Sports Direct is the UK’s leading sports retailer by revenue and operating
prot, and the owner of a signicant number of world-famous sport,
fashion and lifestyle brands.
We provide a full multi-channel approach to the UK and European Retail
markets. Our strategy includes identifying opportunities for improvement
through in-store specialist collaborations and acquisitions, developing
online opportunities and leveraging the SPORTSDIRECT.com fascia.
The Group continues to enhance its store portfolio and Sports Retail now
operates out of over 665 stores in the UK and internationally.
STRATEGIC REPORT
02 Key highlights
04 Sports Direct at a glance
06 Chairman’s statement
07 Our business model
08 Strategy
09 Key performance indicators
10 Risks and uncertainties
13 Chief executive’s report and business review
18 Financial review
20 Corporate responsibility report
GOVERNANCE
24 The board
25 Directors’ report
27 Corporate governance report
33 Directors’ remuneration report
41 Directors’ responsibilities statement
FINANCIAL STATEMENTS
42 Independent auditor’s report to the
members of Sports Direct International plc
44 Consolidated income statement
45 Consolidated statement of
comprehensive income
46 Consolidated balance sheet
47 Consolidated cash flow statement
48 Consolidated statement of changes in equity
49 Notes to the financial statements
77 Independent auditor’s report to the
members of Sports Direct International plc
78 Company balance sheet
79 Notes to the company financial statements
81 Consolidated five year record
SHAREHOLDER INFORMATION
82 Company directory
The Sports Direct International plc website is available on multiple
platforms including mobile devices.
Go online at www.sportsdirectplc.com
CONTENTSWHO WE ARE
KEY HIGHLIGHTS
GROUP REVENUE
£2,706.0m
UNDERLYING EBITDA
£331.1m
REPORTED PBT
£239.5m
UNDERLYING EPS
32.1p
2010
1,451.6
2011
1,599.2
2012
1,807.2
2013
2,185.6
2014
STRATEGIC REPORT
• Sports Retail like-for-like stores gross contribution increased by 10.5% (FY13: 10.6%)
• Accelerated European expansion including acquisitions in Austria and the Baltic region
(1)
• Growth in online revenue of 26.8% – now representing 17.1% of all Sports Retail sales (FY13: 15.0%)
(2)
• Reported prot before tax up 15.6% to £239.5m (FY13: £207.2m)
• Underlying free cash generation of £277.2m
(3)
• 84 new licence agreements signed with contracted values of $51m over the life of the agreements
• Second and nal part of 2009 Employee Bonus Share Scheme vested in August 2013
• Continued investment in inventory and strategic acquisitions whilst maintaining a strong balance sheet
(1) At 27 April 2014, Sports Retail traded from 19 countries across Europe (2013: 12) including acquisitions and new store openings
(2) Excludes wholesales sales and sales in EAG and SIG. Including EAG and SIG sales, online revenue represents 15.1% of Sports Retail sales
(3) Underlying free cash generation is defined as operating cash flow before working capital, made up of underlying EBITDA (before Share Scheme costs) plus realised foreign exchange gains and losses, less corporation tax paid.
2010 2011 2012 2013 2014
171.2
211.0
235.7
287.9
2010 2011 2012 2013 2014
12.4
16.8
18.7
26.9
FY14 SHARE PERFORMANCE
500
AprMarFeb2014DecNovOctSepAugJulJun2013
550
600
650
700
750
800
850
900
2010
119.5
2011
118.8
2012
148.0
2013
207.2
2014
2
“We have delivered another year of out-performance especially within our
Sports Retail division. This success is underpinned by our core strategy,
offering our customers a wide range of products which represent exceptional
quality and unbeatable value.
“Through both individual hard work and operating as a team, against
a particularly tough comparative which included the UEFA European
Championships and the 2012 London Olympics, we have significantly
out-performed the third underlying EBITDA target of £260m set under the
2011 Employee Bonus Share Scheme. This means that the Group has now
successfully met the first three targets and the Board is very confident of
achieving the final target of £300m under the 2011 Employee Bonus
Share Scheme.
“Overall trading since the year end has been in line with management’s
expectations with some stronger weeks offset by England’s disappointing
World Cup matches. Consistent with previous guidance, we continue to target
underlying EBITDA (before share scheme costs) of £360m for the current
period.”
Dave Forsey
Chief Executive
17 July 2014
2009 Employee Bonus Share Scheme vested to c.2,000
members of our staff
Shirebrook flagship store extension complete
International acquisitions in Austria and the Baltic regions
The Group entered the FTSE 100
STRATEGIC REPORT
3
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
The Group’s Sports Retail stores (other than Field & Trek) supply a wide range of competitively priced sports and leisure equipment, clothing, footwear and accessories
under a mix of brands. We stock third-party brands including adidas, Nike, Reebok and Puma. Group-owned brands include Dunlop, Slazenger and Lonsdale. We also
sell licensed-in brands.
We have continued to develop our specialised in-store areas with a substantial unitary rollout for our Dunlop and Everlast brands. Our SheRunsHeRuns areas also
benefited from a rollout of the Karrimor running footwear zone, featuring an integrated product information and selection panel.
As at 27 April 2014 Sports Retail operated out of 418 stores in the United Kingdom (excluding Northern Ireland). The majority of stores trade under the
SPORTSDIRECT.com fascia, although Field & Trek stores trade under their own fascia.
In Europe, the Group’s growth has proven unrelenting, with our products being offered via wholly-owned retail outlets, joint ventures with other retailers and stores
within another retailer’s store. The acquisition of Sport Eybl and Sports Experts AG (EAG), and a controlling interest in Sportland International Group (SIG) alone
increased the store portfolio by 135 stores in five countries.
During the year, as part of the accelerated growth programme in our European subsidiary, we opened 10 new stores in Europe and entered two new countries,
opening stores in Poland and Spain. Our strategy remains to identify partners in new territories while continuing to expand our operations in the countries where
we currently trade.
Read more about Sports Retail on pages 13 to 15
SPORTS DIRECT AT A GLANCE
STRATEGIC REPORT
The Group operates through three strategic business segments:
Sports Retail, Premium Lifestyle and Brands.
Sports Retail
£2,274.4m
84.1
%
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V
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Our Premium Lifestyle division continued to evolve and expand with the
purchase of the remaining 20% of Cruise during May 2013. During the year
53 Republic stores changed to the USC fascia, more than doubling the USC
portfolio to 90 stores.
The division is a premier destination for branded clothing, footwear and
accessories. Catering to dedicated fashion followers and trend alert men
and women throughout the UK, it is home to an extensive collection of
mainstream and independent footwear and apparel brands including G Star,
Diesel & Vero Moda.
Read more about the Premium Lifestyle division on page 16
The Brands division exploits Group portfolio brands by not only retailing
in store, but also via wholesale, licensing and sponsorship. The variety of
selling methods ensures that our brands reach a larger audience and that
they obtain a far wider distribution than if they were limited to retailing
within the Group.
The division has maintained its high visibility in the worldwide media
through on-going sponsorship of high-profile sports personalities.
Recently-added faces of our Group brands include Gemma Atkinson
and Ashley Roberts.
Read more about our Brands division on page 16
STRATEGIC REPORT
Premium Lifestyle
£214.1m
Brands
£217.5m
8.0
%
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V
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N
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7.9
%
T
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R
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V
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N
U
E
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
5
I am also pleased to confirm that the expansion of the Shirebrook Sports Direct store is now complete, including the addition of a c.9,000 sq. ft. dedicated Nike area and the
opening of a USC store alongside. We will shortly commence work on Phase 3 of our Shirebrook campus expansion; the construction of an additional c.600,000 sq. ft. warehouse
and office extension which will be pivotal in facilitating our ambitious plans for growth.
I note also that the Group has recently signed a new £688m committed, unsecured revolving credit facility which will remain in place until September 2018, providing a strong
foundation on which to deliver our growth plans over the next four years.
CHAIRMAN’S STATEMENT
STRATEGIC REPORT
I am delighted to report the Group exceeded its targets for another year. We have maintained our position as the number one sports retailer in
the UK while reinforcing our status as the Consumers’ Champion, as demonstrated by our wide product range and value for money offering.
The Group’s strategy of international expansion remains on course, with the acquisition of Sports Eybl and Sports Experts Group (EAG) in
Austria, and Sportland International Group (SIG) in the Baltic region.
EMPLOYEE BONUS SHARE SCHEME
The Group’s Employee Bonus Share Schemes are some of the most wide-reaching and
generous share schemes in the UK. The adoption of such schemes has proven highly
effective at both motivating and remunerating our colleagues, and the performance
of the Group has gone from strength to strength since the initial scheme was first
approved by shareholders in September 2009.
The second and final award under the 2009 Employee Bonus Share Scheme vested
in August 2013, with over 19 million shares being distributed to a deserving c.2,000
employees. The high level of rewards for eligible participants has also proven key to
employee retention, and we credit a great deal of our continued success to our
loyal workforce.
The motivation and retention of our key employees has also contributed substantially
towards the Group significantly out-performing the 2011 Employee Bonus Share
Scheme underlying EBITDA (before scheme costs) targets for FY12, FY13 and FY14. I
am convinced that the Group has the right team in place to achieve the FY15 EBITDA
target, and I look forward to seeing the scheme vest in both 2015 and 2017.
The Group recently proposed a 2015 Bonus Share Scheme to its shareholders under
which employees and the Executive Directors would be eligible to participate subject to
the achievement of EBITDA targets for the years FY16 to FY19. I am pleased to note that
the new Scheme was approved at a General Meeting on 2 July 2014.
On behalf of the entire Board, I would like to thank shareholders for their support and
participation in this process. Sports Direct’s Employee Bonus Share Schemes are some
of the most successful employee reward schemes in the UK. The success of these
schemes is demonstrated by the substantial shareholder value created over the last
five years.
THE BOARD
During the year Bob Mellors, the Group Finance Director, retired. His dedication
and commitment to the Group cannot be understated and we wish him well in his
retirement. The recruitment of a replacement is on-going.
We are interviewing internal and external candidates to ensure that the new post holder
displays the qualities required by a FTSE 100 company.
We are aware of Lord Davies’ target of achieving Board diversity by ensuring a
minimum of 25% of the Board are female by 2015. However any appointment will
be based on the skills and expertise of the individual. The Board is still giving
consideration to how the 25% target will be met. Further details relating to the
recruitment of the Finance Director can be found on page 27.
WEBSITE
During the year significant time has been spent on updating the Group’s corporate
website. The updated site was launched during December 2013 and is easy to navigate
for both potential investors and current shareholders alike. New features to the site
include interactive share price charts, brands footage and alerts to subscribers
following Group announcements. The site also incorporates links to additional
resources such as our online store and careers site.
DIVIDEND
Consistent with the recent practice, the Board has decided not to propose a dividend
in relation to FY14. The Board remains of the opinion that it is in the best interests of
the Group and its shareholders to preserve financial flexibility, facilitating the pursuit
of potential acquisition and other growth opportunities. The payment of dividends
remains under review in future years.
CONCLUSION
The Board and I would like to show our gratitude to our employees for the enormous
contribution they have made during the year. Our results reflect their very hard work
and dedication which should never be taken for granted. I look to the year ahead with
optimism. Despite the difficult financial circumstances many of our customers find
themselves in we believe our compelling value proposition will allow us to achieve
continued success.
Dr Keith Hellawell QPM
Non-Executive Chairman
17 July 2014
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
2015 SCHEME2011 SCHEME2009 SCHEME
2009 & 2011 SCHEME ACHIEVED 2011 SCHEME TARGETS 2015 SCHEME TARGETS
£155m
£195m
£215m
£250m
£260m
£300m
£480m
£570m
£650m
£750m
UNDERLYING EBITDA TARGETS
(Before Scheme Costs)
6
STRATEGIC REPORT
OUR BUSINESS MODEL
Our offering has developed further in specialist sports categories and more fashion-
based retailing. We are constantly refurbishing and upgrading our stores, in order
to provide our customers with a compelling consumer experience. The continued
development of our dedicated specialist areas and on-going collaboration with Nike,
adidas and Puma on in-store concepts are further examples of this.
Acquisitions and strategic investments in related businesses are an important part
of our strategy. Opportunities to develop into new product categories or markets, or to
strengthen our position in existing areas, will continue to be considered on a case by
case basis.
We aim to maintain our position as the market leader in the Sports Retail sector in the
UK, whilst also gaining momentum in our expansion into Europe. The business model
provides guidance for the Group to implement an effective growth strategy to maintain
and develop the success achieved so far. It compares our recent successes with our
future ambitions in order that we can assess how to progress in the future.
The Group has significant momentum and we must ensure that our product offering
and customer proposition continue to grow and develop in order to retain our current
customer base and to attract more customers in the future.
Developing brand awareness is a key factor in ensuring a sustainable future, and
the appropriate level of investment in advertising and technology are important
components in achieving this.
Our international presence continues to grow through over 270 brand licensing
partners, our online presence and on-going European store openings. The Group’s
appointment of internationally-recognised celebrities and sporting professionals
as key ambassadors also promotes our brands on a global basis.
Our business model is focused on long-term sustainable growth. Whilst we continue to grow our business in the UK, we are now keen to use the
skills and knowledge we have gained to build and expand our Sports Retail business across the rest of Europe.
1.IDENTIFY
Brand acquisitions and property enhancement
2.INVEST
Store portfolio and employees
3.DEVELOP
Website and mCommerce, enhanced product ranges
4.PROMOTE
Group-owned brands
5.ACHIEVE
Targets and Group success
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
7
OBJECTIVE SO FAR WHAT NEXT?
IDENTIFY
In-Store
Our Shirebrook store is used as a centre of excellence where presentation techniques
are trialled and perfected.
The Group focuses on its stores to ensure the best presentation of our product
range. Our product collections provide a ‘good/better/best’ presentation to ensure
our customers find the right product at the right price. Our specialist collaborations
with SheRunsHeRuns and Soccer Scene @ the Boot Room provide a high level
of customer service. Our multi-channel approach also gives flexibility to our
customers.
The Group continues to enhance its in-store offering with further dedicated
areas for specialist product collections:
• European Golf
• Swimshop.co.uk
• DragonCarp Direct
• Field & Trek
• SheRunsHeRuns
Acquisitions
The Group has continued its expansion in Europe, acquiring the Sports Eybl and
Sports Experts Group (EAG), as well as a majority shareholding in Sportland
International Group (SIG), which operate in Austria and Germany and the Baltic
region, respectively.
In the UK the Group acquired a 51% stake in Yeomans Outdoors to add to the Sports
Retail division. A 51% stake in Pulp, and the remaining 20% stake in Cruise were
also purchased, both being valuable additions to the Premium Lifestyle division.
In June 2013 the Brands division acquired the assets of Gelert.
Acquisitions remain a high priority, in order to broaden the variety of customer
offering in all areas of the Group.
INVEST
Store Portfolio
During FY14, we opened 32 stores in the UK, closing 10, and opened a further 15
stores in Europe, closing five. As at 27 April 2014, Sports Retail operated in 19
countries in Europe, as well as in the UK.
The Group also operates a store in Iceland as a joint venture and has a 50% stake
in the Heatons chain in Northern Ireland and the Republic of Ireland.
Our Shirebrook store has been extended to provide a total retail space of c.78,000
sq. ft. This offers customers a huge range of products under one roof, enhancing
their shopping experience.
The Group intends to continue to enhance its store portfolio in both the UK and
internationally. The Group will continue with the strategy to identify strategic
partners in new territories while expanding operations in those countries
where we currently have a presence. Plans are in place to expand Sports Retail
operations into all the major countries in the European Economic Area.
People
We are aware that the dedication of our employees has been essential to the
success of the Group. The commitment that they have shown does not go unnoticed.
The Employee Bonus Share Schemes have been central to uniting our employees to
work towards a shared goal. The 2009 Employee Bonus Share Scheme has shown
our employees what they can achieve with teamwork, and they are only one target
away from meeting the 2011 Employee Bonus Share Scheme targets set. The
recently approved 2015 Bonus Share Scheme will further act as an incentive to
focus the minds of our employees.
Due to the success of the first Employee Bonus Share Scheme, we continue to
encourage and motivate employees with the 2011 and 2015 Employee Bonus
Share Schemes.
DEVELOP
Website
Online Retail sales currently represent 17.1% of Sports Retail revenue, an increase
from 15.0% in FY13.
Improvements to the site such as specialised landing pages and upgraded ‘My
Account’ pages, offer the customer a more personal experience.
Investment in the mobile site means that it now fully supports language
and currency conversion. Mobile visits currently equate to 25% of visits to
SPORTSDIRECT.com.
Online revenue continues to be an area of significant growth and the Group
continues to look at opportunities to develop this revenue stream further. The
website has benefited from investment in improving the customer experience,
including a more efficient checkout experience and parcel tracking services.
Recognition of the online brand has increased with 401 UK stores displaying
the SPORTSDIRECT.com fascia.
The introduction of gift cards that can be purchased and redeemed online will
be trialled in FY15. This will allow customers to use gift cards to purchase
items from our whole product range.
PROMOTE
Brands
The Group’s portfolio includes a wide variety of world-famous sport, fashion and
lifestyle brands. The Group’s Retail division sells products under these Group brands
in its stores, and the Brands division exploits the brands through its wholesale and
licensing businesses.
The Brands division wholesale business sells the brands’ core products, such as
Dunlop tennis rackets and Slazenger tennis balls, to wholesale customers and
distributors throughout the world. This results in far wider distribution of the
products than would be the case if their sale was restricted to Group stores.
The Wholesale business also wholesales childrenswear and apparel. The licensing
business licenses third parties to apply Group-owned brands to non-core products
manufactured and distributed by those third parties. The division currently has
c.270 licensees worldwide. We manage these licensees to ensure global brand
consistency and the international success of our Group brands.
We recently added to our brand portfolio with the purchase of Gelert.
The Brands division is closely involved in the development of licensed products
and monitors licensees and their manufacturers to ensure product quality,
presentation and consistency with the appropriate brand strategy. The Brands
division continues to sponsor a variety of prestigious events and retains a
portfolio of globally-recognised, high-profile athletes.
Acquisitions of key brands will remain high on the agenda.
The Brands Division strategy is focused on further expansion into Asia, and the
Americas. Such expansion will provide us with more opportunities to expand the
global presence and international appeal of our Group brands.
In order to improve worldwide brand awareness, the Brands division will
continue to invest in the development of core products for wholesale customers
and distributors throughout the world.
STRATEGY
STRATEGIC REPORT
8
The Board monitors the performance of the Group by reference to a number of key performance indicators (KPIs), which are discussed in this Chief Executive’s Report, and also in
the Financial Review. The most important of these KPIs are:
52 weeks ended
Pro-forma 52
weeks ended
27 April 2014 28 April 2013 29 April 2012
(2)
Financial KPIs
Group revenue £2,706.0m £2,185.6m £1,807.2m
Underlying EBITDA
(1)
£331.1m £287.9m £235.7m
Sports Retail gross margin 42.9% 40.3% 40.3%
Sports Retail like-for-like stores gross contribution
(3)
+10.5% +10.6% +0.7%
Online revenue as a percentage of total Sports Retail revenue
(4)
17.1% 15.0% 11.6%
Underlying earnings per share
(5)
32.1p 26.9p 18.7p
Non-nancial KPIs
No. of Sports Retail stores
(6)
665 498 483
Employee turnover 19.2% 15.5% 17.0%
Cardboard recycling 9,230 tonnes 8,893 tonnes 6,622 tonnes
(1) The method for calculating underlying EBITDA is set out in the Financial Review.
(2) The FY12 income statement has been restated to provide a 52-week pro-forma set of results.
(3) Sports Retail like-for-like contribution is defined as the percentage change in gross contribution in the successive 12 month period, adjusted to remove the impact of the 53-week year in 2012. A like-for-like store is one that has been
trading for the full 12 months in both periods and has not been affected by a significant change, such as a major refurbishment.
(4) Excludes wholesale revenue and revenue in EAG and SIG. Including revenue in EAG and SIG, online sales represented 15.1% of turnover.
(5) The method for calculating underlying earnings per share is set out in the Financial Review.
(6) Excluding associates.
KEY PERFORMANCE INDICATORS
STRATEGIC REPORT
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
9
INTERNAL CONTROLS AND RISK MANAGEMENT
The Board has a responsibility to govern the Group in the interest of the shareholders.
Comments and suggestions of shareholders are always considered by the Board. Where
the Board considers that the risk has not been fully mitigated, follow-up meetings
will be arranged to assess the risk and formulate mitigation strategies. A specialist
management team of Directors and senior managers highlight risks as and when
they become apparent. The team then in turn assist the Board in devising controls to
minimise the Group’s exposure.
THE GROUP’S APPROACH TO RISK
The identification and management of risk is a continuous process, and the Group’s
system of internal controls and the business continuity programmes are key elements of
that. The Group maintains a system of controls to manage the business and to protect
its assets with the development of contingency plans and rapid response to changing
circumstances and does much to mitigate the risks facing the Group. The Group
continues to invest in people, systems and in IT to manage the Group’s operations and
its finances effectively and efficiently.
1. THE RISKS ARE IDENTIFIED
2. THE RISKS ARE EVALUATED
3. ACTION IS TAKEN TO MANAGE THE RISKS
4. THE PRACTICES ARE REVIEWED AND MONITORED TO LIMIT THE RISK
The specialist management teams are responsible for the identification, analysis,
evaluation and mitigation of the significant risks applicable to their areas of business.
The teams meet regularly to discuss the identified risks, and how these should be
reviewed and monitored. The Board ensures that the appropriate arrangements are
in place under which employees can raise concerns about possible financial or other
impropriety, which are then appropriately investigated.
The Board is assisted by the Audit Committee in fulfilling its overview responsibilities,
reviewing the reporting of financial and non-financial information to shareholders and
the audit process, satisfying itself that appropriate systems of internal control and risk
management are in place and are serving to identify and manage risk.
The Group operates a Retail Support Unit which provides strong operational internal
audit services in the Retail division, and there are procedures in place in the Brands
division to monitor and control licensees.
The external auditors are invited to attend all meetings of the Audit Committee, save
for those parts of any meeting when the Committee reviews the performance of the
auditors.
With the exception of Heatons, which is the Group’s only material associate, the Group’s
system of internal control and risk management and its effectiveness is monitored and
reviewed by the Board, the Audit Committee and management, and the Board believes
that the Group has maintained throughout the year and up to the date of approval of
the annual report and accounts an effective embedded system of internal control and
has complied with the Turnbull guidance.
The systems of internal control and risk management are designed to manage, rather
than eliminate, the risk of failing to achieve business objectives.
RISK POLICIES AND PROCEDURES
Business plans and budgets for each business include financial and strategic targets
against which performance is monitored. Monitoring includes the examination of and
changes to rolling annual and quarterly forecasts, monthly measurement of actual
achievement against key performance targets and plans, and weekly reviews of
performance.
The Group has clear procedures for the approval and control of expenditure. Strategic
investment decisions involving both capital and revenue expenditure are subject to
formal detailed appraisal and review according to approval levels set by the Board.
Operating expenditure is controlled within each business with approval levels for such
expenditure being determined by the individual businesses.
There is an approved employee whistle-blowing policy within the Group. The policy
was established to be utilised by employees who wish to raise any issues or concerns
relating to the Group’s activities, and all matters are discussed on a confidential basis.
KEY RISKS
Control environment
The Group’s operating procedures include a comprehensive system for reporting
information to the Board including:
• assessment of three years of strategy plans for business development;
• creation and assessment of legal policies; and
• review of the Group at each Board meeting, focusing on potential new risks (such as
key changes in the market and succession planning).
Control procedures
Detailed operational procedures have been developed for each of the Group’s operating
businesses that embody key controls. The implications of changes in law and
regulations are taken into account within these procedures.
Financial reporting process
The Group has in place internal control and risk management systems in relation to
the Group’s financial reporting process and the Group’s process for the preparation
of consolidated accounts. These include clearly defined lines of accountability and
delegation of authority, policies and procedures that cover financial planning and
reporting, preparing consolidated accounts, capital expenditure, project governance
and information security.
The Audit Committee is responsible for overseeing and monitoring these processes,
which are designed to ensure that the Group complies with relevant regulatory reporting
and filing provisions. As at the end of the period covered by this Report, the Audit
Committee, with the participation of the Chief Executive, evaluated the effectiveness
of the design and operation of disclosure controls and procedures designed to ensure
that information required to be disclosed in financial reports is recorded, processed,
summarised and reported within specified time periods.
4
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RISKS AND UNCERTAINTIES RELATING TO THE GROUP’S BUSINESS
STRATEGIC REPORT
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PRINCIPAL RISKS AFFECTING THE GROUP
The Group has identified the following factors in the following table as potential risks to, and uncertainties concerning, the successful operation of its business. The Group is,
however, exposed to a wider range of risks than discussed below but these are the principal risks that have recently been discussed by the Board and Audit Committee and are of
primary concern.
STRATEGIC REPORT
AREA RISK MITIGATION
Supply Chain
The Group operates internationally so is
reliant on the successful distribution of
goods from when they are distributed by
the manufacturer to when they are sold
in the stores.
The Group is reliant on manufacturers in
developing countries as the majority of
the Group’s products are sourced from
outside the UK.
The Group is subject to the risks associated with
international trade and transport as well as those
relating to exposure to different legal and other
standards. Particular risks including worker strikes,
failure to meet minimum code of conduct standards,
and transport delays for products could all cause
substantial difficulties.
Disasters in or around the factories of our suppliers
could bring negative media attention to the Group.
The Group requires all suppliers to sign up to the Group’s Code of Ethics/Supply Policy
which enables the Group to monitor and benchmark the performance of the supplier.
It allows the Group to carry out inspections of premises to ensure compliance with the
Group’s codes for continuity and quality of supply. The Policy extends throughout the
duration of the Group’s contract with each supplier and allows the Group to conduct
inspections of supplier premises at random intervals.
Many risks relating to the supply chain, reliance on non-UK suppliers, and to the reputation
of the Group’s brands are managed and mitigated by the implementation of these policies.
Strong Service Level Agreements and maintaining relationships with all parties involved in
the supply chain also mitigate these risks.
Key Suppliers
The Group is reliant on good
relationships with its major
manufacturers, key brands or brand
suppliers.
A failure to replace any of its major manufacturers
or suppliers on commercially reasonable terms could
have an adverse effect on the Group’s business,
operating profit or overall financial condition. It may
mean that customers shop elsewhere if stores cannot
supply the required product.
The Group follows policies of forging long-term relationships with suppliers and of utilising
two leading supply chain companies to procure much of the Group’s own branded goods.
This close relationship brings a better understanding of the supplier’s resources enabling
the Group to react quickly to changes in the international supply market.
Lengthy contracts are often used by the Group to ensure that key manufacturers are aware
of our commitment to them.
Treasury and Financial Risk
The Group operates internationally. The
majority of foreign contracts relating to
the sourcing of Group branded goods
are denominated in US dollars and the
Euro, thus leaving exposure to foreign
exchange risk.
The Group has net borrowings, which
are principally at floating interest rates
linked to bank base rates or LIBOR.
The Group is exposed to foreign exchange risk arising
from various currency exposures and a strengthening
of the US dollar or a weakening of the pound sterling
making goods more expensive.
Foreign exchange risk arises when future commercial
transactions or recognised assets or liabilities are
denominated in a currency that is not the entity’s
functional currency, as exchange rates move. This
could significantly reduce profitability.
The Group seeks to mitigate the FX fluctuations by hedging via forward foreign currency
contracts which are designated as cash flow hedges.
The Group also holds assets overseas in local currency, and these assets are revalued in
accordance with currency movements. This currency risk is not hedged.
The Group is cash generative and is now targeting its debt levels to mitigate interest rate
risk and currently has debt levels of less than 1 x underlying EBITDA.
Credit and Liquidity Risk
The Group, primarily the Brands division,
provides credit to some of its customers.
Funding and liquidity for the Group’s
operations are provided through bank
loans, overdrafts and shareholders’
funds.
The Group could have a credit risk if credit
evaluations were not performed on all customers
requiring credit over a certain amount.
The Group’s objective is to maintain sufficient
funding and liquidity for its requirements, but the
availability of adequate cash resources from bank
facilities and achieving continuity of funding in the
current financial climate could be a risk to the Group
in future years.
The purchase of acquisitions to strengthen and
compliment the Group may be hindered.
Relationships with suppliers could break down if we
are unable to pay them in line with our contractual
obligations.
The Group’s key suppliers also face credit risk and as such the Group regularly assesses
the viability of its suppliers and ensures there are plans to source from alternative
businesses should key suppliers fail.
Rigorous procedures are in place to mitigate this credit risk. The Group has a credit policy
in place and the exposure to risk is monitored on an on-going basis.
Credit evaluations are performed on all customers requiring credit over a certain amount,
and concentration of credit risk is managed.
Investment of cash surplus, borrowings and derivative investments are made through
banks and companies which have credit ratings and investment criteria approved by the
Board.
The Group mitigates liquidity risk by keeping debt levels low and the current finance facility
is held with a club of 13 banks, thereby spreading the risk.
Succession Planning
Key individuals within the Group have
knowledge of the business and are
essential to drive the business forward.
Natural disaster, illness, injury, or the sudden
resignation of key individuals could change the
direction of the Group.
Our departments work together to develop their understanding of each department and
of the Group. Senior Managers work at ground level to help to assess the strengths of
their employees and to offer development opportunities where appropriate. This can be of
assistance when considering the suitability of internal candidates for vacancies.
Promotion opportunities, a newly developed competency framework, and regular
appraisals give employees a voice, encourage a sense of responsibility and support career
progression.
Our structured talent management programmes, and specialist masterclasses, encourage
internal progression within the Group.
The Group has formed working relationships with head hunters and recruitment agents
who are aware of the qualities required in a typical candidate.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
11
STRATEGIC REPORT
RISKS AND UNCERTAINTIES RELATING TO THE GROUP’S BUSINESS
CONTINUED
AREA RISK MITIGATION
Market Forces
The Sports Retail industry is highly
competitive and the Group currently
competes at national and local levels
with a wide variety of retailers of
varying sizes who may have competitive
advantages. New competitors may enter
the market.
The competition continues to place pressure on the
Group’s pricing strategy, margins and profitability.
The Group has a discount pricing policy to help reduce the risk of increased competition in
the industry.
The Group has a strong property portfolio, and continues to strengthen this by opening and
closing stores to adapt to market conditions.
A number of key brands are owned by the Group, reducing pressure on margins.
Operational
The Group is reliant on the Head Office
and National Distribution Centre at
Shirebrook operating without disruption,
along with the uninterrupted running of
the Group’s fleet of vehicles.
The majority of the Group’s revenue is
derived from the UK.
Any disruption to the Head Office, National
Distribution Centre or the fleet of vehicles might
significantly impact the Group’s ability to manage
its operations, distribute products to its stores and
maintain its supply chain.
Any long-term interruption of the Group’s IT systems
would have a significant impact on the Group’s
operation, particularly in the Retail division.
Terrorist attacks, armed conflicts, government
actions or adverse weather affecting the road
networks within the UK could result in a significant
reduction in consumer confidence, which would in
turn have an adverse affect on sales in stores.
The Group has a strong business continuity plan that is regularly reviewed to address
operational risks. The last review and testing of this took place during the most recent
financial year.
The Board is confident that as far as it is practical, the risks and uncertainties that face
the Group are being monitored and managed and that, where required, appropriate action
is being taken.
The Group constantly monitors the business environment and the nature of the business
model allows for the Group to act swiftly under extraordinary circumstances.
Health & Safety
Health and Safety is key across all areas
of the Group. Policies are implemented,
in conjunction with legal standards, to
protect our employees and customers.
Potential injuries, distress and fatalities could
result from a failure to establish and maintain safe
environments. Lack of competence in Health and
Safety reporting could lead to legal claims which are
difficult to defend.
We ensure that each Company within the Group is fully trained to the required standards
applicable in each requisite country.
Training courses are regularly offered and employees are encouraged to learn essential
Health and Safety techniques.
The team at Head Office are always on hand to discuss Health and Safety issues, assess
incidents and refer reportable matters to RIDOR.
The incidents within the Group are reported to the Board regularly, as are the legal claims
that arise from these. The Board consider ways to reduce the number of claims.
Legal
The Group’s trade marks, patents,
designs and other intellectual property
rights are central to the value of the
Group’s brands.
The Group believes that its licensees, suppliers,
agents and distributors are in material compliance
with employment, environmental and other laws.
The violation, or allegations of a violation, of such
laws or regulations, by any of the Group’s licensees,
suppliers, agents or distributors, could lead to
adverse publicity and a decline in public demand for
the Group’s products, or require the Group to incur
expenditure or make changes to its supply chain and
other business arrangements to ensure compliance.
The Group may need to resort to litigation in the
future to enforce its intellectual property rights and
any litigation could result in substantial costs and a
diversion of resources.
Third parties may try to challenge the ownership or
counterfeit the Group’s intellectual property.
The Group has an in-house Legal team who have knowledge of a variety of legal areas that
apply to the Group. This in-house expertise is vital in mitigating such issues.
The Legal team work closely with external consultants to assist with matters outside their
areas of expertise.
The Group’s Legal team actively monitor trade mark applications by other companies, as
well as the stock of rival retailers, to ensure that our rights are not infringed and where
these are infringed, to take appropriate action.
As a testament to the Legal team’s hard work and commitment to protecting the Group’s
trade marks, the trade mark team recently won Sport, Entertainment and Media Team of
the Year at the World Trademark Review Awards in Dallas.
Sales
The Group’s retail businesses are
subject to seasonal peaks. The incidence
of and participation in major sporting
events will have a particular impact on
the Sports Retail business.
Prolonged unseasonal weather conditions or
temporary severe weather during peak trading
seasons could have a material adverse effect on the
Group’s businesses. The Group is dependent upon the
store portfolio and consumers’ spending habits.
Although unable to mitigate environmental conditions, the Group are able to influence the
retail portfolio and therefore constantly monitor development of stores and the Group’s aim
to increase the square footage through viable new retail space. By monitoring stock levels
through sales forecasting the Group can manage the peaks in demand and trading profiles
can be predicted.
12
OVERVIEW OF FINANCIAL PERFORMANCE
I am pleased to report a further year of strong revenue and profit growth for Sports
Direct. The results for the year are even more impressive given that the prior year
included the UEFA European Championships and the 2012 London Olympics, and have
been achieved in a retail environment that remains challenging. The Group has grown
consistently, and the resilience and flexibility of our business model continues to allow
us to offer an unrivalled product range, offering exceptional quality and unbeatable
value. We will continue to be the Consumers’ Champion.
Building on our strategy of broadening our customer base through expansion, during
the year we have opened c.300,000 net sq. ft. of additional retail space across the UK,
re-fitting a further c.300,000 sq. ft. In Europe we have opened c.200,000 net sq. ft. of
retail space in our existing business and have acquired a further c.1.9 million sq. ft.
with our acquisitions in Austria and the Baltics.
The out-performance that we have achieved over recent years truly serves to
demonstrate how successful the Employee Bonus Share Scheme has been in motivating
our employees to work towards a shared goal. The 2009 scheme targets were achieved
and the shares vested in August 2012 and 2013, with over 2,000 employees receiving
life-changing sums as reward for their hard work and dedication to the business over
the last five years.
Underlying EBITDA targets under the 2011 Employee Bonus Share Scheme for FY12,
FY13 and FY14 have been met. With only one target left to achieve, the scheme is
also on course to vest in 2015 and 2017. I am also delighted that, following a General
Meeting on 2 July, shareholders have now given approval for a new 2015 Bonus Share
Scheme. This will ensure the commitment of our employees for many more years to
come.
GROUP
For the year we increased Group revenue by 23.8% to £2,706.0m. This was primarily
due to the Retail division, where we grew revenues by 25.9%, including a 24.1%
increase in Sports Retail revenue partly due to the acquisition of EAG in Austria and
SIG in the Baltic region. Premium Lifestyle revenue also grew by 49.4%, due largely to
the acquisition of Republic in February 2013.
Group gross margin in the year increased by 180 basis points from 40.9% to 42.7%.
Sports Retail division gross margin increased by 260 basis points to 42.9% (FY13:
40.3%), while Brands division gross margin decreased to 43.1% (FY13: 44.9%).
Group operating costs increased 35.9% to £826.1m (FY13: £607.9m). Sports Retail and
Brands division operating costs were £656.3m (FY13: £479.6m)
(1)
and £63.1m (FY13:
£66.6m), respectively. The increase in Group operating costs is mainly attributable
to our recent acquisitions in Austria and the Baltics. Excluding the impact of these
acquisitions, Group operating costs increased by 19.7%. Operating costs increased
slightly as a percentage of sales from 27.8% in FY13 to 29.7% in FY14, excluding the
impact of acquisitions, due to provision reversals in the prior year and the impact of a
full year of costs within Republic.
