N BROWN GROUP PLC
Annual Report & Accounts 2016
N Brown Group plc is a leading digital
specialist fit fashion retailer, with over
140 years of experience.
We offer customers an extensive range of products in
clothing, footwear and homewares. Our portfolio of
trusted retail brands all serve a specific niche consumer
group which we believe are poorly served by the fashion
industry overall, such as plus-size and more mature
customers. We are headquartered in Manchester and
employ over 2,900 people across the UK.
1
STRATEGIC REPORT
Introduction with Angela Spindler
1 Highlights
2
4 Transformational Progress:
New People
New Process
New Systems
10 Who We Are
12 At a Glance
14 Chairman’s Statement
16 Business Model
48
GOVERNANCE
18 Chief Executive’s Review
20 Our Strategy
22 Strategy in Action
24 Key Performance Indicators
28 Risk Management
30 Principal Risks and Uncertainties
32 Performance Review
36 Group Chief Financial
Officer's Review
40 Corporate Social Responsibility
48 Governance Overview
50 Board of Directors
52 Directors’ Report
56 Corporate Governance Statement
59 Audit Committee Report
62 Nomination and Governance
Committee Report
63 CSR Committee Report
64 Directors’ Remuneration Report
80
FINANCIAL STATEMENTS
80 Independent Auditor’s Report
84 Consolidated Income Statement
84 Consolidated Statement
of Comprehensive Income
85 Consolidated Balance Sheet
86 Consolidated Cash Flow
Statement
86 Reconciliation of Operating
Profit to Net Cash from
Operating Activities
87 Consolidated Statement
of Changes in Equity
88 Notes to the Group Accounts
112 Company Balance Sheet
112 Company Cash Flow Statement
113 Reconciliation of Operating
Profit to Net Cash from
Operating Activities
113 Company Statement
of Changes in Equity
114 Notes to the Company Accounts
119 Shareholder Information
Our digital-first strategy
Our aim is to be universally loved
experts in fashion that fits.
Throughout this report, you will
notice a series of icons relating
to our strategic drivers:
Product
Price
People
Place
To find out more about our vision
and strategy and about our progress
during 2016, read pages 20 to 23.
Follow
@NBrownPress
View this report online:
ar2016.nbrown.co.uk
HIGHLIGHTS
Our Power Brands – JD Williams, Simply Be and Jacamo, recorded £317.9m
revenue, up 10.0% year on year. This was driven by further improvements
to our product offering and innovative digital marketing campaigns.
Our digital metrics continue to be very strong. Online penetration
stood at 65%, up 6ppts year on year, and online revenue was up 15%.
66% of our traffic came from mobile devices in FY16.
Our new warehouse is now complete – on time and on budget. This state
of the art facility increases our next day availability, and will support our
medium-term international ambitions.
REVENUE – CONTINUING OPERATIONS
(£m)
OPERATING PROFIT – CONTINUING
OPERATIONS BEFORE EXCEPTIONAL ITEMS (£m)
866.2
(2015: £837.2m)
96.4
(2015: £95.8m)
2015
2016
£837.2m
£866.2m
2015
2016
£95.8m
£96.4m
PRE-TAX PROFIT – CONTINUING OPERATIONS
BEFORE EXCEPTIONAL ITEMS (£m)
ADJUSTED EARNINGS PER SHARE
– CONTINUING OPERATIONS (p)
88.3
(2015: £88.2m)
24.02
(2015: 24.61p)
2015
2016
£88.2m
£88.3m
2015
2016
24.61p
24.02p
DIVIDENDS PER SHARE
(p)
14.23
(2015: 14.23p)
NET ASSETS
(£m)
476.0
(2015: £450.0m)
2015
2016
14.23p
14.23p
2015
2016
£450.0m
£476.0m
1
N Brown Group plc Annual Report & Accounts 2016Strategic report
INTRODUCTION
WITH ANGELA SPINDLER
2
N Brown Group plc Annual Report & Accounts 2016 We are in the middle of an amazing
transformational journey.
Throughout the year we saw clear
evidence of the benefits of the way in
which we are transforming the business.
We still have more work to do, but we're
moving in the right direction, making
significant changes across three key
areas of our business which will ensure
we become a leading digital retailer
fit for an exciting future.
Read about our progress and how we
are transforming our business over the
following pages.
3
N Brown Group plc Annual Report & Accounts 2016Strategic report TRANSFORMATIONAL
PROGRESS
Operating team
The past two years has seen an
almost entirely new top team at
N Brown. Our talented operating
board are all digital natives, experts
in their fields, and are enthused
and excited about our journey.
More detail p23
Digitalised our
people processes
We are a digital-first retailer,
and this influences everything
we do. So, this year, we moved
our people processes online –
from recruitment to recognition,
development to keeping our
colleagues up to date.
New in-house
design team
Having previously relied on third
parties, we’ve invested in an
in-house team of designers, to
ensure that we are always on-trend
and providing our customers with
clothes which fit, flatter and make
them look and feel amazing.
More detail p22
4
N Brown Group plc Annual Report & Accounts 2016 Investing in new talent whilst
retaining our broad knowledge
and experience to successfully
transform key areas of our business.
N Brown Group plc
Annual Report & Accounts 2016
5
Strategic report TRANSFORMATIONAL
PROGRESS
CONTINUED
Digital-first marketing
Whilst paper-based marketing
remains important for us, well
over half our business now
comes online – so this is our
primary focus. Our digital
marketing team are best in class,
with capabilities including data
analytics, personalisation and
conversion optimisation.
Redefining our buying
and merchandising
processes
In order to ensure constant
newness for our customers and
give us far more trading flexibility
in-season. We now operate as
a truly online retailer, giving us
far more agility and control.
6
N Brown Group plc Annual Report & Accounts 2016 Looking at new ways
of working to match our
digital-first approach
and enable us to capture
growth opportunities.
Bangladesh
sourcing office
We opened our first in-country
sourcing office in Autumn 2015,
allowing us to work far closer with
our suppliers in the country, and
reduce our reliance on costly
third-party agencies.
Outsourced
creative production
This has enabled us to operate
as a digital-first retailer,
photographing and uploading
new products to our websites
as soon as they come in using our
new, dedicated photo studios.
Catalogue production has also
been modernised and made
significantly more efficient.
7
N Brown Group plc Annual Report & Accounts 2016Strategic report TRANSFORMATIONAL
PROGRESS
CONTINUED
Investing in...
Global web platform
We are investing in a new core
website transaction engine, fixing
legacy issues which significantly
slow our speed to market.
This new system will allow us
to trade with far more agility
going forwards, and give us
global ship anywhere capability.
Planning systems
We are significantly upgrading
the systems used by our product
teams, providing more enhanced
data for merchandising decisions
and improving our supply chain
efficiency.
8
N Brown Group plc Annual Report & Accounts 2016 More agility going
forward, with
Fit 4 the Future
progressing well;
early releases are
now live and the
main roll-out begins
later this year.
New financial
services system
Modernising our credit proposition
and allowing us to operate in a far
more flexible, customer relevant
way. We will be able to charge
variable APRs and make lending
decisions tailored to individual
customers and products.
More detail p35
9
N Brown Group plc Annual Report & Accounts 2016Strategic report WHO WE ARE
AGE INCLUSIVE
We are fit specialists,
dedicated to delivering high
quality fashion irrespective
of age or size.
AUTHENTIC
DIGNITY AND RESPECT
CREATIVE
10
BOLD
N Brown Group plc Annual Report & Accounts 2016 AGE INCLUSIVE
RESPONSIBLE RETAILING
PUSHING BOUNDARIES
DIGNITY AND RESPECT
UNCOMPROMISING
ONE PLANET
11
N Brown Group plc Annual Report & Accounts 2016Strategic report AT A GLANCE
What we do
POWER BRAND
POWER BRAND
POWER BRAND
An online department store, offering
style for 50-plus customers and their
families, with ranges for women, men,
home and kids. We create unique
silhouettes, rather than scaling
patterns; we use real bodies, rather
than static mannequins; and we design
to fit – a unique, age appropriate
point of view for our consumer.
Simply Be has empowered women
for over a decade, bringing fashion to
all, regardless of size. We understand
shape and create fashionable
collections that fit. The brand is
gaining significant momentum
both at home and in the USA.
A modern, challenger brand with a
strong digital offer, Jacamo is inspired
by real mens’ tastes. Collections are
available in a market-leading range
of sizes, from Small to 5XL. Jacamo
brings both strong in-house ranges,
such as Label J and Black Label,
alongside international brands,
offered in exclusive sizes.
REVENUE GROWTH (%)
REVENUE GROWTH (%)
REVENUE GROWTH (%)
4.7%
15.6%
14.6%
REVENUE PERFORMANCE (£M)
REVENUE PERFORMANCE (£M)
REVENUE PERFORMANCE (£M)
£151.2m
£103.9m
£62.8m
GROUP REVENUE BREAKDOWN (%)
GROUP REVENUE BREAKDOWN (%)
GROUP REVENUE BREAKDOWN (%)
17%
12%
7%
More detail p33
More detail p33
More detail p34
12
N Brown Group plc
Annual Report & Accounts 2016
SECONDARY BRANDS
TRADITIONAL SEGMENT
FINANCIAL SERVICES
Secondary Brands focus on distinct
customer niches which are not served
by our Power Brands. These brands
have significant customer loyalty, good
growth prospects and are increasingly
online. We view our Power Brands as
having the greatest growth potential
medium-term, however, and therefore
our focus here is predominantly on
customer retention.
The titles in this segment are focused
on serving our loyal, traditional and
typically more-mature customers.
These customers tend to prefer
paper-based marketing, such as
catalogues and direct-mail offers.
This is an attractive and accessible
market, underserved by other retailers,
and whilst not a future growth driver
we generate a good financial return.
An important part of our overall
proposition, strengthening customer
loyalty and enabling our retail business
to thrive. In order to offer our
customers excellent convenience and
choice, we allow customers to either
pay us immediately or utilise a credit
account for their purchases, spreading
the cost of their purchases over time.
REVENUE GROWTH (%)
REVENUE GROWTH (%)
REVENUE GROWTH (%)
1.9%
5.5%
2.1%
REVENUE PERFORMANCE (£M)
REVENUE PERFORMANCE (£M)
REVENUE PERFORMANCE (£M)
£152.7m
£136.0m
£259.6m
GROUP REVENUE BREAKDOWN (%)
GROUP REVENUE BREAKDOWN (%)
GROUP REVENUE BREAKDOWN (%)
18%
16%
30%
More detail p34
More detail p34
More detail p35
N Brown Group plc
Annual Report & Accounts 2016
13
Strategic report CHAIRMAN’S STATEMENT
Looking back on a year
of transformational
progress
Our transformation continues apace, with
progress made during the year. Looking
forward, we are approaching a crucial period
for the Group, with the implementation
of our new systems platform.
This coming year will be a very important
one for the Group. Our new IT platform
(Fit 4 the Future) will be implemented,
bringing necessary and significant
improvements to all areas of our business.
However experience suggests that a
programme of this scale will bring some
unexpected bumps in the road. A huge
amount of effort has gone into planning
and preparing to mitigate these risks.
Introduction
This year was an important one for the
Group, with material changes made to
the way we operate our business and
communicate with our customers.
Against this backdrop of significant
ongoing transformation within the
business, the Board is satisfied with
the FY16 results.
It is hard to overestimate the amount of
change that has occurred in the business
over the past few years. There are new
teams of colleagues, new skill sets and
capabilities, new outsourcing partners
and a focused and consolidated portfolio
of brands.
Of course, such a busy change agenda
inevitably makes forecasting business
performance harder and disruption more
likely, and it therefore hasn’t been as
smooth a journey as we would have
wished. We are confident, however,
that the right actions are being taken
to enable us to deliver sustainable
long-term growth as we transition
from a direct mail to a digital business.
14
PROGRESS MADE IN 2016
Continued progress from direct-
mail led to digital-first, with online
penetration of 65%, up 6ppts.
Active customer accounts +2.2%
to 4.14m; within this Power
Brands active customer accounts
2.00m, up 6.9%.
Further improvements to product
quality, style credentials and
promotional efficiency.
Strong USA performance, with
revenue up 29% and the first
profit delivered in the second half.
Our major warehouse extension
was completed, on time and
on budget. This new facility will
enable us to further improve
our already strong delivery
proposition.
We are also in the process of gaining our
full FCA authorisation, following the FCA
taking over regulation of the consumer
credit industry from the OFT previously.
We are well on with the process and it is
progressing in line with expectations.
Our Group is strong, with loyal customers
and good margins. Once delivered, Fit 4
the Future will give us the robust platform
we need for growth in the future.
Dividend
Whilst continuing to invest in the business,
particularly on our systems programme Fit
4 the Future and our new warehouse, we
also continue to recognise the importance
of cash returns to our shareholders. We
intend to pay a final dividend of 8.56p this
year, taking the total dividend to 14.23p,
unchanged from FY15.
N Brown Group plc Annual Report & Accounts 2016 £866.2m
Revenue
£96.4m
Operating profit,
before exceptional items
Corporate Governance
The Board is committed to developing and applying high
standards of corporate governance both in the management
of its business and in its accountability to stakeholders as
a whole.
Angela Spindler
Chief Executive
Andrew Higginson
Non-executive Chairman
Ron McMillan
Non-executive Director
Fiona Laird
Non-executive Director
Craig Lovelace
Group Chief Financial Officer
Simon Patterson
Non-executive Director
Ivan Fallon
Non-executive Director
Lesley Jones
Non-executive Director
Lord Alliance of Manchester CBE
Non-executive Director
Theresa Casey
Company Secretary
BOARD DIVERSITY
BOARD COMPOSITION
3
Male
Female
2
6
7
Non-executive Directors
Executive Directors
More detail p48
15
Board composition
As I reported in last year’s annual report,
we had a number of changes to the Board,
and I am pleased to report that the new
team is working well together. This year
there is just one change to announce,
namely that Simon Patterson stepped
down in April 2016 to take up the same
position at a much larger retailer. We wish
him well and thank him for his time and
advice. We are currently in the process
of recruiting a replacement for Simon.
Outlook
Consumer shopping habits are changing
at an unprecedented rate. Online
shopping continues to take share from
both catalogues and physical stores at
a pace, and those retailers who prosper
will be those who can stay ahead of this
ever-changing backdrop.
As well as the traditional retail skills
of buying, merchandising and offering
great value to our customers, we also
need to have exceptional data analysis
skills, digital marketing capabilities
and a continuously improving delivery
proposition. Given our home shopping
heritage we already have some
significant in-house experience, and
with almost two-thirds of our sales now
coming online we are in a much stronger
position than many of our competitors
– but we cannot become complacent,
we must continuously strive to improve.
The Board is confident in the long-term
outlook for the business and excited
about our future growth potential.
I would like to express my sincere thanks
to all stakeholders in the business, and
in particular our fantastic colleagues,
for all their dedication, hard work and
enthusiasm throughout the year.
Andrew Higginson
Chairman
N Brown Group plc Annual Report & Accounts 2016Strategic report
BUSINESS MODEL
Moving to
a digital led
business model
Creating customer value
SYSTEMS INVESTMENT
FIT 4 THE
FUTURE
Global multi-channel
transformation
Credit
transformation
Planning
transformation
Customer
loyalty
Customer
satisfaction
MODERNISING
OUR OFFER
CREDIT
CUSTOMER
BASE
CASH
CUSTOMERS
More detail p35
IN-HOUSE DESIGN TEAM
QUALITY & FIT
SOURCING & MERCHANDISE
MARKETING
LOGISTICS
JD WILLIAMS
SIMPLY BE
JACAMO
Traditional Segment
• Ambrose Wilson
• Julipa
• Premier Man
• House of Bath
More detail p33
PEOPLE
IT SERVICES
FINANCIAL
CONTROL
CONTACT
CENTRE
16
N Brown Group plc
Annual Report & Accounts 2016
Brand offerPower BrandsFinancial ServicesThe focus of our Financial Services business continues to be on three areas: Support functionsThe teams that keep us delivering for our customers day in, day out. Secondary Brands • Marisota• Fashion World• High and Mighty• FigleavesProductWithout great products we have nothing. Our fit specialism, at great value for money, is our USP. G
U
S T
O
Glow with pride
We're proud to make great products that
people love. Our clothes generate a feel-good
factor – for our customers and for us.
Understanding is everything
Everything starts and ends with understanding
and respecting the customer. They are our
passion, their shopping habits and preferences
our priority. They’re why we exist, and why
we succeed.
Saving makes sense
Waste is the enemy. We value simplicity
and the saving of resources and time.
Togetherness is crucial
Teamwork triumphs in the end. There are few
tasks and even fewer problems that can’t be
tackled successfully though togetherness,
shared goals and collective effort.
Our Strategy
Performance Review
p20
p32
Opportunity exists everywhere
There are always things to improve, chances
to be seized and ideas to be unleashed.
We take the opportunities to build a better
business, and to build a better you.
Creating value
ALL PEOPLE
DIGNITY
AND RESPECT
ONE
PLANET
WAYS OF
WORKING
EVERY
PRODUCT
RESPONSIBLE
N Brown Group plc
Annual Report & Accounts 2016
17
GUSTO shapes our culture. GUSTO celebrates positive attitudes and behaviours. GUSTO is how we do things around here.Value back into business to drive future growthWe invest into our business to ensure that we can drive profitable, sustainable growth in the years ahead. Value back to shareholdersOur shareholders are very important to us, and we value the support and input they give us. We are focused on a progressive dividend policy. “Taking Care of Our World”We believe we should be a major force for good as well as a major force in fashion. It’s a huge responsibility, and a purpose way beyond profit.Strategic report
CHIEF EXECUTIVE’S REVIEW
Foundations
for future growth
It has been a very busy year for N Brown as
we continue to transform the way we operate
as a fashion retailer – from a direct mail led
model to a digital led model. We are midway
through this journey and are delighted to see
the benefits coming through, importantly
delivering 11%1 profit growth in the second
half of the year.
Introduction
The transformation of our business
model continues at pace. We have a clear
focus on our three fashion Power Brands
– JD Williams, Simply Be and Jacamo,
and I am pleased to report that revenue
here was up 10% year-on-year. I am
also pleased with the strong online
metrics we are delivering, with online
penetration at a new record 65%. We
are taking decisive actions to improve
the performance of our Traditional
Segment which remains an important,
profitable part of the Group.
Our performance in FY16 was in line with
expectations, with strong 11%1 profit
growth achieved in H2, as we annualised a
number of changes made to the business
in FY15. We had a good Christmas period
and for the first time were able to be truly
agile in our trading approach, particularly
for our digital brands.
We continue to roll-out our systems
investment programme, ‘Fit 4 the Future’,
and all areas of the business are focused
on ensuring this lands on time and with
minimal disruption. So far progress is
on track and within budget.
Looking forward, whilst we face
challenging market conditions for
the fashion sector overall, we remain
confident in our ability to make further
progress this year.
18
SEIZING FUTURE OPPORTUNITIES
We are really pleased with
our performance to date in
the USA. We have been building
a sustainable, profitable business
model, built upon customer
loyalty, and this will serve us
well when we accelerate our
growth in this country.
Beyond the USA, our future
capability enabled by global
ship anywhere will allow us to
unlock the international potential
of our brands.
We are excited about the growth
potential that our new Financial
Services systems will give us.
We will be able to charge
variable APRs, allowing us to
offer our customers a far more
personalised choice of Financial
Services products, broadening
our appeal.
This is based on the strong appeal of
our specialist fit proposition, continuous
improvement in the customer experience
and changes in customer shopping
behaviour, driven by targeted marketing.
Strategic progress
Our vision is to be the universally loved
experts in fashion that fits, helping our
customers look and feel amazing through
our trusted family of fashion brands.
We operate in attractive market niches
– plus-size and age 50-plus – which we
believe to be under-served by the fashion
industry overall, providing our customers
with high quality and competitive
product offerings, fit-specialism and
a strong delivery proposition.
1. Defined as Continued PBT before exceptional items
and IAS 39 restatement credit.
N Brown Group plc Annual Report & Accounts 2016 Our Strategy
Performance Review
p20
p32
4.14m
active customer accounts
65%
online penetration
MARKET OVERVIEW
Economic trends
The global economic backdrop
is uncertain, with recent volatility,
particularly in foreign exchange
rates, as a result of the upcoming EU
referendum, unhelpful particularly
from a sourcing standpoint.
Consumer confidence in the UK
is currently relatively fragile. The
introduction of the National Living
Wage is a net positive for the Group,
as it should result in higher disposable
income for our customers, although
cuts to benefits would likely be a
negative. Overall, when forecasting
we assume a generally benign
economic environment.
Retail trends
Shopping globally is increasingly
online; the BRC estimates that over
20% of all non-food retail spending
now takes place online. We are
well-placed to benefit from this trend,
given our digital-first approach.
Customers increasingly shop through
their mobiles; again we are ahead of
this trend, with 66% of traffic coming
from mobile devices. From a delivery
standpoint customers increasingly
demand convenience; we now offer
over 5,000 collection points and have
a 9pm cut-off for next day delivery.
Market trends
Customers are increasingly driven
by product newness, with shopping
‘just in time’ during the season having
replaced traditional purchase trends of
buying at the start of seasons. We are
accordingly increasing the frequency
of new products being offered to our
customers, and to facilitate this are
increasing our sourcing from countries
closer to the UK. Competition in the
UK retail sector remains as tough as
ever; we believe our niche positions
of plus-sizes and older customers are
important against this backdrop.
19
We are mid-way through a significant
transformation which will allow us to
deliver sustainable, profitable growth
over the long term, driven by our four
strategic foundations:
• Product
• Price
• People
• Place
Our systems transformation project,
Fit 4 the Future, is progressing well.
During the second half we launched our
Simply Be Euro website (the first phase
of our Global Multi-channel release) and
Powercurve (the foundation of our Credit
release). Both launches were on-time
and results continue to be encouraging.
Fit 4 the Future is the largest project
ever undertaken by the Group, and as
such there are inevitably risks, but we
continue to do everything possible to
ensure that risks and business disruption
are minimised and that the future benefits
of the investment are maximised. The
benefits case is unchanged and we
expect these to start to ramp up from
FY18 onwards. As previously disclosed,
some of these benefits will be reinvested
back into the business.
The timetable for Fit 4 the Future is also
unchanged. This August we plan to start
the roll-out of our new web platform and
new financial services systems, initially
to the USA, and then to a number of our
smaller UK brands in September. Our
main brands will move onto the new
systems in early 2017, after peak trading.
In May we completed the roll-out
of the first phase of our Planning
transformation, giving us improved
tools for assortment and range
planning. This will allow us greater
visibility, control and consistency.
The second phase of the Planning
release, which will give us item-level
forecasting tools, improving markdown
efficiency, will go live in early 2017.
I am also happy to report that the
warehouse extension at our main
warehouse facility, in Shaw, is now
complete and in the process of coming
on stream. The project was completed
on time and to budget. The new facility
has doubled our through-put capacity,
ensuring we continue to operate
efficiently. Importantly it will also
materially improve our next day
availability, allow us to further extend
our cut-off for next day delivery, and
underpin our international expansion
plans for the future.
Outlook
Trading since the year end has been
subdued, with sales lower year on
year. This is mainly the result of the
industry backdrop which has been
more challenging since January.
We also have a headwind from our
Traditional Segment which we believe
we can address through improved
targeted marketing. We expect to
see performance strengthen over
the first half.
From a non-trading perspective, FX
rates represent a significant challenge
year on year and we have also decided
to undertake a one-off exercise to more
aggressively clear some one to two year
old inventory, enabled by our new online
clearance tools.
Overall, we remain confident in our
ability to make further progress this year.
This is based on the strong appeal of
our specialist fit proposition, continuous
improvement in the customer experience
and changes in customer shopping
behaviour, driven by targeted marketing.
Angela Spindler
Chief Executive
N Brown Group plc Annual Report & Accounts 2016Strategic report OUR STRATEGY
Our
vision
To be the universally
loved experts in
fashion that fits.
Our mission
We’ll do this by helping
our customers look and
feel amazing through
our trusted family
of fashion brands.
20
N Brown Group plc
Annual Report & Accounts 2016
Key Performance Indicators
Risk management
p24
p28
The strategy laid out on this page is
unchanged from the one we presented
in last year’s annual report. We view our
strategy as a rocket, with the four drivers
of our success the engines, and GUSTO,
our values, our rocket fuel.
4
drivers of success
Product
Fantastic quality and fit
fashion, home ranges, and
relevant financial services
Price
Great prices and flexible
ways to pay
People
Obsessed with customers,
enriched with data and powered
by technology
Place
Whatever you want,
wherever you are, whenever
you want it, we make it easy
Relevance
Great product is the lifeblood of
our business – it is the absolute
core of what we do.
Relevance
Value and convenient ways to
pay are both as important to
customers as they have ever been.
Progress 2016
After a strategic price
recalibration last year we
ensured our price points
stayed sharp this year, and
also ran exciting and efficient
promotions to drive cash
margin.
Priorities 2017
We will continue to drive great
value for customers and cash
profit for us. In Financial
Services, our new systems will
give our customers more
options to pay.
Progress 2016
We drove significant
improvements to both product
quality and our style credentials
through changes to design,
sourcing, buying and
merchandising.
Priorities 2017
We will continue to improve
our clothing and homewares
products, with in-season
flexibility an ongoing focus.
The roll-out of Fit 4 the Future
will also allow us to offer a
wider range of more tailored
Financial Services products.
Associated risks
• Failure to change
• Competition
• Regulatory environment
Associated risks
• Failure to change
• Competition
Associated risks
•
People
Relevance
Without our people and their
relentless enthusiasm and passion
we couldn’t do what we do. They
are our most important asset.
Progress 2016
We digitalised all of our people
tools, introduced new skillsets
to the business and embedded
our GUSTO values to leverage
not just what we do but how
we do it.
Relevance
Customers shop how and when
they want, and it is our job to
exceed their expectations.
Progress 2016
We continue to drive our digital
capabilities to ensure our sites
look fantastic. We moved to
9pm cut-off for next day and
completed our new warehouse
extension. Finally, across the
Atlantic our USA business
continued to perform strongly.
Priorities 2017
Our ambition is to be the most
fabulous place to work in
fashion, by hiring great people,
developing talent and
rewarding achievement.
Priorities 2017
We will further improve our
delivery offering, ensure our
small number of stores are the
best they can be and grow our
International business.
KPIs
4.0%
KPIs
85.8%
KPIs
85.8%
Ladieswear market share, size 16+
Customer satisfaction rating, UK CSI
Customer satisfaction rating, UK CSI
Online penetration
1.7%
136k
Menswear market share, chest size 44”+
New credit recruits (Rollers)
27.4%
Group returns rate (rolling 12 months)
5.8%
Conversion rate
4.14m
Active customer accounts
N Brown Group plc
Annual Report & Accounts 2016
21
Associated risks
• Failure to change
• Competition
• People
• Cyber security
KPIs
65%
Strategy rocketStrategic report STRATEGY IN ACTION
Key achievements
through 2016
Product
Having the team has also
allowed us to introduce new
ranges which are designed
in-house from scratch, such
as the fast fashion Simply Be
Unique range and the Lorraine
Kelly for JD Williams collection.
Initially the team was primarily
focused on Womenswear,
but we continue to expand,
with recruits in Footwear,
Accessories, Menswear and
a dedicated print designer
all recently joining.
Previously, we relied on
external design agencies and
tended to follow the high
street, meaning our ranges
weren’t as fashionable as they
could have been. Over the last
18 months we have significantly
invested in a new in-house team
of talented designers. This
team ensures that our product
offering captures all the latest
trends in comprehensive and
brand-appropriate ways.
Our designers fulfill a range of tasks.
They make sure we are on-trend
and have fashionable collections
which appeal both to our loyal
existing customers and attract new
ones. They translate the colours,
shapes and styles of the season to
fit and flatter our customers,
whatever their age or size.
New in-house
design team
Price
Improving
promotional
efficiency
Sharp prices in line with
the mid-market
Value for money
Attractive promotions
which drive cash margin
As we reported in last year’s
report, Autumn 2014 saw us
undertake a strategic price
re-calibration, rebasing our prices
to ensure we were competitive.
