Presentation of consolidated results For the quarter ended 29 - - PowerPoint PPT Presentation

Presentation of consolidated results

For the quarter ended 29 December 2012

2

Overview

Operational and strategic update

Jürgen Schreiber

CEO

Financial review

Mark Bower

Deputy CEO and CFO

Looking forward

Jürgen Schreiber

CEO

Operational and strategic update

4

Vision

Holistic experience supported by credit, loyalty, club, financial services and broadest footprint in Africa. Distinctive retail formats Focused customer groupings Exceptional value proposition and choice of product Creating unique experiences

5

Trading environment

 GDP growth of 2.6% for 3Q2012  CPI inflation 5.7% (Dec 2012) and 5.4% (Jan 2013)

 Housing & utilities biggest contributors

 Repo rate remains at 15 year low of 5% with no expectation of short term increase  FNB/BER Consumer Confidence Index down 2 points in 4Q2012

Macro backdrop

6

Salient features for the quarter

 Phase 1 of Edgars refurbishment completed on time  Piloting new specialty store, Edgars Shoe Gallery  First mono-branded store launched  Sale of trade receivables finalised  8.8 million loyalty customers

Ave space growth

3.7%

Delivery against strategic commitments progressing to plan

 Same store retail sales down 3.4%  Pro forma adjusted EBITDA down 6.4%  Changes to direct sourcing and quick response

Retail sales

0.4%

Commitment to strategic initiatives negatively impact quarter‟s results

 Gross profit up 1.7%  Closure of Discom and lower cellular sales

GP margin

0.8pts

Changes in product mix improve profitability

 Sale of receivables and securitisation debt of R4.3 billion repaid  Issuance of a further €300 million of 2018 notes  Repayment of €754 million of the 2014 notes  Conclusion of a R4.12 billion senior secured term loan facility to be used to call the remaining 2014 notes

Capital structure management well progressed

7

Operational and strategic update

 Sales positively impacted by

• Continued rollout of Edgars Active

stores

• Increased promotional activity

 Strategic change disruptive, but manageable

• Sourcing changes
• Phase I refurbishment of all 72

stores now completed

 Increased space due to new stores rolled out

• Edgars Active
• Standalone Topshop stores
• Edgars Shoe Gallery stores

Sales

Up 4.1%

(Q2:4.9%)

LFL

Down 2.1%

(Q2:-2.4%)

GP margin

Down 0.1% pts to 41.0%

(Q2:38.9%)

Stores

Net increase of 80 to 383

Space

Ave up 8.4% Closing 723,381m2 24 41

Capex

(R millions)

Expansion Refurbishment

Edgars division

All numbers are compared to same quarter in prior year, unless denoted otherwise

Sales

Up 4.1%

(Q2:4.9%)

LFL

Down 2.1%

(Q2:-2.4%)

GP margin

Down 0.1 pts to 41.0%

(Q2:38.9%)

Stores

Net increase of 80 to 383

Space

Ave up 8.4% to 723,381m2

8

Operational and strategic update

 Sales growth negatively impacted

• Strategy execution
• Stock delivery delays
• Lower mobile phone sales
• Discontinuation of Discom format

 Margins supported by

• Lower promotional activity
• Changes in product mix
• Sourcing initiatives

 Large investment in refurbishment

• f stores in FY13

 Space down due to closure of Discom

Discount division

All numbers are compared to same quarter in prior year, unless denoted otherwise

8 83

Capex

(R millions)

Expansion Refurbishment

Sales

Down 5.9%

(Q2:-0.1%)

LFL

Down 5.8%

(Q2:4.9%)

GP margin

Up 1.6 pts to 34.3%

(Q2:31.3%)

Stores

Net decrease of 39 to 641

Space

Ave down 0.4% to 581,445m2

9

Operational and strategic update

 Sales negatively impacted by

• Continued closure of stores
• Lower mobile phone sales

 Stable same-store retail sales  Store optimisation and rationalisation projects on existing stores

