OROTONGROUP LIMITED FY15 INVESTOR PRESENTATION
17 September 2015
CEO/MD - Mark Newman
CFO - Vanessa De Bono
Investment in elevation of Oroton gaining traction despite cost of reduced discounting & expansion of Gap stores
FY15 Reported $ M | FY14 Reported $ M | Change % | FY15 (1) Underlying $ M | FY14 (2) Underlying $ M | Change % | |
Revenue | 132.0 | 124.9 | +6% | 132.0 | 124.9 | +6% |
Net Margin (%) | 60.7% | 62.5% | 60.7% | 62.5% | ||
Total Expenses (%) | 56.9% | 51.3% | 56.1% | 51.3% | ||
EBITDA | 10.9 | 18.8 | -42% | 12.1 | 19.6 | -38% |
EBIT | 5.6 | 13.3 | -58% | 6.8 | 14.1 | -52% |
EBIT Margin (%) | 4.3% | 10.6% | 5.2% | 11.3% | ||
NPAT | 2.6 | 8.3 | -68% | 3.8 | 9.1 | -58% |
EPS (cents) | 6.4 | 20.2 | -68% | 9.3 | 22.2 | -58% |
DPS (cents) / Fully franked | 6.5 | 16.0 | 6.5 | 16.0 | ||
DPS payout (%) | 102% | 79% | 70% | 72% |
(1) Underlying results are reconciled to IFRS audited measurements through the add back of the onerous Hong Kong Store lease after exit ($0.8m), the closure of the Singapore office ($0.2m) and the trading losses ($1.8m) and gain on exit ($1.7m) from Brooks Brothers Australia. Total add backs $1.2m (rounded)
(2) Underlying comparatives are reconciled to IFRS audited measurements through the add back of the Brooks Brothers trading losses of $0.8m.
A year of transformational repositioning and investment
- Reduced discounting in Oroton has elevated the brand but
resulted in reduced sales and earnings in this transitional year
- Oroton International consolidation with a solid network platform
- Gap brand awareness builds with a further 3 stores opened
- Group LFL sales in first 7 weeks of FY16 were +11% as the strategy gains traction
Brooks Brothers joint venture exited
Group Revenue up 6% to $132.0m:
- Oroton sales were -4% due to the impact of less discounting
- GAP sales were +81%
Net margin declined to 60.7% due to:
- Oroton - downward pressure due to higher USD purchasing costs in AUD offset by improved constant currency margin generation on higher average selling prices and lower markdowns
- Mix shift to GAP which has lower margin than Oroton
Underlying CODB increased to 56.1% (1) of sales (FY14: 51.3% ) led by:
- Higher mix of GAP in the cost base offset by vigilant expense control
Underlying EBIT reduced to $6.8m (1)
- Reduced sales in Oroton First Retail stores from less discounting, establishment costs/losses for GAP partly offset by reduced losses in the International business
Underlying EPS down 58% to 9.3 cents (1)
- Current effective tax rate is 48.1% due to non-deductibility of international losses and equity accounted losses in Brooks Brothers
(FY14: 37.3%)
Strong Balance Sheet and low Gearing to support growth initiatives
DPS of 6.5 cents fully franked
- The Board has declared a final fully franked dividend of 2.0 cps taking the full year dividend to 6.5 cps with an underlying payout of
70% (2014: 72%) (1),(2)
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Oroton - Brand elevation strategy gaining traction
LFL sales in FY15 were -6% (FY14: +8%) with Q1 -12% but an improving trend by Q4 -3%.
• Decrease in sales due to significantly less discounting in First Retail channels
• Full year of heavy discounting now cycled
• Elimination of friends and family sales
Strong LFL sales in first 7 weeks of FY16 of +8%
Brand elevation strategy now in full swing
• Rollout of the new store concept to more than one third of the First Retail store footprint. New concept more productive with higher LFL sales, average selling price and average transaction value compared to non refurbished stores in 'non discount' periods
• Launched "Clientelling" Program to upgrade in store experience
• New product development focussed on higher average price point and limited
editions and reduced discounting has positively impacted consumers perception of the luxury positioning and led to higher average selling prices and higher average transaction value
• First full year with the Australian actress Rose Byrne as face of the brand
• Increased social media engagement and celebrity endorsement
Investment in technology and marketing to maintain position as e-commerce leader with online sales maintained at ~10% of sales
Continue to review store network for opportunities to take more prominent positions in key centres and continue to review and close non performing stores
There were 71 stores at the end of the financial year compared to 71 in FY14.
