Super Retail Group Presentation Macquarie Securities 2014 Australian Conference David Burns Chief Financial Officer 9 May 2014
Group Structure To provide solutions and engaging experiences that enable our customers to make the most of their leisure time Auto and Commercial Leisure Sports Retail Operations Merchandising Marketing Retail Operations Merchandising Marketing Retail Operations Merchandising Marketing 290 stores 113 stores 57 stores 13 stores 92 stores 50 stores 21 stores Group Logistics Group Operations 2
Group Vision, Mission and Goals Our Vision INSPIRING YOU TO LIVE YOUR PASSION Our Mission TO PROVIDE SOLUTIONS AND ENGAGING EXPERIENCES THAT ENABLE OUR CUSTOMERS TO MAKE THE MOST OF THEIR LEISURE TIME Our Goals To be one of the 5 largest Australasian retail companies To achieve the highest Team Member engagement across the retail industry To achieve higher customer engagement ratings than our competitors To provide returns to our shareholders that exceed the ASX 200 by 5% 3
Trading Update Auto Leisure Sports Group LFL sales up by 2.7% in the 44 weeks to 2 May (3.4% in the 18 weeks to 2May) Full year gross margin tracking above PCP Full year EBIT margin is tracking towards circa 11.8% LFL sales up by 0.7% in the 44 weeks to 2 May(negative 0.7% in the 18 weeks to 2 May) Full year gross margin tracking below PCP Full year EBIT margin is tracking towards circa 6.2% LFL sales up by 4.4% in the 44 weeks to 2 May (2.9% in the 18 weeks to 2 May) Full year gross margin tracking below PCP Full year EBIT margin is tracking towards circa 9.3% Group development& unallocated distribution centre costs are expected to be circa $10 million for FY14. Other Group costs are expected to be consistent with PCP The Group is expected to recognisea $2.2m net after tax benefit from a tax review FY14 capital expenditure expected to be circa $105 million, reducing to $90 million in FY15 due to the delay of the Brisbane distribution center and increased investment in stores in Auto Net debt for June 2014 is expected to be circa $335m 4
Challenges impacting the Retail Industry Global competition Multi-channel Marketing effectiveness Evolving business models Workforcedemographics Supplychain complexity Increased regulation International retailers setting up stores, acquiringdomestic businesses and targeting their on-line offer to Australia/New Zealand Customers increasingly researching and transacting on-line. Consumers have the power. Development of more agile low cost internet specialist retailers Proliferation of mediachannels leading to fragmentation of audience. Customers increasingly using search and social media. Declining benefit from traditional marketing and catalogues increasing focus on direct marketing Suppliers/brandowners becoming retailers, retailers developing their own brands. Retailers competing with their suppliers Feweryoung people coming into the workforce retailers need to look at the structure and cost of their workforce Increased volume and shorter lead times of multi-channel retailing and international sourcing increase cost and complexity of supply chain Cost and complexity arising from increased regulation of business 5
Implications for Super Retail Group Historical levers of differentiation will no longer succeed Building a stronger emotional connectionwith customers is a must Organisational capabilities have to be World class not Australasian class Increasinglydifficult to differentiate through product and price when customers can access product from many retailers across the globe The Retail brands need to have clearidentities which must be presented consistently across all customer touch points Engaging and inspiring customers around their passions can be a sustainable lever of differentiation This will require significantly enhanced CRM capabilities Capabilities need to be benchmarked against global competitors An agile,low cost, responsive supply chain will be a pre-requisite to compete with best in class global peers and to support global sourcing of both branded and private brand product Private and exclusivebrands represent a strong opportunity Aligning team member behaviour and culture with customer offer will be a sustainable advantage Privatebrands to be developed and managed as true brands not just taking a low price lower quality position there needs to be investment in design and brand management capabilities Buildinga culture in which our team are focused on inspiring and engaging our customers around their passions Building a culture in which our team members can share our customers passions 6
