Frasers Group Regulatory News (FRAS)

26 July 2019

Preliminary Results for the Period ended 28 April 2019

·; Group revenue increased by 10.2%

o Excluding acquisitions and on a currency neutral basis, revenue decreased by 1.9%

·; UK Sports Retail revenue increased by 0.3%

o Excluding acquisitions, revenue decreased by 2.9%

o UK Sports Retail like-for-like stores gross contribution was down 1.6%(1)

·; European Sports Retail revenue decreased by 5.9%

o Currency neutral revenue decreased by 5.5%

o European Sports Retail like-for-like stores gross contribution was up 0.9%(1)

·; Premium Lifestyle Retail revenue increased by 26.3%, due to an increased store portfolio and online sales

·; Group gross margin increased to 42.8% from 39.7%, largely due to price resetting, prior year increased inventory provisions and prior year acquisition accounting for Bob's Stores and Eastern Mountain Sports

·; Group underlying EBITDA(2) decreased by 6.0% to £287.8m

o Excluding House of Fraser, underlying EBITDA grew 10.9% to £339.4m

·; Free cash flow (pre-capex) down to £273.3m compared to £326.2m in the prior year(3)

·; Reported profit before tax was £179.2m, up 193.3% from £61.1m (restated from £77.5m) largely due to an £85.4m impairment of our Debenhams strategic investment in the prior year

·; Underlying profit before tax increased by 5.0% to £143.3m from £136.5m (restated from £152.9m)

o Excluding current year and prior year acquisitions, underlying profit before tax increased by 50.7% to £205.7m

·; Reported earnings per share grew by 468.4% to 21.6p, from 3.8p (restated from 4.6p)

o Underlying basic earnings per share decreased by 7.9% to 17.6p(2)

·; Reported profit after tax was £116.0m up 400.0% from £23.2m (restated from £27.6m)

o Underlying profit after tax was £91.5m (FY18: £100.6m, restated from £96.2m)

·; Net debt decreased to £378.5m (£397.1m at 29 April 2018)(4), with acquisitions and investment in property funded by a strong free cash flow

(1) Figure is on a 52-week currency neutral basis and with a consistent year on year inventory provision used.

(2) Underlying EBITDA, underlying Profit before taxation and underlying EPS exclude realised foreign exchange gains / losses in selling and administration costs, exceptional costs, and the profit / loss on disposal of subsidiaries, strategic investments and properties. Underlying EBITDA also excludes Share Scheme charges.

(3) Underlying free cash flow is defined as operating cash flow after working capital movements, underlying EBITDA plus realised foreign exchange gains and losses, less corporation tax paid.

(4) Net debt is borrowings less cash and cash equivalents held.

Mission Statement

'To become Europe's leading ELEVATED Sporting Goods Retailer.'

CHAIR'S STATEMENT

INTRODUCTION

I became Chair in September 2018 following the AGM and the departure of our outgoing Chair Keith Hellawell. I am very pleased to take over the role and I have enjoyed overseeing an eventful albeit challenging remainder of the financial year to April 2019. The year which will be explained in more detail throughout the annual report has seen mixed trading in the core business with contribution like for likes suffering but our elevated stores and Flannels fascias continue to significantly outperform much of the rest of the High Street. We have acquired House of Fraser, Evans and Sofa.com (subject to FCA approval which was granted post year end) and welcomed many new colleagues to the Sports Direct Group in the year. We have seen the demise and destruction of shareholder value at Debenhams meaning both our investment, and that of smaller independent shareholders was worthless. Although the outcome of the Debenhams restructuring process was highly unsatisfactory, and indeed a national scandal which could have been avoided, the Sports Direct Group can move on bruised but unhindered. The smaller shareholders, of whom many contacted us during the process offering their support, have suffered significantly and lost a substantial amount of money in relative terms. The government and regulators really should be looking to help them, and also future smaller shareholders in listed businesses so that they do not suffer the same fate.

Undoubtedly the High Street is undergoing some significant changes not helped by the uncertainty the population is experiencing in relation to Brexit, the current political upheaval, and the wider economic outlook. We remain focused, however, on delivering the elevation strategy. We are excited by the opportunities ahead but also cautious as we realise that shaping House of Fraser in to what we want it to be after years of under investment and poor management will take time.

OVERVIEW

FY19 (year ended 28 April 2019) has continued to see the Group progress the elevation strategy with additional new flagship stores opening and we continue to enjoy the enhanced returns we targeted at the outset. The elevation strategy will continue to be deployed across the estate. Excitingly we expect to open our new Flannels flagship store on Oxford Street in FY20.

Group revenue has increased from £3,359.5m to £3,701.9m, an increase of 10.2%, which includes a part year contribution from the acquired businesses in the period, the largest being the House of Fraser acquisition we made in August 2018. Underlying EBITDA, a key alternative performance measure for the Group increased 10.9% excluding the impact of House of Fraser which is consistent with the outlook statement made by our Chief Executive, Mike Ashley last year. Including House of Fraser and other acquisitions, Underlying EBITDA was £287.8m compared to £306.1m last year.

In terms of statutory reporting, our Profit before taxation has risen 193.3%, which arises predominantly from improved outcomes on our foreign exchange financial instruments and the non-recurrence of investment write downs through the profit and loss, such as on Debenhams where in FY18 the loss totalled £85.4m.

FY19 Underlying Profit before tax was up 5.0% to £143.3m, which was largely due to the non-reoccurrence of investment write downs being counter acted by the overall result of the Group being down year on year, primarily due to the results from House of Fraser since acquisition.

Our net debt at the year end was £378.5m compared to £397.1m a year ago as we continue to generate significant cash flows in the core business to support our investment strategies.

I am pleased to note that we extended the maturity of our Revolving Credit Facility to November 2022 with the majority of our banking partners, such that £847.5m now matures in November 2022 from the total facility of £913.5m.

ELEVATION STRATEGY AND HOUSE OF FRASER

The enhancement of our retail proposition continues to be a strategic priority. Our multi-channel elevation strategy is a key driver towards achieving an unrivalled multi-brand offering to customers across sport, lifestyle and fashion. This strategy began on the High Street with the active management of our property portfolio, which is seeing us continue to open a new generation of stores. The acquisition of House of Fraser has given us the opportunity to enhance the offering over time and build stronger relationships with their premium third party brands. The elevation strategy further encompasses how we connect with the consumer across all our channels, including social, digital and in-store. We have acquired a great deal of retail space through the acquisition of House of Fraser and have exchanged contracts on the freehold purchase of the Glasgow Frasers store as a statement of intent regarding our seriousness about the business. Frasers in Glasgow and as announced in the Sunday Times a number of further Frasers stores will showcase our superior experiential offerings. I recognise and appreciate the work and effort that the Sports Direct team and our new House of Fraser colleagues have undertaken in integrating House of Fraser into the Group, it is and will continue to be a massive and complex project. It is always disappointing to see a business which has been under invested and poorly managed as ultimately the employees and the consumer suffer the most. The results of House of Fraser in this first period with the Group show what a challenge turning the business around will be and highlights what a shambles previous management had left it in. We recognise the transition and re birth will take time and commitment but look forward to the challenge and building a business all stakeholders can be proud of.

BRAND RELATIONSHIPS

As Mike Ashley, our CEO will highlight in his report, our brand relationships with certain third party brands are currently challenging. We feel our elevation strategy is being delivered in line with the requirements initially highlighted to us by these brands several years ago, however we feel there remains some scepticism on their part with regards to our commitment to the full roll out of our elevation strategy. We continue to work on our relationships with these brands and believe a mutually beneficial outcome can be delivered..

OTHER ACQUISITIONS

In the year we also acquired Evans Cycles and Sofa.com (subject to FCA approval which was granted post year end). Evans expands our cycle business and is consistent with our desire to offer the best possible multi-brand and multi-category presentation to consumers. Sofa.com sits comfortably in our wider plans for House of Fraser.

OUR PEOPLE

Our people are a priority and the Board is committed to treating all staff with dignity and respect. We appreciate all the efforts and contributions that have made this year's result possible especially in these very challenging times within the UK retail market. We are very pleased to welcome many new colleagues to the Group through the acquisitions made in the year. Further details of our arrangements for staff are set out in the Our Business section of the Corporate Social Responsibility Report within the Annual Report..

BOARD

We would like to thank Keith Hellawell QPM and Simon Bentley who both left the Group at the conclusion of our AGM in September 2018. We are pleased to have appointed Nicola Frampton and Richard Bottomley OBE as Independent Non-executive Directors effective from 1 October 2018. Nicola Frampton is a senior executive at William Hill, where she is Managing Director of the UK Retail Division. Prior to joining William Hill, Nicola gained extensive experience in risk management, assurance and corporate governance across a wide range of industries while working in professional services, most recently with Deloitte. Richard has over 25 years' experience working with listed companies during his time as a senior partner at KPMG, and continues to be a member of the Audit Committee Institute. He is Chair of Trustees of the Greggs plc 1978 Retirement and Death Benefits Scheme and until recently was a Non-Executive Director of Newcastle Building Society where he chaired the Audit Committee. I am especially pleased to welcome Cally Price to the Board as a Non-Executive Director. Cally is the manager of the Sports Direct store in Cardiff Bay. Sports Direct is one of only a few groups that has appointed the workers representative to the Board and we have appreciated the contributions Cally has made since her appointment on 1 January 2019. Cally follows Alex Balacki who was our first workers representative and did a great job laying the foundations for the role.

