Bonmarche : Preliminary Results

19 June 2017

Bonmarché Holdings plc

('Bonmarché' or the 'Company' or the 'Group')

Preliminary Results for the 53 week period ended 1 April 2017

Bonmarché, one of the UK's largest women's value retailers, reports its preliminary results for the 53 week period ended 1 April 2017.

Financial Highlights:

· Total revenue £190.1m (FY16*: £188.0m)

· Store like-for-like sales down 4.3%, online sales up 2.2%

· Group PBT £5.8m (FY16*: £9.6m)

· In line with revised expectations, underlying PBT £6.3m (FY16*: £10.6m)

· Underlying basic EPS 10.1p (FY16*: 18.3p)

· Cash generated from operations £9.5m (FY16*: £13.2m)

· Recommend final dividend 4.64 pence per share, bringing the total for year to 7.14 pence (FY16*: 7.14p)

Strategic Highlights:

Bonmarché remains well placed to serve the 50 plus women's value clothing market.

Aim - grow by implementing robust and credible plan:

· Develop and modernise product, guided by single, clear customer profile

· Unlock true potential of Bonus Club loyalty scheme

· Build on foundations laid in FY17 to drive online performance

· Modernise store experience and improve consistency through renewed retail focus

· New systems & processes, carefully implemented, to enable modernisation

· Clearer vision & mission to form the pivot for more effective ways of working

Helen Connolly, Chief Executive of Bonmarché, commented:

'Since joining the business almost a year ago, I have been struck by the passion and drive of colleagues throughout the business and I am confident that with our current focus on modernising and improving the offering for our customers, we remain well placed to serve the 50 plus women's value clothing market.

'A combination of internal and external factors over the past year prevented us from improving at the rate we had aimed for. However, we believe that the business is now well positioned, with a compelling proposition and robust plan.

'As outlined previously, it is clear that the direction of travel is broadly right, albeit the effectiveness of execution needs to improve. Our update today provides further detail on the areas where we see the greatest opportunities and how we are already beginning to address these.

'I would like to thank all my colleagues for their continued dedication to Bonmarché, and I look forward to updating on our progress over the coming year as we drive forward our strategy to successfully grow profitable sales by gaining market share'.

Analyst Meeting

A meeting for analysts will be held today at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD, commencing at 9.30am.

' 52 weeks ended 26 March 2016

Notes to Editors:

Bonmarché is one of the UK's largest women's value retailers, focused on selling stylish, affordable, quality clothing and accessories in a wide range of sizes, via its own store portfolio and online. Established in 1982, Bonmarché has more than 30 years of experience in this market segment, operating across the UK.

Forward looking statements

Certain statements within this report may constitute 'forward looking statements' which relate to all matters that are not historic facts, including anticipated financial and operational performance, business prospects and similar matters. These forward looking statements reflect the Board's current expectations concerning future events and actual results may differ materially from current expectations or historic results. Any such forward looking statements are subject to risks and uncertainties, including but not limited to, failure by Bonmarché to accurately predict customer fashion preferences, decline in the demand for products offered by Bonmarché, competitive influences, changes in the level of store traffic or consumer spending habits, the effectiveness of Bonmarché's brand awareness and marketing programmes, general economic conditions or a downturn in the retail industry.

CHAIRMAN'S STATEMENT

The market backdrop to FY17 was more challenging than we had expected, even in the context of the cautious state of mind which prevailed a year ago. The decline in the apparel market created by factors such as price and wage inflation, uncertainty linked to the referendum on Brexit and unseasonal weather patterns meant that in order to grow, Bonmarché needed to deliver a significantly improved offer to its customers.

Disappointingly, and for reasons set out in the Operating and Financial Review below, the rate of improvement was slower than anticipated and therefore we were unable to secure the increase in market share necessary to deliver the result we had aimed for. Nevertheless, I am pleased with the manner in which management has risen to the challenge and, as a result, the business is now significantly stronger than it was a year ago, with a plan which has evolved to reflect the changing market dynamics.

As a retailer serving the 50 plus women's value clothing market, I believe that the rationale for Bonmarché's strategic positioning remains compelling. Despite the difficulties in the apparel market, the size of the demographic group on which we focus is still forecast to increase in the coming years. In addition, this sector continues to be relatively poorly served which presents us with a great opportunity. The continuing validity of our strategic positioning means that there is no requirement for significant change and therefore the strategy is evolutionary, and low-risk. The main themes, all of which are covered in greater detail in our Strategy Update, are:

1. simplification of how we think of our customers.We have reduced the number of model customer profiles used to inform planning and decision making from the previous four, to one, to make it easier for our colleagues to achieve the improvements in execution for which we strive;

2. to bring about a modernisation of the proposition we offer to the customer, encompassing the clothes we sell, the service we provide and the way we interact; and

3. improved execution through a renewed focus on basic retail good practice(which applies as much to a multi-channel offering as it does to traditional high street shopkeeping) and better co-ordinated working within the business.

Bonmarché's employees have worked tirelessly through what continues to be a challenging but exciting journey for the business as we focus on delivering our strategic plan, and on behalf of all of the Board and management team I would like to take this opportunity to thank them for their continued support and hard work.

The Board

On 15 August 2016, Helen Connolly joined the Group and the Board as Chief Executive Officer, to lead the business in its next phase of development. Helen has extensive relevant retail experience, most recently working at Asda where she was Senior Buying Director for the George clothing business. Helen has already made a great contribution, having navigated the business through a particularly difficult trading period, and established sound plans for the future.

On 8 April 2016, Mark McClennon joined us as an independent Non-executive director. Until recently Mark was CIO (Consumer) at Unilever plc, and has recently taken up an appointment as CIO of Burberry plc. We are already benefiting from Mark's experience and wisdom as we implement the business change programme described in the Operating and Financial Review. On the same date, Sergei Spiridonov joined the Board as Sun's nominee director, replacing Michael Kalb as a non independent Non-executive director. Sergei also brings valuable experience, most recently prior to joining Sun, as part of Tesco's strategic transformation team and prior to that as a partner with McKinsey & Company. Meanwhile, Michael Kalb continues his association with the Company, as a Board Observer.

