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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Brown (n) Group Plc | LSE:BWNG | London | Ordinary Share | GB00B1P6ZR11 | ORD 11 1/19P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 14.975 | 14.00 | 15.95 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Catalog, Mail-order Houses | 677.5M | -51.4M | -0.1116 | -1.31 | 67.46M |
From Apr 2019 to Apr 2024
TIDMBWNG
RNS Number : 1537M
Brown (N.) Group PLC
26 April 2018
26th April 2018
FULL YEAR RESULTS FOR THE 52 WEEKSED 3 MARCH 2018
REVENUE AND PROFIT GROWTH IN A CHALLENGING RETAIL MARKET
N Brown Group Plc, the online, specialist fit, fashion retailer today announces results for the 52 weeks to 3 March 2018 (FY17: 53 weeks to 4 March 2017).
Hot Features
Premium
GBPm 52 52 weeks % change 53
weeks to on weeks
to 25 52 weeks to
3 March February to 4 March
2018 2017* 25 2017
February
2017
Product revenue 652.6 627.2 +4.1% 635.9
---------------------- ----------------------- ----------------------- ----------------------
Financial Services
revenue 269.6 260.5 +3.5% 264.8
---------------------- ----------------------- ----------------------- ----------------------
Group revenue 922.2 887.7 +3.9% 900.7
---------------------- ----------------------- ----------------------- ----------------------
Adjusted EBITDA** 118.6 115.9 +2.3% 117.9
---------------------- ----------------------- ----------------------- ----------------------
Adjusted PBT*** 81.6 80.6 +1.3% 82.6
---------------------- ----------------------- ----------------------- ----------------------
Statutory PBT 16.2 55.6 -71.9% 57.6
---------------------- ----------------------- ----------------------- ----------------------
Adjusted EPS*** 23.06p 22.18p +4.0% 22.74p
---------------------- ----------------------- ----------------------- ----------------------
Statutory EPS 4.41p 15.10p -70.8% 15.67p
---------------------- ----------------------- ----------------------- ----------------------
Net debt 346.8 - - 290.9
---------------------- ----------------------- ----------------------- ----------------------
Full year dividend 14.23 - - 14.23
---------------------- ----------------------- ----------------------- ----------------------
* Please refer to page 4 for an explanation of the 52 week basis
**Adjusted EBITDA is defined as operating profit, excluding exceptionals, with depreciation and amortisation added back, refer to page 16
*** Defined as excluding exceptionals and unrealised FX movement and therefore represents the underlying trading performance, refer to page 16
Review of FY18:
All year on year growth rates are against FY17 on a 52 week basis
-- Power Brand performance, revenue +8.0%
o JD Williams revenue +3.2% (excluding migrated Fifty Plus customers, JD Williams revenue up double-digit)
o Simply Be +16.3%
o Jacamo +5.1%
-- Good performance across all categories, driven by Footwear and Accessories -- Strong online metrics:
o Online revenue +10% yoy; online revenue of Power Brands +17%
o Online penetration 73%, +4ppts yoy
o 76% of all traffic from mobile devices
-- Strong Financial Services performance, driven by continued improvement in the quality of the loan book, together with a reduction in arrears as a result of minimum payment changes. The loan book is a significant asset, now standing at GBP598.8m on a net basis
-- International expansion progressing well, with USA revenue +21% (constant currency) in the second half, and Global Ship Anywhere now launched
-- Refinancing completed to underpin future growth
-- Statutory profit outcome a result of exceptional costs of GBP56.9m predominantly relating to customer redress for historic general insurance products and store closures, as previously announced
Angela Spindler, Chief Executive, said:
"Against a challenging market backdrop I am delighted to be reporting profit growth, with Simply Be the standout brand. The second half was difficult for the fashion sector. A good performance in Financial Services provided the Group with resiliency to enable us to continue to invest in our customer offer, successfully driving revenue and market share growth.
"Our strategy continues to deliver results, with market share gains in the UK, USA revenue up 21% in the second half, new partnerships underway and almost three quarters of our revenues now coming online.
"March was a challenging month for fashion retail, however, trade is improving through April, and at this early stage in the new financial year our overall expectations are unchanged."
Meeting for analysts and investors:
Management is hosting a presentation for analysts and investors at 9.30am. Please contact Nbrown@mhpc.com for further information. A live webcast of the presentation will be available at: www.nbrown.co.uk.
For further information:
N Brown Group
Bethany Barnes (née Hocking), On the day: 07887 536153
Director of Investor
Relations and Corporate Communications
Website: www.nbrown.co.uk Thereafter: 0161 238
1845
MHP Communications
Andrew Jaques / Simon Hockridge / Nessyah
Hart 0203 128 8789
NBrown@mhpc.com
About N Brown Group:
An expert in fashion that fits and flatters, N Brown is one of the UK's leading online retailers. Our key retail brands are JD Williams, Simply Be and Jacamo. We are all about democratising fashion and are size inclusive, focusing on the needs of underserved customer groups - size 20+ and age 50+. We offer an extensive range of products, predominantly clothing, footwear and homewares, 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 2,600 people across the UK.
Next reporting date
The next reporting date is the Q1 trading statement on 14th June 2018.
FY17 53 week year
In the current year we are reporting on the 52 week period to 3rd March 2018. In FY17, the statutory result reported on the 53 week period to 4th March 2017. In order to provide a meaningful comparison, all FY17 P&L financial movements are reported on a 52 week basis, excluding the 53rd week, unless otherwise stated. The 53 week statutory results for FY17 are set out on page 15, together with an assessment of how the 52 weeks result for the comparative period has been derived. All comparative balance sheet figures are reported as at the year-end date and cash flow figures are for the 53 week statutory period.
Full year overview
(52 weeks ended 3 March 2018 vs 52 weeks ended 25 February 2017)
Group revenue was up 3.9% to GBP922.2m, with Product revenue up 4.1% and Financial Services revenue up 3.5%. Our three Power Brands continue to outperform the wider brand portfolio, in line with our strategy. Simply Be continues to be the standout brand, with revenue up 16.3%. We relaunched the JD Williams brand at the start of the second half, which resonated well and drove a 21% increase in new customers following the relaunch. The overall JD Williams revenue performance was impacted by a reduced conversion rate for the recently migrated Fifty Plus customer group. Excluding this impact, JD Williams revenue was up double-digit. Actions have been taken to address the underperformance of the Fifty Plus customer file, with encouraging early signs.
Product gross margin was 52.2%, down 250bps for the year as a whole, and down 320bps in the second half. There are two primary drivers for this move. Firstly, as expected, exchange rate differences year on year represent a headwind to our buying in margin. Secondly, we strategically chose to invest more in promotions and value for money through the course of the second half than initially planned, in order to maintain our trading momentum and market share gains.
The investment in product gross margin was enabled by a strong performance in Financial Services gross margin, which increased by 550bps to 61.2%. This was driven by the continuing improvement in the quality of the customer loan book, together with a reduction to minimum payments.
Operating costs continue to be tightly controlled, increasing by 3.9% for the year, and 2.7% in the second half. We saw particularly good efficiency from marketing costs, which improved as a ratio of Group revenue from 18.3% to 17.8%. Warehouse and fulfilment costs saw the largest increase, up 7.8%, as we continued to invest in our speed of service and delivery proposition. Depreciation and Amortisation increased by 1.9% to GBP28.1m, slightly below our previous guidance due to timing factors.
Adjusted trading profit before tax was GBP81.6m, up 1.3% year on year. The statutory profit for the year of GBP16.2m was heavily impacted by exceptional costs of GBP56.9m (discussed in more detail on page 17) which largely relate to legacy issues.
The Board recognises the importance of the dividend to shareholders, and accordingly is proposing to hold the full year dividend consistent with last year, at 14.23p.
We have recently signed the binding documents in respect of new Balance Sheet financing facilities, to underpin future growth. The new facilities are made up of a GBP500m securitisation facility and an extension of our GBP125m RCF, and are secured until September 2021. Further detail is on page 18.
FY19 Guidance
We are today providing the following guidance for FY19:
-- Product gross margin flat to +100bps -- Financial Services gross margin -100bps to -200bps -- Group operating costs +1.5% to +3.5% -- Depreciation & Amortisation GBP32m to GBP33m -- Net interest GBP12m to GBP13m, reflecting our new extended financing facilities -- Tax rate c.22% -- Capex c.GBP40m
-- Net debt GBP425m to GBP450m, which assumes GBP25m to GBP50m growth in the Financial Services customer loan book
-- Exceptional costs c.GBP4m, related to advisory fees associated with our ongoing legacy tax cases
Full year review
(52 weeks ended 3 March 2018 vs 52 weeks ended 25 February 2017)
Future growth levers
At the half year results in October we laid out our three growth levers, which incrementally build over time. We have made good progress against these levers, as highlighted below.
Gain share in the UK
We are focused on continual improvement in our customer experience, further development of our product offer and enhancing our brand cut-through. This growth lever is further driven by increasing the number of third-party brands on our websites, many of which are extended to larger sizes on an exclusive basis, offering more choice to our customers.
During the year we gained market share in the UK in both ladieswear and menswear. We continue to improve the flexibility of our supply chain, reducing lead times and our speed to market. Our websites offer customers a wide range of brands, allowing them to shop for every occasion; we have recently added brands including Monsoon, Quiz, Jack & Jones, Ted Baker, Lyle & Scott, Radley and Superga.
International expansion
The USA is our first priority, however, we also intend to expand to other countries, initially through Global Ship Anywhere technology, which recently went live. In order to achieve our international ambitions we will leverage our current organisational capabilities and embed a global culture throughout our business. USA revenue accelerated through the year, growing by 21% in the second half, driven by our new digital-first marketing approach and enabled by our new web platform.
Partnerships
This includes selling capsule ranges on other retailers' sites, on both a wholesale and marketplace basis. We also see a significant growth opportunity in influencer marketing, working together with bloggers and opinion formers to enable our brands to reach new audiences and further strengthen customer engagement.
