TIDMBWNG
RNS Number : 7230B
Brown (N.) Group PLC
06 June 2023
FULL YEAR RESULTS FOR THE 53 WEEKSED 4 MARCH 2023
Strategic progress in a challenging market
53 weeks to 4 52 weeks to Change 53 weeks
GBPm Mar 2023 (FY23)(1) 26 Feb 2022 v 52 weeks
(FY22)
Group revenue 677.5 715.7 (5.3)%
------------------- ------------ ---------------
Product revenue 433.4 465.6 (6.9)%
------------------- ------------ ---------------
Financial Services
revenue 244.1 250.1 (2.4)%
------------------- ------------ ---------------
Adjusted EBITDA(2) 57.3 95.0 (39.7)%
------------------- ------------ ---------------
Adjusted EBITDA margin 8.5% 13.3% (4.8)ppts
------------------- ------------ ---------------
Adjusted profit before
tax(2) 7.5 43.1 (82.6)%
------------------- ------------ ---------------
Statutory (loss) / profit
before tax (71.1) 19.2 N/A
------------------- ------------ ---------------
Cash and cash equivalents 35.5 43.1 (17.6)%
------------------- ------------ ---------------
Adjusted net debt (2) (297.4) (259.4) (14.6)%
------------------- ------------ ---------------
Highlights
Financial summary
-- FY23 Adjusted EBITDA in line with latest Board and market expectations(3)
-- Year-on-year Adjusted EBITDA predominantly driven by
Financial Services ('FS') Gross Margin normalising
-- Group revenue contracted 5.3%, reflecting challenging online market conditions:
o Product revenue declined 6.9% (8.4% on a 52 week basis), with
strategic brands down 5.3% (in line with the broader online
non-food market(4) )
o Returns rates, and clothing and home mix returned to
pre-pandemic norms by H2 FY23
o Lower retail sales, net of higher customer credit penetration,
led to lower FS revenue, down 2.4% (-4.3% on a 52 week basis)
-- Product margin rate continued to improve, up 1.8ppt,
benefiting from reduced promotional levels and measured price
increases
-- As previously guided, FS margin rate normalised after FY22's
abnormally low write offs and the release of the FY21 initial
Covid-19 bad debt provision. Underlying arrears rates have also
normalised
-- Operating costs reduced by GBP2m, with volume related savings
more than offsetting GBP15m of inflationary pressures
-- Adjusted Profit before Tax of GBP7.5m. Statutory loss before
tax reflects final Allianz litigation settlement and a non-cash
impairment to non-financial assets of GBP53m
-- Cash outflow of GBP67.7m, reflecting a timing change to part
of the annual debt sale, and the GBP49.5m settlement of Allianz
litigation
-- Strong balance sheet with significant cash and cash
equivalents, and total accessible liquidity of GBP112.0m at 6 May
2023. RCF and overdraft refinanced to December 2026 and remain
undrawn with limits of GBP75m and GBP12.5m respectively
A year of strategic and operational progress
-- Continued strategic progress including launch of new
mobile-first website for Simply Be, enhancing the customer
experience through easier site navigation and checkout journey
-- Strengthened Board with the appointment of Meg Lustman as an
Independent Non-Executive Director, and the appointment of Dominic
Appleton as CFO
-- Progress against ESG priorities, including reaching over 40%
of own brand designed clothing and home textile ranges having
sustainable properties (from 0% in 2019) and launching new charity
partnerships with Retail Trust and FareShare Greater Manchester
-- Well positioned to deliver strategic change with a step-up in
investment in FY24, aligned to a number of medium-term
transformational priorities:
o Priorities include new websites for Jacamo and JD Williams,
and the delivery of our new FS technology platform
Current trading, outlook and guidance
-- The previously guided softer product revenue seen in Q4 FY23,
down 17.8% year-on-year, has broadly continued into Q1 FY24
following a strong Q1 FY23 and poor early Spring weather
-- Continue to expect challenges of a high inflationary
environment and low consumer confidence to remain throughout FY24
and currently expect full year product revenue to decline at a
slightly improved rate to that seen in FY23 (-8.4% on a 52 week
basis)(5)
-- Currently expect FS revenue to decline at a rate slightly
adverse to that seen in FY23 of 4.3%(5) and the FS gross margin
rate in FY23 of 49.3% is broadly representative of a normalised
level
-- We continue to focus on managing the ongoing inflationary
pressures on our cost base and realising further product margin
improvements, with expected Adjusted EBITDA margin around 1ppt
lower than FY23 (FY23: 8.2%(5) )
-- Following the FY23 impairment of non-financial assets, we
expect a reduction of around GBP15m in depreciation and
amortisation
-- We expect FY24 year end net debt to be slightly better than
FY23's closing position. Strategic investment continues to be
self-funded through carefully managed cash flows including tight
control and right-sizing of stock
-- Continued confidence in the strategic direction of the
business and in the benefits of the ongoing investment in our
digital transformation with a focus on delivering sustainable
profitable growth
Steve Johnson, Chief Executive, said:
"We have remained adaptable to the trading environment which
became more challenging during the year, as inflation impacted both
our customers and our cost base. Although volumes softened, we
maintained a disciplined approach to trading, with a particular
focus on upholding margin despite a promotional backdrop.
We continued to make strategic progress despite these
challenges, increasing investment during the year, and we
successfully launched our new mobile-first website for Simply Be. I
would like to thank every single one of our colleagues for their
role in achieving this progress, through their commitment to
serving our customers and supporting our vision of championing
inclusion.
We are expecting the weaker consumer confidence to continue
weighing on our performance before we see a return to growth and
are therefore keeping a tight control of costs. We remain confident
in our strategy and are more focused than ever on the
transformational priorities which will deliver the biggest
benefits, including new websites for Jacamo and JD Williams, and
the delivery of our new financial services platform."
Webcast for analysts and investors:
A webcast presentation of these results will take place at 9am
on 6 June 2023 followed by a Q&A conference call for analysts
and investors. Please contact Nbrown@mhpc.com for details.
For further information:
N Brown Group
David Fletcher, Head of Investor Relations +44 (0)7876 111 242
Sian Scriven, Corporate Communications Manager +44 (0)7825 593 118
MHP
Simon Hockridge / Eleni Menikou / Charles +44 (0) 20 3128 8789
Hirst Nbrown@mhpgroup.com
Shore Capital - Nomad and Broker
Stephane Auton / Daniel Bush / John More
Fiona Conroy (Corporate Broking) +44 (0) 20 7408 4090
About N Brown Group:
N Brown is a top 10 UK clothing & footwear digital retailer,
with a home proposition. Our retail brands include JD Williams,
Simply Be and Jacamo, and our financial services proposition allows
customers to spread the cost of shopping with us. We are
headquartered in Manchester where we design, source and create our
product offer and we employ over 1,800 people across the UK.
(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 last year's 52
week period, is set out on page 16.
(2) A full reconciliation of statutory to adjusted measures is
included in the FY23 Financial Review.
(3) The market consensus for FY23 Adjusted EBITDA was GBP57.5m
as at 5 June 2023.
(4) BRC total online non-food market for 52 weeks ended 25
February 2023 declined by 8%; BRC total online non-food market for
52 weeks ended 25 February 2023 weighted to N Brown category mix
using management analysis declined by 5%.
(5) FY24 expectations are stated against the 52 week results to
25 February 2023 as set out in the Financial Review from page 15
(Product revenue of GBP426.6m; Financial services revenue of
GBP239.4m; Adjusted EBITDA margin of 8.2%).
PERFORMANCE REVIEW
FY23 has seen significant macro-economic pressures impact
consumers and businesses. This has included inflationary pressures
weighing on consumer confidence and disposable incomes. In this
context, our performance has been resilient. We have remained
agile, and balanced softening customer demand with disciplined
trading decisions. We saw a 2 ppt rise in the proportion of new
customers signing up for our credit proposition. We rebalanced our
product mix towards Clothing and Footwear ('C&F'), which saw
better category market performance than Home & Gift, whilst
achieving increases in Average Item Value of 12%. We also managed
our cost base and profit margins tightly, ensuring marketing and
supplier spend decisions were taken in a pragmatic manner. Adjusted
EBITDA of GBP57.3m is in line with Board expectations and market
consensus, with the reduction over prior year driven by the
normalising of consumer trends in our Financial Services business.
Our refinancing in April gives us access to liquidity at 6(th) May
2023 of GBP112m, through to December 2026, details of which are set
out in the Financial Review.
We continued to invest in our strategic transformation which
aims to deliver value faster, through a simpler and more focused
business. Our work to build clearer, more distinct brand identities
is ongoing, and we showcased our progress through engaging and
creative campaigns that were representative of our customers and
demonstrated why we remain unique. We successfully launched own
brand labels and collaborations including our William Hunt and
Jacamo formalwear, complemented by exciting third-party new range
additions including Whistles, Sosander and Ted Baker. We enhanced
the customer experience with the launch of our new mobile-first
website for Simply Be, with initial indications showing
improvements to load speed and usability. We also invested in new
marketing channels to drive more valuable customers to our brands.
By developing and launching a new data strategy, we sought
opportunities to make margin improvements through better use of our
data. We have also set in motion organisational changes which will
enable us to move to more agile ways of working.
In an unpredictable market, we are concentrating on elements we
can control as a business, ensuring we deliver value for our
customers in the most effective way possible. We expect the first
half of FY24 to be very challenging, but our balance sheet ensures
we are well positioned for investing in the future. It provides a
foundation from which we can continue to execute our strategy, and
the Board remains confident in achieving the Group's medium-term
objective of delivering sustainable profitable growth.
Allianz claim settled
One of the Group's principal subsidiaries, J D Williams & Co
Ltd ('JDW'), was involved in a legal dispute with Allianz Insurance
plc ('Allianz'). In January 2023 full and final settlement was
reached in relation to a claim issued against JDW, and the
subsequent JDW counterclaim. The dispute related to significant
amounts of redress previously paid to customers by JDW and Allianz
in respect of certain historic insurance products, including
payment protection insurance. JDW has paid Allianz GBP49.5m, which
has been recognised as an adjusting item across FY22 and FY23.
Further details are set out in note 6 to the financial statements.
This removes significant uncertainty and distraction for the
business.
Executive hires
Alongside our strategic transformation, there were also changes
to our Executive Board with Dominic Appleton joining as Chief
Financial Officer Designate this year, taking on the role of Chief
Financial Officer from June 2023. Dominic brings considerable
consumer experience, particularly in digital retail and financial
services, following over 10 years at The Very Group (previously
Shop Direct). We have also welcomed back Christian Wells, who was
previously with the Group in an interim capacity, as our permanent
General Counsel and Company Secretary.
FY23 - A resilient performance against significant headwinds
As an organisation, we exist to serve the underserved. Our
strategy is framed by our vision that "By championing inclusion,
we'll become the most loved and trusted fashion retailer".
Inclusivity is an incredibly important part of what we stand for as
an organisation. We have built up this expertise over generations
and it continues to be a key opportunity for differentiation in the
market. We create clothes that fit, and that make our customers
look and feel amazing, enabling them to live the lifestyle they
aspire to, something we have always championed as accessible to
all. This is what makes N Brown special, both in the culture it
creates internally and in what we can deliver for customers.
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).
A considerable amount of work has been undertaken this year to
build stronger identities and points of differentiation for the
strategic brands in our portfolio. We have immersed colleagues
further in the identity of each of our strategic brands, to allow
them to better execute against their individual strategies.
For Simply Be, we launched a new creative campaign, "The Fit
Revolution", which was delivered via a new media approach which saw
us move away from traditional TV advertising, and switch to digital
video, social, out of home and influencers.
We also launched our JD Williams "Collections" campaign, and
supported this with specific activity showcasing how our financial
services offer makes our collections accessible to our customer. We
launched the Collections campaign with an updated media approach in
Spring Summer ('SS') working alongside our brand ambassadors,
Davina McCall and Amanda Holden, and evolved this approach further
in the Autumn/Winter season.
With Jacamo, we continued to champion inclusivity through the
launch of our "Every Man" creative campaign for SS. Accompanied by
a new media approach where we aligned our ongoing communications
and storytelling with the "Every Man" creative.
Our heritage brand portfolio is focused on the retention and
retrade of existing customers and, in particular, loyal credit
customers. These brands are now managed by a dedicated team to
create operational focus and clarity, distinct from the strategic
brands which we are seeking to accelerate.
2. Elevate the fashion and fintech proposition
Strategic objective: Elevate the fashion assortment, integrate
the credit offer into the journey and create a credit brand.
We rebalanced our core offer to align with a normalisation in
the clothing and footwear market post pandemic. We achieved this by
buying into growth categories such as occasionwear and formalwear,
whilst protecting the categories our customers consistently love -
lingerie, dresses, denim, and footwear. In line with our vision of
inclusivity, we have extended the size range across our product
portfolio, introducing smaller sizes, ensuring accessibility of our
fantastic product to all.
We have taken a customer-centric approach to enhancing our
design capability, responding to customer feedback, particularly
within our Womenswear own label proposition. Our teams have reduced
the historic syndication across strategic brands, replacing it with
own label product that is designed and bought specifically for
Simply Be, JD Williams and Jacamo. This product is distinct and
bespoke to each brand, strengthening our unique, brand-aligned
proposition across our product offering.
We welcomed some fantastic third-party brands across our
strategic brands during the year, chosen selectively to complement
our own product offering. Within Womenswear, our branded offer
sales have increased by 49% against prior year through partnerships
with Nobody's Child, Mango, Monsoon and Whistles. Our Men's branded
offering continues to see growth, up 8% against prior year, with
good performance from our premium brands including Polo Ralph
Lauren and Boss.
Our Financial Services proposition evolved in the year,
enhancing the customer offer. In parallel, work has begun on a new
technology platform, with a dedicated team now in place to drive
delivery. Progress during the year has included commencing the
build of the first component of the platform, mapping customer
journeys and selecting platforms for further components to be
built. We have improved the integration of our existing Financial
Services proposition into the customer journey, developing better
credit messaging displays and optimising the user experience. We
rebranded our JD Williams credit offer "JDW Pay", which was
communicated through direct mail campaigns and attracted over
20,000 new credit customers. Building on lessons learnt from this,
we later rebranded our Simply Be credit offer as "Pay Simply Be".
