UNAUDITED CONSOLIDATED RESULTS Q4 AND FULL YEAR 2017 25 MAY 2017 - - PowerPoint PPT Presentation

EDGARS

UNAUDITED CONSOLIDATED RESULTS

Q4 AND FULL YEAR 2017

25 MAY 2017

1

AGENDA

1. YEAR IN REVIEW 2. MACRO ECONOMIC ENVIRONMENT 3. FINANCIAL REVIEW FY17 4. STRATEGY AND TURNAROUND INITIATIVES 5. WAY FORWARD

2

• 1. YEAR IN REVIEW

BERNIE BROOKES - CEO

3

RECAP OF THE YEAR

• The business presented the creditor plan to lenders in June 2016
• Debt restructuring finalised with new ownership and third party debt

significantly reduced

• The restructured balance sheet will provide a welcome relief with an annual

reduced cash interest of ~ R600 million and gross debt of ~ R7 billion

• The macro economic context has continued to remain challenging - 6% inflation

annually, declining consumer confidence and almost no GDP growth

• Retail sales decreased by 6.7% to R25,343 million
• As a result of a challenging and competitive retail landscape, retail cash sales

decreased by 2.4% while credit retail sales decreased 13.4%

• In-house trade receivables book grows in excess of 150%
• Proforma adjusted EBITDA in line with expectations, decreased by 45.0% to

R1,383 million

• Spent R300m on clearance markdowns to clear aged stock ~ 230 basis points
• Controllable costs well managed

EDGARS

4

RECAP OF THE YEAR

• Sale of Legit business concluded for R637 million
• Improved relationship with Absa
• Pleasing NPS results with customers seeing value in the price points and

service being provided

• Key turnaround initiatives encompassed:
• Improvements in space productivity
• Lower cost for GNFR
• Better sourcing
• Improved inventory management
• Stronger management of markdowns and entry price points
• Development of a customer driven organization
• Renewed supplier engagement
• Commenced the development of a world class IT and supply chain
• New board and management team
• Year-on-year adjusted EBITDA for the first five weeks of the new financial

year, has shown improved trends increasing by over 25%, and for the first time since 2010, credit sales in Jet have increased

JET

5

2.5 3.7 3.1 2.6 3.4 4.2

FY11 FY12 FY13 FY14 FY15 FY16 Gross finance cost, R billion

TWO BURNING PLATFORMS TO ADDRESS

To fix this we need new owners and reduce our debt

ISSUE 1: HIGH DEBT PAYMENTS ISSUE 2: DECLINING TRADING PROFIT

1.9 1.9 1.4 1.3 1.2 1.0

FY11 FY12 FY13 FY14 FY15 FY16 Trading profit, R billion

Less debt won’t help with this we need to turn around performance

6

ISSUE 1: CAPITAL RESTRUCTURE OVERVIEW

SUBSTANTIAL NEW MONEY INJECTION

• Existing creditors committed to fund up to R2,870 million to significantly shore up the

Group’s liquidity position

• R575 million New Revolving Credit Facility(1)
• R2,295 million-equivalent USD-denominated New Holdco 1 PIK A-1 Notes(2)

MATERIAL DELEVERAGING OF THE OPERATING COMPANY

• Senior secured creditors to equitize 50% of their outstanding claims and novate their

reinstated claims to a holding company

• c. R3,200 million of second and third-ranking super senior claims to be novated to a

holding company

• Pro forma for the transaction, gross leverage at the operating company to decline to 3.6x

from 18.9x REDUCTION OF CASH INTEREST BURDEN

• New commitments and novated claims at the holding companies to be PIK-only

instruments

• Pro forma for the transaction, cash interest coverage at the operating company to increase

to 3.9x from 0.6x EXTENSION OF MATURITIES

• Most indebtedness at the operating company to mature December 2019(3)
• New commitments and novated claims at the holding companies to mature December

2022

(1) Raised at Edcon Limited (2) Raised at New Holdco 1 (3) The Super Senior Liquidity Facility will mature in December 2017, with a one year extension

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ISSUE 1: THIRD PARTY GROSS DEBT

FX rates as at 25 March 2017: R12:48:$ and R13.45:€

1 R575m was undrawn at 25 March 2017 2 The maturity may be extended to 31 December 2019 in exchange for a cash margin uplift and provided certain refinancing conditions are satisfied

DRAWN AMOUNT (ZARm) GROSS LEVERAGE CURRENCY MATURITY BASE RATES MARGIN PIK MARGIN

Super Senior Credit Facility (Converted RCF Facility)1 1,250 0.9x ZAR 31 Dec 19

JIBAR

5.0% 3.0% Super Senior Credit Facility (Term) 2,116 1.5x ZAR 31 Dec 19

JIBAR

5.0% 3.0% Super Senior Liquidity Facility A1 576 0.4x EUR 31 Dec 17

EURIBOR

4.0% 8.0% Super Senior Liquidity Facility A22 1,779 1.3x EUR 31 Dec 17

EURIBOR

4.0% 8.0%

First ranking debt 5,721 4.1x

Capital leases 305 0.2x ZAR Other debt 205 0.1x

Total third party debt 6,231 4.5x PROFORMA ADJUSTED EBITDA 1,383

8

ISSUE 2: CONTEXT – EDCON’S TRADING EBITDA (EXCL. C&FS) IN 4Y DECLINE

Note: Data excludes Legit and Zimbabwe

FY16A FY15A FY14A FY10A FY11A FY13A FY08A FY12A FY09A EBITDA, R’m 2 710 2 850 2 364 3 072 2 545 1 477 1 265 1 182 3,432

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• Legit chain identified as

potential asset for sale in strategic review

• Strong interest from

range of potential trade and financial purchasers

• Disposal improves Edcon’s

liquidity position and intensifies focus on core department stores and value chain offerings

