Interim Results
Brown (N.) Group PLC
11 October 2006
11 October 2006
N Brown Group plc
INTERIM RESULTS ANNOUNCEMENT
SIX MONTHS ENDED 26 AUGUST 2006
N Brown Group plc, the Manchester based direct home shopping company, today
announces its interim results for the 26 weeks to 26 August 2006.
Highlights:
•Group turnover from continuing operations up by 11.8% to £255.8m (H1
2005: £228.8m)
•Group operating profits from continuing operations up 18.6%
•Group profits before tax up 16.3%% to £29.2m (H1 2005: £25.1m)
•Achieved growth in all product and customer groups with like for like Home
Shopping sales increasing by 10.2% and operating profit by 18.6%
•Online sales grew by 57% to £52m representing 21% of total sales
•Acquisition of Gray & Osbourn in June 2006 expands portfolio into higher
socio demographic customer base
•Earnings per share up 16.6% from continuing operations to 7.09p
•Interim dividend increase of 20.3% to 2.19p
•Current trading for the 6 weeks ended 7th October up 10.2% on like for
like basis.
Alan White, Chief Executive, said:
'We have announced a strong set of results in the current retail environment and
I am particularly pleased with our growth across all product and customer
groups. We continue to improve both our product offer and our channel
distribution as shown by the growth in internet sales and this is resulting in
an increase in sales both to new customers as well as to our active customer
base.'
Lord Alliance CBE, Chairman, added:
Our strategy of focusing on servicing the specialised clothing and footwear
needs of our target customer groups has produced these encouraging results. With
a strong start to the second half, despite increasingly tough comparators, we
remain optimistic for the outlook for the full year.'
-Ends-
For further information please contact:
N Brown Group plc
Alan White, Chief Executive On the day: 0207 554 1400
Dean Moore, Finance Director Thereafter: 0161 238 2202
Website : www.nbrown.co.uk
Gavin Anderson & Company
Fergus Wylie / Clotilde Gros Tel: 020 7554 1400
Chairman's Statement
Group
The group results for the six months to 26th August 2006 show further
significant improvement has been achieved. Group turnover from the continuing
businesses is up by 11.8% to £255.8m and profit before taxation of £29.2m is up
by 16.3%. Net assets are up by 9.3% to £255.3m, including net debt of £105.3m
compared with £114.4m last year. Earnings per share from continuing operations
have risen by 16.6% to 7.09p and there is an increase of 20.3% in the interim
dividend to 2.19 pence per share which is covered 3.2 times.
Home Shopping
Home Shopping sales (excluding House of Stirling which has now been closed and
the newly acquired Gray & Osbourn) rose by 10.2% to £248.6m and operating profit
rose by 18.6% to £35.1m. The most encouraging aspect of the results is that good
progress has been made in all product and customer groups coupled with major
efficiencies in our marketing and distribution overheads.
Ladieswear has been the strongest product sector with sales up 11% at £138m. We
have capitalised on the trend for both older and larger customers to dress more
fashionably with improved ladieswear ranges which have also been displayed in
the catalogues in a more contemporary style. We have increased our market share
in all key categories in both the home shopping and total retail markets.
We have also seen good growth in our corsetry sales where the extensive range of
sizes and fittings, coupled with the introduction of more lines suitable for the
woman in the 30-45 age range, has enabled us to gain market share. Footwear
sales have maintained their strong upward momentum, increasing by 8% to £30m,
and again it is the combination of a proposition which meets a specific customer
need as well as the expansion of the range suitable for a younger customer that
has driven this growth.
Sales of menswear were up by 9% to £18m where the larger sizes in both branded
and unbranded product have delivered the growth. Home and leisure sales rose by
11% to £63m with particularly strong performances from the household textiles,
homewares and electrical ranges.
