Final Results

RNS Number : 0070R

Brown (N.) Group PLC

25 June 2020

FULL YEAR RESULTS FOR THE 52 WEEKS ENDED 29 FEBRUARY 2020 AND TRADING UPDATE FOR Q1 FY21

Refreshed strategy to return N Brown to sustainable growth

£m	52 weeks to 29 February 2020	52 weeks to 2 March 2019	Change
Group revenue	858.2	914.4	-6.1%
Product revenue	567.7	615.8	-7.8%
Financial services revenue	290.5	298.6	-2.7%
Adjusted EBITDA¹	106.7	128.0	-16.6%
Operating profit / (loss)	48.1	(47.7)	Nm
Statutory profit / (loss) before tax	35.7	(57.5)	Nm
Adjusted profit before tax²	59.5	83.6	-28.8%
Statutory EPS	9.63p	(20.50)p	Nm
Adjusted EPS²	16.37p	21.38p	-23.4%
Core net debt³	77.5	77.7	-0.3%
Overall net debt⁴	497.2	467.9	+6.3%

1 Adjusted EBITDA is defined as operating profit, excluding exceptionals, with depreciation and amortisation added back. The directors believe that adjusted EBITDA represents the most appropriate measure of the Group's underlying trading performance.

2 Defined as excluding exceptionals and fair value movement on financial instruments. The directors believe that adjusted profit before tax/EPS represents the most appropriate measure of the Group's underlying profit before tax/EPS as it removes items that do not form part of the recurring operational activities of the Group.

3 Excludes debt securitised against receivables (customer loan book) of £419.7m and lease liabilities of £6.9m. The directors believe this is the most appropriate measure of the Group's net debt in relation to its unsecured borrowings and is used to calculate the Group's leverage ratio, a key debt covenant measure.

4 Total liabilities from financing activities less cash, excluding lease liabilities. The directors believe this is the most appropriate measure of the Group's overall (I.e. secured and unsecured) net debt.

FY20 Results Highlights

Critical year for the Group's transition to digital

· 85% of FY20 product revenue generated through digital channels, an increase of 6 percentage points

· Digital revenue growth: Womenswear up 5.5%, Menswear up 5.5%

· 98% of Simply Be revenues were digital, Jacamo 97%, JD Williams 81%, Ambrose Wilson 60%

· Well-progressed strategic plan to reduce unprofitable non-digital and digital sales

Industry-wide regulatory actions affected Financial Services performance

· New Financial Services strategy to respond to lower revenue and margin environment with enhanced and upgraded FS offering

· Transition to a smaller but higher quality credit book over time

Operating costs down 9.9% due to strategic focus on cost base

· Better targeted, data-driven marketing spend. Embedded efficiencies to deliver sustainable cost base

Adjusted profit before tax down 28.8% to £59.5m

· Driven by lower gross profit and lower than expected IFRS9 provision benefit

Material increase in statutory profit before tax to £35.7m

· Reflects significantly lower exceptional charges

Q1 FY21 Trading Highlights

Trading has continued to improve from the sudden and significant decline experienced in March

· Group revenue down 22%

· Product sales down 28.8% but last three weeks down 21%

· Financial Services revenue down 8.2%

· 91% of product sales now digital

· Successful online launch of new "Home Essentials" brand on 1^st April

Financial Services collections stable

· Financial Services cash collections remain in line with prior year

Swift and decisive action on cost base

· Operating costs down 42.6% with material reduction in marketing expenditure

Improvement in liquidity and reduction in debt

· Amended financing facilities provides Group with significant headroom

· As at 19 June, net debt was down 9.9% from year-end to £447.9m

Refreshed strategy to support sustainable future growth

Five growth pillars developed to reflect the focus of the business and the external environment:

1. Distinct brands to attract broader range of customers

2. Improved product to drive customer frequency

3. New Home offering for customers to shop more across categories

4. Enhanced digital experience to increase customer conversion

5. Flexible credit to help customers shop

Steve Johnson, Chief Executive, said:

"The business has responded strongly to the challenges posed by the Covid-19 outbreak, highlighting our resilience as a business and I thank every single one of our colleagues who have worked so hard to keep us operational, with safety and our customers in the front of their minds. The crisis will cast a lasting shadow over the sector, but we are confident that our agile approach and attractive brand offerings, with clear target customer segments, position us well to navigate the issues and emerge as a stronger business.

In a year of restructuring for the Group, Simply Be, JD Williams, Jacamo and Ambrose Wilson all grew digital revenue and following further progress in the first quarter of this financial year, 91% of our product revenue now comes from digital channels. The retail environment remains heavily promotional and the regulatory challenges in financial services have required us to adapt and evolve our offer, but our commitment to driving operating efficiencies is creating the right platform for the future.

Trading in the first quarter of this financial year was impacted by Covid-19 but sales in recent weeks have shown an improving trajectory and cash collections have been stable. Operating costs are significantly lower than last year and net debt has decreased.

As we move forward, we have refreshed our strategy, evolved our key pillars of growth and are pushing on with further work to streamline our brand portfolio, improve our product, create a brand new Home proposition whilst improving our digital capabilities and developing our financial services offer. Challenges remain in the year ahead, but we are focused on accelerating the business and are confident we are taking the right actions to create a sustainable, profitable business for the long term which has the potential to generate significant value."

Webcast for analysts and investors:

An audio webcast and presentation of these results will be available on our website www.nbrown.co.uk from 7.00am on 25 June 2020. Management will host a Q&A conference call for analysts and investors at 10:00am. Please contact Nbrown@mhpc.com for further information.

For further information:

N Brown Group
Will MacLaren, Director of Investor Relations and Corporate Communications	07557 014 657

MHP Communications
Andrew Jaques / Simon Hockridge / James Midmer	0203 128 8789 NBrown@mhpc.com

About N Brown Group:

N Brown is a top 10 UK clothing & footwear digital retailer. We are size inclusive, focusing on the needs of underserved customer groups - size 20+ and age 50+. We offer an extensive range of products, predominantly clothing, footwear and homewares, and our financial services proposition allows customers to spread the cost of shopping with us. We are headquartered in Manchester where we design, source and create our product offer and we employ over 2,200 people across the UK.

Q1 FY21 TRADING UPDATE

Responding to the Covid-19 pandemic

Our absolute priority has been to protect the wellbeing of our colleagues, both across our distribution centres and at Head Office, whilst maintaining continuity of service for our customers shopping our brands. We are immensely grateful for the effectiveness and dedication which our colleagues and supplier partners have shown in adapting to a more flexible way of working during this difficult period and their continued unstinting commitment to supporting our loyal customer base.

The Company took a number of immediate and proactive measures to reduce costs and strengthen liquidity, including:

· A significant reduction in marketing expenditure;

· Cessation and deferral of all non-essential capital expenditure;

· The furloughing of 30% of colleagues across the business;

· Recruitment and salary freezes;

· Voluntary pay reductions from April to June for PLC Board, Management Board and senior leadership team; and

· Agreement with HMRC to defer certain tax and duty payments associated with our normal operating activities as well as certain legacy tax payments which were expected to be paid in H1 FY21.

Improved sales trajectory

Trading has continued to improve from the sudden and significant decline experienced in March with product sales down 21% in the last three weeks compared to the prior year. Group revenue was down 22% in the quarter, with product sales down 28.8% and Financial Services revenue down 8. 3%. Apparel sales have started to recover from mid-March levels and demand for Home & Gift, supported by the launch of Home Essentials on 1^st April, has remained well above the prior year. Product sales have been stronger in brands more resonant with younger customers (Simply Be -16.2%) compared to our brands serving more mature customers (Ambrose Wilson -44.4%).

Financial Services cash collections have performed well and remain broadly in line with the prior year. However, as previously guided, we expect cash collections to trend lower over the coming months due to FCA guidance to give customers the option to defer payments.

Swift and decisive action on cost base

The Group took swift and decisive action to maximise operating efficiency and strengthen liquidity. As a result, operating costs declined 42.6% in the first quarter, significantly more than the reduction in revenue. The majority of these savings were in Marketing costs but the Group also reduced Warehouse & Fulfilment and Admin & Payroll costs in the quarter. This is further demonstration of the Group's agile and flexible operating cost base.

Cash and liquidity significantly improved

On 18^th May 2020, the Group agreed new amended financing facilities:

· A new up to £50 million 3-year Term Loan facility, provided by our lenders under the Government's Coronavirus Large Business Interruption Loan Scheme ("CLBILS");

· Amendment of certain terms and covenants of the securitisation facility, to mitigate a significant amount of the impact that Covid-19 may have in 2020 on the facility. This is to address variations in collection rates and customer behaviour, and to enable the Group to continue to offer its customers enhanced flexibility. The amendments to the facility are in place until late December 2020 and are intended to fully cover the impact of the current period of the FCA's Covid-19 forbearance; and

· The widening of certain covenants at the August 2020 half-year test date in its existing unsecured £125 million RCF and the introduction of quarterly covenant tests.

As at 19th June 2020, drawings under the securitisation facility and RCF stood at £518.8 million. As at the same date cash balances stood at 70.9 million and the overdraft facility was undrawn. As a result of our focus on cash generation, net debt has reduced by £49.3m (9.9%) since the end of FY20 and net cash generation was £23.4m in the period. As at 19^th June 2020, the Group's liquidity headroom had improved to £148.4m compared to £75.0m at the end of FY20.

FY21 Guidance

Since the initial significant impact of Covid-19 on product revenue, trends have continued to improve. Financial Services revenue has been impacted by the effects of Covid-19 on our markets. Product gross margin pressure is expected to continue due to mix and the highly promotional retail market. Financial Services gross margin will decline as a result of previously guided regulatory pressures and an increase in bad debt provisioning due to the impact of Covid-19. The Group is confident of offsetting at least 75% of the Group gross margin decline through operational cost savings with bad debt provision movements being the primary driver negatively affecting EBITDA.

We expect our cost mitigations and significant reductions to capex (expected to be c.£20m) and exceptional costs (expected to be less than £10m) to drive improved cash generation in FY21 leading to net debt to be in the range of £380m to £400m at the year end.

RETURNING N BROWN TO SUSTAINABLE GROWTH

Strategy overview

Over the last two financial years the Group has undertaken a significant restructuring programme which has created the right platform for sustainable growth. Digital penetration has significantly increased, international markets have been exited and the store estate has been closed. As we enter the new financial year, N Brown is now a top 10 UK clothing & footwear digital retailer, supporting underserved mature and size inclusive markets. Digital capabilities have been enhanced, the executive and senior leadership team has been refreshed, with a clearer strategic focus and the cost base is now more appropriate for a digital retailer, with further cost saving opportunities identified.

During the financial year we undertook a detailed review of our strategy focused on returning N Brown to sustainable growth and built a plan based on driving profitability through the Retail business, whilst defending the Financial Services business. The recent outbreak of Covid-19 has fundamentally altered the broader retail landscape and this disruption will likely continue for the foreseeable future. We have successfully restructured our operating model and believe that our refreshed strategy is the right one to deliver sustainable long-term growth, completing our transformation from a traditional to a digital retailer.

An important element of restructuring our operations has been to identify key factors contributing to poor historical performance, and to address them within our strategic plan, with significant action already undertaken.

We have already started putting in place the building blocks for the refreshed strategy.

We will now begin an "accelerate" phase driven by five growth pillars which have been developed to reflect the focus of the business and the external environment:

1. Distinct brands to attract broader range of customers

2. Improved product to drive customer frequency

3. New Home offering for customers to shop more across categories

4. Enhanced digital experience to increase customer conversion

5. Flexible credit to help customers shop

These growth pillars will be underpinned by our people & culture, data and a sustainable cost base appropriate for a digital retailer.

1. Distinct brands to attract broader range of customers

We undertook a thorough review of the markets in which we operate, which highlighted that we are serving a specific set of customers well but that we need to extend our reach to a broader set of customers to drive growth. Doing this requires a portfolio of brands with clearer, more focused propositions. Therefore, from this financial year we will simplify our portfolio to four apparel brands, supplemented with one standalone home brand. Our clear brand proposition will standout against the market and each other. The brand architecture and target customer segments are as follows:

· Simply Be - an online fashion & beauty brand for plus size women, targeting plus size women aged 25-45.

· Jacamo - an online fashion & grooming brand for plus size men, targeting plus size man aged 25-50.

· JD Williams - an online boutique experience showcasing fashion and home product for 45-65 year old women.

· Ambrose Wilson - a womenswear fashion led brand supported by home, available on and offline that truly values the mature customer.

· Home Essentials - a standalone one stop home brand focused on modern homeware and enabled by a credit offering. The target customer will be families with children at home.

Our other brands will either be folded into our main brands or closed down. As we execute our plan, we will be focused on protecting our loyal and valuable customers to ensure that they continue to receive the product they want and the customer service they have come to expect. This refined brand strategy ensures that our brands have a clear proposition, appealing to distinct customers segments in order to return N Brown to growth.

2. Improved product to drive customer frequency

Refining and improving our product offering is key to driving our new brand propositions, encouraging customer loyalty and frequency. We will focus on three key areas.

· We will improve our product 'handwriting' through clearly defined designs for each brand, investing in fabric, quality and consistency of fit. Our focus will be on delivering trends for customers at the right time in the right way. This will result in a better product, which is more relevant to customers, thereby driving loyalty.

· Secondly, we will renew our 'good / better / best' product architecture. This will be done through increasing the importance in our 'own designed' ranges in Womenswear, Menswear and Home, better curation of branded products and a well-defined and responsive pricing strategy. These initiatives will help to drive increased order frequency and customer loyalty.

