## Inspiring reading, ## learning, creativity ## and play ### Annual Report and Accounts 2023 ## Our ambition: to become one ## of the most loved retailers in the ## UK – the go-to place for reading, ## learning, creativity and play. Contents | Strategic report | Corporate governance | Financial statements | | --- | --- | --- | | Highlights 01 | Chair’s governance introduction 58 | Independent auditor’s report 90 | | Our strategic roadmap 02 | Board of Directors 60 | Consolidated income statement 98 | | Our investment case 03 | Corporate governance report 62 | Consolidated statement | | At a glance 04 | Audit Committee report 66 | of comprehensive income 99 | | Chair’s statement 06 | Nomination Committee report 70 | Consolidated statement | | Chief Executive’s review 08 | Directors’ remuneration report 73 | of financial position 100 | | Our marketplace 12 | Annual report on remuneration 78 | Consolidated statement | | Our business model 14 | Directors’ report 86 | of changes in equity 101 | | Our strategy and progress 16 | Statement of Directors’ responsibilities 89 | Consolidated cash flow statement 102 | | How we measure performance 18 | | Notes to the consolidated | | Financial review 19 | | financial statements 103 | | Our stakeholders 26 | | Company statement | | Section 172 statement 28 | | of financial position 133 | | ESG review 29 | | Company statement | | Task Force on Climate-Related | | of changes in equity 134 | | Financial Disclosures (TCFD) 36 | | Notes to the Company | | Streamlined Energy and Carbon | | financial statements 135 | | Reporting (SECR) 47 | | Advisers and contacts 140 | Risk management and principal risks and uncertainties 49 Viability statement 54 Non-financial and sustainability information statement 57 ## Highlights ### Financial highlights Revenue Profit before tax Basic EPS | £280.1m | £5.0m | 8.4p | | | --- | --- | --- | --- | | FY22: £264.6m | Restated FY22: £14.2m | | 1 | | | | Restated | FY22: 22.3p | 2 Like-for-like (LFL) sales growth Adjusted PBT Adjusted basic EPS | +4.2% | £10.1m | 16.5p | | | --- | --- | --- | --- | | FY22: +10.5% | Restated FY22: £16.5m | | 1 | | | | Restated | FY22: 26.0p | Financial statementsCorporate governanceStrategic report Non-IFRS 16 Adjusted EBITDA Dividend ## £9.0m 1.6p FY22: £16.6m FY22: 2.4p 1 See note 14 to the financial statements. 2 LFL sales growth has been calculated with reference to the FY22 comparative sales figures. In FY22’s Annual Report, two-year comparatives were used because the use of a normal one-year LFL comparative was prevented by the various disruptions to store trading brought about by COVID-19 restrictions in the FY21 comparative period. ### Operational highlights • Resilient performance delivered in FY23 against challenging • Invested in operational improvements, the significant benefits of backdrop. Well-positioned to capitalise on opportunities which are expected to be fully realised in FY24 and beyond. This and deliver growth in FY24. included restructuring the distribution centre management team, implementing a new stock allocation system, and introducing • Continued to refine our customer proposition to more closely a new automated packing machine at our online fulfilment reflect our purpose - to inspire customers to read, learn, create provider, iForce. and play – making lives more fulfilled. Rolled out evolved brand to stores and online to start changing legacy perceptions of The • Launched a review of the business operating model to drive Works and more accurately reflect the business today. effectiveness and efficiencies, improve processes and IT systems, particularly in relation to the flow of stock through the business. • Refreshed the product offering, launching new own brand products such as “PlayWorks” toy range. Increased book market • Restructured management of the online operation to drive improved share by stocking more front-list titles from best-selling authors performance. Increased focus on customer experience of the such as Julia Donaldson and Colleen Hoover. website and introduced new tools to support analysis and provide insights into how best to improve performance. • Further enhanced the quality of the store estate with 14 new openings (which are trading ahead of expectations), three • Placed 12th in ‘Best Big Companies to Work For’, up from 13th relocations and 13 store closures. Continued to optimise in each of the past two years, and maintained 2* accreditation the existing estate with an investment of c.£1.4m in 34 refits, for ‘outstanding’ workplace engagement. improving the customer experience by enhancing layouts, improving signage and optimising space utilisation. Visit our corporate website ## corporate.theworks.co.uk TheWorks.co.uk plc Annual Report and Accounts 2023 01 ## Our strategic roadmap ## Creating a better, ## not just bigger business ### Our purpose and strategy aim to bring our well-loved brand to life ### and make The Works ‘better, not just bigger’. ## Our purpose Our ambition To inspire reading, learning, creativity and play – To become one of the most loved retailers making lives more fulfilled. in the UK. ## Our better, not just bigger strategy ### Develop our Enhance Optimise our Drive ### brand and our online store estate operational ### increase proposition improvements ### customer ### engagement Read more about our strategy on pages 16 and 17 ## Our strategic enablers ### Our colleagues Our systems and data Our ESG commitments Read more about our ESG approach on pages 29 to 35 ## Underpinned by our values Read more about our culture on page 32 TheWorks.co.uk plc Annual Report and Accounts 202302 ## Our investment case ## A differentiated offering ## with significant organic ## growth potential in the value ## retail sector ### Unique proposition ### Better value than specialists and better choice and customer ## 1 c.3,500 ### service than discounters. product lines Financial statementsCorporate governanceStrategic report ### Broad demographic appeal ### Diverse customer base across four addressable markets creates ## 2 £16.23bn ### significant growth opportunity. 1 addressable market Read more about our marketplace on page 12 ### Flexible store estate ### Small inexpensive shop units in a variety of locations with ## 3 526 ### short leases that provide flexibility to respond to local stores ### market conditions. ### Simplicity over complexity ### Focused on implementing best retail practice, as opposed ## 4 ### to costly, high-risk concepts. ### Real opportunity for growth ### Previous under-potentialisation creates real opportunity for sales ## 5 +5.8% ### and profit growth. FY23 revenue growth Read more about our strategy on pages 16 and 17 1 The value of the UK craft, books, stationery, toys and games markets based on Craft Intelligence, Nielsen, IRI and Statista data. TheWorks.co.uk plc Annual Report and Accounts 2023 03 ## At a glance ## A leading family friendly ## value retailer ### We make reading, learning, creativity and play accessible to everyone. Great value, ### fantastic ranges and excellent customer service are at the heart of our offering. ### Store estate Multi-channel Colleagues • Diverse locations including • Fully transactional online store. • Loyal, dedicated and highly high streets, shopping centres, engaged colleagues are key • Exclusive online product offerings. retail parks, factory outlets and to our success. • Convenient click & collect service. garden centres. • Ranked 12th in Best Big Company | • Serve local communities and | | to Work for national list, up from | | --- | --- | --- | | play a key role supporting local | 41 million | 13th last year. Consistently ranked | | fundraising activities. | website visits during FY23 | in the top 25 for the past five years. | ## Awarded second ## 526 ## highest two star-rating stores in the UK and Ireland Best Big Company to Work for ## 14 ## c.4,000 new store openings during FY23 colleagues ### Develop our brand and increase ### customer engagement Our loyalty scheme During the year, following its relaunch, our ‘Together’ loyalty scheme has continued to grow and it now has c.1.7m active members. Giving 5 pence back for every £1 spent, the scheme offers customers a simple loyalty proposition and real savings. The growth in the scheme’s membership was driven by a number of factors including double points promotions which also increased the number of transactions and average spend. As our Together scheme enters its tenth year we continue to see members consistently spend more money more often. As membership continues to grow, the scheme will provide us with invaluable data and insights about what our customers want. ## c.1.7m loyalty members TheWorks.co.uk plc Annual Report and Accounts 202304 ### Our product offering is designed to appeal to all the family and focuses on supporting ### reading, learning, creativity and play in the categories detailed below. It includes our own ### brand ranges, which support our value offering and enable us to offer exclusive products ### to our customers, plus the most in-demand branded products across our categories. ### Our products and brands Our brands ### Books | • A destination for children’s books | • Great value offered through our 10 | | --- | --- | | that includes bright board books for | for £10 picture book range and our 3 | | babies, amazing activity books and | for £6 adult fiction selection. | fascinating fiction for all ages including • A curated range of the very latest teenagers, authoritative non-fiction trending adult books – both fiction and educational workbooks to and non-fiction. inspire children. Financial statementsCorporate governanceStrategic report ### Arts & Crafts • Our exclusive range of Crawford • A collection of kids’ exclusive own brand & Black art essentials: canvases, value kits, ready mix paints, colour-your- sketchbooks, paints, brushes and art own range and bumper bags of essential sets for beginners to artisans to create accessories to inspire young budding their own masterpieces. artists and crafters. • Our essential range of ‘craft blanks’ to personalise, craft kits and wooden items to transform and embellish with our own brand of Make & Create accessories. ### Toys & Games • Wide range of toys including our new own brand ‘PlayWorks’ range, designed to ignite imaginations and encourage cognitive development. • £10 and under pocket money toys, perfect for kids’ own purchases and gifting. • Great value summer toys range promoting fun in the sun and aimed at getting kids outside. ### Stationery • Our own brand new ‘Works Essentials’ • A curated range of stationery and range and big key brands stationery to accessories to fill ‘Back to School’ meet all home, office and school needs. bags and pencil cases. ### Seasonal • Great value ranges to make seasonal • A great range of partyware bringing events including Christmas, Easter communities and families together to and Halloween extra special. celebrate national events such as the Jubilee and Coronation. TheWorks.co.uk plc Annual Report and Accounts 2023 05 m i a g n i e • l e a r n • g r o w ## Chair’s statement ## Good strategic progress Introduction Last year I wrote about the positive effect that the Group’s new purpose - to inspire reading, learning, creativity and play - making lives more fulfilled – was having on the business soon after it was introduced. This year we embedded the purpose further across the business, informing the implementation of our ‘better, not just bigger’ strategy, inspiring the creation of our ESG plan and providing clarity about the future direction of the business. The purpose has also helped to guide colleagues as they served customers and reinforced the incredible culture at The Works, one of the enduring strengths and unique attributes of the business. And whilst the economic environment has been extremely challenging, colleagues at The Works have responded thoughtfully to this backdrop, using it as an opportunity to inspire customers to enjoy reading, learning, creativity and play on a budget, whilst also supporting local communities and our charitable causes. I am proud to chair such a creative and purpose-led business and would like to thank everyone at The Works for their efforts. Performance I have long been impressed by the resilience of The Works, its ability to adapt to unforeseen circumstances and manage challenging trading conditions. In FY23 these traits were seen again as The Works delivered a resilient performance, with revenue increasing by 5.8% to £280.1m. This growth was delivered despite the business still recovering from a cyber security incident late in the previous financial year and an uncertain macroeconomic backdrop. Thanks to Gavin’s steady leadership and the action taken to protect the business, the resonance of our value customer proposition and the patience and flexibility of our colleagues, we ended the year on a more positive sales trajectory. Going into FY24, we can now ## Some good strategic confidently say that The Works is a more operationally robust business, with greatly strengthened cyber security, and remains ## progress was made financially strong. The inflationary environment did impact our profit performance, ## despite challenging trading particularly in the first half of the year given rising freight, energy and other business costs. However, as a result of these cost ## conditions, and the underlying pressures easing and an improvement in store sales growth in the second half, we ended the year in line with our revised ## appeal and relevance of The profit expectations. Although this is not where we expected to be at the start of the year, it is a creditable performance given ## Works’ proposition continues the challenges the business faced and we ended the year in a financially secure position. ## to resonate with customers. Strategy The Works announced its ‘better, not just bigger’ strategy in July 2021, committing to a greater focus on the customer and to strengthening the fundamentals of the business. This strategy not only made The Works more resilient during the COVID pandemic and challenging economic environment that followed, it has also aligned business decisions more closely with our purpose, and ultimately the customer. Strategic progress was slower in the first half of FY23 as the business was primarily focused on recovering from the cyber security incident and the external environment saw retailers facing great uncertainty. However, more progress was made in the second half of the year and TheWorks.co.uk plc Annual Report and Accounts 202306 the foundations have now been laid for significant improvements in Although I believe that The Works is already a diverse, inclusive the year ahead. and supportive business, Diversity & Inclusion (D&I) is an area that I feel very strongly about and there is scope for us to do more. This The evolved brand has been rolled out across the business and year we conducted a full review of D&I at The Works and undertook we are now building on this to demonstrate to customers why a survey to understand colleague perceptions and experiences. The Works is the best value destination for reading, learning, Based on these insights we have now developed a strategy through creativity and play. This will attract more customers to shop with which we can make significant progress to improve our diversity and us and through our relaunched ‘Together’ loyalty scheme we now inclusion in the years ahead. This will inspire colleagues to be even have an opportunity to engage more with our growing and loyal more supportive and embracing of differences, encourage new customer community. talent to join The Works and strengthen our special, collaborative Our active portfolio management continues. Our 14 new stores and and supportive company culture. 3 relocated stores opened during the year are performing ahead of CFO Succession expectations and, along with our 34 store refits undertaken in the As announced alongside our FY23 results, Steve Alldridge has year, continue to improve the overall quality of our store estate. advised the Board of his intention to step down from his role as Our online performance has been disappointing, partly reflecting CFO by the end of 2023. In line with our succession plans, we are a normalisation of store/online sales mix post-COVID. Following a delighted that Rosie Fordham our current Head of Finance, will be review of our website and online operations we now have the right appointed as CFO when Steve steps down. resource and plans in place to improve the customer experience and profitability of this channel. During the year we implemented Dividend and outlook a number of structural changes to enable improvements in our Despite delivering a resilient performance in FY23 and ending the Financial statementsCorporate governanceStrategic report stock allocation and distribution processes, which will help drive year in a strong financial position, the Board hopes that FY23’s significant operational efficiencies across the business. EBITDA was a low point and that it will increase progressively in future. Some good strategic progress was made despite challenging Together, these initiatives create a real opportunity for further trading conditions, and the underlying appeal and relevance of The strategic progress and a step-change in sales growth and Works’ proposition continues to resonate with customers. improved profitability over the medium-term. We are excited by this potential and remain confident that our ‘better, not just bigger’ During the period in which the business works to rebuild its levels of strategy is the right direction for the business. profit, a compromise is sought, between maintaining a reasonable dividend for shareholders, whilst ensuring that the Group continues Environmental, Social and Governance (ESG) to maintain its cash reserves. Taking this into consideration, along The Board has continued to oversee development of the Group’s with the Company’s resilient FY23 performance, and its confidence Environmental, Social and Governance plan and to monitor in the Group’s prospects, the Board proposes a final dividend of progress. Whilst we have put more structure around the ESG 1.6 pence per share in respect of FY23 and outlines its policy in strategy in FY23 and made progress in key areas, the Board relation to capital distributions, which is included at the end of the recognises that there is still much more to be done. financial review. Progress on ESG was mostly made in the second half of the year, The Board believes that the business is well positioned to take full namely the new initiatives to support colleague engagement, advantage of the opportunities ahead, make further strategic wellbeing and career development, as well as the creation of progress and grow sales profitably, and we remain confident in the new climate targets and an improved system of monitoring our Group’s future prospects environmental impact. We have now set a target to be net-zero by 2045, with an ambition to do so by 2040 (in line with the British Retail Consortium), and we are now fully compliant with the TCFD disclosure recommendations, Carolyn Bradley including the reporting of Scope 3 emissions. We still have a long Chair way to go to reduce our environmental impact but now have both 30 August 2023 the strategy in place and the mechanisms to track progress, which will guide our decision making in the years ahead. ### Our culture The Works has a one-of-a-kind culture, shaped by strong values that underpin everything we do. In the past 12 months I have visited many stores and had the opportunity to meet colleagues who serve our customers every day. I have also been able to observe our culture ‘in action’ and I am pleased to report that I have seen many examples of the caring and can-do values we aim to embed across the Group. Above all, our people are passionate about what they do and committed to our purpose. Recognising the many benefits that diversity of experiences, cultures and perspectives bring, during the year we have further progressed our diversity and inclusion strategy to ensure we foster an inclusive environment where everyone belongs and can thrive (see pages 32 to 34). TheWorks.co.uk plc Annual Report and Accounts 2023 07 Chief Executive's review # Demonstrating resilience ![img-0.jpeg](img-0.jpeg) ![img-1.jpeg](img-1.jpeg) The Works delivered a resilient performance in FY23, with sales growth driven by our fantastic network of stores and team of talented colleagues. ## Introduction The Works delivered a resilient performance in FY23, with sales growth driven by our fantastic network of stores and team of talented colleagues. The economic backdrop was challenging, characterised by high inflation and dampened consumer confidence. This, combined with the residual impact of the cyber security incident at the start of the year, meant that the end result was lower than we had anticipated heading into the year. However, by continuing to focus on our purpose and offering exceptional value for our customers, we have enabled them to continue reading, learning, creating and playing – demonstrating that our value proposition has enduring relevance. Over the past few years we have dealt with a host of external challenges, such as the COVID-19 lockdowns and global supply chain disruption, as well as internal ones like the cyber security incident. This has meant that our focus has been primarily on protecting and rebuilding the business and supporting our dedicated colleagues. Having established a cleaner runway, our strategic progress accelerated in the second half of FY23 and we expect to make even more significant improvements in FY24. We remain confident in our ability to become an even 'better, not just bigger' business, driving a step-change in sales and profitability over the medium term. ## Trading performance and financial results The Works has always been a business that demonstrates its resilience when confronted with difficult trading conditions and the same can be said for FY23. The Group delivered a 5.8% increase in revenue to £280.1m and LFL sales growth of 4.2%, with store LFL sales increasing 7.5% and online sales declining by 15.0%. Outlined below are the main factors that contributed to this performance: - The first quarter was particularly challenging given the residual impact of the cyber security incident, which occurred in March 2022. The action taken to protect the business and rebuild our systems slowed down sales in May and June 2022. However, as a result of this one-off event we have now accelerated the implementation of IT upgrades and have even more robust defences in place. Momentum built following our recovery with an improving store LFL sales performance in the second half of the year. - Russia's invasion of Ukraine and political turmoil in the UK resulted in rising inflation and declining consumer confidence over the course of the year. Families have seen incomes and discretionary spending impacted. For value retailers like The Works we believe that sales have been impacted by cost-constrained consumers reigning in their spending, but that this has been balanced, to an extent, by shoppers seeking out the best value. This was particularly the case at Christmas, resulting in strong store trading during peak season and into the new calendar year. - Retailers have witnessed a shift in consumer behaviour post-COVID, with shoppers increasingly returning to shop-in-store and less so online. Stores have always been the lifeblood of the business and it has therefore resulted in a net gain for The Works given that stores represent c.90% of sales. 08 TheWorks.co.uk plc Annual Report and Accounts 2023 Profitability was constrained, particularly in the first half of FY23 given the lower-than anticipated sales growth, high-energy and freight costs and the absence of COVID-related business rates support, which had provided a boost in FY22. We revised our profit expectations for the year in August 2022 and have achieved a result in line with our released expectations, delivering a Pre-IFRS16 Adjusted EBITDA of ERDm and Adjusted profit before tax of £10.1m. The statutory profit before tax was £5.0m, after impairment charges of £5.1m. We believe this level of EBITDA is the low point that we will build from in the years ahead, supported by greater strategic progress that we are now set up to deliver. # Strategy Our 'better, not just bigger' strategy was announced in July 2021 to build on the existing strengths of the business – our loyal customer base, strong culture and fantastic store network. The strategy aims to provide The Works with a clearer purpose and a more focused brand identity and customer proposition that will help to drive a step-change in sales growth, as well as enabling us to improve the operations of the business, making The Works a more customer-focused and efficient retailer. Since launching the strategy we have made decent progress in some areas, but the reality of the internal and external challenges noted above has meant more of our attention than we anticipated has been focused on protecting the business and not on growth. Strategic progress has been slower than we would have liked; however, the business is now well-placed to deliver progress in FY24 and beyond, which we expect will drive the step change growth in sales and profitability that we want to achieve over the medium term. Below is a summary of the strategic progress made in FY23 and the plans we have to accelerate this in the year ahead. # Develop our brand and increase our customer engagement: We are working hard to ensure that our customer proposition and brand are consistent with our purpose, which will help to change legacy perceptions of The Works as a 'jole it high, sell it cheap' discounter, encourage new customers to shop with us and increase the spend of existing customers. In FY23 we rolled out our evolved brand to our stores and website to ensure that the visual representation of The Works accurately reflects our purpose and the modern, fun and engaging business that The Works is today. We have completed the first phase of this work and will now begin to more actively communicate this to customers by developing and executing a marketing strategy to bring our purpose and evolved brand to life, particularly through our social channels. We began to refresh our product offering to be better aligned with our purpose, whilst maintaining our commitment to low prices. This included the launch of new own brand ranges such as our children's toys 'RayWorks' brand and a significantly extended range of front-list books, including titles by authors such as Colleen Hoover and Julia Donaldson, which helped to increase our book market share in terms of value by 0.7% and volume by 1.3% (to 3.9% and 10.3% respectively). There remains an opportunity to further increase market share in all categories and in the year ahead we will conduct an extensive refresh of our core art, craft, and stationery ranges and launch new kids' pocket money toys ranges. We relaunched our 'Together' loyalty scheme this year and re-engaged store colleagues to promote sign-ups. We welcomed over 700,000 new members in FY23, with over 1.7m active members of the scheme at the end of the year. Our loyalty customers typically spend 30% more than non-loyalty customers and shop more regularly. We will now focus on improving the insight we obtain from the loyalty scheme data through new software that will shortly be available, to support more effective CRM and loyalty activity. # Driving operational improvements # Making our business better Using the way we launched a review of our current operating model to identify opportunities to improve our processes and systems including product planning and product life cycle management. While this review is ongoing, based on early findings, we have already started to introduce some changes including strengthening our merchandise planning function, which now includes a team of 25 people. Read more about our strategy on pages 16 and 17 ![img-2.jpeg](img-2.jpeg) TheWorks.co.uk plc Annual Report and Accounts 2023 09 Strategy report Corporate governance Financial statements ## Chief Executive’s review continued Strategy continued Drive operational improvements: Improving the operating Enhance our online proposition: Our customers and store effectiveness of the business is pivotal to our success. Although we colleagues want the experience of using our shopping channels will always maintain a lean operation, some areas of the business to be more consistent and integrated, with the website acting as were previously inadequately resourced. This year we continued to a shop window for our stores (and vice versa); however, to-date invest ahead of time to ensure that we’re capable of realising the the website has operated too independently. This, combined with sales potential we believe The Works can reach. the fact that strategic progress in this area has been slower than In FY23 we restructured the distribution centre management team. planned, means that as online sales have declined and costs The new team made an immediate impact, reviewing the operation have risen, the website is not currently profitable. and proposing a series of improvements in the way we pick and We restructured the management of the online operation at fulfil store deliveries for implementation in FY24. We expect to see the beginning of the calendar year to facilitate an increased significant cost savings and improved product availability in-store rate of progress. We have also recently undertaken a series as a result of these changes. of website usability studies to inform areas of opportunity to We implemented a new stock allocation system, Slimstock, to improve the site, as well as introducing new tools to support performance analysis and provide insights into how best to improve the quality of stock allocation decisions, which should improve the customer experience. To improve online profitability, improve store stock availability and therefore sales. At the start we increased delivery charges to be more in line with peers, of the current calendar year we also significantly strengthened scaled back some online promotions and reduced fixed costs by our merchandise planning function, and have been delighted to red uc in g th e sp ace uti lis ed at o ur thi rd-par t y f ul fi lm ent ce ntre. welcome some excellent new colleagues from respected retailers, Plans are in place to enhance the online customer experience and which will drive a step change in our capability in this area. Allowing to trial using the new EPOS solution to enable customers to order time for the new stock allocation system’s algorithms to ‘learn’ The products from our website whilst in our stores, providing more Works’ data and for our new merchandising team to get fully up to convenient access to online range extensions. We also expect speed with it, we expect to see further benefits in FY24 and beyond. online sales and profitability to improve as we derive benefit from Towards the end of FY23 we successfully launched the pilot of our the new analytical tools introduced in late FY23. There is much more new EPOS software in stores. Plans are in place to roll this new work to be done to improve this channel which we hope will return software out across the store estate by the end of FY24. to sales growth and profitability, in due course. A new automated packing machine and robotics were introduced Plans are in place to enhance the online customer experience and to the online fulfilment operation during the year (operated by to trial using the new EPOS solution to enable customers to order a third-party provider, iForce). We continue to work with iForce products from our website whilst in our stores, providing more to further improve the fulfilment cost per order, and reduce our convenient access to online range extensions. We also expect consumption of packaging. online sales and profitability to improve as we derive benefit from the new analytical tools introduced in late FY23. There is much more Late in the financial year, we launched a planned review of the work to be done to improve this channel which we hope will return business operating model. The first phase of this project entails to sales growth and profitability, in due course. documenting our current ways of operating, confirming the Optimise our store estate: We believe that a major strength of The desired future ways of working and mapping the plan to migrate Works is our large network of stores in communities across the UK to the improved model. There will be significant changes to and Ireland, which have been and always will be the main driver processes and IT systems over the next two to three years, which of sales. will fundamentally improve the way our business buys, moves and allocates stock, driving cost efficiencies and improved product This year we continued to optimise our store estate with 14 new availability for our customers. store openings in great locations and are pleased that these new stores are trading ahead of expectations. We closed 13 stores and Colleagues relocated a further three, trading from 526 stores at the end of the In an unpredictable and challenging year, our colleagues have period. We also invested c.£1.4m in 34 store refits and continued to remained steadfast in their dedication to helping customers to improve the store experience for customers by enhancing layouts, read, learn, create and play. We have worked hard to build and optimising the space utilisation across categories, and introducing maintain our unique culture, underpinned by our values and a clearer navigation and signage, supported by the evolved brand. team of committed and enthusiastic colleagues. I am proud that Sales densities in our stores remain relatively low and we believe 10% of colleagues were promoted in the year and was delighted there is a significant opportunity to increase this through winning that we moved up one place to 12th in the ‘Best Big Companies to new customers, better ranging and customer experience, space Work For’ national list, from 13th in each of the past two years. We optimisation and improved product availability, all supported by also maintained our 2* accreditation for “outstanding” workplace a new labour structure put in place at the start of FY24. Whilst the engagement (3* being the highest possible accreditation). priority in the short to medium term is to improve the existing store To continue to support the engagement, development estate to realise its potential, in due course we will also consider and wellbeing of our colleagues, we launched ‘MyWorks’, a whether to reintroduce a measured roll out programme, as we communications and engagement platform to keep colleagues believe there is scope for the brand to trade successfully from informed about company news and benefits, and to enable access at least 600 stores in the UK. to resources on physical, mental and financial wellbeing. We also introduced the ‘Can Do Academy’, a system to support colleagues’ learning and development, and in response to the challenges created by the cost-of-living crisis we launched Wagestream, an app that offers a range of financial wellbeing tools. Looking ahead to FY24, we will continue to invest in our colleagues, including launching a new Reward and Recognition programme to positively reinforce our values, celebrate success and provide financial incentives linked to our purpose and values. TheWorks.co.uk plc Annual Report and Accounts 202310 Environmental, Social and Governance (ESG) This time last year we were at the fledgling stages of the ### environmental part of our ESG journey and I am pleased that we Developing our ### have made significant further progress since then. The business brand and increasing is now fully aligned around our mission of ‘Doing Business Better’, ### customer engagement which is about making positive and sustainable changes. A key development was the appointment of a Sustainability Creating Dex the dinosaur Manager in January 2023. The business has also adopted a To increase our visibility and customer engagement, in more structured and rigorous approach to the environment, for June 2022 we created Dex the dinosaur, a very recognisable example, to set longer-term ambitions to reduce the impact of our character to enable customers to build a tangible connection products, packaging and waste. We are also continuing to work with our business and our products. Aligning with our key with a specialist third-party ESG consultancy and during the year values of play, learning and fun, dinosaurs appeal to all we set carbon reduction targets for Scope 1, 2 and 3 emissions genders and generations. and developed roadmaps to achieve them. Our Scope 1 and Scope 2 targets, together with our ambition to achieve net zero by During the year, Dex, who is already becoming synonymous 2040, fully align with the British Retail Consortium’s climate action with our brand, visited many of our stores, including all our roadmap and we became fully compliant with the Task Force on new store openings, adding fun to everyone’s shopping Climate-related Financial Disclosures (TCFD) in FY23. day. Our Dex branded product offering has also been We are committed to creating an inclusive environment at The Works very successful and the Dex shopper has become our Financial statementsCorporate governanceStrategic report where everyone feels they belong and where different experiences, best-selling bag. cultures and perspectives are embraced. We completed a review Read more about our strategy on pages 16 and 17 of our existing Diversity and Inclusion (D&I) policies and practices and have now developed a D&I strategy. Implementation of this will increase our collective understanding of D&I, improve training, enhance practical awareness and accountability at all levels and ensure that barriers to inclusion are removed. ‘Giving back’ is part of our psyche and I am hugely grateful to our colleagues and customers for their generosity in supporting our charity initiatives. We are pleased to be developing a new charity partnership with the National Literacy Trust this year, which is closely aligned to our purpose of inspiring people to read, learn, create and play. Outlook I am proud of the way everyone at The Works navigated a challenging year. We expect FY23 to be the low point in The Works’ profitability post-COVID given that cost headwinds have now eased, the financial performance improved throughout the second half of the year and we have started to make more meaningful strategic progress, the benefits of which are expected to be realised in FY24 and beyond. The macroeconomic outlook remains uncertain and we have entered the new financial year with a degree of caution, however, I am encouraged by the enduring appeal of The Works’ value proposition and excited by the opportunities presented in the year ahead, which the business is now better equipped to capitalise on. The Board and I are comfortable with the Company compiled estimate of the market’s forecast, an EBITDA of £10m for FY24, and remain confident in our ability to deliver profitable growth in the medium term. Gavin Peck Chief Executive Officer 30 August 2023 TheWorks.co.uk plc Annual Report and Accounts 2023 11 ## Our marketplace ## We are uniquely positioned ## in the value retail sector ### Our purpose, which is inspiring our customers to read, learn, create and play, sets us apart. We offer ### lower prices than the specialists and more choice and better customer service than the discounters. Books Crafts Premium/full price Stationery Toys Discount/value Generals/variety Specialist ### A number of market trends are affecting our business and shaping ### our business model and strategy including: Spending trends To ensure we capitalise on the online growth opportunity we In the current economic environment consumers are spending have reviewed our ecommerce operation and we are now less and they are seeking out good value quality products. Our enhancing our online proposition in a number of areas to improve price proposition and overall offering position us well. In addition the overall customer experience. In FY24, we will test using our new our ‘Together’ loyalty scheme, which now has c.1.7 million active in-store till software for customers to order from our website while members, offers customers real savings. in-store, which will further integrate our channels and enhance customer convenience. Evolving shopping habits Despite an uncertain macroeconomic backdrop and consumers Consistent growth in our core markets being more cost conscious than ever, demand for convenient and The games, toy, art & craft, book and stationery markets have enjoyable shopping experiences continues to grow. In response, grown consistently over the last two decades. Our product offering our strategy is focused on making the overall shopping experience is focused on these key specialist areas which appeal to a large as straightforward as possible for customers shopping in store and diverse customer base. and online. According to a survey of the sector by Retail Week, published in During the year we continued to optimise our store estate opening May 2023, we were ranked the UK’s fastest-growing value retailer. 14 new stores, closing 13 stores, relocating 3 others and completing Responsible consumption refits of 34 existing stores (see following page). Our aim is to provide Consumers are becoming more aware of the environmental better in-store experiences through improved space planning, impact of the things they buy and are seeking out more sustainable making our stores easier to shop in (e.g. by reducing the number options. While the extent to which consumers are willing to of fixtures and amount of stock on the shop floor) and enhancing pay higher prices to reduce their environmental footprint is less our click & collect channel. clear, we have a responsibility to do what we can to reduce our Located on the high street, and in shopping centres, retail parks and environmental impact. Information about the steps we are taking garden centres, our stores are well positioned to benefit from the shift to do this is included on pages 30 to 31. to more localised shopping which has continued post-pandemic. They also have a noticeable presence and are often actively involved in community activities including local charity fundraising. TheWorks.co.uk plc Annual Report and Accounts 202312 ## Enhancing the ## shopping experience ### Optimising our ### store estate Financial statementsCorporate governanceStrategic report New stores and refits To create store environments that inspire our customers and reflect the communities we serve we have continued to enhance our store estate. During the year we opened 14 new stores, completed 34 existing store refits, closed 13 stores and relocated 3 others. Eight of our new stores are located in shopping centres including Westfield London and Cribbs Causeway in Guildford. Six others are in high street locations in Paignton, Loughton, Minehead, Plymouth, Bude and Ringwood. ## 14 Our new and refitted stores offer our customers an improved new store openings shopping experience and enable us to make better use of space and deploy more effective merchandising. Read more about our strategy on pages 16 and 17 ## 13 store closures ## 34 refits TheWorks.co.uk plc Annual Report and Accounts 2023 13 ## Our business model ## Building on our core strengths ### Our core strengths and competitive advantage create a compelling proposition ### capable of delivering long-term value for all stakeholders. ### Key inputs Our proposition and how we create value ### Colleagues ### Our competitive advantage • Approximately 4,000 colleagues who are key to the success of our business. ## • Loyal and dedicated. Affordable • Highly engaged. ## Customer focused ### Brand value • Exclusive own brands developed in house. ## Family friendly • Clear purpose, focused on inspiring reading, learning, creativity and play. ## Convenient ### Suppliers ## Multi-channel • Over 400 supplier relationships. • Located in the UK, Europe and Asia. ## • Close collaboration. Empowering ### Infrastructure ### Design and innovate • Store network. • Identify and bring desirable and ## • Online store. 12 on-trend products to the UK market. • Centrally located Support and own brands • Unique own brand products developed Distribution Centres. by in-house design studio in conjunction • IT infrastructure – investing to ensure scale, with suppliers. ## efficiency and security. 8 • New product lines launched sub brands throughout the year. | Read more about | • Five clear product zones: Books; Arts | | | --- | --- | --- | | our colleagues | & Crafts; Toys & Games; Stationery; | | | on pages 32 to 34 | and Seasonal. | c.10,000 | new product lines introduced in FY23 ### Evolving and growing our business ### to make it better, not just bigger Develop our brand and increase customer Enhance our online proposition engagement TheWorks.co.uk plc Annual Report and Accounts 202314 ### Our proposition and how we create value The value we create Financial statementsCorporate governanceStrategic report ### Source and distribute Our people • Experienced buying team sources Employment and a rewarding career ## c.400 and curates product ranges, including for c.4,000 colleagues. stock suppliers popular brands to complement own brand offer. ## • Relationships with over 400 suppliers. 