becoming a world class digital retailer · average order value. 3 impact of credit rejection...

BECOMING A WORLD CLASS

DIGITAL RETAILERINTERIM REVIEW 2015/16

With annual sales of £1.8bn, Shop Direct is the UK’s second largest pureplay online retailer. Our digital department stores Very.co.uk, VeryExclusive.co.uk and Littlewoods.com sell over 1,100 famous brands, receive over 1.2m website visits a day, with 60% of online sales completed on mobile devices.With our department store range of famous brands, market-leading ecommerce and technology capabilities and unique financial services products offering flexible ways to pay, we make good things easily accessible to more people.

OUR AMBITIONBuild a world class digital retailer.

OUR PURPOSEMake good things easily accessible to more people.

BUSINESS REVIEW

Operating and financial highlights 01Group Chief Executive’s review 02Key Performance Indicators 03 Group Finance Director’s review 04

FINANCIAL STATEMENTS

Financial statements and notes to the financial statements 06Independent review report 25

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OPERATING AND FINANCIAL HIGHLIGHTSfor the 6 months ended 31 December 2015

• Group sales up 3.3% to £994.2m (H1 FY15: £962.8m)• EBITDA up 18.0% to £106.2m (H1 FY15: £90.0m)• Adjusted profit before tax1 up 43.2% to £70.9m (H1 FY15: £49.5m)• Very.co.uk sales up 13.8% and on track to exceed £1bn this year, and

the planned reduction in Littlewoods.com sales continued (-8.8%)• Group gross margin up 80bps to 40.3% (H1 FY15: 39.5%)• Online transformation accelerates – 60% of online sales now on

mobile devices and catalogue distribution ended after 80 years• Now focused on 2 power brands, Very and Littlewoods, down from

6 last year• Own brand Clothing & Footwear offering simplified to 2 brands –

V by Very, which we launched this year, and Ladybird

1 Adjusted Profit before tax is equal to Profit before tax, exceptionals and fair value adjustments from continuing operations

VERY SALES1 (H1 FY16)

£583.5m (+13.8%)

VERY EBITDA CONTRIBUTION2 (H1 FY16)

£116.0m (+22.0%)

VERY ONLINE VISITS (H1 FY16)

150m (+19.0%)

1 Very sales includes Very.co.uk and VeryExclusive.co.uk. Woolworths and Isme were migrated into Very at the beginning of this year

2 EBITDA contribution is stated before central costs. See page 14 for more details.

LITTLEWOODS SALES3 (H1 FY16)

£410.7m (-8.8%)

LITTLEWOODS EBITDA CONTRIBUTION4 (H1 FY16)

£95.9m (-0.7%)

LITTLEWOODS ONLINE VISITS (H1 FY16)

85m (+8.0%)

3 Littlewoods sales include Littlewoods.com and LittlewoodsIreland.ie. K&Co was migrated into Littlewoods at the beginning of this year

4 EBITDA contribution is stated before central costs. See page 14 for more details

01Shop Direct Interim Review 2015/16

BUSIN

ESS REVIEW

ADJUSTED PROFIT BEFORE TAX UP

43.2%

GROUP CHIEF EXECUTIVE’S REVIEWA strong first half sets us up for another record year.

We are now underway with bringing personalisation to financial services, through a £50m investment in partnership with IBM. This will further strengthen and protect our USP in financial services and allow us to offer personalisation right through the online customer journey.

Keeping a close eye on what’s going on in the wider market is critical if we want to stay ahead. We’ve set up a Digital Advisory Board of people from across the digital industry – including O2, IBM and Facebook – to help us fulfil our ambitions and keep us honest on the progress we’re making. I’m enjoying the challenge they bring.

For the second time in a row we’ve been named as Retail Week’s pureplay etailer of the year. On top of 23 other awards so far this year, this is a just reward for our outstanding people and their relentless hard work to turn us into a world class digital retailer.

FUTUREA strong first half puts us on the right path for another record-breaking year. We serve demanding customers whose needs evolve fast in a competitive market. We believe our differentiated retail and financial services model, our clear strategy anchored in choice, ease and affordability, and now our 100% digital focus set us up for success with those customers and in that market. That’s the message from these results – and we’re still only scratching the surface of our full potential.

ALEX BALDOCKGROUP CHIEF EXECUTIVE

OVERVIEW This financial year the benefits of accelerating our transformation have really kicked in. We made bold decisions to call time on the catalogue after 80 years, focus the business behind the two power brands – Very and Littlewoods – and consolidate our own-brand clothing labels into V by Very and Ladybird. Those decisions to simplify and focus the business were big contributors to the record first half we’ve had, with adjusted pre-tax profit up 43.2% to £70.9m.

As well as our transformation, the story of the year so far is the now-familiar one of Very and mobile as drivers of profit. Very continued to outpace the online market, with sales up 13.8%, and mobile accounted for 71% of all visits and 60% of sales. Mobile is the channel of choice for our customers and we see little sign of that slowing.

That all helped deliver a record Christmas and our biggest day ever: on Black Friday, with sales up 64% and 100% website stability, we delivered on our promises to customers and did it profitably. We like Black Friday and we’ll continue to back it as an event that plays to our strengths as a market-leading pureplay etailer and lender.

In addition to sales growth we’ve shown good discipline: strong cost, stock and credit risk management have underpinned our performance this year. We continue to develop our credit risk decision-making and manage our debtor book effectively.

STRATEGIC PROGRESSOur strategy is working and we are sticking with it, delivering choice, ease and affordability for our customers. We continue to attract famous brands – Hugo Boss, L’Oréal and Pretty Green to name a few – and give our customers the good things they want.

