Mr Price Group Limited · JSE:MRP
Mr Price — FY2020 Earnings Presentation
53 slides from Mr Price's earnings presentation, June 2020
Slide 1: Annual Results to 28 March 2020
FY 20 ANNUAL RESULTS TO 28 MARCH 2020 1
Slide 2: Backdrop, Performance, Future
0I Backdrop Retail Environment Overview & Group Performance by Mark Blair - CEO 02 Performance Detailed Group Results by Mark Stirton - CFO 2 03 Future COVID-19 Response, Strategy & Outlook by Mark Blair - CEO
Slide 3: Backdrop
01 BACKDROP Retail Environment Overview & Group Performance by Mark Blair - CEO 3
Slide 4: Economic Overview
ECONOMIC South African GDP growth 6% 5% 5.6% 5.4% The SA economy grew 0.2% in 2019, the lowest OVERVIEW 4% 3.2% 3.0% 3.3% level since 2009. The last two 3% 2.2% 2.5% 2% 1.8% 1.4% 1% 1.2% 0.4% 0.8% quarters of 2019 0% -1.5% 0.2% declined (technical Pre COVID-19 -1% -0% recession) 2006 2007 2008 2009
Slide 5: The COVID-19 Effect
THE COVID-19 EFFECT A quick recovery case could see the consumer environment less effected than originally thought. The long recovery case would have a significant impact on all sectors in SA Possibility of a deep recession Potential job loss impact Household consumption GDP 20 Number of jobs (milli
Slide 6: Consumer Overview
CONSUMER Retail sales growth (Stats SA) 8% 7% 2017 2018 2019 OVERVIEW 7.2% 2020 forecast: -6.0% 2020 forecast: -18.0% 6% 5% 4% 5.1% 3% 4.0% 3.8% 3.6% 2% 2.9% 1% 0% Total retail sales Apparel & Footwear Household expenditure: real growth Consumer confidence 8% 6% Q1 2020 4% -9 index points 2% 1.0% 0.
Slide 7: Annual Group Performance
ANNUAL GROUP PERFORMANCE Revenue Operating Margin +2.1% (40bps) | 17.4% R23.0bn Normalised: (200bps) | 15.8% EBITDA Profit after tax +29.5% | R5.6bn (9.8%) | R2.7bn Normalised: (7.8%) | R4.0bn Normalised: (7.7%) | R2.7bn Total diluted HEPS Dividend per share (9.9%) | 1 029.4c 311.4c Normalised: (7.8
Slide 8: Earnings Breakdown
EARNINGS BREAKDOWN 1 089.3c | (4.6%) H2 FY20: 641.8c | (2.7%) Excluding: • IFRS 16 impact: R88m • COVID-19 provisions for debtors, stock & 1 053.3c | (7.8%) insurance: R132m Excluding: 1 022.4c | (10.5%) 1 029.4c | (9.9%) • Impact of transition to IFRS 16: R88m Bloomberg : 1 004.8c Lower dilution No
Slide 9: Annual Performance: Increasing Momentum
ANNUAL PERFORMANCE: INCREASING MOMENTUM Annual group retail sales growth: +1.5% (Excl. last two weeks Mar’20 +2.7%) H1: Retail sales +1.7% H2: Retail sales +1.3% • Excl last 2 weeks Mar +3.7% Q3 ANALYSIS • Gained 0.2% *market share Improved high summer performance in Mr Price Apparel due to internal
Slide 10: H2 Performance: Market Share Gains
H2 PERFORMANCE: MARKET SHARE GAINS December disruption Strong Black Friday Rugby World Cup Dec 2019 Nov 2019 Oct 2019 Business activity in key weeks were materially Market share gains in an increasingly key Gained market share despite SA retail affected by load shedding & highveld storm trading mont
Slide 11: Performance
02 PERFORMANCE Detailed Group Results by Mark Stirton - CFO 11
Slide 12: Group Income Statement & Growth Drivers
GROUP INCOME STATEMENT & GROWTH DRIVERS % Change R’M 2020 2019 Annual H2 H1 2.3% *RSOI H2 1.7% Continuing operations Retail sales & other income (pg 43)1 22 773 22 334 2.0% 1.7% * Gross profit H1 (4.2%) Gross profit (pg 15)2 9 047 9 243 (2.1%) (0.1%) Rands H2 (0.1%) Expenses (pg 16)3 5 917 6 086 (2.
