[PPT] - JB Hi-Fi Limited Half Year Results Presentation 31 December 2013 3 PowerPoint Presentation

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JB Hi-Fi Limited

Half Year Results Presentation 31 December 2013

3 February 2014

For personal use only

SLIDE 2

1. Performance 2. Profit and Loss Statement 3. Trading Performance 4. HY14 Store Update 5. HOME 6. Out of Store 7. Cash Flow and Balance Sheet 8. Dividends 9. Trading Outlook 10. Growth Opportunities

Terry Smart Richard Murray CEO CFO

AGENDA

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SLIDE 3

1. PERFOR M ANCE – H Y 14 HIGHLIGHTS
Total sales up 6.8%
Comparable sales up 2.8%
Gross margin up 11 bps
NPAT up 10.0%
EPS up 9.0%
Interim dividend up 10.0% to 55.0 cps

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HY13 HY14

 Total Sales $1.82b $1.94b +6.8%  Gross Margin 21.52% 21.63% +11 bps  Cost of Doing Business 13.82% 13.88% +6 bps  EBIT $123.7m $132.9m +7.5%  EBIT Margin 6.81% 6.85% +4 bps  NPAT1 $82.1m $90.3m +10.0%  Earnings per share 83.0 cps 90.5 cps +9.0%  Interim dividend - fully franked2 50.0 cps 55.0 cps +5.0 cps

Mvt

1. PERFOR M ANCE - SUMM ARY

1 Profit attributable to owners of JB Hi-Fi Limited (excludes non-controlling interest). 2 The interim dividend of 55.0 cents per share will be paid on 28th February 2014 (record date 14th February 2014).

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$m

HY13 HY14

Growth

HY13 HY14

Growth

HY13 HY14

Growth Sales 1,724.0 1,836.0 6.5% 117.5 118.0 0.5% 1,816.2 1,939.9 6.8% Gross Profit 375.1 401.3 7.0% 20.1 20.7 3.3% 390.9 419.6 7.3% Gross Margin 21.76% 21.86% +10 bps 17.09% 17.58% +49 bps 21.52% 21.63% +11 bps EBITDA 136.8 146.8 7.3% 3.8 3.9 3.9% 139.8 150.3 7.5% Depreciation & Amortisation 15.2 16.3 7.4% 1.2 1.2 3.5% 16.1 17.4 7.9% EBIT 121.6 130.5 7.3% 2.6 2.7 4.0% 123.7 132.9 7.5% EBIT Margin 7.05% 7.11% +5 bps 2.21% 2.28% +8 bps 6.81% 6.85% +4 bps NPAT2 82.1 90.3 10.0% Headline Statistics: Earnings per share (basic ¢) 83.0 90.5 9.0% Cost of doing business3 13.82% 13.86% +4 bps 13.87% 14.26% +38 bps 13.82% 13.88% +6 bps Stores4 164 169 +5 stores 13 13

177

182 +5 stores

AUST NZ (NZD) CONSOLIDATED

2. PR OFIT AND LOSS STAT E MENT

1 Refer to Appendix II(b) for NZ P&L in AUD. 2 Profit attributable to owners of JB Hi-Fi Limited (excludes non-controlling interest). 3 Refer to Appendix II(d) for reconciliation of consolidated CODB. 4 In HY14, six new stores opened (Aust: five JB HI-FI and one JB HI-FI HOME, NZ: Nil) and seven JB HI-FI stores in Australia were converted to JB HI-FI HOME.

The one remaining Clive Anthonys store was closed during HY14.

5 As at 30 June 2013.

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Australia 6.5% 2.3% New Zealand (NZD) 0.5% 0.3% Total 6.8% 2.8% Sales Growth HY14 Total Comps.

76.3% 79.6% 23.7% 20.4%

HY13 HY14 Hardware Software

Sales

Total consolidated sales grew by 6.8% to $1.94b, with comparable sales up 2.8%.

Australia

Total sales grew by 6.5% to $1.84b, with comparable sales up

2.3%.

The newly converted HOME stores1 achieved comparable sales

growth of 13.6% in HY14 post conversion.

Hardware2 sales in HY14 were up 11.0%, with comparable sales

up 6.6% driven by growth across the majority of categories including Visual.

Software sales (Music, Movies and Games) in HY14 were

negative 7.9% and on a comparable basis were negative 11.3% (HY13: -10.8%).

New Zealand

Sales grew by 0.5% to NZ$118.0m, with comparable sales

up 0.3%.

3. T R ADING PERFOR M ANCE

Sales Category Splits by Value (Total Aust)

1 11 stores were converted to JB HI-FI HOME in the 12 months to 31 December 2013. 2 Hardware is defined as all sales excluding the Music, Movies and Games Software categories. Note that the Hardware category includes Games Hardware.

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21.5% 21.6% HY13 HY14

Gross Margin

Consolidated gross margin was 21.6%, an 11 bps increase on

the pcp.

In Australia, the gross margin increased by 10 bps on the pcp

to 21.9%.

The market remains very competitive - consistent with the pcp.
In New Zealand, gross margin increased 49 bps to 17.6% due

to improved buying terms as we continue to gain market share.

Gross Margin

3. T R ADING PERFOR M ANCE . . .

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HY13 HY14 Australia 21.8% 21.9% New Zealand 17.1% 17.6% Total 21.5% 21.6% Gross Margin

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13.8% 13.9% HY13 HY14

Consolidated CODB was 13.9%, up 6 bps over the pcp.
In Australia, CODB increased by 4 bps to 13.9%.
Operating costs were in line with Company expectations.
Store wages remained well controlled, while absorbing the

latest award increase of 2.6% that was effective on 1 July 2013.

In New Zealand, overall costs continue to be well controlled

however reduced leverage has resulted in an increase in the CODB in HY14 to 14.3%.

CODB Cost of Doing Business (CODB)

3. T R ADING PERFOR M ANCE . . .

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HY13 HY14 Australia 13.8% 13.9% New Zealand 13.9% 14.3% Total 13.8% 13.9% CODB

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83.0 90.5 HY13 HY14

Earnings

Consolidated EBIT was up 7.5% to $132.9m and margin was up 4

bps on the pcp at 6.8%.

In Australia, EBIT was up 7.3% to $130.5m and margin was up 5

bps on the pcp at 7.1%.

In New Zealand, EBIT was up 4.0% to NZ$2.7m as we continue to

build the JB HI-FI brand.

EPS was up 9.0% to 90.5 cents per share. Note that 1.3m

employee share options were exercised during HY14 (HY13: nil).

3. T R ADING PERFOR M ANCE . . .

EPS (cps)

9

HY13 HY14 Australia 7.1% 7.1% New Zealand 2.2% 2.3% Total 6.8% 6.8% EBIT MARGIN

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10 15 21 26 32 48 66 77 93 109 131 144 155 164 169 12 12 14 10 13 13 13 13 Acquired July 2000 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 HY14

Total Stores NZ AUST

Six new stores opened in HY14 (five JB HI-FI and one JB HI-FI HOME):

 NSW: Roselands, Castle Towers, Homebush (HOME)  VIC: Melton, Craigieburn  TAS: Rosny Park

Seven JB HI-FI stores in Australia were converted to JB HI-FI HOME in HY14.
The final Clive Anthonys store was closed in HY14.

Six new stores opened in HY14

HY14 182 stores

141 123 105 89 157

4. H Y 14 STOR E UPDAT E

168

10

177

Target

f 214

stores

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SLIDE 11

5. HOME

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HOME – Growth Driver!

The home appliance category is a circa $4.6 billion market!
Results to date support annualised incremental sales per

store of circa $3m in Year 1, increasing to circa $5m in Year 2, with the longer term sales opportunity still to be fully quantified.

In HY14, one new HOME store was opened and seven

existing stores were converted, bringing the total number of HOME stores to 16 as at 31 December 2013.

In 2HY14 we anticipate converting a further six existing
stores. By the end of FY14 we expect to have a total of 22

HOME stores across Australia.

We see the potential for approximately 50 HOME stores by

the end of FY16.

We expect gross margins to be above the Company average
ver the medium term.

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SLIDE 12

6. Out of stor e

12

Online

We continue to leverage the benefits of a strong online

presence combined with our bricks and mortar locations.

In HY14, online sales grew 15.4% on the pcp to $42.9m
r 2.2% of sales (HY13: 2.0%).
Unique visitations grew 17.8% over the pcp to an

average of 1.23 million per week1.

The new HOME categories present a good sales growth
pportunity.

Digital

Entertainment anywhere, anytime!
We need to stay relevant and follow consumers’ present

and future content consumption behaviour.

Allows us to stay engaged with our customers after the

physical purchase has been made.

Commercial

JB HI-FI has continued to see strong growth in its

Commercial business.

We remain on track to deliver on our longer term sales

target of $500m per annum, through both organic growth and strategic acquisitions.

1 Rolling 52 weeks to 31 December 2013.

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SLIDE 13

Cash Flow Statement 7 . C A SH FLOW AND BAL ANCE SHEET

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1 Free Cash Flow = Net Cash Flow from Operations less payments for store related assets (excludes investments). 2 Rolling 12 months.

Working Capital

AUDm (Increase)/decrease in current assets Inventory (101.1) (159.0) Receivables (55.0) (63.0) Other current assets 0.9 1.3 Increase/(decrease) in current liabilities Payables 144.6 174.0 Other current liabilities 1.4 0.9 Net Movement in Working Capital (9.2) (45.8)

Performance Indicators:

Inventory Turnover 5.9x 5.9x Creditor Days 61.1d 57.6d Fixed Charge Ratio2 3.1x 3.3x Interest Cover 22.8x 32.0x Gearing Ratio2 0.45 0.22 Return on Invested Capital 42.8% 39.3%

HY13 HY14 HY13 HY14

AUDm EBITDA 139.8 150.3 Change in Working Capital (9.2) (45.8) Net Interest Paid (4.9) (3.7) Income Tax Paid (15.3) (25.9) Other 3.1 3.3 Net Cash Flow from Operations 113.5 78.3 Purchases of P&E (net) (23.1) (20.7) Investments

(3.0)

Net Cash Flow from Investing (23.1) (23.7) Free Cash Flow1 90.3 57.6 Debt Repayments (net) (60.0) (75.1) Proceeds from issue of Equity (net)

19.6

Dividends Paid (15.8) (22.0) Net Cash Flow from Financing (75.8) (77.4) Net Change in Cash Position 14.5 (22.8) Effect of exchange rates 0.1 0.4 Cash at the end of Period 54.3 44.9

HY13 HY14

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Inventory

Inventory levels are in line with internal expectations;
Inventory turnover in HY14 was consistent with the

pcp at 5.9x (pcp: 5.9x) and like for like inventory turnover was 6.3x (pcp: 6.0x); and

The underlying increase of $38.8m represents

approximately 5.3 days sales.

7 . C A SH FLOW AND BAL ANCE SHEET. . .

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Inventory (HY13 to HY14)

529.8 (2.8) 22.4 32.1 10.0 (3.3) 588.1 450 500 550 600

HY13 Closing Stock Closed Stores & Other New Stores Existing Stores Impact of JB HOME Private Label HY14 Closing Stock

$m

$38.8m

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33.0 48.0 49.0 50.0 55.0 33.0 29.0 16.0 22.0

FY10 FY11 FY12 FY13 HY14 Dividends (cps)

Dividends

The interim dividend is 55.0 cents per share fully franked, up 10.0% or 5.0 cents per share from the pcp.
Maintenance of our current circa 60% payout ratio enables the Company to continue to grow through its

investment in both its store rollout program, including an expansion of the JB HI-FI HOME footprint, and its Digital and Online strategies.

8 . DIV I DENDS

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Final Interim

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SLIDE 16

Trading Outlook

2HY14 sales update:
total consolidated sales growth in January 2014 was +7.4%; and
consolidated comparable sales growth in January 2014 was +3.8%.
Eight new stores are expected to open in FY141, bringing the total number of stores at the end of FY14 to

1821.

A total of 13 existing stores are anticipated to be converted to JB HI-FI HOME in FY142, taking the total

number at the end of FY14 to 22 stores. By entering the $4.6 billion home appliances market via JB HI-FI HOME, we see a significant opportunity to grow comparable sales over the medium term.

The Company expects to see continued strong growth in its Commercial business.
The Company expects sales in FY14 to increase by between 6% and 8% and NPAT to be in the range of

$126.0m to $129.0m, an increase of 8.3% to 10.8% on the prior year.

9. T R ADING OUTLOOK

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1 In HY14, six new stores opened (Aust: five JB HI-FI and one JB HI-FI HOME, NZ: Nil). Two new stores are expected to open in 2HY14.

Two smaller sub-scale JB HI-FI stores were closed in January 2014.

2 In HY14, seven JB HI-FI stores in Australia were converted to JB HI-FI HOME. A further six JB HI-FI stores in Australia are expected to be

converted in 2HY14.

