PRESENTATION OF CONSOLIDATED RESULTS For the 52 weeks ended 29 March - - PowerPoint PPT Presentation

PRESENTATION OF CONSOLIDATED RESULTS

For the 52 weeks ended 29 March 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 sales1 Credit extension1,2

1) Stats SA and SARB – May 2014 2) Other Loans and advances

3.2% 8.9% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Total retail sales CFT Sales 74.0% 74.5% 75.0% 75.5% 76.0% 76.5% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% Credit extension Debt-to-Household Income

• CFT sales growth consistently outperforming total retail sales
• GDP growth slowing to 1.9% in 2013 (vs 2.5% in 2012), contracted by 0.6% in Q1 of the 2014 calendar

year

• Worsening trends in household disposable income growth (average growth 7.7% in 2013 vs 9.9% in 2012)

and slower credit growth, both negative for spending

• April CPI of 6.1% y-o-y, driven by higher food and fuel prices
• USDZAR and EURZAR depreciated 15.3% and 23.4% respectively between March 2013 and March 2014

5

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

6

PERFORMANCE AGAINST STRATEGIC LEVERS

Sales growth Margin

7

Credit and cash sales growth New space growth

• GP Margin relatively flat at 36.5% (36.7% in

FY13)

• Product cost inflation due to weaker ZAR
• Negatively impacted by increased clearance activity

in Edgars

• Pleasing Discount Division performance due to

changes implemented in previous years

• Average space growth of 5.2% in line with

strategy

• Meaningful space growth in Edgars due to

acquisitions and refurbishment project

• Discount space increase driven mainly by

expansion outside of South Africa

• Right-sizing of existing CNA stores

All numbers include Edgars Zimbabwe. All quarters refer to FY14

9.2 1.9 5.1 3.2 5.9 3.3 9.1 7.9 0.3 0.5

• 0.3

1.2

• 1.5

3.0 FY12 FY13 FY14 1Q 2Q 3Q 4Q Retail Sales (%) Comp Sales (%) 14.0 3.0

• 4.3
• 4.2
• 3.7
• 6.8
• 1.9

4.5 0.7 15.3 12.2 16.4 14.2 17.3 FY12 FY13 FY14 1Q 2Q 3Q 4Q:FY14 Credit sales (%) Cash Sales (%)

Retail Sales LFL

EDGARS DIVISION – OPERATIONAL PERFORMANCE

• Diversity between cash and credit

sales growth reflecting both

• pportunity and challenges
• Cash sales growth of 16.4%
• Credit sales decline of 6.4%
• LFL impacted by negative credit

sales growth and exacerbated by refurbishment program

• Sound brand rollout and performance
• Improved sourcing negatively

impacted by higher level of promotional activity required due to declining credit sales and refurbishment initiative

• Cost inflation (due to weaker ZAR)

not able to be passed on

Sales growth Margin 2.7% 2.7%

GP Margin 38.6%

1.1pts

1.2 3.4 0.6 7.4 2.7

• 3.0
• 1.6
• 4.8

0.7

• 2.7

Q1 Q2 Q3 Q4 FY14 Retail Sales (%) Comp Sales (%)

All quarters refer to FY14

8

EDGARS DIVISION – CAPITAL INVESTMENT

• Total of R873m spent in the year
• Spend in Q4:FY14 of R82 million
• Edgars refurbishment project completed
• Cumulative spend of R542 million at end of FY14

including expansion capex for those stores

• Future capex to be spent more on expansion
• 53 stores opened (16 closures and

conversions)

• 31 Edgars Active, 10 Edgars,

3 Boardmans, 5 Red Square, 4 Edgars Shoe Gallery

• Strong rollout of standalone stores
• 39 Inglot, La Senza and Accessorize
• 13 new mono-branded stores
• 10 new stores outside of SA

Capex FY14 (R millions) New space growth

9

Average 759.3m2 478 stores

6.1%

Refurbishment 602; 69% Expansion 271; 31%

Retail Sales LFL

DISCOUNT DIVISION – OPERATIONAL PERFORMANCE

• Diversity between cash and credit

sales growth reflecting both

• pportunity and challenges
• Cash sales growth of 16.9%
• Credit sales decline of 3.9%
• All merchandise groups performed

well

• Buying and pricing strategies

continue to yield positive results

• Cost inflation (due to weaker ZAR)

well managed

Sales growth Margin 7.4% 3.2%

GP Margin 34.1%

1.1pts

4.7 10.3 7.8 7.0 7.4 1.7 5.4 2.8 3.1 3.2 Q1 Q2 Q3 Q4 FY14 Retail Sales (%) Comp Sales (%)

