Blacks Leisure Group PLC
26 October 2006
Embargoed until 0700 26 October 2006
Blacks Leisure Group plc
('Blacks Leisure' or 'the Group')
Interim Results for the Six Months Ended 31 August 2006
HIGHLIGHTS
2006 2005
Revenue £141.3m £140.0m
Gross margin 55.9% 55.6%
Operating profit £0.7m £7.2m
Profit before taxation £0.1m £6.9m
Basic earnings per share 0.12p 11.11p
Interim dividend per share 3.30p 3.30p
• Group like for like retail sales down 0.5% in first half
• Solid performance at Blacks, Freespirit and O'Neill; weakness at
Millets
• Slight increase in gross margin despite price competitiveness
• Rise in costs due to investment in new store space and infrastructure
• Continuing investment in Blacks Out of Town format, Millets
refurbishments, and product development
David Bernstein, Chairman, said:
'Our sales in the first half were affected by a tough retail environment with
the added impact of the World Cup in June and the hot, dry weather. Sales of
camping products were weak during the period and we face strengthened
competition in this sector. Millets has been particularly affected by these
factors, whilst the performance of Blacks has been more resilient. Our Boardwear
businesses, Freespirit and O'Neill, both performed satisfactorily.'
'Normal autumn and winter weather conditions and a good performance through the
important Christmas trading period are key to achieving our current expected
outcome for the year.'
Enquiries:
Blacks Leisure Group plc (26/10/06) 020 7404 5959
Russell Hardy, Chief Executive (thereafter) 01604 441 222
Keith Fleming, Finance Director
Brunswick Group LLP 020 7404 5959
Pamela Small
CHAIRMAN'S STATEMENT
For the last eight reporting periods we have been able to report a consistent
improvement in the financial and operating performance of the Group. It is
therefore disappointing to report that the six months to 31 August 2006 has been
a very difficult period and, as indicated in our statement of 23 August 2006,
the Group is reporting a small profit of £0.1m (2005: £6.9m).
Our sales in the first half were affected by a tough retail environment with the
added impact of the World Cup in June and the hot, dry weather. Sales of camping
products were weak during the period and we face strengthened competition in
this sector. Millets has been particularly affected by these factors, whilst the
performance of Blacks has been more resilient. Our Boardwear businesses,
Freespirit and O'Neill, both performed satisfactorily. Our Outdoor businesses do
benefit from wet and cold weather and we are therefore developing our product
ranges to ensure they also suit our customers' needs should the climate continue
to be warmer and drier.
Group Results
The Group's total sales in the first half increased by 0.9% to £141.3m (2005:
£140.0m). Like for like retail sales fell by 0.5%.
Gross margin increased slightly to 55.9% (2005: 55.6%) as price deflation caused
by increased competition in certain sectors largely offset the positive effect
on margins of the introduction of our exclusive ranges.
Operating costs increased in the first half of the year by £7.6m. This is a
result of three main factors; firstly our investment in new store openings,
secondly a significant investment in the future of the business through the new
commercial websites, and thirdly our investment in central services including
the new distribution centre. It is expected that these investments will begin to
show benefits in the results of the Group over the next year.
Profit before tax was £0.1m (2005: £6.9m).
Basic earnings per share were 0.12p compared to 11.11p per share in the first
half of last year.
Dividend
The Board has declared the same level of interim dividend at 3.3p (2005: 3.3p)
per share reflecting our confidence in the business going forward. The interim
dividend will be paid on 31 January 2007 to shareholders on the register at 22
December 2006.
Current Trading & Outlook
Total retail sales in the eight weeks to 21 October were similar to that during
the same period last year, with like for like sales decreasing by 2.3%. This
marks a weak September when the weather remained warm and dry, but a stronger
performance in October.
We have seen some improvement in the underlying gross margin in the last eight
weeks as our new exclusive ranges become even more popular with our customers.
Normal autumn and winter weather conditions and a good performance through the
important Christmas trading period are key to achieving our current expected
outcome for the year.
