Notes to the Group Accounts
Notes to the Group Accounts
N Brown Group plc
Annual Report and Accounts 2010
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HOME SHOPPING
A YEAR OF CONTRAST
Griffin House
40 Lever Street
Manchester
M60 6ES
www.nbrown.co.uk
Our brands
Notes to the Group Accounts
Shareholder Information
Notes to the Group Accounts
Young (30-45)
fashionworld.co.uk
simplybe.co.uk
simplyyours.co.uk
naturallyclose.co.uk
classicconfidence.co.uk
newnow.co.uk
vivaladiva.com
jacamo.co.uk
thebrilliantgiftshop.co.uk
Midlife (45-65)
jdwilliams.co.uk
ambrosewilson.com
oxendales.com
oxendales.ie
fiftyplus.co.uk
shoetailor.com
shapelyfigures.com
classicdetail.co.uk
premierman.com
homeshoppingdirect.com
inspirationalhome.co.uk
discountworld.com
houseofbath.co.uk
crazyclearance.co.uk
marisota.co.uk
homeessentials.co.uk
williamsandbrown.co.uk
thatsmystyle.co.uk
Elderly (65+)
heathervalley.com
specialcollection.com
nightingales.com
grayandosbourn.co.uk
julipa.com
Financial Timetable
2009
2010
14 October
11 December
8 January
27 February
27 April
28 May
2 July
6 July
30 July
Announcement of interim results
Closing of register for interim dividend
Payment of interim dividend
Financial year-end
Preliminary announcement of annual results
Publication of 2010 annual report and accounts
Closing of register for final dividend
Annual general meeting
Payment of final dividend
Registered Office
Griffin House
40 Lever Street
Manchester
M60 6ES
Registered No. 814103
Telephone 0161 236 8256
Bankers
HSBC Bank plc
The Royal Bank of Scotland plc
Registrars
Capital IRG plc
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone 0871 664 0300
(Calls cost 10 pence per minute plus network extras)
Auditors
Deloitte LLP
P O Box 500
2 Hardman Street
Manchester
M60 2AT
Solicitors
Addleshaw Goddard LLP
Eversheds LLP
Halliwells LLP
Pinsent Masons LLP
Stockbrokers
Credit Suisse Securities (Europe) Ltd
RBS Hoare Govett Limited
Shareholder benefits
Subject to certain conditions, shareholders are entitled to a 20% privilege discount off the selling price of consumer merchandise in
any of the group catalogues. Shareholders interested in these facilities should write for further information to the Company Secretary,
N Brown Group plc, Griffin House, 40 Lever Street, Manchester, M60 6ES stating the number of shares held and the catalogue or
product of interest.
Capital gains tax
For the purpose of capital gains tax, the value of the company’s ordinary shares of 10p each was 6.40625p per share on 31 March 1982
and 1.328125p on 6 April 1965.
www.nbrown.co.uk
Design Elmwood www.elmwood.com
It’s been a year of contrast for N Brown, one in which
commercial agility and business prudence have both
played a part. The result is continued growth of our
home shopping business in the face of an extremely
tough trading environment.
During 2009/10 we’ve expanded our portfolio of brands to
target new customers at low cost. We’ve also launched
onto the high street, acquiring High & Mighty, giving us
growth potential at a good price. Building on the success
of Marisota and Jacamo, we’ve continued our push into
the specialist fittings markets for both ladieswear and
menswear, launched Simply Be in Germany, invested
in online shopping yet refined our credit and customer
recruitment policies to maximise returns.
The result of this contrast, this commercial agility and
business prudence, is reflected in the strong financial
results we have delivered. This performance leaves us
poised to take advantage of other new opportunities
in the coming year.
Contents
2 Financial Highlights 3 Five Year History 4 Chairman’s Statement 6 Chief Executive’s Review
18 Financial Review 20 Directors and Officers 22 Directors’ Report 27 Corporate Governance Report
31 Remuneration Report 43 Independent Auditors’ Report – Group Accounts 44 Consolidated Income Statement
44 Consolidated Statement of Comprehensive Income 45 Consolidated Balance Sheet
46 Consolidated Cash Flow Statement 46 Reconciliation of Operating Profit to Net Cash from Operating Activities
47 Consolidated Statement of Changes in Equity 48 Notes to the Group Accounts 72 Independent Auditors’ Report
– Company Accounts 73 Company Balance Sheet 74 Notes to the Company Accounts IBC Shareholder Information
N Brown Group plc Annual Report & Accounts 2010
1
Financial Highlights
Revenue
Operating profit
Adjusted profit before taxation*
Profit before taxation
Adjusted earnings per share
Earnings per share
Dividends per share
2010
2009
£690.0m
£662.5m
£97.6m
£93.1m
£85.7m
24.77p
22.83p
10.79p
£95.5m
£82.7m
£92.3m
21.96p
22.88p
9.19p
Net assets
£319.0m
£283.0m
Net asset value per share
114.6p
103.2p
Net borrowings
£170.1m
£218.3m
Gearing
53%
77%
* Excluding fair value adjustments to financial instruments
2
N Brown Group plc Annual Report & Accounts 2010
Five Year History
Revenue –
Continuing operations (£m)
Operating profit –
Continuing operations (£m)
Pre-tax profit* –
Continuing operations (£m)
690.0
662.5
610.9
95.5
97.6
91.8
523.8
459.6
76.3
62.4
93.1
82.7
76.2
67.7
52.5
06
07
08
09
10
06
07
08
09
10
06
07
08
09
10
Adjusted earnings per share**
– Continuing operations (p)
Dividends per share (p)
Net assets (£m)
24.77
10.79
21.96
20.27
9.06
9.19
16.43
12.71
7.53
6.27
319.0
283.0
246.0
243.2
202.5
06
07
08
09
10
06
07
08
09
10
06
07
08
09
10
*Excluding fair value adjustments to financial instruments
**See note 11 on page 56
N Brown Group plc Annual Report & Accounts 2010
3
Chairman’s Statement
I am pleased to report another record set of results for
N Brown Group for the 52 weeks to 27 February 2010.
This highlights the strength of our business and strategy
as these results have been delivered during a challenging
year due to the economic recession.
The more cautious approach we applied
to credit granting and improvements to
our stock-turn ratio have contributed to a
£48.2m reduction in our net borrowings
to £170.1m. This reduction, combined
with lower interest rates, has resulted in
net finance costs of only £4.5m (2009,
£12.8m), which are covered 21 times by
operating profits. Gearing has fallen to
53% (2009, 77%) based on net assets of
£319.0m, up 12.7%. Borrowing facilities
of £320m remain in place until the first
quarter of 2012, the increased headroom
giving ample scope for our growth plans.
Financial Results
Total group revenues increased by 4.2%
to £690.0m and by 3.3% on a like- for-like
basis, excluding our international business
and the sales from High & Mighty which
we acquired in September 2009. Internet
sales grew by 21% to £272m during the
year. Operating profits were up by 2.2%
at £97.6m and profits before fair value
adjustment to financial instruments and
tax were up 12.6% at £93.1m. Profits
before tax and after fair value adjustments
to financial instruments were £85.7m.
Our focus has consistently been on
adjusted profit before tax which reflects
the underlying performance of the group
and the basis on which the business is
managed. Adjusted earnings per share
have grown by 12.8% to 24.77p.
The board is proposing an unchanged
final dividend of 6.41p, which gives a total
dividend for the year of 10.79p, up by
17.4%, covered 2.3 times, reflecting our
confidence in the business. We decided
to rebalance the split between our interim
and final dividend payments at the half
year and going forward we expect to
pay approximately 45% of the full year
dividend at the interim stage.
4
N Brown Group plc Annual Report & Accounts 2010
Sales for the 8 weeks to 24 April 2010 are
4.1% up on last year, or 3.1% on a like-
for-like basis. We will continue to closely
manage the balance between controlled
revenue growth and our credit policies
in line with the economic environment.
This may restrict the potential rate of
revenue growth this year but it will also
contribute to a reduction in the bad debt
charge. The measures we have taken
have resulted in a business well-placed
to continue growing in the current
economic conditions and the board
remains confident that the group can
make further progress this year.
The strong performance in the last year
in a challenging market has only been
possible through the commitment and
hard work of our management team
and staff along with the support of our
suppliers and trade union and I would
like to thank them all for their excellent
contribution.
Lord Alliance of Manchester, CBE
Trading Highlights
During the year, the key highlights have
been:
• Ongoing development of our portfolio
of brands targeted on clearly defined
customer propositions. In particular
we saw strong growth from our newer
brands such as Marisota (targeting
contemporary, confident women in their
50’s) and Jacamo (offering younger
branded menswear in larger sizes to
the under 45’s).
• Growth across all of our major product
categories as we continue to develop
the ranges around our core strengths
in terms of size and fit. We have again
continued to see strong demand for
our expanded branded and celebrity
designed ranges, such as by Mica Paris.
• The strategy to expand our menswear
sales led to a 17% increase in revenues
from this category. This includes the
benefit of the acquisition of the High &
Mighty brand and selected assets in
September 2009, with its niche offering
across 14 high street stores and the
internet.
• Further development of our e-commerce
activities, which delivered a sales
increase of 21% and now account for
39% of the total revenues. They also
generate benefits in terms of lower
transaction processing costs.
• The successful launch of Simply Be
website and catalogue in Germany as
we continue to build an international
presence.
Corporate Social Responsibility
We recognise that in addition to driving
shareholder value it is important that we
act as a responsible corporate citizen.
To this end we have made great strides in
reducing our carbon footprint and overall
energy usage, we have a record number of
employees engaged in charitable activities,
and we continue to refine our ethical
sourcing process.
Outlook
Looking forward, we anticipate continued
pressure on consumer spending as well
as further volatility in global exchange
rates and commodity prices. However,
as we have demonstrated over many
years, the flexibility of our business model
and cost base means we are capable of
reacting quickly to market trends and this
has enabled us to consistently increase
sales and profits in recent years.
We will continue to follow a multi-channel
strategy, focused on developing market
niches through targeted customer offers
with products designed to fit their
individual needs, followed by active
cross-selling promotions. Additional
investment in our online systems will
facilitate incremental selling opportunities.
In parallel we have an ongoing plan to
drive further service enhancements and
more delivery options.
We have recently launched two further
brands to build our portfolio; That’s My
Style presents customers in their late 50’s
with our clothing and footwear ranges
displayed in a contemporary format; and
Williams and Brown is targeted at the
50-year old man with a classic, but stylish,
range of menswear. In addition we plan
to develop High & Mighty by combining
its revamped high street stores with a
strong internet and catalogue offerings.
Our international trials will continue with
the launch of Simply Be in the USA in late
summer 2010 and building our customer
base in Germany.
N Brown Group plc Annual Report & Accounts 2010
5
Chief Executive’s Review
We have emerged from a challenging year with record
results for both revenue and earnings, strong cash
generation and a healthy balance sheet which has
enabled the board to recommend a substantial increase
in the dividend for the year.
For the 52 weeks to 27 February 2010 total revenue
was £690.0m, up by 4.2% from the previous year and
by 3.3% on a like-for-like basis after adjusting for our
new international trial in Germany and the acquisition
of High & Mighty in September 2009.
Financial Highlights
Revenue
Operating Profit
Adjusted Pre-Tax Profit *
Profit Before Tax
Total Dividend Per Share
Adjusted Earnings Per Share **
Net Borrowings
Net Assets
£m
2009/10
% vs.
2008/9
690.0
97.6
93.1
85.7
10.79p
24.77p
170.1
319.0
+4.2
+2.2
+12.6
–7.2
+17.4
+12.8
–22.1
+12.7
* Excluding fair value adjustments to financial instruments. ** See Note 11
Revenue
We have continued to focus on our core
strengths of targeting niche customer
groups and delivering relevant products
with an emphasis on the correct size and
fit, which is reflected in the growth across
almost all of the group’s core product and
customer categories.
Both our established and newer brands
have generated revenue growth and there
has been a further increase in online sales
as a result of the continued focus and
investment in e-commerce. In addition we
have developed our international business
with the successful launch of our Simply
Be website and catalogue in Germany.
In a competitive retail market customer
loyalty is more precious than ever and so
I am delighted we have achieved record
levels of customer satisfaction through
ongoing improvements to our service offer.
Group revenue up 4.2% to
Adjusted earnings per share
up 12.8% to
£690.0m
24.77p
Total dividend up 17.4% to
10.79p
Customer Groups
We are recruiting customers to more than
20 of the brands in our portfolio, each of
which has its own distinct target customer
profile and product offer. Our brands are
grouped into three age ranges:
• Younger – targeting customers
aged 30-45 years
• Midlife – targeting customers
aged 45-65 years
• Older – targeting customers
aged 65 years and above.
Younger
In line with our strategy, the younger
customer group has yet again experienced
the fastest growth, with sales up 8% to
£216m. Simply Be has delivered another
good performance, and it remains our
largest title within this category, delivering
fashionable clothing up to size 32 to
women in their 30’s. Simply Be’s sales
include £2.4m of revenues from our
German language catalogue and website.
Operationally the launch in Germany
has gone extremely smoothly, and the
product offer has been welcomed by the
customers there. Our younger menswear
title, Jacamo, one of our newer brands, has
doubled its sales in the year, over 70% of
them transacted online. Jacamo’s results
have been driven by an expanded range
of branded clothing and footwear, with the
larger sizes up to 66” chest and 64” waist
usually being supplied exclusively to us.
Midlife
The midlife group of customers had
sales of £421m that grew by 4% during
the year. Our established brands, such as
J D Williams, Ambrose Wilson, Fifty Plus
and Oxendales, continued to provide the
majority of sales in this category, although
the strongest growth came from another
one of our newer brands, Marisota. Its
offer of contemporary fashion designed to
fit real women has proved to be popular
and over the last year its sales have
increased by 83%. Our menswear brand
Premier Man achieved a 9% increase
in sales, as we switched the focus of
marketing directly to the male customer
himself rather than his female partner.
In September 2009 we acquired the brand
and certain assets of High & Mighty, an
upmarket menswear retailer in the big
and tall niche, from the administrator for
a consideration of £1.6m, and we are
delighted with the progress so far. The
brand recognition is extremely high and we
will develop the website and catalogues
as complementary to the 14-strong store
portfolio.
Older
The older customer group saw a 5%
decrease in sales to £53m in line with the
performance of the ladieswear market in
the UK. During the year we launched Julipa
to provide a more substantial offering for
the over 65 age group, comprised of all the
suitable product lines which were already
featured in other group catalogues. The
results have been encouraging so far, and
it will be further developed in 2010.
Customer Database
The number of our established customers
who ordered during the year increased by
2% and the spend per customer also rose
by 2%. Part of our conservative stance in
2009 was to hold the level of recruitment
expenditure at the same level as in the
previous year, as new customers have a
higher credit risk. The change to the mix of
recruitment between the different brands
has resulted in slightly lower sales per new
customer.
Product Categories
One of the key tenets of our business is
the provision of an extensive range of
products, with a high number of options
around size, colour, length and fit. By
storing over 150,000 options in just two
distribution centres we are able to service
demand for products even where the
rate of sale is low. We have significantly
expanded the number of product lines to
our customers exclusively on the internet,
which is the main reason for a 50%
increase in total compared with last year.
Category
Revenue £m % Growth
Ladieswear
Footwear
Menswear
Home & Leisure
Total
356
73
67
194
690
1
9
17
4
4
Ladies underwear and outerwear account
for 52% of our total sales. We offer an
extensive range of sizes, which go up to
a size 38 with a large proportion available
in multiple length options. Over half of our
ladieswear sales are in sizes 20 and above,
sizes which are hard to find on the high
street. We have continued to see growth
in our younger titles and hence remain
focused on providing a fashionable
offer with the availability of designer
and branded ranges.
As a result, we have worked with designers
such as Caryn Franklin, Anna Sholtz and
Jeffrey Rogers, as well as celebrities such
as Mica Paris to promote our products.
We continue to work with fashion celebrity
Gok Wan, who designs a range of
shapewear exclusively for our Simply
Yours lingerie brand, maintaining our
focus on providing fashionable lingerie
for women in an extensive range of sizes.
Menswear is a strategic area of focus
which has grown rapidly with sales up
17% to £67m. This has been driven by
the success of our Jacamo brand and
the expansion of our menswear offer
in Premier Man. Contributing to the
success of both these menswear brands
has been the ability to persuade more
branded suppliers to produce garments
in larger sizes, up to 66” chest and 64”
waist, exclusively for our customers. The
acquisition of High & Mighty adds to our
strength in this area with its upmarket
brands such as Ralph Lauren Polo, Animal
and Paul & Shark as well as a range of
casual and formal wear. Menswear now
accounts for 10% of our total sales, but
it is still under-represented relative to
womenswear revenues and therefore
there is still scope for significant growth
in the future.
N Brown Group plc Annual Report & Accounts 2010
7
Chief Executive’s Review
PUSHING
OUR BRANDS
FORWARD
8
N Brown Group plc Annual Report & Accounts 2010
When it comes to our newer brands, the star
performers have been Marisota and Jacamo
expanding our customer base by targeting the
woman in her 50’s who wants solutions to her
clothing and footwear problems and the men
in their 30’s who want branded clothing in
bigger sizes. Product innovations such as the
UK’s largest strapless bra have contributed
to their strong performance. Launched in
early 2009, Julipa, our 65+ flagship, has also
attracted new customers with its new look
and nine-shops-in-one catalogue.
N Brown Group plc Annual Report & Accounts 2010
9
Chief Executive’s Review
FIT. WHATEVER
YOUR SHAPE.
We’ve boosted our longstanding
expertise in fit. The new magi-fit
fashion and miraclesuit swimwear
ranges have been popular and we’ve
introduced even more sizes, including
women’s shoes up to a 10 and our
legroom boots in 4 calf widths. We’ve
also introduced personal style advice
via fashion stylists Carol Spencer and
Joy Wilson, shape guides and outfit
recommendations plus an online
personalised guide for customers.
10
N Brown Group plc Annual Report & Accounts 2010
Menswear sales up
Younger customer sales up
17%
8%
We remain the market leader for wider
fitting footwear. We also provide a multi-fit
range for customers with oddshaped feet
and offer ladies boots with various calf and
ankle fittings, emphasising our devotion
to satisfying our customers whatever their
shape or size. This year footwear sales
increased by 9% with the fastest growth
coming from the range developed for
our younger customers. We have also
produced some of our best selling styles
in standard width fittings recognising that
some of our ladieswear customers will not
necessarily require wider fitting footwear.
Home and leisure sales have grown
by 4%, accounting for 28% of total sales.
Our Christmas Gifts catalogues were
extremely successful and led to strong
growth in the sales of gifts and toys,
ranges which had been expanded in
response to customer feedback. Sales of
electrical products grew by 10% despite
the tougher criteria we applied to our
credit accounts to reduce the risk of
bad debts on higher value products.
We have worked with selected suppliers
to enable them to upload products
directly onto our websites, enabling far
more extensive ranges online than had
previously been possible with products
such as DVDs , computer games,
plants and rugs as part of an ongoing
programme.
An important part of our strategy is to
encourage our customers to shop across
our various product ranges. A key measure
of this is the proportion of customers who
purchase items during the year from each
of the ladies clothing, underwear and
footwear ranges. These customers not
only spend more but also show a higher
level of repeat purchasing. We are now
expanding this concept to work across all
of our ranges through active cross-selling
programmes.
E-commerce
With online sales of £272m last year up
by 21%, we remain one of the top online
retailers in the UK overall and number one
for ladies clothing in size 16 and above and
for ladies underwear sold over the internet.
The internet is becoming increasingly
popular with customers as they become
more confident in shopping online and
with a strong pipeline of initiatives and
systems development, we are well placed
to continue to hold our position as a
market leader. Average order values online
are over 20% higher than for orders placed
through other channels, which is due to
the wider selection of product available
on our websites and the ease with which
customers can search and browse our
entire offering.
Online sales now account for 39% of
total sales compared with 34% the
previous year. The internet is at the
centre of all our business development.
We are encouraging more of our existing
customers to transact online, the
newer brands all have over 50%
online participation and the number
of product lines exclusive to the
internet has grown dramatically.
Gross Margin and Credit
The group’s gross margin is a complex
combination of different product and
customer segments, including the financial
income and bad debts arising from the
sales on credit. The overall rate of gross
margin declined by 0.7%, with a fall of
1.6% in the first half offset by a 0.1%
improvement in the second half.
The rate of gross margin on product sales
has been ahead of the prior year, partly
due to a lower level of dormant stock
to be cleared. The policy to reduce our
stock levels during the recession has
been vindicated, and at the year end our
inventories were 10.6% lower than the
previous year at £62.4m.
We have implemented a number of
changes to our credit policy during the
year, raising the threshold for new account
applications, changing payment terms and
Sales from mid-life brands
up 4% to
£421m
selectively restricting credit availability,
particularly for high value items ordered by
our younger customers. The consequence
of these actions has been to reduce
sales growth but it has also reduced the
bad debt charge since implementation,
resulting in an improving trend with a lower
bad debt rate in the second half than the
first half. This trend has continued into the
current year.
Overheads
Stringent cost control, process
improvements and the greater penetration
of online sales have restricted the
increase in our distribution, selling
and administrative costs to just 2.9%.
Distribution costs benefited from a 3%
increase in the average item value, due
to the mix of sales, and the key ratio of
marketing costs to revenue improved
through procurement savings.
Customer Service
We have put an even stronger emphasis
on great customer service this year to
ensure our customers have no reasons
to defect to our competitors, especially
as there has been an increased level
of discounting and promotions in retail
generally. Our twice yearly survey
demonstrated our success in this aim with
the record level of satisfaction achieved
since the survey began in 1996. This has
been delivered by improvements in the
supply chain, faster delivery of parcels,
enhanced customer service as well as
favourable reviews for product quality
and the choice and visual appeal of the
catalogues and websites.
Balance Sheet
The group has ended the year with a
12.7% increase in net assets to £319.0m
and net borrowings which are down
£48.2m to £170.1m, reducing gearing from
77% to 53%. The principal reasons for the
cash inflow are the significant reductions
in working capital (arising from only a small
increase in trade receivables compared
with the prior year and lower stock levels)
and capital expenditure.
N Brown Group plc Annual Report & Accounts 2010
11
Chief Executive’s Review
A BASkETFUl
OF SAlES
Online sales have grown strongly again this year and
now account for 39% of sales. We’ve continued to
innovate, with internet exclusives, online catwalks and
personalised styling on our websites, as well as making
the sites easier to use by improved contact management,
registration, checkout and customer feedback.
The exploitation of social media and active cross-selling
promotions have also enhanced this growth.
12
N Brown Group plc Annual Report & Accounts 2010
N Brown Group plc Annual Report & Accounts 2010
13
Chief Executive’s Review
Online sales up 21% to
Ladieswear sales up 1% to
Footwear sales up
£272m
£356m
9%
The current year will be no less challenging
but if we maintain the focus on our
niche customers and products, develop
our online activities and progress our
international trials I am sure we will enjoy
another good year.
Alan White
Outlook and Current Trading
The outlook for the UK economy
over the next year remains uncertain,
whatever the outcome of the general
election, as increased taxation and
reduced public expenditure are bound to
impact disposable incomes. In addition
inflationary pressure will impact input
prices due to the weakness of sterling and
high commodity costs. N Brown Group,
however, is well placed to continue its
growth with our flexible business model
allowing us to adapt quickly to changing
market conditions. In addition, our strategy
of focusing on niche customer and
product groups results in strong customer
loyalty and our increasing strength within
e-commerce gives us a strong base with
which to enter the year ahead.
