Slide 1: 2Q18 Financial Results Presentation
2Q18 FINANCIAL RESULTS PRESENTATION WARSAW, 4 SEPTEMBER 2018
Slide 2: Disclaimer
Disclaimer This presentation (the “Presentation”) was prepared by LPP SA (the “Company”) with a due care. Still, it may contain certain inconsistencies or omissions. The Presentation does not contain a complete or thorough financial analysis of the Company and does not present its standing or prospe
Slide 3: Agenda
1 . 2 Q 1 8 f i n a n cia l r e su lts 2 . K e y c o r p ora te e v e n t s 3 . 2 0 1 8 o u t lo o k GLOBAL ASPIRATIONS 3
Slide 4: Over one million m2 of floorspace
Over one million m2 of floorspace 1,756 STORES +12.3% LFL 20 +18.3% COUNTRIES GROUP REVENUES +122% +10.8% E-COMMERCE m2 GLOBAL ASPIRATIONS 4
Slide 5: Over 1,750 stores in 20 countries
Over 1,750 stores in 20 countries 31 @ 328@ 30.06.2018 No. of stores YoY 19 @ LPP GROUP 1,756 + 46 28 @ Reserved 463 +5 8 Cropp 382 -4 House 335 - 3 1@ 985 @ 19 @ 91 Mohito 294 +6 Sinsay 253 + 49 80 @ 58 @ Outlets 29 -7 20 @ 35 @ 20 1 9 18 1 3 1 xx Number of stores @ Internet stores GLOBAL ASPIRATIO
Slide 6: Dynamic LFL and e-commerce growths
Dynamic LFL and e-commerce growths LFL DYNAMICS ON-LINE SALES (local currencies) (PLN m) 178.5 +111% 15.2% 14.6% +106% YoY 12.9% YoY +136% 9.2% 9.2% YoY 84.8 +8% 6.6% 6.2% YoY 5.1% 4.6% +135% 41.2 YoY 16.1 17.4 6.9 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 2Q13 2Q14 2Q15 2Q16 2Q17 2Q18 • LFLs wer
Slide 7: Floorspace growths in all brands
Floorspace growths in all brands REVENUES BY BRANDS 2Q18 FLOORSPACE (PLN m) (by brands) Reserved 921 + 21% YoY ths m2 2Q17 2Q18 YoY Cropp 287 + 13% YoY LPP GROUP 933.7 1,034.2 10.8% House 223 + 23% YoY Reserved 520.8 582.2 11.8% Cropp 121.9 130.1 6.7% Mohito 212 0% YoY House 106.6 113.0 6.0% Sinsay
Slide 8: Growths in key regions
Growths in key regions REVENUES BY REGIONS 2Q18 FLOORSPACE (PLN m) (by regions) Poland 1,093 + 16% YoY ths m2 2Q17 2Q18 YoY LPP GROUP 933.7 1,034.2 10.8% Europe 503 + 39% YoY Poland 492.1 518.0 5.3% CIS 450 + 14% YoY Europe 216.9 254.9 17.5% CIS 216.5 254.7 17.6% ME 4 -24% YoY ME 8.2 6.6 -19.5% • Re
Slide 9: Sales/m2 dynamics continue
Sales/ m2 dynamics continue GROUP REVENUES REVENUES/ M2 (PLN m) 2,500 16.4% 18.0% 17.7% 16.0% 13.5% 21.8% 15.9% 16.0% 20.2% 25% PLN (monthly) 2Q17 2Q18 YoY 2,000 20% LPP GROUP retail 603 631 4.7% 1,500 15% Poland 630 656 4.1% 1,000 10% 500 5% Europe 561 612 9.0% 0 0% CIS 589 599 1.7% 2Q16 3Q16 4Q16
Slide 10: Gross margin expansion
Gross margin expansion QUARTERLY GROSS PROFIT MARGIN AVERAGE QUARTERLY US$/PLN 65% 4.1 4.1 FX LEVELS IMPORTANT FOR 59.7% SETTING AW18/19 PRICES 60% 58.0% 56.9% 3.9 3.9 3.8 55% 49.9% 50.8% 3.7 3.6 50% 3.6 49.0% 3.6 45% 47.1% 45.1% 45.6% 3.4 40% 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 2Q16 3Q16 4
Slide 11: Stable costs of stores/m2