Corporate governance

For the first two weeks of the financial year (until 8 April 2016), only one independent Non-executive director, other than myself, served on the Board. However, Mark McClennon's appointment brought us into full compliance with the UK Corporate Governance Code in this respect. Mark also joined the Remuneration, Audit and Nomination committees, bringing us also into full compliance with the Code requirement for committee membership.

The Code's 'comply or explain' approach permits listed companies some degree of flexibility to apply governance principles other than in strict accordance with the Code, for example, to take account of differences in business size and complexity. Bonmarché's small size and straightforward business model would afford us the opportunity to use this flexibility, but we have not sought to do so and believe that we are fully compliant with the Code, save as described above.

Dividend

The Board is recommending a final dividend of 4.64 pence per share in respect of FY17 which is in line with last year's final dividend, making total dividends for the year 7.14 pence per share, also in line with the total dividends paid in respect of FY16. If approved by shareholders at the AGM on 27 July 2017, the dividend will be paid on Friday 4 August 2017 to shareholders on the register as at the close of business on Friday 30 June 2017.

Outlook

Trading since the beginning of the new financial year has been in line with the Board's expectations and the financial position of the business continues to be sound, with no net debt anda balance sheet which provides a stable platform for the future.

We believe that the challenging market conditions are likely to continue but, as noted above, we are confident in our strategy and remain focused on executing it successfully. We believe that the 50 plus market continues to be under-served and this, combined with the forecast increase in the number of people who are potential customers for Bonmarché, positions us well for future growth. We therefore aim to meet our overriding objective of growing profitable sales by gaining market share.

John Coleman

Chairman

19 June 2017

Operating and Financial Review

Overview of results

FY17 was a challenging year; the apparel market has been in decline, with demand affected by consumers' response to factors such as inflation, the referendum on Brexit, and unseasonal weather patterns, which, as we have noted in the past, significantly influence our customers' shopping habits. However, our objective was to grow by gaining market share, and we have not achieved this. We have learned much as a result, and believe that we are in better shape now than we were a year ago. In particular, we have in place plans that we believe are robust and credible and which we believe will lead to growth despite the difficult market. In this review we describe the financial performance and operational factors which put it into context, and provide an update on our strategic progress and plans.

The Group's profit before tax ('PBT') was £5.8m (FY16: £9.6m) and, in line with our revised expectations, underlying PBT (profit before tax and exceptional items) was £6.3m (FY16: £10.6m). The underlying PBT margin was 3.3%, compared to 5.6% in the prior year.

The reporting period under review includes a 53 week to more closely align our reporting year-end with our accounting reference date of 31 March. To aid comparisons with FY16's 52 week reporting period, we include references where appropriate to the corresponding FY17 figures for the 52 week period ended Saturday 25 March 2017 as well as for the 53 week period ended 1 April 2017.

The Board is recommending a final dividend of 4.64pence per share in respect of FY17 which is in line with last year's final dividend, making total dividends for the year 7.14 pence per share, also in line with the total dividends paid in respect of FY16.

Sales

Total sales for the 53 weeks ended 1 April 2017 decreased by 0.5% compared with the corresponding 53 week period ended 2 April 2016; store LFL sales decreased by 4.3% and online sales grew by 2.2%. The two tables below show the sales growth/decline by each main channel, for the 53 week and 52 week periods.

We measure two key performance indicators in relation to sales - store LFL sales, and the percentage of total sales represented by online sales. We expect online sales to be an area of growth, hence the focus on this KPI.

The store LFL sales result provides a good indication of performance in the underlying business and has the benefit of being widely understood. In the future, interpreting this stand-alone measure may become harder as the interplay between customer journeys in stores and online becomes increasingly integrated; nevertheless we expect this to continue to be an important indicator for the foreseeable future.

Sales growth from new stores (stores opened during this period and opened during the previous financial year which have traded for their first full year) continues to be important; however, we expect the rate of growth from new stores to gradually reduce as the chain approaches maturity over the next several years, and we do not treat new store sales growth as a KPI.

Due to the inclusion of the 53 week in FY17, in order to aid comparisons, the FY16figures in the table below represent the 53 weeks ended 2 April 2016.

In addition, the table below shows the FY17sales on a 52 week basis so that they may be compared with the FY16 figures as reported last year. The 52 week FY17 figures are for the 52 weeks ended 25 March 2017.

1. Each year, new stores that have been open throughout the previous financial year become classified as 'LFL' stores. Therefore, within the prior year comparative, the split between LFL and new stores alters each year, and the analysis of the FY16 'LFL' sales and 'new store' sales differs from the corresponding analysis for FY16 shown in last year's Annual Report. The total sales and total revenue figures in the FY16 column are unaffected.

2. 'Other' comprises the net effect of revenue from the wholesale supply of goods to a franchise partner with a single store in Gibraltar, less the value donated to charitable causes, being the proceeds from selling Bonmarché carrier bags. Although immaterial, we include the reference to give visibility of the reconciliation between the figures we use to derive LFL percentages and the statutory revenue figures.

LFL sales

Store LFL sales decreased by 4.3%, or 4.7% on a 52 week basis. Data from Kantar, a market research firm, indicates that during the 52 week period ended 12 March 2017, the total 50+ women's outer and sportswear market (our closest benchmark index) fell by 4.1%, a level of decline which we did not foresee at the beginning of the year. However, despite the greater than expected market decline, our LFL sales should have been more resilient. As set out in the Strategy Update, we have a clear plan in place to develop and improve the customer proposition to ensure that, in future, the Group is better positioned to increase its market share profitably.

