JD Sports Fashion plc

Morning everybody and welcome to the JD Sports half-year results. I'm delighted to say that it's a set of results where we're on track for the year as we stand here today. And I just really wanted to make a couple of introductory remarks before I hand over to the team. It's been a tough couple of years really in lots of ways. There's been a lot of challenges we're facing too. The markets have not been great. Consumer markets have been uncertain. I think we all know about the political challenges and economic background in our major markets and of course the cost base here in the UK in particular with the national insurance rises and various other things have been very challenging. We've also internally of course had governance challenges that we've had to sort of face into as well which have required investment and turnaround I really just wanted to start by commending the team, really. You know, the strategy is very much on track at the moment. You know, I think they've shown great resilience in the face of a lot of those challenges. And, of course, we're making great progress. The governance in particular, I think commend Dominic and his team for... the work they've done around the financial controls in the business, all led by Regis, of course, and of course the integration of things like the supply chain, the progress we've made on governance, the good work that we've done around the integration of the acquisitions we've made, and of course the great work we've done on our brands. If you need an example of that, go and see the Trafford Centre and see how that's moved JD on here in probably its most mature market. I think all of that is very commendable. So you're seeing here today some of the results of that hard work and with more to come. But I just wanted to say thank you to all of the team in JD for the hard work that's gone on. It's never easy when markets are difficult, but I think they're doing great stuff. So thank you very much and I'll hand over now to Regis.

Thank you, Andy, and thank you for your kind words. Good morning, everyone, and thank you very much for joining us. I'm Régis Schultz, CEO of JAD Group, and we are here joined by Dominique Platt, our CFO, and Mike Armstrong, our JAD Global Managing Director. I will start with our key message and highlight from the first half. I will then hand over to Dominique to go through the financial, and finally, I will take you through the key business update. As a reminder, at our April strategy update, we set out some clear priorities for the short and medium term. First, to deliver the vision to be the leading sport fashion powerhouse. Second, to build the infrastructure and the governance you will expect from a company of our size and for a world leader. And third, to focus on cash generation and shareholder return. So I'm pleased to say that our first half result reflect our priority and demonstrate our operating and financial discipline against what was a tough trading environment. We are building a track record of focus and consistent execution against our strategic objective. As a result, we are gaining market share in North America, in Europe, and building on the very significant opportunity we see in both regions to develop JD brand and leverage our complementary concept businesses. To finish our key message, we said we will provide you an update on the U.S. tariff impact. Dominique will go into more details on this, but you will be pleased to know that we see limited impact in the current reporting year. Let me now hand over to Dominique to run through the first half financial result with you. Thank you.

Morning, everybody, and thank you, Regis and Andy. So let's start with our summary financials for the group here on slide six. At constant FX rates, total sales were 20% higher year on year, reflecting a full half of sales from Hibbert and Korea, who were acquired in July and November, respectively, last year. Stripping these businesses out, organic sales growth was 2.7%, comprising 2.5% lower like-for-like sales and 5.2% growth from net new space. Against a tough backdrop in all our markets, we maintained our trading disciplines. Gross margin was 48%, 60 basis points behind the prior year, excluding Hibbert and Korea, which are slightly lower margin businesses. Gross margin was 40 basis points lower year on year. This was driven by controlled price investments, particularly in our online offer to increase customer engagement and conversion. Turning to operating profit, as a reminder, earlier this year we updated our definition of operating profit to include IFRS 16 lease interest, as we believe including all property-related costs gives a truer picture of the operating margin of each part of the business. On this basis, operating profit of £369 million was 6.3% lower at constant FX rates. Excluding Hibberton Korea, operating costs were 4.7% higher at constant FX rates, and this was driven entirely by new stores. Through structural cost reductions and flexing the staffing levels and discretionary spend, we managed to fully offset the impact of higher labour rates and technology costs, as well as non-cash mark-to-market charge of £14 million in H1. More on that later. Overall, the group's operating margin was 6.2%, 170 basis