SuperGroup Plc

Interim results for the 26 weeks ended 28 October 2012

SuperGroup Plc ('SuperGroup' or 'the Group'), owner of the Superdry brand, today announces interim results for the 26 weeks ended 28 October 2012.

Summary results

Highlights

·       Group revenue up 16.2% to £158.2m.

·       Retail revenue up 26.4%; like-for-like² sales growth 3.9% (2011: 4.0%).

·       International expansion: 37 franchise and licensed stores opened including the first franchise store in India.

·       Internet now represents 10.2%³ of Group revenue (2011: 8.2%).

·       International websites launched in Canada, Switzerland, Spain and Italy.

·       90 bps gross margin improvement, reflecting falling cotton prices and improved supplier terms.

·       Underlying¹ PBT up 13.1%.

Julian Dunkerton, Chief Executive of SuperGroup Plc, commented:

"Although the trading environment has remained challenging and volatile, the Group's sales performance in the first half of the year has been encouraging.  There have been a number of positive factors that have supported this performance but it is clear that the ongoing investment in design and the growing presence of the brand have enhanced sales both in the UK and overseas.

"International sales have again been strong and represent a substantial opportunity as the brand gains acceptance globally.

"During the last six months there has been significant change in the Group's management structure as we commit to building a solid platform to support our future growth.  Good progress is being made but the full infrastructure upgrades, and the associated benefits, will take a number of years to deliver.

"The economic outlook remains uncertain but I am confident in our strategy and our ability to maximise the opportunities we have in the UK and internationally and deliver our full year profit targets."

Notes

1.   Underlying results have been adjusted to reflect the impact of the gain/loss recognised on fair valuing deferred contingent consideration, financial derivatives and exceptional items. All references to underlying in this statement are after making these adjustments. Retail and Wholesale are presented before Group overheads and royalties unless stated otherwise.

2.   Like-for-like "(LFL") revenue growth is defined as year-on-year revenue increases for stores open for more than one year and includes eCommerce revenue.

3.   This measure is calculated on a rolling 12-month basis.

12 December 2012

Enquiries:

Group results

Notes:

4. Statement of comprehensive income (charge)/credit to reflect the fair value movement in share price for the deferred contingent consideration related to the acquisition of SuperGroup Europe BVBA.

Strong revenue growth in the Retail division and a solid performance from the Wholesale division has delivered total Group revenue of £158.2m, up £22.1m, an increase of 16.2% on the same period in the previous year. 

Gross profit at £89.0m (2011: £75.4m) was up by 18.0% on the same period last year and represents a gross margin of 56.3% (2011: 55.4%).  The 90bps movement in gross margin percentage reflects the benefit of falling cotton prices and improved supplier terms offset by the decline in Retail margin driven by the planned activity through "off price" channels.

Underlying operating profit for the period was £14.6m (2011: £13.0m) and represents the Group's revenue growth and gross margin improvement offset in part by higher store and distribution costs.

Operating profit was £13.8m (2011: £20.3m), a decrease of 32.0% compared with the same period last year, having been impacted by fair value adjustments; a positive adjustment arising from the valuation of foreign exchange contracts has been offset by the fair value of the deferred share consideration relating to the acquisition of SuperGroup Europe BVBA. 

Space growth and international expansion

At the end of October the Group sold its products through 375 Superdry stores and concessions throughout the world, 93 locations having opened year-on-year, of which 45 opened since the financial year end.

In the UK and the Republic of Ireland the Group opened three new stores in total (2011: 14 stores) and closed one store (2011: two re-sites) increasing the total number of owned stores to 81 (2011: 72 stores).   In total, 21,000 square feet has been added during the half taking the total to 452,000 square feet (2011: 369,000 square feet) including 4,370 square feet from the opening of the second floor in the Regent Street store and 4,700 square feet through other store extensions (2011: Nil). 

The Group operates from 24 owned stores in Europe (2011: 20 stores); 18 in Belgium, five in the Netherlands and one in France, representing, in total, 39,000 square feet.  Following the period end the Group opened its first store in Germany.  Oberhausen was opened on 22 November 2012 in a shopping centre near Essen, close to the Dutch-German border, and trades from about 5,000 square feet.  Europe represented the largest territorial growth with the opening of 21 new franchises during the period, of which nine were in Spain and six in France. The execution of the European growth strategy continues to be managed through the knowledge and expertise of the SuperGroup Europe management team based in Belgium.

The Group continues to search for quality locations and is making good progress in identifying potential sites both in the UK and Europe.

