TIDMBWNG
RNS Number : 3770T
Brown (N.) Group PLC
12 October 2017
12(th) October 2017
N BROWN GROUP PLC
FIRST HALF RESULTS FOR THE 26 WEEKSED 2 SEPTEMBER 2017
CONTINUED POSITIVE TRADING MOMENTUM AND MARKET SHARE GAINS
N Brown Group Plc, the online, specialist fit, fashion retailer
today announces results for the 26 weeks to 2 September 2017 (H1
FY17: 26 weeks to 27 August 2016).
GBPm 26 weeks 26 weeks % change
to 2 September to 27 August year on
2017 2016 year
-------------------- ---------------- -------------- ---------
Product revenue 323.5 300.9 +7.5%
-------------------- ---------------- -------------- ---------
Financial Services
revenue 129.9 128.5 +1.1%
-------------------- ---------------- -------------- ---------
Group revenue 453.4 429.4 +5.6%
-------------------- ---------------- -------------- ---------
Adjusted EBITDA* 49.0 49.1 -0.2%
-------------------- ---------------- -------------- ---------
Adjusted PBT** 32.2 31.6 +1.8%
-------------------- ---------------- -------------- ---------
Statutory PBT*** (27.6) 21.1 -
-------------------- ---------------- -------------- ---------
Adjusted EPS** 8.77p 8.95p -2.0%
-------------------- ---------------- -------------- ---------
Statutory EPS*** (7.50p) 5.98p -
-------------------- ---------------- -------------- ---------
Net debt 305.7 286.7 +6.6%
-------------------- ---------------- -------------- ---------
Interim dividend 5.67p 5.67p -
-------------------- ---------------- -------------- ---------
* Adjusted EBITDA is defined as operating profit, excluding
exceptionals, with depreciation and amortisation added back
** Defined as excluding exceptionals and unrealised FX movement
and therefore represents the underlying trading performance
***Includes previously announced exceptional costs of GBP54.9m,
predominantly relating to customer redress for historic general
insurance products and store closures
First half highlights:
-- Strong Power Brand performance, with revenue +14.3% and
active customers +7.5% (excluding Fifty Plus)
o JD Williams brand revenue +12.1%; Fifty Plus -5.2%, migration
now complete
o Simply Be +21.0%
o Jacamo +6.7%
o Including the Fifty Plus title, Power Brand revenue +11.5% and
active customers +5.9%
-- Ladieswear revenues +9.5% with 90bps increase in market share (size 16+)
-- Continued good progress with brand and retail partnerships:
o Further new third-party brands added including Levi's, Mango,
Oasis, Tommy Hilfiger and Ugg
o Today announcing partnerships with Amazon Fashion (Simply Be
and Jacamo), Namshi (Simply Be) and Debenhams (Jacamo) to sell
capsule collections online
-- Product gross margin -190bps to 54.0%, as expected, driven by FX headwinds
-- Strong online metrics:
o Online revenue +14% yoy; online revenue of Power Brands
+21%
o Online penetration 72%, +4ppts yoy
o 76% of all traffic from mobile devices
-- Financial Services performance driven by ongoing good quality
of the customer loan book, with Financial Services gross margin
+150bps to 56.5% and full year gross margin guidance increased
-- High & Mighty now live on new web platform and Financial
Services system. Systems investment programme now run in-house by
our IT change team, with a focus on commercial return
Angela Spindler, Chief Executive, said:
"I am very pleased to report continued good trading in the half,
with Simply Be the standout performer recording 21% growth. We made
significant ladieswear market share gains against what remains a
subdued consumer backdrop. In line with other retailers, FX rates
represent a headwind and this was particularly felt this half.
"Our transformation into a flexible, online retailer continues
to benefit all aspects of our business and we are today sharing our
three growth levers going forwards. These are continuing to gain
share in the UK, growing internationally and working in partnership
with other companies to offer even more choice to our
customers.
"At this early stage in the second half, current trading is on
track with our plan and we are focused and well prepared for the
peak trading period ahead. We are confident in our ability to
deliver sustainable long-term growth and achieve our international
ambitions."
Meeting for analysts and investors:
Management is hosting a presentation for analysts and investors
at 10am. Please contact Nbrown@mhpc.com for further information. A
live webcast of the presentation will be available at:
www.nbrown.co.uk.
For further information:
N Brown Group
Bethany Barnes (née On the day: 07887
Hocking), Director of Investor 536153
Relations and Corporate
Communications
Website: www.nbrown.co.uk Thereafter: 0161
238 1845
MHP Communications
Andrew Jaques / Simon Hockridge
/ Gina Bell 0203 128 8789
NBrown@mhpc.com
About N Brown Group:
An expert in fashion that fits and flatters, N Brown is one of
the UK's leading online retailers. Our key retail brands are JD
Williams, Simply Be and Jacamo. We are all about democratising
fashion and are size inclusive, focusing on the needs of
underserved customer groups - size 20+ and age 45+. We offer an
extensive range of products, predominantly clothing, footwear and
homewares, and our Financial Services proposition allows customers
to spread the cost of shopping with us.
We are headquartered in Manchester where we design, source and
create our product offer and we employ over 2,600 people across the
UK.
Next reporting date
The next reporting date is the Q3 trading statement in January
2018.
First half overview
We are pleased to report a good first half performance, as we
continue to benefit from the transformative changes we made to the
business over the past three years.
Group revenue was up 5.6% to GBP453.4m, with Product revenue up
7.5% and Financial Services revenue up 1.1%. Our three Power Brands
all delivered a good performance, with Simply Be the standout with
revenue growth of 21.0%. Against a subdued backdrop we delivered
significant ladieswear market share gains.
Product gross margin was 54.0%, down 190bps year on year, as
expected, due to the headwind from exchange rate differences year
on year affecting the cost of goods sold. As previously guided this
impact is first half weighted. Financial Services gross margin was
up 150bps, driven by the continuing improvement in the quality of
the customer loan book. Our underlying operating costs were well
managed, with a good performance in marketing efficiency allowing
us to continue to invest in talent. Our operating costs were also
impacted by IT double running costs, as guided.
Adjusted trading profit before tax was GBP32.2m, up 1.8% year on
year. The statutory loss for the half year of GBP27.6m relates to
previously announced exceptional costs of GBP54.9m (discussed in
more detail below) and largely relate to legacy issues.
The Board recognises the importance of the dividend to
shareholders, and accordingly is proposing to hold the interim
dividend consistent with last year, at 5.67p, as we continue to
invest in the business to drive growth.
Future growth levers
With the business now transformed into an agile, online
retailer, we are today laying out our three growth levers, which
will incrementally build going forwards.
These are:
-- Gain share in the UK. This will be driven through continual
improvement in our customer experience, further development of our
product offer and improving our brand cut-through. This growth
lever is further driven through increasing the number of
third-party brands on our websites, many of which are extended to
larger sizes on an exclusive basis, offering more choice to our
customers.
-- International expansion. The USA is our first priority,
however we also intend to expand to other countries, initially
through Global Ship Anywhere technology, which will be live by the
end of FY18. In order to achieve our international ambitions we
will leverage our current organisational capabilities and embed a
global culture throughout our business.
-- Partnerships. This includes selling capsule ranges on other
retailers' sites, on both a wholesale and marketplace offering. We
also see a significant growth opportunity in influencer marketing,
working together with bloggers and opinion formers to improve brand
cut-through and further strengthen customer engagement.
Our growth will be further enabled by the loyalty Financial
Services engenders, our new systems capabilities and our internal
talent. Our objective is to continue to invest in the business to
grow revenue.
