REG - Sports Direct Intl. - Interim Results FY18 H1 <Origin Href="QuoteRef">SPD.L</Origin> - Part 3
14/12/2017 07:05
- Part 3: For the preceding part double click ID:nRSN2999Zb
- - 1.2
Exceptional items 2.8 1.4 - 9.7 13.9
Realised FX Loss (21.9) 10.5 (0.3) (6.9) (18.6)
Underlying EBITDA (pre-scheme costs) 138.0 (10.7) 0.9 17.1 145.3
Sales to other segments are priced at cost plus a 10% mark-up.
Segmental information for the 53 weeks ended 30 April 2017:
This information is available in the 2017 annual report.
3. Exceptional items
26 weeks ended29 October 2017 (£m) 26 weeks ended23 October 2016 (£m) 53 weeks ended30 April 2017 (£m)
Impairment (5.0) (13.9) (17.3)
The impairment relates to the write down of certain non-core brands which are no longer considered to have value to the
Group.
4. Investment income
26 weeks ended29 October 2017 (£m) 26 weeks ended23 October 2016 (£m) 53 weeks ended30 April 2017 (£m)
Profit on disposal of available for sale financial assets and equity derivative financial instruments - 145.8 156.5
Dividend income from investments 0.2 0.5 0.5
Fair value gain on derivative instruments - - 5.5
0.2 146.3 162.5
The gain on disposal of listed investments mainly related to the profit on disposal of JD Sports plc shares in the prior
period.
5. Investment costs
26 weeks ended29 October 2017 (£m) 26 weeks ended23 October 2016 (£m) 53 weeks ended30 April 2017 (£m)
Loss on disposal of available for sale financial assets and equity derivative financial instruments 1.2 - 2.7
Fair value loss on derivative financial instruments 31.5 26.1 36.3
Impairment of available for sale financial assets - - 12.2
32.7 26.1 51.2
6. Finance income
26 weeks ended29 October 2017 (£m) 26 weeks ended23 October 2016 (£m) 53 weeks ended30 April 2017 (£m)
Bank interest receivable 0.3 - 0.2
Other interest receivable - - 0.4
Fair value adjustment to unhedged foreign currency contracts (1) - - 18.2
0.3 - 18.8
1 The fair value adjustment to forward and option foreign exchange contracts relates to differences between the fair
value of forward foreign currency contracts and written options not designated for hedge accounting from one period to the
next.
7. Finance costs
26 weeks ended29 October 2017 (£m) 26 weeks ended23 October 2016 (£m) 53 weeks ended30 April 2017 (£m)
Interest on bank loans and overdrafts 3.8 3.7 2.5
Interest on other loans and finance leases 0.8 0.4 6.6
Interest on retirement benefit obligations - 0.1 0.3
Fair value adjustment to forward foreign exchange contracts (1) 36.3 55.8 -
40.9 60.0 9.4
1 The fair value adjustment to forward and option foreign exchange contracts relates to differences between the fair
value of forward foreign currency contracts and written options not designated for hedge accounting from one period to the
next.
8. Earnings per share
For diluted earnings per share, the weighted average number of shares, 532,857,850 (FY17 H1: 591,605,484), is adjusted to
assume conversion of all dilutive potential ordinary shares under the Group's share schemes, being 3,132,795 (FY17 H1:
16,667,000) to give the diluted weighted average number of shares of 535,990,645 (FY17 H1: 608,272,484).
The number of dilutive ordinary shares under the Group's share schemes has been calculated on a weighted average basis to
take account of any shares that vested during the period.
Basic and diluted earnings per share
26 weeks 26 weeks 26 weeks 26 weeks 53 weeks 53 weeks
ended ended ended ended ended ended
29 October 29 October 23 October 23 October 30 April 30 April
2017 2017 2016 2016 2017 2017
Basic £m Diluted £m Basic £m Diluted £m Basic £m Diluted £m
Profit for the period attributable to the equity holders of the Group 26.0 26.0 92.4 92.4 229.9 229.9
Number in thousands Number in thousands Number in thousands
Weighted average number of shares 532,858 535,991 591,605 608,272 583,501 600,168
Pence per share Pence per share Pence per share
Earnings per share 4.9 4.9 15.6 15.2 39.4 38.3
Underlying earnings per share
The underlying earnings per share reflects the underlying performance of the business compared with the prior year and is
calculated by dividing underlying earnings by the weighted average number of shares. 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 realised
foreign exchange in selling and administration costs, the IAS 39 fair value adjustment on derivative financial instruments
in finance income/costs, exceptional costs, profit/loss on sale of properties and the profit/loss on sale of strategic
investments and subsidiaries.
26 weeks 26 weeks 26 weeks 26 weeks 53 weeks 53 weeks
ended ended ended ended ended ended
29 October 29 October 23 October 23 October 30 April 30 April
2017 2017 2016 2016 2017 2017
Basic £m Diluted £m Basic £m Diluted £m Basic £m Diluted £m
Profit for the period 26.0 26.0 92.4 92.4 229.9 229.9
Post tax adjustments to profit for the period for the following exceptional items:
Realised (gain)/loss on forward foreign exchange contracts (11.7) (11.7) (14.8) (14.8) 18.5 18.5
Fair value adjustment to forward foreign exchange contracts 28.3 28.3 44.7 44.7 (14.3) (14.3)
Fair value adjustment to derivative financial instruments 24.6 24.6 18.5 18.5 24.0 24.0
Loss/(gain) on disposal of listed investments 1.2 1.2 (114.3) (114.3) (141.5) (141.5)
Profit on disposal of property (13.1) (13.1) - - - -
Profit on disposal of subsidiary - - - - (79.9) (79.9)
Impairment of intangible assets 5.0 5.0 11.1 11.1 17.3 17.3
Write off of deferred tax assets - - 10.8 10.8 12.5 12.5
Effect of reduced tax rate on deferred tax - - 1.7 1.7 - -
Underlying profit for the period 60.3 60.3 50.1 50.1 66.5 66.5
Number in thousands Number in thousands Number in thousands
Weighted average number of shares 532,858 535,991 591,605 608,272 583,501 600,168
Pence per share Pence per share Pence per share
Underlying earnings per share 11.3 11.2 8.5 8.2 11.4 11.1
9. Investments in associated undertakings
The Group uses the equity method of accounting for associates and joint ventures. The following table shows the aggregate
movement in the Group's investment in associates and joint ventures:
Associates (£m)
At 24 April 2016 16.6
Additions 9.0
Share of profit 0.8
At 30 April 2017 26.4
Additions 0.8
Dividends paid (0.5)
Share of loss (8.5)
At 29 October 2017 18.2
The loss on Associates in the period largely relates to the trade losses and impairment of the Group's investment in
Brasher Leisure, and other associate losses.
10. Inventories
29 October 2017 (£m) 30 April 2017(£m)
Goods for resale 795.7 629.2
The following inventory costs have been recognised in cost of sales:
26 weeks ended29 October 2017 (£m) 26weeks ended23 October 2016(£m)
Cost of inventories recognised as an expense 1,053.6 975.7
The directors have reviewed the opening and closing provisions against inventory and have concluded that these are fairly
stated. Overall provisions have increased from £98.4m at 30 April 2017 to £133.9m as at 29 October 2017.
