A customer
centric strategy
to drive profitable
digital growth
N Brown Group plc
Annual Report & Accounts 2019
200+
body measurements
to develop 2D patterns
to improve fit
Emails
targeting highest
responding customers
Strategic report
2 At a Glance
4 Chairman’s Statement
6 Chief Executive’s Statement
8 Our Strategy
14 Market Review
16 Business Model
18 Key Performance Indicators
22 Risk Management
24 Principal Risks and Uncertainties
28 Performance Review
34 Chief Financial Officer’s Review
38 Corporate Social Responsibility
Governance report
Corporate Governance Statement
46 Governance Overview
48 Board of Directors
51 Directors’ Report
55
58 Audit Committee Report
62
Nomination and Governance
Committee Report
63 CSR Committee Report
64 Remuneration Committee Report
Financial statements
Independent Auditor’s Report
Consolidated Income Statement
82
90
90 Consolidated Statement of
Comprehensive Income
91 Consolidated Balance Sheet
92
94
Consolidated Cash Flow Statement
Consolidated Statement of
Changes in Equity
95 Notes to the Group Accounts
128 Company Balance Sheet
129 Company Statement of
Changes in Equity
130 Notes to the Company Accounts
135 Shareholder Information
View online
ar2019.nbrown.co.uk
Loyal
customers identified
G
o
v
e
r
n
a
n
c
e
r
e
p
o
r
t
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
N Brown is a top 10 UK clothing &
footwear digital retailer. We are size
inclusive, focusing on the needs of the
underserved customer groups – size 20+
and age 50+. We offer an extensive range
of products, predominantly clothing,
footwear and homewares, and our
Financial Services proposition allows
customers to spread the cost of shopping
with us. We are headquartered in
Manchester where we design, source and
create our product offer, and we employ
over 2,400 people across the UK.
914.4
Revenue £m
2018: £922.2m
128.0
Adjusted EBITDA1 £m
2018: £118.6m
83.6
Adjusted pre-tax profit2 £m
2018: £81.6m
−57.5
Statutory (loss)/profit before tax £m
2018: £16.2m
1 Adjusted EBITDA is defined as operating profit, excluding exceptionals, with depreciation and amortisation added back. The directors
believe adjusted EBITDA represents the most appropriate measure of the Group’s underlying trading performance.
2 Defined as excluding exceptionals and fair value movement on financial instruments.
1
1
N Brown Group plc Annual Report & Accounts 2019Strategic report
At a Glance
Leading inclusive
fashion retailer
A modern, digital department store,
offering style for 45-plus customers and
their families, with ranges for women, men,
home and kids. Focusing on shape and fits
that flatter, we create unique silhouettes,
rather than scaling patterns; we use real
bodies, rather than static mannequins, we
design our products to fit – a unique and
age appropriate point of view to empower
women to feel their best.
Simply Be has empowered women for
over a decade to express their true selves
through perfect fitting style, whatever
their shape, whatever their size. The brand
is gaining significant momentum here in
the UK.
A modern, challenger brand with a strong
digital offer, Jacamo wants men of all
shapes and sizes to look good and to
enjoy fashion to express their own style.
Collections are available in a market-
leading range of sizes, from Small to 5XL.
Revenue decrease
−2.4%
£159.5m
Revenue performance
2
Revenue growth
+1.1%
+4.4%
£134.2m
Revenue growth excluding stores
Revenue performance
Revenue decrease
−2.8%
+3.9%
£66.7m
Revenue growth excluding stores
Revenue performance
N Brown Group plc Annual Report & Accounts 2019 We are structured in a matrix
approach, buying by product
category and marketing by brand.
This allows us to run a portfolio of
brands effectively and efficiently.
All of our brands sell a wide range
of clothing and homewares products.
Secondary Brands
Secondary Brands are focused on distinct
customer niches which are not served by
JD Williams, Simply Be and Jacamo.
£139.2m
Revenue excluding stores
–4.6%
Revenue decrease excluding stores
Traditional Segment
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.
£114.7m
Revenue performance
–17.2%
Revenue decrease
Financial Services
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 flexibility,
we allow customers to either pay us immediately
or utilise a credit account for their purchases,
spreading the cost of their purchase over time.
£298.6m
Revenue performance
+10.8%
Revenue growth
3
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements
Chairman’s Statement
Working together
for the future
This is my first annual report as
Chairman of N Brown, having started in
the role on 1 May 2018. It is a privilege
to chair the Group and I am delighted
to have taken on this role. I have been
hugely impressed by the energy which
runs through the business and the
dedication of our colleagues to deliver
for our customers.
Review of the year
This has been a year of continued transition
for the business with revenue declining
0.8% to £914.4m, reflecting the managed
decline of our legacy offline business and
our focus on delivering profitable digital
growth. Our focus on becoming a truly
digital retailer continues and 80%
of our product revenue is now digital 1.
Financial Services performed well in
the year with revenue up 10.8%. As we
continue to shift our focus from offline
to digital we are improving our marketing
efficiency, which has resulted in an
improved operating cost performance.
As a result, we are pleased to report
adjusted pre-tax profit of £83.6m, an
increase of 2.5% compared to last year.
During the year we experienced a high
level of exceptional items relating to
legacy customer redress payments, costs
associated with the closure of the store
estate and an impairment charge on the
Group’s VAT debtor asset. The quantum
of exceptional items in the year was a
disappointment, albeit largely relating
to legacy matters, and resulted in a
statutory loss before tax of £57.5m.
Board changes
During the year, Angela Spindler
stepped down as Chief Executive
Officer. We recognised that it was
an appropriate time to search for
a new leader to take the business
forward through the next phase
of its development. I’d like to
thank Angela for her significant
contribution as CEO. She led with
passion and energy and brought her
great personal qualities and values to
the way she led the N Brown Group.
Upon Angela’s departure Steve
Johnson was appointed Interim
Chief Executive Officer and we were
delighted that after conducting a
thorough and extensive search
process, the Board appointed
Steve as Chief Executive Officer in
February 2019. I’m really looking
forward to working with Steve and
his team to further develop the
N Brown business.
Dividend
We understand the importance of the
dividend to all shareholders; however, our
dividend cover during the year was low and
the level of exceptional items meant that
distributions were not covered by free cash
flow. Therefore, in October the Board took
the decision to rebase the dividend to a
more sustainable level from which we will
seek to grow as earnings progress. As a
result, we are recommending a full year
dividend of 7.1p per share.
Matt Davies
Non-Executive Chairman
80%
Product revenue now digital1
1 Revenue excluding stores.
4
N Brown Group plc Annual Report & Accounts 2019 Looking forward
The Board has undertaken a thorough
review of the strategy and the plans are
laid out in the Chief Executive’s Statement.
We are in a period of realigning the
business to focus on our customers’
changing shopping habits and to drive
digital profitable growth. We have a
good base on which to build. 80% of
our product revenue is now digital 1, and
we have industry leading expertise in fit
and a strong Financial Services business.
We look forward to the future with
confidence, however the retail backdrop
remains challenging and there is more
to do to develop our digital retail model,
as Steve outlines, and deliver sustainable
growth and returns for shareholders.
People
I would like to thank and recognise our
great colleagues across all parts of the
business for their continued commitment,
energy and focus throughout the year.
Matt Davies
Non-Executive Chairman
5
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Chief Executive’s Statement
Our strategy
for the future
+4.1%
Digital revenue
Secondary brands revenue decreased
by 4.6% excluding stores, reflecting our
continued shift in marketing investment
towards profitable, digital growth. Following
the success of its Simply Be and JD Williams
apps, the Group launched its third app in
August, Fashion World. This is targeted at
improving the digital experience for our
Fashion World customers.
we entered into a consultation with store
colleagues to consider closing our 20 stores
ahead of lease expiry. Following the
consultation, we took the decision to close
all 20 stores and at the end of the financial
year the Group had no physical stores. In
FY19 the Group’s stores generated £6.9m
revenue all within the first half of the
financial year (FY18: Revenue of £17.3m).
Revenue in the Traditional segment
decreased by 17.2% as the Group
continued to increase its focus on its digital
business and scaled back its unprofitable
offline marketing and recruitment. Within
the Traditional segment we were pleased
with the performance of Ambrose Wilson
which delivered digital growth of 7.4% in
the year. Given that this segment is more
heavily weighted towards offline than the
rest of the Group, as it typically serves
more mature customers, it is expected
to experience the fastest rate of offline
revenue decline going forward.
The Group’s transformation to a leading
digital retailer continues, with digital sales now
accounting for 80% of product revenue1 in the
year. In FY19 digital revenue grew by 4.1% and
was ahead by 8.0% for JD Williams, Simply Be
and Jacamo combined. Offline revenue
decreased by 29.9% as the Group continued
to shift its focus to its growing digital
businesses. As the Group focuses more of its
resources on growing its digital businesses,
going forward it expects a continued
double-digit decline in offline revenue.
International revenue declined 6.6% to
£32.4m. Ireland delivered revenues of
£18.5m, up 5.9% year on year (up 5.1% in
constant currency terms) and continues
to perform well. USA revenue was £13.9m,
down 19.3% year on year (down 18.0% in
constant currency terms).
During the year we undertook a review
of our store estate. Given the continuation
of very disappointing footfall, and despite
significant cost efficiencies being achieved,
1 Revenue excluding stores.
Financial Services delivered a strong
performance during the year, driven by
increased interest revenue and a continued
strong management of arrears. Financial
Services revenue was up 10.8% year on year.
Within this, interest payments were up
12.7% reflecting the increased level of
receivables and the impact of management
initiatives such as risk-based pricing which
was implemented in the year. This increase
was offset by a 3.6% reduction in other
fees and income reflecting general
improvements in the early arrears profile.
In a challenging and highly promotional
market we delivered a stable product gross
margin at 52.1%, down 10bps for the year as
a whole. As expected, Financial Services
gross margin decreased by 200bps to 59.2%.
This was driven by the change in accounting
methodology to provide for receivables
under IFRS 9, which results in a provision
being made against every customer account
regardless of whether they are in arrears.
As a result of this change, the impairment
charge for the year was £19.5m higher than
that charged in FY18 under the previous
accounting standard IAS 39. The increased
level of provision also increased the level of
profit generated from the sale of payment
arrangement debtors, with total profits on
debt sales of £10.7m, £4.9m higher than the
prior year. These two factors contributed to a
net £14.6m increase in bad debt charges
during the year. Compared to the same
period last year (restated on an IFRS 9 basis),
the provision rate decreased by 370bps due
to an underlying improvement in the quality
of the loan book and the disposal of some
high-risk payment debt which was sold
at a better rate than the book value.
Steve Johnson
Chief Executive
FY19 Overview
Group revenue declined 0.8% to £914.4m,
with Product revenue down 5.6% and
Financial services revenue up 10.8%.
JD Williams revenue was down 2.4% during
the year due to the drag from migrated Fifty
Plus customers, one of our legacy offline
brands. Excluding Fifty Plus, JD Williams
revenue increased 6.8%. JD Williams also
displayed strong growth in digital sales
with an 8.8% increase in digital revenue
compared to the previous year. Simply Be
delivered another good performance,
growing revenue by 4.4% during the period
excluding stores. Simply Be also reported
an 8.7% growth in digital revenue compared
to the prior year. Within the second half of
FY19 we increasingly moved to customer
lifetime value modelling which will continue
to impact Simply Be digital revenue growth
in the first half of FY20. Jacamo product
revenue was up 3.9% excluding stores.
Jacamo digital revenue increased by
5.1% compared to the prior year.
6
N Brown Group plc Annual Report & Accounts 2019 Operating expenses excluding exceptional
costs continue to be tightly controlled,
decreasing by 4.5% for the year. Admin
& Payroll and Marketing expenses were
the primary drivers. Admin & Payroll
expenses as a percentage of Group
revenue declined from 14.9% to 14.0%,
driven both by the actions taken to close
our store estate during FY18 and FY19 as
well as increased Head Office efficiencies.
Marketing costs improved as a percentage
of Group revenue from 17.8% to 17.3% as
a result of our continued focus on shifting
our marketing expenditure to drive digital
growth. Warehouse and fulfilment costs
as a ratio of Group revenue declined from
9.3% to 9.2% driven by lower volumes and
operational efficiencies.
Depreciation and amortisation increased
by 7.1% to £30.1m due to historical and
ongoing investment in IT systems.
Adjusted EBITDA increased by 7.9% to
£128.0m and adjusted EBITDA margin
increased from 12.9% to 14.0%. Adjusted
profit before tax was £83.6m, up 2.5% year
on year as a result of a strong Financial
Services performance and the delivery
of marketing and other operational
efficiencies. The statutory loss for the year
of £57.5m was wholly driven by exceptional
costs of £145.6m which in the main relate
to legacy issues and our decision to close
the store portfolio.
In October, the Board took the decision
to rebase the dividend to a more
sustainable level from which we will seek
to grow as its earnings progress. As a
result, we are proposing a full year
dividend of 7.1p per share.
A customer centric strategy
to drive profitable digital growth
The rapidly changing shopping habits of
our customers, coupled with a continually
challenging consumer environment,
emphasises the need for a retail-led
strategy which is robustly focused on
profitable digital revenue growth.
To this end, we have assessed the business
to ensure that N Brown is well placed to
take advantage of the opportunities in its
markets and remains resilient to present
and future challenges.
N Brown is a business with a clearly
differentiated position and areas of
market-leading innovation, underpinned
by a strong enabler of customer choice
and loyalty from our Financial Services
proposition. From this core, we believe
that we have a real opportunity to delight
our customers more consistently –
customers who understandably expect
more and demand continued relevance
and personalisation in their N Brown
shopping experience.
G
o
v
e
r
n
a
n
c
e
r
e
p
o
r
t
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
A customer
centric strategy
to drive profitable
digital growth
Core
market
We will focus on the UK.
Customer
experience
Product
We will deliver better products for
our customers.
Data
We will trade smarter with Data.
People
We will inspire colleagues toward
further delighting our customers.
We will simplify the business to improve
the customer experience.
Turn over to read more
Strategy summary
There is a substantial amount of activity
already underway at N Brown but a
refocusing of our strategy on delighting
our customers is fundamental to successful
delivery of the Group’s potential. Decisions
taken in the previous financial year are in
the short-term likely to marginally hold back
Group revenue growth. Notwithstanding
this, our strategy is expected to maintain
short-term profitability. Going forward, our
strategy is very much focused on driving
sustainable digital revenue, profit and free
cash flow growth to deliver improved
shareholder value.
On behalf of the Board, I would like to
thank all of our colleagues for their very
significant contributions in what has been
a challenging but developmental year for
the business. This commitment, together
with our recent progress in a number of our
focus areas, has embedded momentum for
N Brown to now measurably deliver upon
its digital retail proposition for customers.
Outlook
We have made solid progress focusing
on profitable, digital growth in the second
half of the year despite the challenging
external environment. Whilst mindful of
the continued challenging macro-economic
environment and uncertainties surrounding
Brexit, we are focused on driving
sustainable digital revenue, profit and free
cashflow growth to deliver improved
shareholder value.
Steve Johnson
Chief Executive
We have a solid foundation from which to
build, with 80%, or around £500m, of our
product revenue now digital, meaning
we are a top 10 UK Clothing & Footwear
retailer by digital revenue. We also have
industry leading expertise in fit, and a
Financial Services business which continues
to perform well. Whilst we have made solid
progress in growing our online market, we
know that there is more to do to improve
our digital retail model, and our proposition
is not yet well enough developed. A
re-focusing of our strategy on delighting
our customers is now required.
The past year has seen a marked
acceleration in the business’s transition
as we continue to target profitable,
digital growth by focusing on our digital
customers and managing the decline of
our offline business. We have increased our
profitability despite this significant change
and against a backdrop of an ongoing
challenging retail climate and decline in
consumer confidence. This represents the
start of a material shift for N Brown as it
further strengthens its digital offering.
Our assessment of the business has
identified a number of core focus
areas around which we are aligning
our operational planning and delivery.
We will focus on the UK and target a
simplification of our customer brand
proposition; continue to enhance our
product offering; and accelerate our
use of data and analytics to enhance
operational efficiency. Underpinning
all of this will be improvements in our
colleague engagement, as we inspire our
colleagues to further delight our customers.
Our vision is to be the leading inclusive
fashion retailer and we will pursue this vision
by executing on our purpose of responsibly
improving people’s lives by making our
customers look and feel amazing.
7
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements
Our Strategy
Focusing on the UK core
market and improving the
customer experience
Core
market
1
Customer
experience
2
We will focus on the UK
Strategic objective
Maximise the UK core market before
leveraging our international opportunity.
What we are doing
The UK is our core market and we can do much
more to enhance our offering to UK customers
every day before focusing time and resource
elsewhere. In the UK, the online clothing &
footwear market is forecast to grow by 7%
per year for the next five years. We currently
have online market shares of 4.0% and 3.2%
respectively in our addressable womenswear
and menswear markets, giving us plenty of
headroom to grow in the UK.
We remain confident that the international
opportunity continues to exist following a
detailed review of the potential for our brands
– but the way in which we go to market in the
USA will mean an immediate step back from
solely driving direct customer business in
that market. We will continue to explore
international territories through selected,
targeted partnerships. To this end, we have
recently closed JD Williams in the USA and, for
now, will only focus on servicing our existing
Simply Be USA customers. Our Irish business,
Oxendales, continues to perform well and the
strategy there remains unchanged.
We will simplify the business to improve
the customer experience
Strategic objective
A crisper, clearer brand proposition for
our customers.
What we are doing
We will start by simplifying our customer brand
proposition. Our brands will be ‘fashion’ led and
there will be an increased focus on the older
customer. We currently trade through 11 brands
and categorise them under Power Brands,
Traditional and Secondary; from FY20 onwards
we will not be using these descriptions and will
move to ‘Womenswear’ and ‘Menswear’. Within
Womenswear our brands will be Simply Be, for
fashionable size 12-32 women; JD Williams, for
45-60-year-old women; and Ambrose Wilson
for women 60 and over. Menswear will be the
Jacamo brand. Our other brands will remain
complementary to Womenswear and Menswear
while we finalise our plans and we will provide an
update in due course.
To support this, we are continuing to invest in
our core technology platforms to streamline
digital user experience in both our product and
Financial Services areas. At the same time, we
expect to accelerate the pace of simplification
in our IT estate to increase efficiency but optimise
further investment for innovation. This will make
us more agile and we will be able to develop
new customer propositions more quickly. We
anticipate the migration of our brands to an
enhanced technology infrastructure in the
medium term which will deliver a better
customer experience.
We are focused on further improving our
customer proposition. Recent improvements
include an enhanced Mobile Web experience
bridging the gap between desktop and mobile
functionality; the launch of mobile apps on our
in-house mobile app framework for iOS &
Android with a 4.8* rating; and a simplified
account registration process which has reduced
dropout by a substantive degree. We have also
recently opened Europe’s largest Hyphen
Interactive Live Photo (HILP) technology for our
new in-house photo studio, which will transform
our ecommerce photography capabilities and
deliver cost efficiencies. Our plans incorporate
ongoing investment and innovation in our supply
chain. These already include the commencement
of a new returns automation facility at our
distribution centre in Shaw.
Finally, Financial Services remains an integral part
of the N Brown proposition and we will focus on
both increasing customer loyalty through our
credit offer as well as continuing to improve
the experience for those currently using our
personal account.
Our People delivering the strategy
We focus on the needs of
the underserved customer
groups, and our brands
will champion inclusivity
and inspire customers by
delivering the product
and experience to which
they aspire.”
We are customer
obsessed and
believe that we have
a great opportunity to
give a much improved
experience for our
amazing customers.”
8
N Brown Group plc Annual Report & Accounts 2019 Similar
style
Others with
similar style
viewed this item
New
Others who searched
“New in” bought this item
You’ll love these
personalised recommendations
are based on customers’
previous purchase history
N Brown Group plc Annual Report & Accounts 2019
9
9
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Our Strategy continued
18Size 18 recommended
based on previous
purchase history
10
19
people are looking
at this right now
78
Selling fast!
We have sold 78
in the last 48 hours
N Brown Group plc Annual Report & Accounts 2019 Delivering a best in
class fit proposition
Product
3
We will deliver better products
for our customers
Strategic objective
Increase the number of customers, purchase
frequency and basket size.
What we are doing
We will drive further innovation through our
market-leading body scanning technology and
pioneering 3D design & product development
to deliver continued fit improvements in quality
products at affordable prices. In addition, we will
continue to evolve from design influenced by
seasonal trends to key product ‘shouts’ dropped
cohesively in three weekly cycles and thus allow
substantially reduced lead times. Our experience
of recent peak trading periods gives us
confidence in our ability to buy more promotional
product to complement our core ranges and
maintain a freshness in our offering. In our Home
and Gift proposition, we anticipate a tightened
curation, built on a strong central range with
more brand specific product.
The purpose of the Group is to be as customer-
inclusive as possible which ensures we remain
focused on our product truly resonating with our
customers’ needs. Here, our fit-focus expertise
remains an essential part of our DNA. The
strongest customer feedback we receive is the
emotional response that a good or poorly fitting
piece of clothing elicits. Harnessing this feedback
ever more quickly and channelling it into agile
product re-orders or improvements in quality
is essential.
We will invest further in design and sourcing.
All these areas will be underpinned with a
renewed and enhanced sustainability and
ethical sourcing investment plan to build
upon strong foundations in this area.
Finally, we will continue to evolve the way
we engage with our customers, improving
the quality and breadth of our brand and
influencer reach, and substantively better
targeted marketing and promotional activity
to ensure a more personalised experience.
Our People delivering the strategy
Through customer and
market insight, we are building
curated ranges that have
been uniquely designed and
responsibly sourced through
a highly flexible supply chain,
to make our customers look
and feel amazing.”
It’s all about ensuring
our customers receive
the perfect fitting
product every time
they shop with us.”
11
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements
Our Strategy continued
Our plan to become
a truly digital retailer
Data
4
We will trade smarter with Data
Strategic objective
Improve operating efficiency and
customer targeting.
What we are doing
Enhanced use of our rich data has already
unlocked operational efficiencies and
improved customer insight in our business,
but our strategy is underpinned by a further
step change in how we harness and use this
data. Substantive investment in new skills and
technology platforms, established partnerships
with third-party analytics leaders and a
“test-and-learn” data culture embedded
throughout the organisation are progressing,
and there remains significant opportunity to
develop these much further.
Through a mix of tactical quick wins and
longer-term initiatives, we will enhance
personalisation and use data to optimise fit
for our customers to ensure we create the
right product for them. We have used Artificial
Intelligence modelling, which predicts size
profiles and return rates, along with the
effectiveness of product attribution and image
data in predication. Early results from this have
been successful and will be further developed
in this financial year.
In addition, specific opportunities have been
identified targeting a more optimised product
range in terms of breadth, frequency of newness/
lifecycle analysis, and price using historical data
of product performance, customer journeys and
price architecture. Recent positive peak-season
success with newly implemented promotional
tools in merchandising will now be more widely
embedded. This will be complemented by
improvements in the targeting of discount
codes to each customer, as well as a further
unification of all promotional planning in the
business to ensure enhanced forecasting of
marketing promotions.
Data and analytics initiatives are also driving
innovation to ensure we appeal to more
customers who value a flexible credit offering.
During FY19, we significantly reduced our
headline interest rates and launched an
introductory six-month interest free offer for new
credit accounts. Analytics has also supported a
new arrears management strategy which has led
to an improved level of balances in arrears at
our year end. We will also launch an initiative
to enhance new customers’ credit assessment
in the account opening process.
People
5
We will inspire colleagues toward
further delighting our customers
Strategic objective
Better engaged colleagues will deliver a better
customer experience.
What we are doing
Our people strategy is focused on creating the
right culture and environment which attracts,
retains and inspires colleagues to thrive and
deliver a great experience for our customers.
As our customers’ shopping habits have rapidly
changed, we are supporting colleagues to be
more customer focused. Changes to our internal
reward and performance management
processes will reflect this – notably to ensure
a more nimble, real-time feedback and
appraisal approach.
We have already made changes to a variety
of commercial teams to increase pace and
customer ownership, whilst at the same time we
are also investing further in critical skills in data
science and user experience. Engaging our
colleagues in the new strategy and more closely
aligning their roles to delight our customers, we
believe fundamentally underpins the business
in delivering sustainable profit growth.
Our People delivering the strategy
Our People work relentlessly
with the energy and dedication
to ensure that our customers
are made to look and feel
fabulous. In a new digital age,
a change of People strategy
is needed to ensure that
our colleagues continue to
drive our business forward.”
12
We’re upskilling more
of our colleagues in Data
Science, from a mind set
and technical point of view,
so that the use of data is
embedded throughout
the business to allow us
to serve our customers
better than ever before.”
N Brown Group plc Annual Report & Accounts 2019
Promotions
Customer responds well
to selective promotions
Discount
Display discount message
as customer exits website
6pm
Customer responds better
to emails sent after 6pm
N Brown Group plc Annual Report & Accounts 2019
N Brown Group plc Annual Report & Accounts 2019
13
13
13
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Market Review
A developing
online market
Retail
Macro-economic trends
Online fuelling growth.
Consumer outlook cautious.
How we are responding
Continuing to improve our customer
service and experience using data.
Continuing to improve our fit specialism.
Trends
The landscape for retail continues to
transform at pace, and with emerging
technology, the fragmentation of
consumer spend across a greater array
of channels and marketplaces contributing
to the changing landscape. Despite
the uncertainty in the UK economic
environment putting pressure on retail
spending, growth in the retail market
is however predicted, fuelled by online.
In the UK, the online clothing and footwear
market is forecast to grow by 7% per year
for the next five years.
Opportunities for growth
Our fit specialism and product innovations
are important loyalty drivers for our
customers who are looking for more than
just great value from our inclusive product
offering. Our credit facility drives loyalty by
allowing our customers to spread the cost
of shopping with us. We have a strong focus
on data to innovate our customer service
and experience, with personalisation a key
opportunity for us to continue to capture
customer loyalty.
How we are responding
We continue to aim to mitigate input costs
as much as possible, working closely with
our suppliers and moving supply nearer
to the UK in some cases.
We hedge our dollar buying requirements
on a rolling basis to give us clarity over our
buying rates.
Trends
Inflationary pressures remain across the
retail sector, something which is expected
to continue to challenge the UK retail
sector this year. Household disposable
income has remained steady, however the
uncertainty surrounding Brexit has led to a
cautious approach to retail spending, with
many consumers choosing to prioritise
their spending on experiences.
Opportunities for growth
Our personal credit account facility is a
helpful customer service proposition when
household disposable income is under
pressure. Our multi-category credentials
also allow us to maximise our offering to
customers, widening share of basket and
offering customers even greater choice.
Global trends
Overall the global economy
continued to grow in 2018, at an
estimated rate of 3.7% according
to the latest update from the
International Monetary Fund
(Source: WEO Update, January 2019).
Slower growth was seen in the UK
and Europe due to the political
uncertainty of the UK’s departure
from the EU. We continue to work
to ensure that the impact to our
customers and our business is
minimised as much as possible
throughout the transition and exit
from the EU.
Demographic trends
UK obesity rates have continued
to rise to 26% of the population
according to the most recent data
from the Office for National Statistics
(Source: Health Survey for England,
2016). Improvements in healthcare
and lifestyle are also resulting in an
ageing UK population, with over 18%
of the population now aged 65+
according to latest figures from the
Office for National Statistics. Our
size and age inclusive approach
are important differentiators which
benefit from these population trends.
14
N Brown Group plc Annual Report & Accounts 2019 80%
Digital product revenue1
+20bps
Ladieswear market share
Online
Consumer credit
Ethical sourcing
The single fastest growing
retail channel.
Continuing improvement in the
quality of our credit customer
loan book.
How we are responding
We constantly monitor the health of our
customer loan book and have seen the
quality of the book improve further this year.
Trends
Retail credit is growing strongly and is
expected to grow between 3% – 7%
annually over the next five years according
to recent research by Mintel (Source:
Mintel, Credit Cards UK Aug 2018). Growth
is driven by low interest rates and good
credit availability. The competition that
the retail credit market faces from other
lending products means we are continuing
to look at ways to improve our offering and
innovate within this space.
Opportunities for growth
Our variable rate pricing strategy is fully
implemented and our headline rate for
JD Williams, Simply Be and Jacamo has
been reduced to 24.9%, allowing us to
drive an improvement in the risk quality
of credit customers and increased
acceptance rates.
How we are responding
We use data and analytics to deliver an
improved digital customer experience.
Continuous improvements to our mobile
app offering.
Trends
Online remains the single fastest growing
retail channel, growing from £40.3bn in
2017 to a projected £75.2bn in 2023.
Mobile continues to develop as the device
of choice with the second highest device
penetration at 48.1%, meaning it has a
significant role to play throughout the
customer journey. Spend via mobile is
growing as retailers enhance their mobile
sites and apps and consumers continue
to seek convenience. (Source: GlobalData
November 2018)
Opportunities for growth
As we fully transition to a digital retailer,
we continue to make improvements to win
more share online and to further improve
the customer experience. We now have
a mobile app offering for four of our key
brands: JD Williams, Simply Be, Jacamo
and Fashion World, as we recognise the
growing importance of mobile.
1 Revenue excluding stores.
As a business our key focus is to
rebalance the sourcing mix to ensure
that we can serve our customers
through flexibility and delivering key
products and trends at the right time.
China remains our key territory for
Homewares, however our sourcing
from China decreased this year as we
explore new territories to support an
improved service level.
Sourcing breakdown FY19
Excludes direct
dispatch products
37%
China
18%
UK
India
11%
Bangladesh 8%
8%
Pakistan
4%
Sri Lanka
3%
Turkey
3%
Vietnam
1%
Malaysia
7%
ROW
15
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Business Model
Creating value
for the future
Inputs
Core activities
Brand portfolio
We operate a trusted family of retail brands. We sell
womenswear, menswear, footwear, homewares and gifting
across our brands.
£615.8m
Total brand portfolio revenue 2019
Engaged customer base
Strengthening customer loyalty and gaining new customers
is important for sustainable growth. We put the customer
at the centre of every decision we make.
3.9m
Active customers
N Brown people
Without our people and relentless energy, enthusiasm and
passion, we couldn’t do what we do. They are our single most
important asset.
>2,400
People employed across the UK
Systems and infrastructure
Ongoing development and investment in our systems and
infrastructure remains crucial against a competitive sector. We
continue to deploy leading edge AI techniques throughout the
business and make improvements to our mobile app offering.
£36.3m
Capex investment in 2019
Retail products
Our fit specialism, at great value for money, is our USP.
Marketing
In-house
design team
RETAIL
Retail
Sourcing and
merchandise
Quality
and fit
Financial Services
Our Financial Services offer enables customers
to spread the cost of their purchase over time.
Cash
customers
Modernising
our offer
Financial
Credit
customer base
16
N Brown Group plc Annual Report & Accounts 2019 Read more in
Our Strategy on p8
Read more in
Performance
Review on p28
Value
Outputs
£615.8m
Total product revenue 2019
−5.6%
Decrease in revenue
Percentage
of product
revenue
JD Williams
Simply Be
Jacamo
Secondary Brands
Traditional Segment
26%
22%
11%
23%
19%
Note: Chart totals 101% due to rounding.
£298.6m
Total Financial Services
revenue 2019
+10.8%
Increase in Financial Services
revenue
Financial
Value back to
shareholders
Grow EBITDA to support
value creation.
Value back into
business to drive
future growth
We invest into our business to ensure
that we can drive profitable, sustainable
growth in the years ahead.
£128.0m
Adjusted EBITDA in 2019
£36.3m
Capex investment in 2019
Non-financial
Customer
satisfaction
We’re proud to make great products
that people love. Our clothes make
our customers look and feel amazing.
Responsibility
We believe we should be a major
force for good in fashion. It’s a huge
responsibility, and a purpose way
beyond profit.
All People
Dignity and
respect through
people
Every
Product
Responsible
One Planet
Ways of
working
17
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements
Key Performance Indicators
Measuring progress
against our strategy
Customers
Active customer
accounts m
JD Williams, Simply Be &
Jacamo active customers m
Growth of our most
loyal customers %
Customer satisfaction
rating %
−12.4%
2018
2019
−3.2%
−240bps
+50bps
4.45
3.90
2018
2019
2.22
2.15
2018
2019
-2.6
-0.2
2018
2019
85.8
86.3
Relevance to strategy
Relevance to strategy
Relevance to strategy
Relevance to strategy
Definition
Definition
Definition
Definition
The number of customer accounts
which made a retail purchase in the
last 12 months. The figures include
all brands aside from Figleaves.
The number of JD Williams, Simply Be
and Jacamo customer accounts which
made a retail purchase in the last
12 months.
We define our most loyal customers as
those who have purchased from us in
each of the last four clothing seasons.
Our latest overall customer
satisfaction score, as measured
independently by the UK Customer
Services Institute.
Performance
Performance
Performance
Performance
Our customer metrics reflect the
managed decline in our legacy offline
business. USA performance this year
has also impacted this metric. Digital
active customers were flat at 2.95m.
In line with last year’s strategy to
prioritise new customer recruitment
to JD Williams, Simply Be and Jacamo,
both Simply Be and Jacamo showed
growth in active customer accounts. As
expected, the migration of the Fifty
Plus title into the JD Williams brand
(these customers are included within
the JD Williams customers) was a
headwind to this metric.
Offline customers tend to be more loyal
and the managed decline of our offline
business has, as expected, impacted
the growth of our most loyal customers.
We were pleased to improve on our
customer satisfaction rating again
and score over 4ppts higher than the
retail sector average.
Outlook
Outlook
Outlook
Outlook
We will continue to attract new
customers to our business as we
focus on delivering profitable digital
growth in our UK brands.
In line with our new strategy, we will
focus on fewer, bigger retail brands,
all of which have significant room to
grow and increase the number of
active customers.
As we focus on building our digital
customer base, we will continue
to strengthen customer loyalty,
through improving the digital
customer experience.
Customer satisfaction is driven by a
wide range of factors, such as product
quality, our value for money, our service
proposition and how we respond
when things go wrong. We interact
with our customers through a variety
of channels every day to ensure that we
are doing the best job we can to make
our customers look and feel amazing.
Risk
• Failure to change
• Competition
• People
• Business interruption
Risk
• Failure to change
• Competition
• People
Risk
• Failure to change
• Competition
Risk
• Failure to change
• Competition
18
N Brown Group plc Annual Report & Accounts 2019
Product
Ladieswear market
share size 16+ %
Menswear market share
chest 44"+ %
Group returns rate
(rolling 12 months) %
Key to strategic drivers
+20bps
2018
2019
−20bps
+90bps
5.6
5.8
2018
2019
2.7
2.5
2018
2019
27.1
28.0
Relevance to strategy
Relevance to strategy
Relevance to strategy
Core market
Customer experience
Product
Data
People
Definition
Definition
Definition
Our market share in UK ladieswear,
in size 16 and higher. Market share is
calculated using internal and Kantar
data, and these figures relate to the
52 weeks ending 10 February 2019.
Our market share in UK menswear, in
chest size 44" and higher. Market share
is calculated using internal and Kantar
data, and these figures relate to the 52
weeks ending 10 February 2019.
The amount, measured in value, of
products which are returned to us by
customers, over the last 12 months.
Performance
Performance
Performance
We were pleased to grow our market
share in the competitive market, as
we continue to reinforce our leading
position in the plus size market.
The managed decline of our offline
business and the subsequent
performance of Premier Man has
resulted in a slight decrease in our
market share in UK menswear in
chest size 44"+.
We saw a slight increase in our
returns rate, which remains below
the industry average.
Outlook
Outlook
Outlook
We continue to drive improvement in
our product offering and fit USP to
ensure we offer our customers the
best choice of products to fit and
flatter them, whatever their size.
We continue to drive improvement
in our product offering and fit USP
to ensure we continue to offer our
customers the best choice of products
to fit and flatter them, whatever their size.
As we increase our digital business,
we look to maintain our below
industry average returns rate with
product improvements and new
cash customers.
Risk
• Failure to change
• Competition
• People
Risk
• Failure to change
• Competition
• People
Risk
• Failure to change
• Competition
19
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements
Key Performance Indicators continued
Digital
Digital penetration1 %
+7ppts
2018
2019
Digital penetration
of new customers %
+10ppts
Conversion rate %
−40bps
Traffic from mobile
devices %
+2ppts
73
80
2018
2019
81
91
2018
2019
5.3
4.9
2018
2019
76
78
Relevance to strategy
Relevance to strategy
Relevance to strategy
Relevance to strategy
Definition
Definition
Definition
Definition
The percentage of sales, excluding
stores and International, which comes
to us digitally. Our second largest
channel is through our contact centre.
The percentage of sales from
new customers, excluding stores
and International, which comes
to us digitally.
The percentage of digital sessions
which result in an order being placed.
The percentage of our total digital
traffic which comes from either a
smartphone or a tablet device.
Performance
Performance
Performance
Performance
Digital penetration was 80% for the
year and digital revenue was up 4.1%.
Digital penetration of new customers
increased significantly by 10ppts to
91%, demonstrating the digital nature
of our business as we focus on driving
digital growth.
The ongoing increase in mobile devices
as a proportion of traffic represents a
drag on overall conversion rates which
coincides with the browsing habits of
mobile shoppers.
Mobile devices include both
smartphones and tablets; of these,
smartphones remain the device of
choice for customers, with web
smartphone sessions accounting
for 61% of all traffic.
Outlook
Outlook
Outlook
Outlook
We continue to improve the digital
customer experience and to develop
user experience testing to ensure that
our digital proposition meets that of
a leading digital retailer.
We expect our digital metrics to
continue to increase as we focus on
our strategy to drive digital growth.
We are focused on increasing the
conversion rate of each device type.
We adopt a ‘mobile first’ approach to
all our digital improvements. During
the year we migrated away from the
third party app platform to bring our
apps in house and deliver upgrades
via our in-house development team.
Risk
• Failure to change
• Competition
• People
• Business interruption
Risk
• Failure to change
• Competition
• People
Risk
• Failure to change
• Competition
Risk
• Failure to change
• Competition
1 Revenue excluding stores.
20
N Brown Group plc Annual Report & Accounts 2019
Financial Services
Arrears rate
(>28 days) %
+20bps
2018
2019
Provisions rate %
−370bps
New credit recruits
(rollers)
−8.9%
8.7
8.9
2018
2019
17.9
2018
2019
14.2
122,000
111,000
Relevance to strategy
Relevance to strategy
Relevance to strategy
Key to strategic drivers
Core market
Customer experience
Product
Data
People
Definition
Definition
Definition
Arrears over 28 days are defined as
customer debts with two or more
missed payments.
Closing bad debt provision
as a percentage of gross
trade receivables.
The number of new customers
opening a credit account and rolling
a balance in the last six months.
Performance
Performance
Performance
We saw a slight increase in our arrears
rate of 20bps to 8.9%, against two
years of decline. This marginal increase
reflected the prior year level being
suppressed by the impact of the
change to the minimum payment rate.
Compared to the same period last
year (restated on an IFRS 9 basis), the
provision rate decreased by 370bps
due to an underlying improvement in
the quality of the loan book and the
disposal of some high-risk payment
debt which was sold at a better rate
than the book value.
