Foschini Group Limited · JSE:TFG
Foschini — The Foschini Group — FY2014 Earnings Presentation
51 slides from Foschini's earnings presentation, June 2014
Slide 1: Analyst Presentation for the Year Ended 31 March 2014
ANALYST PRESENTATION FOR THE YEAR ENDED 31 MARCH 2014
Slide 2: Economy & Retail Environment
ECONOMY & RETAIL ENVIRONMENT
Slide 3: The Economy and Retail Environment
THE ECONOMY AND RETAIL ENVIRONMENT • News on the global economy remains mixed • Outlook for global GDP only marginally improved • Emerging market GDP moderating • Chinese economic data remains weaker • End of quantitative easing in sight • Outlook for SA economy remains weak • Fragile unsecured lend
Slide 4: Trading Environment
TRADING ENVIRONMENT Sources: BER, StatsSA, SARB, Reuters 4 TFG | MARCH 2014 RESULTS PRESENTATION
Slide 5: Trading Environment
TRADING ENVIRONMENT Sources: BER, StatsSA, SARB, Reuters 5 TFG | MARCH 2014 RESULTS PRESENTATION
Slide 6: Review of the Year
REVIEW OF THE YEAR
Slide 7: Review of the Year
REVIEW OF THE YEAR • Consumers remain under pressure: • Challenging credit environment • Unsecured lending bubble still impacting consumers • Credit sales under pressure • Cash sales – continued strong growth • Rand / dollar exchange rate worsened • Gross margins within merchandise categories mainta
Slide 8: Review of the Year Continued
REVIEW OF THE YEAR CONTINUED RETAIL TURNOVER – R14,2bn GROSS MARGIN – 46,5% +9,8% NET BAD DEBT / CLOSING OPERATING MARGIN RETAIL – DEBTORS’ BOOK – 12,4% 17,9% +1,9% -0,8% HEPS – 908,9 cents DILUTED HEPS – 902,7 cents +5,9% +6,0% FINAL DIVIDEND – 293,0 cents +8,5% ROE RETAIL – 27,4% DEBT / EQUITY RET
Slide 9: Business Review
BUSINESS REVIEW =
Slide 10: Business Review: Overview
BUSINESS REVIEW: OVERVIEW @home • TFG = home of leading retail brands @homelivingspace Duesouth • 17 brands American Swiss Fabiani Totalsports UPPER G-star Charles & Keith • Primarily own brands – Sportscene DonnaClaire leading household names Hi Foschini MID Markham • Over 2000 stores MARKET Sterns
Slide 11: Business Review: Turnover by Merchandise Category
BUSINESS REVIEW: TURNOVER BY MERCHANDISE CATEGORY % Same Retail turnover by March 2014 March 2013 % Growth store merchandise category (Rm) (Rm) growth Clothing 9 481,9 8 658,4 9,5 3,4 Jewellery 1 387,8 1 308,8 6,0 2,0 Cellphones 1 306,1 1 148,6 13,7 7,3 Homeware & furniture 1 073,6 945,4 13,6 9,7 Co
Slide 12: Business Review: Merchandise Category Contribution
BUSINESS REVIEW: MERCHANDISE CATEGORY CONTRIBUTION Homeware & furniture 7.6% Cosmetics 6.4% Cellphones 9.2% Jewellery 9.8% Clothing and footwear 67.0% 12 TFG | MARCH 2014 RESULTS PRESENTATION
Slide 13: Business Review: Merchandise Category Contribution
BUSINESS REVIEW: MERCHANDISE CATEGORY CONTRIBUTION Homeware & furniture, 7.6% Cosmetics, Sport, 19.9% 6.4% Cellphones, 9.2% Jewellery, 9.8% Fashion, 34.2% Value, 12.9% 13 TFG | MARCH 2014 RESULTS PRESENTATION
Slide 14: Business Review: Cash vs Credit Turnover Growth
BUSINESS REVIEW: CASH VS CREDIT TURNOVER GROWTH 20.0% 18.6% 18.0% 15.9% 16.0% 14.0% 13.7% 12.7% 12.0% Growth in Credit Growth in Sales (%) sales 10.0% Growth in Cash 9.1% sales 8.0% 6.6% 6.0% 5.7% 4.9% 4.0% 2.0% 0.0% April 2013 - Sep 2013 Oct 2013 - Mar 2014 FY 2014 FY 2013 9,0% 10,5% 9,8% 10,9% 14
Slide 15: Business Review: Africa
