N Brown Group plc
Annual Report and Accounts 2011
FASHION
GOING
FORWARD.
New channels,
New directions,
New audiences.
We’ve been busy. Working hard,
yes, but also working smarter to
grow our business across countries,
across audiences and across channels.
And it’s paying off.
Our biggest successes of 2010 include the acquisition of
Figleaves.com, enhancing our position as the UK’s largest online
lingerie retailer, the launch of Simply Be in the US, as well as
developing High & Mighty. These investments have been made
whilst continuing to develop our portfolio of established brands,
including JD Williams and Ambrose Wilson, and newer brands like
Jacamo and Marisota.
Understanding that people are shopping differently
to how they once were is key to our future success.
So to support all this growth, we’re investing
significantly into online activities. We’re continually
improving our websites, and we’re using our new
multi-channel, 365-trading strategy to make our
brands and ranges more visible, desirable and
accessible than ever before.
It’s been a year of positive change, and looking
ahead, the opportunities for yet more growth
look plentiful. If we can carry on spotting and
seizing these opportunities, we can feel confident
that new audiences and new horizons await.
Contents
2 Financial Highlights 3 Five Year History 4 The Fabric of our Success 8 Chairman’s Statement 10 Chief Executive’s
Review 14 Financial Review 16 Directors and Officers 18 Directors’ Report 24 Corporate Governance Report
28 Remuneration Report 39 Independent Auditor’s Report – Group Accounts 40 Consolidated Income Statement
40 Consolidated Statement of Comprehensive Income 41 Consolidated Balance Sheet
42 Consolidated Cash Flow Statement 42 Reconciliation of Operating Profit to Net Cash from Operating Activities
43 Consolidated Statement of Changes in Equity 44 Notes to the Group Accounts 68 Independent Auditor’s Report
– Company Accounts 69 Company Balance Sheet 70 Notes to the Company Accounts IBC Shareholder Information
N Brown Group plc Annual Report & Accounts 2011
1
Financial Highlights
2011
2010
Revenue
Operating profit
Adjusted profit before taxation*
Profit before taxation
Adjusted earnings per share**
Earnings per share
Dividends per share
£718.8m
£690.0m
£102.6m
£98.2m
£94.5m
27.02p
26.04p
12.41p
£97.6m
£93.1m
£85.7m
24.77p
22.83p
10.79p
Net assets
£360.4m
£319.0m
Net asset value per share
Gearing
*Excluding fair value adjustments to financial instruments.
**See note 11 on page 52.
128.5p
50%
114.6p
53%
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N Brown Group plc Annual Report & Accounts 2011
Five Year History
Revenue –
Continuing operations (£m)
Operating profit –
Continuing operations (£m)
Pre-tax profit* –
Continuing operations (£m)
718.8
690.0
662.5
610.9
95.5
97.6
91.8
102.6
523.8
76.3
98.2
93.1
82.7
76.2
67.7
07
08
09
10
11
07
08
09
10
11
07
08
09
10
11
Adjusted earnings per share**
– Continuing operations (p)
Dividends per share (p)
Net assets (£m)
27.02
24.77
21.96
20.27
12.41
10.79
9.06
9.19
16.43
7.53
360.4
319.0
283.0
243.2
202.5
07
08
09
10
11
07
08
09
10
11
07
08
09
10
11
*Excluding fair value adjustments to financial instruments.
**See note 11 on page 52.
N Brown Group plc Annual Report & Accounts 2011
3
The fabric
of our success
International growth, acquisitions, multi-channel strategies,
innovative products. There’s a lot to feel excited about.
To paint a picture of the breadth and depth of our achievements
in 2010, we’ve picked out these highlights for you.
Going international with Simply Be
We recently launched our Simply Be brand in
the USA. So far sales are encouraging, buoyed
by groundbreaking new products such as Wow
jeans and the Simply Voluptuous range. After
mailing out one million catalogues in the first
season, we’re following up with three million in
the second season complementing our focus
on the UK and German markets.
www.simplybe.co.uk
www.simplybe.com
www.simplybe.de
4
N Brown Group plc Annual Report & Accounts 2011
Thinking bigger with Figleaves
Our acquisition of Figleaves.com
in June 2010 strengthened our
position as the UK’s largest
online lingerie retailer. Our plans
to develop the brand’s lifestyle
appeal will create exciting new
cross-selling opportunities.
www.figleaves.com
The power of now
With online sales penetration at 45% and now exceeding the value
of orders taken in our contact centres, it’s clear that our customers
are opting for the ease and convenience of online shopping.
So we’re continuing to invest in our websites to make the experience
as simple, intuitive and rewarding as possible. Features include
catwalk shows and ‘how-to’ measuring videos.
N Brown Group plc Annual Report & Accounts 2011
5
Transcending boundaries
365 trading is our new all-year-round strategy.
This extra flexible business model means our
marketing is more targeted, reactive and efficient,
keeping our profile raised and our brands highly
visible. We’re concentrating our efforts across more
channels, such as television, press, online and social
networking, the catwalk and retail display advertising,
and using pay-per-click and traffic generation too.
Heritage, expertise and product innovation
Finding new ways to please longstanding
customers and attract new ones takes fresh
thinking and innovation. We’re particularly
proud of Magisculpt, Simply Voluptuous and
Wow jeans – three of our most recent ‘fitted’
ranges. It’s essential to stay focused on our
longstanding brands of course, and our more
established brands, including Ambrose
Wilson and JD Williams, are performing
consistently well.
6
N Brown Group plc Annual Report & Accounts 2011
Reaching higher
Jacamo, boasting exclusive ranges from
40 brands, including Penguin and Voy, has
played a large part in the stellar performance
of our menswear brands over the past year.
High & Mighty is also playing its part, with
new high street stores and refits. Meanwhile,
our ambassador for Marisota, Arlene Phillips,
is helping to boost the brand’s growing profile,
and is working with us to design her own
exclusive clothing range.
N Brown Group plc Annual Report & Accounts 2011
7
Chairman’s Statement
Measuring our
achievements
I am pleased to report that the group has continued to
make good progress in the 52 weeks to 26 February 2011.
This has been achieved against a challenging economic
backdrop by focussing on our core business whilst investing
in our recent acquisitions and international expansion.
Financial Results
Total group revenues increased by 4.2%
to £718.8m and by 1.3% on a like-for-like
basis, excluding the sales from our recent
acquisitions, High & Mighty and Figleaves.
Revenue growth has been restricted by
the more conservative credit policies we
adopted for higher value items but this has
been a major contributor to the improved
net bad debt charge to sales ratio which
has fallen from 9.0% to 7.4%. This in turn
is the main reason why we have managed
to achieve a gross margin rate of 53.8%,
up by 1.3% from last year’s rate of 52.5%.
create state-of-the-art online functionality,
and working capital, principally due to an
accelerated intake of stock. Net finance
costs have remained flat at £4.4m,
covered 23 times by operating profits.
Gearing has fallen from 53% to 50%
on net assets which have risen by 13.0%
to £360.4m. We have renegotiated a
£200m securitisation facility for five years
with HSBC a year ahead of schedule
in order to avoid the risk of any turmoil in
financial markets at a later date, albeit at
a higher interest margin than we were
paying previously.
Operating profit is up by 5.1% to £102.6m
giving an operating margin of 14.3%
(2010, 14.1%). Profit before taxation is up
10.3% to £94.5m, or by 5.5% to £98.2m,
after excluding fair value adjustments to
financial instruments. Adjusted earnings
per share are up by 9.1% to 27.02p.
The board has a medium term target
for full year dividend cover of twice
earnings per share and to this end it is
proposing a final dividend of 7.37p, up
by 15.0%. This gives a total dividend
for the year of 12.41p, up by 15.0%
and covered 2.2 times.
Net borrowings at 26 February 2011
were £180.9m, an increase of £10.8m
from a year earlier. The principal reasons
for the increase were the acquisition of
Figleaves for £10.3m, higher levels of
capital expenditure, predominantly to
8
N Brown Group plc Annual Report & Accounts 2011
this period, despite a 9% rise in cost
prices and a higher rate of VAT. We
believe that a combination of a strong
focus on our chosen customer and
product groups, coupled with growing
our online penetration, enhancing our
recent acquisitions and building Simply
Be in international markets will continue
to put N Brown amongst the leading
clothing retailers, and leave us well
positioned for when the market improves.
The group has, yet again, performed well
in difficult economic conditions, which is
a testimony to the efforts of everyone who
works in the business and the support
from our suppliers and trade union.
I would like to thank them all for their
excellent contribution.
Lord Alliance of Manchester, CBE
Trading Highlights
During the year the highlights have been:
• Continued improvement in our
targeted brand portfolio, with notable
performances from Marisota, Jacamo
and House of Bath.
• Growth across all of our major product
categories as we expand the ranges
both online and in the catalogues.
Both menswear and footwear did
especially well, with sales up 25%
and 10% respectively.
• A 19% increase to £324m in
e-commerce sales, which now
account for 45% of total revenue.
• Growing the Simply Be brand
domestically and internationally
with the launch in the USA in August
2010 to complement the growing
German operation.
• The acquisition of Figleaves and
development of High & Mighty.
Corporate Social Responsibility
Activities demonstrating our corporate
social responsibility are at an all time high.
We are now ranked in the top quartile of
retailers for our environmental behaviour,
and continue to reduce our carbon
footprint. The scale of charitable activities
undertaken by our employees, both in
donations and participation, is at record
levels. We continue to strengthen our
ethical sourcing policies and procedures.
Outlook
The UK consumer is facing rising costs
and falling incomes in 2011, but we
anticipate a slow but steady rising trend in
disposable income thereafter. The cost of
goods from the Far East has risen sharply
as a result of increases in labour costs
and commodities, such as cotton.
We are doing everything we can to cushion
our customers from these rising costs
but inevitably, in line with the entire
clothing retail sector, there will have to be
increases in selling prices. Furthermore we
anticipate an increased level of targeted
promotional campaigns may be needed
to stimulate sales activity at various times
during the year.
In our core home shopping business we
continue to see the development of our
online activities as the key to growth, since
this enables us to have a wider product
range and greater flexibility to change
our promotional focus cost effectively.
We will also be exploring the benefits of
full multi-channel capability by trialling
three concept stores during the year for
our Simply Be brand. Success will be
determined by whether the cost is justified
by the incremental customers and revenue
generated across all channels.
We expect further improvements in the
trading performances of our two most
recent acquisitions, Figleaves and High &
Mighty, where we have been investing in
systems and store openings respectively,
as well as product development.
International expansion of our Simply
Be brand is an important element of the
group’s growth strategy. We have been
encouraged by the first few months’
trading in the USA and are planning to
double our planned marketing spend
this year to accelerate the rate of growth.
Sales from Simply Be in Germany were
up by 41% although returns rates remain
higher than we would like.
Sales for the 10 weeks to 7 May 2011 are
4.8% up on last year or up by 1.5% on
a like-for-like basis. This includes the
distorting effects of the late Easter,
the Royal Wedding and the warm April
weather. We have also managed to
maintain the rate of gross margin during
N Brown Group plc Annual Report & Accounts 2011
9
Chief Executive’s Review
Record results for revenue and profits, the acquisition
of Figleaves and the launch of Simply Be in the USA
demonstrate that this has been another exciting and
positive year for the group.
Revenue for the 52 weeks to 26 February 2011 is up by
4.2% to £718.8m in total, and by 1.3% on a like-for-like
basis, excluding the impact of the acquisition of
High & Mighty and Figleaves.
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
2011
%
Growth
718.8
102.6
98.2
94.5
12.41p
27.02p
180.9
360.4
+4.2
+5.1
+5.5
+10.3
+15.0
+9.1
+6.3
+13.0
*Excluding fair value adjustments to financial instruments
Revenue
These results have been achieved in a
period when consumer confidence has
been at very low levels so to deliver
positive like-for-like growth is encouraging.
It has required us to focus on the areas
of our business with the highest growth
potential and allocate the marketing
investment accordingly. All of our
brands have a very clear proposition
and points of difference which
encourages customer loyalty.
In addition we have concentrated on
driving sales through the online channel
recognising that multi-channel customers
spend more and cost less to service.
We have continued the overseas expansion
of Simply Be, launching in the USA in
addition to our German operations. Finally,
we have continued to rejuvenate High &
Mighty and the acquisition of Figleaves
in June 2010 has enhanced our strong
position in the online lingerie market.