This year our focus was on
improving our promotional
efficiency, ensuring that we
drove volumes and as a result
generated positive cash margin.
This was most apparent over the
Black Friday and Cyber Monday
week. We planned the event
months in advance, buying some
great products specifically for it,
at attractive margins – so both
our customers, and our business,
got some great deals.
22
N Brown Group plc Annual Report & Accounts 2016 Key Performance Indicators
Risk management
p24
p28
People
Place
New operating
team in place
ANGELA SPINDLER
Chief Executive
CRAIG LOVELACE
Group Chief
Financial Officer
RALPH TUCKER
Product and
Retail Director
ANN STEER
Marketing Director
STEVE JOHNSON
Financial Services
Director
ANDY HAYWOOD
Chief Operating
Officer
CAROLINE
MASSINGHAM
People Director
IAN CARR
Logistics Director
This year saw the arrival of our
new CFO, Craig Lovelace, in
May 2015, and Steve Johnson,
our first ever Financial Services
Director, in February 2016.
These two appointments mean
that our new operating team is
now in place, after considerable
changes over the past two years.
All the team are digital natives
and experts in their fields.
They are used to working in
fast-paced businesses, and
are hugely excited about the
transformational journey we
are on.
Warehouse
extension now
complete
Last year we announced a £24m investment
in a major warehouse extension at our facility
in Shaw, on the outskirts of Manchester.
We are very pleased to report that the new
warehouse went live, on time and to budget.
The new building has doubled our pick-face,
increased our throughput capacity by 30%
and our storage capacity by 25%. It will
enable us to get products to our customers
even faster, and further improve our already
very efficient operations. Importantly, it also
supports our International ambitions over
the medium term.
23
N Brown Group plc Annual Report & Accounts 2016Strategic report KEY PERFORMANCE INDICATORS
Measuring
progress against
our strategy
CUSTOMERS
ACTIVE CUSTOMER
ACCOUNTS (m)
POWER BRAND ACTIVE
CUSTOMER ACCOUNTS (m)
GROWTH OF OUR MOST
LOYAL CUSTOMERS (%)
CUSTOMER SATISFACTION
RATING (%)
+2.2%
+6.9%
-140bps
2015
2016
4.05m
4.14m
2015
2016
1.87m
2015
+1.0%
2.00m
2016
-0.4%
-10bps
2015
2016
85.9%
85.8%
Relevance to strategy
Relevance to strategy
Relevance to strategy
Relevance to strategy
Definition
The number of customer
accounts which made a retail
purchase in the last 12 months.
Definition
The number of Power Brand
(JD Williams, Simply Be and
Jacamo) customer accounts
which made a retail purchase
in the last 12 months.
Definition
We define our most loyal
customers as those who have
purchased from us in each of
the last four clothing seasons.
Definition
Our latest overall customer
satisfaction score, as measured
independently by the UK
Customer Services Institute.
Performance
Growth of 2.2% is a solid result,
particularly against a competitive
market backdrop. In line with
our strategy we continue to
prioritise recruitment for our
Power Brands.
Performance
We are pleased to report 6.9%
growth here, with this figure
exceeding 2 million for the first
time. The combination of this
customer growth together with
increased spend drove Power
Brand revenue growth of 10.0%.
Performance
Whilst the marginal decline
in this customer group is
disappointing, this was as a
result of the headwind of our
Traditional Segment. We are
taking actions to improve
performance here.
Performance
We are very proud of our
results in the survey, where
we continue to be ranked third
in the UK retail sector behind
only Amazon and John Lewis.
Our score of 85.8% is over
4ppts higher than the retail
sector average.
Outlook
We will continue to attract
new customers to our business
through great product,
innovative marketing campaigns
and fantastic customer service.
Outlook
Our Power Brands remain our
focus, as we believe that these
three brands have the greatest
global growth potential over
the medium-term.
Outlook
The actions being taken to
improve our Traditional titles
should feed into increased
customer loyalty. Elsewhere,
we will continue to continually
focus on customer retention
and frequency of spend.
Risk
• Failure to change
• Competition
• People
Risk
• Failure to change
• Competition
• People
Risk
• Failure to change
• Competition
Outlook
Customer satisfaction is driven
by a wide range of factors –
value, product quality, delivery,
ways to pay and sorting out
issues when things go wrong –
to name just a few. We talk to
our customers every day to
ensure we are doing the best
job we possibly can.
Risk
• Failure to change
• Competition
• People
• Regulatory environment
24
N Brown Group plc Annual Report & Accounts 2016 Product
Price
People
Place
PRODUCT
LADIESWEAR MARKET SHARE
SIZE 16+ (%)
MENSWEAR MARKET SHARE
CHEST 44"+ (%)
GROUP RETURNS RATE
(ROLLING 12 MONTHS) (%)
flat
2015
2016
+20bps
-120bps
4.0%
4.0%
2015
2016
1.5%
1.7%
2015
2016
28.6%
27.4%
Relevance to strategy
Relevance to strategy
Relevance to strategy
Definition
Our market share in UK
Ladieswear, in size 16 and higher.
Market share is calculated using
internal and Kantar data, and this
figure relates to the 24 weeks
ending 14 February.
Definition
Our market share in UK
Menswear, in chest size 44” and
higher. Market share is calculated
using internal and Kantar data,
and this figure relates to the 24
weeks ending 14 February.
Definition
The amount, measured in value,
of products which are returned
to us by customers, over the
last 12 months.
Performance
We saw a flat market share
here, a solid result. Within this,
we gained share in younger
Womenswear, driven by Simply
Be, and saw a small decline in
the older age groups as a result
of the underperformance of our
Traditional Segment.
Performance
We are pleased to report a
20bps increase in market share
in Menswear. This was driven
by the continued strong
performance of Jacamo.
Outlook
Against a challenging market
backdrop we will focus on
driving share through continued
improvements to our products,
everyday great value and
exciting and efficient
promotions.
Outlook
We strive to continually improve
our products. For SS16 we
significantly extended the
menswear range within JD
Williams, which is called Williams
and Brown, and performance so
far has exceeded expectations.
Risk
• Failure to change
• Competition
• People
Risk
• Failure to change
• Competition
• People
Performance
This KPI is a measure of customer
satisfaction with our products,
and we are very pleased with
the 120bps improvement this
year. Product mix (the relative
outperformance of Homewares
and Menswear), further
improvements to our product
quality and fit, and the increase
in cash customers all contributed
to the decline in our returns rate,
in roughly equal measure.
Outlook
The relative outperformance of
Homewares and Menswear is
unlikely to continue indefinitely;
Womenswear growth is positive
in margin terms but a headwind
to our returns rate. Product
improvements and new cash
customers should continue to
help this KPI.
Risk
• Failure to change
• Competition
25
N Brown Group plc Annual Report & Accounts 2016Strategic report
KEY PERFORMANCE INDICATORS
CONTINUED
DIGITAL
ONLINE
PENETRATION (%)
ONLINE PENETRATION
OF NEW CUSTOMERS (%)
CONVERSION
RATE (%)
TRAFFIC FROM MOBILE
DEVICES (%)
+6ppts
2015
2016
59%
65%
+7ppts
2015
2016
65%
72%
flat
2015
2016
+10ppts
5.8%
5.8%
2015
2016
56%
66%
Relevance to strategy
Relevance to strategy
Relevance to strategy
Relevance to strategy
Definition
The percentage of sales,
excluding stores and
International, which comes
to us online. Our second
largest channel is through
our contact centre.
Performance
We have worked very hard
over the past year to transform
into a digital-first retailer,
prioritising online in every
business process. These efforts
resulted in online revenue
up by 15% year on year.
Definition
The percentage of sales from
new customers, excluding stores
and International, which comes
to us online.
Definition
The percentage of website
sessions which result in an
order being placed.
Definition
The percentage of our total
online traffic which comes
from either a smartphone
or a tablet device.
Performance
We view this metric as a leading
indicator of the Group, and are
very pleased with the 7ppts
increase year on year, to
approaching three-quarters. Our
new customers are increasingly
digital in their mindset and
shopping behaviour.
Performance
Our conversion rate was flat at
5.8%, significantly above the
industry average. Within this,
the conversion rate for all three
device types (PC, smartphone
and tablet) increased
significantly.
Performance
Mobile devices now account for
two-thirds of our online traffic,
an increase of 10ppts year on
year. Within this, we have seen
a 65% increase in smartphone
sessions, and this is now the
leading device type by traffic.
Outlook
We have created a digital centre
of excellence to ensure our
online proposition is the best it
can be. Our new web platform
will further improve our offering
and increase our digital agility.
Outlook
We will continue to serve
customers, both new and
existing, in whichever way
is most convenient for them.
Customers are increasingly
choosing to shop online, and
therefore we expect continued
progress in this metric.
Outlook
The continued increase in mobile
devices represents an ongoing
headwind, as customers tend to
use these for browsing as well as
purchasing, resulting in a
naturally lower conversion rate.
We continue to optimise
customers' digital experience
with us, irrelevant of the device
type they use, to drive revenues.
Outlook
We continue to optimise our
already strong mobile and tablet
propositions. For our younger
customers smartphones are
increasingly the channel of
choice, whereas our online
traditional customers favour
tablets. Our job is to ensure that
customers get a great experience
with us, whichever way they
choose to browse and shop.
Risk
• Failure to change
• Competition
• People
• Cyber Security
Risk
• Failure to change
• Competition
• People
• Cyber Security
Risk
• Competition
• People
• Cyber Security
Risk
• Competition
• People
• Cyber Security
26
N Brown Group plc Annual Report & Accounts 2016
Product
Price
People
Place
FINANCIAL SERVICES
ARREARS RATE
(>28 DAYS) (%)
PROVISION RATE
(RESTATED) (%)
NEW CREDIT RECRUITS
(ROLLERS)
+60bps
-50bps
2015
2016
10.3%
10.9%
2015
2016
16.1%
15.6%
+2%
2015
2016
133,000
136,000
Relevance to strategy
Relevance to strategy
Relevance to strategy
Definition
Arrears over 28 days are defined
as customer debts with two or
more missed payments.
Definition
Closing bad debt provision
as a percentage of gross
trade receivables.
Definition
The number of new customers
opening a credit account and
rolling a balance in the last
six months.
Performance
Credit arrears stood at 10.9%
for FY16, an increase of 60bps
from 10.3% last year, driven by
new customer recruitment. This
metric is still significantly lower
than it was a few years ago, as a
result of the improvements we
have made to our Financial
Services business.
Performance
The improving trend in this
metric is a direct result of
the work we have done over
the past two years to both
tighten our credit policies
and help customers in
financial difficulties, putting
them on payment plans to
rehabilitate them.
Performance
In the second half of the year
we saw 136,000 new rollers;
for the year as a whole we
welcomed over 286,000 new
credit customers rolling a
balance. The primary driver
of an increase in new credit
customers is our improved
product proposition.
Outlook
In FY17 we expect our arrears
rate to increase slightly,
reflecting increased levels
of customer recruitment.
Outlook
Whilst we continue to improve
the quality of our credit
book, in FY17 we expect our
provisions rate to increase
slightly, as a result of increased
levels of customer recruitment.
Outlook
We will continue to work hard
to recruit new customers,
including cash, rollers and
non-rollers. The implementation
of our new Financial Services
systems will allow us to offer a
more tailored suite of Financial
Services products, broadening
our appeal.
Risk
• Failure to change
• Competition
• People
• Regulatory environment
Risk
• Failure to change
• Competition
• People
• Regulatory environment
Risk
• Failure to change
• Competition
• People
• Regulatory environment
27
N Brown Group plc Annual Report & Accounts 2016Strategic report RISK MANAGEMENT
A clear process
for risk management
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.
PRINCIPAL RISK RATING MATRIX
3
6
4
2
5
1
7
I
N
A
T
R
E
C
T
S
O
M
L
A
D
O
O
H
I
L
E
K
I
L
E
R
A
R
LOW
IMPACT
HIGH
Top Principal Risks
1. Failure to change
2. Competition
3. Regulatory environment
4. Taxation
5. Cyber security
6. People
7. Business interruption
28
In order to ensure key business
developments and emerging risks are
appropriately factored into the risk
management process, the Group’s
internal auditors again facilitated a board
level risk session in the year. The Chief
Executive and Chief Financial Officer and
head of internal audit, 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
and discussed the outputs from this
process which were used by internal
audit as a key driver in developing 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
Operational management is asked to
present on a cyclical basis on the progress
of agreed actions against the major risks
identified by the process. The output is
shared with the audit committee and the
full board.
N Brown Group plc Annual Report & Accounts 2016
A CONTINUOUS PROCESS FOR IDENTIFYING RISKS
Board committees
Audit committee
Receives and reviews reports from senior
management to consider whether significant
financial, compliance and operational risks
are being identified, evaluated, managed
and controlled and whether any significant
weaknesses exist which need to be addressed.
The Audit Committee report is set out in
pages 59 to 61.
Risk committee
Focuses on reviewing management's activities
to continually monitor and manage the risks
identified. The output from the risk committee
is shared with the audit committee and the
full board.
BOARD OF
DIRECTORS
RETAIL
OPERATIONS
The board believes that appropriate
internal financial, operational and
compliance 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 overleaf.
Risk Appetite
The Group’s framework for managing
its consideration of risk appetite forms
part of the annual Risk Management
Cycle and is used to drive and inform
any actions undertaken in response
to the principal risks identified by the
board. Within this framework, the
Group’s appetite for risk is defined with
reference to the expectations of the
board for both commercial opportunity
and internal control and is used to inform
the Group’s Internal Audit Plan.
29
The directors have overall responsibility for ensuring that the Group maintains a sound system of internal control.N Brown Group plc Annual Report & Accounts 2016Strategic report PRINCIPAL RISKS AND UNCERTAINTIES
Identify, evaluate and
manage risks facing
the Group
KEY RISK
DESCRIPTION
MITIGATION
ASSOCIATED KPIS
STRATEGIC DRIVERS
CHANGE
Failure to 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.
• Fit 4 the Future business transformation programme to enable new technological
capabilities and competitiveness in both Retail and Financial Services sectors.
• Completion of new warehouse and continuing investment in Logistics promotes
flexibility in meeting customer expectations.
• Customer Insights team ensures up to date information on customer trends
and expectations.
• A greater focus on agility to respond to market forces and customer trends.
• Continued focus on strengthening the digital marketing attribution capability.
Competition
Failure to compete effectively
through product and service
propositions.
• Fit 4 the Future programme delivering new digital platform.
•
Improved operating processes increasing product newness and overall
product quality.
Regulatory
environment
Failure to ensure the Group
complies with existing and
emerging UK and overseas
legislation and regulation.
• New warehouse increases next-day delivery availability.
• New suite of financial services products.
• Customer Insight team use the Customer Services Index to drive
continuous improvement programme.
• Benchmarking against competitor activity.
• Group employs specialists in relevant fields to provide in-house and external
expertise on regulatory matters.
• Dedicated approval committee reviewing and ratifying proposed changes
•
with a regulatory impact.
In-house Customer Service team specialising in the treatment of
vulnerable customers.
In-house Regulatory Compliance function.
•
• Pro-active engagement with the FCA and other regulatory bodies.
• Continued, active membership of the British Retail Consortium.
People
Taxation
Cyber security
Over-reliance on key
personnel and inability to
recruit and retain required
skill sets.
• Annual talent identification and reward review.
• Talent review highlights people risks and drives mitigating actions.
• Twice yearly employee engagement surveys.
• Benchmarking of competitors reward packages and terms and conditions.
Uncertainty over the outcome
of legal cases with HMRC
covering VAT and historic
approach to Corporation Tax.
Malicious activity leading
to significant loss of data or
disruption to trading and
potentially impacting income,
profitability and Group
reputation.
• Proactive engagement with HMRC.
• The Group employs Leading Tax Counsel and other providers
of external expertise.
• Partial but not full provision against litigation outcomes.
•
IT outsource programme to deliver an agile, digitally focused IT function.
• Creation of a Security Operations Centre to monitor, manage and respond
to cyber security attacks at all times of every day.
• Fit 4 the Future programme is delivering new technology and methods
of protection against cyber attacks.
• Group employs a dedicated cyber security expert and continues to invest
in protection capabilities.
Business
interruption
A significant event impacts
the ability of the business
to continue trading.
• Business Continuity plan.
• Third party service provider Business Continuity plans.
• Crisis Management plan, team and communication systems.
•
IT Disaster Recovery plan.
30
• Active customer accounts
• Group returns rate (rolling 12 months)
• Power brand active customer accounts
• Online penetration
• Growth of our most loyal customers
• Online penetration of new customers
• Customer satisfaction rating
• Ladieswear market share size 16+
• Menswear market share chest 44"+
• Arrears rate (>28 days)
• Provision rate
• New credit recruits (rollers)
• Active customer accounts
• Online penetration
• Power brand active customer accounts
• Online penetration of new customers
• Growth of our most loyal customers
• Conversion rate
• Customer satisfaction rating
• Ladieswear market share size 16+
• Menswear market share chest 44"+
• Traffic from mobile devices
• Arrears rate (>28 days)
• Provision rate
• Group returns rate (rolling 12 months)
• New credit recruits (rollers)
• Customer satisfaction rating
• Arrears rate (>28 days)
• Provision rate
• New credit recruits (rollers)
• Active customer accounts
• Online penetration of new customers
• Power brand active customer accounts
• Conversion rate
• Customer satisfaction rating
• Ladieswear market share size 16+
• Menswear market share chest 44"+
• Online penetration
• Traffic from mobile devices
• Arrears rate (>28 days)
• Provision rate
• New credit recruits (rollers)
• Online penetration
• Online penetration of new customers
• Conversion rate
• Traffic from mobile devices
N Brown Group plc Annual Report & Accounts 2016
Product
Price
People
Place
KEY RISK
DESCRIPTION
MITIGATION
ASSOCIATED KPIS
STRATEGIC DRIVERS
CHANGE
Failure to change
The business does not
• Fit 4 the Future business transformation programme to enable new technological
recognise the need for
change, is unsuccessful in
delivering the best course
of action or fails to execute
chosen strategy.
capabilities and competitiveness in both Retail and Financial Services sectors.
• Completion of new warehouse and continuing investment in Logistics promotes
flexibility in meeting customer expectations.
• Customer Insights team ensures up to date information on customer trends
and expectations.
• A greater focus on agility to respond to market forces and customer trends.
• Continued focus on strengthening the digital marketing attribution capability.
Competition
Failure to compete effectively
• Fit 4 the Future programme delivering new digital platform.
through product and service
•
Improved operating processes increasing product newness and overall
propositions.
product quality.
• Active customer accounts
• Power brand active customer accounts
• Growth of our most loyal customers
• Customer satisfaction rating
• Ladieswear market share size 16+
• Menswear market share chest 44"+
• Group returns rate (rolling 12 months)
• Online penetration
• Online penetration of new customers
• Arrears rate (>28 days)
• Provision rate
• New credit recruits (rollers)
• Active customer accounts
• Power brand active customer accounts
• Growth of our most loyal customers
• Customer satisfaction rating
• Ladieswear market share size 16+
• Menswear market share chest 44"+
• Group returns rate (rolling 12 months)
• Online penetration
• Online penetration of new customers
• Conversion rate
• Traffic from mobile devices
• Arrears rate (>28 days)
• Provision rate
• New credit recruits (rollers)
Regulatory
environment
Failure to ensure the Group
complies with existing and
emerging UK and overseas
legislation and regulation.
• Group employs specialists in relevant fields to provide in-house and external
• Dedicated approval committee reviewing and ratifying proposed changes
expertise on regulatory matters.
with a regulatory impact.
• Customer satisfaction rating
• Arrears rate (>28 days)
• Provision rate
• New credit recruits (rollers)
• New warehouse increases next-day delivery availability.
• New suite of financial services products.
• Customer Insight team use the Customer Services Index to drive
continuous improvement programme.
• Benchmarking against competitor activity.
•
In-house Customer Service team specialising in the treatment of
vulnerable customers.
•
In-house Regulatory Compliance function.
• Pro-active engagement with the FCA and other regulatory bodies.
• Continued, active membership of the British Retail Consortium.
People
Over-reliance on key
personnel and inability to
recruit and retain required
skill sets.
• Annual talent identification and reward review.
• Talent review highlights people risks and drives mitigating actions.
• Twice yearly employee engagement surveys.
• Benchmarking of competitors reward packages and terms and conditions.
Taxation
Uncertainty over the outcome
• Proactive engagement with HMRC.
of legal cases with HMRC
covering VAT and historic
of external expertise.
• The Group employs Leading Tax Counsel and other providers
approach to Corporation Tax.
• Partial but not full provision against litigation outcomes.
Cyber security
Malicious activity leading
to significant loss of data or
disruption to trading and
•
IT outsource programme to deliver an agile, digitally focused IT function.
• Creation of a Security Operations Centre to monitor, manage and respond
to cyber security attacks at all times of every day.
potentially impacting income,
• Fit 4 the Future programme is delivering new technology and methods
profitability and Group
of protection against cyber attacks.
reputation.
• Group employs a dedicated cyber security expert and continues to invest
Business
interruption
A significant event impacts
the ability of the business
to continue trading.
in protection capabilities.
• Business Continuity plan.
• Third party service provider Business Continuity plans.
• Crisis Management plan, team and communication systems.
•
IT Disaster Recovery plan.
• Active customer accounts
• Power brand active customer accounts
• Customer satisfaction rating
• Ladieswear market share size 16+
• Menswear market share chest 44"+
• Online penetration
• Online penetration of new customers
• Conversion rate
• Traffic from mobile devices
• Arrears rate (>28 days)
• Provision rate
• New credit recruits (rollers)
• Online penetration
• Online penetration of new customers
• Conversion rate
• Traffic from mobile devices
31
N Brown Group plc Annual Report & Accounts 2016Strategic report
PERFORMANCE REVIEW
Our performance
in detail
6
1
0
2
32
N Brown Group plc
Annual Report & Accounts 2016
JD Williams
goes from strength to
strength, with our stylish
product offer, digital
marketing skills and ‘life
begins at 50’ mantra really
resonating with customers.
4.7%
Product revenue increase, to £151.2m
New customers up 5%
Overall online penetration 51%,
up 6ppts year on year
Online penetration of new customers now at
65%, up an impressive 13ppts year on year
Online market share up from 1.0% to 1.6%,
as measured by Hitwise
VIP scheme, offered to our most loyal JD
Williams customers, performing well
Williams & Brown, the menswear offer
within JD Williams, relaunched for SS16
and performing strongly
The JD Williams brand continues to
perform well, as the improvements we are
making to our products, our PR activity
and our digital marketing campaigns
continue to yield strong results.
This season we significantly extended
the menswear range within JD Williams,
which is called Williams & Brown, and
performance has exceeded expectations.
Our JD Williams VIP scheme, first
launched in May 2015 and offered to
our most loyal JD Williams customers,
continues to drive encouraging results
in both frequency of spend and
customer retention.
In February, on the eve of London
Fashion Week, we hosted a JD Williams
fashion show dedicated to females
over 50 in partnership with the London
College of Fashion. This was live-
streamed onto JDWilliams.co.uk and
received significant press coverage,
further building brand awareness.
6
1
0
2
Simply Be
is an empowering online
fashion brand, bringing stylish
products to all regardless of
size. The brand is gaining
significant momentum both
at home and in the USA.
15.6%
Product revenue increase, to £103.9m
Overall online penetration stands at 89%
For new customers, online penetration
(excluding stores) is now 97%
Constant improvement in social engagement
and digital campaigns
New ranges launched including Sprinkle of
Glitter, Simply Be Unique, Coast at Simply Be
and Jameela Jamil
We continue to improve our digital
marketing expertise and social
engagement, championing size
inclusivity and body confidence.
We also continue to improve our
products, delivering newness to
customers every week and extending
our ranges with Coast (exclusively in
larger sizes) and Sprinkle of Glitter in
SS16 after a great customer reaction
in AW15.
Our digital marketing capabilities –
increasing personalisation, offering
exciting offers to our customers, and
ensuring our site looks inspirational –
continue to drive conversion and
frequency of spend. In the coming
year we are planning to launch a
loyalty app to further drive retention.
We are excited about the global growth
opportunity that Simply Be represents.
33
N Brown Group plc Annual Report & Accounts 2016Strategic report PERFORMANCE REVIEW
CONTINUED
Jacamo
continues to grow strongly,
with customers loving its
digital offer and collections
available in a market-leading
range of sizes, from Small
to 5XL.
14.6%
Product revenue increase, to £62.8m
Overall online penetration now at 90%
Excluding stores, 97% of new customer
orders now come online
Refreshed the brand look and feel
during the past year
Driving on Dave sponsorship
Improved the fit of our smaller sizes
We have made significant product
improvements during the quarter,
focused particularly on broadening the
brand appeal, the styling of the product
range and the fit of our smaller sizes,
which has resulted in strong sales and
an encouraging reduction in the returns
rate of these sizes.
During the second half of the year we
refreshed the look and feel of the brand,
improving cut-through. In December
Jacamo became the official sponsors
of the Driving shows on Dave TV, which
has a real resonance with our customers.
Jacamo has also teamed up with
Paralympian Jonnie Peacock for our
new SS16 campaign, championing
inclusivity and promoting body diversity
and confidence.
Secondary Brands
delivered a pleasing
performance during the year.
1.9%
Product revenue increase, to £152.7m
Whilst we see greater near-term growth
opportunities in our Power Brands, our
Secondary Brands – the main brands here
being Figleaves, High and Mighty, Fashion
World and Marisota – are all strong, with
specific customer niche focuses, and all
have attractive growth potential.
Overall revenue of this Group was up
1.9% year on year to £152.7m, with
Fashion World performing particularly
well within this.
All four of these brands are digital-first
in their approach. Our central approach
also means that running them is
highly efficient.
Traditional Segment
revenue was down 5.5% year
on year, and we are taking
decisive actions to improve
performance.
5.5%
Product revenue decrease, to £136.0m
Whilst not a future growth driver, the
Traditional Segment remains relevant to
the Group’s overall portfolio. We have
loyal customers who we know well, and
long-established internal skillsets and
capabilities in serving these customers.
It is an attractive and accessible market,
underserved by other retailers, and
we generate a good financial return.
In addition, our central approach to
running our portfolio of brands means
that operating these traditional titles
is highly efficient for us.
Our Traditional titles have seen a
disappointing revenue performance
during FY16, with revenue down 5.5%.
We believe that we could serve these
customers better, and have therefore
taken a number of actions to improve
performance. These actions include
establishing a dedicated marketing team,
changing our approach to promotions
and giving a renewed focus on
ensuring our product offering inspires
and delights these customers. The low
online penetration of this segment means
that it is likely to take until the Autumn
season before performance is improved,
although we are confident that the
actions we are taking will yield results.
International
continues to deliver
impressive results. This
year our USA business
grew revenue by 29%,
and delivered a profit
for the first time in H2.
We are pleased with our performance
in the USA, with revenue of £14.3m, up
29% year on year and 20% in constant
currency terms. We reduced the
operating loss significantly, from
£2.5m last year to £1.0m this year.
In H2 we made a profit for the first
time on a constant currency basis,
of $0.2m compared to a loss of $0.9m
in H2 FY15. This marks an important
milestone for our USA operations. The
significant improvement year on year
was driven by a combination of factors,
34
N Brown Group plc Annual Report & Accounts 2016 including the loyalty of our customer
base, continued marketing efficiency,
an improvement in promotional
efficiency and a small change to our
delivery offering.
In March 2016 we launched the JD
Williams brand in the USA and, whilst
early days, the initial performance
has been very encouraging.
Our new international web platform
goes live in the USA in August. This will
give us much improved personalisation
tools and a more agile site from an
operations perspective. Until this
platform is live we will remain in cautious
expansion mode in the USA, with a focus
on further improving customer loyalty,
building brand awareness and
increasing profitability.
