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Pets at Home Groupthejohndavidgroupplc ANNUAL REPORT & ACCOUNTS 2004 CONTENTS 2 Chairman’s statement 6 Operating and financial review 8 The Board 10 Directors’ report 14 Corporate governance 18 Report on remuneration and related matters 21 Statement of directors’ responsibilities 22 Independent auditors’ report 24 Consolidated profit and loss account 25 Balance sheets 26 Consolidated cash flow statement 26 Reconciliation of net cash flow to movement in net debt 27 Accounting policies 28 Notes to the financial statements 41 Notice of annual general meeting 43 Five year record 44 Financial calendar 44 Advisers 44 Head office CHAIRMAN’S STATEMENT The year to 31 January 2004 proved to be very difficult strategic review are continuing, it is, in the Board’s for the group. This has led to a number of management opinion, inappropriate to report in detail on the Fashion changes including my own return to the group as Fascias separately at this stage. Executive Chairman in March 2004. I am delighted to be back after leaving the position of Finance Director in 2001 and pleased to report that our core business proposition, selling Sportswear with style and fashion, is still clearly an effective consumer offer which The challenges facing the group have been extensively reported. In difficult market conditions, however, I have been encouraged by the fact that the core Sports business, which represents approximately 90% of group differentiates our business from our competition. sales, is increasingly robust. However, as Chairman, as a shareholder, and as a key member of the team which brought this business to and beyond flotation in the first place, it does not give me any pleasure to report disappointing results for the year. RESULTS Total sales increased to £458.1 million during the period in comparison with £370.8 million for the 10 month period The results for the last year were adversely impacted by ended January 2003 which incorporated eight months of continuing First Sport integration problems. The post acquisition trading from First Sport. Gross margin integration process is now well advanced and all fascias for the year rose slightly from 45.5% to 45.6%. are now managed by a single management team based at our Bury Head Office. Operating profit before exceptional items, losses on disposals and amortisation of goodwill was £10.5 million Optimism in October 2003 about the second half was not and after interest charges was £6.0 million (10 month justified in the final result owing to patchy trading in the period ended 31 January 2003: £18.0 million and last quarter in which a strong £15.1 million after interest charges). November was followed by a weak pre Christmas period After charging exceptional items of £2.0 million and which affected many goodwill amortisation of £0.8 million, operating profit retailers. This was followed before interest charges and loss on disposal of fixed by a comparatively strong assets was £7.7 million (10 month period ended 31 sales performance in late January 2003: £14.1 million). December but at lower margins during the sale Profit on ordinary activities before taxation was period which extended into January. Nevertheless there are now grounds for £2.1 million (10 month period to 31 January 2003: £10.8 million). optimism as the core Sports business is performing well Net interest charges increased to £4.5 million compared in the new year. with £2.9 million (10 month period) due to the full year’s charge on the additional debt taken on to fund our recent The JD Sports fascia continues to be recognised as a acquisition. Adjusted earnings per ordinary share, before style leader by our target teenage market and offers a exceptional items and goodwill, were 6.21p compared market leading range from our key branded suppliers with 21.18p in the previous period. (Nike, Adidas, Puma, Lacoste) which includes exclusive product as well as an improved range of own label (McKenzie, Carbrini) product. Our relationship with these key suppliers, who recognise our pre-eminence as visual DIVIDEND The Board proposes to pay a final dividend of 3.64p per merchandisers of their products to target consumer groups, is key to our continuing success. This part of our business will drive the future business performance. ordinary share (10 month period ended 31 January 2003: 3.64p) bringing the total dividend paid to 6.50p per ordinary share (10 month period ended 31 January 2003: 6.50p ). The Board is offering a scrip dividend alternative Whilst performance in our Sports Fascias is encouraging, to shareholders, full details of which will be included in a our Fashion Fascias continue to disappoint. We are circular to be issued with the Annual Report. Irrevocable actively addressing the key issues in this area including the continuation of our fascia rationalisation and the development of stronger brand relationships with fewer Fashion suppliers. Following recent management changes we are now applying the same successful management principles employed in the Sports business to the Fashion business. Given that rationalisation and a undertakings to elect to receive the scrip dividend alternative have been given by holders of 54% of the ordinary share capital, being holdings of John Wardle and David Makin, the founding shareholders. The proposed final dividend will be paid on 2 August 2004 to shareholders on the register as at 21 May 2004. 2 thejohndavidgroupplc CHAIRMAN’S STATEMENT As the group’s performance is heavily weighted to the key Christmas trading period it is likely that future dividend payments will be more weighted towards the final dividend than they have been in the current year. BOARD CHANGES There have been a number of Board changes in the past 12 months. The company’s founders and principal shareholders, John Wardle and David Makin, stepped down from their executive roles in January 2004 and are now non-executive directors. Their considerable market, product, retail and consumer knowledge is something the Board will continue to draw on although they are no longer involved in the day to day management of the business. Malcolm Blackhurst resigned as Group Finance Director and Company Secretary in December 2003 and Brian Small was appointed to those positions in January 2004. Roger Best was replaced as Executive Chairman in March 2004 by me. Frank Martin, a non-executive director, left the Board in March 2004 and will be replaced as soon as possible. PROSPECTS On my appointment 8 weeks ago, I promised to oversee a Board review of all the strategic options open to the group. I have concentrated in my opening weeks on ensuring we have the right management team, the right operating controls and the right targets so that the Board’s expectation of a progressive improvement in results can be delivered. The strategic review will take some time to complete and we will announce its findings and conclusions as soon as it is practicable. EMPLOYEES The past year has been a difficult year for everybody working in the company. We have been through a period of great change and this is only possible when you get fully committed support from all employees. I would like to thank everyone of them for making their contribution in the past year and ask each one of them to continue in their commitment to the future success of the company. Peter Cowgill Chairman 11 May 2004 44 thejohndavidgroupplc OPERATING AND FINANCIAL REVIEW OPERATING REVIEW The year ended 31 January 2004 has been a challenging one for the group and has seen a substantial change in BALANCE SHEET & FINANCIAL RESOURCES Shareholders’ funds at the balance sheet date have the shape of our store portfolio as we sought to eliminate decreased by 2.5% to £57.3 million from the previous the old First Sport trading fascias. In the year, over 100 level of £58.8 million at the end of January 2003 after First Sport stores were converted into JD stores. We also dividend payments of £2.1m (net of irrevocable elections closed 37 loss making stores and acquired 9 new stores. for the scrip dividend alternative). At 31 January 2004, we had 306 Sports Stores (2003: 337) and 51 Fashion Stores (2003: 48) trading from a Total expenditure on fixed assets during the period total of 1,236,000 square feet (2003: 1,264,000) of which amounted to £11.5 million of which £9.4 million related to 13% is devoted to Fashion Fascias. Our focus in the stores. Net borrowings at the end of January 2004 were current year will be to continue to eliminate loss making £51.1 million (2003: £55.5 million). A small reduction in stores either by disposal or conversion. One new store gearing is presently expected by the end of January 2005 has been opened so far this year and six more are and £8 million of our core borrowings are planned to be committed to. All new stores will only be added to the repaid during the year in accordance with the original portfolio if they meet prudent selection criteria and very schedule of repayments. Gearing should fall following few others are likely to be added this year. reduced capital expenditure and improving retained earnings in the year to 31 January 2005. EBITDA interest The basic product proposition across the Sports Fascias cover fell to a manageable 4.5 times in the year ended remains Sportswear with fashion and style and is now 31 January 2004 and will rise again in the current year. uniform across those fascias. Our objective is to provide main brand fashionable Stocks at the year end were £65.7 million, lower than last product, introducing new year’s level of £69.2 million. ranges quickly and efficiently, including a great The Directors are also aware of the requirement to number of lines exclusively implement International Financial Reporting Standards available at JD. We under which the group will be reporting in the year supplement the branded ending 31 January 2006. The group continues to plan for ranges with innovative and conversion and is on track to meet the requirements. exclusive ranges of both McKenzie