0 EDGARS
UNAUDITED CONSOLIDATED RESULTSQ4 AND FULL YEAR 2017
25 MAY 2017
1
AGENDA
1. YEAR IN REVIEW
2. MACRO ECONOMIC ENVIRONMENT
3. FINANCIAL REVIEW FY17
4. STRATEGY AND TURNAROUND INITIATIVES
5. WAY FORWARD
2
1. YEAR IN REVIEWBERNIE BROOKES - CEO
3
RECAP OF THE YEAR
• The business presented the creditor plan to lenders in June 2016
• Debt restructuring finalised with new ownership and third party debt
significantly reduced
• The restructured balance sheet will provide a welcome relief with an annual
reduced cash interest of ~ R600 million and gross debt of ~ R7 billion
• The macro economic context has continued to remain challenging - 6% inflation
annually, declining consumer confidence and almost no GDP growth
• Retail sales decreased by 6.7% to R25,343 million
• As a result of a challenging and competitive retail landscape, retail cash sales
decreased by 2.4% while credit retail sales decreased 13.4%
• In-house trade receivables book grows in excess of 150%
• Proforma adjusted EBITDA in line with expectations, decreased by 45.0% to
R1,383 million
• Spent R300m on clearance markdowns to clear aged stock ~ 230 basis points
• Controllable costs well managed
EDGARS
4
RECAP OF THE YEAR
• Sale of Legit business concluded for R637 million
• Improved relationship with Absa
• Pleasing NPS results with customers seeing value in the price points and service being provided
• Key turnaround initiatives encompassed:
• Improvements in space productivity
• Lower cost for GNFR
• Better sourcing
• Improved inventory management
• Stronger management of markdowns and entry price points
• Development of a customer driven organization
• Renewed supplier engagement
• Commenced the development of a world class IT and supply chain
• New board and management team
• Year-on-year adjusted EBITDA for the first five weeks of the new financial year, has shown improved trends increasing by over 25%, and for the first time since 2010, credit sales in Jet have increased
JET
5
2.5
3.7
3.12.6
3.4
4.2
FY11 FY12 FY13 FY14 FY15 FY16
Gross finance cost, R billion
TWO BURNING PLATFORMS TO ADDRESS
To fix this we need new owners
and reduce our debt
ISSUE 1: HIGH DEBT PAYMENTS ISSUE 2: DECLINING TRADING PROFIT
1.9 1.9
1.41.3
1.21.0
FY11 FY12 FY13 FY14 FY15 FY16
Trading profit, R billion
Less debt won’t help with this
we need to turn around performance
6
ISSUE 1: CAPITAL RESTRUCTURE OVERVIEW
SUBSTANTIAL NEW
MONEY INJECTION
• Existing creditors committed to fund up to R2,870 million to significantly shore up the
Group’s liquidity position
• R575 million New Revolving Credit Facility(1)
• R2,295 million-equivalent USD-denominated New Holdco 1 PIK A-1 Notes(2)
MATERIAL
DELEVERAGING OF THE
OPERATING COMPANY
• Senior secured creditors to equitize 50% of their outstanding claims and novate their
reinstated claims to a holding company
• c. R3,200 million of second and third-ranking super senior claims to be novated to a
holding company
• Pro forma for the transaction, gross leverage at the operating company to decline to 3.6x
from 18.9x
REDUCTION OF CASH
INTEREST BURDEN
• New commitments and novated claims at the holding companies to be PIK-only
instruments
• Pro forma for the transaction, cash interest coverage at the operating company to increase
to 3.9x from 0.6x
EXTENSION OF
MATURITIES
• Most indebtedness at the operating company to mature December 2019(3)
• New commitments and novated claims at the holding companies to mature December
2022
(1) Raised at Edcon Limited (2) Raised at New Holdco 1 (3) The Super Senior Liquidity Facility will mature in December 2017, with a one year extension
7
ISSUE 1: THIRD PARTY GROSS DEBT
FX rates as at 25 March 2017: R12:48:$ and R13.45:€1 R575m was undrawn at 25 March 20172 The maturity may be extended to 31 December 2019 in exchange for a cash margin uplift and provided certain refinancing condit ions are satisfied
DRAWN
AMOUNT
(ZARm)
GROSS
LEVERAGECURRENCY MATURITY
BASE
RATESMARGIN
PIK
MARGIN
Super Senior Credit Facility (Converted RCF Facility)1 1,250 0.9x ZAR 31 Dec 19 JIBAR 5.0% 3.0%Super Senior Credit Facility (Term) 2,116 1.5x ZAR 31 Dec 19 JIBAR 5.0% 3.0%Super Senior Liquidity Facility A1 576 0.4x EUR 31 Dec 17 EURIBOR 4.0% 8.0%Super Senior Liquidity Facility A22 1,779 1.3x EUR 31 Dec 17 EURIBOR 4.0% 8.0%
First ranking debt 5,721 4.1x
Capital leases 305 0.2x ZAR
Other debt 205 0.1x
Total third party debt 6,231 4.5x
PROFORMA ADJUSTED EBITDA 1,383
8
ISSUE 2: CONTEXT – EDCON’S TRADING EBITDA (EXCL. C&FS) IN 4Y DECLINE
Note: Data excludes Legit and Zimbabwe
FY16AFY15AFY14AFY10A FY11A FY13AFY08A FY12AFY09A
