Mr Price Group Limited · JSE:MRP
Mr Price — FY2018 Earnings Presentation
45 slides from Mr Price's earnings presentation, March 2018
Slide 1: Annual results
(©.mr pricegrouplimited MARCH 2018
Slide 2: Intro, results, future
intro Retail environment Mark Blair - CFO results Company Performance Mark Blair - CFO future Strategy and Outlook Stuart Bird - CEO 2
Slide 3: Retail Environment Overview
3 Retail Environment Overview
Slide 4: Economic overview
Economic overview ECONOMY 4 6.6 7 3.1 3 6 2017 GDP growth averaged 1.3% 2 2017 CPI averaged 5.3%. Mar 18 3.8% 5 Repo rate down 50bps to 6.5% GDP 1 CPI 0.4 4.7 4 0 Unemployment rate Q1 2018 26.7% -1 3 2016 2016 2016 2016 2017 2017 2017 2017 Improved exchange rate - favourable Q1 Q2 Q3 Q4 Q1
Slide 5: Consumer overview
Consumer overview TransUnion SA Consumer Credit Index FNB/BER Consumer Confidence Index 30 26 20 10 0 -3 -5 -9 -9 -9 -8 -11 -10 -10 -20 2016 Q1 2017 Q1 2018 Q1 Gradual rise since Q1 2016 Surged to all time high in Q1 2018 - cautious lending - outlook of economy - consumers deleveraging - househo
Slide 6: Company & Divisional Performance
6 Company & Divisional Performance
Slide 7: Group highlights
Group highlights Revenue Ebitda R21.3bn +8.0% R4.1bn +22.8% Profit before tax Operating margin R3.9bn +24.3% 17.6% +210bps Diluted heps Dividend per share 1075.4c +21.1% 693.1c +3.9% Free cash flow Return on equity R3.0bn +71.8% 40.1% +230bps 7
Slide 8: Results vs expectations
Results vs expectations Growth % Range (cents) – SENS 26 April 2018 1076.4 Basic EPS 20-24% 1061.5 1097.0 1100.1 Basic HEPS 18-22% 1075.5 1112.0 1052.2 Diluted EPS 20-24% 1034.3 1060.8 Diluted HEPS 18-22% 1047.7 * * 1071.4 1075.4 1069.9 1083.2 Actual results Consensus estimates Mar 2018: * Bloomberg
Slide 9: Group highlights
Group highlights Acquired Kenyan franchise stores won case against National Credit Regulator test cellular in store offer acquired minority interest in mrpMobile MVNO profit growth for 10 consecutive years 9
Slide 10: Earnings per share
Earnings per share % Change 2018 2017 Annual H2 Profit attributable to shareholders (R’m) 2 781 2 263 22.9% 22.5% W. Avg shares in issue (000)1 258 375 255 793 Basic EPS (cents) 1 076.4 884.6 21.7% 21.6% Addbacks (R’m)2 61 68 Headline earnings (R’m) 2 842 2 331 HEPS (cents) 1 100.1 911.4 20.7% 19.7%
Slide 11: Dividends per share
Dividends per share Cents 2018 2017 % Change Interim 279.0 228.2 22.3% Final 414.1 438.8 -5.6% Annual 693.1 667.0 3.9% Interim dividend growth = HEPS growth Final and annual dividends impacted by treatment in prior year Annual dividend maintained at 667c. Final dividend up 4.7% 800 80 73 63 63 Payou
Slide 12: Growth drivers
Growth drivers 12 * Corporate owned stores
Slide 13: Income statement & growth drivers
Income statement & growth drivers % Change R'm 2018 2017 Annual H2 H1 +6.3% Retail sales and other income1 (pg 15) 21 185 19 679 7.7% 8.8% RSOI H21 +8.8% Cost of sales2 (pg 17) 11 582 11 365 1.9% 2.5% Expenses3 (pg 18-19) 5 871 5 266 11.5% 13.4% H1 +13.7% Profit from operating activities 3 732 3 048
Slide 14: Segment results
Segment results Retail Sales & Other Income RSOI Growth Segment (RSOI) Contribution mrp +10.9% Apparel 5.5% mrpSport RSOI +9.8% 7.3% +2.7% OP profit +36.0% OP margin 18.1% Miladys 16.3% +8.3% 57.6% mrpHome Home 6.7% +0.8% RSOI +1.8% OP profit -4.4% 6.6% SheetStreet OP margin 15.7% Sheet +4.0%Street
Slide 15: Revenue
Revenue % Change R'm 2018 2017 Annual H2 Retail sales1 19 994 18 575 7.6% 8.7% Financial services and cellular (pg 25) 1 142 1 065 7.2% 10.8% Other2 49 39 25.1% -10.9% Total other income 1 191 1 104 7.9% 9.7% Total retail sales, interest & other income 21 185 19 679 7.7% 8.8% Finance income3 162 84
Slide 16: Space growth analysis
Space growth analysis Space movements (m2) F2018 mrpApparel -3 673 -4 886 3 099 10 890 3.8% growth in new space, 2.1% net Miladys -2 040 1 577 1 258 stores across regions (SA 1 157; Non SA 101) mrpSport -2 306 4 700 Store expansions & reductions are achieving feasibility mrpHome -4 697 -2 150
Slide 17: Gross profit margin
Gross profit margin Cotton & oil price vs US /ZAR 100 16 Extended hedging period due to potential risk Cotton price (US cents per lb) Oil price (USD per barrel) from political events in Dec 80 13.75 USD/ ZAR closing exchange rate: ZAR/USD 13.61 14 13.46 60 - Nov 17: R13.54 pre ANC elective confe
