REG - Sports Direct Intl. - Final Results <Origin Href="QuoteRef">SPD.L</Origin> - Part 1
06/09/2014 16:46
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Sports Direct International Plc
17 July 2014
17 July 2014
Preliminary Results for the Year ended 27 April 2014
Group Revenues up 23.8%, Group Underlying EBITDA up 15.0%
Year ended 27 April 2014 Year ended 28 April 2013
£m £m
Group revenue 2,706 2,186 23.8%
Sports Retail (1) 2,274 1,833 24.1%
Premium Lifestyle(2) 214 143 49.4%
Brands 218 209 4.1%
Group gross margin 42.7% 40.9% 180 bps
Sports Retail gross margin 42.9% 40.3% 260 bps
Underlying EBITDA (pre share scheme costs) 331.1 287.9 15.0%
Underlying profit before tax (PBT) (3) 249.3 208.1 19.8%
Reported profit before tax 239.5 207.2 15.6%
Underlying earnings per share (EPS) (3) 32.1p 26.9p 19.3%
Reported earnings per share 30.8p 26.6p 15.6%
Net debt 212.0 154.0 37.7%
Key highlights
· Sports Retail like-for-like stores gross contribution increased by 10.5% (FY13: 10.6%)
· Accelerated European expansion including acquisitions in Austria and the Baltic region(4)
· Growth in online revenue of 26.8% - now representing 17.1% of all Sports Retail sales (FY13: 15.0%)(5)
· Reported profit before tax up 15.6% to £239.5m (FY13: £207.2m)
· Underlying free cash generation of £277.2m(6)
· 84 new license agreements signed with contracted values of $51m over the life of the agreements
· Second and final part of 2009 Employee Bonus Share Scheme vested in August 2013
· Continued investment in inventory and strategic acquisitions whilst maintaining a strong balance sheet
Dave Forsey, Chief Executive, said:
"We have delivered another record year of out-performance especially within our Sports Retail division. This success is
underpinned by our core strategy, offering our customers a wide range of products which represent exceptional quality and
unbeatable value.
"Through both individual hard work and operating as a team, against a particularly tough comparative which included the
UEFA European Championships and the 2012 London Olympics, we have significantly out-performed the third underlying EBITDA
target of £260m set under the 2011 Employee Bonus Share Scheme. This means that the Group has now successfully met the
first three targets and the Board is very confident of achieving the final target of £300m under the 2011 Employee Bonus
Share Scheme.
"Overall trading since the year end has been in line with management's expectations with some stronger weeks offset by
England's disappointing World Cup matches. Consistent with previous guidance, we continue to target underlying EBITDA
(before share scheme costs) of £360m for the current period."
(1) Includes Wholesale and Other revenue, previously only included in Group revenue
(2) FY13 comparative figures include Republic, previously only included in Group revenue
(3) Underlying profit before taxation and underlying EPS also exclude profits/losses relating to the IAS 39 fair value adjustment on forward currency contracts in financing income/costs, but includes the Employee Bonus Share Schemes' charge.
(4) At 27 April 2014, International Retail traded from 19 countries across Europe (2013: 12) including acquisitions and new store openings
(5) Excludes wholesales sales and sales in EAG and SIG. Including EAG and SIG sales, online revenue represents 15.1% of Sports Retail sales)
(6) Underlying free cash generation is defined as operating cash flow before working capital, made up of underlying EBITDA before Employee Bonus Share Scheme costs, plus realised foreign exchange gains and losses, less corporation tax paid.
Sports Direct International plcDave Forsey, Chief ExecutiveJeff Blue, Director, Strategic Development T: 0845 129 9200
PowerscourtRory GodsonVictoria Palmer-MooreGreg Lawless T: 0207 250 1446
CHAIRMAN'S STATEMENT
I am delighted to report the Group exceeded its targets for another year. We have maintained our position as the number one
sports retailer in the UK while reinforcing our status as the Consumers' Champion, as demonstrated by our wide product
range and value for money offering.
The Group's strategy of international expansion remains on course, with the acquisition of Eybl and Sports Experts AG (EAG)
in Austria, and Sportland International Group (SIG) in the Baltic region.
I am also pleased to confirm that the expansion of the Shirebrook Sports Direct store is now complete, including the
addition of a c. 9,000 sq. ft. dedicated Nike area and the opening of a USC store alongside. We will shortly commence work
on Phase three of our Shirebrook campus expansion; the construction of an additional c. 600,000 sq. ft. warehouse and
office extension which will be pivotal in facilitating our ambitious plans for growth.
I note also that the Group has recently signed a new £688m committed, unsecured revolving credit facility which will remain
in place until September 2018, providing a strong foundation on which to deliver our growth plans over the next four
years.
Employee Bonus Share Scheme
The Group's Employee Bonus Share Schemes are some of the most wide-reaching and generous share schemes in the UK. The
adoption of such schemes has proven highly effective at both motivating and remunerating our colleagues, and the
performance of the Group has gone from strength to strength since the initial scheme was first approved by shareholders in
September 2009.
The second and final award under the 2009 Employee Bonus Share Scheme vested in August 2013, with over 19 million shares
being distributed to a deserving c. 2,000 employees. The high level of rewards for eligible participants has also proven
key to employee retention, and we credit a great deal of our continued success to our loyal workforce.
