Half year results

RNS Number : 3153E

Brown (N.) Group PLC

05 November 2020

 

5 November 2020

HALF YEAR RESULTS FOR THE 26 WEEKS ENDED 29 AUGUST 2020

 

Continued recovery and clear opportunity to accelerate profitable growth strategy

£m	26 weeks to 29 August 2020 (H1'21)	26 weeks to 31 August 2019 (H1'20)	% Change
Group revenue	356.7	432.9	(17.6%)
Product revenue	224.5	282.3	(20.5%)
Financial services revenue	132.2	150.6	(12.2%)
Adjusted EBITDA1	48.0	54.1	(11.3%)
Statutory operating profit	26.5	14.7	+80.3%
Adjusted profit before tax2	22.6	31.8	(28.9%)
Statutory profit before tax	14.1	18.8	(25.0%)
Unsecured net debt3	32.2	77.5	(58.5%)
Overall net debt4	411.1	497.0	(17.3%)

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 £378.9m and lease liabilities of £6.0m. 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.

 

H1 Results Highlights

Improved product revenue trajectory through Q2 supported by the launch of Home Essentials

· Product revenue was -28.8% in Q1, recovering to -12.0% in Q2

Acceleration of digital transformation

· 92% of H1'21 product revenue through digital channels, an increase of 8 percentage points vs H1'20

Significant operating cost efficiencies offset more than 90% of gross margin decline

· Material savings in all areas of the cost base, particularly in improving marketing efficiency

Adjusted profit before tax down £9.2m or 28.9% to £22.6m

· Inclusive of absorbing a £17m IFRS9 Covid-19 bad debt provision to cover the cost of defaults which may arise in the future.  Current cash collection rates have remained stable

Reduction in debt underway and continuing

· 17.3% reduction in overall net debt, banking facilities successfully extended, and previous material uncertainty removed

Strategic Progress in H1

In our last annual results announcement in June , we set out our refreshed strategy to drive profitable digital growth. We are now in the "accelerate" phase of our strategy driven by our five growth pillars and have made solid progress within the half.

Simplification of the brand portfolio 

· Successfully migrated High & Mighty and House of Bath customers to Jacamo and Ambrose Wilson, two of the core brands.

Improvements to product proposition

· Greater proportion (65%) of product is being designed inhouse, whilst key brand partners such as Ralph Lauren and Hugo Boss are extending the "best" element of our range.

Successful Launch of Home Essentials website in April 

· Home & Gift has grown by 25.4% in H1'21 vs H1'20 as demand increased within this category

Advancing digital experience

· Roll out of Bloomreach across core brands, an advanced merchandising tool that optimises and personalises customer experiences

Smarter credit offering 

· Enabled through partnership with Aire Labs, improving our lending proposition

 

Proposed Equity Raise

The Group has separately announced today:

· A proposed equity raise of c.£100 million by way of a fully pre-emptive placing to the Substantial Shareholder, subject to clawback under the £100 million open offer to all shareholders at a price of 57 pence per share, to strengthen the balance sheet and accelerate profitable growth;

· The proposed delisting of its Ordinary Shares from the premium segment of the Official List and admission to AIM; and

· The agreement of new and extended bank facilities conditional on completion of the Capital Raising.

Steve Johnson, Chief Executive, said:

"We continue to transform the shape of N Brown against the uncertain backdrop of COVID-19, and I am hugely grateful to all our colleagues who are enabling us to do this.

Our core, streamlined fashion brand proposition, supported by ever-more sophisticated digital capabilities, have driven a recovery in product sales since the initial impact of the pandemic.  This has been supported by a strong uplift in Home and Gift sales following the launch of our new Home Essentials brand, with customers looking to improve their homes amidst the UK restrictions.  We also continue to support customers wishing to use our flexible credit solutions.

Having restructured the business and transitioned to more than 90% of revenues from digital, we now see a clear opportunity to capitalise on various industry drivers, not least the increasing trend towards online retail, and further improve our customer proposition. Today's separately announced proposed capital raise will give us the firepower to invest further in our digital capabilities and accelerate our growth strategy, whilst significantly strengthening the Group's balance sheet to provide us with ongoing flexibility and a strong platform from which to deliver attractive returns for all of our shareholders.

Whilst we are mindful of an uncertain UK retail environment, we are confident we can continue to build on the unique strength of the Group's brands. We remain focused on creating a sustainable business delivering profitable growth over the long term."

Webcast for analysts and investors:

A webcast presentation of these results will take place at 9am on 5 November 2020 followed by a Q&A conference call for analysts and investors.  Please contact [e-mail] for details. 

For further information:

N Brown Group
Sian Scriven, Corporate Communications Manager	07825 593 118
MHP Communications
Andrew Jaques / Simon Hockridge / James Midmer	0203 128 8789 [e-mail]

About N Brown Group:

N Brown is a top 10 UK clothing & footwear digital retailer. Our retail brands are JD Williams, Simply Be, Jacamo, Ambrose Wilson and Home Essentials 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 2,000 people across the UK. 

H1'21 PERFORMANCE REVIEW

 

In June 2020 we announced our refreshed strategy to return N Brown to sustainable growth by developing a stronger brand and product proposition for our customers, driving profitability through the retail business and continuing to offer attractive and flexible credit solutions. The pandemic has accelerated our digital transformation and we are making continued efficiencies in our operating cost base, particularly removing material amounts of unprofitable marketing spend through more effective use of data and AI tools, enabling us to attract new customers to our brand portfolio. The operating model has been successfully restructured and we are now in the "accelerate" phase of our strategy driven by our five growth pillars:

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 are underpinned by our people and culture, data and a sustainable cost base appropriate for a digital retailer. An update on each is provided below.

1.  Distinct brands to attract broader range of customers

As set out in our FY20 results, our review of the markets in which we operate highlighted that we needed to extend our reach to a broader set of customers through a portfolio of brands with clearer, more focused propositions. We are therefore simplifying our portfolio to four apparel brands and one standalone home brand as follows:

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

· Jacamo - a size-inclusive online fashion & grooming brand for men, targeting men aged 25-50.

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

· Ambrose Wilson - an online womenswear brand for the more mature customer, supported by home, targeting women aged 65+

· Home Essentials - a one stop home brand offering modern homeware helping customers to "dress their homes" and enabled by a credit offering. The target customer is mums aged 25-45 with children at home.

In transitioning our loyal and valuable customers from our legacy brands into these core brands, we are focused on ensuring   that they continue to enjoy a highly differentiated product offer and the customer service which they have come to expect. Progress has been made with the discontinuation of the High & Mighty and House of Bath brands, and the successful migration of customers to Jacamo and Ambrose Wilson respectively, simplifying from 12 brands at the end of FY20 to 10 brands now.

We have also refreshed our creative style for the AW20 season, with more brand relevant imagery to support building stronger brand identities. Social media continues to play a key role in our brand marketing strategy. We use digital channels extensively to engage with and inspire our customers, both existing and new. During the period, revenue generated via social media was up 12% across the group, with a total of 1.4m followers across Facebook and Instagram, of which 7% were acquired in the half.  

2.  Improved product to drive customer frequency

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

· First, we are improving our product 'handwriting' through clearly defined designs for each brand, investing in fabric, quality and consistency of fit. Our focus is on responding promptly to changing trends and customer demand. For example, in the period we successfully pivoted to newly resilient categories such as Leisurewear and Nightwear, whilst protecting our 'famous for' categories such as Lingerie.  We have increased the number of 'own designed' ranges from 57% to 65% which support a clear design identity for each brand.  We have also started the process of improving fabric quality with positive customer feedback on new soft touch jerseys and our sustainable denim range.

· Secondly, we are renewing our 'good / better / best' product architecture. This is being done through a well-defined and responsive pricing strategy including better curation of branded products. We recently launched Hugo Boss and Ralph Lauren on Jacamo in order to offer our customers premium products across a market leading range of sizes.

· Thirdly, we will continue to focus on ethical and sustainable sourcing, ensuring a consistent and consolidated supply base.  We have launched a new ESG strategy (covered in a separate section).  As a part of this, we have a clearly defined roadmap to increase the number of environmentally sustainable products in our ranges.  Currently 45% of cotton in our denim ranges is BCI cotton and  we have also launched our new sustainable denim range on Jacamo in the period.

· Finally, we have further consolidated our supplier base, with a 21% year on year reduction in the total number of suppliers to 939. Despite a challenging sourcing environment brought about by Covid, through strong communication with our partners in the supply chain we were able to respond with increasing flexibility to shifting customer demands and delivered on average a 2.5 week improvement in lead times on product changes throughout the period.

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

On April 1^st we launched our Home Essentials brand as a standalone trading site for customers who enjoy dressing their home with a close eye on affordability. We have curated a home furnishings offer alongside electrical and gifting categories; much of this product offer is designed by and unique to the Group. Strong partnerships with Apple and Samsung have allowed us to launch key products, such as the new PlayStation 5 and most recently the iPhone 12, with our flexible credit offering facilitating a wide range of customers to access these high value products . Our home proposition is primarily available from the new Home Essentials website but is also accessible to existing customers of our other brands, albeit in a way which is curated for the respective brand customer.

The timing of our Home Essentials launch coincided with an increase in consumer demand for Home and Garden, triggered by the pandemic, which had an immediate impact on the Group's Home sales and has subsequently been sustained.  We were quick to pivot our offering to address new customer demand trends, for example by expanding our electrical and home office proposition which saw increased demand, particularly during the first national lockdown.

In addition we launched Facebook and Instagram pages for Home Essentials in April, which have gained over 50,000 followers since then. The strength of this social media reception has demonstrated the significant opportunities available to us to inspire and serve even more potential customers through these channels in the future.  

4.  Enhanced digital experience to increase customer conversion

We are adopting a more agile approach to upgrading our technology than we have in the past, focusing on frequent, incremental value gains. In the period we have focused on developing a new website front end to improve our customer facing digital capabilities. The first component to this is the delivery of a new sales journey, supported by a fresh customer experience in line with brand principles and improved search, navigation, product listing, details pages, bag and checkout functions. An additional benefit to this is an improvement to site speed which is key to enhancing search engine optimisation ('SEO'). We are targeting the launch of this first phase of components on Simply Be in the next financial year. Following a launch on Simply Be, new website front ends will be rolled out across other brands and there is opportunity to accelerate this if additional investment is available.

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 with a personalised product list based on their preferences. Bloomreach is now live across all of our core brands.

We have also started developing new Application Programming Interfaces for social media integration to enable more automated re-targeting of customers. Once embedded, this will increase efficiency and is expected to benefit conversion.

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.

