FORWARD TOGETHER Sports Direct International plc FY17 Preliminary - - PowerPoint PPT Presentation

FORWARD TOGETHER

Sports Direct International plc FY17 Preliminary Results Pack For the 53 weeks ended 30 April 2017 20 July 2017

FORWARD LOOKING INFORMATION

This presentation may contain forward-looking statements, beliefs or opinions, including statements with respect to management's current views and expectations of future events, and the Company’s future financial condition and results of

• perations. No representation is made that any of these statements, beliefs or opinions will come to pass. There are a number
• f factors that could cause actual results and developments to differ materially from those expressed or implied by these

statements, beliefs or opinions. Forward-looking statements speak only as at the date of this presentation and the Company expressly disclaims any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this presentation. No statement in this presentation is intended to be a profit forecast. As a result, you are cautioned not to place any undue reliance on such forward-looking statements, beliefs or opinions.

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CONTENTS

• Group Highlights
• Financial Review
• Strategic update
• Outlook

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GROUP HIGHLIGHTS

FY17: GROUP HIGHLIGHTS

• FY17 has been a transitional year for the Company and

for our people

• Group revenue increased by 3.2% on a currency neutral

basis excluding the impact of the acquisition of Heatons and the 53rd week

• Underlying EBITDA decreased by 28.5% largely due to

the devaluation of the GBP and an increase in operating expenses

• Underlying profit before tax decreased by 58.7%

following an increase in depreciation and amortisation

• Underlying free cash generation of £173.7m
• Capital expenditure of £419.5m, including £317.0m of

investment in property assets as we elevate our sports retail proposition

• Net Debt increased to £182.1m from £99.6m at 24 April

2016, positively assisted by net proceeds on disposal of investments of £165.9m

• Substantial financial resources and strong balance sheet

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FY17 ∆ FY161 Group revenue £3,245.3 11.7% UK Sports Retail revenue £2,136.4 12.5% International Sports Retail revenue £665.6 38.0% Premium Lifestyle revenue £203.2 11.6% Brands revenue £241.1 4.1% Group gross margin 41.0% (323 bps) UK Sports Retail 40.4% (430 bps) International Sports Retail 43.2% (159 bps) Underlying EBITDA2 £272.7 (28.5%) Underlying PBT £113.7 (58.7%) Reported PBT £281.6 (22.2%) Underlying EPS2 11.4p (67.8%) Reported EPS2 39.4p (15.8%)

1. FY17 is 53 weeks to 30 April 2017. FY16 is 52 weeks to 24 April 2016. 2. Underlying EBITDA, underlying profit before taxation and underlying EPS exclude realised foreign exchange gains/losses in selling and administration costs, exceptional costs, disposal of subsidiaries and the profit/loss on sale of strategic investments. Underlying EBITDA also excludes the Share Scheme charges.

FINANCIAL REVIEW

FY17: GROUP REVENUE BRIDGE

• Heatons acquisition benefitted both UK and International Sports Retail
• Excluding acquisitions and the 53rd week, Group revenue increased by 3.2% on a currency neutral basis

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+11.7% +6.9% +38.0% 11.6% 4.1%

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REVENUE RETAIL GROSS MARGIN1

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• On a currency neutral basis, and excluding acquisitions

and the 53rd week:

• UK Sports Retail retail revenue increased by 2.6%
• International Sports Retail retail revenue

increased by 5.9%

• UK Sports Retail gross margin impacted by deterioration

in GBP/USD, and increase in inventory and other provisions

• International Sports Retail gross margin impacted by

favourable EUR/USD rate in second half

FY17: SPORTS RETAIL OVERVIEW

+38.0% +6.3% +12.5% £2,802m £2,492m

• 1. Excludes wholesale sales.

