Myer Holdings Limited · ASX:MYR
Myer — H1 FY2007 Earnings Presentation
63 slides from Myer's earnings presentation, March 2007
Slide 1: Myer First Half Year Results to 27 January 2007
1 Presentation after 10 months of ownership in a 50 month turnaround programme ‘Our Vision is to be an International Class Retail Business providing Inspiration to Everyone’ Myer First Half Year Results to 27 January 2007
Slide 2: Summary
2 Summary EBIT up 84% from $67 Mil to $123 Mil Net debt reduced from $979 Mil to $704 Mil Total sales (including concessions) up 4.8% or $83 Mil to $1.8 Bil Full year EBIT expectation $150 - 170 Mil (Convertible Equity Notes Prospectus: $93 Mil) would represent 5c in $. This would surpass previous $
Slide 3: Summary of First Half Performance
3 Summary of First Half Performance Every store profitable Every store more profitable than last year EBIT $123 Mil or 6.8% to sales (vs DJ $111m, 10.7%), remains well below our smaller competitor in % terms, and around half international standard on an annual basis
Slide 4: Funds Employed, Balance Sheet and Return on Funds Employed
4 Funds Employed, Balance Sheet and Return on Funds Employed Net senior debt 289 Inventory well down ($168 Mil) - effect of History Making Clearance – further reductions will be in order of 1 or 2 days pa Creditors inconsistent or below industry norms – under discussion and negotiation Property to b
Slide 5: Agenda
5 Agenda The Start Point (pg 8-11) The first 300 days (pg 14-42) Results half-year to 27/01/07 (pg 45-48) Where we stand today (pg 51-56) Outlook (pg 59-62)
Slide 6: The Start Point (pg 8-11)
6 The Start Point (pg 8-11)
Slide 7: The Start Point on 2 June 2006
7 The Start Point on 2 June 2006 Shareholding and Board (pg 8) Senior Managers, Equity Participants and Consultants (pg 9) Concerns on Arrival in June 2006 (pg 10) Assembling the New Team to Change, Improve and Run the Business (pg 11)
Slide 8: Shareholding and Board
Shareholding and Board Equity Fully Diluted Cash $ % % TPG 395 88.2% 82.6% Myer Family Company 38 8.5% 3.0% Management 15 3.3% 9.4% 448 400% 100% Executive Chairman Bill Wavish ex Woolworths / Dairy Farm Managing Director Bemie Brookes ex Woolworths Consulting Director Howard hie Donald ex Just Grou
Slide 9: Senior Manager, Equity Participants, Consultants
9 Senior Manager, Equity Participants, Consultants
Slide 10: Concerns on Arrival in June '06
10 Concerns on Arrival in June ‘06
Slide 11: Assembling the Team to Change, Improve and Run the Business
11 Assembling the Team to Change, Improve and Run the Business
Slide 12: The First 300 Days (pg 14-42)
12 The Start Point (pg 8-11) The First 300 Days (pg 14-42)
Slide 13: The First 300 Days
13 The First 300 Days • Cultural change (pg14) • Formulate World Class Supply Chain (pg 29) • History Making Clearance (pg 15) • Begin Supply Chain implementation (pg 30) • Benefits of History Making Clearance (pg 16) • MyTV Launch (pg 31) • Project “Facelift” (pg 17) • Improved loyalty rewards for
Slide 14: Cultural Change
14 Cultural Change Day 1 & 2 Took senior management off-site to talk ‘culture’ Day 3 Bill, Bernie and Rupert – report to cash register training We believe culture is how you behave, not lists on the wall. Thus most of our cultural imperatives are private. We want you to notice it in our behaviour Cu
Slide 15: History Making Clearance (never to be repeated)
15 History Making Clearance (never to be repeated) Too much inventory Not faced up to past mistakes Warehouse push system with 100% allocation and no ‘put away’ Reduce inventory by more than 25% - $150mil cash to bank Beginning of supplier and product count rationalisation - continuing Similar to De
Slide 16: Benefits of the History Making Clearance
16 Benefits of the History Making Clearance $150mil in cash Closed 22 of 24 private mini warehouses (less rent, less transport, less labour, less shrinkage) Cleared up reserves (back of shop storage) to improve efficiency Made stores more shoppable from aisles to back walls Saved 1000 supply chain h
Slide 17: Project Facelift
17 Project Facelift With well publicised new ownership, the public expect positive changes quite early History Making Clearance tidied up stores and freed room for more merchandise and visual marketing. Project Facelift returned disciplines to the business after History Making Clearance The first ph
Slide 18: Project to increase Brands and Range (especially small stores)
18 Project to increase Brands and Range (especially small stores) With well publicised new ownership, the public expect positive change quite early History Making Clearance tidied up stores and gave room for more merchandise and more marketing Cluster grouped ‘like’ stores by size and performance to