· Finally, we will continue to focus on ethical and sustainable sourcing, ensuring a consistent and consolidated supply base. Our proactive approach has resulted in a 50% supplier reduction in the last 18 months and we will increase the mix of UK and European sourcing to increase flexibility and speed to market. We also have a clearly defined roadmap to deliver enhanced level of sustainability. By evolving our sourcing model, we will be able to respond with increasing flexibility to shifting customer demands, while reducing our lead times.

3. New Home offering for customers to shop more across categories

Previously our Home proposition extended across our apparel brands with no consistent, curated offer. The separation of our Home offering from our apparel brand sites represents a significant market opportunity for the Group, enabling cross sell into our existing apparel-focused customer base and attracting new customers.

Our new Home Essentials trading website launched on April 1^st and is a standalone home brand targeting young families who are balancing their budgets. The brand focuses on soft furnishings, helping customers "dress their home," while still providing access to larger items and white goods.

The Home Essentials launch was timely, coming just one week after commencement of the "UK lockdown". The launch had an immediate impact on the Group's Home sales and the strength of demand has subsequently been sustained, demonstrating the exciting opportunity that this presents for the Group.

4. Enhanced digital experience to increase customer conversion

We will invest to support our strategic priorities, improving our digital capabilities and ultimately improving the customer experience. Through FY20, we substantially changed how we delivered technology projects, moving away from largescale, waterfall delivery to a more agile methodology focused on driving frequent, incremental value gains. Working under this methodology has already delivered a new Home Essentials trading website, Android & iOS apps for JD Williams, Simply Be, Jacamo, Ambrose Wilson and Home Essentials and Artificial Intelligence enabled search.

For the next two financial years we will focus on progressing N Brown with a "digital first" mentality. Our investment will be focused on new front-end websites, providing significant benefit to the customer experience, and improving site speed to drive performance of organic search. In addition, we will invest in a new Financial Services platform to support new credit products.

5. Flexible credit to help customers shop

Our credit proposition is a key differentiator. It enables us to provide convenient financial services to customers, while using data to provide personalised and targeted offers to our customers. Our credit customers are also loyal to N Brown and have improved purchasing power, helping to drive demand for our products.

We will be resolutely focused on continuing to provide convenient Financial Services to our core customers, delivering ongoing improvements to customer outcomes and, at the same time, continuing to improve the quality of the debtor book. As the refined brand propositions attract a broader and more affluent section of the market, we will develop new financial products that are familiar to these customers and drive higher volumes of full price incremental retail sales. The new Financial Services platform will support the delivery of these new credit options.

We will also enhance our use of data sources and analytical tools & techniques to improve our lending proposition. Our partnership with Aire Labs is already driving incremental improvement and we see further opportunities in this area.

Finally, flexible credit is a key enabler of the new Home proposition which will allow us to compete within the market by ensuring the relevancy and appeal of our Home products.

These five growth pillars will continue to be supported by our key enablers:

People and Culture

Underpinning our refreshed strategy is our people. It is fundamental that we create the right culture within the business to allow colleagues to thrive and deliver a great experience for our customers. Within the last 12 months we have hired a new CFO, Chief Brand Officer, CEO of Financial Services, CEO of Retail and Director of Strategy Transformation. In addition to this, almost a third of our senior leadership team has joined the business within the last 18 months, bringing in further relevant capabilities to support the business. We have also re-aligned our organisation design to support the needs of a digital retailer. Multi-functional trading squads are now in place, focusing on each brand and driving performance.

Data

The use of data within the business is key to powering our refreshed strategy and we are prioritising building on the foundations that have been put in place in the last year.

We will continue to increase our use of data across the business to get to know our customer better and drive continued efficiencies in revenue, marketing and product ranging. We have enhanced our use of data by implementing Bloomreach to increase data driven search across our sites. We have also improved Financial Services decisioning and customer outcomes through partnering with the fintech company Airelabs.

Sustainable cost base

Key to enabling our refreshed strategy is an appropriate cost base which will help build retail profitability. As part of our review of strategy we undertook a thorough benchmarking analysis of our cost base. This activity identified two cost areas which were higher than peers: marketing expenditure and Payroll & Admin.

We began a cost reduction program in FY20, with a 13.8% reduction in marketing spend achieved by removing unprofitable expenditure through attribution modelling and a focus on driving more efficient marketing channels. This will be accelerated in FY21 with more data-led initiatives to further reduce spend and improve efficiency. We also expect Payroll & Admin to be lower, in-line with continued head office efficiencies and creating the right, sustainable cost base for a digital retailer.

There is further scope to focus on operating efficiencies in light of recent, unprecedented events. In addition to our focus on reducing operating expenditure, we also have a strong emphasis on working capital efficiency to drive future cash generation.

Summary

We have undertaken significant steps in restructuring our business over the last two financial years and taken swift and decisive action in the current, unprecedented trading environment.

The Group has developed a clear and compelling strategy to unlock significant addressable market potential in the future, based on five deliverable pillars and underpinned by our three enablers. We are excited about the opportunity for N Brown to return to growth, building on the strong platform that we have created through our restructuring, with a priority to deliver long-term, sustainable shareholder returns.

REVIEW OF FY20

This year was a period of restructuring for the business as we made the required changes to our business model and ways of working to strengthen our position as a leading digital retailer. Whilst our financial performance was impacted by ongoing challenges from a promotional retail market, combined with i ndustry-wide regulatory changes in financial services, we made good operational progress and the necessary building blocks for success are being put in place.

Group revenue declined 6.1% to £858.2m, with a 7.8% decline in product revenue, as we continued the managed decline of our legacy offline business. There was also a 2.7% decline in financial services revenue, as a result of proactive measures undertaken on the implementation of credit limit increases and affordability assessments.

Brand development and UK focus

We closed down our International division and exited marketing directly to the USA, removing an unprofitable part of our business. This has enabled us to re-deploy key skills to support the UK business. We now have a clear and single-minded focus on the UK.

We delivered digital growth of 5.5% on our three Womenswear brands (Simply Be 8.2%, JD Williams 2.0%, and Ambrose Wilson 10.5%). Menswear (Jacamo) has delivered 5.5% digital growth. Significantly, we are now an 85% digital business which represents a 6 percentage point increase from the 79% delivered in the previous financial year, as we continue to actively manage the decline of our offline business.

We have invested more in our Womenswear and Menswear brands in the last 12 months, launching new campaigns for JD Williams, Simply Be and Jacamo and bringing in new specialist fashion agency partners, raising production quality. We have focused our investment on established channels such as TV and Press, and newer brand building channels such as outdoor media. During the year we also relaunched our social media strategy and are now using social for storytelling to gain a deeper engagement with followers. This will continue to be a focus in this financial year. Recent examples include the launch of Simply Be's New Icon model search, which was executed purely through social media.

Product and Fit

We have placed the customer at the heart of decision-making across the business and have focused on understanding our customers' views on our product. In particular, we have taken learnings from digital product reviews and through weekly 'blind testing' sessions of our products vs. competitors. The strongest feedback we receive about our products is from our customers and we have now ensured that listening to our customers is more deeply embedded in our culture.

We are working with Bloomreach which uses machine learning and artificial intelligence to offer advanced merchandising tools that optimise and personalise each customer's digital experience. This includes the capability to serve every customer a personalised product list based on their preferences. Bloomreach launched on Jacamo in April 2020 and further roll out is planned across our core brands in H1 FY21.

Our size and fit recommendations service, powered by the US innovator, 'True Fit', is now live across JD Williams, Simply Be, Ambrose Wilson and Jacamo. The service aims to improve confidence when purchasing and reduce the number of times customers buy multiple sizes to find their perfect fit, reducing returns rates.

We have made good progress in improving our branded portfolio to complement our own label ranges offering our customers an improved proposition. In September we launched Sea-Salt, Joules and Hobbs as new brands for JD Williams, and in October, we launched Tommy Hilfiger and Calvin Klein as new brands for Jacamo. Both Ralph Lauren and Hugo Boss have also agreed to work with Jacamo and launched this Summer.

Driving improvements through digital, data and innovation

Our IT squads are driving continuous improvements to our apps . These improvements will deliver a better customer experience, higher conversion rates and is a step towards our technology vision.

We have continued to drive further innovation through our market-leading body scanning technology and 3D design & product development to deliver continued fit improvements. We now have a much better understanding of our customers' shape, having scanned over 1,000 to date. This has fundamentally changed our approach to fit, moving it forward as a competitive differentiator. We also selected our first clothing ranges using virtual technology which enabled us to design and select hundreds of styles in less than two weeks. This will drive sustainable cost efficiencies as it will significantly reduce our development time and negate the need for sample production.

We also launched our automated returns facility at our warehouse in Shaw. This investment delivers benefits to the customer through faster refunds, better stock availability and improved presentation of items returned to stock. It has also delivered operational benefits, by removing 66% of receiving and sortation activity.

In the last financial year our use of data has continued to improve customer insight in the business. We have moved to customer lifetime value ("CLTV") investment models in our digital marketing strategy to drive a more sustainable financial outcome. We have also adopted a data led approach to media spend, which has helped accelerate the business to be 85% digital.

Within Financial Services, data decisioning tools are also helping us to serve a broader range of customers. We are the first lender to adopt Aire's enhanced affordability assessment at scale across our brands to improve credit decisioning and ultimately improve the customer experience for our credit customers. We continue to develop our own in-house capability and have established a Data Science team led by the newly appointed Director of Data Science to continue to drive this critical area in the digital world.

Strengthening our team

We have also improved the expertise around the business to support the refreshed strategy by making significant new hires across our Executive Board and senior leadership team. We have introduced our new Vision, Mission and Purpose into the business, whilst also refreshing our company Values. We launched these to our colleagues in the Autumn to give them a clearer indication of the direction the business is heading in, and how we behave. The process has been developed bottom up, not top down, and is an important step in creating an engaged and dynamic culture. We measure colleague engagement through our Vibe survey which achieved an overall score of 72% for FY20 (vs 68% FY19). We are encouraged by the improvement in score, particularly given large amounts of internal change and external factors such as the challenging retail market.

Financial Services

During the year, in response to wide-sweeping regulatory intervention across the financial services sector, the Group continued to make a number of significant changes to the way it manages Financial Services. Revenue declined 2.7% in the year due to lower balances and associated interest income and due also to a fall in administration fees as fewer customers entered into arrears. As a result of lower product revenue, the gross debtor book declined 3.7% to £656.9m.

Over the last 18 months there has been a significant amount of industry-wide regulatory change. We are committed to improving outcomes for customers and have made several changes to policies and procedures over the past few years to do this and ensure full compliance with regulation. We are facing two particular headwinds in Unsolicited Credit Limit Increases ("UCLI") and Persistent Debt.

UCLI was introduced in 2 phases with first phase starting in March 2019. Changes were made to our credit limit increase process whereby customers were given 30 days before any proposed increase in a credit limit was applied and were provided the option to 'opt-out'. Further rule changes came into effect as part of phase 2 in December 2019. Customers were given more control over credit limit increases by giving them the option to 'opt-in' vs. 'opt-out' when signing up for credit and providing options to change their preference throughout the customer lifecycle. On phase 2 we also introduced hard policy rules around arrears and persistent debt. These changes have reduced the number of credit limit increases that are offered to customers.

Persistent debt is defined as where, over a period of 18 months, a consumer pays more in interest, fees and charges than they have repaid of the principal. From June 2019, we communicated with our customers identified to make them aware of the implications of continuing to make low repayments and sign-post our customers to not-for-profit-debt-advice. From March 2020 we sent a further reminder to customers at 27 months whose payment profile indicates that they would still be persistent debt by December 2020. Finally, we are required to take intervention starting in December 2020 by proposing ways to help customers repay their balance more quickly and within the defined reasonable period (3-4years), for example by increasing their minimum repayment level or transferring their balance to a fixed sum fixed term loan.

We expect that the steady improvement in the quality of our debtor book and the changes that we have made in response to the new regulatory environment will have further medium-term consequences for the performance of our Financial Services business. Improved credit quality has reduced the IFRS9 bad debt provision; our IFRS9 bad debt provision ratio declined to 10.9% as at the end of the financial year. This compares with a 17.9% provision when IFRS9 was first introduced at the start of FY19. In addition, changes to our policies and procedures will have a significant influence on the size and shape of our debtor book. The Group continues to assess its strategies to mitigate the impact of these changes, including the phased introduction of new financial products and further reductions in its operating cost base.

FINANCIAL REVIEW

£m	FY20	FY19	Change
Revenue
JD Williams	153.1	159.5	(4.0)%
Simply Be	128.0	120.1	+6.6%
Ambrose Wilson	45.4	51.3	(11.5)%
Womenswear	326.5	330.9	(1.3)%
Menswear¹	66.9	64.0	+4.5%
Product brands²	170.2	202.6	(16.0)%
Product revenue excluding US and stores	563.6	597.5	(5.7)%
US revenue	4.1	11.4	(64.0)%
Stores	-	6.9	(100.0)%
Total product revenue	567.7	615.8	(7.8)%
Financial services revenue	290.5	298.6	(2.7)%
Group revenue	858.2	914.4	(6.1)%

1. Menswear is the Jacamo brand

2. Product brands are Fashion World, Premier Man, House of Bath, Marisota, Oxendales, High & Mighty and Figleaves

Revenue

Group revenue declined 6.1% to £858.2m, driven by a 7.8% decline in product revenue and a 2.7% decline in financial services revenue.

Product revenue declined as a result of the continued managed decline of the legacy offline business, the shift in focus away from USA and the impact of the closure of our store portfolio in the prior years. Excluding stores and USA, product revenue was down 5.7%.

