REG - Frasers Group PLC - Preliminary Results - period ending 26 April 2020
20 August 2020
Preliminary Results for the period ended 26 April 2020
52 weeks ended
26 April 2020
52 weeks ended
28 April 2019
Restated(6)
Change (%)
£m
£m
Group revenue
3,957.4
3,701.9
6.9
UK Sports Retail
2,203.3
2,187.3
0.7
Premium Lifestyle
722.0
535.4
34.9
European Retail
697.7
599.8
16.3
Rest of World Retail
174.2
215.9
(19.3)
Wholesale & licensing
160.2
163.5
(2.0)
Group gross margin (%)
42.0
42.8
Reported EBITDA
551.0
277.3
98.7
Underlying EBITDA (2)
302.1
287.8
5.0
Reported profit before tax
143.5
179.2
(19.9)
Underlying profit before tax (PBT) (2)
117.4
143.3
(18.1)
Reported profit after tax
101.0
116.0
(12.9)
Reported basic earnings per share
18.5p
21.6p
(14.4)
Underlying basic earnings per share (EPS) (2)
16.2p
17.6p
(8.0)
Underlying free cash flow (3)
263.1
273.3
(3.7)
Net debt (4)
366.0
378.5
3.3
• Group revenue increased by 6.9%
• Excluding acquisitions and on a currency neutral basis, revenue decreased by 12.6%(5)
• UK Sports Retail revenue increased by 0.7%, largely due to the GAME acquisition in the period
• Excluding acquisitions, revenue decreased by 14.6%(5), largely caused by temporary store closures due to Covid-19
• UK Sports Retail like-for-like gross contribution was down 6.6%(1)
• Premium Lifestyle revenue increased by 34.9%, largely due to new stores and acquisitions of Jack Wills & Sofa.com
• Excluding acquisitions, revenue increased by 18.6%(5)
• Premium Lifestyle like-for-like gross contribution was up 21.8%
• European Retail revenue increased by 16.3%, largely due to the GAME acquisition in the period
• Excluding acquisitions and on a currency neutral basis, revenue decreased by 15.6%(5), largely caused by temporary store closures due to Covid-19
• European Retail like-for-like gross contribution was down 12.7%(1)
• Group gross margin decreased to 42.0% from 42.8%, largely due to the GAME acquisition changing the product mix
• Group reported EBITDA increased by 98.7% to £551.0m compared to £277.3m in the prior period, largely due to the change in reporting as a result of implementing IFRS 16
• Group underlying EBITDA(2) increased by 5.0% to £302.1m compared to £287.8m in the prior period
• Excluding acquisitions and on a currency neutral basis, underlying EBITDA was in line with the prior period(5)
• Underlying free cash flow (pre-capex) (3) decreased to £263.1m compared to £273.3m in the prior period
• Reported profit before tax was £143.5m, down 19.9% from £179.2m
• Excluding IFRS 16, reported profit before tax was £262.3m up 46.4% largely due to the gain on the sale and leaseback of the Shirebrook Distribution Centre totalling £84.9m.
• Underlying profit before tax(2) decreased by 18.1% to £117.4m from £143.3m
• Reported basic earnings per share fell by 14.4% to 18.5p, from 21.6p
• Underlying basic earnings(2) per share decreased by 8.0% to 16.2p from 17.6p (2)
• Reported profit after tax(2) was £101.0m down 12.9% from £116.0m
• Net debt decreased to £366.0m (£378.5m at 28 April 2019)(4)
(1) Figure is on a 52 week currency neutral basis and with a consistent year on year inventory provision used
(2) Underlying EBITDA, underlying profit before taxation and underlying EPS exclude the effects of IFRS 16, realised foreign exchange gains / losses in selling and administration costs, exceptional costs, and the profit / loss on disposal of subsidiaries, strategic investments and properties. Further detail on this calculation can be found in the financial review, in note 2 and the glossary at the back of this announcement
(3) Underlying free cash flow is defined as operating cash flow after working capital and pre IFRS 16, made up of underlying EBITDA plus realised foreign exchange gains and losses, less corporation tax paid. Further detail on this calculation can be found in the financial review
(4) Net debt is borrowings (excluding IFRS 16 lease liabilities) less cash and cash equivalents held. Further detail can be found in note 10
(5) A reconciliation of excluding acquisitions and currency neutral performance measures can be found in the glossary
(6) The House of Fraser fascia has been included within the Premium Lifestyle segment
MISSION STATEMENT
'TO BECOME EUROPE'S LEADING ELEVATED SPORTING GOODS RETAILER.'
OUTLOOK
The Group now intends to invest in excess of £100 million in its digital elevation strategy. With a particular focus on Flannels and an enhanced customer experience, this investment will be integral in supporting the continued growth of our online channels. This commitment will support the Group's wider ongoing elevation strategy. With digital transformation now at the forefront, the successful reopening of our stores after the Covid-19 lockdown and continuing strong web performance, we are confident in achieving between a 10% and 30% improvement in underlying EBITDA(1) during FY21.
(1) Underlying EBITDA excludes the effects of IFRS 16, realised foreign exchange gains / losses in selling and administration costs, exceptional costs, and the profit / loss on disposal of subsidiaries, strategic investments and properties.
Frasers Group plc
Mike Ashley, Chief Executive
T: 0344 245 9200
STRATEGIC REPORT
CHAIR'S STATEMENT
INTRODUCTION
Dear Valued Shareholder
FY20 will likely be remembered as the most challenging year in the history of the Company. The political uncertainty around Brexit had been with us for far too long and, just as we were feeling more confident of getting some clarity and stability, the Covid-19 crisis arrived which will continue to have an impact on the economy and our business beyond FY20.
Notwithstanding the above, we have handled the challenges successfully and we have also dealt with the shadow of the significant Belgian tax enquiry for an amount of €674m which we were notified of in July 2019. We always maintained it was less than probable that material VAT and penalties would be due and thankfully, through the sterling efforts of our internal team, alongside our external advisors, this amount was commercially settled for an immaterial amount.
As of the end of February we were on track to hit our underlying EBITDA growth target of between 5-15% (pre IFRS 16 adjustments) for the period ending 26 April 2020. The Covid-19 situation had a significant impact on our business performance across the Group in March and April (and continued to do so in the post year end period) due to the shutdown of retail stores.
Thankfully, as at the date of release of these financial statements, there is a semblance of normality returning with virtually all retail stores now fully open across the Group, albeit subject to strict social distancing measures. However the future, at least in the near term, is unclear as we and indeed the world come to terms with living under the threat of Covid-19 and what its short, medium and long term effects may be. There is currently a risk of a second wave which could lead to reinstatement of lockdown restrictions and there will be economic consequences which we do not yet fully understand.
The key financial metrics for the period ended 26 April 2020 when compared with period ended 28 April 2019 are:
• Group revenue has increased from £3,701.9m to £3,957.4m;
• Group profit before tax has decreased from £179.2m to £143.5m;
• Group underlying EBITDA has increased from £287.8m to £302.1m; and
• Group net debt has decreased from £378.5m to £366.0m.
OVERVIEW
During FY20 we made the strategic decision to rename of the Group holding company from Sports Direct International plc to Frasers Group plc. The new name better reflects the multi-brand and multi-fascia retail business we have become and I would like thank everyone who worked so hard to ensure this change was implemented smoothly and successfully.
Following a robust external audit tender process, which did not require any Government involvement, we had great pleasure in appointing RSM UK Audit LLP (RSM) as our new external auditor. We look forward to a productive working relationship with RSM over the coming years and I would like to thank the Financial Reporting Council (FRC) for the help and support that was extended to us as we conducted this process.
We continued to follow the further demise of Debenhams during the year with much frustration and disappointment as it entered administration for a second time. We raised our concerns and gave numerous warnings about what we were seeing there, much of which has materialised. Our offers of help were repeatedly disregarded and it is scandalous that this business has now been in administration twice. To date and to our knowledge, there seems to be a lack of political or regulatory interest in investigating the impact on shareholders in the initial administration, and now in the second administration we expect that further stakeholders will suffer. It has been widely reported that we are seeking the appointment of a provisional liquidator to Debenhams plc, or a winding up order, so that an independent investigation can be carried out into the actions and parties involved in the company's administration. We are opposed, however, by certain entities which placed Debenhams plc into administration. If their opposition is successful, Debenhams plc will be dissolved, meaning that no investigation can be carried out.
The uncertainty over Brexit, followed by the Covid-19 crisis has undoubtedly resulted in unprecedented times for businesses and the consequences will be felt for the foreseeable future. We will commit ourselves to working collaboratively with all our key stakeholders to protect the future of our business and the health and livelihood of our 30,000 staff who work within the Frasers Group. During the time our stores were closed, our online business performed extremely well and I commend our staff, particularly those based at Shirebrook, for their hard work and dedication in ensuring our web operations continued and remained effective.
ELEVATION STRATEGY
The biggest strategic priority for the Frasers Group is, and will continue to be, elevation. This drives our behaviours and our ways of working. We are committed to providing our customers with a multi-brand offering in a premium environment across our sport, fashion and lifestyle fascias.
FY20 saw the opening of more of our new generation stores. The new stores in Leicester and Watford are fine examples of how we are taking the elevation strategy to the next level. We also opened the Flannels flagship store on Oxford Street in September 2019 which has been an outstanding success in showcasing our elevated model to luxury brands, and the Flannels store in Newcastle was voted "Best Store Design <50,000 sq.ft." by Drapers.
We continue to make progress with the reorganisation and elevation of the House of Fraser business. It remains a challenge but we are committed to offering a premium experience to our customers in an elevated environment.
Our acquisitions in FY20 included GAME Digital plc, Jack Wills, Sofa.com and Brookfield Unit Trust (Cheshunt Retail Park). We feel these businesses are a good strategic fit and they will add great value to our global Group and help support our elevation strategy. Our strategic investment in the Mulberry brand is also seen as a good fit for the Group and in particular for our strategy with 'Frasers'.
In the post year end period we announced an approximate 10% investment in Hugo Boss AG through a combination of physical stock, contracts for difference and the sale of put options. This investment's maximum aggregate exposure is approximately €200m and reflects Frasers Group's growing relationship with Hugo Boss and belief in Hugo Boss's long-term future.
To achieve our objectives with the elevation strategy we will rely heavily on our third party brands partnerships, particularly Nike and adidas. At times these relationships can be challenging but we aim to work with our partners as we have done so for many years in delivering the right product to our customers at the right time and at the right price.
OUR PEOPLE
We are committed to treating our staff at Frasers Group with dignity and respect. Our people are our finest resource and they are a critical asset in ensuring that our business is successful.
During the Covid-19 pandemic I am proud of the work we have done to keep our staff engaged with the business through regular update videos and by offering health advice and support to those who have needed it. In the UK we paid virtually all of our contracted staff in full during April, May and June even though our stores were closed for the vast majority of that time. In early March, prior to the lockdown, we sent home all staff over the age of 60 with underlying health issues which was over and above Government guidance, and whilst continuing to pay them in full.
At the AGM in September 2019 Mike Ashley announced our intention to launch a new employee bonus scheme to further reward our staff for the performance of the business and the current intention is that a resolution to approve the scheme will be put to shareholders for approval at the 2020 AGM.
We have also strengthened our leadership team. David Al-Mudallal was appointed as Chief of Staff and we hired Bev Wilkinson to lead our Internal Audit and Risk Management capability. David and Bev bring additional talent and strength to the Group.
We are always keeping under review the experience, balance and diversity of the Board and will bring additional talent onto the Board as required.
I am particularly proud of the Workers' Representative position on the board. Cally Price is our Retail Store Manager for Sports Direct in Cardiff. Cally was elected by her colleagues and she provides a very important bridge between the workforce and the Board. We are one of only a few listed companies to have such a position and it has a been a great success for us.
As we look to the future we are keen to hire the most talented and capable people to help us to build future generations of management and leaders. We are working on a career scheme aimed at school leavers, graduates and talented individuals which we hope will enable bright, ambitious, and enthusiastic people to join Frasers Group and build a career with the Company.
CORPORATE CITIZEN
During the pandemic crisis we have continued our commitment to be a good corporate citizen and extended our support where we felt we could make the most difference. We offered our fleet of vehicles to the NHS for transporting vital equipment to where it was most needed. We also offered NHS staff discounts on bikes and sporting goods equipment in our Evans and Sports Direct stores. On 15 June 2020, in England, we offered a 50% discount to all NHS staff in our Sports Direct stores as a gesture of goodwill to these fantastic individuals as our stores re-opened; it was an overwhelming success with gross sales of approximately £50m before discount and approx. £25m after discount.
As a business, we would also support a 1% increase to corporation tax on the proviso the full 1% goes directly to the NHS and we call on the government to seriously explore this idea.
We sent supplies to the Salvation Army and also a container of clothing to homeless charities in Central London. We provided free gym bags to NHS charities in Nottingham and donated approx. 4,000 Easter eggs to local hospitals in Nottingham, Chesterfield and Mansfield.
Outside of the Covid-19 crisis, during the severe flooding in South Wales at the beginning of the year, we sent 18 pallets of cleaning supplies and personal protective equipment (PPE) to help with the clean-up operation.
DIVIDEND/ SHARE BUYBACK
No dividend was paid during the year and the Board has decided not to declare a final dividend in respect of this financial period. The Company did undertake a share buyback at various points through FY20, the total number of shares purchased in the market was 17,065,981. During the period from our financial year-end to our results announcement date, no further share buyback program is currently in place.
OUTLOOK
The Covid-19 impact has created uncertainty and we consider that it will be some time before the country and indeed the world recovers. However, Frasers Group itself has always taken a long term approach to its strategy and this has helped us, and will continue to help us, through these unprecedented times. We believe our business is strong as is our balance sheet.
We will continue with the elevation strategy and the expansion of the new store format supported by our talented and loyal staff and we consider we are well placed for the future.
David Daly
Non-Executive Chair
20 August 2020
CHIEF EXECUTIVE'S REPORT AND BUSINESS REVIEW
KEY PERFORMANCE INDICATORS
The Board manages the Group's performance by reviewing a number of Key Performance Indicators (KPIs). The KPIs are discussed in this Chief Executive's Report and Business Review and the Financial Review. The table below represents a summary of the Group's KPIs.