• Sale of business for

R637 million cash

• Cash-free, debt-free

sale

• Sale of assets, going

concern basis

• Retailability - fashion retail

holding company: ~200 stores across SA, Namibia, Botswana, Zambia

• Partnered by material

shareholder Metier Private Equity: ~R6 billion funds under management

• Flagship chains Beaver

Canoe, Style

SALE OF LEGIT

Purchase consideration of R637m, sale effective 29 January 2017

Deal overview Purchaser details Transaction mechanics

10

EXIT OF INTERNATIONAL BRANDS

11

EDGARS AND JET NPS HAS IMPROVED SIGNIFICANTLY IN 18 MONTHS

• In November 2015 Edgars and Jet had the lowest NPS amongst all competitors
• A market survey concluded in April 2017 sees a significant improvement in both Edgars and Jet

NOV 15 APR 17 NOV 15 APRIL 17

47 3

• 17

22

+44 pts +39 pts

12

TWO KEY PRINCIPLES OF NEW STRATEGY

IMMEDIATELY BRING COST UNDER CONTROL SET UP BUSINESS FOR TOP LINE AND MARGIN GROWTH

• Head office cost reduction and change in
• perating model: eliminate rework, simplify business,

drive efficiency

• 35% reduction in headcount and cost
• Gives chains full financial and management control
• Introduction of a procurement team and tendering

processes for goods not for resale (GNFR), providing a lower cost plus a simpler and well governed strategy

• Immediate cessation of square meterage rollout

with no defined property strategy: leverage existing space to enhance productivity and returns

• Enhanced buying prices through eliminating

excess use of agents and brokers; focus on local sourcing

• Commence an IT road map to address cost and risk

challenges

• Relentless focus on “customer service”: move from

focus on “transaction”, “efficiency” and “checklists” to focus on customer experience and reward (loyalty, NPS, aligned incentives)

• Move to margin enhancement: management on “open

to buy”, less reliance on and better planning of promotion, control of markdown, “SKU” rationalisation, focus on entry price points and decluttering of merchandising & marketing

• Re-focus on a more profitable private label portfolio

with 3x the productivity of international brands – better fit, exclusive, less impacted by ZAR devaluation

• “Reverse” strategy to win at all costs on international

brands – onerous contracts, capex hungry, high price perception, not “season” friendly; R64m loss in FY16

• Focus on digital and Omni-channel as growth engine

13

THE NEW EDCON JOURNEY

CUSTOMER CENTRICITY SIMPLICITY PEOPLE EMPOWERMENT

• Defined target segments
• Differentiated value

proposition per segment

• Customer feedback and

follow-up

• Structural improvement

from customer feedback

• Lean Head Office
• IT strategy and cost
• ptimisation
• Sourcing consolidation
• Logistics and supply chain

review

• Operating model (incl. org

structure, accountabilities)

• Culture
• Incentives and KPI

14

ROADMAP WITH STRATEGIC INITIATIVES

2016 2017

OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP

GROWTH ENABLERS COST

LEAN HQ & OPERATING MODEL GNFR COGS REDUCTION PROPERTY EDGARS CHAIN: TURNAROUND/CUSTOMER CENTRICITY JET CHAIN: LEAN DISCOUNT RE-POSITIONING SPECIALTY CHAINS: STRATEGY REVIEW AND REFRESH CREDIT SALES LOYALTY PROGRAM CUSTOMER CENTRICITY IT STRATEGY AND RENEWAL PLAN SUPPLY CHAIN & LOGISTICS ROADMAP SUPPLIER ENGAGEMENT INVENTORY

1 2 3 4 5 6 7 8 9 10 11 12 13 14

EDGARS

15

NEW BOARD OF DIRECTORS

GARETH PENNY Non-executive Chairman BERNIE BROOKES Chief Executive Officer RHIDWAAN GASANT Non-executive Director DAPHNE MOTSEPE Non-executive Director GRANT PATTISON Non-executive Director KEITH WARBURTON Non-executive Director MARTI P MURRAY Non-executive Director

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• 2. MACRO ECONOMIC ENVIRONMENT

RICHARD VAUGHAN - CFO

17 22 23 24 25 26 27 28

(1)

• 1

2 3

06-2014 08-2014 10-2014 12-2014 02-2015 04-2015 06-2015 08-2015 10-2015 12-2015 02-2016 04-2016 06-2016 08-2016 10-2016 12-2016

Real GDP (y-o-y %) Unemployment rate (%)

GDP GROWTH AND UNEMPLOYMENT RATE

4 5 6 7 8 9 03-2016 04-2016 05-2016 06-2016 07-2016 08-2016 09-2016 10-2016 11-2016 12-2016 01-2017 02-2017 03-2017

4 5.5 7 8.5 10 11.5

12-2014 02-2015 04-2015 06-2015 08-2015 10-2015 12-2015 02-2016 04-2016 06-2016 08-2016 10-2016 12-2016 02-2017 04-2017

