Interim Results

Sports Direct International Plc 19 December 2007 19th December 2007 Sports Direct International plc ("Sports Direct", "the Group" or "the Company") Interim Results For the 26 weeks to 28 October 2007 Group Highlights • Group revenue down 7.1% to £668.1m - UK retail sales affected by unprecedented weather conditions • Underlying EBITDA down 16.0% to £83.6m (1) • Underlying profit before tax down 35.2% to £52.0m (1) (2) • Group margin up 220 basis points to 43.3% - Gross margin percentage strengthened across all divisions • Strategic stakes increased from £75.4m to £364.5m - Investments in adidas, Amer (sold after period end) and Umbro • Acquisitions of Everlast, providing significant platform for US growth; and Field & Trek • Middle East licensing agreement in place and progressing • Continued store roll-out in the UK and internationally • Capital investment of £120m - Acquired freehold retail sites and other property interests for £102.5m • Further development and consolidation of head office and distribution campus at Shirebrook • Interim dividend 2.06p per share (1) Underlying operating profit, underlying profit before taxation and underlying EBITDA exclude £57.9m (2007 H1: £16.9m) of realised losses on forward currency contracts, and exceptional items of £nil (2007 H1: £4.2m). (2) Underlying profit before taxation also excludes a gain of £27.1m (2007 H1: £2.5m) relating to the IAS 39 fair value adjustment on forward currency contracts. Dave Forsey, Chief Executive said: "The results reflect a very challenging UK market and the comparative period last year including the football World Cup. These also demonstrate the resilience of our business under such pressures from external factors. We remain determined to adapt our strategy, consolidate our market leading position and develop our strong brand portfolio to drive long-term growth." Sports Direct International plc Dave Forsey, Chief Executive Bob Mellors, Group Finance Director T: 0870 333 9400 Financial Dynamics Jonathon Brill/Andrew Dowler/Ben Foster T: 0207 831 3113 Chairman's Statement I am pleased to have been appointed as acting Chairman of the Sports Direct Board since June in what has been a challenging period for the UK retail sector and the Group. Board Changes The Group was pleased to announce on 25 October 2007 the appointment of Malcolm Dalgleish and Dave Singleton as independent non-executive directors. Both appointments took effect immediately and are part of the Group's ongoing commitment to comply with corporate governance best practice. Malcolm Dalgleish is currently Head of Retail in the Europe, Middle East and Africa area at CB Richard Ellis ("CBRE"). In 2005 CBRE acquired Dalgleish, the leading retail real estate services specialist in the UK, which was founded by Malcolm in 1979 and of which he was the principal shareholder. Dave Singleton spent 25 years with Reebok International Limited. He stepped down in April 2007 having helped to successfully integrate Reebok following its acquisition by adidas Group in January 2006. For eight years he was Vice President Northern Europe Region & UK and from 2003 he was Senior Vice President Europe, Middle East & Africa. Dave has an extensive senior management record and brings valuable experience of international sports brand operations. The Group also announced that Chris Bulmer stepped down from her role as an independent non-executive director. We are continuing to work with an executive search company to strengthen the Board with non-executive appointments. We will update the market as appropriate. Dividend The Board has resolved to pay an interim dividend of 2.06p per share on 30 April 2008 to shareholders on the register on 28 March 2008. We intend in the future to introduce a dividend reinvestment programme in time for the Interim dividend. Simon Bentley Acting non-executive Chairman 19 December 2007 Chief Executive and Finance Director's Review Overview of Financial Performance In the 26 weeks ended 28 October 2007 ("2008 H1"), Group revenue was down 7.1% at £668.1m compared with revenues of £719.1m for the 26 weeks ended 29 October 2006 ("2007 H1"). UK retail revenue for the six month period fell by £77m compared with the corresponding period last year. Underlying EBITDA for the period was £83.6m. This is 16% lower than the corresponding period last year. Gross margins for the Group were strengthened, and increased to 43.3% from 41.1%, driven primarily by an improvement in the UK retail gross margin to 45.3% from 42.4%. Foreign exchange charges to the Income Statement for the half year were £30.8m, up £16.4m on the same period last year. This comprised £57.9m in administration costs which was partly offset by a gain of £27.1m in finance income. Capital expenditure amounted to £120.0m (2007 H1: £42.7m). This included acquisitions of property, plant and equipment, including £77.1m on new and refurbished stores, and £31.9m on a freehold office London. Underlying profit before tax fell from £80.3m to £52.0m. Financial Performance by Business Segment 2008 H1 2007 H1 Change (£'m) (£'m) % ---------------------------------------------------------------------------------------------------------------------- Retail Revenue: UK retail 518.4 595.1 UK wholesale and property 23.2 8.3 International retail 38.5 33.6 ---------------------------------------------------------------------------------------------------------------------- Total retail revenue 580.1 637.0 (8.9) ---------------------------------------------------------------------------------------------------------------------- Cost of sales (327.7) (372.9) Gross margin 252.4 264.1 Gross margin percentage 43.5% 41.4% ---------------------------------------------------------------------------------------------------------------------- Brands Revenue: Wholesale 77.5 75.4 Licensing 10.5 6.7 ---------------------------------------------------------------------------------------------------------------------- Total brands revenue 88.0 82.1 +7.1 Cost of sales (51.1) (50.4) ---------------------------------------------------------------------------------------------------------------------- Gross margin 36.9 31.7 Gross margin percentage 41.9% 38.6% Business Review It has been an exceptionally challenging trading environment for the UK sports retail sector, with the wettest May to July since records were first kept in 1776, and the worst flooding in the UK for 60 years. 2008 H1 has been the most difficult trading period in our history. However, we believe our strategy remains the right one for the business. We continued to invest in the business organically and through acquisitions, consolidating our leading UK retail market position and increasing the long-term value of our brand portfolio. Retail division Total retail revenue was down 8.9% to £580.1m (2007 H1: £637.0m). UK retail revenue, which contributes to the majority of retail revenue, was down 12.9% to £518.4m (2007 H1: £595.1m). This was impacted by the poor Summer weather conditions, along with tough comparatives following the 2006 FIFA World Cup. There was no comparable event in 2007. On 22 November 2007 we announced that England failing to qualify for the European Championship 2008 will have a material impact on the business. The last time England failed to qualify for a major football tournament was in 1994, when the business was significantly smaller and less focussed on football related merchandise than it is now. Umbro has stated that it will now manufacture only one million new replica England away shirts rather than three million it had originally planned. In addition, we expect sales of other products such as home shirts, shorts, socks, training wear, non-Umbro England products, flags, etc. to be significantly reduced, plus there will be an impact due to the lack of related footfall. Although it is difficult to estimate the impact precisely, our initial assessment is that this will impact EBITDA in the full 2008 calendar year by circa £50m (with a range of £30m to £70m) split broadly evenly over financial years 2007/2008 and 2008/2009. We grew sales in the other two segments of our retail division. UK wholesale and property revenue was up 179.5% to £23.2m (2007 H1: £8.3m) due to the incidence of property transactions, including £10m which had no gain or loss (2007 H1: no property transactions). International retail revenue was up 14.5% to £38.5m (2007 H1: £33.6m). In the period we opened two new stores in Belgium, and a further three in Slovenia. In spite of the discounting of stock, we strengthened the total retail division margin from 41.4% to 43.5%, driven primarily by an improvement in the UK retail gross margin to 45.3% from 42.4%. 