Mr Price Group Limited · JSE:MRP
Mr Price — H1 FY2023 Earnings Presentation
61 slides from Mr Price's earnings presentation, November 2022
Slide 1: FY2023 Interim Results to H1 1 October 2022
FY2023 Interim Results to H1 1 October 2022
Slide 2: Backdrop & group highlights, Performance, Value creation & Outlook
01 Backdrop & 02 Performance 03 Value creation group highlights & Outlook
Slide 3: Backdrop & group highlights
01 Backdrop & group highlights By Mark Blair - CEO Retail Environment Overview & Group Performance
Slide 4: Challenging macroeconomic backdrop
CH A LLE NGING M A C R OE CO NO M IC B ACKDROP Global 92.8 SA of MRPG revenue % Consumer • Slowing global growth • Slowing commodity prices Food inflation: +11.9 % • US & EU recession fears • Weakened Rand • Global inflation • CPI above upper limit of target range Fuel price: +39.8 % • Rising intere
Slide 5: Group performance H1 FY2023
GR OU P Excludes any impact from Studio 88 Group. P E R F ORM ANCE Included from 4 October 2022 (Full H2 period) H1 FY2023 Revenue EBITDA* Profit after tax +6.5 % +9.2 % +13.3 % R13.3bn R2.9bn R1.3bn 14.7 +80bps % +10.8 486.1c % +10.6 312.5c % Operating margin Diluted HEPS# Dividend per share *EBITD
Slide 6: Detractors in H1 FY2023: issue, response & outlook
P E R F ORM ANCE DE TRA CTO RS I N H1 F Y2023 Issue Response & outlook Oracle ERP implementation: - Materially impacted April/May 2022 (~40% of H1 sales) Once off impact - Created merchant distraction Load shedding: November 2022: back-up power in 54% of stores. Extending - Approximately 80 000 trad
Slide 7: Group highlights
GR OU P HI G H LI G HTS 78 new stores opened, 27 stores revamped Gained 91bps market share since pre COVID-19 Acquisitions earnings accretive from date of acquisition Power Fashion performing strongly, gained market share in each month of H1 FY2023. Expanded stores to 232 Progressed integration of Y
Slide 8: Market share
M A RKE T Internal challenges created short term opportunity for competitors. SHARE Focus on winning back market share Mr Price Group Apparel Segment retail sales +8.5% (73.0% contribution to retail sales) RLC MA RK ET SH AR E GAIN S (BASIS POIN TS) 210 200 150 140 Basis points 130 110 Q3 Q4 Q1 Q2 Q
Slide 9: Segmental performance
2 year CAGR S E G M E NTAL RSOI +20.4% P E R F ORM ANCE Operating profit +29.7% Divisional contribution (RSOI) # Segment growth H1 FY2023 1.5% Apparel Segment: 70.4% Apparel RSOI +8.5% 7.4 % Mr Price Apparel (RSOI base: +42.6%) Trading density R36 039m2 Mr Price Sport 5.9% Miladys OP Profit +22.8% P
Slide 10: Performance: Detailed group results
02 Performance By Mark Stirton - CFO Detailed group results
Slide 11: Group income statement
GR OU P I NCO M E S TATE ME NT % change R’M FY2023 FY2022 H1 Retail sales & other income (pg 57) 13 126 12 337 6.4% Gross profit (pg 14) 5 099 4 745 7.5% Expenses (pg 16) (3 630) (3 428) 5.9% Profit from operating activities 1 932 1 709 13.0% Net finance (expense) (179) (148) 20.5% Profit before tax
Slide 12: Group sales growth drivers
H1 FY2023 GR OU P S A LE S Total retail sales growth +6.0% GR OW TH DRIV E RS Comparable stores sales growth (0.3%) GEO GRA P H Y T E N D E R T YPE xx %% xx %% xx %% xx %% RSA Rest of Africa Cash Credit +6.3 +2.4 +5.2 +11.5 % of sales 92.8 % % of sales 7.2 % Cash % of sales 84.9% % of sales 15.1 % 8
Slide 13: Space growth
S PA C E Divisions Store Movements Closing W.avg net GR OW TH stores growth (m2) 1 3 20 578 3.5% 3 1 1 5 253 2.4% 1 2 6 162 5.3% 2 23 232 21.2% 2 2 1 6 209 5.8% 2 3 4 11 342 4.1% 3 10 • Opened 78 news stores of which 4 5 6 were new concepts • Only closed 8 stores Total store movements Net growth • G
