TIDMBWNG
RNS Number : 3665P
Brown (N.) Group PLC
10 October 2019
10 October 2019
HALF YEAR RESULTS FOR THE 26 WEEKSED 31 AUGUST 2019
New strategy delivers digital revenue and profit growth
GBPm 26 weeks to 26 weeks to Change
31 August 2019 1 Sept 2018
Group revenue GBP432.9 GBP457.8 -5.4%
-------------------------- ----------------------------- -------
Product revenue GBP282.3 GBP311.4 -9.3%
-------------------------- ----------------------------- -------
Financial services revenue GBP150.6 GBP146.4 +2.9%
-------------------------- ----------------------------- -------
Statutory operating profit
/ (loss) GBP14.7 GBP(28.3) +151.9%
-------------------------- ----------------------------- -------
Adjusted EBITDA(1) GBP54.1 GBP52.0 +4.0%
-------------------------- ----------------------------- -------
Statutory profit / (loss)
before tax GBP18.8 (GBP27.1) +169.4%
-------------------------- ----------------------------- -------
Adjusted profit before
tax(2) GBP31.8 GBP30.6 +3.9%
-------------------------- ----------------------------- -------
Statutory EPS 4.95p (9.14)p +154.2%
-------------------------- ----------------------------- -------
Adjusted EPS(2) 8.87p 8.37p +6.0%
-------------------------- ----------------------------- -------
Interim dividend (p per
share) 2.83p 2.83p 0.0%
-------------------------- ----------------------------- -------
Core net debt(3) 67.5 30.5 +121.3%
-------------------------- ----------------------------- -------
Overall net debt(4) 481.6 420.5 +14.5%
-------------------------- ----------------------------- -------
1 Adjusted EBITDA is defined as operating profit, excluding
exceptionals, with depreciation and amortisation added back. The
directors believe that adjusted EBITDA represents the most
appropriate measure of the Group's underlying trading
performance.
2 Defined as excluding exceptionals and fair value movement on financial instruments.
3 Excludes debt securitised against receivables (customer loan
book) of GBP658.0m (H1 FY19: GBP677.6m), and lease liabilities.
4 Total liabilities from financing activities less cash, excluding lease liabilities.
Results Highlights
Transformation continues with 84% of product revenue now
digital
-- Simply Be 97.6%, Jacamo 97.2%, JD Williams 79.6%, Ambrose
Wilson 57.6%
-- Product revenue excluding stores and USA down 6.2%
Continued digital revenue growth in Womenswear and Menswear
-- Ambrose Wilson up 10.5%, Jacamo up 6.6%, JD Williams up 4.0%,
Simply Be up 4.0%
Group gross margin decreased by 70bps to 53.5%
-- Product gross margin down 190bps at 51.5% in a highly
promotional market
-- 140bps increase in financial services gross margin to
57.4%
Delivery of sustainable operating efficiencies
-- 9.5% decline in operating expenses driven by a more targeted
and data-led approach to marketing, removal of physical stores and
USA costs and embedding efficiencies across the Group
Growth in adjusted EBITDA and adjusted profit before tax
-- Adjusted EBITDA increased 4.0% to GBP54.1m
-- Adjusted PBT increased 3.9% to GBP31.8m and statutory PBT
increased 169.4% to GBP18.8m
Final customer redress provision following 29 August 2019
deadline
-- Previously announced exceptional charge of GBP25.0m
Steve Johnson, Chief Executive, said:
"We announced our new strategy in May to return N Brown to
sustainable profit growth and we have made good progress over the
first half of the year."
"In particular, we have delivered on our strategy of growing
digital revenue across Simply Be, JD Williams, Jacamo and Ambrose
Wilson. This has been achieved by taking a more targeted approach
to marketing and customer recruitment. The retail environment
remains heavily promotional, but we are concentrating on continuing
to improve our customer proposition and ensuring we operate as
efficiently as possible, which has led to an increase of 4% in
adjusted EBITDA for the period. We remain focussed on implementing
our plans and the Board's full year expectations are
unchanged."
Meeting for analysts and investors:
Management is hosting a presentation for analysts and investors
today at 9.30am. 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
Will MacLaren, Director of Investor On the day: 07557 014
Relations and Corporate Communications 657
Thereafter: 0161 238
1845
MHP Communications
Andrew Jaques / Simon Hockridge 0203 128 8789
/ Ollie Hoare NBrown@mhpc.com
About N Brown Group:
N Brown is a top 10 UK clothing & footwear digital retailer.
We are size inclusive, focusing on the needs of underserved
customer groups - size 20+ and age 50+. 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
2,400 people across the UK.
Next reporting date
The next reporting date is the Q3 trading statement on 16
January 2020.
PERFORMANCE REVIEW
Review of the last six months
We are six months into a year of transition for the business, as
we begin to implement our new strategy and make the required
changes to our business model and ways of working. We have made
good progress and the necessary building blocks for success are
being put in place. In the last six months, we have delivered
combined digital growth of 5.0% in our Womenswear and Menswear
brands and grown adjusted EBITDA by 4.0%.
In the last six months we have spent a substantial amount of
time working on the future of our brand portfolio. We now have a
clear and actionable market segmentation and are finalising the
strategic direction for JD Williams, Simply Be, Ambrose Wilson and
Jacamo as well as each of the product brands. Significant progress
has been made and we will announce the final plans at the full year
results.
Our ambition is to deliver profitable digital growth whilst
generating sustainable free cash flow. This will enable us to bring
down net debt, invest in the business and deliver shareholder
returns. We now have a clear path to returning to free cash flow
growth as we have passed the PPI deadline and have an agreement in
principle or have settled all legacy old tax cases which will have,
combined, accounted for a cash outflow of c.GBP200m in the last
five financial years.
Our new strategy is oriented around the five pillars set out in
May and we have made good progress under each of these component
parts in the last six months.
1. We will focus on the UK
Strategic Objective: Maximise the UK core market before
leveraging our international opportunity
We have focused our UK business around four core Brands,
including a clear and new approach to Ambrose Wilson. In the first
half of the year, we delivered digital growth of 4.6% on our three
Womenswear Brands (Simply Be +4.0%, JD Williams +4.0% and Ambrose
Wilson +10.5%). Menswear (Jacamo) has delivered 6.6% digital
growth. Importantly, we are now an 84% digital business which
represents a four percentage point increase from the 80% delivered
in the previous financial year.
We have invested more in our Womenswear and Menswear brands in
the last six months. We launched new campaigns for JD Williams,
Simply Be and Jacamo, brought in new specialist fashion agency
partners and have raised production quality. We have also focused
our investment on established channels such as TV and Press, and
newer brand building channels for us such as outdoor media.
In the UK we have completely relaunched our social media
strategy and, whilst it is still early days, the results are
encouraging. On Jacamo we relaunched the Instagram feed with
entirely new content and this has generated good early results.
This demonstrates the potential of social media channels as this
is, increasingly, where our customers are engaging.
We closed down our International division and exited marketing
directly to the USA, removing an unprofitable part of our business.
This has enabled us to re-deploy key skills to support the UK
business. We now have a clear and single minded focus on the
UK.
2. We will simplify the business to improve the customer experience
Strategic Objective: A crisper, clearer brand proposition for
our customers
In the last six months, we have moved to an agile way of
delivering improvements to the customer experience to streamline
digital user experience. We now have over 125 colleagues within our
IT department working in 20 squads. This has enabled us to deliver
improvements including changing our size guides from being desktop
to being mobile and a crisper navigation structure on the Simply Be
app. We have good momentum in this area, and we look forward to
delivering more improvements in the next six months and beyond.
Our recently opened Hyphen Interactive Live Photo (HILP)
photography studio is beginning to transform our ecommerce
photography capabilities and has contributed to the cost
efficiencies delivered in the period.
