N Brown Group plc

Good morning everybody and welcome to N Brown's preliminary results for the 53 weeks ending the 4th of March 2023. I'm joined by Dominic Appleton, our incoming CFO, who I'd like to welcome to N Brown. Let's turn to the agenda for today. First, I'll give you an update on our highlights so far this year. Then I'll hand over to Dominic, who will take you through the financial performance of FY23 and the outlook and guidance for FY24. I will then return to talk in a little more detail about our KPIs and our strategic progress. And after that, we'll open up to Q&A. This has been another year of strategic progress across the evolved pillars we announced a year ago. We launched a new trading website to Simply Be customers in September. a key investment in our digital transformation, providing a mobile-first experience for customers, reducing friction through the navigation and checkout. Looking ahead, we continue to build on those pillars and have committed to a number of transformational priorities for FY24 and beyond, including rolling out the new website for Giacomo and JD Williams and the delivery of our new financial services platform. I'll talk more about this later on. Last year was characterized by the normalizing of consumer trends post the impact of the pandemic and the new challenges of a high inflationary environment. Cost of living pressures have impacted consumer confidence and their available spend. Weighted for our category mix, the non-food online market reduced by around 5% over the prior year. Alongside this, we've faced the impact of inflation on our cost base. We've met these challenging conditions by taking decisive action to mitigate these, and as a result, have continued to make progress across our business, balancing operational resilience with successfully continuing our strategic transformation. Although reported product revenue is down by around 7%, we've been disciplined in our trading approach. We haven't aggressively chased sales and have seen average item values increase by 12%, which partially offset software website sessions and conversions. Software product revenue trends seen in Q4 FY23 have continued into the start of FY24, and we expect that the market for discretionary products will remain under pressure in FY24. As a result, we are guiding to only a slight improvement in the rate of product revenue decline in FY24 over that seen in FY23. Alongside this, though we expect an improvement in product margin, this is likely to be more than offset by headwinds on the ratio of operating costs to revenue, together causing a net drag of around one point on EBITDA margin over FY23. However, despite making a full and final settlement to Allianz in the year, we have continued to have a strong balance sheet with total accessible liquidity of £112 million at the 6th of May. We remain confident in our previously outlined strategy. However, to deliver on this, we need to prioritise what makes the most impact and execute these things better and faster. By the end of calendar year 2024, we expect to have built the majority of the foundational capabilities needed for the business to grasp that opportunity. I'll come back and talk about our five transformational priorities and our work to deliver these a little later on. I'll now hand over to Dominic to talk you through the financial results.

Thank you, Steve. I'm delighted to have joined M Brand. I'm excited about delivering our strategic plan and the future of the business. Let me start with giving you a summary of the group's financial performance in the year. As a reminder, the year ended the 4th of March 2023, included a 53rd week, and the results we're talking to on this page include the extra week against last year's 52 weeks. Detailed comparison of the 52nd and 53rd week figures is available in the appendix. And when we come to the revenue detail, we'll talk to these on a 52-week basis. Overall, group revenue was down to 49 million pounds, driven by a combination of both lower product revenue, reflecting the challenging online retail conditions, and lower financial services interest income, reflecting the smaller customer loan book from the start of the year and softer retail sales through the period. Gross profit margins declined 3.1 percentage points, severely driven by the FS margin rate post-COVID-19 normalizing. Last year, we had exceptionally elevated FS margins as write-offs were abnormally low, and as a result, we released the majority of the initial COVID-19 debt provision. This has been partially offset by solid growth in the retail gross margin. I'll talk in more detail about both these swings later. Our OPEX cost sales ratio has remained below the pre-pandemic level of circa 40%. Against last year, we saw a circa two percentage point increase in the ratio due to a lower operational leverage. Within the absolute spend, we absorbed an impact of around two percentage points as a result of inflationary headwinds through contract management and volume flexibility. The lower gross margin materially driven by the FS normalization together with the net of lower product revenue but a stronger margin rate, led to an adjusted EBITDA of 57.3 million, circa 38 million lower than prior year, but in line with board expectation and market consensus. Below EBITDA, we saw a 2.4 million reduction in depreciation and amortization, following last year's acceleration of amortization and software as a service change. We successfully held interest costs flat, giving an adjusted profit before tax of 7.5 million, down 36 million on prior year. We also have material adjusting items this year. As previously announced, we reached full and final settlement with Allianz, which resulted in a 26 million adjusting item in the year. We've also taken a non-cash impairment of 53 million pounds in the year, driven by the impact of the challenging macroeconomic environment on the FY23 exit run rate and our future financial forecasts, which I'll talk through later. Unsecured net cash, with 9 million down