We have delivered significant sales growth in each of our three customer
groupings. The fastest growth continues to be in the younger titles, primarily
Simply Be and Fashion World, where there has been a significant increase in the
number of catalogue pages and the product bought specifically for that age group
resulting in a 15% increase in sales to £66m. However the 9% growth to £170m in
the midlife customer group, targeted at the 45-65 year old customer, shows there
is still plenty of room for growth in our core target market due to the
favourable demographic trends coupled with the more fashionable outlook of many
of the customers.
The number of customers aged over 65 has increased, as has their average spend,
generating an increase of 8% in sales to £13m primarily through the Heather
Valley and Special Collection catalogues.
The presentation of the product to the customers has improved further with more
pages in the major catalogues and brochures, lower density of product per page
and an increase in the frequency of mailing customers. The proportion of our
business transacted online has, in line with our strategy, risen sharply again
as customers appreciate both the convenience and the special offers available.
Online sales have increased by 57% to £52m and now represent 21% of home
shopping sales compared with 15% last year. This rate of growth justifies the
further investment we are making in our e-commerce infrastructure. The more
orders we receive online the more subsequent sales activity we can generate
through cost-effective and targeted email campaigns.
Customer recruitment campaigns have been successful in the first half with sales
from new customers increasing by 6%. The mix of campaigns has seen more recruits
from our insert and online campaigns who have a better retention rate in future
seasons. The number of active established customers has risen by 4% and their
average spend has increased by 5%. We have encouraged this through a number of
targeted promotional campaigns, such as incentivising customers to buy from
product ranges where they had not previously done so.
We have also improved the service to our customers. Stock availability was
higher, the returns rates on product despatches reduced by 0.5% and our customer
surveys showed satisfaction rates were at record levels.
The overall rate of gross margin on home shopping sales fell by 0.8% for two
reasons which will be beneficial to the future performance of the business. We
changed our policy to do more in-season discounting thereby reducing terminal
stocks which has resulted in total underlying stock levels at the interim stage
being just 4% up on last year despite the increase in activity levels. In
addition we have seen the anticipated increase in bad debts due to the uplifting
of credit limits following the commissioning of the new behavioural scoring
system, and also from the mix of sales favouring the younger titles. Overheads
have increased by just 6.2% with significant efficiencies arising in both our
marketing and distribution costs.
Gray & Osbourn
Gray & Osbourn, an upmarket ladieswear catalogue retailer, was acquired on 30th
June 2006 for a consideration of £9.2m as part of our strategy to expand our
portfolio of catalogues into the higher socio demographic customer segments. The
synergy benefits will come through in 2007 but trading to date has been in line
with our expectations.
Zendor
Zendor, which provides home shopping services for third party retailers, has
generated a 43.8% increase in revenues compared with the first half of last year
as a consequence of the internet sales growth of its clients. However the costs
of a new dedicated warehouse have increased overheads resulting in a marginal
loss of £0.1m, the same as last year. During the period we have signed a
five-year agreement with the Early Learning Centre for fulfilment services.
House of Stirling
The debtor book of our door-to-door selling business was sold in July 2006 for
proceeds of £5.6m. The trading loss for the period together with the net cost of
closing the operation amounted to £1.7m. No further costs are anticipated in the
second half.
Current Trading and Outlook
The autumn catalogues have started strongly and total sales for the six weeks
ended 7th October 2006 are up on last year by 15.7% or up by 10.2% excluding the
sales of Gray & Osbourn. The comparatives get progressively tougher during the
second half but there are a number of factors we believe can deliver further
growth:
•the introduction of Royal Mail's new tariffs in August 2006 will result
in lower overall mailing costs and we are re-investing this benefit during
the second half in expanding the number of catalogue pages, mailing more
customers and incremental customer recruitment
•the increasing proportion of our target customers who have broadband
capability is helping us to drive our on-line activity through search engine
recruitment, exclusive product ranges and email promotional campaigns,
whilst also reducing our operating costs
•our ability to tailor products and promotions to the appropriate segments
of our customer database, blending online and direct marketing activity.