STRATEGIC INVESTMENTS

In a challenging retail market, we believe innovative strategic partnerships will help to differentiate our offering and enhance the consumer experience by giving us ways to extend our reach into new retail channels and geographies. The year was dominated by the demise of Debenhams. We had tried to establish a dialogue with their Board for a long period of time in order to look at how the two Groups could possibly combine in some form of commercial arrangements that would benefit both parties. They were completely averse to any kind of serious engagement with us and during the restructuring process had ceded control to the highly paid advisors who were concentrating on delivering one result only. We were most certainly not part of their plans despite protestations otherwise from management and these advisors. Our very public attempt to influence what we believe was an unnecessary destruction of shareholder value was extremely frustrating. The loss in value which has been absorbed through the last couple of years accounts in writing down the investment is very disappointing. Debenhams and our other strategic investments are commented on more fully later in the annual report.

DIVIDEND

No dividend was paid during the year and the Board has decided not to declare a final dividend in respect of this financial year. The Company did undertake a share buyback at various points through the last financial year, the total number of shares purchased in the market was 561,145.

OUTLOOK

We remain very focused on delivering our elevated proposition. We will see some great milestones achieved in the year ahead, with the Flannels flagship store opening and we will commence the work to shape the Frasers Glasgow store into what we believe will be a fantastic shopping experience for our customers and showcase our intentions for the remaining portfolio of stores.

We are building a young and dynamic executive team to assist in this transition but making sure we retain the core values in the existing business that have allowed the business to prosper over the years. We would like to see some stability and certainty entering in to the wider economic environment, as at the date of writing it is not far off to say the political upheaval that has been going on in this financial year has been chaotic at best.

It is an exciting time but we also recognise the significant challenge that House of Fraser brings, so we are cautious about the year ahead. If House of Fraser is to be a viable ongoing entity alongside other high street UK retailers, we call on the government to overhaul the antiquated rates system. Our core business in the UK which drives our overall profitability will remain a firm foundation and we are hopeful that the overseas businesses continue their improved performance.

David Daly

Non-Executive Chair

26 July 2019

CHIEF EXECUTIVE'S REPORT AND BUSINESS REVIEW

STRATEGIC INVESTMENTS

Within the financial standards there is a presumption that holding 20% of the voting power of the investee indicates significant influence and thus that they should be accounted for as associates unless it can be clearly demonstrated that this is not the case.

The existence of significant influence by an entity is usually evidenced in one or more of the following ways:

a) representation on the board of directors or equivalent governing body of the investee;

b) participation in policy-making processes of the investee, including participation in decisions about dividends or other distributions;

c) material transactions between the entity and its investee;

d) interchange of managerial personnel; or

e) the provision of essential technical information.

The past year has seen significant activity in relation to our strategic investment portfolio. Some of that activity including entire business failures has been widely publicised and, rightly, attracted national attention. It has also demonstrated only too well how incorrect and ludicrous, any suggestion was that we have, or have had, significant influence in relation to some of those investees.

The relationships with those investees simply do not operate in that way and in fact, in some cases, those entities continue to stonewall us, ignore us and act in all ways possible to prevent us from building a mutually beneficial working relationship.

During a year-end results presentation by Sports Direct at the Stock Exchange on 19 July 2018, I read aloud a brief statement about the Group's relationships with its strategic investment companies. This statement led to interest from various parties, and in response to this we published the statement in order to make it freely available to all.

This statement was made regarding the lack of significant influence we had over some of our strategic investments, however to our amazement there are questions still being raised over this. I noted that "Sports Direct believe accounts should be shown in a form that can be understood and relied upon." Quite clearly in the case of Debenhams and Goals for example this was not the case. As noted in the statement we want all of our strategic investments to adhere by the core Sports Direct principles of being conservative, consistent and simple yet a number did not and do not.

DEBENHAMS

We feel most strongly about the Debenhams group failure. Our concerns were so grave that, unusually for the Sports Direct Group, we felt it essential to be as public as possible regarding the events that unfolded between September 2018 and Debenhams entry into administration on 9 April 2019.

Our public role had three motivations:

i. to maximise shareholder value (which, sadly, ultimately became a failed effort to avoid the entire destruction of that value for shareholders large and small);

ii. to do everything possible to save what we saw as a viable and potentially successful business from becoming insolvent; and

iii. to draw attention to a process that was so wrong as to be in our view a national scandal.

We made numerous offers, and took various actions, to assist Debenhams and to avert what we regarded, and still regard, as its unnecessary insolvency and the total destruction of shareholder value.

In summary those offers and actions included:

a) offers by Sports Direct throughout the period of practical and operational support including the appointment of Mike Ashley as CEO of Debenhams. Mr Ashley wrote personally to Sergio Bucher, then CEO of Debenhams, on 12 December 2018 noting Debenhams refusal to accept any practical support and warning of the terminal fate that awaited it if it continued to not address the commercial and operational issues it faced. We take no pleasure in noting that Debenhams did not address those issues and that Mr Ashley was consequently proven to be right;

b) an offer by Sports Direct in December 2018 to provide a £40 million interest-free loan. That offer was rejected by Debenhams. Instead, the Board caused Debenhams to enter into a £40 million bridge facility with its existing lenders on terms significantly less advantageous than they knew Sports Direct was willing and able to offer and which limited Debenhams' ability to obtain financing from other sources without the consent of its existing lenders. We note that this £40m bridge facility document was not made available to us as main shareholder, or indeed any other shareholder, and we consider this a crucial piece of information in the story of how the hedge funds eliminated shareholder value;

c) voting for the removal of underperforming directors at the final AGM of Debenhams in January 2019. Iain Cheshire and Sergio Bucher were removed following a shareholder vote. Disappointingly, the remaining directors of Debenhams chose to retain Mr Bucher as CEO directly ignoring the wishes of shareholders and missing the opportunity to redirect and reinvigorate the business under new management;

d) discussing with Debenhams in January 2019 and March 2019 the subscription by Sports Direct to significant new equity in Debenhams;

e) requisitioning a Debenhams EGM in March 2019 to remove the board and to appoint Mike Ashley as CEO. Unfortunately, before that meeting could be held Debenhams entered administration frustrating its being convened;

f) an offer by Sports Direct in March 2019 to provide a £150 million unsecured loan facility. That was rejected by Debenhams, on the apparent (and false) assumption that Sports Direct would not be in a position to put together any comprehensive package until the first half of 2020. This was despite Sports Direct's repeated assurances that it was in a position to provide short-term liquidity. Instead Debenhams entered into a new facility with its existing lenders on terms that, in our view, sealed its eventual entry into administration;

g) an offer by Sports Direct in March 2019 to purchase Debenhams' "Magasin du Nord" business for £100 million, with an option to Debenhams to repurchase it at the same price in the future. That was rejected by Debenhams which issued a statement on 22 March 2019 that "as with all other proposals received to date from Sports Direct, it does not address the [Debenhams'] funding and restructuring requirement, while balancing the interests of all stakeholders". There was no attempt to engage further with Sports Direct to see how the proposal could be improved upon to address the "funding and restructuring requirement" referred to;

h) a possible cash offer announced on 25 March 2019 to purchase the entire issued share capital of Debenhams; and

i) an offer in April 2019 to underwrite a £200m equity issuance by Debenhams as part of a comprehensive refinancing. That offer was rejected by Debenhams citing unwillingness of existing lenders to allow time for it to be concluded. Of course, in any event by that time Debenhams had secured additional funding from its existing lenders through two facilities totalling £200m which (i) contained conditions to draw down that in effect made in impossible for Sports Direct to rescue Debenhams and (ii) granted security to the existing lenders which ultimately facilitated them taking ownership of the Debenhams business on 9 April 2019.

In spite of these valuable repeated offers, Debenhams failed at every opportunity to engage with Sports Direct or to properly consider the proposals put forward save for what we saw as tactical lip service. During the restructuring process we were promised information that would be of great value to us in understanding the position the group found itself in and which would allegedly help us to come up with a sound financing proposal. This could not have been further from the truth as the information we received was both late and of poor and incomplete quality and quantity.

We have been highly, and publicly, critical of the board of Debenhams throughout the relevant period. In our view they lacked the requisite skill and experience to turn around a retailer in the distressed situation that Debenhams found itself in.

Worse than that we also regard them as having failed to discharge their fiduciary duties to Debenhams' shareholders - both through failing to engage with Sports Directs' proposals that could have avoided administration and being insufficiently interested or critical of the proposals from some of the existing lenders which they did accept and which ultimately led to Debenhams entering administration.

We have significant concerns regarding the terms on which Debenhams engaged in discussions with Sports Direct from February 2019 onwards and what the true purpose of those arrangements and discussions was. If as we believe there was a plan to hand the business over to the new owners then that raises serious questions about their motivations.

We have been similarly critical of the role of Debenhams' advisors during the relevant period. We note that we understand tens of millions of pounds were paid by Debenhams to those advisors at a time when cash was at a premium - indeed, significant proportions of the funding obtained during the relevant period simply went to pay those advisors' fees. The relevant lawyers, accountants, and other advisors must have well known what was happening and supported the process. They should be held responsible too.

