised and would not be required

under the modelled scenarios. The Strategic Plan

also encompasses the projected cash flows and

headroom against financial covenants under the

Group’s facility.

Conclusion

On balance of this assessment, the Directors have a

reasonable expectation that the Group will be able

to continue to operate, meeting its liabilities as and

when due over the period to 25 July 2026. In making

this statement, the Directors have considered the

resilience of the Group, taking into account its

current position and the principal risks facing the

business.

This Strategic report, which has been prepared

in accordance with the requirements of the

Companies Act 2006, has been approved and signed

on behalf of the Board.

Based on the results of their assessment,

notwithstanding the material uncertainty arising

from the offer from Cerezzola Limited (a wholly-

owned subsidiary of Poltronesofà S.p.A.), the

Directors have a reasonable expectation that the

Group will be able to continue in operation and meet

liabilities as they fall due over the three-year period

of their assessment.

Steve Carson

Chief Executive Officer

24 October 2023

Viability statement continued

67ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

68 Board of Directors

72 Corporate governance statement

72 Introduction from the Chair

73 Compliance with the UK Corporate Governance Code

75 Board leadership and company purpose

79 Division of responsibilities

82 Composition, succession and evaluation

86 Nomination Committee report

89 Audit Committee report

97 Directors’ remuneration report

120 Directors’ report

124 Statement of Directors’ responsibilities

Corporate

governance

68 ScS Group plc Annual Report and Accounts 2023

Board of Directors

Strength in leadership

Alan Smith

Non-Executive Chair

John Walden

Non-Executive Chair Designate

Steve Carson

Chief Executive Officer

Date of appointment: 22 October 2014 Date of appointment: 1 March 2023 Date of appointment: 6 January 2021

Committee membership Committee membership Committee membership

n/a

Biography

Alan is an experienced Chair and former CEO having held a number of

roles for retail companies across the private equity and quoted sector

previously, including Chair and CEO of Robert Dyas, CEO of Somerfield,

CEO of Evans Halshaw plc and Managing Director of B&Q.

The original intention was that Alan would step down from the Board and

leave the Group on 1 December 2023. Alan will now step down as Chair on

1 December 2023, but remain on the Board as a Non-Executive Director

until the conclusion of the offer for the Company.

John Walden was appointed as Non-Executive Chair Designate in March

2023 and is in line to succeed Alan as Chair on 1 December 2023.

John will also take over from Alan as Chair of the Nomination Committee.

Key strengths

Alan has significant board, retail and financial experience gained

across a number of business sectors. As Chair, he has a deep

understanding of governance and what is required to lead an effective

Board.

External appointments

• Director of The Navy, Army and Air Force Institutes

• Chair of The Royal Air Force Charitable Trust Enterprises

• Director of Scampton Airshow Limited

Biography

John joined the Board in March 2023 as Non-Executive Chair Designate,

with the intention that he will become Non-Executive Chair of the Board

on 1 December 2023 upon Alan Smith’s retirement. John will become

Chair of the Nomination Committee and step down from the Audit

Committee upon commencement of his role as Chair.

John is also Non-Executive Chair of Motorpoint plc and SnowFox

Topco Ltd, the topco responsible for Yo Sushi and other sushi-related

businesses in the UK and North America. John has held a number of

senior roles including Chair of Naked Wines and Chair of Holland &

Barrett International. John was previously Executive Director at FTD

Companies and CEO of Argos and its parent company Home Retail Group

plc. Prior to this he held several senior roles with Best Buy Co. including

Executive Vice President and President of the internet division.

Key strengths

John brings deep board-level expertise in both executive and non-

executive capacities, has excellent consumer-driven and omnichannel

experience, and has led transformational and digital change, both in

the UK and US.

External appointments

• Chair of Motorpoint plc

• Chair of SnowFox Topco Ltd

Biography

Steve brings deep knowledge and experience in retail and leadership

after an extensive career in the sector, most recently as Group

Managing Director of Holland & Barrett. Prior to this, Steve held a

number of roles at Home Retail Group plc (HRG), which owned a number

of well-known brands such as Argos, Homebase and Habitat. Steve

latterly served as Director of Retail and Customer Operations and a

Board member from 2014 to 2018, during which time HRG was acquired by

Sainsbury’s plc, where Steve had also begun his career.

Key strengths

Steve is a strong business leader with excellent commercial, marketing

and retail experience. He has experience in strategy implementation

and developing digital revenue streams.

External appointments

• Director of Marie Curie

• Director of CJC HR Consultancy Ltd

69ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Angela Luger

Non-Executive Director

Mark Fleetwood

Chief Financial Officer

Carol Kavanagh

Non-Executive Director

Date of appointment: 16 May 2019 Date of appointment: 4 September 2023 Date of appointment: 26 September 2022

Committee membership Committee membership Committee membership

n/a

Biography

Angela began her career in marketing with Cadbury’s, Coca Cola and

Mars, prior to moving into retail. She spent 10 years at Asda, holding

a variety of positions including Trading Director and Global Managing

Director for George. She was MD of Debenhams, CEO of The Original

Factory Shop and most recently was the CEO of N Brown Group plc,

where she led the business through a significant digital transformation.

Angela will succeed Ron McMillan as the Senior Independent Director on

1 December 2023.

Key strengths

Angela has significant experience in marketing, e-commerce and retail,

including leveraging technology to optimise a value retail offering.

External appointments

• Non-Executive Director of Portmerion Group plc

• Non-Executive Director of Jet 2 plc

• Non-Executive Director of New Look Retailers Limited

• Non-Executive Director of JD Sports Fashion plc

• Director of The Pennies Foundation

Biography

Mark joined the Board as Chief Financial Officer on 4 September 2023. He

is a chartered accountant (FCA) and qualified with KPMG in 2005.

Mark has significant retail and PLC experience. He most recently served

a five-year term as Chief Financial Officer of END. (endclothing.com),

the digital-led global fashion retailer based in the North East, where he

supported the business during a period of high-growth. Prior to this,

he was the Corporate Finance Director at Grainger plc, the UK’s largest

listed residential landlord. Before Grainger, he held senior roles at N+1

Singer and Brewin Dolphin.

Key strengths

Mark has extensive digital, retail and financial experience and a strong

track record of delivering strategic progress.

External appointments

n/a

Biography

Carol joined the Board in September 2022 as a Non-Executive Director

and is a member of the Audit Committee, the Remuneration Committee

and the Nomination Committee. She is also the Remuneration

Committee Chair of Speedy Hire plc and an independent Remuneration

Committee member for British Swimming. Carol has over 20 years of

experience working in senior human resource roles across public

companies in construction and retail sectors, including as Group HR

Director for Travis Perkins Plc from 2007 to 2020.

Carol took over from Angela Luger as Chair of the Remuneration

Committee from March 2023.

Key strengths

Carol has extensive retail and Board experience. She brings with her

a wealth of knowledge gained through previous HR roles and current

Remuneration Committee positions which will be of great value to the

Group.

External appointments

• Remuneration Committee Chair of Speedy Hire PLC

• Independent Remuneration Committee member for British

Swimming

• Director of CMK Associates Limited

Committee membership key

Audit Committee Chair

Audit Committee member

Remuneration Committee Chair

Remuneration Committee member

Nomination Committee Chair

Nomination Committee member

70 ScS Group plc Annual Report and Accounts 2023

Andy Kemp

Non-Executive Director

Ron McMillan

Non-Executive Director

Swarupa Pathakji

Non-Executive Director

Date of appointment: 1 February 2023 Date of appointment: 22 October 2014 Date of appointment: 2 May 2023

Committee membership Committee membership Committee membership

Biography

Andy joined the Board in February 2023 as a Non-Executive Director and

is a member of the Audit Committee, the Remuneration Committee and

the Nomination Committee.

Andy is also a Non-Executive Director of The Berkeley Group Holdings

plc, where he is Chair of the Audit Committee and a member of the

Remuneration Committee and the Nominations Committee. Andy is also

Chair of the Audit Committee Chairs’ Independent Forum. Andy worked

in PwC’s assurance business for 39 years, managing some of the firms

largest audit relationships and undertaking extensive listings and

transactions work. Andy was the former Chair of PwC’s Non-Executive

Director advisory programme and previously sat on PwC’s Audit and Risk

Assurance Executive Board.

Andy will succeed Ron McMillan as Chair of the Audit Committee on

1 December 2023.

Key strengths

Andy brings a range of skills and extensive experience to the Board

including auditing, governance, risk management and finance through

holding a variety of executive and non-executive positions.

Andy’s comprehensive audit experience highlight him as an exemplary

candidate to replace Ron McMillan as Audit Committee Chair.

External appointments

• Audit Committee Chair of The Berkeley Group Holdings plc

Biography

Ron is the Chair of N Brown Group PLC. Until his resignations in 2023,

Ron was also Senior Independent Director and Audit Committee Chair

of B&M European Value Retail S.A and Non-Executive Director and

Audit Committee Chair of Homeserve PLC. Previously, Ron worked in

PwC’s assurance business for 38 years and has deep knowledge and

experience of auditing, financial reporting issues and governance. As

the Northern Regional Chair of PwC in the UK and Deputy Chair of PwC in

the Middle East, he acted as engagement leader to a number of major

listed companies, including many in the retail sector.

The original intention was that Ron would step down from the Board on

1 December 2023. Ron will now remain on the Board as a Non-Executive

Director until the conclusion of the offer for the Company,

Key strengths

Ron brings a wide range of experience and skills including finance, risk

management and governance through holding a variety of executive

and non-executive roles. As Chair of the Audit Committee, he is

responsible for leading the Committee to ensure effective internal

controls and risk management systems are in place across the Group.

External appointments

• Chair of N Brown Group plc

• Non-Executive Director of B&M European Value and Retail S.A.

Biography

Swarupa joined the Board in May 23 as a Non-Executive Director and is a

member of the Audit Committee, the Remuneration Committee and the

Nomination Committee.

Swarupa is also a Non-Executive Director of Kings Arms Yard VCT plc,

where she is Chair of the Nomination and Remuneration Committees

and a member of the Audit and Risk Committee. She is also a Non-

Executive Director of value retailer OFS (DS) Holdings Ltd where she

is Chair of the Audit Committee. Swarupa has extensive experience

across multiple sectors, having worked at both Merrill Lynch and more

recently at Duke Street, a mid-market Private Equity firm, where she

served as a non-executive director on the boards of a number of

companies.

Key strengths

Swarupa brings a wealth of varied financial experience and widespread

knowledge of customer-facing businesses and skills including, growth

strategy and value creation, building management teams, finance, risk

management and governance.

External appointments

• Nomination and Remuneration Committee Chair of Kings Arms Yard

VCT plc

• Non-Executive Director of OFS (DS) Holdings Limited

Board of Directors continued

71ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Committee membership key

Audit Committee Chair

Audit Committee member

Remuneration Committee Chair

Remuneration Committee member

Nomination Committee Chair

Nomination Committee member

Chris Muir

Executive Director

Date of appointment: 4 April 2016

Committee membership

n/a

Biography

Chris served as Chief Financial Officer (CFO) from April 2016 to

September 2023. He is a chartered accountant, qualifying in 1999 whilst

working at Deloitte. In 2003, he joined Northgate plc, Europe’s leading

specialist in light commercial vehicle hire, as the Group Accountant

and held a number of senior UK and group roles, including UK Finance

Director and acting Group CEO in the summer of 2014. Prior to joining ScS

he was Group Finance Director of Northgate.

During the year Chris notified the Board of his intention to step down

and leave the Group. Following the appointment of Mark Fleetwood as

CFO on 4 September 2023, Chris was appointed as Executive Director,

and he will remain on the Board until the conclusion of the offer for the

Company.

Key strengths

Chris has broad financial experience and his strategic and leadership

strengths have been a valuable asset to the Group over his tenure.

External appointments

n/a

72 ScS Group plc Annual Report and Accounts 2023

Corporate governance statement

experience to the table. Furthermore, with Chris Muir

stepping down as CFO, I was pleased to welcome

Mark Fleetwood to the Group whom has taken over

the role from 4 September 2023. Chris will remain on

the Board as Executive Director until 1 December

2023. The timing of all new appointments has allowed

sufficient time to ensure a successful handover has

taken place. Details of the appointments are set out

in the Nomination Committee report on pages 86 to

88.

During the year, the Board critically assessed itself

and I am satisfied that the Board and its Committees

have an excellent balance of knowledge and

experience and that no concerns with performance

were identified. The Board have also continued to

address the findings of the external review of Board

effectiveness undertaken in 2022. Further details are

set out on pages 84 to 85.

I will be chairing our Annual General Meeting (AGM)

on 1 December 2023 and will be available to answer

any questions you may have on this report. Upon

the conclusion of the AGM, I will step down from my

position and John Walden will assume the position of

Chair of the Board.

Alan Smith

Chair

24 October 2023

Since my appointment as Chair in 2014, the Board and

I have been committed to maintaining high standards

of corporate governance and we recognise the

importance of this in supporting the long-term

success and sustainability of our business. I am

confident my successor, John Walden, together with

the rest of the Board, will continue to uphold the high

standards of corporate governance in place.

Our compliance with the 2018 UK Corporate

Governance Code (‘the Code’) is set out on pages 73

to 75.

In the second year of our refreshed strategy, the

focus of the Board has been to continue to monitor

progress against our strategic objectives whilst

navigating the well reported challenges faced by

consumers, including interest rate increases, cost of

living pressures and economic uncertainty.

Throughout FY23, the Board maintained active

engagement with the Group’s various stakeholders

to ensure that we understand and take their

interests into account when making decisions on

behalf of the Group. Our Section 172 statement on

pages 48 to 49 details the Board’s engagement with

stakeholders throughout the year.

Corporate governance arrangements and strategy

have been at the forefront in a transitional year for

the Board. I have had the pleasure of welcoming

four new Non-Executive Directors to the Board,

with each of the appointments bringing a wealth of

During the year, the Board

critically assessed itself

and I am satisfied that the

Board and its Committees

have an excellent

balance of knowledge

and experience and

that no concerns with

performance were

identified.”

Introduction from the Chair

On behalf of the Board, I am pleased to introduce our corporate

governance statement for the year ended 29 July 2023, which is

my last as Chair.

73ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Compliance with the UK Corporate Governance Code

The Board is committed to high standards of corporate governance and is responsible for ensuring the Group’s compliance with the requirements of the 2018 UK

Corporate Governance Code, which is the version of the Code that applies to FY23. For the year ended 29 July 2023, the Board considers that it has complied with the

provisions of the Code with the exception of provision 36, which relates to a formal policy post-employment shareholding requirements for Executive Directors. The

remuneration Committee will review this as part of its review of the Remuneration Policy ahead of submitting the new Policy to the 2024 AGM.

The following pages provide a high-level overview of how the Board applies the Principles of the Code (available at www.frc.org.uk).

Board leadership and company purpose

Principle A

A successful company is led by an effective and entrepreneurial Board, whose role is to promote the

long-term sustainable success of the company, generating value for shareholders and contributing to

wider society.

• Strategic report, pages 1 to 66

• Board leadership and company purpose, pages 75 to 78

Principle B

The Board should establish the company’s purpose, values and strategy, and satisfy itself that these

and its culture are aligned. All directors must act with integrity, lead by example and promote the desired

culture.

• Strategic report, pages 1 to 66

• Board leadership and company purpose, pages 75 to 78

• Division of responsibilities, pages 79 to 81

Principle C

The Board should ensure that the necessary resources are in place for the company to meet its

objectives and measure performance against them. The Board should also establish a framework of

prudent and effective controls, which enable risk to be assessed and managed.

• Section 172 statement, pages 48 to 49

• Risk and risk management, pages 57 to 64

• Audit Committee report, pages 89 to 96

Principle D

In order for the company to meet its responsibilities to shareholders and stakeholders, the Board should

ensure effective engagement with, and encourage participation from, these parties.

• Responsible business 26 to 37

• Section 172 statement, pages 48 to 49

Principle E

The Board should ensure that workforce policies and practices are consistent with the company’s values

and support its long-term sustainable success. The workforce should be able to raise any matters of

concern.

• Responsible business 26 to 37

• Section 172 statement, pages 48 to 49

• Board leadership and company purpose, pages 75 to 78

Division of responsibilities

Principle F

The Chair leads the Board and is responsible for its overall effectiveness in directing the company. They

should demonstrate objective judgement throughout their tenure and promote a culture of openness and

debate. In addition, the Chair facilitates constructive Board relations and the effective contribution of all

non-executive directors, and ensures that direct or receive accurate, timely and clear information.

• Board leadership and company purpose, pages 75 to 78

• Division of responsibilities, pages 79 to 81

Principle G

The Board should include an appropriate combination of executive and non-executive (and, in particular,

independent non-executive) directors, such that no one individual or small group of individuals

dominates the Board’s decision-making. There should be a clear division of responsibilities between the

leadership of the Board and the executive leadership of the company’s business.

• Board of Directors, page 68-69

• Division of responsibilities, pages 79 to 81

74 ScS Group plc Annual Report and Accounts 2023

Corporate governance statement continued

Division of responsibilities (continued)

Principle H

Non-executive directors should have sufficient time to meet their Board responsibilities. They should provide

constructive challenge, strategic guidance, offer specialist advice and hold management to account.

• Board leadership and company purpose, pages 75 to 78

• Division of responsibilities, pages 79 to 81

• Audit Committee report, pages 89 to 96

Principle I

The Board, supported by the company secretary, should ensure that it has the policies, processes,

information, time and resources it needs in order to function effectively and efficiently.

• Board leadership and company purpose, pages 75 to 78

• Division of responsibilities, pages 79 to 81

Composition, succession and evaluation

Principle J

Appointments to the Board should be subject to a formal, rigorous and transparent procedure, and an

effective succession plan should be maintained for Board and senior management. Both appointments

and succession plans should be based on merit and objective criteria and, within this context, should

promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.

• Nomination Committee report, pages 86 to 88

• Composition, succession and evaluation, pages 82 to

Principle K

The Board and its committees should have a combination of skills, experience and knowledge. Consideration

should be given to the length of service of the Board as a whole and membership regularly refreshed.

• Board of Directors, page 68 to 69

Principle L

Annual evaluation of the Board should consider its composition, diversity and how effectively members

work together to achieve objectives. Individual evaluation should demonstrate whether each director

continues to contribute effectively.

• Nomination Committee report, pages 86 to 88

• Composition, succession and evaluation, pages 82 to

Audit, risk and internal control

Principle M

The Board should establish formal and transparent policies and procedures to ensure the independence

and effectiveness of internal and external audit functions and satisfy itself on the integrity of financial

and narrative statements.

• Audit Committee report, pages 89 to 96

Principle N

The Board should present a fair, balanced and understandable assessment of the company’s position

and prospects.

• Strategic report, pages 1 to 66

• Audit Committee report, pages 89 to 96

• Financial statements, pages 125 to 162

Principle O

The Board should establish procedures to manage risk, oversee the internal control framework, and

determine the nature and extent of the principal risks the company is willing to take in order to achieve

its long-term strategic objectives.

• Risks and risk management pages 57 to 64

• Viability statement, page 65 to 66

• Audit Committee report, pages 89 to 96

Remuneration

Principle P

Remuneration policies and practices should be designed to support strategy and promote long-term

sustainable success. Executive remuneration should be aligned to company purpose and values, and be

clearly linked to the successful delivery of the company’s long-term strategy.

• Strategic report, pages 1 to 66

• Board leadership and company purpose, pages 75 to 78

• Directors’ remuneration report, pages 97 to 119

75ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Remuneration (continued)

Principle Q

A formal and transparent procedure for developing policy on executive remuneration and determining

director and senior management remuneration should be established. No director should be involved in

deciding their own remuneration outcome.

• Directors’ remuneration report, pages 97 to 119

Principle R

Directors should exercise independent judgement and discretion when authorising remuneration

outcomes, taking account of company and individual performance, and wider circumstances.

• Directors’ remuneration report, pages 97 to 119

Board leadership and company purpose

Role of the Board

The Group is led and controlled by the Board

which is collectively responsible for the long-term

sustainable success of the Group, generating

value for shareholders and contributing to wider

society. The Board establishes the Group’s purpose,

values and strategy and satisfies itself that these

are aligned with its culture. The Board is also

responsible for ensuring that appropriate policies,

procedures and controls are in place to support

effective risk management and performance

against agreed financial and operational metrics.

Board activity in the year

The following summarises some of the Board’s key

activities over the past year:

Strategy

• Reviewed the Group’s performance against its

strategic priorities;

• Evaluated and approved incentive targets for

both financial and non-financial measures,

including the Group’s environmental impact, to

ensure alignment with strategic aims;

• Considered economic, social, environmental and

regulatory issues and any other relevant external

matters that may influence or affect the Group’s

achievement of its objectives; and

• Oversaw the Group’s acquisition of the trade and

assets of Snug.

Further information on the Group’s strategy

can be found on pages 1-66

Performance and monitoring

• Received regular updates from the Executive Board

on trading performance and progress on strategy;

• Monitored the Group’s performance against its

targets and KPIs;

• Approved the 2022 Annual Report and the 2023

Interim Results;

• Approved the dividend policy and declaration;

• Reviewed and confirmed the Group’s Viability

statement and going concern status;

• Reviewed and approved the Group’s FY24 budget;

and

• Assessed capital allocations and capital

expenditure in respect of the Group’s strategy.

Further information can be found in the Audit

Committee report on pages 89 to 96

Risk management and internal control

• Carried out a robust assessment of the principal

and emerging risks facing the Group;

• Reviewed and approved the risk appetite

statement;

• Reviewed the effectiveness of the risk

management and internal controls during the

year; and

• Received updates on climate-related risks and

opportunities.

While the Board has ultimate responsibility for

the Group’s risk management and internal control

systems, monitoring of these systems is delegated

to the Audit Committee.

Further information can be found in the Audit

Committee report on pages 89 to 96

Leadership, stakeholders and culture

• Reviewed the succession plan for Directors and

the senior management team including approving

the appointment of four new Non-Executive

Directors and a new CFO in the year;

• Reviewed recruitment and how diversity could be

improved;

• Continued prioritisation of colleague health and

wellbeing;

• Approved the issue of a one-off £400 cost of

living support payment for our colleagues;

• Reviewed wider workforce remuneration and

related policies and the alignment of incentives

and rewards with culture;

• Received and reviewed updates on environmental,

social and governance (ESG) activity;

• Reviewed employee survey results; and

• Held discussion groups with colleagues across

the business.

76 ScS Group plc Annual Report and Accounts 2023

Corporate governance statement continued

Further information on succession planning

can be found on page 82

Governance and legal

• Received and reviewed updates on corporate

governance developments;

• Reviewed the matters reserved for the Board and

the terms of reference of its Committees;

• Conducted an internal evaluation of the Board’s

effectiveness and reviewed the outcome; and

• Reviewed reports on the Group’s key stakeholders

and reviewed engagement mechanisms.

How the Board supports strategy

Throughout FY23, the Board has consistently reviewed

the Group’s progress against our strategic objectives.

This included six strategy-specific meetings which

included in-depth assessments of specific strategic

pillars and evaluations of progress.

Offer for the Company

As announced on 24 October 2023, the Board made

the decision to recommend to shareholders

an all-cash offer of 270p for each share from a

wholly-owned subsidiary of Poltronesofà S.p.A.

The offer provides liquidity to shareholders with

the opportunity to exit in full and in cash at a

significant premium to the current share price, in

a time of continued macroeconomic uncertainty.

In the short-term, the Board remains cognisant

of the challenging economic environment facing

customers, which the Board expects to continue

throughout FY24. However, the Board is confident

that the Group’s strategy and strong balance sheet

will enable it to continue to trade resiliently and

grow market share. The Board further believes that

this will place the business in a strong position for

when the economic environment improves.

Nevertheless, based on history since the IPO,

the Board is not confident that this anticipated

progress will necessarily be recognised in

appropriate share price appreciation.

It is intended that the acquisition will be implemented

by way of a Court-sanctioned scheme of arrangement

under Part 26 of the Companies Act and is forecast to

complete in the first quarter of 2024.

Values, culture and purpose

The Group’s purpose is ‘Helping create the home you

love’ and this is underpinned by our values of being a

responsive, inclusive, ‘getting it right’, hard working

and trusted retailer of sofas and carpets. Our

values promote our purpose-driven culture which

is reflected in how we engage with our stakeholders.

The Board recognises the importance of ensuring

a healthy and supportive culture within the Group.

The Board monitors culture and values in a number

of ways, including undertaking an annual survey of

all employees, reviewing feedback through Director

discussion groups, as well as reviewing feedback

provided by our customers through forums such

as Trustpilot and Google My Business. There are

formal policies in place in relation to anti-bribery

and corruption and an independent whistle-blowing

helpline allowing any member of staff to report any

suspected malpractice or wrongdoing.

We also have a dedicated, free to use employee

assistance programme, where employees can

gain access to help and support on a whole range

of personal issues including mental health and

financial worries.

Additionally, as part of our in-year update to

employee benefits, we have introduced a 24-

hour virtual general practitioner service for our

colleagues and members of their households and

have begun to offer access to low-cost health plans.

The Board recognise the importance of, and are

committed to, operating in a responsible and

sustainable manner. In FY22, the Board established

an ESG steering group, developed the ESG strategy

and incorporated ESG-related targets into both

the executive and senior management bonus

schemes. In FY23, the Board has built upon this by

the development of a Net Zero strategy which will

further strengthen the Group’s commitment to

environmental sustainability.

For more information on this refer to the

Responsibility and sustainability report page

26 to 37

Stakeholder engagement

The Board appreciates the importance of engaging

with the Group’s stakeholders and having regard to

their interests in its decision-making process. The

importance and influence of stakeholder groups

differs depending on the matter being discussed. It

is possible for stakeholder interests to conflict and

when this happens, the Board uses its judgement to

reach a final decision.

The Board is advised of stakeholder views in a

number of different ways:

• Presentations on strategic progress;

• Presentations from external advisors and internal

experts;

• One-to-one meetings with shareholders;

• Employee surveys;

• Colleague discussion forums;

• Visits to the Group’s showrooms, distribution

centres and suppliers; and

• The AGM.

Regular discussion forums were held by two

designated Non-Executive Directors, Angela Luger

and Carol Kavanagh, to ensure the Board is engaging

with colleagues and to provide them with a direct

route to raise issues or concerns with the Board.

77ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Detailed below are some examples of matters discussed during the year and how the Board considered our stakeholder groups.

Matter discussed

Stakeholders

considered Discussions held Outcome of discussions

Acquisition of the

business and assets

of Snug

• Customers

• Shareholders

• Suppliers

• Environment

Consideration was given to:

• Expectations of our stakeholders;

• Market developments and our customer offering;

• Our brand and reputation; and

• Capital allocation and appropriate acquisition valuation.

• Proceed with the acquisition of Snug within

financial limits set by the Board.

• Resulted in the purchase of the business and

assets of Snug in January 2023.

Capital allocation • Shareholders Consideration was given to:

• Continuing the £7m share buyback scheme and whether a

further buyback or alternative capital return was undertaken;

• Expectations of our shareholders and options available to

utilise Company capital; and

• Strength of the Group and current macroeconomic conditions.

• £7m buyback programme successfully

completed.

• Given favourable returns being seen on the

refurbished stores it was concluded that, at

present, internal capital investment would

continue in the store network.

Approval of new Board

members

• Shareholders

• Regulators

• Colleagues

Consideration was given to:

• The skills, experience, culture and diversity required for new

Board members; and

• Regulatory requirements of the Board and its Committees.

• Four new Non-Executive Directors were

appointed in year.

• A new CFO was appointed after the year end.

Investment in Business

Central proposition

• Colleagues

• Shareholders

• Customers

• Suppliers

Consideration was given to:

• Current IT limitations and expected benefits of the proposal;

• Project costs and timescales; and

• Impact on colleagues and business as usual (BAU) upon

implementation.

• Approval of the Microsoft Business Central

project.

New advertising

agency and marketing

strategy

• Shareholders

• Customers

Consideration was given to:

• Market positioning and strategic direction;

• Customer feedback;

• Our brand and reputation; and

• Expectations of our shareholders.

• Approval of the new advertising partner and

marketing strategy.

Store refurbishments • Customers

• Colleagues

• Shareholders

Consideration was given to:

• Outcomes from concept stores;

• Our brand and reputation;

• Proposed capital commitments; and

• Expectations of our shareholders.

• Further rollout of refreshed store design was

approved.

Recommended cash

offer for the Group

• Colleagues

• Shareholders

• Customers

• Suppliers

• Regulators

Consideration was given to:

• Expectations of our stakeholders;

• Review of premium using valuation advice provided by Shore

Capital and Corporate Limited;

• Our brand and reputation; and

• The acquirer’s intentions post acquisition and the potential

impact of them on stakeholders.

• Recommendation for shareholders to accept

the cash offer.

78 ScS Group plc Annual Report and Accounts 2023

Corporate governance statement continued

Shareholder relations

The Board recognises that good communication

is key to maintaining shareholder relations, and

as such we endeavour to explain our actions and

financial results on a regular basis and to respond

to investor inquiries and feedback.

The CEO and CFO hold regular meetings and calls with

institutional and retail investors and analysts in order

to provide the best quality information to the market.

All shareholders also have access to the Chair and

the other Directors, who are available to discuss

any questions which they may have in relation to the

running of the Group.