EBITDA, R’m
2 710 2 850
2 364
3 072
2 545
1 477 1 265 1 182
3,432
9
• Legit chain identified as
potential asset for sale in
strategic review
• Strong interest from
range of potential trade
and financial purchasers
• Disposal improves Edcon’s
liquidity position and
intensifies focus on core
department stores and
value chain offerings
• Sale of business for
R637 million cash
• Cash-free, debt-free
sale
• Sale of assets, going
concern basis
• Retailability - fashion retail
holding company: ~200
stores across SA, Namibia,
Botswana, Zambia
• Partnered by material
shareholder Metier Private
Equity: ~R6 billion funds
under management
• Flagship chains Beaver
Canoe, Style
SALE OF LEGIT
Purchase consideration of R637m, sale effective 29 January 2017
Deal overview Purchaser details Transaction mechanics
10
EXIT OF INTERNATIONAL BRANDS
11
EDGARS AND JET NPS HAS IMPROVED SIGNIFICANTLY IN 18 MONTHS
• In November 2015 Edgars and Jet had the lowest NPS amongst all competitors
• A market survey concluded in April 2017 sees a significant improvement in both Edgars and Jet
NOV 15
APR 17
NOV 15 APRIL 17
47
3-17
22
+44 pts +39 pts
12
TWO KEY PRINCIPLES OF NEW STRATEGY
IMMEDIATELY BRING
COST UNDER CONTROL
SET UP BUSINESS FOR TOP
LINE AND MARGIN GROWTH
• Head office cost reduction and change in
operating model: eliminate rework, simplify business,
drive efficiency
- 35% reduction in headcount and cost
- Gives chains full financial and management control
• Introduction of a procurement team and tendering
processes for goods not for resale (GNFR), providing a
lower cost plus a simpler and well governed strategy
• Immediate cessation of square meterage rollout
with no defined property strategy: leverage existing
space to enhance productivity and returns
• Enhanced buying prices through eliminating
excess use of agents and brokers; focus on local
sourcing
• Commence an IT road map to address cost and risk
challenges
• Relentless focus on “customer service”: move from
focus on “transaction”, “efficiency” and “checklists” to
focus on customer experience and reward (loyalty, NPS,
aligned incentives)
• Move to margin enhancement: management on “open
to buy”, less reliance on and better planning of promotion,
control of markdown, “SKU” rationalisation, focus on
entry price points and decluttering of merchandising &
marketing
• Re-focus on a more profitable private label portfolio
with 3x the productivity of international brands – better fit,
exclusive, less impacted by ZAR devaluation
• “Reverse” strategy to win at all costs on international
brands – onerous contracts, capex hungry, high price
perception, not “season” friendly; R64m loss in FY16
• Focus on digital and Omni-channel as growth engine
13
THE NEW EDCON JOURNEY
CUSTOMER
CENTRICITYSIMPLICITY
PEOPLE
EMPOWERMENT
• Defined target segments
• Differentiated value
proposition per segment
• Customer feedback and
follow-up
• Structural improvement
from customer feedback
• Lean Head Office
• IT strategy and cost
optimisation
• Sourcing consolidation
• Logistics and supply chain
review
• Operating model (incl. org
structure, accountabilities)
• Culture
• Incentives and KPI
14
ROADMAP WITH STRATEGIC INITIATIVES2016 2017
OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP
GROWTH
ENABLERS
COST
LEAN HQ & OPERATING MODEL
GNFR
COGS REDUCTION
PROPERTY
EDGARS CHAIN: TURNAROUND/CUSTOMER CENTRICITY
JET CHAIN: LEAN DISCOUNT RE-POSITIONING
SPECIALTY CHAINS: STRATEGY REVIEW AND REFRESH
CREDIT SALES
LOYALTY PROGRAM
CUSTOMER CENTRICITY
IT STRATEGY AND RENEWAL PLAN
SUPPLY CHAIN & LOGISTICS ROADMAP
SUPPLIER ENGAGEMENT
INVENTORY
1
2
3
4
5
6
7
8
9
10
11
12
13
14
EDGARS
15
NEW BOARD OF DIRECTORS
GARETH PENNY
Non-executive ChairmanBERNIE BROOKES
Chief Executive Officer
RHIDWAAN GASANT
Non-executive Director
DAPHNE MOTSEPE
Non-executive Director
GRANT PATTISON
Non-executive Director
KEITH WARBURTON
Non-executive Director
MARTI P MURRAY
Non-executive Director
16
2. MACRO ECONOMIC ENVIRONMENTRICHARD VAUGHAN - CFO
17
22
23
24
25
26
27
28
(1)
-
1
2
3
06-2
014
08-2
014
10-2
014
12-2
014
02-2
015
04-2
015
06-2
015
08-2
015
10-2
015
12-2
015
02-2
016
04-2
016
06-2
016
08-2
016
10-2
016
12-2
016
Real GDP (y-o-y %) Unemployment rate (%)
GDP GROWTH AND UNEMPLOYMENT RATE
4
5
6
7
8
9
03-2
016
04-2
016
05-2
016
06-2
016
07-2
016
08-2
016
09-2
016
10-2
016
11-2
016
12-2
016
01-2
017
02-2
017
03-2
017
4
5.5
7
8.5
10
11.5
12-2
014
02-2
015
04-2
015
06-2
015
08-2
015
10-2
015
12-2
015
02-2
016
04-2
016
06-2
016
08-2
016
10-2
016
12-2
016
02-2
017
04-2
017
EXCHANGE RATES