Slide 14: Gross profit analysis
GR OS S PRO FIT AN A LY SI S Total GP Factors affecting GP 2022 2023 margin 39.7% 40.3% • Total GP margin up 60bps • Inventory write-off in the base Merchandise GP • ERP impacted in season trade: stock timing & resultant deeper markdowns • Power Fashion (lower margin than group) performed strongly,
Slide 15: Input costs
I NP U T COS TS ZAR/$ exchange rate Cotton and oil prices R16.32 R14.42 Mar Sep Mar Sep Mar Sep Mar Sep 2021 2022 2021 2022 Max of High Min of Low Cotton Oil Shanghai Container Freight Index Rate - Africa Route SUMMARY • ZAR/$ depreciation of 13.2% in H1. Worsened to 25.3% in Oct 22 • Consensus view
Slide 16: Overhead expenses
O V E RH E A D Every decision made every day must support our value roots EX P E N SE S Total expenses: Selling expenses 72.3%; admin expenses 27.7% R’M FY2023 FY2022 % Change H1 Depreciation* and amortisation 936 921 1.6% Employment costs 1 465 1 455 0.6% Occupancy costs 303 270 12.5% Other operati
Slide 17: Balance sheet
BALA N C E SHEET I NVENT O RY: MITIG ATING S UPPLY R’M Sep 2022 Mar 2022 Sep 2021 CHA IN DIS RUPTIO N Non-current assets1 11 707 11 296 10 202 • Inventory levels up 35.6% due to: Current assets 11 850 11 381 10 140 - Festive trade risk mitigation & slower September sales - New space growth of 6.3% I
Slide 18: Cash flow movements
CA SH FLO W M O V E ME NTS R’M Mar 2022 4 612 Cash from operations before 2 650 Profit from operating activities increased 13.0% working capital changes Operating Working capital (1 088) Refer pg 19 for detail R1.3bn Net interest received 314 Impacted by increased debtors book and 200bps increase in
Slide 19: Working capital and cash generation
WO R K I NG CA P I TAL AND CA SH G ENE RATIO N Action: targeting neutral H1 movement: (R1088m) absorption Stock management impacted by ERP & slow September; Forward merchandise plans to normalise by financial year end mostly contained to non-seasonal lines with lower risk OU TFL OW: R1 618M GIT bala
Slide 20: Credit growth performance: credit sales & applications
CR E D I T GRO W TH P ERF ORMANCE: GR O W T H IN CR EDIT SALE S & ACCOUNT APPL I C AT I O N S AP PL ICAT I O N S & APPR OVA LS : T I G H T ER A P P R O VA LS AP P L IED TO MITIGATE R IS K OF D EFA U LT A R IS ING 40% 35% New accounts received volumes up 45.5% 30% Applications (#) Approval rate 25% N
Slide 21: Credit growth performance: industry deterioration continues
CR E D I T GRO W TH P ERF ORMANCE: I N D U S T RY D ET ER IORATION CONTINUE S TransUnion SA Consumer Credit Index (CCI) Principa Face of Credit report Clothing Retail Mr Price Group Credit Industry IMPROVEMENT 61 60 Index points Total Good/Total Bad balance ratio 8.4 3.9 55 Good: <1 month arrears; 4
Slide 22: Trade receivables
TRADE R E C E I VABLE S % Change R’M Sep 22 Mar 22 Sep 21 Sep/Mar Sep/Sep Total gross debtors’ book 2 324 2 265 1 990 2.6% 16.8% NBD: book (excl collection costs) 7.2% 6.0% 10.1% Impairment provision 7.9% 9.1% 10.6% • Retail book drivers: - Rising household indebtedness as savings diminish post COVI
Slide 23: Allocation of capex
ALLO C AT I O N We will continue to allocate the majority of our capital budget to stores OF CAPEX C A P I TA L E X P E N D IT UR E F Y2 0 2 3 H1 R336m 15.1% H2 forecast (Including S88) R934m TOTAL R1.3bn 4.0% 35.8% FY2023 New Stores capital 15.8% allocation Expansions Revamps Technology Logistics 1
Slide 24: Superior capital returns
