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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% | 14.40 | 14.10 | 14.65 | 6 | 08:53:20 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Catalog, Mail-order Houses | 677.5M | -51.4M | -0.1116 | -1.29 | 66.31M |
From Apr 2019 to Apr 2024
TIDMBWNG
RNS Number : 6654D
Brown (N.) Group PLC
11 October 2018
11th October 2018
N Brown Group first half results for the 26 weeks ended 1 September 2018
Good growth in Financial Services, disappointing Product performance in a challenging market.
Full year expectations unchanged.
Hot Features
Premium
GBPm H1 FY19 H1 FY18 Change
------------------------------ ------------------ ----------------- ----------------
Group revenue 457.8 453.4 +1.0%
Product revenue (excluding
stores) 304.5 314.1 -3.1%
Financial Services revenue 146.4 129.9 +12.7%
Adjusted EBITDA1 52.0 49.0 +6.1%
Adjusted PBT2 30.6 32.2 -5.0%
Statutory PBT (27.1) (27.6) +1.8%
Adjusted EPS2 8.37p 8.77p -4.6%
Statutory EPS (9.14)p (7.50)p -21.9%
Interim dividend 2.83p 5.67p -50.0%
Core net debt3 30.5 35.7 -14.6%
Overall net debt 420.5 305.7 +37.6%
------------------------------ ------------------ ----------------- ----------------
1before exceptional items as detailed on page 4 2before exceptional items and unrealised FX movement
3excludes debt securitised on the Group's customer loan book
Continuing our transformation into an online retailer
-- Online Power Brands revenue up 8.6% -- 77% of Product revenue now online, 84% for new customers -- Adjusted EBITDA increased by 6.1% to GBP52.0m
Product revenue decreased by 3.1% (excluding stores)
-- Simply Be up by 8.0%, Jacamo ahead by 2.7% and JD Williams down 3.1% -- Significant decline in offline sales as business focuses on growing online Power Brands -- Taken measures to address poor International performance
Financial Services revenue up 12.7% due to strong interest performance
-- Customer loan book grew by GBP30.0m to GBP677.6m (gross basis) since 3 March 2018 -- Core net debt3 of GBP30.5m, giving leverage of 0.3x
Tight control on operating costs, which decreased as planned by 1.5%
-- Mainly due to lower marketing costs, down by 4.3%
Exceptional costs of GBP65.4m drive a statutory PBT loss of GBP27.1m
-- New exceptional items relate to customer redress and non-cash asset impairment charges
Interim dividend reduced by 50.0% to 2.83p
-- Rebased dividend to a more sustainable level from which the Group will seek to grow
Matt Davies, Chairman, said:
"Whereas much progress has been made transforming the business into an online retailer, we have not yet achieved the growth in product or international that we would have hoped for and have decided to rebase the dividend to a more sustainable level from which we will seek to grow.
"We are now in the process of searching for a new Chief Executive to take the Group forward through the next phase of its development. In the meantime, we are pleased that Steve Johnson will lead the business. We have a strong base on which to build. Over three-quarters of our product revenue is now online and we have industry leading expertise in fashion that fits. This is supported by a strong financial services business. Our goal of becoming a world class digital retailer remains unchanged."
Steve Johnson, Chief Executive, said:
"The Group's adjusted profit was in line with our expectations as we benefited from growth in our online Power Brands and Financial Services, along with improved marketing efficiency. We were however disappointed with our wider product performance which was impacted by the ongoing decline of our legacy offline business and challenging market conditions.
"Going forward we expect offline sales to continue to fall as we focus on online Power Brand growth. While this will hold back revenue in the short term, there are opportunities to drive profit particularly through improved efficiency, as the business further shifts online, and we accelerate the use of analytics to increase returns on our promotional spend."
"While first half trends seen in our product business are continuing into the second half, the positive outlook for Financial Services and scope for further efficiencies mean that our full year expectations are unchanged."
Meeting for analysts and investors:
Management is hosting a presentation for analysts and investors at 10.15 am today. Please contact Nbrown@mhpc.com for further information. A live webcast of the presentation will be available at: www.nbrown.co.uk.
N Brown Group
Steve Johnson, Chief Executive On the day 07825 453881
Craig Lovelace, Chief Financial Officer Thereafter 0161 238
Simon Bielecki, Investor Relations 1845
Website: www.nbrown.co.uk
MHP Communications
Andrew Jaques / Ollie Hoare / Nessyah
Hart 0203 128 8156
NBrown@mhpc.com
Summary
Group revenue in the first half increased by 1.0% to GBP457.8m, with Q2 up by 1.5% compared to an increase in Q1 of 0.4%, driven primarily by a strong performance in Financial Services.
Product revenue excluding stores, which have all now closed, decreased 3.1% to GBP304.5m. While recognising that this was a disappointing performance, it reflects the challenging market conditions in fashion retail, ongoing headwind from the migrated Fifty Plus customers onto JD Williams and the decline in the Group's offline business. Product revenue including stores was down 3.7% to GBP311.4m.
Our three Power Brands (JD Williams, Simply Be and Jacamo) continued to outperform the rest of the Group, with revenue up by 1.8% excluding stores. In line with our growth strategy Power Brands now account for 58% of Product revenue.
Simply Be was again the Group's best performer, recording good revenue growth of 8.0% excluding stores. JD Williams decreased by 3.1% but was up by 7.5% excluding Fifty Plus. Given that the migration of Fifty Plus customers onto the JD Williams brand commenced in the middle of the prior year, we expect this headwind to soften during the second half of FY19. Jacamo was ahead by 2.7% excluding stores. Revenues from Secondary (excl. stores) and Traditional brands were down 6.9% and 11.2% respectively as the Group's focus continued to shift to its priority Power Brands.
Our transformation to a leading online retailer continues at pace, with digital sales now accounting for 77% of Product revenue, compared to 71% in H1 FY18. Online revenue grew by 3.8% in the first half and was ahead by 8.6% for our Power Brands. Offline revenue decreased by 22.4% as the Group continued to shift its focus to its growing online business.
The Group's gross margin decreased by 60bps to 54.2% reflecting the decline in Product gross margin, which also fell by 60bps to 53.4% as we decided to invest more of our marketing expenditure in promotional activity. This reduced gross margin was counterbalanced by lower marketing costs, which decreased by 4.3%.
Financial Services performed strongly with revenue ahead by 12.7% to GBP146.4m, as we benefited from increased interest received from the Group's growing customer loan book. Gross margin was down 50bps, to 56.0% due to our requirement under IFRS9 to make a provision against every credit customer, including those that are trading normally.
The Group has kept a tight control on operating costs in the first half, which decreased as planned by 1.5% to GBP196.3m, principally driven by the reduction in marketing costs. Warehouse and fulfilment costs were marginally down, by 0.3%, and while admin & payroll increased slightly, by 1.3%, this was less than the rate of inflation. As a result, adjusted EBITDA increased by 6.1% to GBP52.0m. As anticipated depreciation and amortisation increased by 15.4% to GBP14.9m, reflecting our investment in IT systems. Adjusted operating profit was up by 2.8% to GBP37.1m and operating margin was ahead by 10bps to 8.1%.
As interest increased to GBP6.5m due to additional borrowings, adjusted profit before tax decreased by 5.0% to GBP30.6m and adjusted EPS was down by 4.6% to 8.37p. On a statutory basis the Group made a loss before tax for the half year of GBP27.1m due to exceptional costs of GBP65.4m.
Exceptional items
GBPm H1 FY19 H1 FY18 FY18 ------------------------------------ ----------------------- ----------------- ------------- Store closures 22.0 13.8 13.8 External costs related to taxation matters 2.7 1.1 3.1 Customer redress 22.4 40.0 40.0 Welcom impairment 11.2 - - Figleaves goodwill impairment 7.1 - - ------------------------------------ ----------------------- ----------------- ------------- Total 65.4 54.9 56.9 ------------------------------------ ----------------------- ----------------- -------------
As previously announced in its Q1 trading statement, the Group has incurred exceptional costs of GBP22.0m (of which GBP9.3m is cash) relating to the closure of its store portfolio and GBP2.7m advisory fees associated with ongoing legacy tax cases.
New exceptional items announced today include GBP22.4m in respect of customer redress provisions, reflecting the estimated cost of remediating anticipated additional PPI claims. The majority of the cashflow impact is expected to occur over the next 12 months, with approximately half in H2 FY19 and half in H1 FY20.
This updated financial services redress provision has resulted from a significant recent increase in claims volumes. These have been experienced across the industry and have arisen due to both the 'Plevin' court ruling and additional marketing activity by the FCA, targeted at raising awareness of the August 2019 PPI deadline.
More specifically, the Plevin ruling has meant that if more than 50% of a consumer's PPI payments were paid as commission, customers could claim back payments, plus interest, even if they have had a prior PPI claim rejected. This has not only led to new claims from those who were previously rejected, but also has increased the general level of PPI claimants as the half has progressed.
The Group has also made two non-cash asset impairment charges in the half. Firstly, following a detailed review of the benefits likely to be achieved from its platform, the Group has terminated an agreement with a third-party IT Financial Services provider, Welcom Digital Limited ("WDL"), resulting in an asset impairment charge of GBP11.2m. Despite this termination, the Group has been able to deliver much of the required functionality by using in-house resources and other third-party service providers.
