REG - Brown (N.) Group PLC - Interim Results
06/10/2022 07:00
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RNS Number : 9523B Brown (N.) Group PLC 06 October 2022
6 October 2022
HALF YEAR RESULTS FOR THE 26 WEEKS ENDED 27 AUGUST 2022
Performance reflects normalisation of Financial Services post Covid-19 and the
macroeconomic environment, with continuing strategic progress and strong
balance sheet
26 weeks to 26 weeks to
27 August 2022 28 August 2021
£m (H1 23) (H1 22) (1) % Change
Group revenue 331.5 347.4 (4.6)%
Product revenue 211.2 222.7 (5.2)%
Financial services revenue 120.3 124.7 (3.5)%
Adjusted EBITDA(2) 27.9 52.5 (46.9)%
Adjusted EBITDA margin 8.4% 15.1% (6.7)ppts
Adjusted profit before tax(2) 4.3 24.4 (82.4)%
Statutory profit before tax 7.2 28.4 (74.6)%
Unsecured net cash(2) 47.2 41.9 12.6%
Adjusted net debt(2) (243.5) (268.3) 9.2%
Highlights
· Revenue reflects tougher trading conditions
o As the period progressed, weakening consumer confidence led to a more
challenging online retail market, with the market down c.7% for H1 23(3) based
on our category mix
o Group revenue down 4.6%:
§ Product revenue down 5.2%, from 0.6% in Q1 to 9.4% in Q2 and with this
trend continuing into Q3
§ Strategic brands product revenue 2.2% lower, with Heritage brands 11.8%
lower
§ Financial Services revenue down 3.5%, reflecting a smaller debtor book at
the start of the year
· Product margin improvement with Financial Services margin normalising
post Covid-19
o A focus on product gross margin rate, up 1.4ppts, provided mitigation to
lower order volumes and continued returns rate normalisation
o Financial Services gross margin rate down c.13ppts, against an exceptional
elevated rate in the prior period driven by Government Covid-19 support to
consumers
· Profit reduction reflects exceptional Financial Services profitability in
H1 22
o Adjusted EBITDA reduction of 46.9% driven by prior year Financial Services
performance, with the FY22 impact weighted towards H1, when a Covid-19 IFRS 9
credit loss provision was released and write-offs were atypically low, as
highlighted in the FY22 year end results
o Lower product revenue due to softer market conditions in H1 largely offset
by margin focus
o Operational and central cost base tightly controlled despite inflationary
pressures
o Targeted marketing investment in line with strategy
· Strong balance sheet
o Strong balance sheet, with unsecured net cash of £47.2m. Additional
£45.5m accessible cash voluntarily undrawn on the securitisation funding
facility and access to fully undrawn RCF of £100m, with total accessible
liquidity in excess of £200m
· Actions taken to mitigate softer volumes and inflationary pressures
o Continued strategy execution with a focus on promotional discipline and
implementing measured price increases supported by data tools. Average item
values up 14%
o Operational cost flexibility and contract management has generated savings
to offset normalisation of returns volumes and inflationary pressures
· Digital transformation continues despite challenging backdrop
o New mobile-first website for Simply Be launched in September enhancing
customer experience, including easier site navigation and checkout journey;
plan to launch new Jacamo site in first half of 2023
o Commenced work on building new Financial Services platform
· Current trading & outlook
o Uncertainty around macroeconomic conditions persists, and as such,
visibility of trading trends is limited. We have seen second quarter product
revenue decline of 9.4% continue into September and at this stage, are
planning on the basis of challenging market conditions continuing for longer,
with H2 23 product revenue expected to decline at a similar rate to Q2
o Additional product margin improvements are expected through the Group's
pricing response to cost inflation, the movement of the product mix back to
clothing, and ongoing initiatives including data usage to optimise pricing
strategies
o We will continue to carefully manage cost and margins whilst planning for
ongoing elevated inflation. We will benefit from the variable cost model and
normalising against a baseline that from H2 includes the step up in strategic
marketing
o We are well hedged against our US Dollar purchases at more than 100% for
H2 23 and c. 50% for FY24, and interest rates hedged to December 2024
o We have yet to see a significant change in the performance of the debtor
book as a result of the macroeconomic environment; we expect the steady
normalisation back towards pre-pandemic Financial Services arrears rates to
continue
o As a consequence of these factors, we now expect FY23 Adjusted EBITDA to
be in the region of £60m
o At the end of FY23, we continue to expect the Group to maintain a strong
unsecured net cash position, and, whereas we previously expected net debt to
be in line with FY22's closing position, we now expect year-end net debt to
have reduced over FY22
Steve Johnson, Chief Executive, said:
"In a difficult period of weakening consumer confidence, we've balanced our
objectives between disciplined trading - with a focus on upholding margin -
and delivering on our long-term strategy to transform the business.
Our teams have worked relentlessly to launch Simply Be's new website, and
early indicators give us confidence in the wider benefits for all our
customers when we roll this out more widely across our other strategic brands.
We anticipate continued softness in trading over the second half as
macroeconomic pressures continue to weigh on consumers, despite government
support. We will, therefore, maintain our focus on tightly managing both our
costs and margins. At the same time, given our ongoing confidence in our
strategy and the strength of our balance sheet, we will continue to invest in
our digital transformation to deliver sustainable profitable growth."
(1)Refer to FY22 prior year adjustment on page 11.
(2)A full reconciliation of statutory to adjusted measures is included in the
Financial Review.
(3)BRC total online non-food market weighted to N Brown category mix using
management analysis.
Webcast for analysts and investors:
A webcast presentation of these results will take place at 9am on 6 October
2022 followed by a Q&A conference call for analysts and investors.
Please contact Nbrown@mhpc.com (mailto:Nbrown@mhpc.com) for details.
For further information:
N Brown Group
David Fletcher, Head of Investor Relations +44 (0)7876 111242
MHP Communications
Simon Hockridge / Eleni Menikou / Charles Hirst +44 (0) 20 3128 8789
NBrown@mhpc.com (mailto:NBrown@mhpc.com)
Shore Capital - Nomad and Broker
Stephane Auton / Daniel Bush / John More +44 (0) 20 7408 4090
About N Brown Group:
N Brown is a top 10 UK clothing & footwear digital retailer, with a home
proposition. Our retail brands include JD Williams, Simply Be and Jacamo, 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 1,800 people across the UK.
PERFORMANCE REVIEW
Macroeconomic pressures during the period have resulted in a tough retail
market, with more caution from consumers around discretionary spending, record
low consumer confidence and an ongoing reduction in disposable incomes. Whilst
the economic backdrop has become more subdued, we have seen resilience in
average item values, which were up 14% on H1 22, and stable items per order.
At a customer demand level, this has more than offset a lower level of website
sessions and softer conversion of these through to orders, albeit demand has
then reduced at product revenue level by the normalisation of returns rates.
Despite this challenging backdrop, we have progressed execution of the
strategy we announced in May 2022 which targets the delivery of growth through
a simpler and more focused business. As announced, our strategic brands,
Simply Be, JD Williams and Jacamo, remain our primary focus for growth, with
our remaining brands consolidated within a "heritage brands" portfolio focused
on protecting value. We have no further brand closures planned. Our strategy
is predicated on five pillars and a short update on progress made against each
is set out below. Our five pillars are underpinned by two key enablers: our
people and talent, and a sustainable operating model appropriate for a digital
retailer.
We remain wholly focused on returning N Brown to sustainable growth and are
increasing our efforts to progress this. In a particularly challenging market,
we are concentrating on all the elements we can control as a business,
ensuring we deliver value for our customers in the most effective way
possible.
Key Performance Indications (KPIs)(1)
We report a range of digital customer metrics which provide operational
measures of how our strategy is progressing.
H1 23 H1 22 Change FY22
Total website sessions(2) 117m 121m (3.3)% 252m
Conversion 3.6% 3.8% (0.2)ppts 3.8%
Total Orders(3) 4.5m 5.0m (10.0)% 10.2m
AOV £78.7 £69.4 13.4% £71.1
Items per order 2.9 2.9 - 2.8
AIV £27.5 £24.1 14.1% £25.2
Total active customers 2.8m 2.8m - 2.9m
FS arrears 8.9% 7.3% (160)bps 8.4%
NPS 59 61 (2) 60
(1 KPIs are defined on page 21.)
(2 ) (Prior year sessions restated reflecting
implementation of improved data tool which includes more accurate tracking of
app sessions.)
(3 ) (Total orders includes online and offline orders.)
(4 )
( )
Several of our KPIs reflect the impact of the tougher consumer environment on
the business. Total website sessions declined by 3.3%, reflecting a
combination of a more cautious consumer and significant cost inflation in paid
social and paid search, reducing the number of sessions obtained from the same
spend. The conversion rate is down 0.2ppts against last year due to customers
across the market adopting a more cautious approach whilst browsing sites.
( )
The reduction in orders has been offset by an increase in average item value
(AIV), benefitting from our proposition of quality own brand product combined
with selected aspirational third-party brands. We have also mitigated a more
subdued backdrop with a focus on promotional discipline, implementing measured
price increases supported by data tools to help offset inflationary impacts,
focusing on the elevated demand for occasionwear vs. leisurewear and customers
buying into more premium ranges.
( )
The total number of active customers is broadly in line with the prior year,
reflecting the managed decline in our Heritage portfolio of brands, offset by
growth in Strategic brands. The reduction against year-end reflects a lower
re-trade rate due to greater caution in customer behaviour. We have seen a
3.9ppt increase in the proportion of new accounts opened which are credit
accounts.
Financial Services arrears increased by 1.6ppts with Government support during
the first part of the Covid-19 pandemic resulting in high repayment rates and
low arrears, with the rate remaining below pre-pandemic level.
Our Net Promotor Score (NPS) declined modestly from our FY22 year-end position
as we manage short-term delivery issues, whilst we focus on medium term
opportunities to improve the customer experience.
Progress against our 5 strategic pillars
1. Build a Differentiated Brand Portfolio
Strategic objective: Build two multi brand and category platforms, one for women (JD Williams) and one for men (Jacamo), as well as one inclusive fashion brand (Simply Be)
Our brand focus has been on iterating our creative platforms to better
represent the brand positioning.
For Simply Be, we launched a new creative approach, grounded in fit, which is
a key reason we are chosen by customers. This was accompanied by a new media
approach which saw us move away from traditional TV advertising entirely and
focus our efforts on channels which better align with where our customer
spends time, for example, digital video, social, out of home and influencers.
We have built on this for our autumn/winter (AW) campaign.
For JD Williams, we designed our 'collections' creative approach to help the
customer understand our full range across categories. It was launched with a
new media approach in spring/summer (SS) '22, working alongside our brand
ambassadors, Davina McCall and Amanda Holden, to bring it to life in an
eye-catching, inspirational way. This approach has evolved further for the
autumn/winter '22 season with our campaign having launched at the start of
September.