BUSINESS REVIEW: AFRICA • All Africa stores corporate stores • Rest of Africa now 120 stores • 26% turnover growth with same store growth of 15% • 16 new stores were opened during the year • Further expansion: • Ghana • Angola • Mozambique • Kenya • 280 - 300 stores targeted by 2018 15 TFG | MARCH 2
Slide 16: Financial Review
FINANCIAL REVIEW
Slide 17: Financial Review: Year Ended 31 March 2014
FINANCIAL REVIEW: YEAR ENDED 31 MARCH 2014 March 2014 March 2013* Income Statement for the year ended 31 March (Rm) (Rm) % Change Retail turnover 14 159,0 12 896,4 9,8 Cost of turnover (7 579,4) (6 906,1) Gross profit 6 579,6 5 990,3 Interest income 1 148,1 997,9 Other revenue 1 055,8 862,7 Trading
Slide 18: RCS Group Transaction
RCS GROUP TRANSACTION • Now treated as a discontinued operation • As was announced on SENS on 10 April 2014, the group together with The Standard Bank of South Africa Limited, has entered into agreements which will result in BNP Paribas Personal Finance S.A. becoming the 100% shareholder of the RCS
Slide 19: TFG Earnings and Distribution
TFG EARNINGS AND DISTRIBUTION 1000.0 908.9 900.0 858.6 800.0 772.0 700.0 632.3 600.0 Cents 536 521.4 506 500.0 HEPS 455 400.0 350 DPS 288 300.0 200.0 100.0 0.0 March 2010 March 2011 March 2012 March 2013 March 2014 19 TFG | MARCH 2014 RESULTS PRESENTATION
Slide 20: Revenue
REVENUE March 2014 March 2013* (Rm) (Rm) % Growth Retail turnover 14 159,0 12 896,4 9,8 Interest income 1 148,1 997,9 15,1 Other revenue 1 055,8 862,7 22,4 Group total 16 362,9 14 757,0 10,9 * 2013 restated to reflect RCS Group as discontinued operation • Satisfactory growth in retail turnover in to
Slide 21: Gross Profit
GROSS PROFIT March 2014 March 2013 Gross profit (Rm) 6 579,6 5 990,3 Gross margin (%) 46,5 46,4 • Gross margin now restated • Cost of sales definition refined to include only costs directly related to the cost of merchandise • Previously included cost of marketing, buying and planning, now treated a
Slide 22: Interest Income
INTEREST INCOME March 2014 March 2013 * (Rm) (Rm) % Growth Trade receivables – retail 1 130,5 983,6 14,9 Sundry 17,6 14,3 23,1 Total interest income 1 148,1 997,9 15,1 * 2013 restated to reflect RCS Group as discontinued operation • Due to the impact of the NCA capping formula, interest yields at hi
Slide 23: Trading Expenses
TRADING EXPENSES March 2014 % to turnover March 2013 * % to turnover (Rm) 2014 (Rm) 2013 % Growth Depreciation and amortisation (365,5) 2,6 (316,6) 2,5 15,4 Employee costs (2 048,3) 14,5 (1 885,2) 14,6 8,7 Occupancy costs (1 393,0) 9,8 (1 230,0) 9,5 13,3 Other net operating costs (1 504,3) 10,6 (1 3
Slide 24: Finance Cost
FINANCE COST March 2014 March 2013 * (Rm) (Rm) % Growth Finance costs (161,8) (108,4) 49,3 * 2013 restated to reflect RCS Group as discontinued operation • Interest impacted by: • Higher borrowings • Share buy-backs • Level of debtors’ book • Capex 24 TFG | MARCH 2014 RESULTS PRESENTATION
Slide 25: Stock and Creditors
STOCK AND CREDITORS March 2014 March 2013 (Rm) (Rm) % Growth Inventory 2 775,9 2 444,0 13,6 • Impact of new stores 7% – 8% • Impacted by move of Easter • Quantum of merchandise stock is appropriate for expected levels of trading March 2014 March 2013 * (Rm) (Rm) % Growth Trade and other payables 1 8
Slide 26: Trade Receivables
TRADE RECEIVABLES March 2014 March 2013 (Rm) (Rm) % Growth Trade receivables – retail 5 796,6 5 207,7 11,3 • Our biggest asset by far • Grown faster than credit turnover due to lengthening of the book • Continue to be well managed • Adequate provisioning • Peter Meiring will deal with the performanc