Secondly, following historical underperformance of Figleaves, a business the Group acquired in 2010, we have decided to impair its goodwill in full, resulting in a non-cash charge of GBP7.1m. Despite this impairment, the Group continues to believe in the longer-term opportunity for Figleaves and with a new management team, is implementing a turnaround plan to grow the business.
Dividend
While the Board understands the importance of dividends to investors, its current dividend cover is low and exceptional items, largely relating to legacy matters, have meant that distributions have not been covered by free cash flow.
The Board has therefore decided to rebase the interim dividend to 2.83p per share, a reduction of 50.0% on the prior year, which it also intends to reflect in the final dividend. This brings the Group's dividend down to a more sustainable level and from which the Group will seek to grow as its earnings progress.
Balance sheet
The Group has an available financing facility totaling GBP625m, made up of a securitisation facility of GBP500m and RCF of GBP125m, both secured until September 2021.
The Group's balance sheet is underpinned by its customer loan book, which at 1 September 2018 was GBP677.6m on a gross basis and GBP565.7m on a net basis, calculated under IFRS9.
Compared to 3 March 2018 the Group's overall net debt increased by GBP73.7m to GBP420.5m principally due to exceptional cash outflows of GBP36.8m, the majority of which relates to customer redress, and GBP30.0m growth in the Group's gross customer loan book. GBP390.0m of the Group's debt is securitised against the loan book on a non-recourse basis.
Core debt, which is defined as the amount drawn on the Group's RCF less cash, was GBP30.5m. On this basis, the Group's leverage is 0.3x on a net debt/EBITDA basis.
Guidance
The following updates to FY19 guidance have been made:
-- Product gross margin: 0 to -100bps (was 0 to +100bps) due to continued promotional investment
-- Group operating costs: down 1% to 3% (was up 1.5% to 3.5%) due to tight cost control -- Net interest: GBP13m to GBP14m (was GBP12m to GBP13m) due to growth in customer loan book
-- Exceptional costs: c.GBP67m (was GBP22m to GBP26m) due to increased customer redress provisions and asset impairment charges
-- Net debt: GBP450m to GBP475m (was GBP425m to GBP450m) due to increased customer redress provisions and the likely acceleration of lease surrenders on store closures
Other FY19 guidance is unchanged:
-- Financial Services gross margin: -100bps to -200bps -- Depreciation & Amortisation: GBP32m to GBP33m -- Capex: c.GBP40m -- Underlying Effective Tax Rate: c.22%
Outlook
Going forward we expect offline sales to continue to fall as we focus on online Power Brand growth. While this will hold back revenue in the short term, there are opportunities to drive profit particularly through improved efficiency, as the business further shifts online, and we accelerate the use of analytics to increase returns on our promotional spend.
While first half trends seen in our product business are continuing into the second half, the continued positive outlook for Financial Services and scope for further efficiencies mean that our full year expectations are unchanged.
FX hedging
For FY19 we have hedged 100% of our net purchases at a blended rate of GBP/$1.33, which will result in a c.GBP3m tailwind compared to FY18, when the hedged rate was GBP/$1.28. For FY20, we have to date hedged 77% of our net purchases at a blended rate of GBP/$1.34. Our policy is to be 100% hedged for FY20 by the end of FY19.
Closure of store portfolio
As announced in the Q1 trading update and following employee consultation the Group closed its remaining 20 stores during the period. In H1 FY19 the Group's stores generated GBP6.9m revenue and an EBITDA loss of GBP1.0m (H1 FY18: Revenue of GBP9.4m and EBITDA loss of GBP2.1m). To benefit from more favourable terms, the Group is likely to accelerate the surrender of leases on several stores.
Transformation into an online retailer
Product revenue* FY14 FY15 FY16 FY17 FY18 H1 FY19 ------------------ ------------- ----------- ----------- ----------- ----------- ------------- Online (GBPm) 333.7 344.4 386.3 425.0 470.0 238.9 Online (%) 58.3 59.1 63.7 67.8 72.0 76.7 Offline (GBPm) 239.1 238.5 220.3 202.3 182.6 72.5 Offline (%) 41.7 40.9 36.3 32.2 28.0 23.3 ------------------ ------------- ----------- ----------- ----------- ----------- ------------- Total (GBPm) 572.8 582.9 606.6 627.2 652.6 311.4 ------------------ ------------- ----------- ----------- ----------- ----------- -------------
* Continuing operations
The Group's transformation to a leading online retailer continues, with online sales now accounting for 77% of product revenue in H1 FY19. For new customers revenue generated online is even higher, at 84%. Whereas online revenue grew at a compound annual average rate of 8.9% over the FY14 - FY18 period, with online Power Brands up 13.8%, the Group's offline revenue has decreased at a compound annual rate of 6.5%.
In H1 FY19 online revenue grew by 3.8% and was ahead by 8.6% for our Power Brands. Offline revenue decreased by 22.4% as the Group continued to shift its focus to its growing online business. As the Group focuses more of its resources on growing its online business, going forward it expects a continued double-digit decline in its offline revenue. Although this is likely to hold back overall revenue growth, this channel shift is expected to benefit the Group's profitability as marketing and distribution costs are lower for online customers.
Product performance by brand
Product revenue, GBPm H1 FY19 H1 FY18 Change ------------------------ ---------------------------- ------------------- ----------------- JD Williams 78.6 81.1 -3.1% Simply Be* 65.3 60.5 8.0% Jacamo* 30.7 29.9 2.7% ------------------------ ---------------------------- ------------------- ----------------- Power Brands* 174.6 171.5 1.8% ------------------------ ---------------------------- ------------------- ----------------- Secondary Brands* 69.4 74.5 -6.9% Traditional Segment 60.5 68.1 -11.2% ------------------------ ---------------------------- ------------------- ----------------- Total* 304.5 314.1 -3.1% ------------------------ ---------------------------- ------------------- ----------------- Stores 6.9 9.4 -26.9% ------------------------ ---------------------------- ------------------- ----------------- Total including stores 311.4 323.5 -3.7% ------------------------ ---------------------------- ------------------- -----------------
* Excludes stores
JD Williams is our modern online department store, positioned for 45+ female customers and their families. Although revenue was down 3.1% this was due to the continued drag from migrated Fifty Plus customers, one of our legacy offline brands. Excluding Fifty Plus, JD Williams revenue was up 7.5%. Given that the migration of Fifty Plus customers onto the JD Williams brand commenced in the summer last year, this headwind is expected to soften during H2 FY19.
Research conducted by JD Williams found that more than half of women aged 45+ are unhappy with what the high street has to offer their age group, despite 60% of this age group having more money to spend on fashion now than they did in their twenties.
In response JD Williams staged JDW Midster Live AW18 - a celebration of fashion for women aged 45+. The show included the winners of the JD Williams' recent Midster Model search, a nationwide competition to find two unsigned models in their mid-life years, as part of its ongoing commitment to use age-appropriate models in its brand and advertising campaigns. This event kick started London Fashion Week and was live streamed on jdwilliams.co.uk with a click to buy functionality - allowing customers to buy the clothes they see on the catwalk.
For its latest campaign JD Williams has adopted both a new creative direction as well as the campaign mantra of 'I AM....'. Shot and directed by an all-female crew aged between 45-60 - our target customer. This celebrates everything about life after 45, the bold and empowering campaign features a mix of models and real women, diverse in age and shape, who the audience can really relate to, showcasing the AW18 collection, available in sizes 10 - 32.
Further building on our industry leading expertise in fit, we have continued to improve our fit accuracy by using body scanners at events for our JD Williams and Simply Be customers. Following hundreds of scans, we now have with over 200 measurements for every women's size compared to a traditional retail model of just 12. Based on these findings, we are now rolling out new adjusted size blocks to our suppliers and are targeting to have covered c.70% of our ladieswear by the end of the year.
Simply Be is the go-to online destination for fashionable size 12-32 women, offering a range of own and third-party brands, often in larger sizes on an exclusive basis, reinforcing our curvy credentials. Simply Be delivered another good performance, growing by 8.0% during the period excluding stores.
To further enhance our beauty proposition, we have recently partnered with L'Oreal, the world's leading beauty manufacturer, launching 200 lines across their big three consumer brands, L'Oreal Paris, Maybelline and Garnier on Simply Be, JD Williams and Jacamo.
Our Autumn Winter campaign, called More than our bodies, encourages women to tell the world their story through their fashion choices. It is brought to life through four familiar models that embody this ethos including Felicity Haywood, who is a pioneer of the body confidence movement and Clementine Desseaux, founder of the All woman Project.
Jacamo caters for 25-45 year-old men of all body shapes and sizes. Jacamo product revenue was up 2.7% excluding stores. Building on our successful distinctive and aspirational Live YOUR Moment campaign, as part of our summer edition we collaborated with former England international and Match of the Day pundit Jermaine Jenas and rapper Wretch 32. Extending over an 11-week period, this was our largest Jacamo campaign to date.