Slide 13: Group Sales Growth Drivers
GROUP GEOGRAPHY TENDER TYPE CHANNEL MERCHANDISE SALES^ GROWTH DRIVERS +2.2% RSA +2.4% *Cash +1.7% Bricks +0.2% Unit growth -1.3% 0.3% +17.5% +1.8% Non RSA # Credit Online RSP Inflation RSA: Cash: Bricks: Units: 92.5% of sales 84.3% of sales 98.5% of sales 220.8m (PY: 91.9%) (PY: 84.1%) (PY: 98.7%) (
Slide 14: Space Growth
SPACE Total Group Total gross space Mr Price Apparel Miladys 532 stores 232 stores GROWTH 1 378 stores 764 353m-2 Mr Price Sport Mr Price Home Sheet Street 124 stores 177 stores 313 stores Trading density (Rm-2 ) FY20 numbers 32 958 32 521 • 3.2% new space growth, 2.2% net growth in line with target
Slide 15: Gross Profit Margin
GROSS PROFIT MARGIN Gross profit analysis Merchandise GP Cellular GP Total GP 2018 2019 2020 2018 2019 2020 2018 2019 2020 43.7% 43.6% 42.0% 20.6% 19.1% 18.7% 43.3% 42.9% 41.2% Merchandise GP% improved from In store cellular (mainly handsets & Total GP% decreased 170bps, 40.7% in H1 to 43.2% in H2.
Slide 16: Controlled Expense Management
Expenses CONTROLLED EXPENSE MANAGEMENT - Total: - Normalised: (2.8%) +3.2% - Adjusted normalised: +2.4% Selling expenses* (R’M) Administrative expenses* (R’M) % ChangeH2 % ChangeH2 2020 2019 2020 2019 Statutory Normalised# Statutory Normalised# 4 519 4 675 (3.3%) 4.5% 1 398 1 410 (0.9%) (1.1%) • Adj
Slide 17: Austerity Activities
AUSTERITY ACTIVITIES • ~R300m reduction in budgeted expenses for FY21 • Employment costs: - Suspended head office salary increases - Executive & non-executive directors cut in salaries & fees - Head office & store incentive structures under review - Group wide hiring freeze - Reduction in contractor
Slide 18: Strong Balance Sheet
STRONG BALANCE SHEET R’M Mar 2020 Mar 2019 • Stock including GIT up 3.7% within single Non-current assets1 7 110 2 664 digit target range • Stock impairment Current assets 10 244 8 481 provision increased to Inventories 2 719 2 692 9.6% (PY: 6.6%) due to future uncertainty Trade & other receivables2
Slide 19: Cash Flow Movements
CASH FLOW MOVEMENTS R’M Mar 2019 3 150 Cash from operations 5 166 IFRS 16: rent expense removed. Refer to financing cashflows Operating Working capital 465 Accounts payable timing due to cut-off compared to PY R5.7bn Net interest received 640 Interest received up 14.8% Taxation (610) Timing of cash
Slide 20: Trade Receivables
TRADE RECEIVABLES % Change R’M Mar 20 Sep 19 Mar 19 Mar/Sep Mar/Mar Total debtors book 2 300 2 200 2 186 4.5% 5.2% NBD: book (excl collection costs) 6.3% 7.6% 7.5% Impairment provision 10.4% 7.5% 9.0% • Excluding last two weeks of Mar’20, H2 (+2.2%) credit sales grew faster than H1 (+0.8%) • Net bad
Slide 21: SA Credit Landscape
SA CREDIT LANDSCAPE 2 Industry accounts in default 15 Rising Defaults 10 5 0 1 Transunion Consumer Credit Index (CCI) -5 70 Improving Credit Health -10 65 -15 60 -20 Falling Defaults 55 -25 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 50 45 3 Originating accounts: % Customer
Slide 22: Credit Performance
CREDIT PERFORMANCE Credit sales Avg credit basket* New accounts (000) 619 210 651 223 R3.4 +0.3% bn R419 +4.8% Approval Approval rate: 34% rate: 34% # of credit transactions Active accounts FY19 FY20 Applications Approved • Positive basket growth. Active account growth but transactions down • Milady
Slide 23: Future
03 FUTURE COVID-19 Response, Strategy & Outlook By Mark Blair - CEO 23
Slide 24: Partnership at Mr Price
