28th Sep 2007 07:04
JJB Sports PLC28 September 2007 JJB Sports plc Unaudited interim financial information for the 26 weeks to 29 July 2007 JJB Sports plc ("JJB"), announces its Unaudited interim financial results forthe 26 weeks to 29 July 2007. Summary: 2007 2006 Change Revenue £365.3m £381.6m -4.3% Gross margin 50.8% 48.0% +280 BP Operating profit £11.6m £18.4m -37.0% Adjusted operating profit* £8.7m £20.1m -56.9% Profit before taxation £11.2m £18.2m -38.3% Adjusted profit before taxation* £8.3m £19.9m -58.3% Basic earnings per share 3.31p 5.55p -40.4% Interim dividend 3.0p 3.0p * Adjusted operating profit and adjusted profit before taxation are beforecrediting £2,933,000 of net gains (2006: after charging £397,000 of net losses)on disposal of property, plant and equipment and after charging £nil (2006:£1,280,000) relating to charges on the closure of Icon stores, as shown in theUnaudited consolidated income statement on page 9. • Revenue and profits impacted by tough comparatives with the 2006 World Cup. • Improvement of 280 basis points in the gross margin with positive contributions from footwear and replica kit products. • Health club revenue increased 21.2 per cent to £33.1 million (2006: £27.3 million.) • Interim dividend to be maintained at the same level as last year. • A further 5 combined health clubs/superstores to open in the second half of the current year and 14 openings planned for next year. • Introduction of new "own-brands" is planned, to increase the proportion of revenue from this category. • Total revenue for the 8 weeks to 23 September 2007 has increased by 4.9 per cent compared to the same period last year; accompanied by a rise in the gross margin of 380 basis points. Like-for-like revenue increased by 5.2 per cent. Commenting today, Roger Lane-Smith, Non-executive Chairman, said: - "Although we expected a fall in profits with no major football tournament thisyear, these results are still disappointing. Under the leadership of our newChief Executive, Chris Ronnie, we are implementing measures to ensure we reduceour dependency on tournament years and improve the performance of all productcategories in our retail stores, with particular focus on own brands. Whilst the performance of our retail division has been worse than expected, ourleisure division continues to expand and is now contributing substantially tooverall Group revenue. This expansion will continue with further sitesidentified over the next few years. I look forward to the next year with enthusiasm as we work to re-energise ourretail stores and our product offering." For further information, please contact Chris RonnieDavid Greenwood 01942 221400JJB Sports Plc Lydia PretzlikCharlotte Walsh 020 7379 5151Maitland A copy of this press release can also be viewed on the JJB Sports plc corporatewebsite, www.jjbcorporate.co.uk Chairman's statement Trading results and strategy As previously indicated, trading results for the first 26 weeks of the currentaccounting period were significantly below those achieved in the same periodlast year when the World Cup accounted for an extra £20 million of revenue.Going into the second half, comparative numbers are expected to be morefavourable. Our new Chief Executive, Chris Ronnie, is currently introducing a number ofplans to re-energise our retail stores with the full support of the Board andsenior management. Through our focus on being "Serious about Sport", we intendto improve our product offering and differentiate JJB from competitors. As aresult of these plans, we intend to decrease our reliance on major tournamentsas we become the sports retailer of choice. We intend to seek agreements with certain brand owners for the UK rights totheir brands and to strengthen our design and sourcing department in order thatwe can increase the proportion of our retail store revenue from "own brand"products. We believe that this will result in increased margins. Our plans for the expansion of our combined health clubs/superstores remainunchanged and we currently intend to open 14 of these sites in the nextfinancial year. We have already identified a total of 17 sites for openingduring either 2009 or 2010. Prospects On 11 September 2007 we announced that whilst our trading results for the firsthalf of the current accounting period were significantly below those achieved inthe same period last year, our recent trading results led us to believe that theresults from the second half of the current accounting period would be similarto those achieved in the second half of the last accounting period. We hadformerly anticipated that our second half trading results would be materiallybetter than the comparative period. Whilst I am disappointed that our trading results to date have necessitated thischange in our anticipated outcome for the year, we have fully taken into accountwhat we consider may be the impact of restricted consumer spending overChristmas and the New Year. With the initiatives we are putting in place, I lookforward to next year with greater enthusiasm. Dependent on the qualification of both England and Scotland, JJB couldmaterially benefit from the 2008 Euro Championship. However, we plan to reduceour dependency on the major football tournaments through our strategies forre-energising our stores along with strong product ranges from key brandstogether with an enhanced "own-brand" offering. We believe that these strategieswill increase revenue from our retail stores. The continued expansion of ourLeisure Division, with an increasing number of health clubs, will furtherenhance our profitability. Board changes There have been a number of Board changes since we reported on our Preliminaryresults for the 52 weeks to 28 January 2007. On 11 June 2007, we announced that the Company's founder, David Whelan, had soldhis and his immediate family's entire shareholding in JJB to a joint venturevehicle formed by Icelandic financial group Exista hf and Chris Ronnie. Davidstood down from the Board of Directors and ceased to be involved in theoperations of the business. He was appointed Honorary Life President to reflecthis outstanding contribution to the growth