Acquisition of Office by Truworths 09 December 2015

Transcription

1 Acquisition of Office by Truworths 09 December 2015

2 Truworths Announces the Acquisition of Office Transaction highlights Acquisition of 88.9% of Office for 256m Consideration of EV/EBITDA multiple of below 7 Turnover of 270m in FYE15 1 Office is the leading young fashion footwear retailer in the UK and Republic of Ireland, with a growing German footprint Offspring offering gives the opportunity to have a more sophisticated interaction with its cutting-edge customers and establish a footwear presence in the likes of Selfridges, Topshop/Topman and House of Fraser Acquisition marks Truworths 1 st entry into the UK and continental Europe The management team will remain fully committed to the success of the business, and retains an 11.1% interest Transaction completed 4 December 2015 Regulatory approval has been granted by the South African Reserve Bank 1 January FYE IFRS basis 1

3 Table of Contents 1. Truworths International Strategy 2. Overview of Office 3. Truworths Plans With Office 4. Key Terms of the Transaction 2

4 1. Truworths International Strategy

5 Truworths International Strategy The Expansion Started With Africa Group retail footprint of 747 stores Presence in 10 countries outside of South Africa Ghana Nigeria 44 corporate stores outside South Africa Kenya 3 franchise stores in Kenya Rest of Africa accounts for c4% of Group retail sales Namibia Botswana South Africa Zambia Mauritius Zimbabwe Swaziland Lesotho 4

6 Truworths International Strategy and Now Continues With Europe Easy entry into the attractive UK footwear retail market through one of the market leaders Ireland UK Springboard into continental Europe via German presence Germany Ease of doing business in same time zone Provides Truworths with new skills and expertise in footwear fashion as well as e-commerce Good management with a wealth of experience in Office Diversifying Truworths business mix, with earnings contribution from developed markets 5

7 Footwear Sales % Credit Sales % Retail Sales Store Locations SELECTOR2015\Presentations\ Investor Presentation on Transaction\PPT\ Truworths - Office Transaction Investor Presentation vfinal.pptx Truworths International Strategy Bringing Further Diversification to Our Business Pro Forma Rest of Africa 6% South Africa 94% + Germany 2% UK 98% Rest of Africa 5% UK 17% South Africa 77% Germany 0% Rest of Africa 4% 747 stores South Africa 96% R11.6bn + Ecommerce 18% Germany 2% 162 stores UK 80% R5.0bn Germany 1% UK 24% Rest of Africa 3% 909 stores Ecommerce 6% South Africa 68% R16.6bn Cash 30% Credit 70% + Cash 100% Cash 51% Credit 49% R11.6bn R5.0bn R16.6bn Clothing / Accessories / Other 91% Footwear 9% + Footwear 100% Clothing / Accessories / Other 64% Footwear 36% R11.6bn R5.0bn R16.6bn Note: ZAR / GBP: (Office calendarised to June year end, average FX for the period) 6

8 Office A Highly Attractive Business Key Attractions 1 Leading UK Shoe Retailer, with Strong In-House Brands and Excellent Relationships with Third-Party Brands 2 Attractive Customer Base Demographic Highly Efficient Multichannel Distribution Model Further Potential from a Substantive E-commerce Business Large Existing Presence in the UK with a Growing Presence in Germany Potential Expansion Opportunities elsewhere in Europe Outstanding Track Record of Top Line Growth 7 Healthy Cash-flow Generation 8 Experienced Local Management Team 7

9 With Great Potential Opportunities Drive growth through continued UK store roll-out Expand German business and into neighbouring countries Drive higher margins through increased in-house branded product sales, increasing % sales mix within Office from existing 25% in the medium term Further improve performance through Truworths retail systems and processes Truworths to benefit from Office best-in-class footwear fashion experience and leading e-commerce skillset Office SA and rest of Africa Opportunity to sell Truworths products through Office online platform (e.g. bags, accessories and ultimately apparel) 8

10 2. Overview of Office

11 Office At A Glance Key Aspects Financial Highlights 1 FY15 Revenue: 270.2m Geographic Presence Selling Channels 2 Office Offspring Ireland UK Germany 162 Stores 52 Concessions 20% Online Sales as % of Total Key Brands 1 As at January fiscal year end of office. Revenue disclosed on an IFRS basis 2 Current 10

12 Outstanding Track Record of Top Line Growth Increase in Sales and Stores Leading UK speciality footwear retailer Reputation for fashionable and high-quality products High customer loyalty Double-digit CAGR in top line since 2011 Plans in place to improve growth / margins Continued growth from stores roll-out, e- commerce platform, as well as the expansion into Germany Office London opens as a concession in the shopping mecca Hyper First standalone Office store opens on the fashionable Kings Road Continued growth through the 1980s and 1990s is launched Expansion into Ireland European expansion begins with Germany m Revenue ( m) (Fiscal Year End) Number of Stores and Concessions (Calendar Year End) 1 As of May

13 Unique Product Offering: Sports to Formal, for Men, Women and Kids (1/2) Third Party Brands Over 120 brands sold through Office Strong relationships with global brands (e.g. part of Nike s R10 supplier group and strategic partner) Co-designs / picks designs with major brands Currently working on projects for exclusive styles with several major brands In-house Brands Current Brand Mix 14% 26% Different brands making Office unique: Office London and Office Girl for women Ask The Missus and Poste for men Poste Mistress for women Represent c.26% of total sales in FY15 High margin products Each brand has been carefully built over the years 60% Own Brand Third Party Exclusive Third Party 12