In addition, the Group will communicate with its

shareholders through the AGM, at which the Chair

will give an account of the progress of the business

over the past year and will provide the opportunity

for shareholders to raise questions with the Chair

and the Chairs of each of the Committees of the

Board.

At each of the scheduled Board meetings

throughout the year, the Board receives a report

which includes an analysis of ScS Group plc

shareholder register. Following the Interim and

Preliminary Results presentations feedback is

actively sought for discussion by the Board. Such

feedback gives the Board an insight into what is

important to the Group’s shareholders.

The Group also runs a corporate website at

www.scsplc.co.uk, which is regularly updated with

our releases to the market and other information

and which includes a copy of this Annual Report.

Whistle-blowing

All employees are able to access a confidential

helpline operated by Safecall should they want to

report any wrongdoing anonymously. All reports are

formally investigated by the Head of Audit, Risk &

Compliance with support from relevant functions.

Incidents and their outcomes are reported to the

Board. A number of calls were made to the external

hotline during the year, which are reported to

the Head of Audit, Risk & Compliance in the first

instance, following which management action was

taken where appropriate. No issues were raised that

required any direct action from the Board.

Conflicts of interest

There are no potential conflicts of interest between

any of the Directors or senior management within

the Group and their private interests.

There is an established process of the Board for

regularly reviewing actual or potential conflicts

of interest. In particular, there is a process for

reviewing transactions proposed to be entered into

by related parties of Directors with any entities in

the Group. This includes professional advice and

consideration of it by the Board and the Group’s

corporate brokers on the application of the Listing

Rules, the applicability and the appropriateness of

any exemptions in respect of any transactions in

the ordinary course of business and reporting to

general meetings of shareholders under England

and Wales Company Law. This process also includes

consideration of the extent to which the Board

may require external and any other reports and

evaluations to be presented to it on any proposed

transactions.

Executive/Non-Executive

Chair (1)

Non-Executive Chair Designate (1)

Chief Executive Officer (1)

Chief Financial Officer (1)

Executive Director (1)

Non-Executives (5)

Board tenure

0-5 years (7)

5-15 years (3)

15+ years (0)

79ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Division of responsibilities

Group Board

The Board is responsible for the overall leadership

of the Group and setting its objectives and

standards. All Directors act with integrity and

understand the importance of leading by example

to promote the desired culture throughout the

organisation. It is the Board’s responsibility to

ensure that the Group has the necessary resources

to meet its objectives and measure performance

against them. The Board also establishes effective

internal control procedures which enable risk to be

assessed and managed. The formal list of matters

reserved for the Board can be found at www.scsplc.

co.uk.

Committees

The Board has delegated authority to a number of

Committees to assist with and supervise specific

matters. The key responsibilities of each Committee

is outlined on the following page. The terms of

reference of each of the Board’s Committees are

available on our website, www.scsplc.co.uk.

Detailed implementation of matters approved by the

Board and Committees, and operational day-to-day

matters, are delegated to the Executive Directors.

The Executive Directors are also supported by an

experienced and able senior management team. All

Directors have access to the Company Secretary,

whose appointment and removal is one of the

matters reserved for the Board.

Key roles

The positions of Chair and CEO are currently held

by different individuals and this will continue to be

the case when the scheduled succession of the

new Chair is complete. There is a clear division of

roles and responsibilities between the Chair and

the CEO and no individual has unrestricted powers

of decision making. Effective communication

between Directors is vital for the long-term success

of the Group with all Directors bringing their own

views to the table and each providing constructive

challenge to ensure decision making is informed.

Chair

Chief Executive

Officer

Senior Independent

Director

Responsible for leading the Board,

setting its agenda and overseeing its

effectiveness in directing the Group.

Responsible for the day-to day

management of the Group.

Leads the assessment of the

Chair’s performance.

Responsible for directing and

focusing the Group, ensuring there is

a clear strategy and business model.

Reviews and devises the Group

strategy for discussion and

approval by the Board.

Acts as a sounding Board

for the Chair and a trusted

intermediary for other

Directors.

Ensures Directors receive accurate,

timely and clear information.

Responsible for implementing

Board decisions.

Leads the succession

process for the role of Chair.

Facilitates the effective contribution of

the Non-Executive Directors, promoting

a culture of openness and creating a

forum for constructive challenge.

Leads by example and creates a

culture centred around the Group’s

values.

Available to shareholders to

resolve significant issues

should they arise.

Responsible for fostering good

relationships between Executive and

Non-Executive Directors.

Responsible for ensuring effective

communication with shareholders

and other key stakeholders.

80 ScS Group plc Annual Report and Accounts 2023

Corporate governance statement continued

Time commitment

As part of the recruitment process the expected

time commitment is discussed with both Non-

Executive Directors and Executive Directors.

The time commitments of the new Non-Executive

Directors, Carol Kavanagh, Andy Kemp and Swarupa

Pathakji, and Non-Executive Chair Designate, John

Walden, have been evaluated and the Board is

satisfied that they have sufficient time for their

roles. Subsequent external appointments for all

Directors would not be undertaken without prior

approval of the Board.

At the time of writing, where Directors have external

appointments, the Board is satisfied that they do not

impact on the time they need to devote to the Group.

Board administration

The Board held nine meetings during the year which

included six meetings dedicated to reviewing

strategic progress. During the year the Board

also met on a number of other occasions, as

circumstances required. The Board maintains

a rolling programme of formal Board meetings

throughout the year and accordingly, there are six

Board meetings scheduled for FY24, all of which

include sessions to review strategic progress.

Meetings of the Board are usually held at the Group’s

head office or local to a showroom, to afford the

Board, particularly the Non-Executive Directors, the

opportunity to meet with local management.

All Board and Committee members receive meeting

agendas and Board packs in advance of the Board

and Committee meetings. For scheduled Board

meetings this includes updates on strategy, current

trading, stakeholder KPIs, management accounts

and detailed papers on other matters where Board

approval is required.

At each Board meeting, the Executive Directors

discuss the matters included in the Board packs

in more detail with the Board. Additionally, where

appropriate, members of the Executive Board are

invited to present to the Board to inform Directors

of issues of importance affecting the Group.

This not only allows the Board to maintain an

awareness of the Group’s activities but also

allows Directors to assess the ability of the senior

management team. For Board meetings which are

held as circumstances require, the Board packs

reflect the agenda of the meeting.

Directors’ attendance

All Directors are expected to attend all Board and relevant Committee meetings. If Directors are unable to attend a meeting they will review the relevant papers in

advance and provide their comments to the Chair of the Board or Committee. Minutes of the meeting will be sent to any relevant Director who was not in attendance

for reference.

PLC Audit Committee Remuneration Committee Nomination Committee

Total no. of meetings 9 3 7 5

Steve Carson 9 N/A N/A N/A

Chris Muir 9 N/A N/A N/A

Alan Smith 9 N/A 7 5

John Walden 3 2 3 2

Ron McMillan 8 3 7 5

Angela Luger 9 3 7 5

Carol Kavanagh 8 3 7 4

Andy Kemp 3 2 3 2

Swarupa Pathakji 2 1 2 1

81ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Shareholders

Chair

The Board

Board Committees

Chief Executive Officer

Responsible for the day-to-day management of the Group and the implementation of strategy.

Nomination Committee

• Reviews the structure, size and composition of

the Board, including the balance of Executive

and Non-Executive Directors;

• Considers succession planning for Directors

and senior management positions;

• Oversees the development of a diverse

pipeline for succession, having regard

to diversity of gender, social and ethnic

backgrounds, cognitive and personal

strengths; and

• Identifies and nominates candidates for the

approval of the Board, to fill Board vacancies

when they arise.

Audit Committee

• Monitors the quality and effectiveness of the

external and internal auditors;

• Reviews and monitors the integrity of

the financial statements and any formal

announcements relating to financial

performance;

• Assists the Board with the development and

execution of a risk management strategy,

risk policies and current and emerging risk

exposures, including the maintenance of the

Group’s risk register; and

• Monitors the adequacy and effectiveness

of the Group’s internal financial controls and

internal control and risk management systems.

Remuneration Committee

• Determines the policy for the Group

on executive remuneration and sets

remuneration for the Chair, the Executive

Directors and senior management;

• Reviews workforce remuneration and related

policies and the alignment of incentives and

rewards with culture, and taking these into

account when setting the policy for Executive

Director remuneration;

• Reviews the design of all share incentive plans

for approval by the Board and/or shareholders;

and

• Determines and monitors any share ownership

requirements for the Executive Directors

and senior management including post-

employment requirements.

Executive Board – Assists the Chief Executive Officer in the performance of his duties including:

• Progress against strategy and budgets;

• Monitoring of operating and financial performance; and

• Allocation of resource.

See Committee report on pages 86 to 88 See Committee report on pages 89 to 96 See Committee report on pages 97 to 119

82 ScS Group plc Annual Report and Accounts 2023

Composition, succession

and evaluation

Composition of the Board

The Board currently comprises of the Non-Executive

Chair, the Non-Executive Chair Designate, three

Executive Directors and five independent Non-

Executive Directors.

The Board’s composition is compliant with the UK

Corporate Governance Code July 2018 (‘The Code’).

The Code recommends that at least half of

the Board, excluding the Chair, should be Non-

Executive Directors whom the Board considers

to be independent. The Group has met this

requirement as Ron McMillan (Senior Independent

Director), appointed 22 October 2014 and Angela

Luger, appointed 16 May 2019 have been in place

for the whole of FY23, matching the number of

Executive Directors. The Board’s composition has

been strengthened throughout the year with the

Non-Executive appointments of Carol Kavanagh,

appointed 26 September 2022, Andy Kemp, appointed

1 February 2023 and Swarupa Pathakji, appointed

2 May 2023. All of the Group’s Non-Executive Directors

are considered by the Group to meet the definition of

an independent Director. Each of them is considered

by the Board to be independent in character

and judgement and free from relationships or

circumstances which may affect, or could appear to

affect, their judgement. Independence is determined

by ensuring that the Non-Executive Directors do

not have any material business relationships or

arrangements (apart from their fees for acting

as Non-Executive Directors) with the Group or its

Directors which in the opinion of the Board could

affect their independent judgement.

All Directors have service agreements or letters of

appointment in place and the details of the terms

of these are set out in the Directors’ remuneration

report on pages 97 to 119.

The Chair has met with each of the Non-Executive

Directors during the year on a one-to-one basis,

without the Executive Directors being present. In

addition, the Senior Independent Director holds

a private meeting of the Non-Executive Directors

without the Chair being present to assess his

performance.

Board Diversity and Inclusion

The Financial Conduct Authority’s updated Listing

Rules (LR 9.8.6R (10) and LR 14.3.33R (2)) require in-

scope companies to publish numerical data on the

sex or gender identity and ethnic diversity of their

board, senior board positions (Chair, CEO, Senior

Independent Director (SID) and CFO) and executive

management in a table. These new reporting

requirements apply to financial years starting on or

after 1 April 2022, meaning that this is the first year

that these requirements are reportable by the Group.

To collate this information, PLC Board members were

asked to complete a diversity disclosure to confirm

which of the categories set out in the below they

identify with.

Corporate governance statement continued

The details of Board composition as at 29 July 2023 are set out in the following tables:

Table 1: Reporting table on sex/gender representation

Number of Board members Percentage of Board

Number of senior positions on

the Board (CEO, CFO, SID, Chair)

Number in executive

management

Percentage of executive

management

Men 6 67% 4 6 75%

Women 3 33% – 2 25%

83ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Table 2: Reporting table on ethnicity representation

Number of Board

members

Percentage of

Board

Number of senior

positions on the

Board (CEO, CFO,

SID, Chair)

Number in

executive

management

Percentage

of executive

management

White British or other White (including minority-white groups) 8 89% 4 8 100%

Mixed/Multiple Ethnic Groups – – – – –

Asian/Asian British 1 11% – – –

Black/African/Caribbean/Black British – – – – –

Other ethnic group, including Arab – – – – –

Not specified/prefer not to say – – – – –

Details on the Board’s compliance with the targets set out in Listing Rule 14.3.33 are set out in the Nomination Committee report on page 88.

Board development

The Chair believes the current Board and its Committees have an appropriate balance of skills and experience to enable them to discharge their responsibilities

effectively. The development of the Group’s Directors is regularly reviewed and the Chair discusses training requirements with each Director. Succession planning

of the Board is the responsibility of the Nomination Committee. Details of the actions of the Nomination Committee in year are set out in the Nomination Committee

report.

Board gender diversity

Male: 7 (70%)

Female: 3 (30%)

Executive Board gender

diversity

Male: 7 (78%)

Female: 2 (22%)

Executive Board and senior

management team* diversity

Male: 28 (70%)

Female: 12 (30%)

All employees diversity

Male: 1,160 (67%)

Female: 571 (33%)

* The senior management team are those considered by the Executive Board to have extensive experience in their field and typically lead a team/department.

84 ScS Group plc Annual Report and Accounts 2023

Board effectiveness evaluation

In 2022 the Board took part in an externally facilitated evaluation by Sam Allen Associates Ltd. In accordance with the UK Corporate Governance Code, the Board will

continue to undertake annual evaluations and at least once every three years with an external consultant facilitating the evaluation. Due to the significant changes

to the composition of the Board in year, upcoming retirements of the Chair and Senior Independent Director, and upcoming departure of the previous CFO, an

external evaluation will be carried out in 2024.

The external review in 2022 identified the following areas for continued focus. We have provided an update of the progress made in year to address these points;

Area of focus Actions taken

Increasing the focus on succession planning and

the need for increased diversity

With both Alan Smith and Ron McMillan due to retire in the coming year, appointments have been made to ensure

a smooth transition. John Walden joined the Board in March 2023 as Non-Executive Chair Designate (to take over

from Alan Smith), Carol Kavanagh joined the Board in September 2022, Andy Kemp joined the Board in February

2023 and Swarupa Pathakji joined the Board in May 2023.

Upon the notification of Chris Muir’s intention to step down as CFO, a thorough recruitment process was

undertaken to identify and appoint a suitable successor. This resulted in the appointment of Mark Fleetwood on

4 September 2023. All new Board members underwent a comprehensive onboarding process to introduce them

to the Company. Additional handover procedures have been completed where new Board members are taking

on designated roles, Board Chair and CFO, to ensure a smooth transition.

The appointments made in year have broadened the diversity of the Board, in line with business focus.

Opportunity to improve stakeholder engagement The Board has increased engagement in the year with greater physical interactions through:

• Store visits to meet colleagues;

• Suppliers visits to factories and trade shows;

• Shareholder meeting; and

• Director listening sessions over FY23.

To ensure that ESG priorities are continuously

reviewed whilst ensuring they provide sustainable

commercial value

The Board has built ESG strategy progress into their periodic updates to monitor the Group’s delivery against the

ESG strategy developed in FY22. The Board has received updates on the progress of the Net Zero strategy which

is currently under development.

The 2023 evaluation of the performance of the Board, its Committees, the Chair and the individual Directors was facilitated by the Group’s Internal Audit team.

The evaluation included a review of the time commitment required by each of the Company’s Non-Executive Directors and the size, structure and composition of

the Board and its Committees. The evaluation process took place in the second half of the year. Each of the Directors and the Company Secretary completed a

questionnaire, on an anonymised basis, which was prepared to elicit their views on all aspects of the effectiveness of the Board and its Committees, including its

composition, diversity and how effectively members work together to achieve objectives.

Corporate governance statement continued

85ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

The results of the evaluation were assessed by the full Board. The evaluation confirmed that the Board and its Committees have and will continue to have a good

balance of knowledge and experience with no concerns arising around Board performance. The feedback concluded that the Committees continued to perform

well and highlighted the following strengths:

• Continued strong alignment in the views of the Board of Directors in the Group’s purpose and strategy;

• Governance and compliance amongst the Board and its members is strongly adhered to;

• The succession planning and induction of new Directors has been well considered and executed; and

• The ability for all Directors to contribute and constructively challenge remained strong.

Opportunities for improvement identified from the review were:

Area of focus Actions

Further Board engagement with a wider

stakeholder Group

With the new Board members joining during the year, the induction programme has ensured good exposure to

the Group’s colleagues. In the new financial year the plans are to increase wider stakeholder engagement for

the new Directors, including shareholders and suppliers.

Board objectives It was felt that with the change of Chair, it presented a good opportunity to review and restate the Board

objectives.

Capital allocation considerations A session was held in July 2023 covering the Group’s capital structure and to consider the best use of

the Group’s cash. This included a review of the Group’s historical trading and balance sheet position and

presentations from our external brokers on the potential impact of different forms of capital return.

86 ScS Group plc Annual Report and Accounts 2023

Nomination Committee report

• Reviewing and evaluating the performance of the

Board, each Board Committee, the Chair of the

Board and each individual Director.

Members and meetings attended in 2023

Member

since

Meetings

attended

Alan Smith 2014 5

Ron McMillan 2014 5

Angela Luger 2019 5

Carol Kavanagh* 2022 4

Andy Kemp** 2023 2

John Walden*** 2023 2

Swarupa Pathakji**** 2023 1

* Carol Kavanagh joined the Board on 26 September 2022.

** Andy Kemp joined the Board on 1 February 2023.

*** John Walden joined the Board on 1 March 2023.

**** Swarupa Pathakji joined the Board on 2 May 2023.

The Executive Directors also attend Committee

meetings by invitation. The Committee is supported

by the Company Secretary.

There are three scheduled Committee meetings

annually, but with additional meetings or calls held

on an as required basis. During the year, there

were an additional two Committee meetings and

a number of informal calls and discussions. The

majority of the meetings were held in person.

Dear Shareholder,

I am pleased to present the 2023 report of the

Nomination Committee (‘the Committee’).

The primary purpose of the Committee is to lead

the process for Board appointments, ensure plans

are in place for orderly succession for both the

Board and senior management and oversee the

development of a diverse pipeline for succession.

The responsibilities of the Committee, as delegated

by the Board, are set out in the terms of reference

which are published on the Group’s corporate

website at www.scsplc.co.uk, which in summary

include:

• Reviewing the structure, size and composition of

the Board, including the balance of Executive and

Non-Executive Directors;

• Setting measurable objectives and targets for

diversity and inclusion in relation to the Board

and senior management positions;

• Putting in place plans for the orderly succession

of appointments to the Board and to senior

management positions;

• Overseeing the development of a diverse pipeline

for succession, having regard to diversity of

gender, social and ethnic backgrounds, cognitive

and personal strengths;

• Identifying, assessing and nominating candidates

for the approval of the Board, to fill Board

vacancies when they arise; and

We are delighted with

the calibre of the new

Directors recruited during

the year.”

We believe we are well placed

to continue to deliver excellent

returns to shareholders

87ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Committee activities in 2023

Chief Financial Officer

On 2 December 2022 we announced the resignation

of Chris Muir as the Group’s CFO, following which we

commenced a recruitment process to appoint a

new CFO.

With the assistance of Clarity Search Ltd we agreed

a comprehensive role specification and aligned this

to the desired Board composition with reference to

diversity, inclusion and a Board skills matrix. Taking

into account feedback from Board members, the

role specification and the key skills, knowledge

and experience of the shortlisted candidates, the

Committee recommended the appointment of

Mark Fleetwood as the Group’s new CFO, which we

announced on 4 July 2023.

Mark joined the Board on 4 September 2023. Mark

was previously CFO of END. (endclothing.com), the

digital-led global fashion retailer based in the North

East. Further details of Mark’s experience prior to

joining the Group appear in the Board of Directors

biographies on pages 68 to 70.

Additional Non-Executive Director

Ron McMillan and I are due to step down from the

Board in early 2024, having both completed nine

years as Board members. During the year, Carol

Kavanagh, Andy Kemp and John Walden joined the

Board, having all been recruited in 2022.

In order to fill a remaining Non-Executive Director

vacancy on the Board, with assistance from

Sam Allen Associates Limited and following the

same process as outlined above, the Committee

recommended the appointment of Swarupa

Pathakji. Swarupa’s appointment was announced

in April 2023 and she joined the Board on 2 May

2023. Details of Swarupa’s experience appear in the

Board of Directors biographies on page 70. Upon

joining the Board, Swarupa was also appointed as a

member of the Audit Committee, the Remuneration

Committee and the Nomination Committee.

Board effectiveness evaluation

The Committee oversees the Board effectiveness

review which evaluates the performance of the

Board and its Committees, the Chair and individual

Directors. In 2022, the review was externally

facilitated by Sam Allen Associates Ltd. The 2023

evaluation was facilitated by the Group’s Internal

Audit team. The areas of focus identified in the 2022

evaluation were all taken into consideration as part

of the 2023 evaluation.

The evaluation included a review of the time

commitment required by each of the Company’s

Non-Executive Directors and the size, structure and

composition of the Board and its Committees. The

Committee also undertook a review of the actions

that arose from the effectiveness review to track

progress. Full details are provided on pages 84-85.

In accordance with the UK Corporate Governance

Code, the Board will continue to undertake annual

evaluations and at least once every three years with

an external consultant facilitating the evaluation.

Given the significant changes to the composition

of the Board in 2023 an external evaluation will be

carried out in 2024.

Succession planning

During the year, the Committee considered the

succession arrangements for the Board and

for the senior management team, comprising

the operational directors below Board level. We

reviewed immediate, mid-term and long-term

succession planning and arrangements and the

Board skills matrix.

This process informs the Group’s framework for

the skills we wish to focus on when preparing role

specifications, evaluating potential new candidates

and developing a diverse and inclusive pipeline. The

Board’s policy on succession planning is directly

aligned to the long-term strategy of the Group.

Diversity and inclusion

The Committee recognises the need to monitor

and review diversity and inclusion, including gender,

social and ethnic backgrounds and cognitive and

personal strengths in relation to how the Group is

led and represented. During 2022 the Group set the

following targets to increase focus in this area:

• To increase the number of females in

management retail roles by 25% by July 2023.

• To increase the percentage of women on the PLC

Board to over 30% by December 2022.

The targets were reflected in our recruitment and

succession policies and I can report that as a result

of the Group’s various initiatives and actions, we

achieved the PLC Board target and made significant

progress in increasing the number of females in

management roles by 21%.

Employment positions throughout the Group are

filled with the candidates who possess the most

appropriate skills and competencies relevant for

the particular job role. We have a policy to treat

all employees fairly and equally regardless of

gender, sexual orientation, marital status, race,

colour, nationality, religion, ethnic or national

origin, age, disability or union membership status.

Our employees receive mandatory diversity and

inclusion training in connection with our continued

focus on developing and promoting a diverse and

inclusive workforce.

Ensuring that our future Board and senior

management team better reflects the diversity

of the communities we serve and the people we

employ is a key objective of our ‘Outstanding team’

strategy pillar. Similarly to other businesses, we

are starting this journey by focusing on a plan to

88 ScS Group plc Annual Report and Accounts 2023

drive gender diversity within our teams and in the

succession pipeline. See page 83 for further detail

of the gender balance across the Group.

We recognise that diversity is much broader than

gender but believe that achieving sustainable

traction in this critical area of talent will help us

develop strategies that can be applied more widely.

Although the Company fully supports the current

debate on Board diversity and the Board diversity

targets set out in Listing Rule 14.3.33, it does not

currently meet all of these targets, as only 30%

of the Board are women and none of the senior

positions on the Board is currently held by a woman.

However, we announced in November 2022 that

Angela Luger will undertake the role of Senior

Independent Director with effect from 1 December

2023, when Ron McMillan steps down from the Board,

and after that date over 42% of the Board will be

made up of women. Accordingly, from 1 December

2023 the Company will meet all of the diversity

targets set out in Listing Rule 14.3.33.

Our people are our greatest asset and key to our

success, incorporating their views into Board

decision making is essential to achieving our

business objectives and creating a workplace which

treats everyone equally.

Alan Smith

Chair of the Nomination Committee

24 October 2023

Nomination Committee report continued

89ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Audit Committee report

to risks and controls, the Committee ensures that

these have been identified and that appropriate

responsibilities and accountabilities have been set.

A key responsibility of the Committee is to review

the scope of work undertaken by the internal

and external auditors and to consider their

effectiveness.

During the year, the Committee again oversaw the

process used by the Board to assess the viability

of the Group, the stress testing of key trading

assumptions and the preparation of the Viability

statement which is set out on pages 65 to 66 of the

Strategic report.

The Committee has considered the narrative in

the Strategic report, whether it is presented in

an equitable manner and whether it provides the

necessary information to shareholders to assess

the Group’s performance, business model and

strategy. The Committee considered management’s

assessment of items included in the financial

statements and the prominence given to them.

The Committee, and subsequently the Board,

were satisfied that, taken as a whole, the 2023

Annual Report and Accounts are fair, balanced and

understandable.

Dear Shareholder,

The Audit Committee (‘the Committee’) is integral to

the Group’s governance framework and continues

to keep its activities under review to reflect

regulatory developments and best practice. The

Audit Committee advises the Board on financial

reporting, viability and going concern and whether

the Annual Report provides shareholders with

the information necessary to assess the Group’s

performance. It also monitors risks, risk mitigation

and internal control.

The Committee has oversight of the Group’s

financial policies and reporting, monitors the

integrity of the financial statements and reviews

and considers significant financial and accounting

estimates and judgements.

The Committee satisfies itself that the disclosures

in the financial statements about these estimates

and judgements are appropriate and obtains from

the external auditors an independent view of the

key disclosure issues and risks.

Whilst risk management is a Board responsibility,

the Committee has continued to work closely

with the Board and senior management to ensure

that all significant risks are considered on an

ongoing basis and that all communications with

shareholders are properly considered. In relation

The Committee has

oversight of the Group’s

financial policies and

reporting, monitors

the integrity of the

financial statements and

reviews and considers

significant financial and

accounting estimates and

judgements.”

The Audit Committee oversees the Group’s assessment of risk, risk

management and risk mitigation, the internal audit framework and

assesses the effectiveness of internal and external audit.

90 ScS Group plc Annual Report and Accounts 2023

The Committee reviewed, on behalf of the Board,

the Group’s compliance with the Modern Slavery

Act and it’s policies in relation to money laundering

and anti-bribery. The Committee has also given

consideration to the development of climate-

related reporting and the Group has reported in line

with the Task Force on Climate-related Financial

Disclosures (TCFD) requirements in the year; see

pages 38 to 40 for further detail.

The meetings at which the above and certain other

matters were discussed were as follows:

Member and meetings attended in 2023

Member

since

Meetings

attended

Ron McMillan (Chair) 2014 3

Angela Luger 2019 3

Carol Kavanagh 2022 3

Andy Kemp* 2023 2

John Walden** 2023 2

Swarupa Pathakji*** 2023 1

* Andy Kemp was appointed in February 2023.

** John Walden was appointed in March 2023.

*** Swarupa Pathakji was appointed in May 2023.

The Audit Committee met three times during the

financial year. Further meetings of the Committee

have also been held since the year end.

I am retiring from the Board in early 2024. On

1 December 2023 Andy Kemp will become the Chair

of the Audit Committee. Andy joined the Audit

Committee upon his appointment in February 2023,

enabling a thorough handover prior to my upcoming

departure. Andy has extensive experience in

audit, governance and risk management and I am

confident that under his leadership, the Committee

will fulfil its duties to an exceptionally high standard.

Up until my departure, I will be available to speak

with shareholders at any time, as will Andy upon

commencement of his tenure. Andy and I will be

available at the Annual General Meeting (AGM) to

answer any questions you may have on this report.

As always, I’d like to thank my colleagues on the

Committee for their help and support during the

year.

Ron McMillan

Chair of the Audit Committee

24 October 2023

Audit Committee report continued

91ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Committee composition

The Committee comprises six members, all of

whom are Non-Executive Directors. Two members

constitute a quorum and the Committee must

include one financially qualified member with recent

and relevant financial experience. The Committee

Chair, Andy Kemp and Swarupa Pathakji each fulfil

this requirement. All members are expected to have

an understanding of financial reporting, the Group’s

internal control environment, relevant corporate

legislation, the roles and functions of internal audit

and external audit and the regulatory framework of

the business.

The members of the Committee during the year

were Ron McMillan, Angela Luger, Carol Kavanagh,

Andy Kemp, John Walden and Swarupa Pathakji.

Details of Committee meetings and attendance are

set out in the Corporate governance statement on

page 80. In December 2023 Ron McMillan will step

down from the Board, and as Chair of the Audit

Committee, having served the maximum nine-year

tenure for an independent Non-Executive Director.

As noted in the Chair’s report, Andy Kemp joined the

Board and the Audit Committee as a Non-Executive

Director on 1 February 2023 and, following the end

of Ron’s tenure, will assume the Audit Committee

Chair role. Andy is financially qualified with recent

and relevant financial experience. The timing of

Committee meetings is set to accommodate the

dates of releases of financial information and the

approval of the scope of and outputs from work

programmes executed by the internal and external

auditors. The biographies of the members of the

Committee can be found on pages 68-70 and reflect

the significant experience that the Committee

members have of working in or with companies in

the retail and consumer goods sectors.

Although not members of the Committee, Alan

Smith, as Group Chair, Steve Carson, as CEO, and

Chris Muir, as CFO, attend meetings, together with

representatives from the internal audit function and

the external auditors.

In addition to scheduled meetings, the Committee

Chair met with the Head of Audit, Risk & Compliance,

the external auditors and the CFO during the year.

The Head of Audit, Risk & Compliance and the

external auditors are provided with the opportunity

to raise any matters of concern that they may have

in the absence of the Executive Directors whether

at the Committee meetings, or more informally,

outside of them.

The Committee critically evaluates its own

performance on an annual basis and considers

where improvements can be made. An external

evaluation is performed once every three years in

line with best practice.

