N Brown Group plc
Annual Report and Accounts 2012
FREEDOM
TO
Our Websites
Young (30-45)
fashionworld.co.uk
simplybe.co.uk
simplybe.com
simplybe.de
simplybe.eu
simplyyours.co.uk
jacamo.co.uk
figleaves.com
classicconfidence.co.uk
vivaladiva.com
thebrilliantgiftshop.co.uk
naturallyclose.co.uk
Elderly (65+)
julipa.com
heathervalley.com
specialcollection.com
nightingales.com
grayandosbourn.co.uk
Midlife (45-65)
jdwilliams.co.uk
ambrosewilson.com
marisota.co.uk
oxendales.com
oxendales.ie
fiftyplus.co.uk
premierman.com
shoetailor.com
shapelyfigures.com
classicdetail.co.uk
homeshoppingdirect.com
discountworld.com
houseofbath.co.uk
crazyclearance.co.uk
feelgoodessentials.co.uk
williamsandbrown.co.uk
thatsmystyle.co.uk
fabrici.com
highandmighty.co.uk
FASHION’S AT YOUR FINGERTIPS
02 Financial Highlights 2012
03 Five Year History
04 Designs on the High Street
06 We’re Breaking Boundaries
08 Chairman’s Statement
10 Chief Executive’s Review
14 Financial Review
16 Directors and Officers
18 Directors’ Report
24 Corporate Governance Report
29 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
Independent Auditor’s Report
68
– Company Accounts
69 Company Balance Sheet
70 Notes to the Company Accounts
IBC Shareholder Information
Introduction
Technology is a wonderful thing, as our 2012
results prove. And even though, like most other
retailers, gross margins have dipped, our core
catalogue business remains strong and we’re
one of the few with a higher turnover. We have
delivered like-for-like sales growth.
With new services such as nominated day
delivery, and technology developments, including
mobile-optimised checkouts, it’s no wonder 50%
of our business is now online to the tune of a
£377million online turnover – with growth across
all brands.
Exciting things are happening on the high street
too. City analysts and retail and fashion journalists
have praised our new Simply Be stores, and
four more High & Mighty stores have hit the high
street. Simply Be is doing us proud in America
too. Our US business model remains promising
with good margins and 74,000 new customers
joined us last year.
Looking ahead, we’ll continue to focus on trading
in tough economic conditions. We’ll improve the
value for our customers, carry on developing
and differentiating our brands, and building on
the success of our celebrity endorsements.
We’ll also be strengthening our e-commerce and
online capabilities, using technology to create
new ways to keep fashion at people’s fingertips.
01
N Brown Group plc Annual Report & Accounts 2012
2012
Financial Highlights
Revenue
Operating profit
Adjusted profit before taxation*
Profit before taxation
Adjusted earnings per share**
Earnings per share
Dividends per share
Net assets
Net asset value per share
Gearing
*Excluding fair value adjustments to financial instruments.
**See note 11 on page 52.
02
2012
£753.2m
£102.0m
£95.6m
£96.9m
28.91p
29.28p
13.03p
2011
£718.8m
£102.6m
£98.2m
£94.5m
27.02p
26.04p
12.41p
£402.3m
£360.4m
141.9p
48%
128.5p
50%
N Brown Group plc Annual Report & Accounts 2012
Five Year History
Revenue –
Continuing operations (£m)
Operating profit –
Continuing operations (£m)
Pre-tax profit* –
Continuing operations (£m)
662.5
610.9
753.2
718.8
690.0
95.5
97.6
91.8
102.6
102.0
98.2
95.6
93.1
82.7
76.2
08
09
10
11
12
08
09
10
11
12
08
09
10
11
12
Adjusted earnings per share**
– Continuing operations (p)
Dividends per share (p)
Net assets (£m)
28.91
27.02
24.77
21.96
20.27
10.79
9.06
9.19
13.03
12.41
402.3
360.4
319.0
283.0
243.2
08
09
10
11
12
08
09
10
11
12
08
09
10
11
12
*Excluding fair value adjustments to financial instruments.
**See note 11 on page 52.
03
N Brown Group plc Annual Report & Accounts 2012
DESIGNS ON
THE HIGH
STREET
We are a multi-channel
business. We’re number one
in the online and mail order
market in our sector, and we
want to see similar success out
there on the high street, where
a large proportion of the plus-
size market still shops.
But our sights are set higher
than just ‘more stores’. We’re
focused on using the high street
as another strand in our multi-
channel offer, and an extra boost
for our overall brand strength.
So much in store
It’s not just city analysts, and
fashion and retail journalists that
love our new Simply Be stores,
launched last year in Liverpool
and Bury. Customers do too.
Remember store assistants?
We now have style advisors,
highly trained to advise on our
ranges and on fit. And remember
cubicles with a curtain? Our
changing booths are more
thoughtfully and spaciously
designed with an anteroom
separate from the rest of
the store.
Perhaps the most exciting part
of our stores, technologically
speaking, are the Magic Mirrors.
These fantastic innovations mean
customers can get a second
(or third, fourth or fifth) opinion
on their outfits by sending
photos out to social media sites
including Facebook and Twitter.
04
N Brown Group plc Annual Report & Accounts 2012
Best of both worlds
Having great reasons to shop
both online and in-stores means
customers are doing just that –
shopping in both places rather
than one or the other, as well
as making Simply Be known
to greater numbers of high
street shoppers.
We’re rolling out a further
five Simply Be stores in 2012
in Doncaster, Teesside,
the Metro Centre in Gateshead,
Leicester, plus Manchester
Arndale. Once we’ve opened
these stores, we’ll look at the
potential for more. High & Mighty
stores are also multiplying, with
another four stores to add to the
18 we already have.
Star turns
Big names are still big business
for us. Our new Grazia range
and a collection designed by
the celebrated Zandra Rhodes
are performing well. Freddie
Flintoff has designed a range
for Jacamo, and the Gok Wan
lingerie range continues to be
a tremendous success.
Claire Sweeney is our ambassador
for Fashion World and Arlene
Phillips for Marisota. Endorsements
like these increase our brands’
credibility, generate awareness
and help position us where we
want to be: at the front of
people’s minds today, and
tomorrow too.
05
N Brown Group plc Annual Report & Accounts 2012 WE’RE
bREakING
bOuNDaRIES
Our online business has grown
from 45% last year to over
50%, which adds up to a £377
million online turnover. This
growth has been all across the
board. Our younger titles have
a growth curve that level out at
67% online, whereas our mid-
life and older titles are growing
and have reached 41%.
All our brands now have mobile-
optimised checkouts, with the
added convenience of nominated
and next-day delivery. This is
especially handy for Christmas
shopping, where customers could
order up to 5pm on December 23
for a Christmas Eve delivery.
And new and improved ‘My
Account’ service facility makes
it easier for customers to
manage their accounts online,
all complemented by the
convenience of our
flexible payment plans.
A new role for catalogues
With so much online growth,
we can see our catalogues
taking on more of a browsing
role in the future. So that when
customers see something
they like, they can go online
to see the item in more detail
to make a more informed
choice – for example, more
great quality images, catwalk
shows, detailed descriptions and
customer reviews (already active
on our main sites).
06
Our American dream
Looking to America, we’re happy
to say that things stateside are
looking encouraging, with great
margins and a return rate at sub
30%. Our Simply Be customers
are full of praise for the ranges
and our offer in general. With
74,000 new customers last year,
we can say, with great pride, that
we’ve found our niche in America.
A first for Figleaves
We’re very proud to say that
Figleaves generated its very first
profit since it started trading.
Onwards and upwards.
N Brown Group plc Annual Report & Accounts 2012
FREEDOM
TO Shop
Chairman’s Statement
pROFITS aND
pROGRESS IN
TOuGH TIMES
We are pleased to have delivered a solid financial
outcome for the 53 weeks ended 3 March 2012,
especially in light of the difficult economic conditions
for our customers. For the first time online sales
have reached 50% of total sales and we have
made good progress in developing a growth
platform for the business.
Financial Results
Total group revenue increased by
4.8% to £753.2m. Excluding the non-
comparable periods for newly opened
stores, the acquisition of Figleaves and
the 53rd week, like-for-like sales grew
by 1.6%. The combination of rising
input prices and falling disposable
income inevitably subdued demand
from our hard-pressed customers,
so as anticipated we reduced prices
and increased promotional activity
to stimulate demand. This led to a
0.8% decline in the rate of gross
margin to 53.0%.
Operating profit is slightly down by
£0.6m to £102.0m, after absorbing
£5.2m of losses on opening the Simply
Be concept stores and expanding
internationally (2011, £2.3m). However
it does include the benefit of the 53rd
week this year which has contributed
revenue of £12.9m and operating profit
of £2.9m. Profit before taxation is up by
2.5% to £96.9m (2011, £94.5m) although,
once the fair value adjustments to foreign
exchange contracts are excluded, the
profit before taxation is £95.6m (2011,
£98.2m). Adjusted earnings per share
are up by 7.0% to 28.91p, benefitting
from a lower tax charge, primarily due
to the utilisation of tax losses acquired
with Figleaves. The board is proposing
a final dividend of 7.74 pence per share,
up 5.0% on last year and in line with
the increase in the interim dividend.
This gives a total dividend for the year
of 13.03 pence, covered 2.2 times.
Net borrowings at 3 March 2012 were
£192.5m (2011, £180.9m). As expected
there was a higher level of capital
expenditure to drive internet sales
and set up the pilot Simply Be stores.
Net finance costs have increased from
£4.4m to £6.4m, covered 16 times by
operating profit. The rise is due to the
higher margin payable on £350m of
bank facilities which have been renewed
during 2011 for a further five years.
Gearing has fallen from 50% to 48%
on net assets which have risen by
11.6% to £402.3m.
08
Trading Highlights
During the year the key trading highlights
have been:
• Online sales passing the 50% share
of total sales, following 16% growth to
£377m during the year.
• Managing and flexing the marketing
investment across our brand portfolio
based on the results of recruitment
campaigns, mailings and online
promotions. The strongest growth was
from the Jacamo, Marisota and House
of Bath customer brands.
N Brown Group plc Annual Report & Accounts 2012 The board is proposing a final dividend of 7.74 pence
per share, up 5.0% on last year and in line with the
increase in the interim dividend. This gives a total
dividend for the year of 13.03 pence, covered 2.2 times.
• Seeing the turnaround plans in
Figleaves and High & Mighty delivering
results. Figleaves made its first ever
profit in 13 years of trading and
High & Mighty opened 3 new stores
whilst significantly reducing its losses
to £0.2m.
• Growing the Simply Be brand in
the USA where sales increased
from £0.8m to £4.8m. We deliberately
slowed the rate of customer growth
in Germany until we had reduced the
rate of returns which improved by
1 percentage point to 60%.
• Opening two Simply Be concept
stores, and four more since the
year-end, to test whether a full
multi-channel operation can drive
sufficient incremental sales to justify
the investment and fixed costs.
We will evaluate the performance
of these stores towards the end
of 2012 based on the uplift of sales
from all channels in the postcode
region around the store.
• Focusing on our strong product
propositions in footwear and
menswear to deliver growth of 6%
and 15% respectively. The sales of
ladieswear were up 2%.
Corporate Social Responsibility
The role of business in society has been,
and remains, clearly in the spotlight. At
N Brown Group we aim for continuous
improvement in all areas from ethical
sourcing of product through to greater
involvement in our local community.
A description of some of our initiatives
are set out in the directors’ report.
Current Trading and Outlook
Sales for the 8 weeks to 28 April 2012
are 1.0% up on last year and 0.6% up
on a like-for-like basis. The year-on-year
weather conditions and the earlier Easter
break make comparisons complicated
but overall the pattern of trading from
the second half is continuing, with
customers reluctant to spend unless
the product or promotional offer is
compelling. Consumer confidence
remains fragile but we believe the
situation will improve in the second
half of the year as inflation and income
growth become more balanced and
our own comparatives become softer.
In a weak economic environment any
improvement to our competitive position
must therefore come through our own
actions. We believe that we have the
required plans and platform in place
for growth in these market conditions.
We will be offering customers lower
prices in the autumn and will look to be
more aggressive on key value lines. Our
stock levels are currently well balanced
and this will reduce the need for the level
of discounting and promotional offers
that were required in the second half
last year to clear some excess stocks.
Our online trading strategy still has
much further to go and we can exploit
the features and functionality we have
already developed to deliver rich and
relevant content, which will drive both
incremental sales and cost savings.
We recognise the increasing importance
of strong brands in the online channel,
high street stores and international
markets and we will be concentrating our
marketing spend on fewer of our brands
than has previously been the case.
Customer recruitment was strong in
the second half and we are investing
extra resources this year to support
this growth, in addition to campaigns
to reactivate more of our lapsed
customers. One of the aims of the
multimedia Simply Be stores is to reach
customers who are in our target market
but prefer to shop on the high street,
rather than online, and early indications
are that a high proportion of store visits
are from women who have not shopped
with us previously.
International expansion is another key
strategic development. We will focus on
the USA, and we have now appointed
local digital marketing agencies to boost
Simply Be’s online recruitment and
social media activities there. We will also
trial both Marisota and Jacamo, initially
on the Simply Be website, and look to
boost Figleaves’ international sales.
Market conditions remain challenging
but we have a competitive proposition
for the middle-aged and plus-size
customer groups, which have excellent
long-term growth prospects. The
continuing development of our unique
product ranges, online trading capability
and the expansion into stores and
international markets should keep
N Brown in the leading group of
clothing retailers.
The ability of the business to rapidly
adapt to changing market circumstances
is one of its enduring qualities and I
would like to thank all stakeholders,
including suppliers and the trade union,
for their contribution, but especially all
our staff who have been both innovative
and hard working to deliver record levels
of service quality to our customers
throughout the year.
Lord Alliance of Manchester, CBE
09
N Brown Group plc Annual Report & Accounts 2012
Chief Executive’s Review
The group has continued to make progress
this year despite a significant decline in our
customers’ discretionary spending power.
This has necessitated active management
of our selling prices, marketing investment
and overhead base across all of our brands
portfolio to deliver this outcome.
Revenue
Revenue growth has been delivered
through the core UK home shopping
business supplemented by international
expansion and new store openings. For
the 53 weeks to 3 March 2012 revenue
is up in total by 4.8% to £753.2m, and
by 1.6% on a like-for-like basis which
excludes the impact of newly opened
stores, the acquisition of Figleaves in
June 2010 and the 53rd week.
