REG - JD Sports Fashion - Half-year Report <Origin Href="QuoteRef">JD.L</Origin> - Part 1
RNS Number : 6205JJD Sports Fashion Plc13 September 201613 September 2016
JD SPORTS FASHION PLC
INTERIM RESULTS
FOR THE TWENTY SIX WEEKS TO 30 JULY 2016
JD Sports Fashion Plc (the "Group"), the leading retailer of sports, fashion and outdoor brands, today announces its Interim Results for the 26 weeks ended 30 July 2016 (comparative figures are shown for the 26 week period ended 1 August 2015).
2016
2015
% Change
000
000
Revenue
970,565
809,901
+20%
Gross profit %
48.1%
47.4%
Operating profit (before exceptional items)
77,650
47,578
+63%
Net interest expense
(239)
(1,012)
Profit before tax and exceptional items
77,411
46,566
+66%
Exceptional items (see note 3)
-
(1,858)
Profit before tax
77,411
44,708
+73%
Basic earnings per ordinary share
29.83p
17.62p
+69%
Interim dividend payable per ordinary share
1.25p
1.20p
Net cash at period end (a)
231,848
100,340
(a) Net cash consists of cash and cash equivalents together with other borrowings from bank loans, other loans and finance leases.
Group Highlights
Another record result for the half year with Group profit before tax and exceptional items increased by a further 66%
Further strong like for like sales growth
International development continues with:
a) Net increase of 20 stores in existing fascias across Europe
b) Notable complementary acquisitions in the Netherlands and Portugal in the six month period
Pleasing progress in Outdoors with continued evolution of the proposition
Sales, gross margin and operating profit / (loss) before exceptional items of the two business segments are tabulated below:
Period to 30 July 2016
Sports Fashion
000
Outdoor
000
Total
000
Gross revenue
897,478
73,087
970,565
Intersegment revenue
-
-
-
Revenue
897,478
73,087
970,565
Gross margin %
48.4%
44.2%
48.1%
Operating profit / (loss) before exceptional items
79,902
(2,252)
77,650
Period to 1 August 2015
Sports Fashion
000
Outdoor
000
Total
000
Gross revenue
741,779
68,260
810,039
Intersegment revenue
(138)
-
(138)
Revenue
741,641
68,260
809,901
Gross margin %
47.7%
43.9%
47.4%
Operating profit / (loss) before exceptional items
52,068
(4,490)
47,578
Interim dividend increased by 4.2% from 1.20p to 1.25p with cash retained in the Group to maximise the available funding for our ongoing growth opportunities
Peter Cowgill, Executive Chairman, said:
"I am delighted to report that this has been another period of excellent progress for the Group with a record profit before tax and exceptional items of 77.4 million. Given that last year's result was in itself a record for our Group then to increase this by a further 66% has exceeded reasonable expectations.
"The favourable trends for athletic inspired footwear and apparel in Europe have continued into this year. We are very much at the centre of this market with our success being a positive consequence of the investments we have made over a number of years to develop the JD retail concept.
"Notwithstanding the demanding comparatives going forward following the strong revenue growth in the previous three years, the positive nature of trading in the second half to date is encouraging."
Enquiries:
JD Sports Fashion Plc Tel: 0161 767 1000
Peter Cowgill, Executive Chairman
Brian Small, Chief Financial Officer
MHP Communications Tel: 0203 128 8100
Andrew Jaques
Barnaby Fry
Gina Bell
Executive Chairman's Statement
Introduction
I am delighted to report that this has been another period of excellent progress for the Group with a record profit before tax and exceptional items of 77.4 million (2015: 46.6 million). Given that last year's result was in itself a record for our Group then to increase this by a further 66% has exceeded reasonable expectations.
The favourable trends for athletic inspired footwear and apparel in Europe have continued into this year. We are very much at the centre of this market with our success being a positive consequence of the investments we have made over a number of years to develop the JD retail concept. However, we are very conscious that the market for sports and fashion brands can change quickly and so we continue to invest in visual merchandising, retail theatre and creative marketing as we believe that it is JD's market leading standards in these areas that make it an attractive outlet to many brands. Our international expansion is also viewed positively by our key suppliers and garners their support for us in many ways. Although the UK's vote to leave the European Union means that there will be some uncertainties over the next two or three years, we have no doubt that we have the support of our brand partners to continue our expansion in Europe and beyond.
Our Outdoor businesses have made encouraging progress in the first half as we see the positive benefits from actions previously taken to simplify the operational leadership, evolve the offer and drive higher merchandising standards. We are confident that we are creating an Outdoor business that has a proposition which is capable of trading more effectively all year round.
Sports Fashion
Sports Fashion has had an exceptional first half with operating profits (before exceptional items) increasing by a further 53% to 79.9 million (2015: 52.1 million). Given the tough comparatives provided by the strong performance in the three previous years then we are particularly pleased with a further increase in the like for like store sales in these fascias of approximately 10%. Whilst it would be unreasonable to expect organic growth to continue at these levels, JD does have a very strong base from which to exploit ongoing opportunities both in its core UK market and, increasingly, internationally.
Chausport and Sprinter have also both benefitted from the favourable market trends and have traded positively in the period. Elsewhere, we continue to be pleased with the progress in the premium brand multichannel fashion businesses of Tessuti and Scotts.
There has been further progression in Europe during the period with new stores in several of our existing territories complemented by two multi-store acquisitions. In March, we acquired the trade and store assets of the Aktiesport and Perry Sport retail fascias in the Netherlands from the trustee in bankruptcy of Unlimited Sports Group BV. As is usual in distressed situations, our initial focus has been to stabilise the business with particular emphasis on dealing with a fragmented acquisition stock position, reversing any discontinuity in supply and determining the optimal future store portfolio. Given the acquired stock position and the lead times on ordering product, we would not expect the Perry and Aktie stores to make a positive contribution in the current year. In July, we acquired 12 stores in Portugal which previously traded as The Athlete's Foot. These stores will be converted to JD in the second half.
We anticipate the opening of additional JD stores across Europe in the remainder of the year, including the opening of flagship style stores on Rue Neuve in Brussels and Hohe Strasse in Cologne. Elsewhere, we are also currently refurbishing the flagship Perry Sport store on Kalverstraat in Amsterdam.
Further afield, we have expanded our presence in Malaysia with the acquisition from our JD joint venture partner (Stream Enterprises) of 20 small multi-brand stores trading as Sports Empire, Revolution and The Marathon Shop. Since the period end we have also acquired Next Athleisure in Australia which has 32 stores trading as Glue. This business and its management will provide the platform to open JD in Australia.
The overall gross margin in Sports Fashion is slightly higher than the previous year reflecting the impact of the stronger euro on JD's euro denominated businesses and continuing low markdown levels. The weakening of sterling against the US dollar after the Brexit vote may cause some headwinds on margin in 2017 but we are reasonably well placed to mitigate these.
Outdoor
We have continued to make encouraging progress in Outdoor in the first half, with total operating losses (before exceptional items) reduced to 2.3 million (2015: 4.5 million). The first half has traditionally been the weaker period for these fascias and so we are pleased that our team's efforts to improve the Spring/Summer proposition have had positive results. We will look to build on this next year.
There has been a small improvement in margin as we start to see the benefits of aligning the merchandising and commercial disciplines of the Outdoor team with the core JD team. More material improvement in margin will be a core deliverable over the longer term and will require brand support, particularly in terms of enhanced levels of product differentiation.
Group Performance
Revenue and Gross Margin
Total Group revenue increased by 20% in the period to 970.6 million (2015: 809.9 million). Like for like sales for the 26 week period across all Group fascias, including those in Europe, increased by approximately 10% which was another exceptional performance given the growth seen in previous years.
Total gross margin of 48.1% was 0.7% higher than the prior year (2015: 47.4%) with an ongoing focus across all fascias on minimising markdown combined with a positive impact from exchange rate movements in JD's euro denominated business. The overall margin has improved again in Outdoor but progress on this is limited at this stage.
Operating Profit
Operating profit (before exceptional items) for the period has increased by 63% to 77.6 million (2015: 47.6 million) following an exceptional performance in our Sports Fashion fascias and an encouraging reduction in losses in Outdoor.
There were no exceptional charges in the period (2015: 1.9 million).
Cash
Strong cash generation from the ongoing trading in our core retail fascias together has meant that we ended the first half with a net cash balance in excess of 200 million providing the Group with a very strong base from which to fund future expansion investment. The period end net cash balance also benefitted from timing related savings on gross capital expenditure (excluding disposals) which has decreased by 20.3 million to 27.4 million (2015: 47.7 million). Our continuing commitment to enhancing our retail proposition, developing our overseas businesses and improving our operational infrastructure means that we expect the gross capital expenditure for the full financial year to be approximately 100 million (2016: 83.5 million).
Prior to the end of the financial year we anticipate commencing a further major project to increase the operational capacity and flexibility of our existing Kingsway warehouse by extending the mezzanine floors and installing additional automation equipment. We anticipate that this project will cost approximately 18 million although the majority of this will be incurred in the financial year to January 2018.
In addition, we will continue to use our cash resources to make selected acquisitions and investments where they benefit our strategic development.
Store Portfolio
During the period, store numbers have moved as follows:
Sports Fashion Fascias
(No. Stores)
JD
UK & ROI
JD Europe
JD Asia
Size
Sub-Total
JD & Size
Chausport
Sprinter
SUR
Other
Total
(a)
(b)
(c)
Period start
361
103
1
36
501
72
104
-
59
736
New stores
6
15
-
1
22
-
5
-
2
29
Acquired
-
-
-
-
-
-
-
187
37
224
Closures
(4)
(1)
-
(1)
(6)
-
-
(22)
(8)
(36)
Period end
363
117
1
36
517
72
109
165
90
953
(000 Sq Ft)
Period start
1,371
222
4
63
1,660
81
973
-
144
2,858
New stores
20
40
-
2
62
-
29
-
6
97
Acquired
-
-
-
-
-
-
-
949
114
1,063
Closures
(17)
(1)
-
(1)
(19)
-
-
(112)
(24)
(155)
Period end
1,374
261
4
64
1,703
81
1,002
837
240
3,863
(a)Being all stores in all territories with nine stores open in mainland Europe at the period end including Madrid which opened in March 2016
(b) Being the Perry Sport and Aktiesport stores in Sports Unlimited Retail BV
(c) The acquired stores include 12 stores in Portugal currently trading as The Athlete's Foot which are due to be converted to JD in the second half and the 20 multi-brand stores acquired from our joint venture partner in Malaysia
In addition, there were six JD branded Gyms at the period end with new gyms in the period at Rochdale and Washington complementing the existing gyms in Coventry, Hull, Liverpool and Preston. Gyms in Leeds and Wigan are scheduled to open in September.
Outdoor Fascias
(No. Stores)
Blacks
Millets
Tiso
Other
Total
Period start
60
99
16
7
182
New stores
1
2
-
-
3
Transfers
(1)
1
-
-
-
Closures
(1)
(3)
(1)
-
(5)
Period end
59
99
15
7
180
(000 Sq Ft)
Period start
207
205
97
163
672
New stores
4
4
-
-
8
Transfers
(3)
3
-
-
-
Closures
(5)
(11)
(3)
-
(19)
Period end
203
201
94
163
661
Dividends and Earnings per Ordinary Share
The Board proposes paying an interim dividend of 1.25p (2015: 1.20p) per ordinary share, an increase of 4.2%. Given the positive return that we are seeing from our investments in the core JD fascia, we believe it continues to be in the longer term interests of all shareholders to keep dividend growth restrained so as to maximise the available funding for our ongoing growth opportunities. This dividend will be paid on 6 January 2017 to shareholders on the register as at close of business on 2 December 2016.
The adjusted earnings per ordinary share before exceptional items have increased by 60% to 29.83p (2015: 18.62p).
The basic earnings per ordinary share have increased by 69% to 29.83p (2015: 17.62p).
People
We could not have delivered these excellent results without the expertise, energy and passion of everyone connected with our businesses. On behalf of the whole Board, I thank everybody involved.
Given the growth opportunities available to the Group, we will continue to look to strengthen our senior management team where appropriate.
Current Trading and Outlook
Given the importance of Christmas in the context of the overall result, we do not believe that it is appropriate to issue an update on trading since the period end. However, notwithstanding the demanding comparatives going forward following the strong revenue growth in the previous three years, the positive nature of trading in the second half to date is encouraging.
We will provide an update on trading in early January after our key Christmas trading period.
Peter Cowgill
Executive Chairman
13 September 2016
Condensed Consolidated Income StatementFor the 26 weeks to 30 July 2016
Note
26 weeks to 30 July
2016
000
26 weeks to
1 August
2015
000
52 weeks to
30 January 2016
000
Revenue
970,565
809,901
1,821,652
Cost of sales
(503,751)
(425,896)
(937,431)
Gross profit
466,814
384,005
884,221
Selling and distribution expenses - normal
(348,281)
(300,599)
(648,333)
Selling and distribution expenses - exceptional
3
-
(1,858)
-
Administrative expenses - normal
(41,827)
(36,690)
(78,228)
Administrative expenses - exceptional
3
-
-
(25,496)
Other operating income
944
862
1,242
Operating profit
77,650
45,720
133,406
Before exceptional items
77,650
47,578
158,902
Exceptional items
3
-
(1,858)
(25,496)
Operating profit
77,650
45,720
133,406
Financial income
391
206
388
Financial expenses
(630)
(1,218)
(2,163)
Profit before tax
77,411
44,708
131,631
Income tax expense
(17,392)
(10,294)
(31,001)
Profit for the period
60,019
34,414
100,630
Attributable to equity holders of the parent
58,058
34,293
97,634
Attributable to non-controlling interest
1,961
121
2,996
Basic earnings per ordinary share
4
29.83p
17.62p
50.16p
Diluted earnings per ordinary share
4
29.83p
17.62p
50.16p
Condensed Consolidated Statement of Comprehensive Income
For the 26 weeks to 30 July 2016
26 weeks to 30 July
2016
000
26 weeks to 1 August
2015
000
52 weeks to
30 January 2016
000
Profit for the period
60,019
34,414
100,630
Other comprehensive income:
Items that may be classified subsequently to the
Consolidated Income Statement:
Exchange differences on translation of foreign operations
10,196
(3,520)
4,144
Total other comprehensive income for the period
10,196
(3,520)
4,144
Total comprehensive income and expense for the period (net of income tax)
70,215
30,894
104,774
Attributable to equity holders of the parent
65,115
32,123
101,828
Attributable to non-controlling interest
5,100
(1,229)
2,946
Condensed Consolidated Statement of Financial Position
As at 30 July 2016
As at
30 July
2016
000
As at
1 August
2015
000
As at
30 January 2016
000
Assets
Intangible assets
72,911
101,130
73,611
Property, plant and equipment
173,788
170,770
173,317
Other assets
35,212
33,723
33,191
Deferred tax assets
159
-
482
Total non-current assets
282,070
305,623
280,601
Inventories
295,954
250,617
238,324
Trade and other receivables
95,343
51,392
56,375
Cash and cash equivalents
245,593
160,322
215,996
Total current assets
636,890
462,331
510,695
Total assets
918,960
767,954
791,296
Liabilities
Interest-bearing loans and borrowings
(12,812)
(59,701)
(6,301)
Trade and other payables
(388,346)
(322,212)
(324,964)
Provisions
(1,255)
(1,096)
(1,132)
Income tax liabilities
(17,824)
(12,039)
(15,757)
Total current liabilities
(420,237)
(395,048)
(348,154)
Interest-bearing loans and borrowings
(933)
(281)
(274)
Other payables
(36,651)
(40,018)
(40,834)
Provisions
(1,032)
(1,242)
(1,209)
Deferred tax liabilities
-
(1,964)
-
Total non-current liabilities
(38,616)
(43,505)
(42,317)
Total liabilities
(458,853)
(438,553)
(390,471)
Total assets less total liabilities
460,107
329,401
400,825
Capital and reserves
Issued ordinary share capital
2,433
2,433
2,433
Share premium
11,659
11,659
11,659
Retained earnings
421,094
318,939
378,898
Other reserves
(3,162)
(16,934)
(10,570)
Total equity attributable to equity holders of the parent
432,024
316,097
382,420
Non-controlling interest
28,083
13,304
18,405
Total equity
460,107
329,401
400,825
Condensed Consolidated Statement of Changes in Equity
For the 26 weeks to 30 July 2016
Ordinary
Share Capital
000
Share
Premium
000
Retained
Earnings
000
Foreign Currency Translation Reserve
000
Other Equity
000
Total Equity Attributable To Equity Holders
Of The Parent
000
Balance at 30 January 2016
2,433
11,659
378,898
(7,497)
(3,073)
382,420
Profit for the period
-
-
58,058
-
-
58,058
Other comprehensive income:
Exchange differences on translation of foreign operations
-
-
-
7,057
-
7,057
Total other comprehensive income
-
-
-
7,057
-
7,057
Total comprehensive income for the period
-
-
58,058
7,057
-
65,115
Dividends to equity holders
-
-
(12,068)
-
-
(12,068)
Put options held by non-controlling interests
-
-
-
-
351
351
Acquisition of non-controlling interest
-
-
(3,794)
-
-
(3,794)
Non-controlling interest arising on acquisition
-
-
-
-
-
-
Balance at 30 July 2016
2,433
11,659
421,094
(440)
(2,722)
432,024
(continued)
Total Equity
Attributable To
Equity Holders
Of The Parent
000
Non-
Controlling
Interest
000
Total
Equity
000
Balance at 30 January 2016
382,420
18,405
400,825
Profit for the period
58,058
1,961
60,019
Other comprehensive income:
Exchange differences on translation of foreign operations
7,057
3,139
10,196
Total other comprehensive income
7,057
3,139
10,196
Total comprehensive income for the period
65,115
5,100
70,215
Dividends to equity holders
(12,068)
-
(12,068)
Put options held by non-controlling interests
351
-
351
Acquisition of non-controlling interest
(3,794)
3,794
-
Non-controlling interest arising on acquisition
-
784
784
Balance at 30 July 2016
432,024
28,083
460,107
Condensed Consolidated Statement of Changes in Equity (continued)
For the 26 weeks to 1 August 2015
Ordinary
Share Capital
000
Share
Premium
000
Retained
Earnings
000
Foreign Currency Translation Reserve
000
Other Equity
000
Total Equity Attributable To Equity Holders
Of The Parent
000
Balance at 31 January 2015
2,433
11,659
297,161
(11,691)
(3,073)
296,489
Profit for the period
-
-
34,293
-
-
34,293
Other comprehensive income:
Exchange differences on translation of foreign operations
-
-
-
(2,170)
-
(2,170)
Total other comprehensive income
-
-
-
(2,170)
-
(2,170)
Total comprehensive income for the period
-
-
34,293
(2,170)
-
32,123
Dividends to equity holders
-
-
(11,484)
-
-
(11,484)
Non-controlling interest arising on acquisition
-
-
(1,031)
-
-
(1,031)
Balance at 1 August 2015
2,433
11,659
318,939
(13,861)
(3,073)
316,097
(continued)
Total Equity
Attributable To
Equity Holders
Of The Parent
000
Non-
Controlling
Interest
000
Total
Equity
000
Balance at 31 January 2015
296,489
13,502
309,991
Profit for the period
34,293
121
34,414
Other comprehensive income:
Exchange differences on translation of foreign operations
(2,170)
(1,350)
(3,520)
Total other comprehensive income
(2,170)
(1,350)
(3,520)
Total comprehensive income for the period
32,123
(1,229)
30,894
Dividends to equity holders
(11,484)
-
(11,484)
Non-controlling interest arising on acquisition
(1,031)
1,031
-
Balance at 1 August 2015
316,097
13,304
329,401
Condensed Consolidated Statement of Cash Flows
For the 26 weeks to 30 July 2016
26 weeks to
30 July
2016
000
26 weeks to
1 August
2015
000
52 weeks to
30 January 2016
000
Cash flows from operating activities
Profit for the period
60,019
34,414
100,630
Income tax expense
17,392
10,294
31,001
Financial expenses
630
1,218
2,163
Financial income
(391)
(206)
(388)
Depreciation and amortisation of non-current assets
30,326
22,104
48,778
Forex losses on monetary assets and liabilities
4,570
12,125
7,997
Loss on disposal of non-current assets
16
225
-
Termination of IT project
-
-
14,896
Impairment of fixed assets
714
-
10,600
Other exceptional items
-
682
-
Increase in inventories
(27,854)
(25,667)
(13,304)
(Increase) / decrease in trade and other receivables
(33,863)
80
47
Increase in trade and other payables
36,742
29,027
55,738
Interest paid
(630)
(1,218)
(2,163)
Income taxes paid
(15,025)
(11,049)
(29,981)
Net cash from operating activities
72,646
72,029
226,014
Cash flows from investing activities
Interest received
391
206
388
Proceeds from sale of non-current assets
1,513
138
1,145
Investment in software development
(1,330)
(2,031)
(4,401)
Acquisition of property, plant and equipment
(23,058)
(43,668)
(72,765)
Acquisition of non-current other assets
(3,039)
(1,991)
(6,343)
Acquisition of non-controlling interests
(1,045)
-
-
Cash consideration of acquisitions
(25,370)
-
-
Cash acquired with acquisitions
737
-
-
Net cash used in investing activities
(51,201)
(47,346)
(81,976)
Condensed Consolidated Statement of Cash Flows (continued)
For the 26 weeks to 30 July 2016
26 weeks to
30 July
2016
000
26 weeks to
1 August
2015
000
52 weeks to
30 January 2016
000
Cash flows from financing activities
Repayment of interest-bearing loans and borrowings
(78)
(91)
(191)
Repayment of finance lease liabilities
(12)
(14)
(30)
Drawdown of finance lease liabilities
-
-
75
Drawdown / (repayment) of syndicated bank facility
7,143
23,000
(31,000)
Equity dividends paid
-
-
(13,820)
Dividends paid to non-controlling interest in subsidiaries
-
-
(120)
Net cash provided by / (used in) financing activities
7,053
22,895
(45,086)
Net increase in cash and cash equivalents
28,498
47,578
98,952
Cash and cash equivalents at the beginning of the period
209,859
115,697
115,697
Foreign exchange gains / (losses) on cash and cash equivalents
1,687
(8,457)
(4,790)
Cash and cash equivalents at the end of
the period
240,044
154,818
209,859
Analysis of Net Cash
At
30 January
2016
000
On acquisition of subsidiaries 000
Cash flow
000
Non-cash movements 000
At
30 July
2016
000
Cash at bank and in hand
215,996
737
27,173
1,687
245,593
Overdrafts
(6,137)
-
588
-
(5,549)
Cash and cash equivalents
209,859
737
27,761
1,687
240,044
Interest bearing loans and borrowings:
Bank loans
(54)
(705)
44
-
(715)
Syndicated bank facility
-
-
(7,143)
-
(7,143)
Finance lease liabilities
(108)
-
12
-
(96)
Other loans
(276)
-
34
-
(242)
Total interest bearing loans and borrowings
(438)
(705)
(7,053)
-
(8,196)
209,421
32
20,708
1,687
231,848
1. Basis of Preparation
JD Sports Fashion Plc (the 'Company') is a company incorporated and domiciled in the United Kingdom. The half year financial report for the 26 week period to 30 July 2016 represents that of the Company and its subsidiaries (together referred to as the 'Group').
This half year financial report is an interim management report as required by DTR 4.2.3 of the Disclosure and Transparency Rules of the UK's Financial Conduct Authority and was authorised for issue by the Board of Directors on 13 September 2016.
The condensed set of financial statements included in this half yearly financial report has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU. The annual financial statements of the Group are prepared in accordance with IFRS's as adopted by the EU. The comparative figures for the 52 week period to 30 January 2016 are not the Group's statutory accounts for that financial year. Those accounts have been reported on by the Group's Auditor and delivered to the Registrar of Companies. The Report of the Auditor was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 of the Companies Act 2006.
The information contained in the half year financial report for the 26 week period to 30 July 2016 and 1 August 2015 has been reviewed and the independent review report for the 26 week period to 30 July 2016 is set out in the half yearly financial report.
As required by the Disclosure and Transparency Rules of the UK's Financial Conduct Authority, the half year financial report has been prepared by applying the same accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the 52 week period to 30 January 2016.
The following amendments to accounting standards and interpretations, issued by the International Accounting Standards Board (IASB), have been adopted for the first time by the Group in the period with no significant impact on its consolidated results or financial position:
Annual Improvements to IFRSs - 2012 - 2014 Cycle
Amendments to IAS 1 'Disclosure initiative'
Amendments to IAS 16 and IAS 38 'Clarification of acceptable methods of depreciation and amortisation'
Amendments to IAS 27 'Equity method in separate financial statements'
IFRS 9 'Financial Instruments' is expected to be applicable after 1 January 2018. If endorsed, this standard will simplify the classification of financial assets for measurement purposes, but it is not anticipated to have a significant impact on financial statements.
IFRS 16 'Leases' is expected to be applicable after 1 January 2019. If endorsed, this standard will significantly affect the presentation of the Group financial statements with all leases apart from short term leases being recognised as on-balance sheet finance leases with a corresponding liability being the present value of lease payments. The Group is currently considering the implications of IFRS 16 on the Group's consolidated results and financial position.
The Group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a significant impact on the financial statements.
Use of estimates and judgements
The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the 52 week period to 30 January 2016.
Risks and uncertainties
The Board has considered the risks and uncertainties for the remaining 26 week period to 28 January 2017 and determined that the risks presented in the Annual Report and Accounts 2016, noted below, remain relevant:
Omnichannel
Key suppliers and brands
Protection of intellectual property
Retail property factors
Seasonality of sales
Economic factors
Reliance on non-UK manufacturers
Consistency of infrastructure
Reliance on IT systems
Reliance on a consolidated warehouse
Retention of key personnel
Health and safety
Foreign exchange risk
Regulatory and compliance
A major variable, and therefore risk, to the Group's financial performance for the remainder of the financial period is the sales and margin performance in the retail fascias, particularly in December and January. Further comment on this and other risks and uncertainties faced by the Group is provided in the Executive Chairman's statement included within this half year report.
After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
2. Segmental Analysis
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker to allocate resources to the segments and to assess their performance. The Chief Operating Decision Maker is considered to be the Executive Chairman of JD Sports Fashion Plc.
Information reported to the Chief Operating Decision Maker is focused more on the nature of the businesses within the Group. The Group's reportable segments under IFRS 8 are therefore as follows:
Sports Fashion - includes the results of JD Sports Fashion Plc, John David Sports Fashion (Ireland) Limited, Spodis SA, Champion Sports Ireland, JD Sprinter Holdings 2010 SL (including subsidiary companies), JD Sports Fashion BV, Sports Unlimited Retail BV, JD Sports Fashion Germany GmbH, JD Sports Fashion SRL, JD Sports Fashion Belgium BVBA, JD Sports Fashion Sweden AB, JD Sports Fashion Denmark ApS, JD Sports Fashion SDN BHD, Size GmbH, ActivInstinct Limited, JD Gyms Limited, Duffer of St George Limited, Topgrade Sportswear Limited, Kooga Rugby Limited, Focus Brands Limited (including subsidiary companies), Kukri Sports Limited (including global subsidiary companies), Source Lab Limited, R.D. Scott Limited, Tessuti Group Limited (including subsidiary companies), Nicholas Deakins Limited, Cloggs Online Limited, Ark Fashion Limited and Mainline Menswear Limited.
Outdoor - includes the results of Blacks Outdoor Retail Limited and Tiso Group Limited (including subsidiary companies).
The Chief Operating Decision Maker receives and reviews segmental operating profit. Certain central administrative costs including Group Directors' salaries are included within the Group's core 'Sports Fashion' result. This is consistent with the results as reported to the Chief Operating Decision Maker.
IFRS 8 requires disclosure of information regarding revenue from major products and customers. The majority of the Group's revenue is derived from the retail of a wide range of apparel, footwear and accessories to the general public. As such, the disclosure of revenues from major customers is not appropriate. Disclosure of revenue from major product groups is not provided at this time due to the cost involved to develop a reliable product split on a same category basis across all companies in the Group.
Intersegment transactions are undertaken in the ordinary course of business on arm's length terms.
The Board consider that certain items are cross divisional in nature and cannot be allocated between the segments on a meaningful basis. Net funding costs and taxation are treated as unallocated reflecting the nature of the Group's syndicated borrowing facilities and its tax group. Drawdowns from the Group's syndicated borrowing facility of 7,143,000 (2015: 54,000,000) and liabilities for taxation of 17,665,000 (2015: 14,003,000) are included within the unallocated segment.
Each segment is shown net of intercompany transactions and balances within that segment. The eliminations remove intercompany transactions and balances between different segments which primarily relate to the net down of long term loans and short term working capital funding provided by JD Sports Fashion Plc (within Sports Fashion) to other companies in the Group, and intercompany trading between companies in different segments.
Operating Segments
Information regarding the Group's operating segments for the 26 weeks to 30 July 2016 is reported below:
Income statement
Sports Fashion
000
Outdoor
000
Total
000
Gross revenue
897,478
73,087
970,565
Intersegment revenue
-
-
-
Revenue
897,478
73,087
970,565
Operating profit / (loss) before exceptional items
79,902
(2,252)
77,650
Exceptional items
-
-
-
Operating profit / (loss)
79,902
(2,252)
77,650
Financial income
391
Financial expenses
(630)
Profit before tax
77,411
Income tax expense
(17,392)
Profit for the period
60,019
Total assets and liabilities
Sports Fashion
000
Outdoor
000
Unallocated
000
Eliminations
000
Total
000
Total assets
922,700
68,717
159
(72,616)
918,960
Total liabilities
(397,457)
(109,045)
(24,967)
72,616
(458,853)
Total segment net assets / (liabilities)
525,243
(40,328)
(24,808)
-
460,107
The comparative segmental results for the 26 weeks to 1 August 2015 are as follows:
Income statement
Sports Fashion
000
Outdoor
000
Total
000
Gross revenue
741,779
68,260
810,039
Intersegment revenue
(138)
-
(138)
Revenue
741,641
68,260
809,901
Operating profit / (loss) before exceptional items
52,068
(4,490)
47,578
Exceptional items
(1,564)
(294)
(1,858)
Operating profit / (loss)
50,504
(4,784)
45,720
Financial income
206
Financial expenses
(1,218)
Profit before tax
44,708
Income tax expense
(10,294)
Profit for the period
34,414
Total assets and liabilities
Sports Fashion
000
Outdoor
000
Unallocated
000
Eliminations
000
Total
000
Total assets
766,227
85,845
-
(84,118)
767,954
Total liabilities
(331,521)
(123,148)
(68,002)
84,118
(438,553)
Total segment net assets / (liabilities)
434,706
(37,303)
(68,002)
-
329,401
Geographical Information
The Group's operations are located in the UK, Republic of Ireland, France, Spain, Germany, the Netherlands, Italy, Sweden, Denmark, Belgium, Portugal, Malaysia, Australia, New Zealand, Canada, Dubai, Singapore and Hong Kong.
The following table provides analysis of the Group's revenue by geographical market, irrespective of the origin of the goods / services:
26 weeks to30 July
2016
000
26 weeks to1 August
2015
000
UK
712,056
621,646
Europe
244,973
176,413
Rest of world
13,536
11,842
970,565
809,901
The revenue from any individual country, with the exception of the UK, is not more than 10% of the Group's total revenue.
The following is an analysis of the carrying amount of segmental non-current assets by the geographical area in which the assets are located:
As at
30 July
2016
000
As at
1 August
2015
000
UK
169,766
209,867
Europe
110,332
95,571
Rest of world
1,972
185
282,070
305,623
3. Exceptional Items
26 weeks to
30 July
2016
000
26 weeks to
1 August
2015
000
52 weeks to
30 January
2016
000
Property related exceptional costs
-
1,858
-
Selling and distribution expenses - exceptional
-
1,858
-
Impairment of goodwill, brands and fascia names (1)
-
-
10,600
Termination of project to replace core IT systems (2)
-
-
14,896
Administrative expenses - exceptional
-
-
25,496
-
1,858
25,496
(1) Relates to the impairment in the period to 30 January 2016 of the goodwill arising in prior years on the acquisition of ActivInstinct Limited, a partial impairment of the Blacks fascia name and the impairment of several other goodwill and fascia name balances which were not significant.
(2) One off exceptional charge writing off costs to 30 January 2016 including certain other related costs.
These selling and distribution expenses and administrative expenses are exceptional items as they are, in aggregate, material in size and / or unusual or infrequent in nature.
4. Earnings per Ordinary Share
Basic and diluted earnings per ordinary share
The calculation of basic and diluted earnings per ordinary share at 30 July 2016 is based on the profit for the period attributable to equity holders of the parent of 58,058,000 (26 weeks to 1 August 2015: 34,293,000; 52 weeks to 30 January 2016: 97,634,000).
The weighted average number of ordinary shares outstanding during the 26 weeks to 30 July 2016 was 194,646,632 (26 weeks to 1 August 2015: 194,646,632; 52 weeks to 30 January 2016: 194,646,632), calculated as follows:
26 weeks to
30 July
2016
26 weeks to
1 August
2015
52 weeks to
30 January
2016
Issued ordinary shares at beginning and end of period
194,646,632
194,646,632
194,646,632
Adjusted basic and diluted earnings per ordinary share
Adjusted basic and diluted earnings per ordinary share have been based on the profit for the period attributable to equity holders of the parent for each financial period but excluding the post-tax effect of certain exceptional items. The Directors consider that this gives a more meaningful measure of the underlying performance of the Group.
26 weeks to
30 July
2016
000
26 weeks to
1 August
2015
000
52 weeks to
30 January
2016
000
Profit for the period attributable to equity holders of the parent
58,058
34,293
97,634
Exceptional items excluding loss on disposal of non-current assets
-
1,633
25,496
Tax relating to exceptional items
-
312
(3,737)
Profit for the period attributable to equity holders of the parent excluding exceptional items
58,058
36,238
119,393
Adjusted basic and diluted earnings per ordinary share
29.83p
18.62p
61.34p
5. Acquisitions
Current period acquisitions
Sports Unlimited Retail BV
On 20 March 2016, the Group acquired, via its newly incorporated subsidiary Sports Unlimited Retail BV, the trading assets and trade of the Aktiesport and Perry Sport fascias from the Trustee of Unlimited Sports Group BV which was declared bankrupt by the court of Amsterdam on 23 February 2016. On acquisition there were 187 stores and two trading websites.
The Board believes that the cash consideration of 26.5 million represents the current best estimates of the fair value of the net assets acquired. The provisional goodwill calculation is summarised below:
Book value
000
Measurement
adjustments
000
Provisional
fair value at
30 July 2016
000
Acquiree's net assets at acquisition date:
Property, plant & equipment
3,929
-
3,929
Inventories
23,330
1,608
24,938
Cash and cash equivalents
58
-
58
Trade and other payables
(8,364)
(1,608)
(9,972)
Net identifiable assets
18,953
-
18,953
Goodwill on acquisition
-
Consideration paid - satisfied in cash
18,953
Included in the 26 week period ended 30 July 2016 is revenue of 31,096,000 and a loss before tax of 2,944,000 in respect of Sports Unlimited Retail BV.
JD Sports Fashion SDN BHD
On 28 April 2016, the Group acquired via its 50% subsidiary in Malaysia, JD Sports Fashion SDN BHD, 20 multi-brand Sports Fashion stores and a trading website which currently trade as Sports Empire, Revolution and The Marathon Shop from Runners World SDN BHD. JD Sports Fashion SDN BHD is an entity controlled by the Group and therefore the results and financial position of the entity are consolidated into the financial statements of the Group.The cash consideration payable on this transaction was MYR 20.7 million.
The Board believes that the excess of cash consideration paid over net identifiable assets on acquisition of MYR 4.9 million represents the fair value of the Sports Empire, Revolution and The Marathon Shop fascia names. The provisional goodwill calculation is summarised below:
Book value
000
Measurement
adjustments
000
Provisional
fair value at
30 July 2016
000
Acquiree's net assets at acquisition date:
Intangible assets
823
-
823
Property, plant & equipment
356
-
356
Other non-current assets
249
-
249
Inventories
2,018
-
2,018
Net identifiable assets
3,446
-
3,446
Goodwill on acquisition
-
Consideration paid - satisfied in cash
3,446
Included in the 26 week period ended 30 July 2016 is revenue of 2,848,000 and a loss before tax of 32,000 in respect of JD Sports Fashion SDN BHD.
SportIberica Sociedade de Artigos de Desporto, S.A.
On 1 July 2016, the Group acquired, both directly and via its 50.1% owned subsidiary JD Sprinter Holdings 2010 SL, an aggregate of 80% of the issued share capital of SportIberica Sociedade de Artigos de Desporto S.A. for cash consideration of 4.2 million with additional consideration of up to 0.5 million payable if certain criteria are met. At acquisition, management believed that the criteria would be met for the maximum consideration to be payable and therefore management believes that the fair value of the total consideration at this time is 4.7 million.
SportIberica currently trades as The Athlete's Foot through 12 Sports Fashion stores.
The Board believes that the excess of cash consideration paid over net identifiable assets on acquisition of 1,422,000 is best considered as goodwill on acquisition representing anticipated future operating synergies.
The provisional goodwill calculation is summarised below:
Book value
000
Measurement
adjustments
000
Provisional
fair value at
30 July 2016
000
Acquiree's net assets at acquisition date:
Property, plant & equipment
183
-
183
Other non-current assets
42
-
42
Inventories
2,821
-
2,821
Cash
679
-
679
Trade and other receivables
866
-
866
Income tax assets
36
-
36
Trade and other payables
(1,540)
-
(1,540)
Interest bearing loans and borrowings
(705)
-
(705)
Net identifiable assets
2,382
-
2,382
Non-controlling interest
(476)
-
(476)
Goodwill on acquisition
1,422
Consideration paid - satisfied in cash
2,971
Contingent consideration
357
Total consideration
3,328
Included in the 26 week period ended 30 July 2016 is revenue of 906,000 and a profit before tax of 40,000 in respect of SportIberica Sociedade de Artigos de Desporto, S.A.
Other acquisitions
During the period, the Group has made several small acquisitions, including increasing its shareholding to 100% in two subsidiaries which were previously non-wholly owned. These transactions were not material.
Half year impact of acquisitions
Had the acquisitions of Sports Unlimited Retail BV, JD Sports Fashion SDN BHD and SportIberica been effected at 31 January 2016, the revenue and profit before tax of the Group for the 26 week period to 30 July 2016 would have been 991,169,000 and 75,191,000 respectively.
Acquisition costs
Acquisition related costs amounting to 241,000 (Sports Unlimited Retail BV: 139,000; JD Sports Fashion SDN BHD: 68,000; and, SportIberica Sociedade de Artigos de Desporto S.A: 34,000) have been excluded from the consideration transferred and have been recognised as an expense in the year, within administrative expenses in the Consolidated Income Statement.
Prior period acquisitions
During the prior period, the Group increased its shareholding in a non-wholly owned subsidiary. The transaction was not material.
6. Subsequent Events
Next Athleisure Pty Limited
On 26 August 2016, the Group acquired, via its newly incorporated subsidiary JD Sports Fashion Holdings Australia Pty, 80% of the issued ordinary share capital of Next Athleisure Pty Limited for consideration of $6.6 million AUD. Next Athleisure Pty Limited currently operates 32 stores and a trading website in Australia under the Glue and Superglue retail banners.
The Board believes that the excess of cash consideration paid over net identifiable assets on acquisition of 4,739,000 represents the fair value of the 'Glue' and 'Superglue' fascia names. The provisional goodwill calculation is summarised below:
Provisional
fair value at
26 August 2016
000
Acquiree's net assets at acquisition date:
Intangible assets
4,821
Property, plant & equipment
5,150
Other non-current assets
2
Inventories
9,428
Cash
471
Trade and other receivables
2,683
Income tax assets
159
Deferred tax assets
1,510
Trade and other payables
(11,903)
Interest bearing loans and borrowings
(7,998)
Net identifiable assets
4,323
Non-controlling interest
(865)
Goodwill on acquisition
-
Consideration paid - satisfied in cash
3,059
Consideration as loan to non-controlling interest
399
Total consideration
3,458
7. Half Year Report
As indicated in the 2012 Notice of Annual General Meeting, in line with many other listed companies the company will no longer be issuing a hard copy of the half year report. Instead, the Group has decided to make the half year report available via the Company's website.
Accordingly the half year report will be available for downloading from www.jdplc.com from mid October 2016. Paper based copies will be available on application to the Company Secretary, JD Sports Fashion Plc, Hollinsbrook Way, Pilsworth, Bury, Lancashire, BL9 8RR.
Disclaimer
This announcement contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of JD Sports Fashion plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.
This information is provided by RNSThe company news service from the London Stock ExchangeENDIR SFDFWEFMSEDU
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