PRIVATE SECTOR CREDIT EXTENSION (Y-O-Y %) REPO AND PRIME RATE
EXCHANGE RATES
04-2
016
05-2
016
06-2
016
07-2
016
08-2
016
09-2
016
10-2
016
11-2
016
12-2
016
USDZAR EURZAR
MACRO BACKDROP
Source: SARB & StatsSA
18
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%Q
2:20
15
Q3:
2015
Q4:
2015
Q1:
2016
Q2:
2016
Q3:
2016
Q4:
2016
Q1:
2017
Q2:
2017
Q3:
2017
Q4:
2017
INFLATION
-16
-14
-12
-10
-8
-6
-4
-2
0
Q1:
2015
Q2:
2015
Q3:
2015
Q4:
2015
Q1:
2016
Q2:
2016
Q3:
2016
Q4:
2016
Q1:
2017
-5%
0%
5%
10%
15%
06-2
015
07-2
015
08-2
015
09-2
015
10-2
015
11-2
015
12-2
015
01-2
016
02-2
016
03-2
016
04-2
016
05-2
016
06-2
016
07-2
016
08-2
016
09-2
016
10-2
016
11-2
016
Retail trade sales Textiles,footwear and leather goods
71727374757677787980
12-2
014
02-2
015
04-2
015
06-2
015
08-2
015
10-2
015
12-2
015
02-2
016
04-2
016
06-2
016
08-2
016
10-2
016
12-2
016
FNB/BER CONSUMER CONFIDENCE INDEX
RETAIL SALES HOUSEHOLD DEBT TO GROSS DISPOSABLE INCOME RATIO
Source: SARB & StatsSA
MACRO BACKDROP
19
3. FINANCIAL REVIEW FY17RICHARD VAUGHAN - CFO
20
Underlying consumer demand weak on back of subdued growth in consumers disposable income, tight credit conditions, low consumer confidence, more restrictive fiscal policy and increased competition
Deliberate competitive entry price points, clearance of aged inventory, aggressive markdowns and higher input costs in the first half of FY17
Transaction with creditors finalised, balance sheet post 1 February 2017 no longer laden with debt, new ownership and Group, appointment of new Board and sale of Legit business (excl. Botswana) effective 29 January 2017
SA
LE
SP
RO
FIT
SS
TR
AT
EG
Y
Q4:FY17 FY17
Retail sales ↓ 10.6% ↓ 6.7%
Cash sales ↓ 9.7% ↓ 2.4%
Credit sales ↓ 12.3% ↓ 13.4%
LFL sales ↓ 9.9% ↓ 6.7%
Q4:FY17 FY17
Gross profit ↑ 0.4% ↓ 2.3%
Proforma
adjusted EBITDA
↓ 45.0%
KEY FEATURES
21
• Retail sales decreased 9.4%
- Cash sales decreased 4.6% and credit sales
decreased 14.6%
- All product categories traded down
- Easter and holiday shift into April 2017
• Gross margin of 43.0% up from 40.8%
- Lower entry price points
- First margin decreased by 1.7%
- Markdown activity still high on back of better
entry price points
- Financial gross profit bolstered by increased
rebates
• 15 new Edgars stores opened and 9 stores
closed
Q4:FY17 FY17
Retail sales growth
(%)(9.4) (6.7)
LFL sales growth (%) (10.7) (6.6)
GP margin (%) 43.0 41.2
Total number of
stores212 212
Capex spend (R’m)* (9) 87
Av space (‘000sqm) 731 728
212 stores* · LSM 6-10
*Includes 1 Edgars sales store and 1
Edgars Emporium store
*Landlord contributions received in Q4:FY17 net of capital expenditure.
EDGARS DIVISION – Q4:FY17 & FY17
22
• Sales decreased 5.8%
- Cash sales decreased 8.3% and credit sales
increased by 0.8%
- LFL sales decline slowed
- Ladieswear showed positive growth whilst
remaining categories still negative
- Easter and holiday shift to April 2017
- Enhanced price perception and brand franchise
• Gross margin of 33.5% maintained
- Better entry price points
- First margin decrease of 2.5%
- Markdowns still high
- Financial gross profit maintained on increased
rebates received
• 2 new Jet stores opened and 4 Jet Mart
stores
• 4 Jet stores and 5 Jet Mart closed
Q4:FY17 FY17
Retail sales growth
(%)(5.8) (6.3)
LFL sales growth
(%)(4.9) (5.7)
GP margin (%) 33.5 32.4
Total number of
stores515 515
Capex spend (R’m)* (16) 70
Av space (‘000sqm) 580 582
392 stores · LSM 4-7
123 stores · LSM 4-7*Landlord contributions received in Q4:FY17 net of capital expenditure.
JET DIVISION – Q4:FY17 & FY17
23
• Retail sales decreased 15.1%
- Cash sales decreased 16.2%, credit sales decreased 11.1%
- Positive growth in categories such as childrenswear and stationery
- Easter and holiday shift to April 2017
- Sale of Legit business reduced sales in Q4:FY17 by R114 million
• Margin impacted by:
- Aggressive markdown and clearance activity particularly in Boardmans, CNA and monobrands
• 6 new stores opened
- 2 Boardmans, 1 Red Square, 2 Legit and 1mono-branded store
• 7 stores closed
- 4 Edgars Active, 2 Red Square, 1 CNA
• 202 Legit stores disposed
Q4:FY17 FY17
Retail sales growth (%) (15.1) (6.0)
LFL sales growth (%) (11.2) (7.5)
GP margin (%) 33.8 33.3
Total number of stores 565 565
Capex spend (R’m)* (8) 43
Av space (‘000sqm) 235 253
MONO-BRANDED STORES
182 stores · LSM 4-7
40 stores · LSM 7-10
196* stores · LSM 7-10
49 stores · LSM 5-10
88 stores · LSM 5-10
*Includes 11 Samsung stores
10* stores · LSM 5-8*Remaining stores in Botswana sold effective
April 2017
*Landlord contributions received in Q4:FY17 net of capital expenditure.