12th ## 157,000 • Work closely with suppliers to ensure ### Best Big Company to Work for sq ft warehousing and product safety and quality control. distribution facility • Warehousing and store distribution undertaken from 157,000 sq ft facility ### Our customers in Coleshill, Birmingham. Offer affordable, accessible, good quality • Online orders fulfilled by third party products to inspire reading, learning, or picked in store. creativity and play. • Leading customer delivery proposition. ### Our suppliers Indirectly support employment across our extensive supplier network. ### Sell to customers through ## convenient channels 526 • Stores across the UK and Ireland. stores ### Our community • Website – 24/7 trading with exclusive and extended ranges. ‘Together’ loyalty scheme increases customer ## • Marketplaces (e.g. Amazon, eBay). £266k engagement and provides fundraising in FY23 for Cancer Research UK, Mind, • Click & collect – linking valuable customer insights. SAMH and Inspire. Many other local charities stores and online. supported at store level. ### Our shareholders ## £1.0m Read more about our strategy on pages 16 and 17 ### Evolving and growing our business final dividend proposed for the year ### to make it better, not just bigger ended 30 April 2023. Drive operational Optimise our store estate improvements TheWorks.co.uk plc Annual Report and Accounts 2023 15 ## Our strategy and progress ## We are improving and ## developing our business ## to be better, not just bigger ### Since the launch of our ‘better, not just bigger strategy’ we have made good progress in some ### areas, however in others we still have work to do (see page 17). The business is well-placed to ### make more meaningful progress in FY24. ### Our strategic pillars ### Develop our Enhance our ### brand and increase online proposition ### customer engagement We want to increase awareness of our website and make it an inspiring Through our brand and customer offer destination for customers by improving we want to reach more customers and our customer journey and making it improve the external view of The Works. easy to use, inspiring and engaging. ### Optimise our Drive operational ### store estate improvements Our aim is to create a store environment We aspire to improve our ways of that can inspire our customers and working to become a better and more reflects the communities we serve. modern retailer. We want to ensure we operate efficiently and in a cost- effective way. TheWorks.co.uk plc Annual Report and Accounts 20231616 ### Progress to date and priorities for FY24 Develop our brand and increase Enhance our online proposition customer engagement Progress Progress • Rolled out our evolved brand to our stores and website to ensure • Restructured management of the online operation. that the visual representation of The Works accurately reflects • Undertaken a series of website usability studies to inform areas our purpose and the modern, fun and engaging business that of opportunity to improve the site, as well as introducing new The Works is today. tools to support performance analysis and provide insights into • Refreshed our product offering to be better aligned with our how best to improve the customer experience (see page 10). purpose, whilst maintaining our commitment to low prices Priorities for FY24 (see page 9). • Enhance the customer experience including enabling customers • Relaunched our ‘Together’ loyalty scheme. to order from our website whilst in store (see page 10). Priorities for FY24 • Develop and execute a marketing strategy to bring our purpose and evolved brand to life, particularly through our social channels. Financial statementsCorporate governanceStrategic report • Conduct an extensive refresh of our core art & craft, stationery and kids’ pocket money toys ranges. Link to KPIs Link to risks Link to KPIs Link to risks A 1 B 2 3 4 5 6 7 8 9 10 11 A 1 B 2 43 6 7 8 10 11 Optimise our store estate Drive operational improvements Progress Progress • Opened 14 new stores, closed 13 stores, relocated 3 others • Restructured distribution centre management team and refitted 34 existing stores (see page 10). and strengthened merchandise planning function. • Continued to improve the store experience for customers by • Implemented new stock allocation system (see page 20). enhancing layouts, optimising the space utilisation across • Introduced new automated packing machine and robotics in categories, and introducing clearer navigation and signage, third-party operated online fulfilment operation (see page 10). supported by the evolved brand. • Launched the pilot of our new EPOS software in stores. Priorities for FY24 • Launched a planned review of business operating model • Increase in-store sales densities. (see page 10). • Continue improving the existing estate with refits and relocations. Priorities for FY24 • Embed new labour structure. • Begin implementation of changes to processes and IT systems identified by business operating model review. Link to KPIs Link to KPIsLink to risks Link to risks A C1 1B D2 210 107 711 11C E Our KPIs are set out on page 18 Our principal risks are set out on pages 49 to 53 TheWorks.co.uk plc Annual Report and Accounts 2023 17 ## How we measure performance ## We use five KPIs to monitor ## performance and strategic progress ### These KPIs, together with our performance against them, are detailed below. All of the non-GAAP ### financial measures detailed can be calculated from the GAAP measures included in the financial ### statements, as outlined in the notes to the financial statements. Commentary on these KPIs is ### included in the Financial review. A Revenue growth B Like-for-like sales growth C Adjusted profit before tax | +5.8% | | | +4.2% | | | | £10.1m | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | FY | | £280.1m | FY | +4.2% | | | FY | | £10.1m | | | FY | | £264.6m | FY | | | +10.5% | FY | | | £16.5m | | FY | £180.7m | | FY | | Online +120.9%Stores +6.0% | | FY | £3.4m | | | | Definition | | | Definition | | | | Definition | | | | | The percentage year-on-year change in Group | | | The FY23 like-for-like (LFL) sales increase has | | | | Represents profit for the period before taxation | | | | | total sales which excludes VAT and is stated | | | been calculated with reference to the FY22 | | | | and adjusting items. Adjusting items are gains | | | | | after deducting the cost of loyalty points. A | | | comparative sales figures. In FY22, two-year | | | | or losses incurred in a period which are not | | | | | reconciliation between total sales and statutory | | | comparatives were used because the use of a | | | | expected to be recurring (Adjusting items). | | | | | revenue is included on page 21. | | | normal one-year LFL comparative was prevented | | | | | | | | Restatement of prior years by the various disruptions to store trading | | | brought about by COVID-19 restrictions in the | FY22 and FY21 figures are restated. Information | | --- | --- | --- | --- | | | | FY21 comparative period. LFL sales are defined | regarding the restatements is included in note 14 | | | | by the Group as the year-on-year growth in | of the financial statements. | | D | Pre-IFRS 16 Adjusted EBITDA | | | gross sales from stores which have been trading for a full financial year prior to the current year and have been trading throughout the current E Adjusted diluted earnings per share financial period being reported on, and from the ## £9.0m Company’s online store, calculated on a calendar week basis. FY £9.0m ## 16.4p | FY | | £16.6m | | | | | --- | --- | --- | --- | --- | --- | | | | | FY | 16.4p | | | FY | £4.3m | | | | | | | | | FY | | 25.6p | Definition Represents profit for the period before IFRS 16, FY 4.1p net finance costs, taxation, depreciation and amortisation, loss on disposals of property, Definition plant and equipment and Adjusting items. Calculated by dividing the adjusted profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period (including dilutive share options). Adjusted profit is before the impact of Adjusting items. Restatement of prior years FY22 and FY21 figures are restated. Information regarding the restatements is included in note 14 of the financial statements. TheWorks.co.uk plc Annual Report and Accounts 202318 Financial review # A resilient performance ![img-3.jpeg](img-3.jpeg) The FY23 accounting Period relates to the 52 weeks ended 30 April 2023 (also referred to as the period) and the comparative FY22 accounting period relates to the 52 weeks ended 1 May 2022. The Group refers to alternative performance measures (APMs) as it believes these provide management and other stakeholders with additional information which may be helpful. These measures are routinely used by management in running the business, and include pre-IFRS 16 Adjusted EBITDA (EBITDA) and like-for-like (LFL) sales. Accordingly, reference is made to these measures in this report. The Group made a profit before tax of £5.0m (restated FY22: £14.2m). This result includes a £5.1m impairment charge, most of which relates to the national right of use asset created as a result of following the requirements of the IFRS 16 accounting standard. As in previous periods, impairments have been treated as Adjusting items. The Adjusted profit before tax excluding impairment charges was £10.1m (restated FY22: £16.5m). ![img-4.jpeg](img-4.jpeg) The Pre IFRS16 Adjusted EBITDA for the Period was £9.0m (FY22: £16.6m). The FY23 Adjusted PBT is greater than the EBITDA because of the effect of IFRS 16. We would normally expect the Adjusted PBT to be less than the EBITDA. Please refer to note 5 of the financial statements for further information. The FY23 results have been published later than originally intended. The delay was due to significant additional work being undertaken, principally in relation to asset impairment charges and related impacts on IFRS 16 calculations. As well as affecting the FY23 result, this also entailed the restatement of comparative figures for prior periods. Whilst the delay has been frustrating, we highlight that the issues in question have not affected the Board's assessment of the underlying performance of the business (for example, as represented by the EBITDA) and had no direct cash impact. Information regarding the restatements is included in note 14 of the financial statements. ## Overview The result for FY23 was in line with the revised forecast we referred to in August 2022. During the Period: - Revenue increased by £15.5m, driven by 7.5% growth in store LFL sales and sales from new stores exceeding sales forgone from closed stores (through optimisation of the store estate). Online sales declined by 15%. - The product gross margin percentage declined due to the planned increase in the mix of sales of lower margin books, and increased costs of stock, principally freight. These negative effects were partly offset by supplier rebates which were collected (£0.6m of which related to periods prior to FY23). - Costs increased due to: - The cessation of COVID-19 business rates relief. - The increase in the National Living Wage by 6.6% in April 2022. - Electricity price inflation. - There was a net increase in EBITDA of approximately £0.6m due to the opening and closure of stores during the year. Although the number of stores trading had only increased by one at the year end, we benefitted from being able to time the openings and closures such that we had a net six more stores trading during the peak Christmas period. In addition, the average sales levels from the new stores were greater than for the stores which were closed. - The Group experienced a cyber security incident in March 2022. We believe the residual effects of this adversely affected FY23's result due to the Group taking a measured and cautious approach to reinstating systems whilst simultaneously accelerating the implementation of strengthened IT security. Due to the impossibility of accurately estimating the financial effect, it has been absorbed within the EBITDA result and not identified separately as an Adjusting item. TheWorks.co.uk plc Annual Report and Accounts 2023 19 Strategy report Corporate governance Financial statements Financial review continued Overview continued | EBITDA bridge between FY22 and FY23 | | | --- | --- | | FY22 EBITDA | 16.6 | | LFL stores and online | | | Increased gross margin due to increase in sales in LFL stores/decline online | 5.9 | | Lower gross product margin % (including impact of higher freight costs) | (4.5) | | Cessation of COVID-19 business rates relief (LFL stores) | (5.6) | | Increased payroll costs due to National Living Wage inflation | (2.5) | | Energy price inflation | (1.0) | | Other | (0.3) | | | (8.0) | | Non – LFL Stores | | | Profit impact, including, timing benefit of trading more stores through peak | 0.6 | | Cessation of COVID-19 business rates relief | (0.2) | | FY23 EBITDA | 9.0 | # Driving operational improvements # Improving our stock allocation process In September 2022 we introduced a brief forecasting and stock allocation system to improve our stock turn and tenure that we offer customers that best product availability. By analysing individual product and store size combinations the system enables us to forecast effectively to ensure we make the right stock available to the right store locations. The best system is already having a positive impact and has enabled us to increase in store availability of our stock products. 1. Good more about our strategy on pages 16 and 17 ![img-5.jpeg](img-5.jpeg) We noted in the FY22 Annual Report that the net cash balance on 1 May 2022 was higher than normal as it included the benefit of increased creditor balances. These mostly related to the continuing effect of events connected with COVID-19 (such as rent deferrals) and, as expected, unwound finally during FY23. Therefore, although the FY23 net cash balance of £10.2m is lower than the prior year's £16.3m, it represents a more typical Period-end level, and has grown progressively compared with the £0.8m net cash balance at the end of FY21 and £7.1m of net debt at the end of FY20. It has been reassuring, particularly during the periods of heightened uncertainty in recent years, to have the benefit of a large £20.0m at the Period end revolving credit bank facility, however, there is a cost associated with maintaining such a facility. Our forecasts indicate that even under a sensitised downside scenario, it is unlikely that we would ever use the entire facility. With this in mind, we have recently reduced the size of the facility to £20.0m, which will save approximately £0.15m in annual facility maintenance fees and, at the same time, extended the term of the facility so that it terminates at the end of November 2026 rather than November 2025. The Board will be recommending to shareholders at the AGM a final dividend of 1.6 pence per share in respect of FY23. Updated information regarding the Group's policy on dividends and capital distributions is included at the end of this report. Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. # Revenue analysis Total revenue increase/day 5.8% to £280.1 million (FY22: £264.6 million). Total gross sales (1) increased by 6.1% compared to FY22. Two thirds of the total sales increase was from LFL sales (2) which grew by 4.2%, with positive growth in stores but a decline in online sales. The remaining sales growth was from the continued optimisation of the store estate (see table and narrative on the following page). The quarterly LFL sales summary in the table below and the narrative which follows shows how store LFLs strengthened progressively during FY23 but that we were unable to achieve positive sales growth online, due to a combination of internal and external factors. | LFL sales growth | Stores | Online | Total | | --- | --- | --- | --- | | Q1 | 1.6% | (28.6%) | (2.4%) | | Q2 | 5.1% | (8.9%) | 3.0% | | H1 | 3.6% | (16.9%) | 0.6% | | Q3 | 9.9% | (14.2%) | 5.9% | | Q4 | 12.0% | (11.7%) | 9.4% | | H2 | 10.7% | (13.5%) | 7.1% | | Full year | 7.5% | (15.0%) | 4.2% | Definitions of gross sales and LFL are included on the following page. # Q1 highlights - Sales in Q1 FY23 were constrained, particularly online, a significant cause of which was the residual impact of the March 2022 cyber security incident. - We also annualised against strong FY22 comparatives, which were the result of pent up demand following the end of the final COVID-19 lockdown in April 2021. The strong demand in early FY22 was also driven by a larger than usual post lockdown sale, which included stock that would normally have been sold in January/February 2021, and strong sales of 'fidget frenzy' toys. 20 TheWorks.co.uk plc Annual Report and Accounts 2023 Q2 highlights year increase in sales, and due to the additional focus placed by • The Works had a good summer 2022. The newly refreshed the business on signing up new members and encouraging existing outdoor play range performed well and the ‘Back to School’ members to re-engage with the loyalty scheme. season sales were very good. Store numbers FY FY • The LFL sales growth rate softened slightly in the latter part of Q2 due to losing a full trading day for the additional bank holiday in Stores at beginning of period   late September, as well as the comparatives in September and Opened in the period   October 2021 being strong, when we believe Christmas shopping Closed in the period () () was brought forward due to consumers’ concern about possible Relocated (excluded from opened/ further lockdowns affecting Christmas shopping in 2021. closed above, NIL net effect on store Q3 highlights numbers)   • In contrast, Q3 comparatives with the prior year weakened Stores at end of period   due to concerns in late 2021 about the potential effects of the emerging Omicron COVID-19 variant, supply chain disruption The number of stores trading increased by one during the period, and the FY22 January sale being low key. from 525 to 526. Despite this small change between the beginning • Sales strengthened sharply just before Christmas, suggesting and end of year numbers, the additional sales from new/closed that consumers shopped much later than in 2021. We delivered stores in the table above shows a notable increase compared strong store sales over Christmas, which continued in the with the prior year. This was principally because we benefitted January sale. from being able to time the openings and closures such that Financial statementsCorporate governanceStrategic report • Online sales were disappointing, impacted by reduced consumer a net six more stores were trading during the peak Christmas confidence in fulfilment (due to postal strikes in late 2022) as well period, and secondarily because the new stores individually also as the normalisation of shopping behaviour away from online, generated more sales than the stores that were closed. The new as seen across the retail industry. stores are trading with sales levels at or above their financial appraisal targets. Q4 highlights • Trading was steady following the January sale, with store sales Product gross margin and gross profit continuing to grow positively, and online sales continuing to be in FY decline. The rate of overall sales growth increased slightly during FY (Restated  ) this quarter as the prior year comparatives weakened due to the % of % of Variance Variance aftermath of the March 2022 cyber security incident. m revenue m revenue m % Revenue . . . . The table below shows the reconciliation of LFL sales used for year-on-year comparisons, with statutory revenue. Less: cost of goods sold . . . . FY FY Variance Variance Product gross m m m % margin . . . . . (.) Total LFL sales  Other costs for Period 2 9 7. 0 285.0 12.0 4.2% included in Sales from new/ statutory cost closed stores of sales (optimisation of | store estate) 19.6 13.4 6.3 46.9% | | | Store payroll . . . . (.) (.) | | --- | --- | --- | --- | | |  | | Store property | | Total gross sales | | 316.6 298.4 18.3 6.1% | | and establishment VAT (35.1) (33.5) (1.7) 5.0% costs . . . . (.) (.) Loyalty scheme costs Store PoS and - points redeemed by transaction fees . . . . (.) (.) customers (1.4) (0.3) (1.1) 404.6% Store Revenue (per depreciation . . . . (.) (.) statutory accounts) 280.1 264.6 15.5 5.8% Online variable | Loyalty points as | costs . . . . . . | | --- | --- | | % sales (0.5%) (0.1%) | Adjusting items | | VAT as % of sales (11.1%) (11.2%) | -impairment | charges . . . . (.) (.) 1 ‘Total gross sales’ include VAT and are stated prior to deducting the IFRS  impact (.) (.) (.) (.) . (.) cost of loyalty points which are adjusted out of the sales figure in the Total non-product calculation of statutory revenue. related cost of sales . . . . (.) (.) 2 LFL sales growth has been calculated with reference to the FY22 comparative sales figures. In FY22’s Annual Report, two-year Gross profit per comparatives were used because the use of a normal one-year LFL financial comparative was prevented by the various disruptions to store trading statements . . . . (.) (.) brought about by COVID-19 restrictions in the FY21 comparative period. 1 See note 14 to the financial statements. The year on year increase in the cost of loyalty points shown in the table above is larger than normal because the FY22 comparative was unusually low (as reported last year) due to the write back of expired points previously issued and accounted for. The underlying cost of loyalty points redeemed by customers during the year increased in the way we expected, both as a result of the year on TheWorks.co.uk plc Annual Report and Accounts 2023 21 Financial review continued # Product gross margin and gross profit continued The product gross margin rate decreased by 370bps to 57.6% (FY22: 59.3%) The most significant factors in the year on-year movement were: - An increase in the sales mix of front-list, lower margin books (as has been described previously) which reduced the margin percentage by approximately 100bps. We believe this generated incremental cash margin due to selling higher volumes of items which were higher priced. - Higher freight costs, which remained high on a spot basis during H1 before falling significantly in H2. The interval between incurring the freight cost and selling the goods is such that the higher rates continued to affect FY23's margin for some time after the spot rates had fallen; this timing factor makes it difficult to estimate the precise impact on the margin rate, our best estimate of which is approximately 100bps. - There was a small year on year margin rate increase due to other factors including stock provision movements, supplier rebates/retrospective discounts and pricing changes. Towards the end of FY23, prices of some lines were increased to reflect the rise in inflation generally experienced during the year, to ensure that the business achieves an acceptable balance between offering value to customers and a reasonable margin. # Store payroll costs increased by £3.3m. - The annual rise in the National Living Wage (NLW) accounted for £2.1m or 64% of the year-on-year increase, including the additional cost of maintaining sensible differentials between pay grades for colleagues paid more than the NLW, in light of the increased base wage level. - The optimisation of the store estate, entailing the opening of 14 stores, the closure of 13, and the relocation of 3 stores, created an additional £0.3m of store payroll costs. This increase appears disproportionately high given that only one more store had been added by the year end; however, the timing of the openings and closures which benefitted the sales line (i.e. having more stores trading during the Christmas peak) also incurred corresponding additional costs. # Store property and establishment costs increased by £8.1m: - The largest component of the increase was £5.8m of business rates charges. These costs had been comparatively lower in FY22 due to COVID-19 relief, but payments resumed in full during FY23. - Electricity costs increased by £1.0m due to inflation. - Despite a year-on-year reduction in like for like rents, total rent charges increased by £1.0m: - The ongoing process of renegotiating and renewing expiring leases resulted in a reduction of £0.6m in rents in the UK, store estate, including the release of accruals established in some situations where the effective date of the decrease was backdated to a prior period, due to the protracted nature of the rent negotiations (in these situations, we continue to accrue for the higher rent level until the reduction is confirmed in writing). - The timing of opening and closing stores referred to above, plus the full year cost of stores opened part way through FY22, resulted in additional rent costs of £0.3m (i.e. effectively a 'volume' related increase). - During COVID-19 rent negotiations with landlords (for example, where we were seeking rent concessions in respect of enforced store closures), concessions were sometimes informally agreed via a credit note, to be formalised subsequently. A provision is maintained for credit notes relating to amounts that have not been recovered after two years (although we still pursue and expect to recover most of the amount provided for), and this provision increased by £0.5m during FY23. - Turnover rents increased by £0.4m due to sales increases in the 129 stores where the rent is based wholly or partially on a percentage of turnover. Turnover rent mechanisms typically look back to earlier periods to calculate the applicable rent and, in FY22, the look back periods often included periods during FY21 when stores were closed due to COVID-19 restrictions and thus created a lower turnover. There have also been sales increases in some stores (overall store UK sales growth was 4.2%) which have triggered the payment of, or increased, turnover rents. - Service charges increased by £0.3m due to the new/closed store timing effect described above and service charge inflation in the existing store estate. # Online variable costs decreased by £0.3m: - The decrease was due to the year-on-year decrease in sales and the consequential reduction in marketing, fulfilment, transaction and other variable costs which were £1.3m lower than in FY22. - These savings were partially offset by higher costs at the iForce fulfilment facility (third party operated) and higher packaging costs. The efficiency of the operation has been reviewed with iForce, and changes have been implemented for FY24 which are expected to reduce the fulfilment cost per unit, including a reduction in the space allocated in the facility. # Adjusting items and prior year adjustment: - Adjusting items were £5.1m in FY23, (restated FY22 £2.3m), and comprised impairment charges. The prior period comparatives have been restated to reflect the allocation of central overheads to individual stores, which resulted in a higher impairment charge being required in respect of FY22 and prior periods. This is described in note 14 of the financial statements. - 70% or £3.6m of the £5.1m FY23 impairment charge relates to the national 'right of use' asset which arises through the operation of IFRS 16. - Consistent with the approach the Group has taken previously, impairment charges (and reversals) are treated as Adjusting Items. As well as being consistent, this is appropriate due to the sale of the total impairment charge, which is more reflective of the broader UK macroeconomic environment impacting many retail businesses than of the underlying performance of individual stores. # IFRS 16 impact: - IFRS 16 has had the effect of significantly increasing the Adjusted profit before tax in FY23, by £7.0m compared with the non-IFRS 16 figure (see note 5 of the financial statements). This £7.0m broadly comprises £10.7m included within cost of sales per the table above and £0.4m included within administrative costs, less £4.1m of IFRS 16 interest charges. - Due to the restatement of impairment charges in relation to prior periods there is a significantly greater IFRS 16 impact than reported in previous years, particularly on Adjusted profit. The additional impairment charges reduced the net book value of the IFRS 16 'right of use' asset, as a result of which, the IFRS 16 depreciation charges were reduced. Meanwhile, the actual rents paid were unaffected, resulting in a greater disparity between the rents and the IFRS 16 P&L charges. Please refer to note 5 of the financial statements for a detailed analysis of the impact of IFRS 16 on the profit before tax. 22 TheWorks.co.uk plc Annual Report and Accounts 2023 # Distribution costs to stores | | FY23 | | FY22 | | | | | --- | --- | --- | --- | --- | --- | --- | | | £m | % of revenue | £m | % of revenue | Variance £m | Variance % | | Adjusted distribution costs | 10.2 | 3.6 | 9.0 | 3.4 | (1.2) | (12.9) | | Depreciation | 0.1 | — | 0.1 | — | — | 3.1 | | Distribution costs per statutory accounts | 10.3 | 3.7 | 9.1 | 3.4 | (1.2) | (12.7) | The costs of picking stock and delivering it to stores increased by £0.2m compared with FY22: - Distribution labour costs increased by £0.5m, due to wage rate inflation from the increase in the NGW, and an increase in the volume of items picked. Approximately half of the cost increase was due to inflation, and the remainder to the increase in volumes. - The costs of delivering pallets from the DC to stores increased by £0.4m. Higher volumes accounted for £0.15m with the remainder due to inflation passed on by the pallet delivery company to which we outsource this task. - Storage costs of £0.15m were incurred to accommodate additional stock prior to the Christmas sales peak. This was a precaution taken to mitigate against the risk of a repetition of the disruption experienced the prior year. # Administration costs Administration costs (before depreciation and IFRS 16) decreased by £0.3m compared with FY22. The largest change was a £2.3m decrease in bonus costs, as no bonus will be paid in respect of FY23. Head office salary and related costs (NI, pension etc.) increased by £1.3m due to the planned growth in headcount as well as wage rate inflation. Average salary rates for head office staff (including management) increased by 3.0%, a significantly lower rate than the 6.6% increase in the National Living Wage. There was a net increase of £0.3m in other administration costs, due principally to IT software licence and maintenance costs, higher audit fees and stock taking costs. | | FY23 | | FY22 | | | | | --- | --- | --- | --- | --- | --- | --- | | | £m | % of revenue | £m | % of revenue | Variance £m | Variance % | | Pre-IFRS 16, Adjusted administration costs | 22.9 | 8.2 | 23.2 | 8.8 | 0.3 | 1.4 | | Depreciation | 1.8 | 0.6 | 1.3 | 0.5 | (0.5) | (34.7) | | IFRS 16 impact | (0.4) | (0.2) | (0.4) | (0.1) | 0.2 | 13.8 | | Administration costs per statutory accounts | 24.2 | 8.6 | 24.1 | 9.2 | (0.1) | (0.3) | # Net financing expense Net financing costs in the period were £4.4m (FY22: £5.2m), mostly relating to IFRS 16 national interest. Gross cash interest payable was £0.3m, in relation to facility availability charges (FY22: £0.4m). £0.3m of interest was received in FY23 (FY22: £NII). | | FY23 £m | FY22 £m | | --- | --- | --- | | Bank interest receivable | (0.2) | — | | Bank interest payable (including non-utilisation costs) | 0.3 | 0.4 | | Other interest payable (amortisation of facility set-up costs) | 0.2 | 0.3 | | IFRS 16 national interest on lease liabilities | 4.1 | 4.5 | | Net financing expense | 4.4 | 5.2 | # Tax | | FY23 £m | FY22 (Restated) £m | | --- | --- | --- | | Current tax (credit)/expense | (0.4) | 1.3 | | Deferred tax expense/ (credit) | 0.1 | (1.0) | | Total tax expense | (0.3) | 0.3 | 1 See note 14 to the financial statements. The impairment charges noted above, by reducing the taxable profits of prior periods, created available brought forward tax losses, which significantly reduced the effective tax rate and overall tax charge for FY23. As a result, there was a net tax credit of £0.3m (restated FY22: £0.3m expense) consisting of a £0.4m current tax credit and a £0.1m deferred tax charge. The £0.3m overall tax credit equated to an effective tax rate of (5.3%) (restated FY22: 1.9%). The average headline corporation tax rate for FY23 was 19.5%, as the rate changed from 19% to 25% IT months into the financial year (FY22: 19.0%). Deferred tax has been calculated at a rate of 25.0% in both periods. # Earnings per share The Adjusted basic EPS for the year was 16.5 pence (restated FY22: 26.0 pence). The Adjusted diluted EPS was 16.4 pence (restated FY22: 25.6 pence). The difference between the Adjusted basic and Adjusted diluted EPS figures is due to the exclusion from the diluted EPS calculation of outstanding potentially dilutive share options. # Capital expenditure | | FY23 £m | FY22 £m | Variance £m | | --- | --- | --- | --- | | New stores and relocations (net of landlord contributions to investment) | 1.1 | 0.5 | (0.6) | | Store refits, maintenance and lease renewal costs | 3.0 | 0.9 | (2.1) | | IT hardware and software | 2.4 | 1.4 | (1.0) | | Other | 0.2 | 0.2 | — | | Total capital expenditure | 6.7 | 3.0 | (3.7) | TheWorks.co.uk plc Annual Report and Accounts 2023 23 Strategy report Corporate governance Financial statements ## Financial review continued Capital expenditure continued Cash flow Capital expenditure in the Period was £6.7m (FY22: £3.0m): The table shows a summarised non-IFRS 16 presentation cash flow; The net cash outflow for the year was £6.1m (FY22: inflow of £15.5m). • New stores and relocations – the net investment in new stores and relocations increased by £0.6m compared with FY22. 14 FY FY Variance new stores were opened and 3 stores relocated to new units m m m (FY22: 5 new stores, 6 relocations). In FY23, approximately 50% of Cash flow pre-working the capital costs of opening the stores was funded by landlord capital movements 6.7 . (.) contributions, a lower proportion than in FY22 when most of the Net movement in investment was landlord funded. working capital (2.8) . (.) • Store refits, maintenance and lease renewal costs – 34 stores Net cash from investing were refitted in FY23 at a cost of £1.4m (FY22: 16 refits costing activities (6.5) (.) (.) £0.4m). Maintenance capex was £1.2m (FY22: £0.4m) and lease | renewal costs were £0.4m (FY22: £0.2m). | Tax paid (1.5) (.) (.) | | --- | --- | | • IT hardware and software – the largest item of expenditure was | Interest and | | the cost of configuring and testing the new store EPOS software | financing costs (0.7) (.) (.) | | prior to its implementation in stores during FY24. | Dividends (1.5) — (.) | | FY24 capex is expected to be approximately £7.0m. | Purchase of | treasury shares (0.5) — (.) Inventory Cash flow before Stock levels were £33.4m at the end of FY23 (FY22: 29.4m). loan movements (6.7) . (.) Provisions as % Repayment of of gross stock bank borrowings (4.0) (.) . FY FY Variance Variance FY FY m m m % % % Drawdown of bank borrowings 4.0 — . Gross stock . . (.) (.) Exchange rate Unrecognised movements 0.6 (.) . shrinkage provision (.) (.) (.) (.) . . Net increase in cash Obsolescence and cash equivalents (6.1) . (.) provision (.) (.) (.) (.) . . Opening net cash Total provisions (.) (.) (.) (.) . . balance excluding IAS  leases 16.3 . Net stock on hand . . (.) (.) Stock in transit . . (.) (.) Closing net cash balance excluding IAS  leases 10.2 . Stock per balance sheet . . (.) (.) As noted at the end of FY22, the cash balance at that time included favourable working capital timing differences which have Gross stock, £31.3m, increased by 5% compared with FY22. This is a unwound in FY23 and resulted in a negative movement in working lower percentage increase than the corresponding year-on-year capital during the Period. In most years, there would be expected increase in the cost of sales (10%) and it is due to an increase in the to be a broadly neutral or slightly positive movement in working average cost per unit of stock (due to mix as well as an increase capital. The other main year-on-year variable which affected the in overall cost prices), as the number of units in stock at the Period cash flow was the reduction in profit level compared with FY22. end declined year on year. Bank facilities and financial position Stock provisions decreased significantly, due to both volume The Group ended the Period in a strong financial position, with net and rate effects. positive bank balances of £10.2m (FY22: £16.3m). At the Period end • The provision for unrecognised shrinkage decreased due to the Group had liquidity availability of £40.0m, including its undrawn the introduction of full ‘4-wall’ stock counts in all stores between £30.0m bank facility. Christmas and the year end. As a result, the time elapsed Since the Period end, the Group has implemented a reduction between the date of the most recent store stock count and in the size of the facility, which was undrawn throughout most of the year end, which is one of the key variables affecting the FY23, to £20.0m, and simultaneously extended its term such that calculation, was significantly less than in the prior year, resulting it now expires on 30 November 2026 rather than 30 November in a lower provision. The other key variable, the underlying 2025. The reduction in the facility will save approximately £0.15m weekly rate of store stock loss, was not materially different in annual cash interest costs, and the smaller facility continues to to the rate in FY22. provide liquidity availability significantly in excess of the actual • There was a further reduction in the stock obsolescence provision anticipated requirement. (it was £1.8m at the end of FY21), due to continued improvements in the management of terminal and slow moving stocks. TheWorks.co.uk plc Annual Report and Accounts 202324 ## Basis of preparation of the financial statements The Directors believe that it is appropriate to prepare the financial statements on a going concern basis. We note for completeness that, despite the Directors' confidence in the Group's financial position and prospects, note 1(b) of the financial statements includes reference to a 'material uncertainty' in relation to the adoption of the going concern basis of preparation of the financial statements. The reasons for this are explained in the note. ## Capital distributions and FY23 final dividend recommendation Following a strong performance in FY22, the Group paid a final dividend of 2.4 pence per share in respect of that year, in November 2022. The FY22 Annual Report stated that future payment levels will be reviewed based on conditions at the time, with the Group confirming its intention to resume a progressive dividend policy in due course once conditions stabilise. The business has an ongoing copex requirement (including discretionary copex) approximately in line with its non-IFRS 16 depreciation charge and generates strong cash flows. However, in setting the capital distribution policy, the Board is mindful of the principal risks that the Group faces, as outlined within this Annual Report. At present, two of these risks, in relation to macroeconomic conditions and the execution of the Group's strategy, are at increased levels. In these circumstances, we will operate with a capital structure and capital distribution approach that ensures the business remains financially resilient, whilst making appropriate returns to shareholders. Our objective is to ensure that, under normal circumstances, ordinary dividends (in pence per share) are 2.5x covered by Adjusted EPS. We do not believe that normal circumstances apply in the context of setting the FY23 dividend, as outlined below. ## FY23 dividend As noted previously in the report, the Board hopes that FY23's EBITDA was a low point and that it will increase progressively in future. During the period in which the business works to rebuild its levels of profit, a compromise is sought, between maintaining a reasonable dividend for shareholders, whilst ensuring that the Group continues to maintain its cash reserves. We believe that in FY23, the effects of: - impairment charges (including the effect of prior year adjustments on earlier periods) - IFRS 16; and - an unusually low tax charge, have resulted in an Adjusted EPS which is inconsistent with our perception of the underlying profitability as represented by the Adjusted pre IFRS 16 EBITDA. Using EBITDA as an alternative reference point for illustration, if the FY23 dividend was set by pro rating using the ratio of the FY23 EBITDA (£9.0m) to the FY22 EBITDA (£16.6m), it would be 1.3 pence per share. Taking into account the foregoing and, in seeking to achieve a reasonable compromise between returns to shareholders and prudence, the Board will propose at the forthcoming AGM a final dividend for FY23 of 1.6 pence per share (amounting to a £1.0m total payment). Although this is a smaller dividend than was paid in relation to FY22, we believe that it is in keeping with FY23's performance (for example, the EBITDA did not meet the threshold for payment of executive bonuses). However, it does not reflect a reduction in the Board's belief in the future prospects of the business, in which it remains confident. ## Indicative outlook for FY24 dividend As previously noted, the Company compiled estimate of the market's forecast for FY24 is an EBITDA of approximately £10.0m. If the actual result for FY24 transpires to be in line with this forecast, it is anticipated that the total dividend for FY24 would grow approximately in proportion with the EBITDA. Assuming that the effects of non-cash accounting variables such as IFRS 16, and tax, are more neutral in FY24, we would expect that the resulting cover from this approach would be more in line with the 2.5x objective outlined above. ## Other forms of distribution It is anticipated that distributions will be made solely via ordinary dividends for the foreseeable future. In the event that performance improves at a faster rate than anticipated, and that this is sustained, or that for some other reason the Group accumulates cash reserves which it deems surplus to requirements for operation and investment purposes, and for which it can envisage no requirement to maintain on the balance sheet, other forms of distribution will be considered, such as share buy backs. Decisions as to the quantum and frequency of such alternative distributions would be made at the time, in light of the specific circumstances. ## Share buybacks for the purposes of share schemes To avoid dilution of existing shareholder interests, the Board's intention is for the Group to purchase shares in the market for re-issue under employee share schemes. Steve Alldridge Chief Financial Officer 30 August 2023 Corporate Governance Financial Information TheWorks.co.uk plc Annual Report and Accounts 2023 25 ## Our stakeholders ## To succeed it is essential ## that we engage with ## our stakeholders ### Our stakeholders and how ### Our people Our customers Our suppliers Communities Shareholders ### we engage with them are Enable us to fulfil our purpose Buy our products. Support our sourcing and Impacted by our activities. Seek returns on their investment. ### detailed on this and the and deliver our strategy. distribution activities. ### adjacent page. To succeed ### it is essential that we What matters to them ### understand what matters • Safe, healthy and good working environment. • Wide variety of great products. • Long-term relationships. • Employment opportunities. • Competent execution of strategy. ### to them and consider this • Fair rewards. • Good value and quality. • Fair treatment. • Positive social impact. • Good governance. ### information as part of our • Enjoyable work. • Customer experience. • Payment in accordance with • Sustainable operations. • Sustainable and growing returns. ### decision-making process. contractual terms. | | • Being part of a company that has a clear | • Reliable and convenient service. | | • Regular clear and understandable | | --- | --- | --- | --- | --- | | Our Section 172 Companies | purpose and values that resonate. | | • Responsible business practices. | communications and transparency. | | Act statement is set out | • Engagement and support. | | | • ESG performance. | | over the page. | • Development opportunities. | | | | Group-wide engagement | • Interaction through various channels | • Active social media engagement. | • Regular commercial dialogue. | • ‘Giving Something Back’ programme | • Easily accessible investor information, | | --- | --- | --- | --- | --- | | including the recently launched MyWorks | | | (see page 35). | including announcements, results | | | • ‘Together’ loyalty programme. | • In-person meetings with suppliers, | | | | communications and engagement platform | | | | and presentations, is available on | | | | factory visits and attendance at | • Local community initiatives (see page 35). | | • Customer surveys. (see page 32) and regular briefings. the Company’s website. trade fairs. • Day-to-day interactions between • Annual engagement survey to give us an • Our quality assurance team works customers and store colleagues. independent view of what we are doing closely with suppliers to ensure product well and where we can improve. safety and quality control. • Local-level engagement including team meetings, video calls and briefings. Board-level engagement • Regular Director store visits and meetings with • Regular Director store visits including • Commercial Director provides regular • Board oversees development of ESG • Annual General Meeting. senior management and store colleagues. direct engagement with customers. updates to the Board on supplier strategy and monitors progress. • The Chair and Committee Chairs are matters and relationships. • Presentation to the Board by the People • Commercial Director, Retail Director • ESG steering group regularly updates available to shareholders to discuss specific Director covering people and talent strategy and Head of Brand regularly provide • The Board and Audit Committee review the Board on relevant ESG matters. matters as they arise. and its linkage to the Group’s purpose, culture customer feedback to the Board. the Group’s payment practices. • Board in-depth review of the Group’s • CEO and CFO participate in meetings and strategy. | | • In October 2022 the Board visited | community engagement activities. | and calls with investors and analysts | | --- | --- | --- | --- | | • People Director regularly provides updates | our ecommerce logistics supplier | | and provide regular Board updates | | at Board, and Nomination and Remuneration | (see page 59). | | following such engagement. | Committee meetings. Outcomes | • Awarded two-star rating (with three stars | • Monitor emerging trends and | • Board review of payment practices | • Strengthening ESG strategy given growing | • Dividend payment, subject to | | --- | --- | --- | --- | --- | | being the highest rating) in the 2022 Best | create products that customers | ensures that suppliers are treated fairly. | importance to stakeholders (see pages | shareholder approval, and progressive | | Companies survey for outstanding levels | want and need. | | 29 to 35). | dividend policy. | • Promote fair and ethical business of engagement and ranked 12th Best Big • Continued growth in LFL sales. practices through supply chain • £172k raised in partnership with Cancer • Strengthening ESG strategy given Company to Work for (see pages 32 and 33). management (see page 35). Research UK during FY23 (see page 35). growing importance to stakeholders. • Increased loyalty membership. • Many long-term supplier relationships. • £94k raised in partnership with Mind, SAMH and Inspire during FY23 (see page 35). • Increasing collaboration with key publishers. Read more on pages 32 and 33 Read more on page 9 Read more on page 5 Read more on page 35 Read more on page 3 TheWorks.co.uk plc Annual Report and Accounts 202326 ### Our people Our customers Our suppliers Communities Shareholders Enable us to fulfil our purpose Buy our products. Support our sourcing and Impacted by our activities. Seek returns on their investment. and deliver our strategy. distribution activities. What matters to them • Safe, healthy and good working environment. • Wide variety of great products. • Long-term relationships. • Employment opportunities. • Competent execution of strategy. Financial statementsCorporate governanceStrategic report • Fair rewards. • Good value and quality. • Fair treatment. • Positive social impact. • Good governance. • Enjoyable work. • Customer experience. • Payment in accordance with • Sustainable operations. • Sustainable and growing returns. contractual terms. • Being part of a company that has a clear • Reliable and convenient service. • Regular clear and understandable purpose and values that resonate. • Responsible business practices. communications and transparency. • Engagement and support. • ESG performance. • Development opportunities. Group-wide engagement | • Interaction through various channels | • Active social media engagement. | • Regular commercial dialogue. | • ‘Giving Something Back’ programme | • Easily accessible investor information, | | --- | --- | --- | --- | --- | | including the recently launched MyWorks | | | (see page 35). | including announcements, results | | | • ‘Together’ loyalty programme. | • In-person meetings with suppliers, | | | | communications and engagement platform | | | | and presentations, is available on | | | | factory visits and attendance at | • Local community initiatives (see page 35). | | • Customer surveys. (see page 32) and regular briefings. the Company’s website. trade fairs. • Day-to-day interactions between • Annual engagement survey to give us an • Our quality assurance team works customers and store colleagues. independent view of what we are doing closely with suppliers to ensure product well and where we can improve. safety and quality control. • Local-level engagement including team meetings, video calls and briefings. Board-level engagement • Regular Director store visits and meetings with • Regular Director store visits including • Commercial Director provides regular • Board oversees development of ESG • Annual General Meeting. senior management and store colleagues. direct engagement with customers. updates to the Board on supplier strategy and monitors progress. • The Chair and Committee Chairs are matters and relationships. • Presentation to the Board by the People • Commercial Director, Retail Director • ESG steering group regularly updates available to shareholders to discuss specific Director covering people and talent strategy and Head