The PAS Group Limited – H1 FY2018 Results Briefing
ABN 25 169 477 463
22 February 2018
H1 FY2018 Results Summary
Financial Summary (i)
H1 FY2018 H1 FY2017
Sales $131.4 million $135.7 million
EBITDA $8.4 million $11.6 million
NPAT – Continuing $3.0 million $5.4 million
NPAT – Total Business $3.0 million $4.8 million
• Sales growth driven by online, new stores, and the annualisation of stores opened in FY2017
• Continued strong growth in loyalty programs with total membership up 82,000 (11%) to 836,000 and now representing 75% of total Retail sales
• Whilst we have tempered our new store roll-out program in line with our strategy, we have continued to open new stores in targeted locations including 8 Review concession stores in David Jones
• Clean inventory levels ensuring no requirement for excessive late season clearance
• Sales down 3.2% to $131.4 million
Retail sales up 0.4%
Wholesale sales down 7.1%
• Negative like-for-like Retail sales due to challenging trading conditions and significant promotional activity across the industry, particularly for the first 8 weeks of the half and over the Christmas trade period
• Reduced concession sales and lower foot traffic at Myer
• Online sales grew 25.5% on top of the 41.0% growth achieved in
FY2017
• $5.1m of low margin Wholesale sales discontinued in Designworks
• Gross profit of 57.2% well managed, up 1.2% on H1 FY2017
• EBITDA from continuing business of $8.4 million (inclusive of $1.0m of non-recurring costs), down 28.0% on H1 FY2017
• EBITDA was impacted by the tougher retail trading environment, delays to Wholesale orders in Designworks, reduced Independent Wholesale sales and a higher cost base from investment in new and annualised stores
• Debt free with net cash on hand of $5.7 million
• EPS of 2.2 cents per share, Interim dividend declared of 1.5 cents per share fully franked, funded from free cash flow
(i) All statutory financials are presented on a “Continuing” business basis unless otherwise noted.
See Continuing to “Total Business” reconciliation at Appendix A
Operational Summary
1.
Retail Segment
H1 FY2017 to H1 FY2018 Retail Sales Bridge ($ million)
• 11 new Retail sites opened in H1:
Black Pepper; 1 store
Review; 1 store, 8 concessions
Bondi Bather; 1 store (acquired)
• Successful execution of new store concepts in Melbourne Central and Booragoon with both trading ahead of expectations
• Active renewal and rationalisation of our store portfolio, with 5 stores closed at lease end
FY2017 Opened Closed H1 FY2018
Black Pepper 144 1 (4) 141
Review 111 9 (0) 120
New Businesses & Other
3 1 (1) 3
Total Retail Sites 258 11 (5) 264
• Retail sales grew by 0.4% to $72.3m
• Growth due to:
Online sales growth of 25.5% in addition to the 41% growth achieved in FY2017;
The impact of the 11 new stores opened in H1 including 8 Review concessions in David Jones;
The annualised impact of new stores and closed stores in FY2017; offset by
Negative LFL sales particularly in Myer concessions
71.9 (3.4)
1.6
4.6 (2.4)
72.3
H1 FY2017Sales
LFL Growth New Stores AnnualisedStores
Closed Stores H1 FY2018Sales
Summary
Retail Sites
Total Retail Sites by Brand
2.
• H1 Online sales now represent 14.0% of Group Retail sales across the group, up from 11.2% in H1 FY2017
• Launched Review on the Alibaba Tmall platform in January 2018. Review are the first Australian apparel business to launch on Tmall and with over 300 million registered users, this has opened up a significant opportunity in an exciting market. Tmall are dedicated to providing a premium shopping experience for increasingly sophisticated Chinese customers in search for top quality branded merchandise
• Access to key Retail partners’ online customer base continued to be achieved with the launch of David Jones Dropship for Review and The Iconic Marketplace for JETS
• Successful launch of B.O.D by Rachael Finch website in November 2017
• Launch of Everlast Australia website in December 2017, providing a direct to customer opportunity for the business
Online Growth (H1 FY2014 – H1 FY2018)
2.6%
4.5%
8.6%
11.2%
14.0%
Online % of sales
H1FY14 H1FY15 H1FY16 H1FY17 H1FY18
Operational Highlights - Online & Customer Loyalty
3.
