PRESENTATION OF CONSOLIDATED RESULTS...Consolidated results for the quarter ended 26 September 2015...

PRESENTATION OF CONSOLIDATED RESULTS

for the quarter ended 26 September 2015

Q2 : FY16 RESULTS

Financial Review

Looking forward

Strategic and operational update

Consolidated results for the quarter ended 26 September 2015

MACRO BACKDROP

22.0

23.0

24.0

25.0

26.0

27.0

0.0

1.0

2.0

3.0

4.0

20

13

-06

-01

20

13

-07

-01

20

13

-08

-01

20

13

-09

-01

20

13

-10

-01

20

13

-11

-01

20

13

-12

-01

20

14

-01

-01

20

14

-02

-01

20

14

-03

-01

20

14

-04

-01

20

14

-05

-01

20

14

-06

-01

20

14

-07

-01

20

14

-08

-01

20

14

-09

-01

20

14

-10

-01

20

14

-11

-01

20

14

-12

-01

20

15

-01

-01

20

15

-02

-01

20

15

-03

-01

20

15

-04

-01

20

15

-05

-01

20

15

-06

-01

Real GDP (y-o-y %) Unemployment rate (%)

GDP GROWTH AND UNEMPLOYMENT RATE

8.0

10.0

12.0

14.0

16.0

18.0

20

14

-10

-29

20

14

-11

-29

20

14

-12

-29

20

15

-01

-29

20

15

-02

-28

20

15

-03

-31

20

15

-04

-30

20

15

-05

-31

20

15

-06

-30

20

15

-07

-31

20

15

-08

-31

20

15

-09

-30

USDZAR EURZAR

5.0

6.0

7.0

8.0

9.0

10.0

2013-09-01

2013-10-01

2013-11-01

2013-12-01

2014-01-01

2014-02-01

2014-03-01

2014-04-01

2014-05-01

2014-06-01

2014-07-01

2014-08-01

2014-09-01

2014-10-01

2014-11-01

2014-12-01

2015-01-01

2015-02-01

2015-03-01

2015-04-01

2015-05-01

2015-06-01

2015-07-01

2015-08-01

2015-09-01

0

2

4

6

8

10

20

13

/07

20

14

/01

20

14

/07

20

15

/01

20

15

/07

Prime rate Repo rate

EXCHANGE RATES

PRIVATE SECTOR CREDIT EXTENSION (Y-O-Y %) REPO & PRIME RATE

Source: SARB & StatsSA

3


MACRO BACKDROP

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

Q2

:20

13

Q3

:20

13

Q4

:20

13

Q1

:20

14

Q2

:20

14

Q3

:20

14

Q4

:20

14

Q1

:20

15

Q2

:20

15

INFLATION

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

20

13

/07

20

14

/01

20

14

/07

20

15

/01

20

15

/07

Total retail sales CFT sales

76.0

77.0

78.0

79.0

80.0

81.0

20

13

-03

-01

20

13

-04

-01

20

13

-05

-01

20

13

-06

-01

20

13

-07

-01

20

13

-08

-01

20

13

-09

-01

20

13

-10

-01

20

13

-11

-01

20

13

-12

-01

20

14

-01

-01

20

14

-02

-01

20

14

-03

-01

20

14

-04

-01

20

14

-05

-01

20

14

-06

-01

20

14

-07

-01

20

14

-08

-01

20

14

-09

-01

20

14

-10

-01

20

14

-11

-01

20

14

-12

-01

20

15

-01

-01

20

15

-02

-01

20

15

-03

-01

FNB/BER CONSUMER CONFIDENCE INDEX

RETAIL SALES HOUSEHOLD DEBT TO GROSS DISPOSABLE INCOME RATIO

4

-20

-15

-10

-5

0

5

Q3

:20

13

Q4

:20

13

Q1

:20

14

Q2

:20

14

Q3

:20

14

Q4

:20

14

Q1

:20

15

Q2

:20

15

Q3

:20

15

Source: SARB & StatsSA


KEY FEATURES FOR THE QUARTER

Retail sales ↓ 0.1%

Cash sales ↑ 5.6%

Credit sales ↓ 7.6%

LFL Sales ↓ 2.2%

5

Pro forma adjusted EBITDA ↑ 3.1%

Gross Profit ↓ 1.3%

Edgars clearance well managed

Controlled costs well managed

Data-set gathering well advanced

Metamorphosis

Constrained consumer environment continues to

impact top line

5th consecutive quarter of EBITDA growth

Vision in progress

SA

LE

SP

RO

FIT

SS

TR

AT

EG

Y


GROUP INITIATIVES

An accredited Merchant Development Programme provides entry level merchant talent to Edgars

