REG - Brown (N.) Group PLC - Half-year Report <Origin Href="QuoteRef">BWNG.L</Origin> - Part 2
11/10/2016 07:05
- Part 2: For the preceding part double click ID:nRSK1685Ma
are prepared in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the
condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied
in the preparation of the company's published consolidated financial statements for the year ended 27 February 2016. The
comparative figures for the financial year ended 27 February 2016, are extracted from, but are not 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.
Restatement
During the period ended 27 February 2016, the Group made a change to the technical interpretation of IAS 39, the details of
which are set out in the FY16 annual report.
The impact of the adjustment to reflect the revised interpretation of IAS 39 on the 26 week period ending 29 August 2015
is as follows:
Income statement As published Adjustments As restated
29-Aug-15 29-Aug-15
£m £m £m
Revenue 415.8 38.8 9.5 4.4 425.3
Operating profit 43.2
Other (19.4) 19.4 - 4.4 (19.4)
Profit before taxation 23.8
Taxation (3.8) (0.9) (4.7)
Profit from continuing operations 15.6 3.5 19.1
Loss from discontinued operations (0.2) 15.4 - 3.5 (0.2)
Profit attributable to equity holders of the parent 18.9
The impact of the restatement is to increase both basic and diluted earnings per share by 1.24 pence in HY16.
Balance sheet As published Adjustments As restated
29-Aug-15 29-Aug-15
£m £m £m
Trade and other receivables 589.1 (56.0) 533.1
Deferred tax asset 2.6 4.0 6.6
Other 319.5911.2 (10.3) -(52.0) 8.9 319.5
Total assets 859.2
Current tax liability (1.4)
Other (407.1)(417.4) 493.8 43.1 -8.9 (43.1) - (407.1)
Total liabilities (408.5)
Net assets 450.7
Other 43.1
Retained earnings 450.7493.8 (43.1)(43.1) 407.6
Total equity 450.7
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; cybersecurity; regulatory environment; taxation and credit risk management.
A key risk facing the business is the successful delivery of the group's transformation project, Fit 4 for the Future. The learnings from the slightly delayed launch of our new USA site have been reviewed and the launch of the first Power Brand has now moved to Q3 FY18.
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.
The group continues to review and develop its compliance with the CCA and submitted its application to the FCA for full authorisation in September 2015. The group obtained full authorisation in September 2016. The group has included on its balance sheet, a provision for 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.
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.
Provision is made for those items of inventory where the net realisable value is estimated to be lower than costs. Net realisable value is based on both historical experience and assumptions regarding future selling values and disposal channels, and is consequently a source of estimation uncertainty.
Finally, credit risk refers to the risk that a counter party will default on its contractual obligations resulting in a financial loss to the group. Whilst, all customers who wish to trade on credit terms are subject to credit verification procedures and the group's customer loan book continues to be tightly managed, there remains an inherent risk of bad debt write offs dependant of the ongoing profile of our customer base and new customer recruitment activities.
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 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.
4. Business segments 26 weeks to 26 weeks to 52 weeks to
27-Aug-16 29-Aug-15 27-Feb-16
£m £m £m
restated *
Analysis of revenue - Home shopping
Product 300.9 299.2 606.6
Financial services 128.5 126.1 259.6
429.4 425.3 866.2
Analysis of cost of sales - Home shopping
Product (132.8) (126.3) (265.7)
Financial services (57.8) (55.1) (117.9)
(190.6) (181.4) (383.6)
Gross profit 238.8 243.9 482.6
Gross margin - Product 55.9% 57.8% 56.2%
Gross margin - Financial Services 55.0% 56.3% 54.6%
Warehouse & fulfilment (38.2) (38.4) (76.7)
Marketing & production (87.5) (86.0) (161.7)
Depreciation & amortisation (13.6) (12.2) (25.2)
Other admin & payroll (64.0) (64.1) (122.6)
Exceptional items (see note 5) (10.2) (14.8) (17.2)
Segment result & operating profit - Home shopping 25.3 28.4 79.2
Investment income - - -
Finance costs (3.9) (3.8) (8.1)
Fair value adjustments to financial instruments (0.3) (0.8) 1.1
Profit before taxation 21.1 23.8 72.2
* The figures for the period ended 29 August 2015 have been restated. See note 1.
The group has one reportable segment in accordance with IFRS8 - Operating Segments which is the Home Shopping
segment.
The group's board receives monthly financial information at this level and uses this information to monitor the performance
of the Home Shopping segment, allocate resources and make operational decisions. Internal reporting focuses on the
group as a whole and does not identify individual segments. To increase transparency, the group has decided to include
an additional voluntary disclosure analysing product revenue within the reportable segment, by brand categorisation and
product type categorisation.