Board reporting

The Committee provides an update of matters

discussed to the Board and the minutes of Audit

Committee meetings are circulated to the Board.

Responsibilities

The responsibilities of the Committee, as delegated

by the Board, are set out in the terms of reference

which are published on the Group’s corporate

website. They include the following:

• Reviewing the integrity of the financial

statements and other price sensitive financial

releases of the Group and the significant

financial judgements and estimates related

thereto;

• Monitoring the scope of work and the quality,

effectiveness and independence of the external

auditors and approving their reappointment and

fees;

• Monitoring the independence and activities of

the internal audit function;

• Assisting the Board with the development and

execution of a risk management strategy, risk

policies and current risk exposures, including

the maintenance of the Group’s strategic risk

• Keeping under review the adequacy and

effectiveness of the Group’s internal financial

controls and the Group’s risk management and

compliance system.

Activities

In discharging its oversight of the matters

referred to above and in the introductory letter

to this report, the Committee was assisted by

management and both the internal and external

auditors.

The recurring work of the Committee comprised:

• Review of the Annual Report and Financial

statements of the Group;

• Review and approval of the statements to be

included in the Group’s Annual Report concerning

internal controls and risk management;

• Review of the Interim Results report and non-

statutory financial statements of the Group for

the half year;

• Consideration of the significant areas of

accounting estimation or judgement;

• Consideration of the principal risks included in

the Annual Report;

• Consideration of going concern and viability

issues and the related disclosures;

• Consideration of the Group’s reporting against

TCFD recommendations;

• Approval of the external auditors’ terms of

reference, audit plan and fees; and

• Approval of the internal audit plan.

92 ScS Group plc Annual Report and Accounts 2023

The meetings at which the above and certain other matters were discussed were as follows:

October 2022 March 2023 July 2023

Review of Interim Results x

Review of Annual Report; approval of Audit Committee report, consideration of significant areas of accounting estimation or

judgement and whether the Annual Report is fair, balanced and understandable x

Review of management representations x x

Review and approval of the internal audit plan, reports and updates x x x

Approval of the external audit strategy and fees x

Update on the provision of any non-audit services and fees provided by the external auditors x x

Effectiveness of the internal audit function x

Effectiveness of the external audit x

Risk management update and review of related disclosures x x x

Review of internal control processes and related disclosures x x x

Review of disaster recovery practices x x x

Update on the Group data protection compliance including policy review x x x

Reviewed and agreed the structure and annual plan for compliance function x

Effectiveness of procedures for detecting fraud x

Consideration of the 2018 UK Corporate Governance Code and disclosure regulations x x

Year-end final review of related party transactions x

Accounting policies and disclosures in relation to:

– Corporation tax and VAT x x

– Supplier rebates x x x

– Stock and related provisions x x x

– Impairment assessment for loss making stores x x x

– Dilapidations x x x

– Accounting for warranties x

– Valuation of parent company investment x x x

– The acquisition of Snug Furniture Limited x x

Going concern and viability issues and disclosures x x x

TCFD reporting disclosures x x

In considering the above accounting matters the Committee had regard to papers and reports prepared by the Group finance team and the external auditors and the explanations and disclosures made in the Annual Report.

Audit Committee report continued

93ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Significant issues and judgements relating to the financial statements

The Committee monitors the integrity of the annual and interim reports, including a review of the key accounting issues, areas of judgement and related disclosures

contained in them.

Area of focus Committee’s response

Impairment

Management reviews the carrying amount of goodwill, property, plant and

equipment and right-of-use assets every year to determine if there are any

indications of impairment. The estimate of the recoverable amount is based on

value in use calculations which requires management to estimate future cash

flows and an appropriate discount rate. The prior year impairment assessment is

also taken into consideration and where it is identified that the impairment has

reduced, a reversal of the impairment is recorded.

The Committee discussed with management and the external auditors the

validity of cash flow projections and the significant financial assumptions used,

including the selection of appropriate discount and growth rates used over

the remaining lease period. The Committee satisfied itself that the principles

and judgements applied were appropriate as well as the presentation of the

impairment within the financial statements.

Parent company investment

The ultimate parent company of the Group, ScS Group plc, holds an investment in

the subsidiary companies of the Group. The carrying value of this investment is

reviewed by management to determine if there are any indications of impairment.

Management use analysis to assess the investment for indications of impairment

including; a value in use calculation incorporating budget-based cash flow

projections and an assessment of market capitalisation.

The Committee discussed with management and the external auditors the

analysis performed by management, including verifying the validity of any

significant assumptions applied in the value in use model (discount and

growth rates applied) and the practicality of an assessment against market

capitalisation.

The Committee satisfied itself that the principles and judgements applied were

appropriate and that no impairment charge was required.

Supplier rebates

The Group receives volume rebates from suppliers which are pre-negotiated and

split between suppliers with rebate ‘hurdle’ rates dependent on spend and those

that have a flat rate. Where rebate arrangements were not coterminous with the

year end, judgements were required but the amounts involved were not material.

The Committee gained an understanding of these arrangements, discussed

them with management and the external auditors and satisfied itself with the

controls that are in place to ensure that amounts received and receivable from

suppliers are properly accounted for on a monthly basis and that the related

judgements are limited.

Stock provisions

The Group’s policy in relation to stock provisioning is to provide for obsolete, slow

moving and defective stock.

The Committee has discussed with management and the external auditors how

the policy has been applied in practice so as to ensure that stock is held at the

most appropriate estimate of net realisable value. The Committee satisfied

itself that stock was not materially misstated.

Dilapidation provision

The Group’s policy is to ensure a suitable dilapidations provision is in place to

utilise to cover costs when a site is exited at the end of a lease. Historical data is

used to estimate future liabilities; therefore, a degree of judgement is required.

The Committee has reviewed management’s dilapidations calculation and

assumptions, and satisfied itself that an appropriate provision is in place.

Alternative Reporting Measures (APMs)

The Group’s policy is to adopt APMs in order to assist in providing useful

information on the underlying performance and position of the Group. In the

current year, the Group has adopted an adjusting items APM to exclude certain

costs and incomes that are material in size and unusual/non recurring in nature.

The Committee has reviewed management’s calculation and presentation of

APMs. The Board believe that these APMs assist in providing useful information

on the underlying performance and position of the Group and enhance the

comparability of information between reporting periods by adjusting for non-

underlying items which affect IFRS measures and are used internally by the

Board to measure the Group’s performance.

94 ScS Group plc Annual Report and Accounts 2023

Climate change and risk reporting

During the year, the Group prepared its second

report in line with the TCFD requirements which can

be found on pages 38 to 40. The report outlines

the progress made in understanding, identifying

and managing the business’s climate-related risks

and opportunities. We acknowledge that climate-

related reporting is a rapidly developing topic that

we will continue to monitor as required.

Going concern

The Board and the Committee considered the

half-year and full-year statements with respect

to the going concern basis of accounting and

have satisfied themselves that the underlying

assumptions supporting the statements continue

to be reasonable and support the conclusion that

the Group has adequate resources to continue to

operate for a period of at least 12 months from the

date on which the financial statements are signed.

Accordingly, they continue to adopt the going

concern basis in preparing the financial statements

(see note 2 to the financial statements on page 137).

Viability statement

The Board is required to consider whether the Group

can continue to operate and meet its liabilities,

taking into account its current position and

principal risks in the longer term, having considered

severe but plausible risks and risk combinations.

The Committee reviewed the process undertaken

by management and considered management’s

scenario modelling and the stress testing of these

models. The Committee reviewed and challenged

the assumptions used by management in its

modelling, including specific challenges on how

severe but plausible revenue and margin reductions

had been determined, the value of revenue and

margin reductions, and whether the modelling

should cover a period greater than three years and

how this could be reflected in the Annual Report.

The Committee concluded that the Board is able to

make the Viability statement on pages 65-66 of the

Strategic report.

Fair, balanced and understandable

The Committee considered whether the 2023

Annual Report and Accounts is fair, balanced

and understandable and whether it provides the

necessary information to shareholders to assess

the Group’s performance, business model and

strategy. Also considered was management’s

assessment of items included in the financial

statements, including non-GAAP APM’s and the

prominence given to them. The Committee and

subsequently the Board were satisfied that, taken

as a whole, the 2023 Annual Report and Accounts is

fair, balanced and understandable.

Risk management and internal control

The Board has overall responsibility for ensuring

that the Group maintains a sound system of

internal control. There are inherent limitations

in any system of internal control and no system

can provide absolute assurance against material

misstatements, loss or failure. Equally, no system

can guarantee elimination of the risk of failure

to meet the objectives of the business. Against

that background, the Committee has helped the

Board develop and maintain an approach to risk

management which incorporates risk appetite, the

framework within which risk is managed and the

responsibilities and procedures pertaining to the

application of the policy.

The Group is proactive in ensuring that corporate

and operational risks are identified and managed.

Functional risk registers are maintained which detail:

1. The risks and the impact they may have;

2. The risk appetite for each risk;

3. The link to principal risks;

4. Actions to mitigate risks;

5. Risk scores to highlight the implications of

occurrence;

6. Ownership of risks; and

7. Target dates for actions to mitigate risks.

A description of the principal risks is set out on

pages 59 to 64.

The Board has confirmed that it has carried out a

robust assessment of the principal risks facing the

Group, including those which threaten its business

model, future performance, solvency or liquidity.

The Board considers that the processes

undertaken by the Committee are appropriately

robust and effective and in compliance with the

guidelines issued by the Financial Reporting Council

(FRC). During the year, the Board has not been

advised by the Committee nor has it identified

itself, any failings, frauds or weaknesses in internal

control which it has determined to be material in the

context of the financial statements.

The Committee continues to believe that

appropriate controls are in place throughout

the Group, and that the Group has a well-defined

organisational structure with clear lines of

responsibility and a comprehensive financial

reporting system. The Committee also believes that

the Company complies with the FRC guidance on risk

management, internal control and related financial

business reporting. Furthermore, the internal audit

function has carried out an assessment of the

effectiveness of actions taken by management to

mitigate significant risks.

Internal audit

The Head of Audit, Risk & Compliance has a direct

reporting line to the Committee and attends every

Committee meeting to present internal audit and

risk management reports. During the financial

year, internal audit has undertaken a programme

of work which was discussed and agreed with both

management and the Committee and which was

Audit Committee report continued

95ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

designed to address both risk management and

areas of potential financial loss. All of the agreed

work has been performed and the Committee is

comfortable that all key areas of risk have been

covered. Internal audit has also established

procedures within the business to ensure that new

risks are identified, evaluated and managed, and that

necessary changes are made to the risk register.

During the year, the Committee reviewed reports

from internal audit in relation to:

• Fraud risk and related internal controls;

• Anti-money laundering;

• Anti-bribery and corporate crime;

• Compliance with the Modern Slavery Act;

• Compliance with data protection;

• Compliance assessments of the Group’s

operating processes in relation to retail outlets

and distribution centres;

• Risk management, including the effectiveness

of mitigating actions in relation to the Group’s

principal risks;

• Department for Business, Energy & Industrial

Strategy (BEIS) response, timeline and action

plan;

• Compliance processes;

• Marketing;

• Health and safety processes;

• Payroll processes;

• Human resources;

• Purchase ledger processes;

• Information technology;

• Central customer experience processes;

• ESG strategy; and

• Digital processes.

In relation to each of the above, internal audit

made recommendations for improvement to

management, all of which were agreed and either

have been or are being implemented.

The Committee has evaluated the performance of

internal audit during the year and concluded it is

a function which has a strategic plan developed

in collaboration with the Committee, and which

provides constructive challenge and demonstrates

a realistic and commercial view of the business.

External auditors

Following a tender process in 2019,

PricewaterhouseCoopers LLP (PwC) were re-

appointed as the Group’s external auditors. The

audit partner is Andy Ward, who is a partner in PwC’s

Leeds office and has been the audit partner for

three years. PwC has been the Group’s auditors for

13 years.

The Committee has established policies in relation

to the provision of non-audit services by the

auditors. The external auditors are not permitted

to perform any work that they may be later required

to audit or which might affect their objectivity and

independence or create a conflict of interest.

Furthermore, the external auditors may not perform

any work prohibited by the Ethical Standards

published by the FRC.

All fees for non-audit work require pre-authorisation

by the CFO and the Audit Committee, and non-audit

fees paid to the auditors are not permitted to

exceed 70% of average audit fees over a three-year

period. During the year other non-audit services

provided by PwC included £30,000 for their review of

the interim financial statements. No other non-audit

services were provided by the external auditors.

Fees paid to PwC for audit work were £240,000.

The Group is in compliance with the requirements of

The Statutory Audit Services for Large Companies

Market Investigation (Mandatory Use of Competitive

Tender Processes and Audit Responsibilities)

Order 2014, which relates to the frequency and

governance of external audit tenders and the

setting of a policy on the provision of non-audit

services.

In accordance with International Standards on

Auditing (UK & Ireland) 260 and Ethical Statement 1

issued by the Accounting Practices Board, and as a

matter of best practice, the external auditors have

confirmed their independence as auditors of the

Group.

The Committee is responsible for assessing the

effectiveness of the external audit process and

does so in a number of ways:

1. The Committee, together with the CFO, met

with the senior members of PwC, prior to both

the interim review and year-end audit, as they

presented their plan for discussion;

2. The Committee, together with the CFO and other

members of the Board, met with PwC to assess

the execution of the review/audit and reporting

of their findings; and

3. The Committee considered the matters set

out in PwC’s 2023 Transparency Report dealing

with audit quality monitoring and remediation. It

considered the results of internal and external

engagement reviews and the steps taken by PwC

to address findings. Within PwC, audit quality is

monitored at a global level and at an engagement

level, with all engagement partners being

reviewed at least once in a three-year cycle.

In reviewing PwC’s 2023 Transparency Report,

the Committee noted the firm’s commitment to

quality and risk management. The Committee also

discussed with PwC the results of the FRC Audit

Quality Inspection of the UK firm. During PwC’s

attendance at Committee meetings, the Committee

also met privately with the auditors and, as Chair of

the Committee, I had regular dialogue with the audit

partner.

The Committee considered in detail PwC’s audit

planning documentation and satisfied itself that

the audit work to be carried out by PwC covered

all significant aspects of the Annual Report

96 ScS Group plc Annual Report and Accounts 2023

and Accounts and, therefore, did not feel it was

necessary to ask PwC to look at any additional areas

specifically. PwC’s report to the Audit Committee

at the conclusion of the audit confirmed that the

audit had been carried out in accordance with the

planning documentation and the Audit Committee

considered the findings of PwC as reflected in their

audit opinion and their year-end report to the Board.

PwC’s audit opinion set out the key matters that,

in their opinion were of most significance in this

audit. These were consistent with the key matters

considered and agreed with the Audit Committee

when the audit was planned. PwC’s report describes

how these matters were addressed in the audit

and the scope and nature of their work reflects the

thoroughness of their approach and the degree of

scepticism applied.

The Committee reviews annually the performance

of PwC with feedback from management, the

Group’s finance team, the internal audit function

and the Board. As part of this review, the Committee

met with members of the audit team to understand

the experience of the wider team and their

understanding of the Group, the retail sector

and the extent of challenge to management on

areas which required judgement. The conclusions

reached were that PwC has continued to perform

the audit in a professional and efficient manner

with the necessary objectivity and challenge

to demonstrate independence. Following the

FY22 audit, it was noted that for future audit

processes the Board would need to be satisfied

with the strengths and experience of the PwC

engagement team, which was addressed in PwC’s

planning process for FY23. It is the Committee’s

recommendation to the Board that PwC be re-

appointed auditors at the AGM on 1 December 2023.

The Board has no present plans to consider an audit

tender process.

The Committee reviewed the reports

prepared by PwC on key audit findings as well

as the recommendations made by PwC to

improve processes and controls together

with management’s responses to those

recommendations. PwC did not highlight any

material internal control weaknesses and

management has committed to making appropriate

changes in controls in the areas highlighted by PwC.

Ron McMillan

Chair of the Audit Committee

24 October 2023

Audit Committee report continued

97ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Directors’ remuneration report

dedication, in August 2023 we awarded annual pay

increases that supported critical roles across

the organisation and key structural changes. Our

approach to pay was therefore bespoke and a

range of pay awards were made, which resulted

in a minimum 3% pay increase for our colleagues

(maximum 3% for all Directors).

FY23 incentives

The Executive Directors are eligible for annual bonus

incentives with a maximum opportunity of 140% of

salary. Historically the Group has used EBITDA to

determine the annual bonus award. In the FY23 year

we concluded that 10% of the award would be based

on hitting two ESG targets, with the other 90% driven

by an EBITDA profit target. In concluding on the profit

award for the year, the Committee excluded the

performance of Snug given it was not known when

we set the targets.

Whilst the Group did not achieve the original EBITDA

target, largely driven by the gross margin impact

of the increased interest rate experienced over

the year, the business exceeded the budgeted

adjusted profit before tax* target. The ScS adjusted

profit before tax for the year was £9.2m, compared

to a budget of £8.0m. Based on this profit before

tax outperformance, the Committee has therefore

approved the minimum EBITDA pay out.

Moving forward we will be using adjusted profit

before tax* as the measure for the financial

element of our targets and this year is one of

transition to this method.

Dear Shareholder,

I am pleased to present this year’s Directors’

remuneration report on behalf of the Remuneration

Committee (‘the Committee’).

In April 2023, I stepped into the role of Remuneration

Committee Chair. I would like to thank Angela Luger

and the members of the Committee, for all their

support and guidance.

This report provides context and insight into our

pay arrangements for Non-Executive Directors and

Executive Directors including the assessment of

FY23 performance and pay, our continued focus

on fairness of pay across the Group, as well as our

plans for FY24.

We remain focused on our strategic priorities as we

look to continue to grow our market share. Critical

to delivering these plans is building and developing

outstanding teams in all areas of the organisation.

The Committee is also conscious as to delivering

our plans in a sustainable manner to ensure that

all stakeholders are considered. This has been

reflected in the decisions made when considering

our pay and incentive arrangements for the wider

workforce.

The team continue to react and demonstrate great

flexibility to the uncertainty in economic conditions.

Despite the challenging backdrop the Group has

delivered a resilient financial result ahead of market

expectations.

In recognition of our teams’ hard work and ongoing

In recognition of our teams’

hard work and resilience,

in August 2023 we awarded

annual pay increases that

supported critical roles in

the organisation and key

structural changes”

* Adjusted profit before tax is based on profit before tax

before the effect of adjusting items. See page 138 for

the definition of adjusting items.

The delivery of our strategic priorities depends on building and developing

outstanding teams in all areas of the organisation. This has been

reflected in the decisions made when considering our pay and incentive

arrangements for the wider workforce.

98 ScS Group plc Annual Report and Accounts 2023

In addition, both of the ESG bonus targets on

colleague wellbeing (measured by the employee

engagement survey) and waste reduction were met.

Therefore, the bonus will pay out at 21.25% of the

maximum.

Long-term incentives

The FY21 award is due to vest in October 2023,

however, the performance period ended on

29 July 2023 and so the vesting percentage can

be determined. The Remuneration Committee

are, however, conscious that the award was

granted before transition to IFRS 16, at a time when

there were 38,012,655 shares in issue, before the

acquisition of Snug, and that the statutory tax rate

has risen since the grant date. On this basis the

Remuneration Committee have recalculated EPS

using the same accounting basis, number of shares

and effective tax rate as at the date of the award

and based the vesting calculation on the adjusted,

excluding Snug, EPS of 19.7p. Therefore, the award will

vest at 33.07% of the maximum.

Remuneration in FY24

On 24 October 2023, a wholly owned subsidiary of

Panda S.P.A announced a recommended cash offer

for the entire issued and to be issued share capital

of the Company. Should the acquisition complete as

intended, rewards and incentives may be reviewed.

If for any reason, the offer does not proceed, the

current remuneration packages will continue.

Steve Carson and Chris Muir have received

increases of 3% of salary in line with the increases

applied to the wider workforce. Benefit and pension

provisions remain unchanged for the forthcoming

year.

The Committee has decided to continue to

incorporate ESG metrics in the form of employee

engagement (wellbeing) and waste reduction

measures into the annual bonus. These metrics will

again account for 10% of the overall bonus with the

remainder being subject to profit before tax targets.

The maximum bonus opportunity for the CEO and

CFO remains unchanged at 140% of salary.

The Long Term Incentive Plan (LTIP) award will

continue to be subject solely on EPS with the LTIP

grant unchanged at 150% of salary for both the CEO

and CFO.

Fees for our Chair and Non-Executive Directors

remain unchanged for the forthcoming year.

Executive Director changes

We announced in December 2022 Chris Muir’s

intention to step down as CFO. Chris has a 12-month

notice period; he will receive his FY23 bonus (subject

to the normal performance conditions) and will be

eligible for a pro-rated annual bonus in FY24 but will

not participate in the LTIP.

The Board have since appointed a successor; Mark

Fleetwood joined as CFO effective 4 September

2023. Mark Fleetwood’s basic salary has been set

at £325,000 with an annual bonus and long-term

incentive opportunity in line with our Remuneration

Policy. He is also eligible to receive a car cash

allowance and healthcare cover in line with that

of Chris Muir, and a pension in line with the wider

workforce.

Colleague input

We have actively engaged with our colleagues from

across the business through face-to-face feedback

sessions, where they were able to openly raise any

topics with myself and the wider team of Directors.

These sessions, combinedwith our annual employee

engagement survey, provided insight to help shape

the future people strategy for the business, and

ensure our decisions on all matters are carefully

considered and allow for feedback and improvement.

On behalf of the Committee, I would like to thank

shareholders for their input and engagement in

the year, and we welcome any comments. I will be

available at the Annual General Meeting (AGM) in

November to answer any questions you may have on

this report.

Carol Kavanagh

Chair of the Remuneration Committee

24 October 2023

Directors’ remuneration report continued

99ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Remuneration principles

The key aims of the Remuneration Policy are to:

• Attract, retain and motivate high-calibre senior management;

• Focus senior management on the delivery of the Group’s business objectives;

• Promote a strong and sustainable performance culture;

• Incentivise profitable growth; and

• Align the interests of the Executive Directors and senior management with those of the shareholders.

In promoting these objectives, the Committee’s aims are to implement the Remuneration Policy in a simple, transparent and understandable way, supporting the

principles set out in Provision 40 of the 2018 UK Corporate Governance Code (‘the Code’):

Clarity The Remuneration Policy is closely aligned to the business, purpose and strategy

and has a clear link between performance and reward.

Simplicity The Policy has operated largely unchanged since IPO, with the most significant

change being our formal commitment to align executive pension contributions

with the wider workforce.

Risk Performance targets are set to ensure the delivery of sustainable profitable

growth and appropriate safeguards are in place to ensure that overall outcomes

are aligned with underlying business performance and the stakeholder

experience.

Predictability The range of possible rewards for variable pay are set and disclosed.

Proportionality Remuneration levels are periodically benchmarked against other similar sized

companies and actual rewards are closely linked to the delivery of the strategy

and the long-term performance of the Company.

Alignment to culture The incentive schemes are focused on our strategy of sustainable profitable

growth and are designed to encourage behaviours that are consistent with ScS’

purpose, culture and values.

100 ScS Group plc Annual Report and Accounts 2023

Annual remuneration report

Single figure table of total remuneration Executive Directors – audited

The audited table below shows the aggregate remuneration of the Directors of the Group during FY23 and FY22:

Salary

Benefits

Bonus

LTIP

Pension

Total

Total fixed

remuneration

Total variable

remuneration

Steve Carson

FY23 412,000 21,414 122,570 – 20,600 576,584 454,014 122,570

FY22 400,000 21,534 269,360 – 20,000 710,894 441,534 269,360

Chris Muir

FY23 329,600 18,414 98,056 108,654 16,480 571,204 364,494 206,710

FY22 320,000 18,534 215,488 114,027 16,000 684,049 354,534 329,515

1. Taxable benefits of the Directors are discussed in detail below. Executive Directors received a car allowance and private medical insurance.

2. Estimated value of the FY21 LTIP award, using the average of the closing mid-market share price in the three-month period ending 29 July 2023, being 158.7p. The value of the FY20 LTIP has been restated to reflect actual

vesting of awards based on a share price of 139.0p on the date of vesting. The share price on the date of grant was 235.0p, therefore, there is nil value due to appreciation from grant. LTIP participants receive dividends (or

any other distribution) only when the award vests. The value of the dividend equivalents paid on the CFO’s FY20 award was £11,392, taken as shares (8,196 shares).

3. Steve Carson and Chris Muir opt to receive part of their pension contributions as a cash allowance.

Elements of remuneration

Salary

The basic salary for Steve Carson, CEO, was reviewed and increased from £400,000 to £412,000 effective 1 August 2022. The basic salary of Chris Muir, CFO, was also

reviewed based on the same principles and increased from £320,000 to £329,600 effective 1 August 2022. This was in line with the wider workforce basic salary

increase.

Pension and other benefits – audited

Executive Directors are eligible to pension benefits equating to 5% of their basic salary, which are non-contributory. This aligns to the pension rate applicable to the

wider workforce.

Steve Carson, CEO, received £4,000 of pension benefits and Chris Muir, CFO, received £3,938. The balance was paid as a cash allowance.

Any new Executive Director appointments will have a pension contribution in line with that provided to the wider workforce.

The Executive Directors received a car allowance which was as follows:

• Steve Carson, CEO: £20,000

• Chris Muir, CFO: £17,000

The Executive Directors are also provided with private medical insurance and life assurance that provides cover of up to four times taxable earnings.

Directors’ remuneration report continued

101ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Annual bonus – audited

The Executive Directors are eligible for annual bonus incentives with a maximum opportunity of 140% of salary. Historically the Group has used EBITDA to determine

the annual bonus award. In the FY23 year we concluded that 10% of the award would be based on hitting two ESG targets, with the other 90% driven by an EBITDA profit

target. In concluding on the profit award for the year, the Committee excluded the performance of Snug given it was not known when we set the targets.

Whilst the Group did not achieve the original EBITDA target, largely driven by the gross margin impact of the increased interest rate experienced over the year, the

business exceeded the budgeted adjusted profit before tax target. The ScS adjusted profit before tax for the year was £9.2m, compared to a budget of £8.0m. Based

on this profit before tax outperformance, the Committee has therefore approved the minimum EBITDA pay out.

Moving forward we will be using adjusted profit before tax* as the measure for the financial element of our targets and this year is one of transition to this method.

In addition, both of the ESG bonus targets on colleague wellbeing (measured by the employee engagement survey) and waste reduction were met. Therefore, the

bonus will pay out at 21.25% of the maximum. The details of the targets and how the bonus was calculated are set out below:

Target/ % of max bonus Target

% of

max bonus Actual

Pre-bonus EBITDA £15.7m £20.3m £22.2m £24.1m

% maximum 11.25% 45% 67.50% 90% 11.25%

Social – employee engagement 65 5% 5%

Environmental – Waste reduction across the business 5% 5% 5%

Steve Carson £64,890 £259,560 £389,340 £519,120 £57,680 £122,570

Chris Muir £51,912 £207,648 £311,472 £415,296 £46,144 £98,056

Long-term incentives

Awards vesting in 2023 – audited

The LTIP granted on 12 October 2020, is due to vest in October in 2023. The initial award provided vesting conditions on a straight-line basis between 25% and 100%

based on an EPS in 2023 from 18.3p to 31.0p.

The underlying EPS as reported under IFRS16 for the year is 15.9p, which would not have resulted in an award under the terms of the LTIP. The Remuneration Committee

are, however, conscious that the award was granted before transition to IFRS 16, at a time when there were 38,012,655 shares in issue, before the acquisition of Snug

(which has been loss making as the business grows from a standing start), and that the statutory tax rate has risen since the grant date.

As a consequence, the Remuneration Committee have recalculated EPS using the same accounting basis, number of shares and effective tax rate as at the date of

the award and based the vesting calculation on the adjusted, excluding Snug, EPS of 19.7p. As such, the award will vest at 33.07% of the maximum.

Awards granted during the year – audited

During the year, the Executive Directors were granted a LTIP award with a face value of 150% of salary. The awards were made in the form of nil-cost options and were

for 348,955 and 279,164 shares respectively for Steve Carson, CEO, and Chris Muir, CFO. The awards have a three-year vesting period, plus a two-year hold period.

* Adjusted profit before tax is based on profit before tax before the effect of adjusting items. See page 138 for the definition of adjusting items.

102 ScS Group plc Annual Report and Accounts 2023

Details of the award are set out in the table below:

Max. award

(% of salary)

Max award

£ No. shares

Performance

measures Holding period

Steve Carson 150% £618,000 348,955 100% EPS 2 years

Chris Muir 150% £494,400 279,164 100% EPS 2 years

1. The five-day average share price prior to the date of grant, 21 April 2023, was 177.1p.

The Committee chose to delay the setting of the EPS targets at the start of FY23 to ensure that it could consider all relevant information. A review was completed to

ensure that the long-term incentive targets for our senior leadership team are appropriately stretching and motivational, and this included independent advice on

executive remuneration. The EPS targets approved are set out below:

EPS figure (in 2024) Percentage of award that vests

Less than 17.3p Nil

17.3p 12.5%

Greater than 17.3p but less than 23.1p Straight-line basis between 12.5% and 50%

Greater than 23.1p but less than 30.6p Straight-line basis between 50% and 100%

30.6p or greater 100%

The performance conditions for the FY23 LTIP awards are consistent with the Company’s approved Directors’ Remuneration Policy.