SPECIALTY DIVISION – Q4:FY17 & FY17
24
STATEMENT OF COMPREHENSIVE INCOME
(R millions) FY17 FY16 % change
Retail sales 25 343 27 147 (6.7)
Gross profit 9 243 10 521 (12.2)
Gross profit margin 36.5 38.8 (2.3)pts
Other income 1 762 1 921 (8.3)
Store costs (6 826) (6 463) 5.6
Other operating costs(1) (4 736) (5 212) (9.1)
Share of profits of associates and insurance
business 184
Trading profit (373) 767 (148.6)
PROFORMA ADJUSTED EBITDA 1 383 2 514 (45.0)
(1) Includes non-recurring costs of R545 million in FY17 (FY16 – R598 million). See cost analysis – FY17
25
(R millions) FY17 FY16 % change
Trading (loss)/ profit (373) 767 (148.6)
Depreciation & amortisation 951 1 004
Net asset write off(1) 68 19
Gains on sales of written down trade receivables(2) (29)
EBITDA losses from brands exited(3) 73 25
EBITDA losses/(gains) from Edgars Shoe Gallery(4) 4 -
EBITDA gains from the Legit business(5) (100) (142)
Rand depreciation adjustment(6) 52
Non-recurring costs(7) 545 598
Adjusted EBITDA 1 168 2 294 (49.1)
Brand and administration fee income from insurance business(8)
Share of profits from insurance business(8)
(385) (505)
600 725
PRO FORMA ADJUSTED EBITDA 1 383 2 514 (45.0)
(1) Relates to assets written off in connection with the closure of stores, net of relates proceeds where applicable.
(2) Relates to gains realised on the sale of a portfolio of written down trade receivables.
(3) Adjustment to remove the EBITDA gains or losses achieved from certain brands being exited such as: Express, Geox, Lucky Brand, One Green Elephant, River Island, Tom Taylor and other international brands which the Group has strategically committed to exit.
(4) Adjustment to remove the EBITDA losses or gains from the Edgars Shoe Gallery retail format which the Specialty division strategically exited during fiscal 2017.
(5) Adjustment to remove the EBITDA gains relating to the Legit business sold on 29 January 2017.
(6) Foreign exchange gains recognised below the trading profit line which hedged the exposure in cost of sales as a result of the significant devaluation of the Rand.
(7) Non-recurring costs in FY2017 related to a credit from employee restructure costs of R16 million, onerous lease charges of R223 million, a R1 million credit for the post-retirement medical aid buy-out, unrecovered costs of R8 million as a result of flood and storm damage
during FY2017, R7 million brand penalty cost, a R42 million credit which reverses a penalty provision raised in FY2016, R28 million non-recurring cost incurred in respect of our agreement with Absa, R215 million transitional project related expenditure, R117 million strategic
initiative costs which excludes costs incurred from the transaction with creditors and the Restructuring and R6 million of other non-recurring costs. Non-recurring costs in FY2016 related to employee restructure costs of R72 million, onerous lease charges of R123 million and
R1 million lease cancellation cost, post-retirement medical aid buyout of R26 million, once-off lease adjustment of R33 million, penalty costs of R57 million, transitional project related expenditure of R70 million and strategic initiative costs of R216 million.
(8) The investment in HBA prior to the Restructuring was held by Edcon Holdings Limited which was a related party company of Edcon Acquisition Proprietary Limited and the profits from the insurance business were previously consolidated by Edcon Holdings Limited.
Previously Edcon Limited received a brand and administration fee from the insurance business arrangement. On 31 January 2017, in connection with the Restructuring, Edcon Holdings Limited sold its investment in HBA to Edcon Acquisition Proprietary Limited and such
investment was consolidated from that date. Pro forma adjusted EBITDA is intended to show adjusted EBITDA as if Edcon Acquisition Proprietary Limited Group had always consolidated the share of profits from the insurance business instead of Edcon Holdings Limited.
PRO FORMA ADJUSTED EBITDA
26
OTHER OPERATING COSTS STORE COSTS
COST ANALYSIS FY17
• Other operating costs excl. non-recurring costs decreased
9.2%
- Reduction in manpower costs following head office
restructure
- Reduction in accrual for staff empowerment program on
the back of a reduction in proforma adjusted EBITDA
- Store card administration cost reductions through
savings on outsource to strategic partner
• Store costs well managed increasing by 5.6%.
- Rental costs up 6.1%
- Manpower costs up 6.2%
- Stock losses, security and cleaning costs
decreased in FY17 due to improved stock control,
store cost savings and renegotiated contracts
• Rental and manpower constitute 60.7% of total costs
for FY17 (62.0% in FY16).