Ireland
Our Ireland business delivered a good
performance in FY16, with revenue
growth of 4% in constant currency
terms. We have a well-established
and loyal customer file in Ireland,
and, encouragingly, the revenue
growth in FY16 was also driven by
new customers, who are responding
well to our improved product offering.
In sterling terms Ireland revenues were
£13.4m in FY16, down 7% year on year.
Stores
remain an important enabler
for our business, driving both
online sales in their catchment
areas and brand awareness.
Stores remain a small part of our overall
Group, although we see them as an
important enabler of our overall growth
strategy. Sales from our store estate were
up 18% to £27.0m. The operating loss
was £1.0m versus £0.8m last year. There
remains more to do in terms of improving
the efficiency of our store estate.
We have 14 dual-fascia Simply Be and
Jacamo stores. Our long-term strategy
here is unchanged – we plan to ultimately
have 25 stores in total, covering 85%
of the population. We continue to see
a positive halo effect from our store
portfolio and they are also important in
terms of serving customers and building
brand awareness.
Financial Services
performed well during FY16
and offers our customers a
way of spreading the cost
of their purchases over time.
the first half, however, primarily as a
result of tightened fraud rules. We
continue to believe that the primary
driver of an increase in new credit
customers is our improved product
proposition.
2.1%
Revenue increase, to £259.6m
Financial Services revenue was up 2.1%
to £259.6m. This includes the £19.0m
increase to revenue as a result of the
IAS 39 restatement (FY15: £19.2m);
more detail on the restatement is
within the Financial Review.
Our aim is to grow two key customer
bases – customers who utilise their
account (internally termed our ‘rollers’)
and cash customers, who pay immediately
on a credit or debit card. Currently half of
new customers opt to open a credit
account, and half are cash customers.
Whilst less profitable, cash customers
generate attractive returns, and are
important in terms of driving our growth,
broadening our appeal and enabling us to
gain economies of scale. Once our new
Financial Services offering is live we will
aim to convert some of our new and
existing cash customers to account
customers; this is not currently a focus
given our relatively inflexible offering.
At the first half results we reported
an increase in new credit customer
recruits who roll a balance, the first such
increase for three years. We are pleased
to report that this trend has continued,
up 2% in the second half. This is a
slowdown on the figure reported in
Over Christmas we ran a small trial on
a few of our brands offering 0% interest
to new customers. The initial results of
this trial are positive, although we need
to assess the behaviour of customers
who took up the offer over the course
of the current season before we will be
able to fully judge the result.
Our new Financial Services Director
Steve Johnson joined in February
and is already making a significant
contribution in improving and
modernising our operations. We are
assessing our approach to data capture
and processes, and believe there are
changes we could make to not only
improve our efficiency, but also the
customer experience.
The Credit release of Fit 4 the Future
goes live from Autumn 2016, with the
main brands moving onto the new
credit platform in early calendar 2017.
The new platform will allow us to
charge variable APRs for the first time,
as well as offer promotional interest
free periods and other new credit
products. This will broaden our appeal
and further enable future growth.
In common with the wider industry, we
are now regulated by the FCA, having
historically been regulated by the OFT.
Our FCA application is progressing in
line with expectations.
35
N Brown Group plc Annual Report & Accounts 2016Strategic report
GROUP CHIEF FINANCIAL OFFICER'S REVIEW
Good performance in
a year of transformation
Total continuing Group revenue
was up 3.5% to £866.2m. Within this,
Product revenue increased by 4.1%
to £606.6m and Financial Services
revenue increased by 2.1% to £259.6m.
£317.9m
Power brands revenue
£866.2m
Total continuing Group revenue
£606.6m
Product revenue
£259.6m
Financial Services revenue
CRAIG LOVELACE
Group Chief Financial Officer
36
N Brown Group plc Annual Report & Accounts 2016 IAS 39 restatement
In late February we announced that
we would be restating our debtor
impairment provisions as a consequence
of a review of the application of IAS 39;
the year on year movement of the
restated provisions has resulted in
an increase to profit before tax in
both FY16 and FY15 of £3.8m and
£2.0m respectively.
Importantly, this change in the
technical interpretation of this accounting
standard has no effect on the way in
which we have operated or will operate
our business.
Unless otherwise stated, the following
financial results and commentary is
inclusive of the impacts as a result of
the restatement.
Revenue performance
Total continuing Group revenue was
+3.5% to £866.2m. Product revenue
increased by 4.1% to £606.6m. Financial
Services revenue increased by 2.1% to
£259.6m (FY15: £254.3m).
Revenue performance by brand is
shown on the table to the right. We
have changed our categorisation to more
clearly show externally the performance
of our brands. In line with our strategy of
focusing our efforts and marketing spend
on our Power Brands, revenue from our
Traditional Segment and Secondary
Brands combined accounted for 47.6%
of product revenue, down 280bps versus
last year.
Revenue by category is also shown
to the right. Ladieswear revenue was
up 0.9%, with the headwind of our
Traditional Segment partially offsetting
strong growth in both JD Williams and
Simply Be. Menswear revenue was up
0.7%, with an improving trend through
the year; first half revenue was down
2.9%, whilst second half was up 4.5%.
Revenue by brand
£m
JD Williams
Simply Be
Jacamo
Power Brands
Traditional Segment
Secondary Brands
Product total
Financial Services
Total continuing revenue
Revenue by category
£m
Ladieswear
Menswear
Footwear
Home & Gift
Product total
Financial Services
Total continuing revenue
FY16
151.2
103.9
62.8
317.9
136.0
152.7
606.6
259.6
866.2
FY16
250.8
82.0
63.8
210.0
606.6
259.6
866.2
FY15
144.4
89.9
54.8
289.1
143.9
149.9
582.9
254.3
837.2
FY15
248.6
81.4
60.7
192.2
582.9
254.3
837.2
Change
+4.7%
+15.6%
+14.6%
+10.0%
-5.5%
+1.9%
+4.1%
+2.1%
+3.5%
Change
+0.9%
+0.7%
+5.2%
+9.3%
+4.1%
+2.1%
+3.5%
Footwear saw strong growth of 5.2%
driven by improvements in our products
and pricing architecture.
Home and Gift revenue was up 9.3%,
with second half growth below the
level recorded in the first half as a result
of tougher comparatives and a more
subdued performance of House of
Bath. Our strategy in Home remains
unchanged – we aim to recruit new
customers to our Fashion offering,
but then see customers using their
account to also buy Homewares. Within
Homewares we focus on our “Famous
Five” categories given their higher gross
margin (these are Furniture, Gifting,
Home Textiles, Kitchen and Home Décor,
and Outdoor Living and Christmas).
Famous Five categories were up by
12% year on year, with a particularly
strong performance in Furniture.
Gross margin
Product COGS were £265.7m in FY16,
compared to £253.9m in FY15. Product
gross margin was 56.2%, down 20bps
year on year. This was driven by the
price re-calibration exercise previously
disclosed, which impacted first half gross
margin, partially offset by promotional
efficiency and bought-in margin gains.
H2 gross margin increased by 90bps
to 54.7%.
Turning to Financial Services, gross
bad debt was £110.3m (FY15: £109.0m).
This bad debt charge, combined with a
small number of direct financial services
costs, resulted in a Financial Services
gross margin of 54.6%, up 20bps year
on year (FY15: 54.4%). The improvement
was driven by lower write-offs as a
consequence of the improved quality
of the debtor book.
37
N Brown Group plc Annual Report & Accounts 2016Strategic report GROUP CHIEF FINANCIAL OFFICER'S REVIEW
CONTINUED
FY16
606.6
259.6
866.2
56.2%
54.6%
482.6
55.7%
(76.7)
(161.7)
(122.6)
(25.2)
96.4
11.1%
3.8
92.6
10.7%
FY15
582.9
254.3
837.2
56.4%
54.4%
467.4
55.8%
(73.9)
(154.7)
(121.8)
(21.2)
95.8
11.4%
2.0
93.8
11.2%
Change
+4.1%
+2.1%
+3.5%
-20bps
+20bps
+3.3%
-10bps
+3.8%
+4.5%
+0.7%
+18.9%
+0.6%
-30bps
-1.3%
-50bps
Operating costs
Warehouse and Fulfilment costs
increased by 3.8% to £76.7m. This was
driven primarily by volumes, although
these were partially offset by lower
fuel costs and efficiency savings.
The 4.5% increase in marketing and
production costs was driven by a
continued shift into digital channels.
Whilst marketing and production costs
as a percentage of sales increased,
this is skewed by the outsourcing of
our creative production function,
which resulted in some costs effectively
being transferred from payroll into
this cost category; this accounted
for approximately half of the increase
as a percentage of revenue.
Admin and payroll costs continue to be
managed tightly, broadly flat at £122.6m,
with these costs falling by 3% in the
second half specifically. Depreciation
and amortisation increased by 18.9%
as a result of the investments we have
made into the business.
Overall, operating profit before
exceptional items was £96.4m.
This includes a £3.8m credit (FY15:
credit £2.0m) as a result of the IAS 39
restatement. Excluding these credits,
FY16 operating profit was £92.6m
(FY15: £93.8m). In the second half,
operating profit (prior to IAS 39
restatement and exceptional items)
increased by 10.7% to £53.8m
(FY15: £48.6m).
Net finance costs were £8.1m compared
to £7.6m last year, as a result of a higher
debt position.
Operating performance
£m
Product revenue
Financial Services revenue
Group revenue
Product gross margin
Financial Services gross margin
Group gross profit
Group gross margin %
Warehouse & fulfilment
Marketing & production
Admin & payroll
Depreciation & amortisation
Operating profit1
Operating margin
IAS 39 restatement credit
Underlying operating profit1
Underlying operating margin
1. Operating profit before exceptionals, continuing basis
Underlying excludes IAS 39 restatement credit.
£482.6m
Group gross profit
55.7%
Group gross margin
38
N Brown Group plc Annual Report & Accounts 2016 Cash generated from operations was
£86.9m compared to £93.8m last year.
After funding capital expenditure,
finance costs, taxation and dividends,
net debt increased by £43.1m to £289.7m
(FY15: £246.6m). Gearing levels increased
from 55% to 61%.
Craig Lovelace
Group Chief Financial Officer
FX sensitivity guide
Every 0.05 rate move in $/£ (for instance
1.45 to 1.40) represents approximately a
£1m impact on PBT. We are significantly
less exposed to movements in the €/£
exchange rate, with each 0.05 move
representing approximately a £0.3m
PBT impact.
Exceptional items
Exceptional costs totalled £17.2m, of
which £14.0m was incurred in the first
half. The majority of these costs were
as a result of strategic re-organisation
and the closure of our small estate of
clearance stores.
Discontinued operation
– Gray & Osbourn
As previously announced, the Board
decided to close the Gray & Osbourn
catalogue business in January 2015.
Given the decision to close this business
it is now classified as a discontinued
operation. The loss after tax from
this business was £0.6m (FY15: loss
of £10.4m).
Taxation
The effective rate of corporation tax for
the year is 23.9% (FY15: 21.5%). The FY16
rate was impacted by an adjustment
relating to historical periods in respect
of outstanding items with HMRC. The
tax charge for the year was £17.3m
(FY15: £16.8m) which meant that profit
from continuing operations was £54.9m
(FY15: £61.5m).
Earnings per share
Adjusted earnings per share from
continuing operations were 24.02p
(FY15: 24.61p). Earnings per share from
continuing operations were 19.45p
(FY15: 21.84p).
Dividends
The Board proposes a final dividend of
8.56p, flat year on year, taking the full
year dividend to 14.23p, also unchanged
on last year. This is covered 1.7 times
(FY15: 1.7 times).
Capital expenditure
Capital expenditure for the year was
£58.7m (FY15: £63.3m). The majority
of this investment was on our systems
transformation programme Fit 4 the
Future, with a further £12m spent on the
final stage of our warehouse extension.
Balance sheet and cash flow
Inventory levels at the year-end increased
by 7.1% to £101.5m (FY15: £94.8m)
driven primarily by the timing of the
new season intake.
Trade receivables, before provision,
decreased by 0.5% to £624.7m
(FY15: £627.9m). The reduction in
the provision from £100.9m to £97.6m
reflects the improvement in customer
arrears profiles.
The Group’s defined benefit pension
scheme has moved from a deficit of
£3.3m last year to a surplus of £10.8m.
The movement predominately arises
from an actuarial gain of £12.5m as a
result of an increase in corporate bond
yields and a fall in market expectations
for inflation.
39
N Brown Group plc Annual Report & Accounts 2016Strategic report CORPORATE SOCIAL RESPONSIBILITY
Taking care of
We believe we should be a major force
for good as well as a major force in
fashion. It’s a huge responsibility,
and a purpose way beyond profit.
ALL PEOPLE
DIGNITY
AND RESPECT
We want everyone who works for us,
wherever they are, to be treated
with fairness, dignity and respect.
Because everything we achieve
as a business, we achieve
through people.
ONE PLANET
WAYS OF WORKING
We’re determined to understand
our effect on the world, and
find better smarter and more
sustainable ways of working.
To learn and to teach, to recycle,
reuse and respect,
wherever we are on our
big beautiful planet.
EVERY PRODUCT
RESPONSIBLE
That means partnering suppliers
who share our standards, working
together to create ever more
responsible, sustainable
products that our customers
can enjoy with confidence
and with conscience.
To find out more:
www.nbrown.co.uk/sustainability
40
N Brown Group plc
Annual Report & Accounts 2016
FIONA LAIRD
Chairman of the CSR Committee
Dear Shareholder
I am pleased to report that we have
successfully launched our CSR Charter
entitled “Taking care of our world”. We
have also completed a full review of the
Group’s CSR activities and introduced a
new three year CSR Ethical Compliance
strategy to align our Group sourcing
and commercial strategies with our
CSR activities. We believe we should
be able to show our “passion for fair
fashion” through our new and existing
CSR initiatives including via our continued
commitment to our CSR Charter and
three year Strategy.
We continue to believe we can be a
major force for good as well as a major
force for fashion.
Fiona Laird
Chairman of the CSR Committee
PROGRESS IN 2016
PRIORITIES 2017
N Brown Group plc
Annual Report & Accounts 2016
41
• Launched “Taking Care of Our World”, aligning CSR more fully to our group sourcing and commercial strategies.• Further reduce supply chain risks through improved supplier engagement and more direct sourcing.• Established sourcing office in Bangladesh allowing closer collaboration with supplies, local partners and civil and government agencies.• Further improve chemical compliance and due diligence.• Group Green House Gas emissions reduced by 11%.• Introduction of new targets for GHG emissions, waste and water.Strategic report EVERY PRODUCT
OUR PRODUCTS SHOULD
MAKE PEOPLE FEEL AS
GOOD AS THEY LOOK
The Group has been working closely with
its suppliers over the last couple of years
to improve the customer experience
and promote responsible sourcing.
This means partnering with suppliers
who share our values and standards.
By working together, we hope to create
more responsible and sustainable
products that our customers can enjoy
with confidence.
Since opening our Sourcing Office in
Dhaka in October 2015, we have been
able to work more directly with suppliers
and gain better visibility of our wider
supply chain.
CORPORATE SOCIAL RESPONSIBILITY
CONTINUED
ALL PEOPLE
WHERE PEOPLE ARE
CONCERNED, SO ARE WE
ONE PLANET
PROTECTING THE EARTH
BEGINS WITH RESPECTING IT
We’re determined to understand our
effect on the world, and find better
smarter and more sustainable ways
of working. To learn and to teach, to
recycle, reuse and respect, wherever
we are on our big beautiful planet.
We are looking at opportunities to
improve the performance of our supply
chain to promote more sustainable ways
of working such as working with less
packaging for our footwear teams and
reducing waste within the supply chain.
We want everyone who works for us,
wherever they are, to be treated with
fairness, dignity, equality and respect.
Everything we achieve as a business
we will achieve through people.
In the last year we have increased levels
of CSR training and awareness of our
staff with compliance and ethical trading.
We will continue to invest in this initiative
and roll out more CSR training to staff.
We are proud to be one of the
founding members of the ACT (Action,
Collaboration & Transformation Working
Group) which promotes fair, living
wages for individuals working in factories
making products for retailers. We feel
membership of this is important because
it allows us to lobby for support at all
levels from governments to trade
organisations and Civil Society groups.
We continue to work closely with
partners on the Shomotha Project in
Bangladesh. The Shomotha Project
is a TGVCI (Trade in Global Values
Chains Initiative), jointly funded by
N Brown Group and DFID (Department
for International Development) and
promotes gender equality throughout
organisations from Senior Management
to Operational Staff. The first tangible
results are expected later in 2016.
During 2015/6, we established our first
sourcing office in Bangladesh, which
has enabled us to work much closer with
suppliers, local partners, civil societies
and government agencies. We have 10
staff on the ground in Bangladesh to
manage quality and compliance activities
throughout the South East Asian region.
42
N Brown Group plc Annual Report & Accounts 2016 This has not only helped build better
relationships and improve product
quality but has enabled us to accelerate
our CSR activities where it matters and
make product margin improvements.
We continue to be signatories of and
active participants in the United Nations
Global Compact (UNGC) and the Ethical
Trading Initiative (ETI); which underpins
our CSR aims. We will continue to work
closely with the UNGC and ETI in 2016/7
to address current and emerging issues
such as tackling working conditions and
discrimination of migrant workers in
countries (for example in Turkey).
As part of our participation in the UNGC
working group we are still in dialogue
with internal and external stakeholders
to formulate our anti-slavery policy and
will publish our statement in due course.
We have continued to work with the
other retailers, brands and the ETI to
improve working conditions in Leicester,
UK which is now starting to address
some of the issues which were
highlighted such as excessive working
hours, low wages and regular
unauthorised sub-contractors.
We continue to work closely with the
ACCORD in Bangladesh which was
established to improve building standards,
fire and electrical safety and support those
who participate in CSR related matters
(see http://bangladeshaccord.org/).
We are signatories of the ACCORD
Agreement together with over 180
global retailers who source from
Bangladesh. We were a founding
member and this involves a five-year
commitment to improve standards in
the Bangladesh garment industry.
All our factories are now being regularly
inspected by qualified engineers who
we work collaboratively with to correct
any issues or findings, with corrective
plans publically disclosed.
Having introduced several policies in
2014/5 such as our human rights policy,
animal welfare and forestry/deforestation
Policy, we will continue to develop and
make financial investments in technology
and people to enable us to monitor and
report on improvements in the next
couple of years.
In Bangladesh we employed a Regional
CSR manager to help improve our
understanding of our entire supply
chain initially in South East Asia (India,
Bangladesh, Pakistan and Sri Lanka) and
this appointment has helped to make
great progress during 2015 by working in
partnership with the likes of the ACCORD
to improve building, fire and electrical
safety within our entire Bangladesh
supply chain.
We have worked hard to strengthen our
supply base during the year, allowing us
to increase the number of products we
source directly.
43
N Brown Group plc Annual Report & Accounts 2016Strategic report CORPORATE SOCIAL RESPONSIBILITY
CONTINUED
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.
Group-wide sustainability responsibility
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 reduction in our carbon emissions
and water footprint profiles.
Green House Gas (GHG)
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. The inventory is
independently calculated by our carbon
consultants partner 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
44
optional scope 3 emission sources
related to our operation to boost our
environmental impact assessment and
emissions reduction plan.
The table and chart below illustrate our
GHG emissions across all our reporting
areas, for the global Group from
1 March 2015 to 29 February 2016 and
the previous year.
53%
N BROWN GROUP PLC EMISSIONS PROFILE 2015 – 2016
(tCO2e)
11%
11%
10%
9%
Electricity
Employee commuting
Well to tank (all)
Business travel (air, road and rail)
Gas
Diesel
Waste
Gas oil
Company and pool car
HFCs
Water
3%
2%
0%
0%
0%
0%
Scope 1
Scope 2
Scope 3
Total GHG tCO2e (tonnes of carbon dioxide equivalent)ScopeSource2014 – 2015(Previous year)2015 – 2016(Current year)% changeScope 1Gas1,601.81,477.1-8%Diesel572.4532.7-7%HFC204.348.4-76%Gas oil56.672.9+29%LPG9.80.0N/A Company and pool car137.873.6-47%Scope 2Electricity19,008.28,576.9-5%Total scope 1 and 211,590.910,781.8-7%Scope 3Water32.329.5-8%Employee commuting2,137.01,713.9-20%Business travel (air, road and rail)1,885.21,604.8-15%Waste619.3287.3-54%Well to tank (all) 1,832.61,712.4-7%Total18,099.716,130.7-11%Outside scopes-Biogenic element-Diesel 14.817.8+20%1. Emissions associated with electricity usage at the Bangladesh office are reported in CO2 rather than CO2e. This is because overseas emissions factors are only available on a CO2 basis. The electricity kWh for Bangladesh accounts for 1.3 % of the total Group electricity consumption.N Brown Group plc Annual Report & Accounts 2016
Emissions Change from previous year
We have reduced our Group GHG
emissions by a significant 11% compared
to the previous reporting period. A
breakdown of the reduction in emissions
by source is shown in the chart opposite.
Relative performance using
intensity ratios
As a growing organisation, evaluation
of scope 1 and 2 emissions performance
using intensity ratios allows a more
meaningful comparison to be made
between inventory periods. The table
below shows the scope 1 and 2 GHG
emissions by GHG emissions in relation
to both Group turnover (£million) and
million items dispatched. GHG emissions
relating to Scope 1 and 2 sources have
decreased considerably in terms of
relative performance against both
turnover and items dispatched, as
shown in the table and charts opposite.
100
0
-100
-200
-300
-400
EMISSIONS CHANGE FROM PREVIOUS YEAR
(tCO2e)
)
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-40
-125
-156
-280
-332
-431
-423
Intensity ratios
Scope 1 & 2 GHG emissions tCO2e/
Group turnover (£million)
Scope 1 & 2 GHG emissions tCO2e/
million items dispatched
2014 – 2015
(Previous year)
2015 – 2016
(Current year)
13.9
12.4
324.2
287.8
% Change
11.0 %
decrease
11.2 %
decrease
EMISSIONS AGAINST ITEMS SHIPPED
PREVIOUS YEAR AND CURRENT YEAR
(tCO2e/£million items)
EMISSIONS AGAINST TURNOVER
PREVIOUS YEAR AND CURRENT YEAR
(tCO2e/£million turnover)
324.2
287.8
13.9
12.4
2015
2016
2015
2016
45
N Brown Group plc Annual Report & Accounts 2016Strategic report
CORPORATE SOCIAL RESPONSIBILITY
CONTINUED
Green electricity purchase
As well as making efforts to reduce
emissions by reducing energy
consumption, the Group are also
committed to reducing emissions by
purchasing energy from greener
technologies and sources. During the
last inventory period green electricity
accounted for 82% of our total electricity
profile. In addition to purchasing green
electricity we have been generating our
own green energy via a solar PV plant at
our main distribution centre since March
2016. This is in addition to solar power
generation which has been used at our
Devon Mill distribution centre since
January 2014.
When calculating emissions using the
grid average GHG factors, emissions
arising from electricity consumption
account for over half of the total Group
emissions. However, the actual emissions
associated with the green energy
supplies are lower, as explained below.
GREEN ELECTRICITY PROFILE 2015 – 2016
(%)
New for 2016 - market based
greenhouse gas reporting
Overview
In January 2015, the Greenhouse Gas
Protocol updated their Scope 2 reporting
guidelines on how organisations shall
report their emissions relating to
purchased electricity, heat and steam.
Companies shall now report two sets of
Scope 2 emissions: one using a location
based method and another using a
market based method. This is termed
as “dual reporting”.
The location based method reflects the
average emissions intensity of grids on
which energy consumption occurs; the
same way that electricity emissions have
been reported historically. The market
based method reflects the emissions for
the energy that a company is purchasing,
as supplies under different contracts
emit more or less greenhouse gases
depending on the energy source or
technology used. As the market based
method has only recently been
introduced there are some areas of
concern or uncertainty as outlined below.
Uncertainties and concerns
The fuel mix disclosures provided by
suppliers are released “after the event”
each year. For example, the disclosures
for April 2015 - March 2016 are not
available until the summer of 2016.
Therefore the 2014 to 2015 disclosures
have been used for this year’s calculation
and are likely to change depending
on how each supplier sourced their
electricity during this year’s reporting
period.
Certain suppliers are unable to provide
the exact fuel mix for the different
contracts and supplies that they provide
and tend to only provide a general fuel
mix disclosure. This is a concern as
the Group purchase over 80% of their
electricity through a green contract
but are unable to take full credit for
this in their market based emissions
quantification due to the supplier
not being able to define the renewable
fuel mix for this contract.
Dual reporting for N Brown Group
To account for the uncertainty in fuel
mixes, an adjusted market based
method has been calculated to reflect
the expected emissions from the green
supplies. A summary of emissions
resulting from all three approaches
is detailed below. The market based
emissions factors are only available
in CO2, not CO2 equivalent, therefore
the location based greenhouse gases
have been reported as CO2 to show
a like-for-like comparison.
18%
82%
Green Electricity
Brown Electricity
46
Scope
Approach
Scope 2 Location based
Market based
Source
Electricity
Electricity
Market based-adjusted Electricity
Total GHG tCO2e
2014 – 2015
(Previous year)
2015 – 2016
(Current year)
%
change from
previous year
9,008
7,462
1,644
8,577
7,460
1,406
- 4.8 %
0.0 %
-14.5 %
N Brown Group plc Annual Report & Accounts 2016 EMISSIONS LOCATION BASED VS MARKET BASED
(tCO2)
9,008 8,577
7,462 7,460
1,644 1,406
Location based
Market based
Market based adjusted
2014 – 2015
2015 – 2016
Mandatory GHG reporting notes
This data is disclosed is in conformance
the Companies Act 2006 (Strategic
Report and Directors’ Report)
Regulations 2013. GHG emissions
disclosed under the required reporting
categories fall within the Group’s
consolidated financial statement.
Scope 1 and 2 emissions have been
calculated on a global scale where the
Group have operation control using the
GHG protocol. The quantified emissions
are for the reporting year 1 March 2015
to 29 February 2016.
GHG emissions factors published by
DECC for 2015 have been used to
calculated GHG emissions.
Noted change in emissions for 2014-2015
• Data accuracy: Some data for the
2014-2015 inventory has been updated
based on actual data or more accurate
data for some sources.
• Update in DECC emissions factors:
Emissions from the previous published
report for the period 2014 - 2015 have
been recalculated with the newly
published factors for 2015, affecting
the months of January and February
2015 (2015 factors were not available
at time of publish). This has resulted in
a slight change in emissions reported.
• Revised gas kWh consumption
at Waterside Hadfield: Since the
2014 – 2015 emissions figures were
reported, issues with the two gas
meters at the Waterside Hadfield site
were identified. The consumption
relating to these meters was re-billed
resulting in a lower kWh than was
previously reported.
Noted change in emissions historically
• Removal of call centre emissions:
Operations carried out at the call
centre were outsourced from 1
January 2015 onwards. All emissions
associated with Martin House have
been removed from the GHG
inventory base year and all historical
reporting years, in line with re-
baselining guidance.
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 as energy
is billed as part of a landlord service
charge, energy consumption has
been estimated using floor areas and
published benchmarks. Some data has
been estimated where quarterly bills
have not yet been published.
• 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. This year
a full set of invoices was not possible
to obtain so data was taken from
internal records of gas oil deliveries.
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. The Global Expense system
was replaced with a Concur system
part-way through the reporting period
therefore data has been taken from
both systems for the relevant periods.
Any company cars not logged on this
system have been estimated based
on milometer readings.
• HFC: Refrigeration emissions
have been calculated from the
F-Gas register for applicable
plant where provided. This year,
confirmation of leakages from
units falling under F-Gas regulation
at Griffin House and Skyland have
not been provided, therefore
leakages have been estimated using
DECC leakage tables. Emissions for
plant not affected by this regulation
(smaller systems) have been calculated
using data provided by full service
records. Where service records were
not available for a very small number
of shops refrigeration losses have
been estimated using DECC leakage
tables. For a very small number of
shops, details of the systems were
not known and therefore estimation
of emissions has not been possible.