All-employee share plans

The Group offers an all-employee UK Share Incentive Plan (SIP). All employees on completion of six months service become eligible to join. Under the SIP employees

may elect to acquire up to £150 worth of shares in the Group every month or pay a maximum one-off lump sum of up to £1,800 in a tax year.

The Executive Directors are eligible to participate in the SIP on the same basis as other employees.

Directors’ remuneration report continued

103ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Directors’ shareholding and share interests – audited

The table below sets out the number of shares held or potentially held by Directors (including connected persons or related parties where relevant) as at the

financial year ended 29 July 2023.

Director

Shares held

beneficially Unvested

Alan Smith 18,096 –

Ron McMillan – –

Angela Luger – –

Carol Kavanagh – –

Andy Kemp – –

John Walden – –

Swarupa Pathakji – –

Shares held

beneficially

Nil cost options

subject to

performance

Option awards

vested but

unexercised

Total

Steve Carson

Number 75,000 572,752 – 647,752

Value at year end £119,025 £908,957 – £1,027,982

Chris Muir

Number 179,557 458,202 68,465 706,224

Value at year end £284,957 £727,167 £108,654 £1,120,778

1. Awards vest subject to EPS performance over a three-year period. This relates to awards granted in FY22 and FY23.

2. Option awards vested (but unexercised) is inclusive of the FY21 EPS LTIP award and dividend equivalents.

The value of share interests at the year-end is based on the average share price in the three months ending on 29 July 2023 of 158.7p. There have been no changes to

share interests as at the date of this report.

The Executive Directors are required to build and maintain a shareholding equivalent to 200% of base salary. The beneficial shareholding for Steve Carson is currently

28.9% of his salary. Mark Fleetwood does not currently hold any shares. Both are required to build up their shareholding, which will be achieved by the retention of

share options awarded under the LTIP.

Chris Muir currently has a shareholding of 86.5% of his salary but will leave the business during FY24.

104 ScS Group plc Annual Report and Accounts 2023

Payments to past Directors – audited

David Knight left the Board on his retirement on 31 July 2021. He retired with the agreement of the Board and worked his full 12-month notice period. As such the

Committee determined that he should be treated as a good leaver, and therefore his unvested conditional shares awarded under the FY20 and FY21 LTIPs were time

pro-rated to 31 July 2021. The LTIP award granted in FY20 vested in October 2022 at 48.2%, resulting in an award of 69,730 shares (inclusive of dividend equivalents) with

a value of £96,925 (the share price at vest was 139.0p) (FY22: Payments to retiring CEO, David Knight, as detailed in last year’s Annual Report). The LTIP award granted in

FY21 will vest in October 23 at 33.07%, resulting in an award of 29,079 shares (inclusive of dividend equivalents) with a value of £47,314 (using the average of the closing

mid market share price in the three month period ending 29 July 2023, being 158.7p, on the non dividend equivalent proportion of the award of 25,342).

Payments for loss of office – audited

There were no payments to past directors in the year ended 29 July 2023 (FY22: none).

Fees retained for external non-executive directorships

Executives may hold external non-executive directorships in non-competing businesses with the express consent of the Board. Fees may be retained for those

roles with Board consent. There are no remunerated non-executive roles currently held by either the CEO or CFO.

Relative importance of the spend on pay

The table below shows the movement in spend on pay for all employees compared with the distributions to shareholders.

FY23

£’000

FY22

£’000 % Change

Total pay for employees 67,775 65,420 3.6%

Distributions to shareholders 4,724 4,443 6.3%

Performance graph and pay table

The chart below illustrates the Group’s Total Shareholder Return (TSR) performance against the performance of the FTSE Fledgling Index, from the date of the IPO of

the Group. This index was selected as it represents a broad equity market index which includes companies of a comparable size.

Total Shareholder Return (Rebased)

27 Jan 2015

27Jan 2016

27Oct 2017

27Oct 2018

27Jul 2018

27Oct 2019

27Jan 2018

27Jul 2017

27Jul 2016

27Jan 2017

27Oct 2015

27Oct 2016

27Jul 2015

27Oct2020

27Jan 2022

27Jul 2019

27Jan 2020

27Jul2020

27Jan 2021

27Jul 2022

27Jan 2023

27Jul 2023

27Jul 2021

27Oct 2021

27Jan 2019

100

150

300

250

200

ScS FTSE Fledgling Index

Source: Datastream (Thomson Reuters).

Directors’ remuneration report continued

105ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

This graph shows the value, by 29 July 2023, of £100 invested in ScS Group plc on 26 January 2015 compared with the value of £100 invested in the FTSE Fledgling Index.

Changes in the remuneration of the CEO

The Committee believes that the Remuneration Policy and remuneration structure clearly aligns with the Group’s strategic objectives and performance. The table

shows the remuneration data for Directors undertaking the role of CEO in the last 10 years.

CEO single

figure

Annual bonus

payment

(% of maximum)

LTIP vesting

(% of maximum)

Steve Carson

FY23 576,584 21.25% N/A

FY22 710,894 48.1% N/A

FY21

577,461 100.0% N/A

David Knight

FY21 1,382,077 100.0% 89.3%

FY20 388,027 0.0% 0.0%

FY19 1,094,972 99.3% 56.3%

FY18 815,408 99.8% 0.0%

FY17 591,303 39.2% 0.0%

FY16 801,290 100.0% N/A

FY15 380,183 0.0% N/A

FY14 557,786 42.3% N/A

1. Remuneration relates to seven months of employment. Shown for illustration only. Comparisons in this report to are made against David Knight’s full year remuneration.

106 ScS Group plc Annual Report and Accounts 2023

Changes in the remuneration of the Directors

The table below shows the percentage changes in the Executive and Non-Executive Directors’ remuneration over the last four years, compared to the amounts for

full-time employees of the Group for each of the following elements of pay:

Percentage change from FY22 Percentage change from FY21 Percentage change from FY20 Percentage change from FY19

Salary Benefits Bonus Salary Benefits Bonus Salary Benefits Bonus Salary Benefits Bonus

Executive Directors

Steve Carson

3% (0.6)% (54.5)% N/A N/A N/A N/A N/A N/A N/A N/A N/A

Chris Muir

3% (0.6)% (54.5)% 11.60% (2.6)% (46.3)% 19.40% – 100% – 2.30% (100)%

Non-Executive Directors

Alan Smith – N/A N/A – N/A N/A – N/A N/A – N/A N/A

Ron McMillan – N/A N/A – N/A N/A – N/A N/A – N/A N/A

Angela Luger

2.3% N/A N/A 10.82% N/A N/A – N/A N/A – N/A N/A

Carol Kavanagh – N/A N/A N/A N/A N/A – N/A N/A – N/A N/A

Andy Kemp – N/A N/A – N/A N/A – N/A N/A – N/A N/A

John Walden – N/A N/A – N/A N/A – N/A N/A – N/A N/A

Swarupa Pathakji – N/A N/A – N/A N/A – N/A N/A – N/A N/A

Average per employee

(excluding Directors)* 5.5% 1.5% (27.8)% 8.8% (6.1)% (49.1)% 1.6% (10.6)% 221% 1.2% 7.3% (56.3)%

1. Steve Carson has had no increase in salary or benefits from FY21 to FY22, as he was appointed in January 2021.

2. Chris Muir received a salary increase in January 2021.

3. Angela Luger was appointed Chair of the Remuneration Committee during FY22 until March FY23 and therefore received an additional payment for this role for a proportion of FY22 and FY23.

CEO pay ratio

The table below shows the ratio of CEO pay for FY23 comparing the sum of the single total figures of remuneration for Steve Carson to the full-time equivalent total

reward of those colleagues whose pay is ranked at the 25th, 50th and 75th percentile in our UK workforce. These employees were identified on 29 July 2023.

We have adopted Methodology Option A to calculate the ratio, as we believe it provides the best comparison of colleague pay with that of our CEO by using a

consistent methodology to value remuneration and identify our employees ranked at the 25th, 50th and 75th percentiles.

1. We have used employee remuneration details from A. Share and Sons Limited and Snug Furniture Limited, the trading subsidiaries of ScS plc. This is considered more meaningful as ScS plc has no employees other than Non-

Executive Directors.

Directors’ remuneration report continued

107ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Colleague pay was calculated based on actual pay and benefits for the 12 monthly payrolls in respect of the full financial year to 29 July 2023. We can confirm that

none of the three individuals received additional or exceptional pay within the year and no adjustments were made to the calculation of the total remuneration for

these employees from the methodology set out for the CEO’s single total figure remuneration. The ratios as set out below:

Year Method 25th percentile 50th percentile 75th percentile

FY23 – Steve Carson Option A 26:1 20:1 15:1

FY22 – Steve Carson Option A 35:1 27:1 21:1

FY21 – David Knight

Option A 70:1 55:1 43:1

FY20 – David Knight Option A 21:1 16:1 12:1

1. David Knight’s FY21 single figure value has been restated to reflect actual vesting value of the FY19 LTIP award, based on a share price of 268.0p on the date of vesting.

The difference in the ratios from FY22 to FY23 is predominantly the result of the reduction in the CEO single figure value. Steve Carson was not eligible to receive an

LTIP vest in FY23 due to his start date. The decrease in pay ratio this year is the combined result of the reduced total remuneration for the CEO, as detailed in the

single figure table and, in response to the cost of living crisis, the focus on pay for lower paid colleagues.

The table below provides the individual remuneration information in relation to our employees ranked at the 25th, 50th and 75th percentiles:

Year Method 25th percentile 50th percentile 75th percentile

FY23 Salary £21,666 £28,549 £36,732

Total pay and benefits £22,117 £29,170 £37,531

FY22 Salary £19,898 £25,549 £33,381

Total pay and benefits £20,241 £26,082 £34,138

FY21 Salary £17,213 £24,483 £27,898

Total pay and benefits £19,641 £25,095 £32,190

FY20 Salary £17,601 £24,259 £19,727

Total pay and benefits £18,190 £24,259 £31,412

Gender pay gap

Our people-focused strategy projects include work focused on talent, reward and employer brand. This work will help us to make sure we are supporting and

representing our female colleagues at every level. Within our learning and development programmes, we will ensure a fair proportion of female colleagues are

included to help provide a supportive environment.

As part of our ESG strategy, we will be reporting and monitoring numbers of females in management roles in retail, with the aim of increasing female management by

25% by the end of FY24.

For further information and to view the full report, please visit www.scsplc.co.uk

108 ScS Group plc Annual Report and Accounts 2023

Remuneration of the Chair and Non-Executive Directors – audited

The structure of Non-Executive Directors fees, and their levels, were set by the Board on admission. No review is expected during FY24.

The fees of the Non-Executive Directors are set by the Board and take account of the chairmanship of Board Committees and the time and responsibility of the roles

of each Director.

The fees paid during FY23 to the Non-Executive Directors were as follows:

FY23 FY22

Alan Smith £125,000 £125,000

Ron McMillan £60,000 £60,000

Angela Luger £56,667 £55,410

Carol Kavanagh £51,154 n/a

Andy Kemp £25,000 n/a

John Walden £20,833 n/a

Swarupa Pathakji £12,500 n/a

Our Non-Executive Directors (excluding the Chair) have a base fee of £50,000. Ron McMillan, Angela Luger and Carol Kavanagh each received an additional £10,000 per

annum for chairing the Audit and Remuneration Committees respectively. Carol Kavanagh was appointed as Remuneration Committee Chair on 1 April 2023. Angela

Luger was paid as Remuneration Committee Chair up to 31 March 2023.

There were no other amounts disclosable for the Non-Executive Directors for the year.

Implementation of the Remuneration Policy in FY24

Salary, pension and other benefits

As anticipated, increases in FY24 will be aligned to that of the wider workforce with average increases of 3%. The CEO and CFO’s base salaries were reviewed and

increased by 3% effective 1 August 2023; this rate is in line with that provided to the wider workforce:

• Steve Carson: £424,360 (previously £412,000)

• Chris Muir: £339,488 (previously £329,600)

Our incoming CFO, Mark Fleetwood, has been appointed on 4 September 2023 with a basic salary of £325,000. Mark’s salary was benchmarked using external market

insights through our recruiters and other benchmarking sources.

The Executive Directors will continue to receive pension contributions of 5% of salary in line with the rate available for the wider workforce. They will also continue to

receive a car allowance, private medical insurance and life assurance.

Directors’ remuneration report continued

109ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Approach for FY24 annual bonus

For FY24, the maximum bonus opportunity is unchanged at 140% of base salary for both the CEO and CFO.

To further align with the strategy, the Committee has included non-financial ESG performance measures into the bonus with a total weighting of 10%. The measures

are:

• Social – employee engagement

This is measured via an independent colleague engagement survey, where the measure is to increase the colleague positive response to the statement ‘ScS

takes a genuine interest in my wellbeing’. The target score is 70 before the end of FY24 (Scored 68 in FY23).

• Environmental – Waste reduction across the business

The remaining 90% of the bonus is based on the achievement of stretching EBITDA targets. The Committee does not disclose the EBITDA targets in advance as they

are commercially sensitive. Retrospective disclosure of the EBITDA targets will be included in next year’s report.

The FY24 annual bonus detailed above may be impacted should the acquisition complete as intended. The Remuneration Committee currently propose that awards

are time and performance pro-rated to the completion date.

Long-term incentives

If the acquisition proceeds, then no FY24 LTIP Award will be granted. Prior to the offer, we commenced a review on the long-term incentive targets for our senior

leadership team to ensure they are appropriately stretching and motivational in light of our newly refreshed growth strategy. Should the acquisition not proceed, we

will seek independent expert advice on executive remuneration, as well as feedback from a range of our key shareholders before finalising our FY24 LTIP award.

The Remuneration Committee intends that the FY24 grants will be maintained at the normal levels (150% of base salary for the Executive Directors). However, the

Committee has full discretion, under the plan rules, to ensure that the final vesting outcomes are justified based on the performance of the Group, including

consideration of any windfall gains.

Chris Muir will not be invited to participate in the LTIP award this year as he is currently within his notice period. Mark Fleetwood will participate in line with the levels

set out in our Remuneration Policy.

Chair and Non-Executive Director fees

Fees for the Chairman and Non-Executive Directors remain unchanged as below.

Role Fee

Chairman £125,000

Non-Executive Directors base fee £50,000

Audit and Remuneration Committee Chair £10,000

Remuneration Committee

The members of the Committee for the 2023 financial year were Carol Kavanagh (Committee Chair from March 2023, previously a Committee member), Angela Luger

(Committee Chair until March 2023), Alan Smith and Ron McMillan, Andy Kemp, John Walden and Swarupa Pathakji. All of the current members are independent Non-

Executive Directors.

The responsibilities of the Committee are set out in the Corporate governance section of the Annual Report on pages 79 to 81.

110 ScS Group plc Annual Report and Accounts 2023

The Committee may invite the Executive Directors or other members of the senior management team to attend meetings and assist the Committee in its

deliberations as appropriate. No person is present during any deliberations relating to their own remuneration or involved in determining their own remuneration.

During the course of the year, Steve Carson, Chris Muir and Lucy Clough (People Director) were in attendance as required.

The attendance of members of the Committee at meetings was as follows:

Member and meetings attended in FY23

Member

since

Meetings

attended

Carol Kavanagh 2022 7

Angela Luger 2019 7

Alan Smith 2014 7

Ron McMillan 2014 7

Andy Kemp 2023 3

John Walden 2023 3

Swarupa Pathakji 2023 2

Advisors to the Committee

During the year, the Committee received independent advice on executive remuneration matters from Mercer Limited. Mercer was appointed by the Committee

following a formal tendering process.

Mercer Limited are members of the Remuneration Consultants Group and, as such, voluntarily operate under the code of conduct in relation to executive

remuneration consulting in the UK. The Committee has received advice provided by Mercer Limited during the year and is comfortable that they have been objective

and independent. Total fees received by Mercer Limited in relation to remuneration advice provided to the Committee during FY23 amounted to £17,600, excluding VAT,

based on the required time commitment.

Shareholder voting

At the AGM on 25 November 2022, the total number of shares issued with voting rights was 35,551,162. The resolution to approve the Annual remuneration report from

the 2022 AGM received the following votes from shareholders.

Resolution Votes for

Percentage of

votes cast in

favour Votes against

Percentage of

votes cast

against Votes withheld

Total votes

cast

Percentage of

issued share

capital voted

To approve the Directors’ remuneration report (2022 AGM) 19,140,744 99.89% 20,476 0.11% 1,666,020 20,827,240 58.6%

This report has been approved by the Board of Directors of the Group and signed on behalf of the Board by:

Carol Kavanagh

Chair of the Remuneration Committee

24 October 2023

Directors’ remuneration report continued

111ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Remuneration Policy overview

Total remuneration packages for the Executive Directors established at the time of the IPO will provide the basis for the structure of Director remuneration for the

Group. Variable elements of reward including performance-based annual bonuses and long-term incentives will form a significant part of the overall remuneration

package for Executive Directors and senior management. The Committee can confirm Remuneration Policy has operated as intended in relation to both

performance and quantum.

How the views of shareholders are taken into account

The Committee recognises that developing a dialogue with shareholders is constructive and informative in developing and applying the Remuneration Policy.

The Committee monitors and considers feedback received from shareholders. When the policy was last approved in FY22 feedback was pro-actively sought and

shareholders accounting for over 69% of total equity responded, with 80.2% in favour. The Committee takes into account the best practice guidance issued by

institutional shareholders and their representative bodies.

The Directors’ Remuneration Policy

The Directors’ Remuneration Policy was last approved by shareholders on the 26 November 2021 at the 2021 AGM and is due to be renewed at the 2024 AGM. This report

has been prepared on behalf of, and has been approved by, the Board. It complies with The Large and Medium-sized Companies and Groups (Accounts and Reports)

(Amendment) Regulations 2013. The Remuneration Committees terms of reference can be inspected by members at: www.scsplc.co.uk/corporate-governance/

committees-terms-of-reference.

The most significant changes made last year are our formal commitment to reduce executive pension contribution rates to align more closely to the wider

workforce rate and the implementation of bonus deferral when it is felt appropriate to do so.

Remuneration

element Purpose Operation Maximum Performance measures

Base salary This is the

basic pay and

reflects the

individual’s role,

responsibilities

and contribution

to the Group;

critical to help

attract and

retaining the right

talent.

Base salaries are reviewed annually with changes typically taking effect from

the beginning of the relevant financial year. When reviewing, consideration

is given by the Committee to a range of factors, including the Group’s overall

performance, market conditions and individual responsibility of executives

and the level of salary increases given to employees across the Group.

Higher increases may be awarded where there has been an increase in

responsibility.

If a new Executive Director’s salary is set on appointment below the median

market rate, phased increases (as a percentage of salary) above those

granted generally to other employees may be awarded subject to the

individual’s performance and development.

Base salaries will be

benchmarked periodically

against companies that are

both main and AIM listed,

who are of a similar size,

sector and complexity.

Salaries will generally be set

at the mid-market levels;

however, the Committee

remains mindful of the need

to attract, recruit and retain

talent within the team.

N/A

Remuneration Policy report

112 ScS Group plc Annual Report and Accounts 2023

Remuneration

element Purpose Operation Maximum Performance measures

Benefits To provide

benefits which

are valued by the

individual and

assist them in

carrying out their

duties and to

support wellness

and engagement.

The Group will provide market competitive benefits, which may periodically

be reviewed. Executives will generally be eligible to receive those benefits on

similar terms to other senior executives and those available to the broader

workforce.

Executives are entitled to a car allowance or a company car, car insurance,

other running costs and fuel, death in service life assurance, private medical

care and any other Group-wide benefits including employee discount.

Business travel and associated hospitality are provided in the normal course

of business.

The Committee has the discretion to add or remove benefits to remain

market competitive or to meet the needs of the business including where

new benefits are introduced for the wider workforce. In addition, where the

Committee considers it appropriate to do so, additional relocation expenses

may be paid.

No explicit maximum. We

ensure that benefits offered

are in line with the market

and review their cost from

time to time in the context

of the wider workforce

provision.

N/A

Pension To provide

a market

competitive

pension

contribution (or

equivalent cash

allowance).

Executive Directors may take pension benefits as a contribution to defined

contribution personal pension plans or receive cash in lieu.

A total maximum value of

5%, which aligns closely to

the workforce rate. The

Committee reserves the

right to increase the rate

if changes are made for

the workforce – no such

increase is planned at the

present time.

N/A

Remuneration Policy report continued

113ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Remuneration

element Purpose Operation Maximum Performance measures

Bonus To provide an

incentive linked

to the financial

performance of

the Group and any

other appropriate

individual

or business

measures.

Deferral provides

further alignment

to shareholders’

long-term

interests for

achievement

of stretching

targets.

Bonuses are normally paid in cash. Payments are made subject to meeting

pre-determined targets set at the start of the year and approved by the

Committee.

Malus and clawback rules apply to cash and deferred awards; see

explanatory notes for more information.

The Committee will consider the introduction of bonus deferral

arrangements for any bonus earned in excess of 100% of salary.

The current annual bonus

potential for the CEO and

CFO is 140% of base salary.

The threshold bonus levels

will be no more than 25% of

their respective maxima.

As the regulations require

a formal cap for a three-

year period, future bonus

potential will only increase

where appropriate against

market data and, in any

event, will be subject to an

overall maximum of 200%

of salary for any Executive

Director.

The Committee intends for the

majority of the bonus to be based

on financial measures, but has the

discretion to introduce operational,

corporate, divisional and/or individual

performance measures if appropriate

to the business including measures

relating to the Group’s ESG objectives.

Performance conditions, once set,

will generally remain unaltered,

but the Committee has the right

in its absolute discretion to make

adjustments during any performance

period to reflect any events arising

which were unforeseen when the

performance conditions were

originally set by the Committee, for

example, related to transactions. Any

amended targets should be no more

or less difficult to achieve than the

original targets were considered to

be when set.

Long-term

incentives

To align the

Directors with

the long-term

performance

of the business

and the returns

received by

shareholders.

Awards may be made annually as options (including nil cost options) or as

conditional share awards based on performance conditions. The Committee

may set performance conditions typically over a three-year period.

The current intention is to use conditional shares or nil cost options for

awards.

Dividend equivalents will be made as either a cash payment or delivery of plan

shares in an amount equal in value to the dividends that would have been

payable on the number of vested plan shares under the award in respect of

the period between the award date and the date on which the award vested

or, where the award is an option and a holding period applies, to the date of

expiry of the holding period or exercise (if earlier).

A two-year post-vesting holding period shall apply to LTIP awards granted to

Executive Directors and may apply (at the discretion of the Committee) in

relation to LTIP awards granted to others.

Malus and clawback rules apply to vested awards; see explanatory notes for

more information.

The policy is to award

Executive Directors nil cost

share options equating to

no more than 150% of their

basic salary in respect of

each financial year.

No more than 25% of an

award can be earned for a

threshold performance.

Performance is normally based on

earnings per share targets, but

different measures and targets may

be used alongside or instead of

earnings per share for future awards

at the discretion of the Committee.

Performance conditions, once set,

will generally remain unaltered,

but the Committee has the right

in its absolute discretion to

substitute or vary the performance

conditions during any performance

period in case of events arising

which were unforeseen when the

performance conditions were first

set by the Committee, provided

that such substitution or variation

is reasonable and produces a fairer

measure of performance and is not

materially less difficult to satisfy.

114 ScS Group plc Annual Report and Accounts 2023

Remuneration

element Purpose Operation Maximum Performance measures

Shareholding

guidelines

Executive

Directors are

expected

to maintain

their minimum

shareholding

levels once

they have been

obtained.

The Committee will review shareholding annually against the Policy. The

Committee reserves the right to alter the shareholding guidelines during

the period of the Policy but without making the guidelines any less onerous

overall.

The minimum required

level of shareholding is

200% of base salary of

the relevant Executive

Director. We encourage

Executive Directors to meet

this requirement within

five years of the date of

appointment.

Executive Directors are

expected to retain vested

LTIP awards (after tax) until

the minimum shareholding

level is attained.

N/A

Employee

share plan

To encourage

share ownership

by employees

and participation

in the long-term

success of the

Group, the Group

operates an

employee share

incentive plan

for UK employees

which was

adopted in April

2015.

Executive Directors can participate in the employee Share Incentive Plan (SIP)

on the same terms as other employees of the Group in the UK.

Executive Directors will also be eligible to participate in any replacement or

new all employee share plan that is introduced on the same terms as other

employees.

Under the rules of the SIP

employees can purchase

shares from their pre-tax

and pre-national insurance

salary through a resident SIP

trust. Although the Group

has no current intention to

do so, the Group may also

award matching shares (in

proportion to the number

of shares an employee

chooses to purchase),

or make an award of free

shares.

The maximum amount that

can be purchased, offered

as a match or awarded for

free under the SIP is subject

to the published HMRC

annual limits.

N/A

Payment of statutory entitlements and settlement of claims

The Group may pay any statutory entitlements to which an Executive Director is entitled, or settle or compromise any claims made in connection with the termination

of employment of the Executive Director where the Committee considers such claims to have a reasonable prospect of success and that it is in the best interests of

the Group to do so.

Remuneration Policy report continued

115ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Remuneration Policy and other employees

As well as the Executive Directors, other senior management will also participate in the performance-based annual incentive. 71% of our colleagues are eligible for

either a sales commission or bonus, based broadly on the same metrics of sales and profit as the Executive Directors. A small group of senior management also

participates in the LTIP for performance share awards.

The Group is committed to widespread share ownership. The Group employee SIP, which was adopted prior to admission, has been launched. Under the SIP, Executive

Directors are eligible to participate on a basis consistent with all other employees. Currently, 63 employees participate in the scheme.

In setting the Remuneration Policy going forward, the Committee will also have regard to pay structures across the broader Group. The Committee takes into

account the general base salary increase for the broader workforce when undertaking annual salary reviews for the Executive Directors and will consider

consultation with the wider workforce should it be felt appropriate to do so.

Operation of variable pay

Annual incentive plan

The Committee will set the performance targets annually under the annual incentive plan to take account of the Group’s strategic plan and financial performance.

The performance targets are set by the Committee based on a range of factors including against the budget for the financial year. The metrics adopted by the

Committee and the weighting of them may vary in relation to the Group’s strategy each year.

The Committee sets a threshold on-target and maximum pay-out target under the plan.

Long-Term Incentive Plan (LTIP)

The Committee will regularly review the performance targets in relation to the LTIP to take account of the Group’s strategic plan and financial performance. Targets

will be set by the Committee at the time of the grant of each award.

The Committee will operate the scheme in accordance with the plan rules which were approved by shareholders in January 2015. Under the plan rules the Committee

has authority to vary the terms of an existing award in certain circumstances. This includes the ability to:

• Settle awards in cash in extremis;

• Make adjustments to the number of shares, in the event of a change in the share capital of the Group; and

• Permit the early vesting of awards in the event of a change in control of the Group or, if appropriate to do so, on cessation of employment (see policy on service

contracts and payments for loss of office).

Clawback

The annual incentive plan and the LTIP rules include provisions for malus and clawback within a three-year period following payment or vesting if the Committee

concludes that: there has been a material misstatement of financial results; an error has been made in assessing any performance targets; conduct of the

individual amounts to fraud or gross misconduct; events or behaviour of the individual leads to censure of the Group by a regulatory authority which has an impact

on the reputation of the Group which justifies clawback being operated; or where the Committee discovers information from which it concludes that a bonus or

award was paid or vested to a greater extent than it should have been. Malus and clawback provisions have applied to awards made since January 2015.

116 ScS Group plc Annual Report and Accounts 2023

Potential reward scenarios

The graphs below show an estimate of the Executive Directors’ remuneration package as it will be implemented for FY24. Based on the current reward package

available should the acquisition not proceed.

Assumptions

• For Mark Fleetwood, all scenarios reflect remuneration related to time in role, since his appointment date.

• The minimum scenario reflects fixed remuneration only which is base salary, pension and benefits.

• The on-target scenario reflects the fixed remuneration plus 50% of the maximum annual bonus under the annual incentive plan, which is 140% of base salary, and

25% vesting under the LTIP being the threshold level (assuming an award of 150% of salary to Executive Directors under the LTIP).

• The maximum scenario reflects fixed remuneration plus 100% of the maximum annual bonus under the annual incentive plan, which is 140% of base salary and 100%

vesting under the LTIP (assuming an award of 150% of salary under the LTIP).

• The maximum plus scenario is the same above but shows the impact of a 50% increase in the share price on the value of the LTIP award (the on-target and

maximum scenarios exclude the impact of share price increase).