FY18 Guidance
We have made the following updates to FY18 guidance:
-- Product gross margin -120bps to -70bps, compared to -120bps
to -20bps previously
-- Financial Services gross margin +100bps to +200bps, compared
to flat to +100bps previously
-- Group operating costs up 4.5% to 5.5%, compared to 3.5% to
5.5% previously
-- Net debt GBP325m to GBP335m, compared to GBP300m to GBP320m
previously, reflecting the increased cash flow impacts of
exceptional costs, together with the growth of our customer loan
book
-- Exceptional costs of an additional c.GBP2m in the second
half, as a result of our ongoing tax disputes with HMRC
-- Tax rate c.22%
Other guidance elements are unchanged from previously
announced:
-- Depreciation & Amortisation GBP29m to GBP30m
-- Net interest GBP8m to GBP9m
-- Capex of c.GBP40m
First half review
KPI performance
H1 FY18 H1 FY17 % change
---------------------------------- -------- -------- ---------
CUSTOMERS
Active customer accounts 4.4m 4.2m +5.2%
Power Brand active customer
accounts 2.2m 2.1m +5.9%
Power Brand customers
exc. Fifty Plus 1.9m 1.8m +7.5%
% Growth of our most loyal
customers* +2.4% -0.4% +280bps
Customer satisfaction
rating** 83.7% 86.4% -270bps
PRODUCT
---------------------------------- -------- -------- ---------
Ladieswear market share,
size 16+ 5.7% 4.8% +90bps
Menswear market share,
chest 44"+ 1.2% 1.2% -
Group returns rate (rolling
12 months) 27.2% 27.0% +20bps
---------------------------------- -------- -------- ---------
ONLINE
---------------------------------- -------- -------- ---------
Online penetration 72% 68% +4ppts
Online penetration of
new customers 80% 76% +4ppts
Conversion rate 5.3% 5.7% -40bps
% of traffic from mobile
devices 76% 70% +6ppts
---------------------------------- -------- -------- ---------
FINANCIAL SERVICES
---------------------------------- -------- -------- ---------
Customer account arrears
rate (>28 days) 9.3% 9.8% -50bps
Provision rate 10.3% 12.7% -240bps
New credit recruits (Rollers)*** 135k 120k +13%
---------------------------------- -------- -------- ---------
* Defined as customers who have ordered in each of the last four
seasons
**UK Institute of Customer Service survey (UKICS)
***Last six months, rounded figures. Rollers are those customers
who roll a credit balance.
Market shares are estimated using internal and Kantar data, 24
weeks ending 27(th) August 2017 compared to 24 weeks ending 28(th)
August 2016.
Customer KPI's
Our active customer file increased by 5.2% to 4.42m driven by
our successful recruitment campaigns during the season. In line
with our strategy of driving our Power Brands, we are pleased with
the 7.5% increase in these active customers, or 5.9% if Fifty Plus
is included. The migration of the Fifty Plus title into JD Williams
was successfully completed at the end of the half.
Our most loyal customers, being customers who have ordered in
each of the last four seasons, increased by an encouraging 2.4%, a
continuation of the improving trend reported for the second half of
last year. This was due to both the good Power Brand performance
together with the improvement in our Traditional segment.
At 83.7%, our most recent customer satisfaction score from the
UK Institute of Customer Service is 270bps lower than our previous
score, however we remain ahead of the sector average. The decline
was driven by two factors; firstly, a good season for new customer
recruitment, which typically dilutes perception and secondly, a
fire at a delivery partner's distribution centre caused significant
delivery problems for a small group of customers, having a
disproportionate impact on the satisfaction score.
Product KPI's
Market share in Ladieswear (size 16+) was up 90bps at 5.7%, with
significant gains across all age ranges. We also gained share in
the size 16-18 segment. Our menswear market share was flat at 1.2%,
with gains in the younger age groups. Our market share gains are a
direct result of the investments we have made in our design team,
our merchandising capabilities and our buying skills.
Our returns rate increased by 20bps to 27.2%. This was driven
entirely by mix, with Ladieswear, which has a naturally higher
returns rate, outperforming. This dynamic was partially offset by
the ongoing increase in the proportion of cash customers.
Online KPI's
Online revenue was up 14% year on year, and up 21% in our Power
Brands. Online accounted for 72% of our sales during the half, up
4ppts year on year. 80% of sales from new customers were generated
online, also up 4ppts on H1 FY17.
Mobile devices (smartphones and tablets) accounted for 76% of
online traffic in the half, up 6ppts. Within this, smartphone
sessions increased by 54% and now account for over half of all
traffic. The increase in smartphone usage continued to cause our
overall conversion rate to decline to 5.3% compared to 5.7% last
year. This remains encouragingly above the industry average. The
conversion rate for smartphones specifically exceeded 4% for the
first time.
We are pleased with the performance of our first shopping app
for Simply Be. To date we have an average five star rating and our
conversion rate is ahead of our expectations. We will continue to
improve our app offering in the year ahead.
Financial Services KPI's
We continue to perform well in Financial Services, driven by a
continued improvement in the quality of the customer loan book.
This resulted in revenue being up 1.1% year on year. Within this,
interest payments grew low single digits, whilst non-interest lines
were down double-digit. The improvement in the quality of the loan
book continues to be reflected in the gross margin performance,
which was up 150bps year on year to 56.5%.
Credit arrears (>28 days) were 9.3%, down 50bps year-on-year,
driven by the improvement in the quality of the book. The provision
rate was 10.3%, down 240bps versus last year. As in FY17, this
benefitted from the sale of a small amount of high risk payment
arrangement debt, which we were able to sell for a slightly better
rate than book value. We expect the rate to remain broadly steady
for the remainder of the year.
We had an encouraging performance recruiting new credit
customers who rolled a balance, with an increase of 13% compared to
the first half of FY17. This was driven by both the good product
revenue performance in the half and encouraging early results from
the trial offering a lower APR for qualifying new customers on our
three Power Brands. This trial continues ahead of the rollout of
full variable APR functionality in 2018.
On July 13th we announced a potential customer redress related
to historic general insurance products. This was as a result of
identifying flaws in certain products which were provided by a
third party insurance underwriter and sold by the Group to its
customers between 2006 and 2014 and followed a review prompted by
an industry-wide request from the FCA that firms ensure that
general insurance products and add-ons offer value for their
customers. The vast majority of these products were sold to the
Group's customers in the period leading up to, and including, 2011.
Sales of the relevant products ceased in early 2014. As a result we
have incurred an exceptional cost of GBP40m in the first half, in
line with our previous guidance of GBP35 million to GBP40 million.
We continue to explore mitigating actions to reduce the overall net
cost. The cashflow impact of this is forecast to materially occur
from FY19 onward, and the Group anticipates funding the full cost
of customer redress from existing resources.
Performance by brand
Revenue, GBPm H1 FY18 H1 FY17 Change
--------------------- --------- --------- --------
JD Williams 81.1 75.8 +6.9%
Simply Be 64.5 53.3 +21.0%
Jacamo 33.5 31.4 +6.7%
--------------------- --------- --------- --------
Power Brands 179.1 160.5 +11.5%
--------------------- --------- --------- --------
Secondary Brands 76.3 75.2 +1.4%
Traditional
Segment 68.1 65.2 +4.4%
--------------------- --------- --------- --------
Product total 323.5 300.9 +7.5%
--------------------- --------- --------- --------
Financial Services 129.9 128.5 +1.1%
--------------------- --------- --------- --------
Group 453.4 429.4 +5.6%
--------------------- --------- --------- --------
JD Williams
JD Williams' product revenue was GBP81.1m, up 6.9% yoy. Within
this, the JD Williams brand was up 12.1% and Fifty Plus was down
5.2%, as expected. The migration of Fifty Plus is now complete.
For the new Autumn Winter season we have refreshed the JD
Williams brand proposition, launching JD Williams "The Lifestore".