and Carbrini own brand merchandise. CURRENT TRADING It is pleasing to be able to report that trading since the The Fashion business continues to concentrate on year end has been in line with management expectations fashionable branded leisurewear but is currently seeking although the Fashion Fascias will take some time to to focus on fewer brands than in the recent past so that recover from some of the buying decisions in the past we can more effectively leverage our buying year. During the 13 weeks to 1 May 2004, group like for relationships. This is the approach which has been like sales have been up 0.9% against the prior period successfully developed in the Sports business. whilst our core Sports business has been up 2.5%. During the same period, gross margin has been in line Our group product mix for the year as a whole was with management expectations. broadly 50% Footwear (2003: 50%), 46% Apparel (2003: 46%), and 4% Accessories (2003: 4%). Replica kit continues to be a minimal part of our turnover. TREASURY POLICY The group’s treasury policy is to arrange funding whilst The main marketing thrust of the current year has been limiting exposure to financial risk and minimising funding to rationalise our fascias with JD being the principal costs. It seeks to reduce uncertainty over future Sports fascia and ATH- (formerly Ath-Leisure) being our cashflows arising from the movement in interest rates by principal Fashion fascia. adopting a mixture of fixed rate and variable rate borrowings. The group also moved into its new head office facilities in Bury at the start of the year and the key management is based there. We retain bulk warehousing facilities in Peterlee as well as Bury. Service to the business from these facilities continues to improve and was very effective in the key Christmas and New Year trading period. 64 thejohndavidgroupplc THE BOARD PETER COWGILL Executive Chairman aged 52 Peter was appointed Executive Chairman in March 2004. He was previously Finance Director of the group until his resignation in June 2001. Since then he has been a partner in Cowgill Holloway Chartered Accountants, and he is also a Non-Executive Director of a number of private companies based in the North West. BARRY BOWN Chief Executive aged 42 Barry joined the Board in 2000 and has been with The John David Group Plc since 1984. He held the positions of Head of Retail, Head of Buying and Merchandising and Chief Operating Officer prior to his appointment as Chief Executive in 2000. BRIAN SMALL Finance Director aged 47 Brian was appointed Finance Director and Company Secretary in January 2004. Immediately prior to his appointment, he was Operations Finance Director at Intercare Group Plc and has also been Finance Director of a number of other companies. He qualified as a Chartered Accountant with Price Waterhouse in 1981. JOHN WARDLE Non-Executive Director aged 59 John was a co-founder of JD Sports and he was the Chairman of the group throughout its various stages of growth from 1980 until 2003. In January 2004, John became a Non-Executive Director. DAVID MAKIN Non-Executive Director aged 40 David was a co-founder of JD Sports in 1980 and for most of the group's existence was responsible for the group’s overall strategic development as well as the buying strategy. In January 2004, David became a Non-Executive Director. COLIN ARCHER Non-Executive Director, Audit Committee and Remuneration Committee member aged 62 Colin was appointed a Non-Executive Director in November 2001. He has over 40 years experience in the banking and financial arenas, having previously been Assistant Corporate Director with Barclays Bank Plc. He is also a member of the Chartered Institute of Bankers. CHRIS BIRD Non-Executive Director, Audit Committee and Remuneration Committee member aged 41 Chris was appointed to the Board in May 2003. He is a marketing specialist with his own public relations and marketing agency. Chris has 20 years media experience in newspapers, commercial radio and sport. 84 thejohndavidgroupplc DIRECTORS’ REPORT The directors present their annual report and the audited financial statements for the year ended 31 January 2004. Principal activities and business review The principal activity of the group continues to be the retail of sports and leisure wear. A review of operations for the year and likely future developments are set out in the Chairman’s statement on page 2 and the operating and financial review on page 6. Results Turnover for the year ended 31 January 2004 was £458.1 million and profit before taxation £2.1 million compared with £370.8 million and £10.8 million respectively in the previous 10 month financial period. The consolidated profit and loss account is set out on page 24. Proposed dividend The directors recommend a final ordinary dividend of 3.64p per ordinary share (2003: 3.64p), which together with the interim dividend of 2.86p per ordinary share (2003: 2.86p) makes a total for the year of 6.50p (ten month period 2003: 6.50p). The Board is offering a scrip dividend alternative to shareholders, full details of which are included in a circular issued with this Annual Report. This will reduce the impact on borrowings of the final dividend. Irrevocable undertakings to take the scrip dividend alternative have been given by holders of 54% of the ordinary share capital in relation to the beneficial interest holdings of John Wardle and David Makin. If approved at the next annual general meeting, the dividend will be paid on 2 August 2004 to shareholders on the register at the close of business on 21 May 2004. Directors The names of the current directors of the company and their biographical details are given on page 8. Mr B Bown and Mr C Archer retire by rotation at the next annual general meeting and are eligible for re-election. On 12 June 2003, Mr F Martin was appointed to the Board as a Non Executive Director, Chairman of the Audit Committee and the Remuneration Committee and was the recognised Senior Independent Non Executive Director. Following his resignation on 25 March 2004, Mr C Archer became Chairman of both Committees. On 31 December 2003, Mr M Blackhurst resigned from the company and on 1 January 2004, Mr B Small was appointed as Group Finance Director. On 16 March 2004, Mr R Best resigned from the company and Mr P Cowgill was appointed as Executive Chairman. Directors’ interests The interests of the directors who held office at 31 January 2004 and their immediate families in the company’s shares are shown below: 31 January 2004 Ordinary shares of 5p each Beneficial Non-Beneficial Options 31 January 2003 Ordinary shares of 5p each Non-Beneficial Beneficial J Wardle D Makin B Bown R Best C Archer B Small 12,213,770 9,910,610 5,625 50,000 8,771 - (i) 2,063,070 (ii) 3,138,160 - - - - - - 230,000 518,518 - 100,000 12,213,770 9,910,610 5,625 - 8,771 - (i) 2,063,070 (ii) 3,973,160 - - - - Options - - 160,000 - - - 22,188,776 5,201,230 848,518 22,138,776 6,036,230 160,000 (i) Includes 1,228,070 shares (2003: 1,228,070) duplicated within the beneficial interests of Mr D Makin. (ii) Includes nil shares (2003: 835,000) duplicated within the non-beneficial interests of Mr J Wardle. There have been no changes to the interests of the directors disclosed above after the year end. Share option schemes The company operates an Inland Revenue Approved Employee Share Option Scheme and an Unapproved Employee Share Option Scheme. During the year the company granted options in respect of 342,348 ordinary shares under the Inland Revenue Approved Employee Share Option Scheme and 1,154,170 ordinary shares under the Unapproved Employee Share Option Scheme. Further information on share options is given in note 17 to the financial statements on page 37. 10 thejohndavidgroupplc DIRECTORS’ REPORT continued Substantial interests in share capital As at 17 May 2004, the directors are aware of the following substantial interests (those greater than 3%) in the ordinary share capital of the company, in addition to the directors’ interests: Schroder Investment Management Limited Aberforth Partners Fidelity International Limited Number of ordinary shares 9,341,277 2,540,964 2,472,301 % 19.98 5.44 5.29 Employees The group is committed to promote equal opportunities in employment regardless of employees’ or potential employees’ sex, marital status, creed, colour, race, ethnic origin or disability. This commitment applies in respect of all terms and conditions of employment. Recruitment, promotion and the availability of training are based on the suitability of any applicant and full and fair consideration is always given to disabled persons in such circumstances. Should an employee become disabled during his or her employment by the company, every effort is made to continue employment and training within their existing capacity wherever practicable, or failing that, in some alternative suitable capacity. The group has continued throughout the year to provide employees with relevant information and to seek their views on matters of common concern. Priority is given to ensuring that employees are aware of all significant matters affecting the group’s performance and of any significant organisational changes. Donations During the year the group made charitable donations of £nil (2003:£nil). No political donations were made in the year (2003:£nil). Creditor payment policy For all trade creditors, it is the group’s policy to: l Agree the terms of payment at the start of business with the supplier; l Ensure that suppliers are aware of the terms of payment; l Pay in accordance with its contractual and other legal obligations. The average number of days taken to pay trade creditors by the group and the company at the period end was 40 (2003: 39). The group does not follow any code or statement on payment practice. Auditors In accordance with Section 384 of the Companies Act 1985, a resolution is to be proposed at the annual general meeting for the reappointment of KPMG Audit Plc as auditors of the company. Annual General Meeting Notice of the Annual