10
N Brown Group plc Annual Report & Accounts 2011
Group revenue up 4.2% to
£718.8m
Adjusted earnings per share
up 9.1% to
27.02p
Total dividend up 15% to
12.41p
Customer Groups
The younger brands, targeted at customers
aged between 30 and 45 years of age
continued to be the fastest growing part
of the overall portfolio. Sales, including the
first time contribution from Figleaves, were
up by 11% to £240m, or 4% on a like-for-
like basis accounting for 33% of group
sales. Simply Be reached revenues of
£100m for the first time with growth in the
UK and international markets. Jacamo
offers a mix of branded and unbranded
fashionable menswear, all in a very wide
range of sizes through to 5XL, and was the
fastest growing brand with total revenue
up by 66%, backed by substantial
expenditure on customer recruitment from
television advertising and online search.
A number of the younger brands, such
as Fashion World, lost sales due to
more conservative credit policies, which
particularly impacted the higher-priced
home and leisure products.
Sales from the mid-life brands, targeted
at customers aged 45-65 grew by 2%
to £431m, accounting for 60% of group
sales. J D Williams, the traditional core of
the business, had revenue slightly below
last year but this was more than offset by
good performances from the menswear
brands, Premier Man and Williams &
Brown, and growth of 16% in sales at
House of Bath, which sells unusual home
and garden items. Marisota continued its
strong growth by attracting customers to
its ladieswear and footwear ranges based
on our expertise in sizing and fit, as well
as fashionability, for the 45-plus woman.
The older titles declined by 9% to £48m,
although this now only represents 7% of
group revenues. We switched much of the
recruitment activity from Heather Valley,
Special Collection and Nightingales to
Julipa, which has a more comprehensive
range of products. However the target
customer is finding economic conditions
tough and this age-group has been an
underperforming part of the retail sector
generally. Gray & Osbourn struggled in
2010 for this same reason but finished
the year on a high with encouraging results
from the refreshed Spring 2011 catalogues.
Customer Base
We have a customer base of over 6m who
have purchased at least once in the last
two years. The sales per customer from
the established customer base was up
by a healthy 4%, a function of the sales
mix favouring higher value clothing and
footwear. The number of active established
customers fell by 3% as we switched some
of our marketing activity from reactivation
of lapsed established customers to new
customer recruitment, where the sales
rose by 4%.
Product Categories
We have a very high number of stock
options in order to accommodate
women’s clothing from size 10 to 38,
lingerie from A-L Cup and 34" to 58"
back size, menswear from 38" to 70"
chest measurements, and footwear in
a vast array of width fittings as well as
lengths, up to size 9 for ladies and 15
for men. Our ability to have clothing and
footwear to fit our customers, regardless
of their size or shape, is a fundamental
point of difference to our competitors.
The range has been expanded even more
this year as, using the online integration
software we have developed internally,
we have enabled our suppliers to upload
a further 30,000 product lines onto our
websites. All of these extra products are
delivered directly by the supplier to the
customer, giving incremental sales without
increasing working capital.
Category
Revenue % of
%
£m Total Change
Ladieswear
Footwear
Menswear
Home & Leisure
Total
361
80
84
194
719
50
11
12
27
100
+1
+10
+25
–
+4
Ladieswear sales have been mixed.
Fashionable clothing for our younger
customers, including our own brand fast
fashion online collections and sportswear,
has done well. Customers have opted to
buy the exclusive branded or celebrity-
inspired ranges relative to the core
lines. This suggests that customers
are extending the replacement cycle on
basic clothing, such as jeans, trousers,
knitwear, outerwear and jersey tops, and
concentrating their disposable income on
pieces with an impact factor. Even within
the basic categories the mix of sales has
moved towards garments with unique
features such as our “Magifit” control
jeans, trousers and skirts. The situation
was similar with lingerie sales. Figleaves
saw like-for-like sales growth to the
younger, more affluent customers but the
sales of core basic bra packs were below
last year’s level.
In contrast menswear sales were strong
in all areas, recording a 25% increase in
aggregate. The strongest growth was in
the younger menswear and sportswear
where sales were up over 40%, but even
the core menswear range was up by 9%.
Footwear sales rose by 10%, with good
growth in all areas. We saw exceptional
growth in footwear sales from our younger
brands as we expanded the range in
response to the demands of our Simply
Be customers. Men’s footwear has
previously been under-represented in the
mix of sales but is now growing rapidly.
Home and leisure sales were flat on last
year. There were strong performances
in gifts and homewares but the impact
of asking for deposits on higher value
furniture and electrical items reduced
sales by £4m. The benefit of this policy
is seen in the increased rate of gross
margin from lower bad debts.
One of the notable features last year
was the 7% increase in average selling
prices. Whilst some of this is a function of
increased prices from our suppliers in the
Far East, much of it was due to the mix of
sales favouring higher value lines.
N Brown Group plc Annual Report & Accounts 2011
11
Menswear sales up 25% to
84m
Younger customer sales up
11% to
240m
Sales from mid-life brands
up 2% to
£431m
Online Sales
The value of sales transacted online
totalled £324m, up by 19%, maintaining
our position as one of the top online
retailers. We are ranked number one online
for ladies clothing in size 16 and above,
for the 50-plus age group and for ladies
underwear. One of our key corporate
objectives last year was to drive up the
proportion of online business as we
achieve incremental sales and reduced
operating costs. To this end we invested
£10m in upgrading our online systems, the
benefits of which will be realised over the
next few years. For example we re-wrote
the registration and checkout pages
which resulted in increases in attributable
conversion rates. In addition we have
reorganised the buying and marketing
functions to give greater emphasis to
online trading relative to the catalogues.
Online sales now account for 45% of
total revenues, compared with 39% last
year, and they have overtaken the value of
orders taken in our contact centres, with
the balance coming by post. In the coming
year we expect online sales to account
for the majority of all sales. The growth
is coming from all age groups but in the
next few years we are aiming to grow the
proportion of online sales from our mid-life
customers, currently 37%, as the younger
customers are already at 64%, including
some brands which are almost at 80%.
Gross Margin and Credit
Credit is an important part of the offer to
our customer, and the income of £195m
(up 2.5%) derived from our debtor book
accounts for 27% of total group revenues.
Approximately two-thirds of sales are
made by customers who use the credit
facilities, although in customer numbers
it is less than half.
Bad debts rose during the recession but
the changes we made to credit policies
on customer vetting, credit limits and
collections in the wake of this increased
default risk have been effective. In the 52
weeks ended 26 February 2011 the charge
for bad debts fell by £9.1m to £53.1m,
reducing the net bad debt charge to
sales ratio from 9.0% to 7.4%. Inevitably
the credit restrictions have reduced
sales growth but we believe the balance
between risk and reward on the credit
book is now about right.
The overall rate of gross margin is 53.8%,
up from 52.5% last year. The bulk of this
improvement is the result of the lower bad
debt rate, although the margin on product
is also slightly favourable despite a higher
level of promotional activity in the sector
from our competitors.
Supply Chain
The last year has been the most challenging
our buying team has faced for many years.
There has been a step change in the
price of goods from the Far East, driven
principally by a reduction in capacity in
China, a 160% increase in the price of
cotton during the year, and significant
price rises in other raw materials,
especially those linked to the price of
oil such as polyester and acrylic fibres.
This has led to a squeeze on capacity in
markets, such as Bangladesh, as retailers
looked for alternative, lower labour cost
markets to offset the price rises. Some of
the rises in commodity prices are cyclical
and we expect to see the price of cotton
moderate by 2012 but the changes in the
labour markets are structural and signal
the end of the regular deflation in clothing
prices we have enjoyed for the last 15
years. We have been doing everything
we can to mitigate the price increases
for our customers through negotiation
with suppliers, moving between markets
and garment re-engineering, but we still
expect to see price increases of around
9% in 2011. However we also expect to
see customers continuing to focus their
spending on the clothing lines which clearly
make a fashion statement, which will
favour branded, celebrity-designed and
higher-priced ranges which will increase
the average selling price even further.
We have finished the year with stock
levels up 18.1% on last year, excluding
the stock acquired for Figleaves. There
was a conscious decision to bring Spring/
Summer 2011 stock in earlier than in 2010
because of the volatility in the supply
chain we experienced in the autumn, to
ensure high levels of stock availability for
customer orders. As commodity prices
settle down we would expect a return to
normal lead times.
Overheads
Costs have been contained at the previous
year’s level with the exception of marketing
costs where we spent 9% more to increase
customer recruitment, promote Simply Be
abroad, and support the growing brands
like Jacamo and Marisota. Distribution
costs benefited from higher average order
values due to higher selling prices and the
switch to online. We have moved all our
parcel deliveries to Hermes resulting in
improvements to both service and costs.
Customer Service
The vast majority of our key performance
indicators were positive with improvement
in the contact centres, online service
and distribution. This was despite the
disruption in December from the bad
weather and the mailing delays to
catalogues and statements experienced
subsequently. We are now asking
customers to submit product reviews
online which will give us early indicators
of any quality issues, but so far the vast
majority of comments posted are highly
complimentary. We will continue to focus
on further improvements to the quality
of our service and increasing the options
available to our customers.
International
Our international strategy is based on
utilising existing product lines and images
from our Simply Be brand, and distributing
12
N Brown Group plc Annual Report & Accounts 2011
Online sales up 19% to
£324m
Ladieswear sales up 1% to
Footwear sales up 10% to
£361m
£80m
However, we have a loyal and experienced
management and workforce, and everyone
who works in the business can take
immense credit for producing increased
revenues and profits for a seventh
consecutive year, despite the unhelpful
economic environment. The current year
will be at least as challenging but I am
confident that our strategy will develop
new areas for future growth and deliver
another good result.
Alan White
direct to the overseas customer from our
UK warehouses. This should allow us to
break even by year 3 or 4 assuming we can
recruit reasonable volumes of customers
at an acceptable cost per customer.
Revenues from our Simply Be brand in
Germany and the USA totalled £4.2m
(2010, £2.4m), over 70% of which was
transacted online. In Germany sales were
up by 41% and we reduced the rate of
returns by two percentage points but at
61% it is still higher than we would like.
The new season has started well and we
anticipate a further increase in revenue,
which, coupled with cost efficiencies,
will reduce the losses this year.
We launched Simply Be in the USA
through the distribution of 1 million
catalogues to targeted customer lists
during the autumn of 2010. Revenues in the
USA were just under £1m, and the low rate
of returns and high gross margin are both
encouraging. Based on these early positive
indications we are planning to despatch
3 million catalogues in Summer 2011 and
have started to increase the online activity.
We will be accelerating our recruitment
plans further in the autumn campaigns.
Acquisitions
Figleaves, the leading online lingerie
retailer, was acquired in June 2010 for a
net cash consideration of £10.3m. Since
then we have achieved revenues of over
£16m, a 4% like-for-like increase for
the business, on which we incurred an
underlying loss of £0.9m. The strategy
is to build up the proportion of own brand
sales from the current 17% level and
to expand the product ranges offered
to the customer, either through organic
development or alternatively from those
products already within the group.
High & Mighty was acquired out of
administration in September 2009 for
a consideration of £1.6m. Sales of over
£7m and losses of £0.8m represented
good progress for the first full year, with
like-for-like store sales up by 8%. It was
a busy year with three of the fourteen
stores relocated, three more refurbished
and three new stores opened in Liverpool,
Newcastle and Belfast. We have migrated
the website onto the N Brown platform
and we are now seeing positive growth
in online sales.
Outlook and Current Trading
We will continue with our strategy of
focusing on our core home shopping
business in the UK whilst establishing the
Simply Be brand in the USA and Germany
and turning Figleaves and High & Mighty
into profitable businesses. The combination
of lower disposable incomes and cost
inflation will put consumer spending under
severe pressure, but we believe our
strategy of focusing on niche customer
and product groups, coupled with our
credit offer, is the right one.
Within the core business we expect to see
continued high growth rates from Marisota
and Jacamo, and we have launched a new
brand, Fabrici, which offers a range of
clothes with natural fibres, such as linen
and silk, at higher price points. We will
again be working with a number of
celebrities and designers on capsule
ranges, including an expanded range
from Arlene Phillips.
E-commerce remains fundamental to
the growth of the business and we will
be continuing our investment program
to upgrade and exploit the online platform.
We will complete the new content
management system by the summer
which will provide a platform for greater
personalisation of the websites in
the future as well as speeding up the
publication of new offers, products
and promotions.
N Brown Group’s extensive portfolio of
brands, allied with the credit offer, means
it is a complex business to manage.
N Brown Group plc Annual Report & Accounts 2011
13
Financial Review
The 52 weeks to 26 February 2011
was another record year for the group
reflecting the successful continuation
of our strategy to develop our home
shopping business. Group sales
increased by 4.2% to £718.8m.
Group operating profit for the same
period increased by 5.1% to £102.6m
(2010, £97.6m). This was achieved
with the help of a 1.3% increase in the
rate of gross margin arising from a
lower rate of charge for bad debts of
7.4% (2010, 9.0%) partially offset by an
adverse margin mix.
