EVERYTHING IS CHANGING - Sports Direct/media/Files/S/Sports-Direct/interi… · EVERYTHING IS CHANGING Interim Results Presentation For the 26 weeks ended 25 October 2015 10 December

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E V E R Y T H I N G I S C H A N G I N G

Interim Results PresentationFor the 26 weeks ended 25 October 2015

10 December 2015

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D A V E F O R S E YCHIEF EXECUTIVE

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• Sports Retail revenue increased by 2.5% on a currency neutral basis

• Sports Retail gross margin increased by 110 bps to 45.6%

• Sports Retail gross profit increased by 5.2% on a currency neutral basis

• Group underlying EBITDA increased by 7.6% to £218.5m

• Underlying profit before tax up 3.6% to £166.4m

• Underlying free cash generation of £175.1m

• Net debt decreased to £20.3m (£59.7m at 26 April 2015)

• Continued roll-out of large format city centre stores

• Latest phase of ongoing Shirebrook campus development now complete

• Agreed to acquire remaining 50% of Heatons, our Irish associated company

• Continued investment in inventory and strategic stakes while maintaining a strong balance sheet

Heatons / Sports Direct, Bangor

Sports Direct, Leeds

F Y 1 6 H 1 : G R O U P H I G H L I G H T S

M A T T P E A R S O NACTING CHIEF FINANCIAL OFFICER

FINANCIAL REVIEW

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• Group revenue growth of 2.0%*

* On a currency neutral basis

RE

VE

NU

E (

£M

)

F Y 1 6 H 1 : G R O U P R E V E N U E B R I D G E

£1,435m

£1,440m

£1,445m

£1,450m

£1,430m

£1,425m

£1,420m

£1,415m

£1,410m

£1,405m

£1,400m

FY15 H1

£1,433m

FY16 H1

£1,434m+0.2%

Sports Retail Premium Lifestyle Brands

(12.2%)

(£12.2m)

+10.2%

+£10.4m

+£2.6m

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F Y 1 6 H 1 : S P O R T S R E T A I L O V E R V I E W

S P O R T S R E T A I L R E V E N U E

• Gross margin increase of 110 bps year on year, primarily due to higher proportion of ‘better’ and ‘best’ Group branded products

• Sports Retail gross profit growth of 5.2%*

* On a currency neutral basis

S P O R T S R E T A I L G R O S S M A R G I N

47.0

46.0

45.0

44.0

43.0

42.0

41.0

40.0

39.0

38.0

GR

OS

S M

AR

GIN

(%

)H1 13

40.9

H1 14

43.2

H1 15

44.5

FY 13

40.3

FY 14

42.9

FY 15

44.6

H1 16

45.6

£1,300m

£1,250m

£1,200m

£1,150m

£1,100m

£1,050m

£1,000m

£950m

£900m

£850m

FY15 H1 FY16 H1

£1,234m£1,231m

RE

VE

NU

E (

£M

)

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F Y 1 6 H 1 : S P O R T S R E T A I L O P E R A T I N G C O S T S

FY16 H1(£m)

FY15 H1(£m)

Change(%)

Store Wages 122.7 120.4 + 1.9

Premises Costs 110.6 106.8 + 3.5

Other Retail Costs 124.0 126.7 (2.1)

Sports Retail Operating Costs 357.3 353.9 +1.0

Sports Retail Underlying EBITDA pre associates 205.0 194.2 +5.6

Associates (Heatons & others) 1.5 1.6 (6.3)

Sports Retail Underlying EBITDA 206.5 195.8 +5.5

Sports Retail operating costs impacted by rationalisation of recently acquired International businesses.

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F Y 1 6 H 1 : P R E M I U M L I F E S T Y L E

FY16 H1

• Revenue lower due to store closures in prior year

• Gross margin improving due to reduced stock clearance and improving buying disciplines

• Cost savings from operating ef�ciencies

£120m

£100m

£80m

£60m

£40m

£20m

£0m

FY15 H1

£99.9m

£87.7m

USC

Premium

FY16 H1

Premium

RE

VE

NU

E (

£M

)

USC

FY16 H1(£m)

FY15 H1(£m)

Change(%)

Revenue 87.7 99.9 (12.2)

Gross Margin 36.2 38.4 (5.7)

Gross Margin % 41.3% 38.4% +290bps

Store Wages 9.4 9.9 (5.1)

Premises Costs 18.4 20.7 (11.1)

Other Costs 13.5 15.6 (13.6)

Total Operating Costs 41.3 46.2 (10.6)

Division Underlying EBITDA (5.1) (7.8) +34.6

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F Y 1 6 H 1 : B R A N D S D I V I S I O N

£120m

£100m

£80m

£60m

£40m

£20m

£0m

FY15 H1

£102.1m

£112.5m

£86.8m

£15.3m

FY16 H1

£16.0m

RE

VE

NU

E (

£M

)

£96.5m

REVENUE: UP 10.2%

• Licensing: Up 4.6%

• Wholesale: Up 11.2%

WHOLESALE MARGIN: 30.1%

• Down 260 bps

LICENSING

• H1 FY16: 23 deals completed / Contractual minimum royalties of $10m over the life of the contracts

Licensing Wholesale

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F Y 1 6 H 1 : B R A N D S O P E R A T I N G C O S T S

FY16 H1(£m)

FY15 H1(£m)

Change(%)

Wages 9.1 9.7 (6.2)

Advertising and Promotion 7.1 7.6 (6.6)

Other Brands Costs 11.7 11.4 +2.6

Total Brands Operating Costs 27.9 28.7 (2.8)

Brands Underlying EBITDA 17.1 15.1 +13.2

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UN

DE

RLY

ING

EB

ITD

A (

£M

)

F Y 1 6 H 1 : U N D E R L Y I N G E B I T D A B R I D G E

• Group underlying EBITDA (pre Share Scheme charges) increased by 7.6%

£215m

£220m

£225m

£230m

£210m

£205m

£200m

£195m

£190m

£185m

£180m

FY15 H1 Pre Share Schemes‘

non-cash charges

£203.1m

FY16 H1 Pre Share Schemes‘

non-cash charges

£218.5m

FY16 H1

£207.5m

Sports Retail Premium Lifestyle Brands Share Schemes’ non-cash charges

+ 5.3%

+5.5%

£10.7m

+34.6%

£2.7m

+13.2% (80.3%)

£2.0m

(£11.0m)

+7.6%

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F Y 1 6 H 1 : P B T / P A T / E P S

FY16 H1(£m)

FY15 H1(£m)

Change(%)

Underlying EBITDA (Pre Share Scheme) 218.5 203.1 + 7.6

Share Scheme Charge (11.0) (6.1) + 80.3

Depreciation (excl. Impairment) (41.0) (33.0) + 24.2

Impairment 0.3 - -

Interest (1.7) (4.7) (63.8)

Investment Income 1.3 1.3 -

Underlying PBT 166.4 160.6 + 3.6

Underlying Taxation (34.8) (36.9) (5.6)

Non-Controlling Interests (2.1) (0.7) + 162.5

Underlying Pro�t After Tax 129.4 123.0 + 5.2

Number of Shares (000s)(1) 592,384 592,294

Underlying Basic Earnings Per Share 21.8p 20.8p + 4.8

(1) The weighted average number of shares includes the part-period impact of the vesting of 4.1m shares in September 2015 under the 2011 Share Scheme.

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F Y 1 6 H 1 : D E P R E C I A T I O N & A M O R T I S A T I O N

FY16 H1(£m)

FY15 H1(£m)

Change(%)

Sports Retail - Stores, Warehouse and Amortisation of Goodwill 33.6 25.1 +33.9

Sports Retail - Change in Estimated Useful Life – Fixtures & Fittings 2.3 2.5 (8.0)

Sports Retail - Re-allocation of Freehold Land and Buildings Split 0.7 - -

Total Sports Retail 36.6 27.6 +32.6

Premium Lifestyle 1.8 1.6 +12.5

Brands 2.6 3.8 (31.6)

Total 41.0 33.0 +24.2

• FY 15: The useful life of �xtures and �ttings was reduced from 6 years to 5 years, and the depreciation policy was changed from reducing balance to straight line. The useful life of our Shirebrook warehouse was reduced from 15 to 10 years straight line.

• FY 16: The useful life of brick buildings has been reduced from 50 years to 25 years. The proportion of land within freehold properties has been changed from 25% to 20%.

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F Y 1 6 H 1 : T A X A T I O N

FY16 H1Reported

(£m)

FY16 H1Underlying

(£m)

FY15 H1Reported

(£m)

FY15 H1Underlying

(£m)

PBT 187.3 166.4 149.7 160.6

Standard Rate of Corporation Tax (1) 37.5 33.3 31.4 33.7

Non-qualifying depreciation 2.5 2.5 1.9 1.9

Other differences (0.1) 0.8 1.1 1.1

Effective Tax 39.9 36.6 34.4 36.7

Effective Tax Rate 21.3% 22.0% 23.0% 22.9%

The underlying effective rate for FY16 is expected to be in the region of 22%.

(1) The standard rate of corporation tax is 20% in FY16 (FY15: 21%).

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F Y 1 6 H 1 : C A S H F L O W

FY16 H1(£m)

FY15 H1(£m)

EBITDA (Pre Scheme Costs) 218.5 203.1

Realised loss on fx contracts (9.7) (7.7)

Taxes paid (33.7) (33.9)

Underlying Free Cash Flow 175.1 161.5

Working Capital

Inventory (116.0) (89.6)

Debtors/creditors, other 17.7 (2.2)

Acquisitions (including debt) (9.2) (2.3)

Net (purchase of)/proceeds from investments 19.4 (33.2)

Capital expenditure (92.3) (26.7)

Investment income received 2.1 1.3

Proceeds from the sale of freehold properties (inc. warehouses) 44.0 21.1

Finance costs and other �nancing activities (1.4) (4.4)

Decrease in net debt 39.4 25.5

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F Y 1 6 H 1 : C A P I T A L E X P E N D I T U R E

FY16 H1(£m)

FY15 H1(£m)

Freehold acquisitions 39.7 0.7

Warehouse and Shirebrook store expansion 26.4 3.4

New stores (leasehold)* 15.5 9.5

Maintenance capex 4.4 5.2

Other 4.5 4.2

Sports Retail 90.5 23.0

Premium Lifestyle 0.5 1.6

Brands 1.3 2.1

92.3 26.7

Proceeds on disposal of �xed assets (44.0) (21.1)

Net Capital Expenditure 48.3 5.6

FY 16: Target capital expenditure: c. £150m including freehold property acquisitions and the ongoing development of our Shirebrook campus.

* Includes gyms.

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- £150m

- £200m

- £250m

- £100m

- £50m

£0m

£50m

£100m

£150m

£200m

44.0

Net Debt 26/04/2015

59.7

208.8

19.4

£2.7m

Working Capital & Other

(105.4)

(33.7)(92.3)

CapitalExpenditure

(1.4)

Interest

20.3

Net Debt25/10/2015

EBITDA & FX Income from Investments

Sale of Freehold Property

Tax

NE

T D

EB

T (

£M

)

F Y 1 6 H 1 : N E T D E B T B R I D G E

• Investment in working capital to enhance online availability

• Capital expenditure including freehold properties and the Shirebrook campus development

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OPERATIONAL REVIEW

D A V E F O R S E YCHIEF EXECUTIVE

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S P O R T S R E T A I L : P R O P E R T Y P O R T F O L I O U K

• Square footage increased to c. 5.0m sq. ft.(1)

• 28 new stores opened in the period

• 9 out of the 13 closures in FY16 H1 have been relocations into larger and better con�gured space

• Target 30 to 40 store openings, 30% of which are expected to be relocations

• Continued enhancement and investment in the existing store portfolio such as:

- Improved visual merchandising;

- Specialist performance areas within stores

• Target c. 200k sq.ft. of existing space to be re�tted

• Continued focus on large format stores in key markets

FY16 H1 FY15 H2 FY15 H1

UK Stores(2) 455 440 434

Openings 28 16 23

Closures 13 10 6

SportsDirect.com Fascia 437 428 420

Retail Area (sq. ft.) c.5.0m(1) c.4.75m c.4.5m

Heatons: Northern Ireland (3) Stores

Combination - Sports Direct / Heatons 10

Standalone Sports 5

Total 15

(1) Due to differing methodologies, this implies a range between 4.75m sq. ft. – 5.25m sq. ft. (2) Includes nine concessions currently being trialled within Debenhams but excludes Heatons stores in N.Ireland which are shown below.(3) At the period end Sports Direct owned a 50.0% stake but expects to complete the purchase of the remainder of the business by April 2016.