Discretions retained by the Committee in operating variable pay schemes

The Committee operates the Group’s various incentive plans according to their respective rules and (in the case of the SIP in accordance with relevant legislation

and HMRC guidance). In order to ensure efficient administration of these plans, certain operational discretions are reserved to the Committee. These include:

• Determining who may participate in the plans;

• Determining the timing of grants of awards and/or payments under the plans;

• Determining the quantum of any awards and/or payments (within the limits set out in the Policy table above);

• In exceptional circumstances, determining that a share-based award shall be settled (in full or in part) in cash;

• Determining the performance measures and targets applicable to an award (in accordance with the statements made in the Policy table above);

• Where a participant ceases to be employed by the Group or relocates abroad, determining whether ‘good leaver’ status shall apply;

• Determining the extent of vesting of an award based on assessment of the performance conditions, including discretion as to the basis on which performance is

to be measured if an award vests in advance of normal timetable (on cessation of employment as a ‘good leaver’ or on the occurrence of corporate events);

• Whether, and to what extent, pro ration shall apply in the event of cessation of employment as a ‘good leaver’ or on the occurrence of corporate events;

Maximum

plus

Maximum On-target Minimum

2,000

£’0

1,0

1,5

Base Bonus LTIP

35%

37%

28%

29%

47%

23% 100%

2,015,906

1,697,636

32%

17%

51%

466,992

923,179

Maximum

plus

Maximum On-target Minimum

2,000

£’0

1,0

1,5

35%

37%

28%

29%

47%

23% 100%

1,395,856

1,175,544

32%

17%

51%

639,450

323,669

Steve Carson (Chief Executive Officer) Mark Fleetwood (Chief Financial Officer)

Remuneration Policy report continued

117ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

• Whether malus and/or clawback shall be applied to any award and, if so, the extent to which they shall apply; and

• Making appropriate adjustments to awards on account of certain events, such as major changes in the Group’s capital structure.

Recruitment and promotions

The remuneration package for a new Executive Director would be set in accordance with the terms of the Group’s Remuneration Policy at the time of the appointment.

Additionally, on appointment of any new Executive Director (whether by external recruitment or internal promotion) the Remuneration Policy will permit the following:

• Variable pay will be capped at the limits set out in the Policy for existing Directors.

• On pensions, the intention is to limit the pension provision (provided either through a Company contribution to a defined contribution scheme or paid as a cash

allowance in lieu of pension) to the same level as the wider workforce for all new Executive Directors and members of the senior management team.

• The Group may compensate a new Executive Director for amounts forgone from the individual’s former employer in addition to ongoing remuneration provided

under the Policy (as permitted under Listing Rules) taking account of the amount forfeited, the extent of any performance conditions, the nature of the award and

the time period for vesting.

• The annual incentive plan would operate in accordance with its terms pro-rated for the period of employment, and depending on the appointment timing,

different performance targets might be set as the Committee considers appropriate.

• On an internal appointment, any variable pay element awarded in respect of the individual’s former role would be allowed to pay out according to its terms, with

any relevant adjustment to take account of the appointment. Any other ongoing remuneration obligations existing prior to the appointment would also continue.

• On any appointment, the Committee may agree that the Group will meet any appropriate relocation expenses.

Service contract and payments for loss of office

Main provisions on termination

The service contract for the CEO is indefinite but terminable either by the Company or the CEO on 9 months’ notice. The service contract for the CFO is indefinite but

terminable either by the Company or the CFO on 12 months’ notice. The service contract for Steve Carson is dated 24 November 2020, for Chris Muir, 8 January 2016,

and for Mark Fleetwood 8 June 2023. An Executive Director’s service contract can also be terminated without notice or payment of compensation except for pay

accrued up to the termination date on the occurrence of certain events such as gross misconduct.

Payment in lieu of notice equal to the base salary only for the unexpired period of notice can be paid under the Executive Directors’ service agreements.

Ordinarily, an Executive Director shall not be entitled to receive any benefits or allowances following their cessation of employment. However, the Committee may in

exceptional circumstances allow an Executive Director to continue to receive appropriate benefits or allowances (such as reasonable outplacement or legal fees)

for a limited period following cessation.

There are no enhanced provisions on a change of control under the Executive Directors’ service contracts. Should a change of control event occur then awards

under the bonus and long-term incentive plans shall become payable as soon as practicable after the event date. The awards will be pro-rated to reflect the

extent to which the relevant performance targets have been met at the date of the relevant event, and on a time-apportioned basis, although the Committee has

discretion to disapply time-apportionment if it considers it appropriate to do so.

Any new contracts will be on similar terms.

The service contracts of the Executive Directors are available for inspection at the registered office of the Company.

Non-Executive Directors have letters of appointment. The term is for an initial period of two-three-year terms with a provision for termination on three months’

notice from either party.

118 ScS Group plc Annual Report and Accounts 2023

Annual bonus on termination

There is no contractual entitlement to annual bonus on termination or if an Executive Director is under notice. Under the annual incentive plan, the Committee has

absolute discretion to permit a bonus to be paid to a ‘good leaver’ based on the full or part-year performance, subject to consideration by the Committee. A full or

pro-rata time-based bonus may be awarded, and this may be paid either at or before the normal payment date.

Good leavers include individuals who leave due to ill health, death or redundancy, or in other circumstances at the discretion of the Committee.

Performance share plans on termination

Share-based awards made under the Group’s share plans are governed by the relevant plan rules. Under the rules of the LTIP, unvested awards shall ordinarily lapse

on the individual giving or being given notice of termination of employment, except in certain prescribed ‘good leaver’ scenarios. Good leavers include individuals

who leave due to retirement, ill health, death or redundancy, or in other circumstances at the discretion of the Committee.

In determining the extent of any vesting, the Committee will take into account the achievement of any applicable performance targets. A pro-rata reduction would

normally be applied on a time-apportioned basis, although the Committee has discretion to disapply this requirement in exceptional circumstances if it considers it

appropriate to do so. Awards will typically vest at the usual date but early vesting of outstanding awards may be permitted at the discretion of the Committee.

Awards which may have vested before giving or receiving notice of termination of employment remain exercisable for a period of six months after leaving or (if later)

the expiry of any holding period which the award was subject to. The Committee has the discretion to extend this period.

Chair and Non-Executive Directors

Fees

The level and structure of fees for the Non-Executive Directors was set by the Board from admission. The fees of the Non-Executive Directors are set by the Board

taking account of the chairmanship of Board Committees and the time and responsibility of the roles of each of them. The fees are paid in cash. The Committee has

responsibility for determining fees paid to the Chair of the Board. All fees are subject to the aggregate fee cap for Directors in the Articles of Association, which is

currently £400,000 per annum.

Details of the fees paid to the Non-Executive Directors are set out in the Directors’ remuneration report. The Chair and the Non-Executive Directors are entitled to be

reimbursed for all expenses reasonably incurred by them in the performance of their duties. The Chair and Non-Executive Directors do not participate in any bonus

or share plans of the Company.

The Non-Executive Directors do not have service contracts. They are appointed for an initial three-year period subject to being re-elected by members annually.

Remuneration element Purpose Operation Maximum

Non-Executive

Directors’ fees

Helps recruit and

retain high-quality,

experienced

individuals.

Reflects time

commitment and role.

The level and structure of fees was set by the Board at admission. The fees consist of

an annual basic fee plus additional fees paid for the chairmanship of Board Committees.

Limited benefits relating to travel and accommodation may be provided in relation to the

performance of any Director’s duties.

Non-Executive Directors’ fees are set by the Executive Directors with reference

to external data on fee levels in similar businesses, having taken account of the

responsibilities of individual Directors and their expected annual time commitment.

The aggregate amount of

Directors’ fees is limited

by the Group’s Articles of

Association.

Remuneration Policy report continued

119ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Letters of appointment

Alan Smith and Ron McMillan have letters of appointment dated 22 October 2014 for an initial period of three years and are subject to three months’ notice of

termination by either side at any time and subject to annual re-appointment as a Director by the shareholders. Angela Luger’s letter of appointment is dated 16 May

2019. Alan Smith and Ron McMillan were re-appointed for a further term of three years commencing 22 October 2020. Carol Kavanagh’s letter of appointment is dated

26 September 2022.

Andy Kemp’s letter of appointment is dated 1 February 2023. John Walden’s letter of appointment is dated 1 March 2023. Swarupa Pathakji’s letter of appointment is

dated 2 May 2023.

The appointment letters provide that no other compensation is payable on termination.

Insurance

All of the members of the Board have the benefit of Directors’ and Officers’ Liability Insurance which gives them cover for legal action which may arise against them

personally.

120 ScS Group plc Annual Report and Accounts 2023

Activities and results

The Directors present their Annual Report, together

with the audited consolidated financial statements

for the year ended 29 July 2023. ScS Group plc is one

of the UK’s leading furniture and flooring retailers.

Trading as the ScS brand from 100 stores principally

located in modern retail park locations across the

country. Our new Snug business trades from three

stores, a number of ScS concessions and a further

seven concessions in third-party stores.

Management report

The Directors’ report, together with the Strategic

report, set out on pages 1 to 66, form part of the

Management report for the purposes of Disclosure

Guidance and Transparency Rule (DTR) 4.1.5R.

Statutory information contained elsewhere in

the Annual Report

As permitted by legislation, the Group has chosen to

include certain matters in its Strategic report that

would otherwise be required to be included in the

Directors’ report, as the Board considers them to be

of strategic importance. The Strategic report can

be found on pages 1 to 66.

Other information that is relevant to the Directors’

report, and which is incorporated by reference into

this report, can be located as follows:

Information Page(s)

Future developments 1 to 6

Colleague engagement 32 to 33

Stakeholder engagement 32 to 37

Greenhouse gas emissions 46 to 46

Section 172 statement 48 to 49

Risk and risk management 57 to 64

Financial risk management 154

Viability statement 65 to 66

Going concern 137

Corporate governance statement 72 to 82

Statement of Directors’ responsibilities 124

Post balance sheet event 155

Directors’ report

Disclosures required pursuant to Listing Rule 9.8.4R can be found on the following pages:

Listing

Rule

Listing Rule

requirement Disclosure

9.8.4(1) Interest capitalised by the Group and any related tax relief Not applicable

9.8.4(2) Unaudited financial information (LR 9.2.18R) Strategic report, page 1 to 66

9.8.4(4) Long-term incentive schemes (LR 9.4.3R) Directors’ remuneration report, pages 101 to 102

9.8.4(5) Directors’ waivers of emoluments Not applicable

9.8.4(6) Directors’ waivers of future emoluments Not applicable

9.8.4(7) Non pre-emptive issues of equity for cash Not applicable

9.8.4(8) Non pre-emptive issues for cash by any unlisted major subsidiary undertaking Not applicable

9.8.4(9) Parent company participation in a placing by a listed subsidiary Not applicable

9.8.4(10) Contract of significance in which a Director is or was materially interested Not applicable

9.8.4(11) Contract of significance between the Company (or one of its subsidiaries) and a controlling Shareholder Not applicable

9.8.4(12) Waiver of dividends by a shareholder Directors’ report, page 121

9.8.4(13) Waiver of future dividends by a shareholder Directors’ report, page 121

9.8.4(14) Board statement in respect of relationship agreement with the controlling shareholder Not applicable

121ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Non-financial information statement

In addition to the above referenced sections of

the Annual Report, the Section 172 statement

and non-financial and sustainability information

sections of the Annual Report set out on pages 48

to 49 are intended to help stakeholders understand

the Group’s development, performance and

impact of its activities, information relating to the

environment, employee, social, respect for human

rights, anti-corruption and anti-bribery matters

in accordance with the non-financial reporting

requirements contained in sections 414CA and 414CB

of the Companies Act 2006.

Results and dividend

The financial statements set out the Group’s results

for the year ended 29 July 2023 and are contained

in pages 125 to 162. The Group’s profit after tax for

the financial year ended 29 July 2023 of £4.5m (2022:

£13.6m) is reported in the consolidated statement of

comprehensive income on page 133.

The Group continues to maintain a strong balance

sheet which, coupled with the strategic progress

to date provides further confidence in the Group’s

future and as a consequence the Board announced

an interim dividend of 4.5p per share paid in May

2023. The Board is also recommending a final

dividend of 10.0p per ordinary share which, together

with the interim dividend, results in a full-year

dividend of 14.5p. This dividend, if approved, will be

paid on 15 December 2023 to shareholders on the

is 16 November 2023.

Movements in reserves are shown in the

consolidated statement of changes in equity on

page 135.

Articles of Association

The Company’s Articles of Association may only be

amended by special resolution at a general meeting

of the shareholders.

Capital structure

Details of the Company’s issued share capital are

shown in note 20 to the financial statements on

page 152.

The Company has one class of ordinary shares

which carry no fixed income. Each share carries

the right to one vote at general meetings. The

ordinary shares are listed on the Official List and are

traded on the London Stock Exchange. No person

has any special rights over the Company’s share

capital and all issued shares are fully paid. There

are no restrictions on voting rights or the transfer

of securities in the Company and the Directors are

not aware of any agreements between holders

of the Company’s shares that may result in such

restrictions.

Details of outstanding employee share options and

the operation of relevant schemes are shown in

note 22 to the financial statements on pages 152 to

153.

Share buyback programme

On 25 November 2022, the Group announced a

share buyback programme of up to £3.1m. The Group

announced the completion of this programme on

17 February 2023. This programme, together with a

previous programme announced by the Group on

22 March 2022, has seen a total of 4,057,981 ordinary

shares purchased and cancelled, representing 10.7%

of the Group’s issued share capital as at 22 March

2022. In total, ScS has returned £7m to shareholders.

Shares held in trust

The Company established the ScS Group plc

Employee Benefit Trust (EBT) in January 2015. Apex

Group Fiduciary Services (formerly Sanne Fiduciary

Services Limited) operate as the Trustees of the

EBT. The purpose of the EBT continues to be to hold

shares in trust in connection with the Group’s share

incentive schemes.

At the start of the year, the Group also held non-

EBT shares in treasury in relation to the share

buyback programme. The Group’s total shares held

in treasury at the start of the year (EBT and non-EBT)

was 327,663. During the financial year to 29 July 2023,

74,932 shares which were purchased into treasury

(non-EBT) in the prior year have subsequently been

cancelled as part of the share buyback programme

(and therefore transferred to retained earnings

in the period, at an average price of 154.56p per

ordinary share). During the period, the Group’s EBT

purchased a further 106,637 ordinary shares of 0.1p

each in the Group at an average price of 139.00p per

ordinary share, and 228,008 ordinary shares were

used to satisfy management incentive awards.

All other non-EBT shares held in treasury purchased

during the year were subsequently cancelled as

part of the share buyback programme. The EBT

has waived any dividends which it may be entitled

to receive in respect of ordinary shares held by it

and has also agreed to waive voting rights to such

shares. 131,360 ordinary shares in the Company

remained held as treasury shares at 29 July 2023.

122 ScS Group plc Annual Report and Accounts 2023

Significant agreements – change of control

With the exception of the revolving credit facility

(RCF), the Group is not party to any significant

agreements that would take effect, alter or

terminate upon a change in control of the Company

following a takeover. The Group’s existing RCF

contains a standard change of control clause that

will be triggered once the acquisition completes.

This could result in the facility being withdrawn.

The Directors are not aware of any agreements

between any member of the Group and its Directors

and employees that provide for compensation for

loss of office or employment that occurs following

a takeover bid, except that provisions of the Group’s

share plans may cause options and awards granted

under such plans to vest on a takeover.

Directors and their interests

Details of the Directors of the Company as at

29 July 2023 are shown on pages 68 to 71 and their

interests in shares and share awards made to

them under share incentive schemes in respect of

the Company’s shares are shown in the Directors’

remuneration report on pages 101 to 103, all of which

form part of this report.

The Directors of the Company who were in office

during the year and up to the date of signing the

financial statements unless otherwise stated were:

Alan Smith Non-Executive Chair

John Walden Non-Executive Chair Designate

(appointed on 1 March 2023)

Ron McMillan Non-Executive Director

Angela Luger Non-Executive Director

Carol Kavanagh Non-Executive Director

(appointed on 26 September 2022)

Andy Kemp Non-Executive Director

(appointed on 1 February 2023)

Swarupa Pathakji Non-Executive Director

(appointed on 2 May 2023)

Steve Carson Chief Executive Officer

Chris Muir Executive Director

Mark Fleetwood Chief Financial Officer

(appointed on 4 September 2023)

Subject to provisions of the Companies Act 2006,

the Company’s Articles of Association, and to any

directions given by special resolution, the business

of the Company shall be managed by the Board,

which may exercise all the powers of the Company.

Appointment and replacement of Directors

The appointment and replacement of Directors is

governed by the Company’s Articles of Association,

the UK Corporate Governance Code, the Companies

Act 2006 and related legislation. With the exception

of Alan Smith and Ron McMillan, who will both step

down on 1 December 2023 after completing nine

years as Board members, and Chris Muir whom has

resigned and will leave after completing his notice

period on 1 December 2023, all of the Directors will

seek election or re-election at the Annual General

Meeting (AGM). A Director may be appointed by

ordinary resolution of the shareholders or by the

Board. The Board may from time to time appoint a

Director to fill a vacancy or as an additional Director,

provided that the individual seeks election at the

next AGM.

Directors’ indemnities

As permitted by the Company’s Articles of

Association, the Directors have the benefit of

a non qualifying third party indemnity provision

which is applicable in certain circumstances. The

Company also purchased and maintains Directors’

and Officers’ liability insurance. Both the insurance

and indemnities applied throughout the financial

year ended 29 July 2023 and through to the date of

approval of the financial statements.

Employment policies

The Group’s policy is to actively involve its

employees in the business and to ensure that

matters of concern to them, including the aims and

objectives and the financial and economic factors

which impact thereon, are communicated in an

open and regular manner.

The Group is committed to providing equality of

opportunity to employees and potential employees.

This applies to recruitment, training, career

development and promotion for all employees,

regardless of disability (including colleagues who

may have become disabled during service), gender,

sexual orientation, pregnancy or maternity, race,

religion or age. See page 82 for more information on

our diversity and inclusion policy.

All of our applicants and colleagues are treated

fairly and we have a zero-tolerance approach,

not only to harassment but also to discrimination

and bullying of any kind. Full and fair consideration

is given to employment applications by disabled

persons wherever suitable opportunities exist,

having regard to their particular aptitudes and

abilities. Training and career development support

is provided where appropriate. Should an employee

become disabled, efforts are made to ensure

their continued employment with the Group, with

retraining being provided if necessary.

We also encourage colleagues to become involved

in the financial performance of our business

through a variety of share and bonus schemes.

Employee engagement is considered further within

the Section 172 statement on pages 48 to 49.

Our code of conduct which applies across the

Group sets out the standard of behaviour expected

of all of our people and includes guidance on

policies such as anti-bribery, conflicts of interest

and whistle-blowing procedures. We have a zero-

tolerance approach to bribery and provide our

colleagues with the ability to raise concerns

regarding misconduct via an independent and

confidential whistle-blowing service.

Directors’ report continued

123ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Charitable and political donations

During the year, the Group made charitable cash

donations of £67,000 (2022: £64,000). The Group also

launched a partnership with Shelter, the national

housing and homelessness charity to support their

efforts to emphasise the importance of home.

Since the partnership’s inception in April 2023,

through providing stock no longer required by the

business, helping Shelter to generate £56,000 in

sales.

No political donations, expenditure or contributions

have been made or incurred (2022: £nil).

Major interest in shares

As at 10 October 2023 the following shareholders

have notified the Company of their interest in 3% or

more of the Company’s issued share capital:

Number of

held

% of issued

capital

M&G Investments 4,582,414 13.50

Huntington Management 4,196,904 12.36

Artemis Investment

Management

2,634,543 7.76

Premier Miton Investors 1,719,766 5.06

Valentum 1,550,845 4.57

David Knight 1,528,615 4.50

Stadium Capital Management 1,168,825 3.44

Kanen Wealth Management 1,054,860 3.11

Annual general meeting (AGM)

A notice convening the Company’s upcoming AGM

on 1 December 2023 will be issued to shareholders

separately.

Independent auditors

The Group’s independent auditors,

PricewaterhouseCoopers LLP (PwC), have indicated

their willingness to continue in office and the Audit

Committee has recommended that PwC remain in

office. A resolution to re-appoint PwC as auditors

will be put to the members at the AGM.

Disclosure of information to the auditors

So far as the Directors are aware, there is no

relevant audit information of which the auditors

are unaware. The Directors have taken all steps

that they ought to have taken as Directors to make

themselves aware of any relevant audit information

and to establish that the auditors are aware of that

information.

Offer process

On 24 October 2023, the Board announced a

recommended offer for the Company of 270p per

share in cash, from a wholly-owned subsidiary of

Poltronesofà S.p.A. In addition, shareholders who

are on the register at the close of business on

the register on 17 November 2023 will be entitled to

receive the final dividend of 10.0p (in respect of the

year ended 29 July 2023).

The offer provides liquidity to shareholders with the

opportunity to exit in full and in cash at a significant

premium to the current share price, in a time of

continued macroeconomic uncertainty.

It is intended that the acquisition will be

implemented by way of a Court-sanctioned scheme

of arrangement under Part 26 of the Companies

Act. Cerezzola Limited (a wholly-owned subsidiary

of Poltronesofà S.p.A.) has indicated its intention

(subject to the requisite acceptance thresholds

being achieved referred to in the announcement

of 24 October 2023) to delist the Company from the

London Stock Exchange as soon as practicable

following the cancellation of listing and trading of

the Company’s shares. This process will take place

following the release of the Annual Report and is

targeted to complete in the first quarter of 2024.

By order of the Board

Richard Butts

Company Secretary

24 October 2023

124 ScS Group plc Annual Report and Accounts 2023

The Directors are responsible for preparing the

Annual Report and the financial statements in

accordance with applicable law and regulation.

Company law requires the Directors to prepare

financial statements for each financial year. Under

that law the Directors have prepared the Group

financial statements in accordance with UK-

adopted international accounting standards and

the Company financial statements in accordance

with United Kingdom Generally Accepted Accounting

Practice (United Kingdom Accounting Standards,

comprising FRS 101 “Reduced Disclosure Framework”,

and applicable law).

Under Company law, Directors must not approve

the financial statements unless they are satisfied

that they give a true and fair view of the state of

affairs of the Group and Company and of the profit

or loss of the Group for that period. In preparing the

financial statements, the Directors are required to:

• Select suitable accounting policies and then

apply them consistently;

• State whether applicable UK-adopted

international accounting standards have been

followed for the Group financial statements

and United Kingdom Accounting Standards,

comprising FRS 101 have been followed for the

Company financial statements, subject to any

material departures disclosed and explained in

the financial statements;

• Make judgements and accounting estimates that

are reasonable and prudent; and

• Prepare the financial statements on the going

concern basis unless it is inappropriate to

presume that the Group and Company will

continue in business.

The Directors are responsible for safeguarding the

assets of the Group and Company and hence for

taking reasonable steps for the prevention and

detection of fraud and other irregularities.

The Directors are also responsible for keeping

adequate accounting records that are sufficient

to show and explain the Group’s and Company’s

transactions and disclose with reasonable

accuracy at any time the financial position of the

Group and Company and enable them to ensure

that the financial statements and the Directors’

Remuneration Report comply with the Companies

Act 2006.

The Directors are responsible for the maintenance

and integrity of the Company’s website. Legislation

in the United Kingdom governing the preparation

and dissemination of financial statements may

differ from legislation in other jurisdictions.

Directors’ confirmations

Each of the Directors, whose names and functions

are listed in the Board of Directors section confirm

that, to the best of their knowledge:

• The Group financial statements, which have

been prepared in accordance with UK-adopted

international accounting standards, give a true

and fair view of the assets, liabilities, financial

position and profit of the Group;

• The Company financial statements, which

have been prepared in accordance with United

Kingdom Accounting Standards, comprising

FRS 101, give a true and fair view of the assets,

liabilities and financial position of the Company;

and

• The Directors’ report includes a fair review of the

development and performance of the business

and the position of the Group and Company,

together with a description of the principal risks

and uncertainties that it faces.

In the case of each Director in office at the date the

Directors’ report is approved:

• So far as the Director is aware, there is no

relevant audit information of which the Group’s

and Company’s auditors are unaware; and

• They have taken all the steps that they ought

to have taken as a Director in order to make

themselves aware of any relevant audit

information and to establish that the Group’s

and Company’s auditors are aware of that

information.

By order of the Board

Richard Butts

Company Secretary

24 October 2023

Statement of Directors’ responsibilities in respect of the financial statements

125ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

126 Independent auditors’ report to the members of ScS Group plc

133 Consolidated statement of comprehensive income

134 Consolidated statement of financial position

135 Consolidated statement of changes in equity

136 Consolidated statement of cash flows

137 Notes to the consolidated financial statements

156 Company statement of financial position

157 Company statement of changes in equity

158 Notes to the Company financial statements

162 Company information

Financial

statements

126 ScS Group plc Annual Report and Accounts 2023

Financial statements

Independent auditors’ report to the members of ScS Group plc

Report on the audit of the financial statements

Opinion

In our opinion:

• ScS Group plc’s group financial statements and company financial

statements (the “financial statements”) give a true and fair view of the state

of the group’s and of the company’s affairs as at 29 July 2023 and of the

group’s profit and the group’s cash flows for the 52 week period (the “year”)

then ended;

• the group financial statements have been properly prepared in accordance

with UK-adopted international accounting standards as applied in

accordance with the provisions of the Companies Act 2006;

• the company financial statements have been properly prepared in

accordance with United Kingdom Generally Accepted Accounting Practice

(United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure

Framework”, and applicable law); and

• the financial statements have been prepared in accordance with the

requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report &

Accounts (the “Annual Report”), which comprise: the Consolidated and Company

statements of financial position as at 29 July 2023; the Consolidated statement of

comprehensive income, the Consolidated and Company statements of changes

in equity; and the Consolidated statement of cash flows for the period then

ended; and the Consolidated and Company notes to the financial statements,

which include a description of the significant accounting policies.

Our opinion is consistent with our reporting to the Audit Committee.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing

(UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further

described in the Auditors’ responsibilities forthe audit of the financial statements

section of our report. We believe that the audit evidence we have obtained is

sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the group in accordance with the ethical

requirements that are relevant to our audit of the financial statements in the UK,

which includes the FRC’s Ethical Standard, as applicable to listed public interest

entities, and we have fulfilled our other ethical responsibilities in accordance

with these requirements.

To the best of our knowledge and belief, we declare that non-audit services

prohibited by the FRC’s Ethical Standard were not provided.

Other than those disclosed in note 4 to the financial statements, we have

provided no non-audit services to the company in the period under audit.

Material uncertainty related to going concern

In forming our opinion on the financial statements, which is not modified, we have

considered the adequacy of the disclosure made in note 2 to the group financial

statements and note 2 to the company financial statements concerning the

group’s and the company’s ability to continue as a going concern. As outlined in

note 2 to the group and company financial statements, on 24 October 2023, the

ScS plc group announced a recommended offer for the company from a wholly

owned subsidiary of Poltronesofà S.p.A. Assuming the process continues as

expected, the transaction is forecast to complete in the first quarter of 2024,

which is within 12 months of the approval of these financial statements. The

current Directors will not have full control over the acquired group and therefore

they do not have full knowledge of the new ultimate parent undertaking’s future

intentions and funding plans in relation to the group and company. These

conditions, along with the other matters explained in those notes to the financial

statements, indicate the existence of a material uncertainty which may cast

significant doubt about the group’s and the company’s ability to continue as a

going concern. The financial statements do not include the adjustments that

would result if the group and the company were unable to continue as a going

concern.

In auditing the financial statements, we have concluded that the directors’ use

of the going concern basis of accounting in the preparation of the financial

statements is appropriate.

Our evaluation of the directors’ assessment of the group’s and the company’s

ability to continue to adopt the going concern basis of accounting included:

• Obtaining management forecasts for the period to July 2026 and evaluating

management’s downside scenario, being a severe but plausible scenario, and

challenging their appropriateness and underlying assumptions;

• Testing the mathematical accuracy of the models obtained;

127ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

• Evaluating the level of forecast liquidity and forecast compliance with the

bank facility covenants;

• Reviewing the disclosures relating to going concern in the Annual Report; and

• Obtaining and reviewing correspondence in relation to the offer for the Company.

In relation to the directors’ reporting on how they have applied the UK Corporate

Governance Code, other than the material uncertainty identified in note 2 to the

group financial statements and note 2 to the company financial statements,

we have nothing material to add or draw attention to in relation to the directors’

statement in the financial statements about whether the directors considered

it appropriate to adopt the going concern basis of accounting, or in respect of

the directors’ identification in the financial statements of any other material

uncertainties to the group’s and the company’s ability to continue to do so over

a period of at least twelve months from the date of approval of the financial

statements.

Our responsibilities and the responsibilities of the directors with respect to going

concern are described in the relevant sections of this report.

Our audit approach

Overview

Audit scope

• We performed an audit of the complete financial information of the group’s

trading entity A Share & Sons Limited as the only financially significant

component, contributing to 98.7% of the group’s revenue. We have also

audited the group consolidation adjustments as a full scope component. We

audited specific balances within ScS Group plc to obtain sufficient coverage

across the group, being share-based payments and equity.

Key audit matters

• Material uncertainty related to going concern (group and parent)

• Impairment of assets in relation to loss making stores (group)

• Carrying value of investment (parent)

Materiality

• Overall group materiality: £1,425,000 (2022: £3,250,000) based on 1% of revenue

capped at 20% of adjusted profit before tax.

• Overall company materiality: £700,000 (2022: £708,000) based on 1% of total assets.

• Performance materiality: £1,068,750 (2022: £2,437,500) (group) and £525,000

(2022: £529,000) (company).

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks

of material misstatement in the financial statements.

Key audit matters

Key audit matters are those matters that, in the auditors’ professional judgement,

were of most significance in the audit of the financial statements of the current

period and include the most significant assessed risks of material misstatement

(whether or not due to fraud) identified by the auditors, including those which

had the greatest effect on: the overall audit strategy; the allocation of resources

in the audit; and directing the efforts of the engagement team. These matters,

and any comments we make on the results of our procedures thereon, were

addressed in the context of our audit of the financial statements as a whole,

and in forming our opinion thereon, and we do not provide a separate opinion on

these matters.

