Mr Price Group Limited · JSE:MRP
Mr Price — FY2023 Earnings Presentation
50 slides from Mr Price's earnings presentation, June 2023
Slide 1: Annual Results to 1 April 2023
Annual Results to 1 April 2023 20 23
Slide 2: Group results, detailed financial performance, strategy & outlook
Group results & operating Detailed financial Strategy & outlook environment 01 performance 02 03
Slide 3: Group results & operating environment
01 Group results & operating environment By Mark Blair - CEO
Slide 4: Loadshedding: Historical context
Loadshedding Historical context Historically loadshedding existed at manageable levels: - As a value retailer material investments were not made under these circumstances. - Sep 22 to Mar 23: cumulative quantum of loadshedding was greater than the previous 15 years combined - Loadshedding days: 71 i
Slide 5: Loadshedding: Quantifying the cost
Loadshedding Quantifying the cost 100% O F S T O R E S W IT H B A C K -U P PO W E R B Y J U N E 2 0 2 3 Estimated opportunity lost: - 318 000 trading hours and ~R1bn of sales - Negative impact on customer shopping behaviour 100 100 100 100 95 - Lower levels of consumer confidence 88 S TO RE S W I T
Slide 6: External operating environment: Inflation & interest rates
External operating environment Inflation & interest rates Rising inflation and interest rates have negatively impacted discretionary consumer spending I N F L ATION AN D IN TE RE ST RATE S (% ) I NFLA T I O N Food: +13.7 % PRIME LENDING RATE (%) 8 7.6 7.4 11 6.6 7.0 7 5.8 INFLATION (%) transport: +1
Slide 7: External operating environment: Consumer
External operating environment Consumer Capitec data - the economy of 20 million clients: - Significant increase in cost of living affects lower-to-middle-income clients the most - Shift in share of wallet between discretionary, non-discretionary & loadshedding induced purchases AVER AGE AN N U AL C
Slide 8: External operating environment: Credit
External operating environment Credit Consumer credit cycle: - Over the last 12 months, consumer credit appetite has grown to support standard of living 15% SA FASHION RETAILERS: CASH VS CREDIT SALES GROWTH “ ...South Africans are increasingly turning to credit to survive the relentless onslaught of
Slide 9: External operating environment: Macro-economic
External operating environment Macro-economic SA RE A L G DP G ROW TH (%) FACTORS IM PACTING SA G ROW TH : 1.8 • Slowing global growth reduces demand for SA exports 1.5 1.3 1.4 • Growing concern over SA government crisis response, execution and accountability 0.6 • Weakening ZAR/$ exchange rate: 0.4
Slide 10: External operating environment: Competitors
External operating environment Competitors Heightened focus on value segment: - Largest consumer segment in SA - Increased M&A activity post COVID-19 - improved performance by existing competitors - Increased competition from traditionally premium focused players and non-apparel retailers Homeware s
Slide 11: Internal operating Environment
Internal operating Environment MRPG navigated extreme market conditions : • Continued focus on execution of differentiated fashion-value positioning • Disrupted apparel segment value positioning in response to sector wide markdowns • Repositioning of Sheet Street and broader homeware segment defensi
Slide 12: Impact of external factors on trading
Impact of external factors on trading Impacted value segment the most - Grant payments have been irregular and eroded by inflation - Discretionary income re-directed into necessities – cost of living increases - Transport costs increased significantly – customers reducing shopping trips - Store foot
Slide 13: Group Results
