Presentation of consolidated results. For the quarter ended 29 June 2013

Transcription

1 Presentation of consolidated results For the quarter ended 29 June

2 Agenda Strategic and operational update Financial review Looking forward Jürgen Schreiber CEO Mark Bower Deputy CEO & CFO Jürgen Schreiber CEO 2

3 Strategic and operational update 3

4 Trading environment Macro backdrop Slowing GDP and unsecured lending CFT sales outperform total retail sales Current stability Repo rate at 5% Household debt to disposable income at 75.4% ZAR at around 10:1$ CPI at 6.3% (1) Expected to return to within 3-6% target range Total retail sales vs. CFT sales growth (y-o-y %) (1) 2.0% 6.0% 5.3% 12.8% 1.9% 4.0% Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Total retail sales CFT sales (1) StatsSA August

5 Key strategic levers Revamp stores and service Store optimisation Assortment: Brands and improved private label Leverage loyalty programme Comparable store growth Grow existing format footprint Rollout of tested new formats Expand into rest of Africa Credit New space growth Realise opportunities to improve offering Margin expansion Sourcing Pricing management Group efficiencies 5

6 Performance for the quarter against strategic levers Sales growth Total retail sales up 3.2%, comparable growth down 0.3% Edgars refurbishment in progress Further exclusive brands secured Cosmetics continues to perform well Discount stabilised and growing Engaged loyalty base (10 + m) cards, helping cash sales Credit & cash Credit sales down 4.9%, cash sales up 12.1% Cautious approach to credit Credit customers down 89k from Q1:FY13 to 3,765k Quicker screening process and new products being considered New space growth New space up 4.2%, 38 new stores (10 closures) 13 new Edgars, Jet and Jetmart stores as formats remain compelling 24 new speciality stores (Edgars Active, Legit, Edgars Shoe Gallery, CNA) 1 new mono branded store, rollout more strategic Space secured in Ghana Inglot, La Senza, Accessorize deal concluded Margin expansion Gross profit margin increased 100bps Pricing architecture showing benefits Improved sourcing Sound cost management Store optimisation in Discount Overhead efficiencies Pro forma adjusted EBITDA up 6% 6

7 Edgars division Sales growth New space growth Margin expansion Retail sales growth driven by cash sales growth of 13.6% Six-month comp sales down 1.5% Stores trading up by (1) bps once refurbished Refurbishment phase disruptive Strong cosmetics, brand performance Retail Sales 1.2% LFL 3.0% 19 new stores (3 closures): 13 Edgars Active 3 Edgars 2 Shoe Gallery 1 Topshop Currently 3 monobranded stores, more to open from Q2:FY14 Average m stores GP margin volatility still anticipated, increase a result of Sourcing changes Mix changes were negative to margin Operating profit by 18.8% due to costs associated with investments GP margin 42.0% 5.9% 0.9pts (1) Based on LFL trading of the first 16 stores comparing 19 weeks prior to refurbishment to period since refurbishment fully completed 7

8 Capital investment key to transformation Total of R172m spent to date R810m budgeted for FY14 Red Square online launched Rights to new brands secured include Tom Tailor, T.M.Lewin, Dune, Lucky & Lipsy Jo Malone, Mac and Bobby Brown Inglot, La Senza and Accessorize Refurbishment of 72 stores on track to be substantially completed before Christmas trading Q1:FY14: 18 stores completed at a cost of R115m 10 August: 30 stores completed at a cumulative cost of R177m All 63 refurbishment stores on track for completion by end of Q2:FY14 All but one remaining expansion store completed before Christmas Capex Q1:FY14 (R millions) Expansion Refurbishment 8

9 Transformation programme elements 1 Refurbishment 2 Store optimisation 3 People support Description and key objectives Standardise store layouts Optimise space allocation Implement new fixture set and visual merchandising New product content (brands) Staged implementation Phase 1 complete, Phase 2 underway (1) Optimise all processes from receiving to replenishment Enhance daily store functionality Improve transaction speed and customer service Proven success in Discount Stores appropriately staffed Improved training programmes Construct store talent pipeline Deliver a refreshed, consistent and compelling theatre of shopping Drive standardisation and efficiency improvements in enabling store processes Ensure the right people with right skills are serving our customers Store (number) 185 Space 626k sqm Sales (3) R m Capex (5) R527 m Other Edgars stores Expansion stores Ongoing refurbishment Complete by 10 August (2) Complete by 29 June (2,4) 61% 4% 18% 6% 10% 40% 28% 35% 10% 7% 28% 31% 27% 13% 12% 11% 16% 20% 22% (1) Phase 1: Installation of new fixtures for power categories and standardise flow and adjacencies; Phase 2: Installation of new fixtures for remaining categories, standardise store sales brief and blueprint process and optimise layouts with brands included (2) (4) Date that group of stores was completed by Includes 1 Expansion store (3) (5) June sales annualised, exclude Temptations and Clearance stores Includes R317m for refurbishment stores and R210m for expansion and refurbishment 9