The motivation and retention of our key employees has also contributed substantially towards the Group significantly
out-performing the 2011 Employee Bonus Share Scheme underlying EBITDA (before scheme costs) targets for FY12, FY13 and
FY14. I am convinced that the Group has the right team in place to achieve the FY15 EBITDA target, and I look forward to
seeing the scheme vest in both 2015 and 2017.
The Group recently proposed a 2015 Bonus Share Scheme to its shareholders under which employees and the executive directors
would be eligible to participate subject to the achievement of EBITDA targets for the years FY16 to FY19. I am pleased to
note that the new scheme was approved at a General Meeting on 2 July 2014.
On behalf of the entire Board, I would like to thank shareholders for their support and participation in this process.
Sports Direct's Employee Bonus Share Schemes are some of the most successful employee reward schemes in the UK. The success
of these schemes is demonstrated by the substantial shareholder value created over the last five years.
The Board
During the year Bob Mellors, the Group Finance Director, retired. His dedication and commitment to the Group cannot be
understated and we wish him well in his retirement. The recruitment of a replacement is on-going.
We are interviewing internal and external candidates to ensure that the new post holder displays the qualities required by
a FTSE 100 company. We are aware of Lord Davies' target of achieving Board diversity by ensuring a minimum of 25% of the
Board are female by 2015. However any appointment will be based on the skills and expertise of the individual. The Board
are still giving consideration to how the 25% target will be met.
Website
During the year significant time has been spent on updating the Group's corporate website. The updated site was launched
during December 2013 and is easy to navigate for both potential investors and current shareholders alike. New features to
the site include interactive share price charts, brands footage and alerts to subscribers following Group announcements.
The site also incorporates links to additional resources such as our online store and careers site.
Dividend
Consistent with the recent practice, the Board has decided not to propose a dividend in relation to FY14. The Board remains
of the opinion that it is in the best interests of the Group and its shareholders to preserve financial flexibility,
facilitating the pursuit of potential acquisition and other growth opportunities. The payment of dividends remains under
review in future years.
Conclusion
The Board and I would like to show our gratitude to our employees for the enormous contribution they have made during the
year. Our results reflect their very hard work and dedication which should never be taken for granted. I look to the year
ahead with optimism. Despite the difficult financial circumstances many of our customers find themselves in we believe our
compelling value proposition will allow us to achieve continued success.
Dr. Keith Hellawell. QPM
Non-Executive Chairman
17 July 2014
chief executive's report and business review
Summary of Results
Year ended 27 April 2014 Year ended 28 April 2013 Change
(£m) (£m) %
Revenue 2,706.0 2,185.6 23.8
Underlying EBITDA 331.1 287.9 15.0
Underlying profit before tax 249.3 208.1 19.8
Reported profit before tax 239.5 207.2 15.6
Pence per share Pence per share
Reported EPS 30.8 26.6 15.6
Underlying EPS 32.1 26.9 19.3
The Directors believe that underlying EBITDA, underlying profit before tax and underlying earnings per share provide more
useful information for shareholders on the underlying performance of the business than the reported numbers and are
consistent with how business performance is measured internally. They are not recognised profit measures under IFRS and may
not be directly comparable with "adjusted" profit measures used by other companies.
EBITDA is earnings before investment income, finance income and finance costs, tax, depreciation and amortisation and,
therefore, includes the Group's share of profit from associated undertakings and joint ventures. Underlying EBITDA is
calculated as EBITDA before the impact of foreign exchange, any exceptional or other non-trading items and costs relating
to the Employee Bonus Share Schemes.
Overview of financial performance
I am pleased to report a further year of strong revenue and profit growth for Sports Direct. The results for the year are
even more impressive given that the prior year included the UEFA European Championships and the 2012 London Olympics, and
have been achieved in a retail environment that remains challenging. The Group has grown consistently, and the resilience
and flexibility of our business model continues to allow us to offer an unrivalled product range, offering exceptional
quality and unbeatable value. We will continue to be the Consumers' Champion.
Building on our strategy of broadening our customer base through expansion, during the year we have opened c. 300,000 net
sq. ft. of additional retail space across the UK, re-fitting a further 300,000 sq. ft. In Europe we have opened c. 200,000
net sq. ft. of retail space in our existing business and have acquired a further c. 1.9 million sq. ft. with our
acquisitions in Austria and the Baltics.
The out-performance that we have achieved over recent years truly serves to demonstrate how successful the Employee Bonus
Share Scheme has been in motivating our employees to work towards a shared goal. The 2009 scheme targets were achieved and
the shares vested in August 2012 and 2013, with over 2,000 employees receiving life-changing sums as reward for their hard
work and dedication to the business over the last five years.
Underlying EBITDA targets under the 2011 Employee Bonus Share Scheme for FY12, FY13 and FY14 have been met. With only one
target left to achieve, the scheme is also firmly on course to vest in 2015 and 2017. I am also delighted that, following a
General Meeting on 2 July, shareholders have now given approval for a new 2015 Bonus Share Scheme. This will ensure the
commitment of our employees for many more years to come.
Group
For the year we increased Group revenue by 23.8% to £2,706.0m. This was primarily due to the Retail division, where we grew
revenues by 25.9%, including a 24.1% increase in Sports Retail revenue partly due to the acquisition of EAG in Austria and
SIG in the Baltic region. Premium Lifestyle revenue also grew by 49.4%, due largely to the acquisition of Republic in
February 2013.