FY17: UK SPORTS RETAIL – OPERATING COSTS & UNDERLYING EBITDA

£m FY17 FY16 Change (%) Store Wages 164.5 154.0 6.8% Premises Costs 206.1 172.4 19.5% Other Retail Costs 243.5 214.7 13.4% UK Sports Retail – Operating Costs 614.1 541.1 13.5% UK Sports Retail – Underlying EBITDA, pre Associates 265.3 353.8 (25.0%) Associates 0.4 0.1 300.0% UK Sports Retail – Underlying EBITDA 265.7 353.9 (24.9%)

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FY17: INTERNATIONAL SPORTS RETAIL – OPERATING COSTS & UNDERLYING EBITDA

£m FY17 FY16 Change (%) Store Wages 117.1 117.1

• %

Premises Costs 116.6 49.2 137.0% Other Retail Costs 73.1 57.0 28.2% International Sports Retail – Operating Costs 306.8 223.3 37.4% International Sports Retail – Underlying EBITDA, pre Associates (19.5) (7.3)

• Associates

0.4 2.4 (83.3%) International Sports Retail – Underlying EBITDA (19.1) (4.9) (289.8%)

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REVENUE & GROSS MARGIN OPERATING COSTS & UNDERLYING EBITDA

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• Operating costs reduced as a result of the previous

rationalisation undertaken

FY17: PREMIUM LIFESTYLE OVERVIEW

£m FY17 FY16 Change (%) Store Wages 15.4 18.3 (15.8%) Premises Costs 21.1 33.7 (37.4%) Other Costs 39.9 28.3 41.0% Total Operating Costs 76.4 80.3 (4.9%) Underlying EBITDA (0.3) (5.1) 94.1%

REVENUE OPERATING COSTS & UNDERLYING EBITDA

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• Brands operating costs increased primarily due to bad

debt provisions

• Divested the Dunlop brand in line with Sports Direct's

stated aspiration to become the "Selfridges" of sports retail, including its renewed focus on its core UK and International business and the development of its relationships with third party brands

FY17: BRANDS OVERVIEW

4.1% £241.1m £231.5m £m FY17 FY16 Change (%) Wages 19.7 21.5 (8.4%) Advertising & Promotion 12.4 11.4 8.8% Other Costs 29.3 27.1 8.1% Total Operating Costs 61.4 60.0 2.3% Underlying EBITDA 26.4 37.5 (29.6%) 14.1% 2.4%

FY17: UNDERLYING EBITDA BRIDGE

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(28.5%)

FY17: SUMMARY UNDERLYING PBT / PAT / EPS

£m FY17 FY16 Change (%) Underlying EBITDA 272.7 381.4 (28.5%) Share Scheme Charge (2.8) (7.1) (60.6%) Depreciation and amortisation (148.0) (95.5) 55.0% Interest (8.7) (5.2) 67.3% Investment Income 0.5 1.6 (68.7%) Underlying Profit Before Tax 113.7 275.2 (58.7%) Underlying Taxation (45.4) (62.9) (27.8%) Non-Controlling Interests (1.8) (1.6) 12.5% Underlying Profit After Tax 66.5 210.7 (68.4%) Number of Shares (millions) 583.5 592.6 (1.5%) Underlying Basic Earnings per Share

11.4p 35.5p

(67.9%) Underlying Diluted Earnings per Share

11.1p 34.5p

(67.9%)

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FY17: DEPRECIATION & AMORTISATION

£m FY17 FY16 Change (%) Sports Retail UK – Stores, Warehouse & Amortisation of Goodwill (47.4) (53.3) (11.1%) UK – Changes in Estimated Useful Life and capitalisation threshold (14.5) (2.8) 417.9% UK – Revaluations, impairments and aligning of policies in acquired businesses (34.0) (10.0) 240.0% Total UK Sports Retail (95.9) (66.1) 45.1% International – Stores, Warehouse & Amortisation of Goodwill (12.1) (19.6) (38.3%) International – Changes in Estimated Useful Life and capitalisation threshold (30.3)

• Total International Sports Retail

(42.4) (19.6) 116.3% Premium Lifestyle (3.7) (4.7) (21.3%) Brands (6.0) (5.2) 15.4% Total (148.0) (95.6) 54.8%

• Depreciation and amortisation charge increased due to increased investment in our store portfolio and revisions to

accounting estimates of useful economic lives of assets

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FY17: CASH FLOW

£m FY17 FY16 Underlying EBITDA 272.7 381.4 Realised (loss)/profit on FX contracts (23.7) (2.3) Taxes paid (75.3) (69.9) Underlying free cash flow 173.7 309.2 Working capital Inventory 60.0 (155.4) Debtors/Creditors, other (38.4) (88.1) Acquisitions (including debt) (22.6) (33.1) Proceeds on disposal of investments 163.9 92.1 Proceeds on disposal of subsidiary 109.5

