Analyst Presentation for the half-year ended 31 August 2012
Agenda 1. General commentary on the period Kevin Hodgson 2. Financial review Cobus Loubser 3. Questions Page 2
General Commentary Page 3
Review of the period Group sales increased 9.9% to R601.2 million Operating profit increased 1.2% to R90.8 million Profit before tax of R86.7 million increased by 1.5% from comparative R85.4 million Core headline earnings per share decreased 1.3% to 157.1 cents per share Interim gross dividend of 70.0 cents per share Page 4
Review of the period High base for comparison - FIFA World Cup in the first half of the 2011 financial year - Rugby World Cup in the first half of the 2012 financial year Sportsmans Warehouse - sales increased by 10.3% (8.4% like-for-like) - increased operating profit by 8.5% Outdoor Warehouse - 6.0% increase in sales (6.1% like-for-like) - same operating profit as the prior period Performance Brands - 25.7% growth in sales to external customers - Capestorm relaunch Expansion Page 5
Financial Review Page 6
Financial highlights Satisfactory growth in sales Forex losses reduce gross margin and operating profit - The accounting treatment of foreign exchange denominated transactions coupled with the volatile Rand/Dollar exchange rate results in a non-cash income or expense at the end of every reporting period which is partly included in cost of sales and partly recognised as foreign exchange gains or losses within trading expenses. - During the current period the aggregate adjustment was an expense of R2.5 million compared to an aggregate profit of R2.8 million during the prior period. The majority of the adjustment is included in cost of sales. Capital expenditure Gross interim dividend declared of 70.0 cents Page 7
Income Statement review 6 months ended 31 August 2012 6 months ended 31 August 2011 Unaudited Unaudited Change R 000 R 000 % Sales 601,217 546,988 9.9 Cost of sales (309,873) (276,258) 12.2 Gross profit 291,344 270,730 7.6 Other income 1,813 1,439 26.0 Trading expenses (202,302) (182,381) 10.9 Operating profit 90,855 89,788 1.2 Finance income 2,279 1,959 16.3 Finance cost (6,386) (6,392) (0.1) Profit before taxation 86,748 85,355 1.6 Taxation (24,943) (24,122) 3.4 Profit for the period and total comprehensive income for the period attributable to equity holders 61,805 61,233 0.9 Achieved real sales growth, sales price inflation still low Gross profit margin reduced to 48.5% from 49.5% in the comparable period mainly due to foreign exchange adjustments. This is in line with the 48.6% margin achieved in the last two financial years. Trading expenses higher due to additional trading space and increased staff costs Net finance cost marginally lower Page 8
Sales The prior period is a challenging base for comparison Total sales increased by 9.9% - Total retail sales increased by 9.2% - Like for like retail sales increased by 7.8% - Performance Brands external sales increased by 25.7% and greater portion of total sales Sales by product category similar over time, with footwear lagging apparel and equipment growth. Performance Brands - expanding ranges helped to increase proportion of sales - will relaunch Capestorm in the second half August 2012 August 2011 Change Lik e-forlike Store Growth Sales by segment Aug '12 Sales by segment Aug '11 R m R m % % % % Sportsmans Warehouse 432.5 392.1 10.3% 8.4% 71.9% 71.7% Outdoor Warehouse 139.5 131.6 6.0% 6.1% 23.2% 24.1% Retail sales 572.0 523.7 9.2% 7.8% 95.1% 95.8% First Ascent 29.2 23.2 25.7% 4.9% 4.2% Total sales 601.2 546.9 9.9% 100.0% 100.0% Page 9
Sales 2009 2010 2011 2012 August 2012 August 2011 Increase in retail sales (%) Sportsmans Warehouse 6.0 9.7 10.5 9.2 10.3 6.1 Outdoor Warehouse 11.1 8.1 14.8 7.3 6.0 7.7 Total 7.2 9.3 11.6 8.7 9.2 6.5 Like-for-like sales increase (%) Sportsmans Warehouse 0.5 6.5 10.8 7.5 8.4 5.1 Outdoor Warehouse 2.3 4.1 16.1 3.7 6.1 4.8 Total 0.9 5.9 12.1 6.6 7.8 5.0 Price inflation of 2.2% (first half last year 1.4% deflation) Space growth of 1.4% (2.3% in first half of last year) Page 10