Beyond Europe, other international growth during the period has been driven through 14 new franchise stores, predominantly in the Middle East and Asia; five concessions, of which three were located in South Korea; and two licensed stores in the United States.  The first franchise store in India was opened in Mumbai on 27 October 2012 by the Group's partner Reliance and further stores are planned to open before the end of the calendar year.

The Group retains its full year guidance of adding between 70,000 and 90,000 square feet new retail space, with the majority, including one store extension, scheduled to open during the final quarter of the financial year. 

Online offer

Internet revenue continues to grow strongly, with sales increasing year-on-year by 24%.  On a rolling 12-month basis, a more useful measure of performance as it removes the impact of the Wholesale division's seasonal peak impact on Group revenues, internet penetration was 10.2% (2011: 8.2%) and compares to the year end position of 10.0%.

The business now operates through 12 overseas websites (2011: four) and has added six sites since the year end in Switzerland (French and German language); Canada (French and English language); Spain and Italy. Over the last 12 months the Group has sold to more than 100 countries.

Infrastructure

The investment in the Group's infrastructure is an on-going programme.  Progress made in the first half of the financial year includes the successful implementation in June of the second phase of the warehouse management system and the commencement of the merchandising management system ("MMS") and point of sale ("POS") systems implementation. 

The Group will continue to strengthen the business through the recruitment of key management positions, which includes an international director to replace Theo Karpathios who left the business in August 2012.       

Divisional performance

Retail

Retail like-for-like growth in the first half of the financial year was 3.9% (2011: 4.0%).  Despite the summer being impacted by the London Olympics and unseasonal weather conditions the Retail division produced a resilient performance driven by its broad assortment, which saw good sales performances from jackets, gilets and sweatshirts.  The period's performance also benefitted from the sell through of clearance lines and soft sales comparatives driven by the anniversary of last year's warehouse management system implementation. `

Underlying operating profit is flat year-on-year but with revenue growing by 26.4% this performance has led to a 200 bps dilution in the division's operating margin. 

Underlying operating margin has been adversely impacted by the gross margin dilution arising from the clearance activity, noted above, offset in part by improvement in input costs.  Warehousing costs have increased by more than the growth in sales and reflect the first year of operation from the new warehouse site at Gloucester Business Park, which became fully operational in March 2012, and the costs of maintaining the Barnett Way site, which closed with the expiry of the lease during November 2012.  The warehousing infrastructure that the Group now operates provides a greater level of functionality than 12 months ago, but there is still work to be undertaken as the Group looks to optimise the warehouse systems and efficiencies which represent an opportunity for future cost leverage.

After a fair value adjustment in respect of forward foreign exchange contracts, the Retail division generated a profit before tax, royalties and Group overheads of £7.8m.

Wholesale

Revenue for the period was £65.8m (2011: £63.0m), an increase of 4.4% and representing 41.6% of Group revenue (2011: 46.3%). Good growth has been delivered across all international territories, and in particular Germany, the Middle East and South-East Asia, while the UK has continued to decline.

Note: 3.   Revenue from Euro denominated currencies has been negatively impacted by £2.2m of currency translation, representing the year-on-year movement of the average Euro exchange rate in the first half of the year.

The Wholesale division delivered an underlying operating profit of £15.1m (2011: £12.6m) an operating profit margin of 22.9% (2011: 20.0%).  The underlying operating margin improvement reflects gross margin accretion during the period from the impact of falling cotton prices and better cost price negotiation from the sourcing team.  In addition, other income includes contributions from third party partners, increased recoveries from trademark infringements and franchise royalties, including a royalty from a new range of perfumes. 

After a fair value adjustment in respect of forward foreign exchange contracts, the Wholesale division generated a profit before tax, royalties and Group overheads of £15.7m.

Group central costs

Underlying Group overheads were £7.6m (2011: £6.7m), a 13.4% increase on the same period last year.    Included in Group central costs is the non-cash amortisation charge of the intangible assets recognised as part of the acquisition of SuperGroup Europe BVBA in 2011 at £0.7m (2011: £0.7m).

The loss recognised on the fair value of deferred consideration in respect of the SuperGroup Europe BVBA acquisition in 2011 adds an additional £2.1m of costs (2011: £6.1m benefit) and after finance income of £0.1m (2011: nil) results in Group central costs of £9.6m (2011: £0.6m).

Finance costs and income

The Group has cash balances at the half year, net of overdrafts, of £16.9m (2011: £8.2m) compared with £30.9m at the year-end. Finance income net of finance costs amounted to £0.1m (2011: Nil).