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

04-2016 05-2016 06-2016 07-2016 08-2016 09-2016 10-2016 11-2016 12-2016

USDZAR EURZAR

MACRO BACKDROP

Source: SARB & StatsSA

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4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% Q2:2015 Q3:2015 Q4:2015 Q1:2016 Q2:2016 Q3:2016 Q4:2016 Q1:2017 Q2:2017 Q3:2017 Q4:2017

INFLATION

• 16
• 14
• 12
• 10
• 8
• 6
• 4
• 2

Q1:2015 Q2:2015 Q3:2015 Q4:2015 Q1:2016 Q2:2016 Q3:2016 Q4:2016 Q1:2017

• 5%

0% 5% 10% 15% 06-2015 07-2015 08-2015 09-2015 10-2015 11-2015 12-2015 01-2016 02-2016 03-2016 04-2016 05-2016 06-2016 07-2016 08-2016 09-2016 10-2016 11-2016 Retail trade sales Textiles,footwear and leather goods 71 72 73 74 75 76 77 78 79 80 12-2014 02-2015 04-2015 06-2015 08-2015 10-2015 12-2015 02-2016 04-2016 06-2016 08-2016 10-2016 12-2016

FNB/BER CONSUMER CONFIDENCE INDEX RETAIL SALES

HOUSEHOLD DEBT TO GROSS DISPOSABLE INCOME RATIO

Source: SARB & StatsSA

MACRO BACKDROP

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• 3. FINANCIAL REVIEW FY17

RICHARD VAUGHAN - CFO

20

Underlying consumer demand weak on back of subdued growth in consumers disposable income, tight credit conditions, low consumer confidence, more restrictive fiscal policy and increased competition Deliberate competitive entry price points, clearance of aged inventory, aggressive markdowns and higher input costs in the first half of FY17 Transaction with creditors finalised, balance sheet post 1 February 2017 no longer laden with debt, new ownership and Group, appointment of new Board and sale of Legit business (excl. Botswana) effective 29 January 2017

SALES PROFITS STRATEGY

Q4:FY17 FY17 Retail sales ↓ 10.6% ↓ 6.7% Cash sales ↓ 9.7% ↓ 2.4% Credit sales ↓ 12.3% ↓ 13.4% LFL sales ↓ 9.9% ↓ 6.7% Q4:FY17 FY17 Gross profit ↑ 0.4% ↓ 2.3% Proforma adjusted EBITDA ↓ 45.0%

KEY FEATURES

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• Retail sales decreased 9.4%
• Cash sales decreased 4.6% and credit sales

decreased 14.6%

• All product categories traded down
• Easter and holiday shift into April 2017
• Gross margin of 43.0% up from 40.8%
• Lower entry price points
• First margin decreased by 1.7%
• Markdown activity still high on back of better

entry price points

• Financial gross profit bolstered by increased

rebates

• 15 new Edgars stores opened and 9 stores

closed

Q4:FY17 FY17 Retail sales growth (%) (9.4) (6.7) LFL sales growth (%) (10.7) (6.6) GP margin (%) 43.0 41.2 Total number of stores 212 212 Capex spend (R’m)* (9) 87 Av space (‘000sqm) 731 728

212 stores* · LSM 6-10

*Includes 1 Edgars sales store and 1 Edgars Emporium store *Landlord contributions received in Q4:FY17 net of capital expenditure.

EDGARS DIVISION – Q4:FY17 & FY17

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• Sales decreased 5.8%
• Cash sales decreased 8.3% and credit sales

increased by 0.8%

• LFL sales decline slowed
• Ladieswear showed positive growth whilst

remaining categories still negative

• Easter and holiday shift to April 2017
• Enhanced price perception and brand franchise
• Gross margin of 33.5% maintained
• Better entry price points
• First margin decrease of 2.5%
• Markdowns still high
• Financial gross profit maintained on increased

rebates received

• 2 new Jet stores opened and 4 Jet Mart

stores

• 4 Jet stores and 5 Jet Mart closed

Q4:FY17 FY17 Retail sales growth (%) (5.8) (6.3) LFL sales growth (%) (4.9) (5.7) GP margin (%) 33.5 32.4 Total number of stores 515 515 Capex spend (R’m)* (16) 70 Av space (‘000sqm) 580 582

392 stores · LSM 4-7 123 stores · LSM 4-7

*Landlord contributions received in Q4:FY17 net of capital expenditure.

JET DIVISION – Q4:FY17 & FY17

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• Retail sales decreased 15.1%
• Cash sales decreased 16.2%, credit sales

decreased 11.1%

• Positive growth in categories such as

childrenswear and stationery

• Easter and holiday shift to April 2017
• Sale of Legit business reduced sales in Q4:FY17

by R114 million

• Margin impacted by:
• Aggressive markdown and clearance activity

particularly in Boardmans, CNA and monobrands

• 6 new stores opened
• 2 Boardmans, 1 Red Square, 2 Legit and 1

mono-branded store

• 7 stores closed
• 4 Edgars Active, 2 Red Square, 1 CNA
• 202 Legit stores disposed

Q4:FY17 FY17 Retail sales growth (%) (15.1) (6.0) LFL sales growth (%) (11.2) (7.5) GP margin (%) 33.8 33.3 Total number of stores 565 565 Capex spend (R’m)* (8) 43 Av space (‘000sqm) 235 253

MONO-BRANDED STORES 182 stores · LSM 4-7 40 stores · LSM 7-10 196* stores · LSM 7-10 49 stores · LSM 5-10 88 stores · LSM 5-10

*Includes 11 Samsung stores

10* stores · LSM 5-8

*Remaining stores in Botswana sold effective April 2017

*Landlord contributions received in Q4:FY17 net of capital expenditure.