In the last 6 months we recruited 111k
new credit customers who rolled a
balance, down from 122k in the prior
year, albeit an improvement from the
90k recruited in the first half of the
financial year. The reduction was
largely driven by tighter control
around lending decisions.
Outlook
Outlook
Outlook
As rates have now normalised
following the change to the minimum
payment rate we expect arrears rates
to remain broadly stable in the future.
Subject to management actions
regarding the level and timing of future
debt sales, we would expect the IFRS 9
impairment provision rate to remain
broadly flat going forwards.
We will continue to attract new
customers to our business as we
focus on delivering profitable digital
growth in our UK brands.
Risk
• Failure to change
• Competition
• People
Risk
• Failure to change
• Competition
• People
Risk
• Failure to change
• Competition
21
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements
Risk Management
Protecting the
integrity of our
business strategy
Risk management
The Board of Directors has overall
responsibility for ensuring that the Group
maintains sound systems of internal control
and risk management and has established
a continuous process for identifying,
evaluating and managing the significant
risks the Group faces. This process is
intended to provide reasonable assurance
regarding its commercial operations as
well as compliance with laws and
regulations. However, the Group
recognises that no system can provide
absolute assurance against material
misstatement, loss or failure to meet
its business objectives.
To ensure key business developments and
emerging risks are appropriately factored
into the risk management process, the
Group’s internal auditors facilitated three
Board level risk assessment sessions and
two risk appetite sessions during the year.
The CEO, CFO and Group Head of Internal
Audit, together with the operational
Directors, ranked and reviewed the key
risks facing the business, appraised the
structure of internal controls and identified
current and proposed activities to mitigate
these risks. The Audit Committee, which
convenes annually as a Risk Committee,
comprehensively reviewed the outcomes
from this process which were also used by
Internal Audit as a key driver in developing
the annual Internal Audit Plan.
The Board members also identified and
considered their appetite for risk in each
of the identified areas and proposed
additional activities and controls to
mitigate the risks and bridge the gaps
between risk and appetite.
Internal Audit maintain the Group’s Three
Lines of Defence model which documents
the internal and external sources of
assurance provided across the business.
The adequacy of coverage over corporate
risks at operational, oversight and
assurance lines of defence is reviewed
bi-annually and the output from this
Principal risk rating matrix
Change
in year
Top principal risks
1/ Business change
2/ Competition
3/ Regulatory environment
4/ Consumer confidence
5/ Bad debt
6/ Cyber security
7/ Business interruption
8/ IT systems
4
8
6
2
1
5
3
7
0
5
.
4
0
5
.
3
D
O
O
H
I
L
E
K
I
L
0
5
.
2
0
5
.
1
2.75
3.00
3.25
3.50
IMPACT
3.75
4.00
4.25
process is reported to the Audit
Committee and used to drive the
content of the annual Internal Audit Plan.
An enterprise wide mapping of activities
across all 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 Internal 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
and KPIs to measure performance.
The Group’s Financial Services and Data
Governance Compliance teams continue
to play key roles in the monitoring and
mitigation of regulatory risk across
the business.
Operational management is asked to
present, on a cyclical basis, the progress
of agreed actions against the major risks
identified by the process. The output is
shared with the Audit Committee and
Executive Board.
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 continues to comply with the
provisions of the Code on Internal Controls.
There is an ongoing process in place for
identifying, evaluating and managing the
significant risks facing the Group that has
been in place throughout the year and to
the date of this report. The process has
been reviewed by the Audit Committee
and the Executive 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 in this report.
22
N Brown Group plc Annual Report & Accounts 2019
Brexit
Brexit is one of the most significant economic
events for the UK at the time of this report,
its effects are subject to significant levels of
uncertainty as to outcome. The full range
of potential economic, regulatory and
business environment impacts are
therefore unknown.
The uncertainty surrounding the impact of
Brexit and potentially reduced consumer
confidence give rise to the risk of increased
bad debts from a potential deterioration in
customer discretionary spending capacity.
In addition, the sensitivity of the Group’s
IFRS 9 model to adverse shifts in arrears
rates increases this risk. The Group has
continued to mitigate this risk through a
focus on maintaining and improving the
quality of the debt book.
The retail sector experienced a number
of business failures in 2018 and trading
conditions are expected to remain
challenging for at least the next 12 months.
The impact of Brexit on the Group remains
a key consideration with a wide range of
potential risks including increases in cost
prices, impact on our Irish operations,
decreased customer spending power to
potential loss of personnel. Management
are proactively planning in respect of Brexit
and a Brexit Impact Steering Committee
has been created to identify risks and drive
mitigation actions against those risks,
although Brexit is likely to compound
challenges identified in the sector.
However, the high level of uncertainty in
both the financial and political implications
of Brexit makes the success of mitigation
activities very difficult to predict.
Taxation
Taxation has historically been included as
a key risk for the Group. Given the progress
management have made in the year with
respect to a number of the Group’s legacy
tax cases and in particular the ruling which
has been received with respect to the
Group’s Partial Exemption case, the risk
arising from taxation has not been
specifically identified as a key risk this year.
Ongoing management and mitigation
of tax risk continues to be a priority for
the Group.
A continuous
process for
identifying risks
The Directors have overall responsibility for
ensuring that the Group maintains a sound
system of internal control.
Retail
Operations
Board
Committees
Board of Directors
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.
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 58 to 61.
Risk appetite
Business change
Competition
Regulatory environment
Consumer confidence
Bad debt risk
Cyber security
Business interruption
IT systems
Minimal
Cautious
Balanced
Material
Aggressive
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. The Group’s
internal auditors facilitated two Board level
assessments of risk appetite during the
financial year. Within this framework, the
Group’s appetite for risk is identified with
reference to the expectations of the Board
for both commercial opportunity and
internal control and is used to inform the
Group’s annual Internal Audit Plan.
The Group’s appetite for the principal
risks facing the business is detailed in the
above risk appetite graph. A calibration
model of one to five has been used to
illustrate the range of risk appetite for each
type of risk. The Group has a minimal risk
appetite for areas of statutory compliance
but is willing to accept greater risk to
achieve its objectives, compete and
drive the business forward.
N Brown Group plc Annual Report & Accounts 2019
23
23
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Principal Risks and Uncertainties
Identify, evaluate
and manage risks
facing the Group
Key risk
Consumer confidence
Key risk
Business change
Description
Changes in company strategy or adverse market conditions lead to a
loss of confidence in the Group to deliver on customer expectations.
Description
Business change plans are unsuccessful in delivering the best course
of action to achieve successful competition and growth.
Change from last year
Change from last year
Potential impact on business
Increased headwinds and uncertainty in the retail market coupled with
an uncertain Brexit outcome have caused an increased risk to consumer
confidence and consequently an increased risk to Group performance
and cash flow. Potential impacts arising from a loss of confidence by
customers include reduction in revenue, market share or profits,
increased bad debt provision, cash flow volatility and declining
customer satisfaction ratings.
Potential impact on business
The capacity of the Group to achieve its desired technological and
cultural change is necessary to remain competitive and improve
performance and market position. The Group’s continuous change
programmes are intended to deliver incremental, value added
changes to ensure that growth plans are achievable.
The potential consequences of not achieving change goals include: loss of
competitive position, underachievement against growth targets, inefficient
returns on investment and constrained ability to respond to market forces.
What we have done in 2018/19
• Delivered website
enhancements and new
applications to improve
customer experience.
• Launched customer
loyalty scheme.
• Enhanced data analytics
capability to identify customer
experience improvements.
• Launched new Financial
Services products.
• Group Customer Satisfaction
Index rating (CSI) is the highest
it’s ever been, currently ranked
number 3 in the UK Retail
(non-food) Business
Benchmarking.
Mitigation
• Customer insight team
tracking customer behaviours
and expectations.
• Benchmarking against
competitor activity in
marketing, product offering
and pricing strategy.
• Continuous improvement in
IT systems and business
processes throughout the
Group’s change programmes.
• Agile trade and supply
capabilities to adapt to
changing trends or macro-
economic shifts.
• Reduction in minimum
payments to reduce risk
of arrears.
• Proactive engagement
with FCA to ensure
continuous compliance
in Financial Services.
Mitigation
• Continuous, agile IT change
processes through the Digital
Launchpad initiative.
• Integrated approach to
technological upgrades
and business process
improvements.
• Cultural change group to drive
internal and cultural change.
• Data driven decision making
feeding into the Group’s
change delivery programme.
• Continued focus on removal of
barriers to loyalty through the
development of the customer
service experience.
• Customer Insights team
ensures up to date information
on customer trends and
expectations.
What we have done in 2018/19
• Successfully established
in-house Data Science team.
• Introduced cross-functional
‘squad’ approach to change
projects including key IT and
business owner representation.
• Implemented prioritisation
matrix to drive the change focus.
• Developed new suite of
internal measurements
and indicators to align the
business with the Group’s
strategic priorities.
• Group CSI is the highest it’s
even been, currently ranking
number 3 in the UK Retail
(non-food) Business
Benchmarking.
24
N Brown Group plc Annual Report & Accounts 2019
Key risk
Bad debt
Key risk
IT systems
Description
Impact from Brexit and decreasing consumer confidence increases the
level of bad debt provisions and write off.
Description
Residual dependency on legacy IT systems leads to lack of agility to
respond to changing market conditions.
Change from last year
Change from last year
Potential impact on business
The current state of the consumer credit market as well as the
uncertainty of Brexit places additional constraints on customer
discretionary spending and may lead to an increased risk of missed
Financial Services repayments and arrears rates.
The potential consequences of increased bad debt provision
include: constrained working capital and cash flow, lowered
additional borrowing capacity, underachievement against
growth targets and loss of flexibility.
Potential impact on business
Modern IT systems offer increased functionality and allow for greater
agility in response to changing market conditions. In addition, ongoing
maintenance and support costs within the legacy IT infrastructure
represent a cost headwind. Potential impacts arising from continued
dependence on legacy IT systems include inefficient return on
investment, loss of market share and reduced customer satisfaction.
Mitigation
• Improved operations systems
What we have done in 2018/19
• Enhanced process and
Mitigation
• Increased quality of credit on
book to mitigate risk of arrears.
• Automated monthly disposal
process of debts passing
through the arrears cycle.
• Reduced minimum payments
rate to make repayments
easier for customers.
What we have done in 2018/19
• Enhanced lending criteria for
new customers and ongoing
credit limit assessment.
• Continued focus on fraud
prevention to protect
customers and the Group.
process.
• Dedicated and proactive
• Enhanced use of data analytics
in-house Financial Services
and Customer Service teams.
and procurement of a new
data analytics platform.
stability and introduced
performance monitoring.
• Migration of legacy IT systems
to cloud service providers for
improved resilience.
provider for IT legacy
architecture support.
• Improved arrears management
• Continued use of outsource
accountability definition
across the architecture and
engineering teams.
• Appointed external consultants
to appraise Technology strategy
and direction.
• Introduced Design Authority
process to ensure Technology
decisions align to business
strategy.
• Reduced dependence on legacy
product management platform
though a combination of new
process and tactical IT changes.
• Continued migration from
legacy systems to cloud
based systems.
• Architecture team designed
and re-focused the technology
roadmaps.
25
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements
Principal Risks and Uncertainties continued
Key risk
Cyber security
Key risk
Competition
Description
Malicious activity leading to significant loss of data or disruption to
trading and potentially impacting income, profitability, customers and
the Group reputation.
Description
Failure to compete effectively through Retail, Customer Service and
Financial Services propositions.
Change from last year
Change from last year
Potential impact on business
Increased online presence and reliance on digital systems raises the
importance of cyber security to the Group. GDPR regulations increase
the Group’s focus in this area.
Potential impacts on the business include:
• Loss of customer data
• Business interruption
• Potential fines or reputation damage if regulatory response
plans are delayed or not adequate
Potential impact on business
Competing effectively across the key areas of Product, Financial Services
and Customer Services remains a key driver of growth through customer
recruitment and retention. Potential consequences of increased
competition include: loss of market share, erosion of margins and
a fall in customer satisfaction scores.
Given the current macro-economic uncertainty arising from Brexit, the
need to remain competitive is further heightened in order to deliver
business growth.
Mitigation
• Group Cyber Security team
designs and implements
security controls.
What we have done in 2018/19
• Implemented a vulnerability
management and remediation
process.
• Security Operation Centre
• Introduced continuous security
(SOC) continuously monitors,
manages and responds to
cyber security attacks.
monitoring and third party
vendor security assessment
processes.
Mitigation
• Customer Insight team uses
the Customer Services Index
to drive continuous
improvement programme.
• Integrated merchandising and
marketing squads under new
Trading Director.
• Operating system software
• Recruited a qualified Penetration
• Ongoing benchmarking
security hardening.
• Anti Distributed Denial of
Service (DDoS) processes.
Tester and introduced a
Penetration Testing programme.
• Development of a Security Event
and Incident Management
(SEIM) tool.
• Defined Centre Internal Security
(CIS) configuration benchmarks
for all operating systems
software.
• Data Loss Prevention (DLP) set to
‘Block’ mode to prevent fraud.
against competitor activity.
• Continuous improvement
in IT systems and culture
through the Group’s change
programmes.
• Brexit response steering
committee to drive strategy
for response to Brexit.
• Hedging of foreign exchange
rate exposure to provide
certainty over input costs.
What we have done in 2018/19
• Refocused brand strategy
to be more customer centric.
• Re-aligned key objectives
to focus on profit and
digital growth.
• Launched variable APR and
new financial service products.
• Reduced legacy, offline
customer recruitment.
• Commenced automation of
the customer returns process.
• ‘Cross-functional ‘squads’
introduced to enhance
customer focus.
26
N Brown Group plc Annual Report & Accounts 2019
Key risk
Regulatory environment
Key risk
Business interruption
Description
Failure to ensure the Group complies with existing
and emerging regulation.
Description
A significant event impacts the ability of the Group to
continue trading.
Change from last year
Change from last year
Potential impact on business
Recent and forthcoming changes in regulation remain a key
consideration for the Group. The recent GDPR regulations are now
fully embedded and operating. However, the introduction of the
FCA Senior Managers Regime in December 2019 represents a
continuing focus on key regulation for the Group.
Potential impacts arising from changes in regulation are: increased
costs, erosion of margins and potential fines or reputation damage
if response plans are not achieved.
Potential impact on business
Business interruption events are an ever present possibility for
the Group. Potential impacts are broad ranging and include:
• Disruption to trade and customer service
• Impact on revenue, margin or reputation
Mitigation
• Financial Services Governance
What we have done in 2018/19
• Embedded Data
Mitigation
• Business Continuity framework
What we have done in 2018/19
• Continued our planned
Committees oversee all
changes and improvement to
Financial Services processes.
• Data Governance team
responsible for ensuring
compliance with data security
provisions of GDPR.
• In-house Customer Service
team specialising in the
treatment of vulnerable
customers.
• Continued active membership
of the British Retail Consortium
and the Finance and Leasing
Association.
• Proactive engagement
with the FCA and other
regulatory bodies.
Governance and GDPR
compliance reporting in
standard management
information reports.
• Ongoing development of the
Group’s accountability model to
identify and update roles and
responsibilities in preparation
for the Senior Managers and
Certification Regime.
• Established a steering group
to govern and control the
introduction of the Senior
Managers Regime.
is underpinned by a Crisis
Management plan and
supported by individual
Business Continuity plans
for each business area across
the Group.
• Third party service providers
have Business Continuity plans.
• The business change
programme includes migration
to cloud based systems which
increases resilience.
• Outsource provider for
IT legacy systems.
migration to cloud services
to improve resilience in our
business systems.
• Completed a major incident
walk through with senior
managers using various
scenarios to assess the
effectiveness of the Crisis
Management plan.
• Appointed a Business
Continuity specialist to
review and refresh our
Business Continuity Plan
framework and supporting
Business Continuity plans.
27
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements
Performance Review
A transforming
digital retailer
Our performance in detail
Our transformation to a digital retailer
continues with 80% of product revenue
now digital 1, and with digital revenue for
JD Williams, Simply Be and Jacamo +8.0%.
Simply Be
JD Williams
Jacamo
+4.4%
Product revenue increase
excluding stores
−2.4%
Product revenue decrease
+3.9%
Product revenue increase
excluding stores
Targeted
Low conversion on this product
prompts targeted follow-up email
1 Revenue excluding stores.
28
N Brown Group plc Annual Report & Accounts 2019 12
Customer browses
for an average of
12 minutes before
purchasing
Loyalty
Curated offers to drive loyalty
29
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Performance Review continued
FY19 Performance
Review
JD Williams
JD Williams revenue increase
of 6.8% excluding Fifty Plus
Digital revenue up 8.8%
JD Williams saw strong
growth in digital sales
with an 8.8% increase in
digital revenue compared
to the previous year.
−2.4%
Revenue decrease to £159.5m
30
streamed on jdwilliams.co.uk with a click to
buy functionality – allowing customers to
buy the clothes they see on the catwalk.
This year, JD Williams has adopted the
campaign mantra of ‘I AM…’ shot and
directed by an all-female crew aged
between 45-60 – our target customer.
The campaigns celebrate everything about
life after 45, and the bold and empowering
campaigns have featured a mix of models
and real women, diverse in age and shape,
who the audience can really relate to,
showcasing the AW18 and SS19 collections,
available in sizes 10 – 32.
In October we launched JD Williams
Rewards; a loyalty scheme which gives
our customers personalised rewards.
We use customer data to tailor the rewards
to different types of customers depending
on their shopping habits and preferences.
JD Williams is our modern digital
department store, positioned for 45+
customers and their families. Revenue was
down 2.4% during the year due to the drag
from migrated Fifty Plus customers, one of
our legacy offline brands. Excluding Fifty
Plus, JD Williams revenue increased 6.8%.
JD Williams also displayed strong growth in
digital sales with an 8.8% increase in digital
revenue compared to the previous year.
Last summer JD Williams conducted
research which highlighted that more than
half of women aged 45+ are unhappy with
what the high street has to offer their age
group, despite 60% of this age group
having more money to spend on fashion
now than they did in their twenties.
In response JD Williams staged ‘JDW Live
AW18’ in London on the eve of London
Fashion Week – a celebration of fashion for
women aged 45+. The show included the
winners of the JD Williams’ Model search,
a nationwide competition to find two
unsigned models in their mid-life years,
as part of its ongoing commitment to use
age-appropriate models in its brand and
advertising campaigns. This event kick
started London Fashion Week and was live
N Brown Group plc Annual Report & Accounts 2019 Simply Be
Championing inclusivity, holding a
London Fashion Week ‘More Than
Our Bodies’ demonstration
Simply Be active customers up 6%.
Simply Be product
revenue was up 4.4%
excluding stores, with
digital revenue up 8.7%.
+4.4%
Revenue increase to £131.5m
excluding stores
Jacamo
Simply Be is the go-to digital destination for
fashionable size 12-32 women, offering a
range of own and third-party brands, often in
larger sizes on an exclusive basis, reinforcing
our fit USP. Simply Be delivered another
good performance, growing revenue by
4.4% during the period excluding stores.
Simply Be also reported an 8.7% growth in
digital revenue compared to the prior year.
Simply Be’s Autumn Winter campaign and
latest Spring campaign, More Than Our
Bodies, champion the new message that
women are more than just their bodies.
The women in the campaigns each have a
story to tell and showcase snippets of their
real lives, and how they use their style and
ideas to further themselves.
To support the ‘More Than Our Bodies’
campaign and its inclusivity message,
Simply Be staged a demonstration during
London Fashion Week, where models,
diversity campaigners and influencers
boarded an open-top bus to celebrate the
individuality of all women regardless of size
and shape. Led by influencers Hayley
Hasselhoff, Sonny Turner and Felicity
Hayward, the demonstration created a bold
fashion moment that celebrated women of
all shapes and sizes and demonstrated that
all women have a story to tell.
Jacamo product revenue was up 3.9%
excluding stores
Jacamo active customers up 6%
Jacamo saw good growth
in digital sales with a 5.1%
increase compared to the
previous year.
Jacamo caters for 25-45 year-old men of
all body shapes and sizes. Jacamo product
revenue was up 3.9% excluding stores,
and digital revenue increased by 5.1%
compared to the prior year. Building on
our successful distinctive and aspirational
Live YOUR Moment campaign, as part of
our summer edition we collaborated with
former England international and Match
of the Day pundit Jermaine Jenas and
rapper Wretch 32. Extending over an
11-week period, this was our largest
Jacamo campaign to date.
Following its success, we continued this
campaign into the Autumn Winter season,
showing a diverse range of men reliving
their inspirational life moments using three
different influencers: snowboarder and
Olympic medal holder Billy Morgan, Rugby
League player Luke Burgess and model
and body confidence ambassador Raul
Samuel. All were chosen for their ability
to convey their inspirational life moments
and to promote body shape inclusivity
supporting our size inclusive offer from
small to 5XL.
+3.9%
Revenue increase to £64.0m
excluding stores
31
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Performance Review continued
Secondary &
Traditional
Fashion World mobile app launched
Ambrose Wilson delivered digital
growth of 7.4% in the year
Secondary brands
revenue decreased by
4.6% excluding stores,
reflecting our continued
shift in marketing
investment towards
profitable digital growth
−4.6%
Revenue decrease to £139.2m
excluding stores
Secondary brands revenue decreased
by 4.6% excluding stores, reflecting our
continued shift in marketing investment
towards profitable digital growth. Following
the success of its Simply Be and JD Williams
apps, the Group launched its third app in
August, Fashion World. This is targeted at
improving the digital experience for our
Fashion World customers.
Revenue in the Traditional segment
decreased by 17.2% as the Group
continued to increase its focus on its digital
business and scaled back its unprofitable
offline marketing and recruitment. Within
the Traditional segment we were pleased
with the performance of Ambrose Wilson
which delivered digital growth of 7.4% in
the year. Given that this segment is more
heavily weighted towards offline than the
rest of the Group, as it typically serves
more mature customers, this segment
is expected to experience the fastest rate
of offline revenue decline going forward.
32
N Brown Group plc Annual Report & Accounts 2019 Closure of
store portfolio
International
International revenue declined 6.6% to
£32.4m. Ireland delivered revenues of
£18.5m, up 5.9% year on year (up 5.1%
in constant currency terms) and continues
to perform well. USA revenue was £13.9m,
down 19.3% year on year (down 18.0% in
constant currency terms).
During the year we undertook a review
of our store estate. Given the continuation
of very disappointing footfall, and
despite significant cost efficiencies being
achieved, we entered into a consultation
with store colleagues to consider closing
our 20 stores ahead of lease expiry.
Following the consultation, we took the
decision to close all 20 stores and at the
end of the financial year the Group had
no physical stores. In FY19 the Group’s
stores generated £6.9m revenue all
within the first half of the financial year
(FY18: revenue of £17.3m).
−6.6%
International revenue declined
to £32.4m
Financial Services
111k new credit recruit (rollers), down
8.9%, driven by tighter control around
lending decisions
Gross margin was down 200 bps year
on year to 59.2%
every customer account regardless of
whether they are in arrears. As a result of
this change, the impairment charge for the
year was £19.5m higher than that charged
in FY18 under the previous accounting
standard IAS 39. The increased level of
provision also increased the level of profit
generated from the sale of payment
arrangement debtors, with total profits on
debt sales of £10.7m, £4.9m higher than the
prior year. These two factors contributed to
a net £14.6m increase in bad debt charges
during the year. Compared to the same
period last year (restated on an IFRS 9 basis),
the provision rate decreased by 370bps due
to an underlying improvement in the quality
of the loan book and the disposal of some
high-risk payment debt which was sold at
a better rate than the book value.
+10.8%
Revenue increase to £298.6m
Financial Services delivered
a strong performance
during the year, driven
by an increased interest
revenue and continued
strong management
of arrears.
Financial services delivered a strong
performance during the year, driven by
increased interest revenue and a continued
strong management of arrears. Financial
services revenue was up 10.8% year on year.
Within this, interest payments were up 12.7%
reflecting the increased level of receivables
and the impact of management initiatives
such as risk-based pricing which was
implemented in the year. This increase was
offset by a 3.6% reduction in other fees and
income reflecting general improvements
in the early arrears profile.
Financial services gross margin decreased
by 200bps to 59.2%. This was driven by the
change in accounting methodology to
provide for receivables under IFRS 9, which
results in a provision being made against
33
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Chief Financial Officer’s Review
Digital revenue
growth
Gross margin
The Group’s gross margin was 54.4%,
down 40bps compared to FY18. This
decline was as a result of a 10bps decline
in the product gross margin to 52.1% and
a 200bps decline in the Financial Services
margin to 59.2%.
The product gross margin represented a
solid performance in a highly promotional
retail environment. The decline in the
Financial Services gross margin was driven
by the requirement under IFRS 9 to make
a provision against every new credit
customer, including those that are
trading normally.
Operating costs
Warehouse and fulfilment costs decreased
by 2.1% to £84.0m. This was driven by lower
volumes and continued efficiencies. The
decrease in warehouse and fulfilment was
greater during the second half, with 3.7%,
compared to the first half decrease of 0.3%.
Revenue
Group revenue declined 0.8% to £914.4m
with product revenue declining 5.6% offset
by a 10.8% increase in Financial Services
revenue. Product revenue was £615.8m,
reflecting a continued shift in focus from
our legacy offline business to digital
growth, the ongoing challenging market
conditions for fashion retail and the closure
of our store portfolio. Excluding stores,
which are all now closed, product revenue
was down 4.2%. Financial Services revenue
was £298.6m as we benefited from
increased interest received from the
Group’s growing customer loan book.
Product category performance was
impacted by the managed decline of the
offline business and the closure of stores
in the year. Ladieswear declined as a
result of lower sales in branded ladies
clothing. Both Menswear and Footwear
& Accessories declined largely due to
Premier Man. Home & Gifts performance
was principally due to lower revenue at
House of Bath.
Revenue performance by quarter
% yoy growth
Product
Financial Services
Group revenue
Revenue by category
£m
Ladieswear
Menswear
Footwear & Accessories
Home & Gift
Product total
Q1
13 weeks
(2.8)%
+9.0%
+0.4%
Q2
13 weeks
(4.6)%
+16.0%
+1.5%
FY19
256.5
85.0
70.8
203.5
615.8
Q3
18 weeks
(8.4)%
+9.7%
(3.5)%
FY18
267.6
89.2
74.9
220.9
652.6
Q4
8 weeks
(4.8)%
+7.5%
(0.3)%
Change
(4.1)%
(4.7)%
(5.5)%
(7.9)%
(5.6)%
Craig Lovelace
Chief Financial Officer
£615.8m
Product revenue
34
N Brown Group plc Annual Report & Accounts 2019 Marketing costs were down 3.8% year on
year, as the Group continued to scale back
offline marketing and recruitment, consistent
with the strategy of focusing on digital
growth and improving marketing efficiency.
Admin and payroll costs decreased by 6.8%,
driven both by the actions taken to close
our store estate during FY18 and FY19 as
well as increased Head Office efficiencies.
Adjusted EBITDA increased by 7.9% to
£128.0m, with Adjusted EBITDA margin
increasing by 1.1ppts to 14.0% (FY18:
12.9%). Depreciation and amortisation
increased by 7.1% reflecting historical and
ongoing investments in IT systems. Overall,
operating profit before exceptional items
was £97.9m, up 8.2% year on year, with
adjusted operating margin increasing by
0.9ppts to 10.7%. Adjusted profit before
tax was £83.6m, up 2.5% year on year as
a result of a good margin performance,
strong Financial Services and the delivery
of marketing and other operational
efficiencies. Statutory loss before tax
was £57.5m, as a result of the exceptional
costs incurred during the year.
£298.6m
Financial Services revenue
£914.4m
Group revenue
Operating performance
£m
Product revenue
Financial Services revenue
Group revenue
Product gross profit
Product gross margin
Financial Services gross profit
Financial Services gross margin
Group gross profit
Group gross margin %
Warehouse & fulfilment
Marketing & production
Admin & payroll
Total operating costs
Adjusted EBITDA1
Adjusted EBITDA1 margin
Depreciation & amortisation
Adjusted operating profit 2
Adjusted operating margin %
Operating (loss)/profit
Net finance costs
Adjusted PBT 2
Exceptional items
Unrealised FX movement
Statutory LBT / PBT
£m
Core net debt 3
Overall net debt 4
FY19
615.8
298.6
914.4
320.8
52.1%
176.9
59.2%
497.7
54.4%
(84.0)
(157.8)
(127.9)
(369.7)
128.0
14.0%
(30.1)
97.9
10.7%
(47.7)
(14.3)
83.6
(145.6)
4.5
(57.5)
77.7
467.9
FY18
652.6
269.6
922.2
340.5
52.2%
165.1
61.2%
505.6
54.8%
(85.8)
(164.0)
(137.2)
(387.0)
118.6
12.9%
(28.1)
90.5
9.8%
33.6
(8.9)
81.6
(56.9)
(8.5)
16.2
66.8
346.8
Change
(5.6)%
+10.8%
(0.8)%
(5.8)%
(0.1)ppts
+7.1%
(2.0)ppts
(1.6)%
(0.4)%
(2.1)%
(3.8)%
(6.8)%
(4.5)%
+7.9%
+1.1ppts
+7.1%
+8.2%
+0.9ppts
(242.0)%
+60.7%
+2.5%
+155.9%
(152.9)%
(454.9)%
Change
16.3%
34.9%
1 Adjusted EBITDA is defined as operating profit, excluding exceptionals, with depreciation and amortisation added
back. The directors believe that adjusted EBITDA represents the most appropriate measure of the Group’s underlying
trading performance.
2 Defined as excluding exceptionals and fair value movement on financial instruments.
3 Excludes debt securitised against receivables (customer loan book) of £390.2m (2018: £280.0m).
4 Total liabilities from financing activities less cash.
35
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Chief Financial Officer’s Review continued
Net finance costs
Net finance costs were £14.3m, up 60.7%
compared to FY18, due to the increase in
net debt driven by growth in our customer
loan book.
Financial Services and IFRS 9
IFRS 9 has replaced the IAS 39 standard
and came into effect in FY19, therefore
this is the first full year in which we are
reporting under IFRS 9. IFRS 9 significantly
increases our provision for receivables.
Importantly, it has no cash flow impact and
neither does it materially change how we
operate our Financial Services business.
As a result of IFRS 9 our gross bad debt
charge increased by 19.6% to £119.0m
(FY18: £99.5m).
Compared to the same period last year
(restated on an IFRS 9 basis), the provision
rate decreased by 370bps due to an
underlying improvement in the quality of
the loan book and the disposal of some
high-risk payment debt which was sold
at a better rate than the book value.
Exceptional items
Exceptional costs of £65.4m were
incurred during the first half, as previously
announced. In the second half we incurred
£80.2m primarily relating to an impairment
charge on the Group’s VAT debtor asset,
legacy customer redress payments and
costs associated with the closure of the
store estate. Of the £22.7m additional
provision made for customer redress
in the second half of the financial year,
£14.1m has already been paid out in cash.
Taxation
The effective underlying rate of corporation
tax is 26.9% (FY18: 23.3%). The overall tax
charge is £0.8m (FY18: £3.7m charge).
Operating performance
£m
Gross customer loan balances
IFRS 9 bad debt provision
IFRS 9 provision ratio
Net customer loan balances
2 Mar 2019
682.2
3 Mar 2018
647.6
(97.1)
14.2%
585.1
(116.0)*
17.9%*
531.6*
Change
5.3%
-16.3%
-370bps
10.1%
* restated for IFRS 9. The bad debt provision previously reported under IAS 39 was £48.8m (provision ratio of 7.5%).
Exceptional items
£m
Customer redress for historic insurance products
Store closures
Impairment of intangible assets and brands
VAT debtor impairment
GMP equalisation
Other VAT matters including associated legal and professional fees
Total exceptional costs
See Note 6 for more details.
FY19
45.0
22.0
20.0
49.4
0.3
8.9
145.6
FY18
40.0
13.8
–
–
–
3.1
56.9
VAT partial exemption
The Group has been in a long running
dispute with HMRC with respect to the
VAT treatment of certain marketing and
non-marketing costs and the allocation of
those costs between our retail and credit
business. The case in respect of marketing
costs was heard in a first tier VAT tribunal
in May 2018 with a draft decision being
issued in November 2018 which was
published in March 2019.
The case has two key aspects, those being
attribution which is in respect of whether
marketing costs can be directly attributed
to product revenue or Financial Services
income and secondly apportionment
which is surrounding the allocation of
marketing costs between the retail and
Financial Services business. With respect to
attribution, the judge agreed with HMRC,
finding that when the Group is marketing
goods it is also in effect marketing financial
services, even if there is no reference to this
in its marketing materials.
The judge however ruled against HMRC’s
standard method of apportionment of
costs (which is based upon the proportion
of total UK revenue which is generated
from product sales).
Whilst discussions are ongoing with HMRC
and a final outcome not yet achieved,
following the ruling management have
reviewed the likelihood of recovering the
carrying value of the asset held as at
February 2018 of £43.8m and as a result
of this review have written down the value
by £37.9m.
As the Group has not yet been assessed
by HMRC for the period June 2017 to
March 2019 this has also resulted in an
additional charge of £11.5m. This results
in a total exceptional charge of £49.4m and
a VAT creditor at year end of £6.6m (2018:
£43.8m asset).
36
N Brown Group plc Annual Report & Accounts 2019 FY20 guidance
We are providing the following guidance
for FY20:
• Product gross margin flat to -100bps
• Financial Services gross margin flat
to -100bps
• Group operating costs -2.5% to -4.5%
• Depreciation & amortisation £31m to £33m
• Net interest £17m to £18m
• Tax rate 20-21%
• Capex c.£35-40m
• FY20 Year- end net debt £440m to
£460m, although half year net debt will
be in the range £475m to £500m given
continued customer redress and tax
settlement payments.
Craig Lovelace
Chief Financial Officer
Earnings per share
Loss per share from continuing operations
was (20.50)p (FY18 earnings per share:
4.41p). Adjusted earnings per share from
continuing operations were 21.38p
(FY18: 23.06p).
Dividends
In October, the Board took the decision to
rebase the dividend to a more sustainable
level from which we will seek to grow as
earnings progress. As a result, we are
proposing a full year dividend of 7.1p per
share (FY18: 14.23p per share).
Balance sheet and cash flow
Capital expenditure was £36.3m
(FY18: £39.2m). Inventory levels at the
period end were down 9.8%, to £99.8m
(FY18: £110.6m) as a result of tighter
stock management.
Gross trade receivables increased by 5.3%
to £682.2m (FY18: £647.6m) as a result of
the growth in the loan book.
Net cash used in operations (excluding
taxation) was £35.0m compared to £44.3m
last year, principally driven by a cash
outflow of £84.6m related to exceptional
items. After funding capital expenditure,
finance costs, taxation and dividends, net
debt increased from £346.8m to £467.9m,
in line with guidance. The £585.1m net
customer loan book significantly exceeds
this net debt figure.
The Group has an available financing
facility totalling £625m, made up of a
securitisation facility of £500m and an
RCF of £125m, both secured until 2021.
The Group’s balance sheet is underpinned
by its customer loan book, which at
2 March 2019 was £682.2m on a gross basis
and £585.1m on a net basis, calculated
under IFRS 9.
Compared to 3 March 2018 the Group’s
overall net debt increased by £121.1m to
£467.9m, in line with guidance, principally
due to exceptional cash outflows of £84.6m
and the growth in the loan book of £34.6m.
Core debt, which is defined as the amount
drawn on the Group’s RCF less cash was
£77.7m. On this basis, the Group’s leverage
is 0.6x on a net debt/EBITDA basis.
The Group’s defined benefit pension
scheme has a surplus of £23.9m (FY18:
£19.3m surplus). The increase in the surplus
is as a result of general market changes in
asset returns during the year.
FX sensitivity
For FY20 we have hedged 100% of our net
purchases at a blended rate of $/£1.34. At
a rate of $/£1.30, and before any mitigating
actions or changes, this would result in a
c.£0.3m PBT tailwind compared to FY19
(hedged rate $/£1.33).
For FY21 we have, to date, hedged 60%
of our net purchases at a blended rate of
$/£1.32 At a rate of $/£1.30 and before any
mitigating actions or changes in annual
requirements, this would also result in a
c.£2.0m PBT tailwind compared to FY20.
Every 5 cents move from this rate in our
unhedged position would result in a PBT
sensitivity of c.£2m.
37
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Corporate Social Responsibility
we continue
to support our
three customer
charities
3
Acting
responsibly
for our future
We continue to believe we can
be a major force for good as well
as a major force for fashion.
2022
With our 2022 targets in
place and on track, these will
help us reduce our carbon
footprint even further
#Vibe Survey
Our annual survey of our people allows us
to create an action plan to ensure we improve
the experience of all colleagues
38
N Brown Group plc Annual Report & Accounts 2019 39
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Corporate Social Responsibility continued
Taking care
of our world
Dear Shareholder
I am pleased to present this report following my first full year as Chair of the
CSR Committee.
During the year we have continued to align our CSR agenda with our
commercial strategy which has resulted, amongst other things, in a significant
reduction in our paper usage. We have pioneered innovation in data and fit
and are delighted to have agreed our Ethical Principles for Trustworthy AI.
Progress in 2018
Priorities in 2019
ESOS 2019 review underway
with all main sites assessed
by an approved assessor
Significant reduction in
paper usage
Adoption of Ethical Principles
for Trustworthy AI
Delivery of the first phase of a lighting
efficiency project at the Group’s
logistics sites
Implementation of sustainable
alternatives to plastics usage across
the Group and its supply chain
Improve diversity and inclusivity for
customers and colleagues through
the innovative use of data
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 with
suppliers who share our
standards, working together to
create ever more responsible,
sustainable products that our
customers can enjoy with
confidence and
with conscience.
Michael Ross
Chair of the CSR Committee
Three pillars, one passion
Corporate Social Responsibility
Our strategy is designed to embrace the three CSR
pillars: ‘All People’, ‘One Planet’ and ‘Every Product’.
It aims to fully align our ethical policies with our
commercial activities, achieving tangible results
and benefits for all our stakeholders.
To find out more
www.nbrown.co.uk/sustainability
40
N Brown Group plc Annual Report & Accounts 2019 All People
One Planet
Every Product
Performance and
opportunity for all
Protecting the earth begins
with respecting it
Our products should make people
feel as good as they look
We remain 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.
Like many other companies we are always
looking for ways to make our business
more efficient and less impactful on the
environment. This year a key focus for the
business has been reviewing our product and
delivery packaging. We have reduced excess
by streamlining the number of different
packaging sizes distributed to customers and
have sourced more environmentally friendly
materials for our packaging.
We have continued to report voluntarily to
both the Carbon Disclosure Project (CDP) and
the Forestry Disclosure Project (FDP) and are
pleased with our progress to date, maintaining
a B score in CDP and A minus in FDP both of
which are above the sector average.
Other successes to note during the year:
• ESOS assessments are well underway and
on the back of these, certain minor
efficiency projects have been completed
and a major project tender conducted for
a lighting efficiency upgrade at our logistic
sites will be implemented in 2019.
• The business continued to purchase green
electricity for all UK sites.
• A review was completed of our 2022
targets, aligning them to the business
strategy and making them more stretching
in order to reduce our carbon footprint
even further.