Group gross margin in the year increased by 180 basis points from 40.9% to 42.7%. Sports Retail division gross margin
increased by 260 basis points to 42.9% (FY13: 40.3%), while Brands division gross margin decreased to 43.1% (FY13: 44.9%).
Group operating costs increased 35.9% to £826.1m (FY13: £607.9m). Sports Retail and Brands division operating costs were
£656.3m (FY13: £479.6m) and £63.1m (FY13: £66.6m), respectively. The increase in Group operating costs is mainly
attributable to our recent acquisitions in Austria and the Baltics. Excluding the impact of these acquisitions, Group
operating costs increased by 19.7%. Operating costs increased slightly as a percentage of sales from 27.8% in FY13 to 29.7%
in FY14, excluding the impact of acquisitions, due to provision reversals in the prior year and the impact of a full year
of costs within Republic.
Reflecting the success of our approach - balancing revenues and gross margin, while maintaining a tight focus on operating
costs - we grew Group underlying EBITDA (pre-scheme costs) for the year by 15.0% to £331.1m (FY13: £287.9m). Within this
underlying EBITDA, we increased the Retail division EBITDA by 15.3% to £300.9m (FY13: £260.9m) while the Brands division
EBITDA increased by 11.9% to £30.2m (FY13: £27.0m).
Excluded from underlying EBITDA is an £11.9m (FY13: £22.1m) charge in respect of the 2009 and 2011 Employee Bonus Share
Schemes and the Executive Bonus Share Schemes. This charge has been taken centrally and, except in note 4 to the Annual
Report, is not reflected in the divisional (Retail and Brands) numbers in this report.
For the year, Group underlying profit before tax increased 19.8% to £249.3m, primarily as a result of the £43.2m increase
in EBITDA (pre-scheme costs) and a £10.2m reduction in Employee Bonus Share Scheme charges offset by a £9.3m increase in
depreciation and amortisation. Underlying EPS for the year increased by 19.3% to 32.1p (FY13: 26.9p).
Net debt at 27 April 2014 was £212.0m (28 April 2013: £154.0m), which is 0.66 times reported EBITDA (28 April 2013: 0.58
times). Reported EBITDA includes realised foreign exchange gains/losses in selling and administration costs and the
Employee Bonus Share Scheme charges.
Review by business segment
Year ended 27 April 2014 (£m) Year ended 28 April 2013(£m) Change%
Retail
Revenue:
Sports Retail 2,274.4 1,833.3 24.1
Premium Lifestyle (1) 214.1 143.3 49.4
Total retail revenue 2,488.5 1,976.6 25.9
Cost of sales (1,427.3) (1,175.6) 21.4
Gross profit 1,061.2 801.0 32.5
Gross margin percentage 42.6 40.5 210 bps
(1) FY13 Premium Lifestyle revenue re-stated to include Republic revenue (previously included within Wholesale and
Other)
Year ended27 April 2014 (£m) Year ended 28 April 2013(£m) Change %
Brands
Revenue:
Wholesale 185.2 178.3 3.9
Licensing 32.3 30.7 5.2
Total brands revenue 217.5 209.0 4.1
Cost of sales (123.8) (115.2) 7.5
Gross profit 93.7 93.8 -0.1
Gross margin percentage 43.1 44.9 -180 bps
Sports Retail
Sports Retail revenue growth has continued with the acquisition of two international subsidiaries in Austria and the
Baltics, as well as further enhancements in our retail and logistics infrastructure.
Sports Retail sales grew 24.1% to £2,274.4m (FY13: £1,833.3m), driven by our recent European acquisitions and strong growth
in our existing business. Sports Retail gross margin for the year increased by 260 basis points to 42.9% (FY13: 40.3%).This
increase is mainly attributable to on-going investment in our 'better and best' product ranges and the further development
of Group Brands.
Sales in the second half of the year were up 25.5% to £1,138.3m (FY13 H2: £907.3m). Gross margins for the second half of
the year improved to 42.5% (FY13 H2: 39.7%).
Sports Retail like-for-like gross contribution, which excludes online, increased by 10.5%, marking the fifth consecutive
year of growth in this KPI against a tough comparator last year which included the UEFA European Championships and the 2012
London Olympics (FY13: +10.6% / FY12: +0.7% / FY11: +6.8% / FY10: +3.7%). Sports Retail like-for-like contribution is
defined as the percentage change in gross contribution in the successive 12-month period. A like-for-like store is one that
has been trading for the full 12 months in both periods and has not been affected by a significant change, such as a major
refurbishment. The number of stores included in this year's KPI is 339 (FY13: 340).
Sports Retail operating costs increased by 36.8% to £656.3m, including acquisitions (FY13: £479.6m). Excluding the impact
of acquisitions, operating costs increased by 16.3% to £557.6m - operating costs in H2 increased by 12.3% to £283.6m (FY13
H2: £252.6m).
Store wages were up 37.5% in the year to £211.4m (FY13: £153.7m) but as a percentage of sales increased only to 9.3% (FY13:
8.4%). Sports Retail premises costs increased by 33.1% to £192.7m (FY13: £144.8m), largely due to a £14.6m reversal of our
onerous lease provision in FY13 following the closure of a significant number of unprofitable stores. Excluding the impact
of this reversal, premises costs increased by 20.9%. Other operating costs were up 32.8% to £246.6m (FY13: £185.7m),
increasing slightly as a percentage of sales to 10.8% (FY13: 10.1%).
The currency impact due to the change in the Euro:Sterling exchange rate was a cost of £5.6m in the current year (FY13: a
gain of £4.6m).
Underlying EBITDA for Sports Retail was £321.3m (FY13: £259.9m), an increase of 23.6% for the year (20.2% excluding the
impact of acquisitions). This increase was driven by a £236.6m increase in gross profit (including acquisitions), due to
the growth in store contribution and online sales, offset by the £176.7m increase in operating costs.
The Group's retail businesses performed strongly in a difficult economic environment. Our retail model, offering
outstanding value to our customers, remains resilient, both in the UK and internationally. Throughout the year, we
continued to focus on offering our customers the most comprehensive product range, the best availability and value while
minimising operating costs as a percentage of gross sales.
The Group has continued its planned expansion into Europe with the acquisition of two key subsidiaries. In June 2013, the
Group acquired a 51% stake in the Sports Eybl & Sports Experts AG (EAG), a leading sports retailer with stores in Austria
and Germany. The remaining 49% of the business was subsequently acquired in March 2014. In August 2013, the Group acquired
a 60% shareholding in Sportland International Group (SIG), the market leader in the Baltic states of Estonia, Latvia and
Lithuania.
We have experienced growth in online revenue which has increased by 26.8% from £264.6m to £335.4m in the year. This
represented 17.1% of Sports Retail sales (FY13: 15.0%), excluding wholesale sales and sales in EAG and SIG (including EAG
and SIG, online revenue represented 15.1% of Sports Retail sales). Online sales to non-UK customers now represent 46.5% of
all online Sports Retail sales (FY13: 35.1%) and 48.2% of online contribution (FY13: 33.8%)
Our multi-channel offering remains a strategic focus for the Group. Order fulfilment and information technology solutions
are developed in-house with full back-up support from our National Distribution Centre in Shirebrook, Derbyshire. Specific
customer landing pages, and 'My Account' pages have now been upgraded and provide an improved customer experience. 401 of
the UK store fascia are now branded SPORTSDIRECT.com, an increase of 25 from last year (FY13: 376).
Approximately 25% of visits to Sportsdirect.com are now made via mobile devices. Given the rapid developments in this area,
we have updated our mobile site to support multiple language and currency options. Customer satisfaction through a
multi-channel offering remains one of our key areas of focus. During FY15 we aim to enhance the customer experience by
upgrading our search facility to ensure that the results are as relevant as possible. We are developing additional
functionality including Click & Collect, which is expected to be rolled-out in UK Sports Direct stores during Autumn/Winter
2014, online gift cards and the opportunity to open a credit facility.
We are currently in the final design stages for Phase 3 of the development of our National Distribution Centre in
Shirebrook, the construction of an additional c. 600,000 sq. ft. warehouse and office facility. Preparation of the site is
already in progress, with the aim of commencing works in September 2014, and completion of the project anticipated for late
2015.
Employee training continues to be a major area of investment. During the last year over 50,000 hours were devoted to
training and developing our colleagues. Our National Training Facility in Shirebrook is committed to maximising the
individual performances of our employees, and to helping others to identify, work towards, and achieve their own distinct
career goals.
The National Training Facility is supported by Nike and Puma, who have their own individual environments. This unique
training experience is the only centre of its type globally for both Nike and Puma.
Our store portfolio remains constantly under review with the performance of each store and ways of maximising performance
being regularly examined. During the year we opened 32 stores in the UK, closing 10 and have opened an additional 15 stores
in Europe, closing five. Through acquisitions we also added a further 134 stores (3) in Austria and the Baltics.
We increased our period end square-footage to c. 4.5m sq. ft (1). (FY13: c. 4.0m) in the UK and c. 3.0m sq. ft. (2) (FY13:
c. 1.1m sq. ft.) across the rest of Europe, including an additional 1.9m sq. ft. as a result of acquisitions. We also
re-fitted c. 300,000 sq. ft. of our existing retail store space in the UK.
(1) Due to differing methodologies, this implies a range between 4.25m sq. ft. - 4.75m sq. ft.
(2) Due to differing methodologies, this implies a range between 2.75m sq. ft - 3.25m sq. ft.
(3) Store numbers taken at dates of acquisition
During the year, the expansion of the Shirebrook Sports Direct store was also completed. The expanded store includes
dedicated Nike and Puma areas as well as enhanced running, outdoor, football and women's fitness areas. Following the
success of the Shirebrook store, our Oxford Street store relocated to the former HMV store in May 2014. The continued
evolution of the whole estate and in particular, key city centre stores, is vital in building relationships with third
party brands and will continue with the re-development of our Glasgow store which is expected to finish in Autumn 2014. In
FY15 we are targeting to re-fit c. 400,000 sq. ft. of retail space across the UK.
