Preliminary Results - period ending 26 April 2020

20 August 2020

Preliminary Results for the period ended 26 April 2020

•    Group revenue increased by 6.9%

•  Excluding acquisitions and on a currency neutral basis, revenue decreased by 12.6%⁽⁵⁾

•    UK Sports Retail revenue increased by 0.7%, largely due to the GAME acquisition in the period

•  Excluding acquisitions, revenue decreased by 14.6%(5), largely caused by temporary store closures due to Covid-19

•  UK Sports Retail like-for-like gross contribution was down 6.6%(1)

•    Premium Lifestyle revenue increased by 34.9%, largely due to new stores and acquisitions of Jack Wills & Sofa.com

•  Excluding acquisitions, revenue increased by 18.6%(5)

•  Premium Lifestyle like-for-like gross contribution was up 21.8%

•    European Retail revenue increased by 16.3%, largely due to the GAME acquisition in the period

•  Excluding acquisitions and on a currency neutral basis, revenue decreased by 15.6%(5), largely caused by temporary store closures due to Covid-19

•  European Retail like-for-like gross contribution was down 12.7%(1)

•    Group gross margin decreased to 42.0% from 42.8%, largely due to the GAME acquisition changing the product mix

•    Group reported EBITDA increased by 98.7% to £551.0m compared to £277.3m in the prior period, largely due to the change in reporting as a result of implementing IFRS 16

•    Group underlying EBITDA(2) increased by 5.0% to £302.1m compared to £287.8m in the prior period

•  Excluding acquisitions and on a currency neutral basis, underlying EBITDA was in line with the prior period(5)

•    Underlying free cash flow (pre-capex) (3) decreased to £263.1m compared to £273.3m in the prior period

•    Reported profit before tax was £143.5m, down 19.9% from £179.2m

•  Excluding IFRS 16, reported profit before tax was £262.3m up 46.4% largely due to the gain on the sale and leaseback of the Shirebrook Distribution Centre totalling £84.9m.

•    Underlying profit before tax(2) decreased by 18.1% to £117.4m from £143.3m 

•    Reported basic earnings per share fell by 14.4% to 18.5p, from 21.6p

•  Underlying basic earnings(2)  per share decreased by 8.0% to 16.2p from 17.6p (2)

•    Reported profit after tax⁽²⁾ was £101.0m down 12.9% from £116.0m

•    Net debt decreased to £366.0m (£378.5m at 28 April 2019)⁽⁴⁾

(1)  Figure is on a 52 week currency neutral basis and with a consistent year on year inventory provision used

(2)  Underlying EBITDA, underlying profit before taxation and underlying EPS exclude the effects of IFRS 16, realised foreign exchange gains / losses in selling and administration costs, exceptional costs, and the profit / loss on disposal of subsidiaries, strategic investments and properties. Further detail on this calculation can be found in the financial review, in note 2 and the glossary at the back of this announcement

(3)  Underlying free cash flow is defined as operating cash flow after working capital and pre IFRS 16, made up of underlying EBITDA plus realised foreign exchange gains and losses, less corporation tax paid. Further detail on this calculation can be found in the financial review

(4)  Net debt is borrowings (excluding IFRS 16 lease liabilities) less cash and cash equivalents held. Further detail can be found in note 10

(5)  A reconciliation of excluding acquisitions and currency neutral performance measures can be found in the glossary

(6)  The House of Fraser fascia has been included within the Premium Lifestyle segment

MISSION STATEMENT

'TO BECOME EUROPE'S LEADING ELEVATED SPORTING GOODS RETAILER.'

OUTLOOK

The Group now intends to invest in excess of £100 million in its digital elevation strategy. With a particular focus on Flannels and an enhanced customer experience, this investment will be integral in supporting the continued growth of our online channels. This commitment will support the Group's wider ongoing elevation strategy. With digital transformation now at the forefront, the successful reopening of our stores after the Covid-19 lockdown and continuing strong web performance, we are confident in achieving between a 10% and 30% improvement in underlying EBITDA⁽¹⁾ during FY21. 

(1)    Underlying EBITDA excludes the effects of IFRS 16, realised foreign exchange gains / losses in selling and administration costs, exceptional costs, and the profit / loss on disposal of subsidiaries, strategic investments and properties.

