FRASERS GROUP PLC 07 July 2016
Sports Direct International plc
Preliminary Results for the Year ended 24 April 2016
Group revenue up 2.5%; Group underlying EBITDA down 0.5%
Year ended 24 April 2016 | Year ended 26 April 2015 | Change (%) | |
£m | £m | ||
Group revenue | 2,904 | 2,833 | 2.5 |
Sports Retail | 2,492 | 2,399 | 3.9 |
Premium Lifestyle | 181 | 208 | -12.7 |
Brands | 232 | 226 | 2.3 |
Group gross margin | 44.2% | 43.8% | 0.4 |
Sports Retail gross margin | 44.6% | 44.6% | 0.0 |
Underlying EBITDA (pre share scheme costs) | 381.4 | 383.2 | -0.5 |
Underlying profit before tax (PBT) | 275.2 | 300.3 | -8.4 |
Reported profit before tax | 361.8 | 313.4 | 15.4 |
Underlying earnings per share (EPS) | 35.5p | 38.9p | -8.7 |
Reported earnings per share | 46.8p | 40.6p | |
Net debt | 99.6 | 59.7 |
Key highlights
· Sports Retail revenue increased by 0.6% (excluding Heatons)
· Sports Retail like-for-like stores gross contribution decreased by 0.8% (FY15: 7.4%)
· Underlying profit before tax decreased by 8.4% to £275.2m
· Underlying earnings per share decreased by 8.7% to 35.5p
· Underlying free cash generation of £309.1 m
· Net debt increased to £99.6m (£59.7m at 26 April 2015)
· Continued roll out of large format 'Key Location Doors'
· Latest phase of ongoing Shirebrook campus development now complete
· Completed the acquisition of remaining 50% of the Heatons Irish business
· Continued investment in inventory and strategic stakes while maintaining a strong balance sheet
Dave Forsey, Chief Executive, said:
'The Group has delivered a disappointing full year financial performance, impacted primarily by a tough trading environment in the second half across our sports retail businesses.
Our continued investment in upgrading and relocating stores, including Key Location Doors such as Leeds and Plymouth, has been well received by our leading third party suppliers.
Unfortunately our disappointing results have meant that the Group has not achieved the first EBITDA target set by the 2015 Share Scheme, which is a key long term share-based incentive scheme that rewards eligible staff for their hard work and commitment, and is based on the achievement of four consecutive full year EBITDA targets. This is very disappointing as the Share Scheme is a significant part of our high performance and reward culture, and we are working to replace this arrangement with a new incentive scheme to continue to reward our people for their commitment and performance.
I would like to thank all of our people for being part of the Sports Direct team in what has been a particularly tough year for the Group. Thank you for all your hard work this year and in the past, and I look forward to our future achievements.'
(1) | Underlying EBITDA, underlying profit before taxation and underlying EPS exclude realised foreign exchange gains/losses in selling and administration costs, exceptional costs and the profit/loss on sale of strategic investments. Underlying EBITDA also excludes the Share Scheme charges. | ||
(2) | Underlying free cash generation is defined as operating cash flow before working capital, made up of underlying EBITDA (before Share Scheme costs) plus realised foreign exchange gains and losses, less corporation tax paid. | ||
(3) | Net debt is borrowings less cash held. | ||
Sports Direct International plc Dave Forsey, Chief Executive Matt Pearson, Acting Chief Financial Officer | T: 0344 245 9200 | ||
KBA PR Keith Bishop | T: 0207 734 9995 | ||
CHAIRMAN'S STATEMENT
Overview
The Group's financial performance has been disappointing in what has been a considerably tough year for trading and external attention on the business. With this performance, it is with regret that I note that we did not achieve the FY16 EBITDA target of £420m in relation to the Group's 2015 Share Scheme for eligible employees. The Board and Executive Directors are currently working on developing of a new incentive scheme to replace this, and ahead of this I would like to thank all of our people for their continued hard work and commitment during what has been a difficult time.
Our values and people
Sports Direct has been built on the expertise and passion of our people from day one. The Group's values are: operating as one team; planning for success; striving to lead and energise others; doing things the right way; creating a good impression; wowing our customers; and, delivering results. Our values and the development of our people have underpinned our high performance and high reward culture, which has driven the Group's success since it was founded in 1982.
During the year the Group received serious criticism regarding some of its workplace practices, particularly in relation to its agency workers in the warehouse of the Group's Shirebrook campus, which we have taken very seriously. The Board made it a priority to undertake a review of what was raised and from the preliminary findings, a number of measures were put in place to address the concerns. These included an increase in pay for the Group's directly employed UK employees and directly engaged casual workers from being on the National Minimum Wage to being above the National Minimum Wage from 1 January 2016. This was implemented without any reduction in existing benefits.
Since the end of FY16, the Group's Executive Deputy Chairman, Mike Ashley, has given evidence to the Business, Innovation and Skills (BIS) Select Committee regarding the assertions made in relation to the Company's workplace practices. The business has set in motion a review of the specific concerns.
Additionally following year end, the Board was informed of the decision of the Chief Executive, Dave Forsey, to forego the vesting of 1 million shares due to him in September 2017 under the 2011 Share Scheme. At the time of the announcement this represented a value of approximately £3.6m. The Board believes that this decision is very much reflective of the Executive Directors sharing risk with shareholders and taking responsibility for results that fell short of their expectation.
Strategic acquisitions and investments
The Board remains committed to our organic and inorganic growth strategy, and will continue to maintain an appetite for strategic opportunities alongside the work being conducted on the review of the Group's people strategy.
The Group's acquisition and investments strategy, parameters and decision-making is performed by the Board, and delegated at a certain materiality level to be performed by the Executive Directors within the agreed strategy. The Group is focused on opportunities that will deliver extensions or enhancements to our customer offering, broaden or enhance our commercial relationships, broaden or enhance our retail channels, selectively grow our market share, further diversify our operations, further expand our gross margin, and/or deliver operational efficiencies. Given the breadth of our business, our strategic benefits can be varied and extensive, and the Group employs an array of mechanisms to facilitate strategic discussions with potential partners towards varied strategic goals.
This year we were pleased to announce the acquisition of the Heatons business in Northern Ireland and the Republic of Ireland, which will build upon the Group's existing relationship with Heatons and strengthen our presence in one of the fastest growing economies in Europe. We also announced the extension of our strategic investment interest in Debenhams Retail plc ('Debenhams'). Through this investment interest we have developed a commercial relationship with Debenhams and currently have 9 concessions throughout Debenhams stores, which provide mutual benefits for both parties.
Potential share buyback
Further to the authority to repurchase shares granted by the Company's shareholders at its 2015 Annual General Meeting, and in light of current volatility in equity markets, the Company is announcing that it is considering commencing a share buyback, the purpose of which would be to reduce its share capital.
Mike Ashley's shareholding
In response to repeated press speculation about his intentions with regards to his shareholding in Sports Direct, Mike Ashley has confirmed to the board of directors that he has no current intention of taking the Company private, and has indicated his willingness for the Company to confirm this statement publicly.
Dividend
The Board has decided not to propose a dividend in relation to FY16. The Board remains of the opinion that it is in the best interests of the Group and its shareholders to preserve financial flexibility, facilitating future investments and other growth opportunities. The payment of dividends remains under review.
Dr. Keith Hellawell. QPMNon-Executive Chairman
07July 2016
chief executive's report and business review
Summary of Results
Year ended 24 April 2016 | Year ended 26 April 2015 | Change | ||
(£m) | (£m) | % | ||
Revenue | 2,904.3 | 2,832.6 | 2.5 | |
Underlying EBITDA | 381.4 | 383.2 | -0.5 | |
Underlying profit before tax | 275.2 | 300.3 | -8.4 | |
Reported profit before tax | 361.8 | 313.4 | 15.4 | |
Pence per share | Pence per share | |||
Underlying EPS | 35.5 | 38.9 | -8.7 | |
Reported EPS | 46.8 | 40.6 | 15.3 |
The Directors believe that underlying EBITDA, underlying profit before tax and underlying earnings per share provide more useful information for shareholders on the underlying performance of the business than the reported numbers and are consistent with how business performance is measured internally. They are not recognised profit measures under IFRS and may not be directly comparable with 'adjusted' profit measures used by other companies.
