N Brown Group plc
Annual Report & Accounts 2014
Fashion that fits –
anytime, anywhere
Our 4 customer
centric segments
And our 3
power brands
Mature Females
Younger Females
Males
Specialist
A big year for
our customers
2014 has been a big year for N Brown. Not just in
terms of figures, sales and brands, but in terms of
our customers. The last twelve months have seen
us deliver the goods to more than four million happy
customers, putting us in the top five for customer
satisfaction in the UK’s retail industry. By putting
our customers at the heart of our business we’ve
been able to give them more of what they want,
when and where they want it.
Technology has played a massive part in this. As the digital world continues
to open up even more new and exciting opportunities, we’ve been setting
new standards (as well as fashions) for people to follow. By embracing
the technology available to us we’ve been able to deliver an even faster
and more flexible service – and our customers have responded to this,
helping to make it our most profitable year to date.
We’ve also focused a lot of our efforts on understanding how we can use
our portfolio of brands to appeal to a greater cross section of the population.
For young women we have Simply Be, which has become our brand with
the most potential; for older women we have JD Williams – now our biggest
brand; and for men we have Jacamo, which is our fastest growing brand.
House of Bath has also achieved excellent results, with growth up 25%,
and is definitely one to watch.
Together these brands have helped us deliver fast fashion to a massive
percentage of the UK and take our place in the top quartile of the FTSE 250.
Combined with new dual-fascia Simply Be and Jacamo stores opening,
optimised mobile sites, click & collect, and next day delivery, we’re proud to
say it’s been the biggest year in our history. And that deserves a big thanks
to everyone involved.
Contents
02 Financial Highlights
03 Five Year History
04 The power of four
05 Hitting the high street
05 Growing the network
06 Whoever, wherever,
whatever, whenever
06 Big names for the
big brands
07 Bigger, better, faster
08 Chairman’s statement
10 Chief Executive’s Review
14 Financial Review
16 Directors and Officers
18 Directors’ Report
22 Corporate Governance Statement
33 Remuneration Report
51
Independent Auditor’s Report to the
Members of N Brown Group Plc
54 Consolidated Income Statement
54 Consolidated Statement of
Comprehensive Income
55 Consolidated Balance Sheet
56 Consolidated Cash
Flow Statement
56 Reconciliation of Operating Profit to
Net Cash from Operating Activities
57 Consolidated Statement of
Changes in Equity
58 Notes to the Group Accounts
82 Company Balance Sheet
82 Notes to the Company Accounts
IBC Shareholder Information
01
N Brown Group plc Annual Report & Accounts 2014 2014
£834.9m
£107.0m
£100.1m
£97.3m
27.88p
27.09p
14.23p
2013
£784.7m
£102.2m
£95.1m
£96.4m
28.15p
28.51p
13.68p
£485.3m
£446.0m
171.2p
44%
157.4p
42%
Financial
Highlights
2014
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 66.
02
N Brown Group plc Annual Report & Accounts 2014 5 year history
Revenue –
Continuing operations (£m)
Operating profit –
Continuing operations (£m)
Pre-tax profit* –
Continuing operations (£m)
690.0 718.8 753.2 784.7 834.9
97.6 102.6 102.0 102.2 107.0
93.1
98.2 95.6
95.1 100.1
10
11
12
13
14
10
11
12
13
14
10
11
12
13
14
Adjusted earnings per share**
– Continuing operations (p)
Dividends per share (p)
Net assets (£m)
24.77 27.02 28.91 28.15 27.88
10.79 12.41 13.03 13.68 14.23
319.0 360.4 402.3 446.0 485.3
10
11
12
13
14
10
11
12
13
14
10
11
12
13
14
* Excluding fair value adjustments to financial instruments.
** See note 11 on page 66.
03
N Brown Group plc Annual Report & Accounts 2014
Over 4m
satisfied customers
this year
64%
of first orders
are now placed
online
The power
of four
It might only seem like a
small change, but dividing
our business into four distinct
customer groups – younger
women, older women, men
and specialist – has made a
massive difference.
Four brands in particular, Simply
Be, JD Williams, Jacamo and
Figleaves stand out in these
categories, helping us deliver
the goods to customers all
over the country.
04
N Brown Group plc Annual Report & Accounts 2014 35%
like for like
increase in sales
in our stores
Hitting the
high street
Online has been a great source
of success for us, but this has
been complemented by new
stores taking the high street by
storm. We now have eight dual
fascia Simply Be and Jacamo
stores in major cities around
the UK, with plans for more on
the way. If we’re going to put
our customers at the heart of our
business, we need to keep our
brands fresh in their minds.
Growing the
network
Simply Be now has the biggest
selection of clothing for size
20+ in the UK fashion market,
and that hasn’t gone unnoticed
by its fans. They now have over
170,000 Facebook followers – an
increase of 150% from last year,
and Twitter followers are up a
huge 213% to 48,000; more than
any other UK plus size brand.
05
N Brown Group plc Annual Report & Accounts 2014 Whoever, wherever,
whatever, whenever
People are busier than ever these days – so much to do,
so little time. By optimizing all our sites for mobile and
tablet devices, we can let them order whatever they like,
wherever they are. On the train, in a restaurant, at the
football – they’ll always be in touch with the latest trends.
Big names for
the big brands
Our celebrity designers have continued to raise the profile
of our brands through their range of fresh ideas and
cutting-edge designs. Freddie Flintoff continues to stand
tall for Jacamo, Danii Minogue’s exclusive ‘Project D’
range attracted new fans for Simply Be, as did Gok Wan’s
shapewear range, which raised eyebrows all over the UK.
06
Currently
more than
40%
of our web
traffic comes
from mobile
devices
2014 has seen
Jacamo grow
by
22%
N Brown Group plc Annual Report & Accounts 2014 Bigger, better,
faster
Giving our customers more ways to
shop has been one of the key factors
in this year’s success, but giving them
more ways to receive is equally as
important. Next day delivery has given
them more freedom, especially in
the run-up to Christmas, and Click &
Collect outlets give them the flexibility
to fit in with their working lives.
Click & Collect
is now available
from over 3,500
parcel shops
07
N Brown Group plc Annual Report & Accounts 2014 Chairman’s statement
We are pleased to report that the group delivered a robust performance in
2013/14 and has made a good start to the new financial year. We have grown
profits during a period of major transition in the business as we begin to
implement our new strategy for growth, including accelerating our investment
in new markets and maintaining high levels of customer recruitment across
our existing customer segments and brands.
We are encouraged by the early
performance we are seeing in our
US business and with our programme
of new store openings in the UK as
part of the development of our multi-
channel offering and we are confident
in the renewed growth from the actions
we are taking in our core JD Williams
business. We are now applying what
we learned in the early stages of our
entry into the US market and resumed
a faster rate of expansion there during
the second half of the year. The roll-out
of Simply Be/Jacamo stores has also
gone well as we move towards our
target of 25 stores nationally across
the UK. We believe these new activities
can be significant growth drivers for the
group in the medium term.
Financial Results
£m
2014
834.9
107.0
£m
2013
784.7
102.2
%
+6.4
+4.7
100.1
95.1
+5.3
97.3
96.4
+0.9
27.88
28.15
-1.0
Revenue
Operating profit
Adjusted profit
before taxation
Statutory profit
before taxation
Adjusted earnings
per share (p)
Total group revenue increased by 6.4%
to £834.9m and 6.3% on a like-for-like
basis, excluding the non-comparable
periods for newly opened stores.
Gross margin reduced by 0.3% for the
year as a whole despite a second half
improvement in overall margin which
came from the reduced bad debt ratio
of 7.5% of sales. This was achieved
largely following the introduction of
new fraud elimination processes and
credit policy rule changes on high value
electrical products, introduced in the
third quarter.
Operating profit was up by 4.7% to
£107.0m, after accounting for losses
of £6.2m (2013, £6.1m) from the
investment in international trading
and the Simply Be/Jacamo stores.
Excluding the impact of fair value
adjustment to financial instruments,
profit before taxation was up 5.3%
to £100.1m (2013, £95.1m). Including
these adjustments, profit before
taxation was £97.3m (2013, £96.4m),
up 0.9%.
Adjusted earnings per share were
down at 27.88p (2013, 28.15p), due
to a higher tax charge of 22.0% (2013,
17.6%). The board is proposing a final
dividend of 8.56 pence per share,
up 4.0% on last year, giving a total
dividend for the year of 14.23 pence
up by 4.0%, and covered 1.96 times.
Net borrowings at 1 March 2014
increased to £213.7m (2013, £188.7m)
due to further investment in the
receivables book, which generates
our financial services revenue.
Net finance costs fell from £7.1m to
£6.9m, covered 15.5 times by operating
profit. Gearing has increased from 42%
to 44% on net assets which have risen
by 8.8% to £485.3m (2013, £446.0m).
Trading Highlights
During the year all of our consumer
facing segments performed in line with
our expectations and we continued to
improve our customer service levels.
The focus on consumer segments has
enabled us to reinvigorate our offer and
optimise more effectively our marketing
investment. The fastest growth was
seen within the male segment, which
grew by 13% and the younger female
segment which grew by 9%.
The mature female segment continued
to improve with 3% growth in the year.
Revenue grew in all our major product
categories as we continued to broaden
our ranges. The fastest growth came
from our increasingly differentiated
home offer where sales grew by
12%, despite the reduced electrical
sales arising out of the credit policy
changes introduced in the second
half of the year. This category is now
focused on our “Famous Five” ranges
which include bedding, home décor,
homewares, outdoor living and family
gifts, and accounts for 31% of group
revenue. Footwear and menswear
grew by 10% and 5% respectively.
Ladieswear, which is a major part
of our future growth strategy, and a
significant opportunity for the business
going forward, grew by 3% during
the year.
The continued investment in our
websites has driven online penetration
to 58% of revenue. Online remains
our priority channel and 40% of our
sessions are now on mobile devices
marking a significant change in the
way our customers shop.
As reported at the interim results,
we elected to pause our expansion
into the US market during the third
quarter. We have now resumed a
faster rate of customer recruitment
and we are applying what we’ve
learned so far to the next stage of
expansion. We have strengthened the
team, taken the decision to focus on
the Simply Be opportunity exclusively
and based on the strength of our
gross margin, begun to invest more in
digital marketing, tailored ranges and
website and service developments.
The revenue for the full year grew by
21% to £10m and customer numbers
08
N Brown Group plc Annual Report & Accounts 2014
accelerate growth by building on
the core strengths of the group.
Consequently the board remains
confident in the outlook for the
business, and we believe that the
strategy in place will enable us to
achieve our expectations in the year
ahead and beyond. I would like to
thank all stakeholders in the business
and in particular the staff for all of their
hard work and dedication throughout
the year.
Andrew Higginson
are up 28%. Losses were up £1.7m to
£4.7m as we continue to invest in this
key geography.
During September 2013 we opened
two Simply Be/Jacamo stores in Leeds
and Derby to bring our number of
stores to nine, eight of which are dual
facia. The like-for-like sales from these
stores were up 35% in the year, and
they are now contributing positively to
trading profit before central overheads.
It is our intention to roll-out a further
seven stores by October this year, and
we have already found a site on Oxford
Street, which opens in September.
These stores are helping to build brand
awareness and we believe are ahead
of our competitors in terms of multi-
channel services offered in store.
They are responsible for an online
“halo” sales benefit in the 45 minute
drive time radius around each store of
7% and 3% for Simply Be and Jacamo
respectively, compared to those areas
without a store.
In February 2014 we changed our
check-out processes across the
business to make it easier for new
customers to pay by cash at the point
of sale if they wished to do so. Our
testing highlighted that we would
achieve additional sales and improve
cashflow from this initiative, and whilst
it is early in the process the signs of
success in this area are positive with
30% of new orderers to date on all
channels completing their transaction
on a cash basis at higher gross
margins. Most of these orders relate
to fashion items.
In February we described our
systems infrastructure development
programme, which is designed to
simplify our business and to create
the foundations for our multi-national,
multi-channel expansion plans. We
have signed agreements with our
chosen partners and have now moved
on to the systems design phase. It
is likely that we will achieve some
reporting benefits later in the current
year, but the positive financial impacts
on our growth will be seen in the year
ended 2016 and beyond.
Board Composition
In July 2013 Angela Spindler joined
N Brown Group as Chief Executive
and has already made a very positive
contribution to the group. Her vision
for the future of the business was laid
out in February this year and I am
delighted with the progress she has
made in such a short time in shaping
and pursuing the group’s new
strategy. She is already driving the
many changes required to achieve
our objectives.
John McGuire retired in March 2014
having been a non-executive director
since 2005, and Anna Ford will retire
from the board in July 2014 after
5 years’ service as a non-executive
director. I would like to thank them for
their contribution to N Brown’s success
over the years and wish them well for
the future.
Financial Reporting Calendar
We have reviewed our approach to
financial reporting and consequently
made some changes in line with what
is now best practice in the listed retail
sector. Going forward, we will report
our financial results in the normal way
and with similar timings to our current
approach. Additionally, we will issue
pre-close trading updates at the end
of each half year and also Interim
Management statements covering
the first and third quarters shortly
after the end of those trading periods.
One consequence of these changes
is that we will cease the issue of
current trading statements covering
short periods at our financial results
– an approach which is now routine
across our industry. Consistent with
this new approach, these results
therefore do not include a current
trading statement. Our first quarter
IMS will now be issued in June,
some weeks earlier than previously.
Outlook
We are stepping up the pace of
change in the business in pursuit of
our strategic ambitions. I am pleased
to report that the team has made
good early progress with the
implementation of our plans to
Chief Executive’s Review
Delivering Growth
across all our Customer
Segments & Product
Categories
Our consistent performance in terms of revenue growth
has been delivered again this year with like-for-like sales
up 6.3% and total group turnover up 6.4% to £834.9m.
Our strategic initiatives of Simply Be and Jacamo store
roll-out and our expansion into the USA have added to
our momentum. However, in absolute terms the biggest
drivers of growth were our young female and male
consumer segments which delivered £23m and £16m
of revenue growth respectively.
It is pleasing to report that all consumer
segments delivered growth in the year.
In the mature segment classic fashion
brand Julipa was the star performer
up nearly 30% vs. last year. House
of Bath was also strong at over 25%
ahead year on year. It is encouraging
to see a return to growth in JD
Williams, however, at just 1% ahead
we see this as an opportunity.
In the younger female segment Simply
Be performed strongly, up 9% year on
year and in the male segment Jacamo
was a stand-out performer, up 21%.
bought for the Autumn/Winter season.
Sales for the full year were diluted by
a flat performance from some large
categories in mid-life ladies fashion
– casuals, knitwear and outerwear.
That said, we grew share in our key
categories of mens and ladies plus
size clothing.
In the mature female segment we saw
good growth in our main in-house
ladieswear brand Joanna Hope (+7%).
In younger female clothing, Fast
Fashion ranges sold extremely well
(+46%). The brand Joe Browns was
also a strong performer up 20%.
Revenue % of %
£m
Total Change
Revenue % of %
£m
Total Change
Mature Female
Young Female
Male
Specialist
Total
364
277
140
54
835
44
33
17
6
100
+3
+9
+13
+2
+6
Ladieswear
Footwear
Menswear
Home & Gift
Total
372
92
108
263
835
45
11
13
31
100
+3
+10
+5
+12
+6
All product categories also grew in the
year with the best performance coming
from Home & Gift and Footwear.
Clothing sales were impacted in the
second half by the very mild weather
which affected the sales of product
In traditional menswear, which
accounts for over 50% of sales,
performance was diluted with the
category only up 4% on the year.
Younger ranges were stronger, up 8%.
Top 5
in UK retail
for customer
satisfaction
Over 25%
increase
Biggest
choice
in demand using
next day delivery
for size 20+
in UK fashion
Home and gift sales have been
bolstered by improvements in the
housing market with Homewares
and Furniture being strong growth
categories, as was gifting, where
demand was up 27% year on year.
The House of Bath brand within
Home also performed well in the year,
up 25%. As a result of credit policy
changes, Home & Gift sales though
strong, were £9 million lower as a
consequence.
In ladies footwear younger styles
were strongest, up 20% year on year.
We were particularly successful in
wide calf fitting boots. Men’s footwear
grew by 16%, with most growth
coming from Jacamo customers.
Gross Margin and Credit
The overall gross margin rate for the
year was down 30bps year on year.
This is a marked improvement on
the first half where margin was down
80bps. Product margin was down
20bps, impacted by the sales mix in
favour of Home & Gift and diluted in
the second half by a higher rate of
markdown and promotional activity
to support sales and sell-through
following a weather related poor
start to the autumn/winter season.
The ratio of bad debt to sales was
8.1% for the year, which was in line
with last year. However, this reduced
from 8.8% in the first half to 7.5% in
the second half. This reflected our
product related credit policy changes
impacting high risk, low margin home
& gift categories such as high value
electricals and electronics. We expect
future sales and margin benefits to
flow from these changes.
Attracting and Delighting
More Customers
Our active customer file has increased
to seven million, which is up 3.7%
year on year and reflects sustained
investment in recruitment with
24% of demand coming from new
customers. Our investment is also
reflected in customer retention noting
that the most effective recruitment
channel is online marketing, including
paid search.
We actively track the long term value
of all our customers and take this
back to the type of recruitment activity
that first enticed them to order – this
allows us to optimise spend for long
term profitability.
Continued development of a tailored,
segmental marketing strategy is
clearly enabling growth through more
targeted and relevant communications,
and this will develop further as we
combine analytics with online tools
to deliver real time personalisation.
Improving the shopping experience
for our customers is a key focus for
the business as it correlates so closely
with commercial success. In the
multi-channel world this requires us
to measure ourselves and track our
performance across many dimensions
including the web experience, in-store
service, size availability, the speed
and reliability of our delivery service
and overall value for money.
Our latest aggregate score from the
UK Institute of Customer Service gives
us a satisfaction index of 84.1 which
puts us in the top five of UK multi-
channel retailers and well above the
overall index of 77.9.
During the year we have made
numerous improvements to our overall
service proposition for customers.
For example: we have virtually halved
our web page load speeds, making us
industry leading in this regard; we have
simplified and improved the check-
out process; we have introduced a
“Click and Collect” service from 3,000
parcel shops across the country; we
have provided mobile tablet devices
to store colleagues in our new stores
allowing them to better serve our in-
store customers; we have significantly
improved our next day service which
now offers an 8pm cut-off and
accounts for over 28% of demand,
at the same time standard delivery
service has improved to 3.2 days on
average. We will continue to drive
service improvements and track our
progress on customer satisfaction.
Developing our Multichannel
Capabilities
Online sales now account for 58% of
overall demand. This is up from 55%
last year. The shift in our marketing
spend reflects the growing appeal
and influence of digital marketing
techniques with customers across
all our consumer segments. In the
year we have reduced spend on
paper from 33% to 25% of our
overall marketing budget and diverted
investment into online recruitment and
retention activities. We have increased
our emails by 70% year on year and
the open rate of promotional emails
has increased by 8%.
These are targeted emails based
on customer product preferences
and lifestyles. These highly targeted
campaigns are driven from analytics
11
N Brown Group plc Annual Report & Accounts 2014 Chief Executive’s Review
i
s
n
o
s
s
e
S
%
100%
80%
60%
40%
20%
0%
2010
2011
2012
2013
Marketing Season
% Mobile Sessions
% Tablet Sessions
% Desktop Sessions
40% of
web traffic
coming from
mobile devices
and are all device optimised which is driving the
improved customer response.
The migration of our business to the online channel is
being fuelled by the growth in traffic from mobile devices.
This now accounts for 40% of web traffic with over half of
that coming from tablets. During the year we optimised our
websites for tablet devices and smartphones. As a result
of improvements our conversion levels by device have
increased year on year.
Device % of traffic converting to demand
Desktop
Tablet
Smartphone
2013
2014
7.1
4.5
3.5
7.9
5.0
3.6
We have also improved search and navigation across
sites and increased our online selling capabilities through
product sequencing flexibility, improved affinity selling and
extended personalised recommendation capabilities.
We have also enhanced the online user experience with
more frequent and relevant content changes and richer
images, making our sites more interesting and inspiring
for customers to browse.
Ahead of our systems upgrade which is discussed
further below, we continue to invest in improving our
web proposition. In 2014 we plan to further improve copy
and images, develop our product recommendation and
personalisation tools plus make the customer checkout
journey even simpler.
Implementing our Strategy
The fourth quarter has seen us begin to implement
elements of our strategy which underpin our ambition to be:
“The leading global retailer famous for making shopping for
fashion easy and enjoyable regardless of size.”
To be the leading gobal retailer
famous for making shopping for fashion easy
and enjoyable, regardless of size
Multi-Channel
experience
International
expansion
Industry leading
capabilities
and efficiencies
Expert
Engaging
Easy
Enjoyable
Data rich,
fashion fit
specialist
Targeted,
relevant
brands
Multi-Channel
one-stop-shop
with credit
option
Inspirational
presentation,
personalised
advice
Pay by Debit/Credit Card
In February we introduced the option for customers to
pay at point of order by debit or credit card, an important
step in broadening our customer appeal and making our
proposition more contemporary. It is too soon to conclude
on the impact of this however early evidence reinforces
expectations that this will introduce incremental customers
to the business.
12
N Brown Group plc Annual Report & Accounts 2014
40% of
web traffic
coming from
mobile devices
“Famous Five” in Home & Gift
Since last October we have been implementing our
“Famous Five” strategy in our Home & Gift categories
focusing our marketing efforts on categories which are
differentiated and most relevant to our target customers:
Homewares, Bedding, Home Decor, Outdoor Living and
Gifts. These actions have driven additional sales of the
Famous Five categories. Over the course of the next
financial year we are confident that sales will be further
fuelled by these target categories. We are seeing
particularly strong momentum in homewares and
family gifts.
Re-launch of JD Williams
Delivering growth from our core brand of JD Williams, and
its sister titles in the mature customer segment, is key to
achieving our future growth ambitions. This is particularly
dependent on our mature female fashion offer, which is the
biggest segment of our business. All consumer dynamics
emphasise this strategic opportunity – an aging population,
increasing dress sizes and a growing propensity for fashion
home shopping. During the second half we have reduced
the line-up of titles from seven to three with further migration
to come in the first half of 2014. This should ensure that
when we re-launch the JD Williams brand in the autumn,
we can focus our advertising on one key brand with a
primary objective to attract new customers, whilst retaining
the loyalty of our existing large base.
The project to make the brand more contemporary in terms
of the product range and presentation is well underway.
The improvements will also reflect in adjusted stock phasing
to improve the percentage of newness throughout the
season. For launch we will also be adjusting the range/price
mix to improve value for money for customers. The initiative
will be supported by an investment in marketing, both direct
response to drive increases in new customer numbers, and
also in brand awareness to establish longer term health of
JD Williams and attract a broader range of customers.
International – USA
In terms of the year’s performance, customer numbers
grew by 28% in spite of a reduction in recruitment activity
between August and November. This was due to poor
second order rates in the first half which we addressed by
making service improvements, including tracked shipping,
which launched in November. Since then second order
rates have improved by 10% and are rising and we have
resumed a faster rate of customer recruitment. Full year
sales were up 21% year on year.
We have adjusted our strategy to exclusively focus on the
“fashion focused larger sized female” in the US market
using our Simply Be brand. We estimate that this market
is worth $6bn and is currently poorly served. Our Simply
Be plan for the USA is to tailor our ranges to that target
audience, invest some of our strong product margin in
better pricing and promotions and deliver on-going
service and web experience improvements.
Our marketing focus is also shifting to “digital first” and we
are also planning above the line campaigns to drive brand
awareness. Customer retention will be underpinned by
introducing a credit offer which also has an in-built loyalty
scheme offering unique savings. This will be delivered via
a third party, and will launch later in the summer. The new
team to drive this key strategic initiative is now largely in
place and operational.