of Brand regularly provide • The Board and Audit Committee review the Board on relevant ESG matters. matters as they arise. and its linkage to the Group’s purpose, culture customer feedback to the Board. the Group’s payment practices. • Board in-depth review of the Group’s • CEO and CFO participate in meetings and strategy. | | • In October 2022 the Board visited | community engagement activities. | and calls with investors and analysts | | --- | --- | --- | --- | | • People Director regularly provides updates | our ecommerce logistics supplier | | and provide regular Board updates | | at Board, and Nomination and Remuneration | (see page 59). | | following such engagement. | Committee meetings. Outcomes | • Awarded two-star rating (with three stars | • Monitor emerging trends and | • Board review of payment practices | • Strengthening ESG strategy given growing | • Dividend payment, subject to | | --- | --- | --- | --- | --- | | being the highest rating) in the 2022 Best | create products that customers | ensures that suppliers are treated fairly. | importance to stakeholders (see pages | shareholder approval, and progressive | | Companies survey for outstanding levels | want and need. | | 29 to 35). | dividend policy. | • Promote fair and ethical business of engagement and ranked 12th Best Big • Continued growth in LFL sales. practices through supply chain • £172k raised in partnership with Cancer • Strengthening ESG strategy given Company to Work for (see pages 32 and 33). management (see page 35). Research UK during FY23 (see page 35). growing importance to stakeholders. • Increased loyalty membership. • Many long-term supplier relationships. • £94k raised in partnership with Mind, SAMH and Inspire during FY23 (see page 35). • Increasing collaboration with key publishers. Read more on pages 32 and 33 Read more on page 9 Read more on page 5 Read more on page 35 Read more on page 3 TheWorks.co.uk plc Annual Report and Accounts 2023 27 Section 172 statement # Promoting the Company's long-term success This disclosure forms the Directors' statement under Section 414C2A of the Companies Act 2006. The Directors have had regard to the matters set out in Section 172(1)(a) to (f) of the Companies Act 2006 in their decision-making processes. Both individually and collectively, the Directors believe that they have acted in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole (having regard to the stakeholders and matters set out in Section 172(1)(a) to (f) of the Companies Act 2006) in all decisions taken by the Board during the 52-week period ended 30 April 2023 (FY23). Under Section 172(1) of the Companies Act 2006, a director of a company must act in the way he or she considers, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to: - The likely consequence of any decision in the long term. - The interests of the Company's employees. - The need to foster the Company's business relationships with suppliers, customers and others. - The impact of the Company's operations on the community and the environment. - The desirability of the Company maintaining a reputation for high standards of business conduct. - The need to act fairly as between members of the Company. ## Approval of carbon net zero targets In April 2023 the Board approved the carbon reduction targets detailed on page 14. As part of the approval process the Board considered the Group's role and the responsibility it has to contribute to a sustainable economy, where the long term of benefit of stakeholders including employees, customers and the communities within which it operates. The Board also has this account of particular increasing costs on 1.32 million when making investment decisions and ground earnings from customers to engage with businesses that operate in a sustainable way. The Board noted that achievement of the Group's target was themselves as the Group's best of 1.94% and has given participation in a sustainability assessment process. While maintaining that this concern may not be perceived by all suppliers, the Board considered it only was in the best short term interests of the Group's other stakeholders and that the environmental benefits outweighed any short-term potential of inconvenience. ![img-6.jpeg](img-6.jpeg) 28 TheWorks.co.uk plc Annual Report and Accounts 2023 ## ESG review ## Creating a sustainable economy and transitioning to ## net zero is the challenge of our times. The responsibility ## rests collectively with governments, businesses and the ## general public. As a retail business we recognise our role ## in this effort, as well as our responsibility to be socially ## conscious and maintain high standards of governance. We are committed to ‘Doing Business Better’. We are making In 2023 we hired a full-time Sustainability Manager and launched Financial statementsCorporate governanceStrategic report positive and sustainable changes for our people, our communities our ESG ‘action groups’ - cross-functional groups dedicated to the and our planet that will enable us to continue inspiring reading, implementation and monitoring of work across our ESG strategy. learning, creativity and play – for generations to come. In evolving our ESG strategy we are building on well-established Our approach and effective processes that underpin our social and governance We are continuing to evolve our overall ESG strategy which is responsibilities and obligations. As required we engage specialist focused on the areas outlined in the graphic below. third-party consultants to support our work in these key areas. In 2021 we launched our ESG steering group. Its role is to ensure In relation to the development of our environmental strategy, we operate responsibly in line with our purpose and values, and including building roadmaps and setting targets to achieve to monitor our ESG agenda. It is chaired by our CEO, includes net zero, and to ensure we adhere to all relevant reporting members of our Operations Board, and meets on a quarterly basis. requirements including TCFD and SECR (see pages 36 to 48), we are The ESG steering group and Operations Board provide regular continuing to work with a specialist third-party ESG consultancy. updates to the Board on the development and implementation of the Group’s sustainability strategy. ### Our ESG pillars ### Environment Social Governance • Carbon emissions • Our people • Operating responsibly • Products and packaging • Health, safety and wellbeing • Supply chain management • Waste and recycling • Diversity and inclusion • Giving something back Read more on pages 30 to 31 Read more on pages 32 to 34 Read more on page 35 TheWorks.co.uk plc Annual Report and Accounts 2023 29 ## ESG review continued ### Environment ## Reducing our ## environmental impact ### We care about our impact on the planet and we are committed to ### reducing our carbon footprint, minimising waste, and sourcing more ### environmentally friendly materials and products where possible. Our targets and ambitions ### During the year we set the carbon emission reduction targets Longer-term ambitions detailed below. Our Scope 1 and Scope 2 targets, together with our ### • Minimise our packaging, increase the use Scope 3 ambition, align with the British Retail Consortium’s climate ### action roadmap. In developing these targets we completed our of recycled materials in our packaging and ### first Scope 1, 2 and 3 carbon balance sheet using predominantly a products, and switch to more environmentally ### spend-based approach. Over the next few years we will focus on friendly product materials and packaging moving towards a supplier-based approach. ### where possible. ### • Ensure that 100% of paper in our books, and 1 ### Carbon net-zero targets arts and crafts ranges are Forest Stewardship ### Council (FSC) certified. ### Scope 1 – Scope 2 – Scope 3 – ### • Offer take-back schemes on our key product ### Net zero by Net zero by Net zero by ### ranges, such as books, toys and games, to help ### 2 ## 2035 2030 2045 our customers minimise their waste and extend ### the life of our products. 1 We aspire to achieve our net-zero targets through a 90% absolute ### • Offer recycling services for our products reduction in our emissions and by offsetting the remaining 10%. Our ### and packaging which are not accepted targets have been established using a market-based methodology and ### our FY22 carbon emissions performance is the baseline against which we by household recycling facilities. will measure our absolute reductions. 2 With an ambition to achieve net zero by 2040. In addition to our carbon net-zero targets, we have set longer-term To assess and monitor the delivery of our longer-term ambitions ambitions (see adjacent panel) to reduce the impact our products, we set annual targets. Our FY24 targets are detailed on the packaging and waste have on the environment. following page. TheWorks.co.uk plc Annual Report and Accounts 202330 # Carbon emission reduction performance We have been calculating our Scope 1 and 2 carbon emissions, in line with the Streamlined Energy and Carbon Reporting (SECR) initiative, since 2019. During FY23, for the first time, we calculated our FY22 Scope 3 carbon emissions (see page 46). # Scope 1 and 2 Our carbon emissions across Scope 1, 2 and Scope 3 (grey fleet) decreased by 3.6%. The majority of this decrease resulted from an improved emissions factor as a result of the continued decarbonisation of the UK grid. Scope 1 emissions decreased slightly due to an improvement in our data collection, resulting in some company car emissions transferring from Scope 1 to Scope 3 (grey fleet). This transference also explains why our Scope 3 emissions have increased slightly. Our carbon emission performance during FY23 is detailed on page 46. During the year we have continued to implement changes to improve our energy efficiency. In particular, we have continued to install LED lighting in our stores and, as at year end, 67% of our store estate now operates with LED lighting. We also began undertaking Energy Savings Opportunity Scheme site surveys to identify energy efficiency opportunities. The findings of these surveys have informed our Scope 1 and 2 net-zero roadmaps. In the coming year we will: - Continue to roll out LED lighting across our store estate. - Establish a new and remodelled store energy efficiency policy. - Develop an energy efficiency behaviour change programme for our colleagues across stores, our Distribution Centre and our Support Centre. - Engage with our landlords to identify and implement energy efficiency opportunities across our store estate. # Scope 3 To support the delivery of our Scope 3 net-zero target, in the coming year all our suppliers will be asked to complete a sustainability self-assessment. As part of this assessment they will be asked to provide details of the steps they are taking to reduce their environmental footprint and information about the targets they have set to measure and monitor progress. This aligns with the Supplier Engagement Scope 3 approach adopted by many retailers. # Products and packaging We are committed to reducing our product packaging and we are already implementing changes that will help us achieve our longer-term ambitions detailed above. As we refresh our product lines we will also introduce more environmentally friendly products. We are already making good progress and during the year we: - Removed the shrink wrap on our own brand kids' jigsaw puzzles. - Removed the plastic cover on the majority of our diaries and calendars. - Removed the swing tag on our Christmas gift bags and replaced with a small price label instead. - Reworked the packaging on our Christmas gift tags, bags and roll wrap to reduce the amount of packaging required. - Reworked the packaging on our kids' arts and crafts range to reduce the amount of packaging required. - Continued to ensure no blister packs are used in our craft ranges. - Added a QR code to our Prima range box sets which give customers ideas on how to upcycle their packaging. We are also moving away from plastic packaging, and switching to paper alternatives where possible. All our Christmas ribbons are now packaged in paper backing card instead of plastic and our Christmas gift tags are now packaged in new open window paper sleeve packaging, replacing the previously used polybags. Our novelty squatgy toys (bolts) are now packaged in plastic-free boxes and we have introduced paper packaging across all of our stationery and outdoor toy ranges. We are increasing the amount of recycled content in our product ranges and packaging. All yarn in our Prima range is now made from 100% recycled materials and our best-selling 'Dexter four Own Christmas' bag and stockings are now made from 100% recycled bottles. Where polybags and other forms of plastic packaging are still required across our craft, paper, stationery, Christmas, Easter, toys and PlayWorks ranges, they are predominantly made from 30% recycled content. We are switching to FSC-certified paper packaging across all of our product ranges where possible, with many ranges now at 100% FSC certified. We are also sourcing strategically to increase the amount of responsibly sourced paper in our books, with four of our main suppliers using between 92-100% FSC-certified or PREPS 3® paper in their manufacturing processes. 100% of the wooden SKUs in our Christmas craft ranges are now FSC certified. # FY24 product and packaging targets In the coming year we will: - Remove all glitter from our Christmas cards. - Remove the plastic shrink wrap from our own brand Christmas wrapping paper and replace with a paper alternative. - Ensure that all our wooden toys are manufactured with traceable timber. - Continue to reduce packaging size and increase its recycled content, with the goal of ensuring the packaging in our own brand craft ranges and our Prima range is 100% recycled content. - Increase the amount of books that are FSC certified from 45% in FY23 to 60% by the end of FY24. - Introduce a recycled product range within our craft embellishments collection. # Waste recycling We are committed to reducing the level of waste our business generates and to maximising the proportion that is recycled. Our colleagues share this commitment. To reduce waste and increase recycled materials we have continued to educate our teams to maximise the level of waste that can be recycled, minimise store waste sent to landfill and reduce the number of waste collections. We operate recycling facilities at all store locations capable of recycling mixed papers, cardboard which constitutes a very large proportion of store waste and mixed plastics including HDPE, PET and PP. Our Support and Distribution Centres in Coleshill, Birmingham, also operate a recycling programme to ensure all mixed film plastics and cardboard materials are based on site and removed for recycling. # FY24 waste recycling targets In the year ahead we will work to continue to identify further opportunities to increase our recycling rates across our stores, Distribution Centre and Support Centre and explore opportunities for in-store customer product takeback/donation or recycling schemes. In particular we will: - Provide educational resources to our store, Distribution Centre and Support Centre colleagues to help maximise recycling and reduce contamination. - Place additional recycling bins in back of house areas and behind tills to increase our recycling rates. TheWorks.co.uk plc Annual Report and Accounts 2023 31 Business report 2023 Financial statements ## ESG review continued ### Social ## Making a positive ## social contribution ### Our objective is to make a positive contribution to our ### people, our customers and the communities where ### we operate. ## c.4,000 colleagues Culture and feedback Our values, together with our purpose, shape our culture. The sense of family that comes from working in our business and the variety and fun that a career in retail can provide are what our culture is based on. We believe more than ever that we are creating something special that our colleagues (and future colleagues) want to be part of, despite being in a competitive and ever- challenging environment. We stand out, for all the right reasons. We continuously listen to colleagues across the Group and encourage a two-way conversation around how best we can improve and support them. The various channels we use are described on page 33. People In August 2022 we launched a new communications and At the end of FY23 we employed 3,968 permanent colleagues. engagement platform MyWorks (powered by Reward Gateway). During our 2022 Christmas peak trading period we took on nearly This interactive platform provides our colleagues with: 500 temporary seasonal colleagues and we are delighted that we have been able to make over 50% of our temporary colleagues • Company news and business updates. permanent members of our team. • Information on Company benefits. In a challenging and competitive retail environment, our colleagues • Updates about new charitable initiatives. are fundamental to the delivery of great customer experience. • Access to discounts and savings from hundreds of retailers They are what makes The Works so special. In order to succeed and services. we need to attract and retain good people and our culture is • Access to resources on physical, mental and financial wellbeing key to that. through our MyWellbeing Hub. ### Our values Crafty: for us, it’s about our ability to be We care about each other as one team. Being can-do means focusing on what creative and agile; we are able to adapt We care about our customers and matters and getting it done. Whatever to change and be smart about what we communities, our products and every penny the situation, we rise to it because of the do, with the resources we have. It’s what we spend. Caring about the things we do is can-do spirit and resilience we all share. makes us unique. at the heart of our work ethic. TheWorks.co.uk plc Annual Report and Accounts 202332 On an annual basis we invite our colleagues to participate in the We take a proactive approach in relation to all H&S matters and Best Companies ‘Make a Difference’ engagement survey. This our aim is to continuously improve our H&S performance. To drive well-recognised third-party survey covers a number of areas continuous improvement we operate a web-based portal and including Leadership, My Manager, Personal Growth, Wellbeing, online reporting system which allows all stores to immediately Fair Deal and Giving Something Back. Colleagues also have the record accidents, incidents and near misses. This real-time opportunity to leave open comments on what is great about data and visibility across our entire store estate helps us better working at The Works and what could be better. 76% of our team understand risks and identify the most effective mitigation. Our completed the 2022 full survey and we were awarded a two-star store managers all use streamlined H&S checklists that focus rating (with three stars being the highest rating) in recognition of on things they need to monitor daily during regular floor walks, outstanding workplace engagement. including identifying potential hazards and ensuring fire escape routes are always kept clear. The survey provided us with valuable insights about our culture and the issues that matter to our colleagues. Key findings from Wellbeing the survey this year included: Supporting our colleagues from a wellbeing perspective is a key part of our people strategy and our ESG commitments. We • 82% of colleagues feel a strong sense of family in their team recognise the difficulty that financial pressures can have on our and 81% fed back that people in their team go out of their way colleagues’ overall wellbeing and this year, in response to the to help them. cost-of-living crisis, we launched Wagestream, an app that offers • 88% of colleagues believe their team is fun to work with. a range of financial wellbeing tools, including the ability to draw • 79% of colleagues say their manager takes an active interest down salary through the month as it is earned rather than waiting in their wellbeing and 79% recognise that help is available to until pay day and set up savings accounts. MyWorks, our new Financial statementsCorporate governanceStrategic report support their mental wellbeing. communications and engagement platform (see page 32), also • 85% of colleagues said we encourage charitable activities. provides information on physical, mental and financial wellbeing as well as access to discounts and savings. To continue the momentum and address areas where improvements are required we are: We also provide an Employee Assistance Programme for all colleagues through our partnership with Retail Trust • Launching a Reward & Recognition programme to positively (www.retailtrust.org.uk), a long-established charity, whose mission reinforce our values, celebrate success and provide financial is ‘to create hope, health and happiness’ for everyone in the retail incentives linked to our purpose and values. sector. To date with the support of Retail Trust over 50 of our • Evolving our store team structures to reduce levels of hierarchy, senior leaders have participated in training in relation to mental improve flexibility and upskill colleagues. The new structures will health and wellbeing management and in the coming year we also create opportunities for more responsibility and higher pay. are aiming to provide even more line managers with training in this • Sharing our progress on our environmental and important area. In January 2023, via our e-learning platform, we sustainability activity. also launched three new Retail Trust mental wellbeing modules: ‘Wellbeing for Everyone’; ‘Supporting Yourself and Others’; and • Continuing to embed our partnership with the Retail Trust and ‘Mental Health & Wellbeing – A Manager’s Toolkit’. To date over upskilling colleagues on wellbeing. 900 colleagues have completed these modules. Health and safety To further support colleagues we introduced 50 Wellbeing The health and safety (H&S) of all our colleagues and everyone who Warriors across the business. These colleagues are specifically visits our stores or any of our operations is of paramount importance. trained to support the mental wellbeing of their peers, act as an We deploy a number of H&S policies including our main Health and impartial, confidential, listening ear and provide unbiased support Safety Policy, and H&S processes are embedded in our day-to-day to colleagues. In particular, as required, they help colleagues operations. As part of their induction, all colleagues participate build confidence to seek advice from professionals and provide in H&S training appropriate to their role and annual refresher H&S information about how to find relevant specialist support. training is mandatory for all employees. Our H&S Manager and Diversity and inclusion (D&I) People team liaise with line managers in all parts of the business to We value every one of our colleagues for their skills and experience ensure compliance with policies and procedures and ensure that and the unique contribution they offer, irrespective of their personal all colleagues receive appropriate training. characteristics. We are committed to creating an inclusive We operate a dedicated H&S Committee which meets on a environment where everyone belongs and can thrive and recognise quarterly basis. Its members include representatives from all parts the many benefits that diversity of experiences, cultures and of our operations and our H&S Manager. The overriding objective perspectives bring. of decisions taken at these meetings is to make our stores and During FY23 we partnered with an external D&I consultant to all our operations safe places to work and visit. Material issues develop our D&I strategy. Based on the findings of an employee arising from the H&S Committee’s discussions are escalated to survey and a review of our existing policies and practices we have senior management and the Board receives regular reports on developed a roadmap to create an inclusive workplace across all H&S matters. levels of our workforce. Our key priorities are to: During FY23 there were no fatalities (FY22: nil) and eight reportable • Further improve our understanding of D&I across our business. accidents (FY22: 13). Seven of these accidents occurred in our stores and one occurred in our Distribution Centre. All accidents were • Improve D&I training and enhance awareness. thoroughly investigated. • Review our internal processes to ensure barriers to inclusion are removed. • Ensure everyone at The Works is accountable for their role in creating an inclusive workplace. TheWorks.co.uk plc Annual Report and Accounts 2023 33 ## ESG review continued ### Social continued Diversity and inclusion (D&I) continued 3 Direct reports to senior management (the Operations Board). To help us deliver our D&I strategy and our wellbeing strategy, 4 Senior leadership includes heads of department or equivalent. we are recruiting a Diversity, Inclusion & Wellbeing Manager. 5 Other employees includes all other colleagues who are We are a signatory to the British Retail Consortium Better Jobs permanent employees. Diversity and Inclusion Charter, which aims to improve D&I across Development and retention the retail industry and help drive change, and partake in its surveys Our colleagues are the heart of our business and we work hard and insights sessions. to retain them and provide development opportunities. Our 2022 Gender Pay Gap Report is available at https://corporate. In September 2022 we launched the Can-Do Academy, our new theworks.co.uk/who-we-are/corporate-governance/our-policies. learning and development system that provides all colleagues with As at 5 April 2022, when measured as a median average, male online learning covering compliance, management and leadership colleagues were paid 2.9% more and when measured as a mean skills training. The Academy has been very well received and every average the hourly rate of pay for male colleagues was 12.1% higher colleague across the Group has interacted with the system. Building than female colleagues. This is because we have more men than on this platform we will continue to expand our accessible tailored women in senior leadership roles, a position we are working to training to support our colleagues’ personal growth and development. address through the implementation of our D&I strategy. Our retail developmental programme ‘I can be...’ enables colleagues The gender diversity profile across the Group as at 30 April 2023 to discuss their career aspirations with their line manager and train is detailed below. accordingly, making good on our promise to upskill colleagues Male Female ready for the next step in their career. The programme also helps  us create and maintain a strong talent pipeline. Board /% /%  Operations Board /% /%  Direct reports /.% /.%  Senior leadership /% /%  Other employees ,/% ,/% 1 The Board (see pages 60 and 61) includes three Non-Executive Directors and two Executive Directors. 2 Information about the members of the Operations Board, which includes the two Executive Directors, is available at https://corporate.theworks.co.uk/who-we-are/our-leadership. As at the date of this Annual Report the gender diversity profile of the Operations Board was 6/86% male and 1/14% female. TheWorks.co.uk plc Annual Report and Accounts 202334 ### Governance ## Operating in ## a responsible way ### We must maintain high standards of governance and operate ### in a responsible way. It is the right thing to do. It is also essential ### to maintain our reputation and protect our brand. Our performance and development framework, which was Supply chain management launched in June 2022, continues to support our ambition to grow We have developed an Ethical Trading Code of Conduct (Code and develop our own talent and during the year we were pleased of Conduct) for our partners, manufacturers and suppliers, to to be able to promote 10% of our colleagues. ensure that when our customers buy from us, they can be satisfied that the goods have been produced without exploitation and in Giving something back acceptable and sustainable working conditions. Making a difference to society is not only a part of our ESG responsibilities, but also part of our culture. We are proud to work Our Code of Conduct clearly outlines our social and ethical Financial statementsCorporate governanceStrategic report with national charity partners, and local causes, to give back in requirements, which include but are not limited to: prevention of the communities which we serve. child and forced labour, safety standards, health and hygiene, anti-discrimination and coercion, working hours and wages Following seven years of successful partnership with Cancer Research and other fundamental human rights. UK (CRUK) we have made the decision to partner with a new charity aligned with our purpose. We are delighted to announce the launch In order to ensure that our suppliers meet the social and ethical of our corporate and charity fundraising partnership with the National standards we expect, we implement the following arrangements: Literacy Trust (NLT), an independent charity working with schools • We require all suppliers to sign our Terms and Conditions of and communities to give disadvantaged children the literacy skills to Purchase which state the supplier has read and understood and succeed in life. We will work closely with the NLT to improve accessibility, conforms to our Code of Conduct. These Terms and Conditions and awareness of the importance, of literacy for all, helping us fulfil our of Purchase must be signed before we will place orders. purpose of inspiring reading, learning, creativity and play. • We share our supplier manual with our suppliers to educate them We continue to partner with Mind, SAMH and Inspire and are about our operating requirements. We also give clear points of committed to optimising strategic opportunities to make a real contact to ensure queries reach the appropriate person and difference by fundraising and supporting campaigns to raise are dealt with quickly and effectively, with support from relevant awareness of the importance of wellbeing. functions including merchandising, technical and buying. In the coming year we will launch our first complete, commercial • In partnership with TUV Rheinland, an independent specialist charity range that will support all of our national partners. We in social responsibility auditing, we have developed a bespoke will also introduce our ‘local causes programme’, supporting supplier factory audit programme. Incorporated within this local causes is already very popular in our stores, introducing this programme are questions covering the prevention of modern programme will ensure we are providing our colleagues with the slavery, forced labour and child labour and other fundamental tools to fundraise for causes they are passionate about. human rights, which are detailed within our Code of Conduct. Suppliers are encouraged to declare their business relationships We continue to offer two schemes that enable colleagues to make with individual factories that produce for us, which provides us monthly charitable donations from their net pay. Through Payroll with a view of how sustainable our supply chain is. Our audit Giving in Action colleagues can donate any amount to any charity, programme (which also incorporates a section on supplier while the Pennies from Heaven scheme enables colleagues to capability and their QA functions) also provides ethical donate the pennies from their payslips to our charity partners. visibility of suppliers and an understanding of their production FY impact To date impact capabilities. National partnership .m since • We also conduct independent product testing as part of Cancer Research UK (CRUK) k August  our product surveillance test programme. National partnership k since If a factory fails to reach an acceptable standard or there is Mind, SAMH and Inspire k May  any evidence of child labour or forced labour as described in the modern slavery legislation, the factory will be delisted and We care about good ethical business practices and are fully all orders will be cancelled. committed to conducting business fairly, ethically and with respect to fundamental human rights. This includes the prevention of all forms of slavery, forced labour or servitude, child labour and human trafficking, both in our business and supply chains. Our Modern Slavery Statement is available at www.corporate.theworks.co.uk/ who-we-are/corporate-governance/our-policies. TheWorks.co.uk plc Annual Report and Accounts 2023 35 ## Task Force on Climate-Related Financial Disclosures (TCFD) ## TCFD statement ### We have followed the Task Force on Climate-related Financial Disclosures (TCFD) framework and are ### committed to providing information about climate-related risks and opportunities that are relevant to ### our business. We are evolving our strategy and governance framework, to take account of these risks and opportunities. We have complied with the requirements of LR 9.8.6R by including climate-related financial disclosures consistent with all of the TCFD recommendations and disclosures. In aligning with the TCFD we have also complied with the BEIS mandatory climate-related financial disclosure requirements under the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022, details of which can be found below. TCFD recommendation BEIS disclosure Page Governance a) Describe the Board’s oversight of climate-related (a) A description of the governance arrangements of the Company 37 risks and opportunities. in relation to assessing and managing climate-related risks and opportunities. b) Describe management’s role in assessing and 37 managing climate-related risks and opportunities. Strategy a) Describe the climate-related risks and (d) A description of: 37 to 44 opportunities identified over the short, (i) T he principal climate-related risks and opportunities arising medium and long term. in connection with the operations of the Company. (ii) The time periods by reference to which those risks and opportunities are assessed. b) Describe the impact of climate-related risks (e) A description of the actual and potential impacts of 44 | and opportunities on business, strategy and | | the principal climate-related risks and opportunities on | | | --- | --- | --- | --- | | financial planning. | | the business model and strategy of the Company. | | | c) Describe the resilience of the strategy, taking | (f) An analysis of the resilience of the business model and | | 44 and 45 | | into consideration different climate-related | | strategy of the Company, taking into consideration of | | | scenarios, including a 2°C or lower scenario. | | different climate-related scenarios. | | Risk management | a) Describe the processes for identifying and assessing | (b) A description of how the Company identifies, assesses, | | 45 | | --- | --- | --- | --- | | climate-related risks. | | and manages climate related risks and opportunities. | | | b) Describe the processes for managing | | | 45 | climate-related risks. c) Describe how processes for identifying, assessing, (c) A description of how processes for identifying, assessing, 45 and managing climate-related risks are integrated and managing climate-related risks are integrated into the into overall risk management. overall risk management process in the Company. Metrics and targets a) Disclose the metrics used to assess (h) The key performance indicators used to assess progress 45 and 46 climate-related risks and opportunities in line against targets used to manage climate-related risks and with the strategy and risk management process. realise climate-related opportunities and a description of the calculations on which those key performance indicators b) Disclose Scope 1, Scope 2, and, if appropriate, are based. 46 Scope 3 greenhouse gas (GHG) emissions, and related risks. | c) Describe the targets used to manage | (g) A description of the targets used by the Company to | | 46 | | --- | --- | --- | --- | | climate-related risks and opportunities and | | manage climate-related risks and to realise climate-related | | | performance against targets. | | opportunities and of performance against those targets. | | TheWorks.co.uk plc Annual Report and Accounts 202336 ### Overview Management’s role in assessing and managing Our business activities entail the sourcing, distribution and sale of a climate-related risks and opportunities range of books, toys, arts and crafts and stationery products. The Management of climate-related issues has been embedded environmental impact of these activities is outlined on pages 47 to into the Group’s existing governance structure. Please refer to 48 and, in the main, relates to product manufacturing, packaging, the governance structure included on page 62 of the Corporate waste recycling and energy consumption. We are committed to Governance report. Reporting to the CEO, the Operations Board reducing the impact our activities have on the environment. While is responsible for managing the day-to-day activities of the Group climate change does not pose a significant direct threat to our and implementing the strategy agreed by the Board. The Board business, we have identified a number of risks and opportunities has delegated the management of climate-related risks and Financial statementsCorporate governanceStrategic report that could impact the business over the longer term. During the opportunities to the Operations Board, to ensure climate change year we have assessed the impact of climate-related risks and is integrated across core functions of the business accordingly. opportunities on our strategy and financial planning. To ensure we The ESG steering group supports the Operations Board by ensuring mitigate risks and capitalise on opportunities we have embedded climate change is integrated into the planning and execution of appropriate management processes. This work has been led by our the Group’s strategy. The ESG steering group is chaired by the Sustainability Manager, who joined the Group in January 2023, and CEO, and includes two Operations Board members. As noted has been supported by a specialist third-party ESG consultancy, above, to support the Operations Board, a Sustainability Manager Inspired ESG (INESG). was appointed in January 2023, to coordinate the management of climate-related issues, and to ensure all relevant risks and ### Governance opportunities are identified and assessed at least annually. Board oversight of climate-related risks and opportunities We are committed to building capacity internally and equipping our The Board has overall responsibility for the Group’s climate-related senior management with the appropriate knowledge, to deliver on risks and opportunities. our objectives as a business. The Operations Board, ESG steering group and Sustainability Manager consider and assess the Group’s The Board is responsible for ensuring that appropriate risk climate-related risks and opportunities in an annual climate risk- management processes and controls are in place and has management workshop facilitated by INESG. The TCFD guidance on delegated responsibility for overseeing risk management transition and physical risks and opportunities, and the latest climate processes and controls to the Audit Committee. Collectively, science structures the climate risk-management workshop. The the Audit Committee and the Board on an annual basis review findings from the workshop inform our climate risk and opportunity the Group’s risk register and the principal risks facing the Group register which will be annually reviewed. The inaugural climate which, since FY22, has included an ‘Environmental (including risk management workshop was held in August 2022 to develop climate change)’ risk. As part of this review process the Audit management’s knowledge and understanding of climate change Committee and the Board deliberate and discuss the risk register, and help identify and assess the associated risks and opportunities. allocate ratings for each risk, and review and update the Group’s register of principal risks and mitigating actions. As part of these In March 2023 members of the Operations Board also attended discussions and review processes, the Board considers the threat our net-zero strategy workshop. This session provided an overview associated with climate change, as detailed below, and discusses of net-zero and our FY22 Carbon Balance Sheet, which forms the and agrees actions to mitigate its impact. baseline measure of our emissions. The net-zero strategy workshop has supported the business in developing carbon reduction targets The Board factors climate change considerations into its planning and a decarbonisation plan, bespoke to our operations and and decision-making processes. During the year the Board aligned with how the Company will grow over time. The outcome approved a rollout of LED lighting in stores to improve the Group’s of this session was presented to the Board in April 2023, where energy efficiency, and the appointment of a Sustainability the Group’s carbon reduction targets were agreed. Manager to lead the development of the Group’s sustainability strategy and support its implementation. ### The Board receives regular updates from the ESG steering group Strategy and Operations Board on the development and implementation The climate-related risks and opportunities identified of the Group’s sustainability strategy, including on a formal basis over the short, medium and long term annually. To support the Board in making informed decisions in Supported by INESG, we have conducted a detailed climate relation to the Group’s sustainability strategy, in January 2023 the scenario analysis to identify and assess the potential effect of Directors participated in a training session facilitated by INESG. The direct physical risks (the physical impact of climate change on our session, which focused on climate change and net-zero, enabled sites and assets) and transition risks (the impact on our business, the Board to make informed judgements regarding the identification including our supply chain, associated with the global transition and assessment of climate-related risks and opportunities to a low-carbon economy). During FY24 we will undertake further associated with the Group’s operations and footprint. In April 2023, analysis across our key suppliers and critical supply chain routes to following an update on the Group’s decarbonisation plan (page 30) identify opportunities to improve the measures we are implementing the Board approved net-zero targets which are a component part to mitigate potential climate-related risks within the supply chain. of the Group’s overall environmental strategy (see page 30). TheWorks.co.uk plc Annual Report and Accounts 2023 37 Task Force on Climate-Related Financial Disclosures (TCFD) continued # Strategy continued The climate-related risks and opportunities identified over the short, medium and long term continued Our climate scenario analysis considered climate-related risks and opportunities under the three warming scenarios detailed below. Each scenario refers to differing severities of irreversible climatic shifts, leading to permanent new climate states that could be detrimental to society. Several established climate models were used during this exercise, including the 'Climada natural catastrophe damage model', 'CORDEX regional climate projections' and 'Integrated Assessment Models'. # Scenario warming pathways # Below 2°C scenario: Organisations follow a co-ordinated and orderly transition to a low-carbon economy, aligning closely with the Paris Agreement and Science Based Targets Initiative. Harmonious collaboration between governmental bodies and organisations to introduce and adhere to policy and legislation associated with emissions reductions. Businesses strive to exhibit proactive behaviour in reducing their carbon emissions, with low-carbon technology being readily available and widely implemented. Market preferences shift as consumers demand low-carbon alternatives for products and services, with businesses responding and adapting their operations. As a result, transition risks will be more prevalent due to efforts to decarbonise the economy, but many climate tipping points are not reached. # Between 2-3°C scenario: Policies and legislation are introduced with a staggered effect with inconsistent levels of action being taken, aligning with current forecasts. Uncoordinated approach regarding the introduction of policies and legislation, which leaves businesses with little time to become compliant. As a result, investment into low-emissions technology is staggered, causing companies to decarbonise in potentially abrupt steps. With warming unable to be limited to below 2°C, some climate tipping points will be reached, resulting in increased physical risks. Some transition risks will also manifest themselves as efforts are still made to transition to a low-carbon economy, even though disjointed and sporadic. # Above 3°C scenario: Minimal climate action is taken and decisions are presented, resulting in a worth-cost climate scenario. Theories as usual approach is followed, with little or no climate action being taken by governments or businesses. New companies set new zero targets, with emissions continuing as gas unchecked or low emissions technology remains untested with time-copied investment. As a result, many climate tipping points are reached, creating detrimental conditions for society as the physical risks posed by climate change intervention. Transition risks cannot be evident over, or there has been no movement towards a low-carbon economy. # Climate-related risks and opportunities The climate scenario analysis findings were presented to and discussed with the Operations Board during the August 2022 climate risk management workshop. Our short term (up to 2025) assesses the immediate risks and opportunities we may experience over a three-year period. Our medium term (2025 - 2035) is consistent with The Works' net-zero targets for Scope 2 by 2030 and Scope 1 by 2035. Our long-term (2035 - 2050) is consistent with the UK Government's net-zero pledge by 2050 and the Works' long-term goal is to be net-zero across Scopes 1, 2 and 3 by 2045. Taking into consideration the climate scenario analysis results along with detail of existing processes and mitigation strategies across the business, the climate-related risks and opportunities identified were assessed and classified as 'Low', 'Medium' or 'High' by members of the Operations Board which ascribes a financial threshold to each risk category. This is a high level financial assessment of each risk and opportunity and will be developed further as our process continues to evolve. The risks and opportunities marked medium are deemed to be material to our operations. All climate-related risks and opportunities identified through our scenario analysis are detailed in the tables on pages 39 to 44. For each risk we have highlighted in which scenario there will be the greatest impact, and the measures we are implementing to increase our resilience. # Transition risks As the global economy begins to decarbonise, we anticipate that the potential impacts from transition risks will increase as more efforts are made by governments and businesses to reduce emissions. Our analysis suggests that the transition risks are most significant in the 'below 2°C' scenario and 'between 2-3°C' scenario, as there is more change entailed in adapting to increasingly aggressive policies and legislation implemented by governments and regulatory authorities. As we work to decarbonise our business to be net zero in relation to Scope 1, 2 and Scope 3 emissions, this will mitigate the risk posed by emerging policy and legislation, such as carbon taxing and increases to greenhouse gas pricing. We have assumed that the benefits from achieving the net-zero targets we have set will outweigh the upfront costs of doing so. Building resilience into our supply chain by developing deeper relationships with key suppliers will help to minimise the potential risks posed by climate change in relation to changing markets. 