Replacement - Interim Results

RNS Number : 0367U

Sports Direct International Plc

15 December 2011

 



Sports Direct International plc

("Sports Direct", "the Group" or "the Company")

Interim Results

For the 26 weeks to 23 October 2011

The following amendment has been made to RNS 0162U released at 07.00 on 15 December 2011.

·      The super-stretch FY12 Group underlying EBITDA target in the fifth paragraph of the Chairman's statement is £225m.

	2012 H1	2011 H1
	£m	£m
Group revenue	888.6	819.9	+8.4%
UK Retail	697.1	644.3	+8.2%
International Retail	81.3	66.5	+22.3%
Brands	92.4	90.6	+2.0%
Group gross margin	41.5%	42.6%	-110 bps
UK Retail	42.4%	43.4%	-100 bps
Underlying EBITDA (pre scheme costs)(1)	139.2	136.5	+2.0%
Underlying profit before tax (PBT) (1) (2)	99.0	100.7	-1.7%
Reported profit before tax (3)	100.3	100.0	+0.3%
Underlying earnings per share(1) (2)	12.38p	12.23p	+1.2%
Reported earnings per share	12.54p	12.15p	+3.2%

Key highlights

·      Revenue growth across all divisions

·      Online sales growth of +85%

·      UK Retail Underlying EBITDA (excluding premium lifestyle) up 7.9% to £122.8m (2011 H1 : £114.1m)

·      Significant development to extend Shirebrook warehouse capacity

·      9 new stores opened since year end within the Retail division (net of closures and relocations)

·      Acquired remaining Worldwide rights for No Fear brand

·      Reduced net debt by 23.2% to £114.3m (at 24 April 2011 net debt was £148.9m)

o  Net debt to underlying EBITDA of 0.53 times

·      No dividend

Dave Forsey, Chief Executive said:

"This strong performance yet again demonstrates the success of our unique and resilient business model, and was delivered against both a tough FIFA World Cup comparison last year and an especially fragile consumer environment. The Board remains very confident of reaching our full year EBITDA target of £215m (before scheme costs) and we believe our Employee Bonus Share Schemes continues to underpin our performance."

(1)	Underlying EBITDA, underlying profit before taxation and underlying EPS excludes realised foreign exchange gains/losses in selling and administration costs, exceptional costs and the profit/loss on sale of strategic investments and bonus scheme charge
(2)	Underlying profit before taxation and underlying EPS also exclude profits/losses relating to the IAS 39 fair value adjustment on forward currency contracts in financing income/costs
(3)	Reported profit before tax includes the impact of foreign exchange, profit/loss on sale and derecognition of strategic investments and exceptional costs.

Sports Direct International plc Dave Forsey, Chief Executive Bob Mellors, Group Finance Director	T:  0845 129 9229
FTI Consulting Jonathon Brill Caroline Stewart Alex Beagley	T:  0207 831 3113

Chairman's Statement

The Group has yet again delivered a strong performance in what is an exceptionally challenging consumer trading environment.  Growth has been achieved across both revenue and Underlying EBITDA, which is particularly pleasing against strong FIFA World Cup comparatives.  This has been underpinned by the highly successful Employee Bonus Share Schemes, and management's focus on the Group's commercial fundamentals.

We have made strong progress in developing our Group across our key divisions.  We have extended our UK store network and re-modelled 13 stores, and continue to perform well in a challenging market.  Our online business has developed significantly, growing sales by 85% (which now represents 9.5% of total Retail revenue), and we increased our international retail space by 30.0%.  Our Brands division focus remains on growing the licensing business, where we added contracts with minimum royalties of $37m over the life of the contracts.  

In addition, the Group is excited by the introduction of the new premium Lifestyle division containing the West Coast Capital (USC) Limited ("USC") and Cruise Clothing Limited("Cruise") stores and we believe this acquisition presents a complimentary growth opportunity. The results for this division are included within the Retail segment.

As previously stated, our employees are due to benefit from share payments in 2012 and 2013 under the 2009 Bonus Share Scheme.  Drawing upon the success of this scheme, we launched another scheme earlier this year.  The 2011 scheme is based upon the Group reaching all four EBITDA targets for the 2012, 2013, 2014 and 2015 financial years and approximately 3,000 employees will benefit from an award of shares, payable in 2015 and 2017.

If the Company achieves a super-stretch FY12 Group underlying EBITDA target of £225m, we shall be seeking shareholder approval at the 2012 Annual General Meeting for a Super-Stretch Executive Bonus Share Scheme ("Super-Stretch Scheme") for Mike Ashley, the Company's Executive Deputy Chairman.  Currently, Mr Ashley receives no remuneration for his substantial contribution to the Company and is not a participant in the 2011 Executive Bonus Share Scheme ("2011 Scheme"), which is a situation the Board wishes to remedy.

Subject to shareholder approval, and if FY12 Group underlying EBITDA (pre the 2011 Scheme costs) is £225m, then Mr Ashley will be granted shares which will vest in 2018 if two further performance criteria are met.

I would like to thank, on behalf of the Board, all of our staff for their substantial contribution to our success.

We are pleased that the Office of Fair Trading has now closed its investigation into the Company again with no charges being brought against the Company or individuals.  This brings to an end all regulatory inquiries into the business and/or individuals with no charges having been brought.

In considering the Company's dividend policy, the Board has undertaken a detailed review of the Company's growth opportunities and of the Company's appropriate capital structure.  The Board believes that while there are several potential investment opportunities available which could accelerate the Company's underlying growth prospects, and bearing in mind the current debt market environment, it would be inappropriate to reinstate regular annual dividends in the near term. However, the Board will continue to review the Balance Sheet in view of resources and existing investment plans and would look to evaluate, if appropriate, alternative methods of returning cash to shareholders.

We believe that we have a focussed growth strategy that is delivering for us, and we look forward to the opportunities ahead. Despite the consumer environment remaining extremely challenging, the Group has continued to trade in line with management expectations during the key Christmas trading period and anticipates further opportunities due to the UEFA European Championships and London Olympics in the summer of 2012.

Keith Hellawell

Non-Executive Chairman

15 December 2011

Overview of Financial Performance

Basis of reporting

The financial statements for the Group for the 26 weeks ended 23 October 2011 are presented in accordance with International Accounting Standard (IAS) 34 - Interim Financial Reporting as adopted by the EU (IFRS).

Summary of results

	26 weeks ended 23 October 2011 (£'m)	26 weeks ended 24 October 2010 (£'m)	Change %
Revenue	888.6	819.9	8.4
Underlying EBITDA (pre share scheme costs)	139.2	136.5	2.0
Underlying Profit before Tax	99.0	100.7	(1.7)
Reported Profit before Tax	100.3	100.0	0.3
	Pence per Share	Pence per Share
Basic EPS	12.54	12.15	3.2
Underlying EPS	12.38	12.23	1.2

The Directors believe that underlying EBITDA, underlying profit before tax and underlying earnings per share provide 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.

