REG - Brown (N.) Group PLC - Final Results
06/06/2024 07:00
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RNS Number : 3856R Brown (N.) Group PLC 06 June 2024
6 June 2024
FULL YEAR RESULTS FOR THE 52 WEEKS ENDED 2 MARCH 2024
Continued strategic progress delivering for our customers
Adjusted EBITDA above market expectations and return to profit
Strong balance sheet and liquidity
52 weeks to 2 Mar 2024 (FY24) 52 weeks to 25 Feb 2023(1) Change 52 weeks v 52 weeks 53 weeks to 4 Mar 2023 (FY23)(1)
£m
Group revenue 600.9 666.0 (9.8)% 677.5
Product revenue 381.2 426.6 (10.6)% 433.4
Financial Services revenue 219.7 239.4 (8.2)% 244.1
Adjusted EBITDA(2) 47.6 54.4 (12.5)% 57.3
Adjusted EBITDA margin 7.9% 8.2% (0.3)ppts 8.5%
Adjusted profit before tax(2) 13.3 4.9 171.4% 7.5
Statutory profit / (loss) before tax 5.3 N/A N/A (71.1)
Cash and cash equivalents 65.2 N/A N/A 35.5
Adjusted net debt(2) (236.3) N/A N/A (297.4)
Gross customer receivables 517.0 N/A N/A 555.2
Steve Johnson, Chief Executive, said:
"We have delivered against our strategic and financial objectives this year.
We have kept to our transformation plans, despite the macro-economic backdrop,
whilst building resilience through our strong balance sheet, and achieving
adjusted EBITDA above market expectations.
"Our customers are now seeing tangible benefits from our transformation, with
an enhanced experience being delivered by our new websites and our recently
launched Product Information Management system ensuring customers have more
detailed product descriptions to inform their purchases.
"Looking ahead, our strong liquidity position allows for continued investment
in our strategy, positioning the business for sustainable growth whilst always
improving the customer experience.
"I'd like to thank all our colleagues for their continued hard work in
progressing our transformation and for the results achieved this year. We are
confident in our strategy and in building a stronger N Brown for all
stakeholders."
Highlights
Delivering strong strategic and operational progress
· Improved customer experience through the launch of Jacamo's new
mobile-first website and launch of Product Information Management ('PIM')
system, fundamental to our marketing strategy, initially on Simply Be
· Successful launch of new product lines across our strategic brands:
o JD Williams launched its Anthology premium line, increasing prominence of
own brand offering
o Simply Be enriched its third-party offering with the launch of lifestyle
sports brand TALA and started offering select lines in Sainsbury's stores
o Jacamo enhanced its own brand offer, expanding across key categories
including smart casual, denim, and footwear
· Financial Services ('FS') transformation continues to progress well,
with the new platform build underway and end to end testing commencing this
year
· Net Promoter Score ('NPS') 6pts ahead of last year, including
benefits from better delivery performance as well as customer experience
improvements
· Approval by the Science Based Targets initiative ('SBTi') of
commitment to reduce Scope 1, 2 and 3 greenhouse gas emissions by 46% by FY31
against a FY22 base year, aligned with Paris Climate Agreement
· Received Drapers Award for Diversity and Inclusion for 2023 and named
as one of The Sunday Times Best Places to Work 2024
Financial
Adjusted EBITDA above market expectations(3), supporting a return to statutory
profit
· Despite macro-economic challenges, management actions drove adjusted
EBITDA margin up c. 4ppts from H1 to H2, with full year margin of 7.9% broadly
in line with FY23
· Group revenue decreased 9.8%, reflecting the continued challenging
market conditions and a focus on driving profitable sales
· Full year adjusted group gross profit margin increased 1.5ppts to
47.7%:
o Product margin up 1.2ppts, benefiting from a cleaner year-end stock
position, the focus on profitable sales and lower freight rates
o FS margin rate up 1.8ppts driven by lower write offs and more active debt
management strategy
· Full year adjusted operating costs reduced by £15m, with
volume-related savings and management actions more than offsetting c.£12m of
inflationary pressures
· Statutory profit before tax of £5.3m, reflecting improvement of
£76.4m, driven by lower adjusting items
· Adjusted profit before tax of £13.3m, an improvement of £8.4m,
including a reduction in depreciation and amortisation of £15.0m following
the impairment of non-financial assets in FY23
Robust balance sheet and available liquidity, with no unsecured borrowings
· Net cash generation of approximately £30m in the year, after further
investment of £23m in the transformation of the business
· Strong balance sheet with significant cash and cash equivalents, and
total accessible liquidity of over £148m. RCF and overdraft remain undrawn
with limits of £75m and £12.5m respectively
· £65.2m cash and cash equivalents; securitisation borrowings of
£301.5m under the facility extended to December 2026 in the year are well
covered by £517.0m gross customer receivables
· Adjusted net debt of £236.3m reflects the securitisation borrowings
and net cash
Current trading and outlook - gradual improvement in trading expected through
FY25
· The rate of FY24's product revenue decline has moderated at the start
of FY25, with Q1 declining by 6%
· This improvement is expected to continue as the year progresses, and
for full year FY25 the Group anticipates product revenue will return to a
moderate level of growth, alongside a modest improvement in the rate of
decline in Financial Services revenue and a Group gross margin rate consistent
with FY24
· Clear priorities to set the business up for 2024 peak trading, with
the third of the three strategic brands, JD Williams, launching its new
mobile-first website ahead of peak
· To support sustainable growth, planning to scale FY25 marketing
investment by around £10m, funded by cost efficiencies
· FY25 year end adjusted net debt is expected to be similar to FY24's
closing position. Strategic investment will continue to be self-funded through
carefully managed cash flows
· The Board has continued confidence that the investment in the Group's
strategic transformation plan, its differentiated brands and a new credit
proposition in development, leave it well positioned to deliver future
sustainable growth
Webcast for analysts and investors:
A webcast presentation of these results will take place at 9.00am on 6 June
2024 followed by a Q&A conference call for analysts and investors.
Please contact Hawthorn on +44 (0)7719 078 196 or email
nbrown@hawthornadvisors.com for details.
Financial calendar
The Group's next scheduled update is its FY25 Interim results in October 2024.
For further information:
N Brown Group
David Fletcher, Head of Investor Relations +44 (0)7876 111 242
Hawthorn
Henry Lerwill +44 (0)7894 608 607
Simon Woods +44 (0)7719 078 196 nbrown@hawthornadvisors.com
Shore Capital - Nomad and Broker
Stephane Auton / Daniel Bush / Rachel Goldstein +44 (0) 20 7408 4090
Fiona Conroy (Corporate Broking)
About N Brown Group:
N Brown is a top 10 UK clothing and footwear digital retail platform, with a
home proposition, headquartered in Manchester and employs around 1,700 people
nationwide. Through our strategic retail brands including JD Williams,
Simply Be and Jacamo, we exist to make our customers look and feel amazing,
and take great pride in passionately championing inclusion and serving the
under-served. Our customer-first shopping experience, supported by our
innovative financial services proposition, is designed to deliver choice,
affordability, and value to our customers, and allows us to be truly inclusive
and accessible.
(1) FY23 was the 53 week period ended 4 March 2023. A detailed comparison of
the 53 week results to 4 March 2023 and 52 week results to 25 February 2023,
for comparability with this year's 52 week period, is set out on page 15. The
Highlights narrative refers to the 52 weeks to 25 February 2023 as the
comparative period, except for Statutory profit / (loss) before tax and
balance sheet / cash flow metrics, for which 52 week comparatives are not
available.
(2) A full reconciliation of statutory to adjusted measures is included in the
FY24 Financial Performance section.
(3) The market consensus for FY24 Adjusted EBITDA is £44.7m as at 5 June
2024.
PERFORMANCE REVIEW
There is much to be proud of in relation to the progress N Brown has made this
year in challenging macro-economic conditions. The transformation of our
business gained pace, as we became more agile and able to deliver changes
faster. We made significant strides against our strategic pillars, which had a
meaningful impact on our business. And we delivered a profit performance ahead
of expectations, whilst returning to a profitable pre-tax position.
There is no denying that we continue to operate in challenging times but we
remain confident in our strategic direction. We believe that, with our
differentiated brands, improving consumer sentiment and a new credit
proposition in development, we are well positioned for the future. We are also
well-capitalised to continue to invest in our self-funded transformation.
Strategic Execution
Although the macro-economic challenges seen during the year were broadly
anticipated in our FY24 guidance, it has been a year of notable market
softness, demonstrated by the online pureplay market declining by 10%¹.
Despite the backdrop, we have executed against our plans, delivering levels of
financial performance and strategic transformation which means that FY24
represents an important step forward in building a stronger N Brown for all
stakeholders.
We entered the year with a set of streamlined transformational priorities as
laid out in our full year results in June 2023, concentrating on select
programmes to drive mid-term business change. We are laying the foundations to
support our ambition to return to sustainable, profitable growth, and have
delivered the work we planned against our five transformational areas. This
included the successful rollout of a mobile-first website for Jacamo. It was
delivered in a third of the time of our first rollout for the Simply Be site,
with the faster delivery benefitting from our commitment to agile ways of
working. Jacamo's site performance has been promising, with conversion during
Black Friday week reaching the highest level in three years.
We made significant strides in enhancing our customer experience with the
successful launch of a Product Information Management ('PIM') system on our
first strategic brand, Simply Be, towards the end of FY24. This system is
fundamental to our marketing strategy and enriches product descriptions on
display pages, offering detailed information on sizing, fit, and fabric. By
ensuring greater consistency and accuracy in pre-purchase communications
across all channels, we're empowering our customers to make more informed
purchases. This is anticipated to lower return rates, thereby elevating the
overall customer experience.
We have further developed our data culture, by leveraging analytical
opportunities throughout the year. This has included increasing the number of
categories which use PriceTagger, our in-house tool which optimises product
promotion by leveraging price elasticity.
Our new Financial Services ('FS') platform has progressed as planned through
FY24, with all discovery phases now concluded. All brand development work has
also been completed, including marketing guidelines, and the build of a new
system has begun. The platform is anticipated to give the Group further
product flexibility to provide customers with more choices in how they manage
their payments.
Our new agile ways of working are structured around putting our customers
first and provide the business with the agility required to flex to their
needs. Over 50% of our head office colleagues have officially adopted our new
ways of working, which promotes cross-functional cooperation and
communication, and has allowed us to deconstruct conventional business silos,
enabling acceleration in the pace of execution for our brand strategies.
1 For the 52 weeks ended 2 March 2024, the online pureplay
market according to IMRG declined by 10%.
Our agile ways of working have ensured we have made more mature choices in our
technology roadmap and continued to invest iteratively in all areas of our
technology estate. In our continuous feedback loop, we take confidence that
our operating model has allowed the deployment of user changes that release
value now, but set the correct foundations for future releases, whilst also
enabling a higher velocity of change.
Our efforts to establish clearer, more distinct brand identities continue,
highlighting our progress through engaging and creative campaigns which
resonate with our customers. We continue to develop more unique fashion
propositions for all of our brands, with own brand launches including
Anthology, and multiple third-party releases across our portfolio throughout
FY24. Our own brand fashion propositions have been elevated with strategic
partners, with a strong first year collaborating with Sainsbury's. Working
closely with our logistics partners, we also continued to optimise our final
mile service, which has contributed to a 6pts increase in Net Promoter Score
('NPS') in the year.
Further information on the significant progress we are making with our
strategic transformation is included from page 7.
Financial Review
A strong focus on managing our cost base and driving profitable sales has
helped to drive a number of important achievements within financial
performance. Firstly, Adjusted EBITDA of £47.6m and Adjusted profit before
tax of £13.3m are each ahead of market expectations. Secondly, the business
returned to a statutory profit before tax, reporting £5.3m, following a
statutory loss before tax of £(71.1)m in FY23 which included the final
settlement of the Allianz litigation and non-cash impairment of non-financial
assets. Thirdly, cash generation has been strong at nearly £30m and has been
achieved after delivering against our plans to continue to self-fund the
transformation of the business, with c.£23m of further capital expenditure,
including the strategic areas discussed above.
As a result of ongoing cautious consumer behaviour and our focus on driving
profitable sales, product revenue declined by 10.6% against the prior year,
excluding last year's additional 53(rd) week, leading to Group revenue
declining by 9.8%. The implementation of a number of initiatives, set out in
our Interim results in October 2023, improved both Adjusted gross profit
margin and Adjusted operating costs in H2, leading to growth in Adjusted
EBITDA margin of 4ppts in H2 relative to H1.
Against last year, Adjusted EBITDA reduced by £6.8m excluding the 53rd week,
driven by lower revenue. A year-on-year increase in Adjusted gross profit
margin of 1.5ppts broadly offset an increase in Adjusted operating costs as a
percentage of Group revenue. The cost ratio was impacted by lower operational
leverage, despite a strong focus on costs having driven a reduction in
Adjusted operating costs of nearly £15m.
The strong cash generation has helped to further strengthen our balance sheet,
with total accessible liquidity closing the year at £148.5m and with
unsecured net cash of £65.2m. During the year, the Revolving Credit Facility
('RCF') and overdraft were refinanced to December 2026, and remain undrawn,
with facility limits of £75m and £12.5m respectively. The Group also
extended its securitisation facility commitment to December 2026, maintaining
the facility limit of £400m and lender commitment of £340m.
Year end adjusted net debt of £236.3m is now under half of the peak level
reported at FY20 year-end (£497.2m). A key achievement over the last few
years through the transformation journey is the improvement in this position -
with the only borrowings within adjusted net debt being £301.5m drawings
against the securitisation facility, and which are well covered by the
£517.0m gross customer receivables. The unsecured net cash position partially
offsets the securitisation drawings, benefitting the adjusted net debt
position. This provides a position of strength from which to scale marketing
spend in FY25.
Leadership Update
As previously announced, Ron McMillan retired as Chair and stepped down from
the Board, as of 30 April 2024. The Board would like to thank Ron for his
dedication to N Brown and for the critical role he has played in the
transformation of our company. The search for a permanent Chair has commenced
and a further announcement will be made in due course.
In addition to Ron McMillan's retirement as Chair, we announced that Vicky
Mitchell had announced her intention not to stand for re-election and will
step down from the Board of N Brown to focus on other professional commitments
following the Company's Annual General Meeting in July 2024. The Board has
commenced a process to identify and appoint an additional Independent
Non-Executive Director and will provide an update on this process in due
course. The Board would like to express their gratitude to Vicky Mitchell for
her service to N Brown.
A number of previously announced Board changes were also confirmed during the
financial year. In June 2023, Dominic Appleton succeeded Rachel Izzard as
Chief Financial Officer and joined the Board, having previously joined the
Group as Chief Financial Officer Designate in March 2023. In April 2023, Meg
Lustman was appointed as an Independent Non-Executive Director. In July 2023,
following the conclusion of the Annual General Meeting, Gill Barr and Richard
Moross stepped down from the Board. Gill served as Senior Independent
Director. Gill was also Chair of the Remuneration Committee, in which she has
been succeeded by Meg Lustman.
With regards to our Executive Leadership team, we were pleased to announce two
changes, in line with our ongoing strategic transformation.
We have welcomed Clare Empson as Director of Supply Chain. Clare has an
extensive range of experience across the retail sector over the past 25 years
and in leading global retail operations. Clare was most recently Director of
Operations at Ted Baker, where she also held senior roles within its Retail
and Transformation areas during her time there.
Natalie Rogers has joined as our Chief People Officer. Natalie brings with her
more than 25 years of extensive cross-sector experience - including digital,
tech and financial services - in a breadth of HR disciplines covering
organisational culture, employee relations, leadership development, reward and
organisational design.
FY25 Outlook
The strategic progress against our transformational priorities during FY24
leaves us well placed to continue investment in FY25, in support of our
vision, mission and purpose. Having delivered new mobile-first websites for
two of our three strategic brands, Simply Be and Jacamo, we plan to launch a
new site for JD Williams ahead of FY25 peak trading. In doing so, we will
complete our priority of new websites being in place for all of our strategic
brands. Investment will also continue into a new technology platform for FS to
enhance the ways customers can pay, having begun the build of the new system
in FY24. Alongside this, and particularly given the digital nature of our
business, we will further upweight our focus on use cases for AI technologies.
We are assuming that macro-economic conditions felt by consumers will still be
a feature of our performance during FY25 but believe that conditions will
continue to improve. Product revenue during the start of FY25 has moderated
against FY24's rate of decline, with year-on-year product revenue for the 13
weeks ended 1 June 2024 (Q1 FY25) declining by 6%. We currently anticipate
FY25 product revenue returning to a moderate level of growth, with a weighting
towards H2.