Group Trading Summary
Distribution costs rose by only 1.6% to
£62.9m (2010, £61.9m) benefiting from
a higher average selling price per order.
Sales and administration costs increased
by 9.4% to £221.5m (2010, £202.5m) as
we have invested in additional marketing
activity to sustain sales and drive customer
recruitment. As a result, the group’s
operating margin improved slightly to
14.3%, compared with 14.1% last year.
Profit before taxation and fair value
adjustments to financial instruments
amounted to £98.2m (2010, £93.1m),
benefiting from a small reduction in net
finance charges from £4.5m to £4.4m.
An adverse movement in the fair value
of the group’s forward foreign currency
contracts contributed a loss of £3.7m
compared to a £7.4m loss last year.
The fair value of the forward contracts
is based on external factors and is
outside the control of management.
Profit before taxation was up 10.3%
to £94.5m (2010, £85.7m).
Balance Sheet and Cash Flow
The strong trading performance has
resulted in net assets increasing to
£360.4m at the year-end from £319.0m
last year.
The acquisition of Figleaves resulted in a
net cash outflow of £10.3m. Total capital
expenditure, excluding Figleaves, for
the year was £22.1m (2010, £13.2m).
The majority of the expenditure related to
the ongoing development of our websites
and supply chain management and logistic
systems plus refurbishment of several
High and Mighty stores. Year-end stock
levels were 25.2% higher than last year
at £78.1m (2010, £62.4m), in line with our
plans to accelerate purchasing to improve
customer service.
Trade debtors at the year-end were up
6.2% to £474.5m compared to £447.0m
last year. The bad debt provision has
reduced to £45.1m (2010, £47.0m),
which equates to 8.7% (2010, 9.5%)
of gross debtors.
Taxation
The effective rate of corporation tax for
the year was 24.1% (2010, 27.1%) arising
from clarification in the year of draft tax
legislation which affects a number of
initiatives taken in previous years.
We expect our tax rate for the year
ahead to be similar to this year.
The net pension position of the group’s
defined benefit pension scheme has
changed from a £1.8m deficit at February
2010 to a £3.3m surplus at the year-end
primarily as a result of the additional
contribution of £4.0m paid during the
year. Net cash generated from operating
activities decreased from £91.7m to
£57.4m mainly as a result of higher
customer receivables and higher stock
levels. After paying for Figleaves, capital
expenditure, finance costs and dividends,
net debt increased by £10.8m to £180.9m
(2010, £170.1m) but gearing improved from
53% to 50%.
Key Financial Performance Indicators
The directors use a number of key financial
performance indicators (KPIs) to monitor
the progress of the group, including:
• Like for like sales (see page 8).
• Internet sales (see page 12).
• The number of customer debtor
accounts and their average debtor
balance, which at the year-end was
1,489,000 (2010, 1,577,000) and £331
(2010, £303) respectively.
• Mix of sales by product and customer
groups (see page 11).
• Gross margin (see page 12).
• Operating margin (see page 14).
• Interest cover (see page 8).
• Earnings per share (see page 8).
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:
14
N Brown Group plc Annual Report & Accounts 2011
drawn down under these facilities of £40m
have been included within current liabilities
for the period ended 26 February 2011.
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 even in the unlikely event that
the remaining facilities are not renewed.
Accordingly, they continue to adopt the
going concern basis in the preparation
of the annual report and accounts.
Shareholder Return
The share price of 215.6p at the start of
the year had risen to 274.7p at the year
end giving a market capitalisation of
£770.3m (2010, £600.2m). 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.
A final dividend of 7.37p (2010, 6.41p)
per share has been recommended by
the board giving a total dividend for the
year of 12.41p (2010, 10.79p) per share,
up by 15.0%, covered 2.2 times (2010,
2.3 times).
Dean Moore
• 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; and
• 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 taking appropriate
actions to mitigate where necessary.
Business continuity procedures are in
place, together with 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 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. This facility
has recently been renewed for a further
5 years until March 2016. 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, which expire in January
2012. All the current facilities in place at the
year end 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.
There were no interest rate swaps in
place in the year.
Anticipated foreign exchange requirements
for the purchase of stocks denominated
in US dollars may be 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 $70m (2010, $60m).
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 financial
position. These include cash flows, liquidity
position, borrowing facilities and the
principal 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. 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 trading risk identified by
the directors for these assumptions is
the impact that a further deterioration in
the economic climate might 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. The £200m
securitisation facility has recently been
renewed for a further 5 years until 2016
and it is the group’s intention to renew
the remaining loan facilities that expire in
January 2012 for a further 5 years. Loans
N Brown Group plc Annual Report & Accounts 2011
15
Directors and Officers
a Audit committee member
b Remuneration committee member
c Nomination committee member
A) Lord Alliance of Manchester CBE (78)
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 (56)
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 Chairman
of CBI in the North West.
C) Dean Moore (53)
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 (76)
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 (66)
Deputy Chairman
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.
G) John McGuire (62)
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 and Chairman of
Investment Advisory Panel for North West
Business Finance Ltd. Member General
Assembly of The University of Manchester.
Chairman of the audit committee.
F) Lord Stone of Blackheath (68)
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.
H) Anna Ford (67)
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 (55)
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.
16
N Brown Group plc Annual Report & Accounts 2011
Financial Statements
The Facts
and Figures
Independent Auditor’s Report – Group Accounts
18 Directors’ Report
24 Corporate Governance Report
28 Remuneration Report
39
40 Consolidated Income Statement
40 Consolidated Statement of Comprehensive Income
41 Consolidated Balance Sheet
42 Consolidated Cash Flow Statement
42 Reconciliation of Operating Profit to Net Cash from Operating Activities
43 Consolidated Statement of Changes in Equity
44 Notes to the Group Accounts
68
69 Company Balance Sheet
70 Notes to the Company Accounts
IBC Shareholder Information
Independent Auditor’s Report – Company Accounts
N Brown Group plc Annual Report & Accounts 2011
17
Directors’ Report
The directors present their annual report
and accounts for the 52 weeks ended
26 February 2011.
Activities and results
The principal activity of the group is
retailing through direct home shopping.
The activities are more fully explained and
reviewed in the Chief Executive’s Review
on pages 10 to 13. Group profit before
taxation from continuing operations for
the 52 weeks ended 26 February 2011
amounted to £94.5m (2010, £85.7m).
No geographical segmentation is provided
as, apart from small operations in the
Republic of Ireland, Germany and the
United States of America, all activities
take place in the United Kingdom.
Dividends and reserves
An interim dividend of 5.04p per share
(2010, 4.38p) was paid on the ordinary
shares of the company on 7 January 2011.
The net cost of this dividend was £13.8m
(2010, £12.0m).
The directors recommend a final dividend
of 7.37p per share (2010, 6.41p) for the
52 weeks ended 26 February 2011, the
net cost of which will be £20.6m (2010,
£17.7m). The dividend will be paid on 29
July 2011.
Movements in reserves are shown in
the Statement of Changes in Equity
on page 43.
Enhanced business review
The company is required by the
Companies Act 2006 (‘Companies Act’)
to set out in this report a fair review of
the business of the group during the 52
weeks ended 26 February 2011 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 8 to 15) all of
which information is deemed to be
incorporated in this report by this
cross-reference.
The board continuously identifies and
reviews key business risks and monitors
a number of financial and non-financial
Key Performance Indicators. The financial
KPIs are detailed on page 14 and non-
financial KPIs are discussed further below.
The board oversees the development of
processes to ensure risks are managed
appropriately. Executive directors and
operational directors implement and
oversee these processes and report on
them to the board.
Acquisitions and disposals
As announced in June 2010 the group
acquired the entire issued share capital of
Figleaves Global Trading Limited for a total
cash consideration of £11.9m. Its principal
activity is that of an online lingerie retailer.
Share capital
Details of the company’s authorised and
issued share capital are shown in note 22
on page 61. 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 28 on page 63.
Annual general meeting
The annual general meeting is to be held on
Tuesday, 5 July 2011. 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.
Directors
The biographies of the directors, all of
whom served throughout the year are
shown on page 16. 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 board has
resolved to adopt with immediate effect
the requirement in the UK Corporate
Governance Code that all directors retire
and submit themselves for re-election
annually. Therefore each of the directors
will retire at the forthcoming AGM and,
being eligible, offer themselves for
re-appointment at that meeting.
Details of directors’ interests (beneficial
and non-beneficial) in shares of the
company are given in the Remuneration
Report on page 38 and are deemed to
be incorporated into this report by
cross-reference.
The powers of directors are described
in the board terms of reference and the
Corporate Governance Report on page 24.
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 38 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 2011:
Threadneedle Asset Management Ltd
INVESCO Asset Management Ltd (Europe)
Holding
18,461,603
10,998,930
% of issued
share capital
6.58
3.92
18
N Brown Group plc Annual Report & Accounts 2011
that they may have regarding the way the
group operates in its day-to-day activities.
No ‘whistleblowing’ events were reported
in the year.
• Planned further investment into the
next wave of our energy efficiency
programme;
• Installation of automated energy
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 24 to 27.
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 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, and 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;
Environment
The group recognises the continuous
improvement of our environmental
performance as an integral component to
the success and future sustainability of our
business operation. As a result the group
is highly committed to minimising any
damage which its activities may cause to
the environment and 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.
Since 2007, the group has been actively
working alongside Envantage Limited and
Storm Waste Limited to reduce energy
and water consumption, minimise waste,
reduce carbon dioxide emissions and
boost environmental responsibility and
reputation. Significant achievements since
2007-2008 figures have been realised due
to the introduction of a robust energy,
water and waste management strategy and
investment into energy efficiency and water
minimisation technologies.
The following environmental improvements
have been achieved:
• A reduction in CO2 emissions (gas,
electricity and diesel) by 292 tonnes
or 2.4% since 2008;
• encourage and support a business
• A reduction in electricity consumption
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
by 1,013,869 kWh;
• A reduction in diesel fuel for logistics
of 35,056 litres;
• 100% of waste is now recycled
in all group owned properties; and
• A reduction in water consumption
• foster a teamworking environment in which
by over 46%.
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.
In addition to the outlined quantitative
achievements above, the group has also
been working on several other key areas
to set standards for our environmental
responsibility and reputation, including
the following:
• The promotion and facilitation of green
commuting among staff, with a target
to reduce commuting related CO2
emissions by 5% over the next 12
months;
• Annual voluntary reporting to the Carbon
Disclosure Project, where the group has
been again ranked in the top 3 FTSE 350
companies in our sector;
The group has drawn up and issued a
comprehensive “whistleblowing policy”
providing employees with a confidential
means of reporting any ethical concerns
• Considering options for renewable
energy installations, including Solar
PV / Voltage Optimisation and Liquid
Pressure Amplification;
monitoring;
• Planning to join the British Retail
Consortium’s Climate Change
Commitment;
• 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% recycled
paper; and
• Wherever possible, paper used in the
printing of our catalogues is derived
from managed and renewable sources
accredited by the Forest Stewardship
Council.
Employees
- Employee involvement. Continuing
success can only be achieved by an
engaged, enthusiastic, motivated and well-
trained workforce. Considerable resources
are devoted to employee training. Frequent
departmental team briefings are held
and an employee engagement survey
is conducted regularly, the most recent
being in 2010. 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. The logistics and customer
service divisions have also achieved
Investors in People accreditation and it is
planned that the whole group will in due
course achieve this standard. 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 work is delivered by the
HR learning and development team, which
is supplemented by external training in
specialist technical and IT training areas
where necessary.
As well as individually tailored training,
there is also a suite of self-training
tools available, and an online database
– “simplydevelopment” which enables
employees to access a wide range of
self-development activities, tools and
information.
N Brown Group plc Annual Report & Accounts 2011
19
Directors’ Report
As mentioned above, in 2010 the group
repeated its business-wide Employee
Engagement Survey and over 2,300
employees participated. The results have
been collated and reviewed and the board
are working on an action plan to address
the survey’s findings.
In early 2011, the company’s senior
management completed a pioneering
e-learning course designed to strengthen
knowledge and understanding of various
processes by which the business is using
the internet and social media to better
engage our customers and understand
their needs.
- Consultation. Constructive relationships
with the trade unions that represent the
group’s employees (principally USDAW
and SATA) exist. 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.
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, and to achieve a
balanced working population spread across
a diverse range of ethnic origins, gender
and age groups.
Applications for employment by disabled
persons are thoroughly and sympathetically
considered, with the aptitude of the applicant
being regarded as foremost. In the event of
any employee becoming disabled during
their employment, every effort is made
to ensure that their employment with the
group continues. 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 (‘H&S’). 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. The group is also
committed to best practice initiatives.