• Investment income

0.5

• Purchase of properties

(417.1) (150.7) Proceeds from sale of freehold properties

• 44.0

Other capital expenditure

• (56.4)

Purchase of own shares (109.8)

• Finance costs and other financing activities

(2.1) (1.5) Decrease/(increase) in Net Debt (82.4) (39.9)

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FY17: CAPITAL EXPENDITURE – SPORTS RETAIL

UK Sports Retail, £m FY17 FY16 Property asset acquisitions & related development costs* 308.0 111.0 Shirebrook campus 2.9 39.7 New stores (leasehold) 13.4 15.1 Refurbishment capex 28.0 13.3 Corporate plane 39.0 0.0 Other 8.1 9.1 UK Sports Retail Capital Expenditure 399.4 188.2

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*Total spend on new properties - £317m

International Sports Retail, £m FY17 FY16 Property asset acquisitions & related development costs* 9.0 1.7 New stores (leasehold) 0.0 11.2 Refurbishment capex 5.6 4.2 Other 0.0 0.0 International Sports Retail Capital Expenditure 14.6 17.1

FY17: CAPITAL EXPENDITURE – PREMIUM LIFESTYLE, BRANDS & GROUP

£m FY17 FY16 UK Sports Retail 399.4 188.2 International Sports Retail 14.6 17.1 Premium Lifestyle 3.1 1.2 Brands 2.4 0.6 Gross Capital Expenditure 419.5 207.1 Proceeds on disposal of fixed assets (2.4) (44.0) Net Capital Expenditure 417.1 163.1

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FY17: NET DEBT BRIDGE

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STRATEGIC UPDATE

FY17 – FY21+ STRATEGIC PRIORITIES

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ONE TEAM, ONE GOAL

#SDFAMILY

ELEVATION OF SPORTS RETAIL

IMPROVING STAKEHOLDER ENGAGEMENT Invest in our people and our key third party brand partners to deliver an enhanced multi-brand, multi-sport customer experience, which we have described as an aspiration to become the “Selfridges” of sports retail

STRATEGY STRATEGIC PRIORITIES We aspire to be a leading sports and lifestyle retailer internationally and to deliver sustainable growth for our shareholders in the medium to long term MISSION

STRATEGIC PRIORITIES: OUR PEOPLE – THE SPORTS DIRECT FAMILY

• The value of Sports Direct is our people – the last 18+ months have been tough and have taken a toll on morale
• At FY17 H1, we provided an update on our progress on improving our working practices. A number of existing practices

have been strengthened and new practices have been introduced which have benefitted our people and the Company

• We continue to progress, and since that time notably we have also:
• Appointed a Workers’ Representative to the Board: Alex Balacki, a store manager who joined the Company 13 years

ago as a casual sales assistant, was elected by staff and will attend scheduled Board meetings over the next year. Alex is playing a key role in our Your Voice, Your Company initiative for staff

• Established a staff Health & Safety Committee in Shirebrook
• Implemented a system to facilitate open, anonymous staff consultations across our UK warehouse and stores, and

replaced the warehouse Staff Forum with a Listening Group, which aims to ensure early visibility of any problems

• Established a number of wellbeing services for staff, including a heath and wellbeing service in conjunction with

Derbyshire Community Health Service, and the Company recently became a member of the Retail Trust, which is the leading wellbeing charity for the retail industry

• Board and management team continue to work on developing a new incentive scheme
• As announced previously, as a result of the continued volatility in the Company’s share price, the Company has committed

to delivering a minimum value of £3 for share awards under the 2011 Share Scheme, due to vest to participating eligible employees in September 2017, and extended this minimum value to £4 if employees choose to postpone vesting their shares until September 2018

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STRATEGIC PRIORITIES: ELEVATION OF SPORTS RETAIL

• Remains our key medium to long term strategic priority

to elevate our sports retail proposition to:

• Continue to strengthen our relationships with our

key third party brand partners

• Benefit our customers
• Drive the Group’s long term profitability
• Elevation of proposition across:
• Product
• Stores and Online
• Marketing
• Remain committed to offering an unrivalled range,

availability and quality of product

• Critical to our strategic relationships with our key third

party brand partners: Nike, adidas, Under Armour, Puma, and other leading specialists