In November we will launch our automated returns facility at our
warehouse in Shaw. This investment will deliver benefits to the
customer through faster refunds, better stock availability and
improved presentation of items returned to stock. It will also
deliver operational benefits, by removing 66% of receiving and
sortation activity.
3. We will deliver better products for our customers
Strategic Objective: Increase the number of customers, purchase
frequency and basket size
We have placed the customer at the heart of decision-making
across the business and have focused on understanding our
customers' views on our product. In particular, we have taken
learnings from digital product reviews and through weekly 'blind
tasting' sessions of our products vs. competitors. The strongest
feedback we receive about our products is from our customers and we
have now ensured that listening to our customers is more deeply
embedded in our culture.
We have made good progress in improving our branded portfolio to
complement our own label ranges offering our customers an improved
proposition. In September we launched Sea-Salt, Joules and Hobbs as
new brands for JD Williams and in October, we are launching Tommy
Hilfiger and Calvin Klein as new brands for Jacamo. Monsoon, Oasis,
Lacoste and Lyle & Scott will also expand their product offer
across JD Williams, Simply Be and Jacamo.
We have continued to drive further innovation through our
market-leading body scanning technology and 3D design & product
development to deliver continued fit improvements. We now have a
much better understanding of our customers' shape, having scanned
over 1,000 to date. This has fundamentally changed our approach to
fit, moving it forward as a competitive differentiator.
We also selected our first clothing ranges using virtual
technology which enabled us to design and select hundreds of styles
in less than two weeks. This will drive sustainable cost
efficiencies as it will significantly reduce our development time
and negate the need for sample production.
4. We will trade smarter with Data
Strategic Objective: Improve operating efficiency and customer
targeting
We have built good foundations in the last six months as
enhanced use of our rich data has continued to improve customer
insight in our business. We have moved to customer lifetime value
("CLTV") investment models in our digital marketing strategy to
drive a more sustainable financial outcome. We have also adopted a
data led approach to media spend, which has helped accelerate the
business to be 84% digital.
We are at an early stage in trading smarter with data, but we
have built good foundations and continue to develop our own
in-house capability and bring new talent into the business.
5. We will inspire colleagues toward further delighting our customers
Strategic Objective: Better engaged colleagues will deliver an
improved customer experience
We have introduced our new Vision, Mission and Purpose into the
business, whilst also refreshing our company Values. We launched
these to our colleagues to give them a clearer indication of the
direction the business is heading in, and how we behave. The
process has been developed bottom up, not top down, and is an
important step in creating an engaged and dynamic culture.
We have also aligned all colleagues to the same reward framework
of EBITDA growth, digital sales growth, customer satisfaction,
financial services arrears and employee engagement. This means
everyone across the organisation is both remunerated and
incentivised around the same goals which is a significant step
forward.
We have also improved the capabilities around the business to
support the new strategy. In the last six months a Chief Brand
Officer, Operations Director and Strategy Transformation Director
have joined the business.
Outlook
We have made good progress focusing on profitable digital growth
in the first half of the year despite the challenging and
competitive external environment. Whilst mindful of the continued
challenging macro-economic environment and significant
uncertainties surrounding Brexit, we remain focused on driving
sustainable digital revenue, profit and free cashflow growth to
deliver improved shareholder value and the Board's full year
expectations are unchanged.
FINANCIAL REVIEW
GBPm H1 FY20 H1 FY19 Change
--------------------------------------- -------- -------- -------
Revenue
--------------------------------------- -------- -------- -------
JD Williams 75.7 78.6 -3.7%
Simply Be 60.9 59.7 +2.0%
Ambrose Wilson 23.2 27.1 -14.4%
--------------------------------------- -------- -------- -------
Womenswear 159.8 165.4 -3.4%
--------------------------------------- -------- -------- -------
Menswear 32.4 30.7 +5.5%
--------------------------------------- -------- -------- -------
Product brands 88.1 102.8 -14.3%
--------------------------------------- -------- -------- -------
Product revenue(1) 280.3 298.9 -6.2%
US revenue 2.0 5.6 -64.3%
Stores - 6.9 -100%
--------------------------------------- -------- -------- -------
Total product revenue 282.3 311.4 -9.3%
--------------------------------------- -------- -------- -------
Financial services revenue 150.6 146.4 +2.9%
--------------------------------------- -------- -------- -------
Group revenue 432.9 457.8 -5.4%
--------------------------------------- -------- -------- -------
1. Product revenue excluding stores and USA
Revenue
Group revenue declined 5.4% to GBP432.9m, driven by product
revenue declining 9.3% and financial services revenue increasing by
2.9%.
Product revenue
Product revenue declined as a result of the continued managed
decline of the legacy offline business, the shift in focus away
from USA and the impact of the closure of our store portfolio in
the prior year. Excluding stores and USA, product revenue was down
6.2%.
Womenswear revenue was down 3.4% in the period as we continue to
scale back unprofitable marketing and offline recruitment, however
in-line with our digital growth strategy Womenswear digital revenue
increased 4.6% in the half. JD Williams revenue was down 3.7% but
displayed good growth in digital revenue with a 4.0% increase
compared to the previous period. Simply Be grew revenue by 2.0%
during the period excluding stores and reported a 4.0% growth in
digital revenue compared to the prior period. Simply Be's
performance continues to reflect our ongoing transition to customer
lifetime value modelling in this financial year. Ambrose Wilson
revenue was down 14.4% but our focus has been on growing its
digital revenue which increased 10.5% in the period. Menswear,
which is the Jacamo brand, increased revenue by 5.5% and delivered
digital revenue growth of 6.6% in the period.
The Group's transformation to a leading digital retailer
continues, with digital sales now accounting for 84% of product
revenue, an increase of 4 percentage points in the last six months
and 8 percentage points over the last 12 months. In the last six
months digital revenue grew by 1.5% compared to H1 FY19 and was
ahead by 5.0% for our Womenswear and Menswear brands combined. As
the Group focuses more of its resources on growing its digital
revenues, it expects a continued double-digit decline in offline
revenue in the second half of this financial year.
Product brands revenue declined 14.3% in the period with digital
revenue down 5.7%. Strength in digital revenue growth at Oxendales,
+21.6% and Figleaves +15.5% was more than offset by the managed
decline of House of Bath, Premier Man and High & Mighty.
Financial services revenue
Financial services revenue increased 2.9% to GBP150.6m. Revenue
was lower in the second quarter as a result of proactive measures
undertaken on the implementation of credit limit increases and
affordability assessments. In the half, interest payments were up
5.2% reflecting management initiatives such as risk-based pricing.
This increase was offset by a 17.6% reduction in other fees and
income reflecting continued improvements in the quality of the loan
book.
GBPm H1 FY20 H1 FY19 Change
Product gross profit 145.3 166.4 -12.7%
Product gross margin % 51.5% 53.4% -190bps
Financial services gross profit 86.5 81.9 +5.6%
Financial services gross margin
% 57.4% 56.0% +140bps
Group gross profit 231.8 248.3 -6.6%
Group gross profit margin 53.5% 54.2% -70bps
Warehouse & fulfilment costs (39.9) (42.4) -5.9%
Marketing & production costs (78.4) (84.4) -7.1%
Admin & payroll costs (59.4) (69.5) -14.5%
Total operating costs (177.7) (196.3) -9.5%
Adjusted EBITDA(1) 54.1 52.0 +4.0%
Adjusted EBITDA(1) margin % 12.5% 11.4% +110bps
Depreciation & amortisation (14.4) (14.9) -3.4%
Operating profit before exceptionals 39.7 37.1 +7.0%
Operating profit before exceptionals
margin % 9.2% 8.1% +110bps
Net Finance costs (7.9) (6.5) +21.5%
Adjusted profit before tax(2) 31.8 30.6 +3.9%
Exceptional items (25.0) (65.4) -61.8%
Fair value adjustments to financial
instruments 12.0 7.7 +55.8%
Statutory profit /(loss) before
tax 18.8 (27.1) +169.4%
Adjusted earnings per share (p
per share) 8.87p 8.37p +6.0%
Statutory earnings per share (p
per share) 4.95p (9.14)p +154.2%
Interim dividend (p per share) 2.83p 2.83p 0.0%
-------------------------------------- -------- -------- --------
1. Adjusted EBITDA is defined as operating profit, excluding
exceptionals, with depreciation and amortisation added back. The
directors believe that adjusted EBITDA represents the most
appropriate measure of the Group's underlying trading
performance.