Benchmarking against OHSAS 18001
standards has taken place throughout
the year and have helped define the
group’s strategy in progressing H&S as
a senior level issue over the coming year
including behavioral safety initiatives
which will continuously improve the
group’s H&S culture.
The group’s accident statistics for 2010
are the lowest on group record to date.
Cumulative group accidents statistics
show that in the year in review, reportable
accident ratios per 100,000 hours worked
under Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations 1995
(‘RIDDOR’) were 0.93 in the warehousing
division. Our RIDDOR Accident Incident
Ratio (per 100,000 employees) was 1,027,
which compared favourably with the UK
HSE figure of 1,181 for the transport/logistic
sectors. Benchmarking studies with our
close competitors has also shown that
we out-perform them against this and
other measures.
Accident statistics for the group show
a reduction of 10%, at 163 accidents,
with most significant reductions being
evident across all accident types, with
the exception of manual handling. This
area provides some of the focus for the
coming year’s objectives and will be
supported through a forum approach
with Occupational Health, H&S, company
physiotherapy and emphasis on
rehabilitation through case management
with HR and operational management.
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 employees and
customers in proper use.
Customers
A key factor 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. Telephone
enquiry and complaint calls received from
customers are analysed and remedial
action taken to improve the levels of
customer service.
Suppliers
The group is aware of the potential social
impact of its business dealings wherever
the goods are manufactured, particularly
in developing countries. Now forming part
of our standard conditions of contract for
the purchase of products for resale, we
require all suppliers to agree to adopt the
principles of our Code of Conduct. This
Code of Conduct is based on the ETI
(Ethical Trade Initiative – www.ethicaltrade.
org) Base Code. This includes sections on:
1. Freedom of employment;
2. Freedom of association and collective
bargaining;
3. No recruitment of child labour;
4. A living wage is paid for the country of
manufacture;
5. Excessive working hours are not worked;
6. No discrimination is practised;
7. No harsh or inhumane treatment;
8. Regular employment is provided; and
9. Safe and hygienic working conditions.
In addition, we require that all suppliers
adhere to all relevant local and national
labour and health and safety laws in the
country of manufacture. All new suppliers
to the group are required to agree to this
Code of Conduct before any business is
placed with them. Supplier Self Assessment
forms are used to assess how our
suppliers integrate the principles outlined
in the Code of Conduct into their day-to-
day operations. This detailed questionnaire
contains several questions based on the
above sections of the Code of Conduct.
Once completed by the supplier for each
factory that manufactures goods for the
group, the results are compiled and
suppliers are given an initial rating.
This is based on a traffic light system
enabling the group to assess common
patterns of working depending on the
sector and country or region of manufacture.
If a supplier does not reach the required
standard and further work or evidence of
working processes is required, a detailed
Corrective Action Plan is compiled which
will include any remedial action that is
required from the supplier. A realistic
timescale is then agreed with the supplier
to adopt these proposals and improve the
working conditions within the factory.
20
N Brown Group plc Annual Report & Accounts 2011
Directors’ Report
At the time of writing over 1,375 suppliers
have been issued with a Code of Conduct
and Self Assessment Form.
This year the group has undertaken a
comprehensive in-house training course
for all Buying and Merchandise staff
that visit our supply base. The training
course covers all aspects of the Code
of Conduct and what this means on a
practical basis. The course also covers
the working practices that staff are likely
to encounter when they visit suppliers,
with some examples of best practice and
questioning techniques that can be used.
The course also highlights a process
for Buying and Merchandise to highlight
concerns they may have when visiting
suppliers. Continued non-compliance by
a supplier will lead to de-listing from all
group companies.
The group is also in the process of
appointing an audit partner to ensure
compliance and document any further
work needed within the supply base to
improve working conditions. It is hoped
that the audit process will highlight areas
of best practice that can be applied across
all sectors and other group suppliers.
Suppliers have been prioritised by the
value of business placed with them, the
country of manufacture and the results
of the initial Supplier Self Assessment
forms. The audit process will begin rolling
out across the group later in the year with
all factories being audited at least once
every two years. Most of the audits will be
carried out on a semi-announced basis
with some being carried out unannounced.
The group has further confirmed its
commitment to improving the working
conditions of people within our supply
chain by joining the Ethical Trading
Initiative (‘ETI’) as a foundation member.
ETI is an alliance of companies,
trade unions and non-governmental
organisations (‘NGO’) which seeks to
work together to improve workers’ lives.
The group will be taking an active part in
membership of ETI by partaking in relevant
working groups, sharing and learning
best practice from other members. As a
requisite of membership of ETI the group
will also be compiling a detailed annual
report which will outline the progress of
ethical trade work already completed as
well as helping to focus and prioritise areas
of work for the forthcoming year.
This report is in turn audited by an external
agency as well as a relevant NGO to help
benchmark the group’s progress against
other members of ETI and to highlight
areas of work for the forthcoming year.
The group is also currently undertaking an
audit of factory locations and countries of
manufacture as an additional method of
mapping the supply chain and prioritising
resources where the greatest impact will
be felt in the future.
Trade creditors of the group at 26 February
2011 represented 40 days (2010, 38 days)
of purchases.
Community relations
The group actively supports, the communities
in which it operates. The family, health and
well-being programme, now in its seventh
year, continues to provide additional
benefits for all our employees.
The group maintains its close links with
the Christie Hospital in Manchester 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 a number of noteworthy causes, such
as £21,000 for Access and 180 employees
taking part in the Manchester Bupa 10k
run. The group once again 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 employees have
organised fund-raising activities to assist
the following good causes:
• Barnardos;
• Christies;
• Help for Heroes;
• Crossroads care association;
• MacMillan cancer care;
• Beechwood Cancer Care;
• Children in Need;
• FACT (families for autistic children);
• When you wish upon a star; and
• Chetham’s School of Music.
Once again in 2010/11 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 £60,000.
The group assisted Comic Relief this year
when 120 of our employees gave up six
hours of their own time to take donation
calls during the live Comic Relief TV
broadcast.
Charitable and political donations
During the year, the group made charitable
donations of £70,960 (2010, £70,569).
No political donations have been made
(2010, 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).
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.
N Brown Group plc Annual Report & Accounts 2011
21
Directors’ Report
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 67. The group’s
risk management policies and procedures
are also discussed in the Financial Review
on page 14.
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
Tax Act 2010.
Auditor
A resolution to reappoint Deloitte LLP as
auditor to the company and to authorise
the directors to fix their remuneration will
be proposed at the annual general meeting
on 5 July 2011.
Voting rights and restrictions on
transfer of shares
None of the ordinary shares carry any
special rights with regard to control of
the company.
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;
• Pursuant to the company’s code for
securities transactions whereby the
directors and designated employees
require approval to deal in the company’s
shares; and
• 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 but have the power to vote for
or against, or not at all, 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.
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 14.
Liability
All the information supplied in the
Chairman’s Statement on pages 8 to 9,
the Chief Executive’s Review on pages 10
to 13, Financial Review on pages 14 to 15,
Remuneration Report on pages 28 to 38
and the Corporate Governance Report on
pages 24 to 27 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.
In preparing the parent company financial
statements, the directors are required to:
• 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:
• properly select and apply accounting
policies;
• present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information;
• provide additional disclosures
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.
22
N Brown Group plc Annual Report & Accounts 2011
Responsibility statement
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
Alan White
Chief Executive
Dean Moore
Finance Director
17 May 2011
Directors’ Report
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. 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.
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.
Each person who is a director at the date
of the approval of this report confirms that:
• so far as the director is aware, there is no
relevant audit information of which the
group’s auditor is 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 auditor is
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
Philip F Harland LL.B (Hons) (Solicitor)
Secretary
17 May 2011
N Brown Group plc Annual Report & Accounts 2011
23
Corporate Governance Report
Combined code
The board is committed to maintaining
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”).
As with Ivan Fallon, the board considers
Lord Stone to be an extremely effective
member of the board and that his
extensive retail knowledge is of such
strategic value to the board that this far
outweighs any considerations of non-
independence.
Board operation
An effective board of directors leads and
controls the group. The members of the
board are shown on page 16 of this report.
The board met 8 times during the year.
Director’s attendance at board meetings
was as follows:
For the year in review the group and
the directors have complied with the
provisions set out in section 1 of the Code.
The following paragraphs explain how the
main principles of the Code have been
applied. The Director’s remuneration report
contains further details on page 28 to 38.
The board has noted and is aware of the
recent changes in corporate governance;
in particular the new UK Corporate
Governance Code (the “New Code”) which
was issued by the FRC in June 2010.
The board is reviewing the New Code in
relation to financial years commencing
March 2011 and will report on it in the
Annual Report in 2012.
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 directors are, Lord
Alliance of Manchester CBE, (Chairman),
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
our senior independent non-executive
director and deputy chairman. Lord Stone
was appointed to the board in March 2002
and, at the date of this report, has also now
served for a period beyond which the Code
suggests his independence may be affected.
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.
Under the articles one third of the
board is required to retire every year.
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 but 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.
Notwithstanding the foregoing, the board
has resolved to adopt, with immediate
effect, the requirement in the New
Code that all directors retire and submit
themselves for re-election annually.
Therefore each of the directors will retire
at the forthcoming AGM and, being
eligible, offer themselves for reappointment
at that meeting.
The board, having carried out a recent
performance evaluation, considers that the
commitment of all directors to the role and
the performance of all directors, continues
to be effective. Sufficient biographical
detail is provided on page 16 of this annual
report to enable shareholders to make
an informed decision on the re-election
resolutions. 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 34.
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
8
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
group’s ethical, social and environmental
policies. Currently, the January board
meeting is held over two days and is
entirely devoted to the development and
review of long-term corporate strategy and
the development of the group’s long-term
strategic plan. This year’s meeting was
facilitated by external consultants who were
given the brief by the Deputy Chairman
to challenge and evaluate the long-term
growth and strategic plan drawn up by the
executive directors. The consultants did
not find any material weakness or omission
in the group’s strategic plan but made a
number of recommendations which are
being worked upon. Day-to-day operational
management of the group is delegated to
the home shopping board of JD Williams
& Company Limited on which Alan White
and Dean Moore sit as Chief Executive and
Financial Director respectively.
24
N Brown Group plc Annual Report & Accounts 2011
Corporate Governance Report
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, compliance and regulatory
briefings 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 meet and talk to
operational staff and undertake regular site
visits to 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 regularly briefs
the board on regulatory and compliance
matters, shareholder engagement,
continuing director education and the
statutory duties and obligation of the
directors.
In the year under review, the board
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 sufficiently
robust, appropriate and cost effective
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 operate well, are
effectively led and that robust, free and
frank discussion and challenge to the
operational divisional directors and the
executive directors exists. The survey
also 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. With the growth of regulatory
and compliance matters some directors
reported that consideration be given to
holding more meetings per year and this
is being considered.
Beyond the formal annual evaluation, the
performance of the executive directors is
continuously monitored throughout the
year by the Chairman and the Deputy
Chairman. The board has noted that
the New Code will require an external
evaluation to be carried out in future, at
least once in every 3 years.
Director’s conflicts of interest
The articles of association of the company
give the directors the power 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.
Procedures have been set in place by the
board to regularly report and record any
potential or actual conflicts which arise in
a register which is then reviewed by the
board at least annually.
No conflicts were reported in the year
under review.
Committee structure
The board has delegated specific
authorities to a number of 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.
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. The members of the committee
are regarded as having recent and relevant
financial experience. By invitation, the
audit committee meetings are attended by
the Chief Executive, the Finance Director,
the group’s 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. In the year
under review the committee has:
• Reviewed and approved the annual
internal audit programme and resources;
• Met with the internal and external
auditors in the absence of the
executive directors;
• Considered the annual and interim
financial statements before submission
to the board, received and reviewed the
audit reports and audit-related reports
provided by the external auditor,
Deloitte LLP;
• Reviewed and assessed the group’s
system of internal risk control and
reported its findings twice to the
board; and
• Received papers from the company
secretary on CSR and governance issues.
N Brown Group plc Annual Report & Accounts 2011
25
Corporate Governance Report
On each occasion it meets, the committee
discusses audit and audit-related matters
with the external auditor both with, and
in the absence of, the executive directors
and the internal auditor. Additionally, the
chairman of the committee also regularly
attends the group’s head office to meet
with the Finance Director and, separately,
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
senior management to consider whether
significant risks are being identified,
evaluated, managed and controlled and
whether any significant weaknesses
exist which need to be addressed.
Again this year, the committee members
have received, considered and approved
an updated risk evaluation from the
operational directors. Further details are
given later in the Risk Management section
of 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 has it
identified itself, any failings or weaknesses
in internal control which it has determined
to be material.
