15 Jun 2009 16:59
Statement re Annual Financial Report
JJB Sports PLC ("JJB" or the "Company") announces that its Annual Report and Accounts for the 52 weeks ended 25 January 2009 (the "Annual Report") has been published today and is available on the Company's corporate website: www.jjbcorporate.co.uk.
Copies of the Annual Report will be despatched to shareholders next week, when the Annual Report will also be made available for inspection at the FSA Document Viewing Facility in compliance with Listing Rule 9.6.1. The Notice of AGM, which is referred to in the Annual Report, will also be despatched to shareholders and made available for inspection at that time. A further announcement will be made as appropriate.
In compliance with Disclosure and Transparency Rule 6.3.5, the information set out in the appendix is extracted from the audited Annual Report in full unedited text and should be read in conjunction with the Company's preliminary results announcement of 21 May 2009 (the "Preliminary Results"), which can also be found on the Company's corporate website. The information set out in the appendix and the Preliminary Results constitute the material required by DTR 6.3.5 to be communicated in full, unedited text through a regulatory information service. This is not a substitute for reading the full Annual Report. Page numbers and cross-references in the extracted information refer to page numbers and cross-references in the Annual Report.
For further information, please contact
| JJB Sports PLC | 01942 221 400 |
| Sir David Jones | |
| Lawrence Coppock | |
| Maitland | 020 7379 5151 |
| Neil Bennett | |
| Emma Burdett |
About JJB Sports
JJB Sports plc (JJB: LSE) is one of the UK's leading sports retailers. The group, headquartered in Wigan and listed on the Main Market of the London Stock Exchange, trades from over 250 JJB branded retail stores in the UK and Ireland and employs over 7,000 people. Further information about the group can be found on the group's corporate website, www.jjbcorporate.co.uk.
APPENDIX
The Annual Report contains the following statements regarding important events that have occurred during the year on pages 2 to 3:
CHAIRMAN'S STATEMENT
The year to 25 January 2009 has been an exceedingly difficult one for JJB Sports plc. A series of bad business decisions taken by former members of the executive management team and the worsening economic environment brought the Company dangerously close to insolvency.
The wrong strategy
The Company is one of three national chains involved in sportswear retailing in the UK:
> JD Sports with its emphasis on more fashionable brands.
> Sports Direct with its discounting strategy.
> JJB Sports, now aiming to be the destination store for all those "Serious about Sport".
The Chief Executive of the Company during the period under review, Chris Ronnie, led a strategy to try to take market share from JD Sports and Sports Direct. We bought Original Shoe Company ("OSC") and Qubefootwear ("Qube") to form the Lifestyle Division of the Company to challenge JD Sports. These two companies made combined losses of £18 million in the period to January 2009 and resulted in a £30 million cash outflow.
In addition, Chris Ronnie tried to emulate the trading philosophy of Sports Direct by introducing mass-market brands and products at prices well below the original selling prices.
These two diversions from the product policy of the founder of the business, Dave Whelan, affected staff morale and caused confusion particularly within the Company's buying departments, the retail stores, and most importantly JJB Sports' customers, with the inevitable result of falling sales.
I accepted the invitation to become Executive Chairman on 2 January 2009. Chris Ronnie was suspended from his position of CEO on 20 January 2009 pending an inquiry by the Company's legal advisers, Herbert Smith, into disclosure issues relating to his shareholdings and other matters. He was dismissed on 25 March 2009.
Restructuring and refinancing
In early January 2009, I was able to strengthen the Board of Directors by appointing Peter Williams, formerly the CEO of Selfridges, to assist with the restructuring of the Company. Richard Manning, an experienced corporate lawyer, joined the Company at the same time.
The first task was to stop the losses of the Lifestyle Division and OSC and Qube were placed into administration on 19 February 2009.
In addition, the Board, which commenced discussions with its lenders in July 2008, was under severe pressure to reduce its level of indebtedness. Acting under a series of standstill arrangements with its banks, the Company had no alternative but to conduct an auction for the sale of the Leisure Division, the fitness clubs business consisting of 53 gyms with adjoining stores. This process was launched towards the end of 2008 and we completed the sale to Dave Whelan Sports Limited for £83.4 million on 25 March 2009.
