11th Oct 2005 07:01
Brown (N.) Group PLC11 October 2005 11 October 2005 N Brown Group plc INTERIM RESULTS ANNOUNCEMENT SIX MONTHS ENDED 27 AUGUST 2005 N Brown Group plc, the Manchester based direct home shopping group, todayannounces its Interim results for the 26 weeks to 27 August 2005. Highlights: •Group profit before tax* up 45.1% to £23.5m (H1 2004: £16.2m) •Group turnover* improved by 8.6% to £237.3m (H1 2004: £218.6m) •Core home shopping business increases operating profit by 23.3% to £29.6m (H1 2004 £24.0m) on turnover up 9.4% to £225.6m (H1 2004 £206.3m) •Clothing and footwear product ranges improve sales by 9% •Internet sales up 55% to £33m, representing 14% of turnover (H1 2004 internet sales 9.6% of turnover) •Dividend per share increased by 4.6% to 1.82p •Earnings per share* up 44.6% to 5.71p •Current trading for the 6 weeks to 8 October shows group sales growth of 6.6%, with core home shopping sales up 7.4% *from continuing operations Alan White, Chief Executive, said: "This is an encouraging set of results in the current retail environment and weare particularly pleased with the growth across all our core home shoppingcustomer and product segments. We have made good progress rationalising ourbusiness to focus on our home shopping catalogues and integrating the House ofBath business acquired at the end of last year. We also continue to exploitopportunities to grow the business through our multi-channel approach, with theinternet continuing to be a good source of revenue growth." Lord Alliance CBE, Chairman, added: "The Group has demonstrated resilience in challenging markets and following thework done over the past year or so to dispose of non-core activities, we nowhave a stronger, leaner financial and operational structure which provides anexcellent base from which to take the business forward. Whilst we have had agood first half and a solid start to the second half, the wider retail market isdepressed. We are therefore cautiously optimistic over the outlook for the fullyear." -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 2002Website : www.nbrown.co.uk---------------------------- Gavin Anderson & CompanyCharlotte Stone / Fergus Wylie Tel: 020 7554 1400 CHAIRMANS STATEMENT - INTERIM RESULTS These results show a continuation of the positive trends evident in last yearsresults. On an International Financial Reporting Standards (IFRS) basis groupsales from continuing operations are up by 8.6% to £237.3m and pre-tax profitsare up by 45.1% at £23.5m. Most importantly the core home shopping division hasseen further strong growth with sales up by 9.4% to £225.6m and operatingprofits up by 23.3% to £29.6m. On an underlying basis under indicative UK GAAPas at 26 February 2005 the group pre-tax profits from continuing operations areup by 14.9% to £23.9m, including a 7.9% increase in core home shopping operatingprofit to £30.2m. In addition we have made good progress in rationalising our other businesses sothat we are now totally focused on home shopping activities. The proceeds fromdisposals have helped to reduce net debt by £11.8m to £114.4m, improving gearingfrom 58% to 49%. Earnings per share from continuing operations are up 44.6% to 5.71p and theboard is proposing a 4.6% increase in the interim dividend to 1.82p. This willbe paid on 6 January 2006 to shareholders on the register at 9 December 2005. IFRS Impact The interim results have been prepared under the new IFRS and prior year figureshave been restated. The adoption of IFRS has reduced group pre-tax profit fromcontinuing operations of the current period by £0.4m from the result calculatedunder indicative UK GAAP as at 26 February 2005, but the impact on the sameperiod in 2004 was to reduce pre-tax profit by £4.6m, primarily due to thechange in accounting for marketing costs. Core Home Shopping The core home shopping division has seen turnover rise by 9.4% to £225.6m.Excluding sales from the House of Bath, acquired in November 2004, turnover isup by 4.9% to £216.5m. This result was delivered against the backdrop of thewidely reported consumer downturn elsewhere in the retail sector. The increasein sales has been driven by a clear focus on our target customer groups andimprovements in all key product ranges. Sales increased in all of our customer groups. The midlife titles targeted atcustomers in the 45-65 age group, which now includes House of Bath, saw salesrise by 9% from £143m to £157m, whilst the catalogue titles targeting customersaged over 65 increased sales by over 6% to £12m, driven by a strong performancefrom the Special Collection customer file. The strongest growth was achieved bythe younger catalogue titles targeted at customers under 45, with a salesincrease of 10% to £57m. Simply Be continued to exploit its niche of fashion andfootwear for the larger woman in the 30-40 age category, resulting in a 32%increase in sales for the period. Our sources of customer recruitment continue to become more varied. In additionto the more traditional press advertisements and brochures inserted innewspapers and magazines we are also making good use of direct mail and internetsearch engine recruitment. The result has been an increase in sales from newcustomers by 7%. The balance is from established customers where the averagespend per customer rose by 4%. The sales growth was spread across all product groups. The ladieswear rangeswere well received, posting an 8% increase in sales to £125m, with the youngerfashion ranges and occasionwear doing particularly well. Footwear salescontinued the strong trend of recent years with a 15% increase, and menswear wasahead by over 13%. Home and leisure sales were up by 10%, although most of thisincrease was due to the inclusion of House of Bath. Part of the overall salesincrease is due to the concerted efforts to improve product specificationsresulting in a 1% decrease in the rate of returns. We have