Financial Statements

1. Principal accounting policies

a) Basis of preparation

The financial statements of SuperGroup Plc (the 'Company') and SuperGroup Plc and its subsidiary undertakings in the UK, Republic of Ireland, Belgium, France and Netherlands, as detailed in note 22 (the 'Group') have been prepared under the historical cost convention as modified by fair values, in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union, and IFRICs, and in accordance with the Companies Act 2006 applicable to companies reporting under IFRS.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and requires management to exercise its judgement in the process of applying the Group's accounting policies (note 2). This note includes details of adoption of a new accounting policy in the year.

Net debt analysis (as set out in note 32), which is a non-GAAP measure, has been provided as it is considered to be useful to the reader.

The Group financial statements are presented in sterling and all values are rounded to the nearest hundred thousand except where indicated.

b) Restructuring

In the period up to 7 March 2010, the Group comprised SuperGroup Holdings LLP and its subsidiary undertakings: Cult Retail LLP and Laundry Athletics LLP. On 30 November 2009, SuperGroup Holdings LLP retired as a member in its subsidiaries with the replacement members of those subsidiaries being the existing members in SuperGroup Holdings LLP. SuperGroup Plc was never a member of SuperGroup Holdings LLP.

On 7 March 2010, in advance of the Initial Public Offering, the Group underwent a restructuring as follows:

  • the members' capital accounts in Laundry Athletics LLP were converted into loan notes to be settled in cash with the relevant members. On the same date, the LLP sold its trade and assets and assumed liabilities to DKH Retail Limited at fair value of £187,120,720 in consideration of which the members of the LLP received 117,741,124 shares of £1 each, and loan notes of £69,379,596 in DKH Retail Limited. These loan notes had an option to allow the Group to settle in a fixed number of shares and hence were classified as equity in accordance with IAS 32 – Financial Instruments – Presentation;
  • the members' capital accounts in Cult Retail LLP were converted into loans to be settled in cash with the relevant members. On the same date, the LLP sold its trade and assets and assumed liabilities to SuperGroup Limited at a fair value of £152,258,876, in consideration of which the members of the LLP received 152,258,876 shares of £1 each in the Company. The entire trade and assets were then transferred into four newly created subsidiaries of SuperGroup Limited, being C-Retail Limited, SuperGroup Concessions Limited, SuperGroup Internet Limited and SuperGroup Retail Ireland Limited; and
  • SuperGroup Limited undertook a capital reduction of its 270,000,100 shares from £1 per share to one pence per share and, as a result, £267,300,099 was transferred from share capital to retained earnings. A share consolidation then took place to convert the 270,000,100 ordinary one pence shares into 54,000,020 ordinary five pence shares.

Before and after the restructuring detailed above, the entities were all under common control and therefore the business combinations were outside the scope of IFRS 3 (revised).

c) Basis of consolidation

The consolidation of the subsidiaries acquired in advance of the Initial Public Offering (C-Retail Limited, Cult Retail LLP, DKH Retail Limited, Laundry Athletics LLP, SuperGroup Concessions Limited, SuperGroup International Limited, SuperGroup Internet Limited and SuperGroup Retail Ireland Limited) into the financial statements of SuperGroup Plc have been prepared under the principles of predecessor accounting, whereby an acquirer is not required to be identified, and all entities are included at their pre-combination carrying amounts. This accounting treatment leads to differences on consolidation between consideration and fair value of the underlying net assets and this difference is included within equity as a merger reserve (Statement of changes in equity). All subsequent business combinations are accounted for using the acquisition method of accounting (note 1d).

Subsidiaries are those entities in which the Group has power to govern the financial and operating policies so as to obtain economic benefits. The existence and effect of potential voting rights that are presently exercisable or convertible are considered when assessing whether the Group controls another entity.

In preparing the financial information up to 7 March 2010, the financial statements of the individual entities were combined on a line-by-line basis by adding together like items of assets, liabilities, equity and income and expenses. Balances, transactions and unrealised gains or losses on transactions between the combined and consolidated entities, including their subsidiaries, were eliminated in full. From 7 March 2010, the Group has consolidated the individual entities.

The results of subsidiaries acquired during the year are included in the Group statement of comprehensive income. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the accounting policies adopted by the Group.

Share capital

Under predecessor accounting, the Group has elected to include the whole prior period statement of comprehensive income rather than from the restructuring date. When this election is taken, the Group must include the acquired entity's results and capital structure, as if the Group had always existed in this form, even though the business combination did not occur until the 7 March 2010. This comprises only the issued and fully paid share capital of £2,700,000 (Statement of changes in equity).