David Bernstein
Chairman
26 October 2006
OPERATING REVIEW
The first half of the year has been characterised by a challenging consumer
environment during which we have continued to invest in the business. Like for
like sales were marginally down due to a combination of external and seasonal
factors including increased competition, the dry weather and the World Cup. In
order to remain competitive and trade the business hard, it was necessary to
lower prices in clothing and camping lines during the first half, which resulted
in our gross margin remaining broadly in line with last year. At the same time,
operating costs were higher year on year due to our investment in new space
through store openings, our new websites, the new distribution centre and
central overheads. These necessary investments combined with the operational
gearing of the business meant that our broadly flat gross margins directly
affected our bottom line with the first half profits being substantially lower
than in the same period last year - a very disappointing result.
In this situation we have continued to ensure we trade the business hard whilst
continuing the process of positioning the business for the future. We are making
good progress in all our areas of strategic focus and ensuring that the business
responds to trends in the retail environment.
The Group's sales have typically been strongest during periods of cool, wet
weather, when consumers seek out clothing and equipment that enables them to
carry on outdoor activities. Our performance in the past has benefited from the
traditional British climate, but during unusually dry periods such as the first
half this year, there is an adverse impact on sales growth. As weather patterns
change, we are actively developing new product categories to balance any
potential loss of wet weather sales. We are fortunate to have a portfolio of
both Outdoor and Boardwear brands and we will continue to position our business
to best meet the needs of customers and enable them to enjoy the great outdoors.
Blacks like for like sales for the first half increased by 4.5% over the same
period last year and were particularly strong in clothing. In terms of product
development our new Technicals, Rare Species and ALS ranges are all performing
well and work in harmony with our mainstream brands. In terms of format
development we continue to invest in the Blacks Out of Town format. We now have
11 Out of Town stores, including our latest at York which includes an Evans
Cycles concession following our recent partnership, bringing the total number of
Blacks stores to 105. In terms of brand development Blacks' focus is on 'Great
Outdoor Brands, Great Outdoor Performance and Outdoor Expertise' and we are
ensuring all of these elements come to life in our stores.
Millets has had a poor first half, with like for like sales down 5.6% compared
to the prior year. Millets delivered satisfactory like for like growth in
clothing sales; however the camping offer has underperformed materially during
the key trading months. Increased competition also meant that prices fell year
on year. In terms of product development we continue to make good progress with
Peter Storm, the UK's largest Outdoor clothing brand, which has been relaunched
for the Autumn/Winter season. We have augmented the Millets offer for the second
half with stronger branded ranges from the likes of Berghaus, Columbia and
Craghoppers. In terms of format development, the focus for our 285 Millets
stores is on a refurbishment programme over the next five years. In March we
opened the new Millets concept store in Newbury, which is a larger format
providing more space for product and outdoor displays. Given its initial
success, this Millets format will be rolled out to a further seven stores to be
refurbished in the second half. Dependent on performance, we expect this format
to form the basis of our Millets refurbishment programme going forwards. In
terms of brand development, Millets' focus is 'Great Value, Proper Outdoor Stuff
and Families'. All of our actions are designed to ensure that the customer
experience in Millets reflects these statements.
The Boardwear division performed satisfactorily in the first half. Helped by the
dry, warmer weather, Freespirit and O'Neill both made progress with combined
like for like sales growth of 2.6%. In terms of product development, the launch
of the Freespirit own-brand range has gone well, particularly for women's wear.
In terms of format development, both portfolios of 45 Freespirit and 15 O'Neill
stores are in good condition. In terms of brand development we continue to
promote strategic alliances with the launch of the O'Neill Surf Academy at
Watergate Bay and Freespirit's tie up with the British Surf Federation being
good examples.
We continue to implement projects aimed at improving the Company's long-term
operational efficiency. In the first half we rolled out a new till system across
all fascias (now successfully completed) which will improve process and
administration and enable a greater concentration on selling the product. We
also completed the consolidation of our four previous distribution centres into
our single new facility at Northampton, which will improve our product
availability as the busy Christmas season approaches. We will, however, continue
to incur some dual running costs for the remainder of the year.
On the Business Development front we launched new commercial websites for Blacks
and Millets in the spring. Both are showing satisfactory year on year growth
over the earlier versions of the websites, and we expect to make further
improvements. As announced on 25 August, we have entered into new strategic
partnerships with the Boardwear brand MAMBO (for the European retail and
wholesale rights ex Spain) and with Evans Cycles (for cycling concessions in
Blacks Out-of-Town stores). Both are excellent brands and a logical extension of
our Outdoor and Boardwear offers.
Despite the tough first half and our disappointing performance, we remain
confident in the very attractive long-term growth prospects of the Outdoor and
Boardwear markets. As changing weather patterns affect consumer behaviour, we
will ensure our product ranges meet customers' needs for a variety of conditions
and activities, while remaining competitive as a specialist retailer. In this
context our investment in the areas of strategic focus is even more important,
and is starting to bear fruit across the fascias. Our performance in the second
half will depend on a normal, wetter weather pattern and the key winter and
Christmas trading period.
FINANCE REVIEW
Shareholder Value
Basic earnings per share were 0.12p (2005: 11.11p). This reflected the reduction
in Group operating profit.
The interim dividend per share was maintained at 3.3p (2005: 3.3p).
Operating Profit
Operating profit of £0.7m (2005: £7.2m) comprised the results of the Outdoor and
O'Neill divisions less unallocated costs. Unallocated costs consist of the
remuneration of the Board, plus the costs of public company compliance and
advisors.
The increase in operating costs is largely a result of the new store openings
and investment in the infrastructure for the future growth of the business.
Goodwill
The carrying value of goodwill was maintained and the Board is satisfied that no
provision for impairment is needed.
Finance Costs
The Group's net finance costs increased to £0.6m (2005: £0.4m) largely a result
of interest payable relating to the finance leasing arrangements for the new
distribution centre and the new store till systems.
Cash Flow
Net cash outflow from operating activities was £1.6m (2005: £5.7m inflow), due
to the reduction in Group operating profit.
Net working capital increased by £2.2m in the period, largely due to an increase
in trade and other receivables compared to the prior year-end.
Total inventories were £54.9m (2005: £49.3m). This relates to the investment in
space growth and a marginal increase in camping and footwear product.
Investment in new stores, store refurbishment and our internet sites accounted
for £3.2m (2005: £4.9m) of the capital expenditure in the period.
Capital investment for the full year is anticipated to be in excess of £12m.
This reflects expenditure on new Blacks Out of Town stores and our Millets store
refurbishment programme.
Blacks Leisure Group plc Interim Results 2006
Consolidated Income Statement
for the six months ended 31 August 2006
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 August 2006 31 August 2005 28 February
2006
Total Total Total
Note £'000 £'000 £'000
--------------------- ------- ----- ---------- ---------- -----------
Revenue 2 141,320 140,035 297,238
--------------------- ------- ----- ---------- ---------- -----------
Gross profit 78,928 77,920 169,126
--------------------- ------- ----- ---------- ---------- -----------
Operating profit 680 7,249 22,364
Finance costs (605) (358) (929)
--------------------- ------- ----- ---------- ---------- -----------
Profit before tax 2 75 6,891 21,435
Tax expense 3 (24) (2,225) (6,897)
--------------------- ------- ----- ---------- ---------- -----------
Profit for the
period attributable
to equity holders
of the parent 51 4,666 14,538
--------------------- ------- ----- ---------- ---------- -----------
Earnings per share
(pence) 4
- Basic 0.12 11.11 34.57
- Diluted 0.12 11.05 33.88
--------------------- ------- ----- ---------- ---------- -----------
Blacks Leisure Group plc Interim Results 2006
Consolidated Statement of Recognised Income and Expense
as at 31 August 2006
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 28 February
31 August 2006 31 August 2005 2006
Total Total Total
£'000 £'000 £'000
-------------------------- ------------ ------------ -----------
Transferred to the
carrying amount of hedged
items (711) - 498
