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Preliminary Results Announcement - Year Ended 1 March 2003

Press Release

By: N Brown Group plc
15 May 2003

N Brown Group plc, the Manchester based direct home shopping, fulfilment and financial services company,
today announces its preliminary results for the 52 weeks to 1 March 2003.

Highlights:

·   Group sales up 3% for the first 10 weeks of the new financial year
·   Catalogue ranges expanded and marketing re-focused to continue to drive growth in sales and market share
·   Turnover up 1.9% to £457.3m (2002: £449.0m)
·   Total dividend per share for the year up 1.6% to 5.84p (2002: 5.75p)
·   Earnings per share 13.2p (2002: 14.5p)
·   Profit before tax* £54.8m (2002: £59.0m)
*   Pre-amortisation of goodwill (see note 4)

Sir David Alliance CBE, Chairman, said:

'Although the overall profit performance is disappointing, against the background of a difficult trading
environment for both the sector and the group, this is a creditable set of results. N Brown gained market share in the home shopping sector over the year.

'The group delivered strong sales from electrical and household products, as well as from our growing
financial services division, door to door selling channel and internet sites. Looking ahead, the group is now well placed to compete against its High Street rivals.'

Alan White, Chief Executive, added:

'Following my appointment last September, I have reviewed the strategy for the group and begun to implement
changes to position N Brown as the UK's leading home shopping company in the over 35 market.
'We have addressed issues within the core home shopping product ranges and re-focused marketing in order to
drive new customer recruitment. Trading remains challenging but so far our efforts have resulted in an increase in sales in the first 10 weeks of the new financial year of 3%'.

'The retail environment continues to be very competitive, but I am confident of the prospects for the group
in the medium term.'


For further information please contact:

N Brown Group plc

Sir David Alliance CBE, Chairman
Alan White, Chief Executive
Tim Kowalski, Finance Director

On the day: 0207 554 1400
Thereafter: 0161 236 8256

Gavin Anderson & Company

Neil Bennett / Charlotte Stone Tel: 020 7554 1400

Website: www.nbrown.co.uk


CHAIRMAN’S STATEMENT

Group turnover for the year ended 1st March 2003 increased by 1.9% to £457.3m but profit
before tax and goodwill amortisation was 7.0% down on the previous year at £54.8m - the
first profit setback for the group for more than a decade. The result is disappointing but our
share of the home shopping market has still increased and, given the difficult trading
conditions in our sector, the overall outcome was creditable. We are confident that, given the
group's strong market position and core strengths, and the active steps we are taking, we will
continue to deliver growth over the medium term.

Group sales in the first ten weeks of the new financial year are 3% ahead of last year and we
expect our performance to strengthen as the year goes on. Confidence in the group's prospects
is reflected in the Board's recommendation of an unchanged final dividend of 4.10 pence,
making a total of 5.84 pence for the year which is an increase of 1.6% and is covered 2.3
times.

Home Shopping

Operating profit before goodwill amortisation for the year in our core division was £57.2m,
against £63.3m last year, on turnover of £439.7m, up by 1.0%. The principal reasons for the
profit reduction were a lower than anticipated response to some of our catalogues and an
increase in costs, particularly in marketing, where extra spending was incurred in an attempt to
stimulate further sales demand from customers. Our most loyal customers responded well
with average spend per customer 4% higher. However, the number of customers fell by 3%,
partly reflecting a reduction in the range of products offered in our main catalogues and
marketing campaigns. The reversal of this and much greater focus on the range of
merchandise offered to the customer will be seen in both the catalogues and recruitment
campaigns this year with the aim of restoring the customer base.

Over 90% of consumer expenditure is spent in the High Street and, inevitably, it is against this
sector that comparisons need to be made rather than just against other catalogue competitors.
The High Street is undoubtedly the best it has been for many years with regular product
changes, incorporating the latest fashion trends, providing the consumer with plenty of choice.
We believe that N Brown, of all the home shopping companies, is well placed to compete
against High Street rivals by creating an exciting and dynamic shopping experience in our
catalogues and leaflets.

To achieve this, we are now rolling out some new initiatives, which we successfully tested last
year. Over half of our home shopping turnover comes from monthly leaflets and specialogues
which are designed to reflect changing seasonal demand for products. These will include a
growing proportion of new products which, together with other creative changes, will help
stimulate a greater response from our customers.

Recruitment of new customers last year fell below expected levels and the cost of recruitment,
which was above previous years, contributed to a reduction in operating margins. The
situation has improved since Christmas and there should be further gains as the product range
is extended, which we expect will lead to greater customer loyalty.

