Financial Review

2012
£m
2011
£m
Growth
%
Revenue:
Retail191.0147.4+29.6%
Wholesale122.890.5+35.7%
Group revenue313.8237.9+31.9%
Underlying1 operating profit:
Retail31.737.8-16.1%
Wholesale25.321.4+18.2%
Group overheads2(14.3)(9.1)+57.1%
Underlying1 Group operating profit42.750.1-14.8%
Finance Income0.10.1
Underlying1 Group profit before tax42.850.2-14.7%
Non-underlying adjustments:
Fair value movement on deferred share consideration8.3(0.4)
Other0.3(1.8)
Group profit before tax and exceptional items51.448.0+7.1%
Exceptional items(0.7)
Group profit before tax51.447.3+8.7%
Underlying1 operating profit margin:
Retail16.6%25.6%-9.0 ppts
Wholesale20.6%23.6%-3.0 ppts
Group underlying1 operating profit margin13.6%21.1%-7.5 ppts

Notes

  1. Underlying results have been adjusted to reflect the impact of the gain/loss recognised on fair valuing deferred consideration, financial derivatives and exceptional items. In addition, the prior periods have been adjusted to reflect the impact of the revaluation of inventory within SuperGroup Europe BVBA at acquisition (IFRS 3 revised requirement) and the impact of including the prior year's freight and duty costs into inventory. All references to underlying in this statement are after making these adjustments. Retail and Wholesale are presented before Group overheads and royalties unless stated otherwise.
  2. Group overheads have been separated here as the directors believe it provides useful analysis for the reader. Within the segmental analysis they are presented in the Retail division in total.

Adjustments to reported results

A number of adjusting items have been identified in establishing the underlying performance of the Group as they were either non-recurring items or accounting adjustments for derivatives and deferred consideration. These have been separated into non-underlying items and exceptional operating costs:

2012
£m
2011
£m
Growth
%
Revenue313.8237.9+31.9%
Operating profit51.347.2+8.7%
Non-underlying items:
(a) Impact of IFRS 3 (revised) on inventory acquired at date of acquisition1.9
(b) Impact of new accounting policy relating to prior periods(1.6)
(c) (Gain)/loss recognised on fair value of deferred consideration(8.3)0.4
(d) (Gain)/loss on financial derivatives(0.3)1.5
Total non-underlying items(8.6)2.2
Exceptional operating costs0.7
Underlying1 operating profit42.750.1-14.8%
Finance income0.10.1
Underlying1 profit before tax42.850.2-14.7%

Notes: Non-underlying items

  1. IFRS 3 (revised) requires inventory purchased with the acquisition of SuperGroup Europe BVBA in February 2011 to be fair valued to selling prices less costs to sell and hence no profit was recognised on this inventory when it was sold post acquisition. Had this adjustment not been made £1.9m of additional profits would have been recognised.
  2. Inclusion of prior years' inbound freight and duty costs into inventory previously expensed in the Group statement of comprehensive income.
  3. Statement of comprehensive income adjustment to reflect the fair value movement in share price for the deferred contingent consideration related to the acquisition of SuperGroup Europe BVBA.
  4. The revaluation of forward foreign exchange contracts to fair value by using the year end spot rate.

Group operating profit

Underlying1 operating profit of £42.7m (2011: £50.1m) is down 14.8% compared to an overall growth in revenue of 31.9%. Consequently the underlying1 operating profit margin at 13.6% (2011: 21.1%) fell by 7.5 percentage points. The details of each division's operating profit have been discussed in the business review.

The Group's gross profit margin now stands at 57.0% (2011: 55.8%), an increase of 120 bps on the prior year. The predominant driver of this is the full year impact of the acquisition of SuperGroup Europe BVBA. This has brought European retail stores into the Group which operate at similar margins to the UK retail operation; previously the Group made a lower distributor margin on these stores. Additionally, the margin made by SuperGroup Europe BVBA on sales to third parties is now retained within the Group. Excluding this impact, underlying gross margins have declined, as disclosed in the business review, through a combination of cotton price increases and the mix of off-price sales.