on prior year at 36 million. Largely reflects the impact of the cash payment for the full and final settlement of the litigation with Allianz. Despite this, the balance sheet continues to be strong with total accessible liquidity of 112 million pounds at the 6th of May. Finally, adjusted EPS of 1.81 pence reflects the profit performance during the year. You'll see from this slide that the majority of the EBITDA reduction has come from an absolute reduction in FS gross profit. This is due in part due to the smaller loan book size coming into the year and the continuation of this through lower product revenue performance. So, the majority is due to post-COVID-19 normalization. the prior year including abnormally low levels of write-offs, and the release of most of the COVID-19 expected credit loss provision that we put aside at the start of the pandemic. Absolute gross profit in retail was down only £6 million. We offset most of the market-driven volume impact through a disciplined approach to trading and margin, which I will talk more about later. We have continued to control costs well, mitigating inflation impacts, which cost 15 million pounds, managing volume reduction through the cost base, leaving costs lower by 2 million pounds against last year. Turning to revenue performance. Firstly, as I just mentioned, we're showing these on a 52-week basis for better comparability without the 53rd week. The context of the market and weaker UK consumer confidence is important. Over the year, the BRC's online non-food market tracker showed an 8 percentage point drop in sales. If we adjust that for our product mix, which is more heavily women's wear and less electricals, our market dropped about 5 percentage points. Our strategic brands performed in line with that adjusted market performance, contracting by 5%, and we have continued to strategically develop these, as Steve will talk to later. We've seen a managed decline in heritage brands' product revenue, with this portfolio of brands being managed for value rather than growth. We've been disciplined in our approach to trading and preserving margins, and took the decision not to aggressively drive volumes. As we flagged in our January update, we expected quarter four to be softer, as we took a rational approach to trading through this quieter period post-Peace. This is evident in the quarterly performance we have presented here. I'll come on to the positive product margin rate next, and Steve will pick up on the growth in average outing volumes. So mitigating the lower volumes, product growth margin rate has improved, building on gains shown in the last two halves, with full year rate at 1.8 percentage points versus last year. This is part of our strategic change in the business, where we are anchoring sensible levels of margin and profitability, rather than growth at any cost. Looking at what has driven that, Firstly, a pricing of mixed benefit at circa two percentage points from a combination of reduced promotional levels as we have traded in a disciplined manner and not changed volume, increasing prices in a measured data-led way in response to cost inflation, the mix back into clothing, which has a higher margin than home, and updating the way we work with some of our third parties. Secondly, due to normalizing levels of write-offs in financial services, we have claimed back higher amounts of associated VAT, bad debt relief. We credit that for product gross margin, but we can only reclaim it due to the benefit of being a combined retail and credit provider. This improved product gross margin by circa one percentage point. Thirdly, Partially offsetting this, we've seen flow-through of higher freight rates with a drag of around 50 basis points, an improvement on the position at half-year. Finally, there was a further one percentage point adverse impact, which primarily relates to additional stock provisioning covering year-end stock being higher than normal for the forward level of sales. The proportion of current stock versus price season has improved year on year. We are also carefully managing our inventory intake. Looking at the FX impact, we buy most of our retail stock in dollars. We were fully hedged in the year without which we would have seen an adverse impact on gross margin rate of around two percentage points. In the FS business, the interest income reduced 4.3% due to the smaller debtor book. In turn, the debtor book reflects the lower opening position and the lower product revenue during the year. When we look at how the debtor book has moved against the product revenue trend over the last few years, it's actually been really robust and generally declining more slowly than product revenue. This gives us confidence that the debtor book growth is likely to follow when product revenue returns to growth. I'll also flag here the strategic decision which we took this year to defer an element of the annual payment arrangement debt sale. To improve data usage, we have retained an element to either enable customers to return to trade or a higher price to be achieved in the median term. We have shown this element of the debtor balance separately on the chart. The group's adjusted gross margin was 46.2% compared to 49.3% in FY22. And that swing is materially driven by the FS rate normalizing post-COVID-19. Within our FY22 year-end results, we outlined the elevated financial services margin rates seen in that year. Now that we have normalized, the year-on-year change has been seen in two ways. Firstly, the release of circa £14 million for the extra overlaid COVID-19 additional credit loss provision from year one of the pandemic, as it was no longer required. Customer behaviour was actually better than expected, and so caused a one-off benefit to reported margin last year, with a delta for this year versus last year's comparative, at circa 6 percentage points. Secondly, in H1 last year, we also saw a lower than normal level of write-offs. As customers have been supported through the pandemic with government schemes, it