It remains our firm view that the administration of Debenhams could have been avoided had any of the following occurred:

a) serious engagement with Sports Direct's offers of practical and commercial assistance, advice and expertise including the appointment of Mike Ashley as CEO;

b) serious engagement with Sports Direct's offers of financial assistance on terms clearly more favourable than those that Debenhams' existing lenders were offering;

c) Debenhams addressing its financial position earlier and in a manner more appropriate to its financial health. As an example we can see no justification for Debenhams continuing to pay significant dividends to shareholders up to and including during the financial year ending 2018 when that money would have been better invested in refreshing the businesses' offering to customers and its operational systems. Sports Direct repeatedly and strongly raised this issue and was ignored; and

d) Debenhams' Board exercising proper independent decision making with regard to the interests of the shareholders to whom it owed fiduciary duties rather than apparently acting at the behest of its advisors and existing lenders.

Throughout the restructuring process, Sports Direct found it impossible to engage meaningfully with Debenhams and its advisors. We were frustrated at every turn in what appeared to us to be a pre-ordained path to the eventual entry of Debenhams into administration. The result of that administration has been the total destruction of shareholder value and the transfer of the Debenhams business into a new vehicle owned by its American hedge fund lenders through a Luxembourg holding company.

We continue to have very serious concerns about the restructuring process, the pre-pack transaction completed on 9 April 2019 and the conduct of the Debenhams' board and its advisors.

We have raised those concerns with regulators, individual MPs and Parliamentary Select Committees. It appears, unfortunately, that there is little or no will, or ability, amongst those bodies to properly hold any party to account for these events and we fear that this is a pattern that will be repeated seeing many more businesses fall into the clutches of these vulture funds. This will result in shareholders losing faith in the system and investing less. That cannot be healthy for the British economy, especially during the current challenging period that it faces.

In light of its strong views on the subject Sports Direct continues to examine with its advisors exactly what happened, who was responsible and investigate avenues to seek redress through civil and/or criminal process.

GOALS

Widely publicised accounting irregularities have been found at Goals. We have strongly urged the board to allow an independent investigation on our and other independent shareholders behalf to take place as soon as possible to restore trust in the business. We were assured by members of the board that the cause of the accounting irregularities was confined to one person. However, given the significant size of these irregularities and the timeframe over which they took place we need to understand whether the problem is wider than one individual acting alone. Based on many examples, including the recent case of Patisserie Valerie, these matters are always more pervasive than one individual acting alone. To date the Board of the company has stonewalled our requests for an independent investigation repeatedly. We are particularly concerned that the second largest shareholder, Chris Mills, is also a non-executive director and thus has access to more information and insight than is available to Sports Direct as largest shareholder, this simply cannot be right in a matter so serious.

Based on the lack of engagement in this key matter, alongside our general concerns on the pervasive nature of irregularities, we as the biggest shareholder elected to vote against all resolutions including the reappointment of board members. The result of the AGM was in favour of the status quo despite our opposition and the evidence before the market's eyes, however the foul mouthed tirade and aggressive posturing of Chris Mills to the Sports Direct representative, attending the AGM and asking completely legitimate questions, was extremely unprofessional and unbecoming of a listed business to any representative let alone one from its biggest shareholder.

GAME

After purchasing shares from another shareholder on 5 June 2019 to bring our holding up to 38.49% we were required to make a full takeover bid for the group under listing rules as our holding was above the 30% threshold.

In February 2018, Sports Direct and GAME entered into a collaboration agreement covering the rollout of BELONG and GAME retail stores, including the entering into of concession agreements regarding the siting of BELONG arenas and/or GAME retail stores in Sports Direct locations. BELONG is GAME's competitive gaming and eSports experience centred around physical 'arenas', bringing both casual and competitive gaming to communities nationwide, in city and town centres and in major shopping centres. As part of the agreement, the Sports Direct Group acquired a 50% interest in the BELONG intellectual property rights for a cash consideration of £3.2 million, and a 50% profit share of future profits of BELONG. Sports Direct has also provided GAME with a £35 million capital expenditure facility, which GAME may utilise to fund the venues envisaged under the collaboration agreement, including the costs for new venues and ongoing development of the BELONG website and its related tournament management system.

The retail and gaming sectors are fast moving and currently subject to challenging conditions. Sports Direct does not believe that, as a standalone business, GAME is able to weather the pressures that it is facing which, over the short to medium-term, Sports Direct believes can only become more acute.

To get the GAME retail and BELONG concepts right will also require a higher degree of flexibility than has proven possible under the current collaboration agreement. In a challenged market, the collaboration agreement simply does not go far enough to address the issues GAME faces as a standalone business.

The structural and escalating shift to digital gaming and game streaming will have a significant impact on physical games retailers. The retail market is littered with examples of businesses that failed to adapt quickly enough to changing consumer demands. Sports Direct believes that GAME needs to diversify and future-proof its product mix if it is to keep up with technological developments and ensure that it does not become irrelevant to customers. Whilst Sports Direct believes that GAME and its current management and Board has the capability, relationships and know-how to do this, it does not believe that, in the absence of the wider support detailed above, GAME will be able to make significant enough progress to reinvent its retail offering.

Similarly, Sports Direct believes that BELONG, when looked at against typical retail metrics, and in an area where competition is starting to emerge, is not a significant profit-driver on its own. Whilst Sports Direct continues to believe that the BELONG concept is attractive, it can only see it as a viable business proposition as part of a wider group that can take a more holistic review of its component parts and where BELONG can be combined with a focus on experiential retail creating a halo effect within stores and other physical locations.

Sports Direct therefore believes that the offer, in providing GAME with the wider benefit of Sports Direct's operating and other experience, and increased support including a very strong balance sheet, will secure GAME's future and allow it to navigate the various pressures facing it.

We welcome Game's board's recommendation of the bid, value the unique expertise of the current management team in the gaming market and look forward to working alongside them to deliver a viable and exciting retail and arena experience. At the date of signing this report, GAME had applied to de-list from the London Stock Exchange, given Sports Direct Group's shareholding had exceeded 75%.

During the year it was determined that the Group has significant influence over Game Digital Plc. Game Digital Plc has therefore been recognised as an associate.

FINDEL

We made an unsuccessful bid for Findel during the financial year, although this was speculative, and mandatory, based on the acquisition of 6.9% from a distressed fund, we felt that there were, and still are, strategic partnerships that can be moved forward in the future. Although we felt our bid amount was fair, the board nonetheless strongly disagreed and did not recommend the bid even though we believe they see the value of working with the Sports Direct Group and developing ideas.

We believe and have made clear to Findel's board that we do not consider the Schools' business is fundamental to the Findel group and indeed is not particularly in synergy with its wider activities, thus as the largest shareholder we have recommended it should be sold. Whilst we understand the board needs to assess the future of the Schools business, including all stakeholder requirements, and any potential sales price, based on facts available only to them, we would recommend that a disposal should be looked at as soon as possible.

FRENCH CONNECTION

We continue to have an arms-length supplier/retailer relationship with French Connection, and we consider this relationship to be strong and working well. We do not participate in management decisions nor do we have access to management information and these have not been sought or granted. We note that French Connection has been reviewing strategic options, including a possible sale, since October last year. We believe this process has gone on far too long, and urge management to reach a favourable conclusion for all shareholders as soon as possible.

HOUSE OF FRASER

During the financial year we acquired the trade and assets of House of Fraser for £90m, invested close to that to kick start the supply chain and signed up to the £95m purchase of the flagship Glasgow Frasers store to show we were serious with our investment and strategy.

However, as we have continued to look under the bonnet as we integrate the business, we have found that the problems are nothing short of terminal in nature. Serious under investment in stores and appropriate support services, excessive and unsustainable outsourcing and financing, and selling brands to their Chinese parent shortly before administration are just some of the many problems faced. The previous Chairman, Frank Slevin exemplified city greed and excess, and as House of Fraser's future became terminal with people losing their jobs and with more to follow, Mr Slevin thought it suitable to retain these extravagances not appropriate to a business in its death spiral.

There was the widely publicised closure of the website and warehouses as we tried to get the business moving in the first days after the acquisition which meant the business was starting on the back foot as we tried to save jobs and stores. Despite the frustration on our part we understand the position the likes of XPO were put in when being so fantastically out of pocket because of the previous management's mixture of misplaced optimism or worse, downright lies.

As well as support services suppliers, the brands within House of Fraser had taken a significant hit when the company went into administration. Again based on either misplaced optimism or falsehoods from House of Fraser management, the brands put more skin in the game than management deserved and paid a price for their loyalty. We had to quickly work with these brands to get the business moving again and restore trust and I am pleased and grateful to say that the vast majority of brands understood we were here to help, our vision for the future, and saw a mutually beneficial opportunity going forward.

We have done as much as we could realistically do to save as many jobs and stores as possible, and indeed we appreciate many landlords and local authorities have worked hand in hand with us as we tried to do this. However, there are still a number of stores which are currently paying zero rent and that are still unprofitable and unfortunately this is not sustainable. We are continuing to review the longer-term portfolio and would expect the number of retained stores to reduce in the next 12 months.