Tax on items transferred
from equity 213 - -
Gains relating to
designated cash flow
hedges 638 - 711
Tax on items taken
directly to equity (191) - (213)
-------------------------- ------------ ------------ -----------
Net income recognised
directly in equity (51) - 996
Profit for the period
attributable to equity
holders of the parent 51 4,666 14,538
-------------------------- ------------ ------------ -----------
Total recognised income and expense
for the year attributable to equity
holders of the parent - 4,666 15,534
Opening reserves adjustment for
cash flow hedging instruments - (498) (498)
-------------------------- ------------ ------------ -----------
Total recognised income
and expense - 4,168 15,036
-------------------------- ------------ ------------ -----------
Blacks Leisure Group plc Interim Results 2006
Unaudited Consolidated Balance Sheet
as at 31 August 2006
Unaudited Unaudited Audited
At 31 August At 31 August At 28 February
2006 2005 2006
Note £'000 £'000 £'000
------------------ ----- ------------- ----------- ------------
ASSETS
Non-current assets
Property,plant and
equipment 43,812 36,005 40,452
Goodwill 36,352 36,352 36,352
Other intangible assets 1,243 - 666
Deferred tax assets 243 - -
------------------ ----- ------------- ----------- ------------
Total non-current assets 81,650 72,357 77,470
Current assets
Inventories 54,941 49,273 54,350
Trade and other receivables 15,341 15,487 14,074
Derivative financial instruments 638 - 711
Cash and cash equivalents 6,147 11,470 16,733
------------------ ----- ------------- ----------- ------------
Total current assets 77,067 76,230 85,868
------------------ ----- ------------- ----------- ------------
TOTAL ASSETS 158,717 148,587 163,338
------------------ ----- ------------- ----------- ------------
EQUITY AND LIABILITIES
Equity attributable to equity holders of
the parent
Share capital 21,278 21,100 21,234
Share premium 24,159 23,322 23,910
Reserve for own shares (401) (217) (401)
Hedging reserve 447 - 498
Share-based
payments reserve 505 195 375
Retained earnings 60,610 55,008 63,964
------------------ ----- ------------- ----------- ------------
TOTAL EQUITY 6 106,598 99,408 109,580
Non-current liabilities
Preference shares 891 891 891
Accruals and deferred income 1,824 1,721 1,883
Obligations under finance leases 5,144 8 3,805
Deferred tax liabilities - 365 74
Long-term provisions 161 158 161
------------------ ----- ------------- ----------- ------------
Total non-current
liabilities 8,020 3,143 6,814
Current liabilities
Trade and other payables 42,237 43,231 39,346
Current tax liabilities 432 2,118 3,318
Bank overdrafts - - 3,025
Obligations under finance
leases 904 24 674
Short-term provisions 526 663 581
------------------ ----- ------------- ----------- ------------
Total current liabilities 44,099 46,036 46,944
------------------ ----- ------------- ----------- ------------
TOTAL LIABILITIES 52,119 49,179 53,758
------------------ ----- ------------- ----------- ------------
TOTAL EQUITY AND
LIABILITIES 158,717 148,587 163,338
------------------ ----- ------------- ----------- ------------
Blacks Leisure Group plc Interim Results 2006
Unaudited Consolidated Cash Flow Statement
for the six months ended 31 August 2006
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
31 August 2006 31 August 2005 28 February
2006
Note £'000 £'000 £'000
------------------------ ----- ------------- ----------- -----------
Cash generated from operations 7 2,091 9,422 24,385
Interest paid (493) (307) (1,625)
Tax paid (3,205) (3,376) (7,151)
------------------------ ----- ------------- ----------- -----------
Net cash (used
in)/generated from
operating activities (1,607) 5,739 15,609
Cash flows from investing activities
Purchase of property,
plant and equipment (5,275) (6,120) (9,983)
Purchase of intangible assets (662) - (666)
Proceeds/(payments)
from disposal of
property, plant and equipment 93 8 (64)
Interest received - - 812
------------------------ ----- ------------- ----------- -----------
Net cash used in
investing activities (5,844) (6,112) (9,901)
Cash flows from financing activities
Proceeds from the
issue of share capital 293 683 1,405
Purchase of own shares - - (184)
Dividends paid - - (4,349)
Payment of finance
lease liabilities (403) (15) (47)
------------------------ ----- ------------- ----------- -----------
Net cash (used
in)/generated from
financing activities (110) 668 (3,175)
