Presentation of consolidated results - Edcon - Home · 9Currency hedged on 60% of principal until...

Presentation of consolidated resultsPresentation of consolidated results

for the year ended 31 March 2012for the year ended 31 March 2012

6 June 20126 June 2012

Overview

Highlights and strategic update

Jurgen Schreiber, CEO

Financial review

Strategic relationship with Absa

Mark Bower, Deputy CEO

Looking forward

Jurgen Schreiber CEOJurgen Schreiber, CEO

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Key participants on callJurgen Schreiber

Chief Executive Officer

• CEO as of April 2011

Mark BowerDeputy Chief Executive Officer

• Joined Edcon in 1990• Taking on CFO role in July 2012

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Highlights and strategic updateHighlights and strategic update

Highlights (including OtC1)

Revenue and EBITDA growthgRevenue 9.0%Retail sales 8.6% (LFL up 7.4%)Adjusted EBITDA 11.5%

Trading metrics strongerAverage trading space 1.4%Average trading space 1.4%Credit sales now 51% of total retail salesBrand rationalisation completed June 2012Multiple operating initiatives starting to generate results p p g g g

Strategic deal with AbsaSale of credit book for approx R10 billionKey is strategic relationship for ongoing provision of creditIdeal partner for EdconEdcon retains all customer facing activities

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1 OntheCards Investments II (Pty) Ltd

Strategic updateDriving change across key levers of the business

• Strengthen the core Strengthening brand portfolio1 Strengthen the core

- Space growth

- Sales growth

Ab l t i

Upgraded property portfolio and 5 year rollout

Launched loyalty program

- Absolute margin

expansionRevised pricing approach

Improved sourcing strategy

Optimise marketing program

• Reduce complexity

Optimise marketing program

Standardised store model2

Gained efficiency in corporate costs and goods not for

resale

Rationalisation of store brand formatsRationalisation of store brand formats

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Financial reviewFinancial review

Key metric comparison

Between fully consolidated results and those excluding OntheCards Investments II (“OtC”) on key numbers to ensure no confusion...( OtC ) on key numbers to ensure no confusion...

Consolidated Consolidated Consolidated including OtC1

Consolidated excluding OtC1

R ‘ millions R ‘ millionsRevenues

Retail sales

27 884

24 664

27 345

24 664

R millions

Gross profit

Adjusted EBITDA

9 022

4 041

9 022

3 548

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Financial performance in historical context

A track record of profitable retail sales growth

ZAR

’Bn

11.0 11.1 12.6

21.9 22.7 24.7

1015202530

11.0 11.6 12.1

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FY10 FY11 FY12Cash sales Credit sales

Consolidated Adjusted EBITDA (incl. OtC1)

ZAR

’Bn

2.7 2.5 2.7

0.7 1.1 1.3 15.5% 16.0%

16.4%

16%

16%

17%

2

4

6

15%0FY 10 FY 11 FY 12

Retail EBITDA C&FS EBITDA EBITDA Margin

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Excluding Excluding consolidation of consolidation of OtCOtC

Excluding Excluding consolidation of consolidation of OtCOtC Financial reviewFinancial reviewconsolidation of consolidation of OtCOtCconsolidation of consolidation of OtCOtC

Trading highlights – Q4:2012Excluding consolidation of OtC(2)

R t il l 5 5% t R5 1 billi d LFL(1) l 5 0%

Sales and profitability Sales and profitability

• Retail sales up 5.5% to R5.1 billion and LFL(1) sales up 5.0%• Edgars 4.9%• Discount division 5.8%• CNA 7.0%

• Gross profit margin at 35.5%

• Adjusted EBITDA up 5.0% to R523 million (including OtC(2) R619)

• Profit from credit and financial services up 28.4% to R244 million (R190 million Q4:2011)

Credit and financial servicesCredit and financial services

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(1)Like for Like (2)OntheCards Investments II (Pty) Ltd

Trading highlights – FY:2012

R t il l 8 6% t R24 7 billi (R 22 7 billi FY 2011)