improved both the quality and frequency of our customer contacts. Themain catalogue sales were 10% up on the previous year and mid-season mailings ofpublications, such as NewNow, Classic Detail and Summer Value saw a significantrise in turnover. Our on-line activity continues to grow with sales up another 55% to £33m. Thisincrease is due to both a higher proportion of customers choosing to key theirorders in, instead of using post or telephone, and our targeted email campaignspromoting special offers. The creation of specialist websites, such asVivalaDiva.com and Petfoodnstuff.com show our ability to add range extensionsfor a modest level of investment and with a broader customer appeal. The early results from our television shopping joint venture with Northern &Shell, the Express Shopping Channel, indicated that customer acquisition wouldbe slower than we had anticipated, requiring a heavy investment over the mediumterm. Consequently the channel stopped broadcasting from early October and theassets are being sold. This will result in an estimated loss on disposal of £1min the second half. The gross margin on sales in core home shopping rose by 0.8% to 57.3%, due tothe higher proportion of clothing in the sales mix coupled with a furtherreduction in bad debts. Overheads increased by 11.7%, reflecting the marketinginvestment made to drive the sales and customer acquisition, higher distributioncosts and the running costs of House of Bath. The cost savings identified lastyear have been reinvested to reinvigorate the business. Door to Door Selling We have undertaken a major restructuring of House of Stirling, our door to doorselling business. The worst performing elements of the debtor book were sold toa third party debt collector for £1.75m. The remaining debtors have beenreorganised into a reduced number of sales territories, and as a consequence theheadcount for the business has decreased by 140. The net result in the firsthalf are sales of £8.5m, down 7.6%, with the operating loss reduced from £4.2mto £1.6m. Fulfilment Services Zendor's sales of £3.2m and an operating loss of £0.1m were at similar levels tolast year. The shift in focus last year from interactive services to the corebusiness of fulfilment has proved successful with a 56% increase in revenue inthis area. Activity will continue to focus on providing end-to-end fulfilmentservices to high street retailers looking to move into multi-channel retailing,with the latest major signing, JJB Sport, being successfully launched online inSeptember this year. Discontinued Activities In May 2005 we sold Teleview, our television rental operation, for £6.2m. Theoperating loss during the period prior to disposal was £0.1m with a loss ondisposal of £1.2m. In June 2005 we sold our personal loans portfolio for £9.95m, and duringSeptember 2005 we disposed of our retail credit portfolio for £6.2m. Thesecombined activities made an operating loss of £0.9m during the period, but thedisposal proceeds exceeded our expectation allowing £1.1m of the £3m impairmentprovision taken at the year end to be released. Prospects and Outlook The encouraging trends seen in the first half have continued into the secondhalf. During the six weeks to 8 October 2005 core home shopping sales are up by7.4%, or up by 5.0% excluding House of Bath's contribution. The strong tradingperformance during September includes the launch of some new publications andthe release of our Home & Christmas Gift catalogue one month earlier than lastyear. The most positive results continue to come from our ladies clothing andfootwear ranges. Group sales from continuing activities are up by 6.6%. We are mindful of the depressed state of trading elsewhere in the retail sectorand the busiest months of the year are still ahead of us. However the group isnow wholly focused on home shopping activities and we expect the concentrationon targeted marketing of our core product propositions to continue to drive ourbusiness performance. Lord Alliance, CBE11 October 2005 UNAUDITED CONSOLIDATED INCOME STATEMENT 26 weeks to 26 weeks to 52 weeks to 27-Aug-05 28-Aug-04 26-Feb-05 £m £m £m Restated Restated Revenue - continuing operations 237.3 218.6 447.9 -------------------------------------- Operating profitExisting operations 27.9 19.7 27.6 Share of joint venture operatingloss (1.0) - (1.9) --------------------------------------- Operating profit - continuingoperations 26.9 19.7 25.7 Investment income 1.5 1.8 2.9Finance costs (5.8) (5.3) (10.2)Fair value adjustments to financialinstruments 0.9 - - -------------------------------------- Profit before taxation 23.5 16.2 18.4 Taxation (6.7) (4.6) (3.4) --------------------------------------Profit for the period fromcontinuing operations 16.8 11.6 15.0 (Loss)/profit for the period fromdiscontinued (0.9) 0.1 (3.1)operations --------------------------------------Profit attributable to equityholders of the parent 15.9 11.7 11.9 -------------------------------------- Earnings per share from continuingoperationsBasic 5.71 p 3.95 p 5.10 pDiluted 5.69 p 3.94 p 5.09 p Earnings per share from continuing anddiscontinued operationsBasic 5.40 p 3.98 p 4.05 pDiluted 5.38 p 3.97 p 4.04 p UNAUDITED CONSOLIDATED BALANCE SHEET 27-Aug-05 28-Aug-04 26-Feb-05 £m £m £m Restated Restated Non-current assetsIntangible assets 20.0 19.4 19.7Property plant & equipment 54.8 53.6 53.6Other investments - - 0.1Deferred tax assets 9.3 7.1 8.9 ---------------------------------- 84.1 80.1 82.3 ---------------------------------- Current assetsInventories 47.6 43.8 44.7Trade and other receivables 321.4 324.3 310.2Cash and cash equivalents 30.1 33.4 44.5 ---------------------------------- 399.1 401.5 399.4 ---------------------------------- Non-current assets classified as held forsale 5.8 30.8 23.1 ----------------------------------Total assets 489.0 512.4 504.8 ---------------------------------- Current