Revenue and margin

	26 weeks ended 23 October 2011 (£'m)	26 weeks ended 24 October 2010 (£'m)		Change %
Retail
Revenue:
UK Retail	697.1	644.3		8.2
UK wholesale and other	17.8	18.5		(3.8)
International Retail	81.3	66.5		22.3
Total retail revenue	796.2	729.3		9.2
Cost of sales	(465.2)	(417.1)
Gross margin	331.0	312.2
Gross margin percentage	41.6	%	42.8	%

Brands
Revenue:
Wholesale	79.3	78.3		1.3
Licensing	13.1	12.3		6.5
Total Brands revenue	92.4	90.6		2.0
Cost of sales	(54.9)	(53.6)		(2.4)
Gross margin	37.5	37.0
Gross margin percentage	40.6%		40.8	%

Business Review

Overview

In the first half, we have delivered strong results in line with management's expectations.  In the 26 weeks ended 23 October 2011 ("2012 H1"), Group revenues were up 8.4% to £888.6m compared with £819.9m for the 26 weeks ended 24 October 2010 ("2011 H1").  This is particularly pleasing against the strong comparatives last year that included the uplift from the FIFA World Cup and the revenue uplift was supported by increases across all our divisions.  UK Retail was up 8.2%, International retail up 22.3% and Brands division was up 2.0% (including 6.5% increase in licensing).

UK Retail revenues have been boosted by an 85% increase in online revenues and the creation of the premium lifestyle division following the acquisition of 80% of Cruise and USC. 

Gross margin for the Group decreased 110 basis points to 41.5% (2011 H1: 42.6%) as a result of our continued investment in margin.  The growth in revenue and profitability against tough comparatives has been underpinned by the bonus share scheme, and as a result of meeting the targets in July 2011 we were delighted to launch the second scheme which we believe will continue to motivate and reward our colleagues.

We were also pleased to reduce net debt in the period by 23.2% to £114.3m (24 April 2011: £148.9m), which is 0.53 times historic rolling underlying EBITDA.

Retail division

UK Retail revenues increased 8.2% to £697.1m (2011 H1: £644.3m).  The UK accounted for 89.8% of total retail revenues with the balance in Continental European stores.  This growth was supported by strong growth in online sales, up 85% to £72m. Online revenue continues to grow strongly, representing 9.5% (2011 H1: 5.4%) of total Retail sales, (excluding premium lifestyle) and we continue to invest in our customer offering and experience to ensure this continues.  Although included within UK Retail, we will now report online revenues as a percentage of both UK and International Retail sales, as the online revenue includes some sales from outside the UK.

The retail division margin decreased 120 basis points to 41.6% (2011 H1: 42.8%).  UK Retail margin was 42.4% (2011 H1: 43.4%) and the International Retail gross margin decreased 240 basis points to 43.9% (2011 H1: 46.3%).  The prior year margin was unusually high in International Retail due to a particularly strong hedged rate for US dollar purchases. These margins are in line with our expectations.

At period end, we had 397 stores in the UK (excluding Northern Ireland), a total of circa 3.9m sq ft (2011 H1: circa 3.8m sq ft).  These are divided between 315 core and 82 non-core stores and we have a clear, focused strategy to enhance our varied store portfolio.  Central to this is our flexibility and ability to move quickly where we identify store opportunities.  We are still targeting a total of between 15 and 20 core store openings in the UK this year, having opened 14 core stores and closed five core stores in the period.  In addition, we re-modelled 13 stores and plan to update a similar number in the second half, improving store layouts and merchandising standards thereby driving a better customer experience.

UK Retail's operating costs increased by 4.5% in 2012 H1, compared to the 8.2% increase in revenue.  As a result, we grew UK Retail underlying EBITDA by 5.5% to £120.4m (2011 H1: £114.1m), which is an excellent performance given that 2011 H1 included the 2010 FIFA World Cup, and in an exceptionally challenging consumer environment.

Through the Group's shareholding in the Heatons chain, it has sports products within 13 stores in Northern Ireland and 26 stores in the Republic of Ireland. The Group's share of Heatons results fell from a £0.6m profit to a £1.0m loss reflecting the difficult trading conditions in their markets.

International Retail revenues increased 22.3% to £81.3m (2011 H1: £66.5m), which in local currency represented an increase of 17.1%.  This was driven by a 30.0% increase in retail space (partly as a result of 10 stores acquired in Portugal).  The local management teams are able to leverage the stock control benefits of our UK-developed proprietary IT and operating systems.

Our strategy remains to expand our International Retail operations into all 17 countries that have adopted the Euro within five years, and we continued to deliver progress on this.  We will also consider opportunities in Europe, but outside the Eurozone.  In the period we remained on schedule with our international store opening programme having opened two stores in France, two in Holland and one in Cyprus.  In particular, our new French stores are performing in line with expectations and we have completed upgrading the larger Portuguese stores acquired last year, bringing them in line with Group standards and implementing our systems.  We will continue to invest in expansion in the second half and to make senior appointments to drive our international growth.

International Retail's operating costs increased 32.7%, compared to a 22.3% increase in revenue.  The proportional increase in costs is partly attributable to investment into the infrastructure in France and Portugal as well as training and general set up costs. Excluding associates, International Retail underlying EBITDA decreased by 19.0% to £8.1m (2011 H1: £10.0m).

Online order fulfilment and information technology solutions are developed in-house with full back-up support from our national distribution centre resources in Shirebrook.  We have exciting expansion plans at Shirebrook which will more than treble the size of our facilities to over two million square feet by the end of FY14.  This development is split into two phases, with an initial 400 thousand square foot extension already underway.  The remaining development will be undertaken after the initial phase has been completed.  The website has benefited from the increased recognition of the online brand with 346 of UK store fascias now branded SPORTSDIRECT.com along with other initiatives.  The overall cost of the first phase is included within our targeted capital expenditure figures of £40m for FY12 (excluding Mike Ashley properties) and £50m for FY13.

On 8 July we acquired 80% shareholdings in West Coast Capital (USC) Limited ("USC"), a top young branded fashion retailer, and Cruise Clothing Limited ("Cruise"), one of the UK's leading independent luxury retailers, for a total cash consideration of £7.5m.  This acquisition provides an entry into the premium lifestyle market which is a complimentary market for us to develop a position with synergies and interesting growth opportunities.  Initial actions taken include an IT and operating system upgrade, increased proportion of third party brands and proposed updated store layouts.  We look forward to reporting further developments on this in the future.

Group selling and distribution costs have always been closely controlled. Following the implementation of the 2009 Employee Bonus Share Scheme, however, some of the key performance indicators that we use have shown significant further progress. These include store wages versus turnover, stock loss cost indices and energy consumption.  Store wages are geared to financial performance with flexible staffing schedules, and initiatives to drive costs from the business have been effective.

Brands division

The Brands division revenues increased 2.0% to £92.4m (2011 H1: £90.6m) including licensing, where revenues were up 6.5% to £13.1m.  Our focus on licensing has contributed to the growth in the first half, having signed 41 new contracts with contracted minimum royalties of $37m over the life of the contracts.

