annual results MARCH 2018 intro Retail environment Mark Blair - - PowerPoint PPT Presentation

annual results MARCH 2018

intro Retail environment Mark Blair - CFO results Company Performance Mark Blair - CFO future Strategy and Outlook Stuart Bird - CEO 2

Retail Environment Overview 3

Economic overview ECONOMY 4 6.6 7 3.1  2017 GDP growth averaged 1.3% 3 6  2017 CPI averaged 5.3%. Mar 18 3.8% 2 5  GDP 1 CPI Repo rate down 50bps to 6.5% 4.7 0.4 4 0  Unemployment rate Q1 2018 26.7% -1 3  Improved exchange rate - favourable 2016 2016 2016 2016 2017 2017 2017 2017 political outcome in Dec 17 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 GDP growth CPI BUSINESS 50  45 Q1 2018 business confidence increased 45 42 to highest level in three years 40 38 40 36  Improved environment to attract FDI 35 34 32 35  High promotional environment persists 29 30  Retailers competing for market share in 25 a stagnant economy 2016 2016 2016 2016 2017 2017 2017 2017 2018 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Business confidence 4

Consumer overview TransUnion SA Consumer Credit Index FNB/BER Consumer Confidence Index 30 26 20 10 -3 0 -5 -8 -9 -9 -9 -10 -11 -10 -20 2016 Q1 2017 Q1 2018 Q1   Gradual rise since Q1 2016 Surged to all time high in Q1 2018 - cautious lending - outlook of economy - households’ financial prospects - consumers deleveraging - stronger currency - time to purchase durable goods In our view: - household cash flow unlikely to improve significantly in short term (interest rates lower but higher VAT, fuel price, CPI April 18 up to 4.5%) - consumer confidence indicative of consumers’ willingness to spend, not their ability 5

Company & Divisional Performance 6

Group highlights Revenue Ebitda R21.3 bn + 8.0 % R4.1 bn + 22.8 % Profit before tax Operating margin R3.9 bn + 24.3 % 17.6 % + 210 bps Diluted heps Dividend per share 1075.4 c + 21.1 % 693.1 c + 3.9 % Free cash flow Return on equity R3.0 bn + 71.8 % 40.1 % + 230 bps 7

Results vs expectations Range (cents) – SENS 26 April 2018 Growth % 1076.4 Basic EPS 20-24% 1097.0 1061.5 1100.1 Basic HEPS 18-22% 1112.0 1075.5 1052.2 1060.8 Diluted EPS 20-24% 1034.3 * 1071.4 1075.4 Diluted HEPS 18-22% 1083.2 1047.7 * 1069.9 Actual results Bloomberg * Consensus estimates Mar 2018: * Thomson Reuters 8

Group highlights Acquired Kenyan franchise stores won case against National Credit Regulator test cellular in store offer acquired minority interest in mrpMobile MVNO profit growth for 10 consecutive years 9

Earnings per share % Change 2018 2017 Annual H2 Profit attributable to shareholders (R’m) 2 781 2 263 22.9% 22.5% W. Avg shares in issue (000) 1 258 375 255 793 Basic EPS (cents) 1 076.4 884.6 21.7% 21.6% Addbacks ( R’m ) 2 61 68 Headline earnings (R’m) 2 842 2 331 HEPS (cents) 1 100.1 911.4 20.7% 19.7% Shares for diluted earnings (000) 3 264 306 262 544 Diluted HEPS (cents) 1 075.4 887.9 21.1% 19.5% 1 Movement relates to LTI schemes’ shares vesting. Shares previously held by  trusts now back in the market 2 Asset write offs: selling expenses (pg 18)  R26.6m administration expenses (pg 19) R54.8m 92% in H2 cost of sales R3.9m taxation thereon (R23.9m) R61.4m 3 Dilution impact in line with PY- decrease in LTI’s outstanding; higher share price  10

Dividends per share Cents 2018 2017 % Change Interim 279.0 228.2 22.3% Final 414.1 438.8 -5.6% Annual 693.1 667.0 3.9% Interim dividend growth = HEPS growth Final and annual dividends impacted by treatment in prior year Annual dividend maintained at 667c. Final dividend up 4.7% 80 800 73 63 63 Payout ratio % 60 600 63 63 DPS cents 58 40 400 667 667 693 279 248 228 439 419 414 20 200 0 0 2016 2017 2018 Annual payout ratio Interim payout ratio Interim Final Annual 11

Growth drivers 12 * Corporate owned stores

Income statement & growth drivers % Change 2018 2017 Annual H2 R'm Retail sales and other income 1 (pg 15) 21 185 19 679 H1 +6.3% 7.7% 8.8% RSOI H2 1 +8.8% Cost of sales 2 (pg 17) 11 582 11 365 1.9% 2.5% Expenses 3 (pg 18-19) 5 871 5 266 11.5% 13.4% +13.7% H1 Gross profit 2 Profit from operating activities 3 732 3 048 22.4% 22.7% +17.9% H2 Net finance income 160 82 95.5% 100.2% H1 +9.5% Profit before taxation 3 892 3 130 24.3% 24.6% Expenses 3 H2 +13.4% Taxation 4 1 111 867 28.1% 30.7% Profit after taxation 2 781 2 263 22.9% 22.4% +22.0% H1 Operating profit Profit attributable to shareholders 5 2 781 2 263 22.9% 22.4% +22.7% H2 1 Sales growth Q3 (SENS) +8.5%; Q4 +10.0%  2 Improved product execution resulted in higher input margins & lower markdowns. Higher merchandise & cellular GP% in both periods  3 In line with expectations following cost curtailment in PY & variable performance linked expenses  4 Effective tax rate 28.5% (PY 27.7%). Have not raised deferred tax assets in Ghana, Nigeria & Australia  5 Sound results in both periods, strong Apparel recovery. Acquired minority interest in MVNO 2 Jan 2018  13