of JJB over more than 30 years. Wewish David every success in the future with his other business interestsincluding his Chairmanship of Wigan Athletic. Chris Ronnie initially joined the Board as Deputy Chief Executive and assumedthe role of Chief Executive on 3 August when Tom Knight retired from the Board.Chris has brought a wealth of experience to the Board from his many years in thesports industry where he has held similar positions in sports manufacturing andsports retail companies. I would like to thank Tom Knight for his contribution as Chief Executive duringa difficult and turbulent period for the sports industry. He leaves toconcentrate on opportunities in the private equity market and we wish him well. I was pleased to announce on 3 August that David Jones, formerly Chairman andChief Executive Officer of Next Plc will shortly be joining the Board as aNon-executive Director. I am also pleased to welcome Alan Benzie as a Non-executive Director andChairman of the Audit Committee. Alan was formerly Senior Partner of KPMG(North) and a member of the KPMG UK Board and replaces Roger Best, who left theCompany on 3 August to concentrate on his position as Chief Executive at Radley& Co. These new appointments have strengthened JJB's Board and bring invaluableexperience to the Company. R Lane-SmithNon-executive Chairman27 September 2007 Chief Executive's review Trading Results The operating results for the 26 weeks to 29 July 2007 and the comparativefigures for the 26 weeks to 30 July 2006 are shown below. Revenue Operating profit Operating profit before HO/DC after HO/DC allocation* allocation* 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000Standaloneretail stores 296,467 323,481 27,434 33,823 3,286 11,576 Leisure Division(including) 68,880 58,163 12,498 10,370 8,307 6,831associatedretail stores ------- ------- ------- ------- ------- -------Total 365,347 381,644 39,932 44,193 11,593 18,407 ------- ------- ------- ------- ------- ------- * "HC/DC" refers to head office and distribution centre costs Revenue Total revenue for the 26 weeks to 29 July 2007, including that for both theretail stores and the health clubs, was 4.3 per cent lower than the same periodlast year and includes a like-for-like decrease in revenue of 4.4 per cent (onoperating units which have been trading for over 52 weeks). The most significantimpact on the decrease in revenue has been the tough comparative figures set bythe 2006 World Cup. While total retail store revenue is down 6.2 per cent on thecomparative period, retail store revenue excluding replica products decreased by1.3 per cent over the same period with small decreases in textiles and equipmentbeing partly offset by an increase in revenue from golf products. Revenue fromthe health clubs increased by 21.2 per cent. Gross Profit The combined gross margin achieved during the 26 weeks to 29 July 2007 was 280basis points higher than that achieved in the same period last year. Theincrease in gross margin comprises an increase in the gross margin achievedthroughout the retail store chain as a result of the slightly less competitivestate of the retail sports market, together with the impact of the high grossmargin from the increased number of health clubs in operation. Net operating expenses Net operating expenses increased by £9.0 million or 5.4 per cent, to £173.9million from £164.9 million. Apart from the inflationary pressures which applyto most of our operating expenses, some of which have exceeded the increase inthe Retail Price Index, operating expenses have increased as a result of thenumber of additional combined health clubs/superstores in operation compared tothe first half of the previous year and from the inclusion of costs for thewhole 26 weeks relating to Golf TV and the Glasgow Rangers operations comparedto last year when those operations were acquired towards the end of the firsthalf year. Net operating expenses benefited from a net gain on disposal ofproperty, plant and equipment in 2007, compared to a net loss in 2006. The sale of a number of leases during the 26 weeks to 29 July 2007 hascontributed towards a net gain on the disposal of property, plant and equipmentof £2.9 million; this compares to a net loss on disposal in the comparativeperiod of £397,000. If the net gain (2006 loss) on disposal of property, plantand equipment and the charges in the comparative period relating to the closureof Icon stores, are eliminated from net operating expenses, then those expensesshow an increase of £13.6 million or 8.3 per cent, over the comparative period. Net profit Net profit before taxation (after crediting the net gain on the disposal ofproperty, plant and equipment) amounted to £11.2 million and compares to £18.2million in 2006. Taxation and dividend The effective rate of taxation on Group profit before taxation is 30.3 per cent,compared to 29.5 per cent in the same period last year. The Board has proposed an interim dividend of 3 pence per ordinary share,unchanged from last year. The Board believes that the maintenance of theCompany's dividend is of major importance to all our shareholders and believesthat given the circumstances of the 2006 World Cup, which have been the maincontributory factor to the reduced level of profits, it is appropriate for JJBto maintain the level of its interim dividend. The interim dividend will be paidon 9 January 2008 to shareholders on the share register at the close of businesson 7 December 2007; the shares will trade ex-dividend from5 December 2007. Balance sheet Capital expenditure on property, plant and equipment during the 26 weeks to 29July 2007 was £9.9 million compared to £15.0 million in the same period last year. The Group's principal capital expenditure arises from the combined healthclubs/superstores and although 4 of these operating units have been opened in the accounting period, the capital expenditure on 3 of these operating units had been largely expended at the end of the previous accounting period. A 48 per cent stake was acquired in KooGa Rugby Limited on 14 June 2007, at acost of £1.3 million and a loan of £4 million has been advanced to this companyin