Further information on our emissions profile
can be found on pages 43 to 45.
Understanding and celebrating the diversity
of our customers and our colleagues is central
to our success.
We give as much importance to our colleague
experience as we do to our customer
experience, developing engagement policies
and practices that enable people to bring
their best self to work, promoting dignity and
respect and encouraging flexible working
practices that encourage opportunity for all
to grow a balanced pool of leadership talent.
We expect everyone in our supply chain, call
centre and distribution partners to be treated
with dignity and respect, and to be provided
with fair opportunity and reward.
Always striving to find new ways of listening
to, and involving, our colleagues, our
regular #Vibe Surveys encourage feedback
from all and inform action plans to drive
improvements in our customer and
colleague journeys.
Our Central Data Science teams have been
strengthened to respond to our diverse
customer base through deeper insights,
and our investment in Data Fellowship
Apprenticeships continues to harness talent
from across the North West to drive our
business growth through better capacity in
data analysis and Artificial Intelligence (AI).
Our diversity and inclusion strategy is
underpinned by the introduction of our
new People System which will improve
transparency through detailed workforce
profiling and talent mapping. This will enable
us to improve our Gender Pay Gap position,
which already tracks ahead of the national
and retail average. Our Women Like Us
workshop programme continues to help us
understand issues faced by women, raising
aspirations and providing practical
development support.
We continue to refine our leadership
development programmes for our leaders.
Through the Apprenticeship Levy we have
created 26 new digital roles as well as 86
internal learning opportunities. 2019 will see
the introduction of a new bonus scheme to
drive performance and opportunity for all.
We continue to encourage and support our
colleagues to play a positive role within the
local community. This year we asked our
colleagues to choose a local cause to get
behind. Through a calendar of fundraising
events colleagues are supporting Maggie’s,
the national cancer support charity which has
local centres in Manchester and near to our
distribution centre in Oldham.
The Group has been working closely with its
suppliers to improve customer experience
and to 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. Following
successful mapping of our tier one suppliers,
we are focusing our efforts on the wider
indirect supply base.
Our continued focus has been to work
closely with suppliers to promote responsible
sourcing and ensure that all workers are
treated with fairness and respect, and are
safe at work.
We are one of the founding members of the
Bangladesh Accord which, in the four years
of its existence, has worked with retailers to
improve conditions for thousands of workers
across Bangladesh. N Brown is committed
to this, having signed the next phase
Transitional Accord, which will continue this
great work and ensure continued support
in Bangladesh until 2021.
We are members of ACT (Action,
Collaboration, Transformation), which is a
ground-breaking agreement between global
brands and retailers and trade unions to
transform the garment and textile industry.
One of the aims of the agreement is to
achieve living wages for workers through
industry-wide collective bargaining linked to
purchasing practices. We are working with
other key brands across the globe, and with
IndustriALL, supporting five key territories. In
particular, we will continue to support the
success and growth we have seen in the
Bangladesh office and the great work in
the supply base supported by the Accord.
Closer to home we continue to improve
supplier engagement by visiting key suppliers
regularly. This remains an important part of
our buying strategy and we continue to
support and grow UK manufacturing.
We undertake stringent due diligence
checks as part of our new supplier process.
This is supported by ongoing monitoring
to ensure factory compliance standards.
41
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Corporate Social Responsibility continued
Ethical Principles for Trustworthy AI
Introduction
As a digital-first organisation, innovative
data analytics are key to our success. As
an inclusive retailer our customers are at
the heart of everything we do. In order to
ensure that the interests of our customers
remain paramount, we have created our
Ethical Principles for Trustworthy AI.
Our Principles have been developed
within the framework set by the European
Commission and take into account the
helpful guidance published by the
Information Commissioners Office.
All policies and processes which relate
to the use and handling of data align
with these Principles.
Oversight of these Principles sits with the
CSR Committee, which will ensure that
they continue to serve the best interests
of our customers.
The principle of transparency:
“Design for all”
AI and machine learning are applied
where there is a clear and obvious benefit
to its use.
The principle of autonomy:
“Human-centricity and accountability”
Humans choose how and whether to
delegate decisions to AI systems, to
accomplish human-set objectives.
The principle of responsibility:
“A continual focus”
We continually review and evolve
our Ethical Principles for Trustworthy AI.
The principle of integrity:
“Respect for privacy”
We ensure that any use of AI does not
impact on people’s privacy rights in a
way which could be considered harmful.
The principle of non-discrimination:
“Explicability”
We seek to avoid creating algorithms
which create or reinforce unfair bias,
particularly where we process special
category data such as gender, nationality
and age.
42
N Brown Group plc Annual Report & Accounts 2019 Environment
Overview
We are delighted to have maintained our
previous environmental achievements and
to have reduced our absolute and relative
emissions compared to our previous
reporting period. We continue to work
alongside our long-term environmental
partners: Envantage Limited and Viridor
Limited (specialising in energy & carbon,
and waste), to ensure full compliance with
all relevant legislation and work to
continuously improve our environmental
performance, quantification and disclosure.
Group-wide responsibility for sustainability
sits with Ralph Tucker, Chief Product and
Trading Officer. He reports to the Chief
Executive Officer and sits on the Executive
Board of N Brown and the CSR Committee.
We have expanded our environmental
commitments this year to include our
impacts associated with our supply chain
and plastics and paper usage. We have
a range of initiatives both planned and
underway, including a project to replace
the lighting across various sites and
improve lighting controls. We are looking
forward to developing these initiatives and
feel positive about taking the next step to
expand the scope of our environmental
reporting and targeting.
Emissions profile1
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 which we have direct control
over; i.e. operation of our sites and
vehicles. As a responsible retailer, we
have also taken steps to quantify as many
optional scope 3 emission sources that
relate to our operations as possible. We
have this year expanded our scope 3
reporting to include our supply chain
emissions which we plan to report from
next year, along with the below figures.
The table and chart to the right illustrate
our GHG emissions across all our reporting
areas, for the global Group from 1 March
2018 to 28 February 2019 and the
previous year.
We have once again reduced our Group GHG emissions, this time by a substantial
22%, compared to the previous reporting period. This reduction is mainly attributed
to a decrease in our buildings’ energy consumption and a decrease in staff driving to
work, supported by the electricity grid increasing its use of renewable energy sources.
2017 – 2018
(Previous year)
Total GHG tCO2e
2018 – 2019
(Current year)
1,804.8
1,607.6
% change
-11%
346.6
106.2
79.9
84.4
6,455.7
8,877.6
29.2
863.7
2,253.4
219.5
1,477.3
13,720.7
8.7
370.9
134.4
78.5
64.0
4,913.9
7,169.3
27.9
655.5
1,582.9
146.0
1,118.2
10,699.8
8.1
+7%
+27%
-2%
-24%
-24%
-19%
-4%
-24%
-30%
33%
-24%
-22%
-7%
45.9%
Scope
Scope 1
Source
Gas
Diesel
HFCs
Gas oil
Company and pool car
Scope 2
Electricity
Total scope 1 and 2
Scope 3 Water
Employee commuting
Business travel (air, road and rail)
Waste
Well to tank (all)
Total
Outside scopes – Biogenic element – Diesel
N Brown Emissions Profile 2018-2019 (tCO2e)
15.0%
14.8%
10.5%
Electricity
Gas
Business travel
(air, road and rail)
Well to tank (all)
Employee
commuting
Diesel
Waste
HFC
Gas oil
Company/pool
cars & small vans
6.1%
3.5%
1.4%
1.2%
0.7%
0.6%
1 Our Greenhouse 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 BEIS. The
inventory is independently calculated by our partner
carbon consultants, Envantage Ltd. Emissions figures
detailed cover all active entities during the reporting year.
Water
0.3%
Scope 1
Scope 2
Scope 3
43
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Corporate Social Responsibility continued
Relative performance using
intensity ratios
As a growing organisation, evaluation of
scope 1 and 2 emissions performance
using an intensity ratio allows a more
meaningful comparison to be made
between inventory periods.
Our relative GHG emissions (scope 1 & 2)
against items dispatched2 have decreased
year-on-year since we started reporting
in 2015. We are pleased to report a
significant reduction of 14% compared
to our previous reporting year.
Continued success
We are pleased to have maintained
previous achievements, including:
• Continued reduction in scope 1 and 2
emissions per items shipped.
• 98% of electricity supplied from zero
carbon and renewable sources3.
• 100% of waste diverted from landfill
across head office and distribution sites.
• Maintained Carbon Disclosure Project
disclosure and performance scores
(A- for Forests and B for Climate).
Improvement targets and commitments
As well as maintaining performance
in the above areas, we are committed
to continually drive for environmental
improvements. In 2017, we set five year-
long environmental targets, focusing on
our buildings and haulage emissions, and
waste disposal. Due to various changes
within the business and external factors
impacting last year’s performance against
targets, it was decided that targets should
be reviewed, realigned and expanded
upon to ensure they are challenging and
focused on the areas which the Group has
the most potential to reduce our impact
on the planet.
The key areas of focus are now:
1/ Buildings Emissions
We have retained our target to reduce our
emissions across our corporate buildings.
Our corporate buildings activities
contribute to over half of the emissions
associated with our core business
operations, so it is an important area to
focus on. We have made this target more
stretching and relevant to our current
business activities.
Target:
35%
reduction in GHG emissions
(tCO2e / items shipped)
44
Emissions against items shipped
Previous year and current year
(tCO2e/million items)
2017-2018
(Previous year)
2018-2019
(Current year)
14% decrease in emissions against items shipped
N Brown Group Plc sector benchmarking 2018-2019
Forests
Carbon
219
188
A
A-
N Brown score
A
A-
B
Sector average
B
N Brown score
B-
C
C-
D
D-
B-
C
Sector average
C-
D
D-
Leadership
Management
Awareness
Disclosure
2/ Supply chain carbon footprint
Over the past year, our Supply Chain
Management Team have reviewed our
end-to-end supply chain from source to
customer, to understand the carbon
impact of moving goods to our sites and
delivering orders to our customers. The
supply chain is large and complex, but with
the support of our logistics partners, the
Group has estimated the supply chain
emissions associated with logistics to be
approximately 30,000 tonnes of CO2e.
The Group’s aim of developing an
overall picture of end-to-end supply chain
emissions has been achieved, allowing us
to identify key carbon hotspots to focus on.
We will continue to work both internally
and with logistics partners on refining the
emissions calculation. The Supply Chain
Management Team are working on setting
targets and putting action plans in place to
cut emissions.
3/ Paper
The Group has a strategy to shift from
traditional catalogues and move towards
digital in some areas. We have already
carried out a lot of work to understand our
environmental impact associated with our
paper usage, as part of our participation
in the Forests module of the Carbon
Disclosure Project. We will set targets
to reduce our impact in this area.
4/ Plastic
N Brown recognises that plastic waste
is one of the biggest environmental
challenges facing the world today. We are
committed to play our part to reduce the
impact of plastics pollution and have
already carried out work to reduce, reuse
and recycle our plastics at all stages of
our operations. We plan to improve the
understanding that our operations have
on this impact area and to set targets to
drive us to continually reduce our impact.
2 Items shipped figures used for intensity ratio cover
all active entities during the reporting year.
3 This covers sites where we have control over the
purchase of electricity. A small number of electricity
supplies (2%) where we do not have control over the
purchase of electricity for (e.g. landlord sites) have not
been included in this assessment. We have a small
number of sites outside the UK for which we have control
over the purchase of electricity but are unable to
purchase green electricity for.
N Brown Group plc Annual Report & Accounts 2019 Mandatory GHG reporting notes
HFC: Refrigeration emissions have been
calculated from the F-Gas register for the
applicable plant where provided. Where this
is not possible, leakages have been estimated
using BEIS 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
BEIS leakage tables and the screening method.
For a very small number of shops details of
the systems were not known and therefore
estimation of emissions has not been possible.
Waste: Most of the Group’s waste (Head
Office, logistics sites, some shops) is managed
by Viridor. Viridor provide a breakdown of
weights of waste disposed of by N Brown split
by waste type and disposal method. For the
remaining sites which are not managed by
Viridor, waste audits are completed over a
week and figures are extrapolated to a full year.
Employee commuting: Employee commuting
habits are captured using an annual online
staff survey.
Business travel (air, rail): There are two types
of air travel carried out by N Brown: traditional
business travel and travel for photoshoots.
The business air travel is recorded by Portman
Travel who provide a breakdown, by journey,
including distance travelled, type of journey
(long-haul, domestic etc.) and journey class
(e.g. business or economy). The same details
are provided for photoshoot travel but these
details are recorded internally by N Brown.
Rail figures are provided by Portman Travel
who provide a breakdown, by journey,
including distance travelled and journey
type (underground / national rail).
Business travel (road): Data is calculated for
the Group using data logged in our internal
Concur system which records distance
travelled, and vehicle information for each
business travel expense claimed.
Water: Emissions are primarily calculated
based on invoiced water consumption and
volume sent for treatment. Where invoices
are not available (e.g. for non-metered water
supplies), water consumption and treatment
is estimated based on a standard benchmark
against full time staff equivalent.
The data disclosed is in conformance with
the companies Act 2006 (Strategic Report
and Directors’ Report Regulations). GHG
emissions disclosed under the required
reporting categories fall within the Group’s
consolidated financial statements. Scope 1 and
2 emissions have been calculated on a global
scale where the Group has operational control
using the GHG protocol. The quantified
emissions are for the reporting
year 1 March 2018 to 28 February 2019.
GHG emissions factors published by BEIS for
2017 and 2018 have been used to calculate
GHG emissions.
Noted change in emissions for 2017–2018
• Data accuracy: Some data for the 2017-2018
inventory has been updated based on actual
data or more accurate data for some sources.
• Update in BEIS emissions factors: Emissions
from the previous published report for the
period 2017-2018 have been recalculated with
the newly published factors for 2018,
affecting the months of January and
February 2018 (2018 factors were not
available at time of publishing). This has
resulted in a slight change in emissions
compared to those originally reported.
Data records
Natural gas and electricity: Emissions are
primarily calculated based on actual metered
consumption from invoices or meter readings.
Where actual metered data is not available,
for example if 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 standby generators and
onsite transport (forklifts etc.). Data for onsite
transport is calculated using actual fuel usage
from invoices and 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 taken from fuel card invoices.
Company cars/vans: Data is primarily
calculated for the Group using data logged
in our Concur system which records distance
travelled, and vehicle information for each
business travel expense claimed. Any company
cars not logged on this system have been taken
from independent mileage claim records.
Some small vans are used to transport items
between logistics sites; the emissions are
calculated based on mileage for the vans.
45
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Governance Overview
Setting a high
standard of
governance
Statement of compliance
with the Code
The Group applied the provisions of
the Code and the UK Financial Conduct
Authority’s Disclosure Guidance 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 81. In addition,
disclosures required by the Disclosure
Guidance and Transparency Rules
(rule 7.2.6) regarding share capital
can be found on page 52.
My role over the course of the year
has been 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.
The Board is committed to meeting a high
standard of corporate governance. Given
the financial year in question began before
1 January 2019, this report is compliant
with the principles in the UK Corporate
Governance Code issued by the UK Financial
Reporting Council in 2016 (the ‘Code’). This
Corporate Governance statement explains
the key features of the Group’s governance
structure and how it complies with the Code.
I look forward to reporting on our
compliance activities within the scope of
the new 2018 UK Corporate Governance
Code in next year’s report.
Matt Davies
Independent Non-Executive Chairman
46
N Brown Group plc Annual Report & Accounts 2019 Corporate structure and framework
The Board is assisted by four Committees
– Audit, Nomination and Governance,
Remuneration and CSR. Each Committee
is responsible for reviewing and overseeing
activities within its particular terms of
reference (copies of which are available on
the Company’s website, www.nbrown.co.uk).
The Chairman of each Committee provides
a summary at each scheduled Board
meeting of any Committee meeting held
since the previous meeting and the minutes
of all Committee meetings are circulated to
the full Board, when appropriate.
CSR
Committee
Audit
Committee
r d of Directors
t h e Directo
t
c
r
s
a
o
B
E l e
Shareholders
d
r
a
o
B
e
v
i
t
u
c
e
x
E
O
n
g
oing Eng a g e m e nt
E
x
e
c
u
t
i
v
e
B
o
a
r
d
Nomination
& Governance
Committee
Remuneration
Committee
Employee diversity (%)
Board composition (%)
Senior management (%)
Committee meetings during 2018/19
41%
59%
22%
78%
34%
66%
Female
Male
1,523
1,052
Non-Executive Directors 7
Executive Directors
2
Female
Male
14
27
4
5
3
2
Audit Committee
Remuneration Committee
Nomination and
Governance Committee
CSR Committee
47
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements
Board of Directors
Matt Davies
Independent
Non-Executive
Chairman
Appointed to
the Board
February 2018
C
R C
N
Steve Johnson
Chief Executive
Officer
Appointed to
the Board
September 2018
Relevant skills, qualifications and experience
Matt was appointed as Chairman on 1 May 2018
after joining the Board in February 2018 as
Independent Non-Executive Director and Chairman
Elect. He was previously the CEO of Tesco UK and
ROI. Prior to Tesco, Matt was CEO of Halfords from
2012 to 2015 and Finance Director (2001 – 2004)
and CEO (2004 – 2012) of Pets at Home.
Relevant skills, qualifications and experience
Steve was appointed CEO of N Brown in February
2019, having been appointed Interim CEO in
October 2018. Steve joined the Group as Financial
Services Director in February 2016 and was
appointed CEO of the Financial Services
Operating Board in November 2017. Steve joined
N Brown from Shop Direct where he was Financial
Services Marketing and Product Director for four
years and prior to that held senior roles at
Sainsbury’s and Halifax.
Key strengths
– Retail
– Strategy
– Management
External appointments
Matt is Chairman of the boards of Hobbycraft
Trading Limited, Travel Counsellors Group Limited
and Mission Mars Limited.
Key strengths
– Retail
– Financial Services
– Strategy
– Change Management
External appointments
None.
Craig Lovelace
Chief Financial Officer
Appointed to
the Board
May 2015
Relevant skills, qualifications and experience
Craig was appointed CFO 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.
– Business planning
– Governance and
compliance
– Investor relations
Key strengths
– Financial reporting
– Financial strategy
– Corporate finance
– Restructuring
– Tax and treasury
External appointments
None.
Meetings attended
9/9
Meetings attended
4/4
Meetings attended
9/9
Lord Alliance of
Manchester CBE
Non-Executive
Director
Appointed to
the Board
1968
Ron McMillan
Independent Senior
Non-Executive
Director
NAR
Appointed to
the Board
April 2013
A
Lesley Jones
Independent
Non-Executive
Director
Appointed to
the Board
October 2014
Relevant skills, qualifications and experience
Lord Alliance was appointed a Director and Chairman
in 1968. He stood down as Chairman on 1 September
2012. Co-founder and former Chairman of Coats
Viyella Plc. Lord Alliance holds numerous honorary
doctorates including awards from Heriot-Watt
University and the University of Manchester.
Relevant skills, qualifications and experience
Appointed a Director on 1 April 2013. Ron is Senior
Independent Director and Chairman of the Audit
Committee. Previously, he was the Deputy
Chairman of PricewaterhouseCoopers in the
Middle East and Northern Regional Chairman
of the UK firm.
Relevant skills, qualifications and experience
Lesley 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 until January 2014.
Key strengths
– Detailed knowledge of N Brown
– Retail
Key strengths
– Finance
– Financial reporting
– Governance
– Risk management
Key strengths
– Finance
– Governance
– Risk management
External appointments
Lord Alliance is also a director of a number of
private companies, committees and trustee
bodies. He was appointed a life peer in 2004.
External appointments
Ron is the Senior Independent Director and Chair
of the Audit Committee of B&M European Value
Retail SA and SCS PLC and a Non-Executive
Director and Chair of the Audit Committee of
Homeserve PLC.
External appointments
In April 2019 Lesley was appointed as a Non-
Executive Director and Chair of the Board Risk
Committee at ReAssure Group Limited. She serves as
Non-Executive Director and Board Risk Committee
Chair at Close Brothers and is also Chair of the Board
Risk Committee and Deputy Chair of Board Audit
Committee at Northern Bank Ltd in Belfast.
Meetings attended
8/91
Meetings attended
9/9
Meetings attended
9/9
48
N Brown Group plc Annual Report & Accounts 2019 Richard Moross
Independent
Non-Executive
Director
Appointed to
the Board
October 2016
R
Gill Barr
Independent
Non-Executive
Director
Appointed to
the Board
January 2018
A C
Michael Ross
Independent
Non-Executive
Director
Appointed to
the Board
January 2018
R
Relevant skills, qualifications and experience
As the CEO and founder of MOO.com Richard
brings significant expertise in digital retailing
and technology. Before founding MOO, Richard
worked for the design company Imagination.
Other past companies include sorted.com
and the BBC.
Relevant skills, qualifications and experience
Appointed in January 2018. Gill was previously a
Non-Executive Director of Morgan Sindall Plc. She
was Group Marketing Director of The Co-operative
Group, Marketing Director of John Lewis and spent
seven years at Kingfisher Plc in a variety of senior
strategy, marketing and business development roles.
Relevant skills, qualifications and experience
Michael is the co-founder and Chief Scientist of
Dynamic Action which is a leader in big data
analytics and AI for retail. He was previously the
co-founder and CEO of figleaves.com and started
his career at McKinsey consulting in the early days
of the internet.
Key strengths
– Digital retail
– Technology
– Change management
– Entrepreneurship
Key strengths
– Marketing
– Business development
– Remuneration
Key strengths
– Digital retail
– Data analytics
– Artificial intelligence
External appointments
Richard is Executive Director of Moo Print Ltd and
Modern Organisation Limited
External appointments
In April 2019, Gill was appointed as a Non-Executive
Director of McCarthy & Stone Plc. She is a
Non-Executive Director of PayPoint plc and
Wincanton plc, and is also the Chair of the Customer
Challenge Group for Severn Trent Water Plc.
External appointments
Michael is a Non-Executive Director of Sainsburys
Bank. He also sits on the commercial development
board at the Turing Institute.
Meetings attended
9/9
Meetings attended
9/9
Meetings attended
9/9
Angela Spindler
Chief Executive
Officer
Resigned from
the Board
September 2018
Relevant skills, qualifications and experience
Angela was appointed Chief Executive Officer
in July 2013 and has over 30 years of consumer
facing business experience and 20 years of retail
experience. This includes roles at Coca Cola, Mars
Inc, Asda, Debenhams and the Original Factory
Shop. Angela studied at Manchester University.
Key strengths
– Change management
– Retail
– Multi-channel retail
– Strategy development
– Management
– Marketing
– Business planning
External appointments
Angela currently serves as a Non-Executive
Director of Dia, which is listed on the Madrid
stock exchange.
Theresa Casey
Company Secretary
and General Counsel
Appointed to
the Board
March 2015
AR
C
N
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.
Theresa acts as Secretary to all Board Committees
and is a member of the Executive Board.
Key strengths
– Retail and financial services compliance
– Retail and financial legal knowledge
– Company secretarial practice
External appointments
Governor of Crossley Heath Grammar School.
Meetings attended
6/6
Meetings attended
9/9
1 On one occasion, Lord Alliance was unable to
attend a meeting in person; he was represented
by Mr Joshua Alliance.
Indicates member of the:
Audit Committee
Remuneration Committee
Nomination and Governance Committee
CSR Committee
Committee chair
49
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Executive Board
Steve Johnson
Chief Executive
Officer
Appointed to
the Board
February 2016
C
Relevant skills, qualifications and experience
Steve was appointed CEO of N Brown in February
2019, having been appointed Interim CEO in
October 2018. Steve joined the Group as Financial
Services Director in February 2016 and was
appointed CEO of the Financial Services
Operating Board in November 2017. Steve joined
N Brown from Shop Direct where he was Financial
Services Marketing and Product Director for four
years and prior to that held senior roles at
Sainsbury’s and Halifax.
Craig Lovelace
Chief Financial Officer
Appointed to
the Board
May 2015
C
Ralph Tucker
Chief Product and
Trading Officer
Appointed to
the Board
March 2015
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. Fellow of the ICAEW.
Relevant skills, qualifications and experience
Ralph joined the business in July 2014, and became
Product Director in March 2015. Since March 2016
Ralph has also been responsible for the Group’s
Retail Operations and in November 2017 added
Logistics to his remit, becoming Chief Product and
Supply Officer. Prior to N Brown, Ralph led teams in
buying & merchandising at Marks & Spencer and
Shop Direct, before widening his experience in
digital and marketing at Sainsbury’s and Kitbag.com.
Meetings attended
9/9
Meetings attended
9/9
Meetings attended
9/9
Adam Warne
Chief Information
Officer
Alyson Fadil
Chief People Officer
Theresa Casey
Company Secretary
and General Counsel
Appointed to
the Board
April 2018
C
Appointed to
the Board
April 2018
Appointed to
the Board
March 2015
AR
C
N
Relevant skills, qualifications and experience
Adam joined in April 2018 as Chief Information
Officer following ten years in a position leading
the technology capability at AO World PLC. Prior
to this Adam held senior technology roles building
successful teams within Skipton Building Society
and EDS.
Relevant skills, qualifications and experience
Alyson joined N Brown in April 2018, with 20 years’
experience in developing culture, people policy
and talent in dynamic, fast paced retail businesses.
Alyson joined N Brown from Missguided, prior to
which she held senior posts at Sofology
and Selfridges.
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. Theresa
acts as Secretary to all Board Committees.
Meetings attended
8/8
Meetings attended
8/8
Meetings attended
8/9
50
N Brown Group plc Annual Report & Accounts 2019 Directors’ Report
Activities and results
The Directors have pleasure in presenting
their Annual Report and audited financial
statements for the year ended 2 March
2019. 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 45
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 year
ended 2 March 2019 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, provides
a fair review of the Group’s business at the
end of the financial year and an indication
of likely future developments in the business.
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 22 to 27.
UK Corporate Governance Code
As required by the UK Corporate
Governance Code 2016 (the ‘Code’), pages
16 to 17 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. The Corporate Governance
Statement on pages 55 to 57 forms part
of the Directors’ Report.
Results, dividends and reserves
The financial statements set out the Group’s
results for the year ended 2 March 2019 and
are contained in pages 90 to 134.
An interim dividend of 2.83p per share (2018:
5.67p) was paid on the ordinary shares of the
Group on 11 January 2019. The net cost of
this dividend was £8.0m (2018: £16.0m).
The Directors recommend a final dividend
of 4.27p per share (2018: 8.56p) for the year
ended 2 March 2019, the net cost of which
will be £12.1m (2018: £24.2m). The dividend
will be paid on 2 August 2019.
Movements in reserves are shown in the
Statement of Changes in Equity on page 94.
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 23 on page 121.
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 overleaf 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 28 on pages
123 to 124. The Directors have no current
plans to issue shares other than in
connection with employee share options.
2019 annual general meeting
The annual general meeting will be held
at 12:30pm on Tuesday, 9 July 2019.
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 be available online and accessible to all
shareholders unless they have specifically
requested to receive hard copies.
Directors
The biographies of the current Directors
are shown on pages 48 and 49. 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 2019 annual general meeting all
of the Directors will retire and will offer
themselves for re-election with the
exception of Steve Johnson who will be
seeking ratification of his appointment
to the Board made in September 2018.
Details of Directors’ interests (beneficial and
non-beneficial) in shares of the Group are
given in the Remuneration Report on page
77 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 55 to 57. 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
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
The Directors who served throughout the year in review were as follows
Matt Davies1
Non-Executive Chairman
Lord Alliance of Manchester CBE
Non-Executive Director
Steve Johnson2
Craig Lovelace
Ron McMillan
Lesley Jones
Richard Moross
Gill Barr
Michael Ross
Andrew Higginson
Angela Spindler
Chief Executive Officer (appointed 12 September 2018)
Chief Financial Officer
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Chairman (resigned 30 April 2018)
Chief Executive Officer (resigned 30 September 2018)
1 Matt Davies served as a Non-Executive Director and Chairman elect from 19 February 2018 until his election to
Chairman on 1 May 2018.
2 Steve Johnson served as interim CEO from 1 October 2018 until his appointment as CEO on 26 February 2019.
51
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Directors’ Report continued
liabilities incurred by them whilst acting
on behalf of the Group. Both the insurance
and indemnities applied throughout the
financial year ended 2 March 2019 and
through to the date of this report.
Major shareholders
In addition to the Directors’ shareholdings shown in the Remuneration Report on page 77
and in accordance with Chapter 5 of the Disclosure Guidance and Transparency Rules, the
following notifications had been received from holders of notifiable interests in the
Group’s issued share capital at 15 March 2019:
Disclosure of information to auditors
The Directors who held office at the date
of approval of this Directors’ Report
confirm that, so far as they are each aware,
there is no relevant audit information of
which the Company auditor is unaware,
and each Director has taken all the steps
they ought to have taken as a Director to
make themselves aware of any relevant
audit information and to establish that
the Company’s auditor is aware of
that information.
Governance
The Board is committed to maintaining
high standards of corporate governance.
Further details are contained in the
Corporate Governance Statement on
pages 55 to 57.
Corporate social responsibility and
greenhouse gas emissions
Details on corporate social responsibility
and greenhouse gas emissions are set out
on pages 43 to 45.
Charitable and political donations
During the year, the Group made
charitable donations of £116,377 (2018:
£93,670). No political donations have been
made (2018: nil). No contributions have
been made to non-EU political parties
(2018: nil).
Auto-enrolment and stakeholder pension
With effect from 1 November 2015, Zurich
was appointed as provider for all qualifying
employees. As at 1 March 2019, 90.4% of all
employees were members of a qualifying
pension scheme with 1,450 employees
being auto-enrolled as at the date of this
report. At the date of this report the opt
out rate is 2.6%.
Financial risk management
objectives and policies
The Group is exposed to certain financial
risks, namely interest rate risk, currency risk,
liquidity risk and credit risk. Information
regarding such financial risks is detailed in
note 19 on pages 115 to 118. The Group’s
risk management policies and procedures
and the table of principal risks and
mitigations can be found on pages 22 to 27.
Shareholder
Nigel Alliance OBE
UBS Global Asset Mgt (London)
Invesco
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 auditor,
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 auditor 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.
Holding share
capital
31,489,256
26,517,494
15,898,942
% of issues
11.07
9.32
5.59
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.
52
N Brown Group plc Annual Report & Accounts 2019 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 2018 annual general meeting, the
Directors were given the power to issue
new shares up to a nominal amount of
£10,372,776. This power will expire on the
earlier of the conclusion of the 2019 annual
general meeting or 18 July 2019.
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.
Accordingly, a resolution will be proposed
at the 2019 annual general meeting to
renew the Company’s authority to issue
new shares.
Going concern
The Directors have adopted the going
concern basis in the financial statements
and their opinion is explained on page 102.
Directors will also be proposing a
resolution to provide authority to issue
new shares up to a further nominal
amount of £10,505,659 in connection
with an offer by way of a rights issue.
An approval will be sought at the 2019
general meeting for a certain number of
shares up to a maximum nominal value –
to be allotted pursuant to the authority
granted to Directors set out above without
being covered by statutory pre-emption
rights regime. Further information
regarding this will be included in the
Notice of the Meeting for the AGM.
As in previous years, authorisation for
the Directors to buy back the Company’s
shares will not be sought at the 2019 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
Viability statement
As required by Provision C.2.2 of the 2016
revision of the Corporate Governance
Code, the Directors have assessed the
prospects of the Group over a three-year
period to March 2022.
N Brown Group is a leading digital
specialist fit fashion retailer with over 140
years of experience and it is the Group’s
clear focus to maintain and enhance its
position. Taking into account the Group’s
current position and its principal risks and
uncertainties as described on pages 24 to
27 and how these are managed, the
Directors have assessed the Group’s
prospects and viability.
The strategy and business model as set
out on pages 8 and 16 are central to an
understanding of its prospects. These
factors provide a framework for the rolling
three-year plan which is developed and
reviewed by the Board to assess the
Group’s prospects. The three-year
timeframe for assessing both the
prospects and viability is considered
to be appropriate due to the following:
It is consistent with the Group’s rolling
three-year strategic planning process.
Given the current pace of development,
both within the Group and the wider retail
market, projections looking out further
than three years would not produce a
reliable result.
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. 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.
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.
Using the current strategic plan as a
base case, alternative forecasts have
been produced to model the effect of
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 Group revenue, cash collections and
arrears levels; reflecting the principal risks
of the business, primarily through potential
trading restrictions and penalties arising
from the impact of a cyber-attack, negative
outcomes from delays to the Group’s IT
development programme and an adverse
outcome in respect of the legacy tax
cases which are ongoing. In addition, the
uncertainty around the impact of Brexit and
the reduced consumer confidence has also
been incorporated into these sensitivities.
The above considerations form the basis
of the Board’s reasonable expectations
that the Group will be able to continue in
operation and meet its liabilities as they
fall due over the three-year period from
approval of this Annual Report.
53
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements 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 comply 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.
The Strategic Report on pages 1 to 45
and the Directors’ Report on pages 51
to 54 are hereby approved by the Board
and signed on behalf of the Board.
By order of the Board
Responsibility statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in
accordance with the applicable set of
accounting standards, 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 issuer and the
undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks
and uncertainties that they face.
We consider the Annual Report, 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.
Theresa Casey LL.B (Hons) (Solicitor)
Company Secretary
By order of the Board
15 May 2019
Craig Lovelace
Chief Financial Officer
15 May 2019
Directors’ Report continued
In preparing each of the Group and parent
Company financial statements, the
Directors are required to:
• select suitable accounting policies
and then apply them consistently;
• make judgements and estimates that
are reasonable, relevant, reliable 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;
• assess the Group and parent company’s
ability to continue as a going concern,
disclosing, as applicable, matters related
to going concern; and
• use the going concern basis of
accounting unless they either intend
to liquidate the Group or the parent
or to cease operations or have no
realistic alternative but to do so.
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 are responsible for such
internal control as they determine is
necessary to enable the preparation of
financial statements that are free from
material misstatement, whether due
to fraud or error, and 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.
54
N Brown Group plc Annual Report & Accounts 2019 Corporate Governance Statement
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’)
Board activities
Some of the key activities that the Board
has covered over the past year are:
Strategy
• Comprehensive assessment of the
Company’s standing business model,
resulting in the implementation of a
new three-year strategy
• Indepth reviews of strategy in key
areas of the business such as our core
market and customer proposition
Operational
• Reviewing the budget for FY20
• Assessing marketing return on
investment
• Monitoring brand progress
Regulatory
• Overseeing preparations ahead of
the SM&CR Regime implementation
in December 2019
• Implementation of High Cost
Credit rules
• Incorporating new processes as
mandated by the 2018 UK Corporate
Governance Code which we will be
required to report upon in our 2020
Annual Report
Stakeholder issues
• Review of product strategy to
enhance the quality of design,
sourcing, pricing and trading
• Approving the Annual Report
Governance
• Recruiting a new Chief Executive
Officer
This statement also includes items required
by the Listing Rules and the Disclosure
Guidance and Transparency Rules (‘DTRs’).
Except as specifically highlighted within
this statement, the Directors consider
that the Group has throughout the year
complied with the provisions of the Code.
Leadership
The Board comprises nine Directors, of
whom seven are Non-Executive including
the Chairman. Of the seven Non-Executive
Directors, Lord Alliance of Manchester is
not considered by the Board to be
independent. Full biographical details of
all Directors appear on pages 48 and 49.
The members of the Board are named
below. The Board met nine times during
the year and the Directors’ attendance at
Board meetings was as follows:
Name
Matt Davies
Andrew Higginson
(resigned April 2018)
Lord Alliance of Manchester CBE
Steve Johnson
(appointed 12 September 2018)
Angela Spindler
(resigned 30 September 2018)
Ron McMillan
Lesley Jones
Richard Moross
Michael Ross
Gill Barr
Craig Lovelace
Attendance
9/9
2/2
8/91
4/4
6/6
9/9
9/9
9/9
9/9
9/9
9/9
1 On one occasion, Lord Alliance was unable to
attend a meeting in person; he was represented
by Mr Joshua Alliance.
Committees
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 Committee meeting, at which they are
ratified. The following Committees of the
Board have been established:
• an Audit Committee;
• a Remuneration Committee;
• a Nomination and Governance
Committee; and
• a Corporate Social Responsibility
Committee.
In addition, once each year the Audit
Committee formally convenes as an Audit
and Risk Committee.
After each Committee meeting the Chair
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.
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 for 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.
55
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Corporate Governance Statement continued
Responsibilities
There is a clear division of responsibilities
between the Chairman, Matt Davies, who
is responsible for the effective operation
of the Board and the new Chief Executive,
Steve Johnson, who is responsible for the
Group’s operational performance. Equally
there is a clear distinction between the
Chair, the Senior Independent Director
and the Non-Executive Directors. The
table below summarises the position:
Chair Leader of the Board. Responsible for
Board effectiveness including agendas,
Board composition and Board meetings.
CEO Head of operational matters. Leader
of the executive team.
SID
Point of contact for shareholders if
required. Co-ordinator of NED-only
meetings.
NEDs Provide constructive challenge and
alternative views to the Board. Evaluate
the performance of the Chair.
The Chairman was considered independent
at the time of his appointment.
The Board understands the need for
Non-Executive Directors to be and remain
independent of management in order to
be able to exercise proper oversight and
to effectively challenge the Executive
Directors. The Non-Executive Directors
who served during the financial year
ended 2 March 2019 were:
• Matt Davies (appointed as Chairman
on 1 May 2018)
• Andrew Higginson (resigned as
Chairman on 30 April 2018)
• Lord Alliance of Manchester
• Ron McMillan (Senior Independent Director)
• Lesley Jones
• Richard Moross
• Gill Barr
• Michael Ross
A number of Non-Executive Director only
meetings were held this year to allow NEDs
to discuss matters without the Executive
Directors present.
Day-to-day management of the Group’s
activities is delegated to the operational
board, known as the Executive Board, on
which Steve Johnson and Craig Lovelace
sit as Chief Executive Officer and Chief
Financial Officer respectively.
In January 2019 the members of the Board
met with the Executive Board over a
two-day period to develop a new three-
year strategy for the Group.
Effectiveness
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.
The composition of the Board sub-
Committees is regularly reviewed and
refreshed. Changes which took place
during the year included the appointment
of Matt Davies as Non-Executive Chairman
and the appointment of Michael Ross to
the Audit Committee in succession to
Richard Moross. Where appropriate, the
Committees will invite other members
of management to attend meetings.
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 seven male
Directors and two 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.
We currently have 22% female
representation at Board level and 22% on
the Executive Board. This means we have
fallen below the 33% target for 2020 set by
the Davies report, and are slightly behind
the current FTSE 250, which has achieved
average representation at 23.7%.
Strengthening our executive pipeline
remains a priority for us and, as our
business evolves, we will continue to open
up new opportunities for women, working
with head-hunters and agencies that can
provide true gender diversification in their
candidate bases.
We are members of ‘Women on Boards’.
Our aim is to promote the development
of female Board Directors and to
encourage senior employees to take up
Non-Executive roles in other businesses
where opportunities arise.
