Brown Group Regulatory News (BWNG)

9 Oct 2007 07:01

Brown (N.) Group PLC09 October 2007 N Brown Group plc INTERIM RESULTS ANNOUNCEMENT SIX MONTHS ENDED 25 AUGUST 2007 N Brown Group plc, the internet and catalogue home shopping company, todayannounces its interim results for the 26 weeks to 25 August 2007. Highlights: • Group revenue up to £290.6m +13.6% • Group operating profit from continuing +17.7% operations up to £41.2m • Group profit before tax up to £34.3m +17.5% • Home Shopping sales up to £286.8m +14.2%: • Like-for-like sales up +10.6% • E-commerce sales up to £73m +40.0% • Earnings per share from continuing +28.9% operations up to 9.14p • Interim dividend up to 2.65p +21.0% • Current trading for the six weeks ended +11.1% 6 October up Alan White, Chief Executive, said: "We are pleased to announce a strong and sustained performance for the half yearacross all our customer and product groups. We have expanded our existingcatalogues and mid-season mailings and launched four new catalogues this yearwhich have seen very encouraging results thus far. There are huge opportunitiesto grow our internet sales as more and more customers shop online. Sales for thefirst six weeks give us confidence that we will deliver a good performance inthe second half." Lord Alliance of Manchester, CBE, Chairman, added: "In recent years we have been focusing on improving our customer service,product ranges, and the quality of the catalogues. We have also continued todevelop our channels to market, especially the internet, which is now at theheart of our business. We have an experienced and devoted team and, with theencouraging start to the second half, I have every confidence that we willcontinue to perform strongly." -Ends- For further information please contact: N Brown Group plcAlan White, Chief Executive On the day: 0207 554 1400Dean Moore, Finance Director Thereafter: 0161 238 2202Website : www.nbrown.co.uk Gavin Anderson & CompanyFergus Wylie / Clotilde Gros Tel: 020 7554 1400 CHAIRMAN'S STATEMENT Group Group revenue from continuing operations for the 26 weeks to 25 August 2007 isup by 13.6% to £290.6m and operating profit is up by 17.7% to £41.2m. Profitbefore tax is up by 17.5% to £34.3m and, incorporating the return of value toshareholders and associated consolidation of share capital in February 2007,earnings per share from continuing operations are up by 28.9% at 9.14p. Thedirectors are proposing an interim dividend of 2.65p, up 21.0% and covered 3.5times. Net debt at 25 August 2007 stood at £202.3m (2006, £105.3m) following the £80mreturn of value to shareholders in March 2007 and a £15m special contribution tothe pension fund, which now has a deficit of only £7.9m (2006, £32.2m). Netinterest payable on borrowings was £7.1m, covered 5.8 times. Gearing was 93%(2006, 41%) on net assets of £217.8m (2006, £255.3m). Home Shopping Home shopping turnover rose by 14.2% to £286.8m, or by 10.6% on a like-for-likebasisand operating profit is up by 16.8% to £41.0m. One of the strengths of our business model is the ability to have a wide range of merchandise on offer at all times to meet the customer's needs whatever the weather. The strange weather patterns in the first half did influence sales trends, with strong spring sales followed by a weaker summer period and then a good start for our autumn product ranges. It is therefore encouraging to report that once again we saw good progress in all our major customer and product groups, complemented by new catalogue launches and further improvements in customer service and our operating efficiency. Customers Turnover from our core midlife brands, targeted at customers aged 45-65,accounted for 68% of total home shopping sales, increasing by 14% to £196m.Within this group there were strong performances by JD Williams, Shoe Tailor,Fifty Plus, Oxendales in Ireland and Premier Man. In addition Gray & Osbourn,which was acquired on 30 June 2006, delivered sales of £12m compared with £2m inthe two months post-acquisition last year, representing an underlyinglike-for-like sales growth of 13%. Our younger titles, targeting customers aged 30-45, increased sales by 18% to£78m with strong performances from Fashion World and, especially, Simply Bewhere sales were up by a further 33%. The catalogues targeted at customers over65 years