For Jacamo, we launched our 'every man' creative approach for SS'22, designed
to show we have the brands, styles and sizes for all men, broadening Jacamo's
audience and helping to shift perceptions of the brand as 'plus size', to
consistently give clear reasons to choose us. This was accompanied by a new
media approach where we have aligned our ongoing communications and
storytelling with the 'every man' creative.
Our social media channels continue to grow as we foster stronger relationships
with our customers through these routes. We now have 2.3m followers across
Facebook, Instagram, and Twitter, up 7% versus last year.
2. Elevate the Fashion and Fintech Proposition
Strategic objective: Elevate the fashion assortment, integrate the credit
offer into the journey and create a credit brand
We continue to see improvement in how we elevate our own-brand fashion
proposition. We have invested in and rebalanced the core offer whilst building
in growth categories such as occasionwear. We have continued to grow our in
house designed product from 67% of the range in AW'22 to 93% in SS'23 and we
intend to reach 100% by AW23. We have introduced 3D Design on certain product
areas and are training our design team in the technology over the remainder of
the financial year.
Men's own label formalwear performance within the half was an area of
particular success, up 74% vs. last year and with a significantly higher
proportion sold at full price. Within this, we have sold over 50,000 of our
own label 'James' suit.
We have launched a number of own brand labels and third-party brands since the
start of the year, which have landed well. We launched Anise, our new
sustainable own brand, with a campaign featuring our brand ambassadors, Davina
McCall and Amanda Holden, wearing pieces from the range, creating a halo
effect, with sales more than doubling on the items they wore. The brand has
resonated with our new creative approaches, with a significantly stronger than
average return on paid social media spend.
Third-party brands which have launched across our strategic portfolio have
been chosen selectively to complement our own product offering. Ladies third
party brands sales have increased by 26% versus last year, with a significant
increase in the proportion sold at full price. In July, Twisted Wunder was our
biggest ever new brand launch on Simply Be and complemented the great
performance of Nobody's Child which sold over 45,000 dresses during the first
half of the year. Men's branded offering continues to see growth, with good
performance from our premium brands including Polo Ralph Lauren and Boss.
Our existing Financial Services proposition has been evolved to enhance the
offer in the near term whilst, in parallel, work has begun on a new technology
platform. We have improved the integration of our existing Financial
Services proposition into the customer journey including developing better
credit messaging displays, the introduction of store cards and optimising the
user experience, which are all yielding results. There is more to come from
our credit offering; we launched 0% interest for new customers and are due to
launch this to existing customers in the autumn of 2022.
3. Transform the Customer Experience
Strategic objective: Transform the customer experience, pre and post purchase,
and drive conversion at checkout through a personalised experience
We have evolved our digital sales journey in Simply Be through the launch of
our new website, which is now live for 100% of our customers. The platform
aims to deliver a seamless customer experience so shoppers are able to easily
navigate the site, have a frictionless checkout experience and receive the
same rich mobile application experience across any device. Jacamo will be
the next brand to benefit, and is expected to go live in the first half of
2023.
Native checkout, which allows customers to pay directly through our app, went
live for 20% of Android visitors and is now in Beta for iOS users.
Product Implementation Management to provide our customers with better
information and insight on our products, including offering more detail about
sizing and fabric, has now begun, and various technology solutions are
currently being considered. This will create a consistent customer experience
and lower returns rate by distributing accurate and complete content across
all channels. The building of our new Financial Services technology platform
has also commenced through a standalone team, working with an iterative
approach.
4. Win with our Target Customer
Strategic objective: Grow our customer base through our existing core
customer, high value lapsed customers and a new, younger generation
We have focused on building foundations for this pillar, firstly around
activity to revitalise our lapsed customer base but also to drive frequency
and engagement from our existing customers.
Secondly, we are evolving our approach to customer retention through agile
principles. We are developing propensity models on leading indicators of
retention and the customer journey to better understand customer behaviours
and how we can influence them more effectively to increase customer value.
We are also investing in our data in this area so that we can better
understand our base and how to improve customer targeting and
personalisation.
5. Establish Data as an Asset to Win
Strategic objective: Establish data as an asset to drive top line and margin
improvements
Significant progress has been made in developing our data strategy, which
underpins this pillar. We have focused on how we establish data, through the
operational model, team structure, recruitment, and culture, to set ourselves
up for success.
In the meantime, we continue to invest in work around pricing, marketing
optimisation and customer value as valuable products for the business.
Pricetagger, an in-house tool which helps us optimally promote product using
pricing elasticity curves, has been rolled out to all clothing and footwear
promotions, with tangible benefits to gross margin. We have also developed a
mailing selections model, allowing more efficiency with offline marketing
spend.
Key Enablers
A significant amount of enabling work is underway in relation to developing an
agile operating model through organisational structures which are aligned to
our brands and systems which enable customer outcomes. We are learning through
an iterative process how to embed this as part of our culture and implement it
across areas of the business where value can be realised fastest.
We continue to put our people at the heart of our business, which is why we
launched our Equity, Diversity and Inclusion Strategy, 'Embrace', a
fundamental enabler to our success as an organisation, during the period. We
are committed to both building a diverse workforce and creating an inclusive
environment which values equality for all. Alongside this, we are welcoming
the first cohort of our graduate scheme in October, as we continue to attract,
acquire and develop capabilities for the future.
Environment, Social and Governance
We have continued to embed our Environmental, Social and Governance strategy
into the business. Our sustainability plan, SUSTAIN, fully aligns our ethical
policies with our commercial activities and our commitment to Our People and
Our Planet.
Simply Be has launched its first clothing rental collection with the UK's
leading accessible fashion rental platform HireStreet. This is another
important milestone in the SUSTAIN strategy with the rental edit helping to
extend the lifespan of products and encouraging customers to embrace product
circularity.
A key pillar of SUSTAIN is our commitment to responsibly source own-brand
product, and we have reached 31% of own brand designed Clothing and Home
textile ranges with sustainable attributes (from 0% in 2019) as we target
growing this to 100% by FY30 in line with our Textiles 2030 commitment.
Our Greenhouse Gas Emissions per item shipped are 50% lower compared to the
base line set in FY15, in line with our BRC Climate Action Roadmap
commitments. We are seeing benefits from upgrading to LED lighting at our main
distribution centre at Shaw, and an overall reduction in the use of gas and
water across our sites.
There has been a particular focus on our social impact during this period with
new charity partnerships with Retail Trust and FareShare Greater Manchester
announced in September, and the implementation of a more integrated Diversity,
Equity and Inclusion policy "EMBRACE". The first 12 months of EMBRACE are
targeted on building engagement, awareness and connection supported by five
communities which we are establishing to represent the core strands of
diversity that exist within our business. The charity choices reflect the two
overarching objectives of our corporate charity strategy, which are to support
a charity which is closely connected to our business through alignment with
our strategic vision and industry and to continue to support a charity with a
strong presence in Greater Manchester. We will work closely with both
charities to develop a tangible fundraising target and a programme of
activities to benefit all our colleagues.
Macroeconomic Environment
The current operating and economic environment remains extremely challenging.
Significant increases in energy prices, general price increases and interest
rate increases are putting pressure on household budgets and adversely
impacting consumer confidence. The cost of living crisis is impacting all
elements of people's lives including their decisions in relation to spending
on non-essential items.
The Board maintains a continuous process for identifying, evaluating and
managing risk as part of its overall responsibility for maintaining internal
controls and the Risk Management Framework. This process is intended to
provide reasonable assurance regarding compliance with laws and regulations as
well as commercial and operational risks.
Increased risk in the external environment of many of our principal risks
(refer to page 30) is leading to a worsening risk position in many categories,
despite improvements to the control environment. Control enhancements are
identified routinely and on a continuous basis as we test controls, review
operational issues and perform assurance activities.
FY23 Outlook
We have seen significant volatility in trading trends in the second quarter
and into the third quarter of FY23, including both pre and post the 19th
September bank holiday. This, combined with other macroeconomic conditions,
makes visibility on revenue trends difficult. Based on the assumption that
macroeconomic uncertainty and inflationary pressures continue through the
second half of the year, we have revised our assumptions for H2(1) product
revenue and now expect it to decline in line with the year-on-year decline
seen in Q2 and September.
Consistent with H1, we expect to drive product margin improvements through the
Group's pricing response to cost inflation, the movement of the product mix
back into clothing, and continued initiatives, including data usage, to
optimise pricing strategies. We are well hedged against our US Dollar
purchases in H2, which we expect will offset most of the headwind from the
recent weakening in Sterling. We will also continue to carefully manage the
cost base to mitigate ongoing inflationary pressures.
The Financial Services gross margin has normalised in H1. We will continue to
closely monitor customer behaviour and provide support to customers. We are
expecting a steady move back towards pre-pandemic arrears rates. We have yet
to see a significant change in the performance of the debtor book as a result
of the macroeconomic environment.
As a consequence of the above factors, we now expect FY23 Adjusted EBITDA in
the region of £60m before growing again as the Group's strategy is executed.
At the end of FY23, we expect the Group to maintain a strong unsecured net
cash position and for net debt to be below FY22's closing position, whilst
continuing to have full access to the £100m RCF, allowing us to further
progress our transformation strategy.
We remain confident in the resilience of our business model and in our
strategic direction. As demonstrated by the launch of the new Simply Be
website, the business continues to be well positioned to invest in and deliver
strategic change through the remainder of FY23 and beyond.
Over the medium term and if current macroeconomic conditions improve, the
Board is confident that our strategy will support the delivery of 7% product
revenue growth with a 13% EBITDA margin.
(1. FY23 is a 53 week financial year.
The reference to revenue growth expectations is on a comparable basis
excluding the 53rd week in FY23. Other Outlook expectations include the 53rd
week in FY23.)
FINANCIAL REVIEW
Financial KPIs
Our non-financial KPIs are contained in the Chief Executive Officer's
statement. We also use a number of financial KPIs to manage the business.
These are shown below and will continue to be reported going forwards.
H1 23 H1 22 (1) Change
Product revenue £211.2m £222.7m (5.2)%
Adjusted EBITDA(2) £27.9m £52.5m (46.9)%
Adjusted EBITDA margin(2) 8.4% 15.1% (6.7)ppts
Adjusted operating costs to Group revenue(1) 38.8% 35.9% (2.8)ppts
Unsecured net cash(2) £47.2m £41.9m 12.6%
Adjusted EPS(2) 0.72p 4.41p (83.7)%
Statutory profit before tax £7.2m £28.4m (74.7)%
(1) Refer to prior year adjustment on page 11.
(2)A full glossary of Alternative Performance Measures and their definitions
is included on page 22.
Prior year adjustment
In FY22, full year results included a prior year adjustment relating to a
change in accounting policy for software as a service ("SAAS") costs and
re-presentation of deceased customer debt write-offs. The H1 22 comparatives
have been adjusted to reflect these changes and the rephasing of returns.
These are illustrated in the table below.