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• Relocation to former Primark store - c. 50,000 sq.ft. over four �oors

• Elevated presentation working with key 3rd party brands adidas, Nike, Under Armour and Puma

• Over 300 brands represented within the store

• Key categories enhanced including Running, Fitness, Outdoor and Football

• Over 7,000 options available on Footwear throughout the store

• Lower densities and improved customer experience

• Next projects include Southampton and Birmingham

S P O R T S R E T A I L : L E E D S C I T Y C E N T R E

Sports Retail 3rd Party Brand In-Store Areas20

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S P O R T S R E T A I L : P R O P E R T Y P O R T F O L I O E U

• Square footage remained at c. 3.0m sq. ft. (5)

• 11 new stores opened in �ve different countries in FY16 H1

• 3 closures in two countries in FY16 H1

• Target is to open between 20 and 30 new stores in nine countries in FY16

• Continued investment in specialist Football, Running, Fitness and Outdoor performance areas

• Purchase of an additional stake in our associated company Heatons after the period end

Territory Stores FY16 H1 Stores FY15 H1Austria 44 48

Belgium 42 44

Estonia (1) 25 24

Latvia (1) 14 13

Lithuania (1) 14 12

Portugal (2) 17 16

Slovenia 15 15

Poland 11 9

France 7 7

Czech Republic 6 5

Holland 6 6

Cyprus 6 6

Hungary 11 5

Slovakia 4 3

Germany 3 3

Luxembourg 2 2

Spain 1 1

Switzerland 1 -

Sub-total 229 219Iceland (Associate) (3) 1 1

Total 230 220

(1) Includes only stores with SPORTLAND or SPORTSDIRECT.com fascias, Sports Direct owns a 60.0% stake in this business.(2) Sports Direct owns a 50.1% stake.(3) Sports Direct owns a 40.4% stake.(4) At the period end Sports Direct owned a 50.0% stake but expects to complete the purchase of the remainder of the business by April 2016.(5) Due to differing methodologies, this implies a range between 2.5m sq. ft. - 3.5m sq. ft.

Heatons: Republic of Ireland (4) StoresCombination - Sports Direct / Heatons 27Standalone Heatons 17Total 44

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S P O R T S R E T A I L : S H I R E B R O O K

Campus Expansion

• Latest phase of our ongoing Shirebrook campus development now complete

• Additional c. 700,000 sq. ft. warehouse and office facility

• Enhanced online capacity and improved office and training environment for staff

• Additional office space for 3rd party brand partners

Shirebrook campus 2015

Shirebrook campus 2008

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S P O R T S R E T A I L : F I T N E S S D I V I S I O N U P D A T E

Combined Gym/Retail Spaces:

• Additional combined c. 15,000 sq. ft. gym/retail space in St Helens opened in August 2015

• A further c. 10,000 sq. ft. site in Newport will open in mid December

• Membership of our Aintree & other newly opened gyms continues to grow, exceeding expectations

Former LA Fitness Sites:

• Since acquiring 25 former LA Fitness clubs in the prior year a controlled refurbishment plan is now almost complete including:

- Improvements in pool and changing room facilities

- Enlarged free weights areas

- Investment in new equipment for new functional areas and group exercise classes

All helping to drive increasing membership growth in 2015

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SS16 range:

• New apparel ranges for SS16 include; prints/vibrant colours in core along with seamless yoga, baselayer, and new slogan fashion capsule collections

• New footwear range has been developed for SS16 across the following categories: leisure, training, running and fashion

Sponsorship:

• Little Mix will be the new face of the USA Pro brand and will launch a co-branded range for summer 2016

Collaborations:

• USA Pro has collaborated with high end fashion designer Matthew Williamson on a new premium sports luxe range to launch in January 2016

