Continuing our
transformation
N Brown Group plc
Annual Report and Accounts 2022
CONTENTS
STRATEGIC REPORT
Our business
Chair’s statement
Chief Executive’s statement
Strategic update
Key Performance Indicators
Marketplace
Business model
Financial performance
Risk management
Principal risks and uncertainties
Section 172 statement
Board engagement with the workforce
Sustain
GOVERNANCE REPORT
Introduction from the Chair
LEADERSHIP AND PURPOSE
Group Board Directors
Executive Board Directors
DIVISION OF RESPONSIBILITY
Governance structure
COMPOSITION, SUCCESSION
AND EVALUATION
Board composition
Nominations and Governance
Committee report
AUDIT, RISK AND INTERNAL CONTROL
Audit and Risk Committee report
Financial Services Board Committee report
REMUNERATION
Remuneration Committee report
ADDITIONAL DISCLOSURES
Viability statement
FINANCIAL STATEMENTS
For the detailed contents of the statements
go to p98.
98
INDEPENDENT AUDITOR’S REPORT
GROUP ACCOUNTS
Notes to the Group accounts
Going concern
COMPANY ACCOUNTS
Notes to the Company accounts
SHAREHOLDER INFORMATION
2
4
5
8
18
20
22
24
32
34
38
40
42
55
56
58
62
64
67
68
74
75
94
95
99
107
111
118
150
157
HIGHLIGHTS
Revenue
Adjusted EBITDA1
£715.7m £95.0m
2021: £728.8m
2021 (Restated)2: £84.9m
Adjusted operating costs
to group revenue ratio1
Adjusted profit
before tax1
36.0%
£43.1m
2021 (Restated)2: 32.7%
2021 (Restated)2: £29.4m
Statutory profit before tax
Unsecured net cash1
£19.2m £43.1m
2021 (Restated)2: £9.2m
2021: £80.8m
1 Throughout the Strategic report and consistent with prior years, alternative performance
measures (“APMs”) are used to present the Group’s performance. These are not recognised
under IFRS or other generally accepted accounting principles (“GAAP”). The Board focus on
these measures when reviewing ongoing performance of the Group given that they facilitate
meaningful year-on-year comparisons and so provide useful information to shareholders.
A reconciliation of statutory measures to adjusted measures is included on page 25. A full
glossary of Alternative Performance Measures and their definitions is included on page 31.
2 Refer to change in accounting policy prior year adjustment note 32.
CONTINUING OUR TRANSFORMATION
The last 12 months have seen a
continuation of our transformation,
supported by significant improvements
to our customer proposition and brands.
The business is now better placed than
pre-pandemic and we are committed to
ensuring that we capitalise on our position
within the rapidly evolving online retail market.
Our strong balance sheet will enable us to
continue investing in our digital capabilities,
accelerate our growth strategy and build
a foundation that will deliver sustainable
returns for shareholders.
OUR VISION
AND PURPOSE
2
1
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk OUR BUSINESS
We’re a top 10 UK clothing and footwear digital retailer1,
supported by a home proposition and serving customers
across our brand portfolio.
1 Kantar, Worldpanel Division, 52 weeks ended 6th March 2022.
OUR VISION
OUR PURPOSE
OUR MISSION
Championing inclusion,
we’ll become the most loved
and trusted fashion retailer.
We exist to make our
customers look and
feel amazing.
We’re obsessed with our
customers and have been for
generations. We delight them
with products, service and
finance to fit their lives.
SUSTAIN
FINANCIAL SERVICES
REVENUE BREAKDOWN
In 2021, we rebranded our Environmental,
Social and Governance (“ESG”) strategy to
SUSTAIN. Fully embracing the values of our
business, SUSTAIN encompasses both the
key pillars of our ESG strategy. “Our People”
pillar focuses on colleagues, customers and
stakeholders across the business and supply
chain. “Our Planet” pillar focuses on products
sourced, produced and transported as
sustainably as possible.
SEE MORE
42
An important part of our overall proposition,
Financial Services strengthens customer
loyalty and enables our Retail business to
thrive. Customers benefit from excellent
convenience and flexibility, either paying us
immediately or utilising a credit account to
spread the cost of their purchases over time.
We are regulated by the Financial Conduct
Authority (“FCA”) in the UK and the Central
Bank of Ireland (“CBI”) in Ireland and we
support our customers throughout their
credit journey with us.
Strategic brands
Other brands
Total Product revenue
Financial Services
revenue
Group revenue
FY22
£381.2m
£84.4m
£465.6m
£250.1m
FY212
£347.0m
£121.4m
£468.4m
£260.4m
£715.7m
£728.8m
2 FY21 split between Strategic and Other brands
has been re-presented to correctly allocate bad
debt relief. There is no impact on Total product
revenue or Group revenue.
Gross customer loan book
£577.2m
2
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk OUR BRANDS
An online boutique shopping experience
showcasing own brand and third-party brand
fashion and home product for 45 – 65 year
old women.
A size-inclusive online fashion and grooming
brand for men, showcasing own brand and
third-party brands targeting men aged 25 – 50.
A size-inclusive online brand showcasing
own brand and third-party brand fashion
and beauty for women aged 25 – 45.
A one-stop home brand offering own brand
and third-party brand modern homeware
helping customers to ‘dress their homes’.
The target customer is mums aged 25 – 45
with children at home.
An online womenswear brand for the
more mature customer, supported by home,
showcasing own brand and third-party
brands targeting women aged 65+.
3
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk CHAIR’S STATEMENT
REVIEW OF THE YEAR
“ I’d like to thank the whole team at N Brown for
their dedication in delivering for our customers.
While the backdrop to the year was again
challenging, it’s pleasing to see the business
demonstrate real resilience and sustained progress.”
Ron McMillan
Independent Non-Executive Chair
REVIEW OF THE YEAR
The year saw a continuation of the impact
of Covid-19, along with an escalation in
inflationary headwinds. I’m proud of how
the business has reacted to the volatile and
uncertain macroeconomic conditions and
delivered for our customers.
Despite the difficult backdrop, we produced
a strong performance in our strategic brands
with product revenue growth of 9.9% and
a resurgence in clothing and footwear. It is
encouraging that the Group’s total active
customers are now in year-on-year growth,
closing up 4% at 2.9m, as more people
discover our brands.
Notwithstanding, inflationary pressures,
we were able to hold the cost base below
pre-pandemic levels with the adjusted
operating cost to Group Revenue ratio
improving from 39.8% in FY20 to 36.0% this
year. We saw growth in Group gross margin
including atypically high Financial Services
gross margin through strong performance
of the customer book, exhibiting unusually
low arrears rates, but which we expect to
normalise. The business delivered adjusted
EBITDA of £95.0m.
One of the Group’s principal subsidiaries,
J D Williams & Co Ltd (JDW), is involved in
a legal dispute with Allianz Insurance PLC.
More details of the Allianz claim and the
JDW counterclaims and defence are set out
in note 22 The eventual financial outcome
of the dispute is highly uncertain for both
parties. We believe that it remains in the best
interest for the parties to settle the dispute and
made a provision of £28m as an estimate for
accounting purposes of the potential costs
of settlement, or award at trial, plus future
legal costs.
Details of the strategic transformation
undertaken in the year are set out in the Chief
Executive’s Statement and I am pleased with
the further progress we’ve made to deliver
sustainable profitable growth.
COLLEAGUES
This has been another challenging year and I
would like to thank all colleagues for their hard
work and commitment. I am pleased that we
have been able to recognise this by paying
out on our colleague bonus scheme for the
second consecutive year. I look forward to
working with our teams across the business
to deliver our strategy of returning N Brown
to sustainable, profitable growth.
BOARD CHANGES
I was delighted to assume the role of
Group Chair on the 31 March 2021 and am
committed to ensuring that the Board remains
focused on delivering sustained growth for the
long-term benefit of all stakeholders.
Gill Barr has taken over my previous position
as Senior Independent Director effective from
31 March 2021. Dominic Platt was appointed
in June 2021 as a Non-Executive Director
and Audit & Risk Committee Chair. Dominic is
the Chief Financial Officer of BGL Group, a
position he has held since March 2016.
I would like to welcome Nuno Miller (Chief
Operating Officer) and also Michael Mustard
who joins as our permanent General Counsel
and Company Secretary.
My thanks also go to Christian Wells who was
our interim General Counsel and Company
Secretary for six months and to Vicky
Mitchell who assumed the Audit and Risk
Committee Chair role on an interim basis until
Dominic’s appointment.
I am grateful to my fellow Directors for their
support during what has been another
challenging year and will be available to
answer any questions you may have on this
report or on any of the Board’s activities at the
AGM on 7 July 2022.
SUSTAIN
SUSTAIN is our overarching Environmental,
Social and Governance strategy. During the
second year of the Group’s sustainability
plan, progress included achievement of the
2030 Scope 2 Target for Net Zero emissions
from purchased electricity of the British Retail
Consortium Climate Action Roadmap for the
second year running.
In addition, following a successful trial of
Green Polyethylene (“Green PE”) despatch
bags last year, we have now fully rolled these
out at our Shaw distribution centre.
BALANCE SHEET STRENGTH
Our continued cash generation and robust
balance sheet means that we are well
positioned to deliver on our strategy.
The Group had access to over £200m of
liquidity at the year end in the form of £43.1m
cash and undrawn facilities of £172.6m,
including £60.1m voluntarily undrawn on
the securitisation facility.
DIVIDEND
Following the outbreak of Covid-19 and the
subsequent impact on the business and
the wider economy, the Board suspended
dividend payments.
We have a clear set of investment plans and
a number of competing demands on our
cash resources. Nevertheless, the Directors
recognise that dividends are an important
part of shareholders’ returns and the Board
will consider the reintroduction of a dividend
in FY23.
LOOKING AHEAD
As we enter FY23 we have taken the
opportunity to evolve our strategic pillars in
support of our vision, mission and purpose.
We are focused on our differentiated retail
offering, with our key objective being to deliver
profitable growth on a sustainable basis.
In FY23, our new front end website will
transform our customer’s experience.
Simply-Be will launch this year and our other
brands will follow. There is also a significant
opportunity for further product innovation
within our Financial Services business.
We are in the process of developing a new
Financial Services Platform.
4
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk CHIEF EXECUTIVE’S STATEMENT
PERFORMANCE REVIEW
“ I am pleased with our continued progress
in transforming N Brown into a more focused
digital business, with a distinct and improving
offer across our strategic brands. Our strategic
brands returned to growth in the year with
growing customer numbers.”
Steve Johnson
Chief Executive Officer
“As we move forward, we are evolving
our priorities to concentrate our growth
focus on Simply Be, JD Williams and
Jacamo, where we see the strongest
market potential. We’re executing on
our investment plans to unlock these
opportunities including through new
websites which will be rolled out
progressively over the coming months.
In what has been another volatile period
in the consumer environment, I would
like to thank all of my colleagues for
their continued commitment to serving
customers, and their role in delivering a
strong performance in the year. The work
we have done means we are significantly
better placed than we were before the
pandemic and although cautious in the
short-term due to inflationary impacts and
consumer behaviour, we remain confident
that over the medium-term our strategy will
support the delivery of 7% product revenue
growth with a 13% EBITDA margin.”
CONTINUING OUR STRATEGIC
TRANSFORMATION
We have continued to see a challenging
backdrop including the impacts of the Covid-19
pandemic and more recent geopolitical events
and the economic, logistical, and personal
shocks that these create. Despite this, over
the past two years we’ve been able to create
a solid foundation that has enabled our
colleagues to execute against our strategy,
including further development of our product
proposition and refinement of our marketing
focus. Furthermore, our colleagues continue
to represent the values of our organisation
by putting our customers first. We in turn
continue to put our colleagues at the heart
of what we do, underlining this through
our commitment to ensure all colleagues
are paid at least, the national living wage.
We recognise that consumer sentiment is not
back to pre-Covid levels, particularly given
increases in the cost of living, but our business
has performed resiliently as we’ve adapted
our trading approach to be flexible in the face
of changing customer expectations.
We are really pleased with the significant
progress we have made over the last couple
of years in building our new trading website,
which is currently in test mode, and which will
be launched for Simply Be in FY23. This is
our first mobile adaptable website, which
will bring benefits to both customers and
colleagues. Following the Simply Be launch,
other brands will roll out once we are satisfied
the experience is as we intended.
We have also undertaken a significant amount
of exploration in relation to our Financial
Services platform in order to understand
how to deliver a better and more modern
experience for our customers. Whilst it
remains in the early stages of development,
we are pleased with our progress and will
update on developments as we move forward.
We have delivered pleasing growth in product
revenue from our strategic brands, which
have increased 10%, and adjusted EBITDA
is in line with guidance at £95.0m. The total
number of active customers has grown year-
on-year, closing 4% up at 2.9m (FY21: 2.8m)
and which reflects a return to growth for the
first time in four years, albeit slightly behind
our internal bonus targets. Supported by
clear brand identities and effective marketing
activity, Simply Be and Jacamo closed the
year with the biggest active customer files
in their histories. We saw Financial Services
gross margin at higher than normalised levels
due to unprecedented conditions within
the consumer credit market, driving high
repayment and low arrears rates. Our robust
balance sheet and continued cash generation
positions us well for the future. This provides
us with a foundation to execute our strategy,
and the Board remains confident in achieving
the Group’s medium-term objective of
delivering sustainable profitable growth.
5
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk CHIEF EXECUTIVE’S STATEMENT CONTINUED
FY22 LOOK BACK
ATTRACT BROADER RANGES
OF CUSTOMERS
In June 2020 we set out to simplify our
brand portfolio through focused propositions
with clear target customers. Having done
substantial work in FY21 to simplify the
portfolio with the closure of House of Bath,
High and Mighty and the integration of
Figleaves into Simply Be, the emphasis this
year has been on propositional development
and building awareness on strategic brands.
Overall, we’ve made good progress; we
now have more than two million followers
on social media, and across the strategic
brands the customer file grew by 6% over the
course of the year. We’ve also invested in our
creative infrastructure with a new LED studio
environment which produces film quality
photography and enables shooting of video to
showcase our product to best advantage.
In JD Williams we focused on increasing
visibility and relevance with our target
customer, through brand ambassador
partnerships with Davina McCall and
Amanda Holden.
Simply Be’s core message is around
inclusivity and fit, and our marketing
campaigns have showcased this through
elevating the importance of product, such
as lingerie and denim where fit is key.
Influencers have become an increasingly
important part of Simply Be’s brand building
strategy, and alongside this we were
pleased to be a part of Instagram’s UK pilot
of “Instagram checkout” where customers
can purchase directly via Instagram.
On Jacamo, campaign work has been
focused on positioning size as a positive,
working with influencers like Big Zuu to
build the brands credentials in the market.
Home Essentials formed a brand ambassador
partnership with Frankie Bridge and Nicki
Bamford-Bowes alongside a series of
other influencers.
6
IMPROVED PRODUCT TO
DRIVE CUSTOMER FREQUENCY
We continue to optimise our range breadth
across clothing, footwear and beauty, reducing
SKUs by 7% to 25k, creating a clearer
customer proposition and buying efficiency.
As part of our focus on inclusivity we have
extended our core size ranges and now offer
13 sizes across womenswear and 10 sizes
across menswear.
To continue to strengthen our product
handwriting, we have invested substantially in
our design capabilities, and the proportion of
unique product designed in house is now 53%
from 40% across men’s and women’s clothing.
We have continued to add aspirational 3rd
party brands to extend the “best” element
of the range including Nobody’s Child and
Hope & Ivy on Simply Be, which are uniquely
available in our sizing. Selected Femme
and Finery have both launched on JD
Williams. Through the year, we’ve also built
on our existing strong partnerships with Joe
Browns and Monsoon in womenswear and
Ralph Lauren and Hugo Boss in menswear.
The success of these initiatives has given
us the confidence to continue to develop
both Jacamo and JD Williams as multi-
brand platforms.
From a sourcing perspective we have
continued to rationalise the number of
suppliers we work with from 979 to 805 (a
18% reduction) across the year resulting in
improved relationships and efficiency.
NEW HOME OFFERING FOR
CUSTOMERS TO SHOP MORE
ACROSS CATEGORIES
Our existing Home offering enabled us to
capitalise on the Homeware boom through
the pandemic, with our brands able to
pivot towards this category by maximising
customers demand. JD Williams, as a multi-
category platform, represented the largest
share of home sales for the Group at 39%.
The Home category continues to evolve
with the acceleration of own design product
which is unique to us. We continue to design,
develop, and procure furnishings in key
categories across Home and Tech, with
70% of our Home and Furniture offer being
own design. The success of the approach
is reflected on 18% year-on-year reduction
in returns.
Within the technology category we’ve
secured more premium brands such as LG
and Samsung and grown our existing offer in
areas that resonate with the customer at key
times. Premium brands present our customers
with an opportunity to shop more aspirational
products, with flexibility around payment
options in conjunction with a credit account.
ENHANCED DIGITAL
EXPERIENCE TO INCREASE
CUSTOMER CONVERSION
We’ve made significant progress on the
continued development and deployment of
our new front-end platform for the trading
websites, ensuring that the technology is
established for release in FY23. Simply Be
is the first trading website to be migrated
onto the new web platform, with beta testing
currently taking place.
In addition to development of the platform,
our user experience team have focused on
delivering incremental improvements across
the customer journey, developing efficiencies
across digital product pages to enable a
smooth checkout experience for customers.
Our commitment to digital transformation
supported the development of Robotic
Process Automation (“RPA”), which focused
primarily on Merchandising, replacing
repeated manual tasks with automated
processes to improve speed, accuracy,
and efficiency.
FLEXIBLE CREDIT TO
HELP CUSTOMERS SHOP
Financial Services is an integral part of
our customer proposition, and we remain
committed to providing great products for our
customers and ensuring that we support them
in appropriate ways.
Over the course of the year, we completed a
detailed design phase for our new Financial
Services platform, which will commence
build in 2022. We will continue to enhance
our existing proposition where possible
including a six-month 0% interest campaign
for new customers.
We continue to support customers
categorised as being in persistent debt,
by providing a solution to ensure balance
paydown in a reasonable period and prevent
any future reoccurrence. This is an integral
part of ensuring our customers are protected.
From a regulatory perspective, we’ve
successfully implemented Stronger Customer
Authentication (“SCA”) as part of the PSD2
regulation, ahead of the deadline, minimising
any impact on our customers. Having rolled
out the Senior Managers and Certification
Regime (“SMCR”) from the FCA in 2020,
we have now embedded this within the
organisation. In addition, we have worked
closely with the CBI in the Republic of Ireland,
setting up an appropriate Board structure and
investing in our technology for improved ID
checking and verification.
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk SUSTAINABLE COST BASE
Investment in brand marketing in the year has
been the main contributor to an increase in
the adjusted operating costs to Group revenue
ratio, with the level of 36.0% remaining lower
than pre-pandemic. This reflects efficiencies
and cost flexibility.
We were able to mitigate the logistical
impacts of global shipping and distribution
issues through our supply chain by
appropriately managing our stock levels in
advance, specifically around peak trading.
This enabled us to meet customer demand
versus competitors and to continue to provide
the right products.
The current broader inflationary environment
is creating two key themes. The first is a
commercial impact directly related to the
increased cost of doing business. The second
is a customer impact reflecting the increased
cost of living and the broader uncertainty
leading to lower consumer confidence.
We have worked through a series of actions
and considerations in order to navigate the
uncertainty and opportunities resulting from
the current macro-economic environment.
PEOPLE AND CULTURE
Our colleagues continue to navigate
through the impacts of a post-pandemic
world with resilience and determination,
always looking to put our customers at the
forefront of everything we do. Colleagues are
our biggest asset, providing flexibility and
commitment and showing that we can adapt
our ways of working and keep delivering
for our customers.
DATA
We have continued to develop data products
and tools that create actionable insight to
support our business functions. We have
supported commercial opportunities by
developing an internal tool, PriceTagger,
which optimally promotes product using
pricing elasticity curves. We also use data
insight to support our FS business to assess
customer credit risk profiles and offer the
appropriate solution for them.
The Group has continued to invest in its
people and infrastructure with new key hires
across our data function to build out a new
data platform and deliver rapid insight to
action analytics.
FY23 LOOK FORWARDS
Evolving our
strategic roadmap
Over recent years we’ve undertaken
a significant programme of
transformation to become a lean,
digital organisation. Throughout
this, our vision of “becoming
the UK’s most loved and trusted
inclusive retailer” has been central,
and it continues to be relevant to
our business today.
In Autumn 2021, supported by external
consultants, we conducted a review to assess
our strategy and define the most expedient
way forwards for growth. Much of the strategy
set out in June 2020 remains constant,
and to accelerate value creation we have
further refined our priorities based on the
following principles:
Focus on growth through three strategic
brands (JD Williams, Simply Be and Jacamo),
which will allow us to boost simplicity and
rigour of execution and deliver strong
customer propositions and efficiency in
our marketing.
Home will remain an important category for
N Brown, but our focus will shift to growing
this through the multi category platform of
JD Williams alongside a standalone Home
brand. This enables us to improve efficiency
in our marketing spend, and maximise the
cross shopping experiences of our customers
through the platform.
Establish the remaining brands as a
“heritage” portfolio, focused on stabilisation
and value protection rather than growth,
with no further brand migrations planned at
present. This includes Home Essentials and
Ambrose Wilson.
Full integration of our flexible credit offer into
the core of the customer value proposition.
Elevation of data as an asset at the core of
the strategy, driving daily decision making
and activating our unique data pool.
These iterations make N Brown a simpler,
more focused business able to allocate
colleagues, investment and marketing spend in
the most effective manner. The result of this is
an evolution in the focus on our strategic pillars:
1 Build a differentiated
brand portfolio
Build two multi brand and category
platforms, one for women (JD
Williams) and one for men (Jacamo),
as well as one inclusive fashion
brand (Simply Be)
8
2 Elevate the fashion and
fintech proposition
Elevate the fashion assortment,
integrate the credit offer into the
journey and create a credit brand
10
3 Transform the customer
experience
Transform the customer experience,
pre and post purchase, and drive
conversion at checkout through a
personalised experience
12
4 Win with our target customer
Grow our customer base through
our existing core customer, high
value lapsed customers and a new,
younger generation
14
5 Establish data as an
asset to win
Establish data as an asset to drive
top line and margin improvements
16
7
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk FY23 LOOK FORWARD
STRATEGIC UPDATE
1
Build a differentiated
brand portfolio
Continuing the momentum built
in FY22, our focus is on building
awareness and driving growth across
the strategic brands of Simply Be,
Jacamo and JD Williams.
Simply Be is an inclusive fashion brand for young
women, focused primarily on own label design
and expertise in fit. We launched a new creative
approach with our Spring/Summer campaign,
where we are asking women to reject bad fit,
joining us in a “fit revolution”. We will explicitly
shift our focus to include all sizes – welcoming
all women to Simply Be through the campaign.
We launched with a new media strategy which
moved away from traditional TV advertising,
focusing on the digital channels where our
customer spends her time (digital, social,
influencer), as well as high impact channels like
out-of-home advertising.
JD Williams is a fashion and lifestyle platform for
grown women. As a platform it is multi category
(selling clothing and homeware) and includes
own label and third-party brands. The Irish brand
Oxendales will also transition to being the offer
of JD Williams for the Irish market. JD Williams
will continue to work with Davina McCall and
Amanda Holden as brand ambassadors in
FY23, showing how we have a relevant offer for
every occasion for our customer, “a collection for
every moment”.
Jacamo is an inclusive fashion platform for
all men. Our marketing strategy is evolving to
showcase the styles, brands and sizes relevant
‘for every man’, this will be showcased through
the year. Our spring/summer campaign launched
in May with a focus on key clothing categories,
showing how we have the right offer for all men.
By using ‘archetypes’ of different men and their
style, we showcased the breadth of our offer
to convey relevant sizes, brands and styles.
This went live across digital video, out-of-home,
and social channels in mid-May. For Autumn
we are developing a new long-term creative
approach, and looking at media and third-party
partnerships to land this with significant impact.
8
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 9
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk FY23 LOOK FORWARD CONTINUED
STRATEGIC UPDATE
2
Elevate the fashion
and fintech proposition
We will continue to rationalise the supply
base and increase the proportion of clothing
& footwear suppliers that are closer to home
whilst reducing the supply base in China.
Bringing closer connection between our retail
and credit journeys is a key focus for the year
ahead. This means enhancements to our current
proposition with offers such as 0% finance and
improved eligibility search, but also evolution to
our digital shopping journeys which will help the
customer understand the total offer available
to them across both retail and credit product.
We will also start to talk about our credit offering
more prominently in both above and below the
line marketing.
Through FY23 we will continue
to strengthen our overall offer by
reducing our range depth across
clothing footwear and beauty by 7%
to create clarity, and keeping our
emphasis on quality and fit.
We will continue to grow the mix of own
designed product to build our handwriting
and uniqueness and next year will focus on
utilising our 3D Design software across the
ranges. This creates efficiencies in sampling
costs and quicker decision-making, as well as
building out our fit expertise.
On own designed clothing, we have launched
Anise as a relaxed, casual collection which
features premium sustainable fabrics. We are
relaunching Dannimac which is an historic label
we own, modernised for the contemporary
consumer, and Snowdonia, a true outdoors
brand. Within the JD Williams home offer, we
are launching a series of homeware labels
with Julipa, Osborne and Gray and Anise,
complementing the clothing range.
New third-party brands for JD Williams include
Whistles, Mango, Sosandar, with Joe Browns,
Monsoon, Phase 8 and Finery all building on
last year’s successes.
On Simply Be, we continue to build on the
strengths of existing partnerships by broadening
the offer available with brands such as Nobody’s
Child, Hope & Ivy and Joe Browns are all
available exclusively to us in our sizing. We will
also use collaborations to develop unique designs
in key categories, such as “Flourish” which is a
partnership with local florists’ for occasionwear.
Within Jacamo we will continue to build
momentum in our premium labels including
Hugo Boss and Ralph Lauren and will build on
the success of men’s formalwear by introducing a
product collaboration with William Hunt, a Savile
Row Tailor, which is a key category for 2022.
10
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 11
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk FY23 LOOK FORWARD CONTINUED
STRATEGIC UPDATE
3
Transform the
customer experience
We are making significant investments
in upgrading our technology estate
in order to transform our customer
experience and give us the flexibility
for future innovation.
Our new front-end platform which delivers a
new trading website has been in development
and we anticipate a customer launch later this
year on Simply Be, to be followed by our other
brands. The website is designed as a mobile
first experience, reflecting the increasing
amount of shopping done via mobile devices.
The experience is designed based on reachability
and enables easy navigation and frictionless
checkout, creating the rich experience you get on
a mobile app but through the ease of shopping on
the web.
Given the centrality of fit to our proposition, we
are implementing a new Product Information
Management system (“PIM”). This will give
customers better information and insight on our
products such as more detail about sizing and
fabric. This will create a consistent customer
experience and lower returns rate by distributing
accurate and complete content across all
channels as well as creating efficiency through
the removal of manual, repetitive processes.
We are commencing work on the build of a new
Financial Services technology platform that will
enable further propositional innovation and allow
us to develop into a fintech organisation. This will
provide flexibility, better service, and a wider
range of products to benefit our customers for
the future.
12
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 13
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk FY23 LOOK FORWARD CONTINUED
STRATEGIC UPDATE
4
Win with our
target customer
One of our key focuses for the next
financial year is to grow our customer
base, with a particular emphasis on
better engagement with existing
customers and bringing back former
customers who have lapsed. Through
the integration of credit through the
customer journey, improved product
story telling in our trading stories and
accelerated use of first-party data we’ll
create a more compelling relationship
with our customers.
This approach will drive better engagement,
increase re-trade rates within our customer file
and most importantly, improve the loyalty of our
customers to our strategic brands. To facilitate
this, we are developing our approach to CRM.
The intent is to create an ecosystem of relevant,
personalised communications on a customer-
by-customer journey, that is delivered at the right
time for the customer. This year will be focused
on developing the people, process and data
requirements and foundations in place to start
delivering more personalised, relevant content to
the customer.
Being clearer on who our target customer is
allows us to refine our proposition tailored to
their needs. It also allows us to be more effective
with our marketing strategy. This will give us a
sharper view of our target customer, designing
our creative and media approaches around them.
The content we create will reflect this, with a
storytelling approach and a choice of models that
resonates with each audience, underpinning our
drive for greater inclusivity and delivering more
engaging content formats.
14
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 15
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk FY23 LOOK FORWARD CONTINUED
STRATEGIC UPDATE
5
Establish data
as an asset to win
Data was already an enabler to our
strategy, and we have elevated it to
be a core part as we move forwards.
We want to use our data to help better
decision making in the business to
enable teams to be empowered and
move at pace.
Last year, we saw huge success with the build
of our internal tool PriceTagger, which helps
us optimally promote product using pricing
elasticity curves. Alongside developing our
core data platform we will focus on driving
margin improvement through the following
areas: dynamic pricing and promotions to adjust
pricing within season, markdown optimisation
which defines optimal timing and size of
end-of-season markdowns, customer centric
buying which is making in-season buying
adjustments based on early detection of sales
performance and online traffic movements, and,
in-session personalisation to help show the right
customers to the right products based on their
personal profile.
16
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 17
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk CHIEF EXECUTIVE’S STATEMENT CONTINUED
KEY PERFORMANCE INDICATORS
(“KPIs”)
As a digital retailer committed to accelerating
our strategy and navigating a post-pandemic
environment, we continue to report various
digital customer metrics, which provide
operational measures of how our strategy is
progressing. The disclosure below reflects our
performance in FY22.
Total website sessions during the period
increased by 5% due to expanded marketing
spend across our strategic brands, particularly
in brand advertising to drive awareness.
Conversion was flat against FY21 at 3.8%,
due to similar levels of online browsing.
The 10.2m orders in FY22 reflecting customer
demand and included a significant pivot back
to Clothing and Footwear, as the UK was able
to socialise again.
Average order value (“AOV”) improved by
3.0% and we achieved a 0.7% increase in
average item value (“AIV”). These were each
driven by a mix back towards higher priced
dresses and outer clothing from more casual
clothing sold during the onset of the Covid-19
pandemic with items per order remaining in
line with prior year.
Total active customers increased in the year
driven by acquisition in our strategic brands,
representing a return to growth in full year
active customers for the first time in four
years, albeit was behind the internal target
included within bonus metrics. This included
some attrition through a cohort of customers
who bought one off home products during
lockdown periods not returning to shop.
FS arrears showed a small increase following
some normalisation in payment rates as a
result of an unusually high propensity of credit
customers paying down balances in FY21.
However, arrears rates have yet to return to
FY20 levels.
NPS stepped back from FY21 performance,
behind the internal target included within
bonus metrics. This was driven by supply
chain disruption, and in particular a lack of
delivery drivers during peak trading due to
Covid-19.
FY23 OUTLOOK
Our expectation for FY23 Adjusted EBITDA
remains unchanged from our year end
trading statement issued on 3 March 2022.
This reflected Adjusted EBITDA at a level
similar to that reported in FY21, before
growing again as the Group’s strategy
is executed.
We are confident in continued revenue growth
from strategic brands and see the managed
decline in revenues from heritage brands
moderating as we no longer cycle against
the drag from the Figleaves website closure.
The trading environment has become more
challenging since the start of FY23, with
inflation impacting consumer confidence
and resulting in a slightly softer level of
volumes and revenue growth than previously
anticipated. As a result our continued focus on
product margin, its improved trajectory in the
second half of FY22 and volume variable cost
savings, we expect this to be mitigated.
We expect product mix to further normalise,
with clothing driving demand and a continued
shift back into categories such as dresses and
formalwear. The previously reported softer
conditions in the online home market have
continued into FY23 and we do not anticipate
these abating in the short-term.
We remain confident in the resilience of
our business model and in our strategic
direction. We expect to drive product margin
improvements through the Group’s pricing
response to cost inflation, the movement
of the product mix back into clothing, and
continued initiatives include data usage to
optimise pricing strategies.
Financial Services revenue is expected to
decline albeit at a lower rate than in prior
years, and Financial Services gross margin to
normalise to a low to mid 50s per cent range.
We anticipate a net increase in the adjusted
operating costs to Group revenue ratio in
FY23 as a result of inflationary pressures.
This is inclusive of continuing our strategic
investments in areas such as brand marketing.
Operating costs will also increase due to a
higher level of project spend included within
operating expenses. Management actions are
planned across all areas to mitigate the effect
of these pressures.
The business is well positioned to continue
delivering strategic change through FY23
and beyond. At the end of FY23, we expect
the Group to maintain a strong unsecured net
cash position and for net debt to be broadly in
line with FY22’s closing position.
The Board remains confident that over the
medium term our strategy will support the
delivery of 7% product revenue growth with
a 13%1 EBITDA margin.
SUMMARY
FY22 was a year of continued progress.
The business is in a much stronger position
relative to the start of the pandemic as a result
of the hard work of the team over the last two
years. We made strategic progress during
the year, including strengthening and refining
the product offering and marketing approach
and have achieved a return to growth in
customer numbers.
We remain a double-digit EBITDA margin
rate business, with a strong balance sheet
and are cash generative. Our improved retail
proposition and our credit offer sets us up well
to support customers as they look to spread
the cost of their purchases and manage their
monthly budgets. We will continue to invest in
our strategy and remain confident of achieving
our medium-term objectives, however, we
remain cautious in the short-term given
the inflationary pressures businesses and
customers are experiencing as we do not see
these pressures abating this year.
1 Medium term Adjusted EBITDA target reduced from 14% to 13% to reflect a higher level of project spend
included within operating expenses rather than capitalised.
18
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NON-FINANCIAL KPIS
TOTAL WEBSITE SESSIONS
TOTAL ACTIVE CUSTOMERS
TOTAL ORDERS
244m
2.9m
10.2m
FY22
FY21
244m
232m
FY22
FY21
2.9m
2.8m
FY22
FY21
10.2m
10.0m
DEFINITION
Total number of sessions across N Brown
apps, mobile and desktop websites.
DEFINITION
Customers who placed an accepted order
in the 12-month period.
DEFINITION
Total orders placed in the 12-month period.
Includes online and offline orders.
CONVERSION
3.8%
FY22
FY21
AVERAGE ORDER
VALUE (“AOV”)
AVERAGE ITEM
VALUE (“AIV”)
£ 71.1
£25.2
3.8%
3.8%
FY22
FY21
£71.1
£69.0
FY22
FY21
£25.2
£25.0
DEFINITION
% of app/web sessions that result in an
accepted order.
DEFINITION
Average order value based on
accepted demand.
DEFINITION
Average item value based on
accepted demand.
ITEMS PER ORDER
FINANCIAL SERVICES (“FS”)
ARREARS
NET PROMOTER SCORE (“NPS”)
2.8
FY22
FY21
8.4%
2.8
2.8
FY22
FY21
8.4%
7.9%
6 0
FY22
FY21
60
63
DEFINITION
Average number of items per
accepted order.
DEFINITION
Arrears are stated including both customer
debts with two or more missed payments,
or customer debts on a payment hold.
DEFINITION
Customers asked to rate likelihood to
“recommend the brand to a friend or
colleague” on a 0-10 scale (10 most likely).
NPS is (% of 9-10) minus (% of 0-6)
NPS is recorded on JD Williams, Simply
Be, Ambrose Wilson, Jacamo, Home
Essentials and Fashion World.
19
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk MARKETPLACE
ADAPTING TO MARKET TRENDS
RETAIL MARKET
The retail market continues to evolve
rapidly following the impact of Covid-19.
Following a significant acceleration in the
shift to online retail in FY21, FY22 has seen
an element of normalisation together with
some volatility in trends, including through
the impact of stores reopening. However,
the level of online retail sales has seen a
structural change relative to pre-pandemic
levels, with some customers reluctant to
return to in-store shopping having become
accustomed to shopping online.
This presents a continued opportunity for
N Brown’s brands to meet new segments of
shoppers, and the need to keep building and
innovating our digital experiences. This is
reflected in our technology roadmap and
increased Capital expenditure plans.
FY22 saw a resurgence in clothing and
footwear as Covid-19 restrictions were
gradually lifted and customers began a
gradual return to social events, occasions
and holidays. This also drove a move back
into more formal clothing categories and
occasionwear. The investment of the last two
years in improving our product through better
design, fabric and buying puts N Brown in a
great position to capitalise on the returning
desire for clothing across womenswear
and menswear, across casual and more
formal categories.
Following an increased focus on home
products in the prior year, as people spent
more time than ever at home, the online
home market has been softer including
through annualising against exceptional
comparatives. Our focus continues to be
on responding promptly to changing trends
and customer demand. We will continue
to monitor changes in consumer demand
across categories where our brands have
a very strong, differentiated offering.
20
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk CONSUMER CREDIT
Our credit proposition has remained a key differentiator this year, providing convenient
financial services to customers and giving them access to fantastic products across
our portfolio of brands. Our credit customers remain our most loyal customers
who not only shop more frequently but also score the highest when it comes to
customer satisfaction.
As our retail brands refine their propositions
in line with the Group strategy, our financial
services offering is being updated to
appeal to more affluent consumers,
whilst continuing to champion inclusion
by offering affordable credit to customers
who are underserved by the mainstream
credit market. The new financial services
platform is the strategic enabler for our future
credit proposition and we have made good
progress this year to move towards delivery,
adopting a more agile approach to release
early value where possible.
Prior to the financial services platform being
delivered, we have launched an improved
0% interest for 6 months promotional offer
for new customers. As the credit market
recovers from the impact of the pandemic,
where record levels of balance repayments
were seen across the industry, this offer
has helped to drive new credit customer
acquisition and sales.
Throughout the year we continued to
provide support to customers impacted
by the Covid-19 pandemic as we reached
the end of the FCA’s specific Covid-19
forbearance and the Government furlough
scheme. Customers received the tailored
support they needed and all customers
have now exited Covid-19 forbearance.
In general our customers have been able to
handle the uncertain Covid-19 situation well,
with overall levels of financial difficulty at
relative lows and good customer outcomes
being achieved. We recognise the current
cost pressures facing consumers and
are committed to serve customers’ needs
through this time whilst continuing to act as
a responsible lender.
We have continued to develop and
enhance our use of other sources of data
and analytical tools and techniques to drive
better decisions that bring commercial value
and drive better outcomes for customers.
DataRobot is a cloud based AI platform
on which we have successfully deployed
machine learning models to optimise
initial credit limits and reduce instances
of first payment defaults. We see further
opportunities in this area to help drive
incremental improvement in the new
financial year.
MARKETPLACE OUTLOOK
Our success as a business is determined
by demand for our products, which
stems from consumer confidence, our
ability to benefit and service that demand
by cultivating brands that resonate,
products that stand out, and a strong
digital customer experience supported
by the convenience of our Financial
Services offer.
The latest GfK Consumer Confidence
Index shows a decline in the Overall
Index Score in early 2022 to -38 at April.
This followed an overall improvement
during 2021, albeit with some
reduction in the latter part of the year.
We recognise that there are currently
elevated fears about the impact of price
rises including food, fuel and utilities,
as well as increased taxation and
interest rates, and these are impacting
consumer confidence.
A lack of restrictions and further return
to normality following a volatile and
uncertain two years means that there
is an opportunity for clothing and
particularly categories which have been
suppressed to further rebound, such
as holiday apparel and occasionwear.
Our ability to pivot our different brands
into product categories to meet consumer
demand, alongside our flexible credit
offer and targeted increases in marketing
investment, is key to supporting our
overall strategy to ensure sustainable
long-term growth.
21
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk BUSINESS MODEL
CREATING SUSTAINABLE VALUE
INPUTS
OUR RESOURCES
WHAT MAKES US DIFFERENT?
COLLEAGUES
Without our colleagues
and their relentless energy,
enthusiasm and passion we
couldn’t do what we do.
BRANDS
We operate distinct retail
brands selling Clothing and
Footwear and Home and Gift.
UNDERSERVED
MARKET FOCUS
PRODUCT
Delivering product which truly
resonates with our customers in
perfect fitting styles.
REPUTATION
We believe we should be a
major force for good in fashion.
It’s a huge responsibility, and a
purpose way beyond profit.
DISTINCT BRAND PORTFOLIO
FINANCE
Our customers can either pay us immediately or make purchases
on credit, thereby spreading the cost and allowing them to
budget appropriately.
GREAT PRODUCT
DIGITAL CAPABILITIES
CONVENIENCE OF FINANCIAL
SERVICES OFFER
OUR RELATIONSHIPS
CUSTOMERS
We are proud to make
great products which our
customers love. We exist to
make our customers look and
feel amazing.
SUPPLIERS
We work collaboratively with
our suppliers across the world
to ensure that we can serve
our customers by delivering
key products and trends at the
right time.
REGULATORS
We work effectively with
all our regulators to ensure
that our customers receive
good outcomes.
COMMUNITIES
We support the local
communities in which we
operate and encourage
our colleagues to play a
positive role within their
local community.
FINANCING
We maintain strong relationships with supporting securitisation
and other banking partners to ensure that the Group is
appropriately financed.
SHAREHOLDERS
We work to deliver long-term sustainable value for our shareholders.
OUR VALUES UNDERPIN
EVERYTHING WE DO
TOGETHER FOR
THE CUSTOMER
DRIVEN BY
CURIOSITY
22
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk WHAT WE DO
WE EXIST TO MAKE OUR CUSTOMERS LOOK
AND FEEL AMAZING, AND CREATE A PLATFORM
FOR SUSTAINABLE GROWTH
SOURCE,
DESIGN AND
CREATE PRODUCTS
DATA
FEEDBACK
SELL OWN AND
THIRD-PARTY
BRANDS THROUGH
INTEGRATED
PAYMENT OPTIONS
DELIVERY
AND
RETURNS
EMPOWERED
BY TRUST
MOTIVATED
BY PACE
THE VALUE WE CREATE
FINANCIAL
£19.8M
Reinvested for long-term growth1
£22.4M
Net cash generation2
NON-FINANCIAL
42.9%
Female Executive Board representation
(including CFO)
£100,000
Fundraising target achieved3
1
2
Capital expenditure, i.e. cashflows relating
to the purchase of intangible assets and
property, plant and equipment.
Net cash generated from the Group’s
underlying operating activities.
A reconciliation of statutory underlining
measures to adjusted measures is included
on p25.
3 Fundraising target achieved with charity
partner Maggies.
23
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk RECONCILATION OF
STATUTORY FINANCIAL RESULTS
TO ADJUSTED RESULTS
The Annual Report and Accounts includes
alternative performance measures (“APMs”),
which are not defined or specified under
the requirements of IFRS. These APMs
are consistent with how we measure
performance internally and are also used in
assessing performance under our incentive
plans. Therefore, the Directors believe
that these APMs provide stakeholders
with additional, useful information on the
Group’s performance.
The adjusted figures are presented before the
impact of exceptional items. Exceptional items
are items of income and expenditure which
are one-off in nature and are material to the
current financial year or represent true ups
to items presented as exceptional in prior
periods. These are detailed in note 6.
FINANCIAL PERFORMANCE
FINANCIAL KPIs
Our non-financial KPIs are contained in the Chief Executive Officer’s
statement. We also use a number of financial KPIs to manage the business.
These are shown below and will continue to be reported going forwards.
PRODUCT REVENUE
ADJUSTED EBITDA1,2
£465.6m
Change: (0.6)%
£95.0m
Change: 11.9%
FY22
FY21
£465.6m
£468.4m
FY22
FY21
£95.0m
£84.9m
ADJUSTED EBITDA MARGIN1,2
ADJUSTED OPERATING COSTS
TO GROUP REVENUE1,2
13.3%
Change: 1.7ppts
FY22
FY21
13.3%
11.6%
36.0%
Change: (3.3)ppts
FY22
FY21
36.0%
32.7%
UNSECURED NET CASH1,3
ADJUSTED EPS1,2
£43.1m
Change: (46.7)%
7.69p
Change: (0.9)%
FY22
FY21
£43.1m
£80.8m
FY22
FY21
7.69p
7.76p
STATUTORY PROFIT BEFORE TAX
£19.2m
Change: 108.7%
FY22
FY21
£19.2m
£9.2m
1 A full glossary of Alternative Performance Measures and their definitions is included on page 31.
2 Refer to change in accounting policy prior year adjustment note 32.
3 During FY22 we agreed with our banks that the securitisation facility does not need to be fully drawn and
that surplus cash can be used to repay drawings from time to time. FY22 excludes accessible amounts
voluntarily undrawn against the securitisation facility of £60.1m.
24
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk RECONCILIATION OF INCOME STATEMENT MEASURES
52 weeks to 26 February 2022
52 weeks to 27 February 2021
Product Revenue
Financial services Revenue
Group Revenue
Product Cost of sales
Financial services Cost of sales
Group Cost of sales
Gross profit
Gross margin – Group
Gross margin – Product
Gross margin – Financial Services
Warehouse & fulfilment
Marketing & production
Other admin & payroll
Operating costs
Adjusted operating costs to Group revenue ratio
Adjusted EBITDA
Adjusted EBITDA margin
Depreciation & amortisation
Operating Profit
Finance costs
Profit before taxation and fair value adjustment to
financial instruments
Fair value adjustments to financial instruments
Profit before taxation
Taxation
Profit for the year
Earnings per share
Exceptional
items
28.7
28.7
28.7
28.7
28.7
(5.7)
23.0
Statutory
465.6
250.1
715.7
(267.3)
(95.5)
(362.8)
352.9
49.3%
42.6%
61.8%
(67.9)
(73.1)
(145.6)
(286.6)
(38.1)
28.2
(13.8)
14.4
4.8
19.2
(3.0)
16.2
3.53p
Adjusted
465.6
250.1
715.7
(267.3)
(95.5)
(362.8)
352.9
49.3%
42.6%
61.6%
(67.9)
(73.1)
(116.9)
(257.2)
36.0%
95.0
13.3%
(38.1)
56.9
(13.8)
43.1
4.8
47.9
(8.7)
39.2
Statutory
(Restated)1
468.4
260.4
728.8
(265.4)
(141.0)
(406.4)
322.4
44.2%
43.3%
45.9%
(64.8)
(60.3)
(124.0)
(249.1)
(38.9)
34.4
(16.6)
17.8
(8.6)
9.2
(1.3)
7.9
7.69p
2.50p
Exceptional
items
1.1
1.1
1.1
10.5
10.5
11.6
11.6
(1.4)
10.2
(1.7)
8.5
Adjusted
(Restated)1
468.4
260.4
728.8
(264.3)
(141.0)
(405.3)
323.5
44.4%
43.6%
45.9%
(64.8)
(60.3)
(113.5)
(238.6)
32.7%
84.9
11.6%
(38.9)
46.0
(16.6)
29.4
(10.0)
19.4
(3.0)
16.4
7.76p
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND BANK OVERDRAFTS TO UNSECURED
NET CASH AND ADJUSTED NET DEBT
£m
Cash and cash equivalents
Bank overdrafts
Unsecured debt
Unsecured Net Cash2
Bank loans
Adjusted Net Debt
FY22
43.1
–
–
43.1
FY21
94.9
(14.1)
–
80.8
(302.5)
(259.4)
(381.9)
(301.1)
RECONCILIATION OF NET MOVEMENT IN CASH AND CASH EQUIVALENTS AND BANK OVERDRAFTS
TO NET CASH GENERATION
£m
Net (decrease)/increase in cash and cash equivalents and bank overdraft
Voluntary flexible repayment of securitisation loan
Repayment of unsecured loan
Proceeds on issue of Share Capital
Transaction costs relating to the issue of share capital
Net cash generation
FY22
(37.7)
60.1
–
–
–
22.4
FY21
33.3
–
125
(99.6)
6.1
64.9
1 FY21 restated to reflect the impact of accounting policy change in relation to Software as a Service including minor reductions against
the reported level of each of Adjusted and Statutory PBT (£0.7m) and to Adjusted EBITDA (£1.6m) (refer to note 32).
2 FY22 excludes accessible amounts voluntarily undrawn against the securitisation facility of £60.1m.
25
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk FINANCIAL PERFORMANCE CONTINUED
REVIEW OF THE YEAR
“ We have benefited from our flexible
business model, responding to the continued
market volatility and delivering a return to growth
in strategic brands product revenue, adjusted
EBITDA £95.0m in line with narrowed guidance
and statutory profit before tax of £19.2m.”
Rachel Izzard
Chief Financial
Officer
“This was in the context of a year of
low levels of consumer credit default,
as our customers transitioned through
the pandemic.
Our continued cash generation and
robust balance sheet means we are
well positioned to execute on our strategy.”
REVENUE
Group revenue declined 1.8% to £715.7m,
as a result of a 0.6% decline in total Product
revenue and a 4.0% decline in Financial
Services revenue, each reflecting an
improvement in trajectory over prior year, as
shown in the revenue trends graphs below.
Excluding the impact from the closure of
Figleaves, underlying product revenue grew
by 4% with the growth in strategic brands
offset by the managed decline of other brands.
Looking ahead, the Figleaves closure will no
longer cause a drag on revenue.
The return to growth in strategic brands’
product revenue, up 9.9% against last year,
has been supported by our strategic changes
including the quality of our product proposition,
our return to targeted marketing investment,
and the flexibility of the business model.
This has allowed us to cater for a resurgence
in demand for Clothing and Footwear whilst
we have seen a tempering in pandemic-driven
demand for Home and Gift. Strong stock and
range planning allowed customer needs to be
met, including during peak trading, despite the
ongoing supply chain challenges.
The Group’s total active customers are now
in year-on-year growth for the first time in four
years, closing up 4% at 2.9m as more people
discover the N Brown brands. This positions
us well for the future whilst we remain
cognisant of the inflationary driven headwinds
on consumer spending.
Clothing and Footwear mix increased during
the year from 59% of product revenue in
FY21 to 66% in FY22. With the pivot back
into Clothing and Footwear, customer returns
rates increased by 4.5ppts against the prior
year. Returns rates were 4.3ppts below
pre-pandemic levels, inclusive of both mix
and underlying like for like improvement.
We expect to see further normalisation of
returns in H1 FY23 due to product mix.
We have continued to see over 80% of
product revenue coming from credit accounts.
The customer gross receivables book
opened the year at 8% down on the prior
year following lower retail sales in FY21.
It ended the year 4.7% down on prior year as
new sales and low write off levels more than
offset higher than normal repayment rates.
This resulted in a 4% reduction in Financial
Services revenue, an improving trajectory
versus prior year.
REVENUE
£m
Strategic Brands1,2
Other Brands1,3
Total Product revenue
Financial Services revenue
Group revenue
FY22
381.2
84.4
465.6
250.1
715.7
FY21
(Re-presented)1
347.0
121.4
468.4
260.4
728.8
Change
9.9%
(30.5)%
(0.6)%
(4.0)%
(1.8)%
1 FY21 split between Strategic and Other brands has been re-presented to correctly allocate bad debt
relief. There is no impact on Total product revenue or Group revenue.
2 JD Williams, Simply Be, Ambrose Wilson, Jacamo and Home Essentials.
3 Other brands are Fashion World, Marisota, Oxendales and Premier Man. High & Mighty,
House of Bath and Figleaves were closed in FY21.
FY21 AND FY22 REVENUE TRENDS
STRATEGIC
BRANDS
PRODUCT
9.9%
-6.9%
FY22 v FY21
FY21 v FY20
-0.6%
FY22 v FY21
-14.4%
FY21 v FY20
PRODUCT MIX
Clothing and footwear
FY22
FY21
FY20
26
Home
TOTAL 100%
66%
59%
71%
34%
41%
29%
FINANCIAL
SERVICES
-4.0%
FY22 v FY21
-10.4%
FY21 v FY20
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk
At the end of FY21, the forward
macroeconomic indicators were suggesting
an increase in the level of customer defaults
compared to the decrease we have
subsequently experienced. Of the £15.4m
additional IFRS 9 provision made at the end
of FY21, £13.7m was released in the year.
During the year we have seen abnormally
low write off levels, net of recoveries £14.2m
lower than prior year. At the end of FY22,
in assessing future expected credit losses
considering the macro inflationary risk on
consumers, we have set aside an additional
provision of £5.8m. We expect Financial
Services gross margin to normalise to a
low to mid 50s percent range.