EBITDA is earnings before investment income, finance income and finance costs, tax, depreciation and amortisation and, therefore, includes the Group's share of profit from associated undertakings and joint ventures. Underlying EBITDA is calculated as EBITDA before the impact of foreign exchange, any exceptional or other non-trading items and costs relating to the Share Scheme.
Overview of financial performance
In the midst of a tough trading environment, particularly in the second half, the Group has achieved a disappointing financial result for FY16 with underlying EBITDA largely flat on FY15.
Group revenue increasing by 2.5% to £2,904.3m in the year. This was primarily due to the increase in Sports Retail revenue of 3.9% to £2,491.6m, which includes the impact of the acquisition of the remaining 50% of the Heatons business during the year, and the increased store footprint. Premium Lifestyle revenue fell by 12.7%, largely due to the closure of loss-making stores in the period, and revenue was up 2.3% in Brands, with increases in both wholesale and licensing.
Group gross margin in the year increased by 40 basis points from 43.8% to 44.2%. Sports Retail maintained the previous year's gross margin at 44.6%, while the Brands division gross margin increased by 180 basis points from 40.3% to 42.1%, and Premium Lifestyle's gross margin increased by 330 basis points from 38.8% to 42.1%, which was largely due to discounting and clearance of stock in the prior year. We expect gross margin to be impacted significantly by negative movements in exchange rates in FY17 and beyond, given the recent movements in the US dollarcompared with the pound.
Group operating costs increased by 5.3% to £905.7m (FY15: £860.5m), as a result of completion of the Shirebrook campus and associated increased costs, the part year impact of the Group's decision to increase wages from the National Minimum Wage to above the National Minimum Wage for directly employed UK employees and directly engaged casual workers, and the impact of acquisitions.
As a result, Group underlying EBITDA (pre-Share Scheme costs) for the year was down 0.5% to £381.4m (FY15: £383.2m). Sports Retail underlying EBITDA was down 2.2% to £349.0m (FY15: £356.8m), while the Premium Lifestyle and Brands division underlying EBITDA increased to -£5.1m and £37.5m respectively (FY15: -£7.7m and £34.1m). The Premium Lifestyle division achieved a breakeven Underlying EBITDA result in 2H FY16.
Excluded from underlying EBITDA is a £7.1m (FY15: £10.1m) charge in respect of the 2011 Share Scheme. This charge has been taken centrally and is not reflected in the divisional numbers in this report.
The depreciation charge has increased by 41.0% to £95.6m (FY15: £67.8m) due to the acquisition of the controlling interest in Heatons and increased investment in our store portfolio.
Group underlying profit before tax decreased 8.4% to £275.2m, due to lower EBITDA and higher depreciation charges. In line with this movement, underlying EPS for the year decreased by 8.7% to 35.5p (FY15: 38.9p).
The Group generated underlying free cash flow during the year of £309.1m, up from £301.8m in the prior year, and net debt increased by £39.9m to £99.6m at year end as a result of investment in inventory, freehold property and the acquisition of Heatons. Net debt currently stands at 0.31 times reported EBITDA (26 April 2015: 0.16 times).
Review by business segment
Year ended 24 April 2016 (£m) | Year ended 26 April 2015 (£m) | Change % | ||
Retail | ||||
Revenue: | ||||
Sports Retail | 2,491.6 | 2,398.6 | 3.9 | |
Premium Lifestyle | 181.2 | 207.6 | -12.7 | |
Total retail revenue | 2,672.8 | 2,606.2 | 2.6 | |
Cost of sales | (1,485.7) | (1,456.6) | ||
Gross profit | 1,187.1 | 1,149.6 | ||
Gross margin percentage | 44.4 | 44.1 | ||
Year ended 24 April 2016 (£m) | Year ended 26 April 2015 (£m) | Change % | ||
Brands | ||||
Revenue: | ||||
Wholesale | 196.7 | 193.3 | 1.8 | |
Licensing | 34.8 | 33.1 | 5.1 | |
Total brands revenue | 231.5 | 226.4 | 2.3 | |
Cost of sales | (134.0) | (135.2) | ||
Gross profit | 97.5 | 91.2 | ||
Gross margin percentage | 42.1 | 40.3 |
Sports Retail
Revenue grew 3.9% to £2,491.6m, largely as a result of the acquisition of Heatons during the year. Excluding the impact of Heatons, Sports Retail revenue growth was broadly flat at 0.6%.
Sports Retail gross margin for the second half of the year decreased to 43.6% (FY15 H2: 44.6%) due to discounting required to clear excess winter stock. The margin for FY17 is expected to be affected by adverse foreign exchange movements.
Sports Retail like-for-like gross contribution, which excludes online sales, decreased by 0.8% compared to the prior year. The number of stores included in this year's KPI is 531 (FY15: 432).
Operating expenses increased by 2.6% excluding the impact of Heatons, and 6.9% including the impact of Heatons in the year, to £764.4m (FY15: £715.2m). Store wages were up 4.7% in the year to £250.5m (FY15: £239.2m) but as a percentage of sales remained at 10.0% (FY15: 10.0%). The aggregate wages expense increase included approximately 4 months' impact of the expected annualised increase in costs of c. £10m as a result of the increase in wages for all directly employed UK employees and directly engaged casual workers.
Underlying EBITDA for Sports Retail was £349.0m (FY15: £356.8m), a decrease of 2.2% for the year.
During the year we opened 60 new stores in eleven countries, as well as completing the acquisition of Heatons which operates 15 Sports Direct stores in Northern Ireland and 27 sports stores in the Republic of Ireland . We also own a 40% shareholding in the Sports Direct business in Iceland.
During the period the Group impaired the goodwill relating to the acquisition of our Austrian subsidiary due to its recent trading being below expectations. Converting the former Eybl megastores is taking longer than expected and the lost revenue in certain categories is also proving harder to replace than expected.
Period end square-footage now stands at c.8.25m sq. ft.(1) (FY15: c.7.75m), excluding Heatons.
SPORTS STORE PORTFOLIO
24 April 2016 | 26 April 2015 | |
England | 393 | 381 |
Scotland | 35 | 34 |
Wales | 30 | 25 |
Northern Ireland | 15 | 0 |
Austria | 42 | 46 |
Republic of Ireland | 27 | 0 |
Belgium | 41 | 43 |
Estonia | 25 | 24 |
Latvia | 14 | 13 |
Lithuania | 14 | 12 |
Portugal | 17 | 17 |
Slovenia | 15 | 15 |
Poland | 15 | 10 |
France | 6 | 7 |
Czech Republic | 7 | 6 |
Holland | 6 | 6 |
Cyprus | 6 | 6 |
Hungary | 13 | 5 |
Slovakia | 5 | 4 |
Germany | 3 | 3 |
Luxembourg | 2 | 2 |
Spain | 2 | 1 |
Switzerland | 0 | 1 |
Total | 733 | 661 |
Opened | 60 | 39 |
Closed | 29 | 16 |
Area (sq. ft.) | c.8.25m | c.7.75m |
(1) Excluding Iceland
(2) Includes only stores with SPORTSDIRECT.com and Sportland fascias
All of the above stores are operated by companies wholly owned by the Group, except Portugal, where the Group owns 50.1% and Estonia, Latvia and Lithuania where the Group owns 60.0%.
Premium Lifestyle
Premium Lifestyle sales decreased 12.7% to £181.2m (FY15: £207.6m), due to the closure of loss-making stores in the year. The Premium Lifestyle gross margin for the year increased by 330 basis points to 42.1% (FY15: 38.8%) as a result of the clearance of legacy stock in the prior year.
Premium Lifestyle operating costs decreased by 7.8% to £81.3m (FY15: £88.2m) due to the continued rationalisation of the USC and Republic businesses and synergies gained by the consolidation of key head office functions in Flannels, Cruise and Van Mildert and the integration of the distribution function.