During the second half we went live on ASOS and Zalando, and have recently signed partnership deals with The Iconic (Australia) and Lamoda (Russia). All of our partnerships involve us selling capsule collections of our brands on our partners' sites. We are pleased with the performance to date.
We have increased our use of influencer marketing, most notably in the USA. These activities have been very successful in strengthening our customer relationships, increasing our share of voice and driving sales. Examples of recent influencer collaborations include Sarina Novak (@SarinaNovak; 372k followers) who worked with us on the Simply Be USA relaunch, La'Tecia Thomas (@lateciat; 806k followers) for our Swim and Spring Break campaigns and Kelly Augustine (@kellyaugustineb; 63k followers) for our Valentines Day activity.
KPI performance
(52 weeks ended 3 March 2018 vs 52 weeks ended 25 February 2017)
FY18 FY17 % change
--------------------------------------- --------------- ----------- ---------------
CUSTOMERS
Active customer accounts 4.45m 4.30m +3.6%
Power Brand active customer accounts 2.22m 2.17m +2.4%
% Growth of our most loyal customers* -0.2% +3.6% -3.8ppts
Customer satisfaction rating** 85.8% 83.7% +210bps
--------------------------------------- --------------- ----------- ---------------
PRODUCT
Ladieswear market share, size 16+ 5.6% 5.0% +60bps
Menswear market share, chest 44"+ 2.7% 2.4% +30bps
Group returns rate (rolling 12
months) 27.1% 26.8% +30bps
--------------------------------------- --------------- ----------- ---------------
ONLINE
Online penetration 73% 69% +4ppts
Online penetration of new customers 81% 77% +4ppts
Conversion rate 5.3% 5.6% -30bps
% of traffic from mobile devices 76% 71% +5ppts
--------------------------------------- --------------- ----------- ---------------
FINANCIAL SERVICES
Customer account arrears rate (>28
days) 8.7% 9.9% -120bps
Provision rate 7.5% 10.8% -330bps
New credit recruits (Rollers)*** 122k 129k -5%
--------------------------------------- --------------- ----------- ---------------
* Defined as customers who have ordered in each of the last four seasons
**UK Institute of Customer Service survey (UKICS)
***Last six months, rounded figures. Rollers are those customers who roll a credit balance. Market shares are estimated using internal and Kantar data, 52 weeks ended 11th February 2018 compared to 52 weeks ended 12th February 2017.
Customer K PI' s
Our active customer file increased by 3.6% to 4.45m. We saw a strong first half and then a softer second half against both a tough comparative and competitive backdrop. The active customer file of Power Brands increased by 2.4%, with a similar shape through the year. This includes the drag from recently migrated Fifty Plus customers.
Our most loyal customers, being those who have ordered in each of the last four seasons, was broadly flat year on year. This is against a strong performance last year, up 3.6%, driven by reactivation activity in our Traditional segment.
Our most recent customer satisfaction score from the UK Institute of Customer Service was 85.8%, an improvement of 210bps on the prior year rating. This places us second-highest in the non-food retail sector, behind only Amazon. Our score is almost 4ppts higher than the retail sector average.
Pr od u ct K PI's
In the 52 weeks to 11th February we gained 60bps of market share in Ladieswear (size 16+) and 30bps in Menswear (chest 44"+), to 5.6% and 2.7% respectively. In Ladieswear sizes 20 and above we gained almost 200bps of market share over the same period, to over 15%, reinforcing our leadership in the UK plus-size market.
We saw a slight increase in our returns rate, up 30bps to 27.1%, after several years of decline. The main driver of this was the relative performance of womenswear, together with the increase in participation of sub-categories such as third-party brands and occasionwear, as these all naturally incur higher returns rates.
Online K PI's
Online revenue was up 10% year on year, with online revenue of Power Brands exceeding this, up 17%. Online accounted for 73% of our revenue during the year, up 4ppts. 81% of sales from new customers were generated online, up 4ppts. By brand, JD Williams again saw the most significant increase in new customer online penetration, from 80% to 95%.
Mobile devices (smartphones and tablets) accounted for 76% of online traffic in the year, up 5ppts. Within this, smartphones remain the device of choice for customers, with web sessions here increasing by 44% to account for 54% of all traffic. We were pleased to drive an increase in the conversion rate for smartphones year on year. The ongoing increase in mobile devices, both smartphone and tablet, as a proportion of traffic represents a natural drag on overall conversion rates however at 5.3% our conversion rate remains materially above the industry standard.
Technology and innovation
Our systems investment programme remains on track. We are pleased with the performance of the High & Mighty and USA sites, which are both on the new Hybris platform. Since the sites go-lives we have been releasing regular updates to add further functionality and optimise performance. We are targeting the second half of FY19 for Fashion World to migrate onto the new platform. We will optimise the timing of these migrations to minimise commercial disruption.
At the start of the new financial year we went live with Global Ship Anywhere. This is the key enabler for wider international growth outside of our current USA and Ireland sites. This functionality translates currency and overlays our site with local delivery and payment options.
We have seen some encouraging results with our Simply Be iOS and Android apps, with over 100,000 downloads across both platforms. Update releases to our apps have enabled us to continue to improve our offering, including features such as recently viewed items and predictive search, further improving the experience for our customers. Our App store rating is currently 4.8 out of 5. In February, we launched the JD Williams app; our first app on our own platform and an important step in bringing our app development capabilities in-house. By investing in our in-house app development capabilities we can embed fortnightly releases to improve the functionality and features of our apps and plan to roll out apps onto our other brands in the future.
Financial Services
Financial Services delivered a good performance during the year, driven by continued improvement in the quality of the customer loan book together with some initiatives launched during the year. Financial Services revenue was up 3.5% year on year. Within this, interest payments were up mid-single digit, whilst non-interest lines were down high single- digit.
Gross margin was up 550bps year on year to 61.2%. There are three broadly equal drivers of this increase; the continued improvement in the underlying quality of the loan book, a change we made to minimum payments at the end of the first half, and the effect of other initiatives such as our trials on variable APR.
Given continued cost of living pressures and in order to give our customers greater choice of flexibility in managing their finances, we made the decision to reduce our minimum payment rate from 5% to 4% during the period. The change had a positive impact on the number of customers who were in arrears, down 6%. In addition, it also meant that those customers who didn't change their monthly payment paid above the minimum amount, which will result in these customers paying off their balances faster. We have seen a 10% increase in the proportion of customers who pay above the minimum amount, to approximately 60% of our customer base. The change in minimum payments did result in a cashflow headwind in the year, with the average proportion of customer balances being paid each month decreasing by 1ppts. The cash flow impact is expected to normalise over the next 12 months.
Credit arrears (>28 days) were down 120bps to 8.7% driven by the improvements in the underlying quality of the book and the impact of the change in minimum payments which directly increased the affordability of the minimum payment to our customers.
The provision rate was 7.5%, down 330bps versus last year. As in FY17, this benefited from the sale of some high risk payment arrangement debt, which we were able to sell for a slightly better rate than book value. It also benefitted, to a lesser extent, from the minimum payment changes and the underlying improvement in the quality of the book.
During the second half we recruited 122k new credit customers who rolled a balance, down 5% versus the prior year period. Although over the long-term we aim to increase new credit rollers, the key enabler of this will be our new Financial Services products within our new systems implementation programme. The decline in the second half was in line with a weaker trading performance, and followed an increase in this metric during the first half. For the year as a whole we added 257,000 new credit rollers, an increase on the prior year.
During the second half of the year we commenced our variable rate trials for new customers and a small proportion of our existing customer base. Whilst the trials are still ongoing, early indications are positive and approximately 50% of trial customers have seen a rate decrease.
During the first half we announced a potential customer redress related to historic general insurance products. This was as a result of identifying flaws in certain products which were provided by a third party insurance underwriter and sold by the Group to its customers between 2006 and 2014 and followed a review prompted by an industry-wide request from the FCA that firms ensure that general insurance products and add-ons offer value for their customers. The vast majority of these products were sold to the Group's customers in the period leading up to, and including, 2011. Sales of the relevant products ceased in early 2014. As a result we incurred an exceptional cost of GBP40m in the first half. We continue to explore mitigating actions to reduce the overall net cost although we expect these actions to take some time to be resolved. We expect the vast majority of the cashflow impact to occur during FY19.
IFRS9
IFRS9 replaces the current standard IAS39 and is effective from FY19 onwards. IFRS9 significantly increases our provision for receivables. Importantly, it has no cash flow impact and neither does it materially change how we operate our Financial Services business.
There are three main areas where the two standards differ in approach:
-- Under IAS39, a provision is only made where there has been objective evidence of impairment, such as a customer falling into arrears or moving onto a payment plan. A large proportion of customers are therefore not included in the provision calculation. Under IFRS9, a provision will be made to some extent against every credit customer, including those customer balances which are up to date and trading normally.
-- Under IAS39 we only provide against a customer's current balance, whilst IFRS9 requires us to take into consideration a customer's expected future balance, incorporating expected future account limit increases. Our strategy in Financial Services has always been to initially extend low account limits to customers, and then increase the limit over time in accordance with a customer's payment behaviours and risk profile. Basing our provision calculation on a customer's expected future balance is therefore again a significant change in approach.
-- Under IAS39 there is no macro-economic overlay in our provision calculation, whilst under IFRS9 we are required to reflect potential changes in the macro-economic environment and the impact they could have on our customer loan book.
Our modelling and analysis is still being finalised ahead of the new standard coming into effect in FY19. However, we currently estimate that the provision rate could increase from the 7.5% reported in FY18 to a maximum of 27%. We would, therefore, expect to see an increase of up to GBP120m in the provision, and a reduction in net assets of the same amount in FY19.
