PROUD OF OUR PEOPLE Sports Direct International plc FY17 H1 Interim Results Presentation For the 26 weeks ended 23 October 2016 8 December 2016
FORWARD LOOKING INFORMATION AND PROTOCOL FOR QUOTES This presentation will be presented and discussed by the Acting Chief Financial Officer, the Chief Executive and other non- executive directors of Sports Direct International plc (“Sports Direct” or the “Company”). 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. So as to avoid the possibility of any comments made by the Company being misconstrued or taken out of context, the Company requests that attendees confirm with the Company’s Investor Relations team (investor.relations@sportsdirect.com) before quoting any answer given in response to a question at today’s Interim Results Briefing presentation and Q&A discussion, noting that all information that the Board has determined has had a substantial impact on Sports Direct’s operating and financial performance, or that the Board currently expects could potentially have a substantial impact on future operating and financial performance, has been included in the half year financial results statement lodged with the RNS. 2
AGENDA Group Highlights • Financial Review • Strategic Update • Outlook • Q&A • 3
GROUP HIGHLIGHTS MATT PEARSON Acting Chief Financial Officer
FY17 H1: GROUP HIGHLIGHTS FY17 H1 ∆ FY16 H1 The last year has been very tough for our people and • trading conditions continue to be challenging Group revenue £1,638m 14.2% Group revenue increased by 4.2% on a currency neutral • UK Sports Retail revenue £1,111m 7.4% basis excluding the impact of the acquisition of Heatons International Sports Retail revenue £330m 66.1% Underlying EBITDA decreased by 33.5% largely due to • the devaluation of the GBP and an increase in operating Premium Lifestyle revenue £83m (4.9%) expenses Brands revenue £113m 0.4% Underlying profit before tax decreased by 57% following • (450 bps) an increase in depreciation and amortisation Group gross margin 40.4% (610 bps) Continue to generate strong cash flow, with underlying UK Sports Retail 40.2% • free cash generation of £129.5m (570 bps) International Sports Retail 39.7% Capital expenditure of £287.0m, including £261.0m of • Underlying EBITDA £145.3m (33.5%) investment in freehold property as we elevate our sports retail proposition Underlying PBT £71.6m (57.0%) Net Debt decreased to £72.0m from £99.7m at 24 April • Reported PBT £140.2m (25.1%) 2016, positively assisted by net proceeds on disposal of investments of £160.5m Underlying EPS 8.5p (61.1%) Substantial financial resources and strong balance sheet • Reported EPS 15.6p (36.3%) 5
FINANCIAL REVIEW MATT PEARSON Acting Chief Financial Officer
FY17 H1: GROUP REVENUE BRIDGE 0.4% +66.1% +14.2% (4.9%) +7.4% 1 Heatons acquisition benefitted both UK and International Sports Retail • Excluding acquisitions, Group revenue increased by 4.2% on a currency neutral basis 2 , largely due to growth in UK Sports • Retail 1. Includes wholesale sales. 2. Excludes wholesale sales. 7 Note: Growth figures within the chart reflect growth of the particular segment, not their proportional impact on underlying E BITDA.
FY17 H1: SPORTS RETAIL OVERVIEW RETAIL REVENUE 1 RETAIL GROSS MARGIN 1 +18.7% £1,423m £1,200m +66.1% +9.2% On a currency neutral basis and excluding acquisitions: • UK Sports Retail gross margin impacted by deterioration • in GBP/USD, clearance of inventory build-up, and UK Sports Retail retail revenue increased by 5.6% 1 • increase in inventory provision International Sports Retail retail revenue • International Sports Retail also impacted by EUR/USD increased by 9.4% • rates, and increase in inventory provision 1. Excludes wholesale sales. 8