2008 H2 UK retail margin growth is likely to continue but at a reduced rate. On 12 July 2007, we acquired a 60% strategic stake in Field & Trek for £5.1m. This is in line with the Group's plans to enter the outdoor leisure market. We hold an option for five years to acquire the remaining 40% for a further £5.0m. We have also acquired the remaining 20% of Sport 2000 Slovenia, the number two Slovenian sports retailer. Post period end, we announced the sale of our interest in Original Shoe Company Limited for £5m. Online revenue continues to be a growing element of the division and we continue to look at opportunities to develop this revenue stream for the business. Brands division Total brands revenue was up 7.1% to £88.0m (2007 H1: £82.1m). Within this, wholesale revenue was up 2.8% to £77.5m (2007 H1: £75.4m). Revenue from licensing was up 56.7% to £10.5m (2007 H1: £6.7m), driven by the acquisition of Everlast in September 2007 and the licensing agreement signed with Dubai based company Retail Corp. This will establish Lillywhites and Sports Direct stores throughout the Middle East region and the Republic of South Africa. By the end of 2008, we expect 10 stores to have been opened in South Africa, all of which will carry most of our Group brands. This will ensure Sports Direct has a presence in the market ahead of the 2010 FIFA World Cup being held there. Gross margins increased from 38.6% to 41.9% due to the increase in high margin licensing income. During the period, the Group acquired the Everlast boxing brand for approximately £80.4m. Everlast is a leading US boxing and apparel brand which fits strategically with Sports Direct's existing brand portfolio. Importantly, this acquisition provides a significant platform in the US market. Since the date of acquisition to the period end, Everlast contributed £4.1m to brand revenue. We also acquired the minority interest in Smith and Brooks. Operating costs have increased in the division due to the inclusion of Everlast from its acquisition in September, along with the closure of the Dunlop Slazenger offices in Wakefield, and their subsequent integration into the Shirebrook operation. Store portfolio As at 28 October 2007, the Group operated 478 stores, of which 425 were located in the UK (excluding Northern Ireland), 35 in Belgium, 14 in Slovenia and four in Holland. In addition, through its 42.5% shareholding in the Heatons chain, Sports Direct has three stores in Northern Ireland and 12 stores in the Republic of Ireland. In the period, 22 new Sports Direct stores were opened in the UK, with 5 relocations. This represented a net increase of 17 new core stores in 2008 H1. As part of the Group's ongoing portfolio management, we disposed of 23 smaller non-core stores in the period, excluding the 5 relocations. At the period end, the 425 UK retail stores total square footage was circa. 3.3m square feet. Since the period end, we have opened a net of 11 new core stores in the UK, plus completed 2 relocations. We have disposed of a further 3 smaller non-core stores. When evaluating new sites, and reviewing existing locations, Sports Direct sets rigorous selection criteria. The Group is now targeting to open between 35-40 new core stores in the current financial year. Looking forward, and against a backdrop of a general consumer slowdown, we are targeting a similar number of new core stores for the next financial year. We now have over 100 sportsdirect.com fascias in the UK alone and the rebranding project is continuing. The Company previously announced it would be seeking shareholder approval to purchase freehold properties from Mike Ashley. The difficulties associated with that have not been resolved, therefore the Company will no longer be seeking shareholder approval for this. Strategy In spite of the tough UK retail backdrop, in the period we strengthened our Group gross margins by 220 basis points to 43.3% (2007 H1: 41.1%). We achieved this by increasing the value of products and delivering continued efficiencies from the state-of-the-art distribution centre in Shirebrook. Gross margin also benefited from the lower average dollar exchange rate in the period. Maintaining efficient operating margins, subject to the appropriate balance between margins and revenues, remains a key management focus for the Group. Core to our business model is building stakes in other companies which we believe will provide us with a strategic and commercial advantage. At 28 October 2007, the Group held investments in adidas, Amer Sports, Blacks Leisure, JD Sports and Umbro. Post period end, on 30 October 2007, the Group acquired further shares in Umbro, taking our holding to 29.9%. On 7 November 2007 the Group disposed of its entire holding in Amer Sports Corporation for a consideration of £117.8m. Outlook As previously stated, the UK retail business will be impacted by England's failure to qualify for next year's European Championships. This will be partly mitigated, however, by performances in the International retail and Brands businesses, where management is targeting 6-8% underlying EBITDA growth in 2007/8 and 2008/9. Therefore we remain confident of exceeding current underlying EBITDA expectations for 2007/8. Financial Review Underlying EBITDA for the period was £83.6 million, compared to £99.5 million in the corresponding period last year. The Directors believe that underlying EBITDA and underlying earnings provides the most useful information for shareholders on the underlying performance of the business, 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 share of profit of associated undertakings and joint ventures of £2.3m (2007 H1: £0.8m). Underlying EBITDA is calculated as EBITDA before exceptional items, and non trading items including realised foreign exchange losses. Selling, distribution and administration costs Selling, distribution and administration costs increased as a percentage of revenue as it includes the costs of the acquired companies and a realised foreign exchange loss of £57.9m compared to a loss of £16.9m in the comparative period. The Group manages the impact of currency movements through the use of forward fixed rate currency purchase contracts. The Company's policy, consistently applied, is to hold or hedge up to four years (with a minimum of one year) on anticipated purchases in foreign currency. The exchange loss of £57.9m included in administration costs has arisen from: a) accepting dollars at the contracted rate; and b) the translation of dollars and dollar denominated assets at the period end rate. The exchange gain of £27.1m included in finance income substantially represents the reversal of the provision made (under IFRS) for the forward contracts at 29 April 2007 in anticipation of the loss realised in the accounts to 28 October 2007. The sterling exchange rate with the US dollar at 29 April 2007 was $1.998 and $2.053 at 28 October 2007. At today's rates this profit and loss impact is all but reversed. Finance income 2008 H1 2007 H1 (£'m) (£'m) --------------------------------------------------------------------------------------------------------- Finance income: Bank interest receivable 0.6 0.2 Other interest receivable - 0.3 Expected return on pension plan assets 1.1 1.1 Fair value adjustment to forward foreign exchange contracts 27.1 2.5 --------------------------------------------------------------------------------------------------------- 28.8 4.1 ========================================================================================================= The profit on the fair valuing of forward foreign exchange contracts arises under IFRS as a result of marking to market at the period end those contracts held to hedge the Group's currency risk, and reversal of the provision made in previous periods. Finance costs 2008 H1 2007 H1 (£'m) (£'m) -------------------------------------------------------------------------------------------------------------------- Finance costs: Interest on bank loans and overdrafts 11.2 2.5 Interest on other loans 3.8 0.6 Interest on retirement benefit obligations 1.1 1.1 Fair value adjustment to forward foreign exchange contracts - - -------------------------------------------------------------------------------------------------------------------- 16.1 4.2 ==================================================================================================================== Taxation The effective tax rate on profit before tax for 2008 H1 was 38.5% (2007 H1: 32.3%). The increase is due to the magnitude of non-deductible expenditure forming a greater proportion of profit before taxation than in the prior period (as a result of the reduced profit before taxation). Earnings 2008 H1 2007 H1 % Change p per share p per share -------------------------------------------------------------------------------------------------------------------- Basic EPS 1.88 11.54 (83.7) Underlying EPS 5.71 7.57 (24.6) 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 financial period. The underlying earnings per share reflects the underlying performance of the business compared with the prior year and is calculated by dividing underlying earnings after tax by the number of shares in issue at the year end. 