Accelerating Our Transformation
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ACCELERATING OUR TRANSFORMATION N BROWN GROUP PLC ANNUAL REPORT AND ACCOUNTS 2021 N Brown Group plc Annual Report and Accounts 2021 STRATEGIC REPORT HIGHLIGHTS 1 AT A GLANCE 2 CHAIR'S STATEMENT 4 CHIEF EXECUTIVE'S STATEMENT 5 STRATEGIC UPDATE 7 KEY PERFORMANCE INDICATORS 20 MARKETPLACE 22 BUSINESS MODEL 24 FINANCIAL PERFORMANCE 26 RISK MANAGEMENT 32 PRINCIPAL RISKS AND UNCERTAINTIES 35 SECTION 172 STATEMENT 39 BOARD ENGAGEMENT WITH THE WORKFORCE 40 SUSTAIN 42 GOVERNANCE REPORT INTRODUCTION FROM THE CHAIR 55 LEADERSHIP AND PURPOSE GROUP BOARD DIRECTORS 56 EXECUTIVE BOARD DIRECTORS 58 DIVISION OF RESPONSIBILITY GOVERNANCE STRUCTURE 62 COMPOSITION, SUCCESSION AND EVALUATION BOARD COMPOSITION 64 NOMINATIONS AND GOVERNANCE COMMITTEE REPORT 67 AUDIT, RISK AND INTERNAL CONTROL AUDIT AND RISK COMMITTEE REPORT 68 FINANCIAL SERVICES BOARD COMMITTEE REPORT 75 REMUNERATION REMUNERATION COMMITTEE REPORT 76 ADDITIONAL DISCLOSURES 95 VIABILITY STATEMENT 96 FINANCIAL STATEMENTS For the detailed contents of the statements go to p98. INDEPENDENT AUDITOR’S REPORT 99 GROUP ACCOUNTS 108 NOTES TO THE GROUP ACCOUNTS 112 GOING CONCERN 120 COMPANY ACCOUNTS 152 NOTES TO THE COMPANY ACCOUNTS 154 SHAREHOLDER INFORMATION 162 N Brown Group plc Annual Report and Accounts 2021 ACCELERATING OUR TRANSFORMATION We have continued to transform N Brown from a catalogue retailer to a digital retailer. We see an opportunity to further improve our customer proposition and to capitalise on current industry drivers, not least the increasing trend towards online retail. Strategic report Strategic Our £100m capital raise gives us the firepower to invest further in our digital capabilities and accelerate our growth strategy. It has also significantly strengthened the Group’s balance sheet to provide us with ongoing flexibility and a strong platform from which to deliver returns for shareholders. HIGHLIGHTS REVENUE5 ADJUSTED ADJUSTED OPERATING reportGovernance EBITDA1 COSTS TO GROUP REVENUE RATIO2 £728.8m £86.5m 32.5% 2020 (restated): £837.5m -13.0% 2020: £106.7m -18.9% 2020: 39.8% ADJUSTED STATUTORY PROFIT ADJUSTED NET PROFIT BEFORE TAX3 BEFORE TAX DEBT4 £30.1m £9.9m £(301.1)m 2020: £59.5m -49.4% 2020: £35.7m -72.3% 2020: (£497.2)m -£39.3% Financial statements 1 Adjusted EBITDA is calculated as operating profit, excluding exceptional items, with depreciation and amortisation added back. The Directors believe adjusted EBITDA represents the most appropriate measure of the Group’s underlying trading performance as it removes items that do not form part of the recurring activities of the Group. 2 Adjusted operating costs to revenue ratio is calculated as operating costs less depreciation, amortisation and exceptional items as a percentage of Group revenue. The Directors believe this is the most appropriate measure to demonstrate the efficiency of the Group’s operating cost base. 3 Adjusted profit before tax is calculated as profit before tax, excluding exceptional items and fair value movement on financial instruments. The Directors believe that adjusted profit before tax represents the most appropriate measure of the Group’s underlying profit before tax profit as it removes items that do not form part of the recurring activities of the Group. 4 Adjusted net debt is calculated as total liabilities from financing activities less cash, excluding lease liabilities. The Directors believe this is the most appropriate measure of the Group’s net debt in relation to its unsecured borrowings and is used to calculate the Group’s leverage ratio, a key debt covenant measure. A reconciliation is included in note 19. 5 The revenue has been restated in FY20 as outlined in note 32 on page 151. A reconciliation of statutory measures to adjusted measures is included on page 31. A full glossary of Alternative Performance Measures and their definitions is included on page 161. nbrown.co.uk 1 N Brown Group plc Annual Report and Accounts 2021 AT A GLANCE OUR VISION OUR MISSION Championing inclusion, we’ll become the most We’re obsessed with our customers and have loved and trusted fashion retailer. been for generations. We delight them with products, service and finance to fit their lives. OUR PURPOSE We exist to make our customers look and feel amazing. WE ARE A TOP 10 UK CLOTHING AND FOOTWEAR DIGITAL RETAILER, WITH A HOME PROPOSITION, SERVING CUSTOMERS ACROSS FIVE STRATEGIC BRANDS OUR FIVE STRATEGIC BRANDS JD WILLIAMS SIMPLY BE AMBROSE WILSON An online boutique shopping experience A size-inclusive online brand showcasing An online womenswear brand for the showcasing own brand and third-party own brand and third-party brand fashion more mature customer, supported by brand fashion and home product for and beauty for women aged 25 - 45. home, showcasing own brand and third- 45 - 65 year old women. party brands targeting women aged 65+. 