We have also launched 0% interest for new and existing
customers.
3. Transform the customer experience
Strategic objective: Transform the customer experience, pre and
post purchase, and drive conversion at checkout through a
personalised experience.
We have evolved our digital customer ecosystem, building a
mobile-first, customer-centric website which was launched this year
for Simply Be. The platform aims to deliver a seamless customer
experience, so shoppers are able to navigate the site, have a
frictionless checkout experience and receive the same rich mobile
application experience across any device. It is already 18% faster
than any of our other websites and has also gained external
credibility for its performance, with its Google Lighthouse score
increasing, a measure based on a combination of performance,
accessibility, Search Engine Optimisation ('SEO'), and best
practice criteria. Jacamo will be the next brand to benefit and is
expected to go live in the first half of FY24, followed later by JD
Williams.
Native checkout, which allows customers to pay directly through
our app, rather than being redirected to the website, was launched
for mobile users across Android and iOS. Native checkout creates a
faster and smoother user experience, with fewer errors and
abandoned carts at point of payment.
4. Win with our Target Customer
Strategic objective: Grow our customer base through our existing
core customer, high value lapsed customers and a new, younger
generation.
We have invested in new marketing channels in order to attract
our target customers. We built a customer bidding algorithm to
target prospective customers interested in purchasing our products
through credit with branded display advertisements. Of the new
customers that were recruited through this channel, 80% went on to
purchase using our credit proposition. We continually sought new
ways to test and innovate acquisition of target audiences, driving
app installations across paid media channels including Google,
Apple, and Facebook.
We also evolved our approach to customer retention. We
introduced a new credit welcome programme to influence payment
behaviour by educating our customers on how to manage their credit
responsibly. This initiative led to a 34% reduction in customers
falling into arrears within testing. We intend to capitalise on
this insight to pursue other ways of influencing more regular
payments and activation of customer demand through better use of
data and analytics.
We also rebuilt our Customer Lifetime Value Model to give us
more accurate data, so that we can better understand our customer
base and improve targeting and personalisation.
5. Establish Data as an Asset to Win
Strategic objective: Establish data as an asset to drive top
line and margin improvements.
Last year we designed and launched our new Data Strategy.
Leveraging better insight from our unique Retail and FS data
requires us to evolve our operating model, and foster the
appropriate data culture.
We have largely achieved our target operating model by
establishing a Group Data function, plugging capability gaps with
key hires, and aligning with the organisation's agile ways of
working. Our data culture will empower our colleagues to
meaningfully engage with data to identify and leverage analytical
opportunities.
We continue to invest in data-driven use-cases in the Pricing
Optimisation and Customer Value space. One of our data products,
PriceTagger, (an in-house tool which helps us optimally promote
product using pricing elasticity curves), has been rolled out to
all clothing and footwear promotions. We have also released an
improved mailing selections model to optimise our offline marketing
spend and embedded our new customer cohort models into our
forecasting and planning processes. We expanded our Machine
Learning ('ML') capabilities by creating 'Luna', a framework for
building, deploying, and tracking scalable ML models by leveraging
the power of cloud platforms. This reduces ML deployment time from
months to minutes, allowing us to be more agile.
Key Enablers
The five pillars are underpinned by two enablers, the
foundations to our strategy: A sustainable and efficient operating
model, and our People and Talent.
We have worked hard to develop an agile operating model by
evolving our organisational design. We are moving to organisational
structures that are better aligned to our brands, journeys and
systems to enable better customer outcomes and deliver value faster
and more effectively for the organisation. We have been testing how
to embed this as part of our culture and learning throughout the
year through an iterative process, implementing it across areas of
the business where value can be realised fastest.
To ensure that we have the right environment for our people and
talent to adapt to this evolved way of working, we are committed to
building both a diverse workforce and creating an inclusive
environment which values equality for all. This is why we launched
our Equity, Diversity and Inclusion Strategy, "EMBRACE" during the
year. EMBRACE is a fundamental enabler to our success as an
organisation. Alongside this, we have launched our Apprenticeship,
Graduate and High Potential programmes, welcoming the first cohort
of our graduate scheme in October, as we continue to attract,
acquire, and develop capabilities for the future.
P rotecting our customers
We have taken a proactive approach to looking after our
customers, continuing to offer flexible payment options and payment
holidays, where appropriate, to help them manage their finances. In
addition, we have updated our help and support pages online,
providing financial education to help our customers make informed
decisions and manage their finances more effectively. As we move
forward, we will continue to work hard to provide help and support
for our customers.
FY24 strategic priorities
Good progress has been made across all our key strategic pillars
during the last financial year, reinforcing confidence in our
strategy, despite market conditions. We anticipate market
conditions to remain difficult for the next 12-18 months and expect
the first half of FY24 to be particularly challenging, before
inflationary pressures slowly subside and the impacts of UK
economic policy flow through into consumer markets. During this
period, we will upweight our focus on internal cash generation to
enable investment in our strategy.
We will continue to invest in our strategic transformation, the
key to unlocking sustainable growth when market conditions improve.
In order to better prioritise and execute activity that will
transform the business in the medium term, we have made the
decision to focus our resources on fewer things, so that we can
deliver value faster.
Investment is centred on five transformational priorities:
- New websites for all strategic brands - roll out our new
mobile-first website experience and continuously iterate launches
with new features.
- A technology platform to support our Financial Services
proposition - the platform will enhance the ways in which customers
can choose to pay for our amazing product and will be supported by
the launch of a new FS brand.
- Data culture - further empower our colleagues to engage with
data to identify and leverage analytical opportunities.
- A Product Information Management ('PIM') system - providing a
single place to collect, manage and enrich product data, to provide
a better experience for customers and a more efficient process for
colleagues.
- A fully embedded agile operating model - evolving our
organisational design so that all relevant colleagues will have
moved to an agile way of working.
An overview of focus areas by strategic pillar is provided
below:
1. Build a Differentiated Brand Portfolio
Our focus for FY24 is to further develop the identities of our
strategic brands. This will be executed through elevated
communications and storytelling that resonates with our target
audiences, delivered through channels which reflect where they
spend their time.
Simply Be will continue to emphasise inclusive fashion for all
body shapes, presenting itself as a brand that grasps this
territory better than others in the industry, enhancing our
approach to influencer marketing.
For JD Williams, we've started the year with an exciting media
partnership with ITV and Global, featuring our brand ambassadors
Davina McCall and Amanda Holden. Our summer campaign will follow
this and will launch a new creative approach. Building on the
'Collections' narrative, it will create an even stronger emotional
connection with our customer. We will continue to use our content
to raise the visibility of our credit proposition.
For Jacamo, we will design a new creative approach, to build on
the foundations of 'Every Man', broadening its appeal to all men,
not just 'Plus Size'. We have partnered with social media community
LADbible to create highly engaging content, based around our
customers' passion points. This will bring our product to life and
demonstrate the credibility in our story, championing inclusion and
providing access to the brands he is looking for.
2. Elevate the Fashion & Fintech Proposition
We will continue to evolve our own-label Womenswear proposition
to become unique to each of our brands. This will provide us with
exclusivity and credibility, and we will support our efforts with
the right third-party brands, offering a curated and balanced
offer. Our FS proposition will continue to evolve through the
transformational activity being delivered.
As the market continues to evolve, we will also look to further
refine the balance of fashion and home within our range
architecture. We have built a great home proposition to include
some of the world's leading brands and will continue to delight our
customers with a curated offer through the coming year.
Remaining mindful of the external market and the pressures our
customers face, we are committed to ensuring our offer delivers
great value for money, including great fit as standard, a wider
range of sizes, and most importantly, great fashion. This plays
into our financial services proposition, giving our customers
access to great products and making them more affordable.
Our FS transformation journey is in flight and we have listened
carefully to what our existing and prospective customers want. We
will develop our new FS proposition, by building and testing our
new FS Platform ready to launch to customers. The underlying
technology is the enabler that will help us to innovate our product
offering, as well as create the flexibility we require to best
support our customers. This means giving customers the flexibility
of revolving credit, combined with the certainty of instalment
credit, all tailored to individual needs. We will be launching this
new proposition under a new FS brand which has the customer at its
heart and removes barriers, by putting flexible payment options
into the hands of more people.
3. Transform the Customer Experience
Throughout the year our new websites will form an integral part
of our transformation activity. The launch of Simply Be provided us
with a blueprint, allowing us to replicate processes for the
launches of Jacamo, and then JD Williams. Jacamo has begun its
staged launch to customers. Our approach to our website technology
is not just about the websites going live, but rather an iterative
process where we constantly build new features to complement the
entire ecosystem. Our development is customer centric, with the
user experience fed by continuous customer feedback. The aim is to
constantly refine the end-to-end customer journey, allowing for
seamless interaction with our technology.
We will also deploy a Product Information Management ('PIM')
system to provide our customers with better information and insight
on our products, including offering more detail about sizing and
fabric. This will create a consistent customer experience and seeks
to lower the returns rate by distributing accurate and complete
content across all channels.
4. Win with our Target Customer
Whilst seeking to resonate with our target audiences, we are
further integrating our Retail and FS businesses to encourage the
acquisition of credit customers. Supported by our Finance and Data
teams, this will facilitate a more holistic approach to find the
best business solutions to support our credit propositions. Ahead
of our FS brand launch, this will be achieved through clearer
credit identities across all of our brands in our portfolio and
greater integration of FS messaging across our channels.
To ensure these identities are showcased in the most effective
way, we will reallocate our marketing spend towards Direct Mail and
Display, with FS becoming a fully embedded part of the overall
marketing plan. We will also be using combined Retail and FS data
to positively impact business decision making, through clearer
consideration of the combined contribution.
Whilst we continue to invest in new ways to acquire target
customers, we will also consider the evolution of how we define
loyalty, the behaviours we want to encourage, and the mechanisms
that need to be implemented in order to create a better value
exchange between our brands and our customers.
5. Establish Data as an Asset to Win
We will continue to invest in data-driven use cases in pricing
optimisation and the customer value space by utilising our unique
datasets and expertise to land high value data-driven use cases.
PriceTagger will gain seasonality intelligence, and expand to cover
the Home, Technology and Leisure categories. Our new Customer
Lifetime Value model will improve the allocation of our marketing
spend, and we will create data-enabled propositions that leverage
our unique, combined FS and Retail business model. Lastly, we will
continue our digital analytics work to provide a consistent view of
customer activity across devices (app and web) and platforms
(existing and new websites).
Enablers
Our ambition is that by the end of 2024, we will have fully
embedded our new ways of working across the organisation. This
means some colleagues will be fully immersed in this way of working
and some will adopt agile principles as needed, depending on what
they are working on and who they are working with. We believe it
will be a better way for us to focus on delivering our strategy at
pace. It will allow us to be adaptable, sensing and responding to
changes in the market as soon as they happen and satisfying our
customers' expectations faster than ever.
We will continue to ensure our business delivers key projects to
allow us to trade effectively, safeguarding our colleagues and our
customers. These include the upcoming changes to regulation on
Consumer Duty and core technology programmes such as infrastructure
contract renewals and investment in our cyber security.
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. The disclosure below
reflects our performance in FY23.
52 weeks to 52 weeks to Change
25 Feb 2023 26 Feb 2022
------------------------ ------------- ------------- --------
Total website sessions
(2) 217m 241m (10.0)%
Conversion 3.8% 3.9% (10)bps
Total Orders (3) 8.7m 10.2m (14.7)%
AOV GBP79.2 GBP71.1 11.4%
Items per order 2.8 2.8 -
AIV GBP28.3 GBP25.2 12.3%
Total active customers 2.6m 2.9m (10.3)%
FS arrears 9.1% 8.4% 70bps
NPS 57 60 (3)
------------------------ ------------- ------------- --------
(1 KPIs are defined on page 60. KPIs shown above on a 52 week
basis for FY23 other than Financial Services Arrears, which
reflects a 4 March 2023 balance sheet date.)
(2 FY22 sessions and conversion restated to match definition
post roll-out of new Simply Be website. The restatement is
estimated based on metrics from before and after the Simply Be
roll-out. Estimations to be replaced with actuals as new websites
roll-out to other brands.)
(3 Total orders includes online and offline orders.)
A number of our KPIs reflect the impact of the tougher consumer
environment on the business seen during the year. Total website
sessions declined by 10%(2) , reflecting a combination of more
cautious consumer behaviour, consistent with the softer online
market in the year, and significant cost inflation in paid search,
reducing the number of sessions obtained from the same spend. The
conversion rate is down 0.1ppts(2) against last year, a reflection
of a more cautious approach from consumers whilst browsing
sites.
The reduction in orders has been offset by an increase in
Average Item Value ('AIV') as we have mitigated a more subdued
backdrop with a focus on promotional discipline, implementing
measured price increases supported by data tools to help offset
inflationary impacts and have seen more intentional behaviour from
customers, which has included buying into more premium ranges.
The total number of active customers is lower than the prior
year, reflecting the more difficult trading environment and
includes our Heritage portfolio of brands where the focus is on
stabilisation and value protection rather than growth. We have seen
a 2ppt increase in the proportion of new accounts opened as credit
accounts.
The Financial Services arrears rate increased over the prior
year and returned to pre-pandemic levels in the second half of the
year. This was driven by macro-economic pressures, particularly
over the cost-of-living. We continue to support our customers
through these pressures, and customers utilised our payment plans
at a greater rate than previous years.
Our Net Promoter Score ('NPS') declined from our FY22 position
as we manage issues around delivery speed, which have been a
challenge across the industry. The FY23 exit run rate for NPS has
now returned to historic norms.
FY24 Outlook
We continue to expect the macro-economic challenges of a high
inflationary environment and low consumer confidence, to persist
throughout FY24.
Given this backdrop, we have commenced FY24 with lower active
customers and our performance at the start of FY24 has been
impacted by poor early Spring weather, reducing demand for our
summers ranges. Q1 FY24 annualises against the strongest quarterly
performance experienced in FY23, before the more significant impact
of cost-of-living pressures on customers' spend was felt. As a
result, product revenue momentum in Q4 FY23 (17.8%) has broadly
continued into Q1 FY24.