The JD Williams Lifestore brand aims to celebrate the attitudes,
interests and ambitions of our female customers and positions the
brand as a modern online department store for the 45 - 60 year old
woman. Dubbed 'A Colourful Life', the new season advertising
campaign stars five female models in a series of life moments
including starting a new career, dating and reclaiming the home
after children leave the nest, set to an uplifting soundtrack,
Woman by the artist Ruelle.
To support the brand's new-look and the AW17 ad campaign, we
launched The Midster Report 2017: a state of the nation report
surveying over 2,000 women aged 45 - 65, looking into body
confidence, style and shopping behaviours, as well as women's
attitudes towards key life moments such as relationships, dating,
healthy living, life adventures and home and work-life balance. We
hope our inspiring campaign will challenge traditional
preconceptions of women in their 40s and 50s, redefining what it
means to be 'middle aged', or, 'Midster', as we prefer to describe
them.
Simply Be is the go-to online brand for 25-45 year old confident
curvy women. Simply Be had a very good performance during the half,
with product revenue up 21.0%. Our #WeAreCurves campaign resonated
strongly with customers, and we have built on the campaign further
for the season ahead.
As part of our continued championing of size inclusivity and
body confidence, we recently held a Curve Catwalk on the eve of
London Fashion Week. This was led by models and influencers
including Tess Holliday, Hayley Hasselhoff and Felicity Hayward.
The show was shoppable and streamed on the Simply Be site, backed
by significant social media activity and had a total media reach of
over 10million people.
Jacamo caters for 25-45 year old men of all body shapes and
sizes, from small to 5XL. Jacamo product revenue was up 6.7% with
active customers growing at almost double this rate.
Our delivery subscription offering Jacamo Unlimited, launched in
February 2017, has been very successful, with a double-digit
increase in both order frequency and net sales per customer. We
will be extending a delivery subscription offer to other brands in
the future.
Alongside our successful partnership with brand ambassador
Freddie Flintoff, we also teamed up with Tom Morgan from television
show The Undateables to promote our Jacamo own-brand summer range,
with Tom posing for a series of untouched images to encourage all
men to be comfortable in their own skin.
Secondary brands revenue increased by 1.4%. Within this, Fashion
World and Marisota both achieved good performances. Figleaves saw a
revenue decline, in line with our expectations, as the new
management team restructured the business and optimised our
marketing approach. Going forwards we are now in a position to
drive growth in this business. High & Mighty revenue declined
year on year as we reduced marketing spend ahead of the new site
go-live.
The Traditional segment recorded revenue growth of 4.4% year on
year as the actions we took to address performance worked well.
Looking forward, our strategy in Traditional remains unchanged,
that is, to hold overall revenues broadly flat through gaining
share in this declining market.
Systems investment programme
The new platform is now live on the High & Mighty and USA
sites, for High & Mighty this includes our new Financial
Services system. As previously described, the programme has now
been substantially scaled down, reducing costs, and our in-house IT
change team are now delivering enhanced functionality through
fortnightly releases. Our approach going forward will be to
prioritise and focus on the developments that deliver the highest
returns, such as Global Ship Anywhere and mobile Apps. Based on
priorities, the timescale for migrating other brands onto the new
platform is expected to commence in Q2 FY18. We will optimise the
timing of these migrations to minimize commercial disruption.
International
USA revenue was GBP8.1m, up 6.1% year on year (down 4.4% in
constant currency terms), as expected. We stepped up our marketing
investment towards the end of the period in order to drive new
customer recruitment going forwards.
Ireland delivered revenues of GBP8.5m, up 17.3% year on year, or
7.4% in constant currency terms.
Stores
In our first quarter trading statement we announced the closure
of five dual fascia Simply Be and Jacamo stores as a result of weak
high-street footfall, both current and predicted, together with
significant future business rate increases for some stores.
Together these five stores contributed GBP5.0m revenue but
accounted for the entire GBP2.0m operating loss of our store estate
in FY17. The store closures have now been completed, effective end
of August, and have resulted in an exceptional cost of GBP13.8m in
line with our previous guidance.
Overall, revenue from our store estate was GBP10.6m (H1 FY17:
GBP11.5m). As at the end of the first half we had 18 stores open,
split 10 dual Simply Be and Jacamo stores (H1 FY17: 15), and eight
High & Mighty stores (H1 FY17: nine).
FX sensitivity
For FY18 we expect our annual purchases, net of international
revenues, to be c.$125m, on which we have a hedging strategy in
place, together with c.GBP130m, where we face indirect cost
pressures due to the depreciation of sterling.
Looking at our dollar exposure specifically, we are 100% hedged
for the current financial year at a blended rate of $/GBP1.29. This
compares to a blended hedged rate of $/GBP1.41 in FY17.
For FY19 we have, to date, hedged 56% of our net purchases at a
blended rate of $/GBP1.30. At a rate of $/GBP1.30, and before any
mitigating actions, this would result in a c.GBP1m PBT tailwind
compared to FY18. Every 5 cents move from this rate in our unhedged
position would result in a PBT sensitivity of c.GBP1.7m.
FINANCIAL RESULTS
Revenue performance
Revenue performance by quarter was as follows:
% yoy growth Q1 (13wks) Q2 (13wks)
---------------- ------------ ------------
Product +10.2% +4.9%
Financial
Services -4.9% +7.2%
---------------- ------------ ------------
Group Revenue +5.6% +5.6%
The Q2 product performance is impacted by the comparable figures
in the prior year, with a 4ppts tougher comparative in Q2 versus
Q1.
Revenue by category was as follows:
GBPm H1 FY18 H1 FY17 Change
------------------------- --------- --------- --------
Ladieswear 143.4 130.9 +9.5%
Menswear 44.9 42.4 +5.9%
Footwear & Accessories 38.7 34.2 +13.2%
Home & Gift 96.5 93.4 +3.3%
------------------------- --------- --------- --------
Product total 323.5 300.9 +7.5%
------------------------- --------- --------- --------
Gross margin
Product
Product cost of goods sold (COGS) were GBP148.7m, compared to
GBP132.8m in H1 FY17. Product gross margin was 54.0%, down 190bps
yoy, in line with our expectations. This was entirely due to the
impact of FX rates year on year following the EU referendum. This
impact was partially offset by the benefits of lower promotions and
better underlying input prices.
Financial Services
Our gross bad debt charge was GBP54.3m (H1 FY17: GBP55.1m). This
bad debt charge, together with a small number of other financial
services costs, resulted in a Financial Services gross margin of
56.5%, up 150bps year on year. This increase in gross margin is
predominantly the result of continued improvement in the quality of
the customer loan book, together with the sale of some high risk
payment arrangement debt at a slightly better rate than book
value.
Operating performance
GBPm H1 FY18 H1 FY17 Change
------------------------- ------- --------- ---------
Product revenue 323.5 300.9 +7.5%
Financial Services
revenue 129.9 128.5 +1.1%
------------------------- ------- --------- ---------
Group Revenue 453.4 429.4 +5.6%
------------------------- ------- --------- ---------
Product gross profit 174.8 168.1 +4.0%
Product gross margin 54.0% 55.9% -190bps
Financial Services
gross profit 73.5 70.7 +3.9%
Financial Services
gross margin 56.5% 55.0% +150bps
Group Gross Profit 248.3 238.8 +4.0%
Group Gross Margin
% 54.8% 55.6% -80bps
------------------------- ------- --------- ---------
Warehouse & fulfilment (42.5) (38.2) +11.3%
Marketing & production (88.2) (87.5) +0.8%
Admin & payroll (68.6) (64.0) +7.0%
------------------------- ------- --------- ---------
Total operating
costs (199.3) (189.7) +4.8%
------------------------- ------- --------- ---------
Adjusted EBITDA* 49.0 49.1 -0.2%
Adjusted EBITDA*
margin 10.8% 11.4% -60bps
------------------------- ------- --------- ---------
Depreciation &
amortisation (12.9) (13.6) -4.9%
------------------------- ------- --------- ---------
Adjusted Operating
Profit** 36.1 35.5 +1.6%
Adjusted Operating
Margin** 8.0% 8.3% -30bps
------------------------- ------- --------- ---------
Net Finance costs (3.9) (3.9) +0.3%
Adjusted PBT** 32.2 31.6 +1.8%
------------------------- ------- --------- ---------
Exceptional items (54.9) (10.2)
Unrealised FX movement (4.9) (0.3)
Statutory PBT (27.6) 21.1
------------------------- ------- --------- ---------
* Adjusted EBITDA is defined as operating profit, excluding
exceptionals, with depreciation and amortisation added back
**Defined as excluding exceptionals and unrealised FX movement
and therefore represents the underlying trading performance
Warehouse and fulfilment costs increased by 11.3% to GBP42.5m.
