1. No category

PRESENTATION OF CONSOLIDATED RESULTS
For the quarter ended 27 December 2014
AGENDA
2
Strategic and
operational update
Financial review
Looking forward
Jürgen Schreiber
CEO
Toon Clerckx
CFO
Jürgen Schreiber
CEO
STRATEGIC AND OPERATIONAL UPDATE
VISION
4
Distinctive retail
formats
Focused customer
groupings
Creating unique
experiences
Exceptional value
proposition and
choice of product
TRADING ENVIRONMENT
5
Retail sales(1)
Total retail sales
Credit extension(1,2)
CTF sales
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Other loans & advances
Debt-to-Household income
25.0%
20.0%
15.0%
79.0%
10.0%
78.5%
78.0%
5.0%
0.0%
• December CPI slowed to 5.3% from 5.8% in November(3)
• Lower than expected food prices
• CPI likely to remain relatively contained in coming months on the back of lower commodity prices
• Average annual inflation rate was 6.1% for the year 2014
• Real GDP growth projected at 2.2% for 2015 (from 2.5% prev.)(4)
• Forecast takes into account electricity supply disruptions and the positive impact of lower oil prices
3mma retail sales y-o-y%; Stats SA and SARB – December 2014
Other loans and advances
Stats SA– 18 February 2015
SARB: MPC– 29 January 2015
80.0%
79.5%
• Consumer remains constrained but a mixed picture
1)
2)
3)
4)
80.5%
77.5%
77.0%
KEY STRATEGIC LEVERS
6
Comparable
store growth
• Margin
expansion
New space
growth
Credit
•
•
•
•
Store enhancement and portfolio management
Continuous store optimisation
Assortment: brands and improved private label
Leverage growing loyalty programme
• Sourcing
• Pricing management
• Continue to drive group efficiencies
•
•
•
•
Grow existing format footprint
Rollout of tested new formats
Expand into rest of Africa
Right sizing of stores
• Second look credit providers and other solutions
• Broaden financial services and insurance offering
Working capital management
PERFORMANCE AGAINST STRATEGIC LEVERS
7
Sales growth
Retail Sales (%)
Margin & space
• Pro forma adjusted EBITDA up 4.2%
Comp Sales (%)
• GP Margin up 170 bps to 38.0%
5.7
2.9
2.7
0.5
• Ongoing cost containment efforts yielding
positive results
• Average space growth of 6.1%
2.6
-1.0
-2.6
-0.7
1Q:FY15
2Q:FY15
3Q:FY15
YTD:FY15
Credit and cash sales growth
Cash sales (%)
Capital structure management
• Ongoing assessment of ways to improve the
capital structure
Credit Sales (%)
15.1
8.7
-3.3
-3.8
1Q:FY15
2Q:FY15
All numbers include Edgars Zimbabwe.
11.7
-12.1
3Q:FY15
11.8
-7.0
YTD:FY15
• Continuously monitor our liquidity position,
impacted by leverage
• Considering initiatives to generate further liquidity,
such as the sale of non-core assets
EDGARS DIVISION – OPERATIONAL PERFORMANCE
8
Sales growth
Margin
• Strong cash sales growth of 11.4%
Retail
sales
• Credit sales reduced 11.1%
0.8%
• Margin improvement through
• Strong margin management
• Improved buying and sourcing
• International brands continue to
deliver solid performance and drive
foot traffic
• Stand-alone stores such as River
Island, Top Shop and T.M. Lewin well
received by consumers
• Diversity of performance between
malls and credit driven CBD stores
GP
margin
40.1%
• Pricing initiatives
LFL
5.1%
• Better clearance
• Promotions remain key for the chain
2.3pts
EDGARS DIVISION – CAPITAL INVESTMENT
9
Capex (R millions)
New space growth
• Total of R186 million spent in the quarter
• 28 stores opened (and 3 closures)
• Edgars store chains
• R504 million YTD
• Spend shared between new stores, including
mono-branded stores
• Limited expansion outside South Africa for now
Refurbishment
74; 40%
Expansion
112; 60%
Average
823m2
• 9 Edgars, 3 Edgars Active, 1