General Meeting to be held at 1.00pm on 15 July 2004 at Hollinsbrook Way, Pilsworth, Bury, Lancashire BL9 8RR incorporating explanatory notes of the resolutions to be proposed at the meeting is given on page 41. A Form of Proxy is enclosed with this Annual Report and Financial Statements. By order of the Board B Small Secretary 12 thejohndavidgroupplc Hollinsbrook Way Pilsworth Bury Lancashire BL9 8RR 17 May 2004 CORPORATE GOVERNANCE The company recognises the importance of corporate governance and supports the principles of corporate governance recommended by the Combined Code (“the Code”). The company has complied throughout the year with the provisions of the Code except that the Remuneration Committee and the Audit Committee memberships were not exclusively made up of independent non-executive directors (Code provisions B2.1, B2.2, B2.3 and D3.1). Also from 1 May 2003 to 12 June 2003, non-executive directors did not represent at least one third of the Board (Code provision A3.1). The directors are also aware of the New Combined Code and are taking a series of steps to achieve full compliance over the coming year. Directors The Board of directors carries the ultimate responsibility for the conduct of the business and consists of four non-executive directors, two of whom are independent under the Code and three executive directors. Brief profiles of each director are set out on page 8. The Board accepts that Mr J Wardle and Mr D Makin are not independent as they have recently held executive positions in the company as well as being substantial shareholders. The Board has given due consideration to the following information before concluding that Mr C Archer and Mr C Bird are independent: Mr C Bird owns and runs a public relations consultancy (The Bird Consultancy) which organised a Group Management Conference for the company in 2004. The charges for this conference amounted to £139,000 and were largely recharges of venue and presentation costs. Mr Bird was also a director of Manchester City Plc (‘MCFC’) between June 2000 and March 2003. Mr J Wardle has been a director of MCFC since 1998 and is now Chairman. The company sponsors Manchester City Junior Supporters’ Club at a cost of £50,000 for the 2003/04 season. The transactions referred to are not significant in the context of the company and in the Board’s view none of these matters have impacted or influenced Mr Bird’s role and independence as a director. Indeed his extensive experience in the sports industry and in public relations enhance his contribution as a non-executive director. Mr C Archer was the relationship manager for the company’s bankers, Barclays Plc, between 1984 and his retirement in 1997. He was not involved with the company at all between July 1997 and his appointment in November 2001. In the Board’s view this longstanding knowledge of the business enhances the contribution Mr Archer is able to make as a non-executive director and following his retirement from Barclays he is independent. It is the Board’s view that all directors are able to bring independent judgement to bear on Board matters and individual directors possess a wide variety of skills and experience. Mr F Martin was the recognised senior independent non-executive director until his resignation in March 2004 when Mr C Archer became the recognised senior independent non-executive director. The composition of the Board is kept under review and changes are made when appropriate and in the best interests of the company. Board appointments are discussed and implemented by the Board and none of the directors has served for more than three years without having been re-elected by the shareholders. The Board meets monthly and has a formal schedule of matters reserved for its attention. At these meetings the Board reviews actual results with appropriate trend analysis. Regular and ad hoc reports to the Board ensure it is supplied, on a timely basis, with the information it needs. All the directors have access to the company secretary and a procedure exists for directors, in the furtherance of their duties, to take independent professional advice if necessary, at the company’s expense. The two principal Board Committees are:- Remuneration Committee The Remuneration Committee currently comprises 2 non-executive directors, C Archer (Chairman) and C Bird. The Board will keep the composition of the Remuneration Committee under review. The Board sets the terms of reference for the Remuneration Committee. The Committee’s principal duties are to assist the Board in determining the company’s policy on executive directors’ remuneration and to determine specific individual remuneration packages for senior executives, including the executive directors, on behalf of the Board. 14 thejohndavidgroupplc CORPORATE GOVERNANCE continued Audit Committee The Audit Committee currently comprises 2 non-executive directors, C Archer (Chairman) and C Bird. The Audit Committee meets at least twice each year and the auditors are invited to attend each meeting. The Board sets the terms of reference for the Audit Committee. Its principal duties are to review published financial statements monitor financial accounting procedures and policies and to review the appointment and fees of the auditors. The Audit Committee has reviewed the directors’ statement on internal controls prior to endorsement by the Board, and it reviews reports to management from the group’s auditors to ensure that appropriate action is taken to address any significant weaknesses identified. Nomination Committee The Board has not previously established a Nomination Committee and senior appointments have been dealt with directly by the Board. As part of the process of complying with the New Code, the Board is in the process of setting up a Nomination Committee. Directors’ remuneration The report on remuneration and related matters is set out on page 18. Shareholder relations The Chairman, Chief Executive and Finance Director have meetings with institutional shareholders and analysts. The company’s annual general meeting is used as an opportunity to communicate with private investors and the level of proxies lodged on each resolution is announced to the meeting after the show of hands for that resolution. Accountability and audit The Listing Rules require all listed companies to follow the guidance “Internal Control: Guidance for Directors on the Combined Code”. The procedures for complying with this guidance have been in place throughout the period under review and up to the date of approval of the annual report and accounts. This process is regularly reviewed by the Board. The directors are responsible for the group’s system of internal controls and monitoring their effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement. The directors have established an organisation structure with clear operating procedures, lines of responsibility, delegated authority to executive management and comprehensive financial reporting. In particular there are clear procedures for the following:- l Identification of, and monitoring of the business risks facing the company, with major risks identified and reported to the Audit Committee and the Board; l Capital investment, with detailed appraisal and authorisation procedures; l Prompt preparation of comprehensive monthly management accounts providing relevant, reliable and up-to-date information. These allow for comparison with budget and previous year’s results. Significant variances from approved budgets are investigated as appropriate; l Preparation of comprehensive annual profit and cash flow budgets allowing management to monitor business activities and major risks and the progress towards financial objectives in the short and medium term; l Monitoring of store procedures and the reporting and resolution of suspected fraudulent activities. An Executive Board is in place, which comprises the Board executive directors and two members of senior management. The Executive Board’s members are responsible for a wide range of disciplines and it provides a strong link between the Board and management. It meets regularly and is responsible for implementing policies adopted by the Board. The Board has reviewed the effectiveness of internal controls by reviewing reports covering the testing of internal controls. In establishing the system of internal control the directors have regard to the materiality of relevant risks, the likelihood of a loss being incurred and costs of control. It follows, therefore, that the system of internal control can only provide a reasonable, and not absolute, assurance against the risk of material misstatement or loss. Internal Audit The scope of Internal Audit work is determined by the Board in conjunction with the Audit Committee and the Loss Control Director who is a member of the Executive Board. The primary focus has continued to be on security and minimisation of unauthorised losses in the business using a team of appropriately qualified employees. Going concern After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. 