We have already had a positive start to
the year, with sales for the 8 weeks to 24
April 2010 up by 4.1% in total, and 3.1% on
a like-for-like basis. Online sales continue
their strong growth and now account for
over 40% of all sales.
We continue to see development
opportunities in our core business focusing
on maximising our existing customer
relationships as well as launching new
brands. These include Williams and Brown,
targeted at the classic, but contemporary,
fifty year old man, and That’s My Style a
more contemporary brand name which
we believe will be attractive to 60-year
old women who want clothing solutions
but who have not traditionally been home
shopping customers. Early signs for these
new brands are positive. We will continue
to invest across our brand portfolio and
expect to see continued high growth from
Marisota and Jacamo in particular.
Similarly we are using more well known
brands and celebrities to expand our
product offer at the higher price points. In
2010 we will be working with Joe Calzaghe,
who will endorse the Jacamo range, and
Arlene Phillips, who has designed a range
for Marisota which will also be syndicated
to other midlife brands.
E-commerce is at the heart of our
revenue growth in the next few years,
and we have major projects in progress
to improve content management,
registration, checkout and customer
feedback. In addition there is a rolling
program of tactical trading initiatives from
the exploitation of social media to active
cross-selling promotions.
This year will also see further expansion
in our international offering. Following
on from our trials in Germany, we will be
launching Simply Be in the USA in late
summer 2010 with a fully transactional
website and catalogue offer. The plus
size market in the USA is estimated to be
worth $35bn and we believe a gap exists
for a younger, fashion focused offer. We
will service the orders from our UK base
which significantly reduces the cost of the
launch.
Having nursed the High & Mighty business
through the immediate post-administration
phase we are now looking to develop it
positively. In 2010 we will look to open
up to three new stores and relocate
or refurbish at least another six of the
fourteen stores we acquired. The product
synergies within our total menswear range
are being selectively exploited and we
have started to produce catalogues which
can be actioned through the stores, call
centre or High & Mighty website, with the
latter migrating to our internet platform this
summer.
The performance of the group last year
is a result of the expertise, creativity and
endeavour of everyone who works at
N Brown Group, and on behalf of the
directors I cannot praise them enough
for their efforts in guiding the business
through a difficult external environment.
14
N Brown Group plc Annual Report & Accounts 2010
In September 2009 we acquired the
retail chain, High & Mighty, for £1.6m
taking 14 stores and the website.
It offers significant growth potential
and the opportunity to experiment
with multi-channel retailing with high
street stores and also exposure to the
big and tall upmarket menswear market.
We plan to triple sales and add stores in
key cities.
HIGHER
STREET
N Brown Group plc Annual Report & Accounts 2010
15
Chief Executive’s Review
TAkING OFF
OVERSEAS
The launch of Simply Be into Germany marked our next step
into international markets, building on our long-established
business in Ireland. Exporting an already successful range has
efficiently gained us a foothold in a new territory and paved the
way for our American launch later this year, looking for a share
of the $35 billion plus size market.
16
N Brown Group plc Annual Report & Accounts 2010
This year we’ve further exploited celebrity connections.
Mica Paris with her latest trends fashion range, Joe Calzaghe
endorsing the Jacamo brand and Gok Wan designing a lingerie
range in partnership with us have all been a huge success.
In addition, unique partnerships with well-known labels, such
as Gossard, Helly Hansen and Sergio Tacchini, who supply
larger sizes exclusively to us and enhance our range.
STAR QUAlITY
N Brown Group plc Annual Report & Accounts 2010
17
Financial Review
The 52 weeks to 27 February 2010 was another record
year for the group reflecting the successful continuation
of our strategy to develop our home shopping business.
As a result group sales exceeded the prior year by 4.2%
to £690.0m and adjusted pre-tax profit increased by
12.6% to £93.1m.
Group Trading Summary
Group operating profit for the same period
rose to £97.6m (2009, £95.5m). This was
achieved despite a 0.7% reduction in
gross margin arising from a higher rate
of charge for bad debts offset partly by
a small improvement in product margins.
Distribution costs rose by only 2.3% to
£61.9m (2009, £60.5m) benefiting from a
3% increase in average item values. Sales
and administration costs increased by only
3.1% to £202.5m (2009, £196.4m) assisted
by further cost efficiencies arising from the
customers’ propensity to use the internet,
process improvements and stringent
cost control. As a result, the group’s
operating margin reduced slightly to
14.1%, compared with 14.4% last year.
Profit before taxation and fair value
adjustments to financial instruments
amounted to £93.1m (2009, £82.7m),
benefiting from a reduction in net finance
charges from £12.8m to £4.5m as a result
of lower LIBOR rates and lower borrowings
during the year. An adverse movement in
the fair value of the group’s forward foreign
currency contracts contributed a loss of
£7.4m compared to a £9.6m gain last year.
The fair value of the forward contracts is
their quoted market value at the balance
sheet date and is outside the control of
management.
Taxation
The effective rate of corporation tax
for the year was 27.1% (2009, 32.7%).
Last year’s high rate was a result of the
exceptional tax charge of £4.4m in respect
of the phasing out of industrial building
allowances. We expect our tax rate for
the year ahead to be similar to this year.
Balance Sheet and Cash Flow
The strong trading performance has
resulted in net assets increasing to
£319.0m at the year end from £283.0m
last year.
Total capital expenditure for the year was
£13.2m (2009, £18.6m). The majority of
the expenditure related to the ongoing
development of our websites and supply
chain management systems. There was
minimal requirement for further investment
in our warehousing and logistics operations
during the year. Year-end stock levels
were 10.6% lower than last year at
£62.4m (2009, £69.8m), in line with our
plans to manage the business prudently.
Trade debtors at the year end were up
2.4% to £447.0m compared to £436.6m
last year reflecting in improvement in
revenue and our more conservative
approach to credit policy. The bad debt
provision has increased to £47.0m (2009,
£41.1m), which equates to 9.5% (2009,
8.6%) of gross debtors.
The group’s defined benefit pension
scheme deficit has reduced to £1.8m
(2009, £4.0m) predominantly as a result
of the planned additional contribution of
£4.0m paid during the year but offset by
an actuarial loss of £1.2m on the scheme’s
assets and liabilities. The final additional
planned contribution of £4.0m will be paid
in 2010. Further contributions may be
made, if required, following consultation
with the trustees of the pension fund.
Net cash generated from operating
activities increased from £38.7m to
£91.7m mainly as a result of the group’s
improved revenue coupled with cautious
credit granting policies and lower stock
levels. After paying for capital expenditure,
finance costs and dividends of £44.7m, net
debt was reduced by £48.2m to £170.1m
(2009, £218.3m) and gearing improved
from 77% to 53%.
Key Performance Indicators
The directors use a number of key
performance indicators (KPIs) to monitor
the progress of the group, including:
• Like for like sales (see page 4).
• Internet sales (see page 11).
• The number of customer debtor
accounts and their average debtor
balance, which at the year end was
1,577,000 (2009, 1,640,000) and
£303 (2009, £285) respectively.
• Mix of sales by product and customer
groups (see pages 7 to 11).
• Gross margin (see page 11).
• Operating margin (see page 18).
• Interest cover (see page 4).
18
N Brown Group plc Annual Report & Accounts 2010
early 2012. It is the group’s intention
to open renewal negotiations with its
bankers in the next twelve months to
ensure appropriate levels of committed
funds matching the group’s medium
term financing requirements are in
place beyond 2012.
After making appropriate enquiries, the
directors have a reasonable expectation
that the company and the group have
adequate resources to continue in
operational existence for the foreseeable
future. Accordingly, they continue to adopt
the going concern basis in the preparation
of the annual report and accounts.
Shareholder Return
The share price of 199.75p at the start
of the year had risen to 215.60p at the
year end giving a market capitalisation
of £600.2m (2009, £547.5m). In addition,
the company’s five year performance
measured by Total Shareholder Return
compared with the FTSE Mid-250 Index,
which the company is a member of, shows
that we are outperforming the market.
An unchanged final dividend of 6.41p per
share has been recommended by the
board giving a total dividend for the
year of 10.79p per share, up by 17.4%,
covered 2.3 times (2009, 2.4 times).
Dean Moore
Risks and Uncertainties
There are a number of risks and
uncertainties which could have an impact
on the group’s long-term performance.
These include consideration of the general
economic climate and the impact it has on
the provision of credit to our customers
and their ability to maintain payment terms;
the potential threat from our competitors;
our relationship with key suppliers; the loss
of key personnel; potential disruption to
our key information systems, warehousing
or call centre facilities arising from events
beyond our control such as fire or other
issues which could have a detrimental
impact on sales and profit; changes
to the regulatory environment in which
the business operates under, primarily
regulated by the Financial Services
Authority and the Office of Fair Trading.
The directors routinely monitor all these
risks and uncertainties and appropriate
actions are taken to mitigate these risks,
such as having business continuity
procedures in place, a dedicated team
assessing regulatory developments,
ensuring we treat our customers fairly
and hosting regular reviews with all of
our strategic partners. The board are
also committed to continually invest in
updating the group’s business systems
and infrastructure to keep pace with new
technology.
Treasury
Funding arrangements have been set to
adequately support the ongoing trading
and development activity of the group. The
group has committed borrowing facilities
of £320m until the first quarter of 2012,
of which £230m were utilised at the year
end. The primary facilities are a £200m
securitisation programme through an
HSBC A-1/P1 rated conduit that has no
exposure to the US sub-prime mortgage
market and has a matching standby facility
annually renewable. In addition, the group
also has two five-year revolving credit loan
facilities of £50m each with HSBC Bank
plc and The Royal Bank of Scotland plc.
All the current facilities are arranged at
floating interest rates at favourable margins
compared to current market rates. Where
appropriate, exposure to interest rate
fluctuations on indebtedness is managed
by using derivatives such as interest
rate swaps.
Anticipated foreign exchange requirements
for the purchase of stocks denominated
in US dollars are hedged for up to three
years ahead to fix the cost of sterling. This
hedging activity involves the use of spot,
forward and option contracts. At the year
end the group had outstanding forward
foreign exchange contract commitments
of $60m (2009, $65m).
Accounting Standards
and Going Concern
Group accounting policies reflect current
professional standards and related
guidelines issued by the International
Accounting Standards Board and are
prepared in accordance with International
Financial Reporting Standards as adopted
for use in the EU.
In determining whether the group’s
accounts can be prepared on a going
concern basis, the directors considered
the group’s business activities together
with factors likely to affect its future
development, performance and its
financial position including cash flows,
liquidity position and borrowing facilities
and the risks and uncertainties relating to
its business activities. These are set out
within this report and discussed further
in the Chairman’s Statement and Chief
Executive’s Review.
The group has considered carefully its
cash flows and banking covenants for
the next twelve months from the date
of signing the group’s audited financial
statements. These have been appraised
in light of the uncertainty in the current
economic climate. As such, conservative
assumptions for working capital
performance have been used to determine
the level of financial resources available to
the company and to assess liquidity risk.
The key risk identified by the directors
for these assumptions is the impact that
a further deterioration in the economic
climate will have on the performance
of the group’s debtor book.
The group’s forecasts and projections,
after sensitivity to take account of all
reasonably foreseeable changes in
trading performance, show that the
group will have sufficient headroom
within its current loan facilities of
£320m which are committed until
Directors and Officers
A)
D)
G)
B)
E)
H)
C)
F)
I)
A) Lord Alliance of Manchester CBE (77)
Non Executive Chairman c
Appointed a director and Chairman in
1968. Formerly Chairman of Coats Viyella
Plc. He is also a director of a number of
private companies, and was appointed
a life peer in 2004.
B) Alan White (55)
Chief Executive
Qualified as a chartered accountant with
Arthur Andersen and was finance director
for Sharp Electronics, N Brown Group
and Littlewoods before returning as Chief
Executive in 2002. He is a non-executive
director of Topps Tiles plc and Regional
Chairman of CBI North West.
C) Dean Moore (52)
Group Finance Director
Appointed in November 2003. Previously
Group Finance Director at T&S Stores Plc
and Graham Group Plc. Also held various
roles with Lloyds Chemist Plc, Sketchley Plc,
Blue Circle Industries and Grant Thornton.
D) Nigel Alliance OBE (75)
Non-executive Director
Appointed a director in 1969, he changed to
non-executive status in 1995. He is also a
director of a number of private companies.
E) Ivan Fallon (65)
Non-executive Director a, b, c
Appointed a director in 1994 and Deputy
Chairman on 1 March 2009. He was Chief
Executive of Independent News & Media
(UK) until March 2010; director of Truphone.
Chairman of the remuneration committee.
F) Lord Stone of Blackheath (67)
Non-executive Director a, b, c
Appointed a director in 2002. Formerly with
Marks & Spencer Plc until he retired as
Joint Managing Director in 1999. Currently
Chairman of Sindicatum Climate Change
Foundation and the health charity DIPEx.
Chairman of the nomination committee.
a Audit committee member b Remuneration committee member c Nomination committee member
G) John McGuire (61)
Non-executive Director a, b, c
Appointed a director in March 2004. Formerly
Chairman of Corporate Banking for Royal
Bank of Scotland Group in the North of
England and Midland regions. Vice Chairman
of Royal Bank of Scotland Pension Fund
Trustee Ltd. Audit Chair of Stockport NHS
Foundation Trust. Non-executive Director of
The University of Manchester. Chairman of
the audit committee.
H) Anna Ford (66)
Non Executive Director a, b, c
Appointed a director on 1 March 2009.
Non-executive director of J Sainsbury Plc,
also Chair of their Corporate Responsibility
Committee and member of the Remuneration
Committee. Honorary bencher of Middle
Temple.
I) Philip Harland (54)
Company Secretary
Joined the company in 2000. Previously
company secretary and associate director
of legal services at GUS Home Shopping
Ltd. Admitted as a solicitor in 1981.
20
N Brown Group plc Annual Report & Accounts 2010
Financial Statements
Independent Auditors’ Report – Group Accounts
22 Directors’ Report
27 Corporate Governance Report
31 Remuneration Report
43
44 Consolidated Income Statement
44 Consolidated Statement of Comprehensive Income
45 Consolidated Balance Sheet
46 Consolidated Cash Flow Statement
46 Reconciliation of Operating Profit to Net Cash from Operating Activities
47 Consolidated Statement of Changes in Equity
48 Notes to the Group Accounts
72
73 Company Balance Sheet
74 Notes to the Company Accounts
IBC Shareholder Information
Independent Auditors’ Report – Company Accounts
N Brown Group plc Annual Report & Accounts 2010
21
Directors’ Report
The directors present their report and
accounts for the 52 weeks ended 27
February 2010.
The net cost of this dividend was
£12.0m (2009, £7.5m).
Activities and results
The principal activity of the group is
retailing through direct home shopping.
The activities are more fully explained in
the Chief Executive’s Review on pages
6 to 17. Group profit before taxation from
continuing operations for the 52 weeks
ended 27 February 2010 amounted to
£85.7m (2009, £92.3m). No geographical
segmentation is provided as, apart from
small operations in the Republic of Ireland
and Germany, all activities take place in
the United Kingdom.
Enhanced business review
The company is required by the
Companies Act 2006 to set out in this
report a fair review of the business of
the group during the 52 weeks ended
27 February 2010 and the position of
the group at the end of that period.
The company is also required to set
out a description of the principal risks
and uncertainties facing the group.
The information fulfilling the above
requirements can be found within this
report, within the Chairman’s Statement,
the Chief Executive’s Review and the
Financial Review (pages 18 to 19) and
is deemed to be incorporated in this
report by this cross-reference.
The board has a policy of continuously
identifying and reviewing key business
risks and monitors a number of financial
and non-financial Key Performance
Indicators, which are detailed on page
18. The board oversees the development
of processes to ensure these risks are
managed appropriately and executive
directors and operational directors are
tasked with implementation and oversight
of these processes and reporting to
the board.
Dividends and reserves
An interim dividend of 4.38p per share
(2009, 2.78p) was paid on the ordinary
shares of the company on 8 January 2010.
The directors recommend a final dividend
of 6.41p per share (2009, 6.41p) for the
52 weeks ended 27 February 2010, the
net cost of which will be £17.8m (2009,
£17.5m). The dividend will be paid on 30
July 2010.
Movements in reserves are shown in the
Consolidated Statement of Changes in
Equity on page 47.
Acquisitions and disposals
As announced in September 2009 the
group acquired certain assets of High and
Mighty Limited from the joint Administrators
for the cash consideration of £1.6m. This
included the brand, website, stock and the
assets of 14 stores based in the UK.
Share capital
Details of the company’s authorised and
issued share capital are shown in note 22
on page 65.
The company has one class of ordinary
shares which carry no fixed income. Each
share carries the right to one vote at
general meetings of the company. There
are no specific restrictions on the size of
a holding nor on the transfer of shares
which are both governed by the general
provisions of the Articles of Association
and prevailing legislation (except as set out
below in the section entitled “Voting Rights
and Restrictions on Transfers”). No person
has any special rights over the company’s
share capital and all issued shares are
fully paid.
Details of outstanding employee share
options and the operation of the relevant
schemes are shown in note 27 on page 67.
Annual general meeting
The annual general meeting is to be held
on 6 July 2010. The notice convening
the annual general meeting is being sent
to members by way of separate circular
together with full explanatory notes on each
resolution to be proposed at the meeting.
Threadneedle Asset Management Ltd
Standard Life Investments
22
N Brown Group plc Annual Report & Accounts 2010
Directors
The biographies of the directors, all of
whom served throughout the year, are
shown on page 20. In accordance with
the provisions of the Combined Code
(2008) those non-executive directors who
have served a term of more than 9 years
on the board will be subject to annual
re-election. Those affected by such a
provision are Lord Alliance of Manchester
CBE, Nigel Alliance OBE and Ivan Fallon.
Accordingly they will retire at the next
annual general meeting and, being eligible,
offer themselves for reappointment at that
meeting.
In addition, in accordance with the Articles
of Association of the company Dean
Moore and John McGuire will retire at the
next annual general meeting and, being
eligible, offer themselves for reappointment
at that meeting.
Details of directors’ interests (beneficial
and non-beneficial) in shares of the
company are given in the Remuneration
Report on page 42 and are deemed to
be incorporated into this report by cross-
reference.
With regard to the appointment and
replacement of directors, the company is
governed by its Articles of Association,
the Combined Code and the Companies
Act. The powers of directors are described
in the board terms of reference and the
Corporate Governance Report on page 27.
Directors’ and officers’ liabilities
The group maintains insurance for directors
and officers of the group, indemnifying
them against certain liabilities incurred by
them whilst acting on behalf of the group.
Major shareholders
In addition to the directors’ shareholdings
shown in the Remuneration Report on
page 42 and in accordance with Chapter
5 of the Disclosure and Transparency
Rules, the following notifications had been
received from holders of notifiable interests
in the company’s issued share capital at
30 April 2010:
Holding
14,190,152
12,164,198
% of issued
share capital
5.10
4.37
Directors’ Report
Environmental, social and
governance issues
Governance and risk management
The board is committed to maintaining
high standards of corporate governance.
The company monitors and evaluates
risk on an ongoing basis as part of its
commitment to sustainable business.
Further details are contained in the
Corporate Governance Report on pages
27 to 30.
Ethics
The board regards the maintenance of the
highest ethical standards in business as an
essential characteristic of the way in which
the group conducts all of its business.
A code of ethical conduct covering
commercial standards, conflicts of interest,
gifts and hospitality has been circulated
to and agreed by all employees. All senior
managers and employees of the group are
required to comply with both the letter and
the spirit of the code in all their dealings for
and on behalf of the group.
In their dealings with each other, other
group companies, their shareholders,
customers, suppliers, competitors,
regulatory authorities and the wider
community, employees are required to:
• conduct all dealings with each other and
externally with honesty, integrity, respect
and fairness;
• comply with all relevant laws, regulations
and internal company policy;
• encourage and support a business
culture which exhibits and promotes
ethical conduct at all levels within the
organisation;
• avoid any situation or action, which
could cause damage to the group’s
reputation; and
• foster a teamworking environment in which
praise and recognition play key roles.
Directors of all group companies are
required to disclose details of related party
transactions for review and authorisation
by the audit committee and by the board.
A register of gifts and benefits offered
by suppliers and other parties whether
accepted or declined is maintained under
the control of the group head of internal
audit. All employees, managers and
directors are required, each month, to
declare any offer of gifts or hospitality with
a value of £25 or more, offered, accepted
or declined.
The group has drawn up and issued a
comprehensive “whistleblowing policy”
providing employees with an appropriate
means of communication in case of ethical
concerns regarding the way the group
operates in its day-to-day activities.
No ‘whistleblowing’ events were reported
in the year.
Environment
The group recognises its environmental
responsibilities and is committed to
minimising any damage which its
activities may cause to the environment.
It has delegated specific responsibility for
environmental matters to Keith Risk, director
of logistics, who sits on the operational
board of J.D. Williams & Company Limited.
In addition, the company actively pursues a
number of environmental policies, including
those designed to contain energy costs,
achieve the active recycling of paper and
packaging materials wherever practical,
and promote the widespread use of
information technology to reduce the level of
consumption of paper by its employees. In
the year under review the group has worked
very closely with the Carbon Trust and has
engaged external consultants, Envantage
Ltd and Storm Waste Ltd to advise on the
formulation of the group’s policy on energy
consumption and waste management.
The group adopts a full life-cycle view
of all packaging products used in its
operations. Wherever practicable,
packaging components are made from
materials and processes causing minimum
harm to the environment when either
manufactured, processed, recycled or
eventually disposed of. The group’s paper
packaging is made from a minimum of
70% recycled paper and all other paper
used by the business is sourced from
100% recyclable papers. Wherever
possible, paper used in the printing of
our catalogues is derived from managed
and renewable sources accredited by the
Forest Stewardship Council. The following
environmental “mileposts” have been
achieved in the current financial year: -
• A decrease in electricity consumption
of 788 thousand kilowatts.
• A reduction of 426 tonnes of
CO2 emissions per annum.
• A reduction of gas consumption of 30%.
• Water consumption down 31%.
• A reduction in carbon footprint of
953 tonnes since 2007/2008.
• Third place in the FTSE 350 Carbon
Disclosure Project 2009.
• 90% of group waste is now recycled.
The group has committed to achieving
0% waste to landfill by 2011.
Employees
- Employee involvement. The group firmly
believes that continuing success can only
be achieved by an engaged, enthusiastic,
motivated and well-trained workforce.
Consequently, considerable resources are
devoted to employee training. Frequent
departmental team briefings are held
and an employee engagement survey is
conducted regularly. A Consultative Forum
operates within the logistics division where
employees from all levels contribute and
share ideas that help shape the culture
of the business. This division has also
achieved Investors in People accreditations
and it is planned that the group will
achieve this standard across all areas of
the business. Over 500 group employees
either hold shares in the company or have
options/awards to acquire them through
the group’s various share option and long-
term incentive schemes.
A large proportion of the group’s training
and development activity is delivered by
our in-house learning and development
team, which is supplemented by external
training in the specialist technical and IT
training arenas.
As well as individually tailored training, there
is also a suite of self-training tools available
which covers a range of topics from
negotiation skills to effective influencing. All
employees are free to request attendance at
any of these workshops, which encourage
them to be proactive and take ownership
of their own skills development. An online
database – “simplydevelopment” – exists
which enables employees to access a wide
range of self-development activities, tools
and information.