SPECIALTY DIVISION – Q4:FY17 & FY17

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STATEMENT OF COMPREHENSIVE INCOME

(R millions) FY17 FY16 % change Retail sales 25 343 27 147 (6.7) Gross profit 9 243 10 521 (12.2)

Gross profit margin

36.5 38.8 (2.3)pts

Other income

1 762 1 921 (8.3)

Store costs

(6 826) (6 463) 5.6

Other operating costs(1)

(4 736) (5 212) (9.1)

Share of profits of associates and insurance business

184 Trading profit (373) 767 (148.6) PROFORMA ADJUSTED EBITDA 1 383 2 514 (45.0)

(1) Includes non-recurring costs of R545 million in FY17 (FY16 – R598 million). See cost analysis – FY17

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(R millions)

FY17 FY16 % change

Trading (loss)/ profit (373) 767 (148.6) Depreciation & amortisation 951 1 004 Net asset write off(1) 68 19 Gains on sales of written down trade receivables(2) (29) EBITDA losses from brands exited(3) 73 25 EBITDA losses/(gains) from Edgars Shoe Gallery(4) 4

• EBITDA gains from the Legit business(5)

(100) (142) Rand depreciation adjustment(6) 52 Non-recurring costs(7) 545 598 Adjusted EBITDA 1 168 2 294 (49.1) Brand and administration fee income from insurance business(8) Share of profits from insurance business(8) (385) (505) 600 725 PRO FORMA ADJUSTED EBITDA 1 383 2 514 (45.0)

(1) Relates to assets written off in connection with the closure of stores, net of relates proceeds where applicable. (2) Relates to gains realised on the sale of a portfolio of written down trade receivables. (3) Adjustment to remove the EBITDA gains or losses achieved from certain brands being exited such as: Express, Geox, Lucky Brand, One Green Elephant, River Island, Tom Taylor and other international brands which the Group has strategically committed to exit. (4) Adjustment to remove the EBITDA losses or gains from the Edgars Shoe Gallery retail format which the Specialty division strategically exited during fiscal 2017. (5) Adjustment to remove the EBITDA gains relating to the Legit business sold on 29 January 2017. (6) Foreign exchange gains recognised below the trading profit line which hedged the exposure in cost of sales as a result of the significant devaluation of the Rand. (7) Non-recurring costs in FY2017 related to a credit from employee restructure costs of R16 million, onerous lease charges of R223 million, a R1 million credit for the post-retirement medical aid buy-out, unrecovered costs of R8 million as a result of flood and storm damage during FY2017, R7 million brand penalty cost, a R42 million credit which reverses a penalty provision raised in FY2016, R28 million non-recurring cost incurred in respect of our agreement with Absa, R215 million transitional project related expenditure, R117 million strategic initiative costs which excludes costs incurred from the transaction with creditors and the Restructuring and R6 million of other non-recurring costs. Non-recurring costs in FY2016 related to employee restructure costs of R72 million, onerous lease charges of R123 million and R1 million lease cancellation cost, post-retirement medical aid buyout of R26 million, once-off lease adjustment of R33 million, penalty costs of R57 million, transitional project related expenditure of R70 million and strategic initiative costs of R216 million. (8) The investment in HBA prior to the Restructuring was held by Edcon Holdings Limited which was a related party company of Edcon Acquisition Proprietary Limited and the profits from the insurance business were previously consolidated by Edcon Holdings Limited. Previously Edcon Limited received a brand and administration fee from the insurance business arrangement. On 31 January 2017, in connection with the Restructuring, Edcon Holdings Limited sold its investment in HBA to Edcon Acquisition Proprietary Limited and such investment was consolidated from that date. Pro forma adjusted EBITDA is intended to show adjusted EBITDA as if Edcon Acquisition Proprietary Limited Group had always consolidated the share of profits from the insurance business instead of Edcon Holdings Limited.

PRO FORMA ADJUSTED EBITDA

26

OTHER OPERATING COSTS STORE COSTS

COST ANALYSIS FY17

• Other operating costs excl. non-recurring costs decreased

9.2%

• Reduction in manpower costs following head office

restructure

• Reduction in accrual for staff empowerment program on

the back of a reduction in proforma adjusted EBITDA

• Store card administration cost reductions through

savings on outsource to strategic partner

• Store costs well managed increasing by 5.6%.
• Rental costs up 6.1%
• Manpower costs up 6.2%
• Stock losses, security and cleaning costs

decreased in FY17 due to improved stock control, store cost savings and renegotiated contracts

• Rental and manpower constitute 60.7% of total costs

for FY17 (62.0% in FY16).