We continue to strengthen our relationships with key third party suppliers and have introduced several new brands in the period. Growth at Cruise, Flannels and Van Mildert also reflects the Group's buying disciplines and online expertise.
The Underlying EBITDA loss for Premium Lifestyle decreased to £5.1m (FY15: £7.7m loss) and achieved breakeven in 2H FY16, as we continue to see the benefit of rationalisation of the businesses. We expect to see further benefits of this in future years.
At the year end, the Premium Lifestyle division traded from 83 stores under four main fascias:
24 April 2016 | 26 April 2015 | |
USC | 50 | 66 |
Cruise | 10 | 10 |
Van Mildert | 9 | 10 |
Flannels | 9 | 8 |
Other | 5 | 9 |
Total | 83 | 103 |
Brands
The Brands portfolio includes a wide variety of world-famous sport and lifestyle brands. The Group's Sports Retail division sells products under these Brands in its stores, and the Brands division sells the brands through its wholesale and licensing activities. The Brands division continues to sponsor a variety of prestigious events and retains a variety of globally-recognised, high-profile celebrities and sporting professionals as brand ambassadors.
The Brands division's total revenue increased by 2.3% to £231.5m (FY15: £226.4m). Wholesale revenues were up 1.8% to £196.7m (FY15: £193.3m), including growth in the challenging UK market. Trading in the US market was in line with expectations and continues to represent c.20% of total wholesale sales.
Brands gross margin increased by 180 basis points to 42.1% (FY15: 40.3%). Wholesale gross margins increased 180 basis points to 31.9% (FY15: 30.1%) largely due to a shift in the sales mix away from lower margin lines.
Licensing revenues in the year were up 5.1% to £34.8m (FY15: £33.1m). During the year we signed 35 new licence agreements and renewed several existing licensees, covering multiple brands, product categories and geographies, with minimum contracted values of $15.5m over the life of the agreements.
Longer term, we still regard licensing as the key driver of the Brands division's profitability and central to the overall growth of the Brands business. The key growth areas are expected to include Australasia and Asia Pacific.
Brands operating costs increased by 5.3% to £60.0m (FY15: £57.0m) primarily due to increased bad debt costs in the year. Underlying EBITDA increased by 10.0% to £37.5m (FY15: £34.1m).
Outlook
Trading since the start of May and leading up to the EU referendum was broadly in line with management expectations albeit with the continued volatility seen in the wider retail sector. Since the EU vote we expect the current political uncertainty, and potential weakness in the UK's short to medium term economic outlook, is likely to act as a continuing drag on consumer confidence. When combined with the structural difficulties for UK retailers, including high street footfall, and our exposure to the weakness of the pound against the US dollar (as announced on 24 June 2016), these factors make the current outlook for FY17 somewhat uncertain and therefore hard to predict.
We shall continue to focus on delivering an enhanced retail offering for our customers through an expanded product range and availability as well as optimising our online capability to benefit the overall Group performance. Furthermore we will continue to invest for the future by upgrading and relocating stores and working closely with our key third party brand partners on our assortment and new generation concept stores.
We will continue to update the market on FY17 performance as the situation becomes clearer.
Key Performance Indicators
The Board monitors the performance of the Group by reference to a number of key performance indicators (KPIs), which are discussed in this Chief Executive's Report and in the Financial Review. The most important of these KPIs are:
52 weeks ended 24 April 2016 | 52 weeks ended 26 April 2015 | 52 weeks ended 27 April 2014 | |
Financial KPIs | |||
Group revenue | £2,904.3m | £2,832.6m | £2,706.0m |
Underlying EBITDA | £381.4m | £383.2m | £331.1m |
Sports Retail gross margin | 44.6% | 44.6% | 42.9% |
Sports Retail like-for-like stores gross contribution | -0.8% | +7.4% | +10.5% |
Online revenue as a percentage of total Sports Retail revenue | 17.4% | 16.5% | 15.1% |
Underlying earnings per share | 35.5p | 38.9p | 32.1p |
Non-financial KPIs | |||
No. of Sports Retail stores | 733 | 661 | 629 |
Workforce turnover | 22.0% | 18.7% | 19.2% |
Cardboard recycling | 10,000 tonnes | 9,526 tonnes | 9,230 tonnes |
The method for calculating underlying EBITDA is set out in the Financial Review.
Sports Retail like-for-like contribution is defined as the percentage change in gross contribution in the successive 12 month period. A like-for-like store is one that has been trading for the full 12 months in both periods and has not been affected by a significant change, such as a major refurbishment.
Excludes wholesale revenue.
The method for calculating underlying earnings per share is set out in the Financial Review.
Excluding associates and stores in the Baltics states that trade under fascias other than SPORTLAND or SPORTSDIRECT.com. Includes Heatons group now 100% owned.
Operational Review
The Group's strategic focus is to deliver sustainable growth for our shareholders in the medium to long term. Below we have outlined the progress on the Company's strategic initiatives for FY16.
Strategic acquisitions and investments
During the year we completed the acquisition of the Heatons business in Northern Ireland and the Republic of Ireland for a consideration of €48.0m. The acquisition will build upon the Group's existing relationship with Heatons and strengthen our presence in the Republic of Ireland. Additionally during the year we also acquired a standalone gym in West London to add to our Sports Retail Fitness division.
Completion of our Shirebrook campus
In late 2015 the Group completed the latest phase of our ongoing Shirebrook campus development, our National Distribution Centre, which added an additional c. 700,000 sq. ft. warehouse and office space to the site. The extension has enhanced our supply chain and distribution capabilities; the Group's online capacity; improved our office space and ability to bring teams together to benefit from co-location; and enhanced our training environment for staff, with an International Training Academy supported by Nike and Puma located on site. The additional office space has also enabled us to incorporate more office space for third party brand partners to help us to continue to work closely together on building a better business.
Developing our stores and in-store customer experience
Consistent with our plans in FY15, this year we have focused on re-locating, re-configuring and upgrading our store portfolio across all of our fascias and geographies to enhance the customer experience.
We have continued our focus on growing our larger format stores, our key location doors, and this year we opened Leeds and Plymouth, and we recently announced the acquisition of the freehold property at 161-167 Oxford Street, London. This property, once redeveloped, will operate as a flagship site in London for a 20,000 sq. ft. Flannels.com store and 20,000 sq. ft. of prestige office space.
Our key location stores enable us to construct exceptional visual merchandising and specialist performance areas, often in partnership with leading third-party brand partners, creating an inspiring store experience for our customers, and a rewarding experience for our third-party brand partners. With this investment in stores, we expect to be able to offer our customers even more in premium ranges from leading global brands as well as the Group's 'better' and 'best' branded products, as part of our commitment to offer the broadest range of brands in our stores and online.
With the acquisition of Heatons completed during the year, the Group plans a substantial investment in the Heatons store portfolio over the coming years to enhance the sports offering and continue to develop the store experience.
Extending the Fitness Division
During the year we opened twogyms which were co-located with SPORTSDIRECT.com retail stores in Newport and St Helens. The gyms offer membership value consistent with SPORTSDIRECT.com. This is a proactive strategy to capture market share in the low cost fitness market and to generate synergies from co-locating our gym and retail offering, given the natural lifestyle fit.
Enhancing our online offering
Online is a growing channel for the Group and we have always maintained discipline to ensure that this channel is profitable. In FY16 we made a number of enhancements to our websites, which included improved search capabilities, optimisation of the speed of the platform, enhancing the platform for mobile and tablet devices, and improvements in security and data protection. We have also fully integrated the SPORTSDIRECT.com website with social media channels, to execute partner marketing initiatives, and developed an additional 14 non UK local websites, to facilitate demand and complement our stores in these countries.
Building our world famous brand portfolio
The Group is dedicated to enhancing our brands' value, and during the year we successfully appointed internationally-recognised celebrities and sporting professionals as brand ambassadors, as well as announcing that Slazenger had secured a further 3-year partnership with The Championships, Wimbledon during the year, a relationship that has stood for 114 years, the longest relationship of its kind in sporting history.