26 weeks to 26 weeks to 52 weeks to
27-Aug-16 29-Aug-15 27-Feb-16
£m £m £m
restated*
Analysis of product revenue by brand
JD Williams 75.8 75.6 151.2
Simply Be 53.3 50.2 103.9
Jacamo 31.4 30.4 62.8
Power brands 160.5 156.2 317.9
Traditional segment 65.2 68.1 136.0
Secondary brands 75.2 74.9 152.7
Total product revenue - Home shopping 300.9 299.2 606.6
Analysis of product revenue by category
Ladieswear 134.3 134.6 250.8
Menswear 42.4 40.6 82.0
Footwear 30.8 33.2 63.8
Home & gift 93.4 90.8 210.0
Total product revenue - Home shopping 300.9 299.2 606.6
*The figures for the period ended 29 August 2015 have been restated. See note 1.
The group has one significant geographical segment, which is the United Kingdom.
Revenue derived from international markets amounted to £17.2m (H1 FY16, £15.0m) and they incurred operating profits
of £0.5m (losses H1 FY16, £0.4m). All segment assets are located in the UK, Ireland and US.
5. Exceptional items
26 weeks to 26 weeks to 52 weeks to
27-Aug-16 29-Aug-15 27-Feb-16
£m £m £m
Strategy costs - 5.3 7.6
External costs related to taxation matters 1.2 0.6 1.6
Clearance store closure costs - 8.9 8.0
Financial services customer redress 9.0 - -
10.2 14.8 17.2
An exceptional charge of £9.0m was recognised during the period (H1 FY16, £nil) reflecting costs
incurred or expected to be incurred in respect of payments for historic financial services customer redress.
Strategy costs incurred in FY16 related to group re-organisation costs and outsourcing of IT maintenance.
External costs related to taxation matters in H1 FY17 and FY16 are legal and professional fees related to ongoing
disputes with HMRC.
In H1 FY16 we closed our retail clearance stores, in line with our strategy to become digital first. The exceptional costs
in FY16 related to stock write downs, onerous lease provisions and other related closure costs.
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:
26 weeks to 26 weeks to 52 weeks to
27-Aug-16 29-Aug-15 27-Feb-16
£m £m £m
Revenue - 4.1 4.3
Expenses - (4.3) (5.0)
Loss before tax - (0.2) (0.7)
Attributable tax credit - - 0.1
Net loss attributable to discontinued operations - (0.2) (0.6)
The effect of the contribution of the discontinued operations on the group's cash flows have not been disclosed as they
are not considered to be significant.
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:
26 weeks to 26 weeks to 52 weeks to
27-Aug-16 29-Aug-15 27-Feb-16
£m £m £m
Notional Amount - Sterling contract value 45.5 30.9 21.5
Fair value of asset recognised 1.9 0.3 2.2
Changes in the fair value of assets recognised, being non-hedging currency derivatives, amounted to a charge of
£0.3m (H1 FY16, £0.8m) to income in the period.
The fair value of foreign currency derivatives contracts is their market value at the balance sheet date. Market
values are based on the duration of the derivative instrument together with the quoted market data including interest
rates, foreign exchange rates and market volatility at the balance sheet date.
The financial instruments that are measured subsequent to initial recognition at fair value are all grouped into Level 2
(H1 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 during the period (H1 FY16, same).
8. Taxation
The taxation charge for the 26 weeks ended 27 August 2016 is based on the estimated effective tax rate for the full year of 20.0% (H1 FY16, 20%).
The group has on-going discussions with HMRC in respect of open taxation 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 a formal legal process. Issues can, and often do, take a number of years to resolve. The amounts recognised or disclosed are derived from the Group's best
estimation and judgement and, where appropriate, legal counsel's opinion has been sought. However the inherent uncertainty regarding the outcome of these means eventual realisation could differ from the accounting estimates and therefore impact the Group's results and cash flows.
Note 12 "Other debtors and prepayments" includes a net VAT debtor, comprising the VAT liability which arises from the day to day trading together with amounts in relation to matters which are in dispute with HMRC. 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 period end VAT debtor is an asset
of £28.7m (FY16 £21.7m) which has arisen as a result of cash payments made under protective assessments raised by HMRC. Based on legal counsel's opinion, we believe that we will recover this amount in full from HMRC and we are engaged in a legal process to do so.
