q3 fy16 consolidated results

Q3 FY16
CONSOLIDATED
RESULTS
QUARTER ENDED
26 DECEMBER 2015
BERNIE BROOKES
CHIEF EXECUTIVE OFFICER
26 February 2016
EDGARS | WINTER 16
Q3 FY16 CONSOLIDATED RESULTS
AGENDA
STRATEGIC AND OPERATIONAL UPDATE
FINANCIAL REVIEW
LOOKING FORWARD
EDGARS | WINTER 16
4
2016-01
31-12-2015
30-11-2015
31-10-2015
30-09-2015
31-08-2015
USDZAR
2015-11
2015-09
2015-07
2015-05
11
10
9
8
7
6
5
20
18
16
14
12
10
8
2015-03
PRIVATE SECTOR CREDIT EXTENSION (Y-O-Y %)
31-07-2015
22
2015-01
23
30-06-2015
-
2014-11
24
31-05-2015
GDP GROWTH AND UNEMPLOYMENT RATE
2014-09
1
30-04-2015
25
2014-07
2
31-03-2015
26
2014-05
3
28-02-2015
27
2014-03
Unemployment rate (%)
29-01-2015
01-09-2015
01-08-2015
01-07-2015
01-06-2015
01-05-2015
01-04-2015
Real GDP (y-o-y %)
01-03-2015
01-02-2015
01-01-2015
01-12-2014
01-11-2014
01-10-2014
01-09-2014
01-08-2014
01-07-2014
01-06-2014
01-05-2014
01-04-2014
01-03-2014
01-02-2014
01-01-2014
01-12-2013
01-11-2013
01-10-2013
01-09-2013
4
2014-01
01-12-2013
01-01-2014
01-02-2014
01-03-2014
01-04-2014
01-05-2014
01-06-2014
01-07-2014
01-08-2014
01-09-2014
01-10-2014
01-11-2014
01-12-2014
01-01-2015
01-02-2015
01-03-2015
01-04-2015
01-05-2015
01-06-2015
01-07-2015
01-08-2015
01-09-2015
01-10-2015
01-11-2015
01-12-2015
MACRO BACKDROP
EXCHANGE RATES
EURZAR
REPO AND PRIME RATE
11.5
8.5
10
7
5.5
4
Source: SARB & StatsSA
5
Retail trade sales
-15
RETAIL SALES
15%
80
10%
79
5%
78
0%
-5%
77
Textiles, clothing, footwear and leather goods
Q4:2015
-10
4.5%
Q3:2015
-5
5.0%
Q2:2015
5.5%
Q1:2015
0
Q4:2014
6.0%
Q3:2014
5
Q2:2014
6.5%
Q1:2014
4.0%
Q4:2013
Q3:2015
Q2:2015
Q1:2015
Q4:2014
Q3:2014
Q2:2014
Q1:2014
Q4:2013
Q3:2013
INFLATION
01-09-2013
01-10-2013
01-11-2013
01-12-2013
01-01-2014
01-02-2014
01-03-2014
01-04-2014
01-05-2014
01-06-2014
01-07-2014
01-08-2014
01-09-2014
01-10-2014
01-11-2014
01-12-2014
01-01-2015
01-02-2015
01-03-2015
01-04-2015
01-05-2015
01-06-2015
01-07-2015
01-08-2015
01-09-2015
2013/10
2013/11
2013/12
2014/01
2014/02
2014/03
2014/04
2014/05
2014/06
2014/07
2014/08
2014/09
2014/10
2014/11
2014/12
2015/01
2015/02
2015/03
2015/04
2015/05
2015/06
2015/07
2015/08
2015/09
2015/10
2015/11
2015/12
MACRO BACKDROP
FNB/BER CONSUMER CONFIDENCE INDEX
-20
HOUSEHOLD DEBT TO GROSS DISPOSABLE INCOME RATIO
76
Source: SARB & StatsSA
STRATEGY
PROFITS
SALES
KEY FEATURES FOR THE QUARTER
6
Challenging
economic
environment
Net profit of R3
billion on
conclusion of
exchange offer
Customer centric
strategic plan
announced to
address declining
sales and profit
• Retail sales
↓ 1.7%
• Cash sales
↑ 4.0%
• Credit sales
↓ 9.9%
• LFL Sales
↓ 3.2%
• Net gain from exchange offer
R4 084m
• Foreign exchange and
derivative losses
R1 036m
• Gross profit
↓ 3.0%
• Pro forma adjusted EBITDA
↓ 9.8%
• Leaner head office
• Restructuring to provide chain
management profit and loss responsibility
• Customer focus
• Simpler business
*Includes 2 Edgars sales stores and 1 Edgars
Emporium
EDGARS DIVISION
206* stores · LSM 6-10
• Cash sales grew 8.2% while
credit sales reduced 9.3%
• Margin impacted by:
Q3
FY16
Q3
FY15
Retail sales growth (%)
(0.2)
(0.8)
LFL sales growth (%)
