Mr Price Group Limited · JSE:MRP
Mr Price — FY2019 Earnings Presentation
46 slides from Mr Price's earnings presentation, May 2019
Slide 1: FY19 annual results March 2019
1 FY19 annual results march 2019
Slide 2: Backdrop, Performance, Future
Backdrop Retail Environment Overview by Mark Blair - CEO Performance Company & Divisional Results by Mark Stirton - CFO Future Situational Analysis, Strategy & Outlook by Mark Blair - CEO 2
Slide 3: Backdrop
Backdrop Retail Environment Overview - by Mark Blair - CEO 3
Slide 4: Economic overview
Economic overview SA Economy GDP growth Unemployment CPI avg. Exchange rate (2018) rate (Q1 2019) (Q1 2019) avg. (Q1 2019) +0.8% 27.6% 4.2% R14.01 2017: +1.4% Q1 2018: 26.7% Q1 2018: 4.1% Q1 2018: R11.94 Business Unsupportive Low business Slowing retail Load shedding economic factors confidence sale
Slide 5: Consumer environment
Consumer environment Petrol price per litre Consumer confidence -24 +8.0 % (R14.62 March 2019) (Q1 2019) index points March 2018: R13.54 Q1 2018: +31 index points Retail sales* Q4 2018: 3.1% Electricity price Q4 2017: 8.0% Real wage growth +14.0% (2019) Type D retailers* (Q4 2018) +0.0% Q4 2018: 2.4
Slide 6: Performance
Performance Company & Divisional Results - By Mark Stirton - CFO 6
Slide 7: Group performance
Group performance Revenue EBITDA Profit after tax +5.8% +6.0% +7.2% R22.6bn R4.3bn R3.0bn Operating margin Diluted HEPS Dividend per share 17.6% +6.2% +6.2% +0bps 1 142.3c 736.2c 7
Slide 8: Group performance
Group performance Revenue EBITDA Profit after tax FY18 FY19 FY18 FY19 FY18 FY19 R21.3bn R22.6bn R4.1bn R4.3bn R2.8bn R3.0bn +8.0% Annual +5.8% +22.8% Annual +6.0% +22.9% Annual +7.2% +6.7% H1 +7.8% +22.5% H1 +11.1% +23.7% H1 +12.3% +9.2% H2 +4.1% +23.1% H2 +2.4% +22.4% H2 +3.7% Operating margin Dilu
Slide 9: Earnings & dividend per share
Earnings & dividend per share % Change 2019 2018 Annual H2 Profit attributable to shareholders (R’m) 2 982 2 781 7.2% 3.6% W. Avg shares in issue (000)1 258 922 258 375 Basic earnings per share 1 151.6c 1 076.4c 7.0% 3.4% Addbacks (R’m)2 44 61 • 1LTI movements. Shares previously Headline earnings (R
Slide 10: Group income statement
Group % Change income R’M 2019 2018 Annual H2 Retail sales & other income (pg 12)1 22 361 21 185 5.6% 3.9% statement Gross profit (pg 15)2 Expenses (pg 16)3 9 236 6 106 8 829 5 871 4.6% 4.0% 1.0% 0.7% Profit from operating activities 3 938 3 732 5.5% 1.8% Net finance income 220 160 37.3% 24.1% Profi
Slide 11: Retail sales growth drivers
Retail sales growth drivers Geography Tender Type RSA Non RSA *Cash Credit # +3.8% +12.3% +5.3% -0.3% Cash Channel 84.4% Merchandise of total sales Bricks Online Unit growth RSP inflation +4.1% +32.1% +0.2% 5.1% 12 11 *Cash & Card (debit/ credit merchandise sales excl Cellular) | #Store card merchan