Income Statement (extract) 28 August 2021 (Reported) Deceased accounts Adjustment Returns rephasing adjustment SAAS adjustment 28 August 2021 (Restated)
£m £m £m £m £m
Revenue 232.3 1.8 (1.2) - 232.9
Cost of sales (126.0) 0.2 0.7 - (125.1)
Impairment losses on customer receivables (43.0) (2.0) - - (45.0)
Depreciation & amortisation (22.0) - - 0.7 (21.3)
Operating profit 31.0 - (0.5) 0.7 31.2
Profit before taxation 28.2 - (0.5) 0.7 28.4
Taxation (4.8) - 0.1 (0.1) (4.8)
Profit for the period 23.4 - (0.4) 0.6 23.6
Balance Sheet (extract) 28 August 2021 (Reported) Deceased accounts Adjustment Returns rephasing adjustment SAAS adjustment 28 August 2021 (Restated)
£m £m £m £m £m
Non-Current Assets
Intangible assets 122.6 - - (4.3) 118.3
Current Assets
Trade and other receivables 536.8 - 0.5 - 537.3
Total Assets 895.3 - 0.5 (4.3) 891.5
Current liabilities
Current tax liability (2.1) - 0.1 (0.1) (2.1)
Net assets 440.8 - 0.6 (4.4) 437.0
Retained earnings 304.5 - 0.6 (4.4) 300.7
Total equity 440.8 - 0.6 (4.4) 437.0
Reconciliation of Statutory financial results to adjusted results
The reporting includes alternative performance measures ("APMs"), which are
not defined or specified under the requirements of IFRS. These APMs are
consistent with how we measure performance internally and are also used in
assessing performance under our incentive plans. Therefore, the Directors
believe that these APMs provide stakeholders with additional, useful
information on the Group's performance.
The adjusted figures are presented before the impact of exceptional items.
Exceptional items are items of income and expenditure which are one-off in
nature and are material to the current financial year or represent true ups to
items presented as exceptional in prior periods. These are detailed in note 5.
A full glossary of APMs and their definitions is included on page 22.
Reconciliation of Income Statement Measures
H1 23 H1 23 H1 23 H1 22 H1 22 H1 22
Statutory Exceptional Items Adjusted Statutory Exceptional Items Adjusted
(Restated(1)) (Restated(1))
Product Revenue 211.2 - 211.2 222.7 - 222.7
Financial services Revenue 120.3 - 120.3 124.7 - 124.7
Group Revenue 331.5 - 331.5 347.4 - 347.4
Product Cost of sales (115.0) - (115.0) (124.5) - (124.5)
Financial services Cost of sales (60.0) - (60.0) (45.6) - (45.6)
Group Cost of sales (175.0) - (175.0) (170.1) - (170.1)
Gross profit 156.5 - 156.5 177.3 - 177.3
Gross profit margin - Group 47.2% - 47.2% 51.0% - 51.0%
Gross profit margin - Product 45.5% - 45.5% 44.1% - 44.1%
Gross profit margin - Financial Services 50.1% - 50.1% 63.4% - 63.4%
Warehouse & fulfilment (31.7) - (31.7) (31.9) - (31.9)
Marketing & production (36.5) - (36.5) (33.5) - (33.5)
Other admin & payroll (60.4) - (60.4) (59.4) - (59.4)
Operating Costs (128.6) - (128.6) (124.8) - (124.8)
Adjusted operating costs to group revenue ratio 38.8% 35.9%
Adjusted EBITDA 27.9 52.5
Adjusted EBITDA margin 8.4% 15.1%
Depreciation & amortisation (17.1) - (17.1) (21.3) - (21.3)
Operating Profit 10.8 - 10.8 31.2 - 31.2
Finance costs (6.5) - (6.5) (6.8) - (6.8)
Profit before taxation and fair value adjustment to financial instruments 4.3 - 4.3 24.4 - 24.4
Fair value adjustments to financial instruments 2.9 - 2.9 4.0 - 4.0
Profit before taxation 7.2 - 7.2 28.4 - 28.4
Taxation (1.6) - (1.6) (4.8) - (4.8)
Profit for the year 5.6 - 5.6 23.6 - 23.6
Earnings per share 1.22p 0.72p 5.10p 4.41p
(1) Refer to prior year adjustment on page 11.
Reconciliation of Cash and cash equivalents and bank overdrafts to Unsecured
Net Cash and Adjusted Net Debt
£m H1 23 H1 22
Cash and cash equivalents 47.2 41.9
Bank overdrafts - -
Unsecured debt - -
Unsecured Net Cash 47.2 41.9
Secured bank loans (290.7) (310.2)
Adjusted Net Debt (243.5) (268.3)
Reconciliation of Net movement in Cash and cash equivalents and bank
overdrafts to Net Cash generation
£m H1 23 H1 22
Net increase / (decrease) in cash and cash equivalents and bank overdraft 4.1 (38.9)
Voluntary flexible (drawdown) / repayment of securitisation loan (14.6) 57.2
Repayment of unsecured loans -
Net Cash (outflow) / generation (10.5) 18.3
Overview
We entered FY23 cognisant of the escalating and fast-moving inflationary
environment. As we have moved through the first half of FY23, we have seen a
reduction in consumer confidence and the environment in which N Brown operates
has become more challenging.
We decided not to aggressively drive volumes and although we have seen a
softer product revenue performance than last year and also a weakening in
Sterling, our disciplined approach to product margin rate and foreign exchange
hedging has largely mitigated the impact of these. The cost base has been
carefully managed through the period to mitigate inflationary headwinds, with
the increase in costs for planned marketing investment in line with our
strategy. Alongside this, the investment in and launch of the new Simply Be
website marks a significant milestone in the digital transformation journey.
We have annualised against an unusual set of Financial Services comparatives,
which has driven EBITDA lower against prior year.
The balance sheet remains strong and a return to growth in the debtor book and
securitisation borrowings, driven by product revenue growth, remains a key
opportunity for the business.
Revenue
£m H1 23 H1 22 (1,2) Change
Revenue
Strategic brands(3) 150.6 154.0 (2.2)%
Heritage brands(4) 60.6 68.7 (11.8)%
Total product revenue 211.2 222.7 (5.2)%
Financial services revenue 120.3 124.7 (3.5)%
Group revenue 331.5 347.4 (4.6)%
Group revenue declined 4.6% to £331.5m, as a result of a 5.2% decline in
total Product revenue and a 3.5% decline in Financial Services revenue.
Weighted for our category mix, the online market reduced by c.7% against last
year for H1 23(5), and includes the impact of some year-on-year channel shift
by consumers from online to stores due to annualising against periods of store
closures during pandemic-related lockdown measures.
In the first half, we experienced a decline in product revenue, however, we
are disciplined in our approach to trading and retaining margin, and took the
decision to not aggressively drive volumes, with average item values
increasing by 14%. Alongside this we have made progress with our digital
strategy including delivery of the new website for Simply Be and we remain
confident in the ability of strategic brands to deliver growth beyond FY23. As
previously highlighted, the Figleaves closure no longer causes a drag on
revenue from FY23 onwards and this is reflected in the lower decline seen in
Heritage brands versus FY22.
As anticipated, Clothing and Footwear mix increased further, moving from 66%
of product revenue in H1 22 to 70% in H1 23. A strong performance has been
delivered by categories rebounding against pandemic comparatives including
swimwear, occasionwear, and formalwear, whereas declines have been seen in
casual categories. As expected with the pivot back into Clothing and Footwear,
and customers buying into higher returning categories such as dresses, we have
seen further normalisation in customer returns rates, which have increased by
5ppts against the prior year and are now c. 1ppts below pre-pandemic levels.
Financial Services revenue has declined broadly in line with the customer
receivables book, with the 3.5% revenue decline being slightly better than the
decline seen in FY22.
(1) Refer to prior year adjustment on page 11
(2) Brand split re-represented into Strategic and Heritage brands in line with
the Group's strategy.
(3) JD Williams, Simply Be, Jacamo.
(4) Heritage brands are Ambrose Wilson, Home Essentials, Fashion World,
Marisota, Oxendales and Premier Man.
(5)BRC total online non-food market, management analysis
Adjusted Gross profit(1)
£m H1 23 H1 22(2) Change
Product gross profit 96.2 98.2 (2.0)%
Product gross margin % 45.5% 44.1% 1.4ppts
Financial services gross profit 60.3 79.1 (23.8)%
Financial services gross margin % 50.1% 63.4% (13.3)ppts
Adjusted Group gross profit(1) 156.5 177.3 (11.7)%
Adjusted Group gross profit margin 47.2% 51.0% (3.8)ppts
(1) A reconciliation of statutory measures to adjusted measures is included on
page 12. A full glossary of Alternative Performance Measures and their
definitions is included on page 22.
(2) Refer to prior year adjustment on page 12.
The Group's adjusted gross profit margin was 47.2%, compared to 51.0% in H1
22. Financial Services gross margin was 50.1% in H1 23, 13.3ppts lower than in
H1 22, and consistent with our expectation that Financial Services gross
margin will normalise to a low to mid 50s percent range for full year FY23.
This was a result of unprecedented conditions within the consumer credit
market over FY21 and FY22, with government support during the first part of
the Covid-19 pandemic resulting in high repayment rates, low arrears and
write-off rates, and consequently, a net reduction in the IFRS 9 bad debt
provision and low write offs in H1 22, the period against which H1 23
annualises.
Product gross margin increased 1.4ppts to 45.5%, benefitting from management
actions taken to mitigate the impact of inflationary pressures, including on
freight rates. These included a combination of reduced promotional levels
through disciplined trading, measured price increases supported by data, the
mix effect into clothing and the decision to increase shipping charges to
customers, which benefitted margin rate by c. 4ppts. We saw c. 1ppt of margin
rate benefit from higher VAT bad debt relief due to a normalising level of
financial services write-offs. Partially offsetting this was a negative impact
of c. 1.5ppts from higher freight rates and with the impact from weak Sterling
mitigated through hedging. A further adverse impact of c. 2ppt includes
additional stock provisioning reflecting a higher stock balance with greater
mix towards clothing.
Adjusted operating costs(1)
£m H1 23 H1 22(2) Change
Warehouse & fulfilment costs (31.7) (31.9) 0.6%
Marketing & production costs (36.5) (33.5) (9.0)%
Admin & payroll costs (60.4) (59.4) (1.7)%
Adjusted operating costs(1) (128.6) (124.8) (3.0)%
Adjusted operating costs as a % of Group Revenue 38.7% 35.9% (2.8)ppts
(1) A reconciliation of statutory measures to adjusted measures is included on
page 12. A full glossary of Alternative Performance Measures and their
definitions is included on page 22.
(2) Restated for change in accounting policy (refer to Prior Year Adjustment
note 32 in the 2022 Annual Report and Accounts).
Overall, adjusted operating costs as a percentage of Group revenue increased
from 35.9% in H1 22 to 38.7% in H1 23. As highlighted at the start of the
financial year, we anticipated that inflationary increases and maintaining
strategic brand investment would increase the cost ratio in FY23. Management
actions have helped to mitigate increases to the cost base, with the total
increase of £3.4m being driven by the marketing investment and after the
absorption of approximately £6m of inflationary increases. We are focused on
maintaining an efficient and sustainable cost base and are planning for a
reduction in adjusted operating costs as a percentage of Group revenue in H2
relative to H1.