16 thejohndavidgroupplc REPORT ON REMUNERATION AND RELATED MATTERS This report complies with the Directors’ Remuneration Report Regulations 2002 (the “Regulations”) and has been approved by the directors and will be put to shareholders for approval at the annual general meeting on 15 July 2004. Remuneration Committee The Remuneration Committee comprises all Non Executive Directors. The Chairman was Mr R Best until Mr F Martin was appointed to the Board in June 2003. Following Mr F Martin’s resignation in March 2004, Mr C Archer was appointed Chairman. The Remuneration Committee assists the Board in determining the company’s policy on executive directors’ remuneration and determines the specific remuneration packages for senior executives, including the executive directors, on behalf of the Board. The Remuneration Committee has access to independent advice where it considers it appropriate; however, it did not take any independent advice during the year. The remuneration of the non-executive directors is determined by the Board. Policy The main policy of the Committee is to set executives’, including executive directors’, remuneration at a level that takes account of the size, nature and performance of the group and the individual responsibilities and performance of the executives. The aim is to attract, motivate and retain executives of the necessary calibre. This report sets out the group’s policy on executive remuneration for 2004 and, so far as practicable, for subsequent years (as required by the Regulations). Whilst the Committee is able to state the remuneration policy for 2004 with reasonable certainty, it is less certain that this policy will continue without amendment in subsequent years. This is because the Committee considers that a successful remuneration policy needs to be sufficiently flexible to take into account future changes in the group’s business environment and general remuneration practice. Components of remuneration The main components of the remuneration package for the forthcoming year of the executive directors are: Basic salary and annual bonus Salaries and performance related bonuses and their relative ratios to total remuneration are reviewed annually and the Committee compares current levels with those of similar companies. Each executive director is entitled to be paid a bonus which is calculated (in bands) by reference to the percentage by which the earnings per ordinary share for a financial year exceeds the earnings per ordinary share for the preceding financial period. The maximum bonus payable to each director is 80% of salary, and is not pensionable. The company does not currently have a long-term incentive scheme. Share options Share options are granted on a selective basis to key positions in the company, including executive directors. Options are granted at the discretion of the Committee which is based on the individuals’ key skills and potential importance to the future of the company. Details of directors’ options are set out on page 21. These options carry a performance target in relation to growth in earnings per ordinary share over a consecutive three year period and cannot be exercised until at least the third anniversary of grant. The performance targets have been determined in order to align management and shareholder interests. Other benefits These include entitlement to pension contributions, fully expensed car, private health care for the executive director and immediate family and life assurance to provide cover equal to four times the executive directors’ salary. Car benefits have been calculated in accordance with Inland Revenue scale charges. Service contracts Details of the contracts currently in place for executive directors are as follows: Date of contract Notice period (months) Mr B Bown Mr B Small Mr P Cowgill 10 December 2001 10 March 2004 16 March 2004 12 12 12 Unexpired Term Rolling 12 months Rolling 12 months Rolling 12 months Each service contract includes provision for compensation commitments in the event of early termination. For Mr P Cowgill and Mr B Small these commitments do not exceed one year’s salary and benefits. For Mr B Bown the agreement provides for compensation to be paid to him upon termination of appointment of a sum equivalent to 12 18 thejohndavidgroupplc REPORT ON REMUNERATION AND RELATED MATTERS continued REPORT ON REMUNERATION AND RELATED MATTERS continued months’ salary plus £170,000 (net of PAYE and NIC) plus an amount equal to the value over 12 months of the benefits to which he was entitled at the date of termination. Each service contract expires upon the director reaching the age of 65 (subject to re-election by shareholders). The directors consider these levels of compensation appropriate in light of the levels of basic salary provided and market conditions prevailing. The non-executive directors have entered into letters of appointment with the company for a fixed period of 12 months which are renewable by the Board and the non-executive director, and are terminable by the non-executive director or company on not less than three months’ notice. Details of share options held by the directors at 31 January 2003 and at 31 January 2004 were as follows: Number of share options at 31 January 2003 31 January 2004 Number of share options at Option exercise price per share R Best (i) B Bown B Bown B Bown B Bown (i) B Small (i) - 20,000 120,000 20,000 - - 518,518 20,000 120,000 20,000 70,000 100,000 162.0p 306.5p 331.0p 262.0p 162.0p 168.0p Usual date from which exercisable 12.06.2006 23.10.1999 07.06.2004 29.07.2005 12.06.2006 20.01.2007 Usual expiry date 12.06.2013 23.10.2006 07.06.2011 29.07.2012 12.06.2013 20.01.2014 In the event of gross misconduct, the company may terminate the service contract of an executive director immediately and with no liability to make further payments other than in respect of amounts accrued at the date of termination. (i) These options were granted during the year. Directors retiring by rotation at the next annual general meeting are shown in the directors’ report on page 10. Total shareholder return The graph shown opposite compares the performance of the company’s 5p Ordinary Shares on a Total Shareholder Return (TSR) basis for the past five years against the FTSE All Share Index. This index has been selected as The John David Group Plc is a constituent of the FTSE All Share Index. TSR is shown as the value of £100 invested in the 5p Ordinary Shares and in the FTSE All Share Index over the last five years. TSR is calculated for each year relative to the base date of 1 February 1999 and taking the percentage change of the market price over the relevant period, re-investing any dividends at the ex-dividend rate. The remainder of this report on remuneration and related matters is subject to audit. Individual directors emoluments Directors’ salaries and benefits are set out below. This excludes amounts in respect of any gains on the exercise of share options which are detailed on page 21. Salary and fees £000 Benefits Compensation for loss of office £000 excluding pensions £000 186 192 10 115 20 58 84 22 17 704 1 1 1 - - 1 1 - - 5 - - - 241 - - - - - 241 2004 Total £000 187 193 11 356 20 59 85 22 17 950 2003 Total £000 2004 Pension contributions £000 2003 Pension contributions £000 22 182 - 140 - 76 76 17 - 513 20 17 1 8 - - - - - 46 - 11 - 7 - - - - - 18 R Best B Bown B Small M Blackhurst F Martin J Wardle D Makin C Archer C Bird The pension contributions represent amounts payable to a defined contribution pension plan. No options held by directors were exercised during the year or the previous period. The market value of the company’s shares at 31 January 2004 was 175.0p. The highest and lowest prices during the year were 196.5p and 123.0p respectively. By order of the Board B Small Secretary 17 May 2004 STATEMENT OF DIRECTORS’ RESPONSIBILITIES Company law requires the directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the group and company and of the profit or loss for that period. In preparing those financial statements, the directors are required to: l Select suitable accounting policies and then apply them consistently; l Make judgements and estimates that are reasonable and prudent; l State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; l Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. 20 thejohndavidgroupplc thejohndavidgroupplc 21 Valueof£100investedinFebruary1999Asat 1 February199920002001200220032004300350400250200150100500The John DavidGroupPlcFTSE AllShareIndexCumulative TSR Performance INDEPENDENT AUDITORS’ REPORT Independent auditors’ report to the members of The John David Group Plc We have audited the financial statements on pages 24 to 40. We have also audited the information in the directors’ remuneration report that is described as having been audited. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors are responsible for preparing the Annual Report and the directors’ remuneration report. As described on page 21 this includes responsibility for preparing the financial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board, the Listing Rules of the Financial Services Authority, and by our profession’s ethical guidance. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions with the group is not disclosed. We review whether the statement on page 16 reflects the company’s compliance with the seven provisions of the Combined Code specified for our review by the Listing Rules, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures. We read the other information contained in the annual report, including the corporate governance statement and the unaudited part of the directors’ remuneration report, and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the directors’ remuneration report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the directors’ remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the directors’ remuneration report to be audited. Opinion In our opinion: l the financial statements give a true and fair view of the state of affairs of the company and the group as at 31 January 2004 and of the profit of the group for the year then ended; and the financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985. l KPMG Audit Plc Chartered Accountants Registered Auditor Preston 11 May 2004 22 thejohndavidgroupplc CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 January 2004 BALANCE SHEETS as at 31January 2004 Turnover Cost of sales Gross profit Distribution costs - normal Distribution costs - exceptional Administrative expenses - normal Administrative expenses - exceptional Other operating income Operating profit Before exceptional items and goodwill amortisation Exceptional items Goodwill amortisation Operating profit Loss on disposal of fixed assets Profit on ordinary activities before interest Interest receivable and similar income Interest payable and similar charges Profit on ordinary activities before taxation Taxation on profit on ordinary activities Profit for the financial period