order to reduce its level of external borrowings. The value of inventories increased to £158.6 million at 29 July 2007, comparedto £149.8 million at 30 July 2006, as a result of a higher than usual intake ofproduct in the month of July 2007; the value of inventories at earlier monthends in 2007 had been lower in 2007 than in 2006. Net debt at 29 July 2007 amounted to £24.2 million compared to £31.5 million at30 July 2006 and to £9.2 million at 28 January 2007. Operational review Re-energising the retail stores Through our focus on being "Serious about sport," we intend to improve ourproduct offering and differentiate JJB from competitors. We are thereforecurrently introducing a number of initiatives to re-energise our retail sportsstores. • At 29 July 2007, we had created 112 adidas shop-in-shop areas and 53 Nike shop-in-shop areas and although these areas have contributed in some stores to small increases in revenue, their contribution has not been material. We are currently planning a new-look retail layout containing more appealingproduct displays, which will shortly be trialled at one of our existing storesand which will incorporate the merchandising of all of our products by sportscategory. The proportion of revenue from our "own brand" products is approximately 15 percent of our retail store revenue and we are seeking to increase this byacquiring the UK distribution rights of certain brands and by strengthening ourdesign and sourcing department. The type of brands that we are seeking tointroduce will be international brands with a strong global heritage that willappeal to a younger customer profile. For example, we have recently signed anagreement with Champion Europe S.p.a to acquire their UK distribution rights forthis brand. The recent acquisition of our interest in KooGa Rugby Limited, a specialistrugby brand, is a step towards our strategy to increase the proportion ofrevenue from our "own brands". • We are currently completing plans for a significant increase in our incentivisation plans for key retail stores staff which will be in place before the busy Christmas period. • We have recently appointed a retail training manager who will be responsible for the creation of a training academy to increase the knowledge base of our retail staff both in general retail skills and in product specific matters. The intention is to improve our customers' experiences within our stores and to further differentiate us from our competitors. Multi-channel retailing We have continued to strengthen our multi-channel retailing facilities over thelast 6 months by bringing our transactional website (www.jjbsports.com) in-housewith the creation of a call-centre and fulfilment operation at Martland Park.The Glasgow Rangers and Everton websites have also been brought in-housetogether with the responses from our shopping channels on Sky TV. Whilst gross profits for direct response revenue from our TV channels do notcover all the running costs of the channels, we firmly believe that theadvertising power from these channels does drive many customers into our retailstores and enables us to sell considerably higher quantities of our products inour retail stores that are advertised on television, than we would be able tosell without exposure from that medium. I look forward to the leadership that David Jones will bring to this area, whenhe takes up his appointment as a Non-executive Director. David Jones will alsobe closely involved in our plans for a mail order operation. JJB Stores and store development During the 26 weeks to 29 July 2007, we opened 12 sites and closed 8. Theopenings included 4 stores situated on the upper floors of newly opened combinedunits and 3 relocations. The closures included the 3 stores which were relocatedand 3 stores which were surplus to requirements because of their proximity toother JJB retail stores. At 29 July 2007, we operated from 420 retail stores (including those in ourcombined units) containing 4.394 million square feet of retail space. Thiscompares to a total of 416 retail stores in operation at 28 January 2007 and4.295 million square feet of retail space. Store opening plans during the next 18 months include 5 combined health clubs/superstores to be opened during the second half of the current accountingperiod, and a further 14 to be opened during the next accounting period endingJanuary 2009. The sites for all these combined units have been identified andare in various stages of negotiation or construction. In addition to the combined units, we plan to open 2 stand alone superstores inthe second half of the current accounting period and 9 during the nextaccounting period. Leisure Division During the 26 weeks to 29 July 2007, we opened a further 4 combined health clubs/superstores bringing the number in operation at that date to 43; these sitesinclude 6 indoor soccer centres. The total number of members of these 43 health clubs at 29 July 2007 was 182,500and compares to 174,700 members in the 39 health clubs at 28 January 2007 and156,200 members in the 37 health clubs at 30 July 2006. Membership numbers haveincreased by 16.8 per cent between 30 July 2006 and 29 July 2007 and include alike-for-like increase in operating units open for over 52 weeks of 5.1 percent. The continuing low membership fees averaging £35 per month for peak membershipand £25 per month for off-peak membership for the use of clubs that are verywell appointed and include a swimming pool, create a very strong value-for-moneyoffering reflected in the high membership numbers. Revenue from the Leisure Division (including the associated retail stores)increased by 18.4 per cent to £68.9 million during the 26 weeks to 29 July 2007when compared to the same period last year. This includes an increase of 21.2per cent in revenue from the health clubs alone. The operating profit of theLeisure Division, before any head office/distribution centre costs, for the same26 weeks increased by 20.5 per cent to £12.5 million. Operating profits on theLeisure Division, after their share of head office/distribution centre costs,increased by 21.6 per cent to £8.3 million. We continue to regard the