- Consultation. Constructive relationships
with the trade unions which represent the
group’s employees (principally USDAW
and SATA) are encouraged. Elements
of the group are covered by a collective
bargaining arrangement with USDAW.
Union membership is encouraged and
regular communication with the union is
facilitated through ‘partnership forums’
established on the principle of shared
commitment to business success,
employment security and development
with a particular emphasis on quality of
life, openness and adding value.
- Equal opportunities. The group
supports the principle of equal opportunities
in employment and is opposed to all forms
of discrimination, including those on the
grounds of colour, race, nationality, ethnic or
national origin, religion, gender, age, sexual
orientation, marital status or disability.
N Brown Group plc Annual Report & Accounts 2010
23
Directors’ Report
Our selection processes for recruitment,
promotion, training and development are
non-discriminatory. We believe it is in the
best interests of employees and the group
to provide these opportunities to the most
suitable candidates.
An all-employee survey carried out in
2008 (to be repeated in 2010) revealed
a balanced working population spread
across a diverse range of ethnic origins,
gender and age-groups.
Applications for employment by disabled
persons are always fully considered,
bearing in mind the aptitudes of the
applicant concerned. In the event of any
employee becoming disabled, every effort
is made to ensure that their employment
with the group continues and that
appropriate training is arranged. It is the
policy of the group that the training, career
development and promotion of disabled
persons should, as far as possible, be
identical to that of other employees.
Each year the group rewards and
recognises significant contribution from
its customer contact centre employees by
inviting them to compete for a nomination
to receive an award for outstanding
customer service.
- Health and safety. The group’s
policy is to ensure compliance with all
relevant legislation to ensure, as far as is
reasonably practicable, the health, safety
and welfare at work of its employees,
contractors and visitors. Pre-employment
questionnaires, physiotherapy, audiometry,
an improved management referral process
and rehabilitation programs have enabled
occupational health issues to be better
controlled.
Cumulative group accidents statistics
show that in the year under review there
was a 25% reduction in those incidents
requiring statutory reporting under the
Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations
1995, with the group’s Reportable
Accident Incidence Rate at nine incidents
and overall accident statistics down
28% at 181 accidents. These statistics
are the lowest on group record to date
demonstrating a significant reduction in
major injuries per population of employees
and a commitment to employee health and
safety. The group was awarded the Gold
Award in ROSPA’s Occupational Health
& Safety Awards in 2009, recognising
its commitment and leadership in health
and safety matters as well as its well-
developed health & safety management
systems and culture. As a responsible
retailer and employer we endeavour to
ensure that all products and services
sold by us or used in the workplace are
designed so that they are safe and without
risk to the end-user in proper use.
Customers
One of the key factors of the group’s
success is the quality of its relationship
with its customers. Regular customer
satisfaction surveys are conducted, both
directly and through third parties, to
ensure that the group closely monitors
the opinions and requirements of its
customers. In addition, telephone enquiry
and complaint calls received from
customers are analysed and appropriate
action taken to improve the levels of
service offered to them.
Suppliers
The group sources products and services
from across the world. A significant
proportion of this expenditure is with
suppliers with whom the group has a long-
term relationship, which helps to provide
a continually improving quality of product
and service to customers, whilst reducing
costs.
It is the group’s practice to:-
• Agree the terms of payment at the start of
the business relationship with suppliers.
• Ensure that all suppliers are made aware
of the terms of payment applicable to
the contract.
• Pay in accordance with contractual and
other legal obligations.
Trade creditors of the group at 27 February
2010 represented 38 days (2009, 41 days)
of purchases.
The group is aware of the potential social
impact of its business dealings, particularly
in developing countries. Our standard
conditions of contract, for the purchase
of all products for resale require that
our suppliers must adhere to a code of
conduct in respect to their labour force
that includes freedom of employment;
freedom of association and the right of
collective bargaining; all employees work
in safe and hygienic conditions; there is
no recruitment of child labour; a living
wage is paid for the country of origin;
working hours are not excessive; there are
no discriminatory practices; no harsh or
inhuman treatment of labour. In addition,
all labour, safety and relevant laws local
to the country of manufacture must be
observed.
Based around the Ethical Trading
Initiative (ETI), the group has issued self-
assessment forms and ‘Code of Conducts’
to all suppliers. At the date of writing 803
suppliers have been issued with self-
assessment forms and just over 60%
have responded with the remainder being
pressed to do so. Once the assessment
forms are returned suppliers are rated and
graded by reference to the ETI Base Code
and International Labour Organisation
Codes.
We will work proactively with suppliers to
correct any non compliance. Continued
non compliance will lead to de-selection.
It is the intention to audit this process
by means of random announced and
unannounced visits and consideration is
being given to joining one of the external
agencies active in the area of ethical
trading and social responsibility such as
ETI and SEDEX.
Community
The group is committed to investment
in, and support of, the communities in
which it operates. The family, health and
well-being programme, now in its sixth
year, is actively supported, and continues
to provide additional benefits for all our
employees.
The group maintains close links with
the Christie Hospital in Manchester, the
Marie Curie Foundation Breast Cancer
Awareness and the Retail Trust. It also
regularly encourages employees to
participate in fundraising activities for
these, and other worthwhile causes. These
events can be anything from national
support such as Children in Need and the
Alzheimer’s Society to very local causes
for hospices and children’s hospitals in
and around Greater Manchester. The
group maximises the potential donation
by matching the level of money raised
by employees to double the size of the
donation.
In the last financial year, money was raised
for noteworthy causes such as Bowel
Cancer UK (sponsored marathon) and
Marie Curie (£57,000 worth of daffodil pins
sold). The group supported the Canal Boat
adventure charity where employees paid
for more than 100 deprived and disabled
children to enjoy a holiday. In addition the
group’s employee’s organised fund-raising
activities to assist the following good
causes:
• Comic Relief;
• Many Hands Campaign for Manchester’s
new children’s hospital;
• Help for Heroes;
• DEC Haiti relief fund;
• Willow Wood Hospice;
24
N Brown Group plc Annual Report & Accounts 2010
Directors’ Report
• Beechwood Cancer Care;
• Children in Need;
• Springhill Hospice; and
• Cornerstone Charity for the homeless.
In 2009/10 a record number of employees
were involved in charitable events.
Numerous separate charitable fundraising
events were held by employees and
sponsored, or participated in, by the
group, raising more than £37,000.
In August 2009 the group donated a
considerable quantity of clothing stock
to Wood Street Mission in Manchester, a
charity established to help poor families
and children. The quantity of stock
donated is to be used towards assisting
up to 1400 families (based on assisting 140
families per month) with clothing, bedding
and baby equipment.
Charitable and political donations
During the year, the group made
charitable donations of £70,569
(2009, £85,211). No political donations
have been made (2009, nil).
Pension fund
The group continues to ensure that the
N Brown Group Pension Fund is managed
in accordance with best practice and
current legislation. A trustee company,
which is controlled by a board of directors,
administers the fund’s assets. One of these
is an independent professional trustee
and the rest have a vested interest in the
performance of the fund, representing
the interests of pension fund members,
pensioners and N Brown Group plc.
The fund’s investments are managed by
Aberdeen Asset Management Limited and
Legal and General Assurance (Pensions
Management) Limited and the actuarial
and administration services are provided
by Mercer Human Resource Consulting
Limited.
N Brown Group plc (and some of its
associated companies) are required to
indemnify the trustee company and its
officers in respect of certain liabilities
incurred by them in the performance of
their obligations relating to the N Brown
Group Pension Fund or in administration
of the Fund. This amounts to a “qualifying
indemnity provision” (as defined in section
236 of the Companies Act 2006).
The N Brown Group Pension Fund was
closed to new entrants with effect from 31
January 2002. New employees joining the
group after 31 January 2002 and existing
employees who had not joined the N
Brown Group Pension Fund as at that date,
are entitled to join a stakeholder pension
scheme providing a defined contribution
pension arrangement, administered by
Prudential Stakeholder Pensions.
Further to the arrangement agreed with
the Pensions Regulator in January 2007
as part of the company’s ‘B’ share return
of value scheme, the company paid an
extra £4m into the pension fund during the
relevant year in continued reduction of the
funding deficit.
Financial risk management,
objectives and policies
The group is exposed to certain financial
risks, namely interest rate risk, currency
risk, liquidity risk and credit risk.
Information regarding such financial
risks is detailed in note 19 on page 61.
The group’s risk management policies
and procedures are also discussed in
the Financial Review on page 18.
Change of control
There are a number of agreements that
take effect, alter or terminate upon a
change of control of the company such
as commercial contracts, bank loan
agreements, property lease arrangements
and employee share plans. None of these
are considered to be significant in terms
of their likely impact on the business of
the group as a whole. Directors’ service
contracts are terminable by the company
on giving 12 month’s notice. There are no
agreements between the company and
its directors or employees that provide for
additional compensation for loss of office
or employment that occurs because of a
takeover bid. No events were reported in
the year.
Tax status
The company is not a close company
within the meaning of the Corporation
Taxes Act 2010.
Auditors
A resolution to reappoint Deloitte LLP as
auditors to the company and to authorise
the directors to fix their remuneration will
be proposed at the annual general meeting
on 6 July 2010.
• Pursuant to the company’s code for
securities transactions whereby the
directors and designated employees
require approval to deal in the company’s
shares;
• Where a person with an interest in the
company’s shares has been served with
a disclosure notice and has failed to
provide the company with information
concerning interests in those shares;
The company is not aware of any
arrangements between shareholders that
may result in restrictions on the transfer of
securities or voting rights. The rights and
obligations attaching to the company’s
ordinary shares are set out in the Articles
of Association.
Employee share schemes –
rights of control
The trustees of the N Brown Group plc
Employee Share Ownership Trust and
the trustees of the N Brown Group plc
No. 2 Employee Share Ownership Trust
hold shares on trust for the benefit of the
executive directors and employees of the
group, which are used in connection with
the company’s various share incentive
plans. The trustees currently abstain
from voting the shares but have power to
vote or not at their discretion in respect
of any shares in the company held in the
relevant trust. The trustees may, upon the
recommendation of the company, accept
or reject any offer relating to the shares in
any way it sees fit, without incurring any
liability and without being required to give
reasons for their decision. In exercising
their trustee powers the trustees may take
all of the following matters into account:
• The long-term interests of beneficiaries;
• The interests of beneficiaries other than
financial interests;
• The interests of beneficiaries in their
capacity as employees or former
employees or their dependants;
• The interests of persons (whether or not
identified) who may become beneficiaries
in the future; and
• Consideration of a local, moral, ethical,
environmental or social nature.
Voting rights and restrictions on
transfer of shares
None of the ordinary shares carry any
special rights with regard to control of the
company.
Going concern
The directors have adopted the going
concern basis in the financial statements
and their opinion is explained in the
Financial Review on page 19.
There are no restrictions on transfers of
shares other than:
• Certain restrictions which may from time
to time be imposed by laws or regulations
such as those relating to insider dealing;
Liability
All the information supplied in the
Chairman’s Statement on pages 4 to 5,
the Chief Executive’s Review on pages 6
to 17, Financial Review on pages 18 to 19,
Remuneration Report on pages 31 to 42
N Brown Group plc Annual Report & Accounts 2010
25
Directors’ Report
and the Corporate Governance Report on
pages 27 to 30 form part of this Directors’
Report. Any liability for the information is
restricted to the extent prescribed in the
Companies Act 2006.
Directors’ responsibilities statement
The directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulations.
Company law requires the directors
to prepare financial statements for
each financial year. Under that law the
directors are required to prepare the
group financial statements in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union and Article 4 of the IAS
Regulation and have elected to prepare
the parent company financial statements
in accordance with United Kingdom
Generally Accepted Accounting Practice
(United Kingdom Accounting Standards
and applicable law). Under company
law the directors must not approve the
accounts unless they are satisfied that
they give a true and fair view of the state of
affairs of the company and of the profit or
loss of the company for that period.
• provide additional disclosures
Responsibility statement
when compliance with the specific
requirements in IFRSs are insufficient to
enable users to understand the impact
of particular transactions, other events
and conditions on the entity’s financial
position and financial performance; and
• make an assessment of the company’s
ability to continue as a going concern.
The directors are responsible for keeping
adequate accounting records that
are sufficient to show and explain the
company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the company and
enable them to ensure that the financial
statements comply with the Companies
Act 2006. They are also responsible for
safeguarding the assets of the company
and hence for taking reasonable steps for
the prevention and detection of fraud and
other irregularities.
We confirm that to the best of our
knowledge:
• the financial statements, prepared in
accordance with the relevant financial
reporting framework, give a true and fair
view of the assets, liabilities, financial
position and profit or loss of the company
and the undertakings included in the
consolidation taken as a whole; and
• the management report, which is
incorporated into the directors’ report,
includes a fair review of the development
and performance of the business
and the position of the company
and the undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks
and uncertainties that they face.
By order of the board
The directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
company’s website. Legislation in the United
Kingdom governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
Alan White
Chief Executive
Dean Moore
Finance Director
11 May 2010
In preparing the parent company financial
statements, the directors are required to:
Each person who is a director at the date
of the approval of this report confirms that:
• select suitable accounting policies and
then apply them consistently;
• make judgments and accounting
estimates that are reasonable and
prudent;
• ensure applicable UK Accounting
Standards have been followed and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
company will continue in business.
In preparing the group financial
statements, International Accounting
Standard 1 requires that directors:
• so far as the director is aware, there is no
relevant audit information of which the
group’s auditors are unaware; and
• the director has taken all steps that he
ought to have taken as a director in order
to make himself aware of any information
to establish that the group’s auditors are
aware of that information.
This confirmation is given and should
be interpreted in accordance with the
provisions of section 418 of the Companies
Act 2006.
By order of the board
• properly select and apply accounting
policies;
Philip F Harland LL.B (Hons) (Solicitor)
Secretary
• present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information;
11 May 2010
26
N Brown Group plc Annual Report & Accounts 2010
Corporate Governance Report
Combined code
The board is committed to high standards
of corporate governance and compliance
with the principles in the Combined
Code on Corporate Governance issued
by the UK Financial Reporting Council in
2008 (the “Code”). The purpose of this
statement is to explain how the group has
applied the principles of good governance
set out in the Code.
For the year in review the group has
complied with the provisions set out in
section 1 of the Code. Explanations of
how the main principles of the Code have
been applied are set out below and in the
Director’s remuneration report.
Board composition
The board currently comprises eight
members, six of whom are non-executive.
There is a clear division of responsibilities
between the Chairman, Lord Alliance of
Manchester CBE, who is responsible for
the effective operation of the board and
the Chief Executive, Alan White, who is
responsible for the group’s operational
performance.
The non-executive directorship of the
board comprises the Chairman, Lord
Alliance of Manchester CBE, Nigel Alliance
OBE, both of whom are not regarded
by the board as independent under
the provisions of the Code, the deputy
chairman Ivan Fallon, Lord Stone of
Blackheath, John McGuire and Anna Ford.
All of these are considered by the board to
be independent.
Ivan Fallon was appointed to the board
in October 1994 and he has now served
on the board for a period beyond which
the Code suggests that his independence
may be affected. The board, nonetheless,
holds Ivan Fallon to be independent and
that his commercial experience, acumen
and extensive knowledge of the group’s
businesses gained during his tenure on the
board are of such great value to the board
that this far outweighs any considerations
of non-independence. Ivan Fallon is also
the senior independent non-executive
director and the deputy chairman.
The board considers that it had a majority
of independent non-executive directors
during the year. It is considered that the
composition of the board during the year
had the necessary balance of executive
and non-executive directors providing the
requisite skills, experience and judgement
appropriate for the requirements of the
business and board effectiveness.
One third of the board is required to retire
every year. Accordingly, all directors are
subject to re-election every three years.
All directors joining the board are required
to submit themselves for election at the
annual general meeting following their
appointment. All non-executive directors
serve the company under formal written
terms and conditions of appointment.
These terms of appointment stipulate a
period of service of an indefinite duration
terminable on six months notice by either
party. All non-executive appointments are
subject to early termination provisions,
for example allowing earlier termination
without compensation in the event a
director is not re-elected upon retirement
by rotation in accordance with the articles.
In line with the Code all non-executive
directors who have served for nine years
will be subject to annual re-election. As
such, Lord Alliance of Manchester CBE,
Nigel Alliance OBE and Ivan Fallon will be
subject to re-election at the 2010 annual
general meeting and, being eligible, will
offer themselves for re-election. Dean
Moore and John McGuire will retire
by rotation at the 2010 annual general
meeting in accordance with the company’s
articles of association and, being eligible,
offer themselves for re-election.
The board, having carried out a
performance evaluation, considers that
the performance of all directors, including
those facing re-election continues to be
effective. Sufficient biographical detail
is provided on page 20 of this annual
report to enable shareholders to make
an informed decision on any re-election
resolution. All appointments to the board
are made on merit against objective criteria
and with the intention of ensuring that
all appointees have the requisite skills
and sufficient time to devote themselves
effectively to the business of the board and
to discharge their duties.
Details of directors’ contract terms are
shown in the Remuneration Report on
page 37.
Board operation
An effective board of directors leads and
controls the group. The members of the
board are shown on page 20 of this report.
The board met 8 times during the year.
Director’s attendance at board meetings
was as follows:
Lord Alliance of
Manchester CBE
Ivan Fallon
Alan White
Lord Stone of Blackheath
Nigel Alliance OBE
Dean Moore
John McGuire
Anna Ford
Attendance
8
8
8
8
8
8
8
7
The board is responsible for major policy
decisions, delegating detailed operational
matters to its committees and sub-
committees and senior officers where
necessary. The board is collectively
responsible for providing effective
leadership and promoting the success of
the group and has established a formal
schedule of matters reserved for its
approval (a copy of which is available
on the company’s website, www.
nbrown.co.uk). This document includes
all decisions on business strategy, the
approval of financial statements, the
annual capital and operating expenditure
plans, investment, treasury and dividend
policies, governance issues, major capital
projects, overseeing the group’s risk
control procedures, board membership
and the composition of its committees
and the groups ethical, social and
environmental policies. Currently, at least
one of the board’s meetings at the start
of each year is held over two days and
is entirely devoted to the development
and review of corporate strategy and
the development of the group’s three
year business strategic plan. Day-to-day
operational management of the group is
delegated to the home shopping board of
JD Williams & Company Limited.
The board governs through clearly
mandated committees, accompanied by
robust monitoring and reporting systems.
Further detail is given below.
A comprehensive set of board papers
including detailed management reports
from the Chief Executive and the Finance
Director, management accounts, broker
analyses and shareholder analyses and
bespoke reports from the home shopping
board is circulated to each director not
less than seven days prior to each board
meeting. Non-executive directors are
encouraged to visit and talk to operational
staff and undertake regular site visits to
N Brown Group plc Annual Report & Accounts 2010
27
Corporate Governance Report
ensure they have the most up-to-date
knowledge and understanding of the
company and its activities. Procedures are
in place to enable all directors to obtain
independent professional advice in respect
of their fiduciary duties and obligations
and all board members have full and
direct access to the Company Secretary,
who is a fully qualified solicitor and who
attends all board and committee meetings.
The Company Secretary is charged with
providing timely and comprehensive
advice to the board on legal, regulatory
and governance issues, shareholder
engagement matters, continuing director
education and ensuring the timely
dissemination of information relevant to the
group’s activities and the statutory duties
and obligation of the directors.
In the year under review the board, once
again, undertook an appraisal of its own
performance and effectiveness, that of
the Chairman and that of its committees.
The engagement of an external body
to manage the performance evaluation
process was considered but the board
concluded that the approach adopted
in the previous year remained robust
enough, appropriate and cost efficient
for the company. The evaluation process
consisted of the individual completion of
a questionnaire containing 26 detailed
questions ranging from the effectiveness
of individual members, the size and
number of board reports, relationships
with management, the mix of skill-
sets, individual contribution at board
meetings to the effectiveness of the
Company Secretary. The questionnaire
was completed by all directors in relation
to the board and also any committee of
which they were a member. The process
is designed to establish whether each
director continues to meet the board’s
requirements in terms of effective
contribution, skills and devotion to the
role. The evaluation results were collated
by the Company Secretary for review by
the Chairman and then joint review by the
board. The performance of the Chairman
was reviewed and appraised by the senior
non-executive director in consultation
with the other board members. The Chief
Executive’s performance was reviewed
and appraised by the Chairman and the
non-executive directors. The performance
of the Finance Director (the only other
executive director on the board) was
carried out in a similar manner to the Chief
Executive.
The evaluation concluded that the board
and committees continue to operate well,
are effectively led and that robust, open
and frank discussion and challenge to
both the operational divisional directors
and group’s executive directors exists in
all areas. The survey found that the board
continues to be effectively led by the
Chairman and that information provided
in the form of board papers remains
comprehensive and sufficient for the
director’s needs and that each director
is individually contributing to the overall
effectiveness and success of the group.
Beyond the formal annual evaluation, the
performance of the executive directors is
continuously monitored throughout the
year by the Chairman and the Deputy
Chairman.
Director’s conflicts of interest
The articles of association of the company
were amended at the 2008 annual general
meeting, with effect from 1 October 2008,
to permit the board to consider and, if
appropriate, authorise conflict situations
where a director’s declared interest may
conflict or does conflict with the interests
of the company.
Directors were required to notify the
Company Secretary of all potential or
actual conflict situations as at 1 October
2008 and at that time procedures were
set in place to regularly report and record
any conflicts which arise in a register to be
reviewed by the board at least annually.
No conflicts have been reported as at the
date of this report.
Committee structure
The board has delegated specific
authorities to a number of sub committees
to deal with specific aspects of
management and to maintain supervision
over the internal control procedures of the
group. These committees meet regularly
and have formal written terms of reference
which are available for inspection on
the company’s website. The minutes of
the meetings of these committees are
circulated to all committee members in
advance of the next following committee
meeting, at which they are ratified. The
following committees of the board have
been established:
• Audit committee;
• Remuneration committee; and
• Nomination committee.
After each committee meeting the
chairman of that committee makes a
formal report to the board of directors
detailing the business carried out
by the committee and setting out its
recommendations.
28
N Brown Group plc Annual Report & Accounts 2010
Audit committee
The audit committee consists entirely of
non-executive directors the board consider
to be independent. The current chairman
is John McGuire. The other members are
Ivan Fallon, Lord Stone of Blackheath
and Anna Ford. All members of the audit
committee are regarded as having recent
and relevant financial experience. The
committee meetings are attended by the
Chief Executive, the Finance Director,
the group head of internal audit and the
group’s external auditors.
The committee met 2 times in the year
under review. Committee attendance was
as follows:
Lord Stone of Blackheath
John McGuire
Ivan Fallon
Anna Ford
Attendance
2
2
2
2
The audit committee is charged with
overseeing the nature and scope of the
group audit process (both internal and
external) and its effectiveness. This entails
reviewing and approving the annual internal
audit programme and resources, meeting
with the internal and external auditors
and considering the annual and interim
financial statements before submission to
the board. The committee receives and
reviews the audit, audit-related and group
taxation reports provided by the external
auditors, Deloitte LLP. The committee also
reviews the group’s system of internal risk
control and reports its findings twice yearly
to the board. On each occasion it meets,
the committee will discuss audit and audit-
related matters with the external auditors in
the absence of the executive directors and
internal audit. Additionally, the chairman of
the committee also regularly attends the
group’s head office and holds “ad-hoc”
meetings with the Finance Director and
the group’s head of internal audit. The
audit committee is also charged with the
oversight and management of the group’s
whistleblowing procedure which contains
procedures for the committee to receive, in
confidence, complaints on all operational
matters.
