IR-Half-yearly Results
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Superdry plc (SDRY)
SuperdryPlc (“Superdry” or “the Company”) 27 January 2023 Interim Results for the 26-week period ending 29 October 2022 Strong Christmas trading; cautious on remainder of FY23
Superdry announces its Interim Results covering the 26-week period from 1 May 2022 to 29 October 2022 ("H1 23") and a trading update covering the 9-week period from 30 October 2022 to 31 December 2022.
Julian Dunkerton, Founder and Chief Executive Officer, said: “The Superdry brand has real momentum and I’m delighted by how our retail trading continues to strengthen. We’ve done this against a difficult macroeconomic backdrop by delivering well-designed, affordable, and responsibly sourced products which have resonated well with customers. Our coats performed really well in the run up to Christmas, and womenswear continues to be a highlight for us. Stores continued to recover strongly and online had its biggest ever week over Black Friday, helped by our new ecommerce platform which is delivering real benefits. We continued to receive positive recognition for our efforts to make Superdry the ‘#1 Sustainable Style Destination’, and this year CDP awarded us an A rating, one of only two British fashion brands on this year’s ‘A List’. Despite the underlying brand recovery, our profits in the first half fell short of expectations mainly due to the underperformance of Wholesale. We reorganised our team and our approach to support our Wholesale partners and expect to see their confidence return following the retail success of AW22. Whilst we did trade well through November and December, the outlook for the remainder of the year is uncertain and as a result, we are moderating our profit outlook to broadly breakeven. We don’t expect market conditions to become easier any time soon, but with a new financing package in place and the brand in great health, we approach the year ahead with optimism.”
H1 23 Financial overview
Christmas Trading (9 weeks from 30 October 2022 to 31 December 2022)
The table below shows the revenue change on a one-year basis for the 9-week period ending 31 December 2022:
* Over short trading periods, wholesale is always subject to material timing differences year-on-year and the longer-term trends are more indicative of overall performance.
Over the 9-week period, group revenue was up 4.5% versus FY22 as physical store trading continued to recover, offsetting a material reduction in Wholesale dispatches. Retail revenue grew by 24.9%, reflecting both a strong recovery in stores, with more seasonal weather re-igniting strong demand for our outerwear. This was supported by a more strategic and well-executed Black Friday and end-of-season sale. Importantly, we saw a recovery in our Store sales beyond pre-Covid levels during a robust holiday trading period.
The Black Friday event, our first major promotion in nine months, pulled a high volume of traffic into our stores and onto our Ecommerce site and kickstarted the successful Christmas trading period after the unseasonal weather in October. Our post-Christmas Sale then cleared stock at attractive rates for our customers – on better margins than our alternative clearance channels – helping to reduce our excess inventory, whilst having a small impact on gross margin.
Wholesale has proved more challenging with revenue down 18.0% year-to-date, in part driven by the impact of shipment timings, some of which will reverse in the second half. However, there is still a Covid-related confidence lag in Wholesale, which we expect to close as our partners see how successful our AW221 range has performed through our own channels, giving them confidence to buy for future seasons.
We continued to deliver on our unit inventory reduction programme, with a further reduction from 12.4m at period end to 11.8m. As of 31 December 2022, the Company had £9.8m net debt2, supported by solid holiday trading.
Gross margin for the 9 weeks is down 60 basis points on the prior year, largely driven by the continuing weakness in Wholesale along with the Black Friday and end-of-season clearance events.
Outlook
While the global macroeconomic outlook remains challenging, we have gained confidence from our recent robust retail performance and the strong demand for our brand across all geographies and platforms. We believe that our honest approach to high quality products for a great price has resonated well with consumers under pressure and we can see that reflected in our sales numbers. The more recent trading performance through the holiday period supports our view that the brand is resonating with consumers and continues to strengthen.
That said, we are mindful of the challenges facing the consumer as we head into 2023 and remain very cautious about the potential for a soft spring. s a management team we are taking action to seek costs savings initiatives to support our performance. When combined with current margin run-rates and the underperformance of our Wholesale division, we believe it appropriate to amend our adjusted profit before tax guidance to broadly breakeven (previously £10 – 20m).
Notes
Market briefing A webcast for analysts and investors will be held today starting at 9:00, followed by a Q&A with management. The webcast will be available to join live, but questions will be limited to analysts. If you would like to register, please go to https://secure.emincote.com/client/superdry/superdry012. A recording of the event will also be available on our corporate website shortly afterwards.
A separate meeting with an opportunity for retail investors to ask questions will be held at 13:00 through the ‘Investor Meets Company’ platform, register here (https://www.investormeetcompany.com/superdry-plc/register-investor).
For further information: Superdry:
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Notes to Editors Our mission is “To be the #1 sustainable style destination” through our distinct collections, defined by consumer style choices. We design affordable, premium quality clothing, accessories and footwear which are sold around the world. We have a clear strategy for delivering continued growth via a multi-channel approach combining Stores, Ecommerce, and Wholesale.
Superdry has 219 physical stores and around 450 franchisees and licensees. We operate in over 50 countries and have over 4,100 colleagues globally.
Cautionary Statement This announcement contains certain forward-looking statements with respect to the financial condition and operational results of Superdry Plc. These statements and forecasts involve risk, uncertainty, and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by law, Superdry Plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein.
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR").
