Group Revenues up 23.5%; Group Underlying EBITDA up 12.3%

Transcription

1 12 th December Interim Results for the to Group Revenues up 23.5%; Group Underlying EBITDA up 12.3% (1) (2) (1) (1) (2) Key highlights Group Strong Group performance - ahead of management s expectations European expansion continues - acquisitions in Austria ( EAG ) and the Baltic region ( SIG ) Group now active in 19 European countries Group gross profit increased by 29.2% to 579.8m Group gross margin increased by 190 basis points to 43.1% Strong underlying free cash flow generation of 147m (3) Continued investment in inventory and acquisitions while maintaining a strong balance sheet Sports Retail Online sales growth of 43.0%, now contributes 15.5% of total Sports Retail sales (4) (FY13 H1: 12.5%) International Sports Stores sales growth of 30.8%, excluding acquisition of EAG and SIG Premium Lifestyle 43 former Republic stores converted to the USC fascia Point of sale successfully integrated and new ecommerce platforms launched Brands Everlast, Dunlop and Slazenger continue to drive growth in licensing income 42 new license agreements signed with annual minimum guarantees of $38m over the contract period Dave Forsey, Chief Executive of Sports Direct International plc said: We have delivered another strong performance reflecting our continued focus on providing customers with exceptional quality and unbeatable value reinforcing our position as the consumer champion. The growth in Group revenues and EBITDA has been ahead of expectations and achieved against a tough comparative that included the UEFA European Championships and the London 2012 Olympics. The performance of Sports Retail is particularly pleasing with significant growth in the UK, Europe and online. The Group s expansion in Europe has also continued with acquisitions in Austria and the Baltic states. The integration of these acquisitions is progressing and we continue to look for further opportunities across Europe. While we retain the ability to invest in margin, inventory and Group marketing to deliver long-term sustainable growth, the Board is confident of achieving at least our full year internal underlying EBITDA target of 310m, before the charge for the Employee Bonus Share Scheme. 1

2 (1) Underlying EBITDA, underlying profit before taxation and underlying EPS exclude realised foreign exchange gains/losses in selling and administration costs, exceptional costs and the profit/loss on sale of strategic investments. Underlying EBITDA also excludes the employee bonus share scheme charge. (2) 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 include the employee bonus share scheme charge. (3) Defined as underlying EBITDA (pre share scheme costs) less taxes paid. (4) Excluding EAG, SIG and wholesale and other sales. Sports Direct International plc Dave Forsey, Chief Executive Bob Mellors, Group Finance Director Jeff Blue, Director, Strategic Development FTI Consulting Jonathon Brill Alex Beagley Georgia Mann T: T:

3 Chairman s Statement During the first half of the year the Group has gone from strength to strength with growth across all key metrics. The improvement is particularly pleasing when viewed against the previous first half comparative, which had the benefit of the London 2012 Olympics and the UEFA European Championships. The Group s performance has remained impressive, both operationally and financially. Our employee long term share-based incentive scheme continues to underpin these results. Developments and acquisitions The Group has continued its expansion in Europe, acquiring stakes in Sports EYBL and the Sports Experts Group, as well as SIG, which operate in Austria and Germany and the Baltic region, respectively. In the first quarter we acquired Gelert, strengthening our Brands division. To our Sports Retail division we added Yeomans Outdoors and Robinsons Country Leisure. We also acquired the fashion retail chain Pulp including all six of its stores, this being integrated into to our Premium Lifestyle division. Employee Bonus Share Schemes The second vesting of the 2009 Employee Bonus Share Scheme took place in August, with c. 1,800 employees benefitting from over 19 million shares. This was life changing for many of our employees and I am certain was a large contributor to our overall success. We have now met our FY12 and FY13 targets under the 2011 Employee Bonus Share Scheme and we are on track to realise the FY14 and FY15 targets. If all of the other requisite conditions are achieved under the 2011 Scheme, vesting will take place during 2015 and The Executive Bonus Share Scheme vested in August and those subject to the Scheme exercised their options and received one million shares each. There is a further Executive Bonus Share Scheme which is due to vest during The FY12 and FY13 targets under this Scheme have been reached, with further targets in FY14 and FY15 to be attained. The Board is mindful that Mike Ashley, the Executive Deputy Chairman receives no remuneration at all for the immense contribution he makes to this Company. Dividend As a growth company, we continue to focus on identifying and investing in strategic opportunities that have the potential to generate attractive returns for our shareholders. The Directors believe it appropriate to preserve the Group s financial flexibility to pursue such opportunities and are therefore not minded to recommend the resumption of a regular dividend distribution policy while evaluating attractive investment opportunities. Group Finance Director Bob Mellors, Group Finance Director, has notified the Board of his desire to retire at the end of December on health grounds. Bob has committed to assist management with an orderly handover of his responsibilities when a successor is appointed. On behalf of the Board I should like to thank Bob for his many years of invaluable service and dedication to Sports Direct and wish him well in his retirement. Overall I am delighted that we entered the FTSE 100 during this period. This achievement is testament to the hard work and dedication of our senior management and employees over many years. We continue to provide our customers with exceptional quality and unbeatable value, ever mindful of the financial challenges in the broader economy. We look forward to building upon this success especially with the potential opportunities that the 2014 FIFA World Cup will bring. I wish to thank our employees and other stakeholders for the contribution they make to the Group s success. Keith Hellawell Non-Executive Chairman 12 December 3