One of the final aspects of the modelling and analysis being done relates to whether or not undrawn credit balances should be included or excluded from the calculation of the provision. Views of what the new standard requires differ in this regard and, working with our auditors, we are still assessing the treatment of undrawn credit balances under IFRS9. The exclusion of undrawn credit balances would materially reduce the IFRS9 provision, by, we estimate, approximately half the potential increase.
The charge to the income statement is based upon the year on year movement in the provision. In the absence of significant macro-economic changes, changes in the quality of the book or the risk profile of new customers, we expect the P&L impact in FY19 to be broadly neutral versus the FY18 restated results. We do, however, expect to see a shift in the phasing of the charge, with H1 expected to see a positive impact and H2 a negative impact, reflecting the seasonality in our customer recruitment and arrears rates.
Performance by brand
(52 weeks ended 3 March 2018 vs 52 weeks ended 25 February 2017)
Revenue, GBPm FY18 FY17 Change ---------------------- ----------------- ------------- -------------- JD Williams 163.4 158.3 +3.2% Simply Be 132.8 114.2 +16.3% Jacamo 68.6 65.3 +5.1% ---------------------- ----------------- ------------- -------------- Power Brands 364.8 337.8 +8.0% ---------------------- ----------------- ------------- -------------- Secondary Brands 149.2 155.2 -3.8% Traditional Segment 138.6 134.2 +3.3% ---------------------- ----------------- ------------- -------------- Product total 652.6 627.2 +4.1% ---------------------- ----------------- ------------- -------------- Financial Services 269.6 260.5 +3.5% ---------------------- ----------------- ------------- -------------- Group 922.2 887.7 +3.9% -------- ---------------------------- ------------- ------------
FY17 product revenue by brand on a statutory 53 weeks basis is shown in note 4 on page 27
JD Williams
JD Williams' product revenue was GBP163.4m, up 3.2% year on year. As announced in our Q3 trading statement in January, we experienced lower than forecast response rates from the recently migrated Fifty Plus customers during the second half. If Fifty Plus customers are excluded, JD Williams saw revenue up double-digit for the year as a whole.
The lower response rates from migrated Fifty Plus customers reflects their fashion attitude rather than their channel preference. They are online shoppers, however, they typically purchase less contemporary fashion items, and the relaunched JD Williams site did not therefore resonate with them as effectively as anticipated. Actions have been taken to address this, most importantly through personalising the site for this customer group to ensure that they are presented with the most appropriate product selection given their preferences. Whilst it is still very early days, the initial results are encouraging.
During the Autumn Winter season we relaunched the JD Williams brand proposition, launching JD Williams "The Lifestore". The JD Williams Lifestore brand aims to celebrate the attitudes, interests and ambitions of our female customers and positions the brand as a modern online department store for the 45 - 60 year old woman. The brand relaunch was a success, with a 13% increase in brand awareness during the season, a significant increase in social media fans (up 19% on facebook and 58% on Instagram) and website sessions up materially.
The JD Williams' Don't Tell Me I Can't partnership with Time Inc, which offered four women the chance to be mentored by experts in a new career, culminated in a 200-strong customer event held at Manchester's Lowry Theatre. The partnership was all about encouraging women to embrace new life adventures and highlighting that age is not a barrier to pursuing your dreams.
Simply Be continues to grow apace, with revenue up 16.3% to GBP132.8m year on year and active customers up over 20%. The brand is the go-to destination for fashionable size 12-32 customers, offering a range of own-brands and third party brands, often available in larger sizes on an exclusive basis, reinforcing our plus-size credentials.
We have recently rolled out our Simply Be loyalty scheme, 'Perks', which gives customers personalised rewards in return for engagement. This rewards programme initially went live to a small group of customers in October, with the average number of sessions and demand both up double-digit compared to non-members. The rewards programme harnesses customer data, offering members personalised rewards to suit their buying preferences and behaviours.
Our new Spring Summer campaign, called 'Rules Rewritten', includes a fashion TV ad which is proudly unapologetic, championing women's natural beauty and reflecting all women's shapes and sizes. As part of the campaign launch, we held a London Fashion Week 'Rules Rewritten' protest, with a group of lingerie-clad models, ranging from size 12 to 26, led by Hayley Hasselhoff. The protest encouraged everyone to celebrate curves and had strong traction with our customers across social media.
Jacamo caters for 25-45 year old men of all body shapes and sizes, from small to 5XL. Jacamo product revenue was up 5.1% to GBP68.6m, with active customer growth up high single-digits.
Our Spring Summer campaign, called 'Live Your Moment', features world class high jumping champion Mike Edwards and celebrity chef, Tommy Banks, who became Britain's youngest Michelin star chef at just 24. 'Live Your Moment' is based around men's lives being made up of amazing moments.
Secondary brands revenue decreased by 3.8% to GBP149.2m. The largest brand within this, Fashion World, was up in the first half but down double-digit in the second half, as we diverted marketing investment into our Power Brands. Figleaves revenue was down low single-digit as expected, with the brand part-way through its turnaround, led by its new management team. We remain confident in the long-term success of this business.
The remaining two brands within this category are High & Mighty and Marisota. High & Mighty, the smallest brand by some measure, was down double-digit, driven by disappointing footfall in its small store estate. Marisota was broadly flat, and is increasingly used as a product brand through JD Williams.
The Traditional segment recorded revenue growth of 3.3% year on year to GBP138.6m. Our Traditional segment has an online penetration of just under 40%, with online growing as a channel and offline (catalogues) declining significantly. Going forward, we will focus our efforts on the online channel within Traditional, and would expect the offline element to therefore reduce over time. This will ensure that we continue to offer customers a great product offering, whilst allowing us to generate efficiencies.
In line with this strategy, during the second half we commenced the closure of the small Bath office where House of Bath, the largest brand in this segment, has been managed from historically. The buying, merchandising and marketing operations for House of Bath will now be managed by our central teams based in Manchester. This will both reduce operating costs and improve the marketing efficiency across the traditional customer group.
International
(52 weeks ended 3 March 2018 vs 52 weeks ended 25 February 2017)
USA revenue was GBP17.2m, up 10.9% year on year (up 6.5% in constant currency terms). Revenue growth accelerated as we progressed through the year, with 21.3% constant currency growth in the second half, as our new marketing strategy delivered as expected. We remain very confident in our growth opportunity in the USA.
Ireland delivered revenues of GBP17.5m, up 8.9% year on year, or 2.7% in constant currency terms.
Stores
(52 weeks ended 3 March 2018 vs 52 weeks ended 25 February 2017)
In our first quarter trading statement we announced the closure of five dual fascia Simply Be and Jacamo stores. Together these five stores contributed GBP5.0m revenue but accounted for the entire GBP2.0m operating loss of our store estate in FY17. The store closures were completed at the end of the first half and resulted in an exceptional cost of GBP13.8m.
Overall, revenue from our store estate was GBP19.9m (FY17: GBP23.1m). We currently have 20 stores open, split 12 dual Simply Be and Jacamo stores (FY17: 15), and eight High & Mighty stores (FY17: eight).
The performance of our store estate, in both revenue and profit terms, declined materially in the second half, resulting in a negative profit contribution for the year as whole. This weakness in trading was driven by disappointing footfall, in line with the wider UK high street performance. We remain focused on addressing this underperformance to ensure that our store estate does not represent a drag to Group profitability going forward.
FX sensitivity
For FY19 we expect our annual purchases, net of international revenues, to be c.$140m, on which we have a hedging strategy in place, together with a similar quantum of purchases where we face indirect cost pressures due to the depreciation of sterling. We continue to transition suppliers to dollar denominated purchasing in order to give us greater visibility over our input costs.
For FY19 we have hedged 100% of our net purchases at a blended rate of $/GBP1.33. At a rate of $/GBP1.40, and before any mitigating actions, this would result in a c.GBP3m PBT tailwind compared to FY18 (hedged rate $/GBP1.29).
For FY20 we have, to date, hedged 43% of our net purchases at a blended rate of $/GBP1.34. At a rate of $/GBP1.40, and before any mitigating actions, this would also result in a c.GBP3m PBT tailwind compared to FY19. Every 5 cents move from this rate in our unhedged position would result in a PBT sensitivity of c.GBP2m.
FINANCIAL RESULTS
In the current year we are reporting on the 52 week period to 3rd March 2018. In FY17 the statutory result reported on the 53 week period to 4th March 2017. In order to provide a meaningful comparison, all FY17 P&L financial movements are reported on a 52 week basis, excluding the 53rd week, unless otherwise stated. The 53 week statutory results for FY17 are set out on page 15, together with an assessment of how the 52 weeks result for the comparative period has been derived. All comparative balance sheet figures are reported as at the year-end date and cash flow figures are for the 53 week statutory period.
For the 52 weeks to 3 March 2018, Group revenue was GBP922.2m and PBT was GBP16.2m. This compares to a statutory result, for the 53 weeks to 4 March 2017, of Group revenue of GBP900.7m and PBT of GBP57.6m. For the 52 weeks to 25 February 2017 Group revenue was GBP887.7m and PBT was GBP55.6m.
Revenue performance
(52 weeks ended 3 March 2018 vs 52 weeks ended 25 February 2017)
Revenue performance by quarter was as follows:
% yoy growth Q1 (13wks) Q2 (13wks) Q3 (18 wks) Q4 (8wks) --------------------- ------------------- ------------------ ----------------- ----------------- Product +10.2% +4.9% +2.7% -4.1% Financial Services -4.9% +7.2% +4.6% +8.2% --------------------- ------------------- ------------------ ----------------- ----------------- Group Revenue +5.6% +5.6% +3.2% 0.0%
The prior year figures for Product became comparatively stronger as we progressed through the year, with Q1 FY17 product revenue growth of -1.6% versus +6.9% for the Q4 period. Conversely, the comparatives for Financial Services weakened during the course of the year, with +3.4% in Q1 FY17 and -2.3% in Q4 FY17.
