LIVING THE EXPERIENCE - LONG4LIFE LIMITED RESULTS PRESENTATION FOR THE YEAR ENDED 29 FEBRUARY 2020
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LIVING THE
EXPERIENCE
LONG4LIFE LIMITED
RESULTS PRESENTATION
FOR THE YEAR ENDED 29 FEBRUARY 2020
Long4Life in a COVID-19 world and beyond
“ I have experienced many challenging events
during my 50-year working career, but nothing comes close
to the experiences of the first few months of 2020
following the outbreak of the COVID-19 pandemic.
This extraordinary time will shape a new future.
It will forever be known as the period in which
we changed paradigms, changed ways of working
and changed the way we relate and interact with one another ”
Brian Joffe
CEO
1
Long4Life in a COVID-19 world and beyond
Brian Joffe – Group CEO
• The year that was
• Reimagining the future
• What we are doing about COVID-19 at L4L
AGENDA
Colin Datnow – Group COO
• Sport and Recreation
• Beverages
• Personal Care and Wellness
Mireille Levenstein – Group CFO
• Financials
Q&A
2
Long4Life in a COVID-19
world and beyond
Brian Joffe
CEO
3
Long4Life in a COVID-19 world and beyond
The year that was
• The 2020 result is what it is, judge it for yourselves
• Local economic backdrop was weak but we reckon we boxed smart
and weren’t deflected
• F2020 non-IFRS 16 trading profit grew by 3% and HEPS by 13%
• R221m invested in capex and acquisitions
• Balance sheet strength maintained
› equity of almost R5bn
› net cash of R821m
› R586m spent on share buy backs over two years (139m shares)
4
Long4Life in a COVID-19 world and beyond
Reimagining the future
COVID-19 pandemic and responses to it will have lasting consequences
Business models will need to adapt
A post COVID-19 world will bring futuristic trends rapidly forward to the present day
Consequences for a retail business
• bricks & mortar vs clicks (online) + store size, design, configuration
• lease reductions due to bankruptcies, increased vacancies and growth in online
• working capital if the rand stays weak – new stock at a higher rand cash cost, replacement and management
• willingness of banks to fund companies through the crisis – retail closures/consolidation
• potential deflation (rather than inflation) if spending depressed
• value associated with brands, range rationalisation
• supply chains – backlogs short term, long term rethinking of offshore vs localisation
• acceleration of electronic transactions, digital, mobile and contactless payment
5
Long4Life in a COVID-19 world and beyond
Reimagining the future
Consequences for consumers
• length of lock down – habits formed during this time spent indoors
may endure
• behavioural shifts – physical vs virtual preferences
• spending power, smaller and poorer consumer base
• merchandise preferences
• price sensitivity
• challenges of higher levels of unemployment
• economic decline
• difficult fiscal choices
• catalyst for policy reform
6
Long4Life in a COVID-19 world and beyond
What we are doing about COVID-19 at L4L
• Prepare for the worst and hope for the best
• Applying our best judgement to a situation without precedent
• Management focusing on, inter alia
› staff motivation and personal safety
› reworking budgets
› prioritising cash
› monitoring liquidity headroom and cash balances
› taking all means possible to protect the asset base
› assessing working capital requirements and inventory management – stock commitments
› cost savings, such as rent deferrals/concessions, capex & opex, salaries
• At L4L we have the flexibility and imagination to shape our own future
7
Operations
Colin Datnow
COO
8
Sport and Recreation
Revenue R2 294m (+9%), trading profit R316.7m* (-1%), trading margin 13.8% vs. 15.2%
A disciplined trading year across merchandise, marketing, operations and e-commerce with working capital
well-controlled
2020 2019
Year-on-year Stores Growth in sales Same store Stores Growth in sales Same store
Sports retail^ 44 9.2% 5.8% 43 10.1% 4.0%
Outdoor Warehouse 27 8.8% 8.2% 26 3.3% 4.1%
Total retail 71 9.1% 6.3% 69 8.4% 4.0%
Performance Brands N/A (2.6%) N/A (2.5%)
• Strong execution, range appeal, innovation and a cautious approach to footprint is serving Sportsmans Warehouse well
• Outdoor Warehouse is a unique destination chain with a comprehensive product line up offering specialised advice
to the outdoor enthusiast – a highly satisfactory performance over the past year
• Performance Brands reengineering its business processes to improve flexibility, increase local manufacture, optimise inventory
• Retail price inflation subdued, retail trading density 6.6% higher, weighted space 2.6% higher and average spend 3.1% higher
^ Sports Retail division consists of Sportsmans Warehouse and Shelflife (OTG in 2019)
* Pre IFRS 16 Leases 9Long4Life in a COVID-19 world and beyond
What we are doing about it at Sport & Recreation – represents 56% of revenue and 60% of trading profit*
Sportsmans Warehouse, Outdoor Warehouse and Performance Brands