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 are as follows: 2008 H1 2007 H1 (£'m) (£'m) -------------------------------------------------------------------------------------------------------------------- Profit after tax: 13.0 47.4 Post tax effect of Exceptional items: Profit on disposal of certain retail concessions - (2.9) Realised loss on forward foreign exchange contracts 40.5 11.8 Fair value adjustment to forward foreign exchange contracts (19.0) (1.8) Underlying profit after tax 34.5 54.5 -------------------------------------------------------------------------------------------------------------------- To assist comparability, underlying EPS for 2007 H1 is based the listing share capital of 720 million shares. If the share buyback had not taken place the underlying EPS would be 5.18p instead of 5.71p. Dividends A dividend of 1.03p per share in respect of the year ended 29 April 2007, totalling £7.42m, was paid on 31 July 2007 to shareholders on the register at 29 June 2007. The Board has resolved to pay on 30 April 2008 a dividend of 2.06p per share to shareholders on the register on 28 March 2008. Capital expenditure Expenditure, including acquisition of property, plant and equipment, amounted to £120.0m (2007 H1: £42.7m). This related to £77.1m on new and refurbished stores, and £31.9m on a freehold office in New Cavendish Street, London, part of which the Group will occupy as its London office. The remaining spend related to Shirebrook, other plant and equipment and IT hardware. Acquisitions The Group spent £96.8m on acquisitions during 2008 H1. The principal acquisitions related to Everlast and Field & Trek. The net assets acquired have been analysed and separate intangible assets and the residual goodwill recognised as appropriate in accordance with IFRS3: Business Combinations. Strategic investments The Group has, from time to time, taken strategic stakes in other companies. At 28 October 2007, the Group held investments in adidas, Amer Sports, Blacks Leisure, JD Sports and Umbro. Changes in the value of these investments are recognised directly in equity in accordance with IFRS. 2008 H1 (£'m) --------------------------------------------------------------------------------------------------------------- Total available-for-sale investments at 29 April 2007 75.4 Additions in the period 334.4 Disposal proceeds in the period (66.5) Profit on disposals in the period 1.7 Fair value adjustment in respect of available-for-sale financial assets 19.5 --------------------------------------------------------------------------------------------------------------- Total available-for-sale investments at 28 October 2007 364.5 =============================================================================================================== The respective shareholdings at 28 October 2007 and 17 December 2007 were as follows: At 28 October 2007 At 17 December 2007 Shares 'm Holding Shares 'm Holding ---------------------------------------------------------------------------------------------------------------------- Blacks Leisure Group 12.503 29.36% 12.728 29.89% Umbro 21.974 15.04% 43.678 29.90% Amer Sports Corporation 8.769 12.16% - - John David Group 4.903 10.16% 5.305 10.99% adidas AG 5.031 2.47% 1.0 0.49% ---------------------------------------------------------------------------------------------------------------------- Share buyback The Group spent £162.3m on share purchases during the period: 72,000,000 shares are now held in treasury. The weighted average number of shares for the period was 691,176,000 and the number of shares in issue at the end of the period, excluding treasury shares, was 604,452,368. Cash flow and net debt In addition to the share buyback and the amounts invested in capital expenditure and acquisitions, the Group invested a net £267.9m in strategic stakes. Net debt increased from £38.1m at 29 April 2007 to £795.9m at 28 October 2007. Taking into account the inclusion of marketable securities (available for sale financial assets) the net debt at 28 October 2007 was £431.4m. The analysis of debt at 28 October 2007 was as follows: 2008 H1 2007 H1 (£'m) (£'m) ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents 17.6 181.8 Borrowings (813.5) (219.9) Net debt (795.9) (38.1) Market value of marketable securities 364.5 75.4 ------------------------------------------------------------------------------------------------------------------- Net (indebtedness)/liquidity (431.4) 37.3 =================================================================================================================== 2008 H1 (£'m) ------------------------------------------------------------------------------------------------------------------ Net debt at 29 April 2007 (38.1) Acquisition of subsidiaries including Everlast & Field & Trek (96.8) Net cost of listed investments (267.9) Property (120.0) Working capital including payment of IPO costs (103.4) Share buyback (162.3) Dividends paid (7.4) ------------------------------------------------------------------------------------------------------------------ Net debt at 28 October 2007 (795.9) ================================================================================================================== Reconciliation of movement in equity Total equity movement is as follows: 2008 H1 (£'m) ------------------------------------------------------------------------------------------------------------------ Total equity at 29 April 2007 280.8 Profit after tax for the 26 weeks ended 28 October 2007 13.0 Items taken directly to equity: Actuarial gain on pension 0.3 Fair value adjustment in respect of available-for-sale financial assets 19.5 Tax on items taken directly to equity (5.9) 13.9 Movement in equity issues: Share buyback (162.3) Minority interests eliminated on acquisitions (2.2) (164.5) Dividends (7.4) ------------------------------------------------------------------------------------------------------------------ Total equity at 28 October 2007 135.8 ================================================================================================================== Pensions The Group operates a number of closed defined benefit schemes in the Dunlop Slazenger companies. The net deficit in these schemes decreased from £14.0m at 29 April 2007 to £13.4m at 28 October 2007. Financial risks, systems and controls The principal financial risks the Group faces are: • Movement in interest rates on borrowings. The Group has not historically hedged this risk. • Movement in currency exchange rates. A significant amount of the Group's purchases are in US dollars. The Group hedges the risk of such movements by using forward purchases of foreign currency. Certain of the Group's assets are held overseas in local currency and are revalued in accordance with currency movements. This currency risk is not hedged. Funding and liquidity for the Group's operations are provided through bank loans and overdraft facilities and shareholders' funds. The objective is to maintain sufficient funding and liquidity for the Group's requirements. The Group maintains a system of controls to manage the business and to protect its assets. We continue to invest in people, systems and in IT to manage the Group's operations and its finance effectively and efficiently. Dave Forsey / Bob Mellors Chief Executive / Finance Director 19 December 2007 INDEPENDENT REVIEW REPORT TO SPORTS DIRECT INTERNATIONAL PLC Introduction We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 28 October 2007 which comprises Consolidated income statement, Consolidated statement of recognised income and expenses, Consolidated balance sheet, Consolidated cash flow statement and the related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the company in accordance with guidance contained in APB Statements of Standards for Reporting Accountants "International Standard on Review Engagements (UK and