Customer Groups
Target Age
Revenue £m
% Change
30-50
Over 50
Total
271
482
753
+13
+1
+5
N Brown Group has a very distinctive
customer base, comprising over 6
million individuals with an average age
of 58, and an average dress size of 18.
During the year we saw a small decline
in the number of active established
customers but a combination of
higher selling prices and promotional
campaigns led to a 4% increase in
average sales per customer. Sales from
new customers rose by 2% for the year
as a whole, due to improved recruitment
campaigns in the second half.
Under 50 Customer Group
The brands in this group grew at a faster
rate than those targeted at the 50 plus
segment, due to the development of
Simply Be, Jacamo and Figleaves.
Simply Be is the largest single brand in
the group with sales of over £100m from
all channels and geographies. The focus
is on fashionable and flattering clothing
in sizes 14-32 specifically designed for
the plus-size woman. These customers
often have difficulty finding clothes to fit
in other retail stores, whether in the UK
or elsewhere, which is why we chose the
Simply Be brand for both our international
expansion and high street store trial.
Jacamo is targeted at the brand-
conscious thirty-something male who
either wants the convenience of online
shopping or struggles to find branded
clothing in his size. Good response
rates to the improved product offer,
coupled with significant numbers of
new customers, led to sales increasing
by over 50%.
Figleaves has had an excellent year
moving into profit for the first time in its
13 year history after radically pruning its
cost base. Sales from Figleaves’ own
brand rose by 20% including the new
FGL menswear range, and the range
extensions allied to lingerie, such as
swimwear and pyjamas.
The other major brand in this section,
Fashion World, whose customers’
are primarily from the lower socio-
demographic groups, had flat sales
year on year.
50 Plus Customer Group
The midlife and older customers
aged 50 and above suffered from a
combination of high inflation, particularly
for food and energy costs, and a low
return on their savings. Two thirds of
these customers are over 65 and have
relatively fixed incomes. Consequently
there was a contrasting performance
between the brands targeted at the
younger end of this category, such as
Marisota, and those at the older end,
such as Heather Valley and Special
Collection.
10
Marisota increased its revenues by
24% targeting the customers aged
about 50 with a catalogue and website
focused on solutions for problems
with the fit of clothing and footwear.
For example we promote our ‘Magi’
range which, using the latest design
and fabric technologies, can create
a smoother body shape. Similarly we
have developed our ‘Legroom’ footwear
range which now has five different calf
fittings for long-line ladies boots. The
same is also true of our lingerie range
which focuses on the fitting and comfort
problems customers have, which, as an
example, led to the development of the
world’s largest strapless bra, available
up to size 48K.
Our longest established catalogue
is distributed under the JD Williams,
Ambrose Wilson, Oxendales, Fifty Plus
and That’s My Style brands which
account for 39% of group revenue.
Sales were slightly down even though
the average sales per customer
were up. However there was a small
proportion of customers who resisted
all our promotional activity, and we
will especially target them in 2012 to
reactivate their purchasing activity.
N Brown Group plc Annual Report & Accounts 2012 Group revenue
up 4.8% to
£753.2m
Adjusted earnings per
share up 7.0% to
28.91p
Total dividend
up 5% to
13.03p
The group of brands targeting
customers with an average age of 70
had mixed fortunes, and in aggregate
sales were down by 7%. Gray &
Osbourn, targeting the more affluent
60+ customer, increased full margin
sales but overall revenue was lower
as reduced stock levels led to fewer
discounted sales. House of Bath, which
sells unusual items for the home and
garden, had an excellent year with sales
up by 12%, and Julipa also did well.
Within ladieswear lingerie sales were up
7%, partly due to Figleaves’ performance,
but we also took market share in bras,
swimwear and nightwear.
Footwear saw sales growth of 6%.
Core footwear sales benefited from an
improved range of styles and fittings but
we also had strong growth from men’s
footwear, sports footwear and Viva La
Diva, our online pure play which sells
third party brands as well as our own.
Product Groups
Category
Ladieswear
Footwear
Menswear
Home & Leisure
Total
Revenue % of %
£m
Total Change
365
84
95
209
753
48
11
13
28
100
+2
+6
+15
+5
+5
During 2011 the group was operating in
product sectors which were amongst
the most challenging in the retail
marketplace. The plus-size clothing
sector did not grow at all and the sales
of home and leisure goods were also
weak, particularly for big ticket items.
Against this backdrop we can be
reasonably satisfied with a 1.6% like-
for-like sales growth.
Ladieswear accounts for about half the
group’s revenue, and was up by 2% for
the year as a whole. Due to the cotton
price bubble in 2010 input costs for
clothing in 2011 were up by 9% on
average, which we passed through into
selling prices. Customers were only
being enticed to purchase if the product
or the price was compelling. Consequently
we had strong sales on lines where we
had new designs or product with unique
features and the designer and celebrity
endorsed ranges but sales of basic
casual clothing were down.
Menswear continues to be our fastest
growing product sector. Revenue was
up by 15%, primarily driven by the
success of Jacamo and the expansion
of High & Mighty’s store network.
We have recruited Freddie Flintoff as
Jacamo’s brand ambassador and his
range is selling well. More branded
menswear suppliers are manufacturing
their ranges in larger sizes, exclusively
for Jacamo. In addition both Premier
Man and Williams and Brown are doing
well, as is our sportswear range.
Home and leisure sales were up by 5%
in total, although there was a significant
variation within the sub-ranges. Gifts
and toys were 18% up as we promoted
the Brilliant Gift website throughout
the year, rather than just at Christmas.
Electrical and homewares also had good
growth, helped by the availability of
credit on customers’ personal accounts.
However furniture, bedding and home
decor were all down as customers
deferred home improvement.
Multi-channel
Online sales are now the majority of
the group sales, as a 16% increase in
online sales to £377m enabled us to
pass the 50% milestone. The increasing
proportion of new customers recruited
on our websites, the improved quality
of our email campaigns and improved
website functionality all contributed to
this growth. We are the market leader for
online sales for plus-size womenswear,
menswear for the fifty plus age group
and many other categories. Sales from
product lines only available online, most
of which are shipped directly to our
customers by the suppliers, increased
by 29%.
This increase in online sales improves
profitability as web orders have a 25%
higher value than telephone orders and
costs reduce in the contact centre as
volumes fall. Telephone order volumes
have fallen 17% this year, and telephone
enquiries and payment calls are down
21% as customers’ switch to using our
redesigned online ‘My Account’ facility.
Despite the increasing share of all retail
sales transacted on or influenced by
the web the vast majority of clothing
and footwear sales are still conducted
in high street stores. This is even true
for the plus-size market which led us to
trial some Simply Be stores to see if we
could profitably gain more market share
for our most fashionable clothing range.
We opened stores in Liverpool and
Bury in autumn 2011 and in-stores sales
totalled £0.7m by the year-end. We will
evaluate the stores based on the uplift
of sales from all channels in the post
codes influenced by the store location.
Early indications are that there is an
uplift in the level of online purchases in
the catchment area. In the last month
we have opened stores in Gateshead,
Teesside, Leicester and Doncaster and
a Manchester store is scheduled to open
in September. This small portfolio of
stores is focused on five major shopping
centres, including one out-of-town retail
park, plus two smaller towns so we can
identify the ideal type of location,
11
N Brown Group plc Annual Report & Accounts 2012
Menswear sales
up 15% to
£95m
Ladieswear sales
up 2% to
£365m
Share of
online sales pass
50%
assuming further capital investment is
justified by incremental sales.
High & Mighty was acquired out of
administration in late 2009. Since then
we have relocated the business to
Manchester, re-platformed the website,
relocated four stores, refurbished seven
stores and opened six new stores, of
which three were new in 2011/12. Total
sales grew by 17% to £8.8m with like-
for-like sales up by 7%. Losses shrank
from £0.8m to £0.2m and we would
expect to move into profit in the
current year.
International
We believe Simply Be’s fashionable
plus-size clothing range will appeal
to international customers, and have
so far targeted Germany and the USA.
Total sales were £8.4m (2011, £4.2m)
with losses of £4.8m (2011, £2.3m).
Our key target is the USA as the market
opportunity for us is significant and
the key performance indicators to
date are favourable, with high gross
margins and returns rates below 30%.
Customer recruitment has been primarily
through catalogue mailings to selected
customer lists, supplemented by online
recruitment through paid search and
social media. The appointment of
local digital agencies took longer than
originally anticipated but they will be a
key lever of growth in 2012.
Germany’s performance has previously
been held back by high rates of product
returns. A number of initiatives were
implemented which have brought the
rate down by 1% to 60%, although this
is still too high. We limited the level of
customer recruitment whilst we were
making these changes.
We also have international sales for
Oxendales in Ireland, a market which
continues to be very challenging, and
for Figleaves which has over 20% of its
sales from overseas and an opportunity
to grow them further.
Gross Margin and Credit
The overall rate of gross margin fell by
0.8% to 53.0% with a reduced margin
on product sales offset by an increase
in net consumer credit income.
The sales of ladies clothing and
footwear were impacted by the mild
autumn weather and resulted in excess
stocks of cold weather merchandise.
As a consequence we offered more
aggressive promotional discounts to
customers who had not ordered and
marked down prices to reduce inventory
levels. Although this reduced the
rate of gross margin by 2.2% we did
successfully reactivate some dormant
customers and limited the increase in
year-end inventories to only 5.8%.
Income derived from our customers’
credit accounts performed well with
revenue up 11.9% to £218.4m. Changes
to credit policies and processes gave
customers the options of paying their
accounts off over a slightly longer
period. This increased the gross margin
rate from financial services income by
1.4% with the increased interest income
partly offset by a rise in the rate of
bad debt charge, which increased as
a percentage of revenue from 7.4% to
7.7%. The arrears profile of the debtor
book has improved during the year.
Overheads
The business has successfully controlled
costs during volatile and inflationary
trading conditions. An increase in
average order values led to improved
collation and a lower volume of parcels
despatched. This offset much of the
increases for fuel and payroll limiting the
overall rise in distribution costs to 3.0%.
Selling and administration costs rose by
4.8%, in line with group turnover, but this
included heavy investment in customer
recruitment, both at home and abroad,
and high rates of inflation for postage,
paper and print.
Customer Service
Exemplary customer service is essential
in difficult economic circumstances to
maintain customer loyalty and in this
respect we had an excellent year. The
ratio of enquiries to orders improved
further and we had the fastest delivery
and the lowest ever levels of claims for
goods not received. In addition our
bi-annual surveys of customer satisfaction
showed record approval levels.
Outlook and Current Trading
The strategic plan for the business
is designed to develop our multi-
channel trading performance in the
UK which will then provide a platform
for international expansion. There are
several components to this strategy
which will be our key areas of focus
during 2012/13.
Within the core home shopping business
we will be concentrating our marketing
investment on the key ladieswear and
menswear brands plus the speciality
propositions. We will improve our
online trading capability and drive
incremental sales which will allow us
to reduce our mailing contacts. Our
websites will be adapted to capitalise
on the exponential growth of online
access from mobile devices. We will
review the attractiveness of further store
openings relative to the capital outlay
and we are testing Jacamo’s menswear
12
N Brown Group plc Annual Report & Accounts 2012 Online sales
up 16% to
£377m
Footwear sales
up 6% to
£84m
Home & Leisure
sales up 5% to
£209m
will result in lower input prices in the
autumn which we will pass on to our
customers.
Our online capability was strengthened
last year, both in systems functionality
and personnel, and this will enable us
to trade our websites even more
effectively this year. We have already
seen an increase of 11% in our online
sales in March and April compared with
last year.
The clear focus on our targeted
customer and product groups, traded
through multiple channels and to a
wider geographic audience, supported
by more credit and service options,
will drive the business forward in the
coming year.
Trading was extremely tough in 2011 but
everyone in the business has risen to the
challenges facing them. This resilience
and our focused strategic plan leave
N Brown Group well placed to make
further progress this year.
Alan White
on the mezzanine floors of two Simply
Be stores. Similarly we will testing the
international potential of Marisota and
Jacamo within the Simply Be website
in the USA.
Traditionally we have dealt with
customers who regarded it as normal
to open a credit account even if it
was just to try on the clothing before
purchase. As the online audience
becomes more diverse in its age and
socio-demographic spread we will be
testing simpler up-front payment options
to determine whether this profitably
increases the size of our customer base.
We will also be providing more delivery
options for our customers.
Revenue for the 8 weeks ended 28 April
2012 shows an increase of 1.0%, and a
like-for-like increase of 0.6%, excluding
the sales from stores not open at this
time last year. Consumer confidence is
still low but the situation should improve
later in the year as inflation and income
growth rates start to converge. The
recent spate of retail casualties will also
free up some capacity in the market
sectors in which we operate.
We have seen encouraging results from
our Spring recruitment campaigns which
will help to rebuild the 3% reduction
in the active customer database we
experienced last year. We also have
a series of reactivation campaigns
for lapsed customers planned. The
second half of last year saw high levels
of discounting activity to clear excess
stocks both by ourselves and in the
sector as a whole. We have bought less
stock this year now that lead times have
returned to normal from our suppliers
and we expect a benefit in the rate of
gross margin in the second half. The
reduction in cotton and fabric prices
13
N Brown Group plc Annual Report & Accounts 2012 Financial Review
Profit before tax
up 2.6% to
£96.9m
Net assets
up 11.6% to
£402.3m
Bank loans in
place until 2016
Gearing reduced to
48%
Group Trading Summary
In a difficult trading climate group sales
increased by 4.8% to £753.2m (2011,
£718.8m) but operating profit fell by
0.6% to £102.0m (2011, £102.6m).
Operating margins have fallen by
70bps from 14.3% to 13.6% in the
following areas:
Net operating margin last year
Decrease in gross margin
Decrease in operating costs
Net operating margin this year
14.3%
-80bps
+10bps
13.6%
The reduction in the rate of gross
margin was due to a combination
of lower product margins as a result
of higher promotional discounting,
improved financial income revenue
offset by an expected increase in rate
of charge for bad debts. Tight controls
on costs generated a small margin
improvement in operating costs. As a
result, and together with an increase
in group net finance charges from
£4.4m to £6.4m, profit before taxation
and fair value adjustments to financial
instruments amounted to £95.6m (2011,
£98.2m). The positive movement in
the fair value of the group’s forward
foreign currency contracts contributed
a gain of £1.3m compared to a loss of
£3.7m last year. The fair value of these
forward contracts is based on external
factors which are beyond the control of
management. Profit before taxation was
up 2.6% to £96.9m (2011, £94.5m).