ADJUSTED GROSS PROFIT
The Group’s adjusted gross profit margin was
higher at 49.3%, compared to 44.4% in FY21.
Product gross margin declined 1.0ppts to
42.6% primarily as a result of inflationary
pressures in freight rates and a high level
of discounting due to the competitive and
promotional environment. The pressures on
Product gross margin were partially offset
by growth in the higher margin Clothing and
Footwear category and price increases which
were made to partially mitigate the impact
of freight rates. We also entered into FX
contracts to hedge against US Dollar spend
as described in Note 19.
Financial Services gross margin was 61.8%
in FY22, 15.9ppts higher than FY21, and
c10ppts higher than normalised levels.
This was a result of unprecedented conditions
within the consumer credit market, with
government support during the first part
of the Covid-19 pandemic resulting in high
repayment rates, low arrears rates, and
consequently a net reduction in the IFRS 9
bad debt provision compared to the position
last year.
ADJUSTED GROSS PROFIT1
£m
Product gross profit
Product gross margin %
Financial services gross profit
Financial services gross margin %
Adjusted Group gross profit1
Adjusted Group gross profit margin
FY22
198.3
42.6%
154.6
61.8%
352.9
49.3%
FY21
204.1
43.6%
119.4
45.9%
323.5
44.4%
Change
(2.8)%
(1.0)ppts
29.5%
15.9ppts
(9.1)%
4.9ppts
1 A reconciliation of statutory measures to adjusted measures is included on page 25. A full glossary of
Alternative Performance Measures and their definitions is included on page 31.
OPERATING COSTS
At the start of the pandemic in early FY21, we
took rapid action to significantly reduce costs.
Marketing expenditure was reduced through
both efficiencies and temporary reduction in
brand marketing. Conversely, in FY22, we
saw increases in the cost base as we invested
in targeted marketing to support our strategic
brands and reach a broader set of customers.
As a result we have seen an increase in
adjusted operating costs of 8.1% against the
prior year. Statutory operating costs including
exceptional items increased by 15.1%.
Marketing costs increased by 21.2% year
on year to £73.1m, reflecting a return to
investing in this area following the immediate
and sharp reduction in marketing spend
in FY21. The FY22 spend includes a £6m
increase in above-the-line activity to drive
brand awareness on strategic brands.
Our new in-house photographic studio, which
drives improvements in how our brands are
presented, has also driven cost efficiencies in
the year. FY22 marketing costs were 46.3%
below the pre Covid-19 pandemic level in
FY20 of £136.0m.
Across warehouse and fulfilment, and admin
and payroll, we have annualised against an
FY21 credit of c.£3.8m in furlough support
from the Government which allowed us to
preserve a significant number of jobs for our
colleagues and work through the challenges
that Covid-19 presented for our business.
ADJUSTED OPERATING COSTS TO
GROUP REVENUE1,2
36.0%
FY22
FY212
FY20
FY19
FY18
36.0%
32.7%
39.8%
40%
42%
1 A reconciliation of statutory measures to
adjusted measures is included on page 25.
A full glossary of Alternative Performance
Measures and their definitions is included
on page 31.
2 Refer to change in accounting policy prior
year adjustment note 32.
27
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk FINANCIAL PERFORMANCE CONTINUED
EXCEPTIONAL ITEMS
The Group is involved in a legal dispute with
Allianz. More details of the Allianz claim and
the JDW counterclaims and defence are set
out in note 22. The eventual financial outcome
of the dispute is highly uncertain for both
parties. We believe that it remains in the best
interest for the parties to settle the dispute and
an accounting provision of £28m has been
made to cover settlement, or award at trial,
plus future legal costs.
The Group has now reached agreement with
HMRC over a number of historical VAT and
other tax matters, and the release of £1.2m in
the period relates to opening provisions that
are no longer required.
Warehouse and fulfilment costs were 4.8%
higher year on year, due to 6% in items
shipped to drive product revenue of -1%
including through an increase in returns rates.
Admin and payroll costs increased by 3.0%,
driven predominantly by annualising against
the Covid-19 actions taken in the prior
year. As accounting standards and delivery
methods develop, a proportionally higher level
of investment is being expensed rather than
capitalised. We have continued to seek further
cost efficiencies including achieving savings
within our contact centre approach and
property estate during the year.
Overall, adjusted operating costs as a
percentage of Group revenue increased from
32.7% in FY21 to 36.0% in FY22 but remains
significantly below pre Covid-19 pandemic
levels. We expect this ratio to increase in FY23
through inflationary increases in the cost base
and maintaining strategic brand investment.
We will action pricing increases in response
to the higher cost environment.
PROFIT AND EARNINGS
PER SHARE
Driven by the growth in gross profit, adjusted
EBITDA increased by £10.1m to £95.0m and
adjusted EBITDA margin increased by 1.7ppts
to 13.3%.
Depreciation and amortisation was £38.1m,
slightly below the £38.9m in the prior year.
The prior year has been restated to reflect
the non-cash impact of accounting policy
changes in relation to Software as a Service
(see Note 32).
Statutory operating profit decreased by
£6.2m over prior year to £28.2m reflecting the
increase in Adjusted EBITDA and the higher
exceptional items.
Net finance costs were £13.8m, a decrease of
£2.8m compared to last year primarily driven
by the lower net debt and enabled by the
newly introduced flexibility to voluntarily under-
draw on the securitisation facility. The Group
has also limited its exposure to interest rate
movements through entering into interest rate
hedging, as described in Note 19.
Adjusted profit before tax was £43.1m, up
£13.7m year on year (FY21 restated: £29.4m)
as a result of higher gross profit, and reduced
depreciation and amortisation.
ADJUSTED OPERATING COSTS1,2
£m
Warehouse and fulfilment costs
Marketing and production costs
Admin and payroll costs
Adjusted operating costs1
Adjusted operating costs1 as a % of Group Revenue
FY22
(67.9)
(73.1)
(116.9)
(257.9)
36.0%
FY212
(64.8)
(60.3)
(113.5)
(238.6)
32.7%
Change
(4.8)%
(21.2)%
(3.0)%
(8.1)%
(3.3)ppts
1 A reconciliation of statutory measures to adjusted measures is included on page 25.
A full glossary of Alternative Performance Measures and their definitions is included on page 31.
2 Refer to change in accounting policy prior year adjustment note 32.
EXCEPTIONAL ITEMS
£m
Allianz litigation
Tax matters
Strategic change
Other legacy matters
Items charged to profit before tax
28
FY22
29.8
(1.2)
(0.1)
0.2
28.7
FY21
1.1
1.0
7.9
0.2
10.2
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk Statutory profit before tax was £19.2m, up
£10.0m year on year (FY21 restated: £9.2m)
which includes a £13.4m improvement in fair
value adjustments to financial instruments.
In FY21, sterling weakened through the year
resulting in a mark to market loss on our
US$ hedges of £10.0m, we also proactively
settled certain derivatives that were no longer
required due to the sharp decline in product
purchases at the onset of the pandemic,
realising an exceptional gain of £1.4m.
In FY22, conversely, sterling strengthened
resulting in a mark to market gain of £4.8m.
The taxation charge for the period is based
on the underlying estimated effective tax
rate for the full year of 16%. The effective
taxation charge for the year is lower than
the corporation tax rate of 19% as the
Group expects to take advantage of Super
Deductions on qualifying fixed assets, the
benefit of which is partially offset by the
effects of an increase in deferred tax to 25%.
Further tax analysis is contained in note 9.
Statutory earnings per share increased
to 3.53p (FY21 restated: 2.50p).
Adjusted earnings per share decreased to
7.69p (FY21 restated: 7.76p). This reduction is
inclusive of the 46% increase in the weighted
average number of shares following the equity
raise in December 2020. Further details can
be found in note 11 on p125.
FINANCIAL SERVICES CUSTOMER
RECEIVABLES AND IMPAIRMENT
Gross customer trade receivables at year
end reduced by 4.7% to £577.2m, with the
level of contraction reducing through the
year. This reflected a combination of current
year credit sales and low levels of write
offs, offset by higher than normal levels of
customer repayments.
As covered in the gross margin commentary,
we saw unprecedented conditions within the
consumer credit market, resulting in low levels
of arrears, particularly in H1, then a degree
of normalisation through H2 with year end
arrears increasing by 0.5ppts to 8.4% as the
Government pandemic support was removed.
The IFRS9 bad debt provision to gross
receivable balance ratio has reduced to
11.9% from 14.1% in FY21. The FY21 level
was inclusive of £15.4m (2.5ppts) to cover
future Covid-19 default risks. Of this, £1.6m
was utilised and £13.7m was not required
and released in the year. The FY22 provision
ratio includes a £5.8m (1.0ppts) provision for
the new macro risk of inflationary pressures.
The FY22 ratio of 11.9% therefore remains
above the pre Covid-19 level reported in
FY20 (10.9%).
FUNDING AND TOTAL
ACCESSIBLE LIQUIDITY (“TAL”)
During the year, we right-sized the
securitisation facility to £400m to better
reflect the size of the debtor book and reduce
ongoing fees, and introduced flexibility in the
levels of drawdown to deliver greater balance
sheet efficiency and interest savings. We now
have the following arrangements in place with
our lenders:
A £400m securitisation facility (FY21: £500m)
committed until December 2024, extended
from December 2023, drawings on which
are linked to prevailing levels of eligible
receivables but with flexibility around the level
which the Company chooses to draw;
A RCF of £100m committed until December
2023, which was fully undrawn at the year
end; and
An overdraft facility of £12.5m which is subject
to an annual review every July, which was fully
undrawn at the year end.
At the end of FY22 the Group had TAL of
£212.1m (FY21: £184.8m), comprising £43.1m
of cash, net of restricted cash of £3.6m,
£60.1m voluntarily undrawn against the
securitisation facility, the fully undrawn RCF
of £100m and overdraft facility of £12.5m.
FINANCIAL SERVICES CUSTOMER RECEIVABLES AND IMPAIRMENT
£m
Gross customer loan balances
IFRS 9 provision
Normal account provisions
Payment arrangement provisions
Inflationary/Covid-19 impacts
IFRS 9 provision ratio
Net Customer Loan Balances
FY22
577.2
(68.7)
(58.1)
(4.8)
(5.8)
11.9%
508.5
FY21
605.8
(85.2)
(60.9)
(8.8)
(15.4)
14.1%
520.6
Change
(4.7)%
(19.3)%
- ppts
+0.6ppts
+1.5ppts
+2.2ppts
(2.4)%
The profit and loss net impairment charge for FY22 was £94.4m, £44.7m lower than last year
due to the benefit from annualising against the Covid-19 model overlay, the release of Covid-19
provisions not utilised or required in the year and lower write-offs in FY22, as shown below.
£m
FY21 net impairment charge
Under IFRS 9, in FY21 we provided an extra £15.4m for expected future
credit losses as a result of the economic impacts of Covid-19
Release of FY21 provisions not required
Under IFRS 9, in FY22 we have provided an extra £5.8m for expected
future credit losses driven by inflationary pressures
Lower write-offs net of recoveries than prior year
Lower customer receivables
Model refinements and other adjustments
FY22 net impairment charge
139.1
(15.4)
(13.7)
5.8
(14.2)
(4.3)
(2.9)
94.4
29
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk FINANCIAL PERFORMANCE CONTINUED
Following a significant reduction in net debt in
the prior year, this was further reduced during
the year through cash generation and the
reduction in the debtor book.
Adjusted net debt decreased by £41.7m in the
year, to £259.4m (FY21: £301.1m). This is the
net amount of £43.1m of cash and £302.5m of
debt drawn against the securitisation funding
facility which is backed by eligible customer
receivables. The £508.5m net customer loan
book significantly exceeds this adjusted net
debt figure.
DIVIDEND AND CAPITAL
ALLOCATION
We have a clear set of investment plans and
a number of competing demands on our
cash resources. Nevertheless, the Directors
recognise that dividends are an important
part of shareholders’ returns and the Board
will consider the reintroduction of a dividend
in FY23.
PENSION SCHEME
The Group’s defined benefit pension
scheme had a surplus of £37.4m at year
end, which ha increased over the prior year
(FY21: £25.5m). This reflects an actuarial gain
on the scheme liabilities due to an increase
in both the discount rate, reflecting higher
corporate bond yields, and an increase in
future inflation assumptions. The assets have
increased due to the continued payment of
the employer contributions and improved
investment returns.
CASH FLOW AND INVENTORY
Net cash decreased in the year by £37.7m
compared to an increase of £158.4m in the
prior year. Excluding voluntary repayment of
the securitisation facility of £60.1m this year
and the £93.5m equity raise net proceeds
in the prior year, net cash generated from
operations was £22.4m (FY21: £64.9m).
This represents continued strong cash
generation in the year, annualising against the
onset of Covid-19, when cash was particularly
tightly managed.
Capital expenditure of £19.8m (FY21: £18.4m)
was consistent with last year’s level and
we expect strategic investment to step-up
in FY23.
Net inventory levels at the year end were up
12.4%, to £87.3m (FY21: £77.7m). This reflects
normalisation following the significant
reduction which took place in the prior year as
well as the significant increase in freight rates
which increased the landed cost of our stock.
We have entered FY23 with what we consider
to be an appropriate level of inventory, with
the product mix focused on new season stock
which has increased by approximately £17m,
whilst last and previous season stock has
reduced by approximately £9m.
ADJUSTED NET DEBT
Unsecured net cash / (debt), which is
defined as the amount drawn on the Group’s
unsecured borrowing facilities less cash
balances, closed the year with unsecured
net cash of £43.1m (FY21: unsecured net
cash £80.8m). The reduction over the prior
year reflects the voluntary repayment of
£60.1m on the securitisation funding facility
to deliver greater balance sheet efficiency
and interest savings.
FINANCIAL RISK MANAGEMENT
AND PROCESSES
We continue to make progress on our
Financial Risk Management capability through
our Finance Risk Management Committee.
During the year, we also improved our
financial processes and controls. Due to the
longstanding legacy systems and processes
across the Group, we are targeting further
improvements in documentation, clarity on
specific key controls, and overall process level
controls to reduce the reliance on detective
management level controls. This feeds into the
Audit and Risk Committee focus on improving
controls described on p69. Examples of
improvements already deployed include the
introduction of interest rate hedging policy
which has significantly reduced our exposure
to future interest rate changes, as well as
practical enhancements to our supplier
statement reconciliations.
With the updated IFRIC guidance issued
on accounting for SAAS, we performed an
in-depth review of our historic technology
investment spend. This resulted in a prior
year adjustment due to the change in
accounting policy as disclosed in note 19.
This change in accounting policy combined
with our increasing use of agile technology
development is likely to result in a greater
proportion of or investment spend being
charged to operating expenses versus
historically what would have been capitalised
as an intangible asset.
During the year we welcomed a letter from
the Corporate Reporting Review team of the
FRC in relation to the Group’s FY21 Annual
Report and Accounts, referenced in full in the
Audit and Risk Committee report on p68 .
This provided helpful feedback. No substantial
issues were identified, and recommendations
on improvements in disclosures have been
incorporated in this Annual Report.
NET CASH GENERATION
£m
Adjusted EBITDA
Inventory working capital movement
Other working capital and operating cashflows
Customer loan book IFRS 9 provision movement
Cash flow adjusted for working capital
Exceptional items
Capital investing activities
Non-operating tax and treasury
Interest paid
Non-operational cash outflows
Gross customer loan book repayments
Decrease in securitisation debt in line with customer loan book
Net cash inflow from the customer loan book
Net cash generation
30
FY22
95.0
(9.6)
(5.3)
(16.5)
63.6
(9.8)
(19.8)
(7.2)
(13.8)
(50.6)
28.6
(19.3)
9.4
22.4
FY21
(Restated)1
84.9
17.0
2.5
13.5
117.9
(16.4)
(18.4)
(12.4)
(19.0)
(66.2)
51.0
(37.8)
13.2
64.9
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk APM GLOSSARY
The Annual Report and Accounts includes alternative performance measures (“APMs”), which are not defined or specified under the requirements
of IFRS. These APMs are consistent with how the Group measures performance internally and are also used in assessing performance under
the Group’s incentive plans. Therefore, the Directors believe that these APMs provide stakeholders with additional, useful information on the
Group’s performance.
ALTERNATIVE PERFORMANCE MEASURE
DEFINITION
Adjusted gross profit
Gross profit excluding exceptional items.
Adjusted gross profit margin
Adjusted gross profit as a percentage of Group Revenue.
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted profit before tax
Adjusted profit
before tax margin
Net Cash generation
Adjusted operating costs
Adjusted operating costs
to Group revenue ratio
Adjusted net debt
Net debt
Unsecured net cash / debt
Total Accessible Liquidity
Adjusted Earnings Per Share
Operating profit, excluding exceptional items, with depreciation and amortisation
added back.
Adjusted EBITDA as a percentage of Group revenue.
Profit before tax, excluding exceptionals items and fair value movement on
financial instruments.
Profit before tax, excluding exceptional items and fair value movement on financial
instruments, expressed as a percentage of Group Revenue.
Net cash generated from the Group’s underlying operating activities.
Operating costs less depreciation, amortisation and exceptional items.
Operating costs less depreciation, amortisation and exceptional items as a
percentage of Group revenue.
Total liabilities from financing activities less cash, excluding lease liabilities.
Total liabilities from financing activities less cash.
Amount drawn on the Group’s unsecured debt facilities less cash balances.
This measure is used to calculate the Group’s leverage ratio, a key debt
covenant measure.
Total cash and cash equivalents, less restricted amounts, and available headroom on
secured and unsecured debt facilities.
Adjusted earnings per share based on earnings before exceptional items and fair value
adjustments, which are those items that do not form part of the recurring operational
activities of the Group. These are calculated in note 11.
The reconciliation of the statutory measures to adjusted measures is included in the CFO report on page 25.
31
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk
RISK MANAGEMENT
PROTECTING THE INTEGRITY OF OUR BUSINESS STRATEGY
ENTERPRISE RISK MANAGEMENT FRAMEWORK
During the year, we continued to enhance our
risk management practices and to strengthen
the N Brown Enterprise Risk Management
Framework (“RMF”). The RMF enables
us to maintain robust governance over risk
management activities across the business
to underpin a standardised approach to
managing risks.
In the first half of the year, the RMF was
delivered by a project team before we
transitioned to a dedicated Second Line
team that will continue to work with the
business to develop and embed risk
management excellence.
RISK
STRATEGY AND
GOVERNANCE
RISK APPETITE
Statements
Metrics
Reporting
RISK MANAGEMENT PROCESS
Identify
and Assess
Manage
Monitor
and Report
Principal Risks, Internal
& External threats and
5x5 Matrix
Treat, Transfer,
Accept and Avoid
Key Control testing, Functional
Management Reporting and
Operating Board Reporting
SKILLS AND
CAPABILITIES
RESOURCES
RISK
CULTURE
POLICIES, STANDARDS AND PROCEDURES
RISK IDENTIFICATION
AND ASSESSMENT
We have identified a number of Principal Risk
Categories with the potential to impact on our
performance and delivery of our strategy.
Our risk categories – which are listed on p33 –
are all supported by policies, appetite metrics
and key risk indicators.
The Board of Directors maintains a
continuous process for identifying, evaluating
and managing risk as part of its overall
responsibility for maintaining internal controls
and the RMF. This process is intended to
provide reasonable assurance regarding
compliance with laws and regulations as well
as commercial and operational risks.
Informed by risk assessments at business
unit level, Board-level risk assessment
cycles are completed during the year to help
review and identify existing and emerging
risks. Outputs are reported to the Audit and
Risk Committee.
In setting strategy, the Board considers
Environmental, Social and Governance
(“ESG”) factors, drivers and impacts on the
health and sustainability of the business.
The Group recognises this as an emerging
risk, particularly in the short-medium term, our
approach to monitoring and managing this is
outlined in our SUSTAIN section.
The broad aim of our risk strategy is to deliver
long-term sustainable business management.
Our RMF has been established to provide an
overview of strategic risk and incorporates
assessments of risks that have the potential
to create ESG exposures. These are reported
through the governance framework and
managed accordingly.
The Principal Risk Categories are detailed
on p34-37.
Control enhancements are identified
routinely and on a continuous basis as we
test controls, review operational issues and
perform assurance activities. The Group
recognises that no system of controls can
provide absolute assurance against material
misstatement, loss or failure to meet its
business objectives.
INTEGRATED ASSURANCE
We have continued to invest in risk
management capability and capacity across
the three lines of defence:
1st Line: Takes and manages risks.
Understands and assesses risks and
implements appropriate, effective controls
to ensure risks remain within appetite.
This results in a well-managed and
compliant business.
2nd Line: Designs, facilitates and monitors the
implementation of effective risk management
practices throughout the organisation, assisting
risk owners in defining target risk exposure and
providing adequate risk reporting.
3rd Line: Provides independent assurance
of the Group’s internal control environment.
Reviews the key controls within operational
processes and the risk management
32
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk RISK MANAGEMENT TEAM
N BROWN GROUP PLC BOARD
Owns the Risk Management Framework
BOARD AND COMMITTEES’
DIVISION OF
RESPONSIBILITIES
62
AUDIT AND RISK COMMITTEE AND FSB BOARD COMMITTEE
Board sub-committees responsible for risk oversight
Establish and monitor risk appetite on behalf of the Board
FSB has specific responsibility for identifying and assessing risk to the Financial Services business
AUDIT AND RISK
COMMITTEE REPORT
68
EXECUTIVE BOARD (JD WILLIAMS & CO LTD, FRN 133618)
RETAIL OPERATING COMMITTEE AND FINANCIAL SERVICES OPERATING COMMITTEE
Responsible for oversight of risk management across the business
FCA regulated entity - SMF’s oversee, challenge and assure their responsibilities
Sub committees – mechanism by which SMF’s oversee, challenge and assure
RETAIL AND FINANCIAL SERVICES
RISK MANAGEMENT TEAM
FIRST LINE OF DEFENCE
SECOND LINE OF DEFENCE
Responsible for taking and managing risk
Facilitates effective implementation and oversight of RMF
Provides second-line assurance
Reports to the Executive Board, Audit and Risk Committee and
Financial Services Board Committee
GROUP INTERNAL AUDIT
THIRD LINE OF DEFENCE
Provides 3rd line assurance
Reports to the Audit and Risk Committee
SEE MORE ABOUT OUR
GROUP INTERNAL AUDIT
70
framework. Looks to confirm that effective
governance is in place to manage the
Group’s risks.
Outputs from assurance activities
are reported through the Group’s
governance structure.
RISK APPETITE
Risk appetite defines the level of risk
that the Group is prepared to accept in
pursuit of strategic objectives and aims
to determine guardrails within which the
Board expects management to operate.
Risk appetite formalisation is an iterative
process and needs be refreshed at least
annually to reflect changes in our internal and
external environment.
The Group’s appetite for risk is defined with
reference to the expectations of the Board
regarding both commercial opportunity and
internal control and is used to inform the
prioritisation of our annual Internal Audit plan.
Appetite levels and statements are contained
within the Group’s Risk Policies alongside the
requirements for the management of each of
those risks.
The Board accepts that, in order to achieve
its strategic objectives and generate suitable
returns for shareholders, it must accept and
manage a certain level of risk. Risk appetite is
set across the principal risk categories through
high-level risk statements underpinned
by detailed Key Risk Indicators, which are
regularly reported to the Board. The resulting
assessment of risk appetite shows higher
appetite in categories such as Strategic
Risk and Change Risk to enable growth and
business development balanced by lower
appetite in categories such as Regulatory Risk
and Financial Crime, reflecting the Group’s
responsibilities as a regulated entity.
Executive Management determines the
Group’s risk appetite statements and tolerance
levels for key risk appetite themes across the
Group. The Board is responsible for approving
the proposed risk appetite in line with its
expectations on risk taking.
Individual functional leadership teams and
colleagues are expected to operate within
the risk appetite boundaries approved by the
Board and to escalate any exceptions via KRI
reporting. The formalisation of risk appetite
allows the Board and Executive Management
team to:
Better formulate and communicate a clear
Board-level direction on acceptable levels
of risk.
Implement a mechanism to monitor risk areas
that require senior management and Board
attention (through key Board-level metrics)
and associated actions to address them.
Provide guidance for management teams
to make appropriate risk-informed decisions
within tolerances set by the Board.
Provide a sound basis for Board assertions
around the consideration of risk appetite.
33
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk PRINCIPAL RISKS AND UNCERTAINTIES
IDENTIFYING, EVALUATING AND MANAGING OUR RISKS
STRATEGIC RISK
The risk that incorrect planning assumptions
or management information result in
incorrect decisions or that management fail
to make decisions in light of changes to the
external environment.
RISK TRAJECTORY
BUSINESS RESILIENCE
Business Resilience – The risk of a lack of
resilience in the delivery of critical services
and processes used to manage the business
through significant business disruption.
RISK TRAJECTORY
TECHNOLOGY
The risk that we fail to ensure the ongoing
integrity, performance and availability of the
IT estate.
RISK TRAJECTORY
RISK MOVEMENT
Over the course of the last year as restrictions
imposed during the pandemic have been
removed, we have been able to observe
customer behaviour and validate our
strategic direction. Customer response to
our product offering and strategic brands has
been positive.
In recent months inflationary increases
have started to put financial pressure on
our customers. In such a volatile external
environment, whilst we are committed to
our strategy we recognise the risk level
is increasing.
KEY CONTROLS AND
MITIGATING FACTORS
We continue to monitor closely the reaction
of our customers to our brand and product
changes and engage with external experts to
validate our direction.
The Board is drawn from a wide variety
of disciplines and has great experience
in strategic change and continue to
rigorously test our strategy as we
transform our business.
RISK MOVEMENT
The business continues to respond well to
continuity issues such as disruptions to the
supply chain caused by the continued impacts
of the pandemic.
KEY CONTROLS AND
MITIGATING FACTORS
We refresh our business resilience plans
and objectives throughout the year on a
rolling cycle.
We are improving the control environment
within this area.
RISK MOVEMENT
We have undertaken a comprehensive review
of our tech capabilities vs. our emerging
strategic direction in order to understand the
future needs of the business.
We have continued to embed and improve
our agile delivery capability and secure
development processes during the year.
We have upgraded our backup technology
infrastructure to enable faster backups to
the cloud.
The business is on track regarding regulatory
“Operational Resilience” requirements.
KEY CONTROLS AND
MITIGATING FACTORS
A programme of key control redesign
is ongoing.
Core components of end to end service
management have been implemented and
are used within the business.
Key skills areas within the technology function
have been enhanced.
A comprehensive technology roadmap has
been developed to ensure investment is in
place to enable our strategic direction.
RISK TRAJECTORY
CURRENT TRAJECTORY OF RESIDUAL RISK
REDUCING
STABLE
INCREASING
34
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk INFORMATION SECURITY
The risk of malicious or accidental disclosure,
loss, amendment or corruption of data.
The risk of a successful cyber-attack
prevents access to systems or resources.
RISK MOVEMENT
The current geopolitical climate has increased
the cybersecurity risk across industry. There is
potential for increased ransomware activity.
RISK TRAJECTORY
Whilst the inherent risk has increased, there
has been substantial enhancements to the
control environment over the course of the
year, and so we assess the risk level as stable.
KEY CONTROLS AND
MITIGATING FACTORS
Significant activity has occurred to ensure that
the number of vulnerabilities across the estate
is managed.
Both protection and external defences
have been strengthened and are
continuously monitored.
The cyber team has been strengthened and
continues to enhance our controls in response
to the current geopolitical situation.
Access and identity management processes
are being strengthened.
CHANGE EXECUTION
The risk that we fail to deliver change
effectively and do not deliver on
strategic objectives.
RISK TRAJECTORY
FINANCIAL CRIME
The risk that financial crime is attempted or
perpetrated against or by the Group or that
the Group fails to make legal and regulatory
obligations in relation to financial crime.
RISK TRAJECTORY
DATA
The risk of failing to appropriately manage,
maintain and ensure appropriate use of data.
RISK TRAJECTORY
RISK MOVEMENT
We have a clear Group strategy and continue
to execute on that strategy. This will require
significant change to many aspects of our
business to become the digital retailer we
aspire to be. These changes will involve
different ways of organising, more agile ways
of working and some significant tech delivery
streams. Whilst we are enhancing our controls
and approaches, the level of change we are
undertaking increases the risk.
KEY CONTROLS AND
MITIGATING FACTORS
The scope of application of agile
methodologies is being extended across
the Group.
The end to end change process is being
enhanced to provide greater rigour.
Improved non-functional and service
acceptance criteria have been implemented
to control change.
RISK MOVEMENT
The Group is lower risk for money-laundering
due to its product offering.
The extended supply chain exposes the
Group to modern slavery, bribery and
ESG risks.
The geopolitical environment has increased
the risk of certain types of financial crime.
Following an external review of Financial
Crime Controls in 2021 all significant
enhancements have been implemented.
KEY CONTROLS AND
MITIGATING FACTORS
Annual Financial Crime risk assessments
are performed.
Comprehensive know your customer checks
and transaction monitoring is in place.
Supplier screening and monitoring on
an ongoing basis has been enhanced.
This is now integrated into the supplier
onboarding process.
RISK MOVEMENT
The external environment is relatively
stable, excluding the geopolitical situation
referenced above.
Data is a core asset for the Company and
management and governance of data will
need to evolve as data use cases change.
KEY CONTROLS AND
MITIGATING FACTORS
Appropriate fair processing notices and
transparency with customers regarding
data usage.
Dedicated Data governance team who run
advisory sessions; perform DPIAs and advise
on regulatory matters.
35
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
IDENTIFYING, EVALUATING AND MANAGING RISKS
FACING THE GROUP CONTINUED
SUPPLIER AND OUTSOURCING
The risk we fail to appropriately select and
manage suppliers, with particular focus on
continuity, reputational and ESG obligations.
RISK TRAJECTORY
RISK MOVEMENT
We have a broad supply base across
the world which creates resilience and
cost advantages.
KEY CONTROLS AND
MITIGATING FACTORS
Category plans are signed off before
initiating a procurements process.
The impact of the new Trade and Co-
operation agreement with the EU is being
successfully managed although some trailing
cost pressures exist.
There are two current risks to the Supply
Chain. The disruption from COVID-19
outbreaks in Asia creates risk to continuity and
timeliness of supply. Inflationary pressure is
being experienced due to increases in energy,
employment and distribution costs.
The combination of those impacts creates a
worsening risk position.
Our supplier onboarding process creates
a strong start point to engage with robust,
strategically compatible partners.
Contracts are reviewed and managed to
ensure appropriate protection.
A new supplier relationship management
approach has been successfully trialled and is
being rolled out.
Incident management and contingency
planning processes are used to assess
and mitigate the impacts of supply chain
disruption. The Group continues to integrate
and strengthen the ESG processes through
an ongoing programme of work integrate into
our business activities.
KEY CONTROLS AND
MITIGATING FACTORS
Horizon scanning and regulatory change
implementation activity.
Consumer duty programme of work
being scoped.
We continue to monitor the potential for a “UK
SOX” requirement.
Compliance reviews and remediation activity.
Comprehensive legal review of contracts.
LEGAL AND REGULATORY
The risk of receiving legal or regulatory
sanctions fine or restriction on trade as a result
of misinterpreting or failing to comply with
legislative or regulatory requirements. The risk
that our contracts are not enforceable.
RISK MOVEMENT
Aligned with a regulatory move to a more
data-driven model, FCA engagement with the
sector remains high, with significant multi-firm
requests for information and data.
RISK TRAJECTORY
Consumer Duty FCA rules are expected to
be finalised in July 2022 requiring significant
activity across financial services leading to an
April 2023 implementation date.
ESG and other potential regulatory
enhancements are being scoped.
The status of the Allianz dispute has
been reflected.
FINANCIAL
The risk the Group has insufficient liquidity,
does not have appropriate access to funds,
there are negative movements in the market,
or we do cannot meet our obligations as they
fall due.
RISK TRAJECTORY
RISK MOVEMENT
The macro-economic environment is unstable
with inflationary and interest rate rises likely.
KEY CONTROLS AND
MITIGATING FACTORS
Financial policies and standards.
Improvements to our control environment are
mitigating risks in this area.
Financial oversight committees.
Hedging strategy enhanced to cover interest
rate movements.
FG20/1 adequate financial
resources assessment.
RISK TRAJECTORY
CURRENT TRAJECTORY OF RESIDUAL RISK
REDUCING
STABLE
INCREASING
36
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk CONDUCT AND CUSTOMER
The risk that the Group’s processes,
behaviours, products or interactions will
result in unfair outcomes for customers or
undermine market integrity.
RISK TRAJECTORY
RISK MOVEMENT
FCA focus through such activities as the
Borrowers in Financial Difficulty project
(ongoing since March 2021) and updated
Vulnerable Customers guidance (issued
Feb 2021) ensure a high industry focus on
this area.
CREDIT
The risk that our customers fail to meet their
obligations when due.
RISK TRAJECTORY
RISK MOVEMENT
During the pandemic lending was constrained
to ensure the Group and its customers were
not adversely impacted by the potential
creditworthiness issues of businesses ceasing
to trade. With help from the furlough scheme,
many of our customers paid down debt, this
coupled with low unemployment has resulted
in a benign credit environment.
The outlook is more challenging with
increases to the general cost of living likely to
increase customers in financial difficulties and
alter the types of customers we will accept for
credit products.
KEY CONTROLS AND
MITIGATING FACTORS
Conduct and customer risk policy.
The conduct risk dashboard review process
has been enhanced.
First line quality assurance activity.
Regular cycle of product
reviews implemented.
Second and third line assurance testing.
KEY CONTROLS AND
MITIGATING FACTORS
Credit Limit Management policy is kept
under continuous review, with new data
sources sought where appropriate to
manage emerging risks.
Credit models are used to assess risk,
which incorporate machine learning
where appropriate.
Comprehensive credit risk metrics are
produced on a daily basis.
Senior Management review policy changes
alongside a wide range of credit risk metrics
at monthly governance meetings.
As it is the Group’s objective that lending
supports a long-term customer relationship,
we offer a range of forbearance options
designed to help customers who may be
experiencing financial difficulties.
Our Affordability approach is being
reviewed to identify enhancements based
on new data sources and the changing
consumer landscape.
PEOPLE
The risk that we fail to recruit, develop and
retain employees, maintain an appropriate
organisational design or comply with
employment based legislation.
RISK MOVEMENT
The recruitment market has become more
difficult following the pandemic with market
forces increasing cost.
KEY CONTROLS AND
MITIGATING FACTORS
Improved pace of recruitment process
to identify and interview candidates.
RISK TRAJECTORY
Improvements to internal capability have been
made in terms of recruitment process and
learning management systems.
Values aligned interview process.
Manager upskilling training programme
to drive colleague engagement.
Organisational models reviewed in light
of increased agile working model.
37
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk SECTION 172 STATEMENT
ENGAGEMENT WITH STAKEHOLDERS
DECISION-MAKING BY
THE BOARD
The Directors take all factors into account
before making informed decisions.
The fair treatment of relevant stakeholders
is always considered, although the Board
acknowledges that not every outcome will
always benefit each stakeholder group.
Decision-making by the Board balances the
need to generate sufficient profit in order to
sustain the business commercially against
the needs of our various stakeholders
and, ultimately, the long-term sustainable
success of the Company.
We are committed to maintaining the highest
standards of business conduct; each and
every decision of the Board is made on the
basis of best ethical practice.
SHAREHOLDERS AND
INVESTORS
Investors play a major and vital role
in the success of the Company; they
are the providers of capital without
whom we could not grow or invest for
future development.
We engage with our shareholders and
investors via:
The Company’s Annual General Meeting.
Meetings with shareholders and
proxy advisors.
Presentations to Investors.
Publication of Stock Exchange
announcements, press releases,
trading results and statements and
annual reports.
76
Further information
about our engagement
with shareholders can be
found on p76.
CUSTOMERS
We continue to be obsessed with our
customers and work hard to delight them
with products, services and finance to fit
their lives.
We regularly engage with our customers,
both proactively and reactively, via:
Market research groups.
Net Promoter Scoring and customer
services reports.
Engagement across social media and
Customer Services channels.
Section 172(1) of the Companies
Act 2006 states that the Directors
of a company must act in the way
they consider, in good faith, would
most likely promote the success of
the Company for the benefit of its
members as a whole and in doing
so have regard, in addition to other
matters, to:
The likely long-term consequences
of decisions.
The interests of the
Company’s employees.
The need to foster the Company’s
business relationships with suppliers,
customers and others.
The impact of the Company’s operations
on the community and the environment.
The desirability of the Company
maintaining a reputation for high
standards of business conduct.
The need to act fairly as between the
Company’s owners.
The Board is mindful that our success
relies on our ability to engage
meaningfully with stakeholders, taking
their views into account when making
decisions on behalf of the Company.
By understanding our stakeholders,
we can ensure that an appropriately
diverse range of needs and concerns is
considered in both the day-to-day running
of the business as well as in our longer-
term strategy.
Methods and level of engagement vary
according to the stakeholder group being
addressed and involve the Group Board,
Executive Board, senior leadership
team and colleagues as required.
The Company engages both proactively
and reactively with stakeholders.
While the impact of Covid-19 remained
challenging during FY22, the Board has
engaged with stakeholders on a number
of principal matters across a variety of
forums and is proud to report on these
activities in its Section 172 Statement.
38
N Brown Group plc Annual Report and Accounts 2022
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk COLLEAGUES
Our colleagues are our single most
important asset – we simply could not
succeed without their relentless energy,
expertise and passion.
While communication with colleagues
fundamentally shifted during the
Covid-19 pandemic, regular engagement
has taken place across a variety of
platforms including:
The Colleague Forum –
The Culture Club.
Colleague Voice – bi-annual engagement
surveys and monthly pulse surveys.
EXEC Sessions –
Coffee with colleagues.
Colleague recognition and long
service awards.
Colleague conversations –
performance and feedback sessions.
Division Huddles and Team meetings.
Daily emails from Internal Comms.
Weekly Company-wide newsletter.
Our Company-wide intranet.
40
Further information about
our engagement with
colleagues can be found
on p40.
TRADE AND INDUSTRY BODIES
Constructive engagement with trade and
industry bodies is a primary channel which
enables us to support the sustainable,
ethical and responsible growth of the
retail industry.
We engage directly with and are part of a
number of bodies including:
The ASAS Transparency Pledge.
Action Collaboration and Transformation –
Living Wage.
Ethical Trading Initiative.
2018 Transition ACCORD/
RSC Bangladesh.
UN Global Compact.
Finance Leasing Association.
Cifas.
45
Further information about
our engagement with trade
and industry bodies can be
found on p45.
SUPPLIERS
Suppliers are the key links in the
sourcing, development and delivery of
products to our customers. They support
us across every aspect of our operations
and are crucial to the successful delivery
of our business model.
We have continued to support our
suppliers and the wider supply chain
throughout the Covid-19 pandemic.
45
Further information about
our engagement with
suppliers can be found
on p45.
COMMUNITY AND THE
ENVIRONMENT
We have always strived to foster
positive change across all aspects of
our local and global communities, and
continue to support and encourage
sustainable practices throughout our
business operations.
45
Further information about
our engagement with
charities and our work
on Environmental, Social
Governance can be found
on p45.
N Brown Group plc Annual Report and Accounts 2022
nbrown.co.uk
39
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk LISTENING TO OUR PEOPLE
BOARD ENGAGEMENT WITH THE WORKFORCE
“ In my role, as Designated Director of Colleague
Engagement, I am confident that the continued
focus on gaining understanding and insights
from colleagues is at the heart of Culture
Group’s strategy.”
Richard Moross
Designated Director of
Colleague Engagement
The significant disruption and change we
have faced over the past year mean that it
has never been so important or beneficial to
engage with our colleagues. As we worked
hard together to adapt to life post-pandemic,
our colleague voice channels have continued
to provide incredibly valuable insight and
have enabled us to not only understand
what’s important for our colleagues but also
to measure the impact of people initiatives
across the business.
Given the backdrop of continuous external
change, the ‘Great Resignation’ and the
challenging retail sector, it is disappointing
but not unexpected to see a year on year
decrease in our engagement score and net
promoter score.
Alongside my work with the Culture Group,
I have spent time understanding the people
agenda and roadmap for the year ahead.
Colleague engagement continues to be at
the heart of our strategy with ambitious and
impactful initiatives in the pipeline.
The passion and commitment of our
colleagues is what drives us forward and we
hope to continue working as one team as
we continue to evolve as a business.
THE CULTURE GROUP
Our Culture Group employee forum
comprises a team of representatives from
all areas of the business, which meets
monthly to discuss matters pertaining to all
aspects of our culture such as learning, well-
being and recognition. The group is a key
colleague voice channel, enabling us to gain
meaningful insight through two-way dialogue
and giving all colleagues the opportunity to
regularly influence what matters to them.
The Culture Group’s members are also
champions of all areas of engagement,
working with their divisional leadership teams
to turn insight into action. For example, this
year the group played a significant role in
helping us shape our approach to hybrid
working and providing us with insight that
has helped us test and learn.
We recently refreshed the rolling
membership of the group and taken
learnings from the first 18 months to
make improvements to both the operation
of the group as well as the important role
it plays for our colleagues.
40
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk VIBE SURVEYS
We conduct a number of colleague voice
surveys throughout the year to gain
regular insight into colleague sentiment.
Every February, we undertake our annual
survey which asks questions relating to
all areas of a colleague’s experience –
and this broad canvas is supplemented
by ad-hoc pulse surveys as and when
appropriate, which focus on areas
important to our colleagues at the time.
Pulse surveys were particularly useful
during the last 12 months, providing
important feedback as we worked through
challenges including the introduction of
hybrid working, support for colleagues
as they returned to spending time at
one of our hubs and the navigation of a
challenging retail market. These topical
pulse surveys helped us respond quickly
and effectively to any issues, questions or
ideas from colleagues.
Our 2022 annual survey saw
improvements in colleagues feeling
that they have a voice and that they are
encouraged to develop their skills working
here. This is pleasing because, taking
previous feedback on board, we have
paid particular attention to improving the
colleague experience in these areas.
The annual survey was conducted as
working practices normalised and working
from home restrictions were lifted.
In line with others in the market we saw our
engagement scores go from 7.4 to 6.7 and
our Employee Net Promoter Score from +7
to -6. Whilst we recognise we have moved
back as the business normalises post
pandemic it is still an improvement on our
pandemic levels.
FS have seen a year on year increase in
their engagement index from 7 to 8.1 (for
2022 their engagement index was higher
than the Group engagement index which
is 6.7)
Our overall Engagement Score
6.7
Employee Net Promoter Score
-6
Comparative Score
8.1
FABRIC
We launched our new Fabric employee
engagement platform in October 2021.
This is our primary communications channel,
enabling far more colleague interactions
than our previous intranet. Through Fabric,
colleagues can also access discounts from
hundreds of retailers to help them stretch
their income and enhance their reward
package. Most notably, Fabric can be
accessed by all of our Logistics colleagues
who were unfortunately unable to access
our previous platform – so we’re now able to
engage all colleagues in the same way.
THE PRODUCER
One of the key colleague voice initiatives
for FY22 was the launch of The Producer,
a leadership development programme for
all people managers. All of our heads of
function have now completed the seven-
module session which is designed to
enable them to deliver a consistent and
authentic N Brown experience for our
colleagues. The programme includes
a 360-feedback survey and modules
covering leadership- brand, performance,
change, development, communication,
recruitment and employee relations.
Our values and behaviours, hybrid working,
well-being and inclusion run as golden
threads throughout the entire programme.
We scored an ‘outstanding’ NPS of 67
for the programme and will continue to
evaluate learning transfer, behavioural
change and overall impact on colleague
experience and culture in the coming
months and years.
Employee Net Promoter Score
for ‘The Producer’ programme
67
41
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk MESSAGE FROM MICHAEL ROSS
SUSTAIN – FOR TODAY, FOR TOMORROW, FOREVER
“ N Brown continues to make a meaningful impact
in driving sustainability and reducing emissions.
FY23 will see increased focus on people and
communities and further embedding of ESG
into governance and strategy.”
MICHAEL ROSS
Chair of the
ESG Committee
In FY22, N Brown continued to build
momentum in its Environmental, Social and
Governance strategy. SUSTAIN continues
to fully align our ethical policies with our
commercial activities across our sustainability
pillars, Our People and Our Planet. We are
pleased to have beaten both our sustainability
and Green House Gas (“GHG”) emissions
targets for FY22. Other key highlights
throughout the year include the successful
achievement of the 2030 Scope 2 Target for
Net Zero emissions from purchased electricity
of the British Retail Consortium (“BRC”)
Climate Action Roadmap for the second year
running. New EV charging points were added
to all our sites and policy of zero waste to
landfill been maintained from UK operations.
We have actively supported our communities
throughout the year and have achieved
our fundraising target with our charity
partner, Maggies. Jacamo also successfully
launched a partnership with the charity
Campaign Against Living Miserably (“CALM”).
Wellbeing for our colleagues has also been
a key focus and we now have over 33 fully
accredited mental health champions in the
business. Strong ongoing support has been
given for early-stage careers and there has
been a focus on increasing social inclusion.
We have supported the Kickstart scheme by
recruiting 37 young people during the year
with four entering permanent employment with
us. Information on the activities carried out in
the year can be found on page 46.
We value the close relationships we have with
all our partners and industry bodies including
the BRC, Textile 2030, Better Cotton Initiative,
and our delivery partner Evri. Evri have made
several ambitious commitments as part
of their ESG strategy, and we are working
with them to evaluate how these link to our
Scope 3 savings in the future.
Looking forward to 2023, we will be focused
on embedding our ESG strategy deeper into
the business and delivering on our stretching
ESG targets. We plan to develop a more
integrated diversity, equity and inclusion
programme and further strengthen our
approach to charity and Our Community.
Governance will also be a key focus as we
get ready to implement Task Force on Climate
Related Financial Disclosures (“TCFD”).
I am available to speak with shareholders at
any time via the Company Secretary and shall
be available at the Annual General Meeting on
7 July 2022 to answer any questions you may
have on this report. I look forward to reporting
on our progress in relation to the priorities
outlined above in the next Annual Report.
CHARITIES AND
OUR COMMUNITIES
45
42
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk KEY PERFORMANCE METRICS
OUR PLANET
OUR PEOPLE
ABSOLUTE EMISSION REDUCTION
RELATIVE EMISSION REDUCTION
SUPPLY CHAIN TRANSPARANCY
Total GHG Scope 1 and
Location-based Scope 2
(GHG tCO2e)
4,996
Change: -57%
4,996
4,742
5,995
FY22
FY21
FY20
FY15
11,571
Total GHG Scope 1 and Location-based
Scope 2 emissions per million items
shipped (GHG tCO2e)
162
Change: -50%
FY22
FY21
FY20
FY15
162
196
168
324
SOURCED 100%
RENEWABLE ELECTRICITY
All electricity consumed across the
Group is backed with renewable energy
certification or from on-site solar PV
RELATIVE EMISSION REDUCTION
Total GHG Scope 1, Location-based
Scope 2 and Scope 3 (excluding logistics)
emissions per million items shipped
(GHG tCO2e)
100%
FY22
FY21
FY20
FY15
0%
100%
100%
98%
259
Change: -49%
FY22
FY21
FY20
FY15
259
308
292
Active Tier 1 suppliers
(466 graded Factories)
366
Workers in our Tier 1 Factories
(56% Men 44% Women)
143,094
Countries sourced from. Top three
are China, India and Bangladesh
30
EMERGING TALENT
Kickstarters placements recruited,
four offered permanent positions
37
WELLBEING
Fully accredited Mental Health
First Aiders throughout FY22
506
GREEN PE
DESPATCH BAGS
100%
SUSTAINABLE OWN
BRAND PRODUCTS
30.01%
Green PE Despatch Bags rolled out
across our Shaw Distribution Centre
of Own Brand products with
sustainable properties – see page 48
NEW PARTNERSHIP
33
DIVERSITY, EQUITY
AND INCLUSION
Female Executive Board
representation (including CFO)
42.9%
CHARITY
Fundraising target met
raised for Maggie’s
£100K
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FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk
SUSTAIN – FOR TODAY, FOR TOMORROW, FOREVER CONTINUED
BRC CLIMATE ACTION ROADMAP
Net zero direct emissions from
operations including from fleet
vehicles, heating fuels and
refrigeration by 2035
Net zero emissions from purchased
electricity by 2030
Ambition for net zero emissions
embodied in product supply chain,
both upstream (from suppliers)
and downstream (from customers
by 2040)
FY22 ESTIMATED SCOPE 3 EMISSIONS
PROFILE (tCO2e)
OUR STORY SO FAR
OUR PLANET
Over the last 12 months, we’ve focused
on developing a better understanding
of the impacts of our wider value chain.
This foundation will enable us to plan our
actions so that we make a meaningful
contribution to avoiding the worst impacts
of climate change and safeguarding
the environment.
CLIMATE CHANGE
BRC CLIMATE ACTION ROADMAP
PROGRESS TO DATE
We are fully committed to our 2040 target of
Net Zero emissions and are making good
progress against the five pathways set out by
the BRC.
We’ve achieved the 2030 Scope 2 Target for
the second year running – Net Zero emissions
from purchased electricity. We’ve completed
work on the second phase of the LED lighting
upgrade programme at our main distribution
centre at Shaw, in April 2022, the upgrades will
save 352 tCO2e each year. We have already
quantified several Scope 3 emissions sources
please refer to our emissions profile. This year
(FY22), is the first year that all remaining Scope
3 emissions sources have been estimated.
The majority of our emissions fall within the
purchased goods and services category
289,525 tCO2e, (52.8% of total Scope 3
emissions). These emissions are embedded
within the products that we purchase for
retail as well as the third party products and
services that we use to operate our business.
The second largest Scope 3 category is the
use of sold products 223,175 tCO2e, (40.7%
of the total scope 3 emissions). We retail a
wide range of products that directly consume
energy over their useful life, resulting in
GHG emissions. Such emissions have been
calculated based upon product information
and assumptions about how our customers
use their products. This category also includes
products that indirectly consume energy over
their useful life such as the washing and drying
of clothing items. All other Scope 3 emissions
account for 35,459 tCo2e (6.5% of the total
Scope 3 emissions).
We will continue to review our methodology
for quantifying Scope 3 emissions to ensure
we are using the best available data and
improving the accuracy of our GHG inventory.
For example, our participation in Textile
2030 will provide a much clearer picture of
the embedded emissions within the textile
products that we sell.
44
of business decisions
powered by renewable energy
1 Placing GHG data at the core
2 Operating efficient sites
3 Moving to low carbon logistics
4 Sourcing sustainably
5
Helping our employees
and customers live a low
carbon lifestyle
Emissions Category
Purchased Goods
& Services
Capital Goods
Fuel & Energy Related
Activities
Upstream
Transportation
& Distribution
Waste generated in
Operations
Business Travel
Employee Commuting
Downstream
Transportation &
Distribution
Use of Sold Products
End of Life Treatment of
Sold Products
tCO2e
289,525
%
52.8%
2,244
1,401
0.4%
0.3%
14,849
2.7%
76
0.0%
7
1,480
3,446
0.0%
0.3%
0.6%
223,175
40.7%
11,955
2.2%
Total Scope 3 Emissions 548,158
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk CARBON DISCLOSURE PROJECT
We continue to report to the Carbon
Disclosure Project (“CDP”) on both the
Climate Change and Forests modules.
In FY21, we achieved a score of B for both the
Climate Change response and the Forests
module. We also achieved an A- on the
supplier engagement rating for the work we
do with our supply chain on climate change.
During FY22, we began preparations to
respond to the Water Security module of
the CDP and will continue to provide an
update on our actions to tackle climate
change and deforestation.
TEXTILE 2030
Textile 2030 is ‘WRAP’s’ award-winning,
ground-breaking, expert-led initiative.
