Interim Results

26th Sep 2008 07:00



26 September 2008

JJB Sports plc

Interim report and condensed financial statements for the 26 weeks to 27 July 2008

JJB Sports plc ("JJB") announces its interim results for the 26 weeks to 27 July 2008.

Summary:	26 weeks to 27 July 2008	26 weeks to 29 July 2007	Change
Revenue Gross margin Operating profit Adjusted operating (loss) profit* (Loss) profit before taxation Adjusted (loss) profit before taxation* Basic earnings per share Interim dividend	£344.7m 51.7% £1.0m £(8.4)m £(0.4)m £(9.7)m (0.11)p 0.0p	£365.3m 50.8% £11.6m £8.7m £11.2m £8.3m 3.31p 3.0p	-5.6% +90 BP -91.4% -196.6% -103.6% -216.9% -3.42p -3.0p

* Adjusted operating (loss) profit and adjusted (loss) profit before taxation are shown before crediting various exceptional operating items totalling £9.3 million (2007: £2.9 million) as shown in the consolidated income statement.

Revenue impacted by net reduction in the store portfolio

Net retail store locations have decreased by 17 to 403 since the comparative period

Acquisition of two new subsidiaries - Original Shoe Company and Qube

Improvement of 90 basis points in the gross margin 

Introduction of additional 'own-brands' is improving the gross margin

Roll out of refits continuing in existing stores

Two combined fitness clubs/superstores opened in the first half of the current year with a further six openings planned for second half of the year.

Over 217,700 fitness club members at 27 July 2008 (205,800 at 27 January 2008)

Losses at Original Shoe Company and Qube of £5.9m and £0.7m, respectively, contributed to the Group loss before tax

Trading at Original Shoe Company and Qube expected to improve in the second half

Chairman's statement

Trading results and strategy

 

My non-executive board colleague David Jones formerly Chairman and CEO of Next Plc has described the current climate as "the worst retail recession I have ever known". I can only say that David's statement is borne out by our trading results as reported today.

Our trading results for the first half of the current accounting period were significantly below those achieved in the same period last year. With the ongoing implementation of the 'new era' fit outs combined with the Training Academy and the introduction of more own brand products, we remain confident about our strategy going forward but are aware of a very challenging second half to the year.

The acquisitions of Qube and Original Shoe Company, in the first quarter offer us opportunities to access new customers, whilst maintaining our strategy of being 'Serious about Sport'. Since the half year end we have appointed a new managing director to exploit growth opportunities within this element of the retail operations.

Our fitness division continues to grow and I am happy to report both increased profitability and membership which has increased by 19.3 per cent in the last 12 months. In September 2008 we rolled out our first, next generation of dry fitness club/ superstores, in Cardiff. These clubs are branded 'Mifit', they do not have swimming pools and are situated within JJB retail stores across large, private mezzanine floors. These clubs do not lock customers into contracts and the monthly subscription of £9.95 is very competitive. Overheads are kept to a minimum due to the strong synergies with the retail store below. We will continue to roll out both club concepts going forward.

Looking ahead we remain very cautious about the outlook for retail given the background of a weakening consumer economy. We have strong operational management in place in all parts of the business who are working hard to ensure that the needs of all our customers continue to be met.

The Board has taken the decision not to pay an interim dividend. The Board believes that payment of a dividend does not represent an appropriate balance between providing a return to shareholders and preserving the financial flexibility necessary to support the plans and ongoing development of the business over both the short and longer term.

R Lane-Smith

Non-executive Chairman

26 September 2008

 

 

Chief Executive's review

Trading Results

The segment results for the 26 weeks to 27 July 2008 and the comparative figures for the 26 weeks to 29 July 2007 are shown below.

	Revenue		Gross Profit		Segment result
	2008	2007	2008	2007	2008	2007
	£'000	£'000	£'000	£'000	£'000	£'000
Retail operations	309,128	332,241	144,035	153,668	247	14,692
Fitness clubs	35,594	33,106	34,281	31,788	7,789	9,413
Consolidated	344,722	365,347	178,316	185,456	8,036	24,105
Central costs					(16,411)	(15,445)
Operating (loss) profit before exceptional items					(8,375)	8,660
Exceptional operating items					9,339	2,933
Operating profit after exceptional items					964	11,593

Retail operations

Segment revenue for the retail operations is down 7.0 per cent on the comparative period partly due to the assignment and closure of 96 stores during the half year, coupled with a like-for-like decrease, on stores which have been in operation for over 52 weeks, of 4.2 per cent. 

The segment gross margin percentage for the retail operations for the 26 weeks to 27 July 2008 was 46.6 per cent, up 30 bps on the comparative period. The improvements reflect higher margins achieved on 'own brand' products. The proportion of revenue derived from 'own brand' products has continued to increase throughout this half year compared to the comparative period.

Segment operating costs before exceptional items for the retail operation have increased by 3.5 per cent to £143.8 million.

As a result of the above, segment results from the retail operations, which is the segment operating profit before central costs and exceptional operating items, was £0.2 million, compared to £14.7 million last year.

Performance at Original Shoe Company and Qube was lower than expected, owing in part, to a poor economic climate. However, we are pleased with the direction in which the businesses are tracking.

Fitness clubs

Segment revenue from fitness clubs increased by 7.5 per cent to £35.6 million as we continue our expansion of this division; this included a like-for-like increase of 6.5 per cent. We operated from 50 clubs at 27 July 2008 and from 43 clubs at 29 July 2007. 

The segment gross margin percentage for the fitness clubs the 26 weeks to 27 July 2008 was 96.3 per cent compared to 96.0 per cent in the comparative period.

The segment result before central costs and exceptional operating items is £7.8 million which is £1.6 million or 17.3 per cent down on the comparative period. This decrease is due to the timing of large pre-opening costs from four clubs opened just after this half year end. 