The committee has established a
continuous process for identifying,
evaluating and managing the significant
risks the group faces. This monitoring is
principally based on reviewing reports
from management to consider whether
significant risks are identified, evaluated,
managed and controlled and whether
Corporate Governance Report
any significant weaknesses exist and
are addressed. The committee members
have also evaluated and scored their own
specific assessment of key risks. Further
details are given later in this report.
The board consider that the processes
of the audit committee continue to be
effective and to comply with the guidance
issued by the Smith Committee. During
the year under review the board has not
been advised by the audit committee,
nor identified itself, of any failings or
weaknesses in internal control which
it has determined to be material.
The audit committee reviews the
appointment of the external auditors as
well as their relationship with the group,
including monitoring the group's use of
the auditors for non-audit services and
the balance of audit and non-audit fees
paid to the auditors. Deloitte LLP have
been the group’s auditors for a number of
years. Having reviewed the independence
and effectiveness of the external auditors,
the committee has not considered it
necessary to require them to tender for
the audit work. Deloitte LLP have during
the year also provided non-audit services
to the company in the form of tax and
corporate finance advice. The audit
committee is aware that providing audit
and non-audit advice could give rise to a
potential conflict of interest. To address
this concern, the company has appointed
independent advisors to provide advice on
executive remuneration issues and pension
matters where appropriate. These advisors
do not provide the group with any other
services which could bring into question
their independence or provide any conflict
of interest (further details are set out in the
Remuneration Report on page 31).
As a result of its work during the year,
the audit committee has concluded
that it has acted in accordance with its
terms of reference and has ensured the
independence and objectivity of the
external auditors.
The external auditors are required to rotate
key audit personnel every five years. The
current lead audit partner, who has been
in place for five years, will be replaced
for the next financial year end. There
are no contractual obligations restricting
the group’s choice of external auditor.
The committee has recommended that
the existing auditors, Deloitte LLP be
reappointed.
Deloitte LLP have signified their willingness
to continue in office and ordinary
resolutions appointing them as auditors
and authorising the directors to set their
remuneration will be proposed at the 2010
annual general meeting.
Remuneration committee
The remuneration committee consists
entirely of non-executive directors regarded
by the company to be independent. The
current chairman is Ivan Fallon. The other
members are Lord Stone of Blackheath,
John McGuire and Anna Ford.
(including terms of reference, information
regarding the business and guidance on
their roles and duties as directors) and
meetings/site visits with key employee
contacts are arranged as appropriate.
The Company Secretary provides an
ongoing programme of briefings for
directors covering legal and regulatory
changes and developments relevant
to the group’s activities and director’s
areas of responsibility.
The remuneration committee met 4 times
during the year. Member’s attendance was
as follows:
During the year the nominations committee
did not have occasion to meet.
Lord Stone of Blackheath
John McGuire
Ivan Fallon
Anna Ford
Attendance
4
4
4
4
The purpose of this committee is to review,
formulate and determine the remuneration
package of each executive director and
other members of the board and to
consider how the company is applying
the principles of the Code in respect of
directors’ remuneration.
A comprehensive Remuneration Report is
included in this Annual Report on pages
31 to 42. The report will be put to an
advisory vote by the members at the
company’s 2010 annual general meeting.
Nominations committee
The nominations committee is chaired
by Lord Stone of Blackheath. The other
members are currently Lord Alliance
of Manchester CBE, Ivan Fallon, John
McGuire and Anna Ford. The formal terms
of reference for this committee require it
to make recommendations to the board
for appointments of directors (including
directors of the operating company
board J D Williams & Company Limited)
and other senior executive staff. Where
appropriate, the Chief Executive and
Company Secretary attend meetings of the
nominations committee.
The nominations committee evaluates
board candidates on merit, against
objective criteria, taking into account the
skills and experience required to perform
the duties of the post. Where appropriate,
external search consultants are engaged.
The Company Secretary is responsible
for the induction of new directors.
New directors are provided with a
comprehensive pack of information
Internal control
The directors have overall responsibility for
ensuring that the group maintains a sound
system of internal control, to give them
reasonable assurance regarding effective
and efficient operations and compliance
with laws and regulations. There are, of
course, inherent limitations in any system
of internal control and accordingly even
the most effective system can provide
only reasonable, and not absolute,
assurance and management against
material misstatement, loss or failure.
No system can guarantee elimination of
the risk of failure to meet the objectives of
the business. The board has established
a continuous process for identifying,
evaluating and managing the significant
risks the group faces.
The group’s ongoing assessment of risk
and continual review of the structure of
internal controls remains in place. In order
to ensure key business developments
are appropriately factored into the risk
management process, internal audit
facilitated two specific board-level risk
sessions in the period. The chief executive
of the group and the finance director along
with operational management reviewed
the key risks facing the business and
appraised the structure of internal controls
to mitigate these risks. In a separate
session the audit committee provided a
top-down view of risks across strategic,
financial and operational areas. The results
were collated by internal audit and have
been used as a key driver for the annual
internal audit plan and have been reported
to the board.
The risk committee focuses on reviewing
management’s activities to continually
monitor, reduce and eliminate the risks
identified. Operational management are
asked to present to the risk committee on
a cyclical basis on the progress of agreed
actions against each major risk identified.
The output from the risk committee is
shared with the audit committee twice
annually, and the chief executive of the
N Brown Group plc Annual Report & Accounts 2010
29
Corporate Governance Report
Relations with investors
The company places considerable
importance on good communication
with shareholders, both institutional and
individual investors. Institutional investors,
fund managers and analysts are kept
informed of the company’s overall strategy
through regular meetings and company
‘roadshows’. All non-executive directors
are kept informed of shareholders’ views
through detailed feedback on surveys and
polls and analyst and broker reports are
tabled at each board meeting. The senior
non-executive director makes himself
available to meet with, and understand,
the views of major shareholders.
The company aims to ensure that all
shareholders have full and timely access
to the information it discloses in the
annual report, the yearly and half yearly
announcements and interim management
statements and that shareholders have
the opportunity to meet with the executive
management team at least twice a year at
the announcement of the group’s results,
at the analyst’s financial presentation and
also by constructive use of the annual
general meeting. Non-executive and
executive directors also attend meetings
with shareholders on request. As well as
being provided with a copy of the annual
report and results announcements, our
website provides shareholders with
comprehensive and accessible information
about the group and it’s activities.
Shareholders views and feedback reports
are also included in the director’s board
packs as and when received.
group and audit committee chairman by
exception, if required. The group head of
internal audit acts as the chairman of the
risk committee.
In pursuance of the above, the board of
directors (through and with the benefit
of the reports and recommendations of
the audit committee) has reviewed the
effectiveness of the system of internal risk
control for the year under review. As well
as receiving regular reports from the risk
committee described above, the board
(through the audit committee) discusses
with the external auditors and the internal
audit department, the results of their work
and any resulting internal control issues,
including the implementation of action
points arising from previous audits.
The internal audit function is independent
of management and the head of the
function has direct access to the chairman
of the audit committee and the chief
executive of the group. Internal audit
plans are discussed and agreed annually
between the group head of internal audit
and the audit committee.
Appropriate internal financial controls
are in place throughout the group, some
of which have already been referred
to in this statement. Other examples
include the existence of a well-defined
group organisation structure, with
clear lines of responsibility and explicit
authority delegated to divisional boards
and executive management, and a
comprehensive financial reporting system
which communicates plans, budgets
and monthly results to relevant levels of
management, including the board.
The company has complied, and continues
to comply, with the provisions of the Code
on internal controls, and the relevant
parts of the Turnbull and Smith Guidance.
There is an ongoing process in place for
identifying, evaluating and managing the
significant risks facing the group that
has been in place throughout the year
under review and to the date of approval
of the accounts. This process has been
reviewed by the audit committee and
the board, and accords with guidance
appended to the Code. The board has not
identified nor been advised of any failings
or weaknesses which it has determined to
be material.
30
N Brown Group plc Annual Report & Accounts 2010
Remuneration Report
Introduction
This report has been prepared in
accordance with the provisions of the
Companies Act 2006 and Schedule 8 to
the Large and Medium-sized Companies
and Groups (Accounts and Reports)
Regulations 2008. This report also meets
the relevant requirements of the listing
rules of the Financial Services Authority
and describes how the board have
applied the principles relating to directors’
remuneration set out in the Combined
Code on Corporate Governance (2008)
(“the Code”).
This report will be put to an advisory vote
of the company’s shareholders at the
annual general meeting on 6 July 2010.
The auditors are required to report on
certain parts of this report and to state
whether, in their opinion, that part of
the report has been properly prepared
in accordance with the Companies Act
2006. The report is therefore divided
into separate sections for audited and
unaudited information.
Unaudited information:
Remuneration committee
The board has established a remuneration
committee constituted in accordance with
the recommendations of the Code (“the
committee”).
During the financial year, the committee
comprised Ivan Fallon (chairman), Lord
Stone of Blackheath, John McGuire and
Anna Ford, all of whom are non-executive
and considered by the company to be
independent. The committee members
have no personal financial interest (other
than as shareholders) in matters to be
decided, no potential conflicts of interest
arising from cross-directorships and no
day-to-day involvement in running the
business. The committee has formal
written terms of reference which are
available for shareholders to inspect and
on the corporate website. The committee
met four times during the year, with full
attendance on each occasion.
The committee’s work is supported by
independent professional advice. Deloitte
LLP, in their capacity as the company’s
auditors, also provided tax services to
the group. Remuneration benchmarking
and other remuneration data taken from
Deloitte publications were also used.
Ernst & Young LLP provided advice in
respect of certain executive remuneration
issues while Pinsent Masons LLP and
Addleshaw Goddard LLP both provided
legal advice in relation to the company’s
share incentive arrangements as well as
general group legal advice. The committee
also received further advice in respect of
the chief executive’s pension arrangements
from Mercer Human Resource Consulting
Limited, Deloitte LLP and Pinsent Masons
LLP. The latter two are general advisers
to the company who were not specifically
appointed by the committee. Ernst &
Young LLP and Mercer Human Resource
Consulting Limited were specifically
appointed by the committee. The terms of
reference of the company’s professional
advisors are available on request from
the Company Secretary. In determining
the Finance Director’s remuneration for
the year, the committee also consulted
with Alan White, the Chief Executive. No
director played any part in any discussion
about his own remuneration.
The board and the remuneration
committee have reviewed the group’s
compliance with the Code on remuneration
related matters. It is the opinion of the
board that the group complied with the
remuneration related aspects of the Code
during the year under review.
During the year the committee discussed
the following matters:
• Reviewing and benchmarking the
competitiveness of the remuneration
policy and arrangements for executive
directors and other members of senior
management as well as other board and
committee members.
• Reviewing the salary levels for executive
directors and the senior members of the
operating division.
• Agreeing the bonus payable for the 2009
/2010 period.
• Setting the parameters for the bonus
scheme for 2010/2011.
• Agreeing the individual long-term share
awards for 2009-2012 and reviewing
the performance measures and targets
applying to these awards.
• Approving vesting levels of long term
and deferred bonus incentive schemes
for the 2006-2009 and 2007-2009
schemes respectively.
• Approving this remuneration report.
• Reviewing current investor guidelines on
executive remuneration.
Remuneration policy for executive
directors and senior executives
The committee’s policy is designed to
ensure that the main elements of the
remuneration package attract, motivate
and retain executive directors and senior
executives by offering them competitive
remuneration packages, which are
prudently constructed, sufficiently
stretching and linked to profitability
and individual and corporate performance
targets. The normal remuneration package
for executive directors comprises basic
salary, an annual performance-related
bonus (including a deferred element with
a matching share award subject to a
further performance condition), a long-term
incentive programme, a value-creation
incentive scheme, a pension and other
benefits in kind including a company car
allowance and medical insurance.
The committee regularly reviews the
structure of executive remuneration,
including the balance between fixed and
variable pay, to ensure that it remains
competitive and stretching. All pay and
incentives are subject to the individual
review and scrutiny of the committee,
particularly in the case of share incentives
both at the granting and the vesting stage.
All remuneration is set and reviewed by
reference to improvements in financial
and individual performance and is
benchmarked to attract and retain the
highest quality people. This policy will
continue to apply for the current financial
year. The committee will review the policy
on an annual basis and recommend
changes as and when appropriate. The
committee is entitled to consider corporate
performance on Environmental, Social and
Governance (‘ESG’) issues when settling
the remuneration of any executive director.
The committee is of the opinion that the
structure of the incentive arrangements for
senior managers does not raise ESG risks
by inadvertently motivating irresponsible
behaviour or the taking of undue risks with
the business.
A comprehensive review of the bonus
and remuneration structure and the use
of long-term share based incentives was
undertaken in 2008. The main outcome
of that review was that a new long term
incentive plan, the Value Creation Plan
2009, be introduced and shareholder
approval for this plan was obtained at the
company’s 2009 General Meeting held on
26 February 2009.
As a further consequence of the review
the committee implemented revised
vesting arrangements for Long-term
Incentive Share Plan (“LTIP”) awards from
2009 onwards whereby the quantum of
the award, which might vest at median
performance, be reduced from 50% to
25% in line with best practice.
The charts as follows demonstrate
the balance between fixed and
variable performance based pay
for each executive director.
N Brown Group plc Annual Report & Accounts 2010
31
Remuneration Report
Basic salary
When determining the salary of the
executive directors the committee takes
into consideration the levels of base salary
for similar positions with comparable
status, responsibility and skills in
competitor organisations of broadly similar
size and complexity, in particular those
existing in the home shopping and retail
market sectors; the performance of the
individual executive director; the individual
executive director’s experience and
responsibilities; and the pay and conditions
throughout the group. Salaries and
conditions are reviewed on an annual basis
and are subject to absolute improvements
in group profitability and performance
against personal and corporate objectives
and peer-group benchmarking.
The current salaries of the executive
directors are shown in the table below
Salaries as at June 2009
Alan White
£500,000
Dean Moore
£262,500
In light of prevailing economic conditions,
after reviewing the salaries of the executive
directors, the committee decided to
recommend no increase to the executive
directors’ salaries in 2009.
Annual performance-related bonus
The executive directors and senior
executives participate in one of a number
of annual performance-related bonus
schemes at the invitation of the committee.
Each scheme is designed to thoroughly
stretch the performance of the executive
and is linked to absolute growth in annual
profit, the achievement of certain business
targets and the achievement of personal
objectives. These targets are reviewed and
agreed by the committee at the beginning
of each financial year to ensure that they
are appropriate to the current market
conditions, the long-term future of the
company and that they continue to remain
stretching and challenging. The targets are
linked to KPI’s which are drawn from, and
relate to, the achievement of ‘mileposts’
contained in the company’s strategic three
year plan. They are therefore aligned to
the strategic objectives of the company
and aimed at increasing shareholder value,
whilst being prudent and safeguarding
the long-term future of the company. The
maximum potential bonus payable to an
executive director for 2009/10 and 2010/11
is 100% of basic salary. 75% of any bonus
earned is payable in cash and 25% is
deferred net of tax into company shares
for two years and eligible for a 1:1 match
on the pre-tax value of the shares. Awards
of matching shares are released two
years from their date of award provided
the executive remains in employment and
are subject to a financial performance
condition requiring that growth in the
company’s earnings per share must at
least equal the growth of the retail price
index over the deferral period.
The company’s Deferred Annual Bonus
Scheme, pursuant to which matching
shares are awarded, expires in 2011 and
shareholder approval will be sought a
the 2010 annual general meeting for its
renewal, as described in the Notice of
Annual General Meeting.
The performance targets used for 2009/10
were based on a combination of absolute
growth in profit over the previous year’s
reported profit before tax, implementation
of new company processes that will either
be revenue enhancing or cost saving and
the achievement of personal objectives.
The performance targets for 2010/11 have
recently been reviewed and, once again,
will be based upon a combination of profit
growth and the achievement of personal
and corporate objectives.
For the year under review the annual
bonus for the executive directors was
made up of 3 components, namely group
profit (80%), achievement of corporate
objectives (10%) and the achievement of
personal objectives (10%). For 2009/10 the
achievement of each element the bonus
was scored as follows for both executive
directors: -
(a) Group profit (80% of bonus)
The targeted adjusted profit before tax
range for bonus purposes was £84.2m
to £93.0m, compared with the prior year
adjusted result of £83.0m. Adjusted
profit before tax for 2009/10 was
£93.4m, therefore the bonus payment
due under this element of the scheme
was 100%.
(b) Corporate objectives (10% of bonus)
The corporate objective for the year
in review was to implement company
process changes that would generate
incremental revenue or cost savings of
up to £3.0m per annum. Cost savings
in excess of £3.0m were achieved
and therefore the payment due under
this element of the bonus scheme
was 100%.
(c) Individual performance objectives
(10% of bonus)
Several individual performance
objectives are established for each
senior executive. These are stretching
objectives designed to achieve
exceptional improvements against
the prior year or budgeted results, or
the delivery of a key strategic project
linked to corporate strategy. In the
year in review amongst Alan White’s
personal objectives were to improve
customer service by reducing the
enquiry level by 10%, to develop the
online capabilities, to increase on-line
order penetration from 38% to 42%,
to take measures to improve the bad
debt to sales ratio and to develop the
international business in both Germany
and the United States. Amongst Dean
Moore’s personal objectives were
objectives to achieve procurement
32
N Brown Group plc Annual Report & Accounts 2010
Analysis of Performance vs Non Performance element of Remuneration PackageFixed Pay70%30%Alan WhiteDean MooreVariable Performance Related Pay70%30%
Remuneration Report
savings of £3.0m, commercial savings
of £1.5m and to enhance EPS growth
by 1p from tax planning and other
profit measures. The achievement for
the individual performance objective
elements of the bonus scheme for the
executive directors was adjudged by
the committee and the group Chairman
to be as follows:
Based on the results of the three elements
comprised in the annual bonus scheme,
the bonus payable for the year under
review, 25% of which is compulsorily
converted into shares and deferred for two
years, is as follows: -
• Alan White 6.9%
• Dean Moore 7.0%
Name
2009/10 Bonus & Deferred Shares Paid
2009/10 Matching Share Award (Contingent)
Total 2009/10 Bonus & Matching Share Award as a %age of Salary
Alan White Dean Moore
£484,500
£254,625
£121,125
£63,656
121.1%
121.2%
The remuneration committee of the
company recently decided to recommend
to the board that for all future years the
bonus scheme should be scored less
on the achievement of profit and more
on the achievement of objectives in the
3-year plan. Accordingly for 2010/11 the
components of the annual bonus scheme
will be made up of group profitability
(70%), corporate objectives (15%) and
individual objectives (15%).
Share incentives
Subject to the review of the committee,
executive directors and senior executives
are considered to participate in one of
either the company’s long-term incentive
plan or one of its executive share option
schemes. The committee’s policy is
that combined awards under both plans
shall not be made other than where
individual contribution to the performance
of the group has been exceptional or
on recruitment. In addition, it is the
committee’s policy only to grant combined
grants where full consideration has been
given to the following:
• the accounting impact and cost for
the company and the dilutive cost
for shareholders for a given share
commitment to an executive;
• different performance conditions that
might apply to awards and options; or
• the recruitment of a senior executive.
For the year under review no combined
awards were made.
Existing schemes
Long-term incentive share plan
At the discretion and invitation of the committee, executive directors and certain senior executives are eligible to participate in the
group’s long-term incentive share plan. The plan provides appropriate incentives to reward sustained success through the achievement
of challenging business targets, thereby better aligning the interests of shareholders and executives.
Long-term incentive share plan
Description
Maximum Annual Award (% of Salary)
150%
Nature of Right
Performance Period
Performance Requirements
A nil cost award over a fixed number of shares subject to the satisfaction of conditions
Three years
TSR subject to quartile ranking of company against comparator group of companies
calculated over a performance period over three years
Additional Features
None
Prior to 2008 the committee operated a policy of granting awards with an initial face value of 105% of salary for Alan White and 75% of
salary for Dean Moore. For 2008 the committee resolved that it would operate a policy going forward of granting awards of up to 100%
of their salary to both executive directors.
N Brown Group plc Annual Report & Accounts 2010
33
Remuneration Report
Performance condition
The LTIP performance condition is based
upon total shareholder return (“TSR”). TSR
as a performance condition is considered
appropriate for the following reasons:
• market research indicated that TSR is a
more appropriate and common measure
for long-term incentive arrangements
within FTSE 250 companies;
• a TSR performance condition is more
closely aligned with shareholder interests
than earnings per share (“EPS”) growth;
• a TSR performance condition more
closely evaluates company performance
against a basket of comparator
companies in the same sector; and
• a TSR performance condition is more
easily understood and measurable by
eligible executives and is considered to
be a suitably challenging measure in the
current retail sector trading environment.
The committee determines whether
the TSR performance conditions for
share awards and options are satisfied
by ranking the company over a three-
year performance period measured
from the date of grant against a group
of comparator companies currently
comprising: Alexon, ASOS, Blacks
Leisure, Debenhams, DSG International,
Findel, Flying Brands, French Connection,
Halfords, HMV, Home Retail Group,
Instore, JJB Sports, Kesa Electrical,
Laura Ashley, Marks & Spencer, Moss
Bros Group, Mothercare and Next. The
committee determines from time to time
which companies are to be added or
removed from this comparator group.
Vesting of awards
For existing awards made prior to 2009
(vesting 2010 and 2011 respectively) the
company’s TSR must be ranked at least
at the median of the comparators in order
for any of the award to vest (at which level
50% of the award vests), between 50%
and 90% vests if the company’s TSR is
ranked between the median and upper
quartile and 100% of the award will vest
if the company is ranked in the upper
quartile.
For 2009 awards onwards (vesting in 2012)
the percentage award vesting at median
performance, has been reduced from 50%
to 25% of the maximum award. 100%
will vest if the company’s TSR is ranked
in the upper quartile and, depending
on rank, between 25% and 85% of the
award vesting where the company’s TSR
is ranked between the median and upper
quartiles.
The company’s TSR performance against
these targets is measured by reference to
publicly available data produced by the
company’s brokers, Credit Suisse, and by
Datastream. The results are then reviewed
and ratified by the remuneration committee
before any final award is made.
There are currently three awards
outstanding under the long-term share
incentive plans granted in 2007, 2008 and
2009. Based on performance as at 30 April
2010, the company’s TSR is currently (at
the date of this report) ranked as follows:-
2007-10 Upper quartile
2008-11 Upper quartile
2009-12 Second quartile
Executive share option schemes
For share option schemes a performance condition of growth in earnings per share (“EPS”) applies (see below).
The rationale for executives participating in the option schemes is the same as for their participation in the long-term share incentive plan.
Term
Schemes
Maximum Annual Award
Nature of Right
Description
Inland Revenue Approved Option Scheme and the 2000 Unapproved Option Scheme
(Aggregate under both Approved and Unapproved Schemes)
200% of remuneration (salary, bonus and commission)
“Normal” maximum 100% of remuneration
A right to purchase a fixed number of shares at the market price on the date of grant
subject to the satisfaction of conditions
Performance Period
Three years from the date of grant
Performance Requirements
Growth in EPS equal to, or greater than, the growth of the Retail Price Index (“RPI”) +9.2%
The company’s share option schemes expire in 2010 and shareholder approval will be sought at the 2010 annual general meeting for
their renewal, as described in the Notice of Annual General Meeting.