It harnesses the knowledge and expertise of
UK leaders in sustainability to accelerate the
whole fashion and textiles industry’s move
towards circularity and system change in
the UK.
As a signatory, we’re committed to measuring
the whole life impacts and circularity of our
product portfolio across GHG emissions and
water impacts to establish our baseline. We’ve
set a target to reduce GHG emissions by
50% and reduce the aggregate water footprint
of new products sold by 30% by 2030.
To achieve this, we’re developing an action
plan and will report annually on our progress
to WRAP. Our baseline will be published in
mid-2022.
BETTER COTTON INITIATIVE (BCI)
We’re proud members of Better Cotton, which
is sourced via a system of Mass Balance.
Our target from January to December 2022
is to source 50% of our cotton from more
sustainable sources. More sustainable cotton
includes BCI cotton, recycled cotton and
organic cotton.
UN GLOBAL COMPACT
We continue to be signatories to the United
Nations Global Compact which is the world’s
largest corporate social responsibility initiative.
The Compact brings companies together to
work jointly and align strategies on universal
human rights, labour rights, environmental
issues and anti-corruption. We submit our
Communication on Progress report annually
and our CSR working group meets regularly
to drive activities against the Sustainable
Development Goals. Our focus with this
group this year will be collaboration on
climate change.
OUR PEOPLE
As a people-centred and values driven
business, we take our involvement in our
communities and wider society seriously.
Our dedication to creating social value is
important to our people and our business
– and we’re working hard to grow and
foster that spirit as our social value
strategy continues to become further
embedded within the business.
During the year, we focused on increasing
our social value in the following ways:
CHARITIES AND OUR
COMMUNITIES
Our colleague-led charity partnership with
Maggie’s Manchester and Maggie’s Oldham
continued to be a success throughout FY22.
The pandemic changed the way in which
our colleagues were able to fundraise and
meant that large scale fundraising events
weren’t possible for some time. Despite this,
our partnership met its fundraising target
of £100,000 thanks to the hard work and
commitment of our colleagues. We supported
Maggie’s by sponsoring key fundraising
events – and this has helped them to raise
funds at a time when they’re needed more
than ever.
At the beginning of 2022, Jacamo launched
a partnership with the charity Campaign
Against Living Miserably (“CALM”) to support
the work which CALM do to offer help and
support to those in need. The launch is part of
a longer-term partnership between Jacamo
and CALM and one which we hope will
empower men to have open conversations
about their mental wellbeing, and to help raise
mental health awareness.
MEMBERSHIPS
We’re committed to playing an active role in
our industry, bringing together colleagues,
customers and stakeholders across our
business and throughout our supply chain.
The last 12 months has seen us continue our
long-term relationships with:
Accord & RSC Bangladesh; ACT (Action,
Collaboration, Transformation) Living Wage;
Ethical Trade Initiative (ETI);
United Nations Global Compact (UNGC)
and All-Party Parliamentary Corporate
Responsibility Group (APCRG).
We also commenced new memberships with:
International Accord; Higg Index – Brand and
Retail Module; Fast Forward; Better Cotton
Initiative and Textile 2030.
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FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk SUSTAIN – FOR TODAY, FOR TOMORROW, FOREVER CONTINUED
OUR STORY SO FAR CONTINUED
OUR PEOPLE CONTINUED
HUMAN RIGHTS AND
TRANSPARENCY IN OUR
SUPPLY BASE
Human rights remain a priority across the
retail sector. Collaboration and transparency
across the supply chain continues to
be a key theme across all retail brands.
We published our:
Fifth Modern Slavery statement in
September 2021
Seventh Communication on Progress (COP)
report for the UNCG in January 2022
Tier 1 factory list and definitions
COLLEAGUES
OUTREACH AND EMERGING TALENT
We’re supporting the Government’s Kickstart
scheme which provides funding for employers
to create job placements for 16-24 year olds
on universal credit.
We recruited 37 Kickstarters during the year,
and to date four of them have entered into
permanent employment with us. As well as
providing on-the-job experience, we’ve formed
a partnership with The Prince’s Trust to give
our Kickstarters access to developmental and
employability workshops to help them secure
future employment.
We joined the Good and Fair Employers
Club, a coalition of UK employers who come
together to collaborate around the shared
objective of being good and fair employers
for young people.
WELLBEING
The safety and wellbeing of our colleagues
remained our priority as we moved out of the
pandemic, and we have regularly reviewed
and issued Covid-19 safety guidance.
We mobilised a team of 33 fully accredited
Mental Health First Aiders across the
business, with these trained individuals on
hand to support all colleagues. This resource
has been accessed by 16 colleagues under
the broad themes of anxiety and stress.
A key theme of The Producer, our leadership
development programme, is the role of
the manager in promoting the wellbeing of
their team. Leaders are equipped with skills
and behaviours to understand their team
members, look for changes in their wellbeing,
facilitate conversations around wellbeing and
support their team with strategies to thrive.
We have developed our wellbeing offering
to include:
More easy-to-access resources to support
key areas of wellbeing.
Discounts for wellbeing-related products
and services.
Cycle 2 Work.
Financial planning tools.
Walking meetings.
Wellbeing hours.
The Menopause Cafe.
HYBRID WORKING
Our hybrid working approach is framed by
six principles, empowering our colleagues
to choose where and how they work while
ensuring that business requirements and
their team come first. All colleagues in
hybrid-enabled roles are now working in
this way, and we’ve provided them with the
tools and support required to adapt to hybrid
working in order to help them maintain their
sense of purpose, productivity, performance
and wellbeing.
DIVERSITY, EQUITY AND
INCLUSION (DE&I)
Following analysis, we can report that our
colleague diversity statistics are broadly
in line with external benchmarking for the
retail sector.
Our 2021 gender pay gap report reveals that
our mean pay gap has increased from 12.3%
to 16.4% which can be attributed, in part, to
the reorganisation in 2020. The upcoming
implementation of an integrated DE&I
programme will enable us to have greater
influence on the gender pay gap.
With inclusivity identified as one of our core
behaviours, we’ve deliberately curated a more
inclusive culture since the launch of our new
Employer Value Proposition in October 2019.
DE&I is a key consideration for our Culture
Group, a group of colleague representatives
from around the business who come together
monthly to discuss and steer our culture.
While we’ll continue to work hard to evolve our
culture, it was nevertheless pleasing to see
that DE&I was the area that scored highest in
our 2021 annual engagement survey.
46
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk LOOKING FORWARD TO FY23
SUSTAIN encompasses both the Our People and Our Planet pillars to address our key
impacts. We’ve made a series of challenging commitments and are working across a
range of different frameworks and external reporting obligations to ensure our approach
is transparent and aligned with best practice.
SUSTAIN
Impact areas
ENVIRONMENT
Key targets
SOCIAL
GOVERNANCE
ACHIEVE NET ZERO
EMISSIONS BY 2040
We are committed to reducing our
environmental impact by becoming Net
Zero by 2040. Through key partnerships,
we will drive a greater long-term
impact, which is why we are working in
collaboration with the BRC.
BRINGING POSITIVE BENEFITS
TO OUR PEOPLE AND OUR
COMMUNITIES
We understand the impact we can have
on our people and communities which is why
we’re committed to ensuring it’s as positive
as can be, as together we can support a
brighter future.
SUSTAIN
Aims to align our ethical policies with our
commercial activities, achieving tangible
results and benefits for our stakeholders.
ALL OWN BRAND PRODUCTS
RESPONSIBLY SOURCED BY 2030
We are aware that as a fashion retailer
this is one of the biggest impacts on our
environment. We have partnered with
Textiles 2030 because it supports our
goals to make all our own brand products
sustainable by 2030.
Long-term commitments
Natural Resources Zero deforestation
from major commodities by 2030.
Water Reduction of aggregate water
footprint of new products of 30% by 2030.
Circularity Ensure that all waste is
reduced throughout our operations, waste
to landfill remains zero and recycling is the
primary objective.
Climate Change Introduce Science Based
Targets to reduce our carbon footprint and
achieve Net Zero.
Responsibly Sourced Products All OB
designed products to be sustainably sourced
by 2030, supporting best practice from design
through to end of life (waste).
Diversity & Inclusion Building a diverse
workforce and creating an inclusive environment
which values equality for all.
Wellbeing Curating a culture centred on our
colleague’s wellbeing.
Emerging Talent Giving young people the best
possible start to their careers by offering an
inclusive programme with opportunities for all
Ethical Workplace Full visibility to Tier 2 OB
Strategic and Significant suppliers by end 2023.
Charity and Our Community Give back to our
communities through working with collaborative
Charity partners who align with our values,
colleagues and customers.
Data Led Reporting suite to be optimised.
Ethical Principles of Responsible AI Ensure
that our approach to building models does not
contain hidden biases and considers the impact
of these models on the people who use them.
Partnerships Collaborate with key partners
to ensure that we validate all areas of strategy,
performance and ensure we are ‘doing the
right thing for our planet, people, customer
& communities.
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FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk SUSTAIN – FOR TODAY, FOR TOMORROW, FOREVER CONTINUED
LOOKING FORWARD TO FY23 CONTINUED
OUR PLANET
We recognise the impact that our
operations and supply chain have on
the natural world. ‘Our People & Planet’
strategy aims to minimize our impact
by focusing on short term objectives to
deliver meaningful change in line with our
long-term commitments to ensure we are
going far enough to limit our impacts.
NATURAL RESOURCES
During FY23 we will be focusing on our
packaging usage within our supply chain
operations to understand the profile and
opportunities to reduce, increase recycling
options and review the strategy on recycled
packaging. This will be supported through
collaborative working with our Suppliers,
packaging partners and our colleagues.
WATER
As part of our commitment to Textile 2030
and our CDP reporting we will perform a
full water assessment across all N Brown
operations and supply chains (End FY23).
This will enable us to then review and assess
next steps to ensure that we continue to
understand the business impact and how we
can deliver against the 2030 targets.
CIRCULARITY
We understand the importance of starting
in the right place when it comes to
developing products and processes with our
supply chains.
This year we are committed to reviewing
our options for Product Takeback, Rental
and Resale to enable customers to have the
best routes to ensure that products can be
recycled, reused and not sent to landfill when
they no longer need the use of the items.
We also want to ensure that our new
uniforms for our Logistic colleague are made
with circularity at the forefront and the new
uniforms will have sustainable attributes and
options for recycling once the products have
come to end of life.
CLIMATE CHANGE
This year we will continue to progress our
current targets for GHG emissions 50-56%
reduction, whilst working towards a Science
Based Target for FY24 onwards. The primary
focus will be to review our Scope 3 profile
and assessment.
WORKING WITH OUR PARTNERS
Across our value chain, we’re aligning
ourselves with partners who are like-
minded and well on the road to Net Zero.
During FY22, we worked with EVRi, our
main outbound logistics partner, to develop
better ways of delivering and returning items
to and from our customers in order to reduce
GHG emissions.
One of our main plans for FY23 is to review
recycling schemes for our customers through
the EVRi network.
We also want to incentivise our customers to
make more use of the ‘Out of Home’ network
where customers can pick up their orders from
a ParcelShop or lockers. Centralised delivery
points such as these can help to reduce the
GHG emissions associated with the last leg of
the delivery journey.
RESPONSIBLE PRODUCT SOURCING
As part of our responsible sourcing commitments to Textile 2030 and BRC Climate Action roadmap we want to move away from the
make-use-dispose culture of the fashion industry and embrace circularity, where products are made sustainably, used for a long time
and then re-used or recycled. Our target this year is to increase the mix of sustainable own brand designed products to 50%.
From the assessment of our Scope 3
emissions, our largest emission source is
associated with our products. It is crucial
that we work with our designers, suppliers
and buyers to specify more sustainable
choices into the design and manufacture of
our products to the benefit of both people
and planet.
By 2030, all of our own brand products will
have sustainable properties and we have an
ambitious plan to deliver this commitment.
To date, 30% of our own brand products
have sustainable properties.
To help improve the sustainability of our
products, we aim to use responsibly sourced
materials from certified and traceable
sources as much as possible. For a product
to be considered to have sustainable
properties, it must contain a minimum of:
30% recycled polyester (eg. REPREVE™)
30% sustainable viscose (LENZING™
ECOVERO™)
50% Organic Blend / BCI / Recycled Cotton
We are currently sourcing raw materials that
are certified through the following schemes:
BCI Cotton – The world’s leading
sustainability initiative for cotton. This mission
is to help cotton communities survive
and thrive, while protecting and restoring
the environment.
REPREVE™ – Recycling plastic bottles into
a polyester fibre. Compared to virgin fibre,
REPREVE™ offsets using new petroleum,
emitting fewer greenhouse gases and
conserving water and energy in the process.
LENZING™ ECOVERO™ – Derived from
certified renewable wood sources using
an eco-responsible production process
that meets high environmental standards,
LENZING™ ECOVERO™ fibres tailor to
a sustainable lifestyle, contributing to a
cleaner environment.
Organic Cotton – Organic cotton is
produced and certified to organic agricultural
standards. Its production sustains the health
of soils, ecosystems and people by using
natural processes rather than artificial inputs.
Importantly eliminating toxic chemicals or
GMOs (genetically modified organisms).
Recycled Cotton Standard – RCS like
GRS are both are international, voluntary
standards that set requirements for third-
party certification of recycled material.
The standards are set through the Textile
exchange, which is a non-profit organisation.
48
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk
OUR PEOPLE
WHERE WE’RE HEADED
We’re just at the beginning of our People
journey. Now is the time to build more
structure around our activities so that we
can deliver measurable Social Value under
each of the above headings. Our future
focus is on:
CHARITIES AND
OUR COMMUNITIES
We’re recommending a refreshed charity
strategy for FY23 which will see us support
two new charities from Summer 2022.
The two overarching objectives of our
corporate charity strategy are:
To support a charity which is closely
connected to our business in terms
of alignment with our strategic vision
and industry.
To continue to support a charity with a strong
presence in Greater Manchester and which
colleagues have chosen – allowing colleagues
to have a voice and play a part in nominating
the charity which they will be supporting.
We’ll work closely with both charities to
develop a tangible fundraising target and
programme of activities which will benefit
all our colleagues and support our overall
SUSTAIN strategy.
As we emerge from the pandemic, we’ll
also begin to actively promote our Make A
Difference Day volunteering scheme which
gives all colleagues the opportunity to take
one working day a year to give something
back to charities and causes close to
their hearts.
DIVERSITY, EQUITY AND
INCLUSION (DE&I)
Our objective is for our DE&I approach to
be more focused and proactive – so we’re
launching an integrated programme, with
the first 12 months targeted on building
engagement, awareness and connection.
Through the lens of our vision, values and
behaviours we’ll embed this programme as
part of our DNA.
We’ll also implement key tools and processes
which will enable us to increase equity for
all, including diverse shortlists and talent and
succession mapping.
As our business serves the underserved,
we’ve made the decision to place
specific focus on increasing our socio-
economic diversity.
HYBRID WORKING
We’ll continue to optimise Hybrid Working,
ensuring that it is delivering for our business,
teams and colleagues.
Hybrid working will be further enabled and
complemented by our move to become an
agile enterprise.
OUTREACH AND
EMERGING TALENT
We’ll invest more in internal talent,
bolstering our talent pipelines in all streams
from apprentices and placement students
to graduates. In addition, we’ll add more
structure to our work experience opportunities
by providing week-long placements for up to
10 students four times a year. This will enable
us to offer more engaging experiences as
well as making the application process fair
and equitable.
To support our social mobility objectives, we’ll
target schools, colleges and universities in
the more deprived areas of the northwest
and look for ways to make sustainable
contributions to these institutions.
WELLBEING
We’ll create strategic partnerships with
organisations and charities that can enhance
our wellbeing package for colleagues.
Given the external context and resulting
economic challenges which are resulting in a
significant increase in the cost of living for our
colleagues, our focus for the next 12 months
will be on financial wellbeing.
We’ll also provide additional training to our
mental health first aiders, ensuring that we’re
able to provide support and signposting in
specific circumstances such as suicide,
domestic abuse and bereavement.
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FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk SUSTAIN – FOR TODAY, FOR TOMORROW, FOREVER CONTINUED
LOOKING FORWARD TO FY23 CONTINUED
GOVERNANCE
STRATEGY
The Group introduced a new ESG strategy
in July 2020, replacing the previous CSR
remit. During FY21 ESG was rebranded
to SUSTAIN.
SUSTAIN aims to align our ethical policies
with our commercial activities, achieving
tangible results and benefits for our
stakeholders. Fully embracing the values of
our business, SUSTAIN is our overarching
strategy across our sustainability pillars –
Our People and Our Planet. To address
our impacts, we have made a series of
challenging public commitments and work
across a range of different frameworks and
external reporting obligations to ensure our
approach is transparent and aligned with
best practice.
METRICS AND TARGETS
In FY22, we have achieved the 2030 target
of the BRC Climate Action Roadmap for the
second year running – Net Zero emissions
from purchased electricity. We have continued
to report to the Carbon Disclosure Project
(“CDP”) on both the Climate Change
and Forests modules and have begun
preparations to respond to the Water Security
module of the CDP and will continue to
provide an update on our actions to tackle
climate change and deforestation.
In addition to the targets we have set across
ESG, we have set stretching targets on
sustainability and GHG emission reductions
as part of our FY23 Annual Bonus Plan.
Please refer to page 77 for more details.
In FY23 The Group will review the metrics and
methodology it uses to measure and manage
climate related risks and opportunities,
including how these are incorporated into
remuneration policies. There will also be a
review of scope 3 GHG emissions as we
worked towards science based targets.
CLIMATE RELATED FINANCIAL
DISCLOSURES
Climate change is one of the greatest
challenges facing our planet today.
We support the TCFD and its
recommendations, and are working towards
aligning our strategy and implementing the
recommendations across our business.
We aim to provide full disclosure on the
Group’s climate risks and opportunities under
the TCFD framework in our FY24 Annual
Report & Accounts.
ESG DISCLOSURE SCORE
As part of SUSTAIN, we will use the ESG
Disclosure Score outlined by the London
Stock Exchange to provide stakeholders
with a comprehensive assessment of our
ESG progress. The ESG Disclosure Score
is intended as a tool for companies to
consider good practice in disclosure of key
quantitative ESG metrics. The London Stock
Exchange has commented that the “ESG
disclosure score is calculated based upon
the level of disclosure against the metrics
considered by FTSE Russell to be the most
material to investors for different industries.
This is drawn from existing ESG standards
including: the Global Reporting Initiative
(“GRI”); Sustainability Accounting Standards
Board (“SASB”); and the Carbon Disclosure
Project and based upon expertise built over
18 years of commercial activity in ESG data
and indexes, working with investors and other
market participants.”
Based on our business being in the
“Consumer Goods, Customer Services &
Healthcare” sector, the ESG Disclosure
Score assesses the following criteria and
more information can be found on the
pages indicated:
Carbon emissions page 51
Energy use page 52
Social and Community investment
page 49
Share of temporary employees 124
Independent Directors page 56
Female Directors page 64
In addition, we also consider employee
training hours, employee turnover rates, share
of human rights, supply chain, sustainability
clothing and waste and recycling to be central
to our ESG strategy.
The recommendations are structured
around four core elements: Governance,
Strategy, Risk Management and Metrics
and Targets. We have taken advice from
our external Sustainability advisors on
how to implement the TCFD framework
across our business and we will work
towards aligning our approach to these
recommendations throughout FY23.
GOVERNANCE
SUSTAIN is sponsored by the Executive
Board and led by Michael Mustard (Group
General Counsel), Sarah Welsh (Retail
CEO) and Aly Fadil (Chief People Officer).
The ESG Committee meets at least twice a
year and is chaired by Non- Executive Director
Michael Ross. A SUSTAIN Steering group,
comprised by the Exec Board representatives
and other Senior Leadership team members,
supports the ESG Committee and reviews
the Sustainability roadmap and keeping
the business on track with its Sustainability
objectives. This forum also reviews any
market trends, potential issues or risks across
the Our People and Our Planet pillars of
the strategy.
Reports are provided to the Executive board
team and up through to the Group Board
via the ESG Committee in line with the
meeting schedule.
In line with the quarterly review, progress
against our targets is measured monthly in
our retail operating committee (ROC).
We will be reviewing our governance
framework to ensure that ESG is embedded
appropriately within the business, we are
ready for the implementation of TCFD
and there is greater general clarity on
ESG responsibilities.
RISK MANAGEMENT
The Group has continued to enhance and
embed risk management practices in support
of the N Brown Enterprise Risk Management
Framework (“RMF”). The RMF enables the
Group to maintain robust governance and
oversight across the business and underpin a
standardised approach to managing risks.
In FY23, the Group will undertake detailed
assessments of climate-related risks and
opportunities and conduct scenario analysis
in line with the TCFD recommendations.
Any specific risk identified will be assessed
and considered alongside other risks using
the established Group RMF.
50
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk EMISSIONS PROFILE
The Companies Act 2006 (Strategic Report
and Directors’ Report) Regulation 2018
streamlined Energy and Carbon Reporting
Policy requires the Group to disclose
global greenhouse gas (GHG) emissions
and underlying energy use for all Scope 1
and 2 emission sources. Our energy and
GHG emissions have been independently
calculated in accordance with the GHG
Protocol, using the operational control
approach. Emission factors published by the
UK Government and the International Energy
Agency (IEA) have been used.
In addition to calculating mandatory direct
emissions, we continue to quantify a range
of indirect Scope 3 emissions relating to the
operation of our core business; including
logistics, business travel, employee
commuting, homeworking, waste generated in
operations and water.
Emissions from our direct operations (Scope 1
and 2) have increased by 5% compared to last
year as business activity has started to return
back to pre-COVID-19 levels. Natural gas and
electricity usage have increased compared to
last year, although location based emissions
for electricity have fallen as a result of
changes in the carbon intensity of the UK
electricity grid. Our market-based emissions
remain zero as we continue to source 100%
of our electricity with the backing of renewable
energy certification.
Emissions associated with HFCs have
increased as a result of faulty air conditioning
equipment at our head office which have
leaked refrigerant gases. The systems have
been fixed and we will continue to routinely
leak test and maintain our air conditioning
systems in-line with best practice. Diesel, gas
oil and company car usage has increased
as a result of higher levels of activity across
our direct operations compared to last
year. Our internal haulage fleet has been
more active as we have imported more
products which also increases onsite
freight movements.
EMISSIONS PROFILE (tCO2e)
Logistics (upstream)
Logistics (downstream)
Electricity (location based)
Natural gas
Fuel and energy-related activities
Employee commuting
Home working
Diesel
HFCs
Waste
Gas oil
Company vehicles
Business travel
Water
56.6%
13.1%
10.2%
7.1%
5.3%
4.5%
1.1%
0.9%
0.6%
0.3%
0.2%
0%
0%
0%
When comparing all reported emission
sources including scope 3, our emissions
have increased by 4%. Following the
disruptions felt during FY21, we have seen
customer demand increase during this year
with a 27% increase in the number of items
shipped compared to the previous year.
To fulfil this growth in demand, more products
have been imported into the business, with
inbound logistics emissions increasing
by 19%. Over the year, we have reduced
airfreight volumes by 2% compared to last
year (44% compared to FY20) and reduced
the emissions intensity per tonne of product
imported by 2.8% (31% compared to FY20).
The emissions associated with the delivery
of our products to customers has fallen by
35% compared to last year. This reduction
is a result of improvements made by our
delivery partners to reduce their emissions
per delivery. Overseas deliveries via airfreight
ceased during the year and there has been
a reduction in the number of two person
deliveries for bulky items – our most emissions
intensive delivery mode.
Emissions from commuting have increased
compared to last year as colleagues are
returning to the office as part of our Hybrid
Working approach. Home working emissions
have fallen which is a result in a reduction in
the amount of home working but also changes
to the methodology. This year we took into
consideration whether our colleagues have
a green electricity tariff and made further
refinements to our modelling of space heating
demand within the household.
Business travel emissions have again fallen,
resulting from continued restrictions linked
to COVID-19. As restrictions are easing,
business travel will resume to some degree
next year and business travel emissions are
expected to increase. We will continue to
promote the use of technology to reduce the
business travel impact as much as possible.
Emissions associated with fuel and energy
related activity have increased because we
have consumed more energy during the
year. There have also been changes in the
methodology used by the UK Government
when calculating the associated emission
factors which have led to a 48% increase on
last year.
51
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk SUSTAIN – FOR TODAY, FOR TOMORROW, FOREVER CONTINUED
LOOKING FORWARD TO FY23 CONTINUED
GOVERNANCE CONTINUED
Scope
Scope 1
Natural gas
Diesel
HFCs
Gas oil
Company vehicles
Scope 2
Electricity (location based)
Electricity (market based)
Total Scope 1 and 2
Scope 3 (estimated)
Water
Employee commuting
Home working
Business travel
Waste
Fuel and energy-related activities
Logistics (upstream)
Logistics (downstream)
Total
Outside Scopes – Biogenic element
– Diesel
Total GHG tCO2e
FY22
FY21
tCO2e
change from
previous year
% change from
previous year
1,876.2
227.8
152.2
47.4
12.8
2,680.3
0.0
4,996.5
10.7
1,181.8
298.3
7.3
75.8
1,401.1
14,878.5
3,446.4
26,296.4
14.1
1,579.6
172.3
9.5
42.4
12.1
2,925.8
0.0
4,741.5
11.0
714.1
814.9
141.5
81.2
945.8
12,466.3
5,317.5
25,233.9
8.0
296.6
55.5
142.7
5.0
0.7
-245.5
0.0
255.0
-0.3
467.7
-516.7
-134.2
-5.4
455.3
2,412.2
-1,871.1
-1,062.5
6.1
19%
32%
1502%
12%
5%
-8%
0%
5%
-3%
66%
-63%
-95%
-7%
48%
19%
-35%
4%
76%
EMISSIONS INTENSITY
We track the emissions intensity of our operations by tracking emissions per the number of items
shipped against an FY15 baseline. Compared to last year, our emissions intensity has fallen by
17% compared to last year and by 50% against the FY15 baseline for scope 1 & 2.
SCOPE 1 AND 2 ONLY
Emissions Intensity Ratio
tCO2e per mil. Items shipped
% Change against FY15 baseline
FY15
323.6
–
FY21
196.0
-39%
FY22
162.4
-50%
We have also tracked this measure inclusive of scope 3 emissions (excluding logistics) and
compared to last year, our emissions intensity has fallen by 16% compared to last year and by
49% against the FY15 baseline.
SCOPE 1,2 AND 3 (EXCLUDING LOGISTICS)
Emissions Intensity Ratio
tCO2e per mil. Items shipped
% Change against FY15 baseline
FY15
505.6
–
FY21
308.0
-39%
FY22
259.1
-49%
GLOBAL ENERGY USE AND EMISSIONS
The tables below show the proportion of energy use and scope 1 and 2 GHG emissions
that occurred within the UK and Non-UK countries. In FY22, 99.1% of the Group’s energy
consumption arose from UK operations. Our overall energy usage has increased by 10%
compared to last year.
Energy
UK
Non-UK
Total Energy Use
Emissions
UK
Non-UK
Total Scope 1 +2 GHG Emissions
52
FY22 kWh
24,030,411
230,176
24,260,587
FY22 tCO2e
4,951.7
44.8
4,996.5
%
99.1%
0.9%
%
99.1%
0.9%
FY21 kWh
21,848,505
169,435
22,017,940
FY21 tCO2e
4,694.0
47.0
4,741.0
%
99.2%
0.8%
%
99.0%
1.0%
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk MANDATORY GHG
REPORTING NOTES
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 statement. Scope 1 and 2 emissions
have been calculated using the operational
control approach in accordance with the GHG
Protocol Corporate Accounting and Reporting
Standard. The quantified emissions are for
the reporting period 1st March 2021 to 28th
February 2022.
GHG emissions factors published by the UK
Government and International Energy Agency
for 2021 have been used to calculate GHG
emissions. For activities outside the UK,
emissions factors provided by the International
Energy Agency (IEA) have been used to
calculate GHG emissions.
DATA RECORDS
Natural gas and electricity: Emissions
are primarily calculated based on actual
or estimated metered consumption from
invoices, meter readings or half hourly
consumption data. Where actual metered data
is not available, energy consumption has been
estimated using floor areas and published
benchmarks. Some data has been estimated
from previous periods of consumption where
quarterly bills have not yet been published.
Gas oil: Fuel is used in stand-by generators
and onsite transport such as forklifts and
shunter trucks. 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: There has been no
company car business travel during the latest
reporting period. Pool cars and pool vans
(used to transport items between logistics
sites) emissions are calculated based on the
annual mileage recorded for the vehicles.
HFCs: Refrigeration emissions have been
calculated from the F-Gas register or services
records where the volume of refrigerant gas
lost to the atmosphere during the reporting
period is known. Where service records were
not available, emissions have been estimated
using the screening methodology and an
assumed average leakage rate. Where details
are not available (i.e. for a few units in
Bangladesh) it has not been possible to
estimate emissions. It has not been possible
to estimate the emissions associated with
installation of new units at the Bangladesh site,
due to limited information. The unaccounted
for emissions are deemed to be insignificant.
Business travel (air, rail): There are two
types of air travel carried out by N Brown:
traditional business travel and travel for
photoshoots. There were no photoshoot
or business journeys by air during the
latest reporting period due to COVID-19
restrictions. Rail figures are provided by
Clarity who provide a breakdown, by journey,
including distance travelled and journey type
(underground / national rail).
Business travel (private cars): 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, water consumption and
treatment is estimated based on a standard
benchmark against full time staff equivalent.
There are a few closed stores which are
included within the scope of reporting due
to them still being leased to N Brown. As the
stores were closed for the duration of the
reporting period, it has been assumed that
there has been no water usage on site.
Waste: Most of the Group’s waste (Head
Office and logistics sites) is managed by
Viridor. Viridor provide a breakdown of weight
of waste disposed of by N Brown split by
waste type and disposal method. For the
sites which are not managed by Viridor, waste
audits are completed over a week as a sample
and figures are annualised. There are a few
closed stores which are included within the
scope of reporting due to them still being
leased to N Brown. As the stores were closed
for the duration of the reporting period, it has
been assumed that there has been no waste
from these stores.
Employee commuting: Employee
commuting habits are captured using an
annual staff survey. The results are taken as
a sample of all employees and the results are
uplifted by the total number of employees to
approximate total emissions.
Home working: Some colleagues have
continued to work from home during the
reporting period as per our Hybrid Working
model. The emissions associated with home
working (e.g. as a result of lighting, heating
and I.T. equipment) has been captured
using an staff survey. For this year changes
to the methodology were made to capture
information relating to green electricity
contracts at home as well as refinements to
the modelling of space heating usage.
Supply chain logistics: Internal data
and data provided by third party service
providers has been used to calculate the
supply chain emissions associated with
the movement of goods from the factory
door through to deliveries to our customers.
High level estimates have been used where
primary or secondary data was unavailable.
UK Government emission factors and supplier
specific emission factors, where available,
have been utilised.
53
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk GOVERNANCE REPORT
Setting a high standard
of governance
GOVERNANCE REPORT
Chair’s introduction
LEADERSHIP AND PURPOSE
Group Board Directors
Executive Board Directors
DIVISION OF RESPONSIBILITY
Governance structure
COMPOSITION, SUCCESSION AND
EVALUATION
Board composition
Nominations and Governance
Committee report
AUDIT, RISK AND INTERNAL CONTROL
Audit and Risk Committee report
Financial Services Board Committee report
REMUNERATION
Remuneration Committee report
ADDITIONAL DISCLOSURES
Viability statement
55
56
58
62
64
67
68
74
75
94
95
54
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk INTRODUCTION FROM
THE CHAIR
Ron McMillan
Independent Non-Executive Chair
THE CODE
The Company continues to comply with the UK
Corporate Governance Code (“the Code”) on
a voluntary basis. The Board is responsible for
ensuring that the Company has appropriate
frameworks in place to ensure compliance.
66
The statement of compliance
is included on p66.
LEADERSHIP AND PURPOSE
The role of our Board is to promote the long-
term sustainable success of the Company.
This includes leading by example, acting with
integrity at all times and ensuring effective
engagement with stakeholders.
56
More information can be
found on p56 to 61.
DIVISION OF RESPONSIBILITY
The Board has the appropriate balance of
Executive and Non-Executive Directors in
order to lead the Company effectively, with
the responsibilities between the leadership of
the Board and the executive leadership of the
Company clearly defined.
62
More information can be
found on p62 to 63.
COMPOSITION, SUCCESSION
AND EVALUATION
The Board maintains an appropriate
combination of skills, experience and knowledge
to ensure effective governance over the
Company. This includes an effective evaluation
and succession plan.
64
More information can be
found on p64 to 66.
AUDIT, RISK AND INTERNAL
CONTROL
The Board determines the Company’s strategy,
taking account of the need to avoid or manage
unnecessary or unacceptable risks. On behalf
of the Board, the Audit and Risk Committee has
established formal and transparent processes to
oversee the independence and effectiveness of
internal and external audit functions.
68
More information can be
found on p68 to 74.
REMUNERATION
The remuneration policy aims to incentivise
strong performance by supporting strategy and
long-term sustainable success while avoiding
excess. We are also mindful of wider colleague
remuneration across the business.
75
More information can be
found on p75 to 93.
I was delighted to assume the role of
Group Chair, on 31 March 2021. Gill Barr
has taken on my previous role of Senior
Independent Director.
I am committed to ensuring that the
Board remains focused on the delivery of
sustained growth for the long-term benefit of
all stakeholders.
This is supported by the appointment of
Nuno Miller to the Executive Board as the
Group’s new Chief Operating Officer (COO).
Nuno’s role is to strengthen the Group’s
ongoing digital transformation and set out
the technology roadmap to support the
new strategy as we continue to transition
away from legacy systems. Nuno has very
significant experience of delivery change
programmes in retail businesses and of
technology platforms.
I am also pleased to announce the
appointment of Michael Mustard to the
Executive Board as General Counsel and
Company Secretary on 1 March 2022.
Michael joins from Tesco Bank where he was
Legal Director and Company Secretary and a
member of the Bank’s executive team. I would
like to thank Christian Wells who was our
interim General Counsel for six months.
Dominic Platt was appointed in June 2021
as a Non-Executive Director and permanent
Audit and Risk Committee Chair. Dominic is
the current Chief Financial Officer of BGL
Group, a position he has held since March
2016. I would like to extend my welcome to
Dominic and know he will make a valuable
contribution. I would also like to thank Vicky
Mitchell who had assumed the Audit and Risk
Committee Chair role on an interim basis until
Dominic’s appointment.
55
“ The Board believes that good corporate governance enhances corporate performance and accountability. It creates an environment that improves leadership, accountability, effectiveness and better decision-making.”FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk LEADERSHIP AND PURPOSE
GROUP BOARD DIRECTORS
Ron McMillan
Independent
Non-Executive Chair
Appointed to the Board: April 2013
Appointed Chair of the Board:
March 2021
Meetings attended 8/8
First appointed to the Board in
April 2013, Ron served as Senior
Independent Director until his
appointment as Board Chair in
March 2021. Prior to joining the
Board, he was the Deputy Chair
of PricewaterhouseCoopers in the
Middle East and Northern Regional
Chairman of the UK firm.
Key strengths
• Retail and digital retail
• Corporate finance
• Governance
• Risk management
• Remuneration
External appointments
Ron is the Senior Independent
Director and Chair of the Audit
Committee of B&M European Value
Retail SA and SCS Group plc. He
is also a Non-Executive Director
and Chair of the Audit Committee of
Homeserve Plc.
Steve Johnson
Chief Executive Officer
Appointed to the Board:
September 2018
Rachel Izzard
Chief Financial Officer
Appointed to the Board:
June 2020
Meetings attended 8/8
Steve was appointed CEO of N
Brown in February 2019 having been
appointed Interim CEO in September
2018. Having originally joined the
Group as Financial Services Director
in February 2016, he was appointed
CEO of the Financial Services
Operating Board in November 2017.
Steve joined N Brown from Shop
Direct Group Limited where he was
Financial Services Marketing and
Product Director for four years and
prior to that held senior roles at
Sainsbury’s and Halifax.
Strategy and change management
Key strengths
•
• Retail and digital retail
• Financial Services
• Governance
• Risk management
• Technology, data analytics and AI
• Marketing
External appointments
None.
Meetings attended 8/8
Rachel was appointed as CFO in
June 2020 after joining the Company
in April 2020. Prior to this she was
CFO at Aer Lingus, leading the
Finance and Technology functions,
successfully driving a step change
in performance, and integrating the
company into the IAG group. Over
her career Rachel has held a range of
CFO, technology, and senior finance
roles in the Airline and Logistics
sectors, based in locations in Asia,
the US and Europe.
Key strengths
• Strategy and change management
• Retail and digital retail
• Corporate finance
• Governance
• Risk management
• Technology, data analytics and AI
External appointments
Rachel is a Non-Executive Director
and Chair of the Audit and Risk
Committee at Raspberry Pi.
Gill Barr
Senior Independent Non-
Executive Director
Appointed to the Board:
January 2018
Appointed Senior Independent
Director: March 2021
Meetings attended 7/7
Gill joined the Board in January
2018 and was appointed Senior
Independent Director in March 2021.
She was previously a Non-Executive
Director of Morgan Sindall Plc,
Group Marketing Director of The
Co- operative Group and Marketing
Director of John Lewis. Gill also spent
seven years at Kingfisher plc in a
variety of senior strategy, marketing
and business development roles.
Gill is the Chair of the N Brown
Remuneration Committee.
Key strengths
• Retail and digital retail
• Strategy and change management
• Financial Services
• Governance
• Remuneration
• Marketing
External appointments
Gill is a Non-Executive Director of
PayPoint Plc and Wincanton Plc.
Joshua Alliance
Non-Executive Director
Appointed: December 2020
Meetings attended 7/8
Joshua joined the Board in
December 2020. After graduating
from Manchester University in 2011,
and following experience working in
other developing hi-tech businesses,
Joshua joined the Company in 2014.
He was formerly Head of Business
Innovation for J.D. Williams &
Company Limited.
Key strengths
• Retail and digital retail
• Strategy and change management
• Technology, Data analytics and AI
External appointments
Joshua is a Non-Executive Director
of a number of digitally based public
and private companies in the UK and
Israel including SimilarWeb, Moon
Active, Sparkbeyond, EyeSpy360,
Hexa, Woo.io, SeeTrue and
Dropit Shopping.
56
Dominic Platt
Independent Non-
Executive Director
Appointed: June 2021
Meetings attended 6/6
Dominic was appointed to the Board
on 10 June 2021. Dominic is the
current Chief Financial Officer of BGL
Group, a position he has held since
March 2016. Prior to joining BGL
he was Group Finance Director and
MD of International Businesses at
Darty plc from 2010-2015 and spent
18 years at Cable and Wireless plc
where he held a number of financial
roles. Dominic is the Chair of the N
Brown Audit and Risk Committee.
Key strengths
• Financial Services
• Retail and digital retail
• Governance
• Strategy and change management
• Corporate finance
• Risk management
External appointments
Dominic is the Chief Financial Officer
at BGL.
FORTHCOMING BOARD
APPOINTMENTS
Michael Mustard
General Counsel and
Company Secretary
Appointed: March 2022
Michael joined the Group in March
2022. Prior to joining he was Legal
Director and Company Secretary at
Tesco Bank and a member of the
Bank’s Executive, working closely
with the retail leadership team.
He brings with him considerable
commercial, M&A and regulatory
investigation experience. Prior to
joining Tesco Bank he held senior
positions in banking, law and
private equity and is a qualified
chartered accountant.
Key strengths
• Financial Services
• Governance
External appointments
None.
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk Lord Alliance of
Manchester CBE
Non-Executive Director
Appointed to the Board:
November 1968
Meetings attended 5/8
Lord Alliance was appointed a
Director and Chair of the Company
in 1968. He stood down as Chair on
1 September 2012. Co- founder and
former Chairman of Coats Viyella
PLC, Lord Alliance holds numerous
honorary doctorates.
Key strengths
• Retail and digital retail
• Strategy and change management
• Corporate finance
• Financial Services
• Governance
• Marketing
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.
Richard Moross
Independent Non-
Executive Director
Appointed to the Board:
January 2018
Meetings attended 8/8
Richard joined the Board in October
2016 and was appointed Designated
Director for Colleague Engagement
in 2019. 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.
Key strengths
• Retail and digital retail
• Strategy and change management
• Technology and data analytics
• Remuneration
• Marketing
External appointments
Richard is an Executive Director
of Moo Print Ltd.
Michael Ross
Independent Non-
Executive Director
Appointed to the Board:
January 2018
Meetings attended 8/8
Appointed to the Board in January
2018, 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
• Retail and digital retail
• Strategy and change management
• Financial Services
• Risk management
• Technology, data analytics and AI
• Marketing
External appointments
Michael is a Non-Executive Director
of Sainsbury’s Bank. He also sits on
the commercial development board
at the Turing Institute.
Vicky Mitchell
Independent Non-
Executive Director
Appointed to the Board:
January 2020
Meetings attended 8/8
Appointed in January 2020, Vicky
brings over 20 years of consumer
finance experience to the Board.
Formerly Chief Operating Officer of
Capital One (Europe) plc, she was
one of the original executives of
Capital One in the UK, previously
holding the positions of Chief Risk
Officer and Chief Legal Counsel.
Key strengths
• Strategy and change management
• Financial Services
• Governance
• Risk management
• Remuneration
External appointments
Vicky is a Non-Executive Director of
Lookers plc. She is the interim Chair
of the Remuneration Committee,
sits on the Audit and Risk Committee
and is the Chair of Lookers Motor
Group Ltd. Vicky is also a Non-
Executive Director of West Bromwich
Building Society where she sits on
the Risk Committee and
Remuneration Committee.
OFFICER’S WHO SERVED DURING THE YEAR
Theresa Casey
General Counsel and
Company Secretary
Appointed: March 2015
Christian Wells
Interim General Counsel
and Company Secretary
Appointed: October 2021
Matt Davies
Independent Non-
Executive Chair
Resigned: March 2021
Lesley Jones
Independent Non-
Executive Director
Resigned: March 2021
Resigned: October 2021
Retained until: May 2022
Meetings attended 1/1
Meetings attended 1/1
Meetings attended: 4/5
Theresa 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 at the Co-operative Bank,
Shop Direct, and Brown Shipley
Private Bank. Theresa acted as
Secretary to all Board Committees
and the Executive Board.
Meetings attended 4/4
Position held: October 2021 –
March 2022
Retained until: end May 2022
Christian joined the Group in
October 2021 as Interim Company
Secretary. Christian joined from Yell
Group Limited (formerly Hibu Group
Limited), a leading digital marketing
business operating across the US
and UK, where he was General
Counsel and Company Secretary
and Chief Risk Officer. Prior to this
he was Chief Counsel Europe and
Chief Counsel UK Group at Sara Lee
Corporation, an American consumer
goods company.
57
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk LEADERSHIP AND PURPOSE CONTINUED
EXECUTIVE BOARD DIRECTORS
Steve Johnson
Chief Executive Officer
Appointed to the Board:
September 2018
Rachel Izzard
Chief Financial Officer
Appointed to the Board:
June 2020
Alyson Fadil
Chief People Officer
Appointed to the Board:
April 2018
Kenyatte Nelson
Chief Brand Officer
Appointed to the Board:
June 2019
Meetings attended 12/12
Steve was appointed CEO of N
Brown in February 2019, having been
appointed Interim CEO in September
2018. Having originally joined the
Group as Financial Services Director
in February 2016, he was appointed
CEO of the Financial Services
Operating Board in November 2017.
Steve joined N Brown from Shop
Direct Group Limited where he was
Financial Services Marketing and
Product Director for four years and
prior to that held senior roles at
Sainsbury’s and Halifax.
Strategy and change management
Key strengths
•
• Retail and digital retail
• Financial Services
• Governance
• Risk management
• Technology, data analytics and AI
• Marketing
External appointments
None.
Meetings attended 11/12
Rachel was appointed as CFO in
June 2020 after joining the Company
in April 2020. Prior to this she was
CFO at Aer Lingus, leading the
Finance and Technology functions,
successfully driving a step change
in performance, and integrating the
company into the IAG group. Over
her career Rachel has held a range of
CFO, technology, and senior finance
roles in the Airline and Logistics
sectors, based in locations in Asia,
the US and Europe.
Key strengths
• Strategy and change management
• Retail and digital retail
• Corporate finance
• Governance
• Risk management
• Technology, data analytics and AI
External appointments
Rachel is a Non-Executive Director
and Chair of the Audit and Risk
Committee at Raspberry Pi.
Meetings attended 12/12
Alyson joined N Brown in April 2018
having spent her HR career in retail,
hospitality and leisure. Experienced
at delivering cultural change, Alyson
has worked in a number of dynamic,
fast paced, retail businesses including
Misguided, Selfridges and Sofology.
Key strengths
• Strategy and change management
•
External appointments
Marks Electrical Group Plc.
Retail
Meetings attended 11/12
Kenyatte was appointed Chief
Brand Officer in June 2019, with
responsibility for Customer Insight,
Marketing Strategy, Proposition
Design, Creative and Customer
Communication. Before joining N
Brown, Kenyatte spent time at both
Shop Direct and Missguided as Group
Marketing and Creative Director and
Chief Customer Officer respectively.
Before moving to the UK, he spent 16
years at Procter & Gamble in various
general management roles across the
Americas and EMEA.
Key strengths
• Retail and digital retail
External appointments
Kenyatte is a Non-Executive Director
of the British Retail Consortium.
DIRECTORS OR COMPANY SECRETARIES WHO SERVED DURING THE YEAR
Theresa Casey
General Counsel and
Company Secretary
Appointed to the Board:
March 2015
Resigned from the Board:
October 2021
Meetings attended: 4/5
Theresa 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 at the Co-operative Bank,
Shop Direct, and Brown Shipley
Private Bank. Theresa acted as
Secretary to all Board Committees
and the Executive Board.
Adam Warne
Chief Information Officer
Appointed to the Board:
April 2018
Resigned from the Board:
October 2021
Meetings attended: 5/7
Adam joined the Board in April 2018
as Chief Information Officer following
ten years 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.
Christian Wells
Interim General Counsel
and Company Secretary
Appointed to the Board:
October 2021
Retained until:
May 2022
Meetings attended 4/4
Position held: October 2021 –
March 2022
Retained until: end May 2022
Christian joined the Group in
October 2021 as Interim Company
Secretary. Christian joined from Yell
Group Limited (formerly Hibu Group
Limited), a leading digital marketing
business operating across the US
and UK, where he was General
Counsel and Company Secretary
and Chief Risk Officer. Prior to this
he was Chief Counsel Europe and
Chief Counsel UK Group at Sara Lee
Corporation, an American consumer
goods company.
58
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk Sarah Welsh
CEO of Retail
Appointed to the Board:
March 2020
Meetings attended 12/12
Sarah was appointed CEO of Retail
in March 2020. With over 25 years of
retail and brand experience on the UK
high street, she held senior buying
roles in both River Island and the
Arcadia Group before joining Oasis
Fashions where she progressed from
senior manager to Managing Director
during her tenure.
Sarah has a passion for product,
brand and customer.
Key strengths
• Retail and digital retail
External appointments
None.
Dan Joy
CEO of Financial
Services
Appointed to the Board:
December 2020
Meetings attended 12/12
Dan was appointed CEO of Financial
Services in January 2020 following
11 years at Ikano Bank where he held
several leadership roles including
UK Country Manager and, latterly,
Group Chief Commercial Officer. Dan
has extensive Financial Services
experience across multiple sectors
having worked at Zurich Insurance,
Fairpoint plc and Capital One.
Key strengths
• Financial Services
• Corporate finance
• Risk management
External appointments
None.
Nuno Miller
Chief Operating Officer
Appointed to the Board:
November 2021
Meetings attended 4/4
Nuno Joined N Brown as Chief
Operating Officer in November 2021.
Nuno has over 20 years’ experience
and has successfully delivered
change across multiple industries,
including the retail, fashion, luxury
and technology sectors. Nuno joined
N Brown from the multinational
fashion group, Sonae Fashion,
where he was Chief Digital and
Information Officer. Before joining
Sonae, Nuno spent three years as the
Chief Information Officer at farfetch.
com where he was a member of
the executive leadership team and
responsible for the luxury retailer’s
technology platform.
Key strengths
• Retail and digital retail
• Technology,data analytics and AI
• Change management
• Organisational design
External appointments
None.
FORTHCOMING BOARD
APPOINTMENTS
Michael Mustard
General Counsel and
Company Secretary
Appointed to the Board:
March 2022
Michael joined the Group in March
2022. Prior to joining he was Legal
Director and Company Secretary at
Tesco Bank and a member of the
Bank’s Executive, working closely
with the retail leadership team.
He brings with him considerable
commercial, M&A and regulatory
investigation experience. Prior to
joining Tesco Bank he held senior
positions in banking, law and
private equity and is a qualified
chartered accountant.
Key strengths
• Financial Services
• Governance
External appointments
None.
59
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk LEADERSHIP AND PURPOSE CONTINUED
BOARD LEADERSHIP
The Board comprises ten Directors of
whom eight are Non-Executive Directors,
including the Chair. Of the eight Non-
Executive Directors, Lord Alliance of
Manchester and Joshua Alliance are
not considered by the Board to be
independent. The Board met eight times
during the year, with attendance set out
in the table below.
In addition, a number of Non-Executive
Director only meetings were held this year to
allow the Non-Executives to discuss matters
without the Executive Directors present.
The role of the Board is to promote the long-
term sustainable success of the Company,
generating value for the shareholders while
meeting the appropriate interests of relevant
stakeholders. The Board establishes the
Company’s purpose, values and strategy, and
satisfies itself that these and its culture are
aligned. Board Directors act with integrity, lead
by example and promote the desired culture
of the business. The Board ensures that the
necessary resources are in place for the
Company to meet its objectives and measure
performance against them. The Board has
established a framework of prudent and
effective controls which enable risk to be
assessed and managed.
BOARD COMPOSITION
10
POWERS OF THE DIRECTORS
The Directors are responsible for the
management of the Company and may
exercise all powers of the Company subject
to applicable legislation and regulation, and
the Company’s Articles of Association may
only be amended by a special resolution at
a general meeting of shareholders.
The powers of the Directors are described in the
Board Terms of Reference for the Board and its
Committees are available on the Groups website
www.nbrown.co.uk
TEN DIRECTORS ON THE BOARD
BOARD COMMITTEE MEMBERSHIP
8
Member
Ron McMillan
Steve Johnson
Rachel Izzard
Gill Barr
Richard Moross
Michael Ross
Vicky Mitchell
Dominic Platt
Committee key
Chair
A R N
F
N Nominations
and Governance
EIGHT DIRECTORS OF THE BOARD,
INCLUDING THE CHAIR, ARE NON-
EXECUTIVE DIRECTORS
A Audit and Risk
F Financial Services Board
R Remuneration
32
Further details of risk management
and control can be found on
p32 to 37.
56
Full biographical details of all
Directors appear on p56.
The Board ensures effective engagement
with all key stakeholders of the business,
a core principle of which is the provision
of effective channels through which
colleagues can raise any matters of concern.
Information on the Company’s engagement
with colleagues during the year is detailed
on p40 and our Section 172 Statement
outlining wider stakeholder engagement
across the year.
BOARD AND COMMITTEE MEMBER ATTENDANCE
PLC Board
Remuneration
Committee
Audit and Risk
Committee
Nominations
and
Governance
Committee4
Financial
Services Board
Committee
8
8/8
8/8
8/8
8/8
5/8
8/8
8/8
8/8
7/8
6/6
6
6/6
–
–
6/6
–
6/6
–
–
-
4/4
4
–
–
–
–
–
–
4/4
4/4
–
2/2
1
1/1
–
–
1/1
–
–
–
–
–
–
4
4/4
4/4
4/4
–
–
–
1/2
4/4
–
4/4
Total meetings
Ron McMillan
Steve Johnson
Rachel Izzard
Gill Barr
Lord Alliance1
Richard Moross
Michael Ross3
Vicky Mitchell
Joshua Alliance2
Dominic Platt
1 Lord Alliance was unable to attend three Board meetings in FY22 due to illness. He was represented
by Joshua Alliance.