Exceptional operating items

Exceptional operating items for the 26 weeks totalled £9.3 million and include a net £7.4 million profit on the sale of property, plant and equipment. An £8.3 million profit on the sale of the UK Soccer domes is included within this figure, which were sold in February 2008 for a cash consideration of £17.4 million, as disclosed in our financial statements for the 52 weeks to 27 January 2008.

There is also an exceptional profit of £2.0 million on disposal of available-for-sale investment. This relates to a short-term strategic investment in Umbro plc made in October 2007 for £26.5 million. In March 2008, Umbro announced that the Scheme of Arrangement had become effective and the Group received £28.5 million in proceeds for the sale of its shareholding in Umbro as discussed in our financial statements for the 52 weeks to 27 January 2008.

Net (loss) profit

Net loss before taxation (after crediting net exceptional items) amounted to £0.4 million and compares to a net profit before tax of £11.2 million in 2007.

Taxation 

The effective rate of taxation on Group profit before taxation for the full year is expected to be 28.6 per cent, compared to 30.3 per cent which was similarly expected in the comparative period.

Balance sheet

Capital expenditure on property, plant and equipment during the 26 weeks to 27 July 2008 was £27.7 million compared to £9.9 million in the same period last year. The Group's principal capital expenditure arises from the combined fitness clubs/superstores and although only two of these operating units have been opened in this half year, four more units opened shortly after the half year and the set up costs of which have been largely expended in this current half year end. In the previous half year there were four combined units opened shortly after January 2008. There has also been continued capital expenditure incurred on rolling out 'new era' and 'retro' refits through this half year.

The value of inventories decreased to £144.6 million at 27 July 2008, compared to £158.6 million at 29 July 2007, as a result of an extensive clearance programme of non-current stock in January 2008, together with a reduction in store numbers. Adjustments have also been made to our buying plan in view of the reduced number of stores.

Net debt at 27 July 2008 amounted to £57.6 million compared to £24.2 million at 27 July 2007 and to £42.2 million at 27 January 2008. There have been significant movements consisting of the disposal of Umbro shares and UK soccer domes countered by the acquisition of assets of the subsidiaries acquired, capital expenditure and costs associated with store closures. 

Risks and Uncertainties 

The Board has a policy of continuous identification and review of key business risks and oversees the development of processes to ensure that these risks are managed appropriately. Executive Directors and senior management, including the Associate Directors, are delegated with the task of implementing these processes; the Executive Directors are charged with reporting to the Board on their outcomes. The key risks identified by the Board include:

Economic conditions

In common with most retailers, JJB's results can be affected by a number of economic conditions including interest rates, the availability of consumer credit, the level of inflation and movements in consumers' disposable income. All these factors affect the level of consumer confidence and can impact upon revenue achieved by both JJB's retail store chain and its health clubs. This is particularly relevant at the current time where present economic conditions are having a particularly adverse effect upon the income that consumers' have available for non-essential purchases. In order to mitigate these economic risks JJB needs to remain competitive through the offer of a wide range of products at reasonable prices through a strong property portfolio. 

Seasonal factors

JJB's revenue is subject to three seasonal peaks - Easter, back-to-school in August and Christmas. If the economic conditions during any one of these periods are severe, then these conditions can have a disproportionate impact upon revenue. 

Competition

JJB's retail store chain operates in a particularly competitive part of the retail sector and therefore its degree of competitiveness is to some extent affected by the retail pricing policies of its competitors which in turn impacts upon JJB's margins, profitability and market share. In order to mitigate this risk JJB monitors prices on an ongoing basis and seeks to design and source new products. The aim is to achieve a broad appeal by offering quality ranges of products at varying price points. JJB is also improving its e-commerce capability to take advantage of its consumer markets.

Key personnel

The success of JJB is partly dependent upon the continued service of its key management personnel and upon its ability to attract, motivate and retain suitably qualified employees. In order to help achieve this continued service, JJB has introduced competitive reward packages for all head office and retail staff and opened a dedicated Training academy to develop training for all levels of retail-staff and thereby increase moral and improve staff retention. It is hoped the academy will also achieve increases in revenue through improved customer service and product knowledge from its employees. 

Suppliers

JJB is dependant upon its major suppliers continuing to design and produce quality product ranges for sale within its retail stores, at wholesale prices which will enable JJB to maintain its margins and to compete effectively within the retail sector. It is also dependant upon maintaining relationships with a number of source manufacturers who can provide products soured directly by JJB under its own brand.

IT systems and business continuity

JJB is dependent upon the continued availability and integrity of its computer systems. Its retail and health club operations must record and process a substantial volume of data and conduct inventory management accurately and quickly. This can only be achieved on systems which benefit from continuous enhancements and ongoing investment which will minimise the risk of obsolescence and maintain responsiveness to business needs. JJB is also dependent upon the uninterrupted operation of its computer systems and therefore reliance needs to be placed upon a disaster recovery plan to replicate the data stored on its business critical computer systems. JJB has extensive controls in place to maintain the integrity and efficiency of our IT infrastructure.

Revenue dependence on key sporting events

JJB derives some benefit in alternate years from the sale of replica kits if the England national football team reaches the finals of the two major competitions (the FIFA World Cup and the Euro Championships). This benefit is lost if the England team failed to qualify for the finals of those competitions. In order to mitigate this situation, JJB is implementing measures to reduce  the level of dependency on tournament years and improving the performance of all product categories in our retail stores, with the introduction of products from new own brands.

Logistics and distribution infrastructure

An important part of JJB's strategy is to maintain a secure and efficient distribution centre in order to ensure prompt and frequent deliveries of inventory to its retail stores. Any disruption to this supply chain could adversely affect the Group's revenue levels.

