HEMA Q3 FY15 results Unaudited

Transcription

1 HEMA Q3 FY15 results Unaudited December 9, 2015

2 Disclaimer By reading this presentation, you are deemed to have read and accepted the statement below. This presentation has been prepared by HEMA B.V. This presentation provides information about HEMA B.V. group and its subsidiaries. Any references to HEMA shall mean HEMA B.V. group and its subsidiaries. While HEMA takes reasonable care to ensure the accuracy of the information in this presentation, it makes no representation or warranty, express or implied, of its accuracy or completeness. This presentation has not been the subject of an audit or a similar investigation. HEMA shall not be held responsible for any direct or indirect losses, damages or liabilities of whatsoever kind arising from the access to, the use of or reliance on this presentation or any of the information it contains. HEMA does not undertake any duty to update or correct such information and reserves the right to change, delete or move any of the material in this presentation at any time without notice. In addition, the information contained in this presentation should not be deemed accurate or current except as of the date of issue. HEMA does not intend to, and does not undertake any duty to, update or correct such information. This presentation may include certain statements, estimates, targets and projections provided by HEMA with respect to the anticipated future performance of HEMA. Such statements, estimates, targets and projections reflect significant assumptions and subjective judgments by HEMA s management concerning anticipated results. These assumptions and judgments may or may not prove to be correct and there can be no assurance that any estimates, targets or projections are attainable or will be realised. Accordingly, HEMA nor any of their respective directors, partners, employees or advisers nor any other person, shall give any representation or warranty as to the achievements or reasonableness of future projections, estimates or targets nor will they be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in or omission from this presentation and any such liability is expressly disclaimed. No representation or warranty, express or implied is or will be given by HEMA or its respective affiliates, directors, partners, employees or advisers or any other person as to the accuracy, completeness or fairness of this presentation and, so far as permitted by law and except in the case of fraud by the party concerned, no responsibility or liability whatsoever is accepted for the accuracy or sufficiency thereof or for any errors, omissions or misstatements negligent or otherwise relating thereto. This presentation contains information from other sources (like the CBS, Central Bureau of Statistics) which are not controlled or maintained by HEMA. HEMA is not responsible for the accuracy of this information. The information contained in this presentation is not intended to be and shall not be deemed to be an offer, invitation or inducement to invest in or otherwise deal in any securities of HEMA or in any other investment, nor to provide or constitute any advice or recommendation in connection with any investment decision. The release, publication or distribution of any information or documents on the hemainvestorrelations.com in jurisdictions other than the Netherlands may be restricted by law and therefore persons in a jurisdiction other than the Netherlands into which such information or documents are released, published, distributed or otherwise accessible should inform themselves about and observe any such restrictions. If you require advice, please consult your independent professional financial adviser. The copyright in this presentation belongs to HEMA. All other intellectual property rights are reserved. 2

3 Introductory remarks FY15 relates to the 52 weeks starting February 2, 2015 and ending January 31, This presentation provides a management discussion and analysis of HEMA s operating results in Q3 FY15 (starting August 3, 2015 and ending November 1, 2015). The Q3 FY15 report has not been audited. We would like to inform investors that management will be answering questions at the end of this presentation. We have scheduled a HEMA Investor Day to discuss aspects of our future strategy and to give investors the opportunity to meet the new management team. This event has been confirmed for 21 April 2016 and will also include the presentation of our Q4 results. Further details will be provided in due course. 3

4 Key takeaways Strong top line performance, displaying a third consecutive quarter of LFL sales growth Q3 net sales were 292.8m, an increase of 8.0% on Q3 FY14 Netherlands directly owned stores reported Q3 LFL growth of +9.1%, driven by improving market conditions and increased visitor traffic YTD performance significantly ahead of FY14 (Q3 YTD Group LFL growth of +4.2% vs. -4.6% prior year) Outperformance vs. market observed in all key product categories (Apparel, Household Goods & Personal Care and Food) Outside of the Benelux core market, France enjoyed continued strong LFL sales growth (+12.0% Q3 FY15 vs. +6.1% Q3 FY14) Four new HINT store openings during the quarter (France: 2, Spain: 1 and UK: 1) Positive Y-o-Y Adjusted EBITDA growth for the first time since 2012 Reported Q3 FY15 Adjusted EBITDA of 23.5 million (vs. Q3 FY14 of 22.0 million) Similarly, Q3 FY15 Gross profit of million was 2.9 million higher than in Q3 FY14 Gross profit margin remains below the equivalent prior year period but is showing an improving trend year-onyear compared to Q2 (+2.1%) Reported LTM Adjusted EBITDA of 88.7 million is an increase of 1.5 million compared to H1 FY15 result 4