47
N Brown Group plc Annual Report & Accounts 2016Strategic report
GOVERNANCE OVERVIEW
Setting a high standard
of governance
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 diversity, skills and experience to
execute the strategy set by the board.
EMPLOYEE DIVERSITY (%)
BOARD COMPOSITION
57%
2
43%
7
Male 1,158
Female 1,555
Non-executive Directors
Executive Directors
SENIOR MANAGEMENT (%)
COMMITTEE MEETINGS DURING 2016
4
4
2
2
Audit committee
Remuneration committee
Nomination and Governance committee
CSR committee
46%
54%
Male 24
Female 19
48
ANDREW HIGGINSON
Non-Executive Chairman
Dear Shareholder
The board is committed to meeting a
high standard of corporate governance
and to comply with the principles in the
UK Corporate Governance Code issued
by the UK Financial Reporting Council
in 2014 (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 diversity, skills and
experience to execute the strategy
set by the board. This Corporate
Governance statement explains the
key features of the Group’s governance
structure and how it complies with
the Code.
Statement of Compliance with
the Code
The Group applied the provisions of the
Code and the UK Financial Conduct
Authority’s Disclosure and Transparency
Rules throughout the year. The following
paragraphs explain how the main
principles of the Code have been
applied. The Directors' Remuneration
Report contains further details on pages
64 to 79. In addition, disclosures required
by the Disclosure and Transparency Rules
(rule 7.2.6) regarding share capital can be
found on page 78.
N Brown Group plc Annual Report & Accounts 2016
COMMITTEES OF THE BOARD
Audit committee
Ron McMillan (Chairman)
Simon Patterson1
Fiona Laird
Lesley Jones
Remuneration committee
Fiona Laird (Chairman)
Ron McMillan
Simon Patterson1
Activities
During the year the committee
considered, amongst other
things, the Group’s approach
to and methodologies for
provisioning bad and doubtful
debt and inventory, the
Group’s exposure to corporate
tax and VAT risks, treasury
and cash management, the
treatment of exceptional
items and the capitalisation of
software development costs.
Activities
Key activities for the committee
included support and oversight
of the closure of the Group’s
defined benefit scheme to
new accruals and a review of
and recommendation to the
board in respect of the Group’s
incentives schemes. The
committee also reviewed the
remuneration packages of
all executive directors and
senior executives.
Nomination and
governance committee
Simon Patterson (Chairman)1
Andrew Higginson
Lesley Jones
Ron McMillan
Fiona Laird
Activities
Our activities this year have
included a review of the Group’s
succession planning, a board
evaluation exercise and
consideration of the skills and
experience required for a new
non- executive director in light
of the current composition,
skills, expertise and experience
of the board.
Outlook
As we move into delivery of
Fit 4 the Future, the Committee
will oversee the implementation
of the revised incentive
arrangements which aim to
focus executives on delivering
transformation. The Committee
will also look to foster closer
relationships with shareholders
and to provide oversight of the
new gender pay gap reporting
requirements.
Outlook
Under the Chairmanship of Fiona
Laird, we will focus on identifying
and developing the Group’s
future leaders and will review
our executive and non-executive
director induction and training
programmes. Together with our
appointed consultants we will
seek to appoint a suitably skilled
and experienced non-executive
director.
Outlook
As transformation of the business
model continues apace, the
committee will focus on those
areas which have been identified
through our risk assessment
process as being key to the
delivery of our strategy. This will
include a review the Group’s
marketing investment to provide
assurance that the significant
investment in this area delivers
improved targeted marketing to
all customer segments, a review
of the delivery of the anticipated
capabilities and benefits of Fit 4
the Future and oversight of the
implementation of a more
flexible and tailored financial
services offering.
CSR committee
Fiona Laird (Chairman)
Angela Spindler (Chief Executive)
Theresa Casey (Company Secretary)
Andrew York (Ethical Trading
Manager)2
Activities
During the year we successfully
launched the Group’s CSR Charter
“Taking Care of Our World”,
highlighting our passion for fair
fashion and introduced a new
three year CSR strategy aligned
with the Group’s sourcing and
commercial strategies. In
Bangladesh we now directly
employ skilled personnel , allowing
us to work collaboratively with
suppliers, NGO’s, and government
bodies on the ground.
Outlook
Our focus for 2017 will be on
investing in technology and
people to better enable us to
monitor and report on CSR
improvements. We are also
refining our anti-slavery policy
and will publish our anti-slavery
statement later this year and
continuing to identify ways in
which we can improve the
performance of our supply
chain to promote more
sustainable ways of working.
1. Resigned 1 April 2016.
2. Resigned 28 April 2016.
Some of the key activities that the board has covered over the past year are:
BOARD ACTIVITIES IN 2015/16
• Strengthening the operating board through the appointment of Steve Johnson, an experienced financial
services executive and the appointment of Craig Lovelace, our new CFO who has experience in dealing with
multi-site multi-platform businesses;
• Reviewing the progress and costs of the Fit 4 the Future Project;
• Assessing the progress of the Group’s international and High Street strategies; and
• Reviewing and improving communications with our investors and appointing a Director of Investor Relations.
49
N Brown Group plc Annual Report & Accounts 2016Governance BOARD OF DIRECTORS
Relevant skills, qualifications
and experience
Angela was appointed Chief
Executive Officer in July 2013 and
has over 30 years of retail experience,
including roles at Coca Cola, Mars Inc,
Asda, Debenhams and the Original
Factory Shop. Angela studied at
Manchester University.
Angela was a non-executive director
of Manchester Airport Group until
31 March 2016 and is currently a non-
executive director of DIA, which is
listed on the Madrid stock exchange.
ANGELA SPINDLER (53)
Chief Executive
Meetings attended
9/9
Committee membership
None
CRAIG LOVELACE (42)
Group Chief Financial Officer
Relevant skills, qualifications
and experience
Andrew was appointed a director
in July 2012 and became Chairman
in September 2012. Andrew spent
22 years in executive retail roles,
including positions with Laura
Ashley Holdings, The Burton Group
and Tesco. Andrew is currently
the Chairman of Wm Morrison
Supermarkets PLC and a non-
executive director of Woolworths
Holdings Limited (South Africa)
and McCurrach UK Limited.
Relevant skills, qualifications
and experience
Appointed in May 2015. Formerly
Group Chief Financial Officer for
General Healthcare Group Ltd since
2011 and prior to this, held a number
of senior UK and International
finance roles at Regus Plc, Electronic
Arts Inc and PwC. Craig is a fellow
of the ICAEW.
Meetings attended
8/9
Committee membership
None
Relevant skills, qualifications
and experience
Appointed a director and Chairman
in 1968. Stood down as Chairman on
1 September 2012. Co-founder and
former Chairman of Coats Viyella
Plc. He is also a director of a number
of private companies, and was
appointed a life peer in 2004. Lord
Alliance holds honorary doctorates
from Heriot-Watt University and the
Unviersity of Manchester.
ANDREW HIGGINSON (58)
Independent Non-executive
Chairman
Meetings attended
9/9
Committee membership
• Nomination & Governance
committee member
LORD ALLIANCE OF
MANCHESTER CBE (83)
Non-executive Director
Meetings attended
8/9
Committee membership
None
IVAN FALLON (71)
Non-executive Director
Relevant skills, qualifications
and experience
Appointed a director in 1994. Ivan
was Chief Executive of Independent
News & Media (UK) until March 2010
and a leading financial journalist.
Meetings attended
9/9
Committee membership
None
50
N Brown Group plc Annual Report & Accounts 2016 RON MCMILLAN (63)
Independent Senior Non-executive
Director
FIONA LAIRD (55)
Independent Non-executive Director
Relevant skills, qualifications
and experience
Appointed a Director on 1 April
2013. Ron is Senior Independent
Director and Chairman of the Audit
Committee. He is also Chairman
of the Audit Committee of B&M
Value Retail SA, 888 Holdings
Plc and SCS PLC. Previously, he
was the Deputy Chairman of
PricewaterhouseCoopers in the
Middle East and Northern Regional
Chairman of the UK firm.
Meetings attended
9/9
Committee membership
• Audit committee member
• Remuneration committee member
• Nomination & Governance
committee member
Relevant skills, qualifications
and experience
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 Group in 1991.
Meetings attended
9/9
Committee membership
• Audit committee member
• Remuneration committee member
• Nomination & Governance
committee member
• CSR committee member
SIMON PATTERSON (43)
Independent Non-executive Director
(resigned April 1 2016)
LESLEY JONES (61)
Independent Non-executive Director
Relevant skills, qualifications
and experience
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,
and a Trustee of the Natural
History Museum.
Meetings attended
8/9
Committee membership
• Audit committee member
• Remuneration committee member
• Nomination & Governance
committee member
Relevant skills, qualifications
and experience
Retired from executive life in January
2014 after 30 years in relationship
and risk management at Citigroup
and latterly as Chief Credit Officer
for RBS Group Plc from 2008
through January 2014. Appointed
as Non-Executive Director and
Board Risk Committee Chair at
Close Brothers in December 2013
and a Non-Executive Director of
N Brown Group Plc in October 2014.
Meetings attended
9/9
Committee membership
• Audit committee member
• Nomination & Governance
committee member
THERESA CASEY (47)
Company Secretary
Relevant skills, qualifications
and experience
Joined the Group in January 2015.
Admitted as a solicitor in 1997,
Theresa has held a number of legal
and company secretarial roles in the
financial services and retail sectors,
including the Co-operative Bank,
Shop Direct and Brown Shipley
Private Bank.
Meetings attended
9/9
Committee membership
N/A
51
N Brown Group plc Annual Report & Accounts 2016Governance DIRECTORS’ REPORT
Activities and results
The directors have pleasure in presenting
their annual report and audited financial
statements for the year ended 27
February 2016. Some of the information
required to be part of the Directors'
Report can be found elsewhere in this
document as detailed in the following
paragraphs and is incorporated into
this report by cross-reference.
Management Report
This Directors' Report, together with
the Strategic Report set out on pages
1 to 40, form the Management Report
for the purposes of DTR 4.1.5R.
Strategic Report
The Strategic Report sets out a review of
the business of the Group during the 52
weeks ended 27 February 2016 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 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.
Risk management
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 pages 28
to 31.
UK Corporate Governance Code
As required by the UK Corporate
Governance Code 2014 (the “Code”),
pages 16 to 27 provide an explanation
of the basis on which the Group
generates value and preserves it over
the long-term (its business model) and
its strategy for delivering its objectives.
52
Results, dividends and reserves
The financial statements set out the
Group’s results for the year ended
27 February 2016 and are contained
in pages 84 to 111.
An interim dividend of 5.67p per share
(2015, 5.67p) was paid on the ordinary
shares of the Group on 8 January 2016.
The net cost of this dividend was £16.0m
(2015, £16.0m).
The directors recommend a final
dividend of 8.56p per share (2015, 8.56p)
for the 52 weeks ended 27 February
2016, the net cost of which will be
£24.2m (2015, £24.2m). The dividend
will be paid on 29 July 2016.
Movements in reserves are shown in
the Statement of Changes in Equity on
page 87.
Composition of the Group
During the year there were no corporate
acquisitions or disposals.
Share capital
Details of the Group’s issued share
capital are shown in note 24 on page 106.
The Group has one class of ordinary
shares which carry no fixed income.
Each share carries the right to one vote
at general meetings of the Group.
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 Group’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 29 on page 108.
The directors have no current plans to
issue shares other than in connection
with employee share options.
2016 annual general meeting
The annual general meeting will be held
at 12:30 pm on Tuesday, 12 July 2016.
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 pages 50 and 51.
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 2016 annual general meeting all
of the directors will retire and will offer
themselves for re-election.
The directors who served throughout the year in review were as follows:
Andrew Higginson
Non-executive Chairman
Lord Alliance of Manchester CBE
Non-executive Director
Angela Spindler
Craig Lovelace
Dean Moore
Ivan Fallon
Fiona Laird
Simon Patterson
Ron McMillan
Lesley Jones
Chief Executive Officer
Chief Financial Officer
(appointed 11 May 2015)
Finance Director
(resigned 30 April 2015)
Non-executive Director
Non-executive Director
Non-executive Director
(resigned 1 April 2016)
Non-executive Director
Non-executive Director
N Brown Group plc Annual Report & Accounts 2016 Craig Lovelace joined the Group as Chief
Financial Officer on 11 May 2015.
Details of directors’ interests (beneficial
and non-beneficial) in shares of the
Group are given in the Remuneration
Report on page 78 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 on pages 56 to 58.
The terms of reference for the board
and its committees are available on the
Group’s website (www.nbrown.co.uk).
Other than a contract of service, no
other director had any interest in any
disclosable contract or arrangements
with the Group 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 Group 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
whilst acting on behalf of the Group.
Both the insurance and indemnities
applied throughout the financial year
ended 27 February 2016 and through
to the date of this report.
Major shareholders
In addition to the directors’ shareholdings shown in the Remuneration Report on page
78 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
Group’s issued share capital at 30 April 2016:
Shareholder
INVESCO Asset Management Ltd
Nigel Alliance OBE
Tameside MBC re Greater Manchester
Pension Fund
Holding
33,867,567
31,489,256
12,199,970
% of issues
share capital
11.95
11.11
4.30
Governance
The board is committed to maintaining
high standards of corporate governance.
Further details are contained in the
Corporate Governance Statement on
pages 56 to 58.
Corporate social responsibility and
greenhouse gas emissions
Details on corporate social responsibility
and greenhouse gas emissions are set
out on pages 40 to 47.
Charitable and political donations
During the year, the Group made
charitable donations of £13,315 (2015,
£40,818). No political donations have
been made (2015, nil). No contributions
have been made to non-EU political
parties (2015, nil).
Auto-enrolment and
Stakeholder pension
Until 31st October 2015, The People
Pension’ was the auto-enrolment
provider for weekly paid employees,
whilst Prudential auto-enrolled monthly
paid employees and ran the Stakeholder
Pension for weekly employees already
in the scheme. With effect from
1 November 2015, Zurich has been
appointed as provider for all qualifying
employees. As at 31 May 2016 86.9% of all
employees were members of a qualifying
pension scheme with 1,216 employees
being auto-enrolled as at the date of
this report. At the date of this report
the opt out rate is 4.3%.
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 21 on page 103.
The Group’s risk management policies
and procedures and the table of principal
risks and mitigations can be found on
pages 28 to 31.
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 Group on
giving 12 months’ notice. There are no
agreements between the Group 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.
Independent auditor
The Group’s independent auditors,
KPMG LLP (“KPMG”), have indicated
their willingness to continue in office and
the Audit Committee has recommended
that KPMG remain in office. A resolution
to re-appoint the independent auditors
will be proposed at the AGM.
The auditor’s fees for both audit and
non-audit work are given in the Audit
Committee report on page 61.
53
N Brown Group plc Annual Report & Accounts 2016Governance DIRECTORS’ REPORT
CONTINUED
Voting rights and restrictions on
transfer of shares
None of the ordinary shares in the
Group carry any special rights with
regard to control of the Group. 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 2015 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
2016 annual general meeting or 14 July
2016. Accordingly, a resolution will be
proposed at the 2016 annual general
meeting to renew the Company’s
authority to issue new shares.
54
Directors were also given the power to
issue new issue 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
2016 annual general meeting or 14 July
2016, and a resolution will be proposed
at the 2016 annual general meeting to
renew it.
Approval was also given at the 2015
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 statutory
pre-emption rights regime. As with the
previously mentioned approvals, this
authority too will expire on the earlier of
the conclusion of the 2016 annual general
meeting or 14 July 2016, and a resolution
will be proposed at the 2016 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 2016
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 Group'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 dependants;
• 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 pages
92 and 93.
Viability statement
In accordance with provision C.2.2 of the
2014 revision of the Code, the Directors
have assessed the longer term viability of
the Group and can confirm that they have
a reasonable expectation that the Group
will continue to operate and meet its
liabilities as they fall due for the three
year period from approval of this Annual
Report. The Group uses a three year
timescale to forecast its strategic plan
on a rolling basis, as it is felt that a longer
period would not produce a reliable
result given the current pace of
development both within the Group
and the wider retail sector in which it
operates. The Directors’ assessment
has been made with reference to the
Group’s current position and prospects,
the Group’s strategy, the Board’s risk
appetite and the Group’s principal risks
and how these are managed, as detailed
in the Corporate Governance Report.
The strategy and associated principal
risks underpin the Group’s three year plan
and scenario testing, which the Directors
review at least annually. The three year
plan makes certain assumptions about
our core product and financial services
growth drivers, margins and operating
costs, together with the Group's cash
flows, general liquidity and other key
financial ratios. Although the strategic
plan reflects the directors’ best estimate
of the future prospects of the business,
they have also tested the potential impact
on the Group of a number of scenarios
over and above those included in the
plan, by quantifying their financial impact
and overlaying this on the detailed
financial forecasts in the plan. The plan
has been subjected to severe but
plausible stress tests using four primary
downside scenarios which have been
derived as part of the Board’s review
of the Group’s principal risks detailed
in the Corporate Governance Report.
They represent ‘severe but plausible’
circumstances that the Group could
experience. The stress tests apply a range
of sensitivities to our headline interest
rate, bad debt levels, Group revenue
sensitivities and current tax positions;
reflecting the principal risks of the
business, primarily through a reduction
in the credit activities of the Group,
a negative potential customer impact
arising from increased LIBOR rates,
N Brown Group plc Annual Report & Accounts 2016 potential trading restrictions dealing with
the impact of a cyber-attack and negative
outcomes from a number of tax positions
we are currently defending.
The three year plan review is solidly
underpinned by the regular Board
briefings provided by the Group’s
operating board and the discussion of
any new strategies undertaken by the
Board in its normal course of business.
These reviews consider both the market
opportunity and the associated risks,
principally the ability to operationally
deliver any new initiatives, to manage
its working capital performance and the
level of financial resources available to
the Group. Implausible scenarios, such
as multiple circumstances occurring at
the same time are assumed to not occur.
The Directors do not consider it plausible
that any of the key risks would crystallise
together in a way that would create
a worst outcome over the three year
assessment period. In the unlikely event
of multiple risks occurring and having a
particularly severe effect on the Group,
all potential actions such as constraining
capital spending and reducing payments
to shareholders would be taken on a
timely basis. Thus, the Directors believe
it has the early warning mechanisms to
identify the need for such actions and the
ability to implement them on a timely
basis if necessary.
Statement of Directors’ responsibilities
in respect of the Annual Report and
the Financial Statements
The directors are responsible for
preparing the Annual Report and the
Group and parent company financial
statements in accordance with
applicable law and regulations.
Company law requires the directors to
prepare Group and parent company
financial statements for each financial
year. Under that law they are required to
prepare the Group financial statements
in accordance with IFRSs as adopted by
the EU and applicable law and have
elected to prepare the parent company
financial statements in accordance with
UK Accounting Standards, including FRS
101 Reduced Disclosure Framework.
Under company law the directors must
not approve the financial statements
unless they are satisfied that they give
a true and fair view of the state of affairs
of the Group and parent company and
of their profit or loss for that period.
In preparing each of the Group and
parent company financial statements,
the directors are required to:
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
position and performance, business
model and strategy.
By order of the board
Angela Spindler
Chief Executive
2 June 2016
• select suitable accounting policies
and then apply them consistently;
• make judgements and estimates
that are reasonable and prudent;
• for the Group financial statements,
state whether they have been
prepared in accordance with IFRSs
as adopted by the EU;
• for the parent company financial
statements, state whether applicable
UK Accounting Standards have been
followed, subject to any material
departures disclosed and explained
in the parent company financial
statements; and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and the parent company will
continue in business.
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the parent company
and enable them to ensure that its
financial statements comply with the
Companies Act 2006. They have general
responsibility for taking such steps as are
reasonably open to them to safeguard
the assets of the Group and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations,
the directors are also responsible for
preparing a Strategic Report, Directors’
Report, Directors’ Remuneration Report
and Corporate Governance Statement
that complies with that law and those
regulations.
The directors are responsible for
the maintenance and integrity of the
corporate and financial information
included on the company’s website.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
By order of the board
Theresa Casey LL.B (Hons) (Solicitor)
Company Secretary
2 June 2016
55
N Brown Group plc Annual Report & Accounts 2016Governance 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.
The board now comprises five male
directors and three female directors.
The board continues 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 37.5% on the Home
Shopping board. This is over 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 19.9%. 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 priority 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.
To provide role models in the business
and break the glass ceiling we are
members of “Women on Boards”.
Our aim is to allow development of
board directors and to allow directors
to take up non-executive roles in other
businesses where opportunities arise.
CORPORATE GOVERNANCE STATEMENT
Introduction
This corporate governance statement
explains the key features of the Group's
governance structure and how it
complies with the UK corporate
governance code (the "code"). This
statement also includes items required
by the Listing Rules and the Disclosure
and Transparency Rules ("DTR's"), except
as specifically highlighted within this
statement the Directors consider that
the Group has, throughout the year
complied with the provisions of the code.
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 pages 50 and 51.
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 27 February 2016 were:
• Andrew Higginson (Chairman);
• Lord Alliance of Manchester;
• Ivan Fallon;
• Fiona Laird;
• Simon Patterson
(resigned 1 April 2016);
• Ron McMillan; and
• Lesley Jones
Simon Patterson resigned from the
board in April 2016 in order to take
up another role outside the company.
I would like to thank Simon personally
for his contribution to the company.
An external agency has been appointed
to assist in the recruitment of a
replacement non-executive director,
in relation to which an announcement
will follow in due course.
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.
Save for Simon Patterson, 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 continuing directors will
retire at the forthcoming annual general
meeting and 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.
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 58.
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 pages 70 to 72. In accordance with
the Code, the company has made the
terms and conditions of appointment
of the non-executive directors available
for inspection
56
N Brown Group plc Annual Report & Accounts 2016 Gender split
At the date of this report the gender split
(male/female, senior management and
entire workforce) is as follows:
SENIOR MANAGEMENT (%)
46%
54%
Male 24
Female 19
EMPLOYEE DIVERSITY (%)
57%
43%
Male 1,158
Female 1,555
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 9 times during the year.
Directors’ attendance at board
meetings was as follows:
Attendance
Andrew Higginson
Lord Alliance of Manchester CBE
Angela Spindler
Ivan Fallon
Dean Moore
(resigned 30 April 2015)
Fiona Laird
Simon Patterson
(resigned 1 April 2016)
Ron McMillan
Lesley Jones
Craig Lovelace
(joined 11 May 2015)
9
8
9
9
2
9
8
9
9
8
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 Angela Spindler and
Craig Lovelace (from 11 May 2015) sit as
chief executive officer and chief financial
officer respectively.
Details of all of the members of the Home
Shopping Board is set out on page 23.
In November the members of the board
met with 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 Chief Financial Officer,
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 to enable the broader
population of the Group to 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 full and 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.
57
N Brown Group plc Annual Report & Accounts 2016Governance CORPORATE GOVERNANCE STATEMENT
CONTINUED
Board effectiveness appraisal
In accordance with Main Principle
B.6 of the Code an internal effectiveness
review of the board, its committees and
its individual directors was undertaken
during the second half of the year by way
of a tailored, high-level questionnaire
which was distributed for the directors
to complete.
The responses to the evaluation of the
Board and its Committees were reviewed
with the Chairman and then considered
by the Board. The overall view was that
the Board remains effective, positive and
cohesive and there has been progress in
relation to the areas for improvement
identified in the 2014 evaluation exercise.
Some actions were identified as a result
of the evaluation and based on these, the
Board has agreed a set of objectives for
2016/17.
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. The board has complied with
these procedures during the year.
External appointments or other
significant commitments of the
directors require the prior approval
of the Board. Details of such external
appointments can be found in the
directors’ biographies set out on
pages 50 and 51.
Board activities in 2015/16
Some of the key activities that the board
has covered over the past year are:
• Setting and reviewing the Group’s
business plan and annual budget.
• Oversight of major capital projects,
including the major warehouse
extension at Shaw and Fit 4 the Future.
• Governance and risk control, including
oversight of our application to the FCA
for full authorisation.
• Performance of a robust assessment
of the principal risks facing the Group,
including those that would threaten
the business model, future
performance, solvency or liquidity,
and a review of all internal controls
material, more details of which are set
out in pages 28 and 29 of this report.
• Monitoring the Group's risk
management and internal control
systems, including a review of their
effectiveness.
Committees of the Board
The board delegates authority to a
number of committees to deal with
specific aspects of management
and to maintain supervision over the
internal control policies and 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;
• a nominations and governance
committee; and
• a corporate social responsibility
committee.
After each committee meeting the
chairman of that committee makes a
formal report to the board of directors
detailing the business carried out by
the committee and setting out its
recommendations.
Andrew Higginson
Chairman
N Brown Group Plc
58
N Brown Group plc Annual Report & Accounts 2016 AUDIT COMMITTEE REPORT
RON MCMILLAN
Chairman of the Audit Committee
THE AUDIT COMMITTEE
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;
• The Group’s approach to and methodology for provisioning
for bad and doubtful receivables, in particular the application
of IAS 39;
No. of meetings
• The Group’s approach to and methodology for provisioning
Member
Ron McMillan (Chairman)
Simon Patterson (Resigned 1 April 2016)
Lesley Jones
Fiona Laird (Since 1 April 2016)
RESPONSIBILITIES
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;
Reviewing the Group's internal financial controls;
In conjunction with internal audit and the external
auditor, reviewing internal financial controls and
management's response to required corrective action;
Monitoring and reviewing the role and effectiveness of
the Group’s internal audit function, including activities
and resources;
4/4
2/4
4/4
1/4
for inventory;
• The Group’s exposure to corporate tax and VAT risks;
• Treasury and cash management;
• Financial crime and fraud;
• The Viability Statement;
• The presentation and appropriateness of exceptional
items; and
• The capitalisation of software development costs.
A key responsibility of the committee is to review the scope,
nature and effectiveness of internal and external audits.
The committee ensures 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. The committee has also continued
to monitor and review the key aspects of the Group’s external
audit and, in relation to risk, the Committee undertook a full
re-scoring of the corporate risk assessment during the year.
Further information on the committee’s responsibilities and
the way in which they have been discharged is set out below.
Overseeing the role and effectiveness of the Group’s
external auditors, reviewing and monitoring their
objectivity and independence and agreeing the scope of
this work and fees for audit and non-audit services; and
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
Reporting to the Board on how it has discharged its
responsibilities.
PRIORITIES FOR 2017
Ensuring that Fit 4 the Future delivers the anticipated
capabilities and benefits as they are delivered
throughout the year;
Reviewing and providing oversight to the introduction
of more flexible and personalised Financial Services
products; and
Reviewing the Group’s marketing investment to
provide assurance that the Group continues to deliver
improved customer experience and is able to adapt
to changing customer behaviours through improved
targeted marketing.
59
N Brown Group plc Annual Report & Accounts 2016Governance AUDIT COMMITTEE REPORT
CONTINUED
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.
Exposure to corporate tax and VAT
The Group has a number of open items with the tax authorities
and the calculation of the Group’s potential liabilities or assets
in respect of these necessarily involves a degree of estimation
and judgement. The Board sets and oversees the Group’s tax
strategy which evaluates tax risk. In undertaking this task the
Group uses its tax advisors and legal counsel. During the year
the Group’s tax advisers have kept the committee appraised of
existing and emerging risks and the committee has considered
the appropriateness of related tax provisions and assets.
The members of the committee were:
• Ron McMillan (Chairman)
• Simon Patterson (resigned 1 April 2016)
• Fiona Laird (appointed 1 April 2016)
• Lesley Jones
The Chairman, Chief Executive, the Chief Financial Officer, the
head of internal audit and the external auditor are invited to
attend audit committee meetings where appropriate.
In addition to scheduled meetings, the chairman of the
committee met with the Chief Financial Officer, the head
of internal audit and the external auditor on a number of
occasions during the year.
Activities
The key matters considered by the committee during the
year were:
Regulatory environment
In common with the wider industry, the Group is now regulated
by the FCA, having historically being regulated by the OFT.
Our FCA application is progressing in line with expectations.
