The PAS Group Limited FY2019 Results Briefing ABN 25 169 477 463 - - PowerPoint PPT Presentation

The PAS Group Limited – FY2019 Results Briefing

ABN 25 169 477 463

29 August 2019

FY2019 Results Summary

Financial Summary

FY2019 FY2018 Total Sales Revenue $272.6 million $249.6 million Underlying EBITDA1 $8.6 million $11.7 million NPAT – Continuing ($1.6 million) ($2.5 million) NPAT – Total ($1.8 million) ($2.9 million)

• Total sales up by 9.2% to $272.6 million.
• Wholesale sales increased by 29.7% to $148.6 million driven by our

Designworks business which was up 46% year on year with net sales of $118.5 million as the business delivered on new contracts won in FY2018 in fashion apparel, sports equipment, footwear and accessories.

• Online sales grew 5.7% on top of the 17.2% growth achieved in FY2018

with Loyalty membership up 37% year on year to 1.3 million members.

• Retail sales reduced by 8.2% to $124 million driven by the closure of 25

marginal or unprofitable stores in line with plan and a decline in like-for- like Retail sales of 4.1% due to the continuation of challenging trading conditions which included reduced concession sales in Department Stores.

• Gross profit margin of 49.2% reflected the 9% change in mix with lower-

margin Designworks wholesale sales making up a larger proportion of

• verall sales compared to FY2018.
• A CODB decrease of 4.2% of sales due to tight cost control, economies of

scale achieved through the expansion of Designworks and the planned retail portfolio rationalisation.

• Underlying EBITDA1 from continuing business of $8.6 million was in line

with guidance and was net of $1.8 million in normalisations, including $0.9m relating to strategic action costs.

1. 1 Underlying EBITDA is a non-IFRS unaudited measure defined for the purpose of this document as earnings before interest, tax, depreciation, amortisation, non-recurring income/expenditure and certain non-cash items such as share based payment expenses recognised in accordance with AASB 2 Share-based payment.

• Net Loss after Tax from the continuing business of $1.6 million was

an improvement of 35.8% on the prior year.

• The Company is taking active steps to divest the White Runway
• business. The results of this business have been disclosed as part of

discontinued operations. The Net Loss after Tax for the total business, including White Runway, was $1.8 million.

• The Group closed the year debt free with a cash surplus of $0.3m.

FY2019 Results Summary

• Whilst the success of the Designworks wholesale business in growing

sales by 46% resulted in increased working capital usage, this was offset by the positive effects of exiting the Black Pepper Independent Wholesale market in H1 FY2019. The net benefit was a $1.4m or 3.9% decrease in the Group’s total working capital year on year.

• The implementation of our new Customer Data Platform was successfully

completed in the first half and has helped deliver annual membership growth of 37% in our loyalty program, which now totals 1.3 million members contributing 78% of total Retail sales.

• The Group continued its strategic retail portfolio rationalisation which

culminated in the closure of 25 marginal or unprofitable bricks and mortar stores, in line with the Company’s strategy to close stores where returns were sub-optimal or landlord rental expectations uneconomic.

• We have tempered our new store roll-out program in line with our

strategy, we have continued to open new stores in strategically targeted locations, with 5 new stores opening during the period.

• Implementation of an international swimwear infrastructure to facilitate

international sales growth.

2.

Operational Summary

FY2019 Wholesale Sales up $34.0m (29.7%) to $148.6 million Designworks

• Designworks delivered record sales of $118.5 million which was up 46%

year on year as the business delivered on new contracts won in FY2018 in fashion apparel, sports equipment, footwear and accessories including:  Successful execution and delivery of the new Coles Women’s Mix range;  A full year of Lonsdale in Target;  The launch of our Suburban and Zoo York brands in Target, which performed ahead of expectations;  Continued growth in Sports Equipment following new licence agreements with Dunlop and The Australian Open;  Continued growth in Footwear, including the successful launch of Lonsdale footwear in Target; and  The successful relaunch of Russell Athletic in Australia which has performed ahead of expectations. Other Wholesale

• The strategic closure of Independent Wholesale and transition to Retail

within Black Pepper was executed with final wholesale orders delivered in H1 and the ongoing benefits of the transition to be realised from FY2020.

