Mr Price Group Limited · JSE:MRP
Mr Price — H1 FY2020 Earnings Presentation
39 slides from Mr Price's earnings presentation, Nov 19, 2019
Slide 1: FY20 Interim results to 28 September 2019
FY20Interim results to 28 September 2019 1 1
Slide 2: Overview and Performance
01 Overview Retail Environment & Group Performance by Mark Blair - CEO 02 Performance Detailed Group & Divisional Results by Mark Stirton - CFO 2 2
Slide 3: Overview
Overview Retail Environment & Group Performance by Mark Blair - CEO 01 3 3
Slide 4: Economic overview
Economic overview The South African economy (200 metrics monitored by SARB) 100 Protracted slump 50 Longest 0 months downward -50 business cycle -100 yet: 70 months 1989-1993 1993-1996 1996-1999 1999-2007 2007-2009 2009-2013 2013-2019 of decline Source: South African Reserve bank Upward phase Downwa
Slide 5: Consumer environment
Consumer environment 10 consumers 8 % growth under 6 pressure 4 2 0 • Lower disposable income • Reduced savings Q2’16 Q3’16 Q4’16 Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 Q1’19 Q2’19 • Higher debt service costs Source: SARB, Stats SA Total retail sales Employee income Household credit Consume
Slide 6: Group performance Key ratios
Group performance Key ratios Revenue Operating margin ROE* Dividend Yield* +2.6% 15.8% R10.8bn (60bps) 36.9% 4.6% EBITDA Profit after tax Quick ratio Current ratio +32.2% (10.2%) R2.5bn R1.1bn 1.7 2.4 Normalised: (10.0%) Normalised: (7.8%) Total diluted HEPS Dividend per share Cash conversion ratio#
Slide 7: Performance unpacked
Performance unpacked What we said in May: - inventory carry from PY - H1 FY20 is going to be ‘messy’ but should see improvement in H2 - initiatives in Mr Price Apparel Group performance excluding Mr Price Apparel Group performance barriers • Revenue grew 7.4% • Soft macroeconomic & consumer environm
Slide 8: Performance
Performance Detailed Group & Divisional Results By Mark Stirton - CFO 02 8 8
Slide 9: 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 u
Slide 10: Earnings & dividend per share
Earnings & dividend per share % Change 2019 2018 Statutory Normalised Profit attributable to shareholders (R’m) 1 148 1 279 (10.2%) (7.8%) W. Avg shares in issue (000)1 258 881 258 630 Basic earnings per share 443.6c 494.4c (10.3%) (7.9%) Addbacks (R’m) (0.9) (0.1) Headline earnings (R’m) 1 147 1 27
Slide 11: Group income statement
Group income statement R’M 2019 2018 % Change Continuing operations Retail sales & other income (pg 13) 10 661 10 424 2.3% Gross profit (pg 16)1 4 096 4 278 (4.2%) Expenses (pg 17)2 2 823 2 970 (5.0%) Profit from operating activities 1 686 1 714 (1.6%) Net finance (expense)/income3 (88) 101 (187.5%)
Slide 12: Group sales growth
Group sales Geography Tender type Channel Merchandise ^ growth RSA +2.6% *Cash +2.8% Bricks +2.0% Unit growth -0.5% drivers Non RSA # Credit Online RSP inflation -2.2% 0.8% +28.3% +2.2% RSA: 92.3% of sales Cash: 83.6% of sales Bricks: 98.5% of sales units: 100m 12 ^Includes Cellular | *Cash & Card (
Slide 13: Revenue
Revenue R’M 2019 2018 % Change *Retail sales1 9 891 9 725 1.7% Total other income 770 698 10.2% Financial services & cellular2 (pg 22) 743 673 10.3% Other 27 25 5.7% Total retail sales, interest3 & other income 10 661 10 423 2.3% Finance income4 135 103 31.8% Total revenue 10 796 10 526 2.6% • 1Reta
Slide 14: Non RSA sales
Total % of Group sales Non RSA sales 7.9% Contribution Growth FY19: 8.2% Namibia 32.4% (8.5%) Africa Botswana 23.5% +5.0% • Treated on a portfolio basis due to materiality No. of stores • Facing similar challenges to other SA retailers Kenya 10.5% +42.9% • Regional strategy determined by ability to
Slide 15: Space growth
w.avg net Space movements (m )2 growth Space Mr Price Apparel Miladys 3.9% 0.6% growth Mr Price Sport Mr Price Home 1.1% (1.5%) Sheet Street 0.4% Total space growth Net growth • 3.9% new space growth, 1.9% net • 1 338 stores across regions w.avg (1.2%) (0.8%) 0.6% 3.3% 1.9% (SA 1 222; Non SA 116) cl