52 weeks ended
26 April 2020
52 weeks ended
28 April 2019
52 weeks ended
29 April 2018
Group revenue
£3,957.4m
£3,701.9m
£3,359.5m
Underlying EBITDA(1)
£302.1m
£287.8m
£306.1m
Group gross margin
42.0%
42.8%
39.7%
Underlying basic earnings per share(2)
16.2p
17.6p
19.1p
Underlying free cash flow (3)
£263.1m
£273.3m
£326.2m
Net debt
£366.0m
£378.5m
£397.1m
NON-FINANCIAL KPIs
No. of retail stores(4)
1,534
968
826
Workforce turnover
28.6%
23.0%
23.0%
Packaging recycling(5)
12,358 tonnes
12,807 tonnes
13,757 tonnes
(1) The method for calculating underlying EBITDA is set out in the glossary at the end of this announcement
(2) The method for calculating underlying basic earnings per share is set out in the glossary
(3) Free cash flow is defined as operating cash flow after working capital and pre IFRS 16, made up of underlying EBITDA plus realised foreign exchange gains and losses, less corporation tax paid.
(4) Excluding associates and stores in the Baltic states that trade under fascias other than SPORTLAND or SPORTSDIRECT.com. and other niche fascias. Includes GAME and Sofa.com concessions.
(5) Cardboard and plastic recycling.
Group revenue
Underlying EBITDA
Group gross margin
Underlying basic earnings per share (EPS)
Underlying free cash flow
Net debt
No. of retail stores
Workforce turnover
Packaging recycling
PERFORMANCE OVERVIEW
Group revenue increased by 6.9% to £3,957.4m in the year. UK Sports Retail increased by 0.7% to £2,203.3m, which includes USC, Evans Cycles and GAME UK fascia sales. Premium Lifestyle revenue increased by 34.9% and European Retail increased by 16.3% to £697.7m including Heatons (Republic of Ireland) and GAME Spain. Rest of World Retail revenue was £174.2m, down 19.3% and revenue in the Wholesale & Licensing division decreased by 2.0%.
Depreciation and amortisation charges have increased by 215.0% to £395.0m (FY19: £125.4m) largely due to right of use asset depreciation amounting to £121.7m and an impairment charge in respect of right of use assets of £96.9m. Excluding IFRS 16 depreciation and amortisation charges have increased by 40.4% to £176.0m largely due to acquisitions, accelerated depreciation on leasehold stores which are onerous and a change in accounting estimate for the Everlast brand which is now being amortised over 15 years which previously had an indefinite life.
The Group generated free cash flow during the year of £263.1m, down from £273.3m in the prior period. Net debt decreased by £12.5m to £366.0m at period end. Spend on acquisitions and capex including Glasgow Frasers, Brookfield Unit Trust (Cheshunt Retail Park) and warehouse automation was offset by disposal of properties, combined with continued strong cash generation in the core business. Share buy backs in the period amounted to £44.0m. Net debt currently stands at 0.9 times reported EBITDA (excluding IFRS 16 adjustments) (FY19: 1.3 times).
REVIEW BY BUSINESS SEGMENT
UK SPORTS RETAIL
The UK Sports Retail segment includes all of the Group's sports retail and USC store operations in the UK and Northern Ireland, all of the Group's sports online businesses (excluding Bob's Stores, Eastern Mountain Sports and Malaysia), the Group's gyms, Evans Cycles, GAME UK stores and online operations and the Group's Shirebrook campus operations. UK Sports Retail is the main driver of the Group and accounts for 55.8% of Group revenue.
52 weeks ended
26 April 2020
(£'m)
52 weeks ended
28 April 2019
(£'m)
UK Sports Retail Revenue
2,203.3
2,187.3
Cost of Sales
(1,300.1)
(1,267.4)
Gross Profit
903.3
919.9
Gross Margin %
41.0
42.1
Revenue grew 0.7% to £2,203.3m, excluding acquisitions, revenue fell 14.6%. This was largely as a result of the temporary closure of retail stores during the Covid-19 lockdown.
UK Sports Retail gross margin decreased to 41.0% (FY19: 42.1%), largely due to a lower margin rate from GAME UK acquired in the year. Excluding acquisitions gross margin increased to 43.5%.
Operating expenses increased by 2.1% to £660.0 largely due to the acquisition of GAME UK during the year. Excluding acquisitions, operating expenses decreased by 12.1% largely driven by savings in store costs during the closure period as a result of Covid-19.
Underlying EBITDA for UK Sports Retail was £227.4m (FY19: £264.7m), a decrease of 14.1% for the year, largely due to the impact of Covid-19 including increased provisioning. Prior to temporary store closures as a result of Covid-19, underlying EBITDA was up 9.4%.
UK SPORTS RETAIL STORE PORTFOLIO
26 April 2020 28 April 2019
England
367
367
Scotland
37
37
Wales
28
28
Northern Ireland
17
17
Isle of Man
1
1
USC
27
35
Evans Cycles
50
56
GAME UK (1)
242
-
Total
769
541
Opened
25
13
Closed
(53)
(22)
Acquired
256
56
Area (sq.ft.)
approx. 6.3m
approx. 5.9m
(1) The GAME UK store numbers include 3 concessions operating within Sports Direct fascia stores and does not include BELONG arenas.
PREMIUM LIFESTYLE
Premium Lifestyle consists of Flannels, Cruise, van mildert, House of Fraser, Jack Wills and Sofa.com fascia stores and corresponding web sales.
52 weeks ended
26 April 2020
(£'m)
52 weeks ended
28 April 2019
(£'m) (2)
Gross Transaction Value (GTV) (1)
903.1
732.9
Premium Lifestyle Revenue
722.0
535.4
Cost of sales
(373.4)
(288.1)
Gross Profit
348.6
247.3
Gross Margin %
48.3
46.2
(1) GTV being gross sales net of VAT, discounts and returns and gross sales where the Group acts as agent.
(2) The prior year has been re-categorised to include House of Fraser within the Premium Lifestyle division.
Premium Lifestyle sales increased by 34.9% to £722.0m (FY19: £535.4m), mostly due to new Flannels stores, increased web sales and acquisitions. Excluding acquisitions, sales increased 18.6%. The Premium Lifestyle gross margin for the year increased by 210 basis points to 48.3% (FY19: 46.2%), largely due to the continually improving product mix.
Premium Lifestyle operating costs increased by 20.7% to £344.1m (FY19: £285.2m) due to the increase in Flannels fascia stores and acquisitions. As a result, underlying EBITDA improved from a loss of £37.9m in FY19 to a profit of £4.5m in the year, largely due to Flannels store openings, like for like growth in stores and web and operating efficiencies in House of Fraser.
PREMIUM LIFESTYLE STORE PORTFOLIO
26 April 2020
28 April 2019(2)
Flannels
37
31
Cruise
5
8
van mildert
1
2
Jack Wills
67
-
House of Fraser
48
53
Sofa.com (1)
21
-
179
94
Opened
10
12
Acquired
117
53
Closed
(42)
(5)
Area (sq.ft.)
approx. 4.5m
approx. 4.7m
(1) Sofa.com store numbers include 12 concessions operating within House Of Fraser fascia stores.
(2) The prior year has been re-categorised to include House of Fraser within the Premium Lifestyle division.
EUROPEAN RETAIL
The European Retail division includes the Group's sports retail store management and operations in Europe, including the Group's European distribution centres in Belgium and Austria, stores in the Baltic regions and GAME Spain stores.
52 weeks ended
26 April 2020
(£'m)
52 weeks ended
28 April 2019
(£'m)
European Retail Revenue
697.7
599.8
Cost of Sales
(429.8)
(338.3)
Gross Profit
267.9
261.5
Gross Profit %
38.4
43.6
Revenue increased 16.3% to £697.7m. On a currency neutral basis and excluding acquisitions, European Retail revenue decreased by 15.6% largely due to temporary store closures in March and April 2020 as a result of Covid-19.
European Retail gross margin decreased to 38.4% (FY19: 43.6%) largely driven by a lower margin rate for GAME Spain acquired in the year. Excluding acquisitions and on a currency neutral basis, margin is up 170 basis points to 45.1%.
Operating expenses decreased by 6.9% to £216.1m (FY19: £232.2m). Excluding acquisitions and on a currency neutral basis operating costs decreased by 29.3% due to the release of property related provisions in Austria after the disposal of property and reduction in overhead costs as a result of Covid-19. As a result Underlying EBITDA increased 76.8% to £51.8m.
All of the following stores are operated by companies wholly owned by the Group, except for Estonia, Latvia and Lithuania where the Group owns 60.0%.
EUROPEAN STORE PORTFOLIO(1)
26 April 2020
28 April 2019 (3)
GAME Spain
261
-
Belgium
35
35
Republic of Ireland(2)
35
33
Austria
22
26
Estonia(1)(3)
25
25
Portugal
21
19
Latvia(1)(3)
18
17
Lithuania(1)
18
18
Poland
16
16
Slovenia
14
14
Czech Republic
12
11
Hungary
8
8
Cyprus
6
6
Holland
5
5
Slovakia
5
5
France
4
4
Germany
2
2
Luxembourg
2
2
Spain
1
2
Iceland
1
1
Total
511
249
Opened
11
8
Closed
(14)
(10)
Acquired
265
1
Area (sq.ft.)
approx. 4.0m
approx. 3.7m
(1) Includes only stores with SPORTSDIRECT.com and SPORTLAND fascias
(2) Excluding Heatons fascia stores
(3) FY19 figures have been revised to exclude outlet stores in Estonia and Latvia in line with other countries.
REST OF WORLD RETAIL
Rest of World Retail includes sports stores in Malaysia trading under the SPORTSDIRECT.com fascia and retail stores in the US trading under Bob's Stores and Eastern Mountain Sports. In Malaysia the Group has 31 stores which are 51.0% owned by the Group.
52 weeks ended
26 April 2020
(£'m)
52 weeks ended
28 April 2019
(£'m)
Rest of World Revenue
174.2
215.9
Cost of sales
(96.9)
(129.1)
Gross Profit
77.3
86.8
Gross Margin %
44.4
40.2
Rest of World Retail sales were £174.2m for the year. Gross margin was 44.4%, up from 40.2% in the prior year. Underlying EBITDA loss was £6.8m, from a loss of £0.9m in FY19. This was largely due to temporary store closures in March and April 2020 as a result of Covid-19.
REST OF WORLD STORE PORTFOLIO
26 April 2020
28 April 2019
Malaysia
31
33
Bob's Stores
24
28
Eastern Mountain Sports
20
23
75
84
Area (sq.ft.)
approx. 1.3m
approx. 1.5m
WHOLESALE & LICENSING
The portfolio of Group brands 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 Wholesale & Licensing division sells the brands through its wholesale and licensing activities. The Wholesale & Licensing 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.
52 weeks ended
26 April 2020
(£'m)
52 weeks ended
28 April 2019
(£'m)
Wholesale
134.4
136.0
Licensing
25.8
27.5
Total Revenue
160.2
163.5
Cost of Sales
(94.7)
(95.5)
Gross Profit
65.5
68.0
Gross Margin %
40.9
41.6
Wholesale & Licensing total revenue decreased by 2.0% to £160.2m (FY19: £163.5m). Wholesale revenues were down 1.2% to £134.4m (FY19: £136.0m), due to reductions in UK wholesale activity.
Total gross margin decreased by 70 basis points to 40.9% (FY19: 41.6%). Wholesale gross margins decreased 30 basis points to 29.5% (FY19: 29.8%).
Licensing revenues in the year were down 6.2% to £25.8m (FY19: £27.5m) largely due to the loss of a licensee in the year.
Operating costs increased by 13.8% to £40.3m (FY19: £35.4m) largely due to an increase in inventory sourcing activity in SD Asia and an increase in bad debt write downs in Everlast.
As a result, underlying EBITDA decreased by 22.7% to £25.2m (FY19: £32.6m).
PROPERTY REVIEW
Our elevated store model continues to evolve having opened across different size formats (small, medium, large & extra-large) incorporating an extensive sports category offering as well as a lifestyle offer via USC. The model has now been implemented across high street, Shopping Centre and Retail Park locations.
The new concept has been well received by landlords and coupled with the changing market conditions is creating further opportunities to grow the pipeline of new elevated stores. A model for both GAME and Evans Cycles has been developed to complement the elevated sports store format, enhancing their destination retail status. Delivering such destination stores is a priority for new store openings and it should also be noted that a multi fascia model for Frasers is in development and will first be delivered at Wolverhampton in the coming financial period.
Over FY20 the group acquired GAME Digital plc, Jack Wills and Sofa.com resulting in taking control of the store estate. These have been onboarded to form part of the Group's property strategy and processes.
In the UK, a number of large format sports stores were opened during the period including Watford, York, Leicester and Glasgow Fort. The elevated store concept has not been limited to the UK, with new stores opening across Europe during FY20. Highlights include the comprehensive refit of our flagship City 2 store in Brussels, the relocation and elevation of our Sports Direct store in Dolce Vita Tejo Shopping centre, Lisbon and the opening of a flagship Sports Direct and USC in Riga Akropolis, Latvia. This is the first introduction of the USC offering into the Baltics region. A portfolio of six Toys R Us stores located across Spain were acquired and will be reconfigured in phases to house the new elevated Sports Direct concept.
Whilst freehold property acquisitions remain an option for the Group to assist with the delivery of elevated stores, it is expected that particularly in Shopping Centres there will be significant large space opportunities compared to previous years. This is likely to result in more leasehold activity with more viable options available.
Another objective for the coming financial period is the transition of the leasehold estate towards turnover based rents across all fascias and territories. Long term leases will be signed with collaborative landlords and those willing to co-invest in the elevated store model. However, it is possible further store closures will occur over the coming year where such terms cannot be agreed.
Flannels remains a key fascia having opened eight new stores including the London flagship store on Oxford Street. The other openings all adopt the regional concept developed last financial year which gained industry recognition at the 2019 Drapers awards.
Store Portfolio - Sports Stores - UK including Northern Ireland
The Group is currently operating 367 stores in England, 37 in Scotland, 28 in Wales and 17 in Northern Ireland. There were 16 openings and 16 closures for Sports Direct fascia stores over the period resulting in no change to the overall store numbers from the previous year.
Noteworthy openings include Leicester, Watford, Glasgow Fort, York and Ballymena. All of these stores with the exception of Ballymena are held freehold or long leasehold.