Growth in stores & trading density 2009 2010 2011 2012 August 2012 August 2011 Change % Number of stores Sportsmans Warehouse 32 32 32 33 34 33 Outdoor Warehouse 17 18 17 18 18 18 Total 49 50 49 51 52 51 (R'000s per m2) Trading density Sportsmans Warehouse 13.6 14.3 15.8 16.9 17.3 16.1 7.5% Outdoor Warehouse 15.5 15.8 18.1 18.9 19.2 18.8 2.1% Total 14.0 14.7 16.4 17.4 17.7 16.7 6.0% Expanded Sportsmans Warehouse in Fourways and relocated the Sportsmans Warehouse in Polokwane Added Capestorm store in Wynberg Strong performance from apparel Page 11
Expenses Total expenses increased by 10.9% on prior period due to increased trading space and strategic increases in the number of professional staff. Occupancy costs benefited from various electrical savings initiatives. Depreciation calculated over 4 years. 31 August 2012 Ratio to 31 August 2011 Ratio to Unaudited turnover Unaudited turnover Change R 000 % R 000 % % Staff costs 74,060 12.3 64,401 11.8 15.0 Occupancy cost 55,096 9.2 50,529 9.2 9.0 Straightlining of leases 1,978 0.3 1,437 0.3 37.6 Depreciation 12,212 2.0 11,339 2.1 7.7 Amortisation of intangibles 6,481 1.1 6,277 1.1 3.3 Advertising costs 8,905 1.5 7,183 1.3 24.0 Foreign exchange losses 1,851 0.3 994 0.2 86.3 Exceptional expenses - - 3,130 0.6 (100.0) Other operating costs 41,719 6.9 37,091 6.8 12.5 202,302 33.6 182,381 33.3 10.9 The group recorded R1.8m of foreign exchange losses in the period compared to foreign exchange losses of R0.9m in the previous period due to a volatile exchange rate. Other operating costs include banking costs (which are linked to sales), security, IT, telephones, cleaning and maintenance. Page 12
Staff costs 31 August 31 August Lik e-forlike Store 2012 Ratio to 2011 Ratio to Unaudited turnover Unaudited turnover Change Growth R 000 % R 000 % % % Salaries & Wages 68,363 11.4 59,732 10.9 14.4 13.7 Incentives 3,753 0.6 4,254 0.8 (11.8) (13.1) Staff costs before share plan expense 72,116 12.0 63,986 11.7 12.7 11.6 Forfeitable share plan expense 1,944 0.3 415 0.1 368.3 368.3 Total staff costs 74,060 12.3 64,401 11.8 15.0 14.1 The ratio of staff costs to sales increased to 12.0% from 11.7% as a result of certain strategic appointments The like-for-like increase in staff costs exclude stores opened since March 2011 The forfeitable share plan expense is calculated in terms of IAS 2 Share based payments over the full first half compared to less than two months in the prior period. Page 13
Balance Sheet 31 August 2012 31 August 2011 Unaudited Unaudited Change R 000 R 000 % Assets Non-current assets Plant and equipment 70,567 44,554 58.4 Goodwill and other intangibles 639,780 644,360 (0.7) Total non-current assets 710,347 688,914 3.1 Current assets Inventories 323,852 247,828 30.7 Trade and other receivables 17,248 15,295 12.8 Taxation 8,766 8,106 8.1 Cash and cash equivalents - 32,568 Total current assets 349,866 303,797 15.2 Total assets 1,060,213 992,711 6.8 Equity and liabilities Capital and reserves Share capital 229,312 229,312 - Other reserves (24,857) (15,085) 64.8 Retained earnings 527,785 443,421 19.0 Equity attributable to owners of the 732,240 657,648 11.3 Non-current liabilities Loans 110,351 137,817 (19.9) Deferred taxation 53,852 58,944 (8.6) Straight-lining lease liability 23,950 20,597 16.3 Total non-current liabilities 188,153 217,358 (13.4) Current liabilities Trade and other payables 91,762 90,148 1.8 Derivative instruments 1,582 2,382 (33.6) Short term portion of loans 27,357 25,175 8.7 Bank overdraft 19,119 - Total current liabilities 139,820 117,705 18.8 Total liabilities 327,973 335,063 (2.1) Total equity and liabilities 1,060,213 992,711 6.8 Plant and equipment include the Performance Brands premises, a relocation of the Polokwane store and the expansion of Sportsmans Fourways. Intangibles include the Capestorm brand Inventory is higher due to additional store space, Capestorm inventory and earlier imports of stock for summer. Other reserves consist of the shares purchased for the Forfeitable Share Plan, with a further R13.4m purchased and awarded in the first half and R1.9m expensed. The derivatives consist of FEC s marked to market. Page 14