liabilitiesBank overdrafts (0.1) - (0.1)Obligations under finance leases (0.6) (0.6) (0.6)Trade and other payables (66.7) (62.8) (65.6)Other financial liabilities (0.1) - (1.0)Current tax liability (11.4) (13.4) (5.6) ---------------------------------- (78.9) (76.8) (72.9) ---------------------------------- Net current assets 320.2 324.7 326.5 ---------------------------------- Non-current liabilitiesBank loans (143.8) (170.0) (170.0)Obligations under finance leases - (0.6) -Retirement benefit obligation (29.9) (23.4) (28.3)Deferred tax liabilities (2.9) (3.0) (2.9) ----------------------------------- (176.6) (197.0) (201.2) ---------------------------------- Liabilities directly associated withnon-current assets classified as held forsale - (0.5) (0.6) ---------------------------------Total liabilities (255.5) (274.3) (274.7) ---------------------------------- ----------------------------------Net assets 233.5 238.1 230.1 ---------------------------------- EquityShare capital 29.5 29.5 29.5Share premium account 9.2 9.1 9.2Own shares (1.4) (1.7) (1.5)Foreign currency translation reserve 0.1 - 0.2Retained earnings 196.1 201.2 192.7 ----------------------------------Total equity 233.5 238.1 230.1 ----------------------------------- UNAUDITED CONSOLIDATED CASH FLOW STATEMENT 26 weeks to 26 weeks to 52 weeks to 27-Aug-05 28-Aug-04 26-Feb-05 £m £m £m Restated RestatedNet cash inflow from operatingactivities 28.3 24.9 52.8 Cash flows from investing activitiesPurchases of property, plant andequipment (3.3) (3.0) (5.8)Proceeds on disposal of property,plant and equipment - 4.7 4.9Purchases of intangible fixed assets (3.0) (2.2) (5.1) Loan advanced to joint venture - - (2.0)Disposal of subsidiary 5.3 - - -------------------------------------Net cash flows from investing activities (1.0) (0.5) (8.0) ------------------------------------- Cash flows from financing activitiesInterest paid (4.2) (5.7) (10.0)Interest received 0.8 1.1 1.6Dividends paid (12.1) (12.0) (17.1)Repayment of bank loans (26.2) - -Repayment of obligations underfinance leases - - (0.6)Proceeds on issue of share capital - - 0.1 Decrease in bank overdrafts - (1.2) (1.1) -------------------------------------Net cash flows from financingactivities (41.7) (17.8) (27.1) ------------------------------------- Net (decrease)/increase in cashand cash equivalents (14.4) 6.6 17.7Opening cash and cash equivalents 44.5 26.8 26.8 -------------------------------------Closing cash and cash equivalents 30.1 33.4 44.5 ------------------------------------- RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES Cash flows from operating activitiesOperating profit 27.9 19.7 27.6Operating profit/(loss) fromdiscontinued operations 0.1 1.2 (2.5)Depreciation 2.3 3.0 5.6(Profit)/loss on disposal ofproperty, plant and equipment - (0.1) 0.3Amortisation of intangible fixedassets 2.8 2.7 5.3Share option charge 0.4 0.3 0.7 -------------------------------------Operating cashflows beforechanges in working capital 33.5 26.8 37.0 (Increase)/decrease in inventories (2.9) 2.5 1.6(Increase)/decrease in trade and other receivables (1.4) 0.8 21.3 (Decrease)/increase in trade andother payables (0.1) 4.2 7.7Pension obligation adjustment (0.2) (0.2) (0.3) ------------------------------------- Cash generated from operations 28.9 34.1 67.3 Taxation paid (0.6) (9.2) (14.5) -------------------------------------Net cash inflow from operating activities 28.3 24.9 52.8 ------------------------------------- UNAUDITED GROUP RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' EQUITY 26 weeks to 26 weeks to 52 weeks to 27-Aug-05 28-Aug-04 26-Feb-05 £m £m £m Restated Restated ---------------------------------------Equity at the beginning of the period 230.1 237.4 237.4 --------------------------------------- Profit for the period 15.9 11.7 11.9Exchange differences ontranslation of foreign operations (0.1) - 0.2Actuarial (losses)/gains ondefined benefit pension schemes (1.0) 1.0 (3.5)Tax on items recognised directlyin equity 0.3 (0.3) 1.1 ---------------------------------------Total recognised income andexpense for the period 15.1 12.4 9.7 --------------------------------------- Equity dividends declared (12.1) (12.0) (17.1)Issue of ordinary share capital - - 0.1Share option charge 0.4 0.3 0.7Opening balance sheet adjustmentfor adoption of IAS 39 - - (0.7) ---------------------------------------Net change recognised directly inequity (11.7) (11.7) (17.0) ---------------------------------------Total movements 3.4 0.7 (7.3) ---------------------------------------Equity at end of the period 233.5 238.1 230.1 --------------------------------------- NOTES TO THE FINANCIAL STATEMENTS General information The financial statements for 26 weeks ended 27 August 2005 do not constitutestatutory accounts for the purposes of Section 240 of the Companies Act 1985 andhave not been audited. No statutory accounts for the period have been deliveredto the Registrar of Companies. The financial information in respect of the 52 week period ended 26 February2005 has been produced using extracts from the statutory accounts under UK GAAPfor this period and amended by adjustments arising from the implementation ofInternational Financial Reporting Standards (IFRS). The statutory accounts forthis period have been filed with the Registrar of Companies. The auditors'report on these accounts was unqualified and did not contain a statement underSections 237 (2) or (3) of the Companies Act 1985 which deal respectively withthe maintaining of proper accounting books and records and the availability ofinformation to the auditors. The financial information presented has been prepared based on the adoption ofIFRS, including International Accounting Standards (IAS) and interpretationsissued by the International Accounting Standards Board (IASB) and itscommittees, as interpreted by any regulatory bodies relevant to the group. Theseare subject to