To complement these growth drivers we are continuing to invest in our
infrastructure to ensure our call centre, distribution and e-commerce capacity
and functionality is available to provide both excellent customer service and
incremental profit opportunities.
I am sure that our management team will continue to deliver a high level of
innovation backed by top-class execution to bring our plans to fruition. The
first half results and current trading give us reason to be confident of a good
performance in the second half.
Lord Alliance, CBE
11th October 2006
Unaudited consolidated income statement
26 weeks to 26 weeks to 52 weeks to
26-Aug-06 27-Aug-05 25-Feb-06
Note £m £m £m
Revenue - continuing operations 1 255.8 228.8 468.7
---------- ---------- ---------
Operating profit
Group operations 1 35.0 29.5 62.3
Share of joint venture operating loss - (1.0) (1.9)
---------- ---------- ---------
Operating profit - continuing operations 35.0 28.5 60.4
Investment income 1.4 1.5 2.8
Finance costs (5.5) (5.8) (10.8)
Fair value adjustments to
financial instruments (1.7) 0.9 1.7
---------- ---------- ---------
Profit before taxation 29.2 25.1 54.1
Taxation 7 (8.3) (7.2) (15.5)
---------- ---------- ---------
Profit for the period
from continuing operations 20.9 17.9 38.6
Loss for the period
from discontinued operations 2 (1.2) (2.0) (2.5)
---------- ---------- ---------
Profit attributable
to equity holders of the parent 19.7 15.9 36.1
---------- ---------- ---------
Earnings per share from continuing
operations 5
Basic 7.09p 6.08p 13.11p
Diluted 7.05p 6.06p 13.06p
Earnings per share from continuing and
discontinued operations 5
Basic 6.68p 5.40p 12.26p
Diluted 6.64p 5.38p 12.22p
Unaudited consolidated statement of recognised income and expense
26 weeks to 26 weeks to 52 weeks to
26-Aug-06 27-Aug-05 25-Feb-06
£m £m £m
Exchange differences on translation of foreign operations (0.2) (0.1) (0.2)
Actuarial gains/(losses) on defined benefit pension schemes 2.9 (1.0) (4.9)
Tax on items recognised directly in equity (0.9) 0.3 1.5
------------------------------------------
Net expense recognised directly in equity 1.8 (0.8) (3.6)
Profit for the period 19.7 15.9 36.1
Recognised income for the period attributable ------------------------------------------
to equity holders of the parent 21.5 15.1 32.5
-----------------------------------------
Unaudited consolidated balance sheet
26-Aug-06 27-Aug-05 25-Feb-06
£m £m £m
Non-current assets
Intangible assets 29.5 20.0 22.0
Property plant & equipment 63.9 54.8 61.0
Deferred tax assets 9.8 9.3 10.4
--------- --------- -----------
103.2 84.1 93.4
--------- --------- -----------
Current assets
Inventories 53.0 47.6 52.5
Trade and other receivables 341.2 321.4 326.0
Other financial assets - - 0.7
Cash and cash equivalents 38.7 30.1 51.1
--------- --------- -----------
432.9 399.1 430.3
--------- --------- -----------
Non-current assets classified as
held for sale - 5.8 -
---------- --------- -----------
Total assets 536.1 489.0 523.7
---------- --------- -----------
Current liabilities
Bank overdrafts (0.2) (0.1) (0.2)
Obligations under finance leases - (0.6) -
Trade and other payables (78.7) (66.7) (79.1)
Other financial liabilities (1.0) (0.1) -
Provisions (2.0) - -
Current tax liability (18.1) (11.4) (14.9)
---------- --------- -----------
(100.0) (78.9) (94.2)
---------- --------- -----------
Net current assets 332.9 320.2 336.1
---------- --------- -----------
Non-current liabilities
Bank loans (143.8) (143.8) (143.8)
Retirement benefit obligation (32.2) (29.9) (34.4)
Deferred tax liabilities (4.8) (2.9) (5.3)