As the refined brand propositions attract a broader and more affluent section of the market, we have begun the process of developing new financial products that are familiar to these customers and drive higher volumes of full price incremental retail sales. Supporting the delivery of these new credit options will be our new Financial Services platform and we have made good progress in a discovery phase to help understand the different delivery options.

We are also enhancing our use of data sources, analytical tools and techniques to improve our lending proposition. Aire Labs is an AI tool which supports better credit decisions and customer outcomes.  This is helping drive incremental improvement and we see further opportunities in this area  

Given the importance of financial services to our business, we have also refreshed the internal team, including the creation of new roles in key areas such commercial finance and marketing.

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

People and Culture

Our colleagues are our biggest asset and this year they have shown commitment like no other in their flexibility and adaptability in response to the change in ways of working due to the pandemic. We have remained fully operational throughout the pandemic and we are grateful to our colleagues for the part they have played in this.

W e continued to refresh our executive leadership team in the period with Rachel Izzard, CFO, and Sarah Welsh, Retail CEO, joining the Group. We have also strengthened our product team through a series of senior hires and appointments with a new Group Buying Director, Group Design Director and a newly created role of Group Sourcing, Sustainability, Quality and Fit Director.

Data

We continue to increase our use of data across the business to get to know our customers better and drive continued efficiencies in revenue, marketing and product ranging. Our use of data has been crucial in analysing unprofitable marketing expenditure and making our cost base more efficient and sustainable.  We recently won the award for the Best Use of AI at the Drapers Digital Awards 2020 which recognised our use of AI to develop a model to predict customer lifetime value. The model has enabled strategic investment decisions to be made based on the future profitability of customers and is an example of how we are using data to drive efficiencies in marketing spend.

Sustainable cost base

Key to the delivery of our strategy is an appropriate cost base which will help build retail profitability. We took swift and decisive action to respond to the pandemic and were able to reduce our operating costs by 40.5% in the half. We also took the difficult decision to conduct a redundancy program across both our head office and logistics sites in order to ensure the Group had an appropriate organisational structure for a post-Covid environment . This process resulted in c.230 colleagues leaving the business, who we were unable to redeploy in other areas. We had previously identified a range of sustainable efficiencies in our marketing costs and were able to accelerate these in response to the trading environment. Our agility and flexibility delivered a 67% reduction in marketing expenditure, far in excess of the 17.6% decline in Group revenue in the half. Targeted initiatives across the entire cost base resulted in operating costs as a percentage of revenue significantly improving from 41.0% in H1'20 to 29.6% in H1'21.

Environment, Social and Governance - new four-year sustainability plan

In the half year we launched our new four-year sustainability plan that aligns with the values of the business. We know that we work most effectively when we closely collaborate with our suppliers and partners to ensure that, united, we achieve our goals and enable the changes required to "do the right thing".

Year one of the sustainability plan focuses on plastics. We want N Brown to be known for using sustainable packaging across our fashion brands and, ultimately, we want to be one of the first major digital retailers to go fully sustainable on packaging.  We will begin the trial of Green Polyethylene (Green PE) despatch bags on Simply Be and Jacamo in the second half of this financial year with the aim of changing all despatch bags for these brands over to Green PE by the end of FY22.

Since the beginning of the Covid-19 outbreak we have supported both our local communities affected by the crisis and those who are working tirelessly on the frontline. Through the donation of net sales proceeds from a range of face coverings and rainbow themed products sold across our sites, we are raising money for NHS Charities Together. We have made donations of clothing and household items to frontline NHS staff in Manchester and donated face masks and face shields to a local care home near to our distribution centre in Oldham. Donations of clothing have also been made to a local charity supporting vulnerable people and children within the local community.

Responding to Covid-19

Our absolute priority remains to protect the health, safety and wellbeing of our colleagues, both across our distribution centres and at head office, whilst maintaining continuity of service for our customers shopping our brands.  Since the outbreak of Covid-19 we have managed to keep a continuous supply of goods to our customers, whilst at all times keeping colleagues safe in our distribution centres and head office and operating in line with Government guidelines.

In March, we made several changes to ensure continuing safe operations and to follow the Public Health England guidelines on social distancing and the subsequent guidelines for workplaces.  Across our sites we made significant changes including re-organising the floorplan layouts to ensure social distancing, introduced one-way walkways, increased points of access and exit, staggered the entry and exit times of colleagues and laid out clear floor markings.  We also installed thermal imaging cameras, significantly expanded our cleaning regime and introduced additional hand washing stations for all colleagues.  In April, we placed 512 colleagues whose work had significantly diminished onto the government's Coronavirus Job Retention Scheme (CJRS), allowing us to reduce costs and protect the business during a difficult trading period. As trading has recovered, almost all of these colleagues have now returned to work.

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 the pandemic and for their continued unstinting commitment to supporting our loyal customer base.  As we enter a second national lockdown in England,  we will continue to support and work collaboratively with all our colleagues and supplier partners.

FY21 Guidance

The start of the pandemic saw a material downturn in trading performance and whilst this has significantly improved, the ongoing external uncertainties mean we are not in a position to provide formal guidance, though we will continue to reassess this position based on the visibility we have within the business.

We have seen an improving trend in product revenue, particularly with the strengthening of apparel sales through Q2. Financial Services revenue has been impacted by lower product revenue as a result of Covid-19.  Product gross margin pressure is expected to continue, primarily due to the mix effect of increasing Home & Gift sales. Financial Services gross margin will be lower than the prior year as a result of previously guided regulatory pressures and an increase in bad debt provisioning due to the impact of Covid-19. The Group remains 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 margin.

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

Summary and outlook

We have made good progress in executing our strategy to unlock significant addressable market potential in the future, with progress being achieved in all five growth pillars and our three enablers. We are entering our most important trading period, at a time when it is difficult to predict the potential impact of increasing economic uncertainty, including the new national restrictions announced on 31 October.  Notwithstanding, the Group continues to trade in line with the Board's expectations and w e continue to be excited about the opportunity for N Brown to return to growth, building on the strong platform that we have created with a priority to deliver long-term, sustainable shareholder returns.

FINANCIAL REVIEW

 

In a very uncertain environment, the Group delivered a resilient performance in the period.  Product revenue in March experienced a sudden and significant decline at the onset of the pandemic but steadily recovered over the following months.  Swift and decisive action at the start of the pandemic, combined with delivery of strategic initiatives, enabled the Group to make material cost savings and these were supported with Government support from the Coronavirus Job Retention Scheme.  Despite seeing no change in customer behaviour and an improved arrears position, IFRS 9 requires the inclusion of expected credit losses that consider the forecast impact of the pandemic, which has resulted in an increase to the bad debt provision of £17m. Excluding the impact of IFRS 9 provisions, all profit measures would have moved ahead of the prior year.  As a result of an on-going focus on cash generation, tight cost control, reduction in capital expenditure and suspension of the dividend, together with a smaller debtor book, the Group started its objective of reducing its level of indebtedness with net debt falling 17.3% in the period.

 

Revenue

 

£m	H1 FY21	H1 FY20	Change
Revenue
JD Williams	63.4	75.7	(16.2%)
Simply Be	53.5	60.9	(12.2%)
Ambrose Wilson	14.7	23.2	(36.6%)
Womenswear	131.6	159.8	(17.6%)
Menswear1	26.3	32.4	(18.8%)
Product brands2	66.0	88.1	(25.1%)
Product revenue excluding US revenue	223.9	280.3	(20.1%)
US revenue	0.6	2.0	(70.0%)
Total product revenue	224.5	282.3	(20.5%)
Financial services revenue	132.2	150.6	(12.2%)
Group revenue	356.7	432.9	(17.6%)

1.  Menswear is the Jacamo brand

2.  Product brands are Fashion World, Premier Man, House of Bath, Marisota, Oxendales, High & Mighty and Figleaves. Home Essentials is included in this line as it was only launched on 1 April 2020.

Group revenue declined 17.6% to £356.7m, as a result of a 20.5% decline in product revenue and a 12.2% decline in financial services revenue.

Product revenue

The 20.5% decline in product revenue was primarily driven by the sudden and significant impact of Covid-19 at the start of the period.  Product revenue was down 28.8% in the first quarter and recovered to be down 12.0% in the second quarter, when compared to the same periods in the prior year.  The second quarter benefitted from the release of £5.7m of returns provision as the Group experienced a lower rate of returns across the half year compared to historic averages.  Overall returns in H1'21 were c.10 percentage points lower than the prior period inclusive of both the strong mix effect from the increase in Home & Gift sales, and the customer pivot away from higher returns apparel categories. Normalising this release across the quarters gives an underlying decrease in Product revenue versus last year of 24.8% in the first quarter and 16.1% in the second quarter.  The Group also continued its strategy in the period of removing unprofitable marketing expenditure which eliminated some unprofitable digital and non-digital sales.  The Group accelerated its digital transformation in the period, with digital sales now accounting for 92% of product revenue, an increase of 8 percentage points compared to the prior half year.

Financial services revenue

Financial services revenue decreased 12.2% to £132.2m.  Revenue was lower in the period as a result of regulatory changes and lower product revenue leading to a smaller debtor book. In the period credit account interest was down 10.7% reflecting the smaller debtor book, this decrease was accompanied by a 27.1% reduction in other financial services revenue as a result of lower administration fees due to a higher proportion of the debtor book being up to date.

Profit statement

£m	H1 FY21	H1 FY20	Change
Product gross profit	99.8	145.3	(31.3%)
Product gross margin %	44.5%	51.5%	(700bps)
Financial services gross profit	53.9	86.5	(37.7%)
Financial services gross margin %	40.8%	57.4%	(1660bps)
Group gross profit	153.7	231.8	(33.7%)
Group gross profit margin	43.1%	53.5%	(1040bps)
Warehouse & fulfilment costs	(30.3)	(39.9)	(24.1%)
Marketing & production costs	(25.9)	(78.4)	(67.0%)
Admin & payroll costs	(49.5)	(59.4)	(16.7%)
Total operating costs	(105.7)	(177.7)	(40.5%)
Adjusted EBITDA1	48.0	54.1	(11.3%)
Adjusted EBITDA1 margin %	13.5%	12.5%	+100bps
Depreciation & amortisation	(17.0)	(14.4)	+18.1%
Operating profit before exceptionals	31.0	39.7	(21.9%)
Operating profit before exceptionals margin %	8.7%	9.3%	(60bps)
Operating profit	26.5	14.7	+80.3%
Operating profit margin %	7.4%	3.4%	+400bps
Net Finance costs	(8.4)	(7.9)	+6.3%
Adjusted profit before tax2	22.6	31.8	(28.9%)
Exceptional items	(4.5)	(25.0)	(82.0%)
Fair value adjustments to financial instruments	(4.0)	12.0	n/a
Statutory profit before tax	14.1	18.8	(25.0%)
Adjusted basic earnings per share (p per share) 2	6.72	8.87	(24.2%)
Statutory basic earnings per share (p per share)	4.33	4.95	(12.5%)
Dividend (p per share)	-	2.83p	-

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 and 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 underlying operational activities of the Group.