------------------------ ----- ------------- ----------- -----------
Net (decrease)/increase in
cash and cash equivalents (7,561) 295 2,533
Cash and cash
equivalents at the
beginning of the period 13,708 11,175 11,175
------------------------ ----- ------------- ----------- -----------
Cash and cash
equivalents at the end
of the period 6,147 11,470 13,708
------------------------ ----- ------------- ----------- -----------
Blacks Leisure Group plc Interim Results 2006
Notes to the Accounts
for the six months ended 31 August 2006
1. Basis of preparation of the accounts
The interim accounts have been prepared in accordance with the accounting
policies and presentation required by those International Financial Reporting
Standards, incorporating International Accounting Standards (IASs) and
Interpretations (collectively IFRS), as endorsed by the European Union and
expected to apply in the Group's annual financial statements for the year ended
28 February 2007.
These interim financial statements are unaudited and do not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985.
The financial statements for the year ended 28 February 2006 have been reported
on by the Company's Auditors and delivered to the Registrar of Companies. The
report of the Auditors was unqualified and did not contain statements under
Section 237(2) or (3) of the Companies Act 1985.
2. Segmental analysis
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
31 August 2006 31 August 2005 28 February
2006
OUTDOOR £'000 £'000 £'000
------------- ----------------- ----------- ----------- -----------
Revenue
Total revenue 127,005 124,850 267,400
------------- ----------------- ----------- ----------- -----------
Sales to external
customers 127,005 124,850 267,400
Profit
Segment profit 1,327 7,927 23,264
Segment disposal of
property, plant and
equipment 93 8 (127)
------------- ----------------- ----------- ----------- -----------
Operating profit 1,420 7,935 23,137
Net finance costs (514) (138) (531)
------------- ----------------- ----------- ----------- -----------
Profit before tax 906 7,797 22,606
Tax expense (308) (2,159) (7,339)
------------- ----------------- ----------- ----------- -----------
Profit for the year attributable to
equity holders of the parent 598 5,638 15,267
------------- ----------------- ----------- ----------- -----------
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
31 August 2006 31 August 2005 28 February
2006
O'NEILL £'000 £'000 £'000
---------------------------- ----------- ----------- -----------
Revenue
Total revenue 15,824 16,722 32,951
Inter-segment sales (1,509) (1,537) (3,113)
---------------------------- ----------- ----------- -----------
Sales to external customers 14,315 15,185 29,838
Profit
Segment profit 285 422 1,286
Inter-segment
profit/(loss) on stock 65 (255) (270)
---------------------------- ----------- ----------- -----------
Operating profit 350 167 1,016
Net finance costs (46) (175) (309)
---------------------------- ----------- ----------- -----------
Profit/(loss)
before tax 304 (8) 707
Tax credit/(expense) 245 (84) 370
---------------------------- ----------- ----------- -----------
Profit/(loss) for the year
attributable to equity holders of the
parent 549 (92) 1,077
---------------------------- ----------- ----------- -----------
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
31 August 2006 31 August 2005 28 February
2006
UNALLOCATED £'000 £'000 £'000
------------- ----------------- ----------- ----------- -----------
Profit
Segment loss (1,090) (853) (1,789)
------------- ----------------- ----------- ----------- -----------
Operating loss (1,090) (853) (1,789)
Net finance costs (45) (45) (89)
------------- ----------------- ----------- ----------- -----------
Loss before tax (1,135) (898) (1,878)
Tax credit 39 18 72
------------- ----------------- ----------- ----------- -----------
Loss for the year attributable to
equity holders of the parent (1,096) (880) (1,806)
------------- ----------------- ----------- ----------- -----------
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
31 August 2006 31 August 2005 28 February
2006
GROUP £'000 £'000 £'000
---------------------------- ----------- ----------- -----------
Revenue
Total revenue 142,829 141,572 300,351
Inter-segment sales (1,509) (1,537) (3,113)
---------------------------- ----------- ----------- -----------
Sales to external customers 141,320 140,035 297,238
Profit
Segment profit 522 7,496 22,761
Inter-segment
profit/(loss) on stock 65 (255) (270)
Segment disposal of
property, plant and equipment 93 8 (127)
---------------------------- ----------- ----------- -----------
Operating profit 680 7,249 22,364
Net finance costs (605) (358) (929)
---------------------------- ----------- ----------- -----------
Profit before tax 75 6,891 21,435
Tax expense (24) (2,225) (6,897)
---------------------------- ----------- ----------- -----------
Profit for the year attributable to
equity holders of the parent 51 4,666 14,538
---------------------------- ----------- ----------- -----------
3. Taxation
The taxation charge is calculated by applying the expected annual effective tax
rate of 32.0% (2005: 32.0%) to profit before taxation.