UK Stores
Store Portfolio As at 27 April 2014 As at 28 April 2013
Stores at Year End 418 396
Opened 32 37
Closed 10 36
Freehold properties 59 52
SPORTSDIRECT.com fascia 401 376
Other 17 20
Area (sq. ft.) c.4.5m (1) c.4.0m
In the 12 months to 27 April 2014, rent reviews have been agreed on 30 stores. The average increase in rent was 0.64%
(0.13% annual equivalent). There are currently 41 rent reviews outstanding with a further 54 falling due in FY15. Our lease
expiry profile over all leasehold stores (excluding Lillywhites Piccadilly) is now 5.1 years, including 68 stores with
contractual expiries or break dates within the next 12 months. This significant amount of flexibility within our portfolio
allows us to continue to monitor and adapt our format to the rapidly changing multi-channel environment.
In the current financial year, we are targeting to open between 30 and 40 stores, c. 30% of which are expected to be
relocations. In the first quarter we have already opened 10 stores, and have closed five of which four were due to
relocations within the same town.
We continue to benefit from the acquisition of the properties purchased from Mike Ashley in 2012, which have resulted in a
£9.4m increase to EBITDA when viewed against a proforma comparative.
FY14Proforma (£m) FY14Inc. acquired MA properties(£m)
Rental charge - 32 stores(1) (7.6) -
3rd party rental income - 1.9
EBITDA Contribution (32 stores) 16.5 25.9
(1) Assumed rent based on 10% of store turnover
International Stores
Pre-existing Business
Store Portfolio 27 April 2014 28 April 2013
Belgium 44 45
Slovenia 15 15
Portugal 15 15
Poland 7 -
France 6 6
Netherlands 6 6
Cyprus 5 6
Hungary 4 2
Czech Republic 4 2
Slovakia 3 3
Luxembourg 2 2
Spain 1 -
Total 112 102
Note: Excluding Republic of Ireland & Iceland
FY14 Acquisitions
Store Portfolio 27 April 2014
Austria 52
Estonia 36
Latvia 24
Lithuania 20
Germany 3
Total 135
All of the above stores are operated by companies wholly owned by the Group, except Portugal, where the Group owns 50.1%
and Estonia, Latvia and Lithuania where the Group owns 60.0%. As part of the accelerated growth programme in our European
subsidiary, we now have an additional 10 stores in Europe and have entered two new countries (Spain and Poland). Including
our recent acquisitions in Austria and the Baltic region, we are now active in 19 countries across Europe (includes
associates in the Republic of Ireland and Iceland).
The integration of EAG initially focused on the Sports Expert format, but has now been extended to include the Eybl fascia.
Sports Direct point of sale systems are now in all stores with all EAG stock now centrally managed. While the strategic
focus to date has been the sell-through of legacy stock, we also intend to rebrand all EAG stores to Sportsdirect.com.
Our strategy remains to identify partners in new territories while continuing to expand our operations in the countries
where we currently trade. For FY15, in line with our accelerated European expansion, we are targeting 10-15 organic new
stores. In the first quarter, we have opened three stores, closing two.
The Group has a 50% shareholding in the Heatons chain which operates 15 Sports Direct stores in Northern Ireland and 26
sports stores in the Republic of Ireland. We also own a 25% shareholding in the Sports Direct store in Iceland.
Local management continue to work hard to ensure that all new and existing stores in Europe are committed to striving
towards the operational efficiencies and standards that exist across our UK sports stores.
Premium Lifestyle
Premium Lifestyle sales grew 49.4% to £214.1m (FY13: £143.3 m), in large part due to the inclusion of a full year's trading
in Republic which was acquired in February 2013. Premium Lifestyle gross margin for the year decreased by 350 basis points
to 40.3% (FY13: 43.8%) due to the clearance of old stock in the year.
Premium Lifestyle operating costs including Republic increased by 72.9% to £106.7m (FY13: £61.7m). Excluding Republic,
operating costs increased by 5.2% to £58.7m (FY13: £55.8m).
Underlying EBITDA for Premium Lifestyle was a loss of £20.4m (FY13: £1.0m profit). This was largely due to significant
re-structuring costs within Republic. We are targeting to see the benefit of this re-structuring, along with the impact of
the closure of a significant number of loss-making stores in the year, in FY15.
Integration of our Premium Lifestyle division has continued in the year, including IT systems in Flannels, Cruise and
Republic, and the relocation of the Flannels head office to our site in Wigan. The previous Republic warehouse and head
office has been relocated to the existing USC facilities, and 45 former Republic stores were converted to the USC fascia.
Notwithstanding this progress, supply from major third party brands remains very challenging.
The FY13 results included nine months of trading for Flannels and two months for Republic.
Online revenue in the division increased by 57.6% in the year to £37.5m (FY13: £23.8m). During the year the division's
eCommerce platforms have been integrated with the Group's IT systems. These now consist of Flannels.com,
Cruisefashion.co.uk, and USC.co.uk.
USC online sales increased by 116.5% to £23.6m (FY13: £10.9m) due to improved stock availability and increased brand
awareness. The launch of the USC and Flannels mobile platforms, in November 2013, has also contributed towards the increase
in online sales in the Premium Lifestyle division.
At the year end, the Premium Lifestyle division traded from 126 stores under five main fascias:
Store Portfolio As at 27April 2014 As at 28 April 2013
USC 90 40
Republic - 104
Van Mildert 9 10
Cruise 10 8
Flannels 8 8
Other 9 8
126 178
Brands
The Group's brand portfolio includes a wide variety of world-famous sport, fashion and lifestyle brands. The Group's Retail
division sells products under these Group brands in its stores, and the Brands division exploits the brands through its
wholesale and licensing activities. The Brands division continues to sponsor a variety of prestigious events and retains a
variety of globally-recognised, high-profile sportsmen and women as brand ambassadors.