Following its success, we are continuing this campaign into the Autumn Winter season, showing a diverse range of men reliving their inspirational life moments using three different influencers: snowboarder and Olympic medal holder, Billy Morgan, Rugby League player Luke Burgess and model and body confidence ambassador, Raul Samuel. All were chosen for their ability to convey their inspirational life moments and to promote body shape inclusivity supporting our size inclusive offer from small to 5XL.
Secondary brands revenue decreased by 6.9% excluding stores reflecting our shift in marketing investment towards Power Brands. In addition, this reflects the ongoing decline in offline revenue, down by around a quarter, more pronounced than originally anticipated. The decline was principally driven by a double-digit reduction in revenue for Marisota. As this is increasingly being used a product brand through JD Williams, the Group has been reducing investment in the Marisota brand and has stopped offline recruitment.
There was also a small decrease in revenue for Fashion World, which is the largest brand in this category. Following the success of its Simply Be and JD Williams apps, the Group launched its third app in August, Fashion World. This is targeted at improving the online experience for our Fashion World customers. Pleasingly Figleaves returned to growth as we implemented our turnaround plan, led by its new management team.
Revenue in the Traditional segment decreased by 11.2% as the Group continued to increase its focus on its online business and scaled back its offline marketing and recruitment. Given that this segment is more heavily weighted towards offline than the rest of the Group, as it typically serves more mature customers, this segment it is expected to experience the fastest rate of revenue decline going forward.
Technology
Given the termination of our relationship with WDL, alongside proactive internal efforts mitigating this impact, the Group is currently reappraising the timeline and delivery of its systems migration project. Once this has been completed it will provide more details on the expected timing of the migration of Fashion World onto Hybris.
We continue to deploy leading edge Artificial Intelligence ("AI") techniques in Merchandising. We are already operating AI in product promotions, where we've measured benefits in promotional ROI of 25% to 40% together with an improved stock position. Given this success, we are planning to extend this application in the second half to end of season sale building and the development of AI-led predictions of size curves for product purchasing, which will help to reduce stockouts and markdowns.
Market share gains in the UK
We are focused on continual improvement of the customer experience, further development of our product offer and increasing the choice of third-party brands on our websites, many of which are extended to larger sizes on an exclusive basis. Recently added brands on to our websites include Apricot, Club L London, Kate Spade, Valentino, Guess, L'Oréal, Barry M, Peter Werth, Schott and Berghaus.
We made good progress on these objectives during the first half. On a rolling twelve months basis our market share in Ladieswear (size 16+) was up 30bps at 5.6%, with gains across all age ranges except for 60+. Our menswear market share (chest 44"+) also improved, by 10bps to 2.7%. Our active customer file decreased by 3.2% to 4.3m, with Power Brands also down by 2.8% to 2.2m, both due to the drag from Fifty Plus on JD Williams. However, the active customer files for Simply Be and Jacamo increased by 8.3% and 3.1% respectively.
International performance
The Group was disappointed by the performance of its International business, where revenue was down 7.9% to GBP15.3m. This was due to revenue from the USA decreasing by 16.7% (down 11.2% in constant currency), to GBP6.8m, whilst Ireland was up 0.6% (down 1.8% in constant currency) to GBP8.5m.
In line with our strategy of shifting the Group's business mix online, during the period we switched marketing expenditure in the USA from offline to online recruitment. The anticipated lower offline revenue was not however counterbalanced by adequate levels of online growth. In light of this underperformance, we have therefore changed the management team, reappraised our digital marketing strategy and appointed new third-party providers as we look to re-engage with our target customers.
We remain committed to our international business and will be narrowing our growth focus to the USA and Ireland.
Good progress on Partnerships
This includes selling capsule ranges on other retailers' sites, on both a wholesale and marketplace offering. We also see a significant growth opportunity in influencer marketing, working together with bloggers and opinion formers to improve brand cut-through and further strengthen customer engagement.
We have made excellent progress on our partnership strategy, which despite only commencing last year, is already making a positive profit contribution to the Group. During the first half we signed new partnership deals with Lipsy (UK) and Wehkamp (The Netherlands), bringing the total number of partnerships to eleven, of which we are already live on eight. In addition to providing additional sources of revenue, partnerships provide the Group with access to new markets and customers for relatively small amounts of investment.
Financial Services performance
The Group's Financial Services business continues to perform well, driven by the continued improvement in the quality of the customer loan book. Revenue was up by 12.7% driven by a 14.2% increase in interest payments, with other non-interest lines being marginally ahead.
Although gross margin was down 50bps, to 56.0%, this was principally due to our requirement under IFRS9 to make a provision against every credit customer, including those that are up to date on their payments and trading normally. For the prior year, reported under IAS39, a provision was only made where there had been objective evidence of impairment, such as a customer falling into arrears or moved on to a payment plan.
While credit arrears increased slightly, by 40bps to 9.7%, this was due to the rate normalising compared to the prior half year, which had temporarily benefited from changes in the minimum payment rate following the reduction in the rate from 5% to 4% to give customers greater flexibility in managing their finances.
During the first half we recruited 90k new credit recruits who rolled a balance, down by a third compared to the previous half-year. This decline was in line with a disappointing product performance, which resulted in fewer new customers and reduced the number of credit recruits.
Following promising initial results from our variable APR trials, we have fully implemented our variable rate pricing strategy. Our headline rate for our Power Brands has been reduced to 24.9%, and to compliment this we have launched a pay no interest offer until March 2019. This has driven an improvement in the risk quality of credit customers and increased acceptance rates.
IFRS9
GBPm 1 Sept 2018 3 Mar 2018 Change ------------------------------ ---------------------------- ------------ ---------- Gross customer loan balances 677.6 647.6 +4.6% IFRS9 bad debt provision (111.9) (116.0)* +3.5% IFRS9 provision ratio 16.5% 17.9%* -140bps Net customer loan balances 565.7 531.6* +6.4% ------------------------------ ---------------------------- ------------ ----------
* restated for IFRS9. The bad provision previously reported under IAS39 was GBP48.8m (7.5%).
This is the first time that the Group has reported under IFRS9, which replaces IAS39 and relates to receivables provision accounting. For the first half of this year the bad debt provision under IFRS9 is GBP111.9m, compared to a restated figure as at 3 March 2018 of GBP116.0m. The provision rate under IFRS9 therefore decreased by 140bps from 17.9% to 16.5% compared to 3 March 2018.
Compared to the same period last year (restated on an IFRS9 basis), the provision rate decreased by 320bps principally due to an underlying improvement in the quality of the loan book, and the disposal of some high-risk payment debt which was sold at a better rate than the book value.
As previously indicated, although the P&L impact of IFRS9 is broadly neutral, the higher provision rate that is required under the standard does impact the net customer loan book value, which is now GBP565.7m.
Key Performance Indicators
H1 FY19 H1 FY18 Change
--------------------------------------- ---------------- ----------- ------------
CUSTOMERS
Active customer accounts 4.3m 4.4m -3.2%
Power Brand active customer accounts 2.2m 2.2m -2.8%
% Growth of our most loyal customers1 +0.6% +2.4% -1.8ppts
--------------------------------------- ---------------- ----------- ------------
PRODUCT
------------------------------------------------------------------------------------
Ladieswear market share, size
16+2 5.6% 5.3% +30bps
Menswear market share, chest
44"+2 2.7% 2.6% +10bps
Group returns rate (rolling 12
months) 27.3% 27.2% +10bps
--------------------------------------- ---------------- ----------- ------------
ONLINE
Online penetration 77% 71% +6ppts
Online penetration of new customers 84% 79% +5ppts
Conversion rate 4.7% 5.2% -50bps
% of traffic from mobile devices 75% 76% -1ppt
--------------------------------------- ---------------- ----------- ------------
FINANCIAL SERVICES
Customer account arrears rate
(>28 days) 9.7% 9.3% +40bps
Provision rate (IFRS9) 16.5% 19.7%3 -320bps
New credit recruits (Rollers)4 90k 135k -33.3%
--------------------------------------- ---------------- ----------- ------------