STRATEGIC REPORT

CHAIR'S STATEMENT

INTRODUCTION

Dear Valued Shareholder

FY20 will likely be remembered as the most challenging year in the history of the Company. The political uncertainty around Brexit had been with us for far too long and, just as we were feeling more confident of getting some clarity and stability, the Covid-19 crisis arrived which will continue to have an impact on the economy and our business beyond FY20.

Notwithstanding the above, we have handled the challenges successfully and we have also dealt with the shadow of the significant Belgian tax enquiry for an amount of €674m which we were notified of in July 2019. We always maintained it was less than probable that material VAT and penalties would be due and thankfully, through the sterling efforts of our internal team, alongside our external advisors, this amount was commercially settled for an immaterial amount.

As of the end of February we were on track to hit our underlying EBITDA growth target of between 5-15% (pre IFRS 16 adjustments) for the period ending 26 April 2020. The Covid-19 situation had a significant impact on our business performance across the Group in March and April (and continued to do so in the post year end period) due to the shutdown of retail stores.

Thankfully, as at the date of release of these financial statements, there is a semblance of normality returning with virtually all retail stores now fully open across the Group, albeit subject to strict social distancing measures. However the future, at least in the near term, is unclear as we and indeed the world come to terms with living under the threat of Covid-19 and what its short, medium and long term effects may be. There is currently a risk of a second wave which could lead to reinstatement of lockdown restrictions and there will be economic consequences which we do not yet fully understand.

The key financial metrics for the period ended 26 April 2020 when compared with period ended 28 April 2019 are:

•    Group revenue has increased from £3,701.9m to £3,957.4m;

•    Group profit before tax has decreased from £179.2m to £143.5m;

•    Group underlying EBITDA has increased from £287.8m to £302.1m; and

•    Group net debt has decreased from £378.5m to £366.0m.

OVERVIEW

During FY20 we made the strategic decision to rename of the Group holding company from Sports Direct International plc to Frasers Group plc. The new name better reflects the multi-brand and multi-fascia retail business we have become and I would like thank everyone who worked so hard to ensure this change was implemented smoothly and successfully.

Following a robust external audit tender process, which did not require any Government involvement, we had great pleasure in appointing RSM UK Audit LLP (RSM) as our new external auditor. We look forward to a productive working relationship with RSM over the coming years and I would like to thank the Financial Reporting Council (FRC) for the help and support that was extended to us as we conducted this process.

We continued to follow the further demise of Debenhams during the year with much frustration and disappointment as it entered administration for a second time. We raised our concerns and gave numerous warnings about what we were seeing there, much of which has materialised. Our offers of help were repeatedly disregarded and it is scandalous that this business has now been in administration twice. To date and to our knowledge, there seems to be a lack of political or regulatory interest in investigating the impact on shareholders in the initial administration, and now in the second administration we expect that further stakeholders will suffer. It has been widely reported that we are seeking the appointment of a provisional liquidator to Debenhams plc, or a winding up order, so that an independent investigation can be carried out into the actions and parties involved in the company's administration. We are opposed, however, by certain entities which placed Debenhams plc into administration. If their opposition is successful, Debenhams plc will be dissolved, meaning that no investigation can be carried out.

The uncertainty over Brexit, followed by the Covid-19 crisis has undoubtedly resulted in unprecedented times for businesses and the consequences will be felt for the foreseeable future. We will commit ourselves to working collaboratively with all our key stakeholders to protect the future of our business and the health and livelihood of our 30,000 staff who work within the Frasers Group. During the time our stores were closed, our online business performed extremely well and I commend our staff, particularly those based at Shirebrook, for their hard work and dedication in ensuring our web operations continued and remained effective.

ELEVATION STRATEGY

The biggest strategic priority for the Frasers Group is, and will continue to be, elevation. This drives our behaviours and our ways of working. We are committed to providing our customers with a multi-brand offering in a premium environment across our sport, fashion and lifestyle fascias.

FY20 saw the opening of more of our new generation stores. The new stores in Leicester and Watford are fine examples of how we are taking the elevation strategy to the next level. We also opened the Flannels flagship store on Oxford Street in September 2019 which has been an outstanding success in showcasing our elevated model to luxury brands, and the Flannels store in Newcastle was voted "Best Store Design <50,000 sq.ft." by Drapers.

We continue to make progress with the reorganisation and elevation of the House of Fraser business. It remains a challenge but we are committed to offering a premium experience to our customers in an elevated environment.