5 Key takeaways (continued) Settlement agreement achieved with VAB (association of franchisees) On November 25, 2015 HEMA reached an agreement with the association of franchisees (VAB) in which both parties jointly agreed to terminate the arbitration process The agreement addressed both the MSF contributions as well as a wide range of commercial matters of interest to both the VAB and HEMA dating back to 2009, leading to a total provision for HEMA of 18.5 million which will be booked as an adjusting post balance sheet item in the Q3 FY15 results Agreement marks a breakthrough step in cooperation between HEMA and its franchise partners and will facilitate a collaborative future approach to business for the benefit of both parties Continued strengthening of the management board Ivo Vliegen appointed as permanent CFO and will succeed Tim Isaacs. Tim to remain within HEMA to support the management board In his most recent position, Ivo was CFO and Group Senior Vice President at Fast Retailing in Europe, and prior to that held several financial roles in various countries, including MEXX Group (Netherlands), Levi Strauss & Co (Belgium), Whirlpool (Italy and Belgium) and Philips (Belgium) Mischa Simons appointed as Director of Buying & Merchandising, Food & Hard Goods. Mischa has been at HEMA since 2011 and was responsible for the successful launches of HEMA Beauty and the Favourites gifting range. She has 15+ years international experience in retail and FMCG having held prior roles at Tesco, DunnHumby, Albert Heijn and Etos Business priorities remain on track Retail value of inventory reduced 9% since April peak and Q3 FY15 inventory now lower than Q3 FY14 HEMA on track to achieve inventory reduction target for full year. Significant decrease in open to buy positions vs. prior year in Q4 expected to also aid inventory reduction in Christmas trading period Further productivity improvements achieved in Dutch stores; wage quote reductions to 15.7% (vs. 16.3% in Q2 FY15) 5

6 Contents 1. Macro economic indicators in the Netherlands 2. Market developments in the Netherlands 3. Q3 FY15 results 4. Business Priorities 5. Strategy Update 6

7 1. Macro economic indicators In the Netherlands 7

8 Macro-economic indicators continued their recovery into Q3 Consumer Confidence Netherlands (updated: Nov 2015) Unemployment - Netherlands (updated: Oct 2015) LTM Average # of existing houses sold x 1,000 (updated: Oct 2015) % 8% 7% 6% 5% 4% 3% CLA wage increases - Netherlands (updated: Oct 2015) Savings deposits x bln - Netherlands (updated: Sep 2015) Inflation - Netherlands (updated: Oct 2015) 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% % 3% 2% 1% 0% FX rate: EUR/USD (updated: Oct 2015) Cotton, USD cents per pound (updated: Oct 2015) Brent Crude oil, USD per barrel (updated: Oct 2015) Consumer confidence at its highest level since the recession and approaching 2007 peak, fuelled by growing optimism around the Dutch economy Recovering housing market buoyed by low interest rates, rising levels of employment and improving wage growth Source: CBS, Central Bureau of Statistics, and other third parties 8

9 2. Market Developments In the Netherlands 9

10 Dutch Retail: Sales momentum in non-food market continuing to build through Q3; fourth consecutive quarter of positive growth 8% 6% 4% Q (Jul-Sep) versus LY Sales + 2.2% Volume + 2.4% Price - 0.2% 2% 0% -2% Q Q Q Q Q3-4% -6% -8% Note the CBS figures shown above represent a make-up of the total retail market in the Netherlands and as such include a number of categories that are less relevant to HEMA, (e.g. consumer electronics, drugstores and DIY). Source: CBS, Central Bureau of Statistics, 10

11 Dutch Retail: Food retail spend remains strong 8% 6% Q (Jul-Sep) versus LY Sales + 1.8% Volume + 1.1% Price + 0.6% 4% 2% 0% Q Q Q Q Q3-2% Source: CBS, Central Bureau of Statistics, 11

