N Brown Group plc, the Manchester based direct catalogue home shopping and fulfilment services company, today announces its interim results for the 26 weeks to 26 August 2000.
The group continues to report a strong performance. Turnover growth in the core division of home shopping was ahead of the retail sector, reflecting increased customer spending and retention, and supported by a wider product range.
Our fulfilment services division has been further enhanced with the acquisition of Eunite, the e-convergence company providing multi-channel solutions and complementing Zendor.com’s offer.
Highlights of the results include:
- Turnover £185.9m (1999 : £172.5m) up 7.8%
- Operating profit £24.7m (1999 : £23.0m) up 7.5%,
- Profit before tax (before Zendor.com costs) £23.1m (1999 : £21.4m) up 7.9%
- Earnings per share 5.55p (1999 : 5.16p)* up 7.6%
- Interim dividend per share 1.45p (1999 : 1.35p)* up 7.4%
- 1999 figures restated to reflect the recent 1 for 1 bonus issue of shares
Sir David Alliance CBE, Chairman, said:
"I am pleased to report a good set of results, particularly in the light of a difficult retail climate.
"Zendor.com is performing to expectations. We have a number of quality prospects which will be announced according to the client’s plans.
"We are continuing to launch initiatives which will drive growth in our core businesses, as well as developing other opportunities leading to further progress this year and next."
For further information please contact:
Sir David Alliance CBE,
Chairman, N Brown Group plc
On the day:
020 7457 2345
Jim Martin,
Chief Executive, N Brown Group plc
Tim Kowalski,
Finance Director,
N Brown Group plc
Thereafter:0161 236 8256
Neil Garnett / Luisa Winnett, Gavin Anderson & Company:
020 7457 2345
CHAIRMAN'S STATEMENT
I am delighted to report continued strong growth for the six months to August 2000 in a challenging retail climate. Turnover is up 7.8% to £185.9m and, before absorbing Zendor.com’s first half costs of £0.4m, profit before tax has increased by 7.9% to £23.1m. Earnings per share have increased by 7.6% to 5.55 pence and the board has declared an interim dividend of 1.45 pence per share, up by 7.4%.
Home Shopping
Home shopping turnover is up by 7.8%, well ahead of the retail sector as a whole. Much of this is due to the continued support and loyalty of our existing established customers. Turnover from these customers increased by 8.5%, with a 4.5% rise in the number who ordered to 1.8 million and a 4% increase in their average spending. This growth in customer spending is particularly satisfying against a background of price deflation, which was around 4% in the period.
An important part of our growth strategy is the development of our household and electrical products, sales of which have grown by 25% to £42m, now representing 23% of home shopping turnover. We have increased the frequency as well as the number of customers contacted, using the Home Essentials brochure and a new publication, Inspirational Homes, as well as devoting more space to these items in our main catalogues. Product ranges have been widened and customers are being offered more flexible credit propositions.
Clothing and footwear sales volumes continue to be strong but selling prices are generally lower than last year, a situation which is reflected in the retail sector. Despite this, ladies clothing sales are ahead by 5% to £108m with demand favouring younger, informal separates. A new brochure, Naturally Close, containing a range of lingerie, nightwear and swimwear was successfully launched this season. Sales of menswear and footwear have declined by 3% in spite of increased volumes. This reflects the general pressure on pricing in these product groups.
Our main catalogues are well positioned demographically to take advantage of an ageing and more affluent population. Turnover from customers in their mid forties through to early sixties has advanced by 8% to £130m. We have also invested in the younger market of consumers in their thirties and forties and sales to these customers are up by 9% to £37m.
Due to better control of stock, gross margins are up by 0.6% to 56.6%, despite the increase in turnover of the traditionally lower margin ranges of household and electrical products. We are
implementing further stock forecasting enhancements which will allow us to build on these gains next year and beyond.
Financial Services
Operating profit from the activities of First Financial, our financial services business, is up from £0.6m last year to £0.8m. This is a commission-based financial intermediary, offering unsecured loans, insurance and other products to home shopping customers. Our enhanced financial services database now enables us to segment and target customers with greater accuracy, offering appropriate and timely financial products.
Fulfilment Services
Last year we recognised the strategic importance of fulfilment services when we announced the creation of a new division. This business offers complete fulfilment services to new and existing distance shopping companies operating in either the conventional catalogue or internet channels. The majority of these services already exists within the group and we are progressively strengthening the proposition by acquisition, joint venture and organic developments.
The marketing arm for this division is Zendor.com, 75% owned by the group and 25% owned by a division of GE. Zendor.com’s dedicated management team has been involved in the lengthy process of helping clients to create their distance shopping strategies and this has resulted in contracts with New Look and River Island, the former having started recently with the launch of their first catalogues. We are in advanced discussions with a number of other leading organisations and are on track to achieve our overall plan. Announcements will be made according to the timing preference of each new client. There was a loss for Zendor.com of £0.4m in the first half and we expect a similar result in the second half as revenues begin to build. The benefits of
Zendor.com will be seen next year.
In August we announced the acquisition of a 60% controlling interest in Eunite, an e-convergence company and leading provider of multi-channel e-commerce solutions with access through the internet, mobile phones and interactivy television. The remaining 40% is intended to be acquired over the next three years at a price linked to challenging profit targets. This acquisition adds to Zendor.com’s fulfilment strengths, furthering its ability to provide clients with an end-to-end service, as well as providing specialist support in the development of our existing and new home shopping channels.
We are also actively pursuing other investment opportunities which we believe will further enhance our fulfilment proposition to potential clients.
Balance Sheet
Net assets increased by 15.8% to £184.8m. Gearing has increased from 28% to 33% due to £9m capital expenditure, increases in working capital and the acquisition of Eunite. The net cash outflow before financing this year was £14.7m against £1.6m last year.
The main items of capital expenditure are an additional warehouse in Rochdale, Lancashire, enhancements to warehouse sorting machines and the initial payments for the second phase of the high bay warehouse extension which will become operational next year. These additions are necessary for both organic expansion and Zendor.com requirements. Interest bearing debtors increased by 9% to £194m and stocks were up by 7% to £36m.
Prospects
Despite the continuing highly competitive retail market, the second half began with turnover for the first two weeks up by 8%. Sales were affected to a small extent by the fuel crisis but we expect to recoup this by the year end.
We are continuing to launch initiatives which will drive growth in our core businesses, as well as developing other opportunities leading to further progress this year and next. We have taken steps to reduce costs which will progressively contribute, including a blend of overhead sourcing gains and a
restructuring of catalogues and brochures. We expect the deflationary pressure on selling prices to begin to ease next year, improving operating margins.
On behalf of the board, my sincere thanks to staff in all parts of the business for their continued outstanding contribution.
Sir David Alliance, CBE
12 October 2000
To download the full Interim Results in PDF format.
Interim Results Announcement 26 weeks to 26 August 2000