The Group's transformation to a leading digital retailer continues, with digital sales now accounting for 85% of product revenue, an increase of 6 percentage points over the last 12 months. In the year digital revenue grew by 0.2% compared to FY19 and was ahead by 5.5% for our Womenswear and Menswear brands combined.

Womenswear revenue was down 1.3% in the year as we continued to reduce unprofitable marketing and offline recruitment. However, in line with our strategy Womenswear digital revenue increased 5.5% in the year. JD Williams revenue was down 4.0% but digital revenue grew 2.0% compared to the previous period. Simply Be grew revenue by 6.6% during the period excluding stores and reported an 8.2% growth in digital revenue compared to the prior period. Ambrose Wilson revenue was down 11.5% but our focus has been on growing its digital revenue which increased 10.5% in the period - the highest digital growth rate of any of our brands. Menswear, which is the Jacamo brand, increased revenue by 4.5% and delivered digital revenue growth of 5.5% in the year.

Product brands revenue declined 16.0% in the period with digital revenue down 7.5%. Strength in revenue growth at Oxendales was more than offset by the managed decline of House of Bath, Premier Man and High & Mighty. As outlined in the Chief Executive Officer's strategic update some product brands will either be folded into our main brands or closed down.

Digital Product analysis

	FY20	FY19	Change	FY20	FY19	Change
	Digital revenue			Offline revenue
JD Williams	123.5	121.1	+2.0%	29.6	38.4	(22.9)%
% of JD Williams revenue	81%	76%	+5ppts	19%	24%	(5)ppts
Simply Be	125.1	115.6	+8.2%	2.9	4.5	(35.6)%
% of Simply Be revenue	98%	96%	+2ppts	2%	4%	(2)ppts
Ambrose Wilson	27.3	24.7	+10.5%	18.1	26.6	(32.0)%
% of Ambrose Wilson revenue	60%	48%	+12ppts	40%	52%	(12)ppts
Womenswear	275.9	261.4	+5.5%	50.6	69.5	(27.2)%
% of Womenswear revenue	84%	79%	+5ppts	16%	21%	(5)ppts
Menswear¹	65.1	61.7	+5.5%	1.8	2.3	(21.7)%
% of Menswear revenue	97%	96%	+1ppt	3%	4%	(1)ppt
Product brands²	140.1	151.4	(7.5)%	30.1	51.2	(41.2)%
% of Product brands² revenue	79%	74%	+5ppts	21%	26%	(5)ppts
Product revenue excluding US and stores	481.1	474.5	+1.4%	82.5	123.0	(32.9)%
% of Product revenue excluding US and stores	85%	79%	+6ppts	15%	21%	(6)ppts
US revenue	3.7	9.1	(59.3)%	0.4	2.3	(82.6)%
% of US revenue	91%	80%	+11ppts	9%	20%	(11)ppts
Stores	-	-	-	-	6.9	(1000)ppts
% of Stores revenue	-	-	-	-	100%	(100%)
Total product revenue	484.8	483.6	+0.2%	82.9	132.2	(37.3)%
% of Total product revenue	85%	79%	+6ppts	15%	21%	(6)ppts

1. Menswear is the Jacamo brand

2. Product brands are Fashion World, Premier Man, House of Bath, Marisota, Oxendales, High & Mighty and Figleaves

Financial services revenue

Financial services revenue decreased 2.7% to £290.5m. Revenue was lower in the year as a result of lower product revenue and proactive measures on the implementation of credit limit increases and affordability assessments. In the year credit account interest was down 1.5% reflecting management initiatives such as risk-based pricing. This decrease was accompanied by a 13.4% reduction in other financial services revenue as a result of lower admin fees.

£m	FY20	FY19	Change
Product gross profit	279.2	320.8	(13.0)%
Product gross margin %	49.2%	52.1%	(290)bps
Financial services gross profit	160.7	176.9	(9.2)%
Financial services gross margin %	55.3%	59.2%	(390)bps
Group gross profit	439.9	497.7	(11.6)%
Group gross profit margin	51.3%	54.4%	(310)bps
Warehouse & fulfilment costs	(78.1)	(84.0)	(7.0)%
Marketing & production costs	(136.0)	(157.8)	(13.8)%
Admin & payroll costs	(119.1)	(127.9)	(6.9)%
Total operating costs	(333.2)	(369.7)	(9.9)%
Adjusted EBITDA¹	106.7	128.0	(16.6)%
Adjusted EBITDA¹ margin %	12.4%	14.0%	(160)bps
Depreciation & amortisation	(30.1)	(30.1)	-
Operating profit before exceptionals	76.6	97.9	(21.8)%
Operating profit before exceptionals margin %	8.9%	10.7%	(180)bps
Operating profit	48.1	(47.7)	n/m
Operating profit margin %	5.6%	(5.2)%	+1080bps
Net Finance costs	(17.1)	(14.3)	+19.6%
Adjusted profit before tax²	59.5	83.6	(28.8)%
Exceptional items	(28.5)	(145.6)	(80.4)%
Fair value adjustments to financial instruments	4.7	4.5	+4.4%
Statutory profit /(loss) before tax	35.7	(57.5)	n/m
Adjusted basic earnings per share (p per share) ²	16.37p	21.38p	(23.4)%
Statutory basic earnings per share (p per share)	9.63p	(20.50p)	n/m
Dividend (p per share)	2.83p	7.10p	(60.1)%

1. Adjusted EBITDA is defined as operating profit, excluding exceptionals, with depreciation and amortisation added back. The directors believe that adjusted EBITDA represents the most appropriate measure of the Group's underlying trading performance.

2. Defined as excluding exceptionals and fair value adjustments on financial instruments. The directors believe that adjusted profit before tax/EPS represents the most appropriate measure of the Group's underlying profit before tax as it removes items that do not form part of the recurring operational activities of the Group.

Gross margin

The Group's gross margin was 51.3%, down 310bps compared to FY19. This was as a result of a 390bps reduction in the financial services gross margin to 55.3%, and a 290bps decline in the product gross margin rate to 49.2%.

Product gross margin declined as a result of the highly promotional market, product mix reflecting an increase in Home sales, strategic decisions taken to exit the USA and the impact of an increased year-end stock provision reflecting discontinued brands and lower apparel sales.

Financial services gross margin decreased due to a lower rate of recovery from external debt markets, this was partially offset by system and other cost savings relating to the legacy USA proposition.

Operating costs before exceptionals

We made strong progress in the year on operating expenses before exceptionals which decreased by 9.9%. In line with the Group's strategy of scaling back offline marketing and recruitment and improving marketing efficiency, Marketing costs were down 13.8% year on year to £136.0m. We also made strategic investment in building our brands in the period and expanding our social media presence. Admin and payroll costs decreased by 6.9% to £119.1m, driven predominantly by continued Head Office efficiencies. Warehouse and fulfilment costs decreased by 7.0% to £78.1m, primarily driven by lower volumes

Adjusted EBITDA and operating profit before exceptional items

Adjusted EBITDA decreased by 16.6% to £106.7m and adjusted EBITDA margin decreased by 160bps to 12.4% (FY19: 14.0%). Overall, operating profit before exceptional items was £76.6m, down 21.8% year on year, with operating margin decreasing by 180bps to 8.9%. Statutory operating profit (i.e. after exceptional items) was £48.1m an increase of £95.8m compared to the prior year.

Depreciation and Amortisation

Depreciation and Amortisation was flat on the prior year at £30.1m.

Net finance costs

Net finance costs were £17.1m, up 19.6% compared to last year primarily driven by an increase in net debt due to exceptional items.

Exceptional items

As previously announced, we, in line with the wider industry, saw a significant increase in customer redress information requests and complaints in the final days leading up to, and including, the 29 August 2019 PPI deadline. The deadline has now passed and as a result of the August spike in information requests and complaints, an additional provision for customer redress of £25m was made during the first half of the year. The final amount of customer redress including that relating to estimated Official Receiver complaints was less than envisaged as at 31 August 2019 and therefore in the second half of the year a £2.1m credit for customer redress was recorded, resulting in a £22.9m charge for the full year.

During the period, the Board has undertaken a thorough review of strategy. Fundamental to delivering this strategic transformation is a material level of cost reduction and increased focus and refinement of the Group's key five brands. As part of this initiative, the Group has incurred costs that are substantial in scope and impact, and incremental to the Group's normal operational and management activities and have therefore been recognised within exceptional costs. Total costs of £3.8m incurred relate to £1.7m of redundancy costs, £1.8m of consultancy costs incurred in relation to the brand refinement and £0.3m being the write off of stock relating to brands that will no longer continue to trade. Further details of Exceptional Items are contained in Note 5.

£m	FY20	FY19
Customer Redress	22.9	45.0
Store Closure (credit) / costs	(0.3)	22.0
Legal costs	1.0	-
Impairment of tangible, intangible assets & brands	1.8	20.0
Strategy Review costs	3.8	-
VAT partial exemption (credit)/cost	(3.1)	49.4
Other tax matters including associated legal & professional fees	2.4	8.9
GMP equalisation adjustment	-	0.3
Total exceptional costs	28.5	145.6

Allianz claim and counterclaim

The Group is currently involved in a claim and counterclaim with Allianz Insurance plc regarding the sale of historical insurance products. The claim and counterclaim are extremely complex, are at an early stage of proceedings and both parties will need to gather detailed and factual expert evidence in relation to multiple elements of the claim and counterclaim. The Group has concluded that these issues mean it is not possible to reliably estimate the amount of any potential settlement and has, therefore, not made provision for this claim at this time and instead a contingent liability has been disclosed. Further details are contained in note 18.

Adjusted profit before tax and statutory profit before tax

Adjusted profit before tax was £59.5m, down 28.8% year on year as a result of lower gross profit and increased net finance costs. Due to lower exceptional costs and an improvement in unrealised FX, statutory profit before tax was £35.7m, representing a £93.2m improvement on last year.

Taxation

The effective underlying rate of corporation tax (the tax rate excluding exceptional items) is 21.5% (FY19: 26.9%) and the year-on-year difference is largely due to smaller prior year adjustments being made in FY20. The overall tax charge after exceptional items is £8.3m (FY19: £0.8m).

Earnings per share

Adjusted earnings per share was 16.37p (FY19: 21.38p). Statutory earnings per share was 9.63p (FY19: ((20.50)p).

Dividend

The Board declared an interim dividend of 2.83 pence per share in respect of the first half of the financial year. Following the outbreak of Covid-19 and the subsequent impact on the business and the wider economy, the Board announced on 23^rd March 2020 that it would not be recommending a final dividend for this financial year. Following the year end, the Group secured amendments to its financing facilities which included accessing the Government's Coronavirus Large Business Interruption Loan Scheme ("CLBILS"). For as long as any amount of the £50 million CLBILS facilities is drawn, the Group will be restricted from paying dividends. The Board does not anticipate declaring cash dividends in respect of the 2021 financial year.

Financial services

Compared to the same period last year the expected credit loss provision rate decreased by 330bps due to an underlying improvement in the quality of the loan book and the disposal of some high-risk payment debt which was sold at a better rate than the impaired book value. As a result of sustained significant reductions in observed default rates since 2017 in particular, the probability of default parameter in the expected credit loss ('ECL') model has been appropriately updated during the year to reflect observed rates over a two year-period, rather than historic rates observed prior to 2017 which were increasingly not reflective of current book composition and performance. This methodology change to appropriately reflect the sustained and observed improvements in default rates resulted in a reduction in the IFRS 9 bad debt provision.

£m	29 February 2020	2 March 2019	Change
Gross customer loan balances	656.9	682.2	-3.7%
IFRS 9 bad debt provision	(71.7)	(97.1)	-26.2%
IFRS 9 provision ratio	10.9%	14.2%	-330bps
Net Customer Loan Balances	585.2	585.1	+0.1%

Balance Sheet and Cash Flow

Although the global spread of Covid-19 began before the 29 February 2020, the WHO declaration of a global pandemic and escalation of the virus within the UK took place in on 11 March 2020 and were not, therefore predictable as at the balance sheet date. For this reason, the significant effects of Covid-19 are non-adjusting events as at the balance sheet date. Management have considered the potential impact of Covid-19 on the post balance sheet event period, specifically in regard to the recoverability of its tangible, intangible assets and inventory, the impairment of the trade receivables and fair value of the Group's pension surplus. This is further highlighted in a detailed post-balance sheet events disclosure note 16.

Capital expenditure was £39.7m (FY19: £36.3m). Inventory levels at the period end were down 15.5%, to £94.9m (Restated FY19: £112.3m)

Gross trade receivables decreased by 3.7% to £656.9m (FY19: £682.2m) driven by a combination of reduced financial services income and product sales and sales of customer receivables on payment arrangements to a regulated third party purchaser.

Net cash generated from operations (excluding taxation) was £47.6m compared to a £35.0m outflow last year, principally driven by a reduction in exceptional cash outflows from £84.6m in FY19 to £40.5m in FY20 and improvements in working capital. After funding capital expenditure, finance costs, taxation and dividends, net debt increased from £467.9m to £497.2m. The £585.2m net customer loan book significantly exceeds this net debt figure.

The Group's balance sheet is underpinned by its customer loan book, which at 29 February 2020 was £656.9m on a gross basis and £585.2m on a net basis, calculated under IFRS9.

Core debt, which is defined as the amount drawn on the Group's RCF less cash was £77.5m, which means the Group's leverage is 0.7x on an unsecured net debt/EBITDA basis for the last 12 months EBITDA. For FY20 the Group had financing facilities in place, comprising:

· An up to £500 million securitisation facility, maturing in December 2021, secured by a charge over eligible customer receivables without recourse to the Group's other assets, drawings on which are linked to prevailing levels of eligible receivables;

· A Revolving Credit Facility ("RCF"), maturing in September 2021, of £125 million; and

· An overdraft facility of £27.5 million.