Slide 16: Gross profit margin
Gross profit margin Gross profit analysis • Merchandise GP% decreased 250bps - divisions excluding Mr Price Apparel grew Merchandise GP gross profit 7.5% & GP% 60bps - significant markdowns in Mr Price 2018 2019 2020 Apparel impacted performance - ZAR/USD exchange rate depreciated 42.5% 43.3% 40.8%
Slide 17: Overhead expenses
Overhead expenses Selling expenses* (R’M) Administrative expenses* (R’M) % Change % Change 2019 2018 2019 2018 Statutory Normalised Statutory Normalised 2 151 2 257 (4.7%) 3.1% 672 713 (5.8%) (5.6%) • W.avg space growth of 1.9% (new space growth • Group wide savings initiatives undertaken of 3.9%) •
Slide 18: Strong balance sheet
Strong Opportunities Stock turn balance sheet 8 6 5.0 Times 4 R’M Sep 2019 Sep 2018 2 3.9 0 Non-current assets1 6 969 2 657 2014 2015 2016 2017 2018 2019 Current assets 9 472 7 360 MRPG SA Apparel excl MRPG Inventories2 2 669 2 322 • Significantly improve inventory management Trade & other receivabl
Slide 19: Trade receivables
Trade receivables % change R’M Sep 19 Mar 19 Sep 18 Sep/Mar Sep/Sep Retail debtors 2 129 2 120 2 116 0.4% 0.6% Mobile* & franchise debtors 71 66 81 7.8% (12.2%) Total debtors book 2 200 2 186 2 197 0.6% 0.1% Retail debtors (97% of total) NBD: book (excl collection costs) 7.2% 7.3% 6.2% Impairment pr
Slide 20: Cash flow movements
Cash flow movements R’M March 2019 3 150 Cash from operations 2 394 IFRS 16: rent expense removed. Refer to financing cashflows Working capital 580 Operating Accounts payable timing due to H1 cut off Net interest received 316 R3.2bn Interest received up 31.8% Taxation (82) Timing of cash payment vs
Slide 21: RSOI divisional summary
RSOI divisional summary RSOI* Contribution RSOI* Growth Segment RSOI +10.3% Cellular FS & Mr Price Money +10.3% OP profit +20.7% 7.0% OP margin# 34.0% Mr Price Home +3.6% 16.5% RSOI +4.1% Home OP profit +17.8% OP margin# 16.7% SheetStreet +5.0% 7.1% Miladys +8.1% 54.8% 7.3% RSOI +1.0% Apparel Mr Pri
Slide 22: mrpMoney
mrpMoney R’M 2019 2018 % Change Cellular & mobile 358 296 20.7% Financial services 385 377 2.2% Total revenue 743 673 10.3% • Cellular & mobile: - 242 stores selling handsets & accessories; further store roll out planned - 22.9% growth in number of units sold - strong accessories (higher margin) att
Slide 23: Credit performance
Credit performance Credit sales Avg credit basket* SA Consumer Credit Index R1.7bn R401 70 +0.8% +2.9% 65 Improving Credit Health 60 55 # of credit Active 50 transactions accounts 45 40 35 4.8m 1.4m Deteriorating Credit Health -2.1% -1.6% 30 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 • SA consumer cred
Slide 24: Home segment
Home segment Mr Price Home Sheet Street 2019 2018 % Change 2019 2018 % Change Retail sales1 R1 758m R1 703m 3.2% R763m R726m 5.0% Comparable sales growth 1.8% 6.6% 2.5% 2.5% Unit sales 15.0m 15.6m (4.0%) 7.8m 8.2m (5.4%) RSP inflation2 7.5% 3.9% 11.0% (1.3%) Weighted avg. space growth (1.3%) (1.6%)
Slide 25: Apparel segment
Apparel segment Miladys Mr Price Sport 2019 2018 % Change 2019 2018 % Change Retail sales1 R764m R706m 8.1% R775m R691m 12.2% Comparable sales growth 3.3% 8.2% 6.1% 2.3% Unit sales 3.8m 3.5m 7.7% 6.2m 5.8m 7.0% RSP inflation2 0.2% 5.2% 4.9% 4.4% Weighted avg. space growth 0.6% (1.7%) 1.1% 2.6% Sales
Slide 26: Apparel segment
Apparel segment Mr Price Apparel 2019 2018 % Change Retail sales1 R5 819m R5 887m (1.2%) Comparable sales growth (4.3%) 3.0% Unit sales 66.7m 66.8m (0.2%) RSP inflation2 (0.9%) 5.1% Weighted avg. space growth 3.9% 2.9% Sales density R38 137m-2 R39 670m-2 (3.9%) • Sales growth per August trading upda
Slide 27: Performance timeline: Mr Price Apparel