Our investments in big data, m-commerce and personalisation are paying off. We can now treat customers differently according to what they want from us and what they are worth to us. We now personalise the marketing a customer sees to bring them in, the website they land on and browse, and how we stay in touch with them after they’ve bought. End-to-end personalisation of the customer journey is happening and there’s much more to come. We’ve built the data, analytics and technology platform to enable this and we continue to invest in this exciting space.

02 Shop Direct Interim Review 2015/16

KEY PERFORMANCE INDICATORSfor the 6 months ended 31 December 2015

We measure the performance of our business using the following Key performance indicators.

GROUP SALES

Very £583.5m (+13.8%)Littlewoods £410.7m (-8.8%)

£994.2m(+3.3%)

TOTAL ACTIVE CUSTOMERS1 (CASH & CREDIT)

3.06m(-0.6%)

DEMAND PER CUSTOMER2

DEMAND TO SALES CONVERSION3

55.5%(-0.7%pts)

RETAIL SALES

£833.5m(+2.0%)

Very £468.4m(+12.9%)Littlewoods £365.1m (-9.2%)

Very 1.85m (+5.9%)Littlewoods 1.21m (-9.1%)

£489

.8

£447

.1

£554

.9

(+2.2%)(+4.0%)

(+7.4%)

Group Very Littlewoods

1 Defined as having shopped in the last 6 months.2 Average order frequency multiplied by average order value.3 Impact of credit rejection (insufficient credit, fraud detection), not yet despatched

goods (due to time lag/stock availability), customer returns and VAT.4 On a 6 month basis.

RETAIL

AVERAGE DEBTOR BOOK

£1,500.6m(+0.8%)

INTEREST INCOME % OF DEBTOR BOOK4

9.4%(+0.5%pts)

BAD DEBT % OF DEBTOR BOOK4

3.6%(0.4%pts lower)

FINANCIAL SERVICES


BUSIN

ESS REVIEW

GROUP FINANCE DIRECTOR’S REVIEWA strong first half of the year was underpinned by sales growth in Very, well controlled costs and rising margins.

CUSTOMERSActive customers (defined as having shopped with us over the previous six months) decreased by 0.6% to 3.06m reflecting the one-off impact of customer migrations – Woolworth and Isme customers were migrated into Very and K&Co customers into Littlewoods. However, Group demand per customer (average order value multiplied by frequency) increased by 4.0%, driven by 7.4% growth from Very. Conversion of demand to sales decreased by 0.7%pts.

H1 FY16£m

H1 FY15£m

Change%

Active customers1 (000s) 3,065 3,082 (0.6)Demand per customer2 (£) 489.8 471.1 4.0Demand to Sales Conversion3 % 55.5% 56.3% (0.7)%pts

1 Defined as having shopped in the last 6 months.2 Defined as average order frequency multiplied by

average order value.3 Impact of credit rejection (insufficient credit, fraud

detection), not yet despatched goods (due to time lag/stock availability), customer returns and VAT.

FINANCIAL SERVICES Financial services is a key enabler of our retail proposition, as our unique credit products allow customers to buy products when they need them most.

Sales increased by 0.4% driven by strong interest income performance with interest income as a percentage of the debtor book increasing by 0.5%pts.

The impact of customer quality on the debtor book continues to be a key focus. We have

GROUP SALESGroup sales grew 3.3% to £994.2m (H1 FY15: £962.8m), driven by a record performance in the key Christmas trading period. Sales at Very.co.uk grew 13.8% despite market volatility, as a result of continued focus on personalisation and convenient access from mobile devices. The planned sales reduction at Littlewoods.com continued, with sales down 8.8%, while cost efficiencies ensured that Littlewoods’ EBITDA contribution before central costs remained stable.

H1 FY16£m

H1 FY15£m

Change%

Very 583.5 512.7 13.8Littlewoods 410.7 450.1 (8.8)Group Sales 994.2 962.8 3.3

RETAIL SALESClothing & Footwear sales grew 5.8% in a volatile market as our move to smaller, more frequent stock purchases allowed us to respond faster to changes in consumer trends and weather. Sportswear sales grew by over 30%, benefiting from range expansion, and River Island continued to be popular with our customers.

Seasonal sales remained strong, with Gifts & Beauty and Kids’ ranges helping to drive 7.7% growth.

Furniture & Homeware finished down 1.2%. Electricals started the year slowly but picked up during the key Christmas trading period. Despite record performance during Cyber Fortnight, sales were down 2.2% over the period – reflecting pressure on TVs and Computing.

H1 FY16 RETAIL SALES MIX (%) BY PRODUCT DIVISION

Clothing & Footwear 32%Electrical 38%Seasonal 17%Furniture & Homeware 13%

Strong performance across the business


CAPITAL INVESTMENTTotal capital expenditure was £21.4m (H1 FY15: £19.1m), with continued focus on our priority areas of personalisation and ecommerce. We extended our personalisation programme to financial services, partnering with IBM to personalise credit offers to customers, develop new credit products and respond quickly to regulatory change; our new credit platform is scheduled to go live in 2016/17. Under our process excellence programme we invested in a held order management tool to give customers better information on product availability. In the run-up to this year’s peak trading we focused on IT improvements and protection, including Black Friday readiness testing.

BALANCE SHEETWe further strengthened our financial position, increasing net assets by 29.7% to £495.1m (H1 FY15: £381.7m) – driven principally by the Group’s profit after tax.