Stable costs of stores/ m2 COSTS OF OWN STORES/ M2 SG&A COSTS/ M2 0% YoY +9% YoY 205 201 214 211 214 216 212 212 202 300 297 266 271 280 279 53 53 61 254 254 258 48 49 53 53 62 58 56 57 59 63 62 61 61 60 58 98 99 89 98 97 100 94 90 96 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 2Q16 3Q16 4Q16 1Q17
Slide 12: Dynamic earnings growths
Dynamic earnings growths PLN m 2Q17 2Q18 YoY • Dynamic group revenue growth: Revenues 1,705.4 2,049.7 20.2% • double-digit positive LFL and floorspace increase, • on-line sales development. Gross profit margin 56.9% 59.7% 2.8pp. • Significant increase in gross margin: favorable FX trends, but also v
Slide 13: Doubling of EBIT
Doubling of EBIT PLN m 1H17 1H18 YoY • Dynamic group revenue growth: Revenues 3,067.7 3,630.1 18.3% • positive LFLs and floorspace growth, • on-line sales increase. Gross profit margin 51.9% 53.4% 1.5pp. • Gross profit margin improvement in 1H18 despite SG&A costs 1,463.0 1,712.1 17.0% weaker 1Q18 r
Slide 14: Freeing up working capital even further
Freeing up working capital even further INVENTORY WORKING CAPITAL (PLN m) 1,759 2,000 1,634 1,606 1,489 1,419 1,458 1,600 1,381 1,600 1,669 1,275 PLN 265m PLN 80m 135 170 1,200 1,490 1,200 1,637 1,482 1,444 800 1,438 1,475 1,403 1,251 1,164 800 1,482 1,411 1,490 1,216 400 400 0 0 2Q16 3Q16 4Q16 1Q17
Slide 15: Net cash on the balance sheet
Net cash on the balance sheet NET DEBT VS NET DEBT/EBITDA CAPEX (PLN m) (PLN m) 750 1.0x 1.2x 1.5 2Q17: 2Q18: PLN 89.2 m PLN 137.6 m 500 0.3x 0.8x 1.0 640 647 15.5 250 144 0.0x 0.0x -0.4x -0.3x -0.4x 0.5 13.2 19.2 21.0 57.2 348 -11 11 0 11.9 13.2 10.7 -221 133.1 0.0 11.0 -250 -316 99.0 101.1 98.7 -3
Slide 16: 1H18 executive summary
1H18 executive summary 1 Double-digit LFLs growths due to successful collections. 2 Triple-digit on-line sales growth. 3 Control of costs of own stores. 4 Decrease in inventory / m2. 5 Increase in net cash. GLOBAL ASPIRATIONS 16
Slide 17: Agenda
1 . 2 Q 1 8 f i n a n cia l r e su lts 2 . K e y c o r p ora te e v e n t s 3 . 2 0 1 8 o u t lo o k GLOBAL ASPIRATIONS 17
Slide 18: Key corporate events
Key corporate events ACCELERATION LPP WORLD WAREHOUSE LPP - A FAMILY IN SINSAY OF FASHION TECH IN BRZEŚĆ KUJAWSKI COMPANY 17 new stores in 2Q18 in 6 Conference summarizing Announcement of decision to Transfer of LPP’s founders’ countries. Focus on LPP’s investments in new locate another LPP’s assets
Slide 19: Dynamic Sinsay development
Dynamic Sinsay development In 2Q18 we opened 17 new Sinsay stores floorspace 7ths m2. 6 stores opened in Poland and 11 in six countries, including Russia, Ukraine and Serbia. 2018 target for the brand: exceeding 100 ths m2 of floorspace. GLOBAL ASPIRATIONS 19
Slide 20: New technologies support our stores
New technologies support our stores STORE VISION Dedicated mobile application, informing about products’ availability and allowing to order them RFID to the stores and customers. A system of electronic tags that enables identification of a single product in the BIG DATA We expect a supply chain. c.
Slide 21: Technology brings us closer to the customer
Technology brings us closer to the customer M-COMMERCE NEXT BUSINESS OMNICHANNEL DAY DELIVERY Over 40% of on-line Streamlining Focus on combining sales takes place via of warehouse and traditional stores with smartphones. logistics to speed up e-commerce and e-commerce m-commerce. deliveries. We imp
Slide 22: A new distribution center
A new distribution center Start Target: distribution Cost of : Planned 2021 of Reserved collections` to PLN 1,000 BRZEŚĆ KUJAWSKI /2022 stores all over the world. 400m employees central Poland GLOBAL ASPIRATIONS 22
Slide 23: LPP – a family company
LPP – a family company LPP’s founders transferred their shares to foundations to ensure the family From the moment of transfer of status of the Company, continuation shares to foundations, the of activities in the long-term and to founders ceased to be the avoid fragmentation of capital. owners of L
Slide 24: Israel – 21st market for Reserved
Israel – 21 st market for Reserved First franchise store 730 m2 large in shopping mall in Tel Aviv opened in August 2018 ISRAEL Next two franchise stores will be opened in Israel in 2019. Our partner H&O Fashion Chains operates 70 stores of 40 ths m2. GLOBAL ASPIRATIONS 24
Slide 25: Agenda
1 . 2 Q 1 8 f i n a n cia l r e su lts 2 . K e y c o r p ora te e v e n t s 3 . 2 0 1 8 o u t lo o k GLOBAL ASPIRATIONS 25
Slide 26: Floorspace growth to continue
Floorspace growth to continue Floorspace 2018 former 2018 2017 YoY (ths m2) target target • 10.5% YoY floorspace growth in 2018. • Reserved stores in 23 countries at the end of 2018. BY BRANDS • 3 new markets in 2018: Reserved 562.3 632.3 627.8 12% • Kazakhstan and Slovenia (own stores), Cropp 127.2
Slide 27: At least one new country each year
At least one new country each year EXPANSION BY COUNTRIES + Belarus + Egypt + Kazakhstan + Serbia + Qatar + Israel + B&H + UK + Kuwait + Slovenia + Finland - S. Arabia + Germany + S. Arabia + ZEA + Croatia 20 23 25 17 18 countries countries 11 13 countries countries countries countries countries the
Slide 28: 25 countries in 2019
25 countries in 2019 Eop 2017 - 20 countries Eop 2018 - 23 countries Eop 2019 - 25 countries GLOBAL ASPIRATIONS 28
Slide 29: A more ambitious target for e-commerce
A more ambitious target for e-commerce 2021 e-commerce target at: E-commerce 20% should exceed of sales. 9% of 2018 group revenues. In 1H19, we plan to launch e-store for all EU countries. GLOBAL ASPIRATIONS 29
Slide 30: E-commerce in 35 countries in 2019
E-commerce in 35 countries in 2019 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ 1H19 @ @ @ E-commerce @ @ @ in all EU countries. A new distribution @ @ centre in Romania. E-commerce 2017 - 11 countries @ E-commerce 2018 - 17 countries Namshi.com – @ E-commerce 2019 - 35 countries @ presence is the
Slide 31: 2018 outlook
2018 outlook • Continuation of double-digit revenue • LPP’s stores in new • Unfavourable FX trends growth due to floorspace development countries. on US$, EUR and RUB and e-commerce. in relation to PLN. • Dynamic e-commerce • Group’s gross profit margin should be growths. • Ban on trade on between 5
Slide 32: Q&A
LPP I RESERVED + aa GLOBAL ASPIRATIONS 32
Slide 33: Back-up
B a c k -up GLOBAL ASPIRATIONS 33
Slide 34: Network development