On the same date, the Company announced the key terms of a CVA proposal to address the Group's substantial liability on non-trading stores and details of new banking facilities to be made available following the implementation of the CVA proposal.
The CVA proposal invited landlords of 140 non-trading stores to compromise their claims for rent against the Company and its wholly owned subsidiary, Blane Leisure. Under the terms of the CVA proposal, the Company and Blane Leisure are providing a fund of £10 million against which landlords of non-trading stores can claim. The CVA proposal was overwhelmingly approved at meetings of creditors and shareholders held on 27 and 29 April 2009. Following the expiry of a 28 day challenge period, the CVA proposal was successfully implemented on 29 May 2009. This is another important step towards the restructuring of the Company and the first time a CVA in this form has been achieved by a listed PLC.
The financial restructuring has been a nerve-racking experience which is progressing well because of the hard work and dedication of Peter Williams and Richard Manning, and also our advisors - Lazard, KPMG, Herbert Smith, Maitland and Panmure Gordon.
Financial reporting and internal controls
At the time of writing this statement, there remain material uncertainties surrounding the going concern assumption. There are discussed in more detail on page 20 to 21.
As part of the audit of the Financial statements for the period, we have identified a number of areas where the Group can improve its internal systems and controls. Steps are already in progress to address these issues as described in the Business Review and the Corporate Governance report.
Management team and strategic focus
I am delighted that Richard Manning joined the Board on 25 March 2009. As well as his role as Company Secretary and General Counsel, he will also have responsibility for HR, property and property-related issues, IT and warehousing and distribution.
We now have to concentrate on getting the product offer right and reducing further the cost base of a business consisting of 253 retail stores. To help me achieve these objectives, as announced on 18 May 2009, I have been able to persuade Colin Tranter, a very experienced retailer who worked with me at GUS and Grattan, to join the Board.
Any improvement in sales and profits will not be a "quick fix". As a result of our financial difficulties over the last nine months the Company has had to exist with stock levels of 50% below the previous year. Many suppliers have been reluctant to supply stock because of the lack of trade credit insurance and the widely held belief that the Company was likely to go into administration. The lead times between the ordering of product and its delivery can be up to six months and therefore we will not begin to see any significant improvement in sales until the 4th quarter of 2009.
I have experienced difficult times in retailing before, but this is the biggest challenge that I have ever had. We have to revitalise the business in the worst recession in recent times. I am very encouraged by the support we are receiving from our major suppliers, including in particular Adidas and Nike. Since the successful creditor and shareholder votes in favour of the CVA proposal at the end of April, I have been able to visit a number of our stores to explain the recovery plan to the store staff - they, like me, are determined to make the Company successful again.
It is important that I explain my own situation - I will work full time with my team to establish the foundations upon which we can go forward. I am able to make this commitment because I believe most strongly that JJB Sports can re-establish itself as a successful sportswear and sporting goods retailer which will become the destination store for everyone interested in sport. When I am satisfied that we are firmly on the road to recovery and after we have appointed a new Chief Executive, I intend to become the part time Chairman.
Peter Williams, who joined us on an interim basis to assist principally with the restructuring process, left the Company on 31 May 2009 - I would like to thank Peter for a job very well done.
David Madeley, who joined the Company in November 2007 and became Finance Director in April 2008, resigned from the Board on 3 April 2009. I am very pleased that Lawrence Coppock accepted an invitation to join the Board as Finance Director on 18 May 2009.
David Greenwood and Barry Dunn also resigned from the Board during 2008.
It is essential that we have on our Board a strong team of independent Non-executive Directors and we have therefore started the process to find four new Non-executive Directors. Roger Lane-Smith, the former Chairman of the Company and currently Deputy Chairman, and David Beever, who have both been directors for over nine years, will retire from the Board at this year's Annual General Meeting. I would like to thank them both for their support during the short time that I have been Chairman.
On behalf of the Board I would like to thank our shareholders for their understanding through these challenging times and for their continued support as we move into a new phase for JJB Sports.
And finally, I would like to thank the thousands of loyal employees who, over the last 18 months, must have feared for their jobs. They deserve to have a good profitable company to work for - I and my colleagues on the Board will endeavour to give them that.