1 Customers who have ordered in each of the last four seasons
2 Company estimate using internal and Kantar data for the 52 weeks ending 26 August 2018
3 Restated for IFRS9. The bad debt provision previously reported under IAS39 was 10.3%.
4 Last six months, rounded figures. Rollers are those customers who roll a credit balance.
Financial performance
GBPm H1 FY19 H1 FY18 Change ----------------------------- ------------------------ ---------------------- --------------- Product revenue 311.4 323.5 -3.7% Financial Services revenue 146.4 129.9 12.7% ----------------------------- ------------------------ ---------------------- --------------- Group Revenue 457.8 453.4 1.0% ----------------------------- ------------------------ ---------------------- --------------- Product gross profit 166.3 174.8 -4.8% Product gross margin 53.4% 54.0% -60bps Financial Services gross profit 82.0 73.5 11.6% Financial Services gross margin 56.0% 56.5% -50bps ----------------------------- ------------------------ ---------------------- --------------- Group Gross Profit 248.3 248.3 0.0% Group Gross Margin % 54.2% 54.8% -60bps ----------------------------- ------------------------ ---------------------- --------------- Warehouse & fulfilment (42.4) (42.5) -0.3% Marketing & production (84.4) (88.2) -4.3% Admin & payroll (69.5) (68.6) 1.3% ----------------------------- ------------------------ ---------------------- --------------- Total operating costs (196.3) (199.3) -1.5% ----------------------------- ------------------------ ---------------------- --------------- Adjusted EBITDA1 52.0 49.0 6.1% ----------------------------- ------------------------ ---------------------- --------------- Depreciation & amortisation (14.9) (12.9) 15.4% ----------------------------- ------------------------ ---------------------- --------------- Adjusted Operating Profit2 37.1 36.1 2.8% ----------------------------- ------------------------ ---------------------- --------------- Adjusted Operating Margin2 8.1% 8.0% 10bps Net Finance costs (6.5) (3.9) 66.7% ----------------------------- ------------------------ ---------------------- --------------- Adjusted PBT2 30.6 32.2 -5.0% ----------------------------- ------------------------ ---------------------- --------------- Exceptional items (65.4) (54.9) 19.1% Unrealised FX movement 7.7 (4.9) 257.1% Taxation 1.1 6.4 -82.8% ----------------------------- ------------------------ ---------------------- --------------- Statutory PAT (26.0) (21.2) -22.6% ----------------------------- ------------------------ ---------------------- --------------- Statutory EPS (9.14)p (7.50)p -21.9% ----------------------------- ------------------------ ---------------------- --------------- Adjusted EPS3 8.37p 8.77p -4.6% ----------------------------- ------------------------ ---------------------- --------------- GBPm 1 Sept 2018 3 March 2018 Change ----------------------------- ------------------------ ---------------------- --------------- Core net debt4 30.5 66.8 -55.1% Overall net debt 420.5 346.8 21.3% ----------------------------- ------------------------ ---------------------- ---------------
1before exceptional items as detailed on page 4 2before exceptional items and unrealised FX movement 3see note 8 for calculation of adjusted EPS
4excludes debt securitised on the Group's customer loan book
Revenue
Group revenue was up 1.0% to GBP457.8m, driven by a strong performance in Financial Services where revenue was ahead by 12.7% to GBP146.4m as we benefited from increased interest received from the Group's growing customer loan book. Product revenue decreased by 3.7% to GBP311.4m, reflecting the ongoing challenging market conditions for fashion retail, headwind from the migration of Fifty Plus and closure of our store portfolio. Excluding stores, which are all now closed, Product revenue was down 3.1%.
The Group's revenue performance by quarter was:
Q1 FY19 Q2 FY19 H1 FY19
13wks to 2 Jun 13wks to 1 Sep 26wks to 1
Sep
-------------------- ------------------------------ ----------------------- -----------------------
Product -2.8% -4.7% -3.7%
Financial Services +9.0% +16.0% +12.7%
-------------------- ------------------------------ ----------------------- -----------------------
Group +0.4% +1.5% +1.0%
-------------------- ------------------------------ ----------------------- -----------------------
Product revenue by category in the first half was:
GBPm H1 FY19 H1 FY18 Change ------------------------ -------------------- -------------------- ----------------- Ladieswear 139.4 143.4 -2.8% Menswear 43.4 44.9 -3.3% Footwear & Accessories 36.3 38.7 -6.2% Home & Gift 92.3 96.5 -4.4% ------------------------ -------------------- -------------------- ----------------- Product total 311.4 323.5 -3.7% ------------------------ -------------------- -------------------- -----------------
Gross margin
The Group's gross margin was 54.2%, down 60bps compared to H1 FY18. This decline was due to a 60bps reduction in Product gross margin, to 53.4%, which was due to the promotional retail environment, although this was counterbalanced to some degree by lower marketing costs.
Financial Services gross margin also declined by 50bps to 56.0% mainly due to the requirement under IFRS9 to make a provision against every new credit customer, including those that are trading normally.
Operating costs
The Group has kept a tight control of its operating costs, which decreased by 1.5% to GBP196.3m principally due to a 4.3% reduction in marketing and production costs, to GBP84.4m. Warehouse and fulfilment costs were down marginally, by 0.3% to GBP42.4m, reflecting lower product volumes, and with admin and payroll costs only up by 1.3%, to GBP69.5m, less than the rate of inflation.
As a result, adjusted EBITDA increased by 6.1% to GBP52.0m. As anticipated Depreciation and Amortisation increased by 15.4% to GBP14.9m due to investment in IT systems, resulting in operating profit before exceptional items and unrealised FX movement of GBP37.1m, up 2.8%.
Net finance costs
Net finance costs were GBP6.5m, an increase of GBP2.6m on the H1 FY18, because of the Group's increased overall debt, which is principally due to ongoing growth in its customer loan book.
Taxation
The effective underlying rate of corporation tax was 21.8% (H1 FY18: 23.2%). The overall tax charge was a credit of GBP1.1m (H1 FY18: GBP6.4m credit).
The Group has on-going discussions with HMRC in respect of a number of VAT positions, the most material of which relates to the VAT consequences of the allocation of certain costs between its retail and credit businesses. These proceedings have been to tribunal during the half and we are currently awaiting the court's judgement.
As previously disclosed in our FY18 Annual report, the Group estimates that an unfavourable settlement of these cases could result in a charge to the income statement of up to GBP53.1m and a cash payment to HMRC of up to GBP10.3m. A favourable settlement would result in a repayment of tax and associated interest of up to GBP41.2m with no impact on the income statement. Further details are set out in Note 11.
In addition, following the review of the carrying value of Figleaves goodwill the Group has also written off the remaining deferred tax asset of GBP3m in relation to future unutilised tax losses. This has been presented as an exceptional tax item.
Earnings per share
Loss per share from continuing operations was 9.14p (Loss in H1 FY18: 7.50p) due to exceptional items. Adjusted earnings per share were 8.37p (H1 FY18: 8.77p).
Balance Sheet and cash flow
Capital expenditure was GBP17.9m (H1 FY18: GBP21.8m). Inventory levels at the period end decreased by 6.1% to GBP98.3m (H1 FY18: GBP104.7m), lower than the 3.7% decline in product revenue.
There was a net cash outflow from operations (excluding taxation) of GBP22.3m (H1 FY18: GBP43.8m inflow) mainly due to exceptional cash costs of GBP36.8m and GBP30.0m growth in the gross customer loan book. After funding capital expenditure, finance costs, taxation and dividends, overall net debt increased by GBP73.7m to GBP420.5m (H1 FY18: GBP305.7m) compared to GBP346.8m as at 3 March 2018.
The group's defined benefit pension scheme has a surplus of GBP23.8m (H1 FY18: GBP8.7m surplus).
Unaudited condensed consolidated income statement
26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 52 weeks
to to to to to to to
01-Sep-18 01-Sep-18 01-Sep-18 02-Sep-17 02-Sep-17 02-Sep-17 03-Mar-18
Before
exceptional Exceptional Before Exceptional
items items Total exceptional items Total Total
(note items (note
5) 5)
Continuing Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
operations
Revenue 4 457.8 - 457.8 453.4 - 453.4 922.2
-------------------- ----------------- ----------------- ---------------------- ------------------- ------------------- ---------------
Operating
(loss) / 4,
profit 5 37.1 (65.4) (28.3) 36.1 (54.9) (18.8) 33.6
Finance
costs (6.5) - (6.5) (3.9) - (3.9) (8.9)
-------------------- ----------------- ----------------- ---------------------- ------------------- ------------------- ---------------
(Loss) / Profit before taxation and fair value
adjustments
to financial
instruments 30.6 (65.4) (34.8) 32.2 (54.9) (22.7) 24.7
Fair value
adjustments
to financial
instruments 6 7.7 - 7.7 (4.9) - (4.9) (8.5)
-------------------- ----------------- ----------------- ---------------------- ------------------- ------------------- ---------------
(Loss) /
Profit
before
taxation 38.3 (65.4) (27.1) 27.3 (54.9) (27.6) 16.2
Taxation 7 (8.3) 9.4 1.1 (6.3) 12.7 6.4 (3.7)
-------------------- ----------------- ----------------- ---------------------- ------------------- ------------------- ---------------
(Loss) /
Profit for
the period 30.0 (56.0) (26.0) 21.0 (42.2) (21.2) 12.5
-------------------- ----------------- ----------------- ---------------------- ------------------- ------------------- ---------------
(Loss) /
Profit
attributable
to equity
holders of 30.0 (56.0) (26.0) 21.0 (42.2) (21.2) 12.5