Management actions will help drive product revenue growth through scaling the
investment in marketing & production by around £10m, funded by cost
efficiencies, in order to improve new customer recruitment and stimulate the
existing base to trade more frequently.
The FS customer loan book opened the year lower than the prior year and the
benefit from product revenue growth will take longer to feed through to FS
revenue performance. However, we do expect FS revenue to decline at a slightly
improved rate to that seen in FY24.
We anticipate Adjusted gross profit margin to be consistent with FY24. This
reflects an expected further improvement in product gross margin, including
benefits from higher clothing mix, commencing the year with a cleaner stock
position and better underlying factory gate pricing, offsetting a slightly
lower FS gross margin. We are well hedged against our US Dollar purchases for
FY25.
We expect a low single-digit £m increase in total across depreciation and
amortisation, and net finance costs. This is reflective of capex levels and
the expiry of the existing interest rate hedge on the securitisation facility
at the end of 2024 calendar year.
The business will increase investment in FY25, aligned to the transformational
priorities, which will continue to be self-funded through carefully managed
cash flows. At the end of FY25, we expect Adjusted net debt to be similar to
FY24's closing position, and for strong levels of liquidity to be maintained.
We remain confident in our strategic direction and our digital transformation
as we focus on driving sustainable profitable growth.
An update against our five strategic pillars is provided below:
1. Build a Differentiated Brand Portfolio
Strategic objective: Build two multi brand and category platforms, one for
women (JD Williams) and one for men (Jacamo), as well as one inclusive fashion
brand for young women (Simply Be).
What we have achieved in FY24
Our strategic brands (JD Williams, Simply Be, and Jacamo) have each embarked
on unique initiatives in the year to enhance customer engagement and brand
visibility:
JD Williams partnered with ITV and Global to sponsor the TV show, My Mum Your
Dad, which had over 33 million views throughout the series. The partnership
increased the recognition of JD Williams, leading to a 36% increase in the
awareness of the brand.
Simply Be launched the 'Serious about Shape' campaign, promoting inclusivity
and body positivity in fashion, aiming to resonate with a diverse customer
base. This message was further reaffirmed through the launch of a new podcast
hosted by the influential Fleur East.
Jacamo collaborated with LADbible, a community within which our target
audience spends their time. Our 'No Average Jack' campaign received
recognition at the Campaign Media Awards in March 2024, winning in the Fashion
and Beauty category. The first year of the partnership achieved over 95
million views and a significant increase in customer conversion rate from
customers directed to the website from the campaign.
What we will focus on in FY25
We will invest more of our marketing budget into raising brand awareness and
consideration, to increase acquisition through earned channels. We will
support performance via media efficiency programmes to ensure our spending is
at the optimum level and appropriately targeted. Customer acquisition costs in
performance media have risen significantly during FY24 and so to mitigate
over-exposure to these channels, we plan to build on current initiatives and
learnings, investing more in awareness to foster brand recognition.
JD Williams has partnered with Sky and Channel 5, in a new campaign fronted by
Gok Wan, Judi Love and Helen Skelton. This exciting journey promises to bring
our brand closer to our customers, sparking conversations and fostering
relationships. JD Williams will continue to focus engagement with midlife
women, leveraging a new digital platform powered by the launch of our new
mobile-first website.
Simply Be is here for trend-led women aged 25-45 who prioritise great fit, but
we have recognised that it's helpful to be more specific about who within that
broader target we're particularly designing for. Simply Be will be
re-positioned to target a slightly older customer, in a less congested area of
the market. We will refine its proposition in the first half of the year,
before investing in brand awareness in the second half.
Jacamo will be entering the second year of our successful partnership with
LADbible, where we will be focusing on bigger moments in customers' lives,
which we anticipate will be more impactful with them. Our 'No Average Jack'
campaign which launched last year continues, moving beyond areas he is
interested in and leaning into 'style missions'; identifying moments coming up
where he wants to look and feel confident.
Within the heritage portfolio, the focus will be on stabilising the customer
base through a series of initiatives agreed upon and launched via our agile
operating model.
2. Elevate the Fashion and Fintech Proposition
Strategic objective: Elevate the fashion assortment, integrate the credit offer into the journey and create a credit brand.
What we have achieved in FY24
JD Williams: Reflecting further progress within our own brand proposition, we
launched Anthology, a JD Williams own premium line. The line is designed with
an elevated approach to dressing which offers versatile, quality fabrics. This
move is part of JD Williams' ongoing efforts to increase the prominence of its
own brand offering and enhance the product choice further with third-party
offerings.
Simply Be: Simply Be continues to enrich its third-party offering, elevating
our fashion assortment, with great success in the launch of TALA. Simply Be
also continued to champion accessibility and enhance its customer-first
approach through partnerships. Within partnerships, the launch of Simply Be on
Sainsbury's online clothing platform and selected stores has performed
strongly in its first year, as well as providing enhanced exposure to
different customer segments.
Jacamo: Jacamo has enhanced its own brand offer, expanding the offer across
key categories like smart casual, denim, and footwear, while investing more in
sizes XL and below. The team has also worked closely with key third-party
brands such as Polo Ralph Lauren and BOSS, increasing the depth of buy,
improving availability and ensuring the platform continues to provide its
customers with access to the brands they love in an inclusive range of sizes.
New FS Platform: As outlined on page 4, our new Financial Services platform
has made good progress during FY24.
Whilst we develop the new platform ahead of go live, we implemented a fresh
credit limit strategy to maintain responsible lending to our customers, while
also mitigating the effects of write-offs and arrears on our business.
Simultaneously, our innovative new payment arrangement, which extends reduced
payment periods for those facing financial difficulties, has improved customer
retention effectively.
What we will focus on in FY25
Strategic brands: We are committed to enhancing our brand offerings across all
our strategic brands. Specifically, we recognise the potential to expand the
presence of premium products within JD Williams. Additionally, we aim to
diversify Jacamo by incorporating more men's fashion items whilst
rationalising the tech offering. Furthermore, we intend to increase the
proportion of own-designed products within Simply Be. Following Simply Be's
strong partnership performance with Sainsbury's, we believe there is a
strategic opportunity which partnerships can have in our fashion proposition,
particularly in raising the awareness in broader customer segments of Simply
Be. Our intent is to grow partnerships as a distribution channel through
existing and potential new partners.
New FS Platform: We look forward to releasing the new FS proposition to our
colleagues once the minimum viable product ('MVP') has been built. Upon
successful testing with colleagues, the external MVP rollout will commence in
FY26, providing a modern, market-standard credit proposition. Before delivery
of the new FS platform, we will ensure the current offer is as competitive and
visible as possible.
3. Transform the Customer Experience
Strategic objective: Transform the customer experience, pre and post purchase, and drive conversion at checkout through a personalised experience.
What we have achieved in FY24
As outlined on page 4, we have continued to roll out the new mobile-first
websites to our strategic brands with the new Jacamo website going live in
FY24. The new websites remain the cornerstone in transforming our customer
experience and we have seen a doubling of our Google Lighthouse scores (an
open-source measure of site performance and user experience).
Our new Product Information Management ('PIM') system, as described on page 4
was launched on our first strategic brand in Simply Be. Having a single place
to collect, manage, and enrich product data, will not only provide a better
experience for our customers on-site but will also create a more efficient
process for colleagues.
What we will focus on in FY25
Significant progress has been made in rolling out new mobile-first websites.
The implementation of a new content management system at the start of FY25
will enable the launch of the new mobile-first website for JD Williams.
Following this, heritage brands will begin to be sequentially transitioned to
the new platform. We will continue to iterate on the website capabilities,
with feature releases planned throughout the year to continue to enhance the
customer journey.
Following the successful launch of the PIM system on Simply Be, we plan to
operationalise the technology onto the remaining strategic brands in FY25. We
believe that the PIM system will also improve search engine optimisation
(SEO), thereby improving marketing efficiency.
We plan to improve the mobile app offering for our strategic brands. This will
provide a home for future enhancement to our loyalty programme offering for
both Retail and Financial Services. This will then support activities that
follow, having greater insight into notification performance, and using data
from customers to improve personalisation, which will also improve engagement
with the app, and the overall customer experience.
4. Win with our Target Customer
Strategic objective: Grow our customer base through our existing core customer, high value lapsed customers and a new, younger generation.
What we have achieved in FY24
To engage our target customers in an ever-challenging consumer landscape, we
continue to foster close collaboration with strategic partners. Together with
Meta, we have implemented automated product promotion campaigns (ASC+). The
system uses machine learning to combine prospecting and existing customer
audiences and ensure that the campaign is targeted to customers who have a
high probability of purchase, further streamlining our customer acquisition
strategy.
We have diversified the way we engage our customers. We have enhanced our
Customer Relationship Management ('CRM') proposition, by launching SMS as a
new channel. We have also strengthened our loyalty programmes, engaging more
of our target customers, and optimising our contactable base. These
enhancements, dovetailed with data-driven messaging, have led to an increase
in customers enrolling in our loyalty programmes, with a 20% increase in the
number of customers who opted into our loyalty programme compared to FY23.
We have continued to make data-driven decisions, conducting tests to determine
the best way to continuously identify opportunities for customer experience
enhancements. This includes offering more ways to pay, with the launch of
Apple Pay.
What we will focus on in FY25
We plan to increase new customer acquisition and ensure we maximise the value
of our existing base, whilst always being focused on our most active
customers. We will be able to reach more customers in a relevant, timely way
thanks to improvements in data usage and new channels to reach our customers.
Our apps remain the highest converting channel, reinforcing how integral the
app channels are to transforming the customer experience. Credit customers are
some of our longest-serving customers; their loyalty and continued engagement
contribute significantly to the longevity of our customer base. Hence, we will
prioritise targeting both credit and app customers, as they show higher levels
of engagement with our brands than other customers.
The approach we will take when communicating with opted-in loyalty members
will be more engaging and personalised to specific customer groups. We will
reduce usage of discount and promotional activity, instead focusing more on
brand-specific content which will fuel more desire for our offer.
5. Establish Data as an Asset to Win
Strategic objective: Establish data as an asset to drive top line and margin
improvements.
What we have achieved in FY24
We've harnessed data-driven insights from our Customer Lifetime Value models
to shape our predictive models for customer behaviour. This ensures a more
personalised marketing approach and a consistent customer experience. These
insights have been used to deliver targeted onsite messaging to customers who
could benefit from our credit proposition.
We've broadened the use of PriceTagger, our in-house tool that optimises
product promotion using price elasticity, which has seen adoption across 34%
more of our products. PriceTagger enables machine learning-driven pricing by
gauging how demand and supply of products respond to price changes. We're
continually refining our predictive models to account for seasonal trends in
customer behaviour and their impact on the rate of sale, thereby enhancing our
pricing agility in the market space.
What we will focus on in FY25
Data-driven decision-making will continue to drive our strategy forward and
there will be an increased focus on marketing analysis to ensure optimal
channel mix by brand, whilst ensuring efficiencies in spend. We will continue
to deliver data, analytics and reporting, to help improve profitability, such
as planned enhancements to our Customer Lifetime Value models.
We will begin transitioning to a cloud-native Analytics Platform to
consolidate data, accelerate analytics, facilitate self-service use cases, and
mitigate compliance risks. This will require an upgrade to Google Analytics 4
for continued data tracking on our sites. We will also transition from
third-party cookies to first-party data collection for compliance with UK
privacy law changes in 2024.
Key Enablers
What we have achieved in FY24
In FY24, the new Consumer Duty set higher and clearer standards for consumer
protection in financial services, emphasising customer-centric practices. At N
Brown, we adopted the new Consumer Duty regulations on time and to a high
standard, highlighting our commitment to prioritising our customers. We
consistently assess our offerings, policies, and processes to uphold this
customer-focused strategy.
The company fosters an inclusive culture through the EMBRACE Strategy and
colleague-led communities. Our commitment to colleague development and welfare
is reflected in our eNPS scores, which exceeded the UK retail benchmark by 16
points in FY24. This is again a testament to our agile ways of working, which
have fostered our collaborative environment.
What we will focus on in FY25
We will act to scale the marketing spend in FY25 and fund this through cost
efficiencies. This choice is needed to help change the momentum in our active
customer file.
We will roll out agile ways of working to the remainder of employees at head
office, leaving only our logistics operation to finalise. The rollout of this
transformation has complemented the right-sizing of our cost base.
We will develop our transition plan in line with the Climate-Related Financial
Disclosures ('CRFD') requirements and cultivate a culture that revolves around
sustainability throughout our organisation.
Key Performance Indications ('KPIs')(1)
As a digital retailer committed to accelerating our strategy and navigating a
post-pandemic environment, we continue to report various digital customer
metrics, which provide operational measures of how our strategy is
progressing.
52 weeks to 52 weeks to Change
2 Mar 2024 25 Feb 2023
Total website sessions(2) 183m 220m (16.8)%
Conversion(2) 3.7% 3.7% -
Total Orders 7.3m 8.7m (16.1)%
AOV £83.6 £79.2 5.6%
Items per order 2.8 2.8 -
AIV £30.2 £28.3 6.7%
Total active customers 2.2m 2.6m (15.4)%
FS arrears 10.6% 9.1% 1.5ppts
NPS 63 57 6
(1 KPIs are defined on page 25. KPIs shown above on a 52 week basis for FY23
other than Financial Services Arrears, which reflects a 2 March 2024 balance
sheet date.)
(2 Sessions and conversion for 52 weeks to 25 Feb 2023 restated for
consistency with definitions within 52 weeks to 2 Mar 2024 reporting. Note
that approach to reporting associated with "Google Consent Mode" going forward
is anticipated to lead to a restatement of sessions and conversion for 52
weeks to 2 Mar 2024 within FY25 reporting.)
( )
Consistent with the broader market, we have continued to see the impact of
macro-economic challenges and consumer behaviour, which has been accentuated
for online pureplay businesses.
This is reflected in the broad trends in customers, sessions and ordering
continuing from FY23. The lower active customers trend includes our heritage
portfolio of brands where our focus is on stabilisation and value protection
rather than growth.
The reduction in orders has been partially offset by an increase in Average
Item Value ('AIV'). We have seen a continuation of more intentional behaviour
from customers, which has included buying into more premium ranges, and we
have also implemented measured price increases supported by data tools to
offset an element of the inflationary impacts on our product costs.
The Financial Services arrears rate includes a higher level of insolvent
accounts, reflecting debt sale timings year-on-year. Excluding insolvent
accounts, the arrears rate was 9.0% (FY23: 8.7%) with the increase due to a
higher mix of payment arrangements held at year end, as a year end debt sale
did not occur at the end of FY24 unlike in prior years. The business continues
to support and retain customers through times of financial hardship.
Our Net Promoter Score ('NPS') further improved in H2. Full year performance
has been driven by a number of operational improvements including better
delivery performance, an extension in order cut off time for next day
deliveries to 11pm, and website improvements.
We are pleased with the strategic execution in the year and have a clear set
of priorities looking forward. Combining the strategic progress, scaling of
marketing spend described in the FY25 Outlook section and an anticipated
gradual improvement in macro-economic conditions, provides us with confidence
in unlocking progress across the KPIs.
Environment, Social and Governance
We have continued to embed our Environmental, Social and Governance strategy
into the business. Our sustainability plan, SUSTAIN, fully aligns our ethical
policies with our commercial activities and our commitment to Our People and
Our Planet.
Our near-term science-based targets to reduce greenhouse gas ('GHG') emissions
have been approved by the Science Based Targets initiative ('SBTi'). The Group
has committed to reduce Scope 1, 2 and 3 emissions by 46% by FY31 against an
FY22 base year, with the SBTi ensuring that targets are aligned with the
latest climate science under the Paris Climate Agreement. These targets are
part of the Group's ambition to achieve net zero emissions by 2040 under the
British Retail Consortium's ('BRC') Climate Action Roadmap.
A key commitment for the business is responsibly sourcing own brand product.
We have reached 47% of own brand designed Clothing and Home textile ranges
with sustainable attributes (from 0% in 2019) as we target growing this to
100% by FY30 in line with our Textiles 2030 commitment. We have also reached
70% of cotton use being responsibly sourced (Better cotton, organic or
recycled) as we focus on transitioning to 100% responsibly sourced cotton by
FY26.
During the year we have driven engagement with our colleague-led charity
partners - the Retail Trust and FareShare Greater Manchester. Through a
variety of fundraising activities we reached the fundraising milestone of
£50,000 just over one year into the partnership.
FY24 FINANCIAL PERFORMANCE
Financial KPIs
Our non-financial KPIs are contained in the Chief Executive Officer's
statement. We also use a number of financial KPIs to manage the business.