• The Group has invested in infrastructure to support the international

growth of JETS however the international take-up of JETS continues at a slower rate than anticipated.

FY2019 FY2018 71% 80% 8% 4% 21% 16% FY2018 FY2019 Designworks Black Pepper Other

Private Label, 13% Licensed Apparel & Accessories, 41% Owned Brand, 2% Sports, 44% Private Label, 20% Licensed - Apparel & Accessories, 39% Owned Brand, 5% Sports, 36%

Wholesale, Design & Distribution

Wholesale Sales by Division – FY2018 v FY2019 Designworks Product Mix – FY2018 v FY2019

3.

• Strong growth and expansion of the Designworks wholesale business resulting in lower % contribution

from own stores

• FY2019 included a new wholesale sales stream through the delivery of the Coles Women’s mix range
• Significant growth in Target through Lonsdale, Suburban and Zoo York
• Sales to Independent Wholesale customers are expected to reduce due to Black Pepper’s planned

strategic exit from this market in FY2019

Sales by Customer / Channel – FY2018 Sales by Customer / Channel – FY2019

Own Retail Stores 42.4% Kmart 15.7% Independent Wholesale 10.5% Myer - Concessions 9.9% Target 6.6% David Jones 4.0% International 3.2% Myer - Wholesale 2.8% Big W 2.7% Rebel 2.2%

Sales by Customer

4. Own Retail Stores 36.4% Kmart 13.6% Target 12.8% Independent Wholesale 10.1% Myer - Concessions 8.3% Coles 7.0% David Jones 3.4% Rebel 2.6% International 2.4% Myer - Wholesale 2.3% Big W 1.0%

Retail Segment

FY2018 to FY2019 Retail Sales Bridge ($ million)

• 5 new Retail sites opened in FY2019:
• Black Pepper; 1 store
• Review; 2 stores, 1 concession
• JETS; 1 store
• The Group’s retail brands currently operate within 69 department

store concessions representing 29% of the retail bricks and mortar portfolio.

FY2018 Opened Closed FY2018 Black Pepper 136 1 (13) 124 Review 116 3 (10) 109 New Businesses & Other 4 1 (2) 3 Total Retail Sites 256 5 (25) 236

• Retail sales reduced by 8.2% to $124.0m
• Movement was as a result of:
• Continued consolidation within the store portfolio with 5 new

stores opened during the financial year, offset by the closure of 25 marginal or loss making stores;

• Negative LFL sales particularly in Myer concessions;
• Online sales growth of 5.7% in addition to the 17.2% growth

achieved in FY2018;

• The annualised impact of new stores and closed stores in FY2018

135.0 (5.4) 1.4 1.6 (8.7) 124.0 FY2018 Sales LFL Growth New Stores Annualised Stores Closed Stores FY2019 Sales

Summary Retail Sites Total Retail Sites by Brand

5.

108 342 534 754 943 Loyalty ('000 members)

FY14 FY15 FY16 FY17 FY18 FY19

2.6% 4.5% 7.6% 10.6% 12.6% Online % of sales

FY14 FY15 FY16 FY17 FY18 FY19

14.5%

• Online sales continued its positive trend now representing 14.5% of the Group’s

total retail sales in FY2019, up from 12.6% in FY2018.

• Total online sales growth of 5.7% was achieved in addition to the 17.2% in FY2018.
• Online revenue from email campaigns has increased by 45% using our new

Customer Data Platform providing highly personalised communication.

• A new Russell Athletic E-Commerce site was launched in H2 FY2019.
• The Group continued to evolve predictive content by turning on AI-powered

product recommendation and Visual Search.

• New features and benefits are being introduced across all loyalty programs with

the goal of growing top customer participation and encouraging new customer engagement.

• A new Black Pepper Loyalty program and the implementation of our new

Customer Data Platform were launched during the year assisting to drive Group Loyalty membership up to 1.3 million members – an increase of 37% since June 2018.

• Our VIP Dress Circle membership for top tier loyalty members in Review has grown

by 73% since launch and drove $4.8m in sales.