In common with many retail businesses, Bonmarché's profits are highly sensitive to changes in sales; consequently the fall in LFL sales was the principal driver of the fall in PBT compared to the previous period. As always, sales were affected by a range of factors, both internal and external, which we have outlined below.

Internal factors:

· Product

o Long lead times and a supply base heavily dominated by China as a country of origin restricted our ability to react to changes in seasonal demand and offer diversity of product handwriting.

o Too significant a shift towards ranges with a casual end use, sales of which tend to be particularly dependent on weather, and therefore did not perform well this year. In addition, this year's casual ranges were not sufficiently appealing to our customers.

o Not enough focus on innovation or 'newness' compared to product we have offered customers previously. Our customers typically shop with us regularly and we must ensure that we continually create a reason for them to buy - this is therefore a key focus for the coming year.

· Loyalty - 'Bonus Club'

The customer loyalty scheme remains valuable, with approximately 1.6m active customers. Feedback from a customer survey carried out in early March 2017 indicated that the scheme is still popular and well liked. However, the scheme did not contribute to sales growth during the year for the following reasons:

o The level of membership has not grown as the focus had drifted away from signing up new customers. This is linked to the wider point made below regarding basic retail disciplines and will be addressed through a renewed focus in the coming year.

o Certain elements of the scheme need modernising; for example the online experience is not seamlessly linked to the store experience.

o We are not fully utilising the data which the scheme provides, for example, to engage more effectively with customers, or reward the most loyal customers to make them feel truly valued.

· Basic retail disciplines

o These have not been maintained to a consistently high enough standard throughout the store estate and a sharper focus is required on things which matter the most to our customers. A significant change to the retail management structure was completed just after the year-end, which is discussed in further detail in the Strategy Update.

External factors

· As already noted, the market in which we operate declined.

· BHS, a significant competitor, went into administration in April 2016. Over the following months it cleared its residual stock at discounted prices prior to closing its stores, which adversely affected Bonmarché's sales in late April and May 2016. However, during the second half of the year, once all the BHS stores had closed, our sales benefited and, over the year as a whole, we estimate that the effect on Bonmarché's sales was broadly neutral. During the coming year this should have a slightly positive effect on our sales.

· Retailers are sometimes perceived to be overeager to refer to the weather as the cause of poor performance; nevertheless it does have a significant effect on our business, both positively and negatively. The weather pattern during the first half of the year provided a disincentive for consumers to shop for seasonal clothing, impacting footfall; however, the impact in the second half proved neutral, if not favourable.

Sales from new stores

During the year we opened 4 new solus stores, 6 stores within garden centres and 12 other concessions, relocated 3 solus stores and closed 7 stores (see table below). The average number of outlets open during the year was 321 (FY16: 302). The net additional sales accruing in FY17 as a result of opening and closing stores was £7.1m. This comprised the sales from new stores which opened during the year (£5.8m), a full year of sales from the stores which opened during the previous financial year and therefore only traded for part of FY16 (additional £6.4m in FY17), less the reduction in sales resulting from stores which closed during the period but that had traded throughout FY16 (£5.1m).

Overall, the performance of the new stores was in line with the investment return targets, with average paybacks within 3 years for solus stores and 1.5 years for concessions. During the coming year we expect to open approximately 5 new solus stores and approximately 10 concessions/other locations, and, as part of the ongoing management of the store portfolio, will close approximately 6 stores/concessions at the end of their leases or at lease break points.

The majority of stores we closed were concessions, which, having traded for a year, did not meet the required performance criteria and were closed after the lease break which we build into all concession agreements. In addition, we closed two 'pop up' stores which we had traded on a short terms basis with an option to extend the term if the location proved appropriate for a more permanent store and, we closed three stores as part of an exercise to relocate within the same town.

Online sales

Online sales represent sales transacted through Bonmarché's website. This represents a slight change from our previous practice, when we reported 'multi-channel' sales which included sales made via the Bonmarché website and from other channels - the Ideal World TV shopping channel, and from stores hosted on eBay and Amazon. These other channels were peripheral and generated insignificant profits, and to help improve our focus on the parts of the business that we expect to contribute more to growth, during the year, we ceased selling from them. We will continue to review whether these or other similar channels may be worth reconsidering at some point in the future, but there are currently no plans to do so.

To show more clearly the true sales from Bonmarché's own online store, the sales from these discontinued channels have been reclassified within 'Sales from stores closed in period' in the sales analysis tables shown above and 'Online' now only includes sales from the Bonmarché website. The tables below show the year-on-year sales from each of the components of what we formerly called 'multi-channel'.

Online sales increased by 2.2%, or 1.8% on a 52 week basis, and represented 7.1% of total FY17 sales (FY16: 6.9%). Although sales grew, we consider this a poor performance, given the general trend of consumers increasingly switching channels to embrace a multi-channel approach. However, we were pleased that our performance improved significantly during the year, with the first quarter's 4.1% sales decline contrasting with 15.2% growth in the fourth quarter. We expect to see this trend continue as the benefits of our new Demandware web platform are realised (see below).

There are factors which affect sales that are common to both the high street stores and the online store such as the appeal of product ranges, availability of the right product at the right time, strength of demand for seasonal clothing, and consumer confidence/disposable income. This is illustrated by the fact that both channels grew by approximately 8% more in the second half of the year than in the first.

Nevertheless, the improvement in the online performance throughout the year reflects the steady progress made to improve the online offering, most notably launching a new site on a 'Demandware' platform at the end of September 2016, with no disruption as a result of this move. Having introduced the new platform, during the second half of the year we began to unlock the benefits of its new features, and believe that the improved performance since Christmas is partly as a result of this.

Product gross margin

The product gross margin percentage ('gross margin' or 'margin') comprises two main components - the margin that would result if no discounts were applied (the 'bought-in margin' or 'BIM'), and the level of discounting to achieve actual sales - referred to as 'markdown'. The combination of these components is the product gross margin.