Dividends paid and proposed Note 1 1 1 4 5 6 7 12 months to 10 months to 31 January 2004 31 January 2003 continuing operations £000 continuing operations £000 458,073 (249,379) 208,694 (186,117) (1,366) (13,503) (612) 638 370,804 (202,229) 168,575 (141,145) (2,933) (10,167) (581) 333 Fixed assets Intangible fixed assets Tangible fixed assets Current assets Stocks Debtors Cash at bank and in hand 7,734 14,082 Creditors: amounts falling due within one year 10,498 (1,978) (786) 7,734 (1,095) 6,639 100 (4,634) 2,105 (1,457) 648 (3,038) 18,017 (3,514) (421) 14,082 (433) 13,649 212 (3,080) 10,781 (4,024) 6,757 (3,038) Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for liabilities and charges Net assets Capital and reserves Called up share capital Share premium account Profit and loss account Equity shareholders’ funds Group Company 31 January 2004 £000 31 January 2003 £000 31 January 2004 £000 31 January 2003 £000 Note 9 10 11 12 24 13 14 16 17 18 18 19 14,976 68,183 65,727 14,452 4,934 11,643 74,292 69,171 13,632 3,527 14,976 68,183 65,727 22,123 4,933 - 50,256 69,171 63,970 3,012 85,113 (55,667) 86,330 (53,157) 92,783 (62,490) 136,153 (65,543) 29,446 33,173 30,293 70,610 112,605 119,108 113,452 120,866 (51,555) (3,756) (56,294) (4,050) (51,531) (4,033) (54,748) (3,682) 57,294 58,764 57,888 62,436 2,338 8,917 46,039 2,338 8,917 47,509 2,338 8,917 46,633 2,338 8,917 51,181 57,294 58,764 57,888 62,436 These financial statements were approved by the Board of directors on 11 May 2004 and were signed on its behalf by: Retained (loss)/profit for the financial period 18 (2,390) 3,719 Earnings per ordinary share - basic - adjusted basic to exclude exceptional items and goodwill amortisation - diluted 8 1.39p 6.21p 1.39p 14.46p 21.18p 14.45p B Bown B Small Directors The group and company has no recognised gains or losses during the current year or previous period other than the results reported above. The results above also represent the historical cost profit. 24 thejohndavidgroupplc thejohndavidgroupplc 25 CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 January 2004 ACCOUNTING POLICIES Net cash inflow from operating activities Returns on investments and servicing of finance Taxation Capital expenditure Acquisitions Equity dividends paid Net cash inflow/(outflow) before financing Financing Increase in cash in the period Note 22 23 23 23 23 12 months to 31 January 2004 £000 10 months to 31 January 2003 £000 23,600 (4,302) (1,287) (9,229) - (4,375) 4,407 (3,000) 1,407 28,194 (2,734) (5,957) (18,005) (52,201) (2,431) (53,134) 55,675 2,541 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT for the year ended 31 January 2004 12 months to 31 January 2004 £000 10 months to 31 January 2003 £000 Note Increase in cash in the period Cash outflow/(inflow) from movement in debt and lease financing 24 Movement in net debt in the period Net debt at start of period Net debt at end of period 24 1,407 3,000 4,407 (55,473) (51,066) 2,541 (55,665) (53,124) (2,349) (55,473) 26 thejohndavidgroupplc The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the group’s financial statements. Basis of preparation The financial statements have been prepared in accordance with applicable accounting standards and under the historical cost accounting rules. Basis of consolidation The consolidated financial statements incorporate the financial statements of The John David Group Plc and its subsidiary undertakings. Subsidiary undertakings acquired during the period are accounted for under the acquisition method of accounting. Under this method, the results of subsidiary undertakings are included in the consolidated profit and loss account from the date of acquisition or up to the date of disposal. Goodwill arising on acquisitions is capitalised in the consolidated balance sheet and amortised through the consolidated profit and loss account over its estimated useful economic life, being 20 years. Goodwill is based on the costs of acquisition less the fair value of assets acquired. Company financial statements In the company’s financial statements, investments in subsidiary and associated undertakings are stated at cost less provisions for diminution in value. Dividends received and receivable are credited to the company’s profit and loss account to the extent that they represent a realised profit for the company. As permitted by Section 230(4) of the Companies Act 1985, the company has not presented its own profit and loss account. Following the transfer of trade and assets, from First Sport Ltd to the company, goodwill arising in the company financial statements is capitalised and amortised through the company’s profit and loss account. This is amortised over 20 years being the useful economic life. Fixed assets and depreciation Depreciation is provided by the group to write off the cost less the estimated residual value of tangible fixed assets on a straight line basis or reducing balance basis over their estimated useful economic lives as follows: Freehold land and buildings Long leasehold land and buildings Short leasehold land and buildings Computer equipment Fixtures and fittings Motor vehicles 2% per annum on a straight line basis life of lease on a straight line basis life of lease on a straight line basis 3-6 years on a straight line basis 10 years, or length of lease if shorter, on a straight line basis 25% per annum reducing balance Property incentives Benefits received as an incentive to sign a lease, whatever form they may take, are credited to the profit and loss account on a straight line basis over the lease term or, if shorter than the full lease term, over the period to the review date on which the rent is first expected to be adjusted to the prevailing market rate. Leases Where the group enters into a lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a ‘finance lease’. The asset is recorded in the balance sheet as a tangible fixed asset and is depreciated over its estimated useful life or the term of the lease, whichever is shorter. Future instalments under such leases, net of finance charges, are included within creditors. Rentals payable are apportioned between the finance element, which is charged to the profit and loss account, and the capital element which reduces the outstanding obligation for future instalments. All other leases are accounted for as ‘operating leases’ and the rental charges are charged to the profit and loss account on a straight line basis over the life of the lease. Pensions and other post-retirement benefits The group operates two defined contribution pension schemes, the assets of which are held separately from those of the group in independently administered funds. The amount charged against profits represents the contributions payable to the schemes in respect of the accounting period. Stocks Stocks are stated at the lower of cost and net realisable value. Provision is made for obsolete, slow moving and damaged items where appropriate. Turnover Turnover represents the amounts (excluding value added tax) derived from the provision of goods and services to customers during the period and relates to the principal business activity. Deferred taxation Deferred tax liabilities are recognised without discounting in respect of all material timing differences that have originated but not reversed at the balance sheet date, except as otherwise required by FRS19. thejohndavidgroupplc 27 NOTES TO THE FINANCIAL STATEMENTS 1 Profit on ordinary activities before taxation Profit on ordinary activities before taxation is stated after charging Auditors’ remuneration: Audit Services - Statutory audit - Other non-audit services Tax services Depreciation and other amounts written off tangible fixed assets: Owned Goodwill amortisation Rentals payable under operating leases for: Land and buildings Other - plant and machinery Exceptional items: Redundancy costs Store closure costs Lease and contract exit payments Warehousing,distribution and other reorganisation costs OFT investigation into replica kits 12 months to 10 months to 31 January 2003 £000 31 January 2004 £000 70 15 20 10,060 786 57,894 402 978 479 314 130 77 63 11 17 7,907 421 44,515 195 1,861 - 778 475 400 after crediting Rents receivable and other income from property 638 333 Included in auditors’ remuneration above is £50,500 (2003: £42,500) relating to the audit of the parent company. Fees paid to the auditors in 2004, relating to the acquisition of the four companies making up the First Sport division of Blacks Leisure Group Plc, of £12,000 (2003: £399,000) have been included in goodwill. 2 Remuneration of directors Directors’ emoluments: As non-executive directors As executive directors Pension contributions Compensation for loss of office 12 months to 10 months to 31 January 2003 £000 31 January 2004 £000 68 641 46 241 996 39 474 18 - 531 Information on directors’ share options and further information on directors’ emoluments is shown in the Report on Remuneration and Related Matters on page 18. 