Leisure Division as a key growth driver for JJB. Afurther 5 combined units will be opened during the second half of the currentaccounting period, in addition to the 4 already opened. In the next accountingperiod, we expect to open a further 14. In addition, our Property Department arealready in the process of negotiations for 11 openings during the yearcommencing February 2009 and 6 for the following year. Current trading Total revenue for the 8 weeks to 23 September 2007 was 4.9 per cent higher thanin the same period last year and included a like-for-like increase in revenue of5.2 per cent (on operating units which have been trading for over 52 weeks).Included in the total revenue figures is the increase in revenue of 4.1 per centfrom all the Group's retail stores (including those that form part of thecombined units). The combined gross margin achieved during this 8 week period was 380 basispoints higher than that achieved in the same period last year. In our retail stores, all the major product categories have benefited from bothincreases in revenue and in gross margin. These increases have been helped bythe improved weather from mid August to September together with the launch ofcertain Premiership replica kits in the second half of this year's accountingperiod, compared to the launch in the first half of last year's accountingperiod. Although we have had a very strong start to this current 26 week period, we arecautious of the possible impact of interest rates on consumer spending over thenext few months and therefore we still believe that the outcome for the full 26week period to 27 January 2008 will be a trading result similar to that achievedin the comparative period last year. C RonnieChief Executive27 September 2007 Unaudited consolidated income statementFor the 26 weeks to 29 July 2007 26 weeks to 26 weeks to 52 weeks to 29 July 30 July 28 January 2007 2006 2007 £'000 £'000 £'000Continuing operations Revenue 365,347 381,644 810,287 Cost of sales (179,891) (198,332) (425,314) --------- --------- --------- Gross profit 185,456 183,312 384,973 Other operating income 1,583 2,674 5,163Distribution expenses (12,350) (11,624) (23,844)Administration expenses (16,560) (14,463) (33,439)Selling expenses (146,536) (141,492) (293,832) --------- --------- --------- Operating profit 11,593 18,407 39,021 Operating profit is stated aftercrediting (charging) Increase in provisions relating tolegal penalty and interest thereon - - (4,063)Charges relating to the closure ofIcon stores - (1,280) (3,343)Net gain (loss) on disposal ofproperty, plant and equipment 2,933 (397) (1,317) --------- --------- --------- 2,933 (1,677) (8,723) --------- --------- --------- Finance income 5,205 4,502 9,437Finance costs (5,512) (4,744) (9,965)Share of results of associatedundertaking (71) - - --------- --------- --------- Profit before taxation 11,215 18,165 38,493 Taxation (note 4) (3,395) (5,360) (12,668) --------- --------- --------- Profit for the period fromcontinuing operations 7,820 12,805 25,825 --------- --------- --------- Basic earnings per ordinary share(Note 6) Pence 3.31 5.55 11.07Diluted earnings per ordinary share(Note 6) Pence 3.30 5.55 11.07 Unaudited consolidated statement of recognised income and expenseFor the 26 weeks to 29 July 2007 26 weeks to 26 weeks to 52 weeks to 29 July 30 July 28 January 2007 2006 2007 £'000 £'000 £'000 Exchange differences on translationof foreign operations (41) (15) 163 -------- -------- --------Net (expense) income recogniseddirectly in equity (41) (15) 163 Profit after taxation for the period 7,820 12,805 25,825 -------- -------- --------Recognised income and expense forthe period 7,779 12,790 25,988 -------- -------- -------- Unaudited consolidated reconciliation of movements in equityFor the 26 weeks to 29 July 2007 26 weeks to 26 weeks to 52 weeks to 29 July 30 July 28 January 2007 2006 2007 £'000 £'000 £'000 Opening total equity 377,026 364,593 364,593 Recognised income and expense forthe period 7,779 12,790 25,988 Share issues 1,899 - 3,359 Share based payment reserve 150 - 297 Investment in own shares - - (3,083) Dividends declared (Note 5) (16,556) (16,154) (23,238) Scrip dividends re-invested - - 9,110 -------- -------- --------Closing total equity 370,298 361,229 377,026 -------- -------- -------- Unaudited consolidated balance sheetAs at 29 July 2007 As at As at As at 29 July 30 July 28 January 2007 2006 2007 £'000 £'000 £'000Non-current assetsGoodwill 188,463 189,558 188,459Other intangible assets 26,364 28,236 27,397Property, plant and equipment 198,690 192,632 198,980Investment in associated undertaking (Note 9) 1,210 - -Loan to associated undertaking 4,000 - - --------- --------- --------- 418,727 410,426 414,836 --------- --------- ---------Current assetsInventories 158,597 149,828 128,082Trade and other receivables 53,506 50,801 38,205Current asset investment 168,117 168,117 168,117Cash and cash equivalents 23,649 31,244 23,566 --------- --------- --------- 403,869 399,990 357,970 --------- --------- ---------Total assets 822,596 810,416 772,806 --------- --------- ---------Current liabilitiesTrade and other payables (157,009) (139,083) (104,546)Tax liabilities (10,246) (12,150) (14,985)Loan notes (168,117) (168,117) (168,117)Short-term provisions (5,378) (7,784) (13,277) --------- --------- --------- (340,750) (327,134) (300,925) --------- --------- ---------Net current assets 63,119 72,856 57,045 --------- --------- ---------Non-current liabilitiesBank loans (47,833) (62,791) (32,812)Deferred tax liabilities (25,161) (20,933) (23,416)Deferred lease incentives (38,554) (38,329) (38,627) --------- --------- --------- (111,548) (122,053) (94,855) --------- --------- ---------Total liabilities (452,298) (449,187) (395,780) --------- --------- ---------Net assets 370,298 361,229 377,026 --------- --------- --------- EquityShare capital (Note 8) 11,943 11,538 11,892Share premium account 171,182 157,219 169,334Capital redemption reserve 1,069 1,069 1,069Investment in own shares (3,083) - (3,083)Share based payment reserve 447 - 297Foreign currency translation reserve 146 9 187Retained earnings 188,594 191,394 197,330 --------- --------- --------- Equity attributable to equity holders ofthe parent 370,298 361,229 377,026 --------- --------- --------- Unaudited consolidated cash flow statementFor the 26 weeks to 29 July 2007 26 weeks to 26 weeks to 52 weeks to 29 July 30 July 28 January 2007 2006 2007 £'000 £'000 £'000 Net cash (outflow) inflow fromoperating activities (4,790) 26,214 80,339(Note 10) --------- --------- --------- Cash flows from investing activitiesInterest received 5,205 4,502 9,437Purchase of subsidiary - (805) (1,228)Cash and cash equivalents ofsubsidiary acquired - - 231Net proceeds on disposal ofproperty, plant and equipment 3,650 1,725 1,956Net proceeds on disposal ofintangible assets 153 - -Purchase of intangible assets (123) (18,357) (18,488)Purchase of property, plant andequipment (9,950) (15,047) (33,124)Investment in associated undertaking (1,281) - - --------- --------- ---------Net cash used in investing activities (2,346) (27,982) (41,216) --------- --------- --------- Cash flows from financing activitiesInterest paid (5,491) (4,838) (9,930)Dividends paid - - (14,128)Investment in own shares - - (3,083)Proceeds from issues of sharecapital 1,899 - 3,359Net proceeds from bank loans 15,000 3,000 17,892Repayment of bank loan - - (45,000)Loan to associated undertaking (4,000) - - --------- --------- --------- Net cash from (used in) financingactivities 7,408 (1,838) (50,890) --------- --------- ---------Net increase (decrease) in cash andcash equivalents 272 (3,606) (11,767) Cash and cash equivalents atbeginning of period 23,566 34,860 34,860 Effect of foreign exchange ratechanges (189) (10) 473 --------- --------- ---------Cash and cash equivalents at end ofperiod 23,649 31,244 23,566 --------- --------- --------- Notes to the Interim financial informationFor the 26 weeks to 29 July 2007 1. General information The Group's Interim financial information for the 26 weeks to 29 July 2007 wasapproved by the Board of Directors on 27 September 2007. This Interim financial information is unaudited and does not constitute fullstatutory accounts within the meaning of Section 240 of the Companies Act 1985.However, it has been reviewed by the Auditors and their report to the Directorsis set out on page 23. 2. Basis of preparation The Interim financial information has been prepared using accounting policiesconsistent with International Financial Reporting Standards (IFRS) and IAS 34'Interim Financial Reporting', and in accordance with those policies disclosedin the Annual report for the 52 weeks to 28 January 2007, published by theCompany on 6 June 2007. Copies of the Interim report and Financial statementsand the last Annual report and Financial statements are available from theSecretary, JJB Sports plc, Challenge Way, Martland Park, Wigan, WN5 0LD and caneach be downloaded or viewed via the Company's corporate website,www.jjbcorporate.co.uk. The financial information in respect of the 52 weeks to 28 January 2007contained within this Interim financial information has been produced usingextracts from the statutory accounts. A copy of the statutory accounts for thatyear has been delivered to the Registrar of Companies. The Auditors' report onthose accounts was not qualified and did not contain statements under Section237(2) or (3) of the Companies Act 1985. Change in accounting policies In the current financial accounting period, the Group will adopt InternationalFinancial Reporting Standard 7 'Financial instruments: Disclosures' (IFRS 7) forthe first time. As IFRS 7 is a disclosure standard, there is no impact of thatchange in accounting policy on this Interim financial information. Full detailsof the change will be disclosed in the Annual report and Financial statementsfor the 52 weeks to 27 January 2008. 3. Business segments For management purposes, the Group is currently organised into two operatingdivisions - Stand-alone retail stores and a Leisure Division incorporatingcombined health clubs and superstores together with six soccer centres. Thesedivisions are the basis on which the Group reports its primary segmentalinformation. Segmental information about these businesses is presented below. Segmental information for the 26 weeks to 29 July 2007 Leisure Division (including Stand-alone associated stores retail stores) ConsolidatedConsolidated income statement £'000 £'000 £'000 Revenue 296,467 68,880 365,347 --------- --------- ---------Gross profit 137,257 48,199 185,456 Location net operating expenses (109,823) (35,701) (145,524) --------- --------- ---------Operating profit before central 27,434 12,498 39,932costs Head office/Distribution centre(HO/DC) costs (24,148) (4,191) (28,339) --------- --------- ---------Operating profit 3,286 8,307 11,593 --------- --------- ---------Finance costs less finance income (307) Share of results of associatedundertaking (71) ---------Profit before taxation 11,215 Taxation (3,395) ---------Profit after taxation for the period 7,820 --------- 3. Business segments (continued) Segmental information for the 26 weeks to 30 July 2006 Segmental information for the 26 weeks to 30 July 2006 Leisure Division (including Stand-alone associated stores retail stores) ConsolidatedConsolidated income statement £'000 £'000 £'000 Revenue 323,481 58,163 381,644 --------- --------- ---------Gross profit 143,326 39,986 183,312 Location net operating expenses (109,503) (29,616) (139,119) --------- --------- ---------Operating profit before central costs 33,823 10,370 44,193 Head office/Distribution centre (HO/DC) costs (22,247) (3,539) (25,786) --------- --------- ---------Operating profit 11,576 6,831 18,407 --------- --------- Finance costs less finance income (242) ---------Profit before taxation 18,165 Taxation (5,360) ---------Profit after taxation for the period 12,805 --------- Segmental information for the 52 weeks to 28 January 2007 Leisure Division (including Stand-alone associated Stores retail stores) ConsolidatedConsolidated income statement £'000 £'000 £'000 Revenue 686,836 123,451 810,287 --------- --------- ---------Gross profit 301,474 83,499 384,973 Location net operating expenses (227,559) (62,097) (289,656) --------- --------- ---------Operating profit before centralcosts 73,915 21,402 95,317 Head office/Distribution centre(HO/DC) costs (50,808) (5,488) (56,296) --------- --------- ---------Operating profit 23,107 15,914 39,021 --------- --------- ---------Finance costs less finance income (528) ---------Profit before taxation 38,493 Taxation (12,668) ---------Profit after taxation for the period 25,825 --------- 4. Taxation The taxation charge shown in the Unaudited consolidated income statement for the26 weeks to 29 July 2007 has been based on the anticipated effective taxationrate for the 52 weeks to 27 January 2008 of 30 per cent (2007: 30 per cent). 