The margin was 58.6%, 130bps higher than the 57.3% we reported last year. The increase in margin was a result of a higher BIM, as the markdown level was slightly higher than in the previous year.

The BIM% result was better than we had expected at the beginning of the year. Most of the stock we buy is paid for in US dollars, which were slightly more expensive in FY17 than in FY16. Other things being equal, this would have caused a slight reduction in the BIM%, but although there is work to do on the supply base, through careful management of the existing supply base and buying process, we have succeeded in achieving an increase in the BIM%. It is worth noting that the sharp fall in the value of the pound during the year did not affect us significantly, as we had contracted for the currency we needed when rates were higher. However the weaker pound will begin to affect us during FY18 and the full effect will be felt during FY19. Whilst in isolation this represents a significant cost increase, the additional time in which to react will help us to mitigate this as effectively as possible.

The higher year-on-year markdown was a result of the poor sales in the first half of the year, when we took the action necessary to clear slow-selling stock. During the second half of the year, markdown levels were lower than in FY16, with most of the reduction occurring after the 'Black Friday' event, in late November and December, when we avoided using excessive discounts to buy sales. We worked hard to minimise discounting during this peak selling period, which in recent years has become an increasing challenge as more of our competitors begin what used to be termed their 'January sales' well before Christmas. The extent to which we can maintain margin in December in future years depends heavily on the success of our proposition and external market pressures, but we will continue our efforts to minimise discounting during this period.

Operating expenses

Underlying operating expenses comprise the cost of operating our high street and online stores, distribution centre and administrative overheads such as salaries, marketing costs, depreciation and amortisation.

Underlying operating expenses grew from £96.9m to £105.0m or 8.4% year on year (FY16 growth on FY15: 7.8%). Expressed as a percentage of revenue, underlying operating expenses increased to 55.2% from 51.5%. The main factors driving this increase are set out below:

· The increase in store numbers from the new stores opened during the year, and having the stores opened in the prior year open for a full year, resulted in an increase in costs of £3.3m.

· During the year changes were made to the structure of the head office teams, which will create savings in future years but within FY17 the costs of the restructuring absorbed most of the saving. The average number of people employed in the head office during FY17 was 191, compared to 198 during FY16.

· The increase in the Living Wage during the year resulted in an additional cost of approximately £1.3m. £1.0m of this cost was absorbed through changes in store staffing, principally by increasing the flexibility of the model so that staffing can be better matched to customer needs.

· FY17's marketing costs were £1.2m higher than FY16, mostly as a result of the national TV advertising campaign.

· Improvements in efficiency and a reduction in the volume of units handled created a year-on-year reduction in distribution costs of £0.4m.

· The cost of software licences/support increased by £0.9m. The level of expenditure previously has been very low, due to the old age of the systems. As we continue to modernise we will see further increases in software costs; however we expect the benefits to outweigh the costs.

· Depreciation and amortisation costs increased by £1.1m as we continued to invest in the capability of the business.

· FY17's 53 week required an additional £1.9m of costs to be accounted for compared to a 52 week period.

Interest

There has been no change in the capital structure during the year (other than in relation to a new hire purchase agreement, described in the cash flow and cash position section below) and therefore the £0.2m net interest charge was in line with the previous year's net interest charge. Throughout the year our £10.0m bank facility remained undrawn. The interest charge represents the cost of maintaining the unused facility and finance charges on finance leases and a hire purchase agreement.

Exceptional items

In FY17, £0.5m of expenses were classified as 'exceptional'. Most of the costs of implementing the new retail EPOS system introduced in September 2016 were capitalised, but £0.4m was classified as an operating expense, which, as it was a one-off cost, has been treated as exceptional. The balance related to the recruitment of Helen Connolly. Both items arose in the first half of the year.

In FY16, £1.0m of expenses were classified as 'exceptional', which related to the listing of the Company's shares on the Official List of the Main Market of the London Stock Exchange in October 2015.

Tax

The effective tax rate for FY17 was 23.1% (FY16: 18.6%), 3.1% higher than the statutory rate of 20.0%.

The FY17 effective tax rate was representative of what we would consider to be the normal level; the effective rate applicable to the Group is usually higher than the statutory rate due to part of its shopfitting costs being disallowable expenditure in the calculation of capital allowances.

The FY16 tax charge was lower than normal as it included a £0.4m adjusting credit in respect of FY14, following the release of a provision. Without this credit, the FY16 effective tax rate would have been 22.9%, 2.9% higher than the statutory rate of 20.0% and broadly in line with the FY17 effective rate.

Further details regarding the Group's approach to tax, the tax expense, tax cash payments and the total tax contribution made by the Group will be included in the Corporate Social Responsibility section of the FY17 Annual Report.

Earnings per share and dividends

The statutory basic earnings per share for the year were 9.2 pence (FY16: 16.1 pence). The underlying basic earnings per share (pre-exceptional costs) were 10.1 pence (FY16: 18.3 pence).

The Board is recommending a final dividend of 4.64pence per share in respect of FY17 which is in line with last year's final dividend, making total dividends for the year 7.14 pence per share, also in line with the total dividends paid in respect of FY16. The maintenance of the proposed dividend at this level reflects the Board's belief in the future prospects of the business; however the dividend cover to which this equates is significantly lower than the 2.5x to 3.0x target range we have previously quoted. The Board's expectation therefore is that in the future, even if profits increase, dividends will not grow until the dividend cover has become re-established within the target range.

If approved by shareholders at the AGM on 27 July 2017, the dividend will be paid on Friday 4 August 2017 to shareholders on the register as at the close of business on Friday 30 June 2017.

Cash flow and cash position

Funds generated from operations were £9.5m (FY16: £13.2m). The Group's net cash balance decreased by £6.8m to £5.5m (FY16 balance: £12.4m).