P&P income is included within the Product revenue figures. During the year increased the number of free delivery promotions. This represented a headwind to Product revenue, of 20bps in H1 and 50bps in H2. Delivery costs are within Warehouse and Fulfilment costs, and therefore from a product gross margin perspective, P&P income is effectively recorded as 100% gross margin. This dynamic represented a 30bps headwind for FY18 product gross margin, of which the vast majority was incurred during the second half.
Revenue by category was as follows:
GBPm FY18 FY17 Change ------------------------- ------------------ ---------------- ---------------- Ladieswear 267.6 256.5 +4.3% Menswear 89.2 85.8 +4.0% Footwear & Accessories 74.9 69.0 +8.6% Home & Gift 220.9 215.9 +2.3% ------------------------- ------------------ ---------------- ---------------- Product total 652.6 627.2 +4.1% ------------------------- ------------------ ---------------- ----------------
FY17 product revenue by category on a statutory 53 weeks basis is shown in note 4 on page 27
Ladieswear grew by 4.3%, with our own brand ladieswear outperforming, as our new design capabilities continue to yield results and driven by the strong performance of Simply Be. Footwear and accessories performed particularly well, with revenue growth of 8.6% in the year, again driven by our expanded design capabilities. Menswear saw Jacamo again outperform, as expected. Home and Gift revenue was up 2.3%. Our strategy in Home remains unchanged - we aim to recruit new customers to our Fashion offering, but then see customers also buying Homewares.
Gross margin
(52 weeks ended 3 March 2018 vs 52 weeks ended 25 February 2017)
Product
Product cost of goods sold (COGS) were GBP312.1m, compared to GBP284.1m in FY17. Product gross margin was 52.2%, down 250bps yoy, in line with our most recent guidance.
The gross margin movement was primarily a result of FX pressures which has resulted in a 280bp headwind either directly due to changes in US dollar exchange rates or indirectly due to our cost pressures on our sterling denominated suppliers who buy their materials in foreign currency. In addition, promotional activity to drive revenue and market share gains against a challenging sector backdrop in the second half resulted in a 50bp decrease.
Financial Services
Our gross bad debt charge declined by 12.3% to GBP99.5m (FY17: GBP113.5m). This bad debt charge, together with a small number of other financial services costs, resulted in a Financial Services gross margin of 61.2%, up 550bps year on year. This gross margin performance is discussed in more detail on page 8.
Operating performance
In the current year we are reporting on the 52 week period to 3rd March 2018. In FY17 the statutory result reported on the 53 week period to 4th March 2017. In order to provide a meaningful comparison, all FY17 P&L financial movements are reported on a 52 week basis, excluding the 53rd week, unless otherwise stated. Where applicable, the 53rd week's known result was used as the basis for the adjustment to provide the 52 week result for the comparative period, although a degree of judgement was applied in deriving certain operating costs in respect of the final week. The 53 week statutory results for FY17 are set out below. All comparative balance sheet figures are reported as at the year-end date and cash flow figures are for the 53 week Statutory period
GBPm FY18 FY17 Change (52 FY17
vs 52
(52 weeks) weeks) (53 weeks)
----------------------------- -------------- ---------------- ----------------- ------------------
Product revenue 652.6 627.2 +4.1% 635.9
Financial Services revenue 269.6 260.5 +3.5% 264.8
----------------------------- -------------- ---------------- ----------------- ------------------
Group Revenue 922.2 887.7 +3.9% 900.7
----------------------------- -------------- ---------------- ----------------- ------------------
Product gross profit 340.5 343.1 -0.8% 347.7
Product gross margin 52.2% 54.7% -250bps 54.7%
Financial Services gross
profit 165.1 145.2 +13.8% 147.5
Financial Services gross
margin 61.2% 55.7% +550bps 55.7%
----------------------------- -------------- ---------------- ----------------- ------------------
Group Gross Profit 505.6 488.3 +3.6% 495.2
Group Gross Margin % 54.8% 55.0% -20bps 55.0%
------------------------------ ----------------- --------------- ------------- ----------------
Warehouse & fulfilment (85.8) (79.6) +7.8% (81.3)
Marketing & production (164.0) (162.5) +0.9% (165.4)
Admin & payroll (137.2) (130.3) +5.3% (130.6)
------------------------------ ----------------- --------------- ------------- ----------------
Total operating costs (387.0) (372.4) +3.9% (377.3)
------------------------------ ----------------- --------------- ------------- ----------------
Adjusted EBITDA* 118.6 115.9 +2.3% 117.9
Adjusted EBITDA* margin 12.9% 13.1% -20bps 13.1%
------------------------------ ----------------- --------------- ------------- ----------------
Depreciation & amortisation (28.1) (27.6) +1.9% (27.6)
------------------------------ ----------------- --------------- ------------- ----------------
Adjusted Operating Profit** 90.5 88.3 +2.5% 90.3
Adjusted Operating Margin** 9.8% 9.9% -10bps 10.0%
------------------------------ ----------------- --------------- ------------- ----------------
Net Finance costs (8.9) (7.7) +15.6% (7.7)
Adjusted PBT** 81.6 80.6 +1.3% 82.6
------------------------------ ----------------- --------------- ------------- ----------------
Exceptional items (56.9) (25.2) (25.2)
Unrealised FX movement (8.5) 0.2 0.2
Statutory PBT 16.2 55.6 -71.9% 57.6
------------------------------ ----------------- --------------- ------------- ----------------
* Adjusted EBITDA is defined as operating profit, excluding exceptionals, with depreciation and amortisation added back
**Defined as excluding exceptionals and unrealised FX movement and therefore represents the underlying trading performance of the Group
Warehouse and fulfilment costs increased by 7.8% to GBP85.8m. This was driven both by volumes, which were up 3% year on year, together with inflationary cost increases in both fuel and labour, and further investment in our delivery offering, partially offset by continued efficiencies. The increase in Warehouse and Fulfilment was greater during the first half, with +11.3%, compared to the second half increase of +4.7%.
Marketing costs were up 0.9% year on year, significantly below the rate of product revenue growth as we drove efficiency. The increase in Marketing costs was broadly consistent across the two halves. In the second half specifically, roughly two-thirds of the increase in marketing costs relates to a step up in marketing costs in the USA.
Admin and payroll costs increased by 5.3%, weighted towards the first half as we incurred some dual running costs relating to our IT systems development, and increased payroll costs as we invested in recruiting talent and developing our people.
Adjusted* EBITDA increased by 2.3% to GBP118.6m, with Adjusted* EBITDA margin broadly flat at 12.9% (FY17 13.1%). Depreciation and Amortisation increased by 1.9% reflecting recent investments made in the business. This increase was lower than guidance due to timing between FY18 and FY19, as reflected in the FY19 guidance. Overall, operating profit before exceptional items was GBP90.5m, up 2.5% year on year, with operating margin broadly flat at 9.8%. Statutory PBT was down 71.9% to GBP16.2m, as a result of the exceptional costs incurred during the year, together with an unrealised FX movement of negative GBP8.5m.
Net finance costs
Net finance costs were GBP8.9m, up 15.6% compared to FY17, due to the increase in net debt driven by good growth in our customer loan book.
Exceptional items
Exceptional costs of GBP56.9m were primarily incurred during the first half, as previously announced. In the second half we incurred GBP2.0m relating to our ongoing historic tax cases. A breakdown of full year exceptional costs is shown below.
GBPm FY18 --------------------------------------------- ----------------- Customer redress for historic insurance products 40.0 Store closures 13.8 External costs related to taxation matters 3.1 --------------------------------------------- ----------------- Total exceptional costs 56.9 --------------------------------------------- -----------------
The customer redress for historic insurance products is discussed on page 9.
The store closure exceptional cost is discussed on page 13.
Taxation
The effective underlying rate of corporation tax is 23.3% (FY17: 23.1%). The overall tax charge was GBP3.7m (53 weeks to FY17: GBP13.3m charge).
Earnings per share
Earnings per share from continuing operations was 4.41p (53 weeks to FY17: 15.67p). Adjusted earnings per share from continuing operations were 23.06p (53 weeks to FY17: 22.74p).
Dividends
The Board recognises the importance of the dividend to shareholders, and accordingly is proposing to hold the full year dividend consistent with last year, at 14.23p, as we continue to invest in the business to drive growth.
Balance Sheet and Cash Flow
(52 weeks ended 3 March 2018 vs 53 weeks ended 4 March 2017)
Capital expenditure was GBP39.2m (FY17: GBP42.3m). Inventory levels at the period end were up 4.8%, to GBP110.6m (FY17: GBP105.5m) due to increases in current season stocks.
Gross trade receivables increased by 8.0% to GBP647.6m (FY17: GBP599.5m). The provision declined from GBP64.7m to GBP48.8m, driven by debt sales at year end removing GBP40.4m gross debt and associated impairment of GBP20.5m together with improvements in the quality of the arrears profile in the debtor book.The group's defined benefit pension scheme has a surplus of GBP19.3m (FY17: GBP8.3m surplus). The increase in the surplus is as a result of general market changes in asset returns during the year.
Net cash generated from operations (excluding taxation) was GBP44.3m compared to GBP87.1m last year, as a result of an GBP64.0m increase in the loan book year on year. We had a cash outflow of GBP27.4m related to exceptional items. After funding capital expenditure, finance costs, taxation and dividends, net debt increased from GBP290.9m to GBP346.8m, in line with our expectations. The GBP598.8m net customer loan book significantly exceeds this net debt figure.
Balance Sheet refinancing
We have recently signed the binding documents in respect of new Balance Sheet financing facilities. The remaining administrative documents will be completed in May 2018 which will enable the new facilities to be drawn.
Previously, our total funding of GBP405m was made up of a Revolving Credit Facility (RCF) of
GBP125m and a securitisation facility against our customer loan book of GBP280m. Given the size of our loan book, at almost GBP600m (net), and the improvement in its quality since the previous refinancing exercise in 2015, there was opportunity to increase headroom.