On 18 May 2020, the Group agreed new financing arrangements:

· A new up to £50 million 3-year Term Loan facility, provided by our lenders under the Government's Coronavirus Large Business Interruption Loan Scheme ("CLBILS");

· The widening of certain covenants at the August 2020 half-year test date in its existing unsecured £125 million RCF and the introduction of quarterly covenant tests.

The Group's defined benefit pension scheme has a surplus of £26.3m (FY19: £23.9m surplus). The small increase in the surplus is as a result of general market changes in asset returns during the financial year.

FX sensitivity

As at the end of FY20 we had hedged 88% of our net purchases for FY21 at a blended rate of $/£1.32. At a rate of $/£1.28, which was the spot rate at year end, and before any mitigating actions or changes in annual requirements, this would result in a c.£2.8m gain in FY21 PBT.

As at the end of FY20 we had hedged 39% of our anticipated net purchases for FY22 at a blended rate of $/£1.32. At a rate of $/£1.28 which was the spot rate at year end, and before any mitigating actions or changes in annual requirements, this would result in a c.£1.0m gain in FY22 PBT. Every five cents move from this rate in our unhedged position would result in a PBT sensitivity of c.£2.3m.

Consolidated income statement

for the 52 weeks ended 29 February 2020

		52 weeks to 29 February 2020	52 weeks to 29 February 2020	52 weeks to 29 February 2020	52 weeks to 02 March 2019	52 weeks to 02 March 2019	52 weeks to 02 March 2019
		Before exceptional items	Exceptional items (Note 5)	Total	Before exceptional items	Exceptional items (Note 5)	Total
	Note	£m	£m	£m	£m	£m	£m

Revenue		594.9	-	594.9	647.2	-	647.2
Credit account interest	4	263.3	-	263.3	267.2	-	267.2

Total revenue	4	858.2	-	858.2	914.4	-	914.4

Cost of sales		(290.7)	(0.3)	(291.0)	(308.4)	-	(308.4)
Impairment losses on customer receivables		(133.9)	-	(133.9)	(119.0)	-	(119.0)
Profit on sale of customer receivables	4	6.3	-	6.3	10.7	-	10.7
Net impairment charge		(127.6)	-	(127.6)	(108.3)	-	(108.3)

Gross profit	4	439.9	(0.3)	439.6	497.7	-	497.7

Operating profit/ (loss)	4	76.6	(28.5)	48.1	97.9	(145.6)	(47.7)

Finance costs		(17.1)	-	(17.1)	(14.3)	-	(14.3)

Profit/ (loss) before fair value adjustments to financial instruments		59.5	(28.5)	31.0	83.6	(145.6)	(62.0)

Fair value adjustments to financial instruments	6	4.7	-	4.7	4.5	-	4.5

Profit/(Loss) before taxation		64.2	(28.5)	35.7	88.1	(145.6)	(57.5)

Taxation	7	(13.8)	5.5	(8.3)	(23.7)	22.9	(0.8)

Profit/(Loss) for the period		50.4	(23.0)	27.4	64.4	(122.7)	(58.3)


Earnings/(Loss) per share from continuing operations
Basic	8			9.63			(20.50)p
Diluted	8			9.62			(20.50)p

Consolidated statement of comprehensive income

for the 52 weeks ended 29 February 2020

	52 weeks to 29 February 2020	52 weeks to 02 March 2019
	£m	£m
Profit/(Loss) for the period	27.4	(58.3)



Items that will not be classified subsequently to profit or loss:
Actuarial gains on defined benefit pension schemes	0.8	3.9
Tax relating to items not reclassified	(0.3)	(4.9)
	0.5	(1.0)

Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations	0.2	0.7

Total comprehensive income/(expense) for the period attributable to equity holders of the parent	28.1	(58.6)

Consolidated balance sheet

As at 29 February 2020

		As at 29 February 2020	As at 02 March 2019	As at 04 March 2018
	Note	£m	£m	£m
			*Restated	*Restated
Non-current assets
Intangible assets	9	151.4	145.2	156.0
Property, plant & equipment	10	62.6	59.4	67.4
Right of use assets	15	5.6	-	-
Retirement benefit surplus		26.3	23.9	19.3
Derivative financial instruments	6	1.3	-	-
Deferred tax assets		13.2	18.8	2.8
		260.4	247.3	245.5

Current assets
Inventories		94.9	112.3	126.8
Trade and other receivables	11	614.4	619.8	652.7
Derivative financial instruments	6	4.0	-	-
Cash and cash equivalents		47.5	43.7	58.2
		760.8	775.8	837.7

Total assets		1,021.2	1,023.1	1,083.2

Current liabilities
Bank overdraft		-	(11.4)	-
Provisions	13	(11.1)	(24.8)	(43.8)
Trade and other payables	12	(110.5)	(152.2)	(147.9)
Lease liability		(2.2)	-	-
Derivative financial instruments	6	(1.3)	(1.5)	(6.0)
Current tax liability		(13.8)	(7.1)	(3.3)
		(138.9)	(197.0)	(201.0)

Net current assets		621.9	578.8	636.7

Non-current liabilities
Bank loans		(544.6)	(500.2)	(405.0)
Lease liability	15	(4.7)	-	-
Provisions	13	-	-	(5.4)
Derivative financial instruments	6	(0.9)	-	-
Deferred tax liabilities		(14.6)	(14.5)	(12.2)
		(564.8)	(514.7)	(422.6)

Total liabilities		(703.7)	(711.7)	(623.6)

Net assets		317.5	311.4	459.6

Equity
Share capital		31.4	31.4	31.4
Share premium		11.0	11.0	11.0
Own shares		(0.3)	(0.3)	(0.2)
Foreign currency translation reserve		3.0	2.8	2.1
Retained earnings		272.4	266.5	415.3
Total equity		317.5	311.4	459.6

*prior year restatement is explained in note 17

Consolidated cash flow statement

For the 52 weeks ended 29 February 2020

	52 weeks to 29 February 2020	52 weeks to 02 March 2019
	£m	£m

Net cash inflow/(outflow) from operating activities	51.4	(37.1)

Investing activities
Purchase of property, plant and equipment	(6.5)	(3.4)
Purchase of intangible assets	(33.2)	(32.9)
Net cash used in investing activities	(39.7)	(36.3)

Financing activities
Interest paid	(17.8)	(15.4)
Dividends paid	(20.1)	(32.2)
Increase in bank loans	44.4	95.2
Principal elements of lease payments	(3.5)	-
Purchase of shares by ESOT	(0.1)	(0.1)
Proceeds on issue of shares held by ESOT	-	-
Net cash from financing activities	2.9	47.5

Net foreign exchange difference	0.6	-
Net increase /(decrease) in cash and cash equivalents and bank overdraft	15.2	(25.9)
Opening cash and cash equivalents	32.3	58.2
Closing cash and cash equivalents	47.5	32.3

Reconciliation of operating profit to net cash from operating activities

	52 weeks to 29 February 2020	52 weeks to 02 March 2019
	£m	£m
		*Restated
Profit/(loss) for the period	27.4	(58.3)

Adjustments for:
Taxation charge	8.3	0.8
Fair value adjustments to financial instruments	(4.7)	(4.5)
Net foreign exchange difference	(0.6)	-
Finance costs	17.1	14.3
Depreciation of right of use assets	1.3	-
Depreciation of property, plant and equipment	4.2	4.9
Loss on disposal of property, plant and equipment	-	5.0
Loss on disposal of intangible assets	-	0.7
Impairment of intangible assets	1.8	17.8
Impairment of property, plant and equipment	-	1.5
Amortisation of intangible assets	24.7	25.2
Share option (credit)/ charge	(1.3)	0.1
Operating cash flows before movements in working capital	78.2	7.5

Decrease in inventories	16.6	14.5
Decrease/(increase) in trade and other receivables	5.5	(32.8)
(Decrease) / increase in trade and other payables	(41.1)	0.7
Decrease in provisions	(10.9)	(24.4)
Pension obligation adjustment	(0.7)	(0.5)

Cash generated/ (utilised) by operations	47.6	(35.0)

Taxation received/(paid)	3.8	(2.1)

Net cash inflow/(outflow) from operating activities	51.4	(37.1)

Changes in liabilities from financing activities	52 weeks to 29 February 2020	52 weeks to 02 March 2019
	£m	£m
Loans and borrowings
Balance brought forward	500.2	405.0

Changes from financing cashflows
Net proceeds from loans and borrowings	43.2	94.1
Leases recognised at transition of IFRS 16	9.5	-
New leases entered into in the period	0.9	-
Lease payments in the period	(3.6)	-
Increase in loans and borrowings due to interest	1.3	1.1
Increase in loans and borrowings	51.3	95.2

Balance carried forward	551.5	500.2

Consolidated statement of changes in equity

for the 52 weeks ended 29 February 2020

	Share capital	Share premium	Own shares	Foreign currency translation reserve	Retained earnings	Total
	£m	£m	£m	£m	£m	£m

Balance at 4 March 2018	31.4	11.0	(0.2)	2.1	358.3	402.6

Total comprehensive income for the period
Loss for the period	-	-	-	-	(58.3)	(58.3)
Other items of comprehensive income for the period	-	-	-	0.7	(1.0)	(0.3)
Total comprehensive income for the period	-	-	-	0.7	(59.3)	(58.6)

Transactions with owners recorded directly in equity
Equity dividends	-	-	-	-	(32.2)	(32.2)
Issue of own shares by ESOT	-	-	(0.1)	-	-	(0.1)
Share option charge	-	-	-	-	0.1	0.1
Tax on items recognised directly in equity	-	-	-	-	(0.4)	(0.4)
Total contributions by and distributions to the owners	-	-	(0.1)	-	(32.5)	(32.6)

Balance at 2 March 2019	31.4	11.0	(0.3)	2.8	266.5	311.4
Adjustment on initial application of IFRS 16 (net of tax)	-	-	-	-	(0.5)	(0.5)
Balance at 3 March 2019	31.4	11.0	(0.3)	2.8	266.0	310.9

Total comprehensive income for the period
Profit for the period	-	-	-	-	27.4	27.4
Other items of comprehensive income for the period	-	-	-	0.2	0.5	0.7
Total comprehensive income for the period	-	-	-	0.2	27.9	28.1

Transactions with owners recorded directly in equity
Equity dividends	-	-	-	-	(20.1)	(20.1)
Issue of own shares by ESOT	-	-		-	-	-
Share option credit	-	-	-	-	(1.3)	(1.3)
Adjustment to equity for share payments	-	-	-	-	(0.1)	(0.1)
Tax on items recognised directly in equity	-	-	-	-	-	-
Total contributions by and distributions to the owners	-	-	-	-	(21.5)	(21.5)

Balance at 29 February 2020	31.4	11.0	(0.3)	3.0	272.4	317.5

Notes to the consolidated financial statements

For the 52 weeks ended 29 February 2020

1. Basis of preparation

The Group's financial statements for the 52 weeks ended 29 February 2020 will be prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the EU. Whilst the financial information included in this preliminary announcement has been prepared in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. As such, these financial statements do not constitute the Group's statutory accounts and the Group expects to publish full financial statements that comply with IFRS in July 2020.

The financial information set out in this document does not constitute the company's statutory accounts for the 52 weeks ended 29 February 2020 or the 52 weeks ended 2 March 2019.

Statutory accounts for the period of 52 weeks ended 2 March 2019 have been delivered to the registrar of companies, and those for the period of 52 weeks ended 29 February 2020 will be delivered in due course.

The auditor has reported on the 2 March 2019 accounts; their report was i) unqualified, ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and iii) did not contain a statement under s498(2) or (3) of the Companies Act 2006.

The statutory accounts for the period of 52 weeks ended 29 February 2020 have been approved by the Board and the auditor report is i) unqualified, ii) will include an emphasis of matter in relation to the material uncertainty around going concern which we have referred to in note 3, and iii) did not contain a statement under s498(2) or (3) of the Companies Act 2006. These accounts will be published on our website in July and delivered to the Registrar of Companies in due course.

The directors have concluded that due to the uncertain economic outlook resulting from Covid-19 there is a material uncertainty as to the ability of the Group to successfully refinance these facilities at commercially acceptable terms. This is explained in further detail in note 3.

The accounting policies and presentation adopted in the preparation of these consolidated financial statements are consistent with those disclosed in the published annual report & accounts for the 52 weeks ended 2 March 2019, other than for the following which had a material impact on the Group's results:

· the application of IFRS 16 'Leases' which applies to the Group for the first time (see below); and

· the recognition of a prior year balance sheet adjustment in relation to inventory in transit as explained in note 17.

Although the global spread of Covid-19 began before the 29 February 2020, the World Health Organisation declaration of a global pandemic did not take place until 11 March 2020. As at 29 February 2020 management did not foresee and could not reasonably have foreseen the escalation of the virus within the UK, that subsequently took place. For this reason, the significant effects of Covid-19 that were not foreseen at the balance sheet date are not adjusted within these financial statements. Disclosure of the estimated financial impacts relating to this post balance sheet event is provided in note 16.

IFRS 16 Leases

The Group has adopted IFRS 16 on the 3 March 2019 using the modified retrospective approach. The Group elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option, and for lease contracts for which the underlying asset is of low value. The Group have also applied the practical expedients to apply a single discount rate over all leases with similar characteristics. Included in the contracts being transitioned to IFRS 16 are the store portfolio which is in the process of being exited. All right-of-use assets have been measured at an amount equal to the lease liability adjusted for prepaid or accrued lease payments. The Group has elected to offset the onerous lease provision held in respect of the store portfolio and other vacant properties against the right-of-use asset.