Our acquisitions in FY20 included GAME Digital plc, Jack Wills, Sofa.com and Brookfield Unit Trust (Cheshunt Retail Park). We feel these businesses are a good strategic fit and they will add great value to our global Group and help support our elevation strategy. Our strategic investment in the Mulberry brand is also seen as a good fit for the Group and in particular for our strategy with 'Frasers'.

In the post year end period we announced an approximate 10% investment in Hugo Boss AG through a combination of physical stock, contracts for difference and the sale of put options. This investment's maximum aggregate exposure is approximately €200m and reflects Frasers Group's growing relationship with Hugo Boss and belief in Hugo Boss's long-term future.

To achieve our objectives with the elevation strategy we will rely heavily on our third party brands partnerships, particularly Nike and adidas. At times these relationships can be challenging but we aim to work with our partners as we have done so for many years in delivering the right product to our customers at the right time and at the right price.

OUR PEOPLE

We are committed to treating our staff at Frasers Group with dignity and respect. Our people are our finest resource and they are a critical asset in ensuring that our business is successful.

During the Covid-19 pandemic I am proud of the work we have done to keep our staff engaged with the business through regular update videos and by offering health advice and support to those who have needed it. In the UK we paid virtually all of our contracted staff in full during April, May and June even though our stores were closed for the vast majority of that time. In early March, prior to the lockdown, we sent home all staff over the age of 60 with underlying health issues which was over and above Government guidance, and whilst continuing to pay them in full.

At the AGM in September 2019 Mike Ashley announced our intention to launch a new employee bonus scheme to further reward our staff for the performance of the business and the current intention is that a resolution to approve the scheme will be put to shareholders for approval at the 2020 AGM.

We have also strengthened our leadership team. David Al-Mudallal was appointed as Chief of Staff and we hired Bev Wilkinson to lead our Internal Audit and Risk Management capability. David and Bev bring additional talent and strength to the Group.

We are always keeping under review the experience, balance and diversity of the Board and will bring additional talent onto the Board as required.

I am particularly proud of the Workers' Representative position on the board. Cally Price is our Retail Store Manager for Sports Direct in Cardiff. Cally was elected by her colleagues and she provides a very important bridge between the workforce and the Board. We are one of only a few listed companies to have such a position and it has a been a great success for us.

As we look to the future we are keen to hire the most talented and capable people to help us to build future generations of management and leaders. We are working on a career scheme aimed at school leavers, graduates and talented individuals which we hope will enable bright, ambitious, and enthusiastic people to join Frasers Group and build a career with the Company.

CORPORATE CITIZEN

During the pandemic crisis we have continued our commitment to be a good corporate citizen and extended our support where we felt we could make the most difference. We offered our fleet of vehicles to the NHS for transporting vital equipment to where it was most needed. We also offered NHS staff discounts on bikes and sporting goods equipment in our Evans and Sports Direct stores. On 15 June 2020, in England, we offered a 50% discount to all NHS staff in our Sports Direct stores as a gesture of goodwill to these fantastic individuals as our stores re-opened; it was an overwhelming success with gross sales of approximately £50m before discount and approx. £25m after discount.

As a business, we would also support a 1% increase to corporation tax on the proviso the full 1% goes directly to the NHS and we call on the government to seriously explore this idea.

We sent supplies to the Salvation Army and also a container of clothing to homeless charities in Central London. We provided free gym bags to NHS charities in Nottingham and donated approx. 4,000 Easter eggs to local hospitals in Nottingham, Chesterfield and Mansfield.

Outside of the Covid-19 crisis, during the severe flooding in South Wales at the beginning of the year, we sent 18 pallets of cleaning supplies and personal protective equipment (PPE) to help with the clean-up operation.

DIVIDEND/ SHARE BUYBACK

No dividend was paid during the year and the Board has decided not to declare a final dividend in respect of this financial period. The Company did undertake a share buyback at various points through FY20, the total number of shares purchased in the market was 17,065,981. During the period from our financial year-end to our results announcement date, no further share buyback program is currently in place.

OUTLOOK

The Covid-19 impact has created uncertainty and we consider that it will be some time before the country and indeed the world recovers. However, Frasers Group itself has always taken a long term approach to its strategy and this has helped us, and will continue to help us, through these unprecedented times. We believe our business is strong as is our balance sheet.

We will continue with the elevation strategy and the expansion of the new store format supported by our talented and loyal staff and we consider we are well placed for the future.