In addition to going concern, described in the Material uncertainty related to

going concern section above, we determined the matters described below to be

the key audit matters to be communicated in our report. This is not a complete list

of all risks identified by our audit.

The key audit matters below are consistent with last year.

128 ScS Group plc Annual Report and Accounts 2023

Financial statements continued

Independent auditors’ report to the members of ScS Group plc continued

Key audit matter How our audit addressed the key audit matter

Impairment of assets in relation

to loss making stores (group)

Refer to pages 93 (Audit

Committee Report) and143

(Critical accounting estimates

and assumptions – Impairment

of property, plant and equipment

and right-of-use assets). ScS

Group plc has 100 ScS-branded

stores at year end (2022: 99

stores). The directors are required

to consider if there has been any

indicators of impairment on a

store by store basis. Where there

is an indicator of impairment in

a store’s value, management

test the carrying value of assets

by reference to the future

discounted cash flows that the

store is expected to generate. For

the year ended 29 July 2023 ScS

has recorded impairment of £2.4m

(2022: £nil).There are a number

of judgements and estimates

involved in the impairment of

assetcalculation,including

forecasting of future results,

length of leases, allocation of

costs and use of an appropriate

discount rate. As such, the

judgements and estimates

involved in the impairment of

asset calculation were an area of

focus for our audit.

• We obtained the impairment workings from management

and checked theirarithmetical accuracy.

• We have agreed the inputs to the workings to board

approved budgets.

• We agreed the allocation of fixed assets on a sample basis

by vouching to invoice for any new additions and fixed asset

• We assessed the store by store allocation of revenue and

direct costs for reasonableness by comparing to previous

year actuals.

• We agreed that central costs had been allocated on a

reasonable basis to the underlying stores, and all material

costs had been allocated on a reasonable basis to the

underlying stores, and all material costs have been

allocated.

• We agreed that the rental charge was correctly excluded

from the stores cash flows.

There were no issues noted with the underlying data used in

calculating the impairment provision.

Management’s assessment of which stores were at risk

of impairment were based on the forecasted future

performance of individual stores in the group’s portfolio.

• We agreed the FY24 forecasted results used in the asset

impairment calculation were consistent with board

approved budgets.

• We assessed the reasonableness of the assumptions

used in the calculation and performed sensitivities

where appropriate. This included, but was not limited to,

assessment of discount rate and store growth rates with

reference to macro-economic and industry predictions.

We concluded that the level of impairment of fixed assets

and right of use assets in the store portfolio was materially

correct.

• We have assessed the completeness and accuracy of the

related disclosures within the financial statements.

We are satisfied the assumptions made by management

in determining the asset carrying value and the related

disclosures in the financial statements are appropriate.

Key audit matter How our audit addressed the key audit matter

Carrying value of investment

(parent)

Refer to pages 93 (Audit

Committee Report) and158

(Critical accounting estimates

and assumptions – carrying value

of investments). ScS Group plc

(parent) has a £70.0m investment

balance held on the company’s

balance sheet and as at the

date of our testing the market

capitalisation of the group was

below the carrying value of

the investment. Management

concluded that this was an

impairment trigger and therefore

have prepared an assessment of

the recoverable amount of the

investment. There are a number

of judgements and estimates

involved in the assessment,

including assessmentofmarket

capitalisation andcontrol

premiums, and assessment of

the group’s discounted cash

flows. As such, the judgements

and estimates involved in the

assessment were an area of

focus for our audit.

• We agreed with management’s assessment that there

was an impairment trigger based on market capitalisation

being lower than the carrying value of investments.

• We obtained management’s impairment assessment

which included an analysis of the market capitalisation of

the group and an assessment of the group’s discounted

cash flows.

• We have reviewed management’s paper and assessed

management’s use of the market capitalisation and

control premium judgements to support the investment

value.

• We have also obtained the discounted cash flow model,

tested the inputs to the model by assessing forecast

cash flows through comparing these to board approved

budgets. We tested the integrity of the model and its

mathematical accuracy.

• We assessed the reasonableness of the assumptions

used in the calculation and performed sensitivities where

appropriate.

• We have assessed the completeness and accuracy of

the related disclosures within the financial statements.

We are satisfied the assumptions made by management in

determining the asset impairment and the related disclosures

in the financial statements are appropriate.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work

to be able to give an opinion on the financial statements as a whole, taking into

account the structure of the group and the company, the accounting processes

and controls, and the industry in which they operate.

As part of designing our audit, we determined materiality and assessed the risks

of material misstatement in the financial statements. In particular we looked

at where the directors made subjective judgements, for example in respect

of significant accounting estimates that involved making assumptions and

considering future events that are inherently uncertain. As in all of our audits we

also addressed the risk of management override of internal controls, including

129ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

evaluating whether there was evidence of bias by the directors that represented

a risk of material misstatement due to fraud.

We have performed an audit of the complete financial information of A Share &

Sons Limited, which is the only financially significant component within the group.

This provides 98.7% coverage of the group’s revenue. We have also audited the

group consolidation adjustments as a full scope component.

The impact of climate risk on our audit

Climate change is expected to present both risks and opportunities for the group.

As explained in the “Responsibility and sustainability report” section within the

Strategic Report, the group is mindful of its impact on the environment and is

focussed on ways to reduce climate-related impacts as management continues

to develop its plans towards Net Zero by 2050. Management’s climate change

initiatives and commitments will impact the group in a variety of ways, and while

the group has started to quantify some of the impacts that may arise on its net

zero pathway, the future financial impacts are clearly uncertain given the medium

to long term horizon. Disclosure of the impact of climate change risk based on

management’s current assessment is incorporated in the Task Force on Climate-

related Financial Disclosures (‘TCFD’) section of the Annual Report.

As part of our audit, we made enquiries of management to understand the extent

of the potential impact of climate change on the group’s business and the financial

statements, including reviewing management’s climate change risk assessment

which was prepared with support from management’s external expert. We used

our knowledge of the group to evaluate the risk assessment performed by

management.

We assessed that the key areas in the financial statements which are more likely to

be materially impactedby climate change are those areas that are based on future

cash flows. As a result, we particularly considered how climate change risks and the

impact of climate commitments made by the group could impact the assumptions

made in the forecasts. Our procedures did not identify any material impact on

our audit for the year ended 29 July 2023. We also checked the consistency of the

disclosures in the TCFD section of the Annual Report with the relevant financial

statement disclosures, including the going concern section of the accounting

policies, and with our understanding of the business and knowledge obtained in the

audit.

We confirmed with management and the Audit Committee that the estimated

financial impacts of climate change will be reassessed prospectively and our

expectation is that climate change disclosures will evolve as the understanding of

the actual, and potential, impacts on the group’s future operations are established

with greater certainty.

Materiality

The scope of our audit was influenced by our application of materiality. We set

certain quantitative thresholds for materiality. These, together with qualitative

considerations, helped us to determine the scope of our audit and the nature,

timing and extent of our audit procedures on the individual financial statement

line items and disclosures and in evaluating the effect of misstatements, both

individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial

statements as a whole as follows:

Financial statements – group Financial statements – company

Overall

materiality

£1,425,000 (2022: £3,250,000). £700,000 (2022: £708,000).

How we

determined it

1% of revenue capped at 20% of adjusted

profit before tax

1% of total assets

Rationale for

benchmark

applied

Based on our professional judgement

and our knowledge of the client,

materiality was based on 1% of revenue

which is a standard materiality

benchmark particularly in low margin

businesses such as ScS Group plc.

However it is important that we are

mindful of our materiality level in the

context of the business's profitability.

Consequently we capped the materiality

level applied at 20% of the adjusted profit

before tax (2022: profit before tax).

Based on our professional judgement

and our knowledge of the client our

materiality was based on 1.0% (2022:

1.0%) of total assets. We used this as

the benchmark for our materiality

calculations due to the entity being a

holding company with limited activity and

our judgement around what would affect

the decisions of the members.

For each component in the scope of our group audit, we allocated a materiality

that is less than our overall group materiality. The range of materiality allocated

across components was £1,000,000 – £1,290,000. Certain components were audited

to a local statutory audit materiality that was also less than our overall group

materiality.

We use performance materiality to reduce to an appropriately low level the

probability that the aggregate of uncorrected and undetected misstatements

exceeds overallmateriality. Specifically, we use performance materiality in

130 ScS Group plc Annual Report and Accounts 2023

Financial statements continued

determining the scope of our audit and the nature and extent of our testing

of account balances, classes of transactions and disclosures, for example in

determining sample sizes. Our performance materiality was 75% (2022: 75%) of

overall materiality, amounting to £1,068,750 (2022: £2,437,500) for the group financial

statements and £525,000 (2022: £529,000) for the company financial statements.

In determining the performance materiality, we considered a number of factors

– the history of misstatements, risk assessment and aggregation risk and the

effectiveness of controls – and concluded that an amount in the middle of our

normal range was appropriate.

We agreed with the Audit Committee that we wouldreport to them misstatements

identified during our audit above £71,250 (group audit) (2022: £162,500) and £35,400

(company audit) (2022: £35,000) as well as misstatements below those amounts that,

in our view, warranted reporting for qualitative reasons.

Reporting on other information

The other information comprises all of the information in the Annual Report other

than the financial statements and our auditors’ report thereon. The directors

are responsible for the other information, which includes reporting based on the

Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

Our opinion on the financial statements does not cover the other information

and, accordingly, we do not express an audit opinion or, except to the extent

otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility

is to read the other information and, in doing so, consider whether the other

information is materially inconsistent with the financial statements or our

knowledge obtained in the audit, or otherwise appears to be materially misstated.

If we identify an apparent material inconsistency or material misstatement, we

are required to perform procedures to conclude whether there is a material

misstatement of the financial statements or a material misstatement of the other

information. If, based on the work we have performed, we conclude that there is

a material misstatement of this other information, we are required to report that

fact. We have nothing to report based on these responsibilities.

With respect to the Strategic report and Directors’ report, we also considered

whether the disclosures required by the UK Companies Act 2006 have been

included.

Based on our work undertaken in the course of the audit, the Companies Act 2006

requires us also to report certain opinions and matters as described below.

Strategic report and Directors’ report

In our opinion, based on the work undertaken in the course of the audit, the

information given in the Strategic report and Directors’ report for the period

ended 29 July 2023 is consistent with the financial statements and has been

prepared in accordance with applicable legal requirements.

In light of the knowledge and understanding of the group and company and their

environment obtained in the course of the audit, we did not identify any material

misstatements in the Strategic report and Directors’ report.

Directors’ Remuneration

In our opinion, the part of the Directors’ remuneration report to be audited has

been properly prepared in accordance with the Companies Act 2006.

Corporate governance statement

The Listing Rules require us to review the directors’ statements in relation to

going concern, longer-term viability and that part of the corporate governance

statement relating to the company’s compliance with the provisions of the UK

Corporate Governance Code specified for our review. Our additional responsibilities

with respect to the corporate governance statement as other information are

described in the Reporting on other information sectionof this report.

Based on the work undertaken as part of our audit, we have concluded that each

of the following elements of the corporate governance statement is materially

consistent with the financial statements andour knowledge obtained during

the audit, and, except for the matters reported in the section headed ‘Material

uncertainty related to going concern’, we have nothing material to add or draw

attention to in relation to:

• The directors’ confirmation that they have carried out a robust assessment

of the emerging and principal risks;

• The disclosures in the Annual Report that describe those principal risks, what

procedures are in place to identify emerging risks and an explanation of how

these are being managed or mitigated;

• The directors’ statement in the financial statements about whether they

considered it appropriate to adopt the going concern basis of accounting in

preparing them, and their identification of any material uncertainties to the

group’s and company’s ability to continue to do so over a period of at least

Independent auditors’ report to the members of ScS Group plc continued

131ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

twelve months from the date of approval of the financial statements;

• The directors’ explanation as to their assessment of the group’s and

company’s prospects, the period this assessment covers and why the period

is appropriate; and

• The directors’ statement as to whether they have a reasonable expectation

that the company will be able to continue in operation and meet its

liabilities as they fall due over the period of its assessment, including any

related disclosures drawing attention to any necessary qualifications or

assumptions.

Our review of the directors’ statement regarding the longer-term viability of

the group and company was substantially less in scope than an audit and only

consisted of making inquiries and considering the directors’ process supporting

their statement; checking that the statement is in alignment with the relevant

provisions of the UK Corporate Governance Code; and considering whether the

statement is consistent with the financial statements and our knowledge and

understanding of the group and company and their environment obtained in the

course of the audit.

In addition, based on thework undertaken as part of our audit, we haveconcluded

that each of the following elements of the corporate governance statement is

materially consistent with the financial statements and our knowledge obtained

during the audit:

• The directors’ statement that they consider the Annual Report, taken as a

whole, is fair, balanced and understandable, and provides the information

necessary for the members to assess the group’s and company’s position,

performance, business model and strategy;

• The section of the Annual Report that describes the review of effectiveness

of risk management and internal control systems; and

• The section of the Annual Report describing the work of the Audit Committee.

We have nothing to report in respect of our responsibility to report when the

directors’ statement relating to the company’s compliance with the Code does

not properly disclose a departure from a relevant provision of the Code specified

under the Listing Rules for review by the auditors.

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the Statement of Directors’ responsibilities in respect of

the financial statements, the directors are responsible for the preparation of the

financial statements in accordance with the applicable framework and for being

satisfied that they give a true and fair view. The directors are also responsible for

such internal control as they determine is necessary to enable the preparation

of financial statements that are free from material misstatement, whether due to

fraud or error.

In preparing the financial statements, the directors are responsible for assessing

the group’s and the company’s ability to continue as a going concern, disclosing,

as applicable, matters related to going concern and using the going concern

basis of accounting unless the directors either intend to liquidate the group or

the company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial

statements as a whole are free from material misstatement, whether due

to fraud or error, and to issue an auditors’ report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that

an audit conducted in accordance with ISAs (UK) will always detect a material

misstatement when it exists. Misstatements can arise from fraud or error and

are considered material if, individually or in the aggregate, they could reasonably

be expected to influence the economic decisions of users taken on the basis of

these financial statements.

Irregularities, including fraud, are instances of non-compliance with laws and

regulations. We design procedures in line with our responsibilities, outlined above,

to detect material misstatements in respect of irregularities, including fraud. The

extent to which our procedures are capable of detecting irregularities, including

fraud, is detailed below.

Based on our understanding of the group and industry, we identified that the

principal risks of non-compliance with laws and regulations related to the

Companies Act 2006, the Listing Rules and UK tax legislation, and we considered

the extent to which non-compliance might have a material effect on the financial

statements. We evaluated management’s incentives and opportunities for

fraudulent manipulation of the financial statements (including the risk of override

of controls), and determined that the principal risks were related to posting

inappropriate journal entries to overstate revenue or the company’s EBITDA, and

management bias through judgements and assumptions in significant accounting

estimates. Audit procedures performed by the engagement team included:

• Discussion with management, including consideration of known or suspected

instances of non-compliance with laws and regulations and fraud;

132 ScS Group plc Annual Report and Accounts 2023

Financial statements continued

• Review of board minutes;

• Review of legal expenditure in the year to identify potential non-compliance

with laws and regulation;

• Evaluation of management’s controls designed to prevent and detect

irregularities;

• Identifying and testing journal entries, in particular any journal entries posted

with unusual account combinations which enhance EBITDA; and

• Challenging assumptions and judgements made by management in their

accounting estimates, in particular stock provisions and impairment of

assets.

There are inherent limitations in the audit procedures described above. We

are less likely to become aware of instances of non-compliance with laws and

regulations that are not closely related to events and transactions reflected in

the financial statements. Also, the risk of not detecting a material misstatement

due to fraud is higher than the risk of not detecting one resulting from error, as

fraud may involve deliberate concealment by, for example, forgery or intentional

misrepresentations, or through collusion.

Our audit testing might include testing complete populations of certain

transactions and balances, possibly using data auditing techniques. However,

it typically involves selecting a limited number of items for testing, rather than

testing complete populations. We will often seek to target particular items for

testing based on their size or risk characteristics. In other cases, we will use audit

sampling to enable us to draw a conclusion about the population from which the

sample is selected.

A further description of our responsibilities for the audit of the

financial statements is located on the FRC’s website at: www.frc.org.uk/

auditorsresponsibilities. This description forms part of our auditors’ report.

Use of this report

This report, including the opinions, has been prepared for and only for the

company’s members as a body in accordance with Chapter 3 of Part 16 of the

Companies Act 2006 and for no other purpose. We do not, in giving these opinions,

accept or assume responsibility for any other purpose or to any other person to

whom this report is shown or into whose hands it may come save where expressly

agreed by our prior consent in writing.

Other required reporting

Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not obtained all the information and explanations we require for our

audit; or

• adequate accounting records have not been kept by the company, or returns

adequate for our audit have not been received from branches not visited by

us; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• the company financial statements and the part of the Directors’

remuneration report to be audited are not in agreement with the accounting

records and returns.

We have no exceptions to report arising from this responsibility.

Appointment

Following the recommendation of the Audit Committee, we were appointed by the

directors on 3 November 2009 to audit the financial statements for theyear ended

31 July 2009 and subsequent financial periods. The period of total uninterrupted

engagement is 15 years, covering the years ended 31 July 2009 to 29 July 2023. The

audit went out to competitive tender for the year ended 27 July 2019 and we were

reappointed as auditors on 21 November 2018.

Other matter

As required by the Financial Conduct Authority Disclosure Guidance and

Transparency Rule 4.1.14R, these financial statements form part of the ESEF-

prepared annual financial report filed on the National Storage Mechanism of the

Financial Conduct Authority in accordance with the ESEF Regulatory Technical

Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether

the annual financial report has been prepared using the single electronic format

specified in the ESEF RTS.

Andy Ward (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Newcastle upon Tyne

24 October 2023

Independent auditors’ report to the members of ScS Group plc continued

133ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Note

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

Gross sales 3 343,457 344,710

Revenue 3 325,865 331,569

Cost of sales (173,467) (175,305)

Gross profit 152,398 156,264

Distribution costs (21,828) (21,304)

Administrative expenses (122,224) (114,761)

Operating profit 4 8,346 20,199

Analysed as:

Underlying operating profit (non-GAAP measure) 9,593 17,629

Adjusting items included within administrative expenses 5 (1,247) 2,570

Operating profit 8,346 20,199

Finance costs 7 (4,322) (3,856)

Finance income 8 1,961 15

Net finance costs (2,361) (3,841)

Profit before taxation 5,985 16,358

Income tax charge 9 (1,535) (2,774)

Profit and total comprehensive income for the year 4,450 13,584

Attributable to:

Owners of the parent

Profit and total comprehensive income for the year 4,450 13,584

Earnings per share (expressed in pence per share):

Basic earnings per share (pence) 10 12.8p 36.2p

Diluted earnings per share (pence) 10 12.1p 35.0p

There are no other sources of comprehensive income/(expense).

Consolidated statement of comprehensive income

For the year ended 29 July 2023

134 ScS Group plc Annual Report and Accounts 2023

Financial statements continued

Consolidated statement of financialposition

As at 29 July 2023

Note

As at

29 July 2023

£’000

As at

30 July 2022

£’000

Non-current assets

Goodwill and other intangible assets 11, 19 3,753 2,494

Property, plant and equipment 12 21,303 18,076

Right-of-use assets 13 88,960 96,996

Deferred tax asset 17 1,873 1,845

Total non-current assets 115,889 119,411

Current assets

Inventories 14 24,633 19,791

Trade and other receivables 15 6,336 6,011

Cash and cash equivalents 69,538 70,819

Total current assets 100,507 96,621

Total assets 216,396 216,032

Current liabilities

Current income tax liabilities 159 309

Trade and other payables 16 68,047 57,328

Provisions 18 231 303

Lease liabilities 13 20,246 19,721

Total current liabilities 88,683 77,661

Non-current liabilities

Provisions 18 1,048 1,192

Lease liabilities 13 81,098 87,012

Total non-current liabilities 82,146 88,204

Total liabilities 170,829 165,865

Capital and reserves attributable to the owners of the parent

Share capital 20 34 37

Share premium 20 16 16

Capital redemption reserve 20 19 16

Treasury reserve 28 (203) (681)

Merger reserve 25,511 25,511

Retained earnings 20,190 25,268

Equity attributable to the owners of the parent 45,567 50,167

Total equity 45,567 50,167

Total equity and liabilities 216,396 216,032

The notes on pages 137 to 155 are an integral

part of these consolidated financial

statements.

The financial statements on pages 133 to 155

were approved by the Board and authorised

for issue on 24 October 2023 and signed on its

behalf by:

Steve Carson

Chief Executive Officer

ScS Group plc: Registered number 03263435

135ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Consolidated statement of changes in equity

For the year ended 29 July 2023

capital

£’000

premium

£’000

Capital

redemption

reserve

£’000

Merger

reserve

£’000

Treasury

reserve

£’000

Retained

earnings

£’000

Total

equity

£’000

At 1 August 2021 38 16 15 25,511 (549) 19,479 44,510

Profit and total comprehensive income – – – – – 13,584 13,584

Total comprehensive income – – – – – 13,584 13,584

Share-based payment charge (note 22) – – – – – 153 153

Repurchase of own shares (note 20) – – – – – (2,201) (2,201)

Cancellation of repurchased shares (note 20) (1) – 1 – – – –

Purchase of treasury shares (note 28) – – – – (1,476) – (1,476)

Issue of treasury shares to employees (note 28) – – – – 1,344 (1,304) 40

Dividend paid (note 21) – – – – – (4,443) (4,443)

Total transactions with shareholders (1) – 1 – (132) (7,795) (7,927)

At 30 July 2022 37 16 16 25,511 (681) 25,268 50,167

At 31 July 2022 37 16 16 25,511 (681) 25,268 50,167

Profit and total comprehensive income – – – – – 4,450 4,450

Total comprehensive income – – – – – 4,450 4,450

Share-based payment charge (note 22) – – – – – 598 598

Repurchase of own shares (note 20) – – – – – (4,776) (4,776)

Cancellation of repurchased shares (note 20, 28) (3) – 3 – 116 (116) –

Purchase of treasury shares (note 28) – – – – (148) – (148)

Issue of treasury shares to employees (note 28) – – – – 510 (510) -

Dividend paid (note 21) – – – – – (4,724) (4,724)

Total transactions with shareholders (3) – 3 – 478 (9,528) 9,050

At 29 July 2023 34 16 19 25,511 (203) 20,190 45,567

136 ScS Group plc Annual Report and Accounts 2023

Consolidated statement of cash flows

For the year ended 29 July 2023

Note

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

Cash flows from operating activities

Profit before taxation 5,985 16,358

Adjustments for:

Depreciation of property, plant and equipment 12 4,179 4,162

Depreciation of right-of-use assets 13 20,269 21,523

Amortisation of intangible assets 11 1,185 882

Impairment of non-current assets 5 2,438 –

Loss on disposal of tangible and intangible assets 270 –

Profit on termination of lease of right-of-use assets (346) –

Share-based payment charge 22 598 153

Finance costs 7 4,322 3,856

Finance income 8 (1,961) (15)

36,939 46,919

Changes in working capital:

Increase in inventories 14 (4,715) (2,463)

Increase in trade and other receivables 15 (325) (1,064)

Increase/(decrease) in trade and other payables 9,881 (14,908)

Cash generated from operating activities 41,780 28,484

Income taxes paid (1,713) (3,457)

Net cash flow generated from operating activities 40,067 25,027

Cash flows used in investing activities

Acquisition of business combination 19 (875) –

Purchase of property, plant and equipment (7,550) (3,741)

Payments to acquire intangible assets (1,708) (1,004)

Interest received 8 1,961 15

Net cash flow used in investing activities (8,172) (4,730)

Cash flows used in financing activities

Dividends paid 21 (4,724) (4,443)

Purchase of own shares 20, 28 (4,924) (3,677)

Sale of treasury shares 20, 28 – 40

Interest paid 7 (265) (418)

Interest paid on lease liabilities 7 (4,057) (3,438)

Payment of capital element of leases (19,206) (25,192)

Net cash flow used in financing activities (33,176) (37,128)

Net decrease in cash and cash equivalents (1,281) (16,831)

Cash and cash equivalents at beginning of year 70,819 87,650

Cash and cash equivalents at end of year 69,538 70,819

Financial statements continued

137ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

1. General information

ScS Group plc (the ‘Company’) is a public limited company, limited by shares,

which is listed on the London Stock Exchange, incorporated and domiciled in

England, within the UK (Company registration number 03263435). The address of

the registered office is 45-49 Villiers Street, Sunderland, SR1 1HA.

The Company’s principal activity is to act as a holding company for its

subsidiaries. The Company and its subsidiaries’ (the ‘Group’s’) principal activity is

the provision of furniture and flooring, trading under the name ScS and Snug.

2. Accounting policies

Basis of preparation

The financial statements are prepared in accordance with UK-adopted

International Accounting Standards and with the requirements of the

Companies Act 2006 as applicable to companies reporting under those

standards. The Group’s financial statements are presented in sterling and

all values are rounded to the nearest thousand pounds (£’000) except when

otherwise indicated. They are prepared on the historical cost basis, except for

share-based payments that have been measured at fair value. The financial

statements for the year have been prepared for the 52 weeks ended 29 July

2023 (2022: 52 weeks ended 30 July 2022). The accounting policies which follow

have been applied in preparing the financial statements for the year ended

29 July 2023. These policies have been consistently applied to all of the years

presented, unless otherwise stated.

Going concern

At the time of approving the financial statements, the Board is required to

formally assess that the business has adequate resources to continue in

operational existence for the foreseeable future and as such can continue to

adopt the ‘going concern’ basis of accounting.

Liquidity

The most significant factor in considering whether current resources are

adequate is to consider the Group’s liquidity. At 29 July 2023, the Group’s cash

balance totalled £69.5m and £33.3m was owed as trade payables for goods

delivered. The Group has no drawn down debt, and further liquidity is available

through the £12.0m revolving credit facility (RCF) granted on 6 October 2022.

This facility is committed for a term of 36 months and would be renegotiated

well in advance of this maturity date. The RCF is subject to certain covenants in

respect of fixed charge cover, liquidity and leverage.

Cash flows

As part of the Group’s ongoing review of going concern, the Directors have

reviewed the results for the 12 months to 29 July 2023 and have modelled cash

flow forecasts under the following scenarios:

• A ‘base case’ scenario to July 2026 which reflects the challenging economic

environment whilst also recognising the impact of our strategic progress on

the Group’s results. We assume no further lockdown periods or direct impact

on our store and distribution operation.

• A minor sensitivity which sees a reduction in revenue due to a downturn

in consumer confidence whilst being able to maintain our assumed gross

margin as per the ‘base case’ scenario.

• A moderate sensitivity which sees a reduction in gross margin versus ‘base

case’ representing an increasingly challenging economic environment.

• A ‘severe but plausible’ downside sensitivity which models much more

significant reductions in sales and margin, together with the assumption that

our suppliers have the credit insurance they use to support their payment

terms with the Group withdrawn, seeing our suppliers request earlier payment

dates to alleviate their working capital challenges.

Under each sensitivity, the Group has modelled associated reductions in

marketing and distribution costs, bonus costs and sales-related commission

payments in response to the downturn in the Group’s performance brought on

by the challenging economic environment, and the Group maintains suitable

liquidity headroom. Under the ‘severe but plausible downside’ scenario more

severe cash preservation methods are implemented, such as reducing capital

expenditure, suspending shareholder returns and reducing headcount.

Throughout the ‘severe but plausible downside’ scenario, the Group would

have significant cash headroom. Including the withdrawal of supplier credit

insurance, the cash low point at the end of July 2024 remains substantial at

£21.2m. Forecasts show there is no requirement for any additional sources of

financing throughout the extended viability period.

Following the year end, on 24 October 2023 a wholly-owned subsidiary of

Poltronesofà S.p.A. announced a recommended cash offer for the Company of

270p per share. It is intended that the acquisition will be implemented by way of

a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act

and is expected to complete in the first quarter of 2024.

Notes to the consolidated financial statements

138 ScS Group plc Annual Report and Accounts 2023

Notes to the consolidated financial statements continued

2. Accounting policies continued

Going concern continued

The Group’s existing committed debt facilities contain a standard change of

control clause that will be triggered once the acquisition completes. This could

result in the existing committed debt facilities being withdrawn. The Group does

not have visibility of the post completion funding for the Group at this time.

Therefore, this could create some uncertainty as to the Group’s going concern.

The Directors note the Poltronesofà S.p.A. intention statements included within

the announcement on 24 October 2023, which state that following completion of

the acquisition, Poltronesofà S.p.A. intends to support the Group by leveraging

its significant, pan-European industry expertise and providing the capital

necessary to accelerate the Group’s strategy. Poltronesofà S.p.A. is highly

supportive of the management’s vision for the business and the long-term

ambitions of being the UK’s best value-for-money home retailer and recognises

and values the strong strategic, operational and product positioning and setup

of the Group, as well as the expertise of its management team and employees.

Poltronesofà S.p.A. therefore intends to work closely with the Group’s senior

management to undertake a strategic review of the Group in order to determine

how its short and long-term objectives can best be delivered or exceeded.