Inventory levels at the half-year were down 4.9% to £119.3m (H1 FY15: £125.5m) despite sales growth – reflecting improved stock management and more frequent and timely purchasing.

Trade and other receivables increased by 9.9% to £2,157.2m (H1 FY15: £1,962.9m), driven by loans to Group undertakings and sales growth.

Trade and other payables increased by 4.0% to £651.3m (H1 FY15: £626.3m), reflecting improvement in supplier payment terms and year-on-year sales growth.

DIVIDENDSThe directors do not recommend payment of a dividend (H1 FY15: £nil).

GOING CONCERNIn determining whether the Group’s accounts can be prepared on a going concern basis, the directors considered the Group’s business activities together with factors likely to affect its future development, performance and financial position – including cash flows, liquidity position and borrowing facilities, and the principal risks and uncertainties it faces.

Taking account of reasonably foreseeable changes in trading performance, our forecasts and projections show that the Group will have sufficient headroom within its current loan facilities. After making appropriate enquiries, the directors believe they can reasonably expect that the Company and the Group will have adequate resources to continue in operation for the foreseeable future. Accordingly, they continue to prepare the Interim Report and Financial Statements on a going concern basis.

GREG PATERASGROUP FINANCE DIRECTOR

further improved customer quality over recent years and this has provided a benefit to bad debt which as a percentage of the debtor book has decreased by 0.4%pts.

COSTS AND PROFITGross margin increased by 0.8%pts to 40.3%. This was driven by a stronger share of Clothing & Footwear in the retail mix (up 1.2%pts), and financial services yield improvement.

Distribution costs increased by 3.6% to £123.1m (H1 FY15: £118.8m), reflecting higher volumes. Costs as a percentage of Group sales remains in line with the prior year at 12.4%.

Administration costs decreased by 2.5% to £185.2m (H1 FY15: £189.9m). The transition to a digital-first model for customer services via Webhelp brought significant cost savings, which were partially offset by marketing investment in our new brand, Very Exclusive.

Total costs (administrative and distribution) as a percentage of Group sales reduced by 1.1%pts to 31.0% as we become a simpler, leaner organisation.

Net finance costs, which relates mainly to interest on our securitisation facility, decreased by 2.2% to £22.4m (H1 FY15: £22.9m).

Profit before tax, exceptionals and fair value adjustments rose 43.2% to £70.9m (H1 FY15: £49.5m). As a percentage of Group sales, the margin increase was 2.0%pts to 7.1%.

We incurred exceptional costs of £38.9m (H1 FY15: £16.7m) relating to regulatory provisions and restructuring costs. Including these exceptional costs and fair value adjustments, pre-tax profit reduced 25.4% to £33.4m (H1 FY15: £44.8m).

INCOME STATEMENTH1 FY16

£mH1 FY15

£mChange

%Group sales 994.2 962.8 3.3Gross margin 401.1 380.6 5.4Gross margin rate % 40.3% 39.5% 0.8%ptsDistribution expenses (123.1) (118.8)Administrative expenses (185.2) (189.9)Other operating income 0.5 0.5Operating profit before exceptionals and fair value adjustments 93.3 72.4 28.9Net Finance Costs (22.4) (22.9)Profit before tax, exceptionals and fair value adjustments 70.9 49.5 43.2Exceptional items (38.9) (16.7)Fair value adjustments to financial instruments 1.4 12.0Profit before tax 33.4 44.8 (25.4)

TAXATIONThe tax charge of £4.8m includes a charge of £8.0m relating to utilisation of a deferred tax asset recognised during the year ended 30 June 2015, and an additional deferred tax asset of £4.3m which was recognised during the period.


BUSIN

ESS REVIEW

UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTfor the 6 months ended 31 December 2015

6 months to 31 Dec 2015Restated for IFRS

6 months to 31 Dec 2014Restated for IFRS

Year to 30 June 2015

Note

Pre-exceptional

items£m

Exceptionalitems

£mTotal

£m

Pre-exceptional

items£m

Exceptionalitems

£mTotal

£m

Pre-exceptional

items£m

Exceptionalitems

£mTotal

£mContinuing operationsRevenue 4 994.2 – 994.2 962.8 – 962.8 1,783.6 – 1,783.6

Operating profit 5 93.3 (38.9) 54.4 72.4 (16.7) 55.7 153.3 (25.4) 127.9

Investment income 0.1 – 0.1 0.1 – 0.1 0.1 – 0.1Finance costs (22.5) – (22.5) (23.0) – (23.0) (48.2) – (48.2)

Profit before tax and fair value adjustments to financial instruments 70.9 (38.9) 32.0 49.5 (16.7) 32.8 105.2 (25.4) 79.8Fair value adjustments to financial instruments 7 1.4 – 1.4 12.0 – 12.0 8.4 – 8.4

Profit before tax 72.3 (38.9) 33.4 61.5 (16.7) 44.8 113.6 (25.4) 88.2

Tax 8 (4.8) – (4.8) 18.9 – 18.9 37.6 – 37.6

Profit for the period from continuing operations 67.5 (38.9) 28.6 80.4 (16.7) 63.7 151.2 (25.4) 125.8

Discontinued operationsProfit for the period from discontinued operations 6 – – – 2.8 – 2.8 1.3 17.4 18.7

Profit for the period 67.5 (38.9) 28.6 83.2 (16.7) 66.5 152.5 (8.0) 144.5

Profit attributable to equity holders of the Group 67.5 (38.9) 28.6 83.2 (16.7) 66.5 152.5 (8.0) 144.5


UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the 6 months ended 31 December 2015

6 monthsto 31 Dec

2015

Restated for IFRS

6 monthsto 31 Dec

2014

Restated for IFRSYear to

30 June2015

£m

Profit for the period 28.6 66.5 144.5

Items that will not be reclassified subsequently to profit or loss:Revaluation surplus – 1.0 1.0Actuarial gain/(loss) on pension scheme 1.6 (4.8) 1.4

Items that may be reclassified subsequently to profit or loss:Foreign exchange movement 0.6 – (1.6)

Other comprehensive income 2.2 (3.8) 0.8

Tax relating to components of other comprehensive Income – – –

Other comprehensive income for the period 2.2 (3.8) 0.8

Total comprehensive income for the period 30.8 62.7 145.3

FINAN

CIAL STATEM

ENTS


UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETfor the 6 months ended 31 December 2015

Note

31 Dec2015

£m

Restated for IFRS31 Dec

2014£m

Restated for IFRS30 June

2015£m

Non-current assetsGoodwill 252.5 252.5 252.5Other intangible assets 9 107.1 99.2 99.9Property, plant and equipment 9 7.8 86.2 6.5Investment property – 19.7 –Interests in joint ventures – 11.1 –Deferred tax asset 39.3 25.2 43.0

406.7 493.9 401.9

Current assetsInventories 119.3 125.5 98.8Trade and other receivables 10 2,157.2 1,962.9 1,886.6Cash and bank balances 9.9 17.8 15.2Derivative financial instruments 7 3.3 5.6 1.9

2,289.7 2,111.8 2,002.5

Total assets 2,696.4 2,605.7 2,404.4

Current liabilitiesTrade and other payables 11 (651.3) (626.3) (468.0)Obligations under finance leases (0.2) (0.5) (0.4)Borrowings 13 (119.8) (106.2) (90.4)Provisions 12 (41.8) (27.0) (23.6)Deferred revenue (84.0) (124.3) (82.7)

(897.1) (884.3) (665.1)

Non-current liabilitiesBorrowings 13 – (50.0) –Non-recourse borrowings 13 (1,179.1) (1,169.4) (1,151.4)Retirement benefit obligations (68.9) (76.9) (72.5)Deferred revenue (56.1) (43.0) (50.9)Obligations under finance leases (0.1) (0.4) (0.2)

(1,304.2) (1,339.7) (1,275.0)

Total liabilities (2,201.3) (2,224.0) (1,940.1)

Net assets 495.1 381.7 464.3

EquityShare capital 100.0 100.0 100.0Other reserves 500.0 516.0 500.0Retained earnings (104.9) (234.3) (135.7)

Total equity 495.1 381.7 464.3


UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENTfor the 6 months ended 31 December 2015

6 months to 31 Dec

2015£m

Restated for IFRS

6 monthsto 31 Dec

2014£m


30 June2015

£m

Net cash from operating activities (41.1) (53.3) (29.1)

Investing activitiesInterest received 0.1 0.1 0.1Proceeds on disposal of property, plant and equipment – 0.5 2.4Purchases of property, plant and equipment (2.5) (1.5) (0.8)Purchases of intangible assets (18.9) (17.6) (29.9)Amounts received from joint ventures – – 1.5Proceeds on disposal of joint ventures – – 14.5Cash disposed of with subsidiary undertaking – – (0.1)Net cash used in investing activities (21.3) (18.5) (12.3)

Financing activitiesIncrease in/(repayments of) borrowings 27.7 16.9 (6.0)Net cash from/(used in) financing activities 27.7 16.9 (6.0)

Net decrease in cash and cash equivalents (34.7) (54.9) (47.4)

Opening cash and cash equivalents (75.2) (27.8) (27.8)

Closing cash and cash equivalents (109.9) (82.7) (75.2)

FINAN

CIAL STATEM

ENTS


UNAUDITED RECONCILIATION OF OPERATING PROFIT TO NET CASH FROM OPERATING ACTIVITIESfor the 6 months ended 31 December 2015

6 months to 31 Dec

2015£m

Restated for IFRS

6 months to 31 Dec

2014£m


30 June2015

£m

Profit for the year 28.6 66.5 144.5

Adjustments for:Share of profits of joint ventures – (1.9) (0.6)Finance costs 24.5 24.6 49.4Income tax charge/(credit) 4.8 (18.9) (37.6)Gain on disposal of discontinued operations – – (17.4)Depreciation of property, plant & equipment 1.2 3.2 7.4Amortisation of intangible assets 11.7 14.4 26.0Loss on disposal of property plant & equipment – 0.6 0.6Exchange gains 0.6 – –Fair value adjustments to financial instruments (1.4) (12.0) (8.4)Increase in provisions 18.2 10.5 7.1Adjustment for pensions (2.1) (1.7) (1.3)

Operating cash flows before movements in working capital 86.1 85.3 169.7

(Increase)/decrease in inventories (20.5) (25.2) 1.5Increase in receivables (270.5) (274.8) (144.3)Increase/(decrease) in payables 188.5 186.2 (6.1)

Cash (absorbed)/generated by operations (16.4) (28.5) 20.8

Income taxes paid (0.1) (0.1) (0.4)Interest paid (24.6) (24.7) (49.5)

Net cash outflow from operating activities (41.1) (53.3) (29.1)


UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the 6 months ended 31 December 2015