CEO Review
Against a challenging national and global macroeconomic backdrop, the brand turnaround continues to gain momentum and I am pleased with the progress we have made in the first half of this year as we continue with our mission to make Superdry the ‘#1 Sustainable Style Destination’. Presenting our Autumn ranges early and with authority resulted in a successful lead on AW221 outerwear, and delivered strong results, notably in stores where we have seen footfall rising through the period and revenue up 14.3% in the first half, and on third party websites, where we are attracting new customers to the brand. Significantly, this trend has continued and in December we saw retail revenue above pre-Covid levels.
Our store revenue growth was greatest in the UK and the US, where the post-pandemic recovery has been fastest: up 19%. In some of our larger European markets, notably Belgium and Germany, the recovery hasn’t been as quick, with revenue in Europe up only 6.7%. The growth in Ecommerce revenue slowed to 1.6% as consumers reverted to physical retail, but this trend was more than offset by the strong performance of our partner program, which has seen Zalando’s total migration away from Wholesale and this partner platform also completed during the period.
Whilst we have seen a recovery in retail, our Wholesale business has declined by 5.2% during the period. This has been partly driven by the impact of shipment timings, some of which will reverse in the second half. However, there is still a Covid related confidence lag in Wholesale, which we expect to close as our partners see how successful our AW221 range has been through our own channels, giving them confidence to buy for future seasons.
The half-year adjusted loss before tax increased to £(13.6)m in the period, with a return to normal levels of rent and business rates, which was ahead of the sales recovery from OMICRON, particularly in the European markets.
Style and sustainability continue to be the overarching focus in everything we do. Reflecting this, we have simplified our mission further: "To be the #1 Sustainable Style Destination". To achieve this, we are continuing to focus on our four strategic objectives:
Inspire Through Product & Style
We continue to deliver a high-quality branded product at great value, and this led to our AW221 collection being very well received, with outerwear delivering strong growth on last year’s performance. This was by bringing in our comprehensive range of jackets earlier than last year left us well prepared for the early cold snap in September, which saw strong demand for our jackets.
The new product has also been successful on third party sites across Europe, where we know we reach new customers. This success is supporting additional conversations with potential third parties, as we seek to expand our brand awareness and our partner program further.
Our womenswear range, in particular our dress collection and teenage product, has excelled. This is due to a refreshed collection promoted through a well-targeted influencer marketing program. We are excited by the results, with both new and returning customers finding joy in our range, notably our new party dresses, which were a viral hit online in the months leading into the holidays. In addition, whilst traditionally not one of our strongest areas, this season’s denim range has impressed with the category up 34%, driven by women’s denim up 108% year-on-year.
Engage Through Social
We continue to expand our social media position to recruit new customers into the brand. Launched in September 2021, our Tiktok channel now has over 550k followers with over 4.1m likes across our videos. All our Tiktok content is exclusively influencer generated, letting them do the talking for us. We direct over 60% of our social budget to generating content from our 2,670 influencers, resulting in organic content that is connecting with our customers where the conversation is happening; over 60 videos now have more than 1m views.
Our party dresses also worked well in viral videos, which helped drive sales up 31% for the category, a disruptive area for us and a key anchor as we recruit new and win-back lapsed customers.
Our AW221 jackets campaign did extremely well towards the end of the first half and beyond. We launched a comprehensive range early and lead with a strong push across both social and traditional marketing channels, helping deliver two of our biggest ever September sales weeks on Ecommerce.
Lead Through Sustainability
Our ambition to be the leading sustainable style destination starts with our product but continues through everything we do. We aim to move all our pure-cotton garments to organic cotton by 2025, and, on that journey, we are helping others with support for over 7,500 farmers - supplying a third of our organic cotton – during the first half. Our push to renewable energy also continues, with 91% of our retail stores, offices, and distribution centres powered by renewables, on track for our 100% target by 2025. During the period we continued to sell more sustainable garments than ever before, with 52% of sales in the half being sustainably sourced product, up from 32% in the prior period.
We continue to see improvement in our Carbon Disclosure Project rating, up from A- to A. Among our peers, we are the only brand to have improved our grade consistently each year for the last three years, and one of two British fashion brands on this year’s ‘A List’. When I joined, we were a C and through hard work and the determination of our talented teams, we’ve worked towards our Net Zero goal, which is now starting to be recognised by our customers.
We published our second Sustainability report in September 2022 which can be found on our Corporate Website (https://corporate.superdry.com/sustainability/sustainability-report/), this provides additional detail on everything we have committed to, achieved so far and ultimately challenged ourselves on.
Make it Happen
A key operational improvement during the period was the signing of our new financing facility, which we announced on 22 December. Our new facility is larger and covenant light, making it less complex to operate and more flexible, supporting our growth in the years ahead. In parallel, our finance team is working hard to make our business more efficient, making our cash cycle less volatile.
We continue to make changes in our organisation, welcoming Denise Posner as Marketing Director in July, and Tom Hutt as Head of Marketing Creative shortly afterwards. . The changes to our marketing strategy have been immediate and impactful, and I look forward to working with Denise and Tom to further drive improvements in our marketing impact and effectiveness. Given our renewed focus on wholesale, we have also expanded Craig McGregor’s role from leading our Retail Stores to Global Commercial Director, additionally taking on leadership of our Wholesale business. Craig and I will work together to revisit our Wholesale model and explore new strategic partnerships and improve an area of our business which is currently underperforming. I aim to share more on this in the future as we develop and execute our strategy.
