Mr Price Group Limited · JSE:MRP
Mr Price — FY2017 Earnings Presentation
44 slides from Mr Price's earnings presentation, May 2017
Slide 1: Annual Results Presentation March 2017
Annual Results Presentation . __ . March 2017 (-mr pricegrouplimited
Slide 2: Presenters and agenda
Chairman’s Introduction Nigel Payne - Chairman Trading Environment and Company Performance Mark Blair - Chief Financial Officer Strategy and Outlook Stuart Bird - Chief Executive Officer
Slide 3: Chairman's Introduction
‘ ——————— —=aaaae A 1S eee ee ee ee Chairman’s Introduction Nigel Payne - Chairman
Slide 4: R1.3bn distribution centre facility
R1.3bn facility to improve efficiency & enable growth – funded by cash resources Phase 1 complete - 57 000m2 warehouse, 103 000m2 operational floor space Phase 2 potential to expand warehouse to 100 000m2 when required Used 28 500m3 of concrete and 80 000 m2 of roof sheeting Installed 10 000 sprinkl
Slide 5: Difficult year for retail; EDLP model track record
Despite the past year being difficult for the retail sector, we would have expected to perform better Our cash-based fashion-value, every day low price (EDLP) business model has proved itself over the long-term. In the 31 years since the change in control, the group has: - achieved compound growth r
Slide 6: Our core beliefs underpin our success
Our core beliefs underpin our success PASSION ordinary people doing extraordinary things VALUE quality and fashion at a great price sharing ownership and success of the company with all PARTNERSHIP associates, and partnering with suppliers and communities. Associates Suppliers Society Our partnershi
Slide 7: Trading Environment and Company Performance
Trading Environment and Company Performance Mark Blair - Chief Financial Officer
Slide 8: Trading environment
Q4 16 GDP declined by 0.3% Intensifying competition for Low consumer confidence Q4 16 unemployment rate up 2% market share Prices impacted by weak currency to 26.5% Promotional activity impacting Deferring purchasing and Headline CPI 6.1%. Food, electricity, sales and margins responding to promotion
Slide 9: Diluted HEPS versus consensus
Consensus % % Change Actual Estimates Achieved 52/531 52/522 Diluted HEPS 887.9c (12.3%) (10.4%) - INET 892.0 99.5% - Bloomberg 898.2 98.9% Dividends per share 667.0c Dividends maintained - INET 580.8 114.8% - Bloomberg 588.0 113.4% Return on Equity 37.8% 1 Statutory FY16 results included an additio
Slide 10: Earnings per share reconciliation
% Change Annual H2 2017 2016 52/53 52/52 26/26 Profit attributable to shareholders (R’m) 2 263 2 611 (14.5%) (13.3%) (12.6%) W. Avg shares in issue (000)1 255 793 252 786 Basic EPS (cents) 884.6 1 032.9 (15.5%) (14.4%) (13.8%) Addbacks (R’m) 2 68 6 Headline earnings (R’m) 2 331 2 617 HEPS (cents) 91
Slide 11: Dividends and payout ratio
Cents 2017 2016 % Change Interim 228.2 248.0 (8.0%) Final 438.8 419.0 4.7% Annual 667.0 667.0 - Interim payout ratio progressively increased towards annual rate of 63% Interim ratio was increased from 58% to 63% Annual FY17 ratio of 73.2% is temporary - to maintain dividends at FY16 level, despite a
Slide 12: Income statement summary
% Change R'm 2017 2016 Annual H2 Retail sales and other income (pg 12) 19 679 19 547 0.7% (0.1%) Cost of sales1 (pg 16) 11 365 11 082 2.6% 2.2% Expenses2 (pg 17-18) 5 266 4 912 7.2% 6.4% Profit from operating activities 3 048 3 553 (14.2%) (14.8%) Net finance income 82 81 1.2% 34.3% Profit before ta
Slide 13: Revenue contribution by division
Revenue contribution Most impacted by Africa and credit mrp Strong promotional activity in the market 5.4% Apparel Merchandise execution 7.6% RSOI1 -1.3% OP profit -23.1% Strong growth in H1, trade softened in H2 OP margin 14.6% mrpSport Achieved annual operating profit growth mrp Repositioning of m
Slide 14: Revenue analysis
% Change R'm 2017 2016 Annual H2 Retail sales1 18 575 18 665 (0.5%) (1.2%) Financial services and cellular2 1 065 854 24.6% 21.6% Other 39 28 39.0% 49.2% Total other income 1 104 882 25.1% 22.5% Total retail sales, interest & other income 19 679 19 547 0.7% (0.1%) Finance income3 84 81 3.4% 37.1% To
Slide 15: Unit and space growth
18 6 Space growth % 12 9.7 4 5.1 7.7 % growth 6 7.0 10.7 2 7.1 4.9 5.5 0 0 1.0 -6 -10.7 -2 Unit growth RSP inflation W. avg space growth -12 -4 2013 2014 2015 2016 2017 Lower unit growth in all divisions given poor consumer environment & exchange rates Sold 206m units – 7.5 units per economically ac
Slide 16: Store movements and return on gross assets
