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