---------- --------- -----------
(180.8) (176.6) (183.5)
---------- --------- -----------
---------- --------- -----------
Total liabilities (280.8) (255.5) (277.7)
---------- --------- -----------
---------- --------- -----------
Net assets 255.3 233.5 246.0
---------- --------- -----------
Equity
Share capital 29.5 29.5 29.5
Share premium account 9.5 9.2 9.2
Own shares (0.5) (1.4) (0.8)
Foreign currency translation reserve (0.2) 0.1 -
Retained earnings 217.0 196.1 208.1
---------- --------- -----------
Total equity 255.3 233.5 246.0
---------- --------- -----------
Unaudited consolidated cash flow statement
26 weeks to 26 weeks to 52 weeks to
26-Aug-06 27-Aug-05 25-Feb-06
£m £m £m
Net cash inflow from operating activities 19.3 28.3 71.3
Cash flows from investing activities
Purchases of property, plant and equipment (5.3) (3.3) (11.7)
Proceeds on disposal of property, plant and
equipment - - 0.2
Purchases of intangible fixed assets (3.1) (3.0) (8.1)
Acquisition of subsidiary (7.1) - -
Disposal of subsidiary - 5.3 5.3
Interest received 0.6 0.8 1.4
---------- --------- ---------
Net cash flows from investing activities (14.9) (0.2) (12.9)
---------- --------- ---------
Cash flows from financing activities
Interest paid (4.1) (4.2) (7.9)
Dividends paid (13.1) (12.1) (17.4)
Repayment of bank loans - (26.2) (26.2)
Repayment of obligations under finance leases - - (0.6)
Proceeds on issue of share capital 0.3 - -
Proceeds on issue of shares held by ESOT 0.1 - 0.2
Increase in bank overdrafts - - 0.1
--------- --------- ---------
Net cash flows from financing activities (16.8) (42.5) (51.8)
--------- --------- ---------
Net (decrease)/increase in
cash and cash equivalents (12.4) (14.4) 6.6
Opening cash and cash equivalents 51.1 44.5 44.5
--------- --------- ---------
Closing cash and cash equivalents 38.7 30.1 51.1
--------- --------- ---------
Reconciliation of operating profit to net cash inflow from operating activities
Cash flows from operating activities
Operating profit 35.0 29.5 62.3
Operating loss from discontinued operations (1.7) (1.5) (2.2)
Depreciation 2.5 2.3 4.2
Loss on disposal of property, plant and equipment - - 0.2
Amortisation of intangible fixed assets 3.3 2.8 5.8
Share option charge 0.6 0.4 0.6
-------- ------- -------
Operating cashflows before changes in working capital 39.7 33.5 70.9
Decrease/(increase) in inventories 2.0 (2.9) (7.8)
Increase in trade and other receivables (14.9) (1.4) (2.2)
(Decrease)/increase in trade and other payables (1.7) (0.1) 13.4
Pension obligation adjustment (0.1) (0.2) (0.2)
-------- -------- --------
Cash generated from operations 25.0 28.9 74.1
Taxation paid (5.7) (0.6) (2.8)
-------- -------- --------
Net cash inflow from operating activities 19.3 28.3 71.3
-------- -------- ---------
Notes to the interim financial statements
1. Analysis of revenue and operating profit 26 weeks to 26 weeks to 52 weeks to
26-Aug-06 27-Aug-05 25-Feb-06
£m £m £m
Analysis of revenue
Continuing operations
Home shopping 251.2 225.6 459.6
Fulfilment 4.6 3.2 9.1
---------- --------- ---------
255.8 228.8 468.7
---------- --------- ---------
Analysis of operating profit
Continuing operations
Home shopping 35.1 29.6 62.4
Fulfilment (0.1) (0.1) (0.1)
---------- --------- ---------
35.0 29.5 62.3
---------- --------- ---------
2. Discontinued operations 26 weeks to 26 weeks to 52 weeks to
26-Aug-06 27-Aug-05 25-Feb-06
£m £m £m
Revenue
Door to door selling 4.6 8.5 16.1
TV rental - 0.8 0.8
Financial services - 0.9 0.9
---------- --------- ---------
4.6 10.2 17.8
---------- --------- ---------