resulted in low defaults and arrears across all the consumer credit markets. This year has been more normal. So the last year comparative showed the impact of around 6 percentage points. Our provision rate has increased from 11.9% at prior end to 13.4%. The change in debt sales strategy, which I explained on the previous slide, is the main driver behind this. These payment arrangement balances are provided at a higher rate than the receivables not on a payment arrangement. On adjusted operating costs, we have reduced our costs by 2 million pounds in the year, despite an inflationary price headwind of 15 million pounds. We have done this through 17 million pounds of lower variable costs, but our model has flexed with the lower volumes we have seen. We have continued to hold our adjusted operating cost ratio below pre-COVID levels. On a one-year basis, we're seeing an increase in the ratio. Some of this is operational gearing with a lower revenue impacting the cost ratio for our fixed costs. Looking at the individual areas, admin and payroll has increased by around £6 million over the prior year, driven by inflationary impacts of £5 million. Combined with the operational deleverage, this is the area which has seen pressure on the ratio. Marketing and production, warehouse and fulfilment have each broadly flexed with the lower revenues as the inflationary impacts have been offset by higher average order values on volumes. The slide shows adjusting items of around £88 million. It's important to note that £53 million of this is non-cash and relating to the impairment of intangible and plant and equipment assets. The impairment reflects macroeconomic conditions and the exit room rate for FY23, lowering the start point for forward financial forecasts. Discounting standard IES 36 requires that the discounted value of financial forecasts are compared to net assets value. Discounted value of forecasts is lower than our net assets and therefore results in the impairment. which has been allocated on a pro rata basis against intangible and plant and equipment assets. This is an accounting assessment rather than a market valuation of the business. The other main item relates to the full and final settlement in respect to the legal dispute with Oliance. Charge taken in year reflects the additional amount required to cover the settlement and leave costs to completion. This removes a significant amount of uncertainty and distraction from the business. We've also incurred restructuring costs in the year across operations and head office, reflecting lower order levels. In addition, adjusting items include litigation costs related to legacy customer claims and associated committed legal costs. This slide shows how EBITDA of 57 million has converted to a positive underlying net cash generation position of £11 million, which is pleasing given the difficult trading conditions. Starting on the left at the top, we've seen an outflow of around £12 million, which includes investment in inventory. The inventory increased around £7 million, driven by higher freight rates and input costs, with similar underlying unit volumes year on year. Also within this caption are some reductions in trade payables and accruals. Customer loan book and securitisation borrowings in financial services have resulted in a cash influx, net loan book size having reduced somewhat and generating a net cash return. Non-operational cash outflows of £40 million include a well-managed step-up in capital investment of £26 million and interest costs. With regard to interest rates, in the prior year, we entered into an interest rate spot to a notional value of £250 million, fixing Sonia interest rates through to the end of December 2024. This provided a £4 million cash benefit relative to if this had not been in place. To change an approach to the debt sales, has reduced cash inflows by £14 million in comparison to the previous strategy. This decision was taken with a view to maximising value to the business and so is a one-off in-year impact rather than a permanent hit. The 53rd week resulted in an additional month's payroll falling into the year, as well as other cash payments totaling £9 million. Adjusting items are driven by the cash payment made to Allianz in January. We've also returned to the normal operating procedure as fully drawing on the securitisation facility relative to the loan book size. And all of this has given us a net cash outflow of £8 million. I'll now walk through what that practically means in terms of our robust cash and funding positions. Three key points to highlight are, first, we have unsecured net cash of £35.5 million at the year end. Last year, we had an unsecured net cash position of £43 million and £60 million problemarily underdrawn on the securitisation facility, which was accessible. Combined, this reflected a figure of just over £100 million. Cash reduction in the year is largely driven by the Allianz settlement. Corporate financing remaining in a strong net cash position. Second tranche of our funding is the financial services securitization facility. Grown funding of £333 million is well covered by customer debtor balances, with our gross debtor book being £555 million at year end. Taking the strong corporate net cash position, together with the well-balanced FS prioritisation, we have a net debt of £297 million. This has increased over last year in line with the one-off payment we have made. Post year-end, we completed the refinancing of the revolving credit facility of £75 million and the overdraft facility of £12.5 million. Both maturities now fully committed to December 2026. So, in summary, our balance sheet remains strong, including the level of cash and accessible liquidity which is available to us. We have total accessible liquidity in excess of £140 million at year-end and £112 million at the 6th of May. The latter reflecting the refinancing of the RCF which took place post-year end. Now, looking ahead to FY24 outlook and guidance, we have seen uncertainty around macroeconomic