The uncertain macro-economic conditions make visibility on
revenue trends difficult. We currently expect full year product
revenue for FY24 to decline at a slightly improved rate to that
seen in FY23 (-8.4%(1) ).
We expect to drive product margin improvements through mix by
moving further into clothing, and a greater proportion of full
price sales, supported by optimised pricing strategies which also
utilise our improving data usage. We are well hedged against our US
Dollar purchases for FY24.
The customer loan book opened the year lower than prior year.
Combined with our expectations for product revenue, we currently
expect Financial Services revenue to decline at a rate slightly
adverse to that seen in FY23 of 4.3%(1) . The Financial Services
gross margin broadly normalised in FY23 at circa 49%.
We anticipate a further increase in the adjusted operating costs
to Group revenue ratio in FY24, as a result of inflationary
pressures continuing from FY23, particularly in Admin & Payroll
costs, and lower Group revenue. Management actions are planned
across all areas to mitigate the effect of these pressures where
possible.
Across the combination of gross margin improvements and the
headwinds in adjusted operating costs, we currently expect a
reduction in FY24 of around 1ppt in EBITDA margin over FY23's level
(8.2%(1) ).
We expect to see a reduction of around GBP15m against the
previous level of depreciation and amortisation following the
GBP53m impairment of non-financial assets in FY23, whilst holding
finance costs in line with FY23.
The business continues to be well positioned to invest in and
deliver strategic change and we will step-up investment in FY24,
aligned to our transformational priorities. We will continue to
self-fund investment through carefully managed cash flows including
tight control and right-sizing of stock. At the end of FY24, we
expect net debt to be slightly better than FY23's closing position.
We remain confident in our strategic direction and our digital
transformation as we focus on driving sustainable profitable
growth.
1. FY23 was a 53 week financial year. FY24 expectations are
stated against the 52 week results to 25 February 2023 as set out
on page 16. (Product revenue of GBP426.6m; Financial services
revenue of GBP239.8m; EBITDA margin of 8.2%).
Summary
FY23 was a year of pragmatism and flexibility. The business
balanced its short-term trading requirements with its need to
deliver longer-term transformation against our strategic agenda. We
have been continuously tested by fluctuations in the market since
the Covid-19 pandemic and have managed to effectively navigate our
way through each year. In the face of this adversity, we have
become a more resilient business, by challenging our colleagues to
put the customer at the centre of everything we do, and by
executing our strategic transformation at pace to realise value
faster.
We have clear brand identities that resonate with their target
audiences, with a product offer that continues to drive inclusion
through our expertise in fit. We have continued to foster
collaboration between our Retail and Financial Services businesses
to provide better outcomes for our customers and see this adding
further value as we expand this approach into FY24.
We expect the market for UK discretionary goods to remain soft
in FY24. However, during the year we will balance disciplined
trading of the business, maintaining balance sheet strength and
moving forward with our strategic transformation. By the end of
2024 we expect the output of our five transformational activities
to provide the platform for the organisation to seize market
opportunities so that we can begin to deliver sustainable
profitable growth. Supporting our customers throughout this period
is paramount, because despite cost-of-living pressures, our
customers still want to look and feel amazing, and it is our
responsibility, and opportunity to make sure they do.
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.
A key pillar of SUSTAIN is our commitment to responsibly source
own-brand product, and we have reached 41% of own brand designed
Clothing and Home textile ranges with sustainable properties (from
0% in 2019) as we target growing this to 100% by FY30 in line with
our Textiles 2030 commitment.
Our science based target submission has been made to the Science
Based Targets initiative (SBTi) and we are awaiting target
validation in October 2023. Our proposed target is to reduce our
Scope 1, 2 and 3 emissions by 42% by FY30 against an FY22 base
year, which is aligned with the 1.5degC pathway of the Paris
Agreement. In addition to this, we are also committing to sourcing
100% renewable electricity across our direct operations by
FY30.
Our charity partnership with Maggie's came to an end in the year
raising over GBP180,000 across the four years. We have now launched
new partnerships with two charities - the Retail Trust, to align
with our industry and strategic vision, and FareShare Greater
Manchester, nominated by our colleagues to allow us to continue to
support a charity in our immediate community. Our focus for FY24
will be to engage colleagues with our two new charity partners
through a series of fundraising and engagement events throughout
the year.
We have implemented a more integrated Diversity, Equity and
Inclusion policy "EMBRACE" which sets out our ambition to build a
truly diverse workforce, where our colleagues have equal
opportunity to succeed, fulfil their potential at work and feel
empowered by a true sense of belonging.
FY23 FINANCIAL REVIEW
Financial KPIs
Our non-financial KPIs are contained in the Chief Executive
Officer's statement. We also use a number of financial KPIs to
manage the business. These are shown below and will continue to be
reported going forwards. All Financial KPIs below relate to our 53
week financial period ended 4 March 2023.
53 weeks to 4 52 weeks to Change
March 2023 (1) 26 Feb 2022
-------------------------------- ---------------- ------------- ----------
Product revenue GBP433.4m GBP465.6m (6.9)%
Adjusted EBITDA GBP57.3m GBP95.0m (39.7)%
Adjusted EBITDA margin(2) 8.5% 13.3% (4.8)ppts
Adjusted operating
costs to balaGroup
revenue(2) 37.7% 36.0% (1.7)ppts
Cash and cash equivalents(3,4) GBP35.5m GBP43.1m (17.6)%
Total Accessible
Liquidity(2,4) GBP143.9m GBP212.1m (32.2)%
Statutory profit GBP(71.1)m GBP19.2m N/A
before tax
Adjusted EPS(2) 1.81p 7.69p (76.5)%
-------------------------------- ---------------- ------------- ----------
1 FY23 is a 53 week period, ended 4 March 2023. Results for the
52 weeks to 25 February 2023, which exclude the 53(rd) week, are
set out on page 16.
2 A full glossary of Alternative Performance Measures and their
definitions is included on page 61.
3 During FY22 we agreed with our banks that the securitisation
facility does not need to be fully drawn and that surplus cash can
be used to repay drawings from time to time. FY22 excludes
accessible amounts voluntarily undrawn against the securitisation
facility of GBP60.1m. There were no amounts voluntarily undrawn
against the securitisation facility at the FY23 year end.
4 Total Accessible Liquidity of GBP143.9m and cash and cash
equivalents of GBP35.5m 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 GBP112.0m.
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 61.
Reconciliation of Income Statement Measures
52 weeks
53 weeks to 4 to 25 Feb 52 weeks to 26
March 2023 2023 Feb 2022
53rd 52
Adjusting week weeks Adjusting
GBPm Statutory items Adjusted impact Adjusted Statutory items Adjusted
Group Revenue 677.5 677.5 (11.5) 666.0 715.7 715.7
Group cost of
sales (364.7) (364.7) 6.7 (358.0) (362.8) (362.8)
Gross Profit 312.8 312.8 (4.8) 308.0 352.9 352.9
Gross profit
margin 46.2% 46.2% 46.2% 49.3% 49.3%
Operating costs (290.0) 34.5 (255.5) 1.9 (253.6) (286.6) 28.7 (257.9)
Adjusted
operating
costs to Group
revenue ratio 37.7% 38.1% 36.0%
Adjusted EBITDA 57.3 (2.9) 54.4 95.0
Adjusted EBITDA
margin 8.5% 8.2% 13.3%
Depreciation &
amortisation (35.7) (35.7) - (35.7) (38.1) (38.1)
Impairment of
non-financial
assets (53.0) 53.0 - - - - -
---------- ---------- --------- -------- --------- ---------- ---------- ---------
Operating /
(loss)
profit (65.9) 87.5 21.6 (2.9) 18.7 28.2 28.7 56.9
Finance costs (14.1) (14.1) 0.3 (13.8) (13.8) (13.8)
(Loss) / Profit
before
taxation
and fair value
adjustment to
financial
instruments (80.0) 87.5 7.5 (2.6) 4.9 14.4 28.7 43.1
---------- ---------- --------- -------- --------- ---------- ---------- ---------
Fair value
adjustments
to financial
instruments 8.9 8.9 - 8.9 4.8 4.8
(Loss) / Profit
before
taxation (71.1) 87.5 16.4 (2.6) 13.8 19.2 28.7 47.9
---------- ---------- --------- -------- --------- ---------- ---------- ---------
Taxation credit
/ (charge) 19.7 (20.6) (0.9) - (0.9) (3.0) (5.7) (8.7)
(Loss) / Profit
for the year (51.4) 66.9 15.5 (2.6) 12.9 16.2 23.0 39.2
---------- ---------- --------- -------- --------- ---------- ---------- ---------
(Loss) /
Earnings
per share (11.19)p 1.81p N/A 3.53p 7.69p
---------- ---------- --------- -------- --------- ---------- ---------- ---------
Reconciliation of Cash and cash equivalents and bank overdrafts
to Unsecured Net Cash / (Debt) and Adjusted Net Debt
GBPm 4 March 2023 26 Feb 2022
------------------------------------------ ------------- ------------
Cash and cash equivalents 35.5 43.1
Unsecured debt and bank overdrafts - -
Unsecured Net Cash / (Debt) 35.5 43.1
------------------------------------------ ------------- ------------
Secured debt facility linked to eligible
receivables (332.9) (302.5)
------------------------------------------ ------------- ------------
Adjusted Net Debt (297.4) (259.4)
------------------------------------------ ------------- ------------
Reconciliation of Net movement in Cash and cash equivalents and
bank overdrafts to Net Cash (utilisation) / generation
GBPm 53 weeks to 52 weeks
4 March 2023 to 26 Feb
2022
------------------------------------------- -------------- -----------
Net decrease in cash and cash equivalents
and bank overdraft (7.6) (37.7)
Voluntary flexible (drawdown) / repayment
of securitisation loan (60.1) 60.1
Net Cash (utilisation) / generation (67.7) 22.4
------------------------------------------- -------------- -----------
Overview
For both our customers and N Brown, FY23 was a year of
normalising post-pandemic and facing into the new challenge of a
high inflation environment.
The Group delivered Adjusted EBITDA of GBP57.3m and Adjusted
Profit before Tax of GBP7.5m. Adjusting items totalled GBP87.5m,
including the Allianz litigation settlement, and a non-cash
impairment to non-financial assets of GBP53.0m to reduce the
balance sheet asset value to match lower value in use forecasts
driven by the current macro-economic conditions. These adjusting
items resulted in a statutory loss before tax of (GBP71.1m). Net
cash utilisation was (GBP67.7m), reflecting underlying cash
generation offset by adjusting items of GBP55.4m including a
partial deferral of the annual debt sale to achieve a better
outcome for customers and the business, and settlement of the
Allianz litigation. Cash and cash equivalents amounted to GBP35.5m.
Net of a low level of restricted cash, combined with the fully
undrawn RCF of GBP100.0m and overdraft of GBP12.5m, provides Total
Accessible Liquidity of GBP143.9m at the balance sheet date.
Core customer dynamics, including product mix, returns rates and
credit arrears rates broadly returned to pre-pandemic norms.
However, progressively through the year the impact of the high
inflation environment became apparent. This was experienced through
significant pressure on input costs and customers being more
cautious in their shopping behaviours combined with an increase in
their use of credit. We have remained adaptable in recognition of,
and with the intention to mitigate, these pressures, focusing the
teams on what we can control.
The softer market dynamics, combined with an active strategy to
prioritise profitability as opposed to growth, led to product
revenue down 6.9% or GBP32.2m. This was substantially offset by the
1.8ppt improvement in product gross margin rates as well as volume
cost savings through operating costs, resulting in a relatively
small retail impact on the Group Adjusted EBITDA versus prior year.
The more material driver of the movement year-on-year in Adjusted
EBITDA and Adjusted Profit before Tax came from Financial Services
('FS') with the normalisation of FS gross margin rate compared with
the abnormally high result in the prior year, combined with lower
retail sales leading to a 3.8% reduction in the customer
receivables debtor book. Adjusted Operating costs were slightly
lower with material cost inflation of GBP15m being offset by
savings through volumes. Interest costs and adjusted amortisation
were also broadly flat, benefiting from the interest rate
hedge.
Our balance sheet remains strong with Total Accessible Liquidity
of GBP112.0m at 6 May 2023, following recommitment of the RCF and
overdraft facilities to December 2026, and we remain well hedged on
foreign exchange and interest rates. This strong financial position
allows us to take a measured and well-managed approach to capital
investment. We are continuing to make strategic progress including
the launch of new customer facing websites, with Simply Be being
the first to be deployed, and moving to the "build" stage in the
development of our strategically critical new Financial Services
platform.
Looking ahead, the Board reflected on the current cost-of-living
crisis and challenges in consumer confidence, and reduced the
financial forecasts to reflect the lower exit run rate from FY23,
as announced in the trading update published in January 2023. The
accounting standard (IAS 36) requires us to look at our financial
forecasts and compare their value to our net assets. The discounted
value of the latest financial forecasts is lower than our net
assets resulting in an accounting impairment of GBP53.0m which has
been recorded against our intangible and plant and equipment
assets. This is an accounting assessment under IAS36 and is not a
market valuation of the business. These assets remain in use and
whilst having to take account of the change in forecasts, the Board
remain confident in the strategy referenced on p 8, and will
continue to keep under review the forward forecasts for the latest
macro-economic environment and strategic execution.
Revenue
GBPm 53 weeks 52 weeks Change 52 weeks Change
to to 53 weeks to 52 weeks
4 Mar 2023 26 Feb to 52 weeks 25 Feb 2023 to 52 weeks
(1) 2022 (2) (1)
----------------------- ------------ ---------- ------------- ------------- -------------
Revenue
----------------------- ------------ ---------- ------------- ------------- -------------
Strategic brands(3) 311.8 323.9 (3.7)% 306.8 (5.3)%
Heritage brands(4) 121.6 141.7 (14.2)% 119.8 (15.5)%
Total product
revenue 433.4 465.6 (6.9)% 426.6 (8.4)%
----------------------- ------------ ---------- ------------- ------------- -------------
Financial services
revenue 244.1 250.1 (2.4)% 239.4 (4.3)%
----------------------- ------------ ---------- ------------- ------------- -------------
Group revenue 677.5 715.7 (5.3)% 666.0 (6.9)%
----------------------- ------------ ---------- ------------- ------------- -------------
(1 FY23 is 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 last year's 52 week period. A detailed
comparison of the 53 weeks and 52 weeks results is set out on page
16.)
