PRESENTATION OF CONSOLIDATED RESULTS For the quarter ended 28 June - - PowerPoint PPT Presentation

PRESENTATION OF CONSOLIDATED RESULTS

For the quarter ended 28 June 2014

AGENDA

Jürgen Schreiber CEO

Strategic and

• perational update

Jürgen Schreiber CEO

Looking forward Financial review

Toon Clerckx CFO

2

STRATEGIC AND OPERATIONAL UPDATE

VISION

Creating unique experiences Focused customer groupings Exceptional value proposition and choice of product Distinctive retail formats

4

TRADING ENVIRONMENT

Retail sales(1) Credit extension(2)

5

• Consumer remains under pressure
• Rising use of revolving consumer credit to supplement household budgets(3)
• Unsecured lending cautious
• June CPI remained at 6.6% (from May) mainly driven by transport and housing utilities
• MPC raised rates by 25 bps in July in an effort to strike a balance between increasing inflation and

weakening economy

• ZAR remains range bound following weakening in the previous quarter

1) 3mma retail sales y-o-y%; Stats SA 2) SARB – August 2014 3) TransUnion SA Consumer Credit Index Report_Q1 2014

13.3% 74.5% 73.5% 74.0% 74.5% 75.0% 75.5% 76.0% 76.5% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Other loans & advances Debt-to-Household income 1.5% 2.2%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Total retail sales CFT sales

KEY STRATEGIC LEVERS

• Revamp stores and service
• Store optimisation
• Assortment: brands and improved private label
• Leverage loyalty programme

Comparable store growth

• Sourcing
• Pricing management
• Group efficiencies
• Margin

expansion

• Grow existing format footprint
• Rollout of tested new formats
• Expand into rest of Africa
• Right size CNA

New space growth

• Implement a second look credit provider
• Broaden financial services offering

Credit

Working capital management

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PERFORMANCE AGAINST STRATEGIC LEVERS

Sales growth Margin & space

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Credit and cash sales growth Working capital management

• GP margin of 37.5%, down 1.4 pnts
• Impacted by product mix and clearance
• Average space growth of 5.1%
• Growth outside of SA of 15.5% (excl. Zimbabwe)
• Stock investment reduced by R268 million
• Trade and other payables increased by

R8 million, despite lower stock

• Sale of majority of Namibia trade receivables

book on 1 July 2014 of R314 million

All numbers include Edgars Zimbabwe.

9.2 1.9 5.1 3.2 5.7 7.9 0.3 0.5

• 0.3

2.6 FY12 FY13 FY14 1Q:FY14 1Q:FY15 Retail Sales (%) Comp Sales (%) 14.0 3.0

• 4.3
• 4.2
• 3.3

4.5 0.7 15.3 12.2 15.1 FY12 FY13 FY14 1Q:FY14 1Q:FY15 Credit sales (%) Cash Sales (%)

Retail Sales LFL

EDGARS DIVISION – OPERATIONAL PERFORMANCE

• Cash sales growth of 19.7%
• Credit sales reduced 3.3%
• Sound performance of converted

stores

• Brands continue rollout, including

mono-branded stores

• River Island launch
• Margin expected to remain under

pressure in the short term

• Clearance activity, substantially

complete

• Mix changes, handsets
• Inflation adequately passed on

Sales growth Margin 6.3% 2.8%

GP Margin 40.3%

1.7pts

8

1.9 1.2 6.3

• 2.5
• 3.0

2.8 Q1:FY13 Q1:FY14 Q1:FY15 Retail Sales (%) Comp Sales (%)

EDGARS DIVISION – CAPITAL INVESTMENT

• Total of R147 million (R181 million Q1:FY14)

spent in the quarter

• Minor refinements following refurbishment

completed in prior year

• Capex being spent more on expansion, including

existing store chains, mono-branded stores and stores outside of SA

• 19 new stores opened (excl. 5

closures)