These are shown below and will continue to be reported going forwards.
52 weeks to 2 March 2024 52 weeks to 25 Feb 2023(1) Change 53 weeks to 4 March 2023(1)
Product revenue £381.2m £426.6m (10.6)% £433.4m
Adjusted EBITDA(2) £47.6m £54.4m (12.5)% £57.3m
Adjusted EBITDA margin(2) 7.9% 8.2% (0.3)ppts 8.5%
Adjusted operating costs to Group revenue(2) 39.8% 38.1% 1.7ppts 37.7%
Cash and cash equivalents(3) £65.2m N/A N/A £35.5m
Total Accessible Liquidity(2,3) £148.5m N/A N/A £143.9m
Statutory profit before tax £5.3m N/A N/A £(71.1)m
Adjusted EPS(2) 1.65p N/A N/A 1.81p
1 FY23 was the 53 week period ended 4 March 2023. A detailed comparison of
the 53 week results to 4 March 2023 and 52 week results to 25 February 2023,
for comparability with this year's 52 week period, is set out on page 15.
2 A full glossary of Alternative Performance Measures and their definitions is
included on page 26.
3 FY23 Total Accessible Liquidity of £143.9m and cash and cash equivalents of
£35.5m are as at the balance sheet date, 4 March 2023. Subsequent to the
balance sheet date, the Group refinanced its borrowings and extended their
maturities to December 2026. As at 6 May 2023 and following the refinancing
and extended maturity dates, Total Accessible Liquidity was £112.0m.
Reconciliation of Statutory financial results to adjusted results
The Annual Report and Accounts includes Alternative Performance Measures
('APMs'), which are not defined or specified under the requirements of IFRS.
These APMs are consistent with how we measure performance internally and are
also used in assessing performance under our incentive plans. Therefore, the
Directors believe that these APMs provide stakeholders with additional, useful
information on the Group's performance.
The adjusted figures are presented before the impact of adjusting items. These
are items of income and expenditure which are one-off in nature, and material
to the current financial year, or represent true ups to items presented as
adjusting in prior periods. These are detailed in note 6.
A full glossary of Alternative Performance Measures and their definitions is
included on page 26.
Reconciliation of Income Statement Measures
52 weeks to 2 Mar 2024 53 weeks to 4 March 2023 52 weeks to 25 Feb 2023
£m Statutory Adjusting items Adjusted Statutory Adjusting items Adjusted 53rd week impact 52 weeks Adjusted
Group Revenue 600.9 600.9 677.5 677.5 (11.5) 666.0
Cost of sales (315.2) 0.8 (314.4) (364.7) (364.7) 6.7 (358.0)
Gross Profit 285.7 0.8 286.5 312.8 312.8 (4.8) 308.0
Gross profit margin 47.5% 47.7% 46.2% 46.2% 46.2%
Operating costs (242.3) 3.4 (238.9) (290.0) 34.5 (255.5) 1.9 (253.6)
Adjusted operating costs to Group revenue ratio 39.8% 37.7% 38.1%
Adjusted EBITDA 47.6 57.3 (2.9) 54.4
Adjusted EBITDA margin 7.9% 8.5% 8.2%
Depreciation & amortisation (20.7) (20.7) (35.7) (35.7) - (35.7)
Impairment of non-financial assets (3.3) 3.3 - (53.0) 53.0 - - -
Operating profit / (loss) 19.4 7.5 26.9 (65.9) 87.5 21.6 (2.9) 18.7
Net finance costs (13.6) (13.6) (14.1) (14.1) 0.3 (13.8)
Profit / (loss) before taxation and fair value adjustments to financial 5.8 7.5 13.3 (80.0) 87.5 7.5 (2.6) 4.9
instruments
Fair value adjustments to financial instruments (0.5) (0.5) 8.9 8.9 - 8.9
Profit / (loss) before taxation 5.3 7.5 12.8 (71.1) 87.5 16.4 (2.6) 13.8
Taxation (charge) / credit (4.5) (1.1) (5.6) 19.7 (20.6) (0.9) - (0.9)
Profit / (loss) for the year 0.8 6.4 7.2 (51.4) 66.9 15.5 (2.6) 12.9
Earnings / (loss) per share 0.17p 1.65p (11.19)p 1.81p N/A
Reconciliation of Cash and cash equivalents and bank overdrafts to Unsecured Net Cash and Adjusted Net Debt
£m 2 March 2024 4 March 2023
Cash and cash equivalents 65.2 35.5
Unsecured debt and bank overdrafts - -
Unsecured Net Cash 65.2 35.5
Secured debt facility linked to eligible receivables (301.5) (332.9)
Adjusted Net Debt (236.3) (297.4)
Reconciliation of Net movement in Cash and cash equivalents and bank
overdrafts to Net Cash generation / (outflow)
£m 52 weeks to 53 weeks to
2 March 2024 4 March 2023
Net increase / (decrease) in cash and cash equivalents and bank overdraft 29.7 (7.6)
Voluntary flexible drawdown of securitisation loan - (60.1)
Net cash generation / (outflow) 29.7 (67.7)
Overview
It is encouraging that this year's return to a positive statutory profit
before tax, the delivery of Adjusted EBITDA above market expectations, and
strong levels of cash generation, have been achieved despite the challenging
macro-economic conditions.
The discussion of revenue, Adjusted gross margin, Adjusted operating costs and
Adjusted EBITDA which follows is against last year's 52 week comparative, for
comparability with FY24's 52 week period.
We planned for the continued market softness which has characterised FY24,
albeit conditions have weighed on customer behaviour for longer than we
expected at the outset of the year. These conditions drove product revenue
down 10.6%. Financial Services revenue reduced 8.2% as a result of the lower
opening debtor book and the impact from lower product revenue in the year,
with the Financial Services debtor book remaining well controlled.
Adjusted EBITDA margin strengthened significantly in H2, up 4ppts against H1,
returning full year EBITDA margin broadly to the level achieved in FY23. This
reflects a strong focus on areas which are in the business' direct control,
consistent with our plans and guidance set out in October at Interim results.
The H2 Adjusted gross profit margin improved by c.2ppts over H2 of FY23,
leading to full year 1.5ppts up on prior year. The H2 Adjusted operating costs
to Group revenue ratio improved by c.4ppts against H1, with some easing of
inflationary impacts as H2 annualised against significant increases in the
prior year, helping to contain the full year ratio to under 40% despite
further operational deleverage in the year.
Adjusting items reduced to £7.5m, from £87.5m last year. The prior year
charge largely related to a non-cash impairment of non-financial assets and
settlement of the Allianz litigation. Combined with lower depreciation and
amortisation following last year's impairment, statutory profit before tax
improved to a positive level of £5.3m.
A proactive moderation of intake and clearance of older stock items has driven
inventory £20m lower than prior year and supported strong cash generation of
nearly £30m after £23m of self-funded capital investment into the
transformation of the business. The balance sheet remains strong with £148.5m
of total accessible liquidity, with £65.2m of unsecured net cash, and the RCF
and overdraft remaining undrawn with limits of £75m and £12.5m respectively.
Revenue
£m 52 weeks to 52 weeks to Change 52 weeks to 52 weeks 53 weeks to
2 Mar 2024 25 Feb 2023(1) 4 Mar 2023(1)
Revenue
Strategic brands(2) 282.5 306.8 (7.9)% 311.8
Heritage brands(3) 98.7 119.8 (17.6)% 121.6
Total product revenue 381.2 426.6 (10.6)% 433.4
Financial services revenue 219.7 239.4 (8.2)% 244.1
Group revenue 600.9 666.0 (9.8)% 677.5
(1 FY23 was a 53 week period, ending 4 March 2023. Revenue has also been
presented on a 52 week basis, excluding the 53rd week for comparability with
FY24's 52 week period. A detailed comparison of the 53 week results to 4 March
2023 and 52 week results to 25 February 2023, for comparability with this
year's 52 week period, is set out on page 15.)
(2 JD Williams, Simply Be, Jacamo.)
(3 Ambrose Wilson, Home Essentials, Fashion World, Marisota, Oxendales and
Premier Man.)
Group revenue declined 9.8% to £600.9m reflecting a 10.6% decline in product
revenue and a 8.2% decline in FS revenue.
The product revenue decline seen in FY24 is broadly a continuation of that
seen in H2 of FY23 when there was a softening in performance reflective of
more challenging market conditions and the impact of cost-of-living pressures
evident in customers' buying behaviour. FY24's performance is in the context
of a decline in the online pureplay market of 10%(1), a 12% reduction in
marketing spend, as well as unseasonable weather conditions experienced at
certain times during the year, particularly for selling Summer ranges through
Spring and July to August. As explained within the non-financial KPI section,
customer behaviour has continued to be cautious in the year, reflected in
customer numbers, sessions and orders, but partially offset by strength in
average item values.
Against this market backdrop, our strategic brands saw a decline of 7.9%. Our
heritage brands, which are managed for contribution as opposed to growth, saw
product revenue down 17.6%.
The product revenue trend improved through Quarters 1 to 3 (Q1: -11.9%, Q2:
-10.4%, Q3: -9.7%). In Q4, which is the quietest period of the year, product
revenue reduced by 11.2%, reflecting a softening in the market after Christmas
and a focus on profitable trading.
The reduced level of product sales from this year and prior years resulted in
a smaller year end customer receivables loan book of £517.0m (FY23:
£555.2m), down 6.9%. This in turn drove lower FS revenue, down 8.2%. The
reduction in FS revenue is greater than the reduction in book size due to a
higher mix of non-interest bearing payment arrangements.
Our responsible and flexible credit offering remains an integral part of our
customer proposition, particularly in the current macro-economic environment.
(1) (For the 52 weeks ended 2 March 2024, the online pureplay market according to IMRG declined by 10%.)
Adjusted Gross profit(1)
£m 52 weeks to 52 weeks to Change 52 weeks to 52 weeks 53 weeks to
2 Mar 2024 25 Feb 2023(2) 4 Mar 2023(2)
Product gross profit 173.8 189.6 (8.3)% 192.5
Product gross margin % 45.6% 44.4% 1.2ppts 44.4%
Financial services gross profit 112.7 118.4 (4.8)% 120.3
Financial services gross margin % 51.3% 49.5% 1.8ppts 49.3%
Adjusted Group gross profit(1) 286.5 308.0 (7.0)% 312.8
Adjusted Group gross profit margin(1) 47.7% 46.2% 1.5ppts 46.2%
(1) A reconciliation of statutory measures to adjusted measures is included on page 15. A full glossary of Alternative Performance Measures and their definitions is included on page 26.
(2) FY23 was a 53 week period, ended 4 March 2023. Adjusted gross profit has also been presented on a 52 week basis, excluding the 53rd week for comparability with FY24's 52 week period. A detailed comparison of the 53 week results to 4 March 2023 and 52 week results to 25 February 2023, for comparability with this year's 52 week period, is set out on page 15.
Adjusted gross profit margin increased 1.5ppts year-on-year to 47.7%, driven
by improvements across both product and FS gross margin.
Product gross margin improved 1.2ppts to 45.6%, reflecting better stock
purchasing and realisation of margins. c.0.5ppts of the improvement came from
trading benefits, including annualising against additional provisioning when
year end stock was higher than normal for the forward level of sales, which
reduced prior year margin rate by c.1ppt, partially offset by adverse
year-on-year impact of c.0.5ppts from product mixes. c.1ppts of the
improvement came from normalisation of freight rates, partially offset by
c.0.5ppts adverse impact from lower VAT bad debt relief due to lower
write-offs(1).
FS gross margin increased 1.8ppts to 51.3%, reflecting improvement in
write-offs and a more active debt management strategy adopted. This has had a
more prominent benefit in H2, yielding a higher gross margin compared to H1,
as the benefit is realised. The FX contracts used to hedge US dollar spend are
described in note 7 to the financial statements and we remain well hedged
throughout FY25, with the anticipated level of US dollar spend fully hedged.
(1) Included in product gross margin as they are only recoverable due to being a combined retail and financial services business, and they would not be recoverable as a standalone credit business.
Adjusted operating costs(1)
£m 52 weeks to 52 weeks to Change 52 weeks to 52 weeks 53 weeks to
2 Mar 2024 25 Feb 2023(2) 4 Mar 2023(2)
Warehouse & fulfilment costs (58.1) (62.2) 6.6% (63.2)
Marketing & production costs(3) (59.3) (67.6) 12.3% (68.2)
Admin & payroll costs(3) (121.5) (123.8) 1.9% (124.1)
Adjusted operating costs(1) (238.9) (253.6) 5.8% (255.5)
Adjusted operating costs to Group Revenue ratio(1) 39.8% 38.1% 1.7ppts 37.7%
(1)A reconciliation of statutory measures to adjusted measures is included on
page 15. A full glossary of Alternative Performance Measures and their
definitions is included on page 26.
(2) FY23 was a 53 week period, ended 4 March 2023. Adjusted operating costs have also been presented on a 52 week basis, excluding the 53rd week for comparability with FY24's 52 week period. A detailed comparison of the 53 week results to 4 March 2023 and 52 week results to 25 February 2023, for comparability with this year's 52 week period, is set out on page 15.
(3) FY23 FS statement costs re-presented from Marketing & production into Admin & payroll costs, consistent with updated classification used in FY24.
Total operating costs excluding adjusting items reduced £14.7m to £238.9m
through a real focus and discipline in areas which the business can directly
control. This included a headwind of c.£12m cost inflation being more than
offset by volume savings and management initiatives. As previously
highlighted, the inflationary pressure had increased the cost base in H2 23,
for both supplier costs and internal pay awards, and this has flowed through
and annualised into FY24.
Adjusted operating costs as a percentage of Group revenue increased 1.7ppts to
39.8% reflecting the negative operational gearing on fixed costs. As guided to
at Interim results in October 2023, further management actions have been taken
in H2 and which have moderated the H2 increase relative to that seen in H1,
with the H2 Adjusted operating costs ratio improving by c.4ppts against H1.
Warehouse and fulfilment costs were £4.1m or 6.6% lower than the prior year,
benefiting from the flexible cost base, with c.£11m of savings from lower
core volumes. This was partially offset by inflationary headwinds of c.£4m,
and cost increases totaling c.£3m including the impact of lower volumes on
efficiency levels, and a slightly higher returns rate.
Marketing and production costs were £8.3m or 12.3% lower than prior year
driven by the continued benefit from lower performance marketing costs,
reflecting lower website sessions, and the decision to pull back spend given
the softer conditions, particularly in H2 (down 17%) as management has focused
on profitable sales in a subdued market. This more than offset cost inflation
of c.£2m. As explained within the FY25 Outlook section, management has plans
to scale marketing and production spend in FY25 with a focus on returning to
sustainable profitable growth.
Admin and payroll costs reduced by £2.3m or 1.9%, as management initiatives
have more than offset inflationary increases, totaling c. £6m, including
utilities, technology contracts and pay awards.
Statutory operating costs including adjusting items decreased by 16.4% against
last year's 53 week comparative due to the movements discussed above and lower
adjusting items (see below section).
Depreciation and amortisation
Depreciation and amortisation of £20.7m was down £15.0m versus £35.7m in
the prior year. This was driven by the non-cash impairment of £53.0m against
non-financial assets booked in FY23, with the reduction consistent with
guidance provided at the time of FY23 full year results.
Finance costs
Net finance costs of £13.6m were in line with the £13.8m in the prior year
on a 52 week basis, despite the increase in external interest rates. The Group
has limited its exposure to interest rate movements through interest rate
hedging which it continues to have in place, as described in note 7, and an
increased level of interest has been earned this year on cash balances, with
the RCF and overdraft remaining undrawn.
Adjusting items
During the year, the Group continued the multi-year transformation of the
business and the ongoing review of the operating model. Specifically, a
restructuring programme of the Group's operational and head office headcount
to reflect the lower sales orders, was initiated in Q2 FY24 and continued
throughout the financial year. Total redundancy costs of £1.7m were
incurred in the period within the strategic change total below.
During the year, the Board also approved the rationalisation of the Group's
warehousing facilities following a review of the overall warehouse portfolio
capacity, utilisation and associated operational cost base. This resulted in a
charge of approximately £2.4m including staff exits, onerous contracts and
terminal stock rationalisation included within the strategic change total
below. £3.3m of property impairment was also booked. Further details can be
found in note 6.
The prior year adjusting items include an accounting impairment of £53.0m
which was recorded against intangible and plant and equipment assets and a
charge of £26.1m representing the additional amount required to cover the
settlement and legal costs to completion following the Group reaching full and
final settlement in respect of the legal dispute with Allianz Insurance plc.