This was driven predominantly by volumes, which were up 7% year on
year, together inflationary pressures in fuel and labour, and
further improvements to our delivery offering, partially offset by
continued efficiencies.
Marketing costs were up 0.8% year on year, significantly below
the rate of product revenue growth as we drove efficiency. Admin
and payroll costs increased by 7.0%, due to double running IT
costs, as previously guided, together with our continued investment
in recruiting and retaining great talent.
EBITDA declined marginally to GBP49.0m. Depreciation and
Amortisation decreased by 4.9% due to timing factors. Our guidance
for the full year is GBP28m to GBP29m, implying a step up in the
second half. Overall, operating profit before exceptional items was
GBP36.1m, up 1.6% year on year.
Net finance costs
Net finance costs were GBP3.9m, flat on the H1 FY17, as a result
of lower funding costs on our securitisation facility offset by a
slight increase in net debt.
Exceptional items
Exceptional costs totalled GBP54.9m and are in line with prior
announcements. The split of these costs is shown below.
GBPm H1 FY18
-------------------------------- ---------
Customer redress for historic
insurance products 40.0
Store closures 13.8
External costs related to
taxation matters 1.1
Total exceptional costs 54.9
-------------------------------- ---------
The customer redress for historic insurance products is
discussed above.
The store closure exceptional cost was announced as part of our
Q1 trading statement. Effective end of August we closed five Simply
Be and Jacamo dual-fascia stores. This decision took into account
weak high-street footfall, both current and predicted, together
with significant future business rate increases for some stores.
Together, these five stores contributed GBP5.0m revenue but
accounted for the entire GBP2.0m operating loss of our store estate
in FY17.
Taxation
The effective underlying rate of corporation tax is 23.2% (H1
FY17: 20.0%). The overall tax charge was a credit of GBP6.4m (H1
FY17: GBP4.2m charge), as we recognised a tax credit due to the
loss in the period.
Earnings per share
Earnings per share from continuing operations was a loss of
7.50p (H1 FY17: 5.98p). Adjusted earnings per share from continuing
operations were 8.77p (H1 FY17: 8.95p).
Dividends
The Board recognises the importance of the dividend to
shareholders, and accordingly is proposing to hold the interim
dividend consistent with last year, at 5.67p, as we continue to
invest in the business to drive growth.
Balance Sheet and Cash Flow
Capital expenditure was GBP21.8m (H1 FY17: GBP19.3m). Inventory
levels at the period end were up 5.9%, lower than the product
revenue growth rate, to GBP104.7m (H1 FY17: GBP99.0m).
Gross trade receivables increased by 1.5% to GBP611.5m (H1 FY17:
GBP601.8m). The provision declined from GBP76.4m to GBP62.8m,
driven both by the sale of some high risk payment arrangement debt
at a slightly better rate than book value, along with ongoing
progress in reducing overall debtor risk. These two factors were
partially offset by an increase in new credit recruits and average
balance growth.
The group's defined benefit pension scheme has a surplus of
GBP8.7m (H1 FY17: GBP0.5m surplus). This surplus is broadly in line
with the year-end figure, with the first half of last year being
impacted by weaker bond rates as a result of the EU referendum.
Net cash generated from operations (excluding taxation) was
GBP43.8m compared to GBP59.2m last year. After funding capital
expenditure, finance costs, taxation and dividends, net debt
increased from GBP290.9m to GBP305.7m (H1 FY17: GBP286.7m), in line
with our expectations. The GBP548.7m net customer loan book
significantly exceeds this net debt figure.
Unaudited condensed consolidated income statement
26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 53 weeks
to to 02-Sep-17 to 02-Sep-17 to to 27-Aug-16 to 27-Aug-16 to 04-Mar-17
02-Sep-17 27-Aug-16
Before Before
Exceptional Exceptional Exceptional Exceptional
items items Total items items Total Total
(note (note
5) 5)
Continuing Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
operations
Revenue 4 453.4 - 453.4 429.4 - 429.4 900.7
---------------
Operating
(loss)
/ profit 4 36.1 (54.9) (18.8) 35.5 (10.2) 25.3 65.1
Finance costs (3.9) - (3.9) (3.9) - (3.9) (7.7)
---------------
(Loss) /
Profit
before
taxation
and fair
value
adjustments
to
financial
instruments 32.2 (54.9) (22.7) 31.6 (10.2) 21.4 57.4
Fair value
adjustments
to financial
instruments 6 (4.9) - (4.9) (0.3) - (0.3) 0.2
--------------- ---------------- ---------------- ------------------ ------------------ ---------------- ---------------
(Loss) /
Profit
before
taxation 27.3 (54.9) (27.6) 31.3 (10.2) 21.1 57.6
Taxation 7 (6.3) 12.7 6.4 (6.2) 2.0 (4.2) (13.3)
--------------- ---------------- ---------------- ------------------ ------------------ ---------------- ---------------
(Loss) /
Profit
for the year 21.0 (42.2) (21.2) 25.1 (8.2) 16.9 44.3
--------------- ---------------- ---------------- ------------------ ------------------ ---------------- ---------------
(Loss) /
Profit
attributable
to
equity
holders
of the
parent 21.0 (42.2) (21.2) 25.1 (8.2) 16.9 44.3
--------------- ---------------- ---------------- ------------------ ------------------ ---------------- ---------------
Loss /
earnings
per share 8
Basic (7.50) p 5.98 p 15.67p
Diluted (7.50) p 5.98 p 15.66p
Unaudited condensed consolidated statement of comprehensive
income
26 weeks 26 weeks 53 weeks
to to to
02-Sep-17 27-Aug-16 04-Mar-17
GBPm GBPm GBPm
(Loss) / Profit for the period (21.2) 16.9 44.3
Items that will not be reclassified
subsequently to profit or loss
Actuarial gains / (losses) on
defined benefit pension schemes 0.1 (10.7) (3.1)
Tax relating to items not reclassified (0.1) 1.9 0.6
-------------------- ------------------- -------------------
- (8.8) (2.5)
-------------------- ------------------- -------------------
Items that may be reclassified
subsequently to profit or loss
Exchange differences on translation
of foreign operations (0.6) 0.4 0.5
Total comprehensive (loss) /
income for the period attributable
to equity holders of the parent (21.8) 8.5 42.3
-------------------- ------------------- -------------------
Unaudited condensed consolidated balance sheet
02-Sep-17 27-Aug-16 04-Mar-17
Note GBPm GBPm GBPm
Non-current assets
Intangible assets 9 153.4 130.5 141.9
Property, plant & equipment 10 71.4 76.7 73.5
Retirement benefit surplus 8.7 0.5 8.3
Deferred tax assets 2.3 3.9 2.4
------------------- ------------------- -------------------
235.8 211.6 226.1
------------------- ------------------- -------------------
Current assets
Inventories 104.7 99.0 105.5
Trade and other receivables 11 594.6 561.7 575.4
Current tax asset 1.5 9.7 -
Derivative financial instruments 6 - 1.9 2.5
Cash and cash equivalents 59.3 48.3 64.1
------------------- ------------------- -------------------
760.1 720.6 747.5
-------------------
Total assets 995.9 932.2 973.6
------------------- ------------------- -------------------
Current liabilities
Trade and other payables (120.4) (116.9) (98.9)
Provisions 13 (37.2) (7.1) (15.6)
Derivative financial instruments 6 (2.4) - -
Current tax liability - - (13.4)