Slazenger was also excited to announce that 4-time Olympic Medallist swimmer Rebecca Adlington and cricket player Jason Roy had joined as brand ambassadors, and British Snowboarder and GB Olympian Billy Morgan was secured to fly the flag for No Fear which is expected to be a great partnership.
USA Pro's partnership with world-famous girl band, Little Mix, was announced during the year and we are set to launch a co-branded range which is expected to be in-stores in FY17.
Growing our licensing relationships
Our strategic focus for our brands remains on growing our licensing partners, having signed 35 new license agreements in FY16, as well as renewals of existing licensees with contracted minimum royalties of $15.5m over the life of the contracts. We expect to maintain our presence in our current markets, and will focus on growing our presence and licensing partners in Asia and Australia.
Increasing our wages for our UK workforce
During the initial review of the Group's workplace practices in its Shirebrook warehouse undertaken by the Board, in December 2015 the Group determined to increase the wages of directly employed UK employees and directly engaged casual workers from being on the National Minimum Wage, to being above the National Minimum Wage, from 1 January 2016, resulting in an annualised cost increase of c. £10m.
Engaging with local communities
The Company and our Brands engage at various levels with the local communities in which we operate, and in relation to our Shirebrook campus, we continue to actively work with the Shirebrook Forward NG20 working group, which aims to help Shirebrook and the surrounding towns to retain its community spirit, its breadth of services, and help local support functions in community initiatives.
Dave Forsey
Chief Executive
07 July 2016
FINANCIAL REVIEW
The financial statements for the Group for the year ended 24 April 2016 are presented in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
EBITDA and Profit Before Tax
EBITDA | PBT | |
£m | £m | |
Operating profit | 223.2 | |
Depreciation and amortisation | 95.6 | |
Share of profit of associated undertakings (excl. FV adjustments) | 2.4 | |
Reported | 321.2 | 361.8 |
Share scheme | 7.1 | - |
Exceptional items | 50.8 | 50.8 |
Investment Income | - | (146.5) |
RealisedFX loss | 2.3 | 2.3 |
IAS 39 FX fair value adjustment to forward currency contracts | - | 6.8 |
Underlying | 381.4 | 275.2 |
Underlying 52-week FY16 profit before tax excludes:
(i) exceptional items which decreased profit by £50.8m;
(ii) Investment Income which increased profit by £146.5m;
(iii) realised foreign exchange losses which decreased profit by £2.3m; and
(iv) IFRS revaluation of written options which decreased profit by £6.8m.
Foreign exchange
The Group manages the impact of currency movements through the use of forward fixed rate currency purchase and sales contracts. The Group's strategy is to hold or hedge up to five years of anticipated Euro denominated sales and US dollar purchases.
Following the outcome of the EU referendum, we are aware of the associated market volatility and in particular material changes to sterling / dollar and sterling/Euro exchange rates, and the lack of transparency as to how those rates will move in the short to medium term. These factors are likely to impact US dollar purchases and therefore profitability for which the Company is currently not hedged for the FY17 period and beyond.
There is also a potential exposure in relation to the Euro forward sales contracts and written option arrangements that the group is party to although we would highlight that the contracted rates on the forward contracts are favourable to underlying Euro/sterling rates experienced during FY16.
As at 24th April 2016 the Group was party to €840m of euro sale forward contracts that qualify for hedge accounting and €840m of written currency option contracts that do not. The contracted forward rates for these instruments are shown in the notes to the financial statements.
The forward contracts will be covered by our forecast Euro denominated on-line sales over the 4 year period of cover in place. Sales that we make over and above the covered amount, and existing surplus Euros within the business will mitigate the risk associated with the written currency options.
If sterling depreciates by 10% against the euro, a fair value loss of £65m would be recognized in the income statement in relation to these option contracts.
The realised exchange loss of £2.3m (FY15: £3.7m loss) included in administration costs has arisen from:
a) accepting Dollars and Euros at the contracted rate; and
b) the translation of Dollar and Euro denominated assets and liabilities at the period end rate or date of realisation.
The exchange loss of £6.8m (FY15: £7.2m gain) included in finance costs substantially represents the increase in the mark-to-market liability made (under IFRS) for the Group's unhedged written option contracts as at 24 April 2016. A number of the forward contracts outstanding at 24 April 2016 qualify for hedge accounting and the fair value loss on these contracts has been debited to equity through the Consolidated Statement of Comprehensive Income. The Sterling exchange rate with the US Dollar was $1.502 at 26 April 2015 and $1.440 at 24 April 2016. The sterling exchange rate with the Euro was 1.392 at 26 April 2015 and 1.283 at 24 April 2016.
Given the potential impact of commodity prices on raw material costs, the Group may hedge certain input costs, including cotton, crude oil and electricity.
Finance costs
Year ended 24 April 2016 | Year ended 26 April 2015 | |
(£m) | (£m) | |
Interest on bank loans and overdrafts | (7.5) | (6.7) |
Interest on other loans | (0.6) | (0.2) |
Interest on retirement benefit obligations | (0.4) | (0.6) |
Fair value adjustment to written currency option contracts | (6.8) | - |
(15.3) | (7.5) |
The increase in interest payable is a result of the increased use of the revolving credit facility.
The fair value adjustment to written currency option contracts relates to differences between the fair value of the written options that do not qualify for hedge accounting.
Exceptional items
Year ended 24 April 2016 | Year ended 26 April 2015 | |
(£m) | (£m) | |
Profit on sale of freehold properties | 13.5 | 10.3 |
Provision against receivables and other | (5.8) | - |
Impairment, accelerated depreciation and amortisation | (58.5) | (13.3) |
(50.8) | (3.0) |
The profit on disposal of freehold property relates to the sale of a freehold property for £44m, realising a profit of £13.5m. In the prior year, the profit on disposal related to the sale of a warehouse.
The impairment mainly relates to goodwill in our Austrian business, reported within our Sports Retail segment, due to recent trading being below expectations. Converting the former Eybl megastores is taking longer than expected and the lost revenue in certain categories is also proving harder to replace than expected. Other impairments relate to certain brands that had been acquired a number of years ago.
The provision against receivables mainly relates to a funding loan made to an associate on acquisition of the initial stake.
Taxation
The effective tax rate on profit before tax in FY16 was 22.9% (FY15: 23.0%). This rate reflects depreciation on non-qualifying assets and overseas earnings being taxed at a higher rate than the UK corporate tax rate.
Earnings
Year ended 24 April 2016 | Year ended 26 April 2015 | Change | ||
pence per share | pence per share | % | ||
Reported EPS (Basic) | 46.8 | 40.6 | 15.3 | |
Underlying EPS | 35.5 | 38.9 | (8.7) | |
Weighted average number of shares (actual) | 592,573,254 | 592,294,371 |
Basic earnings per share (EPS) is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the actual financial period. Shares held in Treasury and the Employee Benefit Trust are excluded from this figure.
The underlying EPS reflects the underlying performance of the business compared with the prior year and is calculated using the weighted average number of shares. It is not a recognised profit measure under IFRS and may not be directly comparable with 'adjusted' profit measures used by other companies.
The items adjusted for arriving at the underlying profit after tax and minority interests is as follows:
Year ended 24 April 2016 | Year ended 26 April 2015 | |
(£m) | (£m) | |
Profit after tax | 277.4 | 240.4 |
Post tax effect of adjustment items: | ||
Profit on disposal of listed investments | (104.5) | (2.8) |
Impairment of fixed assets | 4.4 | - |
Fair value adjustment to forward foreign exchange contracts | 5.2 | (12.5) |
Fair value adjustment to derivative financial instruments | (8.4) | - |
Realisedloss/(gain) on forward foreign exchange contracts | 1.8 | 2.9 |
Profit on disposal of freehold properties | (10.4) | (7.9) |
Impairment and accelerated depreciation and amortisation | 45.2 | 10.2 |
Underlying profit after tax | 210.7 | 230.3 |
Dividends
The Board has decided not to propose a dividend in relation to FY16. The Board remains of the opinion that it is in the best interests of the Group and its shareholders to preserve financial flexibility, facilitating future investments and other growth opportunities. The payment of dividends remains under review.