Implementation of changes required under legislation

Flexible labour force

Prioritisation of retention strategies

Coaching for senior leadership

PEOPLE

6

PRODUCT

SERVICE PROPERTY

Positive shift in Edgars customer experience ratings following

Nationwide “Lets Connect” staff engagement sessions

In-store voice of the customer feedback daily

Focus on staff recognition for living the Edcon Values

NCR affordability requirements rolled out to all stores

Lay-buy options to assist customers

Service/Product specialists in CNA

Skills and knowledge improvements

Additional international brands launched shop-in-shop:

Apparel: Vero Moda, Only and Jack Jones

Cosmetics: Benefit, Dolce & Gabbana Colour & Treatment

Introduction of Verssed in Discount Division

Entry level private label tablets

Renewed focus on stationery in CNA

De-prioritisation of music and visual ranges

Boardmans “own-brand” offer expanded and improved

New concept Jet store launched in Cresta

Approved implementation of a new CNA concept

Courier, printing, scanning and binding services through shop-in-shop planned

Discount stores closed to consolidate space predominantly within CBDs

Initiation of 100% LED illumination of trading floor

Consolidated results for the quarter ended 26 September 2015 7

EDGARS DIVISION

Q2:FY16 Q2:FY15

Retail sales growth (%) (0.3) 3.0

LFL Sales growth (%) (2.6) (1.7)

GP Margin (%) 36.9 38.2

No. of stores 549 510

Capex spend (R’m) 81 171

Cash sales grew 6.0% whilecredit sales reduced 6.7%

Mono-branded stores performancecontinues to be positive

Margin impacted by

Aggressive winter clearance introduced early

Underlying margins remain sound

5 new stores opened, with 78% of capex spend on expansion

Two River Island flagship stores opened

203 Edgars stores · LSM 6-10 175 Edgars Active stores · LSM 4-7 34 Boardmans stores · LSM 7-10

43 Red Square stores - LSM 5-10 7 Edgars Shoe Gallery stores · LSM 5-10 85 Mono-branded stores · LSM 7-10


DISCOUNT DIVISION

Q2:FY16 Q2:FY15

Retail sales growth (%) (0.1) 2.0


GP Margin (%) 33.5 32.7



Cash sales grew 6.1% while credit sales reduced 10.7%

Margin accretion due to

Improved pricing

Stock levels well managed

6 new stores in the quarter, 71% of capex on new stores

New concept store being trialled at same time new brand launched

391 Jet stores · LSM 4-7 208 Legit stores · LSM 5-8 129 Jet Mart stores · LSM 4-7


CNA DIVISION

Q2:FY16 Q2:FY15

Retail sales growth (%) (4.3) (3.7)


GP Margin (%) 28.8 30.8



Cash and credit sales declinedby 0.9% and 14.4% respectively

Margin impacted by

Product mix

197* CNA stores · LSM 7-10

* Includes 6 Samsung stores

Q2 : FY16 RESULTS

Financial Review

Looking forward



-6.6%

1.0%

4.2%

11.1%

2.5% 3.1%

Q1:FY15 Q2:FY15 Q3:FY15 Q4:FY15 Q1:FY16 Q2:FY16

% change on previous period

KEY HIGHLIGHTS FOR Q2:FY16

PRO FORMA ADJUSTED EBITDA IMPROVING

11

5th consecutive quarter of positive EBITDA growth

Strong cash sales offset by continued weakness in credit sales

Credit: Cash sales ratio of 40.3% from 43.5% in Q2:FY15*

Own book continues to supplement offering

Underlying margin well ahead of last year, positioning us well for peak quarter

Aggressive clearance of aging winter stock resulting in healthy profile and stock levels