The audit committee periodically reviews
the appointment and independence of the
external auditor 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 has been the group’s auditor for a
number of years. Having reviewed the
independence and effectiveness of the
external auditor, the committee has not
considered it necessary to require them
to tender for the audit work. Deloitte LLP
have during the year also provided some
non-audit services to the company in the
form of tax advice. The audit committee is
aware that providing audit and non-audit
services could give rise to a potential
conflict of interest. To address this
concern, the company has also 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 28).
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.
There are no contractual obligations
restricting the group’s choice of external
auditor. The committee has recommended
that the existing auditor, 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 2011 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.
The remuneration committee met on 4
occasions during the year. Member’s
attendance was as follows:
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 28
to 38. The report will be put to an advisory
vote by the members at the company’s
2011 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
26
N Brown Group plc Annual Report & Accounts 2011
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
(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.
During the year the nominations committee
did not have occasion to meet.
Finance Committee
So that actions may be taken promptly,
a finance committee comprising the
chairman of the audit committee, the
Chief Executive and the Finance Director
(together with such other non-executive
directors as the board may appoint from
time to time) operates between scheduled
board meetings and is authorised to make
decisions, within limits defined by the
board, regarding certain finance, treasury
and tax or investment matters.
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.
Corporate Governance Report
Risk Management
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
group and audit committee chairman by
exception, if required. The group head of
internal audit acts as the chairman of the
risk committee.
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, the board
(through the audit committee) discusses
with the external auditor 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.
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 (and certain members
of the board of the operating division) 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 recently
upgraded website provides shareholders
with up to date, comprehensive and
accessible information about the group
and its activities. Shareholders views and
feedback reports are also included in
the director’s board packs as and when
received.
N Brown Group plc Annual Report & Accounts 2011
27
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 5 July 2011.
The auditor is 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 (“the committee”) constituted in
accordance with the recommendations of
the Code.
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
directors. 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
and are considered by the company to be
independent. 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.
Recommendations and reports were
provided to the committee during the
year under review by Alan White, the Chief
Executive. No director played any part in
discussion about their own remuneration.
The Committee also received advice from
external advisers during the year which
materially assisted their consideration of
remuneration matters as follows:
• Hewitt New Bridge Street provided
benchmarking services in setting
executive remuneration;
• 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 matters;
• Pinsent Masons LLP provided advice in
respect of the company’s share incentive
plans and additional advice in relation to
pension arrangements; and
• Mercer Human Resource Consulting
Limited provided advice in relation to the
Chief Executive’s pension arrangements.
Hewitt New Bridge Street, Ernst & Young
LLP and Mercer Human Resources
Consulting Limited were appointed by
the committee and provided no other
services to the company. Pinsent Masons
LLP are the group’s general legal advisers
and were not specifically appointed by
the committee. Details of these advisors’
other connections with the group, and
the advisors’ terms of engagement, are
available on request from the Company
Secretary.
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, the Chairman 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
2010/2011 period;
• Setting the parameters for the bonus
scheme for 2011/2012;
• Agreeing the individual long-term
share awards for executives and
senior management for 2010-2013 and
reviewing the performance measures
and targets applying to these awards;
• Approving vesting levels of long term
and deferred bonus incentive schemes
for the 2007-2010 and 2008-2010
schemes respectively;
• Approving this remuneration report;
• Reviewing current investor guidelines
on executive remuneration; and
• Reviewing the relationship between the
long-term strategy of the company and
executive remuneration with a view to
ensuring the two are in line with each other.
Remuneration policy for executive
directors and senior executives
The committee’s policy is designed to
ensure that the main elements of the
remuneration package are linked to the
company’s long-term strategy capable
of attracting, motivating and retaining
executive directors and senior executives
by offering them competitive remuneration
packages, which are prudently
constructed, sufficiently stretching and
linked to long-term profitability. 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), long-term share based
incentives, a pension, a company car
allowance and private 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 and linked to
the promotion of the long-term success of
the group. Executive pay is aligned with,
and designed to promote the long-term
success of the company, compatible with
the company’s risk policies and systems.
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 to safeguard against
excessive reward. 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 reviews the policy on an annual
basis and recommends changes as and
when appropriate, guided in this process
by external consultants it appoints from
time to time. 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.
28
N Brown Group plc Annual Report & Accounts 2011
Remuneration Report
The charts which follow demonstrate
the balance between fixed and variable
performance based pay for each executive
director.
Following expiration of the company’s
deferred annual bonus scheme and
company share option scheme, the
committee obtained shareholder approval
for a replacement Deferred Annual Bonus
scheme (“DABs”), and an Unapproved
Discretionary Share Option Scheme
(the “Unapproved Scheme”) and HM
Revenue & Customs Company Share
Option Plan (“CSOP”) to replace the
share option scheme. The company also
obtained approval for a replacement of
the employee Savings-Related Share
Option Scheme (“SAYE”) following similar
expiration of the previous plan. Each
new plan replicates the structure of its
predecessor.
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. Salary
levels of senior management were all
reviewed in the context of salary levels
within the workforce as a whole.
The current salaries of the executive
directors are shown in the table below:
Salaries as at June 2010
Alan White
Dean Moore
£510,000
£287,130
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 strategy 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 ‘milestones’
contained in the company’s strategic
long-term 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 components of the annual bonus
scheme are made up as follows:
• Group profitability (70% of bonus);
• Corporate objectives (15% of bonus); and
• Individual objectives (15% of bonus).
The maximum potential bonus payable
to an executive director for 2010/11 and
2011/12 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 under the DABs
scheme and is 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 performance targets used for 2010/11
were based on a combination of absolute
growth in profit over the previous year’s
reported profit before tax, the increase
in online order penetration and the
achievement of personal objectives. The
performance targets for 2011/12 have
recently been reviewed and, again, will be
based upon a combination of profit growth
and the achievement of personal and
corporate objectives.
For 2010/11 the achievement of each
element of the bonus was scored as
follows for both executive directors:-
(a) Group profit (70% of bonus)
The targeted adjusted profit before tax
range for bonus purposes was £95.0m
to £97.5m, compared with the prior year
adjusted result of £93.4m. Adjusted
profit before tax for 2010/11 was
£98.7m, therefore the bonus payment
due under this element of the scheme
was 70%.
N Brown Group plc Annual Report & Accounts 2011
29
Analysis of Performance vs Non Performance element of Remuneration PackageFixed Pay70%30%Alan WhiteDean MooreVariable Performance Related Pay70%30%
Remuneration Report
(b) Corporate objectives (15% of bonus)
The corporate objective for the year in
review was to increase online order
penetration. Internet sales of 45% were
achieved and therefore the payment
due under this element of the bonus
scheme was 9.6%.
(c) Individual performance objectives
(15% 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 increase
product sales, deliver better internet
functionality and exploit social media,
launch the USA catalogue, improve
profitability in acquired businesses,
increase speed of despatch of products
and deliver improvements in customer
service. Amongst Dean Moore’s
personal objectives were objectives
to manage group borrowings, renew
the group’s banking facilities, achieve
procurement savings, improve bad
debt performance and residual debt
recovery. 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:
• Alan White 11.03%
• Dean Moore 11.25%
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:
Name
2010/11 Bonus & Deferred Shares Paid
2010/11 Matching Share Award (Contingent)
Total 2010/11 Bonus & Matching Share Award as a percentage of Salary
Alan White Dean Moore
£462,188
£260,858
£115,547
£65,214
113.3%
113.6%
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 (“LTIP”)
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. It is the intention of the
committee to recommend that awards
of LTIPs are made again in 2011/12.
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
Currently the committee adopts a policy of granting awards of up to 100% of salary to both executive directors.
30
N Brown Group plc Annual Report & Accounts 2011
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;
• TSR performance condition is in the
opinion of the committee more closely
aligned with shareholder interests than
earnings per share (“EPS”) growth;
• TSR performance condition more closely
evaluates company performance against
a basket of comparator companies in the
same sector; and
• 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 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, Dixons
Retail, Dunelm, Findel, Flying Brands,
French Connection, Halfords, HMV, Home
Retail Group, 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 onwards) 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 2008, 2009 and
2010. Based on performance as at 30 April
2011, the company’s TSR is currently (at
the date of this report) ranked as follows:
2008-11 Upper quartile
2009-12 Second quartile
2010-13 Second quartile
Executive share option schemes
For share option schemes, including the new Unapproved and CSOP schemes approved at last year’s AGM, 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
Unapproved and HM Revenue & Customs CSOP 2010
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%
N Brown Group plc Annual Report & Accounts 2011
31
Remuneration Report
Value creation plan 2009
In 2009 shareholders approved 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 and details of the awards made to each of the directors can be
found on page 38. 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%. At 26
February 2011 TSR performance for the
relevant period had increased by 150%.
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 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.
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N Brown Group plc Annual Report & Accounts 2011
Remuneration Report
All employee share schemes
The group operates a 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.
As mentioned previously, the company’s
shareholders approved the adoption of
a new SAYE at the 2010 AGM which will
operate in exactly the same manner as the
outgoing scheme.
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 371%
• Dean Moore 195%
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. As Alan White remained 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, subject to the above
two-thirds maximum. During the year Alan
White waived £177,927 of his unapproved
annual accrued pension entitlement under
the terms of the unapproved scheme.
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
• private 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.
N Brown Group plc Annual Report & Accounts 2011
33
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
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
Date of contract/letter
of appointment
16 May 2007
10 August 2002
20 December 2004
16 May 2007
30 May 2007
30 May 2007
16 May 2007
11 February 2009
Notice
period
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–£38,000 per annum. A further fee
of £5,000 is payable for additional work
performed in respect of the chairmanship
of the remuneration committee, £6,500 for
the chairmanship of the audit committee
and £3,000 for chairing the nominations
committee. The Deputy Chairman also
receives an additional fee of £7,000 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
Total Shareholder Return Performance: N Brown vs FTSE 250
N Brown Group plc
FTSE Mid-250 Index
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
l
a
t
o
T
200
180
160
140
120
100
80
60
40
20
0
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Financial Period
Source: Datastream
34
N Brown Group plc Annual Report & Accounts 2011
Remuneration Report
Audited Information:
Directors’ remuneration and interests
Emoluments
The individual elements of directors’ emoluments for the year are as follows:
Salaries
/fees
£’000
Contribution
to employee
benefit trust1
£’000
Taxable
benefits2
£’000
Performance-
related
bonuses3
£’000
2011
total
£’000
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
517
306
17
18
50
38
45
38
2,230
27
–
–
–
–
–
–
1,029
2,257
1
1
–
–
–
–
–
–
2
2010
total4
£’000
997
542
17
18
41
36
38
32
462
261
3,210
595
–
–
–
–
–
–
17
18
50
38
45
38
723
4,011
1,721
1. During the year emoluments of £2,229,765 for Alan White and £27,497 for Dean Moore have been paid directly to an employee benefit trust to be held for the
benefit of their families.
2. Taxable benefits comprise the provision of private medical cover.
3. Included in the performance-related bonus awards stated above are £115,547 for Alan White and £65,214 for Dean Moore which (after deduction of income tax)
are shortly due to be transferred to the deferred annual bonus scheme.
4. In 2010 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 included amounts of £363,375 and £190,969 respectively which have been
appointed to an employee benefit trust to be held for the benefit of their families.
N Brown Group plc Annual Report & Accounts 2011
35
Remuneration Report
Pensions
Details of directors’ accrued pension entitlements under the group’s defined benefit schemes are as follows:
Change
in accrued
pension
during
year2
£’000
Accrued
pension at
27 Feb 10 1
£’000
Accrued
pension at
26 Feb 11 1
£’000
Value of
net change
in accrual
during
Transfer
value of
accrued
Change
in transfer
pension at value during
year2,3,4,6 27 Feb 103
£’000
£’000
Transfer
value of
accrued
pension at
year3,4,5,6 26 Feb 11
£’000
£’000
Alan White
266
-172
106
-2,654
4,064
-2,261
1,813
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. Change stated net of inflation.
3. Transfer values have been calculated in accordance with the Occupational Pension Schemes (Transfer Values) Regulations 1996.
4. Stated after deduction of the directors’ contribution.
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, and also the effects of the change in the Fund’s transfer value basis.
6. Over the year Mr White waived the majority of his unapproved accrued pension benefits under the terms set out in his unapproved arrangement.
Voluntary contributions paid by the directors and resulting benefits are not shown.