IFRS 16 impacts the presentation of the Group consolidated financial statements introducing a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a corresponding lease liability representing its obligation to make lease payments. Lease liabilities are measured at the present value of the remaining lease payments, discounted at the incremental borrowing rate of 2.8% approximated at the transition date to the Group's weighted cost of borrowing reflecting the rate the Group would have to pay to borrow the funds necessary to obtain assets of similar value to the right of use assets, in a similar economic environment with similar terms, security and conditions. Right-of-use assets are depreciated on a straight-line basis over the shorter of estimated useful life and the lease term.

The effect of IFRS 16 adoption is as follows:

Impact on the Consolidated Balance Sheet as at 3 March 2019:

· Right-of-use assets of £6.2m were recognised and presented separately in the balance sheet

· Additional lease liabilities of £9.5m were recognised and presented separately in the balance sheet.

Measurement of lease liabilities

The table below reconciles the operating lease commitments disclosed in the prior year financial statements in accordance with IAS 17 to the lease liability recognised in the opening balance sheet for the current financial year.

	£m
Operating lease commitments disclosed as at 2 March 2019	8.1
Discounted using the incremental borrowing rate at the date of initial application	7.3
(Less): low value leases not recognised as a liability	(2.0)
Add: Other amounts recognised at transition	4.2
Lease liability recognised as at 3 March 2019	9.5

The impact on retained earnings at 3 March 2019 was a decrease of £0.5m, due to the recognition of the net investment on subleases where the Group holds property sublet at a lower rental than the head lease cost incurred by the Group. £4.2m other amounts recognised at transition consisted of other contracts identified as leases on transition to IFRS 16. Further information relating to the closing Balance sheet position and Profit and Loss impact on the current financial year are included in note 15.

2. Key risks and uncertainties

A number of potential risks and uncertainties may impact on the Group's performance and the delivery of its strategic ambitions over the next twelve months or longer term. The directors routinely monitor all risks and uncertainties, taking appropriate actions to mitigate where necessary.

As part of the continuous improvement in risk identification and management the Group has expanded its risk assessment to cover 12 primary risk areas. Whilst further detail is included in the Group's Annual Report, the risks which have been identified as having the potential to materially impact on the performance of the Group are: Credit; Change Management; Technology; Business Resilience; Strategic; Data Governance; Compliance & Regulatory; People; Financial; Conduct and Customer; Information Security; and Supplier & Outsourcing. The Group is also impacted by Covid-19 and Brexit.

Many of these risks are not new and have ongoing programmes of business change or risk mitigation activity which are already in flight. A number of these risks have been on the Group's risk horizon previously and are now beginning to emerge more significantly.

The change management plan remains a key pillar in delivery of the Group Strategy over the next financial year. Delivery priorities have been changed and re-focussed as a result of the pandemic and the need to manage the cost base. Change priorities have focussed on continued and improved regulatory compliance as well as the new Home Essentials business.

As a result, decommissioning of some legacy IT systems has been delayed. The Group maintains mitigation associated with its legacy IT estate by use of strategic outsource partners but the risk of constrained agility from the continued use of some end of life systems has increased since the year end.

The Group's Credit offering remains a key driver of performance as an enabler of product sales as well as a revenue and margin stream. The changes in the regulatory environment under the FCA and ICO have increased the challenge to maintain competitive in the consumer credit space and these have also been impacted by the Coivd-19 pandemic and the corresponding increases in credit and cyber related risks.

More broadly, the regulatory landscape remains challenging. While the Group controls over GDPR compliance are now embedded, the increased data management challenge arising from remote working under the UK lockdown as well as the increase cyber threat observed during the pandemic have increased the risk in this area since the year end.

Business resilience and continuity, and disaster recovery capability has been successfully exercised and significantly real-world stress-tested through Covid-19 incident management. The risk of continued business interruption is likely to remain the new-norm for the foreseeable future as is the increased risk of cyber-attack as we progress our on-line growth. Meanwhile cyber-criminals become evermore sophisticated and may look to take advantage of businesses whose resilience is compromised as a result of crisis management.

Compliance, Regulatory and Conduct Risks remain prevalent. In the aftermath of the Coronavirus pandemic regulatory attention will likely become even more focused on the outcomes experienced by vulnerable customers and those in financial difficulty, and with a particular focus on affordability in the context of predicted macro-economic downturn. Likewise, while the deadline for PPI claims has passed, there is the potential for continued focus across the financial services sector in relation to unfair consumer credit terms and irresponsible lending. The Group continuously monitors and assesses all applicable areas of regulatory change and responds accordingly, and is significantly upweighting its compliance and risk management capability through the delivery of an enhanced risk management framework. Significant work has already been undertaken in relation to the identification and treatment of our most vulnerable customers and around affordability and creditworthiness.

Consumer sentiment and engagement has the potential to become an even more heightened risk. Already fragile consumer confidence in the retail and financial services sectors will likely be impacted further by the continued risk of economic downturn as a result of continued Brexit uncertainty and in the context of the downstream impacts of the Coronavirus pandemic. This gives rise to the increased risk of bad-debt and adverse shifts in payment and arrears rates. To mitigate this the Group's credit risk appetite remains under continuous review and the quality of the loan book and lending decisions continue to improve, as does the Group's collections capability.

Treasury risk & Working Capital management have been key risk during the year and during the pandemic and increased management of cost as well as a focus on cash generation from ongoing trading have helped to mitigate this risk. The Group has made use of the Covid-19 job retention scheme as well as worked constructively with its banking partners to mitigate risks over cashflow

Since the year end and the start of the Covid-19 Pandemic, there have been a number of high-profile business failures in the retail sector as a result of the changes in customer behaviour and reduced economic activity. In addition, the uncertainty surrounding a potential no deal Brexit has also increased in that time.

The Group continues to focus of mitigation of these external risks by focussing on control over its existing cost base, making continued use of the Covid-19 Job retention scheme and maintaining strong relationships with supply chain partners. Notwithstanding, we cannot predict the impact that Covid-19 might have on the business. Management have considered severe but plausible downsides. However, these do not include the most severe of possibilities.

Impact of UK exit from the European Union ("Brexit")

Brexit remains one of the most significant economic events for the UK and at the time of this report, its effects remain subject to significant levels of uncertainty as to outcome. The full range of potential economic, regulatory and business environment impacts are therefore unknown.

Brexit has several potential impacts in the areas of economic and regulatory environment, import of goods due to currency exchange volatility and increased import duties, availability and cost of labour, and potentially other unknown impacts. Labour restrictions in the UK could affect our ability to recruit in our logistics operations and other related areas at historical or budgeted rates.

In addition, continued uncertainty around the impact of Brexit and the possibility of reduced consumer confidence, could give rise to the risk of increased bad debts - and related IFRS 9 sensitivity - from potential deterioration in discretionary spending capacity.

Risk Mitigants

- We have had a consistent Brexit planning strategy and governance structure during the year which will continue to be monitored and operated during the official transitional period. Our planning included the assessment of Brexit risks, impact assessments and mitigation in relation to trade and tariffs, implications for our Irish business, logistics disruption, labour shortages and hedging arrangements.

- Our business is an Authorised Economic Operator - ensuring preferential treatment on the importation of goods and facilitating efficient clearance at the ports.

- Our business imports the significant majority of its stock into ports which are outside those presently assessed as being of greater risk of being more heavily impacted.

- There are a limited number of products purchased by our UK businesses directly from the EU. Those products could also be sourced elsewhere, de-listed or in a worst-case scenario the cost price may increase for certain limited items because of tariff imposition.

- We have taken all realistically available steps to ensure we continue to be able to trade in Ireland after transition.

- Throughout the year we have continued to keep in close contact with suppliers, ensuring that all critical suppliers have appropriate Brexit contingency plans in place to maintain a continuity of supply.

- Short-term exchange rate volatility is mitigated by our currency hedging policy which ensures an appropriate degree of coverage for future buying seasons.

- Continued refinement of, and improvement in, the risk profile of the Group's debtor book to seek to mitigate the risk of undue IFRS 9 volatility specifically relating to Brexit.

Key Actions in 2019/20

- The Board have continued to monitor Brexit impacts and mitigations with management throughout the year via detailed reporting and discussion on the businesses Brexit Steering Committee actions and outputs.

On the basis of these regular Board updates, the Board took comfort that management have a comprehensive and appropriate set of mitigations in place to ensure the least disruption is incurred by the business from Brexit in the primary risk areas identified.

In relation to the above risk mitigations and the business planning for a potentially significant impact from Brexit, we do not consider the impacts of the risk to have materially changed in the period under review.

3. Going Concern

As at 19 June 2020, the Group has total accessible liquidity ("TAL") of £148.4m, which is £73.4m higher than as at 29 February 2020, due to the additional £50m CLBILS facility granted in May 2020 and additional cash generation measures taken since the year-end totalling £23.4m. Under our base case scenario, the Group's TAL will increase further by the end of FY21 and would allow it to trade for the foreseeable future thereafter. Even under severe downside scenarios, the Group is expected to have sufficient liquidity in place to allow it to trade, to meet its covenants, until at least December 2021.

The Group's £125m RCF and securitisation facilities are committed to September 2021 and December 2021 respectively. The Group continues to expect to renegotiate these facilities well in advance of these maturity dates. Whilst the amount drawn under these facilities is expected to be lower at these dates than the year end position or current position, the directors have concluded that due to the uncertain economic outlook resulting from Covid-19 there is a material uncertainty as to the ability of the Group to successfully refinance these facilities at commercially acceptable terms. In the event that this uncertainty crystallises, the directors believe that mitigating actions would be available given that the Group is expected to continue to have significant net assets and therefore in the event that refinancing at commercially acceptable terms is not possible, asset sales outside the normal course of business or alternative financing options would be entered into.

The lenders to the Group have been consistently supportive to date. Whilst no certainty can be provided that the facilities will be renewed until refinancing negotiations have been successfully completed, the maturity of the facilities in September and December 2021 provide a substantial window in which to undertake such refinancing activities proactively. In the event of being unable to successfully renegotiate the facilities, the Group would undertake a variety of mitigating actions, but given the ongoing longer-term economic uncertainty arising from Covid-19, it is not possible to be certain as to their success.

The above material uncertainty may cast significant doubt on the Group's ability to continue as a going concern and therefore realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result from the basis of preparation being inappropriate.

Cash flow forecasts

In determining whether the Group's accounts can be prepared on a going concern basis, the Directors have considered the Group's business activities together with factors likely to affect its future development, performance and its financial position including cash flows, liquidity position and borrowing facilities and the principal risks and uncertainties relating to its business activities. These are set out within the Risk Management report in the financial statements.

The directors have taken into consideration that, since the balance sheet date, restrictions on trading activity and the movement of people applied by the UK government to contain the spread of Covid-19 have had a severe and sudden effect on economic activity. Measures, both immediate and planned, were taken across the Group to mitigate the consequential and significant profit and cash flow impacts arising from the loss of sales following the UK lockdown.

The Group has considered carefully its debt covenants and performance metrics inherent in the securitisation and RCF facilities which link to the available levels of draw and its cash flows. These metrics reflect the foreseen restrictions on trading as well as the mitigating factors applied by the Group, for the next 18 months from the date of signing the financial statements. These have been appraised in the light of the current economic climate by applying a series of stress tests. The stress tests apply a range of sensitivities to Group revenue and associated costs, cash collections and arrears levels; reflecting the principal risks arising from continued UK social distancing measures and the uncertainty of the impact of Covid-19 on the business.

Financing arrangements

New arrangements

On 19 May 2020, the Group announced that it had secured new financing arrangements with its long-standing supportive lenders.

These new arrangements comprise:

· A new up to £50 million 3-year Term Loan facility, provided by our lenders under the Government's Coronavirus Large Business Interruption Loan Scheme ("CLBILS");

· The widening of certain covenants at the August 2020 half-year test date in its existing unsecured £125 million Revolving Credit Facility ("RCF") and the introduction of quarterly covenant tests.

Resulting funding and liquidity position

As a result of these changes, the Group currently has the following facilities in place:

· An up to £500 million securitisation facility committed until December 2021, drawings on which are linked to prevailing levels of eligible receivables (fully drawn at £393.8m as at 19 June 2020);

· An RCF of £125 million committed until September 2021 (of which £nil undrawn);

· An overdraft facility of £27.5 million which is subject to an annual review every July (none of which is drawn); and

· A £50m CLBILS Term Loan Facility committed until May 2023 (none of which is drawn)

The Group continues to expect to renegotiate these facilities well in advance of the maturity dates shown.

As at 19 June 2020, cash balances stood at £70.9 million, which in addition to the undrawn facilities of £77.5 million outlined above, and after deducting cash not immediately accessible, provides the Group with total accessible liquidity ("TAL") of £148.4m. This is £73.4m higher than the TAL available as at 29 February 2020 of £75.0m due to the additional £50m CLBILS facility and additional cash generation measures taken to date of £23.4m. It is also considerably higher than the average TAL available during FY20 of £49.2m.

Actual and future trading performance

Actual trading performance

Trading has improved from the sudden and significant decline experienced in March as explained further in our Q1 FY21 Trading Update earlier in this document.