12 HEMA continues to outperform the Dutch market across its core categories Apparel Household Goods & Personal Care 102 L12M L6M L3M 103 Food & Catering * L12M L6M L3M L12M L6M L3M Market HEMA Sales growth (y-o-y, indexed) HEMA outperformed the market in all segments during the quarter In the last 6 months the Dutch Apparel market returned to positive growth for the first time in over four years, partly driven by weak comps following unseasonably warm Autumn weather last year The Household Goods & Personal Care market remained stable with Food market sales continuing to grow Despite strong bricks and mortar performance, work remains for HEMA within online Source: third party information as of September 2015 (* Includes out of home. Services not included given lack of market information 12

13 3. Q3 FY15 Results 13

14 Headline financials Q3 FY15 x Million Q3 FY15 FY14 Change Net sales Gross profit Gross profit as % of sales 42.4% 44.7% (2.3%) Operating expenses* (107.2) (100.7) (6.5) EBITDA (pre VAB provision) (3.6) VAB Provision (18.5) - (18.5) EBITDA ** (1.5) 20.6 (22.1) Adjustments Adjusted EBITDA ** Net sales grew +8.0% vs prior year period aided by a combination of (i) LFL sales growth and (ii) the opening of net eleven additional stores relative to Q3 FY14 Gross profit margin under pressure on the back of higher markdowns to reduce excess and aged inventory, as well as from negative FX results (US$ versus ). Quarterly y-o-y GP % trend however improving EBITDA impacted by one-off 18.5 million exceptional provision relating to VAB settlement agreement which will be payable over three years Adjusted EBITDA y-o-y trend positive for the first time since 2012 *) Pre depreciation and amortisation, impairments, adjustments and VAB franchisee settlement provision **) EBITDA and Adjusted EBITDA are non-ifrs measures. Refer to the quarterly report of Q3 FY15 for the definitions. 14

15 Headline financials Q3 FY15 (cont d) Bridge to Adjusted EBITDA Bridge to Adjusted EBITDA x Million Q3 FY15 FY14 Change EBITDA (1.5) 20.6 (22.1) Management & oversight fees and other expenses Pre-opening costs Restructuring costs - (1.0) +1.0 Legal and consulting expenses Stock clearance expenses VAB provision As of Q3 FY15, HEMA reported LTM Adjusted EBITDA of 88.7 million, up from 87.2 million in Q2 FY15 In Q3 FY15, exceptional items of 25million adjusted for included 18.5 million for the VAB agreement, 2.1 million stock clearance expenses, 3.5 million legal and consulting expenses, 0.5 million in management, oversight fees and other expenses and 0.4 million in pre-opening costs Adjusted EBITDA

16 Significant uplift in LFL sales vs. prior year Like-for-like sales % growth Y-o-Y Q3 FY15 Q3 FY14 Q3 YTD FY15 Q3 YTD FY14 Own Stores Netherlands +9.1% (6.2%) +5.8% (5.0%) Belgium / Luxembourg +2.9% (3.5%) (0.4%) (1.8%) France +12.0% +6.1% +8.7% +8.0% Germany (1.0%) +1.7% (0.6%) (2.2%) Deliveries Franchisees +0.8% (9.7%) +2.5% (6.0%) Group +5.2% (6.8%) +4.2% (4.6%) Third consecutive quarter of positive Dutch LFL sales growth aided by improving market conditions, cycling a weak Q3 FY14 and continued clearance activities. Own stores Netherlands +5.8% YTD following strong trading in Q3 (+9.1%) and market outperformance Belgian/Luxembourg LFL sales showing an improving trend following completion of Belgian store makeover project in Q2 (+2.9% Q3 FY15 LFL sales vs. -0.7% in Q2) International markets continued to perform strongly outside the Benelux with France reporting LFL sales growth of +12.0% New HINT store recently opened in Birmingham New Street train station in the UK targeting high traffic retail space. A further store in Spain and two in France were also opened during the quarter 16