(2 Brand split re-presented into Strategic and Heritage brands
in line with the Group's strategy.)
(3 JD Williams, Simply Be, Jacamo.)
(4 Ambrose Wilson, Home Essentials, Fashion World, Marisota,
Oxendales and Premier Man.)
Group revenue declined 5.3% to GBP677.5m reflecting a 6.9%
decline in Product revenue and a 2.4% decline in FS revenue. For
the comparable 52-week period the Group revenue declined 6.9%.
Product revenue reflected the challenging online market
conditions which developed throughout the year, including channel
shift back into stores and omni-channel retailers. Across FY23, the
total online market declined by c.8%(1) , and c.5%(2) when weighted
for our category mix. Against this market backdrop, our strategic
brands saw a decline of 5%, in line with the market for the
comparable 52-week period. Our heritage brands, which are managed
for contribution as opposed to growth, saw product revenue down 15%
for the comparable 52-week period. The product revenue trend
developed through the year with Q1 down 0.6%, Q2 and Q3 similar at
-9.4% and -9.2% respectively, and Q4 at -17.8% in part due to
deliberate actions to manage for profitability rather than sales at
this softer time of year.
The impact of cost-of-living pressures has been evident in our
customers' buying behaviour, particularly since the summer, with
customers becoming more intentional in their spend, buying what
they need or what they love, with a greater focus towards either
the value or premium end of our ranges. Order levels were down 15%
year-on-year reflecting this caution, partially offset by an
increase in average order value of 11% driven by a combination of
price increases in response to cost inflation, and the more
disciplined approach to discounting. By Peak trading in Q3 the
previous pandemic effect on returns rates and mix of clothing
versus home had normalised and from H2 was no longer a year-on-year
drag.
The reduced level of product sales from this fiscal year and
prior years, net of a slight improvement in credit penetration,
resulted in a smaller customer receivables loanbook, down 3.8% at
year end. This in turn drove lower FS income with revenue down 4.3%
on a comparable 52 week basis.
Our responsible and flexible credit offering remains an integral
part of our customer proposition, particularly in the current
macro-economic environment.
(1) (BRC total online non-food market.)
(2) (BRC total online non-food market weighted to N Brown
category mix using management analysis.)
Adjusted Gross profit(1)
GBPm 53 weeks 52 weeks Change 52 weeks Change
to to 53 weeks to 52 weeks
4 Mar 2023 26 Feb 2022 to 52 weeks 25 Feb to 52 weeks
(2) 2023 (2)
Product gross
profit 192.5 198.3 (2.9)% 189.6 (4.4)%
Product gross
margin % 44.4% 42.6% 1.8ppts 44.4% 1.8ppts
Financial services
gross profit 120.3 154.6 (22.2)% 118.4 23.4%
Financial services
gross margin
% 49.3% 61.8% (12.5)ppts 49.5% 12.3ppts
-------------------- ------------ ------------- ------------- ---------- -------------
Adjusted Group
gross profit(1) 312.8 352.9 (11.4)% 308.0 (12.7)%
-------------------- ------------ ------------- ------------- ---------- -------------
Adjusted Group
gross profit
margin 46.2% 49.3% (3.1)ppts 46.2% (3.1)ppts
-------------------- ------------ ------------- ------------- ---------- -------------
(1) A reconciliation of statutory measures to adjusted measures
is included on page 16. A full glossary of Alternative Performance
Measures and their definitions is included on page 61.
(2) FY23 is a 53 week period, ended 4 March 2023. Gross profit
has also been presented on a 52 week basis, excluding the 53rd week
for comparability with last year's 52 week period. A detailed
comparison of the 53 weeks and 52 weeks results is set out on page
16.
Adjusted gross profit margin reduced 3.1ppts year-on-year to
46.2%, returning to a more normal level post the pandemic impacted
prior year. The material driver of this reduction was the FS margin
normalising as expected.
FS gross margin reduced 12.5ppts to 49.3% in FY23, compared to
the abnormally high FY22 gross margin of 61.8%. The unprecedented
conditions within the consumer credit market across FY21 and FY22,
with government support during the first part of the Covid-19
pandemic, resulted in high repayment rates, low arrears rates and
low cash write-offs. Consequently, this led to low write off
charges in FY22 and the release of the original FY21 expected
credit loss provision which anticipated an adverse Covid-19 impact
that was then not required. This generated the high FY22 FS margin
rate, with the current year reflective of more normal levels. FY23
is still inclusive of a forward looking additional expected credit
loss provision to reflect caution in the future macro-economic
conditions, reducing FS margin by c. (0.8)ppt.
Product gross margin improved 1.8ppts to 44.4% benefiting from
management actions taken to mitigate the impact of input cost
inflation. Actions included reduced discounting through disciplined
trading, measured price increases supported by data, and optimising
our approach to wholesaling our stock to third parties, which
combined, benefitted margin rate by c. 2ppts. We saw c. 1ppt of
margin rate benefit from higher VAT bad debt relief due to the
normalising level of financial services write-offs(1) . Partially
offsetting this was a negative impact of c. 0.5ppts from higher
freight rates. The impact from foreign exchange was minimal with
hedging fully mitigating the c. 2ppts drag from Sterling weakening
against the US $. A higher year end stock provision is also in
place, which reduced margin by c. 1ppt. The proportion of current
stock versus prior season has improved year on year, with the
additional provision covering the year end stock being higher than
normal for the forward level of sales.
The FX contracts used to hedge US $ spend are described in Note
7 to the financial statements and we remain well hedged throughout
FY24 with c. 90% of the US $ cash spend hedged.
(1) Included in product gross margin as they are only
recoverable as we are a combined retail and financial services
business, and they would not be recoverable as a standalone credit
business.
Adjusted operating costs(1)
GBPm 53 weeks 52 weeks Change 52 weeks Change
to to 53 weeks to 52 weeks
4 Mar 2023 26 Feb to 52 25 Feb to 52 weeks
(2) 2022 weeks 2023 (2)
------------------------ ------------ --------- ---------- ---------- -------------
Warehouse & fulfilment
costs (63.2) (67.9) 6.9% (62.2) 8.4%
Marketing & production
costs (70.0) (73.1) 4.2% (69.4) 5.1%
Admin & payroll
costs (122.3) (116.9) (4.6)% (122.0) (4.4)%
------------------------ ------------ --------- ---------- ---------- -------------
Adjusted operating
costs(1) (255.5) (257.9) 0.9% (253.6) 1.7%
------------------------ ------------ --------- ---------- ---------- -------------
Adjusted operating
costs as a % of
Group Revenue 37.7% 36.0% 1.7ppts 38.1% 2.1ppts
------------------------ ------------ --------- ---------- ---------- -------------
(1) A reconciliation of statutory measures to adjusted measures
is included on page 16. A full glossary of Alternative Performance
Measures and their definitions is included on page 61.
(2) FY23 is 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 last year's 52 week
period. A detailed comparison of the 53 weeks and 52 weeks results
is set out on page 16.
Total operating costs excluding adjusting items reduced GBP2.4m
to GBP255.5m. This included the headwind of c. GBP15m price
inflation being offset by volume savings, and expensed project
costs being offset by cost saving initiatives. Adjusted operating
costs as a percentage of Group revenue increased 1.7ppt to 37.7%
reflecting the negative operational gearing on fixed costs, but
remained below the pre-pandemic level of c. 40%.
Warehouse and fulfilment costs were GBP4.7m or 6.9% lower than
prior year, benefiting from the flexible cost base with c. GBP12m
of savings from lower core volumes. This was partially offset by
higher returns in H1 which drove a c. GBP2m increase over prior
year, and a headwind of c. GBP6m across fuel surcharge and
inflationary price impacts on carrier and resource costs.
Marketing and production costs were GBP3.1m or 4.2% lower than
prior year reflecting the impact of lower order volumes on
performance marketing, more than offsetting cost inflation of c.
GBP4m, with brand marketing similar year-on-year. In H1 FY23, costs
increased GBP3m year-on-year and in H2 costs reduced GBP6m due to a
combination of the volume profile in year, and the phasing of brand
spend in the prior year.
Admin and payroll costs increased by GBP5.4m or 4.6%, driven
predominantly by inflationary price increases of c. GBP5m including
utilities, technology contracts, pay awards and National Insurance.
Expensed project costs have been funded through net underlying
savings.
Across all areas of the cost base, the inflationary pressure
increased in H2 FY23 vs H1 FY23 as expected, for both supplier
costs and internal pay awards. This will flow through and annualise
into FY24.
Statutory operating costs including adjusting items increased by
1.2%.
Depreciation and amortisation
Depreciation and amortisation was GBP35.7m, down GBP2.4m versus
the GBP38.1m in the prior year as a result of older assets now
being fully amortised following the acceleration of useful economic
lives post the review at the end of FY21, and the change in
accounting policy adopted in FY22 relating to software as a
service, which results in a greater proportion of one off
investment spend expensed.
Finance costs
Net finance costs of GBP14.1m, were broadly in line with the
GBP13.8m in the prior year 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, which provided a cash benefit of
approximately GBP4m during FY23.
Adjusting items - excluding impairment of non-financial
assets
During the year, the Group reached 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 GBP49.5m. The current year
charge of GBP26.1m represents the additional amount required to
cover the settlement and legal costs to completion. Further details
are disclosed in Note 6 to the financial statements.
During the year the Group made a provision of GBP5.5m as an
estimate of litigation costs. This is principally committed
external legal costs associated with legacy customer claims. This
is not a new area of exposure, and in prior years the Group has
handled such claims on a case-by-case basis, and costs incurred
have not been material. The Group will continue to defend such
claims and the Board supports a strategy to robustly defend any
past and future claims. The Group has engaged external counsel
which is reflected in the provision recorded.
During the current year, the Group performed a restructuring
exercise to assess headcount and payroll overhead, following the
contraction in revenues during the Pandemic and the more recent
macro-economic conditions. Total redundancy costs of GBP2.4m were
incurred in the year.
Adjusting items - impairment of non-financial assets
During Q4 FY23, the Board reflected on the current
cost-of-living crisis and challenges in consumer confidence, and
reduced its financial forecasts to reflect a lower exit run rate
from FY23, as announced in the trading update published in January
2023. Accounting standard (IAS 36) requires us to look at our
financial forecasts and compare their value to our net assets. The
discounted value of the latest financial forecasts is lower than
our net assets, resulting in an accounting impairment of GBP53.0m
which has been recorded against our intangible and plant and
equipment assets. This is an accounting assessment and is not a
market valuation of the business. The assets in question remain in
use and whilst having to take account of the changes to forecasts,
the Board remains confident in the strategy referenced on p 8, and
will continue to keep its forecasts under review.
GBPm 53 weeks to 52 weeks to
4 March 2023 26 Feb 2022
-------------------------------------- -------------- -------------
Non-cash impairment of non-financial 53.0 -
assets
Settlement of Allianz litigation 26.1 29.8
Other 8.4 (1.1)
Items charged to profit before
tax 87.5 28.7
-------------------------------------- -------------- -------------
Profit and earnings per share
Driven by the elevated FS gross margin rate in the prior year,
and the softer trading environment this year, Adjusted EBITDA
decreased by GBP37.7m to GBP57.3m and Adjusted EBITDA margin
decreased by 4.8ppts to 8.5%.
Statutory operating (loss) / profit decreased by GBP94.1m over
prior year to a loss of GBP65.9m reflecting the reduction in
Adjusted EBITDA and a higher level of adjusting items charged to
operating profit.
Statutory (loss) / profit before tax was GBP(71.1)m, down
GBP90.3m year on year (FY22: GBP19.2m), reflecting the reduction in
statutory operating (loss) / profit, stable interest costs, and an
increased fair value gain on financial instruments as a result of
foreign exchange and interest rate hedging mark to market
gains.
The taxation credit for the year is based on the underlying
estimated effective tax rate for the full year of 28%, and reflects
adjusted costs and movement in deferred tax in the year, partially
offset by prior year adjustments. Further tax analysis is contained
in note 8 on p45.
Statutory earnings per share decreased to a loss of 11.19p
(FY22: 3.53p). Adjusted earnings per share decreased to 1.81p
(FY22: 7.69p).
Financial services customer receivables and impairment charge on
customer receivables
Gross customer trade receivables at year end reduced by 3.8% to
GBP555.2m, driven by the reduced level of prior and current year
product sales net of an increase in credit penetration.
Arrears rates increased to 9.1% (FY22: 8.4%), normalising from
the prior year's low level. Macro conditions have resulted in
pressure on customers, which is being carefully monitored. We have
continued to support our customers during this time and in FY23 saw
indications of customers staying up to date or proactively moving
onto payment arrangements.
This year, as part of the annual payment arrangements debt sale,
further analysis was undertaken to segment the balances and predict
future probable outcomes. This led to a change of strategy with
only part of the balance being sold, with the remainder being
retained to either enable customers to return to trade, or a better
net outcome to be achieved selling later inclusive of VAT recovery.
As a result of the different strategy, an additional c. GBP35m of
gross debtor balances are included in the year end balance and
GBP14.3m of cash generation is being temporarily deferred.
The change in debt sale strategy is also the main driver behind
the expected credit loss ('ECL') provision ratio increasing to
13.4% from 11.9% in FY22 as these payment arrangement balances are
provided for at a higher rate than the receivables not on a payment
arrangement.
GBPm 4 March 2023 26 Feb 2022 Change
------------------------------ ------------- ------------ ----------
Gross customer loan balances 555.2 577.2 (3.8)%
ECL provision (74.6) (68.7) 8.6%
Normal account provisions (56.3) (58.1) +0.1ppts
Payment arrangement
provisions (16.5) (4.8) (2.1)ppts
Inflationary impacts (1.8) (5.8) +0.7ppts
ECL provision ratio 13.4% 11.9% (1.5)ppts
------------------------------ ------------- ------------ ----------
Net customer loan balances 480.6 508.5 (5.5)%
------------------------------ ------------- ------------ ----------
The profit and loss net impairment charge on customer
receivables for FY23 was GBP122.3m, GBP27.9m higher than last year
driven by annualising against the unusually low write-offs and the
release of Covid-19 provisioning in FY22.