• Loyalty membership grew by a further 82,000 members (+11%) in H1 2018 to 836,000 members
• Loyalty program sales now represent c.75% of sales and continues to provide improved consumer insights, enable tailored communication and drive traffic to our Retail stores
• Upcoming launch of the new Review website in H2 on the Salesforce Commerce Cloud platform, which is expected to provide an improved customer experience and greater conversion
• Launched Alipay in selected Review stores, enabling the business to easily accept non-cash payments from Chinese customers in store
• Launch of Review on Amazon Marketplace and the launch of Everlast on Amazon
planned for H2
108
342
534
652
836
Loyalty ('000 members)
H1FY14 H1FY15 H1FY16 H1FY17 H1FY18
Loyalty Growth (H1 FY2014 – H1 FY2018)
Operational Highlights - Online & Customer Loyalty
4.
• Wholesale sales in H1 were $59.1m, down 7.1% on the same period last year
• Designworks sales reflect the discontinuation of $5.1m of low margin sales
• Sales were down on prior year due to order movements from Designworks Department Store customers and reduced Independent Wholesale sales
• Strong increase in gross profit due to improved gross margins driven by continued growth in the Sport Division
DESIGNWORKS
• H1 sales down 8.9% to $43.6 million due to delays in orders, however impact largely offset by improved margin
• 89% of sales now from Licensed business and Sport, continuing to de-risk and reduce reliance on Private Label sales
• Increased sales in H1 in the Sport Division driven by growth in new Footwear ranges and Sports Equipment
• Launch of Everlast Australia online
• Business well positioned for moderate growth in H2 and major growth in FY2019 due to:
Growth of Lonsdale;
Coles Supermarkets Mix program;
Continued growth of Footwear;
Sales from direct to consumer websites (Everlast and B.O.D by Rachael Finch);
The launch of Suburban as a major brand with Target; and
The addition of a new international sports brand
H1 FY2018 H1 FY2017
68% 68%
9% 8%
23% 24%
H1 FY2017 H1 FY2018
Designworks Black Pepper Other
Private Label, 9%
Licensed Apparel &
Accessories, 39%
Owned Brand, 2%
Sports, 50%
Private Label, 11%
Licensed - Apparel &
Accessories, 48%
Owned Brand, 2%
Sports, 39%
Wholesale, Design & Distribution
Wholesale Sales by Brand – H1 FY2017 v H1 FY2018
Designworks Product Mix – H1 FY2017 v H1 FY2018
5.
OTHER WHOLESALE
• Further investment in JETS infrastructure to drive growth;
• Continued strong performance in Yarra Trail Wholesale; and
• Continued shift from Wholesale to Retail in Black Pepper
68% 68%
9% 8%
23% 24%
H1 FY2017 H1 FY2018
Designworks Black Pepper Other
Wholesale, Design & Distribution (continued)
Wholesale Sales by Brand – H1 FY2017 v H1 FY2018
6.
• Investment in own Retail and International channels has reduced reliance on Private Label sales in local Discount Department stores
• Continued growth in Sport through Rebel and Independents
• Increase in David Jones due to 8 new Review concession stores opened during H1
Sales by Customer / Channel – H1 FY2017 Sales by Customer / Channel – H1 FY2018
Kmart 14.5%
Target 6.0%
Rebel 2.7%
Big W 2.9%
Myer - Concessions
10.8%
Myer - Wholesale
2.6% David Jones
4.5%
Independent Wholesale
7.3%
Own Retail Stores 44.9%
International 3.7%
Kmart 14.8%
Target 6.8%
Rebel 1.7%
Big W 2.0%
Myer - Wholesale
3.8% David Jones
2.4%
Independent Wholesale
11.4%
Own Retail Stores 40.9%
International 4.1%
Myer – Concessions
10.0%
Sales by Customer
7.
• Gross margin has continued to be well managed through the currency cycle despite current market conditions and significant promotional activity in the industry
• H1 FY2018 Gross profit % 115bps higher than prior half year driven by increased Retail mix and continued growth in the Designworks Sport division
• Forward US dollar currency requirements for Retail businesses covered to the end of FY2018
$0.90
$0.78
$0.72 $0.75
55.7% 56.0% 56.1% 57.2%
H1 FY2015 H1 FY2016 H1 FY2017 H1 FY2018
AUD $ Gross Margin %
Exchange Rate and Margin
Gross Margin and Exchange Rates
8.
01. 02. 03. 04.
