CONSOLIDATED RESULTS Q2:FY17

Transcription

1 CONSOLIDATED RESULTS Q2:FY17 BERNIE BROOKES CHIEF EXECUTIVE OFFICER 22 November 2016 EDGARS

2 AGENDA OPERATIONAL UPDATE FINANCIAL REVIEW STRATEGIC UPDATE EDGARS 1

3 /29/2015 1/5/2016 3/8/2016 5/17/2016 7/20/2016 9/23/2016 MACRO BACKDROP GDP GROWTH AND UNEMPLOYMENT RATE EXCHANGE RATES Real GDP (y-o-y %) Unemployment rate (%) USDZAR EURZAR (1) PRIVATE SECTOR CREDIT EXTENSION (Y-O-Y %) REPO AND PRIME RATE Source: SARB & StatsSA

4 Q1:2014 Q2:2014 Q3:2014 Q4:2014 Q1:2015 Q2:2015 Q3:2015 Q4:2015 Q1:2016 Q2:2016 Q3:2016 Q2:2014 Q3:2014 Q4:2014 Q1:2015 Q2:2015 Q3:2015 Q4:2015 Q1:2016 Q2:2016 MACRO BACKDROP INFLATION FNB/BER CONSUMER CONFIDENCE INDEX 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% RETAIL SALES HOUSEHOLD DEBT TO GROSS DISPOSABLE INCOME RATIO 15% 10% 5% 0% -5% Retail trade sales Textiles, clothing, footwear and leather goods 3 Source: SARB & StatsSA

5 STRATEGY PROFITS SALES KEY FEATURES Challenging economic climate continued and negative impact from credit. Q2:FY17 Q2:FY16 Retail sales 6.8% 0.1% Cash sales 0.8% 5.6% Credit sales 18.1% 7.6% LFL Sales 8.2% 2.2% Margins impacted by higher input costs and increased markdowns to clear aged inventory. Q2:FY17 Q2:FY16 Gross profit 16.1% 1.3% Adjusted EBITDA 100.4% 0.4% Transaction with creditors announced, focus can now be directed towards new strategy of empowerment, customer centricity and simplicity. R1.5 billion bridge financing secured Transaction with creditors announced on 20 September Sale of Legit business agreed on 15 September 2016 for R637 million 4

6 EDGARS DIVISION Q2:FY17 Cash sales increased by 0.7% and credit sales reduced 14.3% - All merchandise categories reported negative sales growth Margin impacted by: - Clearance of aged inventory - Weak Rand - Better entry price points 3 new Edgars stores opened Q2:FY17 Q2:FY16 Retail sales growth (%) (6.8) (2.2) LFL sales growth (%) (8.5) (3.5) GP margin (%) Total number of stores Capex spend (R m) Av space ( 000sqm) stores* LSM 6-10 *Includes 1 Edgars sales store and 1 Edgars Emporium store 5

7 DISCOUNT DIVISION Q2:FY17 Cash sales increased by 2.5% and credit sales reduced 20.7% - Decline in sales across all categories Margin impacted by: - Clearance of aged inventory - Weak Rand No new store openings 1 Jet store closed Q2:FY17 Q2:FY16 Retail sales growth (%) (5.5) (0.1) LFL sales growth (%) (5.7) (1.6) GP margin (%) Total number of stores Capex spend (R m) Av space ( 000sqm) stores LSM stores LSM 4-7 6

8 SPECIALTY DIVISION Q2:FY stores LSM 4-7 Cash sales increased by 0.7% and credit sales reduced 24.9% Margin impacted by: - Clearance of aged inventory 6 new stores opened - 2 Edgars Active, 1 Red Square,1 CNA and 2 monobranded stores 13 stores closed - 1 Edgars Active, 5 Edgars Shoe Gallery, 2 Legit and 5 Monobranded stores Retail sales growth (%) Q2:FY17 Q2:FY16 (6.8) 2.2 LFL sales growth (%) (9.8) (2.5) GP margin (%) Total number of stores Capex spend (R m) 9 43 Av space ( 000sqm) stores LSM * stores LSM 7-10 *Includes 10 Samsung stores 49 stores LSM stores LSM stores LSM 5-8 MONO-BRANDED STORES 7 90 stores LSM 5-10