of age had sales of £13m, level with last year. The total number of active established customers rose by 3% and there was afurther 6% increase in the average spend per customer. These statisticsdemonstrate that we are winning an increasing share of our customers' totalexpenditure through improvements to our product ranges, catalogue and websitepresentation, and our service standards. Sales from customers recruited duringthe first half rose by 9% as we continued to target our campaigns on our uniqueselling propositions which produce higher quality customers with greaterlifetime values. Product Ranges Turnover growth was evident in all our major product groups. Ladieswear saw asales increase of 19% to £167m with strong increases in both casual clothing andfrom the trend towards smarter, more tailored, outfits. The number of lines andthe range of sizes and fittings has continued to increase to give our customersa greater choice whatever their size and shape. Footwear sales have risen by10%, the expansion of the styles appealing to our younger customers beingparticularly important. This is also a major factor behind the 17% increase insales of menswear to £21m, although this category still only accounts for 10% ofour total clothing sales at present. Home and leisure sales rose by 5% to £66m,representing 23% of total sales, with the electrical and household textileranges being particularly strong. Online Sales E-commerce is at the heart of our business strategy. During the period onlinesales have risen by 40% to £73m and now represent over 25% of all sales comparedwith 21% last year. This is due to a number of factors. More customers, whatevertheir age, are selecting the internet as their channel of choice, and we areencouraging this trend by a continuous improvement programme for our websitefunctionality and a growing number of internet-only product offers. The resultis that we have increased online order values to over 25% above those oftelephone orders through proactive cross-marketing within our portfolio of overforty websites, each of which represents a product or customer niche. Thesehigher order values, and the bypassing of the contact centre, also help to drivesignificant operational cost efficiencies. Gross and Operating Margins The rate of gross margin of 55.5% (2006, 56.5%) has remained in line with thatat the full year, and was better than expected for two reasons. The mix ofproducts was favourable and the increasing proportion of younger customers didnot have as much impact on the rate of bad debt as we had anticipated. Changesto our credit scoring and credit limit policies have resulted in a plannedincrease in the rate of bad debts over the last 18 months because they produceincremental sales for little additional marketing cost, thereby boostingprofitability. Our credit policies remain conservative relative to the revenuegenerated by customers who pay on deferred terms. Operating costs in home shopping have risen by only 10.6%, well below the rateof sales growth, with efficiencies arising in both distribution and selling andadministrative costs due to the growth of internet sales and the continuing costreduction programme. Consequently we have seen a further rise of 0.3% in thehome shopping operating margin to 14.3% (2006, 14.0%). The service provided to our customers has continued to improve. The £10m projectto construct bulk and hanging garment warehouses at our Hadfield site wascompleted successfully in May. This has helped to deliver record levels ofproductivity in the distribution centres and speeded up the time taken fordespatch of customers' orders. Improvements to our product specifications havedelivered a 0.3% reduction in the rate of goods returned by customers. Thecombination of all our service enhancements has resulted in a 10% reduction inenquiries to our contact centre, which will also aid customer retention in thefuture. Zendor Zendor, our fulfilment services business, has delivered an operating profit of£0.2m, compared with an interim loss of £0.1m last year. Revenue of £3.8m wasbelow last year's £4.6m, but new contracts which have started recently forWoolworths, Peacocks and Reiss, together with a strong prospect pipeline, shouldimprove the situation going forward. Borrowing Facilities The group has committed borrowing