points lower versus the prior year at constant FX rates. Profit before tax and adjusting items was £351 million, 11.8% lower at constant FX rates, and in line with our profit phasing guidance. Included in this is a 22 million increase in net finance expense, excluding lease interest, which was driven by lower cash balances and debt financing related to acquisitions. Our adjusted earnings per share were 8.5% lower year-on-year at constant FX rates. For completeness, the statutory PBT was £138 million, 9.5% higher year on year. This reflects lower adjusting items or exceptional items as we all used to know them. These are essentially limited to non-cash revaluation of our Genesis put option together with the amortization of acquired intangibles. The Board has declared an interim dividend of 0.33 pence per share, consistent with the prior year. In line with our dividend policy, this represents one third of the final dividend for FY25. And last, but certainly not least, we delivered a 5% increase in operating cash flow to £546 million, demonstrating yet again the highly cash generative nature of our business. Turning now to our revenue bridge from last half year to this. The left-hand side rebases H125 for FX headwinds of two percentage points, as well as some small disposals from last year. As I mentioned earlier, like-for-like sales were 2.5% lower, and new stores contributed 5.2 percentage points to sales. This includes annualisations from stores opened last year, and also the fact that we opened four flagship stores in the period, including the Trafford Centre in Manchester, which is strongly outperforming against its plan. So overall, organic sales growth was 2.7% at constant FX rates. We believe this is faster than the growth of our addressable markets, driven by market share gains in North America and Europe. Finally, Hibbert and Correa added £869 million of sales for overall sales growth of 20%. As you can see from this slide, the JD Group is a very well-balanced and diversified global business. 71% of our sales come from North America and Europe, our key growth markets. Following the Hibbert acquisition, North America is our largest market, representing 39% of group sales. Our channel and category mix varies by region, which provides us with opportunities for growth. For example, our largest region for online sales penetration is the UK at around 25%, with our other regions overall in the mid-teens. We're building a fully flexible omnichannel proposition in all our regions, offering customers a seamless service for purchasing, delivery and return, whether they choose to use our stores or online channels, or, as we are increasingly seeing, a combination of the two. Within our omnichannel proposition, organic store sales grew by 3.6%, reflecting continued resilience of our full-price business model and our store opening program. Online sales were 1.6% lower, with good growth in North America and Europe, offset by a weaker online performance in the UK. While UK store sales were positive year on year, the UK online market as a whole was slightly more promotional during the period, especially in the second quarter, driven by short-term discounting to clear inventory. To maintain our competitiveness, we made some controlled investments in our prices and have seen an improvement in customer engagement online in recent weeks. Turning to category, our agile and multi-brand model really comes into play across our combined footwear and apparel proposition. When we exclude Hibbert and Correa, which are more footwear-centric fascias, apparel participation increased to 31%, with footwear decreasing to 58% of sales. In footwear, we continue to see a fundamental shift in the global footwear product cycle, given the transition between newer franchises and some significant end-of-cycle product lines. Notwithstanding this, we saw strong growth across brands more in the middle of the cycle, which reflects the strength of our multi-brand model. The early signals of new product franchises, in terms of both launches and pipeline, are encouraging, albeit they are a small part of sales today. Overall, organic footwear sales were 1% lower year on year. The apparel product cycle is very different compared to footwear. Our apparel proposition is in excellent shape, supported by innovation and our own brands, and we believe there is significant scope to leverage this for growth, particularly in North America, where our apparel mix is low compared to other regions. Despite tough comparatives from replica shirt sales in the UK and Europe due to the Euro 24 football tournament last year, organic apparel sales were 6% higher year on year. Our other category, which includes outdoor living equipment and gym memberships, maintained its share at 4% of sales mix. Turning now to our geographic regions. As a reminder, we have two different lenses on how we look at the JD Group. First, as you know, segmentation by fascia. JD, our complementary concepts, our sporting goods and outdoor fascias. This is our primary lens because it aligns to our strategy. And most importantly, it's how our customers and brand partners engage with the JD Group. The geographic split that you see on this slide helps to focus internally on creating the most efficient operating model to support our range of fascias in each region, and in the process, maximizing the returns we make on our investments. So starting with sales by region. As reported in our trading update in August, like-for-like sales in H1 were resilient in Europe, supported by our JD and sporting goods fascias. We were encouraged by improved like-for-like trends quarter on quarter in both North America and Asia Pacific. In the UK, we see organic sales as a better KPI than LFL, given the ongoing evolution of our store footprint with bigger and better stores. Rajesh will cover this in his slides later. UK organic sales were 1.7% lower in H1, affected by tough prior year comparatives due to the Euro 24 football tournament. Turning to margins, the group operating margin of 6.2% reflects the H2-weighted nature of our annual sales. By region, the North American margin was 340 basis points lower year on year. This was influenced by two significant but short-term factors. First, the ongoing wind-down of the finish line fascia. During the first half, finish line invested in price within its online offering to maintain competitiveness. It also closed 15 stores and transferred a further 22 to JD in the period. Those conversions continue to see significant uplifts in performance and profitability as the JD concept continues to resonate with North American customers. The remaining 220 finish line stores will be wound down over time, but will weigh on the North American margin in the short term. And second, the impact of Hibbert year on year. Last year, having completed the Hibbert acquisition on the 25th of July, the business recorded a spectacular first week due to back-to-school demand, making a significant proportion of its annual profit under our ownership in that seven-day window. Aside from these factors, as I mentioned earlier, Hibbert is a slightly lower margin business than the other North American fascias. The integration of the business is progressing well, and it's a key component in our multi-year program to create an integrated platform for the nationwide growth of all our fascias in North America, with an efficient supply chain and back office. We're on track to deliver annualized cost synergies of $25 million, with half to two-thirds of this, so about £10 to £12 million, expected in H2O. In Europe, we saw a decline in the operating margin of 40 basis points. The main factor to call out here were our controlled price investments, particularly in the online offer, which saw good results in terms of customer traffic and conversion. As our supply chain investments in Europe come to an end in FY27, we'll see the operating margin in this region start to step forward towards the higher single-digit levels we have elsewhere. To remind you of our broader medium-term guidance for the group, we expect to see over £20 million of cost benefits related to technology and supply chain double-running costs across FY27 and FY28. And finally, the UK margin was lowered by 130 basis points. This reflects the tough trading conditions as highlighted, as well as higher technology, labour and costs related to new stores. We have and continue to make strong progress on our plans to enhance sales productivity and cost efficiency in the UK. And Regis will touch on that more later. So onto the group profit bridge. Starting from the left-hand side, lower like-for-like sales at a constant gross margin contributed 33 million pounds to the decline. And that's net of 27 million pounds of attributable variable OPEX savings. We then have a further £25 million from the like for like gross margin rate reduction. The next bar shows a £10 million net OPEX increase, which includes a higher salary and national insurance rates, as well as technology investments that we flagged back in May. It's a net number because we've also included structural OPEX reductions in the year. Alongside the higher mark-to-market charge of £13 million, we offset these increases in full with our variable cost reductions, as you can see with the arrows on this slide. For the year as a whole, as we stated in our FY25 results in May, we expect incremental OPEX of over £50 million, including higher labour and national insurance costs and tech spend. And we're on track with our guidance of partly offsetting this through £30 million of structural cost reductions and US integration synergies of around £10 to £12 million. I would also highlight that we expect part of the mark-to-market charge to unwind in the second half. The contribution from new stores and annualisations was £24 million in H1. Hibbert and Correa added £32 million. And finally, we saw a £22 million increase in net finance expense, excluding lease interest. As I mentioned earlier, this was largely due to the interest on debt component of our acquisition financing, which anniversaries in the second half. On this slide, we set out our summary cash flows for the period. Depreciation and amortization was 467 million pounds, up 120 million pounds from the prior year. This increase was driven primarily by Hibbert and Correa, together with the impact of new stores and our supply chain investments. Lease repayments were 230 million pounds. As a result, the group's operating cash flow was 546 million pounds, up 5% versus the prior year. The