Sales and profitability Sales and profitability Excluding consolidation of OtC(1)

• Retail sales up 8.6% to R24.7 billion (R 22.7 billion FY:2011)

• Like for like sales growth up 7.4%

• Gross profit margin down marginally to 36.6% (36.9% FY:2011)

• Adjusted EBITDA up 12.2% to R3.6 billion (including OtC(1) R4.0 billion)

• Profit from credit and financial services up 20.8% to R818 million (R677 million FY:2012)

Credit and financial servicesCredit and financial services

• Credit sales were 51% of total retail sales (49% for FY:2011)

Operational metricsOperational metrics

• Average trading space increased by 1.4% to 1.3 million m2

• Number of stores decreased to 1,167 from 1,181 in prior year

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Divisional highlights – FY:2012

Division Retail sales growth Gross profit margin

Excluding consolidation of OtC(2)

FY:2012Actual

FY:2012LFL(1)

FY:2012 2011

Edgars 8.7% 4.9% 40.8% 41.5%

Discount 8.4% 10.8% 31.8% 31.8%

CNA 8.5% 7.7% 33.1% 32.6%

T t l 8 6% 7 4% 36 6% 36 9%Total 8.6% 7.4% 36.6% 36.9%

Edgars

Discom stores converted to Edgars Active StoresDiscom stores converted to Edgars Active Stores

Discount

Growth in ladieswear, kidswear and mobile phones

CNA

Primarily due to growth in sales of mobile phones and digital

(

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((1)Like for Like (2)OntheCards Investments II (Pty) Ltd

Credit highlights – FY:2012

Profit from credit of R277 million, up from R190 million last year


Bad debts to average debtors of 6.7% down from 10.9% last year

Active account base of 3.8 million, compared with 3.7 million last year

After tax earnings of financial services JV up 11.1% to R541 million

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(1) OntheCards Investments II (Pty) Ltd

Cashflow – FY:2012

Operating cash inflow was up 1.2% to R3,198 million


Increase in working capital of R1,609 million (R446 million FY:2011)

R millions

I t i 543 All i t d l i h t t k Inventories 543 All in new stores and replenishment stocks, no additional seasonal stock liability

Receivables 1,167 Growth in account base and increase in credit sales percentage

Cash net interest expense of R2,609 million (R2,928 million incl. OtC(1))

Payables (101)

Capex (excluding finance leases) up to R710 million (R474 million FY:2011)

R396 million in store fixtures

R254 million in IT infrastructure

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Liquidity and capital resources – FY:2012

R billions Notes


Euro notes (net of derivatives) 20.000 Interest rates on notes are fixed and currency hedged until March 2014gCurrency hedged on 60% of principal until March 2014

Listed ZAR notes 1 100Listed ZAR notes 1.100

Notes issued by OtC(1) 4.300

Revolving credit facility 0.751 Maximum drawdown in FY:2012 of R1.1 billion

Cash on hand 0.300 (R1 billion including OtC(1))( g )

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Strategic transaction with AbsaStrategic transaction with Absa

Transaction overview

Absa, a member of Barclays, to acquire the Edcon private label store card portfoliop

Edcon and Absa to enter into long-term strategic alliance

– Edcon to retain all client facing elements to ensure seamless customer – Edcon to retain all client facing elements to ensure seamless customer experience and ongoing customer service

– Absa to provide credit underwriting and funding, as well as value-added financial services and products to Edcon customersp

Proceeds estimated at approximately R10 billion based on net book value as of 31 March 2012 (South Africa represents approximately 94%)( p pp y )

Edcon will use the proceeds for repayment of debt (including notes issued under Edcon’s securitisation programme), investment in the business, and to cover p g ), ,transaction fees and expenses

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Context and strategic rationaleThe transaction has been a key component of Edcon’s long-term strategic plan

– Follows the path set by leading global retailers to partner with exceptional 3rd

party providers for the provision of creditparty providers for the provision of credit

Edcon has been focused for several years on improving the performance and attractiveness of the credit book