Under the negotiated settlement, which was made without admission of
liability, the Group paid the sum of £49.5m.
£m 52 weeks to 53 weeks to
2 March 2024 4 March 2023
Strategic change 4.2 2.4
Impairment of non-financial assets 3.3 53.0
Settlement of Allianz litigation (0.1) 26.1
Other 0.1 6.0
Items charged to profit before tax 7.5 87.5
Profit and earnings per share
Driven by lower product and FS revenues, on a comparable 52 week basis
Adjusted EBITDA decreased by £6.8m to £47.6m. The lower revenues were
largely mitigated at an Adjusted EBITDA margin level, which showed a
relatively small decline of 0.3ppts, to 7.9%.
Statutory operating profit / (loss) improved by £85.3m over prior year to a
profit of £19.4m (FY23 £(65.9)m) reflecting the lower level of adjusting
items charged to operating profit and reduction in depreciation and
amortisation, partially offset by the reduction in Adjusted EBITDA.
Statutory profit before tax was £5.3m, up £76.4m year-on-year (FY23
statutory loss before tax: £(71.1)m), reflecting the improvement in statutory
operating profit, partially offset by a loss of £0.5m on fair value
adjustments to financial instruments. This annualised against a gain of £8.9m
in the prior year which reflected foreign exchange and interest rate hedging
mark to market gains.
The taxation charge for the year is based on the underlying estimated
effective tax rate for the full year of 87%, impacted by the low level of
pre-tax profit in the year and the value of tax adjustments made to derive
taxable profits. Further tax analysis is contained in note 8.
Statutory earnings per share improved to 0.17p (FY23: loss of 11.19p).
Adjusted earnings per share reduced to 1.65p (FY23: 1.81p).
Financial services customer receivables and impairment charge on customer
receivables
Gross customer receivables at year end reduced by 6.9% to £517.0m (FY23:
£555.2m), driven by the reduced level of product sales despite an increase in
credit penetration.
Arrears rates excluding insolvent accounts increased to 9.0% (FY23: 8.7%),
driven by a larger balance of accounts on payment arrangements held at the
year end (£53.2m v £48.6m in FY23) as, unlike prior year, a year end debt
sale did not occur at the end of FY24. The business continues to support and
retain customers through times of financial hardship.
Macro-economic conditions have evolved in the year from inflationary pressures
at the start of the year moving towards political uncertainty at the end of
the year, with continued pressure on customers from higher prices and higher
interest rates, which is being carefully monitored as we continue to support
our customers during this time.
Supporting customers on payment arrangements for longer, a strategy adopted at
the end of FY23, has resulted in a marked year-on-year reduction of customer
balances written-off, improved collections and return to trade.
The expected credit loss ('ECL') provision ratio increased to 14.2% (FY23:
13.4%). The 0.8ppts increase reflects a c.1.1ppts year-on-year impact due to
holding more insolvent accounts (included within normal) at year end as a
result of debt sale timings year-on-year. Excluding this, the ECL provision
ratio would have reduced by 0.3ppts.
£m 2 March 2024 4 March 2023 Change
Gross customer receivables 517.0 555.2 (6.9)%
ECL provision (73.3) (74.6) (1.8)%
Normal account provisions(1) (55.7) (55.6) (0.8)ppts
Payment arrangement provisions (15.4) (16.5) 0.0ppts
Inflationary impacts(1) - (2.5) 0.4ppts
Unemployment rate uncertainty (2.2) - (0.4)ppts
ECL provision ratio 14.2% 13.4% 0.8ppts
Net customer receivables 443.7 480.6 (7.7)%
(1)4 March 2023 categorisation re-presented.
The profit and loss net impairment charge on customer receivables for FY24 was
£106.2m, £16.1m lower than the prior year driven by reduced write-offs from
a smaller customer receivables loan book, improved credit decisioning and a
more active debt management strategy adopted.
£m
53 weeks to 4 Mar 2023 net impairment charge on customer receivables 122.3
Lower write-offs due to smaller book size (7.6)
Lower write-offs due to improving credit risk (17.4)
Change in annual impairment charge (7.2)
Lower recoveries and timing of sales 14.1
Week 53 in prior year (2.3)
Other impacts, including nominal interest 4.3
52 weeks to 2 March 2024 net impairment charge on customer receivables 106.2
Funding and total accessible liquidity ('TAL')
The Group has the following arrangements in place:
· A £400m securitisation facility (FY23: £400m) with commitment
extended during the year until December 2026, drawings on which are linked to
prevailing levels of eligible receivables but with flexibility around the
level which the Group chooses to draw. The Group has previously chosen to
proactively reduce the lender commitment from £400m to £340m to reflect the
accessible funding level and reduce ongoing fees;
· A RCF of £75m, and an overdraft facility of £12.5m, both fully
undrawn at 2 March 2024. As previously disclosed, these facilities were
refinanced following the FY23 year end and are both committed to December
2026.
Throughout the year all covenants have been complied with.
At 2 March 2024, the Group had TAL of £148.5m, comprising cash of £65.2m
including restricted cash of £4.2m, the fully undrawn RCF of £75.0m and
overdraft of £12.5m. At the end of FY23 TAL was £143.9m and following the
refinancing of the RCF facility, at 6 May 2023, TAL was £112.0m.
Net Cash Generation / (Outflow)
£m 52 weeks to 53 weeks to
2 March 2024 4 March 2023
Adjusted EBITDA 47.6 57.3
Inventory working capital movement 21.1 (6.7)
Other working capital, operating cash flows and provision movement (9.8) (14.7)
Cash flow adjusted for working capital 58.9 35.9
Adjusting items (3.0) (55.4)
Capital investing activities (23.2) (25.6)
Non-operating tax & treasury 4.0 0.2
Interest paid (13.8) (15.0)
Non-operational cash outflows (36.0) (95.8)
Gross customer loan book repayment 38.2 21.9
Decrease in securitisation debt in line with customer loan book (31.4) (29.7)
Net cash inflow / (outflow) from the customer loan book 6.8 (7.8)
Net cash generation / (outflow) 29.7 (67.7)
The business generated cash of £29.7m in the year, a significant improvement
from the £67.7m cash utilised in the prior year. The inflow was driven by
positive EBITDA generation and work undertaken to right-size the stock
balance. The year closed with £65.2m of unsecured net cash.
Year end net inventory levels were down 21%, at £73.9m (FY23: £94.1m),
driving a net improvement in working capital. As outlined at Interim results
in October 2023, we have been executing against our previously flagged plans
to carefully manage inventory intake and reduce older stock holdings, with
units at the end of the year 1.8m below FY23. This has allowed FY25 to be
entered with a cleaner stock position.
Adjusting items of £3.0m largely reflect cash outflows from previously
announced restructuring activity. These annualise against adjusting items
totaling £55.4m, including the full and final settlement paid to Allianz.
Capital expenditure of £23.2m (FY23: £25.6m) has continued to be self-funded
as we invest in delivering the ongoing digital transformation of the business.
Capital investment was higher in H2 than H1, as guided to in the Interim
results in October 2023. The lower full year spend than FY23 reflects timing
of certain expected investment now falling into FY25.
The net cash inflow from the customer loan book of £6.8m reflects the
reduction in the customer loan book in the year. This annualises against an
outflow of £7.8m in FY23, which incorporated a £14.3m adverse impact from a
partial deferral of the debt sale.
Adjusted net debt
Unsecured net cash / (debt), which is defined as the amount drawn on the
Group's unsecured borrowing facilities less cash balances, closed the year in
a positive position with unsecured net cash of £65.2m (FY23: unsecured net
cash £35.5m) with the RCF and overdraft facilities remaining undrawn.
Adjusted net debt reduced by £61.1m in the year, to £236.3m (FY23:
£297.4m). This is the net amount of £65.2m of unsecured net cash and
£301.5m of debt drawn against the securitisation funding facility, which is
well covered by the gross customer receivables book of £517.0m.
The reduction in net debt over the prior year reflects the net cash generation
described above and the lower securitised borrowings.
Dividend and capital allocation
As previously announced in the Group's FY23 results and in light of the
macro-economic environment, our clear set of investment plans and the number
of competing demands on our cash resources, the Board decided not to
re-introduce a dividend in FY23 or FY24. The Board continues to keep its
dividend policy under review and will evaluate the re-introduction of a
dividend when transformational priorities and business performance allows.
Pension scheme
The Group's defined benefit pension scheme had a surplus of £17.1m at the end
of the year, slightly below the prior year's position (FY23: £20.0m surplus)
reflecting asset returns over the period and an allowance for high levels of
short term inflation.
Financial risk management and processes
Controls over financial reporting is an area of continuous improvement and
remains a key priority for the Group. Due to the legacy systems and processes
across the Group, we continue to target improvements in documentation, clarity
on key controls, and overall process level controls to reduce reliance on
detective management controls. This feeds into the Audit and Risk Committee
focus on improving controls. Examples of improvements deployed during the year
include refinements to our inventory stock count processes and further
development of our IFRS 9 model and policy documentation, including quarterly
stress testing of macro-economic updates. In preparation for potential UK SOx
attestation requirements, we also completed a review of all key Retail and
Financial Services processes and controls. We have an ambition to cover all
material areas in the next financial year.
KPI DEFINITIONS
Measure Definition
Total website sessions Total number of sessions across N Brown apps, mobile and desktop websites in
the 12 month period
Total active customers Customers who placed an accepted order in the 12 month period to reporting
date
Total orders Total accepted orders placed in the 12 month period. Includes online and
offline orders.
AOV Average order value based on accepted demand(1)
AIV Average item value based on accepted demand(1)
Items per order Average number of items per accepted order
Orders per customer Average number of orders placed per ordering customer
Conversion % of app/web sessions that result in an accepted order
NPS Customers asked to rate likelihood to "recommend the brand to a friend or
colleague" on a 0-10 scale (10 most likely). NPS is (% of 9-10) minus (% of
0-6). NPS is recorded on JD Williams, Simply Be, Jacamo and Ambrose Wilson
FS Arrears Arrears are stated including both customer debts with two or more missed
payments, or customer debts on a payment hold
(1)Accepted demand is defined as the value of Orders from customers (including
VAT) that we accept, i.e. after our credit assessment processes.
APM GLOSSARY
The Preliminary Results statement includes alternative performance measures ('APMs'), which are not defined or specified under the requirements of IFRS. These APMs are consistent with how the Group measures performance internally and are also used in assessing performance under the Group's incentive plans. Therefore, the Directors believe that these APMs provide stakeholders with additional, useful information on the Group's performance.
Alternative Performance Measure Definition
Adjusted gross profit Gross profit excluding adjusting items.
Adjusted gross profit margin Adjusted gross profit as a percentage of Group Revenue.
Adjusted EBITDA Operating profit, excluding adjusting items, with depreciation and amortisation added back.
Adjusted EBITDA margin Adjusted EBITDA as a percentage of Group Revenue.
Adjusted profit before tax Profit before tax, excluding adjusting items and fair value movement on financial instruments.
Adjusted profit before tax margin Profit before tax, excluding adjusting items and fair value movement on financial instruments expressed as a percentage of Group Revenue.
Net Cash generation Net cash generated from the Group's underlying operating activities.
Adjusted Operating costs Operating costs less depreciation, amortisation and adjusting items.
Adjusted Operating costs to Group revenue ratio Operating costs less depreciation, amortisation and adjusting items as a percentage of Group Revenue.
Adjusted Net debt Total liabilities from financing activities less cash, excluding lease liabilities.
Net debt Total liabilities from financing activities less cash.
Unsecured net cash / (debt) Amount drawn on the Group's unsecured debt facilities less cash balances. This measure is used to calculate the Group's leverage ratio, a key debt covenant measure.
Total Accessible Liquidity Total cash and cash equivalents, less restricted amounts, and available headroom on secured and unsecured debt facilities.
Adjusted Earnings per share Adjusted Basic earnings per share based on earnings before adjusting items and fair value adjustments, which are those items that do not form part of the recurring operational activities of the Group. These are calculated in note 9.
The reconciliation of the statutory measures to adjusted measures is included
in the Financial Performance section on page 15.
Consolidated income statement
for the 52 weeks ended 2 March 2024
52 weeks ended 2 March 2024 53 weeks ended 4 March 2023
Before adjusted items £m Adjusted items (note 6) £m Total £m Before adjusted items £m Adjusted items (note 6) £m Total
£m
Note
Revenue 400.6 - 400.6 455.7 - 455.7
Credit account interest 200.3 - 200.3 221.8 - 221.8
Group revenue 5 600.9 - 600.9 677.5 - 677.5
Cost of sales 5 (208.2) (0.8) (209.0) (242.4) - (242.4)
Impairment losses on customer receivables (106.2) - (106.2) (122.3) - (122.3)
Gross profit 5 286.5 (0.8) 285.7 312.8 - 312.8
Impairment of non-financial assets 10 - (3.3) (3.3) - (53.0) (53.0)
Operating profit/(loss) 26.9 (7.5) 19.4 21.6 (87.5) (65.9)
Finance income(1) 2.6 - 2.6 1.5 - 1.5
Finance costs(1,) (16.2) - (16.2) (15.6) - (15.6)
Profit/(loss) before taxation and fair value adjustments to financial 13.3 (7.5) 5.8 7.5 (87.5) (80.0)
instruments
Fair value adjustments to financial instruments 7 (0.5) - (0.5) 8.9 - 8.9
Profit/(loss) before taxation 12.8 (7.5) 5.3 16.4 (87.5) (71.1)
Taxation 8 (5.6) 1.1 (4.5) (0.9) 20.6 19.7
Profit/(loss) for the period 7.2 (6.4) 0.8 15.5 (66.9) (51.4)
Earnings/(loss) per share from continuing operations
Basic 9 0.17 (11.19)
Diluted 9 0.17 N/A
(1)FY23 has been re-presented to separately disclose finance income and
finance costs
Consolidated statement of comprehensive income
for the 52 weeks ended 2 March 2024
52 weeks 53 weeks ended
ended 4 March 2023
2 March
2024
Note £m £m
Profit/(loss) for the period 0.8 (51.4)
Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit pension schemes (4.6) (19.4)
Tax relating to items not reclassified 8 1.6 6.7
Net other comprehensive loss that will not be reclassified to profit and loss (3.0) (12.7)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations (0.6) 0.8
Fair value movements of cash flow hedges (1.0) 30.5
Amounts reclassified from other comprehensive income to profit and loss (10.1) (6.6)
Tax relating to these items 2.8 (6.0)
Net other comprehensive (loss)/income that may be reclassified subsequently to (8.9) 18.7
profit and loss
Other comprehensive (loss)/income for the period (11.9) 6.0
Total comprehensive loss for the period attributable to equity holders of the (11.1) (45.4)
parent
Consolidated balance sheet
As at 2 March 2024
As at As at
2 March 2024 4 March 2023
Note £m £m
(Restated)(2)
Non-current assets
Property, plant and equipment 11 47.0 50.9
Intangible assets 10 60.9 58.3
Right-of-use assets 6.3 0.5
Retirement benefit surplus 17.1 20.0
Derivative financial instruments 7 0.1 7.6
Deferred tax assets(2) 8 15.9 16.0
147.3 153.3
Current assets
Inventories 73.9 94.1
Trade and other receivables 12 468.6 504.7
Derivative financial instruments 7 8.8 19.1
Current tax asset 8 0.2 0.1
Cash and cash equivalents 14 65.2 35.5
616.7 653.5
Total assets 764.0 806.8
Current liabilities
Trade and other payables 13 (65.0) (72.5)
Lease liability (1.1) (0.3)
Provisions 18 (4.9) (10.1)
Derivative financial instruments 7 (0.7) (0.1)
Current tax liability - -
(71.7) (83.0)
Net current assets(1) 545.0 570.5
Non-current liabilities
Bank loans 15 (301.5) (332.9)
Trade and other payables 13 (0.2) -
Lease liability (4.8) (0.2)
Provisions 18 (6.6) -
Derivative financial instruments 7 (0.1) -
(313.2) (333.1)
Total liabilities (384.9) (416.1)
Net assets 379.1 390.7
Equity attributable to equity holders of the parent
Share capital 17 51.2 50.9
Share premium account 85.7 85.7
Own shares (0.1) (0.2)
Cash flow hedge reserve 5.4 15.7
Foreign currency translation reserve 1.2 1.8
Retained earnings 235.7 236.8
Total equity 379.1 390.7
(1) FY23 net current assets has been re-totalled in comparison to the figure
reported in the FY23 Annual Report
(2) FY23 deferred tax assets and deferred tax liabilities have been restated
to present on a net basis (see note 19)
Consolidated cash flow statement
For the 52 weeks ended 2 March 2024
For the 52 For the 53
weeks ended weeks ended
2 March 2024 4 March 2023
Note £m £m
Net cash inflow from operating activities 92.2 6.3
Investing activities
Purchases of property, plant and equipment (2.9) (5.8)
Purchases of intangible assets (19.8) (19.8)
Initial direct costs of right-of-use additions (0.5) -
Net cash used in investing activities (23.2) (25.6)
Financing activities
Interest paid(1, 2) (15.4) (15.5)
(Repayments)/proceeds from bank loans (31.4) 30.4
Principal elements of lease payments (0.7) (1.0)
Foreign exchange forward contracts 7.7 (1.2)
Proceeds on issue of share capital 0.3 -
Purchase of shares by ESOT (0.3) -
Net cash (outflow)/inflow from financing activities (39.8) 12.7
Net foreign exchange difference 0.5 (1.0)
Net increase / (decrease) in cash and cash equivalents and bank overdraft 29.7 (7.6)
Cash and cash equivalents and bank overdraft at beginning of period 35.5 43.1
Cash and cash equivalents and bank overdraft at end of period 14 65.2 35.5
(1) Included within Interest paid is £14.0m (FY23: £13.0m) relating to
interest incurred on the Group's securitisation facility, drawings on which
are linked to prevailing levels of eligible receivables
(2) FY23 has been re-presented to separately disclose interest received and
interest paid
Reconciliation of profit/(loss) to net cash flow from operating activities
For the 52 For the 53
weeks ended weeks ended
2 March 2024 4 March 2023
£m £m
Profit/(loss) for the period 0.8 (51.4)
Adjustments for:
Taxation charge/(credit) 4.5 (19.7)
Fair value adjustments to financial instruments 0.5 (8.9)
Net foreign exchange gain (0.5) 1.0
Finance income (2.6) (1.5)
Finance costs 16.2 15.6
Depreciation of right-of-use assets 0.8 0.8
Depreciation of property, plant and equipment 2.6 4.3
Loss on disposal of intangible assets 0.1 0.8
Impairment of non-financial assets 3.3 53.0
Amortisation of intangible assets 17.3 30.6
Share option charge 1.5 1.5
Operating cash flows before movements in working capital 44.5 26.1
Decrease/(increase) in inventories 21.2 (6.7)
Decrease in trade and other receivables 35.6 28.3
Decrease in trade and other payables (8.3) (22.3)
Increase/(decrease) in provisions 1.5 (20.9)
Pension obligation adjustment (0.8) (1.0)
Cash generated by operations 93.7 3.5
Taxation (paid)/received (3.1) 2.3
Interest received(1) 1.6 0.5
Net cash inflow from operating activities 92.2 6.3
(1) FY23 has been re-presented to separately disclose interest received and
interest paid
Changes in liabilities from financing activities 52 weeks to 53 weeks to
2 March 2024 4 March 2023
£m £m
Loans and borrowings
Opening balance at 4 March 2023 (26 February 2022) 333.4 303.8
Changes from financing cash flows
Net (repayment)/proceeds from loans and borrowings(1) (31.1) 27.9
Lease principal payments in the period (0.7) (0.8)
Lease disposals in the period 6.1 -
(Decrease)/increase in loans and borrowings due to changes in interest rates (0.3) 2.5
(Decrease)/increase in loans and borrowings (26.0) 29.6
Closing balance at 2 March 2024 (4 March 2023) 307.4 333.4
(1) Repayments relating to the Group's Securitisation facility are
re-presented net of cash receipts in respect of the customer book collections.