2. Defined as excluding exceptionals and fair value movement on
financial instruments.
Reconciliation of Operating profit to adjusted EBITDA (GBPm)
GBP H1 FY20 H1 FY19 Change
Operating profit / (loss) 14.7 (28.3) +151.9%
Exceptional items 25.0 65.4 -61.8%
Depreciation & amortisation 14.4 14.9 -3.4%
Adjusted EBITDA 54.1 52.0 +4.0%
----------------------------- -------- -------- --------
Gross margin
The Group's gross margin was 53.5%, down 70bps compared to H1
FY19. This was as a result of a 140bps improvement in the financial
services gross margin to 57.4%, offset by a 190bps decline in the
product gross margin rate to 51.5%.
Product gross margin declined as a result of the highly
promotional market, strategic decisions taken to exit the USA and
the impact of store closures in the prior year. Financial services
gross margin increased due to the continued improvement in the
quality of the loan book.
Operating costs before exceptionals
We made good progress in the first half on operating expenses
before exceptionals which decreased by 9.5%.
Marketing costs were down 7.1% year on year to GBP78.4m, as the
Group continued to scale back offline marketing and recruitment and
stopped direct marketing in the USA, consistent with the strategy
of focusing on digital growth and improving marketing efficiency.
The marketing costs for H1 FY20 also include absorbing a c.GBP4m
cost from the VAT partial exemption ruling announced in November
2018. We also made strategic investment in building our brands in
the period.
Admin and payroll costs decreased by 14.5% to GBP59.4m, driven
predominantly through the impact of our store closure estate in the
first half of FY19, our exit from direct marketing in the USA and
sustainable Head Office efficiencies.
Warehouse and fulfilment costs decreased by 5.9% to GBP39.9m.
This was driven by lower volumes and continued operational
efficiencies.
Adjusted EBITDA
Adjusted EBITDA increased by 4.0% to GBP54.1m and adjusted
EBITDA margin increased by 110bps to 12.5% (H1 FY19: 11.4%).
Overall, operating profit before exceptional items was GBP39.7m, up
7.0% year on year, with operating margin increasing by 110bps to
9.2%. Statutory operating profit increased by 151.9% to GBP14.7m.
Adjusted profit before tax was GBP31.8m, up 3.9% year on year as a
result of the Group gross margin performance supported by continued
efficiencies in our operating cost base. Due to lower exceptional
costs and an improvement in unrealised FX, statutory profit before
tax was GBP18.8m, representing a GBP45.9m improvement on last
year.
Depreciation and Amortisation
Depreciation and Amortisation decreased by 3.4% to GBP14.4m
largely as a result of lower depreciable assets following
impairments taken in the previous financial year.
Net finance costs
Net finance costs were GBP7.9m, up 21.5% compared to last year
primarily driven by cash outflows from exceptional items which
increased net debt.
Exceptional items
As previously announced, we, in line with the wider industry,
saw a significant increase in customer redress information requests
and complaints in the final days leading up to, and including, the
29 August 2019 deadline. The deadline has now passed and as a
result of the August spike in information requests and complaints,
an additional provision for customer redress of GBP25.0m was made
in during the first half of the year.
GBPm H1 FY20 H1 FY19
--------------------------------- -------- --------
Customer Redress 25.0 22.4
Store Closure - 22.0
Impairment of intangible assets
& brands - 18.3
External costs in relation
to tax - 2.7
--------------------------------- -------- --------
Total exceptional costs 25.0 65.4
--------------------------------- -------- --------
Taxation
The effective underlying rate of corporation tax is 20.0% (H1
FY19: 21.7%). The overall tax charge is GBP4.7m (H1 FY19: GBP1.1m
credit).
Earnings per share
Adjusted earnings per share was 8.87p (H1 FY19 earnings per
share: 8.37p). Statutory earnings per share was 4.95p (H1 FY19:
(9.14)p).
Dividend
The Board is declaring an interim dividend of 2.83p per share
which is flat on last year's interim dividend.
Financial services
Compared to the same period last year the provision rate
decreased by 460bps due to an underlying improvement in the quality
of the loan book and the disposal of some high-risk payment debt
which was sold at a better rate than the book value.
GBPm 31 Aug 2019 1 Sept 2018 Change
------------------------------ ------------ ------------ -------
Gross customer loan balances 658.0 677.6 -2.9%
IFRS 9 bad debt (78.2) (111.9) -30.1%
IFRS 9 provision ratio 11.9% 16.5% -460ps
Net Customer Loan Balances 579.8 565.7 +2.5%
------------------------------ ------------ ------------ -------
Balance Sheet and Cash Flow
Capital expenditure was GBP21.9m (H1 FY19: GBP17.9m). Inventory
levels at the period end were down 1.2%, to GBP97.1m (H1 FY19:
GBP98.3m) and 2.7% lower than at the end of the previous financial
year as a result of tighter stock management.
Gross trade receivables decreased by 2.9% to GBP658.0m (H1 FY19:
GBP677.6m) driven by a small debt sale in the period.
Net cash generated from operations (excluding taxation) was
GBP29.7m compared to a GBP22.3m outflow last year, principally
driven by the GBP40.4m reduction in exceptional costs and
improvements in working capital. After funding capital expenditure,
finance costs, taxation and dividends, net debt increased from
GBP467.9m at year end to GBP481.6m. The GBP579.8m net customer loan
book significantly exceeds this net debt figure.
The Group continues to have access to financing facilities
totalling GBP652.5m, made up of a securitisation facility of
GBP500m which is committed to May 2021, an RCF of GBP125m which is
committed to September 2021 and an overdraft of GBP27.5m.
The Group's balance sheet is underpinned by its customer loan
book, which at 31 August 2019 was GBP658.0m on a gross basis and
GBP579.8m on a net basis, calculated under IFRS9.
Core debt, which is defined as the amount drawn on the Group's
RCF less cash was GBP67.5m, which means the Group's leverage is
0.5x on a net debt/EBITDA basis for the last 12 months EBITDA.
The Group's defined benefit pension scheme has a surplus of
GBP24.4m (H1 FY19: GBP23.8m surplus). The small increase in the
surplus is as a result of general market changes in asset returns
during the year.
VAT partial exemption
The Group has been in a long running dispute with HMRC with
respect to the VAT treatment of certain marketing and non-marketing
costs and the allocation of those costs between our retail and
credit business.
The case in respect of marketing costs was heard by the first
tier tribunal in May 2018 with a draft decision being issued in
November 2018 which was published in March 2019. Since this date
the Group has been in discussions with HMRC to settle this matter
and we now have an agreement in principle. At this stage however,
there is no indication that the provision held at 2 March 2019 in
respect of FY19 and earlier periods will need to materially
change.
As at 31 August 2019, the Group holds a provision of GBP7.9m
(GBP6.6m at 2 March 2019) in respect of this matter, with the
increase since year end arising due to the Group having not yet
been assessed in relation to the quarter ended May 2019. For the
quarter ended 31 August 2019, it is envisaged that the final
settlement for this quarter will be in line with the amounts paid
to date, so no further provision is required.