Gross margin

The Group's gross margin was 43.1%, compared to 53.5% in H1'20, with two thirds of the margin impact driven by the previously guided increase in the IFRS 9 provision.

The Financial Services gross margin declined 1660bps to 40.8% due to the movement in the H1'21 impairment provision. In accordance with IFRS9, the Group has increased the impairment provision by £17m to reflect expected credit losses as a result of Covid-19 macroeconomic impacts and payment deferrals.

Product gross margin declined 700bps to 44.5% as a result of the strategic decision to pivot the customer offer towards Home & Gift.  Whilst Home & Gift has a lower gross margin it also has a much lower returns rate.  Product gross margin also declined as a consequence of successfully cancelling out of orders and discounting to clear down older stock, all of which helped to preserve liquidity headroom at the start of the pandemic.  The clearance of older stock was a primary driver of stock levels being materially lower year-on-year.

Operating costs before exceptionals

In response to the pandemic we were able to take swift and decisive action on the operating cost base, highlighting the agility of the business model.  In the period, operating expenses before exceptionals decreased by 40.5% significantly more than the 17.6% decline in Group revenue.  Marketing costs were down 67.0% year on year to £25.9m as a result of reducing expenditure when the pandemic started to impact trading and also the continued removal of unprofitable marketing expenditure.  Admin and payroll costs decreased by 16.7% to £49.5m, driven predominantly by continued Head Office efficiencies.  Warehouse and fulfilment costs decreased by 24.1% to £30.3m, driven by efficiencies and lower volumes.  Across Warehouse & Fulfilment and Admin & Payroll, the Group benefitted from c.£3.3m of furlough support from the Government.

Adjusted EBITDA and operating profit before exceptional items

Adjusted EBITDA decreased by 11.3% to £48.0m, however the adjusted EBITDA margin increased by 100bps to 13.5% (H1'20: 12.5%) as a result of the significant reduction in operating costs.  Overall, operating profit before exceptional items was £31.0m, down 21.9% year on year, a decrease of £8.7m inclusive of the additional £17m IFRS 9 provision. Operating profit margin decreased by 60bps to 8.7%.  Statutory profit (i.e. after exceptional items) was £14.1m a decrease of £4.7m compared to the prior period.

Depreciation and Amortisation

Depreciation and Amortisation was £17.0m, compared to £14.4m in the prior period primarily due to the acceleration of depreciation on systems replaced in the period.

Net finance costs

Net finance costs were £8.4m, up 6.3% compared to last year primarily driven by a higher level of net debt at the start of the period.

Exceptional items

Exceptional items were significantly lower compared to the prior period. The impairment of tangible, intangible assets & brands primarily relates to the write down in full of the legacy international business' intangible assets. Restructuring costs relate to redundancy costs associated with the Group's response to Covid-19. Further details can be found in note 5.

£m	H1 FY21	H1 FY20
Customer Redress	(0.7)	25.0
Store Closure costs	0.2	-
Impairment of tangible assets, intangible assets & brands	1.7	-
Restructuring costs	2.7	-
VAT partial exemption cost	0.2	-
Other tax matters including associated legal & professional fees	1.8	-
Gain from early settlement of derivative contracts	(1.4)	-
Total exceptional costs	4.5	25.0

 

Adjusted profit before tax and statutory profit before tax

Adjusted profit before tax was £22.6m, down 28.9% year on year as a result of lower gross profit and increased net finance costs. 

Statutory profit before tax was £14.1m (H1'20: £18.8m) which reflects the £20.5m improvement in exceptional costs noted above offset by a £16.0m reduction in fair value adjustments to financial instruments.  The £4.7m reduction in statutory profit before tax is inclusive of the £17m additional IFRS 9 provision made in the period.

 

Taxation

The taxation charge for the period is based on the underlying estimated effective tax rate for the full year of 19.2%.  Further details are contained in Note 7.

 

Earnings per share

Adjusted earnings per share was 6.72p (H1'20: 8.87p). Statutory earnings per share was 4.33p (H1'20: 4.95p).

Dividend

As announced on 23 March 2020 due to the impact of Covid-19 the Board has suspended dividend payments for the foreseeable future.  Therefore, the Board have therefore not declared an interim dividend (HY20 2.83p).

Financial services

In the half year, the size of the Financial Services business reduced as lower retail sales over the preceding and current period generated lower additions to the loan book, whilst customer repayment rates stayed in line with previous periods and as a consequence, repayments were solid.  The steady customer behaviour also resulted in lower write offs and an underlying improvement in the quality of the debtors balance with an associated improvement in underlying bad debt provision rates. 

In order to maximise the opportunity of the sale of loans, the regular bi-annual sale at the end of each half year has been amended into a single sale planned for later in the year.

As a result of the uncertainty in future macro-economic conditions as a consequence of Covid-19, the Group has made an additional bad debt provision of £17m to cover the cost of defaults which may arise in the future.  Customer behaviour has yet to show any material adverse change.

Customer loan balances have therefore reduced in the period, and IFRS9 provision rates increased as shown in the following table:

£m	29 August 2020	31 August 2019	Change % / Ratio (bps)
Gross customer loan balances	632.1	658.0	(3.9%)
IFRS 9 bad debt provision	(91.7)	(78.2)	(17.2%)
Normal account provisions	(52.3)	(69.1)	24.3%
Debt earmarked for sale provisions	(22.4)	(9.1)	(146%)
Covid-19 impacts	(17.0)	-	NA
IFRS 9 provision / loan book ratio	14.5%	11.9%	+260bps
Net customer loan balances	540.4	579.8	(6.8%)

For the first half, the profit and loss net impairment charge was £77.3m, £14.8m higher than last year due to underlying improvements offset by the increase in IFRS9 provision as shown below:

£m	HY to  29 August 20
H1'20 net impairment charge	62.5
Prior year impairment provision improvement	7.0
Under IFRS 9, we have provided an extra £17m for expected future credit losses as a result of the economic impacts of Covid-19	17.0
A reduction in the amount of written-off debt sold due to improved arrears performance	3.2
Smaller debtor book.  The debtor book has reduced due to lower product sales	(5.4)
Improved book quality, driving lower arrears and strong collections performance	(7.0)
H1'21 net impairment charge	77.3

 

Balance Sheet and Cash Flow

The Group reduced capital expenditure in the period by 48.4% to £11.3m (H1'20: £21.9m) to preserve liquidity at the start of the pandemic. Inventory levels at the period end were down 31.8%, to £80.5m (H1'20 restated: £118.0m) following the Group's concerted efforts to reduce the level of inventories held in respect of old seasons, as well as due to the impact of reduced demand in the period.

Gross trade receivables decreased by 3.8% to £632.1m (FY20: £656.9m) primarily driven by lower product sales, net of the deferral of the debt sale.

Net cash generated from operations (excluding taxation) was £103.3m compared to £31.5m in the same period last year.  This was a result of an improved working capital position due to the reduction in the debtor book and improved inventory position combined with tight cost control delivering EBITDA of £48m.

As a result of the Group's on-going focus on cash generation, tight cost control, reduction in capital expenditure and suspension of the dividend, together with a smaller debtor book, the Group made good progress in reducing its level of indebtedness.  The Group has reduced net debt by 17.3% in the period, to £411.1m (FY20: £497.0m).  The £540.4m net customer loan book significantly exceeds this net debt figure.  Unsecured net debt, which is defined as the amount drawn on the Group's unsecured borrowing facilities less cash balances was £32.2m, which after adjusting for restricted cash, means the Group's leverage is 0.38 calculated as unsecured net debt as at 29 August 2020 compared to adjusted EBITDA for the 12 months to 29 August 2020.

Announced alongside the FY'21 H1 interim results, the company is proposing a fully underwritten supported equity raise of £100 million.  The Group has also secured irrevocable commitments from its longstanding supportive lenders to provide extensions to its RCF and securitisation facilities as described below, with separate fully committed structures agreed to cover either the capital raise transacting or not transacting.  Previously the RCF facility of £125 million was committed until October 2021 and the securitisation facility of £500 million until December 2021.

Resulting funding and liquidity position

In the event of a successful completion to the £100 million capital raise, the resulting funding facilities and liquidity position will be as follows:  

1.  An up to £500 million securitisation facility committed until December 2023, drawings on which are linked to prevailing levels of eligible receivables;

2.  An RCF of £100 million committed until December 2023 (of which £75m is currently drawn and after the equity is raised this will become fully undrawn);

3.  An overdraft facility of £27.5 million which is subject to an annual review every July (currently undrawn); and

4.  The £50m CLBILS Term Loan Facility committed until May 2023 (currently £2 million drawn) will be repaid and handed back without penalty.

5.  Post enactment unsecured net debt will move into a net cash position, undrawn headroom on unsecured credit facilities improves by £2 million, and certainty of funding tenor is extended.

Following the capital raise and de-leveraging, the remaining c.£18 million of the net raise of £95 million will be available to accelerate the new strategy.

In the event that the capital raise does not complete the resulting funding facilities and liquidity position are as follows:

1.  An up to £500 million securitisation facility committed until December 2023, drawings on which are linked to prevailing levels of eligible receivables, identical to the capital raise scenario;

2.  An RCF of £100 million (of which £75 million is currently drawn) reducing to £50 million from October 2021, committed until May 2022;

3.  An overdraft facility of £27.5 million which is subject to an annual review every July (currently undrawn)

4.  A £50 million CLBILS Term Loan Facility committed until May 2023 (currently £2million drawn)

5.  Post enactment unsecured net debt remains unchanged, undrawn headroom on unsecured credit facilities reduces by £25 million (remaining higher than prior year due to cash generation in the period and the introduction of the CLBILS facility), and certainty of funding tenor is extended.

Pension scheme

The Group's defined benefit pension scheme has a surplus of £31.0 million (H1'20: £24.4 million surplus).  The small increase in the surplus is as primarily due to strong asset returns during the period.