S U P E RI OR 2016 - 2022 CAGR CA P I TA L RE TURNS RoIC (ex IFRS 16) DHEPS CAGR vs RoIC (ex IFRS 16) 16% 12% DHEPS Growth 8% 49.7% ROIC MRP 4% 28.0% TRU TFG 13.7% 0% 12.4% WHL -4% 10% 20% 30% 40% 50% MRP TRU TFG WHL ROIC Source: RMB Morgan Stanley 24
Slide 25: Our metrics
OUR Continue to be actively managed as we grow M E T RI C S As we execute multiple growth opportunities, capital allocation becomes increasingly important. Stewardship of market leading metrics is an imperative built into management incentive schemes FY2022 Medium-term Key operating metrics targets
Slide 26: Financial outlook
F I N A N C I A L O UTLO OK • Consumer discretionary retail forecast to be under pressure for remainder of FY23 • Merchandise calls tailored appropriately. Agile supply chain ready to respond if consumer shows resilience • Retail credit growth less supportive in H2 as credit environment deteriorates
Slide 27: Value creation: Strategy
03 Value creation By Mark Blair - CEO Strategy
Slide 28: Vision and purpose
VI S I ON P U R P OS E To be Your Value Champion the most valuable retailer in Africa 28
Slide 29: 6 strategic pillars
Strategy 6 strategic pillars To be the People’s Value Champion across diverse customer segments STA KEH OL D ER EN G A G EM E N T GROW T H B R A ND P R O MI SE P EOP L E T E C H N OLOGY & IN N OVAT I O N SUSTA I NA B I LI T Y 29
Slide 30: Stakeholder engagement
STAKEHO L D E R ENGA G E ME N T Our ability to deliver value depends on our relationships with stakeholders. We do not win at their expense, we win with them. OB J ECTIV E Our stakeholder relationships are based on the true spirit of partnership and we are ranked as the leading retailer in ‘engageme
Slide 31: Growth
GROWTH A growth mindset will energise our workforce, maintain a winning culture and provide room for all stakeholders to prosper OBJECT IVE To be the top performer in total shareholder returns in the retail sector 31
Slide 32: Growth framework: existing business
GR OW TH F R A ME WO RK Existing business CO MP GRO WTH NO N CO M P G RO WT H FO C U S O N EF F I C I EN C I ES & R ETA I L I N S I GH T S Sustainable comp growth is key This will build off a strong Comp and non comp growth will require further investment in to achieving our long term vision existin
Slide 33: Growth framework: new business
GR OW TH Committed to capital allocation framework F R A ME WO RK and proving ability to execute New business Concept considerations: Research to inform capital allocation Acquisition considerations Organic considerations • Level of earnings accretion • Excellent opportunity to leverage internal ski
Slide 34: Current matrix
Comp growth & execution in existing divisions On-boarding Studio 88 Group CU RRE NT FY2023 focus areas: M AT RI X Integration of Power Fashion and Yuppiechef Testing new organic concepts PRODUCT CLASSIFICATION Premium yuppiechef.com Aspirational value/Niche studio-88.co.za miladys.com mrprice.com mr
Slide 35: Progress to date
Progress to date Launched Aug’22 in 14 stores (Incl 2 purpose-built standalone stores. Low capex test) Testing 3 different store formats & online Positive initial sales read, with high apparel contribution & private label merchandise performing well Evaluate performance & returns in Q4 FY2023 to pro
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Slide 37: Proving its store-based investment case
P RO VING IT S ST ORE BAS E D INVEST MENT CASE Scaling up and gaining market share Highlights - Market share: gained in 11/12 months - Powercell continued market share gains - Opened 58 stores since acquisition. On track to deliver >500 stores H1 FY2023 - Opened 23 new stores, 37 planned for H2 taki
