PRESENTATION OF CONSOLIDATED RESULTS for the quarter ended 26 - - PowerPoint PPT Presentation

PRESENTATION OF CONSOLIDATED RESULTS

for the quarter ended 26 September 2015

Q2 : FY16 RESULTS

Financial Review Looking forward

Strategic egic and op

• peratio

tional l update

Consolidated results for the quarter ended 26 September 2015

MACRO BACKDROP

22.0 23.0 24.0 25.0 26.0 27.0 0.0 1.0 2.0 3.0 4.0 2013-06-01 2013-07-01 2013-08-01 2013-09-01 2013-10-01 2013-11-01 2013-12-01 2014-01-01 2014-02-01 2014-03-01 2014-04-01 2014-05-01 2014-06-01 2014-07-01 2014-08-01 2014-09-01 2014-10-01 2014-11-01 2014-12-01 2015-01-01 2015-02-01 2015-03-01 2015-04-01 2015-05-01 2015-06-01 Real GDP (y-o-y %) Unemployment rate (%)

GDP GROWTH AND UNEMPLOYMENT RATE

8.0 10.0 12.0 14.0 16.0 18.0 2014-10-29 2014-11-29 2014-12-29 2015-01-29 2015-02-28 2015-03-31 2015-04-30 2015-05-31 2015-06-30 2015-07-31 2015-08-31 2015-09-30 USDZAR EURZAR 5.0 6.0 7.0 8.0 9.0 10.0 2013-09-01 2013-10-01 2013-11-01 2013-12-01 2014-01-01 2014-02-01 2014-03-01 2014-04-01 2014-05-01 2014-06-01 2014-07-01 2014-08-01 2014-09-01 2014-10-01 2014-11-01 2014-12-01 2015-01-01 2015-02-01 2015-03-01 2015-04-01 2015-05-01 2015-06-01 2015-07-01 2015-08-01 2015-09-01 2 4 6 8 10 2013/07 2014/01 2014/07 2015/01 2015/07 Prime rate Repo rate

EXCHANGE RATES PRIVATE SECTOR CREDIT EXTENSION (Y-O-Y %) REPO & PRIME RATE

Source: SARB & StatsSA

3

Consolidated results for the quarter ended 26 September 2015

MACRO BACKDROP

4.0% 4.5% 5.0% 5.5% 6.0% 6.5% Q2:2013 Q3:2013 Q4:2013 Q1:2014 Q2:2014 Q3:2014 Q4:2014 Q1:2015 Q2:2015

INFLATION

• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2013/07 2014/01 2014/07 2015/01 2015/07 Total retail sales CFT sales 76.0 77.0 78.0 79.0 80.0 81.0 2013-03-01 2013-04-01 2013-05-01 2013-06-01 2013-07-01 2013-08-01 2013-09-01 2013-10-01 2013-11-01 2013-12-01 2014-01-01 2014-02-01 2014-03-01 2014-04-01 2014-05-01 2014-06-01 2014-07-01 2014-08-01 2014-09-01 2014-10-01 2014-11-01 2014-12-01 2015-01-01 2015-02-01 2015-03-01

FNB/BER CONSUMER CONFIDENCE INDEX RETAIL SALES HOUSEHOLD DEBT TO GROSS DISPOSABLE INCOME RATIO

4

• 20
• 15
• 10
• 5

5 Q3:2013 Q4:2013 Q1:2014 Q2:2014 Q3:2014 Q4:2014 Q1:2015 Q2:2015 Q3:2015

Source: SARB & StatsSA

Consolidated results for the quarter ended 26 September 2015

KEY FEATURES FOR THE QUARTER

• Retail sales

↓ 0.1%

• Cash sales

↑ 5.6%

• Credit sales

↓ 7.6%

• LFL Sales

↓ 2.2%

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• Pro forma adjusted EBITDA ↑ 3.1%
• Gross Profit

↓ 1.3%

• Edgars clearance well managed
• Controlled costs well managed
• Data-set gathering well advanced
• Metamorphosis

Constrained consumer environment continues to impact top line 5th consecutive quarter of EBITDA growth Vision in progress SALES PROFITS STRATEGY