facilities of £320m until 2012, of which £243mwere utilised as at 25 August 2007. The primary facilities are a £200msecuritisation programme through an HSBC A-1/P1 rated conduit which has noexposure to the US sub-prime mortgage market and has a matching standbyfacility, and £120m of bilateral loans from HSBC and Royal Bank of Scotland. Inaddition at 25 August 2007 the group had cash balances of £40m. Current Trading and Outlook Group sales for the six weeks ended 6 October 2007 on a like-for-like basis areup by 11.1% on the same period last year. We have launched two new cataloguesthis autumn: • Marisota is targeted at middle-aged women who have not previously been home shoppers who we can now attract to our clothing ranges by featuring the variety of sizes, lengths, colours and fittings available. • Jacamo aims to increase our share of the menswear market by targeting men aged 30 to 45 with a range of clothing which includes a high branded content available, often exclusively to us, in the larger chest and waist sizes. The early results from these new initiatives are very encouraging and togetherwith the successful launches in spring of Simply Yours (an upmarket lingeriecatalogue) and Simply Be Home (a selection of home and leisure products whichappeal to our younger customers), are demonstrating that we can attract newcustomers to our business utilising a combination of direct response television,public relations activity and search engine advertising, coupled with acompelling product proposition. These initiatives are investments for the future whereas the results for thesecond half will be dependent on the success from expanding our existingcatalogues and mid-season mailings, the largest of which will be our upgradedChristmas Gifts catalogue. External factors, such as the dispute between theRoyal Mail and the Union of Communication Workers and general economicconditions, may influence consumer spending patterns. However we believe the ageand socio-demographic distribution of our customer base gives our businessresilience in the event of a downturn. The results achieved in the first half, coupled with the encouraging trading inthe second half to date, give the board confidence that the management and staffcan deliver another strong performance for the year as a whole. Lord Alliance of Manchester, CBE 9 October 2007 Unaudited consolidated income statement 26 weeks to 26 weeks to 52 weeks to 25-Aug-07 26-Aug-06 24-Feb-07 Note £m £m £m Revenue - continuing 3 290.6 255.8 533.8operations ------------------------------------ Operating profit - 3 41.2 35.0 76.4continuing operations Investment income 2.1 1.4 2.7Finance costs (9.2) (5.5) (11.3)Fair value adjustments to 0.2 (1.7) (2.4)financial instruments --------------------------------------- Profit before taxation 34.3 29.2 65.4 Taxation 5 (9.8) (8.3) (18.5) --------------------------------------- Profit for the period from 24.5 20.9 46.9continuing operations Loss for the period from 4 - (1.2) (1.2)discontinued operations -------------------------------------- Profit attributable to 24.5 19.7 45.7equity holders of the parent -------------------------------------- Earnings per share from 6continuing operationsBasic 9.14p 7.09p 15.89pDiluted 9.03p 7.05p 15.80p Earnings per share from 6continuing and discontinuedoperationsBasic 9.14p 6.68p 15.48pDiluted 9.03p 6.64p 15.40p Unaudited consolidated statement of recognised income and expense 26 weeks to 26 weeks to 52 weeks to 25-Aug-07 26-Aug-06 24-Feb-07 £m £m £m Exchange differences on (0.1) (0.2) 0.4translation of foreignoperationsActuarial gains on defined 5.3 2.9 8.3benefit pension schemesTax on items recognised (1.9) (0.9) (0.5)directly in equity --------------------------------Net income recognised directly 3.3 1.8 8.2in equity Profit for the period 24.5 19.7 45.7 -------------------------------- Recognised income for the 27.8 21.5 53.9period attributable to equityholders of the parent -------------------------------- Unaudited consolidated balance sheet 25-Aug-07 26-Aug-06 24-Feb-07 £m £m £m Non-current assetsIntangible assets 30.7 29.5 30.9Property, plant & equipment 71.3 63.9 68.9Deferred tax assets 7.8 9.8 11.3 --------------------------------- 109.8 103.2 111.1 --------------------------------- Current assetsInventories 64.3 53.0 54.9Trade and