PARTNERSHIP AT MR PRICE From day one, our value system guided our actions. Our engagement during this time will shape our future Associates Suppliers • Most important stakeholder • Merchant teams worked closely with suppliers to manage • Frequent communication order book • Full pay to date. Exec mng
Slide 25: FY21 So Far: March-April 2020
FY21 SO FAR… 27 March - 30 April 2020 Lockdown: Level 5 April 2020 sales growth National state of disaster. Gained clarity on permitted Worked with distressed credit All SA stores closed on 27 merchandise at level 4 customers: March. All other regions Prepared safe & secure store/ - Did not age debt
Slide 26: FY21 So Far: May 2020
FY21 SO FAR… 1 - 31 May 2020 Lockdown: Level 4 May 2020 sales growth 23.4% 15.4% 10.4% All stores in South Strong growth in first Pent up demand Flat growth in last Africa able to trade: two weeks in: driven by: 2 weeks: -2.3% - Clothing restricted to - Mr Price Apparel +48% - Being in lockdown for
Slide 27: FY21 So Far: June 2020
FY21 SO FAR… 1 - 20 June 2020 Lockdown: Level 3 June 2020 sales growth 40.3% 38.3% All stores open: Pent up demand shift: Combined retail sales growth: - All merchandise categories - Now able to sell full - 1 May to 20 June +12.0% 14.1% permitted to be sold homewares range - 1 April to 20 June -31.2
Slide 28: Key Trading Insights
KEY TRADING INSIGHTS • Strong sales performance: - Significantly de-risked inventory carry - Further alleviated supplier pressure as we bought into over performing categories • Trends have been disrupted (1 May-20 June): - Transactions down 6.8%, average basket size up 16.7% - Consumers shifted to c
Slide 29: Cashflow Volatility
CASHFLOW VOLATILITY R0.5bn CASH PRESERVATION INITIATIVES R2bn cash burn R0.5bn • Plans to release ‘illiquid’ cash well progressed R1.5bn • Reduced budgeted capex by 23% from R524m to ~R400m (Excludes re-branding & investment in stores which are R4.1bn R0.5bn currently being assessed) Liquid R3.5bn •
Slide 30: Future Uncertainty
FUTURE UNCERTAINTY POTENTIAL RISKS • Current trade exceeding expectations, but is not expected to continue. Stats SA retail sales growth pre COVID-19 was poor (+3.8% in 2019-lowest growth level in last 5 years) • SA infection rate on a steep upward trajectory. Virus peak expected Aug/Sep’20 • Tempor
Slide 31: Outlook
OUTLOOK • Fixed overheads & volatile sales environment will add pressure to operating margin • Interest rates at 18 year low, inflation at ~4% will soften the blow but not save the day • Gross margin & inflation under pressure: - Distressed competitors liquidating stock - Weak ZAR/$ exchange rate 20
Slide 32: Strong Fundamentals
STRONG FUNDAMENTALS Amidst the gloomy consumer outlook, we have a clear growth plan which we are able to execute from a position of strength Return on Equity Return on Assets Debt/equity 35.3% 21.5% 1.4% Balance sheet HOW WE COMPARE Current ratio JSE Top 40 JSE Top 40 JSE Top 40 3.9 12.3% 5.3% 64.6%
Slide 33: Competitive Edge
Income statement COMPETITIVE EDGE HOW WE COMPARE 5 year sales growth CAGR Fashion Value Cash Wanted items Lower markups Cash driven retailer 6.5% at “everyday & higher volumes, with cash sales > low prices” price & appropriate 80% of total sales 14.1% Competitors quality Positioned for growth Low co
Slide 34: E-Commerce: First in South Africa
E-COMMERCE: “...best online clothing retailer in SA by far” Chris Gilmour FIRST IN SOUTH AFRICA Independent Investment Analyst Times Live 21 June 2020 MRP.com MRP mobile fashion Dual Paperless transactions/ launched 2012 app launched 2013 fulfilment 2014 digital dockets 2016 First listed fashion ret