Taxation
The effective rate of corporation tax for
the year was 16.4% (2011, 24.1%), and
arises from the recognition of tax losses
amounting to £6.5m acquired with the
Figleaves subsidiary and positions taken
or settled on prior year initiatives. The
effective tax rate for the year ahead is
expected to return to a rate of
approximately 23%.
Balance Sheet and Cashflow
Net assets increased by 11.6%
to £402.3m at the year end (2011,
£360.4m).
Capitalised expenditure for the year was
£24.9m (2011, £22.1m) which included
£5.0m on the High & Mighty and Simply
Be concept stores. The majority of the
remaining expenditure related to ongoing
investment in our online systems.
We maintained our level of working
capital in the year. Trade receivables
at the year end had increased by 5.8%
to £501.8m (2011, £474.5m), and stock
levels by 5.8% to £82.6m (2011, £78.1m).
The bad debt provision increased to
£49.3m (2011, £45.1m) which equates
to 8.9% (2011, 8.7%) of gross debtors.
The net pension position of the group’s
defined benefit pension scheme has
changed from a surplus of £3.3m in
2011 to a small deficit of £1.0m at the
year end. The movement predominately
arises from a net actuarial loss of £6.2m
together with net service costs of £1.5m
offset in part by contributions of £3.4m.
Net cash generated from operating
activities reduced slightly from £57.4m
to £56.5m and after increased capital
expenditure, finance costs and
dividends, borrowings rose by £11.6m
to £192.5m (2011 £180.9m). Gearing
improved from 50% last year to 48%
at the year end.
Key Financial Performance Indicators
The group employs a number of key
performance indicators (KPIs) to monitor
progress including;
14
• Like for like sales (see page 10).
• Internet sales (see page 11).
• The number of customer debtor
accounts and their average debtor
balance, which at the year end was
1,449,000 (2011, 1,489,000) and £354
(2011, £331) respectively.
• Mix of sales by product and customer
groups (see page 10).
• Gross margin (see page 14).
• Operating margin (see page 14).
• Interest cover (see page 8).
• Earnings per share (see page 8).
Risk and Uncertainties
There are a number of risks and
uncertainties which could have an
impact on the group’s long-term
performance. These include:
• consideration of the general economic
climate and the impact it has on the
provision of credit to our customers
and their ability to maintain payment
terms;
N Brown Group plc Annual Report & Accounts 2012 • the potential threat from our
competitors;
forward foreign exchange contract
commitments of $69m (2011, $70m).
• our relationship with key suppliers;
• the loss of key personnel;
• potential disruption to our key
information systems, warehousing or
call centre facilities, which may arise
from events beyond our control, and
which could have a detrimental impact
on sales and profit; and
• changes to the regulatory environment
in which the business operates,
primarily with regard to the Financial
Services Authority and the Office of
Fair Trading.
The directors routinely monitor all
these risks and uncertainties taking
appropriate action to mitigate where
necessary. Business continuity
procedures are in place, together with
a dedicated team assessing regulatory
developments and ensuring that we
treat our customers fairly. Regular
reviews are carried out with all of our
strategic partners. The board are also
committed to the investment in systems
and infrastructure to keep pace with
new technology.
Treasury
During the year the group’s banking
facilities have been renewed to support
its ongoing trading and development
activities. The group has committed
borrowings of £370m of which £250m
was utilised at the year end. The primary
facilities are a £250m securitisation
programme through an HSBC A-1/
P1 rated conduit that has a matching
standby facility. This facility is in place
until March 2016. Additionally, the group
has two revolving credit loan facilities of
£50m each with HSBC Bank plc and the
Royal Bank of Scotland plc which also
expire in March 2016. All current facilities
in place at the year end are arranged
at floating interest rates at margins
which were favourably negotiated at
the time of renewal. 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 used
in the year.
Foreign exchange requirements for the
purchase of stocks denominated in US
dollars may be hedged for up to three
years ahead to fix the costs of sterling.
This hedging activity involves the use of
spot, forward and option contracts. At
the year end the group had outstanding
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
European Union.
In determining whether the group’s
accounts can be prepared on a going
concern basis the directors consider
the group 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 the 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 of the group’s audited
financial statements. These have been
appraised in the light of 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 sales and debtor book.
The group’s forecast 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 £370m.
These facilities have been renewed
during the year and are committed
until March 2016.
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, we continue to
adopt the going concern basis in the
preparation of the annual report and
accounts.
Shareholder Return
The share price of 274.7p at the start of
the year has fallen to 238.8p at the year
end giving a market capitalisation of
£676.8m (2011, £770.3m). In addition the
group’s five year performance measured
by Total Shareholder Return compared
with the FTSE Mid-250 index, of which
the group is a member, show that we
have underperformed the market in the
last twelve months. A final dividend of
7.74p (2011, 7.37p) per share has been
recommended by the board giving a
total dividend for the year of 13.03p
(2011, 12.41p) per share, up by 5% and
covered 2.2 times (2011, 2.2 times).
Dean Moore
15
N Brown Group plc Annual Report & Accounts 2012 Directors and Officers
Lord Alliance of Manchester CBE (79)
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.
Alan White (57)
Chief Executive
Chief Executive since 2002, having been CFO
from 1985 to 1999. In between he was CFO
for Littlewoods plc. Qualified as a chartered
accountant with Arthur Andersen and held a
senior financial role with Sharp Electronics.
Also a non-executive director of Topps Tiles plc
and a member of the CBI North West Regional
Council and other business groups.
Dean Moore (54)
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.
Nigel Alliance OBE (77)
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.
Ivan Fallon (67)
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 and a leading financial
journalist. Chairman of the remuneration
committee.
Lord Stone of Blackheath (69)
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 Falcon Power Holdings and the international
health charity DIPEx. Chairman of the
nomination committee.
Anna Ford (68)
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.
Philip Harland (56)
Company Secretary
Joined the company in 2000. Previously
a commercial lawyer in private practice in
Manchester, then company secretary and
associate director of legal services at GUS
Home Shopping Ltd. Admitted as a solicitor
in 1981.
John McGuire (63)
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.
a Audit committee member
b Remuneration committee member
c Nomination committee member
16
N Brown Group plc Annual Report & Accounts 2012 Financial Statements
THE
FaCTS
aND
FIGuRES
Directors’ Report
Corporate Governance Report
Remuneration Report
Independent Auditor’s Report – Group Accounts
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Reconciliation of Operating Profit to
Net Cash from Operating Activities
Consolidated Statement of Changes in Equity
Notes to the Group Accounts
Independent Auditor’s Report – Company Accounts
Company Balance Sheet
Notes to the Company Accounts
Shareholder Information
18
24
29
39
40
40
41
42
42
43
44
68
69
70
IBC
17
N Brown Group plc Annual Report & Accounts 2012 Directors’ Report
Directors’ Report
The directors present their annual report
and accounts for the 53 weeks ended
3 March 2012.
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
53 weeks ended 3 March 2012 amounted
to £96.9m (2011, £94.5m). No geographical
segmentation is provided because, other
than small operations in the Republic of
Ireland, Germany and the United States, all
activities take place in the United Kingdom.
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
53 weeks ended 3 March 2012 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 these
requirements can be found within this
report, the Chairman’s Statement, the
Chief Executive’s Review and the Financial
Review (pages 8 to 15), all of which
information is incorporated by cross-
reference into this report.
The board continuously strives to identify
and review 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 manage risks
appropriately. The executive directors and
operating board directors implement and
oversee risk management processes and
report to the board on them.
INVESCO Asset Management Ltd
Threadneedle Asset Management Ltd
18
As required by the Code, pages 4 to 15
provide an explanation of the basis on
which the company generates value and
preserves it over the long-term and its
strategy for delivering its objectives.
Dividends and reserves
An interim dividend of 5.29p per share
(2011, 5.04p) was paid on the ordinary
shares of the company on 6 January 2012.
The net cost of this dividend was £14.7m
(2011, £13.8m).
The directors recommend a final dividend
of 7.74p per share (2011, 7.37p) for the 53
weeks ended 3 March 2012, the net cost
of which will be £21.5m (2011, £20.3m).
The dividend will be paid on 27 July 2012.
Movements in reserves are shown in the
Statement of Changes in Equity on page 43.
Acquisitions and disposals
In the year under review there were no
corporate acquisitions or disposals.
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 27 on page 63.
Annual general meeting
The annual general meeting will be held on
Tuesday, 3 July 2012. The notice convening
the annual general meeting will be sent
to members by way of separate circular.
Explanatory notes on each resolution to be
proposed at the meeting will accompany
the circular.
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 UK Corporate Governance
Code and the Companies Act.
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.
No director had any interest in any
disclosable contract or arrangements,
other than a contract of service, with the
company or any subsidiary company either
during or at the end of the year.
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 2012:
Holding
18,900,603
18,345,773
% of issued
share capital
6.67
6.47
N Brown Group plc Annual Report & Accounts 2012
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 on-going basis as part of its
commitment to sustainable business.
Further details are contained in the
Corporate Governance Report on
pages 24 to 28.
Ethical standards
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, bribery and
corruption, conflicts of interest, gifts and
hospitality has been adopted by the group.
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 dealings with each other, shareholders,
customers, suppliers, competitors,
regulatory authorities and the wider
community, all employees are required to:
• conduct dealings with honesty, integrity,
respect and fairness;
• comply with all relevant laws, regulations
and internal company policy;
• encourage and support a business
culture which promotes sound
ethical conduct at all levels within the
organisation;
• avoid any situation or action, which
could cause a conflict of interest or
damage to the group’s reputation; and
• foster an inclusive team-working
environment in which praise and
recognition play key roles.
Directors of all group companies are
required to disclose details of related party
transactions for review and authorisation
by the audit committee and by the board.
A Gifts and Hospitality register exists
which requires all employees to record any
gift or hospitality offered by suppliers and
other parties. Monthly returns are required
from all directors and employees declaring
any offer with a value of £25 or more, and
stating whether an offer was accepted or
declined.
A “whistleblowing policy” and confidential
‘hotline’ provides employees with a
secure and private means of reporting
any ethical concerns that they may
have regarding the way the group or
any employee is behaving in day-to-day
activities. No ‘whistleblowing’ events were
reported in the year.
Environment
The continuous improvement of our
environmental performance is integral
to the success and future sustainability
of the operations. We are committed
to minimising any damage which our
activities may cause to the environment.
Day to day responsibility for sustainability
vests in Ian Carr, director of logistics,
who sits on the operational board of
J.D. Williams & Company Limited and
who reports to the Chief Executive and,
through him, to the board of directors.
Since 2007, the group has been actively
working with its environmental partners,
Envantage Ltd and Viridor Ltd to minimise
Green House Gas (GHG) emissions,
reduce energy and water consumption,
minimise waste and increase group-
wide environmental awareness and
accountability. Investment in energy
efficiency and water minimisation
technologies has led to significant
achievements since 2007.
The tables below illustrate our
environmental achievements since
2007 to date:
Energy and emissions
Absolute reduction
from base year1
GHG emissions reduction
from base year tCO2e
% reduction
Electricity
Natural Gas
Diesel
Total GHG tCO2 reduction
840,214 kWh
1,443,351 kWh
16,157 Litres
312
274
43
629
3%
11%
10%
5%
Water2
15,638 m3
36%
Reduction from base year
% reduction
Achieved percentage of recycled waste 2011-2012
99.8%3
1. The group’s base year has been recalculated to take into account the acquisition of Figleaves Global Trading Ltd and High and Mighty Ltd and the divestment
of Zendor in line with the GHG protocol base year recalculation guidelines.
2. Based on metered sites and available data provided to Envantage Ltd.
3. Retail sites are currently excluded from this data. The aim is to include 100% of group sites by Autumn 2013 and to achieve 100% recycling across the group
by 2015.
19
N Brown Group plc Annual Report & Accounts 2012
Directors’ Report
Qualitative measures
In addition to the outlined quantitative
achievements above, the group has
also been working on several other
qualitative key areas to set standards
for our environmental responsibility and
reputation, including the following:
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.
• Planned further investment into the
next wave of our carbon abatement
programme;
• The promotion and facilitation of green
commuting among staff;
• Annual voluntary reporting to the
Carbon Disclosure Project;
• Installation of automated energy
meter reading technology and analysis
software;
• Considering options for renewable
energy installations, including Solar
PV / Voltage Optimisation and Liquid
Pressure Amplification;
• Joined the British Retail Consortium’s
Climate Change Commitment
programme;
• Packaging components are made
from materials and processes causing
minimum harm to the environment
when either manufactured, processed,
recycled or eventually disposed of
wherever practicable;
• 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;
• Paper used in the printing of our
catalogues is derived from managed
and renewable sources accredited
by the Forest Stewardship Council
wherever possible.
Employees
The Chief Executive has board level
responsibility for employment matters.
- Employee involvement. Our success
has been substantially contributed to 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
services divisions covering over 2,000
employees have also achieved Investors in
People accreditation at Bronze and Silver
standard. Over 500 group employees
either hold shares in the company or have
options/awards to acquire them through
20
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.
As mentioned above, in 2010 the group
repeated its business-wide Employee
Engagement Survey and over 2,300
employees participated. As a direct result
of this survey an employee profit share
scheme has been introduced to enable
employees to feel and benefit in the
company’s success. In addition the
company’s grading structure has been
enhanced by the introduction of two new
grades which allow enhanced career
progression and better alignment of pay
and benefits. In order for these grades to
be introduced a new system for job
evaluation has also been established in
consultation with Towers Watson Limited.
The addition of an Executive Development
Programme to the company’s training plan
has also been introduced as a result of the
survey. The final and most significant
output from the survey has been the
introduction of a more flexible working
policy for the company’s 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.
- 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.
- Health and safety. The health, safety
and welfare at work of its employees,
contractors and visitors is paramount as
is ensuring compliance with all relevant
legislation. The group is also committed to
best practice initiatives. A benchmarking
exercise against OHSAS 18001 standards
has taken place throughout the year and
has helped define the groups’ strategy in
progressing the focus of health & safety as
a senior management level issue over the
coming year, with programmes to include
behavioral safety initiatives to continuously
improve the group’s health & safety culture.
Cumulative group accident statistics
show that for the year in review, reportable
accidents under Reporting of Injuries,
Diseases and Dangerous Occurrences
Regulations 1995 (RIDDOR) have reduced
by 22% compared to the same period
in 2010/11.
In the year in review, we also saw a 0.5%
reduction in the incidence of accidents per
1,000 employees compared to the same
period in 2010/11. An internal analysis has
shown muscular skeletal injuries to be
the main category of injury and therefore
manual handling refresher training
programmes have been put in place to
improve standards in this area.