David Daly

Non-Executive Chair

20 August 2020

CHIEF EXECUTIVE'S REPORT AND BUSINESS REVIEW

KEY PERFORMANCE INDICATORS

The Board manages the Group's performance by reviewing a number of Key Performance Indicators (KPIs). The KPIs are discussed in this Chief Executive's Report and Business Review and the Financial Review. The table below represents a summary of the Group's KPIs.

(1)         The method for calculating underlying EBITDA is set out in the glossary at the end of this announcement

(2)         The method for calculating underlying basic earnings per share is set out in the glossary

(3)         Free cash flow is defined as operating cash flow after working capital and pre IFRS 16, made up of underlying EBITDA plus realised foreign exchange gains and losses, less corporation tax paid.

(4)         Excluding associates and stores in the Baltic states that trade under fascias other than SPORTLAND or SPORTSDIRECT.com. and other niche fascias. Includes GAME and Sofa.com concessions.

(5)         Cardboard and plastic recycling.

The Directors believe that underlying EBITDA, underlying profit before tax, underlying basic EPS and underlying free cash flow provide further useful information for shareholders on the underlying performance of the business, in addition to 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.

Group revenue

The Board considers that this measure is a key indicator of the Group's growth.

Underlying EBITDA

Underlying EBITDA shows how well the Group is managing its trading and operational efficiency and therefore the overall performance of the Group.

Group gross margin

The Board considers that this measure is a key indicator of the Group's trading profitability. This KPI has been revised from Sports Retail gross margin to Group gross margin as a result of recent acquisitions. Management consider this to be a more meaningful measure and better reflects the performance of the Group overall.

Underlying basic earnings per share (EPS)

Underlying basic EPS is a measure of adjusted total shareholder return and ultimately an indicator to our shareholders of the success of our elevation strategy.

Underlying free cash flow

Underlying free cash flow is considered an important indicator for the business of the cash available for investment in the elevation strategy.

Net debt

Net debt is an indicator of both the Group's investment in the elevation strategy and its covenant headroom which is a key component of the Group's going concern considerations.

No. of retail stores

The Board considers that this measure is an indicator of the Group's growth. The Group's elevation strategy is replacing older stores and often this can result in the closure of two or three stores to be replaced by one larger new generation store.

Workforce turnover

The Board considers that this measure is a key indicator of the contentment of our people.

Packaging recycling

The Board considers that this measure is a key indicator of our impact and commitment to the best environmental practices.

PERFORMANCE OVERVIEW

Group revenue increased by 6.9% to £3,957.4m in the year. UK Sports Retail increased by 0.7% to £2,203.3m, which includes USC, Evans Cycles and GAME UK fascia sales. Premium Lifestyle revenue increased by 34.9% and European Retail increased by 16.3% to £697.7m including Heatons (Republic of Ireland) and GAME Spain. Rest of World Retail revenue was £174.2m, down 19.3% and revenue in the Wholesale & Licensing division decreased by 2.0%.

Group gross margin in the year decreased by 80 basis points from 42.8% to 42.0%. This was largely due to the acquisition of GAME Digital plc which contributes a lower margin rate. UK Sports Retail margin was down 110 basis points at 41.0% (FY19: 42.1%). Premium Lifestyle's gross margin increased by 210 basis points from 46.2% to 48.3% due to improved sell through as the product mix continues to improve. European Retail decreased 520 basis points from 43.6% to 38.4% largely due to the acquisition of GAME Spain which contributes a lower margin rate and increased stock provisioning.  Rest of World Retail margin improved 420 basis points from 40.2% to 44.4%.

Group operating costs increased by 4.5% to £1,344.6m (FY19: £1,287.1m), mainly due to the acquisitions of GAME Digital plc, Jack Wills and Sofa.com. Excluding acquisitions, Group operating costs decreased by 13.2%. See the Financial Review for a reconciliation of Group operating costs to selling, distribution and administrative expenses.

As a result, Group underlying EBITDA for the year was up 5.0% to £302.1m (FY19: £287.8m). Excluding current year and prior year acquisitions, Group Underlying EBITDA for the year was in line with the prior period. UK Sports Retail underlying EBITDA was down 14.1% to £227.4m while European Retail underlying EBITDA was up 76.8% to £51.8m, Premium Lifestyle underlying EBITDA was £4.5m, up from a loss of £37.9m in FY19. Rest of World Retail was a loss of £6.8m, from a £0.9m loss in FY19 and Wholesale & Licensing underlying EBITDA decreased to £25.2m from £32.9m.