Capital expenditure
During the year, capital expenditure amounted to £207.1m (FY15: £100.3m), which includes £115.3 on freeholds and construction costs for our Shirebrook warehouse.
Acquisitions
During the year the Group acquired the remaining 50% of the share capital of Warnambool Ltd, the holding company for the Heatons business in the Republic of Ireland and Northern Ireland.
Strategic investments
During the year the Group disposed of c.11.6m shares in JD Sports Fashion plc, at the year-end it held a 5.4% stake (inclusive of economic interest).
The maturity date of the Put Option put in place on 23 January 2015 referencing 128,927,113 ordinary shares of Debenhams (representing 10.5 per cent of the issued share capital of Debenhams) has been extended by twelve months post year-end.
During the year the Group acquired 16.4m shares and an economic interest in Findel plc, and disposed of 1.5m shares during the year. At the year-end the Group held a stake of 29.9% (inclusive of economic interest).
In January 2016 the Group acquired c.2m shares (including an economic interest) in Dicks Sporting Goods Inc., representing c.2% of the issued share capital of Dicks Sporting Goods (inclusive of economic interest).
During the year the Group obtained economic interest in 6.9m shares in Iconix Brand Group Inc, representing 14.3% of the issued share capital.
The fair value of the Group's share holdings at 24 April 2016 was £193.4m (26 April 2015: £140.8m). The movement in the fair value of the shares held has been recognised directly in Other Comprehensive Income.
These stakes allow us to develop relationships and commercial partnerships with the relevant retailers and assist in building relationships with key suppliers and brands.
The fair value of equity derivative agreements is included within the derivative financial assets balance of £82.5m.
Cash flow and net debt
Net debt increased by £39.9m from £59.7m at 26 April 2015 to £99.6m at 24 April 2016.
The analysis of debt at 24 April 2016 was as follows:
At 24 April 2016 | At 26 April 2015 | |
(£m) | (£m) | |
Cash and cash equivalents | 233.7 | 78.3 |
Borrowings | (333.4) | (138.0) |
Net debt | (99.6) | (59.7) |
During the year the Group utilised the accordion option under its £688m revolving credit facility ('RCF'). As a result, the revolving credit facility has been increased from £738m to £788m. The facility is available until September 2018 and is not secured against any of the Group's fixed assets.
Under the terms of the RCF, the interest rate payable by the Group increases if it is more than one third drawn (i.e. more than £263 million). Previously, when the Group has required borrowing in excess of this amount, it had utilised its £250 million loan facility ('MALF') with Mike Ashley/Mash Holdings Limited. The rate of interest payable on this facility was c.50% lower than that payable on the RCF, and does not attract arrangement fees or commitment fees. Accordingly, although an unusual arrangement for a public company, using this facility in this way was a significant benefit to the Group, over time giving rise to a saving of over £1 million.
Further to the Company's announcement on 26 February 2016, the MALF has not been renewed.
The Group continues to operate well within its banking covenants and the Board remains comfortable with the Group's available headroom.
Cash flow
Total movement is as follows:
At 24 April 2016 | At 26 April 2015 | |
(£m) | (£m) | |
Underlying 52 week EBITDA | 381.4 | 383.2 |
Realised(loss)/profit on forward foreign exchange contracts | (2.4) | (3.7) |
Taxes paid | (69.9) | (77.7) |
Underlying free cash flow | 309.1 | 301.8 |
Invested in:-
Movement in inventory | (155.4) | 49.3 |
Working capital and other | (88.0) | (114.1) |
Acquisitions (including debt) | (33.1) | (3.8) |
Net proceeds from/(purchase of) investments | 92.1 | 4.1 |
Net capital expenditure | (163.1) | (79.1) |
Finance costs and other financing activities | (1.5) | (5.9) |
Decrease / (increase) in net debt | (39.9) | 152.3 |
The increase in working capital is partly to support the growth of Sports Retail and the online business and partly due to the timing of payments around year end.
Pensions
The Group operates a number of closed defined benefit schemes in the Dunlop Slazenger companies and a defined benefit scheme in Sport Eybl Holding Gmbh. The net deficit in these schemes decreased from £14.9m at 26 April 2015 to £13.1m at 24 April 2016.
Matt Pearson
Acting Chief Financial Officer
07 July 2016
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 24 APRIL 2016
Year ended |
Year ended | ||
Notes | £'000 | £'000 | |
Revenue | 2 | 2,904,325 | 2,832,560 |
Cost of sales | (1,619,681) | (1,591,748) | |
Gross profit | 1,284,644 | 1,240,812 | |
Selling, distribution and administrative expenses | (1,019,492) | (950,526) | |
Other operating income | 11,137 | 8,345 | |
Profit / (Loss) on foreign exchange contracts | (2,352) | ||
Exceptional items | 3 | (50,759) | (3,050) |
Operating profit | 2 | 223,178 | 295,581 |
Other investment income | 148,148 | 14,104 | |
Finance income | 3,362 | 8,289 | |
Finance costs | (15,330) | (7,487) | |
Share of profit of associated undertakings and joint ventures | 2,449 | 2,959 | |
Profit before taxation | 361,807 | 313,446 | |
Taxation | 4 | (82,826) | (72,093) |
Profit for the period | 2 | 278,981 | 241,353 |
Attributable to: | |||
Equity holders of the Group | 277,415 | 240,397 | |
Non-controlling interest | 1,566 | 956 | |
Profit for the period | 2 | 278,981 | 241,353 |
Earnings per share attributable to the equity shareholders
Pence per share | Pence per share | ||
Basic earnings per share | 5 | 46.8 | 40.6 |
Diluted earnings per share | 5 | 45.5 | 39.0 |
Underlying basic earnings per share | 5 | 35.5 | 38.9 |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 24 APRIL 2016
Year ended |
Year ended | ||
Notes | £'000 | £'000 | |
Profit for the period | 2 | 278,981 | 241,353 |
Other comprehensive income | |||
Items that will not be reclassified subsequently to profit or loss | |||
Actuarial (losses) / gains on defined benefit pension schemes | (5) | (2,493) | |
Taxation on items recognised in other comprehensive income | 34 | 524 | |
Items that will be reclassified subsequently to profit or loss | |||
Exchange differences on translation of foreign operations | 12,404 | 9,156 | |
Exchange differences on hedged contracts - recognised in the period | (5,685) | 77,181 | |
Exchange differences on hedged contracts - reclassified and reported in net profit | (63,679) | 7,240 | |
Exchange differences on hedged contracts - tax taken to hedging reserve | 16,376 | (17,728) | |
Fair value adjustment in respect of available-for-sale financial assets | 115,281 | 21,893 | |
Fair value adjustment in respect of available-for-sale financial assets | (106,168) | - | |
Taxation on items recognised in other comprehensive income | (1,837) | - | |
Other comprehensive income for the period, net of tax | (33,279) | 95,773 | |
Total comprehensive income for the period | 245,702 | 337,126 | |
Attributable to: | |||
Equity holders of the Group | 244,136 | 336,170 | |
Non-controlling interest | 1,566 | 956 | |
245,702 | 337,126 | ||
CONSOLIDATED BALANCE SHEET AS AT 24 APRIL 2016
24 April |
26 April | ||
Notes | £'000 | £'000 | |
ASSETS | |||
Non-current assets | |||
Property, plant and equipment | 585,876 | 422,742 | |
Intangible assets | 208,569 | 255,364 | |
Investments in associated undertakings and joint ventures | 16,635 | 38,133 | |
Available-for-sale financial assets | 193,355 | 140,795 | |
Deferred tax assets | 43,984 | 38,352 | |
1,048,419 | 895,386 | ||
Current assets | |||
Inventories | 702,158 | 517,054 | |
Trade and other receivables | 292,589 | 190,726 | |
Derivative financial assets | 82,527 | 92,199 | |
Cash and cash equivalents | 234,163 | 78,318 | |
1,311,437 | 878,297 | ||