Treasury and financial risks

JJB is subject to treasury and financial risks arising from the security of its existing funds, the ongoing availability of new funds and fluctuations in interest and exchange rates. The Group has adopted a policy of only dealing with creditworthy counterparties. The Board regularly reviews any requirements to protect the Group against fluctuations in interest rates and in order to protect cash flows against the exchange rate risk, JJB enters into forward contracts to hedge exposures arising on forecast of payments in foreign currencies.

The Board reviews its bank funding requirements on an ongoing basis. In addition to its £60 million loan facility with Barclays Bank plc and £15 million loan facility with HBOS plc, the Board has recently negotiated a £20 million three month bridging facility with Kaupthing Bank. This is discussed in more detail in Note 2 - Basis of preparation.

 

Operational review

Retail operations

During the 26 weeks to 27 July 2008 we have increased the proportion of our retail store revenue from own brand products. We entered into an agreement to licence the UK distribution rights of the Champion brand. We are also acquiring rights to other brands and believe these will lead to increased revenue and gross margin whilst reducing our dependency on the major bi-annual football tournaments.

The ongoing implementations of the 'new era' fit outs across selected sites have produced strong increases in like-for-like sales in these stores. We believe that the Company's future trading performance will continue to strengthen as the programme of fit outs accelerates. 

Since the setting up of the Training Academy at Head office in September 2007, all store Managers have gone through an extensive residential management training programme in addition to training given to all staff in store. We have also implemented a monthly sales incentive to all staff in our retail stores, giving all employees the opportunity to earn a significant bonus.

Fitness Clubs

During the 26 weeks to 27 July 2008, we opened a further two combined fitness clubs/superstores and closed the one stand-alone fitness club previously acquired from Fitness First merging the members into the extended Wigan fitness club bringing the number in operation at that date to 50.

The total number of members of these 50 fitness clubs at 27 July 2008 was 217,700 and compares to 205,800 members in the 49 fitness clubs at 27 January 2008 and 182,500 members in the 43 fitness clubs at 29 July 2007. Membership numbers have increased by 19.3 per cent between 29 July 2007 and 27 July 2008 and include a like-for-like increase in operating units open for over 52 weeks of 5.6 per cent.

Our success in achieving the high levels of membership in our clubs results from the strong value-for-money offering of first-class facilities at very competitive subscription rates. The continuing success fully justifies the Board's decision to maintain the opening programme, with four opening in the second half of the year and ten to open in 2009.

In addition to the out of town combined fitness club/ superstore concept we have opened our first, next generation of fitness clubs. In September 2008, in Cardiff, we launched a dry fitness club/ superstore. Here the gyms, which do not have swimming pools, are situated within JJB retail stores across large, private mezzanine floors. These gyms do not lock customers into contracts and the monthly subscription of £9.95 is very competitive. Overheads are kept to a minimum due to the strong synergies with the retail store below. We will continue to roll out both gym concepts going forward.

JJB Stores and store development

During the 26 weeks to 27 July 2008, we opened six and closed 96 JJB branded stores in addition to the acquisition of stores noted in the paragraph below. The openings include three stores situated on the upper floors of newly combined fitness club/superstore units. The store closures relate to a major review of our existing store portfolio. Prior to the year end we had started to implement a plan to close 72 stores. We believe that the 96 stores closed or assigned to third parties would not have made any significant contribution to Group profits in the near future. Many of the store closures compete against other newer and larger stores that we trade in nearby locations. We believe that these closures will leave us with a more profitable store portfolio that will be able to take full advantage of the other elements of our re-energisation.

At 27 July 2008, we operated from 403 retail stores, including combined units, eight Clearance stores, 24 Qube stores and 63 Original shoe stores. The 403 retail stores contained 3.782 million square feet of retail space compared to a total of 409 retail stores in operation at 27 January 2008 containing 4.348 million square feet of retail space. 

Store opening plans during the second half of the current accounting period include four out of town fitness/superstores, two dry fitness/ superstores and eight stand alone JJB branded stores. The sites for all these combined units have been identified and are in various stages of negotiation or construction.

Current trading

Total Group revenue for the full 34 weeks to 21 September 2008 was 8.5 per cent lower than in the same period last year and included a like-for-like decrease in revenue of 4.5 per cent (on operating units which have been trading for over 52 weeks).

The 34 week period has also shown a like-for-like decrease in retail revenue of 5.6% and a like-for-like increase in leisure revenue of 6.4%. 

The gross margin for JJB core retail operations achieved during this 34 week period was 300 basis points higher than that achieved in the same period last year.

Whilst we remain extremely cautious about the current economic climate, we are absolutely convinced that our business model is right. We will continue with our strategy to improve margin through the further development of our own brands, together with the ongoing actions we are taking to re-energise our retail stores. We have both a talented and united senior management team that will stay calm and focused throughout the rest of this financial year.

C Ronnie

Chief Executive 

26 September 2008

 

Independent review report to JJB Sports plc 

For the 26 weeks to 27 July 2008

We have been engaged by the company to review the condensed set of financial statements in the interim financial report for the 26 weeks period ended 27 July 2008 which comprises the condensed consolidated income statement, the condensed consolidated statement of recognised income and expense, the condensed consolidated reconciliation of movements in equity, the condensed consolidated balance sheet, the condensed consolidated cash flow statement and related notes 1 to 15. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdoms' Financial Services Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the 26 weeks ended 27 July 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Emphasis of matter - going concern

Without qualifying our conclusion, we draw attention to the disclosures in note 2 of the condensed financial statements concerning the group's ability to continue as a going concern. These include the following material uncertainties:

ongoing availability of the original facilities given the actual and projected covenant breaches; 

the ability to repay the bridging facility from asset sales or seasonal cash flows; 

achieving the sale of non-core businesses and/or assets within the timescales and at the values projected; and 

the achievability of forecasts and key assumptions within the forecasts. 