The Group continues to increase its supplier base in order to manage risk and meet growth expectations. During the year, the number of suppliers increased to 72 (2011: 47) and this trend is expected to continue.

The changes in supply from geographical territories and an evolving supplier base enable competitive tension which helps drive margin improvements without compromising product quality or ethical operations.

Underlying Group central overheads were £14.3m (2011: £9.1m) an increase of £5.2m, which have been the key drivers in the cost base growth. Central payroll costs have risen by £2.3m reflecting the continued investment in people and the impact of the long term incentive plan.

Depreciation and amortisation within Group central overheads have increased by £1.7m, primarily representing the amortisation of intangible assets recognised on the acquisition of SuperGroup Europe BVBA and the IT spend associated with the implementation of the WMS.

Premises costs, which include centralised costs of the UK store portfolio (for example insurance, telephone and security), have increased by £1.0m reflecting the additional stores opened during the year and the full year equivalent of stores opened last year.

Exceptional operating costs

There were no exceptional operating costs during the year (2011: £0.7m). The prior year comparative represents acquisition costs of SuperGroup Europe BVBA in February 2011.

Taxation

In preparation for the listing of the business on the London Stock Exchange, a substantial reorganisation was undertaken with effect from 7 March 2010 and the Group's subsidiaries acquired net assets with a total fair value of £375m. Within this amount, £340m was identified as intangible assets and goodwill, of which the directors believe that at least £187m should be deductible against taxable profits over the useful economic lives of the respective assets. This gave rise to £52.4m of the exceptional deferred tax credit booked in 2010. Based on this the directors consider that the Group's future cash tax expense should be reduced by approximately £3.4m per annum using the corporation tax rate of 24%.

The Group's underlying corporation tax expense of £12.2m represents an effective tax rate of 28.5% for the period ended 29 April 2012. This is higher than the statutory rate of 25.8% primarily due to the depreciation of non-qualifying assets and non-allowable expenses.

The UK corporation tax rate reduction from 26% to 24% with effect from 1 April 2012 is substantively enacted at the balance sheet date so the deferred tax balances at 29 April 2012 have been re-measured resulting in an exceptional deferred tax charge of £3.2m.

Discussions with HMRC in respect of the tax deductible goodwill arising on the March 2010 reorganisation have significantly progressed. Written confirmation has been received from HMRC that they will not challenge the commercial nature of the transactions. The related deferred tax asset in respect of the goodwill therefore continues to be considered recoverable.

Earnings per share

Basic earnings per share is 45.0p (2011: 37.9p) based on a basic weighted average of 80,234,588 shares (2011: 79,337,981 shares). The increase in the basic weighted average number of shares is due to the increase of 1,234,568 shares issued primarily for the acquisition of SuperGroup Europe BVBA in February 2011.

Diluted earnings per share is 44.7p (2011: 37.9p) based on a diluted weighted average of 80,792,443 (2011: 79,407,993) shares and underlying basic earnings per share is 38.1p (2011: 45.2p).

Cash flow and balance sheet

The Group has net cash balances of £30.9m as at the end of the year, down £1.3m (2011: net cash £32.2m). Cash in-flow from operations was £56.5m (2011: £25.4m) which, after increases in capital investment, corporation tax and a decrease in landlord contributions, has resulted in a net decrease in cash of £1.3m (2011: net increase £4.2m). The business remains highly cash generative and it is anticipated that the Group will continue to see a strong balance sheet that will enable investment in new stores and working capital to support future growth.

Net finance income of £0.1m (2011: £0.1m) arose from the cash reserves held throughout the year.

The net book value of property, plant and equipment is £63.8m, up 65% (2011: £38.6m) primarily due to the opening of 26 stores (including one relocation). In the year, £36.6m of capital additions were made on property, plant and equipment, of which £23.5m relates to leasehold improvements across the Group. The balance is made up of fixtures and fittings £8.3m and IT £4.8m.

Landlords' contributions of £7.7m were received during the year (2011: £9.7m). This was partially due to a switch from contributions to rent free periods and partially due to the continued opening of stores in prime locations where landlords' incentives are less prevalent. The contributions will be amortised over the lives of the respective leases.

