Phase Eight Acquisition presentation 15 January 2015
Table of contents • Executive summary • Introduction ‒ TFG’s strategy: International growth ‒ Why Phase Eight? • Overview of Phase Eight ‒ Company overview ‒ Core brand values ‒ Brand positioning ‒ Overview of UK operations ‒ Footprint ‒ International POS evolution ‒ Multi-channel presence ‒ Summary financial overview • Transaction ‒ Summary of high-level terms 2
Executive summary » Introduction » Overview of Phase Eight » Transaction 3
Executive summary Acquisition of a majority stake in Phase Eight Phase Eight opportunity 1 • TFG has acquired c.85% of UK- based international women’s clothing and accessories chain, Phase Eight, from the current owners, with management owning the remaining c.15% Strategic rationale 2 • Good track record – being highly profitable and cash generative • Good track • Multi-channel business with an established e-commerce record platform (currently 17% of revenue) • Experienced • Experienced and self-sufficient management team, with senior management management having on average in excess of 10 years • experience in operating the business Sustainable growth • Strong growth prospects from its established position in the UK opportunities and opportunities to further expand in international developed and emerging markets Summary overview of Phase Eight 3 Sales by channel – Jan Key figures (ZARm) – Jan 2014 Phase Eight markets 2014 and sells products 251 2 573 2 322 through retail outlets, 17% 1 703 concessions and online 34% 9% in the UK and Ireland 436 40% and internationally in 16 other countries Sales - UK International Total sales Gross profit EBITDA Sales - UK & Ireland stores across 4 continents UK & Ireland concessions International (stores & 4 concessions) Note: All figures are based on a hedged exchange rate of ZAR/GBP 18.29 e-commerce
Executive summary » Introduction » Overview of Phase Eight » Transaction 5
Introduction TFG’s strategy: International growth TFG TFG Africa footprint Phase Eight headquarters Phase Eight jurisdictions TFG (Current) – Sept 2014 LTM TFG (after Phase Eight acquisition) No. of outlets TFG (incl. concessions) Total Phase 134 134 Eight outlets Revenue 438 contribution 5% 20% 46% 44% 56% 54% 80% Cash vs credit sales 95% Total Total 2 071 outlets: SA Cash sales outlets: 2 205 2 071 Non-SA Credit sales 2 643 6 Notes: (1) All figures are based on a hedged exchange rate of ZAR/GBP 18.29 (2) Phase Eight earnings are as of FY2014 whereas store and concession numbers as of 15 January 2015
Introduction Why Phase Eight? Impressive track record and consistently profitable TFG Requirement Phase Eight • Sales have grown at 18.9% CAGR and EBITDA by 27.5% CAGR 1 since FY09 • Strong and This growth reflects the rigour with which the business is continually sustained managed, and the extent to which management has refined the profitability business over the last five years to create a sustainably profitable operating model • The core customer is in the ABC1 demographic (LSM 8-10) and 2 spends more money, more frequently and in more channels than the Loyal customer base average female shopper • A visit to a Phase Eight store or concession is a regular and important feature of her clothes shopping trips • Importantly, frequency of store visit increases with the length of customer tenure, highlighting the strength of the customer relationship • Phase Eight has reached a point where it is considered a true and 3 recognisable “brand” • Brand development Will consider introducing the brand into South Africa at the appropriate time Experienced and self-sufficient management team • Incumbent Phase Eight management have successfully grown the 4 business over the past 5 years • Strong management Management team remains committed to continuing on the existing team that will not growth path • require extensive Management has been strengthened during the past four years and input from the TFG they have good depth of management with strong experience • head office Management have re-invested into the business to remain our equity partners with c.15% shareholding 7
Introduction Why Phase Eight? Sustainable growth opportunities TFG Requirement Phase Eight • Robust and scalable business model 5 • Proven organic growth strategy driven by existing management team • Provide good growth Opportunity to utilise Phase Eight infrastructure to grow certain TFG opportunity for TFG brands internationally • Significant e-commerce growth opportunities-currently 17% of revenue • Management has now proven the success of the Phase Eight 6 proposition in international developed and emerging markets, and has Headroom for further developed a systematic screening process for new markets that growth maximises the chances of success • The brand can travel to any market of sufficient scale that can support department store concessions, which are the preferred entry route • Markets such as the Americas and Asia present significant untapped growth opportunities for the longer term • Management has purposely avoided adding additional layers of 7 infrastructure for each new market that Phase Eight has entered. The Sustainable business model retains a level of simplicity that avoids incremental business model cost, allows for agile development and reduced risk • No requirement for TFG to fund Phase Eight as it is a stand alone business • Concession model is capital light and low risk • Successful in both emerging and developed markets 8 • Due to the target market and fashion offering there is a lower fashion Fashion risk risk which results in a more consistent and sustainable margin 8
Introduction Why Phase Eight? Sustainable growth opportunities (continued) TFG Requirement Phase Eight • Management constantly tests and evaluates new products and initiatives 9 • The simplicity that characterises the business model then allows for a Dynamic product quick response to the results of these tests development • Phase Eight was traditionally recognised for the strength of its 10 occasionwear. Under the current management team, the breadth of the Well defined and core proposition has increased to include smart and casual daywear, segmented offering among other categories • Management has subsequently created segmented offers, such as the premium Collection 8 range, to appeal to carefully targeted customer groups • In the longer term, the development of Studio 8, the plus size range, presents significant opportunity for growth • Phase Eight now has a fully multi-channel presence that includes stand- 11 alone stores, concessions, e-commerce via its own and its department store partners’ websites, iPads in -store, and click and collect Multi-channel • This is a considerable achievement for a business of Phase Eight’s size business model and maturity, and especially for a business that only launched its e- commerce site in 2008 • e-commerce now accounts for 17% of sales • No account has been taken of volume synergies but volumes will be 12 higher and TFG sourcing may add value to Phase Eight business Volume synergies 9
Executive summary » Introduction » Overview of Phase Eight » Transaction 10
Overview of Phase Eight Company overview Business description • Phase Eight operates as a retailer of clothing, footwear, and accessories for women • The company markets and sells products through retail outlets in the United Kingdom and internationally as well as online • Phase Eight was founded in 1979 and is headquartered in London, United Kingdom • The company is a well-established international brand with a highly experienced management team Extensive product offering Daywear Bridal Collection 8 Occasion wear Holiday wear Accessories 11
Overview of Phase Eight Core brand values Customer Product Experience 1 2 3 Phase Eight’s customer base: Key selling points: What Phase Eight customers look for: • 35 – 55 year old woman • • Feminine and colourful Enticed by prospect of visit • • • Stylish and contemporary High quality fabric She finds what she wants • • • Fashion aware not led Impeccable cut and fit New and interesting styles • • Unique style and design Ease of outfit building What customer want: • • Point of difference Flawless customer service • A distinctive look • Offered in store / delivered to her • Relevance to her needs door • Seeking to cover all areas of her wardrobe 12
Overview of Phase Eight Brand positioning Relative UK market position Source: Discussions with Phase Eight management The Phase Eight brand serves a large, underserved and affluent customer base which is fashion aware not led 13
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