3 Staff numbers and costs The average number of persons employed by the group (including directors) during the period, analysed by category, was as follows: NOTES TO THE FINANCIAL STATEMENTS continued Staff numbers and costs (continued) The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Other pension costs (see note 21) 4 Interest receivable Bank interest Other interest 5 Interest payable and similar charges 12 months to 10 months to 31 January 2003 £000 31 January 2004 £000 68,054 4,012 303 50,807 3,193 351 72,369 54,351 12 months to 10 months to 31 January 2003 £000 31 January 2004 £000 96 4 100 178 34 212 12 months to 10 months to 31 January 2003 £000 31 January 2004 £000 On bank loans and overdrafts Finance charges payable in respect of finance leases and similar hire purchase contracts Other interest charges 4,565 - 69 2,995 42 43 4,634 3,080 6 Taxation UK corporation tax at 30% (2003: 30%) Adjustment relating to an earlier period Total current tax charge Deferred taxation Adjustment relating to an earlier period Total deferred tax charge (see note 16) 12 months to 12 months to 10 months to 10 months to 31 January 2003 £000 31 January 2004 £000 31 January 2004 £000 31 January 2003 £000 2,289 46 1,689 - 215 (56) 1,330 (32) 159 1,298 1,457 2,335 1,689 4,024 Sales and distribution Administration Full time equivalents 28 thejohndavidgroupplc Number of employees 2003 2004 8,947 254 8,571 284 9,201 8,855 5,141 5,114 The deferred taxation charge relates to the origination and reversal of timing differences. thejohndavidgroupplc 29 NOTES TO THE FINANCIAL STATEMENTS continued Tax charge reconciliation 12 months to 10 months to 31 January 2003 £000 31 January 2004 £000 Profit on ordinary activities before tax multiplied by the standard rate of tax - 30% (2003:30%) Effects of: Expenses not deductible - normal Expenses not deductible - exceptional re: lease and contract exit payments Income not taxable Capital allowances in excess of depreciation on qualifying assets Depreciation on non qualifying fixed assets Profit on non qualifying fixed assets Goodwill amortisation not deductible Impact of tax allowable fair value adjustments Other timing differences Adjustments to tax charge in respect of previous periods 632 3,234 110 34 - (797) 722 (128) 236 (594) - (56) 45 177 (26) (992) 667 - 126 (867) (75) 46 NOTES TO THE FINANCIAL STATEMENTS continued 9 Intangible fixed assets Group Cost At beginning of year Additions At end of year Amortisation At beginning of year Charge in the year At end of year Net book value at 31 January 2004 Total current tax charge 159 2,335 Net book value at 31 January 2003 Goodwill £000 12,064 4,119 16,183 421 786 1,207 14,976 11,643 Accelerated capital allowances are likely to reduce the current tax charge in future periods, being more than offset by depreciation on non-qualifying assets and goodwill amortisation which are not tax deductible. On 21 May 2002 the group purchased four companies making up the First Sport division of Blacks Leisure Group Plc. The fair value adjustments and goodwill calculation are summarised below: 7 Dividends paid and proposed Ordinary shares: Interim paid - 2.86p per ordinary share (2003: 2.86p) Final proposed - 3.64p per ordinary share (2003: 3.64p) Total dividend 6.50p per ordinary share (2003: 6.50p) 12 months to 10 months to 31 January 2003 £000 31 January 2004 £000 1,337 1,701 1,337 1,701 3,038 3,038 8 Earnings per ordinary share Basic earnings per ordinary share represents the profit for the financial period of £648,000 (2003: £6,757,000) divided by the weighted average number of ordinary shares in issue of 46,748,607 (2003: 46,743,692). Adjusted basic earnings per ordinary share have been based on the profit on ordinary activities after taxation for each financial period but excluding exceptional items and goodwill amortisation since the directors consider that this gives a more meaningful measure of the underlying performance of the group. The diluted earnings per ordinary share is based on 46,750,776 (2003: 46,747,348) ordinary shares, the difference to the basic calculation representing the additional shares that would be issued on the conversion of all the dilutive potential ordinary shares. There is no material difference to earnings per ordinary share if all the dilutive potential ordinary shares are converted. Earnings attributable to ordinary shareholders Profit on ordinary activities after taxation Exceptional items Tax relating to exceptional items Goodwill amortisation As at 31 January 2004 £000 As at 31 January 2003 £000 648 1,978 (509) 786 6,757 3,514 (791) 421 Profit after taxation excluding exceptional items and goodwill amortisation 2,903 9,901 Adjusted basic earnings per ordinary share 6.21p 21.18p Tangible fixed assets Stocks Trade debtors Other debtors Cash at bank Trade creditors Other creditors Deferred Tax Fair value reported in 2003 £000 Fair value Revised fair value adjustment 2004 £000 £000 24,594 32,926 787 5,041 3,253 (14,569) (10,255) 655 (4,183) (1,454) (50) - - (171) 147 1,592 20,411 31,472 737 5,041 3,253 (14,740) (10,108) 2,247 Net assets acquired at fair value 42,432 (4,119) 38,313 Goodwill capitalised Loan finance costs Consideration 16,183 958 55,454 The total purchase price at acquisition was £55,454,000 comprising cash consideration of £52,886,000 and acquisition costs of £2,568,000. This resulted in goodwill on acquisition of £12,064,000 based on a fair value reported in 2003 of £42,432,000. During the current year, the directors completed their review into the fair values of the assets acquired. Based on this review, goodwill arising on acquisition has increased by £4,119,000 reflecting the fair value adjustments in the above table. Tangible fixed assets have been adjusted by £4,183,000 to reflect further fixed asset impairments in loss making stores and obsolete software. A further adjustment of £1,454,000 has been made to stock to reflect realisable value. The deferred tax impact of the further fair value adjustments is to recognise a further asset of £1,592,000. 30 thejohndavidgroupplc thejohndavidgroupplc 31 NOTES TO THE FINANCIAL STATEMENTS continued NOTES TO THE FINANCIAL STATEMENTS continued Intangible fixed assets (continued) Company Cost At beginning of year Additions At end of year Amortisation At beginning of year Charge in the year At end of year Net book value at 31 January 2004 Net book value at 31 January 2003 Goodwill £000 - 14,976 14,976 - - - 14,976 - On 31 January 2004, the trade, assets and liabilities of First Sport Limited were transferred up to The John David Group Plc. The balances transferred are summarised below: Fair Value and Book Value Tangible fixed assets Trade debtors Other debtors Cash at bank and in hand Trade creditors Other creditors Inter-company balance Provisions Net liabilities acquired Goodwill capitalised Consideration £000 19,724 1,020 6,508 (419) (1,435) (10,046) (23,828) 82 (8,394) 14,976 6,582 The total purchase price on transfer of the trade, assets and liabilities was £6,582,000 comprising an inter-company debtor. 10 Tangible fixed assets Group Freehold land and buildings £000 Long leasehold land and buildings £000 Short leasehold land and Computer buildings equipment £000 £000 Fixtures and fittings £000 Motor vehicles £000 Total £000 Cost At beginning of year Additions Fair value adjustment Disposals 140 - 300 (440) 4,448 - - 27,116 1,375 - (3,964) 10,213 1,386 - (348) 81,599 8,378 - (4,579) 1,556 354 - (315) 125,072 11,493 300 (9,646) At end of year - 4,448 24,527 11,251 85,398 1,595 127,219 Depreciation At beginning of year Charge for year Fair value adjustments On disposals At end of year Net book value At 31 January 2004 At 31 January 2003 Company 140 - - (140) 419 89 - - 10,720 1,572 1,957 (2,637) 5,653 1,087 1,030 (196) 33,301 7,025 1,496 (3,127) 547 287 - (187) 50,780 10,060 4,483 (6,287) - - - 508 11,612 7,574 38,695 647 59,036 3,940 12,915 3,677 46,703 948 68,183 4,029 16,396 4,560 48,298 1,009 74,292 Long leasehold land and buildings £000 Short leasehold land and Computer buildings equipment £000 £000 Fixtures and fittings £000 Motor vehicles £000 Total £000 Cost At beginning of year Additions Inter-company transfers in Disposals - - 4,448 - 10,589 753 13,429 (244) 6,782 1,056 3,635 (222) 58,059 4,360 23,730 (751) 1,467 354 41 (267) 76,897 6,523 45,283 (1,484) At end of year 4,448 24,527 11,251 85,398 1,595 127,219 Depreciation At beginning of year Charge for year Inter-company transfers in On disposals - - 508 - 3,108 757 7,917 (170) 3,582 1,000 3,183 (191) 19,461 5,889 13,916 (571) 490 274 35 (152) 26,641 7,920 25,559 (1,084) At end of year 508 11,612 7,574 38,695 647 59,036 Net book value At 31 January 2004 3,940 12,915 3,677 46,703 948 68,183 At 31 January 2003 - 7,481 3,200 38,598 977 50,256 32 thejohndavidgroupplc thejohndavidgroupplc 33 NOTES TO THE FINANCIAL STATEMENTS continued NOTES TO THE FINANCIAL STATEMENTS continued 11 Stocks 14 Creditors: amounts falling due after more than one year Group Company 2004 £000 2003 £000 2004 £000 2003 £000 Finished goods and goods for resale 65,727 69,171 65,727 69,171 Bank loans and overdrafts (see also note 13) Accruals and deferred income Group Company 2004 £000 48,000 3,555 2003 £000 53,000 3,294 2004 £000 48,000 3,531 2003 £000 53,000 1,748 51,555 56,294 51,531 54,748 Group Company The bank loans and overdrafts fall due for repayment as follows: 12 Debtors Trade debtors Other debtors Amounts owed by other group companies Prepayments and accrued income 2004 £000 1,086 - - 13,366 2003 £000 1,032 4 - 12,596 2004 £000 1,194 - 7,563 13,366 2003 £000 896 - 57,686 5,388 14,452 13,632 22,123 63,970 Amounts owed by other group companies includes £7.56 million (2003: £55.75 million) due after more than one year. Bank loans and overdrafts Within one year Between one and two years Between two and five years Group Company 2004 £000 8,000 8,000 40,000 2003 £000 2004 £000 6,000 8,000 45,000 8,000 8,000 40,000 2003 £000 6,000 8,000 45,000 56,000 59,000 56,000 59,000 The bank loans and overdrafts are secured by a fixed and floating charge over all the group’s assets. 13 Creditors: amounts falling due within one year The rates of interest payable on current bank loans and overdrafts are detailed in note 15 to the accounts. Bank loans and overdrafts (see also note 14) Trade creditors Other creditors including taxation and social security: Corporation tax Other taxes and social security Amounts owed to other group companies Other creditors Accruals and deferred income Dividends proposed 2004 £000 8,000 30,430 (611) 8,191 - - 8,876 781 Group Company 2003 £000 6,000 29,470 (218) 6,323 - - 8,544 3,038 2004 £000 8,000 30,430 (551) 8,191 6,582 345 8,712 781 2003 £000 6,000 26,328 1,570 4,884 20,078 - 3,645 3,038 55,667 53,157 62,490 65,543 15 Financial instruments The group’s financial instruments at the year end comprised cash, bank borrowings and various non-derivative financial instruments such as trade debtors and trade creditors. As permitted by Financial Reporting Standard 13 (FRS13), in this note short term debtors and creditors have been excluded from all FRS13 disclosures. The group uses financial instruments to manage financial and commercial risk wherever it is appropriate to do so. An explanation of the group’s treasury policy can be found in the operating and financial review on page 6. The main risks arising from the group’s financial instruments are interest rate risk and liquidity risk. Interest rate risk The group finances its operations by a mixture of retained profits and bank borrowings. Interest rate risk therefore arises from bank borrowings. The group manages its risk by using a combination of fixed and floating interest rates, which it reviews on a regular basis. A hedging agreement is in place in relation to the core group borrowings. Currency risk The group does not face significant currency risk since its operations are largely UK based and the majority of transactions are denominated in sterling. 