Investment in inventories, trade receivables and trade payables decreased by 14.4% during the year to £42.8m (2011: £50.0m) and as a proportion of the Group's revenue was 13.6% (2011: 21.0%).

Group inventory increased to £55.5m (2011: £52.3m), up 6.1%. The increase in stock reflects the additional working capital investment in new stores opened during the year, although the growth rate is significantly below that of sales reflecting the outcome of clearing aged stock discussed previously.

Trade receivables (excluding prepayments) increased by 5.9% to £23.5m (2011: £22.2m). Trade receivables were 7.5% of Group revenue, down 1.8% points (2011: 9.3%). Trade payables were £36.2m, up 47.8% (2011: £24.5m) and represented 11.5% of Group revenue (2011: 10.3%).

Group cash flow track record £m

2012
£m
2011
£m
Growth
%
Current assets
Inventories55.552.3+6.1%
Trade and other receivablesTrade receivables23.522.2+5.9%
Other receivables/derivatives19.113.5+41.5%
Total trade and other receivables42.635.7+19.3%
Cash and cash equivalents30.932.2-4.0%
Total current assets129.0120.2+7.3%
Current liabilitiesTrade payables36.224.5+47.8%
Other payables/derivatives/ borrowings17.018.2-6.6%
Total current liabilities53.242.7+24.6%
Net current assets75.877.5-2.2%
Working capitalInventories55.552.3+6.1%
Trade receivables23.522.2+5.9%
Trade payables(36.2)(24.5)+47.8%
Total working capital42.850.0-14.4%

Dividends

The board of directors remains of the view that the business is best served by retaining current cash reserves to support growth. Consequently a recommendation will be made at the Annual General Meeting ("AGM") that no dividend is payable in relation to 2012 (2011: £nil).

The board will keep the dividend policy under review by considering the Group's profitability, underlying growth, availability of cash and distributable reserves and the investment opportunities open to the business.

Key performance indicators

KPIUnits20122011+/-
Underlying1 profit before tax£m42.850.2-7.4
Underlying1 operating profit margin%13.621.1-7.5
Total Retail selling space'000 sq. ft.470332+138
Total Retail store numbersNo.10378+25
Internet revenue as % of Group revenue%108+2
Wholesale overseas revenue mix%7260+12
International franchised & licensed storesNo.10155+46
Number of Wholesale territoriesNo.5440+14
Number of product suppliersNo.7247+25
  • Underlying1 profit before tax is the net of external revenue less cost of sales, less selling, general and administrative expenses, plus other gains and losses (net), plus finance income, but after adjusting for non-underlying and exceptional items (Group statement of comprehensive income);
  • Underlying1 operating profit margin is the ratio of operating profit, before adjusting for non-underlying and exceptional items, to external revenue;
  • Retail selling space is defined as the total trading floor area of all the stores excluding stockroom, administration and other non-trading areas at the year end;
  • Retail store numbers include all standalone stores open and trading at the year end;
  • Internet revenue as a percentage of Group revenue is the ratio of internet revenue to external revenue;
  • Wholesale overseas revenue mix is the proportion of Wholesale revenue sourced outside the UK, excluding royalty receipts;
  • International franchise stores include all franchise and licensed stores open and trading at the year end;
  • Number of Wholesale territories are the countries in which the Group's products are sold primarily by distribution, franchise or agency arrangements to Wholesale customers; and
  • Number of product suppliers is the number of suppliers that have supplied items for resale during the year.

Going concern

The directors report that, having reviewed the current performance forecasts, they have a reasonable expectation that the company and the Group have adequate resources to continue their operations for the foreseeable future. For this reason they have continued to adopt the "going concern" basis in preparing the financial information.

Board approval

On 11 July 2012 the board of directors of SuperGroup Plc approved this statement.

Cautionary statement

This report contains certain forward-looking statements with respect to the financial condition, results of the operations and businesses of SuperGroup Plc. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are relevant on the date of publication of this statement. Nothing in this statement should be construed as a profit forecast. Except as required by law, SuperGroup Plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein.

Shaun Wills
Chief Financial Officer
11 July 2012

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