34
N Brown Group plc Annual Report & Accounts 2010
Remuneration Report
Value creation plan 2009
Shareholder approval was obtained at the company’s General Meeting held on 26 February 2009 for the adoption of a new one-off
long-term incentive share plan, the Value Creation Plan 2009 (“VCP”) under which awards over a total of 3.5 million shares could be
granted. Full details of the VCP and how it would work were explained to shareholders in the notice convening the meeting.
These one-off awards under the VCP were granted on 26 February 2009. The following directors have been granted awards under
the VCP:
Name
Awards over
Alan White (Chief Executive)
1,200,000 shares
Dean Moore (Finance Director)
500,000 shares
Selected other senior executives have also been granted awards over an additional 1.4 million shares. In total awards over 3.1 million
shares have been made. No further awards will be made except for senior new hires or to take account of promotions.
Term
Nature of Right
Performance Period
Description
A nil cost award over a fixed number of shares subject to the satisfaction of certain
performance conditions
Measured to the end of February 2012. Options will vest as to one-third on each of the
third, fourth and fifth anniversaries of the date of grant (and on the fifth anniversary the
vested option can be exercised)
Performance Requirements
Absolute TSR and cumulative normalised EPS targets. Both of the performance
conditions must be satisfied in order for awards to vest
Performance conditions
The first condition is related to the
company’s absolute TSR performance.
The committee believes that under the
VCP senior management should only be
rewarded for delivering superior absolute
shareholder returns and that therefore
the TSR performance targets should be
expressed in absolute terms. Accordingly,
in order for awards to begin to vest, the
company’s average TSR performance
over the three years to the end of February
2012 must have increased by at least 40%
compared with the company’s average
share price from the announcement of the
2008 interim financial results to the date
of grant, on 26 February 2009 (202.869p),
and in order for awards to be capable of
vesting in full, the TSR performance must
have increased by at least 200%.
In addition to this TSR condition, the
committee believes that the company’s
financial position should be robust
and therefore there is an additional
performance condition that can reduce
the percentage of an award that will
vest. Accordingly, in order for the award
determined by performance against TSR
performance condition to vest in full, the
company’s cumulative normalised EPS
over the period of four financial years from
1 March 2008 to 28 February 2012 (i.e.
including the year just ended) must be at
least 100p. From a base of 20.75p on 1
March 2008, this is equivalent to a year-on-
year growth rate of 7.6%. If the company’s
cumulative normalised EPS over this
period is less than 100p but 90p or more,
awards would vest between 50% and
100% on a straight-line basis. If cumulative
normalised EPS is less than 90p, awards
would lapse in full. ‘Cumulative’ means the
aggregate of the normalised EPS figures
over the four-year performance period.
N Brown Group plc Annual Report & Accounts 2010
35
Remuneration Report
All employee share schemes
The group operates an HM Revenue &
Customs approved savings related share
option scheme for the benefit of group
employees, provided that they have
completed at least six months’ service.
Eligible employees, including executive
directors and senior executives, may
be granted options over the company’s
shares at a discount of up to 20% to the
prevailing market price at the time of grant
of the option, which (subject to certain
conditions) can be exercised after either
three or five years.
The company’s savings related share
option scheme expires in 2010 and
shareholder approval will be sought at
the 2010 annual general meeting for their
renewal, as described in the Notice of
Annual General Meeting.
There is currently no intention to invite
eligible employees to participate in the
company’s share incentive plan (SIP).
Shareholding guidelines
Under the VCP the company is making
arrangements to introduce formal share
ownership guidelines under which the
Chief Executive and the Group Finance
Director will respectively be required to
hold company shares equal in value (at the
time of acquisition) to 200% and 100% of
their base salary respectively. As at the
date of this report the respective holdings
are as follows (as a % of base salary)
• Alan White 263%
• Dean Moore 167%
Pension
Defined benefit scheme
Alan White is a member of the N Brown
Group Pension Fund (“the fund”), which
is a HM Revenue & Customs registered
defined benefit scheme. The group has
also made an unregistered promise of
benefits in addition to those of the fund
such that the overall group provides
for him, at his normal retirement age of
60, a pension accrual rate of 1/40th of
pensionable salary, which is defined as
base salary only, (to give a maximum
pension of 2/3 pensionable salary at
normal retirement age, including retained
benefits and benefits earned in the
fund prior to 1999). He is also provided
with a lump sum death benefit of four
times pensionable salary. The pension
is calculated on a final salary basis for
service prior to 30 June 2005 and from
then on a career average revalued earnings
basis. Provided Alan White remains in
service until August 2010, his previous
period of service with the group from
1985 to 1999 will be included in full in the
calculation of his current pension. Should
Alan White not remain in service until
August 2010 his previous service shall
count towards the calculation of his current
pension on a pro rata basis. In each
case the pension will be subject to the
above two-thirds maximum. In the case
of early retirement the whole pension will
be reduced for early payment in line with
the fund rules and other factors agreed
with Alan White. On retirement from the
group, both Mr White and the group have
an option that any pension payable under
the un-registered scheme can be paid as
a single lump sum. No part of a director’s
pensionable salary includes remuneration
other than basic pay.
All members of the fund currently pay
contributions (or sacrifice salary) at the
rate of 6% or 8% of pensionable salary.
The group bears the cost of providing the
lump sum death benefit and the balance
of contributions necessary to finance fund
benefits.
The fund is now closed to new entrants.
Eligible employees who would otherwise
have been entitled to join the fund are now
able to join a new defined contribution
pension scheme.
Defined contribution scheme
Dean Moore is a member of the defined
contribution scheme. Members of this
scheme pay contributions at the rate of
6% of pensionable salary. The company
contributes 6% of Dean Moore’s annual
salary into the defined contribution
scheme.
Benefits in kind
Executive directors receive the following
additional benefits:
• a car and fuel allowance; and
• medical insurance
Directors’ contracts
It is the company’s policy that executive
directors should have contracts with an
indefinite term providing for a maximum of
12 month’s notice.
The policy, on termination, is that the
company does not make payments
beyond its contractual obligations. In
addition, executive directors are expected
to mitigate their loss or, within existing
contractual constraints, accept phased
payments. The committee seeks to ensure
that there are no unjustified payments for
failure. None of the executive directors’
contracts provides for liquidated damages.
There are no special provisions contained
in any of the executive directors’ contracts
that provide for longer periods of notice
on a change of control of the company.
Further, there are no special provisions
providing for additional compensation
on an executive director’s cessation of
employment with the company.
Name
Alan White
Dean Moore
Potential termination
payment
Potential payment
upon company takeover
Potential payment in
event of liquidation
12 month’s salary
12 month’s salary
Nil (unless terminated)
Nil (unless terminated)
Nil (unless terminated)
Nil (unless terminated)
Apart from service contracts, no executive director has any material interest in any contract with the company or its subsidiaries.
36
N Brown Group plc Annual Report & Accounts 2010
Remuneration Report
Non-executive directors are retained
on letters of appointment. All non-
executive appointments are for indefinite
terms terminable upon six months
notice and are subject to successful
re-election upon retirement by rotation
as required by the company’s articles of
association. Termination carries no right to
compensation other than that provided by
general law.
The details of directors’ contracts are
summarised below:
Name
Status
contract/letter
Date of
term
Unexpired
period
Notice
Lord Alliance of Manchester CBE
Alan White
Dean Moore
Nigel Alliance OBE
Ivan Fallon
Lord Stone of Blackheath
John McGuire
Anna Ford
non-executive
executive
executive
non executive
non executive
non executive
non executive
non executive
16 May 2007
10 August 2002
20 December 2004
16 May 2007
30 May 2007
30 May 2007
16 May 2007
11 February 2009
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
6 months
12 months
12 months
6 months
6 months
6 months
6 months
6 months
Additional directorships
Executive directors are encouraged
by the company to hold non-executive
directorships in listed businesses. Fees
for such directorships are retained by the
executive director. Alan White currently
holds a non-executive directorship with
Topps Tiles Plc for which he is paid a
fee of £34,000 per annum. Alan White is
permitted to retain this fee.
Non-executive directors
All non-executive directors have
specific terms of engagement and their
remuneration is determined by the board
within the limits set by the articles of
association and based on independent
surveys of fees paid to non-executive
directors of similar companies.
The basic fee paid to each non-executive
director in the year was within the range
£17,000 – £33,000 per annum. A further
fee of £5,000 is payable for additional work
performed in respect of the chairmanship
of the remuneration, and audit committees
and £3,000 for chairing the nominations
committee. The Senior Non Executive
director also receives an additional fee of
£3,000 in recognition of the further duties
which that post entails. Non-executive
directors cannot participate in any of the
company’s share incentive schemes
or performance based plans and are
not eligible to join the company’s
pension scheme.
Performance graph
The graph shows the company’s five
year performance, measured by TSR,
compared with the performance of the
FTSE Mid-250 Index, also measured by
TSR. The company is a member of this
index and accordingly it is felt to be the
most appropriate comparator group for
this purpose.
Total Shareholder Return Performance: N Brown vs FTSE 250
FTSE Mid-250 Index
N Brown Group plc
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
l
a
t
o
T
300
250
200
150
100
50
0
Feb 05
Feb 06
Feb 07
Feb 08
Feb 09
Feb 10
Financial Period
Source: Datastream
N Brown Group plc Annual Report & Accounts 2010
37
N Brown
FTSE 250
Remuneration Report
Notes to the Group Accounts
Audited Information:
Directors' remuneration and interests
Emoluments
The individual elements of directors' emoluments for the year are as follows:
Salaries
/fees
Taxable
benefits1
Performance-
related
bonuses2, 3
Executive (salaries)
Alan White
Dean Moore
Non executive (fees)
Lord Alliance of Manchester CBE
Nigel Alliance OBE
Ivan Fallon
Lord Stone of Blackheath
John McGuire
Anna Ford
512
286
17
18
41
36
38
32
980
1
1
–
–
–
–
–
–
2
484
255
–
–
–
–
–
–
2010
total
£'000
997
542
17
18
41
36
38
32
2009
total
£'000
964
521
17
18
41
36
38
–
739
1,721
1,635
1. Taxable benefits comprise the provision of private medical cover.
2. Included in the performance-related bonus awards stated above are £121,125 for Alan White and £63,656 for Dean Moore. which (after deduction of income tax)
are shortly due to be transferred to the deferred annual bonus scheme.
3. Alan White and Dean Moore both waived their rights to the cash based element of the performance-related bonus prior to its determination. The amounts of
£997,000 and £542,000 shown as emoluments for Alan White and Dean Moore include amounts of £363,375 and £190,969 respectively which have been
appointed to an employee benefit trust to be held for the benefits of their families.
38
N Brown Group plc Annual Report & Accounts 2010
Remuneration Report
Pensions
Details of directors' accrued pension entitlements under the group's defined benefit schemes are as follows:
Accrued
pension at
28 Feb 091
£’000
Increase
during
year2
£’000
Accrued
pension at
27 Feb 10 1
£’000
Transfer
value of
increase2,3,4 28 Feb 093
£’000
£’000
Transfer
value of
accrued
Increase
in transfer
pension at value during
Transfer
value of
accrued
pension at
year3,4,5 27 Feb 103
£’000
£’000
Alan White
218
48
266
703
3,485
569
4,064
1. Pension entitlements shown are those that would be paid annually on retirement, based on service to the end of the year or leaving date if earlier.
2. Increase stated net of inflation.
3. Transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note 11.
4. Stated after deduction of member's contributions.
5. The change in the transfer value includes the effects of fluctuations in the transfer value due to factors beyond the control of the company and directors, such
as gilt yield changes.
6. Members of the scheme have the option to pay additional voluntary contributions; neither the contributions nor the the resulting benefits are included in the
above table.
Contributions paid by the company into the group's defined contribution scheme during the year in respect of Dean Moore amounted to
£15,750 (2009, £15,563)
Share options
Details of directors' share options are as follows:
At 28 Feb
2009
Granted
in year
Lapsed Exercised At 27 Feb
2010
in year
in year
Exercise
price
Market
price at Date from
which
date of
exercise exercisable Expiry date
Alan White
SAYE
Dean Moore
SAYE
4,234
4,234
18,579
–
18,579
–
–
–
8,143
8,143
–
–
–
–
–
–
–
(18,579)
–
(18,579)
4,234
222.0p
01/08/2011 31/01/2012
4,234
–
8,143
8,143
88.0p
186.0p
231.0p 01/08/2009 31/01/2010
01/08/2014 31/01/2015
The total gain made by Dean Moore on the exercise of the share option during the year was £26,568.
The market price of the company's shares at 27 February 2010 was 215.60p (2009, 199.75p) and the range during the year was 186.50p
to 275.70p.
N Brown Group plc Annual Report & Accounts 2010
39
Remuneration Report
Deferred annual bonus share awards
Details of awards made to the directors under the group's deferred annual bonus scheme are as follows:
At 28 Feb
2009
Awarded
in year
Lapsed Exercised At 27 Feb
2010
in year
in year
Alan White
Dean Moore
29,465
49,353
–
–
–
45,010
78,818
45,010
15,381
26,058
–
41,439
–
–
23,165
23,165
–
–
–
–
–
–
–
–
(29,465)
–
–
–
49,353 1
45,010
(29,465)
94,363
(15,381)
–
–
–
26,058 1
23,165
344.0p
230.0p
247.0p
250.0p 25/05/2009 24/11/2009
29/05/2010 28/11/2010
29/05/2011 28/11/2011
(15,381)
49,223
Market
price at
date of
award
344.0p
230.0p
247.0p
Market
price at Date from
which
date of
exercise exercisable Expiry date
218.0p 25/05/2009 24/11/2009
29/05/2010 28/11/2010
29/05/2011 28/11/2011
1. These awards were exchanged for an equivalent number of forfeitable share awards on 25 February 2010.
The total gains made by Alan White and Dean Moore on the exercise of the awards during the year was £64,233 and £38,452
respectively.
40
N Brown Group plc Annual Report & Accounts 2010
Remuneration Report
Long term incentives
Details of awards of shares made to the directors are as follows:
At 28 Feb
2009
Awarded
in year
Lapsed Exercised At 27 Feb
2010
in year
in year
Alan White
Dean Moore
59,677
154,769
61,907
150,560
2,180
277,200
–
–
–
–
–
–
–
212,691
706,293
212,691
80,623
57,664
145,530
–
–
–
–
111,663
283,817
111,663
–
–
–
–
–
–
–
–
–
–
–
–
–
Market
price at
date of
award
135.0p
207.5p
268.0p
325.0p
322.0p
180.0p
235.0p
Market
price at Date from
which
date of
exercise exercisable Expiry date
218.0p 08/02/2009 07/08/2009
218.0p 13/06/2009 12/12/2009
264.0p 19/10/2009 18/04/2010
18/06/2010 17/12/2010
16/07/2010 15/01/2011
02/07/2011 01/01/2012
28/05/2012 27/11/2012
(59,677)
(154,769)
(61,907)
–
–
–
–
– 1
– 1
– 1
150,560 1, 2
2,180 1, 2
277,200 1
212,691 1
(276,353)
642,631
(80,623)
–
–
–
– 1
57,664 1, 2
145,530 1
111,663 1
207.5p
325.0p
180.0p
235.0p
235.0p 13/06/2009 12/12/2009
18/06/2010 17/12/2010
02/07/2011 01/01/2012
28/05/2012 27/11/2012
(80,623)
314,857
1. Exercise is subject to performance condition geared to Total Shareholder Return.
2. These awards were exchanged for an equivalent number of forfeitable share awards on 25 February 2010.
The total gains made by Alan White and Dean Moore on the exercise of the awards during the year was £630,926 and £189,464
respectively.
Value creation plan
Details of awards of shares made to the directors are as follows:
At 28 Feb
2009
Awarded
in year
Lapsed Exercised At 27 Feb
2010
in year
in year
Market
price at
date of
award
Market
price at Date from
which
date of
exercise exercisable Expiry date
Alan White
Dean Moore
1,200,000
1,200,000
500,000
500,000
–
–
–
–
–
–
–
–
–
–
–
–
1,200,000 1, 2
199.25p
28/02/2014 28/02/2019
1,200,000
500,000 1, 2
199.25p
28/02/2014 28/02/2019
500,000
1. Exercise is subject to performance condition geared to Total Shareholder Return and growth in earnings per share.
2. These awards were exchanged for an equivalent number of contingent share awards on 25 February 2010.
N Brown Group plc Annual Report & Accounts 2010
41
Remuneration Report
Interests
Directors' interests in shares of the company are as follows:
Lord Alliance of Manchester CBE
Lord Alliance of Manchester CBE (non beneficial)
Alan White
Dean Moore
Nigel Alliance OBE
Nigel Alliance OBE (non beneficial)
Ivan Fallon
Lord Stone of Blackheath
John McGuire
Anna Ford
At 27 Feb
2010
Ordinary
Shares of
At 28 Feb
2009
Ordinary
Shares of
111/19p each 111/19p each
75,316,182
19,731,784
610,405
204,135
24,658,313
6,830,943
–
9,047
9,047
–
75,316,182
19,731,784
493,581
211,919
24,658,313
6,830,943
–
9,047
9,047
–
Together with other employees and former employees of the group, the executive directors are potential beneficiaries of the following
trusts, and as such are deemed to have a beneficial interest in the following shares of the company held by these trusts:
At 27 Feb
2010
At 28 Feb
2009
2,004,102
129,924
N Brown Group plc No.2 Employee Share Ownership Trust
There have been no changes in the above interests of the directors between the year end and 30 April 2010.
Approval
This report was approved by the board of directors on 11 May 2010 and signed on its behalf by:
Ivan Fallon
Chairman of the remuneration committee
42
N Brown Group plc Annual Report & Accounts 2010
Independent Auditors’ Report – Group Accounts
To the members of N Brown Group plc.
We have audited the group financial
statements of N Brown Group plc for
the 52 weeks ended 27 February 2010
which comprise the Consolidated Income
Statement, the Consolidated Balance
Sheet, the Consolidated Cash Flow
Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated
Statement of Changes in Equity, the
Reconciliation of Operating Profit to
Net Cash from Operating Activities and
the related notes 1 to 29. The financial
reporting framework that has been
applied in their preparation is applicable
law and International Financial Reporting
Standards (IFRSs) as adopted by the
European Union.
This report is made solely to the
company’s members, as a body, in
accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work
has been undertaken so that we might
state to the company’s members those
matters we are required to state to them
in an auditors’ report and for no other
purpose. To the fullest extent permitted
by law, we do not accept or assume
responsibility to anyone other than the
company and the company’s members as
a body, for our audit work, for this report,
or for the opinions we have formed.
Respective responsibilities of directors
and auditors
As explained more fully in the Directors’
Responsibilities Statement, the directors
are responsible for the preparation of the
group financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit the group
financial statements in accordance with
applicable law and International Standards
on Auditing (UK and Ireland). Those
standards require us to comply with the
Auditing Practices Board’s (APB’s) Ethical
Standards for Auditors.
Scope of the audit of the financial
statements
An audit involves obtaining evidence
about the amounts and disclosures
in the financial statements sufficient
to give reasonable assurance that the
financial statements are free from material
misstatement, whether caused by fraud
or error. This includes an assessment
of: whether the accounting policies are
appropriate to the group’s circumstances
and have been consistently applied and
adequately disclosed; the reasonableness
of significant accounting estimates
made by the directors; and the overall
presentation of the financial statements.
Opinion on financial statements
In our opinion the group financial
statements:
• give a true and fair view of the state of
the group’s affairs as at 27 February
2010 and of its profit for the 52 week
period then ended;
• have been properly prepared in
accordance with IFRSs as adopted by
the European Union; and
• have been prepared in accordance with
the requirements of the Companies Act
2006 and Article 4 of the IAS Regulation.
Opinion on other matter prescribed by
the Companies Act 2006
• The part of the Directors' Remuneration
report to be audited has been properly
prepared in accordance with the
Companies Act 2006; and
• in our opinion the information given in
the Directors’ Report for the financial
period for which the financial statements
are prepared is consistent with the
group financial statements.
Matters on which we are required to
report by exception
We have nothing to report in respect of the
following:
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
• certain disclosures of directors’
remuneration specified by law are not
made; or
• we have not received all the information
and explanations we require for our
audit.
Under the Listing Rules we are required to
review:
• the directors’ statement contained within
the Directors’ Report in relation to going
concern; and
• the part of the Corporate Governance
Statement relating to the company’s
compliance with the nine provisions
of the June 2008 Combined Code
specified for our review.
Other matter
We have reported separately on the parent
company financial statements of N Brown
Group plc for the 52 weeks ended 27
February 2010.
Sharon Fraser (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory
Auditors
Manchester, UK
11 May 2010
N Brown Group plc Annual Report & Accounts 2010
43
Consolidated Income Statement
For the 52 weeks ended 27 February 2010
Note
Revenue
Operating profit
Investment income
Finance costs
Profit before taxation and fair value adjustments to financial instruments
Fair value adjustments to financial instruments
Profit before taxation
Taxation
Profit attributable to equity holders of the parent
Adjusted earnings per share
Basic
Diluted
Earnings per share
Basic
Diluted
3
5
7
8
18
9
11
11
2010
£m
690.0
97.6
2.9
(7.4)
93.1
(7.4)
85.7
(23.2)
62.5
2009
£m
662.5
95.5
4.1
(16.9)
82.7
9.6
92.3
(30.2)
62.1
24.77p
24.73p
21.96p
21.90p
22.83p
22.79p
22.88p
22.82p
Consolidated Statement of Comprehensive Income
For the 52 weeks ended 27 February 2010
Profit for the period
Other items of comprehensive income
Exchange differences on translation of foreign operations
Actuarial losses on defined benefit pension schemes
Tax relating to components of other comprehensive income
Total comprehensive income for the period attributable to equity holders of the parent
Note
28
9
2010
£m
62.5
(0.2)
(1.2)
0.3
(1.1)
61.4
2009
£m
62.1
1.7
(1.7)
0.5
0.5
62.6
44
N Brown Group plc Annual Report & Accounts 2010
Consolidated Balance Sheet
As at 27 February 2010
Non-current assets
Intangible assets
Property, plant & equipment
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Bank overdrafts
Trade and other payables
Current tax liability
Net current assets
Non-current liabilities
Bank loans
Retirement benefit obligation
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Own shares
Foreign currency translation reserve
Retained earnings
Total equity
2010
£m
2009
£m
Restated
(See note 1)
2008
£m
Restated
(See note 1)
Note
12
13
20
15
16
18
24
17
21
17
28
20
22
23
36.3
68.9
3.6
32.8
75.0
6.7
108.8
114.5
62.4
461.3
2.3
59.9
585.9
694.7
–
(105.4)
(24.1)
(129.5)
456.4
(230.0)
(1.8)
(14.4)
(246.2)
(375.7)
319.0
30.8
11.0
(0.4)
2.7
274.9
319.0
69.8
451.5
9.7
51.7
582.7
697.2
–
(106.1)
(13.8)
(119.9)
462.8
(270.0)
(4.0)
(20.3)
(294.3)
(414.2)
283.0
30.3
11.0
(0.2)
2.9
239.0
283.0
30.9
70.5
9.1
110.5
68.1
402.0
0.1
50.8
521.0
631.5
(0.2)
(106.7)
(13.2)
(120.1)
400.9
(250.0)
(5.8)
(12.4)
(268.2)
(388.3)
243.2
30.0
11.0
(0.1)
1.2
201.1
243.2
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the board of directors and authorised for
issue on 11 May 2010.