All the new store openings include a USC lifestyle offering as part of the elevated store model across the small / medium / large and extra-large formats. As mentioned previously, both a GAME and Evans Cycles concept has been developed to form part of the elevated Sports Direct format. Over the coming financial period there will be a push towards multi-fascia store openings incorporating each of these fascias.
Store Portfolio - Evans Cycles
There are currently 50 Evans Cycle stores operating, a reduction of six stores in the period. A new concept to incorporate Evans Cycles into appropriate Sports Direct stores has been developed and will be implemented over the coming financial year.
Store Portfolio - GAME UK
Following the acquisition of GAME Digital plc, 256 stores were taken on in the UK. Over the period, 20 stores were closed as part of the Group's strategy to move the Game stores into the new elevated stores and six were opened resulting in 242 at the end of the period.
A notable opening is the flagship GAME store on Oxford Street into part of the House of Fraser store; this store also includes a Belong Gaming Arena. With 100 desks this is the largest in the UK. The Belong Gaming Arena concept will continue to form part of new stores across the UK where viable. The general estate strategy to relocate and open space within Sports Direct stores where possible is underway with significantly more to open over FY21.
Store Portfolio - Premium Lifestyle
Flannels, Cruise and van Mildert
During FY20 there were eight store openings and two closures resulting in a net increase of six stores. The resulting store numbers consisted of 37 Flannels stores, five Cruise stores and one van Mildert store - a total of 43 stores.
The regional concept continues to be well received and has received industry recognition with the Newcastle Flannels store winning the 2019 Drapers award for Best Store Design <50,000 sq.ft. Other highlights include the opening of the London flagship store on Oxford Street and the opening of Belfast, the first Flannels to form part of a Frasers store.
The Flannels fascia remains a key area of development with plans to expand the model up to approx. 60k sq.ft. incorporating categories including beauty, services and food & beverage; the result of which will create market leading luxury destination stores.
House of Fraser
The Group started FY20 with 53 House of Fraser stores in the UK and over the period five were closed resulting in a total store estate of 48. A large number of stores remain on flexible terms whilst long term lease negotiations continue. There are anticipated to be further closures over the coming period, the number of which will depend on the outcome of lease negotiation. During FY20 the freehold acquisition of the flagship store at Buchanan Street, Glasgow, completed having exchanged contracts in 2018. In addition, a relocation of the Wolverhampton store was agreed and is due to open in FY21.
As has been the case with the elevated Sports Direct and Flannels stores, a new concept is currently under development for new Frasers stores.
Jack Wills
Following the acquisition of Jack Wills negotiations across the entire store estate commenced with a total of 96 trading stores in the UK. Over the period 31 stores closed due to performance and being unsuccessful in reaching a new lease agreement. However, two stores were opened bringing the total number of stores at the end of the financial year to 67. It should also be noted the licence to occupy held via the administrators was terminated over the period.
Forecast Openings UK FY21
The Group remains firmly committed to the elevation strategy and will continue the roll out of the new store concept across the UK. However due to the circumstances resulting from Covid-19 and adhering to Government guidelines, it is possible the program of store openings will be impacted.
European Retail
Store Portfolio Europe - Republic of Ireland
The Group has continued to invest extensively in the Heatons ROI existing store network through the conversion of a further eight stores into multi fascia / Sports Direct stores. The Group operates 35 locations across ROI, of which there are 14 standalone Sports Direct stores. In addition to this, there are six standalone Heatons stores which are intended to be either converted or relocated subject to the associated lease event.
Store Portfolio Europe - Continental
The Group continues to operate sports stores in 19 countries in Europe:
· 215 Sports retail stores in Continental Europe (plus 15 non-core, speciality and outlets)
· Total sq.ft. of approx. 2.9m of all sports fascias in Europe (including Sportland, Eybl, Disport, Sportsworld etc)
· Acquired 263 GAME stores in Spain during FY20 and after three closures and one opening finished FY20 on 261
· Ten openings in four different countries in FY20, four of which were relocations and one was a refit
· 11 closures in four different countries with a mixture of closing non-performing stores and closures linked to relocations and refits
· The Group is committed to expansion in continental Europe and in the immediate months following FY20 opened an elevated Sports Direct store in Hasselt, Belgium and is committed to a further ten in Spain during FY21
· As is the case in the UK, the Group is firmly committed to the rollout of elevated stores across Europe. Again due to the circumstances resulting from Covid-19 and adhering to local policy it is possible the program of stores will be affected.
Store Portfolio - Rest of World
· 31 stores in Malaysia with five openings and seven closures in FY20. Four of these closures were Tesco based stores where we continue to review these locations going forward while the estate is repositioned.
· The Malaysian elevation and expansion drive continues, with 5 new elevated stores opened in the period, a further six stores under contract and six refits in FY21 in an elevated format.
· We have also signed the lease on a flagship new retail store and Malaysian HQ relocation at a major shopping centre in the Kuala Lumper area totalling 30,000 sq.ft.
· 44 stores in the USA, following seven closures and one relocation in FY20.
Freehold / Long Leasehold Property Purchases
For FY20, a total of 11 acquisitions were completed in the UK amounting to a combined purchase price of £149.3m. This excludes amounts paid for building improvements to existing freeholds and includes the Glasgow Frasers store which completed in FY20 (£95.0m) and where contracts were exchanged in FY19.
In Europe, seven properties were acquired for a total of €40.1m, six of which formed part of a portfolio of Toys R Us properties across Spain. At the commencement of FY20, a property was acquired in the USA, amounting to $8.7m.
Consistent with previous years, further property assets were sold over FY20 in both the UK and Europe. Selected property disposals are likely to continue over the coming financial period across territories. The most significant disposal was the Group's sale and leaseback of the UK Head Office and Distribution Campus located in Shirebrook which completed at the commencement of FY20. Notable disposals in Europe include Innsbruck, Austria for €11.3m and Salzburg Kasern, Austria for €7.6m.
Chief Executive
20 August 2020
FINANCIAL REVIEW
The Financial Statements for the Group for the 52 weeks ended 26 April 2020 are presented in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
SUMMARY OF RESULTS
52 weeks ended
26 April 2020
(£'m)
52 weeks ended
28 April 2019
(£'m)
Revenue
3,957.4
3,701.9
Reported EBITDA
551.0
277.3
Underlying EBITDA (1)
302.1
287.8
Reported profit before tax
143.5
179.2
Underlying profit before tax (1)
117.4
143.3
Earnings per share (EPS)
Pence per share
Pence per share
Reported basic EPS
18.5
21.6
Underlying basic EPS (1)
16.2
17.6
(1) The Directors believe that underlying EBITDA, underlying profit before tax and underlying basic EPS provide further useful information for shareholders on the underlying performance of the Group in addition to the reported numbers and are consistent with how Group 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 and investment costs, finance income and finance costs, tax, depreciation, amortisation and impairment. It includes the Group's share of losses from associated undertakings and joint ventures. Underlying EBITDA is calculated as EBITDA before the impact of IFRS 16, foreign exchange, any exceptional or other non-trading items, gains/losses on disposals and costs relating to the share schemes.
GROUP OPERATING COSTS
52 weeks ended
26 April 2020
(£'m)
52 weeks ended
28 April 2019
(£'m)
Group operating costs
1,344.6
1,287.1
Depreciation and amortisation
170.2
125.4
Intangible impairment
5.9
-
IFRS 16 depreciation
122.6
-
IFRS 16 impairment
106.1
-
IFRS 16 disposals
(9.7)
-
IFRS 16 reversal of rent expense
(137.5)
-
IFRS 16 reversal of onerous lease provision
(35.5)
-
Realised FX (gain) / loss
(34.9)
(22.1)
Operating income
32.5
23.4
Selling, distribution and administration costs
1,564.3
1,413.8
Group operating costs for the purposes of management reporting:
i. Excludes depreciation, amortisation and impairments of property, plant and equipment, intangible assets, share scheme charges and realised FX gains and losses; and
ii. Includes other operating income.
FOREIGN EXCHANGE AND TREASURY
The Group reports its results in GBP but trades internationally and is therefore exposed to currency fluctuations on currency cash flows in various ways. These include purchasing inventory from overseas suppliers, making sales in currencies other than GBP and holding overseas assets in other currencies. The Board mitigate the cash flow risks associated with these fluctuations with the careful use of currency hedging using forward contracts and other derivative financial instruments.
The Group uses forward contracts that qualify for hedge accounting in two main ways - to hedge highly probable EUR sales income and USD inventory purchases. This introduces a level of certainty into the Group's planning and forecasting process. Management has reviewed detailed forecasts and the growth assumptions within them and are satisfied that the forecasts meet the criteria as being highly probable forecast transactions.
As at 26 April 2020, the Group had the following forward contracts that qualified for hedge accounting under IFRS 9 Financial Instruments, meaning that fluctuations in the value of the contracts before maturity are recognised in the Hedging Reserve through Other Comprehensive Income. After maturity, the sales and purchases are then valued at the hedge rate.
Currency
Hedging against
Currency value
Timing
Rates
EUR / GBP
Euro sales
EUR 540m
FY21 - FY23
0.99 - 1.090
USD / EUR
USD inventory purchases
USD 120m
FY21
1.32
The Group also uses currency options, swaps and spots for more flexibility against cash flows that are less than highly probable and therefore do not qualify for hedge accounting under IFRS9 Financial Instruments. The fair value movements before maturity are recognised in the Income Statement.
The Group has the following currency options and unhedged forwards:
Currency
Expected use
Currency value
Timing
Rates
EUR / GBP
Euro sales
EUR 660m
FY21 - FY23
0.99 - 1.09
EUR / GBP
Euro purchases
EUR 200m
FY21
1.16
The Group also holds short-term swaps for Treasury management purposes.
Currency
Expected use
Currency value
Timing
Rates
EUR / GBP
Cash flow management
EUR (75)m
FY21
1.13
USD / GBP
Cash flow management
USD 190m
FY21
1.291 - 1.302
EUR / USD
Cash flow management
EUR (80)m
FY21
1.108 - 1.135
The Group is proactive in managing its currency requirements. The Treasury team works closely with senior management to understand the Group's plans and forecasts, and discuss and understand appropriate financial products with various financial institutions, including those within the Group Revolving Credit Facility. This information is then used to implement suitable currency products to align with the Group's strategy.
Regular reviews of the hedging performance are performed by the Treasury team alongside senior management to ensure the continued appropriateness of the currency hedging in place, and where suitable, either implementing additional strategies and / or restructuring existing approaches in conjunction with our financial institution partners.
Given the potential impact of commodity prices on raw material costs, the Group may hedge certain input costs, including cotton, crude oil and electricity.
TAXATION
The effective tax rate on profit before tax in FY20 was 29.6% (FY19: 35.3%). The prior year rate reflects the impact of investment losses that are not tax deductible. The underlying effective tax rate is approx. 21.4%, this reflects the impact of the increase in freehold property and related disallowable depreciation.
EARNINGS
52 weeks ended
26 April 2020
(pence per share)
52 weeks ended
28 April 2019
(pence per share)
Change (%)
Reported EPS (Basic)
18.5
21.6
(14.4)
Underlying EPS (Basic) (1)
16.2
17.6
(8.0)
Weighted average number of shares (actual)
505,826,890
519,468,336
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.
(1)The underlying basic 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.
DIVIDENDS
The Board has decided not to pay a dividend in relation to FY20. 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 period, gross capital expenditure amounted to £323.5m (FY19: £159.2m), which includes £202.6m on properties (FY19: £48.2m) and £31.1m on warehouse automation.
STRATEGIC INVESTMENTS
The Group continues to hold various other interests. The fair value of the contracts for difference and options are recognised in Derivative Financial Assets or Liabilities on the Group Balance Sheet, with the movement in fair value recorded in the Income Statement.
ACQUISITIONS
GAME Digital plc
On 8 July 2019, the Group acquired the remaining share capital of GAME Digital plc. As at 26 April 2020 the business operates from 242 stores in the UK and 261 stores in Spain as well as its ecommerce platforms. The post-acquisition results of the UK business have been included within the UK Sports Retail segment and the results from the Spanish business have been included within the European Retail segment.
Other
On 24 June 2019 the Group acquired the entire share capital of Sofa.com. On the 5 August 2019 the Group acquired the trade and assets of Jack Wills. On the 15 October 2019 the Group acquired the entire share capital of Brookfield Unit Trust (Cheshunt Retail Park).
RELATED PARTIES
MM Prop Consultancy Limited, a company owned and controlled by Michael Murray, a member of Key Management, continues to provide property consultancy services to the Group. MM Prop Consultancy Limited is primarily tasked with finding and negotiating the acquisition of new sites in the UK, Europe and rest of the world for both our larger format stores and our combined retail and gym units. It also provides advice to the Company's in-house property team in relation to existing sites in the UK, Europe and rest of the world. In the year, all properties are assessed and those that are considered by the Group's independent Non-Executive Directors to have been completed and be eligible for review at the period-end are assessed and valued by an independent valuer who confirms the value created by MM Prop Consultancy Limited. The Group's independent Non-executive Directors then review and agree the value created and have full discretion to approve a payment to MM Prop Consultancy Limited of up to 25% of the value created. There is a current pipeline of properties that may be eligible to be assessed both positively and negatively by the Group's Non-executive Directors in future years.
In FY19 £5.35m was provided, during FY20 £4.3m was subsequently paid as Michael Murray agreed to waive a proportion of his fee and settle on 20% of the final agreed value created.
During FY19 MM Prop Consultancy Ltd was paid £0.2m for the value estimated to have been created on a property in Sunderland. Subsequently in late FY20 the onward sale of that property realised an amount such that the actual value created could lead to a payment being due to MM Prop Consultancy Ltd of £0.5m. The Group wishes to note the additional value created by MM Prop Consultancy Ltd for which no fee is due.
At the period end £nil has been accrued as payable to MM Prop Consultancy Ltd. The Independent Non-executive Directors consider this to be appropriate due to the effects of the Covid-19 pandemic which has resulted in significant economic uncertainty in the UK. With the widespread closure of businesses, furloughing of employees, people ordered to stay at home ('the lockdown') and the unprecedented economic environment; any property valuations would, at best, be uncertain and, at worst, be unreliable. As a consequence, it is not possible to quantify the value created on property transactions reliably. MM Prop Consultancy Ltd has agreed to defer the valuation until a reliable assessment can be performed.