conditions and low consumer confidence, and expect these to continue throughout FY24. In the context of this backdrop, we have commenced FY24 with lower active customers, and performance has been further impacted in Q1 due to unseasonably cold and wet weather, reducing demand for our spring and summer ranges. Q1 also annualizes against the strong Q1 in FY23. As a result, product revenue momentum, which was 17.8% lower in Q4 FY23, has broadly continued into Q1 FY24. We currently expect full-year product revenue in FY24 to decline, a slightly more favorable rate to the 8.4% decline seen across FY23 52-week performance. We expect to deliver product margin improvements through further increases in clothing mix and a greater proportion of full-price sales, supported by optimized pricing strategies which utilize our improved data usage, as well as normalising freight ranges. Clothing and footwear remains the heartland of the business, where we see the most opportunity for future growth. We also remain well hedged on foreign exchange for FY24. Customer loan book opened the year lower than prior year. Combined with our expectations for product revenue, we currently expect excess revenue to decline at a rate slightly adverse to the 4.3% seen in FY23 52-week performance. Financial services growth margin normalized in FY23. We expect a further increase in adjusted operating costs to group revenue as a result of ongoing inflationary pressure. But we continue to take action to mitigate these where possible. As a result of the combination of gross margin improvements and headwinds in adjusted operating costs, we currently expect a reduction of around one percentage point in adjusted EBITDA margins versus our FY23 52-week level of 8.2%. Following the impairments of our intangible assets, plants and equipment in FY23, We will see approximately 15 million lower amortization in the year. The business continues to be well positioned to invest in and deliver our strategic change. And we plan to step up the investment aligned to our transformational priorities in FY24. We will continue to self-fund investment through carefully managed cash flows, including site control and right sizing of stock. At the end of FY24, we expect net debt to be slightly better than FY23's closing position. We remain confident in our strategic direction and our digital transformation as we focus on driving sustainable, profitable growth. So with that, I will now hand back to Steve to talk you through progress on our strategy.

Thank you, Dominic. I'll now talk about some of the strategic highlights from the year. We've made good progress across each of our strategic pillars in the year. Within build a differentiated brand portfolio, we continue to iterate our creatives to better represent the brand positioning. A considerable amount of work has been undertaken this year to build stronger identities and points of differentiation for the strategic brands in our portfolio. So simply be, We launched a new creative campaign, the Fit Revolution, which was delivered via a new media approach, which saw us move away from traditional TV advertising and switch to more impactful digital video, social, out of home and influences. We also launched our JD Williams collections campaign and supported this with specific activities showcasing how our financial services offer makes our collections more accessible to our customers. We launched a collections campaign with an updated media approach in spring-summer, working alongside our brand ambassadors Davina McCall and Amanda Holden, and we'll evolve this further in the autumn-winter season. With Giacomo, we continued to champion inclusivity through the launch of our Everyman creative campaign. This was accompanied by a new media approach where we aligned our ongoing communications and storytelling with the new Everyman creators. Our heritage brand portfolio is focused on the retention and retrade of existing customers, and in particular, loyal credit customers. These brands are now managed by a dedicated team to create operational focus and clarity, separate from the strategic brands which we are seeking to accelerate. Now, moving on to elevate the fashion and FinTech proposition, In line with our vision of inclusivity, we have extended the size range across our product portfolio, introducing smaller sizes, ensuring accessibility of our fantastic product to all. Our teams have reduced the historic syndication across strategic brands, replacing it with own label product that is designed and bought specifically for Simply B, JD Williams and Giacomo. This product is now distinct and bespoke to each brand, strengthening our unique brand-aligned proposition across our product offering. We welcomed some fantastic third-party brands across our strategic brands during the year, carefully selected to complement our own product offering, particularly important on our platforms of JD Williams and Giacomo. In financial services, we rebranded our JD Williams credit offer to JDWPay, communicated through direct mail campaigns, which attracted over 20,000 new credit customers. Building on learnings from this, we later rebranded our Simply Be credit offer as Pay Simply Be. Now on to transform the customer experience. As mentioned earlier, we have launched the new website for Simply Be, which aims to deliver a more seamless customer experience so shoppers are able to navigate the site have a frictionless checkout experience, and receive the same rich mobile experience across any device. It is already 18% faster than any of our other websites, and we will continue to improve this. Native Checkout, which allows customers to pay directly through our app rather than being redirected to the website, was launched for mobile users across Android and iOS. Native checkout creates a smoother user experience, fewer errors, and abandoned carts at the point of payment, providing a faster checkout. On win with our target customers, we have invested in new marketing channels in order to better attract our