38 TheWorks.co.uk plc Annual Report and Accounts 2023 Category Trend and highest impact Potential impact Risk mitigation Policy and legal Increase in carbon/GHG pricing. MEDIUM • The Group has committed to becoming net-zero for Scope 2 Highest impact in the: Potential financial impact by 2030 and Scope 1 by 2035. As area: Expenditures — increased • Medium term our carbon emissions decrease, direct costs. the potential impact of this risk • 2-3°C Scenario The UK has committed to a series will reduce. of five-year carbon budgets. If • Monitor and review our carbon carbon emissions do not decrease emissions each year against enough to meet targets, a tax a carbon pricing model. on carbon emissions may be introduced. We estimate that this impact could be highest in the 2-3°C Scenario in the medium term, when carbon pricing is projected to peak. Based on FY22 Scope 1 and 2 emissions (3,088 tCO e), an estimated 2 Financial statementsCorporate governanceStrategic report potential tax of approximately £0.2m could arise in the medium term, assuming no reduction to carbon emissions. Increase in climate change LOW • The Group’s CFO and Company regulation including increased Secretary oversee regulatory Potential financial impact emissions-reporting obligations. compliance with support from area: Expenditures - Increased external advisers. Highest impact in the: direct costs. • Senior management team • Short to medium term We are required to comply is aware of compliance with environmental reporting • <2°C and 2-3°C Scenarios requirements under their areas requirements and anticipate that of responsibility and liaise with additional requirements will be the CFO and external advisers introduced over time as the UK to identify and manage issues. transitions to a net-zero economy. • Policies and procedures in If we do not meet developing place to ensure the Group has reporting requirements there is a capacity to support increased risk of potential sanctions imposed reporting and transparency by regulatory bodies. (e.g. data collection processes). Costs will increase if additional • Partner with INESG to support resource is required to meet environmental reporting disclosures. increased reporting requirements. Mandates on and regulation of LOW • Introduced initiatives to reduce existing products and services. plastic packaging (see page 31). Potential financial impact area: Highest impact in the: Expenditures - Increased direct and indirect costs. • Short to medium term We and/or our suppliers may be • <2°C Scenario subject to increased regulation in relation to plastics and packaging (e.g. UK Plastic Tax and Extended Producer Responsibility). Regulations relating to products and packaging are likely to intensify over time. This may increase the cost of direct taxes or increase materials costs. TheWorks.co.uk plc Annual Report and Accounts 2023 39 ## Task Force on Climate-Related Financial Disclosures (TCFD) continued ### Strategy continued Transition risks continued Category Trend and highest impact Potential impact Risk mitigation Policy and Exposure to litigation. LOW • The Group’s CFO and Company Secretary oversee regulatory legal continued Highest impact in the: Potential financial impact compliance with support from area: Expenditures —increased • Short to medium term external advisers. direct costs. • 2-3°C Scenario • Senior management team is Legal standards and reporting made aware of key compliance requirements may become more requirements within their onerous in the short to medium business areas and liaise with term. This could increase the risk the CFO and external advisers of lawsuits, compliance issues to identify and manage issues. and fines. Any litigation could negatively impact our brand and reputation. Market Increased cost of energy MEDIUM • Maintain focus on cost control. and raw materials. • Continually review supply base Potential financial impact area: and diversify and/or change Highest impact in the: Expenditures - increased direct supply options where needed. (operating) costs. • Short to medium term • Introducing energy efficiency Disruptions in recent years, • <2°C and 2-3°C Scenarios technology across the including the period of increased store estate. ocean freight rates and reduced • Conduct site surveys to identify availability of shipping containers, energy saving opportunities. have already impacted our business, albeit these impacts have now abated. Future increases in costs could adversely impact the Group’s profitability. This risk is currently heightened, due to the generally high levels of cost inflation being experienced. Climate change is likely to exacerbate this, potentially increasing costs, creating supply disruptions and delays. Energy costs, although lower than the highest peaks reached following Russia’s invasion of Ukraine, are nevertheless expected to rise over time. Changing customer behaviour. MEDIUM • Implementing a net-zero strategy and enhancing our reporting Highest impact in the: Potential financial impact area: to communicate our actions Revenue - decreased revenue • Medium term to make our proposition more due to reduced demand for sustainable to stakeholders, • <2°C and 2-3°C Scenarios products and services. including customers. With ESG growing in importance, customers may change their shopping preferences, which could potentially impact demand for the Group’s products. Failure to effectively predict and respond to any such changes could affect the Group’s sales and financial performance. TheWorks.co.uk plc Annual Report and Accounts 202340 Category Trend and highest impact Potential impact Risk mitigation Reputation Increased stakeholder concern MEDIUM • Invested in sustainability regarding environmental issues. function, recruiting a new Potential financial impact Sustainability Manager in FY23. Highest impact in the: area: Capital and Financing – • The Group’s CFO and Company decreased access to capital. • Short to medium term Secretary oversee regulatory ESG is becoming increasingly • <2°C and 2-3°C Scenarios compliance, with support from important to stakeholders. external advisers. Interest in, and scrutiny of, our ESG • Partnered with INESG to credentials is likely to increase. support us in relation to Reputational damage could environmental matters. affect the financial performance • Adopt internationally aligned of the business. frameworks to ensure our ESG strategy develops using best practice. Stigmatisation of the sector. LOW • Monitor customer trends to anticipate changes and Financial statementsCorporate governanceStrategic report Highest impact in the: Potential financial impact area: react accordingly. Revenue - Decreased revenue • Medium term • Implementing an ESG due to reduced demand for • <2°C and 2-3°C Scenarios programme and developing products and services. our reporting to communicate If value retail companies are this to stakeholders, unable to demonstrate their including customers. commitment to environmental sustainability and wider ESG aspects, customers may reduce their purchasing, adversely impacting sales. Technology Substitute existing products MEDIUM • Implementing a with lower-emissions alternates. net-zero strategy. Potential financial impact • Work with suppliers to Highest impact in the: area: Expenditures — increased explore lower-emission capital expenditures. • Short to long term alternative products. As customers become more • <2°C and 2-3°C Scenarios environmentally conscious, the costs to ensure our products are sustainable could increase. This reflects costs associated with sustainable and recycled materials, which are likely to increase as demand increases. Costs to transition to lower- MEDIUM • Installing energy efficient emissions technology. technology in stores. Potential financial impact • Implementing a net-zero Highest impact in the: area: Expenditures — increased strategy and understanding capital expenditures. • Short to long term and accounting for the To reduce our Scope 1 and Scope • <2°C and 2-3°C Scenarios additional costs. 2 carbon emissions and meet our net-zero targets for Scope 2 by 2030 and Scope 1 by 2035, we will need to invest in lower emission technology. Decarbonisation actions identified to date including LED lighting installation, Company energy policy implementation, installation of lighting sensors and a behavioural change programme will require an estimated £0.7m investment over the next six years. Cost savings will likely mitigate the investment outflow through reduced energy costs. TheWorks.co.uk plc Annual Report and Accounts 2023 41 ## Task Force on Climate-Related Financial Disclosures (TCFD) continued ### Strategy continued Physical risks We have identified several physical risks requiring appropriate levels of management, to ensure that any potential disruption to our operations is minimised. These physical risks primarily materialise in the above 3°C scenario in the long term, where numerous climate tipping points would be reached due to the unchecked increase in carbon emissions. We anticipate that the likelihood of extreme weather events occurring will increase as global temperatures rise, with phenomena such as flooding posing a potential threat to several of our sites. We will continually monitor physical risks by running annual climate scenario analysis, and expand the scope of this to include our key suppliers and supply routes in subsequent years of reporting. Category Trend and highest impact Potential impact Risk mitigation Acute Increased severity of flooding. MEDIUM • Disaster recovery plan is in place. Highest impact in the: Potential financial impact area: • Maintain appropriate business increased direct and indirect • Long term interruption insurance cover. costs and decreased revenue. • >3°C Scenario • Scenario analysis of the store If flooding in the UK occurs with estate will be undertaken more severity and frequency annually to monitor high risk sites it could impact our sites and for potential long-term impacts. operations, through direct • Online fulfilment capability damage to buildings and assets. could support some ongoing Disruptions may impact transport operations, if many sites were networks, which could increase closed simultaneously due costs and cause delays. We may to physical damage. experience an increase in property insurance premiums. As a substantial part of the Group’s profit is currently generated during the Christmas peak sales period, extreme weather events during this time could have an adverse short-term effect by disrupting shopping behaviour, stock flow, deliveries of products to our stores and the fulfilment of online orders. Heatwaves/Extreme heat. LOW • Introducing energy saving initiatives and technology to Highest impact in the: Potential financial impact area: reduce the impact of increased increased direct and indirect • Short to long term energy usage. costs and decreased revenue. • 2-3°C and >3°C Scenarios • Develop and implement In the event of heatwaves and/or appropriate response strategies periods of extreme heat occurring including supplying plenty more frequently, there will be an of drinking water, to keep increased demand for cooling. staff hydrated. This will increase energy costs, • An emergency generator is and impact our efforts to reduce installed at the support centre/ Scope 2 emissions. There is an DC to mitigate the impact of increased risk of power outages power cuts. becoming more frequent due to • Monitor health and wellbeing greater demand on the grid. Staff of colleagues. health, wellbeing, comfort and productivity may be impacted. Extreme weather events could also have an adverse short-term effect by disrupting shopping behaviour as local footfall decreases, stock flow, deliveries of products to our stores and the fulfilment of online orders. TheWorks.co.uk plc Annual Report and Accounts 202342 Category Trend and highest impact Potential impact Risk mitigation Acute continued Increased frequency of wildfires. LOW • A disaster recovery plan is in place. Highest impact in the: Potential financial impact • Maintain appropriate business area: increased direct and • Long term interruption insurance cover. indirect costs. • >3°C Scenario • Monitor events which may Even though this is not traditionally impact the health and safety considered as a material risk for of our employees, customers UK operations, the frequency and and wider communities. severity of wildfires may increase over time if extreme weather events become more common. Chronic Water stress. LOW • Developing plan to measure water consumption to Highest impact in the: Potential financial impact understand usage. area: increased direct and • Medium to long term • Expanding scope of climate indirect costs. • >3°C Scenario scenario analysis to understand Financial statementsCorporate governanceStrategic report We may be impacted by restricted impact of water stress water usage as well as additional on business. regulation to report on water consumption and usage. Access to and use of water supplies may become prohibited, as demand outweighs the supply of freshwater. Water may require greater treatment which could increase water costs. Sea level rise. LOW • Conduct annual scenario analysis of store estate, to Highest impact in the: Potential financial impact monitor high-risk sites for area: increased direct and • Long term long-term impacts. indirect costs. • >3°C Scenario • When leases are up for As sea level rises, rates of erosion renewal, take climate scenario and the likelihood of storm surges analysis into account and occurring increase. This can lead consider relocating away to sites in coastal zones being from high-risk sites. damaged, eventually leading to closures and increased insurance premiums. These impacts could also manifest themselves in our supply chain, if key shipping ports are affected. Climate-related opportunities Category Trend and highest impact Potential impact Opportunity management Products Development of new products. MEDIUM We may be able to capitalise on this, if it is possible to develop more and services Highest impact in the: Potential financial impact area: sustainable alternative products Revenue — increased revenue • Medium term at prices which customers are from an increased demand willing to pay. • <2°C Scenario for sustainable products and services. As customers become more concerned about ESG, their shopping behaviours may change, if they wish to purchase more sustainable products. TheWorks.co.uk plc Annual Report and Accounts 2023 43 ## Task Force on Climate-Related Financial Disclosures (TCFD) continued ### Strategy continued Climate-related opportunities continued Category Trend and highest impact Potential impact Opportunity management Energy resources Use of lower-emission sources MEDIUM • Conduct energy site surveys of energy. to identify energy saving Potential financial impact opportunities bespoke Highest impact in the: area: Expenditures — reduction to our operations. in operating expenses from • Short to medium term • Implementing net-zero strategy increased efficiency (for example, • <2°C Scenario and understanding and decreased energy costs). accounting for the additional The introduction of lower-emission cost to the business. sources of energy across our estate would contribute to reduced energy consumption and associated costs over time. It would also help reduce our carbon emissions and contribute to our carbon-reduction and net-zero targets. The continued rollout of LED lighting, Company energy policy implementation, installation of lighting sensors and a behavioural change programme will result in an estimated carbon saving of 686 tCO e. 2 Impact of climate-related risks and opportunities on business, The Sustainability Manager works closely with the ESG Steering strategy and financial planning Committee, members of the Operations Board and Heads of We have assessed the impact of climate-related risks and Departments to ensure sustainability and climate change criteria opportunities on our business, strategy and financial planning. are integrated into decision making when fulfilling their roles across Based on our assessment, our business is more likely to be the business. Focusing on immediate priorities for the business, impacted by transition risks. As the global economy begins an Environmental Action Group has been established and meets to decarbonise, we anticipate that the potential impacts monthly to consider plans to operate more sustainably which are from transition risks will increase as more efforts are made by presented to the Board on an ad hoc basis. governments and businesses to reduce emissions. We are likely to To reduce our Scope 1 and 2 carbon emissions and meet our face increased operating costs as we invest in resources required net-zero targets for Scope 2 by 2030 and Scope 1 by 2035, we will to navigate enhanced reporting requirements as well as adapting need to introduce lower emission technology, as well as engage to increased costs of energy and raw materials in our supply chain. additional resources. During the year the Board approved a rollout As outlined in the Viability statement in this Annual Report, the of LED lighting in stores to improve the Group’s energy efficiency, Group operates a three-year financial planning cycle. Currently and the appointment of a Sustainability Manager to lead the identified and quantifiable transition costs (such as the costs of development of the Group’s sustainability strategy and support retaining expert consultants INESG, and the cost of employing its implementation. Moving forward, decarbonisation actions the recently appointed Sustainability Manager) have been such as further LED lighting installation, Company energy policy incorporated into the Group’s financial plans. implementation, installation of lighting controls and a behavioural Further, as customers and wider stakeholders become more change programme will require investment. interested in our sustainability credentials over time we may see a Resilience of strategy taking into consideration different climate- reduced demand for products, as well as a potential decreased related scenarios, including a 2°C or lower scenario access to capital. However, the Group has not allowed for any While climate change does not pose a significant direct threat of these and other potential costs relating to other transitional to our business, we have identified a number of risks and or physical climate risks in its current planning horizon, as these opportunities that could impact the business over the longer term are presently too remote to be included. The process of periodic and assessed their impact. reviews of the risks and the operation of the planning cycle will ensure that if it becomes evident that costs (or revenues) As described above, we considered climate-related risks and associated with the climate risks will affect the business, they opportunities under three different warming scenarios, varying from will be reflected in financial plans in due course. a best-case scenario (below 2°C) to a worst-case scenario (above 3°C). As the types of risks that present themselves will vary under A substantial part of the Group’s profit is currently generated different warming scenarios, to effectively assess the resilience of during the Christmas peak sales period, therefore extreme weather our strategy, analysing climate-related risks and opportunities events during this time could have an adverse short-term effect by against these different warming scenarios is necessary. Our analysis disrupting shopping behaviour, stock flow, deliveries of products suggests that the transition risks are most significant in the ‘below to our stores and the fulfilment of online orders. We anticipate that 2°C’ scenario and ‘between 2-3°C’ scenario, as more change will be the likelihood of extreme weather events occurring will increase as required to adapt to increasingly aggressive policies and legislation global temperatures rise, with phenomena such as flooding posing implemented by governments and regulatory authorities. As we a potential threat to several of our sites. Detail of the impact of work to decarbonise our business to be net zero in relation to Scope climate-related risks and opportunities facing our business can 1 and Scope 2 emissions, the risk posed by emerging policy and be found in the tables above. TheWorks.co.uk plc Annual Report and Accounts 202344 legislation, such as carbon taxing and increases to greenhouse The process for managing climate-related risks gas pricing, will be mitigated and the benefits from achieving our Through the internal stakeholder engagement process, we net-zero targets will outweigh the upfront costs of doing so. identified existing mitigation processes, which could be developed or adopted to mitigate the impact of climate change. Details of Building resilience into our supply chain by developing deeper existing mitigation actions can be found on page 31. As explained relationships with key suppliers and also diversifying our supplier on page 37 the Operations Board is responsible for managing the base, will help minimise the potential risks posed by climate Group’s climate-risks and opportunities supported by the ESG change in relation to changing markets. steering group and the Sustainability Manager. In addition senior We have identified several physical risks requiring appropriate managers are assigned specific responsibilities to ensure climate- levels of management, to ensure that any potential disruption related risks and opportunities are accurately assessed and to our operations is minimised. These physical risks primarily effectively managed. The climate scenario analysis undertaken in materialise in the ‘above 3°C’ scenario in the long term, where FY23 will be repeated annually. numerous climate tipping points would be reached due to the The Sustainability Manager works closely with the ESG Steering unchecked increase in carbon emissions. We will continue to Committee, members of the Operations Board and Heads of monitor physical risks through our annual climate scenario analysis, Departments to ensure sustainability and climate change criteria is which we will expand to include further analysis across our key integrated into decision making when fulfilling their roles across the suppliers and critical supply chain routes to identify opportunities business. These sessions, along with monthly Environmental Action to improve the measures we are implementing to mitigate potential Group meetings, are used to identify opportunities to manage risks. climate-related risks within the supply chain. Integration of processes for identifying, assessing Financial statementsCorporate governanceStrategic report The information detailed above in relation to transition and physical risks also provides an insight into the resilient nature of and managing climate-related risks into overall our business model and, in particular, the processes and steps risk management we are taking to mitigate the impact of climate-related risks. Following a detailed operational risk review completed by our Head of Finance, an environmental (including climate change) risk was highlighted and included in the updated risk register in FY22. ### Risk management The review included individual meetings with each Operations We have an established framework used by the Group for Board member covering current and emerging risks affecting their managing general risks which incorporates processes to make respective areas of responsibility and broader corporate risks in decisions to manage or accept those risks, and to monitor steps other parts of the business. taken to achieve risk mitigation. The management of climate- related risks falls within this umbrella, and uses an analogous We have considered our existing risk process and structure of framework process. As this is our first climate-related risk and our risk register, when creating a climate risk register, to ensure opportunity assessment, the initial analysis was limited to our direct climate-related risks and opportunities are easily integrated into operations. As we evolve our assessment annually and begin to existing business functions, where appropriate. We mapped our include our suppliers we will get a better understanding of the existing business risks against those outlined by the TCFD guidance potential size and scope of the identified climate-related risks to identify risk owners. and opportunities over the short, medium and long term. Following our FY23 climate risk management workshop, we held The processes for identifying and assessing one-to-one discovery sessions with members of the Operations Board to further inform the assessment of climate-related risks climate-related risks and opportunities and establish risk mitigation actions across To support management in its identification and assessment of the business. This process will be repeated annually. climate-related risks, we conducted climate scenario analysis across all our operations in FY22 and FY23 for the first time. The Board and Audit Committee will continue to review the Alongside this process, we launched an internal due diligence business’ principal risks, including climate change risk, twice process, to review existing business functions through a climate per year. lens. In conjunction with mapping of our existing business risks With support from the Sustainability Manager, the CFO will be and operations against those outlined by the TCFD guidance, responsible for the climate risk register, to ensure climate-related this informed the identification of the climate-related risks and risks and opportunities are reported annually. The climate risk opportunities applicable to our locations and operations. register contains all transition and physical risks highlighted and We have assessed the impact of each climate-related risk and informs the annual assessment of the environmental (including opportunity across all three scenarios (a below 2°C, a 2-3°C and an climate change) risk. above 3°C scenario), and three time horizons (short, medium and long term), to understand the scenario and timeframe within which ### Metrics and targets our business is most vulnerable to each risk, or best positioned to capitalise on each opportunity. A climate risk management Metrics used to assess climate-related risks workshop was held during FY23 with members of the Operations and opportunities in line with strategy and risk Board, followed by subsequent one-to-one discovery sessions, management processes to collect supporting data, to inform the assessment of each risk We use a range of metrics to assess and manage our climate- and opportunity, including high-level financial modelling which related risks and opportunities, including carbon emissions (see ascribes a financial threshold to each risk category. The risks and pages 45 and 46), energy consumption (see page 47), waste and opportunities marked medium are deemed to be material to our recycling (see page 31) and products and packaging (see page 31). operations. All climate-related risks and opportunities identified We have considered cross-industry metrics including transition and through our scenario analysis are detailed in the tables on pages physical risks, climate-related opportunities, capital deployment, 39 to 44. For each risk we have highlighted in which scenario there carbon pricing and executive remuneration when reviewing the will be the greatest impact, and the measures we are implementing impact of climate change on our business. Reporting against these to increase resilience. metrics can be found from pages 46 and 47. Each year we aim to develop these metrics while enhancing our TCFD reporting. TheWorks.co.uk plc Annual Report and Accounts 2023 45 Task Force on Climate-Related Financial Disclosures (TCFD) continued # Metrics and targets continued Metrics used to assess climate-related risks and opportunities in line with strategy and risk management processes continued Every year we will set short-term annual targets which will help us achieve our longer-term environmental ambitions (see page 30). We will also review industry remuneration best practice and guidance and consider linking executive remuneration with the delivery and performance of our net-zero strategy and related targets. # Scope 1, Scope 2 and Scope 3 GHG emissions and related risks We have been calculating our Scope 1 and 2 carbon emissions, in-line with the Streamlined Energy and Carbon Reporting Initiative (SECR) since 2019 (page 47). This year, as part of the work we undertook to develop our carbon balance sheet, we calculated our Scope 3 carbon emissions for the first time. To establish a baseline for reporting we have used FY22 financial data to estimate our prior year Scope 3 emissions. We will use this baseline to measure progress against our emissions reductions targets. In FY24, our efforts will focus on aligning our Scope 3 data collection with our Scope 1 and 2 collection processes. Our Scope 1 Scope 2 and Scope 3 emissions in relation to FY23 are set out below: Carbon emissions (tCO₂e) (tonnes) | Scope | FY23 | FY22 | | --- | --- | --- | | Scope 1 | 199 | 219 | | Scope 2 | 2,576 | 2,869 | | Scope 3 | 30 | 19 | | Total | 2,805 | 3,107 | Calculations have used the methodology based on the Greenhouse Gas Protocol (GHG Protocol) Corporate Value Chain standards. Within Scope 3, there are 75 categories, with 12 applicable to our operations. Over time we aim to improve our data collection processes to increase the accuracy of our Scope 3 emissions data. # Targets used to manage climate-related risks and opportunities and performance against targets We are committed to becoming net-zero for Scope 2 emissions by 2030, Scope 1 emissions by 2035, and Scope 3 emissions by 2045, with an ambition to be net-zero in our Scope 3 emissions by 2040. Our Scope 1 and 2 targets, with our Scope 3 ambition, align with the British Retail Consortium's Climate Action Roadmap. We are in the process of developing our transition plan and setting near-term targets. More information on how we are reducing our environmental impact can be found on pages 30 and 31. | Target | Progress so far | | --- | --- | | Net-zero Scope 1 emissions by 2035 | We continue to build our roadmap for achieving net-zero in Scope 1, and are currently reviewing our car fleet options to determine when we will transition to a hybrid and/or electric fleet. | | Net-zero Scope 2 emissions by 2030 | We have installed LED lighting and energy efficient equipment in all new stores to help reduce our in-store energy consumption. We are also retrofitting our existing estate with LED lighting to continue the decarbonisation of our Scope 1 and 2 emissions. We conducted ESOS surveys across a number of our key sites to identify energy-savings opportunities. We will utilise the outputs of the surveys to implement energy efficiency measures across our estate. | | Net-zero Scope 3 emissions by 2045¹ | We have calculated our Scope 3 emissions for the first time for the FY21/22 reporting period. This has provided us with a Scope 3 baseline from which we can understand emissions across our value chain, and begin formalising a decarbonisation strategy to meet our net-zero target. A number of Scope 3 categories will be targeted for data methodology improvements, where we will look to transition from average and spend-based data to activity-based data. | 1 With an ambition to achieve net-zero by 2040. 46 TheWorks.co.uk plc Annual Report and Accounts 2023 ## Streamlined Energy and Carbon Reporting (SECR) In accordance with the SECR requirements the information below Regional data summarises our energy usage, associated emissions, energy Total reportable energy supplies consumption (kWh) | efficiency actions and energy performance. | for UK operations | | --- | --- | | This year, for the first time, the disclosure covers all our operations | Utility and scope FY FY | | including the Republic of Ireland. | Scope : Gaseous and other fuels , , | | Carbon emissions are categorised as follows: | Scope : Transport (company fleet) , , | | • Scope 1: Consumption and emissions related to direct | Scope : Electricity ,, ,, | combustion of natural gas and fuels utilised for transportation Scope : Transport (grey fleet) , , operations, such as company vehicle fleets. Total ,, ,, • Scope 2: Consumption and emissions related to indirect emissions relating to the consumption of purchased electricity Total emissions (tCO e) for UK operations in day-to-day business operations. 2 • Scope 3: Consumption and emissions related to emissions resulting Utility and scope FY FY from sources not directly owned by us. These relate to grey fleet Scope : Gaseous and other fuels . . (business travel undertaken in employee-owned vehicles) only. Scope : Transport (company fleet) . . Group data Scope : Electricity ,. ,. Total Group reportable energy supplies consumption (kWh): Scope : Transport (grey fleet) . . Financial statementsCorporate governanceStrategic report Utility and scope FY FY Total ,. ,. Scope : Gaseous and other fuels , , Intensity metric for UK operations Scope : Transport (company fleet) , , Intensity metric FY FY Scope : Electricity ,, ,, tCO e/m revenue . .  Scope : Transport (grey fleet) , , Total ,, ,, Total reportable energy supplies consumption (kWh) for Republic 1 of Ireland operations Total Group emissions (tCO e) Utility and scope FY 2 Utility and scope FY FY Scope : Gaseous and other fuels — Scope : Gaseous and other fuels . . Scope : Transport (company fleet) , Scope : Transport (company fleet) . . Scope : Electricity , Scope : Electricity ,. ,. Scope : Transport (grey fleet) , Scope : Transport (grey fleet) . . Total , Total ,. ,. Total emissions (tCO e) for Republic of Ireland operations 2 | Group intensity metric | | Utility and scope FY | | --- | --- | --- | | An intensity metric of tCO | e per £m revenue has been applied | | | | 2 | Scope 1: Gaseous and other fuels — | to our annual total emissions and is detailed in the table below. Scope 1: Transport (company fleet) . Intensity metric FY FY Scope 2: Electricity . tCO e/m revenue . .  Scope 3: Transport (grey fleet) . Total . Intensity metric for Republic of Ireland operations Intensity metric FY tCO e/m revenue .  1 As highlighted above this is the first year our Republic of Ireland operations have been included in our disclosure; therefore, no prior year data is available. TheWorks.co.uk plc Annual Report and Accounts 2023 47 Streamlined Energy and Carbon Reporting (SECR) continued Energy efficiency improvements We are committed to improving energy efficiency across our operations, which is paramount if we are to achieve our Scope 1 and Scope 2 net-zero targets. In FY23, we implemented several energy efficiency measures to reduce our overall energy consumption including: - Continuing the rollout of LED lighting across our store estate. As at year end 67% of our store estate now operates with LED lighting. - Began undertaking Energy Savings Opportunity Scheme (ESOS) surveys to identify energy efficiency opportunities. The findings of these surveys have informed our Scope 1 and 2 net-zero roadmaps. We are planning further efficiency improvements in the coming year including: - Continuing to rollout LED lighting across our store estate. - Establishing a new and remodelled store energy efficiency policy. - Developing an energy efficiency behaviour change programme for our colleagues across our stores, Distribution Centre and Support Centre. - Engaging with our landlords to identify and implement energy efficiency opportunities across our store estate. Reporting methodology The above information (including the Scope 1, 2 and 3 consumption and CO₂e emissions data) has been developed and calculated using the GHG Protocol – A Corporate Accounting and Reporting Standard (World Business Council for Sustainable Development and World Resources Institute, 2004); Greenhouse Gas Protocol – Scope 2 Guidance (World Resources Institute, 2015); ISO 14064-1 and ISO 14064-2 (ISO, 2018; ISO, 2019); Environmental Reporting Guidelines (including Streamlined Energy and Carbon Reporting Guidance (HM Government, 2019). For our UK operations, UK Government Emissions Factor Database 2022 version 1 has been used, utilising the published kWh gross calorific value (CV) and kgCO₂e emissions factors relevant for reporting period 01/05/2022–30/04/2023. For our Republic of Ireland operations, Sustainable Energy Authority of Ireland (SEAI) 2022 conversion factors have been used, utilising the kgCO₂e emission factors for relevant reporting period 1 May 2022 to 30 April 2023. Estimations were undertaken to cover missing billing periods for properties directly invoiced to The Works. These were calculated on a kWh/day pro-rata basis at the meter level. Intensity metrics have been calculated using total tCO₂e figures. Total turnover used for the performance indicator for FY23 was £280.1m (FY22: £264.6m). ![img-7.jpeg](img-7.jpeg) 48 TheWorks.co.uk plc Annual Report and Accounts 2023 ## Risk management and principal risks and uncertainties ## Effective risk management helps ## us identify, evaluate and manage ## the risks which could impact ## the business Risk management framework During the year the main changes to the principal risks were as follows: The Board is responsible for ensuring that appropriate risk • Removal of COVID-19 risk: Given the significantly reduced impact management processes and controls are in place. The Board of risks associated with COVID-19 this risk is no longer considered has delegated responsibility for overseeing risk management to be a principal risk. processes and controls to the Audit Committee. Day-to-day • Renaming of ‘Market’ risk: The ‘Market’ risk has been renamed risk management is the responsibility of the senior management Financial statementsCorporate governanceStrategic report ‘Design and execution of strategy’, and has been refined to team. Further details of the governance structure are set out in reflect the importance of the Group’s strategy and the direct the Corporate governance report on page 62. correlation between successful strategic execution and market Risks are identified and assessed using a bottom-up review performance. This risk has also been assessed as having a high process. Senior management determines the potential risks that priority and ranked accordingly. could affect their areas of responsibility and the likelihood and During the year a geopolitical emerging risk was identified. impact. This information is used to create the Group’s primary Approximately two thirds of the Group’s stock is sourced from risk register and capture principal risks which are subsequently China and if drastic economic sanctions were to be imposed on considered by the Audit Committee and the Board. China this could have a material impact on the Group’s ability to Risk appetite obtain stock. Moving the product mix away from goods sourced The Board determines the Group’s risk appetite. Where a conflict from China could mitigate this risk; however, a significant lead time exists between risk management and strategic ambitions, the would be required to do this. Currently the probability of this risk Board seeks to achieve a balance which facilitates the long-term crystallising is considered to be very low. Accordingly this emerging success of the Group. risk will be maintained on our secondary risk register and we will continue to monitor it. Principal and emerging risks and changes in The Group may be exposed to other risks and uncertainties principal risks not presently known to management, or currently deemed The Board conducts a robust assessment of the principal risks facing less material, that may subsequently have an adverse effect the Group and emerging risks, including those that could threaten the on the business. Further, the exposure to each risk will evolve operation of its business, future performance or solvency. The Board as mitigating actions are taken or as new risks emerge or the formally reviews the Group’s principal risks at least twice a year. nature of risks change. A detailed operational risk review was undertaken by the Head of Risk heatmap Finance during November 2022. This review included discussions with members of the Operations Board covering current, principal 1 and emerging risks affecting their respective areas of responsibility 11 and broader corporate risks. Following this review, the Group’s primary risk register and its principal risks and mitigation plans were 3 2 updated, and considered by the Audit Committee and the Board in January 2023, March 2023 and July 2023. 5 A climate risk workshop, facilitated by INESG, the Group’s specialist 9 4 third-party ESG consultancy, was held in August 2022. Members of 6 the Operations Board participated in the workshop which covered: 10 7 an introduction to climate change and climate scenarios; risk classification; transition and physical risks identified; and how to 8 approach climate change as a material risk to the business. Using the outputs from the workshop the Group’s first climate risk register Low Impact High was developed and subsequently reviewed and approved by Low Likelihood High the Board in January 2023. Further information in relation to the Change from prior year Group’s climate risks is included on pages 37 to 46. Increased Decreased Unchanged The principal risks and uncertainties facing the Group as at the date of this Annual Report are set out in order of priority on pages Principal risks 50 to 53, together with details of how these are currently mitigated. 1 Design and execution of 7 People The adjacent heatmap illustrates the Board’s assessment of the strategy (previously ‘Market’ risk) 8 Environmental (including | likelihood of the principal risks occurring and the resulting impact, | 2 Economy | | climate change) | | --- | --- | --- | --- | | after taking into account mitigating actions. | 3 Supply chain | 9 Regulation/compliance | | | | 4 IT systems and cyber security | 10 Liquidity | | | | 5 Brand and reputation | 11 Business continuity | | 6 Seasonality of sales TheWorks.co.uk plc Annual Report and Accounts 2023 49 ## Risk management and principal risks and uncertainties continued Principal and emerging risks and changes in principal risks continued Risk, profile change and link to strategy Mitigation 1. Design and execution of strategy (previously ‘Market’ risk) The Group generates its revenue from the sale of books, toys • Increased strategic focus on developing the brand and and games, arts and crafts and stationery. increasing customer engagement to further differentiate the Group from competitors. Although it has a track record of understanding customers’ needs • Emerging trends monitored by a recently strengthened for these products, the market is competitive. Customers’ tastes trading team that has a track record of responding to and shopping habits can change quickly. Failure to effectively changing consumer tastes. predict or respond to changes could affect the Group’s sales and financial performance. • Monitor competitors’ propositions and discuss key developments at weekly trading meetings and at Board level on a regular basis. Failure to effectively execute the ‘better, not just bigger’ strategy (e.g. due • Monitor and review customer feedback. to insufficient capacity or inadequate capability) would have an adverse impact on the Group’s ability to grow, particularly if the envisaged sales • Use sales data and online feedback channels to inform growth drivers fail to increase sales. Furthermore achieving increased purchasing and marketing decisions. sales growth could be more challenging if consumer confidence is • Flexible lease terms allow the Group to adapt its store impacted by deteriorating economic conditions. portfolio (which continues to be highly relevant to customers) to suit evolving shopping habits. Change from prior year Increased risk level. The Board believes that the previous risk rating • Ongoing investment in the Group’s online capability ensures needs to increase to reflect the significant impact this risk could have complementary digital and store propositions, as customers on the profitability of the Group and therefore increased the risk rating. increasingly engage with both channels. • Significant investments have been made to date and further Link to strategy investment is planned in FY24 to drive operational improvements. 2. Economy A deterioration in macroeconomic conditions or a reduction in • Take account of expected impact in the strategic planning consumer confidence could impact customer spending and process, budgets and forecasts. reduce the Group’s revenue and profitability. • Control costs while making carefully considered investments in certain areas to support growth. Change from prior year Increased risk level. Inflation remains high and the cost-of-living • Increase direct sourcing to improve gross margin. While this challenge looks likely to persist for some time. Although we have not initiative was delayed by COVID-19 in China, momentum yet observed any quantifiable effect on our business, this could impact should increase in FY24. consumer spending and, as a result, the Group’s sales. The current • Operate stores on flexible short-term leases to benefit from economic environment, including the following issues, is also causing reductions in rents through the rolling renegotiation of leases. costs to be higher which could impact profitability: Store estate can be adapted relatively quickly in the event of material local changes in demand. • Raw materials and energy costs. Our energy rates are hedged in the short term, but at higher rates than those which prevailed historically. • Continued increases in National Living and Minimum Wages affects the business because most of the Group’s colleagues are paid the National Minimum or Living Wage. • Geopolitical issues, including the Russian invasion of Ukraine, which has had direct inflationary effects. • FX rates. The pound is now stronger compared with the dollar than during certain points in FY23. There is reduced risk in FY24 due to the Group’s hedging policies, although we remain indirectly exposed to FX rates, through indirect sourcing which represents approximately 60% of purchases for resale. • Freight rates, which have significantly affected our costs in recent years, are now at pre-COVID levels, and are not expected to represent a threat for the foreseeable future. Link to strategy Develop our brand and increase Enhance our Optimise our Drive operational customer engagement online proposition store estate improvements TheWorks.co.uk plc Annual Report and Accounts 202350 Risk, profile change and link to strategy Mitigation 3. Supply chain The Group uses third parties, including many in Asia, for the supply • Strengthened buying and supply chain teams and further of products. Risks include the potential for supplier failures, risks investment is ongoing in FY24. associated with manufacturing and importing goods from overseas, • Ongoing review of supplier base and diversification and potential disruption at various stages of the supply chain and suppliers change implemented as appropriate to provide flexibility failing to act or operate ethically. and reduce reliance on individual suppliers. Failure to execute the restructuring of the supply chain team • Independent monitoring of suppliers undertaken by successfully to implement necessary changes to the stock process third-party auditors with local country knowledge and could prevent the right stock getting to the right stores at the right time an understanding of social and ethical requirements. and materially impact sales growth. • In-house product quality assurance team undertakes product testing as part of a product surveillance test programme. Supply chain disruption due to COVID-19 restrictions potentially being maintained in certain parts of the world, particularly China, could • Implement policies that reinforce the Group’s values and cause disruption to stock availability and cost inflation. Any significant its commitment to conduct business fairly, ethically and increase in geopolitical tensions between the West and China could with respect to human rights which suppliers are required affect the ability to purchase stock. to adhere to. • Proactive management of supply chain to ensure stock levels Financial statementsCorporate governanceStrategic report Due to the Group’s low level of exposure to sales outside the UK risks are appropriate. connected with Brexit are low. • Continue to review freight costs (including measures Change from prior year to mitigate them) and monitor alternative sourcing Unchanged level of risk. arrangements where practicable. Link to strategy 4. IT systems and cyber security The Group relies on key IT systems. Failure to develop and maintain • Modern two-factor authentication for access, combined these, or any prolonged system performance problems or lack of with up-to-date end point detection capabilities (to monitor service, could affect the Group’s ability to trade and/or could lead devices and assess unexpected/risky activity) and network to significant fines and reputational damage. segmentation, lowers the probability of malicious entry and speed of movement of malware across the business. Reliable systems and data integrity are key to the execution of the • 24/7/365 Security Operations Centre, established in FY23, strategy. Ensuring systems and processes are fit for purpose will enable monitors and responds to any unusual activities in systems the delivery of improvements to the proposition. or networks. Change from prior year • Enhanced working from home capabilities established Reduced risk. The Group experienced a cyber security incident at the in response to the pandemic have reduced the level of end of March 2022. Actions taken in response to the incident have dependence on a single-site head office. significantly reduced the risk of the business suffering major loss or • Regular IT investment strategy review undertaken by the disruption in the event of subsequent attacks. Operations Board, including security and infrastructure Link to strategy investment programmes. • Further strengthened in-house IT capabilities during FY23. 