Unaudited Condensed consolidated income statement

for the 26 weeks ended 29 August 2020

		26 weeks to 29 August 2020	26 weeks to 29 August 2020	26 weeks to 29 August 2020	26 weeks to 31 August 2019	26 weeks to 31 August 2019	26 weeks to 31 August 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		234.7	-	234.7	296.3	-	296.3
Credit account interest	4	122.0	-	122.0	136.6	-	136.6
Total revenue	4	356.7	-	356.7	432.9	-	432.9
Cost of sales		(125.7)		(125.7)	(138.6)	-	(138.6)
Impairment losses on customer receivables	4	(77.3)	-	(77.3)	(64.4)	-	(64.4)
Profit on sale of customer receivables	4	-	-	-	1.9	-	1.9
Net impairment charge	4	(77.3)	-	(77.3)	(62.5)	-	(62.5)
Gross profit	4	153.7	-	153.7	231.8	-	231.8
Operating profit	4	31.0	(4.5)	26.5	39.7	(25.0)	14.7
Finance costs		(8.4)	-	(8.4)	(7.9)	-	(7.9)
Profit before taxation and fair value adjustments to financial instruments		22.6	(4.5)	18.1	31.8	(25.0)	6.8
Fair value adjustments to financial instruments	6	(4.0)	-	(4.0)	12.0	-	12.0
Profit before taxation		18.6	(4.5)	14.1	43.8	(25.0)	18.8
Taxation	7	(2.7)	0.9	(1.8)	(8.8)	4.1	(4.7)
Profit for the period		15.9	(3.6)	12.3	35.0	(20.9)	14.1
Earnings per share from continuing operations
Basic	8			4.33p			4.95p
Diluted	8			4.32p			4.93p

Unaudited condensed consolidated statement of comprehensive income

for the 26 weeks ended 29 August 2020

	26 weeks to 29 August 2020	26 weeks to 31 August 2019
	£m	£m
Profit for the period	12.3	14.1
Items that will not be classified subsequently to profit or loss:
Actuarial gains/(losses) on defined benefit pension schemes	4.7	(0.8)
Tax relating to items not reclassified	(1.7)	(0.1)
	3.0	(0.9)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations	0.5	(1.5)
Total comprehensive income for the period attributable to equity holders of the parent	15.8	11.7

Condensed consolidated balance sheet

As at 29 August 2020

		As at 29 August 2020 (unaudited)	As at 31 August 2019 (unaudited) *Restated	As at 29 February 2020 (audited)
	Note	£m	£m	£m
Non-current assets
Intangible assets	10	145.0	150.6	151.4
Property, plant & equipment	11	61.8	60.6	62.6
Right-of-use assets		4.7	5.4	5.6
Retirement benefit surplus		31.0	24.4	26.3
Derivative financial instruments	6	0.6	-	1.3
Deferred tax assets		13.2	15.5	13.2
		256.3	256.5	260.4
Current assets
Inventories		80.5	118.0	94.9
Trade and other receivables	12	568.7	617.6	614.4
Derivative financial instruments	6	1.3	10.4	4.0
Cash and cash equivalents		44.8	58.0	47.5
		695.3	804.0	760.8
Total assets		951.6	1,060.5	1,021.2
Current liabilities
Bank overdraft	15	-	(0.5)	-
Provisions	13	(7.2)	(35.1)	(11.1)
Trade and other payables	14	(112.2)	(145.6)	(110.5)
Lease liability		(2.2)	(2.0)	(2.2)
Derivative financial instruments	6	(1.5)	-	(1.3)
Current tax liability		(17.6)	(5.4)	(13.8)
		(140.7)	(188.6)	(138.9)
Net current assets		554.6	615.4	621.9
Non-current liabilities
Bank loans	15	(455.9)	(539.1)	(544.6)
Lease liability		(3.8)	(5.7)	(4.7)
Derivative financial instruments	6	(1.5)	-	(0.9)
Deferred tax liabilities		(16.4)	(16.4)	(14.6)
		(477.6)	(561.2)	(564.8)
Total liabilities		(618.3)	(749.8)	(703.7)
Net assets		333.3	310.7	317.5
Equity
Share capital		31.4	31.4	31.4
Share premium		11.0	11.0	11.0
Own shares		(0.3)	(0.3)	(0.3)
Foreign currency translation reserve		3.5	1.3	3.0
Retained earnings		287.7	267.3	272.4
Total equity		333.3	310.7	317.5
*Refer to prior period adjustment note 17

Condensed consolidated cash flow statement

For the 26 weeks ended 29 August 2020

		26 weeks to 29 August 2020 (unaudited)	26 weeks to 31 August 2019 (unaudited) *Restated	52 weeks to 29 February 2020 (audited)
		£m	£m	£m
Net cash inflow from operating activities		105.5	30.2	51.4
Investing activities
Purchase of property, plant and equipment		(0.5)	(3.5)	(6.5)
Expenditure on intangible assets		(10.8)	(18.4)	(33.2)
Net cash used in investing activities		(11.3)	(21.9)	(39.7)
Financing activities
Interest paid		(9.3)	(7.9)	(17.8)
Dividends paid		-	(12.1)	(20.1)
(Repayment of)/increase in bank loans		(88.7)	39.4	44.4
Principal elements of lease payments		(0.9)	(1.8)	(3.5)
Purchase of shares by ESOT		-	(0.2)	(0.1)
Net cash from financing activities		(98.9)	17.4	2.9
Net foreign exchange difference		2.0	-	0.6
Net (decrease) /increase in cash and cash equivalents and bank overdraft		(2.7)	25.7	15.2
Cash and cash equivalents at beginning of period		47.5	32.3	32.3
Cash and cash equivalents at end of period		44.8	58.0	47.5
* Restatement in respect of cashflows resulting from the adoption of IFRS 16 and stock in transit prior period adjustment as per note 17

Reconciliation of operating profit to net cash from operating activities

		26 weeks to 29 August 2020	26 weeks to 31 August 2019	52 weeks to 29 February 2020
		£m	*Restated £m	£m
Profit for the period		12.3	14.1	27.4
Adjustments for:
Taxation charge		1.8	4.7	8.3
Fair value adjustments to financial instruments		4.0	(12.0)	(4.7)
Net foreign exchange difference		(2.0)	-	(0.6)
Finance costs		8.4	7.9	17.1
Depreciation of right-of-use assets		0.9	0.7	1.3
Depreciation of property, plant and equipment		2.0	1.9	4.2
Impairment of intangible assets		1.7	-	1.8
Amortisation of intangible assets		14.7	11.8	24.7
Share option charge / (credit)		-	0.2	(1.3)
Operating cash flows before movements in working capital		43.8	29.3	78.2
Decrease / (increase) in inventories		14.4	(5.6)	16.6
Decrease in trade and other receivables		46.3	0.4	5.5
Increase /(decrease) in trade and other payables		2.6	(5.0)	(41.1)
(Decrease) /Increase in provisions		(3.9)	13.2	(10.9)
Pension obligation adjustment		0.1	(0.8)	(0.7)
Cash generated by operations		103.3	31.5	47.6
Taxation received / (paid)		2.2	(1.3)	3.8
Net cash inflow from operating activities		105.5	30.2	51.4
*Refer to prior period adjustment note 17
Changes in liabilities from financing activities		26 weeks to 29 August 2020	26 weeks to 31 August 2019	52 weeks to 29 February 2020
		£m	£m	£m
Loans and borrowings balance brought forward		551.5	500.2	500.2
Changes from financing cashflows
Net (repayment)/proceeds from loans and borrowings		(88.5)	38.8	43.2
Leases recognised at transition to IFRS 16		-	9.5	9.5
New leases entered into in the period		-	-	0.9
Lease payments in the period		(0.9)	(1.8)	(3.6)
(Decrease) / Increase in loans and borrowings due to interest		(0.2)	0.6	1.3
Loans and borrowings balance carried forward		461.9	547.3	551.5

Unaudited consolidated statement of changes in equity

	Share Capital	Share premium	Own shares	Foreign currency translation reserve	Retained earnings	Total
	£m	£m	£m	£m	£m	£m
Changes in equity for the 26 weeks to 31 August 2019
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	-	-	-	-	14.1	14.1
Other items of comprehensive income for the period	-	-	-	(1.5)	(0.9)	(2.4)
Total comprehensive profit for the period	-	-	-	(1.5)	13.2	11.7
Transactions with owners recorded directly in equity
Equity dividends	-	-	-	-	(12.1)	(12.1)
Share option credit	-	-	-	-	0.2	0.2
Tax on items recognised directly in equity	-	-	-	-	-	-
Total contributions by and distributions to the owners	-	-	-	-	(11.9)	(11.9)
Balance at 31 August 2019	31.4	11.0	(0.3)	1.3	267.3	310.7
Total comprehensive income for the period
Profit for the period	-	-	-	-	13.3	13.3
Other items of comprehensive income for the period	-	-	-	1.7	1.4	3.1
Total comprehensive income for the period	-	-	-	1.7	14.7	16.4
Transactions with owners recorded directly in equity
Equity dividends	-	-	-	-	(8.0)	(8.0)
Issue of own shares by ESOT	-	-	-	-	(1.5)	(1.5)
Share option charge	-	-	-	-	(0.1)	(0.1)
Tax on items recognised directly in equity	-	-	-	-	-	-
Total contributions by and distributions to the owners	-	-	-	-	(9.6)	(9.6)
Balance at 29 February 2020	31.4	11.0	(0.3)	3.0	272.4	317.5
Total comprehensive income for the period
Profit for the period	-	-	-	-	12.3	12.3
Other items of comprehensive income for the period	-	-	-	0.5	3.0	3.5
Total comprehensive income for the period	-	-	-	0.5	15.3	15.8
Transactions with owners recorded directly in equity
Equity dividends	-	-	-	-	-	-
Issue of own shares by ESOT	-	-	-	-	-	-
Share option charge	-	-	-	-	-	-
Tax on items recognised directly in equity	-	-	-	-	-	-
Total contributions by and distributions to the owners	-	-	-	-	-	-
Balance at 29 August 2020	31.4	11.0	(0.3)	3.5	287.7	333.3

for the 26 weeks ended 29 August 2020

Notes to the unaudited consolidated financial statements

For the 26 weeks ended 29 August 2020

1.  Basis of preparation

This condensed set of consolidated interim financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted for use in the EU. They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 29 February 2020. The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU.

The comparative figures for the year ended 29 February 2020 are extracted from the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) includes 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 section 498 (2) or (3) of the Companies Act 2006.

After making appropriate enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in the preparation of these financial statements. This is explained in further detail in note 3.

The accounting policies and presentation adopted in the preparation of these consolidated interim financial statements are consistent with those disclosed in the published annual report & accounts for the 52 weeks ended 29 February 2020 except for the accounting for government grants as set out below for funds received under the UK Government's Coronavirus Job Retention Scheme which has been paid to employees on furlough.

Grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are recognised in profit and loss when they become receivable to match them with the already incurred staff costs with which they are intended to compensate.

At the date of issue of these interim financial statements the following standards and interpretations became effective in the current financial year, and have been applied for the first time in these financial statements:

-  Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

-  Definition of Material (Amendments to IAS1 and IAS8)

-  Definition of a Business (Amendments to IFRS 3)

-  Revised "Conceptual Framework" and "Amendments to References to the Conceptual Framework in IFRS Standards"

-  Covid-19 Related Rent Concessions amendment to IFRS 16

None of these new standards and interpretations have had any material impact on these financial statements.