Warehouse and fulfilment costs were slightly lower than in the prior year
period, benefitting from flexing of the cost base by c. £4m with c.10% lower
volumes due to higher average item values. This was partially offset by higher
returns which drove a c. £2m increase over prior year and the absorption of
around £2m across fuel surcharges and inflationary impacts on carrier and
resource costs.
Marketing and production costs increased by 9.0% to £36.5m reflecting the
previously highlighted strategic decision to invest more into brand marketing,
comparing against a lower level of spend in Q1 FY22 when above the line
activity did not increase post easing of lockdowns, as well as approximately
£2m of inflationary impact, particularly due to higher market costs for paid
social and paid search.
Admin and payroll costs increased by 1.0%, driven predominantly by
inflationary increases of c. £2m including utilities, payroll and National
Insurance.
Exceptional items
Exceptional items were £nil in the period (H1 22: £nil). Further details can
be found in note 5.
Profit and earnings per share
Driven by the elevated Financial Services gross margin rate in prior year,
lower product revenue performance and marketing investment, Adjusted EBITDA
reduced by £24.3m to £27.9m and Adjusted EBITDA margin reduced by 6.7ppts to
8.4%.
Depreciation and amortisation reduced to £17.1m from £21.3m in the prior
year as a result of the acceleration of amortisation in FY22 following a
review of useful economic lives which took place at the end of FY21, and the
change in accounting policy adopted in FY22 relating to software as a service.
Statutory operating profit decreased by £20.4m over the prior year to £10.8m
reflecting the reduction in Adjusted EBITDA partially offset by lower
depreciation and amortisation.
Net finance costs were £6.5m, broadly in line with £6.8m in the prior year.
The opportunity to voluntarily underdraw on the securitisation facility
continues to be utilised. The Group has limited its exposure to interest rate
movements through interest rate hedging which it continues to have in place,
as described in Note 6.
Adjusted profit before tax was £4.3m, down £20.1m year on year (H1 22:
£24.4m) as a result of the reduction in EBITDA, partially offset by the lower
depreciation and amortisation.
Statutory profit before tax was £7.2m, down £21.9m year on year (H1 22:
£28.4m).
The taxation charge was £1.6m (H1 22: £4.8m) with the reduction driven by
the lower profit before tax.
Statutory earnings per share decreased to 1.22p (H1 22: 5.10p). Adjusted
earnings per share decreased to 0.72p (H1 22: 4.41p).
Financial Services customer receivables and impairment
Gross customer trade receivables at the end of H1 23 reduced by 4.4% to £572m
over H1 22. This reflected a combination of lower product revenue, higher
write-offs, and higher than normal levels of customer repayments in the half.
The IFRS9 bad debt provision to gross receivable balance ratio is 13.9%
compared to 14.7% in H1 22. The H1 22 level was inclusive of £5.2m to cover
future Covid-19 default risks.
The reduction in provision rate on payment arrangements reflects a higher
propensity to recover. This is a consequence of customers proactively
seeking forbearance via the business' various support measures.
The FY22 year-end inflationary post model adjustment of £5.8m is now embedded
in the base provision as book performance has declined and modelled economic
inflationary expectations are now in line with the market.
Overall provision rates remain higher than the pre Covid-19 level reported in
FY20 (10.9%).
£m H1 23 H1 22 Change
Gross customer loan balances 571.7 597.7 (4.4)%
IFRS 9 provision (79.7) (88.1) (9.5)%
Normal account provisions (62.5) (60.3) -85ppts
Payment arrangement provisions (17.1) (22.6) +78ppts
Covid-19 impact - (5.2) +87ppts
IFRS 9 provision / loan book ratio 13.9% 14.7% +80ppts
Net customer loan balances 492.0 509.6 (3.5)%
In the half year, the net impairment charge was £59.3m, £14.3m higher than
prior year driven by exceptionally low levels of arrears in the prior year,
which are now normalising as expected, and the prior year benefitting from the
release of c. £10m of Covid-19 additional credit loss provision which was not
required.
Net Cash Generation
£m H1 23 H1 22(1)
Adjusted EBITDA 27.9 52.5
Inventory working capital movement (15.6) (12.4)
Other working capital and operating cash flows 8.7 4.1
Customer loan book IFRS 9 provision movement 11.1 3.0
Cash flow adjusted for working capital 32.1 47.2
Exceptional items (3.3) (3.6)
Capital investing activities (11.2) (10.5)
Non-operating tax & treasury (0.6) (2.0)
Interest paid (6.5) (6.7)
Non-operational cash outflows (21.6) (22.8)
Gross customer loan book repayment 5.4 8.4
Securitisation debt balance (volume / book size) (4.0) (5.0)
Decrease in securitisation debt (eligibility / advance rate) (22.4) (9.5)
Net cash outflow from the customer loan book (21.0) (6.1)
Net cash (outflow) / generation (10.5) 18.3
(1)Refer to FY22 prior year adjustment on page 11.
Net cash increased by £4.1m compared to a reduction of £38.9m in the prior
year. Excluding voluntary flexible drawdown of the securitisation facility of
£14.6m this year and voluntary repayment of £57.2m in the prior year, net
cash outflow from operations was £10.5m (H1 22 net cash generation: £18.3m).
The undrawn headroom on the securitisation facility was £45.5m (H1 22:
£57.2m).
The net cash outflow has been driven by a greater decrease in securitisation
debt than seen in prior year. £(4.0)m (H1 22: £(5.0)m) reflects the
reduction in the customer loan book during the period. £(22.4)m (H1 22:
£(9.5)m) is driven by a reduction in the level of eligible receivables within
the loan book which can be securitised. The lower level of eligible
receivables is a result of a return to a more normal level of build up of
payment arrangements in the year with an increase of £31m in payment
arrangements since year end. This includes where customers have chosen to
proactively use these, which the business continues to facilitate as a
responsible lender.
Net inventory levels at the end of the half were up 14.4% against prior year,
to £103.0m (H1 22: £90.0m). We have invested in our improved product
offering and ensured availability of supply for our customers and the balance
has a higher proportion of current season stock than prior year. The balance
also includes c. £2m higher freight costs than in the prior year. Given the
revenue expectations for H2, we have plans in place to carefully manage
inventory intake.
Capital expenditure of £11.2m (FY21: £10.5m) was slightly higher than prior
year and an increase in the level of spend is planned for H2 to deliver the
ongoing digital transformation of the business.
Adjusted net debt
Unsecured net cash, which is defined as the amount drawn on the Group's
unsecured borrowing facilities less cash balances, closed the half with
unsecured net cash of £47.2m (FY22: unsecured net cash £43.1m; H1 22:
unsecured net cash £41.9m).
Adjusted net debt decreased by £15.9m in the half against FY22 year end, to
£243.5m (FY22: £259.4m; H1 22: £268.3m). This is the net amount of £47.2m
of cash and £290.7m of debt drawn against the securitisation funding facility
which is backed by eligible customer receivables. The £492.0m net customer
loan book significantly exceeds this adjusted net debt figure.
Dividend and capital allocation
In the context of the current macroeconomic uncertainty in FY23, the Board
will defer the decision on the reintroduction of a divided until FY24.
Nevertheless, the Directors continue to recognise that dividends are an
important part of shareholders' returns.
Pension scheme
The Group's defined benefit pension scheme has a surplus of £31.4m (H1 22:
£27.1m surplus).
Since the interim reporting date there has been significant volatility in
financial markets, however the net balance sheet position of the Fund is not
expected to have materially changed. The Fund's investment strategy aims to
hedge the impact of changes in interest rates and inflation expectation, to
limit the impact of market volatility on the funding position. Whilst the
recent increase in bond yields will have reduced the value of the Fund's
liabilities, this is expected to have been largely offset by a similar
reduction in the value of the Fund's investments.
Allianz litigation
During the period to 27 August 2022, there have been no material developments
in the litigation which would materially change the Group's estimated
potential net outflow (see Note 16 for full details).
KPI DEFINITIONS
Measure Definition
Total website sessions Total number of sessions across N Brown apps, mobile and desktop websites in
the 6 or 12 month period
Total active customers Customers who placed an accepted order in the 12 month period to reporting
date
Total orders Total accepted orders placed in the 6 or 12 month period. Includes online
and offline orders.
AOV Average order value based on accepted demand(1)
AIV Average item value based on accepted demand
Items per order Average number of items per accepted order
Orders per customer Average number of orders placed per ordering customer
Conversion % of app/web sessions that result in an accepted order
NPS Customers asked to rate likelihood to "recommend the brand to a friend or
colleague" on a 0-10 scale (10 most likely). NPS is (% of 9-10) minus (% of
0-6). NPS is recorded on JD Williams, Simply Be, Ambrose Wilson, Jacamo, Home
Essentials and Fashion World.
FS Arrears Arrears are stated including both customer debts with two or more missed
payments, or customer debts on a payment hold.
(1)Accepted demand is defined as the value of Orders from customers (including
VAT) that we accept, i.e. after our credit assessment processes.
APM GLOSSARY
The statement includes APMs, which are not defined or specified under the
requirements of IFRS. These APMs are consistent with how the Group measures
performance internally and are also used in assessing performance under the
Group's incentive plans. Therefore, the Directors believe that these APMs
provide stakeholders with additional, useful information on the Group's
performance.
Alternative Performance Measure Definition
Adjusted gross profit Gross profit excluding exceptional items.
Adjusted gross profit margin Adjusted gross profit as a percentage of Group Revenue.
Adjusted EBITDA Operating profit, excluding exceptional items, with depreciation and
amortisation added back.
Adjusted EBITDA margin Adjusted EBITDA as a percentage of Group Revenue.
Adjusted profit before tax Profit before tax, excluding exceptional items and fair value movement on
financial instruments.
Adjusted profit before tax margin Adjusted profit before tax expressed as a percentage of Group Revenue.
Net Cash generation /(outflow) Net cash generated from the Group's underlying operating activities.
Adjusted Operating costs Operating costs less depreciation, amortisation and exceptional items.
Adjusted Operating costs to revenue ratio Adjusted operating costs expressed as a percentage of Group Revenue.
Adjusted Net debt Total liabilities from financing activities less cash, excluding lease
liabilities.
Net debt Total liabilities from financing activities less cash.
Unsecured net cash / (debt) Amount drawn on the Group's unsecured debt facilities less cash balances. This
measure is used to calculate the Group's leverage ratio, a key debt covenant
measure.
Total Accessible Liquidity Total cash and cash equivalents, less restricted amounts, and available
headroom on secured and unsecured debt facilities.
Adjusted Earnings per share Adjusted earnings per share based on earnings before exceptional items and
fair value adjustments, which are those items that do not form part of the
recurring operational activities of the Group.
The reconciliation of the statutory measures to adjusted measures is included
in the Financial Review report on page 12.