Contributions paid by the company into the group’s defined contribution scheme during the year in respect of Dean Moore amounted to
£16,858 (2010, £15,750)
Share options
Details of directors’ share options are as follows:
At 27 Feb
2010
Granted
in year
Lapsed Exercised At 26 Feb
2011
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
8,413
8,413
–
–
–
–
–
–
–
–
–
–
–
–
4,234
222.0p
01/08/2011 31/01/2012
4,234
8,413
8,413
186.0p
01/08/2014 31/01/2015
The market price of the company's shares at 26 February 2011 was 274.7p (2010, 215.6p) and the range during the year was 213.0p to
311.2p.
36
N Brown Group plc Annual Report & Accounts 2011
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 27 Feb
2010
Awarded
in year
Lapsed Exercised At 26 Feb
2011
in year
in year
Alan White
Dean Moore
49,353
45,010
–
–
–
53,912
94,363
53,912
26,058
23,165
–
–
–
28,340
49,223
28,340
–
–
–
–
–
–
–
–
(49,353)
–
–
– 1
45,010
53,912
(49,353)
98,922
(26,058)
–
–
– 1
23,165
28,340
230.0p
247.0p
250.0p
263.5p 29/05/2010 28/11/2010
29/05/2011 28/11/2011
28/05/2012 27/11/2012
(26,058)
51,505
Market
price at
date of
award
230.0p
247.0p
250.0p
Market
price at Date from
which
date of
exercise exercisable Expiry date
263.5p 29/05/2010 28/11/2010
29/05/2011 28/11/2011
28/05/2012 27/11/2012
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 £130,524 and £68,662
respectively.
Long term incentives
Details of awards of shares made to the directors are as follows:
Alan White
Dean Moore
At 27 Feb
2010
Awarded
in year
Lapsed Exercised At 26 Feb
2011
in year
in year
Market
price at
date of
award
Market
price at Date from
which
date of
exercise exercisable Expiry date
150,560
2,180
277,200
212,691
–
–
–
–
–
204,136
642,631
204,136
57,664
145,530
111,663
–
–
–
–
114,928
314,857
114,928
–
–
–
–
–
–
–
–
–
–
–
(150,560)
(2,180)
–
–
–
– 1, 2
– 1, 2
277,200 1
212,691 1
204,136 1
325.0p
322.0p
180.0p
235.0p
247.0p
263.5p 18/06/2010 17/12/2010
245.0p 16/07/2010 15/01/2011
02/07/2011 01/01/2012
28/05/2012 27/11/2012
05/07/2013 04/01/2014
(152,740)
694,027
(57,664)
–
–
–
– 1, 2
145,530 1
111,663 1
114,928 1
325.0p
180.0p
235.0p
247.0p
263.5p 18/06/2010 17/12/2010
02/07/2011 01/01/2012
28/05/2012 27/11/2012
05/07/2013 04/01/2014
(57,664)
372,121
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 £402,066 and £151,944
respectively.
N Brown Group plc Annual Report & Accounts 2011
37
Remuneration Report
Value creation plan
Details of awards of shares made to the directors are as follows:
At 27 Feb
2010
Awarded
in year
Lapsed Exercised At 26 Feb
2011
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.
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 26 Feb
2011
Ordinary
Shares of
At 27 Feb
2010
Ordinary
Shares of
111/19p each 111/19p each
75,316,182
19,731,784
688,894
202,670
24,658,313
6,830,943
10,000
9,047
9,047
–
75,316,182
19,731,784
610,405
204,135
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:
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 2011.
Approval
This report was approved by the board of directors on 17 May 2011 and signed on its behalf by:
At 26 Feb
2011
At 27 Feb
2010
1,718,287
2,004,102
Ivan Fallon
Chairman of the remuneration committee
38
N Brown Group plc Annual Report & Accounts 2011
Independent Auditor’s Report – Group Accounts
Independent Auditor’s Report to the
members of N Brown Group plc.
We have audited the financial statements
of N Brown Group plc for the 52 weeks
ended 26 February 2011 which comprise
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 30. The financial reporting framework
that has been applied in the preparation
of the group financial statements is
applicable law and International Financial
Reporting Standards (IFRSs) as adopted
by the European Union. The financial
reporting framework that has been applied
in the preparation of the parent company
financial statements 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 auditor’s 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.
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 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.
Damian Sanders
(Senior Statutory Auditor) for
and on behalf of Deloitte LLP
Chartered Accountants and
Statutory Auditor
Manchester, UK
17 May 2011
Respective responsibilities of directors
and auditor
As explained more fully in the Directors’
Responsibilities Statement, the directors
are responsible for the preparation of
the financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit and express
an opinion on the 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
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 and 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 financial statements give a true
and fair view of the state of the group’s
affairs as at 26 February 2011 and of its
profit for the 52 weeks then ended;
• the group financial statements have
been properly prepared in accordance
with IFRSs as adopted by the European
Union; and
• the financial statements have been
prepared in accordance with the
requirements of the Companies
Act 2006 and, as regards the group
financial statements, Article 4 of the
IAS Regulation.
N Brown Group plc Annual Report & Accounts 2011
39
Consolidated Income Statement
For the 52 weeks ended 26 February 2011
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
2011
£m
2010
£m
718.8
690.0
102.6
4.1
(8.5)
98.2
(3.7)
94.5
(22.8)
71.7
97.6
2.9
(7.4)
93.1
(7.4)
85.7
(23.2)
62.5
27.02p
26.98p
24.77p
24.73p
26.04p
26.00p
22.83p
22.79p
Consolidated Statement of Comprehensive Income
For the 52 weeks ended 26 February 2011
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
29
9
2011
£m
71.7
(0.6)
(2.3)
0.6
(2.3)
69.4
2010
£m
62.5
(0.2)
(1.2)
0.3
(1.1)
61.4
40
N Brown Group plc Annual Report & Accounts 2011
Consolidated Balance Sheet
As at 26 February 2011
Non-current assets
Intangible assets
Property, plant & equipment
Retirement benefit surplus
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Bank loans and overdrafts
Trade and other payables
Derivative financial instruments
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
Note
12
13
29
20
15
16
18
25
17
21
18
17
29
20
22
23
2011
£m
52.2
69.1
3.3
3.5
2010
£m
36.3
68.9
–
3.6
128.1
108.8
78.1
490.8
–
49.1
618.0
746.1
(40.0)
(114.5)
(1.4)
(28.8)
(184.7)
433.3
(190.0)
–
(11.0)
(201.0)
(385.7)
360.4
31.0
11.0
(1.2)
2.1
317.5
360.4
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
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the board of directors and authorised for
issue on 17 May 2011.
They were signed on its behalf by:
Alan White
Dean Moore
Directors
N Brown Group plc Annual Report & Accounts 2011
41
Consolidated Cash Flow Statement
For the 52 weeks ended 26 February 2011
Net cash from operating activities
Investing activities
Purchases of property, plant and equipment
Purchases of intangible assets
Acquisition of subsidiary
Proceeds on disposal of property, plant and equipment
Interest received
Net cash used in investing activities
Financing activities
Interest paid
Dividends paid
Decrease in bank loans
Purchase of shares by ESOT
Proceeds on issue of shares held by ESOT
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Note
24
25
2011
£m
57.4
(6.4)
(15.7)
(10.3)
–
0.2
(32.2)
(4.2)
(31.5)
–
(0.8)
0.5
(36.0)
(10.8)
59.9
49.1
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 26 February 2011
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
2011
£m
102.6
7.8
6.9
2.1
–
2010
£m
97.6
7.0
7.3
1.9
(0.4)
Operating cash flows before movements in working capital
119.4
113.4
(Increase)/decrease in inventories
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Pension obligation adjustment
Cash generated by operations
Taxation paid
Net cash from operating activities
42
N Brown Group plc Annual Report & Accounts 2011
(12.0)
(29.8)
3.7
(7.4)
73.9
(16.5)
57.4
7.4
(10.2)
(0.5)
(4.0)
106.1
(14.4)
91.7
Consolidated Statement of Changes in Equity
Share
capital
£m
Note 22
Share
premium
£m
Own
shares
£m
Note 23
Foreign
currency
translation
reserve
£m
Retained
earnings
£m
Total
£m
Changes in equity for the 52 weeks
ended 26 February 2011
Balance as at 27 February 2010
30.8
11.0
(0.4)
Profit for the period
Other items of comprehensive income
for the period
Total comprehensive income
for the period
Equity dividends
Issue of ordinary share capital
Purchase of own shares by ESOT
Issue of own shares by ESOT
Adjustment to equity for share payments
Share option charge
Tax on items recognised directly in equity
–
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 26 February 2011
31.0
11.0
–
–
–
–
–
(1.0)
0.2
–
–
–
(1.2)
2.7
–
(0.6)
(0.6)
–
–
–
–
–
–
–
274.9
319.0
71.7
(1.7)
70.0
(31.5)
–
–
–
0.3
2.1
1.7
71.7
(2.3)
69.4
(31.5)
0.2
(1.0)
0.2
0.3
2.1
1.7
2.1
317.5
360.4
Changes in equity for the 52 weeks
ended 27 February 2010
Balance as at 28 February 2009
30.3
11.0
(0.2)
Profit for the period
Other items of comprehensive income
for the period
Total comprehensive income
for the period
Equity dividends
Issue of ordinary share capital
Purchase of own shares by ESOT
Issue of own shares by ESOT
Adjustment to equity for share payments
Share option charge
Tax on items recognised directly in equity
–
–
–
–
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 27 February 2010
30.8
11.0
–
–
–
–
–
(0.5)
0.3
–
–
–
(0.4)
2.9
–
(0.2)
(0.2)
–
–
–
–
–
–
–
239.0
283.0
62.5
(0.9)
61.6
(29.5)
–
–
–
0.9
1.9
1.0
62.5
(1.1)
61.4
(29.5)
0.5
(0.5)
0.3
0.9
1.9
1.0
319.0
2.7
274.9
N Brown Group plc Annual Report & Accounts 2011
43
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 18 of the directors’ report.
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 26 February 2011
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
The following new and revised Standards
and Interpretations have been adopted in
the current year. Their adoption has not
had any significant impact on the amounts
reported in these financial statements
but may impact the accounting for future
transactions and arrangements.
IFRS 3 (revised 2008) ‘Business
Combinations’. Following an amendment
to IFRS 3, all acquisition costs are charged
to the income statement as incurred for
all business combinations acquired after
1 July 2009.
IFRIC 17 ‘Distributions of Non-cash
Assets to Owners’. The Interpretation
provides guidance on when an entity
should recognise a non-cash dividend
payable, how to measure the dividend
payable and how to account for any
difference between the carrying amount
of the assets distributed and the carrying
amount of the dividend payable when the
payable is settled.
within the scope of IFRS 2. In addition,
the amendments to IFRS 2 clarify the
accounting for share-based payment
transactions between group entities.
Amendments to IAS 17 ‘Leases’. IAS 17
has been amended such that it may be
possible to classify a lease of land as a
finance lease if it meets the criteria for
that classification under IAS 17.
Amendments to IAS 39 ‘Financial
Instruments: Recognition and
Measurement’. IAS 39 has been amended
to state that options contracts between
an acquirer and a selling shareholder to
buy or sell an acquiree that will result
in a business combination at a future
acquisition date are not excluded from
the scope of the standard.
Standards in issue not yet effective
At the date of authorisation of these
financial statements, the following
Standards and Interpretations which
have not 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):
• IFRS 9: Financial Instruments
• IAS 24 (amended): Related Party
Disclosures
• IAS 32 (amended): Classification
of Rights Issues
• IFRIC 19: Extinguishing Financial
Liabilities with Equity Instruments
• IFRIC 14 (amended): Prepayments
of a Minimum Funding Requirement
• IFRS 7 (amended): Disclosure –
Transfers of Financial Assets
• IAS 12 (amended): Deferred Tax:
Recovery of Underlying Assets
• Improvements to IFRSs (May 2010)
The adoption of IFRS 9, which the group
plans to adopt for the financial year
commencing March 2013, will impact
both the measurement and disclosures
of Financial Instruments. The directors do
not expect that the adoption of the other
standards listed above will have a material
impact on the financial statements of the
group in future periods.
The following amendments were made
as part of Improvements to IFRSs (2009):
2 Accounting policies
Amendments to IFRS 2 ‘Share-based
Payment’. IFRS 2 has been amended
following the issue of IFRS 3 (2008), to
confirm that the contribution of a business
on the formation of a joint venture and
common control transactions are not
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.
Accounting period
Throughout the accounts, the directors
report and financial review, reference to
2011 means at 26 February 2011 or the
52 weeks then ended; reference to 2010
means at 27 February 2010 or the 52
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.
44
N Brown Group plc Annual Report & Accounts 2011
Notes to the Group Accounts
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. 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.
Acquisition costs are expensed as incurred.
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.
On disposal of a subsidiary, the
attributable amount of goodwill is included
in the determination of the profit or loss
on disposal.