10

All quarters refer to FY14

DISCOUNT DIVISION - INVESTMENT

• Total of R212 million spent in the year
• R5 million in Q4:FY14
• Well balanced expansion, mainly outside South

Africa, and refurbishment

• 65 stores opened (32 closures and

conversions)

• 41 Jet
• 7 Jet Mart
• 17 Legit
• 22 new stores outside of

South Africa

• Portfolio management key

Capex FY14 (R millions) New space growth

11

Refurbishment 102; 48% Expansion 110; 52%

Average 608.5m2 685 stores

4.9%

CNA DIVISION

• Sales driven by

continued growth in digital merchandise sales

• Credit a much

smaller part of the business

• Trading density

improvements

• Space decrease in

line with right sizing strategy

• Cumulative capex

spend of R16m for the year

Sales growth New space growth Margin

• Margin decrease

due to mix changes as well as increased promotions

Retail Sales LFL

3.2% 3.1%

Average 88.0m2 191 stores

1.7%

GP Margin 31.1%

1.3pts

4.5 3.6 0.3 5.2 3.2 3.6 1.6 0.8 4.7 3.1 Q1 Q2 Q3 Q4 FY14 Retail Sales (%) Comp Sales (%)

12

FINANCIAL REVIEW

KEY CONSIDERATIONS FOR FY14

• Credit: Cash sales ratio of 47.3%* as cash sales

grow 15.3% while credit sales decline 4.3%

• Currency devaluation
• Easter shift, half of Easter in FY15
• Refinancing impact
• Negotiations underway to establish African Bank

as a secondary credit provider

• relationship with primary credit provider, Absa not

affected

• Implementation of Absa scorecard
• Covenant changes
• Permanent cost savings

During the financial year Events after the reporting period

*Including Edgars Zimbabwe

14

11.78 14.54 9.16 10.56

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

EURZAR USDZAR

FY13 FY14

STATEMENT OF COMPREHENSIVE INCOME

Q4:FY13 Q4:FY14 % change (R millions) FY13* FY14 % change

5 468 5 965 9.1 Retail sales 25 670 26 974 5.1 1 898 2 083 9.7 Gross profit 9 431 9 842 4.4 34.7 34.9 0.2 pts Gross profit margin 36.7 36.5 (0.2) pts 256 288 12.5 Other income 763 1 031 35.1 (1 265) (1 507) 19.1 Store costs (5 076) (5 700) 12.3 (946) (1 233) 30.3 Other operating costs (4 427) (4 613) 4.2 184 205 11.4 Income from joint operation 666 739 11.0 127 (164) (229.1) Trading profit 1 357 1 299 (4.3) 367 279 (24.0) Pro forma adjusted EBITDA 2 760 2 687 (2.6) * Restated for the 2013 financial period for the consolidation of Edgars Stores Limited Zimbabwe and re-presented for the discontinued operations

15

PRO FORMA ADJUSTED EBITDA

Q4:FY13 Q4:FY14 % change (R millions) FY13 FY14 % change

127 (164) Trading profit 1 357 1 299 263 289 Depreciation & amortisation 1 056 1 137 1 7 Net asset write off(1) 22 11 17 (50) Profit/(loss) before tax from discontinued

• perations

351 (86) (19) 139 Non-recurring costs(2) 545 266 389 221 (43.2) Adjusted EBITDA 3 331 2 627 (21.1) (36) 52 Net income from previous card programme (3) (738) 29 14 6 Net income from new card programme (4) 167 31 367 279 (24.0) Pro forma adjusted EBITDA 2 760 2 687 (2.6) 6.7% 4.7% (2.0) pts Pro forma adjusted EBITDA margin 10.8% 10.0% (0.8) pts

1) Relates to assets written off in connection with store conversions, net of related proceeds. 2) Relates to a) FY2013 costs relating to Project Rugby R516 million, transitional costs R83 million, refinancing costs R87 million and Master card income of R141 million and b) FY14 costs relating to

Project Rugby R116 million, restructure cost R93 million and post retirement liability of R57 million.

3) Net income derived from 100% of the trade receivables including finance charges revenue, bad debts and provisions.