Group Results FY2023 RE V E N U E E B ITDA* OPE R ATING PROFIT^ +17.0 % R32.9bn +5.4 % R7.2bn -0.5 % R4.9bn OPE R ATING M A RG IN D ILUTE D H E PS # DI V IDE N D PE R S H A RE 15.1 % -260bps -6.0 % 1 178.4c 63 % pay-out ratio 759.6c maintained 13 *EBITDA reconciliation on pg 45 | #HEPS reconciliatio
Slide 14: Group Performance
Group Performance Demanding base Heavily impacted in H2 RE V E N U E E BITDA PROFIT A F TE R TA X FY22 FY23 FY22 FY23 FY22 FY23 R28.1bn R32.9bn R6.9bn R7.2bn R3.3bn R3.2bn 25.9% Annual 17.0% 27.7% Annual 5.4% 32.8% Annual (3.6%) 35.2% H1 6.5% 33.6% H1 9.2% 50.7% H1 13.3% 19.3% H2 25.3% 24.5% H2 3.0%
Slide 15: Detailed Financial Performance
02 Detailed Financial Performance By Mark Stirton - CFO
Slide 16: Group Income Statement
Group Income Statement R’M FY2023 FY2022 % change Retail sales & other income (pg 44) 32 668 27 865 17.2% Gross profit (pg 18) 12 501 10 999 13.7% Expenses (pg 19) 8 604 7 099 21.2% Profit from operating activities* 4 920 4 946 (0.5%) Net finance (expense) (517) (323) 60.7% Profit before taxation 4
Slide 17: Segmental Performance
Segmental Performance Diversifying reliance on single biggest division DI VI SI ON A L CONTR IB UTIO N ( R S O I) # SE G ME NT A NA LYSIS Contribution FY2023 1.4% 74.5 % Apparel Segment RSOI +24.6% MR P R I C E AP PAR EL RSOI excl S88 +2.8% 6.3 % MR P R I C E S P O RT RSOI base +30.9% 5.1 % MI LAD Y
Slide 18: Space Growth
Space Growth Divisions Store Movements Closing stores W.avg net growth (m2) 5 7 37 595 3.8% Store and space 4 3 1 8 255 1.4% growth insights 1 6 13 169 3.6% • 1 000 new stores: 4 51 778 825 - Core business: +171 2 2 55 262 22.2% - S88: +778 acquired +51 opened 3 4 6 14 216 5.6% • New w.avg space gro
Slide 19: Gross Profit Analysis
Gross Profit Analysis Total GP Merchandise GP Telecoms GP 2022 2023 2022 2023 2022 2023 41.0% 39.5% 42.1% 40.3% 17.3% 19.3% Factors affecting GP margin • Total GP margin down 150bps • Telecoms: - Increased contribution from high growth acquisitions (lower margin than group) - Increased contribution
Slide 20: Overhead Expenses
Overhead Expenses Excluding acquisitions expenses grew well below average CPI Total expenses: Selling expenses 73.5%; admin expenses 26.5% R ’M FY2023 F Y2 0 2 2 % CHA NG E % CHA NG E E XCL S8 8 Depreciation* and amortisation 2 251 1 873 20.2% 2.4% Employment costs 3 499 3 012 16.2% 1.6% Occupancy c
Slide 21: Balance Sheet
Balance Sheet IMPAC TED BY S 88 AC QU IS ITION R’M MA R 2 0 2 3 SEP 2022 MAR 2022 INVENTORY: & L OS T TRAD IN G H OU RS Non-current assets1 17 003 11 707 11 296 • Inventory up 85.1% due to S88 acquisition Current assets 11 778 11 850 11 381 • Excluding S88, inventory increased 18.6% (incl GIT): - Lo
Slide 22: Working Capital & Cash Generation
Working Capital & Cash Generation IN V E NTORY TR A DE RECE I VA B LE S Stock management materially impacted by lost trading hours due to • New account growth & higher debtors book absorbing loadshedding, competitor markdown activity and ERP disruption working capital - higher bad debts rates experi
Slide 23: Allocation of CAPEX
Allocation of CAPEX Funded wholly from cash reserves Capex spend lower than budgeted due to: • Re-allocation towards load shedding back-up solutions • Certain new stores and revamps rolled into FY2024 CA P ITA L E X P ENDITURE FY2023 KEY 8% 7% R336m H1 New Stores 7% Expansions FY2023 38% Capital Rev
Slide 24: Credit Growth Performance
Credit Growth Performance Credit contributes 12.7% of sales Mr Price Group trends • Credit sales growth of 8.3% could have been higher if risk appetite was greater • Growth driven by existing base spending more, up 9.9% • New account sales decreased 6.4% in line with responsible group credit philoso
Slide 25: Trade Receivables