Key Internal Challenges Change Agenda Business Performance Supply Chain Team Members One Group wide aligned and focussed strategic agenda Developing the required multi channel capabilities quickly enough and at a reasonable cost and managing change effectively Immature multi channel management systems Driving improvement in performance of Rays Outdoors and FCO. Sales per square metre across the Leisure division Stock turns across all divisions Gross margin maintenance in Leisure and Sports divisions Effective sales and operational planning Effective inventory management Implementation of new logistics network and methods Transparency of cost drivers across channels Maintaining our culture as we grow Attracting, engaging and retaining the team we need to deliver our plans 7
How are we going to win? Understanding our Customers Engaging Customers across all Channels Innovative and Relevant Ranging Leading Privateand Exclusive Brands Optimising our Supply Chain Engagingand Developing our Team Developinga clear understanding of our customer s leisure passions, their search patterns, their buying behaviour and their opinion of our offer Customer relationship management increasingly driving our store and website design, ranging, pricing, promotions and marketing Providing aconsistent engaging and inspiring experience that reflects our brand personality for our customers across all channels and interactions Consistentnew product introduction. Tailoring the rangeat a store level Extended ranging available on line through working with trade partners Designing,developing and marketing a strong portfolio of private and exclusive brands that can compete with international branded product on features and benefits but provide protection against direct price competition Agile, cost efficient supply chain supporting growth in international sourcing of 3 rd party and private branded product and growth in on-line business Optimised inventory management across the Group Developingand maintaining a culture that is consistent with our brand values, facilitates a solutions focus and attracts and engages motivated team members who share our customer s leisure passions 8
Group Strategic Initiatives CUSTOMER ANALYTICS DIVISIONAL INITIATIVES Customer Relationship Management Multi Channel Development Category Management Private Brand Management SUPPLY CHAIN MANAGEMENT Supply Chain Management Inventory Management CULTURE AND TEAM Team Engagement and Development FUTURE ORGANISATION Management Systems Business Analysis 9
Auto Brand, Range and Service Development NETWORK EXPANSION (325 STORES) LFL SALES GROWTH (> 3% PA) EBIT MARGIN (11%) (5 year goal) PRE TAX ROC (> 40%) Multi Format New Store Program: circa 5-10 stores pa Refurbishment Program increased to 50 stores pa Store of the Future and Superstore conversions Range Development Focus on growth categories New product introduction Trade Partner Collaboration - Data Sharing - Forecasting - Inventory Funding - Performance Management - Supply chain efficiencies Inventory Optimisation - Stock turn > 3 Private Brand Development up to 50% of sales Multi Channel Development SCA Club + Leveraging Group Programs 10
Leisure Brand, Range and Service Development NETWORK EXPANSION (225 STORES) LFL SALES GROWTH (> 3% PA) EBIT MARGIN (11%) (5 year goal) PRE TAX ROC (> 30%) Multi Format New Store Program : Circa 5-10 stores pa Refurbishment Program Store of the Future trial Retail space optimisation FCO business improvement Rays Outdoors repositioning Range Development - Camping, Caravanning - & apparel Private Brand Development up to 25% of sales Multi Channel Development BCF and Rays Outdoors clubs leveraged Inventory Optimisation - Stock turn > 3 Trade Partner Collaboration - Data Sharing - Forecasting - Inventory Funding - Performance Management - Supply Chain efficiencies Leveraging Group Programs 11
Sports Brand, Range and Service Development NETWORK EXPANSION (250 STORES) LFL SALES GROWTH (> 4% PA) EBIT MARGIN (11%) (5 year goal) PRE TAX ROC (> 21%) Multi Format New Store Program : Circa 10 stores pa Refurbishment Program Circa 10 stores pa Testing new formats - Trialling Rebel Fit and Amart Sports local Range Development - Rollout of ranging strategy - Exclusive brands Private Brand & Exclusive Development up to 25% of sales Trade Partner Collaboration - Data Sharing - Forecasting - Performance Management - Supply Chain efficiencies - Inventory Allocation Multi Channel Development Target 10% of sales Rebel and Amart clubs relaunch SRG Supply Chain Integration Leveraging Group Programs & Platforms 12
Commercial B2B INTERFACE SALES TARGET $50M (5 year goal) PRE TAX ROC (> 21%) Wholesale - centered around the group s private label products - existing channels Insurance - $15m opportunity - Strong solutions offer to major insurers Aust/NZ Petrol & Convenience - $100m accessible market - Targeting 25% share - BP pilot Auto Trade Direct - $2.7bn accessible market - New Zealand pilot learning's for direct trade and retail trade - Opportunity confirmed - Still determining the right business model Rewards & Incentives - Interface to Corporates for Group brands Leveraging Group Programs & Platforms 13