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Oroton International - consolidation and reduction in
underlying losses
Continued momentum in Asia
Closed 3 loss making stores and Singapore office with positive impact on earnings in FY16
6 new stores opened in FY15 including
- 5 department store concessions in Singapore, Malaysia & China
- 1 free standing store in Singapore in high traffic local shopping mall
Total number of International stores at year end was 15
Wholesale continues to grow and includes business with Singapore
Airlines, Kuala Lumpur International Airport and Middle East Distributor
Continue to review other market opportunities
Underlying net international losses were ~ $2.7m for the year (FY14: ~
$3.4m) after excluding $1m of one time costs associated with the closure of the Hong Kong store and Singapore office both before the expiry of leases. The underlying losses of the International stores reduced by
$0.7m due to continued good results in Malaysia which continues to be
cash flow positive and reduced trading losses in Hong Kong due to the store closure
In FY16 focus is on LFL growth in existing network and measured expansion through capital-light department store shop in shops
Vivo City, Singapore
Nanjing Store, China
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New store concept leading Oroton brand transformation
New luxury concept designed in collaboration between Oroton and a leading London-based creative consultancy to elevate the brand
In FY15 rolled out to over 30% of First retail store footprint including flagship locations in Sydney, Melbourne, Adelaide and Singapore
Department store shop in shop version now also developed
A further 12 stores planned for roll out in strategic locations during FY16 to
cover more than 50% of First retail footprint by the end of FY16
New concept together with the impact of upgraded visual merchandising standards is proving to be more productive with those stores achieving higher LFL sales, higher average selling price and higher average transaction value compared to non refurbished stores during 'non discount' periods
David Jones - Elizabeth Street
Oroton Miranda
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Chrissy Teigan with the
Opera Crystal Clutch
Rose Byrne with the Aura Eva Longoria with the
Freize Clutch
Jennifer Lopez with the
Society
OROTONGRDUP
GAP - building distribution with 3 more stores opened
The 3 existing stores traded for 12 months with positive like for like sales of +0.2% and more importantly like for like NM $ of
+6%
Growth in total GAP sales of +81% achieved thanks to 3 new stores opened in NSW at the Macquarie, Miranda and Parramatta shopping centres making a total of 6 at year end
Strong like for like sales in first 7 weeks of FY16 of +24% due to more appropriate inventory and strong promotions
The above results were achieved in a competitive retail environment where consumers remained cautious with their spending as well as increased international competition in all locations
The brand was loss making in the year due to start up costs of the 3 new stores
The focus in FY16 will be on strategic marketing & customer engagement to drive traffic to stores and supply chain efficiencies with increased scale
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Brooks Brothers - exited loss making Joint Venture in July 2015
JV commenced trading in February 2014. The Group held a majority of 51% in the joint venture company until 24th July
2015 at which time 100% of its shares were sold to Brooks Brothers International LLC.
Full year trading losses were $1.8m, offset by a gain to the Group on exit from the JV of $1.6m. FY15 net impact of BB
was a loss of $0.2m (FY14: $0.8m loss)
OrotonGroup will continue to provide support services for at least 12 months and manage the brand in Australia with both support service and management fees charged
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Strong Balance Sheet and low Gearing to support growth initiatives
Following a year of investment to elevate the Oroton brand and expand GAP, the Group is well positioned with:
- A strong balance sheet ($44.9M in net assets)
- Low gearing of 13%
- A $40M bank facility, including $24M unused at year end
Operating cash flow (before interest and tax) reduced by $21m due to a reduction in EBITDA of
$8m and an increase in working capital mainly to open 3 new GAP stores
During FY15 the Group's investments were aligned with their strategy:
- $6.6M capital expenditure in Oroton new concept stores and new POS and CRM systems focused on growth by elevating the client experience and offering a full omni-channel shopping experience
- $3.2M capital expenditure in 3 new GAP stores to build reach and brand awareness
Net cash inflow from Brooks Brothers Australia of $1.7m ($2M shareholder loans advanced, less
$3.7m cash received on exit)
Cashflow ($m)
1.4
Conservative Hedging policy to manage FX risk covering 85% of forecast USD transactions up to
24 months out. Contracts in place at 25 July 2015 range from 0.79-0.88 USD (on average). Refer note 29 in appendix 4E for more details.
Dividend payment of 6.5cps fully franked for the full year compared to a full year dividend of 16.0
10.1
2.4 6.6
cps fully franked in FY14 (Underlying payout: FY15 70% and FY14 72%) (1),(2)
3.2
5.1
4.9
-5.8
FY14 Cash Operating | Other | CAPEX | CAPEX Gap Dividends | Interest | FY15 net |
activities | Oro & IT | and Tax | debt |
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Outlook for FY16 - after a year of transformation, a return to profitable growth
Strategy focused on 3 key pillars:
Increase roll out of new store concept
OROTON brand
Investment in elevation and growth
New categories
Increased average selling prices
"Clientelling" program to deliver
excellent customer service
Technology for a true 360 degree brand experience
OROTON International
Pave the way to profitability
Capital - light department store
distribution
Market relevant product development and Marketing
Focus on opening price points
Gap franchise Growth in sales and
Strong like for like sales growth
Continued margin improvement
Australia relevant product
Efficient inventory management and supply chain
Underpinning all of this is a new point of sale system, new CRM Platform,
enhanced payment systems, new online functions.