4) Pro forma fee earned by Edcon under the new arrangement with Absa, based on 100% of the trade receivables book. 16

UPDATE ON COST PROGRAMME

(R millions) FY14

LTM pro forma adjusted EBITDA (reported) 2 687 Permanent adjustments: Corporate and operational overhead reductions 143 Renegotiation of contracts 89 LTM pro forma adjusted EBITDA (incl. adjustments) 2 919 Normalised pro forma net debt (1)/LTM pro forma adjusted EBITDA (times) 7.6

• Benefit of approx R185 million included in the year’s profit
• New cost savings initiatives well advanced and make up

R191 million of R232 million LTM savings anticipated

17

(1) Net debt has been adjusted by trade receivables still to be sold of R618 million R22 678 m (net debt) - R618 m = R22 060 m (normalised pro forma net debt )

COST ANALYSIS FOR 2014

• Store costs increased 12.3%
• Mainly due to new space
• Increases more pronounced in Edgars division
• Rental and manpower costs (which constitute

61.7% of store costs) increased 12.8% and 9.9% respectively

Other operating costs Store costs

(R millions) FY13 FY14 % change Other operating costs 3 651 3 791 3.8 Store card administration 231 556 Non-recurring costs 545 266 Total other operating costs 4 427 4 613 4.2

• Good cost containment with other operating costs

increasing by 3.8%

• Store card administration in for only 5 months in

prior year and lesser portion of the trade receivables book

• Lower non-recurring costs
• Implementation of sale of trade receivables in FY13
• Completed sale of trade receivables in FY14
• Restructure costs

18

CAPEX INVESTMENT

• Total capex, excluding leases, of R1,349m for

FY14

• 138 new stores opened (incl. 8 conversions)
• R520m increase in store spend to R1,101m* in

FY14 from R581m in FY13

• Edgars expansion refurbishment project costs of

R542m for FY14

• As expected, R174 million more spent than

previous estimate of R1,175m for FY14 as projects were pushed forward

• R1,051 million budgeted for FY2015 (including

Edgars Zimbabwe)

19

Total capex breakdown

(R millions) 873 212 16 194 22 32 Edgars Discount CNA IT Other Zimbabwe

Store capex mix*

(R millions) 382 719 Expansion Refurbishment

* Excluding Edgars Zimbabwe

Cashflow for FY14

20

2 806 1 331 2 035 371 410 710 Net financing costs Capex & investments Working capital 114 Currency adjustments Closing cash balance Net financing and other 3 Operating activities Opening cash balance

(1) Includes R431m of capital expenditure and R2m of other investing activities (2) Includes R1m FX movement, R266m of non recurring costs, tax of R115m and net financing activities of R752m (1)

• 635
• 308

Trade and

• ther payables

213 Inventories Trade and other receivables Working capital

(2)

(R millions) FY2013 Drawn (1) FY2014 Drawn (1) Super senior secured Revolving credit facility in ZAR 1 456 1 210 2016’s ZAR Floating notes – J+625bps 1 010 1 010 Senior secured 2017 ZAR Term loan – J+700bps 4 008 2014’s Floating notes – E+325bps 4 543 2018’s € Fixed rate – 9.5% 6 933 8 691 2018’s $ Fixed rate – 9.5% 2 245 2 603 Deferred option premium 305 1 102 Lease liabilities 313 273 Senior 2015’s € FRN’s – E+550bps 4 406 2019’s € FRN’s – 13.375% 5 948 Other loans(2) 182 173 Gross debt 21 393 25 018 Derivatives (1 028) (1 930) Cash and cash equivalents (710) (410) Net debt 19 655 22 678

LIQUIDITY AND CAPITAL RESOURCES ADEQUATE

• Undrawn RCF of R2,757 million
• R3 717m matures 31 December 2016
• R250m matured 31 March 2014
• Significant refinancing during the year
• meaningfully extending the maturity profile of debt.
• All currency hedged, except 2019 fixed

rate notes

• All coupons fully hedged to Mar and Dec 2015

21

30% 10% 35% 24% 1%

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

(1) FX rates at end FY12 were R7.71:$ and R10.29:€ and at end FY13 were R9.16:$ and R11.78:€ and at end FY14 were R10.56:$ and R14.54:€ (2) The portion of this debt relating to Zimbabwe was R182m in FY13 and R170 million in FY14

Hedging of gross debt

LOOKING FORWARD

23

OUTLOOK

• Finalise and implement on a second look credit provider solution to grow credit sales
• Gross margin management through improved sourcing strategy and currency management
• Store and overhead cost containment emphasis
• Working capital focus
• Continue to develop winning Thank U loyalty card programme
• Execute on space growth pipeline and vision for rest of Africa
• Right size CNA stores
• Leverage specialty and mono-brand store opportunities
• New management team changes drive energy and focus

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