34 thejohndavidgroupplc thejohndavidgroupplc 35 NOTES TO THE FINANCIAL STATEMENTS continued NOTES TO THE FINANCIAL STATEMENTS continued Financial assets Financial assets comprise short term cash deposits with major United Kingdom and European clearing banks and earn floating rates of interest based upon bank base rates or rates linked to LIBOR. Cash at bank and in hand The currency profile of financial assets was: Sterling Euros Financial liabilities The interest rate risk profile of the group’s financial liabilities is as follows: Fixed rate financial liabilities Floating rate financial liabilities Fixed rate weighted average interest rate at 31 January 2004 £000 2003 £000 4,934 3,527 2004 £000 4,759 175 2003 £000 3,410 117 4,934 3,527 2004 £000 2003 £000 34,000 22,000 40,000 19,000 56,000 59,000 6.9% 6.9% The weighted average period for which the fixed rate borrowings are fixed is 3.3 years (2003: 4.3 years). No new hire purchase contracts were entered into during the year. The company has a swap agreement in relation to the fixed rate financial liabilities of £34 million. The swap expires on 3 May 2007 and fixes the interest rate payable at 5.5525% plus 1.675% on the reducing balance of the fixed term loan. Interest on floating rate financial liabilities is based on the relevant LIBOR rate plus 1.675%. In the opinion of the Board, the fair value of the group’s financial assets and liabilities is equal to the book value. Liquidity risk During the year, the group’s policy has been to ensure continuity through loan funding, with short term flexibility achieved by a revolving credit facility. The maturity profile of drawn down financial liabilities at the end of the year is as follows: Due within one year or less, or on demand Due between one and two years Due between two and five years 2004 £000 8,000 8,000 40,000 2003 £000 6,000 8,000 45,000 56,000 59,000 In addition, there are undrawn committed facilities with a maturity profile as follows. Interest on these facilities is 0.6875% Due within one year or less, or on demand Due between one and two years Due between two and five years 2004 £000 - - 18,000 2003 £000 - - 21,000 18,000 21,000 16 Provisions for liabilities and charges Deferred taxation Group Company At beginning of period Charge for the period in the profit and loss account (note 6) Acquisition Fair Value adjustments (see note 9) Transfers in 2004 £000 4,050 1,298 - (1,592) - 2003 £000 3,016 1,689 (655) - - 2004 £000 3,682 433 - - (82) At end of period 3,756 4,050 4,033 The amounts provided for deferred taxation are set out below: Group Company 2004 £000 4,032 (276) 2003 £000 4,298 (248) 3,756 4,050 2004 £000 4,033 - 4,033 Difference between accumulated depreciation and capital allowances Onerous lease provision 17 Called up share capital Authorised Ordinary shares of 5p each Allotted, called up and fully paid Ordinary shares of 5p each 2003 £000 3,016 666 - - - 3,682 2003 £000 3,682 - 3,682 2004 £000 2003 £000 3,108 3,108 2,338 2,338 Share options The company has outstanding options in respect of the following shares under the Inland Revenue Approved Employee Share Option Scheme and the Unapproved Employee Share Option Scheme: Inland Revenue Approved Employee Share Option Scheme Inland Revenue Approved Employee Share Option Scheme Inland Revenue Approved Employee Share Option Scheme Inland Revenue Approved Employee Share Option Scheme Inland Revenue Approved Employee Share Option Scheme Inland Revenue Approved Employee Share Option Scheme Inland Revenue Approved Employee Share Option Scheme Unapproved Employee Share Option Scheme Unapproved Employee Share Option Scheme Unapproved Employee Share Option Scheme Unapproved Employee Share Option Scheme Unapproved Employee Share Option Scheme Unapproved Employee Share Option Scheme Date of grant Number of Subscription share options price per share 23.10.96 30.01.98 07.06.01 29.07.02 12.06.03 14.10.03 20.01.04 23.10.96 07.06.01 29.07.02 12.06.03 14.10.03 20.01.04 56,935 8,130 183,318 11,450 274,310 50,181 17,857 111,065 323,682 103,550 1,070,208 1,819 82,143 306.5p 123.0p 331.0p 262.0p 162.0p 165.0p 168.0p 306.5p 331.0p 262.0p 162.0p 165.0p 168.0p The share options are exercisable during the period beginning three years after and ending ten years after the date of grant, and are subject to a performance condition that requires a growth in earnings per ordinary share over a consecutive three year period. 36 thejohndavidgroupplc thejohndavidgroupplc 37 NOTES TO THE FINANCIAL STATEMENTS continued 18 Reserves At beginning of year Retained (loss)/profit for the financial year Irrevocable dividend waiver Group Company Share premium account £000 8,917 - - Profit and loss account £000 47,509 (2,390) 920 Share premium account £000 8,917 - - Profit and loss account £000 51,181 (5,468) 920 At end of year 8,917 46,039 8,917 46,633 Irrevocable undertakings to elect to receive the Scrip Dividend Alternative have been given by holders of 54% of the ordinary share capital in relation to the holdings of John Wardle and David Makin, the founder shareholders. 19 Reconciliation of movements in shareholders’ funds Profit/(loss) for the financial period Dividends paid and proposed Retained (loss)/profit for the financial period Irrevocable dividend waiver (see note 18) Proceeds from issue of ordinary shares Net movement in equity shareholders’ funds Shareholders’ funds at beginning of period Group Company 31 January 2004 £000 31 January 2003 £000 31 January 2004 £000 31 January 2003 £000 648 (3,038) (2,390) 920 - (1,470) 58,764 6,757 (3,038) 3,719 - 10 3,729 55,035 (2,430) (3,038) (5,468) 920 - (4,548) 62,436 10,429 (3,038) 7,391 - 10 7,401 55,035 Shareholders’ funds at end of period 57,294 58,764 57,888 62,436 20 Commitments Group (i) Capital commitments at the end of the financial year for which no provision has been made are as follows: Contracted (ii) Annual commitments under non-cancellable operating leases are as follows: 31 January 2004 £000 31 January 2003 £000 1,696 2,980 Operating leases which expire: Within one year In the second to fifth years inclusive Over five years 31 January 2004 Land and buildings £000 1,363 3,783 52,359 57,505 31 January 2004 Other £000 181 25 - 206 31 January 2003 Land and buildings £000 1,398 5,102 51,640 58,140 31 January 2003 Other £000 201 381 - 582 38 thejohndavidgroupplc NOTES TO THE FINANCIAL STATEMENTS continued Company (i) Capital commitments at the end of the financial year for which no provision has been made are as follows: Contracted (ii) Annual commitments under non-cancellable operating leases are as follows: 31 January 2004 £000 31 January 2003 £000 1,696 2,980 Operating leases which expire: Within one year In the second to fifth years inclusive Over five years 31 January 2004 Land and buildings £000 1,363 3,783 52,359 57,505 31 January 2004 Other £000 181 25 - 206 31 January 2003 Land and buildings £000 694 2,698 27,222 30,614 31 January 2003 Other £000 11 87 - 98 21 Pension plan The group operates two defined contribution pension schemes. The pension charge for the year represents contributions payable by the group of £257,000 (2003: £333,000), plus £46,000 (2003: £18,000) in respect of directors. The amount owed to the Schemes at the year end was £7,000 (2003: £9,000). 22 Reconciliation of group operating profit to net cash inflow from operating activities for the year ended 31 January 2004 12 months to 31 January 2004 £000 Operating profit Goodwill amortisation Depreciation charge Decrease in stocks Decrease/(increase) in debtors Increase in creditors 7,734 786 10,060 1,990 80 2,950 10 months to 31 January 2003 £000 14,082 421 7,907 227 (1,230) 6,787 Net cash inflow from operating activities 23,600 28,194 The exceptional costs disclosed in note 1 result in operating cash outflows of £1,978,000 (2003: £3,514,000) 23 Analysis of cash flows for headings netted in the cash flow statement Returns on investments and servicing of finance Interest received Interest paid Interest element of hire purchase contract and loan payments Returns on investments and servicing of finance 12 months to 31 January 2004 £000 10 months to 31 January 2003 £000 100 (4,402) - 212 (2,904) (42) (4,302) (2,734) thejohndavidgroupplc 39 NOTES TO THE FINANCIAL STATEMENTS continued Analysis of cash flows for headings netted in the cash flow statement (continued) Capital expenditure: Purchase of tangible fixed assets Sale of tangible fixed assets Capital expenditure Acquisitions: Acquisitions Financing: Financing Consideration - net of cash balances acquired (see note 9) Loan finance costs Receipts from new loans Net loan repayments Issue of ordinary shares 12 months to 31 January 2004 £000 10 months to 31 January 2003 £000 (11,493) 2,264 (18,166) 161 (9,229) (18,005) - - - - (3,000) - (51,243) (958) (52,201) 59,000 (3,335) 10 (3,000) 55,675 24 Analysis of net debt Cash at bank and in hand Loans Total At 31 January 2003 £000 Cash At 31January 2004 £000 flow £000 3,527 3,527 (59,000) 1,407 1,407 3,000 4,934 4,934 (56,000) (55,473) 4,407 (51,066) 25 Related party transactions The group has taken advantage of the exemption available under FRS8 whereby it does not need to disclose related party transactions with other 90% group companies. Administrative expenses includes £139,000 (2003: £nil) relating to a Group Management Conference which was organised and invoiced by the Bird Consultancy. These charges were largely recharges of venue and presentation costs. Chris Bird is a director of the Bird Consultancy as well as being a Non-Executive Director of The John David Group Plc. 26 Principal subsidiary undertakings The following companies were the principal subsidiary undertakings as at 31 January 2004. The companies are wholly owned, operate in the UK and are included in the consolidated financial statements. Nature of business First Sport Limited Dormant Active Venture Limited Dormant The Sports Shop (Fife) Limited Dormant Sport and Fashion Retail Distribution Limited Dormant Athleisure Limited Investment company JD Sports Limited Dormant With the exception of Athleisure Limited and JD Sports Limited, all these holdings were indirectly owned by the parent company at the balance sheet date. NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the next annual general meeting of The John David Group Plc (the “company”) will be held at Hollinsbrook Way, Pilsworth, Bury, Lancashire BL9 8RR on 15 July 2004 at 1.00 p.m. for the following purposes: Ordinary business 1 To receive and consider the directors’ report and audited financial statements for the year ended 31 January 2004, and the auditor’s report on the financial statements and the audited part of the Report on Remuneration and Related Matters. 