11th Oct 2006 07:01
Brown (N.) Group PLC11 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, todayannounces 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 andI am particularly pleased with our growth across all product and customergroups. We continue to improve both our product offer and our channeldistribution as shown by the growth in internet sales and this is resulting inan increase in sales both to new customers as well as to our active customerbase." Lord Alliance CBE, Chairman, added: Our strategy of focusing on servicing the specialised clothing and footwearneeds of our target customer groups has produced these encouraging results. Witha strong start to the second half, despite increasingly tough comparators, weremain optimistic for the outlook for the full year." -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 The group results for the six months to 26th August 2006 show furthersignificant improvement has been achieved. Group turnover from the continuingbusinesses is up by 11.8% to £255.8m and profit before taxation of £29.2m is upby 16.3%. Net assets are up by 9.3% to £255.3m, including net debt of £105.3mcompared with £114.4m last year. Earnings per share from continuing operationshave risen by 16.6% to 7.09p and there is an increase of 20.3% in the interimdividend 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 andthe newly acquired Gray & Osbourn) rose by 10.2% to £248.6m and operating profitrose by 18.6% to £35.1m. The most encouraging aspect of the results is that goodprogress has been made in all product and customer groups coupled with majorefficiencies in our marketing and distribution overheads. Ladieswear has been the strongest product sector with sales up 11% at £138m. Wehave capitalised on the trend for both older and larger customers to dress morefashionably with improved ladieswear ranges which have also been displayed inthe catalogues in a more contemporary style. We have increased our market sharein 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 ofsizes and fittings, coupled with the introduction of more lines suitable for thewoman in the 30-45 age range, has enabled us to gain market share. Footwearsales have maintained their strong upward momentum, increasing by 8% to £30m,and again it is the combination of a proposition which meets a specific customerneed as well as the expansion of the range suitable for a younger customer thathas driven this growth. Sales of menswear were up by 9% to £18m where the larger sizes in both brandedand unbranded product have delivered the growth. Home and leisure sales rose by11% 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 customergroupings. The fastest growth continues to be in the younger titles, primarilySimply Be and Fashion World, where there has been a significant increase in thenumber of catalogue pages and the product bought specifically for that age groupresulting in a 15% increase in sales to £66m. However the 9% growth to £170m inthe midlife customer group, targeted at the 45-65 year old customer, shows thereis still plenty of room for growth in our core target market due to thefavourable demographic trends coupled with the more fashionable outlook of manyof 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 HeatherValley and Special Collection catalogues. The presentation of the product to the customers has improved further with morepages in the major catalogues and brochures, lower density of product per pageand an increase in the frequency of mailing customers. The proportion of ourbusiness transacted online has, in line with our strategy, risen sharply againas customers appreciate both the convenience and the special offers available.Online sales have increased by 57% to £52m and now represent 21% of homeshopping sales compared with 15% last year. This rate of growth justifies thefurther investment we are making in our e-commerce infrastructure. The moreorders we receive online the more subsequent sales activity we can generatethrough cost-effective and targeted email campaigns. Customer recruitment campaigns have been successful in the first half with salesfrom new customers increasing by 6%. The mix of campaigns has seen more recruitsfrom our insert and online campaigns who have a better retention rate in futureseasons. The number of active established customers has risen by 4% and theiraverage spend has increased by 5%. We have encouraged this through a number oftargeted promotional campaigns, such as incentivising customers to buy fromproduct ranges where they had not previously done so. We have also improved the service to our customers. Stock availability washigher, the returns rates on product despatches reduced by 0.5% and our customersurveys showed satisfaction rates were at record levels. The overall rate of gross margin on home shopping sales fell by 0.8% for tworeasons which will be beneficial to the future performance of the business. Wechanged our policy to do more in-season discounting thereby reducing terminalstocks which has resulted in total underlying stock levels at the interim stagebeing just 4% up on last year despite the increase in activity levels. Inaddition we have seen the anticipated increase in bad debts due to the upliftingof credit limits following the commissioning of the new behavioural scoringsystem, and also from the mix of sales favouring the younger titles. Overheadshave increased by just 6.2% with significant efficiencies arising in both ourmarketing and distribution costs. Gray & Osbourn Gray & Osbourn, an upmarket ladieswear catalogue retailer, was acquired on 30thJune 2006 for a consideration of £9.2m as part of our strategy to expand ourportfolio of catalogues into the higher socio demographic customer segments. Thesynergy benefits will come through in 2007 but trading to date has been in linewith our expectations. Zendor Zendor, which provides home shopping services for third party retailers, hasgenerated a 43.8% increase in revenues compared with the first half of last yearas a consequence of the internet sales growth of its clients. However the costsof a new dedicated warehouse have increased overheads resulting in a marginalloss of £0.1m, the same as last