Depreciation and amortisation charges have increased by 215.0% to £395.0m (FY19: £125.4m) largely due to right of use asset depreciation amounting to £121.7m and an impairment charge in respect of right of use assets of £96.9m. Excluding IFRS 16 depreciation and amortisation charges have increased by 40.4% to £176.0m largely due to acquisitions, accelerated depreciation on leasehold stores which are onerous and a change in accounting estimate for the Everlast brand which is now being amortised over 15 years which previously had an indefinite life.

Group underlying profit before tax⁽¹⁾ decreased 18.1% to £117.4m (FY19: £143.3m), largely due to the effects of Covid-19 including the closure of retail stores and associated provisioning and depreciation and amortisation charges. Underlying basic EPS for the year decreased by 2.3% to 17.2p (FY19: 17.6p).

Within other comprehensive income the Groups' hedging contracts decreased by £18.6m (FY19: increased by £98.5m) as a result of the fair value movements in the period. With regard to the Groups long-term financial assets, fair value movements have resulted in a loss of £19.7m (FY19: 158.0m) in the period.

The Group generated free cash flow during the year of £263.1m, down from £273.3m in the prior period. Net debt decreased by £12.5m to £366.0m at period end. Spend on acquisitions and capex including Glasgow Frasers, Brookfield Unit Trust (Cheshunt Retail Park) and warehouse automation was offset by disposal of properties, combined with continued strong cash generation in the core business. Share buy backs in the period amounted to £44.0m. Net debt currently stands at 0.9 times reported EBITDA (excluding IFRS 16 adjustments) (FY19: 1.3 times).

REVIEW BY BUSINESS SEGMENT

UK SPORTS RETAIL

The UK Sports Retail segment includes all of the Group's sports retail and USC store operations in the UK and Northern Ireland, all of the Group's sports online businesses (excluding Bob's Stores, Eastern Mountain Sports and Malaysia), the Group's gyms, Evans Cycles, GAME UK stores and online operations and the Group's Shirebrook campus operations. UK Sports Retail is the main driver of the Group and accounts for 55.8% of Group revenue.

Revenue grew 0.7% to £2,203.3m, excluding acquisitions, revenue fell 14.6%. This was largely as a result of the temporary closure of retail stores during the Covid-19 lockdown.

UK Sports Retail gross margin decreased to 41.0% (FY19: 42.1%), largely due to a lower margin rate from GAME UK acquired in the year. Excluding acquisitions gross margin increased to 43.5%.

Operating expenses increased by 2.1% to £660.0 largely due to the acquisition of GAME UK during the year. Excluding acquisitions, operating expenses decreased by 12.1% largely driven by savings in store costs during the closure period as a result of Covid-19.

Underlying EBITDA for UK Sports Retail was £227.4m (FY19: £264.7m), a decrease of 14.1% for the year, largely due to the impact of Covid-19 including increased provisioning. Prior to temporary store closures as a result of Covid-19, underlying EBITDA was up 9.4%.

UK SPORTS RETAIL STORE PORTFOLIO

(1)       The GAME UK store numbers include 3 concessions operating within Sports Direct fascia stores and does not include BELONG arenas.

PREMIUM LIFESTYLE

Premium Lifestyle consists of Flannels, Cruise, van mildert, House of Fraser, Jack Wills and Sofa.com fascia stores and corresponding web sales.

^{(1) GTV being gross sales net of VAT, discounts and returns and gross sales where the Group acts as agent.}

^{(2) The prior year has been re-categorised to include House of Fraser within the Premium Lifestyle division.}

Premium Lifestyle sales increased by 34.9% to £722.0m (FY19: £535.4m), mostly due to new Flannels stores, increased web sales and acquisitions. Excluding acquisitions, sales increased 18.6%. The Premium Lifestyle gross margin for the year increased by 210 basis points to 48.3% (FY19: 46.2%), largely due to the continually improving product mix.

Premium Lifestyle operating costs increased by 20.7% to £344.1m (FY19: £285.2m) due to the increase in Flannels fascia stores and acquisitions. As a result, underlying EBITDA improved from a loss of £37.9m in FY19 to a profit of £4.5m in the year, largely due to Flannels store openings, like for like growth in stores and web and operating efficiencies in House of Fraser.