Our investment in migrating our Ecommerce platform over to microservices technology is now largely complete. Alongside this, we continue to invest in additional improvements in payment platforms and usability, improving the customer experience, whilst also investing in our back-end systems to deliver better, more accurate insights to support the running of the business.
Looking forward
While the global macroeconomic outlook remains challenging, we have gained confidence from our recent robust retail performance and the strong demand for our brand across geographies and platforms. I believe that our honest approach to great quality products for a great price has resonated well with consumers under pressure and we can see that reflected in our sales numbers.
Despite a more moderate profit delivery in the first half on account of the unseasonably warm weather experienced in October, the more recent trading performance through the balance of calendar 2022 supports our view that the brand is clearly resonating with consumers and continues to strengthen. This is further evidenced by our improved gross margin performance in retail where we have predominantly returned to a full-price stance whilst still seeing strong demand for our jackets and winter wear.
Financial Review
Group revenue increased 3.6% year-on-year to £287.2m, largely driven by the strong performance in our owned stores. Store sales increased 14.3% year-on-year to £117.7m as our collections resonated with consumers and we saw traffic shift back to physical retail and a normalisation in online revenue. Ecommerce increased 1.6% year-on-year to £63.3m, with the reversion in consumer behaviour somewhat offset by a step-up in performance on third party sites. Retail revenue (combined Stores and Ecommerce) ended the half up 9.5% year-on-year, which helped offset the decrease in Wholesale revenue of 5.2% year-on-year.
During H1 23, the gross margin decreased 3.1%pts year-on-year to 52.1% due to a higher mix of third-party sales within our Ecommerce channel, deferred wholesale price increases, and Wholesale clearance activity designed to continue our inventory reduction programme, all of which offset the improvements from returning to a full-price trading stance.
Our Adjusted Loss Before Tax of £(13.6)m was impacted by a return to normal rent business rates and other costs whilst the store business remained heavily impacted by Omicron, particularly in Europe and exacerbated by underperformance in Wholesale.
We enter into forward foreign exchange contracts to hedge the currency exposure on stock purchases. As these contracts mature, they offset FX gains or losses incurred in the gross margin in the current and future periods. During the first half we had realised gains of this nature of £10.3m (H1 22: £(1.3)m).
There is a further £6.9m (H1 22: £0.1m) of unrealised currency gains which results from the translation of our overseas foreign currency denominated assets and liabilities, and £4.1m of unrealised fair value loss due to the uncrystallised loss on foreign exchange forward contracts. This element will remain subject to currency fluctuations and could, therefore, reverse in the second half.
* Adjusted operating loss, adjusted operating margin and adjusted loss before tax are defined as reported results before adjusting items as further explained in Note 22
Retail revenue (‘Stores’ and ‘Ecommerce’)
Stores
Store revenue has increased 14.3% year-on-year to £117.7m, as consumers returned to physical retail, and we had a full half of open stores with no Covid-related closures.
The UK, Republic of Ireland and Rest of World, which relates to US stores, recovered strongly in the half, particularly in the US. Mainland Europe lagged the rest of our markets largely due to the delayed recovery to high street footfall post Covid, particularly in Belgium and Germany.
We closed 5 stores in the half-year to H1 23 and opened 5 new stores in the UK, the Netherlands and Germany, ending the half with 219 stores in 11 countries. New openings in the period included a new flagship store at Battersea Power Station.
Ecommerce
Ecommerce has experienced a slower half because of the consumer shift back to physical retail, particularly in the UK. However, we have seen strong performance across third party channels, driving the year-on-year increase of 1.6% to £63.3m. We are encouraged by the performance and the continued progress made on product and our focus on digital improvements across our owned sites.
Third party channels include partner programme revenue, where Superdry fulfils the order placed on a partner website. In H1 23 the shift to 100% partner program with Zalando was completed and has been a significant driver in the success online, particularly across Europe which has increased 13.6% year-on-year.
Wholesale
Our Wholesale partners, across mainland Europe particularly, have continued to suffer from build-up of inventory over the pandemic period, which has led to much lower levels of in-season sales than anticipated. Low levels of dispatches in the first half, particularly higher valued AW221 inventory, resulted in a decrease of revenue by 5.2% year-on-year.
We had good growth in the UK and Republic of Ireland which worked to partially offset the decline in Mainland Europe. Growth in the UK was largely driven by additional clearance deals negotiated to continue the reduction in historical stock.
Gross Margin
As a result of the increased mix of third-party online sales, intake margin pressures, and lower gross margin in Wholesale as a result of the timing of price increases, total gross margin has decreased by 3.1%pts year-on-year to 52.1%.
We remain committed to our return to full price trading and in the first half saw full price mix4 in our owned retail channels increase 4%pts year-on-year from 74% to 78%.
Total Operating Costs
Total adjusted operating costs increased 5.3% to £160.5m (H1 22: £152.4m) and includes store, distribution, marketing, head office, central and depreciation costs, impairment credit on trade receivables and adjusted other gains and losses. The balance is roughly in line with H1 22, despite our store estate being open for the full year as we returned to a more normalised way of working.
Selling and distribution costs increased £24.2m to £150.6m, largely due to increase in store overhead costs. The period marked a return to normalised cost levels following Covid related relief, with an unwind of the rent relief as well as a return to standard business rates. During the period, we also saw increases in our energy costs as well as wage inflation, with a pay rise to our store employees of 9%. Central costs have marginally decreased to £33.4m.