5. Brand and reputation The Group’s brand is vital to its success. Failure to protect the brand, • Communicate to colleagues our clarified purpose and values. in particular product quality and safety, could result in the Group’s • Provide intellectual property guidance and education to reputation, sales and future prospects being adversely affected. design and sourcing teams. Diversity and inclusion issues have become more prominent in customer • Monitor customer product reviews and take appropriate preferences; failure to stock a diverse range of products and ensure action to remove products from sale and take other actions inclusivity could create reputational damage. as appropriate where quality issues are identified. • In-house product quality assurance team works with suppliers Change from prior year to ensure product quality, safety and ethical production. Unchanged level of risk. Developing our brand and increasing customer engagement is a strategic aim. In autumn 2022 we launched an • Conduct third-party technical and ethical audits. updated brand to ensure that the visual representation and tone • Monitor the Group’s ESG responsibilities and implement of voice of The Works aligns with its purpose and reflects the more processes to ensure the Group operates in a responsible modern, fun and engaging business we are today. way (see pages 29 to 35). Link to strategy • Recruiting a D&I manger to lead our D&I strategy including reviewing our product range to ensure inclusivity. • Operate brand tracking that provides feedback from customers and highlights potential brand damaging issues. TheWorks.co.uk plc Annual Report and Accounts 2023 51 ## Risk management and principal risks and uncertainties continued Principal and emerging risks and changes in principal risks continued Risk, profile change and link to strategy Mitigation 6. Seasonality of sales The Group generally makes substantially all of its profit in the second • Continue to develop the year-round appeal of half of the financial year during the peak Christmas trading period. the proposition. Interruptions to supply, adverse weather or a significant downturn in • Hold weekly trading meetings to ensure that immediate consumer confidence or a failure to successfully execute strategy in this action is taken to maximise sales based on current and period could have a significant impact on the short-term profitability of expected trading conditions. the Group. • Plan rigorously for product proposition, supply chain and Change from prior year retail operations to ensure the success of the peak Christmas Unchanged level of risk. trading period. Link to strategy 7. People The Group’s success is strongly influenced by the quality of the Board, • Discuss and review succession plans at Nomination senior management team and staff generally. A lack of effective Committee meetings. succession planning and development of key colleagues could harm • Establish development programmes to support future prospects. future leaders. Change from prior year • Operate the ‘Can Do Academy’ to facilitate training Unchanged level of risk. and development. • Launched a new employee communications and Link to strategy engagement platform MyWorks (see page 32). • Well-managed search and recruitment processes, together with appealing proposition and welcoming culture, enables recruitment of high-calibre executives. • Implement a Remuneration Policy designed to ensure management incentives support the Group’s long-term success for the benefit of all stakeholders, including a Long-Term Incentive Plan for Executive Directors and restricted share awards for Operations Board members. For further details see pages 76 to 77. 8. Environmental (including climate change) There is an increased focus on sustainable business from consumers • An ESG steering group meets quarterly and reports to the and regulators. In our business this applies to products and packaging Board and the Operations Board on a regular basis. in particular. Failure to respond to these demands could affect the • Implementing initiatives to reduce our impact on the Group’s reputation, sales and financial performance. environment (see pages 30 and 31). Supply chain disruptions due to more extreme weather events created • Retain specialist third-party ESG consultancy, Inspired as a result of global warming could damage operations, in particular Energy, to assist in the further development of the the flow of stock which could adversely impact sales. Group’s environmental strategy and ensure compliance with TCFD requirements. There are increased reporting and disclosure requirements relating • Appointed a Sustainability Manager in January 2023 to climate change and environmental impact including new taxes, to lead the development and implementation of our regulation and compliance risks as noted in risk 9 below. environmental strategy. Change from prior year • Working with third-party logistics providers to explore and Increased level of risk. Reporting and disclosure requirements are invest in energy efficient solutions within the supply chain. continuing to increase and achievement of the Group’s longer-term • Developed a climate risk register (see pages 38 to 45). environmental ambitions are dependent on effective implementation of the Group’s sustainability strategy and suppliers taking steps to reduce their environmental footprint (see pages 30 and 31). Link to strategy Develop our brand and increase Enhance our Optimise our Drive operational customer engagement online proposition store estate improvements TheWorks.co.uk plc Annual Report and Accounts 202352 Risk, profile change and link to strategy Mitigation 9. Regulation/compliance The Group is exposed to an increasing number of legal and regulatory • Oversight of regulatory compliance by Group CFO and compliance requirements including the Bribery Act, the Modern Slavery Company Secretary with support from external advisers. Act, the General Data Protection Regulation (GDPR) and the Listing • Implement policies and procedures in relation to both Rules. Failure to comply with these laws and regulations could lead to mandatory requirements and measures the Group has financial claims, penalties, awards of damages, fines or reputational adopted voluntarily (e.g. anti-bribery and corruption, damage which could significantly impact the financial performance adherence to National Living Wage requirements). of the business. • Operate a Whistleblowing Policy and procedure which There are extensive and increasingly onerous laws and regulations enable colleagues to confidentially report any concerns (including reporting and disclosure requirements) surrounding or inappropriate behaviour. climate change and environmental reporting. Failure to comply with • Operate a GDPR Policy which is overseen by a suitably these could result in financial penalties, legal consequences and/or experienced data supervisor and monitored by members reputational damage. of a GDPR governance monitoring group who meet regularly and report key issues to the senior management team. Change from prior year Unchanged level of risk. • Retain experienced advisers where necessary to cover gaps in expertise in the in-house team. Financial statementsCorporate governanceStrategic report Link to strategy 10. Liquidity Insufficient liquidity available and/or insufficient headroom in banking • Financial forecasts and covenant headroom monitored facilities. Potential for breach of banking covenants if financial and reported to the Board and the bank monthly. performance is significantly worse than forecast. • Strategy focuses on driving like-for-like sales and improving efficiency, rather than previous store rollout plan, which is a Availability of credit insurance to suppliers may be reduced or removed less capital intensive strategy. resulting in an increased cash requirement. • The Group’s bank facility at year end FY23 comprised a Change from prior year committed RCF of £30m with an expiry date of 30 November Unchanged level of risk. 2025. Since the Period end, the Group has implemented Link to strategy a reduction in the size of the facility, which was undrawn throughout most of FY23, to £20.0m, and simultaneously extended its term such that it now expires on 30 November 2026. • Careful management of banking relationship increases the likelihood of a supportive response in the event that it should be needed. 11. Business continuity Significant disruption to the operation, in particular internal IT systems, • IT recovery plans fully tested in the response to the March Support Centre or Distribution Centre, could severely impact the 2022 cyber security incident. Group’s ability to supply stores or fulfil online sales resulting in financial • Implemented new cloud back-ups which improve the or reputational damage. flexibility of any disaster recovery plan response. Change from prior year • Enhanced business continuity plan in place including Unchanged level of risk. system recovery. • Subscribe to a cloud-based technology recovery centre Link to strategy to improve speed and execution of a recovery. • Undertake disaster recovery dry run exercises. Emergency generator installed at the Group’s Support Centre to insulate the business from the impact of power cuts. • Maintain appropriate business interruption insurance cover. TheWorks.co.uk plc Annual Report and Accounts 2023 53 ## Viability statement In accordance with Provision 31 of the UK Corporate Governance Code Financial position and bank facilities (the Code), the Directors have assessed the prospects and viability At the end of FY23 the Group held net cash at bank of £10.2m of the Group taking into account the Group’s current position and (FY22: of £16.3m). the potential impact of the principal risks documented in this report. After the Period end, the Group extended the term of its bank The Directors have used a period of three years to make this facility by one year and it now expires on 30 November 2026, assessment, a period which they consider to be appropriate thereby covering the entirety of the viability period. At the same for the following reasons: time, following a review of the historic utilisation of the facility, the Group’s anticipated future cash requirements, and the costs of • Retail market trends evolve rapidly, including the way customers maintaining the facility, the Group requested that HSBC reduce the shop and the impact of new technologies. The potential size of the facility from £30m to £20m. uncertainty as to how the market may have evolved more than three years into the future is considered too great to enable The facility includes two financial covenants which are tested quarterly: plans extending beyond this period to be meaningful. 1. The ‘Leverage Ratio’ or level of net debt to LTM (last 12 months’) • Uncertainty exists in relation to the wider economy and its EBITDA must not exceed 2.5 times during the life of the facility. potential impact on consumer demand and shopping habits. 2. The ‘Fixed Charge Cover’ or ratio of LTM EBITDA prior to • The average remaining term of the Group’s property portfolio deducting rent and interest, to LTM rent and interest. This leases is approximately three years. covenant increases in steps to reflect the expectation of The text which follows closely reflects the text in Note (1) (b) (i) of the progressively improving financial performance during the life financial statements, relating to the preparation of the accounts of the facility, as follows: until October 2023, the ratio must on a going concern basis. The accounts have been prepared on be at least 1.20 times; for the following 12 months the ratio a going concern basis, but Note (1) (b) (i) refers to the existence must be at least 1.25 times, and thereafter at least 1.30 times. of a material uncertainty regarding the availability of borrowing The Group expects to be able to operate and have sufficient facilities in the event that they may be needed under a sensitised headroom within these covenants. “severe but plausible” downside case. Potential impact of risks on financial scenarios The Group has prepared cash flow forecasts for FY24 to FY26, It is considered unlikely that all the risks described in the Strategic referred to as its ‘Base Case’ scenario. In addition, a ‘severe but report would manifest themselves to adversely affect the business plausible’ ‘Downside Case’ sensitivity has been prepared to at the same time. The Base Case scenario/the Group’s three- support the Board’s conclusion regarding viability, by stress testing year financial plan, implicitly already takes into account the risks the Base Case to indicate the financial headroom resulting from described, and assumes that they manifest themselves in a way or applying more pessimistic assumptions. to an extent that might be considered ‘neutral’. In assessing the Group’s viability the Directors have considered: The Downside Case scenario assumes that there are more severely • The external environment. negative effects than in the Base Case. In particular, the Downside • The Group’s financial position including the quantum and Case assumptions are that macroeconomic conditions are expectations regarding the availability of bank facilities. significantly worse, resulting in reduced consumer spending and lower sales. It should be noted that the Base Case already takes • The potential impact on financial performance of the risks into account the current subdued consumer market conditions. described in the Strategic report. The Downside Case assumes that conditions become worse • The output of the Base Case scenario, which represents the Group’s still from the second half of the FY24 financial year. view of the most likely financial performance over the viability period. • Measures to maintain or increase liquidity in the event of a significant downturn in trading. • The resilience of the Group to these risks having a more severe impact, evaluated via the Downside Case which shows the impact on the Group’s cash flows, bank facility headroom and covenants. These factors are described below. External environment The risks which are considered the most significant relate to the economy and the market, specifically their effect on the strength of trading conditions, and the Group’s ability to successfully execute its strategy. The risk of weaker consumer demand is considered to be the greater of these risks currently, due to the continued high level of inflation and its potential effect on economic growth and consumer spending. An emerging risk has been noted in relation to the possible effects of climate change, but this is not expected to have a material financial impact on the Group during the viability period. TheWorks.co.uk plc Annual Report and Accounts 202354 # Base Case scenario The Base Case scenario assumptions reflect the following factors: - Store sales (which represent over 85% of total sales) during the first part of FY24 are above the Base Case requirement but online sales are below it. The Group is implementing plans to improve its online profitability in the medium term; in the short term, costs relating to the online business are being tightly controlled to ensure that they reflect the reduced sales level. - The Base Case gross margin percentage reflects the expected full year effect in FY24 of targeted price increases applied since the beginning of 2023 and also significantly lower ocean container freight costs. These favourable factors are partially offset by a less favourable hedged FX rate than in FY23. - Anticipated further inflationary effects, in particular the increase in the National Living Wage, in respect of other costs, notably property occupancy costs, it is not expected that there will be further significant inflationary effects during FY24 and FY25, following the significant increases (for example in electricity costs) already experienced during FY23. - Capital expenditure levels are in line with the Group's strategic plan. A significant proportion of the Group's capital expenditure is discretionary, particularly over a short-term time period. As a result, if required, it can therefore be reduced substantially, for example, in the event the Group needs to preserve cash. - The anticipated costs of the Group's net zero climate change commitments have been incorporated within the Base Case model within the next three years. As set out in the climate related disclosures on pages 36 to 46, the impact on the Group's financial performance and position is not expected to be material in the short term. - The plan makes provision for dividend payments. Under the Base Case scenario, the Group expects to make routine operational use of its bank facility each year as stock levels are increased in September-October, prior to peak sales occurring. This is consistent with the normal pattern experienced prior to COVID-19. The output of the Base Case model scenario indicates that the Group has sufficient financial resources to remain viable over the three-year period. # Measures to maintain or increase liquidity in circumstances such as are described below If necessary, mitigating actions can and would be taken in response to a significant downturn in trading, such as is described below, which would increase liquidity. These include, for example, delaying and reducing stock purchases, stock liquidation reductions in capital expenditure, the review of payment terms and the review of dividend levels. Some of these potential mitigations have been built into the Downside Case model, and some are additional measures that would be available in the event of that scenario, or worse, actually occurring. # Severe but plausible Downside Case scenario The Downside Case makes the following assumptions to reflect more adverse macroeconomic conditions compared to the Base Case: - Store LFL sales are assumed to be 5% lower than in the Base Case from October 2023 until January 2025. - In this scenario online sales are assumed to be lower than in the Base Case during FY24 despite the Group's attempts to increase them, but show recovery in FY25. - The product gross margin assumptions are the same as in the Base Case other than in January 2024 when it is lower, to allow for the clearance of stock which is assumed would have accumulated due to the inability to reduce stock purchases immediately in response to the lower sales level. - Expected FX requirements are hedged until mid-FY25, and freight rates are hedged until the end of 2023. Beyond that time, it is not anticipated that there will be any interruption to global freight systems as was experienced as a result of the COVID-19 pandemic, which were a consequence of unique circumstances. Other gross margin inputs are relatively controllable, including via the setting of selling prices to reflect any systematic changes in the cost price of goods bought for resale. - Volume related costs in the Downside Case are lowered where they logically alter in a direct relationship with sales levels, for example, forecast online fulfilment and marketing costs. The model also reflects certain steps which could be taken to mitigate the effect of lower sales, depending on management's assessment of the situation at the time. These include adjustments to stock purchases, reducing capital expenditure, reductions in labour usage, a reduction in discounts allowed as part of the Group's loyalty scheme and the suspension of dividend payments. - The combined financial effect of the modified assumptions in this scenario compared with the Base Case, during the viability assessment period FY24 to FY26, including implementing some of the mitigating activities available, would result in: - A reduction in store net sales of approximately £63m. - A reduction in online net sales of approximately £1m. - A reduction to EBITDA of approximately £15m. Under this scenario the Group will draw on its bank facility prior to Christmas 2023 but, as a result of the mitigating actions that would be taken in HQ FY24 in response to a downturn in sales, particularly in reducing the value of stock bought for resale, it would not make subsequent use of the bank facility. The bank facility financial covenants are complied with during the pre-Christmas 2023 period when the facility is being used, but the forecast indicates that the Fixed Charge covenant will not be complied with throughout FY25, although at this time the facility is not expected to be in use under this scenario. On the basis of this Downside Case scenario with the 'severe but plausible' set of assumptions as described, the business would continue to have adequate resources to continue in operation on a viable basis. Corporate governance Corporate governance Financial information TheWorks.co.uk plc Annual Report and Accounts 2023 55 ## Viability statement continued Severe but plausible Downside Case scenario continued Conclusion regarding viability However, the cash headroom at certain quarterly covenant Having considered the possibilities modelled under the scenarios testing points in FY25 and FY26 is limited, and there are reasonably described above, including the Board’s assessment of the plausible scenarios in which this headroom could be eroded and likelihood that each scenario transpires, and the likelihood that create a borrowing requirement. For example, if sales decreased the Group would be able to take actions to successfully mitigate by a further 1% during the going concern period (which covers the the effects should such events occur, the Board is satisfied that earlier part of the viability assessment period) compared with the the Group can maintain its financial commitments. The Directors Downside Case, a small borrowing requirement could arise. therefore confirm they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities The Group has a strong relationship with its bank, HSBC, and has as they fall due over the three-year viability assessment period. a recent track record of working collaboratively with the bank to resolve potential covenant issues, for example, a waiver was agreed by HSBC in 2021 as noted in the Group’s FY21 Annual Report. Despite this strong relationship with the bank and the recent evidence of successfully managing comparable situations, if a borrowing requirement arose when the financial covenants are not complied with, there is a risk that the Group would not be able to utilise its borrowing facilities if required. The Directors believe that, should such a situation arise in practice, it would have time before a potential breach to mitigate further, and potentially to make arrangements with the bank, as has occurred previously, to adjust the covenant levels to prevent a breach. Furthermore, the Group has successfully managed through challenging conditions during the recent COVID-19 pandemic, and the Directors believe it unlikely that comparably challenging conditions will be experienced during the forecast period, despite the concerns regarding the current macroeconomic conditions. Nevertheless, despite the Directors’ confidence in relation to these matters, there is no certainty as to whether the mitigating actions would provide the level of liquidity required in the time available to implement them, nor whether the bank would make adjustments to the financial covenants. TheWorks.co.uk plc Annual Report and Accounts 202356 ## Non-financial and sustainability information statement ## In accordance with Sections 414CA and 414CB of the ## Companies Act 2006 the information below is provided to ## help our stakeholders understand our position in relation ## to key non-financial and sustainability matters. The further ## information highlighted below is incorporated by cross-reference. Key matter Policies and standards that govern Further information our approach Environment and • Sustainability strategy. • ESG review: pages 29 to 35. climate-related • TCFD statement: pages 36 to 46. financial disclosures • Our stakeholders: page 26. Financial statementsCorporate governanceStrategic report | Employees • Health & Safety Policy. | | • ESG review: pages 32 to 34. | | --- | --- | --- | | | • Dignity & Respect Policy. | • Our stakeholders: pages 26 and 27. | | | • Equality, Diversity & Inclusion Policy. | • Remuneration report: pages 73 to 85. | | | • Whistleblowing Policy. | • Corporate governance report: pages 62 to 65. | • Colleague handbook. • Social Media Policy. • Disciplinary & Grievance Policies. • Data protection. Respect for • Modern Slavery Statement. • ESG review: page 35. human rights • Ethical Trading Code of Conduct. • Corporate governance report: pages 62 to 65. • Whistleblowing Policy. | Social • Sustainability strategy. | | • ESG review: pages 30 to 34. | | --- | --- | --- | | | • Data protection. | • Our stakeholders: pages 26 and 27. | | Anti-corruption and | • Bribery Policy. | • ESG review: page 35. | anti-bribery • Whistleblowing Policy. • Corporate governance report: page 63. Additional disclosures • Business model: pages 14 and 15. • Key performance indicators: page 18. • Principal risks: pages 49 to 53. TheWorks.co.uk plc Annual Report and Accounts 2023 57 ## Chair’s governance introduction ## The Board is fully committed to ## implementing the highest standards ## of corporate governance. ### Dear shareholder I am delighted to present our Corporate governance report for the year ended 30 April 2023, which sets out how our governance framework has operated and developed during the course of the year. The Board remains fully committed to implementing the highest standards of corporate governance, and I am pleased to report that it has applied the principles of the 2018 UK Corporate Governance Code in so far as it applies to smaller listed companies (below the FTSE 350). The Company’s performance in FY23 has continued to be impacted by the uncertain economic environment, and in particular concerns around the cost of living, as well as ongoing (but reducing) effects of supply chain disruption due to the Covid-19 pandemic. The lingering effects of the cyber security incident towards the end of FY22 also affected the business’ operations. During the year the Company’s leadership team and structure have continued to evolve and we have continued to make operational improvements to ensure that the business is run in the most efficient and cost-effective way, including through proposed changes to the store labour model which were reviewed by the Board during the year. As a Board, we have also devoted time to monitoring initiatives to support our people and culture. This has included updates on our employee engagement survey, and progress against actions arising from it, as well as receiving a detailed talent review covering various workstreams to support the development of our colleagues. Our governance framework has also been further strengthened. In particular, in line with our commitment to reduce our impact on the environment and implement the TCFD recommendations, we have increased our focus on environmental and climate-related matters. In setting our emission reduction targets to achieve our net-zero ambitions (which are described in more detail on page 30) the Board has spent a significant amount of time discussing, challenging management on, and ultimately approving the approach adopted. TheWorks.co.uk plc Annual Report and Accounts 202358 Our programme of Operations Board member presented ‘deep dives’ at our scheduled Board meetings continues to work well in both ensuring that the Board is kept well informed of progress ### Drive operational against key strategic and operational projects, as well as providing ### opportunities to engage directly with senior management and their improvements direct reports. During FY23, ‘deep-dives’ have focused in particular on IT projects and security (with the Board keen to oversee progress to enhance our IT security infrastructure following the Site visit to iForce Financial statementsCorporate governanceStrategic report Financial statementsCorporate governanceStrategic report cyber attack last year), and ESG and net zero (as noted above). We Managing a cost-effective and efficient fulfilment process have also devoted significant time to projects aimed at improving is vital to the delivery of the Group’s ability to maintain a stock management processes, including the review of the Group’s competitive value offering online. Given the importance of operational structure, enhancement of its merchandising functions, this process, in early October 2022 the Board held its meeting and proposals to enhance underlying systems. at the iForce distribution centre in Rugby (the site from which the majority of the Group’s online channel sales are fulfilled). I led an internal Board evaluation process during the year which is summarised on page 64. I am delighted to report that the The visit included a tour of the iForce operation, and the unanimous conclusion was that the Board dynamics are working opportunity to see in action the Company’s investment in well, and that the Board, its Committees and individual Directors an automated packing machine and robots to improve the are operating effectively. We have identified some actions to efficiency of the stock picking operation. Board members take forward in FY24 to ensure that we continue to support were also able to engage directly with the Company’s key management and the business in the best way possible. These contacts at iForce, enabling them to assess the strength of include allocating additional time for store visits and strategy the supplier relationship and understand the challenges and review, improving the visibility and understanding of the Board improvement opportunities to support the efficient delivery across the business, and continuing to review the information of online purchases to customers. included in monthly reporting to the Board. Read more about our strategy on pages 16 and 17 I have also enjoyed increased levels of direct engagement with our shareholders during the year including participating in a Image TBC number of face-to-face meetings. These interactions are extremely beneficial; they provide a deeper understanding of what really matters to our shareholders, and this invaluable information better equips the Board when considering the shareholder context in its discussions and debates. I look forward to meeting shareholders at our forthcoming Annual General Meeting (AGM), which will be held on 4 October 2023. Carolyn Bradley Chair 30 August 2023 TheWorks.co.uk plc Annual Report and Accounts 2023 59 ## Board of Directors ## An experienced team N A AN NRR R | Carolyn Bradley | Harry Morley | Catherine Glickman | | --- | --- | --- | | Chair and Non-Executive Director | Senior Independent Non-Executive Director | Independent Non-Executive Director | | Date of appointment | Date of appointment | Date of appointment | | September 2021 | July 2018 | July 2018 | | Committee membership | Committee membership | Committee membership | | Chair of the Nomination Committee and | Chair of the Audit Committee | Chair of the Remuneration | | member of the Remuneration Committee. | and member of the Nomination | Committee and member of the | | | and Remuneration Committees. | Audit and Nomination Committees. | Relevant skills and experience | • Extensive retail, marketing and | Relevant skills and experience | Relevant skills and experience | | --- | --- | --- | | commercial experience in executive and | • Extensive retail and consumer | • Significant retail experience as Group HR | | non-executive roles including 25 years at | experience, including as co-founder | Director of Genus plc, having previously | | Tesco plc where her roles included Group | of Tragus Holdings Ltd, owner of Café | held the same role at Tesco plc where she | | Brand Director, UK Marketing Director and | Rouge and Bella Italia restaurant | led retail management development and | | Chief Operating Officer for Tesco.com. | chains and a Non-Executive Director | customer service training during a period | | • Significant consumer experience | of Bibendum Wine Holdings Ltd. | of significant expansion in the UK and | | including leading Tesco’s Clubcard | | overseas. Prior to this she held positions | • Significant financial and commercial loyalty scheme, the ‘Every Little Helps’ at Somerfield and Boots. expertise as Chief Financial Officer of service campaign and the grocery home Tragus Holdings Ltd and CEO of Armajaro • Extensive people and reward expertise delivery business. Asset Management LLP. He also held having developed reward structures that senior management roles at P&O. align leadership motivation with strategy Current external appointments at both Genus plc and Tesco plc. • Chartered accountant. Senior Independent Director and Chair of the Remuneration Committee of SSP Group Current external appointments Current external appointments plc and Non-Executive Director of Majid Non-Executive Director and Chair of the Non-Executive Director and Chair of the Al Futtain Retail LLC and The Mentoring Remuneration Committee at Renishaw plc. Audit Committee at JD Wetherspoon plc, Foundation. a Trustee of the Ascot Authority and from 1 September 2023, a Non-Executive Director of Schroder UK Mid Cap Fund plc. Director of Cadogan Group Limited and two related subsidiary companies. TheWorks.co.uk plc Annual Report and Accounts 202360 Committee membership A Audit Committee N Nomination Committee R Remuneration Committee Chair of Committee Financial statementsCorporate governanceStrategic report Experience | | | Retail | | 100% | | --- | --- | --- | --- | --- | | | | Consumer | | 100% | | Gavin Peck | Steve Alldridge | | | | | Chief Executive Officer | Chief Financial Officer | Finance | 60% | | | Date of appointment | Date of appointment | PLC | | 100% | | January 2020 | May 2021 | | | | Tenure | Committee membership | Committee membership | | | --- | --- | --- | | None | None | | | Relevant skills and experience | Relevant skills and experience | | | • Significant financial, retail and | • Significant financial and retail expertise | | | commercial expertise, including as Chief | having initially joined The Works on an | | | Financial Officer of The Works, and, prior | interim basis as CFO in June 2020. Prior | | | to that, as Commercial Director at Card | to that, over 20 years’ experience of | | | Factory plc where he was responsible for | working in retail, most recently as CFO | | | the commercial function (buying, space | of Bonmarché Holdings plc, where he | | | and merchandising) and leadership of | led a highly effective finance function, |  | | the commercial finance team. He played | and completed several significant | | 1–3 years 40% | a key role in the successful IPO of Card | transactions, including a private equity | | | --- | --- | --- | | Factory in 2014 and its subsequent | backed management buyout, and | 3–6 years 60% | | growth and evolution as a listed business. | two stock market listings. Previously he | | worked at Peacocks, the discount retailer, • Chartered Accountant, having started and chartered accountants EY. Gender his career at PwC where he spent eight years working in the audit and corporate • Chartered accountant. finance departments. Current external appointments • Joined The Works as CFO in April 2018, None overseeing the IPO and serving as an Executive Director of TheWorks.co.uk plc since the IPO in July 2018. Current external appointments None ##  Male 60% Female 40% TheWorks.co.uk plc Annual Report and Accounts 2023 61 ## Corporate governance report UK Corporate Governance Code – compliance statement The Company has applied all of the principles of the UK Corporate Governance Code (the Code) as they apply to it as a ‘smaller company’ (below FTSE 350) and has complied with all relevant provisions of the Code during the year. Full details of the Code are available at www.frc.org.uk. Details explaining how the Company has applied the principles of the Code can be found throughout this Annual Report. Governance structure Board • Overall leadership of the Group. • Sets strategy, purpose, values and culture. • Oversees and embeds sound principles of corporate • Approves major contracts. governance. • Approves business plan and budget. • Ensures appropriate policies, procedures and controls are in • Sets and oversees environment and climate strategy and targets. place to support effective risk management and performance against agreed financial and operational metrics. Certain matters are reserved to the Board and formally documented in a Schedule of Matters Reserved to the Board. The Board has delegated a number of its responsibilities to the Audit Committee, Nomination Committee and Remuneration Committee. The Schedule of Matters Reserved to the Board and each Committee’s terms of reference are available at https://corporate.theworks.co.uk/who-we-are/corporate-governance. Audit Committee Nomination Committee Remuneration Committee • Reviews annual and interim financial • Identifies and nominates appointments • Sets Remuneration Policy. statements. to the Board. • Determines Executive Director and • Reviews accounting policies and • Reviews Non-Executive Directors’ time senior management remuneration. financial reporting and regulatory commitments. • Approves annual bonus plan and compliance. • Oversees succession planning. Long-Term Incentive Plan targets. • Reviews internal control system. • Reviews size and composition • Reviews workforce remuneration policies • Monitors processes for internal audit, of the Board. and practices. risk management and external audit. • Promotes diversity. • Ensures that provisions regarding • Monitors independence disclosure of remuneration are fulfilled. • Undertakes annual performance of external auditor. evaluation of the Board, its Committees • Oversees relationship with and individual Directors. external auditor. Read more on pages 66 to 69 Read more on pages 70 to 72 Read more on pages 73 to 85 Operations Board • Reporting to the CEO, responsible for the day-to-day trading activities of the Group and implementing the strategy agreed by the Board. • Monitors performance against financial and operational targets and manages risk. Information about the Operations Board is available at https://corporate.theworks.co.uk/who-we-are/our-leadership. How the Board operates The Board meets at least ten times per year, and its activity at upcoming announcements, share dealing requests and statutory each meeting is planned in accordance with a formal schedule of or regulatory filings, and regulatory or legislative developments activity which is updated on a rolling basis and is approved by the which may impact the Company. Separate papers are prepared to Board. This ensures that it receives appropriate information at the support any specific matters requiring Board decision or approval, appropriate time, and that all key operational, financial reporting or to provide updates on actions raised at previous meetings. and governance matters are discussed during the year. In addition The Non-Executive Directors provide ongoing feedback to the to standing items, agendas incorporate sufficient flexibility to allow CEO and CFO on the content of papers to ensure they continue to specific areas of focus to be considered as and when required, and support effective debate and decision making by the Board. for store or Distribution Centre visits to be incorporated into the annual meeting activity. The schedule includes regular ‘deep-dive’ All Directors have direct access to the Operations Board members presentations from Operations Board members on specific areas and other senior managers should they require additional of their responsibility, which increase the Non-Executive Directors’ information on any of the items to be discussed at Board meetings. understanding of key operational initiatives and challenges and The Board and the Audit Committee also receive regular and provide the opportunity for senior executives to meet and discuss specific reports to enable monitoring of the effectiveness of the their areas of responsibility with the Board. Company’s systems of internal control. To support consistency of information, a Board pack is circulated Minutes of all Board and Committee meetings are taken by the in advance of each meeting. It includes summary reports from the Company Secretary and circulated to Directors for approval as soon CEO, the CFO and each of the other Operations Board members, as practicable following the meetings. Specific actions arising from as well as underlying supporting data and metrics. The Company meetings are recorded both in the minutes and on separate action Secretary also prepares a standard format report for each logs, thereby facilitating the effective communication of actions to meeting to ensure the Board is kept up to date on recent and those responsible and allowing the Board to monitor progress. TheWorks.co.uk plc Annual Report and Accounts 202362 Composition, independence and attendance The key matters the Board focused on during the year are detailed in There were no changes to the Board during FY23, and it therefore the table below. In addition the standing agenda for each scheduled continues to be comprised of five Directors (including the Chair). Board meeting includes discussion of the information contained The Board (on the recommendation of the Nomination Committee) within the Board pack circulated in advance of each meeting (see continues to determine that both of the Non-Executive Directors previous page). (Catherine Glickman and Harry Morley) are independent, and Topic Activity therefore, excluding the Chair, half of the Board comprises Strategy • Mid-year progress review against strategic objectives. independent Directors in compliance with provision 11 of the Code. • Approved investment in stock transformation Individual Director attendance at scheduled Board and Committee (including review of operational structure and meetings (where they are a member) is set out in the table below: enhancement of the merchandising function). | | | Audit | Remuneration | Nomination | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | | Financial and | • Reviewed and approved the FY24 budget. | | Board | Committee | | Committee | Committee | | | reporting meetings meetings meetings meetings • Reviewed and approved the half-year and held/ held/ held/ held/ full-year financial statements. Director attended attended attended attended • Approved the Group tax strategy. Carolyn Bradley 11/11 N/A 4/4 2/2 People • Received an update on Company culture and Gavin Peck 11/11 N/A N/A N/A and culture reviewed a summary of key workforce policies Steve Alldridge 11/11 N/A N/A N/A and procedures. Catherine Glickman 11/11 4/4 4/4 2/2 Financial statementsCorporate governanceStrategic report • Reviewed employee engagement survey. Financial statementsCorporate governanceStrategic report Harry Morley 11/11 4/4 4/4 2/2 • Received detailed talent review, and update on workstreams to support colleague development All Directors are expected to attend all meetings of the Board and and internal succession. any Committees of which they are members, and to devote sufficient • Reviewed proposed changes to store time to the Company’s affairs to fulfil their duties as Directors. The labour model. Non-Executive Directors’ letters of appointment anticipate that each Non-Executive Director will need to commit a minimum of two Shareholder • Received regular updates from CEO and days per month to the Company but clarify that more time may be engagement CFO on their engagement with analysts required. In addition, the Non-Executive Directors are expected to and institutional investors. commit appropriate preparation time ahead of each meeting. • Discussed feedback from the Chair’s meeting with investors during the year. Where Directors are unable to attend a meeting, they are encouraged to submit any comments on papers or matters to • Approved appointment of Singer Capital be discussed to the Chair in advance to ensure that their views as corporate broker. are recorded and taken into account during the meeting. ESG • Reviewed the Group’s carbon balance sheet Roles and division of responsibilities and approved methodology for assessing There have been no changes to the roles and responsibilities of Scope 3 emissions. the members of the Board during the year. As previously reported, • Agreed net-zero strategy and targets. there is a clear division of responsibilities between the Chair and • Reviewed climate-related risks and opportunities the CEO (with the Chair’s primary role being to lead the Board and facing the business. ensure its independence and effectiveness, and the CEO’s primary • Received updates on development of the role being the day-to-day management and leadership of the diversity and inclusion strategy, and approved Company). Harry Morley is the Senior Independent Director, and his the updated Board Diversity Policy. duties in that role include acting as a sounding board for the Chair, being available as an additional point of contact for shareholders, Risk • Reviewed the Group’s risk register and internal and leading the evaluation of the Chair’s performance. management controls structure. • Received regular updates on internal financial The Company Secretary supports the Board and each of the three control improvements. Board Committees, and attends all meetings. The Company Secretary is available to all the Directors to advise on company law, governance • Reviewed detailed progress reports on steps and best practice, whilst assisting the Board in ensuring that the being taken to enhance IT security infrastructure correct policies, processes and information are tabled for discussion, following last year’s cyber security incident. noting or approval at the correct point in time throughout the year. • Reviewed and proposed amendments to the Group’s policy relating to bribery and corruption. Board activities during the year The Board met formally on 11 scheduled occasions during the year. It Governance • Reviewed the results of the Board evaluation, also undertook three site visits. In October 2022 the Directors visited and agreed an action plan for FY24. the Group’s third-party fulfilment partner’s (iForce) distribution centre • Reviewed various governance policies, including in Rugby (see page 59) and in November 2022 its Watford Atria the Disclosure Policy, Whistleblowing Policy, store. In April 2023 the Board also undertook a tour of the Group’s Share Dealing Code and Board Diversity Policy. Distribution Centre (co-located within its head office at Boldmere • Reviewed and approved changes to the House) to see the new pick matrix that has been introduced to Board’s Schedule of Matters Reserved improve the efficiency of the store replenishment process. and its Committees’ terms of reference. In addition to scheduled meetings, the Board also met on two separate occasions by video conference at short notice to review trading performance and to deal with final approval of the FY22 results announcement and Annual Report. TheWorks.co.uk plc Annual Report and Accounts 2023 63 ## Corporate governance report continued Training and development The efficient and effective operation of the Board depends on the their knowledge and experience in particular areas relevant to their ability of individual Directors (and in particular the Non-Executive role with the business. Directors) to bring the benefit of their own business knowledge Evaluation and effectiveness and experience. Ensuring that all Directors have an in-depth In accordance with provision 21 of the Code, the Board considered understanding of the Company’s own operations is an important whether it would be appropriate to conduct an externally facilitated element in enabling the benefit of that experience, and we seek evaluation process during the year. Given the size of the Board, the to support this understanding through the detailed materials relative cost of an externally facilitated process, and a desire to allow circulated in advance of Board meetings, as well as collective and the Executive Directors to maintain focus on managing the business in individual Director site visits or days out in stores, which are usually a challenging environment without unnecessary distraction, the Board accompanied by different members of the Operations Board. agreed that an internal evaluation process would again be the best We also expect our Directors to keep themselves up to date in approach. However, to gather more qualitative feedback the Board relation to developments in regulation and corporate governance agreed that the process should move away from a questionnaire- best practice. As highlighted above the Company Secretary based approach to one led by the Chair and involving face-to-face ensures that the Board is briefed on forthcoming legal and conversations with each member of the Board. Information about regulatory developments, and Directors are encouraged to attend the FY23 evaluation process, including its findings and key actions, is externally facilitated seminars, webinars and workshops to develop summarised in the table below: Process Discussions and output 1. PLC Board Carolyn Bradley met with each member of the Board. Discussions focused on: interviews • Board dynamics. • Meeting content and process. • Governance and activity programme. • Committee performance. • Individual Director performance. 