They were signed on its behalf by:
Alan White
Dean Moore
Directors
N Brown Group plc Annual Report & Accounts 2010
45
Consolidated Cash Flow Statement
For the 52 weeks ended 27 February 2010
Note
Net cash from operating activities
Investing activities
Purchases of property, plant and equipment
Purchases of intangible fixed assets
Proceeds on disposal of property, plant and equipment
Interest received
Net cash used in investing activities
Financing activities
Interest paid
Dividends paid
(Repayment of)/increase in bank loans
Decrease in bank overdrafts
Proceeds on issue of shares held by ESOT
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
24
2010
£m
91.7
(2.4)
(10.8)
1.9
0.1
(11.2)
(4.0)
(29.5)
(40.0)
–
1.2
(72.3)
8.2
51.7
59.9
Reconciliation of Operating Profit to Net Cash from Operating Activities
For the 52 weeks ended 27 February 2010
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share option charge
Profit on disposal of property, plant and equipment
2010
£m
97.6
7.0
7.3
1.9
(0.4)
2009
£m
38.7
(12.9)
(8.3)
–
1.0
(20.2)
(13.1)
(24.9)
20.0
(0.2)
0.6
(17.6)
0.9
50.8
51.7
2009
£m
95.5
5.8
6.4
1.8
–
Operating cash flows before movements in working capital
113.4
109.5
Decrease/(increase) in inventories
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
Pension obligation adjustment
Cash generated by operations
Taxation paid
Net cash from operating activities
7.4
(10.2)
(0.5)
(4.0)
106.1
(14.4)
91.7
(1.7)
(51.1)
5.0
(3.9)
57.8
(19.1)
38.7
46
N Brown Group plc Annual Report & Accounts 2010
Consolidated Statement of Changes in Equity
Share
capital
£m
Note 22
Share
premium
£m
Foreign
currency
Own translation
reserve
£m
shares
£m
Note 23
Retained
earnings
£m
Total
£m
Changes in equity for the 52 weeks
ended 27 February 2010
Balance at 28 February 2009
as previously stated
Change in accounting policy (Note 1)
30.3
–
11.0
–
(0.2)
–
2.9
–
244.3
(5.3)
288.3
(5.3)
Restated balance as at 28 February 2009
30.3
11.0
(0.2)
2.9
239.0
283.0
Profit for the period
Other items of comprehensive income
for the period
Total comprehensive income
for the period
Equity dividends declared
Issue of ordinary share capital
Purchase of own shares by ESOT
Issue of own shares by ESOT
Adjustment to equity for share payments
Exchange difference on translation of
overseas operations
Share option charge
Tax on items recognised directly in equity
–
–
–
–
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.5)
0.3
–
–
–
–
Balance at 27 February 2010
30.8
11.0
(0.4)
Changes in equity for the 52 weeks
ended 28 February 2009
Balance at 1 March 2008 as
previously stated
Change in accounting policy (Note 1)
Restated balance as at 1 March 2008
Profit for the period
Other items of comprehensive income
for the period
Total comprehensive income
for the period
Equity dividends declared
Issue of ordinary share capital
Purchase of own shares by ESOT
Issue of own shares by ESOT
Adjustment to equity for share payments
Exchange difference on translation
of overseas operations
Share option charge
Tax on items recognised directly in equity
30.0
–
30.0
–
–
–
–
0.3
–
–
–
–
–
–
11.0
–
11.0
–
–
–
–
–
–
–
–
–
–
–
(0.1)
–
(0.1)
–
–
–
–
–
(0.3)
0.2
–
–
–
–
Balance at 28 February 2009
30.3
11.0
(0.2)
–
–
–
–
–
–
–
–
(0.2)
–
–
2.7
62.5
62.5
(1.1)
(1.1)
61.4
61.4
(29.5)
–
–
–
0.9
0.2
1.9
1.0
(29.5)
0.5
(0.5)
0.3
0.9
–
1.9
1.0
274.9
319.0
1.2
–
1.2
206.4
(5.3)
201.1
248.5
(5.3)
243.2
–
–
–
–
–
–
–
–
1.7
–
–
2.9
62.1
62.1
0.5
0.5
62.6
62.6
(24.9)
–
–
–
0.4
(1.7)
1.8
(0.3)
(24.9)
0.3
(0.3)
0.2
0.4
–
1.8
(0.3)
239.0
283.0
N Brown Group plc Annual Report & Accounts 2010
47
Notes to the Group Accounts
1 General information
N Brown Group plc is a company
incorporated in the United Kingdom under
the Companies Act 2006. The address of
the registered office is listed at the end
of the report. The nature of the group’s
operations and its principal activities are
set out on page 22 of the directors’ report.
IAS 1 (revised) requires the presentation
of a statement of changes in equity as
a primary statement separate from the
Income Statement and Statement of
Comprehensive Income. As a result, a
Consolidated Statement of Changes in
Equity has been included in the primary
statements, showing changes in equity
for each period presented.
These financial statements are presented
in pounds sterling because that is the
currency of the primary economic
environment in which the group operates.
Foreign operations are included in
accordance with the policies set out
in note 2.
The group's financial statements for
the 52 weeks ended 27 February 2010
have been prepared in accordance with
International Financial Reporting Standards
(IFRS) as adopted for use in the EU.
The accounting policies have been applied
consistently in the current and prior
periods, other than that as set out below.
Adoption of new and revised standards
In the current period the following new and
revised standards and interpretations have
been adopted.
IAS 38 Intangible Assets. Following an
amendment to IAS 38 all expenditure
relating to the production of home
shopping catalogues should be charged to
the income statement as incurred, rather
than recognising them as a prepayment
asset until the date of despatch. As a result
of this change in accounting policy the
comparative amounts have been restated,
as shown in the table below.
IFRS 8 - Operating Segments. The
reporting requirements of IFRS 8 have
been adopted in the current year. IFRS 8
concerns the disclosure and presentation
of information that allows users of its
financial statements to evaluate the nature
and financial effects of the business
activities of the group. It has not affected
the measurement of the group's profit,
assets or liabilities. The group has only
one reportable business segment which
is home shopping.
Amendment to IFRS 2 – Sharebased
Payment Vesting Conditions and
Cancellations. The amendments clarify
the definition of vesting conditions for the
purposes of IFRS 2, introduce the concept
of "non vesting" conditions and clarify the
accounting treatment for cancellations.
The amendment has not impacted on the
financial statements.
Standards in issue not yet effective
At the date of authorisation of these
financial statements, the following
Standards and Interpretations which
have not yet been applied in these
financial statements were in issue but
not yet effective (and in some cases
had not yet been adopted by the EU):
Retained earnings as previously reported
Reduction in trade and other receivables
Increase in trade and other payables
Increase in deferred tax asset
Retained earnings as restated
2009
£m
244.3
(7.3)
–
2.0
239.0
2008
£m
206.4
(4.2)
(3.1)
2.0
201.1
The net impact of £5.3m on the balance sheet for each prior period was the same
and therefore there is no impact on the reported profits for the prior periods.
48
N Brown Group plc Annual Report & Accounts 2010
IFRS 1 (amended)/IAS 27 (amended)
– Cost of an Investment in a Subsidiary,
Jointly Controlled Entity or Associate
IFRS 3 (revised 2008)
– Business Combinations
IAS 27 (revised 2008)
– Consolidated and
Separate Financial Statements
IAS 28 (revised 2008)
– Investments in Associates
IFRIC 17
– Distributions of Non-cash Assets
to Owners
Improvements to IFRSs (April 2009)
The directors do not expect that the
adoption of these Standards and
Interpretations in future periods will have a
material impact on the financial statements
of the Group except for treatment of
acquisition of subsidiaries and associates
when IFRS 3 (revised 2008), IAS 27
(revised 2008) and IAS 28 (revised 2008)
come into effect for business combinations
for which the acquisition date is on or after
the beginning of the first of the annual
period beginning on or after 1 July 2009.
2 Accounting policies
Adoption of International Financial
Reporting and Accounting Standards
(IFRS).
The group has adopted Standards and
Interpretations issued by the International
Accounting Standards Board (IASB) and
the International Financial Reporting
Interpretations Committee (IFRIC) of the
IASB that are relevant to its operations.
Individual standards and interpretations
have to be adopted by the European
Commission (EC) and the process leads
to a delay between the issue and adoption
of new standards and interpretations
and in some cases amendments by the
EC. Where the group has applied a new
standard or interpretation in advance of
EC adoption this will be noted below in the
relevant policy statement.
Basis of accounting
The financial statements have been
prepared in accordance with IFRS.
The financial statements have also
been prepared in accordance with
IFRSs adopted by the European Union
and therefore comply with Article 4 of
the EU IAS Regulation.
The financial statements have been
prepared on the historical cost basis,
except for the revaluation of certain financial
instruments. The principal accounting
policies adopted are set out as follows.
Notes to the Group Accounts
Accounting period
Throughout the accounts, the directors
report and financial review, reference to
2010 means at 27 February 2010 or the
52 weeks then ended; reference to 2009
means at 28 February 2009 or the 52 weeks
then ended; reference to 2008 means at
1 March 2008 or the 53 weeks then ended.
Basis of consolidation
The consolidated financial statements
incorporate the financial statements
of the company and entities controlled
by the company (its subsidiaries) made
up to the Saturday that falls closest to
28 February each year. The Employee
Share Ownership Trust and the No 2
Employee Share Ownership Trust
(“the employee trusts”) are also made up
to a date co-terminus with the financial
period of the parent company.
The results of subsidiaries acquired or
disposed of during the period are included
in the consolidated income statement
from the effective date of acquisition or
up to the effective date of disposal, as
appropriate. Control is achieved where
the company has the power to govern
the financial and operating policies of an
investee entity so as to obtain benefits
from its activities. Where necessary,
adjustments are made to the financial
statements of subsidiaries to bring the
accounting policies used into line with
those used by the group.
All intra-group transactions, balances,
income and expenses are eliminated on
consolidation.
Business combinations
The acquisition of subsidiaries is
accounted for using the purchase method.
The cost of the acquisition is measured
at the aggregate of the fair values, at
the date of exchange, of assets given,
liabilities incurred or assumed, and
equity instruments issued by the group
in exchange for control of the acquiree,
plus any costs directly attributable to the
business combination. The acquiree’s
identifiable assets, liabilities and contingent
liabilities that meet the conditions for
recognition under IFRS 3 are recognised at
their fair value at the acquisition date.
Goodwill
Goodwill arising on acquisition is
recognised as an asset and initially
measured at cost, being the excess of
the cost of the business combination over
the group’s interest in the net fair value
of the identifiable assets, liabilities and
contingent liabilities recognised. If, after
reassessment, the group’s interest in the
net fair value of the acquiree’s identifiable
assets, liabilities and contingent liabilities
exceeds the cost of the business
combination, the excess is recognised
immediately in profit or loss.
Goodwill is reviewed for impairment at least
annually. Any impairment is recognised
immediately in the income statement and
is not subsequently reversed.
Property, plant & equipment
Property, plant and equipment is stated
at cost, less accumulated depreciation
and any provision for impairment in value.
Depreciation is charged so as to write
off the cost of assets to their estimated
residual values, based on current prices
at the balance sheet date, over their
remaining useful lives, using the straight-
line method. No depreciation is charged on
freehold land. In this respect the following
annual depreciation rates apply:
Freehold buildings
2%
Leasehold property over the period
and improvements
of the lease
Motor vehicles
20%
Computer equipment 20%
On disposal of a subsidiary, the
attributable amount of goodwill is included
in the determination of the profit or loss
on disposal.
Plant and machinery
Fixtures and fittings
between
5% and 20%
between
10% and 20%
Purchased goodwill arising on acquisitions
before 1 March 1998 was charged against
reserves in the year of acquisition in
accordance with UK GAAP and has not been
reinstated and is not included in determining
any subsequent profit or loss on disposal.
Revenue recognition
Revenue is measured at the fair value of
the consideration received or receivable
and represents the total amount receivable
for goods and services provided in the
normal course of business net of returns,
VAT and sales related taxes.
Sales of goods are recognised when
goods are delivered and title has passed.
Interest income is accrued on a time basis,
by reference to the principal outstanding
and the applicable effective interest rate
which is the rate that exactly discounts
estimated future cash receipts through
the expected life of the financial assets
to that assets net carrying amount.
Revenue from non-interest related
financial income is recognised when
the services have been performed.
Assets held under finance leases are
depreciated over their expected useful
lives on the same basis as owned assets
or, where shorter, over the term of the
relevant lease.
The gain or loss arising on the disposal
or retirement of an asset is determined as
the difference between the sales proceeds
and the carrying amount of the asset and
is recognised in income.
Borrowing costs
Borrowing costs directly attributable to
the acquisition, construction or production
of qualifying assets, which are assets that
necessarily take a substantial period of
time to get ready for their intended use
or sale, are added to the cost of those
assets, until such time as the assets are
substantially ready for their intended use
or sale.
All other borrowing costs are recognised
in profit or loss in the period in which they
are incurred.
N Brown Group plc Annual Report & Accounts 2010
49
Notes to the Group Accounts
Intangible assets
Computer software development costs
that generate economic benefits beyond
one year are capitalised as an intangible
assets and amortised on a straight-line
basis over five years.
Customer databases arising on
acquisitions assessed under the
requirements of IFRS 3 are amortised over
their useful economic lives, which have
been assessed as being five years.
Legally protected or otherwise separable
trade names acquired as part of a
business combination are capitalised at
fair value on acquisition. Brand names are
individually assessed and are assumed
to have an indefinite life and are not
amortised, but are subject to annual
impairment tests.
Impairment of tangible and intangible
assets excluding goodwill
At each balance sheet date, the group
reviews the carrying value of its tangible
and intangible assets to determine whether
there is any indication that those assets
have suffered an impairment loss. If any
such indication exists, the recoverable
amount of the asset is estimated in order
to determine the extent of the impairment
loss (if any). Where the asset does not
generate cash flows that are independent
from other assets, the group estimates the
recoverable amount of the cash-generating
unit to which the asset belongs.
Recoverable amount is the higher of fair
value less costs to sell and value in use.
In assessing value in use, the estimated
future cash flows are discounted to their
present value using a discount rate that
reflects current market assessments of the
time value of money and the risks specific
to the asset for which the estimate of
future cash flows have not been adjusted.
If the recoverable amount of an asset (or
cash-generating unit) is estimated to be
less than its carrying amount, the carrying
amount of the asset (cash-generating
unit) is reduced to its recoverable amount.
An impairment loss is recognised as an
expense immediately.
Where an impairment loss subsequently
reverses, the carrying amount of the asset
(cash-generating unit) is increased to the
revised estimate of its recoverable amount,
but so that the increased carrying amount
does not exceed the carrying amount
that would have been determined had
no impairment loss been recognised for
the asset (cash-generating unit) in prior
years. A reversal of an impairment loss is
recognised as income immediately.
Leasing
Leases are classified as finance leases
whenever the terms of the lease transfer
substantially all the risks and rewards of
ownership to the lessee. All other leases
are classified as operating leases.
Rentals payable under operating leases are
charged to income on a straight-line basis
over the term of the relevant lease.
Assets held under finance leases are
included in tangible fixed assets at a value
equal to the original costs incurred by the
lessor less depreciation, and obligations to
the lessor are shown as part of creditors.
The interest element is charged to the
income statement over the period of the
lease to produce a constant rate of charge
on the balance of capital repayments
outstanding.
Inventories
Inventories have been valued at the
lower of cost and net realisable value.
Cost comprises direct materials and
those overheads that have been incurred
in bringing inventories to their present
location and condition based on the
standard costing method. Cost has been
calculated on a first-in-first-out basis.
Net realisable value means estimated
selling price less all costs to be incurred in
marketing, selling and distribution.
Taxation
The tax expense represents the sum of the
tax currently payable and deferred tax.
The tax currently payable is based on
taxable profit for the year. Taxable profit
differs from net profit as reported in the
income statement because it excludes
items of income or expense that are
taxable or deductible in other years and
it further excludes items that are never
taxable or deductible. The group’s liability
for current tax is calculated using tax rates
that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax is the tax expected to be
payable or recoverable on differences
between the carrying amounts of assets
and liabilities in the financial statements
and the corresponding tax bases used
in the computation of taxable profit, and
is accounted for using the balance sheet
liability method. Deferred tax liabilities
are generally recognised for all taxable
temporary differences and deferred tax
assets are recognised to the extent that
it is probable that taxable profits will
be available against which deductible
temporary differences can be utilised.
Such assets and liabilities are not
recognised if the temporary difference
arises from goodwill or from the initial
recognition (other than in a business
combination) of other assets and liabilities
in a transaction that affects neither the tax
profit nor the accounting profit.
Deferred tax liabilities are recognised for
taxable temporary differences arising on
investments in subsidiaries and interests
in joint ventures, except where the group
is able to control the reversal of the
temporary difference and it is probable
that the temporary difference will not
reverse in the foreseeable future.
Deferred tax is calculated at the tax rates
that are expected to apply in the period
when the liability is settled or the asset
is realised. Deferred tax is charged or
credited in the income statement, except
when it relates to items charged or
credited directly to equity, in which case
the deferred tax is also dealt with in equity.
Foreign currencies
The individual financial statements of
each group company are presented in
the currency of the primary economic
environment in which it operates (its
functional currency). For the purpose of
the consolidated financial statements, the
results and financial position of each group
company are expressed in pounds sterling,
which is the functional currency of the
company, and the presentation currency
for the consolidated financial statements.
In preparing the financial statement of
the individual companies, transactions in
currencies other than the entity’s functional
currency (foreign currencies) are recorded
at the rates of exchange prevailing on
the dates of the transactions. At each
balance sheet date, monetary assets and
liabilities that are denominated in foreign
currencies are retranslated at the rates
prevailing on the balance sheet date. Non-
monetary items carried at fair value that
are denominated in foreign currencies are
translated at the rates prevailing at the date
when the fair value was determined. Non-
monetary items that are measured in terms
of historical cost in a foreign currency are
not retranslated.
50
N Brown Group plc Annual Report & Accounts 2010
Notes to the Group Accounts
Exchange differences arising on the
settlement of monetary items, and on
the retranslation of monetary items,
are included in profit or loss for the
period. Exchange differences arising
on the retranslation of non-monetary
items carried at fair value are included
in profit or loss for the period except for
differences arising on the retranslation of
non-monetary items in respect of which
gains and losses are recognised directly in
equity. For such non-monetary items, any
exchange component of that gain or loss
is also recognised directly in equity.
In order to hedge its exposure to certain
foreign exchange risks, the group may
enter into forward contracts and options
(see below for details of the group’s
accounting policies in respect of such
derivative financial instruments).
For the purpose of presenting
consolidated financial statements, the
assets and liabilities of the group’s foreign
operations are translated at exchange
rates prevailing on the balance sheet
date. Income and expense items are
translated at the average exchange rates
for the period, unless exchange rates
fluctuate significantly during that period,
in which case the exchange rates at the
date of transactions are used. Exchange
differences arising, if any, are classified
as equity and transferred to the group’s
translation reserve. Such translation
differences are recognised as income or
as expenses in the period in which the
operation is disposed of.
Financial instruments
Financial assets and financial liabilities are
recognised on the group’s balance sheet
when the group becomes a party to the
contractual provisions of the instrument.
Profits and losses on financial instruments
are recognised in the income statement as
they arise.
Trade receivables
Trade receivables are measured at
amortised cost using the effective interest
rate method. Appropriate allowances
for estimated irrecoverable amounts are
recognised in profit or loss when there
is objective evidence that the asset is
impaired. The allowance recognised is
measured as the difference between the
asset’s carrying amount and the present
value of estimated future cash flows
discounted at the effective interest rate
computed at initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash
on hand and demand deposits, and other
short-term highly liquid investments that
are readily convertible to a known amount
of cash and are subject to an insignificant
risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments
are classified according to the substance
of the contractual arrangements entered
into. An equity instrument is any contract
that evidences a residual interest in the
assets of the group after deducting all of
its liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts
are recorded at the proceeds received,
net of direct issue costs. Finance charges,
including premiums payable on settlement
or redemption and direct issue costs, are
accounted for on an accrual basis in profit
or loss account using the effective interest
method and are added to the carrying
amount of the instrument to the extent that
they are not settled in the period in which
they arise.
Trade payables
Trade payables are not interest bearing
and are stated at their nominal value.
Equity instruments
Equity instruments issued by the company
are recorded at the proceeds received, net
of direct issue costs.
Derivative financial instruments
The group’s activities expose it primarily
to the financial risks of changes in foreign
currency exchange rates relating to the
purchase of overseas sourced product,
and interest rates relating to the group’s
debt. The group uses foreign exchange
forward contracts and interest rate swap
contracts where appropriate to hedge
these exposures. In accordance with
its treasury policy, the group does not
use derivative financial instruments for
speculative purposes.
The use of financial derivatives is governed
by the group’s policies approved by
the board of directors, which provide
written principles on the use of financial
derivatives.
Derivatives are stated at their fair
value. The fair value of foreign currency
derivatives contracts is their quoted
market value at the balance sheet date.
Market values are based on the duration
of the derivative instrument together with
the quoted market data including interest
rates, foreign exchange rates and market
volatility at the balance sheet date. The
fair value of interest rate contracts is the
estimated amount that the group would
receive or pay to terminate them at the
balance sheet date, taking into account
prevailing interest rates.
Changes in the fair value of currency
derivative financial instruments are
recognised in the income statement
as they arise.
Share-based payments
The group issues equity-settled share-
based payments to certain employees.
Equity-settled share-based payments are
measured at fair value at the date of grant.
The fair value determined at the grant
date of the equity-settled share-based
payments is expensed on a straight-line
basis over the vesting period, based on
the group’s estimate of shares that will
eventually vest. Fair value is measured by
use of a Black-Scholes model.
Retirement benefit costs
Payments to defined contribution
retirement benefit schemes are charged
as an expense as they fall due. Payments
made to state-managed retirement benefit
schemes are dealt with as payments to
defined contribution schemes where the
group’s obligations under the schemes
are equivalent to those arising in a defined
contribution retirement benefit scheme.
For defined benefit retirement benefit
schemes, the cost of providing benefits is
determined using the Projected Unit Credit
Method, with actuarial valuations being
carried out at each balance sheet date.
Actuarial gains and losses are recognised
in full in the period in which they occur.
They are recognised outside profit or
loss and presented in the statement of
comprehensive income.
Past service cost is recognised
immediately to the extent that the benefits
are already vested, and otherwise is
amortised on a straight-line basis over
the average period until the benefits
become vested.
The retirement benefit obligation
recognised in the balance sheet represents
the present value of the defined benefit
obligation, as reduced by the fair value
of scheme assets.
N Brown Group plc Annual Report & Accounts 2010
51
Notes to the Group Accounts
Critical judgements and key sources
of estimation uncertainty
The key assumptions concerning the
future and other sources of estimation
uncertainty at the year end date, that have
a significant risk of causing a material
adjustment to the carrying amounts
of assets and liabilities within the next
financial year, are discussed below.
Trade receivables
An appropriate allowance for estimated
irrecoverable trade receivables is derived
where there is an identified event which,
based on previous experience, is evidence
of a potential reduction in the recoverability
of future cash flows. This estimation is
based on assumed collection rates which,
although based on the group’s historical
experience of customer repayment
patterns, remains inherently uncertain.