Slide 19: Jennifer Hawkins 'The face of Myer'
19 Jennifer Hawkins ‘The face of Myer’ Day 4 –Sign Jennifer Cease using a number of different celebrities which created an inconsistency with Myer positioning As Jennifer loves our new ranges, give her a say, let her share in the turnaround (actually Jennifer and her manager negotiated this from us)
Slide 20: Issued $255 Mil Myer Listed Convertible Equity Notes
20 Issued $255 Mil Myer Listed Convertible Equity Notes Raised final part of acquisition funding Added convertible feature to emphasise future IPO and to begin dialogue with retail customers (also Myer shoppers) Road-show across country to retail customers, great support form JBWere/Goldman Sachs, M
Slide 21: Focus on Improving Customer Service
21 Focus on Improving Customer Service Due diligence told us customers want better service Increase focus on the stores - Head Office became ‘Support Centre’ Measure customer service – New Mystery Shopper Program – individual feedback Start meetings with a customer service message – When talking to
Slide 22: Change Emphasis of Business from Head Office Centric to Store Centric
22 Change Emphasis of Business from Head Office Centric to Store Centric Head Office dominating stores, perhaps the biggest fault of ‘Old Myer’ Head Office now called ‘Support Centre’ More Management time spent in store Buyers must visit and talk with stores (their customers) Quarterly State briefin
Slide 23: Improved Store Wages Efficiency
23 Improved Store Wages Efficiency Myer staffing higher than both global practice and Australian competitors Myer wage rates higher than Australian Department Stores competitors (good thing in moderation) Less Support Centre paperwork helps efficiency, better ticketing discipline, more to be done Cu
Slide 24: Review all Concessions
24 Review all Concessions Utilise Concession to Deliver a Compelling Customer Offer whilst ensuring balance with National & Private Brands: Introduce new brands, Rodd & Gunn, Elite Fitness, Nike, Gloria Jeans Exit non performing brands Grow and revitalise existing brands to drive performance of thei
Slide 25: Set up new Human Resources Capabilities
25 Set up new Human Resources Capabilities Exit from Coles Group Services – creating Myer platform Completed transition for Management Payroll Store Payroll will be operating in May 07 Completed transition to Myer recruiting and Myer specific training function Completed transition for Superannuation
Slide 26: Safety and Workers Compensation Self Insurance
26 Safety and Workers Compensation Self Insurance Safety of our customers and staff are paramount Major focus on improved safety training Incident rates improved 40% in first 10 months Application for Workers Compensation Self Insurance licences lodged or to be lodged: Queensland – passed inspection
Slide 27: Transitioning IT from Coles
27 Transitioning IT from Coles 5 year Myer IT outsource contract negotiated with IBM Nov 06 Successful SAP financial system transitioned March 07 – delivers general ledger independence New Freight Forwarding solution commences April 07 Wages payroll (20,000 employees) to transition in May 07 Warehou
Slide 28: Mymerch - Myer's new merchandising system
28 Mymerch - Myer’s new merchandising system Business led $99mil project to transform Myer’s back-end technology and processes by implementing an integrated merchandising system Significant savings to be realised – historically a high degree of project difficulty 20% pilot in April 07, with balance
Slide 29: Formulate World Class Supply Chain Strategy
29 Formulate World Class Supply Chain Strategy Peter Ramsay / XAct Solutions led the strategy development High importance and profile within the business – ‘Supply Chain is Sexy’ Answer was customer driven Suppliers were consulted and the decision was consistent with their views Answer was network c
Slide 30: Begin Supply Chain Implementation
30 Begin Supply Chain Implementation Byron Patching / XAct Solutions led the sourcing of the physical premises The sourcing of sites and equipment has been achieved through competitive tendering 4 sites, 95,000 sqm of space in total 4 of the largest industrial of leasing transactions in Australia la
Slide 31: MyTV Launch
31 MyTV Launch Bernie talks to the stores every Wednesday MyTV now integral to store management weekly meetings Guest presenters. High merchandise-in-hand content Past secrecy abandoned. ‘So what if the competition knows’ It’s more important that we know! Encourages competition and peer pressure bet
Slide 32: Improved Loyalty Rewards to Customers