Sir David Jones
Executive Chairman
15 June 2009
The Annual Report contains the following statements regarding important events that have occurred during the year on pages 7 to 8:
Post Balance sheet events
Administration of the Lifestyle Division
On 19 February 2009, Original Shoe Company and Qubefootwear, the two companies comprising the Lifestyle Division, were placed into administration. The board of directors of Original Shoe Company and Qubefootwear respectively appointed Messrs. Fleming, Costley-Wood and Nimmo of KPMG LLP as joint administrators.
Disposal of the fitness clubs business
On 25 March 2009, the Company completed the disposal of the fitness clubs business comprising 53 fitness clubs, adjoining stores and related stock to Dave Whelan Sports Ltd, a company controlled by Mr David Whelan, for an approximate total cash consideration of £83.4 million.
Director update
There have been a number of changes to the Board over the last 12 months as follows, of which all but the first four occurred after the Balance sheet date:
> On 1 May 2008, David Greenwood resigned as Finance Director.
> On 15 October 2008, Barry Dunn resigned as Property Director.
> On 2 January 2009, Sir David Jones was appointed as Executive Chairman.
> On 5 January 2009, Peter Williams was appointed as an interim Executive Director with particular responsibility for strategic development. He later assumed responsibility for financial affairs. As announced by the Company on 18 May 2009, he resigned from the Board with effect from 31 May 2009.
> On 25 March 2009, Chris Ronnie's employment and directorship were terminated.
> On 3 April 2009, David Madeley resigned as Finance Director.
> On 25 March 2009, Richard Manning was appointed to the Board as Legal Director. He was appointed Company Secretary on the same date. He now holds the post of Legal and Operations Director and continues as Company Secretary.
> On 18 May 2009, Lawrence Coppock was appointed as Finance Director and Colin Tranter was appointed as Director of Retail and Product.
Company voluntary arrangements
A company voluntary arrangement or CVA is a formal procedure under the Insolvency Act 1986 which enables a company to agree with its unsecured creditors a composition in satisfaction of its debts or a scheme of arrangement of its affairs which can determine how its debts should be paid and in what proportions.
On 27 April 2009 the CVA proposal made by the Company and Blane Leisure received the approval of the requisite majority of the creditors of each company and on 29 April 2009 was approved by the majority of the members of each company. Following the expiry of a 28 day challenge period, the CVA proposal was successfully implemented on 29 May 2009.
In summary, now that it is implemented, the CVA proposal will:
> compromise claims of landlords of approximately 140 closed retail stores and certain related contingent claims (such as claims of former tenants and guarantors), but not including rates on those closed stores;
> enable landlords of those closed retail stores to make a claim against a total aggregate fund of £10 million, with payments from that fund in two instalments (the first instalment of £5,000,001 on 30 September 2009 and the balance of £4,999,999 on 31 December 2009); and
> vary temporarily the terms of leases of the open retail stores, approximately 250 stores in total, such that rent will be paid on a monthly rather than quarterly basis for a period of 12 months from the next quarter date.
The CVA proposal does not affect the Company's obligations to fitness club premises landlords insofar as those obligations relate to fitness club premises sold to Dave Whelan Sports Ltd on 25 March 2009.
The Company and Blane Leisure will remain liable for rates on the closed retail stores until those stores are surrendered/forfeited or assigned, which shall be at the landlord's discretion. The landlords of open retail stores will not be able to claim against the £10 million fund and will not otherwise be paid a fee in relation to the CVA proposal. Save as set out above in general terms, the CVA proposal does not seek to compromise claims of any other creditors.
Provision of new facilities
The Group entered into a series of extensions to its standstill agreements with its lenders after the year end covering the period up until 17 June 2009 and incurring related lender fees of £8,325,000 (excluding advisers' fees). Certain of these extensions were entered into with Kaupthing, Singer & Friedlander Limited (in administration) ("KSF") at a time when KSF was a related party for the purposes of Listing Rule 11. Further details of the terms of these extensions, including details of the documents, details of KSF as the related party and the fees payable to KSF and all other relevant circumstances are contained in notes 25 and 44 of the Notes to the Financial statements.
On 5 April 2009, Barclays Bank plc ("Barclays") and the Group executed documentation for a short term banking facility of £25 million (the "Barclays Facility") with a maturity date of 31 August 2009 and on 3 April 2009 Bank of Scotland ("BoS") and the Group executed separate documentation for a medium term £25 million revolving facility (the "BoS Facility") with a maturity date of 30 September 2010 to support the Company's ongoing funding requirements. Interest is payable at 450 basis points above LIBOR in respect of both the Barclays Facility and the BoS Facility.
Following the successful implementation of the CVA proposal referred to above, the Company drew down on these facilities on 3 June 2009 to refinance the Company's existing facilities with Barclays and BoS and to repay in full its short term loan with KSF. The operational covenants for these facilities are broadly similar to those under the Group's previous financing arrangements with Barclays and BoS respectively and, in the case of the BoS Facility, contain financial covenants customary in financing arrangements of this nature. Further details are disclosed in note 25 of the Notes to the Financial statements.
As part of the refinancing on 3 June 2009, the standstill arrangements referred to above were terminated. The Company paid an initial arrangement fee of £125,000 to Barclays at the time of signing the Barclays Facility. A further fee of £125,000 was paid prior to first utilisation.
In accordance with the terms of the BoS Facility, the Company issued warrants to subscribe for 11,287,434 new ordinary shares of 5 pence each (the "Warrants") to Uberior Trading Limited (the "Warrantholder"), an affiliate of BoS, on 3 June 2009. As announced on 29 April 2009, the issue of Warrants was approved by shareholders at a General Meeting held on that date.
The terms and conditions of the Warrants were set out in the shareholder circular and Notice of General Meeting sent to shareholders on 6 April 2009. The Warrants are not listed or traded on any recognised investment exchange or stock exchange. The Warrantholder is entitled to exercise the Warrants and subscribe for new ordinary shares at any time between the start date of the exercise period (the 31st day after the earlier of the date of publication of the Company's 2009 Annual Report and accounts and the date of first drawdown under the BoS Facility) and 30 September 2010 (or later if the BoS Facility is extended or refinanced within the lending group). The subscription price per share will be equal to the average market price for the 60 day period beginning 30 days before the earlier of the date of publication of the Company's 2009 Annual Report and accounts and the date of first drawdown under the BoS Facility and ending 30 days after that date. The Warrantholder may request the Company to purchase and cancel the Warrants at any time after the first anniversary of the start date of the exercise period.
The Annual Report contains the following statements regarding principal risks and uncertainties facing the business on page 9:
Principal risks and uncertainties
As the process to strengthen the internal control environment develops, the Board continues to identify and review key business risks and oversees the development of processes to ensure that these risks are managed appropriately. Executive Directors and senior management are delegated with the task of implementing these processes; the Executive Directors are charged with reporting to the Board on their outcomes. In addition to the risks associated with the going concern assumption, the key risks identified by the Board include:
Economic conditions
In common with most retailers, JJB's results can be affected by a number of economic conditions including interest rates, the availability of consumer credit, the level of inflation and movements in consumers' disposable income. All these factors affect the level of consumer confidence and can impact upon revenue achieved. This is particularly relevant at the current time where present economic conditions are having a particularly adverse effect upon consumers' buying habits. In order to mitigate these economic risks, JJB needs to remain competitive through the offer of a wide range of products at reasonable prices and through a strong property portfolio.
Competition
JJB's retail store chain operates in a particularly competitive part of the retail sector and therefore its degree of competitiveness is to some extent affected by the retail pricing policies of its competitors which in turn impacts upon JJB's margins, profitability and market share. JJB is seeking to re-position itself within the market and refocus on its "Serious about Sport" strategy offering quality ranges at varying price points, together with improving its e-commerce capability. A wider range of products will be offered including a greater emphasis on non-clothing merchandise. Senior management will continually review the selection of ranges on offer, ensuring that good value is maintained to meet customer demands.
Key personnel
The success of JJB is partly dependent upon the continued service of its key management personnel and upon its ability to attract, motivate and retain suitably qualified employees. A full review of the Group structure has been undertaken with the result that key staff are now in place to drive the business forward. Competitive remuneration packages will be offered to ensure that key employees are both retained and motivated as well as offering suitable career development opportunities.
Suppliers
JJB is dependent upon its major suppliers continuing to support the Group's business and to design and produce quality product ranges for sale within its retail stores at wholesale prices which will enable JJB to maintain its margins and to compete effectively within the retail sector. JJB continues to develop mutually beneficial relationships with its main suppliers.
The impact of currency
The fall in the value of sterling against the dollar has proved challenging, especially since the Company was required to dispose of the forward foreign exchange contracts we previously had in place.
Availability of credit
The future cost and availability of finance will affect the ability to undertake investment and expansion.
Treasury and financial risks
JJB is subject to treasury and financial risks arising from the security of its existing funds, the ongoing availability of new funds and fluctuations in interest and exchange rates. The Group has adopted a policy of only dealing with creditworthy counterparties and monitors its funding requirements by regular funds forecasting. The Board regularly reviews any requirement to protect the Group against fluctuations in interest rates and exchange rates.
IT systems and business continuity
JJB is dependent upon the continued availability and integrity of its computer systems. Its retail and fitness club operations must record and process a substantial volume of data and conduct inventory management accurately and quickly. This can only be achieved on systems which benefit from continuous enhancements and ongoing investment which will minimise the risk of obsolescence and maintain responsiveness to business needs. JJB is also dependant upon the uninterrupted operation of its computer systems and therefore reliance needs to be placed upon a disaster recovery plan to replicate the data stored on its business critical computer systems. JJB has extensive controls in place to maintain the integrity and efficiency of its IT infrastructure.
Revenue dependence on key sporting events
JJB derives some benefit in alternate years from the sale of replica kits if the England national football team reaches the finals of the two major competitions (the FIFA World Cup and the Euro Championships). This benefit is lost if the England team fails to qualify for the finals of those competitions. In order to mitigate this situation, JJB is implementing measures to reduce the level of dependency on tournament years by concentrating on all major sporting events and offering a wider perennial product portfolio.
Logistics and distribution infrastructure
An important component of JJB's strategy is to maintain a secure and efficient distribution centre in order to ensure prompt and frequent deliveries of inventory to its retail stores. Any disruption to this supply chain could adversely affect the Group's revenue levels.
The Annual Report contains the following statements regarding details of certain related party transactions on pages 92 to 93:
Related party transactions
Transactions with related parties who are not members of the Group
The Group and Company have entered into the following transactions with related parties who are not members of the Group:
| Income from related parties | Expenditure with related parties | |||
| 25 January 2009 £'000 | 27 January 2008 £'000 | 25 January 2009 £'000 | 27 January 2008 £'000 | |
| KooGa Rugby Ltd | 230 | 182 | 500 | 1,680 |
| Source Lab Ltd | - | - | 2,162 | 486 |
| Cotton Traders Ltd | - | - | 858 | - |
| Retail Gateway Ltd | - | - | 106 | - |
| CWM 2001 Ltd | - | - | 107 | - |
| Whelco Holdings Ltd | - | 267 | - | - |
| E-View Properties Ltd | - | 504 | - | - |
| Kaupthing Singer & Friedlander Ltd (in administration) | - | - | 3,146 | - |
| Amounts owed by related parties | Amounts owed to related parties | |||
| 25 January 2009 £'000 | 27 January 2008 £'000 | 25 January 2009 £'000 | 27 January 2008 £'000 | |
| KooGa Rugby Ltd | ||||
| - Loan | 750 | 4,000 | - | - |
| - Trade receivables/payables | - | 1,156 | 3 | 1,786 |
| Source Lab Ltd | - | - | 75 | 208 |
| Cotton Traders Ltd | - | - | 258 | - |
| CWM 2001 Ltd | - | - | - | - |
| Whelco Holdings Ltd | - | 137 | - | - |
| Kaupthing Singer & Friedlander Ltd (in administration) | - | - | 16,120 | - |
In addition, remuneration has been paid to Directors and key management personnel as set out in the Directors' Remuneration report on pages 25 to 31 of the Annual Report and in note 7.
KooGa Rugby Ltd ("KooGa") is an associated undertaking from whom purchases were made by the Company at arms' length prices. Income represents interest which is payable to the Company on a loan made to KooGa at a rate equivalent to that charged on the Company's revolving bank credit facility. The carrying amount of the loan to Kooga has been reduced from £4,000,000 to £nil representing its estimated recoverable amount. The carrying amount of the investment has been reduced to £750,000 based on management's best estimate of its recoverable amount.
The Group made purchases from Source Lab Ltd, a company of which a Director is the brother of Chris Ronnie, the former Chief Executive of the Company.
Cotton Traders Ltd is a Company from which the Group has made purchases and of which Sir David Jones, Chairman of JJB, is a Director and Chairman.
Retail Gateway Ltd is a Company owned by Sir David Jones' son, through which marketing services have been provided to the Group.
CWM 2001 Ltd is a Company owned by Sir David Jones, through which Sir David Jones has provided consultancy services for the Group. The related income has been included in the Directors' Remuneration report on page 25 to 31.
Whelco Holdings Ltd and E-View Properties Ltd are companies owned or controlled by David Whelan, a former director of the Company. They are no longer related parties.
The Company became aware in January 2009 that Kaupthing Singer & Friedlander Ltd (in administration) ("KSF") would be classified as a related party for the purposes of Listing Rule 11, as a result of the holding by Kaupthing Singer & Friedlander (Isle of Man) Ltd ("KSF IOM"), another Kaupthing group company, of over 10% of the Company's issued shares. This shareholding was not notified by KSF IOM to the Company until 13 January 2009. At that time, the Company had already entered into a standstill agreement with Barclays Bank plc ("Barclays"), Bank of Scotland plc ("BoS") and KSF (the "Lenders") dated 10 December 2008 (the "Standstill Agreement") in respect of the period to 30 January 2009. The Standstill Agreement provided, amongst other matters, for the deferral of the final repayment date in respect of the KSF and BoS facilities and allowed the Company to continue to draw down under the Barclays revolving working capital facility, in each case, to 30 January 2009. In consideration, the Company agreed to a margin uplift for each of the Barclays and BoS facilities and to pay fees of approximately £8.3 million in aggregate to the Lenders, with payment of the fees due in February and April 2009 (or on such earlier date upon the occurrence of certain events, such as on the date of completion of the disposal of the fitness clubs business).
Transactions with related parties who are members of the Group
The Company entered into the following transactions with related parties who are members of the Group:
During the 52 weeks to 25 January 2009, the Company has supplied product for resale to Blane Leisure Ltd of £59,029,000 (2008: £87,568,000), to Sports Division (Eireann) Ltd of £12,432,000 (2008: £7,444,000), to TV Sports Shop Ltd of £638,000 (2008: £1,306,000) to Original Shoe Company Ltd of £16,488,000 (2008: £nil) and to Qubefootwear Ltd of £3,529,000 (2008: nil). These transactions are recorded as inter-company transfers and not revenue of the Company. In addition, the Company received a management charge from Blane Leisure Ltd of £2,555,000 (2008: £3,000,000) and from Sports Division (Eireann) Ltd of £127,000 (2008: £104,000). These balances are settled through inter-company accounts.
As at 25 January 2009, the Company had the following balances outstanding with related parties:
| Amounts owed by related parties | Amounts owed to related parties | |||
| 25 January 2009 £'000 | 27 January 2008 £'000 | 25 January 2009 £'000 | 27 January 2008 £'000 | |
| Blane Leisure Ltd | - | - | 148,087 | 160,506 |
| Sports Division (Eireann) Ltd | - | - | 22,761 | 2,228 |
| TV Sports Shop Ltd | - | 2,327 | - | - |
| Dormant subsidiaries | 4,152 | 4,152 | 29,444 | 29,444 |
| 4,152 | 6,479 | 200,293 | 192,178 | |
Balances due from the Original Shoe Company Ltd and Qubefootwear Ltd have been fully impaired following their entering into administration, and Golf TV Ltd's balance has also been impaired and does not therefore feature in the above table.
The Annual Report contains the following statement regarding going concern on pages 20 to 21:
Going Concern
As part of the Group's restructuring and refinancing, the CVA proposal (as described in note 45) was implemented on 29 May 2009 and the Company subsequently moved to new financing arrangements (see note 25) on 3 June 2009. BoS has provided a £25,000,000 revolving working capital facility which terminates on 30 September 2010 and Barclays has provided a £25,000,000 short term loan, which will be repaid progressively as the deferred consideration proceeds from the disposal of the fitness clubs business are received and must be repaid in full by 31 August 2009.
In considering the financing requirements of the Group, the Directors have assumed that: (i) largely all of the deferred consideration of approximately £33.9 million payable, after the deduction of certain costs, expenses and other agreed amounts, by Dave Whelan Sports Ltd, the purchaser of the fitness clubs business, to the Company is released from escrow to the Company by no later than 31 August 2009; (ii) the Company's new business strategy is executed in accordance with its latest business plan for the Group; and (iii) the Company executes its objective of reducing the financing required by the business as its funding position stabilises.
The Directors have reviewed trading and cash flow forecasts as part of their going concern assessment which take into consideration the uncertainties in the current operating environment. The Directors are aware that there are material uncertainties facing the business which are as follows: (i) future trading may not be in line with the assumptions in the Group's latest business plan (the achievability of which is dependent on (a) the ability of the Company to implement and execute its stock replenishment policy; (b) the current economic environment; and (c) the implementation of cost reduction programmes) and forecast cash receipts from the sale of non-core assets (namely (a) from the disposal of the Group's remaining helicopter by the end of June 2009 and (b) from the disposal of the Group's rights to the Slazenger brand for golf products by the end of October 2009) may not be received, leading to future funding shortfalls and, consequently, potential breaches of the covenants in the £25 million medium term working capital facility with BoS; and. (ii) the assignment of the leases in connection with the sale of the fitness clubs business may not proceed in line with the Directors' assumptions and, consequently, the deferred consideration of approximately £33.9 million payable by Dave Whelan Sports Ltd may not be released from escrow to the Company for the repayment of the £25 million short term loan to Barclays by 31 August 2009.
The Group is currently making good progress with 28 of the 53 leases already assigned and a further 20 are at an advanced stage. Each assignment, after the first 28, results in the release of approximately £1.36 million from escrow. If the Group faces a future funding shortfall (or a covenant breach as a result of a future funding shortfall), the Directors propose to provide the necessary additional funding through a number of initiatives, including: (i) a reduction in discretionary capital expenditure on existing stores, including the rescheduling of proposed store refurbishments; (ii) further business restructuring, including streamlining business processes; (iii) negotiation of improved terms of supplier credit; (iv) the sale and leaseback of all or part of the Company head office site; and (v) the sale of one or more of the Company's remaining non-core assets which include the two remaining fitness clubs in Ireland. Work on these initiatives has already commenced and initial indications are encouraging.
The Directors have concluded that the combination of these circumstances represent a material uncertainty which may cast significant doubt upon the Company's and the Group's ability to continue as a going concern and therefore the Company and Group may be unable to continue to realise assets and discharge liabilities in the normal course of business. Nevertheless after making enquiries, and considering the matters described above, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the annual report and financial statements. This Annual Report does not include any adjustments that would result in the going concern basis of preparation being inappropriate.
The Annual Report contains the following statements regarding responsibility for financial statements on page 32:
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements. The Directors are required to prepare financial statements for the Group in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs) and have also elected to prepare financial statements for the Company in accordance with IFRSs. Company law requires the Directors to prepare such financial statements in accordance with IFRSs, the Companies Act 1985 and Article 4 of the IAS Regulation.
International Accounting Standard 1 requires that financial statements present fairly for each financial year the Company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the Preparation and Presentation of Financial Statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs.
Directors are also required to:
> properly select and apply accounting policies;
> present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and
> provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors' Report and Directors' Remuneration Report which comply with the requirements of the Companies Act 1985.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions.
Directors' Responsibility Statement
We confirm to the best of our knowledge that:
1. the financial statements, prepared in accordance with International Financial Reporting Standards, as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
2. the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.
By order of the Board
| Sir David Jones | R.D.J. Manning | |
| Executive Chairman | Legal and Operations Director and Company Secretary | |
| 15 June 2009 | 15 June 2009 |