17 Improving y-o-y gross profit trajectory Net Sales x mln FY15 FY14 Change Index Q1 - Actual % Q2 - Actual % Q3 - Actual % Gross profit of million was 2.9 million higher than in Q3 FY14 Gross Profit x mln FY15 FY14 Change Index Q1 - Actual % Q2 - Actual % Q3 - Actual % Gross Profit % FY15 FY14 Change Q1 - Actual 43.7% 46.0% -2.3% Q2 - Actual 42.1% 46.5% -4.4% Q3 - Actual 42.4% 44.7% -2.3% The first quarter this year where gross profit has increased relative to the prior year Whilst gross profit margin remains below prior year, the y-o-y decline is showing a quarterly improvement trend 17

18 Operating expenses impacted by franchisee settlement and exceptional items x Million Q3 Q3 YTD FY15 FY14 Change FY15 FY14 Change Labour costs (52.9) (50.5) (2.4) (157.1) (148.5) (8.6) Housing and rents (32.9) (31.6) (1.3) (97.9) (93.3) (4.6) Other general expenses (21.6) (19.5) (2.1) (62.8) (54.3) (8.5) Other income and expenses 0.2 (0.1) (1.6) VAB Provision (18.5) - (18.5) (18.5) - (18.5) Restructuring costs (1.0) (1.7) (10.1) +8.4 Operating Expenses* (125.7) (100.7) (25.0) (337.1) (303.7) (33.4) Adjustments Adjusted operating costs (100.7) (99.3) (1.4) (321.3) (301.3) (20.0) HEMA reported 11 net new stores versus Q3 FY14 (13 directly operated stores less 2 closed franchised stores in the Netherlands) which contributed to an increase of approx 2.2 million in the cost base Other general expenses increased by 2.1 million primarily due to higher legal and consulting expenses, partly offset by lower sales promotion costs Adjusting for the VAB provision and exceptional cost items, the y-o-y increase in HEMA s operating expenses was 1.4 million. *) Pre depreciation and amortisation, impairments and adjustments 18

19 Positive cash generation reflecting improving operational performance and shape of the annual working capital cycle x Million Q3 FY15 FY14 vs LY Operating cash before changes in working capital (2.6) Changes in trade & other receivables (3.8) (7.1) +3.3 Changes in inventories 9.6 (17.6) Changes in trade & other payables (36.9) Changes in provisions and other (0.7) (3.9) +3.2 Income taxes (0.3) - (0.3) Net cash generated by operating activities (6.1) Net cash used in investing activities (5.6) (10.3) +4.7 Interest and financial leases (5.2) (4.5) (0.7) Revolving credit facility - (20.0) PMO facility Finance fees (1.4) (2.5) +1.1 Net cash used in financing activities (6.6) (27.0) Exchange results (0.7) - (0.7) Net cash flow 17.1 (1.2) Net cash generated from operating activities of 30.0 million during Q3 FY15 Decrease in inventories of 9.6 million due to stock clearance and lower stock intake No structural shift in supplier payment terms during the quarter. Change in payables primarily due to higher inventories in FY14 and phasing within the year (Q was relatively low, which was corrected in Q3 2014) Capex spend 4.7 million lower in Q3 FY15 (Q3 FY14 capex included expenditure for remodelling of Dutch stores) Total quarterly net cash flow to the business of 17.1 million (an 18.3 million increase vs. prior year)

20 Capital structure summary Q3 FY15 November 1 August 2 x Million Revolving credit facility PMO facility HYB - senior secured notes HYB - senior notes Financial leases Gross debt Cash in hand Bank Reduction in quarterly leverage ratio vs. Q2 FY15 from 8.4x to 8.1x LTM Adjusted EBITDA Improvement driven both by an increase in LTM Adjusted EBITDA as well as an improving cash position Historically HEMA has achieved positive cash generation in H2 due to the annual working capital cycle Cash collateralised bank facility Net debt Leverage ratio (Net Debt / Adjusted EBITDA)* 8.1x 8.4x *) Based on Adjusted LTM EBITDA of 88.7 million as at Q3 FY15 and 87.2 million as at Q2 FY15. HEMA reported million of cash on its balance sheet (including the cash collateralised facility), which was an increase of 17.1 million on Q2 FY15 20

