Inside a real business: SuperGroup's balance sheet

The Gateway takes a close look at a big company's key documents

SuperGroup is the company that owns the Superdry business - a UK manufacturer of American and Japanese-inspired clothing catering primarily to the 15 to 25 age group. After beginning life on a market stall in 1985, the Superdry label has expanded rapidly. The group now has more than 200 stores in 40 countries worldwide as well as a thriving online business, with revenues totalling £313 million in the most recent financial year. The group went public with a share issue in 2010 and in February 2011 saw further expansion with the acquisition of its distribution partner CNC Collections BVBA.

However, 2012 was a tumultuous year for the group. A management dispute led to the resignation of one of its original co-founders which was followed by a reported "shareholders rebellion" against the board of directors. To top it off, the group made less money than expected, with the group's profits falling by 9 per cent from 2011.

What do its corporate documents reveal about the company? In this issue, we look at its balance sheet.

ASSETS

These are a company's goods, and include anything owned by or owed to the company that's deemed to have a value. Assets are divided into two categories: non-current assets and current assets, which together make up a business's total assets.

Non-current assets

Non-current assets are illiquid assets - that is, ones that cannot readily be turned into cash. These include:

  • Property, plant, and equipment

Property and equipment owned will be reported on a business's balance sheet as assets.

A major store expansion drive saw SuperGroup add 26 new stores to its property portfolio during the 2012 financial year, including six overseas stores and its new flagship store on London's Regent Street. This development accounts for a large jump in the group's property assets from £38.6 million in 2011 to £63.8 million in 2012.

  • Intangible assets

Intangible assets are essentially assets that cannot be measured in physical terms - for example, trademarks, patents, copyrights and brand names.

SuperGroup's intangible assets may include the "Superdry" trademark and rights owned by the group in relation to the style of its clothing.

Current assets

These include all assets that are cash or can be converted into cash in a short period of time (typically within 12 months). Measuring the extent of a firm's current assets, also known as its liquidity, is important in evaluating how adept a company will be at managing a downturn or a period when its day-to-day income declines for whatever reason. Current assets can be subdivided into categories and include the following:

  • Cash and cash equivalents

These include cash and other types of highly liquid assets, such as credit agreements with a bank. A business which has a ready supply of cash is referred to as "cash-rich" and is generally well regarded by investors.

SuperGroup's net cash holdings depreciated by 4 per cent in the 2012 financial year to £30.9 million, despite the company's cash inflow more than doubling during this period. This can be attributed to an increase in investments, many of which are likely to have been in property.

  • Inventory

    Inventory refers to goods or products owned by the company. A high-street retailer like SuperGroup will hold varying levels of stock throughout the year that will fluctuate according to seasonal demand for its products.

Efficient inventory management is a key part in ensuring that a company's supply of stock is in balance with demand from its customers. However, SuperGroup has not always managed to do so - a warehouse computer glitch suffered during 2011 reportedly wiped £9 million off the group's end-of-year profits.

  • Trade and other receivables

Receivables are essentially the cash sums owed to the company that have yet to be paid to it. When a company sells its product to a supplier, payment isn't received straight away but rather after an invoicing period generally lasting 30 days (though in some cases it may be longer or shorter).

SuperGroup's receivables may include cash owed to it by franchisers and third-party vendors in the UK or overseas. The 19.3 per cent growth in trade and receivables on the company's balance sheet from 2011 contributed to SuperGroup's 31.9 per cent overall revenue growth during the year.

LIABILITIES

A company's liabilities are essentially its debts. On the balance sheet, these are divided into current and long-term liabilities.

Non-current liabilities

These are liabilities which don't have to be paid in the coming 12 months.

  • Deferred income tax liabilities

As the name suggests, this is tax which is owed but does not need to be paid within the next 12 months.

The decrease in the company's deferred tax for 2012 from 2011 is due to the coalition government's decision to reduce the level of corporation tax in the UK from 26 per cent to 24 per cent, which came into effect in April 2012.

Current liabilities

These include the debts and other financial obligations owed by a business and due for payment within the coming 12 months. These can be separated into the following sub-categories:

  • Trade and other payables (also known as accounts payable)

This is cash owed to suppliers for goods they have provided upfront in return for later payment within 12 months.

SuperGroup's payables are likely to be composed primarily of payment owed for the materials used by the company in manufacturing Superdry clothing products. They may also include costs owed to third-party distributors and logistics providers.

  • Borrowings (also known as short-term debt)

This is money owed by the company to a bank or another financial organisation that it is under obligation to repay within 12 months. Generally speaking, short-term debt is cheaper for a company than long-term debt as it tends to be regarded as less risky then long-term debt and therefore carries a lower interest rate.

SuperGroup has £200,000 of short-term borrowings listed on its balance sheet.

  • Current income tax liabilities

This is the corporation tax owed by a company to HMRC (Her Majesty's Revenue and Customs), the government's tax collection department.

Tax is normally paid at the end of the financial year (31 March in the UK), which explains why SuperGroup's tax liabilities are relatively low as of 29 April 2012, the date this balance sheet refers to.

EQUITY

Equity is the money put into the company by investors in return for a slice of its worth - that is, a number of shares in the company. Unlike with debt, there is no obligation for the company to pay this money back, so it's not listed under liabilities. The company is able to use this cash for whatever it pleases, though shareholders have a say in how the company is run.

  • Share capital

This relates to funds raised by issuing shares in return for cash. The amount of share capital a company has can change over time because each time a company sells new shares, the amount of share capital will increase.

While the share offerings of popular "youth" brands can often prove to be damp squibs (see the recent flotation of social media goliath Facebook), SuperGroup's listing of its shares on the London Stock Exchange (LSE) in 2010 proved to be one of the most successful of the year with an initial offering earning the company an extra £80 million, and subsequent public issues have added more to the pot.

  • Merger reserve

Merger reserve is a key accounting figure in a form of accounting called "merger accounting", typically used following a company restructuring or merger with another firm. It allows for a staggered transfer of assets from one area of the group to another over a series of years.

SuperGroup's merger reserve relates to the restructuring of the group in 2010 prior to its flotation on the LSE.

  • Retained earnings

Retained earnings refers to the company's net earnings which are invested back into the business rather than paid out as dividends (payments to shareholders).

SuperGroup's relatively high level of retained earnings reflects the fact that the group has not paid dividends to its investors in the past few years and has instead been investing heavily back into the business in order to grow its brand. Since the group's stock market flotation in 2010, SuperGroup has doubled the number of its stores in the UK and Ireland, while also developing its presence overseas significantly.

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