The Directors consider that the net representation more accurately reflects
the way the securitisation cash flows are managed.
Consolidated statement of changes in equity
for the 52 weeks ended 2 March 2024
Foreign currency translation reserve
Share capital Own Cash flow hedge (note 7)
(note 17) Share premium Shares Reserve £m Retained earnings
£m £m £m (note 7) £m Total
£m £m
Balance at 26 February 2022 50.9 85.0 (0.2) 5.5 1.0 300.1 442.3
Comprehensive income for the period
Loss for the period - - - - - (51.4) (51.4)
Other items of comprehensive income/(loss) for the period - - - 17.9 0.8 (12.7) 6.0
Total comprehensive income/(loss) for the period - - - 17.9 0.8 (64.1) (45.4)
Hedging gains & losses transferred to the cost of inventory purchased in - - - (7.7) - - (7.7)
the year
Transactions with owners recorded directly in equity
Issue of own shares by ESOT - - 0.3 - - - 0.3
Adjustment to equity for share payments - - - - - (0.3) (0.3)
Historic adjustment to equity for share payments - 0.7 (0.3) - - (0.4) -
Share option charges - - - - - 1.5 1.5
Total contributions by and distributions to owners - 0.7 - - - 0.8 1.5
Balance at 4 March 2023 50.9 85.7 (0.2) 15.7 1.8 236.8 390.7
Comprehensive income for the period
Profit for the period - - - - - 0.8 0.8
Other items of comprehensive loss for the period - - - (8.3) (0.6) (3.0) (11.9)
Total comprehensive loss for the period - - - (8.3) (0.6) (2.2) (11.1)
Hedging gains and losses transferred to the cost of inventory purchased in the - - - (2.0) - - (2.0)
year
Transactions with owners recorded directly in equity
Issue of shares 0.3 - - - - - 0.3
Purchase of own shares - - (0.3) - - - (0.3)
Issue of own shares by ESOT - - 0.4 - - - 0.4
Adjustment to equity for share payments - - - - - (0.4) (0.4)
Share option charge - - - - - 1.5 1.5
Total contributions by and distributions to owners 0.3 - 0.1 - - 1.1 1.5
Balance at 2 March 2024 51.2 85.7 (0.1) 5.4 1.2 235.7 379.1
Notes to the consolidated financial statements
For the 52 weeks ended 2 March 2024
1. Basis of preparation
The Group's financial statements for the 52 weeks ended 2 March 2024 will be
prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006. 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 June 2024.
The financial information set out in this document does not constitute the
Group's statutory accounts for the 52 weeks ended 2 March 2024 or the 53 weeks
ended 4 March 2023. Statutory accounts for the period of 53 weeks ended 4
March 2023 have been delivered to the registrar of companies, and those for
the period of 52 weeks ended 2 March 2024 will be delivered in due course.
The comparative figures for the year ended 4 March 2023 are extracted from the
Group's statutory accounts for that financial year. Those accounts have been
reported on by the Group's auditor and their 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.
After making appropriate enquiries, the directors have a reasonable
expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in the preparation of these financial statements. This is
explained in further detail in note 4.
The accounting policies and presentation adopted in the preparation of these
consolidated financial statements are consistent with those disclosed in the
published annual report & accounts for the 53 weeks ended 4 March 2023.
2. Critical Judgements and key sources of estimation uncertainty
The significant judgements made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty in these
financial statements, which together are deemed critical to the Group's
results and financial position, are as follows:
Impairment of customer receivables
Critical Judgement and Estimation Uncertainty
The allowance for expected credit losses ('ECL') for trade receivables
involves several areas of judgement, including estimating forward-looking
modelled parameters (Probability of default ('PD'), Loss given default ('LGD')
and Exposure at default ('EAD')), developing a range of unbiased future
economic scenarios, estimating expected lives and assessing significant
increases in credit risk, based on the Group's experience of managing credit
risk.
Key judgements involved in the determination of expected credit loss are:
- Determining which receivables have suffered from a significant
increase in credit risk;
- Determining the appropriate PD to apply to the receivables;
- Determining the recovery price of any receivables sold to third
parties; and
- Determining the impact of forward looking macroeconomic
uncertainties on ECL including cost of living increases.
Where these key judgements result in a post model adjustment, these are
disclosed in note 12.
The change in behavioural risk score for which the significant increase in
credit risk ('SICR') threshold is set is based on applicable back tested data
that reflects the current risk to our credit customers. Where the change in
risk score since origination exceeds the threshold, the asset will be deemed
to have experienced a significant increase in credit risk.
Once collection strategies are no longer appropriate or effective, management
typically sell customer receivables to third parties. Therefore the estimated
sales price for these balances is a key judgement. The expected recovery
through debt sales built into the year end ECL reflects expectations of
achievable prices which includes latest sale history over the last year,
recent bids, and existing sale contracts depending on the type of debt sale.
The ECL incorporates forward looking information including macro-economic
variables on unemployment, Bank of England Base Rate, and average weekly
earnings. Book performance in FY24 improved, with reduced write offs year on
year. When adjusted for impacts of debt sale timings, arrears were maintained
at FY23 levels despite inflation continuing to put pressure on affordability.
Macro-economic and cost of living pressures continue to impact on the customer
base, but customers continue to be resilient. Post model adjustments are held
at the end of FY24 to cover both model risk and further expected impacts from
these macro-economic pressures.
Sensitivity analysis is disclosed and further explained in note 12.
Impairment of non-financial assets
Critical Judgement and estimation uncertainty
Impairment exists when the carrying value of an asset or cash generating unit
('CGU') exceeds its recoverable amount, which is the higher of its fair value
less costs of disposal or its value in use. The value in use calculation is
based on a discounted cash flow model. The cash flows are derived from the
Group's five-year forecasts, taken into perpetuity, and are adjusted to
exclude restructuring activities that the Group is not yet committed to or
significant future investments that will enhance the performance of the assets
of the CGU being tested.
The recoverable amount is sensitive to the discount rate used as well as the
expected future cash flows, including capital expenditure, and the long-term
growth rate used in perpetuity. The key assumptions used to determine the
recoverable amount for the Group's non-financial assets, including a
sensitivity analysis, are disclosed
and further explained in note 10.
Within the current financial year, warehouse buildings which are no longer
part of the cash generating unit being assessed through the value in use have
been tested separately for impairment with reference to the expected fair
value less cost to sell given these assets have no continuing value in use to
the Group.
Software and Development costs
Critical Judgement
Included within intangible assets are significant software and development
project costs in respect of the Group's technological development programme.
Included in the year are development costs for the production of new or
substantially improved processes or systems; development of the new website
and other internal development of software and technology infrastructure.
Initial capitalisation of costs is based on management's judgement that
technological feasibility is confirmed, the project will be successfully
completed and that future economic benefits are expected to be generated by
the project. If these criteria are not subsequently met, the asset would be
subject to a future impairment charge which would impact the Group's results.
Significant judgement is required in determining whether the Group has control
over the software, and if not whether any spend incurred in the implementation
of the software results in the creation of an asset in its own right which the
Group controls and satisfies the criteria of IAS 38.
Estimation uncertainty
The estimated useful lives and residual values are based on management's best
estimate of the period the asset will be able to generate economic benefits
for the Group and are reviewed at the end of each reporting period, with the
effect of any changes in estimate accounted for on a prospective basis from
the date at which a change in life is determined to be triggered. Sensitivity
of the estimation uncertainty is disclosed in note 10.
Other Litigation
Critical Judgement and estimation uncertainty
Provisions are recognised at the value of management's best estimate of the
expenditure required to settle the obligation (legal or constructive) at the
reporting date. Litigation provisions involve significant levels of estimation
and judgement.
The provision recognised at the balance sheet date in respect of legacy
customer claims, represents the best estimate of the committed incremental
external legal costs and associated redress costs related to the settlement of
the legal obligation existent at the balance sheet date and based on
information available at signing date, taking into account factors including
risk and uncertainty. Sensitivities performed on key assumptions are disclosed
in note 18.
Deferred Tax Asset for Tax Losses
Estimation uncertainty
A deferred tax asset for tax losses is recognised only to the extent that it
is probable that sufficient trading profits will arise in future trading
periods to support the fact that the tax losses will be utilised. The
recognition of a deferred tax asset for losses is based on management's best
assessment at the end of each reporting period as to the future trading
profits as aligned to the forecasts used for the Group's 5 year plan which are
prepared using various assumptions on future economic conditions and growth.
The following sensitivity analysis has been performed:
· A 5% decrease in the profit before tax across all years included in
the 5 year plan would result in a £0.9m timing impact on the recognition of
deferred tax assets recognised at FY24 year end, with the £0.9m being
recognised in the subsequent year.
Defined Benefit plan
Estimation Uncertainty
The cost of the defined benefit pension plan and the present value of the
pension obligation are determined using actuarial valuations. An actuarial
valuation involves making various assumptions that may differ from actual
developments in the future. These include the determination of the discount
rate, future salary increases, mortality rates and future pension increases.
Due to the complexities involved in the valuation and its long-term nature, a
defined benefit obligation is highly sensitive to changes in these
assumptions. All assumptions are reviewed at each reporting date.
The following sensitivities have been performed on the key assumptions:
- A reduction of 0.50% in the discount rate used would decrease the
defined benefit obligation by £6.6m (2023: £6.3m);
- An increase of 0.50% in the inflation assumption would increase
the defined benefit obligation by £3.7m (2023: £3.5m);
- An increase of one year in the life expectancy assumption would
increase the defined benefit obligation by £2.2m (2023: £2.1m).
3. Key risks and uncertainties
The Group continues to invest and improve its risk management capabilities. As
part of the ongoing refinement of the Risk Management Framework ('RMF') the
Group has further consolidated the Principal Risk Categories, including
Financial Crime risk within the Legal and Regulatory category.
Principal risks with the potential to impact on performance and the delivery
of our strategic objectives in year or through the planning cycle are defined
as:
1. Strategic and Change
2. Information, Technology and Cybersecurity
3. Conduct and Customer
4. Business Resilience
5. Financial
6. Legal and Regulatory
7. Credit
8. People
9. Supplier and Outsourcing
The Board of Directors maintains a continuous process for identifying,
evaluating, and managing risk as part of its overall responsibility for
maintaining internal controls and the RMF. This process is intended to provide
reasonable assurance regarding compliance with laws and regulations as well as
commercial and operational risks.
Specific review and identification of existing and emerging risks is
facilitated by routine Board-level risk assessment cycles completed during the
year, as informed by a routine of regular risk assessments at business unit
level. Outputs are reported to the Audit and Risk Committee.
The Board considers Environmental, Social and Governance ('ESG') factors,
drivers and impacts on the health and sustainability of the business when
setting the strategy. Furthermore, in general terms the strategy is designed
to deliver long term sustainable business success. The RMF has been
established to provide a comprehensive overview of risks and as such
incorporates assessments of risks that have the potential to create ESG
exposures; these are reported through the governance framework and managed
accordingly.
The Group recognises that no system of controls can provide absolute assurance
against material misstatement, loss or failure to meet its business
objectives.
The Macro-economic Environment, and other key areas of focus
The current operating and economic environment remains challenging. Whilst
there are signs of improvement, there is still significant pressure on
household budgets and consumer confidence is low by historical standards,
impacting spending on non-essential items.
The cost pressures noted above may create affordability challenges for our
credit customers. Leading indicators are tracked to enable the Group to react
to changes in the lending market. We also ensure that appropriate forbearance
options are in place to ensure good customer outcomes for those impacted by
these issues.
The Group actively manages currency and interest rate fluctuations through
hedging in the near term. Currency arrangements expire on a rolling basis. We
continue to monitor rates to identify the most appropriate hedging strategy
going forward.
The Group continues to focus on Regulatory enhancements. ESG processes
continue to be integrated and strengthened through a programme of work
integrated into business activities. The Group successfully implemented the
FCA Consumer Duty and continues to actively embed it. In preparation for
potential UK Sox attestation requirements, we also completed a review of all
key Retail and Financial revenue processes and controls and have an ambition
to cover all other material areas in the next financial year.
4. Going Concern
In determining the appropriate basis of preparation of the financial
statements for the period ending 2 March 2024, the Directors are required to
consider whether the Group and Parent Company can continue in operational
existence for the foreseeable future, being a period of at least 12 months
from the date of approval of the financial statements.
The Board has set a going concern period to 30 June 2025. The Group is
delivering on a multi-year transformation programme that will create a
platform to deliver sustainable medium-term growth in financial performance.
The Board has reflected on this plan and the headwinds from the economic
challenges that have led to the cost-of-living crises and how they impact N
Brown's input costs and customer base.
To support the going concern assumption, Management prepared a robust analysis
for the Board to consider, stress testing the forecasts for several
assumptions that are set out below. The output confirmed the resilience of
the Group with no liquidity concerns or non-compliance with the Group's debt
covenants, in a severe but plausible downside scenario, over the going concern
period.
The Company renewed its Securitisation facility in December 2023 and extended
to the end of December 2026 and also renewed its revolving credit facility
('RCF') in April 2023 at £75m and extended to the end of December 2026,
together with a committed overdraft facility of £12.5m Both the RCF and
Overdraft facilities were undrawn at the year end and the Group also had
available cash / cash equivalents of £65.2m at the balance sheet date.