While revenues in the Brands division were higher, gross margin decreased 20 basis points to 40.6% (2011 H1: 40.8%) due to a lower wholesale margin.

On 20 July 2011, the Company acquired the remaining worldwide rights to the No Fear brand for $10.9m (£6.8m).  This is an established brand which is complimentary to the Group's owned or licensed brands.  No Fear royalties earned since its acquisition in July are included within licensing.  Following this acquisition two new No Fear licenses have been signed since the period end with an aggregate $16m of guaranteed minimum royalty over five years.

The ongoing shift in strategy away from wholesale business enables us to achieve significant operating cost savings.  In 2012 H1, Brands operating costs only increased by £0.7m in spite of the £2m sponsorship payment to Darren Clarke for winning golf's Open Championship and while maintaining investment behind our brands.  As a result, the division's underlying EBITDA decreased by only £0.1m to £11.7m (2011 H1: £11.8m).  Underlying EBITDA now represents 89% of licensing income, and it is our aim to increase this proportion to 100% by the end of the current financial year.

Outlook

Trading since the period end has remained in line with management's expectations. We have today reiterated that we are very confident of reaching the current FY12 target of £215m underlying EBITDA (before scheme costs).  The Board is excited about the opportunities in 2012 with the busy Summer of Sport including both the UEFA European Championships and the London Olympics.  Both of these events combined makes us confident of reaching our £250m underlying EBITDA target (before scheme costs) for the full year 2013.  We believe that our strong performance to date and our confidence going forward is underpinned by our 2011 Employee Bonus Share Scheme and the substantial potential for growth in our online offering.

Dave Forsey

Chief Executive

15 December 2011

Bob Mellors

Finance Director

15 December 2011

Reconciliation of reported to underlying results

	EBITDA		PBT
	2012	2011	2012	2011
	£m	£m	£m	£m
Operating profit	101.3	101.7
Depreciation	26.9	28.3
Amortisation	1.9	1.3
Share of profit of associated undertakings	(2.1)	0.5
Bonus share scheme charge	9.1	5.2
Reported EBITDA/PBT	137.1	137.0	100.3	100.0
Realised FX (profit)/loss	2.1	(0.5)	2.1	(0.5)
IAS 39 FX fair value adjustment on forward currency contracts	-	-	(1.8)	1.2
Exceptional items	-	-	(1.7)	-
Underlying	139.2	136.5	99.0	100.7

Underlying EBITDA for the period increased 2.0% to £139.2m (2011 H1: £136.5m), before a charge of £9.1m relating to the bonus share schemes.  This charge has been taken centrally and, except in note 2 to the accounts, is not reflected in divisional (Retail and Brands) numbers in this report.  Within this underlying EBITDA, UK Retail increased 5.5% to £120.4m (2011 H1: £114.1m), International Retail excluding associates decreased 19.0% to £8.1m (2011 H1: £10.0m) and the Brands division decreased 0.8% to £11.7m (2011 H1: £11.8m).  The Group's share of profits of associated undertakings fell 300.0% to a £1.0m loss.  The Underlying profit before tax decreased 1.6% to £99.0m (2011 H1: £100.7m).

Foreign exchange

The group continued to apply hedge accounting in respect of certain forward contracts in the period and as a result foreign currency fluctuations within the income statement have been greatly reduced.  The effective element of any gain or loss from re-measuring the derivative instrument is recognised directly in other comprehensive income.

The foreign exchange loss recognised in the income statement for the half year was £0.3m (2011 H1: £0.6m loss).  This is net of a £2.1m realised exchange loss included in administration costs (2011 H1: £0.5m gain).  The revaluation of forward exchange contracts not accounted for as hedged contracts (as required under IFRS) is included in finance income, and this unrealised gain amounted to £1.8m (2011 H1: £1.1m loss).  These amounts are excluded from the definition of underlying profit used in the business and as reported here.

The exchange loss of £2.1m included in administration costs has arisen from:

(a)	accepting dollars and euros at the contracted rate; and
(b)	the translation of dollars and dollar denominated assets and liabilities at the period end rate.

The exchange gain of £1.8m (2011 H1: £1.1m loss) included in finance costs substantially represents the reversal of the liability created (under IFRS) for the forward contracts not designated for hedge accounting at 24 April 2011.

At 14 December 2011 the group held £260m of US dollar forward contracts hedged against future purchases at an average rate of 1.63. We expect these contracts to cover purchases up until the end of the 2012 calendar year.

The sterling exchange rate with the US dollar at 24 April 2011 was $1.650 and $1.595 at 23 October 2011.

The sterling exchange rate with the Euro at 24 April 2011 was €1.133 and €1.147 at 23 October 2011.

Finance income

	26 weeks ended 23 October 2011	26 weeks ended 24 October 2010
	(£'m)	(£'m)
Bank interest receivable	0.3	0.3
Expected return on pension plan assets	1.1	1.0
Fair value adjustment to forward foreign exchange contracts	1.8	-
	3.2	1.3

Finance costs

		26 weeks ended 23 October 2011		26 weeks ended 24 October 2010
	(£'m)		(£'m)
Interest on bank loans and overdrafts	(2.4)		(2.8)
Interest on other loans	(0.5)		(0.2)
Interest on retirement benefit obligations	(1.3)		(1.3)
Fair value adjustment to forward foreign currency contracts	-		(1.1)
	(4.2)		(5.4)

Loan and overdraft costs are directly linked to the LIBOR rate.  As such, currently, we are benefitting from the current low LIBOR rate.

Taxation

The effective tax rate on profit before tax for 2012 H1 was 29.0% (2011 H1: 31.0%).  This rate reflects depreciation on non-qualifying assets and the non-relievable losses in certain overseas subsidiaries.

Earnings

	26 weeks ended 23 October 2011 Pence per share	26 weeks ended 24 October 2010 Pence per share	Change %
Basic EPS	12.54	12.15	3.2
Underlying EPS	12.38	12.23	1.2
Weighted Average number of shares	568,552,369	568,502,369

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 actual financial period.

The underlying EPS reflects the underlying performance of the business compared with the prior period and is calculated using the weighted average number of shares.  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:

	26 weeks ended 23 October 2011 (£'m)	26 weeks ended 24 October 2010 (£'m)
Profit after tax:	71.3	69.1
Post tax effect of
Realised loss on forward foreign exchange contracts	1.5	(0.3)
Fair value adjustment to forward foreign exchange contracts	(1.2)	0.7
Profit on disposal of intangible assets	(1.2)	-
Underlying profit after tax	70.4	69.5

Cash flow and net debt

We have a committed working capital facility that is available until 7 March 2014.  The Company continues to operate well within its bank covenants and the Board remains comfortable with the Company's available headroom.

Net debt decreased during the period to £114.3m (24 April 2011: £148.9m), which is 0.53 times 12 month historic rolling underlying EBITDA.