2 Joshua Alliance was unable to attend one Board meetings in FY22 due to a prior commitment.
3 Michael Ross was unable to attend one Financial Services Board Committee meeting in FY22 due
to a prior commitment.
4 The Nominations and Governance Committee held one meeting during the year which met the quorum
required as set out in the terms of reference.
60
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk KEY ACTIVITIES
The following summarises some of the Board’s key activities over the past year:
BUSINESS PERFORMANCE
AND STRATEGY
Setting the Company’s strategic direction
and priorities and KPIs.
REGULATORY COMPLIANCE
Receipt of whistleblowing reports.
Overwrite of Insurance Risk.
Review of the Company’s performance
against its strategic priorities and KPIs.
Oversight of the Company’s operations
and trading strategy during the
Covid-19 pandemic.
FINANCIAL PERFORMANCE
Assessment of the Company’s overall
financial and operational performance
including monitoring of liquidity.
Approval of FY21 Annual Report and
Accounts and Preliminary Results
announcement as well as the FY22
Interim Results and Announcement.
Approval of the Group’s FY22 budget
and future financing needs.
RISK AND OPPORTUNITY
Review and approval of the Company’s
risk management framework, risk register,
risk appetite and governance framework.
STAKEHOLDER MATTERS
Approval of material contracts
and investment proposals.
Board Evaluation Review.
Amendment to the Groups
Banking Facilities.
Technology updates.
Material litigation updates.
CULTURE AND GOVERNANCE
Review approach to retention
of colleagues.
Talent and succession planning
Recruitment of key Board positions.
The Board also took part in training sessions on the regulatory agenda and specialist
matter topics.
66
See p66 for
further information.
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. Where necessary, the Board
has delegated operational matters to sub-
Committees, and to its Executive Directors
and senior officers.
Further information on the responsibilities
of each Committee is set out on p63.
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. Committee meeting attendance is
detailed in the table on p60.
After each Committee meeting, the Chair
of the Committee makes a formal report to
the Board of Directors detailing the business
carried out by the Committee and setting out
any recommendations.
63
Further information of the
responsibilities of each
Committee is set out on p63.
BOARD ADMINISTRATION
Board papers include detailed management
reports from the Chief Executive Officer and
the Chief Financial Officer, Management
accounts, broker analysis, 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 at each meeting.
Outside of the meetings there is a regular flow
of information between the Board of Directors
and the Executive Board.
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.
As permitted by the Articles of Association,
the Directors have the benefit of an indemnity
which is a qualifying third-party indemnity
provision as defined by section 234 of the
Companies Act 2006. The indemnity was
in force throughout the last financial year
and is currently in force. The Company
also purchased and maintained Directors’
and Officers’ liability insurance throughout
the financial year in respect of itself and
its Directors.
61
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk DIVISION OF RESPONSIBILITY
GOVERNANCE STRUCTURE
ROLES AND RESPONSIBILITIES
GROUP BOARD
The Group Board is collectively responsible
for the overall leadership of the Company
and for setting its values and standards.
It approves the Company’s strategic aims and
objectives, is responsible for all major policy
decisions and oversees their delivery while
ensuring maintenance of a sound system
of internal control and risk management.
The Board is ultimately responsible for
determining the strategic risks it is willing to
take in achieving the Company’s objectives.
The Board’s duty is to promote the success of
the Company for the benefit of its members as
a whole; it reviews performance in light of the
Company’s business plans and budgets and
ensures that any necessary corrective action
is taken.
The formal list of matters reserved for the Board
can be found at www.nbrown.co.uk
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. The key responsibilities
of each Committee are outlined in the
graphic overleaf.
The formal written Terms of Reference of each
Committee can be found at www.nbrown.co.uk
KEY ROLES
Resilient and open working relationships
between Directors are vital to the effective
and successful running of the Board and
the wider Group, with the Non-Executive
Directors providing constructive challenge and
alternative views to the Board. The roles of
the Chair, Senior Independent Director, Chief
Executive Officer, Chief Financial Officer and
Company Secretary are particularly crucial
to this endeavour; a summary of their roles
and responsibilities as agreed and set out in
writing, can be found opposite.
62
D
R
A
O
B
E
V
T
U
C
E
X
E
I
D
N
A
S
N
O
T
A
N
I
E
E
T
IT
M
M
O
C
E
C
N
A
N
R
M
O
N
I
E
V
O
G
E X E CUTIVE BOARD
F I N A N CIAL SERVICES
B O A R D COMMITTEE (FSB)
GROUP BOARD
AUDIT AND RISK C O M M I T T E E
EXECUTIVE BO A R D
R
E
M
U
N
I
E
R
A
T
O
N
C
O
M
M
IT
T
E
E
EXECUTIVE BOARD
The Executive Board is
responsible for the day-to-
day operations and running
of the Company, monitoring
progress against and
delivering on its strategy
while ensuring that the
policies and procedures
as decided by the Group
Board are implemented
and enforced across
the business.
THE BOARD
CHAIR
Responsible for the overall leadership
and governance of the Board and for
overseeing performance.
CHIEF EXECUTIVE OFFICER
Has delegated authority from the Board and is
responsible for the conduct of the whole of the
business of the Company.
Responsible for promoting a culture of
openness and debate by facilitating the
effective contribution of all Board members.
Delivers the Company’s strategy in
accordance with its objectives and
regulatory requirements.
Responsible for ensuring the Company’s
strategy is formulated clearly and is well
understood both internally and externally.
Develops and has oversight of the Company’s
corporate culture in the day-to-day
management of the business.
Responsible for fostering good
relationships between Executive and
Non-Executive Directors.
Communicates the strategic objectives
of the Company and its core values and
control systems.
Maintains a productive relationship with the
CEO, providing a source of counsel and
challenge on how the business is operated.
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk
BOARD COMMITTEES
FINANCIAL SERVICES
BOARD COMMITTEE
Oversight of the Financial Services
business of the Group.
Sets the values and standards of the
Financial Services operations.
Responsible for oversight and
development of culture and
approval of long-term objectives
and strategy in relation to Financial
Services business.
Ensures that the Financial
Services business delivers good
customer outcomes.
Establishes the risk appetite of the
Financial Services business.
FIND OUT MORE ON
74
FINANCIAL SERVICES
OPERATING COMMITTEE
The Financial Services and
Operating Committee is responsible
for the day-to-day oversight and
running of the Financial Services
business, and reports to the
Executive Board and Financial
Services Board Committee.
REMUNERATION
COMMITTEE
Sets and reviews the remuneration
policy and determines the total
individual remuneration package
for all Executive Directors, the Chair
of the Board and other designated
senior executives taking into account
the policies, practices, pay and
employment conditions of the Group.
Reviews Group policies and practices
and works with management and the
Board to ensure alignment of policies
and practices across the Group as well
as the culture of the business.
Approves the design of, and
determines targets for, any
performance-related pay schemes
operated by the Group and approves
the total annual payments made under
such schemes.
Reviews the design of all share
incentive plans for approval by the
Board and shareholders.
Oversees any major changes in
the structure of employee benefits
throughout the Group.
Ensures the Group engages
as appropriate with its principal
shareholders about remuneration.
FIND OUT MORE ON
75
AUDIT AND RISK
COMMITTEE
Reviews the integrity of the financial
statements, financial releases and
significant financial judgements and
estimates relating thereto.
Monitors the scope of work, quality,
effectiveness and independence of
the external auditors and approves
their appointment and fees.
Monitors and reviews the
independence and activities of the
internal Audit function.
Assists the Board and the Financial
Services Board Committee with
the development and execution
of the risk management strategy,
risk policies and exposure and a
risk register.
Keeps under review the adequacy
and effectiveness of the Group’s
internal financial controls
and internal control and risk
management systems.
FIND OUT MORE ON
68
NOMINATIONS AND
GOVERNANCE
COMMITTEE
Identifies and nominates
candidates to fill Board vacancies
having evaluated the balance of
skills, knowledge and experience
already on the Board and
identified capabilities required for
the role.
Responsible for succession
planning, taking into account the
skills and expertise needed on the
Board for the future.
Reviews the structure, size
and composition (including
the skills, knowledge and
experience) of the Board and
makes recommendations to
the Board with regard to any
appropriate changes.
Reviews the leadership needs of
the Group to ensure the continued
ability of the organisation to
compete effectively within
the marketplace.
FIND OUT MORE ON
67
SENIOR INDEPENDENT DIRECTOR
Leads the assessment of the performance of
the Chair by meeting with the Non-Executive
Directors at least once a year to appraise
the Chair’s performance and on such other
occasions as are deemed appropriate.
Acts as a sounding board for the Chair, and
acts as an intermediary for the Directors
when necessary.
Works with the Chair and other Directors and/
or shareholders to resolve significant issues
should they arise.
Chairs the Nominations and Governance
Committee when considering succession to
the role of Chair.
CHIEF FINANCIAL OFFICER
Supports the CEO in providing strategic
direction in relation to the overall finance
strategy for the Company.
COMPANY SECRETARY
Ensures that the Boards and
Committees operate in line with good
corporate governance.
Controls all day-to-day activities pertaining to
finance and business operating systems.
Responsible for assessing the ongoing
appropriateness of accounting and financial
reporting policies of the Company, and where
relevant escalating matters for the attention
of the Board and Audit and Risk Committee,
including matters relating to provisions
and impairments.
Responsible for monitoring and regularly
assessing the adequacy and effectiveness of
Finance processes and controls.
Advises the Board on all matters relating
to the AIM Rules and applicable legal and
regulatory requirements, while working closely
with senior management to anticipate, plan
and address strategic, legal, governance and
compliance matters concerning the Company.
Manages all necessary minutes and actions
all necessary returns and statutory filings on
behalf of the Company.
63
THE BOARD
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk COMPOSITION, SUCCESSION AND EVALUATION
BOARD COMPOSITION
NON-EXECUTIVE DIRECTOR TENURE
8 2 9
7 6 8
9 4 3
3
3
3
1042
107 5
1300
FY22
FY21
FY20
1
6
1
6
1
8
11
8
7
5
4
4
7 6
7
FY20
FY21
FY22
1
3
3
Balanced gender representation across the
business remains a key priority going into
FY23. As of May 2022, there is 30% female
representation at Board level and 43% at
Executive Board level.
BOARD APPOINTMENTS
All appointments to the Board follow a formal,
rigorous and transparent process to ensure
we appoint the best possible candidates.
Due regard is given to the needs of the Board
in respect of skills, experience, independence,
and diversity.
67
Further detail on appointments
made during the year are
provided in the Nominations
and Governance Committee
Report on p67.
DIVERSITY AND INCLUSION
The Board recognises the importance
of diversity of gender, social and ethnic
backgrounds, cognitive and personal
strengths at all levels of the Company as
well as on the Board. We are committed to
equal opportunities and increasing diversity
across our operations. The Board continues
to consider how diversity can be enhanced
on both the Group and Executive Boards,
within the senior leadership team and across
the wider Group while still ensuring the most
appropriate candidates are appointed.
64
50%50%50%50%GENDER BALANCE AT FINANCIAL YEAR ENDFEMALEMALEALL COLLEAGUESSENIOR LEADERSHIP TEAM PLC BOARDEXECUTIVE BOARDAppointed201420152016201720182019202020212022Lord Alliance of Manchester CBE25 November 1968Ron McMillan1 April 2013Richard Moross6 October 2016Gill Barr16 January 2018Michael Ross16 January 2018Vicky Mitchell20 January 2020Joshua Alliance23 December 2020Dominic Platt 10 June 2021 TENUREYears8+5-70-3N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk
to our strategic transformation discussions.
In addition, the Board itself has undergone
some changes over the last 24 months and
there is a clear advantage to keeping Ron in
place while the new Board members establish
themselves. Ron intends to step down at the
end of three years with a full handover to the
new Chair at that time. All directors (including
the Chairman) are subject to reappointment by
the shareholders every year.
CURRENT COMPOSITION
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.
Our current Non-Executive Directors who
served at the financial year ended on
28 February 2022 were:
Ron McMillian (Chair, effective
31 March 2021)
Lord Alliance of Manchester CBE
Gill Barr (Senior Independent Director,
effective 31 March 2021)
Richard Moross
Michael Ross
Vicky Mitchell
Joshua Alliance
Dominic Platt
The composition of the Board and
Committees is regularly reviewed
and refreshed.
BOARD SKILLS AND EXPERIENCE
On 31 March 2021, Gill Barr moved into the
role of Senior Independent Director and Vicky
Mitchell stepped into the role of Acting Chair of
the Audit and Risk Committee.
In June, Dominic Platt was appointed Non-
Executive Director and Chair of the Audit and
Risk Committee.
Vicky Mitchell stepped into the role of Acting
Chair of the Audit and Risk Committee
effective 31 March 2021 subject to Dominic’s
FCA approval which was granted in
November 2021.
Throughout the year, at least half of the
Board comprised independent Non-
Executive Directors.
Ron McMillian was considered independent
at the time of his appointment. Mr McMillan
is to remain as Chair beyond his nine-year
tenure to ensure continuity and stability during
the transformation of the business over the
next three years. We believe this is in the
best interests of the Company while a clear
succession plan is prepared. Mr McMillan
has served on the Board since April 2013 and
his experience brings a valuable perspective
Retail and
digital retail
Strategy
and change
management
Corporate
finance
Financial
Services
Governance
Risk
management
Technology,
data analytics
and AI
Remuneration
Marketing
Ron McMillan
Steve Johnson
Rachel Izzard
Gill Barr
Lord Alliance of
Manchester CBE
Richard Moross
Michael Ross
Vicky Mitchell
Joshua Alliance
Dominic Platt
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. With regard to the appointment
and replacement of Directors, the Company
is governed by the Articles of Association,
the Code, the Companies Act 2006 and
related legislation.
Prior to appointment to the Board, all
Directors are informed of their 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 Chair and are satisfied he has sufficient
time to devote to his role.
External appointments entailing further
significant commitments from the Directors
require the prior approval of the Chair.
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.
At the 2022 Annual General Meeting, all of the
Directors will retire and will offer themselves
for re-election with the exception of Joshua
Alliance who will be seeking ratification of his
appointment. All Non-Executive Directors
serve on letters of appointment stipulating
three-year terms. All appointments are
terminable, without compensation, on six-
months’ notice by either party and are subject
to other early termination provisions without
compensation, for example in the event of a
Director not being re-elected at the Annual
General Meeting.
56
Details of current external
appointments can be found in the
Directors’ biographies set out on
p56-59.
65
BOARD COMPOSITIONExecutive Directors2Non-Executive Directors2Independent Non-Executive Directors6FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk COMPLIANCE WITH THE UK
CORPORATE GOVERNANCE CODE
Throughout the 52 week period ended
26 February 2022, the Company was in
compliance with the principles and provisions
of the UK Corporate Governance Code 2018
(the Code) issued by the Financial Reporting
Council (which is available at www.frc.org.uk).
The Board has complied with all the Code’s
Provisions, with the exception of Provision 19.
This is because Ron McMillan is to remain as
Chair for 3 years after 1 April 2022 beyond
his nine year tenure as explained more fully
on p67.
COMPOSITION, SUCCESSION AND EVALUATION CONTINUED
BOARD COMPOSITION CONTINUED
BOARD DEVELOPMENT
AND TRAINING
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 Board has the opportunity for online and
in-person training as part of the various Board
and Committee meetings.
Board meeting agendas across the year
included detailed discussions on the
following topics:
Directors Duties
Tech roadmap (including new website
front-end development)
Financial Services Platform
OKR Framework
Organisational Design
Product/Brand strategy
Risk Management
BOARD EVALUATION
In 2022, the Board took part in an internal
Board and Committee evaluation.
A comprehensive questionnaire was
developed and completed by all Directors.
Key focus topics were:
Business Strategy and Risk
Communication and remote working
Wider stakeholders
Shareholder value
Knowledge and skills
Board processes
Performance reviews of all Board
and Committees and Chair.
evaluation was completed.
The results of the evaluation were assessed
by the full Board. Key areas of focus and
development over the next 12 months were
identified, including:
Board relationships and dynamics
Directors also underwent external training and
personal development relevant to their roles.
ESG strategy
Risk Appetite review
Shareholder perspectives
Strategic discussions and decision
making by the Board
Talent Strategy and
Succession Planning
Overall the Board is satisfied with the
outcome of the evaluation and believes the
performance of the Chair, Committee Chairs
and Directors, and their commitment to
their respective roles, continues to be fully
effective. The Board and its Committees
continue to provide appropriate oversight
of the Company and challenge to the
Executive team. Overall, the Board remains
effective, positive and cohesive and has the
requisite skills, experience, challenge and
judgement appropriate for the requirements
of the business.
The Company Secretary is responsible for
the induction of new Directors. New Directors
are provided with a comprehensive pack of
information (including Terms of Reference,
information regarding the business and
guidance on their roles and duties as
Directors) and meetings with key colleagues
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.
Non-Executive Directors meet with the
Executive Board members and operational
teams and undertake site visits to ensure that
they have the most up to date knowledge
and understanding of the Company and
its activities. This also allows colleagues
from across the Company 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
attends all Board and Committee meetings
as Secretary. The Chair has regular contact
with each Director and is able to address their
training and development needs.
66
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk
NOMINATIONS AND GOVERNANCE COMMITTEE REPORT
themselves. I intend to step down at the end
of three years with a full handover to the new
Chair at that time.
In addition, the Committee oversaw the
search and appointment of Executive Director
Nuno Miller, Chief Operating Officer, who
was appointed on 1 October 2021, and of
General Counsel and Company Secretary,
Michael Mustard, who was appointed on
1 March 2022.
In early 2022, the Board and its Committees
underwent an internal Board evaluation.
The results were discussed with the whole
Board and an action plan is being developed
for FY23, focusing on succession planning
and talent development.
The Company is proud of its commitment
to and focus on diversity, with details of
our approach to appointments and the
composition of our Board set out on p64.
I would like to thank my fellow Board members
for their continued support. I am available to
speak with shareholders at any time and shall
be available at the Annual General Meeting on
6 July 2022 to answer any questions you may
have on this report.
Ron McMillan
Chair of the Nominations and
Governance Committee
DEAR SHAREHOLDER
I am pleased to present the Nominations and
Governance Committee report for FY22.
The Committee has continued to review the
structure, size and composition of the Board,
with the view of making recommendations to
the Board as appropriate.
As mentioned in last year’s report, Matt Davies
stepped down from the Board on 31 March
2021 and I was honoured to be succeed him
as Chairman.
Sam Allen Associates, which has no
connection to the Group or any of its Directors,
was appointed by the Committee to support
the search for a new Non-Executive Director
of the Board. Following a comprehensive
external candidate search and selection
process, a short list of first-class candidates
was identified.
The Company subsequently appointed
Dominic Platt as a Non-Executive Director on
10 June 2021 and also as a member of the
Remuneration Committee. Mr Platt became
Chair of the Audit and Risk Committee with
effect from 22 November 2021, taking over
from Vicky Mitchell, who was Acting Chair.
I would like to thank Vicky for her tenure
as Chair.
I was considered independent at the time of
my appointment. I will remain as Chair beyond
my nine-year tenure to ensure continuity
and stability during the transformation of the
business over the next three years. The Board
believes this is in the best interests of the
Company while a clear succession plan is
prepared. I have served on the Board since
April 2013 and the Board’s view is that my
experience brings a valuable perspective
to our strategic transformation discussions.
In addition, the Board itself has undergone
some changes over the last 24 months and
there is a clear advantage to keeping me in
place while the new Board members establish
MEMBER
Ron McMillan
April 2013 – Present
(Chair from 31 March 2021)
Gill Barr
January 2018 – Present
Richard Moross October 2016 – Present
Michael Ross
January 2018 – Present
Vicky Mitchell
January 2020 – Present
Dominic Platt
June 2021 – Present
MEETINGS
The Nominations and Governance
Committee held one meeting during the year
which met the quorum required as set out in
the terms of reference.
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 for
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.
Reviewing the leadership needs of the
Group to ensure continued ability of the
organisation to compete effectively within
the marketplace.
Overseeing the Group’s Governance
arrangements and Corporate
Governance Framework.
FY23 PRIORITIES
Reappointing the Chairman for a
further term.
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.
Reviewing the composition of the Board
and its Committees, engaging with external
shareholders where appropriate.
Reviewing the Group’s
governance arrangements.
The Committee’s Terms of Reference can be
found at www.nbrown.co.uk
67
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk
AUDIT RISK AND INTERNAL CONTROL
AUDIT AND RISK COMMITTEE REPORT
DEAR SHAREHOLDER
In June 2021, I was appointed to the Board.
I would like to thank Vicky Mitchell for taking
on the responsibility as Acting Chair of the
Audit and Risk Committee whilst we awaited
for my FCA approval. This was granted
in November 2021, following which I was
appointed as Chair of this Committee.
During the year, the Audit and Risk Committee
continued to carry out a key role within the
Group’s governance framework, supporting
the Board and Financial Services Board
Committee in risk management, internal
control and financial reporting. The Committee
also acknowledges and embraces its role
of protecting the interests of shareholders
regarding the integrity of published financial
information and the effectiveness of audit.
The Committee maintains 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 an
independent view of the key disclosure issues
and risks from the Group’s external auditor.
One of the Committee’s key responsibilities is
to review the scope of work undertaken by the
internal and external auditors and to consider
their effectiveness.
While risk management is a Board
responsibility, the Committee works closely
with the Board, the Financial Services Board
Committee and Group management to ensure
that all significant risks are considered on an
ongoing basis and that all communications
with shareholders are properly considered.
The Committee has maintained oversight
of the embedding of the RMF and key risk
processes. It has reviewed key risks identified
through the RMF and the associated plans to
manage those risks.
In relation to risks and controls, the
Committee ensures that these have been
identified and that appropriate responsibilities
and accountabilities have been set.
The Committee also reviews reports from the
Group’s Compliance function and assesses
the means by which the Group seeks to
comply with regulatory obligations.
During the year, the Committee oversaw
the satisfactory response to a letter from
the Financial Reporting Council, (“FRC”).
The Committee also maintained oversight of
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 Going Concern and Viability Statement
which is set out on p95 of this Annual Report.
The Committee considered whether the
2022 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. In addition,
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 2022 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 in this report.
I am available to speak with shareholders at
any time and shall be available at the Annual
General Meeting on 7 July 2022 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.
Dominic Platt
Chair of the Audit and Risk Committee
MEMBER
Dominic Platt
Vicky Mitchell
June 2021 – Present
(Chairman)
January 2020 – Present
(Acting Chair from March
2021 to November 2021)
Michael Ross
January 2018 – Present
Meetings
attended
2/2
4/4
4/4
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 and the Financial
Services Board Committee with the
development and execution of a risk
management strategy, risk policies and
exposures and a risk register.
Keeping under review the adequacy
and effectiveness of the Group’s internal
financial controls and internal control and
risk management systems.
FY23 PRIORITIES
Continuing to be responsive to the impact
of Covid-19 and wider geopolitical and
economic events on resources.
Ensuring that the Group’s risk
management procedures continue to be
responsive to the impact of Covid-19 on
resources and ways of working.
Ensuring that the Group’s Internal
Audit and Risk functions continue to be
fully resourced.
In conjunction with the Financial Services
Board Committee, ensuring that the
Group complies with the requirements
of the Senior Managers Certification
Regime – the FCA’s enhanced regime for
regulated firms.
Continued monitoring of key change
programmes with particular focus on tech
and strategic execution and their impact on
internal controls.
Monitor key regulatory developments and
impact on business and customer conduct.
The Committee’s Terms of Reference can be
found at www.nbrown.co.uk
68
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk COMMITTEE COMPOSITION
The Committee currently comprises three
members, each of whom is an independent
Non-Executive Director. Two members
constitutes a quorum. The Committee
requires the inclusion of at least one
financially qualified member with recent
and relevant financial experience, and the
Committee Chair, Dominic Platt, 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 p56
the Committee members have significant
experience of working in or with companies
in the retail, financial services and consumer
goods sectors.
The members of the Committee who served
during the year were:
Dominic Platt (Committee Chair from
November 2021)
Vicky Mitchell (Acting Committee Chair) from
31 March 2021 – November 2021)
Michael Ross
Ron McMillan (Resigned 31 March 2021)
Details of Committee meetings and
attendances are set out on p60. The timing of
Committee meetings is set to accommodate
the dates of releases of financial information
and the approval of the scope of and reviews
of outputs from work programmes executed
by the internal and external auditors.
In addition to scheduled meetings, the Chair
of the Committee met with the CFO, Director
of Risk, the Head of Internal Audit and the
external auditors KMPG (including meetings
without management present).
Although not members of the Committee,
the Chair of the Board, CEO, CFO and
representatives from the Group’s internal
and external auditors attend all meetings.
The Secretary of the Committee is the Group’s
General Counsel and Company Secretary.
FINANCIAL SERVICES BOARD
As more fully explained on p45, the Financial
Services Board Committee (“FSB”) is
responsible to the N Brown Board for
oversight of the Financial Services business.
While ultimate oversight of Group risk
remains with the Group Board, the FSB is
responsible for the development and oversight
of the culture, the long-term objectives
and the strategy of the Group’s Financial
Services business.
In relation to internal controls and risk
management within Financial Services, the
FSB approves annual plans and performance
targets and maintains oversight of regulatory
compliance. The FSB makes whatever
recommendations it deems appropriate
on any area within its remit and escalates
to the Group Board such matters as it
deems appropriate.
COMMITTEE ACTIVITIES IN FY22
The table on p73 details the core activities of
the Committee during the year. Key matters
considered included the following:
IMPACT OF COVID-19
The impact of the pandemic continued to be
accounted for during the year.
The Committee reviewed disclosures
made by management in relation to the
pandemic and the measures taken by
management to support the business
throughout. The Committee also reviewed
the associated assumptions used to support
forward estimates. In particular, it reviewed
the reasonableness of the assumptions
made in relation to trade receivables, bad
debt impairment and Group impairment and
inventories impairment.
Given the ongoing challenges posed by Covid
and in line with the joint statement issued by
the FCA and FRC in January 2021, which
encourages Boards to use the measures
granted to allow listed companies an
additional two months to publish their audited
annual financial reports, the Committee again
approved an extended timeline for completion
of the year end accounts.
The Committee remains satisfied that there
continues to be reasonable assurance over
key risk areas despite the challenges to
timelines and resources.
RISK AND INTERNAL CONTROLS
Managing risk is inherent in the way we
do business.
The Board has overall responsibility for
ensuring that the Group maintains a
sound system of internal control and risk
management. The Board recognises that
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.
Oversight of risk and the Group’s risk
management process are provided by a
number of business committees, the Directors
of Risk and Internal Audit, reporting in to the
Financial Services Board Committee, the
Audit and Risk Committee and, ultimately,
the Group Board. The Directors of Risk
and Internal Audit attend all Audit and Risk
Committee meetings.
The Audit and Risk Committee has
maintained oversight of the embedding of
the RMF, the key risks to the business and
their associated action plans. These have
been largely focussed on the technology,
Information Security and Financial Services
areas of the business. The Committee also
reviews summaries of second line compliance
assurance reviews and associated
remediation plans.
32
Further information on the
Group’s Enterprise Risk
Management Framework is
detailed on p32.
The Audit and Risk Committee reviews
annually the overall risk strategy and Risk
Policy, including risk appetite, exposure,
measures and limits, and material
amendments to the risk appetite and related
policies. The Group is proactive in ensuring
that risks are identified and managed.
Key risks are assessed and mitigation
occurs based on the level of residual risk.
A description of the Level One risks is set
out on p34 to p37.
The Board has carried out a robust
assessment of the emerging and principal
risks facing the Group, including those
which threaten its business model, future
performance, insolvency or liquidity.
69
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk
The outcomes of GIA’s work were reported
regularly during the year to the Committee,
the Executive Board and the Financial
Services Board.
The reviews culminated in a series
of recommendations against which
management agreed a number of remedial
actions. Progress against these actions is
formally monitored and their status reported to
the Committee.
There were no restrictions placed on
the scope of work to be carried out by
the GIA function or its ability to report to
the Committee.
The Committee has evaluated the
performance of GIA and has concluded that it
continues to provide helpful and constructive
challenge to management and demonstrates
a commercial and constructive view of
the business.
AUDIT RISK AND INTERNAL CONTROL CONTINUED
AUDIT AND RISK COMMITTEE REPORT CONTINUED
The Committee continues to focus on
improving controls. 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 Financial
Reporting Council (“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. 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.
REVIEWING THE FY22 HALF YEAR
RESULTS, FULL YEAR RESULTS AND
ANNUAL REPORT
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 review by the
external auditors.
Compliance with statutory tax obligations
and the Group’s Tax Policy.
Whether the information set out in
the Annual Report was fair, balanced
and understandable.
Whether the use of “alternative performance
measures” was appropriate.
FINANCIAL REPORTING COUNCIL
During the year, the Committee monitored
the Group’s engagement with external
stakeholders relevant to the Committee’s
areas of oversight, including the Financial
Reporting Council (the “FRC”). In particular,
in January 2022, the Group received a letter
from the Corporate Reporting Review Team
of the FRC in relation to the Group’s FY21
Annual Report and Accounts, as part of its
regular review and assessment of the quality
of corporate reporting in the UK. This letter
did not raise any specific questions or queries
but did note certain specific matters where
they believed that users of the accounts would
benefit from improvements to the existing
disclosures. Specific enhancements to the
disclosures, as identified and observed,
through the review have been taken into
account in the preparation of this Annual
Report and Accounts.
This review considered compliance with
reporting requirements and does not provide
any assurance over the disclosures that were
reviewed. The FRC (which includes the FRC’s
officers, employees and agents) accepts no
liability for reliance on them by the Company
or any third party, including but not limited to
investors and shareholders.
INTERNAL AUDIT
The Head of Internal Audit has a direct
reporting line to the Committee and attended
all Committee meetings. During the year
Group Internal Audit (“GIA”) undertook a
risk-based programme of work which was
discussed with, and approved by, both
Executive Management and the Committee.
During the year GIA carried out reviews
covering the following areas:
Stock Accuracy
Automated Returns
Ethical Supply Chain
Customer Payments
Financial Services Product Governance
Internal Financial Controls
Supplier Relationship Management
Identity & Access Management
Information Security Controls Improvement
Operational Resilience
Financial Crime
Risk Function
70
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk PERFORMANCE OF THE AUDIT
AND RISK COMMITTEE
The Audit and Risk Committee’s performance
was assessed as part of the Board’s internal
evaluation carried out in early 2022, as
detailed on p66. The Board considers that
the processes undertaken by the Committee
are appropriately robust, effective and in
compliance with the guidelines issued by
the FRC. During the year, the Board was not
advised by the Committee, nor did it identify
itself, any failings, frauds or weaknesses in
internal control determined to be material in
the context of the financial statements.
EXTERNAL AUDITORS
KPMG LLP were appointed as external
auditors on 14 July 2015. The partner
responsible for the audit is Anthony Sykes,
a partner in the London office. Anthony has
advised us that he will be leaving KPMG at
the end of September 2022 and we are in the
process of making alternative arrangements.
The total fees paid to KPMG for the year
ended 26 February 2022 were £1.3m.
Further details are set out in note 5]to the
financial statements on p122.
The Board’s policy in relation to the auditors
undertaking non-audit services is that they
are subject to tender processes, unless the
nature of the work means the auditors are
best placed to provide services. The allocation
of work is done on the basis of competence,
cost effectiveness, regulatory requirements,
potential conflicts of interest and knowledge
of the Group’s business. KPMG LLP did not
provide any non-audit services in the course
of the year. The Committee remains mindful
of investors’ attitudes towards the auditors
performing non-audit services.
The Committee will continue to ensure that
fees for non-audit services do not exceed 70%
of aggregate audit fees, as measured over a
three-year period.
The Committee reviews the performance
of KPMG LLP annually based on their
understanding of key areas of judgement and
the extent of challenge, the quality of reporting
and the efficiency and conduct of the audit.
Feedback is sought from management, the
Group’s Finance and Internal Audit functions
and the General Counsel.
The Committee considered in detail KPMG’s
audit planning documentation and satisfied
itself that the audit work to be carried out by
KPMG covered all significant aspects of the
Annual Report and Accounts. There were
no areas which the Committee asked KPMG
to look at specifically. KPMG’s report to the
Committee at the conclusion of the audit
confirmed that the audit had been carried out
as set out in the planning documentation and
the Committee considered the findings of
KPMG as reflected in their audit opinion and
their year end report to the Board. KPMG’s
audit opinion sets out the key matters that,
in their professional judgement, were of
most significance in their audit. These are
consistent with the key matters considered
and agreed with the Committee when the
audit was planned. KPMG’s opinion describes
how these matters were addressed in the
audit and the scope and nature of their work
reflects the thoroughness of their approach
and the degree of scepticism applied.
AUDITOR INDEPENDENCE
The Committee sought and was provided
with assurance from the Audit Engagement
partners that they and all members of KPMG’s
staff engaged on the audit had confirmed that
they and their dependants were independent
and that KPMG as a firm was independent.
AUDIT QUALITY ASSESSMENT
The Committee assessed the quality of
KPMG’s audit in a number of ways:
1) The Committee met with the senior
members of the KPMG audit team on three
occasions during the year and discussed the
planning, execution and reporting of audit
work and findings. All senior members of the
KPMG team contributed to these meetings.
2) In conjunction with the CFO and senior
members of the finance team, the Committee
discussed and assessed KPMG’s approach
to the execution of and reporting of their audit
and related findings.
The overall conclusion of the process was
that KPMG LLP’s work continues to be
thorough and professional and it is, therefore,
the Committee’s recommendation that the
reappointment of KPMG LLP be put to
shareholders at the Annual General Meeting
on 7 July 2022.
WHISTLEBLOWING,ANTI-BRIBERY
AND ANTI-CORRUPTION POLICIES
The Group remains committed to conducting
its business with honesty and integrity and
expects all colleagues to maintain equally high
standards, encouraging open communication
from all those who work within the business
or across its supply chain. In line with its
whistleblowing policy, the Group is partnered
with an independent, external whistleblowing
reporting service which provides 24-hour
international telephone lines, web portal
and email reporting facilities. All concerns
can be raised anonymously and are
escalated to the Company Secretary who
investigates them with due care and attention,
reporting accordingly to the Committee.
The Group is committed to ensuring that
it offers good quality, transparently and
fairly sourced products and services to
its customers and operates with integrity
and in an honest and ethical manner at all
times. Comprehensive Anti-Bribery and
Anti-Corruption and Gifts and Hospitality
policies are in place and are applicable to all
colleagues across the business, along with
a dedicated central Register of Gifts and
Hospitality which all colleagues are required to
use. Compliance to the policy is monitored by
the Internal Audit function which reports any
findings of note to the Committee.
FAIR, BALANCED AND
UNDERSTANDABLE
At the request of the Group Board and as
required by the UK Corporate Governance
Code, the Committee assessed whether
the content of the FY22 Annual Report and
Accounts, preliminary results announcement
and presentation, taken as a whole,
were fair, balanced and understandable.
Consideration was also given as to whether
key messages, disclosures and information
were included in a consistent manner
throughout the report.
The Committee considered the prominence
given to certain items included in the financial
statements and the language used to describe
performance. The Committee advised the
Group Board that it was satisfied that, taken
as a whole, the 2022 Annual Report was fair,
balanced and understandable, and that it
provided shareholders and other stakeholders
with the necessary information to allow them
to determine the Company’s performance,
business model, risks and strategy.
71
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk DEFINED BENEFIT PENSION PLAN
The cost of the Group’s defined benefit
pension plan and present value of the pension
obligations are determined using actuarial
valuations. The Committee continued to
review the various assumptions that underpin
the actuarial valuation and recognise that
these may differ from actual developments in
the future.
The Committee concurs with management’s
assessment that the assumptions are
appropriate for the expert to use in their
actuarial valuation for the Group’s defined
benefit pension plan. The Committee
reviewed the disclosures in the Annual Report
in relation to the pension plans and ensured
that these are consistent with the advice
received from the Group’s actuaries.
REGULATION AND COMPLIANCE
While no longer considered a source of
estimation uncertainty, the Group operates
in a regulated marketplace. This creates risk
for the business as non-compliance can lead
to customer detriment, reputational damage,
financial penalties and potential loss of licence
to operate.
The Group is regulated in the UK by the FCA
under a licence granted on 21 September
2016 and by the Central Bank of Ireland for
its Oxendales business. 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.
AUDIT RISK AND INTERNAL CONTROL CONTINUED
AUDIT AND RISK COMMITTEE REPORT CONTINUED
CRITICAL JUDGEMENTS AND
KEY SOURCES OF ESTIMATION
UNCERTAINTY
The significant judgements made by
management in applying the Group’s
accounting policies and key sources of
estimation uncertainty are set out in note 2
on p119.
These relate to the impact of Covid-19,
impairment of customer receivables, software
and development costs and the useful
economic life assessment, the impairment
of non-financial assets, the defined
benefit pension plan and the Allianz claim
and counterclaim.
The Committee discussed with the auditors
how these matters impacted the financial
statements and reviewed the sensitivities
which were considered by management to
be appropriate.
IMPAIRMENT OF
CUSTOMER RECEIVABLES
The Group’s methodology to determine
provisions for expected credit losses in
its credit ledgers is both complex and
judgemental. A significant part of 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 made to better
reflect changing economic or commercial
circumstances, and that disclosures are clear
and adequate.
The Committee again reviewed the
IFRS 9 model and the refinements that
had been made to it in the year and the
associated disclosures.
ALLIANZ LITIGATION
During the year, the Group has recorded
a charge for legal costs of £1.8m and a
provision of £28.0m, in relation to the ongoing
legal dispute with Allianz Insurance plc, as
an estimate for accounting purposes of the
potential costs of settlement or award and
future legal costs.
The Committee concurred with
management’s assessment of the accounting
estimate and associated disclosures in the
Annual Report. Details on the background
to the dispute and the basis of the provision
established in the year are set out in note 22.
Further disclosure would prejudice the
outcome of these negotiations and therefore,
as permitted by IAS 37.92, we have not made
any further disclosures in connection to the
provision booked, and sensitivity analysis
relating to the estimation uncertainty around
timing or amount of these.
SOFTWARE AND
DEVELOPMENT COSTS
Included within intangible assets are
significant software and development costs
in respect of the Group’s technological
development programme. The Committee
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. The Committee discussed with
management whether the related projects
will be completed successfully and whether
the carrying value is supported by sufficient
revenue and profitability going forward.
During the year, the Committee discussed
management’s review of capitalisation of
software as a service (“SAAS”) assets
following the publication of the IFRS
Interpretation Committee (“IFRIC”) agenda
decision in April 2021, and the resulting prior
year adjustment.
The Committee also considered
management’s annual review of the useful
economic lives of its legacy intangible assets
in light of general advancements in technology
and the Group’s strategy.
IMPAIRMENT OF NON-
FINANCIAL ASSETS
At the balance sheet date and following a
significant drop in the Group’s share price,
the market capitalisation of the Group was
lower than the Group’s net assets. As this
is an indicator of impairment, management
is required to test for impairment based on
value-in-use calculations reflecting expected
cash flows, long-term growth rates and a pre-
tax discount rate.
The Committee discussed these with
management and reviewed the relevant
disclosures in the Annual Report.
The Committee discussed the sensitivities of
key assumptions including Product Revenue,
EBITDA growth, capital expenditure and the
discount rate with management and reviewed
the relevant disclosures in the Annual Report.
72
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk ACTIVITIES OF THE AUDIT AND RISK COMMITTEE
Meetings of the Committee are scheduled to coincide with key dates in the financial calendar and reporting cycle. Recurring agenda items of
the meeting included matters relating to the review and approval of the Internal Audit Plan, risk mapping and appetite, financial reporting and tax
matters. Additional matters covered at each of the meetings during FY22 were as follows:
APRIL 2021
OCTOBER 2021
Approval of the Group’s taxation strategy
Review of the Group’s half-year report financial reporting paper
Approval of the Group’s non-audit services fees policy
Review of the Group’s half-year statement and investor presentation
Review of the full year Internal Audit Report, approval of FY22 Internal
Audit Plan and the Internal Audit Charter
Review of the half year Internal Audit and Risk Management reports
Assessments of Liquidity and Going Concern at the half-year
Review and approval of the Group’s Risk Management Framework
and internal control update – including the securitisation audit
Review and assessment of the Group’s Compliance activities
Approval of select level one risk policies
Approval of the Group’s exceptional items policy
Performance reviews of:
Internal Auditor
External Auditor
Audit and Risk Committee
MAY 2021
JANUARY 2022
Review and approach of the external auditors’ plan for assessment
of the FY22 full year results
Review and assessment of the Group’s Compliance and
Risk activities
Approval of select level one risk policies
Approval of the full year results for FY21, including reviews of the
Group’s Viability Statement
Review of progress against the FY22 Internal Audit Plan
Review of the Company’s Q3 Trading Statement
Liquidity and Going Concern Assessment
Review of the full year external audit report
Assessment of the Group’s impairment of customer receivables
FEBRUARY 2022
Assessment of the Group’s FY21 preliminary results announcement
and investor presentation
Review of the draft FY21 Annual Report and Accounts
Review of the Group’s response to the FRC letter
73
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk AUDIT RISK AND INTERNAL CONTROL CONTINUED
FINANCIAL SERVICES BOARD COMMITTEE REPORT
Looking ahead to FY23, our focus on the
customer is critical in two key areas. As the
world faces considerable geopolitical and
macro-economic headwinds, our customers
will inevitably be affected. Now, more than
ever, we are focusing on doing everything
we can to ensure the achievement of good
customer outcomes. At the same time,
we continue to see a major opportunity
in revitalising the customer proposition,
delivering flexible credit to help our customers
shop – and the earlier mentioned FS IT
platform is significant in that respect.
The FCA has new plans to introduce a
Consumer Duty to help ensure a higher
and more consistent standard of consumer
protection for users of financial services
and help to stop harm before it happens.
The Committee will oversee compliance
with this Duty and any other aspects of the
evolving regulatory agenda.
As always, I am available to speak with
shareholders at any time and shall be
available at the Annual General Meeting on
7 July 2022 to answer any questions you
may have on this report.
Vicky Mitchell
Chair of the Financial Services
Board Committee
DEAR SHAREHOLDER
The Committee has continued to be
responsible for the development and
oversight of the long-term strategy and
objectives of the Financial Services (FS)
business, in the context of overall Group
Strategy. This includes the continued
development of the culture within the business
as well as the establishment of FS-related
risk appetite and approval of associated risk
management plans. The Committee also
maintains oversight of internal control and
governance frameworks across FS.
During FY22 the Committee oversaw the
continued provision of customer support
as a result of the Covid-19 pandemic,
particularly given the end of the FCA’s
specific Covid-19 forbearance and furlough.
Customers received the tailored support
they needed and all customers have now
exited Covid-19 forbearance. In general,
our customers have been able to handle the
uncertainty caused by the pandemic well, with
overall levels of financial difficulty relatively low
and good customer outcomes being achieved.
The regulatory agenda continued to evolve
and the Committee maintained oversight of
the implementation of both the Persistent
Debt (PD) regulation and Payment Services
Directive (PSD2) regulation. Both were
implemented on time and with a sharp
focus on customers.
The Committee continued to provide support
and perspective on the development of the
revitalised credit proposition, in line with Group
strategy. Customer and market research has
led to the development of a strong proposition
which will be delivered through a new FS IT
platform. The Committee contributed to the
development of the strategic options available
in delivering this important initiative and will
maintain close oversight going forward.
MEMBER
Vicky Mitchell
(Chair)
Ron McMillan
January 2020 – Present
November 2019 –
Present
Steve Johnson November 2019 –
Present
Rachel Izzard
June 2020 – Present
Dominic Platt
June 2021 –Present
Lesley Jones
November 2019 –
March 2021
Michael Ross
July 2021 - October 2021
Matt Davies
November 2019 –
March 2021
Meetings
attended
4/4
4/4
4/4
4/4
3/3
0/1
1/2
0/1
RESPONSIBILITIES
Overseeing the Financial Services
business of the Group.
Setting the values and standards of the
Financial Services Operations.
Overseeing and developing culture
and approving long-term objectives
and strategy in relation to the Financial
Services business.
Ensuring that the Financial
Services Business delivers good
customer outcomes.
Establishing the risk appetite of the
Financial Services business.
FY23 PRIORITIES
Continuing to drive the strategic
contributions made by the Financial
Services business to the Group’s
commercial development.
Integrating the credit proposition more
closely with the retail customer journey.
Ensuring that good customer
outcomes continue to be delivered
in the face of strong potential macro-
economic headwinds.
Preparing for the outcome and delivery of
the new FCA ‘Consumer Duty’ regulations.
Continuing to develop the revitalised
Financial Services customer proposition
and brand, including delivery of a new
Financial Services IT platform.
The Committee’s Terms of Reference
can be found at www.nbrown.co.uk
74
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk REMUNERATION
REMUNERATION COMMITTEE REPORT
FY23 PRIORITIES
Reviewing the operation of the Directors’
Remuneration Policy to ensure that the
changes made for FY23 are effective in
aligning to and supporting the business
strategy and our transformation programme
with particular regard to our critical strategic
change delivery milestones.
Continuing to ensure our approach to
pay provides fair and appropriate reward,
balancing the interests of all stakeholders
with the need to provide remuneration
that is aligned to shareholders’ interests,
motivational for our senior management
team and drives the achievement of our
business strategy.
Working closely with our ESG Committee to
consider whether there should be additional
ESG metrics included in our incentives and
whether the metrics selected sit better in the
annual bonus or LTIP.
The Committee’s Terms of Reference can be
found at www.nbrown.co.uk
DEAR SHAREHOLDER
I am pleased to present the Directors’
Remuneration Report for FY22 on behalf
of the Board.
The work of the Remuneration Committee
has focused on supporting delivery of the
strategy. While the strategic principles
remain unchanged, the strategy has
evolved. The Company’s transformation is
focused on making our propositions more
relevant, the business model more efficient
and the strategy execution more agile and
single minded.
It was within this context that the
Committee reviewed the current Directors’
Remuneration Policy so that a new
Policy can be brought to shareholders
for approval at our 2022 AGM and
considered carefully how the new Policy
will operate in FY23. The Committee also
spent time reviewing the remuneration
outcomes for FY22 in light of the
Company’s performance and ongoing
business challenges.
REMUNERATION OUTCOMES
FOR FY22
The Board is pleased with progress
made in the Company’s transformation
during FY22, despite the volatile market
conditions. The year closed with a return to
customer growth, an increase in earnings
and cash flow and overall a strong balance
sheet, notwithstanding supply chain and
inflationary cost pressures as we emerge
from the pandemic. While the outlook is
positive, the year has not been without
challenges and this business context
has informed the Committee’s review of
incentive outcomes.
MEMBER
Gill Barr (Chair)
January 2018 – Present
Ron McMillan
April 2013 – Present
Richard Moross
January 2017 – Present
Dominic Platt
June 2021 – Present
Meetings
attended
6/6
6/6
6/6
4/4
RESPONSIBILITIES
Setting and reviewing the remuneration
policy and determining the total individual
remuneration package for all Executive
Directors, the Chair of the Board and other
designated senior executives taking into
account the policies, practices, pay and
employment conditions of the Group and
in accordance with the UK Corporate
Governance Code (the “Code”).
Establishing remuneration schemes
that promote long- term shareholding by
Executive Directors and align with long-term
shareholder interests.
Designing remuneration policies and
practices which support the Group’s long-
term strategy and promote sustainable
success and are aligned to the Group’s
purpose and values. Remuneration policies
and practices will take into account all
relevant factors, legal and regulatory
requirements and provisions and
recommendations of the Code and
associated guidance.
Approving the design of, and determining
targets for, any performance-related pay
schemes operated by the Group 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.
Reviewing workforce remuneration and
related policies and overseeing any major
changes in employee benefits structures
throughout the Group.
Ensuring that the Group engages as
appropriate with its principal shareholders
about remuneration.
75
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk REMUNERATION CONTINUED
REMUNERATION COMMITTEE REPORT CONTINUED
SALARIES
The salaries of our CEO and CFO were
increased in 2021 by 1.5% in line with those
of the wider workforce, to £431,375 and
£355,250 respectively.
ANNUAL BONUS
Despite the difficulties relating to target-
setting caused by the ongoing impact of the
pandemic, the Committee was able to set
FY22 annual bonus and LTIP targets at the
normal time, based on our assessment of
likely business performance and taking into
account the impact of the pandemic as well
as factoring in the ongoing transformation of
the business.
The annual bonus was focused on metrics
based on operational delivery, both financial
and non- financial. These metrics were
EBITDA 65%, Active Customer Accounts
15%, Customer NPS 10% and ESG
10% (split equally between GHG and
sustainable products).
While there is a modest payment under
the EBITDA element of the bonus, it was
disappointing to see performance below the
threshold targets for both Active Customer
Accounts and Customer NPS. Customer NPS
has been affected by Covid-driven supply
chain disruption and a lack of delivery drivers,
coupled with disappointing performance from
one of our key delivery partners, issues which
are being addressed.
Although new customer volumes performed
well, Active Customer Accounts have also
been affected by Covid and as a result,
overall growth in Active Customer Accounts
was just below the threshold target for the
annual bonus.
Good progress was made against our
ESG strategic targets. The maximum GHG
target was achieved with an on target
level of performance for the sustainable
products element.
Therefore, as a result, in total the formulaic
outcome of the annual bonus provides a
payment for the CEO and CFO of 22.1%
of maximum. The detail of targets and
performance against them is set out in the
Annual Report on Remuneration.
HOW THE POLICY WILL
BE APPLIED IN FY23
SALARIES
The salaries of our CEO and CFO will be
increased by 3% which is aligned to increases
for the wider workforce with the resulting
salaries £444,316 and £365,908 respectively.
Non-Executive Directors would normally
receive an increase in fees consistent with the
increase for the wider workforce. Given the
extremely challenging economic climate,
all have asked for the money that they
would have received to be used to support
employees in difficult financial circumstances
through a hardship fund.
ANNUAL BONUS
FY23 is a critical year to achieve the
transformation milestones on which the future
success of the business depends. Our annual
bonus therefore focuses on achievement
of the strategic priorities that underpin our
transformation as well as shorter-term
profitability and operational excellence.
The annual bonus maximum opportunity
remains at 150% of salary for the CEO and
125% of salary for the CFO. The performance
metrics and weightings are as follows:
45% Group EBITDA
15% Growth in Statutory Product Revenue
of the brands that underpin our differentiated
brand portfolio strategy
20% Strategic change delivery
10% Customer NPS
10% ESG weighted equally between GHG
and sustainable product
60% of the bonus is determined by key
financial metrics with a particular focus on
driving revenue from our key brands that
underpin our growth strategy
The 20% strategic change delivery element
is based on delivering the technology
imperatives identified in our strategic plan as
priorities for the year, including new websites
and platforms which are critical to deliver
long-term shareholder value. The technology
development plan requires an agile approach
to manage evolving priorities and as a result
the Committee will retain some discretion
on measurement
Each year, the Committee considers carefully
whether the formulaic outcome of the bonus
is appropriate in light of broader factors.
The Committee noted overall business
performance as set out above, that there has
been no Government assistance in FY22
and that all eligible colleagues will receive
an annual bonus for the year based on the
same metrics as the Executive Directors.
Taking these factors into account and noting
there are no other extenuating factors,
the Committee is comfortable that the
formulaic outcome of 22.1% in a challenging
retail environment is appropriate, and the
exercise of discretion to adjust this outturn
is not appropriate.
LONG-TERM INCENTIVE
2019 LTIP AWARD WITH
PERFORMANCE PERIOD ENDING
IN FY22
The adjusted EPS, free cash flow and
relative TSR threshold targets for the 2019
LTIP awards, which were measured over the
performance period ending in FY22, have not
been met and these awards have lapsed.