10 Edgars store impact showcase Before Shoes After After Standardised checkout Denim destination

11 Edgars store impact showcase Cosmetics Rollout of brands Apparel

12 Discount division Sales growth New space growth Margin expansion Retail sales growth driven by cash sales of 13.0% Six-month comp sales up 5.5% Strong growth in Legit, Jet ladies and Jet menswear Childrenswear still an opportunity Sales 4.7% Space growth through 16 new stores (4 closures): 8 Jet 2 Jetmart 6 Legit Conversions Average 595.5m stores Improved GP margin from sourcing initiatives and mix changes sustainable Operating profit GP margin 35.7% LFL growth of 10.9% as 1.7% important to stay 2.7% store optimisation 1.7 pts relevant (ie Jet continues to deliver to Jet Mart) results 12

13 Expansion rate to increase Total of R77m spent to date R233m total budgeted for FY14 Increased rollout of new stores anticipated in the second half of the year Large refurbishment due mainly to fixture improvements Expansion rate to increase in year ahead Opportunity for the formats in rest of Africa Strong performance in Mozambique and Zambia Sites in Ghana secured 41 Capex Q1:FY14 (R millions) 36 Expansion Refurbishment 13

14 CNA division Sales growth New space growth Margin Retail sales up 4.5% Positively impacted by merchandise mix Digital now 11.2% of CNA (6.4% 1:FY13) Ongoing refinement of products Sales 4.5% LFL Capex spend limited to R6m on store upgrades Rightsizing to continue Average 89.6 m stores Lower margin digital sales will continue to impact margin GP margin 32.1% 3.6% 0.1% 1.8 pts 14

15 Financial review 15

16 Key financial considerations Comparability Results of trade receivables book included in discontinued operations until sold Income and costs associated with the book Administration income and costs in continuing operations once sold No prior year comparative for these amounts Small portion of the trade receivables book remains in continuing operations Not expected to be sold Restatement for inclusion of Edgars Zimbabwe due to IFRS 10 Non-recurring costs almost complete Focussed cost reduction programme yielding results Foreign exchange management No impact on operating margins as yet Orders had been hedged Pressure on future operating margins Managed through mix revisions and pricing adjustments Exposure on foreign liabilities substantially limited to 80% of 2015 notes Foreign denominated interest fully hedged 16

17 Retail trading profit shows improvement (R millions) Q1:FY13 Q1:FY14 % change Total revenues Retail sales Gross profit Gross profit margin 37.9% 38.9% 1.0pts Store costs (1 207) (1 295) 7.3 Other operating costs (1) (908) (934) 2.9 Other income (2) Retail trading profit (3) Trading profit margin 5.1% 5.5% 0.4pts 1) Other operating costs excludes costs relating to administrating the book (including R1m for Edgars Zimbabwe) and non-recurring items 2) Other income excludes income from administrating the book and income from finance charges from trade receivables 3) Excludes any income and expenses related to credit and financial services and non-recurring items as per the reconciliation on slide 18 17

18 Profitability impacted by credit, FX and discontinued ops (R millions) Q1:FY13 Q1:FY14 % change Retail trading profit Impact of credit and financial services Store card administration costs (138) Store card administration income 67 Finance charges on trade receivables Income from joint operation Trading profit before non-recurring income/(costs) Non-recurring income/(costs) 87 (66) Trading profit Impact of interest, tax and FX movements Derivative and foreign exchange (loss) (188) (676) Net financing costs (772) (613) Taxation Impact of discontinued operations Profit after tax from discontinued operations 68 (11) Net Loss (213) (712) 18