Retained earnings

The Group has adopted IAS 32 (revised) and hence where the features and conditions of the financial liabilities in the LLP agreement meet the definition of puttable instrument as defined by IAS 32 (revised), these financial liabilities were presented as equity in other reserves.

A puttable instrument is a financial instrument that gives the holder the right to put the instrument back to the issuer for cash or another financial asset or is automatically put back to the issuer on the occurrence of an uncertain future event or the death or retirement of the instrument holder. This includes a contractual obligation for the issuer (in this case the LLPs) to repurchase or redeem that instrument for cash or another asset on exercise of the put option.

Retained earnings up to and including 7 March 2010 represents the members' capital accounts in Cult Retail LLP and Laundry Athletics LLP under IFRS. This represents the accumulation of profits in those LLPs plus capital introduced, less accumulated drawings.

From 8 March 2010 onwards, the retained earnings reflects the accumulated profits and losses of the Group.

Other reserves

The convertible loan notes issued by the Company are classified as equity as there is no contractual obligation for the Company to deliver cash or any other financial asset under the terms of the loan note. All loan notes were settled before 2 May 2010.

Merger reserve

The merger reserve represents the differences on consolidation arising on the adoption of predecessor accounting. This comprises the difference between consideration paid and the book value of net assets acquired in the transaction.

Initial Public Offering (IPO) of SuperGroup Plc

On 24 March 2010, SuperGroup Plc listed 25,000,000 ordinary shares of five pence each on the London Stock Exchange at a consideration of £5 per share. This raised £125,000,000 in proceeds, with £1,250,000 being recorded in share capital and £123,750,000 in share premium. Costs directly attributable to the listing of £3,612,000 were offset against the share premium account arising on this transaction.

£105,000,000 of the proceeds were used to repay the loan notes that were issued as part of the Group restructuring.

d) Business combinations

The Group uses the acquisition method of accounting to account for business combinations of entities not under common control. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income. Movements in the fair value of contingent consideration and fair value uplift to inventory are disclosed on the face of the statement of comprehensive income as the Directors believe it is helpful to understand the performance of the business excluding these items.

e) Foreign currencies

The consolidated financial information is presented in pounds sterling, which is the Company's functional and the Group's presentation currency.

Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currency are translated at the rates ruling at the balance sheet date. Resulting exchange gains and losses are recognised in the Group statement of comprehensive income.

Upon consolidation, the assets and liabilities of the Group's foreign operations are translated at the rate of exchange ruling at the balance sheet date. Income and expense items of foreign operations are translated at the actual rate or average rate if not materially different. Differences on translation are recognised as a separate equity reserve.

f) Revenue recognition

Revenue is measured at the fair value of the consideration received, or receivable, and represents amounts receivable for goods supplied, stated net of discounts, returns and value added taxes.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group's activities, as described below. The Group bases its estimate of return on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Standalone store revenue
Standalone store revenue from the provision of sale of goods is recognised at the point of sale of a product to the customer. Standalone store sales are settled in cash or by credit or payment card. It is the Group's policy to sell its products to the customer with a right to exchange within 28 days.

Concession revenue
Concession revenues from the provision of sale of goods are recognised gross at the point of sale of a product to the customer. Concession revenues are settled in cash, by the concession grantors net of commissions or other fees payable. It is the concessions' policy to sell its products with a right to exchange within 28 days and a cash refund within 14 days.

Internet revenue
Revenue from the provision of the sale of goods on the internet is recognised at the point that the risks and rewards of the inventory have passed to the customer, which is the point of despatch. Transactions are settled by credit or payment card. Provisions are made for internet credit notes based on the expected level of returns, which in turn is based upon the historical rate of returns.

Wholesale revenue
Wholesale revenues from the sale of goods and provision of services are recognised at the point that the risks and rewards of the inventory have passed to the customer, which depends on the specific terms and conditions of sales transactions and which are typically upon either dispatch or delivery. Revenues are settled in cash, net of discounts.

Provisions are made for Wholesale credit notes based on the expected level of returns, which in turn is based upon the historical rate of returns.

g) Other income

Other income relates to proceeds from legal claims and royalty income.

Royalty income is recognised gross on an accruals basis in accordance with the substance of the Wholesale royalty agreements.