Ireland) 2410". Our review work has been undertaken so that we might state to the company those matters we are required to state to them in a review 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 for our review work, for this report, or for the conclusion we have formed. Directors' Responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting,'' as adopted by the European Union. Our Responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 28 October 2007 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. Grant Thornton UK LLP Chartered accountants London 19 December 2007 UNAUDITED CONSOLIDATED INCOME STATEMENT FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 26 weeks 26 weeks 52 weeks ended ended ended 28 October 29 October 29 April 2007 2006 2007 __________ _________ _____________ Notes £'000 £'000 £'000 Continuing operations: Revenue 2 668,112 719,116 1,347,144 Cost of sales (378,855) (423,237) (751,003) __________ _________ _____________ Gross profit 289,257 295,879 596,141 Selling, distribution and administrative expenses (229,042) (216,219) (421,655) Loss on forward foreign exchange contracts (57,924) (16,864) (23,543) Other operating income 1,707 2,257 1,783 Exceptional items 3 - 4,160 (58,826) __________ _________ _____________ Operating profit 2 3,998 69,213 93,900 Investment income 2,203 225 1,790 Finance income 28,792 4,130 3,449 Finance costs (16,136) (4,245) (42,081) Share of profit of associated undertakings and joint ventures 2,355 822 3,422 __________ _________ _____________ Profit before taxation 21,212 70,145 60,480 Taxation 4 (8,172) (22,675) (23,360) __________ _________ _____________ Profit for the period 2 13,040 47,470 37,120 ========== ========= ============= Equity holders of the Group 17 12,962 47,370 37,671 Minority interests 78 100 (551) __________ _________ _____________ Profit for the period 2 13,040 47,470 37,120 ========== ========= ============= Earnings per share from total and continuing operations attributable to the equity shareholders Pence per Pence per Pence per share share share __________ _________ _____________ Basic earnings per share 5 1.88 11.54 8.18 Diluted earnings per share 5 1.88 11.54 8.18 __________ _________ _____________ The accompanying notes form part of this financial report. UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 26 weeks 26 weeks 52 weeks ended ended 29 ended 28 October October 29 April 2007 2006 2007 __________ _________ __________ Notes £'000 £'000 £'000 Exchange differences on translation of foreign operations (32) 2,047 110 Actuarial gains/(losses) on defined benefit pension schemes 292 (2,286) (456) Fair value adjustment in respect of available-for-sale financial 19,494 6,249 (7,106) assets Taxation on items taken directly to equity (5,848) (1,188) 2,268 __________ _________ __________ Income and expense recognised directly in equity 13,906 4,822 (5,184) Profit for the period 2 13,040 47,470 37,120 __________ _________ __________ Total income and expense recognised in the period 26,946 52,292 31,936 ========== ========= ========== Equity holders of the Group 26,868 52,192 32,487 Minority interests 78 100 (551) __________ _________ __________ 26,946 52,292 31,936 ========== ========= ========== The accompanying notes form part of this financial report. UNAUDITED CONSOLIDATED BALANCE SHEET AS AT 28 OCTOBER 2007 28 October 29 October 29 April 2007 2006 2007 __________ _________ ________ Notes £'000 £'000 £'000 ASSETS Non-current assets Property, plant and equipment 7 317,446 230,805 224,463 Intangible assets 197,361 65,391 87,981 Investments in associated undertakings and joint ventures 23,058 20,448 21,988 Available-for-sale financial assets 8 364,518 70,976 75,447 Deferred tax assets 31,925 13,516 31,925 __________ _________ ________ 934,308 401,136 441,804 __________ _________ ________ Current assets Inventories 227,800 209,419 231,383 Trade and other receivables 99,938 107,370 88,615 Cash and cash equivalents 17,563 23,405 181,808 __________ _________ ________ 345,301 340,194 501,806 __________ _________ ________ TOTAL ASSETS 1,279,609 741,330 943,610 ========== ========= ======== EQUITY AND LIABILITIES Share capital 9 72,000 1,000 72,000 Share premium 10 874,300 - 874,300 Treasury shares 11 (162,348) - - Permanent contribution to capital 12 50 - 50 Capital redemption reserve 13 50 - 50 Foreign currency translation reserve 14 (869) (2,994) (837) Merger reserve 15 - 43 - Reverse combination reserve 16 (987,312) - (987,312) Retained earnings 17 337,192 335,656 317,708 __________ _________ ________ 133,063 333,705 275,959 Minority interests 18 2,723 4,595 4,845 __________ _________ ________ Total equity 135,786 338,300 280,804 __________ _________ ________ Non-current liabilities Other payables 1,174 1,121 2,408 Borrowings 19 8,586 1,673 1,935 Retirement benefit obligations 13,443 14,871 14,032 Deferred tax liabilities 43,291 18,568 18,586 Provisions 29,646 25,187 23,821 __________ _________ ________ 96,140 61,420 60,782 __________ _________ ________ Current liabilities Derivative financial liabilities 15,342 8,270 42,463 Trade and other payables 212,596 189,298 309,944 Borrowings 19 804,850 114,723 217,996 Current tax liabilities 14,895 29,319 31,621 __________ _________ ________ 1,047,683 341,610 602,024 __________ _________ ________ Total liabilities 1,143,823 403,030 662,806 __________ _________ ________ TOTAL EQUITY AND LIABILITIES 1,279,609 741,330 943,610 ========== ========= ======== UNAUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 26 weeks 26 weeks 52 weeks ended ended ended 28 October 29 October 29 April 2007 2006 2007 __________ _________ ________ Notes £'000 Cash (outflow)/inflow from operating activities 21 (68,042) 67,386 199,261 Income taxes paid (22,542) (9,642) (23,886) __________ _________ ________ Net cash (outflow)/inflow from operating activities (90,584) 57,744 175,375 __________ _________ ________ Cash flow from investing activities Proceeds on disposal of property, plant and equipment 12,965 4,989 10,120 Proceeds on disposal of listed investments 66,524 - - Dividends received from associates 1,189 879 - Purchase of joint venture, net of cash acquired - - (238) Purchase of subsidiaries, net of cash acquired (96,809) (15,786) (22,747) Purchase of intangible assets (518) (2,588) (2,978) Purchase of property, plant and equipment (120,007) (35,112) (54,797) Purchase of listed investments (334,410) (49,389) (67,215) Investment income received 512 - 1,790 __________ _________ ________ Net cash outflow from investing activities (470,554) (97,007) (136,065) __________ _________ ________ Cash flow from financing activities Finance income received 550 714 1,339 Finance costs paid (14,980) (2,989) (7,948) Net (repayments of)/increase in borrowings (7,420) 1,313 (6,583) Proceeds from share issues - - 928,800 Purchase of a certain percentage of previous owner's equity - - (928,800) investment Share issue costs - - (9,712) Equity dividend paid (7,416) (200) (380) Purchase of own shares (162,348) - - __________ _________ ________ Net cash outflow from financing activities (191,614) (1,162) (23,284) __________ _________ ________ Net (decrease)/increase in cash and cash equivalents (752,752) (40,425) 16,026 including overdrafts Cash and cash equivalents including overdrafts at beginning (25,029) (41,055) (41,055) of period __________ _________ ________ Cash and cash equivalents including overdrafts at the (777,781) (81,480) (25,029) period end ========== ========= ======== The accompanying notes form part of this financial report. NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 1 General information and basis of preparation The results for the first half of the financial year have not been audited and are prepared on the basis of the accounting policies set out in the Group's 2007 Annual Report and Financial Statements. The financial information has been prepared in accordance with the Disclosure and Transparency rules of the Financial Services Authority (DTR) and with International Accounting Standard (IAS) 34 - 'Interim Financial Reporting' as endorsed by the European Union. This consolidated financial information for the period does not constitute statutory financial statements within the meaning of s240 of the Companies Act 1985. The summary of results for the 52 weeks ended 29 April 2007 is an extract from the published Annual Report and Financial Statements which have been reported on by the Group's auditors and delivered to the Registrar of Companies. The audit report was unqualified and did not contain a statement under s237(2) or s237(3) of the Companies Act 