Reflecting the success of our approach – balancing revenues and gross margin, while
maintaining a tight focus on operating costs – we grew Group underlying EBITDA
(before scheme costs) for the year by 15.0% to £331.1m (FY13: £287.9m). Within this
underlying EBITDA, we increased the Retail division EBITDA by 15.3% to £300.9m
(FY13: £260.9m) while the Brands division EBITDA increased by 11.9% to £30.2m
(FY13: £27.0m).
Excluded from underlying EBITDA is an £11.9m (FY13: £22.1m) charge in respect of
the 2009 and 2011 Employee Bonus Share Schemes and the Executive Bonus Share
Scheme. This charge has been taken centrally and, except in note 4 to the accounts, is
not reflected in the divisional (Retail and Brands) numbers in this report.
For the year, Group underlying profit before tax increased 19.8% to £249.3m, primarily
as a result of the £43.2m increase in EBITDA (pre-scheme costs) and a £10.2m
reduction in Employee Bonus Share Scheme charges offset by a £9.3m increase in
depreciation and amortisation. Underlying EPS for the year increased by 19.3% to
32.1p (FY13: 26.9p).
Net debt at 27 April 2014 was £212.0m (28 April 2013: £154.0m), which is 0.66 times
reported EBITDA (28 April 2013: 0.58 times). Reported EBITDA includes realised foreign
exchange gains/losses in selling and administration costs and the Employee Bonus
Share Scheme charges.
REVIEW BY BUSINESS SEGMENT
Retail Revenue:
52 weeks ended
27 April 2014
(£’m)
28 April 2013
(£’m)
Sports Retail 2,274.4 1,833.3
Premium Lifestyle
(1)
214.1 143.3
Total Retail revenue 2,488.5 1,976.6
Cost of sales (1,427.3) (1,175.6)
Gross profit 1,061.2 801.0
Gross margin percentage 42.6% 40.5%
(1) FY13 Premium Lifestyle revenue re-stated to include Republic (previously included within Wholesale and other)
Brands Revenue:
52 weeks ended
27 April 2014
(£’m)
28 April 2013
(£’m)
Wholesale 185.2 178.3
Licensing 32.3 30.7
Total Brands revenue 217.5 209.0
Cost of sales (123.8) (115.2)
Gross margin 93.7 93.8
Gross margin percentage 43.1% 44.9%
SPORTS RETAIL
Sports Retail revenue growth has continued with the acquisition of two international
subsidiaries in Austria and the Baltics, as well as further enhancements in our retail
and logistics infrastructure.
Sports Retail sales grew 24.1% to £2,274.4m (FY13: £1,833.3m), driven by our recent
European acquisitions and strong growth in our existing business. Sports Retail
gross margin for the year increased by 260 basis points to 42.9% (FY13: 40.3%).This
increase is mainly attributable to on-going investment in our ‘better and best’ product
range and the further development of Group Brands.
Sales in the second half of the year were up 25.5% to £1,138.3m (FY13 H2: £907.3m).
Gross margins for the second half of the year improved to 42.5% (FY13 H2: 39.7%).
Sports Retail like-for-like gross contribution, which excludes online, increased by
10.5%, marking the fifth consecutive year of growth in this KPI against a tough
comparator last year which included the UEFA European Championships and the 2012
London Olympics (FY13: +10.6% / FY12: +0.7% / FY11: +6.8% / FY10: +3.7%).
Sports Retail like-for-like contribution is defined as the percentage change in gross
contribution in the successive 12-month period. A like-for-like store is one that has
been trading for the full 12 months in both periods and has not been affected by a
significant change, such as a major refurbishment. The number of stores included in
this year’s KPI is 339 (FY13: 340).
Sports Retail operating costs increased by 36.8% to £656.3m, including acquisitions
(FY13: £479.6m). Excluding the impact of acquisitions, operating costs increased by
16.3% to £557.6m - operating costs in H2 increased by 12.3% to £283.6m (FY13 H2:
£252.6m).
STRATEGIC REPORT
CHIEF EXECUTIVE’S REPORT & BUSINESS REVIEW
(1) FY13 comparative now excludes operating costs in Republic, now included within Premium Lifestyle
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
13
ONLINE
We have experienced growth in online revenue which has increased by 26.8% from £264.6m to £335.4m in the year.
This represented 17.1% of Sports Retail sales (FY13: 15.0%), excluding wholesale sales and sales in EAG and SIG (including
EAG and SIG, online revenue represented 15.1% of Sports Retail sales). Online sales to non-UK customers now represent
46.5% of all online Sports Retail sales (FY13: 35.1%) and 48.2% of online contribution (FY13: 33.8%)
Our multi-channel offering remains a strategic focus for the Group. Order fulfilment and information technology solutions
are developed in-house with full back-up support from our National Distribution Centre in Shirebrook, Derbyshire. Specific
customer landing pages, and ‘My Account’ pages have now been upgraded and provide an improved customer experience.
401 of the UK store fascia are now branded SPORTSDIRECT.com, an increase of 25 from last year (FY13: 376).
Approximately 25% of visits to SPORTSDIRECT.com are now made via mobile devices. Given the rapid developments in this
area, we have updated our mobile site to support multiple language and currency options. Customer satisfaction through
a multi-channel offering remains one of our key areas of focus. During FY15 we aim to enhance the customer experience by
upgrading our search facility to ensure that the results are as relevant as possible. We are developing additional functionality
including click & collect, which is expected to be rolled-out in UK Sports Direct stores during Autumn/Winter 2014, online gift
cards and the opportunity to open a credit facility.
STRATEGIC REPORT
CHIEF EXECUTIVE’S REPORT & BUSINESS REVIEW
CONTINUED
Store wages were up 37.5% in the year to £211.4m (FY13: £153.7m) but as a
percentage of sales increased only slightly to 9.3% (FY13: 8.4%). Sports Retail
premises costs increased by 33.1% to £192.7m (FY13: £144.8m), largely due to
a £14.6m reversal of our onerous lease provision in FY13 following the closure of
a significant number of unprofitable stores. Excluding the impact of this reversal,
premises costs increased by 20.9%. Other operating costs were up 32.8% to £246.6m
(FY13: £185.7m), increasing slightly as a percentage of sales to 10.8% (FY13: 10.1%).
The currency impact due to the change in the Euro:Sterling exchange rate was a cost of
£5.6m in the current year (FY13: a gain of £4.6m).
Underlying EBITDA for Sports Retail was £321.3m (FY13: £259.9m), an increase of
23.6% for the year (20.2% excluding the impact of acquisitions). This increase was
driven by a £236.6m increase in gross profit (including acquisitions), due to the
growth in store contribution and online sales, offset by the £176.7m increase in
operating costs.
The Group’s retail businesses performed strongly in a difficult economic environment.
Our retail model, offering outstanding value to our customers, remains resilient, both
in the UK and internationally. Throughout the year, we continued to focus on offering
our customers the most comprehensive product range, the best availability and value
while minimising operating costs as a percentage of gross sales.
The Group has continued its planned expansion into Europe with the acquisition
of two key subsidiaries. In June 2013, the Group acquired a 51% stake in the Sports
Eybl & Sports Experts Group AG (EAG), a leading sports retailer with stores in Austria
and Germany. The remaining 49% of the business was subsequently acquired in
March 2014. In August 2013, the Group acquired a 60% shareholding in Sportland
International Group (SIG), the market leader in the Baltic states of Estonia, Latvia
and Lithuania.
We are currently in the final design stages for Phase three of the development of our
National Distribution Centre in Shirebrook, the construction of an additional c.600,000
sq. ft. warehouse and office facility. Preparation of the site is already in progress,
with the aim of commencing works in September 2014, and completion of the project
anticipated for late 2015.
Employee training continues to be a major area of investment. During the last year
over 50,000 hours were devoted to training and developing our colleagues. Our
National Training Facility in Shirebrook is committed to maximising the individual
performances of our employees, and to helping others to identify, work towards, and
achieve their own distinct career goals.
The National Training Facility is supported by Nike and Puma, who have their own
individual environments. This unique training experience is the only centre of its type
globally for both Nike and Puma.
Our store portfolio remains constantly under review with the performance of each
store and ways of maximising performance being regularly examined. During the year
we opened 32 stores in the UK, closing 10 and have opened an additional 15 stores
in Europe, closing five. Through acquisitions we also added a further 134
(1)
stores in
Austria and the Baltics.
We increased our period end square-footage to c.4.5m sq. ft.
(2)
(FY13: c.4.0m) in the
UK and c.3.0m sq. ft.
(3)
(FY13: c.1.1m sq. ft.) across the rest of Europe, including an
additional c.1.9m sq. ft. as a result of acquisitions. We also re-fitted c.300,000 sq. ft.
of our existing retail store space in the UK.
(1) Store numbers taken at date of acquisition.
(2) Due to differing methodologies, this implies a range between 4.25m sq. ft. - 4.75m sq. ft.
(3) Due to differing methodologies, this implies a range between 2.75m sq. ft - 3.25m sq. ft.
During the year, the expansion of the Shirebrook Sports Direct store was also
completed. The expanded store includes dedicated Nike and Puma areas as well as
enhanced running, outdoor, football and women’s fitness areas. Following the success
of the Shirebrook store, our Oxford Street store relocated to the former HMV store in
May 2014. The continued evolution of the whole estate and in particular, key city centre
stores, is vital in building relationships with third-party brands and will continue with
the re-development of our Glasgow store which is expected to finish in Autumn 2014.
In FY15 we are targeting to re-fit c.400,000 sq.ft. of retail space across the UK.
14
STRATEGIC REPORT
UK STORE PORTFOLIO
27 April 2014 28 April 2013
Stores at Year End 418 396
Opened 32 37
Closed 10 36
Freehold properties 59 52
SPORTSDIRECT.com fascias 401 376
Other 17 20
Area (sq. ft) c.4.5m c.4.0m
In the 52 weeks to 27 April 2014, rent reviews have been agreed on 30 stores. The
average increase in rent was 0.64% (0.13% annual equivalent). There are currently 41
rent reviews outstanding with a further 54 falling due in FY15. Our lease expiry profile
over all leasehold stores (excluding Lillywhites Piccadilly) is now 5.1 years, including
68 stores with contractual expiries or break dates within the next 12 months. This
significant amount of flexibility within our portfolio allows us to continue to monitor and
adapt our format to the rapidly changing multi-channel environment.
In the current financial year, we are targeting to open between 30 and 40 stores, c.30%
of which are expected to be relocations. In the first quarter we have already opened
10 stores, and have closed five, of which four were due to relocations within the same
town.
We continue to benefit from the acquisition of the properties purchased from Mike
Ashley in 2012, which have resulted in a £9.4m increase to EBITDA when viewed
against a proforma comparative.
FY14 Proforma
(£)
FY14 Inc.
acquired MA
Properties
(£)
Rental charge – 32 stores
(1)
(7.6) -
Third-party rental income - 1.9
EBITDA Contribution (32 stores) 16.5 25.9
(1) Assumed rent based on 10% of store turnover
INTERNATIONAL STORE PORTFOLIO: PRE-EXISTING BUSINESS
27 April 2014 28 April 2013
Belgium 44 45
Slovenia 15 15
Portugal 15 15
Poland 7 -
France 6 6
Netherlands 6 6
Cyprus 5 6
Hungary 4 2
Czech Republic 4 2
Slovakia 3 3
Luxembourg 2 2
Spain 1 -
Total 112 102
Note: Excluding Republic of Ireland & Iceland
FY14 Acquisitions
27 April 2014
Austria 52
Estonia 36
Latvia 24
Lithuania 20
Germany 3
Total 135
All of the above stores are operated by companies wholly-owned by the Group, except
Portugal, where the Group owns 50.1% and Estonia, Latvia and Lithuania where the
Group owns 60.0%. As part of the accelerated growth programme in our European
subsidiary, we now have an additional 10 stores in Europe and have entered two new
countries (Spain and Poland). Including our recent acquisitions in Austria and the
Baltic region, we are now active in 19 countries across Europe (includes associates in
the Republic of Ireland and Iceland).
The integration of EAG initially focused on the Sports Expert format, but has now been
extended to include the Eybl fascia. Sports Direct point of sale systems are now in all
stores with all EAG stock now centrally managed. While the strategic focus to date
has been the sell-through of legacy stock, we also intent to rebrand all EAG stores to
SPORTSDIRECT.com.
Our strategy remains to identify partners in new territories while continuing to expand
our operations in the countries where we currently trade. For FY15, in line with our
accelerated European expansion, we are targeting 10-15 organic new stores. In the first
quarter, we have opened three stores, closing two.
The Group has a 50% shareholding in the Heatons chain which operates 15 Sports
Direct stores in Northern Ireland and 26 sports stores in the Republic of Ireland. We also
own a 25% shareholding in the Sports Direct store in Iceland.
Local management continue to work hard to ensure that all new and existing stores in
Europe are committed to striving towards the operational efficiencies and standards
that exist across our UK sports stores.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
15
CHIEF EXECUTIVE’S REPORT & BUSINESS REVIEW
CONTINUED
PREMIUM LIFESTYLE
Premium Lifestyle sales grew 49.4% to £214.1m (FY13: £143.3m), in large part due to
the inclusion of a full year’s trading in Republic which was acquired in February 2013.
Premium Lifestyle gross margin for the year decreased by 350 basis points to 40.3%
(FY13: 43.8%) due to the clearance of old stock in the year.
Premium Lifestyle operating costs including Republic increased by 72.9% to £106.7m
(FY13: £61.7m). Excluding Republic, operating costs increased by 5.2% to £58.7m
(FY13: £55.8m).
Underlying EBITDA for Premium Lifestyle was a loss of £20.4m (FY13: £1.0m profit).
This was largely due to significant re-structuring costs within Republic. We are
targeting to see the benefit of this re-structuring, along with the impact of the closure
of a significant number of loss-making stores in the year, in FY15.
Integration of our Premium Lifestyle division has continued in the year, including IT
systems in Flannels, Cruise and Republic, and the relocation of the Flannels head
office to our site in Wigan. The previous Republic warehouse and head office has been
relocated to the existing USC facilities, and 53 former Republic stores were converted
to the USC fascia. Not withstanding this progress, supply from major third-party
brands remains very challenging.
The FY13 results included nine months of trading for Flannels and two months for
Republic.
Online revenue in the division increased by 57.6% in the year to £37.5m (FY13:
£23.8m). During the year the division’s eCommerce platforms have been integrated
with the Group’s IT systems. These now consist of Flannels.com, Cruisefashion.co.uk,
and USC.co.uk.
USC online sales increased by 116.5% to £23.6m (FY13: £10.9m) due to improved
stock availability and increased brand awareness. The launch of the USC and Flannels
mobile platforms, in November 2013, has also contributed towards the increase in
online sales in the Premium Lifestyle division.
At the year end, the Premium Lifestyle division traded from 126 stores under five main
fascias:
27 April 2014 28 April 2013
USC 90 40
Republic - 104
Van Mildert 9 10
Cruise 10 8
Flannels 8 8
Other 9 8
Total 126 178
BRANDS
The Group’s brand portfolio includes a wide variety of world-famous sport, fashion and
lifestyle brands. The Group’s Retail division sells products under these Group brands
in its stores, and the Brands division exploits the brands through its wholesale and
licensing activities. The Brands division continues to sponsor a variety of prestigious
events and retains a variety of globally-recognised, high-profile sportsmen and women
as brand ambassadors.
Brands division total revenue increased by 4.1% to £217.5m (FY13: £209.0m).
Wholesale revenues were up 3.9% to £185.2m (FY13: £178.3m), with continued growth
in the key US market which now represents 39.4% of total wholesale revenue.
Brands gross margin decreased by 180 basis points to 43.1% (FY13: 44.9%).
Wholesale gross margins fell 220 basis points to 33.2% (FY13: 35.4%) negatively
impacted by the loss of Firetrap wholesale income and stock clearance in Gelert,
acquired in July 2013. Following the acquisition of the Gelert brand and assets from
the administrator the business underwent a complete customer and operational review,
resulting in significant cost savings and a more efficient business going forward.
Licensing revenues in the year were up 5.2% to £32.3m (FY13: £30.7m). We
signed 84 new licence agreements, covering multiple brands, product categories
and geographies, with minimum contracted values of $50.7m over the life of the
agreements. At 27 April 2014, the Group had 427 licence agreements worldwide,
across 273 licensees with contracted minimums of $309m over the remaining life of
the agreements.
Longer term, we still regard licensing as the key driver of Brands division profitability
and central to the overall growth of the Brands business. The key growth areas are
expected to include Asia Pacific, the Middle East and North Africa and the Americas
which should compensate for a more challenging licensing landscape in the UK and
Europe, as Sports Retail continues to expand in these territories.
Operating costs decreased by 5.3% to £63.1m (FY13: £66.6m) as we begin to benefit
from the consolidation of our back office functions, with both Firetrap and Gelert now
fully integrated. The full impact of the consolidation of back office functions across the
Brands division is expected to be felt in FY15. As a result of cost savings, underlying
EBITDA increased by 11.9% to £30.2m (FY13: £27.0m).
We continue to focus on developing world-class products that are endorsed by leading
athletes on the field of play and continue to invest in our key brands.
STRATEGIC REPORT
16
STRATEGIC REPORT
EMPLOYEES
The success of the Group has largely been
created by our c.28,000 employees, whose
dedication and commitment has been
sustained over many years. Their enthusiasm
and “One Team” attitude has assisted the
Group to succeed where many other retailers
have failed. The Board are extremely grateful
for the time that our employees have taken to
develop their skills and expertise. We promote
staff training wherever possible to enable our
employees to be the best that they can be.
The 2009 and 2011 Employee Bonus Share
Schemes have been fundamental tools in the
motivation and incentivisation of employees.
Under the 2009 Employee Bonus Share
Scheme, c.27 million shares vested with
our eligible employees. Subject to achieving
the FY15 EBITDA target, and satisfactory
personal performance, a further c.20 million
shares are expected to vest under the 2011
Employee Bonus Share Scheme.
CONTRACTS ESSENTIAL TO THE BUSINESS OF THE GROUP
The Group has long-established relationships with Nike and adidas, the major
suppliers of third-party branded sporting goods, and considers that continued supplies
from these companies are critical to the business of the Group.
ENVIRONMENTAL MATTERS
The Corporate Responsibility Report is on pages 20 to 23 and a review of the
assessment of the Group’s impact on the environment is included in the Corporate
Responsibility Report on page 22.
RESEARCH AND DEVELOPMENT
The Group’s success depends on the strength of the Group brands and, to a lesser
extent, the licensed-in brands.
The Group’s efforts to continually develop or obtain brands in a timely manner or at all
may be unsuccessful.
OUTLOOK
Overall trading since the year end has been in line with management’s expectations
with some stronger weeks offset by England’s disappointing World Cup matches.
The Group’s performance continues to benefit from a number of factors including the
historic investment in gross margin, investment in product range and availability,
increased operating efficiencies and the continued optimisation of the Group’s in-store
and web product offer.
Based on the performance to date, we are very confident of achieving the final EBITDA
target of £300m (before scheme costs) under the 2011 Employee Bonus Share Scheme.
Consistent with previous guidance, we continue to target an underlying EBITDA
target of £360m (before the charge for the 2011 Employee & Executive Bonus
Share Schemes). The Group’s success is underpinned by our core strategy, offering
our customers a wide range of products which represent exceptional quality and
unbeatable value.
Dave Forsey
Chief Executive
17 July 2014
The 2011 Employee Bonus Share Scheme underlying EBITDA targets (before scheme costs), relate to performance between FY12 and FY15. The FY12 target of £215m, the FY13
target of £250m, and the FY14 target of £260m have all been achieved. The FY15 target is £300m (before scheme costs), and this final target, combined with the individual
employee’s satisfactory personal performance, must be achieved in order for the scheme to vest.
Shares under the 2011 Employee Bonus Share Scheme are due to vest in 2015 and 2017. Under the 2011 Employee Bonus Share Scheme employees are eligible for awards on a
pro-rata basis depending on their length of service with the Group. Awards under the 2011 scheme are granted at either 100%, 75%, 50% or 25% of the employees’ base pay.
Subject to the performance criteria being fulfilled, c.5 million shares are due to vest in 2015 and c.15 million shares are due to vest in 2017.
An additional 3 million shares are due to vest with one of our Executive Directors and two members of senior management in 2017 under the Executive Bonus Share Scheme,
subject to performance criteria being fulfilled. The Executive Bonus Share Scheme performance targets mirror those to be applied to awards under the 2011 Employee Bonus
Share Scheme.
As a result of the successes of previous schemes, the 2015 Bonus Share Scheme has been devised to encourage further outstanding employee performance. The scheme will
provide for the grant of nil-cost options over up to 25 million shares. The vestings are dependant on particularly stretching performance criteria spanning between FY16 and FY19.
With targets of £480m for FY16, £570m for FY17, £650m for FY18 and £750m for FY19, the scheme has the potential to not only motivate employees, but also to create a further
substantial increase in shareholder value.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
17
SUMMARY OF RESULTS
52 weeks ended
27 April 2014
(£’m)
28 April 2013
(£’m)
Revenue 2,706.0 2,185.6
Underlying EBITDA 331.1 287.9
Underlying Profit Before Tax 249.3 208.1
Reported Profit Before Taxation 239.5 207.2
Pence per share Pence per share
Reported EPS 30.8 26.6
Underlying EPS 32.1 26.9
The Directors believe that underlying EBITDA, underlying profit before tax and
underlying earnings per share provide more useful information for shareholders on the
underlying performance of the business than the reported numbers 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.
EBITDA is earnings before investment income, finance income and finance costs, tax,
depreciation and amortisation and, therefore, includes the Group’s share of profit from
associated undertakings and joint ventures. Underlying EBITDA is calculated as EBITDA
before the impact of foreign exchange, any exceptional or other non-trading items and
costs relating to the Employee Bonus Share Schemes.
EBITDA AND PROFIT BEFORE TAX
EBITDA (£’m) PBT (£’m)
Operating prot 249.1 -
Depreciation, amortisation and impairment 64.1 -
Exceptional items 5.5 -
Share of profit of associated undertakings
(excl. FV adjustments)
2.3 -
Reported 321.0 239.5
Bonus Share Scheme 11.9 -
Impairment of fixed assets - 0.3
Exceptional items - 5.5
Profit on disposal of investments - (5.4)
Realised FX gain (1.8) (1.8)
IAS 39 FX fair value adjustment on forward
currency contracts
- 11.2
Underlying 331.1 249.3
Underlying 52 week FY14 profit before tax excludes:
i. impairments which decreased profit by £0.3m;
ii. exceptional items which decreased profit by £5.5m;
iii. profit on disposal of investments which increased profit by £5.4m;
iii. realised foreign exchange gains which increased profits by £1.8m; and
iv. IFRS revaluation of foreign currency contracts which decreased profit by £11.2m.
FOREIGN EXCHANGE
The Group manages the impact of currency movements through the use of forward
fixed rate currency purchase and sales contracts. The Group’s policy is to hold or hedge
between zero and five years of anticipated purchases in foreign currency.
The realised exchange gain of £1.8m (FY13: £2.3m gain) included in administration
costs has arisen from:
a. accepting Dollars and Euros at the contracted rate; and
b. the translation of Dollars and Euro denominated assets and liabilities at the period
end rate or date of realisation.
The exchange loss of £11.2m (FY13: £2.0m loss) included in finance costs / income
substantially represents the reduction in the mark-to-market asset made (under
IFRS) for the Group’s unhedged forward contracts as at 27 April 2014. A number of
the forward contracts outstanding at 27 April 2014 qualify for hedge accounting and
the fair value loss on these contracts of £21.6m has been debited to equity through
the Consolidated Statement of Comprehensive Income. The Group has sufficient USD/
GBP contracts to cover the majority of purchases in UK Retail for FY15 and FY16. These
hedged contracts are at an average rate of USD / GBP 1.681.
The Sterling exchange rate with the US dollar was $1.547 at 28 April 2013 and $1.680
at 27 April 2014.
Given the potential impact of commodity prices on raw material costs, the Group may
hedge certain input costs, including cotton, crude oil and electricity going forward.
FINANCE COSTS
52 weeks ended
27 April 2014
(£’m)
28 April 2013
(£’m)
Interest on bank loans and overdrafts (7.5) (6.6)
Interest on other loans (0.6) (0.6)
Interest on retirement benefit obligations (0.6) (0.5)
Fair value adjustment to forward foreign exchange
contracts
(11.2) (2.0)
(19.9) (9.7)
The rise in interest payable is a result of the increased use of the revolving credit
facility and additional debt inherited from acquired companies. The increase in the use
of the revolving credit facility is attributable to the acquisitions during the year and the
investment in working capital. Going forward, the Group may look to manage or hedge
its interest exposures.
The loss on the fair value of forward foreign exchange contracts arises under IFRS as
a result of marking to market at the period end those contracts that do not qualify for
hedge accounting.
EXCEPTIONAL ITEMS
52 weeks ended
27 April 2014
(£’m)
28 April 2013
(£’m)
Profit on sale of intangible assets - 0.6
Impairment of assets (5.5) -
(5.5) 0.6
The impairment relates to assets in a newly acquired entity that were no longer
required post acquisition.
TAXATION
The effective tax rate on profit before tax in FY14 was 25.0% (FY13: 26.8%). This rate
reflects depreciation on non-qualifying assets and overseas earnings being taxed at a
higher rate.
FINANCIAL REVIEW
The financial statements for the Group for the 52 weeks ended 27 April 2014 are presented in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU.
STRATEGIC REPORT
18
EARNINGS
52 weeks ended
27 April 2014
(pence per share)
28 April 2013
(pence per share)
Change
(%)
Reported EPS (Basic) 30.8 26.6 15.6
Underlying EPS 32.1 26.9 19.3
Weighted average number
of shares (actual)
585,513,537 568,971,942
Basic earnings per share (EPS) is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares outstanding
during the actual financial period. Shares held in Treasury and the Employee Benefit
Trust are excluded from this figure.
The underlying EPS reflects the underlying performance of the business compared with
the prior year and is calculated using the weighted average number of shares. It is
not a recognised profit measure under IFRS and may not be directly comparable with
“adjusted” profit measures used by other companies.
The items adjusted for arriving at the underlying profit after tax and minority interests
is as follows:
52 weeks ended
27 April 2014
(£m)
28 April 2013
(£m)
Profit after tax 180.2 151.7
Post tax effect of adjustment items:
Profit on disposal of listed investments (4.0) -
Impairment of goodwill 0.3 2.2
Fair value adjustment to forward foreign
exchange contracts
8.4 1.5
Realised gain on forward foreign exchange
contracts
(1.4) (1.8)
Profit on sale of intangible assets - (0.5)
Fair value adjustment within associated
undertakings
- (0.3)
Impairment of fixed assets 4.1 -
Underlying prot after tax 187.6 152.8
DIVIDENDS
The Board has decided not to propose a dividend in relation to FY14. The Board feels
that it remains in the best interests of the Group to preserve financial flexibility,
facilitating the pursuit of potential acquisition and other growth opportunities. The
payment of dividends remains under review in future years.
CAPITAL EXPENDITURE
During the year, capital expenditure amounted to £69.1m (FY13: £49.8m), which
includes expenditure on licences within intangible assets.
ACQUISITIONS
The Group made acquisitions during the year including the purchase of two European
subsidiaries based in Austria and the Baltic region.
STRATEGIC INVESTMENTS
During the year the Group disposed of a small number of shares in JD Sports and
Fashion plc but at year end continued to hold an 11.81% stake in JD Sports. The fair
value of the Group’s holding at 27 April 2014 was £104.9m (28 April 2013: £47.6m).
During the year, 27,120 shares were sold, resulting in a gain on disposal of £0.3m.
The movement in the fair value of the shares held has been recognised directly in
equity in accordance with IFRS. Following the year end the Group:
i. Entered into a derivatives agreement which gives the counter-party the right to
acquire JD Sports shares from the Group at a premium to the current market price;
and
ii. Acquired a further 1,965
(1)
JD Sports shares.
(1)
References to the number of shares are based on the shares outstanding prior to the recent JD Sports shares
subdivision.
In January the Group acquired a 4.6% stake in Debenhams Plc. This stake was
subsequently sold at a profit and the Group currently has a beneficial interest in a
6.6% stake in Debenhams via a derivative agreement.
CASH FLOW AND NET DEBT
Net debt increased by £58.0m from £154.0m at 28 April 2013 to £212.0m at 27 April
2014.
The analysis of debt at 27 April 2014 was as follows:
27 April 2014
(£’m)
28 April 2013
(£’m)
Cash and cash equivalents 151.0 147.4
Borrowings (363.0) (301.4)
Net debt (212.0) (154.0)
The Group continues to operate comfortably within its banking facilities and covenants.
The Group has recently signed a new £688m committed, unsecured revolving credit
facility which will remain in place until September 2018.
CASH FLOW
Total movement is as follows:
27 April 2014
(£’m)
28 April 2013
(£’m)
Underlying 52 week EBITDA 331.1 287.9
Realised profit on forward foreign exchange
contracts
1.8 2.3
Taxes paid (55.7) (44.7)
Underlying 52 week free cash ow 277.2 245.5
Invested in:-
Working capital and other (110.1) (131.2)
Purchase of own shares - (21.7)
Acquisitions (including debt) (144.2) (47.0)
Net of purchase of investments (4.6) 1.5
Net capital expenditure (69.1) (49.8)
Finance costs and other financing activities (7.2) (6.1)
Increase in net debt (58.0) (8.8)
The increase in working capital is predominantly in inventory to support the growth of
Sports Retail and the online business.
PENSIONS
The Group operates a number of closed defined benefit schemes in the Dunlop
Slazenger companies. The net deficit in these schemes decreased from £19.9m at 28
April 2013 to £15.4m at 27 April 2014.
Dave Forsey
Chief Executive
17 July 2014
STRATEGIC REPORT
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
19
EMPLOYEES
The loyalty and dedication of our employees has proven a key tool in the success
that we have enjoyed. We invest in our employees by developing them with high
standards of training and structured career progression plans. The Group requires
high calibre individuals who share the Group’s ethos.
Nurturing our employees and promoting them internally has been a tool which has
been used in the Group for over 30 years. The success that can be achieved by this
method is evidenced by a number of our senior management team. Our graduate
internship programmes, which offer paid internships, permanent roles and payment
of university fees, have helped to attract new talent.
Key Highlights:
Total employees (total Group): 28,000
Hours invested in training: 50,000*
*Excludes the recently acquired EAG & SIG
Attracting our People
Our Employee Bonus Share Schemes are utilised to attract, motivate and incentivise
employees. We have found that creating a shared goal has improved employee
satisfaction levels.
We reward the hard work of our employees with Employee Bonus Share Schemes.
Our Employee Bonus Share Schemes are dependant on the achievement of
pre-determined underlying EBITDA targets, as well as the satisfactory performance
of the individual employees. The targets for the 2011 Employee Bonus Share
Scheme are:
2012:
Underlying EBITDA of £215m - Achieved
2013:
Underlying EBITDA of £250m - Achieved
2014:
Underlying EBITDA of £260m - Achieved
2015:
Underlying EBITDA of £300m
Three out of four of the 2011 Bonus Share Scheme targets have already been
achieved, and the fourth target is within reach. C.27 million shares in total vested
under the 2009 Employee Bonus Share Scheme, and a further c.20 million shares
are expected to vest under the 2011 Employee Bonus Share Scheme.
We are committed to employing the best possible people within the Group. In an
effort to achieve this we offer a graduate internship programme. The eight-week
programme offers graduates, covering key areas of the Group, the opportunity
to complete projects within the Group and compete for prizes. The prizes include
£10,000 in cash, payment of final year University fees, and the opportunity to work
within the Group in a permanent role. The scheme is paid, with interns working on
projects similar to those in a work environment. The programme ensures that we are
bringing in new talent and the Group is constantly evolving with new ideas and ways
of thinking.
Retaining our People
Employee satisfaction levels are constantly scrutinised by the Group, with employee
retention indicators being reported to the Board in every Board Pack. The Group are
all too aware that retaining experienced employees is crucial to its future success,
and we attach a significant amount of weight to this key performance indicator.
During the year 19.2% of our UK employees have left the Group, an increase from
15.5% in FY13. The increase was expected to occur following the final vesting of
the 2009 Employee Bonus Share Scheme. However the figure remains well below the
levels prior to the implementation of the scheme.
SALARIED STAFF TURNOVER SINCE FY09
FY12
17%
FY13
15.5%
FY14
19.2%
17%
FY11
17%
FY10
29%
FY09
The Group also has several policies and systems to in place to ensure employee
welfare is monitored and maintained. These are laid out in the diagram below.
EQUAL OPPORTUNITY
& DIVERSITY POLICY
STAFF FORUM
RIGHT TO A
TRADE UNION
TAILORED
EMPLOYEE
HANDBOOK
It is important to Sports Direct that all employees are engaged, and that they convey
a consistent message to customers. Delivering effective induction training is key
to this. Inductions are pivotal to the Group, and without these there is a risk that
employees will not understand compliance issues and policies, resulting in poor
customer service and lost sales.
Recently we have implemented a new, interactive induction programme for all
employees, which ensures consistency and structure in foundation training. The
training takes place through e-learning, and compliments the existing face to face
training that we offer. This is the first in a planned suite of courses that will cover
all aspects of the Company’s activities. The responsive framework is aimed at
being accessible on the go, and thus enables the course to be utilised on tablets,
smartphones and desktop computers.
CORPORATE SOCIAL RESPONSIBILITY REPORT
Corporate Responsibility is central to our vision to be an industry leader. Our established Corporate Responsibility framework focuses
on five key areas: Employees, Health and Safety, the Environment, Customers and the Community. Sports Direct has developed Key
Performance Indicators (KPIs) to ensure we deliver on our commitments. These KPIs are further discussed in this report and in the Chief
Executive’s Report and Business Review, and are based solely on our UK operations, unless expressly stated.
STRATEGIC REPORT
20
Developing our People
The newly developed e-learning programme has also been tailored to re-energise our
existing employees in both the UK and Europe. The programme takes place through a
new open-source framework called Adapt. It is one of the very first Adapt e-learning
courses, leading the way in this innovative style of training.
Throughout the year we have focused on defining and delivering a competency
framework to drive a more holistic approach to measuring performance and
conducting our annual appraisals. This has been supported by the creation of
Sports Direct ‘Success Factors’, which provide the behaviours that lead to great
performance in individual job roles here at Sports Direct. They include qualities and
skills that help people to be successful and drive our corporate strategy. More work
will be done in the coming year to embed the framework into all our people practice,
from recruitment through to training.
With the introduction of the new competency framework and appraisals, we have in
turn created a new mechanism of identifying and developing our talent across the
Group, thus supporting our internal succession planning. We have also worked on
developing our recruitment website and processes to enhance our candidate journey
from application through to induction. This ultimately improves our employer brand
and our capacity to attract the right level of skill, ability and performance to the
Group, to support our future growth plans.
Home Grown is a structured talent management programme which provides
opportunities for talented employees to progress within the Group. The programme
helps to retain talented employees and reduce external recruitment costs. Following
the successful completion of the programme, exemplary employees will be offered
key positions within the Group.
Diversity
Diversity within the Group is an essential asset, and at all times we try to ensure
that our employees meet the diversity, cultures and values of our varied customer
base. As the Group continues to expand into new countries and continents, we
find that the local knowledge of our employees is an important factor towards our
success. We aim to develop the skills of each of our employees in order that they all
have opportunities to progress within the Group.
Our Board currently has a 14% female representation, with further details being
shown on page 24. We are in the process of looking to recruit another female for
the Board, although we consider that the necessary skills and experience are of
paramount importance, with diversity being of lesser significance.
29% of our senior management team are female. While we appreciate that work
could be done to ensure that the figure is more balanced, we are satisfied that the
team possess the appropriate balance of skills and knowledge. As positions become
available the necessary level of consideration will be given to ensuring diversity
within the team.
48.1% of our overall UK employees are female, proving that discrimination
for factors including gender will not be tolerated within the Group. The law is
paramount when we recruit employees and we aim to ensure that both male and
female candidates are provided with equal opportunities to apply for and work in all
positions across the Group.
A breakdown of gender diversity within the Group:
Male Female
Directors 6 1
Other senior managers 32 13
All UK employees 14,643 13,577
Nike Training
Sports Direct works exclusively with Nike to offer Nike training and the Nike Graduate
Scheme. The robust training programmes offered at our Shirebrook National Training
Facility inform and train employees on product innovation and brand initiatives.