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Stare Listing- as at July 2015 there were 71 Oroton and 6 GAP stores O ROTO N 111AUSTRALIA & NEW ZEALAND
ACT
CANBERRA
NSW
BIRKENHEAD POINT BIRKENHEAD POINT liNGERIE SONDI JUNCTION
BURWOOD CASTLE TOWERS CHATSWOOD
DJ's EliZABETH STREET DJ'S CHATSWOOD DJ'S BONDt HOMEBUSH HOMEBUSH liNGERIE
HORNSBY
KOTARA MACQUARIE MIRANDA PARRAMATIA PITI ST MALL
QVB
SYDNEY DOMESTIC AIRPORT WARRINGAH MAll WESTFIELD SYDNEY
VICTORIA
CHADSTONE
DJ'S BOURKE STREET DJ'S CHADSTONE DONCASTER EMPORIUM
ESSENDON THE GLEN HIGHPOINT MOORABBIN
NUNAWADING
QUEENSLAND BRISBANE CBD BRISBANE DFO CARINDALE CAIRNS CHERMSIDE
DJ'S BRISBANE HARBOURTOWN INDOOROOPilYl PACIFIC FAIR ROBINA
SOUTH AUSTRALIA ADELAIDE GAWLER PLACE BURNSIDE VllLAGE
DJ'S RUNDLE MALL
HARBOURTOWN SA MARION
WESTERN AUSTRALIA
CLAREMONT DJ'S PERTH GARDEN CITY HAY STREET JOONDALUP KARRINYUP WATERTOWN
NEWZEALAND OSBORNE STREET ASPECT ONEHUNGA
ASIA
SINGAPORE
ION
ROBINSONS ORCHARD ROBINSONS RAFFLES CITY TANGS ORCHARD TAKASHIMA YA
VIVO CITY
MALAYSIA JOHOR BAHRU KLCC
PARKSON.GURNEY PLAZA PENANG PAVIliON
lUTAMA
CHINA
KERRY CENTRE NANJING•
J ANGNING•
UAE
YAS MA l ABU DHABI'
ONLINE
'N'W'W.oroton.com
AUSTRALIA
NSW MACQUARIE MIRANDA
PARRAMATIA WESTFIELD SYDNEY
VICTORIA CHADSTONE MELBOURNE CENTRAL
OROTONGRDUP ll
Important notice and disclaimer
This presentation includes information about the activities of OrotonGroup Limited ("OrotonGroup") which is current as at 17 September 2015. It is in summary form only and is not intended or represented to be complete. No representation, express or implied, is made as to the fairness, accuracy, completeness or correctness of information contained in this presentation. Please read this presentation in conjunction with OrotonGroup's other periodic and continuous disclosure announcements filed with the Australian Securities Exchange. These are available at www.orotongroup.com
Forward-looking statements
This presentation includes certain forward-looking statements that are based on OrotonGroup's current views and assumptions as well as information known to date, and are subject to various risks and uncertainties. Actual results, performance or achievements could be significantly different from those expressed in, or implied by, these forward-looking statements. These forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond OrotonGroup's control. These factors may cause actual results to differ materially from those expressed in or implied by this presentation. Past performance is not necessarily a guide to future performance and no representation or warranty is made by any person as to the likelihood of achievement or reasonableness of any forward looking statements, forecast financial information or other forecast.
To the maximum extent permitted by law, OrotonGroup and its related corporations, directors, officers, employees and agents disclaim and do not assume any obligation or undertaking to release any updates or revisions to the information in this presentation to reflect any change in expectation or assumptions, and disclaim all responsibility and liability for any loss arising from use or reliance on this presentation or its content (including, without limitation, liability for fault or negligence).
Currency
All amounts in this presentation are in Australian dollars unless otherwise stated.
No offer of securities
Nothing in this presentation should be construed as either an offer to sell or a solicitation of an offer to buy or sell OrotonGroup securities in any jurisdiction.
Reported and underlying information
Information in this presentation which is referred to as being reported is based on audited financial statements and / or the director's report. Underlying information has not been audited, but has been reconciled to the IFRS reported results. OrotonGroup uses certain measures, such as underlying results, to manage and report on business performance that are not recognised under Australian Accounting Standards (non-IFRS financial measures).
Although the Directors believe that these non-IFRS measures provide useful information about the financial performance of OrotonGroup, they should be considered as supplements to the income statement and cash flow measures that have been presented in accordance with the Australian Accounting Standards and not as a replacement for them. Because these non-IFRS financial measures are not based on Australian Accounting Standards, they do not have standard definitions, and the way OrotonGroup has calculated these measures may differ from similarly titled measures used by other companies. Readers should therefore not place undue reliance on these non-IFRS financial measures.
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