Downside trading scenario

It is recognised that there is considerable uncertainty as to the continued impacts of Covid-19 on our customer base and we have therefore also constructed a recently updated severe but plausible downside scenario which applies sensitivities to Group revenue and associated costs, cash collections and arrears levels. Specifically, in terms of FY21 revenue we have sensitised the following reductions on FY20 levels as follows:

· Retail product revenue - 25% down

· FS revenue - 8% down

Management have confidence, based on successful Q1 FY21 responses to Covid-19, that a significant proportion of the impact to EBITDA would be mitigated by operating cost savings across all areas of the cost base.

The Group would continue to have available liquidity in place and meet all necessary debt covenants to allow it to continue to trade under such a scenario after taking necessary management actions that are within the Group's control. If any further downside scenarios were to arise, further management actions are available to the Group:

· Sale of customer receivables

· Sale or sale and leaseback arrangement in relation to the Group's properties

· Temporary reductions in inventory and capex spend

· Further discretionary cost reductions

Covenant compliance

As noted above, the Group's longstanding supportive lenders have adjusted some of its debt covenants.

Under its base and downside scenarios, after taking appropriate management actions, the Group expects to remain in compliance with these amended covenants and all other debt covenants.

The Group also notes the Joint Statement issued by the Financial Reporting Council, the Financial Conduct Authority and the Prudential Regulation Authority on Thursday 26 March 2020 which stated that they would expect lenders to consider the need to treat potential breaches of covenants arising directly from the Covid-19 pandemic differently compared to uncertainties that arise because of borrower specific issues and in doing so consider waiving the resultant covenant breach. The directors therefore believe it is reasonable to believe that the Group will continue to have in place suitable securitisation facility arrangements should there be any further extension of the FCA's forbearance requirements for consumer credit customers impacted by Covid-19.

4. Business Segments

The Group has identified two operating segments in accordance with IFRS 8 - Operating segments, Product Revenue and Financial Services. The board receives monthly 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, it does not track operating costs or any other income statement items.

Revenues and costs associated with the product segment relate to the sale of goods through various brands. 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 brand categorisation and product type categorisation.

The move to two reportable segments for the 52 weeks ended 29 February 2020 reflects the change in management structure of the Group through this period.

Analysis of revenue	52 weeks to 29 February 2020	52 weeks to 02 March 2019
	£m	£m
Product - total revenue	567.7	615.8

Other financial services revenue	27.2	31.4
Credit account interest	263.3	267.2
Financial services - total revenue	290.5	298.6

Revenue -Total	858.2	914.4

Product - total cost of sales	(288.6)	(295.0)

Impairment losses on customer receivables	(133.9)	(119.0)
Profit on sale of customer receivables	6.3	10.7
Other financial services cost of sales	(2.1)	(13.4)
Financial services - total cost of sales	(129.7)	(121.7)

Cost of Sales - Total	(418.3)	(416.7)

Gross profit	439.9	497.7

Gross margin - Product	49.2%	52.1%
Gross margin - Financial Services	55.3%	59.2%

Warehouse & fulfilment	(78.1)	(84.0)
Marketing & production	(136.0)	(157.8)
Depreciation & amortisation	(30.1)	(30.1)
Other admin & payroll	(119.1)	(127.9)
Segment result & operating profit before exceptional items	76.6	97.9
Exceptional items (see note 5)	(28.5)	(145.6)
Segment result & operating profit/ (loss)	48.1	(47.7)

Finance costs	(17.1)	(14.3)
Fair value adjustments to financial instruments	4.7	4.5

Profit/(loss) before taxation	35.7	(57.5)

	52 weeks to 29 February 2020	52 weeks to 02 March 2019
	£m	£m

Analysis of product revenue by brand
JD Williams	153.1	159.5
Simply Be	128.0	120.1
Ambrose Wilson	45.4	51.3
Womenswear	326.5	330.9
Menswear¹	66.9	64.0
Product Brands²	170.2	202.6
Product revenue excluding US and Stores	563.6	597.5
US Revenue	4.1	11.4
Stores	-	6.9
Total product revenue	567.7	615.8
Financial services revenue	290.5	298.6
Group Revenue	858.2	914.4

1. Menswear is the Jacamo brand

2. Product brands are Fashion World, Premier Man, House of Bath, Marisota, Oxendales , High & Mighty and Figleaves

The Group has one significant geographical segment, which is the United Kingdom. Revenue derived from Ireland and US amounted to £30.1m (2019: £37.1m). Operating results from international markets amounted to £3.3m profit (2019: £1.9m loss). All segment assets are located in the UK, Ireland and the US.

5. Exceptional items

	52 weeks to 29 February 2020	52 weeks to 02 March 2019
	£m	£m

Customer redress	22.9	45.0
Store closure (credit)/costs	(0.3)	22.0
Legal costs	1.0	-
Impairment of tangible, intangible assets and brands	1.8	20.0
Strategy review costs	3.8	-
VAT partial exemption (credit)/cost	(3.1)	49.4
Other tax matters including associated legal & professional fees	2.4	8.9
GMP equalisation adjustment	-	0.3
Items charged to profit/(loss) before tax	28.5	145.6

Taxation provision (see note 7, included within exceptional tax credit of £5.5m (2019: £22.9m)	-	3.0

Customer Redress

During the prior period, a charge of £16.5m was made to reflect the additional expense following the completion of the customer redress programme in relation to flaws in certain insurance products which were provided by a third party insurance underwriter. In addition, a charge of £28.5m was recognised to reflect an updated estimate following an increase in the volume of PPI claims and the latest assessment of the expected uphold rate and average redress per claim.

In the current period, in line with wider industry experience, the volume of PPI information requests and claims received in the final days leading up to and including the 29 August 2019 deadline was significantly higher than expected and therefore an additional charge of £25m was recognised at 31 August 2019.

The final amount of customer redress including that relating to estimated Official Receiver complaints was less than envisaged as at 31 August 2019 and therefore in the second half of the year a £2.1m credit for customer redress was recorded, resulting in a £22.9m charge for the full year. Included in this amount is £1.3m of withholding tax incurred in relation to interest applied on PPI claims which has been reclassified to Exceptional costs.

Closure Costs

In line with our strategy of reshaping our retail offering, following a period of consultation with all staff involved in our store estate, the decision was made to close all remaining retail outlets at the end of August 2018. This review resulted in an exceptional cost of £22.0m in respect of onerous lease provisions, other related store closure costs and asset write offs of £5.7m in the prior year. The onerous lease provision will run to the earlier of the break clause or lease expiry for all stores. The credit of £0.3m in the current year relates to a release of amounts no longer required in relation to properties that have now been exited.

Impairment of Tangible, Intangible assets and brands

In accordance with the requirements of IAS 36 management have assessed the carrying value of the intangible and tangible assets held in respect of the High and Mighty, Slimma, Diva and Dannimac brands, and following this review, as well as the refocus to the Group's key five brands following a full Strategic review, the remaining value of the intangible asset held for these brands (£1.8m) has been written down in full.

In the prior year, management assessed the carrying value of the intangible and tangible assets held in respect of Figleaves and following this review wrote down the full value of the brand (£7.1m), tangible fixed assets (£1.5m) and deferred tax asset of £3.0m in relation to future unutilised tax losses. Also in the prior year, the Group terminated an agreement with a third-party IT Financial Services provider, Welcom Digital Limited ("WDL"). Following a detailed review of capitalised development spend held in respect of this item a non-cash impairment charge of £11.4m was made.

Strategy Review Costs

During the period, the Board has undertaken a Strategic Review and has approved a multi-year transformation of the business. Fundamental to delivering this strategic transformation is a material level of cost reduction and increased focus and refinement of the Group's key five brands. As part of this initiative, the Group has incurred costs that are substantial in scope and impact, and incremental to the Group's normal operational and management activities, and have therefore been recognised within exceptional costs. Total costs of £3.8m incurred relate to £1.7m of redundancy costs, £1.8m of consultancy costs incurred in relation to the brand refinement and £0.3m being the write off of stock relating to brands that will no longer continue to trade.

VAT Partial Exemption

In the prior year, a total exceptional charge of £49.4m was incurred in relation to the write off of the reassessment of the VAT debtor previously held by the Group. The Group was in a long running dispute with HMRC with respect to the VAT treatment of certain marketing and non-marketing costs and the allocation of those costs between our retail and credit businesses. The case was heard in a first tier VAT tribunal in May 2018 with a draft decision being issued in November 2018 which was made public in March 2019. Following the final ruling, the asset was no longer considered recoverable and therefore fully written off.

Since this date the Group has been in discussions with HMRC to settle this matter and whilst substantial progress has been made, a final binding agreement has not yet been reached. As at 29 February 2020, the Group holds a creditor of £3.8m (£6.6m at 2 March 2019) in respect of this matter, being management's best estimate of the liability to settle, with the decrease since the prior year-end being due to lower VAT disallowance identified as part of the detailed resolution process now nearing completion.

This has resulted in a total credit to the income statement of £2.8m, of which £3.1m relating to the legacy years under discussion has been taken as a credit against exceptional items and a £0.3m charge has been recognised in current year operating profit.

Other tax matters including associated legal and professional fees

Of the total charge of £2.4m recorded, £1.3m relates to further expenses in relation to legacy tax issues. The remaining £1.1m relate to legal and professional fees incurred as a result of the Group's on-going disputes with HMRC regarding a number of historical VAT matters and tax positions. Of the amount charged in the period the Group has made related cash payments of £1.9m (2019: £2.8m).

GMP Equalisation

An exceptional pension cost arose in the prior year as a result of the High Court ruling in the case of Lloyds Bank in relation to Guaranteed Minimum Pension ("GMP") equalisation. An exceptional provision of £0.3m was made for the expected one-off impact of GMP equalisation on the reported liabilities of the Company's defined benefit pension scheme.

Legal Costs

A £1.0m provision for future expected legal costs to defend the Allianz Insurance plc claim and continuing to proceed with the counterclaim referred to in note 18 has been recognised in the year.

6. Derivative financial instruments

At the balance sheet date, details of outstanding forward foreign exchange contracts that the Group has committed to are as follows:

	52 weeks to 29 February 2020	52 weeks to 02 March 2019
	£m	£m
Notional amount - Sterling contract value	305.9	271.4

Fair value of net asset recognised	3.1	-
Fair value of net liability recognised	-	(1.5)

The fair value of foreign currency derivatives contracts is their market value 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 recognised, being currency derivatives where hedge accounting has not been applied, amounted to a credit of £4.6m (2019: credit of £4.5m) to income in the period.

Financial instruments that are measured subsequent to initial recognition at fair value are all grouped into Level 2 (2019: 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.

7. Taxation

Tax recognised in the income statement	2020 £m	2019 £m
Current tax
Charge/(credit) for the period	2.7	(2.0)
Adjustments in respect of previous periods	0.1	9.7
	2.8	7.7
Deferred tax
Origination and reversal of temporary timing differences	4.4	(6.8)
Adjustments in respect of previous periods	1.1	(0.1)
	5.5	(6.9)
Total tax expense	8.3	0.8

UK Corporation tax is calculated at 19% (2019: 19%) of the estimated assessable profit for the period. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016, and the UK deferred tax asset/(liability) as at 29 February 2020 has been calculated based on this rate. In the 11 March 2020 Budget it was announced that the UK tax rate will remain at the current 19% and not reduce to 17% from 1 April 2020. This will have a consequential effect on the Group's future tax charge. If this rate change had been substantively enacted at the current balance sheet date the deferred tax liability would have decreased by £0.9m.

The charge for the period can be reconciled to the profit per the income statement as follows:

	2020 £m	2019 £m
Profit/(loss) before tax	35.7	(57.5)
Tax at the UK Corporation tax rate of 19% (2019: 19%)	6.7	(10.9)
Effect of change in deferred tax rate	0.4	0.1
Tax effect of expenses that are not deductible in determining taxable profit	0.2	2.2
Effect of different tax rates of subsidiaries operating in other jurisdictions	(0.2)	(0.2)
Tax effect of adjustments in respect of previous periods	1.2	9.6
Tax expense for the period	8.3	0.8

In addition to the amount charged to the income statement, tax movements recognised directly through equity were as follows:

Tax recognised in other comprehensive income

2020

£m

2019
£m

Deferred tax - remeasurement of retirement benefit obligations

0.3

4.9

Tax charge in the statement of comprehensive income

0.3

4.9

Tax recognised in equity

2020

£m

2019
£m

Deferred tax - share based payments

0.4

Tax charge in the statement of changes in equity

0.4

In respect of Corporation tax, as at 29 February 2020 the Group has provided a total of £13.2m (2019: £13.9m) for potential tax future charges based upon the Group's best estimates and their discussions with HMRC. Adjustments in respect of previous periods include the above-mentioned increase in tax provisions relating to items which are subject to ongoing discussions with HMRC (2019: £9.1m).