Slide 38: Proving its omni-channel investment case
PROVING IT S OMNI-CH A NNE L INVEST MENT CASE One year in: primed for growth A clear strategy • Exponential growth to gain market share in higher income customer segment • Omni-channel expansion plan - Leverage platform by innovation - new brands & merchandise categories - Store expansion from 10 to
Slide 39: Retail theatre
R E TA I L Flagship concept - Menlyn Mall including full T H E ATRE softs offer and extended assortment 39
Slide 40: Introducing Studio Group
FI NANCI AL PERFORMANCE I NTRO D UCING Financial year ended 30 September 2022* S A L ES South Africa’s largest independent retailer of branded leisure, lifestyle and R6.4 bn Growth: +15.1% sporting apparel & footwear EB I T D A ( P R E I F R S 1 6 B A S I S ) R793 m Growth: +25.8% VALUATI ON Origina
Slide 41: Market positioning
M A RKE T P O SI T I ONING Studio 88 Group has broad appeal to aspirational and trend conscious customers across a wide range of age profiles and affordability levels NO. OF STORES & SALES CONTRIBUTION Younger customer Older customer Luxury Premium SPECIALITY 346 160 137 Contribution to sales: Contr
Slide 42: Key differentiators
KEY DI FFE R ENTIATO RS Omni-brand offering, appealing to a range of aspirational customers Strategic utilisation of branded catalogues Exclusive licensing agreements Cash based, no credit risk Location strategy: more heavily weighted to central business districts‚ regional malls and rural high stre
Slide 43: Integration
I NTE G RATIO N Philosophy • Acquire high performing businesses enabling light touch integration • Pace & level of intervention determined collaboratively (e.g. Power Fashion internal MD) • Cross pollination of skills encouraged Insights • Light touch limits distraction & maximizes performance • Ess
Slide 44: Consumer segmentation
CON SU ME R LSM 8 to 10 households represent 56% of expenditure, S E G M E NTATIO N while only accounting for 19% of households Total expenditure (R’bn) Total expenditure (% of total) 1% 2% 3% 600 000 523 6% 500 000 31% 9% 400 000 300 000 278 247 200 000 163 14% 151 156 96 100 000 58 12 30 0 16% 9%
Slide 45: Organic and acquisitive opportunities identified
O RG A N I C A ND ACQ U ISIT IVE O P P O RT UNITI E S I DENT IF IED • Consectetuer • Consectetuer sit • Consectetuer sit • Lorem ipsum • Dolor sit consectetuer ipsum • Dolor sit consectetuer ipsum • Dolor sit consectetuer • Lorem ipsum • Lorem ipsum • Lorem ipsum • Lorem ipsum • Lorem ipsum • Lorem
Slide 46: Brand promise
BR A ND PROM I SE Grow brand value by surprising and delighting our customers with the e wanted item at great value and a Pri c Qu satisfying all-round experience. ali ty Exp e P R OGRES S rien Interpretation ce 1. Customer recognition: highest brand equity in apparel and of value hion homeware segm
Slide 47: Fashion-value driving customer engagement
FAS H I O N- VALUE DRIVING Mr Price Apparel was the most shopped fashion CU S TO ME R E NGAGEMENT retailer in the last 3 months in South Africa #1 Coolest clothing store in SA #2 Sportscene 5.2m #3 Markham #3 Coolest clothing shoppers brand in SA #1 Nike #2 Adidas Source: Sunday Times Gennext | MAPS
Slide 48: Daily News 2022 Your Choice Awards
D AILY NE W S 2022 Y O UR CHO I CE AWARDS BEST LA D I ES C LO T H I N G BO U T I Q U E #1 Miladys #2 Woolworths #3 Truworths BEST K I T C H EN WA R E ST O R E #1 Mr Price Home #2 @Home #3 Hirsch’s BEST LI N EN ST O R E #1 Sheet Street #2 Mr Price Home #3 Woolworths 48