Brands division total revenue increased by 4.1% to £217.5m (FY13: £209.0m). Wholesale revenues were up 3.9% to £185.2m
(FY13: £178.3m), with continued growth in the key US market which now represents 39.4% of total wholesale revenue.
Brands gross margin decreased by 180 basis points to 43.1% (FY13: 44.9%). Wholesale gross margins fell 220 basis points to
33.2% (FY13: 35.4%) negatively impacted by the loss of Firetrap wholesale income and stock clearance in Gelert, acquired in
July 2013. Following the acquisition of the Gelert brand and assets from the administrator the business underwent a
complete customer and operational review, resulting in significant cost savings and a more efficient business going
forward.
Licensing revenues in the year were up 5.2% to £32.3m (FY13: £30.7m). We signed 84 new licence agreements, covering
multiple brands, product categories and geographies, with minimum contracted values of $50.7m over the life of the
agreements. At 27 April 2014, the Group has 427 license agreements worldwide, across 273 licensees, with contracted
minimums of $309m over the remaining life of the agreements.
Longer term, we still regard licensing as the key driver of Brands division profitability and central to the overall growth
of the Brands business. The key growth areas are expected to include Asia Pacific, the Middle East and North Africa and the
Americas which should compensate for a more challenging licensing landscape in the UK and Europe, as Sports Retail
continues to expand in these territories.
Operating costs decreased by 5.3% to £63.1m (FY13: £66.6m) as we begin to benefit from the consolidation of our back office
functions, with both Firetrap and Gelert now fully integrated. The full impact of the consolidation of back office
functions across the Brands division is expected to be felt in FY15. As a result of cost savings, underlying EBITDA
increased by 11.9% to £30.2m (FY13: £27.0m).
We continue to focus on developing world-class products that are endorsed by leading athletes on the field of play and
continue to invest in our key brands.
Outlook
Overall trading since the year end has been in line with management's expectations with some stronger weeks offset by
England's disappointing World Cup matches. The Group's performance continues to benefit from a number of factors including
the historic investment in gross margin, investment in product range and availability, increased operating efficiencies and
the continued optimisation of the Group's in-store and web product offer.
Based on the performance to date, we are very confident of achieving the final EBITDA target of £300m (before share scheme
charges) under the 2011 Employee Bonus Share Scheme. Consistent with previous guidance, we continue to target underlying
EBITDA of £360m (before the charge for the 2011 Employee and Executive Bonus Share Schemes) for the current period. The
Group's success is underpinned by our core strategy, offering our customers a wide range of products which represent
exceptional quality and unbeatable value.
Key Performance Indicators
The Board monitors the performance of the Group by reference to a number of key performance indicators (KPIs), which are
discussed in this Chief Executive's Report and in the Financial Review. The most important of these KPIs are:
52 weeks ended27 April 2014 52 weeks ended28 April 2013 Pro Forma(2)52 weeks 2012 53 weeks ended29 April 2012
Financial KPIs
Group revenue £2,706.0m £2,185.6m £1,807.2m £1,835.8m
Underlying EBITDA (1) £331.1m £287.9m £235.7m £240.1m
Sports Retail gross margin 42.9% 40.3% 40.3% 40.3%
Sports Retail like-for-like stores gross contribution (3) +10.5% +10.6% +0.7% +0.7%
Online revenue as a percentage of total Sports Retail revenue (4) 17.1% 15.0% 11.6% 11.6%
Underlying earnings per share (5) 32.1p 26.9p 18.7p 19.2p
Non-financial KPIs
No. of Sports Retail stores (6) 665 498 483
Employee turnover 19.2% 15.5% 17.0%
Cardboard recycling 9,230 tonnes 8,893 tonnes 6,622 tonnes
(1) The method for calculating underlying EBITDA is is set out in the Financial Review.
(2) The FY12 income statement has been restated to provide a 52-week pro-forma set of results.
(3) Sports Retail like-for-like contribution is defined as the percentage change in gross contribution in the successive 12
month period. A like-for-like store is one that has been trading for the full 12 months in both periods and has not been
affected by a significant change, such as a major refurbishment.
(4) Excludes wholesale revenue and revenue in EAG and SIG. Including revenue in EAG and SIG, online sales represented
15.1% of total sales.
(5)The method for calculating underlying earnings per share is set out in the Financial Review.
(6)Excluding associates.
Employees
The success of the Group has largely been created by our c.28,000 employees, whose dedication and commitment has been
sustained over many years. Their enthusiasm and 'one team' attitude has assisted the Group to succeed where many other
retailers have failed. The Board are extremely grateful for the time that our employees have taken to develop their skills
and expertise. We promote staff training wherever possible to enable our employees to be the best that they can be.