Unaudited Condensed consolidated income statement
for the 26 weeks ended 27 August 2022
26 weeks to 27 August 2022 26 weeks to 26 weeks to 27 August 2022 26 weeks to 28 August 2021 26 weeks to 26 weeks to 28 August 2021
27 August 28 August
2022 2021
Before exceptional items Exceptional items Total Before exceptional items Exceptional items Total
(Note 5) (Note 5)
Note £m £m £m £m £m £m (Restated(1))
(Restated(1))
Revenue 222.1 - 222.1 232.9 - 232.9
Credit account interest 4 109.4 - 109.4 114.5 - 114.5
Total revenue 4 331.5 - 331.5 347.4 - 347.4
Cost of sales (115.7) - (115.7) (125.1) - (125.1)
Impairment losses on customer receivables 4 (59.3) - (59.3) (45.0) - (45.0)
Net impairment charge 4 (59.3) - (59.3) (45.0) - (45.0)
4 156.5 - 156.5 177.3 - 177.3
Gross profit
Operating profit 4 10.8 - 10.8 31.2 - 31.2
Finance costs (6.5) - (6.5) (6.8) - (6.8)
Profit before taxation and fair value adjustments to financial instruments 4.3 - 4.3 24.4 - 24.4
Fair value adjustments to financial instruments 6 2.9 - 2.9 4.0 - 4.0
Profit before taxation 7.2 - 7.2 28.4 - 28.4
Taxation 7 (1.6) - (1.6) (4.8) - (4.8)
Profit for the period 5.6 5.6 23.6 23.6
(1) Refer to prior year adjustment on page 11.
Earnings per share from continuing operations
Basic 8 1.22p 5.10p
Diluted 8 1.21p 5.09p
Unaudited condensed consolidated statement of comprehensive income
for the 26 weeks ended 27 August 2022
26 weeks to 27 August 2022 26 weeks to 28 August 2021
£m £m
(Restated(1))
Profit for the period 5.6 23.6
Items that will not be classified subsequently to profit or loss:
Actuarial (losses)/gains on defined benefit pension schemes (6.8) 1.0
Tax relating to items not reclassified 2.4 (0.4)
(4.4) 0.6
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 0.1 (0.2)
Fair value movements of cash flow hedges 27.3 -
Reclassified from OCI to profit & loss (0.2) -
Tax relating to these items (5.7) -
Total comprehensive income for the period attributable to equity holders of 22.7 24.0
the parent
(1) Refer to prior year adjustment on page 11.
Condensed consolidated balance sheet
As at 27 August 2022
As at 27 August 2022 (unaudited) As at 28 August 2021 (unaudited) As at 26 February 2022 (audited)
Note £m £m £m
(Restated(1))
Non-current assets
Intangible assets 9 108.3 118.3 113.0
Property, plant & equipment 10 58.6 60.2 58.5
Right-of-use assets 0.7 3.0 1.1
Retirement benefit surplus 31.4 27.1 37.4
Derivative financial instruments 6 10.3 0.5 5.1
Deferred tax assets 11.5 12.7 11.5
220.8 221.8 226.6
Current assets
Inventories 103.0 90.0 87.3
Trade and other receivables 11 516.3 537.3 533.1
Derivative financial instruments 6 21.1 0.5 1.7
Current tax asset 0.4 - 1.0
Cash and cash equivalents 13 47.2 41.9 43.1
688.0 669.7 666.2
Total assets 908.8 891.5 892.8
Current liabilities
Provisions 16 (27.6) (3.9) (30.9)
Trade and other payables 12 (103.8) (113.5) (94.7)
Lease liability (0.6) (1.3) (0.9)
Derivative financial instruments 6 - (3.1) (0.4)
Current tax liability - (2.1) -
(132.0) (123.9) (126.9)
Net current assets 566.0 545.8 539.3
Non-current liabilities
Bank loans 14 (290.7) (310.2) (302.5)
Lease liability (0.2) (2.6) (0.4)
Derivative financial instruments 6 - (0.9) -
Deferred tax liabilities (24.0) (16.9) (20.7)
(314.9) (330.6) (323.6)
Total liabilities (446.9) (454.5) (450.5)
Net assets 461.9 437.0 442.3
Equity
Share capital 50.9 50.9 50.9
Share premium 85.0 85.0 85.0
Own shares - 0.2 (0.2)
Cash flow hedge reserve 22.7 - 5.5
Foreign currency translation reserve 1.1 0.2 1.0
Retained earnings 302.2 300.7 300.1
Total equity 461.9 437.0 442.3
(1) Refer to prior year adjustment on page 11.
Condensed consolidated cash flow statement
For the 26 weeks ended 27 August 2022
26 weeks to 27 August 2022 (unaudited) 26 weeks to 28 August 2021 (unaudited) 26 weeks to 26 February 2022 (audited)
£m £m £m
(Restated(1))
Net cash inflow from operating activities 34.3 51.1 78.7
Investing activities
Purchase of property, plant and equipment (1.9) (1.6) (3.4)
Expenditure on intangible assets (9.3) (8.9) (16.4)
Net cash used in investing activities (11.2) (10.5) (19.8)
Financing activities
Interest paid (6.5) (6.7) (13.8)
Repayment of bank loans (11.8) (71.7) (79.3)
Principal elements of lease payments (0.5) (1.0) (1.8)
Proceeds from foreign exchange contracts 0.8 - (1.3)
Net cash outflow from financing activities (18.0) (79.4) (96.2)
Net foreign exchange difference (1.0) (0.1) (0.4)
Net increase/ (decrease) in cash and cash equivalents and bank overdraft 4.1 (38.9) (37.7)
Cash and cash equivalents and bank overdraft at beginning of period 43.1 80.8 80.8
Cash and cash and bank overdraft equivalents at end of period 47.2 41.9 43.1
(1) Refer to prior year adjustment on page 11.
Reconciliation of operating profit to net cash from operating activities
26 weeks to 27 August 2022 (unaudited) 26 weeks to 28 August 2021 (unaudited) 26 weeks to 26 February 2022 (audited)
£m £m £m
(Restated(1))
Profit for the period 5.6 23.6 16.2
Adjustments for:
Taxation charge 1.6 5.3 3.0
Fair value adjustments to financial instruments (2.9) (4.0) (4.8)
Net foreign exchange gain 1.0 0.1 0.4
Finance costs 6.5 6.8 13.8
Depreciation of right-of-use assets 0.4 0.6 1.2
Depreciation of property, plant and equipment 2.1 2.1 4.4
Gain on disposal of right of use assets - - (0.5)
Amortisation of intangible assets 14.6 18.6 32.5
Share option charge 1.1 0.6 0.8
Operating cash flows before movements in working capital 30.0 53.2 67.0
Increase in inventories (15.6) (12.4) (9.6)
Decrease in trade and other receivables 16.3 12.3 15.9
Increase /(decrease) in trade and other payables 8.2 3.2 (13.5)
(Decrease)/increase in provisions (3.3) (0.9) 26.1
Pension obligation adjustment (0.3) (0.6) (0.9)
Cash generated by operations 35.3 54.8 85.0
Taxation paid (1.0) (3.7) (6.3)
Net cash inflow from operating activities 34.3 51.1 78.7
(1) Refer to prior year adjustment on page 11.
Changes in liabilities from financing activities 26 weeks to 27 August 2022 (unaudited) 26 weeks to 28 August 2021 (unaudited) 26 weeks to 26 February 2022 (audited)
£m £m £m
Loans and borrowings balance brought forward 303.8 386.8 386.8
Changes from financing cashflows
Net repayment on loans and borrowings (12.6) (71.5) (79.2)
Lease payments in the period (0.5) (1.0) (1.8)
Lease disposals in the year - - (1.8)
Decrease in loans and borrowings due to changes in interest rates 0.8 (0.2) (0.2)
Decrease in loans and borrowings (12.3) (72.7) (83.0)
Loans and borrowings balance carried forward 291.5 314.1 303.8
Unaudited consolidated statement of changes in equity
Share Capital Share premium Own shares Cash Flow Hedge Reserve Foreign currency translation Reserve Retained earnings Total
Changes in equity for the 26 weeks to 27 August 2022 £m £m £m £m £m £m £m
Balance at 27 February 2021 50.9 85.0 (0.3) - 0.4 276.3 412.3
Total comprehensive income for the period
Profit for the period - - - - - 23.6 23.6
Other items of comprehensive loss for the period - - - - (0.2) 0.6 0.4
Total comprehensive income for the period - - - - (0.2) 24.2 24.0
Transactions with owners recorded directly in equity
Issue of own shares by ESOT - - 0.5 - - (0.4) 0.1
Share option charge - - - - - 0.6 0.6
Total contributions by and distributions to the owners - - 0.5 - - 0.2 0.7
Balance at 28 August 2021 (Restated(1)) 50.9 85.0 0.2 - 0.2 300.7 437.0
Total comprehensive income for the period
Loss for the period - - - - - (7.3) (7.3)
Other items of comprehensive income for the period - - - 6.0 0.8 6.2 13.0
Total comprehensive income for the period - - - 6.0 0.8 (1.1) 5.7
Hedging gains transferred to the cost of inventory - - - (0.5) - - (0.5)
Transactions with owners recorded directly in equity
Issue of own shares by ESOT - - (0.4) - - 0.4 -
Share option charge - - - - - 0.2 0.2
Total contributions by and distributions to the owners - - (0.4) (0.5) - 0.6 (0.3)
Balance at 26 February 2022 50.9 85.0 (0.2) 5.5 1.0 300.2 442.4
Total comprehensive income for the period
Profit for the period - - - - - 5.6 5.6
Other items of comprehensive income /(loss) for the period - - - 21.4 0.1 (4.4) 17.1
Total comprehensive income for the period - - - 21.4 0.1 1.2 22.7
Hedging gains transferred to the cost of inventory - - - (4.2) - - (4.2)
Transactions with owners recorded directly in equity
Issue of own shares by ESOT - - 0.2 - - (0.3) (0.1)
Share option charge - - - - - 1.1 1.1
Total contributions by and distributions to the owners - - 0.2 - - 0.8 1.0
Balance at 27 August 2022 50.9 85.0 - 22.7 1.1 302.2 461.9
(1)Refer to prior year adjustment on page 11.
Notes to the unaudited consolidated financial statements
For the 26 weeks ended 27 August 2022
1. Basis of preparation
This condensed set of consolidated interim financial statements has been
prepared in accordance with IAS 34 Interim Financial Reporting in conformity
with the requirements of the Companies Act 2006. 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 26 February 2022. The annual financial statements of
the Group are prepared in accordance with International Financial Reporting
Standards (IFRSs) in conformity with the requirements of the Companies Act
2006.
The comparative figures for the year ended 26 February 2022 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 of matter, and (iii) did not contain a statement under section 498
(2) or (3) of the Companies Act 2006.
After making appropriate enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in the preparation of these financial statements. This is
explained in further detail in note 3.
The accounting policies and presentation adopted in the preparation of these
consolidated interim financial statements are consistent with those disclosed
in the published annual report & accounts for the 52 weeks ended 26
February 2022.