Slide 12: Revenue
Revenue % Change R’M 2019 2018 Annual H2 Retail sales1 20 877 19 994 4.4% 2.6% Total other income 1 484 1 191 24.7% 28.0% Financial services & cellular (pg 20) 1 437 1 142 25.9% 28.0% Other2 47 49 (4.7%) 25.9% Total retail sales, interest & other income 22 361 21 185 5.6% 3.9% Finance income3 224 16
Slide 13: Space growth analysis
Space growth analysis Sales density 33 000 33 201 32 238 31 000 Rm-2 29 000 28 509 27 000 FY14 FY15 FY16 FY17 FY18 FY19 *SA Apparel excl MRPG MRPG • Sales densities continue to rise despite a difficult sales environment • MRPG sales density 1.7X higher than the MSCI Real Estate Index in Dec 2018 • 2
Slide 14: Space growth
w.avg net Space Space movements (m2) growth mrpApparel 3.4% growth Miladys mrpSport (1.1%) 0.6% mrpHome (1.9%) Sheet Street 1.8% Total Group Total space growth Net growth 1 323 stores w.avg (0.5%) (1.2%) 0.2% 2.9% 1.4% Total gross space: closing (1.7%) (1.1%) 0.5% 4.3% 2.0% 745 662m-2 Positively imp
Slide 15: Gross profit margin
Gross profit margin Gross profit analysis Merchandise GP Cellular GP Total GP 2017 2018 2019 2017 2018 2019 2017 2018 2019 40.6% 43.7% 43.6% 15.7% 20.6% 19.1% 40.1% 43.3% 42.9% Unsupportive of H2 margin • Merchandise GP% was flat. Higher markdowns in mrpApparel in 16 Q4 impacted margin & offset gain
Slide 16: Overhead expenses
Overhead expenses Selling expenses (R’M) Administrative expenses (R’M) % Change % Change 2019 2018 2019 2018 Annual H2 Annual H2 4 691 4 492 4.4% 1.4% 1 415 1 379 2.6% (1.5%) • W.avg new space added of 3.1% (1.4% net of closures • Salary costs up 3.1%. Staff appointments offset by & reductions) lowe
Slide 17: RSOI divisional summary
RSOI divisional summary Trading division RSOI Trading segment Contribution Growth *RSOI Operating profit Operating margin Apparel mrpApparel 56.4% +3.1% mrpSport 6.9% +9.7% +3.8 % +3.4 % 18.0 % Miladys 6.6% +4.0% Home 16.5% +6.8% +5.9 +12.3 16.6 mrpHome % % % Sheet Street 7.2% +4.0% Financial Servic
Slide 18: Apparel segment
Apparel segment mrpApparel Miladys mrpSport 2019 2018 % Change 2019 2018 % Change 2019 2018 % Change Retail sales1 R12 525m R12 148m 3.1% R1 462m R1 405m 4.1% R1 544m R1 408m 9.7% Comparable sales growth 0.1% 8.9% 3.1% 8.2% 6.4% (4.5%) Unit sales 147m 149m (1.0%) 7.3m 7.1m 3.3% 13.4m 12.7m 5.4% RSP
Slide 19: Home segment
Home segment mrpHome Sheet Street 2019 2018 % Change 2019 2018 % Change Retail sales1 R3 684m R3 437m 7.2% R1 610m R1 548m 4.0% Comparable sales growth 4.5% (0.9%) 1.6% 2.3% Unit sales 34.0m 33.7m 1.4% 18.1m 17.7m 2.7% RSP inflation2 6.6% 0.1% 2.1% 2.0% Weighted average space growth (1.9%) (0.1%) 1.