• Edgars store chains
• 10 Edgars Active, including 5 outside of

SA, 4 Edgars and 1 Boardmans

• Rollout of 4 new mono-branded

stores

Capex (R millions) New space growth

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Average 784m2 492 stores

5.9%

Refurbishment 53; 36% Expansion 94; 64%

Retail Sales LFL

DISCOUNT DIVISION – OPERATIONAL PERFORMANCE

• Cash sales growth of 13.3%
• Credit sales reduced 3.5%
• Sound performance from ladieswear

and footwear

• Childrenswear range improvements

getting positive customer response

• Impacted by product mix and

clearance

• Continue to drive value as part of

brand formula

Sales growth Margin 5.8% 2.2%

GP Margin 34.8%

0.9pts

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1.8 4.7 5.8 5.1 1.7 2.2 Q1:FY13 Q1:FY14 Q1:FY15 Retail Sales (%) Comp Sales (%)

DISCOUNT DIVISION - INVESTMENT

• Total of R60 million (R85 million Q1:FY14) spent

in the quarter

• Expansion weighted to stores outside of South

Africa

• 22 new stores opened (excl. 11

closures)

• 15 Jet
• 1 Jet Mart
• 6 Legit
• Included in above are 8 new stores
• utside of South Africa

Capex FY14 (R millions) New space growth

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Refurbishment 19; 32% Expansion 41; 68%

Average 627m2 696 stores

5.2%

CNA DIVISION

• Continued growth

in digital merchandise sales

• Credit as a sales

driver limited

• Trading density

improvements continue

• Right sizing of

stores continued in quarter

• Capex spend of

R1m for the quarter

Sales growth New space growth Margin

• Margin decrease

due to ongoing mix changes

Retail Sales LFL

0.9% 2.3%

Average 85m2 192 stores

5.6%

GP Margin 29.0%

3.1pts

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1.9 4.5 0.9 3.8 3.6 2.3 Q1:FY13 Q1:FY14 Q1:FY15 Retail Sales (%) Comp Sales (%)

FINANCIAL REVIEW

KEY CONSIDERATIONS FOR 1Q:FY15

• Weak credit environment
• Credit: Cash sales ratio of 46.5%*
• Cash sales grew 15.1% while credit sales declined

3.3%

• Gross margins under pressure
• Costs well managed
• Store restructure benefits
• Overhead cost reductions
• Rental investments as part of space growth

strategy

• Working capital management showing cashflow

benefits

• Both stock and accounts payable improvements
• Currency volatile but range bound during the

quarter

• Sale of the majority of the Namibian book on

1 July for R314 million

During the quarter Events after the reporting period

*Including Edgars Zimbabwe

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STATEMENT OF COMPREHENSIVE INCOME

(R millions) Q1:FY14 Q1:FY15 % change

Retail sales 6 205 6 561 5.7 Gross profit 2 412 2 458 1.9 Gross profit margin 38.9 37.5 (1.4) pts Other income 243 261 7.4 Store costs (1 295) (1 467) 13.3 Other operating costs (1 138) (1 066) (6.3) Income from joint operation 174 177 1.7 Trading profit 396 363 (8.3) Pro forma adjusted EBITDA 727 679 (6.6)

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PRO FORMA ADJUSTED EBITDA

(R millions) Q1:FY14 Q1:FY15 % change

Trading profit 396 363 (8.3) Depreciation & amortisation 268 263 Net asset write off(1)

• 3

Loss before tax from discontinued operations(2) (15) (2) Non-recurring costs(3) 66 33 Adjusted EBITDA 715 660 (7.7) Net income from previous card programme (4) 3 11 Net income from new card programme (5) 9 8 Pro forma adjusted EBITDA(6) 727 679 (6.6) Pro forma adjusted EBITDA margin 11.7% 10.3% (1.4) pts

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(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 the sale of the trade receivables book in Q1:FY15 of R15m (Q1:FY14 of R41m) and costs associated with corporate and operational overhead reductions in Q1:FY15 of R18m (Q1:FY14 of R25m). (4) Pro forma income “lost” to Absa for the portion of the book sold including finance charges revenue, bad debts and provisions. (5) Pro forma fee earned by Edcon under the new arrangement with Absa. (6) The pro forma adjustments have been made as though 100% of the book was sold through the entire period.