------------------- ------------------- -------------------
(160.0) (124.0) (127.9)
------------------- ------------------- -------------------
Net current assets 600.1 596.6 619.6
------------------- ------------------- -------------------
Non-current liabilities
Bank loans (365.0) (335.0) (355.0)
Provisions 13 (29.7) (0.8) (4.3)
Deferred tax liabilities (8.2) (11.5) (8.2)
------------------- ------------------- -------------------
(402.9) (347.3) (367.5)
-------------------
Total liabilities (562.9) (471.3) (495.4)
-------------------
Net assets 433.0 460.9 478.2
------------------- ------------------- -------------------
Equity
Share capital 31.3 31.3 31.3
Share premium account 11.0 11.0 11.0
Own shares (0.1) (0.1) (0.1)
Foreign currency translation
reserve 1.7 2.2 2.3
Retained earnings 389.1 416.5 433.7
------------------- ------------------- -------------------
Total equity 433.0 460.9 478.2
------------------- ------------------- -------------------
Unaudited condensed consolidated cash flow statement
26 weeks 26 weeks 53 weeks
to to to
02-Sep-17 27-Aug-16 04-Mar-17
GBPm GBPm GBPm
Net cash from operating activities 35.3 50.7 89.0
Investing activities
Purchases of property, plant
and equipment (1.2) (3.0) (3.7)
Purchases of intangible assets (20.6) (16.3) (38.6)
--------------------- -------------------- --------------------
Net cash used in investing activities (21.8) (19.3) (42.3)
--------------------- -------------------- --------------------
Financing activities
Interest paid (4.1) (4.3) (7.8)
Dividends paid (24.2) (24.2) (40.2)
Increase in bank loans 10.0 - 20.0
Purchase of shares by ESOT - - 0.1
Proceeds on issue of shares held
by ESOT - 0.1 -
--------------------- -------------------- --------------------
Net cash used in financing activities (18.3) (28.4) (27.9)
--------------------- -------------------- --------------------
Net (decrease) / increase in
cash and cash equivalents (4.8) 3.0 18.8
Opening cash and cash equivalents 64.1 45.3 45.3
--------------------- -------------------- --------------------
Closing cash and cash equivalents 59.3 48.3 64.1
--------------------- -------------------- --------------------
Reconciliation of operating (loss) / profit to net
cash from operating activities
26 weeks 26 weeks 53 weeks
to to to
02-Sep-17 27-Aug-16 04-Mar-17
GBPm GBPm GBPm
Operating (loss) / profit from
operations (18.8) 25.3 65.1
Adjustments for:
Depreciation of property, plant
and equipment 2.8 2.7 6.9
Amortisation of intangible assets 10.1 10.9 20.7
Share option charge 0.8 0.5 0.5
--------------------- -------------------- --------------------
Operating cash flows before movements
in working capital (5.1) 39.4 93.2
Decrease/(increase) in inventories 0.8 2.5 (4.0)
Increase in trade and other receivables (19.7) (7.6) (21.6)
Increase/(decrease) in trade
and other payables 20.9 17.2 (0.2)
Increase in provisions 47.2 7.9 19.9
Pension obligation adjustment (0.3) (0.2) (0.2)
--------------------- -------------------- --------------------
Cash generated by operations 43.8 59.2 87.1
Taxation paid (8.5) (8.5) 1.9
--------------------- -------------------- --------------------
Net cash from operating activities 35.3 50.7 89.0
--------------------- -------------------- --------------------
Unaudited condensed consolidated statement
of changes in equity
Foreign
currency
Share Share Own translation Retained
capital premium shares reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
Changes in
equity for the
26 weeks to 2
September
2017
Balance at 4
March 2017 31.3 11.0 (0.1) 2.3 433.7 478.2
Comprehensive
income for
the period
Loss for the
period - - - - (21.2) (21.2)
Other items of
comprehensive
loss for the
period - - - (0.6) - (0.6)
-------------- -------------- -------------- -------------- -------------- --------------
Total
comprehensive
(loss)
for the period - - - (0.6) (21.2) (21.8)
-------------- -------------- -------------- -------------- -------------- --------------
Transactions
with owners
recorded
directly in
equity
Equity
dividends - - - - (24.2) (24.2)
Issue of own - - - - - -
shares by
ESOT
Share option
credit - - - - 0.8 0.8
Tax on items - - - - - -
recognised
directly in
equity
-------------- -------------- -------------- -------------- -------------- --------------
Total
contributions
by
and
distributions
to owners - - - - (23.4) (23.4)
--------------
Balance at 2
September
2017 31.3 11.0 (0.1) 1.7 389.1 433.0
-------------- -------------- -------------- -------------- -------------- --------------
Changes in
equity for the
26 weeks to 27
August 2016
-------------- -------------- -------------- -------------- -------------- --------------
Balance at 27
February
2016 31.3 11.0 (0.2) 1.8 432.1 476.0
-------------- -------------- -------------- -------------- -------------- --------------
Comprehensive
income for
the period
Profit for the
period - - - - 16.9 16.9
Other items of
comprehensive
income /
(loss) for the
period - - - 0.4 (8.8) (8.4)
-------------- -------------- -------------- -------------- -------------- --------------
Total
comprehensive
income
for the period - - - 0.4 8.1 8.5
-------------- -------------- -------------- -------------- -------------- --------------
Transactions
with owners
recorded
directly in
equity
Equity
dividends - - - - (24.2) (24.2)
Purchase of own - - - - - -
shares
by ESOT
Issue of own
shares by
ESOT - - 0.1 - - 0.1
Adjustment to - - - - - -
equity for
share payments
Share option
credit - - - - 0.5 0.5
Tax on items - - - - - -
recognised
directly in
equity
-------------- -------------- -------------- -------------- -------------- --------------
Total
contributions
by
and
distributions
to owners - - 0.1 - (23.7) (23.6)
--------------
Balance at 27
August 2016 31.3 11.0 (0.1) 2.2 416.5 460.9
-------------- -------------- -------------- -------------- -------------- --------------
Changes in
equity for the
53 weeks to 4
March 2017
-------------- -------------- -------------- -------------- -------------- --------------
Balance at 27
February
2016 31.3 11.0 (0.2) 1.8 432.1 476.0
-------------- -------------- -------------- -------------- -------------- --------------
Comprehensive
income for
the period
Profit for the
period - - - - 44.3 44.3
Other items of
comprehensive
income for the
period - - - 0.5 (2.5) (2.0)
-------------- -------------- -------------- -------------- -------------- --------------
Total
comprehensive
income
for the period - - - 0.5 41.8 42.3
-------------- -------------- -------------- -------------- -------------- --------------
Transactions
with owners
recorded
directly in
equity
Equity
dividends - - - - (40.2) (40.2)
Issue of own
shares by
ESOT - - 0.1 - - 0.1
Share option
credit - - - - 0.5 0.5
Tax on items
recognised
directly in
equity - - - - (0.5) (0.5)
-------------- -------------- -------------- -------------- -------------- --------------
Total
contributions
by
and
distributions
to owners - - 0.1 - (40.2) (40.1)
--------------
Balance at 4
March 2017 31.3 11.0 (0.1) 2.3 433.7 478.2
-------------- -------------- -------------- -------------- -------------- --------------
Notes to the unaudited condensed consolidated financial
statements
1. Basis of preparation
This condensed set of financial statements has been
prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU.
The annual financial statements of the Group are
prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the EU.
As required by the Disclosure Guidance and Transparency
Rules of the Financial Conduct Authority, the condensed
set of financial statements has been
prepared applying the accounting policies and presentation
that were applied in the preparation of the company's
published consolidated financial statements
for the 53 week period ended 4 March 2017. The comparative
figures for the 53 week period ended 4 March 2017
are not the company's statutory accounts
for that financial period. Those accounts have been
reported on by the company's auditor and delivered
to the registrar of companies.
The report of the auditor was (i) unqualified, (ii)
did not include a reference to any matters to which
the auditor drew attention by way of emphasis without
qualifying their report, and (iii) did not contain
a statement under section 498 (2) or (3) of the Companies
Act 2006.
2. Key risks and uncertainties
There are a number of potential risks and uncertainties
which could have an impact on the group's long-term
performance over the next 12 months. The
directors routinely monitor all risks and uncertainties
taking appropriate actions to mitigate where necessary.
The key risks which have been identified as
potentially having a material impact on the performance
of the group are as follows: business change/transformation
unsuccessful; business continuity and
cyber-security; regulatory environment; taxation
and general competition.
A key risk facing the business is the successful
delivery of the group's transformation project, Fit
4 for the Future. Whilst the implementation continues
to
be on time and on budget any potential delays could
impact on the level of future benefits which are
expected to arise from the project.
Business interruption events are an ever present
possibility for the Group. Potential impacts are
broad ranging and include short term disruption to
trade and
customer service resulting in an impact on revenue,
margin and reputation. In addition, our increased
online presence and reliance on digital systems raises
the importance of cyber security to the Group. Forthcoming
regulations in respect of data protection increase
the Group's focus in this area. Business
continuity plans are in place and the group has further
migrated IT systems and data security risk within
the business through outsourcing IT services to a
specialist IT service provider.
Recent and upcoming changes in regulation are a key
consideration for the Group. Potential impacts arising
from changes in regulation are: increased costs,
erosion of margins and potential fines or reputational
damage if response plans are not achieved.
Competing effectively across the key areas of Product,
Financial Services and Customer Services remains
a key driver of customer recruitment and retention.
Potential consequences of competition include; loss
of market share, erosion of margins and a fall in
customer satisfaction. Given the uncertain
macro-economic backdrop, which particularly impacts
on the business though input cost inflation, remaining
competitive is even more important in order to
deliver growth.
The Group has on-going discussions with HMRC in respect
of a number of Corporation tax and VAT positions.
The calculation of the Group's potential liabilities
or assets in respect of these involves a degree of
estimation and judgement in respect of items whose
tax
treatment cannot be finally determined until resolution
has been reached with HMRC or, as appropriate, through
legal processes. Issues can, and often do,
take a number of years to resolve. Further details
are included in note 7.
3. Going concern
In determining whether the group's accounts can be
prepared on a going concern basis, the directors
considered the group's business activities together
with factors likely to affect its future development,
performance and financial position including cash
flows, liquidity position, borrowing facilities and
the
principal risks and uncertainties relating to its
business activities.
The directors have considered carefully its cash
flows and banking covenants for the next twelve months
from the date of approval of the group's interim
results. Conservative assumptions for working capital
performance have been used to determine the level
of financial resources available to the group and
to assess liquidity risk.
The group's forecasts and projections, after sensitivity
to take account of all reasonably foreseeable changes
in trading performance, show that the group
will have sufficient headroom within its current
loan facilities of GBP405m - which are committed
until 2020 - and its GBP20m overdraft facility.
After making appropriate enquiries, the directors
have a reasonable expectation that the group has
adequate resources to continue in operational existence.
Accordingly, they continue to adopt the going concern
basis in the preparation of the interim financial
statements.
4. Business segments 26 weeks 26 weeks 53 weeks
to to to
02-Sep-17 27-Aug-16 04-Mar-17
GBPm GBPm GBPm
Analysis of revenue - Home shopping
Product 323.5 300.9 635.9
Financial services 129.9 128.5 264.8
------------------- ------------------ -----------------
453.4 429.4 900.7
------------------- ------------------ -----------------
Analysis of cost of sales - Home
shopping
Product (148.7) (132.8) (288.2)
Financial services (56.4) (57.8) (117.3)
------------------- ------------------ -----------------
(205.1) (190.6) (405.5)
------------------- ------------------ -----------------
Gross profit 248.3 238.8 495.2
Gross margin - Product 54.0% 55.9% 54.7%
Gross margin - Financial Services 56.5% 55.0% 55.7%
Warehouse & fulfilment (42.5) (38.2) (81.3)
Marketing & production (88.2) (87.5) (165.4)
Depreciation & amortisation (12.9) (13.6) (27.6)
Other admin & payroll (68.6) (64.0) (130.6)
------------------- ------------------ -----------------
Operating profit before exceptionals 36.1 35.5 90.3
Exceptional items (see note 5) (54.9) (10.2) (25.2)
------------------- ------------------ -----------------
Segment result & operating (loss)
/ profit - Home shopping (18.8) 25.3 65.1
Finance costs (3.9) (3.9) (7.7)
Fair value adjustments to financial
instruments (4.9) (0.3) 0.2
------------------- ------------------ -----------------
(Loss) / Profit before taxation (27.6) 21.1 57.6
------------------- ------------------ -----------------
The group has one reportable segment in accordance
with IFRS8 - Operating Segments which is the
Home Shopping
segment.
The group's board receives monthly financial
information at this level and uses this information
to monitor the performance
of the Home Shopping segment, allocate resources
and make operational decisions. Internal reporting
focuses on the
group as a whole and does not identify individual
segments. To increase transparency, the group
has decided to include
an additional voluntary disclosure analysing
product revenue within the reportable segment,
by brand categorisation and
product type categorisation.
26 weeks 26 weeks 53 weeks
to to to
02-Sep-17 27-Aug-16 04-Mar-17
GBPm GBPm GBPm
Analysis of product revenue
by brand
JD Williams 81.1 75.8 160.5
Simply Be 64.5 53.3 115.8
Jacamo 33.5 31.4 66.2
-------------- -------------
Power brands 179.1 160.5 342.5
Traditional segment 68.1 65.2 136.1
Secondary brands 76.3 75.2 157.3
-------------- -------------
Total product revenue - Home
shopping 323.5 300.9 635.9
-------------- -------------
Analysis of product revenue
by category
Ladieswear 143.4 130.9 260.0
Menswear 44.9 42.4 87.0
Footwear and accessories 38.7 34.2 70.0
Home and gift 96.5 93.4 218.9
-------------- -------------
Total product revenue - Home
shopping 323.5 300.9 635.9
-------------- -------------
We have reclassified accessories from ladieswear
to footwear and accessories in H1 FY18 and
FY17 and restated the
comparatives for HYE FY17 by GBP3.4m.
The group has one significant geographical
segment, which is the United Kingdom.
Revenue derived from international markets
amounted to GBP18.7m (H1 FY17, GBP17.2m).
All segment assets are located in the UK,
Ireland and USA. The assets in USA and Ireland
total GBP8.5m (H1 FY17, GBP7.9m)
5. Exceptional items
26 weeks 26 weeks 53 weeks
to to to
02-Sep-17 27-Aug-16 04-Mar-17
GBPm GBPm GBPm
External costs related to
taxation matters 1.1 1.2 2.5
Store closure costs / (credits) 13.8 - (0.2)
Financial services customer
redress 40.0 9.0 22.9
-------------- -------------
54.9 10.2 25.2
-------------- -------------
Following a recent industry-wide request from
the FCA that firms ensure that general insurance
products and add-ons offer value
for their customers, the Group identified
flaws in certain insurance products which
were provided by a third party insurance
underwriter and sold by the Group to its customers
between 2006 and 2014, with the majority sold
up to and including 2011.