We endeavour to ensure that all products
and services sold by the group or used in
N Brown Group plc Annual Report & Accounts 2012 Directors’ Report
the workplace are safe and without risk
to employees and customers when used
properly.
Customers
A key factor of the group’s success is the
quality of its relationship with its customers
and their levels of satisfaction with our
group products and services.
Regular customer satisfaction surveys are
conducted, both directly and through third
parties. Enquiries and complaints have
been pro-actively reduced over recent
years as a proportion of customer order
transactions, reflecting the introduction
of more customer-oriented policies,
processes and product/service standards.
Telephone, email and letter contacts
received from customers are analysed
and remedial actions taken to improve
our levels of service.
The group operates both in-house and
outsourced contact centres, predominantly
located in the UK. Our international
businesses are supported through local
contact centres in the USA, Germany
and Eire.
Web self-service capabilities are delivered
through a "my account" facility for
customer order and account management
information. Web-enabled contact centre
capabilities are being deployed to support
our web-trading customers, including
multimedia, web chat, click-to-call and
social media.
We aim to attract and retain customers
through a competitive product and quality
of customer service offering, regularly
monitoring retail and home-shopping
sector developments to stay ahead of
the game. Our speed of answering for
calls and responding to emails has been
improved and made more consistent.
Automated speech services handle
a significant proportion of customer
telephone payments and parcel collection
requests. We continue to invest in
improved speed of product deliveries to
our customers and to offer more delivery
service options such as next-day or
nominated day of delivery. Multiple pro-
active service notification emails are being
introduced to inform customers about
order and account status.
Our overall strategy is to adopt a "multi-
channel" approach to managing our
customer contacts, with the key aim of
a joined-up and consistent customer
experience across channels. Our multi-
channel service platforms will extend to
our recently launched UK store operations.
Suppliers
The group trades with suppliers from all
over the world, including both developing
and developed countries.
Improving working conditions for all
workers in our supply chain has been
central to our Ethical Trading Policy which
is aligned to the ETI (Ethical Trading
Initiative) Base Code (www.ethicaltrade.
org). The ETI is a unique alliance of over
70 retailers and suppliers, worldwide
trade unions and voluntary organisations.
It encourages partnerships between
members to improve the working
conditions across global supply chains.
Our Code of Conduct includes sections
on:
1. Forced labour
2. Child labour
3. Freedom of association and collective
bargaining
4. Reasonable wages and benefits
5. Reasonable working hours
6. Equal opportunities
7. No harsh or inhumane treatment
8. Regular employment is provided
9. Safe and hygienic working conditions
All suppliers are asked to sign up to the
principles of the Code of Conduct as a
prerequisite of doing business with us.
The Code of Conduct is included in our
supplier manual and forms part of our
standard terms and conditions. The Code
of Conduct is available in six languages
and we encourage all of our suppliers to
display a copy within their factories.
Part of our supplier engagement is a
self-assessment by suppliers based on
the Code of Conduct. The results of this
self-assessment enables the group to
carry out an initial risk assessment of the
factory, open dialogue with the factory
management and carry out any necessary
improvements to working practices.
Below is a list of the geographical
distribution of our current suppliers:-
China
India and Bangladesh
Other Asia
UK
European Union
Other
62%
11%
7%
11%
5%
4%
The group has assessed 78% of our
suppliers’ factories. We have appointed
audit partners and launched an audit
programme for our suppliers. We aim to
audit all our suppliers’ sites at least every 2
years and we are currently halfway through
the audit plan. We have worked with some
of our agents and larger suppliers to
enable them to audit their own factories.
We have developed audit methodology
for them to use, which is relevant to our
Code of Conduct, and assisted them in
incorporating these as part of their normal
verification process, when selecting new
factories or monitoring existing factories.
We estimate that our risk assessments and
audits have covered over 448,000 workers.
Our long term supplier-related goals
include:
• Developing country/region guides as an
aid for Buying and Merchandise staff
when visiting new or existing markets;
• The group participating fully in the ETI’s
working programmes and rolling out any
relevant learning to our supply base;
• Engaging suppliers with the business
benefits of working ethically and
participating in work programmes; and
• Raising the profile of Ethical Trading
within Buying and Merchandising and
other areas of the business.
The group’s policy for the payment of
suppliers is to ensure that all suppliers
know and accept the group’s payment
terms. Payment is made in accordance
with these terms. Trade creditors of the
group at 3 March 2012 represented 40
days (2011, 40 days) of purchases.
Community relations
The group actively supports the
communities in which it operates.
It maintains close links with the Christie
Hospital in Manchester and the Retail Trust
and also regularly encourages employees
to participate in fundraising activities
for these, and other worthwhile causes.
The group matches the money raised
by employees to double the size of the
donation.
In 2011/12 a record number of employees
were involved in charitable events raising
more than £134,000 for both national
charities and local good causes.
The family, health and well-being
programme, now in its eighth year,
continues to provide support and real
assistance for all of our employees.
Charitable and political donations
During the year, the group made charitable
donations of £71,011 (2011, £70,960).
No political donations have been made
(2011, nil).
21
N Brown Group plc Annual Report & Accounts 2012
Directors’ Report
Pension fund
The group continues to ensure that the
N Brown Group Pension Fund (‘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. Mercer Investments
provides investment advice and fiduciary
management. The actuarial and
administration services are provided
by Mercer 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 Pension
Fund or in administration of the Pension
Fund. This amounts to a "qualifying
indemnity provision" (as defined in section
236 of the Companies Act).
The 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 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.
Following the results of the 2009 triennial
actuarial review, the group agreed to pay
£2.5m into the Pension Fund each March
with the aim of paying off the funding
shortfall by 2013.
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 57. The group’s risk
management policies and procedures are
also discussed in the Financial Review on
page 15.
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
22
of their likely impact on the business of
the group as a whole. Executive Directors’
service contracts are terminable by the
company on giving 12 months’ 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.
Auditors
A resolution to re-appoint 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 3 July 2012.
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 dependents;
• 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 15.
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 29 to 38
and the Corporate Governance Report on
pages 24 to 28 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 have elected to prepare the
parent company financial statements
in accordance with United Kingdom
Generally Accepted 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
N Brown Group plc Annual Report & Accounts 2012 This confirmation is given and should
be interpreted in accordance with the
provisions of section 418 of the Companies
Act 2006.
Responsibility statement
We confirm that to the best of our
knowledge:
By order of the board
• the financial statements, prepared in
Philip F Harland LL.B (Hons) (Solicitor)
Secretary
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
18 May 2012
• 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
18 May 2012
Directors’ Report
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;
• state whether applicable IFRS’s as
adopted by the European Union have
been followed, subject to any material
departures disclosed and explained in
the financial statements; and
• prepare the financial statements on
the going concern basis, unless it
is inappropriate to presume that the
company will continue in business.
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
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 auditors are unaware; and
• the director has taken all steps that
he ought to have taken as a director
in order to make himself aware of
any relevant audit information and to
establish that the group’s auditors are
aware of that information.
23
N Brown Group plc Annual Report & Accounts 2012 Corporate Governance Report
report has also now served for a period
beyond which the Code suggests his
independence may be affected. 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 great benefit to the fashion
division of the group.
Details of directors’ contract terms are
shown in the Remuneration Report on
page 34.
Directors and officers insurance cover
has been established for all directors to
provide cover against their reasonable
actions on behalf of the company.
On the basis of the above, the board
considers that it had a majority of
independent non-executive directors
serving during the year. It is also
considered that the composition of the
board during the year had the necessary
balance of executive and non-executive
directors to provide the requisite skills,
experience and judgement appropriate
for the requirements of the business and
board effectiveness.
At last year’s AGM, the board was an
early adopter of the requirements in the
Code that all directors retire and submit
themselves for re-election annually and,
again this year, each of the directors will
again retire at the forthcoming AGM. All of
them, being eligible, will offer themselves
for reappointment at that meeting.
Rather than serve on 3 year terms, all
non-executive directors now serve the
company under letters of appointment
which stipulate rolling terms of six months
duration. All appointments are terminable,
without compensation, on six months’
notice by either party and are subject
to other early termination provisions,
for example all non-executives letters of
appointment permit termination without
compensation in the event a director is not
re-elected upon retirement by rotation in
accordance with the articles, or at the AGM.
The board, having carried out a
performance evaluation, considers that
the performance of all directors and
their commitment to the role of director
continues to be effective. Biographical
detail of each director 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.
Diversity
The board recognises the importance of
diversity, including gender, at all levels of
the company as well as on the board and
is supportive of the aims and objectives of
the Davies Report on Women on Boards
which was published in February 2011.
The company is committed to equal
opportunities and increasing diversity
across our operations. During the year
under review the board considered the
recommendations in the Davies report
and expressed an intention to increase
the number of women on the board and to
work towards the recommendation of 25%
female representation by 2015. Further
detail can be found in the nominations
committee section below. The board
currently has one female board member
equating to 12.5% of its directors. The
board will regularly consider how diversity
can be enhanced through the board and
the senior management team and across
the group generally. At the same time it is
of the utmost importance for the board to
maintain strong leadership at the company
and the board will continue to appoint
only the most appropriate candidates to
the board. In the coming year the board
will consider a board diversity policy
to be included in its board governance
principles.
Board operation and evaluation
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 nine times during the year.
Director’s attendance at board meetings
was as follows:
Attendance
Lord Alliance of Manchester CBE
Ivan Fallon
Alan White
Lord Stone of Blackheath
Nigel Alliance OBE
Dean Moore
John McGuire
Anna Ford
9
9
9
7
7
9
9
9
UK Corporate Governance Code
The board is committed to high standards
of corporate governance and compliance
with the principles in the UK Corporate
Governance Code issued by the UK
Financial Reporting Council in 2010
(the “Code”).
For the year in review the board considers
that it and the company have complied
with the provisions 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 pages 29 to 38.
Board composition
The board 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 board is sensitive to the need for non-
executive directors to remain independent
of the management in order to be able to
exercise proper oversight and effectively
challenge the executive directors. 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,
• Ivan Fallon (deputy chairman and senior
non-executive director);
• Lord Stone of Blackheath (chair of
nominations committee);
• John McGuire (chair of audit
committee); and
• Anna Ford.
Each of these is considered by the board
to be independent.
Ivan Fallon was appointed to the board
in October 1994 and 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
considers that his substantial commercial
acumen and extensive knowledge of the
group’s businesses gained during his
service on the board far outweigh any
considerations of lack of independence.
Lord Stone was appointed to the board
in March 2002 and at the date of this
24
N Brown Group plc Annual Report & Accounts 2012
Corporate Governance Report
The board is responsible for major policy
decisions and for determining the nature
and extent of the risks it is willing to take
in achieving its strategic objectives.
The board delegates detailed operational
matters to its committees and sub-
committees, the directors and senior
officers, including the chief executive
and finance director, where necessary.
The board is collectively responsible
for providing effective leadership and
promoting the success of the group and
works to a formal schedule of matters
reserved for the board (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 each year is held
over two days and is entirely devoted to a
backwards-looking review and the future
development of the group’s long-term
strategic plan.
The day-to-day 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 finance director
respectively.
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 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 and so that the company can
benefit from the skills and experience of
the non-executive directors.
Procedures are in place to enable all
directors to obtain independent
professional advice in respect of their
fiduciary duties and obligations. All
board members have full and direct
access to the Company Secretary, who
is a qualified solicitor and who attends
all board and committee meetings. The
Company Secretary regularly briefs the
board on legal, regulatory and compliance
matters, shareholder engagement
issues, continuing director education and
development and the statutory duties and
obligation of the directors.
In the year under review the board
undertook a formal appraisal of its own
performance and effectiveness and also
that of the Chairman and the board’s
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 a joint review by the
board. The performance of the Chairman
was reviewed and appraised by the senior
non-executive director in consultation
with the other board members. The Chief
Executive’s performance was reviewed
and appraised by the Chairman and the
non-executive directors. The performance
of the Finance Director (the only other
executive director on the board) was
carried out in a similar manner to the
Chief Executive.
The evaluation concluded that the board
and committees continue to perform well
and are effective and that robust, free
and frank discussion and challenge to the
operational directors and the executive
directors exists at all levels. The survey
also found that the board and
committees continue to be effectively
led by their respective Chairmen and
that information provided to the directors
was comprehensive and sufficient
for the director’s needs. It was also
concluded that each director is individually
contributing to the overall effectiveness
and success of the group.
Beyond the formal annual evaluation, the
performance of the executive directors is
continuously monitored throughout the
year by the Chairman and the Deputy
Chairman. The board acknowledges the
provisions of section B6.2 of the Code
that an externally facilitated evaluation be
carried out at least once in every 3 years
and has agreed that an external evaluation
of board effectiveness will be carried out
for the financial year 2013/14.
The Chairman reviews and agrees
with each director their training and
development needs.
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 of interest were reported in
the year under review.
Committees of the Board
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.
25
N Brown Group plc Annual Report & Accounts 2012 Corporate Governance Report
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 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 chairman of the committee
and other members of the committee are
regarded as having recent and relevant
financial experience. By invitation, the audit
committee meetings are also attended by
the Chief Executive, the Finance Director,
the group’s head of internal audit and the
group’s external auditors.
The committee met twice in the year under
review. Committee attendance was as
follows:
Attendance
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 operational 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.
Lord Stone of Blackheath
John McGuire
Ivan Fallon
Anna Ford
The audit committee is charged with
overseeing the nature and scope of the
group audit process (both internal
and external) and its effectiveness.
The committee’s work includes:
2
2
2
2
The board consider that the processes
of the audit committee continue to be
robust and effective and comply with the
guidance issued by the Smith Committee.
During the year under review the board
has not been advised by the audit
committee, nor identified itself, any failings
or weaknesses in internal control which it
has determined to be material.
• reviewing and approving the annual
internal audit programme and resources;
• meeting with the internal and external
auditors both with and in the absence
of the executive directors;
• receiving and reviewing the annual
and interim financial statements and
reviewing the audit reports and audit-
related reports provided by the
external auditor;
• reviewing and assessing the group’s
system of internal risk control and
sources of assurance;
• receiving reports from the company
secretary on environmental, social or
governance issues; and
• making recommendations to the board
in respect of its findings in respect of
all of the above matters.
In addition to the above scheduled
meetings, the chairman of the committee
also regularly attends the group’s head
office to meet with the Finance Director
The audit committee periodically reviews
the appointment 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. Assignments of non-
audit services are generally subject to
tender, and decisions on the allocation of
work are made on the basis of competence,
cost-effectiveness, relevant legislation and
knowledge of the group’s business.