(2.7)
(5.1)
GP margin (%)
39.4
40.1
Total number of stores
562
535
Capex spend (R’m)
78
186
Av space (‘000sqm)
851
823
180 stores · LSM 4-7
- Declining Rand increasing input costs
- Clearance markdowns
• 20 new stores opened, with 74% of
capex spend on expansion
- 1 Edgars, 3 Boardmans, 7 Edgars
Active, 4 Red Square, 1 Edgars sales
store and 4 mono-branded stores
• 7 stores closed
- 1 Edgars, 2 Edgars Active,
1 Boardmans and 3 mono-branded
stores
36 stores · LSM 7-10
47 stores · LSM 5-10
7 stores · LSM 5-10
MONO-BRANDED
STORES
86 stores · LSM 5-10
7
EDGARS INITIATIVES
PEOPLE
• Structures realigned for clear accountability.
• Buying, Planning, Marketing, Finance, Operations,
HR and Financial Services now report to the Chief
Executive for Edgars.
• Responsibility for all activities within the stores now
sit within the Operations function (including Admin,
Financial Services and Cellular).
• New General Manager customer role accountable
for marketing strategy and the customer experience.
PRODUCT
• Invest in private brands as the core offering to grow
revenue and margin.
• Grow local/regional sourcing component.
• Improved pricing architecture.
• Optimise inventory and localise the offer to customer
needs.
• Build on fashion at great price.
• Personalised marketing, leveraging loyalty
programme and customer insights.
• Select international brands.
SERVICE
• Implement Net Promoter Score (NPS) system.
• Create fast customer feedback loops to improve
experience at all levels.
• Customer-led strategic decisions.
• Streamlined processes to re-deploy staff into
customer service and housekeeping.
• Improve service on key touch points.
8
PROPERTY
• Rationalise stores in South Africa and the rest of
Africa and improve allocations.
• Address unprofitable stores.
• Improved store lay-outs to drive traffic.
• Store segments to address customer centricity.
DISCOUNT DIVISION
• Cash sales grew 5.1% while
credit sales reduced 15.4%
- Menswear, cellular and hardlines
traded positively
• Margin well managed
- 40 bps decline due to
deteriorating Rand
• 10 new stores in the quarter,
50% of capex on new stores
- 5 Jet stores and 5 Legit stores
• 2 stores closed
395 stores · LSM 4-7
Q3
FY16
Q3
FY15
Retail sales growth (%)
(2.0)
2.5
LFL sales growth (%)
(3.4)
0.0
GP margin (%)
35.9
36.3
129 stores · LSM 4-7
Total number of stores
736
720
Capex spend (R’m)
14
55
Av space (‘000sqm)
645
639
- 1 Jet and 1 Legit store
212 stores · LSM 5-8
9
DISCOUNT INITIATIVES
PEOPLE
• Restructured to provide clear accountability.
• Buying, Planning, Marketing, Finance, Operations,
HR and Financial Services now all report to the
Chief Executive.
• Merchandise and Planning restructured to provide
clear focus to both the Female and Male customer.
• Responsibility for all activities within the stores now
sits in the Operations function (including Financial
Services and Cellular).
SERVICE
10
PRODUCT
• Improve range and assortment for apparel and home
to align closely with customer needs.
• Pricing promotions strategy to target the Discount
customer more closely and improve ROI on
promotions and marketing.