Due to unfavourable economics associated with returns
levels in Germany in the second half we took the decision
to close the German website. German customers can still
shop from the UK website. The sales impact was small,
around £1.2m for the year, as we have not been marketing
in Germany for over 12 months. As a result, Germany broke
even for the year.
Simply Be & Jacamo Stores as Multi-channel Hubs
Our aim is to have 25 stores across the UK giving 85%
of the population physical access to our Jacamo and
Simply Be brands. We now have nine stores having opened
a further two this year, in Leeds and Derby, both of which
are performing in line with model expectations.
Our stores have a rich set of multi-channel capabilities
including Click & Collect, in-store kiosks, and tablet-
enabled service support from our colleagues. We are
also successfully signing up customers for credit accounts,
data capture shows that store customers go on to be
multi-channel customers and are our most profitable group.
The halo effect on online sales in store catchments is 5%.
We plan to open a further seven stores by October which
includes a flagship store on Oxford Street in September.
Systems Infrastructure Development
Over the past year we have been scoping a business-wide
project to redesign our processes and supporting systems
infrastructure to ensure we can deliver industry leading
services and operational efficiencies both now and in the
future. We have selected products and partners to facilitate
this and have now moved into high level design phase.
We are simplifying our business and creating the
foundations for omni-channel, multi-national expansion
whilst retaining our product and brand propositions which
we believe are relevant and scalable. We have identified
significant benefits from both increased revenues and
reduced costs and expect those to flow from 2016.
Angela Spindler
13
N Brown Group plc Annual Report & Accounts 2014 Stock levels at the year-end increased
by 3.9% to £89.9m (2013, £86.5m).
Trade receivables increased by 9.5%
to £577.9m (2013, £527.8m). The bad
debt provision decreased to £50.2m
(2013, £55.7m) which equates to
8.0% (2013, 9.5%) of gross debtors.
The reduction in the provision reflects
the improvement in customer arrears
profiles arising from the introduction of
new fraud elimination processes and
credit policy rule changes.
The deficit position of the group’s
defined benefit pension scheme has
increased to £4.2m compared to
Financial Review
Group sales increased by 6.4% to £834.9m (2013,
£784.7m) with operating profit rising by 4.7% to £107.0m
(2013, £102.2m). Operating margins have fallen by
20bps from 13.0% to 12.8% analysed as follows:
Net operating margin last year 13.0%
Impact of gross margin –
Product
Impact of gross margin –
Financial Income Yield/
Bad Debt
-20bps
-10bps
Decrease in operating costs +10bps
Net operating margin this year 12.8%
5.3% to £100.1m (2013, £95.1m).
The movement in the fair value of
the group’s forward foreign currency
contracts contributed a loss of £2.8m
(2013, gain of £1.3m). The fair value of
these forward contracts is based on
external factors which are beyond the
control of management. Profit before
taxation was up 0.9% to £97.3m
(2013, £96.4m).
The rate of gross margin was 52.7%
compared with 53.0% in the previous
financial year. Product gross margin
rose by 40 bps in the first half but
ended 20 bps down for the year.
This was due to the impact of sales
mix towards lower margin product
in Home & Gift and a higher rate of
markdown and promotional activity
than expected to support sales
during the autumn/winter season.
The ratio of bad debts to sales of
8.1% remained flat against last year
but there was a slight reduction in
financial income yield. Distribution
costs increased by 7.2% to £71.1m
(2013, £66.3m) which was slightly
above sales growth due to higher
costs associated with improvements
in customer service levels such as
increases in next day delivery volumes.
Sales and Administration costs rose
from £247.6m to £262.1m, an increase
of 5.9% which was below the rate of
sales growth as we made variable
cost savings through improved
contact optimisation, internet
penetration and reduced paper.
The net finance charge was £6.9m
compared to £7.1m last year. This
reduction was a result of a lower
pension finance charge of £0.2m in
respect of the group’s defined benefit
pension scheme. The financial costs
relating to the group’s borrowings
were flat year on year and were
covered 15.5 times by operating
profit. Therefore, profit before
taxation and fair value adjustments
to financial instruments was up by
14
Taxation
The effective rate of corporation tax
for the year is 22.0% (2013, 17.6%).
The increase year on year is more
aligned with the statutory rate, with
the prior year being impacted by the
tax effect of an adjustment in respect
of previous periods which did not
occur in the current year. The tax
charge for the year is £21.4m (2013,
£17.0m) which meant that profit
after taxation and attributable to
shareholders was down by 4.4% to
£75.9m (£79.4m). The effective tax rate
for the year ahead is expected to be
aligned with the UK statutory rate.
Balance Sheet and Cashflow
The balance sheet continues to grow
in strength. Net assets increased by
8.8% to £485.3m at the year-end
(2013, £446.0m).
Capitalised expenditure for the year
was £20.8m (2013, £25.0m) which
included £1.8m (2013, £5.0m) on
stores. The majority of the remaining
expenditure relates to our continuous
investment in our online systems
and infrastructure. As reported in
the Chief Executive’s Review we
have undertaken a business-wide
project to redesign our processes
and supporting systems infrastructure
to ensure we deliver industry
leading services. We expect capital
expenditure to reach £60m in the
next financial year.
N Brown Group plc Annual Report & Accounts 2014
£3.3m at the prior year end.
The movement predominately arises
from a net actuarial loss of £2.7m
together with service costs of £2.4m
offset by contributions of £4.2m.
Net cash generated from operating
activities decreased from £72.4m to
£40.7m due to further investment in
the receivables book and after funding
capital expenditure, finance costs
and dividends, net debt increased by
£25.0m to £213.7m (2013, £188.7m).
Gearing levels increased slightly to
44% from 42% last year.
Key Performance Indicators
The group employs a number of
key performance indicators (KPIs)
to monitor progress including:
Financial KPI’s
• Like for like sales growth − +6.3%
(2013, +5.5%)
• Gross margin − 52.7% (2013, 53.0%)
• The number of customer debtor
accounts and their average debtor
balance, which at the year-end was
1,440,000 (2013, 1,475,000) and
£409 (2013, £380) respectively.
• Operating margin − 12.8%
(2013, 13.0%)
• Interest cover − 15.5 times
(2013, 14.4 times)
• Adjusted earnings per share −
27.88p (2013, 28.15p)
Non-Financial KPI’s
• Mix of sales by Customer segments
and product customer groups
(Please refer to the Chief Executive’s
Review for details)
• Proportion of online sales − 58%
(2013, 55%)
• Proportion of online traffic from
mobile devices − 40% (2013, 26%)
• UK Institute of Customer Service
index – 84.1%
• Average online delivery lead times –
3.2 days (2013, 3.4 days)
Treasury
There has been no change during the
year to the group’s banking facilities
which are in place to support its
ongoing trading and development
activities. The group has committed
borrowings of £370m of which £259m
(2013, £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. Where
appropriate, exposure to interest rate
fluctuations on indebtedness may be
managed by using derivatives such
as interest rate swaps. There were no
interest rate swaps used in the year.
Foreign exchange requirements,
primarily 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
forward foreign exchange contract
commitments of $51m (2013, $35m)
with a fair value of £1.6m liability (2013,
£1.2m asset).
Accounting Standards and
Going Concern
Group accounting policies reflect
current accounting 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’s business activities together
with factors likely to affect its future
development, performance, and
financial position. These include cash
flows, liquidity position, borrowing
facilities and the principal risks and
uncertainties relating to its business
activities. These are set out within
this report and discussed further in
the Chairman’s Statement and 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 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 any 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 which 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,
the directors continue to adopt the
going concern basis in the preparation
of the annual report and accounts.
Shareholder Return
The share price of 397p at the start
of the year had risen to 590p at the
year-end giving a market capitalisation
of £1,672.2m (2013, £1,125.2m). A final
dividend of 8.56p (2013, 8.23p) per
share has been recommended by
the board giving a total dividend for
the year of 14.23p (2013, 13.68p) per
share up by 4.0% and covered 1.96
times (2013, 2.06 times).
Dean Moore
15
N Brown Group plc Annual Report & Accounts 2014 Directors and Officers
Left to Right: Andrew Higginson, Angela Spindler, Dean Moore, Lord Alliance of Manchester, Ivan Fallon, Anna Ford, Ron McMillan, Fiona Laird,
Simon Patterson, Philip Harland.
Angela Spindler (51)
Chief Executive
Ron McMillan (61)
Non-executive Director a, b, c
Anna Ford (70)
Non-executive Director a, b, c, d
Appointed Chief Executive on 1 July 2013.
Previously Chief Executive of The Original
Factory Shop since 2009 and prior to this,
Angela had roles at Coca Cola, Pedigree
Masterfoods, Asda and Debenhams.
Dean Moore (56)
Group Finance Director
Appointed in 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.
Andrew Higginson (56)
Non-executive Chairman c
Appointed a director on 3 July 2012 and
became Chairman on 1 September 2012.
Having started his career in consumer
products, with Unilever and Guinness,
Andrew spent 22 years as an Executive
Director of retail companies, first with Laura
Ashley Holdings, then The Burton Group,
and for fifteen years, on the Board of Tesco
plc. At Tesco, he was Group Finance and
Strategy Director for eleven years, then
CEO of Retailing Services for four years
where he was responsible for businesses
including Tesco.com and Tesco Bank.
He is Chairman of Poundland plc, and a
non-executive director of BSkyB plc and
Woolworths Holdings (South Africa).
Appointed a director on 1 April 2013.
Until his retirement on 30 March 2013,
he spent the whole of his career with
PricewaterhouseCoopers; most recently
as Deputy Chairman of PWC in the
Middle East and previously as the Northern
Regional Chairman of PWC in the UK.
He is the Senior Independent Director
and Chairman of the Audit Committee.
He is also non executive director and
chairman of the audit committe of 888
Holdings plc.
Simon Patterson (41)
Non-executive Director a, b, c
Appointed a director on 1 April 2013.
Managing Director at Silver Lake, a
leading investment firm focused on the
global technology industry. He is currently
a board member of Dell and Intelsat.
Chairman of the Nominations Committee.
Fiona Laird (53)
Non-executive Director a, b, c
Appointed a director on 1 April 2013.
Senior Vice President of Human
Resources at Unilever plc. She has
served in numerous human resources,
compensation & benefits, labour relations,
communications and change management
roles globally for Unilever since joining
the company in 1991. Chairman of the
Remuneration Committee.
Appointed a director on 1 March 2009.
Anna retired from the BBC in 2006, after 32
years in News and Current Affairs. Previously
non-executive director of J Sainsbury Plc.
Honorary bencher of Middle Temple.
Ivan Fallon (69)
Deputy Chairman
Non-executive Director
Appointed a director in 1994 and Deputy
Chairman on 1 March 2009. He was
previously Chief Executive of Independent
News & Media (UK) until March 2010 and
a leading financial journalist.
Lord Alliance of Manchester CBE (81)
Non-executive Director
Appointed a director and Chairman in 1968.
Stood down as Chairman on 1 September
2012. 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.
Philip Harland (58)
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.
a Audit committee member
b Remuneration committee member
c Nomination committee member
d Corporate social responsibility committee member
16
N Brown Group plc Annual Report & Accounts 2014
Financial Statements
The facts
and figures
18
22
33
51
54
54
55
56
56
57
58
82
82
IBC
Directors’ Report
Corporate Governance Statement
Remuneration Report
Independent Auditor’s Report
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
Company Balance Sheet
Notes to the Company Accounts
Shareholder Information
17
N Brown Group plc Annual Report & Accounts 2014
Directors’ Report
Activities and results
The directors present their annual report
and audited financial statements for the
year ended 1 March 2014.
The principal activity of the group is
multi-channel retailing. The activities are
more fully explained and reviewed in
the Chief Executive’s Review on pages
10 to 13. Group profit before taxation
from continuing operations for the 52
weeks ended 1 March 2014 amounted to
£97.3m (2013, £96.4m). 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.
Strategic Report
In accordance with the Companies Act
2006 (the “Companies Act”), the company
sets out in this report a review of the
business of the group during the 52 weeks
ended 1 March 2014 and the position
of the group at the end of that period to
enable shareholders to assess how the
directors have performed their duty under
section 172 of the Companies Act (the duty
to promote the success of the company).
The review also describes the principal
risks and uncertainties facing the group
and provides a fair review of the group’s
business at the end of the financial year.
This information can be found within the
following sections of this report, and
in 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 and is deemed
to form part of it.
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. The board also
identifies and reviews key business risks.
Further detail can be found on page 26.
The board also monitors a number
of financial and non-financial Key
Performance Indicators (“KPIs”).
These KPIs are detailed on page 15 .
As required by the UK Corporate
Governance Code 2012 (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
(its business model) and its strategy for
delivering its objectives.
Results, dividends and reserves
The financial statements set out the
group’s results for the year ended 1 March
2014 and are contained in pages 54 to 84.
An interim dividend of 5.67p per share
(2013, 5.45p) was paid on the ordinary
shares of the company on 3 January 2014.
The net cost of this dividend was £15.9m
(2013, £15.3m).
The directors recommend a final dividend
of 8.56p per share (2013, 8.23p) for the 52
weeks ended 1 March 2014, the net cost
of which will be £24.0m (2013, £23.0m).
The dividend will be paid on 1 August 2014.
Movements in reserves are shown in the
Statement of Changes in Equity on page 57.
Composition of the group
During the year there were no corporate
acquisitions or disposals.
Share capital
Details of the company’s issued share
capital are shown in note 22 on page 75.
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.
The ordinary shares are listed on the
Official List and are traded on the London
Stock Exchange. 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
company’s 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 77.
The directors have no current plans to
issue shares other than in connection with
employee share options.
Annual general meeting
The annual general meeting will be held
at 12:30 pm on Tuesday, 22 July 2014.
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 current directors,
are shown on page 16. With regard to
the appointment and replacement of
directors, the company is governed by its
Articles of Association, the Code and the
Companies Act.
At the 2014 annual general meeting all
of the directors will retire and, with the
exception of Anna Ford who is stepping
down from the board, will offer themselves
for re-election.
The directors who served throughout the
year in review were as follows:-
Andrew Higginson
Lord Alliance of Manchester CBE
Angela Spindler
Alan White
Dean Moore
Ivan Fallon
Anna Ford
John McGuire
Fiona Laird
Simon Patterson
Ron McMillan
Non-executive Chairman
Non-executive Director
Chief Executive Officer
Chief Executive Officer
Finance Director
Non-executive Director/Deputy Chairman
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
(appointed 1 July 2013)
(resigned 31 October 2013)
(resigned 31 March 2014)
(appointed 1 April 2013)
(appointed 1 April 2013)
(appointed 1 April 2013)
18
N Brown Group plc Annual Report & Accounts 2014
Directors’ Report
Details of directors’ interests (beneficial
and non-beneficial) in shares of the
company are given in the Remuneration
Report on page 48 and are deemed to
be incorporated into this report by cross-
reference.
The powers of the directors are described
in the board terms of reference and the
Corporate Governance Statement
starting on page 22. The terms of
reference for the board and its committees
are available on the company’s website
(www.nbrown.co.uk)
Other than a contract of service, no
director had any interest in any disclosable
contract or arrangements with the
company or any subsidiary company
either during or at the end of the year.
Directors’ and officers’ liabilities
The company’s Articles of Association
provide that, in so far as the law permits,
every director of the company or
associated company may be indemnified
by the company against liability. In
accordance with section 236 of the
Companies Act, qualifying third party
indemnity provisions are in place for the
directors in respect of liabilities incurred
as a result of their office, to the extent
permitted by law. In addition, the group
maintains insurance for directors and
officers of the group, indemnifying them
against certain liabilities incurred by them
Nigel Alliance OBE
INVESCO Asset Management Ltd
Schroder Investment Management Ltd
Legal & General Investment Management Ltd
whilst acting on behalf of the group.
Both the insurance and indemnities
applied throughout the financial year
ended 1 March 2014 and through to the
date of this report.
Major shareholders
In addition to the directors’ shareholdings
shown in the Remuneration Report on
page 48 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
23 May 2014:
Holding
31,489,256
25,767,425
16,718,972
9,379,746
% of issued
share capital
11.11
9.09
5.90
3.31
Governance
The board is committed to maintaining
high standards of corporate governance.
Further details are contained in the
Corporate Governance Statement on
pages 22 to 32.
performance of their obligations relating to
the Pension Fund or in the administration
of the Pension Fund. This amounts to a
“qualifying pension scheme indemnity
provision” (as defined in section 235 of the
Companies Act).
Charitable and political donations
During the year, the group made charitable
donations of £48,920 (2013, £40,070). No
political donations have been made (2013,
nil). No contributions have been made to
non-EU political parties (2013, nil).
Pension fund
The company has a defined benefit
scheme The N Brown Group Pension
Fund (“Pension Fund”). Its assets are
administered by a trustee company
(the “Trustee”) which is controlled by a
board of directors and which includes
an independent trustee and others who
represent the interests of pension fund
members (including pensioners) and the
company.
The Trustee has appointed Mercer Limited
to provide various services including
actuarial advice, investment advice,
administration services and fiduciary
management services.
The Pension Fund is required to undertake
an actuarial valuation every 3 years and the
last valuation took place on 30 June 2012.
The company (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
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 administered
by Prudential Stakeholder Pensions which
provides a defined contribution pension
arrangement.
Auto-enrolment progress report
The company commenced pension auto-
enrolment in September 2013 after a
deferral of the group’s staging date. ‘The
People Pension’ has been selected as the
auto-enrolment provider for weekly paid
employees, whilst Prudential will auto-enrol
monthly paid employees and continue to
run the Stakeholder Pension for weekly
employees already in the scheme. By May
2014 76% of all employees were members
of a qualifying pension scheme with 1,758
employees being auto-enrolled as at the
date of this report. At the date of this
report the current opt-out rate is 6.7%.
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 71. The group’s risk
management policies and procedures and
the table of principal risks and mitigations
can be found on page 26.
Change of control
There are a number of agreements that
take effect, alter or terminate upon a
change of control of the company such
as commercial contracts, bank loan
agreements, property lease arrangements
and employee share plans. None of these
are considered to be significant in terms
of their likely impact on the business of
the group as a whole. 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
relevant events were reported in the year.
Significant contracts
The group has a number of contractual
arrangements with suppliers (both of
goods and services) and occupies
leasehold premises for the purpose of
conducting its business. Whilst these
arrangements are important to the
business of the group, individually none of
them are essential to the business of the
group and do not require disclosure under
section 417(5)(c) of the Companies Act.
Tax status
The company is not a close company
within the meaning of the Corporation
Tax Act 2010.
19
N Brown Group plc Annual Report & Accounts 2014
Directors’ Report
Auditor
A resolution to re-appoint Deloitte LLP as
auditor to the company will be proposed
at the annual general meeting on 22 July
2014.
The auditor’s fees for both audit and non-
audit work are given in the audit committee
report on page 26.
Voting rights and restrictions on
transfer of shares
None of the ordinary shares in the
company 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 directors are 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.
Amendment of the company’s Articles
of Association
The company’s Articles of Association may
only be amended by a special resolution at
a general meeting of shareholders. Where
class rights are varied, such amendments
must be approved by the members of each
class of shares separately. The company
currently only has one class of share.
Powers of the directors
The directors are responsible for the
management of the business of the
company and may exercise all powers
of the company subject to applicable
legislation and regulation and the
company’s Articles of Association.
At the 2013 annual general meeting, the
directors were given the power to issue
new shares up to a nominal amount of
£10,442,189. This power will expire on
the earlier of the conclusion of the 2014
annual general meeting or 2 July 2014.
Accordingly, a resolution will be proposed
at the 2014 annual general meeting to
renew the company’s authority to issue
new shares.
Directors were also given the power to
issue new shares up to a further nominal
amount of £10,442,189 in connection with
an offer by way of a rights issue. This
authority too will expire on the earlier of
the conclusion of the 2014 annual general
meeting or 2 July 2014, and a resolution
will be proposed at the 2014 annual
general meeting to renew it.
Approval was also given at the 2013 annual
general meeting for a certain number of
shares up to a maximum nominal value
of £1,566,328 to be allotted pursuant
to the authority granted to directors set
out above without being covered by the
statutory pre-emption rights regime. As
with the previously mentioned approvals,
this authority too will expire on the earlier
of the conclusion of the 2014 annual
general meeting or 2 July 2014, and a
resolution will be proposed at the 2014
annual general meeting to renew this
authority.
As in previous years, authorisation for
the directors to buy back the company’s
shares will not be sought at the 2014
annual general meeting.
Employee share schemes –
rights of control
The trustees of the N Brown Group plc
Employee Share Ownership Trust hold
shares on trust for the benefit of the
executive directors and employees of the
group. The shares held by the trust 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 trust. The
trustees may, upon the recommendation
of the company, accept or reject any offer
relating to the shares in any way they
see 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
• considerations 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 on page 15.
Liability statement
All the information contained in the
Chairman’s Statement on pages 8 to 9,
the Chief Executive’s Review on pages 10
to 13, the Financial Review on pages 14
to 15, the Remuneration Report on pages
33 to 50 and the Corporate Governance
Report on pages 22 to 32 form part of
this directors’ report. Any liability for the
information is restricted to the extent
prescribed in the Companies Act.
Directors’ responsibilities statement
The directors are responsible for preparing
the annual report and the financial
statements in accordance with applicable
law and regulations. 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.
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. The directors must
not approve the accounts unless they
are satisfied that they give a true and fair
view of the state of affairs of the company
and of the profit or loss of the company
for that period.
In preparing the parent company
consolidated 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.
20
N Brown Group plc Annual Report & Accounts 2014
Directors’ Report
Disclosure of information to auditor
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.
Each person who is a director at the date
of the approval of this report confirms that:
• so far as the director is aware, there is
no relevant audit information of which
the group’s auditor is unaware; and
• the director has taken all steps that he or
she ought to have taken as a director in
order to make himself or herself aware
of any relevant audit information and
to establish that the group’s auditor is
aware of that information.
This confirmation is given and should
be interpreted in accordance with the
provisions of section 418 of the
Companies Act.
By order of the board
Philip F Harland LL.B (Hons) (Solicitor)
Secretary
23 May 2014
Responsibility statement
We confirm that to the best of our
knowledge:
• the financial statements, prepared in
accordance with the relevant financial
reporting framework, give a true and fair
view of the assets, liabilities, financial
position and profit or loss of the
company and the undertakings included
in the consolidation taken as a whole;
and
• the Strategic Report and Directors’
Report, taken together, include 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; and
• the Annual Report, taken as a whole,
is fair, balanced and understandable
and provides the information
necessary for shareholders to
assess the company’s performance,
business model and strategy.
By order of the board
Angela Spindler
Chief Executive
Dean Moore
Finance Director
23 May 2014
21
N Brown Group plc Annual Report & Accounts 2014
Corporate Governance Statement
Chairman’s introduction
The board is committed to meeting a
high standard of corporate governance
and compliance with the principles in the
UK Corporate Governance Code issued
by the UK Financial Reporting Council in
2012 (the “Code”). My role is to ensure
the board operates effectively, is well
managed, complies with the requirements
of the Code and has the correct balance
of skills and experience to execute the
strategy set by the board. The company’s
continued success is a reflection of
its strong governance and effective
management.
Andrew Higginson
Chairman of the Board
Statement of compliance with the Code
The group complied with the provisions of
the Code and the UK Financial Conduct
Authority’s Disclosure and Transparency
Rules throughout the year. The board
decided that, although one was due, an
external review of board effectiveness
(Code provision B.6.2) was not appropriate
this year for the reasons given on page 23.
An external evaluation will be conducted in
the second half of 2014. All other provisions
of the Code have been complied with. The
following paragraphs explain how the main
principles of the Code have been applied.
The Remuneration Report contains further
details on pages 33 to 50. Disclosures
required by the Disclosure and Transparency
Rules (rule 7.2.6) regarding share capital
can be found in the Directors Report.
Board composition
The board comprises nine directors of
whom seven are non-executive including
the Chairman. Of the seven non-executive
directors, Lord Alliance of Manchester
and Ivan Fallon are not considered by the
board to be independent. The Chairman
was considered independent at the time
of his appointment.