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 of other advisers
are set out in the Remuneration Report
on page 29).
During the year fees paid to Deloitte LLP
for audit and non-audit services were as
follows:-
Audit: £0.2m
Non-audit/tax £0.4m
The chairman of the audit committee has
asked Deloitte LLP to advise him of the
scale of non-audit fees being incurred, as
they are incurred, throughout the year to
enable him to report to the committee any
concerns he may have that the auditor’s
independence is being compromised.
As a result of its work during the year, the
audit committee has concluded that the
committee has acted in accordance with
its terms of reference and has addressed
and reasonably 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 auditors, Deloitte LLP be
reappointed. Deloitte LLP have signified
their willingness to continue in office and
ordinary resolutions appointing them as
auditors and authorising the directors to
set their remuneration will be proposed at
the 2012 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 four
occasions during the year. Member’s
attendance was as follows:
Attendance
Lord Stone of Blackheath
John McGuire
Ivan Fallon
Anna Ford
4
4
4
4
26
N Brown Group plc Annual Report & Accounts 2012
Corporate Governance Report
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 29
to 38. The report will be put to an advisory
vote by the members at the company’s
2012 annual general meeting.
Nominations committee
The nominations committee is chaired
by Lord Stone of Blackheath. The other
members are currently Lord Alliance of
Manchester CBE, Ivan Fallon, John
McGuire and Anna Ford. The formal terms
of reference for this committee require it
to make recommendations to the board
for appointments of directors including,
when appropriate, the chairman of the
board and also directors of the operating
board and other senior executive staff of
the operating company. 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 with due regard to
diversity and gender. Where appropriate,
external search consultants are engaged.
The nominations committee is currently
considering the Davies Report into Women
on Boards and its response to the issues it
raised. The committee is currently working
to increase the diversity and breadth of
skills and experience on the board and to
this end it has engaged with and employed
the services of an external consultancy,
MWM Consulting LLP. The board already
has one female director – Anna Ford – and
aspires to increase the percentage of
women on the board to at least 25% of
directors by 2015.
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 on-going 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
met on 3 occasions with full attendance
by all members. In addition there were a
further 3 informal meetings with members
of the committee to formulate and pursue
the ‘diversity and breadth’ project referred
to above.
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. There
are inherent limitations in any system of
internal control and no system can provide
absolute assurance and management
against material misstatement, loss or
failure. Equally, no system can guarantee
elimination of the risk of failure to meet
the objectives of the business. Against this
background, the board has established
a continuous process for identifying,
evaluating and managing the significant
risks the group faces in order to give
it reasonable assurances regarding its
operations and compliance with laws and
regulations.
Risk Management
In order to ensure key business
developments are appropriately factored
into the group’s risk management process,
internal audit facilitated a board-level risk
session in the year. The chief executive of
the group and the finance director along
with operational management identified
and reviewed the key risks facing the
business and appraised the structure
of internal controls to mitigate these
risks. The audit committee was provided
with the output from this process and
given the opportunity to conduct its own
assessment of risks across strategic,
financial and operational areas. The results
have been collated and used as a key
driver in the annual internal audit plan.
A risk committee has been established as
a sub-committee of the audit committee
on which the chief executive, the finance
director (chair of risk committee),
the company secretary and head of
internal audit sit, to focus on reviewing
management's activities to continually
monitor and manage the risks identified.
Operational management is asked to
present to the risk committee on a
cyclical basis on the progress of agreed
actions against the major risks identified
by the process. The output from the risk
committee is then shared with the audit
committee and the board.
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 control for the year
under review. The board (through the audit
committee) discusses with the external
auditors and the internal audit department,
the results of audit 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. There is an on-going
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
27
N Brown Group plc Annual Report & Accounts 2012 Corporate Governance Report
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
all shareholders, be they institutional or
individual investors. Institutional investors,
fund managers and analysts are kept
informed of the company’s overall strategy
through regular meetings and investor
‘road-shows’ and site visits. 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 is 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 operating division)
at the announcement of the group’s
results and also at 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, the
group recently overhauled its website to
provide shareholders with up to date and
comprehensive material about the group
and its activities and also real-time market
information and prices. Shareholders also
have the opportunity to ask questions,
make observations or represent their views
to the board of directors by constructive
use of the annual general meeting.
28
N Brown Group plc Annual Report & Accounts 2012 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 UK Listing Authority and
describes how the board have applied
the principles relating to directors’
remuneration set out in the UK Corporate
Governance Code (“the Code”).
This report will be put to an advisory vote
of the company’s shareholders at the
annual general meeting on 3 July 2012.
The auditors are required to report on
certain parts of this report and to state
whether, in their opinion, that part of the
report has been properly prepared in
accordance with the Companies Act 2006.
The report is therefore divided into
separate sections for audited and
unaudited information.
Unaudited information:
Remuneration committee
The board has established a remuneration
committee (“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 his 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;
• Remuneration benchmarking and
other remuneration data taken from
publications of Deloitte LLP were used.
Deloitte LLP, in their capacity as the
company’s auditors, also provided tax
services to the group.
• 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 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.
At the committee meeting held on 6
May 2011 when the remuneration policy
for the following year was once again
reviewed, the committee received a paper
from Hewitt New Bridge Street which
addressed, amongst other things, the need
for the committee to consider whether
it was appropriate to introduce a ‘claw-
back’ into any of the group’s incentive
schemes. The committee has considered
the provisions of Schedule A to the Code
and has concluded that, in view of the
existing safeguards built into the review
mechanisms of the incentive schemes
(which ensure they only pay out on the
achievement of tangible deliverables) a
claw-back is not required. However it is
giving further consideration to introducing
reclaim provisions in exceptional
circumstances of financial misstatement or
misconduct. The committee has resolved
to keep the overall position under review.
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 annual and long-term
strategy and are appropriate in amount
and capable of attracting, motivating and
retaining executive directors. It is the aim
of the policy to reward executive directors
and senior executives by offering them
competitive remuneration packages, which
are prudently constructed, sufficiently
stretching and linked to long-term
profitability and which do not encourage
excessive risk taking.
In particular the committee strives to
ensure that its remuneration package is:-
• Aligned with the group’s strategic plan;
• Aligned to shareholder’s interests;
• Measured against stretching targets,
both in absolute and relative terms;
• Paid in a combination of cash and share
options; and
• Calculated over an annual and three-
year performance period.
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 ensures that the structure
of executive remuneration, including the
balance between fixed and variable pay,
remains linked to the promotion of the long-
term success of the group and designed
to promote the long-term success of the
company, compatible with the company's
prudent 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 award stage and
the stage at which awards vest to ensure
that performance has been correctly
adjudicated and to safeguard excessive
reward. Variable pay and remuneration is
linked to both improvements in corporate
and individual performance and is
benchmarked to attract and retain the
highest quality people. 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 policy was reviewed in March
and April 2012 and will continue to apply
for the current financial year.
The committee is entitled to consider the
group’s performance on Environmental,
Social and Governance (‘ESG’) issues
when settling the remuneration of any
executive director. The committee is of the
opinion that the design of the incentive
29
N Brown Group plc Annual Report & Accounts 2012 Remuneration Report
arrangements for senior managers does
not raise ESG risks by inadvertently
motivating irresponsible behaviour or the
taking of undue risks with the business.
The charts which follow demonstrate the
potential achievable balance between fixed
and variable performance based pay for
each executive director.
Basic salary
When determining the salary of the
executive directors the committee takes
into account 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.
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 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 KPIs 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 current salaries of the executive
directors are shown in the table below:
The components of the annual bonus
scheme are made up as follows:-
Salaries as at June 2011
Alan White
Dean Moore
£521,220
£293,447
The above salaries represent a 2.2%
increase on the respective executive
director’s salary as at June 2010, which
is broadly in line with the percentage
increase awarded to the workforce as a
whole during the same period.
Annual performance-related bonus
The executive directors and senior
executives participate in one of a number
30
• Group profitability (70%);
• Corporate objectives (15%); and
• Individual objectives (15%).
The maximum potential bonus payable
to an executive director for 2011/12 and
2012/13 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 2011/12
were based on a combination of a
profit target, improvements in customer
service and the achievement of personal
objectives. The performance targets for
2012/13 have recently been reviewed
and, once again, will be based upon a
combination of a profit target and the
achievement of personal and corporate
objectives.
For 2011/12 the achievement of each
element 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 £103.0m, compared with the
prior year’s adjusted result of £98.7m.
Adjusted profit before tax for 2011/12
was £97.0m, therefore the bonus
payment due under this element of the
scheme was 17.5% (of a maximum of
70%) for both the chief executive and
the finance director.
(b) Corporate objectives (15% of bonus)
The corporate objective for the year in
review was related to improvements
in customer service targets. This was
measured against ten leading service
measures and benchmarked against
N Brown Group plc Annual Report & Accounts 2012Analysis of Performance vs Non Performance related elements of Remuneration PackageFixed Pay70%30%Alan WhiteDean MooreVariable Performance Related Pay70%30%
Remuneration Report
a range index totaling 100. A score
of 68 was achieved and therefore the
payment due under this element of
the bonus scheme was 10.2% (of a
maximum of 15%) for both executive
directors.
(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
Name
2011/12 Bonus & Deferred Shares Paid
2011/12 Matching Share Award (Contingent)
review amongst Alan White’s personal
objectives were to increase revenue
and gross margin from both products
and services, deliver key information
technology and infrastructure projects,
particularly to online functionality,
deliver agreed targets for the bad debt
charge and other major overheads,
progress business development
activities and update strategic options
for the group. Amongst Dean Moore’s
personal objectives were to manage
group borrowings, renew the group’s
bilateral loan facilities, deliver agreed
targets for the bad debt charge, review
the group’s cost base and recommend
areas of reduction. 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 11.0%
(of a maximum of 15%)
• Dean Moore 9.8%
(of a maximum of 15%)
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:
Total 2011/12 Bonus & Matching Share Award as a percentage of Salary
Share incentives
Subject to the review of the committee,
executive directors and senior executives
are considered for participation in one of
either the company’s long-term incentive
plan or its executive share option schemes.
The committee’s policy is that combined
awards (ie awards under both the plan
and the schemes) 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.
Alan White Dean Moore
£201,712
£110,043
£50,428
£27,511
48.3%
46.9%
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 2012/13.
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
Total shareholder return ("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.
31
N Brown Group plc Annual Report & Accounts 2012
Remuneration Report
Performance condition
The LTIP performance condition is
based upon TSR. TSR as a performance
condition is considered appropriate for the
following reasons:
• Market research indicates that TSR is an
appropriate and common measure for
long-term incentive arrangements within
FTSE 250 companies;
• a TSR performance condition is in the
opinion of the committee more closely
aligned with shareholder interests than
earnings per share (“EPS”) growth; and
• a TSR performance condition more
closely evaluates company performance
against a basket of comparator
companies in the same sector.
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, including the treatment of any
company which ceases trading during any
performance period. For 2012 Moss Bros,
J.D. Sports and Provident Financial will
replace Black’s Leisure, Alexon and Comet
in the comparator list.
Depending on rank, where the company’s
TSR is ranked between the median and
upper quartiles, between 25% and 85% of
the award will vest. The percentage award
vesting at median performance is 25% of
the maximum award.
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 committee before any
final award is made.
There are currently 3 LTIP awards extant.
Based on TSR performance as at 30
April 2012, the company is situated in the
relevant quartiles as follows:
The committee determines whether the
TSR performance conditions for share
awards are satisfied by ranking the
company over a three-year performance
Vesting of awards
For awards vesting in 2012 and beyond
100% of the award will vest if the company’s
TSR is ranked in the upper quartile.
2009/12 award - 2nd quartile
2010/13 award - 2nd quartile
2011/14 award - 2nd 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 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%
There is no plan to make any CSOP awards to executive directors in 2012/13.
32
N Brown Group plc Annual Report & Accounts 2012
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.
The 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.
Following the end of the performance
period attaching to the 2009 VCP
awards, the remuneration committee
determined that the company’s average
TSR performance over the three years to
the end of February 2012 had not been
sufficient for any of the awards to vest and
consequently all awards made under the
VCP have now lapsed in full.
There is no current intention to replace
the VCP with a similar scheme.
All employee share schemes
The group operates an HM Revenue &
Customs approved savings related share
option scheme for the benefit of group
employees, provided that they have
completed at least six months’ service.
Eligible employees, including executive
directors and senior executives, may
be granted options over the company’s
shares at a discount of up to 20% to the
prevailing market price at the time of grant
of the option, which (subject to certain
conditions) can be exercised after either
three or five years.
There is currently no intention to invite
eligible employees to participate in the
company’s share incentive plan (SIP).
Shareholding guidelines
The company has introduced formal share
ownership guidelines under which the
Chief Executive and the Group Finance
Director are respectively 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 348%
Dean Moore 183%
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. As reported last year,
in April 2010, Alan White waived £177,927
of his unapproved annual accrued
pension entitlement under the terms of the
unapproved scheme. On 30 March 2011
he waived a further £9,039 of his
unapproved pension.
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 up to a
maximum rate of 6% of pensionable
salary, with the Company matching
the level of employee contribution.
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 months' notice.
The policy is that the company does not
make payments beyond its contractual
obligations on termination. 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.
Potential termination payments are
summarised below:
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.
33
N Brown Group plc Annual Report & Accounts 2012
Remuneration Report
Non-executive directors are retained on
letters of appointment. All non-executive
appointments are on six- month rolling
terms terminable upon six months' notice
subject to successful re-election upon
retirement. Termination carries no right to
compensation other than that provided by
general law.
Brief details of non-executive and
executive directors’ contracts are
summarised below:
Name
Lord Alliance of Manchester CBE
Alan White
Dean Moore
Nigel Alliance OBE
Ivan Fallon
Lord Stone of Blackheath
John McGuire
Anna Ford
Status
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 £42,000 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 nomination
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
N Brown Group plc
FTSE Mid-250 Index
140
120
100
80
60
40
20
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
l
a
t
o
T
0
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Financial Period
Source: Datastream
34
N Brown Group plc Annual Report & Accounts 2012
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
2012
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
528
317
17
18
50
38
45
38
1,146
71
–
–
–
–
–
–
1,051
1,217
1
1
–
–
–
–
–
–
2
2011
total
£’000
3,210
595
17
18
50
38
45
38
202
110
1,877
499
–
–
–
–
–
–
17
18
50
38
45
38
312
2,582
4,011
1. On 1 April 2011 emoluments of £1,146,606 for Alan White and £71,523 for Dean Moore have been paid directly to an employee benefits 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 £50,428 for Alan White and £27,511 for Dean Moore, which (after deduction of income tax)
are shortly due to be transferred to the deferred annual bonus scheme.
35
N Brown Group plc Annual Report & Accounts 2012
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
26 Feb 11 1
£’000
Value of
net change
in accrual
during
year2,3,4,6
£’000
Transfer
value of
accrued
pension at
26 Feb 113
£’000
Change
in transfer
value during
year3,4,5,6
£’000
Transfer
value of
accrued
pension at
3 Mar 12
£’000
Accrued
pension at
3 Mar 12 1
£’000
Alan White
106
-6
105
64
1,813
371
2,194
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 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
£17,512 (2011, £16,858).
Share options
Details of directors’ share options are as follows:
At 26 Feb
2011
Granted
in year
Lapsed Exercised
in year
in year
At 3 Mar
2012
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)
(4,234)
–
–
–
–
–
–
–
–
8,413
8,413
222.0p
01/08/2011 31/01/2012
186.0p
01/08/2014 31/01/2015
The market price of the company's shares at 3 March 2012 was 238.8p (2011, 274.7p) and the range during the year was 227.0p to 304.5p.
36
N Brown Group plc Annual Report & Accounts 2012
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 26 Feb
2011
Awarded
in year
Lapsed Exercised
in year
in year
At 3 Mar
2012
Market
price at
date of
award
Market
price at Date from
which
date of
exercise exercisable Expiry date
Alan White
Dean Moore
45,010
53,912
–
–
–
38,422
98,922
38,422
23,165
28,340
–
–
–
21,684
51,505
21,684
–
–
–
–
–
–
–
–
(45,010)
–
–
–
53,912
38,422
247.0p
250.0p
288.0p
275.5p 29/05/2011 28/11/2011
28/05/2012 27/11/2012
02/06/2013 01/12/2013
(45,010)
92,334
(23,165)
–
–
–
28,340
21,684
247.0p
250.0p
288.0p
275.5p 29/05/2011 28/11/2011
28/05/2012 27/11/2012
02/06/2013 01/12/2013
(23,165)
50,024
The total gains made by Alan White and Dean Moore on the exercise of the awards during the year was £124,003 and £63,820
respectively.
Long term incentives
Details of awards of shares made to the directors are as follows:
Alan White
Dean Moore
At 26 Feb
2011
Awarded
in year
Lapsed Exercised
in year
in year
At 3 Mar
2012
Market
price at
date of
award
Market
price at Date from
which
date of
exercise exercisable Expiry date
277,200
212,691
204,136
–
–
–
–
194,434
694,027
194,434
145,530
111,663
114,928
–
–
–
–
109,467
372,121
109,467
–
–
–
–
-
–
–
–
–
–
(277,200)
–
–
–
– 1
212,691 1
204,136 1
194,434 1
180.0p
235.0p
247.0p
275.0p
275.5p 02/07/2011 01/01/2012
28/05/2012 27/11/2012
05/07/2013 04/01/2014
08/07/2014 07/01/2015
(277,200)
611,261
(145,530)
–
–
–
– 1
111,663 1
114,928 1
109,4671
180.0p
235.0p
247.0p
275.0p
270.9p 02/07/2011 01/01/2012
28/05/2012 27/11/2012
05/07/2013 04/01/2014
08/07/2014 07/01/2015
(145,530)
336,058
1. Exercise is subject to performance condition geared to Total Shareholder Return.
The total gains made by Alan White and Dean Moore on the exercise of the awards during the year was £763,686 and £394,241
respectively.
37
N Brown Group plc Annual Report & Accounts 2012
Remuneration Report
Value creation plan
Details of awards of shares made to the directors are as follows:
At 26 Feb
2011
Awarded
in year
Lapsed Exercised
in year
in year
At 3 Mar
2012
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)
(1,200,000)
(500,000)
(500,000)
–
–
–
–
– 1, 2
199.25p
28/02/2014 28/02/2019
–
– 1, 2
199.25p
28/02/2014 28/02/2019
–
1. Exercise was subject to performance conditions geared to Total Shareholder Return and growth in earnings per share which was not achieved and therefore
these awards lapsed.
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 3 Mar
2012
Ordinary
Shares of
At 26 Feb
2011
Ordinary
Shares of
111/19p each 111/19p each
75,316,182
19,731,784
760,316
224,572
24,658,313
6,830,943
10,000
9,047
9,047
–
75,316,182
19,731,784
688,894
202,670
24,658,313
6,830,943
10,000
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 2012.
Approval
This report was approved by the board of directors on 18 May 2012 and signed on its behalf by:
At 3 Mar
2012
At 26 Feb
2011
1,700,000
1,718,287
Ivan Fallon
Chairman of the remuneration committee
38
N Brown Group plc Annual Report & Accounts 2012
Independent Auditor’s Report – Group Accounts
Statement relating to the company’s
compliance with the nine provisions of
the UK Corporate Governance Code
specified for our review; and
• certain elements of the report to
shareholders by the Board on directors’
remuneration.
Other matters
We have reported separately on the parent
company financial statements of N Brown
Group plc for the 53 week period ended 3
March 2012.
Damian Sanders ACA
(Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and
Statutory Auditor
Manchester, UK
18 May 2012
Independent Auditor’s Report to the
members of N Brown Group plc.
We have audited the group financial
statements of N Brown Group plc for the
53 weeks ended 3 March 2012 which
comprise the Consolidated Income
Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated
Balance Sheet, the Consolidated Cash
Flow Statement, the Consolidated
Statement of Changes in Equity, the
Reconciliation of Operating Profit to
Net Cash from Operating Activities and
the related notes 1 to 29. The financial
reporting framework that has been
applied in their preparation is applicable
law and International Financial Reporting
Standards (IFRSs) as adopted by the
European Union.
This report is made solely to the
company’s members, as a body, in
accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work
has been undertaken so that we might
state to the company’s members those
matters we are required to state to them
in an 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.
Respective responsibilities of directors
and auditor
As explained more fully in the Directors’
Responsibilities Statement, the directors
are responsible for the preparation of the
group financial statements and for being
satisfied that they give a true and fair
view. Our responsibility is to audit and
express an opinion on the group financial
statements in accordance with applicable
law and International Standards on Auditing
(UK and Ireland). Those standards require
us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
Scope of the audit of the financial
statements
An audit involves obtaining evidence
about the amounts and disclosures
in the financial statements sufficient
to give reasonable assurance that the
financial statements are free from material
misstatement, whether caused by fraud
or error. This includes an assessment
of: whether the accounting policies are
appropriate to the group’s circumstances
and have been consistently applied and
adequately disclosed; the reasonableness
of significant accounting estimates
made by the directors; and the overall
presentation of the financial statements.
In addition, we read all the financial and
non-financial information in the annual
report to identify material inconsistencies
with the audited financial statements.
If we become aware of any apparent
material misstatements or inconsistencies
we consider the implications for our report.
Opinion on financial statements
In our opinion the group financial
statements:
• give a true and fair view of the state of
the group’s affairs as at 3 March 2012
and of its profit for the 53 weeks then
ended;
• have been properly prepared in
accordance with IFRSs as adopted by
the European Union; and
• have been prepared in accordance with
the requirements of the Companies Act
2006 and Article 4 of the IAS Regulation.
Opinion on other 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 53 week period for which
the group financial statements are
prepared is consistent with the group
financial statements.
Matters on which we are required to
report by exception
We have nothing to report in respect of
the following:
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
• certain disclosures of directors’
remuneration specified by law are not
made; or
• we have not received all of the information
and explanations we require for our audit.
Under the Listing Rules we are required
to review:
• the directors’ statement, contained
within the Director’ Report, in relation
to going concern;
• the part of the Corporate Governance
39
N Brown Group plc Annual Report & Accounts 2012 Consolidated Income Statement
For the 53 weeks ended 3 March 2012
Revenue
Operating profit
Investment income
Finance costs
Profit before taxation and fair value adjustments to financial instruments
Note
3
5
7
8
Fair value adjustments to financial instruments
18
1.3
Profit before taxation
Taxation
Profit attributable to equity holders of the parent
Adjusted earnings per share
Basic
Diluted
Earnings per share
Basic
Diluted
9
11
11
2012
£m
753.2
2011
£m
718.8
102.0
102.6
4.3
(10.7)
95.6
96.9
(15.9)
81.0
4.1
(8.5)
98.2
(3.7)
94.5
(22.8)
71.7
28.91p
28.88p
27.02p
26.98p
29.28p
29.24p
26.04p
26.00p
Consolidated Statement of Comprehensive Income
For the 53 weeks ended 3 March 2012
Profit for the period
Other items of comprehensive income
Exchange differences on translation of foreign operations
Actuarial losses on defined benefit pension schemes
Tax relating to components of other comprehensive income
Total comprehensive income for the period attributable to equity holders of the parent
Note
28
9
2012
£m
81.0
(0.2)
(6.2)
1.6
(4.8)
76.2
2011
£m
71.7
(0.6)
(2.3)
0.6
(2.3)
69.4
40
N Brown Group plc Annual Report & Accounts 2012
Consolidated Balance Sheet
As at 3 March 2012
Non-current assets
Intangible assets
Property, plant & equipment
Retirement benefit surplus
Deferred tax assets
Current assets
Inventories
Trade and other receivables
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
28
20
15
16
24
17
21
18
17
28
20
22
23
2012
£m
62.8
67.2
–
1.9
2011
£m
52.2
69.1
3.3
3.5
131.9
128.1
82.6
522.0
57.5
662.1
794.0
–
(106.6)
(0.1)
(22.9)
(129.6)
532.5
(250.0)
(1.0)
(11.1)
(262.1)
(391.7)
402.3
31.3
11.0
(1.5)
1.9
359.6
402.3
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
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the board of directors and authorised for
issue on 18 May 2012.
They were signed on its behalf by:
Alan White
Dean Moore
Directors
41
N Brown Group plc Annual Report & Accounts 2012
Consolidated Cash Flow Statement
For the 53 weeks ended 3 March 2012
Net cash from operating activities
Investing activities
Purchases of property, plant and equipment
Purchases of intangible assets
Acquisition of subsidiary
Interest received
Net cash used in investing activities
Financing activities
Interest paid
Dividends paid
Increase in bank loans
Purchase of shares by ESOT
Proceeds on issue of shares held by ESOT
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Note
24
2012
£m
56.5
(5.7)
(19.2)
–
0.1
(24.8)
(7.9)
(35.0)
20.0
(1.0)
0.6
(23.3)
8.4
49.1
57.5
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
Reconciliation of Operating Profit to Net Cash from
Operating Activities
For the 53 weeks ended 3 March 2012
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share option charge
Operating cash flows before movements in working capital
Increase in inventories
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
Pension obligation adjustment
Cash generated by operations
Taxation paid
Net cash from operating activities
42
2012
£m
2011
£m
102.0
102.6
7.6
8.6
2.2
7.8
6.9
2.1
120.4
119.4
(4.5)
(30.7)
(7.5)
(1.6)
76.1
(19.6)
56.5
(12.0)
(29.8)
3.7
(7.4)
73.9
(16.5)
57.4
N Brown Group plc Annual Report & Accounts 2012
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 53 weeks
ended 3 March 2012
Balance as at 26 February 2011
31.0
11.0
(1.2)
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
–
–
–
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 3 March 2012
31.3
11.0
–
–
–
–
–
(1.3)
1.0
–
–
–
(1.5)
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)
2.1
–
(0.2)
(0.2)
–
–
–
–
–
–
–
317.5
81.0
(4.6)
76.4
(35.0)
–
–
–
(0.4)
2.2
(1.1)
360.4
81.0
(4.8)
76.2
(35.0)
0.3
(1.3)
1.0
(0.4)
2.2
(1.1)
1.9
359.6
402.3
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
43
N Brown Group plc Annual Report & Accounts 2012
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 53 weeks ended 3 March 2012
have been prepared in accordance with
International Financial Reporting Standards
(IFRS) as adopted for use in the EU.
The accounting policies have been applied
consistently in the current and prior
periods, other than that as set out below.
Adoption of new and revised Standards
In the current year, the following new and
revised Standards and Interpretations
have been adopted and have affected
the amounts reported in these financial
statements.
Standards affecting the financial
statements
The following amendments were made as
part of Improvements to IFRSs (2010).
Amendment to IFRS 7 Financial Instruments:
Disclosures. The amendment clarifies the
required level of disclosure around credit
risk and collateral held and provides relief
from disclosure of renegotiated financial
assets. The impact of this amendment
has been to reduce the level of disclosure
provided on collateral that the entity holds
as security on financial assets that are past
due or impaired.
Standards not affecting the reported
results nor the financial position
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,
with the exception of the amendment to
IFRS 1, may impact the accounting for
future transactions and arrangements.
Amendment to IFRS 1 - Limited Exemption
from Comparative IFRS 7 Disclosures
for First-time Adopters. The amendment
44
provides a limited exemption for first-time
adopters from providing comparative fair-
value hierarchy disclosures under IFRS 7.
IAS 24 (2009) - Related Party Disclosures.
The revised standard has a new,
clearer definition of a related party,
with inconsistencies under the previous
definition having been removed.
Amendment to IAS 32 - Classification of
Rights Issues. Under the amendment,
rights issues of instruments issued to
acquire a fixed number of an entity’s own
non-derivative equity instruments for a
fixed amount in any currency and which
otherwise meet the definition of equity are
classified as equity.
Amendments to IFRIC 14 - Prepayments
of a Minimum Funding Requirement.
The amendments now enable recognition
of an asset in the form of prepaid minimum
funding contributions.
Improvements to IFRSs 2010. Aside from
those items already identified above, the
amendments made to standards under the
2010 improvements to IFRSs have had no
impact on the group.