Women’s Fitness Growth:

• 50% growth in the women’s �tness category over the last two years

S P O R T S R E T A I L : M A R K E T I N G - U S A P R O

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adidas Ace & X

adidas relaunched their entire range of football boot silos in summer 2015 utilising Sports Direct and Soccer Scene to showcase the new range

adidas Boost

Throughout 2015 Sweatshop and adidas have partnered to market the Boost range of running footwear, enabling it to become one of the best-selling styles in its category

Manchester United

Following securing the sports partner rights of the biggest football team in the world the new Manchester United adidas strip was launch globally in August. Supported in Sports Direct stores Europe wide, the launch was the most successful in adidas’ history

S P O R T S R E T A I L : M A R K E T I N G - A D I D A S

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• In 2015 Under Armour cemented their position as the fastest growing sportswear brand in the world by opening their first shop in shop in the UK in our Glasgow Argyle Street mega store. Large branded apparel areas have also been rolled out to our stores in Oxford Street, Leeds, Cardiff, Plymouth and Gateshead

• Their retail presence was backed up by continuing partnerships with the Welsh rugby team, Tottenham Hotspur and the recent signing of British number one tennis player Andy Murray

• Under Armour is our fastest growing 3rd party brand by percentage of sales

• We expect our relationship to develop substantially in the short to medium term

• 120 Sports Direct stores have also received bespoke Under Armour floor fixtures to help highlight their key base layer collection and also educate customers on the key features and benefits of the product

Under Armour In-Store Area, Leeds

S P O R T S R E T A I L : M A R K E T I N G - U N D E R A R M O U R

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S P O R T S R E T A I L : O N L I N E O V E R V I E W

• Improved search capabilities

• Optimising the speed of the platform

• Enhancing the platform for mobile and tablet devices

• Investment into the number of SKU’s giving a bigger range

• Additional investment into security and data protection

• Online remains profitable for the Group

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S P O R T S R E T A I L : P R E M I U M L I F E S T Y L E

• Group approach to operational improvements driving margin growth through shared buying and improved stock control and replenishment processes

• Websites bene�t from ongoing investment into core Group platform

Strategy:

• Enhancing existing space and investing in new �agship locations

• Working closely with brand partners to deliver best in class visual merchandising

Flannels.com:

• New Flannels.com store design concept takes inspiration from highest level of store design

• Enhancing our position as premium multi-brand retail destination

USC:

• USC aims to be the leading multi-brand high street fashion retailer in the UK

• Offering ‘shop in shop’ brand experience

Store Count

Fascia FY16 H1 FY15 H1

USC 54 80

Cruise 10 10

Flannels.com 8 8

Van Mildert 11 9

Other 7 9

Total 90 116

Flannels.com, Spinning�elds, Manchester

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B R A N D S : W H O L E S A L E

• Sales growth across Europe, partly due to brand acquisitions in prior year

• US trading in line with expectations with growth on prior year

• Expansion of product categories in the US driving growth

• Wholesale sales in the Asia Pacific region trading well

• Investment in key Group Brands expected to continue at similar levels to previous years

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• Sports Direct Retail licensing continues to grow with 16 stores open in Malaysia and 15 open in the Middle East under various fascia

• Everlast, Dunlop & Slazenger continue to be main growth drivers

• Dunlop has expanded into new categories and remains a key focus area

• Licensing model still regarded as a key driver of Brands division growth and pro�tability

B R A N D S : L I C E N S I N G

Kangol Licensee - Terrible Movement

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Trading since the period end has been in line with management’s expectations, underpinning the revised FY16 target of £420m for the 2015 Share Scheme.

Performance continues to be driven by:

• Investment in product range and availability

• Optimisation of in-store and web offer

• Growing proportion of ‘better’ and ‘best’ Group branded products in key categories

• Investment in store portfolio

Group’s success underpinned by delivering

EXCEPTIONAL QUALITY AND UNBEATABLE VALUEto our consumers.

Looking ahead to the 2016 UEFA European Football Championshipsand the 2016 Olympic Games in Rio de Janeiro.

F Y 1 6 : O U T L O O K S T A T E M E N T

Q U E S T I O N S ?