• Challenges
› anticipating reduced foot count in stores
› anticipating revenue contraction
› to speedily implement cost containment measures, including rent deferrals/remissions, capex cuts
› supply chain disruptions
• Opportunities
› our destination stores footprint potentially more appealing venues for shoppers seeking “social distancing”
› whilst we cannot accurately forecast the future, we believe that we have the skills and agility to reshape and resize
the business units to what may be the “new normal”
› Sportsmans’ merchandise offering ideally suited to the now much sought after healthier lifestyle
› increased demand for home gyms and related exercise equipment
› acceptance of work from home implies higher future demand for athleisure apparel
› actively increase marketing mediums such as digital, TV, radio or print to encourage return of store footfall
› upscale our online shopping experience and logistics
* Pre IFRS 16 Leases and before corporate costs 10Beverages Revenue R1 487m (+10%), trading profit R139.8m* (-9%), trading margin 9.4% vs. 11.3% • Chill and Inhle have modern manufacturing plants • Despite the harsh macro environment and heightened competition from more established players we are strongly positioned to exploit market opportunities in their respective niches, both individually and in collaboration • Revenue grew by 10%, case volumes broadly flat with Chill having weaker H2 sales and Inhle maintaining its volumes by serving new customers and different market segments • Chill’s trading profit declined as a result of a lower GP%, suboptimal capacity utilisation, with a deliberate initiative to ramp up the marketing spend • Chill’s primary focus is on its own-brands, with ongoing product innovation and the introduction of new pack sizes in its much favoured mixer offering • Inhle trading profit up like-for-like, due to a change in the nature of the product packed for its customer base • R26m capex spend at Inhle, including new PET filler line and additional warehousing generating storage income from customers • Inhle provides Chill brands a springboard to cost-effective growth in the north of South Africa through on-site production and logistics * Pre IFRS 16 Leases 11
Long4Life in a COVID-19 world and beyond
What we are doing about it at Beverages, 36% of revenue, 27% of trading profit*
Chill Beverages and Inhle Beverages
• Challenges
› falls within essential service although this has had little practical advantage
› plants continued production since 26 March but at reduced volume and cost recovery
due to low utilisation and productivity
› on-premise consumption of mixers, often with alcohol has fallen, no certainty when volumes
will return
› own brand energy drink sales (Score) through retail channels have maintained volumes,
co-pack volumes reduced
› cost cuts are in place but important to retain skills and keep integrity of manufacturing plant
through preventive maintenance
• Opportunities
› successfully working on reducing materials costs and introducing PET bottles at keener prices
› opportunity to reassess own-brand range, target markets, pricing and market segmentation,
geographic reach
› Chill has been opening up export markets and lower FX gives added competitive advantage
› tough times is an impetus to innovation, new products
* Pre IFRS 16 Leases and before corporate costs 12Personal Care and Wellness
Revenue R310m (+78%), trading profit R67.2m* (+73%), trading margin 21.7% vs. 22.4%
Revenue growth of 78% assisted by 2 acquisitions and inclusion of
ClaytonCare (sub-acute hospitals) for twelve months, like-for-like up 28%
• Sorbet
› net revenue up 22% driven by increased services rather than merchandise sales
in a constrained consumer environment
› aggregate salon sales exceeding R1 billion for the first time since inception
› new stores include 8 Salons, 2 Dry Bars and 4 Sorbet Man
› store closures include 3 salons and SK-N concept store
• Lime Light
› revenue growth of 172% boosted by Hands Down and Smart Buy acquisitions
(wef June 2019)
› like-for-like sales up 20%
• ClaytonCare
› ClaytonCare revenue up by 29% driven by increased occupancy and patient acuity
› L4L has an effective 36% economic interest and 100% ownership of the Clayton House
facility
› Clayton House and Care@Midstream back-office functions merged
* Pre IFRS 16 Leases 13Long4Life in a COVID-19 world and beyond
What we are doing about it at Personal Care and Wellness – represents 8% of revenue and 13% of trading profit*
Sorbet, Lime Light, ClaytonCare
• Challenges
› Sorbet franchisees have been hit hard by lockdown, with no revenue, whilst staff have no commission and tips
› waiver and deferral of all franchise related fees and support provided in liaising with landlords and accessing government relief
schemes
› the possibility exists that some salons will not re-open their doors
› Lime Light supplies equipment, consumables and branded goods to beauty and hair salons and future demand is uncertain