(R millions) FY17 FY16 % change
Other operating costs (excl.
non-recurring costs)4 191 4 614 (9.2)
Non-recurring costs 545 598
TOTAL 4 736 5 212 (9.1)
27
(394)
(569)
(35)
2 686(943)
2 371
(561)
1 693
Working Capital
Trade receivables,
other receivables &
prepayments
Inter
group
proceeds
585
(126)
Trade and
other
payables
OPENING CASH
BALANCEOPERATING
ACTIVITIES(A)
FINANCING
ACTIVITIESTAXCAPEXWORKING
CAPITAL
CLOSING
CASH
BALANCE (C)
NET
FINANCING
COSTS (B)
R’m
106 (70)
(673)Inventories
243
(a) Includes R1 032 million outflow relating to transaction with creditors and
Restructuring
(b) Includes R8 million inflow for currency translation on cash balances
SALE
LEGIT
CASH FLOW – FY17
(c) Incudes R584 million from the sale of Legit. This cash is held in Escrow following the Restructuring and will be released in July 2017
28
3. STRATEGY & TURNAROUND INITIATIVESBERNIE BROOKES - CEO
29
ROADMAP WITH STRATEGIC INITIATIVES2016 2017
INITIATIVE
STATUS UPDATEOCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP
GROWTH
ENABLERS
COST
LEAN HQ & OPERATING MODEL
GNFR
COGS REDUCTION
PROPERTY
EDGARS CHAIN: TURNAROUND/CUSTOMER CENTRICITY
JET CHAIN: LEAN DISCOUNT RE-POSITIONING
SPECIALTY CHAINS: STRATEGY REVIEW AND REFRESH
CREDIT SALES
LOYALTY PROGRAM
CUSTOMER CENTRICITY
IT STRATEGY AND RENEWAL PLAN
SUPPLY CHAIN & LOGISTICS ROADMAP
SUPPLIER ENGAGEMENT
INVENTORY
Savings realized and locked in
Savings being realized
Savings being realized
Savings being realized
Initiatives underway – customer experience,
category management, change management
Initiatives underway – In-store experience,
every day low price & cost savings
Legit sale complete
Portfolio strategy review underway
Own book sales picking up ( over R400m)
Strategy developed and initial value target
identified
NPS roll-out underway
Strategy and roadmap complete.
RFP’s launched
Strategy and roadmap complete.
Roll-out underway
Review underway
Review underway
1
2
3
4
5
6
7
8
9
10
11
12
13
14
30
EDGARS: STRATEGIC AND TACTICAL INITIATIVES
EDGARS BRAND
BUILDING
• Continue to invest in Edgars brand and private labels
• Focus on consistent marketing messages and on big bold promotions
• Further roll out of Kelso stand-alone stores
CUSTOMER
EXPERIENCE
• Continued implementation of NPS (143 stores YTD), showing positive uplifts
• Further roll out dedicated service and new look and feel
• Localised offers tested in CBD stores with further roll-out planned
CATEGORY
MANAGEMENT
• New range building methodology incorporated across all merchandise reviews
• Finalised brand books across all Private Label brands
• Continued focus on strong KVIs at attractive prices
• Partnerships with key suppliers to improve scale benefits and simplify assortments
• Systematic approach to markdowns to clear stock embedded
CREDIT & FINANCIAL
SERVICES
• Operational adjustments implemented to drive credit sales
• Focused credit marketing plan developed
CHANGE
MANAGEMENT
• Learning plan approved and currently being implemented
• Leadership & team development programs in place
• Continued focus on employee engagement via “Lets Connect” platforms, Strategy update videos etc
• Re-energising of Edgars Star of the Quarter recognition program
31
EDGARS - PRICE POSITIONING BEING RECOGNISED BY CUSTOMERS AND SUPPORTED BY INCREASED PERCEPTION OF QUALITY
4449 81
88
+5 pts
+7 pts
PROMOTERS
DETRACTORS
NPS
32
JET: STRATEGIC AND TACTICAL INITIATIVES
SALES GROWTH
• In-store experience: New store lay-out, stronger price call-outs and simplified signage rolling out to stores -
improvements in sales and GP growth vs. Chain being realised
• Exit retail: Reviewing exit retail fixtures and product range to optimise sales opportunities
• Re-fresh JetMart model: Reviewing the JetMart business model to optimise profitability
• Small store formats: Developed and piloted small store formats to drive future growth (6 stores opened to date)
• Optimise store footprint: Reviewing stores for consolidation to improve trading densities
• Lay-by: Continue to drive lay-by offer and reduced deposit requirements from 20% to 10%
• Assortment: Infantswear performance boosted by successful Baby Fair campaign and setting up new category tests
(Mens Formal, Maternity and Home Softs)
• Customer Centricity: Framework for marketing strategy developed and NPS roll-out progressing (326 stores to date)
GP IMPROVEMENT
• Product ranges: Selective price increases across Apparel, continued range rationalisation in home hards and
expansion of Food into most SA JetMarts
• Pricing: Re-establishing price perception in the market through increased contribution and focus on everyday low
price items and key entry price points (strong deals planned for the quarter)
CREDIT & FINANCIAL
SERVICES
• Credit: Revised agreement with ABSA resulting in more control over new business credit sales
• FS: Continue to drive additional income on insurance products through the operations channel
COST SAVINGS
• Advertising: Continued advertising savings on costs through POS reduction, media optimisation, less campaigns and
capturing synergies with Credit & Financial Services
• Lean operating model: Continued focus on cost savings
PEOPLE
• Improving employee engagement: Continued focus on people initiatives to improve the employee experience that
empowers employees to deliver on business results
• Improving strategic capability: Continued focus on leadership capability, through the launch of the Jet Retail and
Leadership Academy to improve leadership and functional competencies to deliver on business results
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SPECIALTY: STRATEGIC AND TACTICAL INITIATIVES
• Expand range and depth of core categories stationery, reading/learning, gifting supplies
• Reduce range and depth of lower margin periphery categories including digital, entertainment
and FMCG
• Drive customer engagement marketing campaigns to strengthen the brand vison “Inspiring a better
world: learning, relaxing, creating, giving”
• Key focus on customer satisfaction to demonstrate that Red Square is the leading beauty