On a scale out of 5, with 1 being very bad and 5 being very good, House of Fraser is a 1, albeit we are trying very hard to turn the business around this will not be quick and it will not be easy. Even though we do believe there could be a bright future for House of Fraser, and indeed have publicised our Frasers vision which we are very excited about, if we had the gift of hindsight we might have made a different decision in August 2018.

In conclusion, unscrupulous and/or incompetent management have in this case, and in others within the retail market been shown to be largely untouchable by authorities or stakeholders.

AUDITORS

We have noted inaccurate reports of an audit tender process being run in 2019, this is not the case. We have been in contact with a number of the big 4 firms to try and build a relationship in anticipation of a tender process in due course. The last tender process was in 2016.

Grant Thornton have been the SD Group auditor since 2007 and the first year-end subject to audit after this date was the April 2008 year-end. In line with mandatory rotation rules their last possible year will be the April 2027 year-end.

The SD Group has grown exponentially in size, geography, and complexity over recent years and we do not believe a firm outside of the Big 4 will potentially be able to cope with such an audit in the future. However, we currently have Grant Thornton who have vast experience of the Sports Direct Group and our intention is to ask our shareholders to approve their reappointment for a further year at the AGM.

Our early discussions with the big 4 have thrown up some barriers; Deloitte who do our tax compliance and advisory work cannot perform audit work at the same time and thus would currently be unable to tender. KPMG have indicated conflicts of interest based on an existing portfolio of clients, however we do not believe based on our understanding of big 4 independence procedures that this is insurmountable. EY had some reluctance based on their close proximity to the House of Fraser administration which they ran, however as time has passed we do not believe this should be a barrier when a tender process is run. PwC have had some widely publicised fines in recent years and we understand there is a reluctance to engage based on our ownership structure. I would note that we have in the financial year taken on two very skilled, independent non-executive directors to assist us in maintaining a level of challenge and guidance to the executive team. I would also note that companies with supposed strong levels of corporate governance consisting of huge boards, many board meetings and management packs in the tens and hundreds, which the big 4 have been more than happy to audit, for instance Debenhams or Carillion, have been shown to be seriously lacking in what should be important to investors, and indeed auditors, transparency, true and fair accounts, and realistic communications and expectations to the market. We adhere to our core principles in our dealings with investors and the market in general, namely being conservative, consistent and simple.

There have also been inaccurate reports that Sports Directs 2018 year end accounts were being investigated, we reiterate that it was the audit of the financial statements by Grant Thornton and not the preparation of accounts by Sports Direct that were being reviewed, not investigated, by the Audit Quality Review Team. We would also note that FRC's Audit Quality Review team review on rotation which is a normal part of their procedures and we understand the Sports Direct audit has not been picked for any other reason.

ACCOUNTING POLICIES

Inventory provisions

To further provide transparency to the market we wish to provide more clarity on the reasons behind our inventory provision which is an outlier in the retail sector.

Sports Direct is a special case when it comes to our position in the retail market and our relationship with third party brands. We cannot be compared with any other retailer and thus trying to fit our judgements into the norm is completely illogical. There is no black and white supporting evidence or historic analysis that supersedes our knowledge and experience which indicates that a level of provision is required that is not fully quantifiable through normal methods. We hold a consistent provision within the boundaries of our analysis and judgement, which means higher inventory levels will mean a greater provision and lower inventory levels mean a lower provision, inherently this is a logical position to take before going into any further detail. We have no wish to manipulate an inventory provision year on year because there is no definitive piece of paper to support the provision level.

To give more clarity on the judgemental elements of our inventory provisions highlights the brand pressure we are under from some of our key suppliers.

A number of years ago our key third party suppliers said that the Sports Direct group had to elevate its offering away from a traditional discount model of 'stack them high sell them low'. As has been well documented in our annual reports and in the media in recent years we have been on a program of serious investment in our elevation strategy including the purchase and superior fit out of freeholds. Even though our third party brand partners by their own admission think we have done a superb job of elevating our stores, we still do not receive as quickly as we would like the premium product we feel the stores deserve. This, combined with our competition getting stronger, increases the risk of us being cut off completely by these suppliers. When we are not providing the right product at the right time at the right price the consumer will not visit our stores and thus ancillary purchases will not be made, hence a greater risk against our remaining inventory.

As another example with some inventory that we have been allowed by the third party brands, we are purchasing significant levels of inventory cover to ensure we have sufficient product to drive footfall in the future, with greater inventory cover there is greater risk of the products going out of fashion. This is not quantifiable with supporting pieces of paper hence a judgement needs to be and has been taken. These relationships also come in an increasingly difficult, and indeed unpredictable retail market hence an historic view cannot be considered on its own to be a useful indicator of future outcome.

Further information with regard to the Group's significant judgements in relation to the inventory provision will be provided within the critical accounting judgements and estimates of the Annual Report.

Accounts presentation

We want to be as clear as possible to the market on how we account and what our assumptions are, thus we welcome any suggestions from our shareholders and the analyst community on what would be helpful to them in how we present our accounts. We will then do our best to accommodate as best we can in practical and regulatory terms. As in any normal audit process there are adjustments proposed by the auditors, some of these which we have agreed are very conservative.

RETAIL MARKET

The current bricks and mortar retail market is in dire straits and without substantial support from the Government in particular it is in a terminal state. I noted at the Commons Select Committee in December 2018 that the patient was at the bottom of the pool, nothing has happened since then to indicate a change in fortunes in the British High Street. The MPs who showboated, and in the case of MP for Slough Tanmanjeet Singh Dhesi, lied regarding what I said about saving House of Fraser stores, rather than being interested in saving the High Street showed that they are either not interested in genuinely helping the High Street, are incapable of doing, or are so distracted with other matters such as Brexit as to not have time to do anything about it. Unfortunately, I would have sympathy with the raft of issues being dealt with in Parliament if I felt they were being handled as best they could, I believe I am in the majority in this country when I say the government and members of parliament from all sides are failing this country economically.

To illustrate how serious the situation is on the High Street, alongside the almost weekly administrations, CVAs, frauds, and profit warnings, the British Retail Consortium showed May 2019 as the worst on record. The Sports Direct Group is not immune to this and indeed if not for the Elevation Strategy we implemented in recent years we would be looking at significant problems in the future. None-the-less, our UK store contribution likes are down 1.6% and we would expect these to be some of the rosier figures from the High Street. Myself and other voices in the retail sector have already noted loudly and clearly some of the measures that should be undertaken to help save high streets, these include an extra tax on online and reform of the business rates regime.

Following on from this, and echoing sentiments from others in the sector, CVAs now seem to be being used carte blanche to penalise creditors and landlords and by extension lead to the more successful retailers subsidising the rotten ones.

REGULATORS

We fundamentally do not believe that advisors, particularly in the distressed and restructuring space are in anyway regulated appropriately. They are clearly in this space for self-interest to generate significant fees, and absolutely not in the best interests of their clients and other relevant stakeholders. Debenhams and its advisors being a recent relevant example in our opinion. I reiterate my stance that advisors that have been shown to act for their own ends should be fined and jailed.

We believe that regulators focus far too much on historic outcomes rather than preventing future problems when the damage is already done. Using the example of Debenhams, the small independent shareholders of whom many contacted us to offer their support during the restructuring process, have had significant sums wiped out from their pensions and savings because of the destruction of shareholder value by the directors, advisors and hedge funds. This is absolutely material to them and no amount of subsequent investigation by the authorities and regulators will bring them this money back. Sports Direct by contrast although bruised by our lost investment and opportunity can move on to the next matter of business. We recommend a system is implemented that flags to the FCA when a situation or transaction becomes higher risk and means they pick up the phone to warn the advisors in particular that this will be looked at very carefully and they are being warned in public. A real time risk of reputational damage through naming and shaming is likely to be the only thing that will make advisors think twice before implementing a course of action that leads to many stakeholders losing out. I was always told by the city that there was an unwritten rule that all things had to pass the smell test, this is clearly no longer the case.

We have also noted to the FCA that we believe that there should be a voluntary drug test for CEOs and CFOs of listed companies. Having such undisclosed personal issues could lead to blackmail and force CEOs and CFOs to make decisions based on saving their own skin and potentially reducing shareholder value.

Also discussed with the FCA is our view that the unwritten rule to have unanimous board decisions on various topics supports unrealistic expectations with shareholders and could lead shareholders to make uninformed and potentially disadvantageous strategic decisions. There is rarely in our view circumstances where all board members are completely aligned with a point of view and we believe board dissention is a healthy part of a board's normal processes and procedures, and indeed on market moving decisions should be made public for listed businesses.

FLANNELS

In contrast to House of Fraser, on a scale of 1 to 5 we would rank Flannels as a 4, being good. We think we can push this up to a 5 in the near future with further support from the luxury brands, for the benefit of all stakeholders. As part of the Elevation Strategy led by Michael Murray, Flannels stores and website continue to go from strength to strength. As part of the Premium Lifestyle division they have grown from sales of £60.4m in FY17 to £173.9 in FY19. Our latest stores, including in Newcastle, highlight our premium offering which is bringing much needed investment and success into the UK High Street.

BRAND RELATIONSHIPS

We took up our third-party brand partners' challenge several years ago to elevate our store offering so that we could showcase the best of what they have to offer. This has involved significant effort and investment in freehold properties and store fit outs, as well as brand relationship management.