We recognise that changes in laws and regulations may impact
the Groups business, sector and market and the committee
therefore continues to review the work carried out by the
Group’s compliance function in order to satisfy itself that
action is being taken to address the changes that are
required to comply with new regulations.
Bad and doubtful debts
Following a review of the Group's accounting policies,
specifically the application of International Accounting Standard
39 ("IAS 39") in relation to the provisioning for bad and doubtful
receivables, the Group announced a restatement of its debtor
impairment provisions and consequent increases to reported
profits during the year. This was as a direct result of a change
in the technical interpretation of this accounting standard
and did not affect the way in which the Group operates.
The committee is satisfied that the change in interpretation
of IAS 39 does not reflect any changes to the Group's underlying
trading performance or on the risk profile of the Group's debtor
balances. The Group's current business practices, approach
to payment arrangements and customer rehabilitation are all
unaffected by the revised IAS 39 accounting treatment.
Inventory valuation
Provision is made where the net realisable value of stock is
estimated to be lower than cost. The committee recognises
that there is an element of uncertainty in relation to the
estimation of net realisable value but considers that, taking
into account historical experience, likely future selling values
and the availability of disposal channels, the provision made
is appropriate.
Capitalisation of software development costs
The committee has reviewed the treatment of the significant
software and project costs in respect of Fit 4 the Future in order
to satisfy itself that the Group’s current approach in capitalising
costs to the extent that future economic benefits are expected
to be generated remains appropriate.
In addition to the above matters and those set out in the letter
from the chairman of the committee on page 59, 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;
4. Compliance with statutory tax obligations and the
Group’s tax policy; and
5. 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.
• 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.
60
N Brown Group plc Annual Report & Accounts 2016 Internal controls
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 in the Risk Management section of this report.
During the year the committee has reviewed reports from
internal audit on the following topics:
• Risk management, including the Group's three lines of
defence document
• The linkages between the internal audit programme and
identified risks
• Governance over the fit 4 the Future programme
• Returns management
• Credit marketing
• Pricing and margins
• FCA compliance
• Stock and retail audit outputs
• Financial crime, including whistleblowing, money laundering,
fraud and bribery and corruption
The committee also reviewed through discussion the
performance of internal audit.
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.
External auditors
In the 2015 Annual Report the Audit Committee confirmed
that it was undertaking a competitive tender to appoint new
external auditors. As part of the tender process a number of
firms were approached and from this a short list was selected.
Following presentations from the short listed firms the Audit
Committee recommended to the Board that KPMG be
appointed as the Company Auditors. The appointment
was confirmed by shareholders at the 2015 AGM.
The total fees paid to KPMG for the year ended 27 February
2016 were £0.8m, of which £0.5m was in respect of non-audit
services. Further details are set out in note 6 to the financial
statements.
The committee has reviewed through discussion 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 auditors. 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. KPMG LLP has, during the year provided non-audit
services in the form of pensions advisory work and regulatory
compliance. KPMG LLP was retained in relation to these
services prior to its appointment as the Group’s auditor.
It was considered appropriate that KPMG should complete
its work in relation to these matters. The committee is
satisfied that, in relation to these services, KPMG LLP has
taken actions to ensure that any potential conflicts of interest
are properly managed.
The committee is mindful of the attitude investors now have
to the auditors performing non audit services and of the new
guidance in this are which is operative for accounting periods
starting on or after 16 June 2016. Going forward, the
committee will ensure that fees for non audit services
performed by the auditors will not exceed 70% of aggregate
audit fees measured over a three year period.
61
N Brown Group plc Annual Report & Accounts 2016Governance NOMINATION AND GOVERNANCE COMMITTEE REPORT
Dear Shareholder
The objectives of the committee are to ensure the board
comprises individuals possessing the requisite skills, knowledge
and experience and to review and make recommendations to
the Board to ensure that the Company’s arrangements are
consistent with best practice corporate governance standards.
The nomination and governance committee was chaired by
me throughout the year up to the date of my resignation on
1 April 2016. The other members of the committee are currently
Andrew Higginson, Lesley Jones, Ron McMillan and Fiona Laird.
Fiona Laird took on the role as Chairman on 1 April 2016,
following my resignation.
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.
During the year the committee met on one occasion with full
attendance by all members. Activities undertaken during the
year included a review of the committee’s terms of reference,
the company’s succession planning and a board evaluation.
SIMON PATTERSON
Chairman of the Nomination and
Governance Committee
NOMINATION AND GOVERNANCE COMMITTEE
Member
Simon Patterson (Chairman)
(resigned 1 April 2016)
Andrew Higginson
Lesley Jones
Ron McMillan
Fiona Laird
No. of meetings
1/2
2/2
2/2
2/2
2/2
RESPONSIBILITIES
Identifying and nominating candidates to fill board
vacancies having evaluated the balance of skills,
knowledge and experience already on the board
and identified the capabilities required for a
particular appointment;
The 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") are appointed by the
Committee as external agents to assist in the discharge of
its duties and, following my resignation, they are assisting
the Committee with a comprehensive external candidate
search and selection process to find a suitable replacement
independent director with the appropriate mix of skills and
experience. The Company will continue to keep you updated
about any developments in this regard. MWM has no other
connection with the Company.
Simon Patterson
Chairman of the Nomination and Governance Committee
Succession planning, taking into account the skills
and expertise needed on the board in the future;
Reviewing the structure, size and composition
(including the skills, knowledge and experience)
of the board and making recommendations to
the board with regard to any changes; and
Reviewing the leadership needs of the Group to
ensure the continued ability of the organisation
to compete effectively in the marketplace.
PRIORITIES FOR 2017
Identifying and nominating a suitable candidate
to fill the non-executive director vacancy following
the resignation of Simon Patterson;
Identifying and developing the Group’s future
leaders; and
Reviewing and, where appropriate, recommending
changes to the induction and development
programme for directors.
62
N Brown Group plc Annual Report & Accounts 2016 Dear Shareholder
The Committee has enjoyed a busy and productive year.
We successfully launched the Group’s CSR Charter in 2015
to highlight our passion for fair fashion, entitled “Taking
Care of Our World”. The Charter is designed to align with
and implement our three CSR pillars and complement our
CSR Strategy.
Having completed a review of the Group’s CSR activities in
2014/5, we have this year successfully introduced a new three
year CSR strategy to align our CSR activities with the Group’s
Sourcing and Commercial strategies. This Strategy is designed
to embrace the three CSR pillars which make up our Charter –
“All People, One Planet, Every Product”.
We aim to align our ethical policies with our commercial
activities, integrating them with our buying strategies in
order to achieve tangible results and benefits.
In another major advancement, we now directly employ skilled
personnel on the ground in Bangladesh, allowing us to work
more closely and collaboratively with suppliers, NGO’s, and
government bodies.
Fiona Laird
Chairman of the CSR Committee
CSR COMMITTEE REPORT
FIONA LAIRD
Chairman of the CSR Committee
THE CSR COMMITTEE
Member
Fiona Laird (Chairman)
Angela Spindler (Chief Executive Officer)
Theresa Casey (Company Secretary)
Andrew York (Ethical Trading Manager)
No. of meetings
2/2
2/2
2/2
2/2
RESPONSIBILITIES
Reviewing and making recommendations to the
board concerning matters of Group policy on all
areas of Corporate Social Responsibility (“CSR”);
Reviewing and reporting on how we look after
our environment, source our products and work
with the community and our employees; and
Updating shareholders or a wider audience
as necessary on the work of the committee.
PRIORITIES FOR 2017
Investing in technology and people to better
enable us to monitor and report on improvements;
Publishing our anti-slavery statement; and
Identifying ways in which we can improve the
performance of our supply chain to promote
more sustainable ways of working.
63
N Brown Group plc Annual Report & Accounts 2016Governance Dear Shareholder
I am pleased to present the Directors’ Remuneration Report
for 2015/16 on behalf of the Board and to summarise the
remuneration committee's main activities during the year.
This report contains 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;
• An amended proposed forward looking Directors’
Remuneration Policy Report subject to a binding vote at
the 2016 annual general meeting; and
• An “Annual Report on Remuneration” which provides
shareholders with details of the remuneration that was
actually delivered to the company’s directors during 2015/16.
This final part of the report will be subject to an advisory vote
at the forthcoming annual general meeting.
The Group is currently undergoing a significant transformation
and is keen to ensure that the incentive arrangements remain
appropriate to successfully deliver this. As a result, over the year
the remuneration committee have undertaken a review of the
long term incentive arrangements in place and we are now
proposing to introduce a change to the performance conditions
for the LTIP. This is designed to focus participants on the success
of the current business strategy and transformation. This change
requires shareholder approval for a new Policy at the 2016 AGM.
There will be no other substantive changes made to the policy
although minor changes to take account of developments in
best practice and the passage of time will be made.
The Board believes that maintaining the highest standards of
corporate governance is essential to protecting shareholder
value; the alignment of remuneration with the forward looking
business strategy is an integral part of this process. As such
the Board has fully debated and approved the proposed
remuneration changes to ensure that the incentive plans in
place appropriately reward the delivery of our transformation
plan whilst ensuring alignment with shareholders. We have
also consulted with our top ten shareholders and investor
bodies on this change and have taken on board their feedback.
DIRECTORS’ REMUNERATION REPORT
FIONA LAIRD
Chairman of the Remuneration
Committee
THE REMUNERATION COMMITTEE
Member
Fiona Laird (Chairman)
Ron McMillan
Simon Patterson
No. of meetings
3/3
3/3
3/3
RESPONSIBILITIES
Setting and reviewing the remuneration policy and
determining the total individual remuneration package
for all executive directors, the company’s chairman
and other designated senior executives recommending
and monitoring the level and structure of remuneration
for senior management having regard to pay and
employment conditions across the Group;
Approving the design of, and determine targets for,
any performance-related pay schemes operated by
the company and approve the total annual payments
made under such schemes (in accordance with
provisions of the Code);
Reviewing the design of all share incentive plans
for approval by the board and shareholders;
Overseeing any major changes in employee benefits
structures throughout the company or Group; and
Ensuring that the company maintains contact as
required with its principal shareholders about
remuneration.
PRIORITIES FOR 2017
The committee will continue to foster a close
relationship with shareholders in developing the
remuneration policy.
The committee will oversee the introduction of
the proposed new incentive schemes as detailed
in this report.
The committee will oversee the implementation of new
requirements in relation to gender pay gap reporting.
64
N Brown Group plc Annual Report & Accounts 2016 Proposed new LTIP performance conditions
Over the year, the Remuneration Committee have undertaken a
detailed review of the appropriateness of the LTIP performance
conditions in the context of the Company’s transformation plan.
The current LTIP performance conditions are adjusted EPS
growth in excess of RPI (60% weighting) and relative TSR against
a peer group of retailers (40% weighting). As part of the review,
we have considered a range of performance measures and are
proposing the following changes to performance conditions
to better align participants with the current business strategy
and transformation:
not been met. The remainder of the normal annual bonus was
based on meeting corporate and personal objectives and the
committee determined that 27.9% of salary was payable to the
CEO and 20.7% of salary was payable to the CFO.
The committee reviewed the EPS and TSR performance of the
company in respect of the 2013 Long Term Incentive Share
Plan (“LTISP”) award. The company was ranked below median
against its peers at the end of the three year performance
period and did not meet the threshold EPS targets, as a result
of which the award lapsed.
• Removal of relative TSR as a performance measure for the
LTIP – it is our view that the use of relative TSR no longer
accurately reflects the performance of our business and is
an inappropriate way in which to incentivise participants
as it does not directly align participants with the delivery
of the strategic plan;
• Maintain adjusted EPS as a measure but reduce the
weighting from 60% to 50% - our rationale remains that EPS
accurately reflects the performance of our business and the
experience of our shareholders;
• Introduction of free cash flow measure (30% weighting) –
free cash flow aligns with the transformation agenda and is
commonly used by retailers to monitor the flows of cash in
and out of the business as well as providing an assessment
of underlying profitability; and
• Introduction of revenue measure (20% weighting) – revenue
growth is a critical KPI for the business and given that
earnings measures make up the majority of the plan, there
is an appropriate balance to encourage revenue growth
whilst maintaining margin.
The target ranges applying to each measure for awards to be
made in 2016 are set out in full on page 75.
The Committee works hard to ensure that targets are
appropriately stretching and motivating to management. In
particular, following consultation with shareholders, we have
listened to views about the maximum target under the EPS
metric and we propose to increase the point at which 100%
of this element of the LTIP is payable from the current level
of 7.5% annual growth in adjusted EPS in excess of RPI over
three financial years to 9% .
The Remuneration Committee strongly believes that the changes
will provide a stable footing for remuneration to support the
“Fit 4 the Future” strategy and achieve the following:
• Provide an incentive structure that supports the strategic
transformation of N Brown and incentivises participants;
• Provide a more coherent incentive arrangement aligned
to shareholder value;
• Balance the need to retain and motivate the Executive team
with sufficiently challenging targets; and
• Remain in line with market practice, the views of investor
bodies and the increasing use of multiple metrics to monitor
performance of executives.
Remuneration outcomes for 2015/16
Annual bonus is paid 60% in cash and 40% deferred as a
conditional award of shares that vest at the end of 3 years after
the grant. 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
Upon her appointment the CEO was granted two one-off share
awards as detailed in the 2013 Annual Report. Vesting of the
first, over shares worth £520,000 at the time of grant, was
subject to employment conditions over two years which were
met in the year. The second, over shares worth £1,040,000 at
the time of grant are subject to the achievement of strategic
objectives measured over a period of three years as detailed
in our 2015 Annual Report.
The committee reviewed the salaries of the executive directors
in April 2016 and determined that the CEO's salary should be
increased by 2%, in-line with most of the general workforce,
with effect from 1 October 2016. Following bench marking and
a review of the industry backdrop, the committee determined
that the CFO's salary should be increased by 5% with effect
from 1 May 2016.
Awards with a face value of 150% of salary in respect of Angela
Spindler and 125% of salary in respect of Craig Lovelace were
granted in July 2015. Vesting of these awards is subject to
growth in adjusted EPS in excess of RPI (60% weighting) and
relative TSR against a peer Group of retailers (40% weighting).
In 2016 Angela Spindler and Craig Lovelace will again receive
awards with a face value of 150% and 125% of salary
respectively. The award will be granted in July 2016 and will be
subject to the revised performance conditions set out above.
In May 2015, Craig Lovelace joined the company as Chief
Financial Officer on terms described in last year’s Remuneration
Report. Dean Moore stepped down as Finance Director in
April 2015. As was noted in last year’s report, in accordance
with the Remuneration Policy, Dean Moore has been paid the
balance of his notice period. Payments were phased over the
remaining 9 months of his contractual notice period and were
subject to an obligation to mitigate. After due consideration the
Committee determined that Dean Moore was a “good leaver”
and the terms in relation to “good leaver” therefore applied.
I will be available to answer any questions at the annual general
meeting in July and very much hope that you will support the
revised Directors’ Remuneration Policy 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 reviewing the suitability of
the LTIP performance conditions and generally with the day to
day tasks of the committee over the last year.
Fiona Laird
Chairman of the Remuneration Committee
65
N Brown Group plc Annual Report & Accounts 2016Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
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) 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 2016 annual general meeting will become effective
immediately for a period of three years.
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;
• 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 below summarises the committee's policy for the
main components of remuneration.
ELEMENT
Salary
PURPOSE AND LINK
TO STRATEGY
Reflects the performance
of the individual, their skills
and experience, and the
responsibilities of the role
Provides an appropriate
level of basic fixed income
OPERATION
MAXIMUM
PERFORMANCE ASSESSMENT
Salary increases will normally
be in line with increases
awarded to other employees
of the Group
None, although overall
individual performance is
a factor considered when
setting and reviewing salaries
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
Reviewed annually, taking
account of absolute Group
profitability and performance
against personal & corporate
objectives
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 October
66
N Brown Group plc Annual Report & Accounts 2016 OPERATION
MAXIMUM
PERFORMANCE ASSESSMENT
Chief executive: up to
150% of base salary p.a.
Other executive directors:
up to 125% of base salary p.a.
A significant majority of the
annual bonus will normally be
determined by reference to
performance against stretching
Group profit measures
ELEMENT
Annual
bonus
PURPOSE AND LINK
TO STRATEGY
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
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
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 dividends
equivalents on vested shares
Long-term
incentive
plan “LTIP”
Provides appropriate
incentives to reward
sustained success through
the achievement of
challenging business
targets, thereby
aligning the interests
of shareholders and
executives
Annual grants of performance
shares which vest, subject
to the Group’s performance,
measured over three years
Normal maximum of 150%
of salary
Exceptional circumstances
maximum of 200% of salary
Participation and all awards
are subject to the discretions
given to the committee in
the plan rules
Executives may also receive
dividend equivalents on
vested shares
The Committee retains the
discretion to subject the LTIP
awards to a holding period of
up to two years post vesting
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
The performance conditions
for awards granted in 2016/17
will be split between growth
in adjusted EPS in excess of
RPI (50% of the award), free
cashflow (30% of the award)
and revenue (20% of the
award). The committee will
have the discretion to change
the weightings of measures,
or use different measures for
subsequent awards so that they
are directly aligned with the
Group's strategic objectives
for each performance period
Targets are set by the
remuneration committee
prior to each grant and will be
based on a sliding scale. For
each measure, performance
below threshold results in zero
payment. Payment rises from
25% at threshold to 100% of
the maximum opportunity at
a maximum performance level
Includes a “clawback”
mechanism in the event of a
material misstatement of the
Group’s financial results or
individual misconduct
67
N Brown Group plc Annual Report & Accounts 2016Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
ELEMENT
All-
employee
share
schemes
(SAYE
and SIP)
PURPOSE AND LINK
TO STRATEGY
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
OPERATION
MAXIMUM
PERFORMANCE ASSESSMENT
The plans are subject to
statutory individual limits as
amended from time-to-time
or such lower limits as set by
the Group
These are broad based plans
and are not subject to
performance targets
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 the SIP
may also be offered
Pension
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
Other
benefits
Provides a competitive
package of benefits that
assists with recruitment and
retention
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
Main benefits currently
include private medical
insurance and a car
allowance. Executive
directors are eligible for
other benefits which are
introduced for the wider
workforce on broadly
similar terms
Any reasonable business
related expenses (including
tax thereon) can be
reimbursed if determined
to be a taxable benefit
Notes:
1. A description of how the company intends to implement the policy set out in this table for 2016/17 is set out in the Annual Report on Remuneration.
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. 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.
4. Copies of the LTIP rules are available on request from the company secretary.
5. LTISP awards granted prior to 2014 and LTIP awards prior to 2016 are subject to performance conditions described in the Annual Report on Remuneration.
6. 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.
7. Awards may be structured as nil cost options, conditional awards of shares and may be delivered through a Joint Share Ownership Plan structure.
68
N Brown Group plc Annual Report & Accounts 2016 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.
For 2016, the committee has decided to maintain a condition
based on growth in adjusted EPS and introduce free cashflow
and revenue measures for the LTIP. 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 non-recurring items such as unplanned
investments in IT infrastructure, acquisitions and/or disposals.
As the targets are set as a rate of growth in excess of RPI it
also takes into account inflation. The free cash flow measure
is defined as cashflow generated from operations excluding
receivables and is seen as a key measure for N Brown to
monitor the flows of cash in and out of the business as well as
providing an assessment of underlying profitability. Revenue
is a critical KPI for the business and management have clear
line of sight over this measure and given that earnings measures
make up the majority of the plan, there is an appropriate
balance to encourage revenue growth whilst maintaining
margin. The committee retains the discretion to change the
performance measures to reflect its strategy.
69
N Brown Group plc Annual Report & Accounts 2016Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
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.
In developing the changes proposed to the Policy from
2016 onwards, the Committee has engaged with its major
shareholders and representative bodies. This process of
engagement was still ongoing at the time this report
was prepared.
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. The committee may pay reasonable
outplacement and legal fees where considered appropriate.
Potential termination payments are summarised on page 71.
POTENTIAL REMUNERATION SCENARIOS FOR EXECUTIVE DIRECTORS
(£’000)
2015
2016
2,230
36%
36%
1,231
16%
32%
631
2,231
36%
36%
1,175
34%
34%
675
15%
30%
375
1,172
34%
34%
670
15%
30%
369
1,232
16%
32%
632
100%
51%
28%
100%
55%
32%
100%
51%
28%
100%
55%
32%
y
a
P
d
e
x
F
i
t
e
g
r
a
T
m
u
m
x
a
M
i
y
a
P
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e
x
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i
t
e
g
r
a
T
m
u
m
x
a
M
i
y
a
P
d
e
x
F
i
t
e
g
r
a
T
m
u
m
x
a
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i
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e
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a
T
m
u
m
x
a
M
i
Angela Spindler
Dean Moore
Angela Spindler
Craig Lovelace
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 October 2015 (£543,660 for the chief executive and £320,000 for the
finance director).
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 financial director and includes a car allowance and
health insurance.
6. Pension provision is 15% of salary for the chief executive and 10% for the finance director.
70
N Brown Group plc Annual Report & Accounts 2016
Name
Date of contract
Angela Spindler
1 July 2013
Craig Lovelace
6 January 2015
Potential termination
payment
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 normally 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 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 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.
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 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. A new employee may be granted normal annual PSP
awards in the first year of employment in addition to any awards
made with respect to prior employment being forfeited.
Such awards would normally be made shortly following an
appointment (assuming the company is not in a close period).
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 it 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. 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.
71
N Brown Group plc Annual Report & Accounts 2016Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
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.
Any reasonable business related expenses (including tax thereon)
can be reimbursed if determined to be a taxable benefit and
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
If there is a temporary yet material increase in the time commitment
required of non-executive directors, the Board may pay additional
fees on a pro-rata basis to recognise the additional workload
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
Andrew Higginson
Fiona Laird
Simon Patterson (resigned 1 April 2016)
Ronald McMillan
Lesley Jones
Date of contract/
letter of appointment
Date current term
commenced
Notice period
16 May 2007
1 October 1994
3 July 2012
1 March 2013
13 March 2013
10 April 2016
10 April 2016
3 July 2016
1 April 2016
N/A
1 March 2013
1 April 2016
30 September 2014
1 October 2014
6 months
3 months
6 months
3 months
3 months
3 months
3 months
72
N Brown Group plc Annual Report & Accounts 2016 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) Regulations 2008 (as amended), and 9.8.6R of the Listing Rules. The Annual
Report on Remuneration will be put to an advisory shareholder vote at the 2016 annual general meeting. The information on pages
74 to 79 has been audited.
The remuneration committee and its advisers
Members of the Remuneration Committee
Name
Fiona Laird
Ron McMillan
Simon Patterson
From
1 April 2013
1 April 2013
To
To date
To date
1 April 2013
1 April 2016
General Counsel and company secretary, Theresa Casey, 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 3 times during the year. See page 64 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, KPMG LLP (“KPMG”) and Pinsent Masons LLP provided advice
to the Group during the year which materially assisted the committee in relation to the closure to new accruals of the Group’s
defined benefit scheme. Neither firm was specifically appointed by the committee. KPMG who are also the Group’s auditors
were appointed to provide pension consultancy services in relation to the closure of the defined benefit scheme prior to their
appointment as auditors. KPMG and Pinsent Mason LLPs 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 Group 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 2015/16 were £40,512 (2014/15:
£100,365). The committee reviews the performance and independence of its advisers on an annual basis and it satisfied that the
advice received is objective and independent.
The advisors' terms of engagement are available on request from the Company Secretary.
73
N Brown Group plc Annual Report & Accounts 2016Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
Application of the remuneration policy for 2016/17
Base salary
The executive directors' salaries were reviewed in April 2016. The salary increase takes effect from 1 October 2016 for the CEO
and 1 May 2016 for the CFO and are set out below. The salary increases are in line with most of the general workforce.
Name
Angela Spindler
Craig Lovelace
Salary as at
1 October 2015
Salary as at
1 October 2016
£533,000
£320,000
£543,660
Salary as at
1 May 2016
£336,000
Increase
2%
5%
Fees for the chairman and non-executive directors
As detailed in the remuneration policy, the Group 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:
Chair’s fees
Other non-executive directors’ base fee
Senior independent non-executive director
Chair of a committee’s fees
Fees as at
1 March 2015
£250,000
£47,000
£5,000
Fees as at
1 March 2016
£250,000
£47,000
£5,000
£5,000 – £8,000
£5,000 – £8,000
Increase
0%
0%
0%
0%
Annual bonus plan performance targets
The annual bonus plan for 2016/17 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 2015/16, 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
Craig Lovelace
70%
20%
10%
70%
20%
10%
The personal objectives of the executive directors for 2015/2016 were as follows:
Angela Spindler
Craig Lovelace
Develop a Financial Services business we can be proud of
Build a relationship of support and trust with the CEO
Deliver Fit 4 the Future project to plan
Ensure integrity of reporting internal and external numbers
Build digital capability
Focus on meeting city expectations
Enhance reporting to provide more insightful financial information
for commercial decision making
Assess and address any gaps in finance function capability
74
N Brown Group plc Annual Report & Accounts 2016 Long term incentive targets
Awards granted to the executive directors under the LTIP in 2016/17 will be subject to three metrics, namely growth in adjusted
EPS, free cashflow and revenue. The performance targets are as follows:
Percentage of each
part of the award that
will vest
Annual growth in adjusted
EPS in excess of RPI over
3 financial years
(50% of award)
Free cashflow (30% of award)
is defined as cashflow
generated from operations
excluding receivables.
Targets are cumulative over
3 financial years
Annual growth in total
revenue over 3 financial
years (20% of award)
Below threshold
Threshold
Maximum
0%
25%
100%
Less than RPI + 2.5%
Less than £370m
Less than 5% CAGR
At least RPI +2.5%
At least RPI + 9.0%
At least £370m
At least £450m
At least 5% CAGR
At least 9% CAGR
For performance that is between the threshold and maximum levels awards vest on a straight-line basis.
Directors' emoluments (Audited)
Salaries &
fees
£000's
Taxable
benefits1
£000's
Year
Bonus
(cash and
deferred
shares)
£000's
LTISP and
Matching
Share
Awards
£000's
Pension
and
salary
supplement
£000's
Other3
£000's
Total
£000's
Executives (salaries)
Angela Spindler
2015/16
2014/15
Craig Lovelace – appointed 11 May 2015
2015/16
Dean Moore – resigned 30 April 2015
Non-executive’s (fees)
Lord Alliance of Manchester CBE2
Andrew Higginson
Ivan Fallon
2014/15
2015/16
2014/15
2015/16
2014/15
2015/16
2014/15
2015/16
2014/15
John McGuire – resigned 1 April 2014
2015/16
Fiona Laird
Anna Ford – resigned 22 July 2014
2014/15
2015/16
2014/15
2015/16
2014/15
Simon Patterson – resigned 1 April 2016
2015/16
Ron McMillan
Lesley Jones
2014/15
2015/16
2014/15
2015/16
2014/15
533
530
258
–
133
353
47
47
250
250
55
55
–
5
55
55
–
22
55
55
60
60
47
19
18
19
14
–
3
17
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
152
–
56
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
473
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
80
79
9
–
4
42
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
9
–
295
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Notes:
1. Taxable benefits comprise private medical cover and car allowance.
2. Lord Alliance has waived his non-executive director’s fee.
3. Dean Moore received £295,248 in respect of payment in lieu of contractual notice. Craig Lovelace received £9,434 in respect of relocation expenses.
783
728
346
–
435
885
47
47
250
250
55
55
–
5
55
55
–
22
55
55
60
60
47
19
75
N Brown Group plc Annual Report & Accounts 2016Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
Total pension entitlements (Audited)
Angela Spindler receives a cash supplement of 15% of salary in lieu of pension contributions.
Dean Moore was a member of the contributory defined contribution pension scheme (“scheme”) and received matching
contributions from the company up to a maximum of 6% of salary. In addition, he received 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 £19,555
(2015, £21,745).