9 AGENDA OPERATIONAL UPDATE FINANCIAL REVIEW STRATEGIC UPDATE 8 EDGARS

10 STATEMENT OF COMPREHENSIVE INCOME (R millions) Q2:FY16 Q2:FY17 % change Retail sales (6.8) Gross profit (16.1) Gross profit margin (3.6)pts Other income (5.4) Store costs (1 572) (1 665) 5.9 Other operating costs (1) (1 104) (1 272) 15.2 Share of profits of associates and insurance business (53.0) Trading (loss)/profit 161 (614) (481.4) Adjusted EBITDA 516 (2) (100.4) (1) Includes non-recurring costs of R361 million in Q2:FY17 (Q2:FY16 R94 million). See cost analysis Q2:FY17. 9 EDGARS JET

11 ADJUSTED EBITDA (R millions) Q2:FY16 Q2:FY17 % change Trading (loss)/profit (1) 161 (614) (481.4) Depreciation & amortisation Net asset write off (2) 3 - EBITDA losses from Edgars Shoe Gallery (3) - 2 EBITDA losses from brands exited (4) 7 10 Non-recurring costs (5) Adjusted EBITDA 516 (2) (100.4) EBITDA (gain)/losses from brands planned to be exited (6) 1 - Legit EBITDA (7) (25) (18) Pro forma adjusted EBITDA 490 (20) (104.1) 10 1) Q2:FY16 has been re-presented as a result of ceasing to classify trade receivable card portfolio in Lesotho, Namibia, Botswana and Swaziland held-for-sale. 2) Relates to assets written off in connection with store conversions, net of related proceeds in ) The Group has taken a decision to exit all Edgars Gallery stores. 4) Adjustment to remove the EBITDA gain or loss from certain brands being Express, Geox, Lucky Brand, One Green Elephant and Tom Tailor which the Group is strategically exiting. 5) Relates to a credit (provision release) in Q2:FY17 of R16 million previously raised for the head office restructure (Q2:FY16 credit of R1 million for release of restructuring provisions), onerous lease charges of R144 million in Q2:FY17 (Q2:FY16: R14 million), transitional project related expenditure of R51 million in Q2:FY17, strategic initiative costs of R182 million (Q2:FY16: R80 million) and lease cancellation costs of R1 million in Q2:FY16. excluded from the non-recurring costs previously reported is R39 million which related to fees for the Exchange Offer concluded in November 2016 which, have been reclassified from other operating costs on the statement of Comprehensive Income to below the trading profit and separately disclosed. 6) The Group has strategically identified international brands it has planned to exit. This adjustment reflects the EBITDA profit or loss associated with these brands. 7) EBITDA relating to the Legit business which the Group announced during the quarter it has agreed to sell subject to Competition Commission approval RED SQUARE

12 COST ANALYSIS Q2:FY17 OTHER OPERATING COSTS Decrease in remuneration through head office head count reductions Non-recurring costs increased primarily due to the transaction with creditors (R167 million), provisions for onerous leases (R144 million) and other strategic and transitional costs. STORE COSTS Store costs were well managed increasing by 5.9%. Rental costs were up 7.6% Manpower costs were up 5.5% Rental and manpower constitute 60.2% of total costs for Q2:FY17 (62.0% in Q2:FY16). (R millions) Q2:FY16 Q2:FY17 % change Other operating costs (7.2) Store card administration (30.2) Non-recurring costs Total other operating costs BOARDMANS 11