Share capital£m

Other reserves£m

Retainedearnings

£mTotal

£m

Changes in equity for the 6 months to 31 December 2015

Balance as at 30 June 2015 100.0 500.0 (135.7) 464.3

Profit for the period – – 28.6 28.6Exchange gain – – 0.6 0.6Actuarial gain on pension scheme – – 1.6 1.6

– – 30.8 30.8

Balance at 31 December 2015 100.0 500.0 (104.9) 495.1

Changes in equity for the 6 months to 31 December 2014


Profit for the period – – 66.5 66.5Actuarial loss on pension scheme – – (4.8) (4.8)Revaluation gain – – 1.0 1.0

– – 62.7 62.7

Balance at 31 December 2014 100.0 516.0 (234.3) 381.7

Changes in equity for the year to 30 June 2015


Profit for the period – – 144.5 144.5Exchange loss – – (1.6) (1.6)Actuarial gain on pension scheme – – 1.4 1.4Revaluation gain – 1.0 – 1.0Realised revaluation surplus – (17.0) 17.0 –

– (16.0) 161.3 145.3

Balance at 30 June 2015 100.0 500.0 (135.7) 464.3

FINAN

CIAL STATEM

ENTS


NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSfor the 6 months ended 31 December 2015

1. BASIS OF PREPARATIONThis condensed set of financial statements for the six months ended 31 December 2015 has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by the EU.

The financial information for the year ended 30 June 2015 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of those accounts, prepared under United Kingdom Generally Accepted Accounting Practice (UK GAAP), has been delivered to the Registrar of Companies. The audit report on those accounts was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006.

The annual financial statements of the Group for the year ended 30 June 2016 will be prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. This condensed set of financial statements has been prepared applying the accounting policies and presentation that will be applied in the preparation of the companies consolidated financial statements for the year ended 30 June 2016.

The Group has transitioned to IFRS during the current financial year and as such the financial information for the year ended 30 June 2015 and the six months ended 31 December 2014 has been restated to be prepared in accordance with IFRS. The impact of this is explained in note 15.

The financial statements are drawn up to the Saturday nearest to 30 June or 31 December, or to 30 June or 31 December where this falls on a Saturday.

2. RISKS AND UNCERTAINTYThere are a number of risks and uncertainties which could have an impact on the Group’s performance over the remaining months of the financial year and cause actual results to differ materially from expected and historical results. These were set out in detail in the annual review for the year ended 30 June 2015, and an update will be included in the annual report and accounts for the year ending 30 June 2016.

3. GOING CONCERNIn determining whether the Group’s accounts can be prepared on a going concern basis, the directors considered the Group’s business activities together with factors likely to affect its future development, performance and its financial position including cash flows, liquidity position and borrowing facilities and the principal risks and uncertainties relating to its business activities.

The Group has carefully considered its cash flows and banking covenants for the next 12 months from the date of signing the interim financial statements. These have been appraised in the light of the uncertainty in the current economic climate.

As such, conservative assumptions for working capital performance have been used to determine the level of financial resources available to the Group and to assess liquidity risk. The key risk identified by the directors for these assumptions is the impact that a deterioration in the economic climate will have on the performance of sales and the debtor book.

The Group’s forecasts and projections, after sensitivities to take account of reasonably foreseeable changes in trading performance, show that the Group will have sufficient headroom within its current loan facilities. After making appropriate enquiries the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for the foreseeable future. Accordingly, they continue to adopt the going concern basis in the preparation of the interim financial statements.



4. SEGMENTAL ANALYSISBy geographical location of destination

6 months to 31 Dec

2015£m

Restated for IFRS

6 months to 31 Dec

2014£m


30 June2015

£mRevenue:

United Kingdom 966.9 935.2 1,736.0Rest of World 27.3 27.6 47.6

994.2 962.8 1,783.6Operating profit/(loss):

United Kingdom 55.7 55.6 127.5Rest of World (1.3) 0.1 0.4

54.4 55.7 127.9

The analysis above is in respect of continuing operations.

Turnover by origin is not materially different from turnover by destination.

FINAN

CIAL STATEM

ENTS



4. SEGMENTAL ANALYSIS (CONTINUED)By business segment

6 months to 31 Dec

2015£m

Restated for IFRS

6 months to 31 Dec

2014£m


30 June2015

£mAnalysis of revenue:

Very 583.5 512.7 967.8Littlewoods 410.7 450.1 815.8

994.2 962.8 1,783.6

Gross profit 401.1 380.6 723.5

Distribution costs (123.1) (118.8) (219.0)Administrative costs (172.3) (172.3) (318.6)Other operating income 0.5 0.5 0.8

EBITDA*:Very 116.0 95.1 203.4Littlewoods 95.9 96.6 199.8Central costs (105.7) (101.7) (216.5)

106.2 90.0 186.7

Exceptional items (see note 5) (38.9) (16.7) (25.4)Depreciation (1.2) (3.2) (7.4)Amortisation (11.7) (14.4) (26.0)Operating profit 54.4 55.7 127.9

Investment income 0.1 0.1 0.1Interest payable (22.5) (23.0) (48.2)Profit before tax and fair value adjustments to financial instruments 32.0 32.8 79.8

Fair value adjustments to financial instruments 1.4 12.0 8.4

Profit before tax 33.4 44.8 88.2


* EBITDA is defined as operating profit from continuing operations before amortisation of intangible assets, depreciation and exceptional items.