TOTAL ASSETS | 2,359,856 | 1,773,683 | |
EQUITY AND LIABILITIES | |||
Share capital | 64,060 | 64,060 | |
Share premium | 874,300 | 874,300 | |
Treasury shares reserve | (56,234) | (56,234) | |
Permanent contribution to capital | 50 | 50 | |
Capital redemption reserve | 8,005 | 8,005 | |
Foreign currency translation reserve | 26,840 | 14,436 | |
Reverse combination reserve | (987,312) | (987,312) | |
Own share reserve | (33,726) | (13,251) | |
Hedging reserve | 8,080 | 78,796 | |
Retained earnings | 1,482,331 | 1,181,511 | |
1,386,394 | 1,164,361 | ||
Non-controlling interests | (1,666) | (2,810) | |
Total equity | 1,384,728 | 1,161,551 | |
Non-current liabilities | |||
Borrowings | 6 | 333,063 | 136,849 |
Retirement benefit obligations | 13,065 | 14,869 | |
Deferred tax liabilities | 21,590 | 40,088 | |
Provisions | 66,802 | 37,705 | |
434,520 | 229,511 | ||
Current liabilities | |||
Derivative financial liabilities | 61,704 | 5,629 | |
Trade and other payables | 426,741 | 340,936 | |
Borrowings | 6 | 769 | 1,204 |
Current tax liabilities | 51,394 | 34,852 | |
540,608 | 382,621 | ||
Total liabilities | 975,128 | 612,132 | |
TOTAL EQUITY AND LIABILITIES | 2,359,856 | 1,773,683 | |
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 24 APRIL 2016
Year |
Year | ||
Notes | £'000 | £'000 | |
Cash inflow from operating activities | 7 | 135,589 | 314,362 |
Income taxes paid | (69,881) | (77,710) | |
Net cash inflow from operating activities | 65,708 | 236,952 | |
Cash flow from investing activities | |||
Proceeds on disposal of property, plant and equipment | 44,000 | 21,150 | |
Proceeds on disposal of listed investments | 181,342 | 51,695 | |
Purchase of associate, net of cash acquired | (9,078) | (50) | |
Purchase of subsidiaries, net of cash acquired | (24,013) | (3,847) | |
Purchase of intangible assets | (124) | (2,937) | |
Purchase of property, plant and equipment | (206,977) | (97,342) | |
Purchase of listed investments | (89,213) | (50,415) | |
Investment income received | 2,778 | 2,883 | |
Finance income received | 3,362 | 987 | |
Net cash outflow from investing activities | (97,923) | (77,876) | |
Cash flow from financing activities | |||
Finance costs paid | (7,720) | (6,845) | |
Borrowings drawn down | 267,390 | 126,989 | |
Borrowings repaid | (71,258) | (346,997) | |
Exercise of option over non-controlling interests | - | - | |
Net cash inflow / (outflow) from financing activities | 188,412 | (226,853) | |
Net increase in cash and cash equivalents including overdrafts | 156,195 | (67,777) | |
Cash and cash equivalents including overdrafts at beginning of period | 77,505 | 145,282 | |
Cash and cash equivalents including overdrafts at the period end | 233,702 | 77,505 | |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 24 APRIL 2016
Treasury shares | Foreign currency translation | Own share reserve | Retained earnings | Other reserves | Sub-total | Non-controlling interests | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
At 27 April 2014 | (56,234) | 5,280 | (13,251) | 931,819 | (46,522) | 821,092 | (3,538) | 817,554 |
Credit to equity for Share-based payment | - | - | - | 5,833 | - | 5,833 | - | 5,833 |
Deferred tax on share schemes | - | - | - | 1,266 | - | 1,266 | - | 1,266 |
Non-controlling interests - acquisitions | - | - | - | - | - | - | 384 | 384 |
Transactions with owners | - | - | - | 7,099 | - | 7,099 | 384 | 7,483 |
Profit for the financial period | - | - | - | 240,397 | - | 240,397 | 956 | 241,353 |
Dividends received | - | - | - | - | - | - | (612) | (612) |
Other comprehensive income | ||||||||
Cash flow hedges | ||||||||
- recognised in the period | - | - | - | - | 77,181 | 77,181 | - | 77,181 |
- reclassified and reported in net profit | - | - | - | - | 7,240 | 7,240 | - | 7,240 |
Actuarial losses on defined benefit pension schemes | - | - | - | (2,493) | - | (2,493) | - | (2,493) |
Fair value adjustment in respect of available-for-sale financial assets | - | - | - | 21,893 | - | 21,893 | - | 21,893 |
Taxation | (17,204) | (17,204) | (17,204) | |||||
Translation differences - Group | - | 13,783 | - | - | - | 13,783 | - | 13,783 |
Translation differences - associates | - | (4,627) | - | - | - | (4,627) | - | (4,627) |
Total comprehensive income for the period | - | 9,156 | - | 242,593 | 84,421 | 336,170 | 344 | 336,514 |
At 26 April 2015 | (56,234) | 14,436 | (13,251) | 1,181,511 | 37,899 | 1,164,361 | (2,810) | 1,161,551 |
Credit to equity for Share-based payment | - | - | - | 4,246 | - | 4,246 | - | 4,246 |
Vesting of Share-based payments | - | - | 8,963 | (8,963) | - | - | - | - |
Deferred tax on share schemes | - | - | - | - | - | - | - | - |
Current tax on share scheme | - | - | - | 3,089 | - | 3,089 | - | 3,089 |
Purchase of own shares | - | - | (29,438) | - | - | (29,438) | - | (29,438) |
Non-controlling interests - acquisitions | - | - | - | - | - | - | (422) | (422) |
Transactions with owners | - | - | (20,475) | (1,628) | - | (22,103) | (422) | (25,525) |
Profit for the financial period | - | - | - | 277,415 | - | 277,415 | 1,566 | 278,981 |
Other comprehensive income | ||||||||
Cash flow hedges | ||||||||
- recognised in the period | - | - | - | - | (5,685) | (5,685) | - | (5,685) |
- reclassified and reported in net profit | - | - | - | - | (63,679)) | (63,679)) | - | (63,679)) |
- taxation in reserves | - | - | - | 17,728 | (1,352) | 16,376 | - | 16,376 |
Actuarial losses on defined benefit pension schemes | - | - | - | (5) | - | (5) | - | (5) |
Fair value adjustment in respect of available-for-sale financial assets | - | - | - | 9,113 | - | 9,113 | - | 9,113 |
Taxation | - | - | - | (1,803) | - | (1,803) | - | (1,803) |
Translation differences - Group | - | 12,404 | - | - | - | 12,404 | - | 12,404 |
Translation differences - associates | - | - | - | - | - | - | - | - |
Total comprehensive income for the period | - | 12,404 | - | 302,448 | (70,716) | 244,136 | 1,566 | 245,702 |
At 24 April 2016 | (56,234) | 26,840 | (33,726) | 1,482,331 | (32,817) | 1,386,394 | (1,666) | 1,384,728 |
The financial information, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated cash flow statement, consolidated statement of changes in equity and related notes, does not constitute full accounts within the meaning of s435 (1) and (2) of the Companies Act 2006. The auditors have reported on the Group's statutory accounts for the each of the years ended 24 April 2016 and 26 April 2015 which do not contain any statement under s498 of the Companies Act 2006 and are unqualified. The statutory accounts for the year ended 26 April 2015 have been delivered to the Registrar of Companies and the statutory accounts for the year ended 24 April 2016 will be filed with the registrar in due course.
The consolidated financial statements have been prepared in accordance with IFRS as adopted for use in the European Union (including International Accounting Standards ('IAS') and International Financial Reporting Standards Interpretations Committee ('IFRSiC') interpretations) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS as adopted for use in the European Union. The consolidated financial statements have been prepared under the historical cost convention, as modified to include fair valuation of certain financial assets and derivative financial instruments.
2. Segmental analysisIFRS 8 - 'Operating Segments' requires the Group's segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker to assess performance and allocate resources across each operating segment.
The Chief Operating Decision Maker has been identified as the Executive Directors and the operating segments are identified as the store fascia or brand, in line with the internal reporting to the Executive Directors.
Sales and gross profit for each operating segment, as well as underlying EBITDA, are the main measures used by the Executive Directors to assess performance.