Taxation

The Group's effective tax rate on underlying activities for the 26 weeks ended 28 October 2012 was 29.9% (the 26 weeks ended 30 October 2011 was 27.7%).  This is higher than the hybrid statutory rate of 23.9%, primarily due to depreciation on non-qualifying assets and the impact of overseas profits taxed at a higher rate.

The UK corporation tax rate reduction from 24% to 23% with effect from 1 April 2013 is substantively enacted at the balance sheet date so the deferred tax asset balances as at 28 October 2012 have been re-measured resulting in an exceptional deferred tax charge of £1.4m.

Discussion with HMRC in respect of the tax deductible goodwill arising from the March 2010 corporate reorganisation has made significant progress.  Written confirmation has been received from HMRC that they will not challenge the commercial nature of the reorganization transactions.  The Group considers, therefore, that the related deferred tax asset in respect of the goodwill continues to be recoverable. 

Earnings per share

In the first six months of this financial year basic earnings per share is 9.6 pence (2011: 18.4 pence), calculated using the basic weighted average number of ordinary shares outstanding for the period of 80,234,588 (2011: 80,234,588). Underlying basic earnings per share is 12.7 pence (2011: 11.7 pence).

Diluted earnings per share is 9.5 pence (2011: 18.3 pence) based on a diluted weighted average of 80,993,290 shares (2011: 80,621,965).

Capital expenditure

Capital expenditure spent on tangible assets in the period was £8.9m, attributable to the investment in systems development and the opening of three new stores.  The net book value of property, plant and equipment is £64.9m, up 25.8% year-on-year (2011: £51.6m) and up 1.7%, an increase of £1.1m, since the end of the last financial year. 

Intangible assets

Intangible assets have decreased by £1.5m in the period; £0.5m representing the amortisation on the lease premium paid for the Regent Street store; and amortisation of £0.7m in respect of the Group's SuperGroup Europe distribution agreements.

Working capital investment

The year-on-year increase in inventories of 16.2% is in line with the total Group revenue growth.  The inventories movement since the last financial year end reflects the seasonal stock build for autumn/winter.

Cash flow

In the 26 weeks to 28 October 2012 cash generated from operations before working capital movements was £22.3m (26 weeks to 30 October 2011: £18.3m).

In the cash flow generated from operating activities, the amount of cash invested in working capital was £26.9m (2011: £9.4m); capital expenditure totaled £9.2m (2011: £33.1m), of which intangibles assets were £0.3m (2011: £15.2m); taxation paid amounted to £1.9m (2011: £4.5m); the cash contribution received from landlords was £1.9m (2011: £4.9m) and other cash outflows of £0.1m.  Net cash at the end of the period was £16.9m (2011: £8.2m).

Dividends

The board of directors remain of the view that the business is best served by retaining current cash reserves to support growth.  The board will keep the policy under review by considering the Group's profitability, underlying growth, availability of cash and distributable reserves, as well as the investment opportunities open to the business.

Current trading & outlook

In the six weeks since the end of the period the Group has performed broadly in line with internal expectations and generated positive like-for-like retail sales.

Although the consumer climate remains challenging and the Group is trading against a strong December sales performance last year, which saw like-for-like sales at 9.3%, the Superdry stores are well positioned ahead of this year's peak trading period.

Going concern

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

Principal risks and uncertainties

The principal risks and uncertainties were outlined in the Director's Report within the Annual Report and there are no changes since that time. These are as described in note 17 to the financial information.

Board approval

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

Responsibility statement of the directors in respect of the condensed consolidated interim financial information

The directors confirm that to the best of their knowledge:

·      the condensed financial information has been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU; and

·      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 that have occurred during the first 26 weeks of the financial year and their impact on the condensed financial information, and a description of the principal risks and uncertainties for the remaining 26 weeks of the financial year;

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.

The directors of SuperGroup Plc are listed on page 30 and 31 of the annual report and financial statements for the 52 weeks to 29 April 2012. Theo Karpathos resigned from the board on 14 August 2012. On the 23 November 2012 the board announced that Minnow Powell and Euan Sutherland have been appointed non-executive directors with effect from 1 December 2012. Steven Glew and Indira Thambiah, both current non-executive directors, have decided to step down at the end of their three-year term in February 2013.  There have been no further changes to the board of directors.

By order of the board

Cautionary statement

This report contains certain forward-looking statements with respect to the financial condition, results of the operations, and businesses of SuperGroup Plc. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are 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, SuperGroup Plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein. 