other receivables 384.3 341.2 359.2Cash and cash equivalents 40.9 38.7 40.0 -------------------------------- 489.5 432.9 454.1 -------------------------------- Total assets 599.3 536.1 565.2 -------------------------------- Current liabilitiesBank overdrafts (0.2) (0.2) (0.2)Trade and other payables (104.7) (78.7) (83.7)Derivative financial (1.5) (1.0) (1.7)instrumentsProvisions - (2.0) -Dividends declared - - (79.9)Current tax liability (15.2) (18.1) (18.6) --------------------------------- (121.6) (100.0) (184.1) --------------------------------- Net current assets 367.9 332.9 270.0 --------------------------------- Non-current liabilitiesBank loans (243.0) (143.8) (143.8)Retirement benefit obligation (7.9) (32.2) (27.7)Deferred tax liabilities (9.0) (4.8) (7.1) ---------------------------------- (259.9) (180.8) (178.6) ---------------------------------- Total liabilities (381.5) (280.8) (362.7) ---------------------------------- Net assets 217.8 255.3 202.5 ----------------------------------- EquityShare capital 30.0 29.5 29.6Share premium account 11.0 9.5 10.3Own shares (0.3) (0.5) -Foreign currency translation 0.3 (0.2) 0.4reserveRetained earnings 176.8 217.0 162.2Total equity 217.8 255.3 202.5 ---------------------------------- Unaudited consolidated cash flow statement 26 weeks to 26 weeks to 52 weeks to 25-Aug-07 26-Aug-06 24-Feb-07 £m £m £m Net cash from operating 9.7 19.3 42.8activities Investing activitiesPurchases of property, plant (5.0) (5.3) (12.9)and equipmentPurchases of intangible assets (3.0) (3.1) (8.0)Acquisition of subsidiary - (7.1) (7.3)Interest received 0.7 0.6 1.0 Net cash used in investing (7.3) (14.9) (27.2)activities --------------------------------- Financing activitiesInterest paid (7.5) (4.1) (8.0)Dividends paid (94.2) (13.1) (19.6)Increase in bank loans 99.2 - -Proceeds on issue of share 0.7 0.3 0.5capitalProceeds on issue of shares 0.3 0.1 0.4held by ESOT Net cash used in financing (1.5) (16.8) (26.7)activities --------------------------------- Net increase/(decrease) in 0.9 (12.4) (11.1)cash and cash equivalentsOpening cash and cash 40.0 51.1 51.1equivalents Closing cash and cash 40.9 38.7 40.0equivalents --------------------------------- Reconciliation of operating profit to net cash inflow from operating activities 26 weeks to 26 weeks to 52 weeks to 25-Aug-07 26-Aug-06 24-Feb-07 £m £m £m Operating profit from 41.2 35.0 76.4continuing operationsOperating loss from - (1.7) (1.7)discontinued operations Adjustments for:Depreciation of property, 2.6 2.5 5.1plant and equipmentAmortisation of intangible assets 3.2 3.3 7.0Share option charge 0.8 0.6 1.2 --------------------------------- Operating cash flows before 47.8 39.7 88.0movements in working capital (Increase)/decrease in inventories (9.4) 2.0 -Increase in trade and other (24.8) (14.9) (32.5)receivablesIncrease/(decrease) in trade 20.3 (1.7) 1.4and other payablesPension obligation adjustment (14.5) (0.1) 0.1 --------------------------------- Cash generated by operations 19.4 25.0 57.0 Taxation paid (9.7) (5.7) (14.2) Net cash from operating 9.7 19.3 42.8activities ---------------------------------- Notes to the interim financial statements 1. Basis of preparation The group's interim results for the 26 weeks ended 25 August 2007 were approvedby the board of directors on 9 October 2007, and have been prepared inaccordance with IAS 34 'Interim Financial Reporting'. The accounting policies adopted in the preparation of the interim financialstatements are consistent with those disclosed in the annual report & accountsfor the 52 weeks ended 24 February 2007. The financial information for the 52 weeks ended 24 February 2007 does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. A copy of those accounts have been delivered to the Registrar ofCompanies.The auditors' report on those accounts was unqualified and did notcontain any statement under Section 237 (2) or (3) of the Companies Act 1985. In the current financial year, the group will adopt International FinancialReporting Standard 7 'Financial instruments: Disclosures' (IFRS7) for the firsttime. As IFRS7 is a disclosure standard, there is no impact of that change inaccounting policy on the half-yearly financial report. 