Royalty income earned by the Wholesale segment from the Retail segment is eliminated on consolidation being an intercompany transaction.

h) Finance income

Finance income comprises interest receivable on funds invested. Finance income is recognised in the Group statement of comprehensive income using the effective interest method.

i) Finance expenses

Finance expenses comprise interest payable on interest-bearing loans and borrowings. Finance expenses are recognised in the Group statement of comprehensive income using the effective interest method.

j) Leasing and similar commitments

Assets funded through finance leases and similar hire purchase contracts are capitalised as property, plant and equipment, where the Group assumes substantially all of the risks and rewards of ownership. Upon initial recognition, the leased asset is measured at the lower of its fair value and the present value of the minimum lease payments. Future instalments under such leases, net of financing costs, are included within interest-bearing loans and borrowings. Rental payments are apportioned between the finance element, which is included in finance costs, and the capital element which reduces the outstanding obligation for future instalments so as to give a constant charge on the outstanding obligation.

All other leases are accounted for as operating leases and the rental charges are charged to the Group statement of comprehensive income on a straight-line basis over the life of the lease.

Lease incentives are received in the form of cash contributions and rent-free periods and are considered financing activities for the purposes of the cash flow statement, as they are the same as financing from landlords to fund store fit-outs.

Cash contributions
Cash contributions from landlords for store fit-outs are initially recognised as a deferred income liability on the balance sheet at the point the recognition criteria in the lease is met, and credited to selling, general and administrative expenses in the Group statement of comprehensive income on a straight-line basis over the term of the lease commencing from opening date. Cash contributions are not discounted.

Rent free periods
A deferred income liability is built up on the balance sheet during the rent-free period, which is then credited to the Group statement of comprehensive income over the life of the lease. The effect is to recognise a reduction in selling, general and administrative expenses on a straight-line basis over the longer of the term of the lease, or from property access date to the end of the lease. Rent free periods are not discounted.

k) Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and reviewed annually for impairment. Cost includes the original purchase price and the costs attributable to bringing the asset into its working condition but excludes interest.

Depreciation is provided at rates calculated to write down the cost of the assets, less their estimated residual values, over their remaining useful economic lives as follows:

Freehold buildings –  50 years on a straight-line basis
Leasehold improvements –  5 – 7 years on a straight-line basis
Furniture, fixtures and fittings –  5 – 7 years on a straight-line basis
Computer equipment –  3 – 5 years on a straight-line basis
Motor vehicles –  25% on a reducing balance basis

Land is not depreciated. Residual values and useful economic lives are reviewed annually and adjusted if appropriate.

l) Impairment

The carrying values of non-financial assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated. Cash generating units are considered to be each store for standalone stores, and the concessions, internet and wholesale divisions. Where the asset does not generate cash flows which are independent from other assets, the recoverable amount of the cash-generating unit to which the asset belongs is estimated.

The recoverable amount of a non-financial asset is the higher of its fair value less costs to sell, and its value in use. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit.

An impairment loss is recognised in the Group statement of comprehensive income whenever the carrying amount of an asset or cash-generating unit exceeds its recoverable amount.

m) Intangible assets

Intangible assets acquired separately from a business are recognised initially at cost. An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and impairment losses. Intangible assets with a finite life have no residual value and are amortised on a straight line basis over their expected useful lives as follows:

Trademarks –  10 years
Website and software –  5 years
Distribution agreements –  6 year

Trademark costs comprise the external cost of registration and associated legal costs. Website and software costs consist primarily of externally incurred development costs. Distribution agreements comprise the fair value, at date of acquisition, of distribution agreements acquired as part of a business combination. Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in 'intangible assets'. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.

n) Derivative financial instruments and hedging activities

Derivative financial instruments are recognised initially at their fair value and remeasured at fair value at each period end. Derivative financial instruments are categorised as held for trading. The gain or loss on re-measurement to fair value is recognised immediately in the Group statement of comprehensive income. The Group has not applied hedge accounting.

Foreign forward exchange derivative gains and losses are recognised in selling, general and administrative expenses or other gains and losses. Supplier derivatives are recognised in cost of sales.

Movements on derivative financial instruments are disclosed separately on the face of the Group statement of comprehensive income as the Directors believe it is helpful to understand the performance of the business excluding movements on financial derivatives.

o) Inventories

Inventories are valued at the lower of cost or net realisable value. Cost comprises costs associated with the purchase and bringing of inventories to their current location and condition and is based on the weighted average principle. Provisions are made for obsolescence, mark-downs and shrinkage.

p) Trade receivables

Trade receivables are recognised at original invoice amount less impairment losses. A provision for the impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due, according to the original terms. Significant financial difficulties of the customer, probability that the customer will enter bankruptcy or financial reorganisation and default or delinquency in payments are considered indicators that the trade receivable may be impaired. The movement in the provision is recognised in the Group statement of comprehensive income.