The 2009 and 2011 Employee Bonus Share Schemes have been fundamental tools in the motivation and incentivisation of
employees. Under the 2009 Employee Bonus Share Scheme, c. 27 million shares vested with our employees. Subject to achieving
the FY15 EBITDA target, and satisfactory personal performance, a further c.20 million shares are expected to vest under the
2011 Employee Bonus Share Scheme.
The 2011 Employee Bonus Share Scheme underlying EBITDA targets (before scheme costs), relate to performance between FY12
and FY15. The FY12 target of £215m, the FY13 target of £250m, and the FY14 target of £260m have all been achieved. The FY15
target is £300m (before scheme costs), and this final target, combined with the individual employee's satisfactory personal
performance, must be achieved in order for the scheme to vest.
Shares under the 2011 Employee Bonus Share Scheme are due to vest in 2015 and 2017. Under the 2011 Employee Bonus Share
Scheme certain employees are eligible for awards on a pro-rata basis depending on their length of service with the Group.
Awards under the 2011 scheme are granted at either 100%, 75%, 50% or 25% of the employees' base pay. Subject to the
performance criteria being fulfilled, c.5 million shares are due to vest in 2015 and c.15 million shares are due to vest in
2017.
An additional 3 million shares are due to vest with our Executive Directors and two members of senior management in 2017
under the Executive Bonus Share Scheme, subject to performance criteria being fulfilled. The Executive Bonus Share Scheme
performance targets mirror those to be applied to awards under the 2011 Employee Bonus Share Scheme.
As a result of the successes of previous schemes, the 2015 Bonus Share Scheme has been devised to encourage further
outstanding employee performance. The scheme will provide for the grant of nil-cost options over up to 25 million shares.
The vestings are dependant on particularly stretching performance criteria spanning between FY16 and FY19. With EBITDA
targets (before scheme costs) of £480m for FY16, £570m for FY17, £650m for FY18 and £750m for FY19, the scheme has the
potential to not only motivate employees, but also to create a further substantial increase in shareholder value.
Our strategy for growth
The Group's strategic focus is to continue to deliver sustainable long-term growth.
Within the UK Retail business this strategy includes proactive management of our store portfolio to further reduce costs
and the on-going development of specialist collaborations such as our successful Running, Outdoor and Fishing concepts. The
Group also intends to invest in store refurbishment and merchandising in order to provide our customers with an enhanced
consumer experience. The on-going collaboration with Nike, adidas and Puma for our in-store concepts, including the new
Oxford Street store, is a further example of this strategy.
Online remains a significant growth opportunity for the Group. Our online business continues to benefit from the Group's
brand recognition and investment in online product range and availability. Further opportunities to grow this business
include new category landing pages, the development of 'click & collect' functionality, online gift cards and customer
credit facilities.
Our international expansion strategy remains focused on Europe. This includes identifying and working with strong local
partners, which can assist the Group to expand in new territories, while we continue to expand our operations in those
countries where we currently trade. We believe there is a significant opportunity to introduce the key elements of our
successful business model across Europe. This strategy includes the introduction of our sourcing, buying and operational
expertise in new markets, whilst also leveraging our Group brand portfolio.
In order to re-enforce the heritage and authenticity of its brands, the Brands division will continue to develop core
wholesale product for international brands such as Dunlop, Slazenger and Everlast. Going forward, the Brands division will
focus on further expansion of its licensing activities in North America and Asia, leveraging the global appeal of leading
brands such as Dunlop, Slazenger and Everlast. This will increase the global presence and international appeal of our Group
brands.
We believe that acquisitions and strategic investments in related businesses are beneficial to the Group and we will
continue to evaluate such opportunities as they arise. The Group maintains significant financial and strategic flexibility
in order to ensure that it is able to pursue such opportunities from a position of strength.
Dave Forsey
Chief Executive
17 July 2014
FINANCIAL REVIEW
The financial statements for the Group for the year ended 27 April 2014 are presented in accordance with International
Financial Reporting Standards (IFRS) as adopted by the EU.
EBITDA and Profit Before Tax
EBITDA PBT
£m £m
Operating profit 249.1
Depreciation, amortisation and impairment 64.1
Exceptional items 5.5
Share of profit of associated undertakings (excl. FV adjustments) 2.3
Reported 321.0 239.5
Bonus share scheme 11.9 -
Impairment of fixed assets - 0.3
Exceptional items - 5.5
Profit on disposal of investments - (5.4)
Realised FX gain (1.8) (1.8)
IAS 39 FX fair value adjustment to forward currency contracts - 11.2
Underlying 331.1 249.3
Underlying 52-week FY14 profit before tax excludes:
(i) impairments which decreased profit by £0.3m;
(ii) exceptional items which decreased profit by £5.5m;
(iii) profit on disposal of investments which increased profit by £5.4m;
(iv) realised foreign exchange gains which increased profit by £1.8m; and
(v) IFRS revaluation of foreign currency contracts which decreased profit by £11.2m.
Foreign exchange
The Group manages the impact of currency movements through the use of forward fixed rate currency purchase and sales
contracts. The Group's policy is to hold or hedge between zero and five years of anticipated purchases in foreign
currency.
The realised exchange gain of £1.8m (FY13: £2.3m) included in administration costs has arisen from:
a) accepting Dollars and Euros at the contracted rate; and
b) the translation of Dollar and Euro denominated assets and liabilities at the period end rate or date of realisation.