PREMIUM LIFESTYLE STORE PORTFOLIO

^{(1) Sofa.com store numbers include 12 concessions operating within House Of Fraser fascia stores.}

^{(2) The prior year has been re-categorised to include House of Fraser within the Premium Lifestyle division.}

EUROPEAN RETAIL

The European Retail division includes the Group's sports retail store management and operations in Europe, including the Group's European distribution centres in Belgium and Austria, stores in the Baltic regions and GAME Spain stores.

Revenue increased 16.3% to £697.7m. On a currency neutral basis and excluding acquisitions, European Retail revenue decreased by 15.6% largely due to temporary store closures in March and April 2020 as a result of Covid-19.

European Retail gross margin decreased to 38.4% (FY19: 43.6%) largely driven by a lower margin rate for GAME Spain acquired in the year. Excluding acquisitions and on a currency neutral basis, margin is up 170 basis points to 45.1%.

Operating expenses decreased by 6.9% to £216.1m (FY19: £232.2m). Excluding acquisitions and on a currency neutral basis operating costs decreased by 29.3% due to the release of property related provisions in Austria after the disposal of property and reduction in overhead costs as a result of Covid-19. As a result Underlying EBITDA increased 76.8% to £51.8m.

All of the following stores are operated by companies wholly owned by the Group, except for Estonia, Latvia and Lithuania where the Group owns 60.0%.

EUROPEAN STORE PORTFOLIO(1)

(1)             Includes only stores with SPORTSDIRECT.com and SPORTLAND fascias

(2) Excluding Heatons fascia stores

(3) FY19 figures have been revised to exclude outlet stores in Estonia and Latvia in line with other countries.

REST OF WORLD RETAIL

Rest of World Retail includes sports stores in Malaysia trading under the SPORTSDIRECT.com fascia and retail stores in the US trading under Bob's Stores and Eastern Mountain Sports. In Malaysia the Group has 31 stores which are 51.0% owned by the Group.

Rest of World Retail sales were £174.2m for the year. Gross margin was 44.4%, up from 40.2% in the prior year. Underlying EBITDA loss was £6.8m, from a loss of £0.9m in FY19. This was largely due to temporary store closures in March and April 2020 as a result of Covid-19.

REST OF WORLD STORE PORTFOLIO

WHOLESALE & LICENSING 

The portfolio of Group brands includes a wide variety of world-famous sport and lifestyle brands. The Group's Sports Retail division sells products under these brands in its stores, and the Wholesale & Licensing division sells the brands through its wholesale and licensing activities. The Wholesale & Licensing division continues to sponsor a variety of prestigious events and retains a variety of globally recognised, high-profile celebrities and sporting professionals as brand ambassadors.

Wholesale & Licensing total revenue decreased by 2.0% to £160.2m (FY19: £163.5m). Wholesale revenues were down 1.2% to £134.4m (FY19: £136.0m), due to reductions in UK wholesale activity.

Total gross margin decreased by 70 basis points to 40.9% (FY19: 41.6%). Wholesale gross margins decreased 30 basis points to 29.5% (FY19: 29.8%).

Licensing revenues in the year were down 6.2% to £25.8m (FY19: £27.5m) largely due to the loss of a licensee in the year.

Operating costs increased by 13.8% to £40.3m (FY19: £35.4m) largely due to an increase in inventory sourcing activity in SD Asia and an increase in bad debt write downs in Everlast.

As a result, underlying EBITDA decreased by 22.7% to £25.2m (FY19: £32.6m).

PROPERTY REVIEW

Our elevated store model continues to evolve having opened across different size formats (small, medium, large & extra-large) incorporating an extensive sports category offering as well as a lifestyle offer via USC. The model has now been implemented across high street, Shopping Centre and Retail Park locations. 

The new concept has been well received by landlords and coupled with the changing market conditions is creating further opportunities to grow the pipeline of new elevated stores. A model for both GAME and Evans Cycles has been developed to complement the elevated sports store format, enhancing their destination retail status. Delivering such destination stores is a priority for new store openings and it should also be noted that a multi fascia model for Frasers is in development and will first be delivered at Wolverhampton in the coming financial period.

Over FY20 the group acquired GAME Digital plc, Jack Wills and Sofa.com resulting in taking control of the store estate. These have been onboarded to form part of the Group's property strategy and processes.

