I don’t make this accusation likely, unless the probability is likely.

There are two charges against N Brown: - 

One is they appear to under amortized their intangibles. 

Two, they appear to exempt certain assets from depreciating leading to a possible over capitalizing of expenses

Here is the screenshot of N Brown policies on intangibles assets:

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Take note of the amortisation period.

Also, there is a screenshot on a certain type of asset being exempt from depreciation.

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The asset is labelled as “Course of Construction.”

P.S. N Brown intangibles assets labeled as "BRANDS" and "Customer database" is exempt because N Brown didn't place any charges. But, also their values are small. 

We focusing on the main asset: SOFTWARE. 

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And since 2012, N Brown could have understated its charges by £112m. 

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Over-capitalization of expenses help to reduce costs in the P&L Accounts, but leads to consequences of a future write-offs on their intangibles. 

Here is an another screenshot showing the company stating that their main roll-out, which is Fit 4 the future (that dominates most of the course of construction assets) to begin in late 2016. Now, that been pushed back to: "Fit 4 the Future systems project remains on track for completion by Summer 2018." - Company's full-year results 2017. 

Also, N Brown revenue has not been growing at the same pace as its intangible assets. If you take intangible assets and sales to make intangible asset turnover, you get this from N Brown: bU9yDFd.jpg

It is another indication of over valuing their assets. 


N Brown’s Intangible Assets – What happens next?

Assuming 2018 is the date when new software upgrade becomes operational, a jump in amortisation charge is inevitable.

Workings

Original Software cost is £294m from today’s results. Management says 2018’s guidance is £40m capex. Assume 90% goes to intangibles (following last year distribution), then the Original Software Cost comes to £330m.

Assume Course of Construction rise to £105m from £88m (rough estimate).

How much does amortisation charges rise?

From 2016’s annual report, N Brown has stated the amortisation period is seven years, a rate of 14.2%.

So, £105m multiply by 0.142 = £14.91m.


But, what about the dividends payments and capex spending that N Brown is able to…

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