32 Improved Loyalty Rewards to Customers Significantly increased benefits to all MYER one customers 1.4 mil customers increasing by 2% per month Lowered threshold to $1,000 spend to get $20 gift card, removed tiering making program simpler Increased benefit to those ‘gold’ members who spend over $5,
Slide 33: Launched Black Myer Store Credit Card
33 Launched Black Myer Store Credit Card JV with GE Money Launched in November 06 – sign ups over 50% above expectations Demand so great some call centre (in Australia) delays, now fixed - sorry Combined use of Myer Black Store credit card and Myer One loyalty card give customer biggest benefits in
Slide 34: Launched 'emporium' Fashion Magazine in Partnership with News Limited
34 Launched ‘emporium’ Fashion Magazine in Partnership with News Limited News Magazines (division of News Ltd) appointed as publishing partner 148 page glossy fashion and lifestyle magazine with a $5.95 RRP Highly capable and credible editorial staff appointed by News Magazines Initially to be issue
Slide 35: Set up new Overseas Buying Arrangements
35 Set up new Overseas Buying Arrangements Exit from Coles Group nearing completion Installing new IT system $3mil New relationship with Li & Fung (world’s largest soft goods trading house) but preserve some direct relationships – will improve first margin Leverage the Debenhams/Neiman Marcus/TPG co
Slide 36: Reorganised Buying Department
36 Reorganised Buying Department Reporting lines and accountabilities clarified Relationship of buyer with their own dedicated support staff (planner, allocator, administrator) established Total head count reduced by 10% by attrition and transfer Further gradual mini-re-organisations from April 07 t
Slide 37: Stores empowered to engage communities through local marketing and events
37 Stores empowered to engage communities through local marketing and events Previously little local marketing and community involvement Budget established for each store to spend locally on community sponsorships and in-store events(all stores allocated the same budget, so favours country stores) O
Slide 38: Cost Saving 'Red Teams'
38 Cost Saving ‘Red Teams’ All costs subject to tender - overview by Audit Committee Major savings achieved, sometimes halving multi-million $ costs Upon exit from Coles Group not one cost was re-negotiated at a higher price than before Also applies to capital expenditure Examples: Media Stationery
Slide 39: Red Team Change Drivers
39 Red Team Change Drivers The 101 improvement projects are largely driven by cross-functional ‘Red Teams’ which meet on a rotating basis every second Wednesday. These teams include (some remain confidential): Customer Satisfaction Global Buying Store Costs IT Steering Committee Trading Terms Cards
Slide 40: New Incentive Schemes Implemented
40 New Incentive Schemes Implemented New Short term incentive (STIP) introduced replacing old scheme. Increased potential rewards with higher hurdles (EBITDA, sales, costs, inventory) and significantly greater stretch up-side STIP goes about 1100 staff deep. Progress reported quarterly in $ benefits
Slide 41: Back to the Future
41 Back to the Future It is striking how many ‘new initiatives’ were present in Myer 25 years ago as an independent company The new management team have or are reinstating: 25 year Club and benefits for those ex-employees Graduate program Myer Melbourne Santa Parade Sorting product from warehouses b
Slide 42: Leverage TPG and Private Equity Capabilities
42 Leverage TPG and Private Equity Capabilities Between March 2006 and taking the keys on 2 June 2006, TPG helped Bill and Bernie in delivering and fine tuning a detailed 100 day plan to hit the ground running. Occasional TPG CEO conferences allow exchange of ideas with global peers, this encourages
Slide 43: Results Half-year to 27/01/07 (pg 45-48)
43 The Start Point (pg 8-11) The First 300 Days (pg 14-42) Results Half-year to 27/01//07 (pg 45-48)
Slide 44: Results for the 26 Week Summer Half-year Ended 27 January 2007
44 Results for the 26 Week Summer Half-year Ended 27 January 2007 Sales by State and Category (pg 45) Margin control and improvement (pg 46) Financial Overview (pg 47) Financial Ratios (pg 48)
Slide 45: Sales by State & Category
Sales by State & Category Western Australia Strong double digit growth Queensland Very good growth Victoria/Tasmania Average helped by Melhourne 6.8% growth South Australia Below average New South Wales ACT Poor results, managerial changes, recent improvement Womenswear Strong result, on-fashion del
Slide 46: Margin Control & Improvement