ongoing amendment by the IASB and subsequent endorsement by theEuropean Commission and are therefore subject to change. As a result theaccounting policies used to prepare the interim financial report will need to beupdated for any subsequent amendment to IFRS required for first time adoption,or any new standards that the group may elect to adopt early. The interim report was approved by the directors on 10 October 2005. Thisannouncement is being sent to shareholders and will be made available at thecompany's registered office at Griffin House, 40 Lever Street, Manchester M606ES. Copies of this report will also be made available on the company's websiteat www.nbrown.co.uk 1. Basis of preparation The group's interim results for the 26 weeks ended 27 August 2005 have beenprepared in accordance with International Financial Reporting Standards ('IFRS')for the first time. Consequently, a number of accounting policies adopted in thepreparation of these statements are different to those adopted in the financialstatements for the 52 weeks ended 26 February 2005 which were prepared inaccordance with UK Generally Accepted Accounting Practice ('UK GAAP'). The group's first annual report under IFRS will be for the 52 weeks ended 25February 2006. The adoption of IFRS represents an accounting change only anddoes not affect the operations or cash flows of the group. The financial information in this document has been prepared in accordance withIFRS and the accounting policies set out in note 3 below. In accordance with IFRS 1 'First Time Adoption of International FinancialReporting Standards', the group has elected not to restate comparativeinformation for the impact of IAS 32 and IAS 39 Financial Instruments for the 52week period ending 26 February 2005. For the group's interim results for the 26weeks ended 27 August 2005, the opening balance sheet at 26 February 2005 hasbeen adjusted in accordance with the requirements of these standards. Transitional arrangements (IFRS 1) The rules for first time adoption of IFRS are set out in IFRS 1 'First-TimeAdoption of International Financial Reporting Standards'. In general a companyis required to define its IFRS accounting policies and apply theseretrospectively to determine its opening balance sheet under IFRS. The standardallows a number of optional exemptions to this general principle to assistcompanies as they make the transition to reporting under IFRS. The group has made the following elections under the IFRS 1 provisions foroptional exemptions: 1. The group has elected not to account under IFRS 3 for business combinationsmade prior to 28 February 2004. 2. The group has elected not to measure items of property, plant and equipmentat fair value at the date of transition to IFRS but will use UK GAAP net bookvalues at that date. 3. The group has elected to recognise in full all actuarial gains and lossesrelated to liabilities under any employee benefit arrangement (IAS 19) inopening equity under IFRS. In future, actuarial gains and losses will berecognised in the Statement of Recognised Income and Expense. 4. The group will only apply the provisions of IFRS 2 'Share Based Payments' toequity instruments issued after 7 November 2002. 5. The group will take up the exemption related to financial instruments (IAS 32and IAS 39) that allows it not to present comparative information in compliancewith those standards (but will continue to comply with UK GAAP in this respect)for instruments in place during the 52 weeks ended 26 February 2005. The groupwill comply fully with IAS 32 and IAS 39 from 27 February 2005. 2. Explanation of transition to IFRS This note sets out details of the changes in accounting policies arising fromthe adoption of IFRS, together with restated financial information for theopening balance sheet at 28 February 2004 and 26 February 2005, the 26 weeksended 28 August 2004 and the 52 weeks ended 26 February 2005. Share based payments - IFRS2 The charge recognised in the income statement for share-based payments is basedon the fair value of the option or award at date of grant, which is expensedover the vesting period of the option or award. Fair value is measured by use ofthe Black-Scholes Model. Business combinations - IFRS 3 The basis of accounting for pre-transition combinations under UK GAAP has notbeen revisited. The initial carrying amount of assets and liabilities acquiredin such business combinations is deemed to be equivalent to cost. Non-current assets held for sale - IFRS5 Non-current assets held for sale are presented separately from other non-currentassets under IFRS. Dividends - IAS10 Dividends proposed will be disclosed as a 'Non-adjusting Event after the BalanceSheet Date' under IAS 10. Under IFRS dividends are not recognised as liabilities(IAS 37) until they are appropriately approved and are no longer at thediscretion of the directors. Accordingly proposed dividends under UK GAAP havebeen removed from the IFRS accounts.Employee benefits - IAS 19 IAS 19 requires that pension scheme charges be recognised separately in theincome statement with current service costs charged to operating profit and netfinancing costs charged to interest costs. The group has elected to recogniseactuarial gains and losses in the statement of recognised income and expense. Pension scheme deficits are recognised in the group balance sheet, gross of therelated deferred tax asset. IAS 19 also requires holiday to be accrued for when the corresponding serviceshave been received from employees. Catalogue costs - IAS38 Catalogue costs under IFRS are expensed as incurred. Under UK GAAP these costswere spread over the life of a catalogue in order to match against revenue. Intangible assets - IAS 38 Computer software development costs that generate economic benefits beyond oneyear are now recognised separately as an intangible fixed asset. These werepreviously classified as