-------------------- ----------------- ----------------- ---------------------- ------------------- ------------------- ---------------
the parent
(Loss) /
earnings
per
share 8
Basic (9.14) p (7.50) p 4.41 p
Diluted (9.14) p (7.50) p 4.40 p
Unaudited condensed consolidated statement
of comprehensive income
26 weeks 26 weeks 52 weeks
to to to
01-Sep-18 02-Sep-17 03-Mar-18
GBPm GBPm GBPm
(Loss) / profit for the period (26.0) (21.2) 12.5
Items that will not be reclassified subsequently to profit or loss
Actuarial gains on defined benefit pension
schemes 3.7 0.1 10.5
Tax relating to items not reclassified (0.6) (0.1) (1.8)
-------------------- -------------------- -------------------
3.1 - 8.7
-------------------- -------------------- -------------------
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign
operations (0.2) (0.6) (0.2)
Total comprehensive (loss) / income for the period attributable
to equity holders of the parent (23.1) (21.8) 21.0
-------------------- -------------------- -------------------
Unaudited condensed consolidated balance sheet
01-Sep-18 02-Sep-17 03-Mar-18
Note GBPm GBPm GBPm
Non-current assets
Intangible assets 9 141.1 153.4 156.0
Property, plant & equipment 10 60.8 71.4 67.4
Retirement benefit surplus 23.8 8.7 19.3
Deferred tax assets 14.5 2.3 2.8
------------------- ------------------- -------------------
240.2 235.8 245.5
------------------- ------------------- -------------------
Current assets
Inventories 98.3 104.7 110.6
Trade and other receivables 11 632.0 594.6 652.7
Current tax asset - 1.5 -
Derivative financial
instruments 6 1.7 - -
Cash and cash equivalents 27.5 59.3 58.2
------------------- ------------------- -------------------
759.5 760.1 821.5
-------------------
Total assets 999.7 995.9 1,067.0
------------------- ------------------- -------------------
Current liabilities
Trade and other payables (134.8) (120.4) (131.7)
Provisions 13 (46.9) (37.2) (43.8)
Derivative financial
instruments 6 - (2.4) (6.0)
Bank loans (3.0) - -
Current tax liability (0.7) - (3.3)
------------------- ------------------- -------------------
(185.4) (160.0) (184.8)
------------------- ------------------- -------------------
Net current assets 574.1 600.1 636.7
------------------- ------------------- -------------------
Non-current liabilities
Bank loans (445.0) (365.0) (405.0)
Provisions 13 - (29.7) (5.4)
Deferred tax liabilities (12.4) (8.2) (12.2)
------------------- ------------------- -------------------
(457.4) (402.9) (422.6)
-------------------
Total liabilities (642.8) (562.9) (607.4)
-------------------
Net assets 356.9 433.0 459.6
------------------- ------------------- -------------------
Equity
Share capital 31.4 31.3 31.4
Share premium account 11.0 11.0 11.0
Own shares (0.2) (0.1) (0.2)
Foreign currency translation
reserve 1.9 1.7 2.1
Retained earnings 312.8 389.1 415.3
------------------- ------------------- -------------------
Total equity 356.9 433.0 459.6
------------------- ------------------- -------------------
Unaudited condensed consolidated cash flow statement
26 weeks 26 weeks 52 weeks
to to to
01-Sep-18 02-Sep-17 03-Mar-18
GBPm GBPm GBPm
Net cash from operating activities (24.2) 35.3 32.2
Investing activities
Purchases of property, plant and
equipment (1.6) (1.2) (2.6)
Purchases of intangible assets (16.3) (20.6) (36.6)
------------------ ------------------ -----------------
Net cash used in investing activities (17.9) (21.8) (39.2)
------------------ ------------------ -----------------
Financing activities
Interest paid (7.4) (4.1) (8.6)
Dividends paid (24.2) (24.2) (40.3)
Increase in bank loans 43.0 10.0 50.0
Purchase of shares by ESOT - - 0.1
Proceeds on issue of shares held
by ESOT - - (0.1)
------------------ ------------------ -----------------
Net cash used in financing activities 11.4 (18.3) 1.1
------------------ ------------------ -----------------
Net decrease in cash and cash equivalents (30.7) (4.8) (5.9)
Opening cash and cash equivalents 58.2 64.1 64.1
------------------ ------------------ -----------------
Closing cash and cash equivalents 27.5 59.3 58.2
------------------ ------------------ -----------------
Reconciliation of operating (loss) / profit to net cash
from operating activities
26 weeks 26 weeks 52 weeks
to to to
01-Sep-18 02-Sep-17 03-Mar-18
GBPm GBPm GBPm
(Loss) / Profit for the period (26.0) (21.2) 12.5
Adjustments for:
Taxation (credit) / charge (1.1) (6.4) 3.7
Fair value adjustments to financial
instruments (7.7) 4.9 8.5
Finance costs 6.5 3.9 8.9
Depreciation of property, plant
and equipment 2.6 2.8 5.7
Loss on disposal of store assets 5.7 - -
Impairment charge 17.8 - 2.7
Amortisation of intangible assets 12.3 10.1 22.4
Share option charge 0.1 0.8 0.6
------------------ ------------------ -----------------
Operating cash flows before movements
in working capital 10.2 (5.1) 65.0
Decrease/(increase) in inventories 12.3 0.8 (5.1)
Increase in trade and other receivables (46.1) (19.7) (77.6)
Increase in trade and other payables 4.1 20.9 33.0
(Decrease) / increase in provisions (2.3) 47.2 29.3
Pension obligation adjustment (0.5) (0.3) (0.3)
------------------ ------------------ -----------------
Cash generated by operations (22.3) 43.8 44.3
Taxation paid (1.9) (8.5) (12.1)
------------------ ------------------ -----------------
Net cash from operating activities (24.2) 35.3 32.2
------------------ ------------------ -----------------
Changes in liabilities from financing activities
Loans &
Borrowings
GBPm
Balance at 3 March 2018 405.0
------------------
Changes from financing cashflows
Proceeds from loans and borrowings 43.0
Repayment of borrowings -
------------------
Total changes from financing cashflows 43.0
------------------
Balance at 1 September 2018 448.0
------------------
Unaudited condensed consolidated statement
of changes in equity
Foreign
currency
Share Share Own translation Retained
capital premium shares reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
Changes in equity for the 26 weeks to 1 September 2018
Balance at 3
March 2018 31.4 11.0 (0.2) 2.1 415.3 459.6
Adjustment on
initial
application
of IFRS9 (net
of Tax) - - - - (55.5) (55.5)
-------------- -------------- ---------------- -------------- -------------- --------------
Balance at 3
March 2018
(restated) 31.4 11.0 (0.2) 2.1 359.8 404.1
-------------- -------------- ---------------- -------------- -------------- --------------
Comprehensive income for the period
Loss for the
period - - - - (26.0) (26.0)
Other items of
comprehensive
loss
for the
period - - - (0.2) 3.1 2.9
-------------- -------------- ---------------- -------------- -------------- --------------
Total
comprehensive
loss for the
period - - - (0.2) (22.9) (23.1)
-------------- -------------- ---------------- -------------- -------------- --------------
Transactions with owners recorded directly in equity
Equity
dividends - - - - (24.2) (24.2)
Issue of own - - - - - -
shares by ESOT
Share option
charge - - - - 0.1 0.1
Tax on items - - - - - -
recognised
directly
in equity
-------------- -------------- ---------------- -------------- -------------- --------------
Total
contributions
by and
distributions
to owners - - - - (24.1) (24.1)
--------------
Balance at 1
September
2018 31.4 11.0 (0.2) 1.9 312.8 356.9
-------------- -------------- ---------------- -------------- -------------- --------------
Changes in equity for the 26 weeks to 2 September 2017
Balance at 4
March 2017 31.3 11.0 (0.1) 2.3 433.7 478.2
-------------- -------------- ---------------- -------------- -------------- --------------
Comprehensive income for the period
Loss for the
period - - - - (21.2) (21.2)
Other items of
comprehensive
loss
for the
period - - - (0.6) - (0.6)
-------------- -------------- ---------------- -------------- -------------- --------------
Total
comprehensive
loss for the
period - - - (0.6) (21.2) (21.8)
-------------- -------------- ---------------- -------------- -------------- --------------
Transactions with owners recorded directly in equity
Equity
dividends - - - - (24.2) (24.2)
Issue of own - - - - - -
shares by ESOT
Share option
charge - - - - 0.8 0.8
Tax on items - - - - - -
recognised
directly
in equity
-------------- -------------- ---------------- -------------- -------------- --------------
Total
contributions
by and
distributions
to owners - - - - (23.4) (23.4)
--------------
Balance at 2
September
2017 31.3 11.0 (0.1) 1.7 389.1 433.0
-------------- -------------- ---------------- -------------- -------------- --------------
Changes in equity for the 52 weeks to 3 March 2018
Balance at 4
March 2017 31.3 11.0 (0.1) 2.3 433.7 478.2
-------------- -------------- ---------------- -------------- -------------- --------------
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
contributions
by and
distributions
to owners 0.1 - (0.1) - (39.6) (39.6)
--------------
Balance at 3
March 2018 31.4 11.0 (0.2) 2.1 415.3 459.6
-------------- -------------- ---------------- -------------- -------------- --------------
Notes to the unaudited condensed consolidated financial statements
1. Basis of preparation
This condensed set of consolidated interim financial statements has been
prepared in accordance with IAS 34 Interim Financial Reporting as adopted
by the EU. They do not include all of 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 3 March 2018. The annual financial statements of the Group are prepared
in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the EU.
The comparative figures for the year ended 3 March 2018 are not the Company's
statutory accounts for that financial year. Those accounts have been reported
on by the Company's auditor and delivered to the Registrar of Companies.
The report of the auditor was (i) unqualified, (ii) did not include a
reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
New accounting standards, interpretations and amendments adopted by the
Group
IFRS 15 Revenue from Contracts with Customers
IFRS 15 has been adopted by the Group in the period with no significant
impact on the consolidated results or financial position of the Group.