FX sensitivity
For the remainder of FY20 we have hedged 100% of our net
purchases at a blended rate of $/GBP1.36. At a rate of $/GBP1.30,
and before any mitigating actions or changes in annual
requirements, this would result in a c.GBP0.9m PBT tailwind
compared to FY19 (hedged rate $/GBP1.33).
For FY21 we have, to date, hedged 69% of our anticipated net
purchases at a blended rate of $/GBP1.32. At a rate of $/GBP1.25,
and before any mitigating actions or changes in annual
requirements, this would result in a c.GBP3.0m PBT headwind
compared to FY20. Every five cents move from this rate in our
unhedged position would result in a PBT sensitivity of
c.GBP1.4m.
FY20 Guidance
We are providing the following updated guidance for FY20:
New guidance Previous guidance
--------------------------------- ------------------- -------------------------------
Product gross margin -50bps to -150bps flat to -100bps
Financial services gross margin flat to +100bps flat to -100bps
Group operating costs -3.5% to -5.5% -2.5% to -4.5%
Depreciation & Amortisation GBP31m to GBP33m GBP31m to GBP33m
Net interest GBP18m to GBP19m GBP17m to GBP18m
Tax rate 20% to 21% 20% to 21%
Capex c.GBP35 to GBP40m c.GBP35 to GBP40m
FY20 year-end net debt GBP470m to GBP490m GBP440m to GBP460m
--------------------------------- ------------------- -------------------------------
Unaudited consolidated income statement
for the 26 weeks ended 31 August 2019
26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 26 weeks
to 31 to 31 to 31 to 01 to 01 to 01
August August August Sept 2018 Sept 2018 Sept 2018
2019 2019 2019
Before Exceptional Total Before Exceptional Total
exceptional items exceptional items
items (Note items (Note
5) 5)
Note GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 296.3 - 296.3 327.9 - 327.9
Credit account
interest 4 136.6 - 136.6 129.9 - 129.9
------------- ------------ --------- ------------- ------------ -----------
Total revenue 4 432.9 - 432.9 457.8 - 457.8
Cost of sales (138.6) - (138.6) (146.9) - (146.9)
Impairment losses
on customer receivables 4 (64.4) - (64.4) (68.3) - (68.3)
Profit on sale
of customer receivables 4 1.9 - 1.9 5.7 - 5.7
------------- ------------ --------- ------------- ------------ -----------
Gross profit 4 231.8 - 231.8 248.3 - 248.3
Operating profit/
(loss) 4 39.7 (25.0) 14.7 37.1 (65.4) (28.3)
Finance costs (7.9) - (7.9) (6.5) - (6.5)
------------- ------------ --------- ------------- ------------ -----------
Profit / (Loss) before
fair value adjustments
to financial instruments 31.8 (25.0) 6.8 30.6 (65.4) (34.8)
Fair value adjustments
to financial instruments 6 12.0 - 12.0 7.7 - 7.7
------------- ------------ --------- ------------- ------------ -----------
Profit /(Loss)
before taxation 43.8 (25.0) 18.8 38.3 (65.4) (27.1)
Taxation 7 (8.8) 4.1 (4.7) (8.3) 9.4 1.1
------------- ------------ --------- ------------- ------------ -----------
Profit / (Loss)
for the period 35.0 (20.9) 14.1 30.0 (56.0) (26.0)
------------- ------------ --------- ------------- ------------ -----------
Earnings / (Loss) per share
from continuing operations
Basic 8 4.95p (9.14)p
Diluted 8 4.93p (9.14)p
Unaudited consolidated statement of comprehensive income
for the 26 weeks ended 31 August 2019
26 weeks to 26 weeks to
31 August 01
2019 Sept 2018
GBPm GBPm
Profit / (Loss) for the period 14.1 (26.0)
Items that will not be classified subsequently
to profit or loss:
Actuarial (losses) / gains on defined
benefit pension schemes (0.8) 3.7
Tax relating to items not reclassified (0.1) (0.6)
------------ ------------
(0.9) 3.1
------------ ------------
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation of
foreign operations (1.5) (0.2)
Total comprehensive income / (expense)
for the period attributable to equity
holders of the parent 11.7 (23.1)
------------ ------------
Unaudited consolidated balance sheet
As at 31 August 2019
As at 31 As at 01 Sept As at 02
August 2019 2018 March 2019
Note GBPm GBPm GBPm
Non-current assets
Intangible assets 10 150.6 141.1 145.2
Property, plant & equipment 11 60.6 60.8 59.4
Right of use assets 1 5.9 - -
Retirement benefit surplus 24.4 23.8 23.9
Deferred tax assets 15.5 14.5 18.8
------------- -------------- ------------
257.0 240.2 247.3
------------- -------------- ------------
Current assets
Inventories 97.1 98.3 99.8
Trade and other receivables 12 619.5 632.0 621.0
Derivative financial instruments 6 10.4 1.7 -
Cash and cash equivalents 58.0 27.5 43.7
------------- -------------- ------------
785.0 759.5 764.5
------------- -------------- ------------
Total assets 1,042.0 999.7 1,011.8
------------- -------------- ------------
Current liabilities
Bank overdraft (0.5) (3.0) (11.4)
Provisions 13 (35.1) (46.9) (24.8)
Trade and other payables 14 (126.6) (134.8) (140.9)
Lease liability 1 (2.0) - -
Derivative financial instruments 6 - - (1.5)
Current tax liability (5.4) (0.7) (7.1)
------------- -------------- ------------
(169.6) (185.4) (185.7)
------------- -------------- ------------
Net current assets 615.4 574.1 578.8
Non-current liabilities
Bank loans (539.1) (445.0) (500.2)
Lease liability 1 (5.7) - -
Deferred tax liabilities (16.4) (12.4) (14.5)
------------- -------------- ------------
(561.2) (457.4) (514.7)
------------- -------------- ------------
Total liabilities (730.8) (642.8) (700.4)
------------- -------------- ------------
Net assets 311.2 356.9 311.4
------------- -------------- ------------
Equity
Share capital 31.4 31.4 31.4
Share premium 11.0 11.0 11.0
Own shares (0.3) (0.2) (0.3)
Foreign currency translation
reserve 1.3 1.9 2.8
Retained earnings 267.8 312.8 266.5
------------- -------------- ------------
Total equity 311.2 356.9 311.4
------------- -------------- ------------
Unaudited consolidated cash flow statement
For the 26 weeks ended 31 August 2019
26 weeks 26 weeks 52 weeks
to 31 Aug to 01 Sept to 02 March
2019 2018 2019
GBPm GBPm GBPm
Net cash inflow / (outflow) from
operating activities 28.4 (24.2) (37.1)
Investing activities
Purchase of property, plant and
equipment (3.5) (1.6) (3.4)
Purchase of intangible assets (18.4) (16.3) (32.9)
----------- ------------ -------------
Net cash used in investing activities (21.9) (17.9) (36.3)
----------- ------------ -------------
Financing activities
Interest paid (7.9) (7.4) (15.4)
Dividends paid (12.1) (24.2) (32.2)
Increase in bank loans 39.4 43.0 95.2
Purchase of shares by ESOT (0.2) - -
Proceeds on issue of shares held
by ESOT - - (0.1)
----------- ------------ -------------
Net cash from financing activities 19.2 11.4 47.5
----------- ------------ -------------
Net increase/(decrease) in cash
and cash equivalents 25.7 (30.7) (25.9)
Opening cash and cash equivalents 32.3 58.2 58.2
----------- ------------ -------------
Closing cash and cash equivalents 58.0 27.5 32.3
----------- ------------ -------------
Reconciliation of operating profit to net cash from operating
activities
26 weeks 26 weeks 52 weeks
to 31 Aug to to
2019 01 Sept 02 March
2018 2019
GBPm GBPm GBPm
Profit /(Loss) for the period 14.1 (26.0) (58.3)
Adjustments for:
Taxation charge 4.7 (1.1) 0.8
Fair value adjustments to financial
instruments (12.0) (7.7) (4.5)
Finance costs 7.9 6.5 14.3
Depreciation of property, plant
and equipment 2.6 2.6 4.9
Loss on disposal of store assets - 5.7 5.0
Loss on disposal of intangible
assets - - 0.7
Impairment of intangible assets - 17.8 17.8
Impairment of property, plant and
equipment - - 1.5
Amortisation of intangible assets 11.8 12.3 25.2
Share option charge 0.2 0.1 0.1
----------- --------- ----------
Operating cash flows before movements