5. EXCEPTIONAL ITEMS

6 months to 31 Dec

2015£m

Restated for IFRS

6 months to 31 Dec

2014£m


30 June2015

£mRegulatory provisions (35.0) (16.0) (17.4)Restructuring costs (3.9) (0.7) (8.0)

(38.9) (16.7) (25.4)


An exceptional charge of £35.0m was recognised during the period (£16.0m for the 6 months ended Dec 2014) reflecting costs expected to be incurred in respect of future customer redress payments for historic shopping insurance sales.

The restructuring costs reflect the expenditure on the rationalisation of processes and functions within the Shop Direct Group.

FINAN

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6. DISCONTINUED OPERATIONSOn 26 February 2015 the Group sold its 100 per cent interest in a number of subsidiaries to a fellow Group company. The joint ventures Solution Personal Finance Limited and Home Shopping Personal Finance Limited were also disposed of during the year ended 30 June 2015.

The results of the discontinued operations which have been included in the consolidated income statement and cashflow statement were as follows:

6 months to 31 Dec

2015£m

Restated for IFRS

6 months to 31 Dec

2014£m


30 June2015

£mRevenue – 0.1 3.3Cost of sales – – –Gross profit – 0.1 3.3

Administrative expenses – 0.7 (2.1)Other operating income – 0.4 0.6Exceptional items – 0.1 (0.6)Share of results of joint ventures – 2.9 0.8Finance costs – (0.7) (1.0)Profit before tax – 3.5 1.0Tax – (0.7) 0.3

Profit for the period – 2.8 1.3Profit on disposal of subsidiaries – – 14.3Profit on disposal of joint ventures – – 3.1

Total profit attributable to discontinued operations – 2.8 18.7

The effect of the contribution of the discontinued operations on the Group’s cash flows have not been disclosed as they are not considered to be significant.



7. DERIVATIVE FINANCIAL INSTRUMENTSAt the balance sheet date details of outstanding forward exchange contracts that the Group has committed to are as follows:

31 Dec2015

£m


2014£m


2015£m

Notional amount – sterling contract value 88.8 109.7 115.4Fair value of asset recognised 3.3 5.6 1.9

Changes in the fair value of assets recognised, being non hedged currency derivatives amounted to a credit of £1.4m to income in the period (6 months to 31 December 2014: credit to income of £12.0m).

The fair value of foreign currency derivatives contracts is their market value at the balance sheet date. Market values are based on the duration of the derivative instrument together with the quoted market data including interest rates, foreign exchange rates and market volatility at the balance sheet date.

The financial instruments that are measured subsequent to initial recognition at fair value are all grouped into Level 2. There were no transfers between Level 1 and Level 2 during the period.

8. TAXATIONThe taxation charge for the 6 months to 31 December 2015 is based on the estimated tax rate for the full year to 30 June 2016 of 20.0% (6 months to 31 December 2014: 21.0%).

6 months to 31 Dec

2015£m

Restated for IFRS

6 months to 31 Dec

2014£m


30 June2015

£mContinuing operationsCorporation tax – current year (1.1) (0.1) (0.4)

Deferred tax (3.7) 19.0 38.0

(4.8) 18.9 37.6

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9. PROPERTY, PLANT AND EQUIPMENT AND OTHER INTANGIBLE ASSETSAdditions to tangible fixed assets in the period were £2.5m (6 months to 31 December 2014: £1.5m, year to June 2015: £0.8m). Depreciation of £1.2m (6 months to 31 December 2014: £3.2m, year to June 2015: £7.4m) was charged during the period. In the year ended June 2015 there were disposals of £3.0m and disposals of subsidiaries of £92.6m.

Additions to intangible fixed assets in the period of £18.9m (6 months to 31 December 2014: £17.7m, year ended June 2015: £29.9m) primarily relate to computer software development. Amortisation of £11.7m (6 months to 31 December 2014: £14.4m, year ended June 2015: £26.0m) was charged during the period.

At 31 December 2015 the Group had capital expenditure contracted for but not provided in the financial statements of £3.4m (31 December 2014: £1.8m, 30 June 2015: £2.2m).

10. TRADE & OTHER RECEIVABLES

31 Dec2015

£m


2014£m


2015£m

Amounts falling due within one year:Amount receivable for the sale of goods and services 1,497.5 1,446.0 1,339.2Amounts owed by Group undertakings 532.3 399.8 437.8Prepayments and accrued income 80.2 74.4 72.7Other debtors 47.2 42.7 36.9

2,157.2 1,962.9 1,886.6

31 Dec2015

£m


2014£m


2015£m

Movement in the allowance for bad debts:Balance at beginning of the period 154.7 170.4 170.4Amounts charged to the income statement 100.5 113.4 188.7Amounts written off (106.1) (108.4) (204.4)

Balance at the end of the period 149.1 175.4 154.7

11. TRADE & OTHER PAYABLES

31 Dec2015

£m


2014£m


2015£m

Trade creditors 448.2 403.3 265.2Corporation tax 1.3 – –Other taxation and social security 37.4 35.5 28.5Other creditors 23.7 27.3 21.7Accruals 140.7 160.2 152.6

651.3 626.3 468.0



12. PROVISIONSRegulatoryprovisions

£m

Restructuringprovisions

£mTotal

£m

At 1 July 2015 16.0 7.6 23.6

Charged to the income statement 35.0 5.0 40.0Released to the income statement – (1.2) (1.2)Utilised during the period (18.3) (2.3) (20.6)

At 31 December 2015 32.7 9.1 41.8

Regulatoryprovisions

£m


£mTotal

£m

At 1 July 2014 13.3 3.2 16.5

Charged to the income statement 16.0 – 16.0Utilised during the period (5.0) (0.5) (5.5)

At 31 December 2014 24.3 2.7 27.0

Regulatoryprovisions

£m


£mTotal

£mAt 1 July 2014 13.3 3.2 16.5

Charged to the income statement 17.4 5.7 23.1Utilised during the period (14.7) (1.3) (16.0)

At 30 June 2015 16.0 7.6 23.6

It is estimated that the majority of the provisions will be utilised over the remainder of this financial year and the next financial year.