We remain a heavy user of Nike SKU (Sports Knowledge Underground), and continue
to be one of the worldwide front runners in terms of percentage completion for
a multiple door retailer. SKU provides another e-learning opportunity for the
Sports Direct team, which allows the employee to gain some essential foundation
knowledge on Nike products.
The foundation knowledge gained by our employees is taken one step further on
the many Nike Training days held at the Shirebrook National Training Facility. The
days are hosted by the Nike Experts and extend the knowledge gained from SKU to a
higher level via interaction and involvement. The Nike Graduate scheme encourages
those who attend the training day to transfer their learning to the in-store team.
By doing so the Nike Graduates gain the recognition of becoming a Nike Graduate
within their store.
adidas and Puma Training
We continue to work closely with both adidas and Puma to offer extensive training
programmes to support in-store initiatives and products. The Puma training rooms
at our Shirebrook campus have been utilised extensively since their opening in FY13.
The training programmes have continued to support in-store initiatives and product
launches.
Management Induction Training
All new and existing store managers have attended a two-week residential induction
programme at our Shirebrook Head Office. The training equips them with the
requisite skills for life in a Sports Direct store, and ensures that they have the
knowledge to perform in conjunction with our highest standards. The programme
consists of a mixture of shop floor-based training and classroom centred activities.
Typical areas covered focus on merchandising, product training, administration,
delivery process, Health and Safety, shop opening and closure processes, and retail
business skills.
Management Development Training
Furthering the careers of our employees within the Group has been a key driver
in our success. Our internal promotion programme is aimed at employees who
aspire to progress into operational and managerial positions. An important part
of the training consists of a five-day residential programme at our Shirebrook
campus, which consists of a combination of trainer-led modules. The modules
focus on operational training and the style and behaviour measures that form part
of an employee’s role. These cover areas such as communication, leadership, and
decision-making.
Footwear Masterclass
Aimed at store managers responsible for the footwear department in their branch,
the Footwear Masterclass is a three-day residential programme at our Shirebrook
campus. Focusing on one of the key departments in a store, typical subjects covered
include merchandising, staff efficiency, Health and Safety, best practice, and key
policies and procedures.
STRATEGIC REPORT
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
21
CORPORATE SOCIAL RESPONSIBILITY REPORT
CONTINUED
HEALTH AND SAFETY
Sports Direct is committed to appropriate standards of Health and Safety. Our Board
has ultimate responsibility for Health and Safety across the Group, and we regularly
review our procedures to ensure that safety management is robust. The continued
emphasis on training in the business has improved awareness of reporting and
recording of incidents.
Key Figures:
• No environmental prosecutions or work-related fatalities, however one fire safety
prosecution
• In FY14, 1,419 (2013: 1,854) accidents were reported to Head Office, of which 85
(2013: 67) were reportable to the Health and Safety Executive
• 80% of accidents occurred in store and 20% were slips, trips and falls
ENVIRONMENT
We recognise that we have a responsibility to manage the impact our business has on
the environment, and we are committed to reducing this both now and in the future. We
continue to comply with the Government’s Carbon Reduction Commitment, and have
identified key areas where we can make a difference, in particular energy usage in our
stores, transport and waste management.
We are continuously aiming to reduce our carbon footprint. The single most significant
element is electricity, which makes up 83% of the footprint. The carbon footprint
spread across all UK sites is detailed in the chart below.
Carbon Footprint Analysis 1 April 2013 - 31 March 2014
Electricity 83%
Diesel 14%
Other 3%
While the growth of our Company has increased the number of our stores and therefore
the absolute GHG emissions, our chosen intensity ratio of electricity-related emissions
per £m revenue of 0.9% has increased only slightly from our 2012 base, partly due to
the inclusion of a number of newly acquired companies.
Greenhouse Gas (GHG) Emissions Reporting
Reporting period
(1)
1 April 2013 - 31 March 2014
Baseline year FY12
Consolidation
approach
Operational control
Boundary summary All UK entities and facilities either owned or under
operational control were included. Emissions from air
conditioning and refrigeration units are excluded due to the
cost of data collection. These are expected to be a negligible
% of scope 1 emissions.
Consistency with
nancial statements
Only UK companies have been included in this assessment
due to the significant changes and acquisitions in our
European operations, where the data is currently not readily
available.
Emission factor data
source
Defra (May 2013)
Assessment
methodology
The Greenhouse Gas Protocol and ISO 14064-1 (2006).
We have used the 2013 UK Government’s GHG conversion
factors.
Materiality threshold Materiality was set at Group level at 5%, with all UK
facilities estimated to contribute >0.5% of total emissions
included
Intensity ratio Emissions per £m revenue
(1) The emissions declared are for the period 1 April 2013 – 31 March 2014 to be in line with the CRC Energy
Efficiency Scheme.
Scope 1 GHG emissions are calculated based on the purchased quantities of
commercial fuels using published emission factors. Scope 2 GHG emissions are
primarily calculated from metered electricity consumption and published emission
factors.
CO2 equivalent factors are used which ensures we have reported on all of the emission
sources required under the Companies Act 2006 Regulations.
Year 2014
Scope 1 CO2e emissions 11,206
Scope 2 CO2e emissions 64,747
Total Scope 1 and Scope 2 CO2e emissions (Tonnes) 75,953
CO2e Emissions (Tonnes/£m)
(1)
36.8
(1) Not including non-UK revenue, in line with the CO2e emissions reported
This is the first year of mandatory reporting of this data. To provide analysis against
the prior year we have shown comparative data for electricity-related emissions, which
accounts for 83% of our GHG emissions in the current year. The table below details
Electricity vs. Revenue and shows a pro rata increase of 5.5% across the year.
Year 2013 2014
CO2e Emissions from electricity (Tonnes) 52,577 63,393
CO2e Emissions from electricity (Tonnes/£m)
(1)
29.4 30.7
Electricity vs. Sales Turnover Index (2012: 100) 97.0 101.5
(1) Not including non-UK revenue, in line with the CO2e emissions reported
Waste Reduction
We are actively reducing the amount of waste we send to landfill and segregate waste
to ensure that we recycle as much as possible.
This year we recycled:
• 7,099 units of electrical equipment (2013: 6,425 units)
• 78 tonnes of waste paper (2013: 58 tonnes)
• 9,230 tonnes of cardboard (2013: 8,893 tonnes)
• 147 tonnes of metal (2013: 107 tonnes)
• 558 tonnes of plastic (2013: 508 tonnes)
All stores now use biodegradable carrier bags and provide the option of a “bag for
life”. This is actively promoted in-store through high levels of employee engagement.
Looking ahead, we will continue our commitment to minimise waste and improve
energy efficiency across our stores.
CUSTOMERS
Customer service is at the forefront of our business. We aim to provide customers with
an enjoyable experience both in-store and online and ensure all our products are safe
and fit for purpose.
Monitoring customer satisfaction and responding to queries is a continuous process.
All written complaints are recorded, including an analysis of the nature of the
complaint so that trends can be assessed and appropriate action taken.
We have an online customer contact form that reduces the time it takes for our
customers to contact us and increases the volume of contact. Online communication
has reduced the amount of time it takes for us to respond to queries thereby increasing
our service levels, while reducing the print and postage costs for both the Group and
customers.
We are continuously working to improve customer service at all levels within the Group
from the retail stores, Head Office and through to our website.
STRATEGIC REPORT
22
In partnership with Mind Gym, a customer service programme has been developed and
rolled out to all Sports Direct stores. The concept of the programme is to engage, equip
and inspire our employees to serve well and sell well. The programme has developed a
‘Sales Through Service’ concept, which consists of five main principles (STARS):
SMILE TALK ASK RECOMMEND SALE
The programme has been rolled out to all store managers through a seminar and
supporting documents to further the learning experience. Since its inception we have
received positive feedback from those who have attended.
COMMUNITY
Supply Chain
We are committed to responsible business practices in our own business and within
our supply chain. We continue to procure merchandise from manufacturers who have
proved to uphold ethical employment and trading practices, and we have a strict Code
of Ethics that we require every supplier to adhere to. The code provides for the fair
treatment of workers, ensuring a safe environment in accordance with the local and
national laws where workers are treated with respect and paid fairly for what they do.
The code also ensures there is no child labour and no use of illegal means or materials
in the production of goods.
We have longstanding relationships with our suppliers who have demonstrated that
their work practices are consistent with Sports Direct’s standards. Approximately 40%
of our current suppliers have been working with the Company for 10 years or more.
We have worked with two leading supply chain companies in Singapore and South
Korea for a number of years. Using their local knowledge and experience helps benefit
the business and the communities in which they operate. Both businesses have the
highest social and business ethics code which aligns with our own Code of Ethics, the
BSCI Code of Conduct (which is based upon the United Nations Declaration of Human
Rights) and the Social Accountability 8000 (SA8000) Code.
Sports Direct relies on those supply chain companies to inspect the premises of all
suppliers and manufacturers. Frequent inspections are carried out randomly to ensure
that goods meet our quality standards as well as assessing continued compliance with
SA8000 and our Code of Ethics. We cease immediately to work with suppliers who do
not meet our criteria.
We comply with an internationally recognised list of chemicals that are banned for
use in fabrics. The supply chain companies conduct random tests on fabric which are
then taken to a recognised laboratory for quality testing and to ensure that banned
chemicals are not being used.
Charity
Sport is our passion. We believe that everyone should have a chance to participate in
sports and enjoy the health and lifestyle benefits it brings. We provide a wide range of
equipment and clothing to promote sports participation amongst people of all abilities,
including those who would not normally have access to equipment and facilities.
Slazenger ‘Chance to Shine’
Slazenger is the exclusive cricket equipment supplier to the country’s most recognised
grassroots cricket development programme, ‘Chance to Shine supported by Brit
Insurance’. Each project provides structured coaching and a competition programme
for a group of schools who would not have otherwise had the chance to participate
in the sport.
By 2013, the programme had reached one third of all primary and secondary schools
amounting to almost 7,000 schools and has supported two million young people,
almost half of whom are girls. Over £600,000 worth of cricket equipment has been
supplied by Slazenger to enable the programme to run successfully.
Dunlop
Dunlop works together with its sponsored professional golfers Lee Westwood and
Darren Clarke to supply clothing to their ‘golf schools’. These are junior player
development schemes which provide qualified coaching and mentoring to youngsters.
Over £40,000 worth of clothing has been provided through sponsorship to the schemes
so far.
Lonsdale
Lonsdale is the Official Equipment and Fight Sports Apparel Supplier for all three
individual armed services in the UK consisting of the RAF, the Army and the Royal Navy.
Product to the value of £10,000 is provided each year and used in competitions.
At a grassroots level, Lonsdale is also a sponsor of the Amateur Boxing Association’s
junior and school boy finals and provides 100 pairs of golden gloves, worth £2,500 to
the finalists.
Everlast
Everlast supports a variety of organisations throughout the year, including both sports-
oriented and charitable programs. A long-standing supporter of the most prestigious
amateur boxing competition in the US; the New York Golden Gloves, Everlast is the
official fight glove and apparel sponsor. The organisation celebrated its 87th year in
April and for the first time honoured 12 past greats with induction into the inaugural
Hall of Fame class.
Everlast provides support to the Dr. Theodore A. Atlas Foundation, a non-profit
organisation providing financial assistance to individuals and programs in need with
a focus on youth. In 2013, Everlast provided $3,000 to assist their youth programming.
Since 2006, Everlast has also served as a proud supporter of The Breast Cancer
Research Foundation® (BCRF). Each year, Everlast donates a portion of the sale
proceeds from selected pink products to help the foundation provide funding for
clinical and genetic research. Last year, Everlast donated $116,342 to BCRF’s research
efforts to find a cure.
Antigua Group
Also in the US, the Antigua Group has been a consistent supporter of a number of
charitable efforts, including: The Salvation Army, Men Against Prostate Cancer, and
The Phoenix Children’s Hospital.
The Antigua Group also provides significant support for Junior Golf in Arizona. Junior
player initiatives include the Junior Golf Association of America, “Girls Golf” through
the LPGA Foundation and The Antigua National High School Golf Invitational.
The Strategic Report was approved by a duly authorised Committee of the Board of
Directors on 17 July 2014, and signed on its behalf by:
Dave Forsey
Chief Executive
STRATEGIC REPORT
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
23
THE BOARD
GOVERNANCE
DR KEITH HELLAWELL QPM
Non-Executive Chairman, Chairman of Nomination Committee
Appointed: 24 November 2009
Previous Roles: Prior to joining the team at Sports Direct International plc, Dr Hellawell
spent over 40 years in public sector management being a former Chief Constable of
two British police forces. While working directly for the Prime Minister between 1998
and 2002, he wrote and coordinated the United Kingdom national and international
anti-drugs policy.
Present Roles: Dr Hellawell has been involved in the private sector since 1998 when
he joined Evans of Leeds, a fully listed property company. Since then he has served
on the boards of both Dalkia plc and Sterience Limited, subsidiaries of the French
company Veolia Env. Dr Hellawell is currently a Non-Executive Director of Mortice plc, a
Singapore-based facilities management company and a Director of the Super-League
team Huddersfield Giants. He was Non-Executive Chairman of Goldshield Group plc, a
marketing-led pharmaceutical and consumer health company, from May 2006 to its
sale in December 2009. He has held a number of other Non-Executive Board positions
in private companies including vehicle manufacturing and IT. He also runs his own
management and training consultancy company.
Key Skills/Strengths: Dr Hellawell has worked in both the public and private sector for
over 50 years. Throughout this time he has built up a wealth of experience which he
brings to the Group to ensure the successful and effective operation of the Board.
MIKE ASHLEY
Executive Deputy Chairman
Appointed: 1982 (founder)
Previous Roles: Mike established the business of the Group on leaving school in 1982
and was the sole owner until the Group’s listing in March 2007.
Key Skills/Strengths: Mike was the founder of the Group and has the necessary skills
for formulating the vision and commercial strategy of the Group. With over 30 years in
the sports retail business with Sports Direct, he is invaluable to the Group.
DAVE FORSEY
Group Chief Executive
Appointed: 1984
Key Skills/Strengths: Dave has been with the business for over 30 years, during
which time he has acquired significant knowledge and experience of the sports retail
business. In conjunction with the Deputy Chairman, he agrees strategy, appropriate
objectives and policies for each of the businesses. Dave has overall responsibility for
the daily management of the Group.
BOB MELLORS
Group Finance Director
Appointed: 2004
Retired: 31 December 2013
Previous Roles: A graduate in Economics, Bob qualified with PriceWaterHouseCoopers
in London before joining Eacott Worrall, where Sports Direct became a client in 1982.
He was Managing Partner and Head of Corporate Finance at Eacott Worrall before
joining the Group.
Key Skills/Strengths: Bob qualified as a Chartered Accountant with
PriceWaterHouseCoopers and has extensive financial experience. Bob has extensive
knowledge of Mergers and Acquisitions.
SIMON BENTLEY
Senior Independent Non-Executive Director, Chairman of Audit Committee
Appointed: 02 March 2007
Previous Roles: Simon qualified as a Chartered Accountant in 1980 and in 1987 joined
Blacks Leisure Group Plc where he was Chairman and Chief Executive for 12 years.
Present Roles: Simon chairs and is on the board of a range of companies and
organisations. Among these, he is Chairman of the hair brand Umberto Giannini, is the
principal owner and Chairman of the leading mobile ATM operator Cash on the Move,
and is Chairman of Yad Vashem – UK Foundation.
Key Skills/Strengths: He has lengthy experience of the sporting goods industry.
DAVE SINGLETON
Non-Executive Director, Chairman of Remuneration Committee
Appointed: 27 October 2007
Previous Roles: Dave spent 25 years with Reebok International Limited. He stepped
down in April 2007 having assisted with the successful integration of Reebok following
its acquisition by adidas Group in January 2006. For eight years he was Vice President
of Northern Europe Region & UK and then was Senior Vice President of Europe, Middle
East & Africa.
Present Roles: Dave is Chairman of Bolton Lads & Girls Club, Chairman of Bolton
Community Leisure Trust and a Trustee at Bolton Wanderers Community Trust.
Key Skills/Strengths: Dave has an extensive Senior Management record and brings
valuable experience of international sports brand operations.
CHARLES MCCREEVY
Non-Executive Director
Appointed: 31 March 2011
Previous Roles: Charles is a highly experienced politician who previously served as
EU Commissioner for Internal Markets and Services between 2004-2010, and has held
positions in several Irish Government Ministerial Offices, including Minister for Finance
between 1997-2004, Minister for Tourism & Trade between 1993-1994 and Minister for
Social Welfare from 1992-1993.
Present Roles: Charles currently holds Non-Executive Director positions at Ryanair
Holdings plc, Sentenial Limited, Celsius Funds plc, Grove Limited and Barchester
Holdco (Jersey) Limited.
Key Skills/Strengths: Charles has extensive all-round business knowledge with
particular relevance to the European Union.
CLAIRE JENKINS
Non-Executive Director
Appointed: 25 May 2011
Previous Roles: Claire’s most recent Executive role was as Group Director Corporate
Affairs and a member of the Executive Leadership Team, responsible for the company’s
sustainability and communications activities, at Rexam plc, a leading global beverage
can maker. Prior to that, she was a member of the Management Committee of
international tobacco company Gallaher Group plc (acquired by Japan Tobacco in 2007)
where she was responsible for investor relations and Group planning. Claire has also
gained corporate experience in various consulting roles and at Laing & Cruickshank,
and as a Non-Executive Director of Retro Classics Fund.
Present Roles: Claire is Chairman of Amicus, and a Non-Executive Director of Media
For Development.
Key Skills/Strengths: Claire has excellent all-round business experience and, in
addition, has particular corporate governance and communication skills.
Audit Committee Nomination Committee Remuneration Committee
24
DIRECTORS’ REPORT
GOVERNANCE
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
The Chief Executive’s Report on pages 13 to 17 provides a detailed review of the Group’s
current activities and potential future developments together with factors likely to affect
future development, performance and conditions. There is also a table of the principal
risks and uncertainties likely to affect the Group. The financial position of the Group,
its cash flow, liquidity position and borrowing facilities are described in the Financial
Review on pages 18 to 19. The Corporate Responsibility Report on pages 20 to 23
reports on environmental matters, including the impact of the Group’s businesses on the
environment, the Group’s employees, and on social and community issues.
The principal activities of the Group during the year remained unchanged and were:
• retailing of sports and leisure clothing, footwear and equipment;
• wholesale distribution and sale of sports and leisure clothing, footwear and
equipment under Group-owned or licensed brands; and
• licensing of Group brands.
Further information of the Group’s principal activities is set out in the front of this
document and in the Chief Executive’s Report on pages 13 to 17.
RESULTS FOR THE YEAR AND DIVIDENDS
Revenue for the 52 weeks ended 27 April 2014 was £2,706.0m and profit before tax was
£239.5m compared with £2,185.6m and £207.2m in the prior year. The trading results
for the year and the Group’s financial position as at the end of the year are shown in the
attached Financial Statements, and discussed further in the Chief Executive’s Report
and Business Review and in the Financial Review on pages 13 to 17 and 18 to 19
respectively.
The Board has determined not to recommend a dividend this year.
SHARE CAPITAL AND CONTROL
The authorised share capital of the Company is £100,000,000 divided into 999,500,010
ordinary shares of 10p each and 499,990 redeemable preference shares of 10p each.
Further information regarding the Group’s issued share capital can be found on page 63
of the financial statements.
Details of Executive and employee share schemes are also set out on page 63. No votes
are cast in respect of the shares held in the Employee Benefit Trust and dividends would
be waived.
There are 640,602,369 ordinary shares of 10p in issue and fully paid of which
42,137,508 are currently held in Treasury.
There are no specific restrictions on the transfer of shares, which are governed both by
the general provisions of the Articles of Association and prevailing legislation.
The Directors are not aware of any agreements between holders of the Company’s shares
that may result in restrictions on the transfer of securities or on voting rights.
The Directors were authorised to allot shares in the capital of the Group up to an
aggregate nominal amount of £19,948,829 (being approximately one third of the then
issued share capital) for the period expiring at 10 September 2014, the date of the next
2014 Annual General Meeting.
In line with guidance from the Association of British Insurers the Company was also
granted authority to issue a further third of the issued share capital to a nominal
amount of £39,897,658 (being approximately 35% of the issued share capital) in
connection with a rights issue.
A further authority to allot shares up to a maximum nominal value of £2,992,324 (being
approximately 5% of the then issued share capital) as if statutory pre-emption rights
did not apply, was also approved.
The authorities expire at the close of the next Annual General Meeting of the Company,
but a contract to allot shares under these authorities may be made prior to the expiry of
the authority and concluded in whole or part after the Annual General Meeting, and at
that meeting other authorities will be sought from shareholders.
The Group was authorised to make market purchases of ordinary shares of 10p each in
the Company of up to a maximum aggregate number 59,846,486 representing 10% of
the Company’s issued ordinary share capital at the 2013 Annual General Meeting. The
above authority expires at the close of the next Annual General Meeting of the Company.
SHAREHOLDERS
No shareholder enjoys any special control rights, and, except as set out below, there are
no restrictions in the transfer of shares or of voting rights.
Mike Ashley has entered into a Relationship Agreement with the Company. Under the
terms of the Agreement Mike Ashley undertook that, for so long as he is entitled to
exercise, or to control the exercise of, 15% or more of the rights to vote at general
meetings of the Company, he will;
• conduct all transactions and relationships with any member of the Group on arm’s
length terms and on a normal commercial basis and with the approval of the Non-
Executive Directors;
• exercise his voting rights or other rights in support of the Company being managed
in accordance with the Listing Rules and the principles of good governance set out in
the UK Corporate Governance Code and not exercise any of his voting or other rights
and powers to procure any amendment to the Articles of Association of the Company;
• other than through his interest in the Company, not have any interest in any business
which sells sports apparel and equipment subject to certain rights, after notification
to the Company, to acquire any such interest of less than 20% of the business
concerned, and certain other limited exceptions, without receiving the prior approval
of the Non-Executive Directors; and not solicit for employment or employ any senior
employee of the Company.
The Company has been advised that the following parties had a significant direct or
indirect shareholding in the shares of the Company:
Number of shares held
Percentage of issued
ordinary share capital
with voting rights held Nature of holding
MASH Holdings
Limited
(1)
345,400,000 57.71% Direct
Odey Asset
Management
(2)
47,939,325 8.01% Indirect
Black Rock
(3)
31,092,347 5.20% Indirect
(1) MASH Holdings Limited is wholly-owned by Mike Ashley. These figures are as at 17 July 2014.
(2) Odey Asset Management indirectly held 4,171,529 shares in a contract for difference account. These figures are
as at 28 January 2014, being the last date on which the Company was notified of a change of the percentage of
shares held by Odey.
(3) Black Rock indirectly held 4,956,303 shares in a contract for difference account. These figures are as at 02 June
2014, being the last date on which the Company was notified of a change of the percentage of shares held by Black
Rock.
SUPPLIERS
The Group understands the importance of maintaining good relationships with suppliers
and it is Group policy to agree appropriate terms and conditions for its transactions with
suppliers (ranging from standard written terms to individually negotiated contracts)
and for payment to be made in accordance with these terms, provided the supplier has
complied with its obligations.
CONTRACTS ESSENTIAL TO THE BUSINESS OF THE COMPANY
The Chief Executive’s Report on pages 13 to 17 details information about persons with
whom the Group has contractual or other arrangements and are deemed essential or
material to the business of the Group.
TAKEOVERS
The Directors do not believe that there are any significant contracts that may change
in the event of a successful takeover of the Company. Details of the impact of any
successful takeover of the Group on the Directors’ bonus and share schemes are set out
in the Director’s Remuneration Report on pages 33 to 40.
EMPLOYEE SHARE SCHEMES
Details of the Executive Bonus Share Schemes are set out in the Directors’ Remuneration
Report on page 34 and details of the Employee Bonus Share Schemes on page 20 of the
Corporate Social Responsibility Report.
The Directors of Sports Direct International plc present their Annual Report and Accounts for the year ended 27 April 2004.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
25
EMPLOYEE INVOLVEMENT
The Group currently employees c.28,000 employees in our stores, offices and
warehouses. The contributions that employees have made to the Group’s
accomplishments have played a vital role, and the overwhelming dedication shown
has been the deciding factor in encouraging the Group to propose a third Bonus Share
Scheme.
The 2009 Employee Bonus Share Scheme vested in August 2012 and 2013. The 2011
Employee Bonus Share Scheme is currently underway and three of the requisite
underlying EBITDA targets have been achieved, with one target remaining.
The 2015 Bonus Share Scheme has recently been approved by shareholders at a
General Meeting which took place on 2 July 2014. The EBITDA targets for the Scheme
are extremely stretching, and span from FY16 to FY19. Unlike previous schemes
participation for the Scheme is more wide-reaching, being open for both employees and
Executive Directors to take part.
Employees are notified of announcements and major changes in the business via
Company news emails, noticeboard announcements and information transmitted
through line managers. Employee training programmes and our annual conference
allows employees an opportunity to increase their knowledge of the Group, learn about
the Groups’ objectives for the future, understand the brands and engage with one
another.
Further information on relationships with employees can be found in the Corporate
Social Responsibility Report on pages 20 to 21.
EQUAL OPPORTUNITIES
The Group’s policy for employees and all applicants for employment is to match the
capabilities and talents of each individual to the appropriate job. Factors such as
gender, race, religion or belief, sexual orientation, age, disability or ethnic origin
should be ignored and any decision which is made with regard to candidates should
be irrespective of these. Discrimination in any form will not be tolerated under any
circumstances within the Group.
Applications for employment by disabled persons are given full and fair consideration
for all vacancies, and are assessed in accordance with their particular skills and
abilities. The Group does all that is practicable to meet its responsibilities towards
the training and employment of disabled people, and to ensure that training, career
development and promotion opportunities are available to all employees.
The Group makes every effort to provide continuity of employment where current
employees become disabled. Attempts are made in every circumstance to provide
employment, whether this involves adapting the current job role and remaining in the
same job, or moving to a more appropriate job role. Job retraining and job adaptation
are just two examples of how the Group works in the interests of employees to promote
equal opportunities in order that the employee’s employment within the Group may
continue. The Group values the knowledge and expertise that employees have gained
throughout their employment with us, and therefore does not wish to lose valued
employees.
RESEARCH AND DEVELOPMENT
The Group designs clothing and some footwear for sale in stores and has arrangements
with suppliers for the research and development of goods for the Brands division.
CHARITABLE AND POLITICAL DONATIONS
During the year, the Group made charitable donations of £146,569 (2013: £25,132)
in the UK. No political donations were made (2013: nil). There have been a number of
further donations of sporting equipment made to worthy causes, and these are set out
on page 23.
DIRECTORS
Details of current Directors, dates of appointment, their roles, responsibilities and
significant external commitments are set out on page 24.
Although the Company’s Articles of Association require retirement by rotation of one
third of Directors each year, the Group has chosen to comply with the 2012 UK Corporate
Governance Code and at each Annual General Meeting all of the Directors will retire and
stand for reappointment.
Information on service contracts and details of the interests of the Directors and their
families in the share capital of the Company at 27 April 2014 and at the date of this
Report is shown in the Directors’ Remuneration Report on page 39.
Copies of the service contracts of Executive Directors and of the appointment letters of
the Chairman and Non-Executive Directors are available for inspection at the Company’s
registered office during normal business hours and at the Annual General Meeting.
No Director has a directorship in common or other significant links with any other
Director (except in the case of the Executive Directors holding directorships of subsidiary
companies of the Group).
DIRECTORS’ CONFLICTS OF INTEREST
The Board has formal procedures to deal with Directors’ conflicts of interest. During the
year the Board reviewed and, where appropriate, approved certain situational conflicts
of interest that were reported to it by Directors, and a register of those situational
conflicts is maintained and reviewed. The Board noted any transactional conflicts of
interest concerning Directors that arose and were declared. No Director took part in
the discussion or determination of any matter in respect of which he had disclosed a
transactional conflict of interest.
DIRECTORS’ INDEMNITIES
The Group have granted the Directors with Qualifying Third-Party Indemnity provisions
within the meaning given to the term by Sections 234 and 235 of the 2006 Act. This is
in respect of liabilities to which they may become liable in their capacity as Director
of the Company and of any Company within the Group. Such indemnities were in force
throughout the financial year and will remain in force.
ANNUAL GENERAL MEETING
The 2014 Annual General Meeting will be held on 10 September 2014 at Unit D, Brook
Park East, Shirebrook, NG20 8RY. The Meeting will commence at 3.00pm. The Board
encourages shareholders to attend and participate in the meeting.
GOING CONCERN
The Company’s business activities, together with the factors likely to affect its future
development, performance and position are set out in the Business Review on pages 13
to 17.
The financial position of the Company, its cash flows, liquidity position and borrowing
facilities are described in the Financial Review on pages 18 to 19. In addition, the
financial statements include the Company’s objectives, policies and processes for
managing its capital; its financial risk management objectives; details of its financial
instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Group is profitable, highly cash generative and has considerable financial
resources. The Group is able to operate comfortably within its banking facilities and
covenants, which run until September 2018, and is well placed to take advantage of
strategic opportunities as they arise.
As a consequence, the Directors believe that the Group is well placed to manage its
business risks successfully despite the continued uncertain economic outlook.
The Group’s forecast and projections, taking account of reasonable possible changes in
trading performance, show that the Group should be able to operate within the level of
the current facility.
The Directors have thoroughly reviewed the Group’s performance and position and 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 Annual Report and financial statements.
ACCOUNTABILITY AND AUDIT
A statement by the Auditor can be found on page 42 detailing their reporting
responsibilities. The Directors fulfil their responsibilities and these are set out in the
responsibility statement on page 41.
AUDITOR
Grant Thornton UK LLP have expressed a willingness to continue in office. In accordance
with Section 489 (4) of the Companies Act 2006, resolutions to determine remuneration
are to be agreed at the Annual General Meeting.
By Order of the Board
Cameron Olsen
Company Secretary
17 July 2014
DIRECTORS’ REPORT
CONTINUED
GOVERNANCE
26
GOVERNANCE
CORPORATE GOVERNANCE REPORT
CHAIRMAN’S INTRODUCTION
I am pleased to introduce the Corporate Governance Statement, which contains
details of the activities of the Board and its Committees and how the Group
complied with the UK Corporate Governance Code 2012 for the year ended 27 April
2014.
During the year the Board undertook an external evaluation by an independent
consultant, to facilitate an accurate assessment. The external evaluation was
also aimed at assisting in the adoption of best practices wherever possible, and
ensures that the Board have complied with the framework provided in the Corporate
Governance Code. Aspects assessed during the evaluation included decision
making, strategic debate and risk management.
I have found that the culture and values of the Board are imperative for the
purposes of good corporate governance. The Board were more than willing to assist
the evaluator and the results of his evaluation were positive. Further information on
the external evaluation can be found on page 29.
Throughout FY14 we have spent a great deal of time considering how to achieve Lord
Davies’ target of 25% of board members being female by 2015. The culture of the
Group is to promote internal training and progression, and ideally we would like to
see our female members of management promoted up to Executive Board levels as
and when vacancies arise. Our Board is extremely diverse and the members’ mutual
trust and understanding has been vital to the difficult decisions that they have
reached. It is essential that any new member of the Board possesses the necessary
qualities in order to constructively challenge opinions and fit in with the Board’s
attitude.
The Group’s strategy includes further international expansion, both in-store and
online. We are aware that online is an important growth opportunity and we continue
to invest in infrastructure and people to protect our online business. As online
penetration grows, the vulnerability of transactional websites is an issue for all
online retailers. Expertise in such a rapidly evolving area is also recognised and
valued by the Board.
The Board work together and individually to follow the Group’s strategy and further
the interests of our shareholders. The clear leadership by the Board and senior
management team has had a positive impact on the performance of the Group and
the corresponding share value.
Key topics of discussion throughout the year have included bonus share schemes,
legal matters, appointments of key individuals and corporate governance matters.
Additional details of the Group’s strategy can be found on page 8.
Ways in which the Board have furthered the interests of shareholders during the
year include meeting with major investors to discuss our corporate governance
procedures, and discussing the qualities required for the Company Secretarial and
Finance Director positions. The appointment of our Head of Legal in the Company
Secretariat role has ensured that there is a clear flow of information between the
two departments, and that the Board are fully informed of material legal matters
within the Group as they arise. An external search consultancy was not used for the
appointment as it was concluded that the Head of Legal already had the requisite
knowledge of the Group in order to be best suited to the appointment. An external
search consultancy has been engaged for the recruitment of the Finance Director
role. The consultancy that have been engaged do not have any interest or formal
connection with the Group.
As well as holding full Board and Committee meetings, Non-Executive meetings
have also taken place throughout the year. The Non-Executive meetings allow the
Non-Executive Directors to discuss a range of issues without the influence of the
Executive Directors. The Senior Independent Non-Executive Director, Simon Bentley,
also facilitates the independence of the Board. Amongst his powers, he is able
to add items to meeting agendas and he is vocal in ensuring a balance in the
powers of the Board. During the year one meeting has been held solely for the Non-
Executives in the absence of the Chairman. This has enabled the Non-Executives to
discuss a range of matters with the Senior Independent Non-Executive Director.
As a major employer in the UK we are constantly looking for new talent to join the
Group. During the year we have attracted new employees, with fresh ideas, by
offering an employee internship scheme. The scheme is paid and offers interns the
opportunity to work towards cash rewards and permanent roles. The scheme has
already commenced for FY15, extending its remit and now offering internships for up
to 90 people in three key areas of the Group. Further details on the scheme can be
found on page 20.
COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE
The overall responsibility for the Group’s risk management and internal controls
systems sits with the Board. This is an on-going process which relates to the
identification, evaluation, management and monitoring of significant risks. This
complies with the UK Corporate Governance Code.
The Board is subject to the latest Corporate Governance Code, which was issued in
September 2012. The main principles of the Code are:
Leadership
Effectiveness
Accountability
Remunerations
Relations with Shareholders
The Board has reviewed the Company’s corporate governance processes and policies,
and has concluded that during the 52 weeks ended 27 April 2014 (the year) the
Company complied with the provisions of the Code.
THE BOARD
The Board consists of a Non-Executive Chairman, Keith Hellawell, the Executive
Deputy Chairman, Mike Ashley, one other Executive Director, and four further Non-
Executive Directors. The names, skills and short biographies of each member of the
Board are set out on page 24.
The size and composition of the Board are regularly reviewed by the Board to ensure
that there is the appropriate balance of skills and experience.
Role of the Board
The role of the Board is to ensure the overall long-term success of the Group. This is
achieved through the review, development and implementation of the Group’s strategy.
The Board also maintains responsibility for corporate responsibility, accountability and
to ensure effective leadership is delegated to management for the day to day running
of the Group and ensures an appropriate strategy is in place for succession planning.
The Board has a programme in place to enable it to discharge its responsibility of
providing effective and entrepreneurial leadership to the Group within a framework of
prudent and effective controls.
The Board plans to meet on a formal basis six times during the year with up to four
additional strategy meetings at convenient times throughout the year when broader
issues concerning the strategic future of the Group will be discussed. The Board will
meet on other occasions as and when the business demands. During the year the
Board met on 10 occasions.
A detailed agenda is established for each meeting, and appropriate documentation is
provided to Directors in advance of the meeting. Regular Board meetings provide an
agenda that will include reports from the Chief Executive, reports on the performance
of the business and current trading, reports on meetings with investors, reports from
Committees of the Board and specific proposals where the approval of the Board
is sought. The Board will monitor and question monthly performance and review
anticipated results.
The Group is committed to high standards of Corporate Governance. The following section will detail how the UK Corporate Governance
Code has been applied during the year.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
27
GOVERNANCE
Presentations are also given on business or strategic issues where appropriate, and
the Board will consider at least annually the strategy for the Group. Minutes of the
meetings of Committees of the Board are circulated to all members of the Board,
unless a conflict of interest arises, to enable all Directors to have oversight of those
matters delegated to Committees, and copies of analysts’ reports and brokers’ notes
are provided to Directors.
In an effort to secure the long-term future of the Group, the Board have created a high
performance culture within the Group by devising Employee Bonus Share Schemes as
well as a share scheme for senior members of management.
It is the responsibility of the Directors to ensure that the accounts are prepared and
submitted. Having assessed the current Annual Report, along with the accounts, the
Directors confirm that, taken as a whole, they are fair, balanced and understandable.
The Directors authorise that these documents provide the necessary information
in order for shareholders to assess the Group’s performance, business model and
strategy.
Key Activities
• Ensuring the long-term success of the Group
• Considering the obligations to shareholders and other stakeholders
• Considering the effect the Group’s activities have on the environment and
community in which it operates
• Maintaining a high business reputation
• Maintaining relationships with suppliers, customers and the wider community
There is a formal schedule of matters that require Board approval: they are matters
that could have significant strategic, financial or reputational effects on the Group as
a whole.
Matters Reserved for the Board
• Sets budgets
• Monitors and reviews strategy and business performance
• Approves acquisitions, expansions into other regions / countries
• Appointments and removal of Board members
• Succession planning
• Overall responsibility for internal control and risk management as described on
pages 29 to 30
The Chairman and Executive Directors
The division of responsibilities between the Non-Executive Chairman, the Executive
Deputy Chairman and the Chief Executive is in writing and has been agreed by the
Board. However they work closely together to ensure effective decision-making and the
successful delivery of the Group’s strategy.
The Chairman is responsible for leadership of the Board, ensuring its effectiveness
and that all Directors are able to play a full part in the activities of the Company. He
ensures that the Directors receive accurate, timely and clear information.
The Chairman officiates effective communication with shareholders and ensures that
the Board understands the views of major investors, and is available to provide advice
and support to members of the Executive team.
The Executive Deputy Chairman is an ambassador for the Company. He takes the lead
in the strategic development of the Company, formulating the vision and strategy
which he does in conjunction with the Chief Executive.
The Company has entered into a Relationship Agreement with Mike Ashley, the
Executive Deputy Chairman, whose wholly-owned company, MASH Holdings Limited,
currently holds approximately 57.7% of the issued share capital of the Company
(excluding treasury shares). This agreement is described in the Directors’ Report on
page 25.
The Chief Executive is responsible for the running of the Group’s business for the
delivery of the strategy, leading the management team and implementing specific
decisions made by the Board to help meet shareholder expectations. The Chief
Executive reports to each Board meeting on all material matters affecting the Group’s
performance. No one individual has unfettered power of decision.
Given the structure of the Board, the fact that the Chairman and Chief Executive roles
are fulfilled by two separate individuals and the terms of the Relationship Agreement
with Mike Ashley, the Board believes that no individual or small group of individuals
can dominate the Board’s decision making.
The Non-Executive Directors
The Board consists of four Non-Executive Directors and the Chairman. The role of the
Non-Executive Directors is to understand the Group in its entirety and constructively
challenge strategy and management performance, set Executive remuneration levels
and ensure an appropriate succession planning strategy is in place. They must also
ensure they are satisfied with the accuracy of financial information and that thorough
risk management processes are in place.
The Non-Executive Directors have excellent experience from a wide range of sectors.
The Non-Executive Directors assist the Board with issues such as governance, internal
control, remuneration and risk management.
Simon Bentley is the Senior Independent Non-Executive Director. He supports the
Chairman and Non-Executive Directors and is available to shareholders if they have
concerns.
The Non-Executive Directors – External Appointments
Non-Executive Directors are required to disclose prior appointments and other
significant commitments to the Board and are required to inform the Board of any
changes to or additional commitments. Details of the Non-Executives Directors’
external appointments can be found on page 24.
Before accepting new appointments Non-Executive Directors are required to obtain
approval from the Chairman, and the Chairman requires the approval of the whole
Board. It is essential that no appointment causes a conflict of interest or jeopardises
the Non-Executive Director’s commitment and time spent with the Group in their
existing appointment.
The Non-Executive Directors – Independence
The Group considers the Non-Executive Directors to be independent in accordance with
the 2012 UK Corporate Governance Code.
Each year the Board evaluations consider the independence of each Board member.
The most recent evaluations did not highlight any Directors who lacked independence.
Although the Board have remained constant for some time, the longest-serving
member of the Board has been with the Board for seven years, this being less than the
nine year period after which independence is questioned.
Executive and Non-Executive Directors - Conicts of Interest
The Board has set procedures to deal with Directors’ conflicts of interest that arise.
During the year the Board reviewed and, where appropriate, approved certain
situational conflicts of interest that were reported to it by Directors, and a register
of those situational conflicts is maintained and reviewed. The Board noted any
transactional conflicts of interest concerning Directors that arose and were declared.
No Director took part in the discussion or determination of any matter in respect of
which he had disclosed a transactional conflict of interest.
Executive and Non-Executive Directors - Re-election
The Group complies with the 2012 UK Corporate Governance Code and all Directors
offer themselves for re-election every year.
The Board have determined that all Directors must put themselves forward for election
or re-election at the 2014 Annual General Meeting to comply with the UK Corporate
Governance Code. Retiring Directors may seek reappointment if willing and eligible to
do so and if so recommended by the Nomination Committee. All Directors appointed by
the Board are appointed after consideration of the recommendations of the Nomination
Committee, and those so appointed must stand for reappointment at the following
2014 Annual General Meeting.
Non-Executive Director Charles McCreevy has informed the Board that he will not
stand for re-election at the 2014 Annual General Meeting. His retirement will therefore
become effective at the conclusion of the Annual General Meeting.
Details of Executive Directors’ service contracts, and of the Chairman’s and the Non-
Executive Directors’ appointment letters, are given on pages 36 to 37. Copies of service
contracts and of appointment letters are available for inspection at the Company’s
registered office during normal business hours and at the Annual General Meeting.
CORPORATE GOVERNANCE REPORT
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28
GOVERNANCE
Executive and Non-Executive - Training and Development
All newly appointed Directors are provided with a tailored induction programme based
on their existing skills and experience. The Board is also informed of any material
changes to laws and regulations affecting the Group’s business.
All Directors have access to the advice and services of the Company Secretary, and
each Director and each Board Committee may take independent professional advice
at the Company’s expense, subject to prior notification to the other Non-Executive
Directors and the Company Secretary. The Company maintains appropriate Directors
and Officers Insurance.
Executive and Non-Executive Directors - Performance Evaluation
There is a formal process in place for the performance evaluation of the Board, its
Committees and individual Directors. Each Director is given the opportunity to express
their views on the organisation and operation of the Board and its Committees, their
effectiveness and contribution to the business, and on any other matter they consider
relevant.
The evaluator that was selected by the Board was NJMD Corporate Services Limited,
which is a specialist consultancy led by Nigel Davies.
BOARD COMMITTEES
To assist the Board with their duties, there are three principal Board Committees, being
the Audit Committee, the Remuneration Committee and the Nomination Committee.
The Committees are governed by terms of reference which provide detail of matters
delegated to each Committee and the authority they have to make decisions. Full terms
of reference are available on request and on the Company’s website.
Attendance by Directors at Board and Committee meetings during the year and the
total number of meetings that they could have attended are set out in the table below.
All Directors attended all meetings of the Board and of Committees of the Board of
which they were members unless prevented from doing so by prior commitments. The
Board is satisfied that currently no one Director exercises a disproportionate influence.
Board
Meetings
Audit
Committee
Meetings
Remuneration
Committee
Meetings
Nomination
Committee
Meetings
Keith Hellawell 10/10 3/3
(1)
4/4 1/1
Mike Ashley 4/10 - - -
Simon Bentley 10/10 3/3 4/4 1/1
Dave Forsey 10/10 3/3
(1)
4/4
(1)
1/1
(1)
Dave Singleton 10/10 3/3 4/4 1/1
(1)
Claire Jenkins 8/10 3/3 4/4 1/1
(1)
Charles McCreevy 8/10 3/3 3/4 1/1
Bob Mellors
(2)
3/10 1/3
(1)
2/4
(1)
-
(1) A number of Audit Committee, Remuneration Committee and Nomination Committee meetings were attended by
Board members who were not members of the Committees. The Board members concerned attended these meetings
at the invitation of the Committee members.
(2) Meetings attended by Bob Mellors up until his retirement on 31 December 2013.
During the year the additional Board meetings were also held in order to attend to
urgent matters which arose between scheduled meetings. Following unscheduled
meetings all absent members of the requisite Committees subsequently reviewed and
endorsed the decisions made. This ensured that all members could have their thoughts
recorded, even though they weren’t available during the meeting itself.
There were a number of meetings throughout the year which were solely for Non-
Executives. Meetings also took place which were attended by Non-Executives, although
the Non-Executive Chairman was not able to attend. These meetings enabled the
Non-Executives to discuss matters which they perhaps could not discuss with the
Executives and/or the Non-Executive Chairman present.
AUDIT COMMITTEE
Dear Shareholder,
I am pleased to present the Audit Committee Report for the 52 weeks ended 27 April
2014.
The Audit Committee has an important role to play in effective reporting to our
stakeholders and ensuring high standards of quality and effectiveness in the external
audit process and this year has seen the introduction of many changes to corporate
reporting.
This report provides an overview of:
• what the Committee has done during the year, and what is planned for 2015
• how it has assessed the effectiveness of the external auditors, including ensuring
their independence; and
• the Committee’s opinion on the Annual Report when viewed as a whole.
Membership
The Audit Committee comprises me as Chairman, and all of the independent Non-
Executive Directors. Biographical details of each member are shown in the Board of
Directors’ profiles on page 24. All of the members of the Committee are considered
independent.
Meetings
The Committee met three times during the year and attendance at those meetings is
shown on page 29 within the Corporate Governance Report. At the invitation of the
Committee members, the Group Chairman, Chief Executive and Finance Director attend
Committee meetings, as do the external auditors. After each of its meetings, we met
with the external auditors, in each case without the presence of Executive Directors or
management. In addition I meet with the auditors as and when it is needed.
The main responsibilities of the Audit Committee include:
• Assisting the Board with the discharge of its responsibilities in relation to internal
and external audits and controls.
• Agreeing the scope of the annual audit and the annual audit plan and monitoring
the same.
• Reviewing and monitoring the independence of the external auditors and
relationships with them and in particular agreeing and monitoring the extent of the
non-audit work that may be undertaken.
• Monitoring, making judgements and recommendations on the financial reporting
process and the integrity and clarity of the Group’s financial statements.
• Reviewing and monitoring the effectiveness of the internal control and risk
management policies and systems in place.
• Monitoring the audit of the annual and consolidated accounts.
• Reporting to the Board on how it has discharged its responsibilities.
What has the Committee done during the year?
• Monitored the effectiveness of internal controls, and also considered the current
economic climate and its likely impact on the Group.
• Considered the reappointment of the auditors.
• Reviewed accounting policies, presentations and the financial statements.
Internal Controls
As one of the fastest-growing retailers with a rapidly expanding overseas and internet
operations, we have many complex operational risks to manage.
The internal audit reviews led by the long established Retail Support Unit have led the
way, through their audits across the retail operations each year, in providing comfort
over the efficiency of controls over the operational procedures and systems which help
to generate and report the numbers within the financial statements, and will continue
to do so.
We are, however, conscious of the rate of growth and complexity taking place and have
therefore recently appointed BDO as internal audit advisers. BDO have specialists
experienced in auditing the strategies and plans put in place to mitigate risks to
further strengthen the control environment.
BDO will conduct a review of our key risks and develop a strategic audit plan to provide
assurance to the Audit Committee regarding the management of these key risks over
the next three to five years. This plan will be presented to the Audit Committee for
approval and agreement of a detailed annual programme.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
29
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CORPORATE GOVERNANCE REPORT
CONTINUED
GOVERNANCE
The Committee has delegated responsibility from the Board for considering operational,
financial and compliance risks on a regular basis. Information on the Group’s approach
to internal control and risk management is set out in the Corporate Governance Report
on pages 27 to 32.
External auditors
On an annual basis, the Committee considers the reappointment of the auditors
and their remuneration and makes recommendations to the Board. The auditors are
appointed each year at the Annual General Meeting. The Committee consider the level
of service provided by the auditors and their independence.
The Committee has recommended the reappointment of Grant Thornton UK LLP
for FY15. The Committee took a number of factors into account in its assessment
including but not limited to:
• the quality and scope of the planning of the audit in assessing risks and how the
external auditors planned to evolve the audit to respond to changes in the business;
• the quality and timeliness of reports provided to the Committee and the Board;
• the level of understanding demonstrated of the Group’s businesses and the retail
sector;
• the objectivity of the external auditors’ views on the controls around the Group and
the robustness of challenge and findings on areas which required management
judgement.
The Committee’s view following this assessment was positive in relation to their
evaluation of the work of the external auditors and they felt that high standards had
been maintained.
After taking into account all of the above factors, the Committee concluded that the
external auditors were effective.
The Committee believes their independence, the objectivity of the external audit
and the effectiveness of the audit process is safeguarded and remains strong. This
is displayed through their robust internal processes, their continuing challenge,
their focused reporting and their discussions with both management and the Audit
Committee.
To maintain the objectivity of the audit process, the external auditors are required to
rotate audit partners for the Group audit every five years and the current lead partner
has been in place for one year. Under the Corporate Governance Code 2012, audit
services must be put to tender at least every ten years or else we must explain why we
have not done so. Our current auditors, namely Grant Thornton UK LLP, have been in
place since the listing in February 2007.
The Committee has approved a policy on the engagement of the external auditors
for non-audit work, in order to ensure that the objectivity of the auditors’ opinion on
the Group’s financial statements is not or may not be seen to be impaired, and has
established a process to monitor compliance.
The policy identified three categories of potential work.
Auditor Authority Type of Work
Work the auditor may not provide
as completing the task could
create a threat to independence.
The work includes the preparation of accounting
entries or financial statements, IT systems design
and implementation, management of projects
and tax planning where the outcome would have
a material impact on the financial statements or
where the outcome is dependent upon accounting
treatment.
Work the auditor may undertake
with the consent of the Chairman
of the Audit Committee.
Corporate finance services, acquisition due diligence,
management consultancy and secondment of staff
other than for the preparation of accounting entries
or financial statements.
Work the auditor may undertake. There are services that the auditors may provide
as the work is clearly audit-related and there is
no potential threat to independence, including
regulatory reporting and acting as reporting
accountants. The Company is satisfied that its
policy falls within the requirements of the Auditing
Practices Board.
Reviewed accounting policies, presentations and the nancial statements
Following the revision to the UK Corporate Governance Code, which applies to financial
years commencing on or after 1 October 2012, the Board asked the Committee to
advise on whether the annual report and financial statements, taken as a whole,
were fair, balanced and understandable and provided the information necessary for
shareholders to assess the Group’s business model, strategy and performance. The
Committee reviewed the process for preparing the annual report and accounting
statements. This process included the following key elements:
• Review of new regulations and reporting requirements with external advisers to
identify additional information and disclosures that may be appropriate
• Preparation of a detailed timetable and allocation of drafting responsibility to
relevant internal teams with review by an appropriate senior manager
• Provision of an explanation of the requirements of “fair, balanced and
understandable” to those with drafting responsibility
• Monitoring of the integrity of the financial statements and other information
provided to shareholders to ensure they represented a clear and accurate
assessment of the Group’s financial performance and position
• Review of significant financial reporting issues and judgements contained in the
financial statements
• Review of all sections of the report by relevant external advisers
• Review by senior manager working group responsible for the annual report process
• Interim progress review of process and report content with the Audit Committee
• Review of a paper presented to the Committee which set out to review the contents
of the annual report and substantiate why it provided a fair, balanced and
understandable view of the year under review
The Committee reviewed the Annual Report and has confirmed it is fair, balanced and
understandable.
Financial reporting
The Committee’s review of the interim and full year financial statements focused on the
following areas of significance:
• Acquisition accounting - the Committee provided a robust challenge to
management over the judgments formed in respect of the accounting for the
acquisition of EAG and SIG during the year including the assessment of the fair
values of the assets and liabilities acquired. The Committee is satisfied that
the related disclosures appropriately reflect these assessments, as well as the
underlying strategic rationale
• Intangibles impairment assessment - the Committee considered the key
judgements including the discount rate, long-term growth rate, and the projected
future cash flows of each cash-generating unit to which goodwill is allocated, based
upon financial plans approved by the Board. The Committee is satisfied with the
methodology and assumptions used, and the conclusion that the Group’s intangible
assets are not impaired
• Carrying value of inventory - the Committee has reviewed management’s paper
setting out the basis on which the inventory provision is calculated and is satisfied
with the reasonableness and consistency of model applied and that stock is held at
the lower of cost and net realisable value
The Audit Committee are satisfied with the level of rigor applied by the external
auditors in addressing these areas as part of the audit procedures.
Looking ahead to FY15, with the further assistance that can be expected following the
appointment of BDO as internal auditors, the Audit Committee will ensure appropriate
internal control procedures are in place as the Group continues to grow.
Simon Bentley
Chairman of the Audit Committee and Senior Independent Non-Executive Director
17 July 2014
30
GOVERNANCE
REMUNERATION COMMITTEE
Directors who served on the Committee during the year were:
Dave Singleton (Chairman)
Simon Bentley
Keith Hellawell
Charles McCreevy
Claire Jenkins
The Remuneration Committee assists the Board to ensure appropriate levels of pay
and benefits are in place for Executive and Non-Executive Directors. A key priority is
to ensure that remuneration policy is aligned with strategy to achieve the long-term
success of the Group. The Committee ensures that it complies with the requirements of
regulatory and governance bodies including the UK Corporate Governance Code whilst
meeting shareholder and employee expectations. All members of the Committee are
Non-Executive Directors and are considered independent.
The responsibilities of the Remuneration Committee include:
• Determining the Company’s policy on Executive remuneration, including
the design of bonus schemes and targets and payments made thereunder.
• Determining the levels of remuneration for the Chairman and each of the Executive
Directors.
• Monitoring the remuneration of Senior Management and making recommendations
in respect thereof.
• Agreeing any compensation for loss of office of any Executive Director.
The Remuneration Committee meets at least three times a year and met on three
occasions during the year.
A report on the remuneration of Directors appears on pages 33 to 40.
What has the Committee done during the year?
• Reviewed Executive remuneration to include salaries and bonuses.
• Reviewed and approved the Directors’ Remuneration Report contained
on pages 33 to 40.
Full details of Directors’ remuneration can be found in the Remuneration Report on
page 38.
Dave Singleton
Chairman of the Remuneration Committee
17 July 2014
NOMINATION COMMITTEE
As Chairman of the Nomination Committee, I lead the process for the appointment of
new Board members, with the overall decision being that of the Board. We have seen a
change in the Board over the course of the year following the resignation of Bob Mellors
due to ill health. Bob had been with the Group for almost 10 years when he resigned
and the knowledge that he had amassed during that time was invaluable. The loss
of Bob by the Group has left a knowledge gap in the Board which will be difficult to
replace.
There are a number of factors that must be taken into account when considering
Board appointments, including age, ethnicity and nationality. Although the targets
for diversity of the Davies Report must be awarded appropriate recognition, so must
the requirements of the Group. The Group’s expansion into new markets with differing
customer bases must be awarded appropriate consideration upon appointing new
Board members, with any new appointee requiring knowledge of the challenges
involved in breaking into new markets and an awareness of the changing business
landscape.
There is a strategy within the Group for improving the gender imbalance of the Board,
and it is our overall aim to nurture our in-house talent. However we are open to
recruiting external Board members where specific knowledge cannot be found in-house.
We aim to attract the most number of recruits by utilising a number of different
recruitment methods including head hunters, word of mouth and advertising.
Members of the Nomination Committee during the year were:
Keith Hellawell (Chairman)
Simon Bentley
Dave Singleton
Charles McCreevy
The Nomination Committee will meet at least once a year and will also meet when
appropriate. The Committee met on one occasion during the year, although met
informally on a number of further occasions in order to discuss the appointment of
a replacement Finance Director. All of the Nomination Committee members are Non-
Executive Directors and considered independent.
The responsibilities of the Nomination Committee include:
• Review the Board’s structure.
• Review the composition and make up of the Board, including evaluating the balance
of skills, knowledge and experience of the members of the Board.
• Give consideration to succession planning for Directors.
• Prepare a description of the role and capabilities required for any Board
appointment.
• Make recommendations to the Board concerning the standing for reappointment of
Directors.
• Identify potential candidates to be appointed as Directors, and make
recommendations to the Board as the need may arise.
The Board has established a Nomination Committee to ensure a formal, rigorous
and transparent procedure for the appointment of new Directors to the Board. The
composition of that Committee and a description of its terms of reference are set out on
the Sports Direct International plc website.
The Nomination Committee also determines succession plans for the Chairman and
the Chief Executive who are not present at meetings when the matter is discussed.
Succession plans are reviewed by the Nomination Committee at least once a year.
Dave Forsey, the Chief Executive, will usually attend meetings of the Nomination
Committee, unless the Nomination Committee is dealing with matters relating to him or
with the appointment of his successor.
The Board believes that the Board and its Committees as currently constituted are
working well.
Dr Keith Hellawell QPM
Chairman of the Nomination Committee and Chairman of the Board
17 July 2014
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
31
UK BRIBERY ACT
The Group has an approved policy in place which was created following the
introduction of the UK Bribery Act. As a result of the Act, all policies and procedures
have been reviewed to ensure that they comply with the Act and measures are in place
to prevent employees accepting bribes.
BUSINESS MODEL
Our business model, which sets out the basis on which the Company generates or
preserves value over the longer term, and the strategy for delivering the objectives of
the Company, can be found at pages 7 and 8.
WHISTLE-BLOWING
There is a formal whistle-blowing policy in place for employees who wish to raise
issues or concerns relating to the Group’s activities on a confidential basis.
RELATIONS WITH SHAREHOLDERS
The Board recognise the importance of communicating with shareholders. This is done
through the Annual Report and financial statements, interim statements and trading
updates. All Directors are available at the Annual General Meeting when shareholders
have the opportunity to ask questions.
The Chairman and the Chief Executive regularly meet with the Company’s institutional
shareholders to discuss the Group’s strategy and financial performance within the
constraints of information already available to the public. The Senior Independent Non-
Executive Director is also available to meet with shareholders.
The Company’s website is an important method of communication and holds all
material information reported to the London Stock Exchange together with copies of
financial reports, interim management statements and trading updates.
During the year members of the Board and senior management have met with
shareholders in order to discuss their questions and concerns. The meetings have
been considered an opportunity not only to recognise the views of shareholders, but
also for shareholders to fully understand the premise of the business. The shareholder
meetings that have taken place throughout the year include face to face Non-Executive
Director Meetings, telephone discussions, regional visits and overseas visits.
REMUNERATION
The Remuneration Committee is responsible for determining and reviewing
remuneration policy and setting remuneration levels. See Remuneration Report on
pages 33 to 40.
SHARE DEALING CODE
The Group has adopted the Model Code as published in the UK Listing Rules.
Anyone deemed to have ‘insider information’ must seek consent before dealing in the
Group’s shares.
The Executive Directors require the consent of the Chairman or the Senior Independent
Director and the Chairman requires consent from the Chief Executive and the Senior
Independent Non-Executive Director. Any other employees with ‘insider information’
must gain the consent of the Chief Executive or Company Secretary before dealing in
the Group’s shares.
Details concerning the share capital structure of the Company can be found in the
Director’s Report on pages 25 to 26.
RISKS AND UNCERTAINTIES
The key features of the Group’s system of internal control and risk management
systems in relation to the financial reporting process and the preparation of the Group
accounts are set out below or cross-referred to other parts of the Annual Report where
relevant.
The Board of Directors has overall responsibility for determining the nature and extent
of the significant risks it is willing to take in achieving its strategic objectives and for
maintaining sound risk management and internal control systems, and for reviewing
their effectiveness. The risk management process and systems of internal control are
designed to manage rather than eliminate the risk of failures to achieve the Company’s
objectives. It should be recognised that such systems can only provide reasonable but
not absolute assurance against material misstatement or loss.
ASSESSMENT OF BUSINESS RISK
A system to identify, assess, and evaluate business risk is embedded within the
management processes throughout the Group. Strategic risks are regularly reviewed by
the Board. Risks relating to the key activities within the subsidiary operating units are
assessed continuously.
Further details of the risks and uncertainties relating to the Group’s business, and how
the Group seeks to mitigate these, can be found on pages 10 to 12.
By Order of the Board
Cameron Olsen
Company Secretary
17 July 2014
CORPORATE GOVERNANCE REPORT
CONTINUED
GOVERNANCE
32
DIRECTORS’ REMUNERATION REPORT
STATEMENT FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE
Dear Shareholder,
On behalf of the Board, I am pleased to present our report on the remuneration strategy and policy of the Company at the end of yet another very successful year. We firmly believe
that this continued success is strongly connected with the introduction of our Employee and Executive Bonus Share Schemes in 2009 and 2011. The schemes are designed to
recognise and reward outstanding performance and have clearly driven shareholder value.
New regulations have come into effect which impact the presentation and disclosure of Directors’ remuneration, and the lay-out of this report reflects those new regulations. This
report is, therefore, presented in two sections: the Annual Report on Remuneration and the Directors’ Remuneration Policy.
The Annual Report on Remuneration provides details on the amounts earned in respect of the year ended 27 April 2014 and will be subject to an advisory vote at the AGM. The
Directors’ Remuneration Policy sets out the forward-looking remuneration policy that will be subject to a binding vote at the AGM and shall take binding effect from the end of the
Company’s 2014/15 financial year.
The Remuneration Policy of the Company is aligned to its commercial strategy for long-term, consistent and profitable growth. The remuneration package for Senior Executives is
highly weighted towards performance-related remuneration, paid mostly in shares, and its design is consistent with the reward philosophy for the wider employee population. This
strategy is reflective of an extremely strong Executive and employee performance culture and a reward ethos of “One Team”.
The Company philosophy is that Executive remuneration should be simple, transparent and directly support the delivery of the business strategy and shareholder return. The
Executive Directors’ basic salaries have been deliberately set at a level well below the lower quartile of a business of the size and complexity of the Group. Indeed these salaries
have remained the same since 2002 and again will not increase in 2014/15. Also, the Senior Executives currently enjoy no additional benefits from the Company.
The Executive Directors do not receive an annual bonus. Rather, to drive sustained long-term business performance, instead of granting smaller awards on an annual basis,
larger upfront awards are granted which only vest if significant and consistent growth is delivered year on year. Annual performance targets which must be hit ensure a focus is
maintained on a consistent and long-term profitable growth strategy. The extended time horizon for vesting of awards for the 2011 Executive Bonus Share Scheme is six years (in
2017).
Clear, published and stretching annual performance targets must be fully satisfied before any of the share awards vest. Aligned to the Company’s high performance culture, the
Employee and Executive Bonus Share Schemes are designed on the basis that awards should vest in full for achieving stretching targets (i.e. with an `all or nothing’ vesting
schedule) rather than providing for a lower level of vesting for meeting a threshold target rising to full vesting for achieving the stretch targets (i.e. a scaled vesting schedule).
Because the Executive Directors’ remuneration opportunity is highly weighted towards performance-related remuneration which will not vest if stretching performance targets
aligned with the business strategy are not met, they share risk with the shareholders. The size of these performance-only awards should be considered in this context.
The Remuneration Committee firmly believes that this simple and very transparent share incentive framework is totally aligned with both the Company strategy for growth and its
performance culture. We also believe that this strategy has directly driven the historic and continued out-performance of stretch targets originally set by the Committee by further
aligning Executive and employee remuneration potential to increased and on-going shareholder value. This increased share value incentive has also led to a further ‘lifting of the
performance bar’ for future awards.
There is no doubt that since the inception of the current remuneration strategy in 2009, it has clearly led to strong shareholder value increases during a difficult economic period,
and has provided a strong platform for the on-going and long-term success of the Company.
Specifically tailored to Company culture and growth strategy we continue to review the robustness of the scheme. During 2013/14 the Remuneration Committee re-assessed the
shareholding guidelines for Executive Directors and determined that the Executive Directors must now hold a minimum shareholding of 50,000 while they remain employed by the
Company. As noted on page 39 Dave Forsey’s shareholding on 27 April 2014 meant that he satisfied the guideline and held shares with a value equal to approximately 260% of his
salary.
On 2 July 2014, we were pleased to announce that the resolution to approve the 2015 Bonus Share Scheme was passed, with a majority of shareholders eligible to vote on the
resolution voting in favour (the Executive Directors elected not to vote).
Under the 2015 Bonus Share Scheme all eligible employees (including Executive Directors) who meet the qualifying conditions and performance criteria as determined and agreed
by the Remuneration Committee and the Board will be able to participate. The terms of the 2015 Bonus Share Scheme provide for the grant of nil-cost options over up to 25
million ordinary shares in the Company (amounting to approximately 4.2% of the issued share capital of the Company). The vesting of any options would be conditional upon the
achievement by the Company of all the following EBITDA targets (before scheme costs): (i) FY16 of £480 million; (ii) FY17 of £570 million; (iii) FY18 of £650 million; and (iv) FY19
of £750 million. If these performance targets are all met, 25% of any award would vest following the announcement of the Company’s audited results for FY19 in July 2019 and
75% of the award would vest following the announcement of the Company’s audited results for FY21 in July 2021.
To date Mike Ashley has not received any remuneration from the Company since before the public offering in February 2007, nor has he participated in the Executive Share
Bonus Scheme. Despite being eligible to participate in the 2015 Bonus Share Scheme, following discussions with the Committee Mike Ashley has informed the Company and the
Committee that he does not wish to participate in the scheme, nor does he expect any share based incentive scheme to be proposed to shareholders in relation to his role as an
Executive Director while the 2015 Bonus Share Scheme is in place. He remains fully committed to achieving the stretching targets of the scheme.
The Board considers the leadership of Mike Ashley to be essential to the Company and we are grateful that shareholders have now recognised the huge impact of our proven and
innovative share scheme on the success of the Company, its Executives and employees. It has always been our intention to continue with the existing highly performance-geared
remuneration policy for our Executives, i.e. low salary, no annual bonus or additional benefits, and the 2015 Bonus Share Scheme allows us to continue on this path.
We are committed to further building an open and transparent engagement with our investors and employees. We believe that a key objective of the Directors’ Remuneration Report
is to communicate clearly how much our Executive Directors are earning, how this is very clearly linked to the performance of the Company and is of benefit to our shareholders.
Dave Singleton
Chairman of the Remuneration Committee
15 July 2014
GOVERNANCE
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
33
GOVERNANCE
DIRECTORS’ REMUNERATION POLICY
This part of the report sets out the Company’s Directors’ Remuneration Policy, which, subject to shareholder approval at the 2014 AGM, shall take binding effect from the end of the
Company’s 2014/15 financial year. The Policy is determined by the Committee.
Future policy table
The table below describes each of the elements of the remuneration package for the Executive Directors.
ELEMENT OF
REMUNERATION
PURPOSE / LINK TO
STRATEGY
OPERATION MAXIMUM PERFORMANCE MEASURES
BASE
SALARY
Fixed element of the
remuneration package,
where the balance of fixed
and variable remuneration
is aligned to the commercial
strategy of long-term
profitable growth and reflects
the Company remuneration
philosophy of gearing
reward to performance with
a sharing of risk between
Executive Directors and
shareholders.
Base salaries are normally reviewed annually and have not been
increased since 2002.
Mike Ashley does not currently receive a salary for his role.
Although salaries for existing Executive Directors (other
than Mike Ashley, who does not currently receive a salary)
have been set at £150,000 since 2002, the Company
retains discretion to set salaries at a level commensurate
with other companies of a similar size and complexity as
the Company.
Salaries for new Executive Directors will be set in
accordance with the Committee’s approach to recruitment
remuneration, as described on page 36.
Not applicable.
BENEFITS
Not applicable for current
Executive Directors
The current Executive Directors do not receive any additional benefits.
There is currently no intention to change this whilst the Executive
Bonus Share Scheme and 2015 Bonus Share Scheme remain in place.
Benefits may be provided in line with market practice to recruit a new
Executive Director taking into account individual circumstances. Such
benefits may include relocation expenses.
Whilst the Remuneration Committee has not set an
absolute maximum level of benefits Executive Directors
may receive, the Company retains discretion to set benefits
at a level which the Remuneration Committee considers
appropriate against the market and to support the on-
going strategy of the Company.
Not applicable.
RETIREMENT
BENEFITS
Provide post-employment
benefits to recruit and retain
individuals of the calibre
required for the business.
The Executive Directors are entitled to participate in a stakeholder
pension scheme on the same basis as other employees. The current
Executive Directors have opted out of this arrangement.
The current maximum employer contribution to the
stakeholder pension scheme is 1%.
The Company retains the discretion to set retirement
benefits (including pension contributions and/or a salary
supplement in lieu of a pension contribution) for any
Executive Directors in accordance with the Committee’s
approach to recruitment remuneration, as described on
page 36.
Not applicable.
ANNUAL
BONUS
Not applicable as Executive
Directors do not participate
in an annual bonus scheme.
The Committee has determined that no annual bonus scheme will be
operated for Executive Directors while the 2015 Bonus Share Scheme
is in place.
No annual bonus opportunity for an Executive Director who
participates in the 2015 Bonus Share Scheme for so long
as that scheme is in place. If that scheme is not in place
(for example if one of the Adjusted Underlying EBITDA
targets is not met so that awards under that scheme lapse)
the Committee may award an annual bonus opportunity of
up to 200% of base salary. The Committee will not award
such a bonus opportunity and grant an award under the
Executive Bonus Share Scheme as referred to below.
The annual bonus opportunity for any newly recruited
Executive Director will be set in accordance with the
Committee’s approach to recruitment remuneration as
described on page 36.
Not applicable for so long as Executive Directors
do not participate in an annual bonus scheme.
If an Executive Director does participate in an
annual bonus scheme, performance will be
assessed against one or more metrics determined
by the Committee and linked to the Company’s
strategy, with the weighting between the metrics
determined by the Committee. Bonuses will
be determined between 0% and 100% of the
maximum opportunity based on the Committee’s
assessment of the applicable metrics.
LONG-TERM
INCENTIVE
PAY (2015
BONUS
SHARE
SCHEME
AND
EXECUTIVE
BONUS
SHARE
SCHEME)
To recognise and reward
outstanding performance of
the Executives and to drive
underlying Group EBITDA in
line with Group strategy and
align Executive Directors’
interests with the interests
of shareholders in bringing
consistent long-term
profitable growth to the
Company.
2015 Bonus Share Scheme:
The 2015 Bonus Share Scheme was approved by shareholders at a
General Meeting of the Company in July 2014. Awards may be granted
under the scheme to Executive Directors on an annual (or more
frequent) basis. However, in accordance with the Company’s policy
of granting larger upfront awards which only vest if significant and
consistent growth is delivered year on year, one award may be granted
under the scheme to any Executive Director during the period for which
it is proposed this Directors Remuneration Policy shall apply, with
vesting subject to the satisfaction of the EBITDA targets set out in the
2015 Bonus Share Scheme measured over a period of four financial
years. 75% of an award is subject to a further deferral period such that
it will vest in 2021 (with 25% vesting in 2019).
Following discussions with the Committee Mike Ashley has advised
that he does not wish to participate in the 2015 Bonus Share Scheme
and accordingly the Committee has decided to make no award to Mike
Ashley under the 2015 Bonus Share Scheme.
Unvested Awards are subject to malus provisions, such that the
Committee has the discretion to reduce, cancel or impose further
conditions on the Awards in the event of a material misstatement of
the Company’s results, material failure of risk management or serious
reputational damage.
Executive Bonus Share Scheme:
The Executive Bonus Share Scheme was approved by shareholders
at the Annual General Meeting in September 2010. The Committee
may grant further awards under this scheme if the 2015 Bonus Share
Scheme is not in place (for example, if one of the Adjusted Underlying
EBITDA targets is not met so that awards under the 2015 Bonus Share
Scheme lapse). Mike Ashley is not eligible to be granted awards under
the Executive Bonus Share Scheme.
Any award granted under the Executive Bonus Share Scheme would be
subject to malus provisions on a comparable basis to those that will
apply to awards granted under the 2015 Bonus Share Scheme.
2015 Bonus Share Scheme
Awards over no more than 25 million shares may be
granted under the 2015 Bonus Share Scheme.
No more than 1 million shares (subject to such adjustment
as the Committee determines to reflect any variation in the
Company’s share capital) may be awarded to any Executive
Director (other than Mike Ashley who has advised the
Committee that he does not wish to participate in the 2015
Bonus Share Scheme).
Executive Bonus Share Scheme
Any award granted to an Executive Director under the
Executive Bonus Share Scheme during the period for
which it is proposed this Directors’ Remuneration Policy
shall apply would be over a maximum of 1 million shares
(subject to such adjustment as the Committee determines
to reflect any change in the Company’s share capital).
Stretching performance targets are set reflecting
the business priorities that underpin Group
strategy.
2015 Bonus Share Scheme:
Awards under the 2015 Bonus Share Scheme are
subject to satisfactory personal performance and
will only vest if the following Adjusted Underlying
EBITDA targets (before scheme costs) are met:
FY16: £480 million
FY17: £570 million
FY18: £650 million
FY19: £750 million
For these purposes, “Adjusted Underlying EBITDA”
means Underlying EBITDA as reported in the
Company’s published accounts for the relevant
year after such adjustments as the Committee
considers appropriate.
Executive Bonus Share Scheme:
Any award granted under the Executive Bonus
Share Scheme would be subject to stretching
performance targets determined by the
Committee based on Adjusted Underlying EBITDA,
which would be disclosed in the Directors’
Remuneration Report following the grant of any
such award.
DIRECTORS’ REMUNERATION REPORT
CONTINUED
34
GOVERNANCE
2,500
2,000
1,500
1,000
500
Minimum Performance Performance in line
with expectations
Total remuneration (£000)
Maximum Performance
0
Dave Forsey
Base salary, benefits & pension 2015 Bonus Share Scheme
92%
1,911.3
150150
The table below sets out an overview of the approach to remuneration for the Chairman and Non-Executive Directors.
Purpose / link to strategy Approach of the Company
Chairman and Non-Executive Director fees
Provide an appropriate reward to attract and retain
Directors of the calibre required for the business.
The Committee’s Remuneration Policy in respect of the Non-Executive Directors is to pay annual fees which reflect
the responsibilities and duties placed upon them, while also having regard to market practice.
Non-Executive Directors receive a fixed annual fee.
Non-Executive Directors do not participate in any bonus or share schemes.
Non-Executive Directors may be eligible for benefits such as the use of secretarial support, travel costs or other
benefits that may be appropriate.
INFORMATION SUPPORTING THE POLICY TABLE
Prior to the introduction of the 2015 Bonus Share Scheme, awards were granted to Executive Directors under the Executive Bonus Share Scheme. One award held by an Executive
Director remains outstanding under the Executive Bonus Share Scheme as referred to on page 39.
Other than where the 2015 Bonus Share Scheme is not in place (for example, if one of the Adjusted Underlying EBITDA targets is not met so that awards under the 2015 Bonus
Share Scheme lapse) or where an award is to be granted in connection with the recruitment of an Executive Director as referred to on page 36, no further awards will be granted to
Executive Directors of the Company under the Executive Bonus Share Scheme during the period for which this policy applies.
The Committee may amend the terms of the Executive Bonus Share Scheme, the 2015 Bonus Share Scheme or any awards granted under them within the scope defined in the rules
of those schemes (including in the event of a variation of the Company’s share capital or a demerger or special dividend which may, in the Committee’s opinion, affect the current
or future value of shares) and may elect to settle awards under those schemes in cash.
EXPLANATION OF PERFORMANCE MEASURES CHOSEN
For the 2015 Bonus Share Scheme, underlying Group EBITDA is chosen because it is a measure that provides a simple and transparent basis on which to measure the Company’s
performance over the longer term and to provide alignment with the Company’s business strategy. In addition, the Committee considers it to be a robust measurement of sustained
earnings growth for shareholders. This measurement has been consistently and publicly used by the Company as a performance measure since the floatation in 2007.
In respect of each relevant year, the Committee will adjust reported underlying Group EBITDA as it considers appropriate. Underlying Group EBITDA is calculated prior to any
charges relating to any Bonus Share Scheme(s) outstanding at the relevant time.
EXPLANATION OF DIFFERENCES IN REMUNERATION POLICY FOR OTHER EMPLOYEES
The Company has a large number of employees with different responsibilities and differing levels of seniority. Reward policies for employees other than Executive Directors are
determined by reference to grade, role, performance and other relevant factors. The Committee does not consult with the wider employee population about the remuneration policy
for Directors. However, the Committee has reviewed the salaries, other remuneration and other employment conditions of senior and middle managers throughout the Group, and
has taken them into account in considering Directors’ salaries and the creation of new incentive schemes in order to create a sense of common purpose and sharing of success.
Indeed, in order to reflect the Company’s “One Team” ethos, the 2015 Bonus Share Scheme applies to both Executives and eligible employees who meet the qualifying conditions as
determined and agreed by the Committee on the same basis (including the performance conditions).
ILLUSTRATIONS OF APPLICATION OF REMUNERATION POLICY
The charts below set out an illustration of the policy for 2014/15 in line with the future policy table above. The charts provide an illustration of the total remuneration opportunity
that could arise under three different levels of performance. No chart is included for Mike Ashley, who does not receive any remuneration from the Company and does not participate
in any share scheme.
For the purposes of the adjacent chart, the following assumptions have been made.
Fixed Pay 2015 Bonus Share Scheme
Minimum remuneration Base salary of £150,000. No vesting.
Performance in line with
expectations
No employer pension
contribution (as current
Executive Directors have
opted out of the Company’s
stakeholder pension scheme).
No vesting, because rewards
under the Executive Bonus
Share Scheme vest on an “all
or nothing” basis for achieving
the upper end of stretch
targets.
Maximum remuneration No benefits (as no benefits
were provided to the current
Executive Directors in
2013/14).
See note below*.
*For the purposes of this chart, it has been assumed that Dave Forsey is granted an award over 1 million shares, and that no award is granted to Mike Ashley, as referred to in the policy table on page 34. The value of the award is then
calculated based on a share price of £7.045 (being the price at the close of business on 15 July 2014 when this report was approved by the Committee) and one quarter of this value is then shown, representing the intention to grant one
award under the 2015 Bonus Share Scheme, the vesting of which will be subject to EBITDA performance targets measured over a period of four financial years (FY16, FY17, FY18 and FY19). The vesting of any awards is conditional upon the
achievement by the Company of all four EBITDA targets under the 2015 Bonus Share Scheme.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
35
DIRECTORS’ REMUNERATION REPORT
CONTINUED
GOVERNANCE
APPROACH TO RECRUITMENT REMUNERATION
When agreeing a remuneration package for the appointment of a new Executive Director, the Committee will apply the following principles:
• given that the high gearing of reward for performance over a long period and a low basic salary may result in a ‘cash flow’ issue for any new Executive Director, the intention is
to move the Director appropriately and in a timely manner onto an equal footing with other Executive Directors;
• the package will be sufficient to attract the calibre of Director required to deliver the Company’s strategy;
• the Committee will seek to ensure that no more is paid than is necessary; and
• in the next Annual Report on remuneration, the Committee will explain to shareholders the rationale for the arrangements implemented.
The Committee will ordinarily seek to implement the remuneration package in accordance with the elements referred to in the policy table on pages 34 and 35. The Committee
retains discretion to make appropriate remuneration decisions outside that policy including the ability to grant awards under the Executive Bonus Share Scheme to meet the
individual circumstances of the recruitment, subject to the limits and parameters of this recruitment remuneration section of the Directors’ Remuneration Report.
ELEMENT APPROACH
Base salary and benets Aligned with the policy set out in the policy table on page 34 if the new Executive Director participates in the 2015 Bonus Share Scheme at the same
level as existing Executive Directors (other than Mike Ashley).
Retirement benets Aligned with the policy set out in the policy table on page 34 if the new Executive Director participates in the 2015 Bonus Share Scheme. Otherwise,
up to 20% of salary paid to a pension arrangement or paid as a supplement to base salary in lieu of a pension arrangement until the new Executive
Director joins that scheme.
2015 Bonus Share
Scheme
The Remuneration Committee’s intention is for a newly-appointed Executive Director to participate in the 2015 Bonus Share Scheme with an award
of up to 1 million shares (subject to such adjustment as the Committee determines to reflect any variation in the Company’s share capital) (i.e. up to
the maximum level referred to in the policy table, but reduced to reflect the new Executive Director’s shortened period of service).
Variable remuneration In recognition of the fact that a newly appointed Executive Director’s award under the 2015 Bonus Share Scheme would not vest until 2019, the
Committee may award a newly appointed Executive Director an award over up to 1 million shares (subject to such adjustment as the Committee
determines to reflect any change in the Company’s share capital) under the Executive Bonus Share Scheme or a similar scheme, the vesting of which
would be subject to the same performance conditions as apply to existing awards under the Executive Bonus Share Scheme or other stretching
performance conditions determined by the Committee.
In addition, until such time as the newly appointed Executive Director participates in the 2015 Bonus Share Scheme, he or she may be awarded an
annual or longer-term incentive opportunity of up to 200% of salary per annum.
Maximum variable
remuneration
The maximum level of variable remuneration that may be awarded to a new Executive Director is:
a. an award over up to 1 million shares (subject to such adjustment as the Committee determines to reflect any change in the Company’s share
capital) under the 2015 Bonus Share Scheme (but reduced to reflect any variable remuneration awarded as referred to in (c) below);
b. an award over up to 1 million shares (subject to such adjustment as the Committee determines to reflect any change in the Company’s share
capital) under the Executive Bonus Share Scheme or a similar scheme; and
c. until such time as he or she participates in the 2015 Bonus Share Scheme, an annual or longer-term incentive opportunity of up to 200% of salary
per annum.
In each case, the value of any buy-out arrangements (described below) does not count towards the maximum.
Compensation for
forfeited arrangements
The Committee may make awards on hiring an external candidate to buy-out the remuneration arrangements forfeited on leaving a previous
employer. In doing so, the Committee will have regard to relevant factors including any performance conditions attached to such arrangements (and
whether such conditions were achieved), the form of those arrangements (e.g. cash or shares) and the timeframe of such arrangements.
While such awards are excluded from the maximum level of variable remuneration referred to below, the Committee’s intention is that the value
awarded would be no higher than the expected value of the forfeited arrangements. Buy-out awards will be subject to forfeiture or clawback on
early departure, with 100% being subject to forfeiture if the Executive departs within 12 months of joining, and a sliding scale down to 50% if the
departure occurs within 12 and 24 months of joining, at the Committee’s discretion.
Relocation costs If necessary, the Company will pay appropriate relocation costs. The Committee will seek to ensure that no more is paid than is necessary.
Any share awards referred to in this section will be granted as far as possible under the Company’s existing share schemes. If necessary and subject, where relevant, to the
limits referred to above, awards may be granted outside existing share plans as permitted under the Listing Rules, which allow for the grant of awards to facilitate, in unusual
circumstances, the recruitment of an Executive Director.
Where a position is filled internally, any on-going remuneration obligations or outstanding variable pay elements shall be allowed to continue according to their subsisting terms.
The remuneration package for a newly appointed Non-Executive Director would normally be in line with the policy set out in the future policy table above for Non-Executive Directors.
36
GOVERNANCE
SERVICE CONTRACTS AND POLICY ON PAYMENTS FOR LOSS OF OFFICE
The Company’s policy is for Executive Directors to be employed on the terms of service contracts which may be terminated by either the Company or the Executive Director on the
giving of not less than 12 months notice.
Executive Directors
Details of each current service contract are set out below:
Contract date Unexpired term / notice period Proper law
Mike Ashley 11/02/2007 12 Months England & Wales
Dave Forsey 11/02/2007 12 Months England & Wales
The principles on which the determination of payments for loss of office will be approached are summarised below:
Payment in lieu
of notice
The Company may terminate an Executive Director’s employment with immediate effect by making a payment in lieu of notice consisting of:
• basic salary for the notice period;
• if the Executive Director participates in an annual bonus scheme, a pro-rated amount reflecting completed months of service in the year of termination
assuming on target performance;
• either the cost of providing other benefits (other than pension and bonus) that the Executive Director would have been entitled to during the notice period
or an amount equal to 10% of base salary (or alternatively the Company may continue to provide benefits for the remainder of the notice period that
would have applied).
However, in accordance with the current policy as set out in the policy table on page 34, no annual bonus scheme or benefits are currently offered to
Executive Directors.
Annual bonus
In accordance with the current policy as set out in the policy table on page 34, no annual bonus scheme is offered to existing Executive Directors. Were an
Executive Director to participate in an annual bonus arrangement, whether to award a bonus in full or in part in the event of a termination of employment
would be at the discretion of the Committee on an individual basis and dependent on a number of factors, including the circumstances of the Executive
Director’s departure and his contribution to the business during the bonus period in question. Typically bonus amounts would be pro-rated for time in service
to termination.
2015 Bonus
Share Scheme
and Executive
Bonus Share
Scheme
If a participant in the 2015 Bonus Share Scheme or Executive Bonus Share Scheme ceases employment before the performance conditions attaching to an
award under that scheme are satisfied, the award will lapse. If the participant ceases employment after the performance conditions are satisfied but before
the vesting dates as a result of his death or any other reason determined at the discretion of the Committee, the award will vest; in the case of a reason
other than death, the extent of vesting will be determined by the Committee at its absolute discretion taking into account the time that has elapsed between
grant and cessation.
Other payments
The Remuneration Committee reserves the right to make additional exit payments where such payments are made in good faith in discharge of an existing
legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the
termination of a Director’s office or employment. In appropriate circumstances, payments may also be made in respect of legal fees. Were the Company
to make an award on recruitment of an Executive Director to buy out remuneration arrangements forfeited on leaving a previous employer then the leaver
provisions for that award would be determined at the time of grant.
In the event of a change of control of the Company or other relevant corporate event, unvested awards under the 2015 Bonus Share Scheme and the Executive Bonus Share Scheme
will lapse unless the performance conditions are satisfied and the event occurs between satisfaction of the conditions and the vesting date, in which case the award shall vest. In
the case of the 2015 Bonus Share Scheme the extent of vesting shall be determined by the Committee taking into account the period of time that has elapsed between the grant
date and the date of the relevant event and in the case of the Executive Bonus Share Scheme the awards shall vest in full unless the Committee determines otherwise.
Non-Executive Directors
The Non-Executive Directors enter into an agreement with the Group for a period of three years, other than the Chairman whose agreement continues until terminated in accordance
with its terms. The appointments of the Non-Executive Directors may be terminated by either party on one month’s written notice and in accordance with the Articles of Association
of the Company. Termination would be immediate in certain circumstances (including the bankruptcy of the Non-Executive Director).
Non-Executive Directors do not and are not entitled to participate in any bonus or share scheme.
Non-Executive Directors are subject to confidentiality undertakings without limitation in time. Non-Executive Directors are not entitled to receive any compensation on the
termination of their appointment.
Details of the letters of appointment are set out below:
Position Date of letter of appointment
Keith Hellawell Non-Executive Chairman February 2010
Simon Bentley Non-Executive Director 15 July 2014
Dave Singleton Non-Executive Director 15 July 2014
Charles McCreevy Non-Executive Director 31 March 2011
Claire Jenkins Non-Executive Director 15 July 2014
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
37
DIRECTORS’ REMUNERATION REPORT
CONTINUED
GOVERNANCE
PAYMENTS OUTSIDE THE POLICY IN THIS REPORT
The Committee retains discretion to make any remuneration payment or payment for loss of office outside the policy in this report:
• where the terms of the payment were agreed before the policy came into effect;
• where the terms of the payment were agreed at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was
not in consideration of the individual becoming a Director of the Company; or
• to satisfy contractual commitments made under legacy remuneration arrangements.
For these purposes, “payments” includes the satisfaction of awards of variable remuneration and, in relation to an award over shares, the terms of the payment are “agreed” at
the time the award is granted.
STATEMENT OF CONSIDERATION OF SHAREHOLDER VIEWS
The Committee consults major shareholders and representative Groups where appropriate concerning remuneration matters.
ANNUAL REPORT ON REMUNERATION
This part of the Directors’ Remuneration Report sets out the actual payments made by the Company to its Directors with respect to the period ending 27 April 2014 and how our
Directors’ Remuneration Policy will be applied in the year commencing 28 April 2014.
SINGLE FIGURE TABLE (AUDITED)
The aggregate remuneration provided to individuals who have served as Directors in the period ended 27 April 2014 is set out below, along with the aggregate remuneration
provided to individuals who have served as Directors during the prior financial year.
Director Salaries and fees Other benets Bonus Long-term incentives Pension Total
2013/14 2012/13 2013/14 2012/13 2013/14 2012/13 2013/14 2012/13 2013/14 2012/13 2013/14 2012/13
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Executive
Mike Ashley - - - - - - - - - - - -
Dave Forsey 150 150 - - - - - - - - 150 150
Bob Mellors
(1)
112.5 150 - - - - - - - - 112.5 150
Non-Executive
Keith Hellawell 155 155 - - -- - - - - - 155 155
Simon Bentley 50 50 - - - - - - - - 50 50
Dave Singleton 50 50 - - - - - - - - 50 50
Charles McCreevy 50 50 - - - - - - - - 50 50
Claire Jenkins 50 50 - - - - - - - - 50 50
(1) Bob Mellors resigned from the Board on 31 December 2013.
NOTES TO THE SINGLE FIGURE TABLE AND IMPLEMENTATION OF POLICY IN THE YEAR ENDING 26 APRIL 2015
Base salary and fees
Base salaries are normally reviewed annually. In the review in 2013/14 the Committee decided not to alter Executive Directors’ salaries. The Committee has decided not to increase
Executive Directors’ salaries in 2014/15. Executive Directors’ salaries have been at the same level since 2002, which is set at a level well below the lower quartile for a business of
the size and complexity of the Group. Mike Ashley does not receive a salary for his role.
Fees for Non-Executive Directors are normally reviewed annually. In the review in 2013/14 fees were not increased. Fees for Non-Executive Directors will not be increased for
2014/15.
Annual bonus scheme
The Committee has determined that no annual bonus scheme will be operated for Executive Directors while the 2015 Bonus Share Scheme is in place.
Executive Bonus Share Scheme
No awards were granted under the Executive Bonus Share Scheme in 2013/14. Awards which were subject to the satisfaction of a performance condition based on EBITDA in the
2010/11 financial year vested in August 2013.
Following the approval of the 2015 Bonus Share Scheme in July 2014, the Committee proposes to grant each Executive Director (other than Mike Ashley) an award under the scheme
in 2014/15 over 1 million shares (subject to such adjustment as the Committee determines to reflect any variation in the Company’s share capital). The performance conditions for
the awards will be as set out in the policy table on page 34.
PAYMENTS TO PAST DIRECTORS DURING THE FINANCIAL YEAR
No payments have been made to past Directors during the period ended 27 April 2014.
PAYMENTS FOR LOSS OF OFFICE DURING THE FINANCIAL YEAR
No payments were made for loss of office during the period ended 27 April 2014.
38
GOVERNANCE
SHAREHOLDING GUIDELINES AND TOTAL SHAREHOLDINGS OF DIRECTORS
The Board believes it is important that Executive Directors have a significant holding in the capital of the Company. In order to participate in the Executive Bonus Share Scheme,
there were internal guidelines that the Executive Directors would be required to maintain a minimum level of shareholding in the Company equivalent to one year’s salary while
they remain employed by the Company. However, these guidelines can be waived with the permission of the Board. The Committee has raised the required shareholding value of
Executive Directors to 50,000 shares while employed by the Company in 2014.
Dave Forsey’s beneficial shareholding on 27 April 2014 was 50,000 shares and, based on a share price of £7.79 (being the price at the close of business on 25 April 2014, the last
trading day before Sunday 27 April 2014) the value of that holding was £389,500.
The beneficial interests of the Directors in office on 27 April 2014 and of their families in both cases at the beginning of the financial year, or at the date of appointment if later,
and at the end of the financial year in the share capital of the Company are shown below:
Ordinary Shares 29 April 2013 Ordinary Shares 27 April 2014
Mike Ashley 385,400,000 345,400,000
Simon Bentley 50,000 10,000
Dave Forsey - 50,000
Keith Hellawell 130,000 50,000
Claire Jenkins 20,000 19,500
Charles McCreevy - 1,500
Dave Singleton 153,621 52,000
There have been no changes in the Directors’ holdings in the share capital of the Company, as set out in the table above, between 27 April 2014 and 15 July 2014.
The only award held by a Director under a share scheme as at 27 April 2014 is as follows.
Director Scheme Grant date Number of shares Status
Dave Forsey Executive Bonus Share Scheme 22 August 2011 1,000,000 Unvested
The award was granted subject to the satisfaction of the following EBITDA targets (of which three have been met):
• Underlying EBITDA of £215 million in FY12
• Underlying EBITDA of £250 million in FY13
• Underlying EBITDA of £260 million in FY14
• Underlying EBITDA of £300 million in FY15
Subject to the satisfaction of the remaining EBITDA target the award will vest in 2017.
PERFORMANCE GRAPH AND TABLE
The following graph shows the Company’s performance measured by the Total Shareholder Return compared with the performance of the FTSE 100 and FTSE 250 index (excluding
investment trusts).
The Committee considered this an appropriate index against which to compare the Company’s performance as it is widely accepted as a national measure and includes the
companies that investors are likely to consider alternative investments.
£50
£0
£100
£150
£200
£250
£300
£350
£400
29-Apr-07 27-Apr-08 26-Apr-09 25-Apr-10 24-Apr-11 29-Apr-12 28-Apr-13 27-Apr-14
FTSE 250 ex Investment Trusts FTSE 100 Sports Direct
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
39
GOVERNANCE
The table below shows details of the total remuneration and performance-related pay for Dave Forsey over the last five financial years.
Total remuneration Executive Bonus Share Scheme as a % of maximum opportunity
2013/14 £150,000 N/A
2012/13 £150,000 N/A
2011/12 £150,000 N/A
2010/11 £6,620,000* 100%
2009/10 £150,000 N/A
* For these purposes, the total remuneration in 2010/11 includes the value of an award over 1,000,000 shares that vested on 15 August 2013 subject to the satisfaction of a performance condition based on EBITDA in 2010/11 financial year.
For these purposes, the value of a share is £6.47 being the closing price of a share on that date.
CEO PAY INCREASE IN RELATION TO ALL EMPLOYEES
The table below sets out in relation to salary, taxable benefits and annual bonus the percentage increase in pay for Dave Forsey compared to the average increase between the
same periods for the Group’s UK Head Office employees, which the Committee believes is the most appropriate comparator group. The percentages shown relate to the amounts for
2013/14 financial year as compared to the amounts for the 2012/13 financial year.
Element of remuneration Dave Forsey / % change UK Head Ofce Employee average / % change
Salary 0% 2.3%
Taxable benefits 0% (no taxable benefits were provided to Dave Forsey in either year) -3.2%
Annual bonus 0% (no annual bonus arrangement was operated for Dave Forsey in either year) 13.2%
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below sets out the Group’s distributions to shareholders by way of dividends and share buybacks, total Group-wide expenditure on pay for all employees, as reported in
the audited financial statements for 2013/14 and 2012/13, and the Company’s share price, calculated as at the close of business on the last day of the FY14 financial year and the
FY13 financial year.
FY14 FY13 Percentage change
Distributions to shareholders by way of dividend and share buyback £0 £391,554 -100%
Investment* £323,475,000 £227,998,000 41.8%
Group-wide expenditure on pay for all employees £307,948,000*** £221,103,000 39.3%
Share price (pence) 779.5** 467.2** 66.85%
*Comprises of increases in working capital, acquisitions and capital expenditure in the year as the Board believes these to be the most relevant measures of the Group’s investment in future growth.
**For these purposes, the share price for FY14 and the share price for FY13 are calculated as the close of business on 27 April 2014 and 28 April 2013 respectively.
***This increase is reflective of the Group’s acquisitions and retail expansion in Europe.
CONSIDERATION BY THE DIRECTORS OF MATTERS RELATING TO DIRECTORS’ REMUNERATION
Membership
The Committee consists of Simon Bentley, Dave Singleton, Claire Jenkins and Charles McCreevy, who are independent Non-Executive Directors, and Keith Hellawell, who is the Non-
Executive Chairman.
The role and main responsibilities of the Committee are detailed in the Corporate Governance Report on page 31.
Attendance at the meetings held during the year is detailed on page 29.
The members of the Committee have no personal financial interest, other than as shareholders, in the matters to be decided, no actual or potential conflicts of interest arising from
other directorships and no day-to-day operational responsibility within the Company.
Advisers to the Committee
Dave Forsey, the Chief Executive, Bob Mellors, the former Group Finance Director, and Mike Ashley, the Executive Deputy Chairman, have advised or materially assisted the
Committee when requested. No Executive Director is present or takes part in discussions in respect of matters relating directly to their own remuneration.
SHAREHOLDER VOTING
The following table sets out actual voting in respect of the resolution to approve the Directors’ Remuneration Report for the year ended 28 April 2013 and in respect of the resolution
to approve the 2015 Bonus Share Scheme.
Votes for % for Votes against % against Total votes cast Votes withheld
Directors’ Remuneration Report for the year ended 28 April 2013 523,524,503 97.7% 12,086,759 2.3% 535,611,262 59,875
Approval of the 2015 Bonus Share Scheme 111,926,611 60.4% 73,372,592 39.6% 185,299,203 213,882
Dave Singleton
Chairman of the Remuneration Committee
15 July 2014
DIRECTORS’ REMUNERATION REPORT
CONTINUED
40
GOVERNANCE
DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report, the Remuneration Report and the Company and Group financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements
in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The Directors have elected to prepare the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practices (UK GAAP).
Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss
of the Company and Group for that period. In preparing the financial statements the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• for the Group financial statements, state whether the applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial
statements;
• for the Company financial statements, state whether the applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained
in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at
any time the financial position of the Company and enable them to ensure that the financial statements, and the Remuneration Report, comply with the Companies Act 2006 and
Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors confirm that:
• so far as each Director is aware, there is no relevant audit information of which the Company’s auditors is unaware; and
• the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that
information.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
To the best of our knowledge:
(a) the Annual Report, including the strategic report, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit of the Company and of the undertakings included in the consolidation taken as a whole;
and
(b) the management report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
On behalf of the Board
Dave Forsey
Chief Executive
17 July 2014
DIRECTORS’ RESPONSIBILITY AND RESPONSIBILITY STATEMENT
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
41
We have audited the financial statements of Sports Direct International plc for the 52
week period ended 27 April 2014 which comprise the consolidated balance sheet, the
consolidated income statement, the consolidated statement of comprehensive income,
the consolidated statement of changes in equity, the consolidated statement of cash
flows and the related notes 1 to 37. The financial reporting framework that has been
applied in their preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company’s members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken
so that we might state to the Company’s members those matters we are required to
state to them in an auditor’s 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 audit work, for this report, or
for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR
As explained more fully in the Directors’ Responsibilities Statement set out on page 41
the Directors are responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards for Auditors.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
A description of the scope of an audit of financial statements is provided on the
Financial Reporting Council’s website at www.frc.org.uk/apb/scope/private.cfm.
AUDITOR COMMENTARY
An overview of the scope of our audit
Our audit scope included a full audit of the consolidated financial statements of Sports
Direct International plc. We evaluated controls over key financial systems identified
as part of our risk assessment. This included a review of the general IT controls, the
accounts production process and the controls addressing critical accounting matters
identified in our risk assessment. We undertook substantive testing on significant
transactions, balances and disclosures, the extent of which was based on various
factors such as our overall assessment of the control environment, the effectiveness of
controls over individual systems and the management of specific risks.
As set out on page 53 the Group has three operating segments; Sports Retail, Premium
Lifestyle and Brands. The Group financial statements are a consolidation of the
reporting units comprising the operating businesses within these segments.
In establishing the overall approach to the Group audit, we determined the type of work
that needed to be performed on the reporting units by us, as the Group engagement
team, or component auditors operating under our instruction. Where the work was
performed by component auditors, we determined the level of involvement we needed
to have in the audit work at those reporting units to be able to conclude whether
sufficient appropriate audit evidence had been obtained as a basis for our opinion on
the Group financial statements as a whole.
The reporting units vary significantly in size and we identified two reporting units that,
in our view, required an audit of their complete financial information, due to their size
or risk characteristics, providing 65% coverage of the Group’s revenues and 89% of
the Group adjusted EBITDA.
Specific audit procedures on certain balances and transactions were performed at
a further 8 reporting units due to their size providing a further 25% coverage of the
Group’s revenues and 2% of the Group adjusted EBITDA, with the remaining reporting
units subject to analytical procedures.
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality in planning and performing our audit, in evaluating
the effect of any identified misstatements and in forming our opinion. For the purpose
of determining whether the financial statements are free from material misstatement
we define materiality as the magnitude of a misstatement or an omission from the
financial statements or related disclosures that would make it probable that the
judgement of a reasonable person relying on the information would have been changed
or influenced by the misstatement or omission.
For the Group audit, we established materiality for the consolidated financial
statements as a whole to be £11.2m, which is 3.5% of adjusted Earnings before
Interest, Taxation, Depreciation and Amortisation (EBITDA). We use adjusted EBITDA
because, in our view, this is the metric against which the financial performance of the
Group is measured both internally and externally.
For the financial information of the individual subsidiary undertakings, we set our
materiality based on a proportion of Group materiality appropriate to the relative
scales of each of the businesses. We determined the threshold at which we will
communicate misstatements to the Audit Committee to be £560,000. In addition
we will communicate misstatements below that threshold that, in our view, warrant
reporting on qualitative grounds.
OUR ASSESSMENT OF RISK
Without modifying our opinion, we highlight the following matters that are, in our
judgement, likely to be most important to users’ understanding of our audit. Our
audit procedures relating to these matters were designed in the context of our audit
of the consolidated financial statements as a whole, and not to express an opinion on
individual transactions, account balances or disclosures.
RISK OF FRAUD IN REVENUE RECOGNITION
Under ISAs (UK & Ireland), there is a presumed risk of fraud in revenue recognition
because of the pressure and incentives management may feel to achieve planned
levels of sales. We therefore identified revenue recognition as a significant risk
requiring special audit consideration.
Our audit work included, but was not restricted to, testing manual journals posted
to revenue for indication of fraudulent transactions, assessing the retail control
environment surrounding revenue recognition and its completeness and performing
substantive procedures in respect of non-retail sales to ensure the related revenue was
accounted for correctly and in the correct period.
The Group’s accounting policy in respect of revenue recognition is included in note 1.
CARRYING VALUE OF INVENTORIES
The carrying value of inventories is stated net of provisions for obsolete or slow moving
stock. Judgement is applied by management in assessing the amount of provision
required to record inventory at the lower of cost and net realisable value.
Our audit work included, but was not limited to, verifying the models used for
mathematical accuracy, considering the appropriateness and consistency of the
underlying assumptions within the model and performing a review of inventory sold
post year end.
The Group’s accounting policy on inventories and details of the judgements applied by
the directors in establishing the provision is included in note 1.
ACQUISITION ACCOUNTING
As further disclosed in note 29 the Group made two significant acquisitions during
the year. The accounting for these acquisitions required management, in accordance
with IFRS3: Business Combinations, to make a number of judgements; including
the identification and valuation of separately identifiable intangible assets, fair
value adjustments to assets and liabilities acquired and the accounting for option
agreements in relation to minority interests. We therefore identified the related
acquisition accounting as a significant risk.
Our audit work included, but was not restricted to understanding the terms of
the respective acquisitions and option agreements and evaluating whether the
Group has obtained control in each case, agreeing the fair value of the assets and
liabilities acquired to supporting documentation and evaluating the appropriateness
of judgements applied by the Directors, considering the existence of any separately
identifiable intangibles assets, ensuring the costs of the respective acquisitions have
been expensed to the Income Statement and reviewing the respective disclosures
within the financial statements.
Disclosure of the acquisitions in the period, analysis of the fair values of assets,
including separately identifiable intangible assets, and liabilities acquired and
judgements formed in respect of the option agreements to acquire minority interests is
set out in note 29.
The Group’s accounting policy in respect of accounting for acquisitions is included in
note 1.
INDEPENDENT AUDITORS REPORT
TO THE MEMBERS OF SPORTS DIRECT INTERNATIONAL PLC
FINANCIAL STATEMENTS
42
FINANCIAL STATEMENTS
INTANGIBLES IMPAIRMENT ASSESSMENT
As more fully explained in note 15, the Directors are required to make an annual
assessment to determine whether the value of goodwill of £153.5m and brands of
£73.3m is impaired. The process for measuring and recognising impairment under IAS
36 is complex and highly judgemental. We therefore identified impairment reviews as a
significant risk requiring special audit consideration.
Our audit work included, but was not restricted to, an evaluation of the methodology
and assumptions used by the Directors. In particular those key assumptions relating
to the cash flow projections, the appropriateness of the discount rates and perpetuity
rates and we also focused on the adequacy of the disclosures on the sensitivity of the
key assumptions used in the impairment assessment and the related disclosures.
The Group’s accounting policy on impairment is included in the Group’s principal
accounting policies and details of the judgements and estimates made by the Directors
are included in note 1.
MANAGEMENT OVERRIDE OF FINANCIAL CONTROL
Under ISAs (UK & Ireland), for all of our audits we are required to consider the risk of
management override of financial controls. Due to the unpredictable nature of this risk
we are required to assess it as a significant risk requiring special audit consideration.
Our audit work included, but was not restricted to, specific procedures relating to
this risk that are required by ISA 240 ‘ The Auditors Responsibilities relating to Fraud
in an Audit of Financial Statements’. This included tests of manual journal entries,
the evaluation of judgements and assumptions in the Director’s estimates and tests
of significant transactions outside the normal course of business. This included a
detailed review of related party transactions.
In particular, our work on judgements applied by the Directors when establishing the
inventory provision, the acquisitions made in the year and the intangible impairment
assessment addressed key aspects of ISA 240.
OPINION ON FINANCIAL STATEMENTS
In our opinion the consolidated financial statements:
• give a true and fair view of the state of the Group’s affairs as at 27 April 2014 and
of its profit for the 52 week period then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European
Union; and
• have been prepared in accordance with the requirement of the Companies Act 2006
and Article 4 of the IAS Regulation.
OTHER REPORTING RESPONSIBILITIES
Opinion on other matters prescribed by the Companies Act 2006
• the information given in the Strategic Report and the Director’s Reports for the
financial year for which the group financial statements are prepared is consistent
with the group financial statements; and
• the information given in the Corporate Governance Statement set out on pages 27
to 32 with respect to internal control and risk management systems in relation to
financial reporting processes and about share capital structures is consistent with
the Financial Statements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion,
information in the Annual Report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the Group acquired in the course of performing our audit; or
• is otherwise misleading.
In particular, we are required to consider whether we have identified any
inconsistencies between our knowledge acquired during the audit and the Directors’
Statement that they consider the Annual Report is fair, balanced and understandable
and whether the Annual Report appropriately discloses those matters that were
communicated to the Audit Committee which we consider should have been disclosed.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit;
or
• a Corporate Governance Statement has not been prepared by the Company.
Under the Listing Rules are required to review:
• the Directors’ Statement, set out on page 26, in relation to going concern; and
• the part of the Corporate Governance Statement relating to the Company’s
compliance with the nine provisions of the UK Corporate Governance Code specified
for our review.
OTHER MATTER
We have reported separately on the parent company financial statements of Sports
Direct International plc for the 52 week period ended 27 April 2014, and on the
information in the Directors’ Remuneration Report that is described as having been
audited.
Philip Westerman
Senior Statutory Auditor
For and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
17 July 2014
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
43
CONSOLIDATED INCOME STATEMENT
FOR THE 52 WEEKS ENDED 27 APRIL 2014
52 weeks ended
Note
27 April 2014
(£’000)
28 April 2013
(restated)
1
(£’000)
Revenue 1,4 2,705,958 2,185,580
Cost of sales (1,551,036) (1,290,822)
Gross prot 1,154,922 894,758
Selling, distribution and administrative expenses (908,843) (689,578)
Other operating income 5 8,583 7,199
Exceptional items 6 (5,531) 625
Operating prot 4,7 249,131 213,004
Other investment income 9 7,017 1,473
Finance income 10 891 1,117
Finance costs 11 (19,853) (9,688)
Share of profit of associated undertakings and joint ventures 16 2,266 1,320
Prot before taxation 239,452 207,226
Taxation 12 (59,839) (55,569)
Prot for the period 4 179,613 151,657
Attributable to:
Equity holders of the Group 180,245 151,596
Non-controlling interests (632) 61
Profit for the period 4 179,613 151,657
Earnings per share attributable to the equity shareholders
Pence per share Pence per share
Basic earnings per share 13 30.8 26.6
Diluted earnings per share 13 29.2 24.4
Underlying basic earnings per share 13 32.1 26.9
The consolidated income statement has been prepared on the basis that all operations are continuing.
The accompanying accounting policies and notes form part of these financial statements.
1
Restatement relates to the adoption of IAS 19 ‘ Employee Benefits’ (see note 1).
FINANCIAL STATEMENTS
44
FINANCIAL STATEMENTS
52 weeks ended
Note
27 April 2014
(£’000)
28 April 2013
(restated)
1
(£’000)
Profit for the period 4 179,613 151,657
Other comprehensive income
Items that will not be reclassied subsequently to prot or loss
Actuarial gains/(losses) on defined benefit pension schemes 24 3,860 (2,818)
Taxation on items recognised in other comprehensive income (698) -
Items that will be reclassied subsequently to prot or loss
Exchange differences on translation of foreign operations (33,118) 12,436
Exchange differences on hedged contracts - recognised in the period 27 (3,737) 15,408
Exchange differences on hedged contracts - reclassified and reported in net profit 27 (17,909) 196
Fair value adjustment in respect of available-for-sale financial assets 17 57,373 1,011
Taxation on items recognised in other comprehensive income (4,170) 4,636
Other comprehensive income for the period, net of tax 1,601 30,869
Total comprehensive income for the period 181,214 182,526
Attributable to:
Equity holders of the Group 181,846 182,465
Non-controlling interest (632) 61
181,214 182,526
The accompanying accounting policies and notes form part of these financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE 52 WEEKS ENDED 27 APRIL 2014
1
Restatement relates to the adoption of IAS 19 ‘Employee Benefits’ (see note 1).
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
45
Note
27 April 2014
(£’000)
28 April 2013
(£’000)
ASSETS - Non-current
Property, plant and equipment 14 412,361 332,036
Intangible assets 15 255,109 240,420
Investments in associated undertakings and joint ventures 16 41,763 32,117
Available-for-sale financial assets 17 116,504 47,645
Deferred tax assets 25 31,130 47,952
856,867 700,170
ASSETS - Current
Inventories 18 565,479 446,962
Trade and other receivables 19 123,014 96,111
Derivative financial assets 27 4,355 17,965
Cash and cash equivalents 20 151,024 147,375
843,872 708,413
TOTAL ASSETS 1,700,739 1,408,583
EQUITY AND LIABILITIES
Share capital 21 64,060 64,060
Share premium 874,300 874,300
Treasury shares reserve (56,234) (56,234)
Permanent contribution to capital 50 50
Capital redemption reserve 8,005 8,005
Foreign currency translation reserve 5,280 38,398
Reverse combination reserve (987,312) (987,312)
Own share reserve (13,251) (64,375)
Hedging reserve (5,625) 16,021
Retained earnings 931,819 752,018
821,092 644,931
Non-controlling interests (3,538) (254)
Total equity 817,554 644,677
LIABILITIES - Non-current
Borrowings 23 6,764 245,627
Retirement benefit obligations 24 15,350 19,940
Deferred tax liabilities 25 24,046 24,978
Provisions 26 37,780 41,072
83,940 331,617
LIABILITIES - Current
Derivative financial liabilities 27 18,665 -
Trade and other payables 28 392,019 320,261
Borrowings 23 356,226 55,753
Current tax liabilities 32,335 56,275
799,245 432,289
Total liabilities 883,185 763,906
TOTAL EQUITY AND LIABILITIES 1,700,739 1,408,583
The accompanying accounting policies and notes form part of these financial statements. The financial statements were approved by the Board on 17 July 2014 and were signed on
its behalf by:
Dave Forsey
Director
CONSOLIDATED BALANCE SHEET
AT 27 APRIL 2014
FINANCIAL STATEMENTS
46
FINANCIAL STATEMENTS
52 weeks ended
Note
27 April 2014
(£’000)
28 April 2013
(£’000)
Cash inow from operating activities 30 222,785 159,094
Income taxes paid (55,730) (44,673)
Net cash inow from operating activities 167,055 114,421
Cash ow from investing activities
Proceeds on disposal of property, plant and equipment - 79
Proceeds on disposal of intangible assets - 625
Proceeds on disposal of listed investments 49,394 -
Purchase of associate, net of cash acquired (8,000) (96)
Purchase of subsidiaries, net of cash acquired 29 (15,407) (46,941)
Purchase of intangible assets (1,827) (2,282)
Purchase of property, plant and equipment 14 (67,304) (48,247)
Purchase of listed investments (55,467) -
Investment income received 1,604 1,473
Finance income received 891 1,117
Net cash outow from investing activities (96,116) (94,272)
Cash ow from nancing activities
Finance costs paid (8,111) (7,196)
Borrowings drawn down 300,910 404,970
Borrowings repaid (348,452) (323,942)
Exercise of option over non-controlling interests (11,678) -
Purchase of own shares - (21,742)
Net cash (outow)/inow from nancing activities (67,331) 52,090
Net increase in cash and cash equivalents including overdrafts 3,608 72,239
Cash and cash equivalents including overdrafts at beginning of period 141,674 69,435
Cash and cash equivalents including overdrafts at the period end 20 145,282 141,674
The accompanying accounting policies and notes form part of these financial statements.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE 52 WEEKS ENDED 27 APRIL 2014
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
47
Treasury
shares
(£’000)
Foreign currency
translation
(£’000)
Own share
reserve
(£’000)
Retained
earnings
(£’000)
Other reserves
(£’000)
Sub-total
(£’000)
Non-controlling
interests
(£’000)
Total
(£’000)
At 29 April 2012 (55,839) 25,962 (57,684) 600,431 (40,480) 472,390 (505) 471,885
Credit to equity for share-based payment - - - 4,012 - 4,012 - 4,012
Vesting of share-based payment - - 14,656 (16,728) - (2,072) - (2,072)
Current tax on share schemes - - - 3,581 - 3,581 - 3,581
Deferred tax on share schemes - - - 6,297 - 6,297 - 6,297
Cost of shares acquired (395) - - - - (395) - (395)
Purchase of own shares - - (21,347) - - (21,347) - (21,347)
Non-controlling interests - acquisitions - - - - - - 190 190
Transactions with owners (395) - (6,691) (2,838) - (9,924) 190 (9,734)
Profit for the financial period - - - 151,596 - 151,596 61 151,657
Other comprehensive income
Cash flow hedges
- recognised in the period - - - - 15,408 15,408 - 15,408
- reclassified and reported in net profit - - - - 196 196 - 196
Actuarial losses on defined benefit pension schemes - - - (2,818) - (2,818) - (2,818)
Fair value adjustment in respect of available-for-sale
financial assets - - - 1,011 - 1,011 - 1,011
Taxation - - - 4,636 - 4,636 - 4,636
Translation differences - Group - 11,135 - - - 11,135 - 11,135
Translation differences - associates - 1,301 - - - 1,301 - 1,301
Total comprehensive income for the period - 12,436 - 154,425 15,604 182,465 61 182,526
At 28 April 2013 (56,234) 38,398 (64,375) 752,018 (24,876) 644,931 (254) 644,677
Vesting of share-based payments - - 51,124 (51,124) - - - -
Current tax on share schemes - - - 25,500 - 25,500 - 25,500
Deferred tax on share schemes - - - (11,215) - (11,215) - (11,215)
Non-controlling interests - acquisitions - - - - - - (10,513) (10,513)
Exercise of option over non-controlling interest - - - (19,970) - (19,970) 7,861 (12,109)
Transactions with owners - - 51,124 (56,809) - (5,685) (2,652) (8,337)
Profit for the financial period - - - 180,245 - 180,245 (632) 179,613
Other comprehensive income
Cash flow hedges
- recognised in the period - - - - (3,737) (3,737) - (3,737)
- reclassified and reported in net profit - - - - (17,909) (17,909) - (17,909)
Actuarial gain on defined benefit pension schemes - - - 3,860 - 3,860 - 3,860
Fair value adjustment in respect of available-for-sale
financial assets - - - 57,373 - 57,373 - 57,373
Taxation - - - (4,868) - (4,868) - (4,868)
Translation differences - Group - (32,498) - - - (32,498) - (32,498)
Translation differences - associates - (620) - - - (620) - (620)
Total comprehensive income for the period - (33,118) - 236,610 (21,646) 181,846 (632) 181,214
At 27 April 2014 (56,234) 5,280 (13,251) 931,819 (46,522) 821,092 (3,538) 817,554
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE 52 WEEKS ENDED 27 APRIL 2014
FINANCIAL STATEMENTS
48
FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The consolidated financial statements of Sports Direct International plc (the
“Company”) and its subsidiaries (together the “Group”) have been prepared in
accordance with International Financial Reporting Standards as adopted by the
European Union (“IFRS”).
Basis of preparation
The consolidated financial statements have been prepared in accordance with IFRS as
adopted for use in the European Union (including International Accounting Standards
(“IAS”) and International Financial Reporting Standards Interpretations Committee
(“IFRSIC”) and with those parts of the Companies Act 2006 applicable to companies
reporting under IFRS as adopted for use in the European Union. The consolidated
financial statements have been prepared under the historical cost convention, as
modified to include fair valuation of certain financial assets and derivative financial
instruments.
The following IFRS, IFRSIC interpretations and amendments are effective for the first
time in this financial year:
IAS19 (revised) ‘Employee Benefits’ has been adopted in the financial year. The
revised standard replaces the expected return on plan assets and the interest cost on
liabilities with a net interest expense calculated by applying the discount rate to the
net defined benefit asset or liability. In addition, administration costs on pension funds
are now recognised in the profit or loss when administration services are performed.
The revised standard has retrospective application. The adoption of the revised
standard has resulted in the following changes:
Income statement:
• Pension interest income decreased by £1.9m;
• Expected return on plan assets decreased by £1.9m.
Balance sheet: No Impact
Statement of Comprehensive Income: No impact
Consolidation
The consolidated financial statements consolidate the revenues, costs, assets,
liabilities and cash flows of the Company and its subsidiaries, being those entities in
relation to which the Company has the power to govern the financial and operating
policies, generally achieved by a share of more than 50% of the voting rights.
On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are
measured at their fair values at the date of acquisition. Any excess of fair value of the
consideration transferred over the fair values of the identifiable net assets acquired is
recognised as goodwill. Any deficiency of fair value of consideration transferred below
the fair values of the identifiable net assets acquired is credited to the consolidated
income statement in the period of acquisition. The non-controlling interest is stated at
the non-controlling interest’s proportion of the fair values of the assets, liabilities and
contingent liabilities recognised. Costs incurred relating to acquisitions are expensed
to the income statement.
The results of subsidiaries acquired or disposed of during the year are included in
the consolidated income statement from the effective date of acquisition or up to the
effective date of disposal, as appropriate.
Intercompany transactions, balances and unrealised gains and losses on transactions
between Group companies are eliminated.
Associates and joint ventures
Associates are entities over which the Group has significant influence but not control,
generally accompanied by a share of between 20% and 50% of the voting rights.
A joint venture is an entity in which the Group holds an interest on a long-term basis
and which is jointly controlled by the Group and one or more other venturers under a
contractual agreement.
The Group’s share of the results of associates and joint ventures is included in the
Group’s consolidated income statement using the equity method of accounting.
Investments in associates and joint ventures are carried in the Group’s consolidated
balance sheet at cost plus post acquisition changes in the Group’s share of the net
assets of the associates and joint ventures, less any impairment in value. The carrying
values of investments in associates and joint ventures include acquired goodwill.
If the Group’s share of losses in an associate or joint venture equals or exceeds its
investment in the associate or joint venture, the Group does not recognise further
losses, unless it has incurred obligations to do so or made payments on behalf of the
associate or joint venture.
Unrealised gains arising from transactions with associates and joint ventures are
eliminated to the extent of the Group’s interest in the entity.
Investments
Available-for-sale investments are initially recognised at fair value. Where fair value
is different to cost, this is recognised in the income statement on initial recognition.
Subsequent gains and losses arising from changes in fair value are recognised in
the statement of other comprehensive income. When the security is disposed of,
de-recognised or is determined to be impaired the cumulative gain or loss previously
recognised in other comprehensive income is reclassified from equity to the income
statement as a reclassification adjustment within other comprehensive income.
Acquisitions
For business combinations achieved in stages, the Group re-measures its previously
held equity interest in the acquiree at its acquisition-date fair value and recognises
the resulting gain or loss, if any, in the income statement as appropriate.
Goodwill
Goodwill arising on consolidation is recognised as an asset and reviewed for
impairment at least annually or when a change in circumstances or situation indicates
that the goodwill has suffered an impairment loss. The need for impairment is tested
by comparing the market value of the cash-generating unit (CGU) to the carrying value.
Any impairment is recognised immediately in the income statement. Impairment losses
on goodwill are not reversed. Gains and losses on the disposal of a business include
the amount of goodwill relating to that business.
When the non-controlling interest of an existing subsidiary is acquired the carrying
value of the non-controlling interests in the balance sheet is eliminated. Any difference
between the amount by which the non-controlling interest is adjusted and the fair
value of the consideration paid is recognised directly in equity.
Other intangible assets
Brands, trade marks and licences that are internally generated are not recorded on
the balance sheet. Acquired brands, trade marks and licences are initially carried on
the balance sheet at cost. The fair value of brands, trade marks and licences that are
acquired by virtue of a business combination is determined at the date of acquisition
and is subsequently assessed as being the deemed cost to the Group.
Expenditure on advertising and promotional activities is recognised as an expense as
incurred.
No amortisation is charged on those brands, trade marks or perpetual/renewable
licences with an indefinite life as the Group believes that the value of these
brands and trade marks can be maintained indefinitely. The Group carries out an
impairment review of indefinite life intangibles, at least annually, or when a change
in circumstances or situation indicates that those intangibles have suffered an
impairment loss. Impairment is measured by comparing the carrying amount of
the intangible asset as part of the cash-generating unit (CGU) with the recoverable
amount of the CGU, that is, the higher of its fair value less costs to sell and its value
in use. Value in use is calculated by using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted.
Amortisation is provided on other brands, trade marks and licences with a definite
life on a straight line basis over their useful economic lives of 10 to 15 years and is
accounted for within the selling, distribution and administrative expenses category
within the income statement.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation less any
recognised impairment losses. Cost includes expenditure that is directly attributable
to the acquisition or construction of these items. Subsequent costs are included in
the asset’s carrying amount only when it is probable that future economic benefits
associated with the item will flow to the Group and the costs can be measured reliably.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
49
All other costs, including repairs and maintenance costs, are charged to the income
statement in the period in which they are incurred.
Depreciation is provided on all property, plant and equipment other than freehold land
and is calculated on a reducing balance basis or straight-line basis, whichever is
deemed by the Directors to be more appropriate, to allocate cost less assessed residual
value, other than assets in the course of construction, over the estimated useful lives,
as follows:
Freehold buildings - between 2% and 7% per annum - straight line
Leasehold improvements - over the terms of the lease - straight line
Plant and equipment - between 5% and 33% per annum - reducing balance
The assets’ useful lives and residual values are reviewed and, if appropriate, adjusted
at each balance sheet date.
The gain or loss arising on disposal or scrapping of an asset is determined as the
difference between the sales proceeds, net of selling costs, and the carrying amount of
the asset and is recognised in the income statement.
Impairment of assets other than goodwill and intangible assets with an
indenite life
At each balance sheet date, the Directors review the carrying amounts of the Group’s
tangible and intangible assets, other than goodwill and intangible assets with an
indefinite life, to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable amount of
the asset is estimated in order to determine the extent of the impairment loss, if any.
Where the asset does not generate cash flows that are independent from other assets,
the Group estimates the recoverable amount of the cash-generating unit, (CGU) to
which the asset belongs. With respect to property, plant and equipment, each store
is considered to be a CGU and where onerous leases are noted the assets of each
individual store are individually assessed for impairment.
Recoverable amount is the higher of fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying
amount, the carrying amount of the asset (CGU) is reduced to its recoverable amount.
An impairment loss is recognised as an expense immediately, unless the relevant asset
is carried at a re-valued amount, in which case the impairment loss is treated as a
revaluation decrease.
Impairment losses recognised for CGUs to which goodwill has been allocated are
credited initially to the carrying amount of goodwill. Any remaining impairment loss is
charged pro rata to the other assets in the CGU.
Where an impairment loss subsequently reverses, the carrying amount of the asset
(CGU) is increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (CGU) in
prior periods. A reversal of an impairment loss is recognised in the income statement
immediately.
Revenue recognition
Revenue is measured at the fair value of the consideration received, or receivable, and
represents amounts receivable for goods supplied, stated net of discounts, returns and
value added taxes.
In the case of goods sold through retail stores, revenue is recognised at the point of
sale of a product to the customer, less provision for returns. Accumulated experience is
used to estimate and provide for such returns at the time of the sale. Retail sales are
usually in cash, by debit card or by credit card.
In the case of goods sold on the internet revenue is recognised at the point that the
risks and rewards of the inventory have passed to the customer, which is the point
of delivery to the customer. Transactions are settled by credit card or payment card.
Provisions are made for internet credit notes based on the expected level of returns,
which in turn is based upon the historical rate of returns.
In the case of income generated from trade marks and licences, revenue is recognised
on an accruals basis in accordance with the relevant agreements or on a transactional
basis when revenue is linked to sale or purchase volumes.
Exceptional items
The Group presents as exceptional items on the face of the income statement, those
significant items of income and expense which, because of their size, nature and
infrequency of the events giving rise to them, merit separate presentation to allow
shareholders to understand better the elements of financial performance in the year, so
as to facilitate comparison with prior periods to assess trends in financial performance
more readily.
Interest income
Interest income is reported on an accrual basis using the effective interest method.
Government grants and similar income
Income from government grants that compensate the Group for the cost of an asset is
recognised in the balance sheet as a deduction in arriving at the carrying amount of
the related asset. This is considered to reflect the true cost of the asset to the Group.
The amount is recognised in the consolidated income statement over the life of the
depreciable asset by way of a reduced depreciation charge. To date the Group has not
received government grants in compensation for expenses charged in the consolidated
income statement.
Foreign currencies
The presentational currency of the Group is Sterling. The functional currency of the
Company is also Sterling. Foreign currency transactions are translated into Sterling
using the exchange rates prevailing on the dates of the transactions. Exchange
differences of the Company arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in the income statement for the period.
Exchange differences arising on the retranslation of non-monetary items carried at
fair value are included in the income statement for the period except for differences
arising on the retranslation of non-monetary items in respect of which gains and
losses are recognised in other comprehensive income. For such non-monetary items,
any exchange component of that gain or loss is also recognised directly in other
comprehensive income. Monetary assets and liabilities denominated in foreign
currencies are translated at the rate of exchange ruling at the balance sheet date.
On consolidation, the assets and liabilities of foreign operations which have a
functional currency other than Sterling are translated into Sterling at foreign exchange
rates ruling at the balance sheet date. The revenues and expenses of these subsidiary
undertakings are translated at average rates applicable in the period. All resulting
exchange differences are recognised in other comprehensive income and documented
in a separate component of equity.
When a foreign operation is sold, the cumulative exchange differences that have
been recognised as a separate component of equity are reclassified from equity to the
income statement when disposal is recognised.
In order to mitigate its exposure to certain foreign exchange risks, the Group enters into
forward contracts (See Chief Executive’s Report and the cash flow hedging accounting
policy on page 52).
Inventories
Inventories are valued at lower of cost and net realisable value. Cost includes the
purchase price of the manufactured products, materials, direct labour, transport
costs and a proportion of applicable overheads. Cost is calculated using the weighted
average cost method. Net realisable value is based on the estimated selling price less
all estimated selling costs.
The Company receives trade discounts and rebates from suppliers based upon
the volume of orders placed in a given time window and as a contribution towards
marketing costs. Where there is sufficient certainty that a discount or rebate will be
received in the future that relates to historic purchases this is reflected in the cost of
inventories.
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
50
FINANCIAL STATEMENTS
Loans and receivables
Loans and receivables are recognised initially at fair value plus transaction costs
and subsequently measured at amortised cost under the effective interest method
less provision for impairment. Provision for impairment is established when there is
objective evidence that the Group will not be able to collect amounts due according to
the original terms of the receivable. The amount of the impairment is the difference
between the asset’s carrying amount and the present value of the estimated future
cash flows, discounted at the original effective interest rate.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held on call, together
with other short term highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.
Trade and other payables
Trade and other payables are initially measured at fair value, and are subsequently
measured at amortised cost, using the effective interest method.
Taxation
Tax expense comprises current and deferred tax. Tax is recognised in the income
statement, except to the extent it relates to items recognised in the income statement,
except to the extent it relates to items recognised in other comprehensive income or
directly in equity.
Deferred taxation is calculated using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts
in the consolidated financial statements. However, if the deferred tax arises from
the initial recognition of goodwill or initial recognition of an asset or liability in a
transaction other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred
tax on temporary differences associated with shares in subsidiaries and joint ventures
is not provided if reversal of these temporary differences can be controlled by the Group
and it is probable that reversal will not occur in the foreseeable future. In addition, tax
losses available to be carried forward as well as other income tax credits to the Group
are assessed for recognition as deferred tax assets. Deferred tax is determined using
tax rates and laws that have been enacted (or substantively enacted) by the balance
sheet date and are expected to apply when the related deferred tax asset is realised or
the deferred tax liability is settled.
Deferred tax liabilities are provided in full.
Deferred tax assets are recognised to the extent that it is probable that future taxable
profits will be available against which the temporary differences can be utilised.
Changes in current and deferred tax assets or liabilities are recognised as a
component of tax expense in the income statement, except where they relate to items
that are recorded in other comprehensive income or charged or credited directly to
equity in which case the related deferred tax is also charged to other comprehensive
income or credited directly to equity.
Pensions
The Group operates pension plans for the benefit of certain employees, including both
defined contribution and defined benefit plans.
In relation to its defined contribution plans, the Group makes contributions to
independently administered plans, the contributions being recognised as an expense
when they fall due. The Group has no legal or constructive obligation to make any
further payments to the plans other than the contributions due.
In relation to its defined benefit schemes, the Group recognises in its balance sheet
the present value of its defined benefit obligations less the fair value of plan assets.
The current service cost is charged against operating profit. Interest on the schemes
liabilities is included in finance costs.
The defined benefit obligation is calculated at each period end by independent
actuaries using the projected unit credit method. The present value of the obligation
is determined by discounting the estimated future cash outflows using interest
rates of high quality corporate bonds that are denominated in the currency in
which the benefits will be paid and which have terms to maturity approximating
the terms of the related pension liabilities. Actuarial gains and losses arising from
experience adjustments and changes in actuarial assumptions are reflected in other
comprehensive income in the period in which they arise.
Borrowings and borrowing costs
Borrowings are recognised initially at fair value, net of transaction costs incurred,
and subsequently at amortised cost. Any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the income statement
over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional
right to defer settlement of the liability for at least 12 months from the balance sheet
date.
Borrowing costs, being interest and other costs incurred in connection with the
servicing of borrowings, are recognised as an expense when incurred.
Provisions
A provision is recognised when the Group has a present legal or constructive obligation
as a result of a past event, it is probable that an outflow of resources will be required
to settle the obligation and a reliable estimate can be made of the amount of the
obligation.
The Group provides for its legal responsibility for dilapidation costs following advice
from chartered surveyors and previous experience of exit costs. The estimated cost
of fulfilling the leasehold dilapidations obligations is discounted to present value
and analysed between non-capital and capital components. The capital element is
recognised as a decommissioning cost and depreciated over the life of the asset. The
non-capital element is taken to the income statement in the first year of the lease
where the cost it represents is of no lasting benefit to the Group or its landlord. ‘Wear
and tear’ costs are expensed to the income statement. Provisions for onerous lease
contracts are recognised when the Group believes the unavoidable costs of meeting the
lease obligations exceed the economic benefits expected to be received under the lease.
Leases
Leases of property, plant and equipment where the Group has substantially all the
risks and rewards of ownership are classified as finance leases. Finance leases
are capitalised at the lease’s inception at the lower of the fair value of the leased
asset and the present value of the minimum lease payments. Each lease payment is
allocated between the liability and finance charges so as to achieve a constant rate on
the finance balance outstanding. The asset subject to the finance lease is depreciated
over the shorter of its useful life and the lease term. The corresponding rental
obligations, net of finance charges, are included as a liability.
Leases of property, plant and equipment where the Group does not have substantially
all the risks and rewards of ownership are classified as operating leases. Payments
made under operating leases are charged to the income statement on a straight-line
basis over the lease term. Incentives provided by the lessor are credited to the income
statement on a straight-line basis over the minimum lease term.
Contingent rental payments, above standard payments, are conditional on the Group’s
operating performance derived from the lease item, (e.g. turnover levels). These are
expensed in the period in which they are incurred.
Rental income from operating leases where the Group acts as a lessor is recognised on
a straight-line basis over the term of the relevant lease.
Derivative nancial instruments and hedge accounting
The most significant exposure to foreign exchange fluctuations relates to purchases
made in foreign currencies, principally the US dollar. The Group’s policy is to reduce
substantially the risk associated with purchases denominated in foreign currencies by
using forward fixed rate currency purchase contracts, taking into account any foreign
currency cash flows.
Derivative financial instruments are measured at fair value. Where derivatives do not
qualify for hedge accounting, any gains or losses on re-measurement are immediately
recognised in the income statement. Where derivatives qualify for hedge accounting,
recognition of any resultant gain or loss depends on the nature of the hedge
relationship and the item being hedged.
In order to qualify for hedge accounting, the Group is required to document from
inception the relationship between the item being hedged and the hedging instrument.
The Group is also required to document and demonstrate an assessment of the
relationship between the hedged item and the hedging instrument, which shows that
the hedge will be highly effective on an on-going basis. This effectiveness testing is
performed at each period end to ensure that the hedge remains highly effective.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
51
Cash ow hedging
Derivative financial instruments are classified as cash flow hedges when they hedge
the Group’s exposure to variability in cash flows that are either attributable to a
particular risk associated with a recognised asset or liability, or a highly probable
forecast transaction.
The effective element of any gain or loss from re-measuring the derivative instrument
is recognised directly in other comprehensive income.
The associated cumulative gain or loss is reclassified from other comprehensive
income in the same period or periods during which the hedged transaction affects
the profit or loss. The reclassification of the effective portion when recognised in the
income statement is the same as the classification of the hedged transaction. Any
element of the re-measurement of the derivative instrument which does not meet the
criteria for an effective hedge is recognised immediately in the income statement
within finance income or costs. Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated or exercised, or no longer qualifies for
hedge accounting. At that point in time, any cumulative gain or loss on the hedging
instrument recognised in equity is retained in equity until the forecasted transaction
occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain
or loss recognised in other comprehensive income is reclassified from equity to the
income statement as a reclassification adjustment.
Treasury shares
The purchase price of the Group’s own shares that it acquires is recognised as
‘Treasury shares’ within equity. When shares are transferred out of Treasury the
difference between the market value and the average purchase price of shares sold out
of Treasury is transferred to retained earnings.
Employee Benet Trust
The cost of shares acquired by the Sports Direct Employee Benefit Trust is recognised
within ‘Own share-reserve’ in equity.
Share-based payments
The Group issues equity-settled share-based payments to certain Directors and
employees. These are measured at fair value at the date of grant, which is expensed
to the consolidated income statement on a straight-line basis over the vesting period,
with the corresponding credit going to equity.
Non market vesting conditions are not taken into account in determining grant date
fair value. Instead, they are taken into account by adjusting the number of equity
instruments to vest.
Fair value is based on the market share price on the grant date. The expected
staff numbers used in the model has been adjusted, based on management’s best
estimate, for the effects of non-transferability, exercise restrictions, and behavioural
considerations.
A share-based payment charge of £11,927,000 was recognised in selling, distribution
and administrative expenses for the 52 weeks ended 27 April 2014. The key details in
respect of the share scheme charges are set out in note 21.
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
financial statements.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of
the Group after deducting all of its liabilities. Equity instruments issued by the Group
are recorded at the proceeds received, net of any direct issue costs.
Dividends
Dividends are recognised as a liability in the Group’s financial statements and as a
deduction from equity in the period in which the dividends are declared. Where such
dividends are proposed subject to the approval of shareholders, the dividends are
regarded as declared once shareholder approval has been obtained.
Materiality
In preparing the financial statements, the Board considers both quantitative and
qualitative factors in forming its judgements, and related disclosures, and are mindful
of the need to best serve the interests of its stakeholders and to avoid unnecessary
clutter borne of the disclosure of immaterial items.
In making this assessment the Board considers the nature of each item, as well as its
size, in assessing whether any disclosure omissions or misstatements could influence
the decisions of users of the financial statements.
International Financial Reporting Standards (“Standards”) in issue but
not yet effective
At the date of authorisation of these consolidated financial statements, the
International Accounting Standards Board (“IASB”) and International Financial
Reporting Standards Committee (“IFRSC”) have issued the following standards and
interpretations which are effective for annual accounting periods beginning on or after
the stated effective date. These standards and interpretations are not effective for and
have not been applied in the preparation of the consolidated financial statements:
• IFRS 9 Financial Instruments (effective 1 January 2015)
• IFRS 10 Consolidated Financial Statements (effective 1 January 2014)
• IFRS 11 Joint Arrangements (effective 1 January 2014)
• IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2014)
• IAS 27 (Revised), Separate Financial Statements (effective 1 January 2014)
• IAS 28 (Revised), Investments in Associates and Joint Ventures (effective 1 January
2014)
The Directors anticipate that the adoption of these Standards and Interpretations in
future periods will have no material impact on the financial statements of the Group.
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The critical accounting estimates and judgements made by the Group regarding the
future or other key sources of estimation, uncertainty and judgement that may have a
significant risk of giving rise to a material adjustment to the carrying values of assets
and liabilities within the next financial year are:
Impairment of goodwill
The calculation for considering the impairment of the carrying amount of goodwill
requires a comparison of the present value of the CGUs to which the goodwill has
been allocated to the value of goodwill and associated assets in the balance sheet.
The calculation of present values requires an estimation of the future cash flows
expected to arise from the CGUs and the selection of a suitable discount rate. The key
assumptions made in relation to the impairment review of goodwill are set out in note
15.
Impairment of other intangible assets
The calculation for considering the impairment of the carrying amount of other
intangible assets with an indefinite life, specifically brands, trade marks and licences,
requires a comparison of the present value of the related cash flows to the value of the
other intangible assets in the balance sheet. The calculation of present value requires
an estimation of the future cash flows expected to arise from the other intangible
assets and the selection of a suitable discount rate. The key assumptions made in
relation to the impairment review of other intangible assets are set out in note 15.
Useful economic life of intangible assets
For intangible assets which have a finite life, the Directors revisit their estimate of
useful economic life at each period end and revise accordingly. Licences and trade
marks typically have a life of between 10 and 15 years.
Identication and valuation of acquired intangible assets
On acquisition, each material, separable intangible asset is identified and valued by
the Directors with assistance from a professional third party. Any such calculation is
judgemental in nature as it is based on a valuation methodology.
Brand valuations are typically valued using the relief from royalty valuation
methodology.
The nature and carrying amounts of these assets are set out in note 15.
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
52
FINANCIAL STATEMENTS
Impairment
The Directors review the carrying amounts of the Group’s tangible assets to determine
whether there is any indication that those assets have suffered an impairment loss.
Provision for obsolete, slow moving or defective inventories
The Directors have applied their knowledge and experience of the retail industry in
determining the level and rates of provisioning required in calculating the appropriate
inventory carrying values.
Financial position of retirement benet plans
The net defined benefit pension plan assets or liabilities are recognised in the Group’s
balance sheet. The determination of the financial position requires assumptions to
be made regarding inter alia future salary increases, mortality, discount rates and
inflation. The key assumptions made in relation to the pension plan are set out in note
24.
Provision for dilapidations and onerous lease contracts
The basis of the estimation of the provisioning for dilapidations and onerous lease
contracts is detailed in the provisions accounting policy and note 26. Estimates and
judgements are continually evaluated and are based on historical experience, external
advice and other factors, including expectations of future events that are believed to
be reasonable under the circumstances. Where an onerous lease has been identified,
the assets dedicated to that contract are impaired.
Calculation of bonus share scheme charge
A share-based payment charge is recognised in respect of share awards based on
the Directors’ best estimate of the number of shares that will vest. The charge is
calculated based on the fair value on the grant date, which is deemed to be the date
on which the entity and counterparty reached a shared understanding of the scheme.
The key details in respect of the share scheme charges are set out in note 21.
3. FINANCIAL RISK MANAGEMENT
The Group’s current activities result in the following financial risks and set out below
are management’s responses to those risks in order to minimise any resulting adverse
effects on the Group’s financial performance.
Foreign exchange risk
The Group is exposed to foreign exchange risk principally via:
a. Transactional exposure from the cost of future purchases of goods for resale, where
those purchases are denominated in a currency other than the functional currency
of the purchasing company. Transactional exposures that could significantly impact
the income statement are hedged. These exposures are hedged via forward foreign
currency contracts which are designated as cash flow hedges. The notional and fair
value of these contracts is shown in note 27.
b. Net investment exposure, from the fair value of net investments outside the UK.
The Group hedges its international investments via foreign currency transactions and
borrowings in matching currencies.
c. Loans to non-UK subsidiaries. These are hedged via foreign currency transactions
and borrowings in matching currencies, which are not formally designated as hedges,
as gains and losses on hedges and hedged loans will naturally offset.
Interest rate risk
The Group has net borrowings, which are principally at floating interest rates linked to
bank base rates or LIBOR. The Group does not use interest rate financial instruments
to hedge its exposure to interest rate movements. The Group regularly monitors and
reacts accordingly to any exposure to fluctuations in interest rates and the impact on
its monetary assets and liabilities.
Credit risk
The Directors have a credit policy in place and the exposure to credit risk is monitored
on an on-going basis. Credit evaluations are performed on all customers requiring
credit over a certain amount. The Group does not require collateral in respect of
financial assets.
At each balance sheet date, there were no significant concentrations of credit risk.
The maximum exposure to credit risk is represented by the carrying amount of each
financial asset in the balance sheet.
Investments of cash surpluses, borrowings and derivative instruments are made
through banks and companies which must fulfil credit rating and investment criteria
approved by the Board.
Liquidity risk
The availability of adequate cash resources is managed by the Group through
utilisation of its revolving bank and other facilities together with equity and retained
profits thereby achieving continuity of funding and short-term flexibility.
Capital management
A description of the Group’s objectives, policies and processes for managing capital
are included in note 27.
4. SEGMENTAL ANALYSIS
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:
• Sports Retail – includes the results of the UK and International retail network of
sports stores along with related websites;
• Premium Lifestyle – includes the results of the premium retail businesses such as
Republic, Cruise and USC; and
• Brands – includes the results of the Group’s portfolio of internationally recognised
brands such as Everlast, Lonsdale and Dunlop.
The basis of the reportable segments has changed during the year, reflecting
changes that have been made to internal reports used to assess performance and
allocate resources across each operating segment. UK Sports Retail and International
Sports Retail were previously reported as separate segments. These have now been
aggregated to form the reportable segment: Sports Retail. The prior year disclosures
have been restated to reflect this change.
Information regarding the Group’s reportable segments for the 52 weeks ended 27 April
2014, as well as a reconciliation of reported profit for the period to underlying EBITDA,
is presented on pages 54 to 56.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
53
Segmental information for the 52 weeks ended 27 April 2014:
Retail
(£’000)
Brands
(£’000)
Eliminations
(£’000)
Total
(£’000)
Sports Retail Premium Lifestyle Total Total
Sales to external customers 2,274,365 214,066 2,488,431 217,527 - 2,705,958
Sales to other segments 203 - 203 29,938 (30,141) -
Revenue 2,274,568 214,066 2,488,634 247,465 (30,141) 2,705,958
Gross profit 974,952 86,263 1,061,215 93,707 - 1,154,922
Operating profit before foreign exchange and exceptional items 254,736 (25,729) 229,007 23,825 - 252,832
Operating profit 251,762 (25,588) 226,174 22,957 - 249,131
Other investment costs 7,017
Finance income 891
Finance costs (19,853)
Share of profits of associated undertakings and joint ventures 2,266
Profit before taxation 239,452
Taxation (59,839)
Profit for the period 179,613
Sales to other segments are priced at cost plus a 10% mark-up.