56
Our ‘Women Like Us’ network provides
role models, mentors and the skills and
knowledge for women to achieve their
full potential. The initiative has gone from
strength to strength over the past year and
remains a priority in our mission to develop
female talent. Open to all employees across
the Group, events have featured inspiring
women from our workforce alongside guest
speakers who have shared experiences
from their own professional lives.
At the date of this report the gender split
(male/female, senior management and
entire workforce) is as per the diagrams
on page 47.
Board appointments
All appointments to the Board follow a
formal, rigorous and transparent process
to ensure we appoint the best possible
candidate. Due regard is given to the
needs of the Board in respect of skills,
experience, independence and diversity.
Further detail on the appointment of Steve
Johnson is provided in the Nomination and
Governance Committee report.
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.
Prior to appointment to the Board all
Directors are informed of the expected
time commitment. At the time of writing
there are no concerns that any of the
current Directors will be unable to
commit sufficient time to the role.
We have evaluated the commitments
of the Chairman and are satisfied he has
sufficient time to devote to his role.
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 48
and 49.
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.
N Brown Group plc Annual Report & Accounts 2019 Board development
The Company Secretary provides an
ongoing programme of briefings for
Directors covering legal and regulatory
changes and developments relevant to the
Group’s activities and Directors’ 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.
We have reviewed in detail requirements
of the new UK Corporate Governance
Code and ensured that any necessary
changes to Board practice or composition
have been effectively implemented.
Non-Executive Directors meet with
operational teams and the Executive 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 Chairman has regular contact with
each Director and is able to address their
training and development needs.
Board administration
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.
Board evaluation
The Board, having carried out a
performance evaluation, believes
the performance of the Chairman and
Directors, and their commitment to their
respective roles, continues to be fully
effective and the Board and its
Committees continue to provide
appropriate oversight and challenge.
In accordance with the UK Corporate
Governance Code, an internal
effectiveness review of the Board and
its Committees was undertaken during
the second half of the year by way of
questionnaires and assessments
completed by individual Directors.
The outcome from the evaluation of the
Board and its Committees was reviewed
with the Chairman and considered by the
Board. The overall view was that the Board
remains effective, positive and cohesive.
Based on the outcomes of the evaluation,
the Chairman will work with the Non-
Executive Directors to assess their training
and development requirements for
2019/20.
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.
Election of Directors
Pursuant to the Code, all Directors are
required to retire and submit themselves
for re-election annually. Accordingly,
each of the Directors will retire at the
forthcoming annual general meeting
and offer themselves for reappointment
at that meeting with the exception of
Steve Johnson, who will be seeking
ratification of his appointment to the Board.
All Non-Executive Directors serve on letters
of appointment stipulating three-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.
Accountability
The Directors have carried out a robust
assessment of the principal risks facing
the Company including those which
would threaten its business model,
future performance, solvency or liquidity.
The Board monitors the Company’s risk
management and internal control systems
and at least annually carries out a review of
the effectiveness and reports on the review
in the Annual Report.
The Audit Committee report on pages 58
to 61 and the risk report on pages 22 to 27
set out the position of the Board on the risk
to the Company, internal controls and its
prospects in relation to this.
Remuneration
The Directors’ Remuneration Report
setting out the remuneration policy and
its implementation this financial year is
on pages 64 to 81.
No Director is involved in the approval
of his or her own remuneration.
Details of Directors’ contract terms are
shown in the Remuneration Report on
pages 64 to 81. In accordance with the
Code, the Company has made the terms
and conditions of appointment of the
Non-Executive Directors available for
inspection.
Relations with shareholders
The Board recognises the importance
of good two-way communications
between the Company and shareholders.
Accordingly, the Board welcomes the
opportunity to discuss the contents of this
report with shareholders at the N Brown
Group AGM, details of which are to follow.
Other matters
The Audit Committee report and Strategic
Report include additional information
which forms part of the Corporate
Governance Statement.
UK Corporate Governance Code 2018
The Group will be required to report upon
how it has applied the new Corporate
Governance Code in the 2020 Annual
Report. In preparation for this, the Board
is overseeing a number of initiatives which
include, amongst others:
• A new Directors’ Remuneration Policy
which seeks to better link rewards
to culture as well as supporting and
driving the five key pillars of the new
Group strategy.
• Establishment of the ‘Culture Club’, an
employee forum which allows for direct
exchange between employees of the
Group and its Directors.
• Plans to review the skill distribution and
diversity of the Board and its
Committees and ensure effective
succession planning.
• A review of the Group’s risk assessment
and risk management process, with a
particular focus on emerging risks.
57
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Audit Committee Report
Ron McMillan
Chair of the Audit Committee
Member
Ron McMillan (Chair)
Lesley Jones
Richard Moross (resigned July 2018)
Michael Ross (appointed July 2018)
No. of meetings
4/4
4/4
2/2
2/2
The Committee met four times during the year and
attendance was as above.
Responsibilities
Reviewing the integrity of the financial statements, price
sensitive financial releases and significant financial judgements
and estimates relating thereto;
Monitoring the scope of work, quality, effectiveness and
independence of the external auditors and approving their
appointment and fees;
Monitoring and reviewing the independence and activities
of the internal audit function;
Assisting the Board with the development and execution of
a risk management strategy, risk policies and exposures and
a risk register; and
Keeping under review the adequacy and effectiveness of the
Group’s internal financial controls and internal control and risk
management systems.
58
Dear Shareholder,
During the year, the Audit Committee has continued to carry out a
key role within the Group’s governance framework, supporting the
Board in risk management, internal control and financial reporting.
The Committee also acknowledges and embraces its role of
protecting the interests of shareholders as regards the integrity
of published financial information and the effectiveness of audit.
In so doing, the Committee exercises oversight of the Group’s
financial policies and reporting, 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 estimates and judgements are appropriate and obtains
from the external auditor an independent view of the key
disclosure issues and risks.
Whilst risk management is a Board responsibility, the Committee
works closely with the Board and Group management to ensure
that all significant risks are considered on an ongoing basis and
that all communications with shareholders are properly
considered.
In relation to risks and controls, the Committee ensures that these
have been identified and that appropriate responsibilities and
accountabilities have been set.
A key responsibility of the Committee is to review the scope of
work undertaken by the internal and external auditors and to
consider their effectiveness.
During the year, the Committee again oversaw the process used
by the Board to assess the viability of the Group, the stress testing
of key trading assumptions and the preparation of the viability
statement which is set out on pages 53 to 54 in the Directors’
Report. The Committee also monitored the implementation
of IFRS 9, which replaces IAS 39.
The Committee considered whether the 2019 Annual Report is
fair, balanced and understandable and whether it provides the
necessary information to shareholders to assess the Group’s
performance, business model and strategy. The Committee
considered management’s assessment of items included in
the financial statements and the prominence given to them.
The Committee, and subsequently the Board, were satisfied that,
taken as a whole, the 2019 Annual Report and Accounts are fair,
balanced and understandable.
Further information on the Committee’s responsibilities and the
manner in which they have been discharged is set out opposite.
I am available to speak with shareholders at any time and shall
be available at the annual general meeting in July to answer any
questions you may have on this report. I would like to thank my
colleagues on the Committee for their help and support during
the year.
Ron McMillan
Chair of the Audit Committee
N Brown Group plc Annual Report & Accounts 2019 Committee composition
The Committee comprises three members, each of whom is an
independent Non-Executive Director. Two members constitutes
a quorum. The Committee requires the inclusion of one financially
qualified member with recent and relevant financial experience.
The Committee chair fulfils that requirement. All members are
expected to have an understanding of financial reporting, the
Group’s internal control environment, relevant corporate
legislation, the roles and function of internal and external audit
and the regulatory framework of the business. As reflected in the
biographical details on pages 48 and 49, the Committee members
have significant experience of working in or with companies in the
retail, financial services and consumer goods sectors. This ensures
compliance with the UK Corporate Governance Code.
The members of the Committee during the year were:
• Ron McMillan (Chair)
• Lesley Jones
• Richard Moross (resigned July 2018)
• Michael Ross (appointed July 2018)
Details of Committee meetings and attendances are set out on
pages 58 and 60 and the timing of Committee meetings are set
to accommodate the dates of releases of financial information
and the approval of scope of and reviews of outputs from work
programmes executed by the internal and external auditors. In
addition to scheduled meetings, the Chairman of the Committee
met with the CFO, the head of internal audit and the external
auditors on several occasions during the year.
Although not members of the Committee, Steve Johnson as CEO,
Craig Lovelace as CFO, the General Counsel and representatives
from the internal and external auditors attend all meetings and, in
addition, the Chairman of the Board regularly attends meetings.
The key matters considered by the Committee during the year
include the following:
Regulatory environment
The Group is regulated by the FCA under a licence granted on
21 September 2016. Changes in laws and regulations impact
the Group’s business, sector and market and the Committee
continues to review the outputs of 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
the regulations. Provisions made for customer redress require
significant levels of estimation and judgement. The Committee
has considered the assumptions applied in recording such
provisions, including the complaint volume, complaint uphold rate
and average redress rates and considers the provisions recorded
to be appropriate.
Capitalisation of software development costs
The Group’s software development and implementation
programme is ongoing, and the Committee has continued to
review the treatment of the significant software and project costs
in order to satisfy itself that the Group’s approach to capitalisation
of these costs remains appropriate. In this regard, the Committee
has been assisted by internal audit.
Bad and doubtful debts
The Group’s methodology to determine provisions for bad
and doubtful debts in its credit ledgers is both complex and
judgemental. A significant part of the external audit is focused
in this area and the Committee seeks assurance from the finance
function and the auditors that the approach to provisioning is
consistent year on year or, if not, that changes are being made
to better reflect changing economic or commercial circumstances.
The Committee has also been kept appraised of the requirements
set out in IFRS 9 and has monitored how these have been applied
by the Group.
Tax exposures
The Group continues to have a number of open tax items with
the tax authorities and the calculation of the Group’s potential
liabilities or assets in respect of these continues to involve a
degree of estimation and judgement. The Board sets and
oversees the Group’s tax strategy including tax risk. In undertaking
this task the Group uses its tax advisors (Deloitte) and legal
counsel. During the year the Group’s tax advisors have kept the
Committee appraised of existing and emerging risks, and the
Committee and the Board have considered the appropriateness
of related tax provisions and assets and their disclosure in the
Group’s financial statements.
Inventory provisioning
Provision is made where the net realisable value of stock is
estimated to be lower than the 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 is appropriate.
59
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Audit Committee Report continued
Internal controls
The Board has 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 misstatements, 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 Committee has helped the Board develop and
maintain an approach to risk management which incorporates risk
appetite, the framework within which risk is managed and the
responsibilities and procedures pertaining to the application
of the policy.
The Group is proactive in ensuring that corporate and operational
risks are identified and managed. A corporate risk register is
maintained which details:
1. The risks and impact they may have
2. Actions to mitigate
3. Risk scores to highlight the implications of occurrence
4. Ownership
5. Target dates for actions to mitigate
A description of the principal risks is set out on pages 24 to 27.
The Board has confirmed that it has carried out a robust
assessment of the principal risks facing the Group, including
those which threaten its business model, future performance,
insolvency or liquidity.
The Board considers that the processes undertaken by the
Committee are appropriately robust, effective and in compliance
with the guidelines issued by the Financial Reporting Council.
During the year, the Board has not been advised by the
Committee of, nor has it identified itself, any failings, frauds
or weaknesses in internal control which it has determined
to be material in the context of the financial statements.
The Committee continues to believe that appropriate controls
are in place throughout the Group and that the Group has a
well-defined organisational structure with clear lines of
responsibility and a comprehensive financial reporting system.
The Committee also believes that the Company complies with
the FRC guidance on risk management, internal control and
related financial business reporting.
Going concern and viability
The Committee reviewed the appropriateness of adopting
the going concern basis of accounting in preparing the full year
financial statements and assessed whether the business was viable
in accordance with the Code. In accordance with provision C.1.3,
the assessment included a review of the principal risks facing
the Group, their financial impact, how they are managed, the
availability of finance and the appropriate period for assessment.
The Group’s viability statement is on page 53.
Activities of the Audit Committee
Recurring agenda items of the meetings included matters relating to the review and approval of: the internal audit function, risk
mapping and appetite, financial reporting, legacy tax matters and whistleblowing (no incidents of the latter were reported in FY2018/19).
Additional matters covered at each of the meetings were as follows:
January 2019
Review and approval of the external
auditor’s plan for assessment of the full
year results, including their terms of
reference and fees
Approval of the Group’s Tax Policy and Tax
Strategy for 2019
Review of Brexit stress-testing on the
Group’s operational functions
Review and approval of the Group’s Q3
trading statement
April 2018*
Approval of the full year results for FY2017/18
which included reviews of the Group’s going
concern and viability statement
Review of the full year external audit report
and internal audit report
October 2018
Review and approval of the Group’s
half-year audit results and announcement.
This included consideration of the impact
of exceptional costs on the financial
statements and interim dividend
Consideration of IFRS 9 accounting
and reporting standards
Ongoing litigation and taxation matters
Risk management review and update
Review of inventory provisioning process
and setting of targets in relation to
stock holding
Performance reviews of the:
• Internal auditor
• External auditor
• Audit Committee
Ratification of non-audit external service
provider fees
Consideration of the IFRS 9 reporting
implementation strategy
Overview of the Group’s FS regulatory
compliance activity
Review of the implementation of the
requirements of the GDPR regulation
Reports on anti-money laundering,
anti-bribery and corruption and fraud
* Two meetings in April 2018
60
N Brown Group plc Annual Report & Accounts 2019 The Committee remains mindful of the attitude investors have
towards the auditors performing non-audit services and the new
legislation which is operative for accounting periods beginning on
or after 17 June 2016. This new legislation introduces a permitted
non-audit services fee cap of 70% of the average audit fee over a
consecutive three-year period. This cap will come into effect for
the Group in the financial year ending February 2021.
Whilst there was no specific FRC review of the Group’s audit this
year, the Committee discussed with KPMG the results of its FRC
Audit Quality Inspection of the firm as a whole and the proposed
improvement plans arising from the mixed findings of the report.
The Committee will closely monitor progress against these plans.
In relation to the Group’s audit, the Committee has reviewed the
performance of KPMG with input from management, the Group’s
finance and internal audit functions and the General Counsel.
The overall conclusion of the process was that KPMG’s work
continues to be thorough and professional and it is, therefore, the
Committee’s recommendation that the reappointment of KPMG
be put to shareholders at the annual general meeting on 9 July
2019. Given that this is only the fourth year of KPMG’s tenure as
auditors, the Board has no present plans to consider an audit
tender process.
The Committee reviewed the reports prepared by KPMG
on key audit findings and the control environment, as well as
the recommendations made by KPMG to improve processes
and controls together with management’s responses to
those recommendations.
During the year the Committee considered the carrying value
of brand, store impairment provisions, PPI provisions and the
accounting for pension obligations. In relation to all of the above
matters the Committee was presented with detailed reports
prepared by the Group’s financial team.
Reviewing the half year results and Annual Reports
The Committee considered in particular the following:
• The accounting principles, policies and practices adopted
and the adequacy of related disclosures in the reports;
• The significant accounting issues, estimates and judgements
of management in relation to financial reporting;
• Whether any significant adjustments were required as a result
of the audit;
• Compliance with statutory tax obligations and the Group’s
tax policy;
• Whether the information set out in the Strategic Report was
balanced, comprehensive, clear and concise and covered both
positive and negative aspects of performance; and
• Whether the use of ‘alternative performance measures’
was appropriate.
Internal audit
The head of internal audit has a direct reporting line to the
Committee and attends all Committee meetings. During the
year, internal audit undertook a programme of work which was
discussed with and agreed by both management and the
Committee and which was designed to address both risk
management and areas of potential financial loss. Internal audit
also has established procedures within the business to ensure
that new risks are identified, evaluated and managed and that
necessary changes are made to the risk register.
In relation to each of the above, internal audit made
recommendations for improvements, the vast majority of
which have been or are being implemented by management.
The Committee has evaluated the performance of internal
audit and has concluded that it continues to provide helpful
and constructive challenge to management and demonstrates
a commercial and constructive view of the business.
Performance of the Audit Committee
The Audit Committee’s performance was evaluated as part of the
Board’s evaluation carried out over December 2018–January 2019,
as detailed on page 57. The overall conclusion of the review was
that the Committee remains effective in discharging its functions
and reporting to the Board.
External auditors
KPMG were appointed as external auditors on 14 July 2015. The
partner who has been responsible for the audit since KPMG were
appointed is Stuart Burdass, a partner in the Manchester office.
The total fees paid to KPMG for the year ended 2 March 2019 were
£0.6m, of which £0.1m was in respect of non-audit services. Further
details are set out in note 5 to the financial statements.
The Board’s policy in relation to the auditors undertaking
non-audit services is that they are subject to tender processes
with the allocation of work being done on the basis of competence,
cost effectiveness, regulatory requirements, potential conflicts of
interest and knowledge of the Group’s business. KPMG LLP has,
during the year, provided non-audit services in the form of
pensions advisory work (a project which commenced before they
were appointed as auditor). 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.
61
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Dear Shareholder,
I am pleased to present the Nomination and Governance
Committee report.
I became Chair of the Committee following my appointment
as Chairman of the Board, effective 1 May 2018, taking over
from Lesley Jones. The other current member of the Committee
is Ron McMillan.
During the year, the Committee held three meetings.
The key objectives of the Committee are to ensure that the
Board is comprised of individuals possessing the requisite skills,
knowledge, diversity and experience and ensuring that corporate
governance meets best practice standards.
The Committee is also tasked with making recommendations
to the Board in respect of Director appointments. This includes,
where appropriate, the appointments of the Chairman of the
Board, members of the Executive Board and other senior staff of
the operating company. The Committee evaluates candidates on
merit, against objective criteria, taking into account the skills and
experience required to perform the duties of the post with due
regards to diversity and gender. Where appropriate, external
search consultants are engaged.
The CEO is not a member of the Committee but may be invited
to attend its meetings from time to time when required.
During the year the Committee oversaw the search for and
appointment of a new Chief Executive Officer. MWM Consulting
Limited were appointed by the Committee to support the
search. They ran a comprehensive external candidate search
and selection process that produced a diverse short-list of
excellent candidates. The incumbent interim CEO, Steve Johnson,
was included in the process. Following a thorough and competitive
process, the Committee recommended the appointment of
Steve, a recommendation supported unanimously by the Board.
Steve Johnson was appointed as Group CEO on 26 February 2019.
During the year the Committee also considered the impact of
the forthcoming changes to the Code and, in accordance with
the current requirements of the Code, undertook an internal
evaluation of the Board and its committees. It will monitor the
action plan to reflect the outcomes of that review.
Matt Davies
Chair of the Nomination
and Governance Committee
Nomination and Governance Committee Report
Matt Davies
Chair of the Nomination and Governance Committee
Member
No. of meetings
Matt Davies (Chair – appointed 1 May 2018)
Ron McMillan
Lesley Jones (Chair – resigned 30 April 2018)
3/3
3/3
0/0
The Committee met three times during the year and
attendance was as above.
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 the role;
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 appropriate
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 2019
Reviewing the talent pipeline and its effectiveness in
developing diverse candidates;
Overseeing succession planning for the Executive and
Non-Executive Directors to ensure it aligns to the Group’s
long-term strategy; and
Reviewing the composition of the Board and its committees
in light of the incoming revisions to the UK Corporate
Governance Code (the “Code”), engaging with external
shareholders where appropriate.
62
N Brown Group plc Annual Report & Accounts 2019 CSR Committee Report
Michael Ross
Chair of the CSR Committee
Member
Michael Ross (Chair)
Matt Davies
(appointed 1 May 2018)
Steve Johnson
(appointed 26 February 2019)
Ralph Tucker
(Chief Product and Trading Officer)
Alyson Fadil
(Chief People Officer, appointed 2 April 2018)
No. of meetings
2/2
2/2
1/1
1/2
1/1
The Committee met twice during the year and attendance
was as above.
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 2019
Delivering the first phase of a lighting efficiency project at the
Group’s logistics sites;
Implementing sustainable alternatives to plastics usage across
the Group and its supply chain;
Improving diversity and inclusivity for customers and
colleagues through the innovative use of data;
Reviewing the CSR strategy in light of the Group’s increased
focus on sustainability and inclusivity; and
Refocusing our environmental targets to ensure they are fit for
purpose and sufficiently challenging.
Dear Shareholder,
The Committee has overseen significant progress in a number of
new and exciting initiatives during the year. We have developed a
sustainability matrix to ensure that CSR implications remain at the
forefront of key business decisions. We have significantly reduced
the volume of paper sent to customers through investment in
digital solutions for customer communications. We have also
taken steps to reduce the use of paper across the wider business
operations and will continue to improve this over the coming year.
The Committee has worked with subject matter experts to
pioneer a new policy on our ethical use of AI, an initiative achieved
by only a handful of other organisations to date.
The Group continues to participate in a number of significant
international stakeholder forms, engaging with the United Nations,
Ethical Trading Initiative and the ACT living wage project in the
textile and garment supply chain. We continue to be a member of
the UN’s global goals working group and remain active supporters
of the Modern Slavery peer working group, offering support to
other brands.
I look forward to reporting on our progress in relation to the
priorities outlined above in the next Annual Report.
Michael Ross
Chair of the CSR Committee
63
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Dear Shareholder,
This is my first complete financial year as Chair of the
Remuneration Committee and I am pleased to present the
Directors’ Remuneration Report for FY19 on behalf of the Board.
It has been a busy year for the Committee. It has overseen the
departure of our former Chief Executive Angela Spindler and
the appointment of our new Chief Executive Steve Johnson.
Following a thorough review of the strategy by the Board, the
Committee considered how the remuneration policy could
motivate delivery of the strategy whilst, at the same time,
providing ever closer alignment with the shareholder experience.
Our triennial review of the policy has not made fundamental
changes in structure, but there have been changes to some
metrics to closer align with the key elements of our refocused
strategy and which have the potential to improve outcomes for all
stakeholders. The new policy and its operation for the year ahead
will be presented for shareholder approval at our AGM on 9 July
2019. As part of the policy review, I have consulted extensively with
shareholders whom I am pleased to say are supportive of the
changes. I would like to thank them for their time and comments.
Finally, the Committee has reviewed performance for FY19 and
the remuneration outcomes in respect of that year. I set out further
detail on all of these matters below.
Appointment of our new CEO
Our Chief Executive Officer Steve Johnson was appointed on
26 February 2019, having been acting Chief Executive since
1 October 2018.
Steve’s salary was increased on his appointment from £375,000 (as
acting Chief Executive) to £425,000, which is significantly less than
that of his predecessor Angela Spindler, at £566,000. His pension
contribution is 8% of salary (compared to 15% for his predecessor)
and is now in line with the average for the workforce. His annual
bonus maximum remains at 150% of salary and the normal LTIP
award level is 150% of salary.
Steve spent part of the year as the Head of our Financial
Services business and part as Chief Executive Officer (acting or
permanent). Accordingly, his remuneration and deferral of annual
bonus reflects the structure and quantum paid for each of these
different roles. This is clearly explained in the Annual Report
on Remuneration.
CEO arrangements on cessation of employment
Our former Chief Executive Officer Angela Spindler’s employment
was terminated on 30 September 2018. Full details of her
remuneration on cessation of employment are set out in the
Annual Report on Remuneration, are in line with our shareholder
approved remuneration policy and have been set out on our
website since 6 November 2018.
Remuneration Committee Report
Gill Barr
Chair of the Remuneration Committee
Member
Gill Barr (Chair)
Ron McMillan
Richard Moross*
Matt Davies (appointed 1 May 2018)
No. of meetings
5/5
5/5
4/5
3/3
* Richard Moross was unable to attend one of the meetings in person but provided
feedback to the Committee Chair on the matters being considered in advance
of the meeting
The Committee met five times during the year and the
attendance was as above.
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, taking into account the policies, practices,
pay and employment conditions of the Group.
Reviewing Group policies and practices and working with
management and the Board to ensure alignment of policies and
practices across the Group as well as the culture of the business.
Approving the design of, and determining targets for, any
performance-related pay schemes operated by the Company and
approving the total annual payments made under such schemes.
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.
Ensuring that the Company engages as appropriate with its
principal shareholders about remuneration.
Priorities for 2020
The Committee’s focus for the coming year is two fold. Firstly, it
is to ensure the operation of the new policy for FY20 is effective in
driving our refocused strategy to deliver sustainable digital revenue,
profit and free cash flow to improve shareholder value. Secondly,
the Committee will focus on ensuring smooth management of the
changes required by the new UK Corporate Governance Code. A
fundamental part of the changes is the oversight of workforce pay
policies and practices. We will increase employee engagement
which we believe is key to attract and retain colleagues, inspiring
them to deliver great experience for our customers.
64
N Brown Group plc Annual Report & Accounts 2019 Remuneration outcomes for FY19
Salary increases were effective from 1 June 2018 and our CFO
received a 2% increase, in line with the average workforce increase.
The FY19 annual bonus was determined by the same measures
and weightings as the FY18 annual bonus: 70% by Group profit
targets, 20% by corporate objectives and 10% by personal
objectives. Following a solid corporate performance during a year
of transformation across the Group, bonuses have been awarded
to the CEO of 38.5% of the maximum opportunity (in respect of
the part of the year as a Director) and to the CFO of 38.3% of the
maximum opportunity. Further details of performance against
the targets, and the resultant bonuses payable, are included in
the Annual Report on Remuneration. 60% of the bonus will be
paid in cash and 40% is deferred in shares in the Company for
a three-year period.
The Committee has carefully reviewed performance against the
formulaic bonus targets and has considered the overall underlying
performance of the Group as a whole and is satisfied that the
bonuses being paid are appropriate in the circumstances. The PBT
target range set by the Committee for FY19 required significantly
higher performance than the range set for the FY18 bonus and the
resulting bonus outturn of 28.6% of maximum for that element of
the bonus comes from a year of robust PBT performance. The
Committee is comfortable with the level of annual bonus payment
and that the exercise of discretion to adjust the formulaic outcome
is not required.
The performance conditions attached to the LTIP awards
granted in August 2016, which were measured by reference to
performance up to 2 March 2019, have not been achieved, so the
awards will lapse in full.
LTIP awards were granted during the year subject to performance
over the three-year period to FY21. Recognising the low share
price at the time of grant, the Committee determined that the
grant level should be scaled back by 25% to reflect investor
concerns about dilution and the potential for resulting increased
gains on vesting for even a modest share price recovery. The CFO
therefore received an award of 93.75% of salary compared to a
normal award of 125% of salary and the former CEO 112.5% of
salary compared to a normal award of 150% of salary (and whose
award has since lapsed as a result of her leaving the Company).
New Directors’ Remuneration Policy and implementation
of policy for FY20 proposals
Our current Directors’ Remuneration Policy will expire at our 9 July
2019 AGM and a new policy must be put forward for shareholder
approval by a binding resolution.
The Committee has reviewed the current policy and concluded
that fundamental changes are not required and, accordingly, there
are no changes to quantum or the weighting between annual
bonus and long-term incentive.
The Committee has, however, taken the opportunity to ensure
that the new policy is in line with current investor expectations
and embraces the requirements set out in the 2018 UK Corporate
Governance Code. In addition, and importantly, the Committee
has ensured that the policy can be operated to support and drive
the five key pillars of our strategy as set out below:
• Maximise the UK core market before leveraging our international
opportunity
• A crisper, clearer brand proposition for our customers
• Increase the number of customers, conversion and basket size
• Improve operating efficiency and customer targeting
• Strategic objective: Better engaged colleagues will deliver
a better customer experience
I consulted extensively with our largest investors regarding the
new policy proposals and am pleased to report that investor
feedback has been positive.
The changes to our policy are set out in the next section, with the
main changes summarised below:
• Our pension contribution will be reduced from 15% of salary
to 8% (aligned to the rate provided for the majority of our
workforce) for all new recruits (including our new CEO). Our
CFO, who was appointed with a contribution of 10% of salary,
will retain this pension level for the policy period.
• An explicit provision has been added for discretion to be used
to adjust incentive payments if they do not reflect, for example,
the underlying performance of the Company and investor
experience as well as the broader employee reward profile.
• The annual bonus structure is being changed so that the
Executive Directors use 40% of the bonus paid to acquire shares
in the Company, rather than receive a deferred share award,
thereby enabling them to immediately acquire a direct interest
in the shares of the Company, increasing their alignment with
investors and longer-term performance. These shares must be
retained for a three-year holding period and clawback will apply
during that period.
• Shareholding guidelines for the Executive Directors are
increased to 200% of salary with the requirements to retain 75%
of bonus shares and LTIP awards in order to meet that guideline.
65
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements as a measure for our LTIP and this is very much supported by
the Committee. It is critical that management are aligned to the
shareholders in terms in investor return and the focus on recovery
of share price.
The LTIP awards are not made until August each year and the LTIP
targets may need to be reviewed if there is a significant change in
business outlook and performance before then. Subject to this the
targets will be as follows:
• 35% based on relative TSR compared to the FTSE SmallCap
excluding Investment Trusts with 25% of this element vesting for
median ranking increasing in a straight line to maximum vesting
for upper quartile ranking or above.
• 35% based on compound annual growth in EPS from the FY19
EPS to FY22: For growth of 5% CAGR 25% of this element would
vest. For growth of 10% CAGR 75% would vest. For growth of
15% CAGR or more the award would vest at maximum, with
straight line vesting in between each target.
• 30% based on aggregate free cash flow (“FCF”) over FY20, FY21
and FY22: For FCF of £350m 25% of this element would vest
increasing in a straight line to maximum vesting for FCF of
£420m or more.
Focus for FY20
The Committee’s focus for the coming year is two-fold. It is
to ensure the operation of the new policy for FY20 is effective
in supporting and driving our refocused strategy to provide
sustainable digital revenue, profit and free cash flow growth to
deliver improved shareholder value while also considering, as we
draw to the end of this financial year, what changes might need
to be made to further increase its effectiveness. Secondly, the
Committee will focus on ensuring smooth management of the
changes required by the new UK Corporate Governance Code. A
fundamental part of this is the oversight of workforce pay policies
and practices and employee engagement, both of which are key
to our strategy to attract, retain and inspire colleagues to thrive
and deliver great experience for our customers.
If you have any questions I will be available at the annual general
meeting in July or contactable, via our Company Secretary, at
any time before then. I very much hope that you will support
the shareholder resolution on our new Remuneration Policy
and also on the Annual Report on Remuneration at our
forthcoming meeting.
Gill Barr
Chair of the Remuneration Committee
Remuneration Committee Report continued
The policy will be operated for FY20 as set out below.
FY20 base salaries
Salaries are reviewed with effect from 1 June. Our CEO’s salary
set on appointment will not be reviewed again until FY21 and
our CFO will receive an increase of 2%, in line with the average
workforce increase.
FY20 annual bonus
The CEO will have an annual bonus maximum opportunity
of 150% of salary and the CFO 125% of salary.
The bonus will be based 50% on EBITDA (a change from the
current PBT measure), 20% on online sales growth and 30%
on corporate objectives.
The corporate objectives are important to the business and the
Committee is very comfortable replacing the 10% personal
element and increasing the weighting provided to them. Our
refocused strategy emphasises the importance of a number of
key strategic goals that are reflected in the corporate objectives
for this year and the higher weighting reinforces the criticality of
achieving these objectives as part of the wider strategy. Details
of the corporate objectives are set out in the Annual Report on
Remuneration and full disclosure of the EBITDA, online sales
growth and corporate objective targets with performance
against them will be made next year.
Last year online sales growth was one of our corporate objectives.
This year it is an independent objective accounting for 20% of the
bonus acknowledging that online sales growth is a critical area of
focus for the year ahead as we move further to increasing online
sales with a reduction in offline sales while maintaining our focus
on overall Group profit.
The bonus will be determined in part by EBITDA rather than PBT
because the Committee would like to incentivise management
(and the wider business) on measures which more clearly focus
on cash generation. EBITDA represents a good measure to
determine the business’s ability to generate operating cash
flows and we are clearly emphasising the importance of cash
flow by basing the bonus on EBITDA this year. This is particularly
important as we expect the significant historical cash impacts of
exceptional legacy matters to subside and attention becomes
more focused on core cash flow generation potential. The
Committee understands that EBITDA risks there being no check
on any overspend as interest, depreciation and amortisation
are not included. We have set out in the main body of the
Remuneration Report the checks and balances that the
Committee has in place to manage any concerns in this regard,
including the discretion to adjust any bonus payment that is not
reflective of business performance overall.
FY20 LTIP awards
Following the 25% scale-back of the FY19 LTIP awards the FY20
LTIP award levels will revert to the normal policy level of 150% of
salary for our CEO and 125% for our CFO. The Committee is
satisfied that this award level remains appropriate in light of the
performance conditions set and, in the case of our new CEO, the
fact that his package (base salary and pension) has been reduced
significantly compared to that of his predecessor.
As part of the policy review and following investor feedback, the
Committee has reviewed the measures and weighting for the LTIP
awards. Whereas the measures and weighting for the FY19 awards
were Earnings per share (EPS) growth 50%, Free Cash Flow (FCF)
30% and Revenue 20%, for FY20 awards will be determined by
relative total shareholder return 35%, EPS growth 35% and FCF 30%.
A number of our investors were keen to see the introduction of TSR
66
N Brown Group plc Annual Report & Accounts 2019 The Company’s policy ensures that the remuneration package
is linked to the Company’s annual and long-term strategy and
that it is capable of attracting, motivating and retaining Executive
Directors. The policy aims to provide Executive Directors with
competitive remuneration packages, which are prudently
constructed and reward achievement of long-term growth,
profitability and sustainability of the business 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 the shareholders’ interests and the longer-term
growth, performance and sustainability of the business
• 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
• Linked to performance measured over annual and three-year
performance periods
Directors’ Remuneration Policy
This report sets out the information required by Schedule 5
and 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 UK Corporate
Governance Code.
Following a detailed review of the current policy the changes set
out below are proposed. In summary, these changes ensure that
the Committee is able to provide a remuneration structure that is
aligned to our strategy and drives and rewards sustained growth
and shareholder return. It also addresses those areas of focus set
out in the updated UK Corporate Governance Code:
Aligning executive pension to the workforce:
• All new Executive Director appointments (including our new
CEO) will have a pension contribution of 8% of salary, aligned
to the rate provided for the majority of our workforce. The CFO
joined us several years ago on a 10% of salary allowance and
retains this under the new policy.
Annual bonus structure and selection of performance measures:
• A new policy enables the Committee to select financial
measures generally which support the business strategy and not
just profit measures (as currently).
• A further change is proposed so that Executive Directors use
40% of the bonus paid to acquire shares in the Company, rather
than receive a deferred share award, thereby enabling them to
immediately acquire a direct interest in the shares of the
Company, increasing their alignment with investors and
longer-term performance. These shares must be retained
for a three-year holding period and clawback will apply
during that period.
Alignment of the Directors’ interests with shareholders:
• Shareholding guidelines for all Executive Directors are increased
to 200% of salary with the requirement to retain (after the expiry
of the relevant holding periods) 75% of bonus shares and LTIP
awards in order to meet that guideline, rather than setting a
specific time period for achievement.
• We already operate an LTIP two-year post vesting holding
period (the current policy provides the Committee with the
discretion to subject the LTIP awards to a holding period of
up to two years post vesting).
• Holding periods for the annual bonus shares and LTIP awards
will continue post cessation with shareholding guidelines to
continue for two years post cessation in respect of 50% of the
in-service guideline which equates to 100% of salary.
• The new policy includes discretion for the Committee to adjust
incentive awards where the formulaic outturn does not reflect,
for instance, the underlying performance of the Company,
investor experience and employee reward outcome.
The full Directors’ Remuneration Policy is shown on the following
pages. It is subject to shareholder approval at the 2019 AGM and
is effective for three years from that date.
67
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Remuneration Committee Report continued
Summary of components of Executive Directors’ remuneration
The table below summarises the Committee’s policy for the main components of remuneration.
Purpose and
link to strategy
Operation
Maximum
Performance assessment
Salary
Reflects the performance
of the Company and
the individual, their
skills and experience,
and the responsibilities
of the role.
Provides an appropriate
level of basic fixed
income.
Reviewed annually, taking account
of Group performance and individual
performance as well as changes to
the market value of the Company.
Salary increases will
normally be in line with
increases awarded to other
employees of the Group.
None, although overall individual and Company
performance is a factor considered when setting
and reviewing salaries.
Set with reference to the levels of base
salary for similar positions with
comparable 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
1 June.
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.
Annual bonus
Drives and rewards
annual delivery of
financial, corporate and
individual strategic goals.
The annual bonus is based on the
Group’s performance as set and
assessed by the Committee on an
annual basis.
Bonuses will be paid 60% in cash and
40% in shares, which must be held for a
further three years (including in normal
circumstances post cessation).
The payment of any earned bonus
remains ultimately at the discretion
of the Committee.
Annual performance
targets are aligned to the
annual and longer-term
financial and strategic
KPIs of the Company and
aimed at increasing
shareholder value, whilst
being prudent and
safeguarding the future
of the Company.
The holding period
provides alignment with
shareholders and the
longer-term
performance of the
Company.
Long-term incentive plan ‘LTIP’
Provides incentives to
reward sustained
long-term performance
and success through the
achievement of
challenging long-term
performance 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.
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 which will,
except in exceptional circumstances, be
paid in shares.
Shares acquired from LTIP awards must
be held for a total period of five years
from the date of grant. This comprises
the three year performance period and
a further 2 years (including in normal
circumstances post cessation) before
they can be disposed of (subject to sales
to meet taxes payable).
68
Chief Executive: up to 150%
of base salary p.a.
Other Executive Directors:
up to 125% of base
salary p.a.
Normal maximum of 150%
of salary.
Exceptional circumstances
maximum of 200% of salary.
A significant majority of the annual bonus will normally
be determined by reference to performance against
financial measures.
Additionally, corporate and individual strategic
performance objectives may be set. Individual and
corporate strategic objectives will be measurable and
based on the Group’s longer-term strategic plan.
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.
The Committee has the discretion to adjust bonus
payment (including reducing to zero) if it considers that
the formulaic outcome is not reflective, for instance, of
the underlying performance of the Company or investor
experience or wider Group employee reward.
Recovery of payments may occur in the event of a material
misstatement of the Group’s financial results, error in
calculation of performance or payment, individual
misconduct, reputational damage, failure of risk
management and Company failure.
The Committee may select performance measures and
weightings for awards from year to year that support the
Group’s business strategy.
A sliding scale of targets is set by the Committee prior
to each grant with 25% of an award vesting for threshold
performance.
The Committee has the discretion to adjust awards
(including reducing to zero) if it considers that the
formulaic vesting outcome is not reflective of, for
instance, the underlying performance of the Company
or investor experience.
Recovery of payments may occur in the event of a
material misstatement of the Group’s financial results,
error in calculation of performance or payment,
individual misconduct, reputational damage, failure
of risk management and company failure.
N Brown Group plc Annual Report & Accounts 2019 Purpose and
link to strategy
Operation
Maximum
Performance assessment
All-employee share schemes (SAYE)
Provides all employees,
including Executives,
with a mechanism to
acquire shares in the
Group and to together
participate in the success
of the Group.
Pension
Provides retirement
benefits.