Craig Lovelace is a member of the contributory defined contribution pension scheme (“scheme”). He receives contributions from
the company up to 10% salary with an amount up to his personal allowance being paid by the company into the scheme and the
balance being paid as cash in lieu of pension contribution. Contributions paid by the company into the scheme during the year
in respect of Craig Lovelace amounted to £16,800 (2015, N/A).
Details of variable pay earned in the year
Annual bonus (Audited)
The table below gives details of executive directors’ bonuses for 2015/16:
Director
Angela Spindler
Craig Lovelace
Weighting (as a
percentage of
maximum
bonus
opportunity)
Performance
required
Threshold (0%
payout)
Maximum
(100% payout)
Actual
Performance
Payout %
of salary
70%
20%
10%
70%
20%
10%
£88m
£94m
£84.5m
Nil
£88m
£94m
43.1%
12.9%
100%
£84.5m
15%
Nil
43.1%
10.8%
79%
9.9%
Measure
Group Profit
Corporate
Objectives
Personal
objectives
Group Profit
Corporate
objectives
Personal
objectives
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 objectives are considered to be commercially sensitive.
Long term share awards (Audited)
Details of the performance conditions for the relevant awards are set out below:
Grant
Condition
Performance Period Threshold target
Stretch target
Actual performance
Vesting
2013 matching
DABs award
EPS
2012 LTISP award TSR
2 years to 28
February 2015
3 years to 28
February 2015
100% vests if growth in EPS
at least equal to growth in RPI
N/A
25% vests at median
performance
100% vests at
upper quartile
Growth in EPS below
growth in RPI
15th out of 20
0%
0%
76
N Brown Group plc Annual Report & Accounts 2016 Summary of awards granted in 2015/16 (Audited)
The table below provide details of the long-term incentive awards granted to executive directors during the year.
Type of
Executive
award Condition
Angela
Spindler
LTIP 60% EPS
40% TSR
% of
salary
Face
value
Number
of shares
Share
price at
grant
150% £799,500 238,087 335.8p
Craig
Lovelace
LTIP 60% EPS
40% TSR
125% £400,000
119,117 335.8p
Performance Period
Threshold target
Stretch target
EPS: 3yrs to end of
financial year 2017/18
TSR: 3yrs to June
2018
EPS: 0% vests if EPS
growth compounded
annually less than 2.5%
TSR: 25% vests at
median performance
EPS: 3yrs to end of
financial year 2017/18
TSR: 3yrs to June
2018
EPS: 0% vests if EPS
growth compounded
annually less than 2.5%
TSR: 25% vests at
median performance
EPS: 100% vests if
EPS growth
compounded annually
greater than 7.5%
TSR: 100% vests at
upper quartile
EPS: 100% vests if
EPS growth
compounded annually
greater than 7.5%
TSR: 100% vests at
upper quartile
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
Craig Lovelace
Dean Moore
28 February
2015
Awarded
during the year
Lapsed during
the year
110,169
220,338
151,834
185,198
–
–
–
–
–
–
238,087
119,117
132,777
81,023
102,945
11,107
2,963
–
–
–
–
–
–
(132,177)
(11,107)
Vested and
exercised
during the year
27 February
2016
Date granted
(110,169)
–
Aug 2013
220,338
Aug 2013
151,834
185,198
Aug 2013
Aug 2014
238,087
Aug 2015
119,117
Aug 2015
–
July 2012
81,023
June 2013
102,945
Aug 2014
–
–
–
–
–
–
–
–
–
–
Type of award
Recruitment
Recruitment
LTISP
LTIP
LTIP
LTIP
LTISP
LTISP
LTIP
–
May 2013
Matching share award
2,963
May 2014
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.
77
N Brown Group plc Annual Report & Accounts 2016Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
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 officer 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:
Owned shares (Number of shares)
Other interests in shares
Angela Spindler
Craig Lovelace
Dean Moore
Lord Alliance of Manchester
CBE
Andrew Higginson
Ivan Fallon
Ron McMillan
Fiona Laird
Simon Patterson
Lesley Jones
28 February
2015
27 February
2016
–
–
156,175
100,438
–
–
95,047,966 95,047,966
91,331
101,009
11,425
11,425
–
–
–
–
10,000
10,000
–
–
Value of shares
counting
towards
guideline
holding (as a
% of salary)
Outstanding
awards
subject to
performance
conditions
Outstanding
awards not
subject to
performance
conditions
Guideline
met?
Outstanding
Share
options
Total as at
27 February
2016
61%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
795,457
119,117
186,931
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
895,895
119,117
186,931
– 95,047,966
–
–
–
–
–
–
101,009
11,425
–
–
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 27 February and 30 April 2016.
Termination payments (Audited)
Dean Moore stepped down as Finance Director on 30 April 2015. After due consideration the committee determined that Dean
Moore was a “good leaver” and the terms below in relation to “good leaver” will therefore apply.
Performance graph and table
The graph shows the company’s ten 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 Analysis of chief executive’s pay over 6 years.
Analysis of Chief Executive's pay over 7 years
2009/10
2010/11
2011/12
2012/13
2013/14
2013/14
2014/15
2015/16
Alan White
Angela Spindler
Total remuneration (£'000)
Annual bonus (% of maximum)
Long term share vesting (% of maximum)
2,438
96.9%
100%
3,738
90.6%
100%
2,734
38.7%
100%
1,780
71.4%
100%
2,734
15.8%
85%
1,364
83.2%
N/A
728
0%
N/A
783
27.9%
N/A
78
N Brown Group plc Annual Report & Accounts 2016 TOTAL SHAREHOLDER RETURN PERFORMANCE: N BROWN VS FTSE 250
(rebased to 100)
500
400
300
200
100
Feb 06
Feb 07
Feb 08
Feb 09
Feb 10
Feb 11
Feb 12
Feb 13
Feb 14
Feb 15
Feb 16
N Brown Group plc
FTSE mid-250 Index
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 2014/15 and 2015/16 financial years, compared to that of
the average for all employees of the Group.
Chief Executive
Average of other employees
Salary
+2.0%
+2.0%
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)
2016
71.3
40.2
The figures relate to amounts payable in respect of the relevant financial year.
Shareholder voting on the directors' remuneration report at the 2015 annual general meeting
Annual Report on Remuneration
% Change from 2014/15 to 2015/16
Benefits
Annual bonus
nil
nil
2015
74.2
40.0
nil
nil
% Change
–3.9%
+0.5%
For
Against
Total votes cast (excluding withheld votes)
Votes withheld1
Total votes cast (including withheld votes)
Total number of votes
% of votes cast
222,910,254
3,478,226
226,388,480
21,182
226,409,662
98.45%
1.54%
99.9%
0.01%
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 2 June 2016.
Signed on behalf of the board
Fiona Laird
Chairman of the Remuneration Committee
79
N Brown Group plc Annual Report & Accounts 2016Governance
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF N BROWN GROUP PLC ONLY
Opinions and conclusions arising from our audit:
1 Our opinion on the financial statements is unmodified
We have audited the financial statements of N Brown Group PLC for the year ended 27 February 2016 set out on pages 84 to 118.
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 27 February
2016 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as
adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with UK Accounting Standards, including
FRS 101 Reduced Disclosure Framework; 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.
2 Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect
on our audit were as follows:
Our response
Our audit procedures included:
We critically assessed the Group’s definition of “impaired”
customer receivables against the requirements of the
relevant accounting standards, including evidence of the
Group’s experience of customers with comparable
characteristics.
We compared the assumptions made in respect of the
probabilities of default against our understanding of the
Group as well as our knowledge of market counterparts,
and consistency with the historic internal data available.
We assessed the assumptions made in respect of timing
and value of cash flows for all segments of the model
(including customers in arrears and subject to revised
payment terms) against historic internal data available.
We assessed the accuracy of the allowance for doubtful debt
model (including for prior year restatements), with assistance
from our IT specialists, by reviewing the detail of the model,
and compared the methodology used to our interpretation
of the requirements of the relevant accounting standards.
This included testing of the completeness and accuracy of
data through testing a sample of customer data back to the
source system.
We also considered the adequacy of the Group’s
disclosures in relation to the allowance for doubtful debts
for compliance with the relevant accounting policies.
Allowance for
doubtful debts
£97.6m
(2015, £100.9m)
Refer to page 60
(Audit Committee
Report), pages 88,
91 and 93
(accounting
policy), pages 101
to 106 (financial
disclosures)
The Risk
The allowance for doubtful debts requires the Directors
to assess which accounts are considered impaired. This
assessment is particularly judgmental in the case of
customers in early arrears or under revised payment
terms and may have a material impact upon the
provision. The large percentage of the Group’s
customers that are subject to revised payment terms,
in particular where interest has been temporarily waived
make the impact of this judgment more significant for
N Brown.
The Group has altered the population considered for
doubtful debts to include all accounts with revised
payment terms, resulting in a prior year restatement
within the current year financial statements.
The other key judgements are in respect of the
probability of default and the timing and value of
cash flows.
To assess the probability of default, the Group estimates
a customer’s likelihood of entering default based
upon the experience of customers with comparable
characteristics such as arrears status and payment
history. These estimates are inherently uncertain
because they are reliant upon historic, non-predictive
data and are impacted by the Group’s segmentation of
customers with comparable impairment characteristics.
The timing and value of cash flows are estimated based
on the historical cash receipts and write-offs incurred for
customers with comparable arrears status and payment
history, interest and fees charged and debt sale rates.
These estimates are inherently uncertain because of
the long-term nature of the cash receipts and the
exposure of the portfolio to the credit performance
of many individual customers.
Due to the quantity of data involved in assessing all of
these elements of the provision, it is a complex model
for which the completeness and accuracy of data inputs
and the accuracy of calculations are, in themselves, risks.
80
N Brown Group plc Annual Report & Accounts 2016 Regulatory risk
Refer to page 60
(Audit Committee
Report), page 93
(accounting policy
and financial
disclosures)
The Risk
The Group’s provision of credit services to customers
mean that it operates within a regulated environment
which requires the Group to comply with the
requirements of the Financial Conduct Authority (FCA)
and maintain FCA permissions. These permissions could
be suspended or withdrawn by the FCA, significantly
impacting the Group’s ability to continue with its current
business model.
The requirement for FCA permissions includes the fair
treatment of customers, protections for vulnerable
customers and appropriate and clear disclosure of terms
to customers and, given the current context of media
coverage and large scale customer redress provisions
across the financial services industry, there is a risk that
any non-compliance with regulations could trigger
significant customer redress programmes or lead to
material fines from the FCA.
Taxation
Provisions
Refer to page 60
(Audit Committee
Report), pages 91
and 93 (accounting
policy), pages 97
to 98 and 106
(financial
disclosures)
The outcome of a number of open VAT and corporation
taxation positions, some of which are proceeding to
litigation, is uncertain and as such have required the
Directors to make significant judgements and estimates
in relation to the likely outcome of these tax issues and
exposures. There is a risk that the judgements made by
the Directors, and therefore the amounts recorded in the
financial statements will differ from any final settlements
agreed with HMRC. Given the significant value and
judgmental nature of this provisioning, this is considered
to be an area of significant audit risk.
Carrying value
of inventories:
£101.5m
(2015, £94.8m)
Refer to page 60
(Audit Committee
Report), pages 91
and 93 (accounting
policy), page 100
(financial
disclosures)
The Group has significant levels of inventory and
judgements are taken by the Group with regard to the
categorisation of inventory as current and non-current
at year end and the forecast disposal plans when
estimating the inventory provision. Furthermore,
the seasonal nature of a retail business and changes
in customer preferences and spending patterns,
primarily driven by the wider fashion industry,
introduce uncertainty over the recoverability of
inventories. Given the level of judgements and
estimates involved this is considered to be a key
audit risk.
Our response
Our audit procedures included:
We assessed the areas of non-compliance and customer
complaints identified and documented by the Group,
against the wider industry and discussed with management
the financial implications of these issues. This included
estimation of the likely impact of any known areas of
non-compliance until the resolution of this issue.
We assessed the entity-wide governance processes
for the identification of regulatory issues and areas of
non-compliance.
We reviewed correspondence with the regulators
and assessed customer complaints for indications of
significant or non-identified areas of customer detriment
that may require provision in the financial statements.
Our audit procedures included, with assistance from our
own tax specialists, challenging the Directors’ assessment
of the provisions required by:
Inspecting correspondence with HMRC and evaluating the
Directors’ interpretation of this correspondence by forming
our own expectations of the provisions required in the
financial statements. This evaluation was based on our
knowledge of the business and experience of the industry
in which it operates, together with our knowledge and
experience of the application of the relevant legislation
by authorities and courts.
Specifically in relation to VAT, we inspected legal counsel
opinion received by the Directors in relation to the Group’s
likelihood of success in each of the open VAT exposures
and critically assessed whether amounts recorded in the
financial statements were consistent with this legal opinion.
Our audit procedures included comparing inventory levels,
by season, to sales data to test whether slow moving and
obsolete inventories had been appropriately identified.
We considered sales of inventories during the year,
in particular of inventory that has been held for greater
than one year and clearance categories, and compared
these sales to the Group’s forecast disposal
plan at the period end date.
We utilised data analytics to test the adequacy of 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. We also considered whether
the Group’s accounting policies had been consistently
applied and the adequacy of the Group’s disclosures in
respect of the judgement and estimation made in respect
of inventory provisioning.
81
N Brown Group plc Annual Report & Accounts 2016Financial statements INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF N BROWN GROUP PLC ONLY
CONTINUED
Capitalised
software and
development
costs: £116.0m
(2015, £89.4m)
Refer to page 60
(Audit Committee
Report), pages 90
and 93 (accounting
policy), pages 99
to 100 (financial
disclosures)
The Risk
The Group has incurred significant software and
development project costs in the year in respect
of the Fit 4 Future project, a significant systems
infrastructure programme. The Group capitalises
both internal and external costs to the extent that
future economic benefits are expected to be
generated by the project. This requires judgement
as to whether the costs incurred are capital in
nature, whether the project will be completed
successfully and, whether sufficient revenue and
profitability will be generated to recover the costs
capitalised. The Directors also apply judgment as
to whether the software and development costs
incurred are for technically feasible systems
and websites. Given the significant value and
judgmental nature of the classification of software
and development assets, between operational
and capital expenditure, this is considered to be
an area of significant audit risk.
Our response
For the key inputs into the project’s profitability
forecast, specifically revenue growth, cost reduction
and the timing and amount of capital expenditure,
we critically assessed the reasonableness of the
assumptions with reference to internal and external
data from Project and Infrastructure leads, Board-
approved capital spending forecasts, an independent
financial benefits review and knowledge gained
from performing our other audit procedures. We
challenged the Group’s assessment of the technical
feasibility of the different project releases based on
our discussions with key project leads and reviews
of detailed business cases produced internally and
externally, outlining the proposed features and
expected completion dates. We assessed whether
costs had been appropriately capitalised, by reference
to the recognition criteria of the applicable accounting
standards, for a sample of costs agreed to source
documentation. We evaluated the adequacy of the
Group's disclosures in respect of the judgements
made by management that economic benefit will
be derived from the projects.
3 Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £3.8 million, determined with reference to a benchmark of
Group profit before tax, normalised to exclude exceptional items relating to reorganisation costs and the write down of stock
following the closure of clearance stores, of £17.2 million, of which it represents 4.3%.
We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.2 million, in addition
to other identified misstatements that warranted reporting on qualitative grounds.
The Group team performed the audit of the Group as if it was a single aggregated set of financial information. The audit was
performed using the materiality level set out above and covered 100% of total Group revenue, Group profit before tax, and total
Group assets.
4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
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.
5 We have nothing to report on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to:
• the Directors’ Viability statement on pages 54 and 55, concerning the principal risks, their management, and, based on that,
the Directors’ assessment and expectations of the Group’s continuing in operation over the three years to 2019; or
• the disclosures in note 2 of the financial statements concerning the use of the going concern basis of accounting.
82
N Brown Group plc Annual Report & Accounts 2016 6 We have nothing to report in respect of the matters on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have
identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial
statements, a material misstatement of fact, or that is otherwise misleading.
In particular we are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired during our audit and the Directors’ statement
that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group’s position and performance, business model and
strategy; or
• the Audit Committee Report does not appropriately address matters communicated by us to the Audit Committee.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
• the Directors’ statements, set out on pages 54 and 55, in relation to going concern and longer-term viability; and
• the part of the Corporate Governance Statement on pages 56 to 58 relating to the company’s compliance with the eleven
provisions of the 2014 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set out on page 55, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an
audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This
report is made solely to the company’s members as a body and is subject to important explanations and disclaimers regarding our
responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as
if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and
the basis of our opinions.
Stuart Burdass (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 St Peter’s Square
Manchester
M2 3AE
2 June 2016
83
N Brown Group plc Annual Report & Accounts 2016Financial statements CONSOLIDATED INCOME STATEMENT
For the 52 weeks ended 27 February 2016
Note
Continuing operations
Revenue
Operating profit
Investment income
Finance costs
Profit before taxation and fair value adjustments to
financial instruments
Fair value adjustments to financial instruments
Profit before taxation
Taxation
Profit for the year from continuing operations
Loss for the period from discontinued operations
Profit attributable to equity holders of the parent
Adjusted earnings per share from continuing
operations
Basic
Diluted
Earnings per share from continuing operations
Basic
Diluted
Earnings per share from continuing and
discontinued operations
Basic
Diluted
3
6
9
10
20
11
5
13
13
13
2016
Before
exceptional
items
£m
2016
Exceptional
items
(note 7)
£m
2015
Before
exceptional
items
(restated see
note 2)
£m
2016
Total
£m
2015
Exceptional
items
(note 7)
£m
2015
(restated
see note 2)
£m
866.2
96.4
–
(8.1)
88.3
1.1
89.4
(20.7)
68.7
(0.6)
68.1
–
866.2
(17.2)
79.2
–
–
(17.2)
–
(17.2)
3.4
(13.8)
–
(13.8)
–
(8.1)
71.1
1.1
72.2
(17.3)
54.9
(0.6)
54.3
24.02p
23.99p
19.45p
19.43p
19.23p
19.22p
837.2
95.8
0.1
(7.7)
88.2
2.7
90.9
(19.5)
71.4
(10.4)
61.0
–
(12.6)
–
–
(12.6)
–
(12.6)
2.7
(9.9)
–
(9.9)
837.2
83.2
0.1
(7.7)
75.6
2.7
78.3
(16.8)
61.5
(10.4)
51.1
24.61p
24.53p
21.84p
21.77p
18.15p
18.09p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 52 weeks ended 27 February 2016
Profit for the period
Items that will not be reclassified subsequently to profit or loss
Actuarial gains on defined benefit pension schemes
Tax relating to items not reclassified
Items that may be reclassified subsequently to profit or loss
Exchange gain/(loss) on translation of foreign operations
Total comprehensive income for the period attributable to equity holders of the parent
Note
30
11
2015
(restated see
note 2)
£m
51.1
1.4
(0.3)
1.1
(0.9)
51.3
2016
£m
54.3
12.5
(2.5)
10.0
0.8
65.1
84
N Brown Group plc Annual Report & Accounts 2016 CONSOLIDATED BALANCE SHEET
As at 27 February 2016
Non-current assets
Intangible assets
Property, plant & equipment
Retirement benefit surplus
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax asset
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 attributable to equity holders of the parent
Share capital
Share premium account
Own shares
Foreign currency translation reserve
Retained earnings
Total equity
2015
(restated
see note 2)
£m
2014
(restated
see note 2)
£m
2016
£m
Note
14
15
30
22
17
18
20
26
19
23
20
19
30
22
24
25
124.9
76.7
10.8
3.9
98.3
70.5
–
7.2
73.3
63.2
–
9.7
216.3
176.0
146.2
101.5
553.4
5.3
2.2
45.3
707.7
924.0
94.8
549.5
–
1.1
40.4
685.8
861.8
–
(7.0)
(99.7)
(108.9)
–
–
(99.7)
608.0
–
(4.1)
(120.0)
565.8
89.9
536.6
–
–
45.3
671.8
818.0
(9.0)
(98.0)
(1.6)
(9.6)
(118.2)
553.6
(335.0)
(280.0)
(250.0)
–
(13.3)
(348.3)
(448.0)
476.0
31.3
11.0
(0.2)
1.8
432.1
476.0
(3.3)
(8.5)
(291.8)
(411.8)
450.0
31.3
11.0
(0.3)
1.0
407.0
450.0
(4.2)
(8.6)
(262.8)
(381.0)
437.0
31.3
11.0
(0.5)
1.9
393.3
437.0
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the board of directors and
authorised for issue on 2 June 2016.
They were signed on its behalf by:
Craig Lovelace
CFO and Executive Director
85
N Brown Group plc Annual Report & Accounts 2016Financial statements CONSOLIDATED CASH FLOW STATEMENT
For the 52 weeks ended 27 February 2016
Net cash from operating activities
Investing activities
Proceeds on disposal of property, plant and equipment
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 increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Note
2015
(restated see
note 2)
£m
73.1
2016
£m
64.5
–
(12.1)
(46.1)
–
(58.2)
(9.6)
(40.2)
48.0
(0.4)
0.8
(1.4)
4.9
40.4
45.3
0.1
(14.9)
(44.6)
0.1
(59.3)
(7.4)
(40.0)
28.0
(0.2)
0.9
(18.7)
(4.9)
45.3
40.4
26
RECONCILIATION OF OPERATING PROFIT TO NET CASH FROM OPERATING ACTIVITIES
For the 52 weeks ended 27 February 2016
Operating profit from continuing operations
Operating loss from discontinued operations
Adjustments for:
Depreciation of property, plant and equipment
Loss/(gain) on disposal of property, plant and equipment
Amortisation of intangible assets
Impairment of intangible assets
Share option charge
2015
(restated
see note 2)
£m
83.2
(11.0)
8.0
(0.1)
15.0
8.0
2.1
2016
£m
79.2
(0.7)
6.0
0.7
19.2
–
2.2
Operating cash flows before movements in working capital
106.6
105.2
Increase in inventories
Decrease/(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
(6.7)
0.9
(12.2)
(1.7)
86.9
(22.4)
64.5
(4.9)
(11.9)
5.1
0.3
93.8
(20.7)
73.1
86
N Brown Group plc Annual Report & Accounts 2016
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
capital
(note 24)
£m
Share
premium
£m
Own
shares
(note 25)
£m
Foreign
currency
translation
reserve
£m
Retained
earnings
£m
Changes in equity for the 52 weeks ended 27 February 2016
Balance at 28 February 2015 as previously reported
Effect of amendment to IAS 39
Balance as at 28 February 2015 – restated see note 2
31.3
–
31.3
11.0
–
11.0
Comprehensive income for the period
Profit for the period
Other items of comprehensive income for the period
Total comprehensive income for the period
Transactions with owners recorded directly in equity
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
Total contributions by and distributions to owners
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 27 February 2016
31.3
11.0
Changes in equity for the 52 weeks ended 28 February 2015
Balance as at 1 March 2014 as previously reported
Effect of amendment to IAS39
Balance as at 1 March 2014 – restated see note 2
31.3
–
31.3
11.0
–
11.0
Comprehensive income for the period
Profit for the period as previously reported
Effect of amendment to IAS 39
Profit for the period - restated see note 2
Other items of comprehensive income for the period
Total comprehensive income for the period
Transactions with owners recorded directly in equity
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
Total contributions by and distributions to owners
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 28 February 2015 – restated see note 2
31.3
11.0
(0.3)
–
(0.3)
–
–
–
–
(0.4)
0.5
–
–
–
0.1
(0.2)
(0.5)
–
(0.5)
–
–
–
–
–
–
(0.2)
0.4
–
–
–
0.2
(0.3)
Total
£m
496.6
(46.6)
450.0
54.3
10.8
65.1
(40.2)
(0.4)
0.5
0.3
2.2
(1.5)
(39.1)
1.0
–
1.0
–
0.8
0.8
–
–
–
–
–
–
–
453.6
(46.6)
407.0
54.3
10.0
64.3
(40.2)
–
–
0.3
2.2
(1.5)
(39.2)
1.8
432.1
476.0
1.9
–
1.9
–
–
–
(0.9)
(0.9)
–
–
–
–
–
–
–
1.0
441.6
(48.3)
393.3
485.3
(48.3)
437.0
49.4
1.7
51.1
1.1
52.2
(40.0)
–
–
0.5
2.1
(1.1)
(38.5)
407.0
49.4
1.7
51.1
0.2
51.3
(40.0)
(0.2)
0.4
0.5
2.1
(1.1)
(38.3)
450.0
87
N Brown Group plc Annual Report & Accounts 2016Financial statements 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 on the inside cover at the
end of the report. The nature of the Group’s operations
and its principal activities are set out on page 52 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 financial statements for the 52 weeks ended
27 February 2016 have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted
for use in the EU. The Company has elected to prepare its
parent company financial statements in accordance with
FRS101, these are presented on pages 112 to 118.
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
No standards have been adopted that affect the reported
results or financial position.
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):
• Amendments to IFRS 10, IFRS 12 and IAS 28 (Dec 2015):
Investment Entities: Applying the Consolidation Exception.*
• Amendments to IAS 1 (Dec 2015): Disclosure Initiative.
• Annual Improvements to IFRSs: 2010–2012 Cycle (Sept 2014)
• Annual Improvements to IFRSs: 2012–2014 Cycle.
• Amendments to IFRS 10 and IAS 28 (Sept 2014): Sale or
Contribution of Assets between an Investor and its
Associate or Joint Venture.*
• Amendments to IAS 27 (Aug 2014): Equity Method in
Separate Financial Statements.
• IFRS 9: Financial Instruments.*
• Amendments to IAS 16 and IAS 41 (Jun 2014): Agriculture:
Bearer Plants.
• IFRS 15: Revenue from Contracts with Customers.*
• Amendments to IAS 16 and IAS 38 (May 2014): Clarification
of Acceptable Methods of Depreciation and Amortisation.
• Amendments to IAS7: Disclosure initiative.*
• Amendments to IFRS 11 (May 2014): Accounting for
Acquisitions of Interests in Joint Operations.
• IFRS 14: Regulatory Deferral Accounts.*
• IFRS 16 Leases *
88
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.
• Management are still assessing the impact of the introduction
of IFRS 15 and IFRS 16 on the financial statements of future
periods.
* Not yet endorsed by the EU
Discontinued operations
Discontinued operations are those which management identify
separately and where notice has been given that they are to be
discontinued. As a result of notice being given regarding the
closure of Gray & Osbourn in 2015 as detailed in note 5, both the
current year and prior year income statement exclude the results
of Gray & Osbourn under continuing activities.
2 Accounting policies
Basis of accounting
The financial statements are prepared on the historical cost
basis except that derivative financial instrument are stated at
their fair value. The principal accounting policies adopted are
set out as follows.
Accounting period
Throughout the accounts, the directors report and financial
review, reference to 2016 means at 27 February 2016 or the
52 weeks then ended; reference to 2015 means at 28 February
2015 or the 52 weeks then ended unless otherwise stated.
Restatement
International accounting statement 39 ("IAS39"), in relation to
the provisioning for bad and doubtful receivables, was adopted
by the Group in 2005 at it's introduction. Deloitte, as the
Group's auditors, consistently confirmed that the Group's
financial statements were appropriately prepared in accordance
with IAS39.
Following the appointment of KPMG as auditor's during the
year ended 27 February 2016, the Group determined that it was
necessary to make a change in the technical interpretation of
IAS39. This in no way affects the way in which the Group has
operated or will operate its business. The revised interpretation
of IAS39 relates to the judgement over whether a credit loss has
been incurred when interest or other charges are temporarily
waived, even for customers who ultimately repay their full
capital balance. For customers who find themselves in financial
difficulties, the Group may offer revised payment terms to
support the customer, encourage rehabilitation and thereby
maximise long term returns. For customers under such payment
arrangements where interest and/or other charges are waived,
the Group's financial statements now reflect an impairment
provision for the foregone interest income upfront and the Group
is recognising interest or other income over time on the impaired
balances. Previously, in focusing primarily on the underlying
cashflow risk to the business, and in arriving at provisions against
such balances, the Group was focused upon the capital element
of receivables and did not consider loss of interest as an
impairment loss.