Trade Receivables % CHANGE R’M MAR 23 SEP 22 MAR 22 Principa Face of Credit report MAR/SEP MAR/MAR Clothing Retail Total gross debtors’ book 2 475 2 324 2 265 6.5% 9.3% Mr Price Group Credit Industry Total Good/Total NBD: book (excl collection costs) 8.4% 7.2% 6.0% Bad balance ratio Good: <1 month a
Slide 26: Financial Outlook
Financial Outlook Macroeconomic and consumer • Elevated inflation and interest rates expected to persist for remainder of 2023 • Consumer behaviour to continue to be impacted: non-discretionary items growing share of wallet and increased promotional shopping • Potential higher stages of loadshedding
Slide 27: Strategy & outlook
03 Strategy & outlook By Mark Blair - CEO
Slide 28: Strategic Progress
Strategic Progress Executing in line with strategy while navigating short-term disruption - Foundational activity and investment: revenue growth of 43% over the period - Confident that profit delivery will continue to gain momentum Group ESG 106m units MRPG ranks Director procured Top 5% of global a
Slide 29: Strategic Progress: Committed to long-term strategy
Strategic Progress Committed to long-term strategy - To diversify customer and segment exposure - Execute planned reduction in concentration risks of portfolio 2020/2021 2023 2023 & Beyond 56 % Mr Price Apparel’s contribution to group revenue 45 % Mr Price Apparel’s contribution to group revenue Exp
Slide 30: Performance Core Business
Performance Core Business • Stats SA (Type D retailers) market share increased 70bps – measures all divisions • RLC market share down 110bps (mainly Homeware segment) - High exposure to value seeking customer with increased M A RK E T S H A RE competition in the value segment - Exposed to ERP challe
Slide 31: Performance Core Business
Performance Core Business Apparel segment (CONTRIBUTION : 74 . 5% OF RSO I) • Short-term market share (RLC performance) temporary not structural • Mr Price Apparel affected more by headwinds: low to mid income customer base, predominantly cash customer • Mr Price Apparel maintains highest brand equi
Slide 32: Performance Core Business (continued)
Performance Core Business CO NTI N U E D • Medium term GP margin target remains – SA retailers are used to navigating currency volatility and supply chain disruptions M A RG IN S • Synergy project underway to ensure efficiencies are extracted and cost management discipline is maintained • Operating
Slide 33: A History of Building Brands
37 YEAR SALES CAGR A History of Building Brands +17.5 % Sales Acquisition Organic launch 35 000 30 000 25 000 SALES (R’ MILLIONS) mrp.com 20 000 15 000 10 000 5 000 0 GFC COVID-19 1987 1996 1998 2006 2007 2009 2012 2014 2015 2017 2020 2021 2022 2023
Slide 34: Identifying and executing opportunities: Baby apparel
Performance Core Business Identifying and executing opportunities • Introduced baby apparel in late 2020 • Research and customer engagement underpinned initial test of expanded baby concept in 2022 – formats, product mix, locations, standalone vs instore concept 34
Slide 35: Introduction of a new model: Mr Price Kids
Performance Core Business Identifying and executing opportunities INTRODUCTION OF A NE W MODE L • Positive historical performance and test outcomes - clear way forward: - Evolved a new model combining Mr Price Baby and Mr Price Kids into a Mr Price Kids standalone concept (close proximity to Mr Pric
Slide 36: Performance Acquisitions
Performance Acquisitions Summary and key learnings Extremely satisfied with the businesses acquired - correct allocation of capital Collective earnings of acquisitions are accretive - operating profit generated nearly double foregone interest Strategic plans are clear and teams are focused on execut
Slide 37: Studio 88: FY2023 performance