CASH FLOW AND NET DEBT
Net debt decreased by £12.5m from £378.5m at 28 April 2019 to £366.0m at 26 April 2020. Based largely on the increased use of the Revolving Credit Facility (RCF) during the year, particularly during the Covid-19 crisis when the vast majority of the RCF was drawn down, albeit not fully utilised, net interest on bank loans and overdrafts increased to £17.8m (FY19: £14.5m).
The analysis of debt at 26 April 2020 was as follows:
26 April 2020
(£'m)
28 April 2019
(£'m)
Cash and cash equivalents
534.0
448.0
Borrowings
(900.0)
(826.5)
Net debt
(366.0)
(378.5)
The Group's Working Capital Facility is £913.5m (FY19: £913.5m) and is available until November 2021 and is not secured against any of the Group's assets. £847.5m of the facility is due to expire in November 2022.
The Group continues to operate well within its banking covenants and the Board remains comfortable with the Group's available headroom. Note, due to the timing of payroll and supplier payments, net debt at calendar period end 30 April 2020 was approx. £408.0m (FY19: approx. £435.0m).
CASH FLOW
Total movement is as follows:
52 weeks ended
26 April 2020
(£'m) (1)
52 weeks ended
28 April 2019
(£'m)
Underlying EBITDA
302.1
287.8
Realised gain on forward foreign exchange contracts
34.8
22.1
Taxes paid
(48.5)
(40.0)
Movement in inventory
(120.8)
(14.5)
Working capital and other
95.5
17.9
Underlying free cash flow after working capital
263.1
273.3
Invested in:
Purchase of own shares
(43.9)
(7.3)
Acquisitions
(7.3)
(98.7)
Purchase of listed investments
(24.8)
(57.8)
Purchase of associates
(5.6)
-
Net proceeds from investments
4.9
54.9
Net capital expenditure
(170.9)
(139.6)
Exchange movement on cash balances
5.0
3.2
Investment income
0.5
3.4
Finance costs and other financing activities
(8.5)
(12.8)
Decrease in net debt
12.5
18.6
(1) This table excludes the impact of IFRS 16
BALANCE SHEET
Significant balance sheet items are shown below:
26 April 2020
(£'m)
28 April 2019
(£'m)
Property, plant and equipment
1,041.9
823.2
Right of use assets
305.7
-
Assets held for sale
-
68.0
Inventory
1,198.3
978.4
Receivables
414.2
432.5
Provisions
336.0
440.5
Payables
602.5
541.1
Lease Liability
624.1
-
Included within property, plant and equipment is £48.2m for warehouse automation, £108.0m relating to Glasgow Frasers and £109.7m relating to Oxford Street.
The right of use assets in FY20 relates to leasehold properties capitalised under IFRS 16. Further details can be found in the financial statements note 1.
The assets held for sale in FY19 relate to the Shirebrook distribution centre which was sold in the period.
Inventory has increased largely due to acquisitions, continued movement from a concession model to an own bought model in House of Fraser and store closures as a result of Covid-19.
Receivables includes a £118.3m reimbursement asset in relation to the Group's ongoing non-UK tax enquiries (FY19: £125.2m) and £71.3m relating to deposits in respect of derivative financial instruments (FY19: £26.0m) with the increase mainly relating to Hugo Boss and commodities.
Provisions have reduced mainly due to the adoption of IFRS 16 whereby the rental element of onerous property lease contracts are de-recognised and replaced with the lease liability.
Payables have increased largely due to the acquisition of GAME Digital plc in the year and rent payments under negotiation as a result of Covid-19.
Lease liabilities relates to the present value of property lease payments expected to be made over the remaining life of the lease under IFRS 16.
Chris Wootton
Chief Financial Officer
20 August 2020
CONSOLIDATED INCOME STATEMENT
For the 52 weeks ended 26 April 2020
Note
52 weeks ended
26 April 2020
IFRS 16 (1)
52 weeks ended
28 April 2019
IAS 17
(£m)
(£m)
Revenue
2
3,957.4
3,701.9
Cost of sales
(2,294.8)
(2,118.4)
Gross profit
1,662.6
1,583.5
Selling, distribution and administrative expenses
(1,564.3)
(1,413.8)
Other operating income
32.5
23.4
Exceptional items
3
(13.1)
(41.0)
Profit on sale of properties
54.2
8.4
Operating profit
2
171.9
160.5
Investment income
4
15.2
15.0
Investment costs
5
(49.8)
(8.3)
Finance income
6
31.0
40.0
Finance costs
7
(29.3)
(19.4)
Share of loss of associated undertakings
(15.9)
(8.6)
Fair value gain on step acquisition
20.4
-
Profit before taxation
143.5
179.2
Taxation
8
(42.5)
(63.2)
Profit for the period
2
101.0
116.0
ATTRIBUTABLE TO:
Equity holders of the Group
93.8
112.0
Non-controlling interests
7.2
4.0
Profit for the period
2
101.0
116.0
EARNINGS PER SHARE ATTRIBUTABLE TO THE EQUITY SHAREHOLDERS
Pence per share
Pence per share
Basic earnings per share
9
18.5
21.6
Diluted earnings per share
9
18.5
21.5
(1) IFRS 16 modified retrospective approach has been initially applied. Using this method, comparative figures have not been restated and the cumulative effect of adopting IFRS 16 is recognised in retained earnings at the date of initial application.
The Consolidated Income Statement has been prepared on the basis that all operations are continuing.
The accompanying accounting policies and notes form part of these Financial Statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 52 weeks ended 26 April 2020
Note
52 weeks ended
26 April 2020
IFRS 16 (1)
(£m)
52 weeks ended
28 April 2019
IAS 17(£m)
Profit for the period
2
101.0
116.0
OTHER COMPREHENSIVE INCOME
ITEMS THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS
Fair value movement on long-term financial assets
(19.7)
(158.0)
ITEMS THAT WILL BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS
Exchange differences on translation of foreign operations
9.8
(10.3)
Fair value movement on hedged contracts - recognised in the period
16.4
91.5
Fair value movement on hedged contracts - ineffectiveness
0.2
(4.5)
Fair value movement on hedged contracts - reclassified and reported in sales
(1.7)
19.7
Fair value movement on hedged contracts - reclassified and reported in cost of sales
(37.4)
14.5
Fair value movement on hedged contracts - taxation taken to reserves
3.8
(22.7)
OTHER COMPREHENSIVE INCOME / (COST) FOR THE PERIOD, NET OF TAX
(28.6)
(69.8)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
72.4
46.2
ATTRIBUTABLE TO:
Equity holders of the Group
65.2
42.2
Non-controlling interest
7.2
4.0
72.4
46.2
(1) IFRS 16 modified retrospective approach has been initially applied. Using this method comparative figures have not been restated and the cumulative effect of adopting IFRS 16 is recognised in retained earnings at the date of initial application
The accompanying accounting policies and notes form part of these Financial Statements.
CONSOLIDATED BALANCE SHEET
At 26 April 2020
Note
26 April 2020
(£m)
IFRS 16 (1)28 April 2019
(£m)
IAS 17
ASSETS - NON CURRENT
Property, plant and equipment
1,347.6
823.2
Investment properties
18.9
22.2
Intangible assets
143.4
153.0
Investments in associated undertakings
-
11.0
Long-term financial assets
83.8
84.6
Deferred tax assets
49.9
23.7
1,643.6
1,117.7
ASSETS - CURRENT
Assets held for sale
-
68.0
Inventories
1,198.3
978.4
Trade and other receivables
414.2
432.5
Derivative financial assets
78.1
104.2
Cash and cash equivalents
534.0
448.0
2,224.6
2,031.1
TOTAL ASSETS
3,868.2
3,148.8
Share capital
64.1
64.1
Share premium
874.3
874.3
Treasury shares reserve
(295.7)
(281.7)
Permanent contribution to capital
0.1
0.1
Capital redemption reserve
8.0
8.0
Foreign currency translation reserve
77.9
68.1
Reverse combination reserve
(987.3)
(987.3)
Own share reserve
(67.0)
(67.2)
Hedging reserve
28.0
46.7
Retained earnings
1,564.9
1,521.5
Issued capital and reserves attributable to owners of the parent
1,267.3
1,246.6
Non-controlling interests
13.0
5.8
TOTAL EQUITY
1,280.3
1,252.4
LIABILITIES - NON CURRENT
Borrowings
11
900.0
826.5
Lease liabilities
11
476.2
-
Retirement benefit obligations
1.9
1.9
Deferred tax liabilities
25.6
29.0
Provisions
336.0
440.5
1,739.7
1,297.9
LIABILITIES - CURRENT
Derivative financial liabilities
44.2
16.3
Trade and other payables
602.5
541.1
Lease liabilities
10
147.9
-
Current tax liabilities
53.6
41.1
848.2
598.5
TOTAL LIABILITIES
2,587.9
1,896.4
TOTAL EQUITY AND LIABILITIES
3,868.2
3,148.8
(1) IFRS 16 modified retrospective approach has been initially applied. Using this method comparative figures have not been restated and the cumulative effect of adopting IFRS 16 is recognised in retained earnings at the date of initial application, further disclosures on the impact of IFRS 16 can be found in note 1.
The accompanying accounting policies and notes form part of these Financial Statements. The Financial Statements
were approved by the Board on 20 August 2020 and were signed on its behalf by:
Chris Wootton
Chief Financial Officer
Company number: 06035106
CONSOLIDATED CASH FLOW STATEMENT
For the 52 weeks ended 26 April 2020
Note
52 weeks ended 26 April 2020
IFRS 16 (1)
52 weeks ended 28 April 2019
IAS 17
(£m)
(£m)
CASH INFLOW FROM OPERATING ACTIVITIES
425.2
313.3
Income taxes paid
(48.5)
(40.0)
NET CASH INFLOW FROM OPERATING ACTIVITIES
376.7
273.3
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds on disposal of property, plant and equipment
152.6
20.8
Proceeds on disposal of listed investments
4.9
54.9
Purchase of associates
(5.6)
-
Purchase of subsidiaries, net of cash acquired
12
(7.3)
(98.7)
Purchase of property, plant and equipment
(323.5)
(158.5)
Purchase of investment properties
-
(0.7)
Purchase of intangible assets
-
(1.1)
Purchase of listed investments
(24.8)
(57.9)
Investment income received
0.5
3.4
Finance income received
9.8
0.3
NET CASH OUTFLOW FROM INVESTING ACTIVITIES
(193.4)
(237.5)
CASH FLOW FROM FINANCING ACTIVITIES
Lease payments (1)
(113.6)
-
Finance costs paid
(18.3)
(13.0)
Borrowings drawn down
11
510.0
464.4
Borrowings repaid
11
(436.5)
(395.0)
Purchase of own shares
(43.9)
(7.3)
NET CASH INFLOW FROM FINANCING ACTIVITIES
(102.3)
49.1
NET INCREASE IN CASH AND CASH EQUIVALENTS INCLUDING OVERDRAFTS
81.0
84.9
Exchange movement on cash balances
5.0
3.1
CASH AND CASH EQUIVALENTS INCLUDING OVERDRAFTS AT BEGINNING OF PERIOD
448.0
360.0
CASH AND CASH EQUIVALENTS INCLUDING OVERDRAFTS AT THE PERIOD END
534.0
448.0
(1)IFRS 16 modified retrospective approach has been initially applied. Using this method comparative figures have not been restated and the cumulative effect of adopting IFRS 16 is recognised in retained earnings at the date of initial application.
The accompanying accounting policies and notes form part of these Financial Statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 52 weeks ended 26 April 2020
Share capital
Share premium
Treasury shares
Foreign currency translation
Own share reserve
Retained earnings
Other
Total attributable to owners of
parent
Non-controlling
Interests
Total
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
At 29 April 2018 (restated in period ended 28 April 2019)
64.1
874.3
(290.0)
78.4
(69.0)
1,567.5
(1,031.0)
1,194.3
1.7
1,196.0
Exercise of share options
-
-
-
-
7.4
-
-
7.4
-
7.4
Purchase of own shares
-
-
(1.7)
-
(5.6)
-
-
(7.3)
-
(7.3)
Reversal of FY18 fair valuation of share buyback contractual obligation
-
-
40.0
-
-
-
-
40.0
-
40.0
Fair valuation of share buyback contractual obligation
-
-
(30.0)
-
-
-
-
(30.0)
-
(30.0)
Non-controlling interests - acquisitions
-
-
-
-
-
-
-
-
0.1
0.1
Transactions with owners
-
-
8.3
-
1.8
-
-
10.1
0.1
10.2
Profit for the financial period
-
-
-
-
-
112.0
-
112.0
4.0
116.0
OTHER COMPREHENSIVE INCOME
Cash flow hedges - recognised in the period
-
-
-
-
-
-
91.5
91.5
-
91.5
Cash flow hedges - ineffectiveness
-
-
-
-
-
-
(4.5)
(4.5)
-
(4.5)
Cash flow hedges - reclassified and reported in sales
-
-
-
-
-
-
19.7
19.7
-
19.7
Cash flow hedges - reclassified and reported in cost of sales
-
-
-
-
-
-
14.5
14.5
-
14.5
Cash flow hedges - taxation
-
-
-
-
-
-
(22.7)
(22.7)
-
(22.7)
Fair value adjustment in respect of long term financial assets - recognised
-
-
-
-
-
(158.0)
-
(158.0)
-
(158.0)
Translation differences - Group
-
-
-
(10.3)
-
-
-
(10.3)
-
(10.3)
Total comprehensive income for the period
-
-
-
(10.3)
-
(46.0)
98.5
42.2
4.0
46.2
At 28 April 2019
64.1
874.3
(281.7)
68.1
(67.2)
1,521.5
(932.5)
1,246.6
5.8
1,252.4
IFRS 16 Transition Adjustment
-
-
-
-
-
(37.9)
-
(37.9)
-
(37.9)
Taxation on items taken directly to equity
-
-
-
-
-
7.2
-
7.2
-
7.2
At 29 April 2019
64.1
874.3
(281.7)
68.1
(67.2)
1,490.8
(932.5)
1,215.9
5.8
1,221.7
Purchase of own shares
-
-
(44.0)
-
0.2
-
-
(43.8)
-
(43.8)
Reversal of FY19 fair valuation of share buyback contractual obligation
-
-
30.0
-
-
-
-
30.0
-
30.0
Transactions with owners
-
-
(14.0)
-
0.2
-
-
(13.8)
-
(13.8)
Profit for the financial period
-
-
-
-
-
93.8
93.8
7.2
101.0
Cash flow hedges - recognised in the period
-
-
-
-
-
-
16.4
16.4
-
16.4
Cash flow hedges - ineffectiveness
-
-
-
-
-
-
0.2
0.2
-
0.2
Cash flow hedges - reclassified and reported in sales
-
-
-
-
-
-
(1.7)
(1.7)
-
(1.7)
Cash flow hedges - reclassified and reported in cost of sales
-
-
-
-
-
-
(37.4)
(37.4)
-
(37.4)
Cash flow hedges - taxation
-
-
-
-
-
-
3.8
3.8
-
3.8
Fair value adjustment in respect of long term financial assets - recognised
-
-
-
-
-
(19.7)
-
(19.7)
-
(19.7)
Translation differences - Group
-
-
-
9.8
-
-
-
9.8
-
9.8
Total comprehensive income for the period
-
-
-
9.8
-
74.1
(18.7)
65.2
7.2
72.4
At 26 April 2020
64.1
874.3
(295.7)
77.9
(67.0)
1,564.9
(951.2)
1,267.3
13.0
1,280.3
(1) The share premium account is used to record the excess proceeds over nominal value on the issue of shares.