2021 LTIP AWARD GRANTED IN FY22
The 2021 LTIP awards were made at normal
grant levels of 150% of salary for the CEO and
125% of salary for the CFO.
The awards are subject to relative TSR for
50% of the award and stretching adjusted
EPS growth targets of 5% CAGR to 15%
CAGR for the remaining 50% of the award.
OUR NEW REMUNERATION POLICY
The Remuneration Committee reviewed
the current Remuneration Policy (Policy)
and is comfortable that it has the right
structure and flexibility in terms of how it is
operated to support our business strategy
and transformation over the next policy
period. Therefore, no changes are proposed
to the current Policy except for some small
administrative amendments which are set out
in the table of policy changes on page 79.
We consulted with our largest shareholders
regarding our policy proposals and would
like to thank them for their contribution.
The shareholders who engaged with us
are supportive.
As part of the policy review consultation
shareholders also provided feedback on
the operation of policy for FY23 to which I
refer to below. The Committee has listened
carefully to constructive feedback. We have
consequently made adjustments to our
proposed operation of policy for FY23 as
shown below.
76
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk The Group now has a well-developed ESG
strategy and a very active ESG Committee,
so targets have been set in consultation with
the Chair of that Committee. As a result the
Remuneration Committee is comfortable that
the targets set are appropriately stretching and
is pleased to note the GHG targets include
Scope 3 (estimated) as well as Scope 1 and
2 emissions. Our sustainable product targets
require all own brand designed products to
achieve a minimum set of criteria based on
independent Industry Certification standards.
Specific targets have been set in the usual
way for Customer NPS.
Shareholder feedback received during the
consultation encouraged us to increase the
weighting to financial metrics, which we have
done. Additionally, the Committee was asked
by one investor to consider using EPS as
the measure of profit in the annual bonus
instead of EBITDA. We have considered this
but feel that EBITDA should be retained in
the annual bonus because i) over the short
term, management focus on EBITDA is a
better outcome of operational performance
than EPS, which is likely to be affected by
non operational items ii) EBITDA has been
used as a measure of profit in the annual
bonus since FY20 and is a well understood
metric throughout the business enabling all
colleagues to focus on the same profit metric,
and iii) EPS is the measure used for the LTIP
and we wish to avoid using the same measure
for both plans.
While investors recognised the importance
of strategic measures to provide a balanced
overall incentive, they emphasised the
importance of setting robust, measurable
and stretching targets for non-financial
metrics. The Committee shares this view
and is comfortable that its current approach
to target setting is robust.
It is important that our transformation
strategy is delivered within a strong risk
and compliance environment with focus on
embedding risk management, governance
and controls. Appropriate risk management,
governance and controls will be one of the
factors that the Committee will review when
considering annual bonus outturn and the
exercise of discretion.
Detail of our strategic change delivery
objectives, all annual bonus targets,
performance and the bonus payable will
be included as part of the annual bonus
disclosure in the FY23 Remuneration Report.
FY23 LONG-TERM INCENTIVE AWARDS
LTIP award levels for our CEO will be
150% of salary and for our CFO 125% of
salary. The Committee considered carefully
whether any adjustments should be made
to award levels to reflect the current share
price. At this critical point in the Company’s
transformation, normal LTIP award levels are
being maintained to ensure that management
has an incentive that is sufficiently leveraged
to truly drive and reward performance and
returns for our shareholders.
As in prior years, the Committee retains the
discretion to scale back the vesting outcome
if it has concerns that the level of vesting
and overall quantum is not appropriate.
Shareholders will note that the Committee has
exercised its discretion to adjust both incentive
opportunity and outturn in previous years and
will continue to ensure that it takes a fair and
balanced approach to remuneration ensuring
alignment between pay and performance.
For 2022, the LTIP award will be based
entirely on adjusted EPS growth targets.
This is the first time for a number of years
that the Committee has not included a TSR
based measure. The Committee believes, it
is right to focus management for this award
on measurable improvements in long term
profitability, which is a clear output measure
of the strategy. Management will continue to
be aligned to share price and shareholder
interests through their shareholdings, annual
bonus deferral into shares and the holding of
LTIP incentives in shares.
The Committee recognises that some
investors would prefer an LTIP award to be
based on more than one financial metric and
will review metrics again for the 2023 award.
One of our investors discussed with us the
use of adjusted EPS in the LTIP as compared
to basic EPS. The Committee considers that
adjusted EPS provides better measurement of
underlying business performance because it
removes the effects of exceptional and other
one-off items.
The Committee considered very carefully
the adjusted EPS target range for the 2022
LTIP awards. We took into account expected
progress against our transformation strategy
as well as external factors such as inflation,
increased corporation tax and freight costs.
In respect of inflation the Committee has
noted the likely impact on our customers’
discretionary spend and revenue growth as
well as the risk of significant cost pressure.
EPS in FY22 has been impacted by a lower
experience of bad debt as a result of the Covid
pandemic. It is already clear that this has been
a temporary effect and bad debt levels are
normalising. The Committee does not want
to penalise management with a starting point
for the adjusted EPS range which is higher
than it would otherwise be, as a result of the
pandemic which is beyond their control.
In order to extract the impact of the Covid-
related benefits seen in FY22 noted above,
our adjusted EPS range uses a base point
of FY21 adjusted EPS of 5.4 pence (which is
adjusted for the post equity raise number of
shares). We have then applied a growth rate
of 5% to 15% CAGR over the four-year period
to FY25. This provides an adjusted EPS range
for the 2022 awards of 6.6 pence to 9.5 pence
to be tested against adjusted EPS in FY25.
The Committee is conscious that the threshold
target of 6.6 pence falls below FY22 adjusted
EPS of 7.0 pence. However, this includes the
benefit of the Covid-related lower than normal
level of write offs. Therefore, the Committee
believes that 6.6 pence is an appropriately
stretching threshold target.
There has not been any LTIP vesting since
FY14 which is appropriate given Group
performance. However, the purpose of the
LTIP is to motivate incremental effort to deliver
the transformation strategy and to therefore
grow long-term profitability. The Committee
believes the carefully considered target
range provides an effective incentive for
management to drive stretching performance.
ESG STRATEGY AND LINK
TO INCENTIVE PLANS
As set out in our ESG and Governance Report
on page 42 the Board supported by our ESG
Committee, continued to develop our ESG
strategy. Last year, we introduced metrics
into the Executive Directors’ annual bonus
focused on our ESG priorities of GHG and
sustainable products, and we are pleased with
the progress made against the targets set.
GHG and sustainable products continue to be
core areas of focus and have therefore been
retained in the annual bonus of FY23.
As we move to SBTi and review progress
against our ESG strategy, we will consider
whether these metrics should continue to be
used in the annual bonus or form part of the
Company’s long-term incentive. We will also
continue to review any additional areas of
focus to be included in the incentives.
77
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk REMUNERATION CONTINUED
REMUNERATION COMMITTEE REPORT CONTINUED
CLOSING REMARKS
The Committee is satisfied with the
remuneration outcomes for FY22 which
provide a fair and appropriate level of reward
for performance achieved in a challenging
year. The Committee is comfortable that
the policy operated as intended, and that
there are no circumstances that require the
exercise of discretion to adjust the formulaic
remuneration outcomes.
Following extensive review, the Committee
does not believe changes are required to
the current Remuneration Policy for our next
policy period. It continues to have the right
structure and is sufficiently flexible to support
the business strategy and transformation.
The Committee is also comfortable that the
changes it is proposing to the operation of
policy for FY23 are appropriate to incentivise
management to drive the successful
transformation of N Brown and deliver returns
for our shareholders.
As we conclude our policy review and
considerations on the operation of Policy
for FY23, I would like to thank shareholders
for their feedback; their thoughtful support
is appreciated.
I very much hope you will support both our
binding shareholder resolution to approve
the new policy and the advisory shareholder
resolution on our operation of the Policy, at
our 2022 AGM. In the meantime, should you
have any questions, I am contactable via the
Company Secretary.
Gill Barr
Chair of the Remuneration Committee
DIRECTORS’ REMUNERATION
POLICY
As we continue to report to the same
standards as a Premium Listed company,
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.
This Remuneration Policy will be subject
to a binding shareholder vote at the 2022
AGM and is expected to apply for three
years from that date.
APPROACH AND CONSIDERATIONS
IN REVIEWING THE DIRECTORS’
REMUNERATION POLICY
The Remuneration Committee reviews
the policy, in the absence of the Executive
Directors, where necessary to manage
potential conflicts of interest, and with
support from its advisors. The Committee’s
review process includes consideration
of how the current policy aligns to and
supports the business strategy, market,
regulation and governance developments
as well as wider pay context, such as pay
ratios and group reward arrangements.
The Committee also considers the
guidelines of shareholder representative
bodies and proxy agencies and investor
expectations. As part of this process,
the Committee will also consult with
its largest shareholders and consider
feedback received.
The policy ensures that the remuneration
package is linked to our annual and
long-term strategy and that it is capable
of attracting, motivating and retaining
our Executive Directors. The Policy aims
to provide competitive remuneration
packages which are fair and appropriately
constructed, reward achievement of
long-term growth, the profitability and
sustainability of the business and which do
not encourage excessive risk taking.
78
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk In particular, the Committee strives to ensure that remuneration
packages are:
Aligned with the Group’s strategic plan
Aligned with the shareholders’ interests and those of broader
stakeholders, 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
FACTORS CONSIDERED WHEN DEVELOPING THE
REMUNERATION POLICY
The Committee considered the following factors when reviewing the
existing Remuneration Policy and developing the proposed Directors’
Remuneration Policy outlined below:
Clarity – All elements of the Remuneration Policy and its
implementation are set out clearly in the Directors’ Remuneration
Report. Changes are proposed to the current policy to clarify further
how the Policy is administered.
Simplicity – The Policy is simple and straightforward with the
intention of creating a consistent approach to executive remuneration
year on year. The Committee proposes to retain the current policy
and incentive structure which have been operated for a number of
years and are simple, straightforward and already clearly understood
by participants and shareholders.
Risk – The Policy has been developed so that incentive structures
discourage inappropriate risk taking through use of long-term
incentives, the balance of measures used to determine variable
remuneration outcomes, and through features such as shareholding
requirements and malus and clawback. Risk management,
governance and controls will be one of the factors that the Committee
will specifically review when considering annual bonus out turn and
the exercise of discretion.
Predictability – The Policy has been constructed to have clear
limits on the variable remuneration payable, with the scenario charts
later in this report providing illustrative examples of how the Policy
may operate in practice. Limits on variable pay awards have been
reviewed as part of the policy review and no changes are proposed.
Proportionality – There is a sensible balance between fixed and
variable pay, and variable remuneration is appropriately weighted
to sustainable long-term performance. The balance between fixed
and variable pay and short- and long-term incentives have been
considered as part of the policy review and no changes are proposed.
Alignment to culture – Through the assessment of financial and
non-financial performance, executives are incentivised through
the annual bonus plan to align with N Brown’s values and culture.
The ongoing incorporation of ESG and NPS metrics into our annual
bonus further aligns our incentives to our business values and
cultural priorities.
CHANGES TO THE DIRECTORS’ REMUNERATION POLICY
As explained in the Committee Chair’s Annual Statement on Remuneration, the Committee reviewed the Policy and agreed that no changes are
required except for some small administrative amendments which are set out below.
Element of policy
Base Salary
Leaver policy
Pension
Policy change
No change to policy except to say salary
changes “usually” effective 1 June.
No proposed changes except to remove
the section setting out the treatment of
deferred bonus awards.
Section being removed “Deferred bonus
share awards will normally lapse on
cessation, unless they are a good leaver
in which case they will normally vest at
the usual time.”
Wording added to clarify that the pension
of 8% is aligned to the contribution to the
majority of the workforce.
Rationale
To ensure the Committee has flexibility
if needed, for example to change the
annual review date. This is not currently
anticipated.
This section is no longer required as the
deferred element of the bonus is paid in
shares with a holding period and not a
forfeitable share award (this change was
effective with approval of our current policy
at the 2019 AGM). There is therefore
no bad leaver forfeiture as the shares
are beneficially owned by the executive.
Clawback still applies.
To clarify the operation of the pension
element of the policy is aligned to the
workforce.
79
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk REMUNERATION CONTINUED
REMUNERATION COMMITTEE REPORT CONTINUED
SUMMARY OF COMPONENTS OF EXECUTIVE DIRECTORS’ 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.
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.
Salary increases will normally be in
line with increases awarded to other
employees of the Group.
More significant increases may be
awarded at the discretion of the
Committee, for example: where there
is a change in responsibilities or
scope of the role; to reflect individual
development and performance in
the role (e.g. for recent hires); or in
exceptional circumstances.
None, although overall individual
and Company performance is a
factor considered when setting
and reviewing salaries.
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.
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.
Chief Executive: up to 150% of base
salary p.a.
Other Executive Directors: up to
125% of base salary p.a.
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,
while being prudent and
safeguarding the future of
the Company.
The holding period
provides alignment with
shareholders and the
longer- term performance
of the Company.
A significant majority of the annual
bonus will normally be determined
by reference to performance against
financial measures.
In addition, we may set corporate
and individual strategic performance
objectives. These 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 payments (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.
80
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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).
ALL-EMPLOYEE SHARE SCHEME (“SAYE”)
Normal maximum of 150% of salary.
Exceptional circumstances maximum
of 200% of salary.
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.
Provides all employees,
including Executives, with
a mechanism to acquire
shares in the Group and to
together participate together
in our success.
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 Executives
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.
Limited to the contributions to the
majority of workforce, currently 8%
of salary.
N/A
Car and fuel allowance up to £20,000
per annum.
N/A
Other benefits will be in line with the
market. The value of each benefit is
based on the cost to the Company
and is not predetermined.
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.
81
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk REMUNERATION CONTINUED
REMUNERATION COMMITTEE REPORT CONTINUED
ALIGNMENT OF DIRECTORS’
PAY WITH BROADER
WORKFORCE PAY POLICIES
Our remuneration policy for Executive
Directors is aligned with the policy for
employees across the Group as a whole.
Nearly all of our employees are 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. We use both performance
share awards and restricted share awards
below Executive Director level to ensure
we provide the most appropriate form of
incentive to drive performance, motivate and
reward and provide the clearest line of sight
between the award holder and performance to
be delivered.
All employees are able to share in the longer-
term performance of the business through our
SAYE scheme.
The majority of our employees including our
CEO and CFO 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. The Committee did not consult
with employees specifically regarding the
Directors’ Remuneration Policy but does
consult regarding Group-wide reward and
remuneration policies and practices at our
employee forum.
The Annual Report on Remuneration sets
out what engagement has taken place this
year with stakeholders generally in relation to
remuneration and 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 our wider remuneration
policies with the objective of ensuring an
appropriate cascade of policy for Executive
Directors to the rest of the workforce.
REMUNERATION COMMITTEE
DISCRETION
The Committee operates our 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:
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 (such as 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.
The Committee also has the discretion to
adjust the formulaic outcome of incentive
awards if it considers that it is not reflective of,
for instance,the underlying performance of the
Company or investor experience.
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 having 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 our business
strategy and KPIs. 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 our strategic long-
term plan. This ensures they are aligned to
the strategic objectives of the Company and
designed to increase shareholder value, while
being prudent and safeguarding our long-
term future.
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 Executives
take account of ESG matters so as to mitigate
any inadvertent irresponsible behaviour,
including the taking of undue risks with
the business.
82
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk SHAREHOLDING REQUIREMENT
Executive Directors are required to build
and retain a minimum shareholding in the
Company of 200% of salary by retaining
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.
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 regarding the Directors’
Remuneration Report as well as 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,
the Committee consulted with its largest
shareholders and representative bodies
such as the Investment Association,
ISS and Glass Lewis.
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.
However, 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.
Name
Steve
Johnson
Rachel
Izzard
Potential
Date of contract
termination payment
26 February 2019 12 months’ salary
6 April 2020
and benefits
12 months’ salary
and benefits
EXECUTIVE DIRECTORS’ SERVICE
AGREEMENT 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. No Executive Director
contracts provide for liquidated damages.
There are no special provisions contained in
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 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.
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.
Annual bonus shares subject to a holding
period must normally be retained for the
remainder of the holding period
post-employment.
83
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk REMUNERATION CONTINUED
REMUNERATION COMMITTEE REPORT CONTINUED
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.
The chart opposite sets out three scenarios for
Executive Directors’ remuneration for FY23.
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.
84
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk POTENTIAL REMUNERATION SCENARIOS FOR EXECUTIVE DIRECTORS FY23
(£’000)
2,500
2,000
1,500
1,000
500
0
1,780
2,104
36%
36%
28%
1,133
29%
29%
42%
486
100%
846
26%
26%
48%
402
100%
1,290
1,512
34%
34%
32%
Below target
Target
Maximum
Below target
Target
Maximum
Chief Executive Officer
Chief Financial Officer
Fixed Pay
Annual Bonus
LTIP
LTIP with 50% share price growth
ASSUMPTIONS
Fixed pay = salary on first day of financial year, 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 total remuneration
assuming a 50% increase to the share price.
POLICY FOR NON-EXECUTIVE DIRECTORS’ FEES
Purpose and link to strategy
Operation
NON-EXECUTIVE DIRECTORS’ AND CHAIR’S FEES
Maximum
Performance
assessment
To attract and retain high-calibre
Non-Executives and ensure
they are paid appropriately
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 Chair 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.
85
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk REMUNERATION CONTINUED
REMUNERATION COMMITTEE REPORT CONTINUED
NON-EXECUTIVE DIRECTORS’ LETTERS OF APPOINTMENT
Non-Executive Directors are retained on letters of appointment. All 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. All Non-Executive Directors signed new letters of appointment, effective
upon the Company’s re-listing on the Alternative Investment Market in December 2020; this did not impact the progression of their current three-
year rolling terms. Brief details of Non- Executive Directors’ letters of appointment are summarised below:
Name
Ron McMillan
Lord Alliance of Manchester CBE
Gill Barr
Richard Moross
Michael Ross
Vicky Mitchell
Joshua Alliance
Dominic Platt
Date of original letter
of appointment
1 March 2013
16 May 2007
6 December 2017
13 September 2016
8 December 2019
24 January 2020
5 November 2020
25 May 2021
Date of current letter
of appointment
9 March 2021
20 October 2020
26 October 2020
29 October 2020
27 October 2020
28 October 2020
5 November 2020
25 May 2021
Date current
term commenced
31 March 2021
10 April 2019
16 January 2021
6 October 2019
16 January 2021
28 January 2020
23 December 2020
10 June 2021
Notice period
6 months
6 months
6 months
3 months
3 months
3 months
6 months
6 months
ANNUAL REPORT ON REMUNERATION
The Annual Report on Remuneration will be put to an advisory shareholder vote at the 2022 Annual General Meeting
The information on p86 to 89 has been audited.
DIRECTORS’ REMUNERATION PAYABLE FOR FY22 (AUDITED)
Executive Directors
Steve Johnson
Rachel Izzard3
Non-Executive (fees)
Ron McMillan4
Matt Davies5
Lord Alliance of
Manchester CBE6
Lesley Jones7
Richard Moross
Gill Barr8
Michael Ross
Vicky Mitchell
Joshua Alliance9
Dominic Platt10
Year
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
2021/22
2020/21
Salaries
and fees11
£000’s
Taxable
benefits1
£000’s
Pension2
£000’s
430
404
354
234
240
73
21
242
0
0
6
68
61
58
76
63
61
58
90
74
40
7
42
–
20
20
18
29
0
0
0
0
52
51
0
0
2
0.2
0
1
1
0
0.3
0.1
0
0
2
–
34
32
28
19
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Bonus
(cash and
deferred
shares)
£000’s
142
281
98
129
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
LTIP
£000’s
Total fixed
pay
£000’s
0
0
0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
484
456
400
282
240
73
21
242
52
51
6
68
63
58.2
76
64
62
58
90.3
74.1
40
7
44
–
Total
variable
pay
£000’s
142
281
98
129
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
–
Total
£000’s
627
737
498
411
240
73
21
242
52
51
6
68
63
58.2
76
64
62
58
90.3
74.1
40
7
44
–
1 Taxable benefits comprise private medical cover and car allowance. For Non-
Executive Directors taxable benefits comprise travel and accommodation.
2 Pension is paid as a cash supplement.
3
Rachel Izzard was appointed to the Board on 29 June 2020, her taxable
benefits for 2020/21 include a relocation fee in addition to private medical
cover and car allowance.
4 Ron McMillan was appointed as Non-Executive Chair on 31 March 2021.
5 Matt Davies stepped down from the Board on 31 March 2021.
6 Lord Alliance has waived his Non-Executive Director’s fee of £52,000.
Lord Alliance’s benefits comprise secretarial support. We have restated
the benefits figure for 2020/21 to include the relevant amount that was not
included last year in error.
7 Lesley Jones stepped down from the Board on 31 March 2021.
8 Gill Barr was appointed as the Senior Independent Director on 31 March 2021.
9 Joshua Alliance was appointed to the Board on 23 December 2020.
10 Dominic Platt was appointed to the Board on 10 June 2021.
11 The entire Board of Directors took a voluntary 20% pay reduction in April,
May and June 2020.
86
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk DETAILS OF VARIABLE PAY EARNED IN THE YEAR ANNUAL BONUS (AUDITED)
The table below sets out performance against targets for the Executive Directors’ annual bonus for FY22. 60% of the bonus is paid in cash and
40% is paid in shares with a three-year holding period. The annual bonus is also subject to clawback until the end of the holding period.
Measure
EBITDA
Active Customer
Accounts
Customer NPS
Sustainable product1
Greenhouse Gas
Emissions2
Weighting
(% of max
bonus activity)
65%
Threshold
(0% payout)
£89.3m
Target
(25% of max
payout)
£95.6m
Target
(50% of max
payout)
£102.0m
Target
(75% of max
payout)
£108.4m
Max
(100% payout)
£114.9m
Actual
performance
£95
Payout %
of max
overall bonus
22.4%
15%
10%
5%
5%
2.995m
63
20%
3.049m
63.75
25%
3.093m
64
30%
3.132m
65.25
35%
3.173m
66
40%
2.89m
60.3
30.1%
0%
0%
50.5%
35%
37%
40%
42%
44%
51%
100%
1 Sustainable products measure the % of our brand products that have sustainable properties.
2 Greenhouse Gas Emissions, the targets have been set to keep on track for our 2040 target.
Steve Johnson
Rachel Izzard
Maximum bonus
opportunity %
salary
150%
125%
Salary for
bonus
calculation
£429,746
£353,909
Bonus payable
(as % max)
22.1%
22.1%
Bonus payable
£142,461
£97,767
LTIP AWARDS WITH PERFORMANCE PERIOD ENDING IN FY22 (AUDITED)
The LTIP awards granted on 3 September 2019 are subject to Adjusted EPS, Free Cash Flow and TSR relative to the FTSE SmallCap excluding
investment trusts with performance targets, measured over the performance period ending 26 February 2022. Performance against targets is set
out below:
Adjusted EPS growth
35%
FCF 30%
Relative TSR 35%
Total vesting
Performance period
3 yrs ending FY22
Threshold target
(25% of that part
of the award vests)1
At least 5% CAGR
Stretch target
(100% of that part
of the award vests)
At least 15% CAGR
Actual performance
Vesting
-16.6 %
0% out of 35%
3 yrs ending FY22
3 yrs ending FY22
At least £350m
Median performance
At least £420m
Upper quartile
performance
£272.6 m
Below median
0% out of 30%
0% out of 35%
0%
1 Straight-line vesting between threshold to maximum performance.
Set out below are the details of the LTIP awards held by Executive Directors and the vesting resulting from the performance detailed above.
Executive
Steve Johnson
% Salary
100%
Face value
at grant
£637,500
Share price at grant
(rounded) pence
106
Number of
shares awarded
601,983
Percentage of award
vesting
0%
Number of
shares vesting
Nil
Value of
shares vesting
£0
87
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk REMUNERATION CONTINUED
REMUNERATION COMMITTEE REPORT CONTINUED
VESTING OF CFO BUYOUT AWARD
The CFO was granted two 2020 LTIP Buyout awards to compensate for LTIP awards forfeited on leaving her previous employer, Aer Lingus.
These awards are granted over N Brown shares and subject to the original Aer Lingus performance targets.
The performance period for the second award ended on 31 December 2021. As a result of the pandemic, all three measures (relative TSR, EPS,
and Return on Invested Capital (“RoIC”)) fell short of the threshold level at which payments begin, resulting in zero vesting overall. The award
outcome is set out below.
Aer Lingus performance
conditions
TSR performance
compared to the TSR
performance of the MSCI
European Transportation
(large and mid-cap) index
(one-third)
Adjusted earnings per
share (EPS) (one-third)
Return on Invested Capital
(RoIC) (one-third)
Threshold
IAG’s TSR performance equal
to the index (25 per cent of
award vests)
Actual
performance
IAG underperformed the
index by 131.44 per cent p.a.
Number of
N Brown shares
awarded
482,674
Percentage of
award vesting
0%
Number of
shares vesting
0
Value of
shares
vesting
£0
2021 EPS of 150 €cents
(10 per cent of award vests)
2021 RoIC of 14 per cent
(10 per cent of award vests)
-59.1 €cents
-16.4 per cent
0%
0%
0
0
£0
£0
LTIP AWARDS GRANTED DURING THE YEAR (AUDITED)
The table below provides details of the long-term incentive awards granted to Executive Directors during the year. Awards were made based on
normal policy levels of 150% for the CEO and 125% for the CFO. The policy gives the Committee discretion to scale back the vesting outcome if it
has concerns that the level of vesting and overall quantum are not appropriate.
Executive
Steve Johnson
Date of grant
06/08/2021
% of salary
award level
150%
Face value
of award
£647,062
Number
of shares
1,307,196
Share price at
grant pence
49.5
Performance
condition
50% TSR
50% Adjusted
EPS
Performance
period
Three years to end of
financial year FY24 for
Adjusted EPS and TSR
elements
Rachel Izzard
06/08/2021
As above
125%
£444,062
897,095
49.5
As above
Metric
TSR
Relative TSR compared to the
FTSE SmallCap excluding
Investment Trusts
Adjusted EPS Growth
From FY21 to FY24
Weighting
50%
Threshold target (25% vesting)
Median ranking
Maximum target
(100% vesting)1
Upper quartile ranking
50%
4% CAGR
12% CAGR
1 Straight-line vesting between threshold and maximum performance.
Rationale for measure
To incentivise the achievement of
above average stock market returns
for shareholders
To incentive management to generate
sustainable profitable growth in line with
the strategy
OUTSTANDING AWARDS (AUDITED)
The table below summarises each of the Executive Directors’ long-term share awards and the changes that took place during the year.
Executive
Steve Johnson1
Rachel Izzard2
27 Feb 2021
126,225
35,410
601,983
979,882
–
672,468
482,674
–
Awarded
during
the year
–
–
–
–
1,307,196
–
–
897,095
Lapsed
during
the year
126,225
–
–
–
–
482,674
–
Vested and
exercised
during the year
–
–
–
–
–
–
–
–
26 Feb 2022
–
35,410
601,983
979,882
1,307,196
672,468
–
897,095
Date granted
Type of award
August 2018
June 2019
September 2019
November 2020
August 2021
November 2020
November 2020
August 2021
LTIP
DSBP
LTIP
LTIP
LTIP
LTIP
LTIP buyout award
LTIP
1 The performance targets for the LTIP awards granted in September 2019 will lapse on the later of 3rd September or Remuneration Committee decision.
As such, these have not been met and these awards will lapse.
2 Awards were made to Rachel Izzard to compensate for awards forfeited upon leaving her former employer, Aer Lingus, part of the IAG Group. The Awards were
made under the terms of the LTIP Long-Term Incentive Plan and have the same vesting dates and the same performance conditions as the awards forfeited.
More detail on the lapse of the first award is set out in last year’s annual report. Details on the lapse of the second award are set out in the section on p88 entitled
“Vesting of CFO Buyout Award”.
88
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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% of their base salary and must
retain at least 75% of the net of tax value of vested LTIP and annual bonus share awards until this threshold is achieved. The beneficial interests
of Directors who served during the year, together with those of their families, are as follows.
Owned shares
Other interests in shares
Steve Johnson
Rachel Izzard
Ron McMillan
Matt Davies4
Lord Alliance of
Manchester CBE
Lesley Jones4
Richard Moross
Gill Barr
Michael Ross
Vicky Mitchell
Joshua Alliance
Dominic Platt3
27 February
20211
97,160
57,377
80,555
50,154
184,196,762
–
–
13,704
–
–
21,213,800
–
26 February
20221
184, 289
155, 272
80,555
50,154
184,196,762
–
–
13,704
–
–
29,588,800
–
Value of
shares
(as a %
of salary)2
15.6%
16%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Outstanding
awards subject
to performance
conditions
2,924,471
2,052,237
–
–
–
Unvested awards
not subject to
performance
conditions
–
–
–
–
–
Guideline
met?
No
No
N/A
N/A
N/A
Vested
unexercised
awards
–
–
–
–
–
N/A
N/A
N/A
N/A
N/A
N/A
N/A
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total as at
26 February
2022
3,108,760
2,207,509
80,555
50,154
184,196,762
0
0
13,704
0
0
29,588,800
0
1 The figures for the Executive Directors include the number of beneficially owned shares obtained via direct purchase, acquisitions under the Company’s open
offer as executed on 23 December 2020 and deferred bonus shares.
2 The value of shareholding as a % of salary is calculated using the market closing price of 36.5p on 25 February 2022.
3 Dominic Platt joined the Board on 10 June 2021.
4 For Lesley Jones and Matt Davies the number of shares shown is as at the date they stepped down from the Board.
The Directors’ share interests shown above include shares held by members of the Directors’ families, as required by the Companies Act 2006.
There are no changes to the Directors’ interests in shares between 26 February 2022 and 16 May 2022.
TOTAL SHAREHOLDER RETURN PERFORMANCE: N BROWN VS FTSE 250, FTSE SMALLCAP & AIM 100
The graph shows the Company’s ten-year performance, measured by TSR, compared to the performance of the FTSE Small Cap, FTSE 250 and
AIM 100 indices, also measured by TSR. The Company has been a member of these indices during the ten-year period and they are therefore
considered appropriate as comparator groups for this purpose.
(rebased to 100)
350
300
250
200
150
100
50
0
Feb 12
Feb 13
Feb 14
Feb 15
Feb 16
Feb 17
Feb 18
Feb 19
Feb 20
Feb 21
Feb 22
N Brown Group plc
FTSE 250 Index
FTSE SmallCap Index
FTSE AIM 100
89
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk REMUNERATION CONTINUED
REMUNERATION COMMITTEE REPORT CONTINUED
ANALYSIS OF CHIEF EXECUTIVE’S PAY OVER TEN YEARS
Alan White
Angela Spindler1
Total remuneration (£’000)
Annual bonus (% of max)
Long-term share vesting (% of max)
FY14
FY14
FY13
1,780
1,364
2,734
71.4% 15.8% 83.2%
N/A
85%
100%
FY15
728
FY16
783
FY17
1,373
FY19
266
0.0% 27.9% 42.1% 66.7% 34.4% 38.5%
0%
FY18
1,208
FY19
555
N/A
0%
0%
0%
0%
Steve Johnson
FY202
479
0%
0%
FY213
FY22
737
627
88% 22.1%
0%
0%
1 The one-off recruitment award granted to Angela Spindler in 2013 and which vested in FY16 and FY17 has been included in the figures for total remuneration,
but not counted as long-term share vesting.
2 The annual bonus formulaic outcome for FY20 was 6.5% of maximum although no annual bonus was actually paid.
3 The annual bonus for FY21 was 88% of the maximum opportunity for that year. The maximum opportunity had been reduced to 50% of the normal opportunity.
The bonus paid is therefore 44% of the normal maximum opportunity.
CEO PAY RATIO
The employee data for the CEO pay ratio has been compiled using Option A as it represents the most statistically accurate method for identifying
UK employee remuneration. The FY22 pay data has been taken for all individuals on a full-time equivalent basis using fixed pay data as at
26 February 2022. A review has been carried out to ensure that the individuals at the quartiles are representative by checking individuals both
above and below the quartile points.
The reward policies and practices for our employees are aligned to those set for the Executive Directors, including the CEO, and on this basis the
Committee is satisfied that the median pay ratio is consistent with the pay, reward and progression policies across all our employees.
Year
2022
2021
2020
2022
Method
25th percentile
pay ratio
Median
pay ratio
75th percentile
pay ratio
A
A
A
32:1
36:1
27:1
26:1
29:1
22:1
15:1
18:1
14:1
CEO
25th Percentile
50th Percentile
75th Percentile
Salary
£429,781
Total
Remuneration
£626,629
Salary
£18,984
Total
Remuneration
£19,505
Salary
£22,023
Total
Remuneration
£24,439
Salary
£35,391
Total
Remuneration
£40,866
The reduction in the pay ratio year on year is due to a reduction in total remuneration for the CEO, driven by a lower bonus pay out for FY22.
The bonus pay out also caused a reduction in total remuneration across the Group, in comparison to last year, which is reflected in the numbers for
the 25th and 50th percentiles.
PERCENTAGE CHANGE IN THE DIRECTORS’ REMUNERATION
The table below shows the percentage change in the Executive Directors and Non-Executive Directors’ salaries/ fees, benefits (excluding pension)
and annual bonus between FY19 and FY20, FY20 and FY21, and between FY21 and FY22, compared to that of the average for all employees of
the Group.
% Change from FY21 to FY221,10
% Change from FY20 to FY21
% Change from FY19 to FY20
Salary2
Benefits3
6.3%
–
226.9%
19.8%
21.2%
5.5%
5.5%
0%
–
–
5.5%
0%
–
0%
-100%
415.6%
100%
563%
2%
–
–
10.5%
Annual
bonus3
-49.4%
–
–
–
–
–
–
–
–
–
-47.2%
Salary
- 4.9%
–
0%
-1.6%
–
-3.3%
0%
0%
–
–
8.1%
Benefits
0%
–
0%
-80%
–
-100%
-97.8%
0%
–
–
33.8%
Annual
bonus
100%
–
–
–
–
–
–
–
–
–
100%
Salary
2%
–
15.9%
10.3%
–
9%
16%
0%
–
–
4.7%
Benefits
0%
–
100%
25%
–
50%
200%
2%
–
–
0%
Annual
bonus
-100%
–
–
–
–
–
–
–
–
–
-100%
Steve Johnson4
Rachel Izzard5
Ron McMillan6
Gill Barr7,
Vicky Mitchell
Michael Ross
Richard Moross
Lord Alliance of
Manchester8
Joshua Alliance
Dominic Platt
Average of other
employees9
1 Where individuals have not been employed for the full two year period we have not shown the percentage changes in remuneration.
2 All individuals detailed in the table above, save for Dominic Platt who joined after the cut off, received a salary/fee increase of 1.5% during FY22. Fees for
Committee Chairs and the Senior Independent Director were increased to take account of the increased responsibilities and time commitment of the roles.
In FY21, all members of the Board detailed above took a voluntary salary reduction of 20% across April, May and June 2020. Salaries and Non-Executive
Director fees were at normal levels for the whole of FY22.
90
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 3 Non-Executive Director benefits (other than for Lord Alliance of Manchester) include taxable travel and accommodation expenses. Lord Alliance of Manchester’s
benefits comprised secretarial support. Executive and other employee expenses include private medical cover, car allowance and relocation expenses.
4 Steve Johnson did not receive a bonus in FY20.
5 Rachel Izzard joined the Company in June 2020. The percentage change in her salary from FY21 to FY22 was 51.2% however this was largely due to joining
during FY21. Benefits have reduced by 37.9%. Bonus has decreased by 24.1%.
6 Ron McMillan was appointed as Non-Executive Chair on 31 March 2021.
7 Gill Bar was appointed as the Senior Independent Director on 31 March 2021.
8 Lord Alliance of Manchester’s benefits have been restated to reflect the inclusion of secretarial support.
9 No bonus was paid to colleagues in FY20.
10 Matt Davies and Lesley Jones stepped down from the Board in March 2021. Details of their percentage change for previous periods can be found in the
relevant annual report.
RELATIVE IMPORTANCE OF SPEND ON PAY
The following table shows the Company’s actual spend on pay (for all employees) relative to dividends. These figures relate to amounts payable in
respect of the relevant financial year.
Colleague costs (£m)
Dividends (£m)
Notes: 2021 colleague costs have been restated from £72.5m to correct an error.
2022
£62.8m
£0m
2021
£67m
£0m
% Change
-6.2%
0%
OTHER DIRECTORSHIPS
The current CEO and CFO did not serve as Non-Executive Directors for any other company during FY22 however, from 1 May 2022,
Rachel Izzard will receive £65,000 per annum in fees as a non-executive director of Raspberry Pi.
PAYMENTS TO PAST DIRECTORS AND PAYMENTS FOR LOSS OF OFFICE
There have been no payments to past Directors or payments for loss of office in the year.
SHAREHOLDER VOTING ON THE DIRECTORS’ REMUNERATION REPORT AT THE 2021 ANNUAL GENERAL
MEETING AND POLICY AT THE 2019 ANNUAL GENERAL MEETING
Voting outcome for the 2019 Remuneration Policy vote:
% of votes cast
Number of votes cast
For
99.60
177,995,722
Against
0.40
706,951
Notes: 26,023,384 votes were withheld in 2019. 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.
Voting outcome for the 2021 Remuneration Report vote:
% of votes cast
Number of votes cast
For
97.92
324,748,979
Against
2.08
6,897,172
Notes: 35,987 votes were withheld in 2021. 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
Gill Barr (Chair)
Ron McMillan
Richard Moross
Matt Davies
Dominic Platt
16 January 2018 – Present
1 April 2013 – Present
3 January 2017 – Present
1 May 2018 – 31 March 2021
10 June 2021- Present
The General Counsel and Company Secretary acts as Secretary to the Committee and the Chief Executive Officer, Chief Financial Officer and
Chief People Officer may also attend meetings by invitation. However, no Director takes any part in discussion about their own remuneration.
The Committee has formal written Terms of Reference which are available on the Company’s corporate website. The Committee met six times
during the year, see p60 for details of attendance.
91
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk REMUNERATION CONTINUED
REMUNERATION COMMITTEE REPORT CONTINUED
ADVICE PROVIDED 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 signatories to the Remuneration Consultants’ Group Code of Conduct. Fees amounting to £65,000 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.
THE WORK OF THE REMUNERATION COMMITTEE
ENGAGEMENT WITH STAKEHOLDERS
The Committee reviews workforce policies and practices and invites members of the management team to attend Committee meetings to provide
input into the Committee’s considerations. A key part of the Group People Officer’s role, supported by the Designated Non-Executive Director for
Colleague Engagement, Richard Moross, and the CEO, is to engage with the wider workforce and feedback on remuneration is provided to the
Committee and Board.
The Company engages with its workforce throughout the year via the colleague forum, The Culture Club, (as set out in more detail on p40).
The forum acts as a platform through which Directors can liaise with colleagues about broader pay policies and practices and the alignment to the
Executive Directors’ Remuneration Policy, as measured against the Group’s annual performance, strategy and reward agenda.
The Committee Chair has conversations with shareholders on remuneration matters from time to time and engaged with our major shareholders
in relation to the Remuneration Policy to be brought to shareholders for approval at our 2022 AGM and the operation of the Policy. The Committee
was pleased to receive feedback on the proposed new policy and operation of policy for FY23 which is referred to in the Chair’s Annual Statement
on Remuneration. As part of the remuneration review process, the Committee also considered investor and proxy agency voting policy guidelines
and market practice developments.
Support for the Remuneration Report in 2021 was 97.92% and there were no areas of concern for the Committee to consider from the AGM
voting outcomes.
DETERMINING EXECUTIVE DIRECTOR REMUNERATION
The Committee considers the appropriateness of the Executive Directors’ remuneration not only in the context of overall business performance
and Environmental, Social and Governance matters but also in the context of wider workforce pay conditions. It does this by reviewing workforce
pay policies and practices as well as the ratio of CEO pay to all-employee pay.
In reviewing the remuneration for FY22 against corporate performance, employee reward, investor return and the external economic, societal and
business environment, the Committee is comfortable that there has been an appropriate link between reward and performance and that the policy
has operated as intended.
APPLICATION OF THE REMUNERATION POLICY FOR FY23
The application of the remuneration policy for FY23 is set out below.
BASE SALARY
Effective 1 June 2022, the CEO’s and CFO’s salaries will be increased by 3% in line with the salary increase awarded to the rest of the workforce.
Name
Steve Johnson
Rachel Izzard
Salary at 1 June
2021
£431,375
£355,250
Salary at 1 June
2022
£444,316
£365,908
PENSION
Our CEO and CFO both receive cash supplements of 8% of salary, in lieu of pension contributions and these are aligned with the majority of
the workforce.
ANNUAL BONUS PLAN
For FY23, the annual bonus maximum opportunity is 150% of salary for the CEO and 125% of salary for the CFO. 60% of the bonus will be paid
in cash and 40% in shares with a three-year holding period.
The performance measures and weightings are set out below.
Objective
Adjusted EBITDA
Growth in Statutory Product Revenue of the brands that underpin our differentiated brand portfolio strategy
Customer NPS
Strategic change delivery: Technology milestones
ESG (weighted equally between GHG and sustainable products)
Weighting
45%
15%
10%
20%
10%
92
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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 FY23 Remuneration Report.
LONG-TERM INCENTIVE AWARDS
Awards will be made at the normal policy award level of 150% of salary for our CEO and 125% for our CFO.
As explained in the Annual Statement of the Remuneration Committee Chair the FY23 LTIP award will be based 100% on Adjusted EPS growth
with the targets as set out below.
Metric
Adjusted EPS
Weighting
100%
Threshold target 25% vests1
6.6 pence
Maximum target 100% vests
9.5 pence
Rationale for measure
To incentivise management
to achieve measurable
improvements in long term
profitability as an output of our
transformation strategy.
FEES FOR THE CHAIR AND NON-EXECUTIVE DIRECTORS
Details of the Non-Executive Directors’ fees are set out below. From 1 June 2022, the fees will be increased by 3% aligned to salary increase for
the workforce and the Executive Directors. The Non-Executive Directors have agreed that instead of taking their 3% fee increase for FY23 the
Company will make a contribution to the N Brown hardship fund equivalent to the amount of the increase.
Chair of the Board fee
Other Independent Non-Executive Director base Board fee
Non-Executive Director base Board fee
(Lord Alliance)
Non-Executive Director base Board fee
(Joshua Alliance)
Additional Non-Executive Director fees:
Senior Independent Director
Chair of Audit and Risk Committee
Chair of Remuneration Committee
Chair of Financial Services Board Committee
Designated Director for Colleague Engagement
APPROVAL OF THE DIRECTORS’ REMUNERATION REPORT
The Directors’ Remuneration report was approved by the Board on 18 May 2022.
Signed on behalf of the Board on 18 May 2022.
Gill Barr
Chair of the Remuneration Committee
Fees at
1 June 2021
255,000
51,765
51,765
Fees at
1 June 2022
£262,650
£53,318
£53,318
40,600
£41,818
10,150
15,225
15,225
24,360
10,150
£10,455
£15,682
£15,682
£25,091
£10,455
93
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk ADDITIONAL DISCLOSURES
The Directors have pleasure in presenting their Annual Report and audited Accounts for the 52 week period ended 26 February 2022.
The Directors’ Report comprises p54 to 97, together with the sections on the Annual Report incorporated by reference. Some of the matters
required to be included in the Directors’ Report have been included elsewhere in the Annual Report & Accounts, namely:
Disclosure
Financial and Risk Management
Future Business Developments
Disclosure of the Group’s greenhouse gas emissions in FY22
Additional information to be disclosed in the Directors’ Report is given in this section.
Page
32
18
51
The Directors’ Report together with the Strategic Report set out on p1 to 97 form the Management report for the purposes of DTR4.1.5R.
Both the strategic Report and the Directors’ Report have been prepared and presented in accordance with English company law and the liabilities
of the Directors in connection with those reports shall be subject to the limitations and restrictions provided by such law.
SHARE CAPITAL
Details of the Group’s issued share capital are shown in note 23 on p140. 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.
There are no specific restrictions on the size of a holding nor on the transfer of shares which are both governed by the general provision of the
Company’s Articles of Association and prevailing legislation (except as set out 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.
At the 2021 Annual General Meeting, the Directors were given the power to issue new shares up to a nominal amount of £16,965,171. This power
will expire on the earlier of the conclusion of the 2022 Annual General meeting or on 7 July 2022. Accordingly, a resolution will be proposed
by Directors at the 2022 Annual General Meeting to renew the Company’s authority to issue new shares up to a further nominal amount of
£16,965,171 in connection with an offer by way of a rights issue.
An approval will be sought at the 2022 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 2022 Annual General Meeting.
The Directors have no current plans to issue shares other than in connection with employee share options.
MAJOR SHAREHOLDERS
Information provided to the Company by major shareholders pursuant to the FCA’s Disclosure Guidance and Transparency Rules (DTR) are
published via a Regulatory Information Service and are available on the Company’s website. As at 26 February 2022 and the date of this report,
other than the Directors’ shareholdings included in the Remuneration Report on p89, the Company had received no notifications of the interests in
voting rights pursuant to Chapter 5 of the DTR.
VOTING RIGHTS AND RESTRICTIONS
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 with the
Company’s shares;
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 and
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.
94
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk EMPLOYEE SHARE SCHEMES – RIGHTS OF CONTROL
The trustees of the N Brown Group plc Employee Benefit 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 offering relating to the shares in any way they see fit, without
incurring any liability and without being required to give reasons for any decision. In exercising their trustee powers, the trustees may take all 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 of their dependents;
The interests of persons (whether or not identified) who may become beneficiaries in the future; and
Considerations of a local, moral, ethical, environmental, or social nature.
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 employees 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.
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 business. While 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.
2022 ANNUAL GENERAL MEETING
The Annual General Meeting will be held at 12:30 on 7 July 2022. The notice convening the Annual General Meeting will be sent to members
by way of a 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.
GOING CONCERN
As explained fully in note 2 on p118, the Directors have adopted the going concern basis in preparing the financial statements.
VIABILITY STATEMENT
As required by the UK Corporate Governance Code, the Directors have assessed the prospects of the Group. The Board has decided it is
appropriate to use the three-year plan and the longer term cash flow models and strategic plans beyond this, to cover a period of three years from
the date of approval of this Annual Report and Accounts. The period used for this assessment is consistent with the prior year. Three years has
been chosen as this is the period that is reasonably possible to forecast with a degree of accuracy.
Following the commencement of implementing our strategy during the course of FY20, we conducted a further review of our strategy in Autumn
FY22, supported by management consultancy firm Boston Consulting Group, in order to reaffirm and where necessary pivot our focus as the UK
emerges from the pandemic and the resulting market, consumer and economic shifts. The result of the review confirmed much of the direction of
the FY20 process, including the desire to build profitability through the retail business, an ongoing emphasis on digital, and commitment to serving
the underserved.
Whilst confirming our strategy to deliver long term sustainable growth, the review also enabled a sharpening of our strategic focus, with 4 key
evolutions to the previous strategy:
Focus: Accelerate growth through three strategic brands, which will allow us to boost simplicity and rigour of execution and deliver strong customer
propositions and efficiency in our marketing
Consistency: Stand up a dedicated team for all remaining “heritage” brands focused on stabilisation and value protection rather than growth
Integration: Fully embed our flexible credit offer into the core of the customer value proposition
Data driven: Establish data as an asset at the core of the strategy, driving daily decision making and activating our unique data pool.
Making these refinements will enable the Group to focus capital, resources and marketing efforts on a more refined area of brands, whilst
protecting the legacy core of the business, and the management team are confident this is the most expedient way to create growth.
In FY22, the Group again generated cash from its operations and for the second year finished FY22 with no unsecured debt, a stable financial
services business and a strong Balance Sheet that facilitates investing and the acceleration of our strategy. The strategic progress made in FY22
is set out in more detail on p7 to 18.
95
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk ADDITIONAL DISCLOSURES CONTINUED
Taking into account the continued challenges facing the retail market following the Covid-19 outbreak, the Group’s current position, its principal
risks and uncertainties as described on p40 to 45 and how these are managed, as well as its FY23 base and downside planning scenarios as
described in note 2 to the Group accounts on p118, the Directors have assessed the Group’s prospects and viability.
Although the base 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 them
on detailed financial forecasts in the plan. The scenarios assessed the group profitability, liquidity and covenant testing impact from business
interruption, supply chain & inflationary risks, significant delay or underachievement of intangible projects and additional exceptional items.
Under the base and downside scenarios the financing arrangements provide the Group with a strong basis from which to continue to service its
customers and to manage appropriately the challenges faced by the Group. 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. The Directors will maintain oversight of
and frequently assess the performance of the Group against the strategy. This will improve regular reporting by the Group’s Operating Board and
the discussion of any pivots to strategies undertaken by the Board in its normal course of business. These reviews will consider both the market
opportunity and any associated or emerging risks to managing its working capital performance and the level of financial resources available to
the Group. The Group is introducing Enterprise level and brand level OKRs to help embed clear objectives and targets aligned to the strategy.
These OKRs will be monitored by the newly established Value Delivery Office (VDO).
The 3-year plan assumes that all financing facilities that mature in the review period will be renewed or replaced with facilities of similar size on
commercially acceptable terms. This is considered to be a reasonable planning assumption given actual and planned business performance.
Based on this assessment, the Directors have formed a judgement, at the time of approving this report, that there is a reasonable expectation that
the Group has adequate resources to continue in operation and meet its liabilities as they fall due over the three-year period of the assessment.
RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements for each financial year.
The Group financial statements are prepared in accordance with international accounting standards in conformity with the requirements of the
Companies Act 2006. The Directors have elected to prepare the parent Company financial statements in accordance with UK standards, including
financial Reporting Standard 101 Reduced Disclosure framework (“FRS 101”).
Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company
financial statements, the Directors are required to:
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 international accounting standards in conformity
with the requirements of the Companies Act 2006;
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 relating to a 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 reasonable accuracy at any time the financial 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.
Under applicable law and regulations, the Directors are also responsible for preparing the Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement that complies with the 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 Directors of the Group at the date of approval of these financial statements confirm, as far as they are aware, that there is no relevant audit
information of which the auditor is unaware. The Directors have individually confirmed that they have taken all reasonable steps that they ought
to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated
to the auditor.
96
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk We confirm 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 includes a fair review of the development and performance of the business and the position of the issuer and 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.
The strategic Report on p1 to 53 and the Directors’ Report on p54 to 97 are hereby approved by the Board and signed on behalf of the Board.
Michael Mustard (LLB Hons ACA)
Company Secretary
18 May 2022
97
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk FINANCIAL STATEMENTS
Building on a strong
financial performance
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF N BROWN GROUP PLC
GROUP ACCOUNTS
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the Group accounts
COMPANY ACCOUNTS
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Company accounts
SHAREHOLDER INFORMATION
99
107
107
108
109
110
111
149
149
150
157
98
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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 26 February 2022 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 33.
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 26 February 2022 and of the
Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;
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.
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 have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical
requirements including the FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion.
Overview
Materiality:
£2.0m (2021: £2.4m)
group financial statements
as a whole
Coverage
4.6% (2021: 4.4%) of group profit before tax, normalised to exclude exceptional items and by averaging over the last
three years due to fluctuations in the business cycle
86% (2021: 91%) of group profit before tax
Recurring risks
Key audit matters
Impairment of customer receivables
vs 2021
Allianz Insurance plc (“Allianz”) legal claim
Impairment of the carrying value of non-current assets in the Group cash generating unit (‘CGU’) and the
carrying amount of the parent Company’s investment in subsidiaries
99
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF N BROWN GROUP PLC CONTINUED
2 KEY AUDIT MATTERS: OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
Key audit matters are those matters that, in our professional judgement, 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.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance,
were as follows:
The risk
Our response
IMPAIRMENT
OF CUSTOMER
RECEIVABLES
£68.7m (2021: £85.2m)
Refer to p72 (Audit and Risk
Committee Report), p115 to
116 and p119 (accounting
policy), and p129, p132 to137
(financial disclosures)
SUBJECTIVE ESTIMATE:
The calculation of the impairment losses provision
is based on an expected credit loss (“ECL”) model
which includes a number of subjective judgements
and estimates, including the determination of
Significant Increases in Credit Risk (“SICR”),
Lifetime and 12-month Probability of Default (“PD”),
as well as Post-Model Adjustments (“PMAs”).