Boardmans, 1 Red Square and 1
Cosmetics Emporium
535 stores
• 13 mono-branded stores opened in
malls including
8.9%
• River Island, Jigsaw, Salsa, Dr Martens,
Calvin Klein, Khiels and Victoria’s Secret
DISCOUNT DIVISION – OPERATIONAL PERFORMANCE
10
Sales growth
Margin
• Cash sales growth of 11.1%
Retail
sales
• Continued expansion
• Credit sales reduced 10.6%
2.5%
• Margin improvement through
• Good performance from ladieswear
and kidswear
• Credit driven CBD stores continue to
hold back overall performance
GP
margin
36.3%
• Margin management
LFL
0.0%
• Pricing initatives
• Improved buying and sourcing
1.3pts
DISCOUNT DIVISION – CAPITAL INVESTMENT
11
Capex (R millions)
New space growth
• Total of R55 million spent in the quarter
• 21 stores opened (and 3 closures)
• R157 million YTD
• 13 Jet
• Much of the expansion is outside South Africa
• 8 Legit
Average
639m2
720 stores
3.9%
Refurbishment
22; 40%
Expansion
33; 60%
CNA DIVISION
12
Sales growth
• Product mix
negatively
impacted sales
• Good trading
density
performance YTD
New space growth
Retail
sales
7.3%
LFL
5.3%
• Capex spend of
R7m for the
quarter
• Right-sizing of
stores continued
during the quarter
Average
83m2
Margin
• Margin stable in
the quarter
GP
margin
29.5%
197 stores
5.7%
0.2pts
FINANCIAL REVIEW
KEY CONSIDERATIONS FOR Q3:FY15
14
• Credit: Cash sales ratio of 41.0% from 46.9% in
Q3:FY14*
Pro forma adjusted EBITDA stabilising
• Credit sales remain a key focus area
• Initiated testing of a 2nd look credit option during
Q3:FY15, small but performing well
% change on previous year
4.2%
1.0%
• Finding a long-term partner remains a priority
• Margin management improvements
-6.6%
• Good progress on gross margin
• Working capital initiatives continue to deliver
results and improve financial performance
• Sustained progress in both inventory and accounts
payable management
• Continued overhead cost improvements
*Including Edgars Zimbabwe
-24.0%
Q4:FY14
Q1:FY15
Q2:FY15
Q3:FY15
STATEMENT OF COMPREHENSIVE INCOME
15
Q3:FY14
Q3:FY15
% change
Retail sales
8 787
8 834
0.5
Gross profit
3 193
3 360
5.2
Gross profit margin
36.3
38.0
1.7pts
Other income
241
268
11.2
Store costs
(1 578)
(1 735)
9.9
Other operating costs
(1 126)
(1 143)
1.5
Share of profits from insurance business
176
169
(4.0)
Trading profit
906
919
1.4
1 200
1 250
4.2
(R millions)
Pro forma adjusted EBITDA
PRO FORMA ADJUSTED EBITDA
16
Q3:FY14
Q3:FY15
% change
Trading profit
906
919
1.4
Depreciation & amortisation
294
257
2
21
(22)
(20)
15
67
1 195
1 244
Net income from previous card programme (4)
2
4
Net income from new card programme (5)
3
2
1 200
1 250
4.2
13.7%
14.1%
0.4 pts
(R millions)
Net asset write off(1)
Loss from discontinued operations(2)
Non-recurring costs(3)
Adjusted EBITDA
Pro forma adjusted EBITDA(6)
Pro forma adjusted EBITDA margin
(1)
(2)
(3)
(4)
(5)
(6)
4.1
Relates to assets written off in connection with store conversions, net of related proceeds.
The results of discontinued operations are included before tax.
Relates to costs associated with the sale of the trade receivables book in Q3:FY14 of R1m and Q3:FY15 of R16m, costs associated with corporate and operational overhead reductions of R14m in Q3:FY14, once-off
lease adjustment of R49m in Q3:FY15, as well as onerous lease charges of R2m in Q3:FY15.
Net income derived from 100% of the trade receivables including finance charges revenue, bad debts and provisions.
Pro forma fee earned by Edcon under the new arrangement with Absa.
The pro forma adjustments have been made as though 100% of the book was sold through the entire period.
