Annual Results Presentation - PowerPoint Presentation

Slide1

Annual Results

Presentation March 2016

Slide2

Performance Highlights

1

53 weeks

52 weeks

Revenue

R20.0bn 10.5%  8.4% Operating profitR3.6bn 17.1% 15.5%Diluted HEPS1 012.9c17.1%14.6%Dividends per share667.0c 15.0%Return on equity50.3%



HEPS  DPS  Operating margin

The remainder of the presentation is based on 52 weeks unless otherwise stated

THE GROUP HAS ACHIEVED A 30 YEAR CAGR IN HEPS OF 23.0% & DPS OF 24.6%

Slide3

2015 real GDP growth 1.3%. Weaker Q4 of 0.6% indicative of 2016 expectations

Weak & volatile currencyCPI averaged 4.6% in 2015, but outside targeted range in Apr 16 at 6.2%. Expected to average 6.6% in 2016Business

confidence unchanged in Q1 16

at

a 5 year

lowUnemployment rate increased in Q1 2016Debt to disposable income still high, but in decline since 2008Prime interest rate increased 4 times during the year to 10.5%Consumer confidence recovered slightly but still negativefinancial position of households in the next year expected to improveeconomic position in RSA negative, time to buy durables declined furtherEconomic Overview2

Slide4

Results Overview - An Eventful Year

3

Confronted

headwinds

Economic environment in RSA

Trading conditions in Africa High sales baseIntroduction of new credit legislationMaintained long-term viewSignificant investment in major projectsOpened stores in an international developed marketTransition of merchandise resourcing strategyStrategic merchandise changes in MiladysDelivered sound resultsGood cost control & improved H2 GP%5 of 6 divisions achieved double digit profit growthStrong profit performance in core operationsImproved operating margin

Slide5

MRPG share price 32

% lower than

Mar 15 - PE

ratio declined from 33.3 to

19.1, however earnings

growth in top quartile Graph excludes JSE listings in current year & outliersPerformance vs JSE Top 404MRPGShare price change %

Slide6

Earnings

Per Share5

% change

Cents

2016

2015AnnualH253 weeksBasic1 046.5917.314.1%13.4%Headline1 057.8919.715.0%14.9%Diluted headline1 012.9865.117.1%17.4%52 weeksBasic

1 032.9

917.312.6%11.0%Headline

1 035.2919.7

12.6%

10.8%

Diluted headline

991.2

865.1

14.6%

13.2%

Consensus estimates

i

-Net

968.5

Bloomberg

961.8

Net weighted average number of shares in issue up 1.1% to 252 785 945

LTI schemes - shares that vested exceeded shares that were acquired

Lower dilution impact

average share price increase of 0.7%, offset by

reduction

in w.

avg

number

of

options in issue of 17.8%

Slide7

Dividends Per Share

6

Dividends based on 53 week HEPS

More closely aligned interim & annual dividend payout ratios

Final

dividend growth therefore lower than H2 53 week HEPS growth of 14.9%Annual payout ratio expected to be maintained at 63% in the medium termSince the change in control in 1986 dividends have never decreasedCents20162015% changeInterim248.0211.517.3%Final419.0368.513.7%Annual667.0580.015.0%Payout ratio63.1%63.1% Interim  Annual

Slide8

Group

Income Statement

7

1

Operating margin increased from 17.1% to 18.2%

Strong growth of 20.8% in core RSA operations 2 Effective tax rate 28.2% (FY15 27.8%). Deferred tax assets not raised on lossesReturn on shareholders equity 50.3%% changeR'm20162015AnnualH2Retail sales & other income19 54718 0118.5%8.0%Cost of sales11 08210 1868.8%6.6%Selling expenses3 8193 6026.0%8.8%Administrative expenses1 0931 147(4.7%)(3.6%)Profit from operating activities13 5533 07615.5%15.1%Net finance income8187

(7.4%)

(30.3%)Profit before taxation3 634

3 16314.9%

13.9%

Taxation

2

1 026

878

16.9%

17.2%

Profit

after taxation

2 608

2 285

14.1%

12.7%

Loss attributable to minorities (

mrpMobile

)