The severe but plausible downside scenario model prepared by Management
provided a robust assessment, which the Audit & Risk Committee reviewed in
support of the Board's evaluation. The scenario prepared by Management is
challenging and considers the cumulative impact of various downsides and
additional stress sensitivities on the Group's forecasts. The severe but
plausible downside scenario modelled is more severe than the sensitivities
assumed for the impairment test, purposely to allow the Board to assess the
resilience of the Group.
Reflecting the Board's confidence in the transformation programme together
with the understanding of the ongoing economic challenges, the Directors
concluded that the Group will continue to have adequate financial resources to
discharge its liabilities as they fall due over the going concern assessment
period. In preparing their assessment, the Directors have considered the
potential impacts of climate and other ESG related risks, as set out in the
Approach to Environmental, Social and Governance section of the Group's annual
report.
In arriving at their conclusion, the Directors considered the following:
a) the Group's cash flow forecasts and revenue projections for the 12
months from the date of signing the accounts (the "Base Case"), reflecting,
amongst other things the following assumptions:
- The business continues to be fully operational;
- Progress against the strategic growth programme with product
revenue returning to a moderate level of growth;
- Product gross margin improvement is achieved through planned price
increases, a reduction of low margin stock clearance activity and moderate
changes to product mix;
- Continued cautious customer behaviour until the UK cost-of-living
crisis eases will continue to drive a highly promotional retail market;
- Financial Services revenue reduces in the short term as the
average size of the loan book is smaller as a function of FY24 lower product
sales;
- Operating costs reflecting inflationary and macro-economic cost
base pressures.
The Base Case has material total accessible liquidity headroom over the next
twelve months and all bank covenant conditions are met. Adjusted EBITDA
would have to reduce by more than 66% against the Base Case low point in FY26
to breach covenants.
b) the impact on trading performance of severe but plausible downside
scenarios (the "Downside Case"), including:
- Further adverse macro-economic conditions impacting customer
sentiment, customer behaviour, bad debt write-offs and customer account
payment collection rates;
- Business interruptions reducing product revenue, for example from
a denial of service caused by a cyber-attack as well as delivery delays caused
by warehouse interruption and supply chain shipping challenges;
- Additional sensitivities to product revenue, product margin rate
and opex cost base.
The severe but plausible downside assumes a reduced level of revenue growth
and the compounded cumulative impact of all scenarios with the sensitivities
layered on top. Material total accessible liquidity headroom exists throughout
the severe but plausible downside assessment and all bank covenant conditions
are met. Adjusted EBITDA would have to reduce by more than 22% against the
Downside low point in P3 of FY26 to breach covenants.
In the very remote event of the further reduction to the severe but plausible
downside low point occurring, management has identified tactical and
structural mitigating actions they could apply including the reduction of
uncommitted opex spend.
c) the committed facilities available to the Group and the covenants
thereon. Details of the Group's committed facilities are set out in note 15,
the main components of which are:
- A £400m securitisation facility, with maximum lenders commitment
of £340m, until December 2026 (£301.5m drawn against the maximum of eligible
customer receivable which varies based on the customer loanbook);
- An RCF of £75m committed until December 2026, fully undrawn; and
- An overdraft facility of £12.5m which is committed until December
2026 (undrawn at the date of signing the accounts).
d) the Group's robust policy towards liquidity and cash flow management.
As at 4 May 2024, the Group had cash of £32.4m, including restricted cash of
£3.7m. In addition, the Group had £32.1m of accessible secured facilities
and £87.5m of unsecured facilities that were not drawn. This gives rise to
total accessible liquidity ("TAL") of £148.3m (6 May 2023: £112.0m).
e) the Group management's ability to successfully manage the principal
risks and uncertainties outlined on pages 37 to 38 during periods of uncertain
economic outlook and challenging macroeconomic conditions.
5. Business Segment
The Group has identified two operating segments in accordance with IFRS 8 -
Operating segments, Product Revenue and Financial Services ('FS'). The Board,
who is considered to be the Chief Operating Decision Maker, receives regular
financial information at this level and uses this information to monitor the
performance of the Group, allocate resources and make operational decisions.
Internal reporting focuses and tracks revenue, cost of sales and gross margin
performance across these two segments separately, however operating costs or
any other income statement items are reviewed and tracked at a group level.
Revenues and costs associated with the product segment relate to the sale of
goods through various brands. The product cost of sales is inclusive of VAT
bad debt relief claimed of £17.7m (2023: £19.4m) as a consequence of
customer debt write off, with the write off presented in FS cost of sales. The
revenue and costs associated with the FS segment relate to the income from
provision of credit terms for customer purchases, and the costs to the
business of providing such funding. To increase transparency, the Group has
included additional voluntary disclosure analysing product revenue within the
relevant operating segment, by strategic and other brand categorisation.
Analysis of revenue 52 weeks to 53 weeks to
2 March 2024 4 March 2023
£m £m
Analysis of revenue:
Sale of goods 362.9 412.4
Postage and packaging 18.3 21.0
Product - total revenue 381.2 433.4
Other financial services revenue 19.4 22.3
Credit account income 200.3 221.8
Financial Services - total revenue 219.7 244.1
Total Group Revenue 600.9 677.5
Analysis of cost of sales:
Product - total cost of sales (207.4) (240.9)
Impairment losses on customer receivables (106.2) (122.3)
Other financial services cost of sales (0.8) (1.5)
Financial Services - total cost of sales (107.0) (123.8)
Cost of sales (314.4) (364.7)
Adjusted Gross profit 286.5 312.8
Adjusted Gross profit margin 47.7% 46.2%
Adjusted Gross margin - Product 45.6% 44.4%
Adjusted Gross margin - Financial Services 51.3% 49.3%
Warehouse and fulfilment (58.1) (63.2)
Marketing and production(1) (59.3) (68.2)
Other administration and payroll(1) (121.5) (124.1)
Adjusted operating costs before adjusted items (238.9) (255.5)
Adjusted EBITDA 47.6 57.3
Adjusted EBITDA margin 7.9% 8.5%
Depreciation and amortisation (20.7) (35.7)
Impairment of non-financial assets (note 10) (3.3) (53.0)
Adjusted items charged to operating profit/(loss) (4.2) (34.5)
Operating profit / (loss) 19.4 (65.9)
Finance costs (13.6) (14.1)
Fair value adjustments to financial instruments (0.5) 8.9
Profit/(loss) before taxation 5.3 (71.1)
(1) Financial Services statement costs have been re-presented from marketing
and production into other admin and payroll for both periods
52 weeks to 53 weeks to
2 March 2024 4 March 2023
£m £m
Analysis of Product revenue:
Strategic brands(1) 282.5 311.8
Heritage brands(2) 98.7 121.6
Total Product revenue 381.2 433.4
Financial Services revenue 219.7 244.1
Group revenue 600.9 677.5
1. Strategic brands include JD Williams, Simply Be and Jacamo.
2. Heritage brands include Ambrose Wilson, Home Essentials, Fashion
World, Marisota, Oxendales and Premier Man.
The Group has one significant geographical segment, which is the United
Kingdom. Revenue derived from the Republic of Ireland amounted to £15.5m
(2023: £18.5m), with operating profit amounting to £1.4m (2023: £1.8m).
All segment assets are located in the UK and Ireland. All non-current assets
are located in the UK.
For the purposes of monitoring segment performance, assets and liabilities are
not measured separately for the two reportable segments of the Group and
therefore are disclosed together below. Impairments of tangible and intangible
assets in the current period were £3.3m (2023: £53.0).
6. Adjusted items
52 weeks to 53 weeks to
2 March 2024 4 March 2023
£m £m
Allianz litigation (0.1) 26.1
Marketing supplier rebate (1.7) -
Other litigation 1.8 6.0
Strategic change 4.2 2.4
Impairment of non-financial assets 3.3 53.0
Total adjusted items 7.5 87.5
Cash outflows in the current period relating to adjusted items amounted to
£3.0m in the period (FY23: £55.4m). The tax impact on the total adjusted
items amount to a credit of £1.1m (FY23: £20.6m).
ALLIANZ LITIGATION
As previously reported, the Group was involved in a legal dispute with Allianz
Insurance Plc ('Allianz'). The matter related to a claim issued against JD
Williams & Company Limited ('JDW'), a subsidiary of the Group, by the
Insurer in January 2020 (claim number CL-2020-000004) and JDW's counterclaims
in that litigation (the 'Dispute'). The Dispute related to significant amounts
of redress previously paid to customers by JDW and the Insurer in respect of
certain historic insurance products, including payment protection insurance.
In January 2023 the Board agreed to the Settlement, which has brought the
Dispute to an end. Under the Settlement, which is a negotiated settlement and
made without admission of liability, JDW paid the Insurer a sum of £49.5m in
full and final settlement of the Dispute, below the sums claimed by the
Insurer (which exceeded £70m inclusive of interest and costs).
The provision outstanding at 2 March 2024 was £0.2m, relating to amounts
payable to Allianz following closure of the joint redress account. The release
of £0.1m in the period relates to amounts previously provided for in respect
of legal costs that are no longer required.
MARKETING SUPPLIER REBATE
During the current year, an audit of an historical supplier arrangement in
relation to marketing services provided between 2019 and 2021 determined that
a number of contractual terms had not been adhered to. As a result a one off
refund relating to the historical services of £1.7m was received by the Group
in the current year.
OTHER LITIGATION
During the prior year the Group made a provision of £5.5m, as an estimate of
the Group's potential litigation costs in relation to legacy customer claims
alleging unfair relationships resulting from undisclosed PPI commission
brought under s140A of the Consumer Credit Act 1974. This is not a new
exposure and in prior years the Group has settled such claims on a case by
case basis, and the external legal costs incurred have not been material. The
provision is principally in relation to committed incremental external legal
costs resulting from the change in strategic approach. The Group changed its
strategy in 2023 to robustly defend such claims and put claimants to proof;
and engaged external counsel which is reflected in the provision recorded. The
Board supports the strategy to robustly defend and put to proof any past and
future claims. The expected timeline of resolution of the outstanding claims
is now expected to be more than 12 months. The provision, which has continued
to be included as an adjusting item for consistency with prior year, has been
increased by £1.8m in the current year reflecting the additional legal costs
expected to be incurred as a result of the emergence of "group litigation" as
an alternative process for resolving s140A PPI claims. The provision
outstanding at 2 March 2024 was £7.1m.
STRATEGIC CHANGE
During the current year, the Group continued the multi-year transformation of
the business and the ongoing review of the operating model initiated at the
end of FY23. Specifically, an additional restructuring program of the Group's
operational and head office headcount to reflect the lower sales orders, was
initiated in Q2 FY24 and continued throughout the financial year. Total
redundancy costs of £1.7m were incurred in the period (FY23: £2.4m). A
provision of £0.4m was outstanding at 2 March 2024 relating to payments made
in the months following the year end (FY23: £1.9m).
During the period, the Board also approved the rationalisation of the Group's
warehousing facilities following a review of the overall warehouse portfolio
capacity, utilisation and associated operational cost base. Accordingly a
provision was booked for incremental costs associated with staff exits and
onerous contracts of £1.4m, as well as £1.0m of incremental stock provision
arising from the rationalisation of terminal stock due to reduced storage
capacity across the warehouse portfolios. At 2 March 2024, £0.8m of the
provision for inventory was utilised with the remaining £0.2m released as
better than expected realisation was achieved. A further £0.1m accelerated
depreciation was also charged in the year.
IMPAIRMENT OF NON-FINANCIAL ASSETS
During the prior year, the Group recorded a non-cash impairment of £53m
against its intangible and tangible assets, to reduce the balance sheet asset
value to match the lower value in use forecasts driven by the ongoing
macro-economic conditions. This arose primarily from the impact of the market
and macroeconomic conditions significantly reducing near term Group Adjusted
EBITDA levels and a slower recovery through the five year forecast period. No
further impairment or reversal of the previous impairment has been recognised
in the current year.
Following the exit of owned warehouse property discussed in FY24 Financial
Performance above, once no longer in operational use, the Group plans to
market the property for sale. At year-end the Group had commenced discussions
with external parties to assess the expected achievable selling price. As a
result, an impairment of the property of £3.3m has been recognised to reduce
the net book value to its estimated fair value less costs to sell. A programme
to actively market the property and locate a buyer had not started at the year
end.
7. Derivative financial instruments
At the balance sheet date, details of outstanding derivative contracts that
the Group has committed to are as follows:
52 weeks to 53 weeks to
2 March 2024 4 March 2023
£m £m
Notional amount - sterling contract value (designated cash flow hedges - 250.0 250.0
Interest rate swap)
Notional amount - sterling contract value (designated cash flow hedges - 74.2 85.1
Foreign exchange forwards)
Notional amount - sterling contract value (FVPL) 153.0 279.3
Total notional amount 477.2 614.4
The Group hold the following derivative financial instruments at fair value:
52 weeks to 53 weeks to
2 March 2024 4 March 2023
Current Assets £m £m
Foreign currency forwards - cash flow hedges 0.4 6.1
Foreign currency forwards - non-designated instruments at FVPL 0.1 0.8
Interest rate swaps - cash flow hedges 8.0 9.2
Interest rate caps - non-designated instruments at FVPL 0.3 3.0
Total notional amount 8.8 19.1
52 weeks to 53 weeks to
2 March 2024 4 March 2023
Non-current Assets: £m £m
Foreign currency forwards - cash flow hedges 0.1 0.8
Interest rate swaps - cash flow hedges - 6.2
Interest rate caps - non-designated instruments at FVPL - 0.6
Total notional amount 0.1 7.6
52 weeks to 53 weeks to
2 March 2024 4 March 2023
Current liabilities: £m £m
Foreign currency forwards - cash flow hedges (0.7) -
Foreign currency forwards - non designated instruments at FVPL - (0.1)
Total notional amount (0.7) (0.1)
Non current liabilities: £m £m
Foreign currency forwards - cash flow hedges (0.1) -
Foreign currency forwards - non designated instruments at FVPL - -
Total notional amount (0.1) -
The fair value of foreign currency and interest rate derivative contracts is
the market value of the instruments as at the balance sheet date. Market
values are calculated with reference to the duration of the derivative
instrument together with the observable market data such as spot and forward
interest rates, foreign exchange rates and market volatility at the balance
sheet date.
Changes in the fair value of derivatives not designated for hedge accounting
amounted to a fair value loss of £0.6m (2023: gain of £5.1m), recognised
through the income statement in the period.
Changes in the fair value of derivatives designated for hedging purposes
amounted to a loss of £1.0m (2023: gain of £30.5m) recognised through the
cash flow hedge reserve.
Fair value movements previously held within the hedge reserve were released as
the hedged future cash flows were no longer expected to occur. This resulted
in one off fair value gains of £0.1m (2023: gain of £3.8m) recognised in the
income statement within the fair value adjustments to financial instruments
line and also included within amounts reclassified from other comprehensive
income to profit and loss line in the statement of other comprehensive income.
There are no balances remaining within the closing hedge reserve balance in
respect of previous hedge relationships where hedge accounting is no longer
applied. There were no amounts recognised in the income statement in the
period (2023: £nil) for hedge ineffectiveness on either foreign exchange or
interest rate hedges.
Financial instruments that are measured subsequent to initial recognition at
fair value are all grouped into Level 2 (2023: Level 2).
Level 2 fair value measurements are those derived from inputs other than
quoted prices included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from
prices).
There were no transfers between Level 1 and Level 2 during the current or
prior period.
Hedge accounting was adopted from the 29 August 2021, and from this point fair
value movements on the designated financial instruments were taken to a cash
flow hedge reserve. The Group's hedge reserve relates to the following hedging
instruments and movements:
FX forwards Cost of hedging Interest rate swaps Total
£m £m £m £m
Balance at 26 February 2022 2.0 (0.3) 3.8 5.5
Changes in fair value of hedging instruments recognised in OCI 18.1 (0.8) 13.2 30.5
Reclassified to cost of inventory (not included in OCI) (10.4) 0.1 - (10.3)
Hedge (gains)/losses released to P&L for hedges de-designated in the (4.1) 0.3 - (3.8)
period
Recycled from OCI to profit and loss - - (2.8) (2.8)
Deferred tax (0.9) 0.1 (2.6) (3.4)
Balance at 4 March 2023 4.7 (0.6) 11.6 15.7
Changes in fair value of hedging instruments recognised in OCI (4.1) 0.6 2.5 (1.0)
Reclassified to cost of inventory (not included in OCI) (2.8) 0.1 - (2.6)
Hedge (gains)/losses released to P&L for hedges de-designated in the (0.1) - - (0.1)
period
Recycled from OCI to profit and loss - - (10.0) (10.0)
Deferred tax 1.7 (0.2) 1.9 3.4
Closing balance at 2 March 2024 (0.5) (0.1) 6.0 5.4
8. Tax
52 weeks to 53 weeks to
2 March 2024 4 March 2023
Tax recognised in the Income statement £m £m
Current tax
Charge for the period 0.3 1.3
Adjustments in respect of previous periods (0.8) 0.7
(0.5) 2.0
Deferred tax
Origination and reversal of temporary timing differences 2.5 (21.4)
Adjustments in respect of previous periods 2.5 (0.3)
5.0 (21.7)
Total tax (credit) / expense 4.5 (19.7)
UK Corporation tax is calculated at 25% (2023: 19%) of the estimated
assessable profit for the period. Taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions.