IFRS 16 Leases
IFRS 16 will be applicable to the Group for the financial year end 29
February 2020 and has not been early adopted by the Group. IFRS 16 will
affect the presentation of the Group financial statements with the Group
recognising a right-of-use asset and a lease liability for all leases
currently accounted for as operating leases, with exceptions for short
period leases and low value leases. This will affect the Balance Sheet,
Income Statement and disclosures to the financial statements.
Management have sought professional advice as part of initial investigations
and held workshops to evaluate the impact on the group's results, financial
position and budgets. Whilst this process is ongoing, and it is not yet
practicable to fully quantity the effect of IFRS 16 on the financial statements
of the Group, given the recent decision to close the remaining store portfolio
the Directors do not expect adoption to have a material impact.
IFRIC 23 Uncertainty over Income Tax Treatments
IFRIC 23 will be applicable to the Group for the financial year end 29
February 2020 and has not been early adopted by the Group. IFRIC 23 requires
the entity to provide for uncertain tax outcomes based upon a position
HMRC would consider to be appropriate. It provides a choice of recognition,
it can be applied retrospectively under IAS 8, or by adjusting equity
upon initial application.
The Group have made initial assessments of the impact of IFRIC 23 on the
financial statements and future periods, however this work is ongoing
as at the half year ended 1 September 2018. Further disclosure will be
provided in the year end annual report.
IFRS 9 Financial Instruments
During the period the Group has adopted IFRS9 Financial instruments for
the first time. The standard sets out requirements for recognising and
measuring financial assets, financial liabilities and some contracts to
buy or sell non-financial items. This standard replaces IAS 39 Financial
Instruments: Recognition and Measurement.
i) Classification - financial assets
IFRS 9 contains a new classification and measurement approach for financial
assets that reflects the business model in which assets are managed and
their cash flow characteristics.
IFRS 9 contains three principal classification categories for financial
assets: measure at amortised cost, fair value through other comprehensive
income ("FVOCI") and fair value through profit and loss ("FVTPL"). The
standard eliminates the existing IAS 39 categories of held to maturity,
loans and receivables and available for sale.
A financial asset will be measured at amortised cost if both the following
conditions are met and it has not been designated as at FVTPL:
* the asset is held within a business model whose
objective is to hold the asset to collect its
contractual cash flows; and
-- the contractual terms of the financial asset give rise to cash flows
on specified dates that represent payments of solely principal and interest
on the outstanding principal amount.
The Group's trade receivables that were classified as loans and receivables
under IAS 39 are now classified at amortised cost. An increase of GBP67.2m
in the allowance for impairment over these receivables was recognised
in the opening retained earnings at 4 March 2018 on transition to IFRS
9.
The Group does not hold any financial instruments that would be classified
as FVOCI or FVTPL.
ii) Impairment - Financial assets and contract assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with a forward-looking
'expected credit loss' (ECL) model. The ECL model introduces the concept
of staging.
Stage 1 - assets which have not demonstrated any significant increase
in credit risk since origination.
Stage 2 - assets which have demonstrated a significant increase in credit
risk since origination.
Stage 3 - assets which are credit impaired
Under IFRS 9, loss allowances are measured on either of the following
bases:
* 12-month ECLs: these are ECLs that result from
possible default events within the 12 months after
the reporting date; and
* lifetime ECLs: these are ECLs that result from all
possible default events over the expected life of a
financial instrument.
Notes to the unaudited condensed consolidated financial statements
1. Basis of preparation (continued)
IFRS 9 Financial Instruments (continued)
12 month ECLs are calculated for assets in Stage 1 and lifetime ECLs are calculated
for assets in Stages 2 and 3. Assets can move from Stage 1 to Stage 2 if there
is evidence of a significant increase in credit risk since origination.
Significant Increase in Credit Risk
The credit risk of a financial asset is considered to have experienced a significant
increase in credit risk since initial recognition where there has been a significant
increase in the remaining lifetime probability of default of the asset.
The credit risk of a financial asset may improve such that it is no longer
considered to have experienced a significant increase in credit risk if there
has been a significant decrease in the remaining lifetime probability of default
of the asset.
Definition of default
At each reporting date, the Group assesses whether financial assets carried
at amortised cost are credit impaired.
Evidence that a financial asset is credit impaired includes the following observable
data:
* The account has been placed on a non-interest bearing
payment arrangement; or
* Notification of bereavement.
In addition, a receivable that is 28 days or more past due (in respect of new
customers) or 56 days or more past due (in respect of established customers)
is considered credit impaired.
The credit risk of financial assets that become credit impaired are not expected
to improve such that they are no longer considered credit impaired.
Incorporation of forward looking data
The Group incorporates forward looking information into its measurement of
expected credit loss.
This is achieved by developing three potential economic scenarios and modelling
expected credit losses for each scenario. The outputs from each scenario are
combined; using the estimated likelihood of each scenario occurring to derive
a probability weighted expected credit loss.
Impact of the new impairment model
The Group has determined that the application of IFRS 9's impairment requirements
at 4 March 2018 results in an additional impairment allowance as set out in
note 11.
Exposures were segmented based on common credit risk characteristics such as
behavioural score and age of relationship.
Actual credit loss experience was adjusted by scalar factors to reflect differences
between economic conditions during the period over which the historical data
was collected, current conditions and the Group's view of economic conditions
over the expected lives of the receivables. Scalar factors were based on forecast
unemployment rates and inflation adjusted average weekly earnings.
Transition
Changes in accounting policies resulting from the adoption of IFRS 9 have been
applied retrospectively, except as described below:
The Group has taken an exemption not to restate comparative information for
prior periods with respect to classification and measurement (including impairment)
requirements. Differences in the carrying amounts of financial assets resulting
from the adoption of IFRS 9 are recognised in retained earnings and reserves
as at 4 March 2018. Accordingly, the information presented for the year ended
3 March 2018 does not generally reflect the requirements of IFRS 9 but rather
those of IAS 39.
Notes to the unaudited condensed consolidated financial statements
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.
Whilst further detail is included in the Group's 2018 Annual Report, 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,
Consumer Confidence and Brexit.
The Group continues to pursue a number of open taxation positions and presented
its case in relation to VAT in a tribunal during May 2018. The outcome of
the tribunal is pending and any subsequent appeals by the Group or HMRC may
be heard over the following three year period. The outcome of this process
will crystallise assets 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 of
the full appeals process.
The Group continues to drive change and improvements in technology and business
processes across the business. With the approaching uncertainty of Brexit
and the accelerating pace of competition in digital retail, the Group's continuous
change program remains a key pillar of continued success. In particular, the
Group's process simplification programme will continue to drive process efficiency
and cost reductions over the next year.
Competing effectively across the key areas of Product, Financial Services
and Customer Services remains a key driver of customer recruitment and retention.
Potential consequences of the increasingly competitive market include; loss
of market share, erosion of margins and a fall in customer satisfaction. Given
the uncertain commercial climate post Brexit, remaining competitive across
all three strands is necessary to deliver anticipated 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 quality and price as well as maintain current high quality customer
service.
The regulatory environment remains a key consideration for the Group and continued
focus is placed on meeting the expectations of the regulators in key areas
such as GDPR and Financial Services. The increasing scrutiny of the FCA and
ICO represent key risks for the Group.
Cyber Security remains a key area of focus within the Group as it continues
to grow as a digital retailer. The successful completion of the Group's GDPR
program has strengthened the Group's Cyber Security position and provides
greater security over both new and existing cyber threats.
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 services
to a specialist IT service provider. The replacement of the Groups legacy
architecture is a key focus of the continuous change program and 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 has been successfully tested in real world events over the
last year. Further stress test testing through potential impact scenarios
ensures that plans remain relevant and up to date.
The impact of Brexit on the Group remains a key consideration with risks ranging
from increases in cost prices and decreased customer spending power to potential
loss of personnel. Mitigations continue to be put in place where specific
risks are identified. However, the high level of uncertainty in both the financial
and political implications of Brexit makes the success of mitigation activities
difficult to predict.
3. Going concern
In determining whether the Group's accounts can be prepared on a going concern
basis, the directors considered the Group's business activities together with
factors likely to affect its future development, performance and financial
position including cash flows, liquidity position, borrowing facilities and
the principal risks and uncertainties relating to its business activities.
The directors have considered carefully its cash flows and banking covenants
for the next twelve months from the date of approval of the Group's preliminary
results. Conservative assumptions for working capital performance have been
used to determine the level of financial resources available to the Group
and to assess liquidity risk.
To take advantage of strong debt market conditions and favourable pricing,
in May 2018 the Directors completed documents for a new finance agreement
involving a
GBP500m securitisation and GBP125m RCF, which are committed until September
2021. In addition, the Group retained its existing GBP27m overdraft facility.
After making appropriate enquiries, the directors have a reasonable expectation
that the Group has adequate resources to continue in operational existence.
Accordingly, they continue to adopt the going concern basis in the preparation
of these financial statements.