8. 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, 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 that are one-off in nature, material by size and are considered to be distortive of the true underlying performance of the business (see note 5) 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 for the purposes of basic and diluted earnings per share:	52 weeks to 29 February 2020	52 weeks to 02 March 2019
	£m	£m
Total net profit/(loss) attributable to equity holders of the parent	27.4	(58.3)
Fair value adjustment to financial instruments (net of tax)	(3.8)	(3.6)
Exceptional items (net of tax)	23.0	122.7
Total net profit attributable to equity holders of the parent	46.6	60.8

Number of shares for the purposes of basic and diluted earnings per share:	52 weeks to 29 February 2020	52 weeks to 02 March 2019
	m	m
Weighted average number of shares in issue - basic	284.7	284.4
Dilutive effect of share options	0.3	0.4
Weighted average number of shares in issue - diluted	285.0	284.8

Earnings/(Loss) per share
Basic	9.63p	(20.50)p
Diluted	9.62p	(20.50)p

Adjusted earnings per share
Basic	16.37p	21.38p
Diluted	16.35p	21.38p

9. Intangible assets

	Brands	Software	Customer database	Total
	£m	£m	£m	£m
Cost
As at 3 March 2018	16.9	330.9	1.9	349.7
Additions	-	32.9	-	32.9
Disposals	-	(2.4)	-	(2.4)
As at 2 March 2019	16.9	361.4	1.9	380.2
Additions	-	32.7	-	32.7
Disposals	-	(35.9)	-	(35.9)
As at 29 February 2020	16.9	358.2	1.9	377.0

Amortisation and impairment
As at 3 March 2018	8.0	183.8	1.9	193.7
Charge for the period	-	25.2	-	25.2
Impairment	7.1	10.7	-	17.8
Disposals	-	(1.7)	-	(1.7)
As at 2 March 2019	15.1	218.0	1.9	235.0
Charge for the period	-	24.7	-	24.7
Impairment	1.8	-	-	1.8
Disposals	-	(35.9)	-	(35.9)
As at 2 March 2019	16.9	206.8	1.9	225.6

Carrying amounts
As at 29 February 2020	-	151.4	-	151.4
As at 2 March 2019	1.8	143.4	-	145.2
As at 3 March 2018	8.9	147.1	-	156.0

Assets in the course of development included in intangible assets at the year end total £15.2m (2019: £35.4m). No amortisation is charged on these assets. Borrowing costs of £nil (2019: £nil) have been capitalised in the period.

As at 29 February 2020, the Group had entered into contractual commitments for the further development of intangible assets of £10.8m (2019: £4.7m) of which £5.4m (2019: £1.5m) is due to be paid within one year.

Impairment testing of intangible assets

The Group is undertaking a systems transformation project. Some elements of the project are not yet available for use and are not therefore being amortised. Where intangible assets are not being amortised management is required to test for impairment. At the balance sheet date, the market capitalisation of the Group was lower than the Group's net assets, following a significant drop in the Group's share price. As this is 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.

The value in use assessment has been performed over the Group's total assets under two CGUs, being Figleaves and core Group excluding Figleaves. The Group's results, performance and viability is assessed for the Group as a whole, with the exception of Figleaves that operates from a separate location and maintains a separate management structure.

The value in use calculations used cash flows based on budgets prepared by management covering a three-year period. These budgets 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 three-year cashflows, management have extrapolated the cashflows into a fourth and fifth year using a growth rate of 4.1%. After the fifth year cashflows, a terminal value was calculated based upon the long-term growth rate and the Group's risk adjusted pre-tax discount rate.

The Group's three-year cash flow projections were based upon the Group's three-year plan as at 29 February 2020. This detailed forecast addressed the challenges faced by the business during the current year, and assumed like-for-like sales and gross profit margin growth from the third year of the plan onwards. In accordance with the Group's accounting judgment explained in note 2 that the impact of Covid-19 is a non-adjusting post balance sheet event, these forecasts do not include the estimated impacts of Covid-19 that are currently being projected in the latest Board approved five -year plan. The potential impact if such forecasts are used is shown in note 17.

Other than the detailed budgets, the key assumptions in the value in use calculations are the growth rate applied in the fourth and fifth year cashflows, the long-term growth rate applied to the terminal period and the risk adjusted pre-tax discount rate. The growth rate for years four and five is aligned to the forecasted growth specific to the online retail sector. The long-term growth rate was determined with reference to forecast GDP growth which management believe is the most appropriate indicator of long-term growth rates that was available at 29 February 2020. The long-term growth rate used is purely for the impairment testing of intangible assets and brands under IAS 36 'Impairment of Assets' and does not reflect long-term planning assumptions used by the Group for investment proposals or for any other assessments. The pre-tax discount rate was based on the Group's weighted average cost of capital as at 29 February 2020, taking into account the cost of capital and borrowings, to which specific market-related premium adjustments are made.

The key assumptions are as follows:

· Expected future cash inflows;

· Years 4 and 5 growth rate: 4.1% (2019: 1.5%)

· Long-term growth rate: 1.3% (2019: 1.5%)

· Pre-tax discount rate: 11.2% (2019: 10.7%)

Following the Board's Strategic review and refocus to the Group's key five brands, an impairment of the full carrying value of the remaining brands of High and Mighty, Slimma, Diva and Dannimac has been recorded (£1.8m), reflecting the value in use of these assets, and has been disclosed in note 5. These assets formed part of the Group's core CGU excluding Figleaves.

The impairment review performed over the Group's core CGU has indicated that no impairment is required over the remaining assets of the Group.

The following sensitivities have been applied to the key assumptions:

(a) Stress to three year cashflows by 5% which has indicated potential impairment in the order of £45m;

(b) Decrease in long term growth rate by 1%, resulting in the recoverable amount of the Group assets still exceeding their carrying value by £41m;

(c) Decrease in Years 4 and 5 growth rate by 1% resulting in the recoverable amount of the Group assets still exceeding their carrying value by £60m; and

(d) Increasing discount rate by 1% which has indicated potential impairment in the order of £20m.

10. Property, plant and equipment

	Land and buildings	Fixtures and equipment	Total
	£m	£m	£m
Cost
As at 3 March 2018	59.1	130.9	190.0
Additions	-	3.4	3.4
Disposals	-	(11.6)	(11.6)
As at 2 March 2019	59.1	122.7	181.8
Additions	-	6.5	6.5
Reclassifications	-	0.9	0.9
Disposals	-	(50.1)	(50.1)
As at 29 February 2020	59.1	80.0	139.1

Depreciation and impairment
As at 3 March 2018	15.4	107.2	122.6
Charge for the period	1.2	3.7	4.9
Impairment	-	1.5	1.5
Disposals	-	(6.6)	(6.6)
As at 2 March 2019	16.6	105.8	122.4
Charge for the period	1.2	3.0	4.2
Disposals	-	(50.1)	(50.1)
As at 29 February 2020	17.8	58.7	76.5

Carrying amounts
As at 29 February 2020	41.3	21.3	62.6
As at 2 March 2019	42.5	16.9	59.4
As at 3 March 2018	43.7	23.7	67.4

Assets in the course of development included in fixtures and equipment at 29 February 2020 total £8.7m (2019: £2.3m), and in land and buildings total £nil (2019: £nil). No depreciation has been charged on these assets.

At 29 February 2020, the Group had not entered into any contractual commitments for the acquisition of property, plant and equipment (2019: £nil).

Disposals relate to the retirement of assets no longer in service. All retired assets were fully depreciated and therefore no loss arose as a result (2019: £5.0m).

The reclassification of £0.9m in the year relates to engineering stock reclassified from inventory in line with IAS 16.

11. Trade and other receivables

	52 weeks to 29 February 2020	52 weeks to 02 March 2019
	£m	£m
Amounts receivable for the sale of goods and services	656.9	682.2
Allowance for expected credit losses	(71.7)	(97.1)
Net trade receivables	585.2	585.1
Other debtors and prepayments	29.2	34.7
	614.4	619.8

Trade receivables are measured at amortised cost.

The amount of expected repayments in relation to net trade receivables for the next 12 months is estimated to be £415.8m.

The weighted average APR across the trade receivables portfolio is 57.9% (2019: 59.2%). 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.

Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer's credit quality and bespoke credit limit. Credit limits and scores attributed to customers are reviewed every 28 days.

The following table provides information about the exposure to credit risk and ECLs for trade receivables as at 29 February 2020.

The carrying amount of trade receivables whose terms have been renegotiated but would otherwise be past due totalled £8.7m at 29 February 2020 (2019: £19.9m). Interest income recognised on trade receivables which were impaired as at 29 February 2020 was £16.0m (2019: £16.2m).

The amounts written off in the period of £159.3m (2019: £137.9m) include the sale of impaired assets with a net book value of £19.9m (2019: £14.7m).

There is no significant concentration of credit risk due to the large number of credit customers (1.0 million (2019: 1.1 million)) with individually small balances.

	2020 £m			2019 £m
Ageing of trade receivables	Trade receivables	Trade receivables on payment arrangements	Total trade receivables	Trade receivables	Trade receivables on payment arrangements	Total trade receivables
Current - not past due	550.7	8.7	559.4	558.5	19.9	578.4
28 days - past due	35.9	1.5	37.4	35.4	3.3	38.7
56 days - past due	19.5	0.7	20.2	20.7	1.3	22.0
84 days - past due	13.0	0.6	13.6	14.7	0.9	15.6
112 days - past due	8.9	0.4	9.3	10.3	0.6	10.9
Over 112 days - past due	16.4	0.6	17.0	15.8	0.8	16.6
Gross trade receivables	644.4	12.5	656.9	655.4	26.8	682.2
Allowance for expected credit losses	(66.3)	(5.4)	(71.7)	(83.5)	(13.6)	(97.1)
Net trade receivables	578.1	7.1	585.2	571.9	13.2	585.1

Movement in the allowance for expected credit losses	2020 £m	2019 £m
Opening balance	97.1	116.0
Impairment	142.7	119.0
Utilised during the period	(168.1)	(137.9)
Closing balance	71.7	97.1

		2020 £m
Impairment		142.7
Recoveries		(17.0)
Other items		1.9
Net impairment charge		127.6

12. Trade and other payables

	As at 29 February 2020	As at 02 March 2019
	£m	£m
Trade payables	65.9	81.0
Other payables	7.1	14.0
Accruals and deferred income	37.5	57.2
	110.5	152.2

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 54 days (2019: 48 days).

The Group has financial risk management policies in place to ensure that all payables are paid within agreed credit terms.

'Other payables' include a net VAT creditor, comprising the VAT debtor which arises from day to day trading together with amounts in relation to matters which are in discussion with HMRC. The Group was in a long running dispute with HMRC with respect to the VAT treatment of certain marketing and non-marketing costs and the allocation of those costs between our retail and credit businesses. The case was heard in a first tier VAT Tribunal in May 2018 with a draft decision being issued in November 2018 which was made public in March 2019.

Since this date the Group has been in discussions with HMRC to settle this matter and whilst substantial progress has been made, a final binding agreement has not yet been reached. As at 29 February 2020, the Group holds a creditor of £3.8m (£6.6m at 2 March 2019) in respect of this matter, being management's best estimate of the liability to settle, with the decrease since the prior year-end being due to the actualisation of the previously estimated cost disallowances.

The case had two key aspects, being attribution which is in respect of whether marketing costs can be directly attributed to product revenue or financial services income and secondly apportionment which is surrounding the allocation of marketing costs between the retail and financial services business. With respect to attribution, the judge agreed with HMRC, finding that when the Group is marketing goods it is also in effect marketing financial services, even if there is no reference to this in its marketing materials. The judge however ruled against HMRC's standard method of apportionment of costs (which is based on the proportion of total UK revenue which is generated from product sales).

Whilst discussions are ongoing with HMRC and a final outcome has not yet been achieved, following the final ruling management have reviewed the provision held as at March 2019 and as a result of this reduced the liability by £3.1m. The Group has not yet been assessed by HMRC for the period June 2017 to February 2020. However, adjustments have been made to the VAT returns throughout the period to estimate disallowances; which have resulted in an expense recognised in EBITDA of £0.3m. This results in a total reduction to the creditor of £2.8m and a VAT creditor at year end of £3.8m (2019: £6.6m). As a final settlement has not yet been reached, inherent uncertainty regarding the outcome of this position remains which means the eventual realisation could differ from the accounting estimate as at 29 February 2020. The Tribunal stay is in place until 30 June 2020. If no agreement is reached by this date, there could be a second tribunal hearing on this issue, but this is not management's current expectation.

13. Provisions

	Customer Redress	Store closures	Restructuring	Total
	£m	£m	£m	£m
Balance at 2 March 2019	17.4	7.4	-	24.8
Provisions made during the period	22.9	-	1.7	24.6
Provisions reversed during the period	-	(0.3)	-	(0.3)
Provisions used during the period	(32.0)	(3.1)	-	(35.1)
Reclassification at IFRS 16 transition	-	(2.9)	-	(2.9)
Balance at 29 February 2020	8.3	1.1	1.7	11.1

Current	8.3	1.1	1.7	11.1
Non-current	-	-		-
Balance at 29 February 2020	8.3	1.1	1.7	11.1

Store Closures

At the end of H1 FY19 the decision was made to close all stores and these were subsequently closed in August 2018. The costs were treated as an exceptional item and detailed separately in the income statement as per note 6. The provision was made in respect of onerous lease obligations and other store related closure costs.

The majority of these costs have been settled during the current and prior years, and amounts relating to the rental cost have been reclassified to offset against the right of use asset recognised at the transition date for IFRS 16, with the provision of £1.1m outstanding as at 29 February 2020 relating primarily to dilapidations and other costs of any remaining stores which will run to the earlier of the break clause or lease expiry for all stores. In the prior year provisions for onerous leases were recognised net of an estimate of potential sub-letting income.

Customer redress

The provision relates to the Group's liabilities in respect of costs expected to be incurred in respect of payments for historic financial services customer redress, which represents the best estimate of redress obligations, taking into account factors including risk and uncertainty.

As at 29 February 2020 the Group holds a provision of £8.3m (2019: £17.4m) in respect of the anticipated costs of historic financial services customer redress. These amounts include a provision of £nil (2019: £0.1m) in relation to administration expenses.

Restructuring

The provision relates to redundancy costs of £1.7m to be incurred by the Group. Prior to the reporting date, the Board approved a formal plan for the restructuring and appropriate communications with those affected were carried out which has created a constructive obligation.

14. Dividends

As previously communicated in its March 23 release, the Group will not be paying a final dividend in relation to the current trading period.

