Phase Eight Acquisition presentation 15 January 2015 Table of - - PowerPoint PPT Presentation

Phase Eight

Acquisition presentation

15 January 2015

• 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

Table of contents

2

Executive summary » Introduction » Overview of Phase Eight » Transaction 3

Executive summary

Acquisition of a majority stake in Phase Eight

4 1 Phase Eight opportunity

• 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% 2 Strategic rationale

• Good track

record

• Experienced

management

• Sustainable

growth

• pportunities
• Good track record – being highly profitable and cash generative
• Multi-channel business with an established e-commerce

platform (currently 17% of revenue)

• Experienced and self-sufficient management team, with senior

management having on average in excess of 10 years experience in operating the business

• Strong growth prospects from its established position in the UK

and opportunities to further expand in international developed and emerging markets 3 Summary overview of Phase Eight Phase Eight markets and sells products through retail outlets, concessions and online in the UK and Ireland and internationally in 16 other countries across 4 continents

Sales by channel – Jan 2014 Key figures (ZARm) – Jan 2014

Note: All figures are based on a hedged exchange rate of ZAR/GBP 18.29

2 322 251 2 573 1 703 436 Sales - UK Sales - International Total sales Gross profit EBITDA 34% 40% 9% 17% UK & Ireland stores UK & Ireland concessions International (stores & concessions) e-commerce

Executive summary » Introduction » Overview of Phase Eight » Transaction 5

54% 46% 80% 20% 2 071 134 438 44% 56% 95% 5% 2 071 134

Introduction

TFG’s strategy: International growth

6

TFG TFG Africa footprint Phase Eight headquarters Phase Eight jurisdictions

• No. of outlets

(incl. concessions)

Revenue contribution

TFG (Current) – Sept 2014 LTM TFG (after Phase Eight acquisition)

Total Phase Eight

• utlets

Cash vs credit sales

SA Non-SA Cash sales Credit sales TFG

Total

• utlets:

2 643 Total

• utlets:

2 205

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?

7 TFG Requirement Phase Eight Strong and sustained profitability

• Sales have grown at 18.9% CAGR and EBITDA by 27.5% CAGR

since FY09

• This growth reflects the rigour with which the business is continually

managed, and the extent to which management has refined the business over the last five years to create a sustainably profitable

• perating model

Loyal customer base

• The core customer is in the ABC1 demographic (LSM 8-10) and

spends more money, more frequently and in more channels than the 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 Brand development

• Phase Eight has reached a point where it is considered a true and

recognisable “brand”

• Will consider introducing the brand into South Africa at the

appropriate time Strong management team that will not require extensive input from the TFG head office

• Incumbent Phase Eight management have successfully grown the

business over the past 5 years

• Management team remains committed to continuing on the existing

growth path

• Management has been strengthened during the past four years and

they have good depth of management with strong experience

• Management have re-invested into the business to remain our equity

partners with c.15% shareholding 1 2 3 4 Impressive track record and consistently profitable Experienced and self-sufficient management team

Introduction

Why Phase Eight?

8 TFG Requirement Phase Eight Provide good growth

• pportunity for TFG
• Robust and scalable business model
• Proven organic growth strategy driven by existing management team
• Opportunity to utilise Phase Eight infrastructure to grow certain TFG

brands internationally

• Significant e-commerce growth opportunities-currently 17% of revenue

Headroom for further growth

• Management has now proven the success of the Phase Eight

proposition in international developed and emerging markets, and has developed a systematic screening process for new markets that 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 Sustainable business model

• Management has purposely avoided adding additional layers of

infrastructure for each new market that Phase Eight has entered. The business model retains a level of simplicity that avoids incremental 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

Fashion risk

• Due to the target market and fashion offering there is a lower fashion

risk which results in a more consistent and sustainable margin 5 6 7 Sustainable growth opportunities 8

Introduction

Why Phase Eight?

9 TFG Requirement Phase Eight Dynamic product development

• Management constantly tests and evaluates new products and initiatives
• The simplicity that characterises the business model then allows for a

quick response to the results of these tests Well defined and segmented offering

• Phase Eight was traditionally recognised for the strength of its
• ccasionwear. Under the current management team, the breadth of the

core proposition has increased to include smart and casual daywear, 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 Multi-channel business model

• Phase Eight now has a fully multi-channel presence that includes stand-

alone stores, concessions, e-commerce via its own and its department store partners’ websites, iPads in-store, and click and collect

• This is a considerable achievement for a business of Phase Eight’s size

and maturity, and especially for a business that only launched its e- commerce site in 2008

• e-commerce now accounts for 17% of sales

Volume synergies

• No account has been taken of volume synergies but volumes will be

higher and TFG sourcing may add value to Phase Eight business 10 Sustainable growth opportunities (continued) 11 9 12

10 Executive summary » Introduction » Overview of Phase Eight » Transaction

Overview of Phase Eight

Company overview

• 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

Business description Extensive product offering Daywear Occasion wear Bridal Holiday wear Collection 8 Accessories 11

Overview of Phase Eight

Core brand values

12 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
• Stylish and contemporary
• Fashion aware not led
• Feminine and colourful
• High quality fabric
• Impeccable cut and fit
• Unique style and design
• Point of difference
• Enticed by prospect of visit
• She finds what she wants
• New and interesting styles
• Ease of outfit building
• Flawless customer service
• Offered in store / delivered to her

door What customer want:

• A distinctive look
• Relevance to her needs
• Seeking to cover all areas of her

wardrobe

Overview of Phase Eight

Brand positioning

13 Relative UK market position The Phase Eight brand serves a large, underserved and affluent customer base which is fashion aware not led