(R millions) FY17 FY16 % change

Other operating costs (excl.

non-recurring costs)

4 191 4 614 (9.2) Non-recurring costs 545 598 TOTAL 4 736 5 212 (9.1)

27

(394) (569) (35) 2 686 (943) 2 371 (561) 1 693

Working Capital

Trade receivables,

• ther receivables &

prepayments Inter group proceeds

585 (126)

Trade and

• ther

payables

OPENING CASH BALANCE OPERATING ACTIVITIES(A) FINANCING ACTIVITIES TAX CAPEX WORKING CAPITAL CLOSING CASH BALANCE (C) NET FINANCING COSTS (B)

R’m

106 (70) (673)

Inventories

243

(a) Includes R1 032 million outflow relating to transaction with creditors and Restructuring (b) Includes R8 million inflow for currency translation on cash balances

SALE LEGIT

CASH FLOW – FY17

(c) Incudes R584 million from the sale of Legit. This cash is held in Escrow following the Restructuring and will be released in July 2017

28

• 3. STRATEGY & TURNAROUND INITIATIVES

BERNIE BROOKES - CEO

29

ROADMAP WITH STRATEGIC INITIATIVES

2016 2017

INITIATIVE STATUS UPDATE

OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP

GROWTH ENABLERS COST LEAN HQ & OPERATING MODEL GNFR COGS REDUCTION PROPERTY EDGARS CHAIN: TURNAROUND/CUSTOMER CENTRICITY JET CHAIN: LEAN DISCOUNT RE-POSITIONING SPECIALTY CHAINS: STRATEGY REVIEW AND REFRESH CREDIT SALES LOYALTY PROGRAM CUSTOMER CENTRICITY IT STRATEGY AND RENEWAL PLAN SUPPLY CHAIN & LOGISTICS ROADMAP SUPPLIER ENGAGEMENT INVENTORY

Savings realized and locked in Savings being realized Savings being realized Savings being realized Initiatives underway – customer experience, category management, change management Initiatives underway – In-store experience, every day low price & cost savings Legit sale complete Portfolio strategy review underway Own book sales picking up ( over R400m) Strategy developed and initial value target identified NPS roll-out underway Strategy and roadmap complete. RFP’s launched Strategy and roadmap complete. Roll-out underway Review underway Review underway

1 2 3 4 5 6 7 8 9 10 11 12 13 14

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EDGARS: STRATEGIC AND TACTICAL INITIATIVES

EDGARS BRAND BUILDING

• Continue to invest in Edgars brand and private labels
• Focus on consistent marketing messages and on big bold promotions
• Further roll out of Kelso stand-alone stores

CUSTOMER EXPERIENCE

• Continued implementation of NPS (143 stores YTD), showing positive uplifts
• Further roll out dedicated service and new look and feel
• Localised offers tested in CBD stores with further roll-out planned

CATEGORY MANAGEMENT

• New range building methodology incorporated across all merchandise reviews
• Finalised brand books across all Private Label brands
• Continued focus on strong KVIs at attractive prices
• Partnerships with key suppliers to improve scale benefits and simplify assortments
• Systematic approach to markdowns to clear stock embedded

CREDIT & FINANCIAL SERVICES

• Operational adjustments implemented to drive credit sales
• Focused credit marketing plan developed

CHANGE MANAGEMENT

• Learning plan approved and currently being implemented
• Leadership & team development programs in place
• Continued focus on employee engagement via “Lets Connect” platforms, Strategy update videos etc
• Re-energising of Edgars Star of the Quarter recognition program

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EDGARS - PRICE POSITIONING BEING RECOGNISED BY CUSTOMERS AND SUPPORTED BY INCREASED PERCEPTION OF QUALITY

44 49 81 88

+5 pts

+7 pts

PROMOTERS DETRACTORS NPS

32

JET: STRATEGIC AND TACTICAL INITIATIVES

SALES GROWTH

• In-store experience: New store lay-out, stronger price call-outs and simplified signage rolling out to stores -

improvements in sales and GP growth vs. Chain being realised

• Exit retail: Reviewing exit retail fixtures and product range to optimise sales opportunities
• Re-fresh JetMart model: Reviewing the JetMart business model to optimise profitability
• Small store formats: Developed and piloted small store formats to drive future growth (6 stores opened to date)
• Optimise store footprint: Reviewing stores for consolidation to improve trading densities
• Lay-by: Continue to drive lay-by offer and reduced deposit requirements from 20% to 10%
• Assortment: Infantswear performance boosted by successful Baby Fair campaign and setting up new category tests

(Mens Formal, Maternity and Home Softs)

• Customer Centricity: Framework for marketing strategy developed and NPS roll-out progressing (326 stores to date)

GP IMPROVEMENT

• Product ranges: Selective price increases across Apparel, continued range rationalisation in home hards and

expansion of Food into most SA JetMarts

• Pricing: Re-establishing price perception in the market through increased contribution and focus on everyday low

price items and key entry price points (strong deals planned for the quarter)

CREDIT & FINANCIAL SERVICES

• Credit: Revised agreement with ABSA resulting in more control over new business credit sales
• FS: Continue to drive additional income on insurance products through the operations channel

COST SAVINGS

• Advertising: Continued advertising savings on costs through POS reduction, media optimisation, less campaigns and

capturing synergies with Credit & Financial Services

• Lean operating model: Continued focus on cost savings

PEOPLE

• Improving employee engagement: Continued focus on people initiatives to improve the employee experience that

empowers employees to deliver on business results

• Improving strategic capability: Continued focus on leadership capability, through the launch of the Jet Retail and

Leadership Academy to improve leadership and functional competencies to deliver on business results

33

SPECIALTY: STRATEGIC AND TACTICAL INITIATIVES

• Expand range and depth of core categories stationery, reading/learning, gifting supplies
• Reduce range and depth of lower margin periphery categories including digital, entertainment

and FMCG

• Drive customer engagement marketing campaigns to strengthen the brand vison “Inspiring a better

world: learning, relaxing, creating, giving”