Consolidated results for the quarter ended 26 September 2015

GROUP INITIATIVES

• An accredited Merchant Development Programme provides

entry level merchant talent to Edgars

• Implementation of changes required under legislation
• Flexible labour force
• Prioritisation of retention strategies
• Coaching for senior leadership

PEOPLE

6

PRODUCT SERVICE PROPERTY

• Positive shift in Edgars customer experience ratings following
• Nationwide “Lets Connect” staff engagement sessions
• In-store voice of the customer feedback daily
• Focus on staff recognition for living the Edcon Values
• NCR affordability requirements rolled out to all stores
• Lay-buy options to assist customers
• Service/Product specialists in CNA
• Skills and knowledge improvements
• Additional international brands launched shop-in-shop:
• Apparel: Vero Moda, Only and Jack Jones
• Cosmetics: Benefit, Dolce & Gabbana Colour & Treatment
• Introduction of Verssed in Discount Division
• Entry level private label tablets
• Renewed focus on stationery in CNA
• De-prioritisation of music and visual ranges
• Boardmans “own-brand” offer expanded and improved
• New concept Jet store launched in Cresta
• Approved implementation of a new CNA concept
• Courier, printing, scanning and binding services through

shop-in-shop planned

• Discount stores closed to consolidate space predominantly

within CBDs

• Initiation of 100% LED illumination of trading floor

Consolidated results for the quarter ended 26 September 2015

7

EDGARS DIVISION

Q2:FY16 Q2:FY15 Retail sales growth (%) (0.3) 3.0 LFL Sales growth (%) (2.6) (1.7) GP Margin (%) 36.9 38.2

• No. of stores

549 510 Capex spend (R’m) 81 171

• Cash sales grew 6.0% while

credit sales reduced 6.7%

• Mono-branded stores performance

continues to be positive

• Margin impacted by
• Aggressive winter clearance

introduced early

• Underlying margins remain sound
• 5 new stores opened, with 78% of

capex spend on expansion

• Two River Island flagship stores
• pened

203 Edgars stores · LSM 6-10 175 Edgars Active stores · LSM 4-7 34 Boardmans stores · LSM 7-10 43 Red Square stores - LSM 5-10 7 Edgars Shoe Gallery stores · LSM 5-10 85 Mono-branded stores · LSM 7-10

Consolidated results for the quarter ended 26 September 2015

8

DISCOUNT DIVISION

Q2:FY1 :FY16 Q2:FY1 :FY15 Retail sales growth (%) (0.1) 2.0 LFL Sales growth (%) (2.0) (1.0) GP Margin (%) 33.5 32.7

• No. of stores

728 702 Capex spend (R’m) 31 42

• Cash sales grew 6.1% while

credit sales reduced 10.7%

• Margin accretion due to
• Improved pricing
• Stock levels well managed
• 6 new stores in the quarter,

71% of capex on new stores

• New concept store being

trialled at same time new brand launched

391 Jet stores · LSM 4-7 208 Legit stores · LSM 5-8 129 Jet Mart stores · LSM 4-7

Consolidated results for the quarter ended 26 September 2015

9

CNA DIVISION

Q2:FY1 :FY16 Q2:FY1 :FY15 Retail sales growth (%) (4.3) (3.7) LFL Sales growth (%) (5.6) (4.6) GP Margin (%) 28.8 30.8

• No. of stores

197 193 Capex spend (R’m) 5 2

• Cash and credit sales declined

by 0.9% and 14.4% respectively

• Margin impacted by
• Product mix

197* CNA stores · LSM 7-10

* Includes 6 Samsung stores

Q2 : FY16 RESULTS

Financial cial Revi view

Looking forward Strategic and operational update

Consolidated results for the quarter ended 26 September 2015

• 6.6%

1.0% 4.2% 11.1% 2.5% 3.1% Q1:FY15 Q2:FY15 Q3:FY15 Q4:FY15 Q1:FY16 Q2:FY16

% change on previous period

KEY HIGHLIGHTS FOR Q2:FY16

PRO FORMA ADJUSTED EBITDA IMPROVING

11

• 5th consecutive quarter of positive EBITDA growth
• Strong cash sales offset by continued weakness in credit sales
• Credit: Cash sales ratio of 40.3% from 43.5% in Q2:FY15*
• Own book continues to supplement offering
• Underlying margin well ahead of last year, positioning us well for

peak quarter

• Aggressive clearance of aging winter stock resulting in healthy profile and

stock levels

• Cost continues to be well managed in all areas
• More opportunity exists
• Continued focus on working capital management