In addition to our focus on monthly leaflets and specialogues we have two comparatively new
sales channels which have made some very useful gains this year. Firstly, House of Stirling,
our door to door sales organisation which specialises in the sale of our goods and services via
350 sales staff who visit customers in their own homes,
has extended its selling territories and has now reached a turnover of £26m. Secondly, all of our principal
catalogues are supported by fully integrated and transactional internet sites,turnover from which was
£15m, up 30%, representing 3.4% of group turnover.

I remain confident that the blend of a wide portfolio of catalogues with strong unique selling propositions
operating through various channels to market will support our future growth prospects.

Fulfilment

Zendor offers a totally integrated fulfilment service and consultancy to clients operating
distance shopping businesses. The logistical resources for Zendor are normally drawn from N
Brown's home shopping division but a growing proportion of Zendor's infrastructure is now
derived from third party sources.

We are pleased with Zendor's performance this year having moved from a pre goodwill
amortisation loss of £1.1m last year to a profit of £0.3m.

Financial Services

I am delighted with the progress made by First Financial this year in reaching a record
operating profit of £2.7m, which is ahead of last year by 32%. The division offers a wide
range of financial products, such as unsecured loans, to our home shopping customers who we
have selected through our highly developed database management and marketing skills. First
Financial also acts as an intermediary with solid, well established insurance and other financial
service companies and is now looking to develop other offers which we believe our customers
will find attractive.

Outlook

2002 was a challenging year for the home shopping sector but having taken a number of
initiatives in our business to address the changing retail environment I am confident we can
make good progress this year. Encouragingly womenswear has recovered and electrical
goods are also performing well so far this year, but more work remains to be done to our
menswear and footwear ranges.

Our new chief executive, Alan White, has completed his strategic review. The details of this
are set out in his report, and the effects of it are already beginning to be seen. Our plan to
refresh the appeal of product ranges should position us better for the medium term.

The fundamentals of the business remain strong and on behalf of shareholders I would like to
thank all staff for their valuable contribution to the business.

Sir David Alliance, CBE
15 May 2003


CHIEF EXECUTIVE'S REVIEW

N Brown Group has continued to increase its share of the home shopping market, in what has
been a difficult year for the sector. Consequently, despite a disappointing dip in financial
performance in the year to 1st March 2003, the business has an excellent market position and a
number of core strengths which, togetherwith the steps we are taking, leave me confident that
we will deliver growth over the medium term.

I rejoined the Group in September 2002, succeeding Jim Martin who, after 18 very successful
years as Chief Executive, has stepped up to the role of Non-Executive Deputy Chairman. I
have reviewed all of our businesses and catalogues to ensure that we are making the most
efficient use of our resources and we have implemented some changes to execute our strategy
more effectively.

Our target is to be the leading home shopping company for the over 35 market in the UK. We
already have a strong position, particularly in the 50 plus sector, through our long established
catalogues, based on key selling propositions of appropriate products by age category, larger
sizes and specialist clothing and footwear fittings. These propositions are supplemented by a
growing household and electrical range and they are all supported by flexible credit systems,
which are essential to the majority of our target market.

In addition to sales from the catalogues, which account for about half our turnover, there is a
regular monthly programme of special interest leaflets targeted at the customer database,
utilising sophisticated data modelling techniques.

As well as direct home shopping activities the group has growing businesses in fulfilment and
financial services.

Financial Performance

Group sales were up 1.9% at £457m but overall profit before tax and goodwill amortisation
was down to £54.8m from £59.0m in the previous year. Operating margins remained strong at
13.0%. The dividend for the year is up 1.6% at 5.84p, covered 2.3 times. The group has a
strong balance sheet with net assets of £245 m, up 11.3%, equating to 83p per share.

Home Shopping

Summary

Home shopping operating profits before goodwill amortisation fell by 9.6% in the year to
£57.2m. This resulted from disappointing sales in the second half, despite investing extra
marketing expenditure, and a less profitable mix of both products and customers, which
reduced gross margins and increased bad debts.

Sales
Total home shopping sales were £440m, 1% up on the previous year. The number of
customers fell by 3% but their average spend rose by 4%. This reflects continuing good
performance from our most loyal customers, but disappointing recruitment campaigns and a
reduction in the product options which impacted the appeal of our core product categories
more than we had anticipated, combined to depress overall response.

The average selling price during the year rose by 4%, due to an expansion in sales of higher
priced household and electrical products. Within womenswear the average selling price fell by
2%, as we focused on hitting certain key price points. From Autumn 2003 we will be seeking to
widen the price architecture by introducing more mid-priced products.
Returns rates have fallen by 1.3% in the year. This is partly due to the product mix favouring
low returning product categories, but 0.7% of the reduction is the result of specific initiatives
to bring down returns rates.


Gross Profit
Gross margins were down by 0.9%. This reflected the product mix favouring lower margin
home and electrical goods rather than higher margin clothing and footwear. We also took a
higher level of markdown in the second half to ensure our stocks were cleared.