In the Spring Budget on 15 March 2023, it was confirmed that the UK tax rate
would increase from 19% to 25% from 1 April 2023 which was enacted in Finance
Act (No.2) 2023 on 11 July 2023. Accordingly, the UK deferred tax asset and
liability as at 2 March 2024 has been calculated based on the enacted rate as
at the balance sheet date of 25%, with the exception of the retirement benefit
scheme where deferred tax has been provided at the rate of 35%. The effective
tax rate of 87.0% is higher than the statutory UK tax rate of 25% due to the
impact of: adjusting costs treated as capital expenditure for tax purposes and
disallowed in the period and prior year finalised super deduction claims and
current year 100% capital expensing claims which have created deferred tax
liabilities at 25%, partially offset by deferred tax assets from an increase
in prior year tax losses. The Autumn Statement on 22 November 2023 announced
an intention to reduce the Pension surplus payments charge from 35% to 25%,
this was enacted on 11 March 2024. If the reduction in tax rate had been in
place at the balance sheet date the Pension related deferred tax liability
would be £1.6m lower in the period and would be split between other
comprehensive income and income statement elements based on backward tracing
principles.
The charge for the period can be reconciled to the (loss) / profit per the
income statement as follows:
52 weeks to 53 weeks to
2 March 2024 4 March 2023
£m £m
Profit/(loss) before tax 5.3 (71.1)
Tax charge/(credit) at the UK Corporation tax rate of 25% (2023: 19%) 1.3 (13.5)
Effect of change in deferred tax rate 0.2 (7.2)
Tax effect of expenses that are not deductible in determining taxable profit 1.4 0.5
Effect of different tax rates of subsidiaries operating in other jurisdictions (0.1) 0.1
Tax effect of adjustments in respect of previous periods 1.7 0.4
Tax expense/(credit) for the period 4.5 (19.7)
In addition to the amount charged to the income statement, tax movements
recognised directly through equity were as follows:
52 weeks to 53 weeks to
2 March 2024 4 March 2023
Tax recognised directly through equity £m £m
Deferred tax - remeasurement of retirement benefit obligations (1.6) (6.7)
Deferred tax - hedging related items recognised in other comprehensive income (2.8) 6.0
Deferred tax - fair value movements transferred to the value of inventory (0.6) (2.7)
recognised directly in equity
Deferred tax - share based payments recognised directly in equity 0.1 -
Tax (credit) /charge in equity (4.9) (3.4)
In respect of Corporation tax, as at 2 March 2024 the Group has no provision
(2023: £0.7m) for potential future tax charges. During the period, the Group
settled the historical tax liabilities relating to Ambrose Wilson Limited and
Oxendales & Company Limited of £0.7m, together with related interest of
£0.2m both provided in the previous year. The Group is not aware of any
further outstanding historic tax issues.
The Group is aware that reporting requirements for BEPS Pillar II may apply in
FY25. The Group is currently undertaking a risk assessment with its external
advisors to establish whether the Group meets threshold criteria or can apply
Safe Harbour rules for one or more jurisdictions. Following the outcome of
this work the Group will seek to understand its potential risk exposure.
However, based on current trading expectations and the bias towards UK trade
taxed at 25%, the Group currently considers the risk that additional top up
taxes will be payable as low.
9. Earnings/(Loss) per share
The calculation of basic 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 are calculated based on adjusted
earnings, after adjusting for those items of income and expenditure which are
one off in nature and material to the current financial year, and for which
the Directors believe that they require separate disclosure to avoid
distortion of underlying performance (see note 6), and fair value adjustments
to derivative instruments. These have been calculated to allow the
shareholders to gain an understanding of the underlying trading performance of
the Group. For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of dilutive
potential ordinary shares. Earnings per share for the prior year have not been
diluted following the loss after tax in FY23.
The calculations of the basic and diluted earnings per share is based on the
following data:
52 weeks to 53 weeks to
2 March 2024 4 March 2023
Earnings/(loss) £m £m
Earnings/(loss) for the purpose of basic and diluted earnings per share being 0.8 (51.4)
net profit/(loss) after tax attributable to equity holders
52 weeks to 53 weeks to
2 March 2024 4 March 2023
Number of shares ('000s) Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 461,158 459,468
per share
Effect of dilutive potential ordinary shares:
Share options 9,203 4,879
Weighted average number of ordinary shares for the purposes of diluted 470,361 464,347
earnings per share
52 weeks to 53 weeks to
2 March 2024 4 March 2023
Earnings/(loss) from continuing operations £m £m
Total net profit/(loss) attributable to equity holders of the parent for the 0.8 (51.4)
purposes of basic earnings per share
Fair value adjustment to financial instruments (net of tax) 0.4 (7.2)
Adjusted items (net of tax) 6.4 66.9
Adjusted earnings for the purposes of adjusted earnings per share 7.6 8.3
The denominators used are the same as those detailed above for basic and
diluted earnings per share
53 weeks to
52 weeks to 4 March 2023
2 March 2024
Adjusted earnings per share Pence Pence
Basic 1.65 1.81
Diluted 1.62 N/A
52 weeks to 53 weeks to
2 March 2024 4 March 2023
(Loss) / Earnings per share Pence Pence
Basic 0.17 (11.19)
Diluted 0.17 N/A
There have been no other transactions involving ordinary shares or potential
ordinary shares between the reporting date and the date of authorisation of
these financial statements.
10. Intangible assets
Brands Software Customer Database Total
£m £m £m £m
Cost
At 26 February 2022 16.9 373.3 1.9 392.1
Additions - 20.1 - 20.1
Disposals - (0.9) - (0.9)
At 4 March 2023 16.9 392.5 1.9 411.3
Additions - 20.0 - 20.0
Disposals - (5.0) - (5.0)
At 2 March 2024 16.9 407.5 1.9 426.3
Accumulated amortisation and impairment
At 26 February 2022 16.9 260.3 1.9 279.1
Charge for the period - 30.6 - 30.6
Disposals - (0.1) - (0.1)
Impairment Charge - 43.4 - 43.4
At 4 March 2023 16.9 334.2 1.9 353.0
Charge for the period - 17.3 - 17.3
Disposals - (4.9) - (4.9)
At 2 March 2024 16.9 346.6 1.9 365.4
Carrying amount
At 2 March 2024 - 60.9 - 60.9
At 4 March 2023 - 58.3 - 58.3
At 26 February 2022 - 113.0 - 113.0
Assets in the course of development included in intangible assets at the year
end total £14.6m (2023: £10.5m). No amortisation is charged on these assets.
Borrowing costs of £nil (2023: £nil) have been capitalised in the period.
Additions in the year of £15.4m relate to internal development costs (2023:
£15.0m). These are costs that are incremental and reflect unavoidable costs
which qualify for capitalisation.
As at 2 March 2024, the Group had entered into contractual commitments for the
further development of intangible assets of £3.9m (2023: £3.0m) of which
£3.9m (2023: £2.9m) is due to be paid within one year.
Research costs of £nil were incurred in the year (2023: £0.8m).
Disposals during the year related to assets under construction which have been
discontinued.
IMPAIRMENT TESTING OF NON-FINANCIAL ASSETS
During the prior year a non-cash impairment charge of £53.0m was recognised.
The Group has no goodwill reported on the balance sheet and in accordance with
IAS 36 the impairment charge was allocated pro rata against the Group's other
tangible and intangible assets. This does not imply that the assets impaired
have no remaining value as they continue to support the strategic plan and
operations adding significant value to the business and delivering on the
Group's transformation plan. Applying IAS 36 the intangible assets were
reduced from £101.7m to £58.3m, and tangible assets were reduced from
£60.5m to £50.9m as at 4 March 2023.
As detailed in the strategic report the benefits of the transformation
programme underpin the long-term growth for the Group, with execution of the
plan underway.
In applying the IAS 36 impairment indicators, the Board has considered the
relationship between the Company's market capitalisation and the carrying
amount of the Group's net assets.
The traded volume of shares is limited given the shareholder structure and
value has yet to be reflected in the share price for the execution of the
strategic plan, which combined contributes to a gap between the market
capitalisation and net asset valuations, which, in accordance with IAS 36,
continues to indicate that an impairment of the Group's net assets may exist
at the year-end and a value in use assessment has been performed by management
as detailed below.
Management prepared a value in use ('VIU') model to assess the discounted cash
flows and used an appropriate discount rate to reflect the combined retail and
consumer credit business model. There is no listed set peer group of a similar
size and business model to use as a benchmark and the VIU model is similar to
an income-based assessment. The pre-tax discount rate was calculated using the
Capital Asset Pricing Model and observable market inputs, to which specific
company and market-related premium adjustments were applied. The pre-tax
discount rate is an equity only rate to reflect the treatment of the
securitisation loan which is in substance a working capital facility. This
treatment as a working capital input to the VIU model aligns with the consumer
credit model operated by the Group.
The securitisation loan agreement of £400m, with a maximum £340m lenders
commitment, supports the credit offered to our customers. The loan allows the
Group to draw down cash, based on set criteria linked to eligible receivables
which move flexibly in line with business volumes (see note 15).
Accordingly, the net cash flows including interest costs are included in the
value in use model, with the corresponding customer debtor book included in
the carrying value of the cash generating unit ('CGU').
The VIU calculations used the Board approved forecasts covering a five-year
period to FY29 which are adjusted to remove any costs or benefits associated
with future capex projects not yet commenced. The Board reflected on the
current cost-of-living crisis and challenges in consumer confidence, and
continue to apply caution to near term outlooks as a slow recovery to the
economy and trading conditions is expected to materialise. There are a number
of assumptions which are taken in determining the forecasts for cashflow
purposes, including product revenue growth, financial services revenue growth,
arrears performance and gross profit margin which all influence the overall
forecasted EBITDA considered to be a key assumption for the value in use
calculation.
The Board are confident in the longer-term benefits that the transformation
plan will deliver, and the value creation from the investments in the Group's
digital assets.
The Board concluded that there is only one CGU, reflecting the single group of
assets that generate the Group's independent cash flows. The product and
financial services offerings are intertwined and the Board monitor the Group's
performance based on the combined results.
The forecasts applied have regard to historical performance and knowledge of
the current market, together with management's views on the future growth
opportunities and the benefits the strategic developments are delivering.
After the first five-year cash flows, as required by the accounting standard,
a terminal value was included based upon the long-term growth rate and a
pre-tax discount rate applied with additional risk factors built in for
company size and forecasting risk equivalent to approximately 5%
underperformance on the forecast cashflows incorporated into the discount
rate.
The long-term growth rate of 2% was determined with reference to external
long-term UK growth forecasts which management believe is a reasonable
indicator of the expected long term-growth rate for the Group, available at 2
March 2024. The long-term growth rate used is purely for the impairment
testing of intangible assets 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. In developing the impairment
assessment, management has considered the potential impacts of climate and
other ESG related risks, as set out in the Approach to Environmental, Social
and Governance section of the Group's annual report.
The impairment review performed over the Group's CGU has indicated that the
impairment recognised in FY23 over the assets of the Group, continues to be
appropriate. The value in use calculation has demonstrated some headroom to
the carrying value of the Group's net assets, net of the impairment recognised
in previous year, however the value remains sensitive to the assumptions used
and management's best estimate at FY24 year end is that there is insufficient
evidence that either a further impairment or a reversal of the previous
impairment exists. Considering the sensitivity of the value in use calculation
to the assumptions and judgements taken within, a plausible change in the
assumptions could lead to a further impairment or a reversal of the impairment
previously recognised. Sensitivity to key assumptions is disclosed further
below.
THE KEY ASSUMPTIONS ARE AS FOLLOWS:
Years 1-5 to FY29 are based on the EBITDA forecasts per the Board approved
business plan adjusted for the removal of costs or benefits associated with
future capex projects not yet commenced. This reflects the current
cost-of-living crisis and other economic challenges with growth thereafter
assumed once the economy stabilises and importantly driven by the benefits
that the transformation plan is anticipated to deliver;
Replacement capital expenditure of £17m per year in years 1-5 and £15.7m in
the terminal year, inclusive of the replacement of leased assets. The current
high levels of investment in the strategic digital platforms completes within
the five-year business plan horizon, and subsequently the Group is assuming a
steady state level of maintenance and replacement expenditure;
Pre-tax discount rate: 18.9% (2023: 17.7%). The discount rate includes an
allowance for risks specific to the Group, including a size premium and a
forecasting risk associated with the transformation plan; and
Long term growth rate: 2.0% (2023: 2.2%). Management has sourced external
benchmarks and applied a long-term growth rate specific to the UK.
GROUP IMPAIRMENT SENSITIVITY ANALYSIS:
The Board recognises that there is a high degree of estimation uncertainty and
the VIU and resulting impairment is sensitive to movements in the key
assumptions. In response sensitivity analysis has been applied to the key
assumptions to demonstrate the variability of changes in these assumptions
which could result in increases or reversals to the level of impairment
currently booked:
• A 1% increase or decrease to the discount rate results in a £25m
decrease or £29m increase to the value in use respectively;
• A 5% increase or decrease to the EBITDA across all years including
terminal year results in a £27m increase or decrease to value in use
respectively;
• A 1% increase or decrease to the long term growth rate results in
a £19m increase or £16m decrease to the value in use respectively;
• An increase in replacement terminal capex to £20m reduces the
value in use by £14m, a decrease in replacement terminal capex to £10m
increases value in use by £19m.
USEFUL ECONOMIC LIVES SENSITIVITY ANALYSIS
Whilst management consider the useful economic lives to represent the best
estimate at the reporting date, to indicate the level of sensitivity in
relation to the estimation of the useful economic lives, we have assessed the
impact of reducing or increasing the UELs of all assets by 12 months:
· A reduction in the revised UEL of all assets by 12 months would
increase the expected amortisation charge for the following financial year by
£6.0m;
· An increase in the UEL of all assets of a further 12 months would
decrease the expected amortisation charge for the following financial year by
£4.4m.
11. Property, plant and equipment
Land and buildings Fixtures and Fittings Plant and Machinery
Total
£m £m £m £m
Cost
At 26 February 2022 59.1 24.6 53.8 137.5
Additions - 5.6 0.7 6.3
At 4 March 2023 59.1 30.2 54.5 143.8
Additions - 2.4 0.6 3.0
Reclass to inventories - - (1.0) (1.0)
Disposals - - (2.9) (2.9)
At 2 March 2024 59.1 32.6 51.2 142.9
Accumulated depreciation and impairment
At 26 February 2022 19.9 21.0 38.1 79.0
Charge for the period 1.2 0.7 2.4 4.3
Impairment charge - - 9.6 9.6
At 4 March 2023 21.1 21.7 50.1 92.9
Charge for the period 1.2 0.8 0.6 2.6
Impairment charge 3.3 - - 3.3
Disposals - - (2.9) (2.9)
At 2 March 2024 25.6 22.5 47.8 95.9
Carrying amount 33.5 10.1 3.4 47.0
At 2 March 2024
At 4 March 2023 38.0 8.5 4.4 50.9
At 26 February 2022 39.2 3.6 15.7 58.5
The impairment charge in FY23 relates to the pro-rata allocation of impairment
of the Group's net assets to value in use as set out in note 10. A further
separate impairment of £3.3m has been recognised in the current financial
year relating to the estimated sale proceeds less costs to sell of warehouse
facilities owned by the Group, now assessed separately due to the planned
closure of the site in line with the warehouse rationalisation program
disclosed further in note 6. The property has not been reclassified to assets
held for sale at the reporting date, as a programme to actively market the
property and locate a buyer had not yet commenced at the period end, as
required under IFRS 5 to meet the classification as a non-current asset held
for sale.