2.  Key risks and uncertainties

The Group has identified a set of primary risks with the potential to impact on performance and the delivery of the strategic roadmap in year or through the planning cycle.

14 primary risks have been defined under the Group's Risk Management Framework approach:

I.  Strategic;

II.  Business Resilience;

III.  Change Management;

IV.  Process; People; Supplier;

V.  Financial; Conduct;

VI.  Legal and Regulatory;

VII. Financial Crime;

VIII.  Technology;

IX.  Data;

X.  Information Security; and

XI.  Credit Risk.

The residual risk profile of the majority of these remains unchanged from the year-end annual report. Some have improved.  Where the risk profile has deteriorated this is generally a result of continued uncertainty in the risk outlook or uncontrollable external or market events rather than a deterioration in the underlying control environment. Control enhancements are identified routinely and on a continuous basis as the Risk Management Framework is rolled out across each primary risk category.

Covid-19 and its related impacts continues to dominate the Group's near-term operational risk horizon. Stress-test and scenario planning has been undertaken in relation to a range of extreme but plausible scenarios which include the impact on demand for retail goods resulting from a downturn in consumer confidence, the ability of our credit customers to maintain contractual payments, and loss of operational continuity arising from local,  regional and national lock-down restrictions. 

Management maintains reasonable assurance over the Group's outlook across the range of scenarios modelled but acknowledges that the profile of risks related to the Covid-19 pandemic is subject to rapid change and significant uncertainty.  Medium and longer-term macro-economic and social impacts are difficult to determine and the modelling that has been undertaken does not include the most severe of possibilities.

Strategic & Business Resilience - The Group is continuing to manage specific risks in relation to Covid-19 and Brexit.  The Board has continued to monitor Brexit impacts and mitigations with management throughout the year via the business's Brexit Steering Committee actions and outputs.  Management have a comprehensive and appropriate set of mitigations in place to ensure the least disruption is incurred by the business in each of the areas of risk identified - most significantly in relation to supply chain continuity and tariff arrangements.  While there continues to be significant uncertainty in relation to the Brexit scenario and the related impacts, the Group continues to plan for the potentially significant impact of a 'no deal' Brexit. As such we do not consider the outlook for the impact of Brexit related risk to have materially changed in the period under review.

The risk of continued business interruption is likely to remain the new-norm for the foreseeable future in the context of Covid-19.  The business has continued to perform well in the context of restrictions and impacts related to the pandemic.  Resilience, continuity, and disaster recovery capability has been successfully exercised and significantly real-world stress-tested through Covid-19 incident management.

Change Management & Process - Despite the constraints presented by the pandemic scenario the Group has made significant progress against its change and transformation agenda over the past 18 months and has adopted a more agile, squad-based change and transformation methodology. The profile of change has increased significantly since year-end with a raft of key strategic change initiatives initiating or delivering within the period.  The adoption of enhanced change methodologies, in parallel with the roll-out of risk-control self-assessments for key functional areas deploying change, and the development of risk, delivery and operational assurance models for strategic change programmes such as Financial Services Platform has improved the Group's overall change management and change control capability in relation this risk. Enhanced pre and post implementation review arrangements and incident management routines have also been under development since year-end.

People & Suppliers- There has been a continuing focus on optimising the cost base and organisational structure during the period with the realisation of right-sizing of people costs aligned to lower levels of customer demand, and as the Group further develops the capabilities appropriate to a digital retailer, embeds a values and behaviour culture and launches its diversity and inclusion strategies. The Group has made continued use of the Coronavirus Job Retention Scheme and has reviewed and maintained strong relationships with supply chain partners.

Management acknowledges that the profile of risks related to the Covid-19 pandemic is subject to rapid change and significant uncertainty, as such the Group considers that risks related to colleague well-being and availability are likely to remain prevalent for the duration of the pandemic.

The Group has ensured that its workspaces and facilities comply with the strictest application of UK Gov Workplace Guidance and with the British Retail Consortiums Gold Standard requirements.  Arrangements have been reviewed by Public Health England and appropriate Local Healthy Authorities and Councils and deemed to be sector leading.  The Group continues to make the safety of colleagues a primary concern and colleagues who are able to work from home effectively are being asked and supported to do so on a continuing basis.

The Group operates facilities and premises that have fallen within areas of higher tiered restriction or local lock-down for the vast majority of the pandemic.  Despite this, and as a result of clear colleague communications and effective adoption of Covid-19 workplace guidance, employee absence has tracked only nominally above the normative range, and rates of reported Covid-19 infection amongst colleagues remains significantly below national averages.  Stress-scenario continuity plans were developed at the start of the crisis and are reviewed weekly in the context of local, regional, and national trends, advice and guidance to ensure the resilience and continuity of the Group's operations.  Management have determined that no increased risk is presented to the Group as a result of the cessation of the Coronavirus Job Retention Scheme currently planned for December.

Financial - In-line with the position reported at year-end consumer sentiment and engagement remains a key risk - particularly in relation to the profile of retail demand and the ability of credit customers to maintain their contractual payments. 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. 

Treasury and working capital risk management activity has continued during the period.  A focus on management of costs and cash generation from ongoing trading have helped to further mitigate risks. The Group has made use of the Coronavirus Job Retention Scheme and renegotiated with its existing banking partners to safeguard the continuity of funding arrangements and mitigate risks related to cashflow.

Conduct, Legal and Regulatory & Financial Crime - As reported at year-end, the regulatory landscape is likely to remain challenging for some time as the FCA and ICO focus on the heightened risks to consumers posed by Covid-19 and related economic and operational impacts. Current thematic work around vulnerable customers, financial difficulties and affordability is likely to have a higher profile in the context of the pandemic, 

The Group continuously monitors and assesses all applicable areas of regulatory change and responds accordingly and has through the period continued to upweight its control, 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. The delivery of fair outcomes and ongoing support and forbearance to customers impacted by Covid-19 remains a key area of focus, however, no new areas of regulatory focus have been identified during the period. 

Technology - The Group has continued to improve the profile of risks related to a reliance on legacy IT estate and end of life systems since year end through the development of arrangements with strategic outsource partners and actions and plans to further decouple and de-risk monolithic IT infrastructures.

Data & Information Security - The harnessing of Data as a key enabler of our strategy remains a key area of focus. Enhanced routines and control standards to protect our data assets and our customers personal data have been introduced during the period and continue to mature.  While the risk of cyber-attack and fraud increased exponentially through the first period of the pandemic and is likely to remain prevalent, the Group has continued to invest in a range of tactical, organisational, systemic and systematic controls to improve our data security environment.

Credit - The Group's Credit offering remains a key enabler of product sales as well as a revenue and margin stream. As at year-end conditions have remained challenging during the period with the Group having to implement iterative FCA Covid-19 related lending policies at extremely short notice. The impact of Covid-19 on the broader macro-economic scenario continues to give rise to the increased risk of bad-debt and adverse shifts in payment and arrears rates.  However, the Group has fared well to date, adopting as it has an approach predicated on responsible lending and delivering good customer outcomes and as yet there has been no marked deterioration in customer behaviour. 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. 

Critical judgements and key sources of estimation uncertainty

In preparing the condensed interim financial statements, the areas of critical judgements made by management in applying Group's accounting policies and the key sources of estimation uncertainty related to the same areas as those applied to the consolidated financial statements for the year ended 29 February 2020, other than:

· the calculation of the Group's VAT liability is no longer a critical judgement due to the Group settling its long running dispute 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; and

· the impact of Covid-19 is no longer treated as a non-adjusting post balance sheet event in these interim financial statements as the World Health Organisation declaration of a global pandemic and UK and Irish lockdowns took place in the period.

The key areas of significant judgements made by management in applying the Group's accounting policies during the period were as follows:  

· Trade receivables impairment (critical judgement and estimation uncertainty)

· Software development costs (critical judgement)

· Impairment of non-financial assets (critical judgement and estimation uncertainty)

· Inventory provisioning (estimation uncertainty)

· Allianz claim and counterclaim (critical judgement)

The impact of Covid-19 on the above key areas of significant judgement is summarised as follows:

· Trade receivables impairment - the impact of Covid-19 on expected credit losses during the period was £17m. This compares to an estimated range provided in the 29^th February 2020 annual accounts of £8-18m.

To indicate the level of estimation uncertainty, the impact on the expected credit loss ("ECL") of applying different model parameters are shown below:

§ a 20% increase in PDs would lead to a £3.6m increase in the ECL;

§ a 20% reduction in debt sale prices would lead to a £1.2m increase in the ECL; and

§ a 20 percentage point increase in the provision rate applied against all customers who have taken a payment holiday due to Covid-19 would increase the ECL by £4m.

· Impairment of non-financial assets - there has been no impairment impact on the Group's tangible and intangible assets as a result of the impact of Covid-19 on the business. The Group's market capitalisation at the balance sheet date has returned to pre-Covid 19 levels, albeit still lower than the Group's net assets. As this is an indicator for impairment, management is required to test for impairment over the Group's total assets. No impairment has been identified as a result of this review. Further details are provided in Note 10.

· Inventory provisioning- 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, and have taken appropriate steps to reduce the Group's exposure in regard to the Spring/Summer 2020 season by cancelling with no penalty orders no longer needed . Inventory levels were successfully reduced during the period through continued trading, to a level of £14.4m lower than the position as at 29 February 2020.

3.  Going Concern

a)  Conclusion

For the reasons set out in detail below, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the next 18 months. Accordingly, they continue to adopt the going concern basis in the preparation of these financial statements.

The Directors believe there are no longer any material uncertainties that may cast significant doubt on the Group's ability to continue as a going concern. This has changed compared to the FY20 full year conclusion in light of the Group securing irrevocable commitments from its lenders to extend its unsecured borrowing facilities until at least May 2022 and its securitisation borrowing facilities until December 2023.

b)  Rationale for Conclusion

As at 29 August 2020, the Group had total accessible liquidity ("TAL") of £164.5m, which was £89.5m higher than as reported at 29 February 2020, primarily due to the additional £50m CLBILS facility granted in May 2020 and additional cash generation measures taken in H1 totalling £45.3m.

The liquidity position has then been assessed on a forward basis considering the following:

c)  Equity raise and revised financing arrangements (see also note 19)

Announced concurrent with the FY'21 H1 interim results, the company is proposing a fully supported equity raise of £100 million.  The Group has also secured irrevocable commitments from its longstanding supportive lenders to provide extensions to its RCF and securitisation facilities as described below, with separate fully committed structures agreed to cover either the capital raise transacting or not transacting.  Previously the RCF facility of £125 million was committed until October 2021 and the securitisation facility of £500 million until December 2021.