Working Capital 31 August 2012 29 February 2012 31 August 2011 Unaudited Audited Change Unaudited Change R 000 R 000 % R 000 % Working capital Inventories 323,852 296,723 9% 247,828 31% Trade and other receivables 17,248 19,389-11% 15,295 13% Trade and other payables (91,762) (120,562) -24% (90,563) 1% 249,338 195,550 28% 172,560 44% Increased investment in working capital: - R22.9m increase in working capital from August 2011 to February 2012 - R53.8m increase in working capital from February 2012 to August 2012 Net investment in working capital increased due to higher stockholdings: - Extra store space - Performance Brands acquired Capestorm stock for R11.1m - Earlier imports than last year - Inventory increased in line with growth in sales Page 15
Cash Flow 6 months ended 31 August 2012 6 months ended 31 August 2011 Unaudited Unaudited Change R 000 R 000 % Cash flows from operating activities Cash generated from operations 60,070 83,995 (28.5) Finance income 2,279 1,959 16.3 Finance costs (6,386) (10,148) (37.1) Dividends paid (49,623) - Taxation paid (37,621) (37,664) (0.1) Net cash (outflows) / inflows from operating activities (31,281) 38,143 (182.0) Cash flows from investing activities Additions to plant and equipment (39,706) (13,178) 201.3 Proceeds on sale of plant and equipment 751 91 725.3 Net cash outflows from investing activities (38,955) (13,087) 197.7 Cash flows from financing activities Repayment of loans (12,826) (41,825) (69.3) Forfeitable share plan (13,431) (15,500) (13.3) Acquisition of non-controlling interest - (3,082) (100.0) Net cash outflows from financing activities (26,257) (60,407) (56.5) Net (decrease) / increase in cash and cash equivalents (96,493) (35,351) 173.0 Cash and cash equivalents at the beginning of the period 77,374 67,919 13.9 Cash and cash equivalents at the end of the period (19,119) 32,568 (158.7) Cash generated from operations decreased due to a R29m increase in net working capital compared to the prior period. Tax paid includes the third provisional payment for FY12 Additions to plant and equipment include: - Purchase of the Performance Brands premises for R12m; - Capestorm brand acquired for R8m; and - Expansion of one store and a relocation Financing activities - Loan repayments down R29m from LY - R13.4m to purchase shares for forfeitable share plan, which has been awarded to staff Group has a R110m overdraft facility Page 16
Investing for the future Performance Brands - Purchased Capestorm trademark for R8m and related inventory for R11m - Acquired current warehouse for R12m and will construct additional warehouse space of 1 500m 2 Retail Distribution Centre - Concluded agreements to purchase land in Cape Town in a 50:50 joint venture with Redefine Properties and develop a new 11 000m2 distribution facility Store expansion - Relocated Sportsmans Polokwane and expanded Sportsmans Fourways - Three new stores to trade from December 2012 - Signed leases to open two new stores in next financial year Estimated R18m to be spent in second half and R40m in next financial year on the two warehouse projects. Capex funded from operational cash flows in this year Page 17
Dividend Interim gross dividend of 70.0 cents per share to be paid on 3 December 2012 The group s dividend policy is to have dividends covered twice by core headline earnings. The interim dividend is 2.2 times covered, and favors the group s working capital requirements at this stage of the year. Page 18
In closing... Group sales increased 9.9% to R601.2 million Profit before tax of R86.7 million increased by 1.5% from comparative R85.4 million Core headline earnings per share decreased 1.3% to 157.1 cents Interim gross dividend of 70.0 cents per share Cash flow from operating activities funded capital expenditure Page 19
Questions? Page 20
Thank you! Investor Relations www.holdsport.co.za Cobus Loubser (Chief Financial Officer) Tel: +27 21 464 5366 E-mail: cobus@moresport.co.za
Disclaimer This presