FORWARD TOGETHER. Sports Direct International plc FY17 Preliminary Results Pack For the 53 weeks ended 30 April July 2017

Transcription

1 FORWARD TOGETHER Sports Direct International plc FY17 Preliminary Results Pack For the 53 weeks ended 30 April July 2017

2 FORWARD LOOKING INFORMATION This presentation may contain forward-looking statements, beliefs or opinions, including statements with respect to management's current views and expectations of future events, and the Company s future financial condition and results of operations. No representation is made that any of these statements, beliefs or opinions will come to pass. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these statements, beliefs or opinions. Forward-looking statements speak only as at the date of this presentation and the Company expressly disclaims any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this presentation. No statement in this presentation is intended to be a profit forecast. As a result, you are cautioned not to place any undue reliance on such forward-looking statements, beliefs or opinions. 2

3 CONTENTS Group Highlights Financial Review Strategic update Outlook 3

4 GROUP HIGHLIGHTS

5 FY17: GROUP HIGHLIGHTS FY17 has been a transitional year for the Company and for our people Group revenue increased by 3.2% on a currency neutral basis excluding the impact of the acquisition of Heatons and the 53 rd week Underlying EBITDA decreased by 28.5% largely due to the devaluation of the GBP and an increase in operating expenses Underlying profit before tax decreased by 58.7% following an increase in depreciation and amortisation Underlying free cash generation of 173.7m Capital expenditure of 419.5m, including 317.0m of investment in property assets as we elevate our sports retail proposition Net Debt increased to 182.1m from 99.6m at 24 April 2016, positively assisted by net proceeds on disposal of investments of 165.9m Substantial financial resources and strong balance sheet FY17 FY16 1 Group revenue 3, % UK Sports Retail revenue 2, % International Sports Retail revenue % Premium Lifestyle revenue % Brands revenue % Group gross margin 41.0% (323 bps) UK Sports Retail 40.4% (430 bps) International Sports Retail 43.2% (159 bps) Underlying EBITDA (28.5%) Underlying PBT (58.7%) Reported PBT (22.2%) Underlying EPS p (67.8%) Reported EPS p (15.8%) 1. FY17 is 53 weeks to 30 April FY16 is 52 weeks to 24 April Underlying EBITDA, underlying profit before taxation and underlying EPS exclude realised foreign exchange gains/losses in selling and administration costs, exceptional costs, disposal of subsidiaries and the profit/loss on sale of strategic investments. Underlying EBITDA also excludes the Share Scheme charges. 5

6 FINANCIAL REVIEW

7 FY17: GROUP REVENUE BRIDGE +38.0% 11.6% 4.1% +11.7% +6.9% 1 Heatons acquisition benefitted both UK and International Sports Retail Excluding acquisitions and the 53 rd week, Group revenue increased by 3.2% on a currency neutral basis 7

8 FY17: SPORTS RETAIL OVERVIEW REVENUE RETAIL GROSS MARGIN 1 2,492m +12.5% 2,802m +38.0% +6.3% On a currency neutral basis, and excluding acquisitions and the 53 rd week: UK Sports Retail retail revenue increased by 2.6% International Sports Retail retail revenue increased by 5.9% 1. Excludes wholesale sales. UK Sports Retail gross margin impacted by deterioration in GBP/USD, and increase in inventory and other provisions International Sports Retail gross margin impacted by favourable EUR/USD rate in second half 8

9 FY17: UK SPORTS RETAIL OPERATING COSTS & UNDERLYING EBITDA m FY17 FY16 Change (%) Store Wages % Premises Costs % Other Retail Costs % UK Sports Retail Operating Costs % UK Sports Retail Underlying EBITDA, pre Associates (25.0%) Associates % UK Sports Retail Underlying EBITDA (24.9%) 9

10 FY17: INTERNATIONAL SPORTS RETAIL OPERATING COSTS & UNDERLYING EBITDA m FY17 FY16 Change (%) Store Wages % Premises Costs % Other Retail Costs % International Sports Retail Operating Costs % International Sports Retail Underlying EBITDA, pre Associates (19.5) (7.3) - Associates (83.3%) International Sports Retail Underlying EBITDA (19.1) (4.9) (289.8%) 10

11 FY17: PREMIUM LIFESTYLE OVERVIEW REVENUE & GROSS MARGIN OPERATING COSTS & UNDERLYING EBITDA m FY17 FY16 Change (%) Store Wages (15.8%) Premises Costs (37.4%) Other Costs % Total Operating Costs (4.9%) Underlying EBITDA (0.3) (5.1) 94.1% Operating costs reduced as a result of the previous rationalisation undertaken 11

12 FY17: BRANDS OVERVIEW REVENUE OPERATING COSTS & UNDERLYING EBITDA 231.5m 4.1% 241.1m 14.1% m FY17 FY16 Change (%) Wages (8.4%) Advertising & Promotion % Other Costs % 2.4% Total Operating Costs % Underlying EBITDA (29.6%) Brands operating costs increased primarily due to bad debt provisions Divested the Dunlop brand in line with Sports Direct's stated aspiration to become the "Selfridges" of sports retail, including its renewed focus on its core UK and International business and the development of its relationships with third party brands 12

13 FY17: UNDERLYING EBITDA BRIDGE (28.5%) 13

14 FY17: SUMMARY UNDERLYING PBT / PAT / EPS m FY17 FY16 Change (%) Underlying EBITDA (28.5%) Share Scheme Charge (2.8) (7.1) (60.6%) Depreciation and amortisation (148.0) (95.5) 55.0% Interest (8.7) (5.2) 67.3% Investment Income (68.7%) Underlying Profit Before Tax (58.7%) Underlying Taxation (45.4) (62.9) (27.8%) Non-Controlling Interests (1.8) (1.6) 12.5% Underlying Profit After Tax (68.4%) Number of Shares (millions) (1.5%) Underlying Basic Earnings per Share 11.4p 35.5p (67.9%) Underlying Diluted Earnings per Share 11.1p 34.5p (67.9%) 14

15 FY17: DEPRECIATION & AMORTISATION m FY17 FY16 Change (%) Sports Retail UK Stores, Warehouse & Amortisation of Goodwill (47.4) (53.3) (11.1%) UK Changes in Estimated Useful Life and capitalisation threshold (14.5) (2.8) 417.9% UK Revaluations, impairments and aligning of policies in acquired businesses (34.0) (10.0) 240.0% Total UK Sports Retail (95.9) (66.1) 45.1% International Stores, Warehouse & Amortisation of Goodwill (12.1) (19.6) (38.3%) International Changes in Estimated Useful Life and capitalisation threshold (30.3) - - Total International Sports Retail (42.4) (19.6) 116.3% Premium Lifestyle (3.7) (4.7) (21.3%) Brands (6.0) (5.2) 15.4% Total (148.0) (95.6) 54.8% Depreciation and amortisation charge increased due to increased investment in our store portfolio and revisions to accounting estimates of useful economic lives of assets 15

16 FY17: CASH FLOW m FY17 FY16 Underlying EBITDA Realised (loss)/profit on FX contracts (23.7) (2.3) Taxes paid (75.3) (69.9) Underlying free cash flow Working capital Inventory 60.0 (155.4) Debtors/Creditors, other (38.4) (88.1) Acquisitions (including debt) (22.6) (33.1) Proceeds on disposal of investments Proceeds on disposal of subsidiary Investment income Purchase of properties (417.1) (150.7) Proceeds from sale of freehold properties Other capital expenditure - (56.4) Purchase of own shares (109.8) - Finance costs and other financing activities (2.1) (1.5) Decrease/(increase) in Net Debt (82.4) (39.9) 16

17 FY17: CAPITAL EXPENDITURE SPORTS RETAIL UK Sports Retail, m FY17 FY16 Property asset acquisitions & related development costs* Shirebrook campus New stores (leasehold) Refurbishment capex Corporate plane Other UK Sports Retail Capital Expenditure International Sports Retail, m FY17 FY16 Property asset acquisitions & related development costs* New stores (leasehold) Refurbishment capex Other International Sports Retail Capital Expenditure *Total spend on new properties - 317m 17

18 FY17: CAPITAL EXPENDITURE PREMIUM LIFESTYLE, BRANDS & GROUP m FY17 FY16 UK Sports Retail International Sports Retail Premium Lifestyle Brands Gross Capital Expenditure Proceeds on disposal of fixed assets (2.4) (44.0) Net Capital Expenditure

19 FY17: NET DEBT BRIDGE 19

20 STRATEGIC UPDATE

21 FY17 FY21+ STRATEGIC PRIORITIES MISSION STRATEGY We aspire to be a leading sports and lifestyle retailer internationally and to deliver sustainable growth for our shareholders in the medium to long term Invest in our people and our key third party brand partners to deliver an enhanced multi-brand, multi-sport customer experience, which we have described as an aspiration to become the Selfridges of sports retail STRATEGIC PRIORITIES ONE TEAM, ONE GOAL #SDFAMILY ELEVATION OF SPORTS RETAIL IMPROVING STAKEHOLDER ENGAGEMENT 21

22 STRATEGIC PRIORITIES: OUR PEOPLE THE SPORTS DIRECT FAMILY The value of Sports Direct is our people the last 18+ months have been tough and have taken a toll on morale At FY17 H1, we provided an update on our progress on improving our working practices. A number of existing practices have been strengthened and new practices have been introduced which have benefitted our people and the Company We continue to progress, and since that time notably we have also: Appointed a Workers Representative to the Board: Alex Balacki, a store manager who joined the Company 13 years ago as a casual sales assistant, was elected by staff and will attend scheduled Board meetings over the next year. Alex is playing a key role in our Your Voice, Your Company initiative for staff Established a staff Health & Safety Committee in Shirebrook Implemented a system to facilitate open, anonymous staff consultations across our UK warehouse and stores, and replaced the warehouse Staff Forum with a Listening Group, which aims to ensure early visibility of any problems Established a number of wellbeing services for staff, including a heath and wellbeing service in conjunction with Derbyshire Community Health Service, and the Company recently became a member of the Retail Trust, which is the leading wellbeing charity for the retail industry Board and management team continue to work on developing a new incentive scheme As announced previously, as a result of the continued volatility in the Company s share price, the Company has committed to delivering a minimum value of 3 for share awards under the 2011 Share Scheme, due to vest to participating eligible employees in September 2017, and extended this minimum value to 4 if employees choose to postpone vesting their shares until September

23 STRATEGIC PRIORITIES: ELEVATION OF SPORTS RETAIL Remains our key medium to long term strategic priority to elevate our sports retail proposition to: Continue to strengthen our relationships with our key third party brand partners Benefit our customers Drive the Group s long term profitability Elevation of proposition across: Product Stores and Online Marketing Remain committed to offering an unrivalled range, availability and quality of product Critical to our strategic relationships with our key third party brand partners: Nike, adidas, Under Armour, Puma, and other leading specialists 23

24 ELEVATION OF SPORTS RETAIL: STRATEGIC THIRD PARTY BRAND PARTNER RELATIONSHIPS The current forward looking view is that the majority of our offer must be third party brands Elevation of our sports retail proposition and the new generation concept is completely aligned with and helping to strengthen our relationships with our key third party brands partners Key initiatives in FY17 include: New brand showrooms and offices at our Shirebrook campus Continued collaboration on new store brand layout planning, seasonal marketing calendars, visual merchandising and staff training Completed multiple joint UK-wide marketing initiatives with adidas, Nike, Puma, and Under Armour, Nike CR7 Boot campaign spanned window takeovers, TV, print, and out of home advertising in London, alongside a full digital and social media campaign 24

25 ELEVATION OF SPORTS RETAIL: ENHANCING THE ONLINE EXPERIENCE Significantly re-styled and elevated our fascias and brands online presence Developed an app to add to the Group s suite of fully responsive ecommerce and websites Driven by the Group s centralised web platform and built to be compatible with ios and Android. Skinned for: SportsDirect.com Plus: Lifestyle brand: Firetrap, and Premium fascia: Flannels.com Improving seamless customer feel and presence across website and app Working closely with third party brand partners on online marketing initiatives first take over of website and app by Nike to launch an exclusive style of the CR7 Boot, and 25

26 ELEVATION OF SPORTS RETAIL: THIRD PARTY BRAND PARTNER MARKETING In Sports Retail, steadily moving to clean, brand- and category-led campaigns, in contrast to previous focus on offer-led campaigns Key third party brand partners supporting this elevation with marketing assets in-store and online major campaigns included a premium style of Nike CR7 football boot and the adidas Ace 17 football boot Same principles adopted across Premium Lifestyle fascias closely working with third party brand partners to deliver brand-led campaigns 26

27 ELEVATION OF SPORTS RETAIL: GROUP BRANDS MARKETING Consistent elevation in marketing of the Group s Brands, and enhancing profiles with ambassadors: No Fear announced a collaboration with grime artist Skepta, and will work together to develop a Motocross-inspired range over the next 12 months Lonsdale reaffirmed itself as an iconic boxing brand by becoming the official clothing and equipment partner of GB Boxing as they work towards the 2020 Olympic Games USA Pro s FY17 co-branded range with Little Mix was a monumental success they are currently working on their second range for Summer 2017 Slazenger retained its long-term partnership with Wimbledon, and launched a successful cobranded swimwear range with Becky Adlington. Due to its success, a second range is now planned for FY18 Karrimor won a total of six awards at the Men s and Women s Running awards including gold for the Best High Visibility Product, Best Support Shoe and Best Newcomer Shoe 27

28 OUTLOOK

29 OUTLOOK We are pleased to confirm that early indications show that trading in our new generation flagship stores is exceeding our expectations. The table below shows two examples of these stores, which we have called Store X and Store Y. Store X is our highest-turnover new flagship, and Store Y is our lowest turnover new flagship. Both are delivering greater EBITDA than an average Sports Direct store. STORE X (new generation flagship) - Sales area 35k sq. ft. EBITDA 2.1m STORE Y (new generation flagship) - Sales area 31k sq. ft. EBITDA 1.0m Sports Direct UK Average Store - Sales area 11k sq. ft. EBITDA 0.5m This should be balanced against the continued impact of the devaluation of sterling against the dollar, with our GBP/ USD requirements hedged at 1.31 for FY18 (compared with a historical long-term average closer to approx. 1.6). Taking all of these factors into account, our outlook is optimistic and we aim to achieve growth in underlying EBITDA in the region of approx. 5%-15% during FY18. However, we will continue to be conservative in managing for the medium to long term, which may result in short-term fluctuations in underlying EBITDA, particularly given the continued uncertainty surrounding Brexit. 29

30 END