Other benefits
Provides a competitive
package of benefits that
assists with recruitment
and retention and
supports the well-being
of the Executive to
enable them to carry out
their role effectively.
The Group operates an HM Revenue
& Customs approved savings related
share option scheme for Group
employees.
The plan is subject to
statutory individual limits as
amended from time-to-
time or such lower limits as
set by the Group.
These are broad based all-employee plans
and are not subject to performance targets.
The Company operates a defined
contribution plan and may also pay
a cash supplement in lieu.
8% of salary except
for the CFO whose
retirement benefit is 10%
of salary.
N/A.
Main benefits currently include but are
not limited to 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 (grossed up)
thereon) can be reimbursed if
determined to be a taxable benefit.
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 is based on
the cost to the Company
and is not predetermined.
The Committee has not consulted with employees specifically
regarding the Directors’ Remuneration Policy but there has been
consultation on the overall Group annual bonus arrangements at
the Group’s employee forum. There will be consultation with
the employees forum on other elements of reward and the
Committee is working with management and the Group Chief
People Officer to determine the most effective form of
engagement to explain the alignment of the Directors’
Remuneration Policy with the wider business.
As part of the Committee’s broader remit under the UK Corporate
Governance Code, the Committee reviews and provides input
and challenge in respect of the Group’s wider remuneration
policies with the objective of ensuring an appropriate cascade
of policy for Executive Directors to the rest of the workforce.
Alignment of Directors’ pay
with broader workforce pay policies
The remuneration policy for the Executive Directors is aligned
with the policy for employees across the Group as a whole.
Following a broad review of wider workforce reward nearly all
of our employees will now be eligible for a bonus which, as with
the Executive Directors, is fully aligned with Group financial and
corporate objectives. The corporate objectives are tailored to the
role of the individual, so they have clear line of sight between their
individual contribution, the results of the business and their reward.
Longer-term share-based incentives are provided to our Executive
Directors and more senior managers through the same long-term
incentive plan with vesting determined by the same Group
targets. There are differences in quantum and whether
participation is offered.
All employees are able to share in the longer-term performance
of the business through our SAYE scheme.
With the exception of our CFO whose retirement allowance is 10%
of salary, the majority of our employees including our CEO receive
the same 8% of salary retirement allowance.
The Committee has taken into consideration the pay and
employment conditions of all employees when determining
the policy.
69
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Remuneration Committee Report continued
Remuneration Committee discretion
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 has certain operational discretions as set out in
the plan rules. These include:
The Committee also considers the Group’s performance and
forward planning on environmental, social and governance (‘ESG’)
matters when selecting performance measures and setting
targets. This ensures that the incentive arrangements for senior
managers take account of ESG matters so as to mitigate any
inadvertent irresponsible behaviour including the taking of undue
risks with the business.
• 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
• 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 or LTIP
performance conditions and/or targets being deemed no longer
appropriate (e.g. a material acquisition or divestment), the
Committee may 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 discretion 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.
Amendments to policy
The Committee may amend this shareholder approved policy
to take account of changes to legislation, taxation and other
supplemental and administrative matters without the necessity
to seek shareholder approval for those changes.
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 under a previously approved
Directors’ Remuneration Policy. 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 of 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
Variable pay and remuneration is linked to both corporate and
individual performance with measures clearly aligned to business
strategy and KPIs of the business. The Committee reviews the
measures to be used for the annual bonus and LTIP each year to
ensure they remain appropriate before awards are granted.
Targets for the Executive Directors’ annual bonuses are set by the
Committee at the beginning of each financial year and for LTIP
awards prior to awards being made. In setting stretching targets
the Committee takes into consideration current and prospective
market conditions, the economic outlook, market expectations,
the business plans and long-term strategy of the Company. 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.
Shareholding requirement
Executive Directors are required to build and retain a minimum
shareholding in the Company of 200% of salary through the
retention of shares acquired from annual bonuses and the vesting
of LTIP awards. Post cessation of employment the requirement
is to hold shares equal in value to 100% of salary for two years
post cessation.
Policy on external appointments
Subject to Board approval, Executive Directors may accept one
external non-executive director position and retain the fees
payable for such appointments.
How shareholders’ views are taken into account
when determining Directors’ pay
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 and operation of that policy
from year to year.
In developing the remuneration policy to be approved by
shareholders at the 2019 AGM, the Committee has consulted
with its largest shareholders and representative bodies such
as the Investment Association, ISS and Glass Lewis.
Executive Directors’ service agreements and policy
on termination of employment
Executive Directors have contracts with an indefinite term
providing for a maximum of 12 months’ notice.
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 for any contractual
payments.
The Committee will ensure that there are no payments for failure.
Neither of the Executive Directors’ contracts provides for
liquidated damages. There are no special provisions contained in
either of the Executive Directors’ contracts that provide for longer
periods of notice or additional remuneration 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.
The Company may negotiate settlement terms including to deal
with a potential legal claim that the Committee considers to be in
the best interests of the Company and to enter into a settlement
agreement to affect 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.
Name
Steve Johnson
Date of contract
26 February 2019 12 months’ salary and benefits
Potential termination payment
Craig Lovelace
6 January 2015
12 months’ salary and benefits
70
N Brown Group plc Annual Report & Accounts 2019 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 is 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 normally lapse on cessation of
employment, unless the Executive Director is deemed to be a
‘good leaver’ by the Committee in which case they will vest in full
at the usual time or exceptionally on the date of cessation. Awards
will vest early in full on a change of control subject to the plan
rules. Annual bonus shares subject to a holding period must
normally be retained for the remainder of the holding period
post-employment.
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 is
for awards to continue until the end of the original performance
period and to vest to the extent targets are met, with a pro-rata
reduction 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 dis-apply
pro-rating in exceptional 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.
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.
477
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, current remuneration package and securing the best
candidate for the role. 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 be provided in accordance with the
approved policy. Assistance with relocation may be provided
where appropriate. Tax equalisation and an expatriate allowance
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 a normal annual share award in the first year of
employment in addition to any awards made with respect
to prior employment being forfeited.
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 taking into account and
replicating as far as possible the form (cash or shares), delivery
mechanism, performance measures, timing and expected value
(i.e. likelihood of meeting any existing performance criteria) of the
remuneration being forfeited and such other specific matters as
the Committee considers relevant. Existing arrangements may be
bought out on terms that, in the Committee’s judgement, are no
more favourable than the remuneration being forfeited. 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. Other benefits or
remuneration may also need to be “bought out” and the
Committee will use its judgement as to the most appropriate
way to structure this.
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.
Potential remuneration scenarios for Executive Directors
(£’000)
2019/20
2,071
1,752
1,115
29%
29%
36%
36%
1,554
34%
34%
1,326
872
26%
26%
417
100%
42%
28%
100%
48%
32%
w
o
e
B
l
t
e
g
r
a
t
t
e
g
r
a
T
w
o
e
B
l
t
e
g
r
a
t
t
e
g
r
a
T
m
u
m
x
a
M
i
m
u
m
x
a
M
i
Steve Johnson
Chief Executive Officer
Craig Lovelace
Finance Director
36%
Total Fixed Pay
Annual Bonus
LTIP
LTIP with 50%
share price increase
Assumptions
Fixed pay = salary on 1 June, benefits and pension.
Target = Fixed pay plus target annual bonus and target LTIP, both at 50% of the maximum.
Maximum = Fixed pay plus maximum annual bonus and full vesting of LTIP, including
an additional scenario showing the value of total remuneration assuming a 50% increase
to the share price.
71
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements
Remuneration Committee Report continued
Policy for Non-Executive Directors’ fees
Purpose and
link to strategy
Operation
Non-Executive Directors’ and Chairman’s fees
Maximum
Performance
Assessment
To attract and retain high-calibre
Non-Executives and ensure they
are appropriately paid for their
skills and experience,
responsibilities and time
commitment of their role.
The Non-Executive Directors’ remuneration is determined by the Board within the
limits set by the Articles of Association.
N/A.
N/A.
The Chairman is paid a single fee for all his responsibilities.
The Non-Executives are paid a basic Board membership fee. The Chairs of
Committees, Senior Independent Director and Non-Executives with other specific
additional roles 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 or receive payments in lieu.
Any reasonable business-related expenses (including tax thereon (grossed up)
where an expense is treated as a taxable benefit) can be reimbursed and limited
benefits relating to travel, accommodation, secretarial support and hospitality
provided in relation to the performance of the Non-Executive Directors’ duties.
When setting and reviewing fee levels, account is taken of the experience and skills
required for and responsibilities of the role, fee levels in comparable companies,
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 to six months’ notice. All appointments are subject to successful re-election upon retirement at the annual
general meeting. Fees are payable to the date of termination, but termination carries no right to compensation other than that provided
by general law.
Brief details of Non-Executive Directors’ letters of appointment are summarised below:
Name
Lord Alliance of Manchester CBE
Matt Davies
Ronald McMillan
Lesley Jones
Richard Moross
Gill Barr
Michael Ross
Andrew Higginson (resigned 30 April 2018)
Date of contract/
Letter of appointment
16 May 2007
19 February 2018
1 March 2013
30 September 2014
13 September 2016
6 December 2017
8 December 2017
3 July 2012
Date current term
commenced
10 April 2019
19 February 2018
1 April 2019
1 October 2017
6 October 2016
16 January 2018
16 January 2018
3 July 2016
Notice period
6 months
6 months
6 months
6 months
3 months
3 months
3 months
6 months
72
N Brown Group plc Annual Report & Accounts 2019 Annual Report on Remuneration
The Annual Report on Remuneration will be put to an advisory shareholder vote at the 2019 annual general meeting.
The information on pages 73 to 77 has been audited.
Directors’ remuneration payable for 2018/19 (Audited)
Executive Directors
Steve Johnson2 (appointed 12 September 2018)
Craig Lovelace3
Angela Spindler4
(ceased employment 30 September 2018)
Non-Executive (fees)
Matt Davies5 (appointed to the Board on 19 February 2018,
elected Chairman on 1 May 2018)
Lord Alliance of Manchester CBE6
Ron McMillan
Lesley Jones7
Richard Moross
Gill Barr
Michael Ross
Andrew Higginson (resigned 30 April 2018)
Salaries
and fees
£000’s
Taxable
benefits1
£000’s
Bonus
(cash and
deferred
shares)
£000’s
LTIP
£000’s
Pension
£000’s
Total
£000’s
170
–
355
348
327
552
220
–
50
48
63
62
71
56
50
49
58
8
55
7
42
250
5
–
17
18
10
19
–
–
–
–
–
–
3
–
3
–
4
–
2
–
–
–
96
–
171
294
169
554
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0
–
0
–
0
0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13
–
35
34
49
83
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
284
–
578
694
555
1,208
220
–
50
48
63
62
74
56
53
49
62
8
57
7
42
250
Year
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
1 Taxable benefits for Executive Directors comprise private medical cover and car allowance. For Non-Executive Directors taxable benefits comprise travel and accommodation.
2 Steve Johnson’s remuneration is for his role as Executive Director only and not for the period prior to being appointed a Director. He was appointed to the Board on 12 September
2018 and his salary increased to £375,000 on 01/10/2018 upon his appointment as interim CEO and to £425,000 on 26/02/2019 upon his appointment as CEO. Steve’s total bonus
comprises £4,656 in respect of the period 12/09/2018 to 30/09/2018 and £91,329 for the period 01/10/2010 to 02/03/2019. Total remuneration for the period 01/10/2018 to 02/03/2019 as
CEO is £266,000. £2.5k of pensions paid as a supplement, not directly into pension.
3 Pension paid as supplement.
4 Figures shown for Angela Spindler are to her ceasing to be a Director on 30 September 2018. Payment in lieu of notice and other amounts owed, subject to the terms of her service
contract, are detailed later in the report under the section ‘Payments to Former Directors’. Until 30 September 2018, pension figure was paid as a supplement and not directly into pension.
5 Matt Davies was appointed to the Board on 19 February 2018 as a Non-Executive Director and Chairman Elect. He was appointed as Chairman on 1 May 2018. His salary therefore
includes remuneration in 2018/19 for the period served as Non-Executive Director, 4 March 2018 to 30 April 2018, and then as Chairman from 1 May 2018.
6 Lord Alliance has waived his Non-Executive Director’s fee.
7 The salary paid to Lesley Jones includes remuneration for her Chairmanship of the Group’s Financial Services Board.
73
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Remuneration Committee Report continued
Details of variable pay earned in the year
Annual bonus (Audited)
The table below gives details of Executive Directors’ bonuses payable for 2018/19:
Weighting
(% of
maximum
bonus
activity)
70%
20%
10%
70%
20%
10%
77.8%
22.2%
Threshold
(0% payout)
£81.0m
Target (50%
of maximum
payout)
£85.6m
Maximum
(100% payout)
£91.1m
Actual
performance
£83.6m
Payout % of
maximum
overall bonus
20.00%
Total
bonus
£
See table below
See table below
£81.0m
£85.6m
£91.1m
See table below
See table below
£81.0m
£85.6m
£91.1m
See table below
54.8%
75%
£83.6m
54.8%
73%
£83.6m
54.8%
10.96%
7.50%
20.00%
10.96%
7.30%
22.23%
12.17%
£95,985
£170,527
£169,155
Measure
Steve Johnson1 Group profit
Corporate objectives
Personal objectives
Total
Craig Lovelace Group profit
Corporate objectives
Personal objectives
Total
Angela Spindler2 Group profit
Corporate objectives
Total
Note:
1 Steve Johnson’s annual bonus is for the period from 12 September 2018 when he was appointed to the Board. The bonus for the period 12 September 2018 to 30 September when he
became interim CEO is determined by the same Group profit targets and corporate objectives that apply to the period from 1 October 2018 to 2 March 2019. The personal objectives
however relate to Steve’s role as Head of Financial Services and where scored at 6.90%. The total bonus for the period 12 September 2018 to 30 September 2018 is £4,656 and the total
bonus for the period 1 October 2018 to 2 March 2019 is £91,329.
2 Angela Spindler ceased to be a Director on 30 September 2018 and as part of her agreed remuneration arrangements on cessation, remained eligible for a pro-rata annual bonus to that
date. Performance has been determined based on Group profit (77.8% of the total bonus) and corporate objectives (22.2% of the total bonus) and not a personal objective element.
A breakdown of the bonuses payable under the corporate objectives and personal elements is set out below:
Corporate objectives
Corporate objectives were set on a sliding scale range of 0% to 100%.
Objective
Customers
Growth in number of online accounts that
have placed an order (which is accepted)
within 12-month period
Stock
Reduce stock level of last and previous stock
held by the Group
Commercial
Gross profit to OPEX ratio
Net debt
The reported level of net debt after adjustment
for exceptional items and growth in debtors
Colleague
Engagement survey
Total
Performance
required for threshold
vesting (0%)
5%
Performance
required for maximum
vesting (100%)
10%
Actual
performance
-0.10%
Payout as %
of maximum for
this element
0% out of 30%
£5.6m
£4.8m
£4.69.
20% out of 20%
1.310
£371m
1.335
1.346
20% out of 20%
£341m
£348.8m
14.8% out of 20%
70
72.5
68
0% out of 10%
54.8% out of 100%
74
N Brown Group plc Annual Report & Accounts 2019 Personal objectives
Personal objectives, relating to 10% of the overall bonus, were set at the start of the year (on appointment as CEO for Steve Johnson)
and performance against them assessed, with input from the Chairman in respect of the CEO’s objectives and with input from the CEO
in respect of the CFO’s objectives as set out below:
Steve Johnson 1
Objectives
Deliver new insight and
define a clear strategic vision
to develop the JD Williams
Brand
Weighting
25%
Achievements towards objectives/performance
18.75% out of 25%
Successful review of the JD Williams Brand proposition, the outcomes of which were key
contributing factors in the development of the Group’s new business strategy.
Refocus the business around
driving for profitable growth
25%
Improve the fortunes of
International trading in the
US
25%
18.75% out of 25%
Significant step forward in H2 2018/19 with a focus on profitable growth.
Final delivery of PBT £83.6m.
De-risking of stock position and fixed assets.
25% out of 25%
Trading position improvement in Q3.
Comprehensive review of our offering to USA customers and identification of key strategic
partnership opportunities.
Renewed focus on servicing Simply Be USA customers.
Create certainty in the plan
for Hybris migration
25%
12.5% out of 25%
On track to achieve successful migration of initial brand to the new Hybris platform in 2019/20 and
clear objectives set to achieve further progression on subsequent brands.
Total
75%
1 Steve Johnson’s objectives were set on his appointment as interim CEO on 1 October 2018 and his bonus for the period 1 October 2018 to 2 March 2019 is determined based on
performance from that date.
Craig Lovelace
Objectives
Meaningful progression
in our legacy tax matters
Weighting
25%
Achievements towards objectives/performance
18% out of 25%
Enhanced insight and outcomes
in customer profitability
25%
VAT Partial Exemption; despite negative attribution ruling in Q4, judge praised the depth and
robustness of the Company’s submission and has ruled against HMRC on apportionment. Ongoing
discussion continues in this respect.
During 2018/19, achieved agreed positions with HMRC for all bar one of the remaining/in process
VAT and CT related legacy matters. Final cash settlements expected in 2019/20, final remaining
provisions made in 2018/19 given status.
19% out of 25%
Significant progression in enhanced development and wider use of real-time contribution modelling
and decision making.
Substantive developments in strategic modelling capabilities in business, in particular continuing
focus on promotional spend ROI and customer profitability.
Meaningful progression in, and delivery of, a wide variety of data and analytics initiatives, in
particular in product and marketing areas. Supporting critical pillar of 2019/20 strategy.
Improved commercial outcome
from significant contractual
negotiations
25%
21% out of 25%
Significant year with many of the Group’s largest contracts renewed, delivering materially improved
terms with suppliers in pricing, service and support. Detailed, transparent and rigorous tender
process.
Restructured and improved supplier on-boarding and supplier management systems and processes.
New procurement policy rolled out across the Group with associated training/comms upgrade.
Successful and substantive business-wide GDPR implementation delivered successfully and
embedded in business ongoing.
Continued development of
senior finance team
25%
15% out of 25%
Recruited and on-boarded new Director of Investor Relations and Corp Comms with material experience.
Finance first functional area in the business to roll out and embed new leadership pathways in the Group.
New targeted recruitment at Senior Manager level to provide additional commercial and technical
horsepower.
Total
73%
75
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Remuneration Committee Report continued
LTIP awards granted in 2018/19 (Audited)
The table below provides details of the long-term incentive awards granted to Executive Directors during the year.
Type of
award
LTIP
% of
Date of grant
condition
22/08/2018 50% EPS
Salary1
75%
Face
Number
value
of shares
£176,715 126,225
Share price
at grant
140p
30% Free
cash flow
20%
Revenue
Performance
period
3 yrs to end of
financial year
2020/21
Threshold target
(25% vesting)
At least 3% CAGR At least 8%
Stretch target
(100% vesting)
CAGR
Free cash flow
at least £350m
Free cash flow
at least £420m
At least 3% CAGR At least 5%
LTIP
22/08/2018 As above
93.75% £334,280 238,771
140p
As above
As above
CAGR
As above
LTIP
22/08/2018 As above
112.5% £636,327 454,519
140p
As above
As above
As above
Executive
Steve
Johnson 2
Craig
Lovelace 2
Angela
Spindler 2
1 The awards are based on salaries at the date of grant.
2 The Remuneration Committee determined that the award should be scaled back by 25% from the usual policy level.
Outstanding 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
for the CEO and CFO.
Executive
Steve Johnson1
Craig Lovelace
Angela Spindler 2
Awarded
during the
year
–
Lapsed
during the
year
273
Vested and
exercised
during the
year
–
3 March
2018
273
115,774
7,242
65,645
119,117
4,731
243,125
133,915
12,586
–
–
238,087
12,790
472,063
254,918
23,135
–
–
–
–
17,316
126,225
–
–
–
–
–
–
–
–
29,355
238,771
–
–
–
–
–
–
–
–
–
–
119,117
–
–
–
–
–
–
238,087
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12,790
–
–
23,135
–
55,299
2 March
2019
–
115,774
Date granted
June 2016
August 2016
7,242
September 2017
65,645
17,316
126,225
August 2017
August 2018
August 2018
–
August 2015
4,731
243,125
133,915
12,586
29,355
238,771
–
–
472,036
254,918
June 2016
August 2016
August 2017
July 2017
June 2018
August 2018
August 2015
June 2016
August 2016
August 2017
–
–
–
September 2017
August 2018
August 2018
Type of
award
DABS
LTIP
DABS
LTIP
DABS
LTIP
LTIP
DSBP
LTIP
LTIP
DSBP
DSBP
LTIP
LTIP
DSBP
LTIP
LTIP
DSBP
LTIP
DSBP
454,519
55,299
454,519
–
1 Deferred annual bonus matching share awards (“DABs”) were granted to Steve Johnson prior to him being appointed as CEO and are part of the below Board incentive arrangements
where part of the annual bonus is paid to employees in shares (and not as a deferred share award) and there is a share matching element. Vesting is determined by earnings per share
performance target. No matching share awards will be granted to the CEO going forward and are discontinued for all employees of N Brown with effect from 2019/20.
2 Angela Spindler’s Deferred share bonus awards (DSBP) vested on cessation of her employment as part of her agreed package on leaving. The 2018 LTIP award lapsed on cessation of
employment. The 2016 LTIP award has now lapsed as performance targets have not been met. The 2017 LTIP award remains outstanding and to the extent it vests, will be scaled back
pro rata for the shorter period of service from the date of grant to 30 September 2018 (date of cessation of employment).
76
N Brown Group plc Annual Report & Accounts 2019 LTIP awards with performance periods ending in 2018/19 (Audited)
The awards granted on 10 August 2016 with EPS, Cash flow and Revenue performance periods ending 2 March 2019 are set out below:
EPS growth 50% 3 years ending 2018/19
Performance period
Threshold target
(25% of that part
of the award vests)
RPI + 2.5% p.a.
Stretch target
(100% of that part
of the award vests)
RPI + 9% p.a.
Cash flow 30%
3 years ending 2018/19
at least £370m
at least £450m
Revenue 20%
3 years ending 2018/19
at least 5% CAGR
at least 10% CAGR
Total
Actual
performance
(27.3%)
£237m
1.8%
Vesting
0% out of 50%
0% out of 30%
0% out of 20%
0%
Set out below are details of the LTIP awards held by Executive Directors and the vesting resulting from the performance detailed above:
Executive
Steve Johnson
Angela Spindler
Craig Lovelace
% Salary
100%
150%
125%
Face value
£200,000
£815,490
£420,000
Share price
at grant
(rounded)
173p
173p
173p
Number
of shares
awarded
115,774
472,063
243,125
Percentage
of award
vesting
0%
0%
0%
Number
of shares
vesting
Nil
Nil
Nil
Value
of shares
vesting
£0
£0
£0
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 Chief Financial Officer are expected to hold Company shares equal in value to 200% and 100% of their
base salary respectively and to have met this guideline within five years of appointment. Under the new policy the shareholding
requirement has been increased to 200% of base salary for both Executive Directors.
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
3 March
20181
3,811
2 March
20191
32,369
17,317
46,672
250,072
305,371
Value
of shares
(as a % of
salary)
7.7%
11.2%
N/A
Outstanding
awards subject
to performance
conditions
332,202
Guideline
met?
No
Unvested
awards not
subject to
performance
condition
–
Vested
unexercised
awards
–
Steve Johnson
Craig Lovelace
Angela Spindler
(ceased employment
30 September 2018) 2
Matt Davies
10,000
31,130
Lord Alliance of Manchester CBE
95,047,966 95,047,966
Ron McMillan
Lesley Jones
Richard Moross
Gill Barr
Michael Ross
Andrew Higginson
(resigned 30 April 2018) 2
–
–
–
–
–
50,000
–
–
8,506
–
104,161
104,161
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
No
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
615,811
726,954
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total as at
2 March
2019
364,571
662,483
1,032,325
31,310
–
–
–
– 95,047,966
–
–
–
–
–
–
50,000
–
–
8,506
–
104,161
1 The figures for the Executive Directors include the number of beneficially owned shares obtained via direct purchase and deferred bonus shares.
2 Shareholding as at date ceased employment or service.
The Directors’ share interests shown above include shares held by members of the Directors’ family, as required by the Companies Act 2006.
Steve Johnson purchased 20,606 shares on 2 May 2019 and 7,265 shares on 7 May 2019. There have been no other changes to the
Directors’ interests in shares between 3 March and 15 May 2019.
77
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Remuneration Committee Report continued
Performance graph
The graph shows the Company’s 10-year performance, measured by TSR, compared to the performance of the FTSE 250 Index, also
measured by TSR. The Company has been a member of this index for most of the 10-year period and accordingly it is felt to be the most
appropriate comparator group for this purpose.
TOTAL SHAREHOLDER RETURN PERFORMANCE: N BROWN VS FTSE 250
(rebased to 100)
450
400
350
300
250
200
150
100
50
0
Feb 09
Feb 10
Feb 11
Feb 12
Feb 13
Feb 14
Feb 15
Feb 16
Feb 17
Feb 18
Feb 19
N Brown Group plc
FTSE 250 Index
Analysis of Chief Executive’s pay over 10 years
Alan White
Angela Spindler
Total remuneration (£’000)
Annual bonus
(% of maximum)
Long-term share vesting
(% of maximum)
2009/10 2010/11 2011/12 2012/13 2013/14
2,734
2,734
2,438
3,738
1,780
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
555
1,364
1,373
1,208
783
728
96.9% 90.6% 38.7%
71.4% 15.8%
83.2%
0.0%
27.9%
42.1% 66.7% 34.4%
38.5%
100%
100%
100%
100%
85%
N/A
N/A
0%
0%
0%
0%
0%
Steve
Johnson
2018/19
266
The one-off recruitment award granted to Angela Spindler in 2013 and which vested in 2015/16 and 2016/17 has been included in the
figures for total remuneration, but not counted as long-term share vesting
CEO pay ratio
The employee data for the CEO pay ratio has been compiled using Method B and taking the Company’s gender pay gap data for 2018
to identify the individuals at each quartile. The 2018/19 pay data has then been taken for those individuals including indicative bonus
payments that will be paid in May 2019.
Quartile
25th
Median
75th
Total remuneration
£14,501
Ratio to CEO
47:1
£19,646
£32,478
35:1
21:1
CEO
£678,725
The CEO pay data is based on 12 months of the CEO’s current remuneration package (which was set on his appointment in February
2019). This includes a full-year equivalent annual bonus based on the bonus payable (as a percentage of maximum) for the period 1
October 2018 to 2 March 2019 (1 October being the date of appointment as interim CEO). The CEO pay data has been provided on this
basis because the Committee considers it is representative of the CEO’s pay for a full year rather than including remuneration paid on an
interim CEO basis or to the former CEO.
78
N Brown Group plc Annual Report & Accounts 2019
Percentage change in the Chief Executive’s remuneration
The table below shows the percentage change in the Chief
Executive’s salary, benefits (excluding pension) and annual bonus
between the 2017/18 and 2018/19 financial years, compared to that
of the average for all employees of the Group.
Chief Executive*
Average of other employees
% Change from
2017/18 to 2018/19
Salary Benefits
nil
+2.0%
Annual
bonus
-47.8%
+2.0%
nil
-25.2%
* The disclosure above is based on the remuneration of our former CEO, Angela Spindler,
and for 2018/19 uses a full year bonus equivalent.
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)
2019
68.6
32.2
2018
72.2
40.3
%
Change
-4.9%
-20.1%
The figures relate to amounts payable in respect of the relevant
financial year.
Other directorships
The current CEO and CFO do not serve as Non-Executive
Directors for any other companies.
During her time as CEO, Angela Spindler served as a Non-Executive
Director of Dia Group which is listed on the Madrid stock exchange.
Payments to past Directors and payments for loss of office
There are no payments except as disclosed below.
As announced on 12 September 2018, Angela Spindler stepped
down as Chief Executive on 30 September 2018. A statement was
made on our website in accordance with section 430 (2B) of the
Companies Act 2006.
In accordance with Angela Spindler’s service contract and the
Company’s Directors’ Remuneration Policy, Angela’s remuneration
arrangements on ceasing employment are set out below.
• The Company terminated Angela Spindler’s employment on
30 September 2018 and exercised a payment in lieu of notice
clause in Angela’s service contract. On this basis Angela is being
paid her base salary, car allowance and pension in monthly
instalments until 30 September 2019. These payments will cease
or be reduced by an amount equal to any executive earnings
received during this period.
• Private medical cover continues until 30 September 2019 and the
value of other benefits will be paid monthly in cash.
• The Committee used its discretion to allow Angela to be eligible
for consideration for an annual bonus for the financial year
ending 2 March 2019, reduced on a pro-rata basis for service to
30 September 2018. Any annual bonus payment would be
subject to the achievement of the relevant performance targets
and paid at the normal time in cash.
• The Committee used its discretion to allow the unvested 2016,
2017 and 2018 Deferred Share Bonus Plan Awards (over a total
of 91,224 shares) to vest immediately.
• The 2018 long-term incentive award has lapsed.
• The Committee used its discretion to allow the 2016 and 2017
long-term incentive awards to be capable of vesting at their
normal vesting dates subject to achievement of the
performance targets. The number of shares capable of vesting
will be reduced on a pro-rata basis for the period of service to
30 September 2018. The 2016 award has since lapsed.
• Payment of legal fees of £4,810 (exclusive of VAT) in connection
with the cessation of Angela’s employment.Payments made to
Angela for the period to 30 September 2018 are set out in the
single total figure of remuneration table and include annual
bonus for the period to that date. Payments made since 30
September 2018 are set out below:
Element of payment in lieu of notice
Salary
Car allowance
Pension
Period 1 October 2018
to 2 March 2019
£235,767
£7,291
£35,351
Shareholder voting on the Directors’ Remuneration Report
at the 2018 annual general meeting
Voting outcome for the 2016 Remuneration Policy vote
% of votes cast
Number of votes cast 1
For
90.20%
Against
8.86%
181,154,278
17,796,528
Voting outcome for 2018 Remuneration Report:
% of votes cast
Number of votes cast 1
For
84.38%
Against
15.62%
188,335,740
34,861,410
1 13,294,675 votes were withheld in 2016 and 14,314,030 votes were withheld in 2018.
A vote withheld is not a vote in law and is not counted in the votes for or against a
resolution but would be considered by the Committee in the event of a significant
number of votes being withheld.
Members of the Remuneration Committee
Name
Gill Barr (Chair)
Ron McMillan
Richard Moross
Matt Davies
From
16 January 2018
1 April 2013
3 January 2017
1 May 2018
To
Present
Present
Present
Present
The General Counsel and Company Secretary acts as secretary to
the Committee and the Chief Executive, Chief Financial Officer
and Chief People Officer may also attend meetings by invitation.
However, no Director takes any part in discussion about his or her
own remuneration.
The Committee has formal written terms of reference which are
available on the corporate website. The Committee met five times
during the year. See page 64 for details of attendance.
Advisors to the Remuneration Committee
The Committee received advice during the year from Korn Ferry
who were appointed through a formal tender process by the
Committee in March 2018. Korn Ferry are a signatory to the
Remuneration Consultants’ Group Code of Conduct. Fees
amounting to £62,450 were paid to Korn Ferry during the financial
year for their services to the Committee.
The Committee reviews the performance and independence of its
advisors on an annual basis and is satisfied that the advice received
is objective and independent. The advisors’ terms of engagement
are available on request from the Company Secretary.
79
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Remuneration Committee Report continued
Application of the remuneration policy
for 2019/20
Subject to the new remuneration policy being approved by
shareholders at the AGM on 9 July 2019, remuneration during
2019/20 will be as set out below.
Base salary
The CEO ‘s salary was set on appointment on 26 February 2019 and
will not be increased for 2019/20. The CFO’s salary was reviewed in
April 2019 and will be increased with effect from 1 June 2019 by 2%
in line with the average received by the general workforce.
Name
Steve Johnson
Craig Lovelace
Salary as at 1
June 2018
–
Salary as at
1 June 2019
£425,000
£356,565
£363,697
Increase
N/A
2%
Pension
Steve Johnson and Craig Lovelace receive cash supplements of
8% and 10% of salary respectively, in lieu of pension contributions.
Annual bonus plan
The annual bonus maximum opportunity remains unchanged at
150% of salary for the CEO and 125% of salary for the CFO.
Executive Directors will be required to use 40% of the bonus paid
to acquire shares in the Company. These shares must be retained
for a three-year holding period and will be subject to clawback
during this period.
Last year online sales growth was one of the corporate objectives.
This year it is an independent objective accounting for 20% of the
bonus, acknowledging that online sales growth is a critical area of
focus for the year ahead as we move further to increasing online
sales, with a reduction in offline sales while maintaining our focus
on overall Group profit.
50% of the annual bonus will be based on EBITDA, 20% on online
sales growth and 30% on corporate objectives. The Committee
has decided to use EBITDA in place of PBT because it would like
to incentivise management (and the wider business) on measures
which more clearly focus on cash generation. The Committee
believes that EBITDA represents a good measure to determine
the business’s ability to generate operating cash flows (rather than
earnings), and that by determining the bonus using EBITDA a clear
message is given to management that this is a key priority for both
investors and the business. This is particularly important as the
Company enters a financial year when it is expected that the very
significant historic cash impact of exceptional legacy matters will
subside and attention becomes more focused on the business’s
core cash flow generation potential.
As part of its considerations and in determining the use of EBITDA
the Committee has noted the following:
• A stretching EBITDA performance target range has been set for
2019/20 which is substantially ahead of the range set for last
year’s bonus (the EBITDA equivalent of the PBT range that was
actually used) and will be disclosed in next year’s Remuneration
Report.
• 40% of any bonus earned will be held by the Executive Directors
in shares for three years which provides a longer-term
perspective for the bonus, beyond immediate EBITDA
performance for the year. Significant executive shareholding
requirements (200% salary) and two year post vesting
shareholding requirements for the LTIP provide a further
balance.
• The Committee understands that investors may be concerned
that the use of EBITDA risks there being no check on any
overspend as interest, depreciation and amortisation are not
included. Investment decisions are made at Board level and our
approach to depreciation and amortisation is factored into the
target setting for the annual bonus. In the event that the Board’s
policies change, the targets that are set would be adjusted
commensurately.
• The Committee has the discretion to adjust the formulaic
outcome of the bonus and will carefully look, not only at the
overall underlying performance of the business but specifically
at the reasons for any increase in interest, depreciation and
amortisation.
• There is an appropriate balance of performance measures over
the short and long-term annual bonus and LTIP (corporate
objectives, online sales growth, TSR, Free cash flow and EPS)
that, overall, provides a rounded assessment of performance.
The corporate objectives and weightings are as follows:
Objective
Net Debt
VIBE survey
(employee
engagement)
Weighting
25%
25%
Net Promoter Score
25%
Rationale for measure
To ensure continued focus and
reduction in Net Debt
To take the necessary steps and
initiatives to improve employee
engagement
To measure and improve our
customer experience
Financial Services
Arrears
25%
To measure the quality and
performance of the FS loan book
The Committee considers that the targets for the annual bonus
are commercially sensitive and are not therefore disclosed in this
report. The targets and performance against them will be
disclosed retrospectively in the 2019/20 Remuneration Report.
80
N Brown Group plc Annual Report & Accounts 2019 Long-term incentive awards
Following the 25% scale-back of the 2018 awards the LTIP award levels for 2019 will revert to the normal policy level of 150% of salary for
our CEO and 125% for our CFO. The Committee is satisfied that this award level remains appropriate in light of the performance
conditions set and, in the case of our new CEO, the fact that his package (base salary and pension) has been reduced significantly
compared to that of his predecessor.
The LTIP awards are not made until August each year and targets may need to be reviewed if there is a significant change in business
outlook and performance in the interim.
The expected metrics and targets are as follows:
Metric
TSR
Relative TSR compared to
the FTSE SmallCap excluding
Investment Trusts
EPS
Growth from the 2018/19 EPS to
2021/22
35%
FCF
Based on the aggregate of the
free cash flow delivered over
2019/20, 2020/21 and 2021/22
30%
Weighting
35%
Target range
25% of this element vests for N Brown achieving a ranking of median.
Maximum vesting for a ranking upper quartile or above.
Straight line vesting in between.
5% CAGR for threshold (25% of this element)
10% CAGR for 75% of this element vesting
15% CAGR for maximum vesting
Straight line vesting in between each target
£350m for threshold vesting (25% of this element) increasing
in a straight line to maximum vesting for £420m or more
(not adjusted for exceptional items but adjusted for debtor growth).
Rationale for measure
To incentivise management
directly to achieve superior
stock market returns
To reward long-term growth
in profitability attributable
to shareholders
To focus on efficient cash
management of the business
and to generate surplus cash
to return to shareholders
Shares from vested awards must be retained for two years before sale (subject to sales to meet and taxes payable on vesting).
Fees for the Chairman and Non-Executive Directors
Details of the Non-Executive Directors’ fees are set out below. Fees have been reviewed with increases effective from 1 June 2019.
The Non-Executive Directors’ base Board fee is increased by 2% in line with the Executive Directors and workforce increases. Fees for
the Committee Chairs and the Senior Independent Director are increased to take account of the increased responsibilities and time
commitment of those roles. A fee for the role of Designated Director for employee engagement has been set at £10,000 reflecting the
workload and time commitment for this role.
Chair of the Board fee
Other Non-Executive Directors’ base Board fee
Senior Independent Non-Executive Director
Chair of Audit Committee
Chair of Remuneration Committee
Chair of the CSR Committee
Chair of the Financial Services Operating Committee
Designated Director for employee engagement
Approval of the Directors’ Remuneration Report
The Directors’ Remuneration Report was approved by the Board on 15 May 2019.
Signed on behalf of the Board on 15 May 2019.
Gill Barr
Chair of the Remuneration Committee
Fees as at
1 June 2018
£255,000
Fees as at
1 June 2019
£255,00
£50,000
£5,000
£8,000
£8,000
£5,000
£20,000
–
£51,000
£10,000
£15,000
£15,000
£10,000
£20,000
£10,000
81
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Independent Auditor’s Report to the
members of N Brown Group PLC
1 Our opinion is unmodified
We have audited the financial statements of N Brown Group plc
(“the Company”) for the 52 week period ended 2 March 2019
which comprise the consolidated income statement, consolidated
statement of comprehensive income, consolidated balance sheet,
consolidated cash flow statement, consolidated statement of
changes in equity, the Company balance sheet, the Company
statement of changes in equity and the related notes, including
the accounting policies in note 2 and 32.
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 2 March
2019 and of the Group’s loss 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.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion. Our audit opinion is consistent with our report to the
audit committee.
We were first appointed as auditor by the shareholders on 14 July
2015. The period of total uninterrupted engagement is for the four
financial years ended 2 March 2019. We have fulfilled our ethical
responsibilities under, and we remain independent of the Group
in accordance with, UK ethical requirements including the FRC
Ethical Standard as applied to listed public interest entities. No
non-audit services prohibited by that standard were provided.