The exchange loss of £11.2m (FY13: £2.0m loss) included in finance costs / income substantially represents the reduction in
the mark-to-market asset made (under IFRS) for the Group's unhedged forward contracts as at 27 April 2014. A number of the
forward contracts outstanding at 27 April 2014 qualify for hedge accounting and the fair value loss on these contracts of
£21.6m has been debited to equity through the Consolidated Statement of Comprehensive Income. The Group has sufficient
USD/GBP contracts to cover all purchases in UK Retail for FY15 and FY16. These hedged contracts are at an average rate of
USD / GBP 1.681.
The Sterling exchange rate with the US dollar was $1.547 at 28 April 2013 and $1.680 at 27 April 2014.
Given the potential impact of commodity prices on raw material costs, the Group may hedge certain input costs, including
cotton, crude oil and electricity going forward.
Finance costs
Year ended27 April 2014 Year ended28 April 2013
(£m) (£m)
Interest on bank loans and overdrafts (7.5) (6.6)
Interest on other loans (0.6) (0.6)
Interest on retirement benefit obligations (0.6) (0.5)
Fair value adjustment to forward foreign exchange contracts (11.2) (2.0)
(19.9) (9.7)
The rise in interest payable is a result of the increased use of the revolving credit facility and additional debt
inherited from acquired companies. The increase in the use of the revolving credit facility is attributable to the
acquisitions during the year and the investment in working capital.
The loss on the fair value of forward foreign exchange contracts arises under IFRS as a result of marking to market at the
period end those contracts that do not qualify for hedge accounting.
Exceptional items
Year ended27 April 2014 Year ended28 April 2013
(£m) (£m)
Profit on sale of intangible assets - 0.6
Impairment of assets (5.5)
(5.5) 0.6
The impairment relates to assets in a newly acquired entity that were no longer required post acquisition.
Taxation
The effective tax rate on profit before tax in FY14 was 25.0% (FY13: 26.8%). This rate reflects depreciation on
non-qualifying assets and overseas earnings being taxed at a higher rate.
Earnings
Year ended27 April 2014 Year ended 28 April 2013 Change
pence per share pence per share %
Reported EPS (Basic) 30.8 26.6 15.6
Underlying EPS 32.1 26.9 19.3
Weighted average number of shares (actual) 585,513,537 568,971,942
Basic earnings per share (EPS) is calculated by dividing the earnings attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the actual financial period. Shares held in Treasury and the Employee
Benefit Trust are excluded from this figure.
The underlying EPS reflects the underlying performance of the business compared with the prior year and is calculated using
the weighted average number of shares. It is not a recognised profit measure under IFRS and may not be directly comparable
with "adjusted" profit measures used by other companies.
The items adjusted for arriving at the underlying profit after tax and minority interests is as follows:
Year ended27 April 2014 Year ended 28 April 2013
(£m) (£m)
Profit after tax 180.2 151.7
Post tax effect of adjustment items:
Profit on disposal of listed investments (4.0) -
Impairment of goodwill 0.3 2.2
Fair value adjustment to forward foreign exchange contracts 8.4 1.5
Realised gain on forward foreign exchange contracts (1.4) (1.8)
Profit on sale of intangible assets - (0.5)
Fair value adjustment within associated undertakings - (0.3)
Impairment of fixed assets 4.1 -
Underlying profit after tax 187.6 152.8
Dividends
The Board has decided not to propose a dividend in relation to FY14. The Board feels that it remains in the best interests
of the Group to preserve financial flexibility, facilitating the pursuit of potential acquisition and other growth
opportunities. The payment of dividends remains under review in future years.
Capital expenditure
During the year, capital expenditure amounted to £69.1m (FY13: £49.8m), which includes expenditure on licences within
intangible assets.
Acquisitions
The Group made acquisitions during the year including the purchase of two European subsidiaries based in Austria and the
Baltic region.
Strategic investments
During the year the Group disposed of a small number of shares in JD Sports and Fashion plc but at year end continued to
hold an 11.81% stake in JD Sports. The fair value of the Group's holding at 27 April 2014 was £104.9m (28 April 2013:
£47.6m). During the year, 27,120(1) shares were sold, resulting in a gain on disposal of £0.3m. The movement in the fair
value of the shares held has been recognised directly in equity in accordance with IFRS. Following the year end the Group:
i. entered into a derivatives agreement which gives the counter-party the right to acquire JD Sports shares
from the Group at a premium to the current market price; and
ii. sold a further 8,170(1) JD Sports shares.
(1) References to the number of shares sold are based on the shares outstanding prior to the recent JD Sports shares
subdivision.
In January 2014 the Group acquired a 4.6% stake in Debenhams Plc. This stake was subsequently sold at a profit and the
Group currently has a beneficial interest in a 6.6% stake in Debenhams via a derivative agreement.
Cash flow and net debt
Net debt increased by £58.0m from £154.0m at 28 April 2013 to £212.0m at 27 April 2014.
The analysis of debt at 27 April 2014 was as follows:
At 27 April 2014 At 28 April 2013
(£m) (£m)
Cash and cash equivalents 151.0 147.4
Borrowings (363.0) (301.4)
Net debt (212.0) (154.0)
The Group continues to operate comfortably within its banking facilities and covenants. The Group has recently signed a new
£688m committed, unsecured revolving credit facility which will remain in place until September 2018.
Cash flow
Total movement is as follows:
At 27 April 2014 At 28 April 2013
(£m) (£m)
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