Interim Results Announcement
Half year ended 28 August 2004
N Brown Group plc, the Manchester based direct home shopping company, today announces its interim results for the half year ended 28 August 2004.
Highlights:
- Focus on core product ranges delivered good growth, with operating profit up 6.7% in core home shopping business
- Positive action taken to address two underperforming businesses – disposal of Teleview anticipated and action taken to stabilise House of Stirling
- Turnover £225.6m (H1 2003: £231.0m)
- Profit before tax £21.0m (H1 2003: £25.1m)
- Strong cash inflow of £7.8m
- Interim dividend maintained at 1.74p per share (2003: 1.74p)
- Express Shopping Channel successfully launched on digital television
Lord Alliance CBE, Chairman, commented:
"We are encouraged that the results show continuing growth in the core clothing and footwear business, which contributes 75% of the Group's overall sales. It is also pleasing to note that N Brown has yet again outperformed the wider home shopping sector.
"The management team has worked hard during the first half and made good progress towards delivering sustained performance and putting the core clothing and footwear business on a sound platform for the future, whilst the issues in the peripheral businesses are being addressed."
Alan White, Chief Executive, added:
"Improvements to the fashionability of our clothing and footwear ranges have driven the continuing recovery in the core business during the first half of the year, with footwear and corsetry performing especially well against the background of tough trading conditions."
"Our multi-channel approach to home shopping is developing with the recent launch of the Express Shopping Channel on digital television and the imminent promotion of the new VivaLaDiva.com website which will be offering the largest on-line range of fashion footwear."
For further information please contact:
N Brown Group plc
Alan White, Chief Executive On the day: 0207 554 1400
Dean Moore, Finance Director Thereafter: 0161 238 2202
Website : www.nbrown.co.uk
Gavin Anderson & Company
Charlotte Stone / Richard Constant Tel: 020 7554 1400
CHAIRMAN'S STATEMENT
Introduction
The group results comprise a better performance from the core home shopping business offset by disappointing results from our other activities. Group turnover is down 2.3% at £225.6m with operating profit down 12.0% at £24.8m. A cash inflow of £7.8m compares with an outflow of £28.3m last year and the dividend has been maintained at 1.74p per share.
Home Shopping
Core home shopping results, excluding Teleview and House of Stirling, which are covered separately below, show a 0.7% increase in sales to £206.3m and a positive 40bps movement in gross margin, and an overall increase in operating profit by 6.7% from £26.0m to £27.9m. This improvement has been achieved as a result of our strategy to focus on those product ranges where we have a competitive advantage.
The 0.7% increase in sales was achieved despite a 4.2% reduction in home and leisure sales, following the decision not to offer interest-free credit on low margin, high value electrical and furniture lines. Sales of clothing and footwear were up by 2.5%, with encouraging performances in lingerie, footwear and larger sized ladies clothing. The success in creating a clothing range for the younger, larger woman has resulted in a 23% increase in sales to Simply Be customers.
During the first half we have continued to revise the format and frequency of our catalogues to good effect. We have increased the number of major offers at the expense of the smaller leaflets contained within our statement packs. This has provided a significant increase in sales of 4% to established customers.
The promotion of our multiple websites has led to a further 68% increase in on-line sales to £21m and we are now seeing an increasing proportion of new customers registering on-line. We have started collecting new customers' e-mail addresses enabling us to drive even more sales through this channel, which will reduce operating costs.
Gross margins within the core home shopping have risen as the mix of product moved towards clothing and footwear, and the rate of bad debts to debtors reduced. A targeted cost reduction programme has delivered some good savings in the first half, although parcel distribution costs continue to rise at above the rate of inflation.
House of Stirling
House of Stirling, our weekly collected credit operation, has incurred a £4.2m loss (LY £0.1m) due to a sales reduction of 36% to £9.2m, and a significant increase in bad debts. These are the results of a deteriorating cash collection performance and a consequent restriction on the credit available to customers.
A recovery plan is in place to improve performance within House of Stirling, seeking to focus sales activity on lower ticket items with shorter credit terms, improve cash collection, and a better balanced remuneration package for field staff has already been introduced.
Teleview
The disposal of Teleview, which lost £0.2m during the period against a profit of £0.6m last year, is at an advanced stage of negotiation.
Fulfilment and Financial Services
Zendor, our third party fulfilment business, made a small operating loss of £0.1m compared to a £0.2m loss last year. The interactive services activity was closed down as planned in July and the business re-focussed on fulfilment contracts. There is a strong pipeline of prospects and we have secured the contract to fulfill all Woolworth's on-line and catalogue orders, excluding entertainment.
First Financial improved its profit from the second half of last year despite the tighter underwriting criteria we are applying and the reduction in warranty income from lower electrical sales.
Balance Sheet
We have been continuing to focus on ensuring that capital is only invested where there is an adequate return. We have tightened the control over working capital and the requirements for capital expenditure are now lower than in recent years. The result is a cash inflow of £7.8m, against a cash outflow of £28.3m in the prior year, reducing borrowings to £137.8m, and gearing down to 54%.
Prospects
Core home shopping sales in the first seven weeks of the current period are level with last year and the positive trends from the first half are continuing. The main Autumn catalogues are driving sales increases in clothing and footwear, which are 2% ahead, whilst home and leisure sales are down by 5%. However, we have recently launched a new home and gift book containing many new product lines, from which the early signs are encouraging. We believe that this category can be driven forward in a more profitable way during the second half.
Group sales are currently down 1.5% due to the continuing impact of House of Stirling, although profitability has been enhanced through a better mix of activities.
The development of our home shopping business will rely increasingly on a multi-channel approach and we have invested jointly with Northern and Shell to create the Express Shopping Channel. Transmitted on satellite and cable television, this channel sells a selection of our products supplemented by a number of special purchases, and went live as planned in September. It will be promoted strongly throughout the Autumn season to build up the customer base.
Additionally internet sales continue to flourish, and will be complemented shortly by the launch of a new website, VivaLaDiva.com, providing the largest on-line footwear range for the fashion conscious woman.
We are confident that by maintaining our focus on the core product ranges which provide us with a competitive advantage, further developing new channels to market, and reducing our operating costs we will continue to improve our underlying business performance.
Lord Alliance CBE
19th October 2004
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