New Store Roll Out
• Tempered new store roll-out
program with emphasis on
opening new stores in targeted
locations (including opening an
additional 3 David Jones
concessions in addition to the
8 opened in H1 FY2018)
• Continued implementation of
the new store concept for
Review, following the success
of Melbourne Central and
Booragoon
• Opening of JETS Port Douglas
in Q3 2018
Store Enhancement
• Continued enhancement of
customer experience via a total
of 26 refurbishments planned for
completion in FY2018
• New store concept planned for
selected Review concessions in
Myer and David Jones
• New store concept for the
upcoming JETS Port Douglas store
as well as selected David Jones
locations
Product and Brand Extension Licensing Opportunities
• Continued growth in
Designworks Sports &
Footwear divisions
• Realisation of new contract
wins including Coles
Supermarket Mix program,
Lonsdale and a new
International sports brand
• Sales from direct to consumer
websites Everlast and B.O.D
by Rachael Finch
• The launch of Suburban as a
major brand with Target
• Opportunities with strong
portfolio of licences and an
ongoing pipeline of new
licensed opportunities
Future Growth Plan
9.
05.
Online Growth
06.
Loyalty
07.
International Growth
08.
Acquisitions
• Online continues to be a major
growth vehicle for the business
both in existing markets and new
channels
• Enhanced focus on single
customer view across
omnichannel
• New website planned for Review
on the Salesforce Commerce
Cloud Platform
• Planned launch of Review on
Amazon Marketplace
• Launch of Review on the Alibaba
Tmall global platform with
potential to add other brands
• Launch of Everlast online and
B.O.D by Rachael Finch
• Launch of new Review and
Black Pepper loyalty programs
• Continued focus on mobile
loyalty and segmented,
targeted communications
• JETS international growth through
Wholesale and online – with a
particular focus on the US and
Europe
• Review China and Asia entry
through Alibaba platforms
• Bondi Bather acquired in
August 2017 as a strategic
addition to the Swimwear
division
• Continuing to evaluate a
broad range of value
enhancing opportunities
Future Growth Plan
10.
• In spite of challenging trading conditions in H1 FY2018 performance
was driven by:
Strong online growth of 25.5%;
New stores and annualisation of stores opened in FY17
which included expansion into 8 David Jones concessions;
Continuation of the strong growth in the Designworks
Sport division; and
A 1.2% increase in overall gross profit margin
• Growth strategy execution according to plan:
Digital and loyalty strategy driving omnichannel sales;
Designworks growth from the new Sport Division including new licence
acquisitions and new categories in Footwear and Equipment;
Selected store openings and targeted refurbishment continues; and
Continued progress on the Swimwear growth strategy
• Strong cash generation with no debt and a flexible banking deal to cost
effectively accommodate growth
• Continuing to explore potential strategic opportunities whilst
maintaining a tight cost control focus
• Trading conditions for the first six weeks of H2 FY2018 continue to be
tough; however, the business is well advanced in the development of
plans to drive further efficiencies.
• Despite the trading environment, PAS remains long term debt free, has a
strong balance sheet and continues to evaluate potential strategic
opportunities.
Conclusion and Outlook
11.
H1 FY2018 Financials
Actual ($ millions) H1 FY2018 H1 FY2017 Var
RETAIL
Review 38.9 39.2 -0.8%
Black Pepper 29.0 29.4 -1.4%
New Businesses and Other 4.4 3.4 +29.4%
Total Retail Sales 72.3 71.9 +0.4%
WHOLESALE
Designworks 40.4 43.6 -7.3%
Black Pepper 4.7 5.9 -20.3%
New Businesses and Other 14.0 14.2 -1.4%
Wholesale Sales 59.1 63.7 -7.1%
Total Sales 131.4 135.6 -3.2%
Retail Sales % of Total Sales 55.0% 53.1%
Wholesale Sales % of Total Sales 45.0% 46.9%
Retail Sales Growth (%) 0.4% 7.3%
Wholesale Sales Growth (%) -7.1% 1.6%
• Review sales impacted by challenging market conditions,
offset by growth driven by a strong online result and
David Jones concession stores opening during the period
• Black Pepper also challenged with aggressive discounting
by competitors in the current environment. Gross profit
% continues to be strong and reflects the planned shift
from Wholesale to Retail
• New business driven by JETS Retail including online and
White Runway
• Continued growth in Designworks Sports sales was offset
by delays in licensed Wholesale orders from the major
Department Stores
• Designworks sales reflect the discontinuation of $5.1m
of low margin sales
Sales by Brand and Segment
13.
