N Brown Group plc

Good morning everyone and welcome to N Brown's preliminary results for FY20 and trading update for Q1 of this current financial year FY21. Firstly I'd like to say that I hope you are all safe and well and adapting to the circumstances as a consequence of COVID-19. The current restrictions mean that we are unfortunately unable to present our results to you today in person But for those of you listening to this on the morning of the 25th of June, there will be a Q&A conference call at 10 a.m. Please see our R&S for further details on how to join. Today, I'm joined by Craig Lovelace, our CFO, and Rachel Izzard, our incoming CFO, who I'd like to welcome to EnBrown. As this will be Craig's last results presentation with us, I would like to take this opportunity to thank Craig for his contribution over the past five years and Brown, and we wish him every success for the future. We've already started putting in place the building blocks for our refreshed strategy that we are sharing today and the process of accelerating our focus on the five growth pillars that we are setting out. Over the coming months, as we emerge from COVID-19 challenges, We will be accelerating these growth pillars to ensure successful execution of this refreshed strategy. So turning to the running order of this presentation. First, Craig will run through the financial performance of FY20. Following this, Rachel will take you through the trading update for Q1 FY21. I'll then take you through our refreshed strategy. So first of all, over to Craig.

Thank you, Steve. I'm sorry not to be there in person with you today. I've enjoyed my time at Enbrown greatly, and I leave a company well positioned to execute on its exciting new strategic plan. Before I turn to the performance for FY20, it is important to highlight the basis on which the year-end numbers have been prepared in light of COVID-19. Although COVID-19 began before the 29th of February 2020, it was not declared a global pandemic until the 11th of March. As such, at our year end, the company could not have foreseen the escalation of the virus in the UK, which has subsequently transpired. Because of this, the significant impacts of COVID-19, which were not foreseeable at our year end, cannot therefore be adjusted in the FY20 numbers. We've highlighted this further in the announcement and in particular the post balance sheet disclosures. So, turning to the performance in FY20. We made good progress in the year on a number of fronts. Our PPI and tax legacy issues and related exceptional items are now largely resolved, leaving the group well-placed to move forward in the execution of its new strategy, having delivered a positive net profit in the year. The retail market challenges are well known, and we were able to offset these by delivering sustainable operating efficiencies. Good progress was made with our digital strategy and our focus on reducing stock in the business. Financial services performance was impacted by industry-wide regulation and we continue to mitigate these challenges. In March we said that our adjusted profit before tax would be lower than the previously guided range of 70 to 72 million due to the need to assess the wider macroeconomic implications impacting the IFRS 9 bad debt provision model. Today we're announcing an adjusted profit before tax of 59.5 million. This is lower both because of the aforementioned RFS 9 assessment, but also an increase in stock provisioning. Rachel will walk you through the first quarter in more detail, but the group was able to secure amended and increased financing facilities to provide significant headroom to trade through these challenging times. Turning therefore to our revenue performance in the year. In line with our strategy, revenue declined in the year as we continue to remove unprofitable marketing expenditure. We grew digital revenue in women's wear by 5.5% and by 5.5% in men's wear with Simply B and Giacomo displaying good growth in the year. 85% of revenue was digital driven by much improved penetration at JD Williams and Ambrose Wilson. Financial services revenue declined 2.7% Regulatory change led to a smaller debtor book and hence lower interest income. Admin fees were also lower in the year. Turning to product gross margin. Product gross margin was down 290 basis points in the year. This was lower than guidance due to the stock provision taken at the year end, which reflects discontinued brands and lower apparel sales. The main driver of lower product gross margin was the highly promotional retail market. The margin was also lower due to an increase in home sales in the year, which are generally lower margin and less international revenue, which typically had a higher margin. The financial services gross margin was 390 basis points lower in the year. As expected, we benefited from a favorable movement in the RFS 9 bad debt provision, However, this was offset by an increase in the level of RITOS, recognising the ongoing improvement in the quality of the underlying debtor book. We had a small benefit from operational cost savings of the year related to our legacy US business. Therefore, the drivers for the decline in the financial services gross margin were a lower profit from one-off sales of debt during the year and a lower rate of recovery from regular debt sales driven by a lower market rate than last year. EBITDA. EBITDA declined by 16.6% in the year. The decline in the product gross profit of 41.7 million was counterbalanced by significant improvements in the operating cost base. Marketing expenditure declined 13.8% in the year as we moved out of unprofitable channels and focused on improving the efficiency of our spend. We made good progress this year, but there is still opportunity in this cost line, and Steve will talk about more about this later. Warehouse and fulfillment expenditure declined by 7%, and this was predominantly due to lower volumes. Our admin and payroll costs were 6.9% lower, largely driven by continued head office efficiencies. I'm pleased to report an 80% reduction in exceptional costs in the year. The customer redress deadline has now passed. At the half year we made a provision of £25 million to cover the spike in claims at the end of the PPI deadline. This was reduced at year end by £2.1 million as the final amount of customer redress was less than envisaged, resulting in a £22.9 million charge for the full year. We also incurred a £3.8 million exceptional charge in relation to our strategy review. This is a combination of both redundancy and consultancy costs, as well as a stock write-off from discontinued brands. Our long-running legacy VAT partial exemption matter with HMRC is now largely concluded, and the credit of 3.1 million reflects the actualisation of previously estimated cost disallowances. And with that, I will hand over to Rachel.