As noted above, the FY17 reporting period included a 53 week, which moves the period-end balance sheet date a week later in relation to the Group's cash operating cycle. This reduced the reported funds generated from operations by approximately £2.9m, as significant payments are normally made during the 53 week. It should be noted that this was purely a result of the change in the period-end date, and has no effect at all on the true cash position or liquidity of the Group.

We noted in last year's report that £4.0m of capex-related payments expected to be made during FY16 were eventually made in FY17, resulting in a higher than anticipated cash balance at 26 March 2016, but a higher level of payments during FY17 than we would otherwise have reported.

In accordance with our plans to invest in improving our business systems and processes, capital expenditure payments increased from FY16's £5.0m to £11.0m, although this £11.0m includes the £4.0m noted above which related to FY16.

Tax payments were £0.7m lower than in FY16 and the level of dividend payments was similar year on year. In FY17 the Group received £1.1m of proceeds from a new hire purchase agreement used to fund part of the hardware (tills) for the new store EPOS system completed during the year.

Throughout the period, the Group has maintained a £10.0m revolving credit facility with Barclays Bank plc, which was due to expire in November 2017. In February 2017 we agreed an extension of the facility and it now expires at the end of March 2020. The facility remained undrawn throughout the period.

Stock

Stock at the year-end was £25.1m (FY16: £24.3m), a 3.3% increase on last year.

The value of stock held at the Company's premises at the year end was £1.4m lower than last year; however, we also include within the total stock figure the cost of stock in transit from suppliers to Bonmarché's distribution centre. The value of stock in transit was £2.2m higher at the end of FY17 than at the end of FY16. The magnitude of this difference is not unusual, as at this point in the trading cycle, stock levels are building and timing differences of this nature are common.

Levels of residual stock from the autumn/winter 2016 season are in line with normal levels.

Capital Expenditure

Investment in property, plant and equipment, and intangible assets during FY17 totalled £10.0m comprising £6.7m of tangible assets and £3.3m of intangibles (FY16 total: £5.7m). Note that this £10.0m is the 'additions' figure added to the balance sheet; the corresponding cash paid during the year relating to capex was £11.0m, which differs from the 'additions' figure due to the capital creditor/accrual reducing by £1.0m during the year.

As noted above, £4.0m of capital additions accounted for during the year related to items we had expected to bring into use during FY16.

The major areas of investment were:

The investment in stores comprised new stores and concessions and store maintenance. The £5.6m spent on systems incorporates the £3.3m of intangible asset additions, which all relates to computer software. During the year, the new EPOS system was completed, the online store was moved to a new 'Demandware' platform, and work began to replace the core business operating ('ERP') system. 'Other' comprises smaller items, including the cost of lease renewals.

Strategy update

In last November's Interim Results report, we described the main components of our strategy, following the completion of Helen Connolly's initial review of the business. We outlined that the strategy entails the making of a series of changes on an ongoing basis to improve the customer proposition, rather than bringing about a major strategic repositioning.

We stated that the direction of travel was right, but that the effectiveness of execution needed improvement. This theme continues to be relevant and we are making good progress in identifying the changes needed and embedding them into everyday operations. Our ability to improve further the effectiveness of execution will be significantly enhanced in the coming years by the introduction of the new processes and systems described in more detail below.

During the year we have established the key tenets of how we work, which are to maintain a clear focus on basic operational disciplines, concentrating on the major tasks which will deliver most value, and ensuring that different functions of the business operate cohesively together. We will pay close attention during FY18 to reinforcing and maintaining these disciplines.

Product Strategy

Single, clear customer profile - 'Lisa'

Bonmarché's target market remains unchanged: women aged 50+, and one of the things which makes us different is our understanding of, and focus on, the needs of this group, particularly in terms of style, fit and quality.

Creating a shared understanding of customers throughout the business is essential if we are to succeed in serving them. For internal planning purposes, we previously defined 'model' customers with reference to four personas, or profiles. This represented a step in the right direction when it was introduced but eventually proved to be too complex. We have therefore changed this internal guidance to refer to a single profile we have named 'Lisa'. We believe this simpler, clearer picture of our customers will help promote a shared understanding, and therefore make it easier for our colleagues to achieve the improvements in execution for which we strive.

Lisa represents the sweetspot of our aim; we will continue to offer more traditional lines but their proportion of the range will reduce progressively, as we gain comfort that our existing customers are buying into the 'sweetspot' product which will ultimately comprise more modern lines with broad appeal to our target market.

Modernisation and broad appeal

The requirement to offer modern products which have a broad appeal, delivered through improved execution, is the common theme running through the product strategy - informed throughout by reference to what Lisa would want to wear.

In the narrative relating to the year's sales performance, we noted certain areas of weakness in the product ranges. As the year progressed we began to see improvements, with significant parts of the autumn/winter 2016 ranges being better than the previous season's equivalent. This reflects the influence which Geraldine Higgins has begun to exert, having joined as Product Director in January 2016.

Bonmarché product DNA

We are fortunate to have a large group of loyal customers who know and like Bonmarché. But there is an even larger number of potential customers within our target market who have not yet discovered us.

Historically, one of the difficulties we have faced in communicating what Bonmarché means to new customers is that we have lacked a clearly defined 'product DNA' or 'handwriting'; in effect, it has not been clear to customers 'what we are known for'. Informed by the Lisa customer profile, assisted by the new tools we will have at our disposal later in the year (see 'Systems and processes' section below), and driven by the new team, honing of this product DNA will be something which will gather pace this year.

'Buy now, wear now'

Whilst we are constantly working on ways to mitigate the effect the weather has on performance, the nature of our business is such that it will always create volatility in sales levels, especially when looking at short term patterns and unseasonal extremes. Looked at over a long enough period, its effect should, in theory, be broadly neutral.

