Brown Group Regulatory News (BWNG)

Trading update

In light of current market conditions and the rapidly changing developments regarding Covid-19, N Brown plc (the "Group" or the "Company") provides the following update.

Our absolute priority has been to ensure the wellbeing of our colleagues, both in Head Office and across our distribution centres, whilst continuing to deliver the service and functionality for our customers to continue shopping our brands. Our colleagues and our supplier partners have been excellent in adapting to a more flexible way of working during this difficult period and remain as committed as ever to supporting our loyal customer base.

Demand

At this stage, there is no way of predicting the impact the virus will have on our sales, nor how long the pandemic will last and what effect it will have on customer behaviour. Trading for the first two weeks of the new financial year was in line with expectations. However, during the last week we have seen a very significant and sudden reduction in customer demand with daily product sales down in excess of 40% compared to expectations. Whilst it is impossible to give accurate guidance, we are anticipating a material reduction in demand through FY21.

As a result, the Company has taken a number of immediate and proactive measures to reduce costs and preserve liquidity, including:

· A significant reduction in marketing expenditure with immediate effect and for the foreseeable future if market conditions do not improve;

· Stopping and deferring all non-essential capital expenditure. This will have little or no impact on the short-term performance of the business;

· Working collaboratively with HMRC to secure the deferral of all tax and national insurance payments;

· Stopping stock purchases immediately, thereby aligning stock levels for SS20 with reduced customer demand. Going forward, we will be re-evaluating our stock intake plans; and

· Freezing all recruitment and reviewing organisational structures.

Our objective in relation to all of these actions is to preserve liquidity in the business and allow us to manage the business effectively and prudently through this highly uncertain period. In addition, the Group is exploring all options in relation to the Government and Bank of England support packages for business.

Liquidity

The Group has financing facilities in place totalling £652.5m, comprising:

· A securitisation facility secured by a charge over certain eligible customer receivables which is without recourse to any of the Group's other assets, and which is committed to December 2021. The facility is £500m but the amount that can be drawn under the facility is lower than this and depends on the level of eligible customer receivables at any one point in time;

· A Revolving Credit Facility ("RCF") of £125m which is committed to September 2021; and

· An overdraft of £27.5m.

As at 20 March 2020 the Group was drawn on the securitisation facility, to the maximum extent possible, being £414.7m and fully drawn down on the RCF of £125.0m. It had also drawn down £9.0m on the overdraft and held cash balances of £46.3m.

Whilst the Group is currently in compliance with its existing banking covenants, the downside scenario modelling we have conducted for Covid-19, involving a significant and sustained reduction in customer demand, indicates the need for amendments to existing banking covenants, changes in the way our securitisation facility operates and potentially additional facilities. The Group is progressing proactive, collaborative discussions with its long-standing, supportive lenders and is exploring options in relation to maximising the value of its significant unlevered debtor book. In addition, the Group is also exploring options in relation to its unencumbered freehold properties with an original cost of £58.3m.

Dividend

As a result of the initial impact of Covid-19 the Board will not be recommending a final dividend for the financial year ended 29 February 2020 and will suspend dividend payments for the foreseeable future.

FY20 guidance

The Bank of England in its 'Statement on IFRS 9 and Covid-19' on 20 March recognised that there is currently a very high level of uncertainty around how Covid-19 will impact the economy. It is, therefore, extremely difficult to quantify the expected impact as reliable and detailed forecasts cannot yet be made.

The Group is currently reviewing the potential impact of Covid-19 on its FY20 IFRS9 bad debt provision in light of significantly worse future macro-economic scenarios which impact the provision model.

Whilst the Board cannot be certain of the impact of Covid-19 on the Groups FY20 IFRS 9 Bad debt provision, the Board expects the Group's adjusted profit before tax to be lower than the previously guided range of £70m to £72m.

The Board had expected to release its Full Year Results for the year ended 29 February 2020 on 29 April 2020. However, due to working restrictions affecting both the Company and the Auditors, there is likely to be a delay to the publication of the results. A further announcement will be made in due course.

FY21 guidance

Given the current acute uncertainty, the Board does not believe it appropriate to provide financial guidance for the financial year ending 27 February 2021. Whilst Covid-19 will have a very significant impact on the Group's business, the Board remains confident in N Brown's proposition and the markets it serves.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

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About N Brown Group:

N Brown is a top 10 UK clothing & footwear digital retailer. We are size inclusive, focusing on the needs of underserved customer groups - size 20+ and age 50+. We offer an extensive range of products, predominantly clothing, footwear and homewares, and our financial services proposition allows customers to spread the cost of shopping with us. We are headquartered in Manchester where we design, source and create our product offer and we employ over 2,400 people across the UK.