Operating (loss)/profit
Door to door selling (1.4) (1.6) (2.3)
TV rental - (0.1) (0.1)
Financial services - 0.2 0.2
---------- --------- ---------
(1.4) (1.5) (2.2)
Loss on disposal of discontinued operations (0.3) (1.2) (1.2)
Finance costs - (0.2) (0.2)
Taxation 0.5 0.9 1.1
---------- --------- ---------
Loss from discontinued operations (1.2) (2.0) (2.5)
---------- --------- ---------
3. Reconciliation of equity 26 weeks to 26 weeks to 52 weeks to
26-Aug-06 27-Aug-05 25-Feb-06
£m £m £m
Total recognised income for the period 21.5 15.1 32.5
Equity dividends declared (13.1) (12.1) (17.4)
Issue of ordinary share capital 0.3 - -
Issue of own shares via ESOT 0.1 - 0.2
Share option charge 0.5 0.4 0.6
-------- ------- -------
Total movement during the period 9.3 3.4 15.9
Equity at the beginning of the period 246.0 230.1 230.1
-------- ------- -------
Equity at the end of the period 255.3 233.5 246.0
======== ======= =======
4. Acquisition of subsidiary
On 30 June 2006 the group acquired the entire share capital of Gray & Osbourn
Limited for a total cash consideration of £9.2m. Its principal activity is
direct home shopping by catalogue.
The book value and provisional fair value of net assets acquired are as follows:
£m
Plant and equipment 0.1
Inventories 2.4
Cash and cash equivalents 2.1
Trade and other receivables 0.4
Trade and other payables (3.2)
Current tax liability (0.3)
---------
Net assets acquired 1.5
Goodwill arising on acquisition 7.7
---------
Total consideration 9.2
---------
Satisfied by:
Cash 9.1
Directly attributable costs 0.1
---------
9.2
Cash acquired with business (2.1)
---------
Net cash outflow 7.1
---------
A formal intangible asset valuation exercise is currently being performed.
5. Earnings per share
The calculation of earnings per share from continuing operations is based on the
profit for the period from continuing operations of £20.9m (2005, £17.9m) and
the weighted average number of shares in issue during the period of 294,923,000
(2005, 294,285,000). The calculation of earnings per share from continuing and
discontinued operations is based on the profit attributable to equity holders of
the parent of £19.7m (2005, £15.9m) and the weighted average number of shares in
issue during the period of 294,923,000 (2005, 294,285,000). For diluted earnings
per share, the weighted average number of shares of 296,511,000 (2005,
295,468,000) has been calculated after adjusting for the potential dilutive
effect of outstanding share options.
6. Dividends
The directors have declared and approved an interim dividend of 2.19 pence per
share (2005, 1.82p). This will be paid on 5 January 2007 to shareholders on the
register at the close of business on 8 December 2006.
7. Taxation
The taxation charge for the 26 weeks ended 26 August 2006 is based on the
estimated effective tax rate for the full year.
8. Basis of preparation
The accounting policies adopted in the preparation of the interim financial
statement are consistent with those disclosed in the annual report and accounts
for the 52 weeks ended 25 February 2006.
The financial information for the 52 weeks ended 25 February 2006 does not
constitute statutory accounts as defined in section 240 0f the Companies Act
1985. A copy of those accounts have been delivered to the Registrar of
Companies. The auditors' report on those accounts was unqualified and did not
contain any statement under Section 237 (2) or (3) of the Companies Act 1985.
This report was approved by the Board of Directors on 11 October 2006.
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