Slide 27: Cash Generation & Utilisation
CASH GENERATION & UTILISATION March 2014 (Rm) March 2013 * (Rm) Interest-bearing debt 2 960,4 1 938,4 Less: Cash (301,3) (371,0) Borrowings 2 659,1 1 567,4 * 2013 restated to reflect RCS Group as discontinued operation (Rm) March 2014 (Rm) Net borrowings at beginning of the year (1 567,4) Cash EBITD
Slide 28: Capex
CAPEX March 2014 March 2013 * (Rm) (Rm) Stores 332,4 334,7 IT 154,0 122,8 Other 67,8 110,1 Total 554,2 567,6 * 2013 restated to reflect RCS Group as discontinued operation • The majority of capex relates to opening of new stores, in line with our strategy of growing floor space • Projected capex for
Slide 29: TFG Financial Services
: | TFG FINANCIAL SERVICES
Slide 30: TFG Financial Services: Industry Review
TFG FINANCIAL SERVICES: INDUSTRY REVIEW • Despite some improvement in the last quarter, the index reflects the levels of consumer distress during the year • Decline in household cash flows suggests that consumers ability to service debt will remain constrained. • Unisa’s Q1 2014 Consumer Financial V
Slide 31: TFG Financial Services: Review of the Year
TFG FINANCIAL SERVICES: REVIEW OF THE YEAR • Higher delinquency levels due to an increase in short payments • Collection and recovery yields continue to trend downward • Arrears increase to 25,2% from 22,4% LY • Fewer customers in a buying position putting credit sales under pressure Mitigated by: •
Slide 32: TFG Financial Services: Review of the Year - Rewards
TFG FINANCIAL SERVICES: REVIEW OF THE YEAR - REWARDS • Rewards reaches 4,7 million customers • 2,1 million cash • Rewards automatically extended to all account customers • A unique program that is proving to be successful: • Provides instant rewards • Based on customer purchases and preferences • Sp
Slide 33: TFG Financial Services - Credit: Performance
TFG FINANCIAL SERVICES - CREDIT: PERFORMANCE March 2014 March 2013 (Rm) (Rm) % Change Interest income 1 130,5 983,6 14,9 Net bad debt (935,5) (670,8) 39,5 Credit costs (184,9) (224,8) (17,8) EBIT 10,1 88,0 (88,5) • Reporting amended this year to reflect credit separately from other customer value-ad
Slide 34: TFG Financial Services - Credit: Book
TFG FINANCIAL SERVICES - CREDIT: BOOK March 2014 March 2013 Key debtor statistics (Rm) (Rm) Number of active accounts (‘000) 2 668,9 2 611,6 Credit sales as a % of total retail sales 57,8 60,0 Net debtors’ book (Rm) 5 796,6 5 207,7 • Active account base grows by 2,2% (LY: 6,0%) • Credit turnover gro
Slide 35: TFG Financial Services - Credit: Statistics
TFG FINANCIAL SERVICES - CREDIT: STATISTICS March 2014 March 2013 Key debtor statistics (Rm) (Rm) Arrear debtors % to debtors’ book¹ 25,2 22,4 Net bad debt write-off as a % of credit transactions 7,1 5,7 Net bad debt write-off as a % of debtors’ book 12,4 10,5 Doubtful debt provision as a % of debto
Slide 36: TFG Financial Services: Customer Value Added Products
TFG FINANCIAL SERVICES: CUSTOMER VALUE ADDED PRODUCTS March 2013 excl RCS March 2014 Group (Rm) (Rm) % Change Publishing net income 174,5 156,2 11,7 Insurance net income 209,0 183,1 14,2 Mobile one2one airtime net income 70,4 53,2 32,3 EBIT 453,9 392,5 15,6 • Publishing income • Total monthly circul
Slide 37: TFG Financial Services: Strategy & Outlook