26 weeks to 26 weeks to 52 weeks to 29 July 30 July 28 January 2007 2006 2007 £'000 £'000 £'000 Current taxationUK corporation tax 1,454 4,091 9,030Foreign tax 107 121 207Adjustment in respect of priorperiods 92 - (207) ------- ------- ------- 1,653 4,212 9,030 ------- ------- -------Deferred taxationCurrent period 1,717 1,148 3,638Adjustment in respect of priorperiods 25 - - ------- ------- ------- 1,742 1,148 3,638 ------- ------- -------Taxation charge 3,395 5,360 12,668 ------- ------- ------- The effective rate of taxation calculated on the Group profit before taxation is30.3 per cent compared to 29.5 per cent in the comparative accounting period. 5. Dividends 26 weeks to 26 weeks to 52 weeks to 29 July 30 July 28 January 2007 2006 2007 £'000 £'000 £'000 Amounts recognised as distributions toequity holders in the period:Final dividend for the 52 weeks to28 January 2007 of 7.0 pence net perordinary share payable on 3 August2007 (2006: 7.0 pence) 16,556 16,154 16,154 -------- -------- --------Interim dividend for the 52 weeks to28 January 2007 of 3.0 pence net perordinary share paid on 5 January2007 (2006: 3.0 pence) 7,084 -------- 23,238 -------- Proposed interim dividend for the 52weeks to 27 January 2008 of 3.0pence net per ordinary share (2007:3.0 pence) 7,166 7,084 -------- -------- The proposed interim dividend for the 52 weeks to 27 January 2008 will be paidon 9 January 2008 to shareholders whose names appear on the share register at 7December 2007. The shares will trade ex-dividend from 5 December 2007. 6. Earnings per share The calculation of the basic and diluted earnings per ordinary share are basedon the following data: 26 weeks to 26 weeks to 52 weeks to 29 July 30 July 28 January 2007 2006 2007 £'000 £'000 £'000 Earnings for the purposes ofbasic earnings per ordinaryshare and for the purpose ofdiluted earnings per ordinaryshare being net profitattributable to equity holdersof the parent 7,820 12,805 25,825 --------- --------- --------- Number of shares Number of ordinary shares (thousands) Weighted average number ofordinary shares for thepurposes of basic earnings perordinary share 236,413 230,766 233,261 Effect of dilutive potentialordinary shares:Share options 243 40 51 --------- --------- ---------Weighted average number ofordinary shares for thepurposes of diluted earningsper ordinary share 236,656 230,806 233,312 --------- --------- ---------Basic earnings per ordinaryshare 3.31p 5.55p 11.07p Diluted earnings per ordinaryshare 3.30p 5.55p 11.07p 7. Bank loans and loan notes The Group's working capital is funded through a 5 year £60 million revolvingbank credit facility which commenced in June 2005, together with a 6 year Termloan of £18 million, which commenced in June 2006, and was arranged to financethe acquisition of the Glasgow Rangers FC licensing agreement. Both facilitieswere arranged at interest rates fixed to LIBOR and expose the Group to fairvalue interest rate risk. Loan notes were issued to the vendors of Blane Leisure Limited (Sports Division)in September 1998, as part of the consideration for the acquisition of thatCompany and its subsidiaries, under an instrument which provided that the Loannotes were redeemable on any quarterly interest payment dates after 11 June1999. By a Deed of Variation dated 26 February 2001, the maturity date up towhich the Loan notes can be redeemed was extended to 28 April 2011. Interest ispayable on the loan notes at a quarterly rate linked to LIBOR and the loan notesare secured by an identical amount held in a bank account and shown underCurrent assets as "Current asset investment". 8. Share capital At At At 29 July 30 July 28 January 2007 2006 2007 £'000 £'000 £'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 28 January 2007 11,892 237,837Issued on exercise of options 51 1,027 -------- --------At 29 July 2007 11,943 238,864 -------- -------- The Company has one class of ordinary share which carries no right to fixedincome. 9. Investment in associated undertaking On 14 June 2007, JJB Sports plc ("JJB") acquired a 48 per cent share in KooGaRugby Limited ("KooGa"), a company incorporated in England, for £1,281,000consideration. The business activity of KooGa is the manufacture of sportingapparel, principally for rugby. The Group uses the equity method of accounting for associated undertakings. At29 July 2007 the investment in the associated undertaking is as follows:- £'000 Consideration 1,281 Fair value of net liabilities acquired 251 -------Goodwill 1,532 Fair value of net liabilities at 29 July 2007 (322) -------Investment in associated undertaking 1,210 ------- JJB's share of KooGa's assets, liabilities and results as shown in theirmanagement accounts is as follows:- At 29 July 2007 £'000 Total assets 2,702Total liabilities (3,024) -------Net liabilities (322) -------Revenue 643 -------Loss before taxation (71) ------- KooGa has a co-terminous year end with JJB. There are no significantrestrictions on the ability of the associated undertaking to transfer funds toits shareholders, other than those imposed by legal requirements. The carrying value of the investment in the associated undertaking includesacquired goodwill. 