There is a risk that the impairment losses provision
on trade receivables could be materially misstated
as a result of inappropriate judgements or estimates
made by management, as explained above. The risk
continues to be impacted by wider and continued
economic uncertainty and ECLs may be inappropriate
if model or PMA assumptions do not accurately predict
defaults over time, become out of line with wider
industry experience, or fail to reflect the credit risk
of financial assets.
We determined that the impairment losses provision
on trade receivables 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. The financial statements (note 19) disclose
the sensitivities estimated by the Group.
OUR PROCEDURES INCLUDED:
Our credit risk modelling expertise: We involved our
own credit risk modellers who assisted in our procedures.
Together with our credit risk modelling specialists we
evaluated the Group’s impairment methodology for
compliance with IFRS 9. We inspected model code to
assess its consistency with the Group’s model methodology
and we evaluated the PD and SICR model output by
independently implementing the models through rebuilding
of the model code and comparing our independent output
with management’s output. Additionally, we assessed the
reasonableness of the model predictions by comparing them
against actual results and evaluating resulting differences.
Our economics expertise: We involved our own economic
specialists who assisted us in assessing key economic
variables which included comparing the Group’s economic
variables to external sources. Our procedures also included
assessing the overall reasonableness of the economic
forecasts and weighting of scenarios by comparing the
Group’s forecasts to our own modelled forecasts.
Our sector experience: We assessed completeness of the
PMAs and critically assessed the assumptions underpinning
the most significant PMAs applied due to model limitations
identified. We reperformed the calculation of certain
qualitative adjustments to assess consistency with the
qualitative adjustment methodologies.
Assess transparency: We assessed whether the
disclosures appropriately disclose and address the
uncertainty which exists when determining the ECL.
As part of this, we assessed the sensitivity analysis
disclosures. In addition, we assessed whether the
disclosure of the key judgements in respect of impairment
of customer receivables reflect the judgements taken by
management, and the degree of estimation uncertainty
involved in arriving at the provision.
100
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk ALLIANZ INSURANCE
PLC (“ALLIANZ”) LEGAL
CLAIM
Provision of £28.0m (2021:
Provision of £nil, contingent
liability disclosed)
Refer to p72 (Audit and Risk
Committee Report), p117 and
p120 (accounting policy), and
p139 (financial disclosures)
The risk
Our response
OUR PROCEDURES INCLUDED:
Inspecting correspondence: Together with our own legal
specialists, we inspected relevant correspondence in relation
to the claim, including the legal analyses prepared by the
Group’s external legal advisors and other views expressed
by external legal experts including Queen’s Counsel (QC).
Involvement of specialists: With the assistance of our
own legal specialists, we assessed the facts, complexities
and uncertainties of the claim, and the basis upon which
management’s estimate has been formed.
Our expertise: Using our expertise, we assessed the
judgements made and accounting treatment adopted
against the requirements of IAS 37, including the judgement
that the Group’s assessment of the present obligation will be
determined on a net basis.
Assessment of experts: We assessed the competence,
capabilities and objectivity of the Group’s external legal
advisors and QC experts.
Enquiry of legal experts: With the help of our own legal
specialists, we held direct discussions with management’s
external legal experts to inform our understanding of the
complexities and judgements involved in respect of the
claim. During our discussions with the Group’s external legal
counsel, we challenged the current status, legal analyses
and related uncertainties and complexities of the claim.
We also held discussions with the Group’s in-house legal
counsel and senior management teams.
Test of detail: We assessed the completeness, existence
and accuracy of the claim and counterclaim populations
with reference to claim documentation from Allianz and
substantive vouching on a sample basis of the underlying
claims data which informs the basis of the Group’s
counterclaims against Allianz.
Assessing transparency: We assessed the adequacy
of the Group’s related disclosures in respect of the claim,
the judgements taken by management, and the degree of
estimation uncertainty involved in arriving at the provision.
SUBJECTIVE ESTIMATE:
In January 2020, a legal claim was received from
Allianz in respect of payments of redress Allianz had
made to certain of the Group’s customers, together
with all associated costs. In June 2021, Allianz revised
the amount of its original claim and sought to increase
the scope of its claim in relation to a further customer
redress exercise. The claims from Allianz represent a
combined total amount of £66m.
The Group has issued its defence, which refutes
the claims made by Allianz, and has also issued
counterclaims related to these matters. The Group’s
counterclaims total £80m plus a further equitable set-off
defence of £40m.
The Group is of the view that, should the matter
proceed to trial, the Court will determine the outcome on
a net basis taking into account the merits of the parties’
claims and counterclaims, and the liabilities already
borne by them. The Group is also of the view that the
net basis would apply in any negotiated settlement.
Accordingly, the Group’s assessment of the present
obligation has been determined on a net basis.
The legal analysis is extremely complex and the
assessment of an appropriate provision involves a high
degree of estimation uncertainty reflecting the highly
unusual nature of this litigation and the considerable
discretion available to the Courts, if that is how the
matter is settled. As a result of this complexity and
estimation uncertainty, there is a very significant
range of potential outcomes.
In the prior year, whilst an outflow of economic
resources was considered probable, no provision
was recognised as it was not considered possible at
that time to estimate the liability reliably as the legal
proceedings and related disclosures were at an early
stage. As a result, a contingent liability was disclosed.
During the current year, sufficient progress has been
made in assessing the evidential bases of the claims
and in analysing their legal merits to calculate a reliable
estimate of the liability, in line with the requirements of
IAS 37 Provisions, Contingent Liabilities and Contingent
Assets, and has recognised a provision accordingly.
We determined that the provision in respect of the
Allianz legal claim 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. The inherent uncertainty and range of potential
outcomes is such that we have indicated an increase in
the risk year on year. The financial statements (note 22)
disclose the range of potential outcomes estimated by
the Group.
101
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF N BROWN GROUP PLC CONTINUED
IMPAIRMENT OF THE
CARRYING VALUE
OF NON-CURRENT
ASSETS IN THE GROUP
CASH GENERATING
UNIT (‘CGU’) AND THE
CARRYING AMOUNT OF
THE PARENT COMPANY’S
INVESTMENT IN
SUBSIDIARIES
Refer to p72 (Audit and Risk
Committee Report), p113, p120
and p151 (accounting policy),
and p120, p126, p127 and p154
(financial disclosures)
The risk
Our response
FORECAST-BASED ASSESSMENT:
The carrying value of non-current assets in the Group
CGU and the carrying amount of the parent Company’s
investments in subsidiaries are significant and there
are indicators of impairment due to the Group’s market
capitalisation being lower than the carrying value of net
assets of the Group and the parent Company.
The estimated recoverable amount of these balances
is subjective due to the inherent uncertainty involved in
forecasting and discounting future cash flows, which
forms the basis of the Group’s value in use calculation
and assessment of the carrying amount of the parent
Company’s investments in subsidiaries. The estimation
uncertainty associated with these cash flow forecasts
is heightened currently in the context of inflationary
pressures on the business’ cost base and on the
disposable income of its target customers, which may
affect revenues and margins adversely in a manner
not envisaged currently. These heightened macro-
economic risks are such that we have indicated an
increase in the overall risk year on year.
We determined that the value in use of the Group CGU
has a high degree of estimation uncertainty with a
potential range of outcomes greater than our materiality
for the financial statements as a whole, and possibly
many times that amount.
The financial statements (note 12) disclose the
sensitivity estimated by the Group.
OUR PROCEDURES INCLUDED:
Benchmarking assumptions: We challenged, with
the support of our own valuation specialists, the key
assumptions used in the value in use calculations of the
Group CGU by comparing them to externally derived data
in relation to key inputs such as projected growth rates
and discount rates. This included consideration of relevant
comparator entities, industry and analyst forecasts.
Historical comparisons: We considered the Group’s
historical forecasting accuracy by comparing actual
performance against budget.
Sensitivity analysis: We performed breakeven analysis
on the key assumptions, including the discount rate and
projected EBIDTA growth in the Board approved plan,
to assess how sensitive the value in use calculation is to
reasonably possible changes in key cashflow assumptions.
Comparing valuations: We compared the total of the
value in use calculation to the Group’s market capitalisation
to assess the reasonableness of those cash flows and
critically assessed the rationale for the difference from
tha comparison.
Challenge key judgements: We performed corroborative
inquiries of key personnel outside of the core group finance
team to challenge the status of the Group’s performance,
and to corroborate the key assumptions underpinning the
Group’s strategy and Board approved plan.
Assessing transparency: We assessed whether the
Group’s and parent Company’s disclosures about the
sensitivity of the outcome of the impairment assessment to
changes in key assumptions reflects the risks inherent in the
valuation of the Group.
For each of the key audit matters reported above, we performed the tests above rather than seeking to rely on any of the Group’s controls because
the nature of the balances is such that we would expect to obtain audit evidence primarily through the detailed procedures described above.
We continue to perform procedures over software and development costs capitalised as intangibles. However, there has been a continued
focus by management on this area in the current year, whilst the estimation uncertainty relating to the appropriateness of intangible asset Useful
Economic Lives (“UELs”) has also reduced following the Group’s detailed reassessment of UELs in the previous year. For these reasons, 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.
102
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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
£2.0m (2021: £2.4m), determined with reference to a benchmark of
group profit before tax, normalised to exclude exceptional items as
disclosed in note 6 (excluding gains/losses from early settlement of
derivative contracts) and by averaging over the last three years due
to fluctuations in the business cycle (2021: Group profit before tax,
normalised to exclude exceptional items and averaged over the last
three years), of which it represents 4.6% (2021: 4.4%).
Materiality for the parent Company financial statements as a whole was
set at £2.0m (2021: £1.8m), determined with reference to a benchmark
of company total assets, of which it represents 0.4% (2021: 0.5%).
In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an acceptable
level the risk that individually immaterial misstatements in individual
account balances add up to a material amount across the financial
statements as a whole.
Performance materiality was set at 65% (2021: 50%) of materiality
for the financial statements as a whole, which equates to £1.3m
(2021: £1.2m) for the Group and £1.3m (2021: £0.9m) for the
parent Company. We applied this percentage in our determination
of performance materiality based upon the level of identified
misstatements and control deficiencies during the prior period.
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding £102,000
(2021: £120,000), in addition to other identified misstatements that
warranted reporting on qualitative grounds.
Of the Group’s 30 (2021: 32) reporting components, we subjected 2
(2021: 4) to full scope audits for group purposes.
The components within the scope of our work accounted for the
percentages illustrated opposite.
The remaining 3% (2021: 3%) of total Group revenue, 14% (2021: 9%)
of Group profit before tax and 2% (2021: 3%) of total Group assets is
represented by 28 (2021: 28) reporting components, none of which
individually represented more than 7% (2021: 7%) of any of total Group
revenue, Group profit before tax or total Group assets. For these
components, we performed analysis at an aggregated group level
to re-examine our assessment that there were no significant risks of
material misstatement within these.
The work on the 2 (2021: 4) components, and the audit of the parent
Company, was performed by the Group team.
The component materialities ranged from £1.2m to £1.8m (2021: £0.4m
to £2.0m), having regard to the mix of size and risk profile of the Group
across the components.
The Group team performed procedures on the items excluded from
normalised Group profit before tax.
The scope of the audit work performed was predominately substantive
as we placed limited reliance upon the Group’s internal control over
financial reporting.
GROUP PROFIT BEFORE TAX
NORMALISED TO EXCLUDE
EXCEPTIONAL ITEMS AND
AVERAGED OVER THE LAST
3 YEARS £44.1M
(2021: £54.4M)
GROUP MATERIALITY
£2.04M
(2021: £2.40M)
£2.04m
Whole financial statements
materiality (2021: £2.40m)
£1.84m
Range of materiality
at 2 components
(2021: 4 components):
£1.20m to £1.84m
(2021: £0.42m to £2.04m
£0.102m
Misstatements
reported to the Audit
and Risk Committee
(2021: £0.120m)
Normalised PBT
Group materiality
GROUP REVENUE
GROUP PROFIT AND
LOSSES BEFORE TAX
14
9
86%
(2021: 91%)
91
86
3
3
97%
(2021: 97%)
97
97
GROUP TOTAL ASSETS
2
3
98%
(2021: 97%)
97
98
Full scope for Group audit purposes 2022
Full scope for Group audit purposes 2021
Residual components
103
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF N BROWN GROUP PLC CONTINUED
4 GOING CONCERN
The directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Group or the
Company or to cease their operations, and as they have concluded
that the Group’s and the Company’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”).
We used our knowledge of the Group, its industry and the general
economic environment to identify the inherent risks to its business
model and analysed how those risks might affect the Group’s and
Company’s financial resources or ability to continue operations over
the going concern period. The risks that we considered most likely
to adversely affect the Group’s and Company’s available financial
resources and/or metrics relevant to debt covenants over this period
are consumer confidence and the successful execution of the Group’s
strategic plans.
We also considered less predictable but realistic second order impacts,
such as the impacts of business interruption, supply chain cost inflation
and the outcome of certain claims and litigations, including the Allianz
claim Key Audit Matter, which could result in a rapid reduction of
available financial resources.
We considered whether these risks could plausibly affect the liquidity
or covenant compliance in the going concern period by comparing
severe but plausible downside scenarios that could arise from these
risks individually and collectively against the level of available financial
resources and covenants indicated by the Group’s financial forecasts.
We considered whether the going concern disclosure in note 2 to
the financial statements gives a full and accurate description of the
Director’s assessment of going concern.
Our conclusions based on this work:
we consider that the directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
we have not identified, and concur with the directors’ assessment that
there is not, a material uncertainty related to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s or
Company’s ability to continue as a going concern for the going concern
period; and
we have nothing material to add or draw attention to in relation to the
directors’ statement in note 2 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 the going concern period, and we found the going
concern disclosure in note 2 to be acceptable.
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
above conclusions are not a guarantee that the Group or the Company
will continue in operation.
5 FRAUD AND BREACHES OF LAWS AND
REGULATIONS – ABILITY TO DETECT
IDENTIFYING AND RESPONDING TO RISKS OF MATERIAL
MISSTATEMENT DUE TO FRAUD
To identify risks of material misstatement due to fraud (“fraud risks”)
we assessed events or conditions that could indicate an incentive or
pressure to commit fraud or provide an opportunity to commit fraud.
Our risk assessment procedures included:
Enquiring of directors, the Audit and Risk Committee, internal audit
and inspection of policy documentation as to the Group’s high-level
policies and procedures to prevent and detect fraud, including the
internal audit function, and the Group’s channel for “whistleblowing”,
as well as whether they have knowledge of any actual, suspected or
alleged fraud.
Reading Board, Audit and Risk Committee, Operational, Risk and
Compliance Committee, Financial Services Operations Committee,
and Remuneration Committee minutes.
Considering remuneration incentive schemes and performance
targets for management and Directors including the EBITDA target
for management remuneration.
Using analytical procedures to identify any unusual or
unexpected relationships.
We communicated identified fraud risks throughout the audit team and
remained alert to any indications of fraud throughout the audit.
As required by auditing standards, and taking into account possible
pressures to meet profit targets and our overall knowledge of the
control environment, we perform procedures to address the risk of
management override of controls, in particular the risk that Group
management may be in a position to make inappropriate accounting
entries. On this audit we do not believe there is a fraud risk related to
revenue recognition because of the nature of the Group’s revenue
streams, and the high volume and low value nature of the Group’s
revenue transactions. We consider that the fraud risk in relation to
inappropriate accounting entries is limited to journals which is covered
by our procedures in respect of management override of controls.
We also identified a fraud risk related to inappropriate impairment
of customer receivables and inappropriate capitalisation of internal
software and development costs in response to pressures to meet
profit targets, management compensation arrangements, and historic
internal control deficiencies identified.
Further detail in respect of the fraud risk related to inappropriate
impairment of customer receivables is set out in the key audit matter
disclosures in section 2 of this report.
We also performed procedures including:
Identifying journal entries and other adjustments to test based
on risk criteria and comparing the identified entries to supporting
documentation. These included those journals with unexpected
account pairings or posted to unusual accounts.
Assessing significant management judgements in relation to
capitalised internal software and development costs for bias; and
Assessing significant accounting estimates for bias.
104
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk IDENTIFYING AND RESPONDING TO RISKS OF MATERIAL
MISSTATEMENT RELATED TO COMPLIANCE WITH LAWS
AND REGULATIONS
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, through discussion
with the directors and other management (as required by auditing
standards), and from inspection of the Group’s regulatory and legal
correspondence together with our legal specialists and discussed
with the directors and other management the policies and procedures
regarding compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved gaining
an understanding of the control environment including the entity’s
procedures for complying with regulatory requirements.
We communicated identified laws and regulations throughout our team
and remained alert to any indications of non-compliance throughout
the audit.
The potential effect of these laws and regulations on the financial
statements varies considerably.
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,
taxation legislation, and pension legislation 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 or the loss of the
Group’s license to operate. We identified the following areas as those
most likely to have such an effect: health and safety, anti-bribery and
corruption and money laundering regulations, employment law, data
protection regulations, environmental and climate legislation, trading
and consumer standards, PCI compliance, Senior Manager Regime
and FCA regulations, recognising the 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. Therefore, if a breach of operational regulations
is not disclosed to us or evident from relevant correspondence, an
audit will not detect that breach. Further detail in respect of the Allianz
legal claim is set out in the key audit matter disclosures in section 2 of
this report.
CONTEXT OF THE ABILITY OF THE AUDIT TO DETECT FRAUD
OR BREACHES OF LAW OR REGULATION
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 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 fraud, as these may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal controls.
Our audit procedures are designed to detect material misstatement.
We are not responsible for preventing non-compliance or fraud
and cannot be expected to detect non-compliance with all laws
and regulations.
6 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 addition to our audit of the financial statements, the directors have
engaged us to audit the information in the Directors’ Remuneration
Report that is described as having been audited, which the directors
have decided to prepare as if the Company were required to comply
with the requirements of Schedule 8 to The Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008 (SI
2008 No. 410) made under the Companies Act 2006.
In our opinion the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the Companies
Act 2006, as if those requirements applied to the Company.
DISCLOSURES OF EMERGING AND PRINCIPAL RISKS AND
LONGER-TERM VIABILITY
We are required to perform procedures to identify whether there is a
material inconsistency between the directors’ disclosures in respect
of emerging and principal risks and the viability statement, and the
financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or draw
attention to in relation to:
the directors’ confirmation within the Viability Statement on pages 95 to
96 that they have carried out a robust assessment of the emerging and
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 how
emerging risks are identified, 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.
105
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF N BROWN GROUP PLC CONTINUED
8 RESPECTIVE RESPONSIBILITIES
DIRECTORS’ RESPONSIBILITIES
As explained more fully in their statement set out on page 96, 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 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 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.
9 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 and
the terms of our engagement by the Company. 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 the further matters we are required to state to them in accordance
with the terms agreed with the Company, 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.
Anthony Sykes
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
18 May 2022
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 perform procedures to identify whether there is a
material inconsistency between the directors’ corporate governance
disclosures and the financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements and our
audit knowledge:
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;
the section of the annual report describing the work of the Audit
Committee, including the significant issues that the audit committee
considered in relation to the financial statements, and how these issues
were addressed; and
the section of the annual report that describes the review of
the effectiveness of the Group’s risk management and internal
control systems.
In addition to our audit of the financial statements, the directors have
engaged us to review their Corporate Governance Statement as if
the Company were required to comply with the Listing Rules and
the Disclosure Guidance and Transparency Rules of the Financial
Conduct Authority in relation to those matters. Under the terms of
our engagement we are required to review the part of the Corporate
Governance Statement relating to the Company’s compliance with the
provisions of the UK Corporate Governance Code specified for our
review. We have nothing to report in this respect.
7 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 which we were engaged to audit 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.
106
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk GROUP ACCOUNTS
CONSOLIDATED INCOME STATEMENT
Revenue
Credit account interest
Group revenue
Cost of sales
Impairment losses on customer receivables1
Gross profit
Operating profit/(loss)
Finance costs
Profit/(loss) before taxation and fair value adjustments
to financial instruments
Fair value adjustments to financial instruments
Profit/(loss) before taxation
Taxation
Profit/(loss) for the period
Earnings per share from continuing operations
Basic
Diluted
Note
3
4
5
8
18
9
11
11
52 weeks ended 26 February 2022
52 weeks ended 27 February 2021
(Restated)1
Before
exceptional
items
£m
487.0
228.7
715.7
Exceptional
items
(note 6)
£m
–
–
–
(268.4)
(94.4)
352.9
56.9
(13.8)
43.1
4.8
47.9
(8.7)
39.2
–
–
–
(28.7)
–
(28.7)
–
(28.7)
5.7
(23.0)
Before
exceptional
items
£m
489.3
239.5
728.8
Exceptional
items
(note 6)
£m
–
–
–
(266.2)
(139.1)
323.5
46.0
(16.6)
29.4
(10.0)
19.4
(3.0)
16.4
(1.1)
–
(1.1)
(11.6)
–
(11.6)
1.4
(10.2)
1.7
(8.5)
Total
£m
487.0
228.7
715.7
(268.4)
(94.4)
352.9
28.2
(13.8)
14.4
4.8
19.2
(3.0)
16.2
3.53
3.51
Total
£m
489.3
239.5
728.8
(267.3)
(139.1)
322.4
34.4
(16.6)
17.8
(8.6)
9.2
(1.3)
7.9
2.50
2.50
1
Refer to change in accounting policy prior year adjustment note 32 and presentational adjustment in note 4.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Profit for the period
Items that will not be reclassified subsequently to profit or loss
Actuarial gains/(losses) on defined benefit pension scheme
Tax relating to items not reclassified
Net other comprehensive income/(loss) that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit and loss
Exchange differences on translation of foreign operations
Fair value movements of cash flow hedges
Amounts reclassified from other comprehensive income to profit and loss
Tax relating to these items
Net other comprehensive income/(loss) that may be reclassified to profit and loss
Other comprehensive income/(loss) for the period
Total comprehensive income for the period attributable to equity holders of the parent
1
Refer to change in accounting policy prior year adjustment note 32.
Note
29
9
52 weeks
ended
26 February
2022
£m
16.2
52 weeks
ended
27 February
2021
£m
(Restated)1
7.9
10.5
(3.7)
6.8
0.6
7.2
0.6
(1.8)
6.6
13.4
29.6
(1.9)
0.7
(1.2)
(2.6)
–
–
–
(2.6)
(3.8)
4.1
107
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk GROUP ACCOUNTS CONTINUED
CONSOLIDATED BALANCE SHEET
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Retirement benefit surplus
Derivative financial instruments
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Current tax asset
Cash and cash equivalents
Total assets
Current liabilities
Bank overdrafts
Provisions
Trade and other payables
Lease liability
Derivative financial instruments
Current tax liability
Net current assets
Non-current liabilities
Bank loans
Lease liability
Derivative financial instruments
Deferred tax liabilities
Total liabilities
Net assets
Equity attributable to equity holders of the parent
Share capital
Share premium account
Own shares
Cash flow hedge reserve
Foreign currency translation reserve
Retained earnings
Total equity
1
Refer to change in accounting policy prior year adjustment note 32.
As at
26 February
2022
£m
Note
As at
27 February
2021
£m
(Restated)1
As at
29 February
2020
£m
(Restated)1
12
13
27
29
18
20
15
16
18
25
25
22
21
27
18
17
27
18
20
23
24
113.0
58.5
1.1
37.4
5.1
11.5
226.6
87.3
533.1
1.7
1.0
43.1
666.2
892.8
–
(30.9)
(94.7)
(0.9)
(0.4)
–
(126.9)
539.3
(302.5)
(0.4)
–
(20.7)
(323.6)
(450.5)
442.3
50.9
85.0
(0.2)
5.5
1.0
300.1
442.3
128.1
60.9
3.6
25.5
–
13.6
231.7
77.7
549.0
0.4
–
94.9
722.0
953.7
(14.1)
(4.7)
(110.6)
(1.8)
(6.2)
(4.5)
(141.9)
580.1
(381.9)
(3.1)
(1.3)
(13.2)
(399.5)
(541.4)
412.3
50.9
85.0
(0.3)
–
0.4
276.3
412.3
147.2
62.6
5.6
26.3
1.3
13.8
256.8
94.9
614.4
4.0
–
161.7
875.0
1,131.8
(114.2)
(11.1)
(110.5)
(2.2)
(1.3)
(13.8)
(253.1)
621.9
(544.6)
(4.7)
(0.9)
(14.6)
(564.8)
(817.9)
313.9
31.4
11.0
(0.3)
–
3.0
268.8
313.9
The financial statements of N Brown Group plc (Registered Number 814103) were approved by the Board of Directors and authorised for issue on
18 May 2022.
They were signed on its behalf by:
Rachel Izzard
CFO and Executive Director
108
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk CONSOLIDATED CASH FLOW STATEMENT
Net cash inflow from operating activities
Investing activities
Purchases of property, plant and equipment
Purchases of intangible assets
Net cash used in investing activities
Financing activities
Interest paid
Dividends paid
Decrease in bank loans
Principal elements of lease payments
Foreign exchange forward contracts
Proceeds on issue of share capital
Transaction costs relating to the issue of share capital
Net cash (outflow) from financing activities
Net foreign exchange difference
Net (decrease)/increase 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
1
Refer to change in accounting policy prior year adjustment note 32.
RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW
FROM OPERATING ACTIVITIES
Profit for the period
Adjustments for:
Taxation charge
Fair value adjustments to financial instruments
Net foreign exchange gain
Finance costs
Depreciation of right-of-use assets
Depreciation of property, plant and equipment
Gain on disposal of right of use assets
Impairment of intangible assets
Amortisation of intangible assets
Share option charge
Operating cash flows before movements in working capital
(Increase)/Decrease in inventories
Decrease in trade and other receivables
(Decrease)/Increase in trade and other payables
Increase/(Decrease) in provisions
Pension obligation adjustment
Cash generated by operations
Taxation paid
Net cash inflow from operating activities
1
Refer to change in accounting policy prior year adjustment note 32.
For the
52 weeks
ended
26 February
2022
£m
78.7
For the
52 weeks
ended
27 February
2021
£m
(Restated)1
142.2
Note
25
(3.4)
(16.4)
(19.8)
(13.8)
–
(79.3)
(1.8)
(1.3)
–
–
(96.2)
(0.4)
(37.7)
80.8
43.1
For the
52 weeks
ended
26 February
2022
£m
16.2
3.0
(4.8)
0.4
13.8
1.2
4.4
(0.5)
–
32.5
0.8
67.0
(9.6)
15.9
(13.5)
26.1
(0.9)
85.0
(6.3)
78.7
(1.4)
(17.0)
(18.4)
(19.0)
–
(162.8)
(1.7)
–
99.6
(6.1)
(90.0)
(0.5)
33.3
47.5
80.8
For the
52 weeks
ended
27 February
2021
£m
(Restated)1
7.9
1.3
10.0
0.8
16.6
1.6
3.3
–
1.9
34.0
0.8
78.2
17.0
64.4
0.7
(6.2)
(0.8)
153.3
(11.1)
142.2
109
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk GROUP ACCOUNTS CONTINUED
CHANGES IN LIABILITIES FROM FINANCING ACTIVITIES
Loans and borrowings
Balance at 27 February 2021
Changes from financing cash flows
Net repayment from loans and borrowings1
Lease principal payments in the period
Lease disposals in the period
Decrease in loans and borrowings due to changes in interest rates
Decrease in loans and borrowings
Balance at 26 February 2022
52 weeks to
26 February
2022
£m
52 weeks to
27 February
2021
£m
386.8
551.5
(79.2)
(1.8)
(1.8)
(0.2)
(83.0)
303.8
(161.7)
(2.0)
–
(1.0)
(164.7)
386.8
1
Repayments relating to the Group’s Securitisation facility are represented net of cash receipts in respect of the customer book collections.
The Directors consider that the net representation more accurately reflects the way the Securitisation cashflows are managed.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As previously reported at 29 February 2020
Prior year adjustment1
Balance at 29 February 2020 (Restated)1
Comprehensive income for the period
Profit for the period (Restated)1
Other items of comprehensive income/(loss) for the period
Total comprehensive income/(loss) for the period
(Restated)1
Transactions with owners recorded directly in equity
Issue of shares
Share option charge
Total contributions by and distributions to owners
Balance at 27 February 2021 (Restated)1
As previously reported at 27 February 2021
Prior year adjustment1
Balance at 27 February 2021 (Restated)1
Comprehensive income for the period
Profit for the period
Other items of comprehensive loss for the period
Total comprehensive income for the period
Hedging gains & losses transferred to the cost of inventory
purchased in the year
Transactions with owners recorded directly in equity
Issue of own shares by ESOT
Share option charge
Total contributions by and distributions to owners
Balance at 26 February 2022
1
Refer to change in accounting policy prior year adjustment note 32.
Share
capital
(note 23)
£m
31.4
–
31.4
Share
premium
£m
11.0
–
11.0
Own
shares
(note 24)
£m
(0.3)
–
(0.3)
Cash flow
Hedge
reserve
£m
–
–
–
Foreign
currency
translation
reserve
£m
3.0
–
3.0
Retained
earnings
£m
272.4
(3.6)
268.8
–
–
–
19.5
–
19.5
50.9
50.9
–
50.9
–
–
–
–
–
–
–
50.9
–
–
–
74.0
–
74.0
85.0
85.0
–
85.0
–
–
–
–
–
–
–
85.0
–
–
–
–
–
–
(0.3)
(0.3)
–
(0.3)
–
–
–
–
0.1
–
0.1
(0.2)
–
–
–
–
–
–
–
–
–
–
6.0
6.0
(0.5)
–
–
–
5.5
–
(2.6)
(2.6)
–
–
–
0.4
0.4
–
0.4
–
0.6
0.6
–
–
–
–
1.0
7.9
(1.2)
6.7
–
0.8
0.8
276.3
280.3
(4.0)
276.3
16.2
6.8
23.0
–
–
0.8
0.8
300.1
Total
£m
317.5
(3.6)
313.9
7.9
(3.8)
4.1
93.5
0.8
94.3
412.3
416.3
(4.0)
412.3
16.2
13.4
29.6
(0.5)
0.1
0.8
0.9
442.3
110
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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 p157 at the end of the
report. The nature of the Group’s operations and its principal activities
are set out on p2.
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 26 February 2022 have been prepared in accordance
with UK adopted international accounting standards in conformity
with the requirements of the Companies Act 2006. The Company
has elected to prepare its parent Company financial statements in
accordance with FRS 101 and these are presented on p149 to 156.
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they have adopted the going concern
basis in the preparation of these financial statements. This is explained
further in note 2 (Going Concern section).
The accounting policies have been applied consistently in the current
and prior period with the exception of the change in accounting policy
following the IFRIC agenda decision published in April 2021 in relation
to costs incurred for cloud computing configuration and implementation
costs (see note 32).
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 mandatory:
“Disclosure of Accounting Policies – Amendments to IAS 1 and
IFRS Practice Statement 2”
“Definition of Accounting Estimates – Amendments to IAS 8”
“Deferred Tax related to Assets and Liabilities arising from a
Single Transaction – Amendments to IAS 12”
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.
The following accounting standards and interpretations became
effective this financial year and have been applied for the first time in
these financial statements:
“Interest Rate Benchmark Reform Phase 2 (Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16)”
“Covid-19 Related Rent Concessions amendment to IFRS 16”
None of these new standards and interpretations have had any
material impact on the financial statements.
During the year the IFRS Interpretations Committee (‘IFRIC’)
published an agenda decision on the accounting for configuration
and customisation costs incurred when implementing Software as
a Service (‘SaaS’) solutions. The agenda decision has resulted in a
revision in the accounting policies of the Group, which had a material
impact on previous year’s reported results. Further details of the prior
year restatement can be found in note 32.
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 2022 means at 26 February 2022 or the 52 weeks then
ended; reference to 2021 means at 27 February 2021 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.
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.
SECURITISATION
Where the Group securitises its own financial assets, this is achieved
through the sale of these assets to a securitisation trust (the “Trust”),
which is financed through the issuance of loan notes to a number
of funders. The Trust used to hold the securitised receivables and
funds raised by the issued loan notes is controlled by N Brown Group
as it has been determined that the Group has power over the Trust,
exposure to variable returns from its involvement with the Trust, and
the ability to use its power to affect the amount of returns through its
involvement with the Trust. As such the Trust is consolidated in the
group accounts under IFRS 10 Consolidated Financial Statements.
This conclusion involves no management judgement and therefore
management consider that there is no risk over the Group’s interest
in the Trust. The Group also retains all risk and rewards over the
receivables and therefore continues to recognise the receivables in
full and the amounts repayable under the securitised borrowing are
presented as a bank loan.
111
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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. Assets under construction
are not depreciated but instead tested for impairment annually.
In this respect the following annual depreciation rates apply:
Land and Buildings
Freehold buildings
Leasehold property and improvements
2%
over the period of the lease
Fixtures & Equipment
Plant and machinery
Fixtures and fittings
between 2% and 20%
10%
The gain or loss arising on the disposal of an asset is determined as
the difference between the sales proceeds and the carrying amount of
the asset, or as the assets residual net book value in the case of asset
retirements, and is recognised in the income statement.
RIGHT-OF-USE ASSETS
The Group recognises right-of-use assets at the commencement date
of the lease (i.e. the date the underlying asset is available for use).
Right-of-use assets are measured at the amount of the initial
measurement of the lease liability, plus any lease payments made
prior to commencement date, initial direct costs, and estimated costs
of restoring the underlying asset to the condition required by the lease,
less any lease incentives received.
Unless the Group is reasonably certain to obtain ownership of the
leased asset at the end of the lease term, the recognised right-of-use
assets are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term.
NOTES TO THE GROUP ACCOUNTS CONTINUED
2 ACCOUNTING POLICIES CONTINUED
REVENUE RECOGNITION
Product revenue consists of sales of goods as well as postage
and packaging receipts, and 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. Product revenue for
all goods, including the ones delivered to the customers directly from
suppliers and goods delivered to partners, is recognised in accordance
with IFRS 15, when goods are delivered to the customer or partner and
therefore control is transferred.
Payment of the transaction price is due immediately when the customer
purchases the product on the Group’s websites, or in instalments
where goods are purchased on credit. In the case of business to
business transactions, payment is made in accordance with the
applicable credit terms. In regards to goods directly despatched to
the customer from suppliers, the Group has the ability to direct the
use of, and obtain substantially all of the benefits from the specified
goods. More specifically, the Group is responsible for providing the
specified goods to the customer, has inventory risk prior to these
being transferred to the customer and has significant influence over
the pricing of the goods, therefore it is acting as the principal in these
arrangements. Revenue from direct despatch sales is therefore
recognised gross.
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 against trade receivables. 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.
Postage and packaging subscription revenue is recognised over
the length of the subscription and deferred where this relates to
future periods.
Financial services revenue includes interest and administrative
charges. Interest income is accrued on a time basis, by reference to
the principal outstanding and the applicable effective interest rate.
Effective interest rate is the rate that exactly discounts estimated future
cash receipts through the expected life of the financial assets to that
asset’s gross carrying amount, being its amortised cost excluding
expected credit losses. Interest income from stage 1 and 2 trade
receivables is recognised by applying the effective interest rate to the
gross carrying amount of the asset; for stage 3 trade receivables,
the effective interest rate is applied to the net carrying amount after
deducting the allowance for expected credit losses.
Revenue from non-interest-related Financial Services income
primarily comprises administration fees arising from missed payments
by customers and is recognised when the associated arrears
management activity has been performed.
112
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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 period of up to five years, or
by exception over a longer period where it is expected that economic
benefits are attributable over a longer period. The remaining useful
life of assets is reviewed on an annual basis, or where a change in the
business or other circumstances would trigger a revision. Assets under
development are not amortised but instead tested for impairment
annually. The amortisation expense on intangible assets is recognised
in the income statement within Depreciation and Amortisation.
Expenditure on research activities is recognised as an expense in the
period in which it is incurred. An internally generated intangible asset
arising from development activities is recognised if, and only if, all of the
following conditions have been met:
It is technically feasible to complete the intangible asset so that it will be
available for use or sale;
The Group intends to complete the intangible asset and use or sell it;
The Group has the ability to use or sell the intangible asset;
The asset will generate future economic benefits;
Adequate technical, financial and other resource is available to
complete the development of the asset; and
The Group can reliably measure the expenditure attributable to the
intangible asset during its development.
The cost of an internally generated intangible asset comprises all
directly attributable costs necessary to develop and prepare the asset
to be capable of operating in the manner intended by the Group.
Software as a service (“SAAS”) contract costs are expensed to the
Income Statement over the life of the contract. For SAAS and cloud
based technology, assessment is made as to whether the Group
controls the software or whether the software is controlled by the third
party provider. Where the Group does not control the software, any
configuration and customisation costs are expensed. Costs incurred on
the Group’s existing assets and infrastructure are capitalised only when
they are determined to give rise to separable assets or substantially
improved processes or systems to which the Group controls.
Capitalised development expenditure is stated at cost less accumulated
amortisation and less accumulated impairment losses.
Legally protected or otherwise separable trade names acquired as part
of a business combination are capitalised at fair value on acquisition
and are assumed to have an indefinite useful life. Intangible assets with
indefinite lives are not amortised, but are subject to annual impairment
tests. The indefinite life assessment is also reviewed annually to
determine whether this continues to be supportable.
IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS
At each balance sheet date, the Group reviews the carrying value
of its tangible and intangible assets (including right-of-use 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 (or cash-generating unit) 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.
INVENTORIES
Inventories have been valued at the lower of cost and net realisable
value. Cost of inventories comprises of direct materials calculated
on a first-in-first-out basis and those overheads that have been
incurred in bringing inventories to their present location and condition.
Where materials are purchased in a foreign currency and the purchase
of such materials has been designated in a hedge relationship as a
highly probable transaction, the cost of inventories includes the transfer
of the gains and losses on the hedging instruments since the date of
designation in a hedge relationship, through the application of a basis
adjustment to the cost of inventory.
Provision is made based on management’s estimates of future
disposal strategies.
Net realisable value means estimated selling price less all costs to
be incurred in marketing, selling and distribution.
Stock in transit is recognised where control of the goods has
transferred to the Group, following the transfer of the risks and
rewards associated with the goods.
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.
113
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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.
FINANCIAL INSTRUMENTS – CLASSIFICATION
– FINANCIAL ASSETS
IFRS 9 contains a 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 Group has determined that all of the trade and
other receivables are classified as amortised cost, as a financial asset
is measured at amortised cost if both the following conditions are met
and it has not been designated as at FVTPL:
All such assets are held within a business model whose objective is to
hold the asset to collect its contractual cash flows; and
The contractual terms of all such assets give rise to cash flows on
specified dates that represent payments of solely principal and interest
on the outstanding principal amount.
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.
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.
NOTES TO THE GROUP ACCOUNTS CONTINUED
2 ACCOUNTING POLICIES CONTINUED
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the
computation of taxable profit, and is accounted for using the balance
sheet liability method.
Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised. Such assets
and liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects
neither the tax profit nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply
in the period when the liability is settled or the asset is realised.
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.
114
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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; and
Terms that may adjust the contractual coupon rate.
IFRS 9 contains two classification categories for financial liabilities:
measured at amortised cost or FVTPL. All of the Group’s financial
liabilities other than derivative liabilities are measured at amortised cost.
FINANCIAL INSTRUMENTS – RECOGNITION
AND MEASUREMENT
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.
All financial assets are recognised and derecognised on a trade date
where the purchase or sale of a financial asset is under a contract
whose terms require delivery of the financial asset within the timeframe
established by the market concerned.
A financial asset is derecognised primarily when:
The rights to receive cash flows from the asset have expired;
The Group has transferred its rights to receive cash flows from the
asset and has transferred substantially all the risks and rewards of
ownership, including through debt sales; and
The Group has taken actions not to pursue collection, for example in
instances of bankruptcy or individual voluntary arrangement.
The Group derecognises financial liabilities when, and only when, the
Group’s obligations are discharged, cancelled or they expire.
Financial assets and financial liabilities are initially measured at fair
value. Transaction costs that are directly attributable to the acquisition
or issue of financial assets and financial liabilities are added to or
deducted from the fair value of the financial assets or financial liabilities
as appropriate on initial recognition.
Financial assets classified as amortised cost are subsequently
measured using the effective interest method, less any impairment.
Financial liabilities classified as amortised cost are subsequently
measured using the effective interest method, with interest expense
recognised on an effective yield basis. The effective interest rate
method is a method of calculating amortised cost and of allocating
interest expense over the relevant period. The effective interest rate
is the rate that exactly discounts estimated future cash flows through
the expected life of the financial instrument, or, where appropriate, a
shorter period, to the net carrying amount on initial recognition.
Financial instruments held at fair value through profit or loss relate
entirely to derivative contracts. As noted below, these instruments are
carried in the balance sheet at their fair value with changes in the fair
value recognised in the income statement as they arise, or in equity
where designated in a hedging relationship.
IMPAIRMENT – FINANCIAL SERVICES AND
CONTRACT ASSETS
The Group recognises an allowance for expected credit losses
(“ECLs”) for customer and other receivables. IFRS 9 requires an
impairment provision to be recognised on origination of a customer
advance, based on its ECL. Customer receivables relate to trade
receivables included in the Group balance sheet.
Additional ECL provisions that are recognised in the Consolidated
Income Statement are presented as “Impairment losses on
customer receivables”. The Group recognises proceeds related to
the sale of defaulted accounts as a remeasurement in the ECLs of
these receivables.
As the Group has determined there is a significant financing
component, the ECL model introduces the concept of staging.
Stage 1 – includes new originated assets, and assets which do not
demonstrate any significant increase in credit risk (SICR).
Stage 2 – assets which have demonstrated a significant increase in
credit risk since origination.
Stage 3 – assets which are credit impaired (e.g. defaulted or accounts
in forbearance).
Under IFRS 9, loss allowances are measured on either of the
following bases:
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
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.
ECL is the product of the Probability of Default (“PD”), exposure at
default (“EAD”) and Loss Given Default (“LGD”), discounted at the
current effective interest rate (“EIR”). In accordance with IFRS 9, the
current EIR is used as the discount rate because all trade receivables
have a variable interest rate. The PD is an estimate of the likelihood
of default over 12 months (stage 1) or the expected lifetime of the debt
(stage 2). It is 100% for balances within stage 3. The calculation of PDs
is based on statistical models that utilise internal data, adjusted to take
into account estimates of future conditions.
The EAD is set as the balance outstanding at the reporting date
because receivables arising from future sales are not incorporated into
the ECL calculation as explained below.
The LGD is an estimate of the loss arising on default, including an
estimation of recoveries based on the Group’s history of recovery rates
from debt sales and expectations of how these are expected to change
in the future. Recoveries exclude estimated future proceeds from VAT
Bad Debt Relief. Instead VAT Bad Debt relief is recognised within the
net VAT creditor in Other creditors at the point at which the receivable
balance meets the agreed criteria with HMRC for VAT Bad Debt Relief
to apply, generally being that a debt is over 180 days past due.
IFRS 9 ordinarily requires an entity to not only consider a loan, but
also the undrawn commitment when calculating the ECL, where the
exposure to credit risk cannot be limited by the ability to cancel or
demand repayment. However, the guidance in IFRS 9 excludes from
its scope a sales commitment, being the rights and obligations from the
delivery of goods as a result of a contract with a customer within the
scope of IFRS 15. Thus, a sales commitment is not considered to be a
financial instrument, and therefore the impairment requirements are not
applied by the Group until delivery has occurred and a receivable has
been recognised, at which point the 12-month ECL will be recognised
in line with the above.
115
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk The macro-economic measures used are changes in unemployment
and real wage earnings and are disclosed in more detail in note 19.
A significant portion of the Group’s customers are not currently in
employment and therefore this segment of customers do not have
a significant correlation to these or any other readily determinable
economic indicators.
The future macro-economic scenario assumptions are reviewed at
each reporting date and updated accordingly.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash on hand and demand
deposits, less bank overdrafts where a right to offset exists.
FINANCIAL LIABILITIES
Financial liabilities are classified according to the substance of the
contractual arrangements entered into.
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 to market risks of changes in foreign
currency exchange rates relating to the purchase of overseas sourced
products, and interest rates relating to the Group’s floating rate debt.
The Group uses foreign exchange derivatives (forward contracts
and options) and interest rate derivatives (swaps and caps) 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 initially recognised at fair value on the date a derivative
contract is entered into, and they are subsequently remeasured to their
fair value at each reporting period. The accounting for subsequent
changes in the fair value depends on whether the derivative is
designated as a hedging instrument. The Group hedges the risk
associated with highly probable forecast transactions for the purchase
of inventory, and the risk associated with its finance costs linked to
variable reference rates.
At inception of the hedge relationship, the Group documents the
economic relationship between hedging instruments and hedged
items, its risk management objective and strategy for undertaking
hedge transactions. The fair value of derivative financial instruments
designated in hedge relationships are disclosed in note 18.
NOTES TO THE GROUP ACCOUNTS CONTINUED
2 ACCOUNTING POLICIES CONTINUED
SIGNIFICANT INCREASE IN CREDIT RISK
A financial asset will be considered to have experienced a SICR since
origination where there has been a significant increase in the lifetime
PD of the asset.
Changes in behavioural risk scores (which comprise both internal data
and credit bureau data) are used to assess whether there has been a
significant increase in lifetime PD.
The change in behavioural risk score for which the SICR threshold is
set is based on applicable back tested data that reflects the current risk
to our credit customers.
Where the change in risk score since origination exceeds the threshold,
the asset will be deemed to have experienced a significant increase
in credit risk. The credit risk of a financial asset may improve such that
when this threshold is no longer exceeded, it is no longer considered to
have experienced SICR and would move back to stage 1.
IFRS 9 requires a backstop to be applied whereby a receivable
that is over a certain number of days past due (30 days or more) is
automatically considered to have experienced SICR. Days past due are
determined by counting the number of days since the earliest elapsed
payment due date in respect of which the minimum payment has not
been received.
DEFINITION OF DEFAULT
At each reporting date, the Group assesses whether financial assets
carried at amortised cost are in default (stage 3).
Evidence that a financial asset is in default includes the following
observable data:
The account has been placed on a 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
Financial assets are written off when; there is no reasonable
expectation of recovery, where enforcement activity is uneconomical,
where the customer is deceased, or where it is not aligned to the
Group’s recovery strategy. Any recoveries received following the sale of
debts to third parties accrue to the third party purchaser, as the risk and
rewards of ownership have been transferred. Where debt has not been
sold but has been written off, recoveries received are recognised in the
income statement.
INCORPORATION OF FORWARD-LOOKING DATA
The Group incorporates forward looking information into its
measurement of expected credit loss. Separate macro-economic
provisions are recognised to reflect the expected impact of future
economic events on a customer’s ability to make repayments and
the losses incurred given default, in addition to the core impairment
provisions already recognised. This is achieved through engagement
of external expert advisors to devise a central, downside and upside of
potential economic scenarios and modelling expected credit losses for
each scenario. Management uses the outputs from each scenario to
apply a weighting of 40% central, 30% upside and 30% downside, to
estimate the likelihood of each scenario occurring to derive a probability
weighted estimate of expected credit loss.
116
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk The effective portion of changes in the fair value of derivatives that
are designated and qualify as cash flow hedges is recognised in the
cash flow hedge reserve within equity. Any gain or loss relating to
hedge ineffectiveness is recognised immediately in profit and loss.
Amounts accumulated in equity are reclassified in the periods when the
hedged item affects profit or loss, as follows:
Contingent assets are possible assets that arise from past events
and whose existence will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly
within the control of the entity. Contingent assets are not recognised
but information about them is disclosed where an inflow of economic
benefits is probable.
Where the hedged item results in the recognition of a non-financial
asset, such as the purchase of inventory, the hedging gains and losses
are included within the initial cost of the asset. The deferred amounts
are ultimately recognised in profit or loss as the hedged item affects
profit or loss, through the cost of sales.
The gain or loss relating to the effective portion of the interest rate
swaps hedging variable rate borrowings is recognised in profit or loss
within the finance cost at the same time as the interest expense on the
hedged borrowings.
Changes in the fair value of any derivative instrument which is not
designated in a hedge accounting relationship are recognised
immediately in profit or loss. Foreign currency and interest rate
derivative fair values represent the estimated amount that the Group
would receive or pay to terminate the derivative at the balance sheet
date based on prevailing foreign currency and interest rates.
PROVISIONS
The Group recognises a provision for a present obligation (legal or
constructive) 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.
In the cases where the amount of the obligation cannot be estimated
reliably, no provision is made. Provisions are recognised at the value
of management’s best estimate of the expenditure required to settle
the obligation at the reporting date. Where a single obligation is being
measured management determines the most likely outcome when
estimating the provision.
LEASE LIABILITIES
At inception of a contract, the Group assesses whether a contract is,
or contains a lease. A contract is, or contains a lease if the contract
conveys the right to control the use of an identified asset for a period
of time in exchange for consideration. Lease terms are negotiated
on an individual basis and contain a wide range of different terms
and conditions. The lease agreements do not impose any covenants
other than the security interests in the leased assets that are held by
the lessor.
Where the Group is a lessee, it recognises a right-of-use asset and
a corresponding lease liability, measured at the present value of
remaining cash flows on the lease. Lease liabilities include the net
present value of fixed payments less any lease incentives receivable.
There are no residual value guarantees or purchase options present
in any contracts entered by the Group. The lease payments are
discounted using the Group’s incremental borrowing rate at transition or
at the lease start date for leases entered into after transition, calculated
by applying a weighting to all recent third-party financing.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease period so as
to produce a constant periodic rate of interest on the remaining balance
of the liability for each period. The lease liability is subsequently
measured at the amortised cost using the effective interest rate
method. When the lease liability is remeasured, a corresponding
adjustment is made to the carrying amount of the right-of-use asset,
or is recorded in the income statement if the carrying amount of the
right-of-use asset has been reduced to nil.
A 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. A provision is made for restructuring
costs, including the costs of redundancy, when the Group has a
constructive obligation. A constructive obligation exists when the Group
has approved a detailed formal restructuring plan, and the restructuring
has either commenced or has been announced publicly.
Extension and termination options are not currently included in
measurement of any of the leases across the Group, as all options
present in the contracts have been exercised in the past. Any new
leases or renegotiated leases which the Group enters into in future
containing an extension or termination option will be considered when
determining the lease length with reference to management intention
and historic action.
If the Group has a contract that is onerous, it recognises the present
obligation under the contract as a provision, other than rental costs
offset against the right-of-use asset under IFRS 16. An onerous
contract is one where the unavoidable costs of meeting the Group’s
contractual obligations exceed the expected economic benefits.
CONTINGENT LIABILITIES AND ASSETS
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.
The Group applies the recognition exemption in IFRS 16 for leases with
a term not exceeding 12 months and low value leases. For these leases
the lease payments are recognised as an expense on a straight-line
basis over the lease term.
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 using
the Monte Carlo method for incentive awards 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.
117
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
2 ACCOUNTING POLICIES CONTINUED
OWN SHARES HELD BY ESOT
Transactions of the Group sponsored Employee Share Ownership
Trust (“ESOT”) are included in the Group financial statements.
The trust’s purchases and sales of shares in the Company are debited
and credited directly to equity.
RETIREMENT BENEFIT COSTS
Payments to defined contribution retirement benefit schemes are
charged as an expense as they fall due.
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;
SUPPLIER FINANCING ARRANGEMENTS
The Group has a supplier financing scheme as part of its normal
course of business. This scheme is based around the principle of
reverse factoring whereby the banks purchase from the suppliers
approved trade debts owed by the Group, with the principal purpose
being to provide the supplier with earlier access to liquidity. Access to
the supplier finance scheme is by mutual agreement between the
bank and supplier, where the supplier wishes to be paid faster than
standard Group payment terms, the Group is not party to this contract.