Store movements Investment in trading area continues to deliver good returns1 40 13 140 132 30 No. of stores 122 20 120 27 10 7 10 ROGA % 5 6 5 100 101 0 89 -9 -8 Reductions -10 80 mrp mrpSport Miladys mrpHome Sheet Street 60 61 New stores 56 Stores Space growth Expansions 40 New stores 40 2.3% Expa
Slide 17: Credit sales growth
Cash sales grew by 0.1% and constitute 83.3% of total sales Annual credit sales declined by 3.1% (H1 -6.2%). Flat growth in H2 but mrp, mrpSport and Sheet Street all achieved growth -4.1% 100 Existing credit customers New credit customers -5.3% 5% Growth in new account sales Credit sales growth (%)
Slide 18: Cotton, oil, currency and gross profit analysis
Cotton and oil price vs USDZAR Gross profit analysis 100 17 50 450 Cotton price (US cents per lb) 41.6 41.4 40.1 400 16 Oil price (USD per barrel) 40 41.9 Cellular revenue (R'm) 42.0 40.6 350 80 15 300 USD/ZAR GP (%) 14 30 250 60 13 200 20 15.7 150 12 40 10 100 11 6.4 1.7 50 20 10 0 - Mar-15 Sep-15
Slide 19: Selling expenses
% change R'm 2017 2016 Annual H1 H2 Total selling expenses 3 995 3 819 4.6% 5.5% 3.8% Good cost control considering inflation ~6% and space growth of 2.6% Asset write offs of R21.5m (PY R7.9m) includes R10m relating to relocation of Melbourne Central store (pg 40) Employment costs up 1.5%. Represent
Slide 20: Administration expenses
% change R'm 2017 2016 Annual H1 H2 Total admin expenses 1 271 1 093 16.2% 17.0% 15.5% Adjustments: foreign exchange1 (33) 78 : asset write off 2 (74) Total net of adjustments 1 164 1 171 (0.6%) (7.8%) 7.9% H2 increase of 7.9% due to consulting charges, bank charges, IT Costs, excluding which the in
Slide 21: mrp division results
2017 2016 % change Retail sales1 R10 907m R11 102m (1.7%) Comparable sales (4.7%) 5.2% Unit sales 136m 152m (10.1%) RSP inflation 8.3% 7.7% Weighted average space growth 4.7% 6.6% Trading density R36 255m-² R38 621m-² (6.1%) Achieving growth in average basket value, however customers shopping less o
Slide 22: mrpSport division results
2017 2016 % change Retail sales R1 370m R1 272m 7.7% Comparable sales (1.8%) 5.3% Unit sales 12m 13m (5.5%) RSP inflation 13.4% 4.9% Weighted average space growth 6.5% 5.4% Trading density R22 835m-² R22 592m-² 1.1% H2 sales growth slowed. Higher promotional markdowns taken to manage inventory level
Slide 23: Miladys division results
2017 2016 % change Retail sales R1 296m R1 369m (5.3%) Comparable sales (6.9%) (2.5%) Unit sales 7m 8m (15.9%) RSP inflation 11.5% 6.6% Weighted average space growth 0.1% 0.6% Trading density R21 192m-² R22 418m-² (5.5%) Merchandise repositioning showing positive signs in H2: - sales growth Feb 1.6%
Slide 24: mrpHome division results
2017 2016 % change Retail sales R3 403m R3 374m 0.9% Comparable sales (2.4%) 3.9% Unit sales 33m 39m (14.4%) RSP inflation 17.3% 9.3% Weighted average space growth (1.3%) (2.8%) Trading density R25 512m-² R24 974m-² 2.2% Living Softs department performed best. More discretionary kids and furniture d
Slide 25: Sheet Street division results
2017 2016 % change Retail sales R1 490m R1 435m 3.8% Comparable sales 3.3% 3.9% Unit sales 17m 19m (9.4%) RSP inflation 14.2% 3.8% Weighted average space growth (0.4%) 1.1% Trading density R29 452m-² R28 263m-² 4.2% Despite the mid LSM target market being more constrained in current economic climate
Slide 26: Financial services and cellular
% change R'm 2017 2016 Annual H2 Credit 439 397 10.6% 9.4% Insurance 225 199 13.1% 21.7% Cellular 401 258 55.1% 39.4% - mrpMobile MVNO 213 113 88.5% 53.5% - Airtime sales & commission 188 145 29.1% 27.0% Total revenue 1 065 854 24.6% 21.6% Credit Lower interest (legislated rate capped), higher accou
Slide 27: Balance sheet
R’m 2017 2016 Non-current assets 1 Lower deferred tax asset Property, plant and equip (pg 26) 2 130 1 672 2 Inventories excl. GIT down Intangible assets (pg 26) 356 373 2.0%, mrp – 8.3%. Other non-current assets1 91 196 Home chains have higher increase, but quality and Current assets ageing profile
Slide 28: Capital expenditure
R’m Total PPE Intangibles Opening 2 045 1 672 373 Additions 806 7091 972 Disposals, impairments and revaluations (108) (37) (71) Depreciation and amortisation (257) (214) (43) Closing 2 486 2 130 356 1 200 Capital expenditure R’m 1 000 R1 144m Forecast 3 800 R806m 600 Total R526m R741m 400 200 R405m
Slide 29: Trade receivables and bad debt
R’m 2017 2016 % change Retail debtors 1 991 1 923 3.5% Mobile and franchise debtors 110 75 46.4% 2 101 1 998 5.1% Total net bad debt 5.9% (PY 5.5%), impairment provision 7.7% (PY 7.3%) - excellent performance from retail book – NBD 5.3% (PY 5.4%), impairment provision maintained at 7.3% - % able to