Full biographical details of all directors
appear on page 16.
There is a clear division of responsibilities
between the Chairman, Andrew
Higginson, who is responsible for the
effective operation of the board and the
Chief Executive, Angela Spindler, who is
responsible for the group’s operational
performance.
The board understands the need for
non-executive directors to be and remain
independent of the management in order
to be able to exercise proper oversight
and effectively challenge the executive
directors. The non-executive directors who
served during the financial year ended
1 March 2014 were:
22
• Andrew Higginson (Chairman);
• Lord Alliance of Manchester CBE;
• Ivan Fallon;
• John McGuire (resigned 31 March 2014) ;
• Anna Ford;
• Fiona Laird (appointed 1 April 2013);
• Simon Patterson (appointed 1 April
The board, having carried out a
performance evaluation, believes the
performance of all directors and their
commitment to the role of director
continues to be fully effective. Further
details of this evaluation can be found
on page 23.
2013); and
• Ron McMillan (appointed 1 April 2013).
Ivan Fallon relinquished his roles as senior
non-executive director and chair of the
remuneration committee and stepped
down from all other committees on which
he sat with effect from 1 October 2013.
Ron McMillan assumed the role of senior
non-executive director on the same date.
Ivan Fallon will remain on the board for the
foreseeable future as the board considers
that he still has much to offer in terms
of his knowledge and experience. John
McGuire relinquished his role as chair of
the audit committee on 1 October 2013, to
be replaced by Ron McMillan with effect
from the same date, and subsequently
retired from the board on 31 March 2014.
In view of the foregoing, the board
considers that, throughout the year,
at least half of the board, excluding
the chairman, comprised independent
non-executive directors and that the
composition of the board had the
necessary balance of executive and
non-executive directors to provide the
requisite skills, experience, challenge
and judgement appropriate for the
requirements of the business and full
board effectiveness.
All board members remain in place as at
the date of this report.
Pursuant to the Code, all directors are
required to retire and submit themselves
for re-election annually. Accordingly,
each of the directors will retire at the
forthcoming annual general meeting and,
with the exception of Anna Ford who
is stepping down from the board, offer
themselves for reappointment at that
meeting.
With the exception of Ivan Fallon,
who remains on a three month rolling
arrangement, all non-executive directors
serve on letters of appointments stipulating
3 year terms. All appointments are
terminable, without compensation, on
between three and six months’ notice
by either party and are subject to other
early termination provisions without
compensation, for example in the event
a director is not re-elected at the annual
general meeting.
Appointments to the board are made
solely on merit based on the skills and
experience offered by the candidate and
required by the role. This ensures that all
appointees have the best mix of skills and
time to devote themselves effectively to
the business of the board and to discharge
their duties to the best of their ability.
Details of directors’ contract terms are
shown in the Remuneration Report on
page 40. In accordance with the Code,
the company has made the terms and
conditions of appointment of the non-
executive directors available for inspection.
Diversity
The board recognises the importance of
diversity, including gender, at all levels
of the company as well as on the board.
The company is committed to equal
opportunities and increasing diversity
across our operations in terms of relevant
skills, experience, ethnicity and gender.
With the appointment of Angela Spindler
as Chief Executive on 1 July 2013 and
Fiona Laird as non-executive director on 1
April 2013, the board is proud to announce
that it now comprises six male directors
and three female directors. The board will
continue to consider how diversity can
be enhanced through the board and the
senior management teams and across
the group generally, whilst ensuring that
it appoints only the most appropriate
candidates to the board.
Gender diversity
We currently have 33% female diversity
at board level and 40% on the Home
Shopping board. This is above the current
Government target of 25% by 2015,
established in the Davies review, and
significantly higher than the current FTSE
250 who have achieved representation
at 15.6%. We believe that gender
representation makes good business
sense, given that women make up over
half of the UK population and almost 60%
of our total workforce.
Strengthening our executive pipeline
remains a permanent task for us and we
continue to open up new opportunities
for women in the business, working with
head-hunters and agencies that can
provide true gender diversification in
their candidate bases.
N Brown Group plc Annual Report & Accounts 2014
Corporate Governance Statement
To provide role models in the business
and break the glass ceiling we are
members of “Women on Boards” and
have two representatives who serve in that
organisation (Caroline Massingham -
human resources director and Linda Quinn
– trading director). Our aim is to allow
development of board directors and to
allow directors to take up non-executive
roles in other businesses where appropriate.
The next stage is to have clarity, through
succession and talent identification
processes, of our policies and measures
aimed at increasing the number of women
in senior management. This will provide a
true internal pipeline over time for board
succession.
We will also apply the same approach
when reviewing the appointment or
re-election of non-executive directors
to ensure gender balance.
Gender split
At the date of this report the gender split
(male/female, senior management and
entire workforce) is as follows:-
Male
Female
Heads %Split Heads %Split
Senior
management
Total
employees
47
67.1
23
32.9
1,516
40.8 2,199
59.2
Board operation and evaluation
An effective board of directors leads and
controls the group. The members of the
board are named below. The board met 8
times during the year. Directors’ attendance
at board meetings was as follows:
Attendance
Andrew Higginson
Lord Alliance of Manchester CBE
Angela Spindler
(appointed 1 July 2013)
Ivan Fallon
Alan White
(resigned 31 October 2013)
Dean Moore
John McGuire
(resigned 31 March 2014)
Anna Ford
Fiona Laird
(appointed 1 April 2013)
Simon Patterson
(appointed 1 April 2013)
Ron McMillan
(appointed 1 April 2013)
8
7
7
8
4
8
7
7
7
6
7
The board is responsible for all major
policy decisions and for determining the
operational and strategic risks it is willing
to take in achieving its objectives. The
board has, where necessary, delegated
operational matters to its committees and
sub-committees, and to its executive and
operational directors and senior officers.
The board is collectively responsible
for providing effective leadership and
promoting the success of the group and
works to a formal list of matters reserved
for the board (a copy of which is available
on the company’s website, www.nbrown.
co.uk). Matters reserved to the board
include, amongst other things, 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.
The board governs through clearly
mandated committees, accompanied by
robust monitoring and reporting systems.
Further detail is given below.
Day-to-day management of the group’s
activities is delegated to the operational
board, known as the Home Shopping
board, on which both Angela Spindler and
Dean Moore sit as chief executive officer
and finance director respectively. Other
members of the Home Shopping board are
Paul Kendrick (International Director), Neil
McGowan (IT Director), Ian Carr (Logistics
Director), Mark Cheshire (Customer
Services Director), Caroline Massingham
(HR Director) and Joe Fogwill and Linda
Quinn (trading directors of hardware and
fashion respectively).
In January of each year the members of
the board meet with members of the Home
Shopping board over a two day period to
review the progress being made against,
and the future development of, the group’s
long-term rolling strategic plan.
Board papers include detailed
management reports from the Chief
Executive and the Finance Director,
management accounts, broker analyses,
compliance and regulatory briefings and
bespoke reports. A comprehensive pack
of papers is electronically circulated to
each director not less than seven days
prior to each board meeting. Budgetary
performance and forecasts are reviewed
and revised at each meeting. Outside
of the meeting there is a regular flow of
information between the directors including
the weekly dissemination of management
information statistics.
Non-executive directors meet with
operational teams and the Home Shopping
board and undertake site visits to ensure
that they have the most up-to-date
knowledge and understanding of the
company and its activities and also so
that the broader population of the group
can derive benefit from the skills and
experience of the non-executive directors.
All board members are permitted to
obtain independent professional advice in
respect of their own fiduciary duties and
obligations and have direct access to the
Company Secretary, who is a qualified
solicitor and who attends all board
and committee meetings as secretary.
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. The Company Secretary
is also 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.
Inductions to the business for new
directors are designed to expose them
to all areas of the group’s operations
but with particular emphasis on each
director’s area of expertise.
Board effectiveness appraisal
The board has undertaken an internal
appraisal of its own performance and
effectiveness and also that of the
Chairman, other directors and the board’s
committees. The engagement of an
external body to manage the performance
evaluation process is now due under the
Code. After careful consideration, the
board concluded that, because of the
changes to the board during the year in
terms of the appointment of three new
independent non-executive directors and
the appointment of a new chief executive,
it was sensible to allow the new board to
“bed down” and get experience of the way
it and individual directors worked together
before employing the services of an
external evaluator. An external evaluation
of board effectiveness will be conducted in
the second half of 2014 and its outcomes
reported next year.
Consequently, an internal evaluation
was conducted by means of a written
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,
to individual contributions at board
meetings. The questionnaire was
completed by all directors in relation to
the board and also any committee of
which they were a member. The process
23
N Brown Group plc Annual Report & Accounts 2014
Corporate Governance Statement
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 Ron
McMillan, the new 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 perform well and are
effective and that all non-executive
directors contribute to an informed
discussion with, and mount a robust
challenge to, the operational and executive
directors whenever necessary. 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 regarded
as comprehensive, timely and sufficient
for the directors’ needs. It was also
concluded that each director is individually
contributing to the overall effectiveness
and success of the group. No material
issues were raised.
The board therefore believes it has
undertaken a formal and rigorous
evaluation of its own performance and that
of its committees and individual directors,
in compliance with Main Principle B.6 of
the Code.
Beyond the annual evaluation, the
performance of the executive directors is
continuously monitored throughout the
year by the Chairman and the senior non-
executive director.
The Chairman reviews and agrees
with each director their training and
development needs.
Directors’ 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 are in place at every meeting
for individual directors to report and record
any potential or actual conflicts which
arise. The register of reported conflicts is
reviewed by the board at least annually.
24
The board has complied with these
procedures during the year.
Audit Committee
Introduction by Ron McMillan,
Chairman of the Audit Committee
Two potential conflicts of interest were
reported in the year ended 1 March
2014 in circumstances where the non-
executives concerned were neither directly
or indirectly involved in any potential
dealings between the group and the
companies concerned. In each case, the
conflicts were authorised by the board with
appropriate safeguards being put in place.
Board activities in 2013/14
Some of the key activities that the board
has covered over the past year are:
• Rolling out and communicating the
group’s 2020 Vision long-term strategy,
setting out the goals and priorities;
• Assessing the progress of the group’s
Business Transformation Project which,
amongst other things, will lead to a
complete re-engineering of the group’s
IT platform;
• Reviewing the group’s strategy in the
USA and the investment in High Street
Stores in the UK for Simply Be and
Jacamo; and
Dear Shareholder,
The Audit Committee exercises oversight
of the group’s financial policies and
reporting. It monitors the integrity of
the financial statements and reviews
and considers significant financial and
accounting estimates and judgements.
The committee satisfies itself that the
disclosures in the financial statements
about these judgements and estimates are
appropriate and obtains from the external
auditor an independent view of the key
disclosure issues and risks.
Amongst other things, during the year the
committee considered:
• The regulatory environment in which
the group operates, which is both
complex and changing with the transfer
of regulatory supervision from the
OFT to the FCA. Changes in laws and
regulations may have a material impact
on the group’s business, sector and
market;
• Reviewing the work of the audit
• The group’s approach to and
committee and internal auditors on risk.
Committees of the board
The board has delegated authority 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:
• an audit committee;
• a remuneration committee; and
• a nominations committee.
A new committee, the Corporate Social
Responsibility Committee, headed by
Anna Ford, was also constituted in
December 2013.
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.
methodology for provisioning for bad
and doubtful receivables, in light of the
significant judgements and assumptions
which need to be made in this area;
• The group’s approach to and
methodology for provisioning for
inventory which may end up being sold
at below cost;
• The group’s exposure to corporate tax
and VAT risks through open items with
tax authorities;
• The valuation of the group’s defined
benefit pension scheme;
• The carrying value of goodwill and
the related disclosures in the financial
statements;
• Revenue recognition; and
• Financial instrument valuations and
disclosures.
A key responsibility of the committee
is to review the scope, nature and
effectiveness of internal and external
audits. The committee ensured that the
head of internal audit has appropriate
independence and authority, that the
scope of internal audit’s work is not
restricted and that the function has
adequate resources. The head of internal
audit has a direct reporting line to me and
I will continue to work with him as we seek
to strengthen further the function next
year. The committee will also continue to
monitor and review the key aspects of the
group’s external audit.
Lastly, in relation to risk and control, the
committee oversaw during the year
N Brown Group plc Annual Report & Accounts 2014
Corporate Governance Statement
the development of a new three lines
of defence model that clearly attributes
responsibilities and accountability for
controls. This model is expected to be
fully embedded next year.
Further information on the committee’s
responsibilities and the way in which they
have been discharged is set out below.
I will be available at the annual general
meeting in July to answer any questions
you may have on this report and would
like to thank my colleagues on the audit
committee for their help and support
this year.
Ron McMillan
Chairman of the Audit Committee
Audit Committee report
Committee composition
The committee comprises a minimum
of three members, all of whom are
non-executive directors. Two members
constitute a quorum. The committee
requires the inclusion of one financially
qualified member with recent and relevant
financial experience. The committee
chairman fulfils that requirement. All
members are expected to have an
understanding of financial reporting, the
group’s internal audit control environment,
relevant corporate legislation, the roles and
functions of internal and external audit and
the regulatory framework of the business.
The members of the committee during
the year were:
Ron McMillan (Chairman appointed
1 October 2013)
John McGuire (former Chairman retired
1 October 2013)
Ivan Fallon (retired 1 October 2013)
Simon Patterson (appointed 1 April 2013)
Fiona Laird (appointed 1 April 2013)
Anna Ford
The Chief Executive, the Finance Director,
the head of internal audit and the external
auditor are invited to attend audit
committee meetings where appropriate.
The committee met 3 times during the year
and attendance was as follows:-
Attendance
Ron McMillan
John McGuire
Ivan Fallon
Simon Patterson
Fiona Laird
Anna Ford
3
2
2
2
3
3
In addition to scheduled meetings, the
chairman of the committee met with the
Finance Director, the head of internal audit
and the external auditor on a number of
occasions during the year.
Responsibilities
The committee is responsible for:
• Monitoring the integrity of the group’s
financial statements and reviewing
significant financial judgements and
estimates in advance of these being
considered by the board;
• In conjunction with internal audit and
the external auditor, reviewing internal
financial controls and managements’
response to required corrective action;
• Monitoring and reviewing the role and
effectiveness of the group’s internal
audit function, including activities and
resources; and
• Overseeing the role and effectiveness
of the group’s external auditor, reviewing
and monitoring their objectivity and
independence and agreeing the scope
of this work and fees for audit and non-
audit services.
Activities
In addition to the matters referred to in the
letter from the chairman of the committee
on page 24, the work of the committee
during the year included:
• Reviewing the draft interim and annual
reports and considering:
(1) The accounting principles, policies
and practices adopted and the
adequacy of related disclosures in
the reports;
(2) The significant accounting issues,
estimates and judgements of
management in relation to financial
reporting;
(3) Whether any significant adjustments
were required arising from the audit;
and
(4) Compliance with statutory tax
obligations and the group’s tax policy.
• Meeting with the internal and external
auditor, both with and in the absence of
the executive directors.
• Reviewing and approving the resources
of, the scope of work undertaken by and
the reports prepared by internal audit.
• Reviewing the reports prepared by the
external auditor on key audit findings
and any significant deficiencies in the
financial control environment.
• Reviewing and considering the group’s
systems of internal risk control, sources
of assurance and exposure to fraud and
overseeing the development of a new
risk model for aligning identified risks
with mitigating actions.
• Overseeing the management of the
group’s whistleblowing procedures
which contain procedures for the
committee to receive, in confidence,
complaints on all operational matters.
• Reviewing the performance of the
external auditor, including their
relationship with the group, the group’s
use of the auditor for non-audit services
and the balance of audit and non-audit
fees paid to the auditor. Non-audit
services are generally subject to tender
processes and the allocations of work
are done on the basis of competence,
cost effectiveness, regulatory
requirements, the potential for conflicts
to arise and knowledge of the group’s
business. Deloitte LLP has, during the
year, provided non-audit services in the
form of corporate tax, and VAT advisory
work and regulatory compliance. It was
considered that Deloitte LLP was best
placed to provide such advice in view
of its knowledge of the group’s financial
position. The committee is satisfied that,
in relation to these services, Deloitte
LLP has taken actions to ensure that any
potential conflicts of interest are properly
managed.
• Reporting to the board on how it has
discharged its responsibilities, and
• Making recommendations to the board
in respect of its findings in respect of all
of the above 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. During the year, committee
members have continued to receive,
consider and approve updated risk
evaluations from the operational directors.
Further details are given later in the Risk
Management section of this report.
The board considers that the processes
undertaken by the audit committee
continue to be appropriately robust and
effective and in compliance with the
guidance issued by the Financial Reporting
Council. During the year the board has not
been advised by the audit committee of,
nor identified itself, any failings, frauds or
weaknesses in internal control which it has
determined to be material in the context of
the financial statements.
Deloitte LLP has been the group’s auditor
for twelve years and, in light of changing
practice, it is the group’s intention to
formally review their appointment in 2015,
which coincides with the completion of the
current five year cycle of the audit partner’s
rotation. The committee has recommended
25
N Brown Group plc Annual Report & Accounts 2014
Corporate Governance Statement
that Deloitte LLP be reappointed as auditor
at the forthcoming annual general meeting.
Deloitte LLP has signified its willingness to
continue in office and ordinary resolutions
appointing Deloitte LLP as auditors and
authorising the directors to set their
remuneration will be proposed at the
annual general meeting. The total fees paid
to Deloitte LLP for the year ended 1 March
2014 were £1.6m, of which £1.3m was
in respect of non-audit services. Further
details are set out in Note 5 to the financial
statements.
Risk management
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 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.
In order to ensure key business
developments and emerging risks are
appropriately factored into the risk
management process, the group’s internal
auditors facilitated two board level risk
sessions in the year. The Chief Executive
and Finance Director along with the
operational directors identified, ranked
and reviewed the key risks facing the
business and appraised the structure of
internal controls and identified current
and proposed activities to mitigate these
risks. The committee was provided
with the outputs from this process and
given the opportunity to conduct its own
assessment of risk across strategic,
financial and operational areas. The results
were circulated by internal audit as a key
driver in the annual internal audit plan.
An enterprise wide mapping of activities
across business functions was also
undertaken by internal audit during the
year to assess the level of risk within each
activity. Output from this process has also
been reflected in the annual audit plan.
Appropriate responsibilities and
accountabilities have been set to ensure
that there is ownership of the actions
required to mitigate risk across the
business.
Risk committee
A risk committee has been established as
a sub-committee of the audit committee
on which the Chief Executive, Finance
Director, the Company Secretary and
head of internal audit sit, to focus on
reviewing management's activities and
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 shared with the audit
committee and the full board.
The risk committee met on two occasions
during the year and received presentations
from operational management covering
group security, information security
(including Payment Card Industry
compliance), risk management and
Payment Protection Insurance regulatory
compliance.
The committee believes that appropriate
internal controls are in place throughout
the group, the most significant of which
have been specifically referred to in this
report. The group has a well-defined
organisational structure, with clear lines
of responsibility and explicit authority
delegated to divisional boards and
executive management. The group also
has a comprehensive financial reporting
system with good communication of plans,
budgets and monthly results to relevant
levels of management and the board.
The group 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 and to the date of this
report. The process has been reviewed by
the committee and the board and accords
with guidance appended to the Code.
The principal risks which the group has
identified, together with actions to mitigate
those risks are set out below:
Risk
Mitigating activities
Failure to recognise the need for change
The business does not recognise the need for change, is
unsuccessful in delivering the best course of action or fails to
execute chosen strategy.
• Board strategic planning away-days
• Business Transformation Programme which will facilitate the
omni-channel retail vision
• Monitoring of performance against strategic objectives and
Competition
Failure to compete effectively through product and service
propositions.
Regulatory environment
Failure to ensure the Group complies with existing and emerging
UK and overseas legislation and regulation.
26
targets
• Robust change management programme
• Responsive to market demands. For example, introduction
of cash payment option
• Continuous monitoring and benchmarking of competitor
activity
• Dedicated Customer Insight team undertakes customer
perceptual gap surveys
• Investment in price programmes
• Business Transformation Programme which provides
platforms to meet customer requirements
• Warehouse expansion project to develop and expand the
customer delivery proposition
• The Group employs specialists in relevant fields to provide
in-house and external expertise
• Steering groups manage and control change
• Dedicated regulatory compliance function
• Pro-active engagement with appropriate regulatory bodies
• Membership of the British Retail Consortium
N Brown Group plc Annual Report & Accounts 2014
Corporate Governance Statement
IT systems
The replacement of core legacy IT systems is too slow,
expensive or ineffective.
Overseas ventures
Overseas ventures under-perform against expectations and
expose the group to additional risk.
People
Over-reliance on key personnel and inability to recruit and retain
required skill sets.
• Group recruits specialist in-house and external resources
• Business Transformation Programme which is focused on the
replacement and standardisation of IT platforms
• Monitoring of performance against targets and post-
investment implementation reviews
• Employment of dedicated executive and management teams
• Recruitment of specialist external consultancy services
• Development of credit offer in the USA
• Review of performance against targets
• Succession planning process developed by HR
• Group internal opportunities and reward systems
• Employee engagement surveys
• Benchmarking of competitors' reward packages and terms
and conditions
Business interruption
A significant event impacts the ability of the business to continue
trading.
• Business Continuity Planning programmes
• IT disaster recovery plans including penetration testing
• Business Transformation Programme
Remuneration Committee
A Remuneration Report and Remuneration
Policy in accordance with the requirements
of the Large and Medium-sized
Companies and Groups (Accounts and
Reports) Regulations 2008 (as amended),
together with a letter from the chairman of
the remuneration committee, are included
on pages 33 to 50. Information concerning
the committee’s activities during the year
is set out in those reports. The report
and policy will be put to members at the
company’s 2014 annual general meeting
for approval.
The nomination committee is chaired
by me, and the members are Andrew
Higginson, Anna Ford, Ron McMillan
and Fiona Laird. 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 are invited to attend meetings
of the committee.
The nomination 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.
MWM Consulting LLP ("MWM") was
appointed by the Committee to assist in
the discharge of its duties. The three non-
executive directors who were appointed on
1 April 2013 were identified by means of
an external candidate search and selection
process conducted by MWM. MWM have
no other connection with the company.
As the new members of the board were
busy settling into their respective roles,
no need for a meeting of the nomination
committee was considered necessary
this year.
Nomination Committee
Introduction by Simon Patterson,
Chairman of the Nomination Committee.
Dear Shareholder,
It has been a busy year in terms of
succession planning for N Brown. The
last year has seen us add three new non-
executive directors, myself, Ron McMillan
and Fiona Laird, and also a new Chief
Executive Officer, Angela Spindler.
The new board members completed a
full induction programme, which involved
spending time with the main functions
and departments of the business. The
new non-executive directors each took
up positions as chairs of committees, and
commenced by reviewing and updating the
charters and practices of the committees.
Overall the new board and its committees
are now well established and well
positioned to support and challenge the
executive team.
The objectives of the nomination
committee is to ensure the board
comprises individuals possessing the
requisite skills, knowledge and experience
to ensure effective oversight and
governance.
Corporate social responsibility
Committee (CSR)
A CSR committee under the chairmanship
of Anna Ford was established during the
year.
Introduction by Anna Ford.
Chairman of the CSR Committee.
Dear Shareholder,
I am pleased to report that the group
established a Corporate Social
Responsibility (“CSR”) committee during
the year to formalise and focus on the CSR
work the group has been undertaking. The
inaugural meeting of the committee took
place in December 2013.
The members of the committee are me,
Andy York (ethical trading manager), the
company secretary. Angela Spindler and
Caroline Massingham (group HR director).
The committee met once in the year in
review.
The committee has responsibility for
making recommendations to the board
regarding the following areas of interest:
looking after the environment, ethically
sourcing our products and working with
our employees and the wider community.