property, plant and equipment under UK GAAP. Intangible assets also comprise a brand name and customer database arising onacquisition during the 52 weeks ended 26 February 2005, which has beenre-assessed under the transitional guidelines of IFRS 3. Financial instruments - IAS 32 and 39 The group adopted IAS 32 and 39 on 27 February 2005 as permitted under theexemptions of IFRS 1. The impact was limited to the recognition of fair valuemovements in forward contracts and embedded derivatives on the group's balancesheet when the group becomes a party to the contractual provisions of theinstrument. Profits and losses on financial instruments are recognised in theincome statement as they arise. Cumulative translation differences Under IFRS, exchange rate differences arising on consolidation on thetranslation of overseas subsidiaries are required to be recognised as a separateequity reserve. RECONCILIATION OF NET ASSETS AT 28 FEBRUARY 2004 Employee Catalogue Effect of Restated Dividends Benefits Costs Reclass- transition under UK GAAP IAS10 IAS 19 IAS 38 ifications to IFRS IFRS £m £m £m £m £m £m £mNon-current assets Intangible assets - Other - 19.9 19.9 19.9Property plant & equipment 83.0 (19.9) (19.9) 63.1 Other investments - - - Deferred tax assets - 7.3 7.3 7.3 ------- ------- ------- 83.0 7.3 90.3 ------- ------- -------Current assetsInventories 46.4 - 46.4Trade and otherreceivables 354.1 (2.6) (2.6) 351.5Cash and cashequivalents 26.8 - 26.8 ------- ------- ------- 427.3 (2.6) 424.7 ------- ------- -------Total assets 510.3 4.7 515.0 ------- ------- -------Current liabilitiesBank overdrafts (1.2) - (1.2)Obligations underfinance leases (0.6) - (0.6) Trade and other payables (72.0) 12.0 (0.4) 11.6 (60.4) Current tax liability (16.6) - (16.6) ------- ------- ------- (90.4) 11.6 (78.8) ------- ------- ------- Net current assets 336.9 9.0 345.9 ------- ------- -------Non-current liabilitiesBank loans (170.0) - (170.0)Obligations under finance leases (0.6) - (0.6)Retirement benefitobligation - (24.0) (24.0) (24.0)Deferred tax liabilities (5.0) 0.8 0.8 (4.2) ------- ------- ------- (175.6) (23.2) (198.8) ------- ------- -------Totalliabilities (266.0) (11.6) (277.6) ------- ------- ------- -----------------------------------------------------------------------------------------Net assets 244.3 12.0 (17.1) (1.8) - (6.9) 237.4 ----------------------------------------------------------------------------------------- EquityShare capital 29.5 - 29.5Share premium account 9.1 - 9.1Own shares (2.3) - (2.3)Retained earnings 208.0 12.0 (17.1) (1.8) (6.9) 201.1 -------------------------------------------------------------------------------------------Total equity 244.3 12.0 (17.1) (1.8) - (6.9) 237.4 ------------------------------------------------------------------------------------------- RECONCILIATION OF GROUP INCOME STATEMENTFOR THE 26 WEEKS ENDED 28 AUGUST 2004 Employee Catalogue Discontinued Effect of Restated UK Benefits Costs activities transition under GAAP IAS 19 IAS 38 IFRS5 to IFRS IFRS £m £m £m £m £m £m Revenue 225.6 (7.0) (7.0) 218.6 ====== ======= ======== Operating profit 24.9 0.2 (4.2) (1.2) (5.2) 19.7 Share of joint venture operating loss - - - Profit from operations 24.9 (5.2) 19.7 Finance costs (net) (3.9) (0.6) 1.0 0.4 (3.5) ------ ------- --------Profit before taxation 21.0 (4.8) 16.2 Taxation (6.0) 0.1 1.2 0.1 1.4 (4.6) ------ ------- --------Profit fromcontinuing operations 15.0 (3.4) 11.6 Profit fromdiscontinuedoperations - 0.1 0.1 0.1 ----------------------------------------------------------------------------Profit forthe period 15.0 (0.3) (3.0) - (3.3) 11.7 ============================================================================ Earnings per share fromcontinuing anddiscontinued operations Basic 5.12p 3.98pDiluted 5.11p 3.97p RECONCILIATION OF NET ASSETSAT 28 AUGUST 2004 Non - current Employee Catalogue Effect of UK assets Dividends Benefits Costs Reclassi- transition Restated GAAP IFRS5 IAS 10 IAS 19 IAS 38 fications to IFRS under IFRS £m £m £m £m £m £m £m £mNon-current assetsIntangible assets - Other - 19.4 19.4 19.4Property plant & equipment 80.9 (7.9) (19.4) (27.3) 53.6Other investments - - -Deferred tax assets - 7.1 7.1 7.1 ------ ------- ------- 80.9 (0.8) 80.1 ------ ------- -------Current assets Inventories 43.9 (0.1) (0.1) 43.8Trade and other receivables 353.9 (22.8) (6.8) (29.6) 324.3Cash and cashequivalents 33.4 - 33.4 ------ ------- ------- 431.2 (29.7) 401.5 ------- ------- -------Non-current assets heldfor sale - 30.8 30.8 30.8 ------ ------- -------Total assets 512.1 0.3 512.4 ------ ------- ------- Current liabilitiesBank overdrafts - - -Obligations under finance leases (0.6) - (0.6)Trade andother payables 68.0) 0.5 5.1 (0.4) 5.2 (62.8)Current taxliability (13.4) - (13.4) ------ ------- ------- (82.0) 5.2 (76.8) ------ ------- -------Net current assets 349.2 (24.5) 324.7 ------ ------- -------Non-current liabilitiesBank loans (170.0) - (170.0)Obligations underfinance leases (0.6) - (0.6)Retirement benefit obligation - (23.4) (23.4) (23.4)Deferred taxliabilities (5.0) 2.0 2.0 (3.0) ------ ------- ------- (175.6) (21.4) (197.0) ------ ------- ------- Liabilities directlyassociated with non- current assets held for sale - (0.5) (0.5) (0.5) ------ ------- ------- Total liabilities (257.6) (16.7) (274.3) ------ ------- ------- ------------------------------------------------------------------------------------------------Net assets 254.5 - 5.1 (16.7) (4.8) - (16.4) 238.1 ------------------------------------------------------------------------------------------------EquityShare capital 29.5 - 29.5Share premiumaccount 9.1 - 9.1Own shares (1.7) - (1.7)Retained earnings 217.6 5.1 (16.7) (4.8) (16.4) 201.2 ------------------------------------------------------------------------------------------------Total equity 254.5 - 5.1 (16.7) (4.8) - (16.4) 238.1 ------------------------------------------------------------------------------------------------ RECONCILIATION OF GROUP INCOME STATEMENTFOR THE 52 WEEKS ENDED 26 FEBRUARY 2005 Share Based Employee Catalogue Discontinued Effect of Restated UK Payment Benefits Costs activities transition under GAAP IFRS2 IAS 19 IAS 38 IFRS5 to IFRS IFRS £m £m £m £m £m £m £m Revenue 460.3 (12.4) (12.4) 447.9 ------ -------------------- Operating profit 28.6 (0.1) 0.4 (3.8) 2.5 (1.0) 27.6 Share of jointventure operating loss (1.9) - (1.9) ------- -------------------Profit from continuingoperations 26.7 (1.0) 25.7 Finance costs (net) (8.1) (1.2) 2.0 0.8 (7.3) ------ -------------------Profitbefore taxation 18.6 (0.2) 18.4 Taxation (3.3) 0.2 1.1 (1.4) (0.1) (3.4) ------ -------------------Profit fromcontinuing operations 15.3 (0.3) 15.0 Loss fromdiscontinued operations - (3.1) (3.1) (3.1) ------------------------------------------------------------------------------------Profit forthe period 15.3 (0.1) (0.6) (2.7) - (3.4) 11.9 ------------------------------------------------------------------------------------ Earnings pershare from continuingandd iscontinued operationsBasic 5.18 p 4.05 pDiluted 5.17 p 4.04 p RECONCILIATION OF NET ASSETS AT 26 FEBRUARY 2005 Non - Employee Catalogue Financial Effect of Restated UK assets Dividends Benefits Costs Derivatives Reclass- transition under GAAP IFRS5 IAS 10 IAS 19 IAS 38 IAS 39 ifications to IFRS IFRS £m £m £m £m £m £m £m £m £m Non-currentassetsIntangibleassets -Goodwill 1.5 (1.5) (1.5) -Intangibleassets- other - 19.7 19.7 19.7Propertyplant & equipment 78.8 (7.0) (18.2) (25.2) 53.6 Other investments 0.1 - 0.1Deferred taxassets - 8.6 0.3 8.9 8.9 ------ ------------------- 80.4 1.9 82.3 ------ -------------------Current assetsInventories 44.8 (0.1) (0.1) 44.7 Trade and otherreceivables 332.6 (16.0) (6.4) (22.4) 310.2Cash and cashequivalents 44.5 - 44.5 ----- ------------------ 421.9 (22.5) 399.4 ------ ------------------Non-currentassets heldfor sale - 23.1 23.1 23.1 ------- ------------------Total assets 502.3 2.5 504.8 ------- ------------------Current liabilitiesBank overdrafts (0.1) - (0.1) Obligations under finance leases (0.6) - (0.6) Trade andother payables (77.9) 0.6 12.1 (0.4) 12.3 (65.6)Otherfinancialliabilities - (1.0) (1.0) (1.0) Current taxliability (5.6) - (5.6) ------ ----------------- (84.2) 11.3 (72.9) ------ -----------------Net currentassets 337.7 (11.2) 326.5 ------ -----------------Non-currentliabilitiesBank loans (170.0) - (170.0)Obligations under financeleases - - -Retirementbenefitobligation - (28.3) (28.3) (28.3)Deferred taxliabilities (4.8) 1.9 1.9 (2.9) ------ ---------------- (174.8) (26.4) (201.2) ------ ----------------Liabilitiesdirectlyassociatedwith non-currentassetsheld for sale - (0.6) (0.6) (0.6) ------ ----------------Totalliabilities (259.0) (15.7) (274.7) ------ ---------------- ----------------------------------------------------------------------------------------------------------Net assets 243.3 - 12.1 (20.1) (4.5) (0.7) - (13.2) 230.1 ----------------------------------------------------------------------------------------------------------EquityShare capital 29.5 - 29.5Share premiumaccount 9.2 - 9.2Own shares (1.5) - (1.5)Foreigncurrencytranslationreserve - 0.2 0.2 0.2Retainedearnings 206.1 12.1 (20.1) (4.5) (0.7) (0.2) (13.4) 192.7-----------------------------------------------------------------------------------------------------------------------Total 243.3 - 12.1 (20.1) (4.5) (0.7) - (13.2) 230.1----------------------------------------------------------------------------------------------------------------------- 3. Indicative view of UK GAAP RECONCILIATION OF PROFIT FOR THE 26 WEEKS ENDED 27 AUGUST 2005 FROM IFRS TOINDICATIVE UK GAAP AS AT 26 FEBRUARY 2005 Adjust to UK Indicative UK 26 weeks to IFRS GAAP GAAP 28-Aug-04 £m £m £m £m Revenue - continuingoperations 237.3 - 237.3 218.6 ----- ---------- ---------- --------- Operating profit - existingoperations 27.9 0.6 28.5 23.7 Share of joint ventureoperating loss (1.0) (1.0) - ------ ---------- ---------- --------- Operating profit -continuing operations 26.9 0.6 27.5 23.7 Finance costs (net) (4.3) 0.7 (3.6) (2.9)Fair value adjustments tofinancial instruments 0.9 (0.9) - - ------ ---------- ---------- ---------Profit before taxation 23.5 (0.4) 23.9 20.8 Taxation (6.7) 0.1 (6.8) (5.9) ------ ---------- ---------- ---------Profit from continuingoperations 16.8 0.3 17.1 14.9 (Loss)/profit fromdiscontinued operations (0.9) - (0.9) 0.1 ------- ------------ ------------ -----------Profit for the period 15.9 0.3 16.2 15.0 ------- ------------ ------------ ----------- This reconciliation has been prepared on the basis of the UK GAAP accountingpolicies applied by the group at 26 February 2005. No account has been taken ofsubsequent changes to UK GAAP during the 26 weeks ended 27 August 2005. Theadjustment to operating profit of £0.6m relates solely to the core home shoppingdivision, giving an indicative UK GAAP operating profit of £30.2m. 4. Accounting policies Basis of accounting The next annual financial statements of the group will be prepared in accordancewith International Financial Reporting Standards (IFRS) as adopted for use inthe EU. Accordingly, the interim financial information has been prepared usingaccounting policies consistent with IFRS. IFRS is subject to amendment andinterpretation by the International Accounting Standards Board (IASB) and thereis an ongoing process of review and endorsement by the European Commission. Thefinancial information has been prepared on the basis of IFRS that the directorsexpect to be applicable as at 25 February 2006. N Brown Group plc's consolidated financial statements were prepared inaccordance with United Kingdom Generally Accepted Accounting Principles (UKGAAP) until 27 February 2005. UK GAAP differs in some areas from IFRS. Inpreparing this interim financial information, management has amended