Independent Auditors' Report to the Members of SuperGroup Plc

Report on the Financial Statements

Our opinion

In our opinion:

  • The financial statements, defined below, give a true and fair view of the state of the Group's and of the Company's affairs as at 26 April 2014 and of the Group's profit and of the Group's and Company's cash flows for the year then ended;
  • The Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union;
  • The Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
  • The financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

This opinion is to be read in the context of what we say in the remainder of this report.

What we have audited

The Group financial statements and Company financial statements (the "financial statements"), which are prepared by SuperGroup Plc, comprise:

  • the Group and Company balance sheets as at 26 April 2014;
  • the Group statement of comprehensive income for the year then ended;
  • the Group and Company statements of changes in equity and cash flow statements for the year then ended; and
  • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in their preparation comprises applicable law and IFRSs as adopted by the European Union and, as regards the Company, as applied in accordance with the provisions of the Companies Act 2006.

Certain disclosures required by the financial reporting framework have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.

What an audit of financial statements involves

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ("ISAs (UK & Ireland)"). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

  • whether the accounting policies are appropriate to the Group's and Company's circumstances and have been consistently applied and adequately disclosed;
  • the reasonableness of significant accounting estimates made by the directors; and
  • the overall presentation of the financial statements.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Overview of our audit approach

Materiality

We set certain thresholds for materiality. These helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the Group financial statements as a whole to be £3.0 million. In arriving at this judgement we have had regard to 5% of profit before income tax, exceptional items and non-underlying items, because in our view, this is the most relevant measure of recurring performance.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.1 million as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Overview of the scope of our audit

The Group is structured into Retail, Wholesale and Central Cost segments. The Group financial statements are a consolidation of 20 reporting units, comprising the group's operating businesses within these segments and centralised functions.

In establishing the overall approach to the group audit, we identified three reporting units: DKH Retail Limited, C-Retail Limited and the Company, which, in our view, required an audit of their complete financial information, either due to their size or their risk characteristics. These reporting units were audited by the group engagement team.

In addition, we also conducted the statutory audits of three non-significant reporting units located in the UK such that the audit work was complete prior to finalisation of the Group financial statements. An audit of the financial information of three further reporting units was conducted by the PwC network firm in Belgium at our request.

The audits of these nine reporting units, together with our involvement in the work of PwC Belgium and additional procedures performed on centralised functions and at the group level, including consolidation and impairment testing, gave us the evidence we needed for our opinion on the Group financial statements as a whole. This resulted in audit coverage of 98% of group pre-exceptional profit before tax.

Areas of particular audit focus

In preparing the financial statements, the directors made a number of subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We primarily focused our work in these areas by assessing the directors' judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we considered necessary to provide a reasonable basis for us to draw conclusions. We obtained audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

We considered the following areas to be those that required particular focus in the current year. This is not a complete list of all risks or areas of focus identified by our audit. We discussed these areas of focus with the Audit Committee. Their report on those matters that they considered to be significant issues in relation to the financial statements is set out on here.

Area of focus

How the scope of our audit addressed the area of focus

Contract terminations and business combinations

During the year, the group have continued with their strategy of reacquiring their brand rights to certain territories. For background of the transactions entered into during the year, refer to notes 13 and 33 to the financial statements.


We focussed on this area as management are required to exercise judgement in determining whether the criteria had been met for a business combination or whether the transactions were a contract termination and appropriately expensed and classified.


Where transactions were a business combination, we focussed on the judgements necessary in determining the valuation of assets and liabilities acquired and the resulting goodwill, and the presentation and disclosure of the transactions in the financial statements.

For each transaction, we obtained and read the legal contracts, and understood the business rationale for the transaction to evaluate management's assessment of whether it met the definition of a business combination or a contract termination.


For contract terminations we agreed the costs incurred to legal documentation and bank statements and considered if they met the definition of exceptional costs in accordance with the Group's accounting policy.


For the business combinations we:

  • understood each element of the transaction and whether it related to an identifiable asset or liability, or whether it was an item that should be expensed in the statement of comprehensive income, such as professional fees, deferred consideration linked to continued employment or losses on re-acquired rights;

  • considered the classification of costs as exceptional or underlying;

  • challenged assumptions formed around the fair value of consideration payable, including deferred cash payments and reassignment of debt;

  • obtained and evaluated the valuation of intangible assets, and performed procedures to obtain evidence of the value allocated to reacquired rights with reference to sales forecasts and amortisation periods;

  • evaluated the fair value ascribed to inventory with reference to current selling prices and challenged judgements formed around costs to sell with reference to actual costs; and

  • understood the taxation implications of the acquisition in Germany and challenged the recognition of deferred tax liabilities arising on the transaction.