• Align vendors with the business more and optimise
the sourcing scale of the wider business where
necessary.
• Upgrade the offer across ladieswear, kidswear and
home softs departments.
PROPERTY
• Simplifying the overall customer shopping
experience.
• Address underperforming stores duplication of offer
between Jet and Jet Mart stores within nodes.
• Focus on customer centricity for key activities (e.g.
store layouts, advertising, range selection).
• Capex spend to realign the cost of fit-out more
closely with a Discounter model.
• Realigning the cost base to free up investment into
providing a consistent and targeted customer
proposition.
• Incorporating additional categories into larger stores
as necessary.
• New store concepts piloted.
CNA DIVISION
• Cash and credit sales
declined by 5.5% and 20.1%
respectively
- Decline in average trading
space of 6%
- Cellular sales performed well
- Stationary and books
underperformed
Q3
FY16
Q3
FY15
Retail sales growth (%)
(9.4)
(7.3)
LFL sales growth (%)
(8.3)
(5.3)
GP margin (%)
29.6
29.5
200* stores · LSM 7-10
Total number of stores
200
197
*Includes 8 Samsung stores
• Margin impacted positively
Capex spend (R’m)
4
7
Av space (‘000sqm)
78
83
- Shift in product mix
11
CNA INITIATIVES
PEOPLE
PRODUCT
• Restructured to provide clear accountability.
• Focus on product categories which are core.
• Buying, Planning, Marketing, Finance,
Operations, HR and Financial Services now all
report to the Chief Executive.
• Development of private label strategy in
stationery to drive differentiation.
• Focus gifting range around key events (i.e. Black
Friday, Cyber Monday and Christmas).
• Grow Omni Channel (Digital and Entertainment
weekly supplier funded deals).
SERVICE
PROPERTY
• Drive social media to inform, interact and grow
the CNA customer base.
• Implementation of new CNA concept (Sandton,
Eastgate, Cresta and Clearwater).
• Focus on enhancing the customer shopping
experience in-store and online.
• Right-sizing of stores to improve profitability.
• Macro space changes being rolled out.
• Improve in-store look and feel to create a
better/easier shopping experience.
12
Q3 FY16 CONSOLIDATED RESULTS
AGENDA
STRATEGIC AND OPERATIONAL UPDATE
FINANCIAL REVIEW
LOOKING FORWARD
LEGIT
KEY HIGHLIGHTS FOR Q3:FY16
• Profit of R2 992m on conclusion of Exchange
Offer
• Deleveraging of €298 million on conclusion of
Exchange Offer
PRO FORMA ADJUSTED EBITDA
% change on previous period
• Significant weakening of the Rand
11.1%
• Strong cash sales offset by continued weakness
in credit sales
- More stringent NCR regulations on affordability
4.2%
2.5%
1.0%
3.1%
- Credit: Cash sales ratio of 37.6% from 41% in Q3:FY15
- Own book accredited to improvement in credit sales
• Costs continue to be well managed in all areas
-9.8%
- Store costs increased by 2.7%
- Other operating costs decreased by 5.0%
- Further opportunities
• Continued focus on working capital management
14
Q2:FY15
Q3:FY15
Q4:FY15
Q1:FY16
Q2:FY16
Q3:FY16
STATEMENT OF COMPREHENSIVE INCOME
(R millions)
Q3:FY15
Q3:FY16
Retail sales
8 834
8 685
(1.7)
Gross profit
3 360
3 259
(3.0)
Gross profit margin
38.0
37.5
(0.5)pts
Other income
268
315
17.5
Store costs
(1 735)
(1 782)
2.7
Other operating costs
(1 143)
(1 151)
0.7
Share of profits of associates
169
122
(27.8)
Trading profit
919
763
(17.0)
1 250
1 127
(9.8)
Pro forma adjusted EBITDA
15
% change
EDGARS | WINTER 16
PRO FORMA ADJUSTED EBITDA
Q3:FY15
(R millions)
Trading profit
Depreciation & amortisation
Net asset write off
919
763
257
248
21
3
(20)
18
67
116
1 244
1 148
(1)
Profit/(loss) from discontinued operations(2)
Non-recurring costs(3)
Adjusted EBITDA
Net (income)/loss from previous card programme(4)
Net income from new card programme
4
(5)
Pro forma adjusted EBITDA
Pro forma adjusted EBITDA margin
Q3:FY16
(17.0)
(7.7)
(28)
2
7
1 250
1 127
14.1%
% change
13.0%
(9.8)
(1.1)pts
1) Relates to assets written off in connection with store conversions, net of related proceeds.