UPDATE ON COST PROGRAMME
17
(R millions)
LTM pro forma adjusted EBITDA (reported)
Q3:FY15
2 694
Permanent adjustments:
Corporate and operational overhead reductions
Renegotiation of contracts
LTM pro forma adjusted EBITDA (incl. adjustments)
Normalised pro forma net debt (1)/LTM pro forma adjusted EBITDA (times)
• Overhead operational efficiency improvements
• Cost saving initiatives from previous quarters have positively
impacted EBITDA
1) Pro forma net debt is R19,026m at Q3:FY14 and R21,370m at Q3:FY15
272
46
3 012
7.1x
COST ANALYSIS FOR Q3:FY15
18
Other operating costs
Store costs
• Solid progress made in controlling overhead costs
• Store card cost improvements
• Rental and manpower constituted 58.9% of total
costs for Q3:FY15
• Non-recurring costs include once-off lease
adjustment of R49 million
(R millions)
%
Q3:FY14 Q3:FY15 change
Other operating costs
974
980
Store card administration
137
96
15
67
(1 126)
(1 143)
Non-recurring costs
Total other operating costs
• Store costs increased 9.9%, impacted mainly by
a 11.2% increase in rental costs
0.6
1.5
CAPEX INVESTMENT
19
• Total capex, excluding leases, of R302m for the
quarter
Total capex breakdown
(R millions)
2
52
• 55 new stores opened
• R839 million capex spend YTD
7
186
55
Edgars
• Capex expected to normalise in FY16
Discount
CNA
IT
Zimbabwe
Store capex mix*
(R millions)
101
149
Refurbishment
* Excluding Edgars Zimbabwe
• Investment weighted towards expansion
Expansion
CASH FLOW FOR Q3:FY15
20
371
46
188
1 413
1 287
Working capital
1 517
227
1 277
197
492
Opening
cash
balance
1 651
Inventories
Operating
activities
Working
capital
(1) Includes R1m relating to intangible assets
(2) Includes R6m of currency adjustments
84
43
Trade and other
Other
Trade and
receivables receivables and other payables
prepayments
(1)
Capex
Tax
Net
financing
costs
(2)
Financing
Net
activities derivatives
Closing
cash
balance
LIQUIDITY AND CAPITAL RESOURCES
21
• Net debt down R1,822 million from Q2:FY15
• Cash and trade accounts payable peak at the end
of Q3 each year
• Actively monitoring future liquidity
• Cash of R1,517 million
• Undrawn facility of R3,123 million
• Potential sale of various non-core assets
• All principal amounts hedged, except 10% of
2018 fixed rate notes and all of the 2019 fixed
rate notes
• Edcon continues to assess ways to improve the
capital structure
Hedging of gross debt
(R millions)
Q3:FY14
Drawn (1)
Q3:FY15
Drawn (1)
Super senior secured
Revolving credit facility in ZAR(2)
86
313
1 010
1 003
2017 ZAR Term loan – J+700bps
4 001
4 064
2018’s € Fixed rate – 9.5%
8 619
8 482
2018’s $ Fixed rate – 9.5%
2 585
2 868
Deferred option premium
1 034
1 045
284
375
5 903
5 797
163
226
Gross debt
23 685
24 173
Derivatives
(2 020)
(923)
Cash and cash equivalents
(1 892)
(1 517)
Net debt
19 773
21 733
2016’s ZAR notes – J+625bps
Senior secured
Lease liabilities
Senior
1%
(3)
Other loans(3)
12%
32%
(1)
(2)
2019’s € Fixed rate – 13.375%
28%
27%
ZAR
USD (hedged)
EURO (unhedged)
Other loans
EURO (hedged)
FX rates at end Q3:FY14 were R10.50:$ and R14.44:€ and at end Q3:FY15 were R11.60:$ and R14.12:€.
The total limit under the super senior revolving credit facility is R3,717m which matures on 31 December 2016. The maximum utilisation of the revolving credit facility during Q3:FY15 was R2,783m. At the end of the period
R281m of the facilities were utilised for guarantees and LC’s.
The portion of this debt relating to Zimbabwe was R208m in Q3:FY15 and R160m in Q3:FY14.
LOOKING FORWARD
OUTLOOK
23
• Solution to declining credit sales
• Further gross margin opportunities
• Maintain store and overhead cost efforts
• Capex to normalise
• Vision for rest of Africa
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 / [email protected]