1985. Change in accounting policies In the current financial accounting period, the group will adopt International Financial Reporting Standard 7 'Financial instruments: Disclosures' (IFRS 7) for the first time. As IFRS 7 is a disclosure standard, there is no impact of that change in accounting policy on these Interim financial statements. Full details of the change will be disclosed in the Annual report and Financial statements for the 52 weeks to 27 April 2008. Principal risks and uncertainties The principal risks and uncertainties which could impact the Group's long-term performance remain those identified on pages 54 of the Group's 2007 Annual Report and Financial Statements. The Chief Executive and Finance Director's Review in this half yearly financial report includes a commentary of the primary uncertainties affecting the Group for the remaining six months of the year. Statement of directors' responsibilities The directors' confirm that this half yearly financial report has been prepared in accordance with IAS 34 as adopted by the European Union, and includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8. The directors of Sports Direct International plc are listed in the Group's 2007 Annual Report and Financial Statements, with the exception of the following changes in the period: Chris Bulmer resigned on 25 October 2007, and Malcolm Dalgleish and Dave Singleton were appointed on 25 October 2007. NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 2 Segmental analysis Primary reporting format - business segments For management purposes, the Group is organised into and reports its performance between two business segments, Retail and Brands. The Retail business segment comprises the retail network of stores and the Brands business segment comprises the identification, acquisition, development and trading of a portfolio of internationally recognised sports and leisure brands. Segment information about the business segments is presented below: Segmental information for the 26 weeks ended 28 October 2007: Retail Brands Eliminations Total ________________________________________ _________________________ ____________ _______ UK UK UK Inter- Total Whole- Licen- Total retail whole- total national sale sing sale retail & other £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ________ ______ ________ _______ _______ ______ ______ _______ ____________ _______ Sales to external 518,397 23,248 541,645 38,514 580,159 77,530 10,423 87,953 - 668,112 customers Sales to other segments - 1,418 1,418 - 1,418 3,818 - 3,818 (5,236) - ________ ______ ________ _______ _______ ______ ______ _______ ____________ _______ Revenue 518,397 24,666 543,063 38,514 581,577 81,348 10,423 91,771 (5,236) 668,112 ======== ====== ======== ======= ======= ====== ====== ======= ============ ======= Gross profit 236,018 16,351 252,369 36,888 - 289,257 ======== ======= ======= ======= ============ ======= Operating profit before 54,281 1,643 55,924 5,998 - 61,922 foreign exchange and exceptional items ======== ======= ======= ======= ============ ======= Operating profit 3,998 Investment income 2,203 Finance income 28,792 Finance costs (16,136) Share of profits of 2,355 associated undertakings and joint ventures _______ Profit before taxation 21,212 Taxation (8,172) _______ Profit for the period 13,040 ======= Sales to other segments are priced at cost. Other segment items included in the income statement for the 26 weeks ended 28 October 2007: Retail Brands Total _______ _________ ________ £'000 £'000 £'000 Depreciation 17,989 694 18,683 Amortisation 16 646 662 ======= ========== ========= Information regarding segment assets and liabilities as at 28 October 2007 and capital expenditure for the 26 weeks then ended: Retail Brands Eliminations Total ______ ______ ____________ _____ £'000 £'000 £'000 £'000 Investments in associated undertakings and joint 15,604 7,454 - 23,058 ventures Other assets 1,167,293 378,278 (289,020) 1,256,551 ______ ______ ____________ _____ Total assets 1,182,897 385,732 (289,020) 1,279,609 ====== ====== ============ ===== Total liabilities (1,080,335) (352,508) 289,020 (1,143,823) ====== ====== ============ ===== Tangible asset additions 120,282 3,928 - 124,210 Intangible asset additions 1,319 57,783 - 59,102 ______ ______ ____________ _____ Total capital expenditure 121,601 61,711 - 183,312 ====== ====== ============ ===== NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 2 Segmental analysis (continued) Segmental information for the 26 weeks ended 29 October 2006: Retail Brands Eliminations Total ________________________________________________ ____________________________ ____________ _______ UK UK UK total Inter- Total Whole Licen- Total retail whole national -sale sing -sale retail & other ________ ______ ________ _______ _______ ______ ______ _______ ____________ _______ £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Sales to 595,088 8,329 603,417 33,558 636,975 75,382 6,759 82,141 - 719,116 external customers Sales to - 4,782 4,782 - 4,782 7,110 - 7,110 (11,892) - other segments ________ ______ ________ _______ _______ ______ ______ _______ ____________ _______ Revenue 595,088 13,111 608,199 33,558 641,757 82,492 6,759 89,251 (11,892) 719,116 ======== ====== ======== ======= ======= ====== ====== ======= ============ ======= Gross profit 252,010 12,126 264,136 31,743 - 295,879 ======== ======= ======= ======= ============ ======= Operating 74,409 1,762 76,171 5,746 - 81,917 profit before foreign exchange and exceptional items ======== ======= ======= ======= ============ ======= Operating 69,213 profit Investment 225 income Finance 4,130 income Finance (4,245) costs Share of 822 profits of associated undertakings and joint ventures _______ Profit 70,145 before taxation Taxation (22,675) _______ Profit for 47,470 the period ======= Sales to other segments are priced at cost plus a 10% mark-up. Other segment items included in the income statement for the 26 weeks ended 29 October 2006: Retail Brands Total ________ ______ ________ £'000 £'000 £'000 Depreciation 15,065 927 15,992 Amortisation - 787 787 ========= ======= ========= Information regarding segment assets and liabilities as at 29 October 2006 and capital expenditure for the 26 weeks then ended: Retail Brands Eliminations Total _______ ________ ____________ ________ £'000 £'000 £'000 £'000 Investments in associated undertakings and joint 13,146 7,302 - 20,448 ventures Other assets 636,483 202,563 (118,164) 720,882 _______ ________ ____________ ________ Total assets 649,629 209,865 (118,164) 741,330 ======= ========== ============ ======== Total liabilities (344,708) (176,486) 118,164 (403,030) ======= ========== ============ ======== Tangible asset additions 37,680 5,035 - 42,715 Intangible asset additions 3,290 16,839 - 20,129 _______ ________ ____________ ________ Total capital expenditure 40,970 21,874 - 62,844 ======= ========== ============ ======== NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 2 Segmental analysis (continued) Segmental information for the 52 weeks ended 29 April 2007: Retail Brands Eliminations Total _________________________________________________ ________________________ ____________ _______ UK UK UK Inter- Total Whole- Licen- Total retail whole- total national sale sing sale retail & other ________ ______ ________ _______ _______ ______ ______ _______ ____________ _______ £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Sales to external 1,069,667 41,525(1) 1,111,192 64,018 1,175,210 154,484 17,450 171,934 - 1,347,144 customers Sales to other - 11,235 11,235 - 11,235 12,523 - 12,523 (23,758) - segments ________ ______ ________ _______ _______ ______ ______ _______ ____________ _______ Revenue 1,069,667 52,760 1,122,427 64,018 1,186,445 167,007 17,450 184,457 (23,758) 1,347,144 ======== ====== ======== ======= ======= ====== ====== ======= ============ ======= Gross profit 498,101 22,173 520,274 75,867 - 596,141 ======== ======= ======= ======= ============ ======= Operating profit 155,305 1,264 156,569 19,700 - 176,269 before foreign exchange and exceptional items ======== ======= ======= ======= ============ ======= Operating profit 93,900 Investment income 1,790 Finance income 3,449 Finance costs (42,081) Share of profits of 3,422 associated undertakings and joint ventures _______ Profit before 60,480 taxation Taxation (23,360) _______ Profit for the period 37,120 ======= (1) Includes £14.7 million in relation to property transactions income. 