Customer Recruitment
During the year the response to our recruitment campaigns has been disappointing, resulting in
a shortfall in new customers. The loss of their sales reduced the total home shopping turnover
by 2%, and will have some impact on future seasons. The results from direct response
television advertisements and mini catalogues inserted with magazines were lower than
anticipated, and the sales from our predominant method of recruitment, merchandise
advertising in newspapers, were also below par.

In response to the poor Autumn/Winter campaign we have adopted a more promotional style to
the Spring campaign, which is now delivering to our expectations.

Merchandise Categories
The core merchandise sold to our customer base, which is over 90% female, is women's
clothing and footwear, menswear and household and electrical goods. With the exception of
the latter category, which has continued to exhibit strong growth, sales for the year were
down.

In addition to the increased competitive threat from both the recovering High Street retailers
and the value retailers, including the supermarkets, there are two other factors which have
played a part.

Firstly, one of the strengths of our business is the offer of womenswear to size 26 in all cases
and up to size 40 in appropriate styles, which means we have 30,000 stock options per season.
In an attempt to improve profitability we cut out a number of unprofitable options or ranges, but
with hindsight we underestimated the cumulative impact they had on the look and feel of
the catalogues. We managed to offset some of the shortfall from the catalogues by making
further marketing investment into our leaflet programme, such that it showed a growth of 6%
year on year. Going forward, the performance of the catalogues themselves has to be
improved in the core product categories. To this end we will be expanding the size of the
catalogues to provide more choice for our customers in all key product areas.

Secondly, we underestimated the increasing speed with which our customers are adopting the
latest fashion trends. Our customers, whose average age is in their 50's, want many elements
of the latest trends worn by the younger generation in their clothing, and we must satisfy this
demand.

We have reacted to this trend in two ways. In the past we have been able to choose the range
at the start of the season and then merely represent the same merchandise and photography
through seasonal monthly leaflets. This is no longer sufficient for current customer needs. The
midseason mailings of the younger and midlife Autumn/Winter catalogues contained new and
more fashionable merchandise sourced during the season. The sales of this new merchandise
were strong and vindicated our decision to refresh monthly leaflets and mid-season catalogues
with new lines. Increasingly we will source more of these special buys from markets closer to
the UK to speed up lead times.

We have also recognised that our product ranges need to be even more tailored to their target
customer. There will, therefore, be more unique lines in the younger catalogues instead of
some of the product currently sourced from the midlife ones.

None of this implies we are changing our target customer base, it merely recognises that there
is a wider range of fashion attitudes within our chosen market than we are adequately catering
for. These changes will be introduced in the Autumn/Winter 2003 catalogue and be rolled out
in Spring/Summer 2004.

Home and electrical products have continued to sell well, up 10% for the year, with electricals
particularly strong at 36% ahead. This is proving that there is latent demand for product ranges
not previously offered to our customers. Consequently we will be further increasing the
catalogue space allocated to home and electrical products in Autumn/Winter 2003.

Customer Groups
Our customer database, allied with advanced analytical processes, is a core asset of the
business. As we have captured every transaction by every customer for many years we have
millions of records on our files. We have the ability to scan these records to identify spending
patterns, product preferences, age, size and predisposition to promotional activity amongst
other variables. The key to our success is to allocate our marketing expenditure, our largest
overhead by far, to deliver the most sales and profit.

Our segmentation system was augmented during the year to include behavioural
characteristics as well as the customer's propensity to purchase. We use a variety of marketing
and promotional techniques to influence those spending habits, ranging from low-level stimuli to
aggressive discounts. This new system is anticipated to improve the efficiency of our
marketing spend in 2003/4 and offset some of the increased catalogue costs for the expanded
product ranges.

We have continued to see the strongest growth from the younger catalogues, up 4% in total.
Within this, Simply Be, which targets larger, more fashion conscious female customers in their
30's, is proving very successful with sales now of £18m, up 21%.


The core midlife brands, J. D. Williams, Ambrose Wilson, Oxendales and Fifty Plus, are
targeted at the 45 - 65 age bracket through a common catalogue and leaflet programme. Sales
to this group totalled £286m, 2% down on last year, representing 65% of home shopping
turnover.

Spending by this midlife customer group has been stagnant in the retail sector as a whole in
2003. However, the absolute number of consumers in this age bracket will increase by 8% by
2006 so there continues to be a real growth opportunity. We are confident that we can gain
market share with our improved and expanded product ranges, and we have also produced
some new publications which target specific sections of this customer group to improve sales
penetration.

Emerging Channels
We aim to maximise the commercial opportunity every time we communicate with our
customers.