TFG FINANCIAL SERVICES: STRATEGY & OUTLOOK • We expect consumer to remain under pressure in FY 2015 • Growth in the credit active account base will be muted • Anticipate further repo rate increases • Our new account acquisition strategy will remain cautious • Look to source new customers from lower
Slide 38: RCS Group
RCS GROUP
Slide 39: RCS Group: Review of 2014 Financial Year
RCS GROUP: REVIEW OF 2014 FINANCIAL YEAR March 2014 March 2013 (Rm) (Rm) % Change Interest income 1 118,7 998,7 12,0 Other income 634,5 535,6 18,5 Total credit income 1 753,2 1 534,3 14,3 Net bad debt (373,6) (269,8) 38,5 Operating costs (668,7) (622,0) 7,5 EBIT 710,9 642,5 10,6 Interest paid (252,2
Slide 40: RCS Group: Performance
RCS GROUP: PERFORMANCE RCS Group asset quality statistics March 2014 March 2013 Number of active accounts (‘000) 1 020 898 Net debtors’ book (Rm) 4 745 4 211 Arrear debt as percentage of total debt¹ 12,8% 11,1% Non performing loans as percentage of total debt² 8,5% 6,9% Net bad debt write-off as per
Slide 41: Strategy & KPI's
——~ —_ ei STRATEGY & KPI’S
Slide 42: Strategic Objectives
STRATEGIC OBJECTIVES 42 TFG | MARCH 2014 RESULTS PRESENTATION
Slide 43: Strategic Objectives
STRATEGIC OBJECTIVES • Long term objectives: • Improve lead times across merchandise categories • Continuously seek new sources of supply • Ensure consistent, capable supplier performance • Improve in-season trading capability • Maximise our in-house design and manufacturing capability 43 TFG | MARC
Slide 44: Strategic Objectives
STRATEGIC OBJECTIVES • Long term objectives: • 3,2m active credit customers by March 2018 (currently 2,6m) • 3,2m active cash customers by March 2018 (currently 2,1m) • More equitable balance between cash and credit sales • Improved take-up of reward offers • Ensure credit and cash rewards base is a
Slide 45: Strategic Objectives
STRATEGIC OBJECTIVES • Long term objectives: • Establish appropriate structures to support expansion • Develop appropriate location strategy: • Brands • Product assortment • Pricing structure • Marketing • Implement sustainable logistics model 45 TFG | MARCH 2014 RESULTS PRESENTATION
Slide 46: Strategic Objectives
STRATEGIC OBJECTIVES • Implement omni-channel strategy including online sales • Establish appropriate structures to support strategy • Launch initial platform including credit offering during 2015 financial year • Phased roll-out of online selling platform across all retail brands 46 TFG | MARCH 201
Slide 47: Key Performance Indicators
KEY PERFORMANCE INDICATORS Medium term target* March 2014 March 2013* Gross margin (%) 47,0 – 48,0 46,5 46,4 Operating margin (%) 20,0 – 22,0 17,9 18,7 ROE TFG (%) 35,0 – 40,0 27,4 27,8 Space growth - annual (%) 5,0 – 7,0 6,1 5,1 Number of rewards customers - cash (million) 3,2 2,1 1,2 Number of rew
Slide 48: Outlook
OUTLOOK
Slide 49: Outlook & Guidance for 2015
OUTLOOK & GUIDANCE FOR 2015 • Trading conditions to remain challenging • Credit environment unlikely to improve until current level of consumer indebtedness normalises – only expecting to see the first signs of this towards the end of this year • Strategic objectives around supply chain, CRM and Afr
Slide 50: Thank You
THANK YOU
Slide 51: Disclaimer
DISCLAIMER This announcement contains certain forward-looking statements with respect to the financial condition and results of operations of The Foschini Group Limited and its subsidiaries, which by their nature involve risk and uncertainty because they relate to events and depend on circumstances