Although we are far from finished with our elevation strategy across the Group we feel we are sufficiently advanced as to have met and indeed bettered what the third party brands required of us. However, we believe that having carried out our part of the plan with best intent we have not yet been granted access to the premium product as quickly as we feel these stores deserve.

We want to flag to the market that based on our current position our relationships with key third party brands remain challenging although we are attempting to improve on these as a significant work stream of senior management within the Group.

CONSENSUS

Our acquisition of House of Fraser as noted above has led to significant uncertainty as to the future profitability of the group as a whole, albeit not impacting the going concern assessment of the group. There are significant operational and investment issues we are trying to rectify based on the appalling mismanagement of House of Fraser, prior to its acquisition by the Sports Direct Group, that led to its downfall. Although we have put significant effort into integrating the business into the Sports Direct operational model, including its processes and KPIs, we are still some way from reaching an operating norm. We cannot yet confirm, or even predict, with enough material accuracy what the overall estate will look like in the near term, and this will depend on a combination of factors including brand allowances, current and projected store performance, and rental deals. To be able to invest in the estate, including experiential, we need to confirm the longer-term estate via freehold acquisitions and longer term leases. We believe this will help drive improved performance through greater brand allowances and increased footfall.

Based on this we will not be giving a consensus to the market for FY20 performance. Any projections produced by third parties such as research analysts are not produced on behalf of Sports Direct International plc and Sports Direct International plc takes no responsibility for such projections. As a result prospective investors and other market participants should not treat, and Sports Direct International plc does not intend to treat, the financial projections produced by third parties as indicative of the market expectations of Sports Direct International plc's future financial performance. We specifically note that we are under no obligation to correct estimates made by financial analysts or to inform the market should we come to believe that our actual performance will differ from those estimates. This is not our normal approach, nor a normal approach taken by most listed businesses, however given the current circumstances outlined above we feel it is the correct course of action and it is important that investors understand this current differentiation.

We will review the current situation again at the half year and depending on factors mentioned above being resolved to a suitable extent we may be able to give guidance at that point.

KAREN BYERS

Karen Byers has been an invaluable member of the Sports Direct team for over 28 years, however as the focus of the Group moves to an elevated offering, including shop fits, this meant that Karen was no longer able to do the things she loved and was good at for so many years. Many elements at which Karen excelled now fall under the remit of third-party brands as we create the elevated stores they and our customers now demand. We wish her well for the future and consider the door to always be open if she wants to re-engage with the Group in a consultant role.

JON KEMPSTER

We have today announced that Jon Kempster, the Chief Financial Officer, will step down on 11 September 2019. Jon came in during a transitionary period and his knowledge and experience has helped to guide the Group through this stage in its development as well as passing on vital knowledge to those around him. Jon was proactive in forging improved relationships with the market and we believe we are in a better place in this regard than when he first started. Jon came in as Group CFO despite the negative perception of the business and how it was run. Jon and ourselves believe he has found that actually this is a very well run business with far less corporate governance issues to deal with than the markets and the media have incorrectly smeared us with. We thank Jon for his time and effort during his two years with us and wish him the best of luck in his future endeavours. Jon is handing over smoothly to Chris Wootton our current Deputy Chief Financial Officer and I believe the knowledge and experience passed on by Jon and others within the Group puts Chris in a great place to succeed and help drive the Group into the next phase of its development.

CAMERON OLSEN

For personal reasons Cameron Olsen has chosen to move back to his native Australia and we wish him all the best in his future endeavours and thank him for his support whilst a member of the Group.

NEWCASTLE UNITED

In the current and prior year we have in the ordinary course of business been charged £1m per season for advertising rights whilst Newcastle United are in the Premier League, this is covered in the related party note in the financial statements. For the football season beginning in August 2019 the Sports Direct Group will be charged £2m for the advertising rights. Sports Direct still considers this to be value for its shareholders.

MALAYSIA

I wanted to congratulate our fast-growing Malaysian business which we operate and own alongside a local team. June 2019 was a significant milestone for the business in Malaysia. Our team beat the shortlisted competition from pharmaceutical, oil & gas, construction and manufacturing to pick up the 'Malaysia Business of the year' accolade from the Malaysian Finance Minister. This was audited by the British & Malaysia Chamber of Commerce and judged by an independent panel, based on business growth, market impact, customer service and consumer feedback.

We are extremely proud of our staff and local management team and look forward to the continuing growth and success of this business.

SHARE BUYBACKS

We have continued our share buyback program during the closed period to 25 July to continue to signal to the market our belief in the strength of the group. As our elevation strategy continues to materialise we have growing confidence in a successful future for the group in the mid to long term, thus until further notice all future buyback programmes will be up to the maximum daily volume allowed under MAR rules, currently 25%. With this in mind today we announce a new share buy programme from 30 July 2019 for the period up until the AGM on 11 September 2019. The aggregate purchase price of all shares acquired under the Programme will be no greater than £30m. The maximum number of shares that may be purchased under the Programme will be 10m ordinary shares.

SHIREBROOK SALE AND LEASEBACK AND THE NEW LONDON OFFICE

The Group has grown substantially in the last year, particularly with the acquisition of House of Fraser and the opening of our London office, Academy House. The latter has enabled us to interact more directly with suppliers, banks, brands and other associates based in or as regular visitors to London, all key relationships to the ongoing success of our business.

During the post year end period we completed the sale of the Shirebrook campus for £120.1m and its lease back by the Sports Direct Group of the site for 15 years. Shirebrook and its functions remain key to the operational success of the Sports Direct Group and we look forward to working closely with the site's new owners to ensure that remains the case. The Group's elevation strategy continues to be a success as we roll this out further and further and it would not be possible without the support and capabilities of Shirebrook.

UNIONS

There continues to be repeated reference to the Shirebrook warehouse as a 'Victorian Workhouse' by sections of the media amongst others, referring back to a phrase coined by Iain Wright, a former MP who we complained about regarding a donation he received from the trade union Unite.

I have mentioned on numerous occasions the true reason behind the attack by the unions on Sports Direct and will mention here again for the record, and I will repeat this every year. On Tuesday 4 October 2016 Luke Primarolo, Regional Officer, Unite Union and Steve Turner Assistant General Secretary Unite Union were taken on a tour of the facilities at Sports Direct Head Office, Shirebrook. Time was spent in each of the retail units in Shirebrook, then the Main offices and the canteen, and finally the warehouse. Both Mr Primarolo and Mr Turner engaged in a long and interactive discussion with myself into how Sports Direct works, how Sports Direct is run by the people of Sports Direct but how difficult the focus on the business has been. It was during the tour that Mr Turner said to me "It was the Agencies we were after"… "We had to get you in order to get to the agencies".

What Mr Turner had said made me realise that their wilful and purposeful attempt to destroy the business everyone in Sports Direct works incredibly hard for, was nothing more than a throwaway by-product of their ultimate goal of getting to the employment agencies.

KEY PERFORMANCE INDICATORS

The Board manages the Group's performance by reviewing a number of Key Performance Indicators (KPIs). The KPIs are discussed in this Chief Executive's Report and Business Review, the Financial Review, and the Corporate Social Responsibility section. The table below represents a summary of the Group's KPIs.

(1) The method for calculating underlying EBITDA is set out in the Financial Review.

(2) Sports Retail margin is shown after adjustments for inventory provisions and hedging revaluations.

(3) The method for calculating underlying basic earnings per share is set out in the Financial Review.

(4) Excluding associates and stores in the Baltic states that trade under fascias other than SPORTLAND or SPORTSDIRECT.com. and other niche fascias. Includes USC fascia.

(5) Cardboard and plastic recycling.

Group revenue

The Board considers that this measurement is a key indicator of the Group's growth.

Underlying EBITDA

Underlying EBITDA shows how well the Group is managing its trading and operational efficiency and therefore the overall performance of the Group.

Sports Retail gross margin

Includes the Group's UK Sports Retail and European Sports Retail divisions. The Board considers that this measurement is a key indicator of the Group's trading profitability.

Underlying basic earnings per share

Underlying basic EPS is a measure of total shareholder return and ultimately an indicator to our shareholders of the success of our elevation strategy.

Free cash flow

Free cash flow is considered to be an important indicator for the business of the cash available for investment in the elevation strategy.

Net debt

Net debt is an indicator of both the Group's investment in the elevation strategy and its covenant headroom which is a key component of the Group's going concern considerations.

No. of Sports Retail stores

The Board considers that this measurement is an indicator of the Group's growth, the Group's elevation strategy is replacing older stores and often this can result in the closure of two or three stores to be replaced by one larger new generation store.

Workforce turnover

The Board considers that this measurement is a key indicator of the contentment of our people.

Packaging recycling

The Board considers that this measurement is a key indicator of our impact and commitment to the best environmental practices.

PERFORMANCE OVERVIEW

Group revenue increased by 10.2% to £3,701.9m in the year. UK Sports Retail increased by 0.3% to £2,187.3m, which includes USC fascia sales. European Sports Retail decreased by 5.9% to £599.8m including Heatons Republic of Ireland. Premium Lifestyle revenue increased by 26.3%, with revenue in the Wholesale & Licensing division down 12.2%. Rest of World Retail revenue was £215.9m, up 12.2%. House of Fraser sales were £330.6m since acquisition.