Slide 18: Selling expenses
Selling expenses % Change R'm 2018 2017 Annual H1 H2 Total selling expenses 4 492 3 995 12.5% 9.9% 14.8% Less: impairment/ loss on disposal1 (27) (22) onerous leases2 (25) (1) Total selling expenses 4 441 3 973 11.8% 9.7% 13.8% 1 Includes impairment/write off of all Australian stores fixtures of R
Slide 19: Admin expenses & profit wedge
Admin expenses & profit wedge % Change R'm 2018 2017 Annual H1 H2 Total admin expenses 1 379 1 271 8.5% 8.1% 8.9% Less: impairment/ loss on disposal1 (55) (74) foreign exchange loss (2) (33) Total net of adjustments 1 324 1 164 13.5% 14.1% 13.0% 1 Mainly relates to changed approach on ERP implemen
Slide 20: mrpApparel
2018 2017 % Change Retail sales1 R12 148m R10 907m 11.4% Comparable sales 8.9% (4.7%) Unit sales 149m 136m 8.8% RSP inflation 2.3% 8.3% Weighted average space growth 3.0% 4.7% Trading density R39 200m-² R36 255m-² 8.1% Positive H1 performance continued into H2 - focused on RSA, with total sales gr
Slide 21: mrpSport
2018 2017 % Change Retail sales R1 408m R1 370m 2.7% Comparable sales (4.5%) (1.8%) Unit sales 12.7m 12.4m 2.2% RSP inflation 0.7% 13.4% Weighted average space growth 6.4% 6.5% Trading density R22 049m-² R22 835m-² (3.4%) Tough trading environment for sports goods. Consumers delaying spend until t
Slide 22: Miladys
2018 2017 % Change Retail sales R1 405m R1 296m 8.4% Comparable sales 8.2% (6.9%) Unit sales 7.1m 7.1m 0.1% RSP inflation 9.2% 11.5% Weighted average space growth (0.5%) 0.1% Trading density R23 074m-² R21 192m-² 8.9% Improved merchandise offer by refocusing on loyal niche customer- mature, fuller
Slide 23: mrpHome
2018 2017 % Change Retail sales R3 437m R3 403m 1.0% Comparable sales (0.9%) (2.4%) Unit sales 33.7m 33.1m 1.8% RSP inflation 0.1% 17.3% Weighted average space growth (0.1%) (1.3%) Trading density R25 795m-² R25 512m-² 1.1% Consumers shopping less frequently & home products remain discretionary in
Slide 24: SheetStreet
2018 2017 % Change Retail sales R1 548m R1 490m 3.9% Comparable sales 2.3% 3.3% Unit sales 17.7m 17.3m 2.0% RSP inflation 2.0% 14.2% Weighted average space growth 0.5% (0.4%) Trading density R30 454m-² R29 452m-² 3.4% Improved H2 sales performance with growth of 5.4% (H1 2.1%) Livingroom softs c
Slide 25: Financial services & cellular revenue
% Change Revenue R'm 2018 2017 Annual H2 Credit- interest & charges1 467 439 6.5% 6.5% Contribution % 5 year CAGR Insurance2 257 225 14.2% 13.3% Cellular 418 401 4.3% 14.0% 37% 37.5% - mrpMobile MVNO 162 213 - cellular (Hello mrp) 67 23% 18.6% - airtime sales & commission 189 188 19% Total revenue 1
Slide 26: Credit performance
Credit performance Credit sales Average credit basket1 R3.3bn +4.1% R402 +4.6% Active accounts # of credit transactions 1.4m +0.1% 9.2m -0.4% R’m 2018 2017 % change Retail debtors 2 134 1 991 7.2% Mobile2 & franchise debtors 60 110 (44.5%) Total debtors book 2 194 2 101 4.4% Retail debtors (98% of t
Slide 27: Regulatory matters
Regulatory matters Club Fees- High Court Rulings Dismissed NCR’s bid to overturn Lewis Group ruling Ruled in favour of Edcon. Optimistic that Miladys matter will have a similar outcome Affordability Assessment Regulations High court ruled in favour of retailers regarding the requirements to ob
Slide 28: Cellular & mobile
- Cellular & mobile R189m Airtime via USSD High convenience factor for account customers via all networks Total revenue No differentiation, low margins, not a focus area R67m Cellular +4.3% (H2 14.0%) Introduced kiosks to 103 stores in FY18. Handsets, accessories, SIM card activation and annuity inc
Slide 29: Impact in FY19
Impact in FY19 Lower interest rates - Reduced by 50bps FY18. Positive for consumers, negative for interest earned Interest recognition - IFRS 9: interest not raised if account reaches stage 3 (MRPG >120 days) New impairment provisioning - IFRS 9: not material* Sales revenue & gift vouchers - IFRS 15
Slide 30: Financial position