Following an assessment of the cost of potential
customer redress, an exceptional charge of
GBP40.0m was recognised during the period.
During the previous year, an exceptional charge
of GBP22.9m (H1 FY17 GBP9.0m) was recognised
reflecting costs incurred or expected
to be incurred in respect of payments for
historical financial services customer redress.
External costs related to tax are in respect
of on-going legal and professional fees which
have been incurred as a result of the
Group's on-going disputes with HMRC regarding
a number of historical tax positions.
In line with our strategy of reshaping our
retail offering, during the period five loss
making retail stores were closed which has
resulted in non recurring cost of GBP13.8m
in respect of asset write offs, onerous lease
provisions and other related store closure
costs.
Following the closures in 2016 of the clearance
stores, the credit in FY17 represents lease
exit costs being lower than originally anticipated.
6. Derivative financial instruments
At the balance sheet date, details of outstanding forward
foreign exchange contracts that the group has committed
to are as follows:
26 weeks 26 weeks 53 weeks
to to to
02-Sep-17 27-Aug-16 04-Mar-17
GBPm GBPm GBPm
Notional Amount - Sterling contract
value 148.5 45.5 94.2
----------------------- -------------------- --------------------
Fair value of asset recognised - 1.9 2.5
----------------------- -------------------- --------------------
Fair value of (liability) recognised (2.4) - -
----------------------- -------------------- --------------------
Changes in the fair value of assets / (liabilities)
recognised, being non-hedging currency derivatives,
amounted to a charge of GBP4.9m
(H1 FY17, GBP0.3m) to income in the period.
The fair value of foreign currency derivatives contracts
is their market value at the balance sheet date. Market
values are based on the
duration of the derivative instrument together with
the quoted market data including interest rates, foreign
exchange rates and market
volatility at the balance sheet date.
The financial instruments that are measured subsequent
to initial recognition at fair value are all grouped
into Level 2 (H1 FY17, same).
Level 2 fair value measurements are those derived from
inputs other than quoted prices included within Level
1 that are observable for
the asset or the liability, either directly (ie as prices)
or indirectly (ie derived from prices). There were no
transfers between Level 1 and
Level 2 during the period (H1 FY17, same).
7. Taxation
The taxation credit for the 26 weeks ended 2 September
2017 is based on the estimated effective tax rate for
the full year of 23.2%
(H1 FY17, 20%).
The Group has on-going discussions with HMRC in respect
of a number of Corporation tax and VAT positions. The
calculation of the
Group's potential liabilities or assets in respect of
these involves a degree of estimation and judgement
in respect of items whose tax
treatment cannot be finally determined until resolution
has been reached with HMRC or, as appropriate, through
legal processes. Issues
can, and often do, take a number of years to resolve.
In respect of Corporation tax, as at 2 September 2017
the Group has provided a total of GBP4.6m (FY17: GBP3.6m)
for potential corporation tax
future charges based upon the Group's best estimation
and judgement and, where appropriate, legal counsels
opinion.
In respect of VAT, the Group has provided a total of
GBP5.4m (FY17: GBP5.4m) in respect of future payments
which the Directors' have a
reasonable expectation of making in settlement of these
historical positions.
In addition, and separate to the above positions, the
Group continues to be in discussion with HMRC in relation
to the VAT consequences
of the allocation of marketing costs between our retail
and credit businesses. At this stage it is not possible
to determine how the
matter will be resolved.
However, within our half year end VAT debtor is an asset
of GBP36.0m (FY17: GBP36.0m) which has arisen as a result
of cash payments
made under protective assessments raised by HMRC and
the Group estimates that a further GBP10m could be paid
under this assessment
in the forthcoming year. Based on legal counsel's opinion,
we believe that we will recover this amount in full
from HMRC and we
are engaged in a legal process to do so.
The inherent uncertainty regarding the outcome of these
positions means the eventual realisation could differ
from the accounting estimates
and therefore, impact the Group's future results and
cash flows. Based upon the amounts reflected in the
balance sheet as at
2 September 2017, the Directors estimate that the unfavourable
settlement of these cases could result in a charge to
the income
statement of up to GBP46.8m (including the full write
off of the VAT debtor noted above) and a cash payment
to HMRC of up to GBP22.7m.
The favourable settlement of these cases would result
in a repayment of tax of up to GBP53.1m and an associated
credit to the income
statement of up to GBP29.0m.
8. (Loss) / Earnings per share
Earnings 26 weeks 26 weeks 53 weeks
to to to
02-Sep-17 27-Aug-16 04-Mar-17
GBPm GBPm GBPm
Total net (loss) / profit attributable
to equity holders of the parent for
the purpose of basic
and diluted earnings per share (21.2) 16.9 44.3
Fair value adjustment to financial
instruments (net of tax) 3.8 0.2 (0.2)
Exceptional items (net of tax) 42.2 8.2 20.2
Total net profit attributable to equity
holders of the parent for the purpose
of basic
----------------- ---------------- ------------------
and diluted adjusted earnings per share 24.8 25.3 64.3
----------------- ---------------- ------------------
Number of shares 26 weeks 26 weeks 53 weeks
to to to
02-Sep-17 27-Aug-16 04-Mar-17
No. ('000s) No. ('000s) No. ('000s)
Weighted average number of shares in
issue for the purpose
of basic earnings per share 282,795 282,613 282,701
Effect of dilutive potential ordinary
shares:
Share options - 101 252
Weighted average number of shares in
issue for the purpose
----------------- ---------------- ------------------
of diluted earnings per share 282,795 282,714 282,953
----------------- ---------------- ------------------
(Loss) / Earnings per share
Basic (7.50) p 5.98 p 15.67 p
Diluted (7.50) p 5.98 p 15.66 p
Adjusted earnings per share
Basic 8.77 p 8.95 p 22.74 p
Diluted 8.77 p 8.95 p 22.72 p
9. Intangible assets
Customer
Brands Software database Total
GBPm GBPm GBPm GBPm
Cost
At 27 February 2016 16.9 256.7 1.9 275.5
Additions - 16.5 - 16.5
------------------ ---------------- ------------- --------------
At 27 August 2016 16.9 273.2 1.9 292.0
Additions - 21.2 - 21.2
------------------ ---------------- ------------- --------------
At 4 March 2017 16.9 294.4 1.9 313.2
Additions - 21.6 - 21.6
------------------ ---------------- ------------- --------------
At 2 September 2017 16.9 316.0 1.9 334.8
------------------ ---------------- ------------- --------------
Amortisation
At 27 February 2016 8.0 140.7 1.9 150.6
Charge for the period - 10.9 - 10.9
------------------ ---------------- ------------- --------------
At 27 August 2016 8.0 151.6 1.9 161.5
Charge for the period - 9.8 - 9.8
------------------ ---------------- ------------- --------------
At 4 March 2017 8.0 161.4 1.9 171.3
Charge for the period - 10.1 - 10.1
------------------ ---------------- ------------- --------------
At 2 September 2017 8.0 171.5 1.9 181.4
------------------ ---------------- ------------- --------------
Carrying amounts
------------------ ---------------- ------------- --------------
At 2 September 2017 8.9 144.5 - 153.4
------------------ ---------------- ------------- --------------
At 4 March 2017 8.9 133.0 - 141.9
------------------ ---------------- ------------- --------------
At 27 August 2016 8.9 121.6 - 130.5
------------------ ---------------- ------------- --------------
Assets in the course of construction included
in intangible assets at H1 FY18 total GBP106.1m
(H1 FY17, GBP69.3m), of
which GBP100.4m relates to the Fit for the Future
project (H1 FY17, GBP65.7m). No amortisation is
charged on these assets
until they are available for use.