Adjusted other gains and losses, which include realised and unrealised FX gains, royalty income and other income, largely related to lease renegotiations under IFRS 16, were higher than in H1 22 £23.4m (H1 22: £4.9m), largely due to a £17.2m gain on foreign exchange.
Net finance costs were roughly in line with the prior year at £2.6m (H1 22: £3.5m). £2.0m (H1 22: £2.3m) relates to interest expense on leases under IFRS 16.
The adjusted loss before tax declined to £(13.6)m during the period, a £(10.8)m decline versus H1 22. Excluding the gain due to foreign exchange, adjusted loss before tax would have been £(30.8)m during the period.
Adjusting items
Adjusting items primarily relate to a £(4.1)m charge in respect of the fair value movement in financial derivatives (H1 22: £6.2m credit) which has been driven by the movement between the hedged rates and spot rates during the period and a number of outstanding contracts.
Adjusted Profit/Loss before tax
The adjusted loss before tax for the first half is £(13.6)m, a decrease of £10.8m from a loss of £(2.8)m in H1 22 and after the benefit of £17.2m from foreign exchange gains.
The statutory loss before tax is £(17.7)m, down from a profit of £4.0m in H1 22.
Taxation
The tax credit on losses is £5.5m (H1 21: £1.5m tax charge). As a result, the group recorded an effective tax rate of 25%.
Taken with the adjusted tax credit of £1.0m, the Group’s total income tax credit of £5.5m represents a total effective tax rate of 31.2% which is greater than the UK statutory tax rate of 19%. The difference is driven by the effect of the increase in the UK corporation tax rate to 25% from 01 April 2023, the tax accounting impact of certain overseas tax losses for which no tax benefit has been recognised, and tax rate differentials in overseas subsidiaries.
Profit/Loss after tax
Group statutory loss after tax for the first half was £(12.2)m, compared to a £2.5m profit in H1 22.
Profit/Loss per share
Adjusted basic EPS is (11.2)p (H1 22: EPS (3.8)p).
Reported basic EPS is (15.0)p (H1 22: 3.0p) based on a basic weighted average of 81,380,288 shares (H1 22: 82,054,759 shares).
Adjusted diluted EPS is (11.2)p (H1 22: (3.8)p) and diluted EPS is (15.0)p (H1 22: 3.0p). These are based on a diluted weighted average of 85,754,749 shares (H1 22: 82,054,759 shares).
Dividends
The Board decided during the Covid pandemic that, given the uncertain macro-economic outlook, they would not recommend either final or interim dividends for the near-term. In addition, under the terms of our recent loan facility, the Company is restricted from declaring, making or paying dividends to shareholders without prior permission from Bantry Bay, which cannot be unreasonably withheld.
Cash Flow
We ended the half with £38.0m net debt as we entered our seasonal high point in cash use, coupled with a period of slower sales in October due to warmer weather. As noted in our 22 December update, our cash position has continued to improve on account of seasonal sales cycle and strong holiday trading, with net debt of £9.8m as of 31 December 2022.
Working Capital
Inventory units have decreased by another 2m to 12.4m units at the end of H1 23 as we continue with our targeted clearance activity of older stock. We are committed to reducing this further by the year-end through our focused reduction of the option count for each seasonal buy. By contrast, our inventory value increased during the period to £172.6m, up £13.2m year-on-year. This was mostly down to the high proportion of high-value jackets in the range which were drawn off later by wholesale partners and saw slower sales in October’s warm weather before the sales rate increased into November and December.
Trade and other receivables have increased 14.5% to £125.3m in the current year due to timing of shipments, and later commitments from our Wholesale partners.
Trade and other payables have increased 20.5% to £(178.6)m largely due to timing of inventory shipments as we brought in orders early to ensure we could start our season with a full range.
As at the end of H1 23 £2.7m of deferred rent is included in trade and other payables (H1 22: £0.9m), with £7.5m of deferred rent in relation to IFRS 16 leases included within lease liabilities (H1 22: £8.2m).
Capital Expenditure
Additions in property, plant and equipment and intangible assets totalled £7.6m (H1 22: £9.0m), as the business focussed on existing IT infrastructure projects, including the re-platforming of our Ecommerce website to microservices.
Notes:
Principal risks and uncertainties
The principal risks and uncertainties were outlined in the 2022 Annual Report (pages 56-67). These have been reviewed and amended to ensure they are reflective of our existing risk profile and are assessed on an on-going basis.
Also, within the Annual Report, the CFO Review included an analysis of the actions taken to preserve the long-term financial position of Superdry and an Assessment of Group Prospects (page 73-75).
Specific principal risks and uncertainties include:
Responsibility statement of the Directors in respect of the condensed consolidated interim financial information
On 26 January 2023 the Board of Directors of Superdry Plc approved this statement.
The Directors confirm that, to the best of their knowledge:
The Directors of Superdry Plc are listed on the Board section of the Group website: www.corporate.superdry.com
On behalf of the Board of Directors:
Julian Dunkerton
Chief Executive Officer
26 January 2023
Preliminary Results for the 26 weeks ended 29 October 2022 Condensed Group Statement of Comprehensive Income for the 26 weeks ended 29 October 2022 (unaudited)
* Adjusted and adjusting items are defined in note 7. ** During the current financial year, the Group reclassified realised gains/(losses) on FX contract and unrealised gains from selling, general and administrative expense to Other gains and losses. This reclassification more appropriately reflects selling, general and administrative expenses. Prior financial year comparatives have been restated to align to the current financial year approach. H1 2023 is the 26 weeks ended 29 October 2022 and H1 2022 is for 26 weeks ended 23 October 2021.