These events and conditions, along with other matters as set forth in note 2, indicate the existence of material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern. The interim financial information does not include the adjustments that would result if the Group were unable to continue as a going concern, which would include writing down the carrying value of assets, including goodwill, to their recoverable amount and providing for any further liabilities that might arise as it is not practicable to determine or quantify them.

Deloitte & Touche LLP

Chartered Accountants and Registered Auditor

25 September 2008

Manchester, UK

  Unaudited condensed consolidated income statement 

For the 26 weeks to 27 July 2008

		26 weeks to 27 July 2008 £'000	26 weeks to29 July 2007 £'000	(Audited) 52 weeks to 27 January 2008 £'000
Continuing operations
Revenue (Note 3)		344,722	365,347	811,754
Cost of sales		(166,406)	(179,891)	(405,642)
Gross profit		178,316	185,456	406,112
Other operating income		2,961	1,583	3,314
Distribution expenses		(16,001)	(12,350)	(28,619)
Administration expenses		(23,541)	(16,560)	(35,413)
Selling expenses		(140,771)	(146,536)	(334,099)
Operating profit		964	11,593	11,295
Operating profit is stated after crediting (charging)
Provision for restructuring of retail store chain		-	-	(24,970)
Profit on disposal of available-for-sale investment		1,989	-	-
Net gain on disposal of property, plant and equipment (note 12)		7,350	2,933	1,996
		9,339	2,933	(22,974) (22,974)
Investment income		5,559	5,205	11,551
Finance costs		(6,392)	(5,512)	(12,442)
Share of results of associated undertaking		(499)	(71)	396
(Loss) profit before taxation		(368)	11,215	10,800
Taxation (Note 4)		105	(3,395)	(1,170)
(Loss) profit for the period from continuing operations		(263)	7,820	9,630
Basic (loss) earnings per ordinary share (Note 6)	Pence	(0.11)	3.31	4.07
Diluted (loss) earnings per ordinary share (Note 6)	Pence	(0.11)	3.30	4.07
Adjusted basic (loss) earnings per ordinary share (Note 6)	Pence	(2.96)	2.44	10.89

  Unaudited condensed consolidated statement of recognised income and expense 

For the 26 weeks to 27 July 2008

	26 weeks to 27 July 2008	26 weeks to29 July 2007	(Audited)   52 weeks to 27 January 2008
	£'000	£'000	£'000
Gain on revaluation of available-for-sale investment taken to equity	-	-	1,555
Taxation effect on item taken directly to equity	-	-	(435)
Exchange differences on translation of foreign operations	(1,194)	(41)	(1,398)
Net expense recognised directly in equity	(1,194)	(41)	(278)
Transfers
Transfer to profit on sale of available-for-sale investments	(1,555)	-	-
Taxation on items transferred from equity	435	-	-
Net transfers from equity	(2,314)	(41)	(278)
(Loss) profit after taxation for the period	(263)	7,820	9,630
Total recognised (expense) and income for the period	(2,577)	7,779	9,352

Unaudited condensed consolidated reconciliation of movements in equity 

For the 26 weeks to 27 July 2008

	26 weeks to 27 July 2008	26 weeks to29 July 2007	(Audited) 52 weeks to 27 January 2008
	£'000	£'000	£'000
Opening total equity	365,055	377,026	377,026
Total recognised income and expense for the period	(2,577)	7,779	9,352
Share issues	-	1,899	1,899
Share based payment reserve	150	150	383
Dividends declared (Note 5)	(16,722)	(16,556)	(23,672)
Dividends waived	46	-	-
Scrip dividends re-invested	-	-	67
Closing total equity	345,952	370,298	365,055

 

 Unaudited condensed consolidated balance sheet

As at 27 July 2008

	As at 27 July 2008 £'000	As at29 July 2007 £'000	(Audited ) As at  27 January 2008 £'000
Non-current assets
Goodwill	189,021	188,463	187,834
Other intangible assets	26,624	26,364	25,417
Property, plant and equipment	209,634	198,690	198,272
Investment in associated undertaking	1,179	1,210	1,677
Loan to associated undertaking	4,000	4,000	4,000
	430,458	418,727	417,200
Current assets
Inventories	144,610	158,597	114,984
Trade and other receivables	59,553	53,506	45,412
Current asset investment	168,117	168,117	196,217
Cash and cash equivalents	17,322	23,649	14,199
Current tax receivable	-	-	1,536
	389,602	403,869	372,348
Total assets	820,060	822,596	789,548
Current liabilities
Trade and other payables	(149,062)	(157,009)	(110,874)
Current tax liabilities	(32)	(10,246)	-
Loan notes	(168,117)	(168,117)	(168,117)
Bank loans	(15,000)	-	-
Provisions (Note 14)	(14,910)	(5,378)	(22,656)
	(347,121)	(340,750)	(301,647)
Net current assets	42,481	63,119	70,701
Non-current liabilities
Bank loans	(59,872)	(47,833)	(56,355)
Deferred tax liabilities	(23,850)	(25,161)	(24,237)
Deferred lease incentives	(40,961)	(38,554)	(39,950)
Provisions	(2,304)	-	(2,304)
	(126,987)	(111,548)	(122,846)
Total liabilities	(474,108)	(452,298)	(424,493)
Net assets	345,952	370,298	365,055
Equity
Share capital (Note 8)	11,944	11,943	11,944
Share premium account	171,248	171,182	171,248
Capital redemption reserve	1,069	1,069	1,069
Investment in own shares	(3,083)	(3,083)	(3,083)
Share based payment reserve	830	447	680
Foreign currency translation reserve	(2,405)	146	(1,211)
Retained earnings	166,349	188,594	184,408
Equity attributable to equity holders of the parent	345,952	370,298	365,055

 