Other segment items included in the income statement for the 52 weeks ended 27 April 2014:
Retail
(£’000)
Brands
(£’000)
Total
(£’000)
Sports Retail Premium Lifestyle Total
Depreciation 50,549 4,689 55,238 1,725 56,963
Amortisation 1,348 687 2,035 4,797 6,832
Impairment - - - 284 284
Information regarding segment assets and liabilities as at 27 April 2014 and capital expenditure for the 52 weeks then ended:
Sports Retail
(£’000)
Premium Lifestyle
(£’000)
Brands
(£’000)
Eliminations
(£’000)
Total
(£’000)
Investments in associated undertakings and joint ventures 42,176 - (413) - 41,763
Other assets 1,609,024 96,601 183,103 (229,752) 1,658,976
Total assets 1,651,200 96,601 182,690 (229,752) 1,700,739
Total liabilities (893,269) (123,554) (96,114) 229,752 (883,185)
Tangible asset additions 141,328 6,978 2,961 - 151,267
Intangible asset additions 33,912 434 3,011 - 37,357
Total capital expenditure 175,240 7,412 5,972 - 188,624
Segmental information for the 52 weeks ended 28 April 2013:
Retail
(£’000)
Brands
(£’000)
Eliminations
(£’000)
Total
(£’000)
Sports Retail Premium Lifestyle Total Total
Sales to external customers 1,833,264 143,321 1,976,585 208,995 - 2,185,580
Sales to other segments 8,288 - 8,288 33,807 (42,095) -
Revenue 1,841,552 143,321 1,984,873 242,802 (42,095) 2,185,580
Gross profit 738,281 62,655 800,936 93,822 - 894,758
Operating profit before foreign exchange and exceptional items 192,764 (1,059) 191,705 18,291 - 209,996
Operating profit 194,080 (980) 193,100 19,904 213,004
Other investment income 1,473
Finance income 1,117
Finance costs (9,688)
Share of profits of associated undertakings and joint ventures 1,320
Profit before taxation 207,226
Taxation (55,569)
Profit for the period 151,657
Sales to other segments are priced at cost plus a 10% mark-up.
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
54
FINANCIAL STATEMENTS
Other segment items included in the income statement for the 52 weeks ended 28 April 2013:
Retail
(£’000)
Brands
(£’000)
Total
(£’000)
Sports Retail Premium Lifestyle Total
Depreciation 43,521 1,906 45,427 2,493 47,920
Amortisation 81 113 194 4,482 4,676
Impairment 314 - 314 1,903 2,217
Information regarding segment assets and liabilities as at 28 April 2013 and capital expenditure for the 52 weeks then ended:
Sports Retail
(£’000)
Premium Lifestyle
(£’000)
Brands
(£’000)
Eliminations
(£’000)
Total
(£’000)
Investments in associated undertakings and joint ventures 32,117 - - - 32,117
Other assets 1,181,033 37,266 191,082 (32,915) 1,376,466
Total assets 1,213,150 37,266 191,082 (32,915) 1,408,583
Total liabilities (651,046) (43,914) (101,861) 32,915 (763,906)
Tangible asset additions 52,891 10,284 3,888 - 67,063
Intangible asset additions 1,460 3,447 1,823 - 6,730
Total capital expenditure 54,351 13,731 5,711 - 73,793
Geographic information
Segmental information for the 52 weeks ended 27 April 2014:
UK
(£’000)
Non-UK
(£’000)
Eliminations
(£’000)
Total
(£’000)
Segmental revenue from external customers 2,063,724 642,234 - 2,705,958
Total capital expenditure 84,956 103,668 - 188,624
Segmental assets 1,526,405 404,086 (229,752) 1,700,739
Segmental information for the 52 weeks ended 28 April 2013:
UK
(£’000)
Non-UK
(£’000)
Eliminations
(£’000)
Total
(£’000)
Segmental revenue from external customers 1,842,429 343,151 - 2,185,580
Total capital expenditure 59,556 14,237 - 73,793
Segmental assets 1,214,320 227,178 (32,915) 1,408,583
The following table reconciles the reported operating profit to the underlying EBITDA as it is one of the main measures used by the Chief Operating Decision Maker when reviewing
performance:
Reconciliation of operating profit to underlying EBITDA for the 52 week period ending 27 April 2014.
Sports Retail
(£’000)
Premium Lifestyle
(£’000)
Brands
(£’000)
Total
(£’000)
Operating prot 251,762 (25,588) 22,957 249,131
Depreciation 50,549 4,689 1,725 56,963
Impairment - - 284 284
Amortisation 1,348 687 4,797 6,832
Exceptional items 5,531 - - 5,531
Share of profit / (loss) of associated undertakings 2,679 - (413) 2,266
Reported EBITDA 311,869 (20,212) 29,350 321,007
Charges for the bonus share scheme 11,927 - - 11,927
Realised FX gain (2,557) (141) 868 (1,830)
Underlying EBITDA 321,239 (20,353) 30,218 331,104
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
55
Reconciliation of operating profit to underlying EBITDA for the 52 week period ending 28 April 2013.
Sports Retail
(£’000)
Premium Lifestyle
(£’000)
Brands
(£’000)
Total
(£’000)
Operating prot / (loss) 194,080 (980) 19,904 213,004
Depreciation 43,521 1,906 2,493 47,920
Impairment 314 - 1,903 2,217
Amortisation 81 113 4,482 4,676
Exceptional items - - (625) (625)
Share of profit / (loss) of associated undertakings 1,161 - (210) 951
Reported EBITDA 239,157 1,039 27,947 268,143
Charges for the bonus share scheme 22,183 - - 22,183
Realised FX gain (1,316) (79) (988) (2,383)
Underlying EBITDA 260,024 960 26,959 287,943
5. OTHER OPERATING INCOME
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Rent receivable 6,118 4,249
Other 2,465 2,950
8,583 7,199
6. EXCEPTIONAL ITEMS
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Profit on disposal of intangible asset - 625
Impairment of tangible assets (5,531) -
(5,531) 625
The impairment relates to assets in a newly acquired entity that were no longer required post acquisition.
7. OPERATING PROFIT
Operating profit for the period is stated after charging / (crediting)
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Foreign exchange gains (1,830) (2,383)
Depreciation of property, plant and equipment
- owned assets 56,963 47,920
Amortisation of intangible assets 6,832 4,676
Impairment of intangible assets 284 2,217
Operating lease rentals
- Land and buildings 127,341 93,320
- Other 708 699
Loss on disposal of tangible fixed assets - 2,636
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
56
FINANCIAL STATEMENTS
Services provided by the Group’s auditor
For the 52 weeks ended 27 April 2014 the remuneration of the auditors, Grant Thornton UK LLP and associated firms, was as detailed below:
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Audit services
Audit of the Company’s and the consolidated financial statements 85 83
Audit of subsidiary companies’ financial statements 585 585
Non-Audit services
Other services relating to taxation 249 260
All other services 208 86
8. EMPLOYEE COSTS
The average monthly number of employees, including Executive Directors, employed by the Group during the period was:
52 weeks ended
27 April 2014
(Number)
28 April 2013
(Number)
Retail stores 13,609 11,078
Distribution, administration and other 3,556 2,998
17,165
14,076
The aggregate payroll costs of the employees, including Executive Directors, were as follows:
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Wages and salaries 278,714 204,885
Social security costs 27,835 15,407
Pension costs 1,399 811
307,948 221,103
A share-based payment charge of £11,927,000 (2013: £22,183,000) was recognised in respect of share awards during the year. This is inclusive of the related charges for expected
national insurance contributions.
Aggregate emoluments of the Directors of the Company are summarised below:
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Aggregate emoluments 605 655
Further details of Directors’ remuneration are given in the Directors’ Remuneration Report on pages 33 to 40.
Details of certain key management remuneration are given in note 34.
9. OTHER INVESTMENT INCOME
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Profit on disposal of available-for-sale financial assets 5,413 -
Dividend income from investments 1,604 1,473
7,017 1,473
10. FINANCE INCOME
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Bank interest receivable 761 915
Other interest receivable 130 202
891 1,117
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
57
11. FINANCE COSTS
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Interest on bank loans and overdrafts 7,513 6,606
Interest on other loans and finance leases 600 590
Interest on retirement benefit obligations (note 24) 547 497
Fair value adjustment to forward foreign exchange contracts
(1)
11,193 1,995
19,853 9,688
(1)
The fair value adjustment to forward foreign exchange contracts relates to differences between the fair value of forward foreign currency contracts not designated for hedge
accounting from one period end to the next.
12. TAXATION
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Current tax 57,569 59,298
Adjustment in respect of prior periods (280) 1,476
57,289 60,774
Deferred tax (note 25) 2,550 (5,205)
59,839 55,569
Tax reconciliation
Prot before taxation 239,452 207,226
Taxation at the standard rate of tax in the UK of 23% (2013: 24%) 55,074 49,734
Tax effects of:
Expenses not deductible for tax purposes 1,445 1,669
Capital gain not deductible for tax purposes - (150)
Overseas tax losses 2,509 -
Other tax adjustments 1,011 1,584
Adjustments in respect of prior periods - Current tax (280) 1,476
Adjustments in respect of prior periods - Deferred tax 80 1,256
59,839 55,569
13. EARNINGS PER SHARE FROM TOTAL AND CONTINUING OPERATIONS ATTRIBUTABLE TO THE EQUITY SHAREHOLDERS
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders of the parent by the weighted average number of ordinary shares outstanding
during the year.
For diluted earnings per share, the weighted average number of shares, 585,513,537 (2013: 568,971,942), is adjusted to assume conversion of all dilutive potential ordinary
shares under the Group’s Bonus Share Schemes, being 32,676,278 (2013: 51,852,895), to give the diluted weighted average number of shares of 618,189,815 (2013: 620,824,837).
Basic and diluted earnings per share
52 weeks ended
27 April 2014
Basic
(£’000)
27 April 2014
Diluted
(£’000)
28 April 2013
Basic
(£’000)
28 April 2013
Diluted
(£’000)
Profit for the period 180,245 180,245 151,596 151,596
Number in thousands Number in thousands
Weighted average number of shares 585,514 618,190 568,972 620,825
Pence per share Pence per share
Earnings per share 30.8 29.2 26.6 24.4
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
58
FINANCIAL STATEMENTS
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 for the period. 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 certain non-trading items.
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.
52 weeks ended
27 April 2014
Basic
(£’000)
27 April 2014
Diluted
(£’000)
28 April 2013
Basic
(£’000)
28 April 2013
Diluted
(£’000)
Profit for the period 180,245 180,245 151,596 151,596
Post tax adjustments to prot for the period for the following non-trading items:
Realised gain on forward exchange contracts (1,373) (1,373) (1,763) (1,763)
Fair value adjustment to forward foreign exchange contracts 8,395 8,395 1,476 1,476
Profit on disposal of listed investments (4,060) (4,060) - -
Impairment of fixed assets 4,148 4,148 - -
Profit on sale of intangible assets - - (463) (463)
Fair value adjustments within associated undertakings - - (273) (273)
Impairment of goodwill 284 284 2,217 2,217
Underlying profit for the period 187,639 187,639 152,790 152,790
Number in thousands Number in thousands
Weighted average number of shares 585,514 618,190 568,972 620,825
Pence per share Pence per share
Underlying earnings per share 32.1 30.3 26.9 24.6
14. PROPERTY, PLANT AND EQUIPMENT
Freehold land
and buildings
(£’000)
Long-term leasehold
improvements
(£’000)
Short-term leasehold
improvements
(£’000)
Plant and
equipment
(£’000)
Total
(£’000)
Cost
At 29 April 2012 219,534 11,386 113,230 343,043 687,193
Exchange differences 289 16 - 3,706 4,011
Acquisitions 8,173 - 2,811 5,196 16,180
Additions 9,692 815 - 40,376 50,883
Eliminated on disposals (200) (256) (7,963) (5,066) (13,485)
At 28 April 2013 237,488 11,961 108,078 387,255 744,782
Exchange differences (3,634) 358 - (8,884) (12,160)
Acquisitions 68,448 39 - 15,476 83,963
Additions 20,808 904 6,591 39,001 67,304
Eliminated on disposals (754) (430) (2,228) (6,956) (10,368)
At 27 April 2014 322,356 12,832 112,441 425,892 873,521
Accumulated depreciation and impairment
At 29 April 2012 (32,684) (4,792) (73,257) (263,437) (374,170)
Exchange differences (93) (15) - (1,318) (1,426)
Charge for the period (731) (95) (6,742) (40,352) (47,920)
Eliminated on disposals 4 88 5,612 5,066 10,770
At 28 April 2013 (33,504) (4,814) (74,387) (300,041) (412,746)
Exchange differences 137 (137) (166) 7,229 7,063
Charge for the period (7,567) (150) (6,444) (42,802) (56,963)
Impairment - - - (5,531) (5,531)
Eliminated on disposals 745 - 995 5,277 7,017
At 27 April 2014 (40,189) (5,101) (80,002) (335,868) (461,160)
Net book amount
At 27 April 2014 282,167 7,731 32,439 90,024 412,361
At 28 April 2013 203,984 7,147 33,691 87,214 332,036
Additions in the prior year do not reconcile directly to the purchase of property, plant and equipment per the consolidated cash flow statement due to non-cash additions.
The impairment relates to assets in a newly acquired entity that were no longer required post acquisition.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
59
15. INTANGIBLE ASSETS
Goodwill
(£’000)
Trademarks and
licences
(£’000)
Brands
(£’000)
Total
(£’000)
Cost
At 29 April 2012 136,312 50,037 76,039 262,388
Arising on business combinations 6,731 - - 6,731
Additions through business combinations - 4,448 - 4,448
Other additions - 2,282 - 2,282
Exchange adjustment 3,895 1,128 4,952 9,975
At 28 April 2013 146,938 57,895 80,991 285,824
Arising on business combinations 30,683 - - 30,683
Additions through business combinations - 4,847 - 4,847
Other additions - 1,827 - 1,827
Disposals (4,053) (1,000) - (5,053)
Exchange adjustment (8,348) (1,473) (7,705) (17,526)
At 27 April 2014 165,220 62,096 73,286 300,602
Amortisation and impairment
At 29 April 2012 (14,581) (22,657) - (37,238)
Amortisation charge - (4,676) - (4,676)
Impairment (2,217) - - (2,217)
Exchange adjustment (335) (938) - (1,273)
At 28 April 2013 (17,133) (28,271) - (45,404)
Amortisation charge - (6,832) - (6,832)
Impairment (284) - - (284)
Disposals 3,897 1,000 - 4,897
Exchange adjustment 1,849 281 - 2,130
At 27 April 2014 (11,671) (33,822) - (45,493)
Net book amount
At 27 April 2014 153,549 28,274 73,286 255,109
At 28 April 2013 129,805 29,624 80,991 240,420
Amortisation is charged to selling, distribution and administrative expenses in the consolidated income statement.
The carrying value of goodwill and brands that are considered to have an indefinite life are allocated to the Group’s operating segments before aggregation. With the exception of
Everlast, none of the individual cash-generating units (CGUs) are considered material to goodwill or indefinite life intangibles (Brands). The carrying value of goodwill and brands
allocated to the Group’s CGUs, (as aggregated except in the case of Everlast), is shown below:
Goodwill
(£’000)
Brands
(£’000)
UK Sports Retail 9,820 8,500
International Sports Retail 34,691 -
Premium Lifestyle 13,692 -
Brands (excl. Everlast) 40,908 2,192
Everlast 54,438 62,594
153,549 73,286
The Group tests the carrying amount of goodwill and assets with an indefinite life annually for impairment or more frequently if there are indications that their carrying value might
be impaired. The carrying amounts of other intangible assets are reviewed for impairment if there is an indication of impairment.
Impairment is calculated by comparing the carrying amounts to the value in use derived from discounted cash flow projections for each CGU to which the intangible assets are
allocated. A CGU is deemed to be an individual fascia, these have been grouped together into similar classes for the purpose of formulating operating segments as reported in
note 4.
Value in use calculations are based on five year management forecasts with a terminal growth rate applied thereafter, representing management’s estimate of the long-term
growth rate of the sector served by the CGUs.
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
60
FINANCIAL STATEMENTS
The key assumptions, which are equally applicable to each CGU, in the cash flow projections used to support the carrying amount of goodwill and intangibles with indefinite lives
as at 27 April 2014 were as follows:
UK Sports Retail
International
Sports Retail Premium Lifestyle
Brands (excl.
Everlast) Everlast
Sales growth 5%-6% 5%-6% 3%-4% 6% 1% - 5%
Terminal sales growth 2% 2% 2% 2% 2%
Gross margin 35% - 45% 35% - 45% 40% - 50% 15% - 50% 25% - 30%
Capital expenditure Nil - £1m Nil - £1m Nil - £1m Nil - £1m Nil - £1m
Discount rates 11.83% 11.83% 11.83% 11.83% 18.67%
The Group Weighted Average Cost of Capital is used in UK Sports Retail, International Sports Retail, Premium Lifestyle and Brands (excl. Everlast) as these CGU’s are considered to
have similar risk profiles.
The key assumptions are based on management’s historical experience and future plans for each CGU.
A reasonably possible change in any key assumption would not cause the carrying value of any CGU to exceed its recoverable amount.
The intangible assets that have an indefinite life are brands and trading names and are considered to have an indefinite life on the grounds of the proven longevity of the brands
and trading names and the Group’s commitment to maintaining those brands.
All key assumptions are consistent with known external sources of information.
16. INVESTMENTS IN ASSOCIATED UNDERTAKINGS AND JOINT VENTURES
The Group uses the equity method of accounting for associates and joint ventures. The following table shows the aggregate movement in the Group’s investment in associates and
joint ventures:
Associates
(£’000)
At 29 April 2012 29,470
Exchange differences 1,301
Additions 26
Fair value adjustments to financial instruments 369
Share of profit 951
At 28 April 2013 32,117
Exchange differences (620)
Additions 8,000
Share of profit 2,266
At 27 April 2014 41,763
Associates
The business activity of Heatons is that of household, sporting and leisure goods retail. Heatons operates in the Republic of Ireland and Northern Ireland. The Directors do not
consider that they have significant influence over the financial and operating policies of Warrnambool, the parent company of Heatons, and so will continue to account for the
Company as an associate.
Heatons has a coterminous year end with the Group. There are no significant restrictions on the ability of associated undertakings to transfer funds to the parent, other than those
imposed by legal requirements.
The remaining associates are not material in the context of the Group accounts.
The Group’s share of associates’ assets, liabilities and income statement, which is included in the consolidated financial statements, is as follows:
27 April 2014
(£’000)
28 April 2013
(£’000)
Share of non-current assets 51,702 44,108
Share of current assets 24,459 18,889
Share of non-current liabilities (18,259) (19,153)
Share of current liabilities (16,139) (11,727)
41,763 32,117
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Income 95,751 97,791
Expenses (92,975) (95,991)
Profit before taxation 2,776 1,800
Taxation (510) (849)
Profit for the period 2,266 951
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
61
17. AVAILABLE-FOR-SALE FINANCIAL ASSETS
27 April 2014
(£’000)
28 April 2013
(£’000)
Available-for-sale financial assets 116,504 47,645
The fair value of the available-for-sale investments is based on bid quoted market prices at the balance sheet date.
The following table shows the aggregate movement in the Group’s financial assets during the year:
27 April 2014
(£’000)
28 April 2013
(£’000)
At beginning of period 47,645 46,634
Additions 55,467 -
Disposals (43,981) -
Revaluation through other comprehensive income 57,373 1,011
At end of period 116,504 47,645
The disposal above relates to financial assets that were acquired in the year and therefore there is no reclassification adjustment between equity and the income statement on
disposal.
The financial assets at 27 April 2014 relate to strategic investments held of between 11.1% and 11.8% in share capital.
At 28 April 2013 and 27 April 2014 the Group had no investments in excess of 20% of share capital.
18. INVENTORIES
27 April 2014
(£’000)
28 April 2013
(£’000)
Raw materials 147 3,861
Goods for resale 565,332 443,101
565,479
446,962
The following inventory costs have been recognised in cost of sales:
27 April 2014
(£’000)
28 April 2013
(£’000)
Cost of inventories recognised as an expense 1,551,036 1,290,822
19. TRADE AND OTHER RECEIVABLES
27 April 2014
(£’000)
28 April 2013
(£’000)
Trade receivables 60,851 50,417
Amounts owed by related parties 7,450 7,564
Other debtors 19,060 8,804
Prepayments 35,653 29,326
123,014 96,111
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. The maximum exposure to credit risk at the reporting date is the
carrying value of each class of asset above, plus any cash balances.
Ageing of trade receivables:
27 April 2014
(£’000)
28 April 2013
(£’000)
Current 34,667 36,786
0-30 days past due 18,467 5,513
30-60 days past due 3,713 1,759
60-90 days past due 1,194 2,082
Over 90 days past due 2,810 4,277
60,851 50,417
The credit quality of assets neither past due nor impaired is considered to be good.
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
62
FINANCIAL STATEMENTS
The movement in the bad debt provision can be analysed as follows:
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Opening position 6,674 4,061
Amounts charged to the income statement 2,343 3,322
Amounts written off as uncollectable (649) (520)
Amounts recovered during the year (32) (189)
Closing position 8,336 6,674
The Group has no significant concentration of credit risk, with exposure spread over a large number of customers. These bad debt provisions / charges have been determined by
reference to past default experience and knowledge of the individual circumstances of certain receivables.
The other classes within trade and other receivables do not include impaired assets.
20. CASH AND CASH EQUIVALENTS
27 April 2014
(£’000)
28 April 2013
(£’000)
Cash in bank and in hand - Sterling 113,327 106,617
Cash in bank and in hand - US dollars 15,874 17,309
Cash in bank and in hand - Euros 21,443 22,706
Cash in bank and in hand - Other 380 743
151,024 147,375
Bank overdraft (note 23) (5,742) (5,701)
Cash and cash equivalents including overdrafts at period end 145,282 141,674
21. SHARE CAPITAL
27 April 2014
(£’000)
28 April 2013
(£’000)
Authorised
999,500,010 ordinary shares of 10p each 99,950 99,950
499,990 redeemable preference shares of 10p each 50 50
100,000 100,000
Allotted, called up and fully paid
640,602,369 (2013: 640,602,369) ordinary shares of 10p each 64,060 64,060
Share Capital
At 28 April 2013 and 27 April 2014 64,060 64,060
The Group holds 42,137,508 shares in Treasury.
On 6 August 2013, Appleby Trust (Jersey) Limited, as trustee of the Sports Direct Employee Benefit Trust (the “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 2013 the 4,000,000 shares granted under the 2009 Executive Bonus Share Scheme vested. At 27 April 2014, the trust held 6,170,490 shares.
Contingent share awards
The Executive Bonus Share Scheme
Under the terms of the Executive Bonus Share Scheme, which was approved by Shareholders on 10 September 2010 and is a Revenue approved scheme, the Board may make share
awards in respect of the ordinary shares in the company. Awards may be made to Executives and Persons Discharging Managerial Responsibilities over a fixed number of shares
subject to performance conditions. Further details are set out in the Remuneration Report on pages 33 to 40.
An award of 8,073,036 shares was granted on 10 September 2010 at a share price of 125.5 pence, 4,000,000 of these shares have since vested and 1,000,000 have since lapsed.
These shares will only vest if the performance conditions (EBITDA targets) and service conditions (continued employment) are met. No consideration is payable in respect of these
awards.
The Bonus Share Scheme
The 2011 Bonus Share Scheme was approved by the Board on 10 September 2010. The first award of 30,000,000 shares were granted on 10 September 2010 at an average price of
125.5 pence. At 27 April 2014 22,672,000 (28 April 2013: 22,672,000) remained outstanding. These shares will only vest if the performance conditions (EBITDA targets) and service
conditions (continued employment) are met over the next year.
A share-based payment charge of £11,927,000 was recognised in respect of these share awards for the 52 weeks ended 27 April 2014, based on the Directors’ best estimate of the
number of shares that will vest. The charge is calculated based on the fair value on the grant date, which is deemed to be the date on which the entity and counterparty reached a
shared understanding of the scheme.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
63
22. OTHER RESERVES
Share
capital
(£’000)
Share
premium
(£’000)
Permanent
contribution to
capital
(£’000)
Capital
redemption
reserve
(£’000)
Reverse
combination
reserve
(£’000)
Hedging
reserve
(£’000)
Total other
reserves
(£’000)
At 29 April 2012 64,060 874,300 50 8,005 (987,312) 417 (40,480)
Cash flow hedges
- recognised in the period - - - - - 15,408 15,408
- reclassified and reported in net profit - - - - - 196 196
At 28 April 2013 64,060 874,300 50 8,005 (987,312) 16,021 (24,876)
Cash flow hedges
- recognised in the period - - - - - (3,737) (3,737)
- reclassified and reported in net profit - - - - - (17,909) (17,909)
At 27 April 2014 64,060 874,300 50 8,005 (987,312) (5,625) (46,522)
The share premium account is used to record the excess proceeds over nominal value on the issue of shares.
The permanent contribution to capital relates to a cash payment of £50,000 to the Company on 8 February 2007 under a deed of capital contribution.
The capital redemption reserve arose on the redemption of the Company’s redeemable preference shares of 10p each at par on 2 March 2007.
The reverse combination reserve exists as a result of the adoption of the principles of reverse acquisition accounting in accounting for the group restructuring which occurred on
2 March 2007 and 29 March 2007 between the Company and Sports World International Limited, Brands Holdings Limited, International Brand Management Limited and CDS
Holdings SA with Sports World International Limited as the acquirer.
The hedging reserve represents the cumulative amount of gains and losses on hedging instruments deemed effective in cash flow hedges. The cumulative deferred gain or loss on
the hedging instrument is recognised in the income statement only when the hedged transaction impacts the income statement.
Other Balance Sheet Reserves
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and associates.
The own shares and treasury shares reserve represent the cost of shares in Sports Direct International plc purchased in the market and held by Sports Direct International plc
Employee Benefit Trust to satisfy options under the Group’s share options scheme, see note 21.
23. BORROWINGS
27 April 2014
(£’000)
28 April 2013
(£’000)
Non-current:
Bank and other loans 6,764 245,625
Obligations under finance leases - 2
6,764 245,627
Current:
Bank overdrafts 5,742 5,701
Bank and other loans 350,484 50,052
356,226 55,753
Total borrowings:
Bank overdrafts 5,742 5,701
Bank and other loans 357,248 295,677
Obligations under finance leases - 2
362,990 301,380
An analysis of the Group’s total borrowings other than bank overdrafts is as follows:
27 April 2014
(£’000)
28 April 2013
(£’000)
Borrowings — Sterling 240,731 250,203
Borrowings — Other 116,517 45,476
357,248 295,679
Loans are all at rates of interest ranging between 1.15% and 2.0% over the interbank rate of the country within which the borrowing entity resides.
At 27 April 2014 the company had access to the following unsecured working capital facilities:
• a revolving facility agreement with ten financial institutions, with HSBC Bank plc acting as Agent of £300 million. At the year end a total of £214 million was drawn down
against this facility
• a revolving facility agreement with Barclays Bank plc with an aggregate limit of £50 million. At the year end this facility was fully drawn down
• a revolving facility agreement with Handelsbanken plc with an aggregate limit of £25 million. At the year end this facility was fully drawn down
All of the above facilities were available until 6 March 2015.
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
64
FINANCIAL STATEMENTS
On 28 May 2014 the company refinanced the above facilities and entered into a new committed unsecured revolving facility agreement with thirteen financial institutions, with
Barclays Bank plc acting as Agent. This revolving facility can be drawn to an aggregate limit of £688 million and is available until 27 September 2018.
The Group continues to operate comfortably within its banking facilities and covenants.
The carrying amounts and fair value of the borrowings are not materially different.
Net debt at 27 April 2014 was £212.0m (29 April 2013: £154.0m).
24. RETIREMENT BENEFIT OBLIGATIONS
The Group’s defined benefit pension obligations relate to Dunlop Slazenger Group Holdings Limited (“DSGHL”), which was acquired on 28 January 2004. DSGHL operates a number
of plans worldwide, the largest of which is of the funded defined benefit type. The Scheme has been closed to new members since 2005.
The amounts for the current and previous four periods following the acquisition of DSGHL are as follows:
27 April 2014
(£’000)
28 April 2013
(£’000)
29 April 2012
(£’000)
24 April 2011
(£’000)
25 April 2010
(£’000)
Total fair value of plan assets 49,498 47,411 40,105 36,858 33,149
Present value of plan liabilities (64,848) (67,351) (59,423) (53,044) (52,888)
Net plan obligations (15,350) (19,940) (19,318) (16,186) (19,739)
Experience adjustments on plan liabilities (46) (7,190) (5,539) 869 (12,645)
Experience adjustments on plan assets 3,906 4,372 38 1,208 4,461
The cumulative amount of actuarial gains and losses recognised in other comprehensive income as at 27 April 2014 was an actuarial loss of £10,195,000 (2013: actuarial loss of
£13,519,000).
There were no unrecognised actuarial gains or losses or past service costs as at 28 April 2013 or 27 April 2014.
Amounts recognised in the income statement are as follows:
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Current service cost 22 14
Net interest expense 547 497
569 511
The current service cost is included within cost of sales. The net interest expense is included within finance costs.
Amounts recognised in other comprehensive income is as follows:
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Actual return on scheme assets excluding amounts included in net interest income (46) 4,372
Actuarial gains/(losses) relating to plan liabilities 3,906 (7,190)
3,860 (2,818)
The actual return on plan assets for the 52 weeks ended 27 April 2014 was a gain of £1,855,000 (2013: gain of £6,321,000).
The movements in the fair value of plan assets are as follows:
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
At the start of the period 47,411 40,105
Interest income based on discount rate 1,901 1,949
Actuarial (loss)/gain (46) 4,372
Employer contributions 2,708 2,708
Employee contributions 12 11
Benefits paid out (2,488) (1,734)
At the end of the period 49,498 47,411
The Group expects to contribute £2,720,000 to its defined benefit pension plans for the 52 weeks ended 26 April 2015.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
65
The plan asset mix was as follows:
27 April 2014
(£’000)
28 April 2013
(£’000)
Equities 22,807 23,555
Bonds 26,313 23,149
Cash and other 378 707
49,498 47,411
The fair values of the above investments are determined based on publicly available market prices wherever available. Unquoted investments are stated at fair value estimates
provided by the manager of the investment or fund.
The principal assumptions underlying the actuarial assessments are:
27 April 2014
(%)
28 April 2013
(%)
Inflation rate 3.4 3.3
Future pension increases 3.3 3.3
Discount rate 4.3 4.0
Mortality assumptions:
27 April 2014 28 April 2013
Life expectancy at 65 at period end:
Future pensioners – male 87.7 87.6
Future pensioners – female 90.2 89.8
Current pensioners – male 86.0 86.2
Current pensioners – female 88.3 88.3
The movements in the present value of the plan liabilities are as follows:
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
At the start of the period (67,351) (59,423)
Current service cost (22) (14)
Interest cost (2,429) (2,446)
Actuarial gain/(loss) 3,906 (7,190)
Employee contributions (12) (11)
Benefits paid out 2,488 1,734
Exchange gain / (loss) 806 (1)
Acquisitions (note 29) (2,234) -
At the end of the period (64,848) (67,351)
The net movements in the net present value of the plan liabilities were as follows:
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Net liability at the start of the period (19,940) (19,318)
Movement in fair value of plan assets 2,087 7,306
Movements in the present value of the plan liabilities 2,503 (7,928)
Net liability at the end of the period (15,350) (19,940)
In addition to the amounts recognised in relation to the defined benefit retirement plans, amounts of £519,000 and £155,000 have been recognised in the income statement for the
periods ended 28 April 2013 and 27 April 2014 in relation to defined contribution retirement benefit plans.
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
66
FINANCIAL STATEMENTS
25. DEFERRED TAX ASSET AND LIABILITIES
Accounts
depreciation
exceeding tax
depreciation (£’000)
Tax losses
recoverable
(£’000)
Pension plan
liabilities
(£’000)
Other temporary
differences
(£’000)
Total
(£’000)
At 29 April 2012 1,320 525 6,212 (1,221) 6,836
Credited / (charged) to the income statement 1,080 (986) (259) 5,370 5,205
Credited to the statement of other comprehensive income - - 648 3,988 4,636
Credited to reserves in respect of Bonus Share Scheme - - - 6,297 6,297
At 28 April 2013 2,400 (461) 6,601 14,434 22,974
Credited / (charged) to the income statement 2,142 (24) (275) (4,393) (2,550)
Credited to the statement of other comprehensive income - - (698) (4,170) (4,868)
Credited to reserves in respect of Bonus Share Scheme - - - (11,214) (11,214)
Arising on acquisition - 2,742 - - 2,742
At 27 April 2014 4,542 2,257 5,628 (5,343) 7,084
27 April 2014
(£’000)
28 April 2013
(£’000)
Deferred tax assets 31,130 47,952
Deferred tax liabilities (24,046) (24,978)
Net deferred tax balance 7,084 22,974
The tax rate used to measure the deferred tax assets and liabilities was 21% on the basis this was the tax rate that was substantively enacted at the balance sheet date.
Deferred tax assets are recognised for tax losses recoverable and pension plan liabilities to the extent that realisation of the related tax benefit is probable on the basis of the
Group’s current expectations of future taxable profits.
Included within other temporary differences is a deferred tax asset in relation to the bonus share scheme and a deferred tax liability recognised on other intangible assets upon
acquisition.
The deferred tax effects of the acquisitions made in the year were considered and it was determined that there was no material impact on the group or the fair value of net assets
acquired.
26. PROVISIONS
Dilapidations
(£’000)
Onerous contracts
and other
property costs
(£’000)
Total
(£’000)
At 28 April 2013 31,838 9,234 41,072
Amounts provided 2,390 1,589 3,979
Amounts utilised (19) (1,517) (1,536)
Amounts reversed (366) (5,369) (5,735)
At 27 April 2014 33,843 3,937 37,780
The dilapidations provision is the best estimate of the present value of expenditure expected to be incurred by the Group in order to satisfy its obligations to restore its leasehold
premises to the condition required under the lease agreements at the end of the lease discounted at 5% per annum. The provision is expected to be utilised over the period to the
end of each specific lease.
The provision in respect of onerous lease contracts represents the net cost of fulfilling the Group’s obligations over the terms of these contracts discounted at 5% per annum. The
provision is expected to be utilised over the period to the end of each specific lease.
The unwinding of the discount on provision over time passes through the income statement.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
67
27. FINANCIAL INSTRUMENTS
(a) Financial assets and liabilities by category
The carrying values of financial assets and liabilities, which are principally denominated in Sterling or US dollars, were as follows:
Loans and
receivables
(£’000)
Assets at fair
value through
prot and loss
(£’000)
Available for sale
nancial assets
(£’000)
Non-nancial
assets
(£’000)
Total
(£’000)
Assets - 2014
Property, plant and equipment - - - 412,361 412,361
Intangible assets - - - 255,109 255,109
Investments in associated undertakings and joint ventures - - - 41,763 41,763
Available-for-sale nancial assets - - 116,504 - 116,504
Deferred tax assets - - - 31,130 31,130
Inventories - - - 565,479 565,479
Derivative nancial assets - 4,355 - - 4,355
Trade and other receivables 60,851 - - 62,163 123,014
Cash and cash equivalents 151,024 - - - 151,024
211,875 4,355 116,504 1,368,005 1,700,739
Assets - 2013
Property, plant and equipment - - - 332,036 332,036
Intangible assets - - - 240,420 240,420
Investments in associated undertakings and joint ventures - - - 32,117 32,117
Available-for-sale financial assets - - 47,645 - 47,645
Deferred tax assets - - - 47,952 47,952
Inventories - - - 446,962 446,962
Derivative financial assets - 17,965 - - 17,965
Trade and other receivables 66,785 - - 29,326 96,111
Cash and cash equivalents 147,375 - - - 147,375
214,160 17,965 47,645 1,128,813 1,408,583
Loans and payables
(£’000)
Liabilities at fair
value through prot
and loss
(£’000)
Non-nancial
liabilities
(£’000)
Total
(£’000)
Liabilities - 2014
Non-current borrowings 6,764 - - 6,764
Retirement benet obligations - - 15,350 15,350
Deferred tax liabilities - - 24,046 24,046
Provisions - - 37,780 37,780
Derivative nancial liabilities - 18,665 - 18,665
Trade and other payables 239,463 - 152,556 392,019
Current borrowings 356,226 - - 356,226
Current tax liabilities - - 32,335 32,335
602,453 18,665 262,067 883,185
Liabilities - 2013
Non-current borrowings 245,625 - 2 245,627
Retirement benefit obligations - - 19,940 19,940
Deferred tax liabilities - - 24,978 24,978
Provisions - - 41,072 41,072
Trade and other payables 263,943 - 56,318 320,261
Current borrowings 55,753 - - 55,753
Current tax liabilities - - 56,275 56,275
565,321 - 198,585 763,906
Carrying values do not materially differ from fair value.
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
68
FINANCIAL STATEMENTS
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
• Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
As at 27 April 2014, the only financial instruments held at fair value were Derivative financial assets and liabilities, which are classified as Level 2, and Available-for-sale financial
assets, which are classified as Level 1.
(b) Derivatives: foreign currency forward purchase contracts
The most significant exposure to foreign exchange fluctuations relates to purchases made in foreign currencies, principally the US dollar. The Group’s policy is to reduce
substantially the risk associated with foreign currency spot rates by using forward fixed rate currency purchase contracts, taking into account any foreign currency cash flows. The
Group does not hold or issue derivative financial instruments for trading purposes, however if derivatives do not qualify for hedge accounting they are accounted for as such and
accordingly any gain or loss is recognised immediately in the income statement.