Slide 35: Ecommerce Leaders
ECOMMERCE LEADERS Click here for full video Interview with Mr Price Apparel MD covering e-commerce. History, features, COVID-19 trends & more... INNOVATION 966k followers ONLINE GROWTH FY20 • Features: Scan to pay, Visual search, Find in store • Delivery: Mr Price Apparel: No 1 fashion retailer in S
Slide 36: Best Deployment of Human & Financial Capital
BEST DEPLOYMENT OF HUMAN & FINANCIAL CAPITAL PEOPLE FINANCIAL • Assessed over 100 senior associates to identify those with • Focus on fewer but more impactful opportunities the highest potential • Removing distractions: • Extensive skills internally, supplement externally if required - Exited Austra
Slide 37: Best Deployment of Human & Financial Capital
BEST DEPLOYMENT OF HUMAN & FINANCIAL CAPITAL PEOPLE + FINANCIAL CAPITAL WANTED PRODUCTS FOCUS ON CUSTOMERS EXPERIENCE • Obsession with our fashion-value positioning: • Omni-channel sales & delivery - Differentiated product at exceptional value (price & quality) • Diversified, high performing store f
Slide 38: Growth
GROWTH Identified several Further strengthen supplier Potential strategic Extensive stakeholder category extensions & relationships acquisitions could engagement process new concepts, all within Constructively engage accelerate growth Special General Meeting our core skills set. Some with landlords
Slide 39: Positive Momentum Trend, Well Positioned
“ POSITIVE MOMENTUM TREND, WELL POSITIONED Emerged from lockdown with our reputation enhanced & exceptional unity within the team, who fully lived out our values. BUSINESS MODEL & A CLEAR GROWTH PLAN ” Cautious about the future, but have agility to respond if conditions improve. Mark Blair, CEO 39 3
Slide 40: Appendix
04 APPENDIX Detailed supporting information 40
Slide 41: Group Performance
GROUP PERFORMANCE Revenue EBITDA Profit after tax FY19 FY20 FY19 FY20 FY19 FY20 R22.6bn R23.0bn R4.3bn R5.6bn R3.0bn R2.7bn +5.8% Annual +2.1% +6.0% Annual +29.5% +7.2% Annual (9.8%) +7.8% H1 +2.6% +11.1% H1 +32.2% +12.3% H1 (11.7%) +4.1% H2 +1.7% +2.4% H2 +26.3% +3.7% H2 (8.4%) Operating margin Tot
Slide 42: Earnings & Dividend per Share
EARNINGS & DIVIDEND PER SHARE % ChangeH2 2020 2019 Statutory Normalised Profit attributable to shareholders (R’m) 2 704 2 982 (9.3%) (7.2%) W. Avg shares in issue (000)1 259 419 258 922 Basic earnings per share 1 042.4c 1 151.6c (9.5%) (7.4%) Addbacks (R’m) 12 44 Headline earnings (R’m) 2 716 3 026
Slide 43: Revenue
REVENUE % Change R’M 2020 2019 Annual H2 *Retail sales1 21 165 20 850 1.5% 1.3% Total other income 1 608 1 484 8.3% 6.7% Financial services & cellular (pg 49)2 1 554 1 438 8.1% 6.2% Other 54 46 16.4% 22.7% Total retail sales, interest3 & other income 22 773 22 334 2.0% 1.7% Finance income4 257 224 1
Slide 44: Space Growth
SPACE Mr Price Apparel SPACE MOVEMENTS (m2) w.avg net growth 3.9% GROWTH Miladys Mr Price Sport 1.5% 2.5% Mr Price Home (1.2%) Sheet Street 0.6% Total space growth Net growth w.avg (0.6%) (0.4%) 0.4% 2.8% 2.2% closing (0.9%) (0.7%) 0.7% 3.4% 2.5% Closures Reductions Expansions New Stores STORE MOVEM
Slide 45: Segment Performance
SEGMENT PERFORMANCE *RSOI Contribution RSOI Growth Segment Apparel H1 H2 6.8% Apparel Mr Price Apparel Mr Price Sport Miladys 16.4% (0.3 ) % +8.7 % +6.3 % RSOI Operating profit +1.0% (13.6%) +1.5% +2.5% Operating margin 14.6% 17.0% 55.0% 7.3% Home Home 6.9% Mr Price Home Sheet Street 7.4% +1.9 % +3.