• Key focus on customer satisfaction to demonstrate that Red Square is the leading beauty

authority

• Continued push for online sales through click and collect online functionality
• Initiate direct marketing campaigns designed to manage the customer life cycle and increase

consumer frequency of visit

• Continue overhaul of online sales supporting processes and logistics to improve lead times and

customer satisfaction

• Rationalise store footprint
• Refocus product range and in store experience to emphasise Boardmans as the ultimate provider
• f premium kitchen and home products

Key principle of Specialty strategy is to refocus the brands on core business to deliver a quality product with a clear message to a targeted customer segment

34

SPECIALTY: STRATEGIC AND TACTICAL INITIATIVES

• Expand private label brand Jabari with an annual target of 30% contribution to CFA
• Continue marketing and promotional campaigns to educate the customer on the Edgars

Active athleisure wear brand identity – Life is my Sport

• Utilise group synergies to right-size store footprint

CELLULAR

• Roll out expanded accessories range to select stores for consumer feedback
• Rationalise and optimise the product range to deliver simpler, more concise value

proposition of great deals to market

• Optimise operational and service model to ensure product experts are always available to

deliver exceptional customer service at all times

INTERNATIONAL BRANDS

• Continue exit of River Island and other underperforming in-store brands (River Island will

continue to be available via their website)

• Engage on-going brands to collaboratively develop profitable go to market propositions

that deliver brand equity, aspirational product & customer experience while strengthening and enhancing the fashion credibility of the Edgars brand

• Right-size store footprint

Key principle of Specialty strategy is to refocus the brands on core business to deliver a quality product with a clear message to a targeted customer segment

35

CNA: STRATEGIC AND TACTICAL INITIATIVES

BUYING

• Clear old stock and prevent re-occurrence
• Consolidate supplier base to remove the “long tail” whilst optimising supplier mode/terms: move

towards SBT/SOR, review negotiation strategies

• Optimise pricing architecture to prevent pricing misconceptions, win on KVIs and maximise GP

where possible PLANNING

• Focus core ranges to improve GP & be known for doing a few things well (also rationalise non-

core ranges)

• Localise range allocation to better match supply & demand (broad LSM coverage)

MARKETING

• Optimise catalogues to drive revenue and reduce opex
• Differentially focus direct marketing on high value customers
• Launch guerrilla / localised marketing, low opex but innovative / high impact in local area
• Store look & feel upgrades, to maximise impact per Rand spent

STORE PORTFOLIO

• Close terminally unprofitable stores (complete)
• Pilot new store formats & locations (investigate franchise options to achieve growth curve)

STORE OPERATIONS

• Pilot increased in-store staffing model to return to benchmarks (fully self-funding)
• Reduce opex: fewer guards, logistics, printing & utilities cost

ONLINE

• Re-platform: (increased functionality, clearer layout, improved look & feel, higher quality photos)
• Move to dark-store (Crown Mines DC) from Menlyn store

B2B

• Design & launch B2B business

CNA

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COGS REDUCTION

SHIFTS & SAVINGS

• Reduce reliance on indirect vendors (3rd party imports) from 44% - 16% from Summer 2014 to

Summer 2017

• Shifts & Vendor Management across our direct vendor base to achieve estimated savings of 4% -

6%

• Consolidation, across programs to maximise scale and drive volume
• Pursuing fabric bundling opportunities across core cotton bases, full impact expected in FY19
• Leveraging our worldwide capabilities to ensure we utilise the right source i.e.“ fit for purpose”
• Pursuing a cross functional holistic vendor management process

LOCAL/REGIONAL FOCUS

• Total Direct Local / Regional vendor base consists of 119 vendors of which 101 are based in South

Africa, with a share remaining consistent at 85%

• 24% growth in placement for Summer 2014 to Summer 2017
• “Project Durban” initiated in March of this year with satellite office set-up to assist vendor base in

greater Durban region with capacity management, on time deliveries & improve product capabilities

• Edcon joined the Sustainable Cotton Cluster in November 2016 with the objective to support the

cotton sector through the entire supply chain

• Edcon has committed to 600 tons of cotton lint being harvested in May 2017

CELROSE & EDDELS

• Ramping up placement by FY19 resulting in 158% increase in units & 121% in Rands
• Shifting of key products to gain savings through partnership with Celrose & Eddels
• Assist in expanding current product capabilities
• Create 340 new jobs through the above ramp up plan

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SUPPLY CHAIN: STRATEGIC AND TACTICAL INITIATIVES

EFFICIENT LOGISTICS

• Optimise supply chain processes to reduce lead-times to DC & stores
• Smooth input flow to align DC and store processing capacities
• Utilise alternative delivery methods (e.g. electronic pre-sorts) to free up DC capacity, reduce lead

times, stock losses & improve Data Integrity

• Adjust delivery windows to minimise interest on inventory for stock held at DC’s over the weekend
• Increased visibility of stock across the Supply Chain network

MINIMAL STOCK ROOM PROCESSING

• Deliver floor ready merchandise to stores by moving Value Added Services (e.g. adding hangers
• nto garments) further up the supply chain
• Save on labour cost & enable store staff to focus on customer experience
• Reduce processing times (store receipt to floor)
• Reduce stock losses/damages that occur in the Supply Chain network