Condensed Group Balance Sheet as at 29 October 2022
Condensed Group Cash Flow Statement for the 26 weeks ended 29 October 2022 (unaudited)
* Net Cash and Cash Equivalents includes overdraft
Condensed Group Statement of Changes in Equity for the 26 weeks ended 29 October 2022 (unaudited)
Condensed Group Statement of Changes in Equity for the 26 weeks ended 23 October 2021 (unaudited) to the members of Superdry plc
Condensed Group Statement of Changes in Equity for the 53 weeks ended 30 April 2022 (audited) to the members of Superdry plc
Notes to the Group Financial Statements 1. Basis of preparation General information The Company is a public company limited by shares incorporated in the United Kingdom under the Companies Act and is registered in England and Wales. The condensed interim financial information ("interim financial information") of Superdry Plc for the 26 weeks ended 29 October 2022 ("October 2022") comprise the company and its subsidiaries (together referred to as "the Group"). The prior comparative period is for the 26 weeks ended 23 October 2021 ("October 2021"). a) Basis of preparation This interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The Group statutory financial statements for the 53 weeks ended 30 April 2022 ("April 2022") are available upon request from the company's registered office at Superdry Plc, Unit 60, The Runnings, Cheltenham, Gloucestershire, GL51 9NW or www.corporate.superdry.com.
This interim financial information has been prepared in accordance with IAS 34 "Interim Financial Reporting" as UK adopted international accounting standards and the requirements of the Disclosures and Transparency Rules. They do not include all of the information required for full annual financial statements and should be read in conjunction with the Group financial statements as at and for the 53 weeks ended 30 April 2022 ("Group Annual Report FY22), which have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the United Kingdom and companies act 2006. This interim financial information was approved by the Board of Directors on 26 January 2022.
The comparative figures for April 2022 are extracted from the Group's statutory accounts for that financial year. Those accounts have been reported on by the company's auditor and delivered to the registrar of companies. The report of the auditor (i) was unqualified; (ii) did not drawn attention to any matters by way of emphasis; and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006 but did include a section highlighting a material uncertainty that may cast significant doubt on the Group and Company’s ability to continue as a going concern. Further detail is provided within the Assessment of the Group’s Prospects section of this announcement.
The financial information in this interim financial information document is neither audited nor reviewed by the auditor.
This interim financial information has been prepared under the going concern basis. The Group directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and operate within its borrowing facilities and covenants for a period of at least 12 months from the date of signing the financial statements. Accordingly, the financial statements continue to be prepared on the going concern basis. 2. Significant accounting policies The accounting policies adopted are consistent with those of the previous financial period (see Annual Report for the year ended 30 April 2022). Whilst the financial statements were prepared on a going conern basis, the going concern refers to a material uncertainty at the date the financial statements were approved, arising from the expiry of the ABL facility in January 2023. On the basis that a replacement facility has now been negotiated as described below, the directors consider there is no longer a material uncertainty in relation to going concern, although the business will continue to monitor liquidity closely, particularly during the working capital peak ahead of the Christmas trading period where headroom is likely to remain tight for a short period.
A loan facility of up to £80m, including a £30m term loan, for three years with an option to extend for one further year was agreed, with specialist lender Bantry Bay Capital Limited1. This replaces the previous up to £70m Asset Based Lending Facility which was due to expire on 31 January 2023. The interest rate SONIA2 + 7.5% on the drawn element. The revised facility is covenant light, providing flexibility to navigate the current challenging macro-economic environment and continue to focus on driving our brand strategy forward.
Notes
The Group has not adopted any new accounting standards in the period. Other changes to accounting standards in the period had no material impact.
3. Key sources of estimation uncertainty and critical judgements in applying the Group’s accounting policies The preparation of interim financial information requires judgements, estimates and assumptions to be made that affect the reported value of assets, liabilities, revenues, and expenses. The nature of estimation and judgement means that actual outcomes could differ from expectation. In preparing this interim financial information, unless stated otherwise, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation were the same as those that applied to the consolidated financial statements for the 53 weeks ended 30 April 2022 (as set out on pages 162 to 165 of the Group Annual Report FY22). These were as follows:
4. Seasonality of operations Due to the seasonal nature of the Retail segment, higher revenues and operating profits are usually expected in the second half of the year under normal trading conditions. This weighting of higher revenues in the second half of the year is a consequence of the brand's strength in cooler weather categories, such as outerwear, which also carry higher average selling prices. Operating profits therefore benefit from operating cost leverage, particularly in the Group's stores. Wholesale seasonality is more evenly spread across the year. In the financial period ended 30 April 2022, 45.5% of total revenues accumulated in the first half of the year, with 54.5% in the second half. This corresponded to (12.8)% of adjusted profit before tax in the first half of the year and 112.8% in the second half.
5. Segment information Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision-Maker (“CODM”).’ As per Prior year interim accounts. Revenue is generated from the same products (clothing and accessories) in all segments; the reporting of segments is based on how these sales are generated. The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 1. Gross profit is the measure reported to the Group’s CODM for the purpose of resource allocation and assessment of segment performance. The Group derives its revenue from contracts with customers for the transfer of goods and services at a point in time.
Segmental information for the business segments of the Group for H1 23 and H1 22 is set out below. The ‘Retail’ subtotal of the ‘Stores’ and ‘Ecommerce’ segments presented below is considered useful additional information to the reader.