Slide 20: mrpMoney
mrpMoney % Change R’M 2019 2018 Annual H2 Cellular & mobile 677 418 62.1% 70.7% Financial services 760 724 4.9% 2.5% Total revenue 1 437 1 142 25.9% 28.0% Cellular & mobile: profits grew strongly • Mobile: Solid growth over the year (double digit growth in H2). Increasing momentum as billings & upgr
Slide 21: SA credit landscape
“Poor employment conditions, high fuel prices in Q4, weak SA credit landscape income growth, and higher interest rates all appear to have taken their toll on consumer credit health.” Stephen de Blanche - Regional Vice President, Financial Services, TransUnion Africa Originating accounts: SA Consumer
Slide 22: Credit performance
Credit performance Credit sales Avg credit basket* New accounts R3.4bn R404 +2.2% +3.8% 621k 210k Applications Approvals 33.8 % Approval # of credit transactions Active accounts rate 9.6m 1.4m -0.6% -1.1% 2018: 581k 2018: 208k 2018: 35.8% • Credit sales in mrpApparel & Miladys declined, impacting ov
Slide 23: Trade receivables
Trade receivables % change R’M March 19 Sept 18 March 18 Mar/Sept Mar/Mar Retail debtors 2 120 2 116 2 134 0.2% (0.7%) Mobile* & franchise debtors 66 81 60 (18.3%) 9.0% Total debtors book 2 186 2 197 2 194 (0.5%) (0.4%) Retail debtors (97% of total) NBD: book (excl collection costs) 7.3% 6.2% 5.9% I
Slide 24: Accounting standard changes
Accounting standard changes 2019 Financial Period 2019 Financial Period 2020 Financial Period IFRS 9 Financial instruments IFRS 15 Revenue from IFRS 16 Leases Summary of financial impact contracts with customers Summary of financial impact • Retail debtors: general provision Summary of financial imp
Slide 25: Healthy balance sheet
How we compare Healthy Competitors balance sheet Current ratio 3.9 2.2 R’M March 2019 March 2018 Quick ratio Non-current assets* 2 664 2 628 2.7 1.4 Current assets 8 481 7 491 Inventory turn Inventories 2 692 2 215 • Growth excl GIT up 14.2%. Timing Trade & other receivables 2 210 2 374 of Easter &
Slide 26: Cash flow movements
Cash flow movements R’M 2018 2 720 Cash from operations 4 009 EBITDA up 6.0% Operating R2.9bn Working capital (490) Lower receivables offset by higher closing inventory & reduced creditors Net interest received 591 Higher average cash balances up 29.8% Taxation (1 253) Timing of provisional payment.
Slide 27: Future
Future Situational Analysis, Strategy & Outlook By Mark Blair - CEO 32 27
Slide 28: Strong fundamentals
Strong performance & returns Situational analysis Strong fundamentals HEPS growth 33 year CAGR MRPG 21.1% ROE ROA Debt/equity 5 year CAGR 40.9 % 31.0 % 0.5% MRPG 8.8% 5 year CAGR Competitors 7.3% 17.4% 22.7% 7.2% 13.3% 54.6% 45.1% Total Shareholder Return JSE Top 40 Competitors JSE Top 40 Competitor
Slide 29: Low cost model
Situational analysis Low cost model Continued strong operating leverage (2013 - 2018) How we compare (2013 - 2018) 1000 20 Competitors Opex/ sales (5 year chg bps) Operating marginn % 840 810 17.6 % 800 16 13.2% 13.9 % 5 year sales growth CAGR 600 540 12 400 7.4% 8 8.6% 14.7% 200 4 5 year opex CAGR
Slide 30: Top 30 most valuable SA brands
Situational analysis Market capitalisation: R54.3bn Top 30 most valuable SA brands JSE Top 40 rank: 27 ExQ JSE Top 40 Rank: 13 (Exponential organisations) 1 2 3 4 5 6 7 8 9 10 4.8 bn 3.7 bn 3.3 bn 3.2 bn 2.9 bn 2.2 bn 2.0 bn 1.9 bn 1.7 bn 1.7 bn Standard bank FNB Castle Lager Vodacom MTN Nandos Absa
Slide 31: Market dynamics
Increase focus on: Situational analysis 1. Reducing complexity Market dynamics 2. Process discipline 3. Prioritisation & trade-offs 4. Growth strategy 10 9.5% (Q4 2006) 1 2 7.8% 8 (Q4 2018) 5.6% 1.4% 6 1.2% % 4 0.0% 2 0 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec
Slide 32: Strategy
Strategy South Afric a Cust relatio ome nsh r ips FR oppi nce ES ON OM Frontline Sh peri ex TL ica TC INE Surprise and delight Afr OU e ng our customers O VISI N Enablers To be a top t of world merchand The mrp way, supportive of our performing culture and value positioning Wanted international reta
Slide 33: Winning through eCommerce