Segment results RSOI Growth Segment Retail Sales & Other Income (RSOI) Contribution mrp +10.9% Apparel mrpSport RSOI +9.8% 5.5% +2.7% OP profit +36.0% 7.3% OP margin 18.1% Miladys +8.3% 16.3% 57.6% mrpHome Home 6.7% +0.8% RSOI +1.8% OP profit -4.4% SheetStreet 6.6% OP margin 15.7% Sheet Street +4.0% +4.0% FS & Cellular mrpMoney RSOI +7.2% +7.2% OP profit +9.8% OP margin 37.2% 14

Revenue % Change R'm 2018 2017 Annual H2 Retail sales 1 19 994 18 575 7.6% 8.7% Financial services and cellular (pg 25) 1 142 1 065 7.2% 10.8% Other 2 49 39 25.1% -10.9% Total other income 1 191 1 104 7.9% 9.7% Total retail sales, interest & other income 21 185 19 679 7.7% 8.8% Finance income 3 162 84 92.9% 93.9% Total revenue 21 347 19 763 8.0% 9.2%  1 Comparable sales growth 5.6% (H2 6.5%) RSA store sales up 8.3% (H2 9.4%). Non-RSA store sales up 3.8% RSA online sales up 12.5% (H2 18.1%), strong growth in mrpApparel  2 Miladys club fees R23m +4.5% (H2 +9.1%) mrpFoundation R10m -4.8% (H2 -30.8%, timing of external donations) Other R16m +145.7% (incl mrpHome insurance claim) R49m  3 Interest on cash resources - refer cash flow (pg 32) 15

Space growth analysis Space movements (m 2 ) F2018 mrpApparel -4 886 3 099 -3 673 10 890  3.8% growth in new space, 2.1% net Miladys -2 040 1 577  1 258 stores across regions (SA 1 157; Non SA 101) mrpSport -2 306 4 700  Store expansions & reductions are achieving feasibility mrpHome -2 150 4 134 -4 697  227 leases renewed: base rentals flat & average escalation 6.0% -741 1 669 SheetStreet  581m² average store size (PY 597m²) Store movements  Trading density of R32 238m² up 5.8% vs industry decline of 2.3% Closures Reductions Expansions New stores 7 6 11 18 mrpApparel F2019 2 13 1 7 Miladys 4 13  mrpSport Expecting ~4% growth in new space, ~2-3% net 5 6 1 8 mrpHome  Space reduction opportunity in Sport, Home & Miladys 1 8 11 Sheetstreet  Focus on location & deal structure of new leases  Retailers consolidating their footprints & industry 15 37 13 57 Stores vacancy rates ahead of long term averages -0.4% -1.3% 0.2% 3.6% Space growth 16

Gross profit margin Cotton & oil price vs US /ZAR  100 Extended hedging period due to potential risk 16 Cotton price (US cents per lb) Oil price (USD per barrel) from political events in Dec 80 13.75  14 ZAR/USD USD/ ZAR closing exchange rate: 13.61 13.46 60 - Nov 17: R13.54 pre ANC elective conference 12.06 12.81 - Dec 17: R12.29 (+9.2%) - new ANC leadership 12.26 12 12.36 40 - Mar 18: R11.81 (+3.9%) 11.64 - Weakened to a peak of R12.80 post year end, a 10 20 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 decline of 8.4% Cotton Oil ZAR/USD (monthly high/low) Gross profit analysis 43.3 43.7 41.9 41.4 40.6 40.1  Merchandise GP% up by 310bps 40 - improved ingoing margin & lower markdowns 30 - gains in all divisions, most prominent in Apparel GP (%) chains, particularly mrpApparel 20.6 20 15.7  H2 merchandise margin up on H1 by 230bps. Similar ingoing as H1 margin but lower markdowns 10 6.4  Cellular GP% gain due to mix changes (pg 28) 0 2016 2017 2018 Total Merchandise Cellular 17

Selling expenses % Change R'm 2018 2017 Annual H1 H2 Total selling expenses 4 492 3 995 12.5% 9.9% 14.8% Less: impairment/ loss on disposal 1 (27) (22) onerous leases 2 (25) (1) Total selling expenses 4 441 3 973 11.8% 9.7% 13.8%  1 Includes impairment/write off of all Australian stores fixtures of R13.4m  2 Increase in provision, mainly Australia R34.3m less PY reversals  New space added of 3.8% (2.1% net of closures & reductions)  Rental costs up 11.6% - basic store rentals & operating costs up 6.7%. Successful renewal negotiations - higher straight line lease adjustment vs credit in PY - improved trade resulted in higher turnover rentals (credit in PY)  Employment costs up 17.8%, or 9.8% net of lower ETI allowance & higher incentives  Net bad debt up 9.6% (retail 7.2%) on book growth of 4.5%  Excluding once off credit in base, rest of costs up 5.9% (H1 +6.5%, H2 +5.3%) 18