The segment measure of profit required to be presented under IFRS 8 Segments is gross profit/(loss). Profit/(loss) before tax has been presented as an additional profit measure which is considered to provide useful information to the reader. Certain costs have not been allocated between the Stores and Ecommerce segments in both the current and prior period.
The following additional information is considered useful to the reader:
* Adjusted is defined as reported results before adjusting items and is further explained in note 22.
The (£4.1m) adjusting items in the Retail and Wholesale segments relate to the fair value of forward exchange contracts, as disclosed further in note 7.
The following additional information is considered useful to the reader:
* Adjusted is defined as reported results before adjusting items and is further explained in note 22.
The £0.6m adjusting item in the Central segment is in relation to the Founder Share Plan. The £6.2m adjusting items in the Retail and Wholesale segments relate to the unrealised fair value of forward exchange contracts, as disclosed further in note 7.
Revenue from external customers in the UK and the total revenue from external customers from other countries are:
Included within non-UK external revenue is £65.2m (H1 22: £59.6m) generated by our overseas subsidiaries.
The total of non-current assets, other than deferred tax assets, located in the UK is £79.9m (H1 22: £75.7m), and the total of non-current assets located in other countries is £53.8m (H1 22: £89.5m).
6. Other gains and losses (net)
The below adjustments are disclosed separately in the Group statement of comprehensive income and are applied to the reported (loss) before tax to arrive at the adjusted (loss) before tax. Group
*During the current financial year, the Group reclassified realised gains/(losses) on FX contracts and unrealised gains on FX from selling, general and administrative expense to Other gains and losses. This reclassification more appropriately reflects selling, general and administrative expenses. Prior financial year comparatives have been restated to align to the current financial year approach.
The unrealised fair value loss on foreign exchange forward contracts of £4.1m (H1 22: £6.2 gain) has been treated as an adjusting item, see note 7. Hedge accounting is not applied by the Group to these financial instruments.
Royalty income relates to wholesale royalty agreements. Other income in both financial years includes rent and profit from the sales of fixtures and fittings to franchisees.
Lease modifications and terminations relate to lease renegotiations under IFRS 16, which resulted in reducing both the lease liability and the right-of-use asset. As the adjustment exceeded the carrying value of the right-of-use asset, this excess has been recognised as a gain in profit or loss.
7. Adjusting items
The adjustments below are disclosed separately in the Group statement of comprehensive income and are applied to the Reported (Loss) before tax to arrive at the Adjusted (Loss) before tax. Further information about the determination of adjusting items in financial year 2023 is included in note 22.
Adjusting items before tax in the period totalled a net loss of (£4.1m) in the year (H1 22: £6.8m gain). Unrealised (loss)/gain on financial derivatives A £4.1m charge has been recognised in respect of the fair value movement in financial derivatives (H1 22: £6.2m credit). IFRS 2 charge on Founder Share Plan The IFRS 2 charge of £nil (H1 22: £0.6m credit) in respect of the Founder Share Plan is also included within adjusting items. The scheme ended on 31st January 2022.
8. Tax expense/(credit)
The Group's income tax credit for H1 23 is £5.5m (H1 22: £1.5m income tax charge).
The Group's tax credit of £1.0m on adjusting items of £4.1m represents an effective tax rate of 25%. Taken with the adjusted tax credit of £1.0m, the Group's total income tax credit of £5.5m represents a total effective tax rate of 31.2% for the period (H1 22: 37.5%).
The Group's total effective tax rate of 31.2% is higher than the statutory rate of tax of 19%. This is primarily due to the effect of the UK corporation tax rate change to 25% from 01 April 2023, the tax accounting impact of certain overseas losses for which no tax benefit has been recognised and tax rate differentials in overseas subsidiaries.
Factors affecting the tax expense for the period are as follows:
Reconciliation of operating profit to cash generated from operations
10. Dividends The Board decided during the Covid pandemic that, given the uncertain macro-economic outlook, they would not recommend either final or interim dividends for the near-term. In addition, under the terms of our recent loan facility, the Company is restricted from declaring, making or paying dividends to shareholders without prior permission from Bantry Bay, which cannot be unreasonably withheld.
11. Property, plant and equipment
Movements in the carrying amount of property, plant and equipment in the period to H1 23 were as follows:
12. Intangible assets
Movements in the carrying amount of intangible assets in the period to H1 23 were as follows:
13. Leases
Right-of-use assets
14. Contingencies and commitments Contingent liabilities
The Company is party to an unlimited cross guarantee over all liabilities of the Group. The Group has contractual agreements with third party wholesale agents which include a right for the wholesale agent to be indemnified when the contract is terminated. These future indemnity amounts are held as contingent liabilities until the contract is terminated, at which point they are held as provisions or accruals. The value of future obligations for contracts which have not yet been terminated (and have no defined end date) is £3.3m (H1 22: £3.4m).
15. Equity securities 39,576 ordinary shares of 5p each were authorised, allotted and issued in the period under the Superdry Plc Share based Long Term Incentive Plans, Save As You Earn and Buy As You Earn schemes.
16. Earnings per share
Adjusted earnings per share
On 29 October 2022, 4,374,461 (23 October: 2,386,732) share options were outstanding that could potentially dilute basic EPS. These are antidilutive when the Group is in a loss-making position, so have not been included in the EPS calculations where this is the case. There were no share-related events after the balance sheet date that may affect earnings per share.