In accordance with paragraph 12 of IFRS 8 the Group's operating segments have been aggregated into the following reportable segments:
• Sports Retail - includes the results of the UK and International retail network of sports stores along with related websites. The directors have reviewed the markets for UK sports retail and international sports retail and are satisfied that these display similar economic characteristics and that these are therefore correctly reported as one segment;
• Premium Lifestyle - includes the results of the premium retail businesses such as Republic, Cruise and USC; and
• Brands - includes the results of the Group's portfolio of internationally recognised brands such as Everlast, Lonsdale and Dunlop.
Information regarding the Group's reportable segments for the year ended 24 April 2016, as well as a reconciliation of reported profit for the period to underlying EBITDA, is presented below:
Segmental information for the year ended 24 April 2016:
Retail | Brands | Eliminations | Total | ||||
Sports Retail | Premium Lifestyle | Retail Total | Total | ||||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Sales to external customers | 2,491,598 | 181,249 | 2,672,847 | 231,478 | - | 2,904,325 | |
Sales to other segments | - | - | - | 40,537 | (40,537) | - | |
Revenue | 2,491,598 | 181,249 | 2,672,847 | 272,015 | (40,537) | 2,904,325 | |
Gross profit | 1,110,960 | 76,161 | 1,187,121 | 97,523 | - | 1,284,644 | |
Operating profit before foreign exchange and exceptional items | 253,733 | (9,749) | 243,984 | 32,305 | ` | 276,289 | |
Operating profit | 222,493 | (23,233) | 199,260 | 23,918 | - | 223,178 | |
Investment income | 148,148 | ||||||
Finance income | 3,362 | ||||||
Finance costs | (15,330) | ||||||
Share of profits of associated undertakings and joint ventures | 2,449 | ||||||
Profit before taxation | 361,807 | ||||||
Taxation | (82,826) | ||||||
Profit for the period | 278,981 | ||||||
Sales to other segments are priced at cost plus a 10% mark-up.
Other segment items included in the income statement for the year ended 24 April 2016:
Retail | Brands | Total | |||
Sports Retail | Premium Lifestyle | Total | Brands | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | |
Depreciation | 82,794 | 3,965 | 86,759 | 2,447 | 89,206 |
Amortisation | 2,976 | 702 | 3,678 | 2,716 | 6,394 |
Information regarding segment assets and liabilities as at 24 April 2016 and capital expenditure for the year then ended:
Retail | Brands | Eliminations | Total | ||
Sports Retail | Premium Lifestyle | ||||
£'000 | £'000 | £'000 | £'000 | £'000 | |
Investments in associated undertakings and joint venture | 16,635 | - | - | - | 16,635 |
Other assets | 2,386,990 | 24,330 | 222,844 | (275,003) | 2,359,161 |
Total assets | 2,403,625 | 24,330 | 222,844 | (275,003) | 2,375,796 |
Total liabilities | (1,126,214) | (64,453) | (75,404) | 275,003 | (991,068) |
Tangible asset additions | 274,678 | 1,216 | 440 | - | 276,334 |
Intangible asset additions | 4,002 | - | - | - | 4,002 |
Total capital expenditure | 278,680 | 1,216 | 440 | - | 280,336 |
Segmental information for the year ended 26 April 2015:
Retail | Brands | Eliminations | Total | ||||
Sports Retail | Premium Lifestyle | Retail Total | Total | ||||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Sales to external customers | 2,398,547 | 207,623 | 2,606,170 | 226,390 | - | 2,832,560 | |
Sales to other segments | - | - | - | 25,480 | (25,480) | - | |
Revenue | 2,398,547 | 207,623 | 2,606,170 | 251,870 | (25,480) | 2,832,560 | |
Gross profit | 1,069,088 | 80,523 | 1,149,611 | 91,201 | - | 1,240,812 | |
Operating profit before foreign exchange and exceptional items | 285,534 | (11,170) | 274,364 | 27,984 | ` | 302,348 | |
Operating profit | 283,347 | (11,278) | 272,069 | 23,512 | - | 295,581 | |
Investment income | 14,104 | ||||||
Finance income | 8,289 | ||||||
Finance costs | (7,487) | ||||||
Share of profits of associated undertakings and joint ventures | 2,959 | ||||||
Profit before taxation | 313,446 | ||||||
Taxation | (72,093) | ||||||
Profit for the period | 241,353 | ||||||
Sales to other segments are priced at cost plus a 10% mark-up.
Other segment items included in the income statement for the year ended 26 April 2015:
Retail | Brands | Total | |||
Sports Retail | Premium Lifestyle | Total | Brands | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | |
Depreciation | 57,855 | 2,543 | 60,398 | 2,026 | 62,424 |
Amortisation | 548 | 687 | 1,235 | 4,122 | 5,357 |
Information regarding segment assets and liabilities as at 26 April 2015 and capital expenditure for the year then ended:
Retail | Brands | Eliminations | Total | ||
Sports Retail | Premium Lifestyle | ||||
£'000 | £'000 | £'000 | £'000 | £'000 | |
Investments in associated undertakings and joint venture | 38,133 | - | - | - | 38,133 |
Other assets | 1,688,779 | 24,446 | 190,772 | (168,447) | 1,735,550 |
Total assets | 1,726,912 | 24,446 | 190,772 | (168,447) | 1,773,683 |
Total liabilities | (646,836) | (60,255) | (73,488) | 168,447 | (612,132) |
Tangible asset additions | 93,429 | 2,321 | 1,592 | - | 97,342 |
Intangible asset additions | 108 | - | 2,829 | - | 2,937 |
Total capital expenditure | 93,537 | 2,321 | 4,421 | - | 100,279 |
Geographic information
Segmental information for the Year ended 24 April 2016: | |||||
UK | Non-UK | Eliminations | Total | ||
£'000 | £'000 | £'000 | £'000 | ||
Segmental revenue from external customers | 2,281,158 | 623,167 | - | 2,904,325 | |
Total capital expenditure | 189,661 | 90,675 | - | 280,336 | |
Non-current segmental assets | 464,665 | 346,415 | - | 811,080 | |
Segmental assets | 2,151,309 | 439,077 | (230,530) | 2,359,856 | |
Segmental information for the Year ended 26 April 2015: | |||||
UK | Non-UK | Eliminations | Total | ||
£'000 | £'000 | £'000 | £'000 | ||
Segmental revenue from external customers | 2,252,360 | 580,200 | - | 2,832,560 | |
Total capital expenditure | 81,793 | 18,486 | - | 100,279 | |
Non-current segmental assets | 408,651 | 307,588 | - | 716,239 | |
Segmental assets | 1,564,864 | 377,266 | (168,447) | 1,773,683 | |
Material non-current segmental assets - by non-UK country
£'000s | USA | Belgium | Austria | Estonia | Ireland |
FY16 | 149,384 | 9,346 | 62,551 | 18,297 | 74,036 |
FY15 | 142,805 | 35,546 | 55,550 | 16,238 | 31,156 |
The following table reconciles the reported operating profit to the underlying EBITDA as it is one of the main measures used by the chief operating decision maker when reviewing performance:
Reconciliation of operating profit to underlying EBITDA for the Year ending 24 April 2016.
Sports Retail | Premium Lifestyle | Brands | Total | |
£'000 | £'000 | £'000 | £'000 | |
Operating profit | 222,493 | (23,233) | 23,918 | 223,178 |
Depreciation | 82,794 | 3,965 | 2,447 | 89,206 |
Amortisation | 2,976 | 702 | 2,716 | 6,394 |
Share of profit/(loss) of associated undertakings | 2,449 | - | - | 2,449 |
Reported | 310,712 | (18,566) | 29,081 | 321,227 |
Charges for the Share Schemes | 7,077 | - | - | 7,077 |
Exceptional items | 27,112 | 13,647 | 10,000 | 50,759 |
Realised FX Loss/(Gain) | 4,128 | (163) | (1,613) | 2,352 |
Underlying EBITDA | 349,029 | (5,082) | 37,468 | 381,415 |
Reconciliation of operating profit to underlying EBITDA for the Year ending 26 April 2015.