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 29 April 2007: Retail Brands Total ________ ______ ________ £'000 £'000 £'000 Depreciation 29,022 1,882 30,904 Amortisation - 3,584 3,584 ========= ======= ========= Information regarding segment assets and liabilities as at 29 April 2007 and capital expenditure for the 52 weeks then ended: Retail Brands Eliminations Total _______ ________ ____________ ________ £'000 £'000 £'000 £'000 Investments in associated undertakings and joint 14,847 7,141 - 21,988 ventures Other assets 984,598 265,434 (328,410) 921,622 _______ ________ ____________ ________ Total assets 999,445 272,575 (328,410) 943,610 ======= ========== ============ ======== Total liabilities (744,811) (246,405) 328,410 (662,806) ======= ========== ============ ======== Tangible asset additions 57,732 3,875 - 61,607 Intangible asset additions 20,756 21,445 - 42,201 _______ ________ ____________ ________ Total capital expenditure 78,488 25,320 - 103,808 ======= ========== ============ ======== NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 2 Segmental analysis (continued) Secondary reporting format - geographic segments The Group operates in two geographic segments, UK and Non-UK. These geographic segments are the basis on which the Group reports its secondary segment information, as presented below: Segmental information for the 26 weeks ended 28 October 2007:: UK Non-UK Unallocated Eliminations Total _______ _______ ___________ ____________ _______ £'000 £'000 £'000 £'000 £'000 Segmental revenue from external customers 574,481 99,007 - (5,376) 668,112 ======= ======= =========== ============ ======= Total capital expenditure 117,869 65,443 - - 183,312 ======= ======= =========== ============ ======= Segmental assets 1,380,054 188,575 - (289,020) 1,279,609 ======= ======= =========== ============ ======= Segmental information for the 26 weeks ended 29 October 2006: UK Non-UK Unallocated Eliminations Total _______ _______ ___________ ____________ _______ £'000 £'000 £'000 £'000 £'000 Segmental revenue from external customers 636,402 94,606 - (11,892) 719,116 ======= ======= =========== ============ ======= Total capital expenditure 40,594 5,411 16,839 - 62,844 ======= ======= =========== ============ ======= Segmental assets 679,433 127,430 52,631 (118,164) 741,330 ======= ======= =========== ============ ======= Segmental information for the 52 weeks ended 29 April 2007: UK Non-UK Unallocated Eliminations Total _______ _______ ___________ ____________ _______ £'000 £'000 £'000 £'000 £'000 Segmental revenue from external customers 1,178,528 192,374 - (23,758) 1,347,144 ======= ======= =========== ============ ======= Total capital expenditure 94,873 8,935 - - 103,808 ======= ======= =========== ============ ======= Segmental assets 1,112,957 133,532 25,531 (328,410) 943,610 ======= ======= =========== ============ ======= 3 Exceptional items 26 weeks 26 weeks 52 weeks ended ended ended 28 October 29 October 29 April 2007 2006 2007 ________ ______ ________ £'000 £'000 £'000 Costs relating to admission to the London Stock Exchange - - 586 Past performance bonuses including national insurance - - 56,400 Profit on disposal of certain retail concessions(1) - (4,160) (4,160) Legal claims - - 6,000 ________ ______ ________ - (4,160) 58,826 ======== ====== ======== (1) In May 2006, the Group disposed of its Hargreaves airport concessions. NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 4 Taxation The tax charge on profit before tax, excluding the impact of exceptional items has been calculated using an estimated effective annual rate of 38.5% (2006: 32.3%). Including tax on exceptional items, this leaves an estimated tax charge of £8.2m for the 26 weeks ended 28 October 2007 (£22.7m for the 26 weeks ended 29 October 2006). 5 Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. The comparative weighted average number of shares has been adjusted for the impact of reverse acquisition accounting. Share awards granted during the period were anti-dilutive as at 28 October 2007 as the exercise price exceeded the average market price of the Company's shares during the period from when the share awards were granted to 28 October 2007. As a result share awards are not taken into account when determining the weighted average number of ordinary shares in issue during the period and therefore the basic and diluted earnings per share are the same. Basic and diluted earnings per share 26 weeks 26 weeks 26 weeks 26 weeks 52 weeks 52 weeks ended ended ended ended ended ended 28 October 28 October 29 October 29 October 29 April 29 April 2007 2007 2006 2006 2007 2007 __________ __________ __________ __________ ________ ________ Basic Diluted Basic Diluted Basic Diluted £'000 £'000 £'000 £'000 £'000 £'000 Profit for the period 12,962 12,962 47,370 47,370 37,671 37,671 Number in thousands Number in thousands Number in thousands Weighted average number of shares 691,176 691,176 410,400 410,400 460,582 460,582 Pence per share Pence per share Pence per share Earnings per share 1.88 1.88 11.54 11.54 8.18 8.18 ==== ==== ===== ===== ==== ==== 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 shares in issue at the period end. 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 exceptional 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. NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 5 Earnings per share (continued) Underlying earnings per share(continued) 26 weeks 26 weeks 26 weeks 26 weeks 52 weeks 52 weeks ended ended ended ended ended ended 28 October 28 October 29 October 29 October 29 April 29 April 2007 2007 2006 2006 2007 2007 __________ __________ __________ __________ ________ ________ Basic Diluted Basic Diluted Basic Diluted £'000 £'000 £'000 £'000 £'000 £'000 Profit for the period 12,962 12,962 47,370 47,370 37,671 37,671 Post tax adjustments to profit for the period for the following exceptional items: Costs relating to admission to the - - - - 410 410 London Stock Exchange Past performance bonuses including - - - - 39,480 39,480 national insurance Realised loss on forward foreign 40,547 40,547 11,807 11,807 16,480 16,480 exchange contracts Fair value adjustment to forward (18,985) (18,985) (1,770) (1,770) 22,166 22,166 foreign exchange contracts Profit on disposal of certain retail - - (2,912) (2,912) (2,912) (2,912) concessions Reorganisation costs - - - - - - Leofelis legal claim - - - - 4,200 4,200 __________ __________ __________ __________ ________ ________ Underlying profit for the period 34,524 34,524 54,495 54,495 117,495 117,495 __________ __________ __________ __________ ________ ________ Number in thousands Number in thousands Number in thousands Shares in issue at the period end 604,452 604,452 720,000* 720,000* 720,000 720,000 Pence per share Pence per share Pence per share Earnings per share 5.71 5.71 7.57 7.57 16.32 16.32 ==== ==== ===== ===== ==== ==== *To assist comparability the number of shares used for 29 October 2006 is the 720,000,000 that would have been in issue had the listing and admission to the London Stock Exchange taken place as at this date. 6 Dividends An interim dividend of 1.03p per share in respect of 2006-07 was paid on 31 July 2007 to shareholders on the register on 29 June 2007. No final dividend was paid. NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 7 Property, plant and equipment Freehold Long Short Plant and Total land and leasehold leasehold equipment buildings property property ______ _______ ________ _________ _______ £'000 £'000 £'000 £'000 £'000 Cost At 29 April 2007 29,856 11,312 97,553 235,668 374,389 Exchange differences (33) - - 1,191 1,158 Additions through business combinations 372 - 50 3,781 4,203 Additions 85,731 534 15,461 18,281 120,007 Eliminated on disposals (3,652) (1,859) (7,627) (10,099) (23,237) ______ _______ ________ _________ _______ At 28 October 2007 112,274 9,987 105,437 248,822 476,520 ====== ======= ======== ========= ======= Accumulated depreciation As at 29 April 2007 (4,710) (3,680) (28,963) (112,573) (149,926) Exchange differences 38 - - (448) (410) Charge for the period (1,814) (6) (3,921) (12,942) (18,683) Eliminated on disposals 1,479 457 951 7,058 9,945 ______ _______ ________ _________ _______ At 28 October 2007 (5,007) (3,229) (31,933) (118,905) (159,074) ====== ======= ======== ========= ======= Net book amount At 28 October 2007 107,267 6,758 73,504 129,917 317,446 ====== ======= ======== ========= ======= At 29 April 2007 25,146 7,632 68,590 123,095 224,463 ====== ======= ======== ========= ======= Finance leased assets included in the above net book values At 28 October 2007 - - - 658 658 ====== ======= ======== ========= ======= At 29 April 2007 - - - 1,059 1,059 ====== ======= ======== ========= ======= NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 7 Property, plant and equipment (continued) Included within freehold land and buildings cost as at 28 October 2007 is £1,636,000 (29 April 2007: £1,749,000) of capital grants received from the East Midlands Development Agency. The Group is subject to the following principal conditions of the grant being met for a period, which is at the discretion of the East Midlands Development Agency, of five years after the first grant instalment was made on 28 April 2006 or 18 months after the last grant instalment was made on 29 April 2007 ("conditional period"): • The Group remains solvent. • The Group does not cease to own, or for a period of at least three months does not cease to use the relevant premises for which the grant was provided or its related assets. • The Group employs at least 507 permanent full-time employees or equivalent at the relevant premises. • The Group employs in total at least 1,171 employees at the relevant premises. If the Group fails to adhere to any of the above conditions during the conditional period the East Midlands Development Agency may demand full repayment of the grant. 8 Available-for-sale financial assets 28 October 29 October 29 April 2007 2006 2007 ________ __________ ________ £'000 £'000 £'000 Available-for-sale financial assets 364,518 70,976 75,447 ======== ========== ======== The fair value of the listed 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 period: 28 October 29 October 29 April 2007 2006 2007 ________ __________ ________ £'000 £'000 £'000 At beginning of period 75,447 15,338 15,338 Additions 334,410 49,389 67,215 Disposals (64,833) - - Revaluation through equity 19,494 6,249 (7,106) ________ __________ ________ At end of period 364,518 70,976 75,447 ======== ========== ======== The financial assets at 28 October 2007 relate to strategic investments held of between 2.5% and 29.3% of share capital. The Directors do not consider that they have significant influence over the financial and operating policies of the investees as they have no representation on the board of Directors, have no participation in policy-making processes, including participation in decisions about dividends or other distributions, have no material transactions with the investees and do not interchange any managerial personnel. NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 8 Available-for-sale financial assets (continued) The Group has one investment in excess of 20% of share capital, that being 29.3% (29 April 2007: 29.3%) of the ordinary share capital of Blacks Leisure Group plc, a company incorporated in England. The aggregate of its share capital and reserves and profit for the periods ended 3 March 2007, 31 August 2006 and 29 February 2006 were as follows: 3 March 31 August 29 February 2007 2006 2006 ________ __________ ________ £'000 £'000 £'000 Aggregate share capital and reserves 91,888 105,596 109,580 ======== ========== ======== (Loss)/profit after taxation (12,624) 51 14,538 ======== ========== ======== 9 Share capital 28 October 2007 ________ £'000 Authorised 999,500,010 ordinary shares of 10p each 99,950 499,990 redeemable preference shares of 10p each 50 ________ 100,000 ======== Allotted, called up and fully paid 720,000,000 ordinary shares of 10p each 72,000 ======== 10 Share premium 28 October 2007 ________ £'000 At 29 April 2007 and 28 October 2007 874,300 ======== The share premium account is used to record the excess proceeds over nominal value on the issue of shares. 11 Treasury shares 28 October 2007 ________ £'000 At 29 April 2007 - Treasury shares acquired 162,348 ________ At 28 October 2007 162,348 ======== Between 24 July 2007 and 26 October 2007 the Group acquired 115,547,632 of its own shares for total consideration of £162,348,000, with the purchase price ranging between £1.20 and £1.50. 43,547,632 of these shares are held for cancellation. NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 12 Permanent contribution to capital 28 October 2007 ________ £'000 At 29 April 2007 and 28 October 2007 50 ======== 13 Capital redemption reserve 28 October 2007 ________ £'000 At 29 April 2007 and 28 October 2007 50 ======== 14 Foreign currency translation reserve 28 October 2007 ________ £'000 At 29 April 2007 (837) Translation differences - Group (157) Translation differences - associates 125 ________ At 28 October 2007 (869) ======== The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and associates. 15 Merger reserve 28 October 2007 ________ £'000 At 29 April 2007 and 28 October 2007 - ======== 16 Reverse combination reserve 28 October 2007 ________ £'000 At 29 April 2007 and 28 October 2007 (987,312) ======== NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 17 Retained earnings 28 October 2007 ________ £'000 At 29 April 2007 317,708 Income recognised directly in equity 13,938 Profit for the financial period 12,962 Dividends (7,416) ________ At 28 October 2007 337,192 ======== 18 Minority interests 28 October 2007 ________ £'000 At 29 April 2007 4,845 Share of (loss)/profit for the period 78 Acquisitions (2,214) Disposals 14 ________ At 28 October 2007 2,723 ======== NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 19 Borrowings 28 October 29 October 29 April 2007 2006 2007 _________ __________ ________ £'000 £'000 £'000 Non-current: Bank and other loans 8,502 1,673 1,844 Obligations under finance leases 84 - 91 _________ __________ ________ 8,586 1,673 1,935 _________ __________ ________ Current: Bank overdrafts 795,344 104,971 206,837 Bank and other loans 9,158 9,752 10,463 Obligations under finance leases 348 - 696 _________ __________ ________ 804,850 114,723 217,996 _________ __________ ________ Total borrowings: Bank overdrafts 795,344 104,971 206,837 Bank and other loans 17,660 11,425 12,307 Obligations under finance leases 432 - 787 _________ __________ ________ 813,436 116,396 219,931 ========= ========== ======== The maturity of the Group's bank and other loan borrowings other than overdrafts is as follows: 28 October 29 October 29 April 2007 2006 2007 _________ __________ ________ £'000 £'000 £'000 Borrowings are repayable as follows: Within one year 9,506 9,752 11,159 Between one and two years 8,212 700 922 Between two and five years 127 973 924 After five years 247 - 89 _________ __________ ________ 18,092 11,425 13,094 ========= ========== ======== Borrowings - Sterling 1,529 6,286 4,231 Borrowings - Other 16,563 5,139 8,863 _________ __________ ________ 18,092 11,425 13,094 ========= ========== ======== Loans are all on commercial variable rates of interest ranging between 0.6% and 2.5% over the base rate of the country within which the borrowing entity resides. On 26 February 2007, four members of the Group, Sports World International Limited, Lillywhites Limited, Dunlop Slazenger Group Limited and Smith & Brooks Holdings Limited (the "Borrowers") entered into a committed working capital facility agreement with The Governor and Company of the Bank of Scotland (the "Working Capital Facility"). The Working Capital Facility is available to any of the Borrowers and may be drawn to an aggregate limit of £600.0 million. It is capable of being utilised by way of cash advances, letters of credit, guarantees, bonds and/or currency borrowings. The Working Capital Facility is available until 30 April 2009. Each Borrower is required to observe certain covenants, including undertakings relating to delivery of financial statements, and certain negative covenants, including in relation to creation of security and disposal of assets. The Working Capital Facility is secured by a debenture from each of the Borrowers and a composite guarantee from each of the non-dormant subsidiaries of Sports World International Limited. NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 19 Borrowings (continued) An agreement is in place with Kaupthing Singer and Friedlander whereby they provide a credit facility which is secured against the market value of the available for sale financial assets held by the Group. The credit facility limit is determined by taking a specific percentage of the market value of each individual security. 