change in working capital resulted in a net outflow of £312 million. This was due to an increase in inventory of £314 million, reflecting the rebuild of stock following the seasonally low year-end balance sheet position. Gross capital expenditure in the period was £216 million, down £29 million on the prior year, reflecting the tapering off of our supply chain investment phase. Tax, interest and other cash payments were £86 million, leading to an overall free cash flow of minus £68 million, and that's an improvement of £35 million on last year. To reiterate, given the seasonality of our business, we expect to generate significant free cash flow in the second half. Dividend payments related to last year's final dividend were £34 million, and our first share buyback programme of £100 million completed in July. Overall, we saw a reduction in net cash of £177 million, leading to net debt before lease liabilities on the balance sheet of £125 million. Turning to slide 12, and to reiterate the continued strength of our balance sheet and cash generation. We continue to manage our inventory effectively and in a disciplined manner. Net inventory increased by 14% year on year. This mainly reflects the acquisition of career, but also proactive stock management ahead of our distribution center transitions and city gear store conversions. Regis will provide more detail on this later. Overall, we're well positioned on inventory heading into our peak trading period. turning now to net debt. With cash of £502 million and borrowings of £627 million, our net debt at period end was £125 million before lease liabilities. We expect to move to a net cash position by the end of the financial year. Factoring in IFRS 16 lease liabilities, our net debt was just over £3 billion, representing net leverage of 1.7 times. Taking into account the Genesis buyout option in FY30 and FY31, pro forma net leverage remains around investment grade levels. In July this year, we completed a comprehensive debt refinancing. So including our new undrawn RCFs, our total liquidity at period end was just under £1.4 billion. Finally, on shareholder returns. In April, we updated on our strategy and our capital allocation priorities. And with this, a commitment to enhance shareholder returns. In accordance with these priorities and reflecting our expectation of strong free cash flow generation, we announced a second 100 million share buyback program in August. We expect the program to commence in the coming days. And at current share price levels, we believe buybacks represent a compelling return on equity for shareholders. And finally, for completeness, the Board has also declared an interim dividend of 0.33 pence per share. So now let me take a moment to address the impact of US tariffs on our business, which we said we'd provide an update on today. The overall message here is that we see limited financial impact in FY26, though unsurprisingly, uncertainty remains going forward. First, a reminder of our direct exposure. This is the impact on our sourcing of own brands and licensed products, as well as store fixtures and fittings. Our own brand accounts for less than 10% of our U.S. sales, and we've already taken effective steps to diversify the sourcing base. As a result, the direct impact to JD of higher U.S. tariffs is not material, estimated at less than $10 million on an annualized basis. Turning now to our indirect exposure, we've spent several months closely monitoring the actions our brand partners are taking to mitigate tariff impacts and any shifts in US consumer behavior. From a brand partner perspective, with a significant proportion of their sourcing concentrated in Southeast Asia, we're seeing them taking proactive steps across the supply chain to mitigate cost pressures and maintain competitive pricing. And where retail price increases have occurred, they've generally been targeted, with a broadly neutral reaction from customers so far. So based on what we've seen to date, we therefore anticipated limited financial impact from US tariffs in the current financial year. This is supported in part by inventory purchased prior to the implementation of tariffs. Looking beyond FY26, uncertainty remains over broader tariff, as well as over US consumer sentiment, as you might expect. We will of course provide updates as and when the landscape evolves further. So finally, on our outlook and guidance, we expect our full year profit before tax and adjusting items to be in line with current market expectations. Our H1 results demonstrate our operating and financial discipline against a tough market backdrop. You can expect more of the same in H2 with continued effective management of our costs and cash. We remain cautious on the trading environment, reflecting continued pressures on consumer finances, elevated unemployment risk, and the ongoing footwear product cycle transition. As a reminder, as we settle into our new reporting pattern, there's no update on current trading today, and we'll report our Q3 numbers on the 20th of November. Finally, as I highlighted on the previous slide, we anticipate the financial impact from U.S. tariffs to be limited in this financial year. So with my review concluded, let me hand back to Régis who will provide the business update.