Sports Retail | Premium Lifestyle | Brands | Total | |
£'000 | £'000 | £'000 | £'000 | |
Operating profit | 283,347 | (11,278) | 23,512 | 295,581 |
Depreciation | 57,855 | 2,543 | 2,026 | 62,424 |
Amortisation | 548 | 687 | 4,122 | 5,357 |
Share of profit/(loss) of associated undertakings | 3,009 | - | (50) | 2,959 |
Reported | 344,759 | (8,048) | 29,610 | 366,321 |
Charges for the Share Schemes | 10,110 | - | - | 10,110 |
Exceptional items | (3,395) | - | 6,445 | 3,050 |
Realised FX Loss/(Gain) | 5,332 | 358 | (1,973) | 3,717 |
Underlying EBITDA | 356,806 | (7,690) | 34,082 | 383,198 |
3. Exceptional items
Year ended |
Year ended | |
£'000 | £'000 | |
Profit on sale of freehold property | 13,541 | 10,288 |
Impairment and accelerated depreciation and amortisation | (58,544) | (13,338) |
Provision against receivables and other | (5,756) | - |
(50,759) | (3,050) | |
- | - |
The profit on disposal of freehold property relates to the sale of a freehold property for £44m, realising a profit of £13.5m. In the prior year, the profit on disposal related to the sale of a warehouse.
The impairment mainly relates to goodwill in our Austrian business, reported within our Sports Retail segment, due to recent trading being below expectations. Converting the former Eybl megastores is taking longer than expected and the lost revenue in certain categories is also proving harder to replace than expected. Other impairments relate to certain brands that had been acquired a number of years ago.
The provision against receivables mainly relates to a funding loan made to an associate on acquisition of the initial stake.
4. Taxation
The effective tax rate on profit before tax for FY16 was 22.9% (FY15: 23.0%). This rate reflects depreciation on non-qualifying assets and overseas earnings being taxed at a higher rate.
5. Earnings per share from total and continuing operations attributable to the equity shareholders
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders of the parent by the weighted average number of ordinary shares outstanding during the year.
For diluted earnings per share, the weighted average number of shares, 592,573,254 (2015: 592,294,371), is adjusted to assume conversion of all dilutive potential ordinary shares under the Group's Share Schemes, being 17,667,000 (2015: 24,200,000), to give the diluted weighted average number of shares of 610,240,254 (2015: 616,494,371).
Basic and diluted earnings per share
Year ended |
Year ended |
Year ended |
Year ended | |
Basic | Diluted £'000 | Basic | Diluted £'000 | |
Profit for the period | 277,415 | 277,415 | 240,397 | 240,397 |
Number in thousands | Number in thousands | |||
Weighted average number of shares | 592,573 | 610,240 | 592,294 | 616,494 |
Pence per share | Pence per share | |||
Earnings per share | 46.8 | 45.5 | 40.6 | 39.0 |
Underlying earnings per share
The underlying earnings per share reflects the underlying performance of the business compared with the prior year and is calculated by dividing underlying earnings by the weighted average number of shares for the period. Underlying earnings is used by management as a measure of profitability within the Group. Underlying earnings is defined as profit for the period attributable to equity holders of the parent for each financial period but excluding the post-tax effect of certain non-trading items. Tax has been calculated with reference to the effective rate of tax for the Group.
The directors believe that the underlying earnings before exceptional items and underlying earnings per share measures provide additional useful information for shareholders on the underlying performance of the business, and are consistent with how business performance is measured internally. Underlying earnings is not a recognised profit measure under IFRS and may not be directly comparable with 'adjusted' profit measures used by other companies.
Year |
Year |
Year |
Year | |
Basic £'000 | Diluted £'000 | Basic £'000 | Diluted £'000 | |
Profit for the period | 277,415 | 277,415 | 240,397 | 240,397 |
Post tax adjustments to profit for the period for the following non-trading items: | ||||
Realised loss / (gain) on forward exchange contracts | 1,813 | 1,813 | 2,862 | 2,862 |
Fair value adjustment to forward foreign exchange contracts | 5,243 | 5,243 | ||
Fair value adjustment to derivative financial instruments | (8,445) | (8,445) | (12,472) | (12,472) |
Profit on disposal of listed investments | (104,529) | (104,529) | (2,832) | (2,832) |
Impairment of fixed assets | 4,438 | 4,438 | - | - |
Profit on disposal of property | (10,440) | (10,440) | (7,921) | (7,921) |
Impairment and accelerated depreciation and amortisation | 45,137 | 45,137 | 10,270 | 10,270 |
Underlying profit for the period | 210,632 | 210,632 | 230,304 | 230,304 |
Number in thousands | Number in thousands | |||
Weighted average number of shares | 592,573 | 610,240 | 592,294 | 616,494 |
Pence per share | Pence per share | |||
Underlying earnings per share | 35.5 | 34.5 | 38.9 | 37.4 |
6. Borrowings
24 April |
26 April | |
£'000 | £'000 | |
Non-current: | ||
Bank and other loans | 333,063 | 136,849 |
Current: | ||
Bank overdrafts | 461 | 813 |
Bank and other loans | 308 | 391 |
769 | 1,204 | |
Total borrowings: | ||
Bank overdrafts | 461 | 813 |
Bank and other loans | 333,371 | 137,240 |
333,832 | 138,053 | |
An analysis of the Group's total borrowings other than bank overdrafts is as follows:
24 April | 26 April | |
£'000 | £'000 | |
Borrowings - Sterling | 320,000 | 95,808 |
Borrowings - Other | 13,371 | 41,432 |
333,371 | 137,240 | |
Loans are all at rates of interest ranging between 1.15% and 2.0% over the interbank rate of the country within which the borrowing entity resides.
During the year the Group utilised the accordion option under its working capital facility. As a result, the working capital facility has been increased to £788m (FY15 £738m). The facility is available until September 2018 and is not secured against any of the Group's fixed assets.
The Group also had a £250m working capital facility with Mike Ashley/Mash Holdings Limited, which has expired and not been renewed. This facility was agreed at market terms at its inception and is not secured against any fixed assets. At the period end no balance was due and no draw-downs were made during the year.
The Group continues to operate comfortably within its banking facilities and covenants.
The carrying amounts and fair value of the borrowings are not materially different.
Net debt at 24 April 2016 was £99.6m (26 April 2015: £59.7m).
7. Cash inflow from operating activities
Year |
Year | |
£'000 | £'000 | |
Profit before taxation | 361,807 | 313,446 |
Net finance costs / (income) | 11,968 | (802) |
Other investment income | (148,148) | (14,104) |
Share of profits of associated undertakings and joint ventures | (2,449) | (2,959) |
Operating profit | 223,178 | 295,581 |
Depreciation | 89,206 | 62,924 |
Amortisation | 6,379 | 12,725 |
Impairment | 58,544 | 5,314 |
Profit on disposal of property, plant & equipment | (13,541) | - |
Loss on disposal of intangibles | 27 | 107 |
Defined benefit pension plan current service cost | 13 | 21 |
Defined benefit pension plan employer contributions | (2,708) | (2,718) |
Share-based payments | 7,077 | 10,105 |
Operating cash inflow before changes in working capital | 368,175 | 384,059 |
Increase in receivables | (97,039) | (66,368) |
Decrease / (Increase) in inventories | (155,384) | 49,320 |
Increase in payables | 19,837 | (52,349) |
Cash inflow from operating activities | 135,589 | 314,662 |
8. Post balance sheet events
On 25 April 2016, the Group purchased a property on Oxford Street, London for a total £108,000,000. A deposit of £10,800,000 was included in Other Debtors at the year-end date.
Following the outcome of the UK referendum on EU membership, the Group notes the associated market volatility and in particular material changes to sterling / dollar exchange rates, and the lack of transparency as to those rates in the short to medium term. These factors are likely to impact purchases for which the Group is currently not hedged for the FY17 period and beyond. The Group does not consider this an adjusting event for the accounting period ended 24 April 2016.
Sports Direct International plc published this content on 07 July 2016 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 07 July 2016 06:15:08 UTC.
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