Slide 30: Cash flow
2015 2016 1 419 Cash from operations 3081 Movement in line with change in operating profit Operating R2.6bn* Working capital (251) Receivables -R58m, Inventory R103m, Payables -R296m Interest received 433 Higher prime interest rate, lower debtors rate (NCR capping) Taxation (689) PY included 3 provi
Slide 31: Strategy and Outlook
Strategy and Outlook Stuart Bird - Chief Executive Officer
Slide 32: Strategy
STRATEGY Frontline Wanted merchandise » ZNs oS © Customer relationships Shopping experience Outcomes Extend our track record of earnings growth Enablers ? » Operations e@”° World class @ © methods & systems BUILD HIGH PERFORMING Sustainability BRANDS High Ethical standards & Surprise and delight sus
Slide 33: Clear market positioning in all markets
Clear market positioning in all markets – fashion-value cash based EDLP model Best price for quality and fashion offered through exceptional product execution Differentiated private label assortments: - dominant in wanted fashion items of the season - fashion leadership through superior in-house tre
Slide 34: Connect with the new generation customer
Connect with the tech-savvy, socially aware new generation customer All customer touch-points must be consistent and seamless Integrated marketing strategy. Build on sector leading social medial position - Facebook - top clothing retailer with 1 million fans - Instagram - highest number of followers
Slide 35: Brand and customer relationship accolades
Strength of brands and customer relationships are evident from our accolades and awards Kasi Star Brands survey: winner in the women’s clothing retail category Generation Next Awards: winner of “Coolest Clothing Store” Strong Maxed brand authenticity - won 2016 Comrades Marathon downrun in record ti
Slide 36: Innovation
mrpEmpower • Visual merchandising Stores • Store communication & training • New account opening • Appealing but low cost store layout & design Online • Re-platformed to a more financially viable model Cellular • 62% of traffic via mobile device • mrpMobile new postpaid • mrp app rated #6 on top free
Slide 37: Distribution centre and IT systems benefits
Higher sales Distribution Centre Improved speed to market New software configuration and Merchandise redirected to store in need improved throughput, sorting, Improved accuracy picking & replenishment process Improved GP % Lower markdowns, more full-priced sales IT Systems Lower breakages by better
Slide 38: Proudly South African
Proudly South African Group RSA manufactured merchandise of R3.5bn, 35% of inputs Founding retailer of the Sustainable Cotton Cluster (SCC) – to secure a sustainable local cotton value chain - group’s FY18 cotton commitment up 214% to 2 800 tonnes (PY actual 1 300 tonnes) - SCC targeting a 446% incr
Slide 39: Entrench value positioning in sourcing
Get closer to point of manufacture to evaluate performance Ongoing reduction in mrp ZAR landed inputs & compliance with ethical and social standards Entrench value positioning by Rest of world Africa Eliminating hidden/duplicated costs to keep input prices low 55.6% 44.4% Mining efficiencies through
Slide 40: Our staff are our Partners
A key differentiator is that our staff are our Partners 18.9% 20.2% Partners & General Partners & General Senior management 52.0% Senior management 51.9% Executives Executives (Divisional & Group) (Divisional & Group) 29.1% 27.9% split of gains (shares & dividends) 2012-2017 options and shares held
Slide 41: Strategic priorities for growth
Constrained trading conditions requires market share growth and places more emphasis on margins, costs and efficiencies - realise potential in mrp, Miladys and cellular - scope to increase market share of existing businesses - prioritise spend and projects to generate profit wedge Realise benefits a
Slide 42: International expansion: Australia, West Africa
mrp Australia Melbourne Central – will move to a 220m2 store in June 17 Eastlands – will fulfill online sales. mrpHome to occupy 300m2 from July 17 Highpoint – 220m2 store with an edited assortment opened March 17 mrpHome Australia 353m2 Northland store opened in Oct 16. Good acceptance in ‘fashion’
Slide 43: Outlook
Any improvement in consumer environment expected to be gradual. GDP growth in 2017 expected to be ~1% Consumer confidence will strengthen if: - April CPI of 5.3% continues and leads to an interest rate reduction - political landscape improves & exchange rate recovers & settles. Events leading up to
Slide 44: cmr pricegrouplimited
a i. cmr pricegrouplimited