The carrying values of forward foreign currency purchase contracts were as follows:
27 April 2014
(£’000)
28 April 2013
(£’000)
Fair value of derivative financial instruments - assets 4,355 17,965
Fair value of derivative financial instruments – (liabilities) (18,665) -
The sterling principal amounts of forward foreign currency purchase contracts and contracted forward rates were as follows:
27 April 2014
(£’000)
28 April 2013
(£’000)
US dollar purchases 540,349 285,000
Contracted rates 1.61 – 1.71 1.63
Euro sales - (44,031)
Contracted rates - 1.13-1.14
At 27 April 2014 £540m of forward US dollar purchase contracts qualified for hedge accounting and the loss on fair valuation of these contracts of £21.6m has therefore been
recognised in other comprehensive income. This amount is split between a loss of £3.7m recognised in the period and a loss of £17.9m reclassified in the period.
Forward foreign currency purchase and sale contracts generally have a maturity at inception of approximately 12 months. At 27 April 2014 £245m of purchase contracts had a
maturity at inception of greater than 12 months (2013: £nil of purchase contracts and £nil of sale contracts).
(c) Sensitivity analysis
Foreign currency sensitivity analysis
The Group’s principal foreign currency exposures are to US dollars and the Euro. The table below illustrates the hypothetical sensitivity of the Group’s reported profit and equity to
a 5% increase and decrease in the US dollar / Sterling and Euro / Sterling exchange rates at the year end date, assuming all other variables remain unchanged. The figures have
been calculated by comparing the fair values of outstanding foreign currency contracts at the current exchange rate to those if exchange rates moved as illustrated. The income
statement figures include the profit effect of any relevant derivatives which are not in a designated cash flow hedge. The impact on US dollar related hedging instruments is
included in equity.
Positive figures represent an increase / (decrease) in profit or equity:
Income statement Equity
27 April 2014
(£’000)
28 April 2013
(£’000)
27 April 2014
(£’000)
28 April 2013
(£’000)
Sterling strengthens by 5%
US dollar 812 1 (5,205) (1,783)
Euro 2,218 34 2,218 34
Sterling weakens by 5%
US dollar (852) (702) 5,465 1,872
Euro (2,329) (35) (2,329) (35)
Interest rate sensitivity analysis
The following table illustrates the hypothetical sensitivity of the Group’s reported profit and equity to a 0.5% increase or decrease in interest rates, assuming all other variables
were unchanged.
The analysis has been prepared using the following assumptions:
• For floating rate assets and liabilities, the amount of asset or liability outstanding at the balance sheet date is assumed to have been outstanding for the
whole year.
• Fixed rate financial instruments that are carried at amortised cost are not subject to interest rate risk for the purpose of this analysis.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
69
Positive figures represent an increase in profit or equity:
Income statement Equity
27 April 2014
(£’000)
28 April 2013
(£’000)
27 April 2014
(£’000)
28 April 2013
(£’000)
Interest rate increase of 0.5% (1,690) (1,507) (1,690) (1,507)
Interest rate decrease of 0.5% 1,690 1,507 1,690 1,507
(d) Liquidity risk
The table below shows the maturity analysis of the undiscounted remaining contractual cash flows of the Group’s financial liabilities:
Less than 1 year
(£’000)
1 to 2 years
(£’000)
2 to 5 years
(£’000)
Over 5 years
(£’000)
Total
(£’000)
2014
Bank loans and overdrafts 356,226 1,731 5,237 - 363,193
Trade and other payables 239,463 - - - 239,463
Derivative nancial liabilities
Cash inows (401,718) (105,177) - - (506,895)
Cash outows 414,776 105,263 - - 520,039
608,747 1,817 5,237 - 615,800
2013
Bank loans and overdrafts 50,450 102 250,228 2,256 303,036
Obligations under finance leases - 1 1 - 2
Trade and other payables 169,976 - - - 169,976
Derivative financial liabilities
Cash inflows (344,439) - - - (344,439)
Cash outflows 327,087 - - - 327,087
203,074 103 250,229 2,256 455,662
Capital management
The capital structure of the Group consists of equity attributable to the equity holders of the parent, compromising issued share capital, share premium and retained earnings and
cash and borrowings.
It is the Group’s policy to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the development of the business.
In respect of equity, the Board have decided that, in order to maximise flexibility in the near term with regards to a number of inorganic growth opportunities under review, not to
return any cash by way of a dividend at this time.
The Board is committed to keeping this policy under review and that it would look to evaluate alternative methods of returning cash to shareholders when appropriate.
The objective of the Bonus Share Scheme is to encourage employee share ownership and to link employee’s remuneration to the performance of the company. It is not designed as a
means of managing capital.
In respect of cash and borrowings the Board regularly monitors the ratio of net debt to underlying EBITDA, the working capital requirements and forecasted cash flows however no
minimum or maximum ratios are set. The ratio for net debt to reported underlying EBITDA , excluding charges for the bonus share schemes, is 0.64 (2013: 0.58). The objective is to
keep this figure below 2.5.
Based on this analysis, the Board determines the appropriate return to equity holders whilst ensuring sufficient capital is retained within the Group to meet its strategic objectives,
including but not limited to, acquisition opportunities.
These capital management policies have remained unchanged from the prior year.
28. TRADE AND OTHER PAYABLES
27 April 2014
(£’000)
28 April 2013
(£’000)
Trade payables 239,463 169,976
Amounts owed to related undertakings 22 167
Other taxes including social security costs 22,230 23,684
Other payables 10,263 32,634
Accruals 120,041 93,800
392,019 320,261
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
FINANCIAL STATEMENTS
70
FINANCIAL STATEMENTS
29. ACQUISITIONS
Details of principal acquisitions for the 52 weeks ended 27 April 2014 are set out below.
i. 29 April 2013 Acquired the remaining 20% of the ordinary share capital of Cruise Clothing Limited. As this is an acquisition of a non-controlling interest it is outside
the scope of IFRS 3. The difference between the consideration paid (£1.0m) and the value of non-controlling interests at the date of acquisition (£0.6m)
has been recognised as a debit to retained earnings of £0.4m.
ii. 21 June 2013 Acquired the trading assets of Gelert out of administration for cash consideration of £4.7m. The primary business activity was the wholesale and retail
of outdoor sporting equipment and clothing and was acquired to complement existing business activities.
iii. 28 June 2013 Acquired 51% of the ordinary share capital of the Sports Eybl and Sports Experts Group (EAG), a retailer with 58 stores based in Austria, for consideration
of €10.5m. The primary business activity was the sale of sporting equipment and clothing, and was acquired in order to enter new territories as part of
the Group’s European expansion plan.
In addition the Group entered into a put and call agreement to acquire the remaining 49%. This option was exercised on 26 March 2014 for
consideration of €12.75m such that the Group now has full control and ownership of EAG which better enables the Group to implement its plans and
strategy in this region.
As this is an acquisition of a non-controlling interest it is outside the scope of IFRS 3. The difference between the consideration paid (£11.1m) and the
value of non-controlling interests at the date of acquisition (£8.5m) has been recognised as a debit to retained earnings of £19.5m.
iv. 12 August 2013 Acquired 60% of the ordinary share capital of SIG, based in the Baltic region, for cash consideration of €7.0m. The primary business activity was the sale
of sporting equipment and clothing and was acquired in order to enter new territories as part of the Group’s European expansion plan.
In addition to acquiring 60% of the share capital of SIG, the Group entered into a call option to acquire the remaining 40%. The risks and rewards of
ownership of the remaining 40% remain with the non-controlling interests and therefore the option is accounted for separately. The call option has been
recognised at fair value through profit or loss using the usual method of accounting for derivatives at their net fair value. At the year end date no value
has been attributed to the option.
The fair value of consideration paid, assets and liabilities acquired and resulting goodwill in respect of the above acquisitions is detailed below.
EAG
(£’000)
SIG
(£’000)
Other
(£’000)
Total
(£’000)
Cash consideration 9,060 5,989 6,450 21,499
Less: fair value of net liabilities/(assets) acquired 10,805 3,500 (5,121) 9,184
Goodwill 19,865 9,489 1,329 30,683
The strategic rationale for the acquisitions of EAG and SIG was to enter into new European territories in accordance with the Group’s stated strategy. The premium paid represents
the local employee and management expertise and ready-made infrastructure in these markets for which a value cannot be attributed to under IFRS3.
In accounting for these acquisitions the Group has considered whether any fair value adjustments to the assets and liabilities, including any separately identifiable intangible
assets, need to be recognised.
The following items were considered by the Group:
Freehold property – the majority of the £80.6m of property, plant and equipment in the EAG balance sheet is freehold property. The Group referred to a property valuation report that
was prepared shortly before the acquisition which provided comfort that the book value was not materially different to market value. Accordingly no fair value adjustment has been
made.
Brands / Contracts – the principal activities of both EAG and SIG are the retailing of third-party branded products. There were no internally generated brands or other commercial
contracts that formed part of the acquisition.
Fascia names – both EAG and SIG trade from established fascia names. The Group considered the value of these fascia names using the current level of retail sales and an
indicative royalty rate discounted at an appropriate risk adjusted cost of capital. This exercise indicated that there was no material value to be attributed to the fascia names.
Accordingly no fair value adjustment has been made.
Websites – the websites acquired were not generating profits and therefore no value has been attributed to them.
Operating leases – there are a number of operating leases within both EAG and SIG. The Group consider the rentals payable under these leases to be approximate to market value.
Accordingly no fair value adjustment has been made for intangible assets relating to operating leases. The Group did identify that no provision had been made locally in respect of
loss making stores and therefore a fair value adjustment has been recognised to align this with the Group’s policy.
Costs of £1.2m relating to the above acquisitions were expensed through the income statement during the year and were expensed as administration expenses.
None of the acquisitions included in ‘other’ above are considered to be individually material.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
71
EAG
The asset values at acquisition are detailed below:
Carrying values
at acquisition
(£’000)
Fair value
adjustment
(£’000)
Fair value of net
assets acquired
(£’000)
Property, plant and equipment 80,601 - 80,601
Intangible assets 9,117 (5,825) 3,292
Investments 535 - 535
Deferred tax assets 2,742 - 2,742
Inventories 42,634 - 42,634
Trade and other receivables 4,526 - 4,526
Cash and cash equivalents 5,450 - 5,450
Borrowings (93,912) - (93,912)
Retirement benefit obligations (2,234) - (2,234)
Trade and other payables (60,903) (1,565) (62,468)
Provisions - (433) (433)
Non-controlling interests 5,608 2,854 8,462
(5,836) (4,969) (10,805)
There is no material difference between the gross and net amounts of receivables acquired.
The fair value adjustments noted above relate to the consolidated goodwill within the books of EAG on acquisition and adjustments to employment related creditors.
Cash flows arising from the acquisition are as follows:
27 April 2014
(£’000)
Cash consideration 9,060
Cash acquired (5,450)
Net cash outflow in the cash flow statement 3,610
SIG
The asset values at acquisition are detailed below:
Carrying values
at acquisition
(£’000)
Provisional fair value
adjustment
(£’000)
Fair value of net
assets acquired
(£’000)
Property, plant and equipment 2,056 - 2,056
Intangible assets 155 - 155
Inventories 14,456 - 14,456
Trade and other receivables 2,928 - 2,928
Cash and cash equivalents 530 - 530
Borrowings (13,590) - (13,590)
Trade and other payables (12,514) - (12,514)
Non-controlling interests 2,479 - 2,479
(3,500) - (3,500)
Cash flows arising from the acquisition are as follows:
27 April 2014
(£’000)
Cash consideration 5,989
Cash acquired (530)
Net cash outflow in the cash flow statement 5,459
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
FINANCIAL STATEMENTS
72
FINANCIAL STATEMENTS
Other acquisitions
The asset values at acquisition are detailed below:
Carrying values
at acquisition
(£’000)
Provisional fair value
adjustment
(£’000)
Fair value of net
assets acquired
(£’000)
Property, plant and equipment 1,306 - 1,306
Intangible assets 1,400 - 1,400
Inventories 8,906 - 8,906
Trade and other receivables 1,208 - 1,208
Cash and cash equivalents 112 - 112
Borrowings (1,609) - (1,609)
Trade and other payables (5,774) - (5,774)
Non-controlling interests (428) - (428)
5,121 - 5,121
Cash flows arising from the acquisition are as follows:
27 April 2014
(£’000)
Cash consideration 6,450
Cash acquired (112)
Net cash outflow in the cash flow statement 6,338
Since the date of acquisition the following balances have been included within the Group’s financial statements for the period in respect of the above acquired entities:
EAG
(£’000)
SIG
(£’000)
Other
(£’000)
Total
(£’000)
Revenue 214,598 39,901 22,153 276,652
Operating (loss) / profit (8,658) 457 (3,738) (11,939)
(Loss) / profit before tax (10,910) 195 (3,770) (14,485)
Had the above acquisitions been included from the start of the period, £2,754,000,000 of revenue, £253,386,000 of operating profit and £237,627,000 of profit before tax would
have been shown in the Group’s financial statements.
There were no contingent liabilities acquired as a result of the above transactions.
30. CASH INFLOW FROM OPERATING ACTIVITIES
52 weeks ended
27 April 2014
(£’000)
28 April 2013
(£’000)
Profit before taxation 239,452 207,226
Net finance costs 18,962 8,571
Other investment income (7,017) (1,473)
Share of profits of associated undertakings and joint ventures (2,266) (1,320)
Operating profit 249,131 213,004
Depreciation 56,963 47,920
Amortisation 6,832 4,676
Impairment 5,815 2,217
Profit on disposal of intangibles - (625)
Defined benefit pension plan current service cost 22 14
Defined benefit pension plan employer contributions (2,708) (2,708)
Share-based payments 11,927 22,183
Operating cash inflow before changes in working capital 327,982 286,681
Increase in receivables (18,241) (6,579)
Increase in inventories (52,521) (102,026)
Decrease in payables (34,435) (18,982)
Cash inflows from operating activities 222,785 159,094
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
73
31. OPERATING LEASE ARRANGEMENTS
As at 27 April 2014 the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
27 April 2014
(£’000)
28 April 2013
(£’000)
Land and buildings
Within one year 99,041 88,044
In the second to fifth years inclusive 329,163 306,390
After five years 242,297 245,896
670,501 640,330
The leases have varying terms, escalation clauses and renewal rights. There are no clauses in relation to restrictions concerning dividends, additional debt and further leasing
within our portfolio. Contingent rents are payable on certain store leases based on store revenue. For those leases that are turnover-related leases, the annual net lease
commitment is calculated using the estimated lease liability and any changes in the rental charge are accounted for when known. Amounts of £2,213,762 (2013: £5,641,000) were
charged to the income statement in relation to contingent rent.
The Group sub-lets certain stand-alone retail stores which are no longer operated by the Group. The property rental income earned during the 52 weeks ended 27 April 2014 was
£6,118,000 (2013: £4,249,000).
As at 27 April 2014, the Group had contracts with sub-tenants for the following future minimum lease rentals:
27 April 2014
(£’000)
28 April 2013
(£’000)
Land and buildings
Within one year 5,800 3,851
In the second to fifth years inclusive 17,812 13,147
After five years 22,388 15,124
46,000 32,122
32. CAPITAL COMMITMENTS
The Group had capital commitments of £Nil million as at 27 April 2014 (2013: £5.8 million).
33. CONTINGENT ASSETS AND LIABILITIES
There were no material contingent assets or liabilities at the balance sheet date.
34. RELATED PARTY TRANSACTIONS
The Group has taken advantage of the exemptions contained within IAS 24 - “Related Party Disclosures” from the requirement to disclose transactions between Group companies
as these have been eliminated on consolidation.
The Group entered into the following material transactions with related parties:
52 weeks ended 27 April 2014
Relationship
Sales
(£’000)
Purchases
(£’000)
Trade and other
receivables
(£’000)
Trade and other
payables
(£’000)
Related party
Heatons Associate 28,759 - 5,271 -
Brasher Leisure Limited Associate 11,508 209 2,179 -
Newcastle United Football Club Connected persons 3,395 - - -
Rangers Retail Limited Associate 3,843 - - -
52 weeks ended 28 April 2013
Relationship
Sales
(£’000)
Purchases
(£’000)
Trade and other
receivables
(£’000)
Trade and other
payables
(£’000)
Related party
Heatons Associate 26,820 - 3,816 -
Brasher Leisure Limited Associate 11,023 4,554 2,611 136
NDS EHF Associate 3,130 - 998 -
Newcastle United Football Club Connected persons 498 - - -
Queensdown Associates Associate 1,019 - - -
All related party transactions were undertaken on an arms length basis.
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
74
FINANCIAL STATEMENTS
27 April 2014
(£’000)
28 April 2013
(£’000)
Key Management, Executive and Non-Executive Director Compensation
Salaries and short-term benefits 1,435 1,497
Share-based payments 2,003 2,069
Total 3,438 3,566
35. PRINCIPAL SUBSIDIARY UNDERTAKINGS
The principal subsidiary undertakings of the Company at 27 April 2014 were as follows:
Name Country of incorporation
Percentage of issued
share capital held Nature of business
Antigua Enterprises Inc* USA 100 Sporting and leisure goods wholesale and brand licensing
Brands & Fashion NV* Belgium 100 Brand management and licensing
Brands Inc Limited* England 100 Brand management and licensing
Brands Holdings Limited England 100 Brand management and licensing
Cruise Clothing Limited * Scotland 100 Fashion retail
Donnay International SA* Belgium 100 Sporting and leisure goods wholesale and brand licensing
Dunlop Slazenger Group Limited* England 100 Sporting and leisure goods wholesale and brand licensing
Everlast Worldwide Inc.* USA 100 Sporting and leisure goods wholesale and brand licensing
Field & Trek (UK) Limited* England 100 Sporting and leisure goods retail
Firetrap Limited* England 100 Fashion retail
The Flannels Group Limited* England 51 Fashion retail
International Brand Management Limited England 100 Brand management
Kangol Holdings Limited* England 100 Fashion and leisure goods wholesale and brand licensing
Karrimor Limited* England 100 Fashion and leisure goods wholesale and brand licensing
Lillywhites Limited* England 100 Sporting and leisure goods retail
Lonsdale Boxing Limited* England 100 Sporting and leisure goods wholesale and brand licensing
Lonsdale Sports Limited* England 100 Sporting and leisure goods wholesale and brand licensing
Smith and Brooks Holdings Limited* England 100 Fashion and leisure goods wholesale and brand licensing
Sondico Professional Limited* England 51 Fashion retail
Sport Eybl GmbH Austria 100 Sporting and leisure goods retail
Sports Essentials Limited* England 100 Sporting and leisure goods wholesale and brand licensing
Sports Direct Estonia AS Estonia 100 Sporting and leisure goods retail
Sportsdirect.com Retail (Europe) SA Belgium 100 Sporting and leisure goods retail
Sportsdirect.com Retail Limited England 100 Sporting and leisure goods retail
Sportsdirect.com SLVN doo Slovenia 100 Sporting and leisure goods retail
The Trademark Licensing Company Limited* England 100 Brand licensing
Universal Cycles Limited* England 100 Cycling wholesaler
Used Tackle Limited* England 100 Sporting and leisure goods retail
West Coast Capital (USC) Limited * Scotland 100 Fashion retail
* Held by an intermediate subsidiary.
All subsidiaries have coterminous year ends. All principal subsidiary undertakings operate in their country of incorporation.
A full list of the Group’s operating subsidiary undertakings will be annexed to the next Annual Return filed at Companies House.
There are no significant restrictions on the ability of the subsidiary undertakings to transfer funds to the parent, other than those imposed by the legal requirements.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
75
Sports Direct International plc will provide a parental guarantee for the following companies allowing exemption from statutory audit:
Company Name Company Number Company Name Company Number
J W Myers Limited 03352462 SDI (New Cavendish Street) Limited 06306917
SDI (Aberwystwyth) Limited 02789996 SDI (Newark) Limited 07853470
SDI (Ashford) Limited 07848460 SDI (Newport) Limited 08679118
SDI (Ashington) Limited 07849231 SDI (Newton Abbot) Limited 06836666
SDI (Ayr) Limited 05528267 SDI (Northampton) Limited 07852272
SDI (Bangor) Limited 05529705 SDI (Nuneaton) Limited 07852249
SDI (Barrow in Furness) Limited 07851574 SDI (Oswestry) Limited 07852363
SDI (Basildon) Limited 08512592 SDI (Paisley) Limited 02933408
SDI (Beddgelert) Limited 08577551 SDI (Penzance) Limited 07852297
SDI (Berwick) Limited 02739957 SDI (Peterlee) Limited 07852401
SDI (Betws-y- Coed) Limited 06836673 SDI (Ramsgate) Limited 07852250
SDI (Birkenhead) Limited 07849198 SDI (Redcar) Limited 02731452
SDI (Bishop Auckland) Limited 03004246 SDI (Rolle St) Limited 07852669
SDI (Bridgwater) Limited 07852061 SDI (Scarborough) Limited 06328463
SDI (Burton) Limited 08495632 SDI (Scunthorpe) Limited 07852055
SDI (Carlisle) Limited 07851959 SDI (Slough) Limited 07852417
SDI (Chatham) Limited 06836679 SDI (Southampton) Limited 08512480
SDI (Clacton) Limited 07852078 SDI (St Austell) Limited 07852284
SDI (Colchester) Limited 05632790 SDI (St Helens) Limited 07852281
SDI (Dunfermline) Limited 08483679 SDI (Stafford) Limited 08568681
SDI (Exmouth) Limited 06328505 SDI (Stoke Longton) Limited 07853877
SDI (Fulham) Limited 07852037 SDI (Stoke Newington) Limited 07852207
SDI (Gainsborough) Limited 06338907 SDI (Strood) Limited 07852251
SDI (Galashiels) Limited 07852091 SDI (Taunton) Limited 07852191
SDI (Gloucester) Limited 07852067 SDI (Wakefield) Limited 08483711
SDI (Hastings) Limited 08625893 SDI (Walsall) Limited 07852289
SDI (Keighley) Limited 06260239 SDI (Weymouth) Limited 06716652
SDI (Kendal) Limited 06338918 SDI (Wishaw) Limited 06656365
SDI (Kilmarnock) Limited 07853433 SDI Properties (Wigan) Limited 06836522
SDI (Kirkcaldy) Limited 07852097 SDI Property Limited 02767493
SDI (Lowestoft) Limited 07852265 Stirlings (Argyle Street) Limited SC088108
SDI (Neath) Limited 07853548 Queensdown Associates Limited 04298804
36. ULTIMATE CONTROLLING PARTY
The Group is controlled by Mike Ashley through his 100% shareholding in MASH Holdings Limited, which has a 58% shareholding in the Company.
37. POST BALANCE SHEET EVENTS
On 28 May 2014, Sports Direct International plc and certain subsidiaries (the “Borrowers”) entered into a committed, unsecured revolving facility agreement (the “Revolving
Facility”) with 13 financial institutions, with Barclays Bank plc acting as Agent. The Revolving Facility is available to any of the Borrowers and can be drawn to an aggregate limit
of £688 million. It is capable of being utilised by way of cash advances and/or currency borrowings. This facility is not secured against any assets. This facility is available until
27 September 2018.
On 18 June 2014, Sports Direct International plc acquired a 4.8% stake in MySale Group PLC, which recently commenced trading on the Alternative Investment Market of the
London Stock Exchange. On 14 July 2014, Sports Direct announced a partnership with MySale, including a new online offering in Australia and New Zealand and the opening of
three flagship stores in Australia and one in New Zealand.
On 20 June 2014 the Group sold a freehold property for £21.2m and then entered into an agreement to lease the property back from the buyer.
There were no other material post balance sheet events after 27 April 2014 to the date of this Annual Report.
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
76
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SPORTS DIRECT INTERNATIONAL PLC
We have audited the parent company financial statements of Sports Direct
International plc for the 52 week period ended 27 April 2014 which comprise the parent
company balance sheet and the related notes. The financial reporting framework that
has been applied in the preparation of the parent company financial statements is
applicable law and United Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken
so that we might state to the company’s members those matters we are required to
state to them in an auditor’s 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 audit work, for this report, or
for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR
As explained more fully in the Directors’ Responsibilities Statement, the directors are
responsible for the preparation of the financial statements and for being satisfied that
they give a true and fair view. Our responsibility is to audit and express an opinion
on the financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to comply with the
Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
A description of the scope of an audit of financial statements is provided on the
Financial Reporting Council’s website at www.frc.org.uk/apb/scope/private.cfm
OPINION ON FINANCIAL STATEMENTS
In our opinion the parent company financial statements:
• give a true and fair view of the state of the Company’s affairs as at 27 April 2014;
• have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act
2006.
OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly
prepared in accordance with the Companies Act 2006; and
• the information given in the Strategic Report and Directors’ Report for the financial
year for which the financial statements are prepared is consistent with the parent
company financial statements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following matters where the Companies Act
2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns
adequate for our audit have not been received from branches not visited by us; or
• the parent company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the accounting
records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
OTHER MATTER
We have reported separately on the group financial statements of Sports Direct
International plc for the 52 week period ended 27 April 2014.
Philip Westerman
Senior Statutory Auditor
For and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
17 July 2014
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
77
FINANCIAL STATEMENTS
Notes
2014
(£’000)
2013
(£’000)
Fixed assets
Investments 2 1,077,408 1,066,026
Current assets
Debtors 3 14,984 1,953
Cash at bank and in hand 186 139
15,170 2,092
Creditors: amounts falling due within one year. 4 (114,018) (89,141)
Net current liabilities (98,848) (87,049)
Net assets 978,560 978,977
Capital and reserves
Called up share capital 5 64,060 64,060
Share premium 6 874,300 874,300
Treasury shares reserve 6 (56,234) (56,234)
Permanent contribution to capital 6 50 50
Capital redemption reserve 6 8,005 8,005
Own share reserve 6 (13,251) (64,375)
Profit and loss account 6 101,630 153,171
Shareholders’ funds 7 978,560 978,977
The accompanying accounting policies and notes form part of these financial statements.
The financial statements were approved by the Board on 17 July 2014 and were signed on its behalf by:
Dave Forsey
Director
COMPANY BALANCE SHEET
FOR THE 52 WEEKS ENDED 27 APRIL 2014
78
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
1. ACCOUNTING POLICIES
Accounting policies
These accounts have been prepared in accordance with applicable United Kingdom accounting standards. A summary of the material accounting policies adopted are described
below.
Basis of accounting
The accounts have been prepared under the historical cost convention.
As permitted by Section 408 of the Companies Act 2006, a profit and loss account of the Company is not presented. The Company’s loss after taxation for the 52 week period 27
April 2014 was £417,000 (2013: £3,249,000 loss).
Investments
Fixed asset investments are stated at cost less any provision for impairment.
Cost represents cash consideration or the amount of ordinary shares issued by the Company at nominal value after taking account of merger relief available under Section 612 of
the Companies Act 2006 plus related acquisition costs capitalised at fair value.
Deferred taxation
Deferred tax is provided for on a full provision basis on all timing differences, which have arisen but not reversed at the balance sheet date. No timing differences are recognised
in respect of gains on sale of assets where those gains have been rolled over into replacement assets. A deferred tax asset is not recognised to the extent that the transfer of
economic benefit in future is more unlikely than not.
Deferred tax is calculated on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws
enacted or substantively enacted at the balance sheet date.
Foreign currencies
Items arising from transactions denominated in foreign currencies are translated at the rate of exchange ruling at the date of the transaction. At the balance sheet date all
monetary assets and liabilities denominated in foreign currencies are translated at the closing rate or at the rate of exchange at which the transaction is contracted to be settled in
the future. All exchange differences are recognised in the profit and loss account.
Dividends
Dividends on the Company’s ordinary shares are recognised as a liability in the Company’s financial statements, and as a deduction from equity, in the period in which the
dividends are declared. Where such dividends are proposed subject to the approval of the Company’s shareholders, the dividends are only declared once shareholder approval has
been obtained.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company,
with the exception of those accounted for via merger relief available under Section 612 of the Companies Act 2006, are recorded at the proceeds received, net of any direct issue
costs.
Income from Group undertakings
Income from Group undertakings is recognised when qualifying consideration is received from the Group undertaking.
Related party transactions
The Company has taken advantage of the exemption contained in FRS 8 and has therefore not disclosed transactions or balances with wholly-owned subsidiaries which form part
of the Group.
Share-based payments
The Company has applied the requirements of FRS 20, “Share-based Payments”. The Company issues equity-settled share-based payments to certain directors and employees of
the Company and its subsidiaries. These are measured at fair value at the date of grant which is expensed to the profit and loss on a straightline basis over the vesting period,
based on the Group’s estimate of shares that will eventually vest.
The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural
considerations. A share-based payment charge of £11,927,000 was recognised for the 52 weeks ended 27 April 2014 based on the directors’ best estimate of the number of shares
that will vest. £11,345,000 of this share-based payment was recharged to subsidiary undertakings of the Company.
2. INVESTMENTS
2014
(£’000)
As at 28 April 2013 1,066,026
Additions:
Listed investments 43,866
Capital contribution in subsidiary 11,345
Other additions 37
Disposals: (43,866)
As at 27 April 2014 1,077,408
None of the Company’s investments at 27 April 2014 are listed.
The Company is the principal holding company of the Group. The principal subsidiary undertakings of the Company are set out in note 35 to the Group financial statements.
During the year the company acquired and disposed of £43,866,000 of shares in Debenhams plc.
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
79
3. DEBTORS
2014
(£’000)
2013
(£’000)
Amounts owed by Group undertakings 318 318
Other debtors 14,512 995
Other taxes and social security costs 154 -
Prepayments - 640
14,984 1,953
4. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2014
(£’000)
2013
(£’000)
Trade creditors 741 1,138
Amounts owed to Group undertakings 112,554 87,774
Accruals 723 190
Other taxes and social security costs - 39
114,018 89,141
5. CALLED UP SHARE CAPITAL
2014
(£’000)
2013
(£’000)
Authorised
999,500,010 ordinary shares of 10p each 99,950 99,950
499,990 redeemable preference shares of 10p each 50 50
100,000 100,000
Called up and fully paid
640,602,369 (2013: 640,602,369) ordinary shares of 10p each 64,060 64,060
Share capital
At 28 April 2013 and 27 April 2014 64,060 64,060
6. RESERVES
Share premium
account
(£’000)
Treasury share
reserve
(£’000)
Permanent
contribution to
capital
(£’000)
Capital redemption
reserve
(£’000)
Own share reserve
(£’000)
Prot and loss
account
(£’000)
At 28 April 2013 874,300 (56,234) 50 8,005 (64,375) 153,171
Loss for the financial period - - - - - (417)
Share scheme vesting - - - - 51,124 (51,124)
At 27 April 2014 874,300 (56,234) 50 8,005 (13,251) 101,630
The Company holds 42,137,508 ordinary shares in Treasury.
7. RECONCILIATION OF MOVEMENT ON SHAREHOLDERS’ FUNDS
2014
(£’000)
Opening shareholders’ funds 978,977
Loss for the financial period (417)
Closing shareholders’ funds 978,560
8. POST BALANCE SHEET EVENTS
No material post balance sheet events occurred after 27 April 2014 to the date of this Annual Report.
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE 52 WEEKS ENDED 27 APRIL 2014
80
FINANCIAL STATEMENTS
CONSOLIDATED FIVE YEAR RECORD
UNAUDITED INCOME STATEMENT
52 weeks ended 52 weeks ended 53 weeks ended 52 weeks ended 52 weeks ended
27 April 2014
(£’000)
28 April 2013
(restated)
3
(£’000)
29 April 2012
(£’000)
24 April 2011
(£’000)
25 April 2010
(£’000)
Continuing operations:
Revenue 2,705,958 2,185,580 1,835,756 1,599,237 1,451,621
Cost of sales (1,551,036) (1,290,822) (1,091,480) (940,330) (862,490)
Gross prot 1,154,922 894,758 744,276 658,907 589,131
Selling, distribution and administrative expenses (908,843) (689,578) (594,368) (527,273) (524,611)
Other operating income 8,583 7,199 3,268 5,289 3,493
Regulatory enquiries - - - - (7,800)
Legal dispute - - 2,309 (3,128) (2,186)
Impairment of tangible fixed assets (5,531) - - - -
Profit on disposal of leasehold property - - 724 - -
Profit on disposal of freehold property - - 962 - -
Profit on disposal of intangible asset - 625 1,624 876 -
Exceptional items (5,531) 625 5,619 (2,252) (9,986)
Operating prot 249,131 213,004 158,795 134,671 58,027
Investment income / (costs) 7,017 1,473 (5,800) (9,481) 24,653
Finance income 891 1,117 6,426 2,560 40,150
Finance costs (19,853) (9,688) (8,481) (8,953) (10,528)
Share of profit of associated undertakings and joint ventures 2,266 1,320 558 (8) 7,200
Prot before taxation 239,452 207,226 151,498 118,789 119,502
Taxation (59,839) (55,569) (45,867) (35,566) (30,286)
Prot for the period 179,613 151,657 105,631 83,223 89,216
Equity holders of the Group 180,245 151,596 106,198 84,173 89,433
Non-controlling interests (632) 61 (567) (950) (217)
Prot for the period 179,613 151,657 105,631 83,223 89,216
Notes to the consolidated income statement ve year record:
1. All information is presented under IFRS.
2. The five year record has been prepared on the same basis as the financial statements for the 52 weeks ended 27 April 2014, as set out in note 1, basis of preparation, of the
consolidated financial statements.
3. Restatement relates to the adoption of the revised IAS 19 ‘Employee Benefits’ (see note 1).
SPORTS DIRECT INTERNATIONAL PLC
ANNUAL REPORT AND ACCOUNTS 2014
81
SHAREHOLDER INFORMATION
Registrar and transfer ofce
Computershare Investor Services Plc
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Company Secretary and registered ofce
Sports Direct International plc
Unit A, Brook Park East
Shirebrook
NG20 8RY
Telephone 0845 129 9200
Sports Direct International plc is registered in England and Wales (No. 6035106)
Solicitors
Freshfields Bruckhaus Deringer
65 Fleet Street
London
EC4Y 1HS
Brokers
Citigroup Global Markets Limited
Citi Centre
Canada Square
Canary Wharf
London
E14 5LB
Epirito Santo Investment Bank
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7AL
Goldman Sachs Limited
Peterborough Court
133 Fleet Street
London
EC4A 2BB
Principal Bankers
Barclays Bank plc
5 The North Colonnade
Canary Wharf
London
E14 4BB
HSBC Bank plc
8 Canada Square
London
E14 5HQ
Auditors
Grant Thornton UK LLP
Grant Thornton House
Melton Street
Euston Square
London
NW1 2EP
Annual General Meeting
The Annual General Meeting of the Company will be held at 3.00pm on Wednesday 10
September 2014 at Sports Direct International plc, The Auditorium, Unit D, Brook Park
East, Shirebrook, NG20 8RY. Each shareholder is entitled to attend and vote at the
meeting, the arrangements for which are described in a separate notice.
Results
For the year to 26 April 2015:
Interim management statement: 10 September 2014
Half year results announced: 11 December 2014
Interim management statement: 18 February 2015
Preliminary announcement of full year results: 16 July 2015
Annual Report circulated July / August 2015
Shareholder helpline
The Sports Direct shareholder register is maintained by Computershare who are
responsible for making dividend payments and updating the register, including details
of changes to shareholders’ addresses. If you have a query about your shareholding in
Sports Direct, you should contact Computershare’s Sports Direct Shareholder helpline
on: 0870 707 4030. Calls are charged at standard geographic rates, although network
charges may vary.
Address: The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ
Website: www.computershare.com
Website
The Sports Direct website at www.sportsdirectplc.com provides news and details of the
Company’s activities plus information for shareholders and contains real time share
price data as well as the latest results and announcements.
Unsolicited mail
The Company is obliged by law to make its share register publicly available and
as a consequence some shareholders may receive unsolicited mail, including from
unauthorised investment firms.
For more information on unauthorised investment firms targeting UK investors, visit the
website of the Financial Conduct Authority at www.fca.gov.uk
If you wish to limit the amount of unsolicited mail you receive contact:
The Mailing Preference Service
DMA House
70 Margaret Street
London
W1W 8SS
Telephone: 020 7291 3310
Fax: 020 7323 4226
Email: [email protected] or register on-line at
www.mpsonline.org.uk
COMPANY DIRECTORY
82
Sports Direct International plc Unit A, Brook Park East, Shirebrook, NG20 8RY
0845 129 9200
www.sportsdirectplc.com