The committee has baselined the group’s
current level of compliance and is working
on an overall CSR strategic plan and will
report next year against agreed targets
and measurable KPIs. We will seek to
embed these throughout the business.
Simon Patterson
Chairman of the Nomination Committee
Further details on the group’s compliance
in the field of CSR are set out below.
At the inaugural meeting, membership
and terms of reference were agreed and
a benchmarking report together with an
update on the group’s involvement on the
Accord for Fire and Building Safety
27
N Brown Group plc Annual Report & Accounts 2014
Corporate Governance Statement
in Bangladesh were received. I would,
in particular, like to place on record my
thanks for all the work that our Ethical
Trading Manager has done on our behalf
on that Accord.
This will be my last year with N Brown.
I intend to step down at the forthcoming
annual general meeting after five years
service on the board and its committees.
I am proud to be leaving the company
having achieved many improvements in
CSR (and particularly the fine work on the
Accord). There is much more to do and I
am sure my successor as chairman, Fiona
Laird, will continue to make great progress
in embedding the core values of CSR in
everything we do.
Anna Ford
Chairman of the CSR Committee
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:
• ensure that customers are treated fairly;
• 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 is
maintained 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 such offers with a
value of £25 or more, and stating whether
any offers were accepted or declined.
As reported in the audit committee report,
a whistleblowing policy and confidential
‘hotline’ exists, which 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. One ‘whistleblowing’ event was
reported in the year by an employee who
was concerned about a minor pricing
error on one of the group’s websites. This
was thoroughly investigated and reported
to the chairman who concluded that the
complaint had no foundation.
Environment
Overview
Our sustainability strategy and
environmental performance has become
an integral element of our core business
strategy. As a responsible multi-channel
retailer, we have formally committed to
reduction targets and continually strive to
exceed expectations of our customers,
staff and investors. Responsibility for
group-wide sustainability has been
assigned to Ian Carr, director of logistics,
who sits on the operational board of
J D Williams & Company Limited and who
reports to the Chief Executive Officer and,
through her, to the board of directors.
Since 2007, the group has been actively
working alongside its environmental
partners, Envantage Limited and
Viridor Limited, to boost environmental
performance and increase group-
wide environmental awareness and
accountability. Ongoing investment
into energy, carbon, waste and water
minimisation initiatives has led to a
considerable reduction in our carbon
emissions and water footprint profiles.
Emissions profile
Our Green House Gas (GHG) emissions
inventory is calculated for the global group
under the operational control approach,
in accordance with the GHG Protocol
and GHG emissions factors published
by DECC 2013 (V1.1). The inventory is
independently calculated by our partner
carbon consultants Envantage Ltd.
Under GHG reporting guidelines,
scope 1 and 2 emissions are the key
mandatory areas to report, illustrating the
environmental impact of the group for
activities where we have direct control- i.e.
operation of our sites and vehicles. As a
responsible retailer we have also taken
steps to quantify as many extra optional
scope 3 emission sources related to our
operation to boost our environmental
impact assessment and emissions
reduction plan.
The table below illustrates our GHG
emissions across all our reporting areas,
for the global Group from 1 March 2013
to 28 February 2014.
Scope
Scope 1
Source
Natural Gas
Gas oil
Diesel
HFC
Company and pool car travel
Scope 2
Electricity
2013-2014, tonnes CO2e
%
2,287.4
101.3
477.3
259.8
150.3
8,861.4
12.4%
0.6%
2.6%
1.4%
0.8%
48.2%
28
N Brown Group plc Annual Report & Accounts 2014
Corporate Governance Statement
Water
Employee commuting
38.2
2,574.0
Scope 3
Business travel (Air, road and rail)
1,100.0
Well to tank (All)
Waste
1,973.6
565.4
0.2%
14.0%
6.0%
10.7%
3.1%
Total Scope 1, 2 & 3
18,388.7
100.0%
Emissions reductions
The table below focuses on key scope 1
and 2 emissions from the Group by source
for both the current reporting period and
the previous year. Since our last reporting
period we have reduced our overall
absolute scope 1 and 2 emissions by 1%,
despite experiencing growth and increased
output during this period.
Category (Scope 1 and 2)
Source
2013-2014
tonnes CO2e
2012-2013
tonnes CO2e
% change
Combustion
of fuels
Operation
of facility
Stationary combustion
Natural gas
Gas oil
2,287.4
101.3
Diesel (lorries / vans)
477.3
Mobile combustion
Company cars
Fugitive emissions
HFC (cooling)
Process emissions
Purchase of electricity, heat or steam
Electricity
Total GHG emissions (tonnes CO2e)
2,564.5
11% reduction
68.6
460.4
106.5
266.5
None applicable
48% increase
4% increase
41% increase
3% reduction
9,147.8
3% reduction
12,614.3
4% reduction
150.3
259.8
8,861.4
12,137.5
As a growing organisation, evaluation of
emissions performance using intensity
ratios allows us to perform more
meaningful comparisons between
inventory periods. The table below
illustrates emissions performance against
group turnover (£million) and items sold
(million items).
Since the previous reporting period we
have significantly reduced our emissions
by 6.3% and 5.5%, when compared with
turnover and items shipped respectively.
Intensity ratios
Current year
(2013-2014)
Comparison year
(2012-2013)
% Change
GHG emissions tonnes CO2e
/ group turnover (£million)
14.5
GHG emissions tonnes CO2e
/ million items shipped
392.9
16.0
428.7
9.4% reduction
8.4% reduction
Mandatory GHG reporting notes
The GHG data disclosed in this report
complies with the Companies Act 2006
(Strategic Report and Directors’ Report)
Regulations 2013. GHG emissions
disclosed under the required reporting
categories fall within the groups
consolidated financial statement.
Scope 1 and 2 emissions have been
calculated on a global scale where the
group has operational control using the
GHG protocol. The quantified emissions
are for the reporting year 1 March 2013
to 28 February 2014.
Data records
• Natural Gas and electricity: Data is
primarily calculated based on actual
metered consumption from invoices or
meter readings. Where actual metered
data is not available because energy
is billed as part of a landlord service
charge, energy consumption has
been estimated using floor areas and
published benchmarks.
• Gas oil: Fuel is used in stand by
generators and onsite transport (forklifts
etc.). Data for onsite transport is
calculated using actual fuel usage from
invoices. Generator fuel usage has been
estimated using generator fuel demand
per hour and activation information.
• Diesel: Data is calculated based on
actual fuel consumption from invoices.
• Company car: Data is primarily
calculated for the group using data
logged in our global expense system
which records distance travelled, and
vehicle information for each business
travel expense claimed. Any company
cars not logged on this system have
been estimated based on milometer
readings.
29
N Brown Group plc Annual Report & Accounts 2014
Corporate Governance Statement
• HFC: Refrigeration emissions have been
calculated from the F-Gas register for
applicable plant. Emissions for plant
not affected by this regulation (smaller
systems) have been calculated using
data provided by full service records
or leaking estimator tables have been
used. Where service records were not
available for a very small number of
shops refrigeration losses have been
estimated.
Employees
The Chief Executive has board level
responsibility for employment matters.
Employee involvement – Our success
is due, in the main, to an engaged,
enthusiastic, motivated and well-trained
workforce. Considerable resources are
devoted to employee training, with a
large dedicated training team based in
the contact centre with around 40 people
providing customer service and systems
training to ensure our customers receive
the highest possible levels of service.
A management development team based
at head office provides learning and
development support for head office teams
and all subsidiary and support divisions.
The entire management team undergoes
a bespoke 360 degree appraisal process
every two years with the intention of
ensuring that everyone understands the
impact they have on the teams around
them. In 2013 we launched ‘simplybefrank’,
an employee survey used to validate
engagement levels across the group’s
divisions and subsidiaries. The Customer
Service team also run a separate
engagement survey which provides
results on a team level within the division.
A Consultative Forum operates within the
logistics division where employees from
all levels contribute and share ideas that
help shape the culture of the business.
This year the Logistics division achieved
Investors in People accreditation at
Gold standard, joining the Customer
Service division which achieved this
standard in 2013.
A large proportion of the group’s training
and development work is delivered by
the HR learning and development team,
which is supplemented by external
training in specialist technical and IT
training areas where necessary as well
as individually tailored training. There is
also a suite of self-training and e-learning
tools available via an online database,
“simply development”, which enables
employees to access a wide range of
self-development activities, tools and
information.
The company has developed close
relationships with local universities to retain
talent within the northwest. We now offer
graduate schemes in Buying, Quality & IT.
In addition we offer placements within the
Buying and Merchandising function with
many graduates returning post degree.
offering additional training, adapting the
job if appropriate or by offering a transfer
to another position. 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.
An employee profit share scheme has
been introduced to enable employees to
participate in the company’s success.
The scheme provides an enhanced bonus
for junior grades, providing greater benefit
differentials for employees promoted to
non-management grades.
Over 500 group employees either hold
shares in the company or have options/
awards to acquire them through the
group’s various share option and long-term
incentive schemes.
Consultation – Constructive relationships
exist with the trade unions that represent
the group’s employees (principally
USDAW and SATA). 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 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 and the group will
endeavour to assist the employee by
Health and safety – The health, safety
and welfare at work of its employees,
contractors, visitors and customers is
paramount as is ensuring compliance with
all relevant legislation. The group is also
committed to best practice initiatives.
As the number of our retail outlets
increases, we ensure that we maintain our
high health and safety standards by having
robust procedures, training, supervision
and guidance. Our audit programme for
the group ensures that all sites are meeting
the same exacting standards that we
demand throughout.
Cumulative group accident statistics show
that for the year in review, reportable
accidents under Reporting of Injuries,
Diseases and Dangerous Occurrences
Regulations 2013 (RIDDOR) have fallen
as a percentage of our employees from
0.03% in the previous year to 0.02%.
In the year in review, the group ratio of
accidents per employee remained static
at 0.6%. This reflects the work completed
to ensure that our new retail sites maintain
the high safety standards expected within
the group.
The group’s Health & Safety and Human
Resources departments are complimented
by an Occupational Health department,
whose focus is to look after the well-
being of the group’s employees. The
Department provides advice, guidance
and support on people’s fitness to work,
on-site physiotherapy, chiropody and a
counselling service.
We endeavour to ensure that all products
and services sold by the group or used in
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 strength of relationships with our
customers and their levels of satisfaction
with our group products and services.
We aim to attract and retain customers
through a highly competitive product and
service offering, regularly monitoring retail
and home-shopping sector developments
to stay in touch with our marketplace.
Insights into our customers’ needs and
30
N Brown Group plc Annual Report & Accounts 2014
Corporate Governance Statement
expectations are regularly updated through
customer satisfaction surveys conducted
both directly and through third parties.
Our overall strategy is to adopt a "multi-
channel" approach to managing customer
contacts, with the key aim of a joined-
up and consistent customer experience
across channels. Our multi-channel service
platforms cover web, telephone, mobile/
tablet and post, and will extend to our new
store operations.
Suppliers
We continue to monitor our suppliers
under our Code of Conduct. This is based
on the ETI (Ethical Trade Initiative) Base
Code, www.ethicaltrade.org. This is a
global Code of Conduct that is used as
a standard by retailers across the world.
We currently deal with 1,564 suppliers
operating from around 3,400 factories.
Our main sourcing countries are China,
India, United Kingdom, Pakistan and
Bangladesh.
We continually develop our web-sites for
richer product content, ease of use, and
improved performance. Optimisation for
mobile/tablet devices is a priority due
to the rapid growth of demand in this
channel. 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.
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. 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.
Our speed of answering 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.
E-mails inform customers about their order
and account status.
Service developments are planned
to further enhance our multi-channel
customer experience with new capabilities
to offer personalisation and choice.
Individual customer needs and preferences
will drive their relationship with us across
brands, products, services, channels,
offers, trading terms, and communications.
We continue to regularly audit and risk
assess our suppliers by using a mix of
external and our own internal audits.
We have recently joined SEDEX (Supplier
Ethical Data Exchange) in an effort to
reduce duplication of audits and to
encourage sharing of audit information
and best practice amongst retailers and
suppliers. Currently 135 of our suppliers
are members of SEDEX and we are
encouraging as many as possible to sign
up to the scheme. We use the results of
the audits to try and influence change.
During the year we strengthened our
ethical trading team to 3 full-time
employees.
As with many other retailers, a major focus
of our work has been on Bangladesh
following the tragic building collapse in
April 2013 of the Rana Plaza complex.
The group had no direct working
relationships with any of the factories
in Rana Plaza but was however the
first company of its size to sign up
to the Accord on Fire and Building
Safety in Bangladesh, (http://www.
bangladeshaccord.org) in May 2013 as
one of the founding 39 worldwide brands.
The Accord is a legally binding 5 year
commitment to make all garment factories
in Bangladesh safe workplaces, and has
now been signed by over 160 worldwide
brands. Our ethical trading manager was
seconded to work with the Accord staff
full time for the first 6 months, which
included spending 45 days in the Geneva
office of the global trade union, Uniglobal.
We were also elected as one of the brand
representatives on the board of the
Accord.
Full structural, fire and electrical
inspections have begun with all 1,600
factories covered by the Accord to be
inspected by end of August 2014. We have
participated in 2 separate delegations
to Bangladesh and worked with the
ILO (International Labour Organisation),
Bangladesh government and the BGMEA
(Bangladesh Garment Manufacturers and
Exporters Association) to enable set up on
the ground in Dhaka. We are also working
with the World Bank and the ILO to ensure
that appropriate funding is available to
enable the required remediation work to be
carried out. We continue to invest time in
this as we see it as a concrete example of
working together to improve worker safety
in the garment industry in Bangladesh.
All factories, inspections and corrective
actions are openly listed on the Accord
website. The scheme has a budget of 10
million USD per year for the 5 years of
the programme. We have represented the
Accord at a number of high profile events
and have been featured in a number of
press articles throughout the year.
We have also been working on a number
of similar projects. For example, we are
working through the ETI on addressing
labour rights concerns for women in the
textile and garment industry in southern
India.
We have also been working with other
retailers and Oxfam in the Vietnam
Wooden Furniture supply chain.
We were also part of a project which has
revised the detail in the working hours
clause of the ETI Base Code. This is
designed to give greater clarity, specifically
looking at the number of hours worked and
that any overtime worked should be at a
premium rate of at least 125% of the basic
salary. We have worked with this group to
develop an interactive learning tool to help
companies understand the implications of
this change for their suppliers.
We are members of a cross retail group
looking at the issue of a living wage and
how to put this into practice within all
supply chains.
We have signed up to the United Nations
Global Compact. This scheme has over
10,000 corporate participants and other
stakeholders from over 145 countries
worldwide. We publically commit to
implementing the 10 principles in the areas
of human rights, labour rights, forced and
child labour, the environment and anti-
corruption within our supply chain and
reporting on progress on an annual basis.
We have also signed up to a government
funded scheme, SCAP (Sustainable
Clothing Action Plan), to play our part in
reducing the carbon, waste and water
footprints of the clothing we sell by 15%
by the year 2020. This scheme, involving
56 other retailers, represents more than
40% of all UK retail sales.
31
N Brown Group plc Annual Report & Accounts 2014
Corporate Governance Statement
Remuneration Report
We continue to be members of the
All Party Parliamentary Corporate
Responsibility Group and have retrained
all our buying and merchandising staff in
all aspects of ethical trading and corporate
responsibility.
Paying our suppliers
The group’s policy for the payment
of suppliers is to ensure that terms of
payment are negotiated with suppliers
when agreeing the terms of each
transaction and to ensure that all suppliers
are made aware of and accept agreed
payment terms. The group continually
reviews payment procedures and liaises
with suppliers to eliminate difficulties and
to maintain good working relationships.
Agreed payment terms are then abided by
and payment is made in accordance with
those terms. Trade creditors of the group
at 1 March 2014 represented 36 days
(2013, 38 days) of purchases.
Community relations
The group takes great pride in its links with
local communities and 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. The logistics division provide
Christmas presents and Easter Eggs for
children’s wards at local hospitals, sponsor
the local bonfire and firework display and
Christmas lights, make donations to local
schools and work closely with charities
close to home to help raise much needed
funds for good causes.
The group’s family, health and well-
being programme, now in its ninth year,
continues to provide support and real
assistance for all of our employees.
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
consider, the views of major shareholders.
Other non-executive directors are available
to meet major shareholders as appropriate.
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 major
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 and represent their
views to the board of directors by
constructive use of the annual general
meeting.
32
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Introduction by Fiona Laird.
Chairman of the Remuneration Committee.
Dear Shareholder,
I am pleased to present the Directors’
Remuneration Report for 2013/14 on
behalf of the Board and to summarise the
remuneration committee's main activities
during the year.
The remuneration committee now consists
entirely of independent non-executive
directors. I became its chairman on
1 October 2013. In addition to myself,
the current members are Ron McMillan,
Simon Patterson, and Anna Ford.
The remuneration committee met
on 5 occasions during the year.
Members’ attendance was as follows:
• A forward looking “Directors’
Remuneration Policy Report” which
proposes an overall executive
remuneration framework that will be
adopted and operated by the company
in 2014/15 and the following two financial
years – if approved by shareholders the
policy set out in this part of the report
will become binding with effect from the
annual general meeting to be held on 22
July 2014; and
• An “Annual Report on Remuneration”
which provides shareholders with details
of the remuneration that was actually
delivered to the company’s directors
during 2013/14 and explains how the
new policy referred to above will be
applied in 2014/15 – this final part of
the report will be subject to an advisory
vote at the forthcoming annual general
meeting.
Attendance
Fiona Laird (Chairman)
(appointed 1 April 2013)
Ivan Fallon (Past Chairman –
retired from the committee
1 October 2013)
Ron McMillan
(appointed 1 April 2013)
Simon Patterson
(appointed 1 April 2013)
John McGuire
(retired 1 October 2013)
Anna Ford
4
4
4
3
3
5
The remuneration committee reviews,
formulates and determines the reward and
remuneration package of each executive
director and other senior employees of the
company including the Home Shopping
board. It also considers how the company
is applying the principles of the UK
Corporate Governance Code (the “Code”)
in respect of directors’ remuneration.
We have continued to develop our strategy
of creating a remuneration framework
that rewards both long and short-term
performance as we believe this is in the
best interests of all of our shareholders.
This is the first year that the report is
subject to the new regime contained in
the amended Large and Medium-sized
Companies and Groups (Accounts
and Reports) Regulations 2008 (the
“Regulations”). As such, it has been
separated into the following parts:
• This “Annual Statement” which identifies
the key messages on remuneration
for the year under review and explains
the business context in which the
committee’s major decisions during the
period were taken;
On 1 July 2013, Angela Spindler became
chief executive on terms described in last
year's Remuneration Report. Details of
the bonus targets set for her first year as
chief executive and of her joining awards
are provided in the Annual Report on
Remuneration. On 31 October 2013, Alan
White retired as a director and employee.
He received a pro-rata bonus for 2013/14
and his outstanding share awards vested
on a pro-rata basis as described in
the Annual Report on Remuneration.
In addition, he will receive a lump sum
cash payment as settlement of his pre-
existing entitlements under the company's
unregistered pension arrangements.
Details are set out in the Annual Report
on Remuneration.
The principal performance metric for the
normal annual bonus was based on group
profit. The committee determined that
this element of the annual bonus targets
had not been met and therefore no bonus
was awarded to Dean Moore nor to Alan
White in respect of this element. The
remainder of the normal annual bonus was
based on meeting corporate and personal
objectives. The committee determined
that these were met in part, resulting
in a bonus of 16.8% of salary for Dean
Moore and a bonus of 15.8% of salary,
on a time pro-rated basis for Alan White.
As disclosed last year, the bonus agreed
as part of Angela Spindler’s recruitment
package was also time pro-rated and
was based on non-financial personal
objectives relevant to the balance of the
financial year following her appointment.
The committee determined that these had
been met, resulting in a 83.3% bonus after
pro-rating. Angela Spindler’s bonus will be
paid wholly in cash. 25% of Dean Moore’s
bonus will be delivered as an award of
shares deferred for two years and in Dean
Moore’s case, this will also qualify for an
award of matching shares, vesting based
on EPS performance over two years.
The committee reviewed the TSR
performance of the company in respect of
the 2010 Long Term Incentive Share Plan
(“LTISP”) award. The company was ranked
6th out of 20 against its peers at the end
of the three year performance period, as a
result of which 85% of the award vested.
The committee also reviewed the TSR
performance in relation to Alan White’s
LTISP awards.
The committee reviewed the salaries of
the executive directors in April 2014 and
determined that these should be increased
by 2.5%, in-line with most of the general
workforce, effective from 1 June 2014.
Following Angela Spindler’s appointment
as chief executive and in anticipation of
the introduction of the company’s first
binding vote on its remuneration policy at
the forthcoming annual general meeting
the remuneration committee has reviewed
the company's remuneration arrangements
for executive directors. As a result of this
review the committee has decided to make
the following changes to its policy for
2014/15 and future years:
• The annual incentive arrangements will
be simplified, bringing the arrangements
of the Chief Executive and Finance
Director into line with each other. For
the Finance Director this will involve
replacing the share matching element
with an increase in the maximum
annual bonus opportunity for 2014/15
from 100% of salary to 125% of salary
and an increase in the percentage of
bonus deferred from 25% to 40% of
any payout. This change will result in
effectively no increase in the target value
of his remuneration and no change in the
target percentage of his bonus delivered
in cash and in shares. In addition, the
vesting period for future deferred bonus
increased from two to three years for
both directors. No further matching
share awards will be made in relation to
financial years after 2013/14.
• The company intends to seek approval
for a new Deferred Share Bonus
Plan that will give effect to the new
arrangements. Going forward, this will
replace the existing Deferred Annual
Bonus Scheme. This will continue to
enable matching share awards to be
made to employees below the level of
the executive directors.
• The weighting of performance measures
used in the annual bonus is being
changed to reflect the revised strategic
priorities of the group, with an increased
33
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
weighting on corporate measures
and a reduced weighting on personal
performance. Subject to commercial
confidentiality, performance against
these targets will be disclosed in next
year's report.
• As part of its review the committee
concluded that Angela Spindler's total
remuneration was below a mid-market
level for comparable retailers. Chiefly this
is as a result of the variable elements of
remuneration being below median. Given
her performance and development in the
role since appointment and in order to
ensure an increased link to performance,
the Committee intends to increase both
the chief executive’s maximum bonus
and normal long-term incentive award.
Both are currently set at 125% of salary,
as a result of which the overall level of
incentive opportunity is below market.
For 2014 onwards these will both be
increased to 150% of salary. The impact
of these changes will be to position
Angela Spindler's total remuneration at
a broadly mid-market level. The finance
director’s LTIP award would also be
increased from 100% to 125% of salary
to increase the focus on longer-term
performance. Following this change his
remuneration would remain below mid-
market.
• The company intends to seek approval
for a new Long-Term Incentive Plan
at the annual general meeting in July
2014. Going forward, this will replace
the Long-Term Incentive Share Plan
(“LTISP”). The new plan will reflect
current market and best practice and
the individual limit for normal awards will
remain at 150% of base salary. However,
in exceptional circumstances , such as
on recruitment, awards up to 200% of
salary will be permitted. Awards with
an initial market value of 150% of salary
and 125% of salary to Angela Spindler
and Dean Moore, respectively, will be
granted shortly after the annual general
meeting in July 2014.
• With the exception of the award made
to Angela Spindler shortly following
her appointment which was subject to
equally weighted earnings per share
(“EPS”) and relative total shareholder
return (“TSR”) performance conditions,
relative TSR has historically been
the sole performance metric used to
determine the vesting of awards under
the LTISP. For 2014/15 and future years
the committee intends to use growth
in adjusted EPS in excess of RPI and
relative TSR as the metrics in the long-
term incentive arrangements. For the
2014 awards adjusted EPS would have
a 60% weighting and relative TSR would
have a 40% weighting. The committee
34
has also reviewed the TSR comparator
group to ensure that it is appropriate
for the awards in 2014 and has made a
number of minor changes. Details of the
revised group are provided in the Annual
Report on Remuneration.