certainaccounting and valuation methods applied in the UK GAAP financial statements tocomply with the recognition and measurement criteria of IFRS. The comparativefigures in respect of 2004 were restated to reflect these adjustments.The group has made use of the exemption available under IFRS 1 to only apply IAS32, 'Financial Instruments: Disclosure and Presentation' and IAS 39 'FinancialInstruments: Recognition and Measurement' from 27 February 2005.The disclosures required by IFRS 1 concerning the transition from UK GAAP toIFRSs are given in note 1. The financial statements have been prepared on the historical cost basis. Theprincipal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe company, all of its subsidiary undertakings, the Employee Share OwnershipTrust and the No 2 Employee Share Ownership Trust ("the employee trusts"), whichare made up to a date co-terminous with the financial period of the parentcompany. Control is achieved where the company has the power to govern the financial andoperating policies of an investee entity so as to obtain benefits from itsactivities. On acquisition, the assets and liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill. Any deficiency of the cost ofacquisition below the fair values of the identifiable net assets acquired (i.e.discount on acquisition) is credited to profit and loss in the period ofacquisition. The results of subsidiaries acquired or disposed of during the yearare included in the consolidated income statement from the effective date ofacquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. The results of jointly controlled entities are incorporated in the financialstatements using the equity method of accounting. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents the total amount receivable for goods and servicesprovided in the normal course of business net of returns, VAT and sales relatedtaxes. Property, plant & equipment Property, plant & equipment is stated at cost, less accumulated depreciation andany recognised impairment loss. Depreciation is calculated so as to write off the cost of assets to theirestimated residual value over their estimated useful lives using thestraight-line method. No depreciation is charged on freehold land. In this respect the following annual depreciation rates apply: Freehold buildings 2%Leasehold property and improvements over the period of the leaseMotor vehicles 20%Computer equipment 20%Plant and machinery Between 5% and 20%Fixtures and fittings Between 10% and 20% Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, over the term of therelevant lease. The gain or loss arising on the disposal or retirement of an asset is determinedas the difference between the sales proceeds and the carrying amount of theasset and is recognised in income. Capitalisation of interest Interest accrued on funding for major capital projects is capitalised as part ofthe cost of the assets up to the time that they come into use. The interest rateapplied is calculated by reference to the actual rate payable on borrowingsutilised for the project. Web site development costs Design and content development costs are capitalised only to the extent thatthey lead to the creation of an enduring asset delivering benefits at least asgreat as the amount capitalised. If there is insufficient evidence on which tobase reasonable estimates of the economic benefits that will be generated in theperiod until the design and content are next updated, the costs of developingthe design and content are charged to the profit and loss account as incurred. Goodwill Goodwill arising on the acquisition of subsidiary undertakings and businessesrepresents any excess of the cost of acquisition over the fair value of theidentifiable assets and liabilities acquired. Goodwill is recognised as an asset and reviewed for impairment at leastannually. Any impairment is recognised immediately in the income statement andis not subsequently reversed. On disposal of a subsidiary, associate or jointly controlled entity, theattributable amount of goodwill is included in the determination of the profitor loss on disposal. Purchased goodwill arising on acquisitions before 1 March 1998 was chargedagainst reserves in the year of acquisition in accordance with UK GAAP and hasnot been reinstated and is not included in determining any subsequent profit orloss on disposal. Intangible assets Computer software development costs that generate economic benefits beyond oneyear are capitalised as an intangible asset and amortised on a straight-linebasis over 5 years. Customer databases and brand names arising on acquisitions re-assessed under thetransitional requirements of IFRS 3 are amortised over their useful economiclives, which have been assessed as five years.Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the group estimates therecoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset forwhich the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of an impairmentloss is recognised as income immediately. Leasing Assets leased from third parties under operating leases are accounted for bycharging the rentals payable to income over the relevant term of the lease. Assets held under finance leases are included in tangible fixed assets at avalue equal to the original costs incurred by the lessor less depreciation, andobligations to the lessor are shown as part of creditors. The interest elementis charged to the income statement over the period of the leases to produce aconstant rate of charge on the balance of capital repayments outstanding.Inventories Inventories have been valued at the lower of cost and net realisable value. Netrealisable value means estimated selling price less all costs to be incurred inmarketing, selling and distribution. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. Thegroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interests in jointventures, except where the group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Foreign currencies Assets and liabilities denominated in foreign currencies are translated at therate of exchange ruling at the balance sheet date. Other transactions in foreigncurrencies are recorded at the rate ruling at the date of the transaction. Allresulting exchange differences are taken directly to the income statement. The results of overseas operations are translated at the average rates ofexchange during the period and their balance sheets at the rates ruling at thebalance sheet date. Exchange differences arising on translation of the openingnet assets and the results of overseas operations are classified as equity andtransferred to the group's translation reserve. Financial instruments Financial assets and financial liabilities are recognised on the group's balancesheet when the group becomes a party to the contractual provisions of theinstrument. Profits and losses on financial instruments are recognised in theincome statement as they arise. Borrowing costs Borrowing costs are recognised in profit or loss in the period in which they areincurred. Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the group afterdeducting all of its liabilities. Share-based payments The group has applied the requirements of IFRS 2 Share-based Payments. Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested as of 27February 2005. The group issues equity-settled share-based payments to certain employees.Equity-settled share-based payments are measured at fair value at the date ofgrant. The fair value determined at the grant date of the equity-settledshare-based payments is expensed on a straight-line basis over the vestingperiod, based on the group's estimate of shares that will eventually vest. Fair value is measured by use of a Black-Scholes model. Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as anexpense as they fall due. Payments made to state-managed retirement benefitschemes are dealt with as payments to defined contribution schemes where thegroup's obligations under the schemes are equivalent to those arising in adefined contribution retirement benefit scheme. For defined benefit retirement benefit schemes, the cost of providing benefitsis determined using the Projected Unit Credit Method, with actuarial valuationsbeing carried out at each balance sheet date. Actuarial gains and losses arerecognised in full in the period in which they occur. They are recognisedoutside profit or loss and presented in the statement of recognised income andexpense. Past service cost is recognised immediately to the extent that the benefits arealready vested, and otherwise is amortised on a straight-line basis over theaverage period until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents thepresent value of the defined benefit obligation, as reduced by the fair value ofscheme assets. Non-current assets held for sale Non-current assets (and disposal groups) classified as held for sale aremeasured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if theircarrying amount will be recovered through a sale transaction rather than throughcontinuing use. This condition is regarded as met only when the sale is highlyprobable and the asset (or disposal group) is available for immediate sale inits present condition. Management must be committed to the sale which should beexpected to qualify for recognition as a completed sale within one year from thedate of classification. 5. Analysis of revenue and operating profit 26 weeks to 26 weeks to 52 weeks to 27-Aug-05 28-Aug-04 26-Feb-05 £m £m £m Restated RestatedAnalysis of revenueContinuingHome shopping 225.6 206.3 416.5Door to door selling 8.5 9.2 24.0Fulfilment 3.2 3.1 7.4 ---------- ----------- ---------- 237.3 218.6 447.9 ---------- ----------- ----------DiscontinuedTV rental 0.8 3.2 5.7Financial Services 0.9 3.8 6.7 ---------- ----------- ---------- 1.7 7.0 12.4 ---------- ----------- ----------Analysis of operating profitContinuingHome shopping 29.6 24.0 56.1Door to door selling (1.6) (4.2) (28.8)Fulfilment (0.1) (0.1) 0.3 ---------- ----------- ---------- 27.9 19.7 27.6 ---------- ----------- ----------DiscontinuedTV rental (0.1) (0.2) (0.7)Financial Services 0.2 1.4 (1.8) ---------- ----------- ---------- 0.1 1.2 (2.5) ---------- ----------- ---------- 6. Earnings per share The calculation of earnings per share is based on the profit for the financialperiod and the weighted average number of shares in issue during the period of294,285,000 (2004, 293,746,000). For diluted earnings per share, the weightedaverage number of shares of 295,468,000 (2004, 294,502,000) has been calculatedafter adjusting for the potential dilution of outstanding share options. 7. Dividends 26 weeks to 26 weeks to 52 weeks to 27 August 28 August 26 February 2005 2004 2005 £m £m £m Dividend paid per share in theperiod of 4.1p (2004 - first half4.1p, full year 5.84p) 12.1 12.0 17.1 ----------- ----------- ----------- The amount of £12.1m is in respect of the final dividend for the 52 weeks ended26 February 2005, the amount of £12.0m is in respect of the final dividend forthe 52 weeks ended 28 February 2004 and the amount of £17.1m is in respect ofthe final dividend for the 52 weeks ended 28 February 2004 plus the interimdividend for the 52 weeks ended 26 February 2005. 8. Taxation The taxation charge for the 26 weeks ended 27 August 2005 is based on theestimated effective tax rate for the full year. 9. Events since the balance sheet date Dividends The directors have declared and approved an interim dividend of 1.82p per share(2004 - 1.74p per share) on 10 October 2005. This has not been included as aliability at 27 August 2005. The dividend will be paid on 6 January 2005 toshareholders on the register at close of business on 9 December 2005. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Brown Group