UPDATE ON COST PROGRAMME

(R millions) FY15

LTM pro forma adjusted EBITDA (reported) 2 639 Permanent adjustments: Corporate and operational overhead reductions 151 Renegotiation of contracts 97 LTM pro forma adjusted EBITDA (incl. adjustments) 2 887 Normalised pro forma net debt (1)/LTM pro forma adjusted EBITDA (times) 7.6x

• Majority of savings relate to manpower savings from

restructure

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(1) Net debt has been adjusted by trade receivables still to be sold of R665 million

COST ANALYSIS FOR 2014

• Store costs increased 13.3%
• Rental contributes 34.4% of store costs and

increased 15.3%

• Increased space and standard rental increases
• Manpower contributes 26.6% of store costs and

increased 4.3%

• Positively impacted by the restructure

Other operating costs Store costs

(R millions) Q1:FY14 Q1:FY15 % change Other operating costs 935 898 (4.0) Store card administration 137 135 Non-recurring costs 66 33 Total other operating costs 1 138 1 066 (6.3)

• Other operating costs decreased by 6.3%
• Well managed overhead costs
• Store card credit administration costs now more

comparable

• More than 90% of the book was sold in both reported

quarters

• Ongoing initiatives to increase efficiency
• Lower number of credit customers
• Non-recurring costs are less of a feature

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CAPEX INVESTMENT

• Total capex, excluding leases, of R267m for the

quarter

• 43 new stores opened
• Investment weighted towards expansion
• Existing key formats, mono-branded stores as well

as stores outside of South Africa a priority

• Refurbishment project now complete in Edgars
• Smaller refinements ongoing
• R1,051 million budgeted for FY2015 (including

Edgars Zimbabwe)

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Total capex breakdown

(R millions) 147 60 1 49 7 3 Edgars Discount CNA IT Other Zimbabwe

Store capex mix*

(R millions) 135 73 Expansion Refurbishment

* Excluding Edgars Zimbabwe

317 360 129 293 496 648 410 Financing activities Capex Working capital Operating activities Opening cash balance Non- recurring costs 33 Net financing costs Tax 16 Closing cash balance

Cashflow for Q1:FY15

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(1) Includes R116m on proceeds on sale and leaseback of property, fixtures, equipment and vehicles (2) Includes R15m of currency adjustments (1)

Working capital

(2)

268 17 Inventories Trade and other receivables Trade and

• ther payables

8

(R millions) Q1:FY14 Drawn (1) Q1:FY15 Drawn (1) Super senior secured Revolving credit facility in ZAR(2) 510 888 2016’s ZAR Floating notes – J+625bps 1 010 1 010 Senior secured 2017 ZAR Term loan – J+700bps 3 986 4 016 2018’s € Fixed rate – 9.5% 7 615 8 654 2018’s $ Fixed rate – 9.5% 2 423 2 612 Deferred option premium 583 1 127 Lease liabilities 304 390 Senior 2015’s € FRN’s – E+550bps 4 820 2019’s € Fixed rate – 13.375% 5 920 Other loans(3) 176 200 Gross debt 21 427 24 817 Derivatives (1 394) (1 655) Cash and cash equivalents (480) (496) Net debt 19 553 22 666

LIQUIDITY AND CAPITAL RESOURCES ADEQUATE

• Undrawn RCF of R2,829 million
• R3 717m matures 31 December 2016
• ZAR appreciated marginally in the quarter
• R14.54 to R14.45 compared to a 9% decline in the

prior comparative quarter

• All currency hedged, except 2019 fixed

rate notes

• All coupons fully hedged to Mar and Dec 2015

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30% 11% 35% 24% 1%

ZAR USD (hedged) EURO (hedged) EURO (unhedged) Other loans

(1) FX rates at Q1:FY14 were R9.87:$ and R12.86:€ and at Q1:FY15 were R10.59:$ and R14.45:€ (2) 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 the first quarter 2015 was R2,340 million (3) The portion of this debt relating to Zimbabwe was R180m in Q1:FY15 and R176 million in Q1:FY14

Hedging of gross debt

LOOKING FORWARD

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OUTLOOK

• Second look credit provider solution to grow credit sales
• Gross margin management opportunities remain
• Includes clearance management
• Continue with sourcing strategy and currency management
• Continued overhead and store cost management
• Further working capital management possibilities
• Committed to space growth pipeline and vision for rest of Africa
• Evolve winning Thank U loyalty card programme

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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