11. Financial Instruments
(a) Financial assets and liabilities by category
The carrying values of financial assets and liabilities, which are principally denominated in Sterling, Euros or US
dollars, were as follows:
Loans andreceivables(£m) Assets at fairvalue throughprofit and loss(£m) Available for salefinancial assets(£m) Non-financial assets(£m) Total(£m)
Assets at 29 October 2017
Property, plant and equipment - - - 871.2 871.2
Investment properties - - - 22.2 22.2
Intangible assets - - - 180.3 180.3
Investments in associated undertakings and joint ventures - - - 18.2 18.2
Available-for-sale financial assets - - 191.4 - 191.4
Deferred tax assets - - - 53.1 53.1
Inventories - - - 795.7 795.7
Derivative financial assets - 6.8 - - 6.8
Trade and other receivables 145.7 - - 308.4 454.1
Cash and cash equivalents 121.4 - - - 121.4
267.1 6.8 191.4 2,249.1 2,714.4
Assets at 30 April 2017
Property, plant and equipment - - - 842.0 842.0
Investment properties - - - 23.1 23.1
Intangible assets - - - 185.7 185.7
Investments in associated undertakings - - - 26.4 26.4
Available-for-sale financial assets - - 63.9 - 63.9
Deferred tax assets - - - 33.7 33.7
Inventories - - - 629.2 629.2
Derivative financial assets - 43.0 - - 43.0
Trade and other receivables 397.1 - - - 397.1
Cash and cash equivalents 204.7 - - - 204.7
601.8 43.0 63.9 1,740.1 2,448.8
Assets at 23 October 2016
Property, plant and equipment - - - 833.6 833.6
Intangible assets - - - 216.4 216.4
Investments in associated undertakings and joint ventures - - - 18.4 18.4
Available-for-sale financial assets - - 73.0 - 73.0
Deferred tax assets - - - 72.0 72.0
Inventories - - - 716.3 716.3
Derivative financial assets - 51.5 - - 51.5
Trade and other receivables 290.8 - - - 290.8
Cash and cash equivalents 188.0 - - - 188.0
478.8 51.5 73.0 1,856.7 2,460.0
Loans and payables(£m) Liabilities at fair value through profit and loss(£m) Non-financial liabilities(£m) Total(£m)
Liabilities at 29 October 2017
Non-current borrowings 7.4 - - 7.4
Retirement benefit obligations - - 1.9 1.9
Deferred tax liabilities - - 13.5 13.5
Provisions - - 127.0 127.0
Derivative financial liabilities - 158.3 - 158.3
Trade and other payables 169.5 - 351.3 520.8
Current borrowings 585.7 - - 585.7
Current tax liabilities - - 25.9 25.9
762.6 158.3 519.6 1,440.5
Liabilities at 30 April 2017
Non-current borrowings 317.3 - - 317.3
Retirement benefit obligations - - 3.4 3.4
Deferred tax liabilities - - 18.7 18.7
Provisions - - 130.2 130.2
Derivative financial liabilities - 75.2 - 75.2
Fair value of share buyback - - 163.5 163.5
Trade and other payables 133.3 - 288.1 421.4
Current borrowings 69.5 - - 69.5
Current tax liabilities - - 11.3 11.3
520.1 75.2 615.2 1,210.5
Liabilities at 23 October 2016
Non-current borrowings 259.8 - - 259.8
Retirement benefit obligations - - 21.6 21.6
Deferred tax liabilities - - 20.4 20.4
Provisions - - 85.2 85.2
Derivative financial liabilities - 206.7 - 206.7
Trade and other payables 181.2 - 272.8 454.0
Current borrowings 0.1 - - 0.1
Current tax liabilities - - 77.2 77.2
441.1 206.7 477.2 1,125.0
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation
technique:
• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are
observable, either directly or indirectly; and
• Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based
on observable market data.
As at 29 October 2017, the only financial instruments held at fair value were derivative financial assets and liabilities.
Contracts for difference are classified as Level 1 as the fair value is calculated referencing quoted prices for listed
shares and commodities at contract inception and the period end.
Foreign forward purchase and sales contracts and options are classified as Level 2 as the fair value is calculated using
models based on inputs which are observable directly or indirectly at the period-end (these inputs include but are not
restricted to the following - maturity date, quoted forward/option prices).
Available-for-sale financial assets are classified as Level 1 as the fair value is calculated using quoted prices, except
for House of Fraser (UK & Ireland) Ltd (previously Highland Group Holdings) which is classified as Level 3. House of Fraser
Ltd is held at management's estimate of the fair value of the enterprise based on publicly and non-publicly available
data.
Other equity derivatives are calculated using a model with inputs which are directly observable and inputs which are not
based on observable market data and are therefore classified as Level 3. The valuations are calculated using an equity
valuation model of which the output is the result of a number of inputs including, the terms of the option, the share
price, interest rates, the volatility of the underlying stock, and dividends paid by the underlying company. The volatility
of the underlying stock is a significant input into the valuation model. Volatility is considered an unobservable input. To
the extent that the market price of these shares is less than an agreed price on expiry of the put options, the
counterparty has the right to settle the put option by selling the ordinary shares to the Group. If the market price of the
shares is greater than an agreed price on expiry of the put option the counterparty will not exercise the option and the
group will receive the premium. Sports Direct is required to transfer cash collateral to cover its obligations under put
options. The amount of collateral required during the life of the put options can increase or decrease by reference to the
underlying market price of the shares.
26 weeks 26 weeks 53 weeks
ended ended ended
29 October 23 October 30 April
2017 2016 2017
£m £m £m
Opening fair value of equity put options (15.4) 7.6 7.6
Movement recognised in profit and loss (12.1) (22.8) (23.0)
Closing fair value of equity put options (27.5) (15.2) (15.4)
12. Acquisitions
On 18 May 2017 the group took ownership of certain trade and assets of the businesses that traded as Bob's Stores and
Eastern Mountain Sports from Eastern Outfitters LLC which had filed for Chapter 11 in the US. Cash consideration was paid
in tranches over the initial Chapter 11 phase during the period to 30 April 2017 but control was not obtained until US
court approval was given for the trade and assets purchase, and group management and processes were implemented on 18 May
2017. The following table summarises the provisional fair values of consideration paid for the trade and assets of Bob's
Stores and Eastern Mountain Sports, assets acquired, and the liabilities assumed.
Book value£m Fair value adjustments£m Fair value of net assets acquired£m
Property, plant and equipment 9.7 (3.9) 5.8
Inventories 64.9 9.7 74.6
Trade and other receivables 10.2 1.0 11.2
Cash and cash equivalents 9.9 - 9.9
Trade and other payables (18.8) (1.5) (20.3)
75.9 5.3 81.2
Cash consideration 81.2
Cash acquired (9.9)
Net cash outflow 71.3
Included in Group underlying EBITDA for the 26 week period to 29 October 2017 for the Bob's Stores and Eastern Mountain
Sports businesses is £5.5m of trading losses and £17.5m of losses relating to fair value accounting adjustments and
accounting policy alignments.
On 17 August 2017, the Group acquired the remaining minority interest in The Flannels Group Ltd for £11.3m. This has been
accounted for as a minority acquisition, with the difference between brought forward minority interests and the acquisition
price flowing through Equity.
13. Cash inflows from operating activities
26 weeks 26 weeks 53 weeks
ended ended ended
29 October 23 October 30 April
2017 2016 2017
£m £m £m
Profit before taxation 45.8 140.2 281.6
Net finance (income)/costs 40.6 60.0 (9.4)
Net other investment (income)/costs 32.5 (120.2) (111.3)
Share of (loss)/profit of associated undertakings and joint ventures 8.5 - (0.8)
Operating profit 127.4 80.0 160.1
Depreciation 62.1 63.6 140.6
Amortisation charge 1.9 5.2 7.3
Impairment 5.0 13.9 17.3
Profit on disposal of property, plant and equipment 16.7 - 6.8
Disposal of subsidiary - - (79.9)
Defined benefit pension plan employer contributions (0.1) (1.4) (2.4)
Share based payments - 1.2 2.8
Operating cash inflow before changes in working capital 213.0 162.5 252.6
(Increase)/decrease in receivables (45.2) 1.7 (118.0)
(Increase)/decrease in inventories (90.8) (14.1) 60.0
(Decrease)/increase in payables (8.1) 55.0 74.6
Cash inflows from operating activities 68.9 205.1 269.2
Included within the movement in receivables are amounts held as collateral against equity derivatives.
14. Related party transactions
The Group has taken advantage of the exemptions contained within IAS 24 - "Related Party Disclosures" from the requirement
to disclose transactions between Group companies as these have been eliminated on consolidation.
All related party transactions were undertaken on an arm's length basis and were made in the ordinary course of business.
26 weeks ended 29 October 2017:
Related party Relationship Sales£m Purchases£m Trade and other receivables£m Trade and other payables£m
Brasher Leisure Ltd Associate 5.3 0.2 4.8 0.2
Four Holdings Ltd (1) Associate 0.2 - 75.0 0.7
Mash Holdings Ltd Parent company - - 0.2 -
Mike Ashley (2)(3) Director 1.1 - 1.2 -
Rangers Retail Ltd Associate 0.6 0.3 0.1 -
Newcastle United Football Club Connected persons 0.7 0.2 1.1 -
(1) The balance with Four Holdings reflects the funding related to Agent Provocateur. Management consider that the
underlying results of Four Holdings supports the recoverability of the receivables balance
(2) Charges for use of company jet and helicopter charged at commercial rates
(3) The Group had a £6.0m liability as at 30 April 2017 in respect of a disputed historic claim. This was settled by the
Group during the period and the Group was subsequently reimbursed by Mike Ashley.
26 weeks ended 23 October 2016:
Related party Relationship Sales£m Purchases£m Trade and other receivables£m Trade and other payables£m
Brasher Leisure Ltd Associate 5.7 0.6 8.1 -
NDS EHF Associate 1.4 - - -
Rangers Retail Ltd Associate 0.9 - 0.1 -
Newcastle United Football Club Connected persons 0.7 - 0.2 -
Queensdown Associates Ltd Associate - - 1.4 -
An agreement has been entered into with Double Take Limited, a company owned by Mash Holdings Limited in which Matilda
Ashley, Mike Ashley's daughter, is a director. Under the agreement Double Take licences the Group the exclusive rights to
the cosmetic brand SPORT FX. No royalties or other fees are payable to Double Take for these rights until September 2019
at the earliest, when this fee arrangement will be reviewed on a going forwards basis.
15. Commercial arrangements
MM Prop Consultancy Ltd, a company owned and controlled by Michael Murray (domestic partner of Anna Ashley, daughter of
Mike Ashley), continues to provide property consultancy services to the group. MM Prop Consultancy Ltd is primarily tasked
with finding and negotiating the acquisition of new sites for both our larger format stores and our combined retail and gym
units but it also provides advice to the Company's in-house property team in relation to existing sites both in the UK and
in Europe.
MM Prop Consultancy Ltd fees are linked directly to value creation which is determined by the Company's non-executive
directors who independently review performance bi-annually with a view to determining, at their absolute and sole
discretion, the quantum of the fee payable. Under the terms of the agreement with MM Prop Consultancy Ltd no fees are
payable until the earliest of 30th September 2018 so that the Company's independent non-executive directors have a
sufficient amount of time to assess performance.
The Sports Direct Group has commercial arrangements in place with IBSL Consultancy Limited. Management has considered
whether a related party relationship exists and concluded that Justin Barnes, a director of IBSL, and/or IBSL Consultancy
Limited are acting in an advisory capacity only and are not performing key management functions that would indicate a
related party relationship. Management decisions are made solely by the management of the Group.
During FY17, the Company had arrangements in place with Barlin Delivery Limited, a company owned by John Ashley (the
brother of Mike Ashley). This arrangement ceased as at 30 April 2017.
As noted in the Chairman's statement, there was a vote by independent shareholders against a retrospective payment of £11m
to John Ashley for executive bonuses forgone.
16. Post balance sheet events
On 21 November 2017 the Group announced that it had entered into a new Revolving Credit Facility ("RCF"). The RCF is valid
for four years (with a one year extension option) and it will provide the Group with access to borrowings up to £907.5m. As
announced on 21 November 2017, the Group anticipates that due to our ongoing High Street Elevation Strategy, it is likely
that we will seek via an accordion arrangement to increase this facility to £1 billion.
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