4 Overview of Financial Performance Basis of reporting The financial statements for the Group for the are presented in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting which has been adopted for use in the EU (IFRS). Summary of results ( m) 28 October 2012 ( m) Change % Revenue 1, , Underlying EBITDA (pre share scheme costs) Underlying Profit before Tax Reported Profit before Tax Pence per Share Pence per Share Basic EPS (1) Underlying EPS (2) (1) and (2) Based on million and million ordinary shares outstanding in FY14 H1 and FY13 H1, respectively The Directors believe that underlying EBITDA, underlying profit before tax and underlying earnings per share provide the most useful information for shareholders on the underlying performance of the business, 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. ( m) 28 October 2012 ( m) Change % Retail Revenue: UK Sports Retail International Sports Stores (excl EAG and SIG) UK wholesale and other Total Sports Retail 1, Premium Lifestyle Total retail revenue (exc. EAG and SIG) 1, Total Retail Cost of sales (excl EAG and SIG) (653.2) (579.4) Total Retail Gross margin (excl EAG and SIG) Gross margin percentage 43.3 % 41.0 % EAG and SIG revenue EAG and SIG gross margin Total Retail gross margin Gross margin percentage 43.2 % 41.0% Brands Revenue: Wholesale Licensing Total Brands revenue Cost of sales (61.7) (60.9) Gross margin

5 Gross margin percentage 41.9% 43.0% Business Review Overview In the first half, we have delivered strong results ahead of management s expectations. In the ( FY14 H1 ), Group revenues were up 23.5% to 1,345.1m compared with 1,088.9m for the 28 October 2012 ( FY13 H1 ). UK Sports Retail was up 13.4% while International Sports Stores increased 30.8% excluding the acquisitions. With the acquisition of the Sports EYBL and Sports Experts Group (EAG) based in Austria and SIG, a sports business based in the Baltic region, total International Sports Stores revenue increased by 127.6%. Total Sports Retail division revenues have also been boosted by a 43.0% increase in online revenues. Revenue in the Brands division decreased by 0.7% due to a decline in wholesale sales, although licensing revenue increased by 5.5% during the period. The decline in wholesale sales was primarily attributable to a strategic decision to sell more of the Firetrap brand within our Sports Retail and Premium Lifestyle divisions with a corresponding reduction in the wholesale channel. Gross margin for the Group increased 190 basis points to 43.1% (FY13 H1: 41.2%) primarily as a result of less strategic investment in gross margin compared to the summer of The growth in revenue and profitability is also attributable to the success of the Employee Bonus Share Scheme. Net debt increased in the period by 18.8% to 183.3m (28 April : 154.0m), which is 0.6 times LTM EBITDA (1) (FY13 H1: 0.6 times) due to the Group s investment in inventory and recent acquisitions (including the initial consideration and debt acquired). The acquisition of EAG included 12 properties with a book value of 67.6m. Sports Retail division UK Sports Retail revenues increased 13.4% to 903.3m (FY13 H1: 796.9m). This increase was supported by strong growth in online sales, up 43.0% to 158.0m, representing 15.5% of total Sports Retail sales (FY13 H1: 12.5%) (2). We continue to invest in our customer offering, including product range and availability, to ensure this trend continues. During the period, the Sports Retail division margin increased 220 basis points to 43.2% (FY13 H1: 41.0%). UK Sports Retail margin increased to 43.8% (FY13 H1: 42.3%) while International Sports Stores gross margin decreased 40 basis points to 44.0% (FY13 H1: 44.4%). Excluding recent acquisitions, International Sports Stores gross margin would have been 45.1%. UK Sports Retail s operating costs increased by 19.1% in FY14 H1, compared to an increase of 13.4% in revenue and a 17.3% increase in gross profit. As a result, we grew UK Sports Retail underlying EBITDA by 17.4% to 168.4m (FY13 H1: 143.5m). Within Sports Retail our relationships with leading third party brands continue to be key to our strategy. Some of these relationships are developing well while others are more challenging. Over many years Sports Direct has successfully grown while the global sports brands have introduced their respective product segmentation strategies. The most recent decision taken by adidas to restrict Chelsea "on field" replica kits to Sports Direct is impossible to understand. We believe this will inevitably lead to a significant reduction in access to these kits and price inflation to consumers. Sports Direct will pursue various strategic options in order to protect its leading global market position within the Football category. During the period, the store at Shirebrook was ext, including enhanced concepts in the running, outdoor, football and womens categories. Elements of these concepts will also be applied to the c. 50,000 sq. ft former HMV store on Oxford Street, which is due to open in spring The Directors believe there is an opportunity to rollout this enhanced / large store format in selected major cities across the UK. At period end, the Group had 409 stores in the UK (excluding Northern Ireland), with a total of c. 4.2m sq. ft (FY13 H1: c. 4.0m sq. ft) and an average remaining lease expiry of c. 5.7 years (excluding Lillywhites Piccadilly). These are divided between 342 core and 67 non-core stores (3). We have a focused strategy to enhance our store portfolio based on our ability to move quickly where we identify attractive store opportunities. We are still targeting a total of between 25 and 30 core store openings in the UK this year, having opened 17 new core stores in the period, including four that were relocations. We had fewer store closures than expected in UK Sports Retail. The earnings enhancement arising from ownership (as opposed to renting) the stores acquired from Mike Ashley in FY12 has been greater than originally estimated as the previous rents were revenue related. The underlying EBITDA of the 32 acquired stores increased to c. 20m in FY13 (FY11: 13m). The Group continues actively to manage its UK store portfolio including relocations to larger stores. In FY13 UK Sports Retail opened 36 and closed 35 stores, with an average increase in store size of c. 60%. Although sales density dropped, the relocated stores achieved a reduction in the average store cost to sales ratio, thereby increasing net contribution per sq. ft. During the period the Group purchased 51% of the share capital of Yeoman s Outdoor Limited, a retailer of outdoor goods and 51% of Robinsons Country Leisure Limited, a leading UK supplier of equestrian goods. Through the Group s shareholding in the Heatons chain, sports products are retailed within 14 stores in Northern Ireland and 26 stores in the Republic of Ireland. The Group s share of Heatons operating result was a 0.7m profit (FY13 H1: 0.2m profit). 5

6 International Sports Stores revenues increased 30.8% to 118.5m, excluding EAG and SIG revenue (FY13 H1: 90.6m), which in local currency represented an increase of 22.6%. This was largely driven by an 18.7% increase in retail space through new store openings. This performance also reflects the Group s previous investment in training and infrastructure, supporting the European expansion, and the ability of local management teams to leverage the stock control benefits of our UK-developed proprietary IT and operating systems. We continue to strive towards our goal of expanding our international retail presence to all of the major economies present in the European Economic Area in the next three to five years. The recent acquisitions in Austria and Germany have brought us closer to achieving this objective. In the period, we remained on schedule with our international store opening programme having opened one store in Spain, two in Hungary and four in Poland, while closing one store in Belgium. The acquisition of EAG was completed in July and integration has focused on the introduction of Sports Direct point of sale systems, the sell-through of legacy stock, and UK bestsellers have been introduced in all Sports Experts stores. International Sports Stores operating costs increased 31.7% excluding EAG and SIG costs, compared to a 30.8% increase in revenue. During the period EAG and SIG combined reported sales and gross profit of 87.7m and 37.3m, respectively. Excluding associates and acquisitions, International Sports Stores underlying EBITDA increased by 37.5% to 11.0m (FY13 H1: 8.0m). Premium Lifestyle division Our Premium Lifestyle division now includes USC, Cruise, Van Mildert, Flannels and the Republic chain, which was acquired in February. During the period, 43 former Republic stores were converted to the USC fascia, while a further 44 Republic stores were closed and the Republic warehouse and head office were transferred to USC facilities. The majority of the inherited Republic stores remain on advantageous, flexible lease terms with the landlords. In addition, new ecommerce platforms were launched, including Flannels.com and Cruisefashion.co.uk. Sales in the period excluding the Republic brand were up by 16.9% to 65.6m (FY13 H1: 56.1m), due to increased USC and Flannels sales. Gross margin, excluding Republic was 43.6% (FY13 H1: 43.0%). Sales and gross margin including Republic were 102.8m and 43.0%, respectively. Premium Lifestyle EBITDA decreased in FY14 H1 to a loss of 11.8m (FY13 H1: 1.8m loss) due to non-recurring restructuring costs of 6.3m and associated Republic trading losses of 6.4m (which are targeted to reverse in FY14 H2). Excluding Republic, EBITDA would have increased to a 0.8m profit. Brands division Brands division total revenue decreased 0.7% to 106.2m (FY13 H1: 106.9m). Wholesale revenues were down 1.6% to 90.8m (FY13 H1: 92.3m) due a strategic decision to sell more of the Firetrap brand within our Sports Retail and Premium Lifestyle divisions with a corresponding reduction in wholesale sales. Brands gross margin decreased by 110 basis points to 41.9% (FY13 H1: 43.0%). Wholesale gross margin decreased 200 basis points to 32.0% (2012 H1: 34.0%), due to the reduction in the higher margin Firetrap sales. The wholesale market remains challenging and we are expecting margins to decrease slightly again in the second half of the year. Licensing revenues in FY14 H1 were up 5.5% to 15.4m (FY13 H1: 14.6m). Growth in licensing income was driven by the Americas, Middle East, Asia Pacific, while the UK and Europe remain challenging from a licensing perspective. Our strategic focus remains on delivering further growth in licensing revenues, having signed 42 new contracts with contracted minimum royalties of $38m over the life of the contracts. Brands operating costs decreased by 5.6% to 30.5m (FY13 H1: 32.3m) in the period, driven by a restructuring at Firetrap and consolidation of the UK wholesale businesses. Underlying EBITDA in the division increased 2.2% to 14.0m (FY13 H1 13.7m) due to increased licensing income and reduced operating costs. Outlook Following the out-performance in FY14 H1, trading has now reverted to management s original expectations. The Board remains confident of achieving at least our full year internal underlying EBITDA target of 310m, before the charge for the Employee Bonus Share Scheme. Looking to FY15, we are confident that our strategy will continue to deliver consistent growth, underpinned by the strength of our market position and the forthcoming FIFA World Cup in Brazil. Dave Forsey Chief Executive 12 December Bob Mellors Group Finance Director 12 December 6

7 (1) LTM EBITDA is the last twelve months historic underlying EBITDA (2) Excluding the recent acquisitions of EAG and SIG and wholesale and other sales (3) Non-core stores include small acquired stores, temporary stores and Field & Trek stores 7

8 Foreign exchange A number of the forward foreign exchange contracts outstanding at qualify for hedge accounting and the fair value loss on these contracts of 16.5m has been recognised in Other Comprehensive Income. At the period end the Group had 281m of US Dollar contracts, sufficient to cover all purchases in UK Sports Retail for the current financial year and part of the FY15 financial year. These hedged contracts are at an average rate of $1.62. The sterling exchange rate with the US dollar at 28 April was $1.547 and $1.610 at. Taxation The effective tax rate on profit before tax for FY14 H1 was 25.0% (FY13 H1: 27.0%). The difference between the prevailing corporate tax rate and the effective rate reflects depreciation on non-qualifying assets. Strategic investments During the period the Group continued to hold an 11.87% shareholding in JD Sports and Fashion plc. The fair value of the Group's holding at was 65.5m (28 April : 47.6m). No shares were bought or sold in the year, the only movement being in the fair value of the shares held, which has been recognised directly in Other Comprehensive Income. Cash flow and net debt The Group has three committed working capital facilities; a 300m facility with ten financial institutions, a 50m facility with Barclays Bank PLC and a 25m facility with Handelsbanken, all of which are available until 7 March These facilities are not secured against any of the Group s fixed assets. The Group also has a 50m working capital facility with Mike Ashley which can be drawn down on request. This facility was agreed at market terms at its inception. There was no draw down against this facility at the period end or at any point during the period. The Group continues to operate well within its banking covenants and the Board remains comfortable with the Group s available headroom. 8

9 Net debt increased during the period to 183.3m (28 April : 154.0m), which is 0.6 times 12 month rolling underlying EBITDA. The increase in net debt is mainly attributable to International Sports Stores, with the recent acquisitions in Austria and the Baltics. The acquisition of EAG in Austria included 12 properties with a book value of 67.6m. Net capital expenditure amounted to 38.9m (FY13 H1: 26.9m), including 10.3m (FY13 H1: 1.6m) of freehold property. The Group expects FY14 capital expenditure to be c. 60m. The analysis of debt at and at 28 April is as follows: At At 28 April m m Cash and cash equivalents (including short-term borrowings) Long-term Borrowings (337.5) (295.7) Net debt (183.3) (154.0) Cash Flow m 52 weeks 28 April m 28 October 2012 m Underlying EBITDA (pre share scheme costs) Realised profit/loss on forward foreign exchange contracts (0.7) Taxes paid (35.8) (44.7) (23.8) Free cash flow Invested In: Working capital Inventory (49.3) (102.0) (106.5) Receivables, Payables & Other 31.7 (29.2) 33.0 Acquisitions (including debt) (124.1) (47.0) (33.8) Net proceeds from investments Capital expenditure (31.8) (49.8) (26.9) Purchase of own shares - (21.7) (21.7) Finance costs and other financing activities (3.9) (6.1) (3.0) Net increase in net debt (29.3) (8.8) (15.1) Employee Bonus Share Schemes Management believes that the Employee Bonus Share Schemes have been instrumental in the strength of the Group s ongoing performance. The 2011 Employee Bonus Share Scheme is a four year scheme based upon achieving underlying EBITDA (before the costs of the scheme) of 215m in FY12, 250m in FY13, 260m in FY14 and 300m in FY15 coupled with the individual employee s satisfactory personal performance. The scheme requires that all targets are met before the shares vest. Approximately 6m shares will vest in the summer of 2015 and another 21m shares (including the Executive Bonus Share Scheme) in the summer of The remaining targets for Group underlying EBITDA (before the 2011 Employee Bonus Share Scheme costs) are: - FY14: 260m - FY15: 300m The success of the scheme is demonstrated by ongoing improvements in operational and financial performance including various internal KPIs since the scheme s introduction. These KPIs include energy consumption, pay versus turnover, stock loss and staff retention. Dilution Shareholders have previously approved an overall dilution limit for the Company s share plans of 15% of the issued ordinary share capital in any 10 year period. As the Company operates its share schemes for the benefit of a broad base of employees, this overall dilution limit is considered appropriate to provide the Company with sufficient flexibility to continue to operate share schemes on the desired Company-wide basis. The current maximum dilution that would arise from 100% vesting of all currently approved schemes is as follows: 1.3% for the 2009 and 2011 Executive Bonus Share Schemes which the Executive Directors (other than Mike Ashley) and select senior executives participate (well within the best practice limit of 5% in any 10 year period for discretionary executive plans); and 9.0% for the 2009 and 2011 Employee Bonus Share Schemes, assuming the 2011 Scheme vests and that there is no reduction in shares vesting as a result of employee departures. 9

10 Going concern As highlighted, the Group finances its day to day working capital requirements using a 300m facility with 10 financial institutions, a 50m facility with Barclays and a 25m facility with Handelsbanken, all of which are due for renewal in March The Group s earnings forecast, taking account of reasonable changes in trading performance and expected capital expenditure requirements, show that the Group continues to operate well within its existing bank facilities. The Directors have thoroughly reviewed the Group s performance and position relating to historical results, current trading, forecast performance, cash reserves and financing arrangements. Additionally, the Directors have also considered the Group s reliance upon its key stakeholders, including customers and suppliers and found no over reliance on any particular stakeholder. The Directors are therefore confident that the Group will continue in operational existence for the foreseeable future. On this basis, the Directors continue to adopt the going concern basis for the preparation of the interim financial statements. Risks, systems and controls The Board believes that the principal risks and uncertainties for the remaining six months of the current financial year are: Disruption or other adverse events affecting the Group s relationship with any of its key brands or brand suppliers which could have an adverse effect on the Group s business. The possibility of a deterioration of the economy both in the UK and worldwide and a reduction in consumer confidence and retail spending, which could impact on the performance of the business. Funding and liquidity for the Group s operations are provided through bank loans and overdraft facilities and shareholders funds. The Group maintains a system of controls to manage the business and to protect its assets. We continue to invest in people, systems and in IT to manage the Group s operations and to ensure that the Group is financed effectively and efficiently. Directors' Responsibility Statement We confirm that to the best of our knowledge: The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; The interim management report includes a fair review of the information required by: a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events during the first of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining of the year; and b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first 26 weeks of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. Amounts due to and from related parties are disclosed in note 7. The directors of Sports Direct International plc are listed in the Group s Annual Report and Financial Statements. On behalf of the Board Dave Forsey Chief Executive Bob Mellors Finance Director 12 December 10

11 INDEPENDENT REVIEW REPORT TO THE MEMBERS OF SPORTS DIRECT INTERNATIONAL PLC FOR THE 26 WEEKS ENDED 27 OCTOBER Introduction We have reviewed the condensed set of financial statements in the half-yearly financial report of Sports Direct International plc for the which comprises the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated cash flow statement, the Consolidated statement of changes in equity and the related notes. We have read the other information (the Chairman s statement, the Overview of Financial Performance and the Group highlights) contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the company s members, as a body, in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. Our review work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, and the company s members as a body, for our review work, for this report, or for the conclusion we have formed. Directors Responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom s Financial Conduct Authority. As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union. Our Responsibility Our responsibility is to express a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom s Financial Conduct Authority. Grant Thornton UK LLP Chartered Accountants London 12 December 11

12 UNAUDITED CONSOLIDATED INCOME STATEMENT FOR THE 26 WEEKS ENDED 27 OCTOBER 28 October weeks 28 April Notes Continuing operations: Revenue 2 1,345,102 1,088,938 2,185,580 Cost of sales (765,272) (640,339) (1,290,822) Gross profit 579, , ,758 Selling, distribution and administrative expenses (439,067) (321,171) (689,578) Other operating income 6,811 3,133 7,199 Exceptional items Operating profit 2 147, , ,004 Investment income 1,271 1,224 1,473 Finance income 1,446 1,393 3,066 Finance costs (7,903) (8,265) (11,637) Share of profit of associated undertakings and joint ventures ,320 Profit before taxation 143, , ,226 Taxation (35,766) (33,804) (55,569) Profit for the period 2 107,298 91, ,657 Attributable to: Equity holders of the Group 107,559 91, ,596 Non-controlling interests (261) (13) 61 Profit for the period 2 107,298 91, ,657 Earnings per share from total and continuing operations attributable to the equity shareholders Pence per share Pence per share Pence per share Basic earnings per share Diluted earnings per share Underlying basic earnings per share The accompanying notes form an integral part of this interim financial report. 12

13 UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE 26 WEEKS ENDED 27 OCTOBER 28 October weeks 28 April Notes Profit for the period 2 107,298 91, ,657 Other comprehensive income Items that will not be reclassified subsequently to profit or loss Actuarial gains/( losses) on defined benefit pension schemes 4,589 (3,508) (2,818) Income tax relating to items not reclassified (1,087) 797 4,636 Items that will be classified subsequently to profit or loss Exchange differences on translation of foreign operations (14,768) ,436 Fair value adjustment in respect of available for sale financial assets 17,903 (3,320) 1,011 Exchange differences on hedged contracts recognised in the period (7,593) 1,322 15,408 Exchange differences on hedged contracts reclassification in the period (8,907) (785) 196 Other comprehensive income for the period, net of tax (9,863) (4,933) 30,869 Total comprehensive income for the period 97,435 86, ,526 Attributable to: Equity holders of the Parent 97,696 86, ,465 Non-controlling interests (261) (13) 61 97,435 86, ,526 The accompanying notes form an integral part of this interim financial report. 13

14 UNAUDITED CONSOLIDATED BALANCE SHEET AS AT 27 OCTOBER 28 October April ASSETS Non-current assets Notes Property, plant and equipment 421, , ,036 Intangible assets 264, , ,420 Investments in associated undertakings and joint ventures 32,842 28,622 32,117 Available-for-sale financial assets 66,084 43,314 47,645 Deferred tax assets 28,839 35,511 47, , , ,170 Current assets Inventories 557, , ,962 Trade and other receivables 134, ,444 96,111 Derivative financial assets 7,819 1,282 17,965 Cash and cash equivalents 164,505 97, , , , ,413 TOTAL ASSETS 1,679,255 1,328,085 1,408,583 EQUITY AND LIABILITIES Share capital 64,060 64,060 64,060 Share premium 874, , ,300 Treasury shares (56,234) (56,234) (56,234) Permanent contribution to capital Capital redemption reserve 8,005 8,005 8,005 Foreign currency translation reserve 23,630 26,523 38,398 Reverse combination reserve (987,312) (987,312) (987,312) Own share reserve (13,251) (64,375) (64,375) Hedging reserve (479) ,021 Retained earnings 846, , , , , ,931 Non-controlling interests (12,312) (328) (254) Total equity 746, , ,677 Non-current liabilities Borrowings 4 337, , ,627 Retirement benefit obligations 15,899 21,693 19,940 Deferred tax liabilities 23,100 22,862 24,978 Provisions 35,108 55,060 41,072 Current liabilities 411, , ,617 Derivative financial liabilities 8, Trade and other payables 477, , ,261 Borrowings 4 10,276 6,434 55,753 Current tax liabilities 24,565 46,242 56, , , ,289 Total liabilities 932, , ,906 TOTAL EQUITY AND LIABILITIES 1,679,255 1,328,085 1,408,583 The accompanying notes form an integral part of this interim financial report. 14

15 UNAUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE 26 WEEKS ENDED 27 OCTOBER 28 October weeks 28 April Notes Cash inflow from operating activities 6 165,011 93, ,094 Income taxes paid (35,827) (23,843) (44,673) Net cash inflow from operating activities 129,184 69, ,421 Cash flow from investing activities Proceeds on disposal of property, plant and equipment - 1, Proceeds on disposal of intangible assets Purchase of subsidiaries, net of cash acquired (16,485) (33,738) (46,941) Purchase of associate, net of cash acquired - (96) (96) Purchase of intangible assets (162) (134) (2,282) Purchase of property, plant and equipment (31,610) (28,278) (48,247) Investment income received 1,271 1,224 1,473 Finance income received - - 1,117 Net cash outflow from investing activities (46,986) (59,559) (94,272) Cash flow from financing activities Finance income received Finance costs paid (4,409) (3,435) (7,196) Borrowings drawn down 181, , ,970 Borrowings repaid (247,408) (89,538) (323,942) Purchase of own shares - (21,742) (21,742) Net cash (outflow) / inflow from financing activities (69,624) 11,945 52,090 Net increase in cash and cash equivalents including overdrafts 12,574 21,643 72,239 Cash and cash equivalents including overdrafts at beginning of period 141,674 69,435 69,435 Cash and cash equivalents including overdrafts at the period end 154,248 91, ,674 The accompanying notes form an integral part of this interim financial report. 15

16 UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE 26 WEEKS ENDED 27 OCTOBER Noncontrolli Treasury Foreign currency Own share Retained Other Sub- ng shares translation reserve earnings reserves total interests Total At 29 April 2012 (55,839) 25,962 (57,684) 600,431 (40,480) 472,390 (505) 471,885 Share-based payments ,595-4,595-4,595 Vesting of share awards ,656 (14,656) Current tax on share schemes ,667-3,667-3,667 Deferred tax on share schemes 5,464-5,464-5,464 Cost of shares acquired (395) (395) - (395) Purchase of own shares - - (21,347) - - (21,347) - (21,347) Non-controlling interest - acquisition Transactions with owners (395) - (6,691) (930) - (8,016) 190 (7,826) Profit for the financial period ,409-91,409 (13) 91,396 Cashflow hedges - recognised in the period ,322 1,322-1,322 - reclassified in the period - (785) (785) - (785) Actuarial losses on defined benefit pension schemes (3,508) - (3,508) - (3,508) Fair value adjustment in respect of available for sale financial assets (3,320) - (3,320) - (3,320) Taxation on items taken to comprehensive income Translation differences group - 1, ,705-1,705 Translation differences associates - (1,144) (1,144) - (1,144) Total comprehensive income , ,476 (13) 86,463 At 28 October 2012 (56,234) 26,523 (64,375) 684,879 (39,943) 550,850 (328) 550,522 Share-based payments (583) - (583) - (583) Vesting of Share-based payments (2,072) - (2,072) - (2,072) Current Tax on share schemes (86) - (86) - (86) Deferred Tax on share schemes Transactions with owners (1,908) - (1,908) (1,646) (1,908) Profit for the financial period ,187-60, ,261 Cashflow hedges recognised in the period ,086 14,086-14,086 reclassification Actuarial gains on defined benefit pension schemes Fair value adjustment in respect of available for sale financial assets ,331-4,331-4,331 Taxation on items taken to comprehensive income ,839-3,839-3,839 Translation differences group - 9, ,430-9,430 Translation differences associates - 2, ,445-2,445 Total comprehensive income - 11,875-69,047 15,067 95, ,063 At 28 April (56,234) 38,398 (64,375) 752,018 (24,876) 644,931 (254) 644,677 Share-based payments ,000-1,000-1,000 Vesting of Share-based payments ,124 (51,124) Current Tax on share schemes ,362-30,362-30,362 Deferred Tax on share schemes (14,890) - (14,890) - (14,890) Non-controlling interest - acquisition (11,645) (11,645) Non-controlling interest - disposal (152) (152) Transactions with owners ,124 (34,652) - 16,472 (11,797) 4,675 Profit for the financial period , ,559 (261) 107,298 Cashflow hedges recognised in the period (7,593) (7,593) - (7,593) reclassification (8,907) (8,907) - (8,907) Actuarial gains on defined benefit pension schemes ,589-4,589-4,589 Fair value adjustment in respect of available for sale financial assets ,903-17,903-17,903 Taxation on items taken to comprehensive income (1,087) - (1,087) - (1,087) Translation differences group - (14,768) (14,768) - (14,768) Total comprehensive income - (14,768) - 128,964 (16,500) 97,696 (261) 97,435 At (56,234) 23,630 (13,251) 846,330 (41,376) 759,099 (12,312) 746,787 16

17 The Company holds 42,137,508 ordinary shares in Treasury. The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and associates. On 6 August, Appleby Trust (Jersey) Limited as a trustee of the Sports Direct Employee Benefit Trust ( the Trust ) sold 17,000,000 ordinary shares in a secondary placing on the London Stock Exchange, with Goldman Sachs and Espirito Santo Investment Bank acting as joint bookrunners. These shares represent all the ordinary shares which the Sports Direct employees elected to sell on vesting of their awards under the 2009 Employee Bonus Share Scheme. A further 2,420,406 shares vested and were distributed to relevant staff. On 2 October the 4,000,000 shares granted under the 2009 Executive Bonus Share Scheme vested. At, the Trust held 6,170,490 shares. The credit for the share based payment charge does not equal the charge per the income statement as it excludes amounts recognised in the balance sheet in relation to the expected national insurance contributions for the shares and a transfer of accrued national insurance contributions in respect of previous years charges which had previously been recognised in equity. The amount transferred is not material to the interim financial statements. 17

18 NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 27 OCTOBER 1. General information and basis of preparation The results for the first half of the financial year have not been audited and are prepared on the basis of the accounting policies set out in the Group's Annual Report and Financial Statements. The financial information has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (DTR) and with International Accounting Standard (IAS) 34 - "Interim Financial Reporting" as endorsed by the European Union. The principal accounting policies have remained unchanged from the prior financial information for the 52 weeks 28 April. This consolidated financial information for the period does not constitute statutory financial statements within the meaning of s434 of the Companies Act The summary of results for the 52 weeks 28 April is an extract from the published Annual Report and Financial Statements which have been reported on by the Group s auditors and delivered to the Registrar of Companies. The audit report was unqualified and did not contain a statement under s498 (2) or s498 (3) of the Companies Act Segmental analysis Operating segments IFRS 8 - Operating Segments requires the Group s 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 assess performance and allocate resources across each operating segment. The Chief Operating Decision Maker has been identified as the Executive Directors and the operating segments are identified as the store fascia or brand, in line with the internal reporting to the Executive Directors. Sales and gross profit for each operating segment, as well as underlying EBITDA, are the main measures used by the Executive Directors to assess performance. In accordance with paragraph 12 of IFRS 8 the Group s operating segments have been aggregated into the following reportable segments: 1. UK Sports Retail & other includes the results of UK retail network of sports stores as well as its online sports results; 2. Premium Lifestyle includes the results of the premium retail businesses such as Republic, Cruise and USC; 3. International Sports Stores includes the results of the Group s international retail network of stores; and 4. Brands includes the results of the Group s portfolio of internationally recognised brands such as Everlast, Lonsdale and Dunlop Segment information about the operating segments is presented below: Segmental information for the : Retail Brands UK Sports Retail Premium Lifestyle International Sports Stores Total Retail Total Eliminations Total Sales to external customers 929,874* 102, ,170 1,238, ,215-1,345,102 Sales to other segments 203-8,252 8,455 14,737 (23,192) - Revenue 930, , ,422 1,247, ,952 (23,192) 1,345,102 Gross profit 400,397 44,179 90, ,307 44, ,830 Operating profit/(loss) before foreign exchange and exceptional items 145,322 (13,668) 5, ,202 11, ,219 Operating Profit 145,488 (13,615) 4, ,712 10, ,574 Investment income 1,271 Finance income 1,446 Finance costs (7,903) Share of profits of associated undertakings and joint ventures 676 Profit before taxation 143,064 Taxation (35,766) Profit for the period 107,298 *Including sales of Wholesale & other sales of 26.6m. 18

19 Reconciliation of operating profit to underlying EBITDA for the 26 week period ending. UK Sports Premium International Brands Total Retail Lifestyle Sports Stores Operating profit/(loss) 145,488 (13,615) 4,839 10, ,574 Depreciation 16,582 1,448 6, ,104 Impairment Amortisation ,319 3,131 Share of profit/(loss) of associated undertakings (223) 676 Reported EBITDA 162,525 (11,823) 12,091 13, ,618 Charges for the Bonus Share Schemes 6, ,018 Realised FX (Gain)/ Loss (166) (53) Underlying EBITDA 168,377 (11,876) 12,800 13, ,281 Sales to other segments are priced at cost plus a 10% mark-up. Other segment items included in the income statement for the : Retail Brands Total Depreciation 24, ,104 Amortisation and impairment 945 2,319 3,264 Segmental information for the 28 October 2012: Retail Brands UK Sports Premium Lifestyle International Sports Retail Stores Total Retail Total Eliminations Total Sales to external customers 835,370* 56,084 90, , ,873-1,088,938 Sales to other segments - - 3,971 3,971 15,952 (19,923) - Revenue 835,370 56,084 94, , ,825 (19,923) 1,088,938 Gross profit 338,284 24,106 40, ,607 45, ,599 Operating profit/(loss) before foreign exchange and exceptional items 115,239 (2,667) 4, ,396 10, ,657 Operating Profit 118,110 (2,597) 4, ,895 10, ,561 Investment income 1,224 Finance income 1,393 Finance costs (8,265) Share of profits of associated undertakings and joint ventures 287 Profit before taxation 125,200 Taxation (33,804) Profit for the period 91,396 *including sales of Wholesale & other of 38.4m 19

20 Reconciliation of operating profit to underlying EBITDA for the 26 week period ending 28 October UK Sports Premium International Brands Total Retail Lifestyle Retail Operating profit/(loss) 118,110 (2,597) 4,382 10, ,561 Depreciation 17, ,416 1,115 22,652 Amortisation ,243 2,399 Share of loss of associated undertakings (10) - (173) 47 (136) Reported EBITDA 135,346 (1,693) 7,752 14, ,476 Charges for the Bonus Share Schemes 11, ,023 Realised FX (Gain)/ Loss (2,871) (70) 19 (405) (3,327) Underlying EBITDA 143,498 (1,763) 7,771 13, ,172 Sales to other segments are priced at cost plus a 10% mark-up. Other segment items included in the income statement for the 28 October 2012: Retail Brands Total Depreciation 21,537 1,115 22,652 Amortisation 156 2,243 2,399 Segmental information for the 52 weeks 28 April : This information is available in the annual report. 20

21 3. Earnings per share For diluted earnings per share, the weighted average number of shares, 578,454,000 (FY13 H1: 568,835,000), is adjusted to assume conversion of all dilutive potential ordinary shares under the Group s bonus share schemes, being 40,736,000 (FY13 H1: 51,853,000) to give the diluted weighted average number of shares of 619,190,000 (FY13 H1: 620,687,000). The number of dilutive ordinary shares under the Group s bonus share schemes has been calculated on a weighted average basis to take account of those shares that vested during the period. Basic and diluted earnings per share Basic Diluted 28 October 2012 Basic 28 October 2012 Diluted 52 weeks 28 April Basic 52 weeks 28 April Diluted Profit for the period attributable to the equity holders of the Group 107, ,559 91,409 91, , ,596 Number in thousands Number in thousands Number in thousands Weighted average number of shares 578, , , , , ,825 Pence per share Pence per share Pence per share Earnings per share 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 forward currency contracts in finance income/costs, exceptional costs and the profit/loss on sale of strategic investments. The Directors believe that the underlying earnings before exceptional items and underlying earnings per share measures provide additional useful information for shareholders on the underlying performance of the business, and are consistent with how business performance is measured internally. Underlying earnings is not a recognised profit measure under IFRS and may not be directly comparable with adjusted profit measures used by other companies. Basic Diluted 28 October 2012 Basic 28 October 2012 Diluted 52 weeks 29 April Basic 52 weeks 29 April Diluted Profit for the period 107, ,559 91,409 91, , ,596 Post tax adjustments to profit for the period for the following exceptional items: Realised loss/(gain) on forward foreign exchange contracts (2,429) (2,429) (1,763) (1,763) Fair value adjustment to forward foreign exchange contracts 1,690 1,690 2,636 2,636 1,476 1,476 Profit on sale of intangible assets (463) (463) Fair value adjustments within associated undertakings - - (309) (309) (273) (273) Impairment of goodwill ,217 2,217 Underlying profit for the period 109, ,859 91,307 91, , ,790 Number in thousands Number in thousands Number in thousands Weighted average number of shares 578, , , , , ,825 Pence per share Pence per share Pence per share Earnings per share