Notwithstanding Poltronesofà S.p.A.’s stated intentions, the current Directors

will not have full control over the acquired Group and therefore they do not

currently have full knowledge of the new ultimate parent undertaking’s future

intentions and funding plans in relation to the Group. Therefore the change of

control position indicates a material uncertainty which may cast significant

doubt upon the Group and the Company’s ability to continue as a going concern.

The financial statements do not include the adjustments that would result if the

Group and the Company were unable to continue as a going concern.

Having considered all of the above, the Board is of the opinion that the going

concern basis adopted in the preparation of the consolidated statements is

appropriate.

New standards, amendments and interpretations

At the date of authorisation of these financial statements, new standards,

amendments and interpretations which had been issued but were not yet

mandatory are not expected to have a material impact on the consolidated

financial statements.

Basis of consolidation

The Group financial statements consolidate the financial statements of ScS

Group plc and the entities it controls (its subsidiaries) drawn up to within seven

days of 31 July each year.

The financial year represents the 52 weeks ended 29 July 2023 (prior financial

year 52 weeks ended 30 July 2022).

Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group

has control. The Group controls an entity where the Group is exposed to, or has

rights to, variable returns from its involvement with the entity and has the ability

to affect those returns through its power to direct the activities of the entity.

Subsidiaries are fully consolidated from the date on which control is transferred

to the Group. They are deconsolidated from the date that control ceases.

Transactions eliminated on consolidation

Intra-Group balances, and any gains and losses or income and expenses arising

from intra-Group transactions, are eliminated in preparing the consolidated

financial information. Gains arising from transactions with jointly controlled

entities are eliminated to the extent of the Group’s interest in the entity. Losses

are eliminated in the same way as gains, but only to the extent that there is no

evidence of impairment.

Adjusting items

Adjusting items are defined as items of income and expenditure which are

material and unusual in nature and which are considered to be of such

significance that they require separate disclosure on the face of the income

statement. Any future movements on items previously classified as adjusting will

also be classified as adjusting for consistency.

Gross sales and revenue

For the purposes of managing its business the Group focuses on gross sales, which

is defined as the total amount payable by customers excluding discounts, returns,

value added taxes and amounts payable to third parties relating to warranty

products for which the Group acts as an agent. Gross sales is also stated prior to

any accounting adjustments for interest-free credit fees. The Board believes gross

sales is a more transparent measure of the activity levels andperformance of its

showrooms and online channels as it is not affected by customer preferences

on payment options. Accordingly, gross sales is presented in this Annual Report,

in addition to statutory revenue, as an alternative performance measure, with a

reconciliation between the two measures provided in note 3.

139ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

2. Accounting policies continued

Gross sales and revenue continued

Revenue is measured as the total amount payable by the customer net of

discounts, returns and value added taxes. Revenue is measured net of the

charges associated with interest-free credit sales and amounts payable to third

parties relating to warranty products for which the Group acts as an agent.

Both gross sales and revenue are recognised at a point in time when the Group

has satisfied its performance obligations by transferring control of the goods or

service to the customer. This is deemed to be when the goods have been delivered

to the customer before which payment is received. Warranty services, once sold,

are subsequently provided by third parties. The Group does not control warranty

products before they are transferred to the customer and therefore acts as an

agent in these transactions. Amounts recognised in gross sales and revenue where

the Group acts as an agent represent the net income receivable by the Group.

The Group operates a negative working capital model whereby customers pay

a deposit at the point of order and, unless the order is to be financed using

consumer credit, settle outstanding balances before delivery. Payment of part

of the consideration is often, therefore, taken before the Group has fulfilled its

performance obligation. These deposits taken from customers are referred to

as contract liabilities under IFRS 15, and are presented as payments received

on account within current liabilities, until the goods or services are delivered.

A very small number of deposits are refunded without delivery of product, and

therefore, materially, the value of customer deposits will be realised within 12

months. Where the outstanding balance is settled subsequent to the delivery

of goods via consumer credit, the full financed balance is received within two

working days of delivery from our third-party finance providers, who are then

responsible for collecting subsequent payments from the customer.

The Group holds a sales return provision in the consolidated statement of

financial position to provide for expected levels of returns on sales made before

the year end but returned after the year end. The Group recognises the expected

value of revenue relating to returns within sales provisions and the expected

value of cost of sales relating to the returned items is included within inventories.

Segmental reporting

In accordance with IFRS 8 ‘Operating Segments’ the results of Snug have been

aggregated with the rest of the Group into one reportable segment (see note

3 – Segment analysis).

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The

consideration transferred for the acquisition of a subsidiary comprises the:

• Fair values of the assets transferred;

• Liabilities incurred to the former owners of the acquired business;

• Equity interests issued by the Group;

• Fair value of any asset or liability resulting from a contingent consideration

arrangement; and

• Fair value of any pre-existing equity interest in the subsidiary.

Identifiable assets acquired and liabilities and contingent liabilities assumed in

a business combination are, with limited exceptions, measured initially at their

fair values at the acquisition date. The Group recognises any non-controlling

interest in the acquired entity on an acquisition-by-acquisition basis either

at fair value or at the non-controlling interest’s proportionate share of the

acquired entity’s net identifiable assets.

Acquisition-related costs are expensed as incurred.

The excess of the:

• Consideration transferred;

• Amount of any non-controlling interest in the acquired entity; and

• Acquisition-date fair value of any previous equity interest in the acquired entity

over the fair value of the net identifiable assets acquired is recorded as goodwill.

Intangible assets

Goodwill

Goodwill represents the excess of the consideration paid over the fair value of

the identifiable assets (including intangible assets) of the acquired entity at

the date of the acquisition. Goodwill is recognised as an asset and assessed

for impairment annually or as triggering events occur. Any impairment in value is

recognised within the income statement.

Acquired intangible assets

Acquired intangible assets are capitalised at cost and amortised on a straight-

line basis over their useful economic life. The useful economic lives used are as

follows:

Intellectual Property 10% straight-line per annum

Commercial records 33% straight-line per annum

140 ScS Group plc Annual Report and Accounts 2023

Notes to the consolidated financial statements continued

2. Accounting policies continued

Intangible assets continued

Intangible assets

Intangible assets purchased separately are capitalised at cost and amortised

on a straight-line basis over their useful economic life. The useful economic

lives used are as follows:

Computer software 20-33% straight-line per annum

Assets in the course of construction are not amortised until they are brought

into use.

The carrying value of intangible assets is reviewed for impairment when events or

changes in circumstances indicate the carrying value may not be recoverable.

Property, plant and equipment

Property, plant and equipment are stated at historic purchase cost less

accumulated depreciation and accumulated impairment losses. Cost includes

the original purchase price of the asset and the costs attributable to bringing

the asset to its working condition for its intended use. Depreciation is provided

on all tangible fixed assets, at rates calculated to write off the cost, less

estimated residual value, of the tangible fixed assets over their anticipated

useful lives at the rates shown below:

Fixtures and fittings 10-20% straight-line per annum

Computer equipment 20-33% straight-line per annum

Leasehold improvements The shorter of the term of the lease

or 2% straight-line per annum

Freehold buildings 2% straight-line per annum

The carrying values of property, plant and equipment are reviewed for

impairment when events or changes in circumstances indicate the carrying

value may not be recoverable.

Leases

The Group assesses whether a contract is, or contains, a lease at inception of

the contract. Typically, lease contracts relate to properties such as showrooms

and distribution centres, and vehicles leases. For leases in which the Group

is a lessee, the Group recognises a right-of-use asset and a lease liability at

commencement of the lease.

Lease liabilities

The lease liability is measured at the present value of the lease payments,

discounted at the lessee’s incremental borrowing rate specific to the term

and start date of the lease, unless the interest rate implicit in the lease can be

readily determined. Lease payments include:

• Fixed payments (including in-substance fixed payments), less any lease

incentives receivable;

• Variable lease payments that are based on an index or a rate, initially

measured using the index or rate as at the commencement date;

• Amounts expected to be payable by the Group under residual value guarantees;

• The exercise price of a purchase option if the Group is reasonably certain to

exercise that option; and

• Payments of penalties for terminating the lease, if the lease term reflects the

Group exercising that option.

The lease liability is subsequently measured at amortised cost using the

effective interest rate method. It is remeasured, with a corresponding

adjustment to the right-of-use asset, if there is a modification, a change in

the lease term or a change in the fixed lease payments. Interest charges are

included in finance costs in the consolidated income statement.

Right-of-use assets

The right-of-use asset is initially measured at cost, comprising:

• The amount of the initial measurement of lease liability;

• Any lease payments made at or before the commencement date less any

lease incentives received;

• Any initial direct costs; and

• Restoration costs.

The right-of-use asset is subsequently depreciated using the straight-

line method over the shorter of the asset’s useful life or the lease term.

Depreciation on right-of-use assets is included in administrative and

distribution costs in the consolidated income statement. The right-of-use asset

is tested for impairment if there are any indicators of impairment.

Leases of low value assets and short-term leases of 12 months or less are

expensed to the Group income statement.

Inventories

Inventories are stated at the lower of cost and net realisable value and consist

of finished goods held for resale. Where necessary, provision is made for

obsolete, slow-moving and defective stocks.

141ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

2. Accounting policies continued

Inventories continued

Cost comprises the purchase price of goods and other directly attributable

costs incurred in bringing the product to its present location and condition.

Net realisable value is the estimated selling price less any further costs to be

incurred to disposal.

Trade receivables

Trade receivables are amounts due from customers for goods sold or services

performed in the ordinary course of business. If collection is expected in one

year or less (or in the normal operating cycle of the business if longer), they are

classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognised initially at fair value and subsequently

measured at amortised cost using the effective interest method, less provision

for impairment. As a requirement of applying IFRS 9, the Group has applied an

expected credit loss (ECL) model when calculating impairment losses on its

trade and other receivables.

The majority of the trade receivables are due from finance houses with which

there is a very low likelihood, and no previous history, of default, and therefore,

there has been no material impact of the ECL model.

Trade payables

Trade payables are obligations to pay for goods or services that have been

acquired in the ordinary course of business from suppliers. Accounts payable

are classified as current liabilities if payment is due within one year or less. If

not, they are presented as non-current liabilities.

Trade payables are recognised initially at fair value and subsequently measured

at amortised cost using the effective interest method.

Borrowings

Borrowings, if applicable, would be recognised initially at fair value, net of

transaction costs incurred. Borrowings are subsequently carried at amortised

cost; any difference between the proceeds (net of transaction costs) and the

redemption value is recognised in the income statement over the period of the

borrowings using the effective interest method.

Cash and cash equivalents

For the purpose of presentation in the consolidated statement of cash flows,

cash and cash equivalents includes cash on hand.

Treasury shares

Treasury shares are those shares bought back by the Company. Shares in the

Company held in treasury are included in the balance sheet at cost including

any directly attributable incremental costs.

Subsequent consideration received for the sale of such shares is also

recognised in equity, with any difference between the sale proceeds and the

original cost being taken to retained earnings. No gain or loss is recognised in

the financial statements on transactions in treasury shares.

The Employee Benefit Trust (EBT) provides for the issue of shares to Group

employees, principally under share option schemes. Shares in the Company

held by the EBT are also included in the balance sheet as treasury shares.

Share capital and reserves

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new ordinary shares or

options are shown in equity as a deduction, net of tax, from the proceeds.

The Group accounts for share buybacks using the cost method. Under

this method, the consideration paid for the repurchased shares, including

transaction costs directly attributable to the buyback, is recorded as a

reduction in shareholders’ equity in the Group’s consolidated statement of

financial position.

The merger reserve was created following a Group capital reorganisation

exercise as part of the preparation for the IPO of ScS Group plc in January 2015.

The Group can redeem shares by repaying the market value to the shareholder,

whereupon the shares are cancelled. The capital redemption reserve

represents the nominal value of shares redeemed.

Store pre-opening and launch costs

Pre-opening and launch costs are charged to the income statement in the year

they are incurred.

Advertising expenditure

All routine and general advertising costs are expensed as incurred. Advertising

costs paid to media companies are recognised as a prepayment until the

advertising is placed in the media and communicated to the public, at which

point the expenditure is expensed to the income statement.

142 ScS Group plc Annual Report and Accounts 2023

Notes to the consolidated financial statements continued

2. Accounting policies continued

Supplier contributions

Contributions received from suppliers towards the cost of displaying and

promoting their product are recognised as a reduction in the advertising and

marketing costs to which they relate.

Supplier rebates

Rebates receivable from suppliers are based upon the volume of business with

each supplier and are recognised in the income statement in cost of sales

or credited to stock as appropriate on an earned basis, by reference to the

supplier revenue. The balance receivable at year end is included within other

receivables within the consolidated statement of financial position.

Pension costs

Contributions to the defined contribution scheme are charged to the income

statement in the year in which they become payable. The assets of the scheme are

held separately from those of the Group in an independently administered fund.

Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax

is recognised in the income statement except to the extent that it relates

to a business combination, or items recognised directly in equity or other

comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or

loss for the year, using tax rates enacted or substantively enacted at the balance

sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the liability method, on temporary differences

at the balance sheet date between the tax base of assets and liabilities and their

carrying amounts for financial reporting purposes, to the extent that the Directors

consider that it is more likely than not that there will be suitable taxable profits from

which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured on an undiscounted basis at the average tax rates that

are expected to apply in the periods in which timing differences reverse, based on

tax rates and laws enacted or substantively enacted at the balance sheet date.

Deferred tax assets and liabilities are offset when there is a legally enforceable

right to set off current tax assets against current tax liabilities and when they

relate to income taxes levied by the same taxation authority and the Group

intends to settle its current tax assets and liabilities on a net basis.

Foreign currency

Transactions in foreign currencies are translated at the rate ruling at the date

of the transaction. Monetary assets and liabilities denominated in foreign

currencies are translated at the rate of exchange ruling at the balance sheet

date. All exchange differences are taken to the income statement in the period

in which they arise.

Share-based payments

The Company operates an equity-settled, share-based payment plan for Directors

of the trading subsidiary undertaking, A. Share & Sons Limited, which includes the

Executive Directors of the Group. The fair value of the Directors’ services received

by the Group in exchange for the issue of shares in the Company is recognised

as an expense in the financial statements of the subsidiary company to which

services have been supplied. The total amount to be expensed over the vesting

period is determined by reference to the fair value of the shares issued, excluding

the impact of any non-market vesting conditions (for example, profitability and

sales growth targets). Non-market vesting conditions are included in assumptions

about the number of shares that are expected to vest. At each balance sheet

date, the Group revises its estimates of the number of shares that are expected

to vest. It recognises the impact of the revision to original estimates, if any, in the

income statement, with a corresponding adjustment to equity.

Dividends

Interim and final dividends are recognised when they are paid to the Group’s

shareholders.

Provisions

Provisions are recognised when the Group has a present obligation as a result of

a past event, it is probable that a transfer of economic benefits will be required

to settle the obligation, and a reliable estimate can be made of the amount of

the obligation.

Critical accounting judgements and estimates

The preparation of the Group’s financial statements requires management

to make judgements, estimates and assumptions in applying the Group’s

accounting policies to determine the reported amounts of assets, liabilities,

income and expenses. The estimates and associated assumptions are based

on historical experience and various other factors that are believed to be

reasonable under the circumstances. Actual results may differ from these

estimates. The estimates and underlying assumptions are reviewed on an

ongoing basis, with revisions to accounting estimates applied prospectively.

143ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

2. Accounting policies continued

Critical accounting estimates and assumptions

Management considers that accounting estimates and assumptions made in

relation to the following items have a significant risk of resulting in a material

adjustment to the carrying amounts of assets and liabilities.

Stock provisions

The Group holds £24.6m of inventory at the year end, and the majority of this stock

is held for display in our showrooms. Due to the nature of this stock, it will often be

subject to the wear and tear associated with use in a showroom environment, and

some items may have also been in our showroom for an extended period of time. As

such, this stock is often unable to achieve the same margin as the ‘special order’

stock purchased and delivered directly to our customers, and may occasionally be

sold at a level lower than cost following a business decision to refresh the range

or better utilise the space. The Group’s policy in relation to stock provisioning is,

therefore, to provide for obsolete, slow-moving and defective stock, and therefore,

ensure that stock is held at the most appropriate estimate of net realisable value.

In estimating this value, management has made judgements in respect of the

quality of the Group’s products and saleability, and applied a provision based on

historic sales levels. Whilst management considers that the methodologies and

assumptions adopted in the valuation are supportable, reasonable and robust,

because of the inherent uncertainty of the sale price of stock currently held,

those estimated values may differ from the final sale and the total differences

could potentially be significant.

Impairment of property, plant and equipment and right-of-use assets

Management considers each store to be a cash-generating unit (CGU). At each

balance sheet date, the Group reviews the carrying amounts of its property,

plant and equipment, right-of-use assets and intangible assets to determine

whether there is any indication of impairment at a store following poor

performance. If any such indication exists, the recoverable amount of the asset

is estimated in order to determine the extent of the impairment loss, if any.

Recoverable amounts for CGUs are the higher of fair value less costs of disposal,

and value in use. Value in use is calculated from discounted cash flow projections

based on the Group’s internal budgets extrapolated over the remaining showroom

lease length, and management’s expectations of estimated growth rates.

The key estimates for the value in use calculations are those regarding the

discount rate used and expected changes to future cash flows. Management

considers the potential impact of changes in these key estimates in performing

sensitivity analysis. Management sets the budgets based on past experiences

and expectations of future changes in the market and estimates discount rate

using pre-tax rates that reflect the current market assessment of the time value

of money and the risks specific to the CGUs, deriving from the Group’s post-

tax weighted average cost of capital. If the recoverable amount of an asset or

CGU is estimated to be less than its carrying amount, the carrying amount of

the asset or CGU is reduced to its recoverable amount. An impairment loss is

recognised as an expense immediately. Where an impairment loss subsequently

reverses, the carrying amount of the asset or CGU is increased to the revised

estimate of its recoverable amount, but so that the increased carrying amount

does not exceed the carrying amount that would have been determined had no

impairment loss been recognised for the asset or CGU in prior years. A reversal of

an impairment loss is recognised as income immediately.

As a consequence of the current view of future projections for the business an

impairment charge of £2,438,000 has been recognised on the assets associated

with a number of our stores. This has been split between the right-of-use asset,

£1,930,000, and tangible assets, £508,000, apportioned based on net book value.

If the discount rate of 11.75% applied in management’s calculations at 29 July 2023

were to increase or decrease by 1%, this would have led to the recognition of an

additional impairment charge of £217,000 or reversal of £210,000 in these financial

statements. At 30 July 2022, an equivalent increase/decrease would not have

resulted in an impairment charge being recognised in the prior year.

144 ScS Group plc Annual Report and Accounts 2023

Notes to the consolidated financial statements continued

3.Segment analysis

The Board has determined the operating segments based on the operating

reports reviewed by the Executive Board (the Executive Directors and the other

Directors of the trading subsidiaries, A. Share & Sons Limited and Snug Furniture

Limited), that are used to assess both performance and strategic decisions. The

Board has identified that the Executive Board are the chief operating decision

makers in accordance with the requirements of IFRS 8 ‘Operating Segments’.

The Board determined that although Snug is identifiable as an operating

segment, it meets all of the aggregation criteria under IFRS 8 and as such, has

been aggregated into one reportable operating segment with the rest of the

Group. The Board considers that the Group, including Snug, operates one type

of business generating gross sales and revenue from the retail of furniture and

flooring. All gross sales and revenue profit before taxation, assets and liabilities

are attributable to the principal activity of the Group and other related services.

All gross sales and revenues are generated in the United Kingdom.

An analysis of gross sales and revenue is as follows:

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

Sale of goods 340,998 340,580

Associated sale of warranties 2,459 4,130

Gross sales 343,457 344,710

Less: costs of interest-free credit (17,592) (13,141)

Revenue 325,865 331,569

Of which:

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

In-store furniture 263,541 269,781

In-store flooring 28,940 31,704

Online 33,384 30,084

Revenue 325,865 331,569

4. Operating profit

Operating profit is stated after charging/(crediting):

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

Fees payable to the Company auditors for the audit of

Company and consolidated financial statements 40 30

Fees payable to the Company’s auditors and their associates

for other services to the Group

• audit of the Company’s subsidiaries pursuant to

legislation 200 171

• other services (see Audit Committee report on page 95 for

further information) 30 25

Loss on disposal of tangible and intangible assets 270 –

Profit on termination of lease of right-of-use assets (346) –

Depreciation of property, plant and equipment – owned 4,179 4,162

Depreciation of right-of-use assets 20,269 21,523

Amortisation of intangible assets 1,185 882

Impairment of property, plant and equipment and right-of-

use assets 2,438 –

During the year, the Group received retail business rates relief from the UK

government of £nil (2022: £2,570,000) in response to the COVID-19 outbreak.

5. Operating adjusting items included within administrative expenses

In order to provide a clearer understanding of underlying profitability, underlying

operating profit excludes adjusting items, this non-statutory measure relates

to costs that, either by their size or nature, require separate disclosure in order

to give a fuller understanding of the Group’s financial performance. Adjusting

items, booked to operating costs, comprised the following:

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

Impairment charge associated with stores (2,438) –

Snug acquisition and pre-trading costs (849) –

Business interruption insurance claim 1,250 –

Exit of the Cambridge store 790 –

Business rates relief – 2,570

Total adjusting items (1,247) 2,570

145ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

5. Operating adjusting items included within administrative expenses

continued

Impairment charge associated with stores

As a consequence of the current view of future projections for the business an

impairment charge of £2,438,000 has been recognised on the assets associated

with a number of our stores. This has been split between the right-of-use asset,

£1,930,000, and tangible assets, £508,000, apportioned based on net book value.

Snug acquisition and pre-trading costs

Adjusting items include £849,000 of costs relating to the acquisition costs

(including legal and professional fees) and pre-trading expenses.

Business interruption insurance claim

The Group received a business interruption insurance payment of £1,250,000

in relation to loss of profit as a result of the initial lockdown period during the

COVID-19 pandemic.

Exit of the Cambridge store

The Group exited its Cambridge store in July 2023, ahead of the lease expiry date.

As part of the exit agreement, a termination payment of £650,000 was received

from the landlord. The Group also realised an IFRS 16 gain on disposal of the

lease of £341,000 offset partly by disposal of assets with a remaining net book

value of £201,000. Given the one-off nature of the transaction, the profit from the

exit has been disclosed as an adjusting item.

Business rates relief

During the prior period, the Group benefitted from £2,570,000 of retail business

rates relief provided in response to the COVID-19 outbreak. No further benefit

was received in the year ended 29 July 2023.

6.Employees and Directors

6.1 Staff costs

The aggregate remuneration of all employees including Directors comprises:

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

Wages and salaries 59,687 58,062

Social security costs 6,081 5,901

Other pension costs 1,409 1,304

Share-based payment charge (note 22) 598 153

67,775 65,420

The average monthly number of employees (including Executive Directors)

during the year was as follows:

52 weeks

ended

29 July 2023

52 weeks

ended

30 July 2022

Sales 721 722

Office and managerial 527 500

Services and warehousing 518 546

Cleaning 35 34

Total 1,801 1,802

Details of Directors’ remuneration, share options, long-term incentive schemes

and pension entitlements are disclosed in the Directors’ remuneration report on

pages 97 to 119.

6.2 Key management compensation

Key management comprises the Directors of the trading subsidiary, A. Share &

Sons Limited, and the Group Directors and excludes the Non-Executive Directors.

The key management compensation is as follows:

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

Short-term employee benefits 2,333 2,648

Defined contribution pension cost 167 112

Share-based payment charge 598 153

Further detail on the above can be found in the Directors’ remuneration report

along with details of shares exercised by the highest paid Director.

The share-based payment charge of £598,000 (2022: £153,000) relates to the

Group’s trading performance against the EPS targets under the Group’s Long-

Term Incentive Plan as set out in note 22.

146 ScS Group plc Annual Report and Accounts 2023

Notes to the consolidated financial statements continued

7. Finance costs

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

Bank facility renewal fee 49 –

Bank facility non-utilisation fees 194 413

Other finance costs 22 5

Interest on lease liability 4,057 3,438

4,322 3,856

8.Finance income

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

Bank interest received 1,961 15

9. Income tax charge

(a) Analysis of tax charge in the year

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

Current tax:

UK corporation tax on profits for the year 1,435 2,571

Adjustments in respect of prior years 128 24

Total current tax charge 1,563 2,595

Deferred tax:

Origination and reversal of temporary differences 190 243

Adjustments in respect of prior years (218) (64)

Total deferred tax (credit)/charge (note 17) (28) 179

Income tax charge in the consolidated statement of

comprehensive income 1,535 2,774

(b) Factors affecting tax charge for the year

The tax charge (2022: charge) assessed on the profit (2022: profit) for the year is

higher (2022: lower) than the standard rate of corporation tax in the UK of 21.00%

(2022: 19.00%). The differences are explained below:

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

Profit before taxation 5,985 16,358

Profit before tax at 21.00% (2022: 19.00%) 1,257 3,108

Effects of:

Other expenses not deductible 187 39

Amounts not deductible/(deductible) in relation to

depreciation and impairment 251 (232)

Amounts (deductible)/not deductible in relation to share

options (102) 56

Adjustments in respect of prior years (90) (40)

Impact of changes in tax rates 32 (157)

Income tax charge in the consolidated statement of

comprehensive income 1,535 2,774

The total tax charge for the financial year results in an effective rate of 25.6%,

which is higher (2022: 17.0% – lower) than if the standard rate of corporation tax

had been applied, mainly due to the impact of non-qualifying depreciation

on assets, and non-deductible expenses. The prior year benefitted from the

capital allowances super deduction on qualifying additions and the increase in

the rate used to measure the Group’s deferred tax asset.

The Finance Act 2021 maintained the main rate of UK corporation tax at 19%

until 31 March 2023, before increasing it to 25% from 1 April 2023. These changes

were substantively enacted at the balance sheet date, 29 July 2023, and hence

have been reflected in the measurement of deferred tax balances, resulting in

deferred tax being calculated using an effective rate of 25% as at 29 July 2023.

147ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

10. Earnings per share

52 weeks

ended

29 July 2023

52 weeks

ended

30 July 2022

a) Basic earnings per share attributable to the ordinary

equity holders of the Company

Basic earnings per share from underlying operations 15.9p 30.7p

From adjusting items (3.0p) 5.5p

Total basic earnings per share 12.8p 36.2p

b) Diluted earnings per share attributable to the ordinary

equity holders of the Company

Diluted earnings per share from underlying operations 15.0p 29.6p

From adjusting items (2.9p) 5.4p

Total diluted earnings per share 12.1p 35.0p

52 weeks

ended

29 July 2023

£’000

52 weeks

ended

30 July 2022

£’000

c) Reconciliations of earnings used in calculating earnings

per share

Profit from operations 4,450 13,584

Adjusting items net of tax 1,055 (2,082)

Total profits from underlying operations 5,505 11,502

52 weeks

ended

29 July 2023

number

52 weeks

ended

30 July 2022

number

d) Weighted average number of shares used as

the denominator

Weighted average number of shares in issue for the

purposes of basic earnings per share 34,690,701 37,498,925

Effect of dilutive potential ordinary shares:

Share options (note 22) 2,031,118 1,354,896

Weighted average number of ordinary shares for the

purposes of diluted earnings per share 36,721,819 38,853,821

11. Goodwill and other intangible assets

Goodwill

acquired

from

business

combination

£’000

Other intangible

acquired

from business

combination

£’000

Computer

Software

£’000

Total

£’000

Cost

At 31 July 2022 – – 8,817 8,817

Additions 500 250 1,725 2,475

Disposals – – (1,512) (1,512)

As at 29 July 2023 500 250 9,030 9,780

Accumulated amortisation

At 31 July 2022 – – 6,323 6,323

Charge for the year – 21 1,164 1,185

Disposals – (1,481) (1,481)

At 29 July 2023 – 21 6,006 6,027

Net book amount

At 29 July 2023 500 229 3,024 3,753

At 30 July 2022 – – 2,494 2,494

Compute

Software

£’000

Total

£’000

Cost

At 1 August 2021 8,645 8,645

Additions 1,133 1,133

Disposals (961) (961)

At 30 July 2022 8,817 8,817

Accumulated amortisation

At 1 August 2021 6,402 6,402

Charge for the year 882 882

Depreciation on disposals (961) (961)

At 30 July 2022 6,323 6,323

Net book amount

At 30 July 2022 2,494 2,494

At 31 July 2021 2,243 2,243

Amortisation is charged through the administration expense line. Included in

the note are assets under construction with a carrying value of £767,000 at

29 July 2023 (30 July 2022: nil). These assets relate to systems development

and related software.

148 ScS Group plc Annual Report and Accounts 2023

Notes to the consolidated financial statements continued

11. Goodwill and other intangible assets continued

Other intangibles acquired from business combinations relate to the intellectual

property rights and commercial records from the purchase of Snug. Goodwill

also relates the business combination of Snug, See note 19 for further details.