19 Growth in pro forma adjusted EBITDA (R millions) Q1:FY13 Q1:FY14 % change Trading profit Depreciation & amortisation Net asset write off 14 Profit/(loss) before tax from discontinued operations 95 (15) Non-recurring (income)/costs (1) (87) 66 Adjusted EBITDA Net income from previous card programme (2) (229) 4 Net income from new card programme (3) 57 2 Pro forma adjusted EBITDA Pro forma adjusted EBITDA margin 11.3% 11.6% 0.3% 1) Relates to one off strategic initiatives in Q1:FY13 of R56m, income on termination of the Mastercard agreement in Q1:FY13 of R143m, costs associated with the sale of the trade receivables book in Q1:FY14 of R41m and costs associated with corporate and operational overhead reductions in Q1:FY14 of R25m 2) Pro forma income lost to Absa for the portion of the book sold including finance charges revenue, bad debts and provisions 3) Pro forma fees earned by Edcon under the new arrangement with Absa 19

20 Cost program starting to yield benefits (R millions) Q1:FY14 LTM pro forma adjusted EBITDA (reported) Permanent adjustments: Corporate and operational overhead reductions 85 Renegotiation of contracts 141 LTM pro forma adjusted EBITDA (incl. adjustments) Normalised pro forma net debt/ltm pro forma adjusted EBITDA (times) 6.2 Corporate and operational overhead reductions Restructuring for improved efficiencies Right sizing business to remain competitive and relevant Renegotiation of contracts Joint operation profit share changes Marketing, IT and telecoms rate improvements 20

21 Cost analysis for Q1:2014 Other operating costs Good cost containment with other operating costs increasing only 3.0% Store card administration costs included in discontinued operations in prior year Non-recurring costs include One off strategic initiatives in Q1:FY13 of R56m Income on the termination of the Mastercard agreement in FY13 of R143m Costs associated with the sale of the trade receivables book in Q1:FY14 of R41m Costs associated with corporate and operational overhead reductions in Q1:FY14 of R25m (R millions) Q1:FY13 Q1:FY14 % change Store costs Store costs well managed increasing 7.3% Discount division store costs increased 3.3% due to ongoing benefits from optimisation project Edgars division store costs increased 9.6% due to refurbishment project, optimisation project being implemented Labour and rent costs (which constitute 62% of store costs) increased by only 7.6% and 7.2% respectively, notwithstanding space growth Other operating costs Store card administration 137 Non-recurring (income)/costs (87) 66 Total other operating costs

22 Cashflow for Q1:FY Working capital Inventories Trade and other receivables Trade and other payables 480 Opening cash balance Operating activities Non recurring costs Working capital Proceeds from sale of the book Capex Net financing costs Tax Derivative settlement Financing activities (1) Closing cash balance (1) Includes R5 million of currency adjustments 22

23 Capex investment for Q1:2014 Total capex breakdown (R millions) Refurbishment is key Total capex, excluding leases, of R315m for Q1:FY14 versus R198m in Q1:FY13 38 stores opened (excl. 1 conversions) and 10 stores closed R159m spent on refurbishments (R81m Q1:FY13) Expecting to spend R1 175m of capex for FY14 Edgars Discount CNA IT Other Store capex mix (R millions) Refurbishment element of transformation project R527m Refurbishment only R317m, 63 stores Expansion and refurbishment R210m, 9 stores Expansion Refurbishment 23

24 Liquidity and capital resources Key considerations Undrawn RCF of R3 457m plus cash of R480m = available liquidity of R3 937m RCF matures on the 31 December 2016 Maximum utilisation of RCF in Q1:FY14 of R2 140m Proceeds still to come of R803m Hedging of gross debt (R millions) Q1:2014 Drawn (1) Super senior secured Revolving credit facility in ZAR s ZAR Floating notes J+625bps Senior secured Senior ZAR Term loan J+700bps s Fixed rate 9.5% s $ Fixed rate 9.5% s FRN s E+550bps % 1% 30% Zimbabwe loans 176 Deferred option premium 583 Lease liabilities % 17% Gross debt Derivatives (1 394) ZAR EURO (hedged) USD (hedged) EURO (unhedged) Cash on hand (480) Net debt Zimbabwe (1) June 29, 2013 FX Rates used for translation ZAR/USD R 9.87 ZAR/EURO R

25 Looking forward 25

26 Outlook Continued implementation of changes in top 72 Edgars stores Continued assortment improvements in Edgars Inflow of new brands to accelerate New private label ranges to be implemented Leverage specialty store opportunities Continued execution of the Discount division strategy Capitalise on successful Thank U loyalty card programme Explore options for maximising credit sales potential Execute on space growth pipeline and vision for rest of Africa 26

27 Thank you For more information Our website: Edcon contacts for more information: Executive Investor Relations and Media: Debbie Millar / dmillar@edcon.co.za 27