Our new financing facilities are made up of a GBP500m securitisation facility and an extension of our GBP125m RCF, and are secured until September 2021. Our new RCF facility, whilst unchanged in size, includes a material change in the leverage covenant. This was previously based upon a Group EBITDA to Group Net Debt ratio, however the calculation now excludes the securitisation debt from Group Net Debt entirely.
The pricing of our new Balance Sheet financing facilities are comparable with previous facilities, with the increase in costs due to higher debt levels, as reflected in our interest guidance for FY19.
Unaudited
consolidated
income
statement for
the 52 weeks
ended 3 March
2018
52 weeks 52 weeks 52 weeks 53 weeks 53 weeks 53 weeks
to to to to to to
03-Mar-18 03-Mar-18 03-Mar-18 04-Mar-17 04-Mar-17 04-Mar-17
Before Exceptional Before Exceptional
exceptional items exceptional items
items (Note Total items (Note Total
5) 5)
Note GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 4 922.2 - 922.2 900.7 - 900.7
------------------- ------------------- --------------- ------------------- --------------------
Operating
profit 4 90.5 (56.9) 33.6 90.3 (25.2) 65.1
Finance costs (8.9) - (8.9) (7.7) - (7.7)
------------------- ------------------- --------------- ------------------- --------------------
Profit
before fair
value
adjustments
to financial
instruments 81.6 (56.9) 24.7 82.6 (25.2) 57.4
Fair value
adjustments
to
financial
instruments 6 (8.5) - (8.5) 0.2 - 0.2
------------------- ------------------- --------------- ------------------- --------------------
Profit
before
taxation 73.1 (56.9) 16.2 82.8 (25.2) 57.6
Taxation 7 (14.6) 10.9 (3.7) (18.3) 5.0 (13.3)
------------------- ------------------- --------------- ------------------- --------------------
Profit for
theperiod 58.5 (46.0) 12.5 64.5 (20.2) 44.3
------------------- ------------------- --------------- ------------------- --------------------
Profit
attributable
to equity
holders of
the parent 58.5 (46.0) 12.5 64.5 (20.2) 44.3
------------------- ------------------- --------------- ------------------- --------------------
Earnings per
share 8
Basic 4.41 p 15.67 p
Diluted 4.40 p 15.66 p
Unaudited consolidated statement of comprehensive income
for the 52 weeks ended 3 March 2018
52 weeks 53 weeks
to to
03-Mar-18 04-Mar-17
GBPm GBPm
Profit for the period 12.5 44.3
Items that will not be reclassified subsequently to
profit or loss
Actuarial gains / (losses) on defined
benefit pension schemes 10.5 (3.1)
Tax relating to items not reclassified (1.8) 0.6
------------------ ------------------
8.7 (2.5)
------------------ ------------------
Items that may be reclassified subsequently to profit
or loss
Exchange differences on translation
of foreign operations (0.2) 0.5
Total comprehensive income for the period attributable
to equity holders of the parent 21.0 42.3
------------------ ------------------
Unaudited consolidated balance sheet
As at 3 March 2018
As at 3 As at 4
March March
2018 2017
Note GBPm GBPm
Non-current assets
Intangible assets 9 156.0 141.9
Property, plant & equipment 10 67.4 73.5
Retirement benefit surplus 19.3 8.3
Deferred tax assets 2.8 2.4
--------------------- ---------------------
245.5 226.1
--------------------- ---------------------
Current assets
Inventories 110.6 105.5
Trade and other receivables 11 652.7 575.4
Derivative financial
instruments 6 - 2.5
Cash and cash equivalents 58.2 64.1
--------------------- ---------------------
821.5 747.5
Total assets 1,067.0 973.6
--------------------- ---------------------
Current liabilities
Trade and other payables (131.7) (98.9)
Provisions 12 (43.8) (15.6)
Derivative financial
instruments 6 (6.0) -
Current tax liability (3.3) (13.4)
--------------------- ---------------------
(184.8) (127.9)
--------------------- ---------------------
Net current assets 636.7 619.6
--------------------- ---------------------
Non-current liabilities
Bank loans (405.0) (355.0)
Provisions 12 (5.4) (4.3)
Deferred tax liabilities (12.2) (8.2)
--------------------- ---------------------
(422.6) (367.5)
Total liabilities (607.4) (495.4)
Net assets 459.6 478.2
--------------------- ---------------------
Equity
Share capital 31.4 31.3
Share premium account 11.0 11.0
Own shares (0.2) (0.1)
Foreign currency translation
reserve 2.1 2.3
Retained earnings 415.3 433.7
--------------------- ---------------------
Total equity 459.6 478.2
--------------------- ---------------------
Unaudited consolidated cash flow statement
for the 52 weeks ended 3 March 2018
52 weeks 53 weeks
to to
03-Mar-18 04-Mar-17
GBPm GBPm
Net cash from operating activities 32.2 89.0
Investing activities
Purchases of property, plant and equipment (2.6) (3.7)
Purchases of intangible assets (36.6) (38.6)
------------------ ------------------
Net cash used in investing activities (39.2) (42.3)
------------------ ------------------
Financing activities
Interest paid (8.6) (7.8)
Dividends paid (40.3) (40.2)
Increase in bank loans 50.0 20.0
Purchase of shares by ESOT 0.1 -
Proceeds on issue of shares held by
ESOT (0.1) 0.1
------------------ ------------------
Net cash from / (used in) financing
activities 1.1 (27.9)
------------------ ------------------
Net (decrease) / increase in cash and
cash equivalents (5.9) 18.8
Opening cash and cash equivalents 64.1 45.3
------------------ ------------------
Closing cash and cash equivalents 58.2 64.1
------------------ ------------------
Reconciliation of operating profit to net cash from
operating activities
52 weeks 53 weeks
to to
03-Mar-18 04-Mar-17
GBPm GBPm
Profit for the year 12.5 44.3
Adjustments for:
Taxation charge 3.7 13.3
Fair value adjustments to financial
instruments 8.5 (0.2)
Finance costs 8.9 7.7
Depreciation of property, plant and
equipment 5.7 6.9
Loss on disposal of property, plant
and equipment 2.7 -
Amortisation of intangible assets 22.4 20.7
Share option charge 0.6 0.5
------------------ ------------------
Operating cash flows before movements
in working capital 65.0 93.2
Increase in inventories (5.1) (4.0)
Increase in trade and other receivables (77.6) (21.6)
Increase / (decrease) in trade and
other payables 33.0 (0.2)
Increase in provisions 29.3 19.9
Pension obligation adjustment (0.3) (0.2)
------------------ ------------------
Cash generated by operations 44.3 87.1
Taxation (paid) / received (12.1) 1.9
------------------ ------------------
Net cash from operating activities 32.2 89.0
------------------ ------------------
Changes in liabilities from financing
activities Loans &
Borrowings
GBPm
Balance at 4 March 2017 355.0
------------------
Changes from financing cashflows
Proceeds from loans and borrowings 50.0
Repayment of borrowings -
------------------
Total changes from financing cashflows 50.0
------------------
Balance at 3 March 2018 405.0
------------------
Unaudited consolidated statement of changes in equity
for the 52 weeks ended 3 March 2018
Foreign
currency
Share Share Own translation Retained
capital premium shares reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
Changes in equity for the 52 weeks to 3 March 2018
Balance as
at 27
February
2016 31.3 11.0 (0.2) 1.8 432.1 476.0
Total comprehensive income for the period
Profit for the
period - - - - 44.3 44.3
Other items of
comprehensive
income
for the
period - - - 0.5 (2.5) (2.0)
-------------- -------------- ---------------- -------------- -------------- --------------
Total
comprehensive
income for
the period - - - 0.5 41.8 42.3
Transactions with owners recorded directly in equity
Equity
dividends - - - - (40.2) (40.2)
Issue of own
shares by
ESOT - - 0.1 - - 0.1
Share option
charge - - - - 0.5 0.5
Tax on items
recognised
directly
in equity - - - - (0.5) (0.5)
-------------- -------------- ---------------- -------------- -------------- --------------
Total
comprehensive
income for
the period - - 0.1 - (40.2) (40.1)
-------------- -------------- ---------------- -------------- -------------- --------------
Balance as at
4 March 2017 31.3 11.0 (0.1) 2.3 433.7 478.2
Total comprehensive income for the period
Profit for the
period - - - - 12.5 12.5
Other items of
comprehensive
income
for the
period - - - (0.2) 8.7 8.5
-------------- -------------- ---------------- -------------- -------------- --------------
Total
comprehensive
income for
the period - - - (0.2) 21.2 21.0
Transactions with owners recorded directly in equity
Equity
dividends - - - - (40.3) (40.3)
Issue of
ordinary
share capital 0.1 - - - - 0.1
Issue of own
shares by
ESOT - - (0.1) - - (0.1)
Share option
charge - - - - 0.6 0.6
Tax on items
recognised
directly
in equity - - - - 0.1 0.1
-------------- -------------- ---------------- -------------- -------------- --------------
Total
comprehensive
income for
the period 0.1 - (0.1) - (39.6) (39.6)
-------------- -------------- ---------------- -------------- -------------- --------------
Balance as at
3 March 2018 31.4 11.0 (0.2) 2.1 415.3 459.6
-------------- -------------- ---------------- -------------- -------------- --------------
Notes to the unaudited consolidated financial statements
for the 52 weeks ended 3 March 2018
1. Basis of preparation
The Group's financial statements for the 52 weeks ended 3 March 2018 will be
prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted for use in the EU.
Whilst the financial information included in this preliminary announcement
has been prepared in accordance with IFRS, this announcement does not itself
contain sufficient information to comply with IFRS. As such, these financial
statements do not constitute the Group's statutory accounts and the group expects
to publish full financial statements that comply with IFRS in May 2018.