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13. BORROWINGS

31 Dec2015

£m


2014£m


2015£m

Secured borrowings at amortised costBank overdrafts 119.8 100.5 90.4Bank loans – 55.7 –Securitisation facility 1,179.1 1,169.4 1,151.4

1,298.9 1,325.6 1,241.8

The borrowings are repayable as follows:Within one year 119.8 106.2 90.4In the second year – 2.1 –In the third to fifth year 1,179.1 1,194.1 1,151.4Over five years – 23.2 –

Amount due for settlement after 12 months 1,179.1 1,219.4 1,151.4

The principal features of the Group’s borrowings are as follows:

(a) Bank overdrafts are repayable on demand and bear interest at a rate of up to 3.25% over the bank’s base rate. Secured bank overdrafts are secured by a debenture over the assets of the subsidiary to which they relate.

(b) The Group has a securitisation facility of £1,179.1m (31 December 2014: £1,169.4m) secured by a charge over certain eligible trade debtors of the Group and is without recourse to any of the other Group assets. The securitisation facility, with a maximum value of £1,315.0m expires on 1 December 2018.

14. SEASONALITYThe retail sales for the Group are subject to seasonal fluctuations. Demand is highest during the months of October to December.



15. IMPACT OF TRANSITION TO IFRSAs stated in note 1, the Group has transitioned from United Kingdom Generally Accepted Accounting Practice (UK GAAP) to IFRS during the current financial year.

In preparing its opening IFRS balance sheet the Group has adjusted amounts reported previously in the financial statements prepared in accordance with UK GAAP. An explanation of how the transition from UK GAAP to IFRS has affected the Group’s financial position and financial performance is set out below:

Reconciliation of profit for the 6 months to 31 December 2014

UK GAAP£m

Impact oftransition

£mIFRS

£m

Continuing operationsRevenue A 964.8 (2.0) 962.8

Cost of sales A (584.2) 2.0 (582.2)Gross profit 380.6 – 380.6Other operating income 0.5 – 0.5Distribution costs (118.8) – (118.8)Administrative expenses A,G (229.3) 39.4 (189.9)Exceptional items and amortisation C,G (13.0) (3.7) (16.7)

(360.6) 35.7 (324.9)

Operating profit 20.0 35.7 55.7

Investment income 0.1 – 0.1Interest payable A (2.5) (20.5) (23.0)Profit before tax and fair value adjustments to financial instruments 17.6 15.2 32.8

Fair value adjustments to financial instruments D – 12.0 12.0


Tax 18.9 – 18.9Profit for the period from continuing operations 36.5 27.2 63.7Discontinued operationsProfit for the period from discontinued operations 2.8 – 2.8

Profit for the period 39.3 27.2 66.5

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15. IMPACT OF TRANSITION TO IFRS (CONTINUED)Reconciliation of profit for the year ended 30 June 2015

UK GAAP£m

Impact oftransition

£mIFRS

£mContinuing operationsRevenue A 1,779.4 4.2 1,783.6

Cost of sales A (1,067.3) 7.2 (1,060.1)Gross profit 712.1 11.4 723.5Other operating income 0.8 – 0.8Distribution costs (219.0) – (219.0)Administrative expenses A,G (402.9) 50.9 (352.0)Exceptional items and amortisation C,G (32.2) 6.8 (25.4)

(653.3) 57.7 (595.6)

Operating profit 58.8 69.1 127.9

Investment income 0.1 - 0.1Interest payable A (5.6) (42.6) (48.2)Profit before tax and fair value adjustments to financial instruments 53.3 26.5 79.8

Fair value adjustments to financial instruments D – 8.4 8.4


Tax 37.6 – 37.6Profit for the year from continuing operations 90.9 34.9 125.8

Discontinued operationsProfit for the year from discontinued operations 18.7 – 18.7Profit for the year 109.6 34.9 144.5

Revaluation surplus 1.0 – 1.0Actuarial gain on pension scheme – 1.4 1.4Foreign exchange movement (1.7) 0.1 (1.6)Other comprehensive income (0.7) 1.5 0.8

Total comprehensive income 108.9 36.4 145.3



15. IMPACT OF TRANSITION TO IFRS (CONTINUED)Reconciliation of equity

31 December 2014 30 June 2015

UK GAAP£m

Impact oftransition

£mIFRS

£mUK GAAP

£m

Impact oftransition

£mIFRS

£m

Non-current assetsGoodwill C 288.4 (35.9) 252.5 276.7 (24.2) 252.5Other intangible assets G 5.4 93.8 99.2 5.3 94.6 99.9Property, plant and equipment 185.5 (99.3) 86.2 105.2 (98.7) 6.5Investment property 19.7 – 19.7 – – –Interests in joint ventures 11.1 – 11.1 – – –Deferred tax asset 25.2 – 25.2 43.0 – 43.0

535.3 (41.4) 493.9 430.2 (28.3) 401.9

Current assetsInventories 125.5 – 125.5 98.8 – 98.8Trade and other receivables 793.5 1,169.4 1,962.9 735.2 1,151.4 1,886.6Cash and bank balances 17.8 – 17.8 15.2 – 15.2Derivative financial instruments D – 5.6 5.6 – 1.9 1.9