Frontline - Customer relationships Winning through eCommerce 75% of all MRP sessions & online Online basket size mrpApparel orders come through a mobile device exceeds store basket 56% of MRP shoppers size on average by 50% influenced by social media when deciding where to shop Online growth: >600k
Slide 34: Omni channel champions
Frontline - Shopping experience Omni channel champions Click + Collect delivery Available in all stores Click + Collect delivery now contributes to over 20 % 50 % of all of customers purchase another item while online collecting their online order when in store orders 1 ADD TO BAG ADD TO WISHLIST FI
Slide 35: Omni channel champions
Frontline - Shopping experience Omni channel Store of the future champions World retail awards 2019: Retail transformation award finalist • Eastgate store re-opened Oct 2018. Most technologically advanced & innovative store to date (refer video included in Nov 18 results presentation) • Self service
Slide 36: Wanted Merchandise: market share
Frontline - Wanted Merchandise Key tool in generating group & Market share department level insights to inform strategic decision making Retail Liaison Committee (RLC) reconstituted: - market share information once again available from Jan 2017 - 17 retail groups, 76 retail formats Participating Not
Slide 37: Market share
Frontline - Wanted Merchandise Market share RLC Market Share Apr 18 to Mar 19 % Change MRP Apparel +0.0% Gained in Autumn/ Winter, lost in Spring/Summer Mrp Sport n/a Holdsport not participating Miladys +0.0% Maintained or grew in all categories Mrp Home +0.4% Departmental gains & losses directly co
Slide 38: Fashion value matrix
Frontline - Wanted Merchandise MRP still leads the general clothing category Fashion value matrix in fashion value perception The brands remain in similar positions in relation to one another, year on year Differentiated fashion value positioning MRP 2018 Markham 2018 Leader Niche Sportscene 2018 Wo
Slide 39: People
Enablers People Initial focus on executive structures to build capacity & strengthen operational & strategic execution Steve Ellis Mark Stirton Nicci Lyne Arn de Haas Executive Director Chief Financial Officer Chief Retail Officer Chief Operating Officer 27yrs MRPG experience 5yrs MRPG experience 20
Slide 40: Operations
Enablers Operations Supply chain • DC stabilization achieved following move to new location • Sold 200 million units during the year • Focus will be on realising planned DC efficiencies (throughput productivity & inventory accuracy) • Sourced 36.7% of units from South African manufacturers; 46.2% SA
Slide 41: Non RSA sales
Total % of Group sales Outcomes Growth beyond Non RSA sales RSA has not been impactful enough 8.1% FY18: 7.5% Contribution Growth Africa • Erratic performance, good long-term potential Namibia 33.6% (6.4%) • Growth in non RSA driven by acq. of Kenyan No. of stores Botswana 21.9% +5.1% franchise stor
Slide 42: SA performance
Outcomes SA performance • MRPG grew annual market share (RLC & Stats SA): - comfortably outperformed the market in H1 - disappointing H2, particularly in competitive apparel sector (mrpApparel & Miladys) • MRPG results heavily influenced by mrpApparel (56.4% of group RSOI): - H2 sales expectations i
Slide 43: Growth
Outcomes Growth • Most significant immediate opportunity is for mrpApparel to gain market share by fanatically focusing on our well established criteria: - balancing core/fashion, width/depth of assortment - category dominance - price architecture • Commencing research phase in June 2019: - evaluate
Slide 44: Founders mentality
Outcomes 4 Founders mentality o ion t y Bo ers c Miss ld 3 Av eaucra ion r Bu 5 1 • Sharp focus on cash & costs; treat each Rand as if it is our own et ‘S s In Ac s for d pik • Rapidly redeploy people & capital. They are most critical to the business s n in tio ine Bia ’s M 2 • Make & act upon key d
Slide 45: Outlook
Outlook • Results of General Elections largely favourable: - government has a clear mandate to focus on reform – job creation & economic growth - reinstated an advisory unit in office of presidency to speed up policy execution • Exchange rate is a concern; next ratings review & outcome of US/China t
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