REG - Brown (N.) Group PLC - Half-year Report <Origin Href="QuoteRef">BWNG.L</Origin> - Part 2
12/10/2017 07:06
- Part 2: For the preceding part double click ID:nRSL3770Ta
Accordingly,theycontinuetoadoptthegoingconcernbasisinthepreparationoftheinterimfinancialstatements.
4. Businesssegments 26 weeksto 26 weeksto 53 weeksto
02-Sep-17 27-Aug-16 04-Mar-17
£m £m £m
Analysisofrevenue-Homeshopping
Product 323.5 300.9 635.9
Financialservices 129.9 128.5 264.8
453.4 429.4 900.7
Analysisofcostofsales-Homeshopping
Product (148.7) (132.8) (288.2)
Financialservices (56.4) (57.8) (117.3)
(205.1) (190.6) (405.5)
Grossprofit 248.3 238.8 495.2
Gross margin -Product 54.0% 55.9% 54.7%
Gross margin - FinancialServices 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)
Operatingprofitbeforeexceptionals 36.1 35.5 90.3
Exceptional items (see note5) (54.9) (10.2) (25.2)
Segmentresult&operating(loss)/profit-Homeshopping (18.8) 25.3 65.1
Financecosts (3.9) (3.9) (7.7)
Fair value adjustments to financialinstruments (4.9) (0.3) 0.2
(Loss) / Profit beforetaxation (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 toinclude
an additional voluntary disclosure analysing product revenue within the reportable segment, by brand categorisation and
product typecategorisation.
26 weeksto 26 weeksto 53 weeksto
02-Sep-17 27-Aug-16 04-Mar-17
£m £m £m
Analysis of product revenue bybrand
JDWilliams 81.1 75.8 160.5
SimplyBe 64.5 53.3 115.8
Jacamo 33.5 31.4 66.2
Powerbrands 179.1 160.5 342.5
Traditionalsegment 68.1 65.2 136.1
Secondarybrands 76.3 75.2 157.3
Total product revenue - Homeshopping 323.5 300.9 635.9
Analysis of product revenue bycategory
Ladieswear 143.4 130.9 260.0
Menswear 44.9 42.4 87.0
Footwear andaccessories 38.7 34.2 70.0
Home andgift 96.5 93.4 218.9
Total product revenue - Homeshopping 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£3.4m.
The group has one significant geographical segment, which is the United Kingdom.
Revenue derived from international markets amounted to £18.7m (H1 FY17, £17.2m).
All segment assets are located in the UK, Ireland and USA. The assets in USA and Ireland total £8.5m (H1 FY17,£7.9m)
5. Exceptionalitems
26 weeksto 26 weeksto 53 weeksto
02-Sep-17 27-Aug-16 04-Mar-17
£m £m £m
External costs related to taxationmatters 1.1 1.2 2.5
Store closure costs /(credits) 13.8 - (0.2)
Financial services customerredress 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 £40.0m was recognised during the period.
During the previous year, an exceptional charge of £22.9m (H1 FY17 £9.0m) 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 £13.8m 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
Atthebalancesheetdate,detailsofoutstandingforwardforeignexchangecontractsthatthegrouphascommittedtoareasfollows:
26 weeksto 26 weeksto 53 weeksto
02-Sep-17 27-Aug-16 04-Mar-17
£m £m £m
Notional Amount - Sterling contractvalue 148.5 45.5 94.2
Fair value of asset recognised - 1.9 2.5
Fair value of (liability)recognised (2.4) - -
Changesinthefairvalueofassets/(liabilities)recognised,beingnon-hedgingcurrencyderivatives,amountedtoachargeof£4.9m
(H1FY17,£0.3m)toincomeintheperiod.
Thefairvalueofforeigncurrencyderivativescontractsistheirmarketvalueatthebalancesheetdate.Marketvaluesarebasedonthe
durationofthederivativeinstrumenttogetherwiththequotedmarketdataincludinginterestrates,foreignexchangeratesandmarket
volatilityatthebalancesheetdate.
The financial instruments that are measured subsequent to initial recognition at fair value are all grouped into Level 2 (H1 FY17,same).
Level2fairvaluemeasurementsarethosederivedfrominputsotherthanquotedpricesincludedwithinLevel1thatareobservablefor
theassetortheliability,eitherdirectly(ieasprices)orindirectly(iederivedfromprices).TherewerenotransfersbetweenLevel1and
Level 2 during the period (H1 FY17,same).