• The Review Loyalty App was upgraded in H1 FY2019 and has since grown this

revenue channel by 51% versus FY2018. Online and Loyalty Growth1 (FY2014 – FY2019)

Operational Highlights - Online & Customer Loyalty1

6.

1,290

1 Information concerning Online and Customer Loyalty including prior period data has been amended to remove the impact

• f White Runway which has been classified as a Discontinued Operation.

• Gross margin has continued to be well managed through foreign

currency cycles.

• Reduction in GP % predominately due to the 9% increase in the

total Wholesale vs Retail mix for FY2019.

• Despite the material depreciation in the $AUD over the past two

years the Group has maintained a relatively consistent AUD/USD hedge rate to prior year.

• Forward US dollar currency requirements for retail businesses

covered beyond H1 FY2020.

$0.88 $0.75 $0.73 $0.76 $0.74

55.2% 54.9% 55.9% 55.7% 49.2% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

FY2015 FY2016 FY2017 FY2018 FY2019 AUD $ Gross Margin %

Exchange Rate and Margin

Gross Margin and Exchange Rates

7.

Growth Plan

• Realisation of new contract wins including the Coles Mix program, Lonsdale and Russell Athletic
• Launch of the Designworks Underwear and Accessories division
• Continued growth and expansion in Designworks Sports & Footwear divisions
• Sales from direct to consumer websites Everlast, Russell Athletic and B.O.D by Rachael Finch

Product and Brand Extension

1

Online Growth International Growth Loyalty Licensing Opportunities Acquisitions

2 3 4 5 6

• Online continues to be a major growth vehicle for the business in both new and existing markets
• New online expansion through third party online retailers
• The enhanced focus on the single customer view across omnichannel driven by our newly implemented

customer data analytics tool

• Continued growth in international online markets
• JETS international growth through Wholesale and Online
• Growth of Designworks brands in New Zealand
• Continued focus on mobile loyalty and segmented targeted communications utilising data analytics
• Capitalising on the recent launch of the Android Review App continuing to increase active users,

engagement and conversion

• Ongoing pipeline of exciting new license opportunities for Designworks
• Continuing to evaluate a broad range of value enhancing and transformational opportunities

8.

Strategy and Outlook

9.

Strategy and outlook: Over the first eight weeks of FY20 the Group generated like for like retail sales growth of 1.4%. The Group remains focussed on executing its strategic and operating priorities for its wholesale, online and retail channels in both existing and new markets. Key areas of focus include:

• Consolidation and growth in Designworks by continuing to execute and deliver new and existing brands and

capitalising on the recently established Footwear, Underwear and Accessories division to enable significant multi-branded growth opportunities.

• Continued execution of both our digital and loyalty strategies to drive strong omnichannel sales growth.
• Further rationalisation of the Group’s bricks and mortar store network whilst continuing to invest in its

digital presence to deliver a best in class holistic customer experience.

• Continuing to pursue international growth for JETS.
• Executing on the strategic exit of the Black Pepper independent wholesale market by maximising retail
• mnichannel opportunities.
• Heightening our focus with our key concession partner Myer to address the declining performance of our

Review concession business by entering into an exclusivity agreement.

• Maintaining a tight focus on cost control and working capital management.
• Transition to CEO role ongoing with Paul Burdekin assuming more responsibilities
• New strategic hires including General Managers in JETS and Review in second half

As previously disclosed, Houlihan Lokey has been assisting PAS with its ongoing review of a range of strategic

• pportunities to transform the business and position it for future growth. This process remains ongoing and

PAS will keep the market informed as appropriate.

FY2019 Financials

A$ millions FY2019 FY2018 Var RETAIL Review 66.1 72.5 (8.8%) Black Pepper 53.2 58.0 (8.3%) Other Businesses 4.7 4.5 4.4% Total Retail Sales 124.0 135.0 (8.2%) WHOLESALE Designworks 118.5 81.5 45.4% Black Pepper 5.4 9.4 (42.6%) Other Businesses 24.7 23.7 4.2% Wholesale Sales 148.6 114.6 29.7% Total Sales 272.6 249.6 9.2% Retail Sales % of Total Sales 45.5% 54.1% Wholesale Sales % of Total Sales 54.5% 45.9% Retail Sales Growth (%) (8.1%) (1.6%) Wholesale Sales Growth (%) 29.7% (2.3%)

• Review sales were negatively impacted by the

challenging market conditions, reduced concession sales in department stores and the closure of 10 marginal or unprofitable stores.