Assets in the course of development included in fixtures and fittings and
plant and machinery at 2 March 2024 total £2.2m (2023: £2.5m), and in land
and buildings total £nil (2023: £nil). No depreciation has been charged on
these assets. No borrowing costs have been capitalised in the period (2023:
£nil).
At 2 March 2024, the Group had entered into contractual commitments of £1.3m
for the acquisition of property, plant and equipment (2023: £1.0m).
Reclassification movement in the year relates to replacement parts and spares
for plant and machinery which have been reclassified to be held as inventory.
12. Trade and other receivables
52 weeks to 53 weeks to
2 March 2024 4 March 2023
£m £m
Amount receivable for the sale of goods and services 517.0 555.2
Allowance for expected credit losses (73.3) (74.6)
Net trade receivables 443.7 480.6
Other debtors and prepayments 24.9 24.1
Trade and other receivables 468.6 504.7
Amounts receivable for the sale of goods and services of £517.0m includes
£1.9m (2023: £(3.0)m) of balances not subject to expected credit loss
provisioning, this includes a provision for outstanding gross customer returns
of £5.1m (2023: £6.3m).
Other debtors include a balance of £0.8m (2023: £1.3m) relating to amounts
due from wholesale partners.
The weighted average Annual Percentage Rate ('APR') across the trade
receivables portfolio is 60.1% (2023: 58.2%). For customers who find
themselves in financial difficulties, the Group may offer revised payment
terms (payment arrangements) to support customer rehabilitation. These revised
terms may also include suspension of interest for a period of time.
The gross trade receivables whose terms have been renegotiated (payment
arrangements) but would otherwise be past due, totalled £40.7m as at 2 March
2024 (2023: £36.4m). Interest income recognised on trade receivables which
were credit impaired as at 2 March 2024 was £18.8m (2023: £21.4m).
The amounts written off in the period of £120.7m (2023: £131.2m) include the
sale of impaired assets with a net book value of £65.9m (2023: £55.0m). The
proceeds from derecognised portfolio sales exceeded the net book value by
£nil (2023: £0.1m).
During the year there were £23.7m of proceeds recognised in respect of
accounts that had previously been written-off or derecognised (2023: £21.0m).
The following table provides information about the exposure to credit risk and
ECLs for trade receivables as at 2 March 2024.
52 weeks to 2 March 2024 53 weeks to 4 March 2023
Ageing of trade receivables Trade receivables Trade receivables on payment arrangements Total trade receivables Trade receivables Trade receivables on payment arrangements Total trade receivables
Current - not past due 400.2 40.7 440.9 443.3 36.4 479.7
28 days - past due 17.6 3.6 21.2 20.1 5.0 25.1
56 days - past due 9.9 2.1 12.0 10.8 2.6 13.4
84 days - past due 7.6 1.9 9.5 9.5 2.2 11.7
112 days - past due 5.8 1.3 7.1 6.8 1.2 8.0
Over 112 days - past due 22.7 3.6 26.3 16.1 1.2 17.3
Gross trade receivables 463.8 53.2 517.0 506.6 48.6 555.2
Allowance for expected credit losses (57.9) (15.4) (73.3) (58.1) (16.5) (74.6)
Net trade receivables 405.9 37.8 443.7 448.5 32.1 480.6
52 weeks to 53 weeks to
2 March 2024 4 March 2023
£m £m
Provision movements(1) (1.4) 5.9
Gross write -offs 120.7 131.2
Recoveries (23.7) (21.0)
Notional interest 10.6 6.2
Net Impairment charge 106.2 122.3
( )
(1) Provision movement is the closing allowance for expected credit losses
less the opening allowance for expected credit losses
SENSITIVITY OF ESTIMATION UNCERTAINTY
To indicate the level of estimation uncertainty, the impact on the ECL of
applying different model parameters are shown below:
· A 10% increase or decrease in PDs would lead to a £3.2m (2023:
£3.4m) increase or £3.2m (2023: £3.6m) decrease in the ECL;
· Our ECL is probability weighted between a base case, downside and
upside scenario which includes economic forecast variables of unemployment,
BoE base rate, and average earnings. Adjusting the weighting to 100% impacts
the ECL by the following:
· 100% downside - an increase in the ECL of £0.9m
· 100% upside -a decrease in the ECL of £0.7m
· 100% base case - a decrease in the ECL of £0.1m
13. Trade and other payables
52 weeks to 53 weeks to
2 March 2024 4 March 2023
£m £m
Trade payables 30.1 40.2
Other payables 7.3 3.6
Accruals and deferred income 27.8 28.7
Trade and other payables 65.2 72.5
Trade payables and accruals principally comprise amounts outstanding for trade
purchases and ongoing costs. Included in the accruals and deferred income
total of £27.8m is an amount of £0.2m (2023: £nil) classified as
non-current liabilities. The average credit period taken for trade purchases,
based on invoice date is 46 days (2023: 50 days).
The Group has financial risk management policies in place to ensure that all
payables are paid within agreed credit terms.
The Group continues to have a supplier financing arrangement which is
facilitated by HSBC. The principal purpose of this arrangement is to enable
the supplier, if it so wishes, to sell its receivables due from the Group to a
third party bank prior to their due date, thus providing earlier access to
liquidity. From the Group's perspective, the invoice payment due date remains
unaltered and the payment terms of suppliers participating in the programme
are similar to those suppliers that are not participating.
The maximum facility limit as at 2 March 2024 was £15m (2023: £15m). At 2
March 2024, total of £6.0m (2023: £7.9m) had been funded under the
programme. The scheme is based around the principle of reverse factoring
whereby the bank purchases from the suppliers approved trade debts owed by the
Group. Access to the supplier finance scheme is by mutual agreement between
the bank and supplier, where the supplier wishes to be paid faster than
standard Group payment terms; the Group is not party to this contract. The
scheme has no cost to the Group as the fees are paid by the supplier directly
to the bank. The bank have no special seniority of claim to the Group upon
liquidation and would be treated the same as any other trade payable. As the
scheme does not change the characteristics of the trade payable, and the
Group's obligation is not legally extinguished until the bank is repaid, the
Group continues to recognise these liabilities within trade payables and all
cash flows associated with the arrangements are included within operating cash
flow as they continue to be part of the normal operating cycle of the Group.
There is no fixed expiry date on this facility.
14. Cash and cash equivalents
Cash and cash equivalents (which are presented as a single class of assets on
the face of the balance sheet) comprise cash at bank and other short-term,
highly liquid investments with a maturity of three months or less, from point
of acquisition. Included in the amount below is £1.0m (2023: £1.0m) of
restricted cash which is held in the Group's joint bank account with Allianz
Insurance plc in respect of outstanding customer redress payments (further
detail in note 6) and £3.2m (2023: £3.1m) in respect of the Group's
securitisation reserve account. This cash is available to access by the Group
for restricted purposes.
In addition £28.2m (2023: £10.7m) was held at the balance sheet date in
relation to amounts to be repaid against the Group's securitisation facility.
A breakdown of significant cash and cash equivalent balances by currency is as
follows:
52 weeks to 53 weeks to
2 March 2024 4 March 2023
£m £m
Sterling 49.6 24.9
Euro 2.7 2.9
US dollar 12.9 7.7
Net cash and cash equivalents and bank overdrafts 65.2 35.5
Made up of:
Cash and cash equivalents 65.2 35.5
Bank overdrafts - -
The Group operates a notional pooling and net overdraft facility whereby cash
and overdraft balances held with the same bank have a legal right of offset.
In line with requirements of IAS 32, gross balance sheet presentation is
required where there is no intention to settle any amounts net. The balance
has therefore been separated between overdrafts and cash balances.
15. Bank borrowings
2024 2023
£m £m
Bank loans (301.5) (332.9)
Net overdraft facility - -
The borrowings are repayable as follows:
Within one year - -
In the second year - (332.9)
In the third to fifth year (301.5) -
Amounts due for settlement after 12 months (301.5) (332.9)
2024 2023
% %
The weighted average interest rates paid were as follows:
Net overdraft facility 6.4 3.5
Bank loans 3.4 3.6
All borrowings are held in sterling.
The principal features of the Group's borrowings are as follows:
The Group operates a notional pooling and net overdraft facility whereby cash
and overdraft balances held with the same bank have a legal right of offset.
The net overdraft facility limit at 2 March 2024 was £12.5m (2023: £12.5m),
of which the Group had a net position of £nil drawn down at 2 March 2024
(2023: £nil).
The Group has a bank loan of £301.5m (2023: £332.9m) secured by a charge
over certain "eligible" customer receivables (current and 0-28 days past due)
of the Group and is without recourse to any of the Group's other assets. The
facility limit at 2 March 2024 was at £400m (2023: £400m). The maturity of
the facility was extended during the current period to December 2026. In
February 2023, whilst not reducing the £400m facility limit, the Group
pro-actively reduced the lenders' commitment to £340m from £400m to reflect
the smaller customer receivables book and subsequent reduction in the
accessible funding level, so optimising funding costs by reducing
non-utilisation costs. This has not changed the Group's total accessible
funding levels. The securitisation facility allows the Group to draw down
cash, based on set criteria linked to eligible customer receivables which move
flexibly in line with business volumes. Accordingly, the net cashflows of the
facility are treated within working capital rather than financing cashflows.
Management has considered whether the extension to the facility noted above
constitutes a substantial modification under IFRS 9 and concluded that a
substantial modification has not occurred and therefore the extension has been
accounted for as a modification rather than de-recognition. Unamortised fees
relating to this facility of £1.1m (2023: £2.0m) are offset against the
carrying amount of the loan.
The key covenants applicable to the Securitisation facility include
three-month average default, return and collection ratios, and a net interest
margin ratio on the total and eligible pool. Throughout the reporting period
all covenants have been complied with.
On 14 April 2023, the Group completed the refinancing of its unsecured and
undrawn Revolving Credit Facility ('RCF'). The new RCF facility has a maximum
limit of £75m and an overdraft facility of £12.5m both respectively
committed to December 2026, of which £nil (2023: £nil) was drawn down at 2
March 2024.
All borrowings are arranged at floating rates, thus exposing the Group to cash
flow interest rate risk. The Group's interest rate risk management activities
are detailed in note 19 of the Group's Annual Report.
There is no material difference between the fair value and carrying amount of
the Group's borrowings.
16. Dividends
No dividends were paid or proposed in either the current year or prior year.
17. Share Capital
2024 2023 2024 2023
Number Number £m £m
Allotted, called-up and fully paid ordinary shares of 11 1/19p each
Opening as at 4 March 2023 (26 February 2022) 460,483,231 460,483,231 50.9 50.9
Issued in the year 2,841,787 - 0.3 -
At 2 March 2024 (4 March 2023) 463,325,018 460,483,231 51.2 50.9
The Company has one class of ordinary shares which carry no right to fixed
income. The holders of ordinary shares are entitled to receive dividends as
declared and are entitled to one vote per share at meetings of the Company.
18. Provisions
Other Litigation Strategic Change Allianz Litigation Other Total
£m £m £m £m £m
Balance as at 4 March 2023 6.9 2.2 0.3 0.7 10.1
Provisions made during the period 2.5 4.1 - 0.3 6.9
Unused provisions reversed during the period - (0.5) (0.1) (0.2) (0.8)
Provisions used during the period (0.2) (4.0) - (0.5) (4.7)
Balance as at 2 March 2024 9.2 1.8 0.2 0.3 11.5
Non-current 6.3 - - 1.3 6.6
Current 2.9 1.8 0.2 - 4.9
Balance as at 2 March 2024 9.2 1.8 0.2 0.3 11.5
ALLIANZ LITIGATION
During the prior year, the Group reached full and final settlement in respect
of the legal dispute with Allianz Insurance plc. Further detail provided in
note 6 and in the FY23 Annual Report and accounts. The provision outstanding
at 2 March 2024 was £0.2m, relating to amounts payable to Allianz following
closure of the joint redress account. The release of £0.1m in the period
relates to amounts previously provided in respect of legal costs that are no
longer required.
OTHER LITIGATION
In FY23 the Group made a provision of £5.5m, as an estimate of the litigation
costs in relation to legacy customer claims alleging unfair relationships
resulting from undisclosed PPI commission brought under s140A of the Consumer
Credit Act 1974. This is not a new exposure and in prior years the Group has
handled such claims on a case by case basis, and the external legal costs
incurred have not been material. The provision is principally in relation to
committed incremental external legal costs resulting from the change in
strategic approach. The Group changed its strategy in 2023 to robustly defend
such claims and put claimants to proof; and engaged external counsel which is
reflected in the provision recorded. The Board supports the strategy to
robustly defend and put to proof any past and future claims. The expected
timeline of resolution of the outstanding claims is now expected to be more
than 12 months. The provision has been increased by £1.8m in the current year
reflecting the additional legal costs expected to be incurred as a result of
the emergence of "group litigation" as an alternative process for resolving
s140A PPI claims. The provision outstanding at 2 March 2024 was £7.1m.
The provision outstanding at 2 March 2024 of £9.2m also includes a provision
of £1.4m recognised in prior periods in relation to certain PPI related
customer redress complaints, and an amount of £0.7m booked in the year in
relation to irresponsible lending claims, both of which are expected to be
paid in the next 12 months.
SENSITIVITY OF ESTIMATION UNCERTAINTY
To indicate the level of estimation uncertainty, the following sensitivities
have been performed:
- Key assumptions underpinning the provision include estimates as to
the proportion of threatened claims that will actually result in court
proceedings, the process that the court adopts for determining the cases, the
proportion of cases which will be abandoned by claimants before trial, the
Group's win rate at trial and the court's likely assessment of quantum where
the Group is required to pay redress;
- A 10% combined stress in these assumptions would lead to an
increase in the provision of £1.2m;
- A 10% combined improvement in these assumptions would lead to a
reduction in the provision of £1.0m;
Given the level of judgement and estimation involved in assessing the
Company's success in defending such claims and the associated costs including
legal fees, it is reasonably possible that outcomes within the next financial
year may be different from management's assumptions.
STRATEGIC CHANGE
During the current year, the Group continued the multi-year transformation of
the business and the ongoing review of the operating model initiated at the
end of FY23. Specifically, an additional restructuring program of the Group's
operational and head office headcount to reflect the lower sales orders, was
initiated in Q2 FY24 and continued through the financial year. Total
redundancy costs of £1.7m were incurred in the period. A provision of £0.4m
was outstanding at 2 March 2024 relating to payments to be made in the months
following the period end (FY23: £1.9m).
During the period, the Board also approved the rationalisation of the Group's
warehousing facilities following a review of the overall warehouse portfolio
capacity, utilisation and associated operational cost base. Accordingly a
provision was booked for incremental costs associated with staff exits and
onerous contracts of £1.4m, as well as £1.0m of incremental stock provision
arising from the rationalisation of terminal stock due to reduced storage
capacity across the warehouse portfolios. At 2 March 2024, £0.8m of the
provision for inventory was utilised with the remaining £0.2m released as
better than expected realisation was achieved.
OTHER
The provision held at 4 March 2023 of £0.7m related to costs and interest in
relation to matters under discussion with HMRC relating to prior years and a
legal claim made against the Group. Both matters have been settled in the
period representing total utilisation of £0.5m, comprising an agreement with
HMRC of £0.2m and a settlement of the legal claim of £0.3m. The remaining
provision balance of £0.2m was not required and therefore released in the
period.
A provision has been recognised in the year of £0.3m for estimated future
costs to restore leased warehouse premises as required by the lease agreement,
and capitalised to the value of the right-of-use asset at recognition in line
with IFRS 16.
19. Prior year adjustment
During the year, the Group has restated the presentation of deferred tax
assets and liabilities to correctly present these balances on a net basis, as
they had been previously presented on a gross basis in FY23. This is to
reflect the legal right and intention to offset within the jurisdiction of the
UK, in line with IAS 12 Income taxes. This restatement impacts the
Consolidated balance sheet only and no other primary statements within the
financial statements.
2023 Adjustment 2023
Consolidated balance sheet (extract) £m £m £m
(Restated)
Non-current assets
Deferred tax assets 29.2 (13.2) 16.0
Non-current liabilities
Deferred tax liabilities (13.2) 13.2 0.0
20. Post balance sheet events
RECLASSIFICATION OF OWNED WAREHOUSE FACILITIES AS HELD FOR SALE
On 28 March 2024 warehouse facilities which are being exited as part of the
rationalisation of the Group's warehousing described in note 6 have been
actively marketed for sale and met the criteria to be classified as an asset
held for sale under IFRS 5. There has been no change to the assessment of the
fair value at the point of reclassification from the impairment assessment
made at the reporting date. A sale is expected to complete within 12 months of
the reclassification to held for sale.
This report was approved by the Board of Directors on 5 June 2024.
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