7.Taxation
Thetaxationcreditforthe26weeksended2September2017isbasedontheestimatedeffectivetaxrateforthefullyearof23.2%
(H1 FY17,20%).
TheGrouphason-goingdiscussionswithHMRCinrespectofanumberofCorporationtaxandVATpositions.Thecalculationofthe
Group'spotentialliabilitiesorassetsinrespectoftheseinvolvesadegreeofestimationandjudgementinrespectofitemswhosetax
treatmentcannotbefinallydetermineduntilresolutionhasbeenreachedwithHMRCor,asappropriate,throughlegalprocesses.Issues
can,andoftendo,takeanumberofyearstoresolve.
InrespectofCorporationtax,asat2September2017theGrouphasprovidedatotalof£4.6m(FY17:£3.6m)forpotentialcorporationtax
futurechargesbasedupontheGroup'sbestestimationandjudgementand,whereappropriate,legalcounselsopinion.
InrespectofVAT,theGrouphasprovidedatotalof£5.4m(FY17:£5.4m)inrespectoffuturepaymentswhichtheDirectors'havea
reasonable expectation of making in settlement of these historicalpositions.
Inaddition,andseparatetotheabovepositions,theGroupcontinuestobeindiscussionwithHMRCinrelationtotheVATconsequences
oftheallocationofmarketingcostsbetweenourretailandcreditbusinesses.Atthisstageitisnotpossibletodeterminehowthe
matter will beresolved.
However,withinourhalfyearendVATdebtorisanassetof£36.0m(FY17:£36.0m)whichhasarisenasaresultofcashpayments
madeunderprotectiveassessmentsraisedbyHMRCandtheGroupestimatesthatafurther£10mcouldbepaidunderthisassessment
intheforthcomingyear.Basedonlegalcounsel'sopinion,webelievethatwewillrecoverthisamountinfullfromHMRCandwe
are engaged in a legal process to doso.
Theinherentuncertaintyregardingtheoutcomeofthesepositionsmeanstheeventualrealisationcoulddifferfromtheaccountingestimates
andtherefore,impacttheGroup'sfutureresultsandcashflows.Basedupontheamountsreflectedinthebalancesheetasat
2September2017,theDirectorsestimatethattheunfavourablesettlementofthesecasescouldresultinachargetotheincome
statementofupto£46.8m(includingthefullwriteoffoftheVATdebtornotedabove)andacashpaymenttoHMRCofupto£22.7m.
Thefavourablesettlementofthesecaseswouldresultinarepaymentoftaxofupto£53.1mandanassociatedcredittotheincome
statementofupto£29.0m.
8. (Loss) / Earnings pershare
Earnings 26 weeksto 26 weeksto 53 weeksto
02-Sep-17 27-Aug-16 04-Mar-17
£m £m £m
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 oftax) 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 ofshares 26 weeksto 26 weeksto 53 weeksto
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 pershare 282,795 282,613 282,701
Effect of dilutive potential ordinary shares:
Shareoptions - 101 252
Weighted average number of shares in issue for thepurpose
of diluted earnings pershare 282,795 282,714 282,953
(Loss) / Earnings pershare
Basic (7.50) p 5.98 p 15.67 p
Diluted (7.50) p 5.98 p 15.66 p
Adjusted earnings pershare
Basic 8.77 p 8.95 p 22.74 p
Diluted 8.77 p 8.95 p 22.72 p
9. Intangibleassets
Customer
Brands Software database Total
£m £m £m £m
Cost
At 27 February2016 16.9 256.7 1.9 275.5
Additions - 16.5 - 16.5
At 27 August2016 16.9 273.2 1.9 292.0
Additions - 21.2 - 21.2
At 4 March2017 16.9 294.4 1.9 313.2
Additions - 21.6 - 21.6
At 2 September2017 16.9 316.0 1.9 334.8
Amortisation
At 27 February2016 8.0 140.7 1.9 150.6
Charge for theperiod - 10.9 - 10.9
At 27 August2016 8.0 151.6 1.9 161.5
Charge for theperiod - 9.8 - 9.8
At 4 March2017 8.0 161.4 1.9 171.3
Charge for theperiod - 10.1 - 10.1
At 2 September2017 8.0 171.5 1.9 181.4
Carryingamounts
At 2 September2017 8.9 144.5 - 153.4
At 4 March2017 8.9 133.0 - 141.9
At 27 August2016 8.9 121.6 - 130.5
AssetsinthecourseofconstructionincludedinintangibleassetsatH1FY18total£106.1m(H1FY17,£69.3m),of
which£100.4mrelatestotheFitfortheFutureproject(H1FY17,£65.7m).Noamortisationischargedontheseassets
until they are available foruse.
InadditiontheGrouphasspendof£16.7m(H1FY17£16.7m)thatrelatestoF4Fassetswhicharenowinuseand
therefore beingamortised.
10. Property, plant andequipment
Additionstotangiblefixedassetsduringtheperiodof£0.6m(H1FY17,£2.7m)primarilyrelatetowarehousing.
Depreciationof£2.8m(H1FY17,£2.7m)waschargedduringtheperiod.
AssetsinthecourseofconstructionincludedinfixturesandequipmentatH1FY17total£0.4m(H1FY17,£0.9m),
andinlandandbuildingstotal£nil(H1FY17,£21.5m).Nodepreciationischargedontheseassetsuntiltheyare
available for commercialuse.
11. Trade and otherreceivables
02-Sep-17 27-Aug-16 04-Mar-17
£m £m £m
Amount receivable for the sale of goods andservices 611.5 601.8 599.5
Allowance for doubtfuldebts (62.8) (76.4) (64.7)
548.7 525.4 534.8
Other debtors andprepayments 45.9 36.3 40.6
594.6 561.7 575.4
Movement in the allowance for doubtfuldebts
Balance at the beginning of theperiod 64.7 97.6 97.6
Amounts charged to the incomestatement 54.3 55.1 113.5
Amounts writtenoff (56.2) (76.3) (146.4)
Balance at the end of theperiod 62.8 76.4 64.7
12.Dividends
Thedirectorshavedeclaredandapprovedaninterimdividendof5.67pencepershare(H1FY175.67p).
Thiswillbepaidon12January2018toshareholdersontheregisteratthecloseofbusinesson13December2017.
DuringH1FY18dividendsof£24.2mrelatingtoFY17werepaid.
13.Provisions
CustomerRedress StoreClosures Total
£m £m £m
Balanceat27February2016 - - -
Provisionsmadeduringtheperiod 9.0 - 9.0
Provisionsusedduringtheperiod (1.1) - (1.1)
Provisionsreversedthroughtheperiod - - -
Balanceat26August2016 7.9 - 7.9
Provisionsmadeduringtheperiod 13.9 - 13.9
Provisionsusedduringtheperiod (1.9) - (1.9)
Provisionsreversedthroughtheperiod - - -
Balance at 4 March2017 19.9 - 19.9
Provisionsmadeduringtheperiod 40.0 13.8 53.8
Provisionsusedduringtheperiod (6.5) (0.3) (6.8)
Provisionsreversedthroughtheperiod - - -
Balanceat2September2017 53.4 13.5 66.9
NonCurrent 25.0 4.7 29.7
Current 28.4 8.8 37.2
Balanceat2September2017 53.4 13.5 66.9
StoreClosures
Duringtheperiod,thedecisionwasmadetoclosefivelossmakingstoresandtheseweresubsequentlyclosedinAugust2017.
Thecostshavebeentreatedasanexceptionalitemanddetailedseparatelyontheincomestatementaspernote5.Theprovisionis
madeinrespectofonerousleaseobligationsandotherrelatedstoreclosurecosts.Itisexpectedthatthemajorityofthesecostswill
havebeensettledbytheyearendotherthantheonerousleaseprovisionwhichwillruntotheearlierofthebreakclauseorleaseexpiry
forallfivestores.Theprovisionisnetofanestimateofpotentialsub-lettingincome.
Customerredress
TheprovisionrelatestotheGroup'sliabilitiesinrespectofcostsexpectedtobeincurredinrespectofpaymentsforhistoric
financialservicescustomerredress,whichrepresentsthebestestimateoftheknownregulatoryobligations,takinginto
accountfactorsincludingriskanduncertainty.
Asat2September2017theGroupholdsaprovisionof£53.4m(H1FY17,£7.9m)inrespectoftheanticipatedcostsof
historicfinancialservicescustomerredress.Ofthisamount£40mrelatestocertaininsuranceproductswheremanagement
haveidentifiedflawsintheproductdesign,theremaining£13.4mrelatestohistoricalcustomerredress.Theseamountsinclude
aprovisionof£2.1minrelationtoadministrationexpenses.
Therearestillanumberofuncertaintiesastotheeventualcustomerredresscosts,inparticularthetotalnumberofclaims
andthecostperclaim,howevertheDirectorsbelievethattheamountsprovidedatthehalfyearend,basedonhistorical
andforecastedclaimratesandamounts,alongwithknownlegalandregulatoryobligations,appropriatelyreflectthecost
to theGroup.
Theprincipalsensitivitiesinthecustomerredresscalculationare:volumesofpoliciesaffected,claimrate,upholdrate
and average redressamount.
26 weeksto 26 weeksto 53 weeksto
02-Sep-17 27-Aug-16 04-Mar-17
£m £m £m
+/- 10% in claimsvolumes +/-0.7 +/-0.4 +/-0.7
+/- 5% in upholdrate +/-0.5 +/-0.3 +/-0.5
+/-10%inaverageredressamount +/-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 asadopted
by theEU
• the interim management report includes a fair review of the information requiredby:
(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.
AngelaSpindler CraigLovelace
ChiefExecutive Chief FinancialOfficer
Independent review report to N Brown Group plc
Conclusion
Wehavebeenengagedbythecompanytoreviewthecondensedsetoffinancialstatementsinthehalf-yearlyfinancialreportforthe26weeksended2September2017whichcomprisesthecondensedconsolidatedincomestatement,thecondensedconsolidatedstatementofcomprehensiveincome,thecondensedconsolidatedbalancesheet,thecondensedconsolidatedcashflowstatement,thecondensedconsolidatedstatementofchangesinequityandrelatedexplanatorynotes.
Basedonourreview,nothinghascometoourattentionthatcausesustobelievethatthecondensedsetoffinancialstatementsinthehalf-yearlyfinancialreportforthe26weeksended2September2017isnotprepared,inallmaterialrespects,inaccordancewithIAS34InterimFinancialReportingasadoptedbytheEUandtheDisclosureGuidanceandTransparencyRules("theDTR")oftheUK'sFinancialConductAuthority("theUKFCA").
Scope ofreview
WeconductedourreviewinaccordancewithInternationalStandardonReviewEngagements(UKandIreland)2410ReviewofInterimFinancialInformationPerformedbytheIndependentAuditoroftheEntityissuedbytheAuditingPracticesBoardforuseintheUK.Areviewofinterimfinancialinformationconsistsofmakingenquiries,primarilyofpersonsresponsibleforfinancialandaccountingmatters,andapplyinganalyticalandotherreviewprocedures.Wereadtheotherinformationcontainedinthehalf
-yearlyfinancialreportandconsiderwhetheritcontainsanyapparentmisstatementsormaterialinconsistencieswiththeinformationinthecondensedsetoffinancialstatements.
AreviewissubstantiallylessinscopethananauditconductedinaccordancewithInternationalStandardsonAuditing(UK)andconsequentlydoesnotenableustoobtainassurancethatwewouldbecomeawareofallsignificantmattersthatmightbeidentifiedin an audit. Accordingly, we do not express an auditopinion.
Directors'responsibilities
Thehalf-yearlyfinancialreportistheresponsibilityof,andhasbeenapprovedby,thedirectors.Thedirectorsareresponsibleforpreparingthehalf-yearlyfinancialreportinaccordancewiththeDTRoftheUKFCA
Asdisclosedinnote1,theannualfinancialstatementsofthegrouparepreparedinaccordancewithInternationalFinancialReportingStandardsasadoptedbytheEU.Thedirectorsareresponsibleforpreparingthecondensedsetoffinancialstatementsincludedinthehalf-yearlyfinancialreportinaccordancewithIAS34asadoptedbytheEU.
Ourresponsibility
Ourresponsibilityistoexpresstothecompanyaconclusiononthecondensedsetoffinancialstatementsinthehalf-yearlyfinancialreportbasedonourreview.
Thepurposeofourreviewworkandwhomweoweourresponsibilities
ThisreportismadesolelytothecompanyinaccordancewiththetermsofourengagementtoassistthecompanyinmeetingtherequirementsoftheDTRoftheUKFCA.Ourreviewhasbeenundertakensothatwemightstatetothecompanythosematterswearerequiredtostatetoitinthisreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthanthecompanyforourreviewwork,forthisreport,orfortheconclusionswehavereached.
StuartBurdass
for and behalf of KPMGLLP
CharteredAccountants
1 St Peter'sSquare
Manchester
M23AE
12 October2017
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