936.8 1,175.0 2,111.8 849.2 1,153.3 2,002.5Total assets 1,472.1 1,133.6 2,605.7 1,279.4 1,125.0 2,404.4

Current liabilitiesTrade and other payables E (626.3) – (626.3) (484.5) 16.5 (468.0)Obligations under finance leases (0.5) – (0.5) (0.4) – (0.4)Borrowings (106.2) – (106.2) (90.4) – (90.4)Provisions (27.0) – (27.0) (7.6) (16.0) (23.6)Deferred revenue (124.3) – (124.3) (82.7) – (82.7)

(884.3) - (884.3) (665.6) 0.5 (665.1)

Non-current liabilitiesBorrowings (50.0) – (50.0) – – –Non-recourse borrowings B – (1,169.4) (1,169.4) – (1,151.4) (1,151.4)Retirement benefit obligations F (2.1) (74.8) (76.9) (1.8) (70.7) (72.5)Deferred revenue (43.0) – (43.0) (50.9) – (50.9)Obligations under finance leases (0.4) – (0.4) (0.2) – (0.2)

(95.5) (1,244.2) (1,339.7) (52.9) (1,222.1) (1,275.0)

Total liabilities (979.8) (1,244.2) (2,224.0) (718.5) (1,221.6) (1,940.1)

Net assets 492.3 (110.6) 381.7 560.9 (96.6) 464.3

Share capital 100.0 – 100.0 100.0 – 100.0Other reserves 517.0 – 517.0 500.0 – 500.0Retained earnings (124.7) (110.6) (235.3) (39.1) (96.6) (135.7)

Total equity 492.3 (110.6) 381.7 560.9 (96.6) 464.3

FINAN

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15. IMPACT OF TRANSITION TO IFRS (CONTINUED)Notes to the reconciliation of profit and reconciliation of equity

A RECLASSIFICATIONS IN THE INCOME STATEMENTAdjustments have been made to revenue, cost of sales and administrative expenses to reclassify costs in relation to discounts, vouchers and other customer incentives.

Charges for regulatory provisions have been reclassified from administrative expenses to exceptional items to reflect their nature, see note 5 for the charge in each period.

B NON-RECOURSE BORROWINGSUnder IFRS, linked presentation cannot be adopted, therefore the non-recourse borrowings have been shown separately from trade receivables and the interest on those borrowings of £22.3m for the 6 months to 31 December 2014 and £44.0m for the year to 30 June 2015 has been reclassified from revenue to finance costs.

C GOODWILLUnder IFRS, the accounting policy for goodwill is such that goodwill is not amortised but is tested annually for impairment. As such the carrying value of goodwill was restored to the value on transition at 30 June 2014, with the annual amortisation charge in each period reversed (6 months to 31 December 2014: £12.1m and the year to 30 June 2015: £23.8m), and an impairment charge of £48.0m was recognised on transition.

D OTHER FINANCIAL ASSETS AND LIABILITIESUnder IFRS, the fair value of the outstanding forward exchange contracts that the Group is committed to has been included as an asset on the balance sheet with the movement being charged or credited to income in the period.

E FOREIGN CURRENCY TRANSLATIONForeign trade creditors have been revalued at the spot rate at the end of the period, resulting in adjustments of £2.2m for the 6 months to 31 December 2014 and £1.8m for the year to 30 June 2015.

F RETIREMENT BENEFIT OBLIGATIONSThe retirement benefit obligations have been restated in accordance with IAS 19R: Employee Benefits and IFRIC 14. This has resulted in a reduction in costs of £4.0m for the 6 months to 31 December 2014 and £1.8m for the year to 30 June 2015 in order to apply IAS 19R.

IFRIC 14 requires a liability to be recognised for funding commitments; this has been recognised at each period end.

G INTANGIBLE ASSETSUnder IFRS, computer software costs are recognised as intangible assets, rather than property, plant & equipment, and amortised over their useful economic life. As such, these assets have been reclassified from property, plant & equipment to intangibles. In addition, an impairment charge of £6.8m was recognised on transition, and the depreciation charge in each subsequent period has been reversed (6 months to 31 December 2015: £1.3m and year to 30 June 2015: £2.7m).

Explanation of material adjustments to the cash flow statement

There are no material differences between the cash flow statement presented under IFRS and that which would have been presented under UK GAAP.

16. EVENTS AFTER THE BALANCE SHEET DATEA three year senior debt facility of £375m was established on 15 April 2016.

RESPONSIBILITY STATEMENTWe confirm to the best of our knowledge:

• The condensed set of consolidated financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

• The condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole; and

• The interim business review includes a fair view of the information.

A BALDOCK G PATERASDIRECTOR DIRECTOR

10 JUNE 2016


INDEPENDENT REVIEW REPORT TO SHOP DIRECT LIMITED

OUR RESPONSIBILITYOur responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

SCOPE OF REVIEW We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

CONCLUSIONBased on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 6 months ended 31 December 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union.

DELOITTE LLPCHARTERED ACCOUNTANTS AND STATUTORY AUDITOR MANCHESTER

10 JUNE 2016

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 6 months ended 31 December 2015 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement, the reconciliation of operating profit to net cash from operating activities and related notes 1 to 16. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review 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, for our review work, for this report, or for the conclusions we have formed.

DIRECTORS’ RESPONSIBILITIESThe half-yearly financial report is the responsibility of, and has been approved by, the directors.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting,” as adopted by the European Union.

FINAN

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