* Including Edgars Zimbabwe

Consolidated results for the quarter ended 26 September 2015

12

STATEMENT OF COMPREHENSIVE INCOME

(R millions) Q2:FY15 Q2:FY16 % change

Retail sales 6 190 6 181 (0.1) Gross profit 2 215 2 187 (1.3) Gross profit margin 35.8 35.4 (0.4)pts Other income 277 359 29.6 Store costs (1 506) (1 565) 3.9 Other operating costs (1 019) (1 127) 10.6 Share of profits of associates 168 264 57.1 Trading profit 135 118 (12.6) Pro forma adjusted EBITDA 486 501 3.1

Consolidated results for the quarter ended 26 September 2015

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PRO FORMA ADJUSTED EBITDA

(R millions) Q2:FY15 Q2:FY16 % change

Trading profit 135 118 (12.6) Depreciation & amortisation 263 251 Net asset write off(1) 3 3 Profit from discontinued operations(2) 25 4 Non-recurring costs(3) 93 133 Adjusted EBITDA 519 509 (1.9) Net income from previous card programme(4) (35) (36) Net income from new card programme(5) 2 28 Pro forma adjusted EBITDA 486 501 3.1 Pro forma adjusted EBITDA margin 7.9% 8.1% 0.2 pts

(1) Relates to assets written off in connection with store conversions, net of related proceeds. (2) The results of discontinued operations are included before tax. (3) Relates to costs associated with various strategic initiatives in Q2:FY16 of R119 million, onerous lease charges of R14 million in Q2:FY16 (R53 million in Q2:FY15),restructuring credit of R1 million in Q2:FY16 (R6 million charge in Q2:FY15), lease cancellation cost of R1 million in Q2:FY16 and R34 million in costs associated with the trade receivables book in Q2:FY15. (4) Net income derived from 100% of the trade receivables including finance charges revenue, bad debts and provisions. (5) Pro forma fee earned by Edcon under the new arrangement with Absa, based on 100% of the trade receivables book.

Consolidated results for the quarter ended 26 September 2015

14

COST PROGRAMME UPDATE

(R millions) Q2:FY16

LTM pro forma adjusted EBITDA 2 757 Permanent adjustments: Corporate and operational overhead reductions 152 Renegotiation of contracts 85 LTM pro forma adjusted EBITDA (incl. adjustments) 2 994 Normalised pro forma net debt (1)/LTM pro forma adjusted EBITDA (times) 8.9x Pro forma net debt(2)/LTM pro forma adjusted EBITDA including cost savings (times) 7.3x

1) Net debt has been adjusted by trade receivables still to be sold of R350 million in Q2:FY16. 2) Based on pro forma net debt of R22,248 million based on the anticipated conversion as a result of the exchange offer.

• LTM savings on contracts mainly relate to credit card intercharge rates negotiated plus rentals renegotiated
• LTM savings on corporate and operational overhead reduction mainly relate to cost savings on reduction of headcount plus savings on move to

customer e-statements

Consolidated results for the quarter ended 26 September 2015

634 979 492 1 810 2 683 106 Net financing costs Closing cash balance 1 544 Tax Capex Financing activities Operating activities Opening cash balance Working capital 2 376

CASH FLOW FOR LTM Q2:FY16

Source: Edcon financials (LTM restated for classification of Hollard associate, consumables and supplier contract) 1. Includes R42m from proceeds of sale from trade receivables 2. Includes R177m net for derivatives settlement and R7m for currency adjustments 3. Increased purchases leading towards the peak trading period combined with working capital initiatives and R331m relating to fees received not yet recognised in profit and loss

Working Capital

1

2 3

R’m

• 300

Trade receivables,

• ther receivables

& prepayments

289

Inventories Trade and

• ther payables

1 223

15

Consolidated results for the quarter ended 26 September 2015

16

NET DEBT AND PRO FORMA NET DEBT

(R millions)(1) Q2:FY15 Drawn Q2:FY16 Drawn Pro forma(2)