10. Reconciliation of operating profit to net cash (outflow) inflow fromoperating activities 26 weeks to 26 weeks to 52 weeks to 29 July 30 July 28 January 2007 2006 2007 £'000 £'000 £'000 Operating profit from continuingoperations 11,593 18,407 39,021Depreciation and impairment ofproperty, plant and equipment 9,669 9,511 18,432Amortisation of other intangible assets 989 312 1,282Net (gain) loss on disposal ofproperty, plant and equipment (2,933) 397 1,317Net loss on disposal of property,plant and equipment relating to theclosure of Icon stores - - 1,376Net loss on disposal of intangible assets 14 - -(Decrease) increase in short-termprovisions (7,899) 454 5,947Share based payment reserve 150 - 297 -------- -------- -------- Operating cash flow before movementsin working capital 11,583 29,081 67,672 Increase in inventories (30,515) (29,562) (7,432)(Increase) decrease in trade andother receivables (15,301) (12,063) 1,825Increase in payables 34,889 37,915 21,118 -------- -------- --------Cash generated by operations 656 25,371 83,183 Taxation (paid) refunded (5,446) 843 (2,844) -------- -------- --------Net cash (outflow) inflow fromoperating activities (4,790) 26,214 80,339 -------- -------- -------- 11. Analysis of net debt as at 29 July 2007 At 28 January Other non- At 29 July 2007 Cash flow cash items 2007 £'000 £'000 £'000 £'000 Current assetinvestment 168,117 - - 168,117 Cash and cashequivalents 23,566 272 (189) 23,649 -------- ------- -------- -------- 191,683 272 (189) 191,766 Current liability: Loan notes (168,117) - - (168,117) Non-currentliability:Bank loans (32,812) (15,000) (21) (47,833) -------- ------- -------- -------- (9,246) (14,728) (210) (24,184) -------- ------- -------- -------- 12. Office of Fair Trading and The Consumers Association The short-term provision in respect of the legal penalty and related interest of£7,945,000 at 28 January 2007 relating to the action brought against the Companyby the Office of Fair Trading ("OFT") in respect of the price-fixing of certainreplica kit products during 2000 and 2001, has been utilised during theaccounting period of 26 weeks to 29 July 2007 in paying that amount to the OFT. On 5 March 2007, The Consumers Association lodged a representative action fordamages against JJB. The action was brought on behalf of consumers for lossessuffered by purchasing certain replica shirts in 2000 and 2001. JJB subsequentlymade an offer to give a free England shirt and mug to anyone who presented oneof these old replica shirts in its stores. The cost of this free offer,potential damages to the consumers who are included in the representative actionand a provision for legal costs has been expensed by JJB in its Consolidatedincome statement for the 52 weeks to 28 January 2007 and in the Unauditedconsolidated income statement for the 26 weeks to 29 July 2007. 13. Related party transactions Transactions between the Company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisNote. Transactions between the Group and other related parties are disclosedbelow. During the 26 weeks to 29 July 2007, JJB Sports Plc ("the Company") entered intothe following transactions with related parties who are not members of theCompany or the Group: Income from related parties Expenditure with related parties 26 weeks to 26 weeks to 52 weeks to 26 weeks to 26 weeks to 52 weeks to 29 July 30 July 28 January 29 July 30 July 28 January 2007 2006 2007 2007 2006 2007 £'000 £'000 £'000 £'000 £'000 £'000 Whelco Holdings Limited 132 142 267 351 511 795Executive Director's family trust - - - 50 75 150E-View Properties Limited - 504 504 - - -KooGa Rugby Limited - - - 44 - - ---- ---- ---- ---- ---- ---- Amounts owed by related parties Amounts owed to related parties As at As at As at As at As at As at 29 July 30 July 28 January 29 July 30 July 28 January 2007 2006 2007 2007 2006 2007 £'000 £'000 £'000 £'000 £'000 £'000 Whelco Holdings Limited - 140 137 - 11 176KooGa Rugby Limited 4,000 - - 80 - - ---- ---- ---- ---- ---- ---- Whelco Holdings Limited, E-View Properties Limited and the Executive Director'sfamily trust are all entities in which David Whelan, a former Executive Directorof the Company, had an interest. David Whelan, his immediate family and relatedtrusts disposed of their entire shareholdings in the Company on 8 June 2007 atwhich date they ceased to be a related party. Whelco Holdings Limited is a company owned by members of the family of DavidWhelan, operating itself or through its subsidiaries, a number of businessesincluding that of Wigan Athletic Football Club (WAFC), Wigan Warriors RugbyLeague Club (WWRLC) and the stadium in which both teams play which is known asthe "JJB Stadium". The Group incurred expenditure in its capacity of sponsors to WAFC and WWRLC andincurred costs in respect of the naming rights for the JJB Stadium. Advice wastaken from independent third parties as to the comparative levels of the costsof sponsorship and naming rights at other clubs and stadia, prior to theagreement of the amounts to be paid. The Group made sales to Whelco Holdings Limited and its subsidiary companies inrespect of both football and rugby related products. A store in Northampton had previously been leased by the Company from a thirdparty for a number of years and at which it had operated a retail store untilOctober 1998. The freehold of the store was subsequently acquired from the thirdparty by the Trustees of an Executive Director's Accumulation and MaintenanceSettlement, (a Settlement in which some members of the family of David Whelan,have an interest). Following the opening of the new retail store on 10 August2003, the Company has continued to pay rent on a full commercial basis at therate of £150,000 per annum. 13. Related party transactions (continued) Following the disposal of his shareholdings in the Company, David Whelanacquired the Vizwear Garments business, an intangible asset of the Group, at anarms length valuation of £153,000. The Company acquired a 48 per cent share in KooGa Rugby Limited ("KooGa") on 14June 2007 (see Note 9). Purchases were made by the Company from KooGa at armslength prices. The amount outstanding is unsecured and will be settled in cash.No guarantees have been given. During the period 14 June 2007 to 29 July 2007, the Company has advanced £4million to KooGa. Repayments are based on the profit after taxation of KooGa,and interest is payable to the Company at a rate equivalent to that charged onthe Company's revolving bank credit facility. In addition, in the 26 weeks to 29 July 2007, the Company entered into a seriesof US Dollar forward contracts on behalf of KooGa amounting to $6 million.Contracts for $2 million were drawn down by the Company before 29 July 2007 anda further $4 million will be drawn down in future periods. These contracts arerecharged at actual rates incurred by the Company. 