2) The results of discontinued operations are included before tax.
3) Relates to various strategic initiatives in Q3:FY16 of R78 million, onerous lease credit of R2 million in Q3:FY16 (R2 million charge in Q3:FY15),restructuring credit of R7 million in Q3:FY16,
lease adjustment of R33 million in Q3: FY16 (R49 million in Q3: FY15) and R16 million in costs associated with the trade receivables book in Q3:FY15.
4) Net income/loss derived from 100% of the trade receivables including finance charges revenue, bad debts and provisions.
5) Pro forma fee earned by Edcon under the new arrangement with Absa, based on 100% of the trade receivables book.
16
COST PROGRAMME UPDATE
(R millions)
Q3:FY16
LTM pro forma adjusted EBITDA
2 634
Permanent adjustments:
Corporate and operational overhead reductions
Renegotiation of contracts
LTM pro forma adjusted EBITDA (incl. adjustments)
Net debt
17
(1)
/LTM pro forma adjusted EBITDA (times)
250
63
2 947
7.6
•
LTM savings on contracts mainly relate to credit card intercharge rates negotiated plus
rentals renegotiated.
•
LTM savings on corporate and operational overhead reduction mainly relate to cost
savings on reduction of headcount.
•
Additional opportunities still to be realised from strategic plan not included above.
1) Net debt has been adjusted by trade receivables still to be sold of R342 million in Q3:FY16.
JET | WINTER 16
COST ANALYSIS FOR Q3:FY16
OTHER OPERATING COSTS
STORE COSTS
• Lower depreciation charge on non-store assets
• Renegotiated contracts curbing costs
• Non-recurring costs increased due to various
strategic initiatives
• Store costs increased by 2.7% due to
efficiencies in stock loss management, reduced
transaction fees and lower asset write offs
• Rental and manpower constitute 62.0% of total
costs for Q3:FY16
- Rental and manpower costs increased by 12.1%
and 6.0% respectively
(R millions)
Other operating costs
980
931
(5.0)
Store card administration
96
104
8.3
Non-recurring costs
67
116
73.1
1 143
1 151
0.7
Total other operating
costs
18
Q3:FY15 Q3:FY16 % change
CASH FLOW FOR LTM Q3:FY16
R’m
279
696
1 955
92
Working Capital
293
1 955
305
319
4 233
3 858
Financing
activitiesb)
Closing cash
balance
2 780
Inventories
1 517
Opening cash
balance
Trade receivables,
other receivables &
prepaymentsa)
Operating
activities
Working
capital
Capex
Trade and
other payables
Tax
Source: Edcon financials (LTM restated for classification of Hollard associate, consumables and supplier contract)
a) Includes R71m from proceeds of sale from trade receivables.
b) Includes a net R283m for derivatives settlement and R3m for currency adjustments.
19
Net financing
costs
NET DEBT
Cash
PIK
J+5.00%
E+4.00%
JIBAR
EURIBOR
J+6.25%
3.00%
8.00%
8.00%
8.00%
(R millions)(1)
Super senior secured
ZAR Revolving credit facility
ZAR Super Senior RCF Term Loan due 31 December 2017
EUR Super Senior Refinancing Facility due 31 December 2019(2)
ZAR Super Senior Hedging Debt due 31 December 2017
EUR Super Senior Term Loan due 31 December 2017
ZAR Floating rate notes due 4 April 2016
EUR Super Senior PIK notes due 30 June 2019
Senior secured debt
ZAR term loan due 31 December 2017(3)
EUR fixed rate note due 1 March 2018
USD fixed rate note due 1 March 2018
Deferred option premium
Lease liabilities
EUR Senior secured PIK Toggle notes due 30 June 2019
Senior
EUR fixed rate notes due 30 June 2022(5)
EUR fixed rate notes due 30 June 2019(5)
Other loans(6)
Gross debt
Derivatives
Cash and cash equivalents
Net debt
Q3:FY15
Drawn
Q3:FY16
Drawn
313
3 417
1 955
657
606
1 003
8.00%
J+7.00%
9.50%
9.50%
3.00%(4)
9.75% (no
toggle)
12.75%
(toggle)
1 724
4 064
8 482
2 868
1 045
375
(1) FX rates at end Q3:FY15 were R11.60 :$ and R14.12:€ and at the end of Q3:FY16 were R15.28:$
(Q2:FY16 R13.92:$):and R16.76:€ (Q2:FY16 R15:60:€).