year. During the period we have signed afive-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 forproceeds of £5.6m. The trading loss for the period together with the net cost ofclosing the operation amounted to £1.7m. No further costs are anticipated in thesecond half. Current Trading and Outlook The autumn catalogues have started strongly and total sales for the six weeksended 7th October 2006 are up on last year by 15.7% or up by 10.2% excluding thesales of Gray & Osbourn. The comparatives get progressively tougher during thesecond half but there are a number of factors we believe can deliver furthergrowth: •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 ourinfrastructure to ensure our call centre, distribution and e-commerce capacityand functionality is available to provide both excellent customer service andincremental profit opportunities. I am sure that our management team will continue to deliver a high level ofinnovation backed by top-class execution to bring our plans to fruition. Thefirst half results and current trading give us reason to be confident of a goodperformance in the second half. Lord Alliance, CBE11th 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 profitGroup 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 2.8Finance 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 periodfrom continuing operations 20.9 17.9 38.6 Loss for the periodfrom 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 5Basic 7.09p 6.08p 13.11pDiluted 7.05p 6.06p 13.06p Earnings per share from continuing anddiscontinued operations 5Basic 6.68p 5.40p 12.26pDiluted 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 assetsIntangible assets 29.5 20.0 22.0Property plant & equipment 63.9 54.8 61.0Deferred tax assets 9.8 9.3 10.4 --------- --------- ----------- 103.2 84.1 93.4 --------- --------- -----------Current assetsInventories 53.0 47.6 52.5Trade and other receivables 341.2 321.4 326.0Other financial assets - - 0.7Cash and cash equivalents 38.7 30.1 51.1 --------- --------- ----------- 432.9 399.1 430.3 --------- --------- ----------- Non-current assets classified asheld for sale - 5.8 - ---------- --------- -----------Total assets 536.1 489.0 523.7 ---------- --------- ----------- Current liabilitiesBank 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 liabilitiesBank 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 ---------- --------- ----------- EquityShare capital 29.5 29.5 29.5Share premium account 9.5 9.2 9.2Own 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 activitiesPurchases of property, plant and equipment (5.3) (3.3) (11.7)Proceeds on disposal of property, plant andequipment - - 0.2Purchases of intangible fixed assets (3.1) (3.0) (8.1)Acquisition of subsidiary (7.1) - -Disposal of subsidiary - 5.3 5.3Interest received 0.6 0.8 1.4 ---------- --------- ---------Net cash flows from investing activities (14.9) (0.2) (12.9) ---------- --------- --------- Cash flows from financing activitiesInterest 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 - 0.2Increase 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) 6.6Opening 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 activitiesOperating profit 35.0 29.5 62.3Operating loss from discontinued operations (1.7) (1.5) (2.2)Depreciation 2.5 2.3 4.2Loss on disposal of property, plant and equipment - - 0.2Amortisation of intangible fixed assets 3.3 2.8 5.8Share 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) 13.4Pension 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 operationsHome shopping 251.2 225.6 459.6Fulfilment 4.6 3.2 9.1 ---------- --------- --------- 255.8 228.8 468.7 ---------- --------- --------- Analysis of operating profit Continuing operationsHome shopping 35.1 29.6 62.4Fulfilment (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 £mRevenueDoor to door selling 4.6 8.5 16.1TV rental - 0.8 0.8Financial services - 0.9 0.9 ---------- --------- --------- 4.6 10.2 17.8 ---------- --------- --------- Operating (loss)/profitDoor 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 32.5Equity dividends declared (13.1) (12.1) (17.4)Issue of ordinary share capital 0.3 - -Issue of own shares via ESOT 0.1 - 0.2Share 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 & OsbournLimited for a total cash consideration of £9.2m. Its principal activity isdirect home shopping by catalogue. The book value and provisional fair value of net assets acquired are as follows: £mPlant and equipment 0.1Inventories 2.4Cash and cash equivalents 2.1Trade and other receivables 0.4Trade and other payables (3.2)Current tax liability (0.3) ---------Net assets acquired 1.5Goodwill arising on acquisition 7.7 ---------Total consideration 9.2 --------- Satisfied by:Cash 9.1Directly attributable costs 0.1 --------- 9.2Cash 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 theprofit for the period from continuing operations of £20.9m (2005, £17.9m) andthe 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 anddiscontinued operations is based on the profit attributable to equity holders ofthe parent of £19.7m (2005, £15.9m) and the weighted average number of shares inissue during the period of 294,923,000 (2005, 294,285,000). For diluted earningsper share, the weighted average number of shares of 296,511,000 (2005,295,468,000) has been calculated after adjusting for the potential dilutiveeffect of outstanding share options. 6. Dividends The directors have declared and approved an interim dividend of 2.19 pence pershare (2005, 1.82p). This will be paid on 5 January 2007 to shareholders on theregister 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 theestimated effective tax rate for the full year. 8. Basis of preparation The accounting policies adopted in the preparation of the interim financialstatement are consistent with those disclosed in the annual report and accountsfor the 52 weeks ended 25 February 2006. The financial information for the 52 weeks ended 25 February 2006 does notconstitute statutory accounts as defined in section 240 0f 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. This report was approved by the Board of Directors on 11 October 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Brown Group