Slide 49: People
PEOP L E OB J ECTIV E Our energised environment and unique culture drives our performance and positions Mr Price Group to be the most sought-after retail employer P R OGRES S To support the attainment of our vision we require superior operational performance and increased executive capacity: • Compr
Slide 50: Operating model
O P E R ATING M O DE L A holding company vs integrated company Diversified unrelated businesses Single-business, or highly related businesses Monitor Manage and co-ordinate 01 02 03 04 INVES TMEN T H OLD IN G C OMPAN Y STRATEGIC ORIENTATION OPERATIO NAL O RIENTATIO N INTEGRATED CO MPANY MRPG: X X •
Slide 51: Leadership structure
L E A D E RS HIP S TRU C TURE CEO Direct Reports to CEO: reduced from 17 to 9 Director: Investor Group Director: Relations Chief People Group Director: Group Director: Group Director: Mr Price Money Chief Financial Strategic Acquisitions & Stakeholder Officer Strategy & Growth Apparel Homeware & Cel
Slide 52: Innovation & technology
IN NO VATI O N & TECHNOL O G Y O BJ ECTIV E Entrench group culture and differentiation by leading with innovation and technology P R OGRES S FY2023: Current Future • Retail Modernisation Programme - Settle remaining on-going issues of ERP - Benefits realisation and increased innovation Inno • On-goi
Slide 53: Sustainability
SUSTA I NAB I L I T Y OB J ECTIV E L Stabil ising Qua A and l Impact lity T g cin ment a Ed N u uc d on Primary at Re nvir 5 We aim to be recognised by our stakeholders as a relevant, ethical & 14 1 E SDG io NM E 1 3 s n 12 1 sustainable Proudly South African company RO 7 4 6 Reduce VI Helping child
Slide 54: Independently recognised
I ND E P E NDE NTLY across the most credible international ratings R E C OG N I S E D MSCI ESG Ratings aim to measure a company’s management of Measures the degree to which a company’s economic value is at risk financially relevant ESG risks and opportunities. driven by ESG factors, i.e. the magnitu
Slide 55: Closing comments
CL OS I N G COM ME N TS Tough H1 trading period with high levels of disruption H2 expected to be equally challenging, with emphasis on consumer financial health and competitor dynamics. Will benefit from S88 inclusion Will continue with our focused long-term plans and fiscal discipline despite the s
Slide 56: Appendix
04 Appendix Detailed supporting information
Slide 57: Revenue
REVENUE H1 R’M FY2023 FY2022 % growth Retail sales 12 590 11 879 6.0% Other income 536 458 17.1% Financial services & Telecoms 473 400 18.1% Other 63 58 10.1% Total retail sales, interest & other income 13 126 12 337 6.4% Finance income 128 108 18.3% Total revenue 13 254 12 445 6.5% 57
Slide 58: EBITDA reconciliation
EB I T D A R E C ON C I LI ATIO N H1 R’M FY2023 FY2022 % growth Profit from operating activities 1 932 1 709 13.0% Total depreciation & amortisation 972 951 2.2% EBITDA 2 904 2 660 9.2% 58
Slide 59: Earnings & dividend per share
EA R N I N GS & DIV IDEND P E R S H ARE H1 FY2023 FY2022 % growth Profit attributable to shareholders (R’m) 1 287 1 135 13.3% W. Avg shares in issue (000) 257 304 258 041 Basic earnings per share 500.1c 440.0c 13.7% Addbacks (R’m) (10.6) 21.6 Headline earnings (R’m) 1 276 1 157 Headline earnings per
Slide 60: Rest of Africa
R E S T OF AFRI C A K E N YA 13 Total % of Group sales 7.2% FY22: 7.5% No. of stores 03 GHANA 145 Corporate owned stores: 137 12 ZAMBIA 43 NAMIBIA E S WAT I N I 16 37 B O T S WA N A Sales growth (ZAR) 2.4% FY22: 37.3% LESOTHO 13 60
Slide 61: Thank you
THANK YOU