GBPm
------------------------------------------------------- ------
52 weeks to 26 Feb 2022 impairment charge on customer
receivables 94.4
Covid-19 provisioning which was not required 13.7
Normalised write-offs 9.4
Macro-economic and inflationary overlay 2.5
Week 53 2.3
53 weeks to 4 March 2023 net impairment charge
on customer receivables 122.3
------------------------------------------------------- ------
Funding and total accessible liquidity ('TAL')
The Group has the following arrangements in place:
A GBP400m securitisation facility (FY22: GBP400m) committed
until December 2024, drawings on which are linked to prevailing
levels of eligible receivables but with flexibility around the
level which the Group chooses to draw. In February 2023, the Group
chose to proactively reduce the lender commitment from GBP400m to
GBP340m to reflect the accessible funding level and reduce ongoing
fees;
As at the balance sheet date, a RCF of GBP100m, and an overdraft
facility of GBP12.5m, both fully undrawn at 4 March 2023. These
facilities were refinanced following the year end to a maximum
limit of GBP75m and GBP12.5m respectively, remain undrawn and are
both now committed to December 2026.
Following the refinancing of the RCF facility, at 6 May 2023
Group TAL was GBP112.0m, comprising of GBP28.3m including
restricted cash of GBP3.8m, the fully undrawn RCF of GBP75.0m and
overdraft of GBP12.5m.
At the end of FY23 the Group had TAL of GBP143.9m (FY22:
GBP212.1m), comprising GBP35.5m of cash, net of restricted cash of
GBP4.1m and the fully undrawn RCF of GBP100m and overdraft facility
of GBP12.5m.
Net Cash (Outflow) / Generation
GBPm 53 weeks to 52 weeks to
4 March 2023 26 Feb 2022
---------------------------------------- -------------- -------------
Adjusted EBITDA 57.3 95.0
Inventory working capital movement (6.7) (9.6)
Other working capital, operating
cash flows and provision movement(1) (14.7) (21.8)
---------------------------------------- -------------- -------------
Cash flow adjusted for working capital
(1) 35.9 63.6
---------------------------------------- -------------- -------------
Adjusting items (55.4) (9.8)
Capital investing activities (25.6) (19.8)
Non-operating tax & treasury 0.2 (7.2)
Interest paid (15.0) (13.8)
Non-operational cash outflows (95.8) (50.6)
---------------------------------------- -------------- -------------
Gross customer loan book repayment 21.9 28.6
Decrease in securitisation debt in
line with customer loan book(2) (29.7) (19.3)
---------------------------------------- -------------- -------------
Net cash inflow from the customer
loan book(2) (7.8) 9.4
---------------------------------------- -------------- -------------
Net cash (outflow) / generation(1,2) (67.7) 22.4
---------------------------------------- -------------- -------------
(1) Includes impact from 53rd week.
(2) Includes impact of debt sale strategy.
Net cash utilisation was GBP67.7m in the year, funded by
GBP60.1m from the return to the normal procedure of fully drawing
the financial services securitisation facility relative to the
eligible receivables, and a reduction of GBP7.6m in the cash and
cash equivalents. The year closed with a positive position of
GBP35.5m net unsecured cash.
The utilisation of cash in the year was majority driven by cash
outflows related to adjusting items totalling GBP55.4m including
the full and final settlement paid to Allianz, and the GBP14.3m
impact of the partial deferral of the debt sale. Timing differences
due to the inclusion of a 53rd week in FY23 have also resulted in
an additional month's payroll and other cash payments of c. GBP9.0m
as adverse working capital. Excluding these non-comparable items,
cash of GBP11.0m was generated in the year.
Capital expenditure of GBP25.6m (FY22: GBP19.8m) reflects a
planned step-up in spend to deliver the ongoing digital
transformation of the business. We expect a further increase in
capital investment in FY24 as part of the continued transformation
of the business.
Net inventory levels at the year end were up 7.8%, at GBP94.1m
(FY22: GBP87.3m), driving a net drag in working capital. This
inventory level is inclusive of the impact of cost inflation on
both input costs and freight rates, with the underlying unit volume
similar year on year. The proportion of current stock versus prior
season is an improved position year-on-year. Given an expectation
of softness in consumer markets in FY24, we have plans in place to
carefully manage inventory intake and reduce stock holding in FY24
and have also provided at year end for a higher level of stock
write offs.
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 GBP35.5m (FY22: unsecured net cash GBP43.1m plus additional
GBP60.1m which was voluntarily underdrawn on the securitisation
funding facility to optimise interest costs).
Adjusted net debt increased by GBP38.0m in the year, to
GBP297.4m (FY22: GBP259.4m). This is the net amount of GBP35.5m of
cash and GBP332.9m of debt drawn against the securitisation funding
facility which is backed by eligible customer receivables. The
GBP480.6m net customer loan book significantly exceeds this
adjusted net debt figure. The increase in net debt over the prior
year reflects the net cash utilisation described above partially
offset by the lower securitised borrowings.
Dividend and capital allocation
The Board suspended dividend payments in FY21, following the
impact of Covid-19 on the business and wider economy. We recognise
dividends are an important part of shareholders' returns and have
considered the re-introduction of a dividend this year. However, in
light of the current macro environment, our clear set of investment
plans and the number of competing demands on our cash resources,
the Board have decided not to do so in the current year or FY24. We
believe this decision to be in the best interests of our
shareholders.
Pension scheme
The Group's defined benefit pension scheme had a surplus of
GBP20.0m at year end, which has reduced over the prior year (FY22:
GBP37.4m) driven by lower returns on the scheme assets, offset
partly by the increase in corporate yields and reduced long-term
inflation expectations.
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 the reliance on detective
management level controls. This feeds into the Audit and Risk
Committee focus on improving controls as described on p36 and will
form a sound basis for any potential UK SOx attestation
requirements as that proposed guidance is formalised. Examples of
improvements deployed during the year are the refinements to our FX
monitoring and hedging processes which have significantly reduced
our exposure to FX volatility and higher interest rates during the
recent macro-economic environment.
Consolidated income statement
for the 53 weeks ended 4 March 2023
53 weeks ended 52 weeks ended 26 February
4 March 2023 2022
------------------------------- -------------------------------
Before Adjusted Before Adjusted
adjusted items adjusted items
Note items (note Total items (note Total
GBPm 6) GBPm GBPm GBPm 6) GBPm GBPm
Revenue 455.6 - 455.6 487.0 - 487.0
Credit account interest 221.9 - 221.9 228.7 - 228.7
-------------------------------- ------- ---------- --------- -------- ---------- --------- --------
Group revenue 5 677.5 - 677.5 715.7 - 715.7
-------------------------------- ------- ---------- --------- -------- ---------- --------- --------
Cost of sales 5 (242.4) - (242.4) (268.4) - (268.4)
Impairment losses on customer
receivables (122.3) - (122.3) (94.4) - (94.4)
-------------------------------- ------- ---------- --------- -------- ---------- --------- --------
Gross profit 5 312.8 - 312.8 352.9 352.9
-------------------------------- ------- ---------- --------- -------- ---------- --------- --------
Impairment of non-financial
assets 10 - (53.0) (53.0) - - -
Operating profit/(loss) 21.6 (87.5) (65.9) 56.9 (28.7) 28.2
-------------------------------- ------- ---------- --------- -------- ---------- --------- --------
Finance costs (14.1) - (14.1) (13.8) (13.8)
-------------------------------- ------- ---------- --------- -------- ---------- --------- --------
Profit/(loss) before taxation
and fair value adjustments
to financial instruments 7.5 (87.5) (80.0) 43.1 (28.7) 14.4
Fair value adjustments
to financial instruments 7 8.9 - 8.9 4.8 - 4.8
-------------------------------- ------- ---------- --------- -------- ---------- --------- --------
Profit/(loss) before taxation 16.4 (87.5) (71.1) 47.9 (28.7) 19.2
Taxation 8 (0.9) 20.6 19.7 (8.7) 5.7 (3.0)
-------------------------------- ------- ---------- --------- -------- ---------- --------- --------
Profit/(loss) for the
period 15.5 (66.9) (51.4) 39.2 (23.0) 16.2
-------------------------------- ------- ---------- --------- -------- ---------- --------- --------
(Loss)/earnings per share
from continuing operations
Basic 9 (11.19) 3.53
Diluted 9 N/A 3.51
-------------------------------- ------- ---------- --------- -------- ---------- --------- --------
Consolidated statement of comprehensive income
for the 53 weeks ended 4 March 2023
53 weeks 52 weeks
ended ended
4 March 26 February
2023 2022
Note GBPm GBPm
--------------------------------------------------- ----- --------- -------------
(Loss)/profit for the period (51.4) 16.2
--------------------------------------------------- ----- --------- -------------
Items that will not be reclassified subsequently
to profit or loss
Actuarial (loss)/gains on defined benefit pension
schemes (19.4) 10.5
Tax relating to items not reclassified 8 6.7 (3.7)
--------------------------------------------------- ----- --------- -------------
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of foreign
operations 0.8 0.6
Fair value movements of cash flow hedges 30.5 7.2
Amounts reclassified from other comprehensive
income to profit and loss (6.6) 0.6
Tax relating to these items (6.0) (1.8)
--------------------------------------------------- ----- --------- -------------
Other comprehensive income for the period 6.0 13.4
--------------------------------------------------- ----- --------- -------------
Total comprehensive (loss)/income for the period
attributable to equity holders of the parent (45.4) 29.6
--------------------------------------------------- ----- --------- -------------
Consolidated balance sheet
As at 4 March 2023
As at As at
4 March 26 February
2023 2022
Note GBPm GBPm
---------------------------------- ------- --------- -------------
Non-current assets
Property, plant and equipment 11 50.9 58.5
Intangible assets 10 58.3 113.0
Right-of-use assets 0.5 1.1
Retirement benefit surplus 20.0 37.4
Derivative financial instruments 7 7.6 5.1
Deferred tax assets 8 29.2 11.5
---------------------------------- ------- --------- -------------
166.5 226.6
---------------------------------- ------- --------- -------------
Current assets
Inventories 94.1 87.3
Trade and other receivables 12 504.7 533.1
Derivative financial instruments 7 19.1 1.7
Current tax asset 8 0.1 1.0
Cash and cash equivalents 14 35.5 43.1
---------------------------------- ------- --------- -------------
653.5 666.2
---------------------------------- ------- --------- -------------
Total assets 820.0 892.8
---------------------------------- ------- --------- -------------
Current liabilities
Trade and other payables 13 (72.5) (94.7)
Lease Liability (0.3) (0.9)
Provisions 18 (10.1) (30.9)
Derivative financial instruments 7 (0.1) (0.4)
---------------------------------- ------- --------- -------------
(83.0) (126.9)
---------------------------------- ------- --------- -------------
Net current assets 568.7 539.3
---------------------------------- ------- --------- =============
Non-current liabilities
Bank loans 15 (332.9) (302.5)
Lease liability (0.2) (0.4)
Deferred tax liabilities 8 (13.2) (20.7)
---------------------------------- ------- --------- -------------
(346.3) (323.6)
---------------------------------- ------- --------- -------------
Total liabilities (429.3) (450.5)
---------------------------------- ------- --------- -------------
Net assets 390.7 442.3
---------------------------------- ------- --------- -------------
Equity attributable to equity
holders of the parent
Share capital 17 50.9 50.9
Share premium account 85.7 85.0
Own shares (0.2) (0.2)
Cash flow hedge reserve 15.7 5.5
Foreign currency translation
reserve 1.8 1.0
Retained earnings 236.8 300.1
---------------------------------- ------- --------- -------------
Total equity 390.7 442.3
---------------------------------- ------- --------- -------------
Consolidated cash flow statement
For the 53 weeks ended 4 March 2023
For For the
the 53 52
weeks weeks
Note ended ended
4 March 26 February
2023 2022
GBPm GBPm
Net cash inflow from operating activities 5.8 78.7
--------------------------------------------- ------- --------- -------------
Investing activities
Purchases of property, plant and equipment (5.8) (3.4)
Purchases of intangible assets (19.8) (16.4)
--------------------------------------------- ------- --------- -------------
Net cash used in investing activities (25.6) (19.8)
--------------------------------------------- ------- --------- -------------
Financing activities
Interest paid(1) (15.0) (13.8)
Increase/(Decrease) in bank loans 30.4 (79.3)
Principal elements of lease payments (1.0) (1.8)
Foreign exchange forward contracts (1.2) (1.3)
Net cash inflow/(outflow) from financing
activities 13.2 (96.2)
--------------------------------------------- ------- --------- -------------
Net foreign exchange difference (1.0) (0.4)
--------------------------------------------- ------- --------- -------------
Net decrease in cash and cash equivalents
and bank overdraft (7.6) (37.7)
--------------------------------------------- ------- --------- -------------
Cash and cash equivalents and bank
overdraft at beginning of period 43.1 80.8
--------------------------------------------- ------- --------- -------------
Cash and cash equivalents and bank
overdraft at end of period 14 35.5 43.1
--------------------------------------------- ------- --------- -------------
(1) Included within Interest paid is GBP13.0m relating to
interest incurred on the Group's securitisation facility, drawings
on which are linked to prevailing levels of eligible
receivables
Reconciliation of operating (loss)/profit to net cash flow from
operating activities
For the 53 For the 52
weeks ended weeks ended
4 March 2023 26 February
GBPm 2022
GBPm
(Loss)/profit for the period (51.4) 16.2
Adjustments for:
Taxation (credit)/charge (19.7) 3.0
Fair value adjustments to financial instruments (8.9) (4.8)
Net foreign exchange gain 1.0 0.4
Finance costs 14.1 13.8
Depreciation of right-of-use assets 0.8 1.2
Depreciation of property, plant and equipment 4.3 4.4
Loss on disposal of intangible assets 0.8 -
Gain on disposal of right-of-use assets - (0.5)
Impairment of non-financial assets 53.0 -
Amortisation of intangible assets 30.6 32.5
Share option charge 1.5 0.8
-------------------------------------------------- -------------- -------------
Operating cash flows before movements
in working capital 26.1 67.0
Increase in inventories (6.7) (9.6)
Decrease in trade and other receivables 28.3 15.9
Decrease in trade and other payables (22.3) (13.5)
(Decrease)/Increase in provisions (20.9) 26.1
Pension obligation adjustment (1.0) (0.9)
-------------------------------------------------- -------------- -------------
Cash generated by operations 3.5 85.0
Taxation received/(paid) 2.3 (6.3)
-------------------------------------------------- -------------- -------------
Net cash inflow from operating activities 5.8 78.7
-------------------------------------------------- -------------- -------------
Changes in liabilities from financing 53 weeks to 52 weeks
activities 4 March to
2023 26 February
2022
GBPm GBPm
-------------------------------------------------- -------------- -------------
Loans and borrowings
Balance at 26 February 2022 303.8 386.8
-------------------------------------------------- -------------- -------------
Changes from financing cash flows
Net proceeds/(repayment) from loans and
borrowings(1) 27.9 (79.2)
Lease principal payments in the period (0.8) (1.8)
Lease disposals in the period - (1.8)
Increase/(Decrease) in loans and borrowings
due to changes in interest rates 2.5 (0.2)
Increase/(Decrease) in loans and borrowings 29.6 (83.0)
-------------------------------------------------- -------------- -------------
Balance at 4 March 2023 333.4 303.8
-------------------------------------------------- -------------- -------------
(1) Repayments relating to the Group's securitisation facility
are represented 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 53 weeks ended 4 March 2023
Foreign
Share Own Cash flow currency
capital Share Shares hedge translation Retained
(note premium GBPm Reserve reserve earnings Total
17) GBPm (note (note 7) GBPm GBPm
GBPm 7) GBPm
GBPm
Balance at 27 February
2021 50.9 85.0 (0.3) - 0.4 276.3 412.3
Comprehensive income
for the period
Profit for the period - - - - - 16.2 16.2
Other items of comprehensive
income for the period - - - 6.0 0.6 6.8 13.4
Total comprehensive
income for the period - - - 6.0 0.6 23.0 29.6
Hedging gains & losses
transferred to the cost
of inventory purchased
in the year - - - (0.5) - - (0.5)
------------------------------ ---------- ---------- --------- ------------ ------------- ----------- --------
Transactions with owners
recorded directly in
equity
Issue of shares by ESOT - - 0.1 - - - 0.1
Share option charge - - - - - 0.8 0.8
Total contributions
by and distributions
to owners - - 0.1 - - 0.8 0.4
------------------------------ ---------- ---------- --------- ------------ ------------- ----------- --------
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) 8.6
------------------------------ ---------- ---------- --------- ------------ ------------- ----------- --------
Total comprehensive
income/(loss) for the
period - - - 17.9 0.8 (64.1) (42.8)
Hedging gains & losses
transferred to the cost
of inventory purchased
in the year - - - (7.7) - - (7.7)
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 (8.8)
------------------------------ ---------- ---------- --------- ------------ ------------- ----------- --------
Balance at 4 March 2023 50.9 85.7 (0.2) 15.7 1.8 236.8 390.7
------------------------------ ---------- ---------- --------- ------------ ------------- ----------- --------
Notes to the consolidated financial statements
For the 53 weeks ended 4 March 2023
1. Basis of preparation
The Group's financial statements for the 53 weeks ended 4 March
2023 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
2023.