• Gross profit margin up 115 basis points reflecting half on half increase
to Retail mix, increased sales in the Designworks Sport Division and
effective management of FX outcomes
• CODB increase on prior year of 330 basis points predominantly due to:
$1.0m of non-recurring costs relating to the on-market takeover
offer, strategic consulting costs and an unfavourable NZ Customs
duty ruling
Continued investment in digital marketing to drive sales growth
Property and employment costs associated with new stores in
H12018 and full year impact of stores rolled out in FY2017
(i) See Continuing Business to Total Business Income Statement reconciliation at Appendix A
Continuing Business ($ millions)(i) H1 FY2018 H1 FY2017 Var
Revenue from Sales 131.4 135.7 -3.2%
Gross Profit 75.1 76.0
Gross Profit Margin (%) 57.2% 56.1%
Cost of Doing Business (CODB) (66.7) (64.4)
CODB (%) 50.8% 47.5%
EBITDA 8.4 11.6 -28.0%
Depreciation & Amortisation (3.8) (3.9)
EBIT 4.6 7.7 -40.3%
Net Finance Costs (0.3) (0.4)
PBT 4.3 7.3 -41.3%
Tax Expense (1.3) (1.9)
NPAT – Continuing Business 3.0 5.4 -45.0%
NPAT – Discontinued Business - (0.6)
NPAT – Reported 3.0 4.8 -38.3%
Income Statement
14.
• No debt
• Net cash of $5.7 million (as at 31 December 2017)
• Inventory and Trade and Other Payables decrease due to prudent stock
management and timing of shipments with Chinese New Year falling later
than prior year
• PP&E decreased due to reduction in new stores
• Goodwill and other intangible increase represents goodwill upon
acquisition of the Bondi Bather business, in addition to investment in
software and web development.
Statutory ($ millions) 31 December 2017 30 June 2017
Cash and Cash Equivalents 5.7 4.9
Trade and Other Receivables 17.9 20.3
Inventory 31.8 33.1
Property, Plant and Equipment 14.3 15.6
Deferred Tax Assets 7.0 7.4
Goodwill & Other Intangible Assets
88.2 85.5
Other Assets 4.8 3.9
Total Assets 169.7 170.7
Trade and Other Payables 16.1 18.5
Deferred Tax Liabilities 7.5 7.5
Other Liabilities 18.6 18.1
Total Liabilities 42.2 44.1
Net Assets 127.5 126.6
Balance Sheet
15.
Statutory ($ millions) H1 FY2018 H1 FY2017
Net profit after tax (i) 3.0 4.8
Non-cash Adjustments 4.5 4.8
Cash profit 7.5 9.6
Movement in Working Capital 1.3 0.3
Movement in Trade & Other Receivables 2.5 (1.8)
Movement in Inventories 1.4 (1.0)
Movement in Trade & Other Payables (2.6) 3.1
Movement in provisions and prepayments (0.6) (0.6)
Net cash flow from operations 8.2 9.3
Cash Flow Conversion (%) 109.3% 96.9%
Receipts/(Payments) for Businesses (0.1) 3.0
Capital Expenditure (3.9) (5.4)
Lease Incentives 0.2 0.7
Net cash flow before financing activities and tax 4.4 7.6
Income Tax Payments (1.2) (1.4)
Net Interest (0.3) (0.3)
Dividends Paid (2.1) (3.6)
Net Cash Flow 0.8 2.3
• Positive net cash flow
• Net cash flow from operations predominately reflects the
reduction in NPAT from H1 FY2018 to H1 FY2017
• Capital Expenditure in H1 FY2018 represents the continual store
roll out program of David Jones concession stores, targeted
investment in refurbishments and ongoing development of our
online and loyalty infrastructure
• Receipts / (Payments) for Businesses represents the net cash
inflow upon disposal of Metalicus in H1 FY2017 and outflows for
the acquisition of the Bondi Bather business in H1 FY2018
• Dividends paid reflect the payment of the Final Dividend for
FY2017 & FY2016
(i) NPAT in H1 FY2017 includes aggregate impact of Metalicus discontinued business. Refer to Appendix A
Cash Flow Statement
16.
Actual Underlying ($ millions) H1 FY2018 H1 FY2017
EBITDA
Retail 9.1 9.5
Margin (%) 12.6% 13.2%
Wholesale 6.2 6.9
Margin (%) 10.5% 10.8%
Unallocated / Corporate (6.9) (4.8)
Total EBITDA 8.4 11.6
Margin (%) 6.4% 8.5%
EBIT
Retail 6.6 6.8
Margin (%) 9.1% 9.5%
Wholesale 5.8 6.6
Margin (%) 9.8% 10.4%
Unallocated / Corporate (7.8) (5.7)
Total EBIT 4.6 7.7
Margin (%) 3.5% 5.7%
• Retail EBITDA $0.4m below prior year due to challenging trading conditions
in Review and Black Pepper. The business remains well supported by a
strong performance in online sales (25.5% sales growth).