Slide 46: Apparel Segment
APPAREL SEGMENT Mr Price Apparel Miladys Mr Price Sport 2020 2019 % Change 2020 2019 % Change 2020 2019 % Change Retail sales1 R12 499m R12 525m (0.2%) R1 550m R1 462m 6.1% R1 679m R1 544m 8.7% Comparable sales growth (3.3%) 0.1% 1.4% 3.1% 4.6% 6.4% Unit sales 148m 147m 0.6% 7.6m 7.3m 3.6% 13.9m 13.
Slide 47: Home Segment
HOME SEGMENT Mr Price Home Sheet Street 2020 2019 % Change 2020 2019 % Change Retail sales1 R3 739m R3 684m 1.5% R1 666m R1 610m 3.5% Comparable sales growth 0.3% 4.5% 1.7% 1.6% Unit sales 33.1m 34.0m (2.7%) 17.7m 18.1m (2.5%) RSP inflation2 4.2% 6.6% 6.2% 2.1% Weighted average space growth (1.1%) (
Slide 48: Mr Price Money
mr price money Mr Price Money % Change R’M 2020 2019 Annual H2 Cellular & mobile 780 677 15.1% 9.1% Financial services 774 760 1.8% 1.7% Total revenue 1 554 1 438 8.1% 5.4% Cellular & mobile • Cellular - Growth driven by instore (handsets & accessories). 46 new stores, totalling 262 across the Group
Slide 49: Non RSA Sales
NON RSA SALES Contribution Growth Namibia 33.0% (3.6%) Botswana 24.3% +8.0% TOTAL % OF GROUP SALES Kenya 10.1% +13.8% Swaziland 8.6% +0.0% 7.8% FY19: 8.1% Zambia 7.3% (9.9%) Ghana 5.3% +7.2% Nigeria 4.0% (26.6%) NO. OF STORES Lesotho 4.8% +4.4% 133 Corporate owned stores: 124 Africa 97.5% 0.1% Austr
Slide 50: Back to Our Roots
BACK TO OUR ROOTS Millions of South We’re going back We are ordinary people Africans have grown up to our roots, the doing extraordinary with us. We are woven foundations on things every day. We’ve into their stories, their which our brand built this brand together. memories, their lives. was built.
Slide 51: Equity Raise
EQUITY RAISE Historical debt free balance sheet strength enables our position to consider growth & not just survival • Aimed to be first to market in a likely limited & decreasing pool of funds & have flexibility • Historical debt free balance sheet strength enables our position to consider growth &
Slide 52: Accounting Standard Changes
ACCOUNTING STANDARD CHANGES 2020 Financial Period Key ratios impacted IFRS 16 Leases Summary of financial impact • Leases affected materially by new standard predominantly related to stores • IFRS 16 requires a lessee to recognise: Positive: - a right of use asset (ROUA) representing its right to us
Slide 53: Thank You
THANK YOU 53