The financial information set out in this document does not
constitute the Group's statutory accounts for the 53 weeks ended 4
March 2023 or the 52 weeks ended 26 February 2022. Statutory
accounts for the period of 52 weeks ended 26 February 2022 have
been delivered to the registrar of companies, and those for the
period of 53 weeks ended 4 March 2023 will be delivered in due
course.
The comparative figures for the year ended 26 February 2022 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 52 weeks ended 26 February 2022.
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 for trade receivables
involves several areas of judgement, including estimating
forward-looking modelled parameters (Probability of default ('PD'),
Loss of 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 two years, recent
bids, and existing sale contracts depending on the type of debt
sale.
Uncertainty exists over the forward looking view on
macro-economics including inflation (CPI) and subsequent impacts on
affordability and defaults. Whilst the impacts of macro-economics
and inflation are reflected in growing arrears in FY23, in
management's view, the full impact of these have yet to fully feed
through. A post model adjustment has been applied to reflect the
expected deterioration in customer defaults from this.
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 exceeds ('CGU') 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 capex, 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.
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 future
committed legal costs and associated redress costs in respect 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.
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 GBP6.3m (2022: GBP12.7m);
- An increase of 0.50% in the inflation assumption would
increase the defined benefit obligation by GBP3.5m (2022:
GBP7.7m);
- An increase of one year in the life expectancy assumption
would increase the defined benefit obligation by GBP2.1m (2022:
GBP5.0m).
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, combining several of the technology
risks within one 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. Financial Crime
5. Business Resilience
6. Financial
7. Legal and Regulatory
8. Credit
9. People
10. 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.
In setting strategy, the Board considers Environmental, Social
and Governance ('ESG') factors, drivers and impacts on the health
and sustainability of the business. Furthermore, in general terms
the strategy is designed to deliver long term sustainable business
success. The RMF has been established to provide 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 is extremely
challenging. Significant increases in energy and other prices,
combined with interest rate increases continues to put pressure on
household budgets and adversely impact consumer confidence. The
cost-of-living crisis is adversely impacting all elements of
peoples' lives including their decisions in relation to 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 is also focused on several Regulatory enhancements.
ESG processes continue to be integrated and strengthened through a
programme of work integrated into business activities. Our
programme of activity geared around the FCA Consumer Duty is
progressing well. The Group continues to plan for the BEIS
enhancements (UK SOx) and has commenced a gap analysis.
4. Going Concern
In determining the appropriate basis of preparation of the
financial statements for the period ending 4 March 2023, 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 of 12 months from the
date of approval of these financial statements. 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, on a
distressed scenario, over the going concern period.
The Company renewed its revolving credit facility ('RCF') at
GBP75m and extended to the end of 2026, together with a committed
overdraft facility of GBP12.5m. Both facilities were undrawn at the
year end and the Group also had available cash / cash equivalents
of GBP35.5m at the balance sheet date.
The distressed scenario model prepared by Management provided a
robust assessment, which the Audit & Risk Committee reviewed in
support of the Board's evaluation. The stress test prepared by
Management is challenging and considers the cumulative impact of
various downsides and additional stress sensitivities on the
Group's forecasts. This therefore supports the Board's
consideration of a 'severe but plausible' downside. The distressed
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 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 as has been the
case throughout the Covid-19 pandemic;
- The UK cost of living crisis;
- Progress against the strategic growth programme;
- Product gross margin improvement achieved through changes to
product mix, planned price increases and a reduction in freight
rates. It is also recognised that we will continue to face a highly
promotional retail market as a result of cautious customer
sentiment;
- Financial Services revenue reduces in the short term as the
average size of the loan book is smaller as a function of FY23 and
FY24 lower product sales;
- Customer eligibility and arrears rates normalising to pre pandemic levels.
- Operating costs reflecting inflationary and macroeconomic cost base pressures.
The Base Case has material total accessible liquidity headroom
of GBP85m over the next twelve months and all bank covenant
conditions are met. Adjusted EBITDA would have to reduce by more
than 38% against the Base Case low point in FY24 to breach
covenants.
b) The impact on trading performance of severe but plausible
downside scenarios (the 'Downside Case'), including:
- Business interruptions reducing product revenue, for example
from a denial of service caused by a cyber-attack as well as
delivery delays caused by supply chain challenges;
- Further adverse macroeconomic conditions impacting customer
behaviour, bad debt write-offs and customer account payment
collection rates;
- Additional sensitivities to product revenue.
The Downside is the compounded cumulative impact of all
scenarios with the sensitivities layered on top. Material total
accessible liquidity headroom of GBP60m exists throughout the
Downside assessment and all bank covenant conditions are met.
Adjusted EBITDA would have to reduce by more than 14% against the
Downside low point in FY24 to breach covenants.
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 GBP400m securitisation facility until December 2024. During
the year the maximum commitment was reduced at the Group's request
from GBP400m to GBP340m to reflect the prevailing levels of
encumbered eligible receivables and drawings of notes thereon
(GBP334.5m drawn against the maximum of eligible customer
receivable);
- An RCF of GBP75m committed until December 2026, fully undrawn; and
- An overdraft facility of GBP12.5m which is committed until December 2026.
d) the Group's robust policy towards liquidity and cash flow
management. As at 6 May 2023, the Group had cash of GBP28.3m,
including restricted cash of GBP3.8m. In addition, the Group had
GBP87.5m of unsecured facilities that were not drawn. This gives
rise to total accessible liquidity ('TAL') of GBP112.0m (FY22:
GBP212.1m).
e) the Group management's ability to successfully manage the
principal risks and uncertainties outlined on pages 36 to 37 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 are 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 GBP19.4m (2022:
GBP16.0m) 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 Financial Services segment relate to the income
from provision of credit terms for customer purchases, and the
costs to the business of providing such funding. To increase
transparency, the Group has included additional voluntary
disclosure analysing product revenue within the relevant operating
segment, by strategic and other brand categorisation.
Analysis of revenue 53 weeks to 52 weeks to
4 March 2023 26 February 2022
GBPm GBPm
Analysis of revenue:
Sale of goods 412.4 445.8
Postage and packaging 21.0 19.8
Product - total revenue 433.4 465.6
Other financial services revenue 22.3 21.4
Credit account interest 221.8 228.7
Financial Services - total
revenue 244.1 250.1
------------------------------------------- ------------------------------ -------------------------------
Total Group Revenue 677.5 715.7
------------------------------------------- ------------------------------ -------------------------------
Analysis of cost of sales:
Product - total cost of sales (240.9) (267.3)
Impairment losses on customer
receivables (122.3) (94.4)
Other financial services cost
of sales (1.5) (1.1)
Financial Services - total
cost of sales (123.8) (95.5)
------------------------------------------- ------------------------------ -------------------------------
Cost of sales (364.7) (362.8)
------------------------------------------- ------------------------------ -------------------------------
Gross profit 312.8 352.9
Gross profit margin 46.2% 49.3%
Gross margin - Product 44.4% 42.6%
Gross margin - Financial Services 49.3% 61.8%
Warehouse and fulfilment (63.2) (67.9)
Marketing and production (70.0) (73.1)
Other administration and payroll (122.3) (116.9)
------------------------------------------- ------------------------------ -------------------------------
Adjusted operating costs before
adjusted items (255.5) (257.9)
------------------------------------------- ------------------------------ -------------------------------
Adjusted EBITDA 57.3 95.0
------------------------------------------- ------------------------------ -------------------------------
Adjusted EBITDA margin 8.5% 13.3%
Depreciation and amortisation (35.7) (38.1)
Impairment of non-financial
assets (note 10) (53.0) -
Adjusted items charged to operating
loss (34.5) (28.7)
------------------------------------------- ------------------------------ -------------------------------
Operating (loss)/profit (65.9) 28.2
------------------------------------------- ------------------------------ -------------------------------
Finance costs (14.1) (13.8)
Fair value adjustments to financial
instruments 8.9 4.8
------------------------------------------- ------------------------------ -------------------------------
Profit before taxation (71.1) 19.2
------------------------------------------- ------------------------------ -------------------------------
53 weeks to 52 weeks to
4 March 2023 26 February 2022
GBPm GBPm
-------------------------------------- --- ------------------------------ -------------------------------
Analysis of Product revenue:
Strategic brands1 311.8 323.9
Heritage brands2 121.6 141.7
------------------------------------------- ------------------------------ -------------------------------
Total Product revenue 433.4 465.6
Financial Services revenue 244.1 250.1
------------------------------------------- ------------------------------ -------------------------------
Group revenue 677.5 715.7
------------------------------------------- ------------------------------ -------------------------------
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.
3. FY22 brand split has been re-represented to align with the
strategy change and focus on the three accelerate brands with
all other brands presented within heritage.
The Group has one significant geographical segment, which is the
United Kingdom. Revenue derived from the Republic of Ireland
amounted to GBP18.5m (2022: GBP21.0m), with operating profit
amounting to GBP1.8m (2022: GBP3.7m).
All segment assets are located in the UK and Ireland. All
non-current assets are located in the UK with the exception of
GBP0.1m of right of use assets located in Ireland.
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 GBP53.0m (2022: GBPnil).
6. Adjusted items
53 weeks to 52 weeks to
4 March 2023 26 February 2022
GBPm GBPm
------------------------------------ --------------- -------------------
Allianz litigation 26.1 29.8
Other litigation 6.0 0.2
Historic tax matters - (1.2)
Strategic change 2.4 (0.1)
Impairment of non-financial assets 53.0 -
------------------------------------ --------------- -------------------
Total adjusted items 87.5 28.7
------------------------------------ --------------- -------------------
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.
A provision of GBP28.0m in respect of the claims was recognised
in the Group's balance sheet at the prior year end, and updated as
at 27 August 2022. The provision was based on known facts and
circumstances at each balance sheet date, that supported the
Board's best estimate of any outflow, including any committed legal
fees. As the legal due diligence and negotiations continued, the
Board reflected on updated inputs, escalating costs, and ongoing
levels of distraction for the Board and senior management.
In January 2023 the Board agreed to the Settlement. Under the
Settlement, which is a negotiated settlement and made without
admission of liability, JDW paid the Insurer a sum of GBP49.5m in
full and final settlement of the Dispute, below the sums claimed by
the Insurer (which exceeded GBP70m inclusive of interest and
costs). While the Settlement was in excess of the provision, the
Dispute has been brought to an end and this removes a significant
element of uncertainty for all stakeholders and allows the Group to
focus on creating shareholder value through its core business
activities as it continues its transformation.
The provision outstanding at 4 March 2023 was GBP0.3m, relating
to outstanding legal costs and amounts payable to Allianz following
closure of the joint redress account.
OTHER LITIGATION
During the year the Group made a provision of GBP5.5m, as an
estimate of the potential litigation costs. This is principally
committed external legal costs associated with legacy customer
claims. This is not a new exposure and in prior years the Group
handled such claims on a case by case basis, and the costs incurred
have not been material. The Group will continue to defend such
claims and the Board supports a strategy to robustly defend any
past and future claims. The Group has engaged external counsel
which is reflected in the provision recorded. The provision
outstanding at 4 March 2023 was GBP5.5m as disclosed in note
18.