IMPROVED ALLOCATION

• Minimize stock-outs and reduce markdowns by holding back a portion of stock and allocating

based on sales

• Reduce inventory in supply chain network

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• Delivery of IT roadmap to address cost and risk challenges
• Re-sourcing of key vendor contracts to achieve savings over

the 5 year IT transformation

• Transformation of IT systems will enable and support the

business strategy

SUMMARY

CREDITOR PLAN

COMMITMENTS

OBJECTIVES PROGRESS AGAINST

COMMITMENTS

IT ROADMAP DEVELOPED

• Board approved full IT transformation
• Roadmap for IT transformation underway and detailed

business cases in the process of being finalised

• RFP process for IT systems overhaul including

negotiations and vendor contract finalisation coming to a close end May/early June 2017

• Bring Edcon’s IT costs closer in line with retail benchmark

(1.5% of sales vs. 2.9%)

• De-risk, simplify IT-enabled business processes
• Improve service delivery, customer experience
• Increase speed-to-market e.g., promos
• Build internal IT capabilities to better support business in-

line with industry benchmark for in-source / out-source

3 year timeline for primary project delivery, starting with systems implementation mid-2017 after completion of vendor contracting period

IT TRANSFORMATION: ROADMAP STATUS UPDATE

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IT OUTCOMES: SUMMARY PER INITIATIVE

• New improved services to support the business requirements
• Contracts are standardised and consistent with best practice
• Improved robust infrastructure
• Consolidation of service providers to achieve economies of scale
• Savings will be realised with the new services contracted with the selected vendors
• Costs will be more in-line with IT benchmarks

INFRASTRUCTURE

• Simplified integration layer enabling agility to meet business requirements and to compete in the market
• Increased business service satisfaction with a robust integration platform and single view of the customer
• Reduced time to market of integration features through creation of reusable standards and assets
• Fundamental lever and foundation in the move towards Omni-Channel

INTEGRATION

• Improved customer experience at PoS as a result of new PoS hardware and software
• Real-time data on sales and returns allowing better planning and inventory management upstream
• Primary lever in the move towards Omni-channel
• Single view of the customer and inventory
• Standardise and simplify key end to end business processes
• Expected revenue uplift

POS

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• Increase speed and agility to market, improve pricing & promotion execution
• Creates clear customer oriented pricing strategies
• Modernise the supply chain to achieve ‘right product at the right place at the right time’
• Grow Omni-channel business to engage new and existing customers
• Empower employees with the right tools and capabilities
• Optimise business processes by standardising and simplifying key end-to-end business processes

MERCHANDISE AND PLANNING

• New Chart of Accounts and foundational structures embedded in systems provide room for growth & change as

well as providing a better platform for divesting and acquisitions

• Improved system-driven financial controls to help decrease manual interventions and financial surprises
• Improved interface accuracy and decreased journaling resulting in a faster month-end close
• Good practice controls and data quality will support the business strategy of listing in the foreseeable future

FINANCE BUSINESS INTELLIGENCE

• One source of the truth for all data required for making business decisions
• Significant reduction in manual effort, offline spreadsheets and data processing
• Seamless and near real-time reporting where necessary
• Increased delivery of insights and analytics to help users react and take actions faster in response to market

change and competition

IT - SUMMARY OF INITIATIVE OUTCOMES

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EFFICIENT LOGISTICS

• Optimise supply chain processes to reduce lead-times to DC & stores
• Smooth input flow to align DC and store processing capacities
• Utilise alternative delivery methods (e.g. electronic pre-sorts) to free up DC capacity, reduce lead

times, stock losses & improve Data Integrity

• Adjust delivery windows to minimise interest on inventory for stock held at DC’s over the weekend
• Increased visibility of stock across the Supply Chain network

MINIMAL STOCK ROOM PROCESSING

• Deliver floor ready merchandise to stores by moving Value Added Services (e.g. adding hangers
• nto garments) further up the supply chain
• Save on labour cost & enable store staff to focus on customer experience
• Reduce processing times (store receipt to floor)
• Reduce stock losses/damages that occur in the Supply Chain network

IMPROVED ALLOCATION

• Minimize stock-outs and reduce markdowns by holding back a portion of stock and allocating

based on sales

• Reduce inventory in supply chain network

SUPPLY CHAIN: STRATEGIC AND TACTICAL INITIATIVES

42

AGED STOCKS: AT COST END MARCH 2017 (EX-LEGIT)

AGED STOCKS 0-2 MONTHS +2.4% UP ON LAST YEAR

• Edcon has more current stock than last year
• Area’s that are more current than last year: Jet, Edgars Footwear, Edgars Kids wear,

Edgars Accessories, Cellular, Cosmetics and Studio Q AGED STOCK 3-6 MONTHS

• 5% DECREASE ONLY
• Edcon has less 3-6 months stock than last year
• Area’s showing good improvements to last year: Jet, International brands, Edgars

ladies wear, Edgars Active

• Area's showing more stock than LY: Active wear in Edgars, Cosmetics, C. N. A,

Cellular AGED STOCK >7 MONTHS

• 1% DECREASE ONLY
• Edcon has less aged stock than last year
• Area’s showing good improvements to LY: Jet, International brands, Edgars Menswear,

Edgars Footwear, Edgars Kids

• Area's showing more stock than LY: Boardmans and Edgars Home, Edgars ladies wear,