• Wholesale EBITDA below prior half year predominantly due to delayed
Department Store and Discount Department Store orders, partially offset
by a 115 bps increase in gross margin, driven in part by increased sales in
Designworks Sports Division
• Unallocated and Corporate underlying EBITDA has been impacted by $1.0m
of non-recurring costs relating to the on-market takeover offer, strategic
consulting costs and an unfavourable NZ Customs duty ruling and the
continued investment in digital growth
Earnings by Segment
17.
Appendices
On 27 July 2016 The PAS Group Ltd (‘PAS’) announced that it had signed an agreement for the sale of its loss making Metalicus business to the General Pants Group. This transaction was successfully completed on 30 September 2016.
On this basis, the Metalicus business met the criteria to be classified as a discontinued operation for the half year ended 31 December 2016. Accordingly, the results of the discontinued operation are presented separately in the consolidated statement of profit and loss and other comprehensive income for the comparative period 31 December 2016 in accordance with Accounting Standards.
All prior year comparatives throughout the financial statements and notes are representative of the continuing business only.
Whilst PAS believes that presenting continuing business profit provides a better understanding of its financial performance, for transparency, a reconciliation between the continuing business and the Total Business incorporating the Metalicus Discontinued Operation is provided below.
($’millions) H1 FY2018 Revenue
H1 FY2018 EBITDA
H1 FY2018 EBIT
H1 FY2018 NPAT
H1 FY2017 Revenue
H1 FY2017 EBITDA
H1 FY2017 EBIT
H1 FY2017 NPAT
Continuing Business 131.4 8.4 4.6 3.0 135.7 11.6 7.7 5.4
Financial Impact: Metalicus Discontinued Operation(i)
- - - - 5.3 (0.8) (1.6) (0.6)
Total Business 131.4 8.4 4.6 3.0 141.0 10.8 6.1 4.8
(i) The H1 FY2017 financial information presented reflects the operations for the three month ownership period ended 30 September 2016.
Appendix A: Continuing to Total Business Reconciliation
19.
Disclaimer
Forward looking statements: This presentation contains certain
forward looking statements, including with respect to the financial
condition, results of operations and businesses of The PAS Group
Limited (‘PGR’) and certain plans and objectives of the management
of PGR. Forward looking statements can generally be identified by
the use of words including but not limited to “project”, “foresee”,
“objectives”, “plan”, “aim”, “intend”, “anticipate”, “believe”,
“estimate”, “may”, “should”, “will”, “forecast” or similar expressions.
Indications of plans, strategies and objectives of management, sales
and financial performance are also forward looking statements.
All such forward looking statements involve known and unknown
risks, significant uncertainties, assumptions, contingencies and other
factors, many of which are outside the control of PGR, which may
cause the actual results or performance of PGR to be materially
different from any future results or performance expressed or
implied by such forward looking statements. Such forward looking
statements apply only as of the date of this presentation.
Factors that cause actual results or performance to differ materially
include without limitation the following: risks and uncertainties with
the Australian, New Zealand and global economic environment and
capital market conditions, the cyclical nature of the retail industry,
the level of activity in Australian and New Zealand retail industries,
fluctuation in foreign currency exchange and interest rates,
competition, PGR’s relationships with, and the financial condition of,
its suppliers and customers, legislative changes or other changes in
the laws which affect PGR’s business, including consumer law, and
operational risks. The foregoing list of important factors and risks is
not exhaustive.
No representation or warranty (express or implied) is given or made
by any person (including PGR) in relation to the accuracy, likelihood
or achievement or reasonableness of any forward looking
statements or the assumptions on which the forward looking
statements are based. PGR does not accept responsibility or liability
arising in any way for errors in, omissions from, or information
contained in this presentation.
PGR disclaims any obligation or undertaking to release any updates
or revisions to the information to reflect any new information or
change in expectations or assumptions after the date of this
presentation, except as may be required under securities law.
Disclaimer and third party information: To the fullest extent
permitted by law, no representation or warranty (express or implied)
is or will be made by any legal or natural person in relation to the
accuracy or completeness of all or part of this document, or any
constituent or associated presentation, information or material
(collectively, the Information). The Information may include
information derived from public or third party sources that has not
been independently verified.
Investment decisions: Nothing contained in the Information
constitutes investment, legal, tax or other advice. The Information
does not take into account the investment objectives, financial
situation or particular needs of any investor, potential investor or
any other person. You should take independent professional advice
before making any investment decision.
All statutory numbers referred to in this presentation have been
audited.
Any adjustments made between statutory and pro forma results are
made in accordance with ASIC Guidance Statement RG230.
20.
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