• Black Pepper was also impacted by the closure of 13

marginal or unprofitable stores and continues to be challenged with aggressive discounting by competitors in the current environment. Gross profit % continues to be strong and reflects the executed shift from Wholesale to Retail.

• Designworks achieved strong sales and margin growth as

the business delivered on new contracts won in FY2018 in fashion apparel, sports equipment, footwear and

• accessories. This resulted in a 9% increase in the total

Wholesale vs Retail mix compared to FY2018.

Sales by Brand and Segment

11.

• Sales increase driven by a 29.7% increase in wholesale sales, with the

Designworks division up 46%.

• Gross profit margin of 49.4% is reflective of the 9% increase in the

Group’s wholesale vs retail customer mix.

• CODB decrease of 4.2% of sales due to tight cost control, economies of

scale achieved through the Designworks expansion and strategic portfolio rationalisation.

• A reconciliation of underlying adjustments is detailed on page 13.
• The Company is taking active steps to divest the White Runway
• business. The Net Loss after Tax for the total business, including White

Runway, was $1.8 million.

(i) See Continuing Business to Total Business Income Statement reconciliation at Appendix A

A$ millions FY2019 FY2018 Var Revenue from Sales 272.6 249.6 +9.2% Gross Profit 134.2 137.8 Gross Profit Margin (%) 49.2% 55.2% Cost of Doing Business (CODB) (125.6) (126.1) CODB (%) 46.1% 50.5% Underlying EBITDA 8.6 11.7 (26.9%) Underlying adjustments (2.2) (0.4) EBITDA - Continuing 6.4 11.3 (43.4%) Depreciation & Amortisation (7.3) (7.4) Non-cash Impairment (1.0) (5.1) EBIT (1.9) (1.2) (57.8%) Net Finance Costs (0.9) (0.6) NPBT (2.8) (1.8) (57.1%) Tax Credit/(Expense) 1.2 (0.7) NPAT – Continuing Business (1.6) (2.5) +35.8% NPAT – Discontinuing Business (0.2) (0.4) NPAT – Reported (1.8) (2.9) +39.1%

Income Statement

12.

A$ millions FY2019 FY2018 Var Underlying EBITDA1 8.6 11.7 (26.9%) Depreciation & Amortisation (7.3) (7.4) Non-cash Impairment (1.0) (5.1) Underlying EBIT 0.3 (0.8) n.m. Finance Costs (0.9) (0.6) Underlying NPBT (0.6) (1.4) +57.1% Underlying Adjustments

• Non-cash share-based payments
• Non-cash release of deferred consideration
• Redundancy/termination payments
• Corporate costs2
• CEO transition costs
• Designworks3

(2.2) (0.4) 0.8 (0.2) (0.9) (0.6) (0.9) (0.4) (0.4) 2.0 (0.6) (1.4) 0.0 0.0 NPBT (2.8) (1.8) (57.1%) Tax Benefit/(Expense) 1.2 (0.7) NPAT – Continuing Business (1.6) (2.5) +35.8% NPAT – Discontinuing Business (0.2) (0.4) NPAT – Reported (1.8) (2.9) +39.1%

Earnings Reconciliation

13. 1 Underlying EBITDA is a non-IFRS unaudited measure defined for the purpose of this document as earnings before interest, tax, depreciation, amortisation, non-recurring income/expenditure and certain non-cash items such as impairment and share based payment expenses recognised in accordance with AASB 2 Share-based payment. 2 Corporate costs includes takeover defence costs (FY2018) and other strategic action costs of a non-recurring nature including strategic consulting and legal costs. 3 Designworks includes the financial impact of the collapse of a major supplier and a one-off payment associated with historical licences relating to the financial period FY14-FY18.