If the £100m capital raise transacts the resulting funding facilities following completion in December 2020 would be as follows:

· An up to £500 million securitisation facility committed until December 2023, drawings on which are linked to prevailing levels of eligible receivables;

· An RCF of £100 million committed until December 2023 (of which £75m was drawn as at 29 August 2020 and 30 October 2020) and after the equity is raised this will become fully undrawn);

· An overdraft facility of £27.5 million which is subject to an annual review every July (undrawn as at 29 August 2020 and 30 October 2020); and

· The £50m CLBILS Term Loan Facility committed until May 2023 (£2m drawn as at 29 August 2020 and 30 October 2020) will be repaid and handed back without penalty.

· Post enactment unsecured net debt will move into a net cash position, undrawn headroom on unsecured credit facilities improves by £2m (i.e. RCF undrawn increases from £50m to £100m and CLBILS undrawn decreases from £48m to £nil), and certainty of funding tenor is extended.

Following the net capital raise of £94.5m (i.e. after £5.5m of issue costs) and de-leveraging of £77m (i.e. paying back all £75m drawn on the RCF and £2m drawn on CLBILS), the remaining c.£18m of the net raise will be available to accelerate the new strategy.

If the capital raise does not transact the resulting funding facilities following completion in December 2020 would be as follows:

· An up to £500 million securitisation facility committed until December 2023, drawings on which are linked to prevailing levels of eligible receivables, identical to the capital raise scenario;

· An RCF of £100 million reducing to £50m from October 2021, committed until May 2022;

· An overdraft facility of £27.5 million which is subject to an annual review every July; and

· A £50 million CLBILS Term Loan Facility committed until May 2023.

· Post enactment unsecured net debt remains unchanged, undrawn headroom on unsecured credit facilities reduces by £25 million due to the reduction in the size of the RCF facility (remaining higher than prior year due to cash generation in the period and the introduction of the CLBILs facility), and certainty of funding tenor is extended.

Both scenarios include irrevocable commitments from our lenders and assist in removing financing uncertainty from the Group's financial forecasting across the working capital period.

d)  Current performance

Trading has improved from the sudden and significant decline experienced in March as explained further on page 11. Product revenue declined 20.5% in H1'21 vs the prior year, with the trajectory improving through the period, with Q1 down 24.8% and Q2 down 16.1% inclusive of rephasing of returns provisions and is expected to continue steadily improving through H2. 

As expected, lower product revenue, regulatory changes and a smaller debtor book resulted in lower financial services revenue, however customer behaviour in terms of loan repayment rates and arrears has remained in line or better than prior levels ensuring continued strong cash generation from the financial services business.

Excluding the impact of the additional bad debt provision resulting from Covid-19, EBITDA for H1 was higher than last year, due to continued flexible operating cost savings across all areas of the cost base, particularly in relation to marketing costs. 

The aforementioned performance, combined with reduced capital expenditure, a lower than previous level of exceptional charges, and the suspension of dividends led to net cash generation in H1'21 well ahead of prior periods.

Due to the continued uncertain outlook management actions continue to be in place to tightly control expenditure and to carefully monitor financial services customer repayment rates.

e)  Financial forecasts including downside scenario

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.

The borrowing facilities and liquidity have been based on the revised commitments covered in section 3 c) above.

The operating results have been forecast using a range of scenarios with a core forecast assuming;

· Since the initial significant impact of Covid-19 on product revenue, trends have continued to improve;

· The business continues to be fully operational throughout the remainder of the pandemic (as has been the case since the outset);

· Product gross margin pressure continues due to mix and a highly promotional retail market;

· Financial Services revenue reduces as the size of the loan book reduces considering lower product sales;

· FS gross margin declines due to previously guided regulatory pressures and an increase in bad debt and write offs due to the impact of Covid-19; and

· Operating cost efficiencies continue, at a slower pace than those achieved immediately post Covid-19, but of a material quantum such that they offset at least 75% of gross margin decline in FY21 and continue at a similar cost to revenue ratio into FY22.

This core forecast is that which the directors consider represents their best estimate of the future based on the information that is available to them at the time of the approval of this interim report.

It is recognised that there remains considerable uncertainty as to the continued impacts of Covid-19 on our customer base and we have therefore also constructed an updated severe but plausible downside scenario which applies sensitivities to Group revenue and associated costs, customer cash collections and impairment charges. For the purposes of assessing the Group's ability to continue as a going concern this severe downside forecast has been used. Specifically, in terms of the remainder of the current year and next financial year, key assumptions have been sensitised to the following levels:

· Retail product revenue - FY'21 H1 actual results down 20.5%, FY'21 H2 down 18.1%, FY22 Full Year down 16.6% (all movements vs FY20 actuals);

· Financial Services revenue - FY'21 H1 actual results down 12.3%, FY'21 H2 down 7.2%, FY22 Full Year down 14.6% (all movements vs FY20 actuals);

· Financial Services customer cash collection rate - reduction in monthly collections as a proportion of average debtor balances of up to 9% from equivalent FY20 levels until September 2021; and

· Financial Services bad debt impairment charges - additional impairments across FY21 and FY22 of £33m over and above the levels assumed in our base plan. This further impairment charge would represent over 5% of the current debtor book.

In the event the Capital Raising takes place, even under this severe downside scenario, all borrowing covenants would be met and the Group would have sufficient Total Accessible Liquidity to allow it to continue to trade for the foreseeable future.

In the event that the Capital Raising does not take place, modest actions fully within management's control such as deferrals of discretionary spend or working capital deferrals, at levels achieved in prior years, would be entered into when needed and would ensure all borrowing covenants continue to be met under the downside scenario. No such actions would be required under our core planning scenario. Therefore, even under this severe downside scenario, all borrowing covenants would be met and the Group would have sufficient Total Accessible Liquidity to allow it to continue to trade for the foreseeable future.

In summary, whether or not the Capital Raising takes place, the Directors are confident that the Group has access to sufficient financing facilities to meet its needs for at least next the next 18 months including in the event of a severe downside stress scenario.

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 disclosure analysing product revenue within the relevant operating segment, by brand categorisation and product type categorisation.

Analysis of revenue		26 weeks to 29 August 2020	26 weeks to 31 August 2019
		£m	£m
Product - total revenue		224.5	282.3
Credit account interest		122.0	136.6
Other financial services revenue		10.2	14.0
Financial services - total revenue		132.2	150.6
Revenue - Total		356.7	432.9
Product - total cost of sales		(124.7)	(137.0)
Impairment losses on customer receivables		(77.3)	(64.4)
Profit on sale of customer receivables		-	1.9
Net impairment charge Other financial services cost of sales		(77.3) (1.0)	(62.5) (1.6)
Financial services - total cost of sales		(78.3)	(64.1)
Cost of Sales - Total		(203.0)	(201.1)
Gross profit		153.7	231.8
Gross margin - Product		44.5%	51.5%
Gross margin - Financial Services		40.8%	57.4%
Warehouse & fulfilment		(30.3)	(39.9)
Marketing & production		(25.9)	(78.4)
Depreciation & amortisation		(17.0)	(14.4)
Other admin & payroll		(49.5)	(59.4)
Segment result & operating profit before exceptional items		31.0	39.7
Exceptional items (see note 5)		(4.5)	(25.0)
Segment result & operating profit		26.5	14.7
Finance costs		(8.4)	(7.9)
Fair value adjustments to financial instruments		(4.0)	12.0
Profit before taxation		14.1	18.8

		26 weeks to 29 August 2020	26 weeks to 31 August 2019
		£m	£m
Analysis of product revenue by brand
JD Williams		63.4	75.7
Simply Be		53.5	60.9
Ambrose Wilson		14.7	23.2
Womenswear		131.6	159.8
Menswear 1		26.3	32.4
Product Brands 2		66.0	88.1
Product Revenue excluding US		223.9	280.3
US Revenue		0.6	2.0
Total Product revenue		224.5	282.3
Financial Services revenue		132.2	150.6
Group revenue		356.7	432.9

1.  Menswear is the Jacamo brand.

2.  Product brands are Fashion World, Premier Man, House of Bath, Marisota, Oxendales, High and Mighty, Figleaves and new customers under the new Home Essentials brand.

The Group has one significant geographical segment, which is the United Kingdom. Revenue derived from international markets amounted to £10.2m (HY20, £12.2m). Operating profits from international markets amounted to £3.9m profit (HY20, £1.5m profit). All segment assets are located in the UK, Ireland and US.

For the purposes of monitoring segment performance, assets and liabilities are not measured separately for the two reportable segments of the Group and therefore disclosed together below.

		26 weeks to 29 August 2020	26 weeks to 31 August 2019 (restated)
		£m	£m
Total segment assets		951.6	1,060.5
Total segment liabilities		(618.3)	(749.8)
Segment net assets		333.3	310.7

5.  Exceptional items

		26 weeks to 29 August 2020	26 weeks to 31 August 2019
		£m	£m
Customer redress (credit) / cost		(0.7)	25.0
Store closure costs		0.2	-
Impairment of tangibles, intangibles and brands		1.7	-
Restructuring costs		2.7	-
VAT partial exemption cost		0.2	-
Other tax matters including associated legal & professional fees		1.8	-
Gain from early settlement of derivative contracts		(1.4)	-
Items charged to profit before tax		4.5	25.0

Customer Redress

During the prior period, a charge of £25m was made to reflect the additional volume of PPI information requests and claims received in the final days leading up to and including the 29 August 2019 deadline. The amount of customer redress during the prior year, including that relating to estimated Official Receiver complaints, was less than envisaged as at 31 August 2019 at £22.9m

Redress activity, other than the Official Receiver complaints, has been concluded in the period resulting in a further release of £0.7m. The provision as at 29 August 2020 was £3.0m as discussed in note 13.  

Closure Costs

In line with our strategy of reshaping our retail offering, the decision was made to close all remaining retail outlets at the end of August 2018.

The net £0.2m charge relates to the re-assessment of individual store provision in light of the final exit positions.  

Impairment of tangibles, intangibles and brands  

In accordance with the requirements of IAS 36 management have assessed the carrying value of the intangible assets held in respect of our legacy International business (£1.3m) as a trigger event met due to the Group's strategic decision in the half year to focus on the UK as a market, and have written this value down in full. In addition, an impairment trigger was realised in respect of the intangible and tangible assets held in respect of Figleaves and following this review management have written down their full carrying value (£0.7m). The impairment in the period is offset by a credit release of £0.3m relating to the reversal of previously recognised impairment on capitalised IT development.

Restructuring costs

Total redundancy costs of £2.7m have been incurred in the period to 29 August 2020. Further detail on the obligation is included in note 13.