2 nbrown.co.uk N Brown Group plc Annual Report and Accounts 2021 SUSTAIN REVENUE BREAKDOWN This year we rebranded our Environmental, FY20 Social and Governance (“ESG”) strategy to SUSTAIN. FY21 (restated)¹ Fully embracing the values of our business, Strategic brands £341.2m £372.7m SUSTAIN encompasses Our People and Our Planet pillars. Other brands £127.2m £174.3m Total Product revenue £468.4m £5 47.0 m SEE MORE ON Financial Services revenue £260.4m £290.5m p42 Group revenue £728.8m £837.5m ¹ FY20 restated see note 32 on page 151 OTHER BRANDS Our other brands complement our five report Strategic strategic brands by focusing on distinct customer niches which are not served by JD Williams, Simply Be, Ambrose Wilson, Jacamo and Home Essentials. FOLDED INTO JACAMO HOME ESSENTIALS STRATEGIC BRANDS A size-inclusive online fashion and A one-stop home brand offering own grooming brand for men, showcasing own brand and third-party brand modern brand and third-party brands targeting homeware helping customers to “dress men aged 25 - 50. their homes”. The target customer is mums aged 25 - 45 with children at home. reportGovernance FINANCIAL SERVICES An important part of our overall proposition, strengthening customer loyalty and enabling our Retail business to thrive. In order to offer our customers excellent convenience and flexibility, customers either pay us immediately or utilise a credit account for their purchases, spreading the cost of their purchase over time. We are regulated by the Financial Financial statements Conduct Authority (“FCA”) in the UK and the Central Bank of Ireland (“CBI”) in Ireland and we support our customers throughout the credit journey with us. Gross customer loan book £605.8m -7.8% nbrown.co.uk 3 N Brown Group plc Annual Report and Accounts 2021 CHAIR’S STATEMENT each quarter, following a sudden and On my appointment as Chair, Gill Barr sharp drop at the onset of the crisis. became the Senior Independent Director This was matched by tight cost control as and on an interim basis, Vicky Mitchell has we demonstrated our flexible cost base, assumed the Audit Committee Chair role. accelerated our digital transformation and A recruitment process is underway for an took swift actions to enhance liquidity. additional independent Non-Executive Director who will become the permanent Group revenue for the year declined Audit Committee Chair. 13.0% to £728.8m with Product revenue down 14.4% and Financial Services (“FS”) On 31 March 2021, Lesley Jones stepped revenue down 10.4%. Our focus on building down from the Board after nearly seven an appropriate cost base for a digital years following her appointment as the retailer resulted in a material improvement Chair of Sainsbury’s Bank. On behalf of the in our operating cost efficiency with Board I would like to thank Lesley for her our adjusted operating cost to Group wise counsel and contribution to the Group. “I would like to thank the Revenue ratio improving from 39.8% in whole team at N Brown for the previous financial year to 32.5% this SUSTAIN the way they responded to year. This enabled the business to deliver SUSTAIN is our overarching Environmental, adjusted EBITDA of £86.5m which was Social and Governance strategy. As part the challenges presented above the top end of our guidance. of our focus on plastics, in Year One of our by Covid-19. The Board’s Details of the strategic transformation sustainability plan, we have successfully number one priority has undertaken in the year are laid out in the conducted a trial of Green Polyethylene Chief Executive’s Statement and I am (“Green PE”) despatch bags. This is an been to keep colleagues pleased with the initial progress we have important step as we progress our goal of safe whilst maintaining their made to deliver sustainable profitable 100% Green PE despatch bags by the end growth. We remain committed to our of 2021. We are also proud to have signed commitment to servicing medium-term targets of delivering 7% up to the British Retail Consortium (“BRC”) our customers throughout product revenue growth and a 14% Climate Action Roadmap to help the retail adjusted EBITDA margin. industry, including supply chains, to hit zero the year.” carbon emissions by 2040. CAPITAL RAISE DIVIDEND During the financial year the Group saw Ron McMillan Following the outbreak of Covid-19 Chair a compelling opportunity to de-risk and accelerate its refreshed strategy; by and the subsequent impact on the eliminating unsecured net debt and bringing business and the wider economy, the On 31 March 2021 Matt Davies, who was forward strategic investment. In December Board suspended dividend payments. appointed as Chair in May 2018, resigned 2020 this culminated in the Group The Directors recognise that dividends are from the Board to spend more time on successfully raising £100m through a pre- an important part of the Company’s returns his other business interests. On behalf of emptive equity raise, admission to AIM and to shareholders and the Board will consider the Board, I would like to thank Matt for the agreement of new and extended bank the resumption of dividend payments at his contribution over the past three years facilities.