Group gross margin in the year increased by 310 basis points from 39.7% to 42.8%. This was largely due to price resetting, adjustments in the prior year relating to acquisition accounting as a result of the purchase of the trade and assets of Bob's Stores and Eastern Mountain Sports, and prior year increased inventory provisions as all divisions invested in more significant product offerings. UK Sports Retail margin was up 130 basis points at 42.1% (FY18: 40.8%) while European Sports Retail increased 280 basis points from 40.8% to 43.6%. Premium Lifestyle's gross margin increased by 610 basis points from 33.3% to 39.4% due to improved sell through as the product mix continues to improve. Rest of World Retail margin was 40.2%, with the prior year margin of 30.0% including acquisition adjustments. Excluding acquisition adjustments, Rest of World FY18 margin was 39.1%.

Group operating costs increased by 26.1% to £1,287.1m (FY18: £1,020.3m), mainly due to the inclusion of House of Fraser overheads. Excluding House of Fraser and other acquisitions, Group operating costs decreased by 1.0%. See Financial Review for reconciliation of Group operating costs to selling, distribution & administrative expenses.

As a result, Group underlying EBITDA (pre-Share Scheme costs) for the year was down 6.0% to £287.8m (FY18: £306.1m). Excluding current year and prior year acquisitions, Group Underlying EBITDA for the year was up 9.5% to £357.4m. UK Sports Retail underlying EBITDA was down 4.7% to £264.7m while European Sports Retail underlying EBITDA was up 109.3% to £29.3m from a prior year of £14.0m. Premium Lifestyle underlying EBITDA was up 117.5% to £13.7m from £6.3m, Rest of World Retail was a loss of £0.9m, from a £22.3m loss and Wholesale & Licensing underlying EBITDA increased to £32.6m from £30.2m.

The depreciation and amortisation charges have decreased by 19.5% to £125.4m (FY18: £155.8m restated from £139.4m), with acquisitions having minimal impact.

Group Underlying Profit before tax increased 5.0% to £143.3m (FY18: £136.5m restated from £152.9m), due to the inclusion of House of Fraser, but offset by lower depreciation and amortisation charges. Underlying basic EPS for the year decreased by 7.9% to 17.6p (FY18: 19.1p restated from 19.9p).

The Group generated free cash flow during the year of £273.3m, down from £326.2m in the prior year. Net debt decreased by £18.6m to £378.5m at year end, with the spend on acquisitions and related working capital offset by disposal of investments and properties and slightly reduced capital expenditure combined with continued strong cash generation in the core business. Net debt currently stands at 1.3 times reported EBITDA (29 April 2018: 1.1 times).

REVIEW BY BUSINESS SEGMENT

The UK Retail division includes the Sportsdirect.com and USC fascias. Premium Lifestyle includes the Flannels, Cruise and van mildert fascias. European Retail includes continental Europe and Republic of Ireland retail stores. Rest of World Retail includes US and Asia retail and e-commerce results. These segments best show the operational activity of the Group, with the UK entrepreneurial hub serving both the UK and European markets, and the US and Malaysian activity taking advantage of the Group's strong supply chain relationships. The House of Fraser acquisition and integration has taken place during the period and is being actively managed by the central UK function.

UK SPORTS RETAIL

The UK Sports Retail segment includes all of the Group's sports retail and USC store operations in the UK and Northern Ireland, all of the Group's Sports Online business (excluding Bob's and Eastern Mountain Sports, and Malaysia), the Group's Fitness Division and the Group's Shirebrook campus operations. UK Sports Retail is the main driver of the Group and accounts for 59.2% of Group revenue.

Revenue grew 0.3% to £2,187.3m, excluding the acquisition of Evans, revenue fell 2.9%.

UK Sports Retail gross margin increased to 42.1% (FY18: 40.8%). The foreign currency effect on margin for FY20 is expected to improve based on USD forecast purchases for FY20 being hedged at approx. 1.42.

Operating expenses increased by 7.1% due to the addition of Evans during the year. Excluding acquisitions, operating expenses decreased by 1.0%. Store wages were down on the prior year at £153.2m (FY18: £174.9m) and as a percentage of store sales it decreased to 9.1% (FY18: 10.4%). This was offset by increases to onerous lease provisions.

Underlying EBITDA for UK Sports Retail was £264.7m (FY18: £277.9m), a decrease of 4.7% for the year.

UK SPORTS STORE PORTFOLIO

PREMIUM LIFESTYLE

Premium Lifestyle consists of Flannels, Cruise and van mildert fascia stores and corresponding web sales.

Premium Lifestyle sales increased by 26.3% to £204.8m (FY18: £162.1m), mostly due to new Flannels stores and increased web sales. The Premium Lifestyle gross margin for the year increased by 610 basis points to 39.4% (FY18: 33.3%), largely due to improved buying disciplines.

Premium Lifestyle operating costs increased by 40.8% to £67.0m (FY18: £47.6m) due to the increase in Flannels fascia stores. As a result, Underlying EBITDA grew 117.5% to £13.7m (FY18: £6.3m).

At the year end, the Premium Lifestyle division traded from stores under three main fascias.

HOUSE OF FRASER

On 10 August 2018, the Group acquired the trade and assets of House of Fraser, including the brand, inventory, certain property, plant and equipment, the right to trade from 59 stores and all the staff. As at 28 April 2019, 54 stores were still trading.

House of Fraser operates a significant number of concessions within its stores, where House of Fraser acts as Agent for the sale of the concession owned inventory. Revenue from concession sales is required to be shown on a net basis, being the actual commission received rather than the gross value achieved on the sale. In order to understand the value of overall activity of the Group we have disclosed below the Gross Transaction value (GTV) being gross sales net of VAT, discounts and returns and gross sales where the Group acts as Agent.

EUROPEAN SPORTS RETAIL

European Sports Retail contains the Sports Retail stores in Continental Europe and the Republic of Ireland.

Revenue fell 5.9% to £599.8m. On a currency neutral basis, European Sports Retail revenue decreased by 5.5% largely due to changes in the store portfolio.

European Sports Retail gross margin increased to 43.6% (FY18: 40.8%) with the prior year reduced due to inventory provisions and shrinkage adjustments. The majority of forecast USD / EUR purchases are hedged in FY20 at USD / EUR 1.2 (see note 29).

Operating expenses decreased by 5.8%, to £232.2m (FY18: £246.6m). Store wages in the year were down to £97.4m (FY18: £100.4m) and as a percentage of sales it increased to 16.3% (FY18: 15.7%). In the current year, provisions were made for onerous leases in poorly performing stores of £23.6m (FY18: £9.0m).

All of the following stores are operated by companies wholly owned by the Group, except Estonia, Latvia and Lithuania where the Group owns 60.0%.

EUROPEAN SPORTS STORE PORTFOLIO(1)

(1) Includes only stores with SPORTSDIRECT.com and SPORTLAND fascias

(2) Excluding Heatons fascia stores

REST OF WORLD RETAIL

Rest of World Retail includes sports stores in Malaysia trading under the SPORTSDIRECT.com fascia which continued to expand with 3 stores opened. Sales are now £41.6m with gross margins of 45.9% (FY18: sales £33.1m and gross margin 45.6%).

Rest of World Retail sales were £215.9m for the year. Gross margin was 40.2%, up from 30.0% in the prior year and underlying EBITDA loss was £0.9m, improved from a loss of £22.3m in FY18. The improvements are due to prior year acquisition accounting for Bob's Stores and Eastern Mountain Sports, and prior year increased inventory provisions.

There are currently 51 stores in the US. In Malaysia the Group has 33 stores which are 51.0% owned by the Group.

WHOLESALE & LICENSING 

The portfolio of Group brands includes a wide variety of world-famous sport and lifestyle brands. The Group's Sports Retail division sells products under these brands in its stores, and the Wholesale & Licensing division sells the brands through its wholesale and licensing activities. The Wholesale & Licensing division continues to sponsor a variety of prestigious events and retains a variety of globally-recognised, high-profile celebrities and sporting professionals as brand ambassadors.

Wholesale & Licensing total revenue decreased by 12.2% to £163.5m (FY18: £186.3m). Wholesale revenues were down 11.9% to £136.0m (FY18: £154.3m), due to reductions in UK wholesale activity. Trading in the US market was in line with expectations and now represents approx. 60% of total wholesale sales.

Total gross margin increased by 270 basis points to 41.6% (FY18: 38.9%). Wholesale gross margins increased 360 basis points to 29.8% (FY18: 26.2%) mainly due to changes in the distribution mix with a lower proportion of low margin direct delivery sales.

Licensing revenues in the year were down 14.1% to £27.5m (FY18: £32.0m). During the year we signed 12 new licence agreements and renewed several existing licenses, covering multiple brands, product categories and geographies, with minimum contracted values of $20m over the life of the agreements.

Operating costs decreased by 16.3% to £35.4m (FY18: £42.3m). Underlying EBITDA increased by 7.9% to £32.6m (FY18: £30.2m), with the reduction in licensing revenue offset by reduced overheads.

PROPERTY REVIEW

The elevation strategy developed significantly over the course of FY19 demonstrated by a number of key store openings. Starting with the opening of Thurrock, further elevated multi fascia sites were opened regionally at Denton, Manchester, Merry Hill Shopping Centre and Northwich. The elevated store concept now extends to four different formats and are not limited to large format or multi fascia sites. The pipeline of new generation stores remains strong bolstered by the current UK market conditions being favourable to secure new sites.