authority
• Continued push for online sales through click and collect online functionality
• Initiate direct marketing campaigns designed to manage the customer life cycle and increase
consumer frequency of visit
• Continue overhaul of online sales supporting processes and logistics to improve lead times and
customer satisfaction
• Rationalise store footprint
• Refocus product range and in store experience to emphasise Boardmans as the ultimate provider
of premium kitchen and home products
Key principle of Specialty strategy is to refocus the brands on core business to
deliver a quality product with a clear message to a targeted customer segment
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SPECIALTY: STRATEGIC AND TACTICAL INITIATIVES
• Expand private label brand Jabari with an annual target of 30% contribution to CFA
• Continue marketing and promotional campaigns to educate the customer on the Edgars
Active athleisure wear brand identity – Life is my Sport
• Utilise group synergies to right-size store footprint
CELLULAR
• Roll out expanded accessories range to select stores for consumer feedback
• Rationalise and optimise the product range to deliver simpler, more concise value
proposition of great deals to market
• Optimise operational and service model to ensure product experts are always available to
deliver exceptional customer service at all times
INTERNATIONAL
BRANDS
• Continue exit of River Island and other underperforming in-store brands (River Island will
continue to be available via their website)
• Engage on-going brands to collaboratively develop profitable go to market propositions
that deliver brand equity, aspirational product & customer experience while strengthening and
enhancing the fashion credibility of the Edgars brand
• Right-size store footprint
Key principle of Specialty strategy is to refocus the brands on core business to
deliver a quality product with a clear message to a targeted customer segment
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CNA:STRATEGIC AND TACTICAL INITIATIVES
BUYING
• Clear old stock and prevent re-occurrence
• Consolidate supplier base to remove the “long tail” whilst optimising supplier mode/terms: move
towards SBT/SOR, review negotiation strategies
• Optimise pricing architecture to prevent pricing misconceptions, win on KVIs and maximise GP
where possible
PLANNING
• Focus core ranges to improve GP & be known for doing a few things well (also rationalise non-
core ranges)
• Localise range allocation to better match supply & demand (broad LSM coverage)
MARKETING
• Optimise catalogues to drive revenue and reduce opex
• Differentially focus direct marketing on high value customers
• Launch guerrilla / localised marketing, low opex but innovative / high impact in local area
• Store look & feel upgrades, to maximise impact per Rand spent
STORE
PORTFOLIO
• Close terminally unprofitable stores (complete)
• Pilot new store formats & locations (investigate franchise options to achieve growth curve)
STORE
OPERATIONS
• Pilot increased in-store staffing model to return to benchmarks (fully self-funding)
• Reduce opex: fewer guards, logistics, printing & utilities cost
ONLINE• Re-platform: (increased functionality, clearer layout, improved look & feel, higher quality photos)
• Move to dark-store (Crown Mines DC) from Menlyn store
B2B • Design & launch B2B business
CNA
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COGS REDUCTION
SHIFTS & SAVINGS
• Reduce reliance on indirect vendors (3rd party imports) from 44% - 16% from Summer 2014 to
Summer 2017
• Shifts & Vendor Management across our direct vendor base to achieve estimated savings of 4% -
6%
• Consolidation, across programs to maximise scale and drive volume
• Pursuing fabric bundling opportunities across core cotton bases, full impact expected in FY19
• Leveraging our worldwide capabilities to ensure we utilise the right source i.e.“ fit for purpose”
• Pursuing a cross functional holistic vendor management process
LOCAL/REGIONAL
FOCUS
• Total Direct Local / Regional vendor base consists of 119 vendors of which 101 are based in South
Africa, with a share remaining consistent at 85%
• 24% growth in placement for Summer 2014 to Summer 2017
• “Project Durban” initiated in March of this year with satellite office set-up to assist vendor base in
greater Durban region with capacity management, on time deliveries & improve product capabilities
• Edcon joined the Sustainable Cotton Cluster in November 2016 with the objective to support the
cotton sector through the entire supply chain
• Edcon has committed to 600 tons of cotton lint being harvested in May 2017
CELROSE & EDDELS
• Ramping up placement by FY19 resulting in 158% increase in units & 121% in Rands
• Shifting of key products to gain savings through partnership with Celrose & Eddels
• Assist in expanding current product capabilities
• Create 340 new jobs through the above ramp up plan
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SUPPLY CHAIN: STRATEGIC AND TACTICAL INITIATIVES
EFFICIENT
LOGISTICS
• Optimise supply chain processes to reduce lead-times to DC & stores
• Smooth input flow to align DC and store processing capacities
• Utilise alternative delivery methods (e.g. electronic pre-sorts) to free up DC capacity, reduce lead
times, stock losses & improve Data Integrity
• Adjust delivery windows to minimise interest on inventory for stock held at DC’s over the weekend
• Increased visibility of stock across the Supply Chain network
MINIMAL STOCK
ROOM
PROCESSING
• Deliver floor ready merchandise to stores by moving Value Added Services (e.g. adding hangers
onto garments) further up the supply chain
• Save on labour cost & enable store staff to focus on customer experience
• Reduce processing times (store receipt to floor)
• Reduce stock losses/damages that occur in the Supply Chain network
IMPROVED
ALLOCATION
• Minimize stock-outs and reduce markdowns by holding back a portion of stock and allocating
based on sales
• Reduce inventory in supply chain network