(2) Other reserves comprises permanent contribution to capital, capital redemption reserve, reverse combination reserve and the hedging reserve. All movements in the period related to the hedging reserve.
The accompanying accounting policies and notes form part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
For the 52 weeks ended 26 April 2020
1. ACCOUNTING POLICIES
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 period ended 28 April 2019 and 26 April 2020 which do not contain any statement under s498 of the Companies Act 2006 and are unqualified. The statutory accounts for the year ended 28 April 2019 have been delivered to the Registrar of Companies and the statutory accounts for the year ended 26 April 2020 will be filed with the registrar in due course.
The consolidated Financial Statements of Frasers Group plc (the "Company") and its subsidiaries (together the "Group") have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). Frasers Group Plc (Company number: 06035106) is a company incorporated and domiciled in the United Kingdom, its shares are listed on the London Stock Exchange. The registered office is Unit A, Brook Park East, Shirebrook NG20 8RY. The principle activities and structure of the group can be found in the 'Our Business' section of the Annual Report.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's Report and Business Review.
The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review. In addition, the Financial Statements include the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities, and its exposures to credit risk and liquidity risk.
The Group is still profitable, highly cash generative and has considerable financial resources. The Group is able to operate within its banking facilities and covenants, which run until November 2022, and is well placed to take advantage of strategic opportunities as they arise. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the continued uncertain economic outlook.
Management have assessed the level of trading to date since the impact of Covid-19 and has forecast and projected a conservative base case and also a number of even more conservative scenarios taking into account a potential second wave over winter, localised lockdowns, government support, foreign exchange exposure and cost saving initiatives. These forecasts and projections show that the Group will be able to operate within the level of the current facility and its covenant requirements (being interest cover and net debt to EBITDA ratios). Management also have a number of mitigating actions which could be taken if required such as putting on hold discretionary spend, liquidating certain assets on the balance sheet and paying down the Revolving Credit Facility.
Having thoroughly reviewed the Group's performance and having made suitable enquiries, the Directors are confident that the Group has adequate resources to remain in operational existence for the at least 12 months from the date of these financial statements. Trading would need to fall significantly below levels observed during the pandemic to require mitigating actions or a relaxation of covenants. On this basis, the Directors continue to adopt the going concern basis for the preparation of the Annual Report and Financial Statements which is a period of at least twelve months from the date of approval of these financial statements.
New Accounting Standards, Interpretations And Amendments Adopted By The Group
The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not effective. The Group applies for the first time the following new standards:
• Annual improvements to IFRSs 2015-2017 Cycle
• Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures
• IFRIC 23 Uncertainty over income Tax Treatments
By adopting the above, there has been no material impact on the Financial Statements.
IFRS 16
IFRS 16 "Leases" replaces IAS 17 "Leases" and several related interpretations. It completes the IASB's long-running project to overhaul lease accounting. Leases will be recorded in the statement of financial position in the form of a right-of-use asset and a lease liability. There are two important reliefs provided by IFRS 16 for assets of low value and short-term leases of 12 months or less.
The Group only has property leases within the scope of IFRS 16, including retail stores, offices and warehouses. Lease are typically for a period between 1 -15 years with break clauses. It is management's intention to continue to enter into turnover linked leases in the future.
Accounting policy
The Group assesses whether a contract is or contains a lease, at inception of the contract. Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate implicit in the lease unless (as is typically the case) this is not readily determinable, in which case the group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments such as revenue linked property leases are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also includes:
• amounts expected to be payable under any residual value guarantee;
• the exercise price of any purchase option granted in favour of the group if it is reasonably certain that the option will be exercised;
• any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of the termination option being exercised.
The lease liability is presented as a separate line in the consolidated statement of financial position.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at the effective rate on the balance outstanding and are reduced for lease payments made.
Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives (payments made by a lessor to a lessee associated with a lease, or the reimbursement or assumption by a lessor of costs of a lessee) received or impairment, and increased for:
• lease payments made at or before commencement of the lease;
• initial direct costs incurred; and
• the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset, providing it meets the Groups property, plant and equipment capitalisation policy.
Right of use assets are tested for impairment at each reporting date in line with IAS 36 Impairment. The right-of-use assets are presented within property, plant and equipment in the consolidated statement of financial position.
Subsequent to initial measurement right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if this is judged to be shorter than the lease term.
When the group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at a revised discount rate. The carrying value of lease liabilities is revised using the original discount rate when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term.
When the group renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the modification:
• if the renegotiation results in one or more additional assets being leased for an amount commensurate with the standalone price for the additional rights-of-use obtained, the modification is accounted for as a separate lease in accordance with the above policy
• in all other cases where the renegotiation increases the scope of the lease (whether that is an extension to the lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of use asset being adjusted by the same amount
• if the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset are reduced by the same proportion to reflect the partial or full termination of the lease with any difference recognised in profit or loss. The lease liability is then further adjusted to ensure its carrying amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date. The right-of-use asset is adjusted by the same amount.
Sale and leaseback
On entering into a sale and leaseback transaction the Group determines whether the transfer of the assets qualifies as a sale (satisfying a performance obligation in IFRS 15 'Revenue from Contracts with Customers'). Where the transfer is a sale and providing the transaction is on market terms then the previous carrying amount of the underlying asset is split between:
• a right-of-use asset arising from the leaseback (being the proportion of the previous carrying amount of the asset that relates to the rights retained), and
• the rights in the underlying asset retained by the buyer-lessor at the end of the leaseback.
The Group recognises a portion of the total gain or loss on the sale. The amount recognised is calculated by splitting the total gain or loss into:
• an unrecognised amount relating to the rights retained by the seller-lessee, and
• a recognised amount relating to the buyer-lessor's rights in the underlying asset at the end of the leaseback.
The leaseback itself is then accounted for under IFRS 16.
Rental income from operating leases where the Group acts as a lessor is recognised on a straight-line basis over the term of the relevant lease.
Transition
The Group adopted IFRS 16 on 29 April 2019 (date of initial application) using the modified retrospective approach for its portfolio of property leases. As a result, the lease liability has been calculated as the present value of future lease payments from the date of initial application. The Group has applied the practical expedient under the modified retrospective approach for the initial right-of-use asset values to equal the present value of the future lease payments as at the date of initial application, adjusted by the amount of any prepaid or accrued lease payments. An impairment review has been carried out at the date of transition. The right-of-use asset will be depreciated over the life of the lease. Comparative information is not restated.
The group has applied the following transition expedients:
• To not reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to existing leases at the date of initial application.
• Single discount rate for portfolio of similar leases.
• Treat long-term leases with less than 12 months remaining at the date of initial application as short-term leases.
• Exclude direct costs from ROU asset measurement.
• Hindsight to determine lease term.
In addition to the two recognition exemptions:
• Short-term leases
• Low-value leases
The Group has used the incremental borrowing rate rather than the interest rate implicit in the lease, as the interest rate implicit in the lease cannot be readily determined. The weighted average discount rate, based on incremental borrowing rates at the date of initial application, across the Group lease portfolio is shown below. The discount rate for each lease is dependent on lease start date, term and location.
Lease Term
UK
Europe
Rest of World
Up to 5 years
1.8%
0.3%
3.3%
Greater than 5 years and up to 10 years
2.0%
0.5%
3.5%
Greater than 10 years and up to 15 years
2.2%
0.8%
3.7%
Greater than 15 years and up to 20 years
2.5%
1.1%
3.8%
Greater than 20 years and up to 25 years
2.5%
1.1%
3.8%
Greater than 25 years
2.5%
1.1%
3.8%
Impact of IFRS 16
The impact of IFRS 16 on the Financial Statements for the period ending 26 April 2020 is summarised in the below table:
Property Leases
Under IAS 17
Transition Impact
Impact in the period
Under IFRS 16
(£m)
(£m)
(£m)
(£m)
Consolidated Income statement:
Selling, distribution and administrative expenses
(1,518.3)
-
(46.0)
(1,564.3)
Exceptional items
(6.3)
-
(6.8)
(13.1)
Profit on sale of properties
109.3
-
(55.1)
54.2
Finance costs
(18.4)
-
(10.9)
(29.3)
Taxation
(63.8)
-
21.3
(42.5)
Consolidated Balance Sheet:
Property, plant and equipment
1,057.3
416.3
(126.0)
1,347.6
Deferred tax assets
21.4
7.2
21.3
49.9
Trade and other receivables
418.2
(7.2)
3.2
414.2
Retained earnings
(1,693.1)
30.7
97.5
(1,564.9)
Foreign currency translation reserve
(78.4)
0.4
0.1
(77.9)
Lease liabilities
-
(570.5)
(53.6)
(624.1)
Provisions
(480.7)
106.2
38.5
(336.0)
Payables
(638.4)
16.9
19.0
(602.5)
There has been no impact on cash flows, although the presentation of the Cash Flow Statement has changed significantly, with an increase in cash inflows from operating activities being offset by an increase in cash outflows from financing activities.
The table below shows a reconciliation of the right of use asset from transition to closing for the 52 weeks ending 26 April 2020:
26 April 2020
Right of Use Asset
(£m)
Transition
422.5
Additions
101.1
Acquisitions
18.8
Re-measurements
2.8
Disposals
(20.9)
Depreciation
(122.6)
Impairment
(96.9)
FX
0.9
305.7
The table shows a reconciliation of the lease liability from transition to closing for the 52 weeks ending 26 April 2020:
26 April 2020
Lease liability
(£m)
Transition
(570.5)
Additions
(156.2)
Acquisitions
(28.0)
Re-measurements
(2.7)
Disposals
30.6
Lease payments
113.6
Interest expense
(10.9)
Lease liability
(624.1)
This table reconciles the prior year operating lease liability disclosure to the opening lease liability under IFRS 16:
26 April 2020
(£m)
Operating lease commitment
(927.4)
FX - restate last year disclosure to FY20 close rate
(6.7)
Discounted using the incremental borrowing rate
77.3
Lease exempt from IFRS 16 at transition
190.1
Restatement of lease terms and omitted leases
96.2
Lease liability on transition
(570.5)
The lease liability in relation to short term leases not recognised under IFRS 16 as at the period end 26 April 2020 was £11.5m.
The estimated total lease liability for variable rent property leases not recognised under IFRS 16 as at the period end 26 April 2020 was £10.0m.
There were no leases committed to at the year end which had not yet commenced.
CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The critical accounting estimates and judgements made by the Group regarding the future or other key sources of estimation, uncertainty and judgement that may have a significant risk of giving rise to a material adjustment to the carrying values of assets and liabilities within the next financial period are:
Key Judgements
Determining Related Party Relationships
Management determines whether a related party relationship exists by assessing the nature of the relationship by reference to the requirements of IAS 24, Related Party Disclosures. This is in order to determine whether significant influence exists as a result of control, shared directors or parent companies, or close family relationships. The level at which one party may be expected to influence the other is also considered for transactions involving close family relationships.
Control And Significant Influence Over Certain Entities
Under IAS 28 Investments in Associates and Joint Ventures if an entity holds 20% or more of the voting power of the investee, it is presumed that the entity has significant influence, unless it can clearly demonstrate that this is not the case. The Group holds greater than 20% of the voting rights of Studio Retail Group Plc and French Connection Group Plc, whereby management consider that the Group does not have significant influence over these entities for combinations of the following reasons:
• The Group does not have any representation on the board of directors of the investee other than an SDI representative having an observer role on the board of Studio Retail Group Plc. Management have reviewed the terms of the observer arrangement and have concluded that this does not give them the right to participate in or influence the financial or operating decisions of Studio Retail Group Plc. Studio Retail Group Plc can terminate this arrangement at any time, and can determine which parts of the Board meetings the representative can be present at and what information they are given access to;
• There is no participation in decision making and strategic processes, including participation in decisions about dividends or other distributions;
• There have been no material transactions between the entity and its investee companies;
• There has been no interchange of managerial personnel;
• No non-public essential technical management information is provided to the investee
In assessing the level of control that management have over certain entities, management will consider the various aspects that allow management to influence decision making. This includes the level of share ownership, board membership, the level of investment and funding and the ability of the Group to influence operational and strategic decisions and effect its returns through the exercise of such influence.
The Group holds 49% of the share capital Four (Holdings) Limited which is accounted for using the equity method. The Group does not have any representation on the board of directors and no participation in decision about relevant activities such as establishing operating and capital decisions, including budgets, appointing/remunerating key management personnel or service providers and terminating their services or employment. However, in prior periods the Group has provided Four (Holdings) Limited with a significant loan. At the reporting date, the amount owed by Four (Holdings) Limited totalled £67.5m (£33.8m net of amounts recognised in respect of loss allowance). The Group is satisfied that the existence of these transactions provides evidence that the entity has significant influence over the investee but in the absence of any other rights, in isolation it is insufficient to meet the control criteria of IFRS 10, as the Group does not have power over Four (Holdings) Limited.
Cash Flow Hedging
The Group uses a range of forward and option contracts that are entered into at the same time, they are in contemplation with one another and have the same counterparty. A judgement is made in determining whether there is an economic need or substantive business purpose for structuring the transactions separately that could not also have been accomplished in a single transaction. Management are of the view that there is a substantive distinct business purpose for entering into the options and a strategy for managing the options independently of the forward contracts. The forward and options contracts are therefore not viewed as one instrument and hedge accounting for the forwards is permitted.