However, we are taking proactive steps to try and decrease the impact the weather has on our sales performance. We are responding to the increasing 'Buy now, wear now' trend where we are seeing that customers are increasingly buying for immediate wear, instead of purchasing in anticipation of wearing later in the season when, for example, the weather gets colder. We are changing our buying approach to reflect this alteration in consumer behaviour. Where practicable, we are also increasing the emphasis on categories that are less likely to be affected by weather.

Responding more quickly to customer wants and needs

Stocking an appropriate mix of 'wear now' clothes is one facet of meeting customers' needs. Another is being able to adapt to short term changes in demand, for example in response to changes in tastes, or a strong reaction to a certain style. Our supply chain has historically been too inflexible to allow us to adapt during a season. To address this, a focus this year, which will become an ongoing feature of how we work, is to develop a more agile trading model.

This agile trading model has entailed introducing new suppliers, and developing different ways of working with some existing ones. In addition to greater flexibility, this evolution of the supply chain will allow us to modernise the product handwriting, increasing the appeal to customers. Our management of the supply chain is also developing; for example we have an opportunity to make better use of market intelligence to anticipate trends and inform our buying decisions.

We believe there will be a significant sales and margin opportunity through improving the extent to which the right product is available in the right place at the right time. Part of the solution to this lies in the planning and the inbound supply chain as discussed above, and the other part lies in the outbound supply chain, or how we distribute stock to customers via our stores or online. With our existing systems we have limited scope to change the way we operate in this area but, later in FY18, as the new systems begin to enable new ways of working, we expect to be able to improve availability and realise the opportunity. The benefits should be visible to customers during FY19.

We have also made progress in developing our ethical trading credentials and this will continue to be an area of focus. In July 2016 we submitted our second report to the Ethical Trading Initiative ('ETI'), which showed an improvement in our performance from 25% to 31%, resulting in an upgrade in our membership status from 'Foundation' to 'Improver'.

Pricing - offering value for money

There is no change in how we see the juxtaposition of our price position and the rest of the market, but during the year we identified the need to sharpen the execution of our pricing strategy. Essentially this means ensuring that our entry prices (the prices of the cheapest items within a given part of the range, for example the cheapest t-shirt) are particularly competitive and ensuring the value is clearly visible to the customer. Conversely, where we are offering exceptional value, for example with a unique or highly specified item, it is important that we charge an appropriately higher price, so that customers can more clearly distinguish between the different levels within the range. Monitoring this and making adjustments will be a continuous process, which will be helped through the use of the new planning tools which will be available as our new ERP system comes into use.

Loyalty

Nurturing the Bonus Club loyalty scheme

The Bonus Club loyalty scheme is well established; it provides a rich source of data and a very effective way to engage with our customers, 1.6m of whom have shopped with us within the last 12 months. In November's Interim Results report we noted that nurturing this scheme will be a key part of our strategy, and since then our plans have taken greater shape.

Since its introduction the Bonus Club has not changed a great deal, which, as the ways that customers interact with us become more complex and the need to be different becomes more important, creates a significant opportunity to improve it. The improvements will take the form of many details, most of which are relatively straightforward to implement, although some will need testing to validate assumptions before being introduced. The main objectives are to:

· recognise and reward our most loyal customers more effectively.At present we do not make enough of a distinction between our most loyal customers and others;

· make proper use of the data we already have available, in creating recognition for the most loyal customers, but also using it to make better informed decisions about other aspects of our business. Although the data has been available, we have not made full use of it. The benefits of this will take time to manifest themselves, but we have taken the first important step in our journey, which is to recognise the gap;

· make Bonus Club work seamlessly for customers, online and in stores. Bonus Club was conceived before Bonmarché had a website, and the limitations of our legacy systems have prevented customers from being able to use their loyalty cards online as easily as in stores. The modernisation we have completed already, such as replacing the EPOS system in stores last year, and the further modernisation which will result from the systems to be introduced later this year, will enable us to address this;

· remove features which frustrate customers. The survey which we carried out in March 2017 provided feedback on various aspects of the scheme, as a result of which, we are testing changes; and

· keep focused on getting the basics right.For example, as noted above, increasing emphasis on signing up new customers to the scheme.

Brand development

Mark Heyes began working with us as a 'brand ambassador' at the beginning of the financial year, and we are pleased with the way this relationship is developing. Mark is a TV presenter who regularly appears with Lorraine Kelly on ITV's breakfast TV show. Mark has shown great enthusiasm for Bonmarché and what it stands for, and has an intuitive understanding of 'Lisa'. We believe that Mark resonates very well with our customers and is a particularly good fit with 'Lisa'. We hope to generate significant positive consumer-facing media coverage with Mark's help, and to develop content for our website which customers will find engaging.

TV advertising campaign

In the autumn, following a test carried out in northern regions during autumn 2015, we ran a three-week national advertising campaign using TV, radio and print media designed to introduce potential customers to Bonmarché. Despite some positive indications from indirect measures, the results of this advertising were not conclusive nor compelling enough to justify further expenditure and we will therefore not be repeating this activity in the foreseeable future.

Online

During the first half of the year, the main focus was on developing the new, improved online store on a 'Demandware' platform. The performance of the 'Venda' site we had used since 2012 had progressively deteriorated, as had the support from the supplier. The new site was successfully launched at the end of September and provides a far more flexible tool that will help us to serve our customers more effectively. It is also a more robust platform, leading to better performance (and therefore customer experience) at peak times.

Since Christmas, we have been developing our multi-channel strategy with the support of an external consultant who has a strong track record in e-commerce. The plan comprises many improvements, which we expect to contribute to a better online experience and sales growth. We will continue to deploy external resource on an ad-hoc basis when we think it will be beneficial. The list below provides an indication of some individual parts of the plan:

· improve the effectiveness of online marketing activity. Previous paid online marketing had been inefficient in returning profitable customer traffic to the website. Refocusing on the right parameters and better management of the digital marketing agency brought about a swift improvement. We have strengthened the management in this area to ensure that the focus is maintained;

· make better use of offline marketing. With a large store estate, offline marketing should be an important tool for us, but it had become under-utilised. A good illustration of this is our catalogue which we have reinvigorated by improving the look and feel through paying better attention to basic detail. This can be a powerful driver of traffic to the site and is firmly re-established as part of the marketing mix. The catalogue will be given an extra dimension using content contributed by, or relating to, Mark Heyes, for example with suggestions for customers about how to choose and wear the products featured;

· introduce an engaging online catalogue to inspire our online visitors and make it easy for them to buy outfits.This will use the model and location images from the paper catalogue to create online look books and promote outfits, with the ability for customers to shop directly from the content;

· reviewing and re-reviewing the customer journey throughout the customer browsing and buying process. This will help to identify and deal with 'friction points' which make it more difficult to shop and therefore reduce sales. The reviewing will be a constant process; one of the biggest opportunities will come from improving the checkout process which currently requires too many steps. Another important part of the plan to improve the customer journey is making the experience more seamless when moving between online and store channels. This is noted above in relation to Bonus Club but there is also work to be done to improve the general shopping experience. One such example, in-store ordering, is discussed below in the 'Stores' section;

· improve how products are presented online.There is an opportunity to make it easier for customers to 'shop' for our clothes. This is closely related to the customer journey point above, but specifically addresses the question of how products are arranged and displayed - an analogy would be that in a bricks and mortar store this would address for example the adjacencies and visual merchandising methods. Improvements have been made during FY17 but there is further opportunity to improve this aspect of the online store; and

· improved the organisational structure.We have made changes to the organisational structure to make it more natural for colleagues to think about the needs of the online store and our physical store estate simultaneously when planning. This had not always happened historically, resulting in an experience for the customer that was not seamless.

Stores

Our store estate provides a good platform from which to grow and is close to being, what we consider to be, an optimal number of stores. We expect to continue to open new stores and concessions in modest numbers. After taking into account stores which we close, we anticipate that the total number of trading sites will increase by approximately 10 per year over the next several years.

Generally, the sizes and locations of our stores continue to be appropriate for our business, the rent levels are sensibly set and lease terms remain flexible. This flexibility enables us to close stores if our requirements change, or if store performances alter, and is a useful defensive strength in a time characterised by some uncertainty over how shopping patterns will affect the shape of retail estates in the medium to long term.

During the year we completed the replacement of the fascias in the remaining 40 stores, having begun a programme covering the whole estate in FY15. All stores now have the new fascia/store-front, with the exception of a small number where, for example, a closure is imminent and there would be no purpose in making the investment.

During the year we have made a number of changes to improve customers' experience of our stores, or to improve their multi-channel experience, and we are excited about the plans in place for FY18, which include:

· online ordering 'proof of concept' trial.Shortly after the year end we introduced a 'proof of concept' trial in 70 stores to test in-store online ordering, through which a store colleague can order an item for a customer if it is not available at that time in the store. This appears to have been a great success, having proved popular with store colleagues and customers alike. On the strength of this trial we will roll this capability out to all the remaining stores during the first half of FY18. This has been enabled by the new EPOS system and the Demandware web platform we implemented during the year;

· restructuring of the retail field team.We completed a major restructure of the retail field team shortly after the year end. The previous structure was too flat and the spans of responsibility were too wide, with one of the main resultant problems being that regional managers were spending too little time in stores supporting/leading the store teams. The new structure addresses this, and has been introduced to coincide with a refocus on getting the basic retail disciplines right: despite the advances in technology and changes in consumer preferences, some things do not change and we had lost some of our focus on these vitally important basics. We expect this initiative to bear fruit in the new financial year;

· monitoring customer footfall.For many years we have wanted to monitor footfall to help us better understand customer behaviour and, in particular, our relative success in converting footfall into sales. We previously lacked the infrastructure to do this but, by utilising in-store connectivity created as part our infrastructure project to prepare stores for the new tills, we have been able to also install footfall cameras. A recent trial has proved that the devices work, and all stores will be thus equipped by the end of September 2017. This will provide a very useful tool to help direct the efforts of the newly refocused retail field teams; and

· effectiveness of window displays.Our window displays should provide inspiration and give customers a reason to visit. Previously, they lacked appeal for our customers, so we have begun to give more attention to this area. The footfall counters should help provide a more tangible measure than we previously had of the success of window displays, and the sharpened focus on retail basics should increase the effectiveness of the execution of the displays.

Systems and processes

Until 2016, aside from the web platform, Bonmarché's IT systems were generally over 10 years old, with the ERP and EPOS system nearer 20 years old. As a result, the systems and the processes surrounding them were out of date, and a great deal of manual work has been needed to operate the business. This has become more challenging in the last several years, as the pace of change in customer demands has increased. We began planning for this in 2013, and last year successfully completed two major projects - the replacement of the EPOS system in stores, and the replacement of the web platform.

In the summer of 2016 we began the next major phase of modernisation, to replace the core ERP system. Broadly, this comprises the financial ledgers and control system, and the stock control system covering all stock movements from source to store.

Historically, new technology has often been the dominant consideration in the context of such IT enabled projects, sometimes to the detriment of equally important organisational considerations. However, this is not the path we are following. We are treating the project as primarily a process of organisational change which is enabled by technology, since the way we work will be so transformed that the process needs to be actively planned, resourced and managed from a wider perspective. To ensure that we execute this successfully, in late 2015, we began to establish a 'Business Change' team. As a business change project, there are three workstreams which are running in parallel, all of which are equally important:

1. technology;

2. functional; and

3. organisational change.

We expect this investment to yield significant benefits, some of which we have referred to in the foregoing sections of the strategy update. The systems will enable improved planning, better visibility of, and access to, data, simpler processes and greater responsiveness and will be a significant step towards multi-channel integration. Ultimately, this should improve customers' experiences as well as making it easier for our colleagues to do their jobs. We expect to begin to realise these benefits during FY19.

The technology platform we have selected is Microsoft's Dynamics AX7 platform (since rebranded 'Dynamics 365 for Operations') in conjunction with K3 Retail's 'ax|is fashion' retail adaptation. We have successfully passed the first major milestone: the implementation of the financial ledgers module, which came into use at the end of April 2017.

To strengthen our governance in this area and provide mentoring to the Business Change team, Mark McClennon joined the Board in April 2016 as an independent Non-executive director. Mark was until recently CIO (Consumer) at Unilever plc, and is currently Global CIO at Burberry plc.

People

The revised head office structure resulting from changes made last autumn has bedded in successfully and we do not anticipate the need for further changes to the overall structure in the coming year. Along with Helen Connolly's appointment, the most significant change in relation to personnel has been the restructure of the retail field teams, described above in the section on stores.

During the year, emphasis has been placed on working in a more effective way, the two main themes of which are:

· to maintain a clear focus on basic operational disciplines (to get the basics right), concentrating on the major tasks which will deliver most value; and

· ensuring that different functions of the business operate cohesively together.

We have overhauled the structure of meetings and have introduced clearly defined key performance indicators which will be used in managing the business.

During this year we will re-launch Bonmarché's vision and mission statements. Our aim in doing this will be to make them more meaningful for colleagues, yet simpler and thus more likely to 'live' as expressions of what we are and how we work.

Outlook

We believe that the challenging clothing market conditions we experienced during FY17 are likely to prevail during the new financial year. Nevertheless the size of our target market is forecast to increase due to the established changes in the demographic makeup of the population and, in our view, this market continues to be under-served. We are confident in our strategy of improving our proposition to customers through a series of developments across all areas of the business, which add up to more than the sum of their parts. Our task and focus for the coming year is therefore to execute this strategy successfully and thereby meet our overriding objective to grow profitable sales by gaining market share.

Trading since the beginning of the new financial year has been in line with the Board's expectations and the financial position of the business continues to be sound, with no net debt and a balance sheet which provides a stable platform for the future.

In line with our previous practice we will issue our first trading update in relation to the current financial year on 27 July 2017, the date of the AGM, at which point we will report on the first quarter's sales.

Helen Connolly Stephen Alldridge

Chief Executive Finance Director

19 June 2017 19 June 2017

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated balance sheet

Consolidated statement of changes in equity

Consolidated statement of cash flows

Reconciliation of net cash flow to movement in net cash

1 Basis of preparation

The financial information, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of cash flows and related notes, does not constitute full accounts within the meaning of s435 (1) and (2) of the Companies Act 2006. The financial information is derived from, and consistent with, the Group's financial statements for the 53 weeks ended 1 April 2017 ('Annual Report 2017') and has been agreed with the auditors for release. The Annual Report 2017 includes an unqualified audit report and does not contain any statement under s498 of the Companies Act 2006. The Annual Report 2017 will be filed with the Registrar of Companies in due course and will be available to shareholders from 23 June 2017.

The Group financial statements have been prepared on the going concern basis and in accordance with IFRS and IFRS Interpretation Committee ('IFRIC') interpretations, as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Group financial statements have been prepared under the historical cost convention, as modified for the revaluation of financial assets and financial liabilities at fair value through profit and loss. The Group financial statements are presented in thousands of Pounds Sterling ('£'000') except when otherwise indicated. Accounting policies have been consistently applied to all financial periods presented. The accounting period of the Group ends on the Saturday falling nearest to 31 March each year. In some years this requires 53 weeks to be reported. The accounting periods in these financial statements are the 52 weeks ended 26 March 2016 and the 53 weeks ended 1 April 2017.

The preparation of the Group financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management's reasonable knowledge of the amount, event or actions, actual results may differ from those estimates.

2 Operating profit

Operating profit is stated after charging / (crediting):

3 Exceptional items

Items that are material either because of their size or nature, or that are non-recurring, are considered as exceptional items and are presented within the line items to which they best relate. The exceptional items as detailed below have been included in administrative expenses in the income statement.

Exceptional items comprise:

Footnotes

a) Training expenses incurred in the period in relation to the implementation of a new EPOS system across the store estate. Other costs in relation to implementing this project have been treated as capital expenditure.

b) Costs relating to the recruitment of the new Chief Executive who joined the Group in August 2016.

c) Legal and professional fees comprise costs incurred in relation to the admission of Bonmarche Holdings plc to the Official List of the London Stock Exchange on 19 October 2015.

4 Taxation

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

Factors that may affect future tax charges:

Further changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 and the Finance Bill 2016. These include a reduction to the main rate to reduce it to 19% from 1 April 2017, and a further reduction to 17% from 1 April 2020.

5 Earnings per share

Basic and diluted earnings per share are calculated by dividing the profit for the year attributable to equity shareholders by the weighted average number of shares in issue.

For the calculation of basic and diluted earnings per share, the weighted average number of shares excludes the general shares held by the Employee Benefit Trust (jointly owned shares held by the Employee Benefit Trust are not excluded). For the calculation of diluted earnings per share only, the weighted average number of shares in issue is further adjusted to assume conversion of all potentially dilutive ordinary shares. These represent the shares granted under the Long Term Incentive Plans.

Underlying earnings per share

The Directors have also chosen to present an alternative earnings per share measure, with profit adjusted for exceptional items, as in their opinion it better reflects the Group's underlying performance. For the purposes of this measure, underlying profit is as follows:

6 Dividends

The Directors have proposed a final dividend of 4.64 pence per share amounting to a dividend of £2.3m in respect of the 53 weeks ended 1 April 2017. It will be paid on 4 August 2017 to shareholders on the register of members as at the close of business on 30 June 2017, subject to approval of shareholders at the Annual General Meeting to be held on 27 July 2017. In line with the requirements of IAS 10 'Events after the reporting period', this dividend has not been recognised within these results.

7 Cash generated from operations

8 Analysis of net cash