N Brown Group plc Annual Report & Accounts 2016 The impact of the prior year adjustments to reflect the revised interpretation of IAS39 is as follows:
Income statement
Revenue
Operating profit
Other
Profit before taxation
Taxation
Profit from continuing operations
Loss from discontinued operations
Profit attributable to equity holders of the parent
2015
As published
£m
2015
Adjustments
£m
2015
As restated
£m
818.0
19.2
837.2
81.2
(4.9)
76.3
(16.5)
59.8
(10.4)
49.4
2.0
–
2.0
(0.3)
1.7
–
1.7
83.2
(4.9)
78.3
(16.8)
61.5
(10.4)
51.1
The impact of the restatement is to increase both basic and diluted earnings per share by 0.6 pence in FY15.
Balance sheets
Trade and other receivables
Deferred tax asset
Other
Total assets
Current tax liability
Other
Total liabilities
Net assets
Other
Retained earnings
Total equity
2015
As published
£m
2015
Adjustments
£m
2015
As restated
£m
2014
As published
£m
2014
Adjustments
£m
2014
As restated
£m
609.9
3.2
305.1
918.2
(13.9)
(407.7)
(421.6)
496.6
43.0
453.6
496.6
(60.4)
549.5
4.0
–
(56.4)
9.8
–
9.8
(46.6)
–
(46.6)
(46.6)
7.2
305.1
861.8
(4.1)
(407.7)
(411.8)
450.0
43.0
407.0
450.0
599.0
4.8
271.7
875.5
(18.8)
(371.4)
(390.2)
485.3
43.7
441.6
485.3
(62.4)
536.6
4.9
–
(57.5)
9.2
–
9.2
(48.3)
–
(48.3)
(48.3)
9.7
271.7
818.0
(9.6)
(371.4)
(381.0)
437.0
43.7
393.3
437.0
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.
at the aggregate of the fair values, at the date of exchange,
of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control
of the acquiree. The acquiree’s identifiable assets,
liabilities and contingent liabilities that meet the conditions
for recognition under IFRS 3 are recognised at their fair value
at the acquisition date.
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the
entity. In assessing control, the Group takes into consideration
potential voting rights that are currently exercisable. The
acquisition date is the date on which control is transferred to
the acquirer. The financial statements of subsidiaries are
included in the consolidated financial statements from the
date that control commences until the date that control ceases.
Losses applicable to the non-controlling interests in a subsidiary
are allocated to the non-controlling interests even if doing so
causes the non-controlling interests to have a deficit balance.
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
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.
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.
89
N Brown Group plc Annual Report & Accounts 2016Financial statements
NOTES TO THE GROUP ACCOUNTS
CONTINUED
2 Accounting policies (continued)
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents the total amount
receivable for goods and services provided in the normal
course of business net of returns, VAT and sales related taxes.
Sales of goods are recognised when goods are delivered
and title has passed. Financial services sales includes 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. 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 and
improvements
over the period of the lease
Motor vehicles
20%
Computer equipment
between 14% and 20%
Plant and machinery
between 5% and 20%
Fixtures and equipment
between 10% and 20%
Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets or,
where shorter, over the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an
asset is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognised in the
income statement.
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 a range of five to
seven years.
90
Expenditure on development activities is capitalised if the product
or process is technically and commercially feasible and the Group
intends to and has the technical ability and sufficient resources to
complete development, future economic benefits are probable
and if the Group can measure reliably the expenditure attributable
to the intangible asset during its development. Development
activities involve a plan or design for the production of new or
substantially improved products or processes. The expenditure
capitalised includes the cost of materials and direct labour. Other
development expenditure is recognised in the income statement
as an expense as incurred. Capitalised development expenditure
is stated at cost less accumulated amortisation and less
accumulated impairment losses.
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. For goodwill and intangible assets that have
indefinite useful lives or that are not yet available for use, the
recoverable amount is estimated each year at the same time.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using
a discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which
the estimate of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised as an
expense immediately.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment
loss been recognised for the asset (cash-generating unit) in
prior years. A reversal of an impairment loss is recognised as
income immediately.
Leasing
Leases are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
N Brown Group plc Annual Report & Accounts 2016 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. Provision is made based on the age of the
inventory. 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 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.
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.
91
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE GROUP ACCOUNTS
CONTINUED
2 Accounting policies (continued)
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
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 and other payables
Trade and other payables are recognised initially at fair value,
are not interest bearing and are subsequently measured at
amortised cost.
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
92
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. For share-based payment awards with non-vesting
conditions, the grant date fair value of the share-based payment
is measured to reflect such conditions and there is no true-up
for differences between expected and actual outcomes.
Own shares held by ESOT
Transactions of the group-sponsored Employee Share Ownership
Trust (ESOT) are included in the Group financial statements. The
trust’s purchases and sales of shares in the Company are debited
and credited directly to equity.
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 30) 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 10).
The retirement benefit asset/(obligation) recognised in the
balance sheet represents the present value of the defined
benefit asset/(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.
Supplier rebates
The Group enter into volume based rebate arrangements with
suppliers. Rebates are calculated annually based on agreements
in place, which stipulate an agreed percentage of purchase be
grated as a rebate. Rebates are agreed with suppliers before
they are recognised in the Income Statement.
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
N Brown Group plc Annual Report & Accounts 2016 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 Risk Management Report
on pages 28 to 31.
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 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 £405m – which
are committed until 2020 – and its £20m overdraft facility.
After making appropriate enquiries, the directors have a
reasonable expectation that the company and the Group
have adequate resources to continue in operational existence.
Accordingly, they continue to adopt the going concern basis
in the preparation of the annual report and accounts.
Exceptional items
Exceptional items are those that are considered to be one
off, non-recurring in nature and so material that the directors
believe that they require separate disclosure to avoid distortion
of underlying performance and should be separately presented
on the face of the income statement.
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.
Changes in the assumptions applied could have a significant
impact on the carrying value of trade receivables.
As a result this is continually assessed for relevance and
adjusted appropriately. Further information is given in note 18.
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 and the Group continues to review
and develop its compliance with the requirements of 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.
Software Development Costs
Included within intangibles assets are significant software
and development project costs in respect of the Groups
transformation project, Fit 4 the Future. Costs are capitalised
to the extent that future economic benefits are expected to
be generated by the project, which requires judgment to be
made as to whether the project will be completed successfully,
will be technically feasible and whether sufficient revenue and
profitability will be generated to recover the costs capitalised.
If these criteria are not subsequently met, the asset would
be subject to a future impairment charge which would impact
the Groups results. This is consequently a source of estimation
uncertainty.
3 Revenue
An analysis of the Group’s revenue is as follows:
Continuing operations
Sale of goods
Financial services
Revenue – continuing operations
Investment income
Discontinued operations
Subsidiary catalogue business
Revenue
2015
(restated see
note 2)
£m
2016
£m
606.6
259.6
866.2
–
866.2
4.3
870.5
582.9
254.3
837.2
0.1
837.3
14.5
851.8
93
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE GROUP ACCOUNTS
CONTINUED
4 Business segments
The Group has one reportable segment in accordance with IFRS 8 - Operating Segments, which is the Home Shopping segment.
The Group's board receives monthly financial information at this level and uses this information to monitor the performance of the
Home Shopping segment, allocate resources and make operational decisions. Internal reporting focuses on the Group as a whole
and does not identify individual segments. To increase transparency, the Group has decided to include an additional voluntary
disclosure analysing product revenue within the reportable segment, by brand categorisation and product type categorisation.
Continuing operations
Analysis of revenue – Home shopping total
Product
Financial Services
Analysis of cost of sales – Home shopping total
Product
Financial Services
Gross profit – Total
Product gross margin
Financial Services gross margin
Warehouse and fulfilment costs
Marketing and production costs
Depreciation and amortisation costs
Other administration and payroll costs
Exceptional items (see note 7)
Segment result & operating profit - Home Shopping
Investment income
Finance costs
Fair value adjustments to financial instruments
Profit before taxation
2015
(restated see
note 2)
£m
2016
£m
866.2
606.6
259.6
(383.6)
(265.7)
(117.9)
482.6
56.2%
54.6%
(76.7)
(161.7)
(25.2)
(122.6)
(17.2)
79.2
–
(8.1)
1.1
837.2
582.9
254.3
(369.8)
(253.9)
(115.9)
467.4
56.4%
54.4%
(73.9)
(154.7)
(21.2)
(121.8)
(12.6)
83.2
0.1
(7.7)
2.7
72.2
78.3
Given the significant change being implemented across our business as we become a digital-first, product-led, specialist-fit fashion
retailer, we have sought to enhance our income statement disclosure in several ways:
• changing the allocation of certain cost lines from product gross margin to operating costs, to bring our disclosure more in line
with typical retail practice.
• splitting the gross margin performance of Product and Financial Services.
• enhancing our operating cost disclosure to provide further clarity, moving from two categories – Distribution and Sales
& Administration costs, to four – Warehouse & Fulfilment, Marketing & Production, Depreciation & amortisation,
Other admin & payroll.
All the prior year comparatives have been adjusted accordingly.
Analysis of product revenue by brand
JD Williams
Simply Be
Jacamo
Power brands
Traditional segment
Secondary brands
Total product revenue - Home shopping
Analysis of product revenue by category
Ladieswear
Menswear
Footwear
Home & gift
Total product revenue - Home shopping
94
2015
(restated see
note 2)
£m
2016
£m
151.2
103.9
62.8
317.9
136.0
152.7
606.6
250.8
82.0
63.8
210.0
606.6
144.4
89.9
54.8
289.1
143.9
149.9
582.9
248.6
81.4
60.7
192.2
582.9
N Brown Group plc Annual Report & Accounts 2016 The Group has one significant geographical segment, which is the United Kingdom. Revenue derived from international markets
amounted to £31.9m (2015, £30.2m) and they incurred operating losses of £0.1m (2015, £1.3m). All segment assets are located
in the UK, Ireland and the US.
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 (2015, £nil).
Other information
Capital additions
Capital disposals
Depreciation and amortisation
Brand impairment
Balance sheet
Total segment assets
Total segment liabilities
Segment net assets
Unallocated assets
Unallocated liabilities
Consolidated net assets
2015
(restated see
note 2)
£m
2016
£m
58.7
(2.4)
(25.2)
–
914.8
(434.7)
480.1
9.2
(13.3)
476.0
63.3
(0.1)
(23.0)
(8.0)
854.6
(399.2)
455.4
7.2
(12.6)
450.0
5 Discontinued operations
Following a review of the business and its future profit potential, the board decided in January 2015 to close the Gray & Osbourn
catalogue business. The business was disclosed as a discontinued operation in the 2015 financial statements. The process is
ongoing and has continued into the current financial period. The results of the discontinued operation were as follows.
Revenue
Expenses
Brand impairment
Attributable tax credit
Net loss attributable to discontinued operations
2016
£m
4.3
(5.0)
–
(0.7)
0.1
(0.6)
2015
£m
14.5
(17.5)
(8.0)
(11.0)
0.6
(10.4)
The effect of the contribution of the discontinued operations on the Group's cash flows have not been disclosed as they are not
considered to be significant.
6 Profit for the period
Profit for the period has been arrived at after charging/(crediting):
Net foreign exchange losses/(gains)
Depreciation of property, plant and equipment
Loss/(profit) on disposal
Amortisation of intangible assets
Cost of inventories recognised as expense
Staff costs
Auditor’s remuneration for audit services
Doubtful debts recognised as an expense
Brand impairment
2015
(restated see
note 2)
£m
2016
£m
1.5
6.0
0.7
19.2
270.9
83.0
0.3
110.3
–
(2.4)
8.0
(0.1)
15.0
263.4
89.3
0.3
109.0
8.0
95
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE GROUP ACCOUNTS
CONTINUED
6 Profit for the period (continued)
Amounts payable to KPMG LLP and their associates by the Group in respect of non-audit services were £0.5m (2015, Deloitte LLP, £1.9m).
A more detailed analysis of auditor’s remuneration is provided below:
Audit of these Group financial statements
Amounts receivable by the company's auditor and its associates in respect of:
Audit of financial statements of subsidiaries of the company
Audit-related assurance services
Tax advisory services
All other services
Total
2016
£m
0.1
0.2
–
–
0.5
0.8
2015
£m
0.1
0.2
–
1.9
–
2.2
Fees in relation to audit related assurance services totalled £40,000 (2015, Deloitte LLP, £30,000).
Fees payable to the company’s auditor for the audit of the company’s annual accounts were £15,000 (2015, Deloitte LLP, £10,000).
A description of the work of the audit committee is set out in the Corporate Governance Statement on pages 56 to 58 and
includes an explanation of how auditor objectivity and independence is safeguarded when non audit services are provided
by the auditor.
7 Exceptional items
Strategy costs
VAT related costs
Clearance store closure costs
2016
£m
7.6
1.6
8.0
17.2
2015
£m
5.6
7.0
–
12.6
Strategy costs incurred in 2016 related to Group re-organisation costs and outsourcing of IT maintenance. In 2015 these costs
related to the outsourcing of our call centre.
The VAT related costs in 2016 are legal and professional fees related to ongoing disputes with HMRC. In 2015 these charges
related to a potential settlement with HMRC in respect of VAT recovery on bad debts written off over a number of years.
In 2016 we closed our retail clearance stores, in line with our strategy to become digital first. The exceptional costs of £8.0m relate
to stock write downs, onerous lease provisions and other related closure costs.
8 Staff costs
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 30)
Share options costs (see note 29)
Details of individual directors’ remuneration is disclosed in the remuneration report on page 75.
9 Investment income
Interest on bank deposits
96
2016
Number
2015
Number
1,091
1,848
2,939
2016
£m
71.3
6.5
3.0
2.2
83.0
1,109
2,268
3,377
2015
£m
74.2
7.5
5.5
2.1
89.3
2016
£m
–
2015
£m
0.1
N Brown Group plc Annual Report & Accounts 2016 10 Finance costs
Interest on bank overdrafts and loans
Net pension finance charge (see note 30)
11 Tax
Recognised in the income statement
Current tax
Charge for the period
Adjustments in respect of previous periods
Deferred tax
Origination and reversal of temporary timing differences
Reduction in tax rate
Tax expense (continuing)
Tax from discontinued operations
Total tax expense
2016
£m
8.0
0.1
8.1
2015
£m
7.5
0.2
7.7
2015
(restated see
note 2)
£m
2016
£m
13.6
(0.2)
13.4
5.1
(1.2)
3.9
17.3
(0.1)
17.2
15.9
0.7
16.6
0.2
–
0.2
16.8
(0.6)
16.2
UK corporation tax is calculated at 20.08% (2015, 21.17%) of the estimated assessable profit for the period. Taxation for other
jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2017)
and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015. The deferred tax assets and liabilities at
2016 has been calculated based on these rates.
An additional reduction to 17% (effective from 1 April 2020) was announced in the budget on 16 March 2016. This will reduce
the company's future current tax charge accordingly.
The charge for the period can be reconciled to the profit per the income statement as follows:
Profit before tax from continuing operations:
Tax at the UK corporation tax rate of 20.08% (2015, 21.17%)
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
2015
(restated see
note 2)
£m
78.3
16.4
–
0.5
(0.8)
0.7
16.8
2016
£m
72.2
14.5
(1.2)
0.4
(0.7)
4.3
17.3
In addition to the amount charged to the income statement, tax movements recognised directly through equity were as follows:
Tax recognised in other comprehensive income
Deferred tax – retirement benefit obligations
Tax charge in the statement of comprehensive income
Tax recognised in equity
Current tax – share based payments
Deferred tax – share based payments
Tax charge in the statement of changes in equity
2016
£m
2.5
2.5
2016
£m
(0.2)
1.7
1.5
2015
£m
0.3
0.3
2015
£m
(0.8)
1.9
1.1
97
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE GROUP ACCOUNTS
CONTINUED
11 Tax (continued)
The Group has on-going discussions with HMRC in respect of open taxation positions. The calculation of the Group's potential
liabilities or assets in respect of these 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.
12 Dividends
Amounts recognised as distributions to equity holders in the period:
Final dividend for the 52 weeks ended 28 February 2015 of 8.56p (2014, 8.56p) per share
Interim dividend for the 52 weeks ended 27 February 2016 of 5.67p (2015, 5.67p) per share
Proposed final dividend for the 52 weeks ended 27 February 2016 of 8.56p (2015, 8.56p) per share
2016
£m
24.2
16.0
40.2
24.2
2015
£m
24.0
16.0
40.0
24.1
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.
13 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
Weighted average number of ordinary shares for the purposes of diluted earnings per share
Earnings from continuing operations
Net profit attributable to equity holders of the parent
Adjustments to exclude loss for the period from discontinued operations
Earnings from continuing operations for the purpose of basic earnings per share
Fair value adjustment to financial instruments (net of tax)
Exceptional items (net of tax)
Adjusted earnings for the purposes of adjusted earnings per share
2015
(restated see
note 2)
£m
2016
£m
54.3
51.1
2016
Number
2015
Number
282,316
281,612
245
856
282,561
282,468
2015
(restated see
note 2)
£m
51.1
10.4
61.5
(2.1)
9.9
69.3
2016
£m
54.3
0.6
54.9
(0.9)
13.8
67.8
The denominators used are the same as those detailed above for basic and diluted earnings per share from continuing and
discontinued operations.
From discontinued operations
Basic
Diluted
98
2016
Pence
(0.22)
(0.21)
2015
Pence
(3.69)
(3.68)
N Brown Group plc Annual Report & Accounts 2016 14 Intangible assets
Cost
At 1 March 2014
Additions
At 28 February 2015
Additions
At 27 February 2016
Amortisation
At 1 March 2014
Charge for the period
Impairment charge for the period
At 28 February 2015
Charge for the period
At 27 February 2016
Carrying amount
At 27 February 2016
At 28 February 2015
At 1 March 2014
Brands
£m
Software
£m
Customer
Database
£m
16.9
–
16.9
–
16.9
–
–
8.0
8.0
–
8.0
8.9
8.9
16.9
162.9
48.0
210.9
45.8
256.7
106.5
15.0
–
121.5
19.2
140.7
116.0
89.4
56.4
1.9
–
1.9
–
1.9
1.9
–
–
1.9
–
1.9
–
–
–
Total
£m
181.7
48.0
229.7
45.8
275.5
108.4
15.0
8.0
131.4
19.2
150.6
124.9
98.3
73.3
Assets in the course of construction included in intangible assets at the year end total £55.3m (2015, £40.6m), of which £50.8m
relates to the Fit 4 the Future project (2015, £17.0m). No amortisation is charged on these assets. All software additions relate
to internal development.
Impairment testing of Software intangible assets
The Group is currently undertaking a Systems transformation project. Fit 4 the Future, Elements of Fit 4 the Future are not yet
available for use therefore management have conducted impairment testing as at 27 February 2016. The recoverable amount has
been based on the present value of future cashflows using the following key assumptions:
Cash flows over the seven year useful economic life of the asset represent management’s best estimate of future cash flows as at
27 February 2016, and are based upon the Group’s forecasts for 2017 – 2023.
The main assumptions underlying the cashflows relate to improvements in buying, marketing and credit management due to the
use of an integrated platform as well as changes in costs due to reductions in finance time, and will be driven by exploitation of the
Group’s new IT platform and further investments made during 2017. Cash flows into perpetuity have not been incorporated into
the calculation for prudence, however the asset is expected to generate economic benefit for the Group significantly past 2023.
A pre-tax discount rate of 8% has been used in the forecast, consistent with the Brand impairment testing performed. The analysis
performed calculates that the recoverable amount of the assets exceeds their carrying value and as such, no impairment was
identified. It is on this basis, that management do not consider an impairment to exist at 27 February 2016. No reasonably possible
change in a key assumption on which management has based its determination of the assets recoverable amount would cause the
assets carrying amount to exceed its recoverable amount.
The amortisation periods for intangible assets are:
F4F Development Project
Software
Customer Database
Years
7
5
5
Impairment testing of Brand intangibles
The brand names arising from the acquisition of 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.
As a result of the decision to close the Gray & Osbourn catalogue business in 2015 the carrying value of the brand was
permanently impaired to a value of £nil.
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.
99
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE GROUP ACCOUNTS
CONTINUED
14 Intangible assets (continued)
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 8.0% (2015, 7.4%).
The directors consider that the value in use calculation has sufficient headroom above the carrying value of the brand names.
Sensitivity analysis has been performed with both the growth rate and discount rate adjusted by +7%, and under these sensitivities
significant headroom is maintained.
The carrying value in relation to Gray & Osbourn is £nil (2015, £nil), £7.1m (2015, £7.1m) for Figleaves and for High and Mighty is
£1.0m (2015, £1.0m). Whilst the directors do not consider that either brand name is impaired as at the balance sheet date, should
there be a downturn in future or forecasted cashflows, then there is a risk of impairment to these brand names.
15 Property, plant and equipment
Cost
At 1 March 2014
Additions
Disposals
At 28 February 2015
Additions
Disposals
At 27 February 2016
Accumulated depreciation and impairment
At 1 March 2014
Charge for the period
Eliminated on disposals
At 28 February 2015
Charge for the period
Eliminated on disposals
At 27 February 2016
Carrying amount
At 27 February 2016
At 28 February 2015
At 1 March 2014
Land and
Buildings
£m
Fixtures and
Equipment
£m
46.2
7.0
–
53.2
–
–
116.2
8.3
(0.1)
124.4
12.9
(2.4)
Total
£m
162.4
15.3
(0.1)
177.6
12.9
(2.4)
53.2
134.9
188.1
11.3
0.9
–
12.2
0.9
–
13.1
40.1
41.0
34.9
87.9
7.1
(0.1)
94.9
5.1
(1.7)
99.2
8.0
(0.1)
107.1
6.0
(1.7)
98.3
111.4
36.6
29.5
28.3
76.7
70.5
63.2
Assets in the course of construction included in property, plant and equipment at the year end date total £13.4m (2015, £3.1m),
and in land and buildings total £7.0m (2015, £7.0m). No depreciation has been charged on these assets.
At 27 February 2016, the Group had not entered into any contractual commitments for the acquisition of property, plant and
equipment (2015, £nil).
16 Subsidiaries
A list of all investments in subsidiaries, including the name, country of incorporation, proportion of ownership interest is given
in note 35 to the Company’s separate financial statements.
17 Inventories
Finished goods
Sundry stocks
2016
£m
100.4
1.1
101.5
2015
£m
93.7
1.1
94.8
A net charge of £12.1m (2015, £9.1m) has been made to the income statement in respect of written down inventories.
There was no inventory pledged as security for liabilities in the current or prior period.
100
N Brown Group plc Annual Report & Accounts 2016 18 Trade and other receivables
Amount receivable for the sale of goods and services
Allowance for doubtful debts
Other debtors and prepayments
Trade receivables are measured at amortised cost.
2015
(restated see
note 2)
£m
627.9
(100.9)
527.0
22.5
549.5
2016
£m
624.7
(97.6)
527.1
26.3
553.4
The average credit period given to customers for the sale of goods is 222 days (2015 restated, 230 days). Interest is charged at
58.7% (2015, 58.7%) on the outstanding balance. Where there is objective evidence of financial difficulty, a provision of estimated
irrecoverable amounts is determined by reference to past default experience. A provision is held for all trade receivables that reach
the trigger point of 56 days past due. For customers who find themselves in financial difficulties, the Group may offer revised
payment terms to support the customer, encouraging customer rehabilitation and thereby maximising long term returns. However
as the customer is not meeting their original payment terms a provision is held for these receivables. Generally, receivables over
150 days past due are written off in full.
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
Gross trade receivables
Allowance for doubtful debts
Net trade receivables
2016
£m
Trade
receivables on
payment
arrangements
Trade
receivables
406.6
Total trade
receivables
Trade
receivables
500.8
409.1
41.9
20.8
14.4
10.2
8.5
502.4
(32.4)
470.0
94.2
14.0
5.0
3.4
2.6
3.1
55.9
25.8
17.8
12.8
11.6
122.3
624.7
(65.2)
57.1
(97.6)
527.1
2015 (restated see note 2)
£m
Trade
receivables on
payment
arrangements
Total trade
receivables
97.8
16.7
6.1
4.0
3.1
3.8
131.5
(71.4)
60.1
506.9
56.0
24.9
16.5
12.0
11.6
627.9
(100.9)
527.0
39.3
18.8
12.5
8.9
7.8
496.4
(29.5)
466.9
The carrying amount of trade receivables whose terms have been renegotiated but would otherwise be past due totalled £93.1m
at 27 February 2016 (2015, £97.1m). Interest income recognised on trade receivables which have been impaired was £41.7m (2015
as restated, £43.7m).
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
2015
(restated see
note 2)
£m
115.2
109.0
2016
£m
100.9
110.3
(113.6)
(123.3)
97.6
100.9
The concentration of credit risk is limited due to the customer base being large and unrelated and comprising 1.3 million (2015,
1.3 million) customers. Accordingly, the directors believe that there is no further credit provision required in excess of the
allowance for doubtful debts.
101
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE GROUP ACCOUNTS
CONTINUED
18 Trade and other receivables (continued)
‘Other debtors and prepayments’ includes a net VAT debtor, comprising the VAT liability which arises from day to day trading,
together with amounts in relation to matters which are in dispute with HMRC. The Group continues to be in discussion with HMRC
in relation to the VAT consequences of the allocation of marketing costs between our retail and credit businesses. At this stage it
is not possible to determine how the matter will be resolved. However within our year end VAT debtor is an asset of £21.7m which
has arisen as a result of cash payments made under protective assessments raised by HMRC. Based on legal counsel's opinion,
we believe that we will recover this amount in full from HMRC and we are engaged in a legal process to do so.
Other debtors and prepayments do not include impaired assets. The maximum exposure to credit risk at the reporting date is
the carrying value of each class of asset. The Group does not hold any collateral over these balances.
19 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
The principal features of the Group’s borrowings are as follows:
2016
£m
335.0
–
–
335.0
335.0
2015
£m
287.0
7.0
280.0
–
280.0
2016
%
2015
%
2.0
2.4
2.0
2.4
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 £250m (2015, £250m) 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 £280m
for which finance costs are linked to US commercial paper rates which is committed until August 2020.
The Group also has unsecured bank loans of £85m (2015, £37m) drawn down under a medium term bank revolving credit
facility, of £125 million, which is committed until September 2020.
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 27 February 2016 the estimated future interest cost per
annum until maturity would be £2.3m (2015, £2.0m).
At 27 February 2016, the Group had available £90m (2015, £83m) of undrawn committed borrowing facilities in respect of which all
conditions precedent had been met.
Note 21 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.
102
N Brown Group plc Annual Report & Accounts 2016
20 Derivative financial instruments
At the balance sheet date, details of outstanding forward foreign exchange contracts that the Group has committed to are
as follows:
Notional amount – Sterling contract value
Fair value of asset recognised
2016
£m
21.5
2.2
2015
£m
33.9
1.1
Changes in the fair value of assets/liabilities recognised, being non-hedging currency derivatives, amounted to a credit of £1.1m
(2015, credit of £2.7m) to income in the period.
The financial instruments that are measured subsequent to initial recognition at fair value are all grouped into Level 2 (2015, 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 (2015, same).
21 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 19, cash and cash equivalents disclosed in note 26 and equity attributable
to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 24 to 25 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
2016
£m
335.0
45.3
289.7
476.0
2015
£m
287.0
40.4
246.6
450.0
61%
55%
Debt is defined as long and short-term borrowings, as detailed in note 19.
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.
103
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE GROUP ACCOUNTS
CONTINUED
21 Financial instruments (continued)
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.
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
2016
£m
17.5
4.0
–
21.5
2015
£m
14.7
13.4
5.8
33.9
Forward contracts outstanding at the period end are contracted at US dollar exchange rates ranging between 1.51 and 1.58.
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date
are as follows:
Euro
US dollar
Liabilities
Assets
2016
£m
5.7
13.7
2015
£m
1.1
9.8
2016
£m
7.1
–
2015
£m
7.3
0.9
Foreign currency sensitivity analysis
The following table details the Group’s hypothetical sensitivity to a 10% increase and decrease in sterling against the relevant
foreign currencies. The sensitivity rate of 10% represents the 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.