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SLIDE 17

10. GR OW TH OPP ORTUNITI E S

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Growth Opportunities

– Solid pipeline of properties (2 new stores expected to open in 2HY14). – Will continue our disciplined approach to selecting new stores based on high foot traffic locations. – Target of 214 stores across Australia and New Zealand. – Many categories still have above average growth opportunities. – Convenient and easily accessible locations with high foot traffic generates impulse sales. – Continued growth in market share, both in store and online. – Leverage the strength of the brand. – Six existing stores to be converted to HOME stores in 2HY14. – Significant growth opportunity.



Online – HOME appliances website growth opportunity.

 Commercial

– Significant opportunities to grow this business over the next 2 to 3 years. – NOW Music – presents a longer term sales growth opportunity as adoption of music subscription gains momentum. – NOW eBooks – add on opportunity to our substantial device sales. – NOW Video – Digital copy redemption site (UltraViolet) launched. Future digital video download/streaming and rental service for feature films and TV episodes.



Digital



New stores



Existing categories and market share



HOME

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SLIDE 18

# as at 31 December 2013

Geographic breakdown# Store movements during HY14

13 2 50 34 49 2 9 18 5

NZ

Appendix I

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Opened Rebrand Closed

Total Australia JB HI-FI - Tier 1 135 4 (7)

132

JB HI-FI - Tier 2 20 1

21

JB HI-FI HOME 8 1 7

16

163 6

169

Clive Anthonys 1

(1)
164

6

(1)

169 New Zealand JB HI-FI - Tier 1 9

9

JB HI-FI - Tier 2 4

4

13

13

TOTAL 177 6

(1)

182 Store types: JB HI-FI - Tier 1 144 4 (7)

141

JB HI-FI - Tier 2 24 1

25

JB HI-FI HOME 8 1 7

16

176 6

182

Store format: Shopping centres 92 5

97

Other 85 1

(1)

85 177 6

(1)

182 FY13 HY14

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a) EBIT reconciliation

Appendix II

b) NZ Profit and Loss statement (AUD) c) Other items

Net interest expense was down $1.3m driven primarily by a lower

interest rate environment.

Effective tax rate was 29.9%, down from 30.7% in the pcp, driven

primarily by the exercise of 1.3m employee share options during the period (HY13: nil).

19 d) CODB reconciliation

AUDm

HY13 HY14

Other income (ex interest received) (0.1) (0.1) Sales and marketing expenses (App 4D) 168.2 182.4 Occupancy expenses (App 4D) 68.5 73.4 less depreciation & impairment (12.8) (13.7) Administration expenses (App 4D) 14.1 14.6 less depreciation & amortisation (3.4) (3.7) Other expenses (App 4D) 16.5 16.4 . Cost of Doing Business (CODB) 251.1 269.3 Sales 1,816.2 1,939.9 CODB (% of sales) 13.8% 13.9% AUDm

HY13 HY14

Profit for the half-year (App 4D) 82.1 90.4 add back

income tax expense (App 4D)

36.4 38.6 Profit before Tax 118.5 129.0 add back

interest received

(0.3) (0.2)

interest expense (App 4D)

5.4 4.1

net interest expense

5.2 3.9 Earnings before interest and tax (EBIT) 123.7 132.9 AUDm

HY13 HY14

Sales 92.2 103.9 Gross Profit 15.8 18.3 Gross Margin 17.1% 17.6% EBITDA 3.0 3.5 Depreciation & Amortisation 0.9 1.1

EBIT

2.0 2.4 EBIT Margin 2.2% 2.3%

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SLIDE 20

Appendix III

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Balance Sheet

AUDm Cash 54.3 44.9 67.4 Receivables 113.6 127.6 64.2 Inventories 529.8 588.1 426.0 Other 6.8 4.7 6.0 Total Current Assets 704.4 765.4 563.7 Fixed Assets 188.1 185.4 181.1 Intangibles & Goodwill 79.0 85.1 83.7 Other 17.4 17.0 14.8 Total Non-Current Assets 284.4 287.5 279.7 Total Assets 988.9 1,052.9 843.3 Payables 545.7 565.4 387.0 Other 62.4 70.9 55.4 Total Current Liabilities 608.1 636.3 442.4 Borrowings 90.0 49.5 124.3 Other 37.5 33.8 32.8 Total Non-Current Liabilities 127.5 83.3 157.1 Total Liabilities 735.6 719.6 599.5 Net Assets 253.2 333.3 243.8 Net Debt / (Net Cash) 35.7 4.5 57.0

HY13 HY14 FY13