12. Property, plant and equipment

Freehold

land and

buildings

£’000

Leasehold

improvements

£’000

Computer

equipment

£’000

Fixtures

and

fittings

£’000

Total

£’000

Cost

At 31 July 2022 159 54,593 3,651 34,816 93,219

Additions – 5,321 1,048 1,784 8,153

Disposals – (3,604) (1,083) (4,026) (8,713)

At 29 July 2023 159 56,310 3,616 32,574 92,659

Accumulated depreciation

and impairment

At 31 July 2022 103 43,861 3,069 28,110 75,143

Charge for the year 3 2,233 319 1,624 4,179

Depreciation on disposals – (3,416) (1,083) (3,975) (8,474)

Impairment charge – 28 – 480 508

At 29 July 2023 106 42,706 2,305 26,239 71,356

Net book amount

At 29 July 2023 53 13,604 1,311 6,335 21,303

At 30 July 2022 56 10,732 582 6,706 18,076

Cost

At 1 August 2021 159 55,172 5,003 34,675 95,009

Additions – 1,323 395 2,139 3,857

Disposals – (1,902) (1,747) (1,998) (5,647)

At 30 July 2022 159 54,593 3,651 34,816 93,219

Accumulated depreciation

and impairment

At 1 August 2021 100 43,546 4,295 28,687 76,628

Charge for the year 3 2,217 521 1,421 4,162

Depreciation on disposals – (1,902) (1,747) (1,998) (5,647)

At 30 July 2022 103 43,861 3,069 28,110 75,143

Net book amount

At 30 July 2022 56 10,732 582 6,706 18,076

At 31 July 2021 59 11,626 708 5,988 18,381

The net book value of leasehold improvements is as follows:

As at

29 July 2023

£’000

As at

30 July 2022

£’000

Short leaseholds (up to 25 years) 13,553 10,681

Long leaseholds (greater than 25 years) 51 51

13,604 10,732

Impairment of property, plant and equipment

During year the impairment review which compared the value in use of each CGU

based on the Group’s budget and forecast cash flows to the carrying values as

at 29 July 2023 resulted in an impairment of £508,000 (2022: Nil) against property,

plant and equipment and was recognised as an adjusting item (see note 5).

As disclosed in the accounting policies (note 2), the cash flows used within the

impairment model are based on assumptions which are sources of estimation

uncertainty and small movements in these assumptions could lead to a further

impairment charge or reversal.

13. Leases

This note provides information for leases where the Group is a lessee. The Group

leases retail, distribution and office properties and motor vehicles. The leases

have varying terms which are negotiated on an individual basis and contain a

range of different terms and conditions.

Consolidated statement of financial position

The consolidated statement of financial position as at 29 July 2023 shows the

following amounts relating to leases.

149ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

13. Leases continued

Consolidated statement of financial position continued

Right-of-use assets

Leasehold

property

£’000

Motor

vehicles

£’000

Total

£’000

Cost

At 31 July 2022 152,467 6,783 159,250

Additions

13,057 2,837 15,894

Disposals (2,594) (1,889) (4,483)

At 29 July 2023 162,930 7,731 170,661

Accumulated depreciation

At 31 July 2022 57,929 4,325 62,254

Charge for the year 18,470 1,799 20,269

Depreciation on disposals (1,000) (1,752) (2,752)

Impairment 1,930 – 1,930

At 29 July 2023 77,329 4,372 81,701

Net book amount

At 29 July 2023 85,601 3,359 88,960

At 30 July 2022 94,538 2,458 96,996

Cost

At 1 August 2021 138,802 6,602 145,404

Additions

15,179 710 15,889

Disposals (1,514) (529) (2,043)

At 30 July 2022 152,467 6,783 159,250

Accumulated depreciation

At 1 August 2021 39,766 3,008 42,774

Charge for the year 19,677 1,846 21,523

Depreciation on disposals (1,514) (529) (2,043)

At 30 July 2022 57,929 4,325 62,254

Net book amount

At 30 July 2022 94,538 2,458 96,996

At 31 July 2021 99,036 3,594 102,630

1. Right-of-use asset additions include new leases, lease renewals and increases in term and/or scope for

existing leases.

Impairment of right-of-use assets

During the year the impairment review which compared the value in use of each

CGU based on the Group’s latest budget and forecast cash flows to the carrying

values as at 29July2023 resulted in an impairment of £1,930,000 (2022: Nil) against

right-of-use assets and was recognised as an adjusting item (see note 5).

As disclosed in the accounting policies (note 2), the cash flows used within the

impairment model are based on assumptions which are sources of estimation

uncertainty and small movements in these assumptions could lead to a further

impairment.

Lease liabilities

The following tables show the discounted lease liabilities included in the Group

consolidated statement of financial position and a maturity analysis of the

contractual undiscounted lease payments:

As at

29 July 2023

£’000

As at

30 July 2022

£’000

Current 20,246 19,721

Non-current 81,098 87,012

101,344 106,733

Maturity analysis – contractual undiscounted lease payments:

As at

29 July 2023

£’000

As at

30 July 2022

£’000

Group

Within one year 24,201 22,971

Within two to five years 66,787 68,414

After five years 25,278 27,922

Total undiscounted lease payments 116,266 119,307

The Group presents lease liabilities separately in the consolidated balance

sheet.

Consolidated statement of comprehensive income

The Group has recognised depreciation and interest costs in respect of leases,

rather than rental charges of £24,138,000 (2022: £24,403,000). During the year, the

Group recognised £20,269,000 (2022: £21,523,000) of depreciation charges and

£4,057,000 (2022: £3,438,000) of interest costs in respect of these leases. Leases

of low value assets and short-term leases of 12 months or less are expensed to

the Group income statement.

150 ScS Group plc Annual Report and Accounts 2023

Notes to the consolidated financial statements continued

14. Inventories

As at

29 July 2023

£’000

As at

30 July 2022

£’000

Finished goods 24,633 19,791

The cost of inventories before cash discounts and volume rebates, as an

expense and included in cost of sales relating to continued operations

amounted to £177,144,000 (2022: £180,827,000).

Inventories include a provision of £2,864,000 (2022: £2,945,000). Write-downs of

inventories to net realisable value amounted to £789,475 (2022: £931,000). These

were recognised as an expense during the period and were included in cost of

sales in the consolidated statement of comprehensive income.

15. Trade and other receivables

As at

29 July 2023

£’000

As at

30 July 2022

£’000

Trade receivables 234 314

Other receivables 3,732 3,092

Prepayments 2,370 2,605

6,336 6,011

The fair value of trade and other receivables is approximate to their carrying

value. Trade and other receivables are considered due once they have passed

the contracted due date.

The carrying amounts of trade and other receivables are all denominated in

Sterling.

The majority of the trade receivables are due from third-party finance providers

with which there is a very low likelihood, and no previous history, of default, and

therefore, there has been no material impact of the Group’s expected credit

loss model.

The bad debt provision is not considered material for disclosure.

16. Trade and other payables – current

As at

29 July 2023

£’000

As at

30 July 2022

£’000

Trade payables 33,267 18,374

Payments received on account 18,906 25,540

Other taxation and social security payable 4,729 2,236

Accruals 11,145 11,178

68,047 57,328

The fair value of financial liabilities approximates their carrying value due to

short maturities. Financial liabilities are denominated in Sterling.

Payments received on account represent deposits taken from customers at the

point of order and in advance of the Group fulfilling its performance obligations

to provide goods and services for customer orders. They will be realised in the

next 12 months. The brought forward balance of payments received on account

was recognised as revenue during the year.

17. Deferred tax asset

The Group’s movements in deferred taxation during the current financial year

and previous year are as follows:

As at

29 July 2023

£’000

As at

30 July 2022

£’000

Opening deferred tax asset 1,845 2,024

Adjustments in respect of prior years 218 64

Adjustment to profit and loss account arising from the

origination and reversal of temporary differences (190) (243)

Closing deferred tax asset 1,873 1,845

Deferred taxation has been fully recognised in respect of:

As at

29 July 2023

£’000

As at

30 July 2022

£’000

Accelerated capital allowances (1,484) (675)

Losses 2,430 1,463

Other timing differences 215 167

Capital gains held over (30) (30)

Adjustment on initial application of IFRS 16 742 920

Closing deferred tax asset 1,873 1,845

151ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

17. Deferred tax asset continued

The deferred tax assets include an amount of £2,430,000 (2022: £1,463,000)

which relates to carried-forward tax losses. The Group has concluded that

the deferred assets will be recoverable using the estimated future taxable

income based on the approved business plans and budgets. The Group expects

to continue generating taxable income. The losses can be carried forward

indefinitely and have no expiry date. There is £99,000 (2022: £99,000) of historic

unused losses in the Group’s non-trading subsidiaries which have not been

recognised due to uncertainty that there will be eligible taxable income to offset

the losses against. Deferred tax assets are expected to be utilised in more than

12 months from 29 July 2023.

18. Provisions

Property

obligations

£’000

Total

£’000

At 31 July 2022 1,495 1,495

Provisions made during the year 68 68

Provisions used during the year (305) (305)

Unwinding of discount 21 21

At 29 July 2023 1,279 1,279

Property provisions relate to an estimate of dilapidation and decommissioning

costs based on anticipated lease expiries and renewals. These provisions are

expected to be utilised at the end of each specific lease.

As at

29 July 2023

£’000

As at

30 July 2022

£’000

Current 231 303

Non-current 1,048 1,192

1,279 1,495

19. Business combination

On 10 January 2023, the Group announced it had acquired the brand, domain

names, website, intellectual property and stock of Snugsofa.com (‘Snug’) from

the administrators of Snug Shack Limited for consideration of £875,000.

The acquisition of Snug represents further progression in Group’s strategy.

Snug’s strong brand and differentiated digital-first offering will complement the

Group’s existing proposition, further diversifying its customer base and increase

market share.

The purchase has been accounted for as a business combination. Details of the

purchase consideration, the net assets acquired and goodwill are as follows:

£’000

Purchase consideration

Cash paid 875

Total purchase consideration 875

The assets recognised as a result of the acquisition are as follows:

Fair Value

£’000

Intangible asset 250

Inventories 125

Total identifiable assets 375

Goodwill 500

Total asset value 875

The goodwill is attributable to Snug’s strong brand, innovative digital capabilities,

and synergies expected to arise after the Group’s acquisition of the new

subsidiary. It has been allocated to the furniture retail segment.

During the year, the goodwill was assessed for impairment, comparing Snug’s

(the CGU) value in use based on the latest budget and forecast cash flows to the

carrying value as at 29 July 2023, resulting in no impairment charge. The discount

rate used is consistent with the rate used in the Group’s assessment of asset

impairment. If the discount rate used increased by 1%, then this would not lead to

the recognition of an impairment charge. Likewise, if future estimated cash flows

decreased by 10% each year into perpetuity, this would not lead to an impairment

charge.

152 ScS Group plc Annual Report and Accounts 2023

Notes to the consolidated financial statements continued

19. Business combination continued

Snug’s first year-end date is 31 December 2023, which is 12 months from the

date of incorporation. We intend to align Snug’s year end with the rest of the

Group going forward. Snug contributed revenues of £4,121,000 and a net losses of

£2,787,000 from the period from 10 January 2023 to 29 July 2023.

Pre-trading and acquisition-related costs

Pre-trading and acquisition-related costs of £849,000 are included in

administrative expenses in profit or loss.

20. Share capital and share premium

Number

of shares

Ordinary

£’000

premium

£’000

Capital

redemption

reserve

£’000

At 1 August 2021 38,012,655 38 16 15

Cancellation of repurchased shares (1,242,208) (1) - 1

At 30 July 2022 36,770,447 37 16 16

Cancellation of repurchased shares (2,815,773) (3) - 3

At 29 July 2023 33,954,674 34 16 19

Authorised, allotted and fully paid share capital is 33,954,674 of £0.001 each (2022:

36,770,447 of £0.001 each).

At the beginning of the year, the Group held 74,932 shares in treasury that were

subsequently cancelled as part of the share buyback scheme (note 28). During

the year the Group acquired 2,740,841 ordinary shares at an average share price

of 171.6 pence per ordinary share for a total consideration (including associated

fees) of £4,776,000. Following this purchase, the ordinary shares purchased by

the Group were cancelled and the Group’s issued share capital subsequently

consists of 33,954,674 ordinary shares, each with one voting right.

21. Dividends

A final dividend for the year ended 30 July 2022 of 9.0 pence resulted in a

payment of £3,198,000 which was made on 9 December 2022. It has been

recognised in shareholders’ equity in the year to 29 July 2023.

An interim dividend of 4.5 pence (2022: 4.5 pence) per ordinary share was declared

by the Board on 21 March 2023 and resulted in a payment of £1,522,000 which was

made on 11 May 2023. It has been recognised in shareholders’ equity in the year to

29 July 2023.

During the year dividend equivalents were paid on the vesting of LTIPs totalling

£4,000.

Given the strength of the Group’s balance sheet coupled with the resilient

result for the year a final dividend of 10.0p has been proposed and, if approved,

will be recorded within the financial statements for the year ending 27 July

2024. Approval of the proposed dividend of 10.0p would result in a payment of

£3,395,000.

22. Share-based payments

The Group operates equity-settled share schemes for certain employees that

are intended to act as a long-term incentive to help retain key employees and

Directors who are considered important to the success of the business.

Post-admission incentive arrangements

The ScS Group plc Long-Term Incentive Plan (LTIP) was adopted on 21 January

2015. The LTIP allows for various types of The ScS Group plc Long-Term Incentive

Plan (LTIP) was adopted on 21 January 2015. The LTIP allows for various types of

awards and the following grants over shares in ScS Group plc have been made:

(i) Market value options under an HMRC approved Company Share Option Plan

(CSOP) conditional on the IPO taking place (approved on 21 January 2015).

(ii) Performance-based £nil cost options granted on 14 October 2019. The

performance condition is based on EPS of the Group for the financial year

ended 30 July 2022.

(iii) Performance-based £nil cost options granted on 12 October 2020. The

performance condition is based on EPS of the Group for the financial year

ended 29 July 2023.

(iv) Performance-based £nil cost options granted on 18 October 2021. The

performance condition is based on EPS of the Group for the financial year

ended 27 July 2024.

(v) Performance-based £nil cost options granted on 21 April 2023. The

performance condition is based on EPS of the Group for the financial year

ended 26 July 2025.

Fair value of awards

The awards granted have been valued using the Black-Scholes model. No

performance conditions were included in the fair value calculations.

The expected life is the estimated time period to exercise. The expected

volatility is calculated by reference to the historic volatility of the Group from

153ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

22. Share-based payments continued

Fair value of awards continued

the period between admission and the date of grant and historic volatilities

of comparator companies measured over a period commensurate with the

expected life. The dividend yield is based on the target dividend yield set at

IPO (with the exception of awards that give an entitlement to receive dividend

equivalents). The risk-free interest rate is the yield on UK government bonds of

a term consistent with the expected life. The level of vesting is estimated at the

balance sheet date and will be trued up until the vesting date.

LTIP (CSOP market value

options)

2021, 2022 and 2023 LTIP

(Directors’ awards)

LTIP (all awards)

awards

Average

exercise

price

awards

Average

exercise

price

awards

Average

exercise

price

Outstanding as at

31 July 2021 27,652 £1.75 1,407,414 £0.000001 1,435,066 £0.033

Granted – – 584,670 £0.000001 584,670 £0.000001

Lapsed – – (59,998) £0.000001 (59,998) £0.000001

Forfeited – – (81,342) £0.000001 (81,342) £0.000001

Exercised (22,772) £1.75 (500,728) £0.000001 (523,500) £0.08

Outstanding as at

30 July 2022 4,880 £1.75 1,350,016 £0.000001 1,354,896 £0.006

Granted – – 1,106,789 £0.000001 1,106,789 £0.000001

Lapsed – – (223,034) £0.000001 (223,034) £0.000001

Forfeited – – – £0.000001 – £0.000001

Exercised – – (207,533) £0.000001 (207,533) £0.000001

Outstanding as at

29 July 2023 4,880 £1.75 2,026,238 £0.000001 2,031,118 £0.004

Exercisable at

29 July 2023 4,880 £1.75 – – 4,880 £1.75

Exercisable at 30 July

2022 4,880 £1.75 – – 4,880 £1.75

Weighted average

remaining

contractual life

(months) – – 21 – 21 –

Weighted average

share price at

exercise – £1.75 – – – £1.75

As at 29 July 2023, 377,518 of the outstanding LTIP share options relate to the 2021

LTIP, which vested as at the year-end date. Due to the Group’s EPS being higher

than the minimum target set, a proportion of these options will be awarded.

Further information on the LTIP is available in the Directors’ remuneration report

on pages 101 to 102.

The fair value of share options issued and the assumptions used in the

calculation are as follows:

2015 2020 2021 2022 2023

Grant date

21 Jan

2015

14 Oct

2019

12 Oct

2020

18 Oct

2021

21 Apr

2023

Share price at grant date £1.75 £2.36 £2.00 £2.63 £1.77

Exercise price £1.75 £nil £nil £nil £nil

Number of employees 6 7 6 6 8

Shares granted 68,659 562,340 627,163 584,670 1,106,789

Expected volatility 36.2% –

–

Expected life (years) 5 3 3 3 3

Risk-free interest rate 1.06% –

–

Expected dividend yield 8% –

–

Fair value per share £0.24 £2.36 £2.00 £2.63 £1.77

Actual/estimated vesting 100% 48% 33% 0% 53%

1. LTIP participants are entitled to receive dividend equivalents on unvested awards, and therefore, dividend

yield does not impact the fair value calculation. Furthermore, volatility and risk-free rates do not impact

the fair value calculation for awards with no exercise price or market-based performance conditions.

The total charge for the year relating to employee share-based payment plans

was £598,000 (2021: £153,000) which is in relation to equity-settled share-based

payment transactions. There are no liabilities arising from share-based payment

transactions.

23. Capital commitments

Capital commitments contracted for but not provided amounted to £1,455,000

in relation to property plant and equipment and £371,000 in relation to intangible

assets, totalling £1,826,000 (2022: £643,000).

24. Pension commitments

The Group operates several defined contribution pension schemes for the

benefit of its staff. The assets of the schemes are held separately from those of

the Group in independently administered funds. The pension charges represent

contributions payable by the Group to these funds and are shown in note 6.

Amounts outstanding at the year end were £349,000 (2022: £353,000) and are held

in accruals.

154 ScS Group plc Annual Report and Accounts 2023

Notes to the consolidated financial statements continued

25. Financial instruments – risk management

Financial risk management policy

The Group’s principal financial instruments comprise cash and cash equivalents.

The main purpose of these financial instruments is to provide funds for the Group’s

operations. The Group has other financial instruments being trade receivables and

trade payables that arise directly from its operations.

It is the Group’s policy that no trading in financial instruments shall be

undertaken. The Group has not entered into derivative transactions during the

years under review. The Group does not undertake any speculative transactions

and continues to pursue prudent treasury policies by investing surplus funds

only with reputable UK financial institutions.

Credit risk

The finance for all the Group’s credit sales is provided from external financing

companies who bear the whole risk of customer defaults on repayment. The

Group’s financial assets which are past due and not impaired are deemed not

material for disclosure. The remaining balance is deemed fully recoverable due

to the use of finance houses to mitigate the risk of recoverability. There have

been no gains/losses on financial liabilities.

Cash and deposits are invested with Lloyds Bank plc.

Liquidity risk

The Group’s exposure to liquidity risk is low as historically working capital

requirements have been funded entirely by self-generated cash flow.

At 29 July 2023, the Group’s cash balance totalled £69.5m, and £33.3m was owed

as trade payables for goods delivered. The Group has no drawn down debt, and

further liquidity is available through the £12.0m RCF granted on 6 October 2022.

This facility is committed for a term of 36 months and would be renegotiated

well in advance of this maturity date. The RCF is subject to certain covenants in

respect of fixed charge cover, liquidity, leverage and capital spending.

Financial instruments by category

Financial assets and liabilities are classified in accordance with IFRS 9. No

financial instruments have been reclassified or derecognised in the year. There

are no financial assets which are pledged or held as collateral. The Group does

not hold any financial assets or liabilities held as fair value through the income

statement, defined as being in a hedging relationship or any available for sale

financial assets. The Group’s main financial assets comprise cash and cash

equivalents and trade receivables (note 15) arising from the Group’s activities.

These financial assets all meet the conditions to be recognised at amortised

cost under IFRS 9.

Other than trade and other payables (note 16) and provisions (note 18), the Group

had no financial liabilities within the scope of IFRS 9 as at 29 July 2023 (2022: £nil).

Balances within trade and other payables will mature within one year and lease

liabilities are measured at amortised cost.

The fair value of the Group’s financial assets and liabilities is not materially

different from their carrying values. Financial assets and liabilities comprise

principally of trade receivables and trade payables and the only interest-

bearing balances are the bank deposits and borrowings which attract interest

at variable rates.

Capital management

The Group’s objectives when managing capital are to safeguard its ability to

continue as a going concern and retain financial flexibility to provide returns

for shareholders and benefits for other stakeholders. The Group considers

capital to be equity and cash. Equity and cash are disclosed in the consolidated

statement of financial position.

The Group manages its capital through continued focus on free cash flow

generation and setting the level of capital expenditure and dividend in the

context of the current period and forecast free cash flow.

26. Related parties

Holdings in subsidiaries and any relevant related party transactions are

disclosed in the Company financial statements in note 5. Only ScS Furnishings

Limited and the ScS Group plc Employee Benefit Trust are not included in the

consolidation on the grounds of materiality.

27. Contingent liabilities

The subsidiary undertakings of the Group are party to a debenture with Lloyds

Bank plc which grants fixed and floating charges over the assets of each

subsidiary undertaking.

155ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

28. Treasury reserve

£’000

As at 1 August 2021 549

Purchase of own shares 1,476

Sale of treasury shares (51)

Issue of shares to employees (1,293)

As at 30 July 2022 681

Purchase of own shares 148

Cancellation of treasury shares (116)

Issue of shares to employees (510)

As at 29 July 2023 203

During the period, the Group’s Employee Benefit Trust purchased a further

106,637 ordinary shares of 0.1 pence each in the Group at an average price of

139.00 pence per ordinary share, and 228,008 ordinary shares were used to

satisfy management incentive awards.

74,932 shares which were purchased into treasury in the prior year have

subsequently been transferred to retained earnings in the period, at an average

price of 154.56 pence per ordinary share, and cancelled as part of the share

buyback programme.

As at 29 July 2023 the Group holds 131,360 of its own ordinary shares of 0.1 pence

each in the Group at an average purchase price of 154.9 pence.

During the prior year, the Group’s Employee Benefit Trust purchased 624,453

ordinary shares of 0.1 pence each in the Group at an average price of 236.4

pence per ordinary share, and 554,204 shares were used to satisfy management

incentive awards. As at 30 July 2022 the Group held 327,663 of its own ordinary

shares of 0.1 pence each in the Group at an average purchase price of 207.7

pence.

29. Net debt

As at

29 July 2023

£’000

As at

30 July 2022

£’000

Cash and cash equivalents 69,538 70,819

Lease liabilities (101,344) (106,733)

Net debt (31,806) (35,914)

As a result of IFRS 16, the Group is in a net debt position due to the recognition of

a lease liability.

The change in lease liabilities from £106,733,000 to £101,344,000 was a result of

£4,057,000 (2022: £3,438,000) interest charged, £23,263,000 (2022: £28,630,000)

principal and interest repayments and lease modifications of £13,817,000 (2022:

£15,864,000).

30. Post balance sheet events

Subsequent to the 29 July 2023, a further £1,250,000 business interruption

insurance payment was received relating to loss of profit as a result of the

COVID-19 pandemic. As at the year end the Group did not have a high level of

certainty that this payment would be received, or the timeframe on which it may

do so, and therefore did not disclose it is a receivable. As such, in line with the

treatment of the £1,250,000 received during the year to 29 July 2023, we expect to

recognise and disclose this item as an adjusting item to consolidated income in

the year to 27 July 2024.

On 24 October 2023, a wholly-owned subsidiary of Poltronesofà S.p.A. announced

a recommended offer for the entire issued and to be issued share capital of

the Company of 270p per share in cash. In addition, shareholders who are on the

the final dividend of 10.0p (in respect of the year ended 29 July 2023).

It is intended that the acquisition will be implemented by way of a Court-

sanctioned scheme of arrangement under Part 26 of the Companies Act.

Cerezzola Limited (a wholly-owned subsidiary of Poltronesofà S.p.A.) has

indicated its intention (subject to the requisite acceptance thresholds being

achieved referred to in the announcement of 24 October 2023) to delist the

Company from the London Stock Exchange as soon as practicable following

the cancellation of listing and trading of the Company’s shares. This process

will take place following the release of the Annual Report and is targeted to

complete in the first quarter of 2024.

156 ScS Group plc Annual Report and Accounts 2023

Company statement of financial position

As at 29 July 2023

Note

As at

29 July 2023

£’000

As at

30 July 2022

£’000

Non-current assets

Investments 5 70,000 70,000

Total non-current assets 70,000 70,000

Current assets

Trade and other receivables 6 27 32

Deferred tax asset 7 1,111 813

Cash at bank and in hand – –

Total current assets 1,138 845

Total assets 71,138 70,845

Current liabilities

Trade and other payables 8 25,319 19,193

Total current liabilities 25,319 19,193

Total liabilities 25,319 19,193

Capital and reserves

Called-up share capital 9 34 37

Share premium account 9 16 16

Capital redemption reserve 9 19 16

Treasury share reserve 12 (203) (681)

Retained earnings 45,953 52,264

Total shareholders’ funds 45,819 51,652

Total equity 45,819 51,652

Total equity and liabilities 71,138 70,845

The notes on pages 158 to 161 form an integral part of these financial statements.

The total comprehensive income for the year included within the financial statements of the Company is £3,815,000 (2022: £3,451,000).

The financial statements on pages 156 to 161 were approved by the Board and authorised for issue on 24 October 2023 and signed on its behalf by:

Steve Carson

Chief Executive Officer

Company financial statements

157ScS Group plc Annual Report and Accounts 2023

Strategic report Governance report Financial statements

Company statement of changes in equity

For the year ended 29 July 2023

Called-up

capital

£’000

premium

account

£’000

Capital

redemption

reserve

£’000

Treasury

reserve

£’000

Retained

earnings

£’000

Total

equity

£’000

At 1 August 2021 38 16 15 (549) 56,761 56,281

Profit and total comprehensive income – – – – 3,451 3,451

Repurchase of own shares (note 9) – – – – (2,201) (2,201)

Cancellation of repurchased shares (note 9) (1) – 1 – – –

Purchase of treasury shares (note 12) – – – (1,476) – (1,476)

Issue of treasury shares to employees (note 12) – – – 1,344 (1,304) 40

Dividend paid (note 10) – – – – (4,443) (4,443)

At 30 July 2022 37 16 16 (681) 52,264 51,652

At 31 July 2022 37 16 16 (681) 52,264 51,652

Profit and total comprehensive income – – – – 3,815 3,815

Repurchase of own shares (note 9) – – – – (4,776) (4,776)

Cancellation of repurchased shares (note 9) (3) – 3 116 (116) –

Purchase of treasury shares (note 12) – – – (148) – (148)

Issue of treasury shares to employees (note 12) – – – 510 (510) –

Dividend paid (note 10) – – – – (4,724) (4,724)

At 29 July 2023 34 16 19 (203) 45,953 45,819

158 ScS Group plc Annual Report and Accounts 2023

1. General information

ScS Group plc (the ‘Company’) is a company limited by shares incorporated and

domiciled in England, within the UK (Company registration number 03263435). The

address of the registered office is 45-49 Villiers Street, Sunderland, SR1 1HA. The

Company’s principal activity is to act as a holding company for its subsidiaries,

and its shares are listed on the London Stock Exchange (LSE).

2. Accounting policies

The principal accounting policies applied in the preparation of these financial

statement are set out below. These policies have been consistently applied to

all the years presented, unless otherwise stated.

Statement of compliance with FRS 101

These financial statements were prepared in accordance with Financial

Reporting Standard 101, ‘Reduced Disclosure Framework’ (FRS 101). The Company

meets the definition of a qualifying entity under FRS 100, ‘Application of Financial

Reporting Requirements’ as issued by the Financial Reporting Council.

Basis of preparation

The financial statements have been prepared under the historical cost

convention and in accordance with the Companies Act 2006 as applicable to

companies using FRS 101.

As permitted by FRS 101, the Company has taken advantage of the disclosure

exemptions available under that standard in relation to business combinations,

financial instruments, capital management, presentation of comparative

information in respect of certain assets, standards not yet effective,

impairment of assets and related party transactions. Where required, equivalent

disclosures are given in the consolidated financial statements of ScS Group plc.

Going concern

The Company is the ultimate holding company to a group which is highly cash

generative, and which holds sufficient medium and long-term facilities in place

to enable it to meet its obligations as they fall due. The Directors are, therefore,

satisfied that the Company has adequate resources to continue in operational

existence for the foreseeable future.

Further information on the Group’s going concern and ongoing viability is

provided in note 2 of the Group financial statements.

Following the year end, on 24 October 2023 the Board announced a

recommended offer for the Company of 270p per share in cash, from a wholly-

owned subsidiary of Poltronesofà S.p.A. It is intended that the acquisition will

be implemented by way of a Court-sanctioned scheme of arrangement under

Part 26 of the Companies Act and is forecast to complete in the first quarter of

2024. The Group’s existing committed debt facilities contain a standard change

of control clause that will be triggered once the acquisition completes. This

could result in the existing committed debt facilities being withdrawn. The Group

does not have visibility of the post completion funding for the Group at this time.

Therefore, this could create some uncertainty as to the Group’s going concern.

The Directors note the detailed intentions statement included within the

announcement on 24 October 2023, which state that following completion of

the acquisition, Poltronesofà S.p.A. intends to support the Group by leveraging

its significant, pan-European industry expertise and providing the capital

necessary to accelerate the Group’s strategy. Poltronesofà S.p.A. is highly

supportive of management’s vision for the business and the long-term