Network development Floorspace (ths m2) 30.06.2016 30.09.2016 31.12.2016 31.03.2017 30.06.2017 30.09.2017 31.12.2017 31.03.2018 30.06.2018 Reserved 473.8 487.2 509.1 510.7 520.8 526.8 562.3 561.0 582.2 Poland 235.1 232.0 248.7 245.9 247.4 247.9 266.8 264.9 264.7 Europe 127.2 140.0 144.1 147.7 151.3
Slide 35: 2018 network development details
2018 network development details Floorspace (ths m2) 31.12.2017 31.12.2018 Nom. growth YoY growth No. of STORES 31.12.2017 31.12.2018 Nom. growth YoY growth Reserved 562.3 627.8 65.6 12% Reserved 468 468 0 0% Poland 266.8 271.7 4.9 2% Poland 232 216 -16 -7% Europe 160.8 201.0 40.2 25% Europe 119 132
Slide 36: Changes in 2Q18 floorspace
Changes in 2Q18 floorspace CHANGE IN FLOORSPACE BY BRANDS CHANGE IN FLOORSPACE BY REGIONS (ths m2) (ths m2) 0.0 1,034.2 1,034.2 +6.9 +2.4 +2.2 +2.1 +7.0 -1.5 +19.9 +21.1 +6.5 1,000.9 1,000.9 +33.3 ths m2 +33.3 ths m2 1Q18 Reserved Cropp House Mohito Sinsay Outlets 2Q18 1Q18 Poland Europe CIS ME 2Q18
Slide 37: 2Q18 revenue growth contributors
2Q18 revenue growth contributors REVENUE GROWTH BY BRANDS PLN m 2Q17 2Q18 YoY +54 +94 -37 2,050 +159 +33 +42 +0 LPP GROUP 1,705.4 2,049.7 20.2% 1,705 PLN m Reserved PL 374.1 447.2 19.5% Reserved EX 388.5 474.3 22.1% Cropp PL 130.9 134.3 2.6% Cropp EX 123.0 152.3 23.8% House PL 119.0 139.6 17.3% Hous
Slide 38: 1H18 revenue growth contributors
1H18 revenue growth contributors REVENUE GROWTH BY BRANDS PLN m 1H17 1H18 YoY +84 +170 -49 3,630 +272 +54 +53 -21 LPP GROUP 3,067.7 3,630.1 18.5% 3,068 PLN m Reserved PL 670.0 815.1 21.7% Reserved EX 706.9 833.9 18.0% Cropp PL 224.7 238.3 6.1% Cropp EX 217.6 258.4 18.7% House PL 220.6 246.7 11.8% Ho
Slide 39: Impact of closed Sunday stores on revenues
Impact of closed Sunday stores on revenues DAYS OF THE WEEK SHARE IN 2Q18 DAYS OF THE WEEK SHARE IN 2Q18 REVENUES IN WEEKS WITH TRADING REVENUES IN WEEKS WITH NON-TRADING SUNDAY SUNDAY Monday 17% 13% 22% 27% Tuesday Wednesday 10% 12% Thursday 16% 11% Friday 18% 14% 13% Saturday 11% 16% Sunday In wee
Slide 40: Revenue and COGS split
Revenue and COGS split 1H18 REVENUES BY REGIONS TOP5 REVENUES BY COUNTRIES IN 1H18 (PLN m) (PLN m) ME CIS 0.2% 21.8% Poland 1,960 Russia 635 Poland 54.0% Europe Czech Rep. 183 24.0% Ukraine 150 1H18 PURCHASES BY REGIONS (PLN m) Germany 126 Turkey Far East 6% 44% Poland 2% Poland remains our most Oth
Slide 41: Costs of stores and HQs
Costs of stores and HQs SG&A COSTS SG&A COSTS (PLN m) (PLN m) 1,712 234 200 252 1,463 179 453 146 163 131 125 153 309 +47% YoY 521 537 546 573 581 596 628 620 639 1,154 +9% YoY 1,260 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 1H17 1H18 Costs of stores HQ & e-commerce Costs of stores HQ & e-commerc
Slide 42: 2Q18 other operating and net financial lines
2Q18 other operating and net financial lines OTHER OPERATING ACTIVITY NET FINANCIAL ACTIVITY PLN m 2Q17 2Q18 PLN m 2Q17 2Q18 OTHER OPERATING REVENUES 4.0 7.7 FINANCIAL REVENUES 7.0 -10.3 Compensations and stocktaking write-ups 2.8 10.0 FX differences 5.1 -11.7 Gain on sale of assets, write-ups -2.1
Slide 43: 1H18 other operating and net financial lines
1H18 other operating and net financial lines OTHER OPERATING ACTIVITY NET FINANCIAL ACTIVITY PLN m 1H17 1H18 PLN m 1H17 1H18 OTHER OPERATING REVENUES 11.8 13.9 FINANCIAL REVENUES 8.7 6.8 Compensations and stocktaking write-ups 6.4 10.7 FX differences 5.4 4.5 Gain on sale of assets, write-ups 2.0 0.0
Slide 44: Inventory write-offs model (from 4Q16)