3

8

Profit attributable

to shareholders

2 611

2 29313.9%11.9%EBITDA3 7853 29215.0%14.4%

Slide9

% change

R'm

2016

2015

Annual

H2RSA - bricks16 93815 6957.9%7.6% - online11579663.6%82.5%Non-RSA - bricks - corporate owned1 4481 3775.1%0.8% - franchise11310012.9%16.9% - online2917(43.2%)(46.4%)Retail sales3 (comp growth 4.2%, H2 4.4%)18 665

17 285

8.0%7.5%Financial services & cellular

4853702

21.5%

21.0%

Other

5

29

24

18.8%

(6.8%)

Other income

882

726

21.4%

19.9%

Total retail sales & other income

19 547

18 011

8.5%

8.0%

Finance income

81

88

(7.4%)(30.3%)

Total revenue

19 628

18 099

8.4%

7.8%

1

Online performing well - growth

in

mrp

25.7%,

mrpHome

119.7%

- channel now profitable

2 Increased threshold for international free delivery, reduction in marketing3 Total RSA sales up 8.3%, non-SA sales 5.1%4 Strong revenue growth driven by cellular5 Club fees & external donations to mrpFoundation

Revenue Analysis

8

Slide10

Sales

Growth

Analysis

9

Annual cash sales up 9.2%, credit 2.3% & international 5.1%

H2 growth more impacted by Africa & creditDespite this, MRPG Q4 growth improved on a softer base comparable sales growth increased from 3.4% (RSA 4.9%) in Q3 to 6.0% (RSA 7.5%)4 divisions achieved best comp growth of the yearperformance in core RSA market driven by cash salesexceeded market growth per Stats SA mrp  GroupHigh sales base to beat in a softer trading environment

Slide11

International Sales Growth

10

Sales of R1.6bn constitute 8.4%

of

MRPG (9.5%

of mrp)Namibia: high sales base Q1-Q3. Q4 grew by 2.8%Nigeria: re-enabled supply in late Mar 16All other territories had a better H2total sales grew by 24.7%Zambia: not comparable for 2 months in H1. H2 comp growth was higher than H1Sales growth (ZAR)StoresAnnualH2H1ChangeTotalNamibia (1.6%)(3.0%)(0.1%)037Botswana 16.3%23.8%8.2%222Franchise12.9%16.9%8.8%419Nigeria(29.8%)

(73.6%)

31.9%(1)5

Zambia48.6%

21.1%

98.7%

3

8

Swaziland

10.0%

12.7%

7.1%

0

7

Ghana

8.9%

10.1%

7.5%

1

6

Lesotho

14.5%

17.6%

10.5%

1

5Australia

2

2

Total stores

5.7%

1.8%

10.2%

12

111

Including online

5.1%

1.3%

9.5%

Namibia

39.7

Botswana

23.5

Franchise

7.2

Nigeria

7.1

Zambia

6.7

Swaziland

6.2

Ghana

4.4

Lesotho

3.9

1.3

Australia

Slide12

Operating profit

/ retail sales & other income

Per analysis on pages

8 & 19

Merchandise GP down 0.1% to 41.9%.

Improvement in H2Cellular GP up from 1.7% to 6.4%Lower bad debt & credit card feesRentals up 9.6% - lower turnover rentals, higher international costsEmployment costs in RSA & African stores up 8.7%Lower incentives & H2 share based payments, Australian costsNet FX gain (H1 gain, H2 loss)Annual increase 7.8% excluding the aboveImprovement in all 3 segments in both reporting periodsContinued Improvement In Operating Margin1141.4%*(PY 41.6%)19.5% of RSOI(PY 20.0%)5.7% of RSOI(PY 6.4%)* Calculated on retail sales & cellular income & their respective costs of sales20152016

