Annual Report and Group Financial Statements 2017 / 2018 Delivering the goods Building a world class digital retailer Group chief Key performance Finance 6 executive’s review 9 indicators 16 review With annual sales of nearly STRATEGIC REPORT £2.0bn, Shop Direct is the UK’s Operating and financial highlights 01 Our business at a glance 02 second largest pureplay digital Our timeline 04 Group Chief Executive’s review 06 retailer. Our digital multi-category Key performance indicators 09 stores Very.co.uk, VeryExclusive. Our strategy 10 Finance review 16 co.uk, Littlewoods.com and Risk management and principal risks 21 Corporate responsibility 23 LittlewoodsIreland.ie sell over 1,800 famous brands and receive over 1.4 million website visits GOVERNANCE Directors’ report 25 a day, with 74% of online sales Statement of directors’ responsibilities 26 completed on mobile devices. Independent auditor’s report 27 With our multi-category FINANCIAL STATEMENTS store range of famous brands, Financial statements and notes market-leading eCommerce to the financial statements 29 and technology capabilities and unique financial services products offering flexible ways to pay, we make good things easily accessible to more people. OUR PURPOSE Make Easily To more good things accessible people OUR AMBITION Become a world class digital Find out more: retailer www.shopdirect.com GROUP SALES 1 OPERATING FY14 £1,737.7m AND FINANCIAL FY15 £1,783.6m HIGHLIGHTS FY16 £1,861.1m FY17 £1,929.9m • Group sales up 1.5% to £1,958.8m • Very sales up 9.9% to £1,389.1m FY18 £1,958.8m +1.5% • Littlewoods controlled decline maintained – sales down 14.5% to £569.7m EBITDA1 • Group gross margin down 0.9%pts to FY14 £ m 39.9% (FY17: 40.8%) 169.0 • EBITDA1 up 11.0% to £262.3m FY15 £195.1m Annual Report and Group Financial Statements / 2018 2017 (FY17: £236.4m) FY16 £230.5m • Operating profit2 (pre-exceptional) up 9.5% to £224.6m (FY17: £205.2m) FY17 £236.4m Shop Direct — • Loss before tax £(24.7)m (FY17 profit FY18 £262.3m +11.0% before tax: £24.9m) driven by exceptional items of £164.8m including a £128.0m increase in regulatory provision to cover OPERATING PROFIT2 customer redress payments for historical shopping insurance sales. Further charges FY14 £144.3m of £36.8m cover costs for restructuring FY15 £161.7m (including the new distribution and returns centre), re-financing and corporate FY16 £203.3m projects. FY17 £205.2m • Appetite for mobile grown by +5%pts – now 74% of online sales (FY17: 69%) FY18 £224.6m 9.5% • Very customers increased 8.5% to 2.82m, boosting total Group customers by 2.2% MOBILE SALES MIX % to 4.02m (AS % OF TOTAL ONLINE SALES) FY14 44% FY15 56% FY16 62% FY17 69% 1 EBITDA is defined in note 5 to the Financial Statements (Pre-exceptional EBITDA) 2 Operating profit calculated as profit before tax, exceptional items FY18 74% pts and net finance costs. 5 STRATEGIC REPORT 2 Our high growth digital multi-category OUR store, focusing on style-conscious, BUSINESS aspirational men AT A and women. GLANCE VERY SALES A unique digital business with an integrated retail FY14 £824.3m and financial services model – bringing desirable FY15 £967.8m brands within reach of more customers FY16 £1,122.1m Annual Report and Group Financial Statements / 2018 2017 FY17 £1,263.5m FY18 £1,389.1m 9.9% Shop Direct — % 39.5Growth in smartphone SALES1 (FY18) app orders £1,3 89.1m A UK online (+9.9%) multi-category store with big- EBITDA CONTRIBUTION2 name brands (FY18) £325.0m (+12.0%) Offers customers a broad, curated ONLINE VISITS (FY18) and inspiring selection of 374.4m products (+11.6%) Flexible ways to pay via unique financial services products allowing customers to buy 1 Very sales include Very.co.uk and VeryExclusive.co.uk. what they want 2 EBITDA contribution is stated when they need before central costs. See note 5 for more details. it most 3 Established in 1923, our family- % focussed digital multi-category store has a loyal customer base. Credit50.1 customers retained for 5+ years LITTLEWOODS SALES FY14 £913.4m FY15 £815.8m FY16 £739.0m Annual Report and Group Financial Statements / 2018 2017 FY17 £666.4m FY18 £569.7m 14.5% Shop Direct — SALES3 (FY18) £569.7m Offers the big (-14.5%) brands our customers desire, EBITDA CONTRIBUTION2 for themselves and (FY18) all the family £142.4m (-10.4%) Servicing a wide ONLINE VISITS (FY18) range of customers 146.5m (-6.6%) Flexible ways to pay via unique financial services products allowing customers to buy what they want when they need it most 3 Littlewoods sales include Littlewoods.com and LittlewoodsIreland.ie. STRATEGIC REPORT • 4 OUR TIMELINE Now transformed into a leading digital retailer, we’ve been serving UK customers for well over a century. Annual Report and Group Financial Statements / 2018 2017 Shop Direct — 2002 1890 1932 1980s 1990s 2005 2003 Kay & Company