As a result this is continually assessed
for relevance and adjusted appropriately.
Further information is given in note 16.
Inventory
Provision is made for those items of
inventory where the net realisable value
is estimated to be lower than cost. Net
realisable value is based on both historical
experience and assumptions regarding
future selling values, and is consequently
a source of estimation uncertainty.
Pensions
The liability recognised in the balance
sheet in respect of the group’s defined
benefit pension obligations represents the
liabilities of the group’s pension scheme
after deduction of the fair value of the
related assets. The scheme’s liabilities
are derived by estimating the ultimate
cost of benefits payable by the scheme
and reflecting the discounted value of
the proportion accrued by the year end.
The rate used to discount the resulting
cash flows is equivalent to the market
yield at the balance sheet date on high
quality bonds with a similar duration to the
scheme’s liabilities. This rate is potentially
subject to significant variation and changes
to these rates could have a significant
impact on the net deficit.
Going concern
In determining whether the group’s
accounts can be prepared on a going
concern basis, the directors considered
the group’s business activities together
with factors likely to affect its future
development, performance and its financial
position including cash flows, liquidity
position and borrowing facilities and the
principal risks and uncertainties relating to
its business activities. These are set out
within the Financial Review and discussed
further in the Chairman’s Statement and
Chief Executive’s Review.
3 Revenue
An analysis of the group’s revenue is as follows:
Sale of goods
Rendering of services
Revenue
Investment income
Total revenue
52
N Brown Group plc Annual Report & Accounts 2010
The group has considered carefully
its cash flows and banking covenants
for the next twelve months from the
date of signing the audited financial
statements. These have been appraised
in light of the uncertainty in the current
economic climate. As such, conservative
assumptions for working capital
performance have been used to determine
the level of financial resources available to
the company and to assess liquidity risk.
The key risk identified by the directors
for these assumptions is the impact that
a further deterioration in the economic
climate will have on the performance
of the group’s debtor book.
The group’s forecasts and projections,
after sensitivity to take account of all
reasonably foreseeable changes in
trading performance, show that the group
will have sufficient headroom within its
current loan facilities of £320m which are
committed until 2012. It is the group's
intention to open renewal negotiations with
its bankers in the next twelve months to
ensure appropriate levels of committed
funds matching the group's medium
term financing requirements are in place
beyond 2012. After making appropriate
enquiries, the directors have a reasonable
expectation that the company and the
group have adequate resources to
continue in operational existence
for the foreseeable future. Accordingly,
they continue to adopt the going concern
basis in the preparation of the annual
report and accounts.
2010
£m
2009
£m
499.6
190.4
690.0
2.9
692.9
481.3
181.2
662.5
4.1
666.6
Notes to the Group Accounts
4 Business segments
Revenue
Home Shopping
Operating profit
Segment result & operating profit – Home Shopping
Fair value adjustments to financial instruments
Investment income
Finance costs
Profit before taxation
Taxation
Profit after tax
2010
£m
2009
£m
690.0
662.5
97.6
(7.4)
2.9
(7.4)
85.7
(23.2)
62.5
95.5
9.6
4.1
(16.9)
92.3
(30.2)
62.1
The group has one business segment and one geographical segment that operates in and derives revenue from UK and Ireland.
The analysis above is in respect of continuing operations.
For the purposes of monitoring segment performance, all assets and liabilities are allocated to the sole business segment,
being Home Shopping, with the exception of current and deferred tax assets and liabilities. There are no impairments of
goodwill, intangible assets or tangible assets in the current period (2009, £ nil).
Other information
Capital additions
Depreciation and amortisation
Balance sheet
Total segment assets
Total segment liabilities
Segment net assets
Unallocated assets
Unallocated liabilities
Consolidated net assets
2010
£m
2009
£m
Restated
(see note 1)
2008
£m
Restated
(see note 1)
13.2
14.3
18.6
12.2
15.5
12.4
691.1
(337.2)
353.9
3.6
(38.5)
319.0
690.5
(380.1)
310.4
6.7
(34.1)
283.0
622.4
(362.7)
259.7
9.1
(25.6)
243.2
N Brown Group plc Annual Report & Accounts 2010
53
Notes to the Group Accounts
5 Profit for the period
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Sales and administration costs
Operating profit
Profit for the period has been arrived at after charging/(crediting):
Net foreign exchange gains
Depreciation of property, plant and equipment
Amortisation of intangible assets
Cost of inventories recognised as expense
Staff costs
Auditors remuneration for audit services (see below)
2010
£m
690.0
(328.0)
362.0
(61.9)
(202.5)
97.6
2010
£m
(2.5)
7.0
7.3
208.5
72.3
0.2
2009
£m
662.5
(310.1)
352.4
(60.5)
(196.4)
95.5
2009
£m
(3.0)
5.8
6.4
206.0
68.3
0.2
Amounts payable to Deloitte LLP and their associates by the company and its UK subsidiary undertakings in respect of non-audit
services were £0.9m (2009, £0.3m).
A more detailed analysis of auditors’ remuneration is provided below:
Audit fees:
The audit of the company’s subsidiaries pursuant to legislation
Other services:
Tax services
Corporate Finance services
2010
£m
2009
£m
0.2
0.8
0.1
0.9
0.2
0.3
–
0.3
Fees payable for tax services relate to tax planning and compliance.
Fees payable to the company’s auditors for the audit of the company’s annual accounts were £10,000 (2009, £10,000).
In addition to the amounts shown above, the auditors received fees of £4,000 (2009, £4,000) for the audit of the group pension scheme.
A description of the work of the audit committee is set out in the corporate governance statement and includes an explanation
of how auditor objectivity and independence is safeguarded when non audit services are provided by the auditors.
6 Staff costs
2010
2009
The average monthly number of employees (including executive directors) was:
Distribution
Sales and administration
Their aggregate remuneration comprised
Wages and salaries
Social security costs
Other pension costs (see note 28)
Share options costs (see note 27)
Details of individual directors’ remuneration is disclosed in the remuneration report on page 38.
54
N Brown Group plc Annual Report & Accounts 2010
1,092
2,097
3,189
2010
£m
61.4
6.5
2.5
1.9
72.3
1,160
1,970
3,130
2009
£m
57.6
6.4
2.5
1.8
68.3
Notes to the Group Accounts
7
Investment income
Interest on bank deposits
Expected return on pension assets
8 Finance costs
Interest on bank overdrafts and loans
Interest on pension scheme liabilities
9 Tax
Current tax – charge for the period
Current tax – adjustment in respect of previous periods
Deferred tax (see note 20)
Deferred tax – adjustment in respect of previous periods (see note 20)
UK Corporation tax is calculated at 28.0% (2009, 28.16%) of the estimated assessable profit for the period.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The charge for the period can be reconciled to the profit per the income statement as follows:
Profit before tax:
Tax at the UK corporation tax rate of 28.0% (2009, 28.16%)
Effect of abolition of Industrial Building Allowances
Tax effect of expenses that are not deductible in determining taxable profit
Effect of different tax rates of subsidiaries operating in other jurisdictions
Tax effect of adjustments in respect of previous periods
Tax expense for the period
2010
£m
0.1
2.8
2.9
2010
£m
4.0
3.4
7.4
2010
£m
23.9
1.9
1.1
(3.7)
23.2
2010
£m
85.7
24.0
–
1.6
(0.6)
(1.8)
23.2
2009
£m
1.0
3.1
4.1
2009
£m
13.4
3.5
16.9
2009
£m
21.6
(0.9)
9.2
0.3
30.2
2009
£m
92.3
26.0
4.4
1.0
(0.6)
(0.6)
30.2
In addition to the amount charged to the income statement, tax movements recognised directly through equity were as follows:
Deferred tax – retirement benefit obligations
Tax credit in the statement of comprehensive income
Current tax – share based payments
Deferred tax – share based payments
Tax (credit)/charge in the statement of changes in equity
2010
£m
(0.3)
(0.3)
2010
£m
(1.1)
0.1
(1.0)
2009
£m
(0.5)
(0.5)
2009
£m
(1.0)
1.3
0.3
N Brown Group plc Annual Report & Accounts 2010
55
Notes to the Group Accounts
10 Dividends
Amounts recognised as distributions to equity holders in the period:
Final dividend for the 52 weeks ended 28 February 2009 of 6.41p (2008, 6.41p) per share
Interim dividend for the 52 weeks ended 27 February 2010 of 4.38p (2009, 2.78p) per share
Proposed final dividend for the 52 weeks ended 27 February 2010 of 6.41p (2009, 6.41p) per share
2010
£m
17.5
12.0
29.5
17.8
2009
£m
17.4
7.5
24.9
17.5
The proposed final dividend is subject to approval by shareholders at the annual general meeting and has not yet been included
as a liability in these financial statements.
11 Earnings per share
The calculations of the basic and diluted earnings per share is based on the following data:
Earnings
Earnings for the purposes of basic and diluted earnings per share being
net profit attributable to equity holders of the parent
Number of shares (’000s)
Weighted average number of ordinary shares for the purposes of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options
2010
£m
2009
£m
62.5
62.1
2010
Number
2009
Number
273,772
271,413
435
728
Weighted average number of ordinary shares for the purposes of diluted earnings per share
274,207
272,141
Adjusted earnings
Net profit attributable to equity holders of the parent
Impact of exceptional tax charge in respect of the phasing out of industrial building allowances
Fair value adjustment to financial instruments (net of tax)
Adjusted earnings for the purposes of adjusted earnings per share
The denominators used are the same as those detailed above for both basic and
diluted earnings per share.
2010
£m
62.5
–
5.3
67.8
2009
£m
62.1
4.4
(6.9)
59.6
56
N Brown Group plc Annual Report & Accounts 2010
Notes to the Group Accounts
12
Intangible assets
Cost
At 1 March 2008
Additions
At 28 February 2009
Additions
At 27 February 2010
Amortisation
At 1 March 2008
Charge for the period
At 28 February 2009
Charge for the period
At 27 February 2010
Carrying amount
At 27 February 2010
At 28 February 2009
At 1 March 2008
Brands
£m
Software
£m
Customer
Database
£m
7.9
–
7.9
1.0
8.9
–
–
–
–
–
8.9
7.9
7.9
76.0
8.3
84.3
9.8
94.1
53.7
6.1
59.8
7.0
66.8
27.3
24.5
22.3
1.9
–
1.9
–
1.9
1.2
0.3
1.5
0.3
1.8
0.1
0.4
0.7
Assets in the course of construction included in intangible assets at the year end total £9.8m (2009 £4.6m).
All additions relate to internal development, apart from £1.0m within the current period which relates to the acquisition
of the High and Mighty brand name.
Amortisation of intangible assets is split equally between cost of sales and administration costs and disclosed in note 5.
The amortisation periods for intangible assets are:
Software
Customer Database
Total
£m
85.8
8.3
94.1
10.8
104.9
54.9
6.4
61.3
7.3
68.6
36.3
32.8
30.9
Years
5
5
The brand names arising from the acquisition of Gray & Osbourn Limited and High and Mighty are deemed to have indefinite
lives as there are no foreseeable limits to the periods over which they are expected to generate cash inflows and are subject to
annual impairment tests.
The carrying value of the brand names have been determined from a value in use calculation. The key assumptions for this
calculation are those regarding the discount rates, growth rates and the forecast cash flows.
The group prepares cash flow forecasts based on the most recent three year financial budgets approved by management and
thereafter extrapolates cash flows in perpetuity (with 2.7% growth assumed) to reflect that there is no foreseeable limit to the period
over which cash flows are expected to be generated. The rate used to discount the forecast cash flows is 6.9% (2009, 8.4%).
N Brown Group plc Annual Report & Accounts 2010
57
Notes to the Group Accounts
13 Property, plant and equipment
Cost
At 1 March 2008
Additions
At 28 February 2009
Additions
Disposals
At 27 February 2010
Accumulated depreciation and impairment
At 1 March 2008
Charge for the period
At 28 February 2009
Charge for the period
Released on disposals
At 27 February 2010
Carrying amount
At 27 February 2010
At 28 February 2009
At 1 March 2008
Land and Fixtures and
Buildings Equipment
£m
£m
47.7
0.3
48.0
–
(1.8)
46.2
6.0
0.9
6.9
0.9
(0.3)
7.5
38.7
41.1
41.7
79.5
10.0
89.5
2.4
(0.4)
91.5
50.7
4.9
55.6
6.1
(0.4)
61.3
30.2
33.9
28.8
Total
£m
127.2
10.3
137.5
2.4
(2.2)
137.7
56.7
5.8
62.5
7.0
(0.7)
68.8
68.9
75.0
70.5
Assets in the course of construction included in property, plant and equipment at the year end date total £2.0m (2009, £2.9m),
no depreciation has been charged on these assets.
At 27 February 2010, the group had entered into contractual commitments for the acquisition of property, plant and equipment
amounting to £nil (2009, £nil).
14 Subsidiaries
A list of the significant investments in subsidiaries, including the name, country of incorporation, proportion of ownership interest is
given in note 3 to the company’s separate financial statements.
15
Inventories
Finished goods
Sundry stocks
2010
£m
58.5
3.9
62.4
2009
£m
67.1
2.7
69.8
58
N Brown Group plc Annual Report & Accounts 2010
Notes to the Group Accounts
16 Trade and other receivables
Amount receivable for the sale of goods and services
Allowance for doubtful debts
Other debtors and prepayments
2010
£m
2009
£m
Restated
(see note 1)
2008
£m
Restated
(see note 1)
494.0
(47.0)
447.0
14.3
461.3
477.7
(41.1)
436.6
14.9
451.5
418.4
(29.1)
389.3
12.7
402.0
Trade receivables are measured at amortised cost.
The average credit period given to customers for the sale of goods is 236 days (2009, 241 days). Interest is charged at 39.9%
(2009, 38.8%) on the outstanding balance. Generally, receivables over 150 days past due are written off in full. Trade receivables
that reach the trigger point of 56 days past due are provided for based on estimated irrecoverable amounts, determined by
reference to past default experience. The carrying amount of trade receivables whose terms have been renegotiated but would
otherwise be past due totalled £59.2m at 27 February 2010 (2009, £51.0m).
Before accepting any new customer, the group uses an external credit scoring system to assess the potential customer’s
credit quality and defines credit limits by customer. Credit limits and scores attributed to customers are reviewed every
28 days. The credit quality of trade receivables that are neither past due nor impaired, with regard to the historical default
rate has remained stable.
Ageing of trade receivables
Current
0 – 28 days
29 – 56 days
57 – 84 days
85 – 112 days
Over 112 days
Total
Movement in the allowance for doubtful debts
Balance at the beginning of the period
Amounts charged net to the income statement
Net amounts written off
Balance at the end of the period
2010
£m
362.2
62.7
26.7
16.1
13.3
13.0
494.0
2010
£m
41.1
62.2
(56.3)
47.0
2009
£m
350.2
62.0
26.7
16.1
12.1
10.6
477.7
2009
£m
29.1
52.3
(40.3)
41.1
The concentration of credit risk is limited due to the customer base being large and unrelated and comprising 1.6 million
(2009, 1.6 million) customers. Accordingly, the directors believe that there is no further credit provision required in excess
of the allowance for doubtful debts. All customer receivables are unsecured.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
N Brown Group plc Annual Report & Accounts 2010
59
Notes to the Group Accounts
17 Bank overdraft and loans
Bank loans
The borrowings are repayable as follows:
In the second year
In the third to fifth year
Amounts due for settlement after 12 months
All borrowings are held in sterling
The weighted average interest rates paid were as follows:
Bank overdrafts
Bank loans
2010
£m
230.0
40.0
190.0
230.0
2010
%
1.5
0.7
2009
£m
270.0
–
270.0
270.0
2009
%
5.0
4.4
The principal features of the group’s borrowings are as follows:
(i) Bank overdrafts are repayable on demand, unsecured and bear interest at a margin over bank base rates.
(ii)
The group has a bank loan of £190m (2009, £190m) secured by a charge over certain ‘eligible’ trade debtors (current and
0-28 days past due) of the group and is without recourse to any of the group’s other assets. The facility has a current limit of
£200m and finance costs are linked to US commercial paper rates and is committed until March 2012.
In addition the group has unsecured bank loans of £40m (2009, £80m) drawn down under a medium term bank revolving credit
facility of £120 million committed until January 2012.
(iii)
All borrowings are arranged at floating rates, thus exposing the group to cash flow interest rate risk. The group use derivatives
such as interest rate swaps where appropriate. Based on weighted average interest rates and the value of bank loans at
27 February 2010 the estimated future interest cost per annum until maturity would be £1.6m (2009 £11.9m).
The maturity analysis of the group’s financial liability on an undiscounted basis, assuming that the facilities are retained until
the end of the committed period are as follows:
On demand or within one year
In the second year
In the third to fifth year
2010
£m
1.6
1.6
230.1
233.3
2009
£m
11.9
11.9
280.9
304.7
At 27 February 2010, the group had available £90m (2009, £50m) of undrawn committed borrowing facilities in respect of which
all conditions precedent had been met.
The Financial Review on page 18 summaries the objectives and policies for holding or issuing financial instruments and similar
contracts, and the strategies for achieving those objectives that have been followed during the period.
There is no material difference between the fair value and book value of the group’s borrowings and other financial assets and
liabilities (excluding derivative financial instruments in note 18).
60
N Brown Group plc Annual Report & Accounts 2010
Notes to the Group Accounts
18 Derivative financial instruments
At the balance sheet date, details of outstanding forward foreign exchange contracts that the group has committed to are as follows:
Notional amount – Sterling contract value
Fair value of asset recognised
2010
£m
37.3
2.3
2009
£m
36.0
9.7
Changes in the fair value of assets recognised, being non-hedging currency derivatives, amounted to a charge of £7.4m (2009, gain
of £9.6m) to income in the period.
The financial instruments that are measured subsequent to initial recognition at fair value are all grouped into 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 (ie as prices) or indirectly (ie derived from prices).
There were no transfers between Level 1 and Level 2 during the year.
19 Financial instruments
Capital risk management
The group manages its capital to ensure that entities in the group will be able to continue as going concerns while maximising the
return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the group consists of debt,
which includes the borrowings disclosed in note 17, cash and cash equivalents disclosed in note 24 and equity attributable to
equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 22 to 23 and the
statement of changes in equity.
Gearing ratio
The gearing ratio at the year end is as follows:
Debt
Cash and cash equivalents
Net Debt
Equity
Net debt to equity ratio
2010
£m
2009
£m
Restated
(see note 1)
2008
£m
Restated
(see note 1)
230.0
(59.9)
170.1
319.0
53%
270.0
(51.7)
218.3
283.0
77%
250.2
(50.8)
199.4
243.2
82%
Debt is defined as long- and short-term borrowings, as detailed in note 17.
Equity includes all capital and reserves of the group attributable to equity holders of the parent.
Externally imposed capital requirement
The group is not subject to externally imposed capital requirements.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement
and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and
equity instrument are disclosed in note 2.
Financial risk management objectives
The financial risks facing the group include currency risk, credit risk, liquidity risk and cash flow interest rate risk. The group seeks
to minimise the effects of certain of these risks by using derivative financial instruments to hedge these risk exposures as governed
by the group’s policies. The group does not enter into or trade financial instruments, including derivative financial instruments, for
speculative purposes.
Foreign currency risk management
The group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations
arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts.
It is the policy of the group to enter into forward foreign exchange contracts to cover specific foreign currency payments for the
purchase of overseas sourced products. Group policy allows for these exposures to be hedged for up to three years ahead.
N Brown Group plc Annual Report & Accounts 2010
61
Notes to the Group Accounts
19 Financial instruments continued
At the balance sheet date, details of the notional value of outstanding US dollar forward foreign exchange contracts that the group
has committed to are as follows:
Less than 6 months
6 to 12 months
12 to 18 months
2010
£m
19.6
17.7
–
37.3
2009
£m
12.2
18.4
5.4
36.0
Forward contracts outstanding at the period end are contracted at US dollar exchange rates ranging between 1.49 and 1.67.
The carrying amounts of the group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date
are as follows:
Euro
US dollar
Liabilities
Assets
2010
£m
1.5
1.4
2009
£m
2.2
3.3
2010
£m
13.9
–
2009
£m
12.9
–
Foreign currency sensitivity analysis
The following table details the group’s hypothetical sensitivity to a 10% increase and decrease in sterling against the relevant
foreign currencies. The sensitivity rate of 10% represents the directors assessment of a reasonably possible change. The sensitivity
analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for
a 10% change in foreign currency rates. A positive number below indicates an increase in profit before tax.
Income statement
Sterling strengthens by 10%
Sterling weakens by 10%
Euro
Currency
Impact
2010
£m
1.3
(1.2)
2009
£m
1.2
(1.0)
US Dollar
Currency
Impact
2010
£m
(0.2)
0.1
2009
£m
(0.4)
0.3
62
N Brown Group plc Annual Report & Accounts 2010
Notes to the Group Accounts
19 Financial instruments continued
Interest rate risk management
The group is exposed to interest rate risk, as entities in the group borrow funds at floating interest rates. Where appropriate,
exposure to interest rate fluctuations on indebtedness is managed by using derivatives such as interest rate swaps.
Interest rate sensitivity analysis
If interest rates had increased by 0.5% and all other variables were held constant, the group’s profit before tax for the 52 weeks
ended 27 February 2010 would decrease by £0.8m (2009, £1.1m).
This sensitivity analysis has been determined based on exposure to interest rates at the balance sheet date and assuming the net
debt outstanding at the year end date was outstanding for the whole year.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the group.
Investments of cash surpluses, borrowings and derivative financial instruments are made through banks which are approved by
the board.
All customers who wish to trade on credit terms are subject to credit verification procedures, supplied by independent rating
agencies. Customer debtor balances are monitored on an ongoing basis and provision is made for estimated irrecoverable
amounts. The concentration of credit risk is limited due to the customer base being large and unrelated, and did not exceed five
percent of gross monetary assets at any one time during the period.
Liquidity risk management
The group manages liquidity risk by maintaining adequate banking and borrowing facilities and by continuously monitoring
forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 17 is a
description of additional undrawn facilities that the group has at its disposal and details of the group’s remaining contractual
maturity for its non-derivative financial liabilities.
Fair value of financial instruments
Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted
interest rates matching maturities of the contracts.
The carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate
their fair values.
N Brown Group plc Annual Report & Accounts 2010
63
Notes to the Group Accounts
20 Deferred tax
The following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current
and prior reporting periods.
Share
based
Accelerated Retirement
benefit
payments derivatives depreciation obligations
£m
Currency
tax
£m
£m
£m
At 1 March 2008 as restated
Credit/(charge) to income
(Charge)/credit to equity
At 28 February 2009
Credit/(charge) to income
(Charge)/credit to equity
At 27 February 2010
2.2
0.5
(1.3)
1.4
0.5
(0.1)
1.8
–
(2.7)
–
(2.7)
2.0
–
(0.7)
(5.6)
(4.7)
–
(10.3)
0.3
–
(10.0)
1.7
(1.0)
0.5
1.2
(0.9)
0.3
0.6
Other
£m
(1.6)
(1.6)
–
(3.2)
0.7
–
(2.5)
Total
£m
(3.3)
(9.5)
(0.8)
(13.6)
2.6
0.2
(10.8)
An exceptional tax charge of £4.4m was recognised in the income statement for the prior period in respect of the phasing out of
industrial building allowances.