• Cash surplus of $0.3m and no debt.
• Prudent working capital management. Trade Debtors decreased whilst

inventory remained consistent with prior year despite the challenging retail sector and a significant increase in the wholesale portfolio. Trade and Other Payables was consistent with prior year and impacted by timing of orders.

• PP&E decrease was consistent with the maturity profile of stores and

tempered rate of new store roll-outs.

• White Runway was classified as held for sale at 30 June 2019.

A$ millions 30 June 2019 30 June 2018 Cash and Cash Equivalents 0.3

• Trade and Other Receivables

18.0 19.3 Inventory 36.4 36.0 Property, Plant and Equipment 9.4 12.7 Deferred Tax Assets 8.2 6.4 Goodwill & Other Intangible Assets 83.7 84.0 Other Assets 6.4 7.0 Assets Classified as Held for Sale 1.1

• Total Assets

163.5 165.4 Overdraft

• 0.7

Trade and Other Payables 20.7 20.0 Deferred Tax Liabilities 8.1 7.9 Other Liabilities 13.8 14.5 Liabilities Classified as Held for Sale 0.8

• Total Liabilities

43.4 43.1 Net Assets 120.1 122.3

Balance Sheet

14.

Statutory ($ millions) FY2019 FY2018

Net profit after tax (i) (1.8) (2.9) Non-cash Adjustments 6.8 12.5 Cash profit 5.0 9.6 Movement in Working Capital 1.6 (0.5) Movement in Trade & Other Receivables 1.3 1.4 Movement in Inventories (0.4) (2.9) Movement in Trade & Other Payables 0.7 1.0 Movement in provisions and prepayments (2.4) (2.7) Net cash flow from operations 4.2 6.4 Payments for Businesses

• (0.1)

Capital Expenditure (2.9) (6.0) Net cash flow before financing activities and tax 1.3 0.3 Income Tax Receipts/(Payments) 0.6 (1.3) Net Interest (0.9) (0.6) Dividends Paid

• (4.1)

Net Cash Flow 1.0 (5.7)

• Positive net cash flow from operations with reduction in cash profit

partially offset by strong working capital management.

• Capital Expenditure in FY2019 represents targeted investment in

new stores and refurbishments and the ongoing development of

• ur online and loyalty infrastructure.
• Financing activities reflect $1.4m FY2018 tax refund partially offset

by FY2019 instalments.

• No dividend was declared or paid in FY19.

(i) NPAT includes aggregate impact of White Runway discontinued business. Refer to Appendix A.

Cash Flow Statement

15.

Appendices

The Group has announced its intention to dispose of the White Runway business and has begun marketing the business for sale and actively engaged in discussions with potential buyers. On this basis, the White Runway business met the criteria to be classified as a discontinued operation for the full year ended 30 June 2019. Accordingly, the results of the discontinued operation are presented separately in the consolidated statement of profit and loss and other comprehensive income for the comparative period 30 June 2018 in accordance with Accounting Standards. All prior year comparatives throughout the financial statements and notes are representative of the continuing business

• nly.

Whilst PAS believes that presenting continuing business profit provides a better understanding of its financial performance, for transparency, a reconciliation between the continuing business and the total business is provided below.

($’millions) FY2019 Revenue FY2019 EBITDA FY2019 EBIT FY2019 NPAT FY2018 Revenue FY2018 EBITDA FY2018 EBIT FY2018 NPAT Continuing Business 272.6 6.4 (1.8) (1.6) 249.6 11.3 (1.2) (2.5) Financial Impact: White Runway Discontinued Operation 4.2 (0.2) (0.3) (0.2) 4.1 (0.1) (0.6) (0.4) Total Business 276.8 6.2 (2.1) (1.8) 253.7 11.2 (1.8) (2.9)

Appendix A: Continuing to Total Business Reconciliation

17.

Appendix B : Impacts of New Lease Accounting Standard

Adoption of AASB 16 Leases

Balance Sheet Item Impact Range Right of Use Asset Increase $24.0 – $28.0 million Lease Liabilities Increase $30.0 – $34.0 million Lease Incentives Decrease $4.0 – 5.0 million Deferred Tax Asset Increase $0.4 – $0.6 million Retained Earnings Decrease $1.0 – $1.5 million

• The Group will mandatorily adopt the new lease accounting standard

AASB 16 Leases from 1 July 2019.