Net capital expenditure amounted to £19.6m (2011 H1: £12.6m).  £2.6m of freehold property was acquired in the period (2011 H1: £1.5m).  In addition to acquiring Freehold properties from Mike Ashley for £87m in March 2012 we are targeting capital expenditure for the full year to be around £40m and for 2013 to be nearer £50m.

The analysis of debt at 23 October 2011 and at 24 April 2011 was as follows:

	At 23 October 2011	At 24 April 2011
Cash and cash equivalents	88.0	60.5
Borrowings	(202.3)	(209.4)
Net debt	(114.3)	(148.9)

Cash Flow

	26 weeks ended  23 October 2011 (£'m)	26 weeks ended  24 April 2011 (£'m)	26 weeks ended 24 October 2010 (£'m)
Underlying EBITDA (pre share scheme costs)	139.2	74.5	136.5
Realised profit/loss on forward foreign exchange contracts	(2.1)	(0.2)	0.5
Taxes paid	(21.7)	(13.0)	(14.3)
Free cash flow	115.4	61.3	122.7
Invested In:
Working capital
Inventory	(65.0)	53.6	(52.7)
Receivables, Payables & Other	22.5	(19.1)	21.9
Acquisitions (including debt)	(19.1)	-	-
Net proceeds from/(investment in) investments	0.6	(0.9)	1.9
Capital expenditure	(17.1)	(8.4)	(12.6)
Finance costs and other financing activities	(2.7)	(1.8)	(2.9)
Net decrease in net debt	34.6	84.7	78.3

Employee bonus share schemes

We believe that the bonus share schemes have played an important role in delivering this strong performance.

We have launched the 2011 Bonus Share Scheme this year to follow on from the previous scheme.  It is a four year scheme based upon achieving underlying EBITDA before the costs of the scheme of £215m in 2012, £250m in 2013, £260m in 2014 and £300m in 2015 coupled with the individual employee's satisfactory personal performance.  The scheme requires that all targets are met before the shares vest.  The vesting periods will be summer 2015 (approximately 8m shares) and summer 2017 (approximately 26m shares).  

If the Company achieves a super-stretch FY12 Group underlying EBITDA target, we shall be seeking shareholder approval at the 2012 Annual General Meeting for a Super-Stretch Executive Bonus Share Scheme ("Super-Stretch Scheme") for Mike Ashley, the Company's Executive Deputy Chairman.  Currently, Mr Ashley receives no remuneration for his substantial contribution to the Company and is not a participant in the 2011 Executive Bonus Share Scheme ("2011 Scheme"), which is a situation the Board wishes to remedy.

Subject to shareholder approval, and if FY12 Group underlying EBITDA (pre the 2011 Scheme costs) is £225m, then Mr Ashley will be granted six million shares which will vest in 2018 if two further performance criteria are met.

-       The Company meets very stretching Group underlying EBITDA (before the 2011 and Super-Stretch Schemes' costs) targets in each and all of the following three years.

-       The Company's net debt/EBITDA ratio is at 1.5x or less in FY15.

The targets for Group underlying EBITDA (before the 2011 and Super-Stretch Schemes' costs) are:

-       FY13: £265m (2011 Scheme: £250m)

-       FY14:  £280m (2011 Scheme: £260m)

-       FY15: £325m  (2011 Scheme: £300m)

The impact of the scheme is illustrated by marked improvements in several internal KPI's since the introduction of the scheme.  These include energy consumption, pay versus turnover, stock loss and staff retention.

Going concern

As highlighted in note 7, the Group finances its day to day working capital requirements, using a facility with 10 financial institutions that is due for renewal in March 2014.  The current economic conditions create some uncertainty in the economy and particularly in respect of the exchange rate between sterling and the US dollar which impacts on the cost of the Group's products manufactured in the Far East and the availability of bank finance in the foreseeable future.

The Group's forecast and projections, taking account of reasonably possible changes in trading performance and expected capital expenditure, show that the Group should be able to operate within the level of the current facility.

The Directors have thoroughly reviewed the Group's performance and position relating to historical results, current trading, forecast performance, cash reserves and financing arrangements.  Additionally, the Directors have also considered the Group's reliance upon its key stakeholders including customers and suppliers and found no over reliance on any particular stakeholder.  The Directors are therefore confident that the Group will continue in operational existence for the foreseeable future.  On this basis, the Directors continue to adopt the going concern basis for the preparation of the financial statements.

Risks, systems and controls

The Board believes that the principal risks and uncertainties for the remaining six months of the year are.

•	Disruption or other adverse events affecting the Group's relationship with any of its key brands or brand suppliers could have an adverse effect on the Group's business.
•	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 some of the risks of such movements by using forward purchases of foreign currency.  Certain of the Group's assets are held overseas in local currency and UK assets and liabilities are revalued in accordance with currency movements.  This currency risk is not hedged.
•	The possibility of a further deterioration of the economy both in the UK and worldwide and a further reduction in consumer confidence and retail spending, beyond that currently expected, which would impact on the performance of the business.

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.

Directors' Responsibility Statement

We confirm that to the best of our knowledge:

•	The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;
•	The interim management report includes a fair review of the information required by:

a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events during the first 26 weeks of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining 26 weeks of the year; and

b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first 26 weeks of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Amounts due to and from related parties are disclosed in note 11.

The directors of Sports Direct International plc are listed in the Group's 2011 Annual Report and Financial Statements.

On behalf of the Board

Dave Forsey

Chief Executive

Bob Mellors

Finance Director

15 December 2011

INDEPENDENT REVIEW REPORT TO SPORTS DIRECT INTERNATIONAL PLC

FOR THE 26 WEEKS ENDED 23 October 2011

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 23 October 2011 which comprises the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated cash flow statement, the Consolidated statement of changes in equity and the related notes. We have read the other information (the Chairman's statement, the Overview of Financial Performance and the Group highlights) 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 International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity''.  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 IFRS 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 26 weeks ended 23 October 2011 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

15 December 2011

UNAUDITED CONSOLIDATED INCOME STATEMENT FOR THE 26 WEEKS ENDED 23 October 2011

		26 weeks ended    23 October  2011	26 weeks ended    24 October 2010	52 weeks ended 24 April 2011
	Notes	£'000	£'000	£'000
Continuing operations:
Revenue	2	888,637	819,888	1,599,237
Cost of sales		(520,119)	(470,641)	(940,330)
Gross profit		368,518	349,247	658,907
Selling, distribution and administrative expenses		(271,103)	(250,080)	(527,273)
Other operating income		2,208	2,471	5,289
Exceptional items	3	1,705	-	(2,252)
Operating profit	2	101,328	101,638	134,671
Investment income		1,109	1,883	(9,481)
Finance income	4	3,212	1,321	2,560
Finance costs	5	(4,251)	(5,384)	(8,953)
Share of profit of associated undertakings and joint ventures		(1,061)	549	(8)
Profit before taxation		100,337	100,007	118,789
Taxation	6	(29,098)	(31,002)	(35,566)
Profit for the period	2	71,239	69,005	83,223
Attributable to:
Equity holders of the Group		71,296	69,086	84,173
Non-controlling interests		(57)	(81)	(950)
Profit for the period	2	71,239	69,005	83,223

Earnings per share from total and continuing operations attributable to the equity shareholders

		Pence per share	Pence per share	Pence per share
Basic earnings per share	7	12.54	12.15	14.80
Diluted earnings per share	7	11.80	11.43	13.93

The accompanying notes form an integral part of this financial report.