17. Balances and transactions with related parties Transactions with Directors
Directors of the Group within the period and their immediate relatives control 24.1% (H1 22: 20.7%) of the voting shares of the Group. There have been no material transactions in the period with related parties, including Directors. During the reporting period, the Group has spent £0.1m (H1 22: £0.1m) on travel and subsistence through companies in which Julian Dunkerton has a personal investment. The balance outstanding at 29 October 2022 was £nil (2021: £nil). This expenditure includes the provision of corporate travel, hotel and catering services supplied on an arm’s-length basis. These interests have been disclosed and authorised by the Board. In addition, the Group occupies two properties owned by J M Dunkerton SIPP pension fund whose beneficiary and member trustee is Julian Dunkerton. The properties are rented to the Group at a rate that is not on an arm’s-length basis. Rental charges for these properties during the year were £0.1m (H1 22: £0.1m). The balance outstanding at 29 October 2022 was £nil (H1 22: £nil).
18. Net cash/(debt)
Non-cash changes relate to exchange gains on cash and cash equivalents.
Short-term borrowings The Group had up to a net £10m uncommitted overdraft facility which has no financial covenants and is included within the cash pooling arrangements. The Group had an Asset Backed Lending facility (ABL facility) for up to £70m, which end in January 2023. The borrowing base varied throughout the year depending on the level of the Group's eligible inventory and receivables. As at half-year end, £60.4m was reported to HSBC as being available to borrow based on eligible inventory and receivables in October 2022. The ABL facility with HSBC and BNPP had a drawn balance of £51.9m as at 29 October 2022.
A new loan facility of up to £80m, including a £30m term loan, for three years with an option to extend for one further year was agreed, with specialist lender Bantry Bay Capital Limited1. This replaces the previous up to £70m Asset Based Lending Facility which was due to expire on 31 January 2023. The interest rate SONIA2 + 7.5% on the drawn element. The revised facility is covenant light, providing flexibility to navigate the current challenging macro-economic environment and continue to focus on driving our brand strategy forward.
Notes
The bank overdraft balance represents individual overdrawn balances within the Group's cash-pooling arrangements. These had been disclosed gross in line with the requirements of IAS 32. Financial instruments: Presentation. The Group has a net overdraft facility with HSBC Bank plc. Gross overdrafts at 29 October 2022 amounted to £13.9m.
Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.
19. Financial risk management The Group's activities expose it to a variety of financial risks including: market risk (including foreign currency risk and cash flow interest rate risk), credit risk and liquidity risk. The condensed interim financial information does not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group Annual Report FY22. There have been no changes in the risk management department or in any risk management policies since the year end. Liquidity risk
Compared to the year end, there was no material change in the contractual undiscounted cash out flows for financial liabilities. Fair value estimation
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
The following table presents the Group's assets and liabilities that are measured at fair value at 29 October 2022 and 23 October 2021.
The level 2 forward foreign exchange valuations are derived from mark-to-market valuations based on observable market data as at the close of business on 29 October 2022. There were no transfers between levels during the period. The fair value of the following financial assets and liabilities is approximate to their carrying amount:
The Group received government support within the UK and EU territories during the prior year in response to the COVID-19 pandemic. This included: deferring tax payments; obtaining reductions in business rates from the UK government; seeking compensation for lost revenue and subsidies to cover fixed costs; and placing staff on furlough during the periods of store closures. Furlough support across all territories of £nil was recognised in the half-year (H1 22: £0.2m), through the UK’s Coronavirus Job Retention Scheme (CJRS) and equivalent schemes in other countries. A provision was recognised in FY22 to cover any existing furlough related clawbacks. This provision now totals £1.1m (H1 22: £1.7m). Lost revenue and subsidy support in the UK and other territories of £0.1m has been recognised in the period (H1 22: £0.7m). Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attached to them and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. The value is netted off against costs in selling, general and administrative expenses.
21. Post balance sheet events
On 22 December Superdry announced that it has agreed a loan facility of up to £80m, including a £30m term loan, for three years to January 2026 with an option to extend for one further year, with specialist lender Bantry Bay Capital Limited. This will replace the existing up to £70m Asset Based Lending Facility which was due to expire at the end of January 2023. Given market conditions, the interest rate will be higher than our previous agreement at SONIA + 7.5% on the drawn element. The revised facility is operationally less complex to manage and covenant light, giving the necessary flexibility to navigate the current challenging macro-economic environment and continue to focus on driving the brand strategy forward.
22. Alternative performance measures
Introduction The Directors assess the performance of the Group using a variety of performance measures, some are IFRS, and some are adjusted and therefore termed ‘non-GAAP’ measures or “alternative performance measures” (APMs). The rationale for using adjusted measures is explained below. The Directors principally discuss the Group’s results on an adjusted basis. Results on an adjusted basis are presented before adjusting items.
The APMs used these consolidated interim statements are adjusted operating profit and margin, adjusted profit/(loss) before tax, adjusted tax expense and adjusted effective tax rate, adjusted earnings per share and net cash/debt.
A reconciliation from these non-GAAP measures to the nearest measure prepared in accordance with IFRS is presented below. The APMs we use may not be directly comparable with similarly titled measures used by other companies. There have been no changes in definitions from the prior period.