in working capital 29.3 10.2 7.5
Decrease in inventories 2.8 12.3 10.8
Increase in trade and other receivables (0.3) (46.1) (34.0)
(Decrease) / increase in trade
and other payables (13.5) 4.1 5.6
Increase / (Decrease) in provisions 12.2 (2.3) (24.4)
Pension obligation adjustment (0.8) (0.5) (0.5)
----------- --------- ----------
Cash generated / (used in) by operations 29.7 (22.3) (35.0)
Taxation paid (1.3) (1.9) (2.1)
Net cash inflow / (outflow) from
operating activities 28.4 (24.2) (37.1)
----------- --------- ----------
Changes in liabilities from financing 26 weeks 26 weeks 52 weeks
activities to 31 Aug to to
2019 01 Sept 02 March
2018 2019
GBPm GBPm GBPm
Loans and borrowings balance brought
forward 500.2 405.0 405.0
Changes from financing cashflows
Net proceeds from loans and borrowings 38.8 43.0 94.1
Increase in loans and borrowings
due to interest 0.6 - 1.1
Loans and borrowings balance carried
forward 539.6 448.0 500.2
----------- --------- ----------
Unaudited consolidated statement of changes in equity
Share Share Own Foreign Retained Total
Capital premium shares currency earnings
translation
reserve
GBPm GBPm GBPm GBPm GBPm GBPm
Changes in equity for
the 26 weeks
to 1 September 2018
Balance at 3 March
2018 31.4 11.0 (0.2) 2.1 415.3 459.6
Adjustment on initial
application
of IFRS 9 (net of
tax) - - - - (55.5) (55.5)
Balance at 3 March
2018 (restated) 31.4 11.0 (0.2) 2.1 359.8 404.1
--------- --------- -------- ------------- ---------- -------
Total comprehensive
income for the
period
Loss for the period - - - - (26.0) (26.0)
Other items of
comprehensive income
for the period - - - (0.2) 3.1 2.9
--------- --------- -------- ------------- ---------- -------
Total comprehensive
loss for the
period - - - (0.2) (22.9) (23.1)
--------- --------- -------- ------------- ---------- -------
Transactions with
owners recorded
directly in equity
Equity dividends - - - - (24.2) (24.2)
Share option charge - - - - 0.1 0.1
Tax on items - - - - - -
recognised directly
in equity
--------- --------- -------- ------------- ---------- -------
Total contributions
by and distributions
to the owners - - - - (24.1) (24.1)
--------- --------- -------- ------------- ---------- -------
Balance at 1
September 2018 31.4 11.0 (0.2) 1.9 312.8 356.9
Adjustment on initial
application
of IFRS 15 (net of
tax) - - - - (1.5) (1.5)
Total comprehensive
income for the
period
Loss for the period - - - - (32.3) (32.3)
Other items of
comprehensive income
for the period - - - 0.9 (4.1) (3.2)
Total comprehensive
income for the
period - - - 0.9 (36.4) (35.5)
--------- --------- -------- ------------- ---------- -------
Transactions with
owners recorded
directly in equity
Equity dividends - - - - (8.0) (8.0)
Issue of own shares
by ESOT - - (0.1) - - (0.1)
Share option charge - - - - - -
Tax on items
recognised directly
in equity - - - - (0.4) (0.4)
--------- --------- -------- ------------- ---------- -------
Total contributions
by and distributions
to the owners - - (0.1) - (8.4) (8.5)
--------- --------- -------- ------------- ---------- -------
Balance at 2 March
2019 31.4 11.0 (0.3) 2.8 266.5 311.4
Total comprehensive
income for the
period
Profit for the period - - - - 14.1 14.1
Other items of
comprehensive income
for the period - - - (1.5) (0.9) (2.4)
--------- --------- -------- ------------- ---------- -------
Total comprehensive
income for the
period - - - (1.5) 13.2 11.7
--------- --------- -------- ------------- ---------- -------
Transactions with
owners recorded
directly in equity
Equity dividends - - - - (12.1) (12.1)
Issue of own shares - - - - - -
by ESOT
Share option charge - - - - 0.2 0.2
Tax on items - - - - - -
recognised directly
in equity
--------- --------- -------- ------------- ---------- -------
Total contributions
by and distributions
to the owners - - - - (11.9) (11.9)
--------- --------- -------- ------------- ---------- -------
Balance at 31 August
2019 31.4 11.0 (0.3) 1.3 267.8 311.2
--------- --------- -------- ------------- ---------- -------
for the 26 weeks ended 31 August 2019
Notes to the unaudited consolidated financial statements
For the 26 weeks ended 31 August 2019
1. Basis of preparation
This condensed set of consolidated interim financial statements
has been prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU. They do not include all the
information required for full annual financial statements and
should be read in conjunction with the consolidated financial
statements of the Group as at and for the year ended 2 March 2019.
The annual financial statements of the Group are prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the EU.
The comparative figures for the year ended 2 March 2019 are
extracted from the Company's statutory accounts for that financial
year. 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.
Significant increase in credit risk
A financial asset is considered to have experienced a
significant increase in credit risk since initial recognition where
there has been a significant increase in the remaining lifetime
probability of default of the asset. As a general indicator, credit
risk is deemed to have increased significantly since initial
recognition if based on the Group's quantitative modelling the
remaining lifetime probability of default is determined to have
increased by more than 250% of the corresponding amount estimated
on initial recognition. As a backstop, the Group considers that a
significant increase in credit risk occurs no later than when an
asset is more than 28 days past due. Days past due are determined
by counting the number of days since the earliest elapsed due date
in respect of which the minimum payment has not been received. Due
dates are determined without considering any grace period that
might be available to the borrower.
New accounting standards, interpretations and amendments adopted
by the Group
IFRS 16 Leases
The Group has adopted IFRS 16 in the period using the modified
retrospective approach. The Group elected to use the transitional
practical expedient allowing the standard to be applied only to
contracts that were previously identified as leases applying IAS 17
at the date of initial application. The Group also elected to use
the recognition exemptions for lease contracts that, at the
commencement date, have a lease term of 12 months or less and do
not contain a purchase option, for lease contracts for which the
underlying asset is of low value and the exemption to apply a
single discount rate over all leases with similar characteristics.
Included in the contracts being transitioned to IFRS 16 are the
store portfolio which is in the process of being exited. The Group
has elected to offset the onerous lease provision held in respect
of the store portfolio against the right-of-use asset.
IFRS 16 impacts the presentation of the Group consolidated
financial statements introducing a single, on-balance sheet lease
accounting model for lessees. A lessee recognises a right-of -use
asset representing its right to use the underlying asset and a
corresponding lease liability representing its obligation to make
lease payments. Right- of- use assets are depreciated on a straight
line over the shorter of estimated useful life and the lease
term.
The effect of IFRS 16 adoption is as follows:
Impact on the statement of financial position as at 3 March
2019:
-- Right-of-use assets of GBP6.6m were recognised and presented
separately in the statement of financial position.
-- Additional lease liabilities of GBP9.5m were recognised and
included under Interest bearing loans and borrowings.