› goods are predominantly sourced from abroad hence there will be adverse FX effects
› although least affected, ClaytonCare occupancy has been impacted due to the embargo on elective surgeries during level 5
lockdown
• Opportunities
› Sorbet recovery is difficult to gauge as it depends on when stores can re-open, relatively resilient customer base,
run by motivated franchisees
› Lime Light well positioned to increase market share in what remains a very fragmented market
› ClaytonCare foresee an increase in the need for post-acute care services flowing from a surge in the at-risk population
as a result of Covid-19
* Pre IFRS 16 Leases and before corporate costs 14Financial
Mireille Levenstein
CFO
15Profit & loss
Solid trading performance in a tough consumer environment
%
• IFRS 16 introduced in current year – proforma results provided to enable like for like R’million 2020 2019 change
comparatives, small impact on HEPS (0.4 cents)
• Revenue up 12% : organic revenue up 10% (Sport & Recreation up 9%, Revenue 4 091 3 642 12
Beverages up10%), 2% from Personal Care and Wellness acquisitions Gross profit 1 607 1 446 11
• Trading profit* R467.2m up 3%: Sports & Recreation, Inhle, Personal Care satisfactory,
Trading profit* 467 454 3
Chill underperformed
• Trading margin* of 11.4% from 12.5% in prior year, decrease a function of: HEPS* cents 43.8 38.7 13
› Gross margin decrease – Sport & Recreation margin down by 1% to 47.0%
(increased mark downs and mix), Beverages GP impacted by suboptimal capacity
utilisation at Chill 39,3% 39,7%
› Expenses* growth 15% year on year: 4% growth from inclusion of acquisitions
› Staff and premises* comprise 76% of total expenses
• Net fair value profit on sale of Spur shares R27.7m (10.4m shares sold before year-end 12,5%
11,4%
and 3.3m shares sold on 3 March – total cash profit R34m)
• Share based pmt expense : non-cash expense, FSP scheme introduced late in 2019,
only small portion of the CSP expense will vest
F2020 F2019 F2020 F2019
• HEPS* of 43.8 cents up 13% – weighted shares 839m (2019: 902m)
Gross profit (%) Trading margin (%)
Shares in issue net of treasury 774.4m (2019: 877.4m) after buy back
* Pre IFRS 16 16Balance sheet
Strong cash positive Balance Sheet provides optionality
• Robust Balance Sheet Ratios 2020 2019
• IFRS 16 ROU asset R523m and ROU long and short-term liability R643m Inventory days 129 135
• Cash R829m, borrowings R83m (Chill bond), Spur shares R75m (subsequently realised) Inventory turnover 3.0x 2.7x
• ROFE 38% decreased from 42% in 2019 mainly due to Chill Current ratio* 4.1 4.2
• ROE 7.7% (2019: 7.6%)
NAV per share* (cents) 618 548
• Net working capital of R657m up 8%, reduction in payables in Beverages of R35m
Tangible NAV per share* (cents) 223 202
• Improvement in inventory, but still not optimal
• Majority of debtors (90%) not > 30 days – Sportsmans and Outdoor Warehouse do not
offer credit Working capital (R’000) 2020 2019
Sport and Recreation 516 517
7%
2020 working capital per division
Beverages 105 83
16%
Personal Care and Wellness 47 20
Corporate (12) (13)
Sport and Recreation
77% Beverages Total 657 607
Personal Care and Wellness
* Pre IFRS 16 17Cash flow
Underlying cash flow generation remains good
Operational cash flows* 2020 2019 % change 2020 capex per division
Cash generated before changes in working capital 557 027 536 944
Changes in working capital (25 585) (71 854) 5%
Cash generated by operations* 531 442 465 090 14%
40%
Cash flows from operating activities* 438 445 390 195 12%
55%
Cash flows from investing activities (258 302) (566 462) 54%
Cash flows from financing activities* (438 653) (427 250) 3%
Sport and Recreation
• Excellent cash conversion at 112% and cash generated after working capital up 14%
Beverages
• Seasonality evident, 78% of cash generated in second half
Personal Care and Wellness
• Significant improvement in free cash flow: R221m (2019: R155m)
• Capital expenditure at R179m up15% (R94m maintenance, R85m expansion)
• Cash for acquisitions R41m (2 bolt-ons in Personal Care and Wellness)
• Share buy backs R426.5m (cumulative since 2019 – R586.1m)
* Pre IFRS 16 18Financial analysis
L4L has the capacity to remain liquid during COVID-19 lockdown
Conclusion
• Financial priority is cash conservation
• Action plans in place continuously updated, including:
› ongoing detailed review of inventory and purchases strategy for different lockdown scenarios
› costs across the board being scrutinised and reduced where possible
› Capex curtailed deferred unless committed
• Cash flow projections continuously reassessed for different lockdown developments
• Focus on realisation of inventory, realignment of working capital
• Managing the business for cash flow, not for accounting profits
• As at today’s date, group cash balances have not declined materially
19Questions
20THANK YOU 21
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