Inside a real business: SuperGroup's P&L statement

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 over £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.

What do its corporate documents reveal about the company? In this issue, we look at its P&L statement.

What does SuperGroup's P&L statement say?

Revenue

Revenue is the income accumulated by a company in cash or in other forms of payment in return for its products or services. A company's revenues are stated at the top of its P&L statement, and in terms of importance this figure will rank second only to net profit in the eyes of most people reading the P&L account.

SuperGroup's revenues include income from the three core areas of its business: retail sales (revenues from shops in UK and Ireland), wholesale (sales to distributors and franchisees overseas), and online sales. Its revenues grew by 31.9 per cent during the 2011/2012 financial year. However, the group's revenues only tell part of the story and must be measured against the cost of its sales and its operating costs.

Cost of sales

This figure refers to the costs incurred by the company directly related to the making and selling of its products - for example, the cost of distributing goods to stores, together with the costs of running these stores. Note that it does not include general operating costs.

SuperGroup's sales costs rose by 28.4 per cent in 2012, a considerable amount. According to the group's annual report, this is due to a number of factors, including higher cotton prices.

GROSS PROFIT

(revenue - cost of sales)

Gross profit represents the amount of a company's revenues remaining once the cost of sales has been deducted, but before operating costs have been taken into account.

SuperGroup's gross profit was £178.8 million in 2012.

Selling, general and administrative expenses

These are general operating costs, such as costs relating to administration, advertising, market research and the development of new products.

SuperGroup's operating costs also rose significantly during the 2011/2012 financial year. This rapid jump in the group's overheads is likely to have been one of the principal reasons for SuperGroup's disappointing profit margin in 2012. In his 2012 statement, chair Peter Bamford admitted that the group's operational capacity had been unable to efficiently meet the needs of SuperGroup's rapidly growing business, meaning that significant additional operational expenses have been incurred - for example, £3 million was spent in autumn 2011 on temporary warehousing needed because of a software error.

OPERATING PROFIT

(GROSS PROFIT - selling, general and administrative expenses)

Many people see a company's operating profit figure as the most reliable indicator of whether or not a company is financially healthy. This is because the operating profit figure is derived solely from revenues and expenditure relating to a firm's core business, ignoring financial investments and other subsidiary activities, and factors which are outside of the company's control, such as tax rates and currency fluctuations.

SuperGroup's operating profit increased from £47.2 million in 2010/2011 to £51.3 million in 2011/2012. Its underlying operating profit figure however, a figure calculated by a company according to its own criteria to give what it thinks is as accurate an estimation as possible, declined from £50.1 million in 2010/11 to £42.7 million in 2011/12.

Finance income

This figure indicates the amount of money a company has gained through financial investments - for example, any interest earned on money invested.

SuperGroup has earned a relatively small amount of money this way - £100,000.

PROFIT BEFORE TAX

(OPERATING PROFIT + finance income)

This figure represents a company's profits before corporation tax is taken into account.

SuperGroup recorded an 8.7 per cent rise in pre-tax profit to £51.3 million.

Income tax expense

This figure denotes the amount of corporation tax paid by a company during a given period. It may include tax levies for the current accounting period and deferred tax payments from previous accounting periods. It may include both domestic tax charges and those paid to overseas governments.

Note that the amount of income tax paid by SuperGroup during the 2011/2012 financial year fell from £17.2 million to £15.3 million, despite the group having recorded increased sales during the period. The company's annual report states that this reduction is attributable in part to a reduction in the level of corporation tax in the UK from 26 per cent to 24 per cent, and it may also be due to the deferral of some tax payments.

PROFIT FOR THE PERIOD

(PROFIT BEFORE TAX - income tax expense)

This figure represents the amount of profit a company has left after paying corporation tax.

SuperGroup's profit for the period is £36,100,000.

Currency translation differences

This refers to the impact on a company's sales revenue of fluctuations in the exchange rate between different currencies.

SuperGroup's exchange rate differences for the 2011/2012 financial year were negative, having been positive in 2011. This is likely to be due to the increase in value of the pound against the euro in the first half of 2012, which will have eroded some of the original value of the group's European sales revenues.

While currency exchange represents a relatively minor detail on the P&L statement, it's one that is having an increasingly significant impact on SuperGroup's overall profits as its expands its business internationally. The group now sells from stores in 54 countries, with a growing presence in Asia and is reported to be planning to enter the Indian market in 2013.

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

(PROFIT FOR THE PERIOD - currency translation differences)

Often known as net profit or the "bottom line", due to its position on the balance sheet, the total income is the overall profit recorded by a company during the period in question once all other deductions have been made.

The announcement of SuperGroup's net profit for the 2011/2012 financial year was met with some disappointment from shareholders and management alike. Supergroup reported a 16 per cent rise in total income, but a 29 per cent fall in underlying income, leading the group's chairman to admit that "profits have fallen considerably short of expectations", due in the main to the increases in its costs described above. Concerns about the company's bottom line were first revealed in a profit warning released by the group in the lead-up to the release of its end of year results.

EARNINGS PER SHARE

(PROFIT FOR THE PERIOD/average number of shares in circulation during the period)

The earnings per share (EPS) figure represents how much the company has earned per each of its shares in circulation, and is often the first indicator looked at by financial analysts when assessing a company's performance and value. Accounting regulations in most countries require companies to list their EPS figure (or figures, as there are a number of different types of EPS figure) on their P&L statement.

A significant fall in EPS may be a sign of financial problems such as a drop in profits, though note it may also be caused by an issue of new shares to raise funds for expansion, which is often a sign that a business is doing well.

SuperGroup's EPS increased from 37.9p in 2011 to 45p in 2012 - a growth of 18.7 per cent. The increase is made more impressive by the fact that the average number of its shares in circulation increased by over a million over the period, which was due to a large share issuance made to fund the group's purchase of distribution partner SuperGroup Europe BVBA.

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