REG - Brown (N.) Group PLC - Final Results <Origin Href="QuoteRef">BWNG.L</Origin> - Part 2
27/04/2017 07:08
- Part 2: For the preceding part double click ID:nRSa4728Da
11 73.5 76.7
Retirement benefit surplus 8.3 10.8
Deferred tax assets 2.4 3.9
226.1 216.3
Current assets
Inventories 105.5 101.5
Trade and other receivables 12 575.4 553.4
Current tax asset - 5.3
Derivative financial instruments 7 2.5 2.2
Cash and cash equivalents 64.1 45.3
747.5 707.7
Total assets 973.6 924.0
Current liabilities
Trade and other payables (98.9) (99.7)
Provisions 13 (15.6) -
Current tax liability (13.4) -
(127.9) (99.7)
Net current assets 619.6 608.0
Non-current liabilities
Bank loans (355.0) (335.0)
Provisions 13 (4.3) -
Deferred tax liabilities (8.2) (13.3)
(367.5) (348.3)
Total liabilities (495.4) (448.0)
Net assets 478.2 476.0
Equity
Share capital 31.3 31.3
Share premium account 11.0 11.0
Own shares (0.1) (0.2)
Foreign currency translation reserve 2.3 1.8
Retained earnings 433.7 432.1
Total equity 478.2 476.0
Unaudited condensed consolidated cash flow statement for the 53 weeks ended 4
March 2017
53 weeks to 52 weeks to
04-Mar-17 27-Feb-16
£m £m
Net cash from operating activities 89.0 64.5
Investing activities
Purchases of property, plant and equipment (3.7) (12.1)
Purchases of intangible assets (38.6) (46.1)
Net cash used in investing activities (42.3) (58.2)
Financing activities
Interest paid (7.8) (9.6)
Dividends paid (40.2) (40.2)
Increase in bank loans 20.0 48.0
Purchase of shares by ESOT - (0.4)
Proceeds on issue of shares held by ESOT 0.1 0.8
Net cash used in financing activities (27.9) (1.4)
Net increase in cash and cash equivalents 18.8 4.9
Opening cash and cash equivalents 45.3 40.4
Closing cash and cash equivalents 64.1 45.3
Reconciliation of operating profit to net cash from operating activities
53 weeks to 52 weeks to
04-Mar-17 27-Feb-16
£m £m
Operating profit from continuing operations 65.1 79.2
Operating (loss) from discontinued operations - (0.7)
Adjustments for:
Depreciation of property, plant and equipment 6.9 6.0
Loss on disposal of property, plant and equipment - 0.7
Amortisation of intangible assets 20.7 19.2
Share option charge 0.5 2.2
Operating cash flows before movements in working capital 93.2 106.6
Increase in inventories (4.0) (6.7)
(Increase)/decrease in trade and other receivables (21.6) 0.9
Decrease in trade and other payables (0.2) (12.2)
Increase in provisions 19.9 -
Pension obligation adjustment (0.2) (1.7)
Cash generated by operations 87.1 86.9
Taxation received/(paid) 1.9 (22.4)
Net cash from operating activities 89.0 64.5
Unaudited condensed consolidated statement of changes in equity for the 53
weeks ended 4 March 2017
Share Share Own Foreign currencytranslation Retained
capital premium shares reserve earnings Total
£m £m £m £m £m £m
Changes in equity for the 53 weeks to 4 March 2017
Balance as at 28 February 2015 31.3 11.0 (0.3) 1.0 407.0 450.0
Total comprehensive income for the period
Profit for the period - - - - 54.3 54.3
Other items of comprehensive income for the period - - - 0.8 10.0 10.8
Total comprehensive income for the period - - - 0.8 64.3 65.1
Transactions with owners recorded directly in equity
Equity dividends - - - - (40.2) (40.2)
Purchase of own shares by ESOT - - (0.4) - - (0.4)
Issue of own shares by ESOT - - 0.5 - - 0.5
Adjustment to equity for share payments - - - - 0.3 0.3
Share option charge - - - - 2.2 2.2
Tax on items recognised directly in equity - - - - (1.5) (1.5)
Total comprehensive income for the period - - 0.1 - (39.2) (39.1)
Balance as at 27 February 2016 31.3 11.0 (0.2) 1.8 432.1 476.0
Total comprehensive income for the period
Profit for the period - - - - 44.3 44.3
Other items of comprehensive income for the period - - - 0.5 (2.5) (2.0)
Total comprehensive income for the period - - - 0.5 41.8 42.3
Transactions with owners recorded directly in equity
Equity dividends - - - - (40.2) (40.2)
Issue of own shares by ESOT - - 0.1 - - 0.1
Share option charge - - - - 0.5 0.5
Tax on items recognised directly in equity - - - - (0.5) (0.5)
Total comprehensive income for the period - - 0.1 - (40.2) (40.1)
Balance as at 4 March 2017 31.3 11.0 (0.1) 2.3 433.7 478.2
Notes to the unaudited condensed consolidated financial statements for the 53
weeks ended 4 March 2017
1. Basis of preparation
The group's financial statements for the 53 weeks ended 4 March 2017 will be
prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted for use in the EU.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with IFRS, this announcement does not itself
contain sufficient information to comply with IFRS. As such, these do not
constitute the group's statutory accounts and the group expects to publish
full financial statements that comply with IFRS in May 2017.