Performance timeline: Mr Price Apparel Market share gains Confident Poor black Friday December trade 5.8% sales merchant team ~10% off plan & • SA* retail sales +0.7% growth in Mr Growth called for prior year. Monthly • School holidays two weeks shorter Price Apparel, Summer FY19 sales declined 3.8%
Slide 28: H1 FY2020 performance: Mr Price Apparel
H1 FY2020 performance: Mr Price Apparel An extended & thorough review identified several areas of deviation from established processes & disciplines Fashion vs Core Options Price architecture • Higher fashion volume, significant • Too much width leading to shallow • Insufficient representation at th
Slide 29: Corrective action
Corrective action Factors below should result in improved category dominance, clarity of offer, value & supplier performance = improved sales & lower markdowns Clinical attention The process begins with the Number of options, width, depth, price points etc. to detail in numbers & not the product. ar
Slide 30: Unfamiliar Challenger
• Mr Price remains the market leader in delivering Market positioning value through best price & fashion mix • Mr Price average price remains at a significantly lower level than the rest of the market • Market share losses in Mr Price Apparel benefited value competitors (including ‘one unders’) Pric
Slide 31: Positioned for recovery
Positioned for recovery Strong brand appeal Top women’s clothing store Based on: Brand awareness, user experience & brand presence 2018 2019 Edgars 72.3 Mr Price 69.7 Woolworths 70.6 Woolworths 67.9 Mr Price 66.9 Edgars 66.2 Truworths 64.7 Truworths 65.2 Sportscene 57.0 Sportscene 60.8 Foschini 56.8
Slide 32: Positioned for recovery
Positioned for recovery High customer awareness & engaged customer base Brands that come to mind (spontaneous) when thinking of clothing (%) Clothing stores shopped at most often Nike 49% Mr Price Adidas Ackermans PEP Puma Edgars Levis Jet Mr Price 17% Truworths Woolworths Woolworths Guess Markhams
Slide 33: Sourcing
Sourcing Greater control of import process Mr Price Apparel sourcing channels (R) 60 Local: 45% International: 55% 51.0% Strategic objectives 50 • Greater control of import process (short term) • Closer proximity to source (long term) 40 Desired outcomes 35.5% 32.3% • Increase visibility throughout
Slide 34: Sourcing continued
Sourcing continued Risk management controls • MRPG Code of Conduct – signed annually by associates & suppliers • Responsible sourcing framework & implementation guide in place for associates & supplier partners • Members of ETI since 2015 – annual reporting framework against ETI’s principles of impl
Slide 35: Store experience
Blended Click & Collect retail eCommerce Store experience Sales Grew 19.7% No.1 store Self-check out Mobile POS For every month in H1 Convenience Customers can check the availability of an item in a specific size & colour at a store level through the app & mrp.com No need for cash/card Transact in a
Slide 36: Investment opportunities
Investment opportunities Frontline • Investment back into the Mr Price Brand & unique people culture • Store enhancements & navigation • Customer experience & blended retail • Product quality: fabric, fit & sizing • Existing category expansions & new category development • Testing lay-bye facility E
Slide 37: Proven track record
Proven track record Strong base for future investments ROIC Finance costs as a % of operating profit (FY19) 40% 40 30 27% 34% 34% 31% 23% 30 21% 26% 20 22% % 20% % 20 14% 11% 10 10 2% 0 0 MRPG TFG TRU WHL PPH MRPG TRU TFG WHL PPH FY09 FY19 FY19 Source: Refinitive Eikon last 12 months | Investec 39 3
Slide 38: H2 Outlook
H2 Outlook • A consumer recovery is unlikely in the short-medium term. GDP growth & fiscal health requires decisive structural reforms to gain traction • Global political & trade risks continue to threaten currency stability • Focus by executive & divisional management on execution of merchandise pr
Slide 39: Thank you
(@.mr pricegrouplimited