Under IFRS 9 in order to achieve cash flow hedge accounting, forecast transactions (primarily Euro denominated sales and USD denominated purchases) must be considered to be highly probable. The hedge must be expected to be highly effective in achieving offsetting changes in cash flows attributable to the hedged risk. The forecast transaction that is the subject of the hedge must be highly probable and must present an exposure to variations in cash flows that could ultimately affect profit or loss. Management have reviewed the detailed forecasts and growth assumptions within them, and are satisfied that forecasts in which the cash flow hedge accounting has been based meet the criteria per IFRS 9 as being highly probable forecast transactions. Should the forecast levels not pass the highly probable test, any cumulative fair value gains and losses in relation to either the entire or the ineffective portion of the hedged instrument would be taken to the Income Statement.
Management considers various factors when determining whether a forecast transaction is highly probable. These factors include detailed sales forecasts by channel, geographical area and seasonality, conditions in target markets and the impact of expansion in new areas. Management also consider any change in alternative customer sales channels that could impact on the hedged transaction.
If the forecast transactions were determined to be not highly probably and all hedge accounting was discontinued, the Hedging reserve of £28.0m (excluding deferred tax) would be shown in Finance Income.
Defining Operating Segments
Management determines its operating segments with reference to the Chief Operational Decision Maker's process for making key decisions over allocation of resources to the segment and in assessing a segment's performance. This is based on:
• The nature of the operation type and products sold
• The type of class of customer targeted
• Product distribution methods
Similar operations are amalgamated into operating segments for the purposes of segmental reporting. See also note 2.
Key Estimates
Provision For Obsolete, Slow Moving Or Defective Inventories
The Directors have applied their knowledge and experience of the retail industry in determining the level and rates of provisioning required in calculating the appropriate inventory carrying values. Specific estimates and judgements applied in relation to assessing the level of inventory provisions required are considered in relation to the following areas:
a) Continuity inventory
b) Seasonal inventory lines - specifically seasons that have now finished
c) Third party versus own brand inventory
d) Ageing of inventory
e) Sports Retail or Premium Lifestyle
f) Local economic conditions
g) Divisional specific factors
h) Increased cost of inventory and lower margins with the devaluation of the Pound
i) Over-stock and out of season inventory as a result of Covid-19
Provision estimates are forward looking and are formed using a combination of factors including historical experience, management's knowledge of the industry, group discounting, sales pricing protocols and the overall assessment made by management of the risks in relation to inventory. Management use a number of internally generated reports to monitor and continually re-assess the adequacy and accuracy of the inventory provision. The additional cost of repricing inventory and handling charges in relation to relocating inventory (tunnelling) are considered in arriving at the appropriate percentage provision. The testing performed to check that the assumptions applied remain valid by management produces a range of outcomes and the provision is set within this range.
Key assumptions used to create the estimates are:
• Discounting - Based on historical experience and managements anticipated future discounting including the impact of Covid-19
• Tunnelling - Cost of handling stock for reworking, repacking and repricing
• Repricing - Labour cost associated with repricing units of stock
• Shrinkage - Stock lost through damage and theft
Total Group inventory provision at 26 April 2020 is 15.7% (2019: 15.5%). A 1% change in the total provision would impact underlying EBITDA by approx. £14.2m.
Property Related Provisions
Property related estimates and judgements are continually evaluated and are based on historical experience, external advice and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Dilapidations
The Group provides for its legal responsibility for dilapidation costs following advice from chartered surveyors and previous experience of exit costs (including strip out costs and professional fees). Management use a reference estimate of £100,000 (FY19: £80,000) for large leasehold stores, £50,000 (FY19: £50,000) for smaller leasehold stores (£25,000 per store for Game UK and Game Spain stores) and $/€50,000 (FY19: $/€50,000) for non-UK stores. Management do not consider these costs to be capital in nature and therefore dilapidations are not capitalised, except for in relation to the sale and leaseback of Shirebrook in the year in which a material dilapidations provision has been recognised.
A 10% increase per store would result in an approx. £8.0m charge to the income statement.
Other Provisions
Provisions are made for items where the Group has identified a present legal or constructive obligation arising as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Legal and regulatory provisions relate to management's best estimates of provisions required for legal and regulatory claims and ongoing non-UK tax enquiries. Other provisions relate to management's best estimates of provisions required for restructuring, employment and commercial. Where applicable these are inclusive of any estimated penalties, interest and legal costs.
In relation to the non-UK tax enquiries during FY20 management have made a judgement to consider all claims collectively, applying the following key estimates to the gross amounts (Excluding re-imbursement assets):
• 10% penalty (FY19: 10%). A 5% increase would result in approx. £7m increase in the provision.
• 3% interest on the liability (FY19: 3%). A 1% increase would result in approx. £10m increase in the provision.
Management are satisfied that the judgement to consider all claims collectively is the only reasonable approach because they are all dependant on the outcome of a court ruling on the interpretation of the non-UK tax enquiries. Management are satisfied that with regard to timing a reasonable range of outcomes are all greater than one year and so are satisfied with including the provisions as non-current.
Other Receivables And Amounts Owed By Related Parties
Other receivables and amounts owed by related parties are stated net of provision for any impairment. Management have applied estimates in assessing the recoverability of working capital and loan advances made to investee companies. Matters considered include the relevant financial strength of the underlying investee company to repay the loans, the repayment period and underlying terms of the monies advanced, forecast performance of the underlying borrower, and where relevant, the Group's intentions for the companies to which monies have been advanced.
The key estimate within the loan assessment for the Four (Holdings) Limited amounts owed by related parties is the discount rate applied and management have based the discount rate on a market rate of 6.5%. The discount rate would need to be increased by 2% for a further loss allowance to be recognised.
IFRS 16
The key areas of judgement in relation to property leases recognised under IFRS 16 are below:
• IFRS 16 defines the lease term as the non-cancellable period of a lease together with the options to extend or terminate a lease, if the lessee were reasonably certain to exercise that option. The Group will assess the likelihood of extending lease contracts beyond the break date by taking into account current economic and market conditions, current trading performance, forecast profitability and the level of capital investment in the property.
• IFRS 16 states that the lease payments shall be discounted using the lessee's incremental borrowing rate where the rate implicit in the lease cannot be readily determined. Accordingly, all lease payments have been discounted using the incremental borrowing rate (IBR). The IBR has been determined by using a synthetic credit rating for the Group which is used to obtain market data on debt instruments for companies with the same credit rating, this is split by currency to represent each of the geographical areas the Group operates within and adjusted for the lease term.
• Management have performed an assessment of core and non-core entities to which management have applied the IBR to core entities. The remaining non-core entities are not significant to the Group and therefore the core IBR has also been applied to these.
• Exit costs have not been capitalised within the right of use asset (except for Shirebrook), this is in line with the Group's property, plant and equipment capitalisation policy.
• The right of use asset will be reviewed for impairment at each reporting period in line with IAS 36 impairment to review whether the carrying amount exceeds it recoverable amount. For impairment testing purposes the Group has determined that each store is a separate CGU. The recoverable amount is calculated based on the Group's latest forecast cash flows which are then extrapolated to cover the period to the break date of the lease taking into account historic performance and knowledge of the current market, together with the Group's views on future profitability of each CGU. The key assumptions in the calculations are the sales growth rates, gross margin rates, changes in the operating cost base and the pre-tax discount rate derived from the Group's weighted average cost of capital using the capital asset pricing model, the inputs of which include a risk-free rate, equity risk premium and a risk adjustment (Beta). Impairments in the period have been recognised in the amount of £97.8m due to the ongoing impact of Covid-19 and the challenges in the retail sector on the forecast cash flows of the CGU.
The key assumptions, which are equally applicable to each CGU, in the cash flow projections used to support the carrying amount of the right of use asset were as follows:
As at 26 April 2020
Key assumptions used
Sales decline - year 1
10.0%
Sales decline - years 2 - 5
1.0%
Gross margin reduction in basis points - year 1
3.0%
Operating costs increase
3.0%
Discount rate
6.0%
A sensitivity analysis has been performed in respect of sales as management consider this to be the most sensitive of the key assumptions. A change in the year 1 sales assumption from 10% to 11% would result in an increase in impairment of £5.4m, a change in the year 2 sales assumption from 1% to 2% would result in an increase in impairment of £12.2m.
Key Estimates In Relation To Alternative Performance Measures
The Directors believe that underlying EBITDA, underlying Profit before tax and underlying basic EPS provide further useful information for shareholders on the underlying performance of the Business in addition to 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, amortisation and impairment. It includes the Group's share of losses from associated undertakings and joint ventures. Underlying EBITDA excludes the impact of IFRS 16, foreign exchange gains/losses in selling and administration costs, exceptional costs, and the profit / loss on disposal of subsidiaries, strategic investments and properties. Underlying EBITDA also excludes fair value adjustments on step acquisitions.
The following are further key estimates used with regard to the alternative performance measures used by the group.
Onerous lease provision
Provisions for onerous lease contracts are recognised when the unavoidable costs of meeting lease obligations exceed the economic benefits expected to be received over the term of the lease. Where an onerous lease has been identified, the fixed assets associated to that store are also reviewed for impairment.
Management use store EBITDA in order to determine whether an onerous lease exists, specific assumptions which involve the use of estimates to determine the appropriate level of provision include:
a. Forecast sales and margin in stores, reflecting historic and expected future performance including the impact of the Elevation strategy across the Group
• UK forecasts are currently expecting a sales drop of -10% in FY21 (FY19: -5% in FY20) and then -1% (FY19: -1%) for future years and a margin impact of -300bps (FY19: -250bps) in FY21, then flat for future years
• European forecasts are currently expecting a sales drop of -10% (FY19: -2% in FY20) and then -1% (FY19: -1%) for future years and a margin impact of -300bps (FY19: -250bps) in FY21, then flat for future years
b. Forecast wages and direct store cost inflation
• UK wage and operating costs inflation assumes 3% (FY19: 3%) and Europe assumes 3% (FY19: 2%)
• UK rent increases are expected at 2% (FY19: 16%)
• European rent increases are expected at 2% (FY19: 2%)
c. Other
• Discount rate 2% (FY19: 3%) across the Group
• Store profitability includes 100% contribution towards central overheads
• Assumed get out cap of 10 years (FY19: no cap)
d. Planned store closures, relocations and re-brandings
e. Lease obligations calculated to the end of the lease or where applicable break clause, or earlier estimate of expected exit date where this can be reliably estimated
Sensitivity of estimates:
Forecast:
Impact of:
£'m
Sales year 1
1% change
5.0
Margin
100bps
10.0
Wages and operating costs
1% change
19.5
Rent increase
1% change
0.7
Discount rate
1% change
10.0
2. SEGMENTAL ANALYSIS
Management has determined to present its segmental disclosures consistently with the presentation in the 2019 Annual Report with the exception that the House of Fraser fascia has been included within the Premium Lifestyle segment. This is due to management's assessment of the operating characteristics of the House of Fraser retail activities. Management considers operationally that the UK Retail divisions (UK Sports Retail and Premium Lifestyle) are run as one business unit in terms of allocating resources, inventory management and assessing performance. Under IFRS 8 we have not at this reporting date met the required criteria with enough certainty to aggregate these operating segments. We will continually keep this under review at subsequent reporting dates. We continue to monitor the impacts of Covid-19, Brexit, and the continued uncertainties this has brought relating to the political and economic environments, and market and currency volatility in the countries we operate in. European countries have been identified as operating segments and have been aggregated into a single operating segment as permitted under IFRS 8. The decision to aggregate these segments was based on the fact that they each have similar economic characteristics, similar long-term financial performance expectations, and are similar in each of the following respects:
• The nature of the products;
• The type or class of customer for the products; and
• The methods used to distribute the products.
In accordance with paragraph 12 of IFRS 8 the Group's operating segments have been aggregated into the following reportable segments:
1) UK Retail:
i) UK Sports Retail - includes core sports retail store operations in the UK, plus all the Group's sports retail online business (Excluding Bobs' Stores, Eastern Mountain Sports and Sports Direct Malaysia), the gyms, the Group's Shirebrook campus operations, retail store operations in Northern Ireland, Evans Cycles and Game UK stores acquired in the year.
ii) Premium Lifestyle - includes the results of the premium retail businesses Flannels, Cruise, van mildert, Jack Wills, House of Fraser and Sofa.com along with the related websites.
2) European Retail - includes all the Group's sports retail stores, management and operations in Europe including the Group's European Distribution Centres in Belgium and Austria as well as GAME Spain stores acquired in the year.
3) Rest of World Retail - includes the results of US based retail activities, Asia based retail activities along with their e-commerce sites; and
4) Wholesale & Licensing - includes the results of the Group's portfolio of internationally recognised brands such as Everlast, Karrimor, Lonsdale and Slazenger.
It is management's current intention to run the group as four operating segments being UK Retail (including UK Sports Retail and Premium Lifestyle), European Retail, Rest of World Retail and Wholesale & Licensing. Management is satisfied that the UK Sports Retail, Premium Lifestyle and House of Fraser Retail segments will meet the criteria permitted under IFRS 8 to aggregate as one segment in due course.