Unaudited condensed consolidated cash flow statement

For the 26 weeks to 27 July 2008

	26 weeks to 27 July 2008 £'000	26 weeks to29 July 2007 £'000	(Audited) 52 weeks to 27 January 2008 £'000
Net cash (outflow) inflow from operating activities  (Note 10)	(9,508)	(4,790)	46,349
Cash flows from investing activities
Interest received	5,559	5,205	11,263
Purchase of subsidiaries (Note 9)	(22,460)	-	(31)
Cash and cash equivalents of subsidiary acquired	250	-	-
Purchase of goodwill	-	-	(339)
Net proceeds on disposal of intangible assets	-	153	153
Purchase of intangible assets	(2,221)	(123)	(182)
Net proceeds on disposal of property, plant and equipment	20,173	3,650	5,146
Purchase of property, plant and equipment	(27,702)	(9,950)	(27,277)
Investment in associated undertaking	-	(1,281)	(1,281)
Dividend received from available-for-sale investment	-	-	288
Net proceeds on disposal of available-for-sale investment	28,534	-	-
Purchase of available-for-sale investment	-	-	(26,545)
Net cash from (used in) investing activities	2,133	(2,346)	(38,805)
Cash flows from financing activities
Interest paid	(6,375)	(5,491)	(12,399)
Dividends paid	-	-	(23,605)
Proceeds from issues of share capital	-	1,899	1,899
Net proceeds from bank loans	18,500	15,000	23,500
Loan to associated undertaking	-	(4,000)	(4,000)
Net cash from (used in) financing activities	12,125	7,408	(14,605)
Net increase (decrease) in cash and cash equivalents	4,750	272	(7,061)
Cash and cash equivalents at beginning of period	14,199	23,566	23,566
Effect of foreign exchange rate changes	(1,627)	(189)	(2,306)
Cash and cash equivalents at end of period	17,322	23,649	14,199

  Notes to the condensed set of financial statements

For the 26 weeks to 27 July 2008

1. General information

The Group's condensed set of financial statements for the 26 weeks to 27 July 2008 were approved by the Board of Directors on 25 September 2008.

The condensed set of financial statements are unaudited and do not constitute full statutory accounts within the meaning of Section 240 of the Companies Act 1985. However, they have been reviewed by the Auditors and their report to the Directors is set out on page 9 of the interim report.

2.  Basis of preparation 

The condensed set of financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS), IAS 34 'Interim Financial Reporting', and in accordance with those policies disclosed in the annual report for the 52 weeks to 27 January 2008, published by the Company on 23 May 2008. Copies of the interim report and condensed set of financial statements and the last annual report and financial statements are available from the Secretary, JJB Sports plc, Challenge Way, Martland Park, Wigan, WN5 0LD and can each be downloaded or viewed via the Company's corporate website, www.jjbcorporate.co.uk.

The financial information in respect of the 52 weeks to 27 January 2008 contained within these condensed set of financial statements has been produced using extracts from the statutory accounts.  A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985.

Going Concern

In determining the appropriate basis of preparation of the interim financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future. 

The Group has funded its working capital using bank loan facilities of £60million and £15million (the "original facilities") and has recently negotiated an additional £20million three month bridging facility. The Board has prepared projected cash flow information for the period ending 12 months from the date of approval of these condensed financial statements ("the Projections"). The Group is also currently claimed to be in breach of certain covenants relating to the £15million facility (the Group refutes this allegation on advice) and the Projections project further breaches of both facilities. In accordance with IAS1, the existing claimed covenant breach has been reflected in the reclassification of the related borrowings as a current liability as at 27 July 2008.

The Directors are in ongoing discussions with the Group's bankers re the original facilities. The Group has received confirmation that it is the banks' current intention that they will continue to be make the original facilities available to the Group. Whilst the banks have stated that at this moment in time they do not intend to act on the breaches, they have not waived their rights to seek remedy over actual and projected breaches of covenants. 

The bridging facility is repayable from asset sales or from seasonal cash flows and the Projections assume that sufficient funds will be available from those sources to make the repayment when it falls due. The Directors are confident the bridging facility will provide them with sufficient time to review and resolve the longer term financing needs of the business and if necessary realise additional cash resources from the sale of specified non-core businesses and assets.

 

Based on the discussions and the written expressed intentions of the banks, the Directors have concluded that it is reasonable to assume that the banks will continue to make the original facilities available to the Group for the foreseeable future.

The directors also recognise the operating loss before exceptional items for the 26 week period to 27 July 2008 and that in the current economic environment, risks exist regarding the achievability of forecast sales and margins and the timing and occurrence of forecast cash flows.

Having reviewed the cash flow projections, and having made reasonable enquiries in making the underlying assumptions, together with assessing the position of current lenders and the possibility of sale of non-core businesses and assets, the Directors have a reasonable expectation that the Group will be able to meet its liabilities as they fall due for the foreseeable future. It is on this basis that the Directors consider it appropriate to prepare the Group's interim financial statements on the going concern basis. However for the reasons described above, the Directors recognise that there are material uncertainties that may cast significant doubt on the Group's ability to continue as a going concern, and therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. These material uncertainties comprise:

ongoing availability of the original facilities given the actual and projected covenant breaches;

the ability to repay the bridging facility from asset sales or seasonal cash flows;

achieving the sale of non-core businesses and/or assets within the timescales and at the values projected; and

the achievability of forecasts and key assumptions within the forecasts.

There is a risk that the above material uncertainties as to the Group's ability to continue as a going concern may not be resolved satisfactorily. The interim financial information does not include the adjustments that would result if the Group were unable to continue as a going concern, which would include writing down the carrying value of assets, including goodwill, to their recoverable amount and providing for any further liabilities that might arise, as it is not practicable to determine or quantify them.

3. Business segments

The Group adopted IFRS 8 'Operating Segments', early in the consolidated financial statements for the 52 weeks to 27 January 2008. The adoption of IFRS 8 resulted in a change to those business segments which have been disclosed in prior year information. 