Euro
Currency Impact
US Dollar
Currency Impact
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
2016
£m
0.2
0.6
2015
£m
(0.6)
0.7
2016
£m
0.5
(2.4)
2016
£m
45.3
2.2
527.1
574.6
2016
£m
–
403.7
403.7
2015
£m
0.8
(1.0)
2015
£m
40.4
1.1
527.0
568.5
2015
£m
–
(357.3)
(357.3)
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.
104
N Brown Group plc Annual Report & Accounts 2016 Interest rate sensitivity analysis
If interest rates had increased by 0.5% and all other variables were held constant, the Group’s profit before tax for the 52 weeks
ended 27 February 2016 would have decreased by £1.4m (2015, £1.4m).
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.
Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. 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 19 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.
The following are the contractual maturities of financial liabilities, including estimated interest payments:
2016
Non derivative financial liabilities
Secured bank loans
Trade payables
Derivative financial liabilities
Forward exchange contracts
Inflow
2015
Non derivative financial liabilities
Secured bank loans
Trade payables
Derivative financial liabilities
Forward exchange contracts
Inflow
2016
Carrying
Amount
£m
2016
Contractual
Cash flows
£m
2016
1 year
or less
£m
2016
1 to <2
years
£m
2016
2 to <5
years
£m
2016
5 years
and over
£m
(335.0)
(68.7)
(371.3)
(68.7)
(7.9)
(68.7)
2.2
2.2
2.2
(7.9)
(355.5)
–
–
–
–
(401.5)
(412.1)
(68.8)
(2.3)
(341.0)
–
–
–
–
2015
Carrying
Amount
£m
2015
Contractual
Cash flows
£m
2015
1 year
or less
£m
(287.0)
(70.3)
(294.6)
(70.3)
(14.0)
(70.3)
1.1
1.1
1.1
2015
1 to <2
years
£m
(280.6)
–
–
(356.2)
(363.8)
(83.2)
(280.6)
2015
2 to <5
years
£m
2015
5 years
and over
£m
–
–
–
–
–
–
–
–
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 the amortised cost in the financial statements
approximate to their fair values, with the exception of trade receivables.
As discussed in Note 18, where a customer finds themselves in financial difficulty, we may offer revised payment terms. This
maximises long term returns to the business, but may not maximise the present value of the receivable. Therefore, the Group
believes the amortised cost does not reflect the fair value of these receivables, which we have calculated as £554.0m.
105
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE GROUP ACCOUNTS
CONTINUED
22 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.
At 1 March 2014 – restated see note 2
Credit/(charge) to income
Charge to equity
At 28 February 2015 – restated see note 2
Credit/(charge) to income
Charge to equity
At 27 February 2016
Debtor
Impairment
provision
£m
Share
based
payments
£m
Accelerated
tax
depreciation
£m
Retirement
benefit
obligations
£m
4.9
(0.9)
–
4.0
(1.4)
–
2.6
3.8
0.5
(1.9)
2.4
0.4
(1.7)
1.1
(7.0)
(0.2)
–
(7.2)
(3.2)
–
(10.4)
0.8
0.1
(0.3)
0.6
–
(2.5)
(1.9)
Other
£m
(1.4)
0.3
–
(1.1)
0.3
–
(0.8)
Total
£m
1.1
(0.2)
(2.2)
(1.3)
(3.9)
(4.2)
(9.4)
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
2015
(restated see
note 2)
£m
7.2
(8.5)
(1.3)
2016
£m
3.9
(13.3)
(9.4)
At the balance sheet date, the Group has unused tax losses of £0.1m (2015, £0.1m) and capital losses of £4.4m (2015 £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.
23 Trade and other payables
Trade payables
Other taxes and social security
Other creditors
Accruals and deferred income
2016
£m
68.7
–
0.4
30.6
99.7
2015
£m
70.3
5.0
0.4
33.2
108.9
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 25 days (2015, 30 days).
The Group has financial risk management policies in place to ensure that all payables are paid within agreed credit terms.
24 Share capital
Allotted, called-up and fully paid
Ordinary shares of 11¹/¹9p each
At 27 February 2016 & 28 February 2015
2016
Number
2015
Number
2016
£m
2015
£m
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.
106
N Brown Group plc Annual Report & Accounts 2016 25 Own shares
Balance at 28 February 2015
Additions
Issue of own shares on exercise of share options
Balance at 27 February 2016
2016
£m
0.3
0.4
(0.5)
0.2
2015
£m
0.5
0.2
(0.4)
0.3
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 29).
At 27 February 2016 the employee trusts held 897,018 shares in the company (2015, 1,370,506).
26 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
2016
£m
44.9
1.8
(1.4)
45.3
2015
£m
38.5
1.5
0.4
40.4
27 Contingent liabilities
Parent Company bank overdrafts which at 27 February 2016 amounted to £13.0m (2015, £49.4m) have been guaranteed by certain
subsidiary undertakings.
28 Operating lease arrangements
Minimum lease payments under operating leases recognised as an expense for the period
2016
£m
9.8
2015
£m
8.0
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating pleases, which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
2016
£m
1.4
18.9
6.0
26.3
2015
£m
0.3
20.8
11.0
32.1
Operating lease payments represent rentals payable by the Group for certain buildings, plant and equipment and motor vehicles.
The Group’s operating leases include stores, certain buildings, plant and equipment and vehicles. These have varying terms,
restrictions and renewal rights. The commercial terms of the Group’s operating leases vary, however they commonly include
either market rent review or an index linked rent review. The timing of when rent reviews take place differs for each lease.
107
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE GROUP ACCOUNTS
CONTINUED
29 Equity settled share based payments
The remuneration report on pages 64 to 79 contains details of management and sharesave options/awards offered to employees
of the Group.
Details of the share options/awards outstanding during the period are as follows:
Option scheme
2010 Savings related scheme
2010 Executive scheme
Unapproved executive scheme
Long-term incentive scheme awards
June 2012
July 2013
August 2013
August 2014
June 2015
Deferred annual bonus scheme awards
May 2013
May 2014
May 2015
Option price
in pence
Exercise
period
Number of
shares
2016
Number of
shares
2015
189 – 420
August 2016 – February 2021
1,139,126 1,462,239
211 – 459
211 – 459
May 2009 – August 2024
776,000
1,380,799
May 2009 – August 2024
719,077 1,296,532
–
–
–
–
–
–
–
June 2015 – December 2015
–
891,609
July 2016 – December 2016
579,981
August 2016 – February 2017
151,834
August 2017 – July 2024
872,955
June 2018 – June 2025 1,098,723
May 2015 – November 2015
–
May 2016 – November 2016
32,559
May 2017 – November 2017
1,562
579,981
151,834
872,955
–
89,133
32,559
–
Movements in share options are summarised as follows:
2016
2015
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
options
4,139,570
527,372
Weighted
average
exercise
price £
Number of
share
options
Weighted
average
exercise
price £
2.80 5,073,664
2.98
807,176
(1,398,491)
2.73 (1,257,659)
(634,248)
1.46
(483,611)
2,634,203
3.20
4,139,570
349,820
2.51
456,542
2.53
4.09
2.81
2.07
2.80
2.38
Options were exercised on a regular basis throughout the period and the weighted average share price during this period was
331 pence (2015, 426 pence). The options outstanding at 27 February 2016 had a weighted average remaining contractual life
of 4.4 years (2015, 5.1 years). The aggregate estimated fair values of options granted in the period is £629,348 (2015, £851,009).
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
2016
2015
Number of
share
awards
2,618,071
1,100,285
(953,150)
(27,592)
2,737,614
–
Weighted
average
exercise
price £
–
–
–
–
–
–
Number of
share
awards
2,747,414
905,514
(328,656)
(706,201)
2,618,071
–
Weighted
average
exercise
price £
–
–
–
–
–
–
The awards outstanding at 27 February 2016 had a weighted average remaining contractual life of 6.7 years (2015, 4.0 years).
108
N Brown Group plc Annual Report & Accounts 2016 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 (%)
2016
339
97
2015
441
193
27.7 – 34.2 26.0 – 36.2
2.5 – 5.5
2.5 – 5.5
0.9
4.2
1.2
3.4
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 £2.2m and £2.1m related to equity-settled share based payment transactions in 2016
and 2015 respectively.
30 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 £3.1m (2015, £3.3m) represents contributions payable to the schemes by the Group at rates
specified in the rules of the plans. As at 27 February 2016, contributions of £0.3m (2015, £0.4m) 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. On 29
February 2016 the scheme was closed to future accrual. A past service credit in respect of this closure has been recognised in
2016, as the company was both committed to the change, and had the right to apply the change by the balance sheet date. No
other post-retirement benefits are provided. The scheme is a funded scheme and operates under UK trust law and the trust is a
separate 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:
Discount rate
Future pension increases
Inflation – Retail Price Index
Inflation – Consumer Price Index
Life expectancy at age 65 (years)
Pensioner aged 65
Non-pensioner aged 45
2016
3.90%
2.15%
3.15%
2.15%
24.6
26.7
2015
3.50%
2.12%
3.25%
2.25%
24.6
26.7
109
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE GROUP ACCOUNTS
CONTINUED
30 Retirement benefit schemes (continued)
Amounts recognised in income in respect of these defined benefit schemes are as follows:
Current service cost
Past service cost
Net interest cost
The actual return on scheme assets was £3.7m (2015, £21.5m).
2016
£m
2.3
(2.4)
0.1
–
2015
£m
2.2
–
0.2
2.4
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:
2016
£m
2015
£m
Present value of defined benefit obligations
Fair value of scheme assets
Surplus/(deficit) in the scheme and liability recognised in the balance sheet
(108.1)
118.9
10.8
(120.8)
117.5
(3.3)
The surplus reflects the economic benefit at the balance sheet date, that the Group would be entitled to Group, through refund,
in the event the Scheme was wound up.
Movements in the present value of defined benefit obligations were as follows:
At 28 February 2015
Current service cost
Past service cost
Interest cost
Remeasurement (gain)/loss
a. Effect of changes in financial assumptions
b. Effect of experience adjustments
c. Benefits paid
At 27 February 2016
Movements in the fair value of the scheme assets were as follows:
At 28 February 2015
Interest income
Return on scheme assets excluding interest income
Contributions from sponsoring companies
Benefits paid
At 27 February 2016
2016
£m
2015
£m
120.8
100.8
2.3
(2.4)
4.2
(10.1)
(2.8)
(3.9)
2.2
–
4.3
16.0
–
(2.5)
108.1
120.8
2016
£m
117.5
4.1
(0.4)
1.6
(3.9)
2015
£m
96.6
4.1
17.4
1.9
(2.5)
118.9
117.5
110
N Brown Group plc Annual Report & Accounts 2016 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
Growth fixed income
Alternatives
Cash and cash equivalents
2016
2015
£m
33.8
14.8
29.1
14.6
2.2
13.2
10.9
0.3
%
28.4
12.4
24.5
12.3
1.9
11.1
9.2
0.2
£m
37.4
18.0
29.5
12.5
2.1
9.7
6.9
1.4
%
31.8
15.3
25.1
10.6
1.8
8.3
5.9
1.2
118.9
100.0
117.5
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 (2015, £7.0m).
An increase of 0.25% in the inflation assumption would increase the defined benefit obligation by £4.4m (2015, £4.7m).
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 £0.2m (2015, £1.8m) to the
defined benefit scheme in the next financial year.
The weighted average duration of the defined benefit obligation at 27 February 2016 is approximately 24 years (2015, 24 years).
The defined benefit obligation at 27 February 2016 can be approximately attributed to the scheme members as follows:
• Active members: 0% (2015, 44%)
• Deferred members: 68% (2015, 36%)
• Pensioner members; 32% (2015, 20%)
All benefits are vested at 27 February 2016 (unchanged from 28 February 2015).
31 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. Details of remuneration paid to the Group’s key management personnel are given on page 75 of the
directors’ remuneration report.
111
N Brown Group plc Annual Report & Accounts 2016Financial statements COMPANY BALANCE SHEET
As at 27 February 2016
Fixed assets
Investments
Current assets
Debtors
Cash and cash equivalents
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
Own shares
Profit and loss account
Shareholders’ funds
Note
35
36
37
38
39
25
2015
(restated see
note 33)
£m
2014
(restated see
note 33)
£m
2016
£m
366.0
363.8
361.7
58.8
0.1
58.9
45.4
0.1
45.5
24.0
0.3
24.3
(199.5)
(140.6)
225.4
(243.0)
(197.5)
166.3
(225.2)
(200.9)
160.8
(85.0)
140.4
(30.0)
136.3
(30.0)
130.8
31.3
11.0
(0.2)
98.3
31.3
11.0
(0.3)
94.3
31.3
11.0
(0.5)
89.0
140.4
136.3
130.8
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the board of directors and
authorised for issue on 2 June 2016.
They were signed on its behalf by:
Craig Lovelace
CFO and Executive Director
COMPANY CASH FLOW STATEMENT
For the 52 weeks ended 27 February 2016
Net cash outflow from operating activities
Investing activities
Dividends received
Net cash generated by investing activities
Financing activities
Dividends paid
Increase in bank loans
Intergroup loan note interest paid
Purchase of shares by ESOT
Proceeds on issue of shares held by ESOT
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
112
Note
2016
£m
(58.4)
49.0
49.0
(40.2)
55.0
(5.8)
(0.4)
0.8
9.4
–
0.1
0.1
2015
£m
(5.8)
50.6
50.6
(40.0)
–
(5.7)
(0.2)
0.9
(45.0)
(0.2)
0.3
0.1
N Brown Group plc Annual Report & Accounts 2016 RECONCILIATION OF OPERATING PROFIT TO NET CASH FROM OPERATING ACTIVITIES
For the 52 weeks ended 27 February 2016
Operating loss
Adjustment for movements in working capital
Increase in trade and other receivables
(Decrease)/ increase in trade and other payables
Net cash outflow from operating activities
2016
£m
(1.4)
(13.4)
(43.6)
(58.4)
2015
£m
(2.2)
(21.9)
18.3
(5.8)
COMPANY STATEMENT OF CHANGES IN EQUITY
Share
capital
(note 39)
£m
Share
premium
£m
Own Shares
(restated see
note 33)
£m
Retained
earnings
(restated see
note 33)
£m
Changes in equity for the 52 weeks ended 27 February 2016
Balance at 28 February 2015 as previously reported
Effect of amendment to IFRS 2
Effect of amendment to treat the ESOT as a branch of the parent company
Balance at 28 February 2015 - restated see note 33
31.3
11.0
–
–
–
–
31.3
11.0
Comprehensive income for the period
Profit for the period
Other items of comprehensive income for the period
Total comprehensive income for the period
Transactions with owners recorded directly in equity
Equity dividends
Purchase of own shares by ESOT
Issue of own shares by ESOT
Adjustment to equity for share payments
Share based payment charge
Total contributions by and distributions to owners
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 27 February 2016
31.3
11.0
Changes in equity for the 52 weeks ended 28 February 2015
Balance at 1 March 2014 as previously reported
Effect of amendment to IFRS 2
Effect of amendment to treat the ESOT as a branch of the parent company
Balance at 1 March 2014 - restated see note 33
31.3
11.0
_
–
_
–
31.3
11.0
Comprehensive income for the period
Profit for the period
Other items of comprehensive income for the period
Total comprehensive income for the period
Transactions with owners recorded directly in equity
Equity dividends
Purchase of own shares by ESOT
Issue of own shares by ESOT
Adjustment to equity for share payments
Share based payment charge
Total contributions by and distributions to owners
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 28 February 2015 - restated see note 33
31.3
11.0
–
–
(0.3)
(0.3)
–
–
–
–
(0.4)
0.5
–
–
0.1
(0.2)
–
–
(0.5)
(0.5)
–
–
–
–
(0.2)
0.4
–
–
0.2
(0.3)
74.5
18.9
0.9
94.3
41.7
–
41.7
(40.2)
–
–
0.3
2.2
(37.7)
98.3
71.8
16.8
0.4
89.0
42.7
–
42.7
(40.0)
–
–
0.5
2.1
(37.4)
94.3
Total
£m
116.8
18.9
0.6
136.3
41.7
–
41.7
(40.2)
(0.4)
0.5
0.3
2.2
(37.6)
140.4
114.1
16.8
(0.1)
130.8
42.7
–
42.7
(40.0)
(0.2)
0.4
0.5
2.1
(37.2)
136.3
113
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE COMPANY ACCOUNTS
32 Significant accounting policies
Basis of accounting
N Brown Group plc ("the Company") is a company incorporated and domiciled in the UK. These financial statements present
information about the Company as an individual undertaking and not about its Group. These financial statements were prepared
in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”). The amendments to FRS 101
(2014/15 Cycle) issued in July 2015 and effective immediately have been applied.
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of
International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”), but makes amendments where necessary
in order to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has
been taken.
In the transition to FRS 101, the Company has made no measurement and recognition adjustments and has applied IFRS 1 whilst
ensuring that its assets and liabilities are measured in compliance with FRS 101.
IFRS 1 grants certain exemptions from the full requirements of Adopted IFRSs in the transition period however none are applicable
to these financial statements.
The Company is the ultimate parent undertaking of the Group and also prepares consolidated financial statements. The
consolidated financial statements of N Brown Group plc are prepared in accordance with International Financial Reporting
Standards and are available to the public and may be obtained from it registered office address.
The Company proposes to adopt the reduced disclosure framework of FRS 101 in its next financial statements. The principal
accounting policies summarised below have, unless otherwise stated, been applied consistently to all periods presented in these
accounts and in preparing an opening FRS 101 IFRS balance sheet at 1 March 2014 for the purposes of the transition to FRS 101.
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.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the profit and loss account except
to the extent that it relates to items recognised directly in equity or other comprehensive income, in which case it is recognised
directly in equity or other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial
recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than
in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse
in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of
the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred
tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary
difference can be utilised.
Dividends
Dividends receivable are recognised when the company’s right to receive payment is established. Dividends payable to the
Company’s shareholders are recognised as a liability and deducted from shareholders’ equity in the period in which the
shareholders’ right to receive payment is established.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an
integral part of the Company’s cash management are included as a component of cash and cash equivalents on the basis there is
right to offset.
Own shares held by ESOT
Transactions of the Company-sponsored Employee Share Ownership Trust (ESOT) are treated as being those of the Company and
are therefore reflected in the company financial statements. In particular, the trust’s purchases and sales of shares in the Company
are debited and credited directly to equity.
114
N Brown Group plc Annual Report & Accounts 2016 33 Prior period restatement
N Brown plc operates Group wide equity settled share incentive schemes. Whilst the Company has no own employees of its own, it
settles all share incentive schemes granted to employees of its subsidiaries. In 2016 the directors reviewed the application of IFRS 2
share based payments. In prior periods, the Group wide schemes had not been reflected in the individual accounts of N Brown Group
plc. The Company accounts have been restated with the Company now recognising a credit to equity in respect of all group wide
equity settled share based payment schemes. As subsidiaries are not recharged for the share based payment charge, the amount is
debited to cost of investment. The impact on the balance sheet in 2015 and 2014 is shown below, described as Adjustment 1.
The Company also acts as sponsor transferring cash and selling sufficient shares to enable an employee benefit trust to meet
obligations of the Group wide equity settled share incentive schemes. In prior periods, the trust was accounted for in the Group
accounts only and not in the Company accounts. On the basis that the trust is merely acting as an agent of the Company, the
Company accounts have been restated to account for the assets and liabilities of the trust as if they were assets and liabilities of
the Company. The Company cashflow statement has been restated on the same basis. Under this treatment, the accounting in
the Company accounts is the same as the accounting in the Group accounts. The impact on the balance sheet in 2015 and 2014
is shown below, described as Adjustment 2.
2015
As published
£m
2015
Adjustment 1
£m
2015
Adjustment 2
£m
2015
As restated
£m
2014
As published
£m
2014
Adjustment 1
£m
2014
Adjustment 2
£m
2014
As restated
£m
Fixed assets
Investments
Debtors
Cash and cash equivalents
Creditors
Amounts falling due in less
than 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
Own shares
Profit and loss account
Shareholders' funds
344.9
344.9
45.4
–
45.4
(243.5)
(198.1)
18.9
18.9
–
–
–
–
–
146.8
18.9
(30.0)
116.8
31.3
11.0
–
74.5
116.8
–
18.9
–
–
–
18.9
18.9
–
–
–
0.1
0.1
0.5
0.6
0.6
–
0.6
–
–
(0.3)
0.9
0.6
363.8
363.8
45.4
0.1
45.5
344.9
344.9
24.4
–
24.4
(243.0)
(197.5)
(225.2)
(200.8)
16.8
16.8
–
–
–
–
–
–
–
(0.4)
0.3
(0.1)
–
(0.1)
361.7
361.7
24.0
0.3
24.3
(225.2)
(200.9)
166.3
144.1
16.8
(0.1)
160.8
(30.0)
136.3
31.3
11.0
(0.3)
94.3
136.3
(30.0)
114.1
31.3
11.0
–
71.8
114.1
–
16.8
–
–
–
16.8
16.8
–
(0.1)
–
–
(0.5)
0.4
(0.1)
(30.0)
130.8
31.3
11.0
(0.5)
89.0
130.8
34 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 after tax for the financial period ended 27 February 2016 of £41.7m (2015, profit £42.7m)
which includes dividends received of £49.0m (2015, £50.6m).
The non executive directors’ remuneration was £569,000 (2015, £567,833) and seven non executive directors were remunerated
(2015, nine). The executive directors were remunerated by a subsidiary company in both years. Further details are provided on
page 75 of the directors’ remuneration report.
The auditor’s remuneration for audit services to the company of £15,000 (2015, £10,000) was borne by subsidiary undertakings.
35 Fixed asset investment
Cost and net book value
2015
(restated see
note 33)
£m
2016
£m
366.0
363.8
115
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE COMPANY ACCOUNTS
CONTINUED
35 Fixed asset investment (continued)
The company has investments in the following subsidiaries and joint ventures.
Company
Aldrex Ltd
Registered Office Address
Griffin House, 40 Lever Street, Manchester M60 6ES
Alexander Ross (Financial services) Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Ambrose Wilson Ltd
Better Living Ltd
Classic Combination Ltd
Comfortably Yours Ltd
Crescent Direct Ltd
Cuss Contractors Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Dale House (Mail Order) Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Daly Harvey Morfitt Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
DHM (Management Services) Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
E Langfield & Co. Ltd
Eunite Limited
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Figleaves Global Trading Limited
Griffin House, 40 Lever Street, Manchester M60 6ES
Financial Services (Edinburgh) Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
First Financial Ltd
Gray & Osbourn Ltd
Halwins Ltd
Hammond House Investments
International Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Hammond House Investments Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Hartingdon House Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
HB Wainwright (Financial Services) Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Heather Valley (Woollens) Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Hilton Mailing Ltd
Holland & Healey Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
House of Stirling (Direct Mail) Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
J D Williams & Co Ltd
J D Williams Group Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
J D Williams Merchandise Co Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
JDW Finance Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
JDW Pension Trustees Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Langley House Ltd
Mature Wisdom Ltd
Melgold Ltd
NB Finance (Eire Reg)
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
29 Earlsfort Terrace, Dublin 2, Ireland
N Brown Pension Trustees Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
N Brown Funding Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
N Brown Group Quest Trustee Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
N Brown Holdings Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
N Brown No. 2 Ltd (Guernsey Reg)
St Martin's House, Le Bordage, St Peter Port, Guernsey, GY1 4AU
N Brown Property One Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
N Brown Property Three Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
N Brown Property Two Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
NB Funding Guernsey Ltd (Guernsey Reg)
St Martin's House, Le Bordage, St Peter Port, Guernsey, GY1 4AU
NB Guernsey UK
Griffin House, 40 Lever Street, Manchester M60 6ES
NB Holdings Guernsey Ltd (Guernsey Reg)
St Martin's House, Le Bordage, St Peter Port, Guernsey, GY1 4AU
NB Insurance Guernsey Ltd (Guernsey Reg) St Martin's House, Le Bordage, St Peter Port, Guernsey, GY1 4AU
116
Proportion held by
the Group (%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
N Brown Group plc Annual Report & Accounts 2016 Company
NB Malta No1 Ltd
(Malta Reg)
NB Malta No2 Ltd
(Malta Reg)
Registered Office Address
The Hedge Business Centre, Level 3, Triq ir - Rampa ta' San Giljan,
St Julians STJ 1062, Malta
The Hedge Business Centre, Level 3, Triq ir - Rampa ta' San Giljan,
St Julians STJ 1062, Malta
Nochester Holdings (Eire Reg)
29 Earlsfort Terrace, Dublin 2, Ireland
Odhams Leisure Group Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Oxendale & Company Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Oxendale & Co. Ltd (Eire Reg)
Woodford Business Park, Santry, Dublin 17, Ireland
Reliable Collections Ltd
Sander & Kay Limited
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Speciality Home Shopping (US) Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
Tagma Ltd
T-Bra Limited
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
The Bury Boot & Shoe Co (1953) Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
The Value Catalogue Limited
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Vote It Ltd
Whitfords (Bury) Ltd
Whitfords (Cosytred) Ltd
Whitfords (Textiles) Ltd
Wingmark Ltd
36 Debtors
Amounts falling due within one year:
Amounts owed by Group undertakings
Prepayments and accrued income
37 Creditors
Amounts falling due within one year:
Bank loans and overdrafts
Trade creditors
Amounts owed to Group undertakings
Accruals and deferred income
38 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
Proportion held by
the Group (%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
2015
£m
45.2
0.2
45.4
2016
£m
58.0
0.8
58.8
2016
£m
2015
£m
13.0
–
186.0
0.5
199.5
2016
£m
13.0
85.0
98.0
13.0
–
85.0
98.0
(13.0)
85.0
56.4
0.3
186.0
0.3
243.0
2015
£m
49.4
37.0
86.4
56.4
30.0
–
86.4
(56.4)
30.0
117
N Brown Group plc Annual Report & Accounts 2016Financial statements NOTES TO THE COMPANY ACCOUNTS
CONTINUED
38 Bank loans (continued)
The Company has unsecured bank loans of £85.0m (2015, £30.0m) drawn down under a medium term bank revolving credit facility
committed until September 2020.
At 27 February 2016, the Company had available £60.0m (2015, £83.0m) 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
39 Share capital
2016
%
2.0
1.9
2015
%
2.0
1.7
Allotted, called-up and fully paid Ordinary shares of 111/19p each
2016
Number
2015
Number
2016
£m
2015
£m
At 27 February 2016 & 28 February 2015
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.
40 Guarantees
Parent Company bank overdrafts which at 27 February 2016 amounted to £13.0m (2015, £49.4m) have been guaranteed by certain
subsidiary undertakings.
41 Related party transactions
Key Management Personnel of the Company are considered to be the Directors of the Company for the purposes of related
party disclosures.
The Company's transactions with Key Management Personnel are disclosed in Note 34.
118
N Brown Group plc Annual Report & Accounts 2016 SHAREHOLDER INFORMATION
Financial timetable
2016
2017
11 October
8 December
6 January
19 January
25 February
26 April
15 June
5 July
18 July
Announcement of interim results
Closing of register for interim dividend
Payment of interim dividend
Christmas Trading Statement
Financial year-end
Preliminary announcement of annual results
Publication of 2017 annual report and accounts
Closing of register for final dividend
Annual general meeting
4 August
Payment of final dividend
Registered office
Griffin House
40 Lever Street
Manchester
M60 6ES
Registered No. 814103
Telephone 0161 236 8256
Bankers
HSBC Bank plc
The Royal Bank of Scotland plc
Registrars
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)
Solicitors
Pinsent Masons LLP
Eversheds LLP
Addleshaw Goddard LLP
Auditor
KPMG LLP
1 St Peter's Square
Manchester
M2 3AE
Corporate Brokers
Jeffries Hoare Govett
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
119
N Brown Group plc Annual Report & Accounts 2016 NOTES
120
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N BROWN GROUP PLC
Griffin House
40 Lever Street
Manchester M60 6ES
www.nbrown.co.uk
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