For the six months ended 31 August 2019:
-- Depreciation expense increased by GBP0.7m relating to the
depreciation of additional assets recognised.
-- Rent expense decreased by GBP0.8m relating to previous
operating leases derecognised.
-- Finance costs relating to interest expense on additional
lease liabilities recognised and income tax expense have moved by
less than GBP0.1m.
-- Cash outflows from operating activities decreased by
GBP0.1m.
Impact on the statement of financial position as at 31 August
2019:
-- Right-of-use assets amounted to GBP5.9m.
-- Lease liabilities amounted to GBP7.7m, of which GBP2m expire
within 1 year.
IFRIC 23 Uncertainty over Income Tax Treatments
The Group is required to adopt IFRIC 23 Uncertainty over Income
Tax Treatments from 1 January 2019. It is therefore is applicable
to the Group for the year ending 29 February 2020.
The Group has assessed the impact of the adoption of IFRIC 23
and concluded that it should not have any impact on the tax
provisions currently held by the Group.
2. Key risks and uncertainties
The potential risks and uncertainties which may impact on the
Group's long-term performance are routinely monitored by the
Executive Board members to ensure appropriate actions to mitigate
risk are put in place where necessary. The risks which have been
identified as potentially having a material impact on the
performance of the Group as at H1 FY20 are as follows: Brexit;
Treasury; Business Change, Product portfolio; IT Systems,
Regulatory environment and Cyber-Security.
The potential impact of Brexit and the current UK political
environment have been identified as key risks to the Group's
performance over the short to medium term. The impact of a possible
No Deal exit from the EU has potential implications for consumer
confidence and therefore for the Group' bad debt and arrears
positions, cost price inflation and liquidity headroom. The
potential for short to medium term business disruptions from a
general election or civil unrest have also been called out as
possible risks.
Detailed Brexit planning began in 2018 and the Brexit Steering
Group continues to map specific scenarios and drive actions to
mitigate the potential risk arising from a No Deal Brexit. A review
of 3rd party supplier readiness for No Deal has been completed and
detailed modelling of possible No Deal scenarios (including Ireland
business impacts, Inbound Logistics disruption and possible changes
to migrant labour availability) are being carried out to mitigate
the identified Brexit risks. However, given the high level of
uncertainty and volatility surrounding Brexit, specific financial
outcomes are difficult to predict with accuracy.
The Group's treasury function has been highlighted as a key risk
area due to the current consumer credit and retail market
environments, as well as the longer-term impact from potential,
further currency fluctuations. The Group's liquidity headroom has
been impacted by further financial redress provisions due in FY20
and would be additionally impacted by adverse market conditions and
negative impact on customer spending as a result of Brexit
uncertainty. The potential for impact on the Group's financial
services arrears rates arising from deterioration in customer
discretionary spending in the event of No Deal may place pressure
on liquidity headroom and capital spending capacity.
Continued focus has been placed on the Group's overall hedging
position to ensure appropriate cover exists over the next 18 months
against adverse movements in Foreign Exchange rates, but our
current hedging policy does not extend beyond 24 months.
The Group continues to drive change and improvements in
technology and business processes across the business. With the
uncertainty of Brexit and the accelerating pace of competition in
digital retail, the Group's change program remains a key pillar of
continued success. The Group uses delivery squads which are aligned
to specific products or services to focus on delivering smaller,
more frequent changes which create value and deliver change to
support the Group's strategic vision.
The Group's product portfolio was identified as an important
area for the Group in its drive to maintain market position in the
sector. Recent customer feedback indicated areas for improvement in
product quality. Actions to improve product quality monitoring are
being implemented in line with the Group's Strategy to focus on
quality and fit.
The Group continues to mitigate the risks associated with the
use of remaining legacy IT systems as well as data security risk
through outsourcing IT services to a specialist IT service
provider. The replacement of the Group's legacy architecture is a
key focus of the continuous change program and tactical solutions
continue to be implemented to mitigate risks to agility arising
from older systems.
The regulatory environment remains a key consideration for the
Group and continued focus is placed on meeting the expectations of
the regulators. A key area of risk is FCA regulation with the SMCR
requirements due to go live on 9th Dec 19.
In line with the wider Industry, we continue to enhance our
focus on responsible lending. Throughout the year, we have made
changes to our lending approach to ensure we adopt guidance in
relation to 'affordability' and to help customers who find
themselves in 'persistent debt'. We continue to monitor and
reappraise our strategies and will be working through this over the
next 12-24 months.
Overall, the degree of change being undertaken by the business
in preparation for the new regulations remains challenging, but
delivery plans are in place to meet the deadline.
Cyber Security remains a key area of focus within the Group as
it continues to grow as a digital retailer. The successful
completion of the Group's GDPR program has strengthened the Group's
Cyber Security position and provides greater security over both new
and existing cyber threats. The Group's Cyber Security team
continues to design and implement security controls to strengthen
Cyber Security defences across the business.
Critical judgements and key sources of estimation
uncertainty
In the course of preparing the financial statements, no
judgements have been made in the process of applying the Group's
accounting policies, other than those involving estimations stated
below, that have had a significant effect on the amounts recorded
within the financial statements. The key assumptions concerning the
future and other sources of estimation uncertainty at the period
end date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year, are as follows - Trade receivables,
Taxation, Inventory, Regulatory, Software development costs and
Brand Intangibles.
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 Group continues to have access to financing facilities
totalling GBP652.5m, made up of a securitisation facility of
GBP500m which is committed to May 2021, an RCF of GBP125m which is
committed to September 2021 and an overdraft of GBP27.5m.
The directors have carefully considered the Group's cash flows
and banking covenants for the next twelve months from the date of
approval of the Group's preliminary results. These have been
appraised in light of the current economic climate by applying a
series of stress tests. The stress tests apply a range of
sensitivities to group revenue, cash collections and arrears
levels; reflecting the principal risks of the business, primarily
through potential trading restrictions and penalties arising from
the impact of a cyber attack, negative outcomes from delays to the
Group's IT development programme and uncertainty around the impact
of Brexit on consumer confidence.
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 these financial
statements.
4. Business Segments
The Group has one reportable segment in accordance with IFRS8 -
Operating Segments which is the Home Shopping segment.
Analysis of revenue 26 weeks 26 weeks 52 weeks
to 31 August to 01 Sept to
2019 2018 02 March
2019
GBPm GBPm GBPm
Product - total revenue 282.3 311.4 615.8
-------------- ------------ ----------
Credit account interest 136.6 129.9 267.2
Other financial services revenue 14.0 16.5 31.4
-------------- ------------ ----------
Financial services - total revenue 150.6 146.4 298.6
-------------- ------------ ----------
Revenue - Total 432.9 457.8 914.4
-------------- ------------ ----------
Product - total cost of sales (137.0) (145.0) (295.0)
-------------- ------------ ----------
Impairment losses on customer receivables (64.4) (68.3) (129.7)
Profit on sale of customer receivables 1.9 5.7 10.7
Other financial services cost of
sales (1.6) (1.9) (2.7)
-------------- ------------ ----------
(64.1) (64.5) (121.7)
-------------- ------------ ----------
Cost of Sales - Total (201.1) (209.5) (416.7)
Gross profit 231.8 248.3 497.7
-------------- ------------ ----------
Gross margin - Product 51.5% 53.4% 52.1%
Gross margin - Financial Services 57.4% 56.0% 59.2%
Warehouse & fulfilment (39.9) (42.4) (84.0)
Marketing & production (78.4) (84.4) (157.8)
Depreciation & amortisation (14.4) (14.9) (30.1)
Other admin & payroll (59.4) (69.5) (127.9)
-------------- ------------ ----------
Segment result & operating profit
before exceptional items 39.7 37.1 97.9
Exceptional items (see note 5) (25.0) (65.4) (145.6)
-------------- ------------ ----------
Segment result & operating profit
/ (loss) 14.7 (28.3) (47.7)
Finance costs (7.9) (6.5) (14.3)
Fair value adjustments to financial
instruments 12.0 7.7 4.5
Profit / (Loss) before taxation 18.8 (27.1) (57.5)
-------------- ------------ ----------
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 52 weeks
to 31 August to 01 Sept to 02 March
2019 2018 2019
GBPm GBPm GBPm
Analysis of product revenue by
brand
JD Williams 75.7 78.6 159.5
Simply Be 60.9 59.7 120.1
Ambrose Wilson 23.2 27.1 51.3
Womenswear 159.8 165.4 330.9
Jacamo 32.4 30.7 64.0
-------------- ------------ -------------
Menswear 32.4 30.7 64.0
Product Brands 88.1 102.8 202.6
-------------- ------------ -------------
Total excluding Stores and US Revenue 280.3 298.9 597.5
US Revenue 2.0 5.6 11.4
Stores - 6.9 6.9
Total product revenue 282.3 311.4 615.8
-------------- ------------ -------------
The Group has one significant geographical segment, which is the
United Kingdom. Revenue derived from international markets amounted
to GBP12.2m (HY19, GBP17.8m). Operating results from international
markets amounted to GBP1.5m loss (HY19, GBP1.2m loss). All segment
assets are located in the UK, Ireland and US.