Slide13

Volatile

Exchange Rates

12



Average spot rate  MRPG FEC rateFX gain in H1 (admin expenses) R102m (includes FEC M2M R83m), H2 loss R26mCash flow hedge accounting applied from Q4 FY16M2M adjustments in equity, released in cost of sales in subsequent periodsH1 FY17 admin expense growth will appear highZAR ~28% weaker~13% weakerAverage Spot: 12.54 vs FEC Rate: 12.07Hedged 97% of exposureAverage Spot: 15.03 vs FEC Rate: 13.50Hedged 100% of exposure

Slide14

Segmental Performance

13

% growth

Annual

H2

H1Retail sales & other incomeApparel8.8%8.3%9.5%Home5.7%5.1%6.4%Financial services & cellular21.1%20.2%22.1%Operating profitApparel10.2%11.0%9.0%Home18.1%15.4%22.5%Financial services & cellular

32.5%

13.7%57.7%



Apparel  Home



Group

Operating margin %

Home 20.9%

FS 9.3%

Apparel 69.8%

Operating

profit

% contribution

Apparel 71.0%

Home 24.6%

FS 4.4%

Retail sales &

other income

Slide15

R’m

(02

Apr 16)

2016

2015

Non-current assetsProperty, plant & equip 1 672838Intangible assets 373328Other non-current assets1196198Current assetsInventories22 1681 741Trade & other receivables 2 1361 874Cash & cash equivalents1 4192 764Reinsurance assets399124

8 063

7 867

Equity & liabilities

Shareholders equity

5 620

5 021

Non-current

liabilities

4

244

213

Current liabilities

5

2 199

2 633

8 063

7 867

Financial

Position

14

1

Deferred tax & pension

fund

2 Inventories excl. GIT up 21.9%earlier ownership due to higher FOB purchasesageing profile in line with LY3 Mainly cash4 S/line lease liability, loan from mrpMobile JV partner5 Current liabilitiesdown 1.3% excluding taxlower trade payables due to earlier settlement (FOB) & timing of year endincreased FEC liabilities, 53rd week accruals

Slide16

PPE

& Intangibles

15

R’m

Total

IntangiblesPPEOpening1 166328838Additions1 14411811 026Disposals & impairments(36)(35)2(1)Depreciation & amortisation(229)(38)(191)Closing2 0453731 672StoresW. a. space growth New stores454.0% Expansions260.7%4.7% Reductions20(0.9%)



Closures14(0.7%)

3.1%6.6%

5.4%0.6%

(2.8%)

1.1%

3.1%

R’m

2016

2015

Systems

50

39

Distribution

centre

730

51

Stores

246

217

1 026

307

1

Mainly merchandise planning / ERP systems2 Replatforming online system in FY17FY17 capital expenditure R859mStores R337m, Systems R173m, DC R349m

Slide17

Operating

R1.9bn

Increase of 18.3%

Receivables R288m, Inventory R394m, Payables R131m

Up

6.5% - lower book growth but higher interest ratesIncluded 3rd income tax payment of R404m* in Mar 16Investing R1.2bnIn line with LY excluding new DC of R730m*Financing R2.1bnIncrease of 18.8% Includes R789m* share repurchases iro LTI schemes* Total R1.9bn, will reduce substantially in FY17

Cash Flow Movements (Rm)

1620152016

Slide18

Divisional

Review

Slide19

The state of credit

consumersNCA affordability assessments effective 13 Sep 15Credit granted declined sharply in Q4 FY151

Q/Q Y/Y

Total market growth 0.2% 5.5%

Retailers (18.8%) (33.8%)Retailers’ books reflected modest growth of 1.6% (y/y) 1Consumers in good standing & current - best in 3 years1Sharp decline in Transunion SA Consumer Credit Index in Q1 16 - credit health now deterioratingMRPG credit sales contribution now 17.2%Fully applied new NCA criteria from effective dateDid not aggressively acquire direct marketing leadsApplications & acceptance rate dropped in SepCredit growth slowed from 6.7% in H1 to (1.8%) in H2Good progress made with dedicated in store credit specialists - further roll out in progress 181 Per NCR Consumer Credit Market Report, Credit Bureau Monitor Credit sales growth  Net bad debt / book  Impairment provision / bookMRPG focused on credit qualityGross trade receivables at year end R1.9bn, up 0.5%Strong book performance, conservatively provisioned