Financial position R’m 2018 2017 Non-current assets Property, plant and equip (pg 31) 2 092 2 130 1 Defined benefit asset increase Intangible assets (pg 31) 433 356 2 Gross inventories up 4.8%. Other non-current assets1 103 91 Divisional growths linked to sales performance. In Current assets goo
Slide 31: PPE & intangibles
PPE & intangibles R’m Total PPE Intangibles Opening 2 486 2 130 356 Additions 461 332 129 Disposals, impairments, revaluations (94) (42) (52) Reclassification - (55) 55 Depreciation & amortisation (328) (273) (55) Closing 2 525 2 092 433 New Hammarsdale Distribution Centre Included in carrying val
Slide 32: Cash flow movements
Cash flow movements (R’M) 2018 2017 1 784 Cash from operations 3 862 Increase of 28.7% (R0.5bn) R3.5bn (+36.1%) Operating Working capital 7 Higher receivables & inventory offset by higher payables Interest received 525 Higher debtors book & cash balances Taxation (891) In line with increase
Slide 33: Strategy & Outlook
33 Strategy & Outlook
Slide 34: Strategy
Strategy Frontline Surprise and delight our customers Enablers The mrp way, supportive of our culture and value positioning Wanted People merchandise Energised environment of empowered & motivated people Customer Vision Operations relationships To be a top World class performing methods & systems Sh
Slide 35: South Africa
South Africa Constrained trading conditions expected to persist for FY19, with GDP growth of ~ 2%. Places more emphasis on margins, efficiencies & prioritisation Satisfied with level of product execution. Have identified opportunities to gain market share, particularly in Apparel segment (60% of
Slide 36: South Africa
South Africa Strong infrastructure which we can leverage Identifying further local growth opportunities 36
Slide 37: Africa
Africa Expanded beyond BNLS to test developing markets Have operated profitably in all territories, but recent results impacted by: - impact of declining commodity prices on economies - worst drought on record in Southern Africa - poor merchandise performance in mrpApparel in FY17 & resultant fo
Slide 38: Africa
Africa Stores Sales Growth Growth Corporate owned total contr. local ZAR Franchise Not present Namibia 40 40% 3.8% 3.8% Botswana 24 23% 3.5% 0.9% Kenya Swaziland 11 8% 16.4% 16.4% Acquired 12 franchise Lesotho 5 5% 13.4% 13.4% stores May ’18 Total BNLS 80 76% 4.6% (7 apparel, 5 Home) Opportunity
Slide 39: International
International Expanded beyond Africa into Australia to test a developed market: - substantially higher cost structures - very competitive retail environments - generally these territories have lower GDP growth Achieving success in new markets (& locally) is heavily dependent on supply chain reso
Slide 40: Supply chain
Supply chain Import into RSA, export to foreign market Simple process, but costly time delays & inefficient Items manufactured in RSA & exported are not competitive Only ‘competitive’ in RSA due to duty protection. Impacts value proposition in destination Most economic & efficient desired future sta
Slide 41: Systems
Systems Successfully re-platformed in FY17 E-Commerce Strong omni-channel capabilities – FY18 total online sales in mrp up 31.9% & positively impacts store sales Original planning solution selected did not meet our ERP & performance requirements Merchandise Planning Resultant delays & select
Slide 42: International tests
International tests Operating loss (excl *below) improved on PY despite stock clearance markdowns as operations were reduced to 1 store Rebased pricing to reflect required fashion/value positioning Australia positively impacted unit sales ‘clean’ full winter assortment in store in April perfor
Slide 43: International
International Major mrpWorld & value chain projects have continual delivery milestones, with full completion expected in 2-3 years Group will: - ensure delivery of key project requirements - focus on identified trading opportunities detailed earlier - conduct research to identify suitable market
Slide 44: Closing comments
Closing comments Proven resilience mrp Fashion value EDLP positioning is a key differentiator Model throughout economic cycles Associates are focused & energised Our largest financial assets are in good shape Financial (inventory & debtors book) Assets Highly cash generative business model
Slide 45: Thank you
©.mr price: limited