CNA Division

All numbers are compared to same quarter in prior year, unless denoted otherwise

Sales

Down 1.5%

(Q2:-1.1%)

LFL

Down 0.6%

(Q2:2.7%)

GP margin

Down 0.3 pts to 31.8%

(Q2:30.7%)

Stores

Net decrease of 4 to 196

Space

Ave down 3.0% to 89,631m2

1 10

Capex

(R millions)

Expansion Refurbishment

10

Strategy – key levers

Comp store growth

Revamp stores and service Improve products and assortment Leverage loyalty programme

New space growth

Grow existing format footprint Introduce new formats Expand into rest of Africa

Margin expansion

Retail price management Sourcing and input price management Store

• ptimisation

Group support function efficiencies

Credit

Realise

• pportunities

Financial review

12

Key financial considerations

 No cash tax payments until Sep ‟14  Curtailment of use of R9b of assessed losses (NOL‟s), FY13  Only 50% of future interest on 14‟s and 15‟s, and replacement debt, deductible  100% of interest deductible post IPO  Re-issue of Q2:FY2013 financial statements required

Tax settlement

 OtC(1) unwound, so deconsolidation of OtC(1) no longer appropriate  Discontinued operation post 1 Nov „12 only includes portion of the book not sold (R1.367 billion)  Expenses associated with credit included in “other

• perating costs”
• Fee from Absa
• Cost of administrating the book

Sale of trade receivables

 Issuance of €300 million of senior secured 2018 notes  Repayment of €754 million of the 2014 notes  Conclusion of a R4.12 billion senior secured term loan facility to be used to call the remaining 2014 notes  Hedges on repaid 2014 notes realised

Events after the reporting period

(1) OntheCards Investments II (Pty) Ltd

13

Statement of comprehensive income

Q3:2012 Q3:2013 % change (R millions) YTD:2012 YTD:2013 % change 8 386 8 355

• 0.4

Retail sales 19 602 19 808 1.1 3 102 3 155 1.7 Gross profit 7 226 7 339 1.6 37.0% 37.8% 0.8pts Gross profit margin 36.9% 37.1% 0.2pts 151 195 29.1 Other income 420 628 49.5

• 1 316
• 1 367

3.9 Store costs

• 3 504
• 3 719

6.1

• 1 056
• 1 666

57.8 Other operating costs

• 2 775
• 3 568

28.6 128 167 30.5 Income from JV 377 482 27.9 1 009 484 Trading Profit 1 744 1 162 1 370 1 283

• 6.4

Pro forma adjusted EBITDA 2 700 2 419

• 10.4

14

Pro forma adjusted EBITDA

(R millions) Q3:2012 Q3:2013 % change EBITDA 1 747 161 Transitional projects expenditure 57 566 Advisory fees in relation to debt issuance 92 Net fair value movement on notes and derivatives

• 229

530 Net asset write off 5 5 Write off of intangible assets 79 adjusted EBITDA 1 672 1 341 Net income from prev. card programme (1)

• 311
• 74

Net income from new card programme (2) 9 16 Pro forma adjusted EBITDA 1 370 1 283

• 6.4

1) Income “lost” to Absa for the portion of the book sold incl. finance charges revenue, bad debts and provisions 2) Fee earned by Edcon under the new arrangement with Absa

• Pro forma adjusted EBITDA is adjusted to exclude transitional costs and to take into account the

transaction with Absa

15

59% 7% 34%

GP contribution

Edgars CNA Discount

Divisional analysis

Division Total retail sales growth % Same store sales growth % Gross profit margin % Q3:12 Actual Q3:13 Actual Q3:12 LFL(1) Q3:13 LFL(1) Q3:12 Actual Q3:13 Actual Edgars 13.0 4.1 8.7

• 2.1

41.1 41.0 Discount 11.7

• 5.9

12.7

• 5.8

32.7 34.3 CNA 11.1

• 1.5

11.2

• 0.6

32.1 31.8 Total 12.3

• 0.4

10.5

• 3.4

37.0 37.8

(1) Like-for-like

 Strong prior year comparative sales compound Edgars and Discount performance  Group GP margins improved despite heavy promotional activity in Edgars, boosted by product mix changes within Discount  African sales contributed 6.5% of retail sales for 3Q FY13