The accounting policies and presentation adopted in the preparation of these
condensed consolidated financial statements are consistent with those disclosed
in the published annual report & accounts for the 53 weeks ended 4 March 2017.
There have been no significant new or revised accounting standards applied
in the 52 weeks ended 3 March 2018.
IFRS9 : Financial Instruments
The Group is required to adopt IFRS 9 Financial Instruments from 4 March 2018.
The Group estimates that application of IFRS 9's impairment requirements at
4 March 2018 results in a provision range of GBP152m to GBP172m, an increase
of between GBP103m and GBP123m over the impairment recognised under IAS 39.
The assessment made by the Group is preliminary as not all transition work
requirements have been finalised and therefore may be subject to adjustment.
The actual impact of adopting the standard at 4 March 2018 may change because:
* assumptions and judgements are subject to change
until finalisation of the financial statements for
the year ending 2 March 2019;
* the Group is still refining its models and
methodology for expected credit loss ('ECL')
calculation; and
* the governance and implementation of internal
controls required for implementation are in the
process of refinement and finalisation.
Notes to the unaudited consolidated financial statements
for the 52 weeks ended 3 March 2018
2. Key risks and uncertainties
There are a number of potential risks and uncertainties which could have
an impact on the Group's long-term performance. The directors routinely
monitor all risks and
uncertainties taking appropriate actions to mitigate where necessary.
The risks which have been identified as potentially having a material impact
on the performance of the Group are as follows:
Taxation; Business change; Regulatory environment; Cyber-Security; IT Systems;
Business Interruption; Competition and Consumer Confidence.
The Group continues to pursue a number of open taxation positions and is
planning to present case submissions to tribunal in the Financial Year
2018/19. Subsequent
appeals by the Group or HMRC may be heard over the following three year
period. The outcome of this process will crystallise provisions and estimates
for the Group's
taxation liabilities built up over a number of years. Whilst the Group
remains confident of a positive outcome, the potential impact remains unknown
pending final resolution.
The Group continues to develop change programs across the business. With
the approaching uncertainty of Brexit and the accelerating pace of competition
in digital
retail, the importance of the Group's continuous change program has heightened.
In particular, the Group's process simplification programme will provide
focus on the
Group's offline processes and costs over the next year.
Competing effectively across the key areas of Product, Financial Services
and Customer Services remains a key driver of custo mer recruitment and
retention. Potential
consequences of competition include; loss of market share, erosion of margins
and a fall in customer satisfaction. Given the uncertai n commercial climate
post Brexit,
remaining competitive in the retail sector is even more important to deliver
growth.
Consumer confidence in the retail and financial services sectors may further
diminish post Brexit and the impact of interest rate rises and increasing
consumer debt levels
may further squeeze customer spending. In this context, it is important
for the Group to understand and meet customer expectations for product
and service in order to
maintain strong customer engagement and remain competitive. There is also
a renewed focus on the return on investment associa ted with the Group's
spending.
Maximising the impact of value added spending and a focus on efficiency
will be key aspects in the next financial year.
Recent and anticipated changes in regulation are a key consideration for
the Group. The impact of the forthcoming GDPR regulation and the continued
influence of the
FCA represent key sources of potential financial and reputational risk.
The approach of the GDPR regulation has brought greater focus on Cyber
Security within the Group. The successful completion of the Group's GDPR
program should
strengthen the Group's Cyber Security position and help to mitigate the
risks posed by both new and existing cyber threats. Network anomaly detection
has been
strengthened and further improvements have been made to vulnerability management.
The Group continues to mitigate the risks associated with the use of remaining
legacy IT systems as well as data security risk through outsourcing IT
serv ices to a
specialist IT service provider. Tactical solutions continue to be implemented
to mitigate risks to agility arising from older systems.
Business interruption events remain a possibility for the Group and the
Crisis management plan was invoked successfully during the year in response
to incidents during
the year. Potential impacts are broad ranging and include disruption to
trade and customer service resulting in an impact on revenue, margin and
reputation.
3. Going concern
In determining whether the Group's accounts can be prepared on a going
concern basis, the directors considered the Group's bu siness activities
together with factors
likely to affect its future development, performance and financial position
including cash flows, liquidity position, borrowing facilities and the
principal risks and
uncertainties relating to its business activities.
The directors have considered carefully its cash flows and banking covenants
for the next twelve months from the date of approval of the Group's preliminary
results.
Conservative assumptions for working capital performance have been used
to determine the level of financial resources available to the Group and
to assess liquidity
risk.
To take advantage of strong debt market conditions and favourable pricing,
on the 17 April 2018 the Directors signed the key binding documents for
a new finance
agreement which will replace the existing GBP280m securitisation and GBP125m
RCF with a new GBP500m securitisation and GBP125m RCF, which will be committed
until
September 2021. In addition, the Group has retained its existing GBP27m
overdraft facility. Whilst the binding documents are co mpleted and the
facilities are committed, the
Directors anticipate that the remaining administrative documents will be
completed in May 2018 which will enable the new facilities to be drawn.
After making appropriate enquiries, the directors have a reasonable expectation
that the Group has adequate resources to continue in operational existence.
Accordingly, they continue to adopt the going concern basis in the preparation
of these financial statements.
Notes to the unaudited consolidated financial statements
for the 52 weeks ended 3 March 2018
4. Business segment 52 weeks 53 weeks
to to
03-Mar-18 04-Mar-17
GBPm GBPm
Analysis of revenue - Home shopping
Product 652.6 635.9
Financial services 269.6 264.8
----------------- -----------------
922.2 900.7
----------------- -----------------
Analysis of cost of sales - Home shopping
Product (312.1) (288.2)
Financial services (104.5) (117.3)
----------------- -----------------
(416.6) (405.5)
----------------- -----------------
Gross profit 505.6 495.2
Gross margin - Product 52.2% 54.7%
Gross margin - Financial Services 61.2% 55.7%
Warehouse & fulfilment (85.8) (81.3)
Marketing & production (164.0) (165.4)
Depreciation & amortisation (28.1) (27.6)
Other admin & payroll (137.2) (130.6)
----------------- -----------------
Segment result & operating profit before
exceptional items 90.5 90.3
Exceptional items (see note 5) (56.9) (25.2)
----------------- -----------------
Segment result & operating profit - Home
shopping 33.6 65.1
Finance costs (8.9) (7.7)
Fair value adjustments to financial instruments (8.5) 0.2
----------------- -----------------
Profit before taxation 16.2 57.6
----------------- -----------------
Notes to the unaudited consolidated financial statements
for the 52 weeks ended 3 March 2018
4. Business segment (continued)
The Group has one reportable segment in accordance with IFRS8 - Operating
Segments which is the Home Shopping segment.
The Group's board receives monthly financial information at this level
and uses this information to monitor the performance of the
Home Shopping segment, allocate resources and make operational decisions.
Internal reporting focuses on the Group as a whole
and does not identify individual segments. To increase transparency,
the Group has decided to include an additional voluntary disclosure
analysing product revenue within the reportable segment, by brand categorisation
and product type categorisation.
52 weeks 53 weeks
to to
03-Mar-18 04-Mar-17
GBPm GBPm
Analysis of product revenue by brand
JD Williams 163.4 160.5
Simply Be 132.8 115.8
Jacamo 68.6 66.2
----------------- ----------------
Power brands 364.8 342.5
Traditional segment 138.6 136.1
Secondary brands 149.2 157.3
----------------- ----------------
Total product revenue - Home shopping 652.6 635.9
----------------- ----------------
Analysis of product revenue by category
Ladieswear 267.6 260.0
Menswear 89.2 87.0
Footwear & accessories 74.9 70.0
Home & gift 220.9 218.9
----------------- ----------------
Total product revenue - Home shopping 652.6 635.9
----------------- ----------------
The Group has one significant geographical segment, which is the United
Kingdom.
Revenue derived from international markets amounted to GBP38.8m (FY17,
GBP35.8m). Operating profits from international markets amounted
to GBP1.2m (FY17, GBP1.9m). All segment assets are located in the UK,
Ireland and US.
5. Exceptional items
52 weeks 53 weeks
to to
03-Mar-18 04-Mar-17
GBPm GBPm
Customer redress 40.0 22.9
Closure costs / (credits) 13.8 (0.2)
External costs in relation to tax and other matters 3.1 2.5
----------------- ----------------
56.9 25.2
----------------- ----------------
Following a recent industry-wide request from the FCA that firms ensure
that general insurance products and add-ons offer value
for their customers, the Group identified flaws in certain insurance
products which were provided by a third party insurance underwriter
and sold by the Group to its customers between 2006 and 2014, with the
majority sold up to and including 2011.
Following an assessment of the cost of potential customer redress, an
exceptional charge of GBP40.0m was recognised during the period in
respect of the sale of these products.
During the previous year, an exceptional charge of GBP22.9m was recognised
reflecting costs incurred or expected to be incurred in
respect of payments for historical financial services customer redress.
In line with our strategy of reshaping our retail offering, we performed
a review of our store estate and during the period five loss making
retail
stores were closed. This review has resulted in an exceptional cost
of GBP13.8m in respect of onerous lease provisions, other related store
closure costs and asset write off of GBP2.7m.
Following the closures in 2016 of the clearance stores, the credit in
FY17 represents lease exit costs being lower than originally anticipated.
External costs in relation to tax are in respect of on-going legal and
professional fees which have been incurred as a result of the Group's
on-going disputes with HMRC regarding a number of historical tax positions.
Of the amount charged in the period the Group has made
related cash payments of GBP2.2m (FY17, GBP1.9m).