4. Earnings per share
The calculation of basic earnings per share is based on profits after taxation
of £51,000 (31 August 2005: £4,666,000, 28 February 2006: £14,538,000) by
reference to the weighted average of 42,487,258 (31 August 2005: 42,022,892, 28
February 2006: 42,056,843) ordinary shares in issue during the period. The
diluted earnings per share is based on 42,818,264 shares (31 August 2005:
42,253,372, 28 February 2006: 42,925,853).
5. Dividends
The Directors propose an interim dividend of 3.3p (2005: 3.3p) per share payable
on 31 January 2007 to shareholders on the register at 22 December 2006, which
will amount to approximately £1,402,000 (2005: £1,392,000).
Blacks Leisure Group plc Interim Results 2006
Notes to the Accounts
for the six months ended 31 August 2006
6. Changes in equity
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
31 August 2006 31 August 2005 28 February
2006
£'000 £'000 £'000
------------------------------ ----------- ----------- -----------
Prior period closing equity, as previously reported 109,580 97,432 98,323
Add back reclassification of Preference Shares to equity from non-current
liabilities - 891 -
------------------------------ ----------- ----------- -----------
109,580 98,323 98,323
Reclassification of Preference Shares from equity to non-current
liabilities - (891) (891)
Opening reserve adjustment in respect of financial instruments - (498) (498)
------------------------------ ----------- ----------- -----------
Opening equity 109,580 96,934 96,934
Gains on cash flow hedges 638 - 711
Tax on items taken directly to equity - relating to fair value hedges
(191) - (213)
Transferred to initial carrying amount of hedged items on cash flow hedges
(711) - 498
Tax on items transferred from equity 213 - -
------------------------------ ----------- ----------- -----------
Net income recognised directly in equity (51) - 996
Profit for the period attributable to equity holders of the parent 51 4,666 14,538
Dividends proposed and approved (3,405) (2,935) -
------------------------------ ----------- ----------- -----------
(3,405) 1,731 15,534
Share capital issued 293 683 1,405
Purchase of own shares - - (184)
Accrued share-based payments 130 60 240
Dividends paid - - (4,349)
----------------- ----------- ----------- -----------
Closing equity 106,598 99,408 109,580
----------------- ----------- ----------- -----------
Blacks Leisure Group plc Interim Results 2006
Notes to the Accounts
for the six months ended 31 August 2006
7. Cash generated from operations
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
31 August 2006 31 August 2005 28 February
2006
£'000 £'000 £'000
-------------------------- ------------ ---------- -----------
Cash flows from operations
Net profit before taxes 75 6,891 21,435
Adjustments for:
Net finance cost 605 358 929
(Gain)/loss on disposal of property, plant and equipment (93) (8) 127
Depreciation and amortisation 3,690 3,947 7,780
Share-based payments 130 60 240
Release of capital receipts (74) (228) (299)
-------------------------- ------------ ---------- -----------
Operating profit before working capital changes 4,333 11,020 30,212
Increase in inventories (591) (2,790) (7,867)
(Increase)/decrease in trade and other receivables (1,267) (285) 1,128
(Decrease)/increase in trade and other payables (329) 1,477 992
Decrease in provisions (55) - (80)
-------------------------- ------------ ---------- -----------
Cash generated from operations 2,091 9,422 24,385
-------------------------- ------------ ---------- -----------
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