Digital fashion retailer N Brown has announced it faces costs of up to £40 million after carrying out a flawed insurance venture.
The specialist retailer, which sold insurance products for several years up to 2014, decided to review the product as a result of the UK Financial Conduct Authority tightening its focus on insurance deals, according to a Financial Times report.
“Following an assessment of the cost of potential customer redress, the Group expects to incur an exceptional cost in this year’s income statement in the range of £35 million to £40 million,” the retailer said in a statement.
“However, the Group anticipates that there may be mitigating actions to reduce the overall net cost. The cashflow impact of this is forecast to occur from FY19 onward, and the Group anticipates funding the full cost of customer redress from existing resources.”
The company has already taken a hit from its shareholders after news of the flawed insurance venture broke. Shares in N Brown have fallen by 8.9% already.
Adam Cochrane, an analyst at UBS, wrote: “This is a legacy issue but clearly highlights the FCA’s focus. In our view, potential areas of concern are that 1) there may be more legacy issues to come; and 2) there is a risk the FCA could look at the profitability of the credit book and whether the interest rate charged by N Brown offers value for money.
“This would depend on the profitability of the book and alternative credit providers. This, we believe, is a key concern for the N Brown group given its materiality to group profits.”
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