14. Event after the balance sheet date Interim dividend On 27 September 2007, the Directors approved the payment of an interim dividendof 3.0 pence net per ordinary share (2006: 3.0 pence). In accordance with IFRSaccounting policies, the proposed dividend has not been included as a liabilityin the Unaudited consolidated balance sheet at 29 July 2007. This dividend willbe paid on 9 January 2008 to shareholders on the register at 7 December 2007.The shares will trade ex-dividend from 5 December 2007. 15. Risks and uncertainties The Board has a policy of continuous identification and review of key businessrisks and oversees the development of processes to ensure that these risks aremanaged appropriately. Executive Directors and senior management, including theAssociate Directors, are delegated with the task of implementing theseprocesses; the Executive Directors are charged with reporting to the Board ontheir 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 ofeconomic conditions including interest rates, the availability of consumercredit, the level of inflation and movements in consumers' disposable income.All these factors affect the level of consumer confidence and can impact uponrevenue achieved by both JJB's retail store chain and its health clubs. Seasonal factors JJB's revenue is subject to three seasonal peaks - Easter, back-to-school inAugust and Christmas. If the economic conditions during any one of these periodsis severe, then these conditions can have a disproportionate impact uponrevenue. Competition JJB's retail store chain operates in a particularly competitive part of theretail sector and therefore its degree of competitiveness is affected by theretail pricing policies of its competitors which in turn impacts upon JJB'smargins and profitability. Key personnel The success of JJB is partly dependent upon the continued service of its keymanagement personnel and upon its ability to attract, motivate and retainsuitably qualified employees. 15. Risks and uncertainties (continued) Suppliers JJB is dependant upon its major suppliers continuing to design and producequality product ranges for sale within its retail stores, at wholesale priceswhich will enable JJB to maintain its margins and to compete effectively withinthe retail sector. IT systems and business continuity JJB is dependent upon the continued availability and integrity of its computersystems. Its retail and health club operations must record and process asubstantial volume of data and conduct inventory management accurately andquickly. This can only be achieved on systems which benefit from continuousenhancements and ongoing investment in order to prevent obsolescence andmaintain responsiveness to business needs. JJB is also dependant upon theuninterrupted operation of its computer systems and therefore reliance needs tobe placed upon a disaster recovery plan to replicate the data stored on itsbusiness critical computer systems. Revenue dependence on key sporting events JJB derives some benefit in alternate years from the sale of replica kits as aresult of the participation of the England national football team in the twomajor competitions (the FIFA World Cup and the Euro Championships). This benefitwould be jeopardised if the England team failed to qualify for the finals ofthose competitions. Logistics and distribution infrastructure An important part of JJB's business is to maintain a secure and efficientdistribution centre in order to ensure prompt and frequent deliveries ofinventory to its retail stores. Any disruption to this supply chain couldadversely affect the Group's revenue levels. Property availability The continuing growth of the Group, particularly with regard to the combinedhealth clubs/superstores, is dependant upon the availability of new sites atcompetitive rentals and the timing of new openings is partly dependant upon thegranting of full planning permission by local authorities. Treasury and financial risks JJB is subject to treasury and financial risks arising from the security of itsexisting funds, the ongoing availability of new funds and fluctuations ininterest and exchange rates. Responsibility statement We confirm that to the best of our knowledge: •the Interim financial information has been prepared in accordance with IAS 34; •the Interim financial information includes 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 financial information includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein). By order of the BoardC Ronnie J D GreenwoodChief Executive Finance Director 27 September 2007 Independent review report to JJB Sports plcFor the 26 weeks to 29 July 2007 Introduction We have been instructed by the Company to review the financial information forthe 26 weeks to 29 July 2007 which comprise the Income statement, the Statementof recognised income and expense, Reconciliation of movements in equity, theBalance sheet, the Cash flow statement and the related notes 1 to 15. We haveread the other information contained in this Interim report and consider whetherit contains any apparent misstatements or material inconsistencies with thefinancial information. This report is made solely to the Company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities This Interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the Interim report in accordance with the ListingRules of the Financial Services Authority and the requirements of IAS 34 whichrequire that the accounting policies and presentation applied to the interimfigures are consistent with those applied in preparing the preceding annualaccounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the 26 weeks to 29July 2007. Deloitte & Touche LLPChartered AccountantsManchester 27 September 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
JJB.L