5. Exceptional items
26 weeks 26 weeks 52 weeks
to 31 August to 01 Sept to 02 March
2019 2018 2019
GBPm GBPm GBPm
Customer redress 25.0 22.4 45.0
Closure costs - 22.0 22.0
Impairment of tangibles, intangibles
and brands - 18.3 20.0
VAT debtor impairment - - 49.4
Other VAT matters including associated
legal & professional fees - 2.7 8.9
GMP equalisation adjustment - - 0.3
-------------- ------------ -------------
Items charged to profit / (loss)
before tax 25.0 65.4 145.6
-------------- ------------ -------------
Taxation provision - 3.0 3.0
Customer Redress
During the previous year, a total exceptional charge of GBP45.0m
was recognised in respect of customer redress, including a
provision of GBP22.6m made in the second half to cover for the
increased claims that the Group was expecting to receive up to the
29 August 2019 deadline. In line with wider industry experience,
the volume of PPI information requests and claims received in the
final days leading up to and including the 29 August 2019 deadline
was significantly higher than expected and therefore was unprovided
for. As at 31 August 2019, an additional charge of GBP25.0m has
been recognised to reflect the latest assessment of the liability,
which is expected to be incurred in the current year. Further
information is provided in note 13.
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 52 weeks
to to to 02 March
31 August 01 Sept 2019
2019 2018
GBPm GBPm GBPm
Notional amount - Sterling contract
value 276.8 161.8 271.4
----------- --------- -------------
Fair value of asset recognised 10.4 1.7 -
Fair value of liability recognised - - (1.5)
----------- --------- -------------
The fair value of foreign currency derivative contracts is their
market value at the balance sheet date. Market values are based on
the duration of the derivative instrument together with the
observable 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
(FY19, 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
(i.e. as prices) or indirectly (i.e. derived from prices).
There were no transfers between Level 1 and Level 2 during the
period (HY19, same).
7. Taxation
The taxation charge for the 26 weeks ended 2 March 2019 is based
on the underlying estimated effective tax rate for the full year of
20.0%. The total statutory effective tax rate for the 12 months
period is 24.9% (HY19, 4.1%).
The Group is in on-going discussions with HMRC in respect of a
number of corporation tax 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 31 August 2019 the Group
has provided a total of GBP7.4m (HY19: GBP8.8m) for potential
corporation tax future charges based upon the Group's best
estimation and judgement.
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 31 August 2019, the Directors estimate that the
unfavourable settlement of these cases could result in a net cash
tax payment of up to GBP7.4m with no further charge to the income
statement.
The favourable settlement of these cases would result in a
repayment of tax of up to GBP19.8m and an associated credit to the
income statement of GBP19.8m.
8. Earnings per share
The calculation of earnings per ordinary share is based on
earnings after tax and the weighted average number of ordinary
shares in issue during the period.
The adjusted earnings per share figures have also been
calculated based on earnings before items that are one-off in
nature, material by size and are considered to be distortive of the
true underlying performance of the business (see note 5) and
certain other fair value adjustments. These have been incorporated
to allow shareholders to gain an understanding of the underlying
trading performance of the Group. For diluted earnings per share,
the weighted average number of ordinary shares in issue is adjusted
to assume conversion of all dilutive potential ordinary shares.
Earnings for the purposes of basic and 26 weeks 26 weeks 52 weeks
diluted earnings per share: to to to 02 March
31 August 01 Sept 2019
2019 2018
GBPm GBPm GBPm
Total net profit /(loss) attributable
to equity holders of the parent 14.1 (26.0) (58.3)
Fair value adjustment to financial instruments
(net of tax) (9.7) (6.2) (3.6)
Exceptional items (net of tax) 20.9 56.0 122.7
----------- --------- -------------
Total net profit attributable to equity
holders of the parent 25.3 23.8 60.8
----------- --------- -------------
Number of shares for the purposes of 26 weeks 26 weeks 52 weeks
basic and diluted earnings per share: to to to
31 August 01 Sept 02 March
2019 2018 2019
m m m
Weighted average number of shares in
issue - basic 285.1 284.4 284.4
Dilutive effect of share options 0.2 0.4 0.4
Weighted average number of shares in
issue - diluted 285.3 284.8 284.8
----------- --------- -------------
Earnings / (Loss) per share
Basic 4.95p (9.14)p (20.50)p
Diluted 4.93p (9.14)p (20.50)p
Adjusted earnings per share
Basic 8.87p 8.37p 21.38p
Diluted 8.87p 8.36p 21.35p
9. Dividends
The directors have declared and approved an interim dividend of
2.83 pence per share (HY19 2.83p). This will be paid on 5 February
2020 to shareholders on the register at the close of business on 3
January 2020.
During H1 FY20 dividends of GBP12.1m relating to FY19 were
paid.
10. Intangible assets
Brands Software Customer Total
database
GBPm GBPm GBPm GBPm
Cost
As at 3 March 2018 16.9 330.9 1.9 349.7
Additions - 15.9 - 15.9
Disposals - (2.4) - (2.4)
------- --------- ---------- ------
As at 1 Sept 2018 16.9 344.4 1.9 363.2
Additions - 17.0 - 17.0
------- --------- ---------- ------
As at 2 March 2019 16.9 361.4 1.9 380.2
Additions - 17.2 - 17.2
Disposals - - - -
------- --------- ---------- ------
As at 31 August 2019 16.9 378.6 1.9 397.4
------- --------- ---------- ------
Depreciation
As at 3 March 2018 8.0 183.8 1.9 193.7
Charge for the period - 12.3 - 12.3
Disposals - (1.7) - (1.7)
Impairment charge 7.1 10.7 - 17.8
------- --------- ---------- ------
As at 1 Sept 2018 15.1 205.1 1.9 222.1
Charge for the period - 12.9 - 12.9
As at 2 March 2019 15.1 218.0 1.9 235.0
Charge for the period - 11.8 - 11.8
As at 31 August 2019 15.1 229.8 1.9 246.8
Carrying amounts
As at 31 August 2019 1.8 148.8 - 150.6
------- --------- ---------- ------
As at 2 March 2019 1.8 143.4 - 145.2
------- --------- ---------- ------
As at 1 Sept 2018 1.8 139.3 - 141.1
------- --------- ---------- ------
Assets in the course of construction included in intangible
assets at the period end total GBP43.5m (HY19 GBP27.1m). No
amortisation is charged on these assets until they are available
for use.