Notes to the unaudited consolidated financial statements
for the 52 weeks ended 3 March 2018
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:
52 weeks 53 weeks to
to
03-Mar-18 04-Mar-17
GBPm GBPm
Notional Amount - Sterling contract value 113.9 94.2
---------------
Fair value of (Liability) / asset recognised (6.0) 2.5
---------------
The fair value of foreign currency derivatives contracts
is their market value at the balance sheet date. Market value
are based on the duration of the derivative instrument together
with the observable market data including interest
rates, foreign exchange rates and market volatility at the
balance sheet date.
Changes in the fair value of assets recognised, being non-hedging
currency derivatives, amounted to a charge of
GBP8.5m (FY17, credit of GBP0.2m) to income in the period.
The financial instruments that are measured subsequent to
initial recognition at fair value.
Notes to the unaudited consolidated financial statements
for the 52 weeks ended 3 March 2018
7. Taxation
The effective rate of corporation tax for the year from continuing
activities is 23.3% (FY17, 23.1%)
The Group is in on-going discussions with HMRC in respect of a number
of Corporation tax positions. The calculation of the
Group's potential liabilities or assets in relation to these involves
a degree of estimation and judgement in respect of items whose tax
treatment cannot be finally determined until resolution has been reached
with HMRC or, as appropriate, through legal processes. Issues
can, and often do, take a number of years to resolve.
In respect of Corporation tax, as at 3 March 2018 the Group has provided
a total of GBP4.6m (FY17: GBP3.6m) for potential corporation tax
future charges based upon the Group's best estimation and judgement.
The inherent uncertainty regarding the outcome of these positions
means the eventual realisation could differ from the accounting estimates
and therefore impact the Group's future results and cash flows. Based
upon the amounts reflected in the balance sheet as at 3 March 2018,
the Directors estimate that the unfavourable settlement of these cases
could result in a charge to the income statement of up to GBP5.6m
and a
cash payment to HMRC of up to GBP10.2m.
The favourable settlement of these cases would result in a repayment
of tax of up to GBP19.8m and an associated credit to the income statement
of GBP24.4m.
Notes to the unaudited consolidated financial statements
for the 52 weeks ended 3 March 2018
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 items that are one-off in nature,
material by size and are considered to be distortive of the true underlying
performance of the business (see note 5) and certain
other fair value adjustments. These have been 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 52 weeks 53 weeks
to to
03-Mar-18 04-Mar-17
GBPm GBPm
Total net profit attributable to equity holders of the parent for the
purpose of basic
and diluted earnings per share 12.5 44.3
------------------ -----------------
Total net profit attributable to equity holders of the parent for the
purpose of basic
and diluted earnings per share excluding discontinued
operations 12.5 44.3
Fair value adjustment to financial instruments (net
of tax) 6.9 (0.2)
Exceptional items (net of tax) 46.0 20.2
Total net profit attributable to equity holders of the parent for the
purpose of basic
and diluted adjusted earnings per share 65.4 64.3
------------------ -----------------
52 weeks 53 weeks
Number of shares to to
03-Mar-18 04-Mar-17
No. ('000s) No. ('000s)
Weighted average number of shares in issue for the purpose
of basic earnings per share 283,614 282,701
Effect of dilutive potential ordinary shares:
Share options 542 252
Weighted average number of shares in issue for the purpose
of diluted earnings per share 284,156 282,953
------------------ -----------------
Earnings per share
Basic 4.41 p 15.67 p
Diluted 4.40 p 15.66 p
Adjusted earnings per share
Basic 23.06 p 22.74 p
Diluted 23.02 p 22.72 p
Notes to the unaudited consolidated financial statements
for the 52 weeks ended 3 March 2018
9. Intangible assets
Customer
Brands Software database Total
GBPm GBPm GBPm GBPm
Cost
As at 27 February 2016 16.9 256.7 1.9 275.5
Additions - 37.7 - 37.7
-------------- ------------- ------------- ------------
As at 4 March 2017 16.9 294.4 1.9 313.2
Additions - 36.5 - 36.5
-------------- ------------- ------------- ------------
As at 3 March 2018 16.9 330.9 1.9 349.7
-------------- ------------- ------------- ------------
Amortisation
As at 27 February 2016 8.0 140.7 1.9 150.6
Charge for the period - 20.7 - 20.7
-------------- ------------- ------------- ------------
As at 4 March 2017 8.0 161.4 1.9 171.3
Charge for the period - 22.4 - 22.4
-------------- ------------- ------------- ------------
As at 3 March 2018 8.0 183.8 1.9 193.7
-------------- ------------- ------------- ------------
Carrying amounts
As at 3 March 2018 8.9 147.1 - 156.0
-------------- ------------- ------------- ------------
As at 4 March 2017 8.9 133.0 - 141.9
-------------- ------------- ------------- ------------
As at 27 February 2016 8.9 116.0 - 124.9
-------------- ------------- ------------- ------------
Assets in the course of construction included in intangible assets
at the year end total GBP14.6m (FY17, GBP88.5m).
No amortisation is charged on these assets.
Borrowing costs of GBP0.1m (FY17, GBP1.3m) have been capitalised in
the period using the weighted average bank loan interest rate applied
to the capitalised spend
on technological developments included within software.
As at 3 March 2018, the Group had entered into contractual commitments
for the further development of intangible assets of GBP2.0m (FY17:
GBP3.0m) of which
GBP1.0m (FY17: GBP1.0m) is due to be paid within 1 year.
Impairment testing of software intangible assets
The Group has undertaken a systems transformation project. Some elements
of the project are not yet available for use and are not therefore
being amortised.
Where intangible assets are not being amortised management have tested
for impairment with the recoverable amount being determined from the
value
in use calculations.
The value in use calculations use cash flows based on budgets prepared
by management covering a three year period. These budgets have regard
to historic
performance and knowledge of the current market, together with managements
views on the future achievable growth and impact of technological
developments
Cash flows beyond this three year period are extrapolated using a
long term growth rate to 5 years at which point a terminal value has
been calculated based upon
the long term growth rate and the Group's risk adjusted pre-tax discount
rate.
The Group's 3 year cash flow projections are based upon the Group's
approved 3 year plan. The detailed forecast assumes continued growth
during the course of
the next three years, driven by new media campaigns, exploitation
of the Group's data assets and further investments in the core technology
underpinning the
Group's key channels to market.
Other than the detailed budgets, the key assumptions in the value
in use calculations are the long-term growth rate and the risk adjusted
pre-tax discount rate.
The long-term growth rate has been determined with reference to forecast
GDP growth which management believe is the most appropriate indicator
of long-term
growth rates that is available. The long-term growth rate used is
purely for the impairment testing of intangible assets and and brands
under IAS 36 'Impairment
of Assets' and does not reflect long-term planning assumptions used
by the Group for investment proposals or for any other assessments.
The pre-tax discount
rate is based on the Group's weighted average cost of capital, taking
into account the cost of capital and borrowings, to which specific
market-related premium
adjustments are made.
The assumptions are as follows:
- Long term growth rate: 2.0% (FY17: 1.9%)
- Pre tax discount rate: 13.9% (FY17: 11.6%)
The analysis performed indicates that no impairment is required. A
sensitivity analysis has been performed on each of these key assumptions
with other
variables held constant. Management have concluded that there are
no reasonably possible changes in these key assumptions that would
cause the carrying
value to exceed the value in use.
Impairment testing of brand intangibles
The brand names arising from the acquisitions of High and Mighty,
Slimma, Figleaves, Diva and Dannimac are deemed to have indefinite
lives as there are
no foreseeable limits to the periods over which they are expected
to generate cash inflows and are therefore subject to annual impairment
tests with the
recoverable amount being determined from the value in use calculations.
The value in use calculations use cash flows based on budgets prepared
by management covering a three year period and approved by the Board.
These budgets
have regard to historic performance and knowledge of the current market,
together with managements views on the future achievable growth. Cash
flows beyond
this three year period are extrapolated using a long term growth rate
into perpetuity.
Other than the detailed budgets, the key assumptions in the value
in use calculations are the long-term growth rate and the risk adjusted
pre-tax discount rate
which management have assumed to be 2.0% (FY17: 1.9%) and 11.9% (FY17:
12.5%) respectively.
The analysis performed indicates that no impairment is required. A
sensitivity analysis has been performed on each of these key assumptions
with other
variables held constant.
Should there be a downturn in future or forecasted cash flows, then
there is a risk of impairment to Figleaves (GBP7.1m) and High and
Mighty (GBP1.0m) brand names.
Notes to the unaudited consolidated financial statements
for the 52 weeks ended 3 March 2018
10. Property, plant and equipment
Land and Fixtures and
buildings equipment Total
GBPm GBPm GBPm
Cost
As at 27 February 2016 53.2 134.9 188.1
Additions - 3.7 3.7
Reclassification 5.9 (5.9) -
----------------- ------------------ --------------
As at 4 March 2017 59.1 132.7 191.8
Additions - 2.3 2.3
Disposal - (4.1) (4.1)
----------------- ------------------ --------------
As at 3 March 2018 59.1 130.9 190.0
----------------- ------------------ --------------
Accumulated depreciation and impairment
As at 27 February 2016 13.1 98.3 111.4
Charge for the period 1.1 5.8 6.9
Reclassification - - -
----------------- ------------------ --------------
As at 4 March 2017 14.2 104.1 118.3
Charge for the period 1.2 4.5 5.7
Disposal - (1.4) (1.4)
----------------- ------------------ --------------
As at 3 March 2018 15.4 107.2 122.6
----------------- ------------------ --------------
Carrying amounts
As at 3 March 2018 43.7 23.7 67.4
----------------- ------------------ --------------
As at 4 March 2017 44.9 28.6 73.5
----------------- ------------------ --------------
As at 27 February 2016 40.1 36.6 76.7
----------------- ------------------ --------------
Assets in the course of construction included in fixtures
and equipment at the year end total GBP1.6m (FY17, GBP0.3m),
and in land and buildings total GBPnil (FY17, GBPnil). No
depreciation is charged on these assets.
Disposals relate to the assets written off as a result of
store closures. A loss of GBP2.7m was recorded.