2. Operations Gavin Peck led a group discussion with the Operations Board seeking feedback on: Board • Their interactions with Board Directors (through one-to-one meetings or their attendance at PLC Board meetings). feedback • Broader business/colleague perception and understanding of the Board’s role. session • The culture promoted by the Board. 3. Feedback Summary feedback compiled by Carolyn Bradley was discussed at the April 2023 Board meeting. Key findings were: • Universal agreement that Board dynamics are good. • Meetings are effective, with appropriate content, papers and governance. • Appropriate time is spent on strategy. • Interactions with Operations Board are positive and well received. • Committees are well chaired and operate effectively. • More time could be spent in stores and monitoring trends and developments in the retail sector. • Challenge from the Non-Executive Directors is appropriate and well received. 4. Next steps The Board agreed the following actions: • Hold an extended two-day meeting each year to accommodate store visits alongside a strategy review. • Consider the level of detail required in Operations Board reports to the Board, including whether they could be more succinct. • Consider ways to deepen broader business understanding/knowledge of the Board and its role. Progress made in addressing some of the actions identified in the FY22 evaluation process is summarised below: Key matter Actions Progress in FY Purpose, values • Develop an overall execution plan encompassing • Regular updates provided by the CEO and strategy all elements of the Company’s strategy. on progress against strategic pillars. • Create a dashboard to monitor and measure progress against relevant KPIs. Stakeholders • Build on recent good stakeholder engagement • Continued focus on colleague engagement. with both colleagues and shareholders. • Chair has met with a number of shareholders • Develop and support the Company’s ESG in the year. programme, at Board and executive level, • Significant focus on ESG (particularly climate recognising that the programme requires and net zero) in the year. more definition and data provision. The Board and succession • Increase Nomination Committee focus • Additional time devoted to succession planning on succession planning at Board and during the year. executive levels. • Operational ‘deep-dive’ presentations to the • Create more opportunities for the Board to Board expanded to include presentations by meet rising stars and future executive leaders. Operations Board members’ direct reports. TheWorks.co.uk plc Annual Report and Accounts 202364 Appointment and election Engagement with the workforce The Board considers all Directors to be effective and committed The Board recognises that the Company’s culture underpins its to their roles and to have sufficient time to perform their duties. long-term success. Accordingly, assessing and monitoring the In accordance with the Company’s Articles of Association culture that is being fostered across the Group forms part of the (articles), all members of the Board will be offering themselves Board’s activity schedule. This assessment is conducted through for reappointment at the Company’s AGM on 4 October 2023. a combination of reviews of the output of our regular employee engagement surveys, updates from the People Director through All of the Directors have service agreements or letters of our programme of Operations Board members’ ‘deep-dive’ appointment and the details of their terms are set out below. presentations to the Board, formal reporting on people related Executive Director service contracts statistics in the monthly Board pack, and Board members’ own Notice Notice interactions with colleagues across the Group (including through Date of period by period by Board or individual Director site visits). The Board also regularly service Company Director reviews workplace policies and practices. Name Position agreement (months) (months) Gavin Peck CEO 19 July 2018 12 12 As part of its review of Code compliance during the year, the Board again assessed the various methods by which the Directors Steve Alldridge CFO 14 May 2021 6 6 engage with the wider workforce. The Board continues to be of the view that the combination of existing engagement mechanisms The Non-Executive Directors (including the Chair) do not have ensures that the Board is appropriately informed about, and service contracts, but are instead appointed by letters of understands, workforce views, and therefore this approach appointment. Each of the Non-Executive Directors and the Chair continues to appropriately address the requirement to engage Financial statementsCorporate governanceStrategic report are appointed for a three-year term, subject to their annual with the workforce under provision 5 of the Code. The Board reappointment by shareholders at the AGM. does not currently intend to adopt one of the three workforce | Non-Executive Director appointments | | | | | | | engagement methods suggested in that provision, but will continue | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Appointment letter | | | Unexpired | to monitor its workforce (and wider stakeholder) engagement | | | | Date of | commencement | | term as at  | | mechanisms to ensure they operate effectively. | | Name | appointment | | | date | October  | | | | Carolyn Bradley 30 September | | | 30 September | |  months | | Relations with shareholders | | | | 2021 | | 2021 | | | The Board recognises the importance of explaining financial | results and key strategic and operational developments in the Catherine Glickman 19 July 2018 26 July 2022  months business to the Company’s shareholders, and of understanding Harry Morley 19 July 2018 26 July 2022  months any shareholder concerns. Ensuring a satisfactory dialogue with shareholders and receiving Conflicts of interest and external appointments reports on the views of shareholders are matters reserved for the In accordance with the Board’s approved procedure relating to Board. Day-to-day responsibility for investor relations is delegated the disclosure of any conflicts or potential conflicts of interest, all to the CEO and the CFO, who are supported by the Company’s Directors have confirmed that they did not have any conflicts of retained financial PR advisers, and its corporate brokers. As part interest with the Group during the year. None of the Directors took of its investor relations programme, the Group aims to maintain on any new external appointments during FY23. a dialogue with its shareholders, including institutional investors, Whistleblowing to discuss issues relating to the performance of the Group. The Company has in place procedures by which colleagues may, Information and investor news is also made available via the in confidence, raise concerns relating to possible improprieties Company’s website (https://corporate.theworks.co.uk/investors). in matters of financial reporting, financial control or any other The Chair has also met with a number of shareholders during FY23. matter. The Whistleblowing Policy applies to all colleagues across the Group, and the Board is responsible for monitoring the policy Investor relations is a standing item on the Board’s agenda. The and ensuring that the arrangements are effective. A review of the Executive Directors and the Chair provide feedback directly to the Whistleblowing Policy and arrangements was initiated in the latter Board on key matters arising in their meetings with shareholders, part of FY23, and while the Board continues to be of the view that ensuring that all Directors are aware of shareholder views. These existing arrangements are appropriate it is anticipated that the matters are discussed and assessed by the Board before deciding language of the policy will be updated in FY24 to bring it in line on whether any further action or engagement is required. with that of other workforce policies. The Company’s AGM provides a further opportunity for Stakeholder engagement shareholders to engage directly with the Board. The Company’s The CEO and Operations Board members are responsible for 2023 AGM will take place at 9am on 4 October 2023 at Boldmere the day-to-day management of stakeholder relationships and House, Faraday Avenue, Hams Hall Distribution Park, Coleshill, ensuring that stakeholder issues are appropriately reported to the Birmingham B46 1AL. This Annual Report and financial statements Board. Further information on how we engage with stakeholders and Notice of the AGM will be made available to shareholders is set out on pages 26 and 27. The Directors recognise their duty in accordance with the required notice periods. under Section 172 of the Companies Act to consider the interests of stakeholders, and the nature of our business means that the interests of our colleagues, customers and suppliers are at the front of mind in the Board’s decision-making process. The Company’s Section 172 statement is included on page 28. TheWorks.co.uk plc Annual Report and Accounts 2023 65 ## Audit Committee report ### Dear shareholder I am pleased to present the Audit Committee’s report for the 52-week period ended 30 April 2023. The report sets out the Committee’s work in relation to financial reporting, internal control and audit, risk management and oversight of the external audit process. Timing of the FY23 results The FY23 results have been published later than originally intended. The delay was due to significant additional work being undertaken, principally in relation to asset impairment charges and related impacts on IFRS 16 calculations. As well as affecting the FY23 result, this also entailed the restatement of comparative figures for prior periods. Whilst the delay has been frustrating, we highlight that the issues in question have not affected the Board’s assessment of the underlying performance of the business (for example, as represented by the EBITDA) and had no direct cash impact. Information regarding the restatements is included in note 14 of the financial statements. Composition of Committee, role and main activities in FY23 The Committee’s members, its role and main activities are detailed in the adjacent panel. I am a qualified chartered accountant. I Members also have an executive background in finance roles and am an • Harry Morley (Chair) experienced audit committee chair. The Board is satisfied that I • Catherine Glickman have recent and relevant financial experience as recommended under provision 24 of the Code. Both Catherine Glickman and Number of meetings held in the year: I have significant knowledge and experience of the retail and 4 leisure sectors; accordingly the Board is also satisfied that the Committee has competence relevant to the sector in which the Committee’s role and responsibilities Company operates. • Reviews the annual financial statements, including accounting estimates and judgements. Meetings and attendees • Assists the Board with the discharge of its responsibilities The Committee met on four occasions during the year, and has in relation to the external audit including audit scope, met three times since the year end. All meetings were attended by external auditor appointment and the extent of non-audit all members of the Committee as shown in the table on page 63. work undertaken by the external auditor. The external auditor has the right to attend meetings, and the • Reviews the effectiveness of the Group’s internal control Board Chair, Executive Directors and Head of Finance typically and risk management systems. attend each meeting by invitation. Other members of the • Monitors the Group’s internal audit arrangements. management team may also attend meetings by invitation from time to time. Main activities during FY23 • Assessing the effectiveness of the Group’s internal Outside of the formal meeting programme, the Audit Committee control framework. Chair maintains a dialogue with key individuals involved in the Company’s governance, including the Chair, the CEO, the CFO • Monitoring stock control improvements. Reviewing and and the external auditor. At least twice per year, the Committee challenging management’s assessment of the Company’s also meets the external auditor without members of the principal risks. management team present. • Consideration of the viability and going concern assessment and store impairment. Terms of reference: Available at https://corporate.theworks.co.uk/who-we-are/ corporate-governance TheWorks.co.uk plc Annual Report and Accounts 202366 Activity during the year The Committee’s activities during the year are set out in the table below. In addition to its ongoing oversight of the Company’s external financial reporting, the Committee spent time on: • Assessing the effectiveness of the Group’s internal control framework and ensuring it continues to develop to meet the evolving needs of the business and adapts to align with new systems and processes. • Monitoring stock control improvements. • Reviewing and challenging management’s assessment of the Company’s principal risks given continued economic uncertainty and the need to assess and manage climate-related risks and opportunities. Audit Committee activity in FY23 Financial statements and reporting Risk management and internal control systems • Reviewed significant accounting estimates and • Received updates on workstreams to improve stock control systems and processes. judgements in connection with full-year and • Reviewed internal financial controls, and progress against agreed half-year financial statements. improvement plans. • Reviewed half-year and full-year financial • Received regular updates on actions to strengthen finance team capability. statements and associated narrative reporting, • Reviewed delegated authorities. and recommended approval of them by • Reviewed and challenged risk register, principal risks facing the business, the Board. and process for identifying emerging risks. Financial statementsCorporate governanceStrategic report • Reviewed scenario analysis in support of going concern and long-term viability assessments. External audit relationship Governance and other matters • Received and reviewed FY23 audit plan • Approved FY23 tax strategy. and strategy. • Reviewed payment practices reporting and performance against supplier • Received regular reports from KPMG on audit payment terms. progress and status. • Reviewed and recommended minor changes to Audit Committee terms • Reviewed effectiveness of FY22 audit process. of reference. • Reviewed auditor’s independence (including non-audit services). • Agreed audit fees. Significant issues considered in relation to the financial statements Significant issues and accounting judgements are identified by the finance team and through the external audit process and are reviewed by the Audit Committee. The significant issues considered by the Committee in respect of the year ended 30 April 2023 are set out in the table below. Significant issues and judgements How the issues were addressed Going concern The Committee considered the appropriateness of applying the going concern convention in the preparation of the financial statements. The Committee noted that under a “severe but plausible” downside scenario model prepared to assess the appropriateness of the basis of preparation, the Group could breach its fixed charge bank covenant when the bank facility is being drawn upon. Whilst the Directors do not consider this a likely scenario in practice, it is nevertheless a plausible one, and to comply with the approach required by the relevant accounting standards, a material uncertainty in relation to the basis of preparation has been included in Note 1 (b) of the financial statements. Carrying value of Parent Company investments Judgement was required to assess the carrying value of the parent company’s investment in its subsidiaries, particularly given the current disparity between the estimated value in use derived by management, and the Group’s market capitalisation. The Committee noted that a significant impairment charge has been recognised in FY23 although the carrying value remains significantly higher than the market capitalisation, even after taking this into account. The Committee noted that the market capitalisation appears unusually low compared to the Group’s peers, when compared on the basis of, for example, multiples of earnings. Impairment of property, plant and equipment, The committee considered the approach taken to calculating the value in use estimate right-of-use assets and intangibles used in assessing the impairment of store fixed assets and the IFRS 16 right of use asset. It was considered appropriate to allocate a greater proportion of the Group’s central overhead costs to cash generating units than in previous years. This judgement resulted in a significant impairment charge for the Period, and, the requirement to retrospectively adjust impairment charges reported in respect of prior periods. Existence, completeness and valuation of inventory As noted in the ‘Risk management and internal control’ section of the committee’s report, the committee reviewed the Group’s arrangements for improved stock taking processes. The implementation of these reduced the level of judgement required in the valuation of inventory compared with FY23. Although a degree of judgement will always be required in relation to the valuation of stock, the process is now more mechanistic than previously. TheWorks.co.uk plc Annual Report and Accounts 2023 67 ## Audit Committee report continued Financial Reporting Council (FRC) letter • Holding regular Board meetings to consider the matters reserved In April 2023, the Company receive a query from the FRC following for its consideration. a review of our Annual Report and Accounts for the 52-week period • Receiving regular management reports which provide ended 1 May 2022. The Committee reviewed all correspondence an assessment of key risks and controls. between the Group and the FRC, and also discussed the matters • Scheduling periodic Board reviews of strategy including reviews raised with our auditor. The matters raised by the FRC related to of the material risks and uncertainties facing the business. the valuation of the Parent Company investment in subsidiaries, • Ensuring there is an organisational structure with defined and the calculation of income tax on gains recognised in other responsibilities and levels of authority. comprehensive income. As a result of the review, in the FY23 Annual Report and Accounts, the disclosure of the assumptions regarding • Ensuring there are documented policies and procedures in place. Parent Company investment have been increased. • Regularly reviewing reports containing detailed information regarding financial performance, forecasts, actual and forecast The FRC’s enquiries, which were limited to a review of the FY22 bank covenant compliance and financial and non-financial KPIs. Annual Report and Accounts, are now complete. The FRC does not benefit from detailed knowledge of our business or an In reviewing the effectiveness of the system of internal controls, understanding of the underlying transactions entered into, and the Audit Committee: accordingly the review provides no assurance that the FY22 Annual • Reviews the risk register compiled and maintained by senior Report and Accounts is correct in all material respects. managers within the Group and questions and challenges Risk management and internal control where necessary. The Board has overall responsibility for setting the Group’s risk • Regularly reviews the system of financial appetite and ensuring that there is an effective risk management and accounting controls. framework to maintain levels of risk within the risk appetite. The Committee’s review of the effectiveness of internal control The Board has delegated responsibility for review of the risk and risk management systems is an ongoing process. The key management methodology and effectiveness of internal areas of focus during FY23 are detailed below. control to the Audit Committee. • As reported in the Company’s 2022 Annual Report, a Profit During the year the Audit Committee and the Board reviewed Protection Manager (PPM) was appointed in January 2022. the Group’s risk register, and challenged management on the During FY23, the Committee received and reviewed the PPM’s classification of risks and the mitigations in place. This included strategy and plan to drive improvements across the Company’s a consideration of the principal risks and uncertainties facing operational controls in order to reduce losses. The Committee the Group and a discussion of emerging risks and how these are also received updates on the implementation of the plan, identified. This process informed the Committee’s year-end review including the introduction of a new rolling stock count process of principal risks and uncertainties and its recommendation to the covering the Group’s entire store estate, and discussed KPMG’s Board. Further details of the Group’s risk management approach, audit of the FY23 stock position. The Committee also considered structure and principal risks are set out on pages 49 to 53. plans to improve EPOS data analysis to support better detection The Group’s system of internal control comprises entity-wide high- of in-store stock discrepancies. level controls, controls over business processes and store-level • In September 2022 the finance team presented a detailed controls. Policies and procedures and defined levels of delegated schedule of internal financial controls and planned authority have been approved and communicated across the improvements, and the Committee has regularly reviewed Group, and include an Internal Control Framework, corporate risk this schedule in order to monitor progress and assess the register, business continuity plan and IT system policies. These effectiveness of the control improvements. are supplemented by other policies and procedures which are • Delegated authority limits are subject to regular review by communicated to colleagues through the employee handbook. the Committee. During the last year, the finance team has Management has identified the key operational and financial implemented a new and more sophisticated accounts payable processes which exist and implemented internal controls over these (AP) system which has improved the control environment for processes in addition to the higher level review and authorisation- invoice approval and embedded a workflow structure that based controls. These policies are designed to ensure the accuracy supports more effective controls. An updated delegated and reliability of financial reporting and govern the preparation authority matrix, including the documentation of the of the financial statements. The Board is ultimately responsible for improvements driven by the new AP system has been developed. the Group’s system of internal controls and risk management and discharges its duties in this area by: TheWorks.co.uk plc Annual Report and Accounts 202368 The Committee is satisfied that the internal controls and risk When reviewing requests for non-audit services the Audit management systems, including processes to identify and Committee will assess: improve such systems and controls where necessary, continue • Whether the provision of such services impairs the auditor’s to operate effectively. independence or objectivity and any safeguards in place Internal audit to eliminate or reduce such threats. In accordance with the Code, the Committee continues to keep • The nature of the non-audit services. the need for an internal audit function under review. In making Financial statementsCorporate governanceStrategic report • Whether the skills and experience make the auditor the most that assessment, the Committee takes into account the risk and suitable supplier of the non-audit service. controls environment of the Group, and in particular any areas • The fee to be incurred for non-audit services, both for individual where additional assurance as to the effectiveness of controls non-audit services and in aggregate, relative to the Group and processes (over and above assurance provided through the audit fee. Committee’s own reviews and the external audit process) may be required. As previously reported, the Group has engaged specialist • The criteria which govern the compensation of the individuals independent advisers to review and make recommendations in performing the audit. relation to certain IT matters, and in FY23 dedicated resource within The external auditor may not be engaged to provide non-audit its finance team to review systems and processes, oversee and/or services which have been identified as ’prohibited’ in accordance implement improvements and review internal controls. with legislative and regulatory requirements. The Committee is satisfied that the work of the dedicated function During the year, the only non-audit services which KPMG was within the finance team has operated effectively to provide engaged to carry out related to the issuance of turnover appropriate assurance over internal controls during FY23. On this certificates for a small number of stores where the terms of the basis, and with the option to use specialist independent advisers lease require them to be independently verified. The fees paid to to review any priority areas of focus, the Committee remains of the KPMG LLP in respect of these services totalled £1k, representing less view that there is no current requirement for the establishment of than 1% of the total audit fee. Further detail is included in Note 7 to a permanent dedicated internal audit function, but will continue the financial statements on page 110. to keep this under review. External audit effectiveness External auditor During the year, the Committee reviewed the effectiveness The Audit Committee is responsible for overseeing the Group’s of the FY22 year-end audit process. The format of the review relationship with its external auditor, KPMG LLP. This includes the included taking into account the views of the internal finance ongoing assessment of the auditor’s independence and the team, members of the Committee and others involved in the effectiveness of the external audit process, the results of which inform audit process which were discussed at the Committee’s meeting the Committee’s recommendation to the Board as to the auditor’s in January 2023. In general, all parties had concluded that the appointment (subject to shareholder approval) or otherwise. FY22 audit process had been rigorous, exhaustive and effective, and that KPMG had demonstrated independence, objectivity Appointment and tenure and an appropriate level of professional scepticism throughout KPMG was appointed as the Company’s external auditor in 2018. the process. The current lead audit partner, Gordon Docherty, was appointed following the conclusion of the FY22 audit. In line with KPMG’s Performance evaluation internal policy, and subject to there having been no change in The evaluation of the performance of the Committee was external auditor, it is anticipated that Gordon Docherty will remain conducted as part of the broader Board evaluation process set as the lead audit partner for five years concluding with the FY27 out on page 64 of this Annual Report. I am pleased to report that audit. In accordance with the Code, the Audit Committee intends feedback relating to the Committee was positive, indicating that to put the external audit out to tender at least every ten years. the Committee continues to operate effectively. Non-audit services The engagement of the external audit firm to provide non-audit services to the Group can impact on the independence assessment. The Company has therefore adopted a policy which Harry Morley requires Audit Committee approval for any permitted non-audit Chair of the Audit Committee services, except for permitted non-audit services with a fee of less 30 August 2023 than £5k on an individual basis or £20k on an aggregated basis which the CFO and the Audit Committee have pre-approved. TheWorks.co.uk plc Annual Report and Accounts 2023 69 ## Nomination Committee report ## Promoting diversity and inclusion will be ## key factors in our succession planning ## and NED appointment processes. ### Dear shareholder I am pleased to present the Nomination Committee’s report for the 52-week period ended 30 April 2023. This report summarises the work of the Nomination Committee during the year. Composition of Committee, role and main activities in FY23 The Committee’s members, its role and main activities are detailed in the adjacent panel. During the year there has been specific focus on succession planning, both at Board and senior management level, and diversity. Meetings and attendees The Committee met twice during the year. All meetings were attended by all members of the Committee as shown in the table on page 63. Only members of the Committee have the right to attend meetings, but the CEO and People Director are typically invited to attend at least part of each meeting, particularly when executive succession planning and other workforce related matters are being discussed. Other Directors, executives or advisers may be invited to attend all or part of any meeting as appropriate. Succession planning Members The Committee discussed Board succession planning and in • Carolyn Bradley (Chair) particular the need to plan appropriately for the rotation of the • Catherine Glickman Non-Executive Directors to support Board stability and avoid • Harry Morley a situation where both Catherine Glickman and Harry Morley (who were appointed on the Company’s IPO in 2018) step down Number of meetings held in the year: at the same time. Although no Board changes are imminent, the 2 Committee has agreed in principle that Catherine and Harry will step down in a staggered fashion and, given their respective key Committee’s role and responsibilities roles as Chairs of the Remuneration and Audit Committees, that • Oversees succession planning. there may be some overlap between the appointment of their • Identifies and nominates appointments to the Board. replacements and the date that they step down. • Reviews Non-Executive Directors’ time commitments. The Committee has also agreed that Board diversity (particularly • Reviews size and composition of the Board. gender and ethnicity) will be key factors in any search process for • Promotes diversity. new Non-Executive Directors, albeit recognising that appointments will always be made on merit and based on objective criteria. Main activities in FY23 • Succession planning at Board and senior In March 2023 the Committee received an update on Executive management level. Director and senior management succession led by the CEO and • Diversity. People Director. This included a high-level analysis of potential internal successors for Executive Director and Operations Board roles. It is intended that more formal internal succession plans will be developed, and this topic will continue to be a regular point of discussion for the Committee. The Board will also monitor and review initiatives to support the identification and development of internal talent through its regular updates from the People Terms of reference: Director, and the action plans arising from our employee Available at https://corporate.theworks.co.uk/who-we-are/ engagement activity. corporate-governance In line with our Executive Director succession plans, we were delighted to announce that Rosie Fordham will succeed Steve Alldridge as CFO following an orderly handover of responsibilities and by the end of 2023. TheWorks.co.uk plc Annual Report and Accounts 202370 Diversity and inclusion (D&I) The Committee is responsible for monitoring compliance with the objectives of the Board Diversity Policy (the D&I Policy). During the year, the Committee considered and approved an updated D&I Policy to ensure alignment with D&I policies and initiatives across the wider business. The updated D&I Policy reflects the Board’s aspiration to achieve the gender and ethnic diversity targets introduced into the Listing Rules in 2022, which reflect the recommendations of the FTSE Women Leaders Review and the Parker Review. The updated D&I Policy also sets out the Company’s commitment to promote equality, diversity and inclusion, and a supportive culture that actively values difference. It also recognises: Financial statementsCorporate governanceStrategic report • That a key driver in building a workforce that is truly representative of all sections of society and the Group’s customers is a Board that has a balance of skills, knowledge, strengths, experience, diversity and independence which enables it to provide a range of perspectives, insight and challenge. • The expectation that the Board will role model inclusive language, behaviours and practice, and set a clear message about the importance of diversity and inclusion across the Company. The specific objectives and Nomination Committee responsibilities set out in the D&I Policy, together with current status and progress against those objectives and responsibilities, is set out below. Aspirational objective or responsibility Status and progress Board to comprise at least 40% women. Met. Current Board comprises 40% female members. At least one of Chair, CEO, CFO or SID to be a woman. Met. Chair is female. At least one Director from a non-white ethnic minority background. Not met. Aim to address through future Board succession planning. Regularly review the structure, size and composition of the Board. Annually recurring item on the Nomination Committee agenda. Encourage diversity in the recruitment process by: No external search process has been instructed to date, but any future search process will be conducted in line with these points. • Only engaging search firms that are signatories to the Executive Search Firm’s Voluntary Code of Conduct. • Ensuring the search firm brief includes appropriate emphasis on diversity. • Encouraging long lists to include women, people from ethnic minority backgrounds and other under-represented groups with the skills and experience required. • Considering candidates who may not have previous executive/ non-executive directorship roles. Have regard to the D&I Policy when considering Board D&I Policy is taken into account when discussing Board succession. succession planning. Review the D&I Policy annually, assessing its effectiveness The updated D&I Policy was approved in March 2023 and will and recommending any changes to the Board. be reviewed annually as part of the Nomination Committee’s programme of work. Currently it is not anticipated that the size of the Board will be increased. Therefore all Non-Executive Directors in post at any one time will also be members of each of the Audit, Remuneration and Nomination Committee, and the D&I Policy does not contain any specific diversity objectives relating to the composition of the Board’s Committees. TheWorks.co.uk plc Annual Report and Accounts 2023 71 ## Nomination Committee report continued Diversity and inclusion (D&I) continued As required under Listing Rule 9.8.6R, the breakdown of the gender identity and ethnic background of the Company’s Directors and executive management (the Operations Board) as at 30 April 2023 is set out in the tables below. To compile this data each Board and Operations Board member was asked to complete a survey. In the future the Company will seek to gather this data on the appointment of any new Board or Operations Board member. Number of Number Percentage Number of Percentage senior positions in executive of executive Gender identity Board members of the Board on the Board  management management Men  %   % Women  %   % Not specified/prefer not to say — — — — — Number of Number Percentage Number of Percentage senior positions in executive of executive Ethnic background Board members of the Board on the Board  management management White British or other White  %   % Mixed/multiple ethnic groups — — —  % Asian/Asian British — — — — — Black/African/Caribbean/Black British — — — — — Other ethnic group, including Arab — — — — — Not specified/prefer not to say — — — — — 1 Includes CEO, CFO, Chair and Senior Independent Director. As shown in the tables above, as at 30 April 2023, the Company None of the factors which could impact the independence of Non- achieved the Listing Rule targets of 40% of its Board of Directors Executive Directors (as set out in provision 10 of the Code) apply to being women, and at least one of the senior Board positions our Non-Executive Directors, and the Committee is satisfied that (in our case, the Chair) being held by a woman. both Catherine Glickman and Harry Morley remain independent in thought and judgement. Catherine and Harry have both confirmed, The Company has not achieved the target of at least one member as have I, that we continue to be able to devote sufficient time to of the Board being from a minority ethnic background. Given fulfil our roles as Directors of the Company. the size of our Board, which the Committee continues to believe is appropriate, and the tenure of the existing Non-Executive Performance evaluation Directors, it is unlikely that this target will be achieved until The evaluation of the Committee’s performance in 2023 was at least the first round of Non-Executive Director rotation. conducted as part of the wider Board evaluation process described on page 64. The Committee was found to be operating effectively. The Committee will continue to keep the D&I Policy, and broader diversity targets, under review and both will continue to be important factors in our succession planning discussions and any search process for new appointments. Carolyn Bradley Other matters considered Chair of the Nomination Committee At its meeting in March 2023 the Committee conducted its annual 30 August 2023 review of the size, structure and composition of the Board, the independence of the Non-Executive Directors, and Non-Executive Director time commitments. The Committee concluded that the size, structure and composition of the Board and its Committees remain appropriate taking into account the size and cost structure of the business, and that the Board’s balance of skills and experience is appropriate and supports effective debate and decision making. TheWorks.co.uk plc Annual Report and Accounts 202372 # Directors' remuneration report Chair of the Remuneration Committee's letter to shareholders The Committee has continued to ensure that remuneration reflects performance, incentivises management and aligns with shareholders' interests. ![img-8.jpeg](img-8.jpeg) # Members - Catherine Glickman (Chair) - Carolyn Bradley (member since 2021) - Harry Mulley (member since 2018) # Committee's role - Sets Remuneration Policy - Determines Executive Director and senior management remuneration - Approves annual bonus and LTIP targets - Reviews workforce remuneration policies and practices # Main activities during FY23 - Involved Remuneration Policy and recommended its approval at the 2023 AGM - Considered proposed increase to CEO maximum LTIP opportunity, and amended Policy for approval at the 2023 AGM - Approved LTIP awards and targets - Monitored annual bonus targets and custom - Reviewed Executive Director salaries - Reviewed wider workforce pay and benefits # Dear shareholder As Chair of the Remuneration Committee, I present our Directors' remuneration report for the 52-week period ended 30 April 2023. This year's report consists of this letter, a summary of our Directors' Remuneration Policy (the Policy) and how we propose to apply the Policy in FY24, and the annual report on remuneration which sets out payments made to the Directors and demonstrates how Company performance and remuneration were aligned during FY23. The Policy was approved at the 2022 AGM, with over 99% of votes cast in favour of it, reflecting the strong shareholder support for our responsible approach to Directors' remuneration. During FY23, we have considered the overall remuneration package for Gavin Peck, our CEO. Gavin is an exceptional leader and in order to reward him appropriately, we are proposing an amendment to the Policy reflecting our proposal to increase Gavin's maximum LTIP award opportunity to 150% of salary. I explain our rationale for the proposal below. At the 2023 AGM, we will be asking shareholders to vote on three resolutions relating to remuneration as follows: 1. To approve an amendment to the Policy. 2. To approve an amendment to the rules of our LTIP to reflect the Policy amendment. 