In the UK, a number of large format sports stores were opened during the period including Watford, York, Leicester and Glasgow Fort. The elevated store concept has not been limited to the UK, with new stores opening across Europe during FY20. Highlights include the comprehensive refit of our flagship City 2 store in Brussels, the relocation and elevation of our Sports Direct store in Dolce Vita Tejo Shopping centre, Lisbon and the opening of a flagship Sports Direct and USC in Riga Akropolis, Latvia. This is the first introduction of the USC offering into the Baltics region. A portfolio of six Toys R Us stores located across Spain were acquired and will be reconfigured in phases to house the new elevated Sports Direct concept.

Whilst freehold property acquisitions remain an option for the Group to assist with the delivery of elevated stores, it is expected that particularly in Shopping Centres there will be significant large space opportunities compared to previous years. This is likely to result in more leasehold activity with more viable options available.

Another objective for the coming financial period is the transition of the leasehold estate towards turnover based rents across all fascias and territories. Long term leases will be signed with collaborative landlords and those willing to co-invest in the elevated store model. However, it is possible further store closures will occur over the coming year where such terms cannot be agreed.

Flannels remains a key fascia having opened eight new stores including the London flagship store on Oxford Street. The other openings all adopt the regional concept developed last financial year which gained industry recognition at the 2019 Drapers awards.

Store Portfolio - Sports Stores - UK including Northern Ireland

The Group is currently operating 367 stores in England, 37 in Scotland, 28 in Wales and 17 in Northern Ireland. There were 16 openings and 16 closures for Sports Direct fascia stores over the period resulting in no change to the overall store numbers from the previous year.

Noteworthy openings include Leicester, Watford, Glasgow Fort, York and Ballymena. All of these stores with the exception of Ballymena are held freehold or long leasehold.

All the new store openings include a USC lifestyle offering as part of the elevated store model across the small / medium / large and extra-large formats. As mentioned previously, both a GAME and Evans Cycles concept has been developed to form part of the elevated Sports Direct format. Over the coming financial period there will be a push towards multi-fascia store openings incorporating each of these fascias.

Store Portfolio - Evans Cycles

There are currently 50 Evans Cycle stores operating, a reduction of six stores in the period. A new concept to incorporate Evans Cycles into appropriate Sports Direct stores has been developed and will be implemented over the coming financial year.

Store Portfolio - GAME UK

Following the acquisition of GAME Digital plc, 256 stores were taken on in the UK. Over the period, 20 stores were closed as part of the Group's strategy to move the Game stores into the new elevated stores and six were opened resulting in 242 at the end of the period.

A notable opening is the flagship GAME store on Oxford Street into part of the House of Fraser store; this store also includes a Belong Gaming Arena. With 100 desks this is the largest in the UK. The Belong Gaming Arena concept will continue to form part of new stores across the UK where viable. The general estate strategy to relocate and open space within Sports Direct stores where possible is underway with significantly more to open over FY21.

Store Portfolio - Premium Lifestyle

Flannels, Cruise and van Mildert

During FY20 there were eight store openings and two closures resulting in a net increase of six stores. The resulting store numbers consisted of 37 Flannels stores, five Cruise stores and one van Mildert store - a total of 43 stores.

The regional concept continues to be well received and has received industry recognition with the Newcastle Flannels store winning the 2019 Drapers award for Best Store Design <50,000 sq.ft. Other highlights include the opening of the London flagship store on Oxford Street and the opening of Belfast, the first Flannels to form part of a Frasers store.

The Flannels fascia remains a key area of development with plans to expand the model up to approx. 60k sq.ft. incorporating categories including beauty, services and food & beverage; the result of which will create market leading luxury destination stores.

House of Fraser

The Group started FY20 with 53 House of Fraser stores in the UK and over the period five were closed resulting in a total store estate of 48. A large number of stores remain on flexible terms whilst long term lease negotiations continue. There are anticipated to be further closures over the coming period, the number of which will depend on the outcome of lease negotiation. During FY20 the freehold acquisition of the flagship store at Buchanan Street, Glasgow, completed having exchanged contracts in 2018. In addition, a relocation of the Wolverhampton store was agreed and is due to open in FY21.

As has been the case with the elevated Sports Direct and Flannels stores, a new concept is currently under development for new Frasers stores.