The Premium Lifestyle division has been an area of focus having opened 10 new stores over the period. A newly developed 'regional concept' store design has been implemented at new sites in Oxford, Merry Hill and Newcastle which opened shortly after the financial year end. This exciting new concept will complement the London flagship store due to open in FY20.

New stores continue to be opened across the European estate, the recent openings also adopt the new elevated formats in line with what has been delivered in the UK.

Store Portfolio - Sports Stores - UK incl. Northern Ireland

The Group is currently operating 367 stores in England, 37 in Scotland, 28 in Wales and 17 in Northern Ireland, along with 35 other fascias including USC. This represents a net reduction of 9 stores over the period as a result of 13 openings and 22 closures. Despite the net reduction in stores the total sales area has increased to approx. 5.6m sq. ft.

Of the new store openings, locations to highlight include new generation stores at Thurrock, Denton, Manchester, Merry Hill and Northwich. With the exception of Merry Hill all of these are held on a Freehold or Long Leasehold basis.

Over the period and with the continued success of the new generation stores, an elevated concept has been developed across four different store formats - small, medium, large and extra-large. All of which incorporate a lifestyle offer via the newly designed USC section first introduced at Thurrock.

The Northwich store is the first example of a medium format new generation store. Widnes which opened shortly after the financial year end is an executed small format elevated store. These new formats will be implemented for all new Sports Direct stores.

Sports Direct Forecast Openings UK FY20

The Group forecasts that including relocations there will be in the region of 10-20 new generation Sports stores over the coming financial year in the UK, all of which will include the new USC concept first delivered at the Thurrock store.

For our luxury fascia, Flannels, we anticipate 5-10 new stores over the coming financial year including relocations.

Store Portfolio - House of Fraser

The group acquired 59 trading House of Fraser stores during FY19, this has been the area of significant focus to negotiate both interim and long-term lease deals with Landlords in order to stabilise and reposition the business. As at the end of FY19, 5 stores were closed taking the number of trading stores to 54.

Store Portfolio - Premium Lifestyle

Significant progress has been made on the development of the Flannels Estate, specifically the delivery of the new regional concept store designs in Oxford, Merry Hill and Newcastle which opened shortly after the financial year end. A key milestone for the division will be the opening of the Flannels London flagship store in FY20.

Over FY19 there were 10 openings and 3 closures resulting in a net increase of 7 stores. The resulting store numbers for the Premium Lifestyle division consisted of 31 Flannels stores, 8 Cruise stores and 2 Van Mildert stores - a total of 41 stores.

European Retail

Store Portfolio Europe - Republic of Ireland

The Group has continued to invest extensively in the Heatons ROI existing store network through the conversion of a further 15 stores into multi fascia / Sports Direct stores. The Group operates 33 locations across ROI, of which there are 9 standalone Sports Direct stores. In addition to this, there is 1 House of Fraser, and 6 standalone Heatons stores.

Our investment in stores continues to be well-received by our colleagues, local customers and third party brands. In the next financial year, we aim to convert the remaining standalone Heatons stores into multi fascia / Sports Direct stores.

As previously advised and as can be seen to date we remain committed to roll out more of the new generation store format with a particular focus on flagship stores across Ireland. The Group forecasts that there will be in the region of 2 - 4 new generation Sports stores over the coming financial year in ROI, all of which will include the new USC concept.

Store Portfolio Europe - Continental

The Group continues to operate sports stores in 19 countries in Europe.

·; 218 Sports retail stores in Continental Europe (plus 13 non-core, speciality and outlets)

·; Total sq. ft of approx. 2.9m of all sports fascias in Europe (including Eybl, Disport, Sportsworld etc)

·; 8 openings in 4 different countries in FY19, 2 of which were relocations

·; 10 closures in 9 different countries of non-performing stores and where impacted by relocation

·; The Group are committed to expansion in continental Europe and in the immediate months following FY19 opened elevated Sports Direct stores across 3 locations in Portugal, with a further 3 due in Portugal in FY20

·; The Group estimate there will be a total delivery of 10-15 new elevated Sports Direct stores over the coming financial year across continental Europe

Store Portfolio - Rest of World

·; 33 stores in Malaysia, including 3 openings and 1 closure FY19

·; The Malaysian elevation and expansion drive continues, with 1 new elevated store opening in the immediate months following FY19, 1 refit to an elevated store and a further 8 stores under contract for opening in FY20 in an elevated format

·; 51 stores in the USA, including 3 openings, 1 relocation and 1 closure in FY19. 2 stores closed shortly after FY19

Freehold / Long Leasehold Property Purchases

For FY19, a total of 9 acquisitions were completed in the UK amounting to a combined purchase price of £34.1m. (This excludes amounts paid for building improvements to existing freeholds). As announced, contracts were exchanged to acquire the Glasgow Frasers store for £95.0m completing in FY20. A further property was acquired in the USA, amounting to $11.1m.

Further disposals of property assets were completed over FY19 where appropriate and will remain the case over the coming financial year. The most significant disposal completed subsequent to the year end was the groups UK Office and Distribution campus located in Shirebrook.

Mike Ashley

Chief Executive

26 July 2019

FINANCIAL REVIEW

The Financial Statements for the Group for the 52 weeks ended 28 April 2019 are presented in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

SUMMARY OF RESULTS

The Directors believe that underlying EBITDA, underlying Profit before tax and underlying basic EPS provide further useful information for shareholders on the underlying performance of the business in addition to the reported numbers and are consistent with how business performance is measured internally. They are not recognised profit measures under IFRS and may not be directly comparable with "adjusted" profit measures used by other companies.

EBITDA is earnings before investment income, finance income and finance costs, tax, depreciation, amortisation and impairment. It includes the Group's share of losses from associated undertakings and joint ventures. Underlying EBITDA is calculated as EBITDA before the impact of foreign exchange, any exceptional or other non-trading items and costs relating to the Share Schemes.

EBITDA AND PROFIT BEFORE TAX

GROUP OPERATING COSTS

Group operating costs for the purposes of management reporting:

i. Excludes depreciation, amortisation and impairments, share scheme charges and realised FX losses; and

ii. Includes other operating income.

FOREIGN EXCHANGE AND TREASURY

The Group reports its results in GBP but trades internationally and is therefore exposed to currency fluctuations on currency cash flows in various ways. These include purchasing inventory from overseas suppliers, making sales in currencies other than GBP and holding overseas assets in other currencies. The Board mitigate the cash flow risks associated with these fluctuations with the careful use of currency hedging using forwards.

The Group uses forward contracts that qualify for hedge accounting in two main ways - to hedge highly probable Euro sales income and USD inventory purchases. This introduces a level of certainty into the Group's planning and forecasting process. Management have reviewed detailed forecasts and the growth assumptions within them and are satisfied that the forecasts meet the criteria as being highly probable forecast transactions.

As at 28 April 2019, the Group had the following forward contracts that qualified for Hedge Accounting under IFRS 9 Financial Instruments, meaning that fluctuations in the value of the contracts before maturity are recognised in the Hedging Reserve through Other Comprehensive Income. After maturity, the sales and purchases are then valued at the Hedge rate.

The Group also uses currency options, swaps and spots for more flexibility against cash flows that are less than highly probable and therefore do not qualify for hedge accounting under IFRS9 Financial Instruments. The fair value movements before maturity are recognised in the Income Statement.

The Group has the following currency options and unhedged forwards:

The Group also holds short-term swaps for Treasury management purposes.

The Group is proactive in managing its currency requirements, the Sports Direct Treasury team work closely with senior management to understand the Group's plans and forecasts and appropriately discuss and understand financial products with reputable financial institutions including those within the Group Revolving Credit Facility. This information is then used to implement suitable currency products to align with the Group's strategies and forecasts.

Regular reviews are performed by the Sports Direct Treasury team alongside senior management to ensure the continued appropriateness of the currency hedging in place, and where suitable either implementing additional strategies and / or restructuring existing approaches in conjunction with our financial institution partners.

Given the potential impact of commodity prices on raw material costs, the Group may hedge certain input costs, including cotton, crude oil and electricity.

TAXATION

The effective tax rate on Profit before tax in FY19 was 35.3% (FY18: 62.0% restated from 64.4% due to Deferred tax rate changes in the US). The prior year rate reflects the impact of investment losses that are not tax deductible. The underlying effective tax rate remains at approx. 31%, this reflects the impact of the increase in freehold property and related disallowable depreciation.

EARNINGS

Basic earnings per share (EPS) is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the actual financial period. Shares held in Treasury and the Employee Benefit Trust are excluded from this figure.

The underlying basic EPS reflects the underlying performance of the business compared with the prior year and is calculated using the weighted average number of shares. It is not a recognised profit measure under IFRS and may not be directly comparable with "adjusted" profit measures used by other companies.

The items adjusted for arriving at the underlying profit after tax and minority interests is as follows:

DIVIDENDS

The Board has decided not to pay a dividend in relation to FY19. The Board remains of the opinion that it is in the best interests of the Group and its shareholders to preserve financial flexibility, facilitating future investments and other growth opportunities. The payment of dividends remains under review.