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ELEVATION OF SPORTS RETAIL: STRATEGIC THIRD PARTY BRAND PARTNER RELATIONSHIPS

• The current forward looking view is that the majority of
• ur offer must be third party brands
• Elevation of our sports retail proposition and the new

generation concept is completely aligned with and helping to strengthen our relationships with our key third party brands partners

• Key initiatives in FY17 include:
• New brand showrooms and offices at our

Shirebrook campus

• Continued collaboration on new store brand

layout planning, seasonal marketing calendars, visual merchandising and staff training

• Completed multiple joint UK-wide marketing

initiatives with adidas, Nike, Puma, and Under Armour,

• Nike CR7 Boot campaign spanned window

takeovers, TV, print, and out of home advertising in London, alongside a full digital and social media campaign

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ELEVATION OF SPORTS RETAIL: ENHANCING THE ONLINE EXPERIENCE

• Significantly re-styled and elevated our fascias’ and

brands’ online presence

• Developed an app to add to the Group’s suite of fully

responsive ecommerce and websites

• Driven by the Group’s centralised web platform and built

to be compatible with ios and Android. Skinned for:

• SportsDirect.com
• Plus:
• Lifestyle brand: Firetrap, and
• Premium fascia: Flannels.com
• Improving seamless customer feel and presence across

website and app

• Working closely with third party brand partners on
• nline marketing initiatives – first “take over” of website

and app by Nike to launch an exclusive style of the CR7 Boot, and

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ELEVATION OF SPORTS RETAIL: THIRD PARTY BRAND PARTNER MARKETING

• In Sports Retail, steadily moving to clean, brand- and

category-led campaigns, in contrast to previous focus on

• ffer-led campaigns
• Key third party brand partners supporting this elevation

with marketing assets in-store and online – major campaigns included a premium style of Nike CR7 football boot and the adidas Ace 17 football boot

• Same principles adopted across Premium Lifestyle fascias

– closely working with third party brand partners to deliver brand-led campaigns

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ELEVATION OF SPORTS RETAIL: GROUP BRANDS MARKETING

• Consistent elevation in marketing of the Group’s Brands,

and enhancing profiles with ambassadors:

• No Fear announced a collaboration with grime

artist Skepta, and will work together to develop a Motocross-inspired range over the next 12 months

• Lonsdale reaffirmed itself as an iconic boxing

brand by becoming the official clothing and equipment partner of GB Boxing as they work towards the 2020 Olympic Games

• USA Pro’s FY17 co-branded range with Little Mix

was a monumental success – they are currently working on their second range for Summer 2017

• Slazenger retained its long-term partnership with

Wimbledon, and launched a successful co- branded swimwear range with Becky Adlington. Due to its success, a second range is now planned for FY18

• Karrimor won a total of six awards at the Men’s

and Women’s Running awards including gold for the Best High Visibility Product, Best Support Shoe and Best Newcomer Shoe

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OUTLOOK

OUTLOOK

We are pleased to confirm that early indications show that trading in our new generation flagship stores is exceeding our

• expectations. The table below shows two examples of these stores, which we have called Store X and Store Y. Store X is our

highest-turnover new flagship, and Store Y is our lowest turnover new flagship. Both are delivering greater EBITDA than an average Sports Direct store. STORE X (new generation flagship) - Sales area 35k sq. ft. – EBITDA 2.1m STORE Y (new generation flagship) - Sales area 31k sq. ft. – EBITDA 1.0m Sports Direct UK Average Store - Sales area 11k sq. ft. – EBITDA 0.5m This should be balanced against the continued impact of the devaluation of sterling against the dollar, with our GBP/ USD requirements hedged at 1.31 for FY18 (compared with a historical long-term average closer to approx. 1.6). Taking all of these factors into account, our outlook is optimistic and we aim to achieve growth in underlying EBITDA in the region of approx. 5%-15% during FY18. However, we will continue to be conservative in managing for the medium to long term, which may result in short-term fluctuations in underlying EBITDA, particularly given the continued uncertainty surrounding Brexit.

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END