21 4. Business Priorities 21

22 Alignment of key business priorities PEOPLE, PROCESS & CULTURE: BRAND: Re-invigorate A better place to work Update brand guidelines Improve brand communications Launch customer loyalty programme Implement brand-led operating model Manage change impacts & embed HEMA values FORMAT: Simplify & re-invent Improve health of franchise relationship Update and simplify Benelux stores Re-assess categories & services Expand internationally Grow e-commerce Launch employee engagement surveys Enhance leadership & training Improve talent management & reward CATEGORY: Customer & store driven Simplify pricing & range architecture Review apparel Focus on convenience food LOGISTICS: Less stock & better availability Reduce stock levels Improve merchandise planning & sourcing Launch customerled quality assurance Improve availability of products Improve strategic partnerships for buying OPERATIONS: Simpler & better HEMA VALUES Improve store standards Enhance store productivity Improve customercentric sales culture Review store portfolio Themes for priorities Fix execution & drive efficiency Focus on the customer Expand channels Q3 Update 22

23 VAB Settlement Agreement On November 25, 2015 HEMA reached an agreement with the association of franchisees (VAB) following which both parties jointly agreed to terminate the arbitration process The comprehensive settlement agreement addressed a wide range of disputes between the VAB and HEMA dating back to 2009 The settlement requires HEMA to book a total provision of 18.5 million which is shown as an adjusting post balance sheet item in the Q3 FY15 results Including interest and offsetting amounts due from the franchisees, HEMA will pay an amount of 19.0 million, over a period of three years, of which 4.7 million will be paid prior to the end of FY15. This agreement is a very positive development for the future trading relationship and success of both HEMA and the VAB The two parties can now focus on collaboration and growing sales for the benefit of both businesses 23

24 Key action items - progress update HEMA FY15 inventory retail value per period (Q3 YTD FY15 vs. LY)* Rebased to 100 Launch of stock reduction plan 110 LTM Dutch store wage quote (Q3 YTD FY15 vs. LY)** 16,8% Launch of store productivity program ,6% 16,4% 16,2% Further reduction beyond Q2 FY Stock level now below FY14 for the first time this year 16,0% 15,8% 80 6 Feb 9 Mar May Apr Jun Jul Aug Sep Oct FY15 FY14 *) Represents inventory in stores and distribution centres. Note inventory reported in Q3 FY15 Report is purchase value of inventory which also includes goods in transit 15,6% Feb Mar Apr May Jun Jul Aug Sep Oct FY15 FY14 **) Represents salary costs as a % of gross sales for Netherlands own stores. Please refer to Q3 FY15 Report for definition of gross sales HEMA remains on track to hit full year stock reduction target. Slower rate of inventory decrease in Q3 FY15 due to order build up ahead of Christmas trading period. Significant reduction in open orders vs. prior year however is expected to aid stock reduction in Q4 Store productivity improvements have further reduced the Dutch store wage quote. Focus on our customers also driving ongoing alignments in store standards across the portfolio 24

25 5. Strategy Update 25

26 First steps have been taken to strengthen the organisation and reshape future strategy Management board significantly strengthened with new leadership talent Full team now in place as of Q3 FY15: Tjeerd Jegen (Chief Executive Officer) Ivo Vliegen (Chief Financial Officer) Paul Havinga (Director of Operations, Franchise & International) Adriana Hoppenbrouwer (Director of Format & Marketing) Trevor Perren (Director of Buying & Merchandising, Apparel) Mischa Simons (Director of Buying & Merchandising, Food & Hard Goods) Balanced and diverse team with substantial international retail experience: 4 nationalities (Dutch, English, Brazilian and Belgian) and 2 female members Near term focus on program management and bolstering of divisional sub-teams Management board currently preparing budget for FY16 in conjunction with comprehensive strategic review to underpin future vision and roadmap All aspects of the business are being considered including category, format and channel strategy 26

27 HEMA Investor Day 2016 We have scheduled a HEMA Investor Day to discuss aspects of our future strategy and to give investors the opportunity to meet the new management team This event has been confirmed for 21 April 2016 and will also include the Q4 results Our plans will be presented to investors and will cover the following areas: Brand Format (including e-commerce and international expansion) Category management Logistics Operations Further details will be provided in due course 27

28 Q&A 28