Cost continues to be well managed in all areas

More opportunity exists

Continued focus on working capital management

* Including Edgars Zimbabwe


STATEMENT OF COMPREHENSIVE INCOME

(R millions) Q2:FY15 Q2:FY16 % change

Retail sales 6 190 6 181 (0.1)

Gross profit 2 215 2 187 (1.3)

Gross profit margin 35.8 35.4 (0.4)pts

Other income 277 359 29.6

Store costs (1 506) (1 565) 3.9

Other operating costs (1 019) (1 127) 10.6

Share of profits of associates 168 264 57.1

Trading profit 135 118 (12.6)

Pro forma adjusted EBITDA 486 501 3.1


PRO FORMA ADJUSTED EBITDA

(R millions) Q2:FY15 Q2:FY16 % change

Trading profit 135 118 (12.6)

Depreciation & amortisation 263 251

Net asset write off(1) 3 3

Profit from discontinued operations(2) 25 4

Non-recurring costs(3) 93 133

Adjusted EBITDA 519 509 (1.9)

Net income from previous card programme(4) (35) (36)

Net income from new card programme(5) 2 28

Pro forma adjusted EBITDA 486 501 3.1

Pro forma adjusted EBITDA margin 7.9% 8.1% 0.2 pts

(1) Relates to assets written off in connection with store conversions, net of related proceeds.(2) The results of discontinued operations are included before tax.(3) Relates to costs associated with various strategic initiatives in Q2:FY16 of R119 million, onerous lease charges of R14 million in Q2:FY16 (R53 million in Q2:FY15),restructuring credit of R1 million in Q2:FY16 (R6 million charge

in Q2:FY15), lease cancellation cost of R1 million in Q2:FY16 and R34 million in costs associated with the trade receivables book in Q2:FY15.(4) Net income derived from 100% of the trade receivables including finance charges revenue, bad debts and provisions.(5) Pro forma fee earned by Edcon under the new arrangement with Absa, based on 100% of the trade receivables book.


COST PROGRAMME UPDATE

(R millions) Q2:FY16

LTM pro forma adjusted EBITDA 2 757

Permanent adjustments:

Corporate and operational overhead reductions 152

Renegotiation of contracts 85

LTM pro forma adjusted EBITDA (incl. adjustments) 2 994

Normalised pro forma net debt (1)/LTM pro forma adjusted EBITDA (times) 8.9x

Pro forma net debt(2)/LTM pro forma adjusted EBITDA including cost savings (times) 7.3x

1) Net debt has been adjusted by trade receivables still to be sold of R350 million in Q2:FY16.2) Based on pro forma net debt of R22,248 million based on the anticipated conversion as a result of the exchange offer.

LTM savings on contracts mainly relate to credit card intercharge rates negotiated plus rentals renegotiated

LTM savings on corporate and operational overhead reduction mainly relate to cost savings on reduction of headcount plus savings on move tocustomer e-statements


634979

492 1 810

2 683

106

Net financing costs

Closing cash balance

1 544

TaxCapex Financing activities

Operating activities

Opening cash balance

Working capital

2 376

CASH FLOW FOR LTM Q2:FY16

Source: Edcon financials (LTM restated for classification of Hollard associate, consumables and supplier contract)1. Includes R42m from proceeds of sale from trade receivables2. Includes R177m net for derivatives settlement and R7m for currency adjustments3. Increased purchases leading towards the peak trading period combined with working capital initiatives and R331m relating to fees received not yet recognised in profit and loss

Working Capital

1

2

3

R’m

-300

Trade receivables, other receivables & prepayments

289

Inventories Trade and other payables

1 223

15


NET DEBT AND PRO FORMA NET DEBT

(R millions)(1) Q2:FY15Drawn

Q2:FY16Drawn

Pro forma(2)

Super senior secured

ZAR Revolving credit facility(3) 1 601 3 144 3 144

ZAR Floating rate notes due 4 April 2016 J+625bps 1 002 1 007 1 007

EUR Super senior PIK notes due 30 June 2019 8.0% 338 1 806

Senior secured

ZAR term loan due 16 May 2017 J+700bps 4 036 4 147 4 147

EUR fixed rate note due 1 March 2018 9.5% 8 536 9 440 9 440

USD fixed rate note due 1 March 2018 9.5% 2 772 3 455 3 455

EUR Senior secured PIK notes due 30 June 2019(4) 9.75% 564

Deferred option premium 1 178 1 077 1 077

Lease liabilities 382 359 359

Senior

EUR fixed rate notes due 30 June 2022(5) 5.0% 5 835 52 52

EUR fixed rate notes due 30 June 2019 13.375% 3 120

EUR fixed rate notes due 30 June 2019 13.375% 3 763

Other loans(6) 203 369 369

Gross debt 25 545 30 271 25 420

Derivatives (1 498) (1 628) (1 628)

Cash and cash equivalents (492) (1 544) (1 544)

Net debt 23 555 27 099 22 248

Lower debt 4 8511) FX rates at end of Q2:FY15 were R11.22:$ and R14.24:€ and at end of Q2:FY16 were R13.92:$ (Q1:FY16 R12.20:$) and R15.60: € (Q1:FY16 R13.64:€).

2) Pro forma for implementation of the exchange offer including conversion of the Option A and B notes to new super senior PIK notes and new senior secured PIK notes (excluding fees estimated at EUR26 million). All EUR notes are converted at the FX rates at the end of Q2:FY16.

3) The total limit under the super senior revolving credit facility is R3 717 million which matures on 31 December 2016. The maximum utilisation of the revolving credit facility during Q2:FY16 was R3 206 million. At the end of the period R413 million of the facilities were utilised for guarantees and

LC’s. A R1 billion super senior liquidity facility is also in place, but not drawn as at 26 September 2015, with an initial termination date of 30 September 2016, subject to exercise of an extension option up to the earlier of six months following the initial termination date and the termination date

in respect of the revolving credit facility.

4) The notes are 9.75% cash pay with a toggle option to 12.75% PIK

5) The maturity of the original 2019 Notes not tendered has been extended to 30 June 2022 and the interest rate reduced to 5.0% as part of the amendments. In Q2:FY15, the EUR Fixed rate notes had a maturity of 30 June 2019 and cash pay interest of 13.375% prior to the exchange offer.

6) The portion of the debt relating to Zimbabwe was R343 million in Q2:FY16 and R184 million in Q2:FY15.


LIQUIDITY AND BALANCE SHEET MANAGEMENT

HEDGING OF GROSS DEBT

17

Total net debt increased mainly due to currency decline, issue of €21 million in aggregate principal amount of new super senior 8% PIK Notes as an early consent consideration, capitalisation of PIK interest on 2019 notes, and a higher draw on the RCF

Conversion of Option A & Option B PIK notes to be concluded before 31 December 2015

Net cash interest decreasing by circa R1 billion a year on an LTM basis

Net indebtedness on proforma basis decreasing by circa R4.8 billion

Next peak in working capital cycle anticipated in late November 2015

Cash and cash equivalents of R1,544 million

Additional facilities of R1,136 million

2016 Refinancing process

Process well advanced and good progress being made

32%

11%29%

27%

1%

ZAR USD (hedged) EURO (hedged) EURO (unhedged) Other loans

Note: 91% of 2018 principal hedged, 2019 principal unhedged

Q2 : FY16 RESULTS

Financial Review

Looking forward



FORWARD LOOKING THEMES

Entrenching customer-centric focus

Maintaining store portfolio and improving productivity

Optimise balance between private label and international brands

Improving digital offering

Build Africa business

Improve supply chain with quick response capabilities

Simplify the model and retain cost management efforts

Further utilisation of the customer loyalty platform

Stabilise impact of credit

Q2 : FY16 RESULTS

For more information

Our website: www.edcon.co.za

Edcon contacts for more information:

Deputy Chief Financial Officer

Richard Vaughan

[email protected]

Thank You

PRESENTATION OF CONSOLIDATED RESULTS...Consolidated results for the quarter ended 26 September 2015...

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