The accounting policies and presentation adopted in the preparation of the
condensed consolidated financial statements are consistent with those
disclosed in the published annual report & accounts for the 52 weeks ended 27
February 2016.
There have been no new or revised accounting standards applied in the 53 weeks
ended 4 March 2017.
2. Key risks and uncertainties
There are a number of potential risks and uncertainties which could have an
impact on the group's long-term performance over the next 12 months. The
directors routinely monitor all risks and uncertainties taking appropriate
actions to mitigate where necessary. The key risks which have been identified
as potentially having a material impact on the performance of the group are as
follows: business change/transformation unsuccessful; business continuity and
cyber-security; regulatory environment; taxation and general competition.
A key risk facing the business is the successful delivery of the group's
transformation project, Fit 4 for the Future. Whilst the implementation
continues to be on time and on budget any potential delays could impact on the
level of future benefits which are expected to arise from the project.
Business interruption events are an ever present possibility for the Group.
Potential impacts are broad ranging and include short term disruption to trade
and customer service resulting in an impact on revenue, margin and reputation.
In addition, our increased online presence and reliance on digital systems
raises the importance of cyber security to the Group. Forthcoming regulations
in respect of data protection increase the Group's focus in this area.
Business continuity plans are in place and the group has further migrated IT
systems and data security risk within the business through outsourcing IT
services to a specialist IT service provider.
Recent and upcoming changes in regulation are a key consideration for the
Group. Potential impacts arising from changes in regulation are: increased
costs, erosion of margins and potential fines or reputational damage if
response plans are not achieved.
The group continues to have a number of open taxation positions and the
calculation of the group's potential taxation liabilities or assets
necessarily involves a significant degree of estimation and judgment until
resolution has been resolved with HMRC or through recourse to litigation.
Competing effectively across the key areas of Product, Financial Services and
Customer Services remains a key driver of customer recruitment and retention.
Potential consequences of competition include; loss of market share, erosion
of margins and a fall in customer satisfaction. Given the uncertain
macro-economic backdrop, which particularly impacts on the business though
input cost inflation, remaining competitive is even more important in order to
deliver growth.
3. Going concern
In determining whether the group's accounts can be prepared on a going concern
basis, the directors considered the group's business activities together with
factors likely to affect its future development, performance and financial
position including cash flows, liquidity position, borrowing facilities and
the principal risks and uncertainties relating to its business activities.
The directors have considered carefully its cash flows and banking covenants
for the next twelve months from the date of approval of the group's
preliminary results. Conservative assumptions for working capital performance
have been used to determine the level of financial resources available to the
group and to assess liquidity risk.
The group's forecasts and projections, after sensitivity to take account of
all reasonably foreseeable changes in trading performance, show that the group
will have sufficient headroom within its current loan facilities of £405m -
which are committed until August 2020 - and its £20m overdraft facility.
After making appropriate enquiries, the directors have a reasonable
expectation that the group has adequate resources to continue in operational
existence. Accordingly, they continue to adopt the going concern basis in the
preparation of the interim financial statements.
Notes to the unaudited condensed consolidated financial statements for the 53
weeks ended 4 March 2017
4. Business segment
The group has one reportable segment in accordance with IFRS8 - Operating
Segments which is the Home Shopping segment.
The group's board receives monthly financial information at this level and
uses this information to monitor the performance of the Home Shopping segment,
allocate resources and make operational decisions. Internal reporting focuses
on the group as a whole and does not identify individual segments. To increase
transparency, the group has decided to include an additional voluntary
disclosure analysing product revenue within the reportable segment, by brand
categorisation and product type categorisation.