15. IFRS 16 Leases

The Group leases various buildings, equipment and vehicles under non-cancellable operating leases of varying lengths. In accordance with IFRS 16, from 3 March 2019 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, and within note 1.

Amounts recognised in the Balance Sheet

The Consolidated balance sheet as at 29 February 2020 shows the following amounts relating to leases. As IFRS 16 has not been applied retrospectively the balances alongside represent the equivalent balances at the start of the accounting period after restating for IFRS 16:

Right of use assets	Land and buildings £m	Fixtures and equipment £m	Total £m
3 March 2019	4.7	1.5	6.2
Additions	-	0.7	0.7
Depreciation	(1.1)	(0.2)	(1.3)
29 February 2020	3.6	2.0	5.6

Lease liabilities	2020 £m	3 March 2019 £m
Current	2.2	3.5
Non-current	4.7	6.0
	6.9	9.5

Amounts recognised in the Income Statement

The Consolidated Income Statement shows the following amount relating to leases:

	2020 £m	2019 £m
Depreciation charge of right-of-use buildings	1.1	-
Depreciation charge of right-of-use equipment and vehicles	0.2	-
Interest expense (included in finance costs)	0.1	-
Expense relating to leases of low-value assets (included in cost of sales)	0.8	-
Expense relating to short term leases (included in cost of sales)	0.1

The total cash outflow for leases during the year was £4.4m.

In the prior year all leases were classified as operating leases under IAS 17. Because there were no leases classified as finance leases, no lease liabilities or related assets were recognised in the prior year balance sheet.

The required disclosures under IAS 17 for these operating leases for the prior year are shown below:

		2019 £m
Minimum lease payments under operating leases recognised as an expense for the period		2.3

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:

		2019 £m
Within one year		2.1
In the second to fifth years inclusive		4.3
After five years		1.7
		8.1

16. Post Balance Sheet Events

This note sets out the subsequent events which are material to the Group up to the date of this report.

New financing arrangements

On 18 May 2020, the Group secured new financing arrangements with its long-standing supportive lenders.

These new arrangements comprise:

· A new 3-year Term Loan facility up to £50 million, provided by our lenders under the Government's Coronavirus Large Business Interruption Loan Scheme ("CLBILS"). This facility requires the Group to comply with various additional covenants including the Group being unable to pay any cash dividends for as long as the facilities remain in place;

· The widening of certain covenants at the August 2020 half-year test date in its existing unsecured £125 million Revolving Credit Facility ("RCF") and the introduction of quarterly covenant tests.

Impact of Covid-19

Management have considered the potential impact on the 29 February 2020 balance sheet if COVID-19 had been treated as an adjusting event, specifically in regards to the recoverability of its tangible, intangible assets and inventory and the impairment of the trade receivables and fair value of the Group's pension surplus.

Asset Impairment

The Group has considered the risk of impairment of its tangible and intangible assets after the balance sheet date, as a result of the impact of Covid-19 on the business, by reperforming the impairment test, using the latest Board approved base trading five year forecasts which includes the estimated impacts of Covid-19. Other key assumptions have also been reviewed and updated where appropriate in light of current market conditions. The resulting value in use exceeds the carrying value of the Group's tangible and intangible assets. The following sensitivities have been performed under the base scenario with no impairment resulting for these:

(a) Decrease in long term growth rate by 1%;

(b) Decrease in Years 4 and 5 growth rate by 1%;

It is recognised that the current trading outlook remains highly uncertain and hence management have also assessed for impairment under the core Group downside trading forecasts. No impairment has resulted from this further sensitivity.

Inventory

Following the Covid-19 lockdown, management performed an assessment of the Group's inventory holdings in light of the reduced demand in certain product lines, and the Group's five-year plan which includes the estimated impacts of Covid-19 (Base case) and have taken appropriate steps to reduce the Group's exposure in regard to the Spring/Summer 2020 season by cancelling all orders no longer needed. Whilst Covid-19 is expected to have a significant impact on the business in FY21, inventory held as at 29 February 2020 was £17.4m lower than the prior year and therefore management consider the maximum exposure in regards to inventory impairment to be £6.4m, of which £2.0m relates to supplier reimbursement for cancellation of orders.

IFRS 9 Allowance for expected credit losses

IFRS 9 requi res an entity to measure expected credit losses that reflect reasonable and supportable information that was available at the reporting date about past events, current conditions and forecasts of future conditions. As noted above, as at the 29 February 2020 reporting date, management could not have reasonably foreseen the material change to actual economic conditions that took place between the year-end and the date of approving these financial statements and to forecast future economic conditions that has now arisen due to the impact of the Covid-19 lockdown.

As a result, expected credit losses reported in the 29 February 2020 balance sheet have not been adjusted to include the expected impact of Covid-19 and instead this will be reported in future financial statements of the Group. A potential range for the increase to the 29 February 2020 expected credit loss provision and net impairment charge in the income statement if the impact of the Covid-19 lockdown had been adjusted is £7.7m to £17.7m.

Given the significant amount of uncertainty as to the extent of the impact of Covid-19 on the debtor book and the business as whole, the actual change to the expected credit loss provision recorded in future financial statements may differ to this.

The following matters have been taken into consideration in arriving at this estimate:

· applying an updated economic scenario into the existing expected credit loss (ECL) provision model to reflect current economic forecasts incorporating the impact of Covid-19 and support measures that been implemented by the government to support the economy;

· given that the extreme nature of the current and forecasted economic stress may not allow the economic inputs in the ECL model to accurately capture future credit losses, further adjustments to the model to increase expected probabilities of default have been applied; and

· reducing the amount of the expected future proceeds from debt sales (and therefore the modelled loss given default (LGD)) given the adverse impact forecasted on future debt sale market conditions.

The updated economic scenario for calendar years 2020 to 2024 that have been applied is shown below:

		2020	2021	2022	2023	2024
Unemployment rate (%)	Base	9.7	7.5	5.8	4.9	4.4
	Upside	9.3	7.1	5.4	4.4	3.9
	Downside	10.3	8.2	6.6	5.8	5.3
Annual real wage growth (%)	Base	(4.4)	5.3	1.6	1.4	1.5
	Upside	(1.5)	6.3	2.5	2.3	2.4
	Downside	(7.2)	4.5	0.9	0.9	1.1

Within the probability of default (PD) and LGD stresses outlined above, management have considered the impact on expected credit losses that may arise from the FCA guidance issued on 9 April 2020 that consumer credit lenders, including the Group, should provide under certain circumstances temporary financial relief for customers impacted by Covid-19. Where a customer is already experiencing or reasonably expects to experience temporary payment difficulties as a result of circumstances relating to Covid-19, and wishes to receive a payment deferral, the guidance requires the Group to grant the customer a payment deferral for 3 months unless it is obviously not in the customer's interests to do so. As at 18 June 2020, the Group had entered into payment holiday arrangements with 9,932 customers with a value of £17.1m.

The bottom end of the potential range disclosed above applies in full the upside economic scenario outlined above, a 10% PD increase and a 10% debt sale price reduction. The top end of the range applies in full the downside economic scenario outlined above, a 30% PD increase and a 30% debt sale price reduction.

17. Prior Year Adjustment

During the period ended 29 February 2020, the Group identified that £12.5m of goods in transit as at 2 March 2019 were not recorded as part of the inventory balance as at the prior period end when they should have been. These goods in transit represented the Group's inventories as at 2 March 2019 as the Group had obtained control of these assets, having accepted the goods and gained the risks and rewards of ownership, as at that date, as per their agreed supplier terms.

Part of the goods in transit as at 2 March 2019 was already paid for as at that date and were incorrectly recorded as prepaid balances of £1.1m and £3.8m within 'Trade and other receivables' and 'Trade and other payables' respectively instead of being recorded as inventories. No liability was recorded for the unpaid goods in transit of £7.6m as at 2 March 2019.

As a result, inventory balance was understated by £12.5m, trade and other receivables were overstated by £1.2m and trade and other payables were understated by £11.3m as at the prior period end.

These adjustments have no impact on the Group net assets or profit or loss in the prior year and preceding year, and therefore no impact on basic or diluted earnings per share. In addition, within the cashflow statement the movement in inventories, trade and other receivables and trade and other payables have been impacted, however there was no impact on net cashflows from operating activities in either the prior or preceding years.

The prior period has accordingly been restated to correct for these, as shown below. The affected financial statement line items for the prior period are as follows:

Balance sheet (extract)	2 March 2019 £m	Adjustment £m	2 March 2019 (Restated) £m
Current assets
Inventories	99.8	12.5	112.3
Trade and other receivables	621.0	(1.2)	619.8
Current liabilities
Trade and other payables	(140.9)	(11.3)	(152.2)
Net assets	311.4	-	311.4
Total Equity	311.4	-	311.4

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. The Group identified that £16.2m of goods in transit as at 4 March 2018 were not recorded as part of the inventory balance when they should have been. Part of the goods in transit as at 4 March 2018 was already paid for as at that date and were incorrectly recorded as prepaid balances of £4.8m within 'Trade and other payables' instead of being recorded as inventories. No liability was recorded for the unpaid goods in transit of £11.3m as at 4 March 2018.

The opening balance sheet of the prior period has accordingly been restated to correct for these, as shown below. The affected financial statement line items are as follows:

Balance sheet (extract)	4 March 2018 £m	Adjustment £m	4 March 2018 (Restated) £m
Current assets
Inventories	110.6	16.2	126.8
Trade and other receivables	652.7	-	652.7
Current liabilities
Trade and other payables	(131.7)	(16.2)	(147.9)
Net assets	459.6	-	459.6
Total Equity	459.6	-	459.6

18. Allianz claim and counterclaim

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. This insurance was underwritten by Allianz Insurance plc ("Allianz"). JDW was an unregulated entity prior to 14 January 2005 in respect of the sale of PPI insurance. The regulated entity prior to 14 January 2005 was Allianz.

In recent years, JDW and Allianz have paid out significant amounts of redress to customers in respect of certain insurance products, including PPI. In July 2014 JDW and Allianz entered into an indemnity agreement in respect of certain PPI mis-selling liabilities (Indemnity Agreement). In September 2018 JDW and Allianz entered into a Complaints Handling Agreement (CHA) to regulate complaints handling and redress payments for both parties in respect of pre-2005 PPI claims.

In January 2020, a claim was issued against JDW by Allianz in respect of all payments of redress Allianz has made to JDW's PPI customers together with all associated costs. Allianz have made a claim in contribution as well as asserting a number of direct claims against JDW in relation to:

· the Indemnity Agreement;

· alleged negligence as its agent; and

· alleged breaches of the CHA.

On 5 March 2020 JDW issued its defence which refuted each element of the claim and also issued counterclaims in respect of the losses JDW has suffered in respect of two separate insurance policies underwritten by Allianz. JDW has claimed that:

· Allianz is liable to compensate JDW for such loss and damage by way of a contribution to JDW's liability in relation to Product Protection Insurance sales (a separate product to PPI);

· Allianz has been unjustly enriched to the extent that its liability to the complainants was discharged and JDW seeks restitution of all such sums; and

· JDW seeks contribution from Allianz in respect of sums paid by JDW pursuant to the CHA as Allianz was also liable for the same damages in relation to Payment Protection Insurance.

On 9 April 2020 JDW received a Reply and Defence to JDW's counterclaim. This document confirmed that the amount of Allianz's claim was £28m plus interest.

All claims made by Allianz, and counterclaimed by JDW, remain subject to final determination by the court, both as to their success and quantum. The claim and counterclaim are extremely complex, are at an early stage of proceedings and both parties will need to gather detailed and factual expert evidence in relation to multiple elements of the claim and counterclaim.

Having taken legal advice on its own position, the Group has concluded that these issues mean it is not possible to reliably estimate the amount of any potential settlement and has therefore not provided any amount for this claim at this time.

There is also considerable uncertainty as to the timing of any cash outflows/inflows from the claim/counterclaim given that the legal process remains at an early stage and the potential disruption to court timings and process as a result of Covid-19. Legal fees are expected to continue to be incurred during FY21 but it is possible that the cashflows resulting from the claim and/or counterclaim may not arise until FY22.

This report was approved by the Board of Directors on 24 June 2020.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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Final Results

FULL YEAR RESULTS FOR THE 52 WEEKS ENDED 29 FEBRUARY 2020 AND TRADING UPDATE FOR Q1 FY21

Refreshed strategy to return N Brown to sustainable growth

FY20 Results Highlights

Steve Johnson, Chief Executive, said:

Webcast for analysts and investors:

For further information:

Q1 FY21 TRADING UPDATE

Responding to the Covid-19 pandemic

Improved sales trajectory

Swift and decisive action on cost base

Cash and liquidity significantly improved

On 18th May 2020, the Group agreed new amended financing facilities:

FY21 Guidance

We expect our cost mitigations and significant reductions to capex (expected to be c.£20m) and exceptional costs (expected to be less than £10m) to drive improved cash generation in FY21 leading to net debt to be in the range of £380m to £400m at the year end.

RETURNING N BROWN TO SUSTAINABLE GROWTH

Summary

REVIEW OF FY20

FINANCIAL REVIEW

Gross margin

Operating costs before exceptionals

Net finance costs

Exceptional items

Allianz claim and counterclaim

Taxation

The effective underlying rate of corporation tax (the tax rate excluding exceptional items) is 21.5% (FY19: 26.9%) and the year-on-year difference is largely due to smaller prior year adjustments being made in FY20. The overall tax charge after exceptional items is £8.3m (FY19: £0.8m).

Earnings per share

Dividend

Financial services

Balance Sheet and Cash Flow

FX sensitivity

Companies

UK 100

Latest directors dealings

On 18^th May 2020, the Group agreed new amended financing facilities: