Dave Forsey Chief Executive 19 July 2012 contents group OVERVIEW 04 At A Glance 05 Financial Highlights 06 Operational Highlights 08 Retail Stores 10 Online 12 Brands THE BUSINESS REVIEW 14 Chairman’s Statement 16 Chief Executive’s Report 36 Financial Review MANAGEMENT AND GOVERNANCE 44 The Board 46 Directors’ Report 50 Corporate Governance Report 56 Directors’ Remuneration Report 60 Directors’ Responsibilities Statement 62 Corporate Responsibility Report FINANCIAL STATEMENTS AND NOTES 67 Independent Auditor’s Report to the Members of Sports Direct International plc 68 Consolidated Income Statement 69 Consolidated Statement of Comprehensive Income 70 Consolidated Balance Sheet 71 Consolidated Cash Flow Statement 72 Consolidated Statement of Changes in Equity 73 Notes to the Financial Statements 106 Independent Auditor’s Report to the Members of Sports Direct International plc 107 Company Balance Sheet 108 Notes to the Company Financial Statements 111 Consolidated Five Year Record ADDITIONAL INFORMATION 112 Shareholder Information 3 Sports Direct is the UK’s leading sports retailer by revenue and operating profit, and the owner of a significant number of world-famous sport, fashion and lifestyle brands. 4 / GROUP OVERVIEW at a glance Who we are • Our Group is the leading Sports Retailer in the UK. • We supply competitively priced sports and leisure equipment, clothing, footwear and accessories. • We sell third-party brands and Group-owned and licensed brands. • As at 29 April 2012 our Group operated out of 395 stores in the United Kingdom (excluding Northern Ireland) mainly under the SPORTSDIRECT.com and Field & Trek fascias. During the year we acquired 67 stores in the Premium Lifestyle division. Strategy • Provide a full multichannel approach to the UK Retail market. ◦ Identify opportunities for improvement through in-store specialist collaborations and acquisitions. ◦ Develop online opportunities and leverage the SPORTSDIRECT.com fascia. • Invest in our stores in the UK and Europe to continually enhance our portfolio. • Invest in our people through the Bonus Share Scheme to reward excellent performance. • Promote our globally recognised Brands. Market • Our Group operates in seven countries trading as Sports Direct. We also have joint ventures in Northern Ireland and the Republic of Ireland through a shareholding in Heatons. • We own a 50.1% stake in the third largest retailer in Portugal, Sports Direct Portugal, which operates out of 13 stores. 5 financial highlights The Financial Year ended 29 April 2012 was a 53 week year. In order to make a comparison to last year, the Income Statement has been restated on a pro forma 52 week basis (“the Year”) unless otherwise specified. • Group revenue across all divisions up 13.0% to £1,807m (2011: £1,599m) ◦ UK Sports Retail up 7.8% to £1,342m (2011: £1,245m) ◦ Online sales up 81.8% to £174m (2011: £96m) ◦ International Retail up 16.6% to £154.2m (2011: £132.3m) ◦ Brands division up 4.4% to £195.9m (2011: £187.7m) Revenue (£’m) Underlying EBITDA (£’m) Underlying Profit Underlying Earnings Before Tax (£’m) Per Share (pence) 1,259 1,367 1,451 1,599 1,807 150.2 136.8 160.4 211.0 235.7 85.4 68.2 135.5 149.1 8.57 7.93 12.39 16.83 18.74 102.1 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 • UK Sports Retail like-for-like 52 week gross contribution • Reported Profit Before Tax up 24.6% to £148.0m increased by 0.7% against a World Cup comparative year (2011: £118.8m) • Group gross margins decreased by 70 basis points to • Underlying Earnings Per Share up 11.4% to 18.74p 40.5% (2011: 41.2%) (2011: 16.83p) ◦ UK Sports Retail gross margin decreased to 41.0% ◦ Underlying Earnings Per Share excluding Premium (2011: 41.9%) Lifestyle up 18.4% at 19.93p • Underlying EBITDA (before Bonus Share Scheme costs) up • Record free cash generation of £192m (2011: £184m) 11.7% to £235.7m (2011: £211.0 restated from £200.4m to exclude Bonus Share Scheme costs) • Notwithstanding acquisitions and property purchases in the year, Net Debt to Reported EBITDA ratio improved to • Underlying Profit Before Tax up 10.0% to £149.1m 0.68 (2011: 0.74) (2011: £135.5m) • Net Debt improved from £149m in 2011 to £145m in 2012. 