JJB.L Regulatory News (JJB)

12 Oct 2005 07:01

JJB Sports PLC12 October 2005 12 October 2005 JJB Sports plc Interim results for the 26 weeks to 31 July 2005 JJB Sports plc ("JJB"), the UK's largest sports retailer, announces its interimresults for the 26 weeks to 31 July 2005. Significant matters: 2005 2004 Change (Restated for IFRS) * Revenue £340.4m £363.0m -6.2% Gross margin 49.5% 48.1% Operating profit £17.6m £27.4m -35.8% Earnings per share 7.20p 8.24p -12.6% Interim dividend 3.0p 3.0p • Like-for-like revenue decreased by 8.8 per cent in the face of difficult trading conditions and strong competition on the high street, together with the impact of replica kit sales during the Euro 2004 tournament in the comparative figures for which there was no equivalent competition in 2005. • The gross margin increased due both to a slightly higher gross margin obtained in the retail stores together with increased health club revenue on which a materially higher gross margin is achieved. • Operating profit fell from £27.4 million to £17.6 million. 2005 operating profit benefited from a change in the basis of calculation of depreciation of £4.3 million (see page 4), and from the creation of provisions relating to the OFT penalty of £1.3 million (2004: restated £NIL), see page 3. • The increased rate of expansion within the Leisure Division has seen an increase in revenue of 37.8% and an increase in operating profit, before a share of head office and distribution centre costs, from £4.5 million to £7.6 million, benefiting from the change in the calculation of depreciation of £1.6 million. • The interim dividend is maintained at the same level as last year. • Current trading conditions continue to be difficult, although the decrease in like-for-like revenue for the 10 weeks to 9 October 2005 was 4.3%, an improvement over the results for the 26 weeks to 31 July 2005. * See separate IFRS transition document or see note 1 on page 12 Commenting today, Roger Lane-Smith, Non-Executive Chairman, said: - "These are the first results since I was appointed Chairman in July and it isdisappointing for me to present results which show a lower profit than thatachieved last year. However, JJB, along with many other retailers, cannot escapethe effects of what is clearly an economic downturn in the retail industry whichin turn leads to margin pressure as retailers seek to maintain market share. In the shorter term and particularly during the remainder of the currentfinancial year, I see very few encouraging signs within the retail industry thatwould indicate an imminent end to the difficult trading conditions and strongcompetition that we are currently experiencing. In our core business, I believewe are pursuing the most appropriate strategy to position JJB for improvedperformance in this difficult market which is to supply quality sports relatedproducts from the major brands, supported by value-for-money products under ourown brands. Only JJB offers a full sporting retail experience from our widerange of branded clothing, footwear and equipment. I remain very impressed with the performance and potential of the LeisureDivision. The development of combined health clubs and superstores is an areawhich clearly differentiates JJB from its competitors and is an area which hasconsiderable growth potential at highly attractive gross margins. Since I was appointed Chairman, I have spent a lot of time at the Company andwith all JJB's senior management, in order to become better acquainted with thebusiness and have formed the firm conclusion that the current policies andstrategies being actioned by the Company are appropriate in the currentenvironment and will put the Company into a solid position to take advantage ofany improvements in the retail climate". For further information, please contact: Tom KnightDavid Greenwood 01942 221400JJB Sports Plc Philip GawithCharlotte Barker 020 7379 5151The Maitland Consultancy A copy of this press release can also be viewed on the JJB Sports plc website,www.jjbcorporate.co.uk Results JJB announces its unaudited results for the 26 weeks to 31 July 2005. Theseresults are the first to be prepared under International Financial ReportingStandards (IFRS). The comparative results shown throughout this Interim Reporthave been restated to comply with IFRS accounting standards. Details of the changes in accounting polices arising from the adoption of IFRS,together with restated information for the accounting period of 26 weeks to 25July 2004 and for the 53 weeks to 30 January 2005, have today been published onJJB's website, www.jjbcorporate.co.uk. Operating results The operating results for the 26 weeks to 31 July 2005 and those for the 26weeks to 25 July 2004 are shown below. Revenue Operating profit (1) Operating profit (1) before HO/DC after HO/DC allocation allocation 2005 2004 2005 2004 2005 2004 £'000 £'000 £'000 £'000 £'000 £'000 Restated Restated Restated ______ ______ ______ ______ ______ ______ Standalone 300,801 334,239 35,849 47,064 12,283 24,601stores Leisure 39,594 28,740 7,560 4,480 5,339 2,841Division ______ ______ ______ ______ ______ ______ 340,395 362,979 43,409 51,544 17,622 27,442 ======== ======== Head office and distributioncentre costs (25,787) (24,102)('HO/DC') ______ ______ ______ ______ Operating profit (1) 17,622 27,442 17,622 27,442 ======== ======== ======== ======== (1) Operating profit is stated after charging net exceptional operating items of£1,300,000 (2004: restated £NIL) Total revenue for the 26 weeks to 31 July 2005 was 6.2 per cent lower than thatfor the 26 weeks to 25 July 2004. The decrease in like-for-like revenue oflocations which have been trading for over 52 weeks, comparing the 26 weeks to31 July 2005 with those of the 26 weeks to 1 August 2004, is 8.8 per cent.Revenue within the Leisure Division has increased by 37.8 per cent reflectingthe increased number of combined units which are now in operation. The gross margin achieved in the Group for the 26 weeks ended 31 July 2005 is49.5 per cent, compared to 48.1 per cent in the comparative accounting period.These figures are blended from a gross margin earned within all the Group'sstores of 46.7 per cent (26 weeks to 25 July 2004 - 46.2 per cent) and the grossmargin earned from the leisure facilities of 94.9 per cent ( 26 weeks to 25 July2004 - 95.3 per cent). Trading conditions and competition on the high street have impacted manyretailers including JJB. However, JJB's revenue has also been adversely affectedby comparisons to the summer of 2004 where JJB benefited from sales of footballreplica products during the Euro 2004 tournament. Approximately one third ofJJB's decrease in revenue from its retail stores is attributable to the fall insales of England replica products. The difficult trading conditions have not hada material impact on gross margins. Net operating expenses less income increased by £3.8 million, or 2.6 per cent inthe 26 weeks ended 31 July 2005 when compared to the 26 weeks to 25 July 2004and were affected by: - (a) A charge of £1.3 million (2004:restated NIL) in respect of a furtherincrease in the provision made against possible liabilities in the actionbrought against the Company by the Office of Fair Trading (b) A reduction in the charge for depreciation of £4.3 million, resultingfrom a review of the useful economic lives of certain categories of plant andequipment which had previously been depreciated over 10 years, and (c) Net profits on the sale of store leases of £2.1 million (2004: restated- £1.1 million) The greater part of the increase in operating expenses resulted from theincreased number of Leisure Division sites in operation during the accountingperiod just ended, when compared to last year. Whilst undertaking the impairment review on the value of goodwill in the balancesheet for the introduction of IFRS, the Board of JJB also considered thecarrying value of property, plant and equipment. It found that many items ofproperty, plant and equipment within its operating units, had useful economiclives that more closely matched the length of the short-term lease of theproperty in which they were constructed, rather than the 10 year economic lifewhich had formed the basis of the depreciation charge in previous accountingperiods. The useful economic lives of these items of property, plant andequipment have been restated with effect from 31 January 2005 and the consequenteffect upon the income statement for the 26 weeks to 31 July 2005 is to reducethe charge for depreciation by £4.3 million. The operating profit fell by 35.8 per cent from a restated £27.4 million to£17.6 million. Interest, taxation and dividend Net interest receivable of £461,000 compares to £160,000 in the equivalentperiod last year. The effective rate of taxation on the profit of the Group is 8.1 per centcompared to a restated 30.9 per cent in the comparative period last year. Thelow effective rate of taxation in the accounting period of 26 weeks to 31 July2005 arises following the recent finalisation of a number of years corporationtax liabilities which has resulted in a recalculation of deferred tax arising ondifferences between the net book value of property, plant and equipment andtheir tax written down value. As a result, the deferred tax provision has beenreduced by £4,517,000 in the period to 31 July 2005. The Board has declared an interim dividend of 3 pence per ordinary share, thesame level as the interim dividend declared in the previous accounting period.The Board acknowledge that the maintenance of a company's dividend is of majorimportance to all shareholders and believes that even on a reduced level ofprofits it is appropriate for JJB to maintain the level of its interim dividend.The interim dividend will be paid on 6 January 2006 to shareholders on the shareregister at the close of business on 9 December 2005. The shares will tradeex-dividend from 7 December 2005. Balance Sheet Capital expenditure on property, plant and equipment for the 26 weeks ended 31July 2005 was £31.2 million compared to £16.9 million in the comparativeaccounting period and included £22.1 million on retail stores and combinedhealth club/superstores to open during the current year and £5.4 million on therefurbishment of retail stores. Capital expenditure on intangible assetstotalled £10.2 million (2004-NIL) being principally the £10.0 million spent onthe acquisition of the Slazenger golf brand. The value of inventories at 31 July 2005 of £155.6 million was 5.5 per centhigher than at 25 July 2004. This increase partly arises from a lower thananticipated level of revenue, but also from the increase in the total retailstore selling area of 4.3 per cent. Net debt at 31 July 2005 was £36.1 million (see note 11) and compares to £17.1million at 25 July 2004, reflecting the higher than usual level of capitalexpenditure during the 26 weeks ended 31 July 2005 and the increased value ofinventories. At the Annual General Meeting held on 6 July 2005, the Company was grantedauthority by its Members to make market purchases of up to 5 per cent of itsOrdinary Shares. The authority will expire at the next Annual General Meeting or15 months from the granting of the authority, whichever is the earlier. Nomarket purchases have been made by the Company since 6 July 2005. Operational review------------------ JJB product and brand development The following table shows the percentage of JJB store turnover for each productcategory: 26 weeks ended 26 weeks ended 31 July 2005 25 July 2004 % %Clothing 33.7 34.2Footwear 32.9 31.9Replica kit 12.2 14.5Equipment and accessories 14.4 13.2Golf and cycles 6.8 6.2 _____ _____ 100 100 ===== ===== In common with many retailers, the general economic situation together withincreasing competition have had an adverse impact on the levels of JJB's storeturnover throughout the 26 weeks ended 31 July 2005. Its turnover has also beenadversely affected by the comparison to the summer of 2004, which benefited froma high level of sales of replica product, particularly for England, during thetime of the Euro 2004 tournament. Turnover of England related replica productsfell by over £9.1 million during the 26 weeks ended 31 July 2005, when comparedto the same period of 2004. In addition, the launch date of new kits for two ofthe largest Premier League teams, were in the second half of the currentaccounting period whilst the equivalent launches were in the first half of thelast accounting period. Turnover of JJB's clothing and footwear product categories were lower in the 26weeks ended 31 July 2005 when compared to the first half of the last accountingperiod, but turnover in equipment, accessories, golf and cycle productsmarginally increased. JJB's product strategy continues to be focused on its offering of sports brandedproducts comprising clothing, footwear, replica kit products and variouscategories of equipment and accessories. Almost 50 per cent of its turnovercomes from its principal suppliers of Nike and adidas. Products from these twoprincipal brands are supplemented by products at lower price points from smallersports suppliers and also from products designed and sourced by JJB's own staffand marketed under JJB's mainly exclusive brands of Patrick, Olympus, Lotto, LeCoq Sportif and Slazenger. This strategy provides JJB's customers with a varietyof choice over a range of premium and value-for-money price points. JJB plans toincrease the proportion of its value-for-money products during 2006 in order tocompete more effectively against supermarket chains and other large clothingretailers. JJB maintains a close relationship with its principal suppliers andcontinues to seek to increase its ranges of exclusive products, therebyassisting JJB to differentiate its offering from those of other sportsretailers. JJB's transactional Internet website came into operation in September 2005 andis currently being advertised through a number of different media, including Skytelevision. The fulfilment of the transactions is being dealt with by Zendor,the leading UK distance shopping specialist and initial results have beenencouraging. A range of products is available on the site from all JJB's stockcategories and the Board believe that increased advertising before Christmaswill lead to satisfactory results from the site over this busy season. Slazenger and Maxfli In March 2005, JJB signed a 999 year licence with Slazenger Limited at a cost of£10 million for the exclusive right to design, source and sell Slazenger brandedgolf clubs, clothing, footwear and accessories in the European Economic Area.Slazenger branded products are selling strongly within JJB's own stores withhigher gross margins than are being achieved from golf products purchased fromother suppliers. JJB has also entered into a royalty agreement with "Maxfli" to exclusivelydesign, source and sell its golf clubs, clothing, footwear and accessories inthe UK and Eire. JJB has appointed a sales and marketing manager to pursueSlazenger and Maxfli opportunities in other markets within which JJB believes itcan have some success. The markets under consideration include grantingsub-licences to large European retailers, supplying corporate organisations,golf clubs and golf societies with products containing their own logo togetherwith selling these products to buying groups who supply golf professionals. Teamwear JJB's Professional Teamwear Division continues to build on the base of the 7professional teams it currently supplies; these teams comprise Wigan Athletic,Wigan Warriors, Orrell Rugby Union, Leeds Rhinos, Northern Ireland FootballAssociation, Everton FC and Leicester City FC. Negotiations are taking place toincrease the number of professional teams to be serviced by this Division. JJB stores and store development JJB's property policy continues to be one of gradual migration from smaller highstreet stores to both high street superstores and out of town superstores, wherea more complete range of clothing, footwear and equipment can be displayed. Withthe 5 year rent reviews on out-of-town sites regularly exceeding the rate ofinflation, most of the out-of-town stores that JJB will seek to open in thefuture are intended to be of the combined health club/superstore format where,by negotiation with the landlord, a cap is placed on all future rent reviews. During the 26 weeks ended 31 July 2005, JJB opened 16 superstores (7 of whichwere of the combined health club/superstore format) and 3 "Icon" stores. Duringthis period, JJB closed 16, mainly smaller stores, 8 of which were closed as aresult of openings included in the figure of 16 superstores referred to above. At 31 July 2005, JJB operated from 441 retail stores comprising 195 out of townsuperstores, 106 high street superstores, 113 smaller high street stores, 4small golf stores and 23 icon stores. The selling space totalled approximately4,382,000 square feet, an increase of 4.3 per cent compared to the selling spacein operation at 25 July 2004 and an increase of 3.5 per cent compared to thespace at 30 January 2005. Included in these superstore numbers are 28 unitswhich are combined health club/superstores. This number of retail storescompares to 438 stores in operation at 30 January 2005, which comprised 189 outof town superstores, 102 high street superstores, 123 smaller high streetstores, 4 small golf stores and 20 icon stores, representing 4,234,000 squarefeet of selling space. JJB's icon store format continues to use small high street stores which havebeen closed by JJB when a new superstore location has been opened nearby, butwhere JJB cannot readily dispose of the property lease. They retail a range ofmens fashion brands which are not sold within JJB's stores. JJB has continued to apply its refit policy to certain older stores. A total of8 superstores have had complete refits with 7 smaller high street stores havinga "refresher" which normally includes new flooring, improved illumination andre-paint. The total capital expenditure on these refits is £5.4 million and theexisting book value of plant and equipment totalling £480,000 has been writtenoff to operating expenses. The levels of turnover from these stores since thedate of their refit are better than the average of those of all the otherstores. Leisure Division During the 26 weeks ended 31 July 2005, JJB opened 7 combined health club/superstores (which also included 2 indoor soccer centres). At 31 July 2005, theDivision traded from 28 combined units, which included 6 indoor soccer centres.The 28 health clubs at 31 July 2005 had a combined membership of 116,300 memberswhich compares to the 88,400 members from 21 health clubs at 30 January 2005. The concept of locating a superstore on a mezzanine floor, which has beenconstructed by JJB, with a health club on the ground floor, is unique to JJBwithin the UK. The savings from only paying rent on the footprint and receivingtwo revenue streams from one building enables the benefits in running costs tobe passed on in low membership fees to members which results in health clubmemberships being a very strong value-for-money offering. This value-for-moneyoffering is further supported by the attractiveness to members of awell-equipped gym, swimming pool, health spa, steam room, aerobics studio andbar area which in turn increases the number of members joining the clubs andhence, increases the revenue. The Board are pleased with the operating results of the Leisure Division,particularly taking into account the fact that the trading results of the storeslocated above the health clubs have in common with stores on stand-alone sites,been impacted adversely by the current retail climate. Total revenue for the 26weeks to 31 July 2005 compared to the previous year has increased by 37.8 percent to £39.6 million from £28.7 million. The combined gross margin achieved in2005 for both the leisure facilities and their associated stores increased to71.1 per cent from 70.1 per cent. Direct operating expenses (before a share ofhead office and distribution centre costs) increased to £20.6 million from £15.7million. Direct operating expenses were reduced in 2005 by £1,560,000 resultingfrom the change in the basis of calculation of depreciation referred to on page4. Operating profits before a share of head office and distribution centrecosts, increased to £7.6 million from £4.5 million. The operating profit of the Leisure Division after a share of the head officeand distribution centre costs increased to £5.3 million from £2.8 million, thecomparisons being affected by the change in the calculation of depreciationreferred to in the previous paragraph. It takes an average of 12 months from thedate of opening a health club to its reaching a satisfactory level of maturityand therefore the benefit of opening 7 combined units in the 26 weeks to 31 July2005, will have a much greater effect upon the trading results from February2006 than for those in the current accounting period. The availability of sites for combined units throughout the UK is evidenced bythe 7 openings planned for the remainder of the current accounting period andthe 11 sites already identified for openings during 2006. JJB regards thecontinuing roll-out of the combined units as being a key part of its futurestrategy. Office of Fair Trading In August 2003, the Office of Fair Trading (OFT) pronounced JJB guilty ofprice-fixing of certain replica kit products over a two year period during 2000and 2001 and levied a penalty of £8.4 million. JJB lodged an appeal to the independent Competition Appeal Tribunal (CAT)against both the decision of the OFT and against the level of the penalty. Thehearing of the appeal against the decision of the OFT was held in March 2004 andthe result announced in October 2004. The CAT disallowed JJB's appeal againstprice fixing on two of the allegations made against it by the OFT, disallowedpart of another allegation but allowed JJB's appeal on a fourth allegation. The appeal against the level of the penalty was heard by the CAT in January 2005and in May 2005 the CAT gave its decision on the matter which was to reduceJJB's penalty from £8.4 million to £6.7 million. JJB was disappointed in parts of the CAT's judgement on liability and theconsequent amount of the reduction in its penalty and has now filed, at theCourt of Appeal, an application for permission to appeal on these matters. JJBunderstands from the Court of Appeal Registry that the application forpermission to appeal will be considered after the new Court term starts on 3October 2005. JJB had made a provision of £2 million in respect of the penalty in theaccounting period ended 30 January 2005. In the financial accounts for the 26weeks ended 31 July 2005 it has on the basis of legal advice, taking intoaccount the specific grounds for its appeal, increased this provision to £3million and made a further provision of £300,000 in respect of interest whichwould be payable on a penalty of £3 million. Current Trading--------------- Total revenue for the 10 weeks to 9 October 2005 was 3.1 per cent lower than forthe 26 weeks to 2 October 2004. The decrease in like-for-like revenue oflocations which have been trading for over 52 weeks comparing the 10 weeks to 9October 2005 to the 10 weeks to 10 October 2004, was 4.3 per cent and representsan improvement over the results for the 26 weeks to 31 July 2005. The grossmargin achieved in this period was approximately 120 basis points lower thanthat achieved in the comparative period. Trading conditions and competition continue to be difficult with the clothingcategory being the poorest performing area. The loss of revenue from thiscategory has however been partly offset by an increase in revenue from replicakit products which have benefited from some new kits being launched after 31July this year which had been launched before that date last year. JJB plans to open a further 12 superstores during the second half of the currentaccounting period, 7 of which will be combined health club/superstores. Thiswill result in JJB opening 28 superstores, including 14 combined units, duringthe current accounting period. Opening plans for the next accounting period, commencing 30 January 2006, arealready well advanced with contracts having been exchanged or in negotiation for17 superstores which include 9 combined health club/superstores. The Board doubts whether JJB will see any improvement in its retail environmentduring the second half of the current accounting year and believes that toremain competitive, it may well have to lead a more aggressive pricing policy.However, the Board looks forward to an uplift in revenue in 2006 from the FIFAWorld Cup. The Board believes that its policy of increasing the proportion ofits value-for-money offerings, will achieve a stronger trading result from itsretail stores in 2006 and that the profitability from the combined health clubs/superstores, that will have been opened during 2005, will have a furtherpositive impact upon the results. Unaudited consolidated income statementfor the 26 weeks to 31 July 2005 26 weeks to 26 weeks to 53 weeks to 31 July 25 July 30 January 2005 2004 2005 Restated Restated £'000 £'000 £'000 -------- ------- -------Continuing operations Revenue 340,395 362,979 773,339 Cost of sales (171,880) (188,474) (402,082) -------- ------- -------Gross profit 168,515 174,505 371,257 Other operating income 1,668 1,454 3,079Distribution expenses (10,936) (9,280) (19,272)Administration expenses (14,850) (14,822) (31,637)Selling expenses (126,775) (124,415) (261,321) -------- ------- -------Operating profit 17,622 27,442 62,106 -------- ------- ------- Operating profit is stated after (charging)crediting Creation of legal penalty provision (1,000) (2,000) (2,000)Creation of interest provision on legal penalty (300) - -Release of legal cost accrual - 2,000 2,000 -------- ------- ------- (1,300) - - -------- ------- ------- Finance income 5,041 4,178 9,036Finance costs (4,580) (4,018) (8,692) -------- ------- ------- Profit before taxation 18,083 27,602 62,450 Taxation (1,465) (8,535) (17,287) -------- ------- ------- Profit after taxation for the period attributable to equity holders of the parent 16,618 19,067 45,163 ======== ======= ======= Earnings per share - Pence 7.20 8.24 19.54Diluted earnings per share - Pence 7.20 8.22 19.51 Unaudited consolidated statement of recognised income and expensefor the 26 weeks to 31 July 2005 26 weeks to 26 weeks to 53 weeks to 31 July 25 July 30 January 2005 2004 2005 Restated Restated £'000 £'000 £'000 -------- ------- -------- Exchange differences on translation offoreign operations 74 (39) (21) -------- ------- --------Net income (expense) recognised 74 (39) (21)directly in equity Profit for the period 16,618 19,067 45,163 -------- ------- --------Recognised income andexpense for the period 16,692 19,028 45,142 ======== ======= ======== Unaudited consolidated balance sheetas at 31 July 2005 As at As at As at 31 25 30 July July January 2005 2004 2005 Restated Restated £'000 £'000 £'000 -------- ------- -------Non-current assetsGoodwill 186,114 186,114 186,114Other intangible assets 10,214 - -Property, plant and equipment 186,350 157,131 165,175 -------- ------- ------- 382,678 343,245 351,289 -------- ------- -------Current assetsInventories 155,586 147,438 112,719Trade and other receivables 50,311 47,187 35,792Current asset investment 168,117 168,117 168,117Cash and cash equivalents 13,720 27,802 29,323 -------- ------- ------- 387,734 390,544 345,951 -------- ------- ------- Total assets 770,412 733,789 697,240 -------- ------- ------- Current liabilitiesTrade and other payables (139,025) (126,489) (86,307)Tax liabilities (4,702) (11,573) (14,698)Bank loan and loan notes (168,117) (168,117) (193,067)Short-term provisions (3,300) (2,000) (2,000) -------- ------- ------- (315,144) (308,179) (296,072) -------- ------- ------- Net current assets 72,590 82,365 49,879 -------- ------- ------- Non-current liabilitiesBank loan (49,860) (44,884) -Deferred tax liabilities (17,182) (19,598) (19,289)Deferred lease incentives (30,300) (22,452) (24,491) -------- ------- ------- (97,342) (86,934) (43,780) -------- ------- ------- Total liabilities (412,486) (395,113) (339,852) -------- ------- ------- Net assets 357,926 338,676 357,388 ======== ======= ======= Equity Share capital 11,538 11,538 11,538Share premium account 157,219 157,219 157,219Capital redemption reserve 1,069 1,069 1,069Foreign currency translation reserve 53 (39) (21)Retained earnings 188,047 168,889 187,583 -------- ------- -------Equity attributable to equityholders of the parent 357,926 338,676 357,388 ======== ======= ======= Unaudited reconciliation of movements in equityfor the 26 weeks to 31 July 2005 Total equity £'000 -------- At 30 January 2005 357,388 Recognised income and expense for the period 16,692 Dividend paid (16,154) -------- At 31 July 2005 357,926 ======== Unaudited consolidated cash flow statementfor the 26 weeks to 31 July 2005 26 weeks to 26 weeks to 53 weeks to 31 July 25 July 30 January 2005 2004 2005 Restated Restated £'000 £'000 £'000 -------- ------- -------Net cash flow from operatingactivities (note 9) 8,774 30,727 76,944 -------- ------- ------- Cash flows from investing activitiesInterest received 5,041 4,178 9,036Proceeds on disposal of subsidiary - 495 495Proceeds on disposal of property,plant and equipment 3,340 4,404 8,392Purchase of intangible assets (10,214) - -Purchase of property, plant andequipment (31,193) (16,882) (42,982) -------- ------- -------Net cash flow used in investingactivities (33,026) (7,805) (25,059) -------- ------- ------- Cash flows from financing activitiesDividends paid (16,154) (16,150) (23,077)Purchase of own shares - (20,302) (20,778)Proceeds from issues of sharecapital - 92 92Net proceeds from bank loan 49,850 - -Repayment of bank loan (25,000) (40,000) (60,000)Receipt of tender offer cash deposit - 40,000 40,000 -------- ------- -------Net cash flow from / (used in)financing activities 8,696 (36,360) (63,763) -------- ------- ------- Net decrease in cash and cashequivalents (15,556) (13,438) (11,878) Cash and cash equivalents atbeginning of period 29,323 41,258 41,258 Effect of foreign exchange ratechanges (47) (18) (57) -------- ------- ------- Cash and cash equivalents at end ofperiod 13,720 27,802 29,323 ======== ======= ======= Notes to the Interim financial statements for the 26 weeks to 31 July 2005 1. Basis of preparation The next Annual financial statements of the Group will be prepared in accordancewith International Financial Reporting Standards (IFRS) as adopted for use inthe EU. Accordingly, this interim financial information has been prepared usingaccounting policies consistent with IFRS. IFRS is subject to amendment andinterpretation by the International Accounting Standards Board (IASB) and thereis an ongoing process of review and endorsement by the European Commission. Thefinancial information has been prepared on the basis of IFRS that the Directorsexpect to be applied as at 29 January 2006. Details of the changes in accounting policies arising from the adoption of IFRS,together with restated information for the accounting period of 26 weeks to 25July 2004 and for the 53 weeks to 30 January 2005, have today been published onJJB's website, www.jjbcorporate.co.uk. The accounting policies set out in thatdocument have been consistently applied to all periods presented in theseInterim financial statements with the exception of the impact of IAS 32 and IAS39 Financial Instruments. In accordance with IFRS 1 First Time Adoption ofInternational Financial Reporting Standards, JJB has elected not to restatecomparative information for the impact of IAS 32 and IAS 39, but has onlyadopted these standards in the Interim financial statements for the accountingperiod of 26 weeks to 31 July 2005. 2. Statement of compliance These Interim financial statements have been prepared in accordance with theIFRS accounting standards. These Interim financial statements do not constitutefull statutory accounts and are unaudited. The Interim financial statements havebeen reviewed by the Auditors and their report to the Directors is set out onpage 18. The financial information in respect of the period ended 30 January 2005 hasbeen produced using extracts from the statutory accounts prepared under UK GAAPfor this period amended by adjustments arising from the implementation of IFRS.The statutory accounts for this period have been filed with the Registrar ofCompanies. The Auditor's report on these accounts was unqualified and did notcontain a statement under sections 237 (2) and (3) of the Companies Act 1985. 3. Reconciliation of the transition from UK GAAP to IFRS The effect of the transition from UK GAAP to IFRS on JJB's profit after taxationand net assets is set out below. Full details of the restatement andreconciliations with the previously published UK GAAP financial information forthe 26 weeks to 25 July 2004, and for the 53 weeks to 30 January 2005, togetherwith the accounting policies adopted following the transition to IFRS, can beobtained from the JJB's website, www.jjbcorporate.co.uk Reconciliation of UK GAAP to IFRS Reconciliation of profit after taxation 26 weeks to 53 weeks to 25 July 30 January 2004 2005 £'000 £'000 -------- -------- Profit after taxation under UK GAAP 13,128 33,199 Reversal of goodwill amortisation IFRS 3 6,375 12,989Deferred tax adjustments IAS 12 (251) (386)Changes in treatment of operating leaseincentives less taxation IAS 17 (185) (639) -------- --------Total adjustments to profit after taxation 5,939 11,964 -------- --------Profit after taxation under IFRS 19,067 45,163 ======== ======== Notes to the Interim financial statements for the 26 weeks to 31 July 2005(continued) 3. Reconciliation of the transition from UK GAAP to IFRS (continued) Reconciliation of net assets As at As at 25 July 30 January 2004 2005 £'000 £'000 -------- ------- Net assets under UK GAAP 338,959 342,415 Reversal of goodwill amortisation IFRS 3 6,375 12,989Dividend not recognized as a liability untildeclared IAS 10 6,923 16,154Deferred tax adjustments IAS 12 (2,842) (2,977)Changes in treatment of operating leaseincentives less taxation IAS 17 (10,739) (11,193) -------- -------Total adjustment to net assets (283) 14,973 -------- -------Net assets under IFRS 338,676 357,388 ======== ======= 4. Segmental information Segmental revenue and profit before taxation by business activity were asfollows: 26 weeks to 26 weeks to 53 weeks to 31 July 25 July 30 January 2005 2004 2005 Restated Restated £'000 £'000 £'000 -------- -------- -------Revenue JJB Retail stores 300,801 334,239 710,647Leisure Division (includingassociated retail stores) 39,594 28,740 62,692 -------- -------- ------- Total revenue 340,395 362,979 773,339 ======== ======== ======= Operating profit JJB Retail stores 12,283 24,601 55,254Leisure Division (includingassociated retail stores) 5,339 2,841 6,852 -------- -------- ------- Total operating profit 17,622 27,442 62,106 Finance income less finance costs 461 160 344 -------- -------- -------Profit before taxation 18,083 27,602 62,450 ======== ======== ======= Notes to the Interim financial statements for the 26 weeks to 31 July 2005(continued) 5. Adoption of IAS 32 and IAS 39 Derivative Financial Instruments The Company uses derivative financial instruments in order to manage risksarising from changes in foreign exchange rates relating to the purchase ofoverseas sourced products. In accordance with the Company's treasury policy, theCompany does not enter into derivative financial instruments for speculativepurposes. Derivative financial instruments are stated at their fair value. The fair valueof the forward exchange contracts is their quoted market value at the balancesheet date, being the present value of the quoted forward price. In accordance with IFRS 1 First Time Adoption of International FinancialReporting Standards, the Group has elected not to restate comparativeinformation for the impact of IAS 32 and IAS 39 in respect of the accountingperiod of 53 weeks to 30 January 2005. However, IAS 32 and IAS 39 require all UKlisted companies to provide a reconciliation between amounts disclosed under UKGAAP for the previous comparative period end and those amounts which would havebeen recognised under IFRS; this is given below:- Recognition of net assets at 30 January 2005 £'000 -------- Current assets: Other financial assetsRecognition of foreign exchange derivatives at fair value 15,469 Current liabilities: Other financial liabilitiesRecognition of foreign exchange derivatives at fair value (15,265)Deferred tax adjustment on recognition of foreign exchangederivatives (61) -------- Opening balance sheet adjustment for adoption of IAS32 & 39 143 Net assets at January 2005 under IFRS as previously restated 357,388 -------- Net assets at January 2005 after adoption of IAS 32 & 39 357,531 ======== 6. Taxation The net taxation charge shown in the consolidated income statement for the 26weeks to 31 July 2005 has been based on the anticipated effective taxation ratefor the 52 weeks to 29 January 2006 of 30 per cent (2004: restated 30 per cent.) 26 weeks to 26 weeks to 53 weeks to 31 July 25 July 30 January 2005 2004 2005 Restated Restated £'000 £'000 £'000 -------- -------- -------Current tax:UK corporation tax 3,624 7,987 16,931Foreign tax 36 91 208Prior year adjustment (88) 41 41 -------- -------- ------- 3,572 8,119 17,180 ======== ======== =======Deferred tax: Current period 2,410 416 107Prior year adjustment (4,517) - - -------- -------- ------- (2,107) 416 107 -------- -------- -------Taxation charge 1,465 8,535 17,287 ======== ======== ======= Notes to the Interim financial statements for the 26 weeks to 31 July 2005(continued) 6. Taxation (continued) The prior year adjustment to deferred tax has arisen as a result of the recentfinalisation of a number of years corporation tax liabilities with the InlandRevenue. Following the agreement of these corporation tax liabilities, thedeferred tax liability arising on the difference between the net book value ofproperty, plant and equipment and their tax written down value, has beenrecalculated and the provision has been reduced by £4,517,000 in the 26 weeks to31 July 2005. 7. Dividend A dividend of 3.0p net per ordinary share will be paid on 6 January 2006 toshareholders whose names appear on the share register at 9 December 2005. Theshares will trade ex-dividend from 7 December 2005. In accordance with IFRSaccounting policies, this dividend has not been included in the balance sheet asa liability at 31 July 2005. For the 53 weeks to 30 January 2005, an interim dividend of £6,923,000,representing 3.0p net per ordinary share was paid on 10 December 2004 and afinal dividend of £16,154,000 representing 7.0p net per ordinary share was paidon 18 July 2005. 8. Earnings per share The calculation of earnings per ordinary share is based upon the profit for theperiod attributable to equity holders of the parent of £16,618,000 (2004:restated £19,067,000) and 230.8 million ordinary shares, (2004: 231.5 millionshares), being the weighted average number of shares in issue during the period. Diluted earnings per share is based upon the profit for the period attributableto equity holders of the parent of £16,618,000 (2004: restated £19,067,000) and230.9 million ordinary shares, (2004: 232.0 million) being the weighted averagenumber of shares in issue during the period, used in the calculation of earningsper share shown above, increased by the dilutive effect of ordinary sharesissuable pursuant to options granted under employee share option schemes of100,000 shares (2004: 500,000 shares) 9. Reconciliation of operating profit to net cash inflow from operatingactivities 26 weeks to 26 weeks to 53 weeks to 31 July 25 July 30 January 2005 2004 2005 Restated Restated £'000 £'000 £'000 -------- ------- ------- Operating profit 17,622 27,442 62,106Depreciation of property, plant andequipment 8,406 11,509 23,834(Gain) / loss on disposal ofproperty, plant and equipment (1,606) (965) 835Loss on disposal of subsidiaryundertaking - 309 309Increase in provisions 1,300 2,000 2,000 -------- ------- -------Operating cash flow before movementin working capital 25,722 40,295 89,084 (Increase) / decrease in inventories (42,867) (19,354) 15,365(Increase) / decrease in trade andother receivables (14,519) (11,390) 5Increase / (decrease) in trade andother payables 53,194 33,970 (429) -------- ------- ------- Cash generated by operations 21,530 43,521 104,025 Interest paid (4,520) (3,955) (8,563)Taxation paid (8,236) (8,839) (18,518) -------- ------- -------Net cash inflow from operatingactivities 8,774 30,727 76,944 ======== ======= ======= Notes to the Interim financial statements for the 26 weeks to 31 July 2005(continued) 10. Bank overdrafts and loans In June 2005, JJB's existing £100 million committed revolving bank creditfacility expired. This was replaced with a new 5 year £60 million revolving bankcredit facility which commenced in June 2005. 11. Analysis of net (debt) funds as at 31 July 2005 At 30 January Cash Flow Other non- At 31 July 2005 cash items 2005 Restated £'000 £'000 £'000 £'000 -------- ------- ------- -------Current assetinvestment 168,117 - - 168,117 Cash and cashequivalents 29,323 (15,556) (47) 13,720 -------- ------- ------- ------- 197,440 (15,556) (47) 181,837 Loan notes (168,117) - - (168,117) Currentliability -Bank loan (24,950) 25,000 (50) - Non-currentliability -Bank loan - (49,850) (10) (49,860) -------- ------- ------- ------- 4,373 (40,406) (107) (36,140) ======= ======= ======= ======= 12. Office of Fair Trading penalty In August 2003, the Office of Fair Trading (OFT) pronounced JJB guilty ofprice-fixing of certain replica kit products over a two year period during 2000and 2001 and levied a penalty of £8.4 million. JJB appealed to the CompetitionAppeal Tribunal (CAT) against the OFT's decision on liability and against thelevel of the penalty itself. The result of the appeal against the decision ofthe OFT on liability, although given mainly in favour of the OFT, included someelements that were found in JJB's favour. The decision of the CAT in the appealagainst the level of the penalty which was announced in May 2005 was to reducethe penalty to £6.7 million. Acknowledging this decision, JJB had made aprovision of £2 million in respect of the penalty in the accounting period to 30January 2005. JJB was disappointed in parts of the CAT's judgement on liability and theconsequent amount of the reduction in its penalty. In consultation with itslegal advisers, JJB has determined the specific grounds on which it wishes toappeal to a higher court, and has now filed at the Court of Appeal, anapplication for permission to appeal on these matters. JJB understands from theCourt of Appeal Registry that the application for permission to appeal will beconsidered after the new Court term starts on 3 October 2005. On the basis of legal advice and acknowledging the specific grounds on which itintends to appeal, JJB has decided to increase its provision against the penaltyfrom £2 million to £3 million in its income statement for the 26 weeks to 31July 2005 and to provide £300,000 in respect of interest which would be payableup to that date if the result of the appeal reduced the penalty liability to £3million. Notes to the Interim financial statements for the 26 weeks to 31 July 2005(continued) 13. Related party transactions Transactions between the Company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. Transactions between the Group and other related parties are disclosedbelow. Trading transactions-------------------- During the 26 weeks to 31 July 2005, JJB Sports entered into the followingtransactions with related parties who are not members of the Group: Income Expenditure ------ ----------- 26 weeks to 26 weeks to 53 weeks to 26 weeks to 26 weeks to 53 weeks to 31 July 25 July 30 January 31 July 25 July 30 January 2005 2004 2005 2005 2004 2005 Restated Restated Restated Restated £'000 £'000 £'000 £'000 £'000 £'000 -------- ------- ------- ------- -------- ---------Whelco Holdings Limited 67 54 134 365 355 778 Trust of an Executive Director - - 83 75 75 150 Amounts owed by Amounts owed by ---------------- ---------------- related parties related parties ---------------- ---------------- 26 weeks to 26 weeks to 53 weeks to 26 weeks to 26 weeks to 53 weeks to 31 July 25 July 30 January 31 July 25 July 30 January 2005 2004 2005 2005 2004 2005 Restated Restated Restated Restated £'000 £'000 £'000 £'000 £'000 £'000 -------- ------- ------- ------- -------- ---------Whelco Holdings Limited 49 34 76 65 128 81 Trust of an Executive Director - 229 - - - - Whelco Holdings Limited is a company owned by members of the family of anExecutive Director of JJB, operating itself or through its subsidiaries a numberof businesses including that of Wigan Athletic Football Club (WAFC), WiganWarriors Rugby League Club (WWRLC) and the stadium in which both teams playwhich is known as the "JJB Stadium". During the 26 weeks to 31 July 2005, JJB incurred expenditure in its capacity ofsponsors to WAFC and WWRLC and incurred costs in respect of the naming rightsfor the JJB Stadium. Advice was taken from independent third parties as to thecomparative levels of the costs of sponsorship and naming rights at other clubsand stadia, prior to the agreement of the amounts to be paid. During the 26 weeks to 31 July 2005 the Company made sales to Whelco HoldingsLimited and its subsidiary companies in respect of both football and rugbyrelated products. The balance owing to JJB at 25 July 2004 of £229,000 related to the developmentcosts of a store in Northampton which had previously been leased by JJB from athird party for a number of years and at which it had operated a retail storeuntil October 1998. The store was subsequently acquired from the third party bythe Trustees of an Executive Director's Accumulation and Maintenance Settlement,(a Settlement in which one of JJB's Executive Directors, has an interest). TheSettlement reimbursed JJB in full in January 2005, inclusive of interest chargeson the debt which were charged at 1% above base rate. Following the opening ofthe retail store on 10 August 2003, JJB has continued to pay rent on a fullcommercial basis at the rate of £150,000 per annum. 14. Events since the balance sheet date Dividends The Directors have declared and approved an interim dividend of 3.0 pence pershare (2004: 3.0 pence per share) on 11 October 2005. This has not been includedas a liability at 31 July 2005. The dividend will be paid on 6 January 2006 toshareholders on the register at 9 December 2005. INDEPENDENT REVIEW REPORT TO JJB SPORTS PLC Introduction We have been instructed by the Company to review the financial information forthe 26 weeks ended 31 July 2005 which comprises the income statement, thebalance sheet, the cash flow statement and related notes 1 to 14. We have readthe other information contained in the Interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. This report is made solely to the Company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The Interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the Interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. International Financial Reporting Standards As disclosed in note 1, the next Annual financial statements of the Group willbe prepared in accordance with International Financial Reporting Standards asadopted for use in the EU. Accordingly, the Interim report has been prepared inaccordance with the recognition and measurement criteria of IFRS and thedisclosure requirements of the Listing Rules. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the 26 weeks ended31 July 2005. Deloitte & Touche LLPChartered AccountantsManchester12 October 2005 This information is provided by RNS The company news service from the London Stock Exchange