UNAUDITED CONSOLIDATED RESULTS Q4 AND FULL YEAR 2017 25 MAY 2017 EDGARS 0
AGENDA 1. YEAR IN REVIEW 2. MACRO ECONOMIC ENVIRONMENT 3. FINANCIAL REVIEW FY17 4. STRATEGY AND TURNAROUND INITIATIVES 5. WAY FORWARD 1
1. YEAR IN REVIEW BERNIE BROOKES - CEO 2
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 3
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 4
TWO BURNING PLATFORMS TO ADDRESS ISSUE 1: HIGH DEBT PAYMENTS ISSUE 2: DECLINING TRADING PROFIT Gross finance cost, R billion Trading profit, R billion 1.9 1.9 4.2 3.7 1.4 3.4 1.3 3.1 1.2 2.6 2.5 1.0 FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16 Less debt won’t help with this To fix this we need new owners and reduce our debt we need to turn around performance 5
ISSUE 1: CAPITAL RESTRUCTURE OVERVIEW • Existing creditors committed to fund up to R2,870 million to significantly shore up the Group’s liquidity position SUBSTANTIAL NEW • R575 million New Revolving Credit Facility (1) MONEY INJECTION • R2,295 million-equivalent USD-denominated New Holdco 1 PIK A-1 Notes (2) • Senior secured creditors to equitize 50% of their outstanding claims and novate their reinstated claims to a holding company MATERIAL • c. R3,200 million of second and third-ranking super senior claims to be novated to a DELEVERAGING OF THE holding company OPERATING COMPANY • Pro forma for the transaction, gross leverage at the operating company to decline to 3.6x from 18.9x • New commitments and novated claims at the holding companies to be PIK-only REDUCTION OF CASH instruments • INTEREST BURDEN Pro forma for the transaction, cash interest coverage at the operating company to increase to 3.9x from 0.6x • Most indebtedness at the operating company to mature December 2019 (3) • EXTENSION OF New commitments and novated claims at the holding companies to mature December MATURITIES 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 6
ISSUE 1: THIRD PARTY GROSS DEBT DRAWN GROSS BASE PIK AMOUNT LEVERAGE CURRENCY MATURITY MARGIN RATES MARGIN (ZARm) 5.0% 3.0% 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 4.0% 8.0% 31 Dec 17 Super Senior Liquidity Facility A1 576 0.4x EUR EURIBOR 4.0% 8.0% Super Senior Liquidity Facility A2 2 31 Dec 17 1,779 1.3x EUR EURIBOR 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 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 7
ISSUE 2: CONTEXT – EDCON’S TRADING EBITDA (EXCL. C&FS) IN 4Y DECLINE EBITDA, R’m 3,432 3 072 2 850 2 710 2 545 2 364 1 477 1 265 1 182 FY08A FY09A FY10A FY11A FY12A FY13A FY14A FY15A FY16A Note: Data excludes Legit and Zimbabwe 8
SALE OF LEGIT Purchaser details Transaction mechanics Deal overview • • • Sale of business for Legit chain identified as Retailability - fashion retail holding company: ~200 R637 million cash potential asset for sale in stores across SA, Namibia, strategic review • Cash-free, debt-free Botswana, Zambia • sale Strong interest from • Partnered by material range of potential trade • Sale of assets, going shareholder Metier Private and financial purchasers concern basis Equity : ~R6 billion funds • Disposal improves Edcon’s under management liquidity position and • Flagship chains Beaver intensifies focus on core Canoe, Style department stores and value chain offerings Purchase consideration of R637m, sale effective 29 January 2017 9
EXIT OF INTERNATIONAL BRANDS 10
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 47 22 +39 pts +44 pts NOV 15 APR 17 3 -17 NOV 15 APRIL 17 11
TWO KEY PRINCIPLES OF NEW STRATEGY IMMEDIATELY BRING SET UP BUSINESS FOR TOP COST UNDER CONTROL LINE AND MARGIN GROWTH • Head office cost reduction and change in • Relentless focus on “customer service”: move from focus on “transaction”, “efficiency” and “checklists” to operating model: eliminate rework, simplify business, drive efficiency focus on customer experience and reward (loyalty, NPS, - aligned incentives) 35% reduction in headcount and cost - Gives chains full financial and management control • Move to margin enhancement: management on “open • Introduction of a procurement team and tendering to buy”, less reliance on and better planning of promotion, control of markdown, “SKU” rationalisation , focus on processes for goods not for resale (GNFR), providing a lower cost plus a simpler and well governed strategy entry price points and decluttering of merchandising & marketing • Immediate cessation of square meterage rollout • Re-focus on a more profitable private label portfolio with no defined property strategy: leverage existing with 3x the productivity of international brands – better fit, space to enhance productivity and returns exclusive, less impacted by ZAR devaluation • Enhanced buying prices through eliminating • “Reverse” strategy to win at all costs on international excess use of agents and brokers; focus on local brands – onerous contracts, capex hungry, high price sourcing perception, not “season” friendly; R64m loss in FY16 • Commence an IT road map to address cost and risk • Focus on digital and Omni-channel as growth engine challenges 12
THE NEW EDCON JOURNEY CUSTOMER PEOPLE SIMPLICITY CENTRICITY EMPOWERMENT • Defined target segments • Lean Head Office • Operating model (incl. org structure, accountabilities) • Differentiated value • IT strategy and cost • Culture proposition per segment optimisation • Customer feedback and • Sourcing consolidation • Incentives and KPI follow-up • Logistics and supply chain • Structural improvement review from customer feedback 13
ROADMAP WITH STRATEGIC INITIATIVES 2016 2017 OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP LEAN HQ & OPERATING MODEL 1 GNFR 2 COST COGS REDUCTION 3 PROPERTY 4 EDGARS CHAIN: TURNAROUND/CUSTOMER CENTRICITY 5 JET CHAIN: LEAN DISCOUNT RE-POSITIONING 6 GROWTH SPECIALTY CHAINS: STRATEGY REVIEW AND REFRESH 7 CREDIT SALES 8 LOYALTY PROGRAM 9 CUSTOMER CENTRICITY 10 IT STRATEGY AND RENEWAL PLAN 11 ENABLERS SUPPLY CHAIN & LOGISTICS ROADMAP 12 SUPPLIER ENGAGEMENT 13 INVENTORY 14 EDGARS 14
NEW BOARD OF DIRECTORS GARETH PENNY BERNIE BROOKES Non-executive Chairman Chief Executive Officer RHIDWAAN GASANT DAPHNE MOTSEPE Non-executive Director Non-executive Director GRANT PATTISON KEITH WARBURTON Non-executive Director Non-executive Director MARTI P MURRAY Non-executive Director 15
2. MACRO ECONOMIC ENVIRONMENT RICHARD VAUGHAN - CFO 16
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