Super senior secured ZAR Revolving credit facility(3) 1 601 3 144 3 144 ZAR Floating rate notes due 4 April 2016 J+625bps 1 002 1 007 1 007 EUR Super senior PIK notes due 30 June 2019 8.0% 338 1 806 Senior secured ZAR term loan due 16 May 2017 J+700bps 4 036 4 147 4 147 EUR fixed rate note due 1 March 2018 9.5% 8 536 9 440 9 440 USD fixed rate note due 1 March 2018 9.5% 2 772 3 455 3 455 EUR Senior secured PIK notes due 30 June 2019(4) 9.75% 564 Deferred option premium 1 178 1 077 1 077 Lease liabilities 382 359 359 Senior EUR fixed rate notes due 30 June 2022(5) 5.0% 5 835 52 52 EUR fixed rate notes due 30 June 2019 13.375% 3 120 EUR fixed rate notes due 30 June 2019 13.375% 3 763 Other loans(6) 203 369 369 Gross debt 25 545 30 271 25 420 Derivatives (1 498) (1 628) (1 628) Cash and cash equivalents (492) (1 544) (1 544) Net debt 23 555 27 099 22 248 Lower debt 4 851

1) FX rates at end of Q2:FY15 were R11.22:$ and R14.24:€ and at end of Q2:FY16 were R13.92:$ (Q1:FY16 R12.20:$) and R15.60: € (Q1:FY16 R13.64:€). 2) Pro forma for implementation of the exchange offer including conversion of the Option A and B notes to new super senior PIK notes and new senior secured PIK notes (excluding fees estimated at EUR26 million). All EUR notes are converted at the FX rates at the end of Q2:FY16. 3) The total limit under the super senior revolving credit facility is R3 717 million which matures on 31 December 2016. The maximum utilisation of the revolving credit facility during Q2:FY16 was R3 206 million. At the end of the period R413 million of the facilities were utilised for guarantees and LC’s. A R1 billion super senior liquidity facility is also in place, but not drawn as at 26 September 2015, with an initial termination date of 30 September 2016, subject to exercise of an extension option up to the earlier of six months following the initial termination date and the termination date in respect of the revolving credit facility. 4) The notes are 9.75% cash pay with a toggle option to 12.75% PIK 5) The maturity of the original 2019 Notes not tendered has been extended to 30 June 2022 and the interest rate reduced to 5.0% as part of the amendments. In Q2:FY15, the EUR Fixed rate notes had a maturity of 30 June 2019 and cash pay interest of 13.375% prior to the exchange offer. 6) The portion of the debt relating to Zimbabwe was R343 million in Q2:FY16 and R184 million in Q2:FY15.

Consolidated results for the quarter ended 26 September 2015

LIQUIDITY AND BALANCE SHEET MANAGEMENT

HEDGING OF GROSS DEBT

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• Total net debt increased mainly due to currency decline, issue of €21

million in aggregate principal amount of new super senior 8% PIK Notes as an early consent consideration, capitalisation of PIK interest

• n 2019 notes, and a higher draw on the RCF
• Conversion of Option A & Option B PIK notes to be concluded before

31 December 2015

• Net cash interest decreasing by circa R1 billion a year on an LTM basis
• Net indebtedness on proforma basis decreasing by circa R4.8 billion
• Next peak in working capital cycle anticipated in late November 2015
• Cash and cash equivalents of R1,544 million
• Additional facilities of R1,136 million
• 2016 Refinancing process
• Process well advanced and good progress being made

32% 11% 29% 27% 1%

ZAR USD (hedged) EURO (hedged) EURO (unhedged) Other loans Note: 91% of 2018 principal hedged, 2019 principal unhedged

Q2 : FY16 RESULTS

Financial Review

Loo

• oking for
• rward

Strategic and operational update

Consolidated results for the quarter ended 26 September 2015

19

FORWARD LOOKING THEMES

• Entrenching customer-centric focus
• Maintaining store portfolio and improving productivity
• Optimise balance between private label and international brands
• Improving digital offering
• Build Africa business
• Improve supply chain with quick response capabilities
• Simplify the model and retain cost management efforts
• Further utilisation of the customer loyalty platform
• Stabilise impact of credit

Q2 : FY16 RESULTS

For more information Our website: www.edcon.co.za Edcon contacts for more information: Deputy Chief Financial Officer Richard Vaughan investorrelations@edcon.co.za

Thank You

• u