• Whilst adopting the new standard has no economic impact on the

Group, no impact on how the business is run and no impact on actual cash flows for the Group adoption will result in the majority of (but not all) premises costs being reclassified as depreciation and interest expenses, thus artificially increasing the traditional measure of Underlying EBITDA1.

• The Group has historically adopted Underlying EBITDA as a market

guidance measure on the basis that the Directors believe it provides the most meaningful measure of the Company’s performance. As detailed in the notes accompanying the 30 June 2019 Financial Statements, the mandatory first-time adoption of AASB 16 Leases will have a material impact on the way the Group reports its results from FY2020 forward.

• The Group will begin presenting its results in compliance with the

requirements of the new standard in FY2020 and remains committed to providing transparency when reporting its results by reporting on the most meaningful measure of the Company’s performance to the market.

18. 1 Underlying EBITDA is a non-IFRS unaudited measure defined for the purpose of this document as earnings before interest, tax, depreciation, amortisation, non-recurring income/expenditure and certain non-cash items such as share based payment expenses recognised in accordance with AASB 2 Share-based payment.

Notes on Estimated Impacts:

• The Group will adopt the Modified Retrospective Approach upon

transition (comparative periods will not be restated).

• Estimated pro forma financial impacts may differ to the estimates

above due to changes in the lease portfolio (including actualised rates of CPI, market valuations and potential renegotiations) and changes in areas of judgement (including expectations concerning the exercising of options and the cost of borrowing). Estimated Balance Sheet Impact as at 1 July 2019

Disclaimer

Forward looking statements: This presentation contains certain forward looking statements, including with respect to the financial condition, results of operations and businesses of The PAS Group Limited (‘PGR’) and certain plans and objectives of the management

• f PGR. Forward looking statements can generally be identified by

the use of words including but not limited to “project”, “foresee”, “objectives”, “plan”, “aim”, “intend”, “anticipate”, “believe”, “estimate”, “may”, “should”, “will”, “forecast” or similar expressions. Indications of plans, strategies and objectives of management, sales and financial performance are also forward looking statements. All such forward looking statements involve known and unknown risks, significant uncertainties, assumptions, contingencies and other factors, many of which are outside the control of PGR, which may cause the actual results or performance of PGR to be materially different from any future results or performance expressed or implied by such forward looking statements. Such forward looking statements apply only as of the date of this presentation. Factors that cause actual results or performance to differ materially include without limitation the following: risks and uncertainties with the Australian, New Zealand and global economic environment and capital market conditions, the cyclical nature of the retail industry, the level of activity in Australian and New Zealand retail industries, fluctuation in foreign currency exchange and interest rates, competition, PGR’s relationships with, and the financial condition of, its suppliers and customers, legislative changes or other changes in the laws which affect PGR’s business, including consumer law, and

• perational risks. The foregoing list of important factors and risks is

not exhaustive. No representation or warranty (express or implied) is given or made by any person (including PGR) in relation to the accuracy, likelihood

• r achievement or reasonableness of any forward looking

statements or the assumptions on which the forward looking statements are based. PGR does not accept responsibility or liability arising in any way for errors in, omissions from, or information contained in this presentation. PGR disclaims any obligation or undertaking to release any updates

• r revisions to the information to reflect any new information or

change in expectations or assumptions after the date of this presentation, except as may be required under securities law. Disclaimer and third party information: To the fullest extent permitted by law, no representation or warranty (express or implied) is or will be made by any legal or natural person in relation to the accuracy or completeness of all or part of this document, or any constituent or associated presentation, information or material (collectively, the Information). The Information may include information derived from public or third party sources that has not been independently verified. Investment decisions: Nothing contained in the Information constitutes investment, legal, tax or other advice. The Information does not take into account the investment objectives, financial situation or particular needs of any investor, potential investor or any other person. You should take independent professional advice before making any investment decision. All statutory numbers referred to in this presentation have been audited. Any adjustments made between statutory and pro forma results are made in accordance with ASIC Guidance Statement RG230. 19.