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
and it is probable that the economic
benefits associated with the transaction
will flow to the entity. Sales of rendering
of services include interest, administrative
charges and arrangement fees. 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. Such revenues
are recognised only when collectability
is reasonably assured. Revenue from
non-interest related financial income is
recognised when the services have been
performed.
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%
Plant and machinery
Fixtures and fittings
between
5% and 20%
between
10% and 20%
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.
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,
N Brown Group plc Annual Report & Accounts 2011
45
Notes to the Group Accounts
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.
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 based on specific customer
patterns of behaviour which may be
affected by external economic conditions.
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.
46
N Brown Group plc Annual Report & Accounts 2011
Notes to the Group Accounts
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 products,
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. Any asset resulting
from this calculation is restricted to the
past service cost plus the present value of
available refunds and reductions in future
contributions.
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,
N Brown Group plc Annual Report & Accounts 2011
47
Notes to the Group Accounts
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.
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 trading risk identified by
the directors for these assumptions is
the impact that a further deterioration in
the economic climate might 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. The £200m
securitisation facility has recently been
renewed for a further 5 years until 2016
and it is the group’s intention to renew
the remaining loan facilities that expire in
January 2012 for a further 5 years. 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.
3 Revenue
An analysis of the group’s revenue is as follows:
Sale of goods
Rendering of services
Revenue
Investment income
Total revenue
2011
£m
2010
£m
523.7
195.1
718.8
4.1
722.9
499.6
190.4
690.0
2.9
692.9
48
N Brown Group plc Annual Report & Accounts 2011
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
2011
£m
2010
£m
718.8
690.0
102.6
(3.7)
4.1
(8.5)
94.5
(22.8)
71.7
97.6
(7.4)
2.9
(7.4)
85.7
(23.2)
62.5
The group has one business segment and one significant 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 (2010, £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
2011
£m
30.8
14.7
742.6
(345.9)
396.7
3.5
(39.8)
360.4
2010
£m
13.2
14.3
691.1
(337.2)
353.9
3.6
(38.5)
319.0
N Brown Group plc Annual Report & Accounts 2011
49
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 (crediting)/charging:
Net foreign exchange gains
Depreciation of property, plant and equipment
Amortisation of intangible assets
Cost of inventories recognised as expense
Staff costs
Auditor’s remuneration for audit services (see below)
2011
£m
718.8
(331.8)
387.0
(62.9)
(221.5)
102.6
2011
£m
(3.0)
7.8
6.9
216.9
72.9
0.2
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
Amounts payable to Deloitte LLP and their associates by the company and its UK subsidiary undertakings in respect of non-audit
services were £0.8m (2010, £0.9m).
A more detailed analysis of auditor’s remuneration is provided below:
Audit fees:
The audit of the company’s subsidiaries pursuant to legislation
Other services:
Tax services
Corporate Finance services
2011
£m
2010
£m
0.2
0.8
–
0.8
0.2
0.8
0.1
0.9
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 (2010, £10,000).
In addition to the amounts shown above, the auditors received fees of £4,000 (2010, £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
2011
2010
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 29)
Share options costs (see note 28)
Details of individual director’s remuneration is disclosed in the remuneration report on page 38.
50
N Brown Group plc Annual Report & Accounts 2011
1,046
2,210
3,256
2011
£m
63.4
6.9
0.5
2.1
72.9
1,092
2,097
3,189
2010
£m
61.4
6.5
2.5
1.9
72.3
Notes to the Group Accounts
7
Investment income
Interest on bank deposits
Expected return on pension assets (see note 29)
8 Finance costs
Interest on bank overdrafts and loans
Interest on pension scheme liabilities (see note 29)
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% (2010, 28.0%) 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% (2010, 28.0%)
Effect of change in deferred tax rate
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
2011
£m
0.2
3.9
4.1
2011
£m
4.6
3.9
8.5
2011
£m
25.3
(3.2)
1.4
(0.7)
22.8
2011
£m
94.5
26.4
(0.3)
1.1
(0.5)
(3.9)
22.8
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
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 in the statement of changes in equity
2011
£m
(0.6)
(0.6)
2011
£m
(0.9)
(0.8)
(1.7)
2010
£m
(0.3)
(0.3)
2010
£m
(1.1)
0.1
(1.0)
On 23 March 2011 the government announced that it intends to further reduce the rate of corporation tax to 26.0% with effect
from 1 April 2011 by 1.0% per annum by 1 April 2014. The impact of this post-balance sheet event is not reflected in the tax
balances reported above.
N Brown Group plc Annual Report & Accounts 2011
51
Notes to the Group Accounts
10 Dividends
Amounts recognised as distributions to equity holders in the period:
Final dividend for the 52 weeks ended 27 February 2010 of 6.41p (2009, 6.41p) per share
Interim dividend for the 52 weeks ended 26 February 2011 of 5.04p (2010, 4.38p) per share
Proposed final dividend for the 52 weeks ended 26 February 2011 of 7.37p (2010, 6.41p) per share
2011
£m
17.7
13.8
31.5
20.6
2010
£m
17.5
12.0
29.5
17.7
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
2011
£m
2010
£m
71.7
62.5
2011
Number
2010
Number
275,323
273,772
466
435
Weighted average number of ordinary shares for the purposes of diluted earnings per share
275,789
274,207
Adjusted earnings
Net profit attributable to equity holders of the parent
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.
2011
£m
71.7
2.7
74.4
2010
£m
62.5
5.3
67.8
52
N Brown Group plc Annual Report & Accounts 2011
Notes to the Group Accounts
12
Intangible assets
Cost
At 28 February 2009
Additions
At 27 February 2010
Acquired with subsidiary
Additions
At 26 February 2011
Amortisation
At 28 February 2009
Charge for the period
At 27 February 2010
Charge for the period
At 26 February 2011
Carrying amount
At 26 February 2011
At 27 February 2010
At 28 February 2009
Brands
£m
Software
£m
Customer
Database
£m
7.9
1.0
8.9
7.1
0.8
84.3
9.8
94.1
–
14.9
16.8
109.0
–
–
–
–
–
16.8
8.9
7.9
59.8
7.0
66.8
6.8
73.6
35.4
27.3
24.5
1.9
–
1.9
–
–
1.9
1.5
0.3
1.8
0.1
1.9
–
0.1
0.4
Assets in the course of construction included in intangible assets at the year end total £16.0m (2010 £9.8m). No depreciation
is charged on these assets.
All software additions relate to internal development. The brand additions of £7.9m relate to the acquisition of Figleaves
and the Slimma brand names.
Amortisation of intangible assets is split equally between cost of sales and administration costs and is disclosed in note 5.
The amortisation periods for intangible assets are:
Software
Customer Database
Total
£m
94.1
10.8
104.9
7.1
15.7
127.7
61.3
7.3
68.6
6.9
75.5
52.2
36.3
32.8
Years
5
5
The brand names arising from the acquisition of Gray & Osbourn Limited, High and Mighty and Slimma and Figleaves 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 6.3% (2010, 6.9%).
N Brown Group plc Annual Report & Accounts 2011
53
Notes to the Group Accounts
13 Property, plant and equipment
Cost
At 28 February 2009
Additions
Disposals
At 27 February 2010
Additions
Acquired with subsidiary
At 26 February 2011
Accumulated depreciation and impairment
At 28 February 2009
Charge for the period
Released on disposals
At 27 February 2010
Charge for the period
At 26 February 2011
Carrying amount
At 26 February 2011
At 27 February 2010
At 28 February 2009
Land and Fixtures and
Buildings Equipment
£m
£m
48.0
–
(1.8)
46.2
–
–
46.2
6.9
0.9
(0.3)
7.5
1.0
8.5
37.7
38.7
41.1
89.5
2.4
(0.4)
91.5
6.4
1.6
99.5
55.6
6.1
(0.4)
61.3
6.8
68.1
31.4
30.2
33.9
Total
£m
137.5
2.4
(2.2)
137.7
6.4
1.6
145.7
62.5
7.0
(0.7)
68.8
7.8
76.6
69.1
68.9
75.0
Assets in the course of construction included in property, plant and equipment at the year end date total £1.7m (2010, £2.0m),
no depreciation has been charged on these assets.
At 26 February 2011, the group had not entered into any contractual commitments for the acquisition of property, plant and
equipment (2010, £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. Acquisitions in the year are disclosed in note 24.
15
Inventories
Finished goods
Sundry stocks
2011
£m
73.2
4.9
78.1
2010
£m
58.5
3.9
62.4
54
N Brown Group plc Annual Report & Accounts 2011
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
2011
£m
519.6
(45.1)
474.5
16.3
490.8
2010
£m
494.0
(47.0)
447.0
14.3
461.3
Trade receivables are measured at amortised cost.
The average credit period given to customers for the sale of goods is 241 days (2010, 236 days). Interest is charged at 39.9%
(2010, 39.9%) 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 £59.9m at 26 February 2011 (2010, £59.2m).
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
2011
£m
381.4
69.3
25.5
16.0
13.4
14.0
519.6
2011
£m
47.0
53.1
(55.0)
45.1
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
The concentration of credit risk is limited due to the customer base being large and unrelated and comprising 1.5 million
(2010, 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 2011
55
Notes to the Group Accounts
17 Bank overdraft and loans
Bank loans and overdrafts
Bank loans
The borrowings are repayable as follows:
Within one year
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
2011
£m
40.0
190.0
230.0
40.0
190.0
–
190.0
2011
%
2.5
0.7
2010
£m
–
230.0
230.0
–
40.0
190.0
230.0
2010
%
1.5
0.7
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 (2010, £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 which was renegotiated
in March 2011 has a current limit of £200m and finance costs are linked to US commercial paper rates and is committed until
March 2016.
In addition the group has unsecured bank loans of £40m (2010, £40m) drawn down under a medium term bank revolving credit
facility of £100 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
26 February 2011 the estimated future interest cost per annum until maturity would be £1.6m (2010 £1.6m).
Financial liabilities other than financial instruments include bank loans and overdrafts and trade and other payables. Other than
as disclosed above, all are due within one year. 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
2011
£m
41.6
191.3
1.3
234.2
2010
£m
1.6
1.6
230.1
233.3
At 26 February 2011, the group had available £90m (2010, £90m) of undrawn committed borrowing facilities in respect of which
all conditions precedent had been met.
The Financial Review on page 15 summarises 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.
56
N Brown Group plc Annual Report & Accounts 2011
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 (liability)/asset recognised
2011
£m
45.1
(1.4)
2010
£m
37.3
2.3
Changes in the fair value of assets/liabilities recognised, being non-hedging currency derivatives, amounted to a charge of £3.7m
(2010, £7.4m) to income in the period.
The financial instruments that are measured subsequent to initial recognition at fair value are all grouped into Level 2 (2010, same).
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or 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 (2010, same).
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 25 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
Gearing ratio
2011
£m
230.0
(49.1)
180.9
360.4
50%
2010
£m
230.0
(59.9)
170.1
319.0
53%
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 2011
57
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
2011
£m
22.4
17.6
5.1
45.1
2010
£m
19.6
17.7
–
37.3
Forward contracts outstanding at the period end are contracted at US dollar exchange rates ranging between 1.49 and 1.60.
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
2011
£m
2.0
0.6
2010
£m
1.5
1.4
2011
£m
10.5
0.8
2010
£m
13.9
–
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
2011
£m
1.1
(0.7)
2010
£m
1.3
(1.2)
US Dollar
Currency
Impact
2011
£m
–
–
2010
£m
(0.2)
0.1
58
N Brown Group plc Annual Report & Accounts 2011
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 26 February 2011 would decrease by £1.1m (2010, £0.8m).
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 2011
59
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 28 February 2009
Credit/(charge) to income
(Charge)/credit to equity
At 27 February 2010
Acquired with subsidiary
Credit/(charge) to income
Credit to equity
At 26 February 2011
1.4
0.5
(0.1)
1.8
–
0.7
0.8
3.3
(2.7)
2.0
–
(0.7)
–
0.7
–
–
(10.3)
0.3
–
(10.0)
2.6
(0.1)
–
(7.5)
1.2
(0.9)
0.3
0.6
–
(2.1)
0.6
(0.9)
Other
£m
(3.2)
0.7
–
(2.5)
–
0.1
–
(2.4)
Total
£m
(13.6)
2.6
0.2
(10.8)
2.6
(0.7)
1.4
(7.5)
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
2011
£m
3.5
(11.0)
(7.5)
At the balance sheet date, the group has unused tax losses of £0.1m (2010, £0.1m) and capital losses of £4.4m (2010, £4.4m)
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
2011
£m
59.1
22.5
3.6
29.3
2010
£m
3.6
(14.4)
(10.8)
2010
£m
48.7
23.8
0.7
32.2
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 40 days (2010, 38 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.