3. The advisory vote on the annual report on remuneration. # FY23 remuneration in the context of our business performance As detailed in the Strategic report, the Group delivered a resilient performance in FY23 against a challenging backdrop. In particular: - Total sales growth increased 6.1% (with like-for-like sales growth of 4.2%) - Further improvements were made to our customer-focused proposition, including through the expansion of our front list book offer. - Continued optimisation of the store estate by opening 14 new stores and refitting 34 existing stores. - Ended the year in a strong financial position, with net cash of £10.2m. The FY23 bonus opportunity for Gavin Peck and Steve Alldridge was up to a maximum of 100% of salary, with 90% of the award based on stretching EBITDA targets and the remaining 10% based on performance against key strategic objectives (details of the measures and targets are set out on page 79). Our Adjusted EBITDA result for FY23 was in line with revised market expectations of £9.0m, but below our original EBITDA budget and the threshold level of post-bonus EBITDA performance for Executive Director bonuses. Therefore, not withstanding the Committee's assessment that Gavin Peck and Steve Alldridge had made good progress against the strategic objectives set (as described on page 79), no bonus was payable to the Executive Directors for FY23. Strategic report Corporate governance Financial statements TheWorks.co.uk plc Annual Report and Accounts 2023 73 Directors' remuneration report continued # FY23 remuneration in the context of our business performance continued The Committee was impressed by progress, but ultimately determined that it would not be appropriate to award any bonus in respect of the strategic element based on the broader financial performance of the Company and the fact that, in general, bonuses were not payable to staff or senior management below Executive Director level. Gavin Peck was granted a Long-Term Incentive Plan (LTIP) award in February 2021 which was subject to performance conditions based on EPS performance over the three financial years ending with FY23 and a share price target. Details of the targets are set out on page 80. As Adjusted EPS is impacted by the prior-year restatements described in note 14 to the financial statements, the Committee's assessment of the outturn of the EPS target is estimated. This estimate excludes the impact of a £0.6m tax credit received during the year. This exclusion results in Adjusted EPS (before the impact of prior period restatements) below the threshold target and accordingly the Committee's estimate is that the LTIP award will lapse in full. The Committee considers that exercise of discretion in this way is appropriate taking into account operational performance. The Committee retains discretion to make adjustments to formulae: vesting outturns (whether up or down) in appropriate circumstances, including to take into account changes in tax rates. The final vesting is being reviewed to ensure that performance is being assessed on a fair and consistent basis and is reflective of wider corporate performance. The Committee has also considered prior year LTIP outturns for FY22 and FY21 in the context of the impact of the prior period restatements. The Committee has concluded that the outturns of 38.4% and 0% of maximum respectively were reflective of underlying business performance and that it would not be appropriate to make any adjustments that may otherwise increase the level of vesting. In order to ensure that the Adjusted EPS performance measures that apply to in-flight LTPs can be assessed on a fair and consistent basis (given the impact of prior period restatements), the Committee intends to review those targets during FY24. This review is intended to ensure that the level of stretch in the targets is maintained and the targets are not made materially easier or harder to achieve as a result of the restatement. # Remuneration across the business The Committee continues to make decisions on remuneration for the Executive Directors in the context of decisions for colleagues across the Group. For FY24, salaries for colleagues in retail have increased in line with the National Living Wage, with further investment in the management grades to maintain appropriate differentials. This resulted in an average increase of 8.6% for colleagues in retail. Salaries for Distribution Centre and Support Centre roles increased in line with the National Living Wage where relevant with further investment in certain grades to maintain appropriate differentials, and outside of that, an average increase of 5% was applied. Following a benchmarking exercise we also increased our car allowance rates (the first such increase for over six years). As reported last year, in August 2023, we launched a new communications and engagement platform (MyWorks by Reward Gateway) across the business. This offers colleagues discounts and money saving offers with a number of businesses and services; this has been well received. In response to the cost-of-living crisis we also launched Wagedream, an app that offers all colleagues a range of financial wellbeing tools, including early access to earned wages as well as savings account access and financial wellbeing resources. Our Operations Board directors continue to be an effective high-performing team. For FY24, the starting point for Operations Board salary increases was 5% (in line with the standard increase for Distribution and Support Centre colleagues outside of National Minimum Wage (NMW) increases), and we adjusted salaries to reflect increased responsibilities for individual roles. Following the departure of the Digital and Marketing Director during the year, the net impact of the Operations Board salary increases is a circa £0.1m saving. As indicated in our FY22 Annual Report, during FY23 we implemented a hybrid incentive arrangement comprising an award of restricted shares (vesting after two years subject to continued employment) plus an award of nil-cost options subject to performance over a three-year period. For area and retail management, we operate a bonus scheme which rewards achievement of objectives aligned with our strategy. # Gavin Peck – Incentive remuneration As I mention above, during the year, we have considered Gavin Peck's remuneration. We want to recognise his exceptional performance and leadership, providing him with a strong incentivisation and retention mechanism, whilst taking into account the interests of shareholders. The Committee concluded that the correct approach to achieve this would be to align any adjustment to reward with the long-term interests of shareholders and propose increasing Gavin's LTIP opportunity to 150% of base salary. Under the Policy approved at the 2022 AGM, the maximum annual Long-Term Incentive Plan award is 100% of base salary, or 200% of base salary in exceptional circumstances, with these limits reflected in the formal rules of the LTIP. As it is our intention that the 150% of salary level will become Gavin's usual annual grant, we have agreed that in the interests of transparency we will seek shareholder approval to increase the 'normal' limit at the 2023 AGM. No increase will be made to the 'exceptional circumstances' limit, which will remain at 200% of base salary, and the CFO's maximum LTIP opportunity will remain at 100% of base salary (reflecting our view that it is appropriate to recognise Gavin's position in leading the business by differentiating the level of his LTIP award). In line with our approach to transparent communications with shareholders, I wrote to our largest shareholders following the FY23 year end to set out details of our proposed approach to the LTIP, and offered the opportunity to discuss our approach. I was pleased that a number of shareholders took up the opportunity to speak with me directly, and indicated support for our proposals. Having regard to feedback received during that engagement, we are also proposing an additional minor amendment to the Policy to clarify that a share retention requirement, aligned with the in-service share ownership guideline, applies also to deferred bonus shares in addition to LTIP shares. # Approach to remuneration for FY24 Our approach to Directors' remuneration in respect of FY24 is summarised in the table on page 76, which also reflects the proposed amendment to the Remuneration Policy. The Committee approved salary increases of 5% for both Gavin and Steve, with such increases being below the average increase applied across the wider workforce, which outside of NMW increases was an average of 7%. 74 TheWorks.co.uk plc Annual Report and Accounts 2023 For FY24, we will also apply a minor re-weighting of the EBITDA and strategic measures which apply to the Executive Directors’ annual bonus scheme. The maximum bonus opportunity for both Executive Directors will remain at 100% of base salary, but with 80% of the maximum opportunity subject to EBITDA performance, and the remaining 20% subject to strategic measures. This change will strengthen the Committee’s ability to reward building the strategic capability of the business, including performance against our sustainability targets. As noted in the Chair’s statement on page 7, during FY24 Rosie Fordham will succeed Steve Alldridge as CFO. I am pleased that we are in a position to make an internal appointment, demonstrating our focus on development and succession planning. Rosie’s remuneration from her appointment as CFO will be in line with the Policy, and is summarised in the Policy summary and FY24 intended implementation table on page 76. As Steve will leave the business during FY24, he will not be eligible for a FY24 bonus and will not receive an LTIP award during the year. Financial statementsCorporate governanceStrategic report As reported last year, Harry Morley and I were awarded a 3% increase in our fees with effect from 1 September 2022. Following the annual review, the Non-Executive Director and Chair fees will be increased by 5% (in line with the increase for the Executive Directors, and below the average increase for the wider workforce) with effect from 1 September 2023. Stakeholder engagement Given the challenges of FY23, I would like to thank the Executive Directors, the Operations Board Directors and all our colleagues at The Works for their continued commitment, enthusiasm and hard work. Our colleagues are a vital part of our customer experience. We continue to be a company in which colleagues can develop their careers, with the majority of colleagues being internally developed and 10% promoted in the last year. We are delighted that we continue to be recognised as one of the 25 Best Big Companies to Work for. The Board continues to receive regular updates on colleague wellbeing, morale, retention and health and safety and visits stores and engages with colleagues regularly. We review the annual Best Companies engagement survey results, in which colleagues provide feedback on leadership, personal growth and giving something back, as well as pay and benefits, and these inform decisions on remuneration. On behalf of the Board, I would like to thank shareholders for their support for our Policy at the 2022 AGM. I remain happy to receive any questions or feedback from shareholders at any time, and hope that you will be happy to support the resolutions proposed at our 2023 AGM. Catherine Glickman Chair of the Remuneration Committee 30 August 2023 TheWorks.co.uk plc Annual Report and Accounts 2023 75 Directors' remuneration report continued # Our Policy – summary and FY24 intended approach In the interests of transparency, we have included on page 77 the LTIP and "in-service" shareholding guidelines sections of the Policy, incorporating the amendments for which shareholder approval is to be sought at the 2023 AGM. Since we are not seeking approval for a Directors' Remuneration Policy at the 2023 AGM, in line with the applicable regulations, we have not included the Policy in this report. The Policy is set out in our FY22 Annual Report which is available on our website. The following table summarises the key aspects of our Policy approved at the 2022 AGM, changes proposed in the Policy and, subject to shareholder approval for the amendment to the maximum LTIP opportunity for the CEO as described on page 74, information on how we intend to implement the policy in FY24. | | Policy summary | Implementation in FY24 | | --- | --- | --- | | Base salary | Ordinarily reviewed annually. In line with typical practice, increases are normally within the range of increases awarded to other colleagues. Flexibility is retained to award higher increases in appropriate circumstances. | For FY24, the Executive Directors' salaries have been increased by 5% to: - Gavin Peck: £324,450. - Steve Aldridge: £227,115. - On her appointment to CFO, Rosie Fordham's salary will be £180,000. Subject to her developing in line with expectations, it is intended that her salary will increase to £200,000 for FY25, and to £220,000 for FY26. | | Retirement benefits | Defined contribution pension (or cash equivalent). Maximum contribution aligned with the contribution available to other employees. | Executive Director pension contributions continue to be aligned with the wider workforce at 3% of base salary. Rosie Fordham's pension contribution will be reduced to 3% on her appointment as CFO. | | Annual bonus | Maximum opportunity of 100% of salary. Full bonus ordinarily paid in cash but with flexibility to defer into shares for up to two years. Up to 20% of maximum will be earned for threshold performance and up to 50% of the maximum will be earned for on-target performance. The Committee has discretion to amend the pay-out should any formulaic output not reflect the Committee's assessment of overall business performance. At least 50% of the bonus is based on financial measures. The balance of the bonus opportunity will be based on financial measures and/or the delivery of strategic/individual measures. | For FY24, the maximum bonus opportunity will be 100% of salary for each Executive Director. A minor change to the weightings of the performance measures will be applied. Performance will be based on EBITDA as regards 80% of the award and strategic objectives with clear measurable targets as regards 20% of the award. As targets (both financial and strategic) under the annual bonus are considered commercially sensitive, these will be disclosed retrospectively in the FY24 Annual Report. For Rosie Fordham, any bonus payable under the Policy for FY24 will be pro-rata from the date of her appointment as CFO. | | LTIP | Subject to approval by shareholders at the 2023 AGM, maximum award of 150% of salary, or 200% of salary in exceptional circumstances, with up to 25% vesting for threshold performance. For at least 75% of an LTIP award, the performance measures will be based on financial measures. | A minor amendment to the Policy is proposed to increase the maximum LTIP award to 150% of salary (from 150% of salary). For FY24, we propose to grant to our CEO, Gavin Peck, at the level of 150% of salary and to our incoming CFO, Rosie Fordham, will be granted an LTIP at the level of 100% of salary. It is proposed that the awards will be subject to performance conditions based on EPS and share price, with an equal weighting. The awards will not be granted until after the 2023 AGM. Full details of the performance metrics and targets, which will be set with a level of stretch commensurate with the size of the LTIP awards, will be included in the regulatory announcement at the time the awards are granted. | | In-service shareholding guidelines | Executive Directors are required to retain half of all shares acquired under the LTIP (after sales to cover tax and any exercise price) until such a time as their holding as a value is equal to 200% of salary. | | | Post-employment shareholding guidelines | Following employment, an Executive Director must retain for one year such of their relevant shares (shares acquired pursuant to LTIP or deferred bonus awards granted after 1 May 2022) as have a value equal to 200% of their salary (i.e. if fewer, all of their relevant shares). | | | Non-Executive Directors' remuneration | Fees are set taking into account the responsibilities of the role and expected time commitment. | Chair and Non-Executive Director fees for FY24 (with effect from 1 September 2022) are as follows: Base fee £000 Chair's fee 105 Harry Morley 59 Catherine Glickman 56 | 76 TheWorks.co.uk plc Annual Report and Accounts 2023 In the interests of transparency, we have set out below the LTIP and “in-service” shareholding guideline sections of the Policy approved at the 2022 AGM, in each case updated to reflect the amendments for which shareholder approval is to be sought at the 2023 AGM. Component Purpose and link to strategy Operation Maximum opportunity Performance measures | Long-Term | The LTIP provides a clear link | Under the LTIP, the Committee may | The maximum award level is | For at least 75% of an LTIP | | --- | --- | --- | --- | --- | | Incentive | between the remuneration | grant awards as conditional shares | 150% of base salary, or 200% | award, the performance | | | of the Executive Directors | or as nil (or nominal) cost options. | of base salary in exceptional | measures will be based | Plan (LTIP) and the creation of value for circumstances. on financial measures Awards will usually vest following shareholders by rewarding (which may include, but the assessment of the applicable The market value of shares the Executive Directors for are not limited to, earnings performance conditions, typically subject to an LTIP award the achievement of longer- per share, relative total following the end of a three-year will be determined on such term objectives aligned with shareholder return and performance period, but will not be basis as the Committee shareholders’ interests. share price). Any balance released (so that the participant is considers appropriate, which of an LTIP award will be entitled to acquire shares) until the will be applied consistently subject to performance end of a holding period of two years where possible. measures based on beginning on the vesting date. If a qualifying LTIP is granted, non-financial measures Alternatively, awards may be granted the value of shares subject to aligned with the Company’s on the basis that the participant is the CSOP option will not count strategic priorities. entitled to acquire shares following towards the limit referred Subject to the Committee’s the assessment of the applicable to above, reflecting the discretion to amend the performance conditions but that provisions for the scale back formulaic output, awards (other than as regards sales to cover of the ordinary LTIP award. Financial statementsCorporate governanceStrategic report will vest up to 25% for tax liabilities and any exercise price) threshold performance, the award is not released (so that rising to 100% for maximum the participant is able to dispose performance. of those shares) until the end of the holding period. The Committee has discretion to amend the pay out should any formulaic output not reflect the Committee’s assessment of overall business performance. LTIP awards may incorporate the right to receive additional shares calculated by reference to the value of dividends which would have been paid on the vested shares subject to the award up to the time of release; this amount may be calculated assuming that the dividends have been reinvested in the Company’s shares on such basis as the Committee determines. The Committee may at its discretion structure awards as qualifying LTIP awards, consisting of a tax qualifying Company Share Option Plan (CSOP) option with a per share exercise price equal to the market value of a share at the date of grant and an ordinary nil (or nominal) cost LTIP award, with the ordinary award scaled back at exercise to take account of any gain made on exercise of the CSOP option. Recovery provisions apply and are set out in the Policy approved at the 2022 AGM and included on page 67 of our FY22 Annual Report which is available on our website. Shareholding To align the interests of the Executive Directors with those of shareholders, the Committee has adopted formal shareholding guidelines guidelines. Executive Directors are required to retain half of all shares acquired under the LTIP and any deferred bonus award (after sales to cover tax and exercise price) until such time as their holding as a value is equal to 200% of salary. Shares subject to LTIP awards which have vested but not been released (that is which are in a holding period), or which have been released but have not been exercised, and shares subject to deferred bonus awards, count towards the guidelines on a net of assumed tax basis. TheWorks.co.uk plc Annual Report and Accounts 2023 77 # Annual report on remuneration This report has been prepared in accordance with the applicable regulations and the Code. ## Composition of the Committee The members of the Committee are Catherine Glickman (Chair), Carolyn Bradley and Harry Morley. ## Duties and responsibilities The Committee's key responsibilities are detailed in the panel on page 73. When determining the application of the Directors' Remuneration Policy in FY23, the Committee considered the factors of clarity, simplicity, risk, predictability, proportionality and alignment to culture as referred to in the Code. As with the approach in FY22, these were reflected, in particular, in the Executive Directors' LTP awards which are subject to simple and transparent performance measures based on our appetite for risk, with specific monetary caps added as a further risk mitigation. As part of its work, the Committee reviewed the remuneration for the wider workforce and related policies and takes these into account when setting the Policy for Executive Director and senior management remuneration. ## Meetings and attendees The Committee met a total of four times during the year and has met once since the year end. All members attended those meetings as shown in the table on page 63. The Committee receives assistance from the CEO, CFO, People Director and Company Secretary, who attend meetings by invitation, except when issues relating to their own remuneration are being discussed. ## Performance evaluation The evaluation of the performance of the Committee was conducted as part of the broader Board evaluation process set out on page 64. Feedback relating to the Committee indicated that it continues to operate effectively, with all members (and other attendees) contributing appropriately to debate and discussion around remuneration matters. ## Advisers Deloitte LLP (Deloitte) is retained to provide independent advice to the Committee as required. Deloitte is a member of the Remuneration Consultants Group and, as such, voluntarily operated under that group's Code of Conduct in relation to executive remuneration consulting in the UK. Deloitte's fees for providing remuneration advice to the Committee were £3,000 for FY23. The Committee assesses from time to time whether this appointment remains appropriate or should be put out to tender and takes into account the Remuneration Consultants Group Code of Conduct when considering this. Deloitte was appointed by the Committee and has provided share scheme advice and general remuneration advice to the Company. ## Single figure table – audited information The table below sets out total remuneration in respect of FY23 for each person who served as a Director in that year, along with the corresponding remuneration for FY22: | | Salary and fees/ £000 | Benefits/ £000 | Personal/ £000 | Annual bonus/ £000 | Long-term incentive/ £000 | Total £000 | Total fixed remuneration £000 | Total variable remuneration £000 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Executive Directors** | | | | | | | | | | Gavin Peck | 2023 309 | 13 | 9 | – | – | 331 | 331 | – | | | 2022 300 | 13 | 9 | 234 | 29 | 585 | 322 | 263 | | Steve Aldridge (appointed 14 May 2021) | 2023 216 | 12 | 6 | – | – | 234 | 234 | – | | | 2022 203 | 12 | 6 | 163 | – | 384 | 221 | 163 | | **Non-Executive Directors** | | | | | | | | | | Carolyn Bradley (appointed 30 September 2021) | 2023 100 | – | – | N/A | N/A | 100 | 100 | N/A | | | 2022 59 | – | – | N/A | N/A | 59 | 59 | N/A | | Harry Morley | 2023 57 | – | – | N/A | N/A | 57 | 57 | N/A | | | 2022 55 | – | – | N/A | N/A | 55 | 55 | N/A | | Catherine Glickman | 2023 52 | – | – | N/A | N/A | 52 | 52 | N/A | | | 2022 50 | – | – | N/A | N/A | 50 | 50 | N/A | 1. **Salary and fees:** The amount of salary/fees earned in respect of the year. 2. **Benefits:** The taxable value of benefits received in the year: these are principally private medical insurance and car or car allowance. For Gavin Peck the 2023 (and 2022) benefits figures include his SAYE options granted in November 2022 (and August 2023), valued as the aggregate discount of the exercise price from the share price used to determine the exercise price. 3. **Pension:** The pension figure represents the cash value of pension contributions for the Executive Director to the defined contribution pension arrangement and any cash payments in lieu of pension contributions made in the year. 4. **Annual bonus:** The cash value of the bonus earned in respect of the financial year. Further information in relation to the FY23 bonuses is set out below; no bonuses were earned by the Executive Directors in respect of FY23. 78 TheWorks.co.uk plc Annual Report and Accounts 2023 5. Long-term incentives: Gavin Peck was granted on LTP award in February 2021 subject to the performance conditions set out below. The estimated outturn is that the award will lapse in full. The final vesting is being reviewed to ensure that performance is being assessed on a fair and consistent basis taking into account the impact of prior period requirements on the EPS target and to ensure that the final vesting is reflective of wider corporate performance. Any change in outturn will be made up in the FY25 single figure table. # **Truing up of FY22 single figure table numbers – audited information** The 2022 LTP figure was calculated based on the three-month average share price to the end of FY22. The 2022 LTP figure in the single figure table above has therefore been adjusted to reflect the actual share price of £0.29 (being the closing share price on 22 September 2022, the day before the vesting date of 23 September 2022). The figure also includes the value of dividend equivalents for the period from grant to the vesting date. # **Annual incentive plan – audited information** Each Executive Director was eligible to earn a bonus in respect of FY23 of up to 100% of salary. 90% of the award was based on EBITDA targets (required to be achieved after funding of any bonus payments triggered) which were considered to be suitably stretching, and took account of the fact that we would not benefit from £5.6m business rates relief in FY23 as we had done in FY22. The remaining 10% was based on performance against key strategic objectives as set out below, with any payout in respect of the strategic objectives element being subject to the achievement of a threshold level of EBITDA performance. As shown in the table below, actual adjusted EBITDA outperformance above the threshold target was not sufficient to support a threshold bonus level and, therefore, no bonus was earned by either Executive Director in respect of this element for the year. EBITDA element | | Performance (£m) | Vesting (% of maximum for EBITDA element) | Actual performance (£m) | Bonus earned for EBITDA element (% of maximum for EBITDA element) | Bonus earned for EBITDA element (% of salary) | | --- | --- | --- | --- | --- | --- | | Threshold | 9 | 20% | 9^{1} | 0% | 0% | | Maximum | 13 | 100% | | | | 1 Adjusted EBITDA before funding of any bonus. Outperformance over the threshold target was not sufficient to fund threshold level bonuses, and therefore no bonus was earned for the EBITDA element. # **Strategic objectives element** Each Executive Director made good progress in the year against the strategic objectives set (as summarised below). However, since the adjusted EBITDA performance measure was not met, no bonus was earned by reference to those achievements. # **Gavin Peck, CEO** Gavin's objectives were to develop the brand externally and internally, develop a quantified ESG approach including environmental targets, drive the implementation of the strategy and continue to develop both leaders and colleagues. The Board considers that, given the challenges during the year, overall Gavin has achieved his objectives (exceeding them in some areas), including: - Roll out of first phase of the evolved brand. - Refreshed product offer and loyalty scheme relaunched. - Realignment of online operational team and deployment of new analytical tools following completion of website usability studies. - Store estate improved - 17 new stores opened (including 3 relocations), and 34 refits. - Improved operational efficiency (new store labour model, implementation of improved supply chain systems, automation in online fulfilment). - Continued investor (including potential investor) engagement, and raised brand awareness. - Led development of clear ESG strategy, incorporating strong positions on colleagues, community and environmental commitments (base line targets, including Net Zero by 2045, set and agreed by the Board). - Delivered MyWorks (colleague engagement platform) and Can Do Academy (learning and development platform). Improved ranking from 13th to 12th in 'Best Big Companies to Work For' category and maintained 2$^{nd}$ accreditation. # **Steve Alldridge CFO** Steve's objectives were to continue the stakeholder engagement with both investors and banks, improve the financial control environment, improve the quality of data and performance reporting to enhance business support and strengthen the Finance Team. The Board consider that Steve has met his objectives for the year: - Successfully negotiated an extension of banking facilities at reduced cost and maintained strong relationships with our banking partner. - Continued to engage with investors and other stakeholders, changing broker at the end of the year. - Tightened financial controls and disciplines, with better visibility and insight on stock holding. - Improved performance reporting, supported by a strengthened business partnering capability. - Finance function strengthened with talented individuals, raising the future capability of the team. TheWorks.co.uk plc Annual Report and Accounts 2023 79 Strategic report Expected performance Financial statements Annual report on remuneration continued # Long-term incentives # LTIP award vesting Gavin Peck was granted an LTIP award in the form of nil-cost options over BATA57 shares in February 2021. The award was subject to performance conditions set out below, general and windfall-gain underpins, and a two-year post-vesting holding period. | Measure | Weighting | Threshold (20% vesting) | Maximum (100% vesting) | Actual performance | | --- | --- | --- | --- | --- | | Adjusted EPS | 50% | 3.1 pence | 13.1 pence | N/A | | Share price^{1} | 50% | £0.50 | £2 | 33.85p | 1 Average share price over the period of four weeks beginning with the announcement by the Company of its Full Year Trading Update for its 2022/23 financial year. As described in the Remuneration Committee Chair's letter on page 74, adjusted EPS is impacted by the prior year restatements described in note 14 to the financial statements, as such, the Committee's assessment of the outturn of the EPS target is estimated. This estimate excludes the impact of a £0.6m tax credit received during the year. This exclusion results in adjusted EPS (before the impact of prior period restatements) below the threshold target and accordingly the Committee's estimate is that the LTIP award will lapse in full. # Long-term incentives – awards granted during FY23 – audited information LTIP awards were granted to Gavin Peck and Steve Alldridge on 17 November 2022 equal to 100% of salary on the following basis: | | Type of award | Maximum opportunity | Number of shares | Face value at grant £1 | % of award vesting at threshold | Performance period | | --- | --- | --- | --- | --- | --- | --- | | Gavin Peck | LTIP | 100% of salary | 936,363 | 308,999 | 20% | See footnote 2 | | Steve Alldridge | LTIP | 100% of salary | 655,454 | 216,299 | 20% | See footnote 2 | 1 For these purposes, the face value of an award is calculated by multiplying the number of shares over which the award was granted by 33 pence, the average closing share price for each of the three business days prior to the date of grant (rounded up to the nearest whole pence). 2 Each award is subject to performance conditions assessed over the Company's FY23, FY26 and FY25 financial years as regards the EPS element of the performance condition, with the share price element of the performance condition assessed following the announcement by the Company of its Full Year Trading Update for its FY23 financial year (as described further below). To the extent an award vests following the end of the performance period, it is subject to a further two-year holding period before the shares are released. A summary of the performance conditions for these awards (with half of each award based on EPS, and half on share price) is set out on page 77. The Committee believes that the Executive Directors have direct influence over both measures, and that targets are stretching but achievable. # SAYE Scheme options granted during FY23 – audited information Gavin Peck was granted a SAYE Scheme option on 4 November 2022 as detailed below as part of the SAYE Scheme offer made to all eligible colleagues. | | Type of award | Number of shares | Exercise price^{1} | Face value at grant £1 | | --- | --- | --- | --- | --- | | Gavin Peck | SAYE option | 31,034 | £0.29 | 10,964 | 1 Inline with the SAYE Scheme, this is set at a 20% discount to 35.33 pence, the average closing share price on 5, 6 and 7 October 2022, the three business days prior to the date of invitation. 2 For these purposes, the face value of the option is calculated by multiplying the number of shares over which the option was granted by 33.33 pence, the average closing share price for each of the three business days prior to the date of invitation. 80 TheWorks.co.uk plc Annual Report and Accounts 2023 # Statement of Directors' shareholding and share interests – audited information The number of shares of the Company in which the Directors had a beneficial interest, together with details of the Executive Directors' long-term incentive interests, as at 30 April 2023, are set out in the table below. | | Outstanding scheme interests 30 April 2023 | | | | Beneficially owned shares | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Unrested LTIP interests subject to performance conditions | Scheme interests not subject to performance measures | Vested but unexercised scheme interests | Total shares subject to outstanding scheme interests | 1 May 2022 | 30 April 2023 | Total of all scheme interests and shareholdings at 30 April 2023 | | Executive Directors | | | | | | | | | Gavin Peck | 2,422,117 | 47,397 | 96,151 | 2,565,665 | 554,636 | 554,636 | 3,120,301 | | Steve Alldridge | 1,102,262 | – | – | 1,102,262 | – | – | 1,102,262 | 1 SAYE awards that have not vested. 2 LTIP awards that have vested but remain unexercised. 3 The tax qualifying CSOP awards granted as part of the 2019 awards are not included in these numbers, reflecting that if they were to be exercised the LTIP element of those awards would be reduced to reflect the gain on the CSOP element, as referred to on page 77. | | Outstanding scheme interests 30 April 2023 | | | Beneficially owned shares | | | | --- | --- | --- | --- | --- | --- | --- | | | Unrested LTIP interests subject to performance conditions | Scheme interests not subject to performance measures | Total shares subject to outstanding scheme interests | 1 May 2022 | 1 April 2023 | Total of all scheme interests and shareholdings at 30 April 2023 | | Non-Executive Directors | | | | | | | | Carolyn Bradley | – | – | – | 105,866 | 179,736 | 179,736 | | Harry Morley^{1} | – | – | – | 200,000 | 275,000 | 275,000 | | Catherine Glickman | – | – | – | 77,244 | 181,033 | 181,033 | 1 Includes interest of Kate Morley (a person closely associated with Harry Morley). # Executive Directors' interests under share schemes – audited information The table below sets out the Executive Directors' interests in the LTIP and SAYE Schemes. The LTIP awards are subject to performance conditions as set out in the table below. | | Award date | Vesting, exercise or release date | As at 1 May 2022 | Granted during the year | Exercised during the year | Lapsed during the year | Number of shares at 30 April 2023 | Exercise price | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Gavin Peck | | | | | | | | | | LTIP | 3 September 2019^{2} | September 2022 | 250,677 | – | – | 154,466 | 96,151 | N/A | | | 15 February 2021 | June 2023 | 847,457 | – | – | – | 847,457 | N/A | | | 30 September 2021 | June 2024 | 638,297 | – | – | – | 638,297 | N/A | | | 17 November 2022 | June 2025 | – | 936,363 | – | – | 936,363 | N/A | | SAYE | 31 August 2021 | 1 October 2024 | 16,363 | – | – | – | 16,363 | 55p | | | 4 November 2022 | 1 December 2025 | – | 31,034 | – | – | 31,034 | 29p | | Steve Alldridge | | | | | | | | | | LTIP | 30 September 2021 | June 2024 | 446,808 | – | – | – | 446,808 | N/A | | | 17 November 2022 | June 2025 | – | 655,454 | – | – | 655,454 | N/A | 1 In addition to his LTIP award, Gavin Peck was also granted a tax qualifying CSOP award over 37,037 shares with an exercise price of £0.81. The CSOP award vested at 38.6% (the same level as the LTIP award – see Note 2 below) and lapsed in respect of the balance of the shares subject to it so that it is not held over 22,895 shares. To the extent a CSOP award is exercised at a gain, the extent to which the associated LTIP award can be exercised shall be reduced by the amount of the gain so that there is no increase in the pre-tax value of the award. 2 38.6% of Gavin Peck's LTIP award granted in 2019 vested by reference to EPS performance over the three financial years ending with FY22. The remaining portion of the award (154,666) lapsed on the vesting date as shown in the table above. The vested portion of the award will not be released to Gavin so that he can exercise it until the end of a further two-year holding period. Strategic report Financial statements Financial statements TheWorks.co.uk plc Annual Report and Accounts 2023 81 Annual report on remuneration continued # **Executive Directors' interests under share schemes – audited information continued** The performance condition applying to Gavin Peck's LTIP award granted in February 2021 is summarised on page 81. The estimated outturn is that the award will lapse in full. Vesting of the LTIP awards made in September 2021 and November 2022 is based on EPS and share price targets as set out in the table below. | Award date | Measure | Weighting | Threshold (20% vesting) | Maximum (100% vesting) | | --- | --- | --- | --- | --- | | 30 September 2021 | EPS^{1} | 50% | 5.6 pence | 15.6 pence | | | Share price^{2} | 50% | £0.57 | £2.00 | | 17 November 2022 | EPS^{1} | 50% | 5.6 pence | 15.6 pence | | | Share price^{2} | 50% | £0.43 | £1.40 | 1. Basic EPS for the Company's FY24, pre-FRS 16 and subject to such adjustments as the Remuneration Committee determines to ensure that performance is assessed on a fair and consistent basis. 2. Average share price over the period of four weeks following the announcement by the Company of its Full Year Trading Update for its 2023/24 financial year. 3. Basic EPS for the Company's FY25, pre-FRS 16 and subject to such adjustments as the Remuneration Committee determines to ensure that performance is assessed on a fair and consistent basis. 4. Average share price over the period of four weeks following the announcement by the Company of its Full Year Trading Update for its 2024/25 financial year. The awards are subject to a general performance underpin, whereby the Committee shall assess overall financial performance of the Group over the performance period in determining the level of vesting and an assessment of whether any of the value of the awards on assessment of the performance conditions represents a 'windfall gain'. The awards are also subject to a cap such that the value of the vested shares under an award, determined by reference to the price used to assess the share price element of the performance condition, may not exceed £2,500,000 in the case of Gavin Peck's award and £1,750,000 in the case of Steve Aldridge's award. As noted in the Remuneration Committee Chair's statement on page 74, the EPS targets for in-flight LTIPs will be reviewed in FY24 to consider the impact of prior period restatements and to ensure that performance can be assessed on a fair and consistent basis. This review is intended to ensure that the level of stretch in the targets is maintained and the targets are not made materially easier or harder to achieve as a result of the restatement. # **Directors' share ownership guidelines – audited information** The Committee has adopted a shareholding guideline for the Executive Directors, which requires the Executive Directors to retain half of all shares acquired under the LTIP (after sales to cover tax and any exercise price) until such time as their holding has a value equal to 200% of salary. Shares subject to LTIP awards which have vested but not been released (i.e. which remain in a holding period), or which have been released but have not been exercised, and any shares subject to deferred bonus awards, count towards the guidelines on a net of assumed tax basis. | Executive Director | Number of shares counting towards the guideline at 30 April 2023 | Value of shares counting towards the guideline | Value of shares as a percentage of base salary | Shareholding guideline met^{1} | | --- | --- | --- | --- | --- | | Gavin Peck | 605,596 | £187,734 | 45.5% | In progress | | Steve Aldridge | – | – | – | In progress | 1 Based on a share price of 31 pence as at 28 April 2023 (being the last trading day prior to the year end of 30 April 2023) 2 Steve Aldridge has not yet had any LTIP award which has vested. When he does so, he will be required to retain shares in accordance with the Policy which will count towards the shareholding guideline. 82 TheWorks.co.uk plc Annual Report and Accounts 2023 ### Performance graph and historical CEO remuneration outcomes The graph below shows the total shareholder return (TSR) performance for the Company's shares in comparison to the FTSE SmallCap for the period from Main Market Admission on 19 July 2018 to 30 April 2023. The TSR performance of the FTSE SmallCap index has been selected as it is considered the most appropriate comparator group. For the purposes of the graph, TSR has been calculated as the percentage change in the market price of the shares during the period, assuming that dividends are reinvested. The graph shows the value, as at 30 April 2023, of £100 invested in shares in the Company on 19 July 2018 compared with £100 invested in the FTSE SmallCap. ![img-9.jpeg](img-9.jpeg) The table below sets out the CEO's total remuneration over the last five financial years, valued using the methodology applied to the single total figure of remuneration. The Committee does not believe that the remuneration paid in earlier years as a private company bears any comparative value to that paid in its time as a public company and, therefore, the Committee has chosen to disclose remuneration only for the four most recent financial years (with the figures for FY19 being for the period from Admission on 19 July 2018 to 28 April 2019): | Year (CEO) | Total single figure remuneration (£100) | Annual bonus payout (% of maximum opportunity) | LTIP vesting (% of maximum number of shares) | | --- | --- | --- | --- | | 2023 (Gavin Peck) | 331 | 0% | 0% | | 2022 (Gavin Peck) | 585 | 78% | 38.4% | | 2021 (Gavin Peck) | 303 | 0% | 0% | | 2020 (Gavin Peck – from 16 January 2020) | 85 | 0% | N/A | | 2020 (Kevin Keaney – until 16 January 2020) | 267 | 0% | N/A | | 2019 (Kevin Keaney) | 288 | 0% | N/A | 1 The 2022 figure reflects the CEO's single total figure of remuneration for FY22 as included in this report updated to reflect the 'trung up' of the FY22 LTIP figure as referred to on page 79. 2 There was no LTIP capable of vesting in respect of performance ending 2019 and 2020. Strategic report Corporate governance Financial statements TheWorks.co.uk plc Annual Report and Accounts 2023 83 Annual report on remuneration continued # Change in remuneration of Directors compared to Group employees The table below sets out the annual change in salary and fees, benefits and bonus paid to each of the Directors from FY20 to FY23. The regulations also require a comparison of the change in the remuneration of the employees of TheWorks.co.uk plc. The Company has no employees other than the Executive Directors and, accordingly, strictly no disclosure is required. Given the added complexities of the impact in FY21 of furlough, the Company has not included the average employee salary changes between FY21 and FY22, but, in the interests of transparency, has provided information on the approach to the change in salary of the Group's UK employees. Notes to the table provide additional information in relation to the changes. Additional information in relation to the changes in previous years is set out in the relevant previous Directors' remuneration reports. | | Executive Directors | | Non-Executive Directors | | | UK employees' average^{1} | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | Gavin Peck | Steve Aldridge^{2} | Carolyn Bradley^{3} | Catherine Ohlsman | | Harry Morley | | Salary/fees | FY22-FY23 | 3% | 3% | 0% | 3% | 3% | 3.46%^{4} | | | FY21-FY22 | 6% | — | — | 6% | 6% | See note to corresponding table in FY22 DRR | | | FY20-FY21 | 27% | — | — | (2%) | (2%) | See note to corresponding table in FY22 DRR | | Taxable benefits | FY22-FY23 | 0% | 0% | N/A | N/A | N/A | 5.5%^{5} | | | FY21-FY22 | 18%^{6} | — | — | N/A | N/A | (17.8%) | | | FY20-FY21 | 0% | — | — | N/A | N/A | 23.49% | | Annual bonus | FY22-FY23 | N/A^{7} | N/A^{7} | N/A | N/A | N/A | N/A | | | FY21-FY22 | N/A | — | — | N/A | N/A | See note to corresponding table in FY22 DRR | | | FY20-FY21 | N/A | — | — | N/A | N/A | (60.4%) | 1 Carolyn Bradley and Steve Aldridge were appointed during FY22, and therefore there is no disclosure for the change in their remuneration between FY21 and FY22. In the case of Steve Aldridge, the 3% change between FY22 and FY23 reflects the 3% increase to his salary for FY23. 2 Increase reflects increase due to SAVE discount included in taxable benefits. 3 No annual bonus was earned by Gavin Peck or Steve Aldridge in respect of FY23. Therefore, the percentage change between FY22 and FY23 is not considered to be a meaningful disclosure. 4 The UK employees' average changes are calculated comparing the remuneration for the tax year ended 5 April 2022 with the remuneration for the tax year ended 5 April 2023 as this data is more readily available than data in respect of financial years. The value of SAVE options granted in November 2022 has been excluded for consistency with the CEO pay-ratio calculation on page 85. 5 In FY22 rates for store and Distribution Centre colleagues were increased in line with increases in the National Living and Minimum Wages, with colleagues aged 23 plus receiving an increase of 6.6% in April 2022. We applied an average 3% increase to non-minimum wage colleagues and maintained a wage differential in store teams. In FY23 rates for store and Distribution Centre colleagues were increased in line with increases in the National Living and Minimum Wages, with colleagues aged 23 plus receiving an increase of 9.7% in April 2023. Outside of all applicable NMW increases, an average of 11% was given across the business (7% average for store management and 5% average for Store Support and Distribution Centre colleagues). 6 The increase in benefits paid in FY23 is due to a rise in the number of managers in our support centre who receive taxable benefits. The percentage change reflects on increase in the average value of benefits provided from c. £1M to c. £126. # Relative importance of spend on pay The following table sets out the total remuneration for all employees and the total shareholder distributions in FY22 and FY23. All figures provided are taken from the relevant Company accounts. | | FY22 £000 | FY23 £000 | Percentage change | | --- | --- | --- | --- | | Total remuneration for all employees (including Executive Directors) | 60,031 | 62,235 | 3.7% | | Dividends and share buyback | — | 1,492 | N/A | Since there were no dividends or buybacks in FY22, the percentage change between FY22 and FY23 is not considered to be a meaningful disclosure. 