The scheme has no cost to the Group as the fees are paid by the
supplier directly to the banks. The banks have no special seniority of
claim to the Group upon liquidation and would be treated the same
as any other trade payable. From the Group’s perspective, the invoice
payment due date remains unchanged and the payment terms of
suppliers participating in the supplier financing arrangement are similar
to those suppliers that are not participating. As the scheme does
not change the characteristics of the trade payable, and the Group’s
obligation is not legally extinguished until the bank is repaid, the Group
continues to recognise these liabilities as trade payables.
GOVERNMENT GRANTS
Grants from the government are recognised at their fair value where
there is a reasonable assurance that the grant will be received and
the Group will comply with all attached conditions. Government grants
relating to costs are recognised in profit and loss when they become
receivable to match them with the already incurred staff costs with
which they are intended to compensate.
Net interest expense or income; and
Remeasurement.
The Group presents the first two components of defined benefit
costs within operating expenses. Curtailment gains and losses are
also accounted for as a past service cost within operating expenses.
Net interest expense or income is recognised within finance costs.
The retirement benefit asset recognised in the balance sheet
represents the fair value of scheme assets as reduced by the present
value of the defined benefit obligation. Any asset resulting from
this calculation is recognised in full as the Group considers it has
unconditional right to any surplus after all members’ benefits have
been settled.
SUPPLIER REBATES
The Group enters into rebate arrangements with suppliers. Rebates are
calculated annually based on agreements in place, which stipulate an
agreed percentage of purchase be granted as a rebate. Rebates are
recorded in the Income statement once agreed with suppliers, with
amounts receivable recorded in accrued income on the balance sheet.
EXCEPTIONAL ITEMS
Exceptional items are items of income and expenditure which are one
off in nature and material to the current financial year or represent
true ups to items presented as exceptional in prior periods. These are
presented separately in the Consolidated Income Statement, as the
Directors believe that this presentation helps to avoid distortion of
underlying performance.
GOING CONCERN
After reviewing the Group’s forecasts and risk assessments, the
Directors have formed a judgement at the time of approving the
financial statements, that there is a reasonable expectation that the
Group and the Company have adequate resources to continue in
operational existence for the 12 months from the date of signing this
Annual Report & Accounts. For this reason, the Directors continue to
adopt the going concern basis in preparing the financial statements.
In arriving at their conclusion, the Directors considered the following:
a) the Group’s cash flow forecasts and revenue projections for the
12 months from the date of signing these results (the “Base Case”),
reflecting, amongst other things the following assumptions:
The business continues to be fully operational in the event of any
potential further developments associated with the Covid-19 pandemic,
as has been the case since the outset;
Product gross margin growth is expected year on year and will be
achieved through changes to product mix and, planned price increases.
It is recognised that we will continue to face a highly promotional retail
market, inflationary pressures and industry wide increases in freight
rates and supply chain challenges;
Financial Services revenue reduces marginally as the average size
of the loan book is smaller as a function of lower product sales during
the pandemic;
FS gross margin reduces as the abnormally low levels of arrears and
write offs stabilise following the end of Covid-19 government support
and the customer expected credit loss behaviour experiences a level
of stress from the inflationary pressures on our customers; and
Increases to operating costs reflecting inflationary cost base pressures
and the continuation of strategic above the line brand investment, net of
mitigating actions.
118
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk b) the impact on trading performance of severe but plausible downside
scenarios (the “Downside Case”), including:
Adverse macroeconomic conditions impacting customer behaviour;
Current inflationary pressures, supply chain pressures and unusually
high freight rates having a more material impact on gross margin than
the base case;
Covid-19 related absences requiring the use of contractors to fill
staff shortages;
Business interruptions reducing product revenue, for example from a
denial of service caused by a cyber-attack, or, delivery delays caused
by driver shortages;
Exceptional cash outflow higher than the accounting provisions with
regards to the ongoing legal claim with Allianz.
The Downside case also includes additional sensitivities to product
revenue, customer bad debt write off, customer account payment
collection rates and the cost base.
The Downside case represents the compounded impact of all the
scenarios with the sensitivities layered on top. Material total accessible
liquidity headroom exists of greater than £100m throughout the
Downside assessment.
c) the committed facilities available to the Group and the covenants
thereon. Details of the Group’s committed facilities are set out in note
17, the main components of which are:
A £400m securitisation facility committed until December 2024,
drawings on which are linked to prevailing levels of eligible receivables
(£305.5m drawn against an accessible £365.6m based on the
maximum of eligible customer receivables at 26 February 2022);
An RCF of £100m committed until December 2023, which is fully
undrawn; and
An overdraft facility of £12.5m which is subject to an annual review
every July (undrawn as at date of signing of these accounts).
d) that there are no forecast breaches of any covenants in either
the Base Case or Downside Case. Material headroom exists within
the banking covenants and EBITDA within the base case and the
downside. EBITDA would have to more than halve against the
downside in FY23 to breach conditions.
e) the Group’s robust policy towards liquidity and cash flow
management. As at 30 April 2022, the Group had cash of £31.8m,
net of restricted cash of £3.6m and undrawn secured facilities of
£69.3m. In addition, the Group had £112.5m of unsecured facilities
that were not drawn. This gives rise to total accessible liquidity (“TAL”)
of £210.0m (FY22: £212.1m).
f) the Group’s clear capital allocation policy that prioritises meeting its’
liabilities for day to day operations of the business over investment in
delivering the strategy or distributions to shareholders.
g) the Group management’s ability to successfully manage the
principal risks and uncertainties outlined on p32 to 37 during
periods of uncertain economic outlook and challenging macro-
economic conditions.
CRITICAL JUDGEMENTS AND KEY SOURCES OF
ESTIMATION UNCERTAINTY
The significant judgements made by management in applying the
Group’s accounting policies and the key sources of estimation
uncertainty in these financial statements, which together are deemed
critical to the Group’s results and financial position, are as follows:
IMPAIRMENT OF CUSTOMER RECEIVABLES
CRITICAL JUDGEMENT AND ESTIMATION UNCERTAINTY
The allowance for expected credit losses for trade receivables involves
several areas of judgement, including estimating forward-looking
modelled parameters (Probability of Default (“PD”), Loss of Given
Default (“LGD”) and Exposure At Default (“EAD”)), developing a
range of unbiased future economic scenarios, estimating expected
lives and assessing significant increases in credit risk, based on the
Group’s experience of managing credit risk. Key assumptions within the
IFRS9 model are covered in pages 115 to 116.
Key judgements involved in the determination of expected credit
loss are:
Determining which receivables have suffered from a significant
increase in credit risk;
Determining the appropriate PD to apply to the receivables;
Determining the recovery price of any receivables sold to third parties;
and
Determining the impact of forward looking macroeconomic
uncertainties on ECL including cost of living increases.
Where these key judgements result in a post model adjustment,
these are disclosed in note 19.
The change in behavioural risk score for which the SICR threshold is
set is based on applicable back tested data that reflects the current risk
to our credit customers.
Where the change in risk score since origination exceeds the threshold,
the asset will be deemed to have experienced a significant increase in
credit risk.
Due to the Financial Services debtor book starting FY22 at artificially
high-performance levels, in management’s judgement, the most
appropriate time period to evaluate probability of default is to reflect
observed default rates as at the end of FY22, omitting pandemic
impacted performance. This is considered to provide a more
representative view of defaults.
Once collection strategies are no longer appropriate or effective,
management typically sell customer receivables to third parties.
Therefore the estimated sales price for these balances is a key
judgement. The expected recovery through debt sales built into the
year end ECL reflects an average of prices achieved over the previous
2 years.
Significant uncertainty exists over the forward looking view on inflation
(CPI) and subsequent impacts on real wages. In managements view,
the full impact of these have yet to materialise. A post model adjustment
has been applied to reflect a deterioration in customer defaults as
inflationary pressures build.
119
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
2 ACCOUNTING POLICIES CONTINUED
SENSITIVITIES OF ESTIMATION UNCERTAINTIES
To indicate the level of estimation uncertainty, the impact on the ECL of
applying different model parameters are shown below:
The recoverable amount is sensitive to the discount rate used as
well as the expected future cash flows. The key assumptions used to
determine the recoverable amount for the Group’s non-financial assets,
including a sensitivity analysis, are disclosed and further explained in
note 12.
A 10% increase or decrease in PDs would lead to a £2.2m
(2021: £1.5m) increase or decrease in the ECL;
ALLIANZ LITIGATION
CRITICAL JUDGEMENT AND ESTIMATION UNCERTAINTY
During the current year, the group has recorded a charge in the year
for legal costs of £1.8m and a provision of £28.0m, in relation to the
ongoing legal dispute with Allianz Insurance plc, as an estimate for
accounting purposes of the potential costs of settlement or award and
future legal costs.
The Group is of the view that, should the matter proceed to trial, which
is currently listed to commence in June 2023, the Court will determine
the outcome on a net basis taking into account the merits of the parties’
claims and counterclaims, and the liabilities already borne by them.
The Group is also of the view that the net basis would apply in any
negotiated settlement. Accordingly, the Group’s assessment of the
present obligation has been determined on a net basis.
Given the nature of the issues in dispute, the Court will have
considerable discretion in reaching its conclusions relating to, amongst
other things, which sums should be brought into account and what
proportions of the liabilities each party should have to bear. Accordingly,
the range of potential outcomes, in either direction, could be many
times materiality and involves a significant level of estimation.
Our accounting estimate is based upon the assumption that the parties
reach a settlement within FY23, however if the matter progresses to
trial any cashflows resulting from the claim and/or counterclaim may not
arise until FY24.
Details on the background to the dispute and the basis of the provision
established in the year are set out in note 22.
DEFINED BENEFIT PLAN
ESTIMATION UNCERTAINTY
The cost of the defined benefit pension plan and the present value
of the pension obligation are determined using actuarial valuations.
An actuarial valuation involves making various assumptions that
may differ from actual developments in the future. These include
the determination of the discount rate, future salary increases,
mortality rates and future pension increases. Due to the complexities
involved in the valuation and its long-term nature, a defined benefit
obligation is highly sensitive to changes in these assumptions.
Sensitivities performed on key assumptions are discussed in note 29.
All assumptions are reviewed at each reporting date.
An increase or decrease in peak CPI of 1 percentage point would lead
to a £1.3m increase or £1m decrease to the ECL respectively, which
reflects the non-linear impacts of economic forecasts to ECL.
SOFTWARE AND DEVELOPMENT COSTS
CRITICAL JUDGEMENT
Included within intangible assets are significant software and
development project costs in respect of the Group’s technological
development programme. Included in the year are development
costs for the production of new or substantially improved
processes or systems; development of the new website and other
internal development of software and technology infrastructure.
Initial capitalisation of costs is based on management’s judgement that
technological feasibility is confirmed, the project will be successfully
completed and that future economic benefits are expected to be
generated by the project. If these criteria are not subsequently met,
the asset would be subject to a future impairment charge which would
impact the Group’s results.
During the year the Group has reviewed its accounting policies in line
with the IFRIC guidance in regards to the treatment of configuration,
customisation and implementation costs associated with Software
as a Service (“SaaS”) contracts. As a result the Group has revisited
spend incurred in previous financial years to align with IFRIC guidance,
resulting in a change in accounting policy prior year adjustment as
detailed in note 32. Significant judgement is required in determining
whether the Group has control over the software, and if not whether
any spend incurred in the implementation of the software results in
the creation of an asset in its own right which the Group controls and
satisfies the criteria of IAS 38.
ESTIMATION UNCERTAINTY
The estimated useful lives and residual values are based on
management’s best estimate of the period the asset will be able to
generate economic benefits for the Group and are reviewed at the end
of each reporting period, with the effect of any changes in estimate
accounted for on a prospective basis from the date at which a change
in life is determined to be triggered. Sensitivity of the estimation
uncertainty is disclosed in note 12.
IMPAIRMENT OF NON-FINANCIAL ASSETS
CRITICAL JUDGEMENT AND ESTIMATION UNCERTAINTY
Impairment exists when the carrying value of an asset or cash-
generating unit exceeds its recoverable amount, which is the higher of
its fair value less costs of disposal and its value in use. The value in use
calculation is based on a discounted cash flow model. The cash flows
are derived from the Group’s three-year forecasts, taken into perpetuity,
and are adjusted to exclude restructuring activities that the Group is not
yet committed to or significant future investments that will enhance the
performance of the assets of the CGU being tested.
120
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 3 REVENUE
An analysis of the Group’s revenue is as follows:
Sale of goods
Postage and packaging
Product Revenue
Credit account interest
Other Financial Services income
Financial Services Revenue
Total Group Revenue
1 Refer to note 4 for detail of presentational change in current year.
2022
£m
445.8
19.8
465.6
228.7
21.4
250.1
715.7
2021
£m
449.8
18.6
468.4
239.5
20.9
260.4
728.8
4 BUSINESS SEGMENT
The Group has identified two operating segments in accordance with IFRS 8 – Operating segments, Product and Financial Services (“FS”).
The Board receives regular financial information at this level and uses this information to monitor the performance of the Group, allocate resources
and make operational decisions. Internal reporting focuses and tracks revenue, cost of sales and gross margin performance across these two
segments separately, however operating costs or any other income statement items are reviewed and tracked at Group level.
Revenues and costs associated with the product segment relate to the sale of goods through various brands. The product cost of sales is inclusive
of VAT bad debt relief claimed of £16.0m (2021: £18.0m) as a consequence of customer debt write off, with the bad debt write off presented in FS
cost of sales. During the current year, amounts relating to deceased customer accounts debt write off of £4.2m has been re-presented within FS
cost of sales from product revenue. The revenue and costs associated with the Financial Services segment relate to the income from provision of
credit terms for customer purchases, and the costs to the business of providing such funding. To increase transparency, the Group has included
additional voluntary disclosure analysing product revenue within the relevant operating segment, by strategic and other brand categorisation.
Analysis of revenue:
Sale of goods
Postage and packaging
Product – total revenue
Other Financial Services revenue
Credit account interest
Financial Services – total revenue
Group Revenue
Product – total cost of sales
Impairment losses on customer receivables2
Other Financial Services cost of sales
Financial Services – total cost of sales
Cost of sales
Gross profit
Gross profit margin – Group
Gross profit margin – Product
Gross profit margin – Financial Services
Warehouse and fulfilment
Marketing and production
Other administration and payroll
Adjusted operating costs before exceptional items
Adjusted EBITDA
Adjusted EBITDA margin
Depreciation and amortisation
Exceptional items charged to operating profit (see note 6)
Operating profit
Finance costs
Fair value adjustments to financial instruments including exceptional fair value gain (see note 6)
Profit before taxation
1 Refer to change in accounting policy prior year adjustment note 32.
2 Profit on sale of customer receivables has been included as part of the remeasurement of the expected credit loss for the prior year.
2022
£m
445.8
19.8
465.6
21.4
228.7
250.1
715.7
(267.3)
(94.4)
(1.1)
(95.5)
(362.8)
352.9
49.3%
42.6%
61.8%
(67.9)
(73.1)
(116.9)
(257.9)
95.0
13.3%
(38.1)
(28.7)
28.2
(13.8)
4.8
19.2
2021
(Restated)1
£m
449.8
18.6
468.4
20.9
239.5
260.4
728.8
(264.3)
(139.1)
(1.9)
(141.0)
(405.3)
323.5
44.4%
43.6%
45.9%
(64.8)
(60.3)
(113.5)
(238.6)
84.9
11.6%
(38.9)
(10.2)
35.8
(16.6)
(10.0)
9.2
121
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
Analysis of Product revenue:
Strategic brands2
Other brands3
Total Product revenue
Financial Services revenue
Group Revenue
2021
(Re-
presented)1
£m
347.0
121.4
468.4
260.4
728.8
2022
£m
381.2
84.4
465.6
250.1
715.7
1 FY21 split between Strategic and Other brands has been re-presented to correctly allocate the VAT bad debt relief. There is no impact on Total product revenue
or Group revenue.
2 Strategic brands include JD Williams, Simply Be, Ambrose Wilson, Jacamo and Home Essentials.
3 Other brands are Fashion World, Marisota, Oxendales and Premier Man. High & Mighty, House of Bath and Figleaves were closed in FY21.
The Group has one significant geographical segment, which is the United Kingdom. Revenue derived from Ireland amounted to £21.0m
(2021: £27.6m). Operating results from international markets amounted to £3.7m profit (2021: £6.2m profit).
All segment assets are located in the UK and Ireland. All non-current assets are located in the UK with the exception of £0.1m of right of use assets
located in Ireland.
For the purposes of monitoring segment performance, assets and liabilities are not measured separately for the two reportable segments of the
Group and therefore are disclosed together below. Impairments of tangible and intangible assets in the current period were £nil (2021: £2.0m).
2022
£m
19.4
892.8
(450.5)
442.3
2022
£m
(2.6)
4.4
–
–
32.5
267.9
77.3
1.3
90.1
28.7
1.2
1.2
2021
(Restated)1
£m
18.5
953.7
(541.4)
412.3
2021
(Restated)1
£m
(5.8)
3.7
0.1
1.9
33.6
264.3
78.0
1.1
139.1
10.2
1.2
1.6
Capital additions
Balance sheet
Total segment assets
Total segment liabilities
Segment net assets
5 PROFIT FOR THE PERIOD
Profit for the period has been arrived at after charging/(crediting):
Net foreign exchange gains
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Impairment of intangible assets
Amortisation of intangible assets
Cost of inventories recognised as expense
Staff costs (note 7)
Auditor’s remuneration for audit services
Impairment losses on customer receivables
Exceptional items (note 6)
Lease costs (note 27)
Depreciation of right-of-use assets (note 27)
1 Refer to change in accounting policy prior year adjustment note 32.
122
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk A more detailed analysis of auditor’s remuneration is provided below:
Audit of these Group financial statements
Audit of financial statements of subsidiaries of the Company
Non-audit services
Total
2022
£m
0.3
1.0
–
1.3
2021
£m
0.2
0.9
0.5
1.6
Additional fees of £0.2m were raised following the finalisation of the 2021 audit, and therefore not included in the prior year comparative
figures above.
Fees in relation to non-audit services include fees of £nil (2021: £60,000) relating to assurance services and £nil of which £nil was required by
regulation (2021: £45,000) in relation to the equity raise completed by the Group during the year.
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts were £20,000 (2021: £20,000).
A description of the work of the Audit and Risk Committee is set out in the Corporate Governance Statement on p55 and includes an explanation
of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor.
6 EXCEPTIONAL ITEMS
Allianz Litigation
Historical tax matters
Strategic change
Other legacy matters
Items charged to profit before tax
2022
£m
29.8
(1.2)
(0.1)
0.2
28.7
2021
£m
1.1
1.0
7.9
0.2
10.2
ALLIANZ LITIGATION
During the current year, the Group has recorded a charge for legal costs of £1.8m and a provision of £28.0m, as an estimate for accounting
purposes of the potential costs of settlement or award and future legal costs, in relation to the ongoing legal dispute with Allianz Insurance Plc.
Details of the legal case and estimation uncertainty involved in the amount recognised is disclosed in note 22. The provision outstanding at
26 February 22 was £28.0m.
HISTORICAL TAX MATTERS
The Group has now reached agreement with HMRC over a number of historical VAT and other tax matters, and the release of £1.2m in the period
relates to opening provisions no longer required.
STRATEGIC CHANGE
In line with the Board’s strategic reviews and multi-year transformation of the business, a material level of cost reduction programs have been
completed as well as an increased focus and refinement of the Group’s five strategic brands. The one off costs relating to this transformation were
substantially complete in the prior year with all payments completed within FY22. During the prior year, total redundancy costs of £5.2m were
incurred across the Group including Figleaves, in order to align the Group’s people costs to deliver an organisational design that supports the
revised strategy. A further £2.7m was incurred on the restructure and the transfer of the Figleaves business under the Simply Be brand, including
stock write down of £1.1m and onerous contract provisions of £0.8m.
The £0.1m release in the period relates to opening provisions no longer required.
OTHER LEGACY MATTERS
During the year the Group incurred an additional charge of £0.2m representing a true up to items presented as exceptional in prior periods. The
£0.2m charge in the prior year primarily relates to £1.7m of Impairment charge over tangible and intangible assets, offset by a gain achieved on
the early settlement of foreign currency derivatives that were no longer required following the decline in product purchased at the initial months of
the pandemic.
123
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
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)
2022
Number
2021
Number
650
1,244
1,894
2022
£m
64.7
6.1
5.7
0.8
77.3
860
1,300
2,160
2021
£m
65.2
5.9
6.1
0.8
78.0
In the prior year, the Group took advantage of the Government coronavirus job retention scheme in FY21 and 596 colleagues were placed on
furlough from March 2020 to November 2020. Wages and salaries of £64.7m are net of £nil (2021: £3.8m) of government grant received in respect
of the Government coronavirus job retention scheme. Also included in the £64.7m wages and salaries cost is £11.8m relating to agency staff costs.
The aggregate amount of remuneration paid or receivable by Directors in respect of services in the year was £1.7m (2021: £1.9m).
The aggregate amount of contributions paid to a pension scheme in respect of Directors’ qualifying services was £0.1m (2021: £0.1m).
Retirement benefits are accruing in respect of qualifying services in defined contribution pension schemes for two Directors (2021: three).
No amounts were paid to or receivable by Directors under long-term incentive schemes in respect of qualifying services in the year (2021: £nil).
Details of individual Directors’ remuneration is disclosed in the Directors’ Remuneration Report on p75 to 93.
8 FINANCE COSTS
Interest on bank overdrafts, loans and lease liabilities
Net pension interest credit (see note 29)
9 TAXATION
Tax recognised in the income statement
Current tax
Charge for the period
Adjustments in respect of previous periods
Deferred tax
Origination and reversal of temporary timing differences
Adjustments in respect of previous periods
Total tax expense
1 Refer to change in accounting policy prior year adjustment note 32.
2022
£m
14.3
(0.5)
13.8
2022
£m
–
(1.0)
(1.0)
2.7
1.3
4.0
3.0
2021
£m
17.1
(0.5)
16.6
2021
£m
(Restated)1
2.0
(0.2)
1.8
(0.7)
0.2
(0.5)
1.3
UK Corporation tax is calculated at 19% (2021: 19%) of the estimated assessable profit for the period. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions.
In the 3 March 2021 Budget it was announced that the UK tax rate will remain at the current 19% and increase to 25% from 1 April 2023.
Accordingly, the UK deferred tax asset/(liability) as at 26 February 2022 has been calculated based on the enacted rate as at the balance sheet
date of 25% with the exception of the retirement benefit scheme where deferred tax has been provided at the rate of 35%.The effective tax rate is
lower than the statutory UK tax rate of 19% due to the effect of the super deduction introduced by the government on fixed asset expenditure in
the year.
124
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk The charge for the period can be reconciled to the profit per the income statement as follows:
Profit before tax
Tax at the UK Corporation tax rate of 19% (2021: 19%)
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
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
Deferred tax – fair value movement on cashflow hedge
Tax charge/(income) in the statement of comprehensive income
2022
£m
19.2
3.6
(1.1)
0.2
–
0.3
3.0
2022
£m
3.7
1.8
5.5
2021
£m
9.2
1.8
(0.8)
0.6
(0.3)
–
1.3
2021
£m
(0.7)
–
(0.7)
In respect of Corporation tax, as at 26 February 2022 the Group has provided a total of £nil (2021: £2.8m) for potential future tax charges based
upon the Group’s best estimate and their discussions with HMRC. The Group has now resolved its historical open corporation tax positions with
the closing FY21 provision settled in March 2022.
10 DIVIDENDS
No dividends were paid or proposed in either the current year or prior year.
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 exceptional items and fair value adjustments,
which are those items that do not form part of the recurring operational activities of the Group and are so substantial in nature and impact that
the Directors believe that they require separate disclosure to avoid distortion of underlying performance (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
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders
of the Parent Company
Number of shares (’000s)
Weighted average number of ordinary shares for the purposes of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options
Weighted average number of ordinary shares for the purposes of diluted earnings per share
Earnings from continuing operations
Total net profit attributable to equity holders of the parent for the purpose of basic earnings per share
Fair value adjustment to financial instruments (net of tax)
Exceptional items (net of tax)
Adjusted earnings for the purposes of adjusted earnings per share
The denominators used are the same as those detailed above for basic and diluted earnings per share.
2022
£m
16.2
2021
£m
(Restated)1
7.9
2022
Number
458,825
2021
Number
315,633
3,235
462,060
194
315,827
2022
£m
16.2
(3.9)
23.0
35.3
2021
£m
(Restated)1
7.9
8.1
8.5
24.5
125
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
11 EARNINGS PER SHARE CONTINUED
Adjusted earnings per share
Basic
Diluted
Earnings per share
Basic
Diluted
2022
Pence
7.69
7.64
2022
Pence
3.53
3.51
2021
Pence
(Restated)1
7.76
7.76
2021
Pence
(Restated)1
2.50
2.50
1 Refer to change in accounting policy prior year adjustment note 32.
In December 2020, the Group completed an equity raise for £93.5m net proceeds, which were used to eliminate unsecured debt and accelerate
the Group’s strategic investment. As part of the equity raise, a total number of 174,666,053 ordinary shares were issued, which has subsequently
led to an increase in the weighted average number of shares used in the calculation of both the basic and diluted earnings per share, and therefore
a reduction in both against the prior year.
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of
authorisation of these financial statements.
12 INTANGIBLE ASSETS
Cost
At 29 February 2020 (Restated)1
Additions
At 27 February 2021 (Restated)1
Additions
Transfer from tangible assets
Disposals
At 26 February 2022
Accumulated amortisation and impairment
At 29 February 2020 (Restated)1
Charge for the period
Impairment
Transfer from tangible assets
Disposals
At 27 February 2021 (Restated)1
Charge for the period
Transfer from tangible assets
Disposals
At 26 February 2022
Carrying amount
At 26 February 2022
At 27 February 2021 (Restated)1
At 29 February 2020 (Restated)1
Brands
£m
Software
£m
Customer
Database
£m
16.9
–
16.9
–
–
–
16.9
16.9
–
–
–
–
16.9
–
–
–
16.9
–
–
–
353.1
16.8
369.9
16.3
1.5
(14.4)
373.3
205.9
33.6
1.9
0.4
–
241.8
32.5
0.4
(14.4)
260.3
113.0
128.1
147.2
1.9
–
1.9
–
–
–
1.9
1.9
–
–
–
–
1.9
–
–
–
1.9
–
–
–
Total
£m
371.9
16.8
388.7
16.3
1.5
(14.4)
392.1
224.7
33.6
1.9
0.4
–
260.6
32.5
0.4
(14.4)
279.1
113.0
128.1
147.2
1 Refer to change in accounting policy prior year adjustment note 32.
Assets in the course of development included in intangible assets at the year end total £13.4m (2021: £9.8m). No amortisation is charged on
these assets. Borrowing costs of £nil (2021: £0.3m) have been capitalised in the period.
Additions in the year of £12.4m relate to internal development costs (2021: £12.1m).
As at 26 February 2022, the Group had entered into contractual commitments for the further development of intangible assets of £7.5m
(2021: £6.2m) of which £7.4m (2021: £5.2m) is due to be paid within one year.
Research costs of £1.1m were incurred in the year (2021: £0.4m).
Disposals during the year related to fully amortised assets which are no longer in use, predominantly those identified and accelerated through
the review of useful economic lives in prior year as detailed below.
126
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk CHANGE IN ACCOUNTING POLICY
The Group has reviewed its accounting policy following the IFRIC agenda decision in respect of the configuration and customisation costs
previously capitalised in respect of its SaaS implementations. Following this review cumulative costs previously capitalised as additions in the
brought forward cost at 29 February 2020 of £5.1m have now been expensed and brought forward cumulative amortisation charge at 29 February
2020 of £0.9m has been reversed. Further additions of £1.5m capitalised in the year ended 27 February 2021 have been expensed, and an
amortisation charge of £0.9m in the year ended 27 February 2021 has been reversed. See note 32 for further details of this change in accounting
policy prior year adjustment.
SENSITIVITY OF ESTIMATION UNCERTAINTY
Whilst management consider the useful economic lives to represent the best estimate at the reporting date, to indicate the level of sensitivity in
relation to the estimation of the useful economic lives, we have assessed the impact of reducing or increasing the UELs of all assets by 12 months:
A reduction in the revised UEL of all assets by 12 months would increase the expected amortisation charge for the following financial year
by £12.4m;
An increase in the UEL of all assets of a further 12 months would decrease the expected amortisation charge for the following financial year
by £7.1m.
IMPAIRMENT TESTING OF INTANGIBLE ASSETS
The Group performed its impairment review as at 26 February 2022. The Group considers the relationship between its market capitalisation
and its book value, among other factors, when reviewing for indicators of impairment. At the balance sheet date, the market capitalisation of the
Group was lower than the Group’s net assets. As this represents an indicator for impairment, management is required to test for impairment over
the Group’s total assets, with the recoverable amount being determined from value in use calculations. In addition, included within intangible
assets are ongoing projects that are not yet available for use and therefore not being amortised. Where intangible assets are not being amortised
management is required to test for impairment.
The value in use assessment has been performed over the Group’s total assets under one CGU, being the smallest group of assets which
generate independent cash inflows. The Group’s results, assets, performance and viability is assessed for the Group as a whole. In line with IAS
36, management therefore considered the assessment on a single CGU basis as appropriate.
The value in use calculations use Board approved forecasts covering a three-year period as the basis for its cashflow projections, with accounting
adjustments taken to comply with specific requirements of IAS 36. The Board approved forecasts include an average annual product revenue
growth of 10%, average annual total revenue growth of 7% and an average adjusted EBITDA margin of 13%.
These forecasts had 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. After the first three-year cash flows, a terminal value was calculated based upon the
long-term growth rate and the risk-adjusted pre-tax discount rate.
The Group’s three-year cash flow projections were based upon the Group’s Board-approved three-year plan as at 26 February 2022.
The key assumptions in the value in use calculations are considered to be the determination of years 1-3 cashflows incorporating expected
product revenue growth not attributed to future capital expenditure, the risk-adjusted pre-tax discount rate, and the level of capital expenditure
cashflows considered to be of replacement in nature. The key assumptions on revenue growth reflect historic experience, the expected recovery in
demand post Covid-19 and the anticipated benefits of product, marketing and other initiatives.
The long-term growth rate of 1.4% is determined with reference to International Monetary Fund forecast GDP growth which management believe
is a reasonable indicator of expected growth rate available at 26 February 2022, however the value in use is relatively insensitive to this assumption
and is therefore not considered to be a key assumption.
The long-term growth rate used is purely for the impairment testing of intangible assets 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 for use in
the IAS 36 impairment assessment as at 26 February 2022 was calculated using the Capital Asset Pricing Model and observable market inputs, to
which specific company and market-related premium adjustments are made.
In developing the impairment assessment, management has considered the potential impacts of climate and other ESG related risks, as set out
in the “Sustain” section of the Group’s annual report. The short to medium term risks were not considered to be material to the analysis, but the
Group recognise this as an emerging risk area and are monitoring and managing this accordingly as outlined in the “Risk Management” section of
the annual report.
THE KEY ASSUMPTIONS ARE AS FOLLOWS:
Years 1-3 expected product revenue and EBITDA growth; and
Replacement Capital expenditure of £30m per year in years 1-3 and £20m in the terminal year; and
Pre-tax discount rate: 18.6% (2021: 13.1%).
The impairment review performed over the Group’s CGU has indicated that no impairment is required over the remaining assets of the Group.
The recoverable amount exceeds its carrying amount by £57m. The following sensitivities have been performed within the value in use calculation,
and do not therefore include any management action or mitigation:
a) Within years 1-3 expected cashflows, if product revenue were to decrease by more than 4.2% on average per annum with a respective
decrease in FS revenue for loss of credit sales, the value in use would indicate an impairment;
127
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
12 INTANGIBLE ASSETS CONTINUED
b) An increase to replacement capital expenditure cashflows by greater than £11.0m in the terminal year (55% increase) would indicate an
impairment; and
c) An increase to the discount rate of more than 1.8% would indicate an impairment.
It is reasonably possible that the Revenue and EBITDA growth assumptions may not be realised in full or in the timescale envisaged.
The value in use would indicate an impairment if, all other things being equal, EBITDA per annum was on average 10% lower than forecast.
13 PROPERTY, PLANT AND EQUIPMENT
Cost
At 29 February 2020
Additions
At 27 February 2021
Additions
Transfer to intangible assets
Disposals
At 26 February 2022
Accumulated depreciation and impairment
At 29 February 2020
Charge for the period
Impairment
Transfer to intangible assets
At 27 February 2021
Charge for the period
Transfer to intangible assets
Disposal
At 26 February 2022
Carrying amount
At 26 February 2022
At 27 February 2021
At 29 February 2020
Land and
buildings
£m
Fixtures and
fittings
£m
Plant and
Machinery
£m
59.1
–
59.1
–
–
–
59.1
17.8
0.9
–
–
18.7
1.2
–
–
19.9
39.2
40.4
41.3
22.5
0.8
23.3
1.3
–
–
24.6
20.1
0.4
–
–
20.5
0.5
–
–
21.0
3.6
2.8
2.4
57.5
0.9
58.4
1.8
(1.5)
(4.9)
53.8
38.6
2.4
0.1
(0.4)
40.7
2.7
(0.4)
(4.9)
38.1
15.7
17.7
18.9
Total
£m
139.1
1.7
140.8
3.1
(1.5)
(4.9)
137.5
76.5
3.7
0.1
(0.4)
79.9
4.4
(0.4)
(4.9)
79.0
58.5
60.9
62.6
Assets in the course of development included in fixtures and fittings and plant and machinery at 26 February 2022 total £2.5m (2021: £0.7m), and
in land and buildings total £nil (2021: £nil). No depreciation has been charged on these assets.
At 26 February 2022, the Group had entered into contractual commitments of £1.0m for the acquisition of property, plant and equipment
(2021: £nil).
Disposals during the year relate to fully amortised or previously impaired assets which are no longer in use.
14 SUBSIDIARIES
A list of all investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest, is given in note 35 to the
Company’s separate financial statements.
15 INVENTORIES
Finished goods
Sundry stocks
2022
£m
87.0
0.3
87.3
2021
£m
77.4
0.3
77.7
The inventory balance is net of stock provisions amounting to £5.2m (2021: £6.0m).
A charge of £4.5m (2021: £6.0m) has been made to the income statement in respect of written-down inventories. £nil (2021: £1.1m) of this has
been taken to exceptional costs being the write off of stock relating to brands that will no longer continue to trade.
The right of return asset in inventory amounted to £2.9m (2021: £2.2m). There was no inventory pledged as security for liabilities in the current or
prior period.
Sundry stocks relate to packaging stocks.
128
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 16 TRADE AND OTHER RECEIVABLES
Amount receivable for the sale of goods and services
Allowance for expected credit losses
Net trade receivables
Other debtors and prepayments
Trade and other receivables
2022
£m
577.2
(68.7)
508.5
24.6
533.1
2021
£m
605.8
(85.2)
520.6
28.4
549.0
Included in Amount receivable for the sale of goods and services is a provision for outstanding customer returns of £6.1m (2021: £4.8m).
Other debtors include a balance of £2.5m (2021: £3.0m) relating to amounts due from wholesale partners.
The weighted average Annual Percentage Rate (“APR”) across the trade receivables portfolio is 58.1% (2021: 58.2%). For customers who find
themselves in financial difficulties, the Group may offer revised payment terms (payment arrangements) to support customer rehabilitation.
These revised terms may also include suspension of interest for a period of time.
The gross trade receivables whose terms have been renegotiated (payment arrangements) but would otherwise be past due, totalled £11.5m
at 26 February 2022 (2021: £13.4m). Interest income recognised on trade receivables which were credit impaired as at 26 February 2022 was
£14.4m (2021: £13.5m).
The amounts written off in the period of £144.9m (2021: £154.1m re-presented) include the sale of impaired assets with a net book value of
£64.1m (2021: £59.7m). The proceeds from derecognised portfolio sales exceeded the net book value by £1.0m (2021: £5.0m).
During the year there were £36.8m of proceeds recognised in respect of accounts that had previously been written-off or derecognised
(2021: £38.1m).
The following table provides information about the exposure to credit risk and ECLs for trade receivables as at 26 February 2022.
Credit quality analysis is further analysed in note 19.
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 expected credit losses
Net trade receivables
Allowance for expected credit losses
Opening balance
Impairment
Utilised during the period
Closing balance
Movements in provisions
Provision movements
Gross write-offs
Recoveries
Other items
Net impairment charge
Trade
receivables
497.3
18.4
13.5
11.5
8.5
14.1
563.3
(63.9)
499.4
Trade receivables
on payment
arrangements
11.5
1.3
0.4
0.2
0.2
0.3
13.9
(4.8)
9.1
2022
£m
Total trade
receivables
508.8
19.7
13.9
11.7
8.7
14.4
577.2
(68.7)
508.5
Trade
receivables
522.8
20.5
12.3
9.9
7.4
17.8
590.7
(76.4)
514.3
Trade receivables
on payment
arrangements
13.4
1.1
0.2
0.2
0.1
0.1
15.1
(8.8)
6.3
2021
£m
Total trade
receivables
536.2
21.6
12.5
10.1
7.5
17.9
605.8
(85.2)
520.6
Stage 1
16.3
38.9
(46.8)
8.4
(7.9)
Stage 2
31.1
6.3
(13.3)
24.1
(7.0)
Stage 3
37.8
19.1
(20.7)
36.2
(1.6)
2021
(Re-presented)
Total
71.7
108.0
(94.5)
85.2
13.5
2022
Total
85.2
64.3
(80.8)
68.7
(16.5)
2021
£m
(Re-presented)
13.5
154.1
(31.8)
3.3
139.1
2022
£m
(16.5)
144.9
(36.8)
2.8
94.4
129
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
17 BANK BORROWINGS
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/applicable in the year were as follows:
Net overdraft facility
Bank loans
The principal features of the Group’s borrowings are as follows:
2022
£m
(302.5)
–
–
(302.5)
(302.5)
2022
%
1.7
2.5
2021
£m
(381.9)
–
–
(381.9)
(381.9)
2021
%
1.6
2.5
The Group operates a notional pooling and net overdraft facility whereby cash and overdraft balances held with the same bank have a legal right
of offset. The net overdraft facility limit is £12.5m (2021: £7.5m), of which the Group had a net position of £nil drawn down at 26 February 2022
(2021: £nil). The overdraft is repayable on demand, unsecured and bears interest at a margin over bank base rates.
In line with the requirements of IAS 32, gross balance sheet presentation of cash balances is required where there is no intention to settle any
amounts net. The net balance has therefore been separated between overdrafts and cash balances, further detail of cash balances is included in
note 25.
The Group has a bank loan of £302.5m (2021: £381.9m) 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 was refinanced in November 2021 reducing the facility
limit from £500m to £400m and maturity extended to December 2024. An assessment was undertaken as required under IFRS 9 as to whether
the refinancing had resulted in a substantial modification. It was concluded that the modification of the agreement did not substantially modify the
liability on either a quantitative or qualitative basis, and therefore no derecognition of the existing liability was required. Unamortised fees relating to
this facility of £3.0m are offset against the carrying amount of the loan.
The Group also has unsecured bank loans of £nil (2021: £nil) drawn down under a medium-term bank RCF. The facility has a maximum limit of
£100m, which is committed to December 2023.
The covenants inherent to these borrowing arrangements are closely monitored on a regular basis. Borrowing covenants continue to be in place
on the securitisation and RCF facilities respectively. The key covenants for the RCF are as follows:
Leverage, representing the ratio of adjusted unsecured net cash/(debt) on adjusted EBITDA, <1.5; and
Interest cover, representing the ratio of adjusted EBITDA on finance charges, on unsecured debt and adding back pension interest credit >4.0.
Throughout the period, the leverage covenant retained headroom of at least 1.7 below the 1.5 requirement, and interest cover retained headroom
of at least 66.8 above the 4.0 requirement.
The key covenants applicable to the Securitisation facility include three month average default, return and collection ratios, and a net interest
margin ratio on the total and eligible pool. Throughout the reporting period all covenants have been complied with.
All borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk. The Group’s interest rate risk management
activities are detailed in note 19.
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.
There is no material difference between the fair value and carrying amount of the Group’s borrowings.
130
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 18 DERIVATIVE FINANCIAL INSTRUMENTS
At the balance sheet date, details of outstanding derivative contracts that the Group has committed to are as follows:
Notional amount – sterling contract value (designated cash flow hedges – Interest rate swap )
Notional amount – sterling contract value (designated cash flow hedges – Foreign exchange forwards)
Notional Amount – sterling contract value (FVPL)
Total notional amount
The Group has fair value amounts held for derivative financial instruments in the following line items in the Balance Sheet:
Current Assets
Foreign currency forwards – cash flow hedges
Foreign currency forwards – non designated instruments at FVPL
Total
Non-current Assets
Foreign currency forwards – cash flow hedges
Interest rate swaps – cash flow hedges
Total
Current Liabilities
Foreign currency forwards – cash flow hedges
Foreign currency forwards – non designated instruments at FVPL
Total
Non-current Liabilities
Foreign currency forwards – non designated instruments at FVPL
2022
£m
250.0
138.4
38.0
426.4
2022
£m
1.4
0.3
1.7
2022
£m
0.2
4.9
5.1
2022
£m
(0.3)
(0.1)
(0.4)
2022
£m
–
2021
£m
–
–
211.2
211.2
2021
£m
–
0.4
0.4
2021
£m
–
–
–
2021
£m
–
(6.2)
(6.2)
2021
£m
(1.3)
The fair value of foreign currency and interest rate derivative contracts is the market value of the instruments as at the balance sheet date.
Market values are calculated with reference to the duration of the derivative instrument together with the observable market data such as spot and
forward interest rates, foreign exchange rates and market volatility at the balance sheet date.
Changes in the fair value of derivatives not designated for hedge accounting amounted to a gain of £4.8m (2021: charge of £10.0m before
exceptional items), recognised through the Income statement in the period.
Changes in the fair value of derivatives designated for hedging purposes amounted to £7.2m recognised through the cash flow hedge reserve.
Financial instruments that are measured subsequent to initial recognition at fair value are all grouped into Level 2 (2021: Level 2).
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 current or prior period.
Hedge accounting was adopted from the 29th August 2021, and from this point fair value movements on the designated financial instruments were
taken to a cash flow hedge reserve. The Group’s hedge reserve relates to the following hedging instruments and movements:
Opening balance at 27 February 2021
Changes in fair value of hedging instruments recognised in OCI
Reclassified to cost of inventory (not included in OCI)
Reclassified from OCI to profit and loss
Deferred Tax
Closing balance at 26 February 2022
FX Forwards
£m
–
3.2
(0.5)
–
(0.7)
2.0
Cost of
hedging
£m
–
(0.4)
–
–
0.1
(0.3)
Interest rate
swaps
£m
–
4.4
–
0.6
(1.2)
3.8
Total
£m
–
7.2
(0.5)
0.6
(1.8)
5.5
131
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
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 debt and equity structure of the Group consists of debt, which includes
the borrowings disclosed in note 17 and lease liabilities as recognised under IFRS 16, disclosed in note 27, net of 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
Bank overdrafts
Adjusted net debt
Lease liability
Net debt
Equity
Gearing ratio
2022
£m
302.5
(43.1)
–
259.4
1.3
260.7
442.3
58.9%
2021
£m
(Restated)1
381.9
(94.9)
14.1
301.1
4.9
306.0
412.3
74.2%
1 Refer to change in accounting policy prior year adjustment note 32.
Debt is defined as long-term 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. However, its wholly owned subsidiary, J.D. Williams & Co Ltd does have an
FCA regulatory minimum capital requirement, which it comfortably exceeded throughout the year.
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 foreign exchange 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, primarily relating to US dollar purchases of inventories and revenue
and operating costs from its Irish operation. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within
approved policy parameters utilising foreign exchange derivative contracts as described in note 18.
It is the policy of the Group to enter into foreign exchange derivative 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 two years ahead. Hedge accounting is applied to the
highly probable forecast inventory purchases with the objective of minimising volatility of currency cost. At the balance sheet date, details of the
notional value of outstanding US dollar foreign exchange derivative 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
Forward contracts outstanding at the period end are contracted at US dollar exchange rates ranging between 1.31 and 1.41.
2022
£m
68.7
63.2
22.3
22.3
2021
£m
97.1
87.7
20.8
5.6
176.5
211.2
132
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk FOREIGN CURRENCY SENSITIVITY ANALYSIS
A strengthening or weakening of the sterling against the Euro and US dollar at 26 February 2022 would have affected the measurement of
the Group’s financial instruments denominated in a foreign currency and affected equity and profit or loss. The following table demonstrates
a hypothetical sensitivity of 10% in sterling against the main foreign currencies used by the Group. The sensitivity rate of 10% represents the
Directors’ assessment of a reasonably possible change. The Group takes out forward contracts to manage its foreign currency exposure.
Euro
currency impact
US Dollar
currency impact
Sterling strengthens by 10%
Sterling weakens by 10%
CATEGORIES OF FINANCIAL INSTRUMENTS
Financial assets
Derivatives – at fair value through profit and loss
Derivatives – used for hedging
Cash and bank balances – amortised cost
Trade receivables – amortised cost
Other receivables – amortised cost
Financial liabilities
Derivatives – at fair value through profit and loss
Derivatives – used for hedging
Bank loans and overdraft – amortised cost
Trade and other payables – amortised cost
2022
£m
(0.8)
1.0
2021
£m
(0.6)
0.8
2022
£m
1.7
(1.9)
2022
£m
0.3
6.5
43.1
508.5
3.1
561.5
2022
£m
0.1
0.3
302.5
58.5
361.4
2021
£m
1.2
(1.4)
2021
£m
0.4
–
80.0
520.6
5.7
606.7
2021
£m
7.5
–
381.9
57.4
446.8
INTEREST RATE RISK MANAGEMENT
The Group is exposed to interest rate risk, as entities in the Group borrow funds at floating interest rates but earns interest from customers at
interest rates which are initially fixed for at least 12 months. Where appropriate, exposure to interest rate fluctuations on indebtedness is managed
by using derivatives.
The Group has in place an interest rate swap which was entered into during the year to a notional value of £250m. The swap is designated as a
cash flow hedge whereby the Group pays a fixed rate of interest, and receives interest linked to the Sterling Overnight Index Average (“SONIA”).
An economic relationship exists with the Group’s secured borrowing facility where the finance cost is linked to SONIA. The Group also has in place
further interest rate caps which hedge the risk of the Group’s finance costs increasing on the remaining borrowing facility above a certain rate,
which is not designated for hedge accounting. The value of interest rate caps outstanding at the year end was £0.6m (2021: £0.7m).
Following recent reform and replacement of benchmark interest rates such as GBP LIBOR and other interbank offered rates (‘IBORs’), LIBOR
fixings are no longer representative after 31 December 2021. The Group’s most significant risk exposure affected by these changes related to its
secured borrowings which was refinanced in November 2021, with an economically equivalent rate linked to SONIA taking its place.
INTEREST RATE SENSITIVITY ANALYSIS
If interest rates had increased by 0.5% and all other variables were held constant, the Group’s profit before tax for the 52 weeks ended 26 February
2022 would have decreased by £2.1m (2021: £1.9m).
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.
133
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
19 FINANCIAL INSTRUMENTS CONTINUED
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 and primarily arises
from the Group’s customer trade receivables.
The Group’s credit risk in relation to these receivables is influenced by the individual characteristics of each customer. To manage credit risk, the
Group has various strategies in place, which are supported by credit and lending policies.
All customers who wish to trade on credit terms are subject to credit verification procedures. Before accepting any new customer, the Group
uses a credit scoring system using Credit Reference Agency (“CRA”) data to assess the potential customer’s credit quality, which together with
assessment against credit policy, determines the terms and credit limit offered. Credit limits are reviewed every 28 days where an account remains
active, by credit scoring using a blend of internal and external CRA data.
The Group has a number of forbearance options for customers in financial difficulty, which include a temporary suspension of repayments, and
revision of minimum payment terms. Up until April 2021, the Group also provided additional support for customers impacted by Covid-19, by
allowing customers to defer payments for up to 6 months.
The concentration of credit risk is limited due to the customer base being large and diverse. The customer receivables balance is made of from
0.97 million (2021: 0.95 million) customers with individually small balances, spread geographically across the UK.
Customer debtor balances are monitored on an ongoing basis and provision is made for future expected credit loses (ECL), as detailed in note 16.
The ECL incorporates forward looking information including macro-economic variables on CPI/real wages and unemployment.
Due to the unprecedented level of Government support during the Covid-19 pandemic, the Financial Services debtor book started FY22 at
artificially high-performance levels. During FY22, the performance of the book returned towards, but did not reach, pre-pandemic arrears levels.
The IFRS 9 provision ratio has reduced to 11.9% from 14.1% in FY21 as the macroeconomic impacts of Covid, and the cessation of Covid-19
payment holds and the Government furlough scheme have not been as severe as previously anticipated. We have, however, made a £5.8m
provision for the expected impact of inflationary related pressures in the future. Although the IFRS 9 provision ratio has reduced in the year by
2.2%, it remains above the pre Covid-19 level reported in FY20 (10.9%).
CREDIT QUALITY ANALYSIS
The following table sets out information about the overdue status of trade receivables in Stages 1, 2 and 3.
Ageing of trade receivable
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 expected credit losses
Ageing of trade receivable
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 expected credit losses
Stage 1
411.3
9.7
–
–
–
–
421.0
(8.4)
Stage 1
441.0
–
–
–
–
–
441.0
(16.3)
Stage 2
81.1
8.1
11.6
–
–
–
100.8
(24.1)
Stage 2
77.1
20.0
10.8
–
–
–
107.9
(31.1)
Stage 3
16.5
1.8
2.3
11.7
8.7
14.4
55.4
(36.2)
Stage 3
18.1
1.6
1.7
10.1
7.4
18.0
56.9
(37.8)
2022
Total
508.9
19.6
13.9
11.7
8.7
14.4
577.2
(68.7)
2021
Total
536.2
21.6
12.5
10.1
7.4
18.0
605.8
(85.2)
As at 26 February 2022 current debtors were included in Stage 2 if the receivable had suffered from a significant increase in credit risk.
Debtors which were in default or on an agreed interest free payment arrangement were included in Stage 3. The value of payment arrangements
at the year end stood at £13.8m. The maximum exposure to credit risk at the reporting date is the gross carrying value of £577.2m as these
receivables are not collateralised.
134
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk Balances as at 27 February 2021
Transfers out from Stage 11
Transfers out from Stage 21
Transfers out from Stage 31
Remeasurement of ECL
Financial assets originated net of repayments2
Write-offs and derecognised3
Balances as at 26 February 2022
Balances as at 29 February 2020
Transfers out from Stage 11
Transfers out from Stage 21
Transfers out from Stage 31
Remeasurement of ECL
Financial assets originated net of repayments2
Write-offs and derecognised3
Balances as at 27 February 2021
Gross Trade Receivables
Stage 1
Stage 2
Stage 3
Total
Stage 1
Expected Credit Losses
Stage 3
Stage 2
441.0
(69.8)
73.7
4.9
–
55.2
(84.0)
421.0
107.9
45.4
(77.8)
1.4
–
47.7
(23.8)
100.8
56.9
24.4
4.1
(6.3)
–
13.4
(37.1)
55.4
605.8
–
–
–
–
116.3
(144.9)
577.2
(16.3)
3.3
(5.2)
(2.9)
(32.0)
(2.1)
46.8
(8.4)
(31.1)
(2.0)
6.1
(0.9)
4.2
(13.7)
13.3
(24.1)
(37.8)
(1.3)
(0.9)
3.8
(12.3)
(8.4)
20.7
(36.2)
Total
(85.2)
–
–
–
(40.1)
(24.2)
80.8
(68.7)
Gross Trade Receivables (Re-presented)
Expected Credit Losses (Re-presented)
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
516.2
(107.1)
38.0
5.6
–
62.6
(74.3)
441.0
82.3
82.8
(47.8)
0.6
–
34.9
(44.9)
107.9
58.4
24.3
9.8
(6.2)
–
5.5
(34.9)
56.9
656.9
–
–
–
–
103.0
(154.1)
605.8
(13.1)
4.7
(6.4)
(3.6)
(48.9)
(2.3)
53.3
(16.3)
(20.8)
(3.5)
8.2
(0.3)
(23.6)
(10.1)
19.0
(31.1)
(37.8)
(1.2)
(1.8)
3.9
(19.5)
(3.6)
22.2
(37.8)
Total
(71.7)
–
–
–
(92.0)
(16.0)
94.5
(85.2)
1 Basis of presentation has been re-presented from the prior year. Transfers have been presented on a gross basis in the current year compared to a net basis
in the prior year. The prior year table has been re-presented to provide a consistent comparison. This change has no impact on the Group’s financial results.