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset)
for financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
2010
£m
3.6
(14.4)
(10.8)
2009
£m
Restated
(see note 1)
2008
£m
Restated
(see note 1)
6.7
(20.3)
(13.6)
9.1
(12.4)
(3.3)
At the balance sheet date, the group has unused tax losses of £0.1m (2009, £0.1m) available for offset against future profits.
No deferred tax asset has been recognised due to the unpredictability of future profit streams within the relevant subsidiary.
21 Trade and other payables
Trade payables
Other taxes and social security
Other creditors
Accruals and deferred income
2010
£m
48.7
23.8
0.7
32.2
2009
£m
Restated
(see note 1)
2008
£m
Restated
(see note 1)
54.4
26.0
0.7
25.0
52.8
23.1
3.4
27.4
105.4
106.1
106.7
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 38 days (2009, 41 days).
For most suppliers no interest is charged on the trade payables. The group has financial risk management policies in place to
ensure that all payables are paid within agreed credit terms.
64
N Brown Group plc Annual Report & Accounts 2010
Notes to the Group Accounts
22 Share capital
Authorised
Ordinary shares of 111/19p each
Allotted, called-up and fully paid
Ordinary shares of 111/19p each
At 28 February 2009
Ordinary shares issued
At 27 February 2010
2010
Number
2009
Number
2010
£m
2009
£m
352,857,142
352,857,142
39.0
39.0
274,104,714
4,300,000
271,304,714
2,800,000
278,404,714
274,104,714
30.3
0.5
30.8
30.0
0.3
30.3
During the year 4,300,000 (2009, 2,800,000) ordinary shares were issued to the N Brown Group Employee Share Ownership Trusts
for £475,263 (2009, £310,254). The company has one class of ordinary share which carry no right to fixed income.
23 Own shares
Balance at 28 February 2009
Additions
Issue of own shares on exercise of share options
Balance at 27 February 2010
2010
£m
0.2
0.5
(0.3)
0.4
2009
£m
0.1
0.3
(0.2)
0.2
The own shares reserve represents the cost of shares in N Brown Group plc held by the N Brown Group plc Employee Share
Ownership Trusts to satisfy options under the group’s various share benefit schemes (see note 27).
During the year the employee trusts subscribed for 4,300,000 (2009, 2,800,000) shares in N Brown Group plc for a consideration
of £475,263 (2009, £310,254).
At 27 February 2010 the employee trusts held 3,737,682 shares in the company (2009, 1,546,969).
N Brown Group plc Annual Report & Accounts 2010
65
Notes to the Group Accounts
24 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.
A breakdown of significant cash and cash equivalent balances by currency is as follows:
Sterling
Euro
25 Contingent liabilities
2010
£m
55.5
4.4
59.9
2009
£m
49.5
2.2
51.7
Parent company borrowings which at 27 February 2010 amounted to £2.0m (2009, £6.7m) have been guaranteed by certain
subsidiary undertakings.
26 Operating lease arrangements
Minimum lease payments under operating leases recognised as an expense for the period
2010
£m
4.6
2009
£m
4.5
At the balance sheet date, the group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
2010
£m
0.3
8.5
13.2
22.0
2009
£m
0.5
6.3
15.4
22.2
Operating lease payments represent rentals payable by the group for certain buildings, plant and equipment and motor vehicles.
66
N Brown Group plc Annual Report & Accounts 2010
Notes to the Group Accounts
27 Equity settled share based payments
The remuneration report on pages 31 to 42 contains details of management and sharesave options/awards offered to employees
of the group.
Details of the share options/awards outstanding during the year are as follows:
Option scheme
2000 Savings related scheme
1990 Executive scheme
2000 Executive scheme
Unapproved executive scheme
Value Creation Plan
Long-term incentive scheme awards
February 2006
June 2006
October 2006
June 2007
August 2007
July 2008
May 2009
Deferred annual bonus scheme awards
May 2007
May 2008
May 2009
Option price
in pence
95 – 290
284
106 – 341
211 – 341
–
–
–
–
–
–
–
–
–
–
–
Exercise
period
Number
of shares
2010
Number
of shares
2009
January 2010 – February 2015
May 2003 – May 2010
October 2003 – May 2019
May 2003 – May 2019
1,680,424
51,800
1,583,007
629,115
1,891,257
62,800
1,518,757
390,631
February 2014 – February 2019
3,100,000
3,100,000
February 2009 – August 2009
June 2009 – December 2009
October 2009 – October 2010
June 2010 – December 2010
August 2010 – February 2011
July 2011 – January 2012
May 2012 – November 2012
–
–
–
648,043
38,480
1,595,982
1,301,930
59,677
874,535
61,907
683,702
38,480
1,661,767
–
May 2009 – November 2009
May 2010 – November 2010
May 2011 – November 2011
–
266.721
260,764
158,370
283,072
–
N Brown Group plc Annual Report & Accounts 2010
67
Notes to the Group Accounts
27 Equity settled share based payments continued
Movements in share options are summarised as follows:
Number of
share options
2010
Weighted
average exercise
price
£
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
3,863,445
1,362,452
(356,504)
(925,047)
3,944,346
696,835
1.91
2.14
2.01
1.27
2.13
1.87
Number of
share options
3,627,750
1,717,462
(919,943)
(561,824)
3,863,445
507,681
2009
Weighted
average exercise
price
£
1.84
2.30
2.82
1.14
1.91
1.65
Options were exercised on a regular basis throughout the period and the weighted average share price during this period was
232 pence (2009, 214 pence). The options outstanding at 27 February 2010 had a weighted average remaining contractual life
of 5.6 years (2009, 5.2 years). The aggregate estimated fair values of options granted in the period is £4,016,000 (2009, £5,413,000).
Movements in management share awards are summarised as follows:
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
Number of
share awards
6,921,510
1,567,349
(109,010)
(1,167,929)
7,211,920
–
2010
Weighted
average exercise
price
£
Number of
share awards
2009
Weighted
average exercise
price
£
–
–
–
–
–
–
3,624,425
5,044,839
(273,999)
(1,473,755)
6,921,510
59,677
–
–
–
–
–
–
The awards outstanding at 27 February 2010 had a weighted average remaining contractual life of 4.9 years (2009, 5.5 years).
The fair value of management and sharesave options/awards granted is calculated at the date of grant using a Black-Scholes
option pricing model. The inputs into the Black-Scholes model are as follows:
Weighted average share price at date of grant (pence)
Weighted average exercise price (pence)
Expected volatility (%)
Expected life (years)
Risk-free rate (%)
Dividend yield (%)
2010
2009
236
99
35.1
2.5 – 5.5
2.6
4.2
208
58
34.3
2.5 – 5.5
4.3
3.9
Expected volatility was determined by calculating the historical volatility of the group’s share price over a period equivalent to the
expected life of the option. The expected life used in the model has been adjusted, based on managements best estimate, for the
effects of non-transferability, exercise restrictions, and behavioural considerations.
The group recognised total expenses of £1.9m and £1.8m related to equity-settled share based payment transactions in 2010 and
2009 respectively.
68
N Brown Group plc Annual Report & Accounts 2010
Notes to the Group Accounts
28 Retirement benefit schemes
Defined contribution schemes
The group operates defined contribution retirement benefit schemes for all qualifying employees.
The group is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits.
The only obligation of the group with respect to the retirement benefit scheme is to make the specified contributions.
The total cost charged to income of £0.8m (2009, £0.7m) represents contributions payable to the schemes by the group at rates
specified in the rules of the plans. As at 27 February 2010, contributions of £0.1m (2009, £0.1m) due in respect of the current
reporting period had not been paid over to the schemes.
Defined benefit scheme
The group operates a defined benefit scheme, the N Brown Group Pension Fund. Under the scheme, the employees are entitled to
retirement benefits based on final pensionable earnings which are salaries and was closed to new members from 31 January 2002.
No other post-retirement benefits are provided. The scheme is a funded scheme.
The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out at 30
June 2009 by an independent qualified actuary. The present value of the defined benefit obligation, the related current service
cost and past service cost were measured using the projected unit credit method. The principal actuarial assumptions used in
determining the group’s net retirement benefit obligations at the balance sheet date were as follows:
Discount rate
Expected return on scheme assets
Expected rate of salary increase
Future pension increases
Inflation
Life expectancy at age 65 (years)
Pensioner aged 65
Non-pensioner aged 45
Amounts recognised in income in respect of these defined benefit schemes are as follows:
Current service cost
Interest cost
Expected return on scheme assets
2010
5.9%
5.9%
4.8%
2.4%
3.8%
21.3
23.2
2010
£m
1.7
3.4
(2.8)
2.3
2009
6.7%
5.4%
4.9%
2.3%
3.4%
21.2
22.3
2008
£m
1.8
3.5
(3.1)
2.2
Actuarial gains and losses have been reported in the statement of comprehensive income. The cumulative actuarial gains since
transition to IFRS were £8.4m (2009, £9.6m).
The actual return on scheme assets was a loss of £13.4m (2009, loss of £8.6m).
The scheme is a closed scheme and therefore, under the projected unit method, the current service cost would be expected
to increase.
N Brown Group plc Annual Report & Accounts 2010
69
Notes to the Group Accounts
28 Retirement benefit schemes continued
The amount included in the balance sheet arising from the group’s obligations in respect of its defined benefit retirement benefit
scheme is as follows:
Present value of defined benefit obligations
Fair value of scheme assets
Deficit in the scheme and liability recognised in the balance sheet
Movements in the present value of defined benefit obligations were as follows:
At 28 February 2009
Service cost
Interest cost
Actuarial losses/(gains)
Benefits paid
At 27 February 2010
Movements in the fair value of the scheme assets were as follows:
At 28 February 2009
Expected return on scheme assets
Actuarial gains/(losses)
Contributions from sponsoring companies
Benefits paid
At 27 February 2010
2010
£m
66.0
(64.2)
1.8
2010
£m
50.8
1.7
3.4
11.8
(1.7)
66.0
2010
£m
46.8
2.8
10.6
5.7
(1.7)
64.2
2009
£m
50.8
(46.8)
4.0
2009
£m
56.8
1.8
3.5
(10.0)
(1.3)
50.8
2009
£m
51.0
3.1
(11.7)
5.7
(1.3)
46.8
70
N Brown Group plc Annual Report & Accounts 2010
Notes to the Group Accounts
28 Retirement benefit schemes continued
The analysis of the scheme assets and the expected rate of return at the balance sheet date was as follows:
Equities
Bonds
Expected
Return
Fair value
of assets
2010
%
7.1
4.7
5.9
2009
%
6.8
4.5
5.4
2010
£m
32.7
31.5
64.2
2009
£m
19.0
27.8
46.8
Expected rates of return on the scheme assets are based on consistent assumptions with the previous period, adjusted to reflect
changes in market conditions since that date.
The history of experience adjustments is as follows:
Present value of defined benefit obligations
Fair value of scheme assets
Deficit in the scheme
Experience adjustments on scheme liabilities
Amount (£)
Percentage of scheme liabilities (%)
Difference between expected and actual return
on scheme assets:
Amount (£)
Percentage of scheme assets (%)
2010
£m
66.0
(64.2)
1.8
2009
£m
50.8
(46.8)
4.0
2.2
3%
–
0%
10.6
16%
(11.7)
(25%)
2008
£m
56.8
(51.0)
5.8
–
0%
(3.5)
(7%)
2007
£m
63.5
(35.8)
27.7
1.2
2%
1.0
3%
2006
£m
65.6
(31.2)
34.4
–
0%
3.0
10%
The estimated amounts of contributions expected to be paid to the scheme during the 52 week period ending 26 February 2011
is £5.6m.
29 Related party transactions
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are
not disclosed in this note. Transactions between the company and its subsidiaries are disclosed in the company’s separate financial
statements. Details of remuneration paid to the group’s key management personnel is given on page 38 of the remuneration report.
N Brown Group plc Annual Report & Accounts 2010
71
Independent Auditors’ Report – Company Accounts
To the members of N Brown Group plc.
We have audited the parent company
financial statements of N Brown Group
plc for the 52 weeks ended 27 February
2010 which comprise the Parent Company
Balance Sheet, and the related notes 1
to 10. The financial reporting framework
that has been applied in their preparation
is applicable law and United Kingdom
Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
This report is made solely to the
company’s members, as a body, in
accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work
has been undertaken so that we might
state to the company’s members those
matters we are required to state to them
in an auditors’ report and for no other
purpose. To the fullest extent permitted
by law, we do not accept or assume
responsibility to anyone other than the
company and the company’s members as
a body, for our audit work, for this report,
or for the opinions we have formed.
Respective responsibilities of directors
and auditors
As explained more fully in the Directors’
Responsibilities Statement, the directors
are responsible for the preparation of the
parent company financial statements and
for being satisfied that they give a true
and fair view. Our responsibility is to audit
the parent company financial statements
in accordance with applicable law and
International Standards on Auditing (UK
and Ireland). Those standards require us to
comply with the Auditing Practices Board’s
(APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial
statements
An audit involves obtaining evidence
about the amounts and disclosures
in the financial statements sufficient
to give reasonable assurance that the
financial statements are free from material
misstatement, whether caused by fraud
or error. This includes an assessment
of: whether the accounting policies are
appropriate to the parent company’s
circumstances and have been consistently
applied and adequately disclosed; the
reasonableness of significant accounting
estimates made by the directors; and
the overall presentation of the financial
statements.
Opinion on financial statements
In our opinion the parent company financial
statements:
• give a true and fair view of the state
of the parent company’s affairs as at
27 February 2010;
• have been properly prepared in
accordance with United Kingdom
Generally Accepted Accounting
Practice; and
• have been prepared in accordance
with the requirements of the Companies
Act 2006.
Opinion on other matters prescribed by
the Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration
Report to be audited has been properly
prepared in accordance with the
Companies Act 2006; and
• the information given in the Directors’
Report for the financial period for which
the financial statements are prepared
is consistent with the parent company
financial statements.
Matters on which we are required to
report by exception
We have nothing to report in respect of the
following matters where the Companies
Act 2006 requires us to report to you if, in
our opinion:
• adequate accounting records have not
been kept by the parent company, or
returns adequate for our audit have not
been received from branches not visited
by us; or
• the parent company financial
statements and the part of the Directors’
Remuneration Report to be audited are
not in agreement with the accounting
records and returns; or
• certain disclosures of directors’
remuneration specified by law are not
made; or
• we have not received all the information
and explanations we require for our
audit.
Sharon Fraser (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory
Auditors
Manchester, UK
11 May 2010
72
N Brown Group plc Annual Report & Accounts 2010
Company Balance Sheet
As at 27 February 2010
Note
Fixed assets
Investments
Current assets
Debtors
Creditors
Amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Non current liabilities
Bank loans
Net assets
Capital and reserves
Called-up share capital
Share premium account
Profit and loss account
Equity shareholders’ funds
3
4
5
6
7
8
8
2010
£m
267.9
267.9
103.3
103.3
(233.0)
(129.7)
138.2
(40.0)
98.2
30.8
11.0
56.4
98.2
2009
£m
267.9
267.9
104.1
104.1
(195.7)
(91.6)
176.3
(80.0)
96.3
30.3
11.0
55.0
96.3
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the board of directors and authorised for
issue on 11 May 2010.
They were signed on its behalf by:
Alan White
Dean Moore
Directors
N Brown Group plc Annual Report & Accounts 2010
73
Notes to the Company Accounts
1 Significant accounting policies
Basis of accounting
The separate financial statements of the company are presented as required by the Companies Act 2006. They have been
prepared under the historical cost convention and in accordance with United Kingdom Accounting Standards and law.
The principal accounting policies are summarised below. They have all been applied consistently throughout the period and the
preceding period.
Investments
Fixed asset investments in subsidiaries and associates are shown at cost less provision for impairment.
Bank borrowings
Interest bearing bank loans and overdrafts are recorded at the proceeds received. Finance charges are accounted for on an accrual
basis in the profit and loss account using the effective interest rate method.
Cash flow
The company has taken advantage of the exemption from producing a cash flow statement afforded by FRS 1 (Revised) because
the group accounts include a consolidated cash flow statement.
Taxation
Corporation tax payable is provided on taxable profits at the current rate.
2 Profit for the period
As permitted by section 408 of the Companies Act 2006 the company has elected not to present its own profit and loss account
for the period. N Brown Group plc reported a profit for the financial period ended 27 February 2010 of £31.1m (2009, profit £22.6m).
The non executive directors’ remuneration was £182,000 (2009, £150,000) and six non executive directors were remunerated.
The executive directors were remunerated by a subsidiary company.
The auditors’ remuneration for audit services to the company of £10,000 (2009, £10,000) was borne by subsidiary undertakings.
3 Fixed asset investment
Cost
At 28 February 2009 and at 27 February 2010
£m
267.9
The company and group has investments in the following subsidiaries and joint ventures which principally affected the profits or net
assets of the group. To avoid a statement of excessive length, details of investments which are not significant have been omitted.
Company
Principal activity
J D Williams & Co. Limited
Oxendale & Co. Limited
J D W Finance Limited
N B Insurance Guernsey Limited
First Financial Limited
Gray & Osbourn Limited
Direct home shopping by catalogue
Direct home shopping by catalogue
Financing and ancillary services
Insurance services
Financial services
Direct home shopping by catalogue
Country of Proportion
incorporation held by the
group (%)
and operation
England
Republic of Ireland
England
Guernsey
England
England
100
100
100
100
100
100
74
N Brown Group plc Annual Report & Accounts 2010
Notes to the Company Accounts
4 Debtors
Amounts falling due within one year:
Amounts owed by group undertakings
Prepayments and accrued income
5 Creditors
Amounts falling due within one year:
Bank loans and overdrafts
Trade creditors
Amounts owed to group undertakings
Corporation tax
Accruals and deferred income
6 Bank loans
Bank overdrafts
Bank loans
The borrowings are repayable as follows:
On demand within one year
In the second year
In the third to fifth year
Less: amounts due for settlement within 12 months (shown under current liabilities)
Amounts due for settlement after 12 months
2010
£m
103.1
0.2
103.3
2010
£m
2.0
0.7
229.1
–
1.2
233.0
2010
£m
2.0
40.0
42.0
2.0
40.0
–
42.0
(2.0)
40.0
2009
£m
103.8
0.3
104.1
2009
£m
6.7
0.6
185.4
2.3
0.7
195.7
2009
£m
6.7
80.0
86.7
6.7
–
80.0
86.7
(6.7)
80.0
The company has unsecured bank loans of £40m (2009, £80m) drawn down under a medium term bank revolving credit facility
committed until January 2012.
At 27 February 2010, the company had available £80m (2009, £40m) of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met.
The weighted average interest rate paid were as follows:
Bank overdrafts
Bank loans
2010
%
1.5
1.2
2009
%
5.0
4.0
N Brown Group plc Annual Report & Accounts 2010
75
Notes to the Company Accounts
7 Share capital
Authorised
Ordinary shares of 111/19p each
Allotted, called-up and fully paid
Ordinary shares of 111/19p each
At 28 February 2009
Ordinary shares issued
At 27 February 2010
2010
Number
2009
Number
2010
£m
2009
£m
352,857,142
352,857,142
39.0
39.0
274,104,714
4,300,000
271,304,714
2,800,000
278,404,714
274,104,714
30.3
0.5
30.8
30.0
0.3
30.3
During the year 4,300,000 (2009, 2,800,000) ordinary shares were issued to the N Brown Group Employee Share Ownership Trusts
for £475,263 (2009, £310,254). Movements in share capital during the year relate to the exercise of share options. The company has
one class of ordinary share which carry no right to fixed income.
8 Reconciliation of movements in shareholders’ funds and reserves
Balance at 1 March 2008
Dividends paid
Profit for the financial period
Increase in share capital
Balance at 28 February 2009
Dividends paid
Profit for the financial period
Increase in share capital
At 27 February 2010
9 Guarantees
Share
capital
£m
Share
premium
account
£m
Profit
and loss
account
£m
30.0
–
–
0.3
30.3
–
–
0.5
30.8
11.0
–
–
–
11.0
–
–
–
11.0
57.4
(25.0)
22.6
–
55.0
(29.7)
31.1
–
56.4
Total
£m
98.4
(25.0)
22.6
0.3
96.3
(29.7)
31.1
0.5
98.2
Parent company borrowings which at 27 February 2010 amounted to £2.0m (2009, £6.7m) have been guaranteed by certain
subsidiary undertakings.
10 Related party transactions
The company has taken advantage of the exemption under FRS8 not to disclose transactions and balances with other
group companies.
76
N Brown Group plc Annual Report & Accounts 2010
Our brands
Notes to the Group Accounts
Shareholder Information
Notes to the Group Accounts
Young (30-45)
fashionworld.co.uk
simplybe.co.uk
simplyyours.co.uk
naturallyclose.co.uk
classicconfidence.co.uk
newnow.co.uk
vivaladiva.com
jacamo.co.uk
thebrilliantgiftshop.co.uk
Midlife (45-65)
jdwilliams.co.uk
ambrosewilson.com
oxendales.com
oxendales.ie
fiftyplus.co.uk
shoetailor.com
shapelyfigures.com
classicdetail.co.uk
premierman.com
homeshoppingdirect.com
inspirationalhome.co.uk
discountworld.com
houseofbath.co.uk
crazyclearance.co.uk
marisota.co.uk
homeessentials.co.uk
williamsandbrown.co.uk
thatsmystyle.co.uk
Elderly (65+)
heathervalley.com
specialcollection.com
nightingales.com
grayandosbourn.co.uk
julipa.com
Financial Timetable
2009
2010
14 October
11 December
8 January
27 February
27 April
28 May
2 July
6 July
30 July
Announcement of interim results
Closing of register for interim dividend
Payment of interim dividend
Financial year-end
Preliminary announcement of annual results
Publication of 2010 annual report and accounts
Closing of register for final dividend
Annual general meeting
Payment of final dividend
Registered Office
Griffin House
40 Lever Street
Manchester
M60 6ES
Registered No. 814103
Telephone 0161 236 8256
Bankers
HSBC Bank plc
The Royal Bank of Scotland plc
Registrars
Capital IRG plc
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone 0871 664 0300
(Calls cost 10 pence per minute plus network extras)
Auditors
Deloitte LLP
P O Box 500
2 Hardman Street
Manchester
M60 2AT
Solicitors
Addleshaw Goddard LLP
Eversheds LLP
Halliwells LLP
Pinsent Masons LLP
Stockbrokers
Credit Suisse Securities (Europe) Ltd
RBS Hoare Govett Limited
Shareholder benefits
Subject to certain conditions, shareholders are entitled to a 20% privilege discount off the selling price of consumer merchandise in
any of the group catalogues. Shareholders interested in these facilities should write for further information to the Company Secretary,
N Brown Group plc, Griffin House, 40 Lever Street, Manchester, M60 6ES stating the number of shares held and the catalogue or
product of interest.
Capital gains tax
For the purpose of capital gains tax, the value of the company’s ordinary shares of 10p each was 6.40625p per share on 31 March 1982
and 1.328125p on 6 April 1965.
www.nbrown.co.uk
Design Elmwood www.elmwood.com
Notes to the Group Accounts
Notes to the Group Accounts
N Brown Group plc
Annual Report and Accounts 2010
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HOME SHOPPING
A YEAR OF CONTRAST
Griffin House
40 Lever Street
Manchester
M60 6ES
www.nbrown.co.uk