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. These segments comprise (a) all the Group's retail operations including retail stores which are attached to fitness clubs; and (b) the fitness club operation, including the indoor soccer centres.

 

The Group was also previously involved in indoor soccer centres which were reported as part of the fitness club segment. That part of the operation was sold on 26 February 2008 (see note 13). For IFRS 8 purposes this operation is included in the fitness club segment and not treated as discontinued as it doesn't constitute a separate major line of operations. 

Segment result represents the (loss) profit earned by each segment without allocation of the share of (loss) profit of associated undertakings, central administration costs including Directors' salaries, exceptional operating items, investment income, finance costs and income tax expense. 

Geographical segments 

The Group's reporting format is by business segment. Although the Group operates in two geographical segments, the UK and Eire, neither the revenue from sales to external customers nor the value of net assets within Eire represent more than 10 per cent of Group totals. 

Information regarding the Group's operating segments is reported below. Amounts reported for the 26 weeks to 29 July 2007 have been restated to conform to the requirements of IFRS 8.

Segment results for the 26 weeks to 27 July 2008

	Retail operations £'000	Fitness  clubs £'000	Consolidated  £'000
Revenue	309,128	35,594	344,722
Gross profit	144,035	34,281	178,316
Location net operating expenses before exceptional operating items	(143,788)	(26,492)	(170,280)
Segment result	247	7,789	8,036
Central administration costs			(16,411)
Operating loss before exceptional operating items			(8,375)
Exceptional operating items			9,339
Operating profit			964
Investment income			5,559
Finance costs			(6,392)
Share of results of associated undertaking			(499)
Loss before taxation			(368)
Taxation			105
Loss after taxation for the period			(263)

Segment results for the 26 weeks to 29 July 2007

	Retail operations £'000	Fitness clubs £'000	Consolidated  £'000
Revenue	332,241	33,106	365,347
Gross profit	153,668	31,788	185,456
Location net operating expenses before exceptional operating items	(138,976)	(22,375)	(161,351)
Segment result	14,692	9,413	24,105
Central administration costs			(15,445)
Operating profit before exceptional operating items			8,660
Exceptional operating items			2,933
Operating profit			11,593
Investment income			5,205
Finance costs			(5,512)
Share of results of associated undertaking			(71)
Profit before taxation			11,215
Taxation			(3,395)
Profit after taxation for the period			7,820

	(Audited) Segment results for the 52 weeks to 27 January 2008
	Retail operations £'000	Fitness clubs £'000	Consolidated  £'000
Revenue	745,474	66,280	811,754
Gross profit	342,403	63,709	406,112
Location net operating expenses before exceptional operating items	(292,968)	(46,597)	(339,565)
Segment result	49,435	17,112	66,547
Central administration costs			(32,278)
Operating profit before exceptional operating items			34,269
Exceptional operating items			(22,974)
Operating profit			11,295
Investment income			11,551
Finance costs			(12,442)
Share of results of associated undertaking			396
Profit before taxation			10,800
Taxation			(1,170)
Profit after taxation for the period			9,630

The accounting policies of the reportable segments are the same as the Group's accounting policies which are described in the Group's latest annual financial statements. 

Segment assets	As at 27 July 2008 £'000	As at 29 July 2007 £'000	(Audited) As at  27 January 2008 £'000
Retail operations	597,220	620,839	558,010
Fitness clubs	115, 824	105,125	108,583
Head office / distribution centre	107,016	96,632	122,955
Total segment assets	820,060	822,596	789,548

For the purposes of monitoring segment performance and allocating resources between segments, the Group's Chief Executive monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments with the exception of investments in associates, other financial assets (except for trade and other receivables) and tax assets. Assets used jointly by reportable segments are allocated on the basis of the revenues earned by individual reportable segments. 

4. Taxation

The taxation (credit) charge shown in the unaudited condensed consolidated income statement for the 26 weeks to 27 July 2008 has been based on the anticipated effective taxation rate for the 52 weeks to 25 January 2009 of 29 per cent (2007: 30 per cent). The standard rate of corporation tax became 28 per cent on 1 April 2008. 

	26 weeks to 27 July 2008 £'000	26 weeks to 29 July 2007 £'000	52 weeks to 27 January 2008 £'000
Current taxation
UK corporation tax	(228)	1,454	459
Foreign tax	-	107	240
Adjustment in respect of prior periods	(86)	92	109
	(314)	1,653	808
Deferred taxation
Current period	209	1,717	362
Adjustment in respect of prior periods	-	25	-
	209	1,742	362
Taxation (credit) charge	(105)	3,395	1,170

5. Dividends

	26 weeks to 27 July 2008 £'000	26 weeks to 29 July 2007 £'000	52 weeks to 27 January 2008 £'000
Amounts recognised as distributions to equity holders in the period:
Final dividend for the 52 weeks to 27 January 2008 of 7.0 pence net per ordinary share payable on 8 August 2008 (2007: 7.0 pence)	16,722	16,556	16,556
Interim dividend for the 52 weeks to 27 January 2008 of 3.0 pence net per ordinary share paid on 9 January 2008 (2007: 3.0 pence)			7,116
			23,672
Proposed interim dividend for the 52 weeks to 25 January 2009 of 0 pence net per ordinary share (2007: 3.0 pence)	-	7,166

The board does not propose an interim dividend for the 52 weeks to 25 January 2009.