14 Unique Product Offering: Sports to Formal, for Men, Women and Kids (2/2) Third Party Brands In-house Brands Select Exclusives Breadth and Depth of Product Range Nike Mango Sunset Toms Skull Print Adidas Stan Smith Mesh UGG Australia Petra Short Boots Converse Shearling Inside Timberland Wedge Sole Havaianas Slim Logo Metallic Solillas Solillas Sandals 13

15 Successful Omni-channel Distribution Model Clicks and Mortar Stores: 162 Concessions: 52 Online: 53m visits to the website in 2014 c.20% of total sales done via e-commerce, growing in excess of 25% over the last 3 years Dedicated German website launched in 2015 Mobile website / Mobile App: 61% of online visits are now via mobile device Click & Collect: launched in February 2015; Already representing 20% of orders In-store tablets: launched November 2014; Nearly 100 tablets at this stage Social media presence: 100k+ followers on Facebook, Twitter and Instagram Strong Online Sales Which Continue to Grow 1 E-commerce 20% Take home Tablet in-store Click & Collect Home delivery Click & Collect Home delivery 1 Current Bricks and Mortar 80% Click & Collect Home delivery 14

16 Experienced and Stable Local Management Brian McCluskey CEO Chief Executive Officer since 2005 c.13 years with Office Previously a Director of West Coast Capital (the family office of Sir Tom Hunter) Led the acquisition of Office from the Casey family Before joining West Coast Capital, was Finance Director of Sports Division at Jeyes UK Qualified Chartered Accountant with KPMG Graduated from Strathclyde University Ghassan Hodeib Buying Director Buying Director since 2003 c.20 years with Office Started with Offspring as Store Manager / Part time Buyer Several promotions culminating in appointment as Buying Director in 2003 Prior to joining Office, worked for Sears from 1987 to 1996 in various retail roles 15

17 3. Truworths' Plans with Office

18 Continue Rolling Out Additional Stores in the UK Truworths is committed to support the growth of Office in its core market Top 150 Retail Destination Market Gaps Scotland 0 Gap 75 out of the top 150 UK retail destinations do not have standalone Office stores Gaps are mostly located in England Northern Ireland 1 Gap Republic of Ireland Wales 1 Gap North England 22 Gaps Central England 19 Gaps London 12 Gaps South England 20 Gaps Locations will be selected based on quality and sustainability of venues Source: CACI report (Dec-14) Type Office Stand Alone Store Presence Market Gap Primary Centres 37 9 Major Centres Urban Centres 4 8 Regional Malls 13 0 Metropolitan Towns 9 7 Retail Parks 0 8 Outlet Centre 0 9 Top 150 Total

19 Further Expand in Germany and Neighbouring Countries Truworths also wants to support Office s expansion strategy into Germany Envisages a further store openings by end January 2018, bringing the total German portfolio to stores Germany is an attractive market for footwear Largest European economy High number of large cities High proportion of the population comprises young educated adults Existing competition is fragmented Potential for further expansion into neighbouring countries Target Countries: Cities with Populations > 250,000 Netherlands 4 cities Belgium 8 cities Denmark 1 city Switzerland 5 cities Germany 45 cities Austria 5 cities Source: CBRE data Note: Number in each country indicates the number of cities with populations > 250,000 18

20 Grow The In-House Brands Truworths wants to further push the growth of Office in-house brands Higher margin in-house products Long term target is to increase the contribution to sales to 35% Truworths wants to add handbags and accessories to the range Office In-House as % of Total Sales % 24% 63% % 26% 60% Truworths wants to test outerwear on the website 2025 Target 15% 35% 50% Own Brand Third Party Exclusive 19

21 Cross Benefits Between Truworths and Office Truworths will benefit from Office s knowledge and expertise in footwear Truworths will be able to introduce products and brands which have been successful with Office into South Africa / other African markets Truworths will have exposure to defensive Offspring upmarket offering Office is an opportunity to be explored in SA and the rest of Africa Truworths will benefit from Office s experience and leadership in on-line retail and multichannel approach Truworths gets access to an expansion platform into Europe Office will benefit from the introduction of Truworths best-in-class retail skills, retail IT systems and customer tracking / relationship management 20

22 4. Key Terms of the Transaction

23 Summary of Key Transaction Terms Grow The In-House Brands e Acquisition Price Enterprise Value of 256m (on a 100% basis) Post Transaction Shareholding Put/Call Agreements Transaction Financing Structure A UK resident and managed wholly owned subsidiary of Truworths: 88.9% Office management team: 11.1% Truworths and the Office management team have entered into put/call agreements iro management stake Gives Truworths the right to buy, and management the right to sell, this stake over a 3 5 year period Shares to be valued at agreed EBITDA multiple, additional value accruing if performance targets are met cr3.6bn of cash from South Africa to pay the consideration due to the sellers and transaction expenses 80m of term loans and 5.9m of revolving credit facilities in the UK, to refinance existing Office net debt Effective Date Completion date of the acquisition was 4 December 2015 Conditions Precedent Acquisition was subject to final approval from the Financial Surveillance Department of the South African Reserve Bank, which has been granted 22

24 Disclaimer Information disclaimer This presentation contains certain information which has not been audited and/or has been obtained from external sources. It also contains forward-looking statements with respect to the financial condition and results of operations of Truworths International Limited and its group companies ( the Group ), which by their nature involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: management estimates and budgets not being achieved; global and national economic conditions; growth in trading space; interest rates; credit and the associated risks of lending; merchandise clearance rates; inventory levels and stock turn; gross and operating margins achieved; and competitive and regulatory factors. The Group does not undertake to publicly update or revise any of these forward-looking statements, whether to reflect new information or future events or otherwise. 23