Source: Discussions with Phase Eight management

Overview of Phase Eight

Own stores (UK)

14

1 9 11 14 12 11 6 Scotland Northern Ireland North West North East Wales & South West South Coast South East 14 South Central 13 Greater London 8 Central 8 East Coast

Highly profitable and well diversified outlet estate

• Currently 107 stores
• Affluent market towns historically

formed the basis of the store footprint ‒ Brand has successfully expanded into high street and shopping centre locations (c.100m2 average store size) ‒ Stable retail platform with low levels

• f rent
• Product offering extension has enabled

larger store sizes ‒ c.150m2 average outlet size

• Best-in-class store economics

underpinned by strict roll-out criteria

Note: Phase Eight earnings are as of FY2014 whereas store and concession numbers as of 15 January 2015

34% UK & Ireland stores UK & Ireland concessions International (stores & concessions) e-commerce Sales by channel – Jan 2014

Overview of Phase Eight

Concessions (UK)

15

7 24 20 14 15 20 24 Scotland NI & Isle of Man North West North East Wales & South West South Coast South East 14 South Central 16 Greater London 24 Central 20 East Coast 5 Ireland

Partner of choice for leading department stores

• Concessions now an important part of the
• perating model
• Currently 203 concessions throughout the

UK and Ireland ‒ John Lewis (since 1992): 32 ‒ Debenhams (since 2004): 78 ‒ House of Fraser (since 2005): 47 ‒ Independent/other: 46

• Longstanding relationships with leading

department store operators ‒ #1 women’s clothing brand in John Lewis and Debenhams by sales density ‒ Key relationships developed over 10 years

• Attractive concession economics with all

concessions being profitable ‒ Concessions size 44-102m2

Note: Phase Eight earnings are as of FY2014 whereas store and concession numbers as of 15 January 2015

40% UK & Ireland stores UK & Ireland concessions International (stores & concessions) e-commerce Sales by channel – Jan 2014

34% 40% 9% 17% UK & Ireland stores UK & Ireland concessions International (stores & concessions) e-commerce

Overview of Phase Eight

Footprint

International multi-channel retailer spanning 18 countries

Australia Mexico UK & Ireland Bahrain Saudi Arabia Sweden Norway Germany Switzerland Hong Kong Belgium Netherlands Kuwait Singapore U.A.E.

16

4 6 4 0 13 1 8 1 1 1 6 107 203 7 5 10 24 2 31

• No. of stores
• No. of concessions

Qatar 2 1 Malaysia 1

Note: Phase Eight earnings are as of FY2014 whereas store and concession numbers as of 15 January 2015

Sales by channel – Jan 2014

17

7 54 114 299 10 15 76 11 64 129 375 FY12A FY13A FY14A FY15B FY20E Stores Concessions

International POS evolution

International POS evolution

Key concession partners

Retail presence limited to the UK and Ireland until FY13A

Further penetration of existing geographies as well as the addition of new countries (eg. USA, Chile, Spain, Italy Denmark, Japan etc.)

Successful expansion into >120 POS in 16 countries by year end

GER CH BHR KWT QAT SAU SGP SWE UAE HKG NDS AUS BEL MEX NOR MYS

Multi-channel presence

18

• Seamless customer experience through high growth online channels and established physical estate
• Rapid online growth
• ‘Collect from store’ and in store iPads drive incremental sales and deliver enhanced customer

service

• Online reach extended through relationships with department stores including House of Fraser, John

Lewis, Debenhams, Breuninger, Manor, Karstadt

• Further international online channels (in Europe and Australia) and development of advanced website

architecture in progress

• Brand presence strengthened through effective PR
• Regularly featured in popular publications such as Red, Grazia and Good Housekeeping
• “Magalogue” launched in 2013 to complement existing initiatives and drive incremental sales
• Visual Merchandising ensures a consistently high quality brand message across Phase Eight’s global

store and concession portfolio

• Sophie Ellis-Bextor recruited as ‘Face of Phase Eight’ for 2015

Press High-profile shoot Physical stores iPads Website “Magalogue” Media Positive coverage

Summary financial overview

19 Net sales evolution (ZAR million) EBITDA evolution (ZAR million)

Note: All figures are based on a hedged exchange rate of ZAR/GBP 18.29

1 083 1 335 1 701 1 975 2 231 2 573

• 500

1 000 1 500 2 000 2 500 3 000 FY09 FY10 FY11 FY12 FY13 FY14 129 219 329 348 384 436

• 100

200 300 400 500 FY09 FY10 FY11 FY12 FY13 FY14

CAGR: 18.9% CAGR: 27.5%

20

Transaction

Summary of high-level terms

21 Ownership

• TFG has acquired c.85% of UK-based international women’s

clothing and accessories chain, Phase Eight, from the current

• wners, with management owning the remaining c.15%

Enterprise value

• 100% Phase Eight: GBP238m (ZAR4,353m)

TFG purchase price

• GBP140m (ZAR2,561m)

Management put/call

• ption
• Through put/call arrangements, it has been agreed that TFG

will have the right to acquire and management the right to sell all the shares held by management following completion of the Transaction in three equal tranches on the earlier of: (i) the publication of the audited accounts of the group for each of the fourth, fifth and sixth years following completion of the Transaction; or (ii) 6 months following the fourth, fifth and sixth year anniversaries of completion of the Transaction

• The acquisition of the management shares will be done on the

basis of a 9.36x EBITDA ratio applied to the audited financial results of Phase Eight at the applicable time

• The exercise of these put/call arrangements would result in

TFG owning 100% of the shares in Phase Eight

Note: All figures are based on a hedged exchange rate of ZAR/GBP 18.29