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• Delivery of IT roadmap to address cost and risk challenges
• Re-sourcing of key vendor contracts to achieve savings over
the 5 year IT transformation
• Transformation of IT systems will enable and support the
business strategy
SUMMARY
CREDITOR
PLAN COMMITMENTS
OBJECTIVES
PROGRESS
AGAINST COMMITMENTS
IT ROADMAP DEVELOPED
• Board approved full IT transformation
• Roadmap for IT transformation underway and detailed
business cases in the process of being finalised
• RFP process for IT systems overhaul including
negotiations and vendor contract finalisation coming to a
close end May/early June 2017
• Bring Edcon’s IT costs closer in line with retail benchmark
(1.5% of sales vs. 2.9%)
• De-risk, simplify IT-enabled business processes
• Improve service delivery, customer experience
• Increase speed-to-market e.g., promos
• Build internal IT capabilities to better support business in-
line with industry benchmark for in-source / out-source
3 year timeline for primary project delivery, starting
with systems implementation mid-2017 after
completion of vendor contracting period
IT TRANSFORMATION: ROADMAP STATUS UPDATE
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IT OUTCOMES: SUMMARY PER INITIATIVE
• New improved services to support the business requirements
• Contracts are standardised and consistent with best practice
• Improved robust infrastructure
• Consolidation of service providers to achieve economies of scale
• Savings will be realised with the new services contracted with the selected vendors
• Costs will be more in-line with IT benchmarks
INFRASTRUCTURE
• Simplified integration layer enabling agility to meet business requirements and to compete in the market
• Increased business service satisfaction with a robust integration platform and single view of the customer
• Reduced time to market of integration features through creation of reusable standards and assets
• Fundamental lever and foundation in the move towards Omni-Channel
INTEGRATION
• Improved customer experience at PoS as a result of new PoS hardware and software
• Real-time data on sales and returns allowing better planning and inventory management upstream
• Primary lever in the move towards Omni-channel
• Single view of the customer and inventory
• Standardise and simplify key end to end business processes
• Expected revenue uplift
POS
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• Increase speed and agility to market, improve pricing & promotion execution
• Creates clear customer oriented pricing strategies
• Modernise the supply chain to achieve ‘right product at the right place at the right time’
• Grow Omni-channel business to engage new and existing customers
• Empower employees with the right tools and capabilities
• Optimise business processes by standardising and simplifying key end-to-end business processes
MERCHANDISE
AND PLANNING
• New Chart of Accounts and foundational structures embedded in systems provide room for growth & change as
well as providing a better platform for divesting and acquisitions
• Improved system-driven financial controls to help decrease manual interventions and financial surprises
• Improved interface accuracy and decreased journaling resulting in a faster month-end close
• Good practice controls and data quality will support the business strategy of listing in the foreseeable future
FINANCE
BUSINESS
INTELLIGENCE
• One source of the truth for all data required for making business decisions
• Significant reduction in manual effort, offline spreadsheets and data processing
• Seamless and near real-time reporting where necessary
• Increased delivery of insights and analytics to help users react and take actions faster in response to market
change and competition
IT - SUMMARY OF INITIATIVE OUTCOMES
41
EFFICIENT LOGISTICS
• Optimise supply chain processes to reduce lead-times to DC & stores
• Smooth input flow to align DC and store processing capacities
• Utilise alternative delivery methods (e.g. electronic pre-sorts) to free up DC capacity, reduce lead
times, stock losses & improve Data Integrity
• Adjust delivery windows to minimise interest on inventory for stock held at DC’s over the weekend
• Increased visibility of stock across the Supply Chain network
MINIMAL STOCK ROOM
PROCESSING
• Deliver floor ready merchandise to stores by moving Value Added Services (e.g. adding hangers
onto garments) further up the supply chain
• Save on labour cost & enable store staff to focus on customer experience
• Reduce processing times (store receipt to floor)
• Reduce stock losses/damages that occur in the Supply Chain network
IMPROVED ALLOCATION
• Minimize stock-outs and reduce markdowns by holding back a portion of stock and allocating
based on sales
• Reduce inventory in supply chain network
SUPPLY CHAIN: STRATEGIC AND TACTICAL INITIATIVES
42
AGED STOCKS:AT COST END MARCH 2017 (EX-LEGIT)
AGED STOCKS 0-2
MONTHS
+2.4% UP ON LAST YEAR
• Edcon has more current stock than last year
• Area’s that are more current than last year: Jet, Edgars Footwear, Edgars Kids wear,
Edgars Accessories, Cellular, Cosmetics and Studio Q
AGED STOCK 3-6 MONTHS
-5% DECREASE ONLY
• Edcon has less 3-6 months stock than last year
• Area’s showing good improvements to last year: Jet, International brands, Edgars
ladies wear, Edgars Active
• Area's showing more stock than LY: Active wear in Edgars, Cosmetics, C. N. A,
Cellular
AGED STOCK >7 MONTHS
-1% DECREASE ONLY
• Edcon has less aged stock than last year
• Area’s showing good improvements to LY: Jet, International brands, Edgars Menswear,
Edgars Footwear, Edgars Kids
• Area's showing more stock than LY: Boardmans and Edgars Home, Edgars ladies wear,
Active wear in Edgars, Edgars Active, Cosmetics and Studio Q
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CREDIT, FINANCIAL SERVICES AND COMMERCIAL SALES
CREDIT PORTFOLIO
• New account acquisition strategy revised and successfully implemented: Since November
2016 Edcon acquire ~80% of new accounts on balance sheet resulting in more control over new
business credit sales with positive early signs
• Revised new account credit limits positively contributing to sales: Increase credit limits offered
on Edcon owned portfolio positively impacting on new account sales
• Developing revised, complaint new account application and credit limit increase processes to
enhance customer experience when opening new accounts and applying for credit limit increases
• Introduce targeted credit marketing campaigns, resulting in increased shopping frequency
• Continuous focus collections efficiency, resulting in improved portfolio performance
• Considering various funding option for Edcon funded portfolio to support continuous growth
FINANCIAL SERVICES
PRODUCTS
• Continued strong performance of Hollard insurance partnership
• Retailer aligned credit limit strategy to support future growth
• Successfully rolled out expanded insurance offering in Swaziland and Botswana with strong
future growth prospects
COMMERCIAL SALES
GROWTH
• Successfully introduced new commercial sales unit which supported Group sales
• Gift card sales continue to show strong growth though new corporate partnerships
• More focused 3rd party credit offering positively contributing to credit sales
• Piloting corporate sales offering with strong future growth prospects
• Piloting term loan financing model in selected CNA and JetMart stores to support big ticket item
sales
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Reintroduce auto credit limit increases (ACLI)
Introduce new account shadow limits
Revise collections and recoveries strategies
Implement new provision models
Implement portfolio specific profit models
Realign core insurance business
Redesign new application process
Redesign offered credit limit increase process (CLI)
Automate gift card process
Introduce Corporate accounts
Redesign insurance claims process
a
b
c
d
e
f
g
h
i
j
k
TACTICAL INITIATIVES
STRATEGIC INITIATIVES
CREDIT & FINANCIAL SERVICES: STRATEGY & KEY BUSINESS PRIORITIES
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• Absa’s book can be considered in two components; existing
customers (back book) and new customers (flow). Absa’s
conservative lending practices have predominantly been felt with
respect to the flow as Absa has been unwilling to lend to higher
risk customers and in general has made lower limits available to
all new customers.
• Under the improved relationship with Absa, Edcon is
responsible for lending to the medium to high risk customers,
whilst Absa will continue to lend to the low risk customers. Absa has
agreed to almost double the limits it makes available to these low
risk customers.
• Absa will continue to be responsible for lending to the back
book (existing customers). Absa is happy to provide reasonable
limits to these customers as they have seasoned and therefore their
risk profile is well understood.
IMPROVED RELATIONSHIP WITH ABSA
46
5. WAY FORWARDBERNIE BROOKES - CEO
47
• Transaction with creditors
completed, focus now shifted to
business operations
• Continue to drive the three pillars of
the Edcon strategy: Customer
Centricity, Empowerment and
Simplicity
• Strategy starting to impact – first
month of new trading year, April FY18
saw a growth in EBITDA
• Continued focus on credit sales
initiatives - credit sales higher than
cash sales in April FY18 for first time
since 2010
• Each division focused on
continued strategic and tactical
initiatives
WAY FORWARD - GROUP
• Finalization of the rationalization of
international brands
• Supply chain and logistics
initiatives to be implemented
• Continue journey to improved IT
infrastructure
• Enhanced loyalty offering to
customers
• Consolidation of key brands in
Specialty chain into Edgars and
Jet for greater synergies, efficient
relationships, meeting needs of
target market
• Continue the momentum of the first
6 weeks
• Meet covenants and focus on
refinance of EUR debt
EDGARS
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WAY FORWARD CHAINS
• Continued focus on strategic and tactical initiatives of each
chain:
• Continuing to enhance and improve the private label
offering
• Store optimisation and service delivery model rolled out to
more stores
• Complete the roll out of NPS and further embed customer
service into the chains
• Continue to be competitive on price
• Faster stock turns
• Space optimisation
• Range rationalizations continuing
• Continue to enhance private label offering
• Continue to develop Jet small store concept
• Continue turnaround initiatives for CNA and Cellular
EDGARS
49
CLUB FEE DISCLOSURE
• “The NCR referred a complaint to the National Consumer Tribunal (“NCT”) in terms of section 140(2) (b) of the National Credit Act, 32 of 2005 (“NCA”) wherein the NCR asked for a declaration by the NCT that Edcon had contravened the NCA by requiring the payment of club fees in terms of its credit agreements. The Company noted the NCT’s judgment issued on the 24 April 2017 and, following consultation with Senior Counsel on the matter, filed an appeal with the High Court on 10 May 2017. At the commencement of the hearing, the parties agreed that the Tribunal will only deal with the merits of the case, and that a separate hearing process will be instituted following the judgment. The Appeal, as filed, has the effect staying the Sanctions hearing until the Appeal process has been finalised.
• We maintain that we have not violated the NCA and expect to be vindicated in due course. In this regard, we note that the Tribunal did not find (and could not have found) that the selling of a Club product is unlawful in and of itself, rather, the finding was that the inclusion of Club in credit agreement is contrary to the NCA. Furthermore, we are of the view that no consumer could have been disadvantaged by choosing to purchase an option product and receiving full value for their purchase.”
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For more information: www.edcon.co.za
UNAUDITED CONSOLIDATED RESULTSQ4 AND FULL YEAR 2017
25 MAY 2017
JET