Edcon’s private label store card portfolio is a unique asset with over 3 8 million – Edcon s private label store card portfolio is a unique asset, with over 3.8 million active accounts and unparalleled customer reach across the full spectrum of consumers in southern Africa

– Absa, supported by Barclays, represents the ideal partner for this transactionAbsa, supported by Barclays, represents the ideal partner for this transaction

The transaction has been designed to leverage the core competencies of each company while maintaining a seamless customer experience

The transaction has a number of important strategic benefits for Edcon and will e t a sact o as a u be o po ta t st ateg c be e ts o dco a dfacilitate growth in the core retail business, both in South Africa and the rest of Africa:

– Allows greater focus on core retail operations

– Provides more efficient funding structure to grow credit sales

– Delivers immediate improvement of the balance sheet

– Brings long-term strategic partner with ability to provide attractive new

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gs o g te st ateg c pa t e t ab ty to p o de att act e efinancial services and products to Edcon customers

Alliance overviewCombine Edcon’s retail firepower and customer management excellence with Absa / Barclays credit expertise and funding efficiency

a member of

Credit

Customer insight

Service and collection expertise and

Global experience in credit evaluation and risk management Credit

Bookexpertise and relationship

Footprint and growth opportunity

Retail sales and

Financial capacity and low cost of capital

Value-added products and servicesRetail sales and

marketing expertiseand services

Large retail financial services distribution network in Large retail financial services distribution network in southern Africa

Platform for expansion

Local presence supported by global expertise

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Transaction details

Absa to acquire the Edcon private label store card portfolio business for net book value

Transaction economics & details

q p p

Net financial payments to be made between Edcon and Absa based on credit sales volumes and number of active accounts

– Designed to align parties to drive credit sales growth with appropriate credit quality for the bookthe book

– Compensates each party for services performed

Additional benefits for both parties from introduction of new financial products / services

Edcon’s joint venture through which insurance products are marketed and sold to customers is not included in the scope of the transaction

Transaction timing and conditions

Transaction subject to regulatory approvals as well as customary conditions precedent for transactions of this nature

Documentation has been agreed for the South African component of the book, representing ~94% of the total net book value outlined in this presentation

– Parties currently working on documentation for remaining jurisdictions

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Parties currently working on documentation for remaining jurisdictions

Transaction is expected to close in the second half of 2012

Estimated financial impact

All figures in R’ billions

FY:2012 (Excl OtC(3))

FY:2012 (Incl OtC(3))

FY:2012 Estimates(1)

Based on management estimates

R billions (Excl OtC ) (Incl OtC ) Estimates

Adj. EBITDA 3.5 4.0 3.1

Net cash (outflow)/inflow from operating activities

(1.2) (1.0) 0.1operating activities

Net debt (2) 22.6 26.1 16.6

Net debt/EBITDA 6.37x 6.45x 5.35x

Highlights:

~R9.5 billion reduction in Net debt, with corresponding savings in interest costs

~R0.9 billion impact on Adj. EBITDA, but ~R1.1 billion positive impact on Net cash flow from operating activities given significant benefit from removing ongoing receivables funding requirement and lower financing costs

>1x deleveraging effect>1x deleveraging effect

(1) FY 2012 estimated figures are illustrative and assume that transaction occurred on 31/03/2011 for purposes of deriving Net debt and Adj. EBITDA. Net book value of book was R8.9 billion (including all jurisdictions) as of 31/03/2011

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31/03/2011.(2) Net debt is inclusive of derivative valuation(3) OntheCards Investments II (Pty) Ltd

Looking forwardLooking forward

Outlook

Cautiously optimistic about the year ahead building on current momentum and medium term fundamentals in the economymedium term fundamentals in the economy

Store rollout plans on track

b h fExecuting Sub-Saharan African strategy

Pleased and excited to be focused on closing strategic transaction with Absa

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Ends

For more information

Our website: www.edcon.co.za

Edcon contacts for more information:

Executive Investor Relations and Media: Debbie Millar 011 495 4086 /[email protected]

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