Building on success S PECI A LIT Y RE ASON F OR A C Q U IS IT IO N : FY2023 performance • Gain access to the aspirational value segment within the apparel sector. The largest independent (6 MONTHS) retailer (multi-chain) of branded leisure, lifestyle and sporting apparel and footwear in South Africa
Slide 38: Power Fashion: FY2023 performance
Scaling and gaining market share in new customer segment RE ASON F OR A C Q U IS IT IO N : FY2023 performance • Unlock growth opportunity in the price value segment of the apparel sector • Opened: 55 new stores • Total stores: 262 F O C U S SI N C E A C Q U IS IT IO N : • Sales growth: +21.5% • Grow
Slide 39: Yuppiechef: FY2023 performance
Expanding into a profitable, national, omni-channel retailer RE ASON F OR A C Q U IS IT IO N : FY2023 performance • Excellent sector opportunity given group high market share in value segment • Gain access to a higher LSM customer base within homeware, enabling growth of its share-of- • Opened: 7 ne
Slide 40: Capital Allocation
Capital Allocation Our confidence in the future will see us investing through the cycle In the last two financial years we have invested ~R5.5bn in acquisitions, R1.7bn in capex and paid R4bn in dividends. Closing cash balance is R1.4bn with an unencumbered balance sheet New stores and revamps are g
Slide 41: Prospects
Prospects • Challenging H1 FY24 expected : - Sectoral inventory carry and allied markdowns and promotions - Intensified loadshedding not in the base – could have a significant impact on winter trade - Cost of living pressures will not abate • Anticipating improved H2: - Significantly reduced disrupt
Slide 42: Appendix
05 Appendix
Slide 43: Group Sales Growth Drivers
FY2023 Group Sales Growth Drivers Total retail sales growth Total retail sales growth excl S88 Comparable stores sales growth +18.1% +2.2% (3.4%) GEOGRAP HY TE NDE R TYPE RSA Rest of Africa Cash Credit 18.1 % 18.6 % 19.7 Excl S88: 1.2% % 8.3 % Cash % of sales 92.8 % % of sales 7.2 % % of sales 87.3
Slide 44: Revenue
Revenue FY2023 F Y2 0 2 2 % G R OWT H Retail sales 31 498 26 683 18.0% Other income 1 170 1 182 (1.0%) Financial services & Telecoms 1 146 1 012 13.2% Other 24 170 (85.8%) Total retail sales, interest & other income 32 668 27 865 17.2% Finance income 185 218 (15.1%) Total revenue 32 853 28 083 17.0%
Slide 45: EBITDA Reconciliation
Ebitda Reconciliation FY2023 F Y2 0 2 2 % G R OWT H Profit from operating activities 4 920 4 946 (0.5%) Total depreciation & amortisation 2 251 1 873 20.2% EBITDA 7 246 6 877 5.4% 45
Slide 46: Earnings & dividend per share
Earnings & dividend per share FY2023 F Y2 0 2 2 % G R OWT H Profit attributable to shareholders (R’m) 3 115 3 347 (6.9%) W. Avg shares in issue (000) 257 274 257 778 Basic earnings per share 1 210.7c 1 298.6c (6.8%) Addbacks (R’m) (13) (42) 69.6% Headline earnings (R’m) 3 102 3 305 (6.1%) Headline e
Slide 47: Cash Flow Movements
Cash Flow Movements R’M Mar 2022 4 612 Cash from operations before working capital changes 6 970 Cash from operations supported by S88 acquisition Working capital Operating Impacted by higher inventory & retail debtors R5 940bn (710) Net interest received 531 Impacted by increased debtors book, 350b
Slide 48: Rest of Africa
Rest of Africa Total % of Group sales 7.2% FY22: 7.2% No. of stores 03 GHANA K E N YA 13 223 Corporate owned stores: 215 ZAMBIA 15 B O T S WA N A 60 72 NAMIBIA M OZ A M B I Q U E 09 Sales growth (ZAR) E S WAT I N I 21 LESOTHO 22 18.6% FY22: 22.0% 48
Slide 49: Input Costs
Input Costs ZAR/$ exchange rate Cotton and oil prices R19.42 R18.61 R15.53 R15.42 Mar Sep Mar Sep Mar Mar Sep Mar Sep Mar 2021 2022 2023 2021 2022 2023 Max of High Min of Low Cotton Oil Shanghai Container Freight Index Rate - Africa Route S U MMARY • ZAR/$ depreciation of 18.5% in FY2023. Worsened t
Slide 50: Thank You
Thank You FY2023 Annual Results - 2023