Overview
Materiality: group
financial statements
as a whole
£3.24m (2018: £3.15m)
3.7% (2018: 4.3%) of group profit before tax
excluding exceptional items
Coverage
100% (2018: 100%) of group profit before tax
Risks of material misstatement
Recurring risks
Allowance for doubtful debts
Taxation provisions
Regulatory provision
Capitalised software and development costs
Carrying value of inventories
Parent company – carrying value of investments
Event Driven risks
The impact of uncertainties due to the UK exiting
the European Union on our audit
Going concern
vs 2018
New
New
82
N Brown Group plc Annual Report & Accounts 2019 2 Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements
and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those
which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. We summarise below the key audit matters in arriving at our audit opinion above, together with our key audit
procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were
addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the
financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not
provide a separate opinion on these matters.
The risk
Our response
The impact of
uncertainties due to
the UK exiting the
European Union on
our audit
Refer to pages 24-27
(principal risks),
page 53 (viability
statement), page 60
(Audit Committee
Report), page 102
(accounting policy).
Unprecedented levels of uncertainty:
All audits assess and challenge the reasonableness
of estimates, in particular as described in allowance
for doubtful debts, regulatory provisions, taxation
provisions, capitalised software and development
costs and carrying value of inventories below, and
related disclosures and the appropriateness of the
going concern basis of preparation of the financial
statements (see below). All of these depend on
assessments of the future economic environment
and the Group’s and parent company’s future
prospects and performance.
In addition, we are required to consider the other
information presented in the Annual Report
including the principal risks disclosure and the
viability statement and to consider the directors’
statement 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
and parent company’s position and performance,
business model and strategy.
Brexit is one of the most significant economic
events for the UK and at the date of this report its
effects are subject to unprecedented levels of
uncertainty of outcomes, with the full range of
possible effects unknown.
We developed a standardised firm-wide approach to the
consideration of the uncertainties arising from Brexit in planning
and performing our audits. Our procedures included:
• Our Brexit knowledge: Considering the directors’ assessment
of Brexit-related sources of risk for the Group’s and parent
company’s business and financial resources compared with our
own understanding of the risks. We considered the directors’
plans to take action to mitigate the risks;
• Sensitivity analysis: When addressing allowance for doubtful
debts, regulatory provisions, taxation provisions, capitalised
software and development costs and carrying value of
inventories and other areas that depend on forecasts, we
compared the directors’ analysis to our assessment of the full
range of reasonably possible scenarios resulting from Brexit
uncertainty and, where forecast cash flows are required to be
discounted, considered adjustments to discount rates for the
level of remaining uncertainty;
• Assessing transparency: As well as assessing individual
disclosures as part of our procedures on allowance for doubtful
debts, regulatory provisions, capitalised software and
development costs, taxation provisions and carrying value of
inventories, we considered all of the Brexit related disclosures
together, including those in the strategic report, comparing the
overall picture against our understanding of the risks;
Our results
• As reported in allowance for doubtful debts, regulatory
provisions, taxation provisions, capitalised software and
development costs and carrying value of inventories, we found
the resulting estimates and related disclosures and disclosures
in relation to going concern to be acceptable. However, no
audit should be expected to predict the unknowable factors
or all possible future implications for a company and this is
particularly the case in relation to Brexit.
83
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Independent Auditor’s Report to the members of N Brown Group PLC
continued
Going concern
Refer to pages 24-27
(principal risks),
page 53 (viability
statement), page 60
(Audit Committee
Report), page 102
(accounting policy).
The risk
Disclosure quality
Our response
Our procedures included:
The financial statements explain how the Board
has formed a judgement that it is appropriate to
adopt the going concern basis of preparation for
the Group and parent company.
That judgement is based on an evaluation of the
inherent risks to the Group’s and Company’s
business model and how those risks might affect
the Group’s and Company’s financial resources or
ability to continue operations over a period of at
least a year from the date of approval of the
financial statements.
The risks most likely to adversely affect the Group’s
and Company’s available financial resources over this
period were:
• Market demand and increased pressure from
competitors
• Adverse fluctuations in foreign exchange rates
• Funding assessment: Evaluating management’s assessment
of the Group’s compliance with debt covenants and the
headroom on available facilities;
• Historical comparisons: Evaluating the precision of previous
financial period’s forecasts against actual results to assess
historical accuracy;
• Sensitivity analysis: Considering sensitivities over the level of
available financial resources indicated by the Group’s financial
forecasts taking account of reasonably possible (but not
unrealistic) adverse effects that could arise from these risks
individually and collectively. Using our own restructuring
specialists, this included performing further stress testing on
the sensitivities prepared by the directors in relation to financial
forecasts and viability reporting, which included using sector
and market experience.
• Evaluating directors’ intent: Evaluating the achievability of
the actions the directors consider they would take to improve
the position should the risks materialise
• Working capital requirements as the Group
• Assessing transparency: Assessing the completeness
and accuracy of the matters covered in the going concern
disclosure by ensuring the disclosure adequately discloses
the risks inherent to the going concern of the Group.
Our results:
• We found the going concern disclosure without any material
uncertainty to be acceptable (2018: acceptable).
continued to grow
• Significant redress provisions which could
represent a risk on the restriction of future
activities in an FCA regulated environment
There are also less predictable but realistic second
order impacts, such as the impact of Brexit and the
erosion of customer or supplier confidence, which
could result in a rapid reduction of available
financial resources.
The risk for our audit was whether or not those
risks were such that they amounted to a material
uncertainty that may have cast significant doubt
about the ability to continue as a going concern.
Had they been such, then that fact would have
been required to have been disclosed.
Allowance for
doubtful debts
Refer to page 25
(principal risks),
page 53 (viability
statement), page 59
(Audit Committee
Report), pages 99-100
(accounting policy)
and pages 112-113
(financial disclosures).
Subjective estimate:
Our procedures included:
IFRS 9 became effective on 1 January 2018,
leading to significant changes in the accounting
of allowances for doubtful debts.
The calculation of the impairment provision is an
inherently judgemental area and IFRS 9 includes
a number of new judgements, such as the
determination of significant increases in credit risk,
lifetime and 12 month Probability of Default (‘PD’),
Loss Given Default (‘LGD’) and the macroeconomic
variables, all of which are highly subjective.
There is a risk that the allowance for doubtful
debts is misstated as a result of inappropriate
judgements or management override.
The effect of these matters is that, as part of our
risk assessment, we determined that the allowance
for doubtful debts has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the
financial statements as a whole, and possibly
many times that amount.
• Our expertise: Together with our modelling specialists,
performing model validation procedures, including
recalculating and replicating assumption calculations. Using
our sector expertise, we also performed an assessment of the
macroeconomic variables included within the provision.
• Tests of detail: Critically assessing key assumptions in the
impairment calculation against historical experience where
appropriate, such as the probability of default and loss given
default. We tested the accuracy and completeness of
underlying data used in the impairment models, inspecting
a sample to source data including a critical assessment of
management overlays applied.
• Analytical Procedures: Performing analytical procedures over
both IFRS 9 model outputs and underlying customer behaviour
to identify outliers and unexpected trends.
• Benchmarking assumption: Critically assessing key
assumptions inherent in the model against recent performance
and industry developments, comparative firms in the wider
market and our understanding of the Group.
• Assessing transparency: Considering the adequacy of the
Group’s disclosures in relation to the allowance for doubtful
debts and credit risk for compliance with the relevant
accounting standards.
Our results
• We found the allowance for doubtful debts to be acceptable
(2018: acceptable).
84
N Brown Group plc Annual Report & Accounts 2019 Taxation provisions
Refer to page 24-27
(principal risks),
page 53 (viability
statement), page 59
(Audit Committee
Report), page 101
(accounting policy)
and pages 119-120
(financial disclosures).
The risk
Dispute outcome:
Our response
Our procedures included:
The Group has historically entered into a number
of legacy tax arrangements, which have come
under review from HMRC. The key remaining
uncertain tax position relates to the VAT dispute
with HMRC in relation to partial exemption.
This has progressed to tribunal in the year and
management have received the final ruling from
the tribunal judges.
• Our tax specialist expertise: Analysing and challenging,
using our own tax specialists, the assumptions applied by the
directors in calculating the exceptional charge and year end
balance.
We have assessed the Group’s range of outcomes in comparison
to the best estimate made by the directors.
Used our sector expertise to assess the likelihood, in comparison
to similar companies in the industry.
Subjective estimate:
The outcome still requires significant judgements
to be made by the directors in regard to the basis
of the calculation in order to determine the amount
recorded in the financial statements, therefore
there is a risk the amounts recorded in the financial
statements may differ from any amounts agreed
through final settlements or appeals.
The effect of these matters is that, as part of our
risk assessment, we determined that the taxation
provision has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the
financial statements as a whole. The financial
statements (note 2) disclose the range estimated
by the Group.
• Sensitivity analysis: Performing sensitivity analysis on the
range of outcomes to assess how sensitive the provision is
to changes in assumptions.
• Tests of detail: Agreeing a sample of costs to supporting
invoices and documentation, to determine the appropriate
classification of costs in the provisioning model, which drives
the overall outputs of the model and year end balance.
• Assessing transparency: Considering the adequacy of the
Group’s disclosures in relation to taxation provisions for
compliance with the relevant accounting policies.
Our results
• We found the taxation provisions recorded to be acceptable
(2018: acceptable).
Regulatory
Subjective estimate:
Our procedures included:
Refer to page 25
(principal risks),
page 53 (viability
statement), page 59
(Audit Committee
Report), page 101
(accounting policy)
and pages 120-121
(financial disclosures).
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).
Where the Group has identified areas of historical
non-compliance with these regulations, provisions
are made for the expected cost of redressing
customers. Such provisioning requires significant
judgements to be made including the identification
of potential liabilities and the basis of the
calculation due to regulatory matters, complaint
trends, average redress and uphold rates.
There is a risk that liabilities are misstated if
customer redress provisions are not adequately
assessed and measured.
The effect of these matters is that, as part of our
risk assessment, we determined that the
regulatory provisions have a high degree of
estimation uncertainty, with a potential range of
reasonable outcomes greater than our materiality
for the financial statements as a whole. The
financial statements (note 22) disclose the
sensitivity estimated by the Group.
• Tests of detail: Assessing the completeness and accuracy of
the data used to calculate the provisions, recalculated a sample
of claim redress payments and average redress calculations,
including vouching amounts paid to cash transactions;
Obtaining and inspected correspondence with the FCA and
assessed customer complaints for indications of significant or
non-identified areas of customer detriment that may require
provision in the financial statements;
Recalculating a sample of inputs into the provisioning models,
including claim redress payments and average claim redress
calculations; reviewing claim forecasting data and considered
the accuracy of previous forecasting and market expectations,
including experienced and expected uphold rates.
• Our expertise: Using our experience of the regulatory
requirements and wider industry, critically assessing the
completeness of key inputs into the Group’s calculation of
regulatory provisions, including agreeing to supporting
documentation.
• Assessing transparency: Considering the adequacy of
the Group’s disclosures in relation to the judgements and
estimation made in the regulatory provisioning
Our results
• We found the regulatory provisions recorded to be acceptable
(2018: acceptable).
85
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Independent Auditor’s Report to the members of N Brown Group PLC
continued
Carrying value of
software and
development costs
under the course of
construction
Refer to page 24
(principal risks),
page 53 (viability
statement), page 59
(Audit Committee
Report), page 98
(accounting policy)
and page 110 (financial
disclosures).
Carrying value of
inventories
Refer to page 59 (Audit
Committee Report),
page 98 (accounting
policy) and page 112
(financial disclosures).
The risk
Accounting treatment:
Our response
Our procedures included:
The Group has incurred significant software and
development project costs in the current and prior
year in respect of a significant systems
infrastructure programme.
The Group capitalises both internal and external
eligible 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 directly attributable and that the
development relates to technically feasible
systems and websites.
Judgements are involved in determining the
classification of software and development costs
between revenue and capital expenditure.
Forecast based valuation:
Assets under the course of construction are not
subject to amortisation and as such, are required
to be tested for impairment annually. Assessing
recoverability of these assets is based on
forecasting and discounting future cash flows.
This assessment is inherently judgemental.
The effect of these matters is that, as part of our risk
assessment, we determined that the value in use
has a high degree of estimation uncertainty, with
a potential range of reasonable outcomes greater
than our materiality for the financial statements as
a whole. The financial statements (note 12) disclose
the sensitivity estimated by the Group.
• Test of detail: Agreeing a statistical sample of costs capitalised
to external invoices or internal timesheets, to determine the
nature of the items and evaluate the appropriateness of their
classification as capitalised costs, by reference to the
recognition criteria of the applicable accounting standards.
• Our experience: With assistance from our IT specialist,
challenging the Group’s assessment of technical feasibility
of the projects released, based on our discussions with key
project leads and our assessment of impairment indicators
using our understanding of project progress, discussions at
Board level and performance to date.
• Historical comparison: Assessing the Group’s impairment
model for assets under the course of construction for
forecasting accuracy by comparing actual results in the period
to what was previously forecast for the year. Critically evaluated
the assumptions for future growth, with regard to actual growth
rates in the previous years.
• Sensitivity analysis: Performing breakeven analysis on the
assumptions used in the model, including discount rate
and forecasts.
• Assessing transparency: Considering the adequacy of the
Group’s disclosures in respect of capitalisation of software
and development of intangible assets.
Our results
• We found the capitalisation and recoverability of software
and development costs to be acceptable (2018: acceptable).
Subjective estimate:
Our procedures included:
The Group has significant levels of inventory and
a number of judgements and estimates are made
in estimating provisions for aged or slow moving
inventories.
Furthermore, the seasonal nature of retail business
and changes in customer preferences and
spending patterns, primarily driven by the wider
fashion industry, introduces uncertainty over the
recoverability of inventories.
The effect of these matters is that, as part of our
risk assessment, we determined that the carrying
value of inventories has a high degree of
estimation uncertainty, with a potential range of
reasonable outcomes greater than our materiality
for the financial statements as a whole.
• Tests of detail: Comparing aged inventory levels in the current
financial year against the prior financial year to identify categories
with significant slow moving or obsolete inventories. Compared
current and some of the significant aged inventory levels to current
financial year sales data to check whether slow moving and obsolete
inventories have been appropriately identified. Tested the
adequacy of the inventory provision by comparing the average
selling price in the year of inventory items to the cost of the
inventory at year end. Compared recent selling prices of inventory
to the cost of inventory for a statistical sample of non-current items
sold via new routes. Compared the value of write offs and scrapped
items in the financial years to historic inventory provisions.
• Our specialist expertise: With the assistance of our own data
analytics specialists, recalculating the current year provision on
non-current inventories based on the current year sales data.
• Assessing transparency: Considering the adequacy of the
Group’s disclosures in respect of the judgement and estimation
made in respect of the inventory provisioning.
Our results
• We found the carrying amount of inventories to be acceptable
(2018: acceptable).
86
N Brown Group plc Annual Report & Accounts 2019 Parent Company:
recoverable amount
of investment in
subsidiary
Refer to page 130
(accounting policy)
and page 132 (financial
disclosures).
The risk
Low risk, high value:
Our response
Our procedures included:
The carrying amount of the Company’s investment
in subsidiaries, held at cost, represent 84% (2018:
73%) of the Company’s total assets.
We do not consider the recoverable amount of this
investment to be at a high risk of significant
misstatement or to be subject to a significant level
of judgement. However, due to its materiality in the
context of the parent Company financial statements
as a whole, this is considered to be the area which
had the greatest effect on our overall audit strategy
and allocation of resources in planning and
completing our parent Company audit.
• Tests of detail: Comparing the carrying amount of the
investments with the relevant subsidiaries’ draft balance sheet
to identify whether their net assets, being an approximation of
their minimum recoverable amount, were in excess of their
carrying amount.
Our results
• We found the recoverable amount of the investment in
subsidiary to be acceptable (2018: acceptable).
We continue to perform procedures over the carrying value of Figleaves intangible assets. However, following the full impairment of the
brand intangible assets, we have not assessed this as one of the most significant risks in our current year audit and therefore it is not
separately identified in our report this year.
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
£3.24m (2018: £3.15m), determined with reference to a benchmark
of group profit before tax excluding exceptional items (of which it
represents 3.7% (2018: 4.3%).
Materiality for the parent Company financial statements as a whole
was set at £2.71m (2018: £2.90m), determined with reference to a
benchmark of Company total assets, of which it represents 0.6%
(2018: 0.6%).
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £0.16m (2018:
£0.16m), in addition to other identified misstatements that
warranted reporting on qualitative grounds.
In 2019 and 2018 the Group team performed the audit of the
Group as if it was a single aggregated set of financial information
including procedures on the exceptional items excluded from
group profit before tax excluding exceptional items. The audit was
performed using the Group materiality level set out above.
Profit before tax normalised
to exclude exceptional items
£88.1m (2018: £73.1m)
Group Materiality
£3.24m (2018: £3.15m)
£3.24m
Whole financial
statements materiality
(2018: £3.15m)
Normalised profit before tax
Group materiality
£0.16m
Misstatements reported
to the audit committee
(2018: £0.16m)
Group Revenue
Group profit before tax
100%
(2018: 100%)
100%
(2018: 100%)
Group total assets
Group profit before
exceptional items and tax
100%
(2018: 100%)
100%
(2018: 100%)
Full scope for group audit purposes 2019
Full scope for group audit purposes 2018
87
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Independent Auditor’s Report to the members of N Brown Group PLC
continued
4 We have nothing to report on going concern
The Directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Company or
the Group or to cease their operations, and as they have
concluded that the Company’s and the Group’s financial position
means that this is realistic. They have also concluded that there are
no material uncertainties that could have cast significant doubt
over their ability to continue as a going concern for at least a year
from the date of approval of the financial statements (“the going
concern period”).
Our responsibility is to conclude on the appropriateness of the
Directors’ conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this audit
report. However, as we cannot predict all future events or
conditions and as subsequent events may result in outcomes
that are inconsistent with judgements that were reasonable at
the time they were made, the absence of reference to a material
uncertainty in this auditor’s report is not a guarantee that the
Group and the Company will continue in operation.
We identified going concern as a key audit matter (see section 2
of this report). Based on the work described in our response to
that key audit matter, we are required to report to you if:
• we have anything material to add or draw attention to in relation
to the directors’ statement in Note 1 to the financial statements
on the use of the going concern basis of accounting with no
material uncertainties that may cast significant doubt over the
Group and Company’s use of that basis for a period of at least
twelve months from the date of approval of the financial
statements; or
• the related statement under the Listing Rules set out on page 53
is materially inconsistent with our audit knowledge.
We have nothing to report in these respects, and we did not
identify going concern as a key audit matter.
5 We have nothing to report on the other
information in the Annual Report
The directors are responsible for the other information presented
in the Annual Report together with the financial statements. Our
opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work,
the information therein is materially misstated or inconsistent with
the financial statements or our audit knowledge. Based solely on
that work we have not identified material misstatements in the
other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the strategic
report and the directors’ report;
• in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
• in our opinion those reports have been prepared in accordance
with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
88
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw
attention to in relation to:
• the directors’ confirmation within the viability statement on
page 53 that they have carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten its business model, future performance, solvency
and liquidity;
• the Principal Risks disclosures describing these risks and
explaining how they are being managed and mitigated; and
• the directors’ explanation in the viability statement of how they
have assessed the prospects of the Group, over what period they
have done so and why they considered that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Under the Listing Rules we are required to review the viability
statement. We have nothing to report in this respect.
Our work is limited to assessing these matters in the context of
only the knowledge acquired during our financial statements audit.
As we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made,
the absence of anything to report on these statements is not a
guarantee as to the Group’s and Company’s longer-term viability.
Corporate governance disclosures
We are required to report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our financial statements 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 section of the annual report describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the eleven
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report in these respects.
6 We have nothing to report on the other matters
on which we are required to report by exception
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.
We have nothing to report in these respects.
N Brown Group plc Annual Report & Accounts 2019 7 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 54,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing
the Group and parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting unless
they either intend to liquidate the Group or the parent Company
or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or other irregularities (see
below), or error, and to issue our opinion in an auditor’s report.
Reasonable assurance is a high level of assurance, but does not
guarantee that an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it exists.
Misstatements can arise from fraud, other irregularities or error
and are considered material if, individually or in aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our general commercial and sector experience and through
discussion with the directors and other management (as required
by auditing standards), and from inspection of the group’s
regulatory and legal correspondence and discussed with the
directors and other management the policies and procedures
regarding compliance with laws and regulations. We
communicated identified laws and regulations throughout our
team and remained alert to any indications of non-compliance
throughout the audit.
on the related financial statement items. Further detail in respect
of regulatory legislation is set out in the key audit matter
disclosures in section 2 of this report.
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-
compliance with laws and regulations (irregularities) is from the
events and transactions reflected in the financial statements, the
less likely the inherently limited procedures required by auditing
standards would identify it. In addition, as with any audit, there
remained a higher risk of non-detection of irregularities, as these
may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. We are not
responsible for preventing non-compliance and cannot be
expected to detect non-compliance with all laws and regulations.
8 The purpose of our audit work and to whom
we owe our responsibilities
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this report,
or for the opinions we have formed.
Stuart Burdass (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 St Peter’s Square,
Manchester,
M2 3AE
The potential effect of these laws and regulations on the financial
statements varies considerably.
15 May 2019
Firstly, the Group is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation (including related companies legislation), distributable
profits legislation and taxation legislation with explanation as
necessary and we assessed the extent of compliance with these
laws and regulations as part of our procedures on the related
financial statement items.
Secondly, the Group is subject to many other laws and regulations
where the consequences of non-compliance could have a material
effect on amounts or disclosures in the financial statements, for
instance through the imposition of fines or litigation. We identified
the following areas as those most likely to have such an effect:
health and safety, anti-bribery, employment law, regulatory capital
and liquidity and certain aspects of company legislation
recognising the financial and regulated nature of the Group’s
activities. Auditing standards limit the required audit procedures
to identify non-compliance with these laws and regulations to
enquiry of the directors and other management and inspection of
regulatory and legal correspondence, if any. Through these
procedures, we became aware of actual or suspected non-
compliance and considered the effect as part of our procedures
89
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Consolidated Income Statement
Revenue
Credit account interest
Total revenue (including credit interest)
Cost of sales
Impairment losses on customer receivables
Profit on sale of customer receivables
Gross profit
Operating (loss)/profit
Finance costs
(Loss)/Profit before taxation and fair value
adjustments to financial instruments
Fair value adjustments to financial instruments
(Loss)/Profit before taxation
Taxation
(Loss)/Profit for the period
(Loss)/Profit attributable to equity holders
of the parent
(Loss)/Earnings per share from continuing operations
Basic
Diluted
Consolidated Statement of Comprehensive Income
Before
exceptional
items
£m
647.2
Exceptional
items
(note 6)
£m
–
Note
3
52 weeks ended 2 March 2019
52 weeks ended 3 March 2018
Before
exceptional
items
£m
685.2
Exceptional
items
(note 6)
£m
–
237.0
922.2
(322.9)
(99.5)
5.8
505.6
90.5
(8.9)
81.6
(8.5)
73.1
(14.6)
58.5
–
–
–
–
–
–
(56.9)
–
(56.9)
–
(56.9)
10.9
(46.0)
Total
£m
647.2
267.2
914.4
(308.4)
(119.0)
10.7
497.7
(47.7)
(14.3)
(62.0)
4.5
(57.5)
(0.8)
(58.3)
Total
£m
685.2
237.0
922.2
(322.9)
(99.5)
5.8
505.6
33.6
(8.9)
24.7
(8.5)
16.2
(3.7)
12.5
267.2
914.4
(308.4)
(119.0)
10.7
497.7
97.9
(14.3)
83.6
4.5
88.1
(23.7)
64.4
–
–
–
–
–
–
(145.6)
–
(145.6)
–
(145.6)
22.9
(122.7)
64.4
(122.7)
(58.3)
58.5
(46.0)
12.5
(20.50)
(20.50)
4.41
4.40
4
4
4
4,5
8
18
9
11
(Loss)/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 differences on translation of foreign operations
Total comprehensive (expense)/income for the period attributable to equity holders of the parent
Note
29
9
52 weeks
ended 2
March
2019
£m
(58.3)
52 weeks
ended
3 March
2018
£m
12.5
3.9
(4.9)
(1.0)
0.7
(58.6)
10.5
(1.8)
8.7
(0.2)
21.0
90
N Brown Group plc Annual Report & Accounts 2019 Consolidated Balance Sheet
Non-current assets
Intangible assets
Property, plant and equipment
Retirement benefit surplus
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Bank overdraft
Provisions
Trade and other payables
Derivative financial instruments
Current tax liability
Net current assets
Non-current liabilities
Bank loans
Provisions
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
As at
2 March
2019
£m
As at
3 March
2018
£m
Note
12
13
29
20
15
16
25
17
22
21
18
17
22
20
23
24
145.2
156.0
59.4
23.9
18.8
67.4
19.3
2.8
247.3
245.5
99.8
621.0
43.7
764.5
110.6
652.7
58.2
821.5
1,011.8
1,067.0
(11.4)
(24.8)
(140.9)
(1.5)
(7.1)
(185.7)
578.8
–
(43.8)
(131.7)
(6.0)
(3.3)
(184.8)
636.7
(500.2)
(405.0)
–
(14.5)
(514.7)
(700.4)
311.4
31.4
11.0
(0.3)
2.8
266.5
311.4
(5.4)
(12.2)
(422.6)
(607.4)
459.6
31.4
11.0
(0.2)
2.1
415.3
459.6
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the Board of Directors and authorised for
issue on 15 May 2019.
They were signed on its behalf by:
Craig Lovelace
CFO and Executive Director
91
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Consolidated Cash Flow Statement
Net cash (outflow)/inflow
Investing activities
Purchases of property, plant and equipment
Purchases of intangible assets
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 from financing activities
Net decrease in cash and cash equivalents and bank overdraft
Cash and cash equivalents and bank overdraft at beginning of period
Cash and cash equivalents and bank overdraft at end of period
For the 52
weeks
ended
2 March
2019
£m
(37.1)
For the 52
weeks
ended
3 March
2018
£m
32.2
Note
(3.4)
(32.9)
(36.3)
(15.4)
(32.2)
95.2
–
(0.1)
47.5
(25.9)
58.2
32.3
(2.6)
(36.6)
(39.2)
(8.6)
(40.3)
50.0
0.1
(0.1)
1.1
(5.9)
64.1
58.2
25
92
N Brown Group plc Annual Report & Accounts 2019 Consolidated Cash Flow Statement
continued
Reconciliation of Operating Profit to Net Cash from Operating Activities
Profit for the year
Adjustments for:
Taxation charge
Fair value adjustments to financial instruments
Finance costs
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment
Loss on disposal of intangible assets
Impairment of intangible assets
Impairment of property, plant and equipment
Amortisation of intangible assets
Share option charge
Operating cash flows before movements in working capital
Decrease/(increase) in inventories
Increase in trade and other receivables
Increase in trade and other payables
(Decrease)/Increase in provisions
Pension obligation adjustment
Cash (utilised)/generated by operations
Taxation paid
Net cash (outflow)/inflow from operating activities
Changes in Liabilities from Financing Activities
Loans and borrowings
Balance brought forward
Changes from financing cash flows
Net proceeds from loans and borrowings
Increase in loans and borrowings due to interest
Increase in bank loans
Balance at 2 March 2019
For the 52
weeks
ended
2 March
2019
£m
(58.3)
For the 52
weeks
ended
3 March
2018
£m
12.5
0.8
(4.5)
14.3
4.9
5.0
0.7
17.8
1.5
25.2
0.1
7.5
10.8
(34.0)
5.6
(24.4)
(0.5)
(35.0)
(2.1)
(37.1)
3.7
8.5
8.9
5.7
2.7
–
–
–
22.4
0.6
65.0
(5.1)
(77.6)
33.0
29.3
(0.3)
44.3
(12.1)
32.2
52 weeks to
2 March
2019
£m
52 weeks to
3 March
2018
£m
405.0
355.0
94.1
1.1
95.2
500.2
50.0
–
50.0
405.0
93
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements
Share
capital
(note 23)
£m
Share
premium
£m
Own
shares
(note 24)
£m
Foreign
currency
translation
reserve
£m
Retained
earnings
£m
Total
£m
31.3
11.0
(0.1)
2.3
433.7
478.2
–
–
–
–
0.1
–
–
–
0.1
31.4
–
–
–
–
–
–
–
–
–
11.0
–
–
–
–
–
(0.1)
–
–
(0.1)
(0.2)
–
(0.2)
(0.2)
12.5
8.7
21.2
12.5
8.5
21.0
–
–
–
–
–
–
2.1
2.1
–
–
2.1
–
0.7
0.7
–
–
–
–
–
(40.3)
(40.3)
–
–
0.6
0.1
(39.6)
415.3
415.3
(55.5)
(1.5)
358.3
(58.3)
(1.0)
(59.3)
0.1
(0.1)
0.6
0.1
(39.6)
459.6
459.6
(55.5)
(1.5)
402.6
(58.3)
(0.3)
(58.6)
(32.2)
(32.2)
–
0.1
(0.4)
(32.5)
(0.1)
0.1
(0.4)
(32.6)
311.4
2.8
266.5
Consolidated Statement of Changes in Equity
Changes in equity for the 52 weeks ended 3 March 2018
Balance as at 4 March 2017
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
Issue of ordinary share capital
Issue of own shares by ESOT
Share option charge
Tax on items recognised directly in equity
Total contributions by and distributions to owners
Balance at 3 March 2018
Changes in equity for the 52 weeks ended 2 March 2019
Balance at 3 March 2018
Adjustment on initial application of IFRS 9 (net of tax)
Adjustment on initial application of IFRS 15 (net of tax)
Balance at 3 March 2018
31.4
11.0
(0.2)
–
–
–
–
–
–
31.4
11.0
(0.2)
Comprehensive income for the period
Loss for the period
Other items of comprehensive income for the period
Total comprehensive loss for the period
Transactions with owners recorded directly in equity
Equity dividends
Issue of own shares by ESOT
Share option charge
Tax on items recognised directly in equity
Total contributions by and distributions to owners
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 2 March 2019
31.4
11.0
–
–
–
–
(0.1)
–
–
(0.1)
(0.3)
94
N Brown Group plc Annual Report & Accounts 2019 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 in the Shareholder Information section on page 135 at the end
of the report. The nature of the Group’s operations and its principal
activities are set out on page 51 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
2 March 2019 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 FRS 101, these are presented on
pages 128 to 134.
The accounting policies have been applied consistently in the
current and prior periods.
Adoption of new and revised standards
At the date of authorisation of these financial statements, the
following standards and interpretations were in issue but have not
been applied in these financial statements as they were not yet
effective (those marked with * have not yet been adopted by the EU):
• IFRS 16: Leases
• IFRIC 23 Uncertainty over Income Tax Treatments
• Amendments to IFRS 9 Financial Instruments
• Amendments to IAS 28 Investments in Associates and
Joint Ventures*
• Annual Improvements to IFRSs – 2015 – 2017 Cycle*
• Amendments to IAS 19 Employee Benefits
• Amendments to References to the Conceptual Framework
in IFRS Standards *
• Amendments to IFRS 3 Business Combinations*
• Amendments to IAS 1 and IAS 8
• IFRS 17 Insurance Contracts
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
The Group has initially applied IFRS 9 from 4 March 2018. Due to
the transition methods chosen by the Group in applying this
standard, comparative information throughout these financial
statements has not been restated to reflect the requirements of
the new standard.
The effect of initially applying this standard has been an increase
in impairment losses recognised in financial assets.
i) Classification – financial assets
IFRS 9 contains a new classification and measurement approach
for financial assets that reflects the business model in which assets
are managed and their cash flow characteristics.
IFRS 9 contains three principal classification categories for financial
assets: measured at amortised cost, fair value through other
comprehensive income (“FVOCI”) and fair value through profit and
loss (“FVTPL”). The standard eliminates the existing IAS 39 categories
of held to maturity, loans and receivables and available for sale.
Further information on the Group’s accounting policies relating to
the classification and measurement of financial instruments is
provided in note 2.
* Not yet adopted by the EU
Impact assessment
The effect of adopting IFRS 9 on the carrying amount of trade
receivables is as follows:
Original
classification
under
IAS 39
£m
New
classification
under
IFRS 9
£m
Loans and
receivables
Amortised
Cost
Other
receivables
Amortised
Cost
Financial
Assets
Trade
and other
receivables
Other
receivables
Original
carrying
amount
under
IAS 39
£m
New carrying
amount
under
IFRS 9
£m
652.7
585.5
35.9
35.9
Cash and cash
equivalents
Forward
exchange
contracts
Cash and
cash
equivalents
Forward
exchange
contracts
Amortised
Cost
43.7
43.7
Fair Value
(1.5)
(1.5)
The following table reconciles the carrying amounts of financial
assets under IAS 39 to the carrying amounts under IFRS 9 on
transition on 4 March 2018:
Financial Assets
Trade and other
receivables
Other receivables
Cash and cash
equivalents
Forward exchange
contracts
IAS 39 carrying
amount
3 March 2018
£m
Remeasurement
£m
IFRS 9 carrying
amount
4 March 2018
£m
652.7
35.9
43.7
(1.5)
67.2
–
–
–
585.5
35.9
43.7
(1.5)
Transition
Changes in accounting policies resulting from the adoption of
IFRS 9 have been applied retrospectively except the Group has
used an exemption not to restate comparative information for
prior periods with respect to classification and measurement
including impairment requirements.
As a result of the adoption of IFRS 9, the Group has adopted
consequential amendments to IAS 1 Presentation of Financial
Statements, which require separate presentation in the
Consolidated Income Statement of interest revenue calculated
using the effective interest rate method. Previously, the Group
disclosed this amount in the notes to the financial statements.
Differences in the carrying amounts of financial assets and
liabilities resulting from the adoption of IFRS 9 are recognised in
retained earnings and reserves as at 4 March 2018. Accordingly,
the information presented for the period to 3 March 2018 reflects
the requirements of IAS 39 rather than IFRS 9.
95
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
1 General information continued
ii) Impairment – Financial assets and contract assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-
looking ‘expected credit loss’ (ECL) model. As the Group has
determined there is a significant financing component the ECL
model introduces the concept of staging.
Stage 1: assets which have not demonstrated any significant
increase in credit risk since origination
Stage 2: assets which have demonstrated a significant increase in
credit risk since origination
Stage 3: assets which are credit impaired
Under IFRS 9, loss allowances will be measured on either of the
following bases:
Significant increase in credit risk
A financial asset will be considered to have experienced a
significant increase in credit risk since initial recognition where
there has been a significant increase in the remaining lifetime
probability of default of the asset.
The credit risk of a financial asset may improve such that it is no
longer considered to have experienced a significant increase in
credit risk if there has been a significant decrease in the remaining
lifetime probability of default of the asset.
In addition, a receivable that is 28 days or more past due (in respect
of new customers) or 56 days or more past due (in respect of
established customers) will be considered to have experienced a
significant increase in credit risk. Further information on significant
increase in credit risk is provided on page 100.
• 12 month ECLs: these are ECLs that result from possible default
events within the 12 months after the reporting date; and
• Lifetime ECLs: these are ECLs that result from all possible default
Incorporation of forward looking data
The Group incorporates forward looking information into its
measurement of expected credit loss.
events over the expected life of a financial instrument.
12 month ECLs are calculated for assets in Stage 1 and lifetime
ECLs are calculated for assets in Stages 2 and 3. Assets can move
from Stage 1 to Stage 2 if there is evidence of a significant increase
in credit risk since origination.
The ECL is calculated using inputs relating to the Probability of
Default (PD), Exposure at Default (EAD) and Loss Given Default (LGD).
The Probability of Default is an estimate of the likelihood of default
over 12 months and the expected lifetime of the debt.
The Exposure at Default is an estimate of the exposure at the date
of default, taking into account expected changes in the exposure
after the reporting date such as interest accrued.
The Loss Given Default is an estimate of the loss arising on default,
including an estimation of recoveries.
Definition of default
At each reporting date, the Group will assess whether financial
assets carried at amortised cost are in default.
Evidence that a financial asset is in default includes the following
observable data:
• The account has been placed on a non-interest bearing
payment arrangement (as part of forbearance measures); or
• Notification of bereavement has been received; or
• The receivable is 56 days or more days past due for new
customers and 84 days past due for established customers.
Definition of write off
The Group considers that an asset should be written off when
it is more than 124 days past due for new customers and 152 days
past due for established customers and all arrears activity has
been exhausted.
This is achieved by developing a number of potential economic
scenarios and modelling expected credit losses for each scenario.
The outputs from each scenario will be combined, using the
estimated likelihood of each scenario occurring to derive a
probability weighted expected credit loss.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. It replaces
IAS 18 Revenue, IAS 11 Construction Contracts and related
interpretations. Under IFRS 15, revenue is recognised when a
customer obtained control of the goods or services.
The standard introduces a new revenue recognition model that
recognises revenue either at a point in time or over time. The
model features a contract-based five-step analysis of transactions
to determine whether, how much and when revenue is recognised.
The Group have performed a comprehensive review of all revenue
streams, focusing on those most likely to be impacted by IFRS 15.
From this review, it was determined that no changes are required
to our current revenue recognition methods.
Product revenue
Product revenue is for the sale of a product which generally
includes one performance obligation. The Group has concluded
that revenue from product sales should be recognised when a
customer obtains control of the goods, i.e. on delivery of the
product. For product sales, this is recognised upon delivery to
the customer premises, as detailed in our accounting policy, see
page 97. This is the point in time at which the customer accepts the
risks and rewards of ownership transfer and the control passes to
the customer. The impact upon transition to IFRS 15 is immaterial.
Also under IFRS 15, the Group estimates the value of goods that
will be returned. Under the old standard, IAS 18, expected returns
were estimated using a similar approach and therefore no
adjustment was required upon transition to IFRS 15.
96
N Brown Group plc Annual Report & Accounts 2019 Based on its assessment above, the Group does not expect
the application of IFRS 15 to have a significant impact on its
consolidated financial statements.
The Group has adopted IFRS 15 using the cumulative effect
method (without practical expedients), with the effect of initially
applying this standard recognised at the date of initial application
(i.e. 1 January 2018). As a result, the Group will not apply the
requirements of IFRS 15 to the comparative period presented.
IFRS 16 Leases
The Group is required to adopt IFRS 16 Leases, from 1 January 2019
therefore it will be applicable to the Group for the year ending 29
February 2020 and has not been early adopted by the Group. IFRS
16 will affect the presentation of the Group consolidated financial
statements introducing a single, on balance sheet lease accounting
model for lessees. A lessee recognises a right of use asset
representing its right to use the underlying asset and corresponding
lease liability representing its obligation to make lease payments.
There are recognition exemptions available for short-term leases
and leases of low value items, which the Group plans to adopt.
Through the work carried out by the Group to date to assess the
impact on transition, the Group have sought professional advice
and held accounting workshops to evaluate the impact on the
Group's results, financial position and budgets. This will affect the
Balance Sheet, Income Statement and disclosures to the financial
statements, however through the work performed by the Group to
date to assess the impact on transition, the net impact on all of the
above Primary Financial Statements is estimated to be immaterial.
The Group plans to apply IFRS 16 for the year ending 29 February
2020 using the modified retrospective approach.