Condensed Group Statement of Comprehensive Income (unaudited)

¹ Underlying results have been adjusted to reflect the impact of the gain/ loss recognised on fair valuing deferred consideration, financial derivatives and exceptional items. Further details of the adjustments are included in note 6. All references to underlying in this statement are after making these adjustments. Retail and Wholesale are presented before Group overheads and royalties unless stated otherwise.

The results for the financial period are derived from continuing operations.

Condensed Group Balance Sheet

Condensed Group Cash Flow Statement (unaudited)

Condensed Group Statement of Changes in Equity for October 2012 (unaudited)

Condensed Group Statement of Changes in Equity for October 2011 (unaudited)

Condensed Group Statement of Changes in Equity for 29 April 2012 (audited)

Notes to the Condensed Interim Financial Information (unaudited)

1.   Basis of preparation

SuperGroup Plc is a company domiciled in the United Kingdom. The condensed interim financial information ("interim financial information") of SuperGroup Plc for the 26 weeks ended 28 October 2012 ("October 2012") comprise the Company and its subsidiaries (together referred to as "the Group"). The prior comparative period is for the 26 weeks ended 30 October 2011 ("October 2011").

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 52 weeks ended 29 April 2012 ("April 2012") are available upon request from the Company's registered office at SuperGroup Plc, Unit 60, The Runnings, Cheltenham, Gloucestershire, GL51 9NW or www.supergroup.co.uk.

This interim financial information has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU 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 52 weeks ended 29 April 2012, which have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. This interim financial information was approved by the board of directors on 11 December 2012.

The comparative figures for April 2012 are extracted from the Group's statutory accounts for that financial year. Those accounts have been reported on by the Group's auditors and delivered to the registrar of companies. The report of the auditors (i) was unqualified; (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. These sections address whether proper accounting records have been kept, whether the Group's accounts are in agreement with these records and whether the auditors have obtained all the information and explanations necessary for the purposes of the audit.

The financial information in this document is unaudited, but has been reviewed by the auditors in accordance with the Auditing Practices Board guidance on Review of Interim Financial Information.

2.   Significant accounting policies

The interim financial information has been prepared using the same accounting policies as used in the preparation of the Group's financial statements for April 2012 and as discussed therein. Adoption of new standards, new interpretations, and amendments to published standards and interpretations have no material impact on the financial position and performance of the Group.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

3.   Critical accounting estimates and judgements in applying accounting policies

The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing this interim financial information, 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 52 weeks ended 29 April 2012, as set out on page 74 of those financial statements, with the exception of taxation as described above.

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 than the first six months. This will be compounded by the impact of the store opening programme, which has historically been weighted to the second half of the year, and the fact that currently the Retail business does not have the traditional post season sales. Wholesale seasonality is more evenly spread between the two half years.

In the financial year ended 29 April 2012, 43% of total revenues accumulated in the first half of the year, with 57% accumulating in the second half.

5.   Segmental information

The Group's segments under IFRS 8 have been determined based on the reports reviewed by the Group's Chief Operating Decision Maker (executive board members "the board"). The board assesses the performance of the segments based on profit before tax, before inter-segment royalties. The board considers the business to comprise of two key routes to market, being Retail and Wholesale, supported by a number of shared central support functions which are not easily attributed to either sales channel.

The board receives information, reviews the performance of the business, allocates resources and approves budgets for three segments, and therefore information is disclosed in respect of the following three segments:

·      Retail - principal activities comprise the operation of UK and Republic of Ireland stores, concessions and internet sites. Revenue is derived from the sale to individual consumers of own brand and third party clothing, footwear and accessories;

·      Wholesale - principal activities comprise the design and ownership of brands, wholesale distribution of own brand products (clothing, footwear and accessories) worldwide and the operation of European stores; and

·      Central costs - principal activity comprise the management of shared central support functions. The segment also includes the goodwill and intangibles arising on consolidation.

Segment results and assets include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Sales between segments are carried out at arms' length. The revenue from external parties reported to the board is measured in a manner consistent with that of the IFRS financial statements.

Royalties charged between segments have been reflected in the performance of each business segment. Inter-segment transfers or transactions entered into under a cost plus pricing structure are not reflected in the performance of each business segment.

Segment information for the Group's main reportable businesses for October 2012 is set out below:

The following additional information is considered useful to the reader.

Segment information for the main reportable business segments of the Group for October 2011 is set out below:

The following additional information is considered useful to the reader.