Customer Analytics Objectives: Seamless and integrated delivery of products, information and services across all channels to the customer on a 24x7 basis Effective loyalty programs across all businesses underpinned by an efficient CRM Increased understanding of customers at a micro level Increased use of targeted marketing and promotion leading to a reduction in mass media advertising as a % of sales Key Projects: Establishment of Customer Charter that clarifies ownership and service levels for all customer interactions Development and rollout of new loyalty clubs for Rebel and Amart Sports Continued development of CRM analytics and direct marketing capability, including automation of e-mail campaigns Implementation of content development framework and content management tool Roll-out of common technology platform to support brand store initiatives Common web platform across the Group 14 14
Supply Chain and Inventory Management Objectives: Support the brands inventory optimisation initiatives Clarity of supply chain cost drivers and ability to select appropriate supply method Efficient flow of inventory to reduce logistics costs as a % of sales by 1% Enhanced integration between promotion planning, forecasting and replenishment processes to increase promotional effectiveness Improved Sales & Operations Planning process Implementation of multi-channel fulfilment capability to enable the required customer service levels to be met Key Projects: Roll-out of JDA forecasting & allocations Implementation of common replenishment system to facilitate multi-user DC s DC network strategy implementation full multi-user DC network Supply methods including integrated offshore logistics hubs Clear, time-phased inventory reduction targets as part of enhanced S&OP planning process Enhanced management systems for inventory and supply chain to provide greater visibility of performance in these areas Group multi-channel fulfilment model trial of dark stores for all divisions during FY15 Enhanced promotions planning process 15 15
Supply Chain and Inventory Management LogisticsInvestment FY14 FY15 FY16 FY17 Sydney DC developed Systems Development Sports SAP implemented WMS developed Trade Partner engagement Inventory Planning JDA P&L cost (Deve. Program & excess DC ) Inventory $ per store reduction Leisure DTS New Zealand F&R rollout Leisure& pilot in Auto Brisbane DC developed SportsSAP optimised WMS rollout LeisureDTS Sydney F&R rollout in Auto & allocation in Sports New network implemented LeisureDTS Australia Primary Freight Sports 3PL migration JDAall modules implemented all brands $10m $11m $8m $8m Leisure 10% Leisure 10% Auto 10% Leisure 10% Auto 5% Network optimised Freight optimisation Sports exclusive & private label JDAfully supporting S&OP 16 16
Future Organisation Objectives: Reduce cost of doing business by $40 million (including supply chain and inventory carrying costs that result from the supply chain program) Ensure the group continues to act with pace More flexible and efficient reporting and analytics Development of management systems to support the delivery of key business functions and objectives Key Projects: Store productivity Process improvement initiatives including Shared Service review Procurement framework deployment Business Analysis and Reporting development Management Systems Development 17 17
Culture and Team Objectives: Sustain team member retention at 75% 70% of management positions filled internally Team Member engagement above 70% Time to fill retail vacancies below 4 weeks LTIFR 30% improvement 40% of Board and senior management positions to be held by females The Group to be widely recognised as a preferred place to start and develop a career in the retail industry To build talent pools for the position of store manager and above Key Projects: Attraction: Group wide opportunities, remuneration structures, social media, cultural Engagement: Engagement survey actions, reward and recognition, communication Safety: Active leadership, risk management, reporting, education, wellbeing program Capability and Succession: learning and development programs, performance management and succession planning systems, learning management system Diversity: Gender initiatives, extending to other areas of diversity, reporting, workplace practices recruitment, flexibility, internal development Aligned Culture: Aligning team culture to brand culture, customer engagement 18 18
New Areas of Growth Areas being evaluated Development of organic opportunities e.g., Auto Trade Direct, SRG Commercial Traditional or multi-channel retail (e.g., VBM Retail) Acquisition of businesses within existing product categories Acquisition of businesses in other leisure product categories Acquisition Criteria in Other Leisure Categories Bolt-on or new market that is fragmented and greater than $2.5bn Cultural Fit providing solutions to help customers get more out of their leisure time Opportunity to leverage supply chain and sourcing to drive synergies Non premium non perishable Market leading potential Deliver a post tax ROC > 15% existing category, > 20% new category 19