2 To approve the Report on Remuneration and Related Matters. 3 To declare a final dividend on the ordinary shares of the company for the year ended 31 January 2004 of 3.64p per ordinary share, payable to shareholders registered at the close of business on 19 May 2004. 4 To re-elect Mr B Bown as a director of the company, who retires by rotation. 5 To re-elect Mr C Archer as a director of the company, who retires by rotation. 6 To confirm the appointment of Mr P Cowgill as a director of the company. 7 To confirm the appointment of Mr B Small as a director of the company. 8 To reappoint KPMG Audit Plc of Edward VII Quay, Navigation Way, Ashton-on-Ribble, Preston, PR2 2YF as auditors of the company and its subsidiaries to hold office from the conclusion of the meeting until the conclusion of the next general meeting of the company at which accounts are laid. 9 To authorise the Audit Committee to determine the auditor’s remuneration. Special business To consider and, if thought fit, pass the following resolutions of which resolutions 10 and 11 will be proposed as ordinary resolutions and resolution 12 will be proposed as a special resolution. Ordinary resolution 10 That, in substitution for any existing authority under that section, the directors of the company be and are hereby generally and unconditionally authorised for the purposes of section 80 of the Companies Act 1985 (the “Act”) to exercise all the powers of the company to allot and make offers or agreements to allot relevant securities (as defined by section 80(2) of the Act) up to an aggregate nominal amount of £770,070 provided that this authority shall (unless previously revoked, varied or renewed) expire at the conclusion of the next annual general meeting of the company after the passing of this resolution or on 14 October 2005 (whichever is the earlier) save that the company may make an offer or agreement before the expiry of this authority which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities pursuant to any such offer or agreement as if the authority conferred by this resolution had not expired. 11 That, the directors of the company be and are hereby authorised to offer ordinary shareholders the choice of receiving the whole or part of the proposed final dividend of 3.64p per share for the year ended 31 January 2004 in new fully paid ordinary shares of the company instead of cash. Special resolution 12 That, in accordance with the general authority granted to the directors under the terms of section 80 of the Companies Act 1985 (the “Act”), the directors be and are hereby generally empowered pursuant to section 95 of the Act to allot equity securities (within the meaning of section 94 of the Act) as if section 89 (1) of the Act did not apply to any such allotment provided that this power shall be limited to: (a) the allotment of equity securities in connection with an offer whether by way of rights issue, open offer or otherwise to holders of equity securities in the capital of the company in proportion (as nearly as practicable) to their respective holdings of such securities (but subject to such exclusions or other arrangements as the 40 thejohndavidgroupplc thejohndavidgroupplc 41 NOTICE OF ANNUAL GENERAL MEETING continued FIVE YEAR RECORD Consolidated profit and loss accounts directors may deem necessary or expedient to deal with fractional entitlements that would otherwise arise or with legal or practical problems under the laws of any territory or the requirements of any recognised regulatory body or any stock exchange in any territory); (b) the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal value of £116,871, being 5% of the issued ordinary share capital of the company as at 19 May 2004. Provided that (unless previously revoked, varied or renewed) this power shall expire at the earlier of the conclusion of the next annual general meeting of the company held after the passing of this resolution and 14 October 2004 except that the company may, before such expiry, make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such offer or agreement as if the power conferred hereby had not expired. By order of the Board B Small Secretary 14 June 2004 Notes Hollinsbrook Way Pilsworth Bury Lancashire BL9 8RR 1 A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and, on a poll, vote in his or her place. A proxy need not be a member of the company. 2 To be valid, forms of proxy must be lodged at the office of the company’s registrars, Lloyds TSB Registrars, 54 Pershore Road South, Birmingham B22 1AF, not less than 48 hours before the time appointed for the holding of the meeting. A form of proxy is enclosed. 3 Completion and return of the form of proxy will not prevent a member from attending and voting in person should he or she so wish. 4 Only the members registered in the register of members of the company as at the close of business on 13 July 2004 or, in the event that the meeting is adjourned, in the register of members 48 hours before the time of any adjourned meeting shall be entitled to attend or vote at the meeting in respect of the number of shares registered in their name at that time. Changes to entries in the register of members after close of business on 13 July 2004 or, in the event that the meeting is adjourned, after 48 hours before the time of any adjourned meeting shall be disregarded in determining the rights of any person to attend or vote at the meeting. 5 Biographical details of all those directors who are offering themselves for election or re-election at the meeting are set out on page 8 of this annual report and accounts. Year ended 10 months to Year ended Year ended Year ended 31 March 31 March 31January 2000 2002 2004 £000 £000 £000 31January 2003 £000 31 March 2001 £000 Turnover Cost of sales 458,073 (249,379) 370,804 (202,229) 245,621 (130,144) 204,465 (109,469) 171,446 (92,503) Gross profit Distribution costs - normal Distribution costs - exceptional Administrative expenses - normal Administrative expenses - exceptional Other operating income 208,694 (186,117) (1,366) (13,503) (612) 638 168,575 (141,145) (2,933) (10,167) (581) 333 115,477 (88,346) - (6,759) - 67 94,996 (72,014) - (6,152) - 22 78,943 (60,073) - (5,692) - 19 Operating profit 7,734 14,082 20,439 16,852 13,197 Operating profit before exceptional items and goodwill amortisation Exceptional items Goodwill amortisation Operating profit Loss on sale of fixed assets Interest receivable Interest payable and similar charges Profit before taxation Taxation Profit after taxation Dividends paid and proposed 10,498 (1,978) (786) 7,734 (1,095) 100 (4,634) 18,017 (3,514) (421) 14,082 (433) 212 (3,080) 20,439 - - 20,439 (187) 104 (283) 16,852 - - 16,852 (95) 154 (443) 13,197 - - 13,197 (383) 106 (715) 2,105 (1,457) 10,781 (4,024) 20,073 (6,235) 16,468 (5,120) 12,205 (3,835) 648 (3,038) 6,757 (3,038) 13,838 (3,646) 11,348 (3,220) 8,370 (2,791) Retained (loss)/profit for the financial period (2,390) 3,719 10,192 8,128 5,579 Basic earnings per ordinary share 1.39p 14.46p 29.61p 24.38p 18.00p Adjusted basic earnings per ordinary share 6.21p 21.18p 29.61p 24.38p 18.00p Dividends per ordinary share 6.5p 6.5p 7.8p 6.9p 6.0p Adjusted basic earnings per ordinary share is based on earnings before exceptional items and goodwill amortisation. 42 thejohndavidgroupplc thejohndavidgroupplc 43 11 May 2004 16 June 2004 15 July 2004 21 May 2004 2 August 2004 October 2004 31 January 2005 April 2005 Registrars Lloyds TSB Registrars 54 Pershore Road South Birmingham B22 1AF Financial public relations Hogarth Partnership Limited The Butlers Wharf Building 36 Shad Thames London SE1 2YE Financial advisers and stockbrokers Investec 2 Gresham Street London EC2V 7QP Principal bankers Barclays Bank Plc 43 High Street Sutton Surrey SM1 1DR Solicitors DLA Princes Exchange Princes Square Leeds LS1 4BY FINANCIAL CALENDAR Final results announced Financial statements published Annual general meeting Final dividend record date Final dividend payable Interim results announced Year end Final results announced ADVISERS Registered Office The John David Group Plc Hollinsbrook Way Pilsworth Bury Lancashire BL9 8RR Company number Registered in England and Wales, number 1888425 Auditors KPMG Audit Plc Edward VII Quay Navigation Way Ashton-on-Ribble Preston Lancashire PR2 2YF HEAD OFFICE The John David Group Plc Hollinsbrook Way Pilsworth Bury Lancashire BL9 8RR Telephone 0161 767 1000 Facsimile 0161 767 1001 Website address www.jdsports.co.uk 44 thejohndavidgroupplc
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