q) Cash and cash equivalents

Cash and short-term deposits comprise cash at bank and in hand and short-term deposits with an original maturity date of three months or less. For the purpose of the cash flow statement, cash and cash equivalents consist of cash and short-term deposits, less overdrafts, which are repayable on demand.

r) Borrowings

Borrowings are initially recorded at fair value net of transaction costs, including facility fees incurred, and subsequently measured at amortised cost using the effective interest method. Where a loan is obtained at interest rates different from market rates, the loan is remeasured at origination to its fair value, which is calculated as future interest payments and principal repayments discounted at market interest rates for similar loans. Subsequently, the carrying amount of the borrowings is adjusted for amortisation of the origination gain or loss, and the amortisation is recorded as finance income/cost using the effective interest yield method on the asset/liability.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Financial instruments issued by the Group comprise convertible loan notes that can either be repaid in cash, or be converted to share capital at the option of the Group. These financial instruments are recognised in equity in other reserves at fair value.

Loan notes with no option to be converted to share capital and that will be repaid in cash, are recognised in liabilities.

s) Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, it is more likely than not that an outflow of economic benefits will be required to settle the obligation and the obligation can be estimated reliably. Provisions are not discounted.

Provisions for dilapidations are provided when the Group becomes obligated and the liability can be reliably estimated.

t) Employee benefit obligations

The Group operates a stakeholder pension scheme for the benefit of its employees. The Group has not contributed into any pension scheme.

Payroll expense and related contributions
Wages, salaries, payroll tax, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group.

u) Share based payments

The Group operates an equity settled share based compensation plan. The fair value of the shares under such plans is recognised as an expense in the statement of comprehensive income. Fair value is determined using the Black–Scholes Option Pricing Model. The amount to be expensed over the vesting period is determined by reference to the fair value of share incentives excluding the impact of any non-market vesting conditions. Non-market vesting conditions are considered as part of the assumptions about the number of share incentives that are expected to vest. At each balance sheet date, the Group revises its estimates of the number of share incentives that are expected to vest. The impact of the revision on original estimates, if any, is recognised in the statement of comprehensive income, with a corresponding adjustment to equity over the remaining vesting period.

v) Trade and other payables

Trade and other payables, excluding lease incentives (see note 1j), are non-interest bearing and are initially recognised at their fair value which approximates book value. Trade and other payables are de-recognised when the contractual obligations to the cash flows from the liability expire or are transferred.

w) Taxation

The policy for current and deferred tax, when relevant, is as follows:

  • tax on the profit or loss for the period will comprise current and deferred tax;
  • current income tax expense is calculated using the tax rates which have been enacted or substantively enacted at the balance sheet date, adjusted for any tax paid in respect of prior years;
  • deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes;
  • the amount of deferred tax provided is based on the expected realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted by the balance sheet date; and
  • a deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Due to the prior period LLP structure of the Group, current and deferred tax had previously been nil. Income tax payable on the profits of the LLPs is solely the personal liability of the individual members of those LLPs and is not dealt with in these financial statements.

x) Dividends

In the future, dividends will be recognised as a liability and deducted from equity at the balance sheet date only if they have been approved before or on the balance sheet date. Dividends will be disclosed when they have been proposed before the balance sheet date or proposed or declared after the balance sheet date but before the financial statements are approved for issue by the Directors.

y) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity, as a deduction, net of tax, from the proceeds.

z) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision-Maker. The Chief Operating Decision-Maker, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board.

aa) Cost of sales

Cost of sales comprises movements between opening and closing inventories, purchases, distribution costs, commissions payable, and other related expenses.

ab) Exceptional Items

Items that are material in size, unusual or infrequent in nature, are disclosed separately as exceptional items in the Group statement of comprehensive income.

The separate reporting of exceptional items, which are presented as exceptional within the relevant category in the Group statement of comprehensive income, helps to provide an indication of the Group's underlying business performance. The principal items which may be included as exceptional items are:

  • significant profit/(loss) on the disposal of non-current assets;
  • impairment of property, plant and equipment;
  • impairment of non-current other receivables;
  • impairment of intangible assets;
  • impact on deferred tax for changes in tax rates;
  • the costs and benefits associated with significant corporate, financial or operational restructuring, including acquisitions and the IPO; and
  • charges for non-trading related bonuses and share-based payments.

ac) Events occurring after the balance sheet date

The values of assets and liabilities at the balance sheet date are adjusted if there is evidence that subsequent adjusting events warrant a modification of these values. These adjustments are made up to the date of approval of the financial statements by the Board. Other non-adjusting events are disclosed in the notes to the financial statements where they are material.