Inventory write-offs model (from 4Q16) c. PLN 80m of goods sold in outlets Annually, we (write-off equal to 10% The policy of write-offs for unsold of their value). goods was introduced in purchase goods December 2016. worth PLN 4bn. From 2017 sell-offs of inventories are equally split between a
Slide 45: Historical quarterly numbers
Historical quarterly numbers PLN m 3Q16 3Q17 4Q16 4Q17 1Q17 1Q18 2Q17 2Q18 YoY Revenues 1,488.4 1,812.8 1,853.4 2,148.9 1,362.3 1,580.4 1,705.4 2,049.7 20.2% Gross profit on sales 700.6 888.7 941.7 1,246.3 620.6 712.8 970.9 1,224.5 26.1% Gross profit margin 47.1% 49.0% 50.8% 58.0% 45.6% 45.1% 56.9%
Slide 46: Cash flows
Cash flows 2Q18 CASH GENERATION 2Q18 CASH FLOWS (PLN m) (PLN m) +5 +296 +86 442 420 651 441 -6 156 202 -138 -65 63 -97 -81 -205 -281 2Q17 2Q18 Operating CF Investing CF Financing CF Total CF • Operating cash flow release of working capital by extending the repayment of liabilities. • Investing cas
Slide 47: Balance sheet increasingly strong
Balance sheet increasingly strong mln PLN 30.06.2017 31.12.2017 30.06.2018 Non-current assets 1,886.1 2,041.4 2,128.6 • YoY growth in fixed assets due to network fixed assets 1,346.1 1,478.2 1,558.5 development and investments in HQs. • Higher YoY intangibles, due to investments in concept intangibl
Slide 48: Reserved
REVENUES CUSTOMER Women, men and children. (PLN m) 957 921 YEAR OF LAUNCH 1998 828 825 763 728 666 661 614 An anchor brand with a broad customer BRAND CONCEPT base and wide range of collections. Lack of dedicated zones allows for a 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 smooth transition betwe
Slide 49: Cropp
REVENUES CUSTOMER Teenagers – boys and girls. (PLN m) YEAR OF LAUNCH 2004 302 320 269 287 232 246 254 189 210 A streetwear brand, alluding to hip-hop BRAND CONCEPT and pop-culture. The shopping space is designed in the 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 form of squat, garage and industrial
Slide 50: House
Teenagers (boys and girls) who like brave REVENUES CUSTOMER (PLN m) fashion choices. YEAR OF LAUNCH 2001 (in LPP’s Group since 4Q08). 245 261 205 223 189 189 181 170 159 BRAND CONCEPT Fashion brand for urban style lovers. 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 The interior of the store is insp
Slide 51: Mohito
REVENUES CUSTOMER Young women. (PLN m) YEAR OF LAUNCH 2008 (in LPP’s Group since 4Q08) 233 211 212 200 212 183 192 184 162 A brand that combines comfort and BRAND CONCEPT elegance for business and informal meetings. 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Concept relates to elegance and beauty.
Slide 52: Sinsay
REVENUES CUSTOMER Teenagers – girls only. (PLN m) YEAR OF LAUNCH 2013 202 184 165 135 149 142 Clothes for every day inspirations and 117 120 112 original party outfits. The brand stands BRAND CONCEPT out for original T-shirts with extraordinary prints. 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Fr
Slide 53: Glossary
Glossary Poland Retail sales in Poland and other sales of LPP SA. CEE Region including: Czech Republic, Slovakia, Hungary. Baltic Region including: Lithuania, Latvia, Estonia. CIS Region including: Russia, Ukraine, Belarus and from 2018 also Kazakhstan. SEE Region including: Bulgaria, Romania, Croat
Slide 54: Contact details
GDAŃSK HQs LPP SA Łąkowa 39/44 80-769 Gdańsk, Poland Tel. +48 58 76 96 900 Fax.+48 58 76 96 909 Email: lpp@lppsa.com DISTRIBUTION CENTRE LPP SA Tczewska 2 83-800 Pruszcz Gdański, Poland CONTACT FOR INVESTORS Email: LPP.investor.relations@lppsa.com CONTACT FOR MEDIA Email: media@lppsa.com CRACOW BRAN