Slide20

Cellular 30%

Total revenue growth rate maintained in H2, however mix change

1

higher interest rates, lower book growth, introduction of initiation & service fees

2 insurance growth slowed in line with new account openings3 cost of sales included in GP% calculation4 airtime, data, handset & VAS revenue mrpMobile achieved critical mass, profitable in H2Another year of excellent profit growthCredit 47%Insurance 23%19% change20162015AnnualH2Credit - interest & charges13973629.4%8.4%Insurance219817712.2%8.5%Cellular25816358.7%61.0%

Commission

12

Airtime sales3

144

132

mrp

Mobile

MVNO

3

,

4

113

29

Total revenue

853

702

21.5%

21.0%

Diversifying

revenue

stream

Slide21

Division most impacted by high sales base, credit & Africa

Double digit growth in mens & kidsGood performance in core RSA marketannual comp growth 7.2%, H2 7.5%sales growth in Q4 was 12.0% & cash sales 14.6%23 new stores opened (RSA ROGA3

110%) &

13

expanded (ROGA

200%)Winners of Male & Female clothing categories in the Ask Africa Youth Brand surveyVoted the ‘Coolest Clothing Store’ in Sunday Times Generation Next 2015 study2020162015% changeRetail sales1R11 102mR10 122m9.7%Comparable sales 5.2%12.8%H15.2%15.1%H2 (Q3 4.1%, Q4 7.3%)5.2%11.0%Unit sales152m149m1.9%RSP inflation (price2 3.4%, mix 4.3%)7.7%8.2%Weighted average space growth6.6%8.3%Trading densityR38 621m-²R37 550m

-²

2.9%1: Excludes franchise 2: Net of markdowns 3: Forecast return on gross assets - stores with more than 3 months trade

Slide22

Growth in own branded product continues to exceed expectationsMaxed technical fitness footwear range sales growth >30%

strong brand authenticity - 3 gold medals in Two Oceans marathon, won Comrades Marathon down run in record time (3 gold medals)New in-store directional wrap - test stores sales growth exceeds divisional average. Targeted store roll out in H1 FY1710 stores opened (ROGA 68%) & 4 reduced (ROGA 98%)

Test of ‘fitness only’ small format stores will extend geographical reach

Continued strong growth in operating profit

21

20162015% changeRetail salesR1 272mR1 118m13.8%Comparable sales 5.3%4.5%H13.6%3.5%H2 (Q3 5.0%, Q4 8.8%)6.8%5.3%Unit sales13m12m8.8%RSP inflation (price 3.9%, mix 1.0%)4.9%6.9%Weighted average space growth5.4%11.2%Trading densityR22 592m-²R20 928m-²

8.0%

Slide23

2016

2015

%

change

Retail sales

R1 369mR1 396m(1.9%)Comparable sales (2.5%)0.9%H1(1.7%)0.0%H2 (Q3 (2.1%), Q4 (5.1%))(3.3%)1.7%Unit sales8m9m(7.6%)RSP inflation (price 7.8%, mix (1.2%))6.6%2.3%Weighted average space growth0.6%(0.4%)Trading densityR22 418m-²R22 987m-²(2.5%)

22

Credit sales (53% of total) declined by 7.1% in H2Merchandise changes impact sales in short term, but will benefit in long termsizing aligned to international moderate specifications, eliminating ‘vanity’ sizesRené Taylor brand discontinued - extended sizes introduced into Miladys brandAcceptable sales growth in non apparel, intimatewear & accessories performing wellGood cost control unable to offset reduced sales & gross profit %Intensely focused on target customer & her needs. Positive impact from realigned merchandise offer & new merchandise director expected in Spring/Summer

Slide24

Livingroom hards, dining & furniture were the best performing departments

Opened 3 stores (ROGA 169%), & expanded 6 (ROGA 119%)Reduced space in 6 stores by 31% but grew profit by 12%Excellent margin & cost control enabled a strong profit growth in a constrained marketRated ‘most loved South African homeware brand’ in Nielsen’s survey

Test store to open in Northland Shopping Centre, Melbourne, Australia in Oct 16

23

2016

2015% changeRetail salesR3 374mR3 187m5.9%Comparable sales 3.9%6.6%H13.4%7.5%H2 (Q3 3.0%, Q4 6.3%)4.5%5.7%Unit sales39m40m(3.1%)RSP inflation (price 7.2%, mix 2.1%)9.3%13.7%Weighted average space growth(2.8%)0.7%Trading densityR24 974m-²R22 937m

-²

8.9%

Slide25

Mid LSM target market is constrained in current economic climate

Strongest sales growth was in bathroom & livingroom departmentsOpened 6 new stores (ROGA 85%)

Improved GP% & good cost control resulted in double digit operating profit

growth

Landscape research highlights improved customer response to product pitch & value

Icon Brand Award: voted winner in the Home & Décor Retail Category2420162015% changeRetail salesR1 435mR1 363m5.3%Comparable sales 3.9%0.9%H13.0%1.5%H2 (Q3 3.4%, Q4 6.3%)4.7%0.4%Unit sales19m19m1.4%RSP inflation (price 2.8%, mix 1.0%)3.8%4.7%Weighted average space growth1.1%2.2%Trading densityR28 263m-²R27 136m

-²

4.2%

Slide26

Strategy

Slide27

Our Vision:

To Be A Top Performing International Retailer

26

Growth

Extend our earnings track record through local & international growth

Building loved brandsBuild strong customer relationships by delivering an ongoing experience to surprise & delightOperationsContinually strive for world class methods & systemsPeopleMaintain an energised environment with empowered & motivated peopleSustainabilitySubscribe to high ethical standards & sustainable business practices

Slide28

Constrained trading conditions requires market share growth & places more emphasis on margins, costs & efficiencies

scope to increase market share of existing businessesprioritise

spend & projects to generate profit wedge

Realise

benefits arising frominvestments in new distribution centre & merchandise planning systemmore direct & collaborative merchandise resourcing strategyImprove performance in Miladys (underperforming) & mrpMobile (start up)Grow credit sales responsibly (NBD <7% book)satisfied if credit sales grow at same rate as cash salestest in-store integration of mrpMoney Introduce quality new space of ~4% pa Improve trading density & profitability by reducing surplus space (50 000m2) Growth South Africa27

Slide29

Proven model in emerging markets - test developed market (Australia)

will take time to attract a following & establish our brand

encouraged by sales conversion rate once shoppers enter our stores

refine

mrp

product assortment in line with trading experience gainedimprove supply chain & store operating metrics before scalingtest of mrpHome planned for Oct 16Continue to research other markets forsuitability for ‘exporting’ of mrp brandsacquisitions, subject to strict criteriaNon-negotiable consistent fashion/value positioning wherever we operateMinimise risk in Africa during period of uncertainty - awaiting direction from Central Bank of Nigeria re foreign exchange policyDrive efficiency in all markets - particularly supply chain, labour & rentals. Will not enter into USD based store leases without a ‘cap’Implement duty drawback system to replace bond storeFocus on strong treasury management (cash flow & FX) as we increase international exposureGrowth International28

Slide30

29

ProductFashion-led at great valueDifferentiated & category dominant private label assortmentsStrengthen our value perception & availability of wanted items in a highly promotional environment

Communication

Convey strong brand personally via multiple touchpoints & channels

Build on sector leading social medial position

Facebook: top 10 in RSA for number of fans, highest placed retailerInstagram: highest number of followers amongst local competitor setBuild a single view of the customer & tailor communication to a personal levelInnovationLead with technology to reinforce our brand, improve CRM & visual merchandising, reduce checkout or delivery times & create a seamless omni-channel experienceSocial awareness Demonstrate commitment to the economy, society & the environmentBeyond just a retail presenceBuilding Loved Brands

Slide31

Objectives

Replace our legacy systems, which served us well, with modern integrated planning

(IP), ERP & online systems to support our growth strategy

gain domestic market share despite competition from international retailers

international

omni-channel expansionProgressSteady progress being made on IP & ERP systems. Mitigating risk by adopting a phased approach minimising business disruption avoiding overlap with peak trading periods & transition to new distribution centreRe-platforming online system in Jul 17greater functionality significantly lower future costsOperations: Leading IT Solutions30