2. Risks and uncertainties There are a number of risks and uncertainties which could have a material impacton the group's long-term performance. They include the potential threat from ourcompetitors; our relationship with key suppliers; the loss of key personnel;potential disruption to our key information systems, warehousing or call centrefacilities arising from events beyond our control such as fire or other issueswhich could have a detrimental impact on sales and profit; changes to theregulatory environment that the business operates under, primarily regulated bythe Financial Services Authority and the Office of Fair Trading. The directors routinely monitor all these risks and uncertainties andappropriate actions are taken to mitigate these risks, such as having businesscontinuity procedures in place, a dedicated team assessing regulatorydevelopments, ensuring we treat our customers fairly and hosting regular reviewswith all of our strategic partners. The board are also committed to investcontinually in updating its systems and infrastructure to keep pace with newtechnology. 3. Segmental Analysis 26 weeks to 26 weeks to 52 weeks to 25-Aug-07 26-Aug-06 24-Feb-07 £m £m £mAnalysis of revenue Continuing operationsHome shopping 286.8 251.2 523.8Fulfilment 3.8 4.6 10.0 290.6 255.8 533.8 --------------------------------- Analysis of operating profitContinuing operationsHome shopping 41.0 35.1 76.3Fulfilment 0.2 (0.1) 0.1 41.2 35.0 76.4 --------------------------------- 4. Discontinued operations 26 weeks to 26 weeks to 52 weeks to 25-Aug-07 26-Aug-06 24-Feb-07 £m £m £mRevenueDoor to door selling - 4.6 4.6 ------------------------------ Operating lossDoor to door selling - (1.4) (1.4) Loss on disposal of - (0.3) (0.3)discontinued operationsAttributable tax credit - 0.5 0.5 -----------------------------Net loss attributable to - (1.2) (1.2)discontinued operations ----------------------------- 5. Taxation The taxation charge for the 26 weeks ended 25 August 2007 is based on theestimated effective tax rate for the full year. 6. Earnings per share The calculation of earnings per share from continuing operations is based on theprofit for the period from continuing operations of £24.5m (2006, £20.9m) andthe weighted average number of shares in issue during the period of 268,038,000(2006, 294,923,000). The calculation of earnings per share from continuing and discontinuedoperations is based on the profit attributable to equity holders of the parentof £24.5m (2006, £19.7m) and the weighted average number of shares in issueduring the period of 268,038,000 (2006, 294,923,000). For diluted earnings per share, the weighted average number of shares of271,281,000 (2006, 296,511,000) has been calculated after adjusting for thepotential dilutive effect of outstanding share options. 7. Reconciliation of equity 26 weeks to 26 weeks to 52 weeks to 25-Aug-07 26-Aug-06 24-Feb-07 £m £m £m Total recognised income for 27.8 21.5 53.9the periodEquity dividends declared (14.3) (13.1) (19.6)B share dividend declared - - (79.9)Issue of ordinary share 1.1 0.3 1.2capitalPurchase of own shares by ESOT (0.4) - (0.7)Issue of own shares by ESOT 0.3 0.1 0.4Share option charge 0.8 0.5 1.2 ---------------------------------- Total movement during the 15.3 9.3 (43.5)period Equity at the beginning of 202.5 246.0 246.0the period Equity at the end of the 217.8 255.3 202.5period ---------------------------------- 8. Dividends The directors have declared and approved an interim dividend of 2.65 pence pershare (2006, 2.19p). This will be paid on 4 January 2008 to shareholders on theregister at the close of business on 7 December 2007. Responsibility statement: We confirm that to the best of our knowledge: (a) the condensed set of financial statements has been prepared inaccordance with IAS 34; (b) the interim management report includes a fair review of the informationrequired by DTR 4.2.7R (indication of important events during the first 26 weeksand description of principal risks and uncertainties for the remaining twentyseven weeks of the year); and (c) the interim management report includes a fair review of the informationrequired by DTR 4.2.8R (disclosure of related party transactions and changestherin). By order of the Board Alan White Dean MooreChief Executive Finance Director 9 October 2007 This information is provided by RNS The company news service from the London Stock Exchange