REG - Sports Direct Intl. - Final Results <Origin Href="QuoteRef">SPD.L</Origin> - Part 3

FrasersAnnouncement

06/09/2014 16:46

- Part 3: For the preceding part double click  ID:nRSQ5532Mb 

In addition the Group entered into a put and call agreement to acquire the remaining 49%. This option was exercised on 26
March 2014 for a consideration of E12.75m such that the Group now has full control and ownership of EAG which better
enables the Group to implement its plans and strategy in this region. 
 
As this is an acquisition of a non-controlling interest it is outside the scope of IFRS 3. The difference between the
consideration paid (£11.1m) and the value of non-controlling interests at the date of acquisition (£8.5m) has been
recognised as a debit to retained earnings of £19.5m. 
 
iv. 12 August 2013                     Acquired 60% of the ordinary share capital of SIG, based in the Baltic region, for
cash consideration of E7.0m. The primary business activity was the sale of sporting equipment, and clothing and was
acquired in order to enter new territories as part of the Group's European expansion plan. 
 
In addition to acquiring 60% of the share capital of SIG, the Group entered into a call option to acquire the remaining
40%. The risks and rewards of ownership of the remaining 40% remain with the non-controlling interest and therefore the
option is accounted for separately.  The call option has been recognised at fair value through profit or loss using the
usual method of accounting for derivatives at their net fair value.  At the year end date no value has been attributed to
the option. 
 
The fair value of consideration paid, assets and liabilities acquired and resulting goodwill in respect of the above
acquisitions is detailed below. 
 
                                                         EAG(£'000)  SIG(£'000)  Other(£'000)  Total(£'000)  
 Cash consideration                                      9,060       5,989       6,450         21,499        
 Less: fair value of net (assets)/ liabilities acquired  10,805      3,500       (5,121)       9,184         
 Goodwill                                                19,865      9,489       1,329         30,683        
 
 
The strategic rationale for the acquisitions of EAG and SIG was to enter into new European territories in accordance with
the Group's stated strategy. The premium paid represents the local employee and management expertise and ready-made
infrastructure in these markets for which a value cannot be attributed to under IFRS3. 
 
In accounting for these acquisitions the Group has considered whether any fair value adjustments to the assets and
liabilities, including any separately identifiable intangible assets, need to be recognised. 
 
The following items were considered by the Group: 
 
Freehold property - the majority of the £80.6m of property, plant and equipment in the EAG balance sheet is freehold
property. The Group referred to a property valuation report that was prepared shortly before the acquisition which provided
comfort that the book value was not materially different to market value. Accordingly no fair value adjustment has been
made. 
 
Brands / Contracts - the principal activities of both EAG and SIG are the retailing of third party branded products. There
were no internally generated brands or other commercial contracts that formed part of the acquisition. 
 
Fascia names - both EAG and SIG trade from established fascia names. The Group considered the value of these fascia names
using the current level of retail sales and an indicative royalty rate discounted at an appropriate risk adjusted cost of
capital. This exercise indicated that there was no material value to be attributed to the fascia names. Accordingly no fair
value adjustment has been made. 
 
Websites - the websites acquired were not generating profits and therefore no value has been attributed to them. 
 
Operating leases - there are a number of operating leases within both EAG and SIG. The Group consider the rentals payable
under these leases to be approximate to market value. Accordingly no fair value adjustment has been made for intangible
assets relating to operating leases. The Group did identify that no provision had been made locally in respect of loss
making stores and therefore a fair value adjustment has been recognised to align this with the Group's policy. 
 
Costs of £1.2m relating to the above acquisitions were expensed through the income statement during the year and were
expensed as administration expenses. 
 
None of the acquisitions included in 'other' above are considered to be individually material. 
 
EAG 
 
The asset values at acquisition are detailed below: 
 
                                                              
 Property, plant and equipment   80,601    -        80,601    
 Intangible assets               9,117     (5,825)  3,292     
 Investments                     535       -        535       
 Deferred tax assets             2,742     -        2,742     
 Inventories                     42,634    -        42,634    
 Trade and other receivables     4,526     -        4,526     
 Cash and cash equivalents       5,450     -        5,450     
 Borrowings                      (93,912)  -        (93,912)  
 Retirement benefit obligations  (2,234)   -        (2,234)   
 Trade and other payables        (60,903)  (1,565)  (62,468)  
 Provisions                      -         (433)    (433)     
 Non-controlling interests       5,608     2,854    8,462     
                                                              
                                 (5,836)   (4,969)  (10,805)  
                                                              
 
 
(5,836) 
 
(4,969) 
 
(10,805) 
 
There is no material difference between the gross and net amounts of receivables acquired. 
 