6 / GROUP OVERVIEW operational highlights Continued improvement of the UK store portfolio Our store portfolio remains constantly under review with the performance of each store and ways of maximising performance being regularly examined. This is why we have closed 78 stores since 2008 as our portfolio continues to evolve. We increased our period end square footage to c.3.9m sq. ft (2011: c.3.8m). During the year we refurbished 21 stores and relocated eight stores, constantly improving the store appearance and providing a fresh and exciting retail environment. During the Year, we upgraded our Carnaby Street store to provide a flagship Soccer Scene experience in Central London. Continued growth of UK online sales Online revenue has increased by 81.8% from £95.7m to £174.0m in the Year and represented 11.6% of total Sports Retail sales (2011: 7.0%). We remain focused on developing this revenue stream further. Order fulfilment and information technology solutions are developed in-house with full back-up support from our National Distribution Centre resources in Shirebrook, Derbyshire. The website has benefited from the increased recognition of the online brand with 351 of UK store fascias now branded SPORTSDIRECT.com. 7 Further expansion of the International Retail division into Europe We continue with our strategy to identify partners in new territories while continuing to expand our operations in the countries where we currently trade. For FY13, we are targeting 10 to 15 new stores and three to five new territories. In the first quarter, we have already opened six new stores in Hungary, Belgium, Slovenia and France. We have closed a store in both Belgium and Cyprus. Expansion of the National Distribution centre at Shirebrook The Group continues to invest in infrastructure in Shirebrook and the extension of the National Distribution Centre is due to be completed by Autumn 2012. • Phase 1 = existing Unit A c.600k sq. ft • Phase 2 = Unit B new extension c.400k sq. ft • Phase 3 = Unit C new build (web only) c.1m sq. ft Acquisitions within the Brands Division During the Year, the Group acquired the remaining worldwide rights to the No Fear brand, the Hot Tuna brand and the fashion brand Firetrap. Creation of a Premium Lifestyle Retail division During the year, the Group created a Premium Lifestyle division with the acquisition of the USC, Cruise and Van Mildert fascias. 8 / GROUP OVERVIEW retail stores Uk The Group’s UK 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. A significant proportion of the revenue in the stores is derived from the sale of the Group-owned and licensed-in branded products, which allows the retail business to generate higher margins while at the same time differentiating the Group’s stores from those of its competitors, both in terms of the range of products on sale and the competitive prices at which they are offered. in-store international The Group continues to enhance its in-store offering with dedicated The Group has retail interests outside the UK and has a flexible areas for specialist product collections. approach to entry into new markets. These interests include wholly owned retail outlets (in Belgium, Holland, France, Luxembourg, Since 2007 we have owned 25% of Brasher Leisure, trading as Slovenia and Portugal trading as Sports Direct), joint ventures with Sweatshop. This has enabled us to develop the SheRunsHeRuns other retailers (such as in Heatons stores in Northern Ireland and concept in our stores. To date, 50% of our stores have a dedicated the Republic of Ireland) and stores within another retailer’s store SheRunsHeRuns area, and 15% have a Field & Trek product area. (as in Cyprus). Since December 2010 we have acquired a 50.1% Our newest collaboration with Soccer Scene and The Boot Room is stake in the third largest sports retailer in Portugal, Sports Direct currently in 80% of stores. Portugal, which operates out of 13 stores. 9 fascias As at 29 April 2012 the Group operated out of 395 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. During the year, the Group created a Premium Lifestyle division which trades under the USC, Cruise and Van Mildert fascias. sports retail premium lifestyle 395 67 stores stores 10 / GROUP OVERVIEW online Online revenue has increased by 81.8% from £95.7m to £174.0m in the Year and represented 11.6% of total Sports Retail sales (2011: 7.0%). We remain focused on developing this revenue stream further. Order fulfilment and information technology solutions are developed in-house with full back-up support from our National Distribution Centre resources in Shirebrook, Derbyshire. The website has benefited from the increased recognition of the online brand with 351 of UK store fascias now branded SPORTSDIRECT.com. • Multi currency: GBP, USD • New product categories and Euro • New platform • Multi language: French, Spanish, • Increased fulfilment capacity Dutch, Italian, Polish, Portugese, Swedish and Slovenian • Click and collect • mCommerce optimisation • Credit account facility Sportsdirect.com now contains over: 11 Online revenue (£’m) Online percentage of total Sports Retail sales FY09 FY10 FY11 FY12 1.4% 3.9% 7.0% 11.6% FY09 FY10 FY11 FY12 15.1 48.6 95.7 174.0 12 / GROUP OVERVIEW our brands The Group’s portfolio includes a wide variety of world-famous sport, fashion and lifestyle brands.