VAT Partial Exemption

The Group has now reached agreement with HMRC to settle its long-running dispute 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 has now reached agreement in respect of the amount payable.

As at 29 August 2020, the Group held a creditor of £4.0m (£3.8m at 29 February 2020) in respect of this matter, being the agreed amount of the liability to settle and management's best estimate of the interest payable. The movement in the total creditor of £0.2m relates to the legacy years under discussion and has been taken as a charge against exceptional items. In September 2020, the Group paid in full the final VAT settlement for this matter with the interest relating to this amount expected to be paid in full in November 2020.

Other tax matters including legal and professional fees

The total charge in the current period of £1.8m relates to further expenses in relation to matters under discussion with HMRC relating to FY19 or prior years.

Gain on early settlement of derivative contracts

A £1.4m credit has been recognised in the period representing the gain achieved on the early settlement of foreign currency derivative contracts that were no longer required following the decline in product purchases driven by the sudden and significant impact of Covid-19 at the start of the period.

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:

	29 August 2020	31 August 2019
	£m	£m
Notional amount - Sterling contract value	218.9	276.8
Fair value of asset recognised	1.9	10.4
Fair value of liability recognised	(3.0)	-

The fair value of foreign currency derivative contracts is their market value at the balance sheet date. Market values are based on the duration of the derivative instrument together with the observable market data including interest rates, foreign exchange rates and market volatility at the balance sheet date.

Changes in the fair value of derivatives recognised, being currency derivatives where hedge accounting has not been applied, amounted to a P&L charge of £4.0m (HY20: credit of £12.0m) in the period.

Financial instruments that are measured subsequent to initial recognition at fair value are all grouped into Level 2 (HY20 and FY20: 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 the 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

The taxation charge for the 26 weeks ended 29 August 2020 is based on the underlying estimated effective tax rate for the full year of 19.2% (HY20: 20.0%). The statutory tax rate for the 12 months period is 13.2% (HY20, 24.9%), with the reduction in the year relating to the impact on the deferred tax liability following the increase in the statutory rate from 17% to 19%.

In respect of Corporation tax, as at 29 August 2020 the Group held a total provision of £15.9m (HY20: £7.4m) relating to the Malta entities' legacy tax positions.

Based upon the amounts reflected in the balance sheet as at 29 August 2020, the Directors estimate that settlement of these cases could result in a net cash tax liability payment of up to £15.9m, excluding interest.  There has been no further charge to the income statement in respect of the tax liability in the current period. The impact of the additional estimated interest incurred in the period is included within 'other tax matters including legal and professional fees' as disclosed in note 5.

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 that are one-off in nature and material by size and fair value adjustments that are considered to be distortive of the true underlying performance of the business. These have been incorporated to allow 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 all dilutive potential ordinary shares.

Earnings for the purposes of basic and diluted earnings per share:	26 weeks to 29 August 2020	26 weeks to 31 August 2019
	£m	£m
Total net profit attributable to equity holders of the parent	12.3	14.1
Fair value adjustment to financial instruments (net of tax)	3.2	(9.7)
Exceptional items (net of tax)	3.6	20.9
Adjusted profit for the period as used in headline earnings per share	19.1	25.3
Number of shares for the purposes of basic and diluted earnings per share:	26 weeks to 29 August 2020	26 weeks to 31 August 2019
	m	m
Weighted average number of shares in issue - basic	284.2	285.1
Dilutive effect of share options	0.2	0.2
Weighted average number of shares in issue - diluted	284.4	285.3
Earnings per share
Basic	4.33p	4.95p
Diluted	4.32p	4.93p
Adjusted earnings per share
Basic	6.72p	8.87p
Diluted	6.72p	8.87p

9.  Dividends

As announced on 23 March 2020, in light of the impact of Covid-19 the company suspended dividends for the foreseeable future.

Subsequently on 18 May 2020, 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 the £50m CLBILS facilities remain in place, the Group will be restricted from paying cash dividends.

The Board have therefore not declared an interim dividend (HY20 2.83p).

10. Intangible assets

	Brands	Software	Customer database	Total
	£m	£m	£m	£m
Cost
As at 2 March 2019	16.9	361.4	1.9	380.2
Additions	-	17.2	-	17.2
Disposals	-	-	-	-
As at 31 August 2019	16.9	378.6	1.9	397.4
Additions	-	15.5		15.5
Disposals	-	(35.9)	-	(35.9)
As at 29 February 2020	16.9	358.2	1.9	377.0
Additions	-	10.4	-	10.4
Disposals	-	-	-	-
As at 29 August 2020	16.9	368.6	1.9	387.4
Amortisation
As at 2 March 2019	15.1	218.0	1.9	235.0
Charge for the period	-	11.8	-	11.8
As at 31 August 2019	15.1	229.8	1.9	246.8
Charge for the period	-	12.9	-	12.9
Impairment	1.8	-	-	1.8
Disposals	-	(35.9)	-	(35.9)
As at 29 February 2020	16.9	206.8	1.9	225.6
Charge for the period	-	14.7	-	14.7
Impairment	-	1.7	-	1.7
Transfer from tangible assets	-	0.4	-	0.4
Disposals	-	-	-	-
As at 29 August 2020	16.9	223.6	1.9	242.4
Carrying amounts
As at 29 August 2020	-	145.0	-	145.0
As at 29 February 2020	-	151.4	-	151.4
As at 31 August 2019	1.8	148.8	-	150.6

Assets in the course of construction included in intangible assets at the period end total £13.7m (HY20 £43.5m). No amortisation is charged on these assets until they are available for use.

As at 29 August 2020, the Group had entered into contractual commitments for the further development of intangible assets of £11.9m (HY20 £7m) of which £6.4m (HY20 £1.9m) is due to be paid within 1 year.

At the balance sheet date, the market capitalisation of the Group was lower than the Group's net assets. As this, together with the impact of Covid-19, represent indicators 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 which operates from a separate location and maintains a separate management structure.

The impairment review performed at the balance sheet date has indicated an impairment over the Figleaves assets (£0.7m) which have been impaired in full in the period. In addition, the carrying value of the intangible assets held in respect of the Group's legacy International business (£1.3m) was not considered recoverable following the Group's strategic decisions in the period to focus on the UK as a market, and management have therefore written this value down in full. No further impairment has been identified as a result of the core Group CGU's assessment.  

The following sensitivities have been performed:

a) Stress to three-year cash flows by 5% resulting in the recoverable amount of the Group assets still exceeding their carrying value by £9m. A stress exceeding both 10% in the first two years of cashflows and 5% in year three cashflows would result in an impairment;

b) Decrease in long-term growth rate by 1% resulting in the recoverable amount of the Group assets still exceeding their carrying value by £14m;

c) Decrease in Years 4 and 5 growth rates by 1% resulting in the recoverable amount of the Group assets still exceeding their carrying value by £52m; and

d) Increasing discount rate by 1% which has indicated potential impairment of approximately £6m.

11. Property, plant and equipment

Additions to tangible fixed assets during the period of £0.5m (HY20 £3.1m) primarily relate to warehousing improvement projects. Depreciation of £2.0m (HY20 £1.9m) was charged during the period. Additionally, depreciation relating to IFRS 16 right of use assets amounted to £0.9m (HY 20 £0.7m) during the period.

Assets in the course of construction included in fixtures and equipment at the period end total £1.2m (HY20 £5.4m), and in land and buildings total £nil (HY20 £nil). No depreciation is charged on these assets until they are available for commercial use.

12. Trade and other receivables

	29 August 2020	31 August 2019	29 February 2020
	£m	£m (restated)	£m
Amounts receivable for the sale of goods and services	632.1	658.0	656.9
Allowance for doubtful debts	(91.7)	(78.2)	(71.7)
	540.4	579.8	585.2
Other receivables and prepayments	28.3	37.8	29.2
	568.7	617.6	614.4
Movement in the allowance for doubtful debts
Balance at the beginning of the period	71.7	97.1	97.1
Impairment	82.5	70.3	142.7
Utilised during the period	(62.5)	(89.2)	(168.1)
Balance at the end of the period	91.7	78.2	71.7
Income statement impairment charge
Impairment	82.5	70.3	142.7
Recoveries	(7.0)	(10.2)	(17.0)
Other items	1.8	2.4	1.9
Net impairment charge	77.3	62.5	127.6

The comparative figures for "Other receivables and prepayments" have been restated for the impact of stock in transit as disclosed in note 17.

H1'21 as at 29th August 2020
			Stage 1	Stage 2	Stage 3	Total
Gross trade receivables			495.0	56.3	80.8	632.1
Allowance for ECL ex Covid Impact			(10.2)	(13.2)	(51.3)	(74.7)
Covid Impact on ECL			(9.4)	(2.6)	(5.0)	(17.0)
Allowance for ECL inc Covid Impact			(19.6)	(15.8)	(56.3)	(91.7)
Net trade receivables			475.4	40.5	24.5	540.4
ECL % exc Covid impact			(2.1%)	(23.3%)	(63.5%)	(11.8%)
ECL %			(4.0%)	(28.0%)	(69.7%)	(14.5%)
Balances proportion			78.3%	8.9%	12.8%	100.0%
ECL proportion			21.4%	17.2%	61.4%	100.0%
Net trade receivables proportion			88.0%	7.5%	4.5%	100.0%
H1'20 as at 31st August 2019
		Stage 1		Stage 2	Stage 3	Total
Gross trade receivables		485.4		107.6	65.0	658.0
Allowance for ECL		(9.3)		(30.3)	(38.6)	(78.2)
Net trade receivables		476.1		77.3	26.4	579.8
ECL %		(1.9%)		(28.2%)	(59.4%)	(11.9%)
Balances proportion		73.8%		16.3%	9.9%	100.0%
ECL proportion		11.9%		38.7%	49.4%	100.0%
Net trade receivables proportion		82.1%		13.3%	4.6%	100.0%

  The improvement in the proportion of balances in Stage 1 (and lower balances in Stage 2) is driven by:-

· A number of accounts moving to Stage 1 from Stage 2 as a result of a refinement to our Significant Increase in Credit Risk (SICR) methodology (which was effective from the prior year end).  The refined methodology is more reactive to customer changes in risk and ensures SICR is identified only where PDs significantly increase relatively rather than the previous approach which captured significant absolute increases.

· Improved arrears quality, with more customer balances up to date than the prior year supported by strong collection rates.