• measured against stretching targets,
both in absolute and relative terms;
• competitive and sufficiently flexible to
support the recruitment needs of the
business;
• paid in a combination of cash and
shares; and
• linked to performance measured over
annual and three-year performance
periods.
Summary of components of executive
directors’ remuneration
The table opposite summarises
the committee’s policy for the main
components of remuneration.
I will be available to answer any questions
at the annual general meeting in July and
very much hope that you will support
the Directors' Remuneration Report and
Annual Report on Remuneration at our
forthcoming meeting.
I would like to thank all of my colleagues
on the remuneration committee for all
their hard work in implementing the new
reporting requirements of the Director’s
Remuneration Report and generally with
the day to day tasks of the committee over
the last year.
Fiona Laird
Chairman of the Remuneration Committee
Remuneration policy
This report sets out the information
required by Part 4 of the Schedule 8 to
The Large and Medium-sized Companies
and Groups (Accounts and Reports)
(Amendment) Regulations 2008, as
amended. The report also satisfies the
relevant requirements of the Listing Rules
of the Financial Conduct Authority, and
describes how the board has applied
the principles and complied with
the provisions relating to directors’
remuneration in the Code.
It summarises the committee’s
remuneration policy for the executive
directors which, if approved by
shareholders at the 2014 annual general
meeting, will become effective immediately
thereafter.
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, are appropriate in quantum
and capable of attracting, motivating
and retaining executive directors. The
policy aims 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 remuneration packages are:
• aligned with the group’s strategic plan;
• aligned with shareholders’ interests;
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Element
Salary
Annual bonus
Purpose and link
to strategy
Operation
Maximum
Salary increases will
normally be in line with
increases awarded to other
employees of the group.
More significant increases
may be awarded at
the discretion of the
committee, for example:
where there is a change in
responsibilities or scope
of the role; to reflect
individual development and
performance in the role
(e.g. for recent hires); or in
exceptional circumstances.
Chief executive: up to 150%
of base salary p.a.
Other executive directors:
up to 125% of base
salary p.a.
Reflects the
performance of the
individual, their skills
and experience, and
the responsibilities
of the role.
Reviewed annually, taking
account of absolute
group profitability and
performance against
personal & corporate
objectives.
Provides an
appropriate level of
basic fixed income.
Drives and rewards
annual delivery of
financial, corporate
and personal goals.
Annual performance
targets are aligned
to the long-term
strategic KPIs of
the company and
aimed at increasing
shareholder value,
whilst being prudent
and safeguarding
the future of the
company.
Deferral provides
alignment with
shareholders and
assists with
retention.
Set with reference to
the levels of base salary
for similar positions
with comparable status,
responsibility and skills in
competitor organisations
of comparable size and
complexity, in particular
those in the home
shopping and retail
market sectors.
When reviewing salary
increases the committee
takes into account the
impact of any increase to
base salaries on the total
remuneration package.
Any changes normally take
effect from 1st June.
Targets are reviewed
annually 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.
From 2014/15 onwards,
bonuses will be paid 60%
in cash, with 40% deferred
as a conditional award of
shares.
Vesting of future deferred
shares is at the end of
three years from the award
of the bonus, subject to
continued employment
(save in “good leaver”
scenarios).
The payment of any
earned bonus remains
ultimately at the discretion
of the committee.
Executives may also be
entitled to receive the
value of dividends that
would have been paid on
vested shares during the
deferral period.
Performance
assessment
None, although overall
individual performance is
a factor considered when
setting and reviewing
salaries.
A significant majority of
the annual bonus will
normally be determined by
reference to performance
against stretching group
profit measures.
Additional targets linked
to corporate performance
and individual targets will
be applied.
Personal objectives will be
measurable and linked to
goals that are consistent
with the group’s longer-
term goals.
Performance below
threshold results in zero
payment. Payment rises
from 0% to 100% of the
maximum opportunity
for levels of performance
between threshold and
maximum, with 50% of the
maximum normally payable
for on-target performance.
Includes a “clawback”
mechanism in the event of
material misstatement of
the group’s financial results
or individual misconduct.
35
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Element
Long-term
incentive plan
“LTIP”
Purpose and link
to strategy
Provides
appropriate
incentives to
reward sustained
success through
the achievement
of challenging
business targets,
thereby aligning
the interests of
shareholders and
executives.
Operation
Maximum
Normal maximum
of 150% of salary.
Exceptional circumstances
maximum of 200%
of salary.
Annual grants of nil-cost
options or conditional
awards of shares, which
vest subject to the group’s
performance measured
over three years.
Participation and all
awards are subject to the
discretions given to the
committee in the plan
rules.
Executives may also
be entitled to receive
the value of dividend
payments that would
otherwise have been paid
on vested awards during
the vesting period.
Performance
assessment
Awards made from 2014
onwards will be subject to
targets based on growth in
adjusted EPS in excess of
RPI (60% of the award) and
relative TSR against a peer
group of other retailers
(40% of the award). The
committee will have the
discretion to set different
weightings and select
different peer groups for
future awards. The peer
group for 2014 is disclosed
in the Annual Report on
Remuneration.
EPS targets are set by the
remuneration committee
prior to each grant. Targets
for both EPS and TSR
will be based on a sliding
scale. For each measure
performance below
threshold results in zero
payment. Payment rises
from 25% at threshold or
median to 100% of the
maximum opportunity at a
maximum or upper quartile
performance level.
Includes a “clawback”
mechanism in the event of
a material misstatement of
the group’s financial results
or individual misconduct.
All-employee
share schemes
(SAYE and SIP)
All employees,
including executives,
are able to
acquire shares by
participating in the
group’s all-employee
share plan at the
discretion of the
committee.
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.
Participation in in the SIP
may also be offered.
N/A
The plans are subject to
statutory individual limits as
amended from time-to-time.
These are broad-based
plans and are not subject to
performance targets.
Pension
Other benefits
Provides retirement
benefits that
reward sustained
contribution.
The company operates a
defined contribution plan
and may also provide cash
pension contributions or
cash supplements in lieu.
Up to 15% of salary as a
company contribution to a
defined contribution pension
scheme and/or as a cash
allowance.
N/A
Provides a
competitive
package of benefits
that assists with
recruitment and
retention.
Main benefits currently
include private medical
insurance and a car
allowance.
Car and fuel allowance up
to £20,000 per annum.
N/A
Other benefits will be in-line
with market. The value of
each benefit it based on the
cost to the company and is
not predetermined.
36
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Notes:
1. A description of how the company
intends to implement the policy set out
in this table for 2014 /15 is set out in the
Annual Report on Remuneration on
page 41.
2. The remuneration policy for the
executive directors and other senior
executives is designed with regard to
the policy for employees across the
group as a whole. However, there are
some differences in the structure of the
remuneration policy for senior executives.
In general, these differences arise
from the development of remuneration
arrangements that are market competitive
for the various categories of individuals.
They also reflect the fact that, in the case
of the executive directors and senior
executives, a greater emphasis tends to be
placed on performance-related pay in the
market.
3. Prior to 2014/15, 25% of any bonus to
executive directors (other than Angela
Spindler) was compulsorily deferred in
shares for two years and eligible for a 1:1
matching award of shares, vesting of which
was subject to performance conditions.
Angela Spindler’s 2013/14 bonus is
delivered wholly in cash.
4. All-employee share plans do not
have performance conditions. Executive
directors are eligible to participate in the
SAYE and SIP on the same terms as other
employees.
5. Copies of the LTIP rules are available on
request from the company secretary.
6. LTISP awards granted prior to 2014
are subject to performance conditions
described in the Annual Report on
Remuneration.
7. The company also operates share
ownership guidelines requiring executive
directors to acquire and hold a specified
level of shareholding. The current level
of holding expected under the guidelines
is described in the Annual Report on
Remuneration.
How employees’ pay is taken
into account
The remuneration policy for the executive
directors is designed with regard to
the policy for employees across the
group as a whole. The company’s
ability to meet growth expectations and
compete effectively is dependent on
the skills, experience and performance
of all of our employees. As a result our
employment policies, remuneration
and benefit packages for employees
are regularly reviewed. Whilst there are
some differences in the structure of
the remuneration policy, these reflect
individuals' differing responsibilities, with
the principal difference being the increased
emphasis on performance related pay
for the more senior executives within the
organisation.
Although the committee does not consult
directly with employees on directors’ pay,
the committee does take into consideration
the pay and employment conditions of
all employees when setting the policy for
directors’ remuneration. The committee
is also mindful of any changes to the pay
and benefit conditions for employees more
generally when considering the policy for
directors' pay.
Committee discretions
The committee operates the group’s
variable incentive plans according to their
respective rules and in accordance with
HMRC rules where relevant. To ensure the
efficient administration of these plans and
to be consistent with market practice, the
committee will retain certain operational
discretions. These include:
• selecting plan participants;
• determining the timing of grants of
awards and/or payment;
• determining the quantum of awards and/
or payments (within the limits set out in
the policy table above);
• determining the extent of vesting based
on the assessment of performance;
• making the appropriate adjustments
required in certain circumstances
(e.g. change of control, rights issues,
corporate restructuring events, and
special dividends);
• determining “good leaver” status for
incentive plan purposes and applying
the appropriate treatment; and
• undertaking the annual review of
weighting of performance measures,
and setting targets for the annual bonus
plan and LTIP from year to year.
If an event occurs which results in the
Annual Bonus Plan, Deferred Share Bonus
Plan or LTIP performance conditions
and/or targets being deemed no longer
appropriate (e.g. a material acquisition or
divestment), the committee will have the
ability to adjust appropriately the measures
and/or targets and alter weightings,
provided that the revised conditions or
targets are not materially less difficult to
satisfy.
Any use of the above discretions would,
where relevant, be explained in the Annual
Report on Remuneration and may, as
appropriate, be the subject of consultation
with the company’s major shareholders.
Legacy arrangements
In approving the remuneration policy,
authority is given to the company to
honour any commitments previously
entered into with the current or former
directors in accordance with the relevant
plan rules, where applicable. It is also part
of this policy that the company will honour
payments or awards crystallising after the
effective date of this policy but arising from
commitments entered into at a time when
the relevant individual was not a director
at the company. Details of any payments
to former directors will be set out in the
Annual Report on Remuneration.
Selection of performance metrics
and targets
All incentives are subject to the individual
review and scrutiny of the committee,
particularly in the case of share incentives,
both at award and vesting to ensure
that performance has been correctly
adjudicated and to safeguard against
excessive overall reward. Variable pay
and remuneration is linked to both
corporate and individual performance and
is benchmarked to attract and retain the
highest quality people.
The annual bonus is designed to
thoroughly stretch the performance of the
executive and is linked to absolute growth
in annual group 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 and 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. This ensures they
are aligned to the strategic objectives of
the company and designed to increase
shareholder value, whilst being prudent
and safeguarding the long-term future of
the company.
The committee has decided to apply a
condition based on growth in adjusted
EPS alongside the existing measure,
TSR, to awards made under the LTIP in
2014 and future years. Adjusted EPS is
considered appropriate as it is easily
understood, is a key measure of financial
performance and closely aligned to the
company’s objectives of driving profitable
growth. The measure takes account of fair
value adjustments to financial instruments
(net of tax) as well as other exceptional
non-recurring items such as unplanned
investments in, for example, IT
infrastructure, investments to drive long
term growth, acquisitions and/or disposals.
As the targets are set as a rate of growth in
excess of RPI it also takes into account
inflation. TSR provides an external
37
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
assessment of the company's performance
against its peers and aligns rewards
received by the executives with the returns
received by shareholders. 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.
The committee considers the group’s
performance on environmental, social and
governance (‘ESG’) issues when setting
the remuneration of any executive director
and is of the opinion that the incentive
arrangements for senior managers do not
raise ESG risks by inadvertently motivating
irresponsible behaviour or the taking of
undue risks with the business.
Shareholding guidelines
It is the board’s policy that executive
directors build and retain a minimum
shareholding in the company. Under these
guidelines the chief executive and the
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 and
to have met this guideline within 5 years
of appointment. Details of the current
shareholdings of the executive directors
are provided later in this report.
How shareholders’ views are taken
into account
The committee considers shareholder
feedback received regarding the directors’
remuneration report and guidance from
shareholder representative bodies more
generally. As appropriate, the committee
also seeks feedback from shareholders
on specific matters. These views are key
inputs when shaping remuneration policy.
Potential remuneration scenarios for executive directors (£000’s)
£2,230
36%
£1,231
16%
£631
32%
36%
£749
15%
30%
£415
£1,304
34%
34%
£2,400
£2,200
£2,000
£1,800
£1,600
£1,400
£1,200
£1,000
£800
£600
£400
£200
£0
Fixed Pay
Target
Maximum
Fixed Pay
Target
Maximum
Angela Spindler
Dean Moore
Total Fixed Pay
Annual Bonus
Long-term Share Grants
Assumptions
1. Fixed pay = salary as paid in year, benefits and pension provision.
2. On target = fixed pay plus target annual bonus (50% of the maximum) of 75% of salary for the chief executive and 62.5% of salary for the finance director
plus target LTIP awards of 37.5% of salary for the chief executive and 31.25% for the finance director.
3. Maximum = fixed pay plus maximum annual bonus of 150% of salary for the chief executive and 125% for the finance director plus maximum LTIP awards
of 150% of salary for the chief executive and 125% for the finance director.
4. Salary levels (on which other elements of the packages are calculated) are based on those effective from 1 June 2014.
5. The value of taxable benefits is based on an estimated cost of £19,000 in respect of the chief executive and £17,000 for the finance director and includes a
car allowance and health insurance.
6. Pension provision is 15% of salary for the chief executive and 12% for the finance director.
38
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Executive directors’ service
agreements and termination policy
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. Neither 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. Furthermore, there
are no special provisions providing for
additional compensation on an executive
director’s cessation of employment with
the company. Where the director may
be entitled to pursue a legal claim, the
company will be entitled to negotiate
settlement terms that the committee
considers to be in the best interests
of the company and to enter into a
settlement agreement to effect the terms
agreed under the service contract and
any additional statutory or other claims.
Potential termination payments are
summarised below:
Name
Date of contract
Potential termination payment
Angela Spindler
Dean Moore
1 July 2013
20 December 2004
12 months’ salary and benefits
12 months’ salary and benefits
Other than in certain “good leaver”
circumstances (including, but not limited
to, redundancy, ill-health or retirement or
on a change of control), no bonus would
be payable unless the individual remains
employed and is not under notice at
the payment date. Any bonuses paid to
a “good leaver” would be based on an
assessment of their individual and the
company’s performance over the period,
and pro-rated for the proportion of the
bonus year worked.
Deferred bonus share awards will
also normally lapse on cessation of
employment, unless the executive director
is deemed to be a “good leaver” by the
committee. Awards will vest early on a
change of control subject to the plan rules.
With regards to long-term incentive awards,
the LTIP rules provide that other than in
certain “good leaver” circumstances,
awards lapse on cessation of employment.
Where an individual is a “good leaver”, the
committee’s normal policy for future LTIP
awards will be to permit awards to remain
outstanding until the end of the original
performance period, when a pro-rata
reduction will be made to take account of
the proportion of the vesting period that
elapsed prior to termination of
employment, although the committee has
discretion to partly or completely disapply
pro-rating and the performance conditions
and/or allow earlier vesting in certain
circumstances. On a change of control
awards would vest, subject to the extent
to which the performance conditions have
been achieved and, normally, pro-rating
for time. The committee has discretion to
determine “good leaver” treatment. In
doing so, it will take account of the reason
for their departure and the performance
of the individual.
For awards granted under the LTISP,
awards lapse if cessation occurs during
the financial year in which an award is
granted. Thereafter awards held by good
leavers may vest subject to performance
without pro-rating. On a change of control
existing awards would not be pro-rated.
may be set for the first year in the case of
the annual bonus and long-term incentives
taking into account the responsibilities of
the individual, and the point in the financial
year at which they joined.
Apart from service contracts, no executive
director has any material interest in any
contract with the company or its
subsidiaries.
Copies of executive directors’ service
contracts (and also non-executive
directors’ letters of appointment) are
available for inspection at the company’s
registered office on application to the
company secretary.
Recruitment of executive directors
Base salary levels will be set in accordance
with the company’s remuneration policy,
taking account of the executive’s skills,
experience and their current remuneration
package. Where it is appropriate to offer
a lower salary initially, a series of above
inflation increases to the desired salary
positioning may be given over subsequent
years subject to individual and company
performance.
Benefits and pension will generally be
provided in accordance with the approved
policy, with relocation expenses and/or an
expatriate allowance paid for if necessary.
For an overseas appointment, the benefit
and pension arrangements may be tailored
to reflect local market practice (subject to
the overall maximum limits set out in the
policy table). Assistance with relocation
may be provided where appropriate. Tax
equalisation may also be considered as
may payment of the executive’s legal fees
in connection with the appointment.
The variable pay opportunity will be in
accordance with the company’s approved
policy as detailed above. However,
different performance measures and targets
If it is necessary to buy-out incentive pay,
which would be forfeited by reason of
leaving the previous employer, in order
to secure the appointment, this would be
provided for taking into account the form
(cash or shares), timing and expected
value (i.e. likelihood of meeting any existing
performance criteria) of the remuneration
being forfeited and such other specific
matters as the committee considers
relevant. Existing arrangements may be
bought out on terms that are no more
favourable than the committee considers
is required to provide reasonable
compensation to the incoming director
for the awards they will be losing. Existing
plans will be used to the extent possible
(subject to the exceptional limits contained
in the plan rules), however, the committee
retains discretion to agree bespoke
arrangements and, if required, to make
use of the flexibility provided by the
Listing Rules to make awards without prior
shareholder approval when buying out
existing entitlements. There is no intention
to use this flexibility to offer a “golden
hello” unrelated to remuneration lost.
The service contract for a new appointment
would be in accordance with the policy for
the current executive directors.
In the case of an internal hire, any
outstanding variable pay awarded in
relation to the previous role will be allowed
to pay out according to its terms of grant.
Fees for a new chairman or non-executive
director will be set in line with the approved
policy.
39
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Policy for non-executive directors
Element
Purpose and link
to strategy
Operation
Non-executive
directors’ and
Chairman’s
fees
Takes account of
recognised practice
and set at a level
that is sufficient to
attract and retain
high-calibre non-
executives.
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.
Maximum
Performance
assessment
N/A
N/A
The chairman is paid a single fee for all his
responsibilities. The non-executives are paid a
basic fee. The chairs of committee and senior
independent director receive additional fees to
reflect their extra responsibilities.
Non-executive directors may not 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.
Limited benefits relating to travel, accommodation,
secretarial support and hospitality provided in
relation to the performance of their duties.
When reviewing fee levels, account is taken of
market movements in non-executive director fees,
board committee responsibilities, ongoing time
commitments, the general economic environment
and the level of increases awarded to the wider
workforce.
In exceptional circumstances, additional fees may
be paid where there is a substantial increase in
the time commitment required of non-executive
directors.
Non-executive directors’ letters of
appointment
Non-executive directors are retained on
letters of appointment. Other than the
chairman and Lord Alliance, whose letters
of appointment provide for six months
notice in the event of early termination,
all non-executive appointments are on
three-year rolling terms terminable upon
three months’ notice. All appointments
are subject to successful re-election
upon retirement at the annual general
meeting. Termination carries no right to
compensation other than that provided
by general law.
Brief details of non-executive directors’
contracts are summarised below:
Name
Lord Alliance of Manchester CBE
Ivan Fallon
John McGuire
Anna Ford
Andrew Higginson
Fiona Laird
Simon Patterson
Ronald McMillan
Date of contact/letter
of appointment
Date of current term
commenced
16 May 2007
1 October 1994
17 March 2004
1 March 2009
3 July 2012
1 March 2013
13 March 2013
1 March 2013
10 April 2013
10 April 2013
10 April 2013
10 April 2013
3 July 2012
1 April 2013
1 April 2013
1 April 2013
Notice
period
6 months
3 months
3 months
3 months
6 months
3 months
3 months
3 months
40
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Annual Report on Remuneration
This part of the report has been prepared
in accordance with Part 3 of the revised
Schedule 8 set out in The Large and
Medium-sized Companies and Groups
(Accounts and Reports) (Amendment)
Regulations 2013, and 9.8.6R of the
Listing Rules. The Annual Report on
Remuneration will be put to an advisory
shareholder vote at the 2014 annual
general meeting. The information on
pages 43 to 48 has been audited.
The remuneration committee and its advisers
Members of the remuneration committee
Name
Fiona Laird
John McGuire
Anna Ford
Ivan Fallon
Ron McMillan
Simon Patterson
From
1 April 2013
17 March 2004
1 March 2009
1 October 1994
1 April 2013
1 April 2013
To
Date
31 March 2014
Date
1 October 2013
Date
Date
The group head of legal & company
secretary, Philip Harland, acts as secretary
to the committee and the chief executive,
Angela Spindler, the chairman, Andrew
Higginson, and the group HR director,
Caroline Massingham, may also attend
meetings by invitation. However, no
director played any part in discussion
about his or her own remuneration.
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 5 times during the year. See page 33
for details of attendance.
Advisers
The committee received advice from
New Bridge Street (a trading name of
Aon Hewitt Limited, part of Aon plc). New
Bridge Street was formally appointed by
the committee. In addition, Mercer Human
Resource Consulting Limited (“Mercer”)
provided advice to the company during
the year which materially assisted the
committee in relation to the former chief
executive's pension arrangements and
Pinsent Masons LLP provided advice
on compliance with legislation. Pinsent
Masons LLP are the group’s general
legal advisers and were not specifically
appointed by the committee. Mercer
were not specifically appointed by the
committee and also provide other services
to the company in relation to pension
matters. These advisors have no other
connections with the group other than as
set out above.
New Bridge Street is a signatory to the
Remuneration Consultants’ Group Code
of Conduct, which sets out guidelines to
ensure that its advice is independent and
free from undue influence. The company
received no other services from New
Bridge Street, or any other part of the Aon
group of companies, during the year.
The fees paid to New Bridge Street in
2013/14 were £39,226 (2012/13, £22,553).
The fees paid to Mercer in 2013/14 in
relation to the former chief executive’s
pension arrangements in 2013/14
were £15,049 (2012/13, £19,606). The
committee reviews the performance and
independence of its advisers on an annual
basis and is satisfied that the advice
received is objective and independent.
The advisors’ terms of engagement are
available on request from the company
secretary.
Application of the remuneration policy
for 2014
Base salary
The executive directors’ salaries were
reviewed in April 2014. The salary
increases take place from 1 June 2014 and
are set out below. The salary increases are
in line with most of the general workforce.
Name
Salary as at 1 June 2013
Salary as at 1 June 2014
Increase
Angela Spindler
Dean Moore
(*appointed 1 July 2013)
£520,000*
£346,860
£533,000
£355,531
2.5%
2.5%
Fees for the chairman and non-
executive directors
As detailed in the remuneration policy,
the company aims to set remuneration for
non-executive directors at a level which
is sufficient to attract and retain non-
executive directors of the right calibre.
Details of the fees are detailed below:
Name
Fees as at 1 March 2013
Fees as at 1 March 2014
Increase
Chair’s fees
Other non-executive directors’ base fee
Senior independent non-executive director
Chair of a committee’s fees
(*Increase agreed at the time of appointment, payable from 1 October 2013)
£225,000
£47,000
£5,000
£5,000 – £8,000
£250,000*
£47,000
£5,000
£5,000 – £8,000
11.1%
N/A
N/A
N/A
41
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Annual bonus plan performance targets
The annual bonus plan for 2014/15 will
be payable 60% in cash and 40% as an
award of deferred shares. Deferred bonus
shares will vest, subject to continued
service, three years after award.
For 2014/15, the performance measures
and weightings will be as follows:
Measure
Group profitability
Corporate objectives
Individual objectives
As a percentage of maximum bonus opportunity
Angela Spindler
Dean Moore
70%
20%
10%
70%
20%
10%
Subject to commercial sensitivity, a
detailed description of the personal
objectives and performance against them
will be included in next year’s annual report
on remuneration, save where these remain
commercially sensitive.
Long term incentive targets
Awards granted to the executive directors
under the LTIP in 2014 will be subject to
two metrics, namely growth in adjusted
EPS and relative TSR measured against
a peer group of retail sector companies
listed below. The performance targets
are as follows:
Percentage of each
part of the award
that will vest
0%
25%
100%
Annual growth in
adjusted EPS in
excess of RPI over 3
financial years
(60% of award)
Less than RPI +2.5%
At least RPI +2.5%
At least RPI +7.5%
Relative TSR vs
peer group
(40% of award)
Below median
Median
Upper quartile
Below threshold
Threshold
Maximum
For performance that is between the
threshold and maximum levels awards
vest on a straight-line pro-rata basis
with interpolation between intermediate
ranking positions for TSR.
The retail sector peer group for the 2014
awards comprises: ASOS; Carpetright;
Darty; Debenhams; Dixons Retail; Dunelm;
Halfords; Home Retail Group; Inchcape;
J.D. Sports; Kingfisher; Marks & Spencer;
Mothercare; Next; Sports Direct; and
WH Smith.
42
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Directors' emoluments (Audited)
Salaries
& fees
£’000
Taxable
benefits1
£’000
Year
Bonus
LTISP2
and
(cash and matching
share
awards
£’000
deferred
shares)
£’000
Pension
and
salary
supplement
£’000
Other
£’000
Total
£’000
Executives (salaries)
Angela Spindler3
(appointed 1 July 2013)
Dean Moore
Alan White4
Non-executives (fees)
Lord Alliance of
Manchester CBE5
Andrew Higginson
Nigel Alliance OBE
Ivan Fallon
Lord Stone of Blackheath
John McGuire
Fiona Laird
(appointed 1 April 2013)
Anna Ford
Simon Patterson
(appointed 1 April 2013)
Ron McMillan
(appointed 1 April 2013)
2013/14
2012/13
2013/14
2012/13
2013/14
2012/13
2013/14
2012/13
2013/14
2012/13
2013/14
2012/13
2013/14
2012/13
2013/14
2012/13
2013/14
2012/13
2013/14
2012/13
2013/14
2012/13
2013/14
2012/13
2013/14
2012/13
347
–
344
290
361
520
45
17
237
150
–
15
55
50
–
32
54
45
46
–
51
38
46
–
49
–
12
–
17
17
16
23
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
433
–
59
215
58
382
–
–
575
291
2,280
554
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
52
–
42
36
19
301
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
520
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,364
–
1,037
849
2,734
1,780
45
17
237
150
–
15
55
50
–
32
54
45
46
–
51
38
46
–
49
–
Notes:
1. Taxable benefits comprise private medical cover and car allowance.
2. The value of the vested shares, granted on 5 July 2010, and dividend payments is shown under the 2010/13 LTISP awards. The performance condition attached
to the award was as follows; 25% vests at median performance rising on a straight line basis to full vesting at upper quartile. The company ranked 6th out of 20
and as a result of 85% vested. Dean Moore and Alan White participated in this award. Angela Spindler, however, did not as this award is prior to her joining the
company. Dean Moore's 2012 matching share award lapsed as the performance conditions for this award were not met. Alan White’s matching share awards
were pro-rated in accordance with the rules of the current deferred annual bonus scheme and his 2011 and 2012 long term share awards were pro-rated and
vested based on performance measured to 31 October 2013.
3. Recruitment awards – Angela Spindler was granted an award, over 110,169 shares on 2 August 2013 with a market value of £520,000. Vesting of this award is
subject only to continued employment over two years. The market value of these shares has been included in the Other column.
4. Alan White’s pension value represents the additional benefit earned in the year (excluding inflation as measured by the consumer prices index (“CPI”)) multiplied
by a factor of 20.
5. Lord Alliance has waived his non-executive director’s fee.
43
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Total pension entitlements (Audited)
Alan White retired on 31 October 2013
and his initial pension was calculated in
accordance with the rules of the N Brown
Group Pension Fund and before any
commutation was £110,779 per annum, to
be increased in future years in line with the
provisions of that fund. The benefit of Alan
White’s unregistered pension arrangement,
calculated in accordance with its rules and
before any commutation is £19,299 per
annum.
Angela Spindler receives a cash
supplement of 15% of salary in lieu
of pension contributions.
Dean Moore is a member of the
contributory defined contribution pension
scheme (“scheme”) and receives matching
contributions from the company up to a
maximum of 6% of salary. In addition, he
receives an additional 6% of salary as a
cash allowance. Contributions paid by the
company into the scheme during the year
in respect of Dean Moore amounted to
£20,685 (2013, £17,937).
Details of variable pay earned in
the year
Annual bonus (Audited)
As disclosed in last year’s Annual Report,
the committee agreed a recruitment
package which included special provisions
for financial year 2013/2014. For the period
from Angela Spindler's appointment,
1 July 2013, until the end of the financial
year, she was eligible to receive a time
pro-rated cash bonus subject to the
achievement of personal objectives
agreed by the chairman on behalf of
the committee.
The table below gives details of executive
directors’ bonsues for 2013/14.
Director
Measure
Weighting
(as a
percentage
of maximum
bonus
opportunity)
Performance required
Threshold
(0% payout)
Maximum
(100% payout)
Actual
performance
Angela Spindler Personal objectives
100%
Commercially sensitive
Dean Moore
Alan White
Group Profit
Corporate objectives
Personal objectives
Group Profit
Corporate objectives
Personal objectives
70%
15%
15%
70%
15%
15%
£97.0m
Commercially sensitive
Commercially sensitive
£103.0m
£97.0m
Commercially sensitive
Commercially sensitive
£103.0m
100%
£100.1m
50%
62.3%
£100.1m
50%
55.3%
Payout
% of
salary
83.3%
Nil
7.5%
9.3%
Nil
7.5%
8.3%
Notes:
1. In assessing the performance achieved against the group profit performance condition the remuneration committee did not consider that the group profit
achieved was supported by the underlying trading profit performance of the group. It therefore determined that the targets for the profit bonus element
had not been met.
2. The precise targets set for the corporate and individual objectives are considered to be commercially sensitive and are not capable of disclosure at the
present time.
3. Angela Spindler’s 2013/14 bonus award was pro-rated to reflect the proportion of the year employed at N Brown Group.
4. Angela Spindler’s bonus is delivered wholly in cash. Dean Moore’s 2013/14 bonus is delivered 75% in cash with 25% deferred in shares for two years and
eligible for a 1:1 matching award of shares, vesting of which is subject to performance conditions.
44
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Long term share awards (Audited)
The value in the single figure table for long
term share awards vesting in 2013/14 is
based on the TSR targets for the 2010
LTISP awards (performance to 5 June
2013) and in Alan White’s case, pro-rated
2011 and 2012 awards and pro-rated
matching share awards. Details of the
performance conditions for the relevant
awards are set out below:
Performance
period
Threshold
target
Grant
Condition
2010 LTISP
award.
TSR
2011 matching
DABS award.
EPS
3 years to 5
June 2013.
2 years to 2
March 2013.
2012 matching
DABS award.
EPS
2 years to 1
March 2014.
Alan White’s
2011 LTISP
award.
Alan White’s
2012 LTISP
award.
Alan White’s
2012 matching
DABS award.
Alan White’s
2013 matching
DABS award.
TSR
TSR
EPS
EPS
8 July 2011 to
31 October
2013.
28 June 2012
to 31 October
2013.
4 March 2012
to 31 October
2013.
3 March 2013
to 31 October
2013.
Stretch target
100% vests at
upper quartile.
Actual
performance
Vesting
6th out of 20.
85%
N/A
N/A
100% vests at
upper quartile.
100% vests at
upper quartile.
growth in EPS
greater than
growth in RPI.
100%
growth in EPS
below growth
in RPI.
0%
6th out of 20.
85%
6th out of 20.
85%
25% vests
at median
performance.
100% vests if
growth in EPS
at least equal to
growth in RPI.
100% vests if
growth in EPS
at least equal to
growth in RPI.
25% vests
at median
performance.
25% vests
at median
performance.
N/A
N/A
N/A
N/A
N/A
N/A
100%
100%
Dean Moore and Alan White participated in the LTISP and received matching share awards under the current deferred annual bonus scheme. Alan White’s 2011
and 2012 LTISP awards have been pro-rated to 31 October 2013. These awards were prior to Angela Spindler joining the company. Alan White’s 2012 and 2013
matching share awards were pro-rated by time under the rules of the plan. Dean Moore’s 2012 matching share award lapsed as the performance conditions for
this award were not met.
45
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Summary of awards granted in
2013/14 (Audited)
The table below provides details of the
long-term incentive awards granted to
executive directors during the year.
Executive
Type of
award
Recruitment
award.
Condition
% of
salary
Face value
Number of
shares
Share
price at
grant*
Performance
Period
Threshold
target
Stretch
target
None
100% £520,000
110,169
472.0p
–
–
–
Recruitment
award.
Strategic
metrics.
LTISP
50% EPS
50% TSR
200% £1,040,000
220,338
472.0p
125% £650,000
151,834
428.1p
Angela
Spindler
LTISP
TSR
100% £346,860
81,023
428.1p
Dean
Moore
Deferred
share bonus
matching
award.
EPS
15.2% £51,483
11,107
463.5p
Alan White Deferred
EPS
17.1% £91,253
19,687
463.5p
share bonus
matching
award.
3 years to July
2016.
Targets are commercially
sensitive.
EPS: 3 years to
end of financial
year 2015/16.
TSR: 3 years to
June 2016.
EPS: 50%
vests if
EPS growth
compounded
annually
greater
than 5%.
EPS: 100%
vests if
EPS growth
compounded
annually
greater than
10%.
TSR: 25%
vests at
median
performance.
TSR: 100%
vests at
upper
quartile.
25% vests
at median
performance.
100% vests
at upper
quartile.
Growth in
EPS must at
least equal
growth in RPI.
Growth in
EPS must at
least equal
growth in RPI.
Growth in
EPS must at
least equal
growth in
RPI.
Growth in
EPS must at
least equal
growth in
RPI.
3 years to
June 2016.
2 financial
years to
February 2015.
2 financial
years to
February 2015.
*The LTISP award share price at grant is the average share price over the three business days at the start of the performance period. The share price used to
calculate Angela Spindler’s recruitment awards was the average of the middle market price of a share for 1 July, 2 July and 3 July 2013.
46
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
On an exceptional basis, and only to the
extent necessary to compensate for
awards which were forfeited as a result
of taking up her appointment with the
company, Angela Spindler was granted
two one-off share awards as detailed in
the 2013 Annual Report on Remuneration.
Vesting of the first, over shares worth
£520,000 at the time of grant, is subject to
employment conditions over two years.
The value of this award is included in the
single figure for 2013/14. The second, over
shares worth £1,040,000 at the time of
grant is also subject to the achievement
of strategic objectives measured over a
period of three years.
The specific strategic targets are
commercially sensitive but include the
following:
• Further development of the retail
space strategy;
• Development and delivery of segmented
marketing strategy and multi-channel
offering including international;
• Improving the impact and effectiveness
of customer insight through access to
and analysis of big data;
• Delivery of our systems infrastructure
programme.
The recruitment awards described above
were granted pursuant to the exemption
from the need for prior shareholder
approval contained in Listing Rule 9.4.2.
The awards are non-pensionable and
non-transferable (other than on death).
The committee considered that the
awards were necessary to facilitate Angela
Spindler’s recruitment as chief executive.
Summary of awards (Audited)
The table below summarises each of
the executive directors’ long-term share
awards and the changes that have taken
place in the year.
Executive
Angela Spindler
Dean Moore
Alan White
2 March
2013
Awarded
during
the year
Lapsed
during
the year
Vested and
exercised
during the
year
1 March
2014
Date
granted
–
–
–
110,169
220,338
151,834
114,928
109,467
132,777
–
21,684
9,273
–
8,413
204,136
194,434
235,841
38,422
20,420
–
–
–
–
81,023
–
–
11,107
–
–
–
–
–
–
19,687
–
–
–
(17,240)
–
–
–
–
–
–
–
(30,621)
(61,302)
(146,746)
–
(5,956)
(16,387)
–
–
–
(97,688)
–
–
–
(21,684)
–
–
–
(173,515)
(133,132)
(89,095)
(38,422)
(14,464)
(3,300)
110,169
220,338
151,834
–
109,467
132,777
81,023
–
9,273
11,107
8,413
Aug 2013
Aug 2013
Aug 2013
Type of
award
Recruitment
Recruitment
LTISP
LTISP
LTISP
LTISP
LTISP
July 2010
July 2011
July 2012
June 2013
June 2011 Matching share award
Matching share award
May 2012
May 2013
Matching share award
Aug 2009
SAYE
–
–
–
–
–
–
July 2010
July 2011
July 2012
June 2011
May 2012
May 2013
LTISP
LTISP
LTISP
Matching share award
Matching share award
Matching share award
The current deferred annual bonus scheme
was introduced in 2010. Under its terms,
executive directors (excluding Angela
Spindler) invest up to 25% of their base
salary into shares and defer receipt for two
years. Matching shares could be earned
subject to employment conditions and
were subject to a financial performance
condition requiring that growth in the
company's EPS must at least equal the
growth in RPI over the deferral period.
The matching element of the deferred
annual bonus scheme will operate for the
last time in respect of the finance director’s
bonus outcome for 2013/14.
47
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Directors’ shareholdings (Audited)
It is the board’s policy that executive
directors build up and retain a minimum
shareholding in the company. Under these
guidelines the chief executive and the
finance director are expected to hold
company shares equal in value (at the time
of acquisition) to 200% and 100% of their
base salary respectively and to have met
this guideline within 5 years of
appointment.
The beneficial interests of directors who
served during the year, together with those
of their families, in the shares of the
company are as follows:
Value of
shares
counting
towards
guideline
holding
(as a % Guideline performance performance
conditions
Outstanding Outstanding
awards not
awards
subject to
conditions
met?
subject to Outstanding Total as at
1 March
2014
share
options
Executive
2 March
2013
1 March
2014 of salary)
Angela Spindler
–
–
n/a
Dean Moore
289,219
84,485
144%
Lord Alliance of
Manchester CBE
95,047,966 95,047,966
Alan White
770,474
–
Andrew Higginson
82,507
86,514
Ivan Fallon
10,000
11,425
John McGuire
9,047
7,007
Anna Ford
Ron McMillan
Fiona Laird
Simon Patterson
–
–
–
–
–
–
–
10,000
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Yes
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
372,172
343,647
–
–
–
–
–
–
–
–
–
110,169
–
482,341
–
–
–
–
–
–
–
–
–
–
8,413
436,545
– 95,047,966
–
–
–
–
–
–
–
–
–
86,514
11,425
7,007
–
–
–
10,000
The directors’ share interests shown above
include shares held by members of the
director's family, as required by the
Companies Act 2006.
There have been no changes to the
directors’ interests in shares between
1 March and the date of this report.
Termination payments (Audited)
Alan White received no payments
specifically for loss of office or in relation
to the cessation of his employment.
His pro-rated bonus and share awards
are included in the table on page 43.
On retirement, the benefit calculated
under the rules of a pre-existing
unregistered pension arrangement
adjusted so that it no longer includes the
reduction for retained benefits described
in the 2013 Remuneration Report was
£19,299 per annum. That entitlement has
since been commuted to a lump sum
of £325,957 to be paid to him in due
course, thereby extinguishing any future
entitlements under this arrangement.
48
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Performance graph and table
The graph shows the company’s five year
performance, measured by TSR,
compared with the performance of the
FTSE 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
400
350
300
250
200
150
100
50
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
0
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Financial Period
Analysis of chief executive’s pay
over 5 years
2009/2010
2010/2011
Alan White
2011/2012
2012/2013
2013/2014
Total remuneration (£000)
Annual bonus (% of maximum)
2,438
3,738
96.9%
90.63%
Long term share awards vesting (% of maximum)
100%
100%
2,734
38.7%
100%
1,780
71.4%
100%
2,734
15.8%
85%
Angela
Spindler
2013/2014
1,364
83.3%
n/a
49
N Brown Group plc Annual Report & Accounts 2014
Remuneration Report
Percentage change in the chief
executive’s remuneration
The table below shows the percentage
change in the chief executive's total
remuneration (excluding the value of
any long term share awards and pension
benefits receivable in the year) between
the 2012/13 and 2013/14 financial years,
compared to that of the average for all
employees of the group.
% Change from 2012/2013 to 2013/2014
Annual
bonus
Benefits
Salary
Chief Executive1
Average of other employees
+ 2.5%
-19.6%
+28.5%
+ 2.5%
+1%
-66.0%
1. This is the average of Angela Spindler and Alan White’s total remuneration.
had a financial component. Going forward
the chief executive’s bonus metrics will be
principally financial.
As disclosed in last year’s Annual Report,
in her first year as chief executive, Angela
Spindler’s bonus was based on personal
objectives, whereas employees’ bonuses
Relative importance of spend on pay
The following table shows the company’s
actual spend on pay (for all employees)
relative to dividends.
Staff costs (£’m)
Dividends (£’m)
The figures relate to amounts payable in
respect of the relevant financial year.
Shareholder voting on the directors’
remuneration report at the 2013
annual general meeting
2014
69.8
38.9
2013 % change
66.8
36.8
+4.5%
+5.7%
For
Against
Total votes cast (for and against excluding withheld votes)
Votes withheld1
Total votes cast (including withheld votes)
Total number of votes
% of votes cast
211,068,415
4,415,023
215,483,438
2,472,477
217,955,915
98%
2%
100%
1%
100%
Notes:
1. A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes cast “for” and “against” a resolution.
Approval of the directors’
remuneration report
The directors' remuneration report was
approved by the board on 23 May 2014.
Signed on behalf of the board
Fiona Laird
Chairman of the Remuneration Committee
50
N Brown Group plc Annual Report & Accounts 2014
Independent Auditor’s Report to the Members of N Brown Group Plc
Opinion on financial statements of
N Brown Group plc
In our opinion:
• the financial statements give a true and
fair view of the state of the group’s and
of the parent company’s affairs as at
1 March 2014 and of the group’s profit
for the 52 week period then ended;
• the group financial statements have
been properly prepared in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union;
• the parent company financial statements
have been properly prepared in
accordance with United Kingdom
Generally Accepted Accounting
Practice; and
• the financial statements have been
prepared in accordance with the
requirements of the Companies
Act 2006 and, as regards the group
financial statements, Article 4 of the
IAS Regulation.
The financial statements comprise the
Consolidated Income Statement, the
Consolidated Statement of Comprehensive
Income, the group and parent company
Balance Sheets, the Consolidated
Cash Flow Statement, the Consolidated
Statement of Changes in Equity, and
the related notes 1 to 39. The financial
reporting framework that has been applied
in the preparation of the group financial
statements is applicable law and IFRSs
as adopted by the European Union.
The financial reporting framework that
has been applied in the preparation of
the parent company financial statements
is applicable law and United Kingdom
Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
Going concern
As required by the Listing Rules we
have reviewed the directors’ statement
contained on page 15 that the group is
a going concern. We confirm that:
• we have concluded that the directors’
use of the going concern basis of
accounting in the preparation of the
financial statements is appropriate; and
• we have not identified any material
uncertainties that may cast significant
doubt on the group’s ability to continue
as a going concern.
However, because not all future events
or conditions can be predicted, this
statement is not a guarantee as to the
group’s ability to continue as a going
concern.
Our assessment of risks of material
misstatement
The assessed risks of material
misstatement described below are those
that had the greatest effect on our audit
strategy, the allocation of resources in
the audit and directing the efforts of the
engagement team:
Risk
How the scope of our audit responded to the risk
Impairment of customer receivables
The impairment provision is a critical judgement in preparing
the accounts and is estimated using a model which contains
a number of inputs and assumptions that includes the arrears
stage of a customer, previous payment history, the historical
performance of other customers and the length of time that the
borrower has been a customer.
Regulatory
The Group operates in a regulated environment not only because
it is a listed entity, but also because of the unsecured credit it
provides to customers. Specifically:
• The Financial Conduct Authority (FCA) began to regulate the
consumer credit market on 1 April 2014. The FCA has the
power to suspend or withdraw a firm’s regulatory permissions,
so there is a risk that if a firm does not comply with regulations,
then their permission to lend to customers may be suspended
or terminated.
• Regulated companies must ensure that their governance
arrangements are appropriate, that only authorised
people within the group are approved to carry out work
in this regulated environment and that their boards and
subcommittees are operating effectively.
• Payment Protection Insurance (‘PPI’) remains an area of
focus for the group given the media exposure this has
received in recent years.
We have focussed our audit challenge in a number of areas,
including benchmarking the methodology and assumptions,
comparing the assumptions to objective evidence, evaluating
the design and implementation of the key controls, checking
the calculation methodology for compliance with accounting
standards and industry practice and assessing the movement in
the provision compared to trends in arrears, write-offs, recoveries
and the size and mix of the customer receivables portfolio.
We consulted with credit specialists to design the audit
methodology and to enhance our challenge of assumptions
and methodology through benchmarking.
Data specialists checked the integrity of the calculations by
performing an independent recalculation of the provision and
checked the completeness and accuracy of data inputs by
testing the underlying transactions on a sample basis.
We involved regulatory specialists in our evaluation of the design
and implementation of controls and practices in place in relation
to the processes the group has established to manage regulatory
compliance and governance and benchmarked these against
sources of best practice.
We reviewed correspondence with regulators and selected a
sample of customer complaints for testing and used analytical
procedures to assess the completeness of any provisions for
such complaints.
51
N Brown Group plc Annual Report & Accounts 2014
Independent Auditor’s Report to the Members of N Brown Group Plc
Risk
How the scope of our audit responded to the risk
Taxation provisions
The group has ongoing debates with HMRC in respect of open
taxation positions and certain areas of expense. The outcomes of
these cases are uncertain and therefore are subject to estimates
by management.
Inventory provisioning
The inventory provision is based on the amount of current and
non-current stock on hand at the year end and the forecast
disposal plan, which estimates inventory items to be sold both
above and below cost. Therefore the provision is the subject of
considerable management judgement.
Our audit team included independent taxation specialists who
have reviewed correspondence with HMRC to date and considered
whether this correspondence has been interpreted and applied
correctly, having also considered current industry practice.
We have reviewed and recalculated the amounts provided and
agreed these to supporting documentation to ensure the integrity
of the data provided. We have assessed the judgements taken
and concluded on whether these judgements made are within a
reasonable range of possible outcomes.
We utilised data analytics to test the inventory provision by
comparing the selling price of inventory in the year to the cost of
the inventory as well as analysing the ageing of inventory items.
In addition, we considered the appropriateness of the provisioning
methodology through analysing the inventory disposal channels
utilised in the year and comparing those to the forecast disposal
plan. To confirm existence of the inventory and the inventory
counting procedures, we test counted inventory independently
twice in the year.
each component is compiled at the
group’s head office, we performed an
audit covering 100% of the group’s trading
components and accordingly our samples
were selected from 100% of the group’s
total assets, revenue and profit. All group
companies are subject to the same
group-wide controls and consolidation
processes, which were audited as part
of our work.
The group has a significant trading
component, J. D. Williams & Company
Limited, which was focused on as part of
the audit. The audit of this company was
completed to a lower materiality than for
the consolidated accounts.
At the parent entity level we also tested
the consolidation process and carried
out analytical procedures to confirm our
conclusion that there were no significant
risks of material misstatement of the
aggregated financial information of the
remaining components not subject to audit
or audit of specified account balances.
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 Strategic
Report and the Directors’ Report for
the financial year for which the financial
statements are prepared is consistent
with the financial statements.
Matters on which we are required to
report by exception
Adequacy of explanations received and
accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
• we have not received all the information
and explanations we require for our
audit; or
• 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
are not in agreement with the accounting
records and returns.
We have nothing to report in respect of
these matters.
Directors’ remuneration
Under the Companies Act 2006 we
are also required to report if in our
opinion certain disclosures of directors’
remuneration have not been made or the
part of the Directors’ Remuneration Report
to be audited is not in agreement with
the accounting records and returns. We
have nothing to report arising from these
matters.
Corporate Governance Statement
Under the Listing Rules we are also
required to review the part of the
Corporate Governance Statement
relating to the company’s compliance
with nine provisions of the UK Corporate
Governance Code. We have nothing to
report arising from our review.
The Audit Committee’s consideration
of these risks is set out on pages 26/27.
Our audit procedures relating to these
matters were designed in the context of
our audit of the financial statements as a
whole, and not to express an opinion on
individual accounts or disclosures. Our
opinion on the financial statements is not
modified with respect to any of the risks
described above, and we do not express
an opinion on these individual matters.
Our application of materiality
We define materiality as the magnitude of
misstatement in the financial statements
that makes it probable that the economic
decisions of a reasonably knowledgeable
person would be changed or influenced.
We use materiality both in planning the
scope of our audit work and in evaluating
the results of our work.
We determined materiality for the group
to be £4.9 million, which is 5% of pre-tax
profit, and 1% of equity.
We agreed with the Audit Committee
that we would report to the Committee
all audit differences in excess of £97,000,
as well as differences below that threshold
that, in our view, warranted reporting
on qualitative grounds. We also report
to the Audit Committee on disclosure
matters that we identified when assessing
the overall presentation of the financial
statements.
An overview of the scope of our audit
Given the nature of the group’s corporate
structure where all evidence relating to
52
N Brown Group plc Annual Report & Accounts 2014
Independent Auditor’s Report to the Members of N Brown Group Plc
Our duty to read other information in the
Annual Report
Under International Standards on Auditing
(UK and Ireland), we are required to report
to you if, in our opinion, information in the
annual report is:
• materially inconsistent with the
information in the audited financial
statements; or
• apparently materially incorrect based
on, or materially inconsistent with, our
knowledge of the group acquired in the
course of performing our audit; or
• otherwise misleading.
In particular, we are required to
consider whether we have identified any
inconsistencies between our knowledge
acquired during the audit and the
directors’ statement that they consider
the annual report is fair, balanced and
understandable and whether the annual
report appropriately discloses those
matters that we communicated to the audit
committee which we consider should have
been disclosed. We confirm that we have
not identified any such inconsistencies or
misleading statements.
Respective responsibilities of
directors and auditor
As explained more fully in the Directors’
Responsibilities Statement, the directors
are responsible for the preparation of
the financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit and express
an opinion on the financial statements in
accordance with applicable law and
International Standards on Auditing (UK
and Ireland). Those standards require
us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
We also comply with International
Standard on Quality Control 1 (UK and
Ireland). Our audit methodology and tools
aim to ensure that our quality control
procedures are effective, understood
and applied. Our quality controls and
systems include our dedicated
professional standards review team,
strategically focused second partner
reviews and independent partner reviews.
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.
Scope of the audit of the financial
statements
An audit involves obtaining evidence
about the amounts and disclosures in
the financial statements sufficient to give
reasonable assurance that the financial
statements are free from material
misstatement, whether caused by fraud
or error. This includes an assessment of:
whether the accounting policies are
appropriate to the group’s and the parent
company’s circumstances and have
been consistently applied and adequately
disclosed; the reasonableness of
significant accounting estimates made
by the directors; and the overall
presentation of the financial statements.
In addition, we read all the financial and
non-financial information in the annual
report to identify material inconsistencies
with the audited financial statements
and to identify any information that is
apparently materially incorrect based
on, or materially inconsistent with, the
knowledge acquired by us in the course
of performing the audit. If we become
aware of any apparent material
misstatements or inconsistencies we
consider the implications for our report.
Damian Sanders ACA
(Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and
Statutory Auditor
Manchester, UK
23 May 2014
53
N Brown Group plc Annual Report & Accounts 2014
Consolidated Income Statement
For the 52 weeks ended 1 March 2014
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
(2.8)
Profit before taxation
Taxation
Profit attributable to equity holders of the parent
Adjusted earnings per share
Basic
Diluted
Earnings per share
Basic
Diluted
Consolidated Statement of Comprehensive Income
For the 52 weeks ended 1 March 2014
Profit for the period
Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit pension schemes
Tax relating to items not reclassified
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Total comprehensive income for the period attributable to equity holders of the parent
9
11
11
Note
28
9
54
2014
£m
834.9
2013
£m
784.7
107.0
102.2
0.1
(7.0)
100.1
97.3
(21.4)
75.9
0.1
(7.2)
95.1
1.3
96.4
(17.0)
79.4
27.88p
27.69p
28.15p
28.09p
27.09p
26.91p
28.51p
28.45p
2014
£m
75.9
(2.7)
0.6
(2.1)
(0.4)
73.4
2013
£m
79.4
(4.0)
1.0
(3.0)
0.4
76.8
N Brown Group plc Annual Report & Accounts 2014
Consolidated Balance Sheet
As at 1 March 2014
Non-current assets
Intangible assets
Property, plant & equipment
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Bank loans
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
20
15
16
18
24
17
21
18
17
28
20
22
23
2014
£m
73.3
63.2
4.8
141.3
89.9
599.0
–
45.3
734.2
875.5
(9.0)
(98.0)
(1.6)
(18.8)
(127.4)
606.8
(250.0)
(4.2)
(8.6)
(262.8)
(390.2)
485.3
31.3
11.0
(0.5)
1.9
441.6
485.3
2013
£m
69.6
66.4
3.4
139.4
86.5
548.7
1.2
61.3
697.7
837.1
–
(109.7)
–
(19.0)
(128.7)
569.0
(250.0)
(3.3)
(9.1)
(262.4)
(391.1)
446.0
31.3
11.0
(0.9)
2.3
402.3
446.0
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the board of directors and authorised for
issue on 23 May 2014.
They were signed on its behalf by:
Angela Spindler
Dean Moore
Directors
55
N Brown Group plc Annual Report & Accounts 2014
Consolidated Cash Flow Statement
For the 52 weeks ended 1 March 2014
Net cash from operating activities
Investing activities
Purchases of property, plant and equipment
Purchases of intangible assets
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 (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Reconciliation of Operating Profit to Net Cash from
Operating Activities
For the 52 weeks ended 1 March 2014
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share option charge
Note
24
2014
£m
40.7
(3.9)
(16.9)
0.1
(20.7)
(5.7)
(38.9)
9.0
(1.1)
0.7
(36.0)
(16.0)
61.3
45.3
2013
£m
72.4
(7.1)
(17.9)
0.1
(24.9)
(6.9)
(36.8)
–
(0.5)
0.5
(43.7)
3.8
57.5
61.3
2014
£m
107.0
7.1
13.2
2.4
2013
£m
102.2
7.9
11.1
2.1
Operating cash flows before movements in working capital
129.7
123.3
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
(3.4)
(51.0)
(12.7)
(1.8)
60.8
(20.1)
40.7
(3.9)
(26.4)
3.1
(1.9)
94.2
(21.8)
72.4
56
N Brown Group plc Annual Report & Accounts 2014
Consolidated Statement of Changes in Equity
Share
capital
£m
Note 22
Share
premium
£m
Own
shares
£m
Note 23
Foreign
currency
translation
reserve
£m
Retained
earnings
£m
Total
£m
Changes in equity for the 52 weeks
ended 1 March 2014
Balance as at 2 March 2013
31.3
11.0
(0.9)
Profit for the period
Other items of comprehensive income
for the period
Total comprehensive income
for the period
Equity dividends
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.1)
1.5
–
–
–
2.3
–
(0.4)
402.3
75.9
446.0
75.9
(2.1)
(2.5)
(0.4)
73.8
73.4
–
–
–
–
–
–
(38.9)
–
–
(0.8)
2.4
2.8
(38.9)
(1.1)
1.5
(0.8)
2.4
2.8
Balance at 1 March 2014
31.3
11.0
(0.5)
1.9
441.6
485.3
Changes in equity for the 52 weeks
ended 2 March 2013
Balance as at 3 March 2012
31.3
11.0
(1.5)
Profit for the period
Other items of comprehensive income
for the period
Total comprehensive income
for the period
Equity dividends
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 2 March 2013
31.3
11.0
–
–
–
–
(0.5)
1.1
–
–
–
(0.9)
1.9
–
0.4
0.4
–
–
–
–
–
–
359.6
402.3
79.4
(3.0)
76.4
(36.8)
–
–
(0.6)
2.1
1.6
79.4
(2.6)
76.8
(36.8)
(0.5)
1.1
(0.6)
2.1
1.6
2.3
402.3
446.0
57
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
1 General information
N Brown Group plc is a company
incorporated in the United Kingdom under
the Companies Act 2006. The address of
the registered office is listed at the end
of the report. The nature of the group’s
operations and its principal activities are
set out on page 18 of the directors’ report.
These financial statements are presented
in pounds sterling because that is the
currency of the primary economic
environment in which the group operates.
Foreign operations are included in
accordance with the policies set out
in note 2.
The group's financial statements for
the 52 weeks ended 1 March 2014
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
IAS19 (revised) Employee Benefits.
An amendment to IAS19 has impacted
the various components representing
movements in the defined pension
obligation, but not the group’s total
obligation. Expected returns on plan
assets has been replaced with a net
finance cost in the income statement.
The prior year figures have not been
restated as the impact is not material.
The Annual Improvements to IFRSs
2009 - 2011 have made a number of
amendments to IFRSs.
The amendments that are relevant to
the group are the amendments to IAS 1
regarding when a statement of financial
position as at the beginning of the
preceding period (third statement
of financial position) and the related
notes are required to be presented.
The amendments specify that a third
statement of financial position is
required when a) an entity applies an
accounting policy retrospectively, or
makes a retrospective restatement or
reclassification of items in its financial
statements, and b) the retrospective
application, restatement or reclassification
has a material effect on the information in
the third statement of financial position.
The amendments specify that related
notes are not required to accompany
the third statement of financial position.
• IFRS 13 ‘Fair Value Measurement’
IFRS 13 establishes a single source of
guidance under IFRS for all fair value
measurements. IFRS 13 does not change
when an entity is required to use fair value,
but rather provides guidance on how to
measure fair value under IFRS. IFRS 13
defines fair value as an exit price. As a
result of the guidance in IFRS 13, the group
re-assessed its policies for measuring fair
values, in particular, its valuation inputs
such as non-performance risk for fair value
measurement of liabilities. IFRS 13 also
requires additional disclosures.
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.
Application of IFRS 13 has not materially
impacted the fair value measurements of
the group. Additional disclosures where
required, are provided in the individual
notes relating to the assets and liabilities
whose fair values were determined.
At the date of authorisation of these
financial statements, the following
Standards and Interpretations which
have not been applied in these financial
statements were in issue but not yet
effective (and in some cases had not
yet been adopted by the EU):
• IFRS 9: Financial Instruments
• IFRS 10: Consolidated Financial
Statements
• IFRS 11: Joint Arrangements
• IFRS 12: Disclosure of Interests in
Other Entities
• IAS 27 (revised): Separate Financial
Statements
• IAS 28 (revised): Investments in
Associates and Joint Ventures
• Amendments to IAS 32: Offsetting
Financial Assets and Financial Liabilities
• Amendments to IAS 36: Recoverable
Amount Disclosures for Non-Financial
Assets
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.
Basis of accounting
The financial statements have been
prepared in accordance with IFRS.
The financial statements have also
been prepared in accordance with
IFRSs adopted by the European Union
and therefore comply with Article 4 of
the EU IAS Regulation.
The financial statements have been
prepared on the historical cost basis,
except for the revaluation of certain financial
instruments. The principal accounting
policies adopted are set out as follows.
Accounting period
Throughout the accounts, the directors
report and financial review, reference to
2014 means at 1 March 2014 or the
52 weeks then ended; reference to 2013
means at 2 March 2013 or the 52
weeks then ended unless otherwise stated.
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 is also made up
to a date coterminous 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
58
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
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 10 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 on the date
control is acquired and initially measured
at cost, being the excess of the cost
of the business combination over the
group’s interest in the net fair value of
the identifiable assets, liabilities and
contingent liabilities recognised. If, after
reassessment, the group’s interest in the
net fair value of the acquiree’s identifiable
assets, liabilities and contingent liabilities
exceeds the cost of the business
combination, the excess is recognised
immediately in profit or loss.
Goodwill is not amortised, but is reviewed
for impairment at least annually. Any
impairment is recognised immediately
in the income statement and is not
subsequently reversed.
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 asset’s net carrying
amount. Such revenues are recognised only
when collectability is reasonably assured.
Revenue from non-interest related financial
income is recognised when the services
have been performed.
Property, plant & equipment
Property, plant and equipment is stated
at cost, less accumulated depreciation
and any provision for impairment in value.
Depreciation is charged so as to write
off the cost of assets to their estimated
residual values, based on current prices
at the balance sheet date, over their
remaining useful lives, using the straight-
line method. No depreciation is charged on
freehold land. In this respect the following
annual depreciation rates apply:
Freehold buildings
2%
Leasehold property over the period
and improvements
of the lease
Motor vehicles
20%
Computer equipment 20%
Plant and machinery
Fixtures and fittings
between
5% and 20%
between
10% and 20%
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.
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.
Revenue recognition
Revenue is measured at the fair value of
the consideration received or receivable
and represents the total amount receivable
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.
Impairment of tangible and intangible
assets excluding goodwill
At each balance sheet date, the group
reviews the carrying value of its tangible
and intangible assets to determine whether
there is any indication that those assets
have suffered an impairment loss. If any
such indication exists, the recoverable
amount of the asset is estimated in order
to determine the extent of the impairment
loss (if any). Where the asset does not
generate cash flows that are independent
from other assets, the group estimates the
recoverable amount of the cash-generating
unit to which the asset belongs.
Recoverable amount is the higher of fair
value less costs to sell and value in use.
In assessing value in use, the estimated
future cash flows are discounted to their
present value using a discount rate that
reflects current market assessments of the
time value of money and the risks specific
to the asset for which the estimate of
future cash flows have not been adjusted.
If the recoverable amount of an asset (or
cash-generating unit) is estimated to be
less than its carrying amount, the carrying
amount of the asset (cash-generating
unit) is reduced to its recoverable amount.
An impairment loss is recognised as an
expense immediately.
59
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
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
even where payments are not made on
such a basis.
Assets held under finance leases are
included in tangible fixed assets at a value
equal to the original costs incurred by the
lessor less depreciation, and obligations to
the lessor are shown as part of creditors.
The interest element is charged to the
income statement over the period of the
lease to produce a constant rate of charge
on the balance of capital repayments
outstanding.
Inventories
Inventories have been valued at the
lower of cost and net realisable value.
Cost comprises direct materials and
those overheads that have been incurred
in bringing inventories to their present
location and condition based on the
standard costing method. Cost has been
calculated on a first-in-first-out basis.
Net realisable value means estimated
selling price less all costs to be incurred
in marketing, selling and distribution.
Taxation
The tax expense represents the sum of the
tax currently payable and deferred tax.
The tax currently payable is based on
taxable profit for the year. Taxable profit
differs from net profit as reported in the
income statement because it excludes
items of income or expense that are
taxable or deductible in other years and
it further excludes items that are never
taxable or deductible. The group’s liability
for current tax is calculated using tax rates
that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax is the tax expected to be
payable or recoverable on differences
between the carrying amounts of assets
and liabilities in the financial statements
and the corresponding tax bases used
in the computation of taxable profit, and
is accounted for using the balance sheet
liability method. Deferred tax liabilities
are generally recognised for all taxable
temporary differences and deferred tax
assets are recognised to the extent that
it is probable that taxable profits will
be available against which deductible
temporary differences can be utilised.
Such assets and liabilities are not
recognised if the temporary difference
arises from goodwill or from the initial
recognition (other than in a business
combination) of other assets and liabilities
in a transaction that affects neither the tax
profit nor the accounting profit.
Deferred tax liabilities are recognised for
taxable temporary differences arising on
investments in subsidiaries and interests
in joint ventures, except where the group
is able to control the reversal of the
temporary difference and it is probable
that the temporary difference will not
reverse in the foreseeable future.
Deferred tax is calculated at the tax rates
that are expected to apply in the period
when the liability is settled or the asset
is realised. Deferred tax is charged or
credited in the income statement, except
when it relates to items charged or
credited directly to equity, in which case
the deferred tax is also dealt with in equity.
Foreign currencies
The individual financial statements of
each group company are presented in
the currency of the primary economic
environment in which it operates (its
functional currency). For the purpose of
the consolidated financial statements, the
results and financial position of each group
company are expressed in pounds sterling,
which is the functional currency of the
group, and the presentation currency for
the consolidated financial statements.
In preparing the financial statement of
the individual companies, transactions in
currencies other than the entity’s functional
currency (foreign currencies) are recorded
at the rates of exchange prevailing on
the dates of the transactions. At each
balance sheet date, monetary assets and
liabilities that are denominated in foreign
currencies are retranslated at the rates
prevailing on the balance sheet date. Non-
monetary items carried at fair value that
are denominated in foreign currencies are
translated at the rates prevailing at the
date when the fair value was determined.
Non-monetary items that are measured
in terms of historical cost in a foreign
currency are not retranslated.
Exchange differences arising on the
settlement of monetary items, and on
the retranslation of monetary items, are
included in profit or loss for the period.
Exchange differences arising on the
retranslation of non-monetary items
carried at fair value are included in profit
or loss for the period except for differences
arising on the retranslation of non-
monetary items in respect of which gains
and losses are recognised directly
in equity. For such non-monetary items,
any exchange component of that gain or
loss is also recognised directly in equity.
In order to hedge its exposure to certain
foreign exchange risks, the group may
enter into forward contracts and options
(see below for details of the group’s
accounting policies in respect of such
derivative financial instruments).
For the purpose of presenting consolidated
financial statements, the assets
and liabilities of the group’s foreign
operations are translated at exchange
rates prevailing on the balance sheet
date. Income and expense items are
translated at the average exchange rates
for the period, unless exchange rates
fluctuate significantly during that period,
in which case the exchange rates at the
date of transactions are used. Exchange
differences arising, if any, are classified
as equity and transferred to the group’s
translation reserve. Such translation
differences are recognised as income or
as expenses in the period in which the
operation is disposed of.
Financial instruments
Financial assets and financial liabilities are
recognised on the group’s balance sheet
when the group becomes a party to the
contractual provisions of the instrument.
Profits and losses on financial instruments
are recognised in the income statement as
they arise.
Trade receivables
Trade receivables are measured at
amortised cost using the effective interest
rate method. Appropriate allowances
for estimated irrecoverable amounts are
recognised in profit or loss when there
is objective evidence that the asset is
impaired based on specific customer
patterns of behaviour which may be
affected by external economic conditions.
60
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
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.
Trade receivables are assessed for
impairment on a collective basis.
Objective evidence of impairment could
include the group's past experience of
collecting payments and observable changes
in national and local economic conditions
that could correlate with a default event.
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 income statement 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 the end of each reporting
period. Remeasurement comprising
actuarial gains and losses, the effect
of the asset ceiling (if applicable) and
the return on scheme assets (excluding
interest) are recognised immediately
in the balance sheet with a charge or
credit to the statement of comprehensive
income in the period in which they occur.
Remeasurement recorded in the statement
of comprehensive income is not recycled.
Past service cost is recognised in profit or
loss in the period of scheme amendment.
Net-interest is calculated by applying a
discount rate to the net defined benefit
liability or asset. Defined benefit costs
are split into three categories:
• current service cost, past-service cost
and gains and losses on curtailments
and settlements;
• net-interest expense or income; and
• remeasurement.
The group presents the first two
components of defined benefit costs
within operating expenses (see note 28)
in its consolidated income statement.
Curtailments gains and losses are
accounted for as past-service cost. Net-
interest expense or income is recognised
within finance costs (see note 8).
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.
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 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 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, which
are committed until 2016. After making
appropriate enquiries, the directors have
61
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
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.
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.
Taxation
The group’s tax balances comprise
income tax, which is the sum of the total
current and deferred tax balances, and
VAT. The group has on-going discussions
with HMRC in respect of open taxation
positions and the calculation of the
group’s potential liabilities or assets in
respect of these necessarily involves a
degree of estimation and judgement in
respect of items whose tax treatment
cannot be finally determined until
resolution has been reached with HMRC
or, as appropriate, through a formal legal
process. Issues can, and often do, take a
number of years to resolve. The amounts
recognised or disclosed are derived from
the group’s best estimation and judgement
and, where appropriate, legal counsel’s
opinion has been sought. However, the
inherent uncertainty regarding the outcome
of these means eventual realisation could
differ from the accounting estimates and
therefore impact the group’s results and
cash flows.
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 disposal
channels, and is consequently a source
of estimation uncertainty.
Regulatory
The regulatory environment in which the
group operates is both complex and
changing with the transfer of regulatory
supervision from the OFT to the FCA. This
can be a critical area of judgement when
considering any liabilities that could arise
as a result of the legislation in place.
3 Revenue
An analysis of the group’s revenue is as follows:
Sale of goods
Rendering of services
Revenue
Investment income
Total revenue
2014
£m
2013
£m
592.7
242.2
834.9
0.1
835.0
557.8
226.9
784.7
0.1
784.8
62
N Brown Group plc Annual Report & Accounts 2014
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
2014
£m
2013
£m
834.9
784.7
107.0
(2.8)
0.1
(7.0)
97.3
(21.4)
75.9
102.2
1.3
0.1
(7.2)
96.4
(17.0)
79.4
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 £31.4m (2013, £30.2m) and incurred operating losses
of £3.5m (2013, £1.9m). 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 (2013, £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
2014
£m
20.8
20.3
870.7
(362.8)
507.9
4.8
(27.4)
485.3
2013
£m
25.0
19.0
833.7
(363.0)
470.7
3.4
(28.1)
446.0
63
N Brown Group plc Annual Report & Accounts 2014
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)
Doubtful debts recognised as an expense
2014
£m
834.9
(394.7)
440.2
(71.1)
(262.1)
107.0
2014
£m
(2.8)
7.1
13.2
248.1
85.2
0.3
67.8
2013
£m
784.7
(368.6)
416.1
(66.3)
(247.6)
102.2
2013
£m
(3.6)
7.9
11.1
234.7
80.3
0.3
63.2
Amounts payable to Deloitte LLP and their associates by the company and its UK subsidiary undertakings in respect of non-audit
services were £1.3m (2013, £0.9m).
A more detailed analysis of auditor’s remuneration is provided below:
Audit fees:
The audit of the company’s subsidiaries pursuant to legislation
Other services:
Tax services
2014
£m
0.3
1.3
2013
£m
0.3
0.9
Fees payable for tax services relate to tax advisory services of £1.2m (2013, £0.7m) and compliance of £0.1m (2013, £0.2m).
Fees payable to the company’s auditor for the audit of the company’s annual accounts were £10,000 (2013, £10,000).
Within the fees for audit of the company's subsidiaries pursuant to legislation there are other assurance fees totalling £30,000
(2013, £30,000).
In addition to the amounts shown above, the auditors received fees of £5,000 (2013, £5,000) 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
2014
2013
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 43.
64
1,005
2,427
3,432
2014
£m
69.8
7.9
5.1
2.4
85.2
955
2,299
3,254
2013
£m
66.8
7.2
4.2
2.1
80.3
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
7
Investment income
Interest on bank deposits
8 Finance costs
Interest on bank overdrafts and loans
Net pension finance charge (see note 28)
9 Tax
Current tax – charge for the period
Current tax – adjustment in respect of previous periods
Deferred tax (see note 20)
UK Corporation tax is calculated at 23.08% (2013, 24.17%) 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 23.08% (2013, 24.17%)
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
2014
£m
0.1
2014
£m
7.0
–
7.0
2014
£m
21.5
0.4
(0.5)
21.4
2014
£m
97.3
22.4
(1.1)
0.6
(0.9)
0.4
21.4
2013
£m
0.1
2013
£m
7.0
0.2
7.2
2013
£m
23.9
(4.9)
(2.0)
17.0
2013
£m
96.4
23.3
(0.7)
0.5
(1.2)
(4.9)
17.0
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
2014
£m
(0.6)
(0.6)
2014
£m
(2.0)
(0.8)
(2.8)
2013
£m
(1.0)
(1.0)
2013
£m
(1.1)
(0.5)
(1.6)
65
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
10 Dividends
Amounts recognised as distributions to equity holders in the period:
Final dividend for the 52 weeks ended 2 March 2013 of 8.23p (2012, 7.74p) per share
Interim dividend for the 52 weeks ended 1 March 2014 of 5.67p (2013, 5.45p) per share
Proposed final dividend for the 52 weeks ended 1 March 2014 of 8.56p (2013, 8.23p) per share
2014
£m
23.0
15.9
38.9
24.0
2013
£m
21.5
15.3
36.8
23.0
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
2014
£m
2013
£m
75.9
79.4
2014
Number
2013
Number
280,127
278,536
1,929
529
Weighted average number of ordinary shares for the purposes of diluted earnings per share
282,056
279,065
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 basic and diluted earnings per share.
2014
£m
75.9
2.2
78.1
2013
£m
79.4
(1.0)
78.4
66
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
12
Intangible assets
Cost
At 3 March 2012
Additions
At 2 March 2013
Additions
At 1 March 2014
Amortisation
At 3 March 2012
Charge for the period
At 2 March 2013
Charge for the period
At 1 March 2014
Carrying amount
At 1 March 2014
At 2 March 2013
At 3 March 2012
Brands
£m
Software
£m
Customer
Database
£m
16.9
–
16.9
–
16.9
–
–
–
–
–
16.9
16.9
16.9
128.1
17.9
146.0
16.9
162.9
82.2
11.1
93.3
13.2
106.5
56.4
52.7
45.9
1.9
–
1.9
–
1.9
1.9
–
1.9
–
1.9
–
–
–
Assets in the course of construction included in intangible assets at the year end total £16.4m (2013, £12.4m).
No depreciation is charged on these assets.
All software additions relate to internal development.
Amortisation of intangible assets is split equally between cost of sales and administration costs and is disclosed in note 5.
The amortisation periods for intangible assets are:
Software
Customer Database
Total
£m
146.9
17.9
164.8
16.9
181.7
84.1
11.1
95.2
13.2
108.4
73.3
69.6
62.8
Years
5
5
The brand names arising from the acquisition of Gray & Osbourn Limited, High and Mighty, Slimma, Figleaves, Diva and Dannimac
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 pre-tax cash flows is 7.2%
(2013, 5.7%). The directors consider that the value in use calculation has sufficient headroom above the carrying value of the
brand names.
The carrying value in relation to Gray & Osbourn is £8.0m (2013, £8.0m), £7.1m (2013, £7.1m) for Figleaves and for High and Mighty
is £1.0m (2013, £1.0m). The directors note that the headroom on the value in use calculations compared to the carrying values for
Gray & Osbourn and High and Mighty is marginal and whilst they do not consider that these brand names are impaired as at the
balance sheet date, should there be a downturn in future or forecasted cashflows, or an increase in the discount rate applied, then
there is a risk of impairment to these brand names. Were the discount rate to increase by 5%, then the impairment charged would
be £0.4m. Were it to increase by 10%, the impairment charged would be £0.8m.
The discount rates applied by the directors have been reviewed in the year and the directors are satisfied that they are reflective
of the capital structure and debt to equity ratio of the group.
67
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
13 Property, plant and equipment
Cost
At 3 March 2012
Additions
At 2 March 2013
Additions
At 1 March 2014
Accumulated depreciation and impairment
At 3 March 2012
Charge for the period
At 2 March 2013
Charge for the period
At 1 March 2014
Carrying amount
At 1 March 2014
At 2 March 2013
At 3 March 2012
Land and Fixtures and
Buildings Equipment
£m
£m
46.2
–
46.2
–
46.2
9.5
0.9
10.4
0.9
11.3
34.9
35.8
36.7
105.2
7.1
112.3
3.9
116.2
74.7
7.0
81.7
6.2
87.9
28.3
30.6
30.5
Total
£m
151.4
7.1
158.5
3.9
162.4
84.2
7.9
92.1
7.1
99.2
63.2
66.4
67.2
Assets in the course of construction included in property, plant and equipment at the year end date total £2.8m (2013, £2.1m),
no depreciation has been charged on these assets.
At 1 March 2014, the group had not entered into any contractual commitments for the acquisition of property, plant and equipment
(2013, £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 32 to the company’s separate financial statements.
2014
£m
88.1
1.8
89.9
2013
£m
85.2
1.3
86.5
15
Inventories
Finished goods
Sundry stocks
68
N Brown Group plc Annual Report & Accounts 2014
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
2014
£m
628.1
(50.2)
577.9
21.1
599.0
2013
£m
583.5
(55.7)
527.8
20.9
548.7
Trade receivables are measured at amortised cost.
The average credit period given to customers for the sale of goods is 253 days (2013, 246 days). Interest is charged at 44.9%
(2013, 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 £97.3m at 1 March 2014 (2013, £86.7m). Interest income recognised on trade receivables which
have been impaired was £10.0m (2013, £10.9m).
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 – not past due
0 – 28 days – past due
29 – 56 days – past due
57 – 84 days – past due
85 – 112 days – past due
Over 112 days – past due
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
2014
£m
485.6
67.5
29.4
18.2
14.2
13.2
628.1
2014
£m
55.7
67.8
(73.3)
50.2
2013
£m
437.9
74.0
28.7
17.1
14.1
11.7
583.5
2013
£m
49.3
63.2
(56.8)
55.7
The concentration of credit risk is limited due to the customer base being large and unrelated and comprising 1.5 million
(2013, 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.
69
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
17 Bank overdraft and loans
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
2014
£m
2013
£m
259.0
250.0
9.0
–
250.0
250.0
2014
%
2.0
0.7
–
–
250.0
250.0
2013
%
2.0
0.7
The principal features of the group’s borrowings are as follows:
(i) Bank overdrafts which are nil at the current and prior year ends are repayable on demand, unsecured and bear interest
at a margin over bank base rates.
(ii)
The group has a bank loan of £220m (2013, £220m) 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 for which finance costs are linked to US commercial paper rates which is committed until March 2016.
The group also has unsecured bank loans of £39m (2013, £30m) drawn down under various medium term bank revolving credit
facilities, of which £120 million is committed until March 2016.
(iii)
All borrowings are arranged at floating rates, thus exposing the group to cash flow interest rate risk. The group may use
derivatives such as interest rate swaps where appropriate to manage this risk. None have been used in the current or prior
year. Based on weighted average interest rates and the value of bank loans at 1 March 2014 the estimated future interest cost
per annum until maturity would be £1.8m (2013, £1.8m).
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 year
2014
£m
10.8
1.8
250.2
262.8
2013
£m
1.8
1.8
251.8
255.4
At 1 March 2014, the group had available £111m (2013, £120m) 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.
70
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
18 Derivative financial instruments
At the balance sheet date, details of outstanding forward foreign exchange contracts that the group has committed to are as follows:
Notional amount – Sterling contract value
Fair value of (liability)/asset recognised
2014
£m
32.2
(1.6)
2013
£m
22.1
1.2
Changes in the fair value of assets/liabilities recognised, being non-hedging currency derivatives, amounted to a charge of £2.8m
(2013, credit of £1.3m) to income in the period.
The financial instruments that are measured subsequent to initial recognition at fair value are all grouped into Level 2 (2013, 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 (2013, 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
2014
£m
259.0
(45.3)
213.7
485.3
44%
2013
£m
250.0
(61.3)
188.7
446.0
42%
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.
71
N Brown Group plc Annual Report & Accounts 2014
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
2014
£m
15.3
13.2
3.7
32.2
2013
£m
16.5
5.6
–
22.1
Forward contracts outstanding at the period end are contracted at US dollar exchange rates ranging between 1.54 and 1.63.
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
2014
£m
1.0
4.1
2013
£m
2.0
1.9
2014
£m
8.2
1.6
2013
10.1
2.0
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%
Categories of financial instruments
Financial assets
Cash and bank balances
Derivatives at fair value through profit and loss - held for trading
Loans and receivables
Financial liabilities
Derivatives at fair value through profit and loss - held for trading
Amortised cost
Euro
Currency
Impact
2014
£m
(0.7)
0.8
2013
£m
(0.7)
0.9
US Dollar
Currency
Impact
2014
£m
2013
£m
0.3
(0.2)
–
–
2014
£m
2013
£m
45.3
–
577.9
623.2
61.3
1.2
527.8
590.3
(1.6)
(320.5)
(322.1)
–
(313.5)
(313.5)
72
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
19 Financial instruments continued
Interest rate risk management
The group is exposed to interest rate risk, as entities in the group borrow funds at floating interest rates. Where appropriate,
exposure to interest rate fluctuations on indebtedness is managed by using derivatives such as interest rate swaps.
Interest rate sensitivity analysis
If interest rates had increased by 0.5% and all other variables were held constant, the group’s profit before tax for the 52 weeks
ended 1 March 2014 would have decreased by £1.25m (2013, £1.25m).
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.
73
N Brown Group plc Annual Report & Accounts 2014
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 Accelerated Retirement
benefit
based
payments depreciation obligations
£m
tax
£m
£m
At 3 March 2012
Credit/(charge) to income
Credit to equity
At 2 March 2013
Credit/(charge) to income
Credit to equity
At 1 March 2014
1.5
0.4
0.5
2.4
0.6
0.8
3.8
(8.5)
1.4
–
(7.1)
0.1
–
(7.0)
0.2
(0.4)
1.0
0.8
(0.6)
0.6
0.8
Other
£m
Total
£m
(2.4)
0.6
–
(1.8)
0.4
–
(1.4)
(9.2)
2.0
1.5
(5.7)
0.5
1.4
(3.8)
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
2014
£m
4.8
(8.6)
(3.8)
At the balance sheet date, the group has unused tax losses of £0.1m (2013, £0.1m) and capital losses of £4.4m (2013 £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
2014
£m
61.5
7.8
0.2
28.5
98.0
2013
£m
3.4
(9.1)
(5.7)
2013
£m
63.5
17.4
0.6
28.2
109.7
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 36 days (2013, 38 days).
For most suppliers no interest is charged on the trade payables. The group has financial risk management policies in place to
ensure that all payables are paid within agreed credit terms.
74
N Brown Group plc Annual Report & Accounts 2014
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 1 March 2014 & 2 March 2013
2014
Number
2013
Number
2014
£m
2013
£m
352,857,142
352,857,142
39.0
39.0
283,429,454 283,429,454
31.3
31.3
The company has one class of ordinary shares which carry no right to fixed income.
23 Own shares
Balance at 2 March 2013
Additions
Issue of own shares on exercise of share options
Balance at 1 March 2014
2014
£m
0.9
1.1
(1.5)
0.5
2013
£m
1.5
0.5
(1.1)
0.9
The own shares reserve represents the cost of shares in N Brown Group plc held by the N Brown Group plc Employee Share
Ownership Trust to satisfy options under the group’s various share benefit schemes (see note 27).
At 1 March 2014 the employee trusts held 2,519,955 shares in the company (2013, 4,324,171).
75
N Brown Group plc Annual Report & Accounts 2014
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
2014
£m
42.9
1.3
1.1
45.3
2013
£m
58.3
1.7
1.3
61.3
Parent company bank overdrafts which at 1 March 2014 amounted to £29.6m (2013, £41.0m) have been guaranteed by certain
subsidiary undertakings.
26 Operating lease arrangements
Minimum lease payments under operating leases recognised as an expense for the period
2014
£m
6.8
2013
£m
6.2
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
2014
£m
0.7
15.2
6.4
22.3
2013
£m
0.8
17.3
6.2
24.3
Operating lease payments represent rentals payable by the group for certain buildings, plant and equipment and motor vehicles.
76
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
27 Equity settled share based payments
The remuneration report on pages 33 to 50 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
Long-term incentive scheme awards
July 2010
July 2011
June 2012
July 2013
August 2013
Deferred annual bonus scheme awards
June 2011
May 2012
May 2013
Option price
in pence
186 – 269
106 – 341
211 – 341
–
–
–
–
–
–
–
–
Exercise
period
Number
of shares
2014
Number
of shares
2013
August 2013 – February 2019
June 2007 – June 2023
May 2009 – June 2023
1,586,937
1,791,982
1,694,745
1,651,533
1,885,983
1,289,129
July 2013 – January 2014
July 2014 – January 2015
June 2015 – December 2015
July 2016 – December 2016
August 2016 – January 2017
–
721,989
1,010 ,154
644,124
151,834
1,022,829
1,037,011
1,431,687
–
–
June 2013 – December 2013
May 2014 – November 2014
May 2015 – November 2015
–
106,794
112,519
199,344
117,014
–
77
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
27 Equity settled share based payments continued
Movements in share options are summarised as follows:
Number of
share options
2014
Weighted
average exercise
price
£
Number of
share options
2013
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
4,826,645
1,297,936
(239,665)
(811,252)
5,073,664
501,482
2.31
3.19
2.50
2.32
2.53
2.37
4,542,031
1,516,431
(353,785)
(878,032)
4,826,645
493,390
2.39
2.07
2.31
2.33
2.31
2.33
Options were exercised on a regular basis throughout the period and the weighted average share price during this period was
499 pence (2013, 295 pence). The options outstanding at 1 March 2014 had a weighted average remaining contractual life
of 5.6 years (2013, 6.1 years). The aggregate estimated fair values of options granted in the period is £2,583,000 (2013, £881,000).
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
3,807,885
943,878
(563,746)
(1,440,603)
2,747,414
–
2014
Weighted
average exercise
price
£
Number of
share awards
2013
Weighted
average exercise
price
£
–
–
–
–
–
–
4,038,924
1,554,871
(433,784)
(1,352,126)
3,807,885
–
–
–
–
–
–
–
The awards outstanding at 1 March 2014 had a weighted average remaining contractual life of 1.8 years (2013, 1.9 years).
The fair value of management and sharesave options/awards granted is calculated at the date of grant using a Black-Scholes
option pricing model. The inputs into the Black-Scholes model are as follows:
Weighted average share price at date of grant (pence)
Weighted average exercise price (pence)
Expected volatility (%)
Expected life (years)
Risk-free rate (%)
Dividend yield (%)
2014
2013
475
185
28.1 – 37.4
2.5 – 5.5
0.4
3.0
239
102
32.6 - 39.4
2.5 - 5.5
0.4
5.4
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 £2.4m and £2.1m related to equity-settled share based payment transactions in 2014 and
2013 respectively.
78
N Brown Group plc Annual Report & Accounts 2014
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 £2.7m (2013, £2.1m) represents contributions payable to the schemes by the group at rates
specified in the rules of the plans. As at 1 March 2014, contributions of £0.3m (2013, £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 and operates under UK trust law and the trust is a seperate
legal entity from the group. The scheme is governed by a board of trustees. The trustees are required by law to act in the best
interests of scheme members and are responsible for setting certain policies (eg investment funding) together with the group.
The scheme exposes the group to actuarial risks such as longevity risk, interest rate risk and investment risk.
The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out at
30 June 2012 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:
2014
2013
Discount rate
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
Net interest cost
The actual return on scheme assets was £3.4m (2013, £6.3m).
4.30%
3.0% until June 2015, 3.5% thereafter
2.20%
3.5%
2.5%
24.6
26.7
2014
£m
2.4
–
2.4
4.55%
4.5%
2.15%
3.5%
2.5%
24.2
27.2
2013
£m
2.1
0.2
2.3
79
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
28 Retirement benefit schemes continued
The amount included in the balance sheet arising from the group’s obligations in respect of its defined benefit retirement benefit
scheme is as follows:
Present value of defined benefit obligations
Fair value of scheme assets
Deficit in the scheme and liability recognised in the balance sheet
Movements in the present value of defined benefit obligations were as follows:
At 2 March 2013
Service cost
Interest cost
Actuarial losses – financial assumptions
Actuarial gains – demographic assumptions
Actuarial losses – experience
Benefits paid
At 1 March 2014
Movements in the fair value of the scheme assets were as follows:
At 2 March 2013
Expected return on scheme assets
Return on scheme assets excluding interest income
Contributions from sponsoring companies
Benefits paid
At 1 March 2014
2014
£m
(100.8)
96.6
(4.2)
2014
£m
94.3
2.4
4.2
1.4
(0.9)
1.4
(2.0)
100.8
2014
£m
91.0
4.2
(0.8)
4.2
(2.0)
96.6
2013
£m
(94.3)
91.0
(3.3)
2013
£m
83.3
2.1
4.0
6.5
–
–
(1.6)
94.3
2013
£m
82.3
3.8
2.5
4.0
(1.6)
91.0
80
N Brown Group plc Annual Report & Accounts 2014
Notes to the Group Accounts
28 Retirement benefit schemes continued
The analysis of the scheme assets at the balance sheet date was as follows:
Equities
Fixed-interest government bonds
Index-linked government bonds
Corporate Bonds
Property
High yield debt (including emerging market debt)
Alternatives
2014
£m
32.1
14.8
24.1
9.6
1.9
6.7
7.4
96.6
2014
%
33.2
15.3
25.0
9.9
2.0
6.9
7.7
100.0
2013
£m
31.6
14.1
29.0
4.4
1.8
5.8
4.3
91.0
2013
%
34.7
15.5
31.9
4.8
2.0
6.4
4.7
100.0
Significant actuarial assumptions for the determination of the defined benefit obligation are the discount rate and inflation.
An increase of 0.25% in the discount rate used would decrease the defined benefit obligation by £5.8m (2013, £5.9m).
An increase of 0.25% in the inflation assumption would increase the defined benefit obligation by £3.9m (2013, £4.0m).
The above sensitivities are applied to adjust the defined benefit obligation at the end of the reporting period. Whilst the analysis
does not take account of the full distribution of cash flows under the scheme, it does provide an approximation to the sensitivity
of the assumptions shown. No changes have been made to the method and assumptions used in this analysis from those used in
the previous period.
The scheme is funded by the group and current employee members. Funding the scheme is based on a separate actuarial valuation
for funding purposes for which the assumptions may differ from the assumptions above. Funding requirements are formally set out
in the Statement of Funding Principles, Schedule of Contributions and Recovery Plan agreed between the trustees and the group.
Whilst no commitment has been made as at the balance sheet date, the group expects to contribute £2.0m to the defined benefit
scheme in the next financial year.
The weighted average duration of the defined benefit obligation at 1 March 2014 is approximately 24 years.
The defined benefit obligation at 1 March 2014 can be approximately attributed to the scheme members as follows:
– Active members: 46% (2013, 45%)
– Deferred members: 35% (2013, 35%)
– Pensioner members; 19% (2013, 20%)
All benefits are vested at 1 March 2014 (unchanged from 2 March 2013).
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 are given on page 43 of the remuneration report.
81
N Brown Group plc Annual Report & Accounts 2014
Company Balance Sheet
As at 1 March 2014
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
2014
£m
2013
£m
32
33
34
35
36
37
37
37
344.9
344.9
24.4
21.6
(225.2)
(200.8)
144.1
(30.0)
114.1
31.3
11.0
71.8
114.1
(226.1)
(204.5)
140.4
(30.0)
110.4
31.3
11.0
68.1
110.4
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the board of directors and authorised for
issue on 23 May 2014.
They were signed on its behalf by:
Angela Spindler
Dean Moore
Directors
Notes to the Company Accounts
30 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 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.
82
N Brown Group plc Annual Report & Accounts 2014
Notes to the Company Accounts
31 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 1 March 2014 of £42.6m (2013, profit £42.7m).
The non executive directors’ remuneration was £582,875 (2013, £345,750) and eight non executive directors were remunerated
(2013, seven). The executive directors were remunerated by a subsidiary company in both years. Further details are provided on
page 43 of the remuneration report.
The auditor’s remuneration for audit services to the company of £10,000 (2013, £10,000) was borne by subsidiary undertakings.
32 Fixed asset investment
Cost and net book value
At 1 March 2014 and at 2 March 2013
£m
344.9
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, the company
has taken advantage of section 410(2) of the Companies Act 2006 to list only its principal subsidiary undertakings.
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
N B Finance
N B Malta No2 Limited
Direct home shopping retailer
Direct home shopping retailer
Financing and ancillary services
Insurance services
Direct home shopping retailer
Direct home shopping retailer
Financing and ancillary services
Financing and ancillary services
33 Debtors
Amounts falling due within one year:
Amounts owed by group undertakings
Prepayments and accrued income
34 Creditors
Amounts falling due within one year:
Bank loans and overdrafts
Trade creditors
Amounts owed to group undertakings
Accruals and deferred income
Country of Proportion
incorporation held by the
group (%)
and operation
England
Republic of Ireland
England
Guernsey
England
England
Republic of Ireland
Malta
2014
£m
24.0
0.4
24.4
2014
£m
38.6
0.5
185.8
0.3
225.2
100
100
100
100
100
100
100
100
2013
£m
21.1
0.5
21.6
2013
£m
41.0
0.3
184.5
0.3
226.1
83
N Brown Group plc Annual Report & Accounts 2014
Notes to the Company Accounts
35 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
2014
£m
29.6
39.0
68.6
38.6
–
30.0
68.6
(38.6)
30.0
2013
£m
41.0
30.0
71.0
41.0
–
30.0
71.0
(41.0)
30.0
The company has unsecured bank loans of £30m (2013, £30m) drawn down under a medium term bank revolving credit facility
committed until March 2016.
At 1 March 2014, the company had available £81.0m (2013, £90m) 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
36 Share capital
Authorised
Ordinary shares of 111/19p each
Allotted, called-up and fully paid
Ordinary shares of 111/19p each
At 1 March 2014 and at 2 March 2013
2014
%
2.0
1.7
2014
£m
2013
%
2.0
1.8
20132
£m
2014
Number
2013
Number
352,857,142
352,857,142
39.0
39.0
283,429,454 283,429,454
31.3
31.3
The company has one class of ordinary share which carry no right to fixed income.
37 Reconciliation of movements in shareholders’ funds and reserves
Balance at 2 March 2012
Dividends paid
Profit for the financial period
Balance at 2 March 2013
Dividends paid
Profit for the financial period
At 1 March 2014
38 Guarantees
Share
capital
£m
Share
premium
account
£m
Profit
and loss
account
£m
31.3
–
–
31.3
–
–
11.0
–
–
11.0
–
–
31.3
11.0
62.2
(36.8)
42.7
68.1
(38.9)
42.6
71.8
Total
£m
104.5
(36.8)
42.7
110.4
(38.9)
42.6
114.1
Parent company bank overdrafts which at 1 March 2014 amounted to £29.6m (2013, £41.0m) have been guaranteed by certain
subsidiary undertakings.
39 Related party transactions
The company has taken advantage of the exemption under FRSS8 “Related party disclosures” not to disclose transactions and
balances with other group companies.
84
N Brown Group plc Annual Report & Accounts 2014
Shareholder Information
Financial Timetable
2013
2014
9 October
6 December
3 January
1 March
1 May
6 June
4 July
22 July
1 August
Announcement of interim results
Closing of register for interim dividend
Payment of interim dividend
Financial year-end
Preliminary announcement of annual results
Publication of 2014 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
Capita Asset Services
PXS 1
34 Beckenham Road
Beckenham
Kent BR3 4ZF
Telephone 0871 664 0300
(Calls cost 10 pence per minute plus network extras)
Auditor
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
Corporate Brokers
J.P. Morgan Cazenove
Shore Capital Stockbrokers 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.
Griffin House
40 Lever Street
Manchester, M60 6ES
www.nbrown.co.uk