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 1 (amended): Severe Hyperinflation
and Removal of Fixed Dates for First-
time Adopters
• IFRS 7 (amended): Disclosures –
Transfers of Financial Assets
• IFRS 9: Financial Instruments
• IFRS 10: Consolidated Financial
Statements
• IFRS 11: Joint Arrangements
• IFRS 12: Disclosure of Interests in
Other Entities
• IFRS 13: Fair Value Measurement
• IAS 1 (amended): Presentation of Items
of Other Comprehensive Income
• IAS 12 (amended): Deferred Tax:
Recovery of Underlying Assets
• IAS 19 (revised): Employee Benefits
• IAS 27 (revised): Separate Financial
Statements
• IAS 28 (revised): Investments in
Associates and Joint Ventures
• IFRIC 20: Stripping Costs in the
Production Phase of a Surface Mine
The directors do not expect that the
adoption of the standards listed above
will have a material impact on the financial
statements of the group in future periods,
except as follows:
- IFRS 9 will impact both the measurement
and disclosures of Financial Instruments;
- IFRS 12 will impact the disclosure of
interests the group has in other entities;
- IFRS 13 will impact the measurement of
fair value for certain assets and liabilities
as well as the associated disclosures;
and
- IAS 19 (revised) will impact the
measurement of the various
components representing movements
in the defined benefit pension obligation
and associated disclosures, but not the
group’s total obligation. It is likely that
following the replacement of expected
returns on plan assets with a net
finance cost in the income statement,
the profit for the period will be reduced
and accordingly other comprehensive
income increased.
Beyond the information above, it is not
practicable to provide a reasonable
estimate of the effect of these standards
until a detailed review has been completed.
2 Accounting policies
Adoption of International Financial
Reporting and Accounting Standards
(IFRS).
The group has adopted Standards and
Interpretations issued by the International
Accounting Standards Board (IASB) and
the International Financial Reporting
Interpretations Committee (IFRIC) of the
IASB that are relevant to its operations.
Individual standards and interpretations
have to be adopted by the European
Commission (EC) and the process leads
to a delay between the issue and adoption
of new standards and interpretations
and in some cases amendments by the
EC. Where the group has applied a new
standard or interpretation in advance of
EC adoption this will be noted below in
the relevant policy statement.
Basis of accounting
The financial statements have been
prepared in accordance with IFRS.
The financial statements have also
been prepared in accordance with
IFRSs adopted by the European Union
and therefore comply with Article 4 of
the EU IAS Regulation.
N Brown Group plc Annual Report & Accounts 2012
Notes to the Group Accounts
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
2012 means at 3 March 2012 or the
53 weeks then ended; reference to 2011
means at 26 February 2011 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.
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.
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%
Goodwill is reviewed for impairment at least
annually. Any impairment is recognised
immediately in the income statement and
is not subsequently reversed.
Plant and machinery
Fixtures and fittings
between
5% and 20%
between
10% and 20%
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-
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 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.
45
N Brown Group plc Annual Report & Accounts 2012 Notes to the Group Accounts
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.
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.
Recoverable amount is the higher of fair
value less costs to sell and value in use.
In assessing value in use, the estimated
future cash flows are discounted to their
present value using a discount rate that
reflects current market assessments of the
time value of money and the risks specific
to the asset for which the estimate of
future cash flows have not been adjusted.
If the recoverable amount of an asset (or
cash-generating unit) is estimated to be
less than its carrying amount, the carrying
amount of the asset (cash-generating
unit) is reduced to its recoverable amount.
An impairment loss is recognised as an
expense immediately.
Where an impairment loss subsequently
reverses, the carrying amount of the asset
(cash-generating unit) is increased to the
revised estimate of its recoverable amount,
but so that the increased carrying amount
does not exceed the carrying amount
that would have been determined had
no impairment loss been recognised for
the asset (cash-generating unit) in prior
years. A reversal of an impairment loss is
recognised as income immediately.
Leasing
Leases are classified as finance leases
whenever the terms of the lease transfer
substantially all the risks and rewards of
ownership to the lessee. All other leases
are classified as operating leases.
Rentals payable under operating leases are
charged to income on a straight-line basis
over the term of the relevant lease.
Assets held under finance leases are
included in tangible fixed assets at a value
equal to the original costs incurred by the
lessor less depreciation, and obligations to
the lessor are shown as part of creditors.
The interest element is charged to the
income statement over the period of the
lease to produce a constant rate of charge
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
46
N Brown Group plc Annual Report & Accounts 2012
Notes to the Group Accounts
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.
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 the
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.
47
N Brown Group plc Annual Report & Accounts 2012 Notes to the Group Accounts
Inventory
Provision is made for those items of
inventory where the net realisable value
is estimated to be lower than cost. Net
realisable value is based on both historical
experience and assumptions regarding
future selling values, and is consequently
a source of estimation uncertainty.
Pensions
The liability recognised in the balance
sheet in respect of the group’s defined
benefit pension obligations represents the
liabilities of the group’s pension scheme
after deduction of the fair value of the
related assets. The scheme’s liabilities
are derived by estimating the ultimate
cost of benefits payable by the scheme
and reflecting the discounted value of
the proportion accrued by the year end.
The rate used to discount the resulting
cash flows is equivalent to the market
yield at the balance sheet date on high
quality bonds with a similar duration to the
scheme’s liabilities. This rate is potentially
subject to significant variation and changes
to these rates could have a significant
impact on the net deficit.
Going concern
In determining whether the group’s
accounts can be prepared on a going
concern basis, the directors considered
the group’s business activities together
with factors likely to affect its future
development, performance and its financial
position including cash flows, liquidity
position and borrowing facilities and the
principal risks and uncertainties relating to
its business activities. These are set out
within the Financial Review and discussed
further in the Chairman’s Statement and
Chief Executive’s Review.
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 £370m. The group’s
loan facilities have been renewed during
the year and are committed until 2016.
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
2012
£m
2011
£m
534.8
218.4
753.2
4.3
757.5
523.7
195.1
718.8
4.1
722.9
48
N Brown Group plc Annual Report & Accounts 2012
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
2012
£m
2011
£m
753.2
718.8
102.0
1.3
4.3
(10.7)
96.9
(15.9)
81.0
102.6
(3.7)
4.1
(8.5)
94.5
(22.8)
71.7
The group has one business segment and one significant geographical segment that operates in and derives revenue from
UK and Ireland. Revenue derived from international markets amounted to £8.4m (2011, £4.2m) and incurred operating losses of
£4.8m (2011, £2.3m). All segment assets are located in the 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 (2011, £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
2012
£m
24.9
16.2
792.1
(357.7)
434.4
1.9
(34.0)
402.3
2011
£m
30.8
14.7
742.6
(345.9)
396.7
3.5
(39.8)
360.4
49
N Brown Group plc Annual Report & Accounts 2012
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)
2012
£m
753.2
(354.2)
399.0
(64.8)
(232.2)
102.0
2012
£m
(2.9)
7.6
8.6
227.5
77.7
0.2
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
Amounts payable to Deloitte LLP and their associates by the company and its UK subsidiary undertakings in respect of non-audit
services were £0.4m (2011, £0.8m).
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
2012
£m
0.2
0.4
2011
£m
0.2
0.8
Fees payable for tax services relate to tax advisory services of £0.3m (2011, £0.7m) and compliance of £0.1m (2011, £0.1m).
Fees payable to the company’s auditor for the audit of the company’s annual accounts were £10,000 (2011, £10,000).
In addition to the amounts shown above, the auditors received fees of £5,000 (2011, £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 auditor.
6 Staff costs
2012
2011
The average monthly number of employees (including executive directors) was:
Distribution
Sales and administration
Their aggregate remuneration comprised
Wages and salaries
Social security costs
Other pension costs (see note 28)
Share options costs (see note 27)
Details of individual director’s remuneration is disclosed in the remuneration report on page 35.
986
2,283
3,269
2012
£m
64.4
7.3
3.8
2.2
77.7
1,046
2,210
3,256
2011
£m
63.4
6.9
0.5
2.1
72.9
50
N Brown Group plc Annual Report & Accounts 2012
Notes to the Group Accounts
7
Investment income
Interest on bank deposits
Expected return on pension assets (see note 28)
8 Finance costs
Interest on bank overdrafts and loans
Interest on pension scheme liabilities (see note 28)
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 26.17% (2011, 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 26.17% (2011, 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
2012
£m
0.1
4.2
4.3
2012
£m
6.8
3.9
10.7
2012
£m
25.5
(10.5)
(0.9)
1.8
15.9
2012
£m
96.9
25.4
(0.9)
0.5
(0.4)
(8.7)
15.9
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
During the year the group has utilised tax losses of £6.5m (2011, nil) acquired with Figleaves Global Trading Limited.
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 charge/(credit) in the statement of changes in equity
2012
£m
(1.6)
(1.6)
2012
£m
(1.3)
2.4
1.1
2011
£m
(0.6)
(0.6)
2011
£m
(0.9)
(0.8)
(1.7)
On 21 March 2012 the government announced that it intends to further reduce the rate of corporation tax to 24.0% with effect
from 1 April 2012 and 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.
51
N Brown Group plc Annual Report & Accounts 2012
Notes to the Group Accounts
10 Dividends
Amounts recognised as distributions to equity holders in the period:
Final dividend for the 52 weeks ended 26 February 2011 of 7.37p (2010, 6.41p) per share
Interim dividend for the 53 weeks ended 3 March 2012 of 5.29p (2011, 5.04p) per share
Proposed final dividend for the 53 weeks ended 3 March 2012 of 7.74p (2011, 7.37p) per share
2012
£m
20.3
14.7
35.0
21.5
2011
£m
17.7
13.8
31.5
20.3
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
2012
£m
2011
£m
81.0
71.7
2012
Number
2011
Number
276,681
275,323
367
466
Weighted average number of ordinary shares for the purposes of diluted earnings per share
277,048
275,789
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.
2012
£m
81.0
(1.0)
80.0
2011
£m
71.7
2.7
74.4
52
N Brown Group plc Annual Report & Accounts 2012
Notes to the Group Accounts
12
Intangible assets
Cost
At 27 February 2010
Acquired with subsidiary
Additions
At 26 February 2011
Additions
At 3 March 2012
Amortisation
At 27 February 2010
Charge for the period
At 26 February 2011
Charge for the period
At 3 March 2012
Carrying amount
At 3 March 2012
At 26 February 2011
At 27 February 2010
Brands
£m
Software
£m
Customer
Database
£m
8.9
7.1
0.8
16.8
0.1
16.9
–
–
–
–
–
16.9
16.8
8.9
94.1
–
14.9
109.0
19.1
128.1
66.8
6.8
73.6
8.6
82.2
45.9
35.4
27.3
1.9
–
–
1.9
–
1.9
1.8
0.1
1.9
–
1.9
–
–
0.1
Total
£m
104.9
7.1
15.7
127.7
19.2
146.9
68.6
6.9
75.5
8.6
84.1
62.8
52.2
36.3
Assets in the course of construction included in intangible assets at the year end total £13.8m (2011 £16.0m). No depreciation
is charged on these assets.
All software additions relate to internal development. The brand additions of £0.1m relate to the acquisition of Dannimac
and the Diva 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
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 5.7% (2011, 6.3%).
53
N Brown Group plc Annual Report & Accounts 2012
Notes to the Group Accounts
13 Property, plant and equipment
Cost
At 27 February 2010
Additions
Acquired with subsidiary
At 26 February 2011
Additions
At 3 March 2012
Accumulated depreciation and impairment
At 27 February 2010
Charge for the period
At 26 February 2011
Charge for the period
At 3 March 2012
Carrying amount
At 3 March 2012
At 26 February 2011
At 27 February 2010
Land and Fixtures and
Buildings Equipment
£m
£m
46.2
–
–
46.2
–
46.2
7.5
1.0
8.5
1.0
9.5
36.7
37.7
38.7
91.5
6.4
1.6
99.5
5.7
105.2
61.3
6.8
68.1
6.6
74.7
30.5
31.4
30.2
Total
£m
137.7
6.4
1.6
145.7
5.7
151.4
68.8
7.8
76.6
7.6
84.2
67.2
69.1
68.9
Assets in the course of construction included in property, plant and equipment at the year end date total £1.8m (2011, £1.7m),
no depreciation has been charged on these assets.
At 3 March 2012, the group had not entered into any contractual commitments for the acquisition of property, plant and equipment
(2011, £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.
2012
£m
78.7
3.9
82.6
2011
£m
73.2
4.9
78.1
15
Inventories
Finished goods
Sundry stocks
54
N Brown Group plc Annual Report & Accounts 2012
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
2012
£m
551.1
(49.3)
501.8
20.2
522.0
2011
£m
519.6
(45.1)
474.5
16.3
490.8
Trade receivables are measured at amortised cost.
The average credit period given to customers for the sale of goods is 243 days (2011, 241 days). Interest is charged at 39.9%
(2011, 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 £66.5m at 3 March 2012 (2011, £59.9m).
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
2012
£m
418.1
64.5
28.5
16.4
11.8
11.8
551.1
2012
£m
45.1
58.0
(53.8)
49.3
The concentration of credit risk is limited due to the customer base being large and unrelated and comprising 1.5 million
(2011, 1.5 million) customers. Accordingly, the directors believe that there is no further credit provision required in excess
of the allowance for doubtful debts.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
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
55
N Brown Group plc Annual Report & Accounts 2012
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
2012
£m
30.0
220.0
250.0
–
–
250.0
250.0
2012
%
2.0
0.8
2011
£m
40.0
190.0
230.0
40.0
190.0
–
190.0
2011
%
2.5
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 £220m (2011, £190m) secured by a charge over certain ‘eligible’ trade debtors (current and
0-28 days past due) of the group and is without recourse to any of the group’s other assets. The facility has a current limit of
£250m 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 £30m (2011, £40m) drawn down under a medium term bank revolving credit
facility, which was renegotiated in November 2011, of £100 million committed until March 2016.
(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
3 March 2012 the estimated future interest cost per annum until maturity would be £2.1m (2011, £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 fourth year
In the fifth year
2012
£m
2.1
2.1
2.1
252.1
258.4
2011
£m
41.6
191.3
–
–
232.9
At 3 March 2012, the group had available £120m (2011, £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 2012
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 recognised
2012
£m
43.6
(0.1)
2011
£m
45.1
(1.4)
Changes in the fair value of assets/liabilities recognised, being non-hedging currency derivatives, amounted to a credit of £1.3m
(2011, charge of £3.7m) to income in the period.
The financial instruments that are measured subsequent to initial recognition at fair value are all grouped into Level 2 (2011, 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 (2011, 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 24 and equity attributable to
equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 22 to 23 and the
statement of changes in equity.
Gearing ratio
The gearing ratio at the year end is as follows:
Debt
Cash and cash equivalents
Net Debt
Equity
Gearing ratio
2012
£m
250.0
(57.5)
192.5
402.3
48%
2011
£m
230.0
(49.1)
180.9
360.4
50%
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.