Jack Wills

Following the acquisition of Jack Wills negotiations across the entire store estate commenced with a total of 96 trading stores in the UK. Over the period 31 stores closed due to performance and being unsuccessful in reaching a new lease agreement. However, two stores were opened bringing the total number of stores at the end of the financial year to 67. It should also be noted the licence to occupy held via the administrators was terminated over the period.

Forecast Openings UK FY21

The Group remains firmly committed to the elevation strategy and will continue the roll out of the new store concept across the UK. However due to the circumstances resulting from Covid-19 and adhering to Government guidelines, it is possible the program of store openings will be impacted.

European Retail

Store Portfolio Europe - Republic of Ireland

The Group has continued to invest extensively in the Heatons ROI existing store network through the conversion of a further eight stores into multi fascia / Sports Direct stores. The Group operates 35 locations across ROI, of which there are 14 standalone Sports Direct stores. In addition to this, there are six standalone Heatons stores which are intended to be either converted or relocated subject to the associated lease event.

Store Portfolio Europe - Continental

The Group continues to operate sports stores in 19 countries in Europe:

·      215 Sports retail stores in Continental Europe (plus 15 non-core, speciality and outlets)

·      Total sq.ft. of approx. 2.9m of all sports fascias in Europe (including Sportland, Eybl, Disport, Sportsworld etc)

·      Acquired 263 GAME stores in Spain during FY20 and after three closures and one opening finished FY20 on 261

·      Ten openings in four different countries in FY20, four of which were relocations and one was a refit

·      11 closures in four different countries with a mixture of closing non-performing stores and closures linked to relocations and refits

·      The Group is committed to expansion in continental Europe and in the immediate months following FY20 opened an elevated Sports Direct store in Hasselt, Belgium and is committed to a further ten in Spain during FY21

·      As is the case in the UK, the Group is firmly committed to the rollout of elevated stores across Europe. Again due to the circumstances resulting from Covid-19 and adhering to local policy it is possible the program of stores will be affected.

Store Portfolio - Rest of World

·      31 stores in Malaysia with five openings and seven closures in FY20. Four of these closures were Tesco based stores where we continue to review these locations going forward while the estate is repositioned.

·      The Malaysian elevation and expansion drive continues, with 5 new elevated stores opened in the period, a further six stores under contract and six refits in FY21 in an elevated format.

·      We have also signed the lease on a flagship new retail store and Malaysian HQ relocation at a major shopping centre in the Kuala Lumper area totalling 30,000 sq.ft.

·      44 stores in the USA, following seven closures and one relocation in FY20.

Freehold / Long Leasehold Property Purchases

For FY20, a total of 11 acquisitions were completed in the UK amounting to a combined purchase price of £149.3m. This excludes amounts paid for building improvements to existing freeholds and includes the Glasgow Frasers store which completed in FY20 (£95.0m) and where contracts were exchanged in FY19.

In Europe, seven properties were acquired for a total of €40.1m, six of which formed part of a portfolio of Toys R Us properties across Spain. At the commencement of FY20, a property was acquired in the USA, amounting to $8.7m.

Consistent with previous years, further property assets were sold over FY20 in both the UK and Europe. Selected property disposals are likely to continue over the coming financial period across territories. The most significant disposal was the Group's sale and leaseback of the UK Head Office and Distribution Campus located in Shirebrook which completed at the commencement of FY20. Notable disposals in Europe include Innsbruck, Austria for €11.3m and Salzburg Kasern, Austria for €7.6m.

Mike Ashley

Chief Executive

20 August 2020

FINANCIAL REVIEW

The Financial Statements for the Group for the 52 weeks ended 26 April 2020 are presented in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

SUMMARY OF RESULTS

⁽¹⁾ The Directors believe that underlying EBITDA, underlying profit before tax and underlying basic EPS provide further useful information for shareholders on the underlying performance of the Group in addition to the reported numbers and are consistent with how Group 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 and investment costs, finance income and finance costs, tax, depreciation, amortisation and impairment. It includes the Group's share of losses from associated undertakings and joint ventures. Underlying EBITDA is calculated as EBITDA before the impact of IFRS 16, foreign exchange, any exceptional or other non-trading items, gains/losses on disposals and costs relating to the share schemes.

GROUP OPERATING COSTS

Group operating costs for the purposes of management reporting:

i.      Excludes depreciation, amortisation and impairments of property, plant and equipment, intangible assets, share scheme charges and realised FX gains and losses; and

ii.     Includes other operating income.