6. (Loss) earnings per share

The calculation of the basic and diluted (loss) earnings per ordinary share are based on the following data:

	26 weeks to 27 July 2008		26 weeks to 29 July 2007		52 weeks to 27 January 2008
	£000	(Loss) Earnings per share (pence)	£000	(Loss) earnings per share (pence)	£000	(Loss) earnings per share (pence)
(Loss) earnings for the purposes of basic (loss) earnings per ordinary share and diluted (loss) earnings per ordinary share being net (loss) profit attributable to equity holders of the parent	(263)	(0.11)p	7,820	3.31p	9,630	4.07p
Exceptional operating items (net)	(9,339)	(3.96)p	(2,933)	(1.24)p	22,974	9.70p
Taxation on exceptional operating items (net)	2,615	1.11p	880	0.37p	(6,806)	(2.88)p
(Loss) earnings for the purposes of adjusted basic (Loss) earnings per ordinary share being net (loss) profit attributable to equity holders of the parent before exceptional operating items, net of taxation	(6,987)	(2.96)p	5,767	2.44p	25,798	10.89p

Number of shares	Number of ordinary shares (thousands)
Weighted average number of ordinary shares for the purposes of basic earnings per ordinary share and adjusted basic earnings per ordinary share	236,141		236,413		236,802
Effect of dilutive potential ordinary shares:
Share options	-		243		53
Weighted average number of ordinary shares for the purposes of diluted earnings per ordinary share	236,141		236,656		236,855
Basic (loss) earnings per ordinary share Pence	(0.11)p		3.31p		4.07p
Diluted (loss) earnings per ordinary share Pence	(0.11)p		3.30p		4.07p
Adjusted basic (loss) earnings per ordinary share   Pence	(2.96)p		2.44p		10.89p

7. Bank loans 

The Group's working capital is funded through a five year £60 million revolving bank credit facility which commenced in June 2005, together with a six year term loan of £18 million, which commenced in June 2006, and was arranged to finance the acquisition of the Glasgow Rangers FC licensing agreement. The revolving bank credit facility carries an interest rate at 45 bps above LIBOR. The term loan carries an interest rate of 40 bps above LIBOR. Both facilities expose the Group to fair value interest rate risk. 

The Group are currently in ongoing discussions with its bankers, Barclays Bank plc and HBOS plc concerning continuing working capital support (further details are referred to in Note 2). The Group has recently negotiated a £20 million three month bridging facility with Kaupthing Bank.

8. Share capital

 

	At 27 July 2008 £'000	At 29 July 2007 £'000	At 27 January 2008 £'000
Authorised:
331,600,000 ordinary shares of 5p each	16,580	16,580	16,580
	£'000	Number Thousands
Allotted, called up and fully paid:
At 27 January 2008 and 27 July 2008	11,944	238,888

The Company has one class of ordinary share which carries no right to fixed income.

 

 

9.   Acquisition of subsidiary

a) OSC Limited

On 28 January 2008 the Group acquired 100 per cent of the issued share capital of The Original Shoe Company ("OSC") for a cash consideration of £5 million and other directly attributable costs amounting to £10 million. The business activity of OSC is the retail of branded lifestyle clothing and footwear. This transaction has been accounted for by the purchase method of accounting using provisional fair values in accordance with IFRS3 'Business Combinations'. 

	Provisional  book value	Provisional  fairvalue adjustments						Provisional  fair value
	£000	£000						£000
Net assets acquired:
Property, plant and equipment	3,234							3,234
Inventories	8,823	(250)						8,573
Trade and other receivables	1,493							1,493
Other taxes	1,215							1,215
	14,765	(250)						14,515
Goodwill						548
Total consideration						15,063
Satisfied by:
Cash consideration						15,063
Net cash outflow arising on acquisition:
Cash consideration						(15,063)

The fair values currently established for the above acquisition are considered to be provisional by the Directors as they are finalising their determination. Fair values will be reviewed based upon additional information up to one year from the date of acquisition. 

The fair value adjustments relate to certain stock provision adjustments. 

OSC contributed £ (5.9) million to the Group's loss before tax for the period between the date of acquisition, the first date of the financial year, and the balance sheet date.

b) Qube Limited

On 12 April 2008 the Group acquired privately held Qube Footwear Limited ("Qube") for a cash consideration of £1 and other directly attributable costs amounting to £7.1 million. The business activity of Qube is the retail of fashion footwear. This transaction has been accounted for by the purchase method of accounting using provisional fair values in accordance with IFRS3 'Business Combinations'. 

	Provisional  book value		Provisional   fair Value Adjustments			Provisional  fair value
	£000		£000			£000
Net assets acquired:
Property, plant and equipment	3,893		(851)			3,042
Inventories	6,052		(488)			5,564
Trade and other receivables	2,870		-			2,870
Cash and cash equivalents	250		-			250
Trade and other payables	(4,403)		(253)			(4,656)
Deferred lease incentives	(312)		-			(312)
	8,350		(1,592)			6,758
Goodwill							384
Total consideration							7,142
Satisfied by:
Cash consideration							7,142
Net cash (outflow)/inflow arising on acquisition:
Cash considerations							(7,142)
Cash and cash equivalents acquired							250
							(6,892)

The fair values currently established for the above acquisition are considered to be provisional by the Directors as they are finalising their determination. Fair value will be reviewed based upon additional information up to one year from the date of acquisition. 

The fair value adjustments relate to certain stock provisions, trade payable accrual recognition adjustments and fixed assets write downs which arose in accordance with JJB Sports plc accounting policies. 

Qube contributed £(0.7) million to the Group's loss before tax for the period between the date of acquisition and the balance sheet date. 

If the acquisition of Qube had been completed on the first day of the financial year, the Group revenues for the period would have been £9.6 million higher and the Group loss attributable to equity holders of the parent would have been £(2.3) million higher.

c) Golf TV Limited

A payment to A Malcher was made of £255,000 in respect of deferred consideration following a prior year acquisition of the Golf TV group of companies by JJB.