In addition, a charge of GBP0.5m was incurred in the year, and
GBP0.2m in the prior year, relating to the true up of legacy
customer redress provisions presented as adjusted in prior
periods.
HISTORICAL TAX MATTERS
The Group reached agreement with HMRC over a number of
historical VAT and other tax matters in the prior year with the
release of GBP1.2m in 2022 relating to opening provisions no longer
required.
STRATEGIC CHANGE
During the current year, the Group initiated a restructuring of
its operational and Head office headcount to reflect the lower
sales orders, of which an element was enacted during the year.
Total redundancy costs of GBP2.4m were incurred in the year. The
provision outstanding at 4 March 2023 amounted to GBP2.2m relating
to payments made in the months following the year end.
IMPAIRMENT OF NON-FINANCIAL ASSETS
During the year, the Group has recorded a non-cash impairment of
GBP53.0m against its intangible and tangible assets, to reduce the
balance sheet asset value to match the lower value in use forecasts
driven by the current macro-economic conditions. This has arisen
primarily from the impact of the market and current macroeconomic
conditions significantly reducing near term Group Adjusted EBITDA
levels and a slower recovery through the five year forecast period.
More details provided in note 10.
7. Derivative financial instruments
At the balance sheet date, details of outstanding derivative
contracts that the Group has committed to are as follows:
53 weeks to 52 weeks to
4 March 2023 26 February 2022
GBPm GBPm
------------------------------------- -------------- ------------------
Notional amount - sterling contract
value (designated cash flow hedges
- Interest rate swap) 250.0 250.0
Notional amount - sterling contract
value (designated cash flow hedges
-Foreign exchange forwards) 85.1 138.4
Notional amount -sterling contract
value (FVPL) 279.3 38.0
Total notional amount 614.4 426.4
The Group hold the following derivative financial instruments at
fair value:
53 weeks to 52 weeks to
4 March 2023 26 February 2022
Current Assets GBPm GBPm
-------------------------------------------- -------------- ------------------
Foreign currency forwards - cash flow
hedges 6.1 1.4
Foreign currency forwards - non-designated
instruments at FVPL 0.8 0.3
Interest rate swaps - cash flow hedges 9.2 -
Interest rate caps - non-designated 3.0 -
instruments at FVPL
Total notional amount 19.1 1.7
53 weeks to 52 weeks to
4 March 2023 26 February 2022
Non-current Assets: GBPm GBPm
-------------------------------------------- -------------- ------------------
Foreign currency forwards - cash flow
hedges 0.8 0.2
Interest rate swaps - cash flow hedges 6.2 4.9
Interest rate caps - non-designated 0.6 -
instruments at FVPL
Total notional amount 7.6 5.1
53 weeks to 52 weeks to
4 March 2023 26 February 2022
Current liabilities: GBPm GBPm
-------------------------------------------- -------------- ------------------
Foreign currency forwards - cash flow
hedges - (0.3)
Foreign currency forwards - non designated
instruments at FVPL (0.1) (0.1)
Total notional amount (0.1) (0.4)
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 GBP5.1m (2022: gain of GBP4.8m),
recognised through the Income statement in the period.
Changes in the fair value of derivatives designated for hedging
purposes amounted to GBP30.5m (2022: GBP7.2m) 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
GBP3.8m (2022: GBPnil) 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 (2022: GBPnil) 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 (2022: 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 Interest Total
of hedging rate
swaps
GBPm GBPm GBPm GBPm
------------------------------------------------- ------------ ------------ --------- -------
Opening balance at 27 February 2021 - - - -
Changes in fair value of hedging instruments
recognized in OCI 3.2 (0.4) 4.4 7.2
Reclassified to cost of inventory (not included
in OCI) (0.5) - - (0.5)
Recycled from OCI to profit and loss - - 0.6 0.6
Deferred tax (0.7) 0.1 (1.2) (1.8)
------------------------------------------------- ------------ ------------ --------- -------
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 period (4.1) 0.3 - (3.8)
Recycled from OCI to profit and loss - - (2.8) (2.8)
Deferred tax (0.9) 0.1 (2.6) (3.4)
------------------------------------------------- ------------ ------------ --------- -------
Closing balance at 4 March 2023 4.7 (0.6) 11.6 15.7
------------------------------------------------- ------------ ------------ --------- -------
8. Tax
53 weeks to 52 weeks to
4 March 2023 26 February
2022
Tax recognised in the Income statement GBPm GBPm
---------------------------------------- -------------- -------------
Current tax
Charge for the period 1.3 -
Adjustments in respect of previous
periods 0.7 (1.0)
----------------------------------------- -------------- -------------
2.0 (1.0)
---------------------------------------- -------------- -------------
Deferred tax
Origination and reversal of temporary
timing differences (21.4) 2.7
Adjustments in respect of previous
periods (0.3) 1.3
----------------------------------------- -------------- -------------
(21.7) 4.0
---------------------------------------- -------------- -------------
Total tax (credit) / expense (19.7) 3.0
----------------------------------------- -------------- -------------
UK Corporation tax is calculated at 19% (2022: 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.
Accordingly, the UK deferred tax asset/(liability) as at 4 March
2023 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 is higher than the statutory UK tax
rate of 19% due to the impact of adjusting items in the period,
which have been treated as deductible for tax purposes consistent
with the treatment of similar costs. These adjusted items have
created deferred tax assets at 25%. The deferred tax assets have
been partially offset by the impact of prior year adjustments.
The charge for the period can be reconciled to the (loss) /
profit per the income statement as follows:
53 weeks 52 weeks to
to 26 February 2022
4 March
2023
GBPm GBPm
(Loss) /profit before tax (71.1) 19.2
Tax (credit) / charge at the UK Corporation
tax rate of 19% (13.5) 3.6
Effect of change in deferred tax
rate (7.2) (1.1)
Tax effect of expenses that are not
deductible in determining taxable
profit 0.5 0.2
Effect of different tax rates of 0.1 -
subsidiaries operating in other jurisdictions
Tax effect of adjustments in respect
of previous periods 0.4 0.3
------------------------------------------------- --------- ------------------
Tax (credit)/ expense for the period (19.7) 3.0
------------------------------------------------- --------- ------------------
In addition to the amount charged to the income statement, tax
movements recognised directly through equity were as follows:
53 weeks to 52 weeks to
4 March 2023 26 February 2022
Tax recognised directly through GBPm GBPm
equity
Deferred tax - remeasurement of
retirement benefit obligations (6.7) 3.7
Deferred tax - hedging related
items recognized in other comprehensive
income 6.0 1.8
Deferred tax - fair value movements (2.7) -
transferred to the value of inventory
recognized directly in equity
Tax (credit) /charge in equity (3.4) 5.5
------------------------------------------- -------------- ------------------
In respect of Corporation tax, as at 4 March 2023 the Group has
provided a total of GBP0.7m (2022: GBPnil) for potential future tax
charges based upon the Group's best estimate and the outcome from
discussions with HMRC. During the period, HMRC notified the Group
of a previously unidentified and unpaid historic tax balance,
relating to years 2010-2015, which HMRC had stood over awaiting
resolution of other historic tax matters. The matter related to tax
liabilities in Ambrose Wilson Limited and Oxendales & Company
Limited from transfer pricing adjustments calculated on
intercompany balances with JD Williams & Company Limited for
the years in question. The Group believed the tax had previously
been paid, however, following a detailed internal investigation, it
was agreed with HMRC in May 2023 that this balance was outstanding.
Accordingly, a tax provision of GBP0.7m was included as a prior
year adjustment in the 2023 tax calculation, with a provision for
related interest estimated at GBP0.2m included in finance
charges.
9. (Loss) / Earnings per share
The calculation of earnings per ordinary share is based on
earnings after tax and the weighted average number of ordinary
shares in issue during the period.
The adjusted earnings per share figures have also been
calculated based on 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 current year have not been diluted following the
loss after tax in the period.
The calculations of the basic and diluted earnings per share is
based on the following data:
53 weeks to 52 weeks to
4 March 2023 26 February 2022
(Loss) / Earnings GBPm GBPm
---------------------------------------- ---------------- --------------------
(Loss) / Earnings for the purpose
of basic and diluted earnings
per share being net (loss) / profit
attributable to equity holders (51.4) 16.2
---------------------------------------- ---------------- --------------------
53 weeks to 52 weeks to
4 March 2023 26 February 2022
Number of shares ('000s) Number Number
---------------------------------------- ---------------- --------------------
Weighted average number of ordinary
shares for the purposes of basic
earnings per share 459,468 458,825
Effect of dilutive potential ordinary
shares:
Share options 4,879 3,235
---------------------------------------- ---------------- --------------------
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share 464,347 462,060
---------------------------------------- ---------------- --------------------
53 weeks to 52 weeks to
4 March 2023 26 February 2022
(Loss) / Earnings from continuing GBPm GBPm
operations
---------------------------------------- ---------------- --------------------
Total net (loss) / profit attributable
to equity holders of the parent
for the purposes of basic earnings
per share (51.4) 16.2
Fair value adjustment to financial
instruments (net of tax) (7.2) (3.9)
Adjusted items (net of tax) 66.9 23.0
---------------------------------------- ---------------- --------------------
Adjusted earnings for the purposes
of adjusted earnings per share 8.3 35.3
---------------------------------------- ================ ====================
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 26 February 2022
Adjusted earnings per share Pence Pence
---------------------------------------- -------------------- ------------------
Basic 1.81 7.69
Diluted N/A 7.64
---------------------------------------- -------------------- ------------------
53 weeks to 52 weeks to
4 March 2023 26 February 2022
(Loss) / Earnings per share Pence Pence
---------------------------------------- -------------------- ------------------
Basic (11.19) 3.53
Diluted N/A 3.51
---------------------------------------- -------------------- ------------------
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
Customer
Brands Software Database Total
GBPm GBPm GBPm GBPm
-------------------------- ------- --------- ---------- -------
Cost
At 27 February 2021 16.9 369.9 1.9 388.7
Additions - 16.3 - 16.3
Reclass - 1.5 - 1.5
Disposals - (14.4) - (14.4)
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
-------------------------- ------- --------- ---------- -------
Accumulated amortisation
and impairment
At 27 February 2021 16.9 241.8 1.9 260.6
Charge for the period - 32.5 - 32.5
Reclass - 0.4 - 0.4
Disposals - (14.4) - (14.4)
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
-------------------------- ------- --------- ---------- -------
Carrying amount
-------------------------- ------- --------- ---------- -------
At 4 March 2023 - 58.3 - 58.3
-------------------------- ------- --------- ---------- -------
At 26 February 2022 - 113.0 - 113.0
-------------------------- ------- --------- ---------- -------
At 2 February 2021 - 128.1 - 128.1
-------------------------- ------- --------- ---------- -------
Assets in the course of development included in intangible
assets at the year end total GBP10.5m (2022: GBP13.4m). No
amortisation is charged on these assets. Borrowing costs of GBPnil
(2022: GBPnil) have been capitalised in the period.
Additions in the year of GBP15.0m relate to internal development
costs (2022: GBP12.4m). These are costs that are incremental and
reflect unavoidable costs which qualify for capitalisation.
As at 4 March 2023, the Group had entered into contractual
commitments for the further development of intangible assets of
GBP3.0m (2022: GBP7.5m) of which GBP2.9m (2022: GBP7.4m) is due to
be paid within one year.
Research costs of GBP0.8m were incurred in the year (2022:
GBP1.1m).
Disposals during the year related to assets under construction
which have been discontinued.
IMPAIRMENT TESTING OF NON-FINANCIAL ASSETS
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 triggers a test for impairment in accordance with IAS 36.
Management prepared a value in use 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 GBP400m 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 FY28. The Board reflected on the current
cost-of-living crisis and challenges in consumer confidence, and
significantly reduced the near-term outlook from the prior year as
announced in the trading update published in January 2023.
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 retail 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 historic 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 risk-adjusted
pre-tax discount rate applied.
The long-term growth rate of 2.2% was determined with reference
to external industry growth forecasts which management believe is a
reasonable indicator of the expected long term-growth rate for the
Group's market sector, available at 4 March 2023. 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
"SUSTAIN" section of the Group's annual report.
The relationship between retail sales and the financial services
cashflows is not linear, as there is a natural time lag from when
sales are completed, and financial services income is earned.
Management modelled the estimated impact of this lag by extending
the financial services model past the five-year Board approved plan
and this indicated additional headroom inbuilt in the FS customer
receivables book which would materially increase the VIU. This
however has not been included in the impairment model as the Board
restricted the assessment to the five-year forecasts in accordance
with IAS 36.
The impairment review performed over the Group's CGU has
indicated that an accounting impairment is required over the assets
of the Group, with the carrying amount exceeding the recoverable
amount assessed through value in use. This is due to the market and
current macroeconomic conditions significantly reducing the
near-term Group EBITDA levels with recovery through the five-year
forecast period but in later years than previously expected. As a
result a non-cash impairment charge of GBP53.0m has been
recognised.
The Group has no goodwill reported on the balance sheet and in
accordance with IAS 36 the impairment charge has been 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 have
been reduced from GBP101.7m to GBP58.3m, and tangible assets have
been reduced from GBP60.5m to GBP50.9m. The continued successful
execution of the five year plan is expected to increase the VIU in
future periods, and this would trigger a reversal of the
impairments recognised this year, capped to the carrying value that
the assets would have been determined (net of amortisation or
depreciation) had no impairment loss been recognized in prior
periods.
THE KEY ASSUMPTIONS ARE AS FOLLOWS:
Years 1-5 to FY28 are based on the Adjusted EBITDA growth per
the Board approved business plan. This reflects the current
cost-of-living crisis and other economic challenges with growth
thereafter assumed once the economy stabilizes and importantly
driven by the benefits that the transformation plan are anticipated
to deliver;
Replacement Capital expenditure of GBP16.5m per year in years
1-5 and GBP15.0m in the terminal year. 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: 17.7% (2022: 18.6%). The discount rate
includes an allowance for risks specific to the Group, including a
size premium and execution risk associated with the transformation
plan; and
Long term growth rate: 2.2% (2022: 2.2%). Management have
sourced external benchmarks for the Group's sector, and applied a
cautious long-term growth rate. The long term growth rate for the
current and prior year has been updated to reflect external
benchmarks specific to the UK retail sector. The growth rate has
been sensitized below in line with the externally available arms
length forecast range.