As at 31 August 2019, the Group had entered into contractual
commitments for the further development of intangible assets of
GBP7m (HY19 GBP2.4m) of which GBP1.9m (HY19 GBP1.0m) is due to be
paid within 1 year.
11. Property, plant and equipment
Additions to tangible fixed assets during the period of GBP3.1m
(HY19 GBP1.0m) primarily relate to warehousing improvement
projects. Depreciation of GBP1.9m (HY19 GBP2.6m) was charged during
the period. Depreciation relating to IFRS 16 right of use assets
amounted to GBP0.7m during in the period.
Assets in the course of construction included in fixtures and
equipment at H1 FY20 total GBP5.4m (HY19 GBP2.2m), and in land and
buildings total GBPnil (HY19 GBPnil). No depreciation is charged on
these assets until they are available for commercial use.
12. Trade and other receivables
31 August 1 Sept 2018
2019
GBPm GBPm
Amounts receivable for the sale of goods
and services 658.0 677.6
Allowance for doubtful debts (78.2) (111.9)
---------- ------------
579.8 565.7
Other debtors and prepayments 39.7 66.3
---------- ------------
619.5 632.0
---------- ------------
Movement in the allowance for doubtful
debts
Balance at the beginning of the period 97.1 48.8
Adjustment on initial application of IFRS
9 - 67.2
---------- ------------
Balance at the beginning of the period 97.1 116.0
Amounts charged to the income statement 62.5 62.5
Amounts written off (81.4) (66.6)
---------- ------------
Balance at the end of the period 78.2 111.9
---------- ------------
Other debtors and prepayments
'Other debtors and prepayments' in the prior year included a net
VAT debtor, comprising the VAT liability which arises from day to
day trading, together with amounts in relation to matters which are
in dispute with HMRC of GBP39.7m. This year the balance comprises a
net creditor (see note 14).
13. Provisions
Customer Store Total
Redress closures
GBPm GBPm GBPm
Balance at 3 March 2018 42.8 6.4 49.2
Provisions made during the period 22.4 11.0 33.4
Provisions used during the period (32.2) (3.5) (35.7)
--------- ---------- -------
Balance at 1 Sept 2018 33.0 13.9 46.9
Provisions made during the period 22.6 5.3 27.9
Provisions used during the period (38.2) (11.8) (50.0)
--------- ---------- -------
Balance at 2 March 2019 17.4 7.4 24.8
Provisions made during the period 25.0 - 25.0
Provisions used during the period (9.4) (3.4) (12.8)
Balance at 31 August 2019 33.0 4.0 37.0
Current 33.0 4.0 37.0
Non-current - - -
--------- ---------- -------
Balance at 31 August 2019 33.0 4.0 37.0
--------- ---------- -------
An amount of GBP1.9m onerous lease provision has been offset
against the right-of-use assets recognised under IFRS 16, leaving
net provisions of GBP35.1m.
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 31 August 2019 the Group holds a provision of GBP33.0m
(HY19, GBP33.0m) in respect of the anticipated costs of historic
financial services customer redress.
In line with the wider industry, a significant increase in the
volume of PPI information requests and claims received in the final
days leading up to and including the 29 August 2019 deadline was
experienced. As at 31 August 2019, an additional provision of
GBP25.0m has been recognised to reflect the latest assessment of
the liability.
This estimate remains subject to significant uncertainty and it
is possible the eventual outcome may differ from the current
estimate.
The provision is calculated using a number of key assumptions
which continue to involve significant management judgement:
- Customer claims volumes - claims received but not yet processed
- Uphold rate - the proportion of claims received which the Group settles
- Average claim redress - the expected average payment to customers for upheld claims
The principal sensitivities in the redress calculation have
previously been in relation to volumes of policies affected; claim
rate; uphold rate and average redress amount. At H1 FY20, the key
sensitivities in the redress calculation are considered to be
claims upheld and average redress amount, as volumes are now known
with more certainty.
26 weeks 26 weeks 52 weeks to
to 31 August to 01 Sept 02 March 2019
2019 2018
GBPm GBPm GBPm
+/- 0% (FY19, 10%) in claims volumes - +/-2.0 +/-1.3
+/- 10% claims upheld (FY19 HY,
5% uphold rate) +/-3.3 +/-0.1 +/-1.1
+/- 10% in average redress amount +/-3.3 +/-0.6 +/-1.3
Store Closures
At the end of HY19, the decision was made to close all stores
and these were subsequently closed in August 2018. The provision
was made in respect of onerous lease obligations (which will run to
the earlier of the break clause or lease expiry for all stores) and
other related store closure costs. The majority of these were
settled in FY19, other than the onerous lease provision which will
run to the earlier of the break clause or lease expiry for all
stores. The provision is net of an estimate of potential
sub-letting income.
14. Trade and other payables
31 August 2019 1 Sept 2018
GBPm GBPm
Trade payables 78.6 99.7
Other creditors 8.5 0.2
Accruals and deferred income 39.5 34.9
126.6 134.8
--------------- ------------
'Other creditors' include a net VAT creditor, comprising the VAT
debtor which arises from day to day trading together with amounts
in relation to matters which are in dispute with HMRC. The Group
has been in ongoing discussions with HMRC in respect of a number of
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 VAT, excluding the issue mentioned below, the
Group has provided a total of GBP0.8m (HY19: GBP3.1m) 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 has
been in a long running dispute with HMRC with respect to the VAT
treatment of certain marketing costs and the allocation of those
costs between our retail and credit businesses.
The case in respect of marketing costs was heard by the first
tier tribunal in May 2018 with a draft decision issued in November
2018 and published in March 2019.
The case has two key aspects, being attribution which is in
respect of whether marketing costs can be directly attributed to
product revenue or financial services income and secondly
apportionment which is surrounding the allocation of marketing
costs between the retail and financial services business. With
respect to attribution, the judge agreed with HMRC, finding that
when the Group is marketing goods it is also in effect marketing
financial services, even if there is no reference to this in its
marketing materials. The judge however ruled against HMRC's
standard method of apportionment of costs (which is based on the
proportion of total UK revenue which is generated from product
sales).
Since this date the Group has been in discussions with HMRC to
settle this matter and whilst substantial progress has been made, a
final binding agreement has not yet been reached.
As at 31 August 2019, the Group holds a creditor of GBP7.9m
(GBP6.6m at 2 March 2019) in respect of this matter, with the
increase since year end arising due to the Group having not yet
been assessed in relation to the quarter ended May 2019. For the
VAT quarter ended 31 August 2019, it is envisaged that the final
settlement for this quarter will be in line with the amounts paid
to date so no further provision is required.
Based upon the latest discussions with HMRC and external advice
received by management, the Directors estimate that a favourable
outcome could result in a cash outflow of GBP3.4m and an associated
credit to the income statement of GBP4.5m, whilst an unfavourable
outcome could result in a cash outflow of GBP9.9m and an associated
charge to the income statement of GBP2.0m.
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) (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 10(th)
October 2019.
Stephen Johnson Craig Lovelace
Chief Executive Chief Financial Officer
INDEPENT 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
six months ended 31 August 2019 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 six months ended 31
August 2019 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.
The impact of uncertainties due to the UK exiting the European
Union on our review
Uncertainties related to the effects of Brexit are relevant to
understanding our review of the condensed financial statements.
Brexit is one of the most significant economic events for the UK,
and at the date of this report its effects are subject to
unprecedented levels of uncertainty of outcomes, with the full
range of possible effects unknown. An interim review cannot be
expected to predict the unknowable factors or all possible future
implications for a company and this is particularly the case in
relation to Brexit.
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 note 1, 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 to 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
10(th) October 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BCBDGDUGBGCC
(END) Dow Jones Newswires
October 10, 2019 02:00 ET (06:00 GMT)
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