54% 8% 38%

Revenue contribution

Edgars CNA Discount

16

Cost analysis

 Well managed, increasing 3.9% (YTD: 6.1%)  Certain costs increasing above sales growth

• Rental on premises increased 9.8%

(YTD:11.3%), affected also by a 3.7% increase in average space

• Water and electricity increased by 13.7% YTD

 Stable workforce and improved productivity

Store costs Other operating costs

 Excluding transitional costs, increased by 10.1%  Transitional related expenditure increased from R57m to R566m (YTD increased from R109m to R705m)

• Mainly due to sale of the trade receivables including fees

and IT costs related to modification of trade debtors system

17

TY cashflow(1) 10,222 Taxation 24 Net financing costs 83 Capital expenditure 45 Working capital 9,681 Transitional costs 509 Operating activities 235 LY cashflow(1) 1,389

Cashflow for Q3 FY13

(1) Net cashflow from operating activities less investment in capital expenditure

Total 9,681 Payables 257 Rec‟bles sold 8,833 Rec‟bles

• ngoing

966 Inventories

• 375

18

33 134

Capex mix

(R millions) Expansion Refurbishment

Capex investment

 Total capex of R211 million for Q3 FY13 (YTD: R579 million)

• 56 stores opened (incl. 3 conversions)
• 9 stores closed

 Store refurbishment still key to strategy across the group

• R134 million (YTD R318 million) spent
• n refurbishments vs. R69 million in

Q3 FY12

 Spend on information systems infrastructure declined by 24.3%

65 91 11 28 16

Capex breakdown

(R millions) Edgars Discount CNA IT Other corporate capex

Refurbishment key

All numbers are compared to same quarter in prior year, unless denoted otherwise

19

Liquidity and capital resources

 Unwind of OtC(1) completed in the quarter  94% of all foreign debt principal and 100% of coupon hedged to ZAR until March 2014  Net debt/LTM pro forma adjusted EBITDA of 5.7x  Refinanced 2014 FRN‟s after the reporting period – approx 52% of gross debt

(R millions) Drawn(2)

Super senior secured Revolving credit facility in ZAR 199 2016‟s ZAR Floating notes – J+625bps 1 010 Senior secured 2014‟s € FRN‟s – E+325bps 12 705 2018‟s € Fixed rate – 9.5% 3 419 2018‟s $ Fixed rate – 9.5% 2 118 Senior 2015‟s € FRN‟s – E+550bps 4 182 Deferred option premium 352 Lease liabilities 322 Gross debt

24 307

Derivatives (1 131) Cash on hand (6 701) Net debt 16 475

(1) OntheCards Investments II (Pty) Ltd (2) December 31,2012 FX Rates used for translation ZAR/USD R 8.47 ZAR/EURO R11.20

20

Events after the reporting period

4 678 3 515 4 120 1 942

Refinancing of 2014’s

(R millions) (1) Cash and cash equivalents (Absa deal proceeds) New 2018` SSN New ZAR SS term loan Proceeds from termination of derivatives

(1) January 31,2013 FX Rates used for translation ZAR/EURO R12.14 SS = Senior Secured

 Start of Edcon`s strategy to migrate to a ZAR-denominated capital structure  Hedging strategy is currently being evaluated  RCF extension process initiated  Received waivers for 92% of 2016‟s ZAR notes  No significant maturities ahead of 2015

• These will be evaluated appropriately
• Remaining proceeds from sale of

receivables to be used for investments

Looking forward

22

Outlook

 Strong commitment to a clear growth strategy

• Same store growth
• New space growth
• Margin expansion
• Credit

 Closing remaining portion of the book

23

Thank you

For more information  Our website: www.edcon.co.za  Edcon contacts for more information: Executive Investor Relations and Media: Debbie Millar 011 495 4086 / dmillar@edcon.co.za