13. Provisions

	Customer Redress	Store closures	Restructuring	Other tax matters	Total
	£m	£m	£m	£m	£m
Balance at 2 March 2019	17.4	7.4	-	-	24.8
Provisions made during the period	25.0	-	-	-	25.0
IFRS 16 transition reclassification	-	(2.9)			(2.9)
Provisions used during the period	(9.4)	(2.4)	-	-	(11.8)
Balance at 31 August 2019	33.0	2.1	-	-	35.1
Provisions made / (released) during the period	(2.1)	(0.3)	1.7	-	(0.7)
Provisions used during the period	(22.6)	(0.7)	-	-	(23.3)
Balance at 29 February 2020	8.3	1.1	1.7	-	11.1
Provisions made / (released) during the period	(0.7)	0.2	2.7	0.7	2.9
Provisions used during the period	(4.6)	(0.5)	(1.7)	-	(6.8)
Balance at 29 August 2020	3.0	0.8	2.7	0.7	7.2
Current	3.0	0.8	2.7	0.7	7.2
Non-current	-	-	-	-	-
Balance at 29 August 2020	3.0	0.8	2.7	0.7	7.2

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 5. 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 £0.8m outstanding as at 29 August 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.

Customer redress

The provision relates to the Group's liabilities in respect of costs expected to be incurred in relation to  

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 August 2020 the Group holds a provision of £3.0m in respect of the anticipated costs of historic financial services customer redress.

Restructuring

The provision at 29 August 2020 relates to redundancy costs of £2.7m to be incurred by the Group in order to align the Group's people costs with the lower volumes incurred during the period and expected to continue for the remainder of the year.  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.

Other tax matters

The total charge in the current period of £0.7m relates to further expenses in relation to matters under discussion with HMRC relating to FY19 or prior years.

14. Trade and other payables

	29 August 2020	31 August 2019	29 February 2020
	£m	£m	£m
		(restated)
Trade payables	50.1	78.6	65.9
Other payables	10.9	8.5	7.1
Accruals and deferred income	51.2	58.5	37.5
	112.2	145.6	110.5

The comparative figures for "Accruals and deferred income" have been restated for the impact of stock in transit as disclosed in note 17.

"Other payables" include a net VAT creditor, comprising the VAT debtor which arises from day to day trading together with a VAT creditor in relation to matters which are now settled with HMRC in relation 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 has now reached agreement in respect of the amount payable.

As at 29 August 2020, the Group holds a creditor of £4.0m (£3.8m at 29 February 2020) in respect of this matter, being the agreed amount of the liability to settle, and management's best estimate of the interest payable. The movement in the total creditor of £0.2m relates to the legacy years under discussion and has been taken as a charge against exceptional items. In September 2020, the Group paid in full the final VAT settlement for this matter with the interest relating to this amount expected to be paid in full in November 2020.

15. Bank Overdrafts and Loans  

	29 August 2020 £m	31 August 2019 £m	29 February 2020 £m
Bank loans	455.9	539.1	544.6
Bank overdrafts	-	0.5	-
Repayable as follows:
Within one year	-	0.5	-
In the second year	453.9	539.1	544.6
In the third to fifth year	2.0	-	-
Amounts due for settlement after 12 months	455.9	539.1	544.6

The principal features of the Group's borrowings are as follows:

  Bank overdrafts of £nil (HY20: £0.5m) are repayable on demand, unsecured and bear interest at a margin over bank base rates. The Group has an overdraft facility of £27.5m (HY 20: £27.5m).

  The Group has a bank loan of £378.9m (HY20: £414.1m, FY20: £419.6m) secured by a charge over certain 'eligible' trade debtors (current and 0-28 days past due) of the Group and is without recourse to any of the Group's other assets. The facility has a current limit up to £500m which at the period end was committed until December 2021. Following the period end the maturity of this facility has been extended to December 2023 as explained more fully in note 3.

The Group also has unsecured bank loans of £75m (HY 20: £125m) drawn down under a medium-term bank revolving credit facility (RCF), of £125 million, which at the period end was committed until October 2021. Following the period end, the maturity of this facility has been extended to at least May 2022, as explained more fully in note 3.

  At the period end, £2m was drawn down under the new CLBILS facility of £50 million secured in the period, which is committed until May 2023.

The Group continues to have a supplier financing arrangement which is facilitated by HSBC. The maximum facility limit is £12.5m and as at 29 August 2020 a total of £9.1m had been funded under the programme. The scheme is based around the principle of reverse factoring whereby the banks purchase from the suppliers approved trade debts owed by the Group. Access to the supplier finance scheme is by mutual agreement between the bank and supplier; the Group is not party to this contract. The scheme has no cost to the Group as the fees are paid by the supplier directly to the banks. The banks have no special seniority of claim to the Group upon liquidation and would be treated the same as any other trade payable. As the scheme does not change the characteristics of the trade payable, and the Group's obligation is not legally extinguished until the bank is repaid, the Group continues to recognise these liabilities within trade payables. There is no fixed expiry date on this facility.

Borrowing covenants continue to be in place on the securitisation, RCF and CLBILS facilities respectively. Throughout the period, all of these covenants continue to be tracked and have been complied with.

As part of the revised banking facilities secured in May 2020, it was agreed with our lenders to relax the quarterly leverage covenant ratio* to not exceed 2.0:1 as at 29 August 2020, rather than 1.5:1 as had applied previously and will apply to all future measurement dates. Despite this relaxation the actual measure at 29 August 2020 was 0.38, well within the actual and previous limit. As explained more fully in note 3, we expect to comply with this and all other debt covenants for the foreseeable future.

*defined as Unsecured net debt divided by Adjusted EBITDA (these two measures are both explained on page 1)

16.  Contingent Liabilities

Allianz claim and counterclaim

Until 2016, JD Williams & Company Limited ("JDW"), a subsidiary of N Brown Group plc, sold (amongst other insurance products) payment protection insurance ("PPI") and product protection ("PP") insurance policies to its customers when they bought JDW products. Both insurance policies were underwritten by Allianz Insurance plc ("Allianz") until 2014. JDW was an unregulated entity prior to 14 January 2005 in respect of the sale of PPI ("pre-2005").  The regulated entity for PPI sales prior to this date was Allianz. 

In recent years, JDW and Allianz have paid out significant amounts of redress to customers in respect of PPI and PP. In July 2014 JDW and Allianz entered into an indemnity agreement in respect of certain PPI mis-selling liabilities (the "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 PPI policies purchased pre-2005. 

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

• the Indemnity Agreement; 

• alleged negligence as its agent; and 

• alleged breaches of the CHA.

In March 2020 JDW issued its defence which refuted each element of the claim and also issued counterclaims in respect of redress payments JDW has paid to its customers in respect of PPI and PP 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 PP policies;

• 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 PPI.

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. The Case Management Conference in relation to this matter was held in September 2020. Both parties are now required to go through a protracted timetable including detailed disclosure and preparing expert and witness evidence in relation to all elements of the claim and counterclaim. 

Based on the current pleaded case, the total sum claimed by Allianz is £29.4m plus interest.  Having taken legal advice on its own position, the Group remains of the view that due to the complexity of the issues it is still not possible to reliably estimate the amount of any potential liability, and has therefore continued to not provide any amount for this claim, but has instead disclosed it as a contingent liability.

There is considerable uncertainty as to the timing of any potential cashflows arising from the legal proceedings. Legal fees are expected to continue to be incurred during FY21 and FY22, but any potential cashflows resulting from the claim may not arise until FY23, given that the trial date has now been set for March 2022 with judgement expected later in 2022.

17. Prior period adjustment

During the period ended 29 August 2020, the Group identified that £20.9m of goods in transit as at 31 August 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 31 August 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 31 August 2019 was already paid for as at that date and were incorrectly recorded as prepaid balances of £1.9m and £6.8m 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 £12.2m as at 31 August 2019.

As a result, the inventory balance was understated by £20.9m, trade and other receivables were overstated by £1.9m and trade and other payables were understated by £19.0m as at the prior period end. These adjustments have no impact on the Group net assets or profit or loss in the prior period, 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 periods.

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)				31 August 2019 £m	Adjustment £m	31 August 2019 (Restated) £m
Current assets
Inventories				97.1	20.9	118.0
Trade and other receivables				619.5	(1.9)	617.6
Current liabilities
Trade and other payables				(126.6)	(19.0)	(145.6)
Net assets				310.7	-	310.7
Total Equity				310.7	-	310.7

18.  Government grants and other support

The UK government has offered a range of financial support packages to help companies affected by coronavirus. During the six month period ended 29^th August 2020 the Group has received a total government grant of £3.3m in respect of the furlough scheme. The Group has elected to deduct the grant in reporting the related expense.

19.  Post balance sheet events

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

Equity raise and new financing arrangements

As also explained in note 3, the company is proposing a fully supported equity raise of c.£100 million and has secured new financing arrangements from its long-standing supportive lenders.

On 30 October 2020, the Group secured irrevocable commitments from its lenders to provide extensions to its RCF and securitisation facilities as described below, with separate fully committed structures agreed to cover either the capital raise transacting or not transacting.  Previously the RCF facility of £125 million was committed until October 2021 and the securitisation facility of £500 million until December 2021. The extended facilities include financial covenants and market-standard material adverse change clauses that are consistent with our previous facility agreements.

In the event of the capital raise transacting

If the c.£100m capital raise transacts the resulting funding facilities following completion in December 2020 would be as follows:

• An up to £500 million securitisation facility committed until December 2023, drawings on which are linked to prevailing levels of eligible receivables;

• An RCF of £100 million committed until December 2023;

• An overdraft facility of £27.5 million which is subject to an annual review every July; and

• The £50m CLBILS Term Loan Facility committed until May 2023 will be repaid and handed back without penalty.

In the event of the capital raise not transacting

If the capital raise does not transact the resulting funding facilities following completion in December 2020 would be as follows:

• An up to £500 million securitisation facility committed until December 2023, drawings on which are linked to prevailing levels of eligible receivables, identical to the capital raise scenario;

• An RCF of £100 million reducing to £50m from October 2021, committed until May 2022;

• An overdraft facility of £27.5 million which is subject to an annual review every July; and

• A £50 million CLBILS Term Loan Facility committed until May 2023.

Responsibility statement of the directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU

· the interim management report includes a fair review of the information required by:

(a)  DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first 26 weeks of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining 26 weeks of the year; and

(b)  (b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first 26 weeks of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

This report was approved by the Board of Directors on 5 November 2020

Stephen Johnson	Rachel Izzard
Chief Executive	Chief Financial Officer

INDEPENDENT REVIEW REPORT TO N BROWN GROUP PLC 

Conclusion  

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 29 August 2020 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated cash flow statement, the condensed consolidated statement of changes in equity and related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 29 August 2020 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). 

Scope of review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion. 

Directors' responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU.  The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU. 

Our responsibility 

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA.  Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. 

  Anthony Sykes

for and behalf of KPMG LLP

Chartered Accountants

15 Canada Square

Canary Wharf

London

E14 5GL

5 November 2020

 

END

 

 

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