The fair value adjustments noted above relate to the consolidated goodwill within the books of EAG on acquisition and
adjustments to employment related creditors. 
 
Cash flows arising from the acquisitions are as follows: 
 
                                                       
 Cash consideration                           9,060    
 Cash acquired                                (5,450)  
                                                       
 Net cash outflow in the cash flow statement  3,610    
 
 
(5,450) 
 
Net cash outflow in the cash flow statement 
 
3,610 
 
SIG 
 
The asset values at acquisition are detailed below: 
 
                                                                      
 Property, plant and equipment  2,056     -        2,056              
 Intangible assets              155       -        155                
 Inventories                    14,456    -        14,456             
 Trade and other receivables    2,928     -        2,928 2,928        
 Cash and cash equivalents      530       -        530                
 Borrowings                     (13,590)  -        (13,590)           
 Trade and other payables       (12,514)  -        (12,514) (12,513)  
 Non-controlling interests      2,479     -        2,479              
                                                                      
                                (3,500)   (2,971)  (3,500)            
                                                                      
 
 
(3,500) 
 
(2,971) 
 
(3,500) 
 
Cash flows arising from the acquisitions are as follows: 
 
                                                     
 Cash consideration                           5,989  
 Cash acquired                                (530)  
                                                     
 Net cash outflow in the cash flow statement  5,459  
 
 
(530) 
 
Net cash outflow in the cash flow statement 
 
5,459 
 
Other acquisitions 
 
The asset values at acquisition are detailed below: 
 
                                                     
 Property, plant and equipment  1,306    -  1,306    
 Intangible assets              1,400    -  1,400    
 Inventories                    8,906    -  8,906    
 Trade and other receivables    1,208    -  1,208    
 Cash and cash equivalents      112      -  112      
 Borrowings                     (1,609)  -  (1,609)  
 Trade and other payables       (5,774)  -  (5,774)  
 Non-controlling interests      (428)    -  (428)    
                                                     
                                5,121    -  5,121    
                                                     
 
 
5,121 
 
- 
 
5,121 
 
Cash flows arising from the acquisitions are as follows: 
 
                                                     
 Cash consideration                           6,450  
 Cash acquired                                (112)  
                                                     
 Net cash outflow in the cash flow statement  6,338  
 
 
(112) 
 
Net cash outflow in the cash flow statement 
 
6,338 
 
Since the date of acquisition the following balances have been included within the Group's financial statements for the
period in respect of the above acquired entities: 
 
                             EAG       SIG     Other    Total     
                             £'000     £'000   £'000    £'000     
 Revenue                     214,598   39,901  22,153   276,652   
 Operating profit / (loss)   (8,658)   457     (3,738)  (11,939)  
 (Loss) / profit before tax  (10,910)  195     (3,770)  (14,485)  
 
 
Had the above acquisitions been included from the start of the period, £2,754,000,000 of revenue, £253,386,000 of operating
profit and £237,627,000 of profit before tax would have been shown in the Group's financial statements. 
 
There were no contingent liabilities acquired as a result of the above transactions. 
 
9. Post balance sheet events 
 
On 28 May 2014, Sports Direct International plc and certain subsidiaries (the "Borrowers") entered into a committed,
unsecured revolving facility agreement with thirteen financial institutions, with Barclays Bank plc acting as Agent (the
"Revolving Facility"). The Revolving Facility is available to any of the Borrowers and can be drawn to an aggregate limit
of £688 million. It is capable of being utilised by way of cash advances and/or currency borrowings. This facility is not
secured against any assets. This Facility is available until 27 September 2018. 
 
On 18 June 2014, Sports Direct International plc acquired a 4.8% stake in MySale Group PLC ("Mysale"), which recently
commenced trading on the Alternative Investment Market of London Stock Exchange. On 14 July 2014, Sports Direct announced a
partnership with Mysale, including a new online offering in Australia and New Zealand and the opening of three flagship
stores in Australia and one in New Zealand. 
 
On 20 June 2014 the Group sold a freehold property for £21.2m and then entered into an agreement to lease the property back
from the buyer. 
 
There were no other material post balance sheet events after 27 April 2014 to the date of this announcement. 
 
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