Littlewoods home Telephone ordering eCommerce Littlewoods Index brand founded shopping founded launched launched acquired and stores sold Great Universal Littlewoods Stores catalogue stores sold business acquired, renamed Shop Direct Littlewoods and Shop Direct merge, forming UK’s largest home shopping business M Littlewoods25 catalogues printed annually, Our heritage at peak The Barclay family dates back to brings the brands Kay & Co mail-order together to form catalogues, launched one retail giant, in Worcester, 1890. Shop Direct. ESTABLISHING MERGING THE BRANDS THE BRANDS Read more: 55 www.shopdirect.com AnnualReport and Group Financial Statements /2018 2017 Shop Direct— 2014 2015 2009 Future 2015 2018 Very.co.uk Very overtakes Catalogue Create winning created to drive Littlewoods to distribution Customer online growth, become our ends after Experience targeting younger largest brand 80 years customers Build customer Own brands centric digital simplified with business launch of V by Very New customer experience Focus on two retail power Fast Forward brands Fulfilment From a modest Our home shopping and start in the 1990s, financial services eCommerce expertise gives us an becomes our main edge as we become a growth engine. pure-play digital retailer. FOCUSSED EXPANSION ACCELERATED GROWTH OF ECOMMERCE TRANSFORMATION STRATEGIC REPORT STRATEGIC REPORT 6 GROUP CHIEF EXECUTIVE’S REVIEW Four months into my role, I am hugely excited to be at the helm of a company with real scale, ambition and, above all else, potential for significant growth. Annual Report and Group Financial Statements / 2018 2017 our months into my role, I am We remain very much a growing and F hugely excited to be at resilient business: mobile-first, Shop Direct — the helm of a company with real multi-category, and both a retailer scale, ambition and, above all else, and a credit provider. potential for significant growth. From my first day, I’ve observed PERFORMANCE We remain very an unerring commitment from our Group sales grew 1.5% to £1,958.8m, much a growing colleagues to fulfil the purpose at underpinned by Very’s performance the heart of our company – to make and new customer acquisition. and resilient good things easily accessible to more people, which both differentiates us Very sales continued to outperform business competitively and influences the online non-food retail market, our strategy. climbing 9.9% to £1,389.1m, driven by a particularly strong performance That commitment has driven results in Electricals. which show a good underlying performance in a challenging external This performance was helped further market, with both sales and EBITDA by customer acquisition. Very growth. We have undergone a customers increased 8.5% to 2.82m, significant transformation in the last boosting total Group customers by five years from a catalogue to a 2.2% to 4.02m. digital retailer and can report continued progress on a number of Very’s outperformance was partially fronts in the last 12 months. This offset by Littlewoods, with sales down progress has been backed by 14.5% to £569.7m, impacted by the ongoing investment, and we have annualisation of the closure of its clear plans in place to continue our commission scheme in the prior year. transformation and growth. Our strength in mobile was evident. We face a competitive and changing Orders from our Very smartphone marketplace, but with our integrated app increased 39.5% year-on-year retail and credit model we have a to represent 25.4% of total orders differentiated and market-leading offer that plays an important part in the lives of our four million customers. + % Growth11.0 in EBITDA across all devices (FY17: 19.5%). 7 Total sales via mobile devices increased 5%pts year-on-year to 74% of total online sales. Group EBITDA increased 11.0% to Relentless focus £262.3m, highlighting our strong fundamental operational performance on making good in the face of sector headwinds. things easily We made a statutory loss before tax accessible to of £(24.7)m (FY17: profit before tax of £24.9m) driven by the further more people provision of £128.0m to cover additional customer redress and a provision of £22.5m to cover restructuring costs associated with the new fulfilment centre. Confidence in our business and its model was reaffirmed in November 2017 when we raised £550m to repay existing term debt. Annual Report and Group Financial Statements / 2018 2017 Henry Birch FY18 PROGRESS In FY18, we continued to achieve against our stated ambition of our new 850,000 square foot, We see opportunities across all of transforming into a world class digital state-of-the-art distribution and our categories and particularly in key retailer, as well as laying foundations Shop Direct — returns centre at the East Midlands emerging categories like sports, for the future.