During the year we relocated our call centre to a purpose built facility in Manchester with
1100 terminals. This has enabled us to both reduce the number of calls outsourced and expand
the outbound telemarketing team. The revenue from outbound calls yielded net sales of over
£18m, up 20% on last year.

Upselling at the time of order has also increased sales by 15% to £13m. This has been achieved by a
combination of improving selling techniques coupled with innovative product
offers.

Sales through the internet continue to expand, growing 30% to £15m and now representing
over 3% of total home shopping sales. This varies significantly by customer group with
penetration in our youngest brand, Simply Be, hitting 15%. We have recently made further
improvements to our web-based systems which are driving more new customer demand to the
internet and outbound e-mails continue to improve their penetration and cost-efficiency.
House of Stirling, our door to door selling channel, has had a strong year with sales up by 73% at
£26m, now accounting for 6% of home shopping sales. This growth has been driven by an
expansion of the geographical coverage, with over 350 business managers covering from
Scotland to the North Midlands, together with strong customer recruitment and a 15% increase
in the average spend per customer. The product ranges which most appeal to this customer
group are home furnishings and electrical appliances, where the weekly collected credit offer
is essential to facilitate the purchase. There is scope for further significant growth in this
channel, by extending our geographical coverage and the product ranges on offer.

Service
We regard excellence in customer service as a key differentiating factor within our sector and
we aim to deliver year on year improvements in service standards. The move to the new call
centre has enabled improved training of customer service advisors, which is now starting to
help staff retention and in turn the quality and consistency of service.

Efficient delivery of parcels to customers is also a vital service component. We have now
linked our 1100 strong courier network to Securicor Omega's depot and van delivery network.
Couriers are now managed through the 92 depots enabling much closer monitoring of delivery
performance. This is already producing cost savings, quicker return of goods to stock and
improved customer satisfaction. The partnership is also now undertaking parcel deliveries for
major third party retailers and a useful profit contribution is anticipated in future years.

Credit and Financial Services

Group trade debtors were up by 17% to £305m, comprising core home shopping debtors of
£286m, up by 14%, with the balance attributable to the activities of First Financial.

Home shopping debtors comprise 1.6m accounts owing an average of £195. We have
increased the average balance, despite the low sales growth, through extended credit terms and
payment holidays to selected customers. We now offer a variety of credit offers dependent on
the customer group or product set. The success of Home Essentials, for example, our higher
priced furniture and electrical catalogue, is partially driven by interest-free credit. We are now
developing a new behavioural scoring system to improve the assessment of credit limit risk by
customer, although the impact will not be felt until 2004.

First Financial markets pure financial products to our customer base, largely though outbound
telemarketing. The core products are personal loans, warranties and insurance. The operating
profits from this division rose from £2.1m to £2.7m, despite the initial losses from the in-
sourcing of personal loans from a commission basis to being financed on our own balance
sheet. Net lending by First Financial during the year was £15m, with year end debtors of
£19m, up 98%. We are also looking to expand our activities in secured lending and credit card
issuance, utilising the skills of our dedicated financial services team allied with the credit
history of our home shopping customers.

Fulfilment Services

Zendor and Eunite now operate as one business providing end to end services to distance
shopping companies. Services range from web-site design to call handling and product
delivery, and were provided to over 20 different clients during the year. Growth in revenues
by 5% to £9.6m and reduced operating costs resulted in an operating profit before goodwill of
£0.3m against a loss of £1.1m last year.

There is a strong demand in the market place for the services provided and a fragmented
competitor set. However, surplus capacity within our home shopping infrastructure has been
largely utilised and we are now incorporating third party facilities. We are also considering
strategic partnerships to accelerate growth.

Pension Fund

In common with most other major employers we have a final salary scheme, which, with the
demise of equity values and increasing liabilities, is now under-funded by £18m on an FRS 17
basis. The scheme was closed to new entrants in January 2002, but, pending the 2003
actuarial valuation of the fund, the Company has agreed to contribute up to £1m p.a. extra to
meet its pension commitments, as previously announced.

Outlook

Group sales in the first ten weeks of the new financial year are up by 3%. Home shopping
sales are up by 2% and, encouragingly, the sales per home shopping customer are up by 5%.
We have also seen a good recovery in our sales of womenswear which, across all customer
groups, is up by 5%. Home and electrical product sales continue to grow. With tougher sales
comparatives and some cost pressures in the first half it will be the Autumn/Winter season
when I expect to see the most forward momentum.

I remain confident for the future of direct home shopping, especially with the growing
penetration of the internet, but in a fiercely competitive retail environment we must
significantly improve our product offering, the way we promote those products to our
customers, and the service we provide. I believe the improvements we will deliver in each of
these areas will drive the growth our stakeholders rightly expect.

Alan White
15 May 2003