Segmental information for the 52 weeks ended 26 April 2020:
UK Sports Retail
Premium Lifestyle
UK Retail Total
European Retail
Rest of World Retail
Total
Retail
Wholesale & Licensing
Eliminations
Group
Total
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
Sales to external customers
2,203.3
722.0
2,925.3
697.7
174.2
3,797.2
160.2
-
3,957.4
Sales to other segments
-
-
-
-
-
-
17.8
(17.8)
-
Revenue
2,203.3
722.0
2,925.3
697.7
174.2
3,797.2
178.0
(17.8)
3,957.4
Gross profit
903.3
348.6
1,251.9
267.9
77.4
1,597.1
65.5
-
1,662.6
Operating profit/(loss) before foreign exchange, exceptional items and IFRS 16
145.6
(18.0)
127.6
14.5
(11.6)
130.5
11.4
-
141.9
Exceptional
(2.7)
(6.9)
(9.6)
(3.5)
-
(13.1)
-
-
(13.1)
Disposal of property
33.2
-
33.2
21.0
-
54.2
-
-
54.2
Foreign exchange realised
29.5
1.4
30.9
4.1
0.4
35.4
(0.5)
-
34.9
IFRS 16 adjustments
2.3
(9.7)
(7.4)
(46.5)
7.9
(46.0)
-
-
(46.0)
Operating profit/(loss)
207.9
(33.2)
174.7
(10.4)
(3.3)
161.0
10.9
-
171.9
Other investment income
15.2
Investment costs
(49.8)
Finance income
31.0
Finance costs
(29.3)
Share of loss of associated undertakings
(15.9)
Fair value gain on step acquisition
20.4
Profit before taxation
143.5
Taxation
(42.5)
Profit for the period
101.0
Other segment items included in the Income Statement for the 52 weeks ended 26 April 2020:
UK Sports Retail
Premium Lifestyle
UK Retail Total
European Retail
Rest Of World Retail
Total
Retail
Wholesale & Licensing
Group
Total
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
Depreciation
98.5
20.7
119.2
39.4
4.8
163.4
1.4
164.8
IFRS 16 Depreciation/Impairment
113.1
16.1
129.2
77.0
13.3
219.5
-
219.5
IFRS 16 Disposal of lease liabilities
(2.7)
(0.2)
(2.9)
(6.4)
(0.4)
(9.7)
-
(9.7)
Impairment
2.7
6.9
9.6
3.5
-
13.1
-
13.1
Amortisation
2.1
2.0
4.1
3.9
-
8.0
12.4
20.4
Information regarding segment assets and liabilities as at 26 April 2020 and capital expenditure for the 52 weeks then ended:
UK Sports Retail
Premium Lifestyle
UK Retail Total
European Retail
Rest Of World Retail
Total
Retail
Wholesale & Licensing
Eliminations
Group
Total
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
Total assets
3,324.9
474.7
3,799.6
455.9
128.6
4,384.1
344.3
(860.2)
3,868.2
Total liabilities
(1,986.8)
(556.1)
(2,542.9)
(627.0)
(195.1)
(3,365.0)
(83.1)
860.2
(2,587.9)
Tangible asset additions
236.8
25.4
262.2
48.7
12.5
323.5
-
-
323.5
Right of use asset additions
50.6
22.9
73.5
25.5
2.2
101.2
-
-
101.2
Intangible assets acquired
2.7
8.9
11.6
3.1
-
14.7
-
-
14.7
Segmental information for the 52 weeks ended 28 April 2019:
UK Sports Retail
Premium Lifestyle (1)
UK Retail Total
European Retail
Rest Of World Retail
Total
Retail
Wholesale & Licensing
Eliminations
Group
Total
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
Sales to external customers
2,187.3
535.4
2,722.7
599.8
215.9
3,538.4
163.5
-
3,701.9
Sales to other segments
-
-
-
-
-
-
10.5
(10.5)
0.0
Revenue
2,187.3
535.4
2,722.7
599.8
215.9
3,538.4
174.0
(10.5)
3,701.9
Gross profit
919.9
247.3
1,167.2
261.5
86.8
1,515.5
68.0
-
1,583.5
Operating profit/(loss) before foreign exchange and exceptional items
184.0
(48.9)
135.1
9.6
(5.2)
139.5
31.5
-
171.0
Operating profit/(loss)
195.4
(51.4)
144.0
18.9
(6.0)
156.9
3.6
-
160.5
Other investment income
15.0
Investment costs
(8.3)
Finance income
40.0
Finance costs
(19.4)
Share of loss of associated undertakings
(8.6)
Profit before taxation
179.2
Taxation
(63.2)
Profit for the period
116.0
(1) The prior period has been re-categorised to include House of Fraser within the Premium Lifestyle segment.
Sales to other segments are priced at cost plus a 10% mark-up.
Other segment items included in the income statement for the 52 weeks ended 28 April 2019:
UK Sports Retail
Premium Lifestyle
UK Retail Total
European Retail
Rest Of World Retail
Total Retail
Wholesale & Licensing
Group Total
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
Depreciation
89.4
10.8
100.2
19.7
4.3
124.2
0.1
124.3
Amortisation
0.1
-
0.1
-
-
0.1
1.0
1.1
Impairment
10.6
-
10.6
0.8
-
11.4
29.5
40.9
Information regarding segment assets and liabilities as at 28 April 2019 and capital expenditure for the 52 weeks then ended:
UK Sports Retail
Premium Lifestyle (1)
UK Retail Total
European Retail
Rest Of World Retail
Total Retail
Wholesale & Licensing
Eliminations
Group Total
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
Investments in associated undertakings
11.0
-
-
-
-
-
-
-
11.0
Other assets
2,787.6
76.7
2,864.3
373.9
125.5
3,363.7
314.9
(540.8)
3,137.8
Total assets
2,798.6
76.7
2,875.3
373.9
125.5
3,374.7
314.9
(540.8)
3,148.8
Total liabilities
(1,509.1)
(130.7)
(1,639.8)
(532.6)
(188.3)
(2,360.7)
(76.5)
540.8
(1,896.4)
Tangible asset additions
109.2
29.1
138.3
14.2
9.2
161.7
1.5
-
163.2
Intangible asset additions
1.9
2.1
4.0
-
-
4.0
1.1
-
5.1
Total capital expenditure
111.1
31.2
142.3
14.2
9.2
165.7
2.6
-
168.3
(1) The prior period has been re-categorised to include House of Fraser within the Premium Lifestyle segment
GEOGRAPHIC INFORMATION
Segmental information for the 52 weeks ended 26 April 2020:
UK
(£m)
Other Non-UK
(£m)
US
(£m)
Asia
(£m)
Eliminations
(£m)
Total (£m)
Segmental revenue from external customers
2,951.0
722.3
235.2
48.9
-
3,957.4
Total capital expenditure
262.5
56.8
1.9
2.3
-
323.5
Non-current segmental assets*
1,172.6
113.1
210.4
13.8
-
1,509.9
Total segmental assets
3,861.1
473.3
354.5
39.5
(860.2)
3,868.2
*Excludes deferred tax and financial instruments.
Segmental information for the 52 weeks ended 28 April 2019:
UK
(£m)
Non-UK
(£m)
Eliminations
(£m)
Total (£m)
Segmental revenue from external customers
2,764.2
937.7
-
3,701.9
Total capital expenditure
144.5
23.4
-
167.9
Non-current segmental assets*
703.2
306.2
-
1,009.4
Total segmental assets
2,958.2
720.9
(530.3)
3,148.8
*Excludes deferred tax and financial instruments.
Material non-current segmental assets - by a non-UK country:
USA
(£m)
Belgium
(£m)
Austria (£m)
Estonia (£m)
ROI
(£m)
Spain
(£m)
FY20
173.8
41.2
30.3
24.2
52.9
36.7
FY19
168.5
16.1
55.4
12.4
41.3
-
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 52 week period ended 26 April 2020:
UK Sports
Retail
Premium Lifestyle
UK Retail Total
European Retail
Rest of World
Retail
Retail Total
Wholesale & Licensing
Group Total
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
Operating profit / (loss)
207.9
(33.2)
174.7
(10.4)
(3.3)
161.0
10.9
171.9
IFRS 16 disposal of lease liability
(2.7)
(0.3)
(3.0)
(6.4)
(0.4)
(9.8)
-
(9.8)
IFRS 16 ROU depreciation/impairment
113.1
16.1
129.2
77.0
13.3
219.5
-
219.5
IFRS 16 PPE impairment
3.2
-
3.2
6.0
-
9.2
-
9.2
Depreciation
95.3
20.6
115.9
33.5
4.8
154.2
1.4
155.6
Amortisation/impairment
2.1
2.0
4.1
3.9
-
8.0
12.5
20.5
Share of loss of associated undertakings
(15.9)
-
(15.9)
-
-
(15.9)
-
(15.9)
Reported EBITDA
403.0
5.2
408.2
103.6
14.4
526.2
24.8
551.0
Profit on sale of properties
(33.2)
-
(33.2)
(21.0)
-
(54.2)
-
(54.2)
Exceptional items
2.7
6.9
9.6
3.5
-
13.1
-
13.1
IFRS 16 adjustments (1)
(115.9)
(6.1)
(122.0)
(30.1)
(20.8)
(172.9)
-
(172.9)
Realised FX (gain) / loss
(29.2)
(1.5)
(30.7)
(4.2)
(0.4)
(35.3)
0.4
(34.9)
Underlying EBITDA
227.4
4.5
231.9
51.8
(6.8)
276.9
25.2
302.1
(1) Relates to the reversal of IFRS 16 rent and onerous lease provisions.
Reconciliation of operating profit to underlying EBITDA for the 52-week period ended 28 April 2019:
UK Sports
Retail
Premium Lifestyle (1)
UK Retail
Total
European Retail
Rest of World
Retail
Retail Total
Wholesale & Licensing
Group Total
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
Operating profit / (loss)
195.4
(51.4)
144.0
18.9
(6.0)
156.9
3.6
160.5
Depreciation
89.4
10.8
100.2
19.7
4.3
124.2
0.1
124.3
Amortisation
0.1
-
0.1
-
-
0.1
1.0
1.1
Share of loss of associated undertakings
(8.6)
-
(8.6)
-
-
(8.6)
-
(8.6)
Reported EBITDA
276.3
(40.6)
235.7
38.6
(1.7)
272.6
4.7
277.3
Profit on sale of properties
-
-
-
(8.4)
-
(8.4)
-
(8.4)
Exceptional items
10.6
-
10.6
0.9
-
11.5
29.5
41.0
Realised FX (gain) / loss
(22.2)
2.7
(19.5)
(1.8)
0.8
(20.5)
(1.6)
(22.1)
Underlying EBITDA
264.7
(37.9)
226.8
29.3
(0.9)
255.2
32.6
287.8
(1) The prior period has been re-categorised to include House of Fraser within the Premium Lifestyle segment
3. EXCEPTIONAL ITEMS
52 weeks ended
26 April 2020
(£m)
52 weeks ended
28 April 2019
(£m)
Impairments
13.1
41.0
The impairment in the period relates to goodwill, whereby the discounted present value of future cash flows do not support the full value of the assets.
In FY19, following the loss of a licensee the majority of the impairment recognised related to Everlast goodwill where the discounted present value of future cash flows did not support the full value of the asset.
4. INVESTMENT INCOME
52 weeks ended
26 April 2020
(£m)
52 weeks ended
28 April 2019
(£m)
Profit on disposal of financial assets and equity derivative financial instruments
7.4
11.6
Fair value gain on equity derivative financial instruments
7.3
-
Dividend income from investments
0.5
3.4
15.2
15.0
The profit on disposal of financial assets and equity derivative financial instruments and the fair value gain on equity derivative financial instruments mainly relates to long term financial assets.
5. INVESTMENT COSTS
52 weeks ended
26 April 2020
(£m)
52 weeks ended
28 April 2019
(£m)
Loss on disposal of financial assets and equity derivative financial instruments
14.0
-
Fair value loss on equity derivative financial instruments
35.8
8.3
49.8
8.3
The loss on disposal recognised in the period mainly relates to the sale of equity derivatives. The fair value loss on equity derivatives in the period mainly relates to Hugo Boss options and commodities.
The fair value loss in FY19 mainly relates to disposal of Iconix Brand Group Inc equity derivatives.
6. FINANCE INCOME
52 weeks ended
26 April 2020
(£m)
52 weeks ended
28 April 2019
(£m)
Bank interest receivable
1.6
0.2
Other finance income
8.1
0.1
Fair value adjustment to foreign exchange contracts
21.3
39.7
31.0
40.0
The fair value adjustment to foreign exchange contracts relates to differences between the fair value of forward foreign currency contracts and written options that were not designated for hedge accounting from one period end to the next. This also includes immaterial adjustments due to ineffectiveness on hedged contracts. Other finance income largely relates to premiums received on option contracts.
7. FINANCE COSTS
52 weeks ended
26 April 2020
(£m)
52 weeks ended
28 April 2019
(£m)
Interest on bank loans and overdrafts
17.9
14.5
Other interest and finance leases
0.4
4.8
Interest on retirement benefit obligations
0.1
0.1
IFRS 16 Lease Interest
10.9
-
29.3
19.4
8. TAXATION
52 weeks ended
26 April 2020
(£m)
52 weeks ended
28 April 2019
(£m)
Current tax
57.2
61.5
Adjustment in respect of prior periods
3.9
6.3
Total current tax
61.1
67.8
Deferred tax
(25.8)
(4.6)
Adjustment in respect if prior periods
7.2
-
Deferred tax
(18.6)
(4.6)
42.5
63.2
Profit before taxation
143.5
179.2
Taxation at the standard rate of tax in the UK of 19% (2019: 19%)
27.3
34.0
Non-taxable income
(22.4)
(0.6)
Expenses not deductible for tax purposes
19.0
8.6
Other tax adjustments
9.6
14.7
Adjustments in respect of prior periods - current tax
3.9
6.3
Adjustments in respect of prior periods - deferred tax
7.2
-
Change in deferred tax rate
(2.1)
0.2
42.5
63.2
Non-taxable income largely relates to profits on property disposal due to differences between capital allowances and depreciation. Expenses not deductible for tax purposes relate to non-qualifying depreciation and fair valuation of investments.
9. 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, 505,826,890 (FY19: 519,430,926), is adjusted to assume conversion of all dilutive potential ordinary shares under the Group's share schemes, being 1,239,075 (FY19: 1,318,146), to give the diluted weighted average number of shares of 507,065,965 (FY19: 520,749,072).
BASIC AND DILUTED EARNINGS PER SHARE
52 weeks ended
52 weeks ended
26 April 2020
Basic
(£m)
26 April 2020
Diluted
(£m)
28 April 2019
Basic
(£m)
28 April 2019
Diluted
(£m)
Profit for the period
93.8
93.8
112.0
112.0
Number in thousands
Number in thousands
Weighted average number of shares
505,827
507,066
519,431
520,749
Pence per share
Pence per share
Earnings per share
18.5
18.5
21.6
21.5
UNDERLYING EARNINGS PER SHARE
The underlying earnings per share reflects the underlying performance of the business compared with the prior period 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.
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.
52 weeks ended
52 weeks ended
26 April 2020
Basic
(£m)
26 April 2020
Diluted
(£m)
28 April 2019
Basic
(£m)
28 April 2019
Diluted
(£m)
Profit for the period
93.8
93.8
112.0
112.0
Post-tax adjustments to profit for the period for the following non-trading items:
Realised profit on forward exchange contracts
(26.1)
(26.1)
(17.2)
(17.2)
Fair value adjustment to forward foreign exchange contracts
(16.0)
(16.0)
(31.0)
(31.0)
Fair value gain on step acquisitions
(20.4)
(20.4)
-
-
Fair value adjustment on equity derivatives
26.9
26.9
-
-
Loss / (profit) on disposal of listed investments
7.7
7.7
(6.7)
(6.7)
Profit on disposal of property
(54.2)
(54.2)
(6.5)
(6.5)
Exceptional items
13.1
13.1
40.9
40.9
IFRS 16 adjustments
56.9
56.9
-
-
Underlying profit for the period
81.7
81.7
91.5
91.5
Number in thousands
Number in thousands
Weighted average number of shares
505,827
507,066
519,431
520,749
Pence per share
Pence per share restated
Underlying earnings per share
16.2
16.1
17.6
17.6
10. PROPERTY, PLANT AND EQUIPMENT
Freehold land and Buildings
Long-term Leasehold
Short-term leasehold improvements
Plant and equipment
Right of use asset
Total
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
COST
At 29 April 2018
770.2
63.6
140.4
661.8
-
1,636.0
Exchange differences
(1.3)
0.1
(0.2)
(3.6)
-
(5.0)
Transfers
7.9
(7.2)
(3.5)
3.5
-
0.7
Reclassification to Held for sale
(58.7)
-
(1.0)
(124.1)
-
(183.8)
Acquisitions
-
-
-
4.0
-
4.0
Additions
47.5
11.5
2.9
96.6
-
158.5
Eliminated on disposals
(18.3)
-
(4.9)
(14.4)
-
(37.6)
At 28 April 2019
747.3
68.0
133.7
623.8
-
1,572.8
Recognised on adoption of IFRS 16
-
-
-
-
422.5
422.5
Exchange differences
2.5
0.2
(0.8)
2.8
-
4.7
Reclassifications / Remeasurements (1)
-
-
-
33.0
2.8
35.8
Acquisitions
25.4
0.5
-
6.1
18.8
50.8
Additions
177.2
2.2
15.4
128.7
101.2
424.7
Eliminated on disposals
(33.5)
(0.3)
(16.7)
(21.8)
(20.9)
(93.2)
At 26 April 2020
918.9
70.6
131.6
772.6
524.4
2,418.1
ACCUMULATED DEPRECIATION AND IMPAIRMENT
At 29 April 2018 (restated in period ended 28 April 2019)
(137.5)
(14.9)
(113.1)
(508.5)
-
(774.0)
Exchange differences
0.2
-
(0.6)
6.6
-
6.2
Transfers
-
3.4
-
(3.4)
-
-
Reclassifications / Remeasurements
35.5
-
0.5
79.8
-
115.8
Charge for the period
(34.7)
(3.3)
(9.1)
(75.7)
-
(122.8)
Eliminated on disposals
3.7
0.6
4.6
16.3
-
25.2
At 28 April 2019
(132.8)
(14.2)
(117.7)
(484.9)
-
(749.6)
Recognised on adoption of IFRS 16
-
-
-
(6.2)
-
(6.2)
Exchange differences
(0.5)
(0.1)
0.8
2.6
0.9
3.7
Charge for the period (2)
(47.8)
(2.5)
(7.0)
(104.2)
(219.6)
(381.1)
Eliminated on disposals
27.8
0.1
10.0
24.8
-
62.7
At 26 April 2020
(153.3)
(16.7)
(113.9)
(567.9)
(218.7)
(1,070.5)
NET BOOK VALUE
At 26 April 2020
765.6
53.9
17.7
204.7
305.7
1,347.6
At 28 April 2019
614.5
53.8
16.0
138.9
-
823.2
At 29 April 2018 (restated in period ended 28 April 2019)
632.7
48.7
27.3
153.3
-
862.0
(1) The £33.0m was reclassified due to Shirebrook warehouse plant and equipment not forming part of the final sale and leaseback completed during the year.
(2) There is no separate disclosure of impairment from depreciation in respect of the property, plant and equipment (Total impairment is £122.6m of which £97.8m relates to the Right-of-use assets).
11. BORROWINGS
26 April 2020
(£m)
28 April 2019
(£m)
CURRENT:
Lease liabilities
147.9
-
NON-CURRENT:
Bank and other loans
900.0
826.5
Lease liabilities
476.2
-
Total
1,524.1
826.5
An analysis of the Group's total borrowings other than bank overdrafts is as follows:
26 April 2020
(£m)
28 April 2019
(£m)
Borrowings - sterling
900.0
820.0
Borrowings - other
-
6.5
900.0
826.5
Loans are currently at a rate of interest of 1.3% (FY19: 1.5%) over the interbank rate of the country within which the borrowing entity resides.
12. ACQUISITIONS
i. On 8 July 2019 the Group obtained control when its mandatory cash offer to acquire the entire share capital of GAME Digital Plc became unconditional. For acquisition accounting the 27 July 2019 was used being the GAME Digital plc year end date as no material transactions occurred between these dates. The consideration amounted to £53.3m which includes £20.4m for the fair value of the equity interest held prior to acquisition. In the prior year GAME Digital plc was accounted for as an associate. The Group acquired GAME with a view to create a more experiential consumer offering within its Sport Direct fascia stores. The goodwill is attributable to the position of GAME Digital plc in the market as a leading gaming retailer.
ii. During the year the Group acquired the trade and assets of Jack Wills, the entire share capital of Sofa.com and the entire share capital of Brookfield Unit Trust (Cheshunt Retail Park) for consideration of £38.0m.
The Jack Wills and Sofa.com brands will provide increased product offerings aligning with the Group's intention to diversify its portfolio of investments in the 'Premium Lifestyle' division. The Cheshunt Shopping Centre will be part of the Groups elevation strategy.
The asset and liability values at acquisition are detailed below. We have reviewed the fair value of the assets and liabilities acquired. The following table summarises the fair values of consideration paid:
Game Digital
Other
(£m)
(£m)
Cash consideration
32.9
38.0
Fair value of equity interest
20.4
-
53.3
38.0
The fair value of equity interest is calculated as the difference between the carrying value of the associate and the quoted share price (Level 1) at the date control passed multiplied by the Group's shareholding.
Game Digital
Other
Book Value
Fair Value Adjustment
Fair Value
Book Value
Fair Value Adjustment
Fair Value
(£m)
(£m)
(£m)
(£m)
(£m)
(£m)
Property, plant and equipment
2.7
18.1
20.8
27.8
2.0
29.8
Intangible assets
10.2
(10.2)
-
2.0
-
2.0
Inventories
72.7
10.3
83.0
12.4
4.0
16.4
Cash and cash equivalents
62.7
-
62.7
1.0
-
1.0
Borrowings
(0.6)
-
(0.6)
(14.2)
7.7
(6.5)
Working capital
(92.7)
2.4
(90.3)
(4.7)
-
(4.7)
Lease liability
-
(28.0)
(28.0)
-
-
-
Goodwill
-
5.7
5.7
-
7.0
7.0
Bargain purchase
-
-
-
-
(7.0)
(7.0)
Net assets acquired
55.0
(1.7)
53.3
24.3
13.7
38.0
The bargain purchase of £7.0m has been recognised within cost of sales within the period. Included in working capital is trade and other receivables of £19.5m, this is net of £0.3m of expected credit loss provision and is considered to represent the fair value of amounts due from customers.
Since the date of control, the following amounts have been included within the Group's Financial Statements for the period:
Acquisitions (£m)
Game Digital
(£m)
Other
(£m)
Total (£m)
Revenue
445.7
75.7
521.4
Operating loss
(4.9)
(4.9)
(9.8)
Loss before tax
(5.8)
(5.3)
(11.1)
Had the acquisitions been included from the start of the period the following amounts would have been included within the Group's Financial Statements for the period:
Acquisitions (£m)
Game Digital
(£m)
Other
(£m)
Total (£m)
Revenue
594.3
97.5
691.8
Operating loss
(24.7)
(6.2)
(30.9)
Loss before tax
(25.7)
(6.7)
(32.4)
There were no contingent liabilities acquired as a result of the above transaction. Acquisition fees of £0.9m have been charged to selling, distribution and administrative expenses relating to these acquisitions.
13. POST BALANCE SHEET EVENTS
From 15 June 2020 all the Group's stores (with the exception of the Scottish stores which reopened on 13 July 2020) were fully reopened following the Government's lockdown as a result of the Covid-19 pandemic.
The Group announced on the 29 June 2020 that it has increased its investment in Hugo Boss AG, and held the following interests in the common stock:
• 552,500 shares of common stock, representing 0.8% of Hugo Boss's total share capital
• 2,249,601 shares of common stock via contracts for difference, representing 3.2% of Hugo Boss's total share capital
• 4,260,000 shares of common stock via the sale of put options, representing 6.1% of Hugo Boss's total share capital
After taking into account the premium it will receive under the put options, Frasers Group's maximum aggregate exposure in connection with its acquired interests in Hugo Boss is approximately €204.0m (approx. GBP £186.0m).
On 22 July 2020 the Group sold certain IP relating to the Belong business for a total consideration of $10.0m (approx. £8.0m). A further $7.5m may be received over the following five years if certain criteria are met. There may also be additional revenue streams from advertising and sponsorships. As part of the sale, the Group has agreed to licence back some of the IP sold to continue to operate the Belong Gaming Arenas in certain territories including the UK.
GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
Reconciliation of excluding acquisitions and currency neutral performance measures FY20:
UK Sports Retail
Premium Lifestyle
European Retail
Rest Of World Retail
Wholesale & Licensing
Group
Total
Revenue
FY20 Reported
2,203.4
722.0
697.7
174.2
160.1
3,957.4
Adjustments for acquisitions and currency neutral
(372.6)
(479.2)
(199.8)
-
-
(1,051.6)
FY20 Excluding acquisitions and currency neutral
1,830.8
242.8
497.9
174.2
160.1
2,905.8
FY19 Reported
2,187.3
535.4
599.8
215.9
163.5
3,701.9
Adjustments for acquisitions and currency neutral
(44.6)
(330.6)
(10.1)
5.7
2.8
(376.8)
FY19 Excluding acquisitions and currency neutral
2,142.7
204.8
589.7
221.6
166.3
3,325.1
% Variance
(14.6%)
18.6%
(15.6%)
(21.4%)
(3.7%)
(12.6%)
Underlying EBITDA
FY20 Reported
227.4
4.5
51.8
(6.8)
25.2
302.1
Adjustments for acquisitions and currency neutral
12.2
34.8
5.3
-
-
52.3
FY20 Excluding acquisitions and currency neutral
239.6
39.3
57.1
(6.8)
25.2
354.4
FY19 Reported
264.7
(37.9)
29.3
(0.9)
32.6
287.8
Adjustments for acquisitions and currency neutral
17.6
51.6
(2.6)
(0.2)
0.3
66.7
FY19 Excluding acquisitions and currency neutral
282.3
13.7
26.7
(1.1)
32.9
354.5
% Variance
(15.1%)
186.9%
113.9%
(518.2%)
(23.4%)
0.0%
Movement in provisions pre-IFRS 16:
Legal and regulatory
(£m)
Property related
(£m)
Other (£m)
Total (£m)
At 29 April 2018 (Restated)
72.5
130.9
12.0
215.4
Amounts provided
16.6
101.9
1.0
119.5
Reclassified from accruals
149.1
-
-
149.1
Amounts utilised / reversed
(4.2)
(34.3)
(5.0)
(43.5)
At 28 April 2019
234.0
198.5
8.0
440.5
Amounts provided
13.0
111.2
-
124.2
Amounts utilised / reversed
(21.6)
(70.8)
(5.3)
(97.7)
Acquisitions
-
10.6
-
10.6
At 26 April 2020
225.4
249.5
2.7
477.6
During the period, onerous lease provisions (Pre-IFRS 16) were recognised due to an ongoing management review of the Group's store profile and strategy including current and anticipated freehold acquisitions, resulting in additional provisions being made of £16.3m in the period (Excluding acquisitions), with reference to the Groups alternative performance measures.
Reconciliation of underlying performance measures (EBITDA and PBT):
52 weeks ended
26 April 2020
52 weeks ended
28 April 2019
EBITDA (£'m)
PBT (£'m)
EBITDA (£'m)
PBT (£'m)
OPERATING PROFIT
171.9
-
160.5
-
Depreciation and amortisation
170.1
-
125.4
-
Impairment Intangibles
5.9
-
-
-
IFRS 16 depreciation
122.6
-
-
-
IFRS 16 Impairment
106.1
-
-
-
IFRS 16 Disposal of lease liabilities
(9.7)
-
-
-
566.9
-
285.9
-
Share of (loss) / profit and impairments of associates
(15.9)
-
(8.6)
-
REPORTED
551.0
143.5
277.3
179.2
Exceptional items:
IFRS 16 Exceptional
6.8
6.8
-
-
Other Exceptional
6.3
6.3
41.0
41.0
13.1
13.1
41.0
41.0
IFRS 16 Reversal of rent expense
(137.5)
(137.5)
-
-
IFRS 16 Reversal of onerous lease provision
(35.5)
(35.5)
-
-
IFRS 16 depreciation
-
122.6
-
-
IFRS 16 Impairment
-
106.1
-
-
IFRS 16 Disposal of lease liabilities
-
(9.7)
-
-
IFRS 16 Interest expense
-
10.9
-
-
(173.0)
56.9
-
-
Profit on sale of properties:
Profit on sale of properties - Pre-IFRS 16 basis
(109.3)
(109.3)
(8.4)
(8.4)
IFRS 16 sale and leaseback - Adjustment to post-IFRS 16 basis
55.1
55.1
-
-
(54.2)
(54.2)
(8.4)
(8.4)
Loss / (profit) on disposal of listed investments
-
7.7
-
(6.7)
Realised FX (gain) / loss
(34.8)
(34.8)
(22.1)
(22.1)
Fair value adjustment on equity derivatives
-
26.9
-
-
Fair value adjustment on foreign currency contracts
-
(21.3)
-
(39.7)
Fair value gain on step acquisition
-
(20.4)
-
-
UNDERLYING
302.1
117.4
287.8
143.3
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDFR GGGDIRSDDGGG
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