CAPITAL EXPENDITURE

During the period, gross capital expenditure amounted to £159.2m (FY18: £213.4m), which includes £48.2m on properties (FY18: £140.0m).

STRATEGIC INVESTMENTS

Strategic investments are an integral part of the Group's overall strategy as discussed within the CEO's report.

The Group continues to hold various other interests, none of which represent more than 5% of the voting power of the investee.

The fair value of the contracts for difference and options are recognised in Derivative Financial Assets or Liabilities on the Group Balance Sheet, with the movement in fair value recorded in the Income Statement.

ACQUISITIONS

During the year, the Group completed the acquisition of the group of department stores operating as Frasers and House of Fraser. During the year, the Group also acquired Evans Cycles the UK's leading specialist bike shop.

RELATED PARTIES

MM Prop Consultancy Limited, a company owned and controlled by Michael Murray (domestic partner of Anna Ashley, daughter of Mike Ashley), continues to provide property consultancy services to the Group. MM Prop Consultancy Limited is primarily tasked with finding and negotiating the acquisition of new sites in the UK, Europe and rest of the world for both our larger format stores and our combined retail and gym units but it also provides advice to the Company's in-house property team in relation to existing sites in the UK, Europe and rest of the world.

In the year properties are assessed and those that are deemed to have completed at the year end are assessed and valued by an independent valuer who confirms the value created by MM Prop Consultancy Limited. The Group's Independent Non-Executive Directors then review and agree the value created and have discretion to approve a payment to MM Prop Consultancy Limited of up to 25% of the value created, as at 28 April 2019 25% has been used (2018: 20%).

In the current year £5.35m has been accrued (FY18 - £5.0m provided but £5.2m eventually paid in the current year) as payable to MM Prop Consultancy Limited and agreed by the Independent Non-Executive Directors.

CASH FLOW AND NET DEBT

Net debt decreased by £18.6m from £397.1m at 29 April 2018 to £378.5m at 28 April 2019. Based largely on the increased use of the Revolving Credit Facility during the year, interest on bank loans and overdrafts increased to £14.5m (FY18: £9.4m).

The analysis of debt at 28 April 2019 was as follows:

The Group's Working Capital Facility is at £913.5m (FY18: £913.5m) available until November 2021 and is not secured against any of the Group's assets. During the year we enacted an extension option for a further year to November 2022 for £847.5m.

The Group continues to operate well within its banking covenants and the Board remains comfortable with the Group's available headroom. Note, due to timing of payroll and supplier payments, net debt at 30 April 2019 was approx. £435.0m (FY18: approx. £485.0m).

CASH FLOW

Total movement is as follows:

Jon Kempster

Chief Financial Officer

26 July 2019

CONSOLIDATED INCOME STATEMENT

For the 52 weeks ended 28 April 2019

The consolidated income statement has been prepared on the basis that all operations are continuing.

The accompanying accounting policies and notes form part of these Financial Statements.

*See note 1 for details of a prior period restatement.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 52 weeks ended 28 April 2019

The accompanying accounting policies and notes form part of these Financial Statements.

*See note 1 for details of a prior period restatement.

CONSOLIDATED BALANCE SHEET

At 28 April 2019

The accompanying accounting policies and notes form part of these Financial Statements. The Financial Statements

were approved by the Board on 26 July 2019 and were signed on its behalf by:

Jon Kempster

Chief Financial Officer

Company number: 06035106

*See note 1 for details of a prior year restatement.

CONSOLIDATED CASH FLOW STATEMENT

For the 52 weeks ended 28 April 2019

The accompanying accounting policies and notes form part of these Financial Statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 52 weeks ended 28 April 2019

The accompanying accounting policies and notes form part of these Financial Statements.

The share premium account is used to record the excess proceeds over nominal value on the issue of shares. The

permanent contribution to capital relates to a cash payment of £50,000 to the Company on 8 February 2007 under a

deed of capital contribution. The capital redemption reserve arose on the redemption of the Company's redeemable

preference shares of 10p each at par on 2 March 2007. The own shares and treasury reserves represent the cost of

shares in Sports Direct International plc purchased in the market and held by Sports Direct International plc Employee

Benefit Trust to satisfy options under the Group's share scheme.

The Company announced on 26 April 2019 that it has instructed Liberum Capital Limited in relation to an irrevocable

non-discretionary share buyback programme to purchase the Company's shares during the closed period commencing

on 29 April 2019 and ending on 18 July 2019. In line with IAS32 Financial Instruments: Presentation the Company

recognised the full redemption amount of £30.0m which is considered to be immaterially different to the present

value at period end. If the contract expires without full delivery, the amount of the financial liability attributable to the

undelivered shares is reclassified to equity reversing the original recognition. As at 25 July 2019, 3,013,558 shares have been repurchased under the closed period share buyback programme.

*See note 1 for details of a prior period restatement.

NOTES TO THE FINANCIAL STATEMENTS

For the 52 weeks ended 28 April 2019

1. ACCOUNTING POLICIES

The financial information, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated cash flow statement, consolidated statement of changes in equity and related notes, does not constitute full accounts within the meaning of s435 (1) and (2) of the Companies Act 2006. The auditors have reported on the Group's statutory accounts for the each of the period ended 29 April 2018 and 28 April 2019 which do not contain any statement under s498 of the Companies Act 2006 and are unqualified. The statutory accounts for the year ended 29 April 2018 have been delivered to the Registrar of Companies and the statutory accounts for the year ended 28 April 2019 will be filed with the registrar in due course.

The consolidated Financial Statements have been prepared in accordance with IFRS as adopted for use in the European Union (including International Accounting Standards) ("IAS") and International Financial Reporting Standards Interpretations Committee ("IFRSIC") and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS as adopted for use in the European Union. The consolidated Financial Statements have been prepared under the historical cost convention, as modified to include fair valuation of certain financial assets and derivative financial instruments.

The period ended 30 April 2017 and 29 April 2018 financial statements have been restated following a review by management into:

Restatement of deferred tax

·; Deferred tax at 30 April 2017 was understated by £16.0m due to the application of incorrect tax rates against a US brand intangible asset

·; Deferred tax at 29 April 2018 was understated by £1.6m following a £14.4m release in the period due to the change in corporation tax rates to 23.1% in the US

Restatement of reimbursement asset & accruals and provisions

·; A reimbursement asset totalling £37.2m was reclassified from accruals and provisions to trade and other receivables at 30 April 2017

·; A reimbursement asset totalling £57.9m was reclassified from accruals and provisions to trade and other receivables at 29 April 2018

·; A reclassification totalling £20.0m was made between accruals and provisions at 30 April 2017

·; A reclassification totalling £18.0m was made between accruals and provisions at 29 April 2018

Restatement of Property, Plant and Equipment

·; A prior period adjustment has been made to correct the prior period balance sheet resulting in an impairment to Freehold land and Buildings assets of £16.4m

The total impact as a result of these reclassifications to basic or diluted earnings per share for the period to 29 April 2018 is 0.8p, profit for the period is £(4.4)m, total comprehensive income £(4.4)m and net assets £(18.2)m.

2. SEGMENTAL ANALYSIS

Management have determined to present its segmental disclosures consistently with the presentation in the 2018 Annual Report. Management consider operationally that the UK Retail divisions (UK Sports Retail and Premium Lifestyle) are run as one business unit in terms of allocating resources, inventory management and assessing performance. House of Fraser was acquired during the reporting period and management is continually working to integrate Sports Direct policies, processes and methodology into this business. Under IFRS 8 we have not at this reporting date met the required criteria with enough certainty to aggregate these operating segments. We will continually keep this under review at subsequent reporting dates. We continue to monitor the impacts of Brexit, and the continued uncertainties this has brought relating to the political and economic environments, and market and currency volatility in the countries we operate in. European countries have been identified as operating segments and have been aggregated into a single operating segment as permitted under IFRS 8. The decision to aggregate these segments was based on the fact that they each have similar economic characteristics, similar long-term financial performance expectations, and are similar in each of the following respects:

• The nature of the products

• The type or class of customer for the products; and

• The methods used to distribute the products

In accordance with paragraph 12 of IFRS 8 the Group's operating segments have been aggregated into the following reportable segments:

1. UK Retail:

a. UK Sports Retail - includes the results of the UK retail network of sports stores and USC stores and concessions, along with related websites;

b. Premium Lifestyle - includes the results of the premium retail businesses such as Flannels, Cruise and van mildert;

c. House of Fraser Retail - includes the results of the House of Fraser stores and related websites;

2. European Retail - includes the results of the European retail network of sports stores;

3. Rest of World Retail - includes the results of US based retail activities and Asia based retail activities, along with related websites; and

4. Wholesale & licensing - includes the results of the Group's portfolio of internationally recognised brands such as Everlast, Lonsdale and Slazenger.

It is management's current intention to run the group as three operating segments being UK and European Retail (including UK Sports Retail, Premium Lifestyle, House of Fraser and European Retail), Rest of World Retail and Wholesale & licensing. Management are satisfied that the UK and European Retail segment will meet the criteria permitted under IFRS 8 to aggregate as one segment in due course

Segmental information for the 52 weeks ended 28 April 2019:

Other segment items included in the income statement for the 52 weeks ended 28 April 2019:

Information regarding segment assets and liabilities as at 28 April 2019 and capital expenditure for the 52 weeks then ended: