JD Sports Fashion plc

Good morning, everyone. Right. So pleased to be here today to talk about our interim results to August 24. I think just a few opening remarks from me, really. I think the results show the resilience of the business, actually, that's emerging now and highlight the strengths that Rajesh and the team have started to build into the business. It's not been an easy half one. We had tough comps. We had our legendary UK summer, and I know retailers are not meant to talk about weather, but it does impact things like fashion and apparel sales. And, of course, Nike's well-reported sort of stumble has created a bit of a headwind as well. I suppose after a bit of a painful reset in January, despite all those headwinds, we've delivered good results and a good half won. I think over the two years that we've been here, the business has become much more focused. We've exited all the fashion businesses and so on and so forth. But we still retain a nice spread, and I think that's evident in these numbers here, if you like. If the U.K. weather is terrible, we've got the U.S. and Europe. If Nike is a little bit off form and we have new balance on Adidas and so on. So it's a good business. I think you see today it's a resilient business and well set for the future. And I'd like to thank Regis and Dominic. There's a huge amount of hard work gone into all these numbers and the whole of the JD team. And onwards and upwards for the second half and the all-important Christmas period, of course. Anyway, the schedule today is that Dominic's going to take you through the financial results now. And I think there's a slide for this, but I don't know where it's gone. And then Regis will talk you through after that. So over to you, Dominic. Thank you very much.

It's okay? Yep, all good. Thanks. Good morning, everyone, and thanks for attending today. And also welcome to those who are watching online live or watching later on the replay. It's almost 12 months to the day since I joined JD, and it's been a busy but productive year. I laid out some of the areas of focus we have in financing JD at the full year results, and while there's still lots to do, The team will continue to make good progress in building the finance and control environment we need in JD. The business, meanwhile, continues to demonstrate the strength and agility of its multi-brand model and operational excellence, with a strong set of results in this first half in what continues to be a volatile market. I'll start with an overview of the results and then I'll hand over to Regis to go into more detail on the progress we've been making and how our strategy and business model position as well to capture profitable market share in this structural growth market. So before we get into the details of the first half results, let me start with a few brief headlines to set the scene. Overall, our first half performance is in line with our expectations, with revenues breaking the 5 billion milestone for the first time. We've delivered this in volatile market conditions, and as I said, it's a clear testament to the strength and agility of our multi-brand model. From a trading perspective, this reflected strong performances in North America and Europe, which delivered double-digit organic sales growth with 9% organic sales growth overall for the JD brand. This revenue growth was also delivered while maintaining operating margin in line with last year, before the benefit of the Hibbert acquisition, reflecting our focus on cost control and operational efficiencies, offsetting the ongoing investment in the future growth of the business and the infrastructure we need to support that growth. Including Hibbert, operating margin was up 20 basis points. From a cash flow perspective, this was a pretty typical first half for a highly cash generative business and delivered operating cash flow of close to 300 million pounds in the first half. And notwithstanding our increased capex and the acquisition of Hibbert, we maintain a strong balance sheet with net cash before lease liabilities of 40 million pounds at the period end. And lastly, we are maintaining our FY25 guidance range. I'll come back to that later in the presentation. So turning to the P&L, reported revenue was up 5.2% and 6.8% on a constant currency basis. This includes £61 million from the 10 days of contribution from the Hibbit acquisition, which completed just before the period end. Underlying revenue trends were positive, excluding the impact of acquisitions and disposals. Like-for-like sales growth was 0.7%, and organic sales growth was 6.4%, both showing an improving trend from Q1, where we were trading against strong comparatives. Our gross margin was 48.2%, 20 basis points down on the prior period. Excluding Hibbert, which has a slightly lower gross margin rate, it was 48.3%, and just 10 basis points down. Given continued promotional activity in the market, this is a solid result. The decline was driven by apparel, mainly through the online channel, and particularly in the UK, where the weight of apparel is much higher. Operating profit before tax and adjusting items was up 6.7% on a reported basis. On a constant currency basis, it was up 8.3% to £451 million. This included a £13 million contribution from the Hibbert acquisition. Hibbert's revenue and profit performance in the period was ahead of the normal run rate as the US back to school was slightly earlier this year and boosted by sales tax incentives in its main regions. With net financial interest up £20 million year-on-year due to increased lease interest as we grow our store portfolio and renew existing leases, profit before tax and adjusting items was up 2% to £406 million. Statutory profit before tax was down 64%, and this was due to increased adjusting items year on year. These are predominantly non-cash. The two main contributors to the £280 million of adjusting items were an update to the Genesis put and call option valuation following the acquisition of Hibbert, Genesis being the vehicle through which we own our North American business, and an asset impairment relating to the closure of the Derby Distribution Centre. Adjusted EPS was up 4.5%, ahead of growth in adjusted PBT, and reflects the earnings-enhancing benefits of buying out non-controlling interests across the group, with the 49% in ISRG in Spain and the 40% in MIG in Eastern Europe bought out in the second half last year. And finally, we're proposing an interim dividend of 0.33 pence, that's up 10%, reflecting the cash generative nature of the group and our commitment to enhancing returns to shareholders, while recognising the future cash outlays associated with our ongoing strategic investment programme. So actually, there's a lot going on in our results here. But to sum it up, the key takeaways are good growth trends, particularly in the US and Europe, a disciplined approach in a promotional market, and ongoing cost control offsetting our investment in the foundations for future growth. So now let's turn to the revenue bridge from H1 last year to this year. Starting with the more mechanical adjustments, we've started to see some material movement in exchange rates over the last few months. And with 70% of our business now outside the UK, this inevitably has an impact on our reported numbers. So restating H124 revenue for the FX translation effect results in a 70 million or 1.5% drag. We then adjust for the sales from the disposals we made during H1-24 and the impact of the FY24 53rd week to align like-for-like weeks. The first half this year includes an additional week in the summer, and last year includes an additional week in January. This rebases us to £4.7 billion versus the actual H124 of £4.8 billion. So from that base, with like-for-like growth of 0.7% and a combination of new space in the period and the annualisation of new space from last year, we achieved organic growth of £298 million, or 6.4%. Finally, we add in a £63 million M&A revenue contribution made up of £61 million from Hibbert in the 10 days of the period that we owned it, and a small contribution from the four Simply Gyms we acquired in the period. All in all, when you get to just over £5 billion of revenue, a record first half for JD. It's worth, at this point, stepping back and looking at the business mix. We're a diversified and well-balanced group, and this is something Regis will come back to shortly from a strategic perspective. What you can see from the results is that by region, North America is now our largest market at 35% of revenues. And on an administrative pro forma basis, it will represent 40% based on combining Hibbert's FY24 revenue and our FY24 revenue. As the largest market globally, we see lots of scope for profitable expansion in North America. Alongside North America, we saw strong growth in Europe, and this has further balanced our geographic mix, adding in Asia Pacific, as I mentioned earlier, 70% of our business is now outside the UK. This compares to just 20% 10 years ago. With the majority of our capital expenditure and our prospective acquisitions focused on the growth regions, we will see overseas share of revenue and profit continuing to grow. Turning to channel, we view ourselves very much as an omnichannel business. It's our job to make it as easy as possible for customers to choose how and where they want to buy, and so we are channel agnostic. That said, you can see the impact of two things on the progression of our online share of sales. The first is our store rollout program, which will see an increase in sales from stores with omnichannel online revenue growth following as the stores embed in their catchment areas. And secondly, we are growing revenue faster in regions with lower online penetration, such as North America and Europe. So that will weigh on the share of online sales in the overall mix in the near term. And finally, by category, we saw growth in both footwear and apparel, but with relatively stronger growth in footwear. Footwear grew to 60% of sales, with apparel now at 30%. It also reflects stronger sales growth in regions where apparel penetration is lower, such as North America. Again, like online, this factor will impact the overall share of apparel in our sales in the short to medium term. From an operational and management perspective, our primary segmentation is by fascia. So let's take a quick look at each of these in turn. We provided more detail by segment in the appendix. JD continues to be the engine of our group, representing 71% of both our revenue and profit before tax and adjusting items in the first half. Reported revenue grew by 7%, and the gross margin at 49.5% was flat year on year. We did see profit before tax and adjusting items down 2%, with JD including the bulk of the ongoing investment in growth and infrastructure. Our second segment, complementary concepts, saw revenue grow 12%, with profit before tax and adjusting items up 16%. This reflects good performances from our existing community fascias, Shu Palace and DTLR, and the contribution from Hibbert. Like-for-like growth was 1.6% and organic growth was 1.5%. Organic sales in the MIG complementary fascias in Eastern Europe were slightly down as we started converting stores to JD and rationalizing the brands in the market. Sporting goods and outdoor saw revenue drop 5%, but profit before tax and adjusting items grew 16%, reflecting the closure of SUR in the prior period and the disposal of Bodytone in Spain earlier this year. Both were loss-making businesses. Like-for-like sales were up 0.6%, with organic growth of 1.6%. Now let's take a look at our group performance by region, starting with the UK, which is the JD UK business plus outdoors. Revenue is down 4%, and operating profit was down 12% in a tough trading environment. It remained promotional, partly due to tough apparel season. And while I hate to blame the weather, a cold and wet Easter resulted in a late spring-summer season, coinciding with the summer sale period. And as I just mentioned, the UK is where we see the majority of our investment. Infrastructure investment, sorry. Europe saw revenues up 6%, operating profit was up 21%, benefiting from operating leverage as we grow scale in the region and begin to see the early benefits of our European supply chain investments, as well as reduced losses from the closure of SUR and the sale of Bodytone. North America is now our largest market by both revenue and profit. In the period, revenue grew by 16% and our growing scale converted that operating profit to operating profit growth of 26%. While there was a small benefit from Hibbert, its contribution was only 61 million pounds or four percentage points to revenue and 13 million pounds or six percentage points to operating profit. In absolute terms, Asia-Pacific revenue dropped 4%, with profit down 19%, reflecting the South Korea exit last year, the disposal of Jim Nation, and investment costs in the business ahead of the benefits that we'll get from those as we grow our presence in the region. So with the P&L covered, let's move on to cash flow. JD remains a strongly cash generative business, with operating cash flow of 282 million pounds in H1, despite the seasonal stock build following the FY24 peak season. Net cash flow before financing was slightly negative, reflecting our increased capital expenditure. We saw £71 million movement in our cash balances from M&A, primarily reflecting our acquisition of Hibbert, with a new acquisition debt facility funding a large proportion of the acquisition cost. With £31 million in dividends in the period, the overall cash outflow was £222 million. And then turning to our balance sheet, we finished the period with net cash of £40 million, in line with our expectations. As explained on the previous slide, we saw a £222 million cash outflow, reducing our cash and cash equivalents balance to £880 million. With the incremental debt incurred as a result of the Hibbert acquisition, bank loans increased by £769 million, resulting in period-end bank loans of £839 million. This gives us £40 million net cash before lease liabilities. With lease liabilities increasing by 397 due to our store rollout program and the acquisition of Hibbert, we finished the period with IFRS 16 net debt, including lease liabilities of 2.8 billion. Notwithstanding the acquisition of Hibbert, we maintain a strong balance sheet. Before lease liabilities, we are unlevered with a net cash position. Just drilling into the balance sheet a little more, let's take a quick look at our inventory position at the period end. Excluding Hibbert, inventory was £1.7 billion, £111 million up on the prior period, and represents around 16% of our last 12-month sales, broadly in line with the prior period. Hibbert added £278 million. The UK saw lower inventory, reflecting slightly lower sales, while Europe and North America saw inventory increase against where we were 12 months ago, as we continue to ensure we have the stock in place to fulfill our growth plans and store rollouts across both JD and other businesses. Overall, we are comfortable with our stock position going into peak. And turning to CapEx. Period on period, CapEx was up 42 million pounds to 251 million pounds, reflecting a slightly faster start to our rollout program this year versus the prior period, particularly in North America. You may remember that the Capital Markets Day launching a new strategy was at the start of H1 last year. Of the total CapEx, two thirds was investment in our store rollout program. Within the property CapEx, all of the increase was driven by North America, with Europe in line and the UK marginally down on the prior period. We're highly disciplined with regards to our store investment process. There is a detailed, data-driven planning approach, which includes analysis of the catchment area, the competition, the exact fit out, and a clear view on which fascias and cost model are right for which locations with a continual test and learn approach to inform future investments. All new store approvals, relocations, and extensions across the whole group come to a central property board, which Regis and I attend. And apart from a few flagship stores, we apply a strict three-year payback hurdle. And just touching on our supply chain, CapEx reduced to £12 million in period on period as we work through our group-wide programme to improve supply chain capacity and efficiency. Rajesh will update you more on this later. The third major part of our cash outflow is on M&A. As you know, in the period, we completed the acquisition of Hibbert, adding scale and capability to JD North America. We plan to do a deep dive at a capital markets day on our North American business in the spring. So for now, I'll bring you up to speed on the high-level current year financials. First off, the 10 days period that we owned Hibbert is not indicative of the full year result. As mentioned earlier, this stub period coincided with a slightly earlier peak back to school season with more falling into H1 than usual and was very strong at Hibbert this year due partly to sales tax incentives across its key regions. Therefore, don't extrapolate the H1 contribution for the rest of the year. So taking that H1, H2 phasing into account, we anticipate Hibbert contributing around £25 million of profit before tax and adjusting items in this year. There are three drivers for this. Firstly, as anticipated, and you will have seen from their published results before our acquisition, current year trends are slightly softer than FY24. Secondly, the esoteric world of acquisition accounting, including the move of US GAAP to IFRS, has impacted negatively on Hibbert's profitability within the group. These two points together point to around a £50 million contribution. And thirdly then, there is £25 million incremental interest associated with the debt we have taken on to acquire Hibbert, bringing us to £25 million overall. And now onto my last slide before we show a video on our US business, and then Regis will take you through our strategic progress. We're maintaining our FY25 PBT before adjusting items guidance of 955 to a billion and 35 million. This reflects a one to 4% like for like revenue growth range, but consistent with what I have previously indicated, we continue to expect to be in the lower end of this range. The market remains volatile and we still have our important peak season ahead of us. We've highlighted two additional factors. The first is currency and builds on the 15 million FX translation headwind we highlighted when we gave our Q2 trading statement, of which 6 million was incurred in the reported H1 result. The pound has strengthened since then, so we have updated this impact based on the current US dollar and euro rates, which adds an additional 10 million pounds, giving you the 25 million pounds in the guidance update. We provide a detail in the appendix, but as a rule of thumb, every one US cent equals around 1.7 million pounds change, and one Euro cent equals around a one million pound change to our H2 profit. And then we add Hibbit, which as I just mentioned, we see adding around 25 million pounds in the current year. So to wrap up my section, overall, we're pleased with our performance in H1 in what was a volatile market, and we are maintaining guidance. All a reflection of the strength of our multi-brand model and our operational focus. And with that, and before I pass you over to Regis to talk you through progress against our strategy in the period, we'd like to share a short video highlighting our US business with you.

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