Adjusting items The Group's statement of comprehensive income and segmental analysis separately identify adjusted results before adjusting items. The adjusted results are not intended to be a replacement for the IFRS results. The Directors believe that presentation of the Group's results in this way provides stakeholders with additional helpful analysis of the Group's financial performance. This presentation is consistent with the way that financial performance is measured by management and reported to the Board and the Executive Committee. It is also consistent with the way that management is incentivised. In determining whether events or transactions are treated as adjusting items, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence. Adjusting items are identified by virtue of their size, nature or incidence. Examples of charges or credits meeting the above definition, and which have been presented as adjusting items in the current and/or prior years include:
In the event that other items meet the criteria, which are applied consistently from year to year, they are also treated as adjusting items. In previous reporting periods "Adjusting items" were described as "Exceptional and other items".
Adjusting items in this period The following items have been included within ‘Adjusting items’ for the period ended 29 October 2022: Fair value re-measurement of foreign exchange contracts – Financial years H1 23, FY22 and H1 22 The fair value of unrealised financial derivatives is reviewed at the end of each reporting period and unrealised losses/gains are recognised in the Group statement of comprehensive income. The Directors consider unrealised losses/gains to be adjusting items due to both their size and nature. The size of the movement on the fair value of the contracts is dependent on the spot foreign exchange rate at the balance sheet date and an assessment of future foreign exchange volatility applied to the relevant contract currencies, as such the size of the movements can be substantial. The unrealised foreign exchange contracts have been entered into in order to achieve an economic hedge against future payments and receipts and are not a reflection of historical performance. Founder Share Plan (‘FSP’) – IFRS 2 charge – in financial years H1 23, FY22 and H1 22 While there are no cost or cash implications for the Group, the Founder Share Plan (FSP) falls within the scope of IFRS 2. The Group has included the IFRS 2 charge and related deferred tax movement in relation to the FSP within adjusting items for the prior periods. The Directors consider the plan to be one-off in nature and unusual in that the share awards are being funded exclusively by the Founders. While the charge is spread over a few financial years, the plan is a one-time scheme. Accordingly, the IFRS 2 charge in respect of the FSP is an adjusting item due to the size, nature and incidence of the scheme. There are no known recent examples within quoted companies of incentive arrangements operating in a similar way to the FSP. While unusual in terms of size, the plan is also unusual regarding its treatment in what is essentially a personal arrangement, with no net cost or cash and minimal administrative burden to the Company. There are no other adjustments anticipated in respect of the scheme other than the IFRS 2 charge. Therefore, the Directors consider the charge to be significant in terms of its potential influence on the readers’ interpretation of the Group’s financial performance. The scheme ended in January 2022, with none of the vesting criteria met, there is no expense in the 6 months to October 2022.
Adjusted operating profit/(loss) and margin In the opinion of the Directors, adjusted operating profit and margin are measures which seek to reflect the performance of the Group that will contribute to long-term sustainable profitable growth. The Directors focus on the trends in adjusted operating profit and margins, and they are key internal management metrics in assessing the Group's performance. As such, they exclude the impact of adjusting items. Although the Group is currently making an adjusted operating loss, adjusted operating profit and margin remain key metrics monitored by management given the Group's intention to return to profitability. A reconciliation from operating profit/(loss), the most directly comparable IFRS measure, to the adjusted operating profit/(loss) and margin is set out below.
Adjusted profit/(loss) before tax In the opinion of the Directors, adjusted (loss)/profit before tax is a measure which seeks to reflect the performance of the Group that will contribute to long-term sustainable profitable growth. As such, adjusted (loss)/profit before tax excludes the impact of adjusting items. The Directors consider this to be an important measure of Group performance and is consistent with how the business performance is reported to and assessed by the Board and the Executive Committee. In previous reporting periods "Adjusted (loss)/profit before tax" was described as "Underlying (loss)/profit before tax". This is a measure used within the Group's incentive plans. Refer to the Remuneration Report in the Group Annual Report FY22 for explanation of why this measure is used within incentive plans. A reconciliation from profit/(loss) before tax, the most directly comparable IFRS measures, to the adjusted loss before tax is set out below.
Adjusted tax expense and adjusted effective tax rate In the opinion of the Directors, adjusted tax expense is the total tax charge for the Group excluding the tax impact of adjusting items. Correspondingly, the adjusted effective tax rate is the adjusted tax expense divided by the adjusted (loss)/profit before tax. For interim reporting purposes, we categorise the prior year items and specific other balances as discrete items, in the calculation of our adjusted effective tax rate. A reconciliation from tax expense, the most directly comparable IFRS measures, to the adjusted tax expense is set out below:
Adjusted EPS In the opinion of the Directors, adjusted earnings per share is calculated using basic earnings, adjusted to exclude adjusting items net of current and deferred tax. See note 16 for the Group's adjusted EPS.
Net cash/(debt) In the opinion of the Directors, net cash/(debt) is a useful measure to monitor the overall cash position of the Group. It is the total of all short- and long-term loans and borrowings, less cash and cash equivalents. Net cash and cash equivalents is used to define the net cash/(debt) position excluding short and long-term loans. See note 17 for the Group's net cash/(debt) position. This position is exclusive of financial liabilities in relation to IFRS 16.
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| ISIN: | GB00B60BD277 |
| Category Code: | IR |
| TIDM: | SDRY |
| LEI Code: | 213800GAQMT2WL7BW361 |
| OAM Categories: | 1.2. Half yearly financial reports and audit reports/limited reviews |
| Sequence No.: | 218759 |
| EQS News ID: | 1544957 |
| End of Announcement | EQS News Service |
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