13 CASH FLOW Q2:FY17 R m Working Capital Inventories Trade receivables, other receivables & prepayments (187) Trade and other payables (288) 33 (113) (10) (115) Opening cash balance Operating activities Working capital Capex Tax Net financing costs Financing activities a) Closing cash balance a) Includes R5 million outflow for cash currency adjustments. 12

14 AGENDA OPERATIONAL UPDATE FINANCIAL REVIEW STRATEGIC UPDATE 13 EDGARS

15 ROADMAP WITH STRATEGIC INITIATIVES Note: 2017 plan being finalized 14 JET

16 EDGARS: STRATEGIC AND TACTICAL INITIATIVES EDGARS BRAND BUILDING CUSTOMER EXPERIENCE CATEGORY MANAGEMENT CREDIT & FINANCIAL SERVICES CHANGE MANAGEMENT Re-invest in Edgars brand: Corporate Brand ads Reduce focus on promotions: EDLP Launch Kelso stand-alone store (Tyger Valley) Simplify admin work in stores and refocus on customer facing activities Implement NPS (72 stores YTD, 4-8pts improvement) Roll out dedicated service (30 stores) and new look & feel (21 stores) Transition to 4 seasons for more flexibility Introduce range pyramid to manage risk: assortment reduced by 20%, volumes pushed by 15% Create strong KVIs at attractive prices Reduce number of suppliers to improve scale benefits Adopt systematic approach to markdowns to clear stock Boost credit account activations through centre court kiosks (30 in Q3) Drive sales of FS products through training Communicate regularly on transformation programme and achievements to Edgars employees Gather feedback from employees and react as required 15

17 DISCOUNT: STRATEGIC AND TACTICAL INITIATIVES Project Rock/CBD roll-out: New store lay-out, stronger price call-outs and simplified signage Optimal Allocation: Matching supply to demand SALES GROWTH Lay-by: Drive lay-by offer Marketing, direct marketing and basket building General Merchandise: Food roll-out and bulk deals Omni-channel: Transactional website/click-and-collect Home Hards: Selective price increases and range rationalisation GP IMPROVEMENT Female: Selective price increases and range rationalisation Pricing: Optimal day 1 pricing strategy CREDIT & FINANCIAL SERVICES Credit: Drive new account activations and credit limit increases FS: Drive additional income on insurance products Advertising: Optimise advertising spend COST SAVINGS Operations: Optimise operations spend Jet Club: Claim reimbursements and optimise revenue 16

18 SPECIALTY - STRATEGIC AND TACTICAL INITIATIVES Review and rationalise product assortment Improve value perception Fix poor store performance Capitalise on online sales growth as key contributor to overall sales growth Review product mix and assortment Improve shopping experience Capitalise on online sales growth Review and improve product assortment Improve store profitability Execute Leopard transaction Review product assortment to ensure we have differentiated offer Fix poor store performance Review promotional strategy Cellular Improve existing business performance Grow data and airtime sales Review and enhance in-store service model and cross-selling 17

19 PEAK SEASON: TARGETED INITIATIVES AIMED TO DELIVER SUCCESS The retail peak season every year is from October until December, driven by holiday and back-to-school shopping We have historically generated one-third of our annual sales in this quarter We are implementing targeted initiatives to deliver a successful quarter for Edcon in FY17: - Boost cosmetics: Increase cosmetics sales in Edgars and Red Square through promotional campaigns - Deliver back-to-school: Drive back-to-school cross-sales in Edgars, Jet, CNA - Fix cellular: Drive cellular sales through marketing and operational enhancement - Accelerate pilot store roll-out: Roll-out stores with look & feel and dedicated service - Big, bold marketing: Drive footfall through big, bold brand ads for Edgars and Jet - Boost credit sales: Drive credit account openings, credit limit uptakes, and utilisation - Special buys: Secure special stock for festive season - Incentivise store staff: Reward staff for high performance 18

20 THANK YOU Q2:FY17 CONSOLIDATED RESULTS For more information Our website: Edcon contacts for more information: General Manager Finance Odet Hayes EDGARS