Notes to the unaudited condensed consolidated financial statements
4. Business segments 26 weeks 26 weeks 52 weeks
to to to
01-Sep-18 02-Sep-17 03-Mar-18
GBPm GBPm GBPm
Analysis of revenue - Home shopping
Product 311.4 323.5 652.6
Financial services 146.4 129.9 269.6
--------------------- --------------------- ---------------------
457.8 453.4 922.2
--------------------- --------------------- ---------------------
Analysis of cost of sales - Home shopping
Product (145.1) (148.7) (312.1)
Financial services (64.4) (56.4) (104.5)
--------------------- --------------------- ---------------------
(209.5) (205.1) (416.6)
--------------------- --------------------- ---------------------
Gross profit 248.3 248.3 505.6
Gross margin - Product 53.4% 54.0% 52.2%
Gross margin - Financial Services 56.0% 56.5% 61.2%
Warehouse & fulfilment (42.4) (42.5) (85.8)
Marketing & production (84.4) (88.2) (164.0)
Depreciation & amortisation (14.9) (12.9) (28.1)
Other admin & payroll (69.5) (68.6) (137.2)
--------------------- --------------------- ---------------------
Operating profit before exceptionals 37.1 36.1 90.5
Exceptional items (see note 5) (65.4) (54.9) (56.9)
--------------------- --------------------- ---------------------
Segment result & operating (loss) /
profit - Home shopping (28.3) (18.8) 33.6
Finance costs (6.5) (3.9) (8.9)
Fair value adjustments to financial
instruments 7.7 (4.9) (8.5)
--------------------- --------------------- ---------------------
(Loss) / Profit before taxation (27.1) (27.6) 16.2
--------------------- --------------------- ---------------------
Notes to the unaudited condensed consolidated financial statements
4. Business segments (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.
26 weeks 26 weeks 52 weeks to
to to
01-Sep-18 02-Sep-17 03-Mar-18
GBPm GBPm GBPm
Analysis of product revenue by brand
JD Williams 78.6 81.1 163.4
Simply Be 68.0 64.5 132.8
Jacamo 33.4 33.5 68.6
------------- -------------
Power brands 180.0 179.1 364.8
Traditional segment 60.5 68.1 138.6
Secondary brands 70.9 76.3 149.2
------------- -------------
Total product revenue - Home shopping 311.4 323.5 652.6
------------- -------------
Analysis of product revenue by category
Ladieswear 139.4 143.4 267.6
Menswear 43.4 44.9 89.2
Footwear and accessories 36.3 38.7 74.9
Home and gift 92.3 96.5 220.9
------------- -------------
Total product revenue - Home shopping 311.4 323.5 652.6
------------- -------------
The Group has one significant geographical segment, which is the
United Kingdom.
Revenue derived from international markets amounted to GBP17.8m
(H1 FY18, GBP18.9m). Operating losses from international markets
amounted to GBP1.2m
(H1 FY18, GBP0.2m). All segment assets are located in the UK,
Ireland and USA. The assets in USA and Ireland total GBP5.3m (H1
FY18, GBP6.1m).
5. Exceptional items
26 weeks 26 weeks 52 weeks to
to to
01-Sep-18 02-Sep-17 03-Mar-18
GBPm GBPm GBPm
External costs in relation to tax
and other matters 2.7 1.1 3.1
Store closure costs 22.0 13.8 13.8
Customer redress 22.4 40.0 40.0
Impairment of intangible assets and
brands 18.3 - -
------------- -------------
Items charged to (loss) / profit
before tax 65.4 54.9 56.9
------------- -------------
Taxation provision 3.0 - -
------------- -------------
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 GBP2.8m (FY18, GBP1.2m).
In line with our strategy of reshaping our retail offering, following
a period of consultation with all staff involved in our store
estate, the decision was made to close
all remaining retail outlets at end of Aug 2018. This review has
resulted in an exceptional cost of GBP22.0m in respect of onerous
lease provisions, other related store
closure costs and fixed asset write offs of GBP5.7m.
In FY18 a number of loss making retail stores were closed at a
total cost of GBP13.8m.
The Plevin court ruling was made in November 2017, which meant
that if more than 50% of a consumer's PPI payments were paid as
commission and this was not
explained to them at the time, they could claim back payments
plus interest. This, combined with an increase in marketing activity
by the FCA, to raise awareness
of the August 2019 PPI deadline, appears to have had the effect
of increasing the volume of claims across the industry. In the
period to 1 September 2018, a charge
of GBP22.4m has been recognised to reflect an updated estimate
following an increase in the volume of claims experienced and
the latest assessment
of the expected uphold rate and average redress per claim.
Following an industry-wide request from the FCA that firms ensure
that general insurance products and add-ons offer value for their
customers, during the previous
year 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 FY18 in respect of the sale
of these products.
In accordance with the requirements of IAS36 management have assessed
the carrying value of goodwill held in respect of Figleaves and
following this review have
written down the value of this goodwill in full. In addition,
following this review the directors have also written off in full
the remaining deferred tax asset of GBP3m in
relation to future unutilised tax losses. This has been presented
as an exceptional item
During the period the Group also terminated an agreement with
a third-party IT Financial Services provider, Welcom Digital Limited
("WDL").
Following a detailed review of Capitalised Development spend held
in repect of this item a a non-cash impairment charge of GBP11.2m
was made.
Notes to the unaudited condensed consolidated financial statements
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:
26 weeks to 26 weeks to 52 weeks to
01-Sep-18 02-Sep-17 03-Mar-18
GBPm GBPm GBPm
Notional Amount - Sterling contract
value 161.8 148.5 113.9
--------------------- ---------------------
Fair value of asset recognised 1.7 - -
--------------------- ---------------------
Fair value of liability recognised - (2.4) (6.0)
--------------------- ---------------------
Changes in the fair value of assets / (liabilities) recognised, being non-hedging
currency derivatives, amounted to a credit of GBP7.7m
(H1 FY18, charge of GBP4.9m) to income in the period.
The fair value of foreign currency derivatives contracts is their market value
at the balance sheet date. Market values are based on the
duration of the derivative instrument together with the quoted market data including
interest rates, foreign exchange rates and market
volatility at the balance sheet date.
The financial instruments that are measured subsequent to initial recognition
at fair value are all grouped into Level 2 (H1 FY18, same).
Level 2 fair value measurements are those derived from inputs other than quoted
prices included within Level 1 that are observable for
the asset or the liability, either directly (ie as prices) or indirectly (ie
derived from prices). There were no transfers between Level 1 and
Level 2 during the period (H1 FY18, same).
7. Taxation
The taxation credit for the 26 weeks ended 1 September 2018 is based on the underlying
estimated effective tax rate for the full year of 21.8%,
including a provision for potential future corporation tax charges and the impact
of exceptional items. The total effective tax rate for
the 6 months period is 4.1% (H1 FY18, 23.2%).
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 1 September 2018 the Group has provided
a total of GBP8.8m (HYE FY18: 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 1 September 2018,
the Directors estimate that the unfavourable settlement of these cases could
result in a charge to the income statement of up to GBPnil and a
cash payment to HMRC of up to GBP8.9m.
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 GBP23.5m.
Notes to the unaudited condensed consolidated financial statements
8. (Loss) / Earnings per share
Earnings 26 weeks 26 weeks 52 weeks
to to to
01-Sep-18 02-Sep-17 03-Mar-18
GBPm GBPm GBPm
Total net (loss) / profit attributable to equity holders of the parent for the
purpose of basic
and diluted earnings per share (26.0) (21.2) 12.5
Fair value adjustment to financial
instruments (net
of tax) (6.2) 3.8 6.9
Exceptional items (net of tax) 56.0 42.2 46.0
Total net profit attributable to equity holders of the parent for the purpose
of basic
and diluted adjusted earnings per share 23.8 24.8 65.4
----------------- ----------------- ----------------
Number of shares 26 weeks 26 weeks 52 weeks
to to to
01-Sep-18 02-Sep-17 03-Mar-18
No. ('000s) No. ('000s) No. ('000s)
Weighted average number of shares in issue for the purpose
of basic earnings per share 284,373 282,795 283,614
Effect of dilutive potential ordinary shares:
Share options 440 502 542
Weighted average number of shares in issue for the purpose
of diluted earnings per share 284,813 283,297 284,156
----------------- ----------------- ----------------
(Loss) / earnings per share
Basic (9.14) p (7.50) p 4.41 p
Diluted (9.14) p (7.50) p 4.40 p
Adjusted earnings per share
Basic 8.37 p 8.77 p 23.06 p
Diluted 8.36 p 8.77 p 23.02 p
Notes to the unaudited condensed consolidated financial statements
9. Intangible assets
Customer
Brands Software database Total
GBPm GBPm GBPm GBPm
Cost
At 4 March 2017 16.9 294.4 1.9 313.2
Additions - 21.6 - 21.6
------------------- ------------------ -------------- ---------------
At 2 September 2017 16.9 316.0 1.9 334.8
Additions - 14.9 - 14.9
------------------- ------------------ -------------- ---------------
At 3 March 2018 16.9 330.9 1.9 349.7
Additions - 15.9 - 15.9
Disposals - (2.4) - (2.4)
------------------- ------------------ -------------- ---------------
At 1 September 2018 16.9 344.4 1.9 363.2
------------------- ------------------ -------------- ---------------
Amortisation
At 4 March 2017 8.0 161.4 1.9 171.3
Charge for the period - 10.1 - 10.1
------------------- ------------------ -------------- ---------------
At 2 September 2017 8.0 171.5 1.9 181.4
Charge for the period - 12.3 - 12.3
------------------- ------------------ -------------- ---------------
At 3 March 2018 8.0 183.8 1.9 193.7
Charge for the period - 12.3 - 12.3
Disposals - (1.7) - (1.7)
Impairment charge 7.1 10.7 - 17.8
------------------- ------------------ -------------- ---------------
At 1 September 2018 15.1 205.1 1.9 222.1
------------------- ------------------ -------------- ---------------
Carrying amounts
At 1 September 2018 1.8 139.3 - 141.1
------------------- ------------------ -------------- ---------------
At 3 March 2018 8.9 147.1 - 156.0
------------------- ------------------ -------------- ---------------
At 2 September 2017 8.9 144.5 - 153.4
------------------- ------------------ -------------- ---------------
Assets in the course of construction included in intangible assets at
H1 FY19 total GBP27.1m (H1 FY18, GBP106.1m).
No amortisation is charged on these assets until they are available for
use.
As at 1 September 2018, the Group had entered into contractual commitments
for the further development of intangible
assets of GBP2.4m (FY18: GBP2.0m) of which GBP1.0m (FY18: GBP1.0m) is
due to be paid within 1 year.
10. Property, plant and equipment
Additions to tangible fixed assets during the period of GBP1.0m (H1 FY18,
GBP0.6m) primarily relate to warehousing.
Depreciation of GBP2.6m (H1 FY18, GBP2.8m) was charged during the period.
Disposals relate to assets written off as a result of store closures.
A loss of GBP5.0m was recorded.
Assets in the course of construction included in fixtures and equipment
at H1 FY19 total GBP2.2m (H1 FY18, GBP0.4m),
and in land and buildings total GBPnil (H1 FY18, GBPnil). No depreciation
is charged on these assets until they are
available for commercial use.
Notes to the unaudited condensed consolidated financial statements
11. Trade and other receivables
01-Sep-18 02-Sep-17 03-Mar-18
GBPm GBPm GBPm
Amount receivable for the sale of goods
and services 677.6 611.5 647.6
Allowance for doubtful debts (111.9) (62.8) (48.8)
--------------- ----------------
565.7 548.7 598.8
Other debtors and prepayments 66.3 45.9 53.9
--------------- ----------------
632.0 594.6 652.7
--------------- ----------------
Movement in the allowance for doubtful debts
Balance at the beginning of the period (originally
reported) 48.8 64.7 64.7
Adjustment on initial application of IFRS9 67.2 - -
--------------- ----------------
Balance at the beginning of the period (restated) 116.0 64.7 64.7
Amounts charged to the income statement 62.5 54.3 99.5
Amounts written off (66.6) (56.2) (115.4)
--------------- ----------------
Balance at the end of the period 111.9 62.8 48.8
--------------- ----------------
Impact of the new impairment model
The Group has determined that the application of IFRS 9's impairment requirements
at 4 March 2018 results in an additional impairment allowance as follows:
GBPm
Loss allowance as at 3 March 2018 under
IAS39 48.8
Additional impairment recognised at 5 March
2018 on trade recievables as at 4 March
2018 67.2
----------------
Loss allowance as at 4 March 2018 under
IFRS9 116.0
----------------
Exposures were segmented based on common credit risk characteristics such as
behavioural score and age of relationship.
Actual credit loss experience was adjusted by scalar factors to reflect differences
between economic conditions during the period over which the historical data
was collected,
current conditions and the Group's view of economic conditions over the expected
lives of the receivables. Scalar factors were based on forecast unemployment
rates and inflation adjusted average weekly earnings.
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 (H1 FY18: 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 half year end VAT debtor is an asset of GBP42.8m (H1 FY18: 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 GBP5.5m 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 1 September 2018, the Directors estimate that the unfavourable
settlement
of these cases could result in a charge to the income statement of up to GBP53.1m
(including the full write off of the VAT debtor noted above) and a cash payment
to HMRC of up
to GBP10.3m, with an ongoing charge to the income statement of up to GBP12.3m
per financial year.
The favourable settlement of these cases would result in a repayment of tax and
associated interest of up to GBP41.2m and an associated credit to the income
statement of GBPnil.
Notes to the unaudited condensed consolidated financial statements
12. Dividends
The directors have declared and approved an interim dividend of 2.83
pence per share (H1 FY18 5.67p).
This will be paid on 11 January 2019 to shareholders on the register
at the close of business on 14 December 2018.
During H1 FY19 dividends of GBP24.2m relating to FY18 were paid.
13. Provisions
Customer Store Closures
Redress Total
GBPm GBPm GBPm
Balance at 4 March 2017 19.9 - 19.9
Provisions made during the period 40.0 13.8 53.8
Provisions used during the period (6.5) (0.3) (6.8)
Provisions reversed through the period - - -
------------------ -------------------------
Balance at 2 September 2017 53.4 13.5 66.9
Provisions made during the period - (2.7) (2.7)
Provisions used during the period (10.6) (3.9) (14.5)
Provisions reversed through the period - (0.5) (0.5)
------------------ -------------------------
Balance at 3 March 2018 42.8 6.4 49.2
Provisions made during the period 22.4 11.0 33.4
Provisions used during the period (32.2) (3.5) (35.7)
Provisions reversed through the period - - -
------------------ -------------------------
Balance at 1 September 2018 33.0 13.9 46.9
------------------ -------------------------
Non Current - - -
Current 33.0 13.9 46.9
------------------ -------------------------
Balance at 1 September 2018 33.0 13.9 46.9
------------------ -------------------------
Store Closures
At the end of H1 FY19, the decision was made to close all stores,
and these were subsequently closed in August 2018.
The costs have been treated as an exceptional item and detailed separately
on the income statement as per note 5. The provision is made in
respect of onerous lease obligations and other related store closure
costs. It is expected that the majority of these costs will have been
settled
by the year end other than the onerous lease provision which will
run to the earlier of the break clause or lease expiry for all stores.
The provision
brought forward 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 1 September 2018 the Group holds a provision of GBP33.0m (H1
FY18, GBP53.4m) in respect of the anticipated costs of historic financial
services
customer redress. Of this amount GBP18.8m relates to certain insurance
products where management have identified flaws in the product design,
the
remaining GBP14.2m relates to historical customer redress. These amounts
include a provision of GBP0.4m (H1 FY18, GBP2.1m) in relation to administration
expenses.
The Plevin court ruling was made in November 2017, which meant that
if more than 50% of a consumer's PPI payments were paid as commission
and this was not explained to them at the time, they could claim back
payments plus interest. This, combined with an increase in marketing
activity by
the FCA, to raise awareness of the August 2019 PPI deadline, appears
to have had the effect of increasing the volume of claims across the
industry. In
the period to 1 September 2018, a charge of GBP22.4m has been recognised
to reflect an updated estimate following an increase in the volume
of claims
experienced and the latest assessment of the expected uphold rate
and average redress per claim.
The principal sensitivities in the customer redress calculation are:
volumes of policies affected, claim rate, uphold rate and average
redress amount.
26 weeks 26 weeks 52 weeks to
to to
01-Sep-18 02-Sep-17 03-Mar-18
GBPm GBPm GBPm
+/- 10% in claims volumes +/- 2.0 +/- 0.7 +/- 9.9
------------------ -------------------------
+/- 5% (FY18, 10%) in uphold rate +/- 0.1 +/- 0.5 +/- 4.4
------------------ -------------------------
+/- 10% in average redress amount +/- 0.6 +/- 0.7 +/- 9.9
------------------ -------------------------
Notes to the unaudited condensed consolidated financial statements
Responsibility statement of the directors in respect of the half-yearly financial
report
We confirm that to the best of our knowledge:
* the condensed set of financial statements has been
prepared in accordance with IAS 34 Interim Financial
Reporting as adopted
by the EU
* the interim management report includes a fair review
of the information required by:
(a) DTR 4.2.7R of the Disclosure 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 11 October 2018.
Stephen Johnson Craig Lovelace
Interim Chief Executive Chief Financial Officer
Independent review report to N Brown Group plc
Conclusion
We have been engaged by the company to review the condensed set of financial statements
in the half-yearly financial report for the 26 weeks ended 1 September 2018 which
comprises the condensed consolidated income statement, the condensed consolidated
statement of comprehensive income, the condensed consolidated balance sheet, the
condensed consolidated cash flow statement, the condensed consolidated statement
of changes in equity and related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial report
for the 26 weeks ended 1 September 2018 is not prepared, in all material respects,
in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial
Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements
(UK and Ireland) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity issued by the Auditing Practices Board for use
in the UK. A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and applying
analytical and other review procedures. We read the other information contained
in the half-yearly financial report and consider whether it contains any apparent
misstatements or material inconsistencies with the information in the condensed
set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half- yearly
financial report in accordance with the DTR of the UK FCA
As disclosed in note1, the annual financial statements of the group are prepared
in accordance with International Financial Reporting Standards as adopted by the
EU. The directors are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company those
matters we are required to state to it in this report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this report, or for
the conclusions we have reached.
Stuart Burdass
for and behalf of KPMG LLP
Chartered Accountants
1 St Peter's Square
Manchester
M2 3AE
11 October 2018
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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