IFRIC 23 Uncertainty over Income Tax Treatments
The Group is required to adopt IFRIC 23 Uncertainty over Income
Tax Treatments from 1 January 2019, therefore it will be applicable
to the Group for the year ending 29 February 2020. This has not
been early adopted by the Group. The Group has not yet finalised
their assessment of IFRIC 23 and expect the Group's open
uncertain tax treatments to have progressed by the year ending
29 February 2020. However, through the draft assessment
completed to date, the Group expects the impact on the Group's
financial statements to be immaterial.
2 Accounting policies
Basis of accounting
The financial statements are prepared on the historical cost basis
except that derivative financial instruments 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 2019 means at 2 March 2019 or the 52 weeks
then ended; reference to 2018 means at 3 March 2018 or the
52 weeks then ended unless otherwise stated.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the
Company (its subsidiaries) made up to the Saturday that falls
closest to 28 February each year. The Employee Share Ownership
Trust is also made up to a date coterminous with the financial
period of the parent Company.
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.
Revenue recognition
Product revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for
goods and services provided in the normal course of business, net
of discounts and sales related taxes.
In the case of goods sold through our retail stores and trading
websites, revenue is recognised when goods are delivered to the
customer and control is transferred to the customer. Sales returns
in the period are recognised as a deduction to revenue based on
expected levels of returns. Provision is made for outstanding
returns not yet made at the period end. Accumulated experience
(including historical returns rates) is used to estimate and provide
for such returns. The provision is recorded as a reduction in
revenue with a corresponding entry to liabilities (for credit sales)
and accruals (for cash sales). Inventory expected to come back as
a result of returns is recorded as a reduction in cost of sales with
a corresponding entry to increase the closing stocks.
Financial services revenue 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.
97
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
2 Accounting policies continued
Property, plant and 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:
Land and Buildings
Freehold buildings
Leasehold property and
improvements
Fixtures and Equipment
2%
over the period of the lease
Computer equipment
between 10% and 20%
Plant and machinery
between 5% and 20%
Fixtures and equipment
between 10% and 20%
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 ten years.
Assets under construction are not amortised but instead tested
for impairment annually.
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.
98
Impairment of tangible and intangible assets
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 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 estimates
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.
Inventories
Inventories have been valued at the lower of cost and net
realisable value. Provision is made based on the age of the
inventory and management’s estimates of future disposal
strategies. 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.
N Brown Group plc Annual Report & Accounts 2019 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, the
presentation currency for the consolidated financial statements.
In preparing the financial statements 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
During the period the Group has adopted IFRS 9 Financial
Instruments for the first time. The standard sets out requirements
for recognising and measuring financial assets, financial liabilities
and some contracts to buy or sell non-financial items. The
standard replaces IAS 39 Financial Instruments, Recognition
and Measurement.
Classification – financial assets
IFRS 9 contains a new classification and measurement approach
for financial assets that reflects the business model in which assets
are managed and their cash flow characteristics.
IFRS 9 contains three principal classification categories for financial
assets: measured at amortised cost; fair value through other
comprehensive income (‘FVOCI’); and fair value through profit and
loss (‘FVTPL’). The standard eliminates the existing IAS 39 categories
of held to maturity, loans and receivables and available for sale.
A financial asset is measured at amortised cost if both the following
conditions are met and it has not been designated as at FVTPL:
• the asset is held within a business model whose objective is to
hold the asset to collect its contractual cash flows; and
• the contractual terms of the financial asset give rise to cash flows
on specified dates that represent payments of solely principal
and interest on the outstanding principal amount.
Trade and other receivables which were classified as loans and
receivables under IAS 39 are now classified as amortised cost.
An increase of £67.2m in the allowance for impairment over these
receivables was recognised in the opening retained earnings at
4 March 2018 on transition to IFRS 9.
The Group held financial instruments that would be classified as
FVTPL at 2 March 2019. The profit on fair value adjustments was
£4.5m (FY18: loss £8.5m).
Business model assessment: Policy applicable from 4 March 2018
The Group makes an assessment of the objective of the business
model in which a financial asset is held at a portfolio level because
this best reflects the way the business is managed and information
is provided to management. The information considered includes:
• The stated policies and objectives for the portfolio and the
operation of those policies in practice. These include whether
management’s strategy focuses on earning contractual interest
income or realising cash flows from the sale of assets;
• How the performance of the portfolio is evaluated and reported
to the Group’s management;
• The risks that affect the performance of the business model and
how those risks are managed;
• How managers of the business are compensated; and
• The frequency, volume and timing of sales of financial assets in
prior periods, the reasons for such sales and expectations about
future sales activity.
99
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
2 Accounting policies continued
Assessment of whether contractual cash flows are solely
payments of principal and interest; Policy applicable from
4 March 2018
For the purpose of this assessment ‘principal’ is defined as the
fair value of the financial asset on initial recognition. Interest is
defined as the consideration for the time value of money and for
the credit risk associated with the principal amount outstanding
during a particular period of time and for other basic lending risks
and costs (e.g. liquidity risk and administration costs), as well as a
profit margin.
In assessing whether the contractual cash flows are solely payments
of principal and interest the Group considers the contractual terms
of the instrument. This includes assessing whether the financial
asset contains a contractual term that could change the timing or
amount of contractual cash flows such that it would not meet this
condition. In making this assessment the Group considers:
• contingent events that would change the amount or timing of
cash flows;
• terms that may adjust the contractual coupon rate.
Impairment – Financial assets and contract assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-
looking ‘expected credit loss’ (ECL) model. As the Group has
determined there is a significant financing component, the ECL
model introduces the concept of staging.
Stage 1 – assets which have not demonstrated any significant
increase in credit risk since origination
Stage 2 – assets which have demonstrated a significant increase in
credit risk since origination
Stage 3 – assets which are credit impaired
Under IFRS 9, loss allowances are measured on either of the
following bases:
Definition of default
At each reporting date, the Group will assess whether financial
assets carried at amortised cost are in default.
Evidence that a financial asset is in default includes the following
observable data:
• The account has been placed on a non-interest bearing
payment arrangement (as part of forbearance measures);
• Notification of bereavement has been received; or
• The receivable is 56 days or more days past due for new
customers and 84 days past due for established customers.
Definition of write off
The Group consider that an asset should be written off when
it is more than 124 days past due for new customers and 152 days
past due for established customers and all arrears activity has
been exhausted.
Impact of the new impairment model
The Group has determined that the application of IFRS 9’s
impairment requirements as at 4 March 2018 results in an
additional impairment allowance as set out in note 16.
Exposures were segmented based on common credit risk
characteristics such as behavioural score and age of relationship.
Transition
Changes in accounting policies resulting from the adoption of IFRS
9 have been applied retrospectively, except the Group has used
an exemption not to restate comparative information for prior
periods with respect to classification and measurement (including
impairment) requirements.
Differences in the carrying amounts of financial assets resulting
from the adoption of IFRS 9 are recognised in retained earnings
and reserves as at 4 March 2018. Accordingly, the information
presented for the year ended 3 March 2018 does not generally
reflect the requirements of IFRS 9 but rather those of IAS 39.
• 12-month ECLs: these are ECLs that result from possible default
For further details see note 16.
events within the 12 months after the reporting date; and
• Lifetime ECLs: these are ECLs that result from all possible default
events over the expected life of a financial instrument.
12-month ECLs are calculated for assets in Stage 1 and lifetime
ECLs are calculated for assets in Stages 2 and 3. Assets can move
from Stage 1 to Stage 2 if there is evidence of a significant increase
in credit risk since origination.
Significant increase in credit risk
A financial asset is considered to have experienced a significant
increase in credit risk since initial recognition where there has been
a significant increase in the remaining lifetime probability of
default of the asset.
Policy applicable before 4 March 2018
Trade receivables were initially measured at fair value and subsequently
measured at amortised cost using the effective interest rate
method. Appropriate allowances for estimated irrecoverable
amounts were recognised in profit or loss when there was
objective evidence that the asset was impaired based on specific
customer patterns of behaviour which may be affected by external
economic conditions.
The allowance recognised was 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.
As a general indicator, credit risk is deemed to have increased
significantly since initial recognition if based on the Group's
quantitative modelling the remaining lifetime probability of
default is determined to have increased by more than 250%
of the corresponding amount estimated on initial recognition.
The Group derecognised a financial asset, or a portion of a
financial asset, from its balance sheet where the contractual rights
to cash flows from the asset had expired, or had been transferred,
such as by a sale, and with them all the risks and rewards of
the asset.
As a backstop, the Group considers that a significant increase in
credit risk occurs no later than when an asset is more than 28 days
past due.
Days past due are determined by counting the number of days
since the earliest elapsed due date in respect of which the
minimum payment has not been received. Due dates are
determined without considering any grace period that might
be available to the borrower.
100
Trade receivables were 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.
N Brown Group plc Annual Report & Accounts 2019 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.
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 established with respect to
observable market data at the balance sheet date.
Market values are based on the duration of the derivative
instrument together with the observable 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.
Provisions
The Group recognises a provision for a present obligation
resulting from a past event when it is more likely than not that it will
be required to transfer economic benefits to settle the obligation
and the amount of the obligation can be estimated reliably. The
Group has on-going discussions with HMRC in respect of a
number of Corporation tax and VAT positions.
Provisions are made in respect of these positions when
management consider it probable that the position will be settled
via payment to HMRC and it is possible to estimate reliably the
amount of the obligation which will be settled. In determining
whether a future economic outflow is probable the Group
assesses all available information including the opinion of legal
counsel where appropriate.
Provision is made for customer remediation when the Group has
established that a present obligation exists in respect of financial
services products sold in the past. The provision requires a
significant level of estimation and judgement and the amounts
provided depend on a number of different assumptions.
Provision is made for restructuring costs, including the costs of
redundancy, when the Group has a constructive obligation to
restructure. An obligation exists when the Group has a detailed
formal plan for the restructuring and has raised a valid expectation
in those affected by starting to implement the plan or by
announcing its main features. If the Group has a contract that is
onerous, it recognises the present obligation under the contract
as a provision. An onerous contract is one where the unavoidable
costs of meeting the Group’s contractual obligations exceed the
expected economic benefits. When the Group vacates a
leasehold property, a provision is recognised for the unavoidable
future costs under the lease less any expected economic benefits
(such as rental income).
Contingent liabilities are possible obligations arising from past
events, whose existence will be confirmed only by uncertain future
events, or present obligations arising from past events that are not
recognised because either an outflow of economic benefits is not
probable or the amount of the obligation cannot be reliably
measured. Contingent liabilities are not recognised but
information about them is disclosed unless the possibility of any
outflow of economic benefits in settlement is remote.
Leasing
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.
Share-based payments
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured
at fair value at the date of grant. The fair value determined at the
grant date of the equity-settled share-based payments is
expensed on a straight-line basis over the vesting period, based
on the Group’s estimate of shares that will eventually vest. This is
recognised as an employee expense with a corresponding
increase in equity. Fair value is measured by monte-carlo for
options subject to a market based performance condition and
by use of a Black–Scholes model for all others. 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.
101
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
2 Accounting policies continued
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are
charged as an expense as they fall due.
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 29) in its consolidated
income statement. Curtailments gains and losses are accounted
for as past-service cost. Net interest expense or income is
recognised within finance costs (see note 8).
The retirement benefit asset recognised in the balance sheet
represents the present value of the defined benefit asset, 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 enters 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 or are
probable to be agreed with suppliers before they are recognised
in the Income Statement; outstanding balances are recorded in
accrued income.
Going concern
In determining whether the Group’s accounts can be prepared on
a going concern basis, the Directors considered the Group’s
business activities together with factors likely to affect its future
development, performance and its financial position including cash
flows, liquidity position and borrowing facilities and the principal
risks and uncertainties relating to its business activities. These are
set out within the Risk Management report on pages 22 to 27.
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 by applying a series of stress
tests. The stress tests apply a range of sensitivities to Group
revenue, cash collections and arrears levels; reflecting the
principal risks of the business, primarily through potential trading
restrictions and penalties arising from the impact of a cyberattack,
negative outcomes from delays to the Group’s IT development
programme and an adverse outcome in respect of the legacy tax
cases which are ongoing. In addition, the uncertainty around the
impact of Brexit and the reduced consumer confidence has also
been incorporated into these sensitivities.
102
The Group has a £125m RCF and a £500m Securitisation which
are committed to September 2021 and a £27m 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,
ultimately 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 in total, on the face of the income statement.
Critical judgements and key sources of estimation uncertainty
In the course of preparing the financial statements, no judgements
have been made in the process of applying the Group’s
accounting policies, other than those involving estimations stated
below, that have had a significant effect on the amounts recorded
within the financial statements.
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
as follows.
Trade receivables
An appropriate allowance for estimated irrecoverable trade
receivables is derived from estimates and underlying assumptions
such as the Probability of Default and the Loss Given Default taking
into consideration forward looking macroeconomic assumptions.
Changes in the assumptions applied such as the value and
frequency of future debt sales in calculating the Loss Given
Default, and the estimation of customer repayments and
Probability of Default rates, could have a significant impact on the
carrying value of trade receivables. As a result this is continually
assessed for relevance and adjusted appropriately. Revisions to
estimates are recognised prospectively. Further information is
given in the transition to IFRS 9 on page 95 and in note 1.
Taxation
The Group has ongoing discussions with HMRC in respect of a
number of Corporation tax and VAT 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 legal processes.
Issues can, and often do, take a number of years to resolve.
Corporation tax
In respect of Corporation tax, as at 2 March 2019 the Group has
provided a total of £13.9m (2018: £3.8m) for potential Corporation
tax future charges based upon the Group’s best estimation
and judgement.
The inherent uncertainty regarding the outcome of these
positions means the eventual realisation could differ from the
accounting estimates and therefore impact the Group’s future
results and cash flows. Based on the amounts reflected in the
balance sheet as at 2 March 2019, the Directors estimate that the
unfavourable settlement of these cases could result in a net cash
tax payment of up to £13.9m with no further charge to the income
statement. The favourable settlement of these cases would result
in a repayment of tax of up to £19.8m and an associated credit to
the income statement of £27.2m.
N Brown Group plc Annual Report & Accounts 2019 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.
Provisions for customer remediation require significant levels of
estimation and judgement. The amounts of provisions recognised
depend on a number of different assumptions, such as the volume
of inbound complaints, the uphold rate of complaint volumes and
the average redress amount paid. A summary of the impact of a
reasonable change in these assumptions is set out in note 22.
Software development costs
Included within intangible assets are significant software and
development project costs in respect of the Group’s technological
development programme. Costs are capitalised to the extent that
future economic benefits are expected to be generated by the
project, which requires judgement 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 Group’s results.
This is consequently a source of estimation uncertainty.
Brand intangibles
Included within intangible assets are brand intangibles of £1.8m
(2018: £8.9m) which are legally protected or otherwise separable
trade names acquired as part of a business combination. As these
brand names are assumed to have an indefinite useful life, they are
subject to an annual impairment test with the recoverable amount
determined by a “value in use” calculation. This calculation
requires a series of assumptions and estimates to be made which
if not met could result in a future impairment charge. This is
consequentially a source of estimation uncertainty. A summary
of these assumptions together with the impact of a reasonable
change in these assumptions is set out in note 12.
VAT
In respect of VAT, and excluding the issue mentioned below,
the Group has provided a total of £6.6m (2018: £3.1m) in respect
of future payments which the Directors have a reasonable
expectation of making in settlement of these historical positions.
In addition, and separate to the above positions, the Group has
been in a long running dispute with HMRC with respect to the
VAT treatment of certain marketing costs and the allocation of
those costs between our retail and credit businesses. The case
was heard in a first tier VAT tribunal in May 2018 with a draft
decision being issued in November 2018 which was published
in March 2019.
The case has two key aspects, being attribution which is in respect
of whether marketing costs can be directly attributed to product
revenue or financial services income and secondly apportionment
which is surrounding the allocation of marketing costs between
the retail and financial services business. With respect to
attribution, the judge agreed with HMRC, finding that when the
Group is marketing goods it is also in effect marketing financial
services, even if there is no reference to this in its marketing
materials. The judge however ruled against HMRC's standard
method of apportionment of costs (which is based on the
proportion of total UK revenue which is generated from
product sales).
As at 3 March 2018, the Group had an asset of £43.8m which
had arisen as a result of cash payments made under protective
assessments raised by HMRC.
Whilst discussions are on-going with HMRC and a final outcome
has not yet been achieved, following the final ruling management
have reviewed the likelihood of recovering the carrying value of
the asset held as at March 2018 and as a result of this review have
written down the value by £37.9m. As the Group has not yet been
assessed by HMRC for the period June 2017 to March 2019 this
has also resulted in an additional charge of £11.5m. This results in
a total exceptional charge of £49.4m and a VAT creditor at year end
of £6.6m (2018: £43.8m asset).
As the judge did not fully conclude on the apportionment issue,
inherent uncertainty regarding the outcome of this position
remains which means the eventual realisation could differ from
the accounting estimates and therefore impact the Group’s future
results and cash flows. Discussions with HMRC are ongoing and if
no agreement is reached, there will be a second tribunal hearing
on this issue.
Based upon the details of the ruling and further external advice
received by management, the Directors estimate that a more
favourable outcome could result in a cash receipt of up to £12.1m
and an associated credit to the income statement of £18.7m, whilst
an unfavourable outcome which would be based upon HMRC’s
stated position would result in a further cash outflow of £18.6m
and an associated charge to the income statement of £12.0m.
Overall, the Directors estimate that in combination, the
unfavourable settlement of the cases set out above could result in
a charge to the income statement of up to £12.0m (2018: £53.0m)
and a cash payment to HMRC of up to £25.2m (2018: £9.2m). The
favourable settlement of these cases would result in a repayment
of tax and associated interest of up to £12.1m (2018: £43.8m) and
an associated credit to the income statement of £18.7m (2018: £nil).
103
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
3 Revenue
An analysis of the Group’s revenue is as follows:
Sale of goods
Financial services
Revenue
2019
£m
2018
£m
615.8
298.6
914.4
652.6
269.6
922.2
4 Business segment
The Group has one operating 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 included an additional voluntary disclosure analysing product
revenue within the operating segment, by brand categorisation and product type categorisation.
Continuing operations
Analysis of revenue – Home Shopping
Product – total revenue
Other financial services revenue
Credit account interest
Financial Services – total revenue
Revenue – Home Shopping Total
Analysis of cost of sales – Home Shopping
Product – total cost of sales
Impairment losses on customer receivables
Profit on sale of customer receivables
Other financial services cost of sales
Financial Services – total cost of sales
Cost of sales – Home Shopping total
Gross profit
Gross margin – Product
Gross margin – Financial Services
Warehouse and fulfilment
Marketing and production
Depreciation and amortisation
Other administration and payroll
Segment result and operating profit before exceptional items
Exceptional items (see note 6)
Segment result and operating (loss)/profit – Home Shopping
Finance costs
Fair value adjustments to financial instruments
(Loss)/profit before taxation
104
2019
£m
2018
£m
615.8
652.6
31.4
267.2
298.6
32.6
237.0
269.6
914.4
922.2
(295.0)
(312.1)
(119.0)
10.7
(13.4)
(121.7)
(99.5)
5.8
(10.8)
(104.5)
(416.7)
(416.6)
497.7
52.1%
59.2%
(84.0)
(157.8)
(30.1)
(127.9)
97.9
505.6
52.2%
61.2%
(85.8)
(164.0)
(28.1)
(137.2)
90.5
(145.6)
(56.9)
(47.7)
33.6
(14.3)
4.5
(8.9)
(8.5)
(57.5)
16.2
N Brown Group plc Annual Report & Accounts 2019 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 and accessories
Home and gift
Total product revenue – Home Shopping
2019
£m
2018
£m
159.5
134.2
66.7
360.4
114.7
140.7
615.8
256.5
85.0
70.8
203.5
615.8
163.4
132.8
68.6
364.8
138.6
149.2
652.6
267.6
89.2
74.9
220.9
652.6
The Group has one significant geographical segment, which is the United Kingdom. Revenue derived from international markets
amounted to £37.1m (2018: £38.8m). Operating results from international markets amounted to £1.9m loss (2018: £1.2m profit). All
segment assets are located in the UK, Ireland and the US.
For the purposes of monitoring segment performance, all assets and liabilities are allocated to the sole reportable segment, being
Home Shopping. Impairments of tangible and intangible assets in the current period were £19.3m (2018: £nil). Tangible and intangible
assets of £5.7m (2018: £2.7m) were written off following the closure of stores in the year, see note 6.
Other information
Capital additions
Capital disposals
Depreciation and amortisation
Balance sheet
Total segment assets
Total segment liabilities
Segment net assets
2019
£m
36.3
(5.7)
(30.1)
2018
£m
38.8
(4.1)
(28.1)
1,011.8
1,067.0
(700.4)
311.4
(607.4)
459.6
105
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
5 Profit for the period
Profit for the period has been arrived at after charging:
Net foreign exchange (gains)/losses
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment (note 6)
Loss on disposal of intangible assets (note 6)
Amortisation of intangible assets
Cost of inventories recognised as expense
Staff costs
Auditor’s remuneration for audit services
Doubtful debts recognised as an expense (note 16)
Exceptional items (note 6)
Operating lease costs (note 27)
2019
£m
(3.0)
4.9
5.0
0.7
25.2
295.1
79.9
0.6
119.0
145.6
2.3
Amounts payable to KPMG LLP and their associates by the Group in respect of non-audit services were £0.1m (2018: £0.1m).
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
All other services
Total
2019
£m
0.1
0.4
0.1
0.6
Fees in relation to audit related assurance services totalled £29,000 (2018: £29,000).
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts were £17,000 (2018: £16,000).
A description of the work of the Audit Committee is set out in the Corporate Governance Statement on page 55 and includes an
explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor.
6 Exceptional items
Customer redress
Closure costs
Impairment of tangible, intangible assets and brands
VAT debtor impairment
Other VAT matters including associated legal and professional fees
GMP equalisation adjustment
Items charged to (loss) / profit before tax
Taxation provision (see note 20, included within exceptional tax charge of £22.9m)
2019
£m
45.0
22.0
20.0
49.4
8.9
0.3
145.6
3.0
2018
£m
3.1
5.7
2.7
–
22.4
312.1
83.0
0.4
99.5
56.9
4.5
2018
£m
0.1
0.3
0.1
0.5
2018
£m
40.0
13.8
–
–
3.1
–
56.9
–
Customer redress
Following an industry wide request from the FCA that firms ensure that general insurance products and add-ons offered value for their
customers, during the previous year the Group identified flaws in certain insurance products which were provided by a third party insurance
underwriter and following an assessment of the cost of potential customer redress an exceptional charge of £40.0m was recognised.
During the year, this element of the customer redress programme has been completed and as a result of upheld rates being
materially higher than that expected, the total cost of redress was £56.5m. A charge of £16.5m has therefore been made to reflect
this additional expense.
The Plevin court ruling was made in November 2017, which meant that if more than 50% of a customer's PPI payments were paid as
commissions and this was not explained to them at the time, they could claim back payments plus interest. This, combined with an
increase in marketing activity by the FCA to raise awareness of the August 2019 deadline appears to have had the effect of increasing
the volume of claims across the industry. As at 2 March 2019, a charge of £28.5m has been recognised to reflect an updated estimate
following an increase in the volume of claims and the latest assessment of the expected uphold rate and average redress per claim.
Closure costs
In line with our strategy of reshaping our retail offering, following a period of consultation with all staff involved in our store estate,
the decision was made to close all remaining retail outlets at the end of August 2018. This review resulted in an exceptional cost of
£22.0m in respect of onerous lease provisions, other related store closure costs and asset write offs of £5.7m.
106
N Brown Group plc Annual Report & Accounts 2019
Impairment of tangible, intangible assets and brands
In accordance with the requirements of IAS 36 management have assessed the carrying value of the intangible and tangible assets held
in respect of Figleaves and following this review have written down the value of goodwill (£7.1m) and tangible fixed assets (£1.5m) in full.
In addition following this review the directors have also written off in full the remaining deferred tax asset of £3.0m in relation to future
unutilised tax losses. This has been presented as an exceptional item.
During the period the Group also terminated an agreement with a third-party IT Financial Services provider, Welcom Digital Limited
(“WDL”). Following a detailed review of capitalised development spend held in respect of this item a non-cash impairment charge of
£11.4m was made.
VAT debtor
The Group has been in a long running dispute with HMRC with respect to the VAT treatment of certain marketing and non marketing
costs and the allocation of those costs between our retail and credit businesses. The case was heard in a first tier VAT tribunal in May
2018 with a draft decision being issued in November 2018 which was made public in March 2019.
The case has two key aspects, those being attribution and apportionment. With respect to attribution, the judge agreed with HMRC,
finding that when the Group is marketing goods it is also in effect marketing financial services, even if there is no reference to this in its
marketing materials. The judge however ruled against HMRC and directed that in apportioning costs via a turnover ratio, VATable
product turnover should be included in full, but VAT exempt financial services income should in part be excluded to the extent that
it did not relate to the original marketing activities.
As at 3 March 2018, the Group had an asset of £43.8m which had arisen as a result of cash payments made under protective assessments
raised by HMRC.
Whilst discussions are on-going with HMRC and a final outcome has not yet been achieved, following the final ruling management have
reviewed the likelihood of recovering this asset and as a result of this review have written down the value by £37.9m. In addition, a further
£11.5m has been accrued in respect of the period June 2017 to 2 March 2019 as protective assessments have not yet been raised in
respect of this period. This results in a total exceptional charge of £49.4m. For further information see note 21.
Other VAT matters including associated legal and professional fees
The Group is currently in discussions with HMRC regarding historic underestimation of VAT and has consequently charged £3.3m in
respect of settlement of this item. In addition, these costs also relate to on-going legal and professional fees, which have been incurred
as a result of the Group's on-going disputes with HMRC regarding a number of historical VAT matters and tax positions. Of the amount
charged in the period the Group has made related cash payments of £2.8m (2018: £1.2m).
GMP equalisation
An exceptional pension cost arose in the year as a result of the High Court ruling in the case of Lloyds Bank in relation to Guaranteed
Minimum Pension (“GMP”) equalisation. Whilst this may still be subject to appeal, we have made an exceptional provision of £0.3m for
the expected one-off impact of GMP equalisation on the reported liabilities of the Company’s defined benefit pension scheme. Further
details are included in note 29.
7 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 29)
Share option costs (see note 28)
Details of individual Directors’ remuneration is disclosed in the Directors’ Remuneration Report on pages 64 to 81.
8 Finance costs
Interest on bank overdrafts and loans
Net pension finance credit (see note 29)
2019
Number
2018
Number
1,106
1,414
2,520
2019
£m
68.6
5.7
5.5
0.1
79.9
2019
£m
14.8
(0.5)
14.3
1,139
1,505
2,644
2018
£m
72.2
6.0
4.2
0.6
83.0
2018
£m
9.1
(0.2)
8.9
107
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements
Notes to the Group Accounts
continued
9 Tax
Tax recognised in the income statement
Current tax
(Credit)/Charge for the period
Adjustments in respect of previous periods
Deferred tax
Origination and reversal of temporary timing differences
Adjustments in respect of previous periods
Total tax expense
2019
£m
2018
£m
(2.0)
9.7
7.7
(6.8)
(0.1)
(6.9)
0.8
4.5
(2.6)
1.9
(1.2)
–
1.8
3.7
UK Corporation tax is calculated at 19% (2018: 19.08%) 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 20% to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were
substantively enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on
6 September 2016. This will reduce the future current tax charge accordingly. The Group’s deferred tax assets and liabilities as at 2 March
2019 have been calculated based upon the rates which will apply when those balances are expected to unwind.
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 19% (2018: 19.08%)
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
2019
£m
(57.5)
(10.9)
0.1
2.2
(0.2)
9.6
0.8
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 – remeasurement of 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/(credit) in the statement of changes in equity
2019
£m
4.9
4.9
2019
£m
–
0.4
0.4
2018
£m
16.2
3.0
0.2
0.3
(0.2)
0.4
3.7
2018
£m
1.8
1.8
2018
£m
–
(0.1)
(0.1)
The Group is in ongoing discussions with HMRC in respect of a number of Corporation tax 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 legal process. Issues can, and
often do, take a number of years to resolve.
In respect of Corporation tax, as at 2 March 2019 the Group has provided a total of £13.9m (2018: £3.8m) for potential tax future
charges based upon the Group’s best estimation and judgement and advice from external tax advisors. Adjustments in respect of
previous periods include the above mentioned increase in tax provisions relating to items which are subject to ongoing discussions
with HMRC (£9.1m).
108
N Brown Group plc Annual Report & Accounts 2019 10 Dividends
Amounts recognised as distributions to equity holders in the period:
Final dividend for the 52 weeks ended 3 March 2018 of 8.56p (2018: 8.56p) per share
Interim dividend for the 52 weeks ended 2 March 2019 of 2.83p (2018: 5.67p) per share
Proposed final dividend for the 52 weeks ended 2 March 2019 of 4.27p (2018: 8.56p) per share
2019
£m
24.2
8.0
32.2
12.1
2018
£m
24.2
16.1
40.3
24.2
The proposed final dividend is subject to approval by shareholders at the annual general meeting and has not yet been included as a
liability in these financial statements.
11 Earnings per share
The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of ordinary shares in
issue during the period.
The adjusted earnings per share figures have also been calculated based on earnings before items that are one-off in nature, material
by size and are considered to be distortive of the true underlying performance of the business (see note 6) and certain other fair value
adjustments. These have been calculated to allow the shareholders to gain an understanding of the underlying trading performance
of the Group. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion
of dilutive potential ordinary shares.
The calculations of the basic and diluted earnings per share is based on the following data:
Earnings
(Loss)/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
2019
£m
2018
£m
(58.3)
12.5
2019
Number
284,379
2018
Number
283,614
409
542
284,788
284,156
Earnings from continuing operations
Net (loss)/profit attributable to equity holders of the parent
Total net (loss)/profit attributable to equity holders of the parent for the purpose of basic and diluted
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
The denominators used are the same as those detailed above for basic and diluted earnings per share.
Adjusted earnings per share
Basic
Diluted
(Loss)/earnings per share
Basic
Diluted
2019
£m
(58.3)
(58.3)
(3.6)
122.7
60.8
2019
Pence
21.38
21.35
2019
Pence
(20.50)
(20.50)
2018
£m
12.5
12.5
6.9
46.0
65.4
2018
Pence
23.06
23.02
2018
Pence
4.41
4.40
109
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
12 Intangible assets
Cost
At 4 March 2017
Additions
At 3 March 2018
Additions
Disposals
At 2 March 2019
Accumulated amortisation and impairment
At 4 March 2017
Charge for the period
At 3 March 2018
Charge for the period
Impairment
Disposals
At 2 March 2019
Carrying amount
At 2 March 2019
At 3 March 2018
At 4 March 2017
Brands
£m
Software
£m
Customer
Database
£m
16.9
–
16.9
–
–
294.4
36.5
330.9
32.9
(2.4)
16.9
361.4
8.0
–
8.0
–
7.1
–
161.4
22.4
183.8
25.2
10.7
(1.7)
1.9
–
1.9
–
–
1.9
1.9
–
1.9
–
–
–
Total
£m
313.2
36.5
349.7
32.9
(2.4)
380.2
171.3
22.4
193.7
25.2
17.8
(1.7)
15.1
218.0
1.9
235.0
1.8
8.9
8.9
143.4
147.1
133.0
–
–
–
145.2
156.0
141.9
Assets in the course of construction included in intangible assets at the year end total £35.4m (2018: £14.6m). No amortisation is charged
on these assets. Borrowing costs of £nil (2018: £0.1m) have been capitalised in the period using the weighted average bank loan interest
rate applied to the capitalised spend on technological developments included within software.
As at 2 March 2019, the Group had entered into contractual commitments for the further development of intangible assets of £4.7m
(2018: £2.0m) of which £1.5m (2018: £1.0m) is due to be paid within one year.
Impairment testing of software intangible assets
The Group is undertaking a systems transformation project. Some elements of the project are not yet available for use and are not
therefore being amortised. Where intangible assets are not being amortised management have tested for impairment with the
recoverable amount being determined from value in use calculations.
The value in use calculations use cash flows based on budgets prepared by management covering a three-year period. These budgets
have regard to historic performance and knowledge of the current market, together with management’s views on the future achievable
growth and impact of technological developments. Cash flows beyond this three-year period are extrapolated using a long term growth
rate to five years at which point a terminal value has been calculated based upon the long-term growth rate and the Group’s risk
adjusted pre-tax discount rate.
The Group’s three-year cash flow projections are based upon the Group’s approved three-year plan. The detailed forecast assumes
continued growth during the course of the next three years, driven by new media campaigns, exploitation of the Group’s data assets
and further investments in the core technology underpinning the Group’s key channels to market.
Other than the detailed budgets, the key assumptions in the value in use calculations are the long-term growth rate and the risk
adjusted pre-tax discount rate. The long-term growth rate has been determined with reference to forecast GDP growth which
management believe is the most appropriate indicator of long-term growth rates that is available. The long-term growth rate used is
purely for the impairment testing of intangible assets and brands under IAS 36 ‘Impairment of Assets’ and does not reflect long-term
planning assumptions used by the Group for investment proposals or for any other assessments. The pre-tax discount rate is based on
the Group’s weighted average cost of capital, taking into account the cost of capital and borrowings, to which specific market-related
premium adjustments are made.
The assumptions are as follows:
• Long-term growth rate: 1.5% (2018: 2.0%)
• Pre tax discount rate: 10.7% (2018: 13.9%)
The analysis performed indicates that no impairment is required other than the specific impairment of the Welcom asset spend (see
note 6). A sensitivity analysis has been performed on each of these key assumptions with other variables held constant. Management
have concluded that there are no reasonably possible changes in these key assumptions that would cause the carrying value to exceed
the value in use.
110
N Brown Group plc Annual Report & Accounts 2019 Impairment testing of brand intangibles
The brand names arising from the acquisitions 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 therefore subject to
annual impairment tests with the recoverable amount being determined from the value in use calculations.
The value in use calculations use cash flows based on budgets prepared by management covering a three-year period. These budgets
have regard to historic performance and knowledge of the current market, together with management’s views on the future achievable
growth. Cash flows beyond this three-year period are extrapolated using a long-term growth rate into perpetuity.
Other than the detailed budgets, the key assumptions in the value in use calculations are the long-term growth rate and the risk
adjusted pre-tax discount rate which management have assumed to be 1.5% (2018: 2.0%) and 12.9% (2018: 11.9%) respectively.
The analysis performed indicates that impairment of the full carrying value of Figleaves (£7.1m) is required and has been disclosed in
note 6. A sensitivity analysis has been performed on each of these key assumptions with other variables held constant. Should there be
a downturn in future or forecasted cash flows, then there is a risk of impairment to the remaining High and Mighty (£1.0m) brand name
however our current best estimate is that there is no material risk of impairment.
13 Property, plant and equipment
Cost
At 4 March 2017
Additions
Reclassification
At 3 March 2018
Additions
Disposals
At 2 March 2019
Accumulated depreciation and impairment
At 4 March 2017
Charge for the period
Reclassification
At 3 March 2018
Charge for the period
Impairment
Disposal
At 2 March 2019
Carrying amount
At 2 March 2019
At 3 March 2018
At 4 March 2017
Land and
Buildings
£m
Fixtures and
Equipment
£m
Total
£m
59.1
132.7
191.8
–
–
59.1
–
–
2.3
(4.1)
130.9
3.4
(11.6)
2.3
(4.1)
190.0
3.4
(11.6)
59.1
122.7
181.8
14.2
1.2
–
15.4
1.2
–
–
104.1
118.3
4.5
(1.4)
5.7
(1.4)
107.2
122.6
3.7
1.5
(6.6)
4.9
1.5
(6.6)
16.6
105.8
122.4
42.5
43.7
44.9
16.9
23.7
28.6
59.4
67.4
73.5
Assets in the course of construction included in property, plant and equipment at the year end date total £2.3m (2018: £1.6m), and in
land and buildings total £nil (2018: £nil). No depreciation has been charged on these assets.
At 2 March 2019, the Group had not entered into any contractual commitments for the acquisition of property, plant and equipment
(2018: £nil).
Disposals relate to the assets written off as a result of store closures. A loss of £5.0m (2018: £2.7m) was recorded as per note 6.
14 Subsidiaries
A list of all investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest, is given in note 34
to the Company’s separate financial statements.
111
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
15 Inventories
Finished goods
Sundry stocks
A net charge of £12.6m (2018: £7.7m) 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.
Sundry stocks relate to spare parts for engineering repairs and packaging stocks.
16 Trade and other receivables
Amount receivable for the sale of goods and services
Allowance for doubtful debts
Net trade receivables
Other debtors and prepayments
Trade receivables are measured at amortised cost.
2019
£m
98.6
1.2
99.8
2018
£m
109.3
1.3
110.6
2019
£m
682.2
(97.1)
585.1
35.9
621.0
2018
£m
647.6
(48.8)
598.8
53.9
652.7
A weighted average APR of 59.2% (2018: 57.9%) is charged on the outstanding balance. Provision for impairment of receivables is
calculated using an “expected credit loss” (ECL) model. 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. These
revised terms may also include suspension of interest for a period of time.
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.
The following table provides information about the exposure to credit risk and ECLs for trade receivables and contract assets from
individual customers as at 2 March 2019.
The carrying amount of trade receivables whose terms have been renegotiated but would otherwise be past due totalled £19.9m at
2 March 2019 (2018: £30.8m). Interest income recognised on trade receivables which were impaired as at 2 March 2019 was £16.2m
(2018: £15.2m).
The amounts written off in the period of £137.9m (2018: £115.4m) include the sale of impaired assets with a net book value of
£14.7 (2018: £20.5m). This sale has also been a material driver in the reduction in trade receivables on payments arrangements,
from £42.7m to £26.8m as at 2 March 2019.
112
N Brown Group plc Annual Report & Accounts 2019 The concentration of credit risk is limited due to the large and diverse customer base comprising 1.1 million (2018: 1.1 million) credit customers
with a balance.
Ageing of trade receivables
Current – not past due
28 days – past due
56 days – past due
84 days – past due
112 days – past due
Over 112 days – past due
Gross trade receivables
Allowance for doubtful debts
Net trade receivables
Allowance for doubtful debts
Opening balance
Impairment
Utilised during the year
Closing balance
2019
£m
Trade
receivables on
payment
arrangements
19.9
Trade
receivables
558.5
Total trade
receivables
578.4
Trade
receivables
520.1
2018
£m
Trade
receivables on
payment
arrangements
30.8
Total trade
receivables
550.9
35.4
20.7
14.7
10.3
15.8
655.4
(83.5)
571.9
3.3
1.3
0.9
0.6
0.8
26.8
(13.6)
13.2
38.7
22.0
15.6
10.9
16.6
682.2
(97.1)
585.1
35.6
19.3
12.9
9.0
8.0
604.9
(28.2)
576.7
Stage 1
Stage 2
Stage 3
22.3
22.5
(29.0)
15.8
46.9
44.3
(50.5)
40.7
46.8
52.2
(58.4)
40.6
4.7
1.6
2.3
1.6
1.7
42.7
(20.6)
22.1
2019
Total
116.0
119.0
(137.9)
97.1
40.3
20.9
15.2
10.6
9.7
647.6
(48.8)
598.8
2018
Total
64.7
99.5
(115.4)
48.8
An increase of £67.2m in the allowance for impairment of trade receivables was recognised in the opening retained earnings at 4 March
2018 on transition to IFRS 9.