FY17 H1: UK SPORTS RETAIL – OPERATING COSTS & UNDERLYING EBITDA £m FY17 H1 FY16 H1 Change (%) Store Wages 90.4 82.0 10.2% Premises Costs 91.8 85.0 7.9% Other Retail Costs 131.7 100.6 30.9% UK Sports Retail – Operating Costs 313.9 267.7 17.3% UK Sports Retail – Underlying EBITDA, pre Associates 139.3 204.4 (31.8%) Associates - (0.3) (100.0%) UK Sports Retail – Underlying EBITDA 139.3 204.1 (31.7%) Excluding acquisitions, UK Sports Retail operating costs increased by 13.7%, as a result of: • Increase in provisions for the outcome of potential claims against the Group • Planned wage increases • Increase in operating costs relating to our Shirebook warehouse extension • 9
FY17 H1: INTERNATIONAL SPORTS RETAIL – OPERATING COSTS & UNDERLYING EBITDA £m FY17 H1 FY16 H1 Change (%) Store Wages 55.3 40.7 36.0% Premises Costs 54.0 25.5 111.8% Other Retail Costs 32.4 23.4 38.3% International Sports Retail – Operating Costs 141.7 89.6 58.1% International Sports Retail – Underlying EBITDA, pre Associates (10.7) 0.6 - Associates - 1.8 (100.0%) International Sports Retail – Underlying EBITDA (10.7) 2.4 - Management appraised a number of the Group’s European stores and is working to implement a more tailored approach • to Europe over the medium term On a constant currency basis and excluding Heatons , International Sports Retail’s operating costs increased by 12.0%, • largely as a result of an increase in onerous lease provisions of £15.6m (included in Premises Costs), following the appraisal Heatons was included in Associates before being acquired in FY16 H2 • 10
FY17 H1: PREMIUM LIFESTYLE OVERVIEW REVENUE & GROSS MARGIN OPERATING COSTS & UNDERLYING EBITDA FY17 FY16 Change £m H1 H1 (%) Store Wages 8.5 9.4 (9.6%) Premises Costs 13.1 18.4 (28.8%) Other Costs 12.3 13.5 (8.8%) Total Operating Costs 33.9 41.3 (17.9%) Underlying EBITDA (0.4) (5.1) (92.2%) Operating costs reduced as a result of the continued • rationalisation of the USC business Sales down by 4.9% due to the closure of loss-making • stores in the prior year Gross margin was also affected by an increase in • inventory provision 11
FY17 H1: BRANDS OVERVIEW REVENUE OPERATING COSTS & UNDERLYING EBITDA 0.4% FY17 FY16 Change £m H1 H1 (%) £112.9m £112.5m Wages 11.7 9.7 20.6% 8.1% Advertising & Promotion 5.4 7.6 (28.9%) Other Costs 10.1 10.6 (4.7%) Total Operating Costs 27.2 27.9 (2.5%) (0.9%) Underlying EBITDA 17.1 17.1 -% Brands operating costs decreased as a result of reduced • UK wholesale activity, and advertising and promotion costs Expect full year investment in key Group Brands to be • Wholesale revenues down due to reduction in activity in • maintained at similar levels to previous years third party licensed-in brands in the UK. Wholesale gross margin down 190 bps to 28.2% Licensing revenue growth driven by new licensing • agreements 12
FY17 H1: UNDERLYING EBITDA BRIDGE (33.5%) 13
FY17 H1: SUMMARY UNDERLYING PBT / PAT / EPS £m FY17 H1 FY16 H1 Change (%) Underlying EBITDA 145.3 218.5 (33.5%) Share Scheme Charge (1.2) (11.0) (89.1%) Depreciation & Amortisation (68.8) (41.0) 67.8% Impairment - 0.3 n/m Interest (4.2) (1.7) 147.1% Investment Income 0.5 1.3 (61.5%) Underlying Profit Before Tax 71.6 166.4 (57.0%) Underlying Taxation (20.6) (34.9) (41.0%) Non-Controlling Interests (0.9) (2.1) (57.1%) Underlying Profit After Tax 50.1 129.4 (61.3%) Number of Shares (millions) 591.6 592.4 (0.1%) Underlying Basic Earnings per Share 8.5p 21.8p (61.0%) Underlying Diluted Earnings per Share 8.2p 20.5p (60.0%) 14
FY17 H1: DEPRECIATION & AMORTISATION £m FY17 H1 FY16 H1 Change (%) Sports Retail UK – Stores, Warehouse & Amortisation of Goodwill 27.5 26.3 4.6% UK – Changes in Estimated Useful Life and capitalisation threshold 8.8 2.3 282.6% UK – Revaluations, impairments and aligning of policies in acquired businesses 5.8 - - International – Stores, Warehouse & Amortisation of Goodwill 11.8 8.0 47.5% International – Changes in Estimated Useful Life and capitalisation threshold 9.0 - - Total Sports Retail 62.9 36.6 71.9% Premium Lifestyle 3.0 1.8 66.7% Brands 2.9 2.6 11.5% Total 68.8 41.0 67.8% We expect Group depreciation and amortisation to increase to c. £130m for FY17 • 15
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