At 3 March 2018, the Group had not entered into any contractual
commitments for the acquisition of property, plant
and equipment (FY17, GBPnil).
Notes to the unaudited consolidated financial statements
for the 52 weeks ended 3 March 2018
11. Trade and other receivables
As at 3 March As at
2018 4 March
2017
GBPm GBPm
Amount
receivable
for
the sale of
goods and
services 647.6 599.5
Allowance for
doubtful
debts (48.8) (64.7)
---------------------------
598.8 534.8
Other debtors
and
prepayments 53.9 40.6
---------------------------
652.7 575.4
Trade receivables are measured at amortised cost.
The average credit period given to customers for the sale of goods
is 237 days (FY17, 217 days). A weighted average APR of 57.9% (FY17,
58.7%) is charged on the
outstanding balance. Provision for impairment of Receivables is established
when there is objective evidence that the Group will be unable to
collect all amounts due. For
customers who find themselves in financial difficulties, the Group
may offer revised payment terms to support the customer, encouraging
customer rehabilitation and thereby
maximising long term returns. These revised terms may also include
suspension of interest for a period of time. The cash collection rates
on these accounts are therefore
reduced and a provision is held for all receivables on renegotiated
terms. Accounts not on renegotiated terms are also assessed and all
accounts that reach the trigger
point of 28 days past due (in respect of new customers) or 56 days
past due (in respect of established customers) are considered for
provision.
The Group also acknowledges that there will be events that have occurred
that are not yet identified within segments where a provision is not
held. The Group uses historic
roll rates to measure the likelihood of receivables moving into a
segment which is currently provided for over a 7.5 month emergence
period. This is then used to assess
the level of provision needed in relation to these incurred but not
reported ("IBNR") events where collectively no provision is held.
Before accepting any new customer, the Group uses an external credit
scoring system to assess the potential customer's credit quality and
defines credit limits by customer.
Credit limits and scores attributed to customers are reviewed every
28 days. The credit quality of trade receivables that are neither
past due nor impaired, with regard to the
historical default rate has remained stable.
As at 3 March As at 4 March
2018 2017
Trade Trade
receivables receivables
Trade on Total trade Trade on Total
Ageing of receivables payment receivables receivables payment trade
trade arrangements arrangements receivables
receivables
GBPm GBPm GBPm GBPm GBPm GBPm
Current - not
past due 520.1 30.8 550.9 444.2 53.0 497.2
0 - 28 days -
past due 35.6 4.7 40.3 38.2 6.5 44.7
29 - 56 days
- past due 19.3 1.6 20.9 18.7 2.5 21.2
57 - 84 days
- past due 12.9 2.3 15.2 13.3 2.0 15.3
85 - 112 days
- past due 9.0 1.6 10.6 9.1 1.6 10.7
Over 112 days
- past due 8.0 1.7 9.7 8.1 2.3 10.4
------------------- ------------------ -------------------- ---------------------------
Gross trade
receivables 604.9 42.7 647.6 531.6 67.9 599.5
Allowance for
doubtful
debts (28.2) (20.6) (48.8) (30.8) (33.9) (64.7)
Net trade
receivables 576.7 22.1 598.8 500.8 34.0 534.8
The carrying amount of trade receivables whose terms have been renegotiated
but would otherwise be past due totalled GBP30.8m at 3 March 2018
(FY17, GBP53.0m).
Interest income recognised on trade receivables which have been impaired
was GBP29.8m (FY17, GBP40.6m).
As at 3 March As at
2018 4 March
Movement in 2017
the
allowance
for doubtful
debts
Balance at
the
beginning
of the
period 64.7 97.6
Amounts
charged to
the
income
statement 99.5 113.5
Amounts
written off (115.4) (146.4)
---------------------------
Balance at
the end of
the period 48.8 64.7
The amounts written off in the period of GBP115.4m (FY17, GBP146.4m)
include the sale of impaired assets with a net book value of GBP20.5m
(FY17, GBP29.0m). This sale has also
been a material driver in the reduction in trade receivables on payments
arrangements, from GBP67.9m to GBP42.7m as at 3 March 2018.
The concentration of credit risk is limited due to the customer base
being large and unrelated and comprising 1.2 million (FY17, 1.2 million)
customers. Accordingly, the
directors believe that there is no further credit provision required
in excess of the allowance for doubtful debts.
Other debtors and prepayments
'Other debtors and prepayments' includes a net VAT debtor, comprising
the VAT liability which arises from day to day trading, together with
amounts in relation to matters
which are in dispute with HMRC. The Group has on-going discussions
with HMRC in respect of a number of VAT positions. The calculation
of the Group's potential liabilities
or assets in respect of these involves a degree of estimation and
judgement in respect of items whose tax treatment cannot be finally
determined until resolution has been
reached with HMRC or, as appropriate, through legal processes. Issues
can, and often do, take a number of years to resolve.
In respect of VAT, the Group has provided a total of GBP3.1m (FY17:
GBP5.4m) in respect of future payments which the Directors' have a
reasonable expectation of making in
settlement of these historical positions.
In addition and separate to the above positions, the Group continues
to be in discussion with HMRC in relation to the VAT consequences
of the allocation of certain costs
between our retail and credit businesses. At this stage it is not
possible to determine how the matter will be resolved.
Within our year end VAT debtor is an asset of GBP43.8m (FY17: GBP36.0m)
which has arisen as a result of cash payments made under protective
assessments raised by HMRC
and the Group estimates that a further GBP10m could be paid under
this assessment in the forthcoming year. Based on the advice of external
tax advisors, together with legal
counsel's opinion on certain elements of the cost allocation, we believe
that we will recover this amount in full from HMRC and we are engaged
in a legal process to do so.
The inherent uncertainty regarding the outcome of these positions
means the eventual realisation could differ from the accounting estimates
and therefore impact the
Group's future results and cash flows. Based upon the amounts reflected
in the balance sheet as at 3 March 2018, the Directors estimate that
the unfavourable settlement of
these cases could result in a charge to the income statement of up
to GBP53.0m (including the full write off of the VAT debtor noted
above) and a cash payment to HMRC of up
to GBP9.2m.
The favourable settlement of these cases would result in a repayment
of tax and associated interest of up to GBP43.8m and an associated
credit to the income statement of GBPnil.
Notes to the unaudited consolidated financial statements
for the 52 weeks ended 3 March 2018
12. Provisions
Customer Redress Customer Store Closures Total
Redress
GBPm GBPm GBPm
Balance at 4 March 2017 19.9 - 19.9
Provisions made during the period 40.0 11.1 51.1
Provisions used during the period (17.1) (4.2) (21.3)
Provisions reversed during period - (0.5) (0.5)
Balance at 3 March 2018 42.8 6.4 49.2
Non Current 1.3 4.1 5.4
Current 41.5 2.3 43.8
Balance at 3 March 2018 42.8 6.4 49.2
Store Closures
In August 2017, five loss making stores were closed.
The related costs of GBP13.8m have been treated as an exceptional
item and detailed separately on the income statement as reflected
in note5.
Included within the charge was GBP11.1m in respect of onerous
lease obligations and other related store closure costs of which
the majority of
these costs have been settled by the year end leaving the onerous
lease provision which will run to the earlier of the break clause
or lease
expiry for all four remaining store leases which will be between
two to four years. The provision is net of an estimate of potential
sub- letting
income.
Customer redress
The provision relates to the Group's liabilities in respect of
costs expected to be incurred in respect of payments for historic
financial
services customer redress, which represents the best estimate
of the known regulatory obligations, taking into account factors
including risk
and uncertainty.
As at 3 March 2018 the Group holds a provision of GBP42.8m (FY17,
GBP19.9m) in respect of the anticipated costs of historic financial
services
customer redress. Of this amount GBP39.8m relates to certain
insurance products where management have identified flaws in
the product
design, the remaining GBP3.0m relates to historical customer
redress. These amounts include a provision of GBP1.4m in relation
to administration
expenses. All liabilities will be settled in line with the current
FCA deadline of Aug 2019.
There are still a number of uncertainties as to the eventual
customer redress costs, in particular the total number of claims
and the cost per
claim, however the Directors believe that the amounts provided
at the year end (based on historical and forecasted claim rates
and amounts,
along with known legal and regulatory obligations) are a reasonable
estimate of the cost to the Group.
The principal sensitivities in the customer redress calculation
are: volumes of policies affected; claim rate; uphold rate and
average
redress amount
52 weeks to 3
March 2018
Customer Redress
GBPm
+/- 10% in claims volumes +/- 9.9
+/- 10% in response / upheld
rate +/- 4.4
+/- 10% in average redress amount +/- 9.9
Notes to the unaudited consolidated financial statements
for the 52 weeks ended 3 March 2018
13. Dividends
The final proposed dividend of 8.56 pence per share, subject to approval
by shareholders, will be paid on 3 August 2018 to shareholders on the register
at the close of business on 6 July 2018.
14. Non-statutory financial statements
The financial information set out above does not constitute the company's
statutory accounts for the 52 weeks ended 3 March 2018 or the 53 weeks
ended 4 March 2017. The financial information for the 53 weeks ended 4
March 2017 is derived from the statutory accounts for 4 March 2017 which
have been delivered to the Registrar of Companies. The auditor has reported
on the 4 March 2017 accounts; their report was i) unqualified, ii) did
not include a reference to any matters to which the auditor drew attention
by way of emphasis without qualifying their report and
iii) did not contain a statement under s498(2) or (3) of the Companies
Act 2006. The statutory accounts for the 52 weeks ended 3 March 2018 will
be finalised on the basis of the financial information presented by the
directors in this preliminary announcement and will be delivered to the
Registrar of Companies in due course.
This report was approved by the Board of Directors on 26 April 2018.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SELFAIFASEFL
(END) Dow Jones Newswires
April 26, 2018 02:00 ET (06:00 GMT)
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