Active wear in Edgars, Edgars Active, Cosmetics and Studio Q

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CREDIT, FINANCIAL SERVICES AND COMMERCIAL SALES

CREDIT PORTFOLIO

• New account acquisition strategy revised and successfully implemented: Since November

2016 Edcon acquire ~80% of new accounts on balance sheet resulting in more control over new business credit sales with positive early signs

• Revised new account credit limits positively contributing to sales: Increase credit limits offered
• n Edcon owned portfolio positively impacting on new account sales
• Developing revised, complaint new account application and credit limit increase processes to

enhance customer experience when opening new accounts and applying for credit limit increases

• Introduce targeted credit marketing campaigns, resulting in increased shopping frequency
• Continuous focus collections efficiency, resulting in improved portfolio performance
• Considering various funding option for Edcon funded portfolio to support continuous growth

FINANCIAL SERVICES PRODUCTS

• Continued strong performance of Hollard insurance partnership
• Retailer aligned credit limit strategy to support future growth
• Successfully rolled out expanded insurance offering in Swaziland and Botswana with strong

future growth prospects

COMMERCIAL SALES GROWTH

• Successfully introduced new commercial sales unit which supported Group sales
• Gift card sales continue to show strong growth though new corporate partnerships
• More focused 3rd party credit offering positively contributing to credit sales
• Piloting corporate sales offering with strong future growth prospects
• Piloting term loan financing model in selected CNA and JetMart stores to support big ticket item

sales

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Reintroduce auto credit limit increases (ACLI) Introduce new account shadow limits Revise collections and recoveries strategies Implement new provision models Implement portfolio specific profit models Realign core insurance business Redesign new application process Redesign offered credit limit increase process (CLI) Automate gift card process Introduce Corporate accounts Redesign insurance claims process

a b c d e f g h i j k TACTICAL INITIATIVES STRATEGIC INITIATIVES

CREDIT & FINANCIAL SERVICES: STRATEGY & KEY BUSINESS PRIORITIES

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• Absa’s book can be considered in two components; existing

customers (back book) and new customers (flow). Absa’s conservative lending practices have predominantly been felt with respect to the flow as Absa has been unwilling to lend to higher risk customers and in general has made lower limits available to all new customers.

• Under the improved relationship with Absa, Edcon is

responsible for lending to the medium to high risk customers, whilst Absa will continue to lend to the low risk customers. Absa has agreed to almost double the limits it makes available to these low risk customers.

• Absa will continue to be responsible for lending to the back

book (existing customers). Absa is happy to provide reasonable limits to these customers as they have seasoned and therefore their risk profile is well understood.

IMPROVED RELATIONSHIP WITH ABSA

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• 5. WAY FORWARD

BERNIE BROOKES - CEO

47

• Transaction with creditors

completed, focus now shifted to business operations

• Continue to drive the three pillars of

the Edcon strategy: Customer Centricity, Empowerment and Simplicity

• Strategy starting to impact – first

month of new trading year, April FY18 saw a growth in EBITDA

• Continued focus on credit sales

initiatives - credit sales higher than cash sales in April FY18 for first time since 2010

• Each division focused on

continued strategic and tactical initiatives

WAY FORWARD - GROUP

• Finalization of the rationalization of

international brands

• Supply chain and logistics

initiatives to be implemented

• Continue journey to improved IT

infrastructure

• Enhanced loyalty offering to

customers

• Consolidation of key brands in

Specialty chain into Edgars and Jet for greater synergies, efficient relationships, meeting needs of target market

• Continue the momentum of the first

6 weeks

• Meet covenants and focus on

refinance of EUR debt

EDGARS

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WAY FORWARD CHAINS

• Continued focus on strategic and tactical initiatives of each

chain:

• Continuing to enhance and improve the private label
• ffering
• Store optimisation and service delivery model rolled out to

more stores

• Complete the roll out of NPS and further embed customer

service into the chains

• Continue to be competitive on price
• Faster stock turns
• Space optimisation
• Range rationalizations continuing
• Continue to enhance private label offering
• Continue to develop Jet small store concept
• Continue turnaround initiatives for CNA and Cellular

EDGARS

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CLUB FEE DISCLOSURE

• “The NCR referred a complaint to the National Consumer Tribunal (“NCT”) in terms of section

140(2) (b) of the National Credit Act, 32 of 2005 (“NCA”) wherein the NCR asked for a declaration by the NCT that Edcon had contravened the NCA by requiring the payment of club fees in terms of its credit agreements. The Company noted the NCT’s judgment issued on the 24 April 2017 and, following consultation with Senior Counsel on the matter, filed an appeal with the High Court on 10 May 2017. At the commencement of the hearing, the parties agreed that the Tribunal will only deal with the merits of the case, and that a separate hearing process will be instituted following the judgment. The Appeal, as filed, has the effect staying the Sanctions hearing until the Appeal process has been finalised.

• We maintain that we have not violated the NCA and expect to be vindicated in due course. In

this regard, we note that the Tribunal did not find (and could not have found) that the selling of a Club product is unlawful in and of itself, rather, the finding was that the inclusion of Club in credit agreement is contrary to the NCA. Furthermore, we are of the view that no consumer could have been disadvantaged by choosing to purchase an option product and receiving full value for their purchase.”

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For more information: www.edcon.co.za

UNAUDITED CONSOLIDATED RESULTS

Q4 AND FULL YEAR 2017

25 MAY 2017 | investorrelations@edcon.co.za JET