9. Earnings per share
Earnings 26 weeks to 26 weeks to 52 weeks to
27-Aug-16 29-Aug-15 27-Feb-16
£m £m £m
restated*
Total net profit attributable to equity holders of the parent for the purpose of basic
and diluted earnings per share 16.9 18.9 54.3
Adjustments to exclude loss for the period from discontinued operations - 0.2 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 16.9 19.1 54.9
Fair value adjustment to financial instruments (net of tax) 0.2 0.6 (0.9)
Exceptional items (net of tax) 8.2 11.8 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 25.3 31.5 67.8
Number of shares 26 weeks to 26 weeks to 52 weeks to
27-Aug-16 29-Aug-15 28-Feb-15
No. ('000s) No. ('000s) No. ('000s)
Weighted average number of shares in issue for the purpose
of basic earnings per share 282,613 282,177 282,316
Effect of dilutive potential ordinary shares:
Share options 101 298 245
Weighted average number of shares in issue for the purpose
of diluted earnings per share 282,714 282,475 282,561
Earnings per share from continuing and discontinued operations
Basic 5.98 p 6.70 p 19.23 p
Diluted 5.98 p 6.69 p 19.22 p
Earnings per share from continuing operations
Basic 5.98 p 6.77 p 19.45 p
Diluted 5.98 p 6.76 p 19.43 p
Adjusted earnings per share from continuing operations
Basic 8.95 p 11.16 p 24.02 p
Diluted 8.95 p 11.15 p 23.99 p
Earnings per share from discontinued operations
Basic - p (0.07) p (0.22) p
Diluted - p (0.07) p (0.21) p
10. Intangible assets
Customer
Brands Software database Total
£m £m £m £m
Cost
At 28 February 2015 16.9 210.9 1.9 229.7
Additions - 23.9 - 23.9
At 29 August 2015 16.9 234.8 1.9 253.6
Additions - 21.9 - 21.9
At 27 February 2016 16.9 256.7 1.9 275.5
Additions - 16.5 - 16.5
At 27 August 2016 16.9 273.2 1.9 292.0
Amortisation
At 28 February 2015 8.0 121.5 1.9 131.4
Charge for the period - 9.1 - 9.1
At 29 August 2015 8.0 130.6 1.9 140.5
Charge for the period - 10.1 - 10.1
At 27 February 2016 8.0 140.7 1.9 150.6
Charge for the period - 10.9 - 10.9
At 27 August 2016 8.0 151.6 1.9 161.5
Carrying amounts
At 27 August 2016 8.9 121.6 - 130.5
At 27 February 2016 8.9 116.0 - 124.9
At 29 August 2015 8.9 104.2 - 113.1
Assets in the course of construction included in intangible assets at H1 FY17 total £69.3m (H1 FY16, £52.6m), of
which £65.7m relates to the Fit for the Future project (H1 FY16, £43.9m). No amortisation is charged on these assets
until they come into commercial use.
11. Property, plant and equipment
Additions to tangible fixed assets during the period of £2.7m (H1 FY16, £8.0m) primarily relate to warehousing.
Depreciation of £2.7m (H1 FY16, £3.1m) was charged during the period.
Assets in the course of construction included in fixtures and equipment at H1 FY17 total £0.9m
(H1 FY16, £1.2m), and in land and buildings total £21.5m (H1 FY16, £15.3m). No depreciation is charged on these
assets until they come into commercial use.
12. Trade and other receivables
27-Aug-16 29-Aug-15 27-Feb-16
£m £m £m
restated *
Amount receivable for the sale of goods and services 601.8 606.8 624.7
Allowance for doubtful debts (76.4) (94.2) (97.6)
525.4 512.6 527.1
Other debtors and prepayments 36.3 20.5 26.3
561.7 533.1 553.4
Movement in the allowance for doubtful debts
Balance at the beginning of the period 97.6 100.9 100.9
Amounts charged to the income statement 55.1 51.4 110.3
Amounts written off (76.3) (58.1) (113.6)
Balance at the end of the period 76.4 94.2 97.6
* The figures for the period ended 29 August 2015 have been restated. See note 1.
13. Dividends
The directors have declared and approved an interim dividend of 5.67 pence per share (H1 FY16 5.67p).
This will be paid on 13 January 2017 to shareholders on the register at the close of business on 16 December 2016.
During H1 FY17 dividends of £24.2m relating to FY16 were paid.
14. Provisions
The provisions relate 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 H1 FY17 the Group holds a provision of £7.9m (H1 FY16, £nil) in respect of the anticipated costs of
historic financial services customer redress. This includes a provision of £0.7m in relation to administration expenses.
There are still a number of uncertainties as to the eventual customer redress costs, in particular the total number of claims
and the cost per claim, however the Directors believe that the amounts provided at the half year end, based on historical
and forecasted claim rates and amounts, along with known legal and regulatory obligations, appropriately reflect the cost
to the Group.
The principal sensitivities in the customer redress calculation are: volumes of policies affected, claim rate, uphold rate
and average redress amount.
26 weeks to
27-Aug-16
£m
+/- 10% in claims volumes +/- 0.4
+/- 5% in uphold rate +/- 0.3
+/- 10% in average redress amount +/- 0.4
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 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 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 11 October 2016.
Angela Spindler Craig Lovelace
Chief Executive Chief Financial Officer
Independent review report to N Brown Group plc
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 27 August 2016 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. We have read the other information contained in
the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
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 Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("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.
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 IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 "Interim Financial Reporting," 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.
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 inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK and Ireland) 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.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 27 August 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.
Stuart Burdass
for and behalf of KPMG LLP
Chartered Accountants
1 St Peter's Square
Manchester
M2 3AE
11 October 2016
This information is provided by RNS
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