Thank you, Craig. I'm pleased to have joined M Brown and I'm excited about executing our refreshed strategic plan. I accelerated joining the business to ensure I hit the ground running when I formally become CFO next week. Now Craig is running through the full year results. So let me give you the highlights of what was certainly an eventful quarter. Our business operations were confronted with the pandemic at the start of the quarter and our agile business model enabled us to take swift and decisive action. to ensure that we remain both profitable and cash generative. There was a sudden and immediate impact to our retail trade, which we highlighted in our announcement on the 23rd of March. Now, over the quarter, we were able to balance some of that wider retail impact with our financial services income and our new home offer. We were also able to materially reduce costs in the quarter, and these efficiencies offset more than 80% of the gross margin impact and future bad debt provisioning. This balance of options in the business and active management has driven cash generation. And as at the 19th of June, net debt is now down 9.9% versus the year end. So working with our supportive lenders combined with that business action has ensured we have sufficient liquidity, working capital headroom and covenant flexibility to trade and manage effectively. So turning to trade in the quarter. As you can see from the top left chart, there was an immediate and sudden impact from the threat of and then the actual UK lockdown. Now since the lows of March when apparel sales were down as much as 75%, we have seen a steady recovery in demand returning. We were able to balance some of the impacts on weaker apparel sales with a significant increase in demand for our home and gift offer as lockdown was introduced. That demand for home and gift has remained strong and was boosted by the launch on the 1st of April of our new standalone brand, Home Essentials, a real digital pivot to accelerate the go-live of a minimum viable product despite working remotely. This meant we could take advantage of that strength of customer demand. Now Steve will give more details later on that successful launch and the exciting opportunity it gives us. To summarise on trading, you can see our revenue trends have steadily improved. With the R&S on the 23rd of March highlighting retail demand down more than 40% year on year, then the R&S on the 19th of May, moving that down to 25% and our last three weeks of trading being down 21%. In terms of wider COVID business actions, our absolute first priority from the outset of the pandemic was the health and safety of both our colleagues and our customers. We benefited from the structural acceleration to online shopping, and you can see 91% of our retail sales in the quarter were digital, a real step change. Now, we took immediate and decisive action to continue trading with our customers and ensure a continuous supply of goods, but whilst at all times complying with government guidelines. And our resolute focus on treating our loyal financial customers fairly continued. Now, at the same time, we adopted a more prudent lending approach to new customers. And overall, we're monitoring collections closely across our entire customer loan book and they continue to perform in line with last year. Moving on to management of the cost base. The group has a strategic focus on improving the efficiency of its cost base and Steve will give more details on this later. We continued with significant progress made in the last financial year and delivered a 43% reduction in operating costs in the first quarter of this year. This is further evidence of the agility in the Enbran business model now. The efficiency savings were made up in marketing as well as the entire cost base. But that hasn't been a blanket reduction in cost. We have taken the opportunity to structurally pivot. For example, social media as a proportion of our marketing spend has more than doubled this quarter versus this time last year. Now that efficiency focus also extended to stock, which has been tightly managed collaboratively with our suppliers, and that's ensured no material stock overhangs coming into this year despite the COVID shock. On the 19th of May, we announced new amended financing facilities. The chart shows you how our headroom has increased materially from the start of the financial year. And what's pleasing to us is that's driven by both the cash generation in the quarter and that access to new facilities. So even in a worst case scenario, we have significant headroom. Now, the headroom isn't expected to be utilized, but of course, it's a sensible precaution during this period of uncertainty, and it gives us confidence to trade through. As part of the amended financing facilities, we also amended the customer loan book securitisation facility to mitigate the COVID-19 volatility risk. Now, as a reminder and to help inform the understanding of how our net debt moves, the securitisation debt is secured by a charge over certain eligible customer receivables, which is without recourse to any of the group's other assets. It's a maximum of £500 million. And the amount that is drawn depends on the level of eligible customer receivables at any one point in time. So that naturally moves up and down flexibly with the level of our lending. Looking ahead, there's material room available to grow our loan book in a managed way, supporting our customer credit proposition. Now turning to outlook and guidance for this financial year. Since the initial significant impact of COVID-19 on product revenue, trends have continued to improve. Financial services revenue has been impacted by the effects of COVID-19 on our markets. Product gross margin pressure is expected to continue due to mix and that highly promotional retail market. And financial services gross margin will decline due to previously guided regulated pressures and an increase in bad debt provisioning due to the impact of COVID-19. Now our strong operating cost efficiency will continue and the full-year cost savings are expected to offset more than 75% of the gross margin decline, with bad debt provisioning movements being the primary driver negatively affecting EBITDA. Finally, we expect our cost mitigations and significant reductions in capex and exceptional costs to drive improved cash generation in FY21. This will result in net debt under 400 million by the end of the year, compared to 497 million at the end of FY20. And as previously announced, we will not pay a dividend this financial year. Looking ahead, Steve will outline how we will move on to the accelerate phase of our strategic plan. And to give some financial context to that, we wanted to link it to a refreshed disclosure to reflect the evolution of our business to a full digital retailer. Starting this financial year, we will begin reporting digital KPIs to reflect that fact that we are now a digital business. will also continue to provide further awareness of our retail and financial services businesses and their beneficial relationships, as well as progress as we execute on our strategic plan. I'll now hand over to Steve to take you through our exciting future.