57
N Brown Group plc Annual Report & Accounts 2012
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
2012
£m
20.7
17.9
5.0
43.6
2011
£m
22.4
17.6
5.1
45.1
Forward contracts outstanding at the period end are contracted at US dollar exchange rates ranging between 1.56 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:
£m
Euro
US dollar
Liabilities
Assets
2012
£m
2.0
4.6
2011
£m
2.0
0.6
2012
£m
11.0
4.7
2011
10.5
0.8
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 director’s 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
2012
£m
1.0
(0.8)
2011
£m
1.1
(0.7)
US Dollar
Currency
Impact
2012
£m
2011
£m
–
–
–
–
58
N Brown Group plc Annual Report & Accounts 2012
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 53 weeks
ended 3 March 2012 would decrease by £1.25m (2011, £1.1m).
This sensitivity analysis has been determined based on exposure to interest rates at the balance sheet date and assuming the net
debt outstanding at the year end date was outstanding for the whole year.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the group.
Investments of cash surpluses, borrowings and derivative financial instruments are made through banks which are approved by
the board.
All customers who wish to trade on credit terms are subject to credit verification procedures, supplied by independent rating
agencies. Customer debtor balances are monitored on an ongoing basis and provision is made for estimated irrecoverable
amounts. The concentration of credit risk is limited due to the customer base being large and unrelated, and did not exceed five
percent of gross monetary assets at any one time during the period.
Liquidity risk management
The group manages liquidity risk by maintaining adequate banking and borrowing facilities and by continuously monitoring
forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 17 is a
description of additional undrawn facilities that the group has at its disposal and details of the group’s remaining contractual
maturity for its non-derivative financial liabilities.
Fair value of financial instruments
Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted
interest rates matching maturities of the contracts.
The carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate
their fair values.
59
N Brown Group plc Annual Report & Accounts 2012 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 27 February 2010
Acquired with subsidiary
Credit/(charge) to income
Credit to equity
At 26 February 2011
Credit/(charge) to income
(Charge)/credit to equity
At 3 March 2012
1.8
–
0.7
0.8
3.3
0.6
(2.4)
1.5
(0.7)
–
0.7
–
–
–
–
–
(10.0)
2.6
(0.1)
–
(7.5)
(1.0)
–
(8.5)
0.6
–
(2.1)
0.6
(0.9)
(0.5)
1.6
0.2
Other
£m
(2.5)
–
0.1
–
(2.4)
–
–
(2.4)
Total
£m
(10.8)
2.6
(0.7)
1.4
(7.5)
(0.9)
(0.8)
(9.2)
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
2012
£m
1.9
(11.1)
(9.2)
At the balance sheet date, the group has unused tax losses of £0.1m (2011, £0.1m) and capital losses of £4.4m (2011, £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
2012
£m
61.5
14.7
0.4
30.0
106.6
2011
£m
3.5
(11.0)
(7.5)
2011
£m
59.1
22.5
3.6
29.3
114.5
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 (2011, 40 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.
60
N Brown Group plc Annual Report & Accounts 2012
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 26 February 2011
Ordinary shares issued
At 3 March 2012
2012
Number
2011
Number
2012
£m
2011
£m
352,857,142
352,857,142
39.0
39.0
280,429,454
3,000,000
278,404,714
2,024,740
283,429,454 280,429,454
31.0
0.3
31.3
30.8
0.2
31.0
During the year 3,000,000 (2011, 2,024,740) ordinary shares were issued to the N Brown Group plc Employee Share Ownership
Trusts for £331,736 (2011, £223,784). The company has one class of ordinary shares which carry no right to fixed income.
23 Own shares
Balance at 26 February 2011
Additions
Issue of own shares on exercise of share options
Balance at 3 March 2012
2012
£m
1.2
1.3
(1.0)
1.5
2011
£m
0.4
1.0
(0.2)
1.2
The own shares reserve represents the cost of shares in N Brown Group plc held by the N Brown Group plc Employee Share
Ownership Trusts to satisfy options under the group’s various share benefit schemes (see note 27).
At 3 March 2012 the employee trusts held 5,911,974 shares in the company (2011, 4,693,021).
61
N Brown Group plc Annual Report & Accounts 2012
Notes to the Group Accounts
24 Cash and cash equivalents
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at
bank and other short-term highly liquid investments with a maturity of three months or less.
A breakdown of significant cash and cash equivalent balances by currency is as follows:
Sterling
Euro
US Dollar
25 Contingent liabilities
2012
£m
50.2
2.7
4.6
57.5
2011
£m
46.5
1.8
0.8
49.1
Parent company borrowings which at 3 March 2012 amounted to £21.5m (2011, £15.2m) have been guaranteed by certain
subsidiary undertakings.
26 Operating lease arrangements
Minimum lease payments under operating leases recognised as an expense for the period
2012
£m
5.2
2011
£m
5.1
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
2012
£m
0.9
20.5
7.5
28.9
2011
£m
0.5
13.7
8.9
23.1
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 2012
Notes to the Group Accounts
27 Equity settled share based payments
The remuneration report on pages 29 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
2000 Executive scheme
Unapproved executive scheme
Value Creation Plan
Long-term incentive scheme awards
July 2008
May 2009
July 2010
July 2011
Deferred annual bonus scheme awards
May 2009
May 2010
June 2011
Option price
in pence
186 – 269
106 – 341
211 – 341
–
–
–
–
–
–
–
–
Exercise
period
Number
of shares
2012
Number
of shares
2011
August 2011 – February 2016
June 2007 – June 2021
May 2009 – June 2021
1,639,816
1,797,485
1,104,730
1,620,210
1,873,864
821,539
February 2014 – February 2019
–
3,100,000
July 2011 – January 2012
May 2012 – November 2012
July 2013 – January 2014
July 2014 – January 2015
–
1,166,576
1,180,129
1,158,928
1,550,452
1,266,996
1,294,758
–
May 2011 – November 2011
May 2012 – November 2012
June 2013 – December 2013
–
299,365
233,926
252,348
323,450
–
63
N Brown Group plc Annual Report & Accounts 2012
Notes to the Group Accounts
27 Equity settled share based payments continued
Movements in share options are summarised as follows:
Number of
share options
2012
Weighted
average exercise
price
£
Number of
share options
2011
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
4,315,613
1,544,936
(521,491)
(797,027)
4,542,031
611,602
2.24
2.65
2.00
2.33
2.39
2.34
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
Options were exercised on a regular basis throughout the period and the weighted average share price during this period was
264 pence (2011, 260 pence). The options outstanding at 3 March 2012 had a weighted average remaining contractual life
of 6.0 years (2011, 5.8 years). The aggregate estimated fair values of options granted in the period is £1,041,000 (2011, £629,000).
Movements in management share awards are summarised as follows:
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
Number of
share awards
7,788,004
1,493,670
(3,427,987)
(1,814,763)
4,038,924
–
2012
Weighted
average exercise
price
£
Number of
share awards
2011
Weighted
average exercise
price
£
–
–
–
–
–
–
7,211,920
1,618,208
(56,340)
(985,784)
7,788,004
–
–
–
–
–
–
–
The awards outstanding at 3 March 2012 had a weighted average remaining contractual life of 4.0 years (2011, 4.2 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 (%)
2012
2011
278
135
41.0
2.5 – 5.5
1.5
4.4
252
95
38.3
2.5 – 5.5
1.5
4.3
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 £2.2m and £2.1m related to equity-settled share based payment transactions in 2012 and
2011 respectively.
64
N Brown Group plc Annual Report & Accounts 2012
Notes to the Group Accounts
28 Retirement benefit schemes
Defined contribution schemes
The group operates defined contribution retirement benefit schemes for all qualifying employees.
The group is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits.
The only obligation of the group with respect to the retirement benefit scheme is to make the specified contributions.
The total cost charged to income of £2.0m (2011, £1.8m) represents contributions payable to the schemes by the group at rates
specified in the rules of the plans. As at 3 March 2012, contributions of £0.2m (2011, £0.2m) 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
2012
4.8%
4.6%
4.4%
2.4%
3.4%
2.4%
23.8
26.8
2012
£m
1.8
3.9
(4.2)
–
1.5
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)
Actuarial gains and losses have been reported in the statement of comprehensive income. The cumulative actuarial losses since
transition to IFRS were £0.1m (2011, actuarial gains of £6.1m).
The actual return on scheme assets was a gain of £8.4m (2011, gain of £7.3m).
The scheme is a closed scheme and therefore, under the projected unit method, the current service cost would be expected
to increase.
65
N Brown Group plc Annual Report & Accounts 2012
Notes to the Group Accounts
28 Retirement benefit schemes continued
The amount included in the balance sheet arising from the group’s obligations in respect of its defined benefit retirement benefit
scheme is as follows:
Present value of defined benefit obligations
Fair value of scheme assets
(Deficit)/surplus in the scheme and (liability)/asset recognised in the balance sheet
Movements in the present value of defined benefit obligations were as follows:
At 26 February 2011
Service cost
Interest cost
Actuarial losses
Liabilities extinguished on settlements
Benefits paid
At 3 March 2012
Movements in the fair value of the scheme assets were as follows:
At 26 February 2011
Expected return on scheme assets
Actuarial gains
Assets distributed on settlements
Contributions from sponsoring companies
Benefits paid
At 3 March 2012
2012
£m
(83.3)
82.3
(1.0)
2012
£m
68.5
1.8
3.9
10.4
–
(1.3)
83.3
2012
£m
71.8
4.2
4.2
–
3.4
(1.3)
82.3
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
66
N Brown Group plc Annual Report & Accounts 2012
Notes to the Group Accounts
28 Retirement benefit schemes continued
The analysis of the scheme assets and the expected rate of return at the balance sheet date was as follows:
Equities
Bonds
Cash
Expected
Return
Fair value
of assets
2012
%
6.8
2.6
0.5
4.6
2011
%
6.8
4.5
–
5.7
2012
£m
39.5
41.2
1.6
82.3
2011
£m
38.1
33.7
–
71.8
Expected rates of return on the scheme assets are based on consistent assumptions with the previous period, adjusted to reflect
changes in market conditions since that date.
The history of experience adjustments is as follows:
Present value of defined benefit obligations
Fair value of scheme assets
(Deficit)/surplus in the scheme
Experience adjustments on scheme liabilities
Amount (£m)
Percentage of scheme liabilities (%)
Difference between expected and actual return
on scheme assets:
Amount (£m)
Percentage of scheme assets (%)
2012
£m
(83.3)
82.3
(1.0)
–
0%
4.2
5%
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%)
The estimated amounts of contributions expected to be paid to the scheme during the 52 week period ending 2 March 2013
is £3.4m.
29 Related party transactions
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are
not disclosed in this note. Transactions between the company and its subsidiaries are disclosed in the company’s separate financial
statements. Details of remuneration paid to the group’s key management personnel is given on page 35 of the remuneration report.
67
N Brown Group plc Annual Report & Accounts 2012
Independent Auditor’s Report – Company Accounts
Other matters
We have reported separately on the group
financial statements of N Brown Group plc
for the year ended 3 March 2012.
Damian Sanders ACA
(Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and
Statutory Auditor
Manchester, UK
18 May 2012
To the members of N Brown Group plc.
We have audited the parent company
financial statements of N Brown Group
plc for the 53 weeks ended 3 March 2012
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 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.
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 and
express an opinion on 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. In addition, we read all the
financial and non-financial information
in the annual report to identify material
inconsistencies with the audited financial
statements. If we become aware of
any apparent material misstatements
or inconsistencies we consider the
implications for our report.
Opinion on financial statements
In our opinion the parent company financial
statements:
• give a true and fair view of the state of
the company’s affairs as at 3 March 2012;
• 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 year 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.
68
N Brown Group plc Annual Report & Accounts 2012 Company Balance Sheet
As at 3 March 2012
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
Note
3
4
5
6
7
8
8
2012
£m
267.9
267.9
100.1
100.1
(233.5)
(133.4)
134.5
(30.0)
104.5
31.3
11.0
62.2
2011
£m
267.9
267.9
103.4
103.4
(270.0)
(166.6)
101.3
–
101.3
31.0
11.0
59.3
104.5
101.3
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the board of directors and authorised for
issue on 18 May 2012.
They were signed on its behalf by:
Alan White
Dean Moore
Directors
69
N Brown Group plc Annual Report & Accounts 2012
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 3 March 2012 of £38.3m (2011, profit £34.8m).
The non executive directors’ remuneration was £206,000 (2011, £206,000) and six non executive directors were remunerated
(2011, 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 (2011, £10,000) was borne by subsidiary undertakings.
3 Fixed asset investment
Cost and net book value
At 3 March 2012 and at 26 February 2011
£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 of the below companies 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
Speciality Home Shopping (US) 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 2012
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
2012
£m
99.6
0.5
100.1
2012
£m
21.5
0.4
211.3
0.3
233.5
2012
£m
21.5
30.0
51.5
21.5
–
30.0
51.5
(21.5)
30.0
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)
–
The company has unsecured bank loans of £30m (2011, £40m) drawn down under a medium term bank revolving credit facility
committed until March 2016.
At 3 March 2012, the company had available £90m (2011, £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
2012
%
2.0
1.4
2011
%
2.5
1.0
71
N Brown Group plc Annual Report & Accounts 2012
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 26 February 2011
Ordinary shares issued
At 3 March 2012
2012
Number
2011
Number
2012
£m
2011
£m
352,857,142
352,857,142
39.0
39.0
280,429,454 278,404,714
2,024,740
3,000,000
283,429,454 280,429,454
31.0
0.3
31.3
30.8
0.2
31.0
During the year 3,000,000 (2011, 2,024,740) ordinary shares were issued to the N Brown Group Employee Share Ownership Trusts
for £331,736 (2011, £223,784). 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 27 February 2010
Dividends paid
Profit for the financial period
Increase in share capital
Balance at 26 February 2011
Dividends paid
Profit for the financial period
Increase in share capital
At 3 March 2012
9 Guarantees
Share
capital
£m
Share
premium
account
£m
Profit
and loss
account
£m
30.8
–
–
0.2
31.0
–
–
0.3
31.3
11.0
–
–
–
11.0
–
–
–
11.0
56.4
(31.9)
34.8
–
59.3
(35.4)
38.3
–
62.2
Total
£m
98.2
(31.9)
34.8
0.2
101.3
(35.4)
38.3
0.3
104.5
Parent company borrowings which at 3 March 2012 amounted to £21.5m (2011, £15.2m) 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 2012
Shareholder Information
Financial Timetable
2011
2012
11 October
9 December
6 January
3 March
1 May
31 May
29 June
3 July
27 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 2012 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
Griffin House
40 Lever Street
Manchester, M60 6ES
www.nbrown.co.uk