Slide32

OBJECTIVESIncrease capacity

& consolidate activitiesOutgrown existing infrastructure (4 locations)New 57 000m2 single facility, ability to double in size

Simplify management & improve efficiency

Improve stock management & profitability

Increase throughput to

maximise salesReduce breakages through better handling of fragilesIncrease level of automation:merchandise allocation decisions made closer to final distributioncarton sorting quicker & more accuratequicker & more accurate unit pickingReplenish mrpHome at inner carton level to reduce store overstockUtilise same sorter for inbound & outbound (latter currently performed by the courier), eliminating cost duplicationConsidering receiving stock in bulk and fine picking per store for more accurate size allocationsPROGRESSProject on track, building handover in Jun 161st division to go live Jun 17, full transition by Sep 17Cost overlap ~R50m during transition period in FY18FY19 operating costs expected to be lower than current (increased for inflation & unit growth)Future capex of R420m in FY17 & R72m in FY18Total project cost R1.2bn Capital Depreciation value periodLand R166m NILBuildings R400m 40 yearsIT systems R130m 10 yearsEquipment R508m 15 yearsOperations: Facilities31

Slide33

Support local businessMerchandise made in RSA up 14% to R3.5bn, represents 31% of inputs (SADC 38%)

Founding retail member of Sustainable Cotton Clusterin FY16 MRPG purchased 4.2m t-shirts & towels containing RSA cottonMRPG committed to procure 2 800 tonnes of cotton from local farmers in FY17.

Would have been double, but for the drought

cluster targeting to create 7 200 jobs & increase production by

~

450% by 2018Engage with communitiesmrpFoundation activities focused on national priorities of education & skills developmentvarious mrpFoundation school programmes impacted ~65 000 learners in FY16Jumpstart retail programme trained >10 000 youth in the last 3 years, resulting in ~4 300 being employedJumpstart manufacturing programme developed 550 people in the last 2 years, of which 76% were employedProtect our planetReduced carbon foot print on baseline FY13 by 17% (29 500 tonnes CO2 emissions)Solar energy installed at head office, ongoing opportunity to reduce store consumption via lighting technologyAchieved waste recycling targets - head office 50%, distribution centres 94%Sustainability32

Slide34

OBJECTIVESSustainability

Get closer to point of manufactureEvaluate suppliers’ performance & compliance with ethical & social standardsReduce business riskEntrench value positioningEliminate hidden/duplicated costs to keep input prices lowMine efficiencies through continuous improvement

Maintain appropriate balance between low cost sourcing & merchandise quality

Maximise

salesStrengthen ability to react to merchandise opportunities by shortening lead timesIncrease agility through collaborationImprove on time in full deliveriesPROGRESSReduction in mrp ZAR landed inputs as planned: 2016 2015SADC manufactured 39% 39%Imported from East 61% 61%RSA 3rd party in ZAR 21% 42%Foreign 3rd party & factory direct1 40% 19% 100% 100%Improved USD input prices softened the impact of a weaker ZAR:1 access to all bills of material, irrespective of channelable to negotiate at a component level & compare factory pricesAccounting is now more complex, but currency risks are not new78% of direct group suppliers are SEDEX membersStrengthening supplier grading system - risk rating & performance to inform future ordersSustainability: Suppliers33

Slide35

Looking Ahead To FY17

34

Tough trading conditions are expected for rest of the year

Plan to open 40 stores & increase closing

space ~4% (~ 3.5% net of reductions

)Expect H1 RSP inflation rate to be in mid-teensComparatively well positioned as a cash based fashion value retailer targeting themid-upper LSM market. Research shows the largest division, mrp has increased its contribution of high LSM (8-10) shoppers over the previous yearOpened ~5 700m2 space across all 5 brands in Mall of Africa. Despite a full complement of local & international retailers, the 2 100m2 mrp store achieved sales which were double their previous opening day best

Slide36

Thank You