20 Acquisitions Details of principal acquisitions for the 26 weeks ended 28 October 2007 are set out below. Date of acquisition Percentage Nature of of equity activity acquired ___________________ __________ ________ Field & Trek (UK) Limited 11 July 2007 60 Retail Everlast 20 September 2007 100 Wholesale Sport 2000 7 August 2007(1) 20 Retail Smith and Brooks Holdings Limited 12 September 2007(1) 40 Wholesale Sweatshop 18 October 2007 25 Retail (1) This was an additional acquisition which takes the cumulative holding to 100% The aggregate fair value of consideration paid, assets and liabilities acquired and resulting goodwill in respect of the above acquisitions is detailed below. Everlast Field & Other Total Trek _________ _________ ________ _____ £'000 £'000 £'000 £'000 Cash consideration including costs 80,365 5,090 5,696 91,151 Less: fair value of net assets acquired (36,450) (1,060) (2,313) (39,823) _________ _________ ________ _____ Goodwill 43,915 4,030 3,383 51,328 ========= ======= ====== ======== The goodwill is attributable to the premium paid to strengthen the Group's existing business segments of retail and brand, which is in line with the Group's strategy. Everlast Carrying values Fair value Fair value at acquisition adjustment of net assets acquired _________ ________ _____ £'000 £'000 £'000 Property, plant and equipment 3,139 - 3,139 Intangible assets 14,640 42,690 57,330 Inventories 5,893 - 5,893 Trade and other receivables 10,287 - 10,287 Cash and cash equivalents (5,664) - (5,664) Borrowings (11,685) - (11,685) Trade and other payables (6,292) - (6,292) Deferred tax liability (506) (16,052) (16,558) _________ ________ _____ 9,812 26,638 36,450 ========= ======== ===== Separately identifiable intangible assets, primarily representing brands and licensing agreements acquired, amounting to £57,330,000 (deferred tax liability thereon totalling £16,052,000) were recognised as a fair value adjustment on acquisition. NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) Acquisitions (continued) £4,070,000 of revenue and £866,000 of operating profit has been included within the Group's financial statements for the period in respect of the above acquired entity since the date of acquisition. If the above acquired entity had been acquired at the beginning of the period £24,694,000 of revenue and £6,260,000 of operating profit would have been included within the Group's financial statements. Cash flows arising from acquisitions are as follows: 28 October 2007 __________ £'000 Cash consideration 80,365 Bank overdraft acquired 5,664 __________ Net cash outflow in the cash flow statement 86,029 The goodwill is attributable to the premium paid to strengthen the Group's existing business segments of retail and brand, which is in line with the Group's strategy. The business combination accounting is provisional for Everlast due to the proximity of the transaction to the period end. Field and Trek (UK) Limited Carrying values Fair value Fair value at acquisition adjustment of net assets acquired _____________ ___________ __________ £'000 £'000 £'000 Property, plant and equipment 322 - 322 Intangible assets - 1,254 1,254 Inventories 1,879 - 1,879 Trade and other receivables 460 - 460 Cash and cash equivalents 6 - 6 Borrowings (733) - (733) Trade and other payables (1,673) - (1,673) Deferred tax liability - (351) (351) Minority interests (104) - (104) _____________ ___________ __________ 157 903 1,060 ============= =========== ========== Separately identifiable intangible assets, primarily representing trading names acquired, amounting to £1,254,000 (deferred tax liability thereon totalling £351,000) were recognised as a fair value adjustment on acquisition. £3,463,000 of revenue and £490,000 of operating loss has been included within the Group's financial statements for the period in respect of the above acquired entity since the date of acquisition. NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 20 Acquisitions (continued) If the above acquired entity had been acquired at the beginning of the period £5,761,000 of revenue and £473,000 of operating loss would have been included within the Group's financial statements. Cash flows arising from acquisitions are as follows: 28 October 2007 ______ £'000 Cash consideration 5,090 Cash acquired (6) ______ Net cash outflow in the cash flow statement 5,084 21 Cash inflows from operating activities 26 weeks 26 weeks 52 weeks ended ended ended 28 October 29 October 29 April 2007 2006 2007 ______ __________ ________ £'000 £'000 £'000 Profit before taxation 21,212 70,145 60,480 Net finance (income)/costs (12,656) 115 (38,632) Investment income (2,203) (225) (1,790) Share of profit of associated undertakings and joint ventures (2,355) (822) (3,422) ______ __________ ________ Operating profit 3,998 69,213 93,900 Depreciation 18,722 15,992 30,904 Amortisation charge 662 787 3,584 Loss on disposal of property, plant and equipment 275 53 - Impairment of Goodwill 665 - - Defined benefit pension plan current service cost 58 - 175 Defined benefit pension plan employer contributions (488) - (2,136) Profit on sale of financial assets - (46) - Profit on disposal of certain retail concessions - (4,160) - ______ __________ ________ Operating cash inflow before changes in working capital 23,892 81,839 126,427 Decrease/(increase) in receivables (576) (5,816) 16,196 Decrease/(increase) in inventories 11,355 17,613 2,494 (Decrease)/increase in payables (102,713) (26,250) 54,144 ______ __________ ________ Cash (outflows)/inflows from operating activities (68,042) 67,386 199,261 ====== ========== ======== 22 Contingent assets and liabilities As a matter of course the Group undertakes action in numerous parts of the world to protect its trade mark registrations and in connection with the Group's licensees. Such actions are usually resolved in the ordinary course of business. The Group is, however, party to a dispute and has provided for an amount representing the financial estimation of the potential loss if the outcome was not to be in its favour. The Group believes that to provide further information would be seriously prejudicial to the case. NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 23 Related party transactions The Group entered into the following material transactions with related parties: 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. 26 weeks ended 28 October 2007 Relationship Sales Purchases Trade Trade and and other other Related party receivables payables _____________ ____________ ______ __________ ___________ _________ £'000 £'000 £'000 £'000 Pan World Brands Limited Common control - - 441 - Hickman Properties Limited Common control - - - - Texline Manchester Common control - - - - Heatons Associate 8,514 - 2,978 - No Fear International Limited Joint venture - - 17 (1,037) M J W Ashley Director - - - (526) PBF International Limited Joint venture 194 (261) 1,407 (91) Sopotnik Trade Associate 22 - 118 (31) No interest was charged on M J W Ashley's director's account with the Group. M J W Ashley leases certain properties to various companies in the Group which are operated as retail and distribution premises. A commercial rent is charged in respect of these leases. During the period M J W Ashley loaned the Group £250m on arms length commercial terms and this amount was repaid in full on 26th October 2007. Compensation paid to key management of the Group was £481,528, including pension contributions of £4,616. 26 weeks ended 29 October 2006 Relationship Sales Purchases Trade Trade and and other other Related party receivables payables _____________ ____________ ______ __________ ___________ _________ £'000 £'000 £'000 £'000 Pan World Brands Limited Common control 72 (287) 416 - Hickman Properties Limited Common control - - 1 - Texline Manchester Common control - - 107 - Heatons Associate 7,992 - 2,016 - No Fear International Limited Joint venture - - 433 (914) M J W Ashley Director - - - (9,377) No interest was charged on M J W Ashley's director's account with the Group. M J W Ashley leases certain properties to various companies in the Group which are operated as retail and distribution premises. A commercial rent is charged in respect of these leases. Compensation paid to key management of the Group was £561,788, including pension contributions of £4,607. NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 28 OCTOBER 2007 (CONTINUED) 24 Post balance sheet events The following material post balance sheet events occurred after 28 October 2007 to the date of this Interim Report: On 30 October 2007 the Group acquired 21,703,866 additional shares in Umbro PLC for consideration of £42,574,000, taking the overall holding in Umbro to 29.9% of the total issued share capital. On 15 November 2007 the Group disposed of 8,768,759 shares in Amer Sports Corp for consideration of £117,767,000, realising a profit of £11,233,000. This information is provided by RNS The company news service from the London Stock Exchange

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