target customers. We built a customer bidding algorithm to target prospective customers interested in purchasing our products through our credit with branded display advertisements. Of the new customers that were recruited through this channel, 80% went on to purchase using our credit proposition. We also rebuilt our customer lifetime value model to give us more accurate customer data so that we can better understand our base and how to improve customer targeting and personalization. In establishing data as an asset to win, we have largely achieved our target operating model by establishing a group data function as part of our desire to drive a data culture. We've plugged capability gaps with key hires and aligned this to the organization's agile way of working. Strategic hires, including three heads of data across engineering, analytics, and visualization, have fortified our internal capability. We saw huge success with the build of our internal tool, PriceTagger, which helps us promote product optimally using price elasticity curves. This has now been rolled out to all clothing promotions. We continue to provide a range of digital customer metrics to help track the progress of our business. It's been a challenging trading period, and the impacts of this, as well as some of the mitigants, are reflected in the KPIs. However, I am confident as we move forward with strategic change, there's plenty of opportunity for further progress. Today, I'll talk through four of the KPIs. First is the number of orders, which is 15% lower than the prior year. This is the result of a combination of lower website sessions and conversion due to a challenging online non-food market, as well as the impact of significant inflationary pressure on performance marketing. Second, average item value rose by 12%. The impact on customer demand of more a subdued backdrop has been partially mitigated through measured price increases, increased product mix with higher value categories and promotional discipline. Third is our total active customers. The number of customers who have been active with us in the last 12 months has declined, as we previously flagged. This reflects lower retrade rates. Fourthly, our arrears rates are at 0.7 points against last year, reflecting a return to pre-pandemic levels in H2 following abnormally low rates last year, but remain well controlled. At Enbrown, we are fully committed to embedding sustainability throughout the organization, our product ranges, and all our processes, and continue to progress with sustained our sustainability strategy. Developments in the year include responsibly sourced product now making up 41% of our own brand clothing and home textile ranges, up over 10 points in the year, and as we target 100% by 2030, in line with our Textiles 2030 commitment. Submitted our science-based target to the Science-Based Target Initiative, with validation due in October 2023. The proposed target is aligned with the 1.5 degree Celsius pathway of the Paris Agreement. We've concluded our four-year charity partnership with Maggie's, raising over £180,000 and have now launched new charity partnerships with Retail Trust and Fair Share Greater Manchester. We've also implemented a new diversity, equity and inclusion policy, Embrace, across Now, as highlighted earlier, I'll turn back to our transformational priorities committed for FY24 and beyond. These are focus areas looking ahead which we believe will deliver the biggest benefits. Firstly, our FS offer will be rebranded with the platform built and deployed to customers. Building our FS platform enables us to offer more modern credit products to our customers, allowing them greater flexibility and choice in the way they pay. Secondly, all of our strategic brands will have a new customer-facing website experience. Thirdly, we will continue to embed a data culture to empower our colleagues to meaningfully engage with data to identify and leverage analytical opportunities, which will allow us to make better informed decisions to enrich the customer experience. Fourthly, a new product information management system will be live, providing a single place to collect, manage, and enrich product data. This will ensure our customers have better product information to inform their purchase, which we expect will lead to far fewer returns for our colleagues. Finally, by the end of calendar year 2024, we will have moved to an agile way of working. Agile will transform the focus and execution of the work our colleagues will undertake, which will deliver value to our customers much faster. To execute this transformation, we have a managed step up in the level of capital investment in our transformation over last year, and which we will continue to self-fund. The high inflationary environment during the year has required us to adapt, but despite this, we've continued to have confidence to invest in our strategy. We've now set our priorities for FY24 and beyond, and we will step up investments. Our ability to do so is underpinned by a strong balance sheet. In an online market which declined year on year, we believe that we've made the right decisions around trading, driving some mitigation through average item values and retail margins, leading to only a relatively small decline in product gross profit, and an increase in product growth profit margin. Meanwhile, we flexed our cost base with volumes, offsetting, where possible, significant inflationary impacts. We've normalized against abnormal financial services dynamics in recent years as our customers transition through the pandemic, and this is what has driven the lower year-on-year EBITDA. Looking ahead, we remain cautious about the UK discretionary goods market, but we'll continue to trade through this with discipline whilst continuing to make progress with our strategy. Focus on the transformation priorities we are clear on. We'll now turn to Q&A. So if you're not already dialed into the conference call, please do so now and we will take your questions in a moment. Thank you.