In addition the Group has spend of GBP16.7m (H1
FY17 GBP16.7m) that relates to F4F assets which
are now in use and
therefore being amortised.
10. Property, plant and equipment
Additions to tangible fixed assets during the
period of GBP0.6m (H1 FY17, GBP2.7m) primarily
relate to warehousing.
Depreciation of GBP2.8m (H1 FY17, GBP2.7m) was
charged during the period.
Assets in the course of construction included
in fixtures and equipment at H1 FY17 total GBP0.4m
(H1 FY17, GBP0.9m),
and in land and buildings total GBPnil (H1 FY17,
GBP21.5m). No depreciation is charged on these
assets until they are
available for commercial use.
11. Trade and other receivables
02-Sep-17 27-Aug-16 04-Mar-17
GBPm GBPm GBPm
Amount receivable for the
sale of goods and services 611.5 601.8 599.5
Allowance for doubtful debts (62.8) (76.4) (64.7)
-------------------- -------------------- ------------------
548.7 525.4 534.8
Other debtors and prepayments 45.9 36.3 40.6
-------------------- -------------------- ------------------
594.6 561.7 575.4
-------------------- -------------------- ------------------
Movement in the allowance for doubtful debts
Balance at the beginning of
the period 64.7 97.6 97.6
Amounts charged to the income
statement 54.3 55.1 113.5
Amounts written off (56.2) (76.3) (146.4)
-------------------- -------------------- ------------------
Balance at the end of the
period 62.8 76.4 64.7
-------------------- -------------------- ------------------
12. Dividends
The directors have declared and approved an interim
dividend of 5.67 pence per share (H1 FY17 5.67p).
This will be paid on 12 January 2018 to shareholders
on the register at the close of business on 13
December 2017.
During H1 FY18 dividends of GBP24.2m relating
to FY17 were paid.
13. Provisions
Customer Store
Redress Closures Total
GBPm GBPm GBPm
Balance at 27 February 2016 - - -
Provisions made during the
period 9.0 - 9.0
Provisions used during the
period (1.1) - (1.1)
Provisions reversed through - - -
the period
----------------- ------------------- -------------------
Balance at 26 August 2016 7.9 - 7.9
Provisions made during the
period 13.9 - 13.9
Provisions used during the
period (1.9) - (1.9)
Provisions reversed through - - -
the period
----------------- ------------------- -------------------
Balance at 4 March 2017 19.9 - 19.9
Provisions made during the
period 40.0 13.8 53.8
Provisions used during the
period (6.5) (0.3) (6.8)
Provisions reversed through - - -
the period
----------------- ------------------- -------------------
Balance at 2 September 2017 53.4 13.5 66.9
----------------- ------------------- -------------------
Non Current 25.0 4.7 29.7
Current 28.4 8.8 37.2
----------------- ------------------- -------------------
Balance at 2 September 2017 53.4 13.5 66.9
----------------- ------------------- -------------------
Store Closures
During the period, the decision was made to close
five loss making stores and these were subsequently
closed in August 2017.
The costs have been treated as an exceptional
item and detailed separately on the income statement
as per note 5. The provision is
made in respect of onerous lease obligations
and other related store closure costs. It is
expected that the majority of these costs will
have been settled by the year end other than
the onerous lease provision which will run to
the earlier of the break clause or lease expiry
for all five stores. The provision is net of
an estimate of potential sub- letting income.
Customer redress
The provision relates to the Group's liabilities
in respect of costs expected to be incurred in
respect of payments for historic
financial services customer redress, which represents
the best estimate of the known regulatory obligations,
taking into
account factors including risk and uncertainty.
As at 2 September 2017 the Group holds a provision
of GBP53.4m (H1 FY17, GBP7.9m) in respect of
the anticipated costs of
historic financial services customer redress.
Of this amount GBP40m relates to certain insurance
products where management
have identified flaws in the product design,
the remaining GBP13.4m relates to historical
customer redress. These amounts include
a provision of GBP2.1m in relation to administration
expenses.
There are still a number of uncertainties as
to the eventual customer redress costs, in particular
the total number of claims
and the cost per claim, however the Directors
believe that the amounts provided at the half
year end, based on historical
and forecasted claim rates and amounts, along
with known legal and regulatory obligations,
appropriately reflect the cost
to the Group.
The principal sensitivities in the customer redress
calculation are: volumes of policies affected,
claim rate, uphold rate
and average redress amount.
26 weeks 26 weeks 53 weeks
to to to
02-Sep-17 27-Aug-16 04-Mar-17
GBPm GBPm GBPm
+/- 10% in claims volumes +/- 0.7 +/- 0.4 +/- 0.7
----------------- ------------------- -------------------
+/- 5% in uphold rate +/- 0.5 +/- 0.3 +/- 0.5
----------------- ------------------- -------------------
+/- 10% in average redress
amount +/- 0.7 +/- 0.4 +/- 0.7
----------------- ------------------- -------------------
Responsibility statement of the directors in respect
of the half-yearly financial report
We confirm that to the best of our knowledge:
* the condensed set of financial statements has been
prepared in accordance with IAS 34 Interim Financial
Reporting as adopted
by the EU
* the interim management report includes a fair review
of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that
have occurred
during the first 26 weeks of the financial year and
their impact on the condensed set of financial statements;
and a description of
the principal risks and uncertainties for the remaining
26 weeks of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken
place in the
first 26 weeks of the current financial year and that
have materially affected the financial position or
performance of the
entity during that period; and any changes in the
related party transactions described in the last annual
report that could do so.
This report was approved by the Board of Directors
on 12 October 2017.
Angela Spindler Craig Lovelace
Chief Executive Chief Financial Officer
Independent review report to N Brown Group plc
Conclusion
We have been engaged by the company to review the condensed
set of financial statements in the half-yearly financial
report for the 26 weeks ended 2 September 2017 which comprises
the condensed consolidated income statement, the condensed
consolidated statement of comprehensive income, the condensed
consolidated balance sheet, the condensed consolidated cash
flow statement, the condensed consolidated statement of
changes in equity and related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial
statements in the half-yearly financial report for the 26
weeks ended 2 September 2017 is not prepared, in all material
respects, in accordance with IAS 34 Interim Financial Reporting
as adopted by the EU and the Disclosure Guidance and Transparency
Rules ("the DTR") of the UK's Financial Conduct Authority
("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review
of Interim Financial Information Performed by the Independent
Auditor of the Entity issued by the Auditing Practices Board
for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible
for financial and accounting matters, and applying analytical
and other review procedures. We read the other information
contained in the half- yearly financial report and consider
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set
of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK)
and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not
express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of,
and has been approved by, the directors. The directors are
responsible for preparing the half-yearly financial report
in accordance with the DTR of the UK FCA
As disclosed in note1, the annual financial statements of
the group are prepared in accordance with International
Financial Reporting Standards as adopted by the EU. The
directors are responsible for preparing the condensed set
of financial statements included in the half-yearly financial
report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion
on the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and whom we owe our responsibilities
This report is made solely to the company in accordance
with the terms of our engagement to assist the company in
meeting the requirements of the DTR of the UK FCA. Our review
has been undertaken so that we might state to the company
those matters we are required to state to it in this report
and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone
other than the company for our review work, for this report,
or for the conclusions we have reached.
Stuart Burdass
for and behalf of KPMG LLP
Chartered Accountants
1 St Peter's Square
Manchester
M2 3AE
12 October 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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