114.5
105.4
60
N Brown Group plc Annual Report & Accounts 2011
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 27 February 2010
Ordinary shares issued
At 26 February 2011
2011
Number
2010
Number
2011
£m
2010
£m
352,857,142
352,857,142
39.0
39.0
278,404,714
2,024,740
274,104,714
4,300,000
280,429,454 278,404,714
30.8
0.2
31.0
30.3
0.5
30.8
During the year 2,024,740 (2010, 4,300,000) ordinary shares were issued to the N Brown Group plc Employee Share Ownership
Trusts for £223,784 (2010, £475,263). The company has one class of ordinary share which carry no right to fixed income.
23 Own shares
Balance at 27 February 2010
Additions
Issue of own shares on exercise of share options
Balance at 26 February 2011
2011
£m
0.4
1.0
(0.2)
1.2
2010
£m
0.2
0.5
(0.3)
0.4
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 28).
During the year the employee trusts subscribed for 2,024,740 (2010, 4,300,000) shares in N Brown Group plc for a consideration
of £223,784 (2010, £475,263). In addition, the trusts purchased in the market 309,440 (2010, nil) shares for a consideration of
£805,326 (2010, nil).
At 26 February 2011 the employee trusts held 4,693,021 shares in the company (2010, 3,737,682).
24 Acquisitions of subsidiaries
In June 2010 the group acquired the entire share capital of Figleaves Global Trading Limited for a total cash consideration of
£11.9m. Its principal activity is that of an online retailer.
The fair value of net assets acquired are as follows:
Plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax asset
Net assets acquired
Intangible brand asset arising on acquisition
Total consideration
Satisfied by:
Cash
Cash acquired with business
Net cash outflow
£m
1.6
3.7
0.5
1.6
(5.2)
2.6
4.8
7.1
11.9
11.9
(1.6)
10.3
Fair value adjustments included above relate to the separate identification of brand intangibles (£7.1m) and recognition of deferred
tax assets (£2.6m). Revenues and loss before tax of £16.3m and £0.9m respectively were recognised in the period since acquisition.
N Brown Group plc Annual Report & Accounts 2011
61
Notes to the Group Accounts
25 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
US Dollar
26 Contingent liabilities
2011
£m
46.5
1.8
0.8
49.1
2010
£m
55.5
4.4
–
59.9
Parent company borrowings which at 26 February 2011 amounted to £15.2m (2010, £2.0m) have been guaranteed by certain
subsidiary undertakings.
27 Operating lease arrangements
Minimum lease payments under operating leases recognised as an expense for the period
2011
£m
5.1
2010
£m
4.6
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
2011
£m
0.5
13.7
8.9
23.1
2010
£m
0.3
8.5
13.2
22.0
Operating lease payments represent rentals payable by the group for certain buildings, plant and equipment and motor vehicles.
62
N Brown Group plc Annual Report & Accounts 2011
Notes to the Group Accounts
28 Equity settled share based payments
The remuneration report on pages 28 to 38 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
June 2007
August 2007
July 2008
May 2009
July 2010
Deferred annual bonus scheme awards
May 2008
May 2009
May 2010
Option price
in pence
181 – 290
284
106 – 341
211 – 341
–
–
–
–
–
–
–
–
–
Exercise
period
Number
of shares
2011
Number
of shares
2010
August 2011 – February 2016
May 2003 – May 2010
June 2007 – May 2020
May 2009 – May 2020
1,620,210
–
1,873,864
821,539
1,680,424
51,800
1,583,007
629,115
February 2014 – February 2019
3,100,000
3,100,000
June 2010 – December 2010
August 2010 – February 2011
July 2011 – January 2012
May 2012 – November 2012
July 2013 – January 2014
–
–
1,550,452
1,266,996
1,294,758
648,043
38,480
1,595,982
1,301,930
–
May 2010 – November 2010
May 2011 – November 2011
May 2012 – November 2012
–
252,348
323,450
266,721
260,764
–
N Brown Group plc Annual Report & Accounts 2011
63
Notes to the Group Accounts
28 Equity settled share based payments continued
Movements in share options are summarised as follows:
Number of
share options
2011
Weighted
average exercise
price
£
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
3,944,346
1,064,701
(297,140)
(396,294)
4,315,613
493,857
2.13
2.40
2.43
1.37
2.24
1.86
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
Options were exercised on a regular basis throughout the period and the weighted average share price during this period was
260 pence (2010, 232 pence). The options outstanding at 26 February 2011 had a weighted average remaining contractual life
of 5.8 years (2010, 5.6 years). The aggregate estimated fair values of options granted in the period is £629,000 (2010, £784,000).
Movements in management share awards are summarised as follows:
Number of
share awards
2011
Weighted
average exercise
price
£
Number of
share awards
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
7,211,920
1,618,208
(56,340)
(985,784)
7,788,004
–
–
–
–
–
–
–
6,921,510
1,567,349
(109,010)
(1,167,929)
7,211,920
–
–
–
–
–
–
–
The awards outstanding at 26 February 2011 had a weighted average remaining contractual life of 4.2 years (2010, 4.9 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 (%)
2011
2010
252
95
38.3
2.5 – 5.5
1.5
4.3
236
99
35.1
2.5 – 5.5
2.6
4.2
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 management’s best estimate, for the
effects of non-transferability, exercise restrictions, and behavioural considerations.
The group recognised total expenses of £2.1m and £1.9m related to equity-settled share based payment transactions in 2011 and
2010 respectively.
64
N Brown Group plc Annual Report & Accounts 2011
Notes to the Group Accounts
29 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 £1.8m (2010, £0.8m) represents contributions payable to the schemes by the group at rates
specified in the rules of the plans. As at 26 February 2011, contributions of £0.2m (2010, £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 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 – Retail Price Index
Inflation – Consumer Price Index
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
Gains on settlements
2011
5.6%
5.7%
4.8%
2.4%
3.8%
2.8%
23.8
26.8
2011
£m
1.6
3.9
(3.9)
(2.9)
(1.3)
2010
5.9%
5.9%
4.8%
2.4%
3.8%
n/a
21.3
23.2
2010
£m
1.7
3.4
(2.8)
–
2.3
Actuarial gains and losses have been reported in the statement of comprehensive income. The cumulative actuarial gains since
transition to IFRS were £6.1m (2010, £8.4m).
The actual return on scheme assets was a gain of £7.3m (2010, gain of £13.4m).
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 2011
65
Notes to the Group Accounts
29 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
Surplus/(deficit) in the scheme and asset/(liability) recognised in the balance sheet
Movements in the present value of defined benefit obligations were as follows:
At 27 February 2010
Service cost
Interest cost
Actuarial losses
Liabilities extinguished on settlements
Benefits paid
At 26 February 2011
Movements in the fair value of the scheme assets were as follows:
At 27 February 2010
Expected return on scheme assets
Actuarial gains
Assets distributed on settlements
Contributions from sponsoring companies
Benefits paid
At 26 February 2011
2011
£m
(68.5)
71.8
3.3
2011
£m
66.0
1.6
3.9
5.7
(6.2)
(2.5)
68.5
2011
£m
64.2
3.9
3.4
(3.3)
6.1
(2.5)
71.8
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
66
N Brown Group plc Annual Report & Accounts 2011
Notes to the Group Accounts
29 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
2011
%
6.8
4.5
5.7
2010
%
7.1
4.7
5.9
2011
£m
38.1
33.7
71.8
2010
£m
32.7
31.5
64.2
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
Surplus/(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 (%)
2011
£m
(68.5)
71.8
3.3
–
0%
3.4
5%
2010
£m
(66.0)
64.2
(1.8)
2.2
3%
2009
£m
(50.8)
46.8
(4.0)
–
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%
The estimated amounts of contributions expected to be paid to the scheme during the 52 week period ending 25 February 2012
is £3.4m.
30 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 2011
67
Independent Auditor’s 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 26 February
2011 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 auditor
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
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
26 February 2011;
• 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.
Damian Sanders
(Senior Statutory Auditor) for
and on behalf of Deloitte LLP
Chartered Accountants and
Statutory Auditor
Manchester, UK
17 May 2011
68
N Brown Group plc Annual Report & Accounts 2011
Company Balance Sheet
As at 26 February 2011
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
2011
£m
267.9
267.9
103.4
103.4
(270.0)
(166.6)
101.3
–
101.3
31.0
11.0
59.3
101.3
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
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the board of directors and authorised for
issue on 17 May 2011.
They were signed on its behalf by:
Alan White
Dean Moore
Directors
N Brown Group plc Annual Report & Accounts 2011
69
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
accruals 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 26 February 2011 of £34.8m (2010, profit £31.1m).
The non executive directors’ remuneration was £207,000 (2010, £182,000) and six non executive directors were remunerated
(2010, six). The executive directors were remunerated by a subsidiary company in both years.
The auditor’s remuneration for audit services to the company of £10,000 (2010, £10,000) was borne by subsidiary undertakings.
3 Fixed asset investment
Cost and net book value
At 26 February 2011 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. All are held indirectly. 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
Gray & Osbourn Limited
Figleaves Global Trading Limited
Direct home shopping retailer
Direct home shopping retailer
Financing and ancillary services
Insurance services
Direct home shopping retailer
Direct home shopping retailer
Country of Proportion
incorporation held by the
group (%)
and operation
England
Republic of Ireland
England
Guernsey
England
England
100
100
100
100
100
100
70
N Brown Group plc Annual Report & Accounts 2011
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
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
2011
£m
103.3
0.1
103.4
2011
£m
55.2
1.0
213.6
0.2
270.0
2011
£m
15.2
40.0
55.2
55.2
–
–
55.2
(55.2)
–
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
The company has unsecured bank loans of £40m (2010, £40m) drawn down under a medium term bank revolving credit facility
committed until January 2012.
At 26 February 2011, the company had available £80m (2010, £80m) 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
2011
%
2.5
1.0
2010
%
1.5
1.2
N Brown Group plc Annual Report & Accounts 2011
71
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 27 February 2010
Ordinary shares issued
At 26 February 2011
2011
Number
2010
Number
2011
£m
2010
£m
352,857,142
352,857,142
39.0
39.0
278,404,714
2,024,740
274,104,714
4,300,000
280,429,454 278,404,714
30.8
0.2
31.0
30.3
0.5
30.8
During the year 2,024,740 (2010, 4,300,000) ordinary shares were issued to the N Brown Group Employee Share Ownership Trusts
for £223,784 (2010, £475,263). 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 28 February 2009
Dividends paid
Profit for the financial period
Increase in share capital
Balance at 27 February 2010
Dividends paid
Profit for the financial period
Increase in share capital
At 26 February 2011
9 Guarantees
Share
capital
£m
Share
premium
account
£m
Profit
and loss
account
£m
30.3
–
–
0.5
30.8
–
–
0.2
31.0
11.0
–
–
–
11.0
–
–
–
11.0
55.0
(29.7)
31.1
–
56.4
(31.9)
34.8
–
59.3
Total
£m
96.3
(29.7)
31.1
0.5
98.2
(31.9)
34.8
0.2
101.3
Parent company borrowings which at 26 February 2011 amounted to £15.2m (2020, £2.0m) 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.
72
N Brown Group plc Annual Report & Accounts 2011
Shareholder Information
Financial Timetable
2010
2011
12 October
10 December
7 January
26 February
10 May
31 May
1 July
5 July
29 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 2011 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
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
Bankers
HSBC Bank plc
The Royal Bank of Scotland plc
Solicitors
Pinsent Masons LLP
Eversheds LLP
Addleshaw Goddard 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.
For more information and latest news on the group, visit www.nbrown.co.uk
Design Elmwood www.elmwood.com
Our brands
Young (30-45)
fashionworld.co.uk
simplybe.co.uk
simplyyours.co.uk
jacamo.co.uk
figleaves.com
Midlife (45-65)
jdwilliams.co.uk
Elderly (65+)
julipa.com
ambrosewilson.com
heathervalley.com
marisota.co.uk
oxendales.com
oxendales.ie
specialcollection.com
nightingales.com
grayandosbourn.co.uk
classicconfidence.co.uk
fiftyplus.co.uk
newnow.co.uk
vivaladiva.com
premierman.com
shoetailor.com
thebrilliantgiftshop.co.uk
shapelyfigures.com
naturallyclose.co.uk
classicdetail.co.uk
homeshoppingdirect.com
inspirationalhome.co.uk
discountworld.com
houseofbath.co.uk
crazyclearance.co.uk
homeessentials.co.uk
williamsandbrown.co.uk
thatsmystyle.co.uk
fabrici.com
highandmighty.co.uk
Griffin House
40 Lever Street
Manchester
M60 6ES
www.nbrown.co.uk