Having obtained audit evidence over the valuation of assets and liabilities acquired, we re-performed management's calculation of the resulting goodwill.


We also performed procedures to determine that disclosure of each transaction in the financial statements is appropriate and complies with the relevant accounting standards.

Deferred tax assets

There are significant deferred tax assets in the Group balance sheet relating to goodwill in certain subsidiaries which arose on a Group reorganisation in 2010.


We focussed on the valuation and completeness of these deferred tax assets, due to uncertainty over their recoverability and ongoing HMRC enquiry.


Refer to note 2 to the financial statements.

We updated our understanding of the Group reorganisation which occurred in 2010.


We obtained and read correspondence with HMRC, including written notes of oral conversations, and the financial statements disclosures in order to update our assessment of the facts and circumstances that underpin the judgements made by management with respect to the valuation and completeness of deferred tax assets.


We also assessed Board approved forecasts with respect to considering the availability of future taxable profits against which deferred tax assets can be utilised.

Fraud in revenue recognition

ISAs (UK & Ireland) presume there is a risk of fraud in revenue recognition because of the pressure management may feel to achieve the planned results. We focused on whether transactions had occurred that entitled revenue to be recognised.

We assessed the design and operating effectiveness of controls over revenue systems and tested key revenue and cash reconciliations as at 26 April 2014 and tested material manual journals.


Data analysis techniques were used for internet and UK and Irish store revenue streams to reconcile to cash and identify non-standard revenue transactions.


We performed additional audit procedures over other revenue streams by verifying to cash receipts and goods despatch documentation.

Risk of management override of internal controls

ISAs (UK & Ireland) require that we consider this.

We assessed the overall control environment of the Group, including the arrangements for staff to "whistle-blow" inappropriate actions, and interviewed senior management and the Group's internal audit function.

We examined the significant accounting estimates and judgements relevant to the financial statements for evidence of bias by the directors that may represent a risk of material misstatement due to fraud. We also tested journal entries.

Going Concern

Under the Listing Rules we are required to review the directors' statement, in relation to going concern. We have nothing to report having performed our review.

As noted in the directors' statement, the directors have concluded that it is appropriate to prepare the Group's and Company's financial statements using the going concern basis of accounting. The going concern basis presumes that the Group and Company have adequate resources to remain in operation, and that the directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors' use of the going concern basis is appropriate.

However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group's and the Company's ability to continue as a going concern.

Opinions on matters prescribed by the Companies Act 2006

In our opinion:

  • the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements;
  • the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

Other matters on which we are required to report by exception

Adequacy of accounting records and information and explanations received

Under the Companies Act 2006 we are required to report to you if, in our opinion:

  • we have not received all the information and explanations we require for our audit; or
  • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or
  • the Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Directors' remuneration

Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors' remuneration specified by law have not been made. We have no exceptions to report arising from this responsibility.

Corporate Governance Statement

Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Company's compliance with nine provisions of the UK Corporate Governance Code ("the Code"). We have nothing to report having performed our review.

In the Statement of Directors' Responsibilities of the Annual Report, as required by the Code Provision C.1.1, the directors state that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group's performance, business model and strategy. In the Directors' Report, Corporate Governance Report and Audit Committee Report as required by C.3.8 of the Code, the Audit Committee has set out the significant issues that it considered in relation to the financial statements, and how they were addressed. Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:

  • the statement given by the directors is materially inconsistent with our knowledge of the Group acquired in the course of performing our audit; or
  • the section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.

We have no exceptions to report arising from this responsibility.

Other information in the Annual Report

Under ISAs (UK & Ireland), we are required to report to you if, in our opinion, information in the Annual Report is:

  • materially inconsistent with the information in the audited financial statements; or
  • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Company acquired in the course of performing our audit; or
  • is otherwise misleading.

We have no exceptions to report arising from this responsibility.

Responsibilities for the financial statements and the audit

Our responsibilities and those of the directors

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the Group and Company financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the Group and Company financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Andrew Lyon BSc FCA(Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors
Birmingham
9 July 2014

Notes:

(a)The maintenance and integrity of the SuperGroup Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
(b)Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.