53 weeks to 52 weeks to
04-Mar-17 27-Feb-16
£m £m
Analysis of revenue - Home shopping
Product 635.9 606.6
Financial services 264.8 259.6
900.7 866.2
Analysis of cost of sales - Home shopping
Product (288.2) (265.7)
Financial services (117.3) (117.9)
(405.5) (383.6)
Gross profit 495.2 482.6
Gross margin - Product 54.7% 56.2%
Gross margin - Financial Services 55.7% 54.6%
Warehouse & fulfilment (81.3) (76.7)
Marketing & production (165.4) (161.7)
Depreciation & amortisation (27.6) (25.2)
Other admin & payroll (130.6) (122.6)
Operating profit before exceptional items 90.3 96.4
Exceptional items (see note 5) (25.2) (17.2)
Segment result & operating profit - Home shopping 65.1 79.2
Finance costs (7.7) (8.1)
Fair value adjustments to financial instruments 0.2 1.1
Profit before taxation 57.6 72.2
Notes to the unaudited condensed consolidated financial statements for the 53
weeks ended 4 March 2017
4. Business segment (continued)
53 weeks to 52 weeks to
04-Mar-17 27-Feb-16
£m £m
Analysis of product revenue by brand
JD Williams 160.5 151.2
Simply Be 115.8 103.9
Jacamo 66.2 62.8
Power brands 342.5 317.9
Traditional segment 136.1 136.0
Secondary brands 157.3 152.7
Total product revenue - Home shopping 635.9 606.6
Analysis of product revenue by category
Ladieswear 260.0 246.1
Menswear 87.0 82.0
Footwear & accessories 70.0 68.5
Home & gift 218.9 210.0
Total product revenue - Home shopping 635.9 606.6
We have reclassified accessories from ladieswear to footwear FY17 and restated the comparatives by £4.7m.
The group has one significant geographical segment, which is the United Kingdom.
Revenue derived from international markets amounted to £35.8m (FY16, £31.9m) and they generated operating profits of £1.9m (FY16, losses £0.1m). All segment assets are located in the UK, Ireland and US.
5. Exceptional items
53 weeks to 52 weeks to
04-Mar-17 27-Feb-16
£m £m
Strategy costs - 7.6
External costs related to taxation matters 2.5 1.6
Clearance store closures (credits)/costs (0.2) 8.0
Financial services customer redress 22.9 -
25.2 17.2
Notes to the unaudited condensed consolidated financial statements for the 53
weeks ended 4 March 2017
5. Exceptional items (continued)
An exceptional charge of £22.9m was recognised during the period (FY16, £nil)
reflecting the costs incurred or expected to be incurred in respect of
payments for historic financial services customer redress payments. Of the
amount charged in the period the Group has made cash payments totalling £3.0m
(FY16, £nil). See note 13.
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. Of the
amount charged in the period the Group has made related cash payments of £1.9m
(FY16, £1.6m).
Following the closure of the Group's retail clearance stores in FY16 an
exceptional cost of £8.0m was recognised in respect of stock write downs,
onerous lease provisions and other related closure costs. Following the exit
of the remaining store leases a credit of £0.2m has been recognised to reflect
the final exit cost being below that originally anticipated.
Strategy costs incurred in FY16 related to group re-organisation costs and
outsourcing of IT maintenance.
6. Discontinued operations
Following a review of the business and its future profit potential, the board
decided in January 2015 to close the Gray & Osbourn catalogue business.
The results of the discontinued operation, which have been included in the
consolidated income and cashflow statement, were as follows:
53 weeks to 52 weeks to
04-Mar-17 27-Feb-16
£m £m
Revenue - 4.3
Expenses - (5.0)
Loss before tax - (0.7)
Attributable tax credit - 0.1
Net loss attributable to discontinued operations - (0.6)
There was no contribution to the group's profit or cash flows from the discontinued activity FY17. 7. Derivative financial instruments At the balance sheet date, details of outstanding forward foreign exchange contracts that the group has committed to are as follows:
53 weeks to 52 weeks to
04-Mar-17 27-Feb-16
£m £m
Notional Amount - Sterling contract value 94.2 21.5
Fair value of asset recognised 2.5 2.2
Notes to the unaudited condensed consolidated financial statements for the 53
weeks ended 4 March 2017
7. Derivative financial instruments (continued)
Changes in the fair value of assets recognised, being non-hedging currency
derivatives, amounted to a credit of £0.2m (FY16, credit of £1.1m) to income
in the period.
The fair value of foreign currency derivatives contracts is their market value
at the balance sheet date. Market values are based on the duration of the
derivative instrument together with the quoted market data including interest
rates, foreign exchange rates and market volatility at the balance sheet
date.
The financial instruments that are measured subsequent to initial recognition
at fair value are all grouped into Level 2 (FY16, same).
Level 2 fair value measurements are those derived from inputs other than
quoted prices included within Level 1 that are observable for the asset or the
liability, either directly (ie as prices) or indirectly (ie derived from
prices).
There were no transfers between Level 1 and Level 2 in the period (FY16,
same).
8. Taxation
The effective rate of corporation tax for the year from continuing activities
is 23.1% (FY16, 23.9%) reflecting additional provisions in relation to certain
outstanding items with HMRC. We expect our tax rate for the year ahead to
continue to be aligned with the UK statutory rate which reduces to 19% in
FY18.
The Group has on-going discussions with HMRC in respect of a number of
Corporation tax and VAT positions. The calculation of the Group's potential
liabilities or assets in respect of these involves a degree of estimation and
judgement in respect of items whose tax treatment cannot be finally determined
until resolution has been reached with HMRC or, as appropriate, through legal
processes. Issues can, and often do, take a number of years to resolve.
In respect of Corporation tax, as at 4 March 2017 the Group has provided a
total of £3.6m (FY16: £nil) for potential corporation tax future charges based
upon the Group's best estimation and judgement and, where appropriate, legal
counsels opinion.
In respect of VAT, the Group has provided a total of £5.4m (FY16: £5.4m) in
respect of future payments which the Directors' have a reasonable expectation
of making in settlement of these historical positions.
In addition and separate to the above positions, the Group continues to be in
discussion with HMRC in relation to the VAT consequences of the allocation of
marketing costs between our retail and credit businesses. At this stage it is
not possible to determine how the matter will be resolved. However within our
year end VAT debtor is an asset of £36.0m (FY16: £21.7m) which has arisen as a
result of cash payments made under protective assessments raised by HMRC and
the Group estimates that a further £10m could be paid under this assessment in
the forthcoming year. Based on legal counsel's opinion, we believe that we
will recover this amount in full from HMRC and we are engaged in legal process
to do so.
The inherent uncertainty regarding the outcome of these positions means the
eventual realisation could differ from the accounting estimates and therefore
impact the Group's future results and cash flows. Based upon the amounts
reflected in the balance sheet as at 4 March 2017, the Directors estimate that
the unfavourable settlement of these cases could result in a charge to the
income statement of up to £43.3m (including the full write off of the VAT
debtor noted above) and a cash payment to HMRC of up to £16.0m. The favourable
settlement of these cases would result in a repayment of tax of up to £54.1m
and an associated credit to the income statement of up to £29.0m.
Notes to the unaudited condensed consolidated financial statements for the 53
weeks ended 4 March 2017
9. 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
calculated to allow the 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 53 weeks to 52 weeks to
04-Mar-17 27-Feb-16
£m £m
Total net profit attributable to equity holders of the parent for the purpose of basic and diluted earnings per share 44.3 54.3
Adjustments to exclude loss for the period from discontinued operations - 0.6
Total net profit attributable to equity holders of the parent for the purpose of basic
and diluted earnings per share excluding discontinued operations 44.3 54.9
Fair value adjustment to financial instruments (net of tax) (0.2) (0.9)
Exceptional items (net of tax) 20.2 13.8
Total net profit attributable to equity holders of the parent for the purpose of basic and diluted adjusted earnings per share excluding discontinued operations 64.3 67.8
Number of shares 53 weeks to 52 weeks to
04-Mar-17 27-Feb-16
No. ('000s) No. ('000s)
Weighted average number of shares in issue for the purpose of basic earnings per share 282,701 282,316
Effect of dilutive potential ordinary shares:
Share options 252 245
Weighted average number of shares in issue for the purpose of diluted earnings per share 282,953 282,561
Earnings per share from continuing and discontinued operations
Basic 15.67p 19.23p
Diluted 15.66p 19.22p
Earnings per share from continuing operations
Basic 15.67p 19.45p
Diluted 15.66p 19.43p
Adjusted earnings per share from continuing operations
Basic 22.74p 24.02p
Diluted 22.72p 23.99p
Earnings per share from discontinued operations
Basic - p (0.22)p
Diluted - p (0.21)p
Notes to the unaudited condensed consolidated financial statements for the 53
weeks ended 4 March 2017
10. Intangible assets
Customer
Brands Software database Total
£m £m £m £m
Cost
As at 28 February 2015 16.9 210.9 1.9 229.7
Additions - 45.8 - 45.8
As at 27 February 2016 16.9 256.7 1.9 275.5
Additions - 37.7 - 37.7
As at 4 March 2017 16.9 294.4 1.9 313.2
Accumulated Amortisation and impairment
As at 28 February 2015 8.0 121.5 1.9 131.4
Charge for the period - 19.2 - 19.2
As at 27 February 2016 8.0 140.7 1.9 150.6
Charge for the period - 20.7 - 20.7
As at 4 March 2017 8.0 161.4 1.9 171.3
Carrying amounts
As at 4 March 2017 8.9 133.0 - 141.9
As at 27 February 2016 8.9 116.0 - 124.9
As at 28 February 2015 8.9 89.4 - 98.3
Assets in the course of construction included in intangible assets at the
period end total £88.8m (FY16, £55.3m), of which £83.4m relates to the Fit for
the Future project (FY16, £50.8m). No amortisation is charged on these assets.
All software additions relate to internal development. Borrowing costs of
£1.3m (FY16 £nil) have been capitalised in the period using the weighted
average bank loan interest rate applied to the capitalised spend on the Fit 4
the Future project. In addition the Group has spend of £16.7m (FY16 £16.5m)
that relates to F4F assets which are now in use and therefore being
amortised.
As at 4 March 2017, the Group had entered into contractual commitments for the
further development of intangible assets of £3.0m (FY16: £3.4m) of which £1.0m
(FY16: £0.9m) is due to be paid within 1 year.
Impairment testing of software intangible assets
The Group is currently undertaking a systems transformation project, Fit 4 the
Future. Elements of the project are not yet available for use and are not
therefore being amortised. Where intangible assets are not being amortised
management have tested for impairment with the recoverable amount being
determined from the value in use calculations.
The value in use calculations use cash flows based on budgets prepared by
management covering a three year period. These budgets have regard to historic
performance and knowledge of the current market, together with managements
views on the future achievable growth and impact of the Fit 4 the Future
project. Cash flows beyond this three year period are extrapolated using a
long term growth rate to 5 years at which point a terminal value has been
calculated based upon the long term growth rate and the Group's risk adjusted
pre-tax discount rate.
Other than the detailed budgets, the key assumptions in the value in use
calculations are the long-term growth rate and the risk adjusted pre-tax
discount rate. The long-term growth rate has been determined with reference to
forecast GDP growth which management believe is the most appropriate indicator
of long-term growth rates that is available. The long-term growth rate used is
purely for the impairment testing of intangible assets and and brands under
IAS 36 'Impairment of Assets' and does not reflect long-term planning
assumptions used by the Group for investment proposals or for any other
assessments. The pre-tax discount rate is based on the Group's weighted
average cost of capital, taking into account the cost of capital and
borrowings, to which specific market-related premium adjustments are made. The
value attributed to the key assumptions are as follows:
- Long term growth rate: 1.9% (FY16: 2.7%)
- Pre tax discount rate: 11.6% (FY16: 8.0%)
The analysis performed indicates that no impairment is required. A sensitivity
analysis has been performed on each of these key assumptions with other
variables held constant. Management have concluded that there are no
reasonably possible changes in these key assumptions that would cause the
carrying value to exceed the value in use.
Notes to the unaudited condensed consolidated financial statements for the 53
weeks ended 4 March 2017
10. Intangible assets (continued)
Impairment testing of brand intangibles
The brand names arising from the acquisitions of High and Mighty, Slimma,
Figleaves, Diva and Dannimac are deemed to have indefinite lives as there are
no foreseeable limits to the periods over which they are expected to generate
cash inflows and are therefore subject to annual impairment tests with the
recoverable amount being determined from the value in use calculations.
The value in use calculations use cash flows based on budgets prepared by
management covering a three year period. These budgets have regard to historic
performance and knowledge of the current market, together with managements
views on the future achievable growth. Cash flows beyond this three year
period are extrapolated using a long term growth rate to 5 years at which
point a terminal value has been calculated based upon the long term growth
rate and the Group's risk adjusted pre-tax discount rate
Other than the detailed budgets, the key assumptions in the value in use
calculations are the long-term growth rate and the risk adjusted pre-tax
discount rate which management have assumed to be 1.9% (FY16: 2.7%) and 12.5%
(FY16: 8.0%) respectively.
The analysis performed indicates that no impairment is required. A sensitivity
analysis has been performed on each of these key assumptions with other
variables held constant. Management have concluded that there are no
reasonably possible changes in these key assumptions that would cause the
carrying value to exceed the value in use.
11. Property, plant and equipment
Land and Fixtures and
buildings equipment Total
£m £m £m
Cost
As at 28 February 2015 53.2 124.4 177.6
Additions - 12.9 12.9
Disposals - (2.4) (2.4)
As at 27 February 2016
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