At the date of issue of these interim financial statements the following
standards and interpretations became effective in the current financial year,
and have been applied for the first time in these financial statements:
Annual improvements to IFRS 2018-2020 Cycle
Conceptual Framework for Financial Reporting (Amendments to IFRS 3)
IAS 37 Provisions , Contingent Liabilities and Contingent Assets (Amendment -
Onerous Contracts)
IAS 16 Property, Plant and Equipment (Amendment - Proceeds before Intended
Use)
None of these new standards and interpretations have had any material impact
on these financial statements.
Critical judgements and key sources of estimation uncertainty
In preparing the condensed interim financial statements, the areas of critical
judgements made by management in applying the Group's accounting policies and
the key sources of estimation uncertainty related to the same areas as those
applied to the consolidated financial statements for the year ended 26
February 2022.
The key areas of significant judgements made by management in applying the
Group's accounting policies during the period were as follows:
· Impairment of customer receivables (critical judgement and estimation
uncertainty)
· Software and development costs (critical judgement and estimation
uncertainty)
· Impairment of non-financial assets (critical judgement and estimation
uncertainty)
· Allianz claim and counterclaim (critical judgement and estimation
uncertainty)
· Defined benefit plan (estimation uncertainty)
2. Key risks and uncertainties
The Group continues to enhance and embed risk management practices in support
of the N Brown Enterprise Risk Management Framework ("RMF"). The RMF enables
the Group to maintain robust governance and oversight around risk management
activities across the business to underpin a standardised approach to managing
risks.
Principal risks with the potential to impact on performance and the delivery
of the strategic roadmap in year or through the planning cycle are defined as:
1. Conduct and
Customer
8. Legal and Regulatory Compliance
2. Information
Security
9. Credit
3. Financial Crime
10. Technology
4. Business Resilience
11. People
5. Financial
12. Strategic
6. Change
13. Supplier and Outsourcing
7. Data
We have added a significant risk in relation to the macro-economic environment
which is explained below.
The macro-economic environment
The current operating and economic environment is extremely challenging.
Significant increases in energy prices, general price increases and interest
rate increases are putting pressure on household budgets and adversely
impacting consumer confidence. The cost of living crisis is adversely
impacting all elements of people's lives including their decisions in relation
to spending on non-essential items.
Whilst recent and future government intervention may help reduce the impact,
the recently announced Government Growth Plan has, initially at least,
increased forecast interest rates and impacted dollar exchange rates. These
could increase future pressure on household income.
The Group actively manages currency and interest rate fluctuations through
hedging in the near term. Currency arrangements expire on a rolling basis with
reducing hedging levels up to 24 months. We continue to monitor rates to
identify the most appropriate hedging strategy going forward.
The cost pressures noted above may create affordability challenges for our
credit customers. Leading indicators are tracked to enable the Group to react
to changes in the lending market. We also ensure that appropriate forbearance
options are in place to ensure good customer outcomes for those impacted by
these issues.
The ongoing conflict in Ukraine has added further uncertainty to the
macro-economic environment, reduced customer confidence and increased pressure
in the supplier chain. A sustained decrease in the value of the pound against
the dollar will significantly increase product costs.
The Board maintains a continuous process for identifying, evaluating and
managing risk as part of its overall responsibility for maintaining internal
controls and the RMF. This process is intended to provide reasonable assurance
regarding compliance with laws and regulations as well as commercial and
operational risks.
Specific review and identification of existing and emerging risks is
facilitated by routine Board-level risk assessment cycles completed during the
year, as informed by a routine of regular risk assessments at business unit
level. Outputs are reported to the Audit and Risk Committee.
In setting strategy, the Board considers Environmental, Social and Governance
("ESG") factors, drivers and impacts on the health and sustainability of the
business. Furthermore, in general terms the strategy is designed to deliver
long term sustainable business success. The RMF has been established to
provide an overview of strategic risk and as such incorporates assessments of
risks that have the potential to create ESG exposures; these are reported
through the governance framework and managed accordingly.
Increased risk in the external environment of many of our principal risks is
leading to a worsening risk position in many categories, despite improvements
to the control environment. Control enhancements are identified routinely and
on a continuous basis as we test controls, review operational issues and
perform assurance activities.
The Group recognises that no system of controls can provide absolute assurance
against material misstatement, loss or failure to meet its business
objectives.
3. Going Concern
After reviewing the Group's forecasts and risk assessments, including
assumptions around capital and operating expenditure and their impact on cash
flows, the Directors have formed a judgement at the time of approving the
financial statements, that there is a reasonable expectation that the Group
has adequate resources to continue in operational existence for the 12 months
from the date of signing these financial statements.
In reaching their conclusions, the Directors have considered the Group's
cashflow and revenue projections for the 12 months following the date of
signing these results, which have been borne out of extensive scenario
testing, based on a variety of end market assumptions, while taking account of
appropriate mitigating actions within the direct control of the Group. The
Directors have had regard to the implications of recent market movements, in
particular, the effect of the weakening of Sterling against the US dollar on
the cost of goods purchased in US dollars and the potential impact of rising
interest rates on its cost of borrowing; consumer confidence and the health of
its debtor book which affects its ability to draw down on the securitisation
facility and the impact of severe but plausible downside scenarios on the cash
flows. Under the severe but plausible downside scenario, the Group continues
to be in compliance with all relevant covenants associated with its available
facilities.
For this reason, the Directors continue to adopt the going concern basis in
preparing the financial statements.
As at 27 August 2022, the Group had cash of £47.2m, net restricted cash of
£4.0 and undrawn secured facilities of £45.5m. In addition, the Group had
£112.5m of unsecured facilities that were not drawn. This gives rise to total
accessible liquidity ("TAL") of £201.1m (FY22 year end: £210.0m).
4. Business Segments
The Group has identified two operating segments in accordance with IFRS 8 -
Operating segments, Product Revenue and Financial Services ("FS"). The Board
receives monthly financial information at this level and uses this information
to monitor the performance of the Group, allocate resources and make
operational decisions. Internal reporting focuses and tracks revenue, cost of
sales and gross margin performance across these two segments separately.
However, it does not track operating costs or any other income statement
items.
Revenues and costs associated with the product segment relate to the sale of
goods through various brands. The Product cost of sales is inclusive of VAT
bad debt relief claimed of £9.0m (H1 22: £7.2m) as a consequence of customer
debt write off, with the write off presented in Financial Services cost of
sales. As disclosed in the FY22 Annual Report and Accounts, during the prior
year amounts relating to deceased customer accounts debt write off of £2.1m
were re-represented within FS cost of sales from product revenue. The revenue
and costs associated with the Financial Services segment relate to the income
from provision of credit terms for customer purchases, and the costs to the
business of providing such funding. To increase transparency, the Group has
included additional voluntary disclosure analysing product revenue within the
relevant operating segment, by strategic and other brand categorisation.
26 weeks to 27 August 2022 26 weeks to 28 August 2021
£m £m
(Restated(1))
Analysis of revenue:
Sale of goods 200.7 212.4
Postage and packaging 10.5 10.3
Product - total revenue 211.2 222.7
Other financial services revenue 10.9 10.2
Credit account interest 109.4 114.5
Financial Services - total revenue 120.3 124.7
Total Group Revenue 331.5 347.4
Analysis of cost of sales:
Product - total cost of sales (115.0) (124.5)
Impairment losses on customer receivables (59.3) (45.0)
Other financial services cost of sales (0.7) (0.6)
Financial Services - total cost of sales (60.0) (45.6)
Cost of sales (175.0) (170.1)
156.5
Gross profit 177.3
Gross profit margin 47.2% 51.0%
Gross margin - Product 45.5% 44.1%
Gross margin - Financial Services 50.1% 63.4%
Warehouse and fulfilment (31.7) (31.9)
Marketing and production (36.5) (33.5)
Other administration and payroll (60.4) (59.4)
Adjusted operating costs before exceptional items (128.6) (124.8)
Adjusted EBITDA 27.9 52.5
Adjusted EBITDA margin 8.4% 15.1%
Depreciation and amortisation (17.1) (21.3)
Exceptional items charged to operating profit (note 5) - -
Operating profit 10.8 31.2
Finance costs (6.5) (6.8)
Fair value adjustments to financial instruments including exceptional fair 2.9 4.0
value gain (note 6)
Profit before taxation 7.2 28.4
(1)Refer to prior year adjustment on page 11.
26 weeks to 27 August 2022 26 weeks to 28 August 2021
£m £m
(Restated(1,2))
Analysis of Product revenue:
Strategic brands(3) 150.6 154.0
Heritage brands(4) 60.6 68.7
Total Product revenue 211.2 222.7
Financial Services revenue 120.3 124.7
Total Group revenue 331.5 347.4
(1)Refer to prior year adjustment on page 11..
(2)Brand split re-represented into Strategic and Heritage brands in line with the Group's strategy.
(3)Strategic brands include JD Williams, Simply Be and Jacamo.
(4)Heritage brands include Ambrose Wilson, Home Essentials, Fashion World,
Marisota, Oxendales and Premier Man.
The Group has one significant geographical segment, which is the United
Kingdom. Revenue derived from Ireland amounted to £8.6m (H1 22: £10.5m).
Operating results from international markets amounted to £0.8m profit (H1 22,
£2.0m profit). All segment assets are located in the UK and Ireland. All
non-current assets are located in the UK.
For the purposes of monitoring segment performance, assets and liabilities are
not measured separately for the two reportable segments of the Group.
Impairments of tangible and intangible assets in the current period were £nil
(H1 22: £nil).
5. Exceptional items
26 weeks to 27 August 2022 26 weeks to 28 August 2021
£m £m
Allianz Litigation - 1.0
Historical Tax matters - (0.8)
Other legacy matters - (0.2)
Items charged to profit before tax - -
ALLIANZ LITIGATION
During the prior period, the Group recorded a charge for legal costs of £1.0m
in relation to the ongoing legal dispute with Allianz Insurance Plc. The
provision of £28.0m booked in the Group's 2022 Annual Report and Accounts,
continues to represent the best estimate for accounting purposes of the
potential costs of settlement or award and future legal costs. The provision
outstanding at 27 August 2022 was £25.5m. Details of the legal case and
estimation uncertainty involved in the amount recognised is disclosed in note
18.
HISTORICAL TAX MATTERS
The Group has now reached agreement with HMRC over a number of historical VAT
and other tax matters. The release of £0.8m in the prior period related to
provisions no longer required.
OTHER LEGACY MATTERS
During the prior year the Group had a release of £0.2m representing a true up
to items presented as exceptional in prior periods.