(2) Will spring to mature on the same date as the Super Senior RCF Term Loan and Super Senior LC Facility.
(3) The ZAR term loan was extended from 16 May 2017 to 31 December 2017 during the current quarter.
347
401
5.00%
13.375%
2 976
10 173
3 797
48
5 797
226
24 173
(923)
(1 517)
21 733
402
26 503
(24)
(3 858)
22 621
(4) Rising to 4.00% from 30 June 2016.
(5) The maturity of the original 2019 Notes not tendered has been extended to 30 June 2022 and the interest
rate reduced to 5.0% as part of the amendments with respect to the Exchange Offer.
(6) The portion of this debt relating to Zimbabwe was R350 million in Q3:FY16
and R208 million in Q3:FY15
20
(7) At the end of the period R258 million of a Super Senior LC facility were utilised for guarantees and LC’s.
LIQUIDITY AND BALANCE SHEET MANAGEMENT
• Total net debt has decreased by R4 478 million
from 26 September 2015 on conclusion of the
Exchange Offer
HEDGING OF GROSS DEBT
1%
- Cash pay leverage reduced by approximately 25%
25%
- Reduction in annual net cash interest payments of
approximately R1 billion
• Devaluation of the Rand impacting net debt
1%
2%
• €123 million Super Senior Refinancing Facility
secured in November 2015
- R1 010m ZAR Floating Rate Notes settled
71%
- Super Senior Liquidity Facility refinanced
• Debt refinancing with bank lenders
- No material debt obligations maturing for nearly 2 years
21
Hedged debt
EURO (hedged)
Other loans
USD (hedged)
EURO & USD (unhedged)
Q3 FY16 CONSOLIDATED RESULTS
AGENDA
STRATEGIC AND OPERATIONAL UPDATE
FINANCIAL REVIEW
LOOKING FORWARD
JET | WINTER 16
THE NEW EDCON JOURNEY
CUSTOMER CENTRICITY
• Defined target segments
• Lean Head Office
• Differentiated value
proposition per segment
• IT strategy and cost
optimisation
• Customer feedback and
follow-up
• Sourcing consolidation
• Structural improvement from
customer feedback
23
SIMPLICITY
• Logistics and supply chain
review
PEOPLE EMPOWERMENT
• Operating model (incl. org
structure, accountabilities)
• Culture
• Incentives and KPI
EDCON JOURNEY: MAJOR INITIATIVES FOR 2016
2015
Nov
2016
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Edgars turnaround / Customer centricity
Topline
Jet: Lean discount re-positioning
Specialty portfolio
strategy
Indirect procurement reduction
Cost
COGS reduction
IT strategy
Lean HQ & Operating Model
Enablers
Supply chain & logistics strategy
Customer centricity
Results Delivery
24
Fast track
Sep
Oct
Nov
Dec
FORWARD LOOKING THEMES
25
•
Restructure for chain accountability
•
Customer-centric focus
•
Forward position on cost declared with approximately
R500m reduction over next 12 months
•
Optimise balance between private label and international
brands
•
Improving digital offering
•
Improve supply chain with quick response capabilities
•
Simplify the model and retain cost management efforts
•
Further utilisation of the customer loyalty platform
•
Stabilise impact of credit
EDGARS | WINTER 16
THANK YOU
Q3 FY16
CONSOLIDATED
RESULTS
For more information
Our website: www.edcon.co.za
Edcon contacts for more information:
General Manager Finance
Odet Hayes
[email protected]
JET | WINTER 16