10. Reconciliation of operating profit to net cash (outflow) inflow from operating activities

	26 weeks to27 July 2008 £'000	26 weeks to29 July 2007 £'000	52 weeks to 27 January 2008 £'000
Operating  profit from continuing operations	964	11,593	11,295
Impairment of goodwill	-	-	178
Amortisation of other intangible assets	1,014	989	1,994
Depreciation of property, plant and equipment	10,225	9,669	19,609
Impairment of property, plant and equipment	-	-	6,134
Net loss on disposal of intangible assets	-	14	14
Net gain on disposal of property, plant and equipment	(7,350)	(2,933)	(1,996)
Profit on disposal of available-for-sale investment	(1,989)	-	-
Release of deferred consideration	-	-	818
(Decrease) increase in short-term provisions	(7,746)	(7,899)	11,683
Share based payment reserve	150	150	383
Operating cash flow before movements in working capital	(4,732)	11,583	50,112
(Increase) decrease in inventories	(15,489)	(30,515)	13,098
Increase in trade and other receivables	(8,563)	(15,301)	(7,207)
Increase (decrease) in payables	17,555	34,889	(1,312)
Cash (used in) generated by operations	(11,229)	656	54,691
Taxation refunded (paid)	1,721	(5,446)	(8,342)
Net cash (outflow) inflow from operating activities	(9,508)	(4,790)	46,349

11. Analysis of net debt as at 27 July 2008

		At 27 January 2008 £'000	Cash flow £'000	Other non-cash items £'000	At 27 July 2008 £'000
Current asset investment		68,117	-	-	168,117
Cash and cash equivalents		14,199	4,750	(1,627)	17,322
		182,316	4,750	(1,627)	185,439
Current liability:
Loan notes		(168,117)	-	-	(168,117)
Bank loans		-	-	(15,000)	(15,000)
Non-current liability:
Bank loans		(56,355)	(18,500)	14,083	(59,872)
		(42,156)	(13,750)	(1,644)	(57,550)

Other non-cash items relate to the effects of foreign exchange rate changes, amortisation of interest loan costs and the reclassification of bank loans from non-current to current liabilities of £15 million.

 

12. Net gain on disposal of property, plant and equipment

The Group has made a net gain on disposal of property, plant and equipment of £7.4 million (2007: £2.9 million), included within this is a gain of £8.3 million as on 26 February 2008, the Company announced the sale of its five UK indoor soccer centres for a cash consideration of £17.4 million realising a profit on disposal of £8.3 million. The Company will retain ownership of the leasehold sites and continue trading from the attached retail stores and fitness clubs, with the indoor soccer centres and wet sales facilities being leased from the Company.

13. Available-for-sale investment

In the 52 weeks to 27 January 2008 the carrying value of the Company's investment of 10.12 percent of the issued share capital of Umbro plc held in current assets was £28.1 million. On 17 March 2008 the Company received proceeds from the sale of its shareholding for £28.5 million, realising a gain of £2.0 million in the condensed consolidated income statement, of which £1.6 million has been transferred from equity.

14. Provisions

Included within provisions on the balance sheet is a restructuring provision which relates to the closure of retail stores in April 2008. Management are of the opinion that the provision left on the balance sheet at 27 July 2008 is appropriate. The movement in the 26 weeks to 27 July 2008 is as follows:

	£000
Opening provision at 27 January 2008	18,658
Utilised	(7,165)
Closing provision at 27 July 2008	11,493

15.  Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation  and are not disclosed in this Note. Transactions between the Group and other related parties are disclosed below.

During the 26 weeks to 27 July 2008, JJB Sports Plc ("the Company") entered into the following transactions with related parties who are not members of the Company or the Group:

		Income from related parties			Expenditure with related parties
		26 weeks to 27 July 2008 £'000	26 weeks to 29 July 2007 £'000	52 weeks to 27 January 2008 £'000	26 weeks to 27 July 2008 £'000	26 weeks to 29 July 2007 £'000	52 weeks to 27 January 2008 £'000
Whelco Holdings Limited		-	132	132	-	351	351
Executive Director's family trust		-	-	-	-	50	50
KooGa Rugby Limited		123	-	182	414	44	1,680
Source Lab Limited		-	-	-	936	-	486
Lanebridge Investment Management Limited		-	-	-	42	-	-
		Amounts owed by related parties			Amounts owed to related parties
		As at  27 July 2008 £'000	As at 29 July 2007 £'000	As at 27 January 2008 £'000	As at  27 July 2008 £'000	As at  29 July 2007 £'000	As at  27 January 2008 £'000
KooGa Rugby Limited
- Loan		4,000	4,000	4,000	-	-	-
- Trade receivables / payables		1,279	-	1,156	1,509	80	1,786
Source Lab Limited		-	-	-	11	-	208

The Group made purchases from Source Lab Limited, a company of which a Director is the brother of the Chief Executive of JJB Sports plc.

The Group made transactions with Lanebridge Investment Management Limited, a company of which the Chairman is a Director. 

Purchases were made by the Company from KooGa, the Company's 48 per cent associated undertaking, at arms length prices. Income represents interest which is payable to the Company on a loan made to KooGa at a rate equivalent to that charged on the Company's revolving bank credit facility. The net amount of trade receivables/payables is unsecured and will be settled in cash. No guarantees have been given. During the period 14 June 2007 to 27 January 2008, the Company has advanced a loan of £4 million to KooGa. Repayments of the loan are to be based upon the profit after taxation of KooGa.

Responsibility statement

We confirm that to the best of our knowledge:

the interim report and condensed set of financial statements have been prepared in accordance with IAS 34;

the interim report and condensed set of financial statements include a fair review of the information required by DTR 4.2.7R (indication of important events during the first 26 weeks and description of principal risks and uncertainties for the remaining 26 weeks of the period); and

the interim report and condensed set of financial statements include a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

C Ronnie D P Madeley

Chief Executive Finance Director

ENDIR EAFNKASSPEEE

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Related Shares:

JJB.L