GROUP IMPAIRMENT SENSITIVITY ANALYSIS:
The Board recognizes 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 and the resulting headroom
/ (impairment) is as follows:
Headroom Movement
/ (Impairment)
Sensitivity applied GBPm GBPm
VIU calculation - (53) -
--------------------------- ---------------- ---------
Long term growth rate Increase by 1% (33) 20
--------------------------- ---------------- ---------
Decrease by 1% (69) (17)
--------------------------------------------------- ---------------- ---------
Pre tax discount rate Increase by 1% (81) (28)
--------------------------- ---------------- ---------
Decrease by 1% (19) 34
--------------------------------------------------- ---------------- ---------
Replacement capex in
terminal year Increase to GBP20m (71) (18)
--------------------------- ---------------- ---------
Decrease to GBP10m (34) 19
--------------------------------------------------- ---------------- ---------
Discount rate decrease
by 1% and terminal
Combined sensitivity capex increase to GBP20m (40) 13
--------------------------- ---------------- ---------
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 GBP7.2m;
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 GBP5.0m.
11. Property, plant and equipment
Land and Fixtures Plant
buildings and and Total
Fittings Machinery
GBPm GBPm GBPm GBPm
------------------------- ---------------------- ---------------------- ---------------------- -------------------
Cost
At 27
February
2021 59.1 23.3 58.4 140.8
Additions - 1.3 1.8 3.1
Transfer to
intangible
assets - - (1.5) (1.5)
Disposals - - (4.9) (4.9)
At 26
February
2022 59.1 24.6 53.8 137.5
------------------------- ---------------------- ---------------------- ---------------------- -------------------
Additions - 5.6 0.7 6.3
Disposals - - - -
------------------------- ---------------------- ---------------------- ---------------------- -------------------
At 4 March 2023 59.1 30.2 54.5 143.8
------------------------- ---------------------- ---------------------- ---------------------- -------------------
Accumulated
depreciation
and
impairment
At 27
February
2021 18.7 20.5 40.7 79.9
Charge for the period 1.2 0.5 2.7 4.4
Transfer from tangible
assets - - (0.4) (0.4)
Disposals - - (4.9) (4.9)
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
------------------------- ---------------------- ---------------------- ---------------------- -------------------
Carrying
amount
At 4 March
2023 38.0 8.5 4.4 50.9
------------------------- ---------------------- ---------------------- ---------------------- -------------------
At 26 February 2022 39.2 3.6 15.7 58.5
------------------------- ---------------------- ---------------------- ---------------------- -------------------
At 27 February 2021 40.4 2.8 17.7 60.9
------------------------- ---------------------- ---------------------- ---------------------- -------------------
The impairment relates to the pro-rata allocation as set out in
note 10.
Assets in the course of development included in fixtures and
fittings and plant and machinery at 4 March 2023 total GBP2.5m
(2022: GBP2.5m), and in land and buildings total GBPnil (2022:
GBPnil). No depreciation has been charged on these assets.
At 4 March 2023, the Group had entered into contractual
commitments of GBP1.0m for the acquisition of property, plant and
equipment (2022: GBP1.0m).
12. Trade and other receivables
53 weeks 52 weeks
to to
4 March 2023 26 February
2022
GBPm GBPm
----------------------------------------- -------------- -------------
Amount receivable for the sale of goods
and services 555.2 577.2
Allowance for expected credit losses (74.6) (68.7)
----------------------------------------- -------------- -------------
Net trade receivables 480.6 508.5
Other debtors and prepayments 24.1 24.6
----------------------------------------- -------------- -------------
Trade and other receivables 504.7 533.1
----------------------------------------- -------------- -------------
Included in amount receivable for the sale of goods and services
is a provision for outstanding customer returns of GBP6.3m (2022:
GBP6.1m).
Other debtors include a balance of GBP1.3m (2022: GBP2.5m)
relating to amounts due from wholesale partners.
The weighted average Annual Percentage Rate ('APR') across the
trade receivables portfolio is 58.2% (2022: 58.1%). 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
GBP36.4m as at 4 March 2023 (2022: GBP11.5m). Interest income
recognised on trade receivables which were credit impaired as at 4
March 2023 was GBP21.4m (2022: GBP14.4m).
The amounts written off in the period of GBP131.2m (2022:
GBP144.9m) include the sale of impaired assets with a net book
value of GBP55.0m (2022: GBP64.1m). During the year there were
GBP21.0m of proceeds recognised in respect of accounts that had
previously been written-off or derecognised (2022: GBP36.8m).
The proceeds from derecognised portfolio sales exceeded the net
book value by GBP0.1m (2022: GBP1.0m).
The following table provides information about the exposure to
credit risk and ECLs for trade receivables as at 4 March 2023.
53 weeks to 4 March 2023 52 weeks to 26 February
2022
---------------- ---------------------------------------------------- ----------------------------------------------
Trade Trade
receivables receivables Total
Ageing of trade Trade on payment Total Trade on payment trade
receivables receivables arrangements trade receivables receivables arrangements receivables
---------------- --------------- --------------- ------------------ --------------- --------------- ------------
Current - not
past
due 443.3 36.4 479.7 497.3 11.5 508.8
28 days - past
due 20.1 5.0 25.1 18.4 1.3 19.7
56 days - past
due 10.8 2.6 13.4 13.5 0.4 13.9
84 days - past
due 9.5 2.2 11.7 11.5 0.2 11.7
112 days - past
due 6.8 1.2 8.0 8.5 0.2 8.7
Over 112 days -
past due 16.1 1.2 17.3 14.1 0.3 14.4
---------------- --------------- --------------- ------------------ --------------- --------------- ------------
Gross trade
receivables 506.6 48.6 555.2 563.3 13.9 577.2
---------------- --------------- --------------- ------------------ --------------- --------------- ------------
Allowance for
expected
credit losses (58.1) (16.5) (74.6) (63.9) (4.8) (68.7)
---------------- --------------- --------------- ------------------ --------------- --------------- ------------
Net trade
receivables 448.5 32.1 480.6 499.4 9.1 508.5
---------------- --------------- --------------- ------------------ --------------- --------------- ------------
53 weeks to 52 weeks to
4 March 2023 26 February
2022
GBPm GBPm
------------------------ -------------- -------------
Provision movements(1) 5.9 (16.5)
Gross write -offs 131.2 144.9
Recoveries (21.0) (36.8)
Other items 6.2 2.8
--------------------------- -------------- -------------
Net Impairment charge 122.3 94.4
--------------------------- -------------- -------------
(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 GBP3.4m
(2022: GBP2.2m) increase or GBP3.6m (2022: GBP2.2m) 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 GBP2.4m
-- 100% upside -a decrease in the ECL of GBP1.4m
-- 100% base case - a decrease in the ECL of GBP0.7m
13. Trade and other payables
53 weeks to 52 weeks to
4 March 2023 26 February
2022
GBPm GBPm
------------------------------ -------------- -------------
Trade payables 40.2 47.5
Other payables 3.6 11.0
Accruals and deferred income 28.7 36.2
------------------------------ -------------- -------------
Trade and other payables 72.5 94.7
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases, based on invoice date is
50 days (2022: 53 days).
The Group has financial risk management policies in place to
ensure that all payables are paid within agreed credit terms.
The Group continues to have a supplier financing arrangement
which is facilitated by HSBC. The principal purpose of this
arrangement is to enable the supplier, if it so wishes, to sell its
receivables due from the Group to a third party bank prior to their
due date, thus providing earlier access to liquidity. From the
Group's perspective, the invoice payment due date remains unaltered
and the payment terms of suppliers participating in the programme
are similar to those suppliers that are not participating.
The maximum facility limit as at 4 March 2023 was GBP15m (2023:
GBP15m). At 4 March 2023, total of GBP7.9m (2022: GBP6.7m) 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 GBP1.0m (2022: GBP1.0m) 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 GBP3.1m (2022: GBP2.6m) in respect of the Group's
securitisation reserve account. This cash is available to access by
the Group for restricted purposes. In addition GBP10.7m (2022:
GBP2.8m) 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:
53 weeks to 52 weeks to
4 March 2023 26 February
2022
GBPm GBPm
Sterling 24.9 31.3
Euro 2.9 5.1
US dollar 7.7 6.7
Net cash and cash equivalents and bank
overdrafts 35.5 43.1
Made up of:
Cash and cash equivalents 35.5 43.1
Bank overdrafts - -
The Group operates a notional pooling and net overdraft facility
whereby cash and overdraft balances held with the same bank have a
legal right of offset. In line with 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
2023 2022
GBPm GBPm
Bank loans (332.9) (302.5)
Net overdraft facility - -
The borrowings are repayable as follows:
Within one year - -
In the second year (332.9) -
In the third to fifth year - (302.5)
Amounts due for settlement after 12
months (332.9) (302.5)
2022
2023 %
%
The weighted average interest rates
paid were as follows:
Net overdraft facility 3.5 1.7
Bank loans 3.6 2.5
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 4 March
2023 was GBP12.5m (2022: GBP12.5m), of which the Group had a net
position of GBPnil drawn down at 4 March 2023 (2022: GBPnil).
The Group has a bank loan of GBP332.9m (2022: GBP302.5m) 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 4 March 2023 was
at GBP400m (2022: GBP400m), maturing in December 2024. In February
2023, whilst not reducing the GBP400m facility limit, the Group
pro-actively reduced the lenders' commitment to GBP340m from
GBP400m 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. Unamortised fees relating to this
facility of GBP2.0m (2022: GBP3.0m) 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.
The Group also had unsecured bank loans under its medium term
Revolving Credit Facility ('RCF') with maximum limit of GBP100m at
4 March 2023, of which GBPnil (2022: GBPnil) was drawn down at 4
March 2023. The facility was refinanced during the period following
the year end as disclosed in note 19.
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
2023 2022 2023 2022
Number Number GBPm GBPm
Allotted, called-up and fully
paid ordinary shares of 11
1/19p each
Opening as at 26 February
2022 (27 February 2021) 460,483,231 460,483,231 50.9 50.9
Issued in the year - - - -
At 4 March 2023 (26 February
2022) 460,483,231 460,483,231 50.9 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 Strategic Allianz Other Total
Litigation Change Litigation
GBPm GBPm GBPm GBPm GBPm
Balance as at 26 February 2022 1.8 0.8 28.0 0.3 30.9
Provisions made during the
period 5.5 2.1 26.1 0.4 34.1
Provisions used during the
period (0.4) (0.7) (53.8) - (54.9)
Balance as at 4 March 2023 6.9 2.2 0.3 0.7 10.1
Non-current - - - - -
Current 6.9 2.2 0.3 0.7 10.1
Balance as at 4 March 2023 6.9 2.2 0.3 0.7 10.1
ALLIANZ LITIGATION
During the current year, the Group has reached full and final
settlement in respect of the legal dispute with Allianz Insurance
plc. Under the settlement, which is a negotiated settlement and
made without admission of liability, the Group has paid the sum of
GBP49.5m. Further detail provided in note 6. The provision
outstanding at 4 March 2023 of GBP0.3m, relates to the outstanding
legal costs and amounts payable to Allianz following closure of the
joint redress account.
OTHER LITIGATION
During the year the Group made a provision of GBP5.5m, as an
estimate of the litigation costs. This is principally committed
external legal costs associated with legacy customer claims. This
is not a new exposure and in prior years the Group has handled such
claims on a case by case basis and the costs incurred have not been
material. The Group will continue to defend such claims of unfair
relationships and the Board supports a strategy to robustly defend
any past and future claims. The Group has engaged external counsel
which is reflected in the provision recorded.
The provision outstanding at 4 March 2023 of GBP6.9m also
includes a provision recognised in prior periods in relation to
certain PPI related customer redress complaints 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 GBP1.3m;
- A 10% combined improvement in these assumptions would lead to
a reduction in the provision of GBP1.2m;
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 performed a restructuring
exercise to 'right size' its headcount and payroll overhead,
following the contraction in revenues and profitability during the
COVID-19 Pandemic and the more recent downturn in retail market
performance as a result of the cost-of-living crisis. Total
redundancy costs of GBP2.4m were incurred in the year. The
provision outstanding at 4 March 2023 relating to the restructuring
amounted to GBP1.9m which was fully paid in the months following
the year end. The remaining GBP0.3m provision at 4 March 2023
relates to property dilapidation costs expected to be repaid within
the next 12 months.
OTHER
The provision held at 26 February 2022 of GBP0.3m relates to
costs and interest in relation to matters under discussion with
HMRC relating to FY19 and prior years. Agreement on this matter is
still pending with HMRC as of the date of this financial report.
The additional provision of GBP0.4m booked in the current year
relates to management's best estimate of the cashflows expected to
be incurred in relation to a legal claim made against the
company.
19. Post balance sheet events
On 14 April 2023, the Group completed the refinancing of its
unsecured Revolving Credit Facility ('RCF'). The new RCF facility
has a maximum limit of GBP75m and an overdraft facility of GBP12.5m
both respectively committed to December 2026.
The key covenants in respect of the new RCF continue to be as
follows:
-- Leverage less than 1.5 - representing the ratio of unsecured
net cash/(debt)(1) , over Adjusted EBITDA(1) after the deduction of
Securitisation interest; and
-- Interest cover greater than 4.0 - representing the ratio of
Adjusted EBITDA(1) over finance costs after excluding
Securitisation interest and adding back pension interest
credit.
(1) A full glossary of Alternative Performance Measures and
their definitions is included on page 61. A reconciliation of
statutory measures to adjusted measures is included on page 16.
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 Definition
Measure
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
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 Profit before tax, excluding adjusting
margin 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, amortization
and adjusting items.
Adjusted Operating costs Operating costs less depreciation, amortization
to revenue ratio 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 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.
The reconciliation of the statutory measures to adjusted
measures is include in the Financial Review report on page 16.
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END
FR SSWESIEDSEFM
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