46 Margin Control & Improvement First margin improvement efforts yet to deliver benefits, some benefits in pipeline in H2 Supplier rationalisation discussions gaining momentum Markdown control significantly improved, but long way to go yet Shrinkage control OK, significant future gains available wit
Slide 47: Financial Overview
47 Financial Overview Tendering producing worthwhile gains Additional costs of setting up and parallel running of Support Centre functions add to short term costs in FY07– IT, Finance and Human Resources Total CODB (costs of doing business) coming down but still far too high by global benchmarking B
Slide 48: Financial Ratios
48 Financial Ratios Ratios began period comfortable and became increasingly very comfortable as profits rose and debt was repaid
Slide 49: Where do we stand today (pg 51-56)
49 The Start Point (pg 8-11) The first 300 Days (pg 14-42) Results Half-year to 27/01//07 (pg 45-48) Where do we stand today (pg 51-56)
Slide 50: Where Do We Stand Today
50 Where Do We Stand Today Market Position (pg 51) Private Brands (pg 52) Best Practice (pg 53) Capital Expenditure (pg 54) Juggling 101 Business Improvement Projects (pg 55) Property Sale (pg 56)
Slide 51: Market Position
51 Market Position Our vision is to be an international class retail business providing: Inspiration to everyone Not moving up or down market – covering full range from luxury to entry price point ‘A girl today will wear a $49 printed top, $150 jeans and $800 shoes, it is not a matter of being up or
Slide 52: Private Brands
52 Private Brands Private Brands currently account for 15% of Sales and return a higher margin Gradual increase to our stated target of 20% of sales Both Womens & Mens Apparel have well developed Private Brands and continue to grow. Accessories and Footwear have identified major growth opportunities
Slide 53: Best Practice
53 Best Practice Myer’s main benchmarking is against international best practice particularly Debenhams in the UK By most measures, Myer remains well below international best practice, but good progress has been made in the first 10 months of the 50 month turnaround
Slide 54: Capital Expenditure
54 Capital Expenditure Myer historic capex in stores (on a cost per sqm basis) has been excessive We expect ongoing annual capex to be in the region of $70mil pa or 2% of sales (excluding capex on new stores) Capex on new stores as yet unclear but likely to be significant
Slide 55: Juggling 101 Business Improvement Projects
55 Juggling 101 Business Improvement Projects The change process is 40% complete The trick is to be able to handle up to 100 significant improvement programs virtually simultaneously in the right order or priority
Slide 56: Property Offer
56 Property Offer Bourke Street Rebuild Telecom (derelict) building and align floors Historic Bourke Street building refurbished for around $50m with central escalators – full and continuous trading throughout Gross floor space goes from 45,000sqm to 47,500sqm (Bourke Street 40,000sqm plus potential
Slide 57: Outlook (pg 59-62)
57 The Start Point (pg 8-11) The first 300 Days (pg 14-42) Results Half-year to 27/01//07 (pg 45-48) Where we stand today (pg 51-56) Outlook (pg 59-62)
Slide 58: Outlook
58 Outlook Challenges in the Second Half (pg 59) The Road Ahead (pg 60) Outlook (pg 61) Executive quotes (pg 62)
Slide 59: Challenges in the Second Half Year
59 Challenges in the Second Half Year Major challenges remain to be overcome Complacency is a danger after a good start (‘Concerns on Arrival’ of organisation resistance gone) Challenge Launch Mymerch merchandising system in April with full delivery in June (residual Mymerch ‘Incoming Concern’) Open
Slide 60: The Road Ahead
60 The Road Ahead Building Efficiency Better focused and more economic capital expenditure World class supply chain Supplier partnerships deliver win-win savings Cost saving culture a permanent improvement loop Asian sourcing to deliver better quality fashionable products faster at better prices in
Slide 61: Outlook
61 Outlook Good start makes complacency a risk. Major projects in IT and Supply Chain must land successfully in H2. Also sale of Melbourne property Full year EBIT expectation $150 - $170 mil would represents around 5c in $. That would surpass previous Myer history but remain less than half global be
Slide 62: Executive quotes
62 ‘This result represents an adequate on track and pleasing start to the long term and permanent transformation of Myer’ Bill Wavish - Executive Chairman ‘The changes we are bringing are neither complex nor unusual in retailing. The trick is to be able to handle up to 100 significant improvement pr
Slide 63: Questions
63 Questions