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE 26 WEEKS ENDED 23 October 2011

		26 weeks ended 23 October 2011	26 weeks ended 24 October 2010	52 weeks ended 24 April 2011
	Notes	£'000	£'000	£'000
Profit for the period	2	71,239	69,005	83,223
Other comprehensive income
Exchange differences on translation of foreign operations		(3,934)	(3,446)	(7,665)
Exchange differences on hedged contracts - recognised in the period		677	(1,617)	(4,801)
Exchange differences on hedged contracts - reclassification in the period		11,568	(8,056)	(13,100)
Actuarial losses on defined benefit pension schemes		(1,010)	(53)	2,077
Fair value adjustment in respect of available-for-sale financial assets		(4,824)	1,294	1,531
Taxation on items taken directly to other comprehensive income		1,254	(362)	4,276
Total comprehensive income for the period		74,970	56,765	65,541
Attributable to:
Equity holders of the Parent		75,027	56,846	66,491
Non-controlling interests		(57)	(81)	(950)
		74,970	56,765	65,541

The accompanying notes form an integral part of this financial report.

UNAUDITED CONSOLIDATED BALANCE SHEET AS AT 23 October 2011

		23 October 2011	24 October 2010	24 April 2011
	Notes	£'000	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment		234,534	257,249	236,097
Intangible assets		216,786	213,905	205,050
Investments in associated undertakings and joint ventures		30,132	39,105	38,347
Available-for-sale financial assets		48,796	52,860	53,097
Deferred tax assets		12,761	9,839	13,443
		543,009	572,958	546,034
Current assets
Inventories		297,153	271,486	217,938
Trade and other receivables		86,579	112,365	91,705
Derivative financial assets	9	8,044	2,866	-
Cash and cash equivalents		87,931	17,045	60,513
		479,707	403,762	370,156
TOTAL ASSETS		1,022,716	976,720	916,190
EQUITY AND LIABILITIES
Share capital		64,060	64,055	64,055
Share premium		874,300	874,300	874,300
Treasury shares		(85,088)	(85,088)	(85,088)
Permanent contribution to capital		50	50	50
Capital redemption reserve		8,005	8,005	8,005
Foreign currency translation reserve		24,329	37,187	28,263
Reverse combination reserve		(987,312)	(987,312)	(987,312)
Own share reserve		(6,094)	(6,094)	(6,094)
Retained earnings		522,566	415,405	434,567
		414,816	320,508	330,746
Non-controlling interests		1,651	1,302	389
Total equity		416,467	321,810	331,135
Non-current liabilities
Other payables		-	2,099	-
Borrowings	8	183,496	2,762	196,182
Retirement benefit obligations		16,184	19,213	16,186
Deferred tax liabilities		31,419	34,957	28,238
Provisions		55,306	48,705	58,277
		286,405	107,736	298,883
Current liabilities
Derivative financial liabilities	9	-	-	5,984
Trade and other payables		265,638	262,732	234,851
Borrowings	8	18,830	247,908	13,219
Current tax liabilities		35,376	36,534	32,118
		319,844	547,174	286,172
Total liabilities		606,249	654,910	585,055
TOTAL EQUITY AND LIABILITIES		1,022,716	976,720	916,190

The accompanying notes form an integral part of this financial report.

UNAUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE 26 WEEKS ENDED 23 October 2011

		26 weeks ended 23 October 2011	26 weeks ended 24 October 2010	52 weeks ended 24 April 2011
	Notes	£'000	£'000	£'000
Cash inflow from operating activities	11	94,609	106,143	211,582
Income taxes paid		(21,665)	(14,255)	(27,324)
Net cash inflow from operating activities		72,944	91,888	184,258
Cash flow from investing activities
Proceeds on disposal of property, plant and equipment		888	361	954
Purchase of subsidiaries, net of cash acquired		(19,079)	-	1,034
Purchase of intangible assets		-	(1,036)	(1,498)
Purchase of property, plant and equipment		(18,029)	(11,882)	(20,451)
Purchase of listed investments		(523)	-	-
Investment income received		1,109	1,883	3,362
Net cash outflow from investing activities		(35,634)	(10,674)	(16,599)
Cash flow from financing activities
Finance income received		1,429	1,321	2,560
Finance costs paid		(4,251)	(4,275)	(7,222)
Net repayments of borrowings		(11,803)	(2,217)	190,899
Proceeds from share issues		5	5	5
Net cash outflow from financing activities		(14,620)	(5,166)	186,242
Net increase in cash and cash equivalents including overdrafts		22,690	76,048	353,901
Cash and cash equivalents including overdrafts at beginning of period		48,637	(305,264)	(305,264)
Cash and cash equivalents including overdrafts at the period end		71,327	(229,216)	48,637

The accompanying notes form an integral part of this financial report.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE 26 WEEKS ENDED 23 October 2011