84 TheWorks.co.uk plc Annual Report and Accounts 2023 ## CEO pay ratio The table below shows how the CEO's remuneration (as taken from the single figure remuneration table and, therefore, taking into account the CEO's voluntary reduction in remuneration in relevant years as disclosed in previous Directors' remuneration reports) compares to equivalent remuneration for full-time equivalent UK employees, ranked at the 25th, 50th and 75th percentile. | Year | Pay ratio | | | | Remuneration values (£) | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Method | 25th percentile | Median | 75th percentile | | 25th percentile | Median | 75th percentile | | FY23 | Option C | 17.1 | 16.1 | 15.1 | Salary only | 19,760 | 20,342 | 21,674 | | | | | | | Total remuneration | 19,773 | 20,473 | 21,997 | | FY22 | Option C | 31.1 | 30.1 | 27.1 | Salary only | 18,533 | 19,115 | 20,389 | | | | | | | Total remuneration | 18,637 | 19,487 | 21,591 | | FY21 | Option C | 17.1 | 16.1 | 15.1 | Salary only | 18,138 | 18,720 | 19,448 | | | | | | | Total remuneration | 18,138 | 18,720 | 19,675 | | FY20 | Option C | 21.1 | 19.1 | 17.1 | Salary only | 17,077 | 18,013 | 19,925 | | | | | | | Total remuneration | 17,077 | 18,094 | 20,338 | The methodology applied to calculate pay ratios was as follows: - The regulations set out three methodologies for determining the CEO pay ratio. We have chosen 'Option C' consistent with the previous years' calculations. - As ratios could be unduly impacted by joiners and leavers who may not participate in all remuneration arrangements in the year of joining and leaving, the Committee has modified the statutory basis to exclude any employee not employed throughout the financial year. - The FY22 ratios in this table have been updated to reflect the CEO's single total figure of remuneration for FY22 as included in this report and updated to reflect the 'trung up' of the FY22 LTP figure (referred to on page 79). - Employee pay data is based on full-time equivalent (FTE) base pay for UK employees as at 31 March of the relevant year (based on FTE salary for salaried employees and hourly pay rates for hourly paid employees), to which actual pension contributions, bonus and benefits have been added, except that the value of SAVE options has been excluded (for the purposes of the FY20, FY22 and FY23 calculations) as their value is not considered to have a significant impact on the CEO pay ratios and sourcing the data for each employee is administratively burdensome. The employees have then been ranked by FTE pay and benefits calculated on this basis and the employees at the 25th percentile, 50th percentile (median) and 75th percentile have been identified. The FTE pay and benefits calculated on this basis for those three employees are then compared to the CEO single figure of remuneration to calculate the ratios; the calculations do not, therefore, take into account the impact of the identified employees having been furloughed during any year in which that was relevant. - For 2020 the CEO single figure of remuneration used comprises the single total figure for FY20 for Kevin Keaney, plus the single total figure for Gavin Peck for the period of the year from his appointment as CEO (16 January 2020) to 26 April 2020. The CEO pay ratio has the potential to vary considerably year on year due to a significant proportion of the CEO's remuneration package comprising performance related variable pay. Gavin Peck earned a bonus equal to 78% of salary in respect of FY22 and the vesting at 38.4% of maximum of the LTP award granted to him in September 2019 was similarly included in his FY22 single total figure of remuneration. As reported elsewhere in this Directors' Remuneration Report, Gavin Peck did not earn a bonus in respect of FY23 and the estimated outturn of the LTP granted to him in February 2021 is that the award will lapse in full. The variance in incentive outcomes between FY22 and FY23 is the primary reason for the decrease in the CEO pay ratio between FY22 and FY23. The Company considers that the median pay ratio is consistent with pay, reward and progression policies for the Company's employees as a whole. ## Payments to past Directors and for loss of office – audited information No payments for loss of office or to past Directors were made during FY23. ## Implementation of the Policy Information on how the Committee intends to implement the Policy is set out in the Policy summary table on pages 76 and 77. ## Shareholder voting at AGM The following table shows the results of the binding vote on the Policy, and the advisory vote on the Directors' Remuneration Report, at the 2022 AGM. | | Approval of the Remuneration Policy | | Approval of the Directors' remuneration report | | | --- | --- | --- | --- | --- | | | Total number of votes | % of votes cast | Total number of votes | % of votes cast | | For (including discretionary) | 31,925,296 | 99.91 | 31,924,870 | 99.91 | | Against | 27,758 | 0.09 | 29,758 | 0.09 | | Withheld | 11,384 | N/A | 9,810 | N/A | On behalf of the Board. Catherine Glickman Chair of the Remuneration Committee 30 August 2023 TheWorks.co.uk plc Annual Report and Accounts 2023 85 Strategic report Company presentation Financial statements # Directors' report The Directors present their report for the financial year ended 30 April 2023. Additional information which is incorporated by reference into this Directors' report, including information required in accordance with the Companies Act 2006 (the Act) and Listing Rule 98 AR of the UK Financial Conduct Authority's Listing Rules, can be located as follows: | Disclosure | Location | | --- | --- | | Future business developments | Strategic report – pages 1 to 57. | | Environmental policy | ESG review – pages 29 to 35. | | Employee engagement | Our stakeholders – pages 26 and 27. ESG review – pages 29 to 35. Corporate governance report – pages 62 to 65. | | Diversity policy | Nomination Committee report – pages 70 to 72. | | Viability | Viability statement – pages 54 to 56. | | Section 172 statement | Page 28. | | Stakeholder engagement in key decisions | Our stakeholders – pages 26 and 27. Section 172 statement – page 28. Corporate governance report – pages 62 to 65. | | Corporate governance compliance statement | Corporate governance report – pages 62 to 65. | | Financial risk management objectives and policies (including hedging policy and use of financial instruments) | Note 25 to the financial statements – pages 127 to 131. | | Exposure to price risk, credit risk, liquidity risk and cash flow risk | Note 25 to the financial statements – pages 127 to 131. | | Details of long-term incentive schemes | Directors' remuneration report – pages 73 to 77. | | Statement of Directors' responsibilities | Page 89. | ## Directors The Directors of the Company who held office throughout the period are set out below: Carolyn Bradley (Chair) Gavin Peck (CEO) Steve Alldridge (CFO) Harry Morley (Senior Independent Director) Catherine Glickman (Non-Executive Director) Summaries of the current Directors' key skills and experience are included on pages 60 and 61. ## Results and dividend The results for the year are set out in the consolidated income statement on page 98. The Directors propose the payment of a final dividend of 1.6 pence per share on 2 November 2023 (with a record date of 6 October 2023), subject to approval on 4 October 2023. ## Articles of Association The rules governing the appointment and replacement of Directors are set out in the Company's Articles. The Articles may be amended by a special resolution of the Company's shareholders. The Articles also set out in full the powers of the Directors in relation to issuing shares and buying back the Company's own shares. ## Share capital Details of the Company's share capital, including changes during the year, are set out in Note 24 to the financial statements. As at 30 April 2023, the Company's issued share capital consisted of 62,500,000 ordinary shares of 1 pence each. There have been no changes to the Company's issued share capital since the financial period end. Ordinary shareholders are entitled to receive notice of, and to attend and speak at, any general meeting of the Company. On a show of hands every shareholder present in person or by proxy (or being a corporation represented by a duly authorised representative) shall have one vote, and on a poll every shareholder who is present in person or by proxy shall have one vote for every share of which he is the holder. The Notice of AGM specifies deadlines for exercising voting rights and appointing a proxy or proxies. Other than the general provisions of the Articles (and prevailing legislation) there are no specific restrictions of the size of a holding or on the transfer of the ordinary shares. The Directors are not aware of any agreements between holders of the Company's shares that may result in the restriction of the transfer of securities or on voting rights. No shareholder holds securities carrying any special rights or control over the Company's share capital. 86 TheWorks.co.uk plc Annual Report and Accounts 2023 ### Authority for the Company to purchase its own shares Subject to authorisation by shareholder resolution, the Company may purchase its own shares in accordance with the Act. Any shares which have been bought back may be held as treasury shares or cancelled immediately upon completion of the purchase. At the Company's AGM held on 27 October 2022, the Company was generally and unconditionally authorised by its shareholders to make market purchases (within the meaning of Section 693 of the Act) of up to a maximum of 6,250,000 of its ordinary shares. The Company has not repurchased any of its ordinary shares under this authority, which is due to expire at the AGM to be held on 4 October 2023, and accordingly has an unexpired authority to purchase up to 6,250,000 ordinary shares with a nominal value of £62,500.00. A resolution to renew the authority for a further year will be proposed at the 2023 AGM. ### Directors' interests The number of ordinary shares of the Company in which the Directors were beneficially interested as at 30 April 2023 is set out in the Directors' remuneration report on pages 73 to 75. ### Directors' indemnities The Company's Articles provide, subject to the provisions of UK legislation, an indemnity for Directors and Officers of the Company and the Group in respect of liabilities they may incur in the discharge of their duties or in the exercise of their powers. Directors' and Officers' liability insurance cover is maintained by the Company and is in place in respect of all the Company's Directors at the date of this report. The Company reviews its level of cover on an annual basis. ### Compensation for loss of office The Company does not have any agreements with any Executive Director or employee that would provide compensation for loss of office or employment resulting from a takeover except that provisions of the Company's LTIP and other share schemes may cause options and awards outstanding under such schemes to vest on a takeover. Further information is provided in the Directors' remuneration report on pages 76 to 77. ### Significant interests The table below shows the interests in shares notified to the Company in accordance with the Disclosure Guidance and Transparency Rules as at 30 April 2023, and 29 August 2023 (being the latest practicable date prior to publication of this Annual Report). | Name of shareholder | As at 30 April 2023 | | As at 29 August 2023 | | | --- | --- | --- | --- | --- | | | Number of ordinary shares of 1 pence each held | Percentage of total voting rights held | Number of ordinary shares of 1 pence each held | Percentage of total voting rights held | | Schroders plc | 12,043,161 | 19.27% | 12,043,161 | 19.27% | | Jupiter Fund Management plc | 5,370,667 | 8.50% | 2,442,667 | 3.90% | | Hudson Management Limited | 3,911,000 | 6.25% | 5,811,000 | 9.35% | | Graeme Coulthard | 3,500,000 | 5.60% | 4,050,000 | 6.48% | | Downing Strategic Micro-Cap Investment Trust | 2,750,000 | 4.40% | 2,750,000 | 4.40% | ### Branches outside the UK Other than ten stores located in the Republic of Ireland, the Company has no branches outside the UK. ### Employee involvement Information relating to employees of the Group and how the Company engages with its workforce can be found on pages 32 to 34 ### Disabled employees It is the policy of the Group to provide equal recruitment and other opportunities for all colleagues regardless of sex, age, religion, race, disability or sexual orientation. The Group gives full consideration to applications for employment from disabled people, where they adequately fulfil the requirements of the job. Once employed by the Group, we ensure that disabled colleagues have full access to training and career development opportunities. Where colleagues become disabled, it is the Group's policy to provide continuing employment and refraining where practicable. ### Political donations The Company did not make any political donations during the year. ![img-10.jpeg](img-10.jpeg) TheWorks.co.uk plc Annual Report and Accounts 2023 87 through report Corporate governance Financial statements ## Directors’ report continued Change of control – significant agreements There are a number of agreements that may take effect after, or terminate upon, a change of control of the Company, such as commercial contracts, bank loan agreements and property lease arrangements. The only significant agreement to which the Company is a party that takes effect, alters or terminates upon a change of control of the Company following a takeover bid, and the effect thereof, is the Company’s committed bank facility dated 10 June 2022 which contains a provision such that, in the event of a change of control, the facility may be cancelled and all outstanding amounts, together with accrued interest, will become repayable on the date falling 30 days following written notice being given by the lenders that the facility has been cancelled. Audit information Each of the Directors at the date of the approval of this report confirms that: • So far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware. • The Director has taken all the reasonable steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of the information. The confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Act. Auditor A resolution to reappoint KPMG LLP will be proposed at the forthcoming AGM. Annual General Meeting The AGM will be held on 4 October 2023. The Notice of AGM is contained in a separate letter from the Chair accompanying this report. Post-balance sheet events Other than as disclosed in the Strategic report, there have been no material post-balance sheet events involving the Company or any of the Company’s subsidiaries as at the date of this report. The Strategic report on pages 1 to 57 and this Directors’ report have been drawn up and presented in accordance with, and in reliance upon, applicable English company law and any liability of the Directors in connection with these reports shall be subject to the limitations and restrictions provided by such law. By order of the Board Gavin Peck Chief Executive Officer 30 August 2023 TheWorks.co.uk plc Annual Report and Accounts 202388 ## Statement of Directors’ responsibilities Statement of Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law, they are required to prepare the Group financial statements in accordance with UK adopted International Accounting Standards and applicable law and have elected to prepare the Parent Company financial statements in accordance with UK accounting standards and applicable law, including FRS 101 Reduced Disclosure Framework. Under company law, the 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 Parent Company and of the Group’s profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable, relevant, reliable and prudent; • for the Group financial statements, state whether they have been prepared in accordance with UK adopted International Accounting Standards; • for the Parent Company annual statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the Parent Company financial statements; • assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and Financial statementsCorporate governanceStrategic report • use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are 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, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Responsibility statement of the Directors in respect of the Annual Financial Report We confirm that to the best of our knowledge: • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and • the Strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. We consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. By order of the Board Gavin Peck Chief Executive Officer 30 August 2023 TheWorks.co.uk plc Annual Report and Accounts 2023 89 ## Independent auditor’s report ### To the members of TheWorks.co.uk plc 1. Our opinion is unmodified We have audited the financial statements of TheWorks.co.uk plc Overview (“the Company”) for the 52 week period ended 30 April 2023 which Materiality: k (: k) comprise the Consolidated income statement, Consolidated group financial statement of comprehensive income, Consolidated statement of statements as a whole .% (: .%) of revenue financial position, Consolidated statement of changes in equity, Consolidated cash flow statement, Company statement of Coverage % (: %) of revenue financial position and Company statements of changes in equity Key audit matters  vs  and the related notes, including the accounting policies in note 1. Recurring risks Going concern In our opinion: Existence, completeness • the financial statements give a true and fair view of the state of and accuracy of the Group’s and of the parent Company’s affairs as at 30 April inventory held in stores 2023 and of the Group’s loss for the 52 week period then ended; Carrying amount of • the Group financial statements have been properly prepared in Parent Company accordance UK-adopted international accounting standards; investment in subsidiaries • the parent Company financial statements have been properly New risk Impairment of property, prepared in accordance with UK accounting standards, including plant and equipment FRS 101 Reduced Disclosure Framework; and and right of use assets • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee. We were first appointed as auditor by the directors on 11 July 2018. The period of total uninterrupted engagement is for the 5 financial years ended 30 April 2023. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided. TheWorks.co.uk plc Annual Report and Accounts 202390 2. Material uncertainty related to going concern The risk Our response Going concern Disclosure quality Our procedures included: We draw The financial statements explain how the Board has • Funding assessment: Considering the attention to note formed a judgement that it is appropriate to adopt the availability and sufficiency of the financing 1 to the financial going concern basis of preparation for the Group and arrangements in place at the Group, including statements which parent Company. the headroom on financial covenants in place on indicates that in That judgement is based on an evaluation of the inherent the Group’s renewed revolving credit facility the severe but risks to the Group’s and Company’s business model and • Sensitivity analysis: Challenging the stress plausible downside how those risks might affect the Group’s and Company’s testing performed by the Directors considering scenario the financial resources or ability to continue operations over the severe but plausible scenarios that Group is forecast a period of at least 12 months from the date of approval could arise; to breach its loan of the financial statements. covenants during • Historical comparisons: Assessing historical the going concern The risk for our audit is whether or not those risks are such forecasting accuracy, by comparing previous assessment period. that they amounted to a material uncertainty that may forecast results to those actually achieved by These events and cast significant doubt about the ability to continue as a the Group; conditions, along going concern. If so, that fact is required to be disclosed • Assessing assumptions: Assessing the key with the other (as has been done) and, along with a description of the assumptions (including growth rates in turnover matters explained circumstances, is a key financial statement disclosure. Financial statementsCorporate governanceStrategic report and margin expectations) as included in the | in note 1, constitute | directors’ business plans and approved at | | --- | --- | | a material | the period-end date by considering historic | | uncertainty | store performance, recent trading and sector | | that may cast | knowledge to set our own expectations; | significant doubt • Evaluating directors’ intent: Evaluating the on the Group’s achievability of the actions the directors and the parent consider they would take to improve the position company’s ability should the risks materialise, taking into account to continue as a the extent to which the directors can control the going concern. timing and outcome of these; Our opinion is not • Comparing assumptions: Considering whether modified in respect the forecasts and assumptions used by the of this matter. Directors are consistent with other forecasts used by the Group (including those used to assess recoverability of Parent Company investments in subsidiaries and recoverability of store assets); and • Assessing transparency: Considering whether the going concern disclosure in the basis of preparation of the accounts gives a full and accurate description of the Directors’ assessment of going concern, including the identified risks and corresponding assumptions. Our results We found the going concern disclosure in note 1 with a material uncertainty to be acceptable (2022 result without any material uncertainty: acceptable). 3. Other key audit matters: our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, 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. Going concern is a significant key audit matter and is described in section 2 of our report. We summarise below the other key audit matters in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters. TheWorks.co.uk plc Annual Report and Accounts 2023 91 ## Independent auditor’s report continued ### To the members of TheWorks.co.uk plc 3. Other key audit matters: our assessment of risks of material misstatement continued The risk Our response Impairment of Forecast-based assessment: We performed the detailed tests below rather The Group has significant property, plant and equipment than seeking to rely on any of the Group’s controls property, plant and right-of-use assets held on the consolidated because the nature of the balance is such that we and equipment balance sheet. would expect to obtain audit evidence primarily and right- through the detailed procedures described. | of-use assets | The Group estimates the recoverable amount of property, | | | --- | --- | --- | | Carrying amount | plant and equipment and right of use assets based on | Our procedures included: | | £78.5 million, out | their value in use, derived from a discounted cash flow | | • Model design evaluation and re-performance: of the total PPE model prepared by management. The key assumptions We evaluated the reasonableness of the design and ROUA of applied by management are short-term sales growth, of VIU models in line with the requirements of £79.2 million (2022: profit margin and discount rates, which all involve a high the accounting standard and re-performed carrying amount degree of estimation uncertainty. the calculations the Directors performed for £85.5 million, out The increased economic uncertainty and the cost of determining the VIU of each cash generating of the total PPE living crisis in the UK, has increased the risk in relation to unit, including assessing whether the allocation and ROUA of £86.5 the recoverability of store assets at the cash generating of central overhead across each of the CGU is million (restated)). unit (“CGU”) level; each store being a CGU. appropriate. Refer to page 67 • Benchmarking assumptions: We compared the In addition as described in the financial statements (Audit Committee Group’s assumptions, in particular those relating Note 14 the Group have reconsidered the allocation Report), page 115 to forecast short-term sales growth rates and of central costs to individual CGUs for the purposes of note 14 (financial discount rates, to externally derived data and impairment testing. disclosures – PPE industry forecasts. and ROU assets). Subjective estimate • Historical Comparisons: We assessed the Subjective inputs to the value in use calculation, such as Group’s performance against budget in the the allocation of central overheads, discount rates and current and prior periods to evaluate the remaining asset lives require judgement. historical accuracy of the Group’s forecasts Calculation error on a store by store basis and performed a The model used to calculate the value in use is complex, retrospective review on any prior year provisions/ and so open to the possibility of mathematical error given impairments. the complexity of the impairment methodology. • Sensitivity Analysis: We performed sensitivity analysis on the assumptions namely the Prior year adjustment budgeted growth rates and discount rate. The estimates used in, and accuracy of calculation of the prior year adjustment could be incorrect. Furthermore, • Assessing transparency: We assessed whether the disclosures presented may not adequately address the group’s disclosures about the sensitivity of the requirements of IAS 8 in relation to the description of the outcome of the impairment assessment to the adjustment and the impact of the correction. changes in key assumptions reflected the risks related to the valuation of store assets. We The effect of these matters is that, as part of our risk assessed if the disclosures in relation to the prior assessment for audit planning purposes we determined year adjustment were in accordance with IAS 8. that the degree of estimation uncertainty to be less than that materiality, however in conducting our final audit Our results work, we reassessed the degree of estimation uncertainty We found the Group’s property, plant and in relation to the value in use of store assets and we equipment and right-of-use assets balances determined that the risk has increased. It has a high and the related impairment charges to be degree of estimation uncertainty with a potential range acceptable (2022: acceptable). We found the prior of reasonable outcomes greater than our materiality year adjustment and related disclosures to be for the financial statements as a whole. The financial acceptable. statements (note 14) disclose the range/sensitivity estimated by the Group. TheWorks.co.uk plc Annual Report and Accounts 202392 3. Other key audit matters: our assessment of risks of material misstatement continued The risk Our response Existence, Subjective estimation: We performed the detailed tests below rather Inventory is a significant balance. It is held in stores, at than seeking to rely on any of the Group’s controls completeness the Company warehouse and at a third- party logistics because the our knowledge of the design of these and accuracy provider. The risks described below relate to inventory controls indicated that we would not be able to of Inventory held at the stores. obtain the required evidence to support reliance Stores Inventory: on controls. £21.0 million; It is usual in a retail environment for differences to arise (2022: £20.4 million) between the inventory records and physical quantities Our procedures included: for a variety of reasons, including theft and other losses, Refer to page 67 • Test of detail: We counted 640 line items at 25 often referred to as shrinkage. | (Audit Committee | | stores close to the year end. We reconciled these | | --- | --- | --- | | Report), and | The existence and completeness of inventory and | to the year end listings and compared our count | | page 123 note | the extent of shrinkage was previously assessed by | results with the company inventory records; | | 17 (financial | management through sample inventory counts at | | • Assessing methodology: We assessed the disclosures). every store throughout the year (“tactical counts”) and methodology used by the group to calculate the complete inventory counts at a number of stores (“wall- shrinkage provision; to-wall counts”). The inventory records were adjusted • Independent reperformance: We performed to reflect the results of management’s count processes our own evaluation of the shrinkage based and a shrinkage provision was established to cater for an Financial statementsCorporate governanceStrategic report on our count results, which we compared to estimate of the losses incurred between the count dates management’s estimate; and and the year end. • Assessing transparency: We assessed the In the prior year, Management’s count processes in the adequacy of the group’s disclosures about the stores were disrupted by a cyber incident in March 2022. degree of estimation uncertainty involved in As a result, management were not able to conduct as arriving at the shrinkage provision. many wall-to-wall counts as planned to confirm the Our results existence and completeness of store inventory during the The results of our testing were satisfactory and we course of the year. Therefore, management conducted found the existence, completeness and accuracy wall-to- wall counts at a sample of stores and estimated of Inventory to be acceptable (2022: acceptable). the level of unrecognised shrinkage across the estate on this basis. Management’s count processes in the stores for FY23 was to perform wall-to-wall inventory counts across all stores within the final quarter of the year to establish a new inventory volume baseline. Management expected that the pre-count inventory record contained inaccuracies and therefore variances identified in the count were not highly scrutinised. Additionally, the count process was new for FY23. Based on these factors we considered that there was a high risk that the counts would be executed incorrectly, or the results recorded incorrectly resulting in a material error in the inventory record. Management still developed an estimate for the level of unrecognised shrinkage in the stores inventory balance, but this was based on count results from all stores and the period between the count date and year-end was far shorter for almost all stores. As a result, the provision for shrinkage was considered to have a far lower degree of estimation uncertainty with a potential range of outcomes smaller than our materiality for the financial statements as a whole. TheWorks.co.uk plc Annual Report and Accounts 2023 93 ## Independent auditor’s report continued ### To the members of TheWorks.co.uk plc 3. Other key audit matters: our assessment of risks of material misstatement continued The risk Our response Carrying Forecast-based assessment: We performed the tests below rather than seeking The carrying amount of the Parent Company’s to rely on any of the Group’s controls because the amount investments in subsidiaries represents 100% (2022: 80.1%) nature of the balance is such that we would expect of Parent of the Parent Company’s total assets. The net assets to obtain audit evidence primarily through the Company of the subsidiaries are less than the carrying amount detailed procedures described. investment in of the Parent Company’s investment which is therefore Our procedures included: | subsidiaries | assessed with reference to their discounted forecast | | | --- | --- | --- | | £38.4 million; | future cash flows. This is inherently judgemental due to | • Test of Detail: We used our sector | | (2022: £57.3 million) | the subjectivity and uncertainty involved in selecting the | knowledge and understanding of the | | | appropriate key assumptions, being long term growth | business and considered whether or not | Refer to page 67 rate, discount rate and underlying cashflows, and they had been appropriately captured in the (Audit Committee preparing the future discounted cash flow model. impairment models; Report), page 136 note 33 (financial • Our valuation expertise: We used experts to The effect of these matters is that, as part of our risk disclosures). assist us in assessing appropriateness of the assessment, we determined that the carrying value of the methodology and assumptions. In addition we parent company’s investment in subsidiaries has a high performed an independent calculation of the degree of estimation uncertainty, with a potential range discount rate based on market data to assist us of reasonable outcomes greater than our materiality in assessing the discount rate assumptions used for the financial statements as a whole. The financial by the Group; statements (Note 33) disclose the sensitivity estimated by the Company. • Assessing assumptions: We assessed the key assumptions (including growth rates in turnover and margin expectations) as included in the directors’ business plans and approved at the period-end date by considering historic performance and industry forecasts to set our own expectations; • Sensitivity Analysis: We applied sensitivities to key assumptions to assess their impact on the recoverability of the assets; • Historical comparison: We evaluated the historical accuracy of the Group’s forecasts by comparing previous budget to actual results; • Comparing valuations: We compared the results of discounted cash flows against the Group’s market capitalisation; and • Assessing transparency: We also considered the adequacy of the Group’s disclosure of the key risks and sensitivity around the outcome, and whether that disclosure reflected the risks inherent in the valuation of investments in subsidiaries. Our results The results of our testing were satisfactory and we found the impairment of £19.6m recorded and the resulting carrying value of the investment in subsidiaries to be acceptable (2022: acceptable). TheWorks.co.uk plc Annual Report and Accounts 202394 4. Our application of materiality and an overview of the Benchmark – Revenue Group materiality £280m (2022: £265m) £750k (2022: £750k) scope of our audit Materiality for the Group financial statements as a whole was set at £750k (2022: £750k), determined with reference to a benchmark of revenue of £280m (2022: £265m) as disclosed in note 3, of which it represents 0.27% (2022: 0.28%). ##  Materiality for the parent Company financial statements as a whole was set at £412k (2022: £600k), determined with reference £750k Whole financial statements to a benchmark of Company net assets, of which it represents materiality (2022: £750k) 1.40% (2022: 1.17%). In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable | level the risk that individually immaterial misstatements in individual | £487.5k | | --- | --- | | account balances add up to a material amount across the | Whole financial statements | | financial statements as a whole. | performance materiality | (2022: £487.5k) Performance materiality was set at 65% (2022: 65%) of materiality for the financial statements as a whole, which equates to £487.5k Revenue £37.5k Financial statementsCorporate governanceStrategic report (2022: £487.5k) for the Group and £267k (2022: £390k) for the parent Group materiality Misstatements reported Company. We applied this percentage in our determination of to the audit committee performance materiality based on the level of misstatements (2022: £37.5k) and control deficiencies in the control environment during the prior period. We agreed to report to the Audit Committee any corrected 6. Fraud and breaches of laws and regulations – or uncorrected identified misstatements exceeding £37.5k ability to detect (2022: £37.5k), in addition to other identified misstatements that Identifying and responding to risks of material misstatement warranted reporting on qualitative grounds. due to fraud To identify risks of material misstatement due to fraud (“fraud risks”) The scope of the audit work performed was predominately we assessed events or conditions that could indicate an incentive substantive as we placed limited reliance upon the Group’s internal or pressure to commit fraud or provide an opportunity to commit control over financial reporting. fraud. Our risk assessment procedures included: The group team performed the audit of the group as if it was a • Enquiring of directors and inspection of policy documentation single aggregated set of financial information. The audit was as to the Group’s and the Company’s high-level policies and performed using materiality and performance materiality level procedures to prevent and detect fraud and the Group’s and the set out above. Company’s channel for “whistleblowing”, as well as whether they 5. Going concern have knowledge of any actual, suspected or alleged fraud. The directors have prepared the financial statements on the • Reading Board minutes. going concern basis as they do not intend to liquidate the group • Considering remuneration incentive schemes and performance or the company, or to cease their operations, and as they have targets for management and directors including the EPS target concluded that the group and the company’s financial position for management remuneration. means that this is realistic for at least 12 months from the date of approval of the financial statements (“the going concern period”). • Held fraud risks discussions with Forensic Specialists. As stated in section 2 of our report, they have also concluded that We communicated identified fraud risks throughout the audit there is a material uncertainty related to going concern. team and remained alert to any indications of fraud throughout An explanation of how we evaluated management’s assessment of the audit. going concern is set out in section 2 of our report. As required by auditing standards, and taking into account Our conclusions based on this work: possible pressures to meet profit targets and our overall knowledge of the control environment we perform procedures to address the • we consider that the directors’ use of the going concern basis risk of management override of controls, in particular the risk that of accounting in the preparation of the financial statements Group management may be in a position to make inappropriate is appropriate; accounting entries and the risk of bias in accounting estimates • we have nothing material to add or draw attention to in relation and judgements such as dilapidations, cashflow and impairment to the directors’ statement in note 1 to the financial statements assumptions. On this audit we do not believe there is a fraud risk on the use of the going concern basis of accounting, and related to revenue recognition because transactions are highly their identification therein of a material uncertainty over the disaggregated, individually immaterial and quick cash settlement. Group and Company’s use of that basis for the going concern We did not identify any additional fraud risks. period; and • the related statement under the Listing Rules set out on page We performed procedures including: 86 is materially consistent with the financial statements and our • Identifying journal entries to test based on risk criteria and audit knowledge. comparing the identified entries to supporting documentation. These included those posted to unusual accounts. • Assessing whether the judgements made in making accounting estimates are indicative of a potential bias. TheWorks.co.uk plc Annual Report and Accounts 2023 95 ## Independent auditor’s report continued ### To the members of TheWorks.co.uk plc 6. Fraud and breaches of laws and regulations – ability 7. We have nothing to report on the other information to detect continued in the Annual Report Identifying and responding to risks of material misstatement due The directors are responsible for the other information presented to non-compliance with laws and regulations in the Annual Report together with the financial statements. We identified areas of laws and regulations that could reasonably Our opinion on the financial statements does not cover the other be expected to have a material effect on the financial statements information and, accordingly, we do not express an audit opinion from our general commercial and sector experience and through or, except as explicitly stated below, any form of assurance discussion with the directors and others management (as required conclusion thereon. by auditing standards) and discussed with the directors (and other Our responsibility is to read the other information and, in doing so, management) the policies and procedures regarding compliance consider whether, based on our financial statements audit work, with laws and regulations. the information therein is materially misstated or inconsistent with As the Group and Company are regulated, our assessment of risks the financial statements or our audit knowledge. Based solely on involved gaining an understanding of the control environment including that work we have not identified material misstatements in the the entity’s procedures for complying with regulatory requirements. other information. We communicated identified laws and regulations throughout our Strategic report and directors’ report team and remained alert to any indications of non- compliance Based solely on our work on the other information: throughout the audit. • we have not identified material misstatements in the strategic The potential effect of these laws and regulations on the financial report and the directors’ report; statements varies considerably. • in our opinion the information given in those reports for the financial year is consistent with the financial statements; and Firstly, the Group and Company are subject to laws and regulations that directly affect the financial statements including financial • in our opinion those reports have been prepared in accordance reporting legislation (including related companies legislation), with the Companies Act 2006. distributable profits legislation and taxation legislation and we Directors’ remuneration report assessed the extent of compliance with these laws and regulations In our opinion the part of the Directors’ Remuneration Report to as part of our procedures on the related financial statement items. be audited has been properly prepared in accordance with the Secondly, the Group and Company are subject to many other Companies Act 2006. laws and regulations where the consequences of non-compliance Disclosures of emerging and principal risks and longer-term viability could have a material effect on amounts or disclosures in the We are required to perform procedures to identify whether there financial statements, for instance through the imposition of fines is a material inconsistency between the directors’ disclosures in or litigation We identified the following areas as those most likely respect of emerging and principal risks and the viability statement, to have such an effect: health and safety, data protection laws, and the financial statements and our audit knowledge. anti-bribery, employment law, regulatory capital and liquidity, recognising the regulated nature of the Group’s and Company’s Based on those procedures, other than the material uncertainty activities. Auditing standards limit the required audit procedures related to going concern referred to above, we have nothing to identify non-compliance with these laws and regulations to further material to add or draw attention to in relation to: enquiry of the directors and other management and inspection of • the directors’ confirmation within the Viability Statement page 54 regulatory and legal correspondence, if any. Therefore if a breach that they have carried out a robust assessment of the emerging of operational regulations is not disclosed to us or evident from and principal risks facing the Group, including those that would relevant correspondence, an audit will not detect that breach. threaten its business model, future performance, solvency and liquidity; Context of the ability of the audit to detect fraud or breaches of • the Emerging and Principal Risks disclosures describing these law or regulation risks and how emerging risks are identified, and explaining how Owing to the inherent limitations of an audit, there is an unavoidable they are being managed and mitigated; and risk that we may not have detected some material misstatements • the directors’ explanation in the Viability Statement of how in the financial statements, even though we have properly planned they have assessed the prospects of the Group, over what and performed our audit in accordance with auditing standards. period they have done so and why they considered that period For example, the further removed non- compliance with laws to be appropriate, and their statement as to whether they and regulations is from the events and transactions reflected have a reasonable expectation that the Group will be able in the financial statements, the less likely the inherently limited to continue in operation and meet its liabilities as they fall procedures required by auditing standards would identify it. due over the period of their assessment, including any related In addition, as with any audit, there remained a higher risk of disclosures drawing attention to any necessary qualifications non-detection of fraud, as these may involve collusion, forgery, or assumptions. intentional omissions, misrepresentations, or the override of internal We are also required to review the Viability Statement, set out on controls. Our audit procedures are designed to detect material page 54 under the Listing Rules. Based on the above procedures, misstatement. We are not responsible for preventing non-compliance we have concluded that the above disclosures are materially or fraud and cannot be expected to detect non- compliance with consistent with the financial statements and our audit knowledge. all laws and regulations. Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s and Company’s longer-term viability. TheWorks.co.uk plc Annual Report and Accounts 202396 7. We have nothing to report on the other information Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether in the Annual Report continued the financial statements as a whole are free from material Corporate governance disclosures misstatement, whether due to fraud or error, and to issue our We are required to perform procedures to identify whether there opinion in an auditor’s report. Reasonable assurance is a high level is a material inconsistency between the directors’ corporate of assurance, but does not guarantee that an audit conducted governance disclosures and the financial statements and our in accordance with ISAs (UK) will always detect a material audit knowledge. misstatement when it exists. Misstatements can arise from fraud or Based on those procedures, we have concluded that each of the error and are considered material if, individually or in aggregate, following is materially consistent with the financial statements and they could reasonably be expected to influence the economic our audit knowledge: decisions of users taken on the basis of the financial statements. • the directors’ statement that they consider that the annual A fuller description of our responsibilities is provided on the FRC’s report and financial statements taken as a whole is fair, website at www.frc.org.uk/auditorsresponsibilities. balanced and understandable, and provides the information The Company is required to include these financial statements necessary for shareholders to assess the Group’s position and in an annual financial report prepared using the single electronic performance, business model and strategy; reporting format specified in the TD ESEF Regulation. This auditor’s • the section of the annual report describing the work of the report provides no assurance over whether the annual financial Audit Committee, including the significant issues that the audit report has been prepared in accordance with that format. committee considered in relation to the financial statements, and how these issues were addressed; and 10. The purpose of our audit work and to whom we owe Financial statementsCorporate governanceStrategic report • the section of the annual report that describes the review of our responsibilities the effectiveness of the Group’s risk management and internal This report is made solely to the Company’s members, as a body, in control systems. accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the We are required to review the part of the Corporate Governance Company’s members those matters we are required to state to Report relating to the Group’s compliance with the provisions of the them in an auditor’s report and for no other purpose. To the fullest UK Corporate Governance Code specified by the Listing Rules for extent permitted by law, we do not accept or assume responsibility our review. We have nothing to report in this respect. to anyone other than the Company and the Company’s members, 8. We have nothing to report on the other matters on as a body, for our audit work, for this report, or for the opinions we have formed. which we are required to report by exception Under the Companies Act 2006, we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the parent Gordon Docherty Company, or returns adequate for our audit have not been (Senior Statutory Auditor) received from branches not visited by us; or for and on behalf of KPMG LLP, Statutory Auditor • the parent Company financial statements and the part of Chartered Accountants the Directors’ Remuneration Report to be audited are not in One Snowhill agreement with the accounting records and returns; or Snowhill Queensway • certain disclosures of directors’ remuneration specified by law Birmingham are not made; or B4 6GH • we have not received all the information and explanations we 30 August 2023 require for our audit. We have nothing to report in these respects. 9. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 89, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; 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; assessing the Group and parent 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 they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. TheWorks.co.uk plc Annual Report and Accounts 2023 97