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:
27 August 2022 28 August 2021
£m £m
Notional amount - Sterling contract value (designated cash flow hedges - 250.0 -
Interest rate swap)
Notional amount - Sterling contract value (designated cash flow hedges - 120.9 -
Foreign exchange forwards)
Notional amount - Sterling contract value (FVPL) 15.0 156.9
Total notional amount 385.9 156.9
The Group has fair value amounts held for derivative financial liabilities in
the following line items on the Balance Sheet:
27 August 2022 28 August 2021
Current Assets £m £m
Interest rate swap - cash flow hedges 7.7 -
Foreign currency forwards - cash flow hedges 11.8 -
Foreign currency forwards - non designated instruments at FVPL 1.6 0.5
Total 21.1 0.5
27 August 2022 28 August 2021
Non-current Assets £m £m
Interest rate swap - cash flow hedges 7.3 -
Foreign currency forwards - cash flow hedges 3.0 -
Foreign currency forwards - non designated instruments at FVPL - 0.5
Total 10.3 0.5
27 August 2022 28 August 2021
Current liabilities £m £m
Foreign currency forwards - non designated instruments at FVPL - 3.1
Total - 3.1
27 August 2022 28 August 2021
Non-current liabilities £m £m
Foreign currency forwards - non designated instruments at FVPL - 0.9
Total - 0.9
The fair value of foreign currency and interest rate derivative contracts is
the market value of the instruments as at the balance sheet date. Market
values are calculated with reference to the duration of the derivative
instrument together with the observable market data such as spot and forward
interest rates, foreign exchange rates and market volatility at the balance
sheet date.
Changes in the fair value of derivatives not designated for hedge accounting
amounted to a gain of £2.9m (H1 22: £4.0m), recognised through the Income
statement in the period.
Changes in the fair value of derivatives designated for hedging purposes
amounted to £27.3m (H1 22: £nil) recognised through the cash flow hedge
reserve.
Financial instruments that are measured subsequent to initial recognition at
fair value are all grouped into Level 2 (H1 22: Level 2).
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
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 current or
prior period. Hedge accounting was adopted from the 29 August 2021, and from
this point fair value movements on the designated financial instruments were
taken to a hedge reserve.
7. Taxation
The underlying effective tax rate for the full year is estimated to be 22.3%
(H1 22: 18.1%) and applying this to the profits for the 26 weeks period ended
27 August 2022, after factoring in discrete items, gives a total interim
effective tax rate for the six months period of 22.3% (H1 22: 16.7%). The
current period rate is higher than the statutory UK tax rate of 19% due to the
impact of prior year adjustments on deferred tax recognised at 25% (following
enactment of the higher rate in the prior period) and assumed utilisation of
brought forward trading losses, partially offset by benefits from fixed asset
expenditure including use of the super deduction scheme. In the prior period,
the effective rate was lower than the statutory UK tax rate of 19% due to
deferred tax assets being recalculated at 25% from 19%, the availability of
the super deduction announced by the government on fixed asset expenditure and
a lower country rate of tax being applied to those profits arising in Ireland.
On 23 September, the Government announced their intention to retain the rate
of Corporation Tax at 19% and reverse the intended increase 25% from 1st April
2024. Had this change been enacted at the half year, the effective tax rate,
including discrete items, would have been 16.85%.
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 exceptional items that are one-off in nature and material by
size and fair value adjustments that are considered to be distortive of the
true underlying performance of the business. 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 diluted earnings per share: 26 weeks to 26 weeks to
27 August 2022 28 August 2021
£m £m
(Restated(1))
Total net profit attributable to equity holders of the parent 5.6 23.4
Fair value adjustment to financial instruments (net of tax) (2.3) (3.2)
Exceptional items (net of tax) - -
Adjusted profit for the period as used in headline earnings per share 3.3 20.2
(1)Refer to prior year adjustment on page 11.
Number of shares for the purposes of basic and diluted earnings per share: 26 weeks to 26 weeks to
27 August 2022 28 August 2021
m m
Weighted average number of shares in issue - basic 459.3 458.5
Dilutive effect of share options 2.6 1.4
Weighted average number of shares in issue - diluted 461.9 459.9
Earnings per share
Basic 1.22 5.10
Diluted 1.21 5.09
Adjusted earnings per share
Basic 0.72 4.41
Diluted 0.71 4.39
9. Intangible assets
Brands Software Customer database Total
£m £m £m £m
Cost
As at 27 February 2021 16.9 369.9 1.9 388.7
Additions - 8.9 - 8.9
Disposals - (12.3) - (12.3)
As at 28 August 2021 (Restated(1)) 16.9 366.5 1.9 385.3
Additions - 7.4 - 7.4
Reclass - 1.5 - 1.5
Disposals - (2.1) - (2.1)
As at 26 February 2022 16.9 373.3 1.9 392.1
Additions - 9.9 - 9.9
Disposals - - - -
As at 27 August 2022 16.9 383.2 1.9 402.0
Amortisation
As at 27 February 2021 16.9 241.8 1.9 260.6
Charge for the period - 18.6 - 18.6
Impairment - - - -
Transfer from tangible assets - - - -
Disposals - (12.2) - (12.2)
As at 28 August 2021 (Restated(1)) 16.9 248.2 1.9 267.0
Charge for the period - 13.9 - 13.9
Reclass - 0.4 - 0.4
Impairment - - - -
Disposals - (2.2) - (2.2)
As at 26 February 2022 16.9 260.3 1.9 279.1
Charge for the period - 14.6 - 14.6
Impairment - - - -
Disposals - - - -
As at 27 August 2022 16.9 274.9 1.9 293.7
Carrying amounts
As at 27 August 2022 - 108.3 - 108.3
As at 26 February 2022 - 113.0 - 113.0
As at 28 August 2021 (Restated(1)) - 118.3 - 118.3
As at 27 February 2021 - 128.1 - 128.1
(1)Refer to prior year adjustment on page 11.
Assets in the course of construction included in intangible assets at the
period end total £8.8m (H1 22: £15.7m). No amortisation is charged on these
assets until they are available for use.
As at 27 August 2022, the Group had entered into contractual commitments for
the further development of intangible assets of £5.0m (H1 22: £6.1m) of
which £5.0m (H1 22: £3.6m) is due to be paid within 1 year.
CHANGE IN ACCOUNTING POLICY
In the prior year, the Group reviewed its accounting policy at February 2022
following the IFRIC agenda decision in respect of the configuration and
customisation costs previously capitalised in respect of its SaaS
implementations. The half year comparatives have been restated to reflect this
impact, and total amortisation charge of £0.6m in the half year ended 28
August 2021 has been reversed.
IMPAIRMENT TESTING OF INTANGIBLE ASSETS
The Group tests its intangible and tangible assets annually for impairment or
more frequently if there are indicators of impairment. As previously
highlighted one of the key indicators is when the market capitalisation is
lower than the net assets of the Group. At the balance sheet date of 27
August 2022, this indicator was triggered, and the Board also considered the
change in economic conditions since the period end. An assessment was
performed consistent with the year end methodology. The key inputs
considered included a pre tax discount rate of 18.6% and replacement capex of
£15m in the terminal year. This assessment concluded that no impairment was
required as at the reporting date of 27 August 2022.
Following the period end, significant challenges in the economy and market
conditions have been experienced. The Board recognise that these are likely
to introduce an increased level of uncertainty around the Group's short to
medium term performance and may impact the key inputs such as the discount
rate.
The value in use model is sensitive to changes in assumptions, and the Board
is closely monitoring developments in the economic and market conditions over
the coming months. Any changes required will be reflected in the value in
use model assessed as part of the annual impairment review for the financial
year ending 4 March 2023.
10. Property, plant and equipment
Additions to tangible fixed assets during the period of £2.1m (H1 22: £1.3m)
primarily relate to warehousing improvement projects. Depreciation of £2.0m
(H1 22: £2.1m) was charged during the period. Additionally, depreciation
relating to IFRS 16 right of use assets amounted to £0.4m (H1 22: £0.6m)
during the period.
Assets in the course of construction included in fixtures and equipment at the
period end total £1.3m (H1 22: £1.9m), and in land and buildings total £nil
(HY 22: £nil). No depreciation is charged on these assets until they are
available for commercial use.
11. Trade and other receivables
27 August 2022 28 August 2021 26 February 2022
£m £m £m
Amounts receivable for the sale of goods and services 571.7 597.7 577.2
Allowance for expected credit losses (79.7) (88.1) (68.7)
Net trade receivables 492.0 509.6 508.5
Other receivables and prepayments 24.3 27.7 24.6
Trade and other receivables 516.3 537.3 533.1
Movement in the allowance for doubtful debts *Re-presented
Balance at the beginning of the period 68.7 85.2 85.2
Impairment 41.9 30.4 64.3
Utilised during the period (30.9) (27.5) (80.8)
Balance at the end of the period 79.7 88.1 68.7
11.0 2.9 (16.5)
Income statement impairment charge *Re-presented
Provision movements 11.0 2.9 (16.5)
Gross write-offs 52.7 43.3 144.9
Recoveries (7.1) (4.5) (36.8)
Other items 2.7 1.3 2.7
Net impairment charge 59.3 43.0 94.3
Other receivables and prepayments include a balance of £0.8m (H1 22: £3.1m)
relating to amounts due from wholesale partners.
Trade receivables are measured at amortised cost.
As at 27 August 2022
Stage 1 Stage 2 Stage 3 Total
Gross trade receivables 388.1 99.7 83.9 571.7
Allowance for ECL (7.6) (25.2) (46.9) (79.7)
Net trade receivables 380.5 74.5 37.0 492.0
ECL % (2.0%) (25.2%) (55.9%) (13.9%)
Balances proportion 67.9% 17.4% 14.7% 100%
ECL proportion 9.6% 31.6% 58.8% 100%
Net trade receivables proportion 77.3% 15.1% 75.5% 100%
As at 28 August 2021
Stage 1 Stage 2 Stage 3 Total
Gross trade receivables 380.2 146.1 71.4 597.8
Allowance for ECL excl. Covid Impact (6.8) (27.2) (41.6) (76.0)
Outside of IFRS9 provisions 0.0 0.0 0.0 0.0
Covid Impact on ECL 0.0 (4.7) (0.5) (5.2)
Allowance for ECL incl. Covid Impact (6.8) (31.9) (49.5) (88.1)
Net trade receivables 373.5 114.2 21.9 509.6
ECL % excl Covid impact (1.8%) (18.6%) (68.7%) (13.9%)
ECL % (1.8%) (21.8%) (69.4%) (14.7%)
Balances proportion 63.6% 24.4% 11.9% 100.0%
ECL proportion 7.7% 36.1% 56.2% 100.0%
Net trade receivables proportion 73.3% 22.4% 4.3% 100.0%
The increase in Stage 2 balances and ECLs is driven by a shift in balances
from Stage 1 to Stage 2 of £77.0m due to updated SICR methodology to capture
more accounts with significant increase in credit risk prior to them rolling
into arrears.
12. Trade and other payables
27 August 2022 28 August 2021 26 February 2022
£m £m £m
Trade payables 61.6 53.6 47.5
Other payables 6.4 8.3 11.0
Accruals and deferred income 35.8 51.6 36.2
Trade and other payables 103.8 113.5 94.7
Trade payables and accruals principally comprise amounts outstanding for trade
purchases and ongoing costs. The average credit period taken for trade
purchases, based on invoice date, at HY 23 is 50 days (H1 22: 53 days).
The Group has financial risk management policies in place to ensure that all
payables are paid within agreed credit terms.