Transfers are based on staging at start of year and end of year.
2 Financial assets originated net of repayments includes receivables that are new for the year, and the staging is based on where the balances are at the end of
the year.
3 Derecognition and write-offs are based on the staging at the start of the year, or the staging at the point the assets was originated in year i.e. stage 1.
IMPAIRMENTS – ASSUMPTIONS AND POST MODEL ADJUSTMENTS
To calculate the allowance for expected credit losses, the Group makes use of an IFRS 9 ECL model and applies post model adjustments where
there is insufficient data or uncertainties around future economic forecasts. ECL is the product of the probability of default (“PD”), exposure at
default (“EAD”) and loss given default (“LGD”), discounted at the current effective interest rate (“EIR”).
Predicted relationships between the key indicators and default and loss rates on various portfolios of financial assets have been developed based
on historical data. Further details on the basis of these components can be found in Note 2 Accounting Policies.
135
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
19 FINANCIAL INSTRUMENTS CONTINUED
The allowance for ECL includes the following post model adjustments:
2022 £m
Modelled ECL
PMAs:
1. Macro-economic pressures – inflation
Inflation
–
Other
54.3
Total
54.3
5.8
–
5.8 Historical data used in the model reflects recent performance only. Inflation is
2. Legacy accounts not in model
3. Other
Total PMAs
Total ECL
–
–
5.8
5.8
6.2
2.4
8.6
62.9
expected to put additional pressure on household budgets, and so book performance
is expected to deteriorate. In recognition of this risk additional inflationary PMA’s of
£5.8m have been made, which assume CPI reaches 8.4% in FY23.
6.2 Legacy accounts which are not included in the IFRS 9 model. Provided for at 100%.
2.4 Predominantly timing adjustments and provisions on interest yet to be statemented.
14.4
68.7
2021 £m
Modelled ECL
PMAs:
1. Covid payment holidays
COVID
2.9
Other
62.7
Total
65.6
13.7
–
13.7 Customers who had taken on a Covid payment holiday with another lender were
2. Legacy accounts not in model
3. Other
Total PMAs
Total ECL
–
(1.2)
12.5
15.4
5.4
1.7
7.1
69.8
considered to have a SICR and considered to be in the Stage 2 IFRS9 population.
A 3-month probation period was applied, after which customers were no longer
considered to have experienced a SICR if they maintained their contractual
minimum payments.
5.4 Legacy accounts which are not included in the IFRS 9 model. Provided for at 100%.
0.5 Predominantly timing adjustments and provisions on interest yet to be statemented.
19.6
85.2
INCORPORATION OF FORWARD-LOOKING INFORMATION
The economic scenarios used as at 26 February 2022 included the following key indicators, provided by Experian as external advisers,
for the UK for the calendar years 2022 to 2026:
Unemployment rate (%)
Base
Upside
Downside
Annual real wage growth (%) Base
Upside
Downside
2022
4.2
4.0
4.4
(1.3)
0.5
(2.6)
2023
4.1
3.8
4.4
0.6
1.7
(0.2)
2024
4.0
3.7
4.5
0.9
2.0
0.1
2025
4.0
3.6
4.6
1.2
2.2
0.6
2026
4.0
3.4
4.7
1.4
2.3
0.7
The scenarios above have been applied to all customers within the Group’s ECL model.
Note that due to further uncertainties on the economic outlook as a result of the conflict in Ukraine, additional stresses on CPI have been reflected
as a post model adjustment.
136
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk
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 table below shows the maturity analysis of the undiscounted remaining contractual cash flows (including estimated interest payments) of the
Group’s financial liabilities, including cash flows in respect of derivatives:
2022
Non-derivative financial liabilities
Secured bank loans
Trade payables
Lease liabilities
Other creditors
Accruals and deferred income
Derivatives: gross settled
Cash inflows
Cash outflows
2021
Secured bank loans
Trade payables
Lease liabilities
Other creditors
Accruals and deferred income
Derivatives: gross settled
Cash inflows
Cash outflows
2022
Carrying
amount
£m
2022
Contractual
cash flows
£m
2022
1 year
or less
£m
2022
1 to <2
years
£m
2022
2 to <5
years
£m
2022
5 years
and over
£m
(302.5)
(47.5)
(1.3)
(11.0)
(36.2)
(398.5)
6.8
(0.4)
(392.1)
2021
Carrying
amount
£m
(381.9)
(46.7)
(4.9)
(4.7)
(59.2)
(497.4)
0.4
(7.5)
(504.5)
(303.6)
(47.5)
(1.3)
(11.0)
(36.2)
(399.6)
6.8
(0.4)
(393.2)
2021
Contractual
cash flows
£m
(383.4)
(46.7)
(5.2)
(4.7)
(59.2)
(499.2)
0.4
(7.5)
(506.3)
(7.2)
(47.5)
(0.9)
(11.0)
(36.2)
(102.8)
1.7
(0.4)
(101.5)
2021
1 year
or less
£m
(9.5)
(46.7)
(1.8)
(4.7)
(59.2)
(121.9)
0.4
(6.2)
(127.7)
(7.2)
–
(0.4)
–
–
(7.6)
5.1
–
(2.5)
2021
1 to <2
years
£m
(9.5)
–
(1.1)
–
–
(10.6)
–
(1.3)
(11.9)
(289.2)
–
–
–
–
(289.2)
–
–
(289.2)
2021
2 to <5
years
£m
(364.4)
–
(1.1)
–
–
(365.5)
–
–
(365.5)
–
–
–
–
–
–
–
–
–
2021
5 years
and over
£m
–
–
(1.2)
–
–
(1.2)
–
–
(1.2)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of each category of the Group’s financial instruments are approximately the same as their carrying value in the Group’s
balance sheet.
137
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
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.
As at 29 February 2020 (Restated)1
(Charge)/credit to income
Credit to equity
As at 27 February 2021 (Restated)1
(Charge)/credit to income
Charge to equity
As at 26 February 2022
Share based
payments
£m
–
0.1
Accelerated
tax
depreciation
£m
(4.9)
0.6
Retirement
benefit
obligations
£m
(9.2)
(0.4)
Cashflow
Hedge
Reserve
£m
–
–
IFRS 9
transitional
adjustment
£m
9.2
(0.2)
Tax losses
£m
3.6
(1.7)
–
0.1
–
–
0.1
–
(4.3)
(1.7)
–
(6.0)
0.7
(8.9)
(0.3)
(3.7)
(12.9)
–
–
–
(1.8)
(1.8)
–
9.0
(1.3)
–
7.7
–
1.9
0.9
–
2.8
Other –
deferred tax
assets and
liabilities
£m
0.4
2.1
–
2.5
(1.6)
–
0.9
Total
£m
(0.9)
0.5
0.7
0.3
(4.0)
(5.5)
(9.2)
1 Refer to change in accounting policy prior year adjustment note 32.
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 26 February 2022
1 Refer to change in accounting policy prior year adjustment note 32.
2022
£m
11.5
(20.7)
(9.2)
2021
£m
(Restated)1
13.5
(13.2)
0.3
At the balance sheet date, the Group has unused tax losses of £11.2m (2021: £17.5m) and capital losses of £3.2m (2021: £3.2m) available for
offset against future profits, with deferred tax not recognised on the latter. As at 26 February 2022, it is management’s expectation that sufficient
trading profits will arise in future trading periods to support these losses and therefore will be utilised in full.
21 TRADE AND OTHER PAYABLES
Trade payables
Other payables
Accruals and deferred income
Trade and other payables
2022
£m
47.5
11.0
36.2
94.7
2021
£m
46.7
4.7
59.2
110.6
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken
for trade purchases, based on invoice date is 53 days (2021: 55 days) (based on invoice creation date 2022: 42 days, 2021: 41 days).
The Group has financial risk management policies in place to ensure that all payables are paid within agreed credit terms.
The Group continues to have a supplier financing arrangement which is facilitated by HSBC. The principal purpose of this arrangement is
to enable the supplier, if it so wishes, to sell its receivables due from the Group to a third party bank prior to their due date, thus providing
earlier access to liquidity. From the Group’s perspective, the invoice payment due date remains unaltered and the payment terms of suppliers
participating in the programme are similar to those suppliers that are not participating. The maximum facility limit as at 26 February 2022 was
£15m (2021: £10m). At 26 February 2022, total of £6.7m (2021: £8.0m) had been funded under the programme. The scheme is based around the
principle of reverse factoring whereby the bank purchases from the suppliers approved trade debts owed by the Group. Access to the supplier
finance scheme is by mutual agreement between the bank and supplier, where the supplier wishes to be paid faster than standard Group payment
terms; the Group is not party to this contract. The scheme has no cost to the Group as the fees are paid by the supplier directly to the bank.
The bank have no special seniority of claim to the Group upon liquidation and would be treated the same as any other trade payable. As the
scheme does not change the characteristics of the trade payable, and the Group’s obligation is not legally extinguished until the bank is repaid,
the Group continues to recognise these liabilities within trade payables and all cash flows associated with the arrangements are included within
operating cash flow as they continue to be part of the normal operating cycle of the Group. There is no fixed expiry date on this facility.
138
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 22 PROVISIONS
Balance as at 27 February 2021
Reclass from Accruals as at 28 February 2021
Provisions made during the period
Provisions used during the period
Balance as at 26 February 2022
Non-current
Current
Balance as at 26 February 2022
Customer
redress
£m
1.6
–
0.5
(0.3)
1.8
–
1.8
1.8
Strategic
Change
£m
2.8
0.2
0.1
(2.3)
0.8
–
0.8
0.8
Allianz
Litigation
£m
–
1.6
29.8
(3.4)
28.0
–
28.0
28.0
Other
£m
0.3
–
–
–
0.3
–
0.3
0.3
Total
£m
4.7
1.8
30.3
(5.9)
30.9
–
30.9
30.9
ALLIANZ LITIGATION
During the current year, in relation to the ongoing legal dispute with Allianz Insurance plc, the Group recognised an additional charge of £29.8m
as an estimate for accounting purposes of the potential costs of settlement or award and incurred and future legal costs.
Until 2014, JD Williams & Company Limited (“JDW”), a subsidiary of N Brown Group plc, sold (amongst other insurance products) payment
protection insurance (“PPI”) to its customers when they bought JDW products. These insurance products were provided by Allianz Insurance
plc (“the Insurer”) and sold by JDW as the Insurer’s agent. JDW was an unregulated entity prior to 14 January 2005 in respect of the sale of PPI.
The regulated entity prior to 14 January 2005 was the Insurer.
In recent years, JDW and the Insurer have paid out significant amounts of redress to customers in respect of certain insurance products,
including PPI.
In January 2020, a claim was issued against JDW by the Insurer in respect of all payments of redress the Insurer has made to JDW’s customers
together with all associated costs. The Insurer has made a claim under the Civil Liability (Contribution) Act 1978 as well as on other bases.
On 5 March 2020 JDW served its Defence and Counterclaim which denied the Insurer’s claim and also made counterclaims seeking contributions
from the Insurer towards the losses JDW has suffered in respect of two different types of insurance product provided by the Insurer. In particular,
JDW counterclaimed in respect of £16m of redress it had paid to customers who had bought PPI before 14 January 2005, plus £64m of redress it
had paid or tendered to customers who had bought a different type of policy, known as “Product Protection”, between 2006 and 2014.
On 9 April 2020 the Insurer served a Reply and Defence to JDW’s Counterclaim. This document disputed the counterclaims and maintained
the claim.
On 10 June 2021 the Insurer sought leave to increase the scope of its original claim in relation to a further customer redress exercise
(“the Additional Cohort”), that JDW understands is still ongoing. The Insurer pleaded that the value of this additional element of the claim was up
to £36m. The Insurer also revised the value of its original claim to £30m plus interest.
JDW subsequently filed and served its amended Defence as per the Court’s timetable. More recently, JDW has further amended its Defence
to bring into account the redress liabilities that it has borne without assistance from the Insurer in respect of customers who bought PPI on or
after 14 January 2005, which it estimates at not less than £40 million. JDW says that the Court should take this into account, and that this should
extinguish or diminish the Insurer’s claims.
The two parties held a mediation meeting on 20 April 2022, which did not resolve the differences between them.
All claims made by the Insurer, and counterclaims by JDW, remain subject to final determination by the Court, both as to their success and their
financial value. The claims, defences and counterclaims are complex. Both parties will submit factual and expert witness evidence in relation to the
dispute over the coming months.
139
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
22 PROVISIONS CONTINUED
ACCOUNTING ESTIMATE
The Group is of the view that, should the matter proceed to trial, which is currently listed to commence in June 2023, the Court will determine the
outcome on a net basis taking into account the merits of the parties’ claims and counterclaims, and the liabilities already borne by them. The Group
is also of the view the net basis would apply in any negotiated settlement. Accordingly, the company’s assessment of the present obligation has
been determined on a net basis.
Should the matter proceed to trial, the eventual outcome is highly uncertain. The range of potential outcomes is very significant given the disputes
between JDW and the Insurer as to which sums should be brought into account and what proportions of the liabilities they should each have
to bear.
The likelihood of a Court finding wholly in favour of the Insurer, without taking into account the costs already borne by JDW, is considered remote.
Accordingly, the maximum potential outflow is considered to be significantly less than the £66 million claimed by the Insurer. Equally, there are
reasonable scenarios in which JDW might be due a net contribution in respect of the costs it has incurred, even if the Insurer succeeds in some
or all of its claims.
IAS 37 (Provisions, contingent liabilities and contingent assets) sets out the requirements for determining the quantum and timing of recognition
for provisions, contingent liabilities and contingent assets.
Having concluded that a provision should be estimated for the potential net outflow of the claims and counterclaims (see critical judgements in
note 2), the Group has recorded a charge in the year for legal costs of £1.8m and a provision of £28.0m, as an estimate for accounting purposes
of the potential costs of settlement or award and future legal costs. The Allianz dispute was recognised and disclosed as a contingent liability at
February 2021.
Given the nature of the issues in dispute, the Court will have considerable discretion in reaching its conclusions. Accordingly, the range of
potential outcomes, in either direction, could be many times materiality and involves a significant level of estimation.
There is also uncertainty as to the timing of any resolution of the claim and counterclaim. The trial is listed to commence in June 2023.
Our accounting estimate is based upon the assumption that the parties reach a settlement within FY23, however if the matter progresses
to trial any cashflows resulting from the claim and/or counterclaim may not arise until FY24.
CUSTOMER REDRESS
The provision relates to the Group’s liabilities in respect of costs expected to be incurred for payments for historic Financial Services
customer redress, which represents the best estimate of redress obligations, taking into account factors including risk and uncertainty.
Redress activity, other than the Official Receiver complaints, has been concluded in the prior year and as at 26 February 2022 the Group holds
a provision of £1.8m (2021: £1.6m), which will be paid in the next 12 months.
STRATEGIC CHANGE
In line with the Board’s strategic reviews and multi-year transformation of the business, a material level of cost reduction programs have been
completed as well as an increased focus and refinement of the Group’s five strategic brands. The one off costs relating to this transformation were
substantially complete in the prior year. During the prior year, total redundancy costs of £5.2m were incurred across the Group including Figleaves,
in order to align the Group’s people costs to deliver an organisational design that supports the revised strategy. A further £2.7m was incurred on
the restructure and the transfer of the Figleaves business under the Simply Be brand, including stock write down of £1.1m and onerous contract
provisions of £0.8m. The remaining provision of £0.8m as at 26 February 2022 will be paid in the next 12 months.
OTHER
The provision held at 27 February 2021 of £0.3m relates to costs and interest in relation to matters under discussion with HMRC relating to FY19
or prior years. Agreement on this matter is still pending with HMRC as of the date of this financial report.
23 SHARE CAPITAL
Allotted, called-up and fully paid ordinary shares of 11 1/19p each
Opening as at 27 February 2021 (29 February 2020)
Issued in the year
At 26 February 2022 (27 February 2021)
2022
Number
2021
Number
460,483,231
–
460,483,231
285,817,178
174,666,053
460,483,231
2022
£m
50.9
–
50.9
2021
£m
31.4
19.5
50.9
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.
In December 2020, the Group completed an equity raise where a total number of 174,666,053 ordinary shares was issued at an offer price of 57p
per share. Net proceeds, after accounting for direct transaction costs, amounted to £93.5m. The nominal value of the shares issued of £19.5m has
been accounted for within share capital with the remaining £74.0m accounted for within share premium.
140
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 24 OWN SHARES
Balance at 27 February 2021
Issue of own shares
Balance at 26 February 2022
2022
£m
0.3
(0.1)
0.2
2021
£m
0.3
–
0.3
The own shares reserve represents the cost of shares in N Brown Group plc held by the N Brown Group plc Employee Share Ownership Trust to
satisfy options under the Group’s various share-based payment benefit schemes (see note 28).
At 26 February 2022 the employee trusts held 1,373,589 shares in the Company (2021: 2,240,321).
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, from point of acquisition. Included in the amount below is £1.0m
(2021: £0.5m) of restricted cash which is held in respect of the Group’s customer redress programmes and £2.6m (2021: £3.0m) in respect of our
securitisation reserve account. This cash is available to access by the Group for restricted purposes. In addition £2.8m (2021: £1.9m) was held at
the balance sheet date in relation to amounts to be repaid against the Group’s securitisation facility.
A breakdown of significant cash and cash equivalent balances by currency is as follows:
Sterling
Euro
US dollar
Net cash and cash equivalents and bank overdrafts
Made up of:
Cash and cash equivalents
Bank overdrafts
2022
£m
31.3
5.1
6.7
43.1
43.1
–
2021
£m
69.1
6.2
5.5
80.8
94.9
(14.1)
The Group operates a notional pooling and net overdraft facility whereby cash and overdraft balances held with the same bank have a legal right
of offset. In line with requirements of IAS 32, gross balance sheet presentation is required where there is no intention to settle any amounts net.
The balance has therefore been separated between overdrafts and cash balances.
26 GUARANTEES
BANK OVERDRAFTS
The Group operates a net overdraft facility that was undrawn at 26 February 2022 (2021: undrawn). The parent Company bank account, which
at 26 February 2022 was in £nil overdraft (2021: £13.1m overdraft) is part of this net overdraft facility, and offset by other subsidiary accounts
in a debit position. Parent Company loans amounted to £nil (2021: £nil) at 26 February 2022. Both balances are guaranteed by certain
subsidiary undertakings.
BANK GUARANTEE
As at 26 February 2022, the Group had a total of £1.2m of bank guarantee offered to certain suppliers and third parties.
141
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
27 LEASES
The Group leases various buildings, equipment and vehicles under non-cancellable leases of varying lengths.
The Group has recognised right-of-use assets for these leases except for short-term and low-value leases, further information on the amounts
recognised in the balance sheet are included within this note.
AMOUNTS RECOGNISED IN THE BALANCE SHEET
The consolidated balance sheet as at 26 February 2022 shows the following amounts relating to leases.
Right-of-use assets
27 February 2021
Depreciation
Additions
Disposals
26 February 2022
Lease liabilities
Current
Non-current
AMOUNTS RECOGNISED IN THE INCOME STATEMENT
The consolidated income statement shows the following amount relating to leases:
Depreciation charge of right-of-use buildings
Depreciation charge of right-of-use equipment and vehicles
Interest expense (included in finance costs)
Expense relating to leases of low-value assets (included in operating expenses)
Expense relating to short-term leases (included in operating expenses)
Land and
buildings
£m
2.5
(0.7)
0.1
(1.4)
0.5
Fixtures and
equipment
£m
1.1
(0.5)
–
–
0.6
2022
£m
0.9
0.4
1.3
2022
£m
0.7
0.5
0.1
1.1
0.1
Total
£m
3.6
(1.2)
0.1
(1.4)
1.1
2021
£m
1.8
3.1
4.9
2021
£m
1.0
0.7
0.4
1.1
0.1
The total cash outflow for leases during the year was £1.9m (2021 : £3.4m). The portfolio of short-term and low-value leases to which the Group is
committed is not dissimilar to the portfolio for which the expense has been incurred during the year, and future expenses are expected to be on a
similar level annually.
142
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 28 EQUITY-SETTLED SHARE-BASED PAYMENTS
The Group offers Long term incentive plan (“LTIP”) and Restricted share awards (“RSA”) that entitle key management personnel and senior
employees to purchase shares in the parent entity. Holders of vested options are entitled to purchase shares at the market price applicable on the
grant date of the award. The Directors’ Remuneration Report on p75 to 93 contains details of the management awards offered to key management
and senior employees, and of the vesting conditions attached to these.
In addition, the Group has offered its employees the opportunity to participate in an employee save as you earn (“SAYE”) share purchase plan.
To participate in the plan the employees are required to save an amount of their gross salary for a period of 36 months. At the end of the 36 month
period the employees are entitled to purchase shares using the funds saved at the exercise price as set on the grant date. Only employees that
remain in service for the 36 month period will become entitled to purchase shares.
Details of all share awards outstanding during the period are as follows:
Option scheme
SAYE savings-related scheme
2010 Executive scheme
Unapproved Executive scheme
Long–term incentive plan awards (LTIPs)
September 2019
November 2020
August 2021
Restricted Share Award (RSAs)
August 2017
June 2019
November 2020
August 2021
Deferred annual bonus scheme awards (DABs) June 2019
Deferred share bonus plan (DSBP) June 2019
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
44 – 167
238 – 444
238 – 444
Exercise
period
Number
of shares
2022
Number of
shares
2021
May 2010 – February 2025
May 2010 – August 2024
May 2010 – August 2024
4,701,898
89,049
60,450
605,262
89,049
60,450
–
–
–
–
–
–
–
–
–
September 2022 – September 2029
November 2023 – November 2030
August 2024 – August 2031
2,083,424 2,379,429
2,338,081 2,425,386
–
3,734,802
August 2020 – August 2027
September 2022 – August 2029
August 2021 – November 2030
August 2022 – August 2031
–
120,440
73,333
120,440
1,345,173 2,763,554
–
2,473,513
June 2021 – June 2029
June 2022 – June 2029
–
35,410
129,689
35,410
2022
Weighted
average
exercise
price
£
1.55
0.45
0.84
–
0.54
2.48
2021
Number
of share
options
1,890,152
–
(1,135,391)
–
754,761
149,499
Weighted
average
exercise price
£
1.55
–
1.54
–
1.55
2.49
Number
of share
options
754,761
5,060,697
(964,061)
–
4,851,397
152,725
No options were exercised in the period and the weighted average share price during the period was 53p (2021: 46p).
The options outstanding at 26 February 2022 had a weighted average remaining contractual life of 2.76 years (2021: 1.32 years).
The aggregate estimated fair values of options granted in the period is £1.4m (2021: £nil).
143
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
28 EQUITY-SETTLED SHARE-BASED PAYMENTS CONTINUED
Movements in management share awards (LTIPs, RSAs 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
2022
2021
Number
of share
awards
9,150,832
6,670,324
(2,845,607)
(844,706)
12,130,843
–
Number
of share
awards
6,296,669
5,243,189
(2,060,062)
(328,964)
9,150,832
73,333
The awards outstanding at 26 February 2022 had a weighted average remaining contractual life of 8.86 years (2021: 9.02 years). The aggregate
estimated fair values of options granted in the period is £2.8m (2021: £2.6m).
The fair value of management and share awards granted is calculated at the date of grant using a Monte Carlo model. The inputs into the model
are as follows:
Weighted average share price at date of grant (pence)
Expected volatility (%)
Expected life (years)
Risk-free rate (%)
Dividend yield (%)
2022
50
49.0
3.0
0.2
–
2021
55
47.0
3.0
(0.1)
–
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 a total charge of £0.8m (2021: £0.8m) related to equity-settled share-based payments.
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 £5.7m (2021: £6.1m) represents contributions payable to the schemes by the Group at rates specified in the
rules of the plans. As at 26 February 2022, contributions of £0.5m (2021: £0.2m) due in respect of the current reporting period had not been paid
over to the schemes and are included in trade and other payables.
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. The scheme 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 2021 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 preliminary results of the valuation indicated that the Technical Provisions funding position
is a surplus of £6.4m. The Group and Trustees are in discussion to finalise the valuation and agree any variations to the schedule of contributions.
The IAS 19 disclosures and actuarial assumptions have, where appropriate, been based on and updated in line with the preliminary valuation as at
30 June 2021.
144
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk The principal actuarial assumptions used in determining the Group’s net retirement benefit obligations at the balance sheet date were as follows:
Discount rate
Pension increases – Benefits accrued post 2005
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
2022
2.55%
2.30%
3.55%
2.95%
22.0
23.9
23.3
25.7
2021
2.10%
2.10%
3.35%
2.75%
22.0
23.9
23.4
25.7
The liabilities are calculated based on Fund membership as at the most recent actuarial valuation date, 30 June 2021, and no allowance has
been made for experience relating to Covid-19 (e.g. excess deaths) since this date. Within the CMI_2020 projection tables used to model future
improvements to life expectancy, some allowance is made for the impact of Covid-19 on observed mortality experience in the general population in
2020 by using a “w 2020” parameter of 10%. This leads to a slight reduction in life expectancies than if no allowance had been made for observed
mortality experience in 2020, which we estimate would increase the value of the liabilities by around 0.4%. The longer term impact of Covid-19 on
mortality remains an area of uncertainty and therefore this assumption will be reviewed at each year-end based on the latest available information.
Amounts recognised in profit or loss in respect of these defined benefit schemes are as follows:
Past service cost
Net interest credit
Administrative expenses paid from plan assets
Profit recognised in the income statement
2022
£m
–
(0.5)
0.4
(0.1)
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
The amount included in the statement of comprehensive income is as follows:
Remeasurement gain
Return/(Loss) on scheme assets
Gain/(Loss) recognised in the statement of comprehensive income
2022
£m
(118.8)
156.2
37.4
2022
£m
7.3
3.2
10.5
2021
£m
0.1
(0.5)
0.4
–
2021
£m
(127.0)
152.5
25.5
2021
£m
1.0
(2.9)
(1.9)
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. In respect of the Group’s IAS 19 valuation, there are no restrictions on the recovery of the surplus which may be realised through
refund or reduced contributions.
Movements in the present value of defined benefit obligations were as follows:
At 27 February 2021
Past service cost
Interest cost
Remeasurement (gain)/loss
Effect of changes in financial assumptions
Effect of changes in demographic assumptions
Effects of changes in experience adjustment
Benefits paid
At 26 February 2022
2022
£m
127.0
–
2.7
–
(6.3)
(0.4)
(0.6)
(3.6)
118.8
2021
£m
130.9
0.1
2.2
–
(0.8)
(0.2)
–
(5.2)
127.0
145
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
29 RETIREMENT BENEFIT SCHEMES CONTINUED
Movements in the fair value of the scheme assets were as follows:
At 27 February 2021
Interest income
Return/(Loss) on scheme assets excluding interest income
Contributions from sponsoring companies
Benefits paid
Admin expenses
At 26 February 2022
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
2022
£m
152.5
3.2
3.2
1.3
(3.6)
(0.4)
156.2
£m
22.3
26.2
36.6
49.0
2.6
14.6
0.3
0.9
152.5
2021
£m
157.2
2.7
(2.9)
1.1
(5.2)
(0.4)
152.5
2021
%
14.6
17.2
24.0
32.1
1.7
9.6
0.2
0.6
100.0
£m
16.2
40.1
32.2
52.1
1.9
11.8
1.5
0.4
156.2
2022
%
10.4
25.6
20.6
33.3
1.2
7.6
1.0
0.3
100.0
All assets had an observable market price (2021: 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 £6.4m (2021: £6.2m). An increase of 0.25% in
the inflation assumption would increase the defined benefit obligation by £3.8m (2021: £3.7m).
An increase of one year in the life expectancy assumption would increase the defined benefit obligation by £5.0m (2021: £4.5m).
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 Group has updated its approach to setting Retail Price Index (“RPI”) and Consumer Price Index (“CPI”) inflation assumptions in light of the
RPI reform proposals published on 4 September 2019 by the UK Chancellor and UK Statistics Authority.
The Group continued to set RPI inflation in line with the market break-even expectations less an inflation risk premium.
The inflation risk premium has been increased from 0.05% at 27 February 2021 to 0.25% at 26 February 2022, reflecting an allowance for
additional market distortions caused by the RPI reform proposals. For CPI, the Group maintained the assumed difference between the RPI and
CPI at an average of 0.6% per annum. The estimated impact of the change in the methodology is approximately a £3.1m increase in the defined
benefit obligation.
The scheme is funded by the Group. Funding levels for the scheme are 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.
Although the scheme has an accounting surplus, the Group expects to contribute £1.3m (2021 actual contributions: £1.3m) to the defined benefit
scheme in the next financial year.
The weighted average duration of the defined benefit obligation at 26 February 2022 is approximately 20 years (2021: 20 years). The defined
benefit obligation at 26 February 2022 can be approximately attributed to the scheme members as follows:
Active members: 0% (2021: 0%)
Deferred members: 57% (2021: 64%)
Pensioner members: 43% (2021: 36%)
All benefits are vested at 26 February 2022 (unchanged from 27 February 2021).
146
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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 £4.1m
(2021: £4.2m). This was split as follows: employment benefits of £3.8m (2021: £3.9m), other benefits of £0.1m (2021: £0.3m) and share-based
payments of £0.2m (2021: £nil).
31 GOVERNMENT GRANTS AND OTHER SUPPORT
No Government Grants or support were received during the current financial year, further detail below is included in respect of amounts received in
the previous financial year.
The UK government offered a range of financial support packages to help companies affected by coronavirus. During the year, the Group has
received a total government grant of £nil (2021: £3.8m) in respect of the furlough scheme. The Group has elected to deduct the grant in reporting
the related expense.
In May 2020, the Group also secured a new up to £50 million three-year Term Loan facility, provided by its lenders under the government’s
Coronavirus Large Business Interruption Loan Scheme (“CLBILS”). The facility, which was committed until May 2023, was fully repaid and handed
back without penalty on 24 December 2020, following the completion of the equity raise.
32 PRIOR YEAR ADJUSTMENT
During the financial year, the IFRS Interpretations Committee (‘IFRIC’) published an agenda decision providing clarification on the accounting
treatment of configuring or customisation costs of a software application in a Software as a Service (‘SaaS’) arrangement and related
implementation costs. The IFRIC guides that the configuration and customisation costs incurred in implementing SaaS would rarely give rise to
an asset controlled by the entity and that is distinct from the software itself which is generally not controlled by the acquirer and does not in itself
give rise to an intangible asset. In these circumstances, configuration and customisation costs incurred should be expensed as the services are
received. In some limited instances, where for example code is created that is controlled by the entity, the costs could give rise to an identifiable
intangible asset.
Due to the nature of the agenda decision, and the significant level of spend incurred by the Group on its Capital investment and transformation
programmes, the Group’s accounting policies have been reviewed and aligned with the IFRIC guidance issued. The revision to the accounting
policy has been accounted for retrospectively resulting in a prior year restatement. The restatement represents a non-cash adjustment.
The Group identified £6.7m of additions made in the years ended 27 February 2021 and 29 February 2020, that should have been expensed
under the IFRIC guidance. £5.1m of these costs should have been expensed in the year ended 29 February 2020 and a further £1.6m in the year
ended 27 February 2021 after taking consideration of the newly published guidance. This is offset by a reversal of the amortisation charged in
each of the years ended 27 February 2021 and 29 February 2020. The costs expensed give rise to a deferred tax asset at 27 February 2021 of
£0.9m, and at 29 February 2020 of £0.6m.
The affected Balance Sheet line items are as follows:
Balance sheet (extract)
Non-current assets
Intangible Assets
Deferred Tax Assets
Total Assets
Net assets
Retained Earnings
Total Equity
27 February
2021
£m
Adjustment
£m
27 February
2021
(Restated)
£m
133.0
12.7
957.7
416.3
280.3
416.3
(4.9)
0.9
(4.0)
(4.0)
(4.0)
(4.0)
128.1
13.6
953.7
412.3
276.3
412.3
147
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE GROUP ACCOUNTS CONTINUED
32 PRIOR YEAR ADJUSTMENT CONTINUED
Similarly, a third balance sheet has been presented in accordance with IAS 1 to illustrate the impact on the opening balance sheet for the prior
financial year:
29 February
2020
£m
Adjustment
£m
29 February
2020
(Restated)
£m
151.4
13.2
1,135.4
317.5
272.4
317.5
(4.2)
0.6
(3.6)
(3.6)
(3.6)
(3.6)
147.2
13.8
1,131.8
313.9
268.8
313.9
27 February
2021
£m
Adjustment
£m
27 February
2021
(Restated)
£m
(111.9)
(39.8)
35.1
(1.6)
8.3
2.63p
2.63p
(1.6)
0.9
(0.7)
0.3
(0.4)
(0.13p)
(0.13p)
(113.5)
(38.9)
34.4
(1.3)
7.9
2.50p
2.50p
27 February
2021
£m
Adjustment
£m
154.9
143.8
(18.6)
(20.0)
(1.6)
(1.6)
1.6
1.6
27 February
2021
(Restated)
£m
153.3
142.2
(17.0)
(18.4)
Balance sheet (extract)
Non-current assets
Intangible Assets
Deferred Tax Assets
Total Assets
Net assets
Retained Earnings
Total Equity
The impact on the prior period Income Statement is as follows:
Income Statement (extract)
Other administration & Payroll
Depreciation & Amortisation
Operating profit
Tax
Profit for the period
Earnings per Share from continuing operations
Basic
Diluted
Cashflow Statement (extract)
Cash generated by operations
Net cash inflow from operating activities
Purchases of intangible assets
Net Cash used in investing activities
148
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk COMPANY BALANCE SHEET
Fixed assets
Investments
Debtors
Cash and cash equivalents
Current assets
Bank overdrafts
Creditors: Amounts falling due within one year
Current liabilities
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Net assets
Capital and reserves
Called-up share capital
Share premium account
Own shares
Profit and loss account
Shareholders’ funds
As at
26 February
2022
£m
As at
27 February
2021
£m
Note
35
36
38
37
39
367.6
94.6
1.6
96.2
-
(211.9)
(211.9)
(115.7)
251.9
366.8
111.6
1.3
112.9
(13.1)
(210.6)
(223.7)
(110.8)
256.0
251.9
256.0
50.9
85.0
(0.2)
116.2
251.9
50.9
85.0
(0.3)
120.4
256.0
N Brown Group plc reported a Loss after tax for the financial period ended 26 February 2022 of £5.0m (2021:Profit of £62.8m) which includes
dividends received of £2.0m (2021: £70.0m). The financial statements of N Brown Group plc (Registered Number 814103) were approved by the
Board of Directors and authorised for issue on 18 May 2022.
They were signed on its behalf by:
Rachel Izzard
CFO and Executive Director
COMPANY STATEMENT OF CHANGES IN EQUITY
Changes in equity for the 52 weeks ended 27 February 2021
Balance at 27 February 2021
Comprehensive expense 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 27 February 2021
Changes in equity for the 52 weeks ended 26 February 2022
Balance at 27 February 2021
Comprehensive expense for the period
Loss for the period
Total comprehensive loss for the period
Transactions with owners recorded directly in equity
Issue of own shares by ESOT
Share–based payment charge
Total contributions by and distributions to owners
Balance at 26 February 2022
Share capital
(note 39)
£m
Share
premium
£m
Own
shares
£m
Retained
earnings
£m
31.4
11.0
(0.3)
56.8
–
–
19.5
–
–
19.5
50.9
50.9
–
–
–
–
–
50.9
–
–
74.0
–
–
74.0
85.0
85.0
–
–
–
–
–
85.0
Total
£m
98.9
62.8
62.8
93.5
–
0.8
94.3
256.0
–
–
–
–
–
–
(0.3)
62.8
62.8
–
–
0.8
0.8
120.4
(0.3)
120.4
256.0
–
–
0.1
–
0.1
(0.2)
(5.0)
(5.0)
–
0.8
0.8
116.2
(5.0)
(5.0)
0.1
0.8
0.9
251.9
149
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE COMPANY ACCOUNTS
33 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
accounting standards in conformity with the requirements of 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 accounting standards in conformity with
the requirements of the Companies Act 2006 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; and
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; and
Disclosures required by IFRS 2 Share-based payment.
GOING CONCERN
For the reasons set out below, the Directors of the Company believe that it remains appropriate to prepare the financial statements on a going
concern basis. The Company is relying on the Going Concern assessment performed for the purposes of the Group.
After reviewing the Group’s forecasts and risk assessments, the Directors have formed a judgement at the time of approving the financial
statements, that there is a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence
for the 12 months from the date of signing this Annual Report & Accounts. For this reason, the Directors continue to adopt the going concern basis
in preparing the financial statements.
In arriving at their opinion, the Directors considered the following:
a) the Group’s cash flow forecasts and revenue projections for the 12 months from the date of signing these results (the “Base Case”), reflecting,
amongst other things the following assumptions:
The business continues to be fully operational in the event of any potential further developments associated with the Covid-19 pandemic, as has
been the case since the outset;
Product gross margin growth is expected year on year and will be achieved through changes to product mix, planned price increases. It is
recognised that we will continue to face a highly promotional retail market, inflationary pressures and industry wide increases in freight rates and
supply chain challenges;
Financial Services revenue reduces marginally as the average size of the loan book is smaller as a function of lower product sales during
the pandemic;
FS gross margin reduces as the abnormally low levels of arrears and write offs stabilise following the end of Covid-19 government support and the
customer expected credit loss behaviour experiences a level of stress from the inflationary pressures on our customers; and
Increases to operating costs reflecting inflationary cost base pressures and the continuation of strategic above the line brand investment, net of
mitigating actions.
b) the impact on trading performance of severe but plausible downside scenarios (the “Downside Case”), including:
Adverse macroeconomic conditions impacting customer behaviour;
Current inflationary pressures, supply chain pressures and unusually high freight rates have more material impact on gross margins that the
base case;
Covid-19 related absences requiring the use of contractors to fill staff shortages;
150
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk Business interruptions reducing product revenue, for example from a denial of service caused by a cyber attack or delivery delays caused by
driver shortages;
Exceptional cash outflow higher than the accounting provisions with regards to the ongoing legal claim with Allianz.
The Downside Case also includes additional sensitivities to product revenue, customer bad debt write off, customer account payment collection
rates and the cost base.
The Downside Case represents the compounded impact of all the scenarios with the sensitivities layered on top. Material total accessible liquidity
headroom exists of greater than £100m throughout the Downside assessment.
c) the committed facilities available to the Group and the covenants thereon. Details of the Group’s committed facilities are set out in note 17,
the main components of which are:
A £400m securitisation facility committed until December 2024, drawings on which are linked to prevailing levels of eligible receivables (£305.5m
drawn against an accessible £365.6m based on the maximum of eligible customer receivables at 26 February 2022);
An RCF of £100m committed until December 2023, which is fully undrawn; and
An overdraft facility of £12.5m which is subject to an annual review every July (undrawn as at date of signing of these accounts).
d) that there are no forecast breaches of any covenants in either the Base Case or Downside Case. Material headroom exists within the banking
covenants and EBITDA within the base case and the downside, EBITDA would have to more than halve against the downside in FY23 to
breach conditions.
e) the Group’s robust policy towards liquidity and cash flow management. As at 30 April 2022, the Group had cash of £31.8m, net of restricted
cash of £3.6m and undrawn secured facilities of £69.3m. In addition, the Group had £112.5m of unsecured facilities that were not drawn. This gives
rise to total accessible liquidity (“TAL”) of £210.0m (FY22: £212.1m).
f) The Group’s clear capital allocation policy that prioritises meeting its’ liabilities for day to day operations of the business over investment in the
delivering the strategy or distributions to shareholders.
g) the Group management’s ability to successfully manage the principal risks and uncertainties outlined on p32 to 37 during periods of uncertain
economic outlook and challenging macro-economic conditions.
INVESTMENTS
Fixed asset investments in subsidiaries are shown at cost less provision for impairment.
IMPAIRMENT
At each balance sheet date, the Company reviews the carrying value of its investments to determine whether there is any indication that those
investments have suffered an impairment loss. If any such indication exists, the recoverable amount of the investment is estimated in order to
determine the extent of the impairment loss (if any). 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 investment 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. Impairment losses recognised in prior periods
are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there
has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, if no impairment loss had been recognised. A reversal of
an impairment loss is recognised in the income statement immediately.
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.
151
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE COMPANY ACCOUNTS CONTINUED
33 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 on hand and demand deposits, less bank overdrafts where a right to offset exists.
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 as 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 the Monte Carlo method for options subject to a market-based performance condition.
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.
FINANCIAL ASSETS – CLASSIFICATION
IFRS 9 contains a 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”). A financial asset is measured at amortised cost if both the conditions detailed
below are met and it has not been designated as FVTPL.
All of the Company’s receivables are due from subsidiary companies, and are classified as amortised cost because:
all such assets are held within a business model whose objective is to hold the asset to collect its contractual cash flows; and
the contractual terms of all such assets give rise to cash flows on specified dates that represent payments of solely principal and interest on the
outstanding principal amount.
FINANCIAL INSTRUMENTS – RECOGNITION AND MEASUREMENT
Financial assets and financial liabilities are recognised on the Company’s balance sheet when the Company becomes a party to the contractual
provisions of the instrument.
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose
terms require delivery of the financial asset within the timeframe established by the market concerned. The Company derecognises financial
liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue
of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities as appropriate on
initial recognition.
Financial assets classified as amortised cost are subsequently measured using the effective interest method, less any impairment.
Financial liabilities classified as amortised cost are subsequently measured using the effective interest method, with interest expense recognised
on an effective yield basis. The effective interest rate method is a method of calculating amortised cost and of allocating interest expense over the
relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows through the expected life of the financial
instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
152
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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.
IMPAIRMENT OF FINANCIAL ASSETS
The Company recognises an allowance for ECLs on its receivables from subsidiaries.
Receivables from subsidiaries are determined to have a significant financing component, and therefore the ECL model applies 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 (i.e. defaulted)
Under IFRS 9, loss allowances are measured on either of the following bases:
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 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.
All receivables are considered to be repayable on demand, and therefore expected credit losses have been measured over the expected period
to transfer cash once demanded. Receivables are considered on an entity-by-entity basis to assess the expected credit loss based on the assets
of the counterparty and their ability to repay. In the case of these receivables the PD is considered to either be close to nil which would result in an
immaterial loss, or 100% for those entities without sufficient assets to repay, and therefore be considered to be Stage 3 credit impaired. The LGD
has been determined based on the expected ability to realise cash from the assets of the counterparty entity to calculate the expected credit loss.
CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty in
these financial statements, which together are deemed critical to the Company’s results and financial position, are as follows:
CARRYING VALUE OF INVESTMENTS
CRITICAL JUDGEMENT
Impairment exists when the carrying value of an asset or cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less
costs of disposal and its value in use. An impairment indicator exists at the year end as the market capitalisation of the Company is exceeded by the
value of its investments, and an impairment review was therefore carried out at the year end date as outlined in note 12. The value in use calculation
used for the purposes of the Group impairment review provides an assessment of the trading prospects and future cashflows of the Group and the
Company, and therefore supports the carrying value of the investment asset held by the Company. The value in use calculation provides material
headroom and therefore no impairment of the Company investments is required.
34 PROFIT FOR THE PERIOD
As permitted by section 408 of the Companies Act 2006 the Company has elected not to present its own profit and loss account for the period.
N Brown Group plc reported a Loss after tax for the financial period ended 26 February 2022 of £5.0m (2021: profit of £62.8m) which includes
dividends received of £2.0m (2021: £70.0m).
The Non-Executive Directors’ remuneration was £0.7m (2021: £0.6m) and ten Non-Executive Directors were remunerated (2020: nine).
The Executive Directors were remunerated by a subsidiary company in both years; the total was £1.1m (2021: £1.3m). Further details are provided
on p86 of the Directors’ Remuneration Report.
Fees in relation to non-audit related services include fees of £nil (2021: £60,000) relating to assurance services and £nil, of which £nil was required
by regulation (2021: £45,000), in relation to the equity raise completed by the Group during the year.
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts were £20,000 (2021: £20,000).
153
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE COMPANY ACCOUNTS CONTINUED
35 FIXED ASSET INVESTMENT
Opening cost and net book value
Movement in period
Closing cost and net book value
The Company has investments in the following subsidiaries and joint ventures.
Company
Aldrex Ltd
Alexander Ross (Financial Services) Ltd
Ambrose Wilson Ltd
Better Living Ltd
Classic Combination Ltd
Comfortably Yours Ltd
Crescent Direct Ltd
Cuss Contractors Ltd
Dale House (Mail Order) Ltd
Daly Harvey Morfitt Ltd
DHM (Management Services) Ltd
E Langfield & Co. Ltd
Eunite Limited
Figleaves Global Trading Limited
Financial Services (Edinburgh) Ltd
First Financial Ltd
Gray & Osbourn Ltd
Halwins Ltd
Hammond House Investments
International Ltd
Hammond House Investments Ltd
Hartingdon House Ltd
HB Wainwright (Financial Services) Ltd
Heather Valley (Woollens) Ltd
Hilton Mailing Ltd
Holland & Heeley Ltd
House of Stirling (Direct Mail) Ltd
J.D. Williams & Co Ltd
J.D. Williams Group Ltd
J.D. Williams Merchandise Co Ltd
JDW Finance Ltd*
JDW Malta Limited*
JDW Pension Trustees Ltd
Langley House Ltd
Mature Wisdom Ltd
Melgold Ltd
NB Finance (Eire Reg)
Registered Office Address
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
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
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
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
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
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
29 Earlsfort Terrace, Dublin 2, Ireland
N Brown Pension Trustees Ltd
N Brown Funding Ltd*
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
N Brown Holdings Ltd
Griffin House, 40 Lever Street, Manchester M60 6ES
N Brown Property One Ltd
N Brown Property Three Ltd
N Brown Property Two Ltd
NB Funding Guernsey Ltd (Guernsey Reg) St Martin’s House, Le Bordage, St Peter Port,
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Guernsey, GY1 4AU
154
2022
£m
366.8
0.8
367.6
2021
£m
366.0
0.8
366.8
Status
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Trading Company
Intermediate
Holding company
Dormant
Active
Active
Active
Dormant
Dormant
Dormant
Intermediate
Holding Company
Active
Intermediate
Holding Company
Intermediate
Holding Company
Dormant
Dormant
Dormant
Intermediate
Holding Company
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
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk 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,
NB Malta No1 Ltd (Malta Reg)
NB Malta No2 Ltd (Malta Reg)
Nochester Holdings (Eire Reg)
Odhams Leisure Group Ltd
Oxendale & Company Ltd
Oxendale & Co. Ltd (Eire Reg)
Reliable Collections Ltd
Sander & Kay Limited
Speciality Home Shopping (US) Ltd*
Speciality Home Shopping
(US Marketing) LLC (incorporated
5 January 2018)
Tagma Ltd
T-Bra Limited
The Bury Boot & Shoe Co (1953) Ltd
The Value Catalogue Limited
Vote It Ltd
Whitfords (Bury) Ltd
Whitfords (Cosytred) Ltd
Whitfords (Textiles) Ltd
Wingmark Ltd
Guernsey, GY1 4AU
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
29 Earlsfort Terrace, Dublin 2, Ireland
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Woodford Business Park, Santry, Dublin 17, Ireland
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
1209 Orange Street, Wilmington, Delaware 19801
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
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
Griffin House, 40 Lever Street, Manchester M60 6ES
* Entities exempt from preparing audited statutory financial statements by virtue of s479A of Companies Act 2006.
Intermediate
Holding Company
Trading Company
In the course of
being dissolved
In the course of
being dissolved
Intermediate
Holding Company
Dormant
Doormant
Trading Company
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
36 DEBTORS
Amounts falling due within one year:
Amounts owed by Group undertakings
Prepayments and accrued income
2022
£m
94.5
0.1
94.6
The amounts owed by Group undertakings, whilst there is no fixed term of expiry, are expected to be repaid within the next 12 months.
37 CREDITORS
Amounts falling due within one year:
Amounts owed to Group undertakings
2022
£m
211.9
211.9
2021
£m
111.5
0.1
111.6
2021
£m
210.6
210.6
155
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk NOTES TO THE COMPANY ACCOUNTS CONTINUED
38 BANK LOANS AND OVERDRAFTS
Bank overdrafts
2022
£m
–
–
2021
£m
13.1
13.1
The Company’s bank account, which at 26 February 2022 was in £nil overdraft (2021: £13.1m overdraft), is part of the Group’s notional pooling
and net overdraft facility of £12.5m, as described in note 17, and offset by other subsidiary accounts in a debit position. This facility of £12.5m was
undrawn at 26 February 2022 (2021: £7.5m undrawn).
At 26 February 2022, the Company had available £100m (2021: £100m) of undrawn committed borrowing facilities, under a medium term RCF
bank loan committed to December 2023, in respect of which all conditions precedent had been met.
The weighted average interest rates paid/applicable in the year were as follows:
Net overdraft facility
Bank loans
39 SHARE CAPITAL
Allotted, called-up and fully paid ordinary shares of 11 1/19p each
At 27 February 2021
Issued during the year
At 26 February 2022
The Company has one class of ordinary share which carries no right to fixed income.
2022
%
1.7
0.8
Number
460,483,231
–
460,483,231
2021
%
1.6
1.5
£m
50.9
–
50.9
40 GUARANTEES
Parent Company bank account which at 26 February 2022 was £nil (2021: £13.1m overdraft) is part of the Group’s net overdraft facility, as
described in note 17, and offset by other subsidiary accounts in a debit position. The net overdraft facility of £12.5m was undrawn at 26 February
2022 (2021: £7.5m undrawn). Parent Company loans amounted to £nil (2021: £nil) at 26 February 2022. Both balances are guaranteed by certain
subsidiary undertakings.
156
N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk SHAREHOLDER INFORMATION
FINANCIAL CALENDAR
2022
2023
February
May
June
July
October
January
Financial year end
Preliminary announcement of annual results
Publication of 2022 Annual Report and Accounts
Annual General Meeting
Interim results
Christmas Trading Statement
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
BANKERS
HSBC Bank plc
The Royal Bank of Scotland plc
REGISTRARS
Link Asset Services PXS
134 Beckenham Road
Beckenham, Kent BR3 4ZF
Telephone 0871 664 0300
(Calls cost 10p per minute plus
network extras)
SOLICITORS
Pinsent Masons LLP
Eversheds LLP
Addleshaw Goddard LLP
Herbert Smith Freehills LLP
AUDITOR
KPMG LLP 1 St Peter’s Square
Manchester M2 3AE
NOMINATED ADVISER
Shore Capital and Corporate Limited
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 websites. 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 brand 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
157
FINANCIAL STATEMENTSGOVERNANCE REPORT STRATEGIC REPORT N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk THANK YOU
We would like to thank everyone who has helped to produce this report:
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N Brown Group plc Annual Report and Accounts 2022nbrown.co.uk
N BROWN GROUP PLC
N Brown Group plc
Griffin House
40 Lever Street
Manchester M60 6ES
www.nbrown.co.uk