Movement in the allowance for doubtful debts
Balance at the beginning of the period
IFRS 9 adjustment to opening balance
Amounts charged net to the income statement
Net amounts written off
Balance at the end of the period
2019
£m
48.8
67.2
119.0
(137.9)
97.1
2018
£m
64.7
–
99.5
(115.4)
48.8
An appropriate allowance for estimated irrecoverable trade receivables is derived from estimates and underlying assumptions such as
the Probability of Default and the Loss Given Default taking into consideration forward looking macroeconomic assumptions. Changes
in the assumptions applied such as the value and frequency of future debt sales in calculating the Loss Given Default, and the estimation
of customer repayments and Probability of Default rates, could have a significant impact on the carrying value of trade receivables. For
example, an absolute increase of 3% in the value of the forward flow debt recoveries on established customers would reduce the ECL by
approximately £0.4m. As a result this is continually assessed for relevance and adjusted appropriately. Revisions to estimates are
recognised prospectively. Further information is given in the transition to IFRS 9 on page 95 and in note 1.
“Other debtors and prepayments” last year included 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. This year the balance comprises a net creditor, see note 21.
113
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
17 Bank overdraft and loans
Bank loans
The borrowings are repayable as follows:
Within one year
In the second year
In the third to fifth year
Amounts due for settlement after 12 months
All borrowings are held in sterling.
The weighted average interest rates paid were as follows:
Bank overdrafts
Bank loans
The principal features of the Group’s borrowings are as follows:
2019
£m
(500.2)
–
–
(500.2)
(500.2)
2018
£m
405.0
–
–
405.0
405.0
2019
%
2018
%
2.1
2.6
1.8
2.3
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. The Group has an overdraft facility of £27.5m (2018: £27.0m).
ii. The Group has a bank loan of £390.2m (2018: £280m) 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 £500m for
which finance costs are linked to US commercial paper rates which is committed until September 2021. The Group also has
unsecured bank loans of £110m (2018: £125m) drawn down under a medium-term bank revolving credit facility (RCF), of £125
million, which is committed until September 2021.
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 2 March 2019 the estimated future interest cost per
annum until maturity would be £12.8m (2018: £9.3m).
At 2 March 2019, the Group had an undrawn borrowing facility of £15.0m (2018: £nil) on the RCF facility in respect of which all conditions
precedent had been met. In addition there was an undrawn overdraft facility of £16.1m (2018: £27.0m).
Note 19 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. The covenants inherent to these borrowing arrangements are
closely monitored on a regular basis.
There is no material difference between the fair value and book value of the Group’s borrowings.
As at 2 March 2019 the Group had entered into a supplier financing arrangement which is facilitated by HSBC. The maximum facility
limit is £12.0m and as at 2 March a total of £6.5m (2018: £2.2m) had been funded under the programme. There is no fixed expiry date
on this facility.
18 Derivative financial instruments
At the balance sheet date, details of outstanding forward foreign exchange contracts that the Group has committed to are as follows:
Notional amount – sterling contract value
Fair value of liability recognised
2019
£m
271.4
(1.5)
2018
£m
113.9
(6.0)
The fair value of foreign currency derivatives contracts is their market value at the balance sheet date. Market values are based on the
duration of the derivative instrument together with the observable market data including interest rates, foreign exchange rates and
market volatility at the balance sheet date.
Changes in the fair value of liabilities recognised, being non-hedging currency derivatives, amounted to a credit of £4.5m (2018: charge
of £8.5m) to income in the period.
The financial instruments that are measured subsequent to initial recognition at fair value are all grouped into Level 2 (2018: 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 (i.e. as prices) or indirectly (i.e. derived from prices).
There were no transfers between Level 1 and Level 2 during the period (2018: same).
114
N Brown Group plc Annual Report & Accounts 2019 19 Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the
return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt,
which includes the borrowings disclosed in note 17, cash and cash equivalents disclosed in note 25 and equity attributable to equity
holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 23 to 24 and the Consolidated
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
2019
£m
511.6
43.7
467.9
311.4
150%
2018
£m
405.0
58.2
346.8
459.7
75%
Debt is defined as long and short-term borrowings, as detailed in note 17.
Equity includes all capital and reserves of the Group attributable to equity holders of the parent.
Externally imposed capital requirement
The Group is not subject to externally imposed capital requirements.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and
the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity
instrument are disclosed in note 2.
Financial risk management objectives
The financial risks facing the Group include currency risk, credit risk, liquidity risk and cash flow interest rate risk. The Group seeks
to minimise the effects of certain of these risks by using derivative financial instruments to hedge these risk exposures as governed
by the Group’s policies. The Group does not enter into or trade financial instruments, including derivative financial instruments, for
speculative purposes.
Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise.
Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts.
It is the policy of the Group to enter into forward foreign exchange contracts to cover specific foreign currency payments for the
purchase of overseas sourced products. Group policy allows for these exposures to be hedged for up to three years ahead. 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
Greater than 18 months
2019
£m
125.4
63.1
50.0
32.9
271.4
2018
£m
32.9
35.3
38.6
7.1
113.9
Forward contracts outstanding at the period end are contracted at US dollar exchange rates ranging between 1.25 and 1.32.
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
2019
£m
4.1
19.7
2018
£m
2.9
20.2
2019
£m
25.9
20.0
2018
£m
18.4
19.3
115
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
19 Financial instruments continued
Foreign currency sensitivity analysis
The following table details the Group’s hypothetical sensitivity to a 10% increase and decrease in sterling against the relevant foreign
currencies. The sensitivity rate of 10% represents the Directors’ assessment of a reasonably possible change. The sensitivity analysis
includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10%
change in foreign currency rates. A positive number below indicates an increase in profit before tax.
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
Loans and receivables
Financial liabilities
Derivatives at fair value through profit and loss – held for trading
Amortised cost
2019
£m
(1.6)
2.9
2018
£m
(0.9)
1.7
2019
£m
0.3
0.4
2019
£m
43.7
585.1
628.8
2019
£m
1.5
581.2
582.7
2018
£m
0.6
0.5
2018
£m
58.2
598.8
657.0
2018
£m
6.0
494.2
500.2
Interest rate risk management
The Group is exposed to interest rate risk, as entities in the Group borrow funds at floating interest rates. Where appropriate, exposure
to interest rate fluctuations on indebtedness is managed by using derivatives such as interest rate swaps.
Interest rate sensitivity analysis
If interest rates had increased by 0.5% and all other variables were held constant, the Group’s profit before tax for the 52 weeks ended 2
March 2019 would have decreased by £2.5m (2018: £2.0m).
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,
which together with assessment against credit policy, determines the terms and credit limit offered. Customer debtor balances are
monitored on an ongoing basis and provision is made for estimated irrecoverable amounts, as detailed in note 16.
While the Group has a number of support options for customers in financial difficulty, the majority are subject to the revision
of payment terms.
The concentration of credit risk is limited due to the customer base being large and unrelated.
116
N Brown Group plc Annual Report & Accounts 2019 Credit quality analysis
The following table sets out information about the overdue status of loans and advances to customers in Stages 1, 2 and 3.
Ageing of trade receivables
Current – not past due
28 days – past due
56 days – past due
84 days – past due
112 days – past due
Over 112 days – past due
Gross trade receivables
Allowance for doubtful debts
Stage 1
Stage 2
Stage 3
494.2
–
–
–
–
–
494.2
15.8
69.6
36.7
19.8
1.9
–
–
128.0
40.7
14.6
2.0
2.2
13.7
10.9
16.6
60.0
40.6
2019
Total
578.4
38.7
22.0
15.6
10.9
16.6
682.2
97.1
2018
Total
550.9
40.3
20.9
15.2
10.6
9.7
647.6
48.8
Current debtors may be included in Stage 2 if their behavioural risk score indicates a significant increase in credit risk. Debtors which are
in default or on an agreed interest free rate are included in Stage 3.
Incorporation of forward-looking information
The economic scenarios used as at 2 March 2019 included the following key indicators for the UK for the years ending 2019 to 2023:
Unemployment rates
Base
Interest rates
GDP growth
House prices
Upside
Downside
Base
Upside
Downside
Base
Upside
Downside
Base
Upside
Downside
2019
2020
2021
2022
2023
4.1
4.1
4.1
0.4
0.4
0.4
1.3
1.4
1.4
2.5
3.2
2.2
4.1
4.1
4.1
0.8
0.8
0.8
1.3
1.5
0.9
2.6
3.6
2.2
4.2
4.1
4.3
0.9
0.8
1.6
1.5
1.9
0.9
2.5
3.5
2.1
4.1
4.1
4.3
1.3
1.0
1.9
1.7
2.1
1.2
3.1
4.4
2.4
4.1
4.0
4.3
1.7
1.3
2.2
1.7
2.1
1.3
3.2
4.6
2.4
Predicted relationships between the key indicators and default and loss rates on various portfolios of financial assets have been
developed based on historical data over the past 10 to 15 years.
Loans and advances to customers at amortised cost
Balances as at 3 March 2018
Transfer Stage 1
Transfer Stage 2
Transfer Stage 3
Remeasurement of balances
New financial assets originated
Financial assets that have been de-recognised
Write-offs
Balances as at 2 March 2019
Stage 1
Stage 2
Stage 3
Total
455.5
126.9
–
7.3
(18.7)
45.7
33.4
(12.3)
(16.7)
(7.3)
–
(9.5)
43.2
25.1
(13.0)
(37.4)
494.2
128.0
65.2
18.8
9.5
–
18.0
7.0
(27.9)
(30.6)
60.0
647.6
11.5
16.8
(28.2)
106.9
65.5
(53.2)
(84.7)
682.2
The amounts written off in the period include the sale of impaired assets with a net book value of £14.7m (2018: £20.5m). This sale has
also been a material driver in the reduction in trade receivables on payments arrangements, from £42.7m to £26.8m as at 2 March 2019.
117
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
19 Financial instruments continued
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 17 is a description of additional undrawn facilities that the Group
has at its disposal and details of the Group’s remaining contractual maturity for its non-derivative financial liabilities.
The following are the contractual maturities of financial liabilities, including estimated interest payments:
2019
Non derivative financial liabilities
Secured bank loans
Trade payables
Derivative financial liabilities
Forward exchange contracts
Outflow
2018
Non derivative financial liabilities
Secured bank loans
Trade payables
Derivative financial liabilities
Forward exchange contracts
Outflow
2019
Carrying
Amount
£m
2019
Contractual
Cash flows
£m
(500.2)
(81.0)
(510.6)
(81.0)
2019
1 year
or less
£m
(12.8)
(81.0)
2019
1 to <2
years
£m
2019
2 to <5
years
£m
2019
5 years
and over
£m
(12.8)
–
(485.0)
–
–
(1.5)
–
(1.5)
–
0.1
–
(1.6)
–
–
(582.7)
(593.1)
(93.7)
(14.4)
(485.0)
–
–
–
–
–
2018
Carrying
Amount
£m
2018
Contractual
Cash flows
£m
(405.0)
(89.2)
(420.2)
(89.2)
–
(6.0)
–
(6.0)
2018
1 year
or less
£m
(9.3)
(89.2)
–
(4.4)
(500.2)
(515.4)
(102.9)
2018
1 to <2
years
£m
2018
2 to <5
years
£m
2018
5 years
and over
£m
(9.3)
–
–
(1.6)
(10.9)
(401.6)
–
–
–
(401.6)
–
–
–
–
–
Fair value of financial instruments
The fair values of each category of the Group’s financial instruments are the same as their carrying value in the Group’s balance sheet
other than as noted below.
Trade receivables
As discussed in note 16, 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 receivables.
The Group believes that the fair value of interest bearing receivables, whether on a payment plan or not, is the same as their carrying
value on the balance sheet, as interest rates are charged to reflect market rates.
For non interest bearing debt, fair value is estimated based on the recent sale prices of similar debt books.
The fair value of receivables is approximate to the carrying value of receivables.
Derivative financial instruments are recorded at fair value (IFRS 13: Level 2) as discussed in note 18. A Level 2 valuation uses inputs
other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices).
118
N Brown Group plc Annual Report & Accounts 2019 20 Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and
prior reporting periods.
Debtor
impairment
provision
£m
Share
based
payments
£m
Accelerated
tax
depreciation
£m
Retirement
benefit
obligations
£m
IFRS 9
transitional
adjustment
£m
Tax
losses
£m
At 4 March 2017
(Charge)/credit to income
Credit/(charge) to equity
At 3 March 2018
Adjustment on initial application of IFRS 9
Adjustment on initial application of IFRS 15
(Charge)/credit to income
Charge to equity
As at 2 March 2019
1.6
(0.8)
–
0.8
–
–
(0.8)
–
–
0.6
0.1
0.1
0.8
–
–
(0.2)
(0.4)
0.2
(6.4)
(2.5)
–
(8.9)
–
–
2.8
–
(6.1)
(1.3)
(0.1)
(1.9)
(3.3)
–
–
(0.1)
(5.0)
(8.4)
–
–
–
–
11.7
–
(1.3)
–
10.4
–
–
–
–
–
–
7.6
–
7.6
Other
£m
(0.3)
1.5
–
1.2
–
0.4
(1.0)
–
0.6
Total
£m
(5.8)
(1.8)
(1.8)
(9.4)
11.7
0.4
7.0
(5.4)
4.3
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
As at 2 March 2019
2019
£m
18.8
(14.5)
4.3
2018
£m
2.8
(12.2)
(9.4)
At the balance sheet date, the Group has unused tax losses of £17.5m (2018: £0.1m) and capital losses of £3.2m (2018: £3.2m) available for
offset against future profits. No deferred tax asset has been recognised due to the unpredictability of future profit streams within the
relevant subsidiary.
21 Trade and other payables
Trade payables
Other creditors
Accruals and deferred income
2019
£m
81.0
14.0
45.9
2018
£m
89.2
0.1
42.4
140.9
131.7
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 34 days (2018: 34 days).
The Group has financial risk management policies in place to ensure that all payables are paid within agreed credit terms.
‘Other creditors’ include a net VAT creditor, comprising the VAT debtor which arises from day to day trading together with amounts in
relation to matters which are in dispute with HMRC. The Group has ongoing discussions with HMRC in respect of a number of VAT
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 legal processes. Issues can, and often do, take a number of years to resolve.
119
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
21 Trade and other payables continued
In respect of VAT, and excluding the issue mentioned below, the Group has provided a total of £6.6m (2018: £3.1m) in respect of future
payments which the Directors have a reasonable expectation of making in settlement of these historical positions.
In addition, and separate to the above positions, the Group has been in a long running dispute with HMRC with respect to the VAT
treatment of certain marketing costs and the allocation of those costs between our retail and credit businesses. The case was heard in a
first tier VAT tribunal in May 2018 with a draft decision being issued in November 2018 which was published in March 2019.
The case has two key aspects, being attribution which is in respect of whether marketing costs can be directly attributed to product
revenue or financial services income and secondly apportionment which is surrounding the allocation of marketing costs between the
retail and financial services business. With respect to attribution, the judge agreed with HMRC, finding that when the Group is marketing
goods it is also in effect marketing financial services, even if there is no reference to this in its marketing materials. The judge however
ruled against HMRC's standard method of apportionment of costs (which is based on the proportion of total UK revenue which is
generated from product sales).
As at 3 March 2018, the Group had an asset of £43.8m which had arisen as a result of cash payments made under protective assessments
raised by HMRC.
Whilst discussions are on-going with HMRC and a final outcome not yet achieved, following the final ruling management have reviewed
the likelihood of recovering the carrying value of the asset held as at March 2018 of £43.8m and as a result of this review have written
down the value by £37.9m. As the Group has not yet been assessed by HMRC for the period June 2017 to March 2019 this has also
resulted in an additional charge of £11.5m. This results in a total exceptional charge of £49.4m and a VAT creditor at year end of £6.6m
(2018: £43.8m asset).
As the judge did not fully conclude on the apportionment issue, inherent uncertainty regarding the outcome of this position remains
which means the eventual realisation could differ from the accounting estimates and therefore impact the Group’s future results and
cash flows. Discussions with HMRC are ongoing and if no agreement is reached, there will be a second tribunal hearing on this issue.
Based upon the details of the ruling and further external advice received by management, the Directors estimate that a favourable
outcome could result in a cash receipt of up to £12.1m and an associated credit to the income statement of £18.7m, whilst
an unfavourable outcome which would be based upon HMRC’s stated position (which therefore would require HMRC successfully
appealing the ruling) could result in a further cash outflow of £18.6m and an associated charge to the income statement of £12.0m.
22 Provisions
Balance as at 3 March 2018
Provisions made during the period
Provisions used during the period
Provisions reversed during the period
Balance as at 2 March 2019
Non-current
Current
Balance as at 2 March 2019
Customer
redress
£m
42.8
45.0
(70.4)
–
17.4
–
17.4
17.4
Store
closure
£m
6.4
16.3
(15.3)
–
7.4
–
7.4
7.4
Total
£m
49.2
61.3
(85.7)
–
24.8
–
24.8
24.8
Store closures
At the end of H1 FY19 the decision was made to close all stores and these were subsequently closed in August 2018. The costs have
been treated as an exceptional item and detailed separately in the income statement as per note 6. The provision is made in respect of
onerous lease obligations and other store related closure costs. The majority of these costs have been settled before the year end other
than the onerous lease provision which will run to the earlier of the break clause or lease expiry for all stores. The provision is net of an
estimate of potential sub-letting income.
120
N Brown Group plc Annual Report & Accounts 2019 Customer redress
The provision relates to the Group’s liabilities in respect of costs expected to be incurred in respect of payments for historic financial
services customer redress, which represents the best estimate of the known regulatory obligations, taking into account factors including
risk and uncertainty.
As at 2 March 2019 the Group holds a provision of £17.4m (2018 £42.8m) in respect of the anticipated costs of historic financial services
customer redress. Of this amount £2.6m relates to certain insurance products where management have identified flaws in the product
design; the remaining £14.8m relates to historical customer redress. These amounts include a provision of £0.1m (2018 £1.4m) in relation
to administration expenses.
The Plevin court ruling was made in November 2017, which meant that if more than 50% of a consumer's PPI payments were paid as
commission, they could claim back payments plus interest. This combined with an increase in marketing activity by the FCA, to raise
awareness of the August 2019 PPI deadline, appears to have had the effect of increasing the volume of claims across the industry. In the
period to 2 March 2019, a charge of £45.0m has been recognised to reflect the increased cost incurred in the period and an updated
estimate following an increase in the volume of claims experienced and the latest estimate of the expected uphold rate and average
redress per claim.
This estimate remains subject to significant uncertainty, in particular the level of customer claims that may be received in the period to
August 2019. It is possible the eventual outcome may differ from the current estimate.
The provision is calculated using a number of key assumptions which continue to involve significant management judgement:
• Customer claims volumes: claims received but not yet processed plus an estimate of future claims by customers
• Upheld rate: the proportion of claims received which the Group settles
• Average claim redress: the expected average payment to customers for upheld claims.
These assumptions remain subjective, mainly due to the uncertainty associated with future claims levels, which include complaints
driven by claims management company activity and the FCA advertising campaign.
The principal sensitivities in the customer redress calculation are: volumes of policies affected; claim rate; uphold rate; and average
redress amount.
+/- 10% in customer claims volumes
+/- 10% in uphold rate
+/- 10% in average redress amount
23 Share capital
Allotted, called-up and fully paid
Ordinary shares of 111/19p each
At 2 March 2019 and 3 March 2018
2019
£m
+/- 1.3
+/- 1.1
+/- 1.3
2018
£m
+/- 9.9
+/- 4.4
+/- 9.9
2019
Number
2018
Number
2019
£m
2018
£m
285,153,619
284,458,148
31.4
31.4
The Company has one class of ordinary shares which carry no right to fixed income. The holders of ordinary shares are entitled to receive
dividends as declared and are entitled to one vote per share at meetings of the Company.
24 Own shares
Balance at 3 March 2018
Issue of own shares
Balance at 2 March 2019
2019
£m
0.2
0.1
0.3
2018
£m
0.1
0.1
0.2
The own shares reserve represents the cost of shares in N Brown Group plc held by the N Brown Group plc Employee Share Ownership
Trust to satisfy options under the Group’s various share benefit schemes (see note 28).
At 2 March 2019 the employee trusts held 85,171 shares in the Company (2018: 85,171).
121
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
25 Cash and cash equivalents
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and
other short-term highly liquid investments with a maturity of three months or less. Included in the amount below is £0.9m (2018: £nil) of
restricted cash which is held in respect of the Group's customer redress programmes.
A breakdown of significant cash and cash equivalent balances by currency is as follows:
Sterling
Euro
US Dollar
2018
£m
7.6
18.9
17.2
43.7
2017
£m
37.5
9.2
11.5
58.2
26 Contingent liabilities
Parent Company bank overdrafts which at 2 March 2019 amounted to £18.4m (2018: £40.2m) have been guaranteed by certain
subsidiary undertakings.
27 Operating lease arrangements
Minimum lease payments under operating leases recognised as an expense for the period
2019
£m
2.3
2018
£m
4.5
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which are payable as follows:
Within one year
In the second to fifth years inclusive
After five years
2019
£m
2.1
4.3
1.7
8.1
2018
£m
6.9
9.1
1.9
17.9
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.
122
N Brown Group plc Annual Report & Accounts 2019 28 Equity settled share based payments
The Directors’ Remuneration Report on pages 64 to 81 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 (LTIPs)
July 2013
August 2013
August 2014
June 2015
August 2016
August 2017
August 2018
Deferred annual bonus scheme awards (DABs)
May 2014
May 2015
May 2016
September 2017
August 2018
Movements in share options 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
Option price
in pence
189 – 420
238 – 444
238 – 444
–
–
–
–
–
–
–
–
–
–
–
–
Exercise
period
Number of
shares
2019
Number of
shares
2018
May 2010 – February 2022 1,048,234
1,089,453
May 2010 – August 2024
May 2010 – August 2024
89,049
60,450
89,049
60,450
July 2016 – December 2016
August 2016 – February 2017
August 2017 – July 2024
June 2018 – June 2025
–
–
–
–
–
–
–
892,747
August 2019 – August 2026 2,437,024
2,516,884
August 2020 – August 2027 1,273,015
1,351,055
August 2021 – August 2028 2,677,133
May 2016 – November 2016
May 2017 – November 2017
May 2018 – November 2018
–
–
–
September 2019 – March 2020
85,269
September 2020 – March 2021
245,219
–
–
–
38,304
94,955
–
2019
2018
Number of
share
options
1,238,952
717,323
(758,542)
Weighted
average
exercise
price £
2.45
1.67
2.27
Number of
share
options
1,360,395
462,183
(409,262)
–
–
(174,364)
1,197,733
150,751
2.10
2.50
1,238,952
149,499
Weighted
average
exercise
price £
2.78
2.26
3.48
1.89
2.45
2.49
No options were exercised in the period and the weighted average share price during the period was 147 pence (2018: 276 pence). The
options outstanding at 2 March 2019 had a weighted average remaining contractual life of 2.15 years (2018: 2.6 years). The aggregate
estimated fair values of options granted in the period is £243,244 (2018: £409,956).
123
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
28 Equity settled share based payments continued
Movements in management share awards (LTIPs and DABs) 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
2019
2018
Number of
share
awards
4,893,445
3,024,886
(1,200,671)
–
6,717,660
–
Weighted
average
exercise
price £
–
–
–
–
–
–
Number of
share
awards
4,180,918
1,449,376
(736,849)
–
4,893,445
–
Weighted
average
exercise
price £
–
–
–
–
–
–
The awards outstanding at 2 March 2019 had a weighted average remaining contractual life of 8.14 years (2018: 8.3 years). The aggregate
estimated fair values of options granted in the period is £3,170,372 (2018: £4,162,242).
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 (%)
2019
141
32
40.6
2018
322
55
38.0
2.5-3.5
2.5-3.5
0.8
–
0.2
4.6
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 £0.1m and £0.6m related to equity-settled share based payment transactions in 2019
and 2018 respectively.
124
N Brown Group plc Annual Report & Accounts 2019 29 Retirement benefit schemes
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for all qualifying employees.
The Group is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The
only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.
The total cost charged to income of £5.5m (2018: £4.2m) represents contributions payable to the schemes by the Group at rates
specified in the rules of the plans. As at 2 March 2019, contributions of £0.1m (2018: £0.1m) due in respect of the current reporting period
had not been paid over to the schemes.
Defined benefit scheme
The Group operates a defined benefit scheme, the N Brown Group Pension Fund. Under the scheme, the employees are entitled to
retirement benefits based on final pensionable earnings and it was closed to new members from 31 January 2002. On 29 February 2016
the scheme was closed to future accrual. 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 (e.g. 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
2018 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 – male
Pensioner aged 65 – female
Non-pensioner aged 45 – male
Non-pensioner aged 45 – female
Amounts recognised in profit or loss in respect of these defined benefit schemes are as follows:
Current service cost
Past service cost
Net interest credit
Profit recognised in the income statement
2019
2.80%
2.05%
3.40%
2.40%
22.2
23.6
24.0
25.9
2019
£m
–
0.3
(0.5)
(0.2)
2018
2.75%
2.05%
3.35%
2.35%
23.0
24.5
24.9
26.4
2018
£m
–
–
(0.2)
(0.2)
The actual return on scheme assets was £0.7m (2018: £4.6m).
The amount included in the balance sheet arising from the Group’s obligations in respect of its defined benefit retirement benefit
scheme is as follows:
Present value of defined benefit obligations
Fair value of scheme assets
Surplus in the scheme and asset recognised in the balance sheet
2019
£m
(112.0)
135.9
23.9
2018
£m
(120.7)
140.0
19.3
125
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Group Accounts
continued
29 Retirement benefit schemes continued
The amount included in the statement of comprehensive income is as follows:
Remeasurement gain
Return on scheme assets
Gain recognised in the statement of comprehensive income
2019
£m
7.0
(3.1)
3.9
2018
£m
9.5
1.0
10.5
The surplus reflects the economic benefit at the balance sheet date that the Group would be entitled to, through refund, in the event
the scheme was wound up. There are no restrictions on the recovery of the surplus. There are no specific regulatory requirements that
impact on the retirement benefit scheme.
Movements in the present value of defined benefit obligations were as follows:
At 3 March 2018
Current service cost
Past service cost
Interest cost
Remeasurement (gain)/loss
a. Effect of changes in financial assumptions
b. Effect of experience adjustments
Benefits paid
At 2 March 2019
Movements in the fair value of the scheme assets were as follows:
At 3 March 2018
Interest income
Return on scheme assets excluding interest income
Contributions from sponsoring companies
Benefits paid
At 2 March 2019
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
2019
£m
120.7
–
0.3
3.2
(0.4)
(6.6)
(5.2)
2018
£m
135.2
–
–
3.5
(6.0)
(3.5)
(8.5)
112.0
120.7
2019
£m
140.0
3.7
(3.1)
0.5
(5.2)
135.9
2019
2018
£m
16.6
11.1
40.4
50.4
1.7
8.9
4.4
2.4
%
12.2
8.2
29.7
37.1
1.3
6.5
3.2
1.8
£m
27.4
27.7
33.9
20.2
2.6
13.3
14.0
0.9
2018
£m
143.5
3.7
1.0
0.3
(8.5)
140.0
%
19.6
19.8
24.2
14.5
1.8
9.5
10.0
0.6
135.9
100.0
140.0
100.0
126
N Brown Group plc Annual Report & Accounts 2019 All assets had an observable market price (2018: all). Significant actuarial assumptions for the determination of the defined benefit
obligation are the discount rate, inflation and life expectancy.
• An increase of 0.25% in the discount rate used would decrease the defined benefit obligation by £5.3m (2018: £6.5m).
• An increase of 0.25% in the inflation assumption would increase the defined benefit obligation by £4.5m (2018: £5.4m).
• An increase of one year in the life expectancy assumption would increase the defined benefit obligation by £3.5m (2018: £3.9m).
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 and deficit contributions
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 £0.75m (2018: £0.5m) to the
defined benefit scheme in the next financial year.
The weighted average duration of the defined benefit obligation at 2 March 2019 is approximately 20 years (2018: 24 years).
The defined benefit obligation at 2 March 2019 can be approximately attributed to the scheme members as follows:
• Active members: 0% (2018: 0%)
• Deferred members: 64% (2018: 67%)
• Pensioner members: 36% (2018: 33%)
All benefits are vested at 2 March 2019 (unchanged from 3 March 2018).
30 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note. Remuneration paid to key management personnel (who comprise the Group Directors and members of the
Executive Board) was £3.4m (2018: £4.8m). This was split as follows: employment benefits of £2.6m (2018: £3.9m), other benefits of £0.7m
(2018: £0.4m) and share based payments of £0.1m (2018: £0.5m).
127
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Company Balance Sheet
Fixed assets
Investments
Current assets
Debtors
Creditors
Amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Non current liabilities
Bank loans
Net assets
Capital and reserves
Called-up share capital
Share premium account
Own shares
Profit and loss account
Shareholders’ funds
As at
2 March
2019
£m
As at
3 March
2018
£m
Note
34
35
36
37
38
367.3
367.2
86.6
135.6
(213.0)
(126.4)
240.9
(110.0)
130.9
31.4
11.0
(0.3)
88.8
130.9
(232.7)
(97.1)
270.1
(125.0)
145.1
31.4
11.0
(0.2)
102.9
145.1
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the Board of Directors and authorised for
issue on 15 May 2019.
They were signed on its behalf by:
Craig Lovelace
CFO and Executive Director
128
N Brown Group plc Annual Report & Accounts 2019 Company Statement of Changes in Equity
Changes in equity for the 52 weeks ended 2 March 2019
Balance at 3 March 2018
31.4
11.0
(0.2)
102.9
145.1
Share
capital
(note 38)
£m
Share
premium
£m
Own shares
£m
Retained
earnings
£m
Total
£m
Comprehensive income for the period
Profit for the period
Total comprehensive income for the period
Transactions with owners recorded directly in equity
Equity dividends
Issue of own shares by ESOT
Share based payment charge
Total contributions by and distributions to owners
Balance at 2 March 2019
–
–
–
–
–
–
–
–
–
–
–
–
31.4
11.0
–
–
–
(0.1)
(0.1)
(0.3)
18.0
18.0
(32.2)
–
0.1
(32.1)
88.8
18.0
18.0
(32.2)
(0.1)
0.1
(32.2)
130.9
Changes in equity for the 52 weeks ended 3 March 2018
Balance at 4 March 2017
31.3
11.0
(0.1)
99.8
142.0
Comprehensive income for the period
Profit for the period
Total comprehensive income for the period
Transactions with owners recorded directly in equity
Equity dividends
Issue of own shares by ESOT
Share based payment charge
Total contributions by and distributions to owners
Balance at 3 March 2018
–
–
–
0.1
–
0.1
–
–
–
–
–
–
31.4
11.0
–
–
–
(0.1)
–
(0.1)
(0.2)
42.8
42.8
42.8
42.8
(40.3)
(40.3)
–
0.6
(39.7)
102.9
–
0.6
(39.6)
145.1
129
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial 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’).
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 the Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has
been taken.
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 its registered office address.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the
following disclosures:
• Company cash flow statement and related notes
• Disclosures in respect of transactions with wholly owned subsidiaries
• Disclosures in respect of capital management
• The effects of new but not yet effective IFRSs
• Disclosures in respect of the compensation of key management personnel
As the consolidated financial statements of N Brown Group plc include equivalent disclosures the Company has also taken exemptions
under FRS 101 available in respect of the following disclosures:
• Certain disclosures required by IFRS 13 Fair Value Measurement
• Disclosures required by IFRS 7 Financial Instrument Disclosures
Going concern
Notwithstanding net current liabilities of £110.0m as at 2 March 2019, the financial statements have been prepared on a going concern
basis which the directors consider to be appropriate for the following reasons.
The directors have prepared cash flow forecasts for a period of 12 months from the date of approval of these financial statements which
indicate that, taking account of reasonably possible downsides, the Company will have sufficient funds, through its overdraft facility, to
meet its liabilities as they fall due for that period.
Those forecasts are dependent on the company’s subsidiaries not seeking repayment of the amounts currently due to the Group, which
at 2 March 2019 amounted to £194.6m. The subsidiary companies have indicated that they do not intend to seek repayment of these
amounts for the period covered by the forecasts. As with any company placing reliance on other group entities for financial support, the
directors acknowledge that there can be no certainty that this support will continue although, at the date of approval of these financial
statements, they have no reason to believe that it will not do so.
Consequently, the directors are confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due for
at least 18 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going
concern basis.
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.
130
N Brown Group plc Annual Report & Accounts 2019 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.
Share-based payments
The Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at
fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the Company’s estimate of shares that will eventually vest. This is recognised as an
employee expense with a corresponding increase in equity. Fair value is measured by monte-carlo for options subject to a market based
performance condition and by use of a Black–Scholes model for all others. 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. Whilst the Company has no own employees of its own, it settles all share incentive
schemes granted to employees of its subsidiaries. As subsidiaries are not recharged for the share based payment charge, the amount is
debited to cost of investment.
33 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 2 March 2019 of £18.0m (2018: profit £42.8m) which includes
dividends received of £25.0m (2018: £50.0m).
The Non-Executive Directors’ remuneration was £628,000 (2018: £549,000) and seven Non-Executive Directors were remunerated (2018:
eight). The Executive Directors were remunerated by a subsidiary company in both years; the total was £1,417,000 (2018: £1,902,000).
Further details are provided on page 73 of the Directors’ Remuneration Report.
The auditor’s remuneration for audit services to the Company of £17,000 (2018: £16,000) was borne by subsidiary undertakings.
131
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Company Accounts
continued
34 Fixed asset investment
Cost and net book value
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 & Heeley 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
JDW Malta Limited
Griffin House, 40 Lever Street, Manchester M60 6ES
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
N Brown Holdings Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
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
N Brown Property Three Ltd
N Brown Property Two 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
NB Funding Guernsey Ltd (Guernsey Reg)
St Martin’s House, Le Bordage, St Peter Port, Guernsey, GY1 4AU
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
NB Malta No1 Ltd
(Malta Reg)
NB Malta No2 Ltd
(Malta Reg)
132
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
2019
£m
367.3
2018
£m
367.2
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
100
N Brown Group plc Annual Report & Accounts 2019 Company
Nochester Holdings (Eire Reg)
Odhams Leisure Group Ltd
Oxendale & Company Ltd
Registered Office Address
29 Earlsfort Terrace, Dublin 2, Ireland
Griffin House, 40 Lever Street, Manchester M60 6ES
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
Speciality Home Shopping (US Marketing)
LLC (incorporated 5 January 2018)
Tagma Ltd
T-Bra Limited
1209 Orange Street, Wilmington, Delaware 19801
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
35 Debtors
Amounts falling due within one year:
Amounts owed by Group undertakings
Prepayments and accrued income
36 Creditors
Amounts falling due within one year:
Bank overdrafts (note 37)
Amounts owed to Group undertakings
Proportion held by
the Group (%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
2019
£m
86.5
0.1
86.6
2018
£m
135.0
0.6
135.6
2019
£m
2018
£m
18.4
194.6
213.0
40.2
192.5
232.7
133
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes to the Company Accounts
continued
37 Bank loans and overdrafts
Bank overdrafts
Bank loans
2019
£m
18.4
110.0
128.4
2018
£m
40.2
125.0
165.2
The Company has unsecured bank loans of £110.0m (2018: £125.0m) drawn down under a medium-term bank revolving credit facility
committed until September 2020.
At 2 March 2019, the Company had available £15.0m (2018: £nil) of undrawn committed borrowing facilities in respect of which all
conditions precedent had been met, in addition to a £16.1m (2018: £20.0m) undrawn revolving credit facility.
The weighted average interest rates paid were as follows:
Bank overdrafts
Bank loans
38 Share capital
2019
%
2.1
2.4
Allotted, called-up and fully paid ordinary shares of 111/19p each
2019
Number
2018
Number
2019
£m
2018
%
1.8
1.9
2018
£m
At 2 March 2019 and 3 March 2018
285,153,619
284,458,148
31.4
31.4
The Company has one class of ordinary share which carries no right to fixed income.
39 Guarantees
Parent Company bank overdrafts which at 2 March 2019 amounted to £18.4m (2018: £40.2m) have been guaranteed by certain subsidiary
undertakings.
134
N Brown Group plc Annual Report & Accounts 2019 Shareholder Information
Financial calendar
2019
2020
October
December
January
January
February
April
June
July
July
August
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 2020 Annual Report and Accounts
Closing of register for final dividend
Annual General Meeting
Payment of final dividend
An updated version of the financial calendar is available at www.nbrown.co.uk
Registered office
Griffin House
40 Lever Street
Manchester
M60 6ES
Registered No. 814103
Telephone 0161 236 8256
Registrars
Link Asset Services
PXS 1
34 Beckenham Road
Beckenham
Kent BR3 4ZF
Telephone 0871 664 0300
(Calls cost 10 pence per minute
plus network extras)
Auditor
KPMG LLP
1 St Peter’s Square
Manchester
M2 3AE
Bankers
HSBC Bank plc
The Royal Bank of Scotland plc
Solicitors
Pinsent Masons LLP
Eversheds LLP
Addleshaw Goddard LLP
Corporate brokers
Jefferies 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
135
N Brown Group plc Annual Report & Accounts 2019Strategic reportGovernance reportFinancial statements Notes
136
N Brown Group plc Annual Report & Accounts 2019 Thank you
We would like to thank everyone who has helped to produce this report:
Aaron Yates
Adam McGough
Amy Linehan
Angela Gaskell
Arlene Hill
Carol Brown
Catherine Povah
Catherine Stagg
Colm O’Callaghan
Ian Brown
Ian Somerset
Isla Kirby
Jane Reik
Jo Ingham
Joanne Dickie
John Minihan
Kate Samba
Keith Milum
Craig French
Laura Hampson
Duncan Farquhar
Laura MacDonald
Elaine Fox
Elizabeth Barnham
Esme Stone
Gareth Powell
Hayley Gallista
Holly Cummins
Leigh Oldfield
Lisa Ellington
Liz Meagher
Louise Robinson
Mark Jackson
Mark Williams
Matthew Wilson
Niel Crozier
Paul Cooper
Paul Ray
Paul Rostron
Ric Latham
Sam Carey
Sian Scriven
Sophie Hadfield
Steve Hendy
Stuart Daniels
Theresa Casey
Tim Higgins
Tim Sykes
Tom Wright
Vanessa Lewis
Will MacLaren
Printed by Park Communications on FSC® certified paper.
Park is an EMAS certified company and its Environmental Management System is certified to ISO 14001.
100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and,
on average 99% of any waste associated with this production will be recycled.
This document is printed on Edixion Offset, a paper containing 100% Environmental Chlorine Free (ECF)
virgin fibre sourced from well-managed, responsible, FSC® certified forests and other controlled sources.
Designed and produced by SampsonMay
Telephone: 020 7403 4099
www.sampsonmay.com
N Brown Group plc
Griffin House
40 Lever Street
Manchester M60 6ES
www.nbrown.co.uk