The Group continues to have a supplier financing arrangement which is
facilitated by HSBC. The principal purpose of this arrangement is to enable
the supplier, if it so wishes, to sell its receivables due from the Group to a
third-party bank prior to their due date, thus providing earlier access to
liquidity. From the Group's perspective, the invoice payment due date remains
unaltered and the payment terms of suppliers participating in the programme
are similar to those suppliers that are not participating. The maximum
facility limit as at 27 August 2022 was £15.0m (HY 22: £15.0m). At 27 August
2022, total of £11.9m (HY 22: £10.3m) had been funded under the programme.
The scheme is based around the principle of reverse factoring whereby the bank
purchases from the suppliers approved trade debts owed by the Group. Access to
the supplier finance scheme is by mutual agreement between the bank and
supplier, where the supplier wishes to be paid faster than standard Group
payment terms; the Group is not party to this contract. The scheme has no cost
to the Group as the fees are paid by the supplier directly to the bank. The
bank has no special seniority of claim to the Group upon liquidation and would
be treated the same as any other trade payable. As the scheme does not change
the characteristics of the trade payable, and the Group's obligation is not
legally extinguished until the bank is repaid, the Group continues to
recognise these liabilities within trade payables and all cash flows
associated with the arrangements are included within operating cash flow as
they continue to be part of the normal operating cycle of the Group. There is
no fixed expiry date on this facility.
13. Cash and cash equivalents
Cash and cash equivalents (which are presented as a single
class of assets on the face of the balance sheet) comprise cash at bank and
other short-term highly liquid investments with a maturity of three months or
less. Included in the amount below is £1.0m (H1 22: £0.9m) of restricted
cash which is held in respect of the Group's customer redress programmes and
£3.0m (H1 22: £3.0m) in respect of our securitisation reserve account. This
cash is available to access by the Group for restricted purposes.
A breakdown of significant cash and cash equivalent balances by
currency is as follows:
27 August 2022 28 August 2021 26 February 2022
£m £m £m
Sterling 19.6 20.4 31.3
Euro 10.8 4.7 5.1
US dollar 16.8 16.8 6.7
Net cash and cash equivalents and bank overdrafts 47.2 41.9 43.1
Made up of:
Cash and cash equivalents 47.2 41.9 43.1
Bank overdrafts - - -
The Group operates a notional pooling and net overdraft
facility whereby cash and overdraft balances held with the same bank have a
legal right of offset. In line with the requirements of IAS 32, gross balance
sheet presentation is required where there is no intention to settle any
amounts net. The balance has therefore been separated between overdrafts and
cash balances.
14. Bank Borrowings
27 August 2022 28 August 2021 26 February 2022
£m £m £m
Bank loans (290.7) (310.2) (302.5)
Repayable as follows:
- Within one year - - -
- In the second year - - -
- In the third to fifth year (290.7) (310.2) (302.5)
Amounts due for settlement after 12 months (290.7) (310.2) (302.5)
27 August 2022 28 August 2021 26 February 2022
% % %
The weighted average interest rates were as follows:
Net overdraft facility 1.7 1.6 1.7
Bank loans 2.9 2.4 2.5
All borrowings are held in sterling.
The principal features of the Group's borrowings are as follows:
The net overdraft facility limit is £12.5m (H1 22: £12.5m), of which £nil
was drawn down at 27 August 2022 (H1 22: £nil). The overdraft is repayable on
demand, unsecured and bears interest at a margin over bank base rates.
The Group has a bank loan of £290.7m (H1 22: £310.2m) secured by a charge
over certain "eligible" trade debtors (current and 0-28 days past due) of the
Group and is without recourse to any of the Group's other assets. The facility
has a current limit of £400m and is committed to December 2024. Unamortised
fees relating to this facility of £2.5m are offset against the carrying
amount of the loan.
The Group also has unsecured bank loans of £nil (H1 22: £nil) drawn down
under a medium-term bank RCF. The facility has a maximum limit of £100m,
which is committed to December 2023.
The covenants inherent to these borrowing arrangements are closely monitored
on a regular basis. Borrowing covenants continue to be in place on the
securitisation and RCF facilities respectively. The key covenants for the RCF
are as follows:
· Leverage, representing the ratio of adjusted unsecured net
cash/(debt) on adjusted EBITDA, <1.5; and
· Interest cover, representing the ratio of adjusted EBITDA on finance
charges on unsecured debt and adding back pension interest credit >4.0.
Throughout the period, Leverage covenant retained headroom of at least 1.8
below the 1.5 requirement, and interest cover retained headroom of at least
136.6 above the 4.0 requirement.
The key covenants applicable to the securitisation facility include three
month average default, return and collection ratios, and a net interest margin
ratio on the total and eligible pool. Through the reporting period all
covenants have been complied with.
There is no material difference between the fair value and carrying amount of
the Group's borrowings.
15. Dividends
No dividends were paid or proposed in either the current year or prior year.
16. Provisions
Customer Redress Strategic Change Allianz Litigation Other Total
£m £m £m £m £m
Balance as at 26 February 2022 1.8 0.8 28.0 0.3 30.9
Provisions made during the period - - - - -
Provisions used during the period (0.4) (0.4) (2.5) - (3.3)
Balance as at 27 August 2022 1.4 0.4 25.5 0.3 27.6
Non-current - - - - -
Current 1.4 0.4 25.5 0.3 27.6
Balance as at 27 August 2022 1.4 0.4 25.5 0.3 27.6
ALLIANZ LITIGATION
As at 26th February 2022, in relation to the ongoing legal dispute with
Allianz Insurance plc, the Group recognised an additional charge of £29.8m as
an estimate for accounting purposes of the potential costs of settlement or
award and incurred and future legal costs. During the current period, total
legal costs of £2.5m have been booked against the provision.
Until 2014, JD Williams & Company Limited ("JDW"), a subsidiary of N Brown
Group plc sold (amongst other insurance products) payment protection insurance
("PPI") to its customers when they bought JDW products. These insurance
products were provided by Allianz Insurance plc ("the Insurer") and sold by
JDW as the Insurer's agent. JDW was an unregulated entity prior to 14 January
2005 in respect of the sale of PPI. The regulated entity prior to 14 January
2005 was the Insurer.
In recent years, JDW and the Insurer have paid out significant amounts of
redress to customers in respect of certain insurance products, including PPI.
In January 2020, a claim was issued against JDW by the Insurer in respect of
all payments of redress the Insurer has made to JDW's customers together with
all associated costs. The Insurer has made a claim under the Civil Liability
(Contribution) Act 1978 as well as on other bases.
On 5 March 2020, JDW served its Defence and Counterclaim which denied the
Insurer's claim and also made counterclaims seeking contributions from the
Insurer towards the losses JDW has suffered in respect of two different types
of insurance product provided by the Insurer. In particular, JDW
counterclaimed in respect of £16m of redress it had paid to customers who had
bought PPI before 14 January 2005, plus £64m of redress it had paid or
tendered to customers who had bought a different type of policy, known as
"Product Protection", between 2006 and 2014.
On 9 April 2020, the Insurer served a Reply and Defence to JDW's Counterclaim.
This document disputed the counterclaims and maintained the claim.
On 10 June 2021, the Insurer sought leave to increase the scope of its
original claim in relation to a further customer redress exercise ("the
Additional Cohort"), that JDW understands is still ongoing. The Insurer
pleaded that the value of this additional element of the claim was up to
£36m. The Insurer also revised the value of its original claim to £30m plus
interest.
JDW subsequently filed and served its amended Defence as per the Court's
timetable. More recently, JDW has further amended its Defence to bring into
account the redress liabilities that it has borne without assistance from the
Insurer in respect of customers who bought PPI on or after 14 January 2005,
which it estimates at not less than £40 million. JDW says that the Court
should take this into account, and that this should extinguish or diminish the
Insurer's claims.
The two parties held a mediation meeting on 20 April 2022, which did not
resolve the differences between them.
All claims made by the Insurer, and counterclaims by JDW, remain subject to
final determination by the Court, both as to their success and their financial
value. The claims, defences and counterclaims are complex. Both parties will
submit factual and expert witness evidence in relation to the dispute over the
coming months.
Accounting estimate
The Company is of the view that, should the matter proceed to trial, which is
currently listed to commence in June 2023, the Court will determine the
outcome on a net basis taking into account the merits of the parties' claims
and counterclaims, and the liabilities already borne by them. The company is
also of the view that the net basis would apply in any negotiated settlement.
Accordingly, the company's assessment of the present obligation has been
determined on a net basis.
Should the matter proceed to trial, the eventual outcome is highly
uncertain. The range of potential outcomes is very significant given the
disputes between JDW and the Insurer as to which sums should be brought into
account and what proportions of the liabilities they should each have to bear.
The likelihood of a Court finding wholly in favour of the Insurer, without
taking into account the costs already borne by JDW, is considered remote.
Accordingly, the maximum potential outflow is considered to be significantly
less than the £66 million claimed by the Insurer. Equally, there are
reasonable scenarios in which JDW might be due a net contribution in respect
of the costs it has incurred, even if the Insurer succeeds in some or all of
its claims.
IAS 37 (Provisions, contingent liabilities and contingent assets) sets out the
requirements for determining the quantum and timing of recognition for
provisions, contingent liabilities and contingent assets.
Having concluded that a provision should be estimated for the potential net
outflow of the claims and counterclaims, the Group recorded a total charge of
£29.8m in the prior year for legal costs, as an estimate for accounting
purposes of the potential costs of settlement or award and future legal
costs. During the period to 27 August 2022, there have been no material
developments in the litigation which would materially change the Group's
estimated potential net outflow.
Given the nature of the issues in dispute, the Court will have considerable
discretion in reaching its conclusions. Accordingly, the range of potential
outcomes, in either direction, could be many times materiality and involves a
significant level of estimation.
There is also uncertainty as to the timing of any resolution of the claim and
counterclaim. The trial is listed to commence in June 2023. Our accounting
estimate is based upon the assumption that the parties reach a settlement
within FY23, however, if the matter progresses to trial any cashflows
resulting from the claim and/or counterclaim may not arise until FY24.
CUSTOMER REDRESS
The provision relates to the Group's liabilities in respect of costs expected
to be incurred for payments for historic Financial Services customer redress,
which represents the best estimate of redress obligations, taking into account
factors including risk and uncertainty.
Redress activity, other than the Official Receiver complaints, has been
concluded in prior years and as at 27 August 2022 the Group holds a
provision of £1.5m, which will be paid in the next 12 months.
STRATEGIC CHANGE
The one off costs relating to the Group's multi year transformation were
substantially complete in the prior year. The remaining provision of £0.4m as
at 27 August 2022 relates to property dilapidation provisions and will be paid
in the next 12 months.
OTHER
The provision held at 27 August 2022 of £0.3m relates to costs and interest
in relation to matters under discussion with HMRC relating to FY19 or prior
years. Agreement on this matter is still pending with HMRC as of the date of
this financial report.
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 with the
requirements of the Companies Act 2006
· 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) 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 6 October 2022
Stephen
Johnson
Rachel Izzard
Chief
Executive
Chief Financial Officer
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