	Treasury shares	Foreign currency translation	Own share reserve	Retained earnings	Other reserves	Sub- total	Non-controlling interests	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 25 April 2010	(85,088)	40,633	(6,094)	349,788	(40,907)	258,332	1,383	259,715
Issue of ordinary shares	-	-	-		5	5	-	5
Share-based payment	-	-	-	5,325	-	5,325	-	5,325
Transactions with owners	-	-	-	5,325	5	5,330	-	5,330
Exchanged differences on hedged contracts - recognised in the period	-	-	-	(1,617)	-	(1,617)	-	(1,617)
Exchanged differences on hedged contracts - reclassification	-	-	-	(8,056)	-	(8,056)	-	(8,056)
Actuarial losses on defined benefit pension schemes	-	-	-	(53)	-	(53)	-	(53)
Fair value adjustment in respect of available for sale financial assets	-	-	-	1,294	-	1,294	-	1,294
Taxation on items taken to comprehensive income	-	-	-	(362)	-	(362)	-	(362)
Profit for the financial period	-	-	-	69,086	-	69,086	(81)	69,005
Translation differences - group	-	(3,260)	-	-	-	(3,260)	-	(3,260)
Translation differences - associates		(186)	-	-	-	(186)	-	(186)
Total comprehensive income for the period	-	(3,446)	-	60,292	-	56,846	(81)	56,765
At 24 October 2010	(85,088)	37,187	(6,094)	415,405	(40,902)	320,508	1,302	321,810
Issue of ordinary shares	-	-	-	-	-	-	-	-
Share-based payments	-	-	-	5,298	-	5,298	-	5,298
Minority interests - acquisitions	-	-	-	-	-	-	(44)	(44)
Transactions with owners	-	-	-	5,298	-	5,298	(44)	5,254
Exchanged differences on hedged contracts - recognised in the period	-	-	-	(3,184)	-	(3,184)	-	(3,184)
Exchanged differences on hedged contracts - reclassification	-	-	-	(5,044)	-	(5,044)	-	(5,044)
Actuarial losses on defined benefit pension schemes	-	-	-	2,130	-	2,130	-	2,130
Fair value adjustment in respect of available for sale financial assets	-	-	-	237	-	237	-	237
Taxation on items taken to comprehensive income	-	-	-	4,638	-	4,638	-	4,638
Profit for the financial period	-	-	-	15,087	-	15,087	(869)	14,218
Translation differences - group	-	(9,396)	-	-	-	(9,396)	-	(9,396)
Translation differences - associates	-	472	-	-	-	472	-	472
Total comprehensive income for the period	-	(8,924)	-	13,864	-	4,940	(869)	4,071
At 24 April 2011	(85,088)	28,263	(6,094)	434,567	(40,902)	330,746	389	331,135
Issue of ordinary shares	-	-	-	-	5	5	-	5
Share-based payments	-	-	-	9,038	-	9,038	-	9,038
Minority interests - acquisition	-	-	-	-	-	-	1,319	1,319
Transactions with owners	-	-	-	9,038	5	9,043	1,319	10,362
Exchanged differences on hedged contracts - recognised in the period	-	-	-	677	-	677	-	677
Exchanged differences on hedged contracts - reclassification	-	-	-	11,568	-	11,568	-	11,568
Actuarial losses on defined benefit pension schemes	-	-	-	(1,010)	-	(1,010)	-	(1,010)
Fair value adjustment in respect of available for sale financial assets	-	-	-	(4,824)	-	(4,824)	-	(4,824)
Taxation on items taken to comprehensive income	-	-	-	1,254	-	1,254	-	1,254
Profit for the financial period	-	-	-	71,296	-	71,296	(57)	71,239
Translation differences - group	-	(3,733)	-	-	-	(3,733)	-	(3,733)
Translation differences - associates	-	(201)	-	-	-	(201)	-	(201)
Total comprehensive income for the period	-	(3,934)	-	78,961	-	75,027	(57)	74,970
At 23 October 2011	(85,088)	24,329	(6,094)	522,566	(40,897)	414,816	1,651	416,467

The Company holds 64,000,000 ordinary shares in Treasury.

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and associates.

NOTES TO THE FINANCIAL INFORMATION FOR THE 26 WEEKS ENDED 23 October 2011

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 2011 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. The principal accounting policies have remained unchanged from the prior financial information for the 52 weeks ended April 2011. This consolidated financial information for the period does not constitute statutory financial statements within the meaning of s434 of the Companies Act 2006.

The summary of results for the 52 weeks ended 24 April 2011 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 s498 (2) or s498 (3) of the Companies Act 2006.

Principal risks and uncertainties

The principal risks and uncertainties which could impact the Group's long-term performance remain those identified on page 18 of the Group's 2011 Annual Report and Financial Statements. The Chief Executive and Finance Director's Review in this half-yearly financial report includes a commentary of the principal risks and uncertainties affecting the Group for the remaining six months of the year.

                 2. Segmental analysis

Operating segments 

For management purposes the Group is organised into, and reports its performance between, two operating segments; Retail and Brands. The Retail operating segment comprises the retail network of stores and the Brands operating segment comprises the identification, acquisition, development and trading of a portfolio of internationally recognised sports and leisure brands.

Segment information about the operating segments is presented below:

Segmental information for the 26 weeks ended 23 October 2011:

                                                     Retail                                                                                  Brands                                     

	UK total	International retail	Total	Total	Eliminations	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Sales to external customers	714,864	81,306	796,170	92,467	-	888,637
Sales to other segments	-	-	-	1,450	(1,450)	-
Revenue	714,864	81,306	796,170	93,917	(1,450)	888,637
Gross profit	295,376	35,679	331,055	37,463	-	368,518
Operating profit before foreign exchange and exceptional items	88,187	4,581	92,768	9,005	-	101,773

Operating profit										101,328
Investment income										1,109
Finance income										3,212
Finance costs										(4,251)
Share of profits of associated undertakings and joint ventures										(1,061)
Profit before taxation										100,337
Taxation										(29,098)
Profit for the period										71,239

 Sales to other segments are priced at cost plus a 10% mark-up.

UK Retail operating profit is stated after a £9.0m charge for the Bonus Share Scheme.

Other segment items included in the income statement for the 26 weeks ended 23 October 2011:

	Retail	Brands	Total
	£'000	£'000	£'000
Depreciation	26,483	1,087	27,570
Amortisation	167	1,683	1,850

Information regarding segment assets and liabilities as at 23 October 2011 and capital expenditure for the 26 weeks then ended:

	Retail	Brands	Eliminations	Total
	£'000	£'000	£'000	£'000
Investments in associated undertakings and joint ventures	29,838	294	-	30,132
Other assets	823,502	229,036	(59,954)	992,584
Total assets	853,340	229,330	(59,954)	1,022,716
Total liabilities	(492,818)	(173,385)	59,954	(606,249)
Tangible asset additions	27,532	294	-	27,826
Intangible asset additions	-	18,673	-	18,673
Total capital expenditure	27,532	18,967	-	46,499

Segmental information for the 26 weeks ended 24 October 2010:

                                                     Retail                                                                                  Brands                                     

	UK total	International retail	Total	Total	Eliminations	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Sales to external customers	662,744	66,543	729,287	90,601	-	819,888
Sales to other segments	2,274	-	2,274	2,049	(4,323)	-
Revenue	665,018	66,543	731,561	92,650	(4,323)	819,888
Gross profit	281,511	30,779	312,290	36,957	-	349,247
Operating profit before foreign exchange and exceptional items	84,673	6,879	91,552	9,622	-	101,174
Operating profit						101,638
Investment income						1,883
Finance income						1,321
Finance costs						(5,384)
Share of profits of associated undertakings and joint ventures						549
Profit before taxation						100,007
Taxation						(31,002)
Profit for the period						69,005

Sales to other segments are priced at cost plus a 10% mark-up.

UK Retail operating profit is stated after a £5.3m charge for the Bonus Share Scheme.

Other segment items included in the income statement for the 26 weeks ended 24 October 2010:

	Retail	Brands	Total
	£'000	£'000	£'000
Depreciation	27,120	1,167	28,287
Amortisation	182	1,095	1,277

Information regarding segment assets and liabilities as at 24 October 2010 and capital expenditure for the 26 weeks then ended:

	Retail	Brands	Eliminations	Total
	£'000	£'000	£'000	£'000
Investments in associated undertakings and joint ventures	31,860	7,245	-	39,105
Other assets	790,179	249,538	(102,102)	937,615
Total assets	822,039	256,783	(102,102)	976,720
Total liabilities	(549,789)	(207,223)	102,102	(654,910)
Tangible asset additions	11,287	595	-	11,882
Intangible asset additions	602	434	-	1,036
Total capital expenditure	11,889	1,029	-	12,918

Segmental information for the 52 weeks ended 24 April 2011:

This information is available in the 2011 annual report.

Geographic segments

The Group operates in two geographic segments; UK and Non-UK. These geographic segments are presented below:

Segmental information for the 26 weeks ended 23 October 2011:
	UK	Non-UK	Eliminations	Total
	£'000	£'000	£'000	£'000
Segmental revenue from external customers	737,360	151,277	-	888,637
Total capital expenditure	43,496	3,003	-	46,499
Segmental assets	827,901	254,769	(59,954)	1,022,716
Segmental information for the 26 weeks ended 24 October 2010:
	UK	Non-UK	Eliminations	Total
	£'000	£'000	£'000	£'000
Segmental revenue from external customers	681,003	138,885	-	819,888
Total capital expenditure	9,914	3,004	-	12,918
Segmental assets	829,798	249,024	(102,102)	976,720
Segmental information for the 52 weeks ended 24 April 2011:

This information is available in the 2011 annual report.

3. Exceptional items

	26 weeks ended 23 October 2011	26 weeks ended 24 October 2010	52 weeks ended 24 April 2011
	£'000	£'000	£'000
Profit on disposal of intangible asset	-	-	(876)
Provision for cost of legal dispute	-	-	3,128
Profit on disposal of tangible asset	(1,705)	-	-
	(1,705)	-	2,252

4. Finance income

	26 weeks ended 23 October 2011	26 weeks ended 24 October 2010	52 weeks ended 24 April 2011
	£'000	£'000	£'000
Bank interest receivable	298	272	427
Other interest receivable	-	-	-
Expected return on pension plan assets	1,131	1,049	2,133
Fair value adjustment to forward foreign exchange contracts	1,783	-	-
	3,212	1,321	2,560

5. Finance costs

	26 weeks ended 23 October 2011	26 weeks ended 24 October 2010	52 weeks ended 24 April 2011
	£'000	£'000	£'000
Interest on bank loans and overdrafts	2,444	2,755	4,255
Interest on other loans and finance leases	532	243	403
Interest on retirement benefit obligations	1,275	1,277	2,564
Fair value adjustment to forward foreign exchange contracts not designated for hedge accounting	-	1,109	1,731
	4,251	5,384	8,953

6. Taxation

The tax charge on profit before tax (excluding the impact of exceptional items) has been calculated using an estimated effective annual rate of 29.0% (2011: 31.0%).  This results in an estimated tax charge of £29.1m for the 26 weeks ended 23 October 2011 (£31.0m for the 26 weeks ended 24 October 2010).

7. Earnings per share

For diluted earnings per share, the weighted average number of shares, 568,552,000 (2011: 568,502,000), is adjusted to assume conversion of all dilutive potential ordinary shares under the Group's bonus share schemes, being 69,528,449 (2011: 36,008,000 ). To give the diluted weighted average number of shares of 638,081,000 (2011: 604,510,000).

Basic and diluted earnings per share

	26 weeks ended 23 October 2011	26 weeks ended 23 October 2011	26 weeks ended 24 October 2010	26 weeks ended 24 October 2010	52 weeks ended 24 April 2011	52 weeks ended 24 April 2011
	Basic £'000	Diluted £'000	Basic £'000	Diluted £'000	Basic £'000	Diluted £'000
Profit for the period	71,296	71,296	69,086	69,086	84,173	84,173
	Number in thousands		Number in thousands		Number in thousands
Weighted average number of shares	568,552	638,081	568,502	604,510	568,552	604,081
	Pence per share		Pence per share		Pence per share
Earnings per share	12.54	11.17	12.15	11.43	14.80	13.93
			26 weeks ended 25 October 2009	26 weeks ended 25 October 2009

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 weighted average number of shares. 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 realised foreign exchange in selling and administration costs, the IAS 39 fair value adjustment on forward currency contracts in finance income/costs, exceptional costs and the profit/loss on sale and derecognition of strategic investments.

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.

	26 weeks ended 23 October 2011		26 weeks ended 23 October 2011	26 weeks ended 24 October 2010	26 weeks ended 24 October 2010	52 weeks ended 24 April 2011	52 weeks ended 24 April 2011
	Basic £'000		Diluted £'000	Basic £'000	Diluted £'000	Basic £'000	Diluted £'000
Profit for the period	71,296		71,296	69,086	69,086	84,173	84,173
Post tax adjustments to profit for the period for the following exceptional items:
Realised loss/(gain) on forward foreign exchange contracts	1,480		1,480	(320)	(320)	(237)	(237)
Fair value adjustment to forward foreign exchange contracts	(1,230)		(1,230)	765	765	1,194	1,194
Other investment income	-		-	-	-	8,397	8,397
Provision for costs incurred relating to regulatory enquiries	-		-	-	-	-	-
Excess of fair value of assets acquired over consideration	-		-	-	-	-	-
Provision for legal disputes	-		-	-	-	2,158	2,158
Profit on sale of intangible assets	(1,176)		(1,176)	-	-	(604)	(604)
Fair value adjustments within associated undertakings	-		-	-	-	623	623
Underlying profit for the period	70,370		70,370	69,531	69,531	95,704	95,704
	Number in thousands			Number in thousands		Number in thousands
Weighted average number of shares	568,522		638,081	568,502	604,510	568,552	604,081
	Pence per share			Pence per share		Pence per share
Earnings per share	12.38		11.03	12.23	11.50	16.83	15.84

8. Borrowings

	23 October 2011	24 October 2010	24 April 2011
	£'000	£'000	£'000
Non-current:
Bank and other loans	183,496	2,228	194,917
Obligations under finance leases	-	534	1,265
	183,496	2,762	196,182
Current:
Bank overdrafts	16,604	246,261	11,876
Bank and other loans	2,226	1,642	1,335
Obligations under finance leases	-	5	8
	18,830	247,908	13,219
Total borrowings:
Bank overdrafts	16,604	246,261	11,876
Bank and other loans	185,722	3,870	196,252
Obligations under finance leases	-	539	1,273
	202,326	250,670	209,401

The maturity of the Group's bank and other loan borrowings other than overdrafts is as follows:

	23 October 2011	24 October 2010	24 April 2011
	£'000	£'000	£'000
Borrowings are repayable as follows:
Within one year	2,226	1,647	1,343
Between one and two years	4,387	2,386	1,189
Between two and five years	179,109	376	194,641
After five years	-	-	352
	185,722	4,409	197,525
Borrowings - Sterling	178,659	-	157,772
Borrowings - Other	7,063	4,409	39,753
	185,722	4,409	197,525

Loans are all on commercial variable rates of interest ranging between 1.5% and 2.0% over the interbank rate of the country within which the borrowing entity resides.

On 7 March 2011, Sports Direct International plc and certain subsidiaries (the "Borrowers") entered into a committed revolving facility agreement with ten financial institutions and with HSBC bank PLC acting as Agent (the "Revolving Facility").  The Revolving Facility is available to any of the Borrowers and may be drawn to an aggregate limit of £220 million.  It is capable of being utilised by way of cash advances and/or currency borrowings.  The Revolving Facility is available until 6 March 2014.  The Group 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 Revolving Facility is unsecured.

The Group continues to operate comfortably within its banking facilities and covenants.

The Group has a £50m working capital facility with Mike Ashley which can be drawn down on request.

The carrying amounts and fair value of the borrowings are not materially different.

Net debt at 23 October 2011 was £114.3 million.

9. Financial instruments

(a) Derivatives: foreign currency forward purchase contracts

The most significant exposure to foreign exchange fluctuations relates to purchases made in foreign currencies, principally the US dollar. The Group's policy is to reduce substantially the risk associated with purchases denominated in foreign currencies by using forward fixed rate currency purchase contracts, taking into account any foreign currency cash flows. The Group does not hold or issue derivative financial instruments for trading purposes, however if derivatives do not qualify for hedge accounting they are accounted for as such and accordingly any gain or loss is recognised immediately in the income statement.

The carrying values of forward foreign currency purchase contracts were as follows:

	23 October 2011	24 October 2010	25 April 2010
	£'000	£'000	£'000
Fair value of derivative financial instruments - assets/(liabilities)	8,044	2,866	(5,984)

The sterling principal amounts of forward foreign currency purchase contracts and contracted forward rates were as follows:

	23 October 2011	24 October 2010	25 April 2010
	£'000	£'000	£'000
US dollar purchases	180,000	220,000	320,000
Contracted rates	1.65	1.53 - 1.65	1.56 - 1.65
US dollar sales	(40,000)	-	-
Contracted rates	1.53-1.54	-	-
Euro sales	(31,703)	(27,122)	(33,451)
Contracted rates	1.13 - 1.14	1.09 - 1.14	1.13 - 1.14
Euro purchases	-	871	-
Contracted rates	-	1.15	-

10. Acquisitions

Details of principal acquisitions for the 26 weeks ended 23 October 2011 are set out below.

	Date of acquisition	Percentage of equity acquired	Nature of activity
West Coast Capital (USC) Limited  (1)	8 July 2011	80	Retail
Cruise Clothing Limited  (1)	8 July 2011	80	Retail
No Fear International Limited (2)	25 July 2011	50	Wholesale

 ⁽¹⁾                  Aggregated as 'Premium Lifestyle'

 ⁽²⁾                  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.

	Premium Lifestyle	No Fear International	Total
	£'000	£'000	£'000
Cash consideration including costs	7,500	6,875	14,375
Less: fair value of net assets acquired	(5,278)	(6,875)	(12,153)
Goodwill	2,222	-	2,222

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.

Premium Lifestyle

	Carrying values at acquisition	Provisional fair value adjustment	Fair value of net assets acquired
	£'000	£'000	£'000
Property, plant and equipment	7,531	-	7,531
Intangible assets	4,548	(4,548)	-
Inventories	14,192	-	14,192
Trade and other receivables	2,850	-	2,850
Cash and cash equivalents	(4,729)	-	(4,729)
Trade and other payables	(13,247)	-	(13,247)
Minority interests	(1,319)                        -	-	(1,319)
	9,826	(4,548)	5,278

£22,404,000 of revenue, £2,398,000 of operating loss and £2,490,000 of loss before tax has been included within the Group's financial statements for the period in respect of the above acquisition since the date of acquisition.

Cash flows arising from the acquisition are as follows:  

	23 October 2011
	£'000
Cash consideration	7,500
Bank overdraft acquired	4,729
Net cash outflow in the cash flow statement	12,229

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 Premium Lifestyle due to the proximity of the transaction to the period end.

No Fear International Limited

	Carrying values at acquisition	Provisional fair value adjustment	Fair value of net assets acquired
	£'000	£'000	£'000
Intangible assets	9,927	-	9,927
Trade and other receivables	6,686	-	6,686
Cash and cash equivalents	25	-	25
Trade and other payables	(2,810)	-	(2,810)
Minority interests	(6,953)	-	(6,953)
	6,875	-	6,875

£317,000 of revenue, £128,000 of operating loss and £128,000 of loss before tax has been included within the Group's financial statements for the period in respect of the above acquired entity since the date of acquisition.

£727,000 of revenue, £196,000 of operating loss and £196,000 of loss before tax would have been included in the Group's financial statements if the entity had been acquired at the beginning of the period.

The fair value of the group's investment in No Fear International Limited prior to acquisition was £6,953,000. There was no gain or loss on re-measuring.

Cash flows arising from the acquisition are as follows:

	23 October 2011
	£'000
Cash consideration	6,875
Cash acquired	(25)
Net cash outflow in the cash flow statement	6,850

The business combination accounting is provisional for No Fear International Limited due to the proximity of the transaction to the period end.

If the above acquired entities had been acquired at the beginning of the period the Group's financial statements would show revenue of £904,056,000, operating profit of £99,767,000 and profit before taxation of £98,700,000.

11. Cash inflows from operating activities

	26 weeks ended 23 October 2011	26 weeks ended 24 October 2010	52 weeks ended 24 April 2011
	£'000	£'000	£'000
Profit before taxation	100,337	100,007	118,789
Net finance costs/(income)	1,039	4,063	6,393
Other Investment costs/( income)	(1,109)	(1,883)	9,481
Share of profit of associated undertakings and joint ventures	1,061	(549)	8
Operating profit	101,328	101,638	134,671
Depreciation	27,570	28,287	59,946
Amortisation charge	1,850	1,277	2,952
Loss on disposal of intangibles	-	-	(10)
Defined benefit pension plan current service cost	-	3	-
Defined benefit pension plan employer contributions	(1,205)	(859)	(1,865)
Share based payments	9,038	5,325	10,623
Operating cash inflow before changes in working capital	138,581	135,671	206,317
Decrease/(increase) in receivables	7,976	2,168	10,658
(Increase)/decrease in inventories	(65,023)	(52,683)	865
Increase in payables	13,075	20,987	6,258
Cash inflows from operating activities	94,609	106,143	211,582

12. Related party transactions

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.

The Group entered into the following material transactions with related parties:

26 weeks ended  23 October 2011 Related party	Relationship	Sales	Purchases	Trade and other receivables	Trade and other payables
		£'000	£'000	£'000	£'000
Heatons	Associate	11,508	-	4,769	-
PBF International Limited	Joint venture	-	-	308	-

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.  Shareholders have now approved the purchase of these properties from M J W Ashley.

Compensation paid to key management of the Group was £410,448, including pension contributions of £Nil.

26 weeks ended  24 October 2010 Related party	Relationship	Sales	Purchases	Trade and other receivables	Trade and other payables
		£'000	£'000	£'000	£'000
Heatons	Associate	12,024	-	4,809	-
No Fear International Limited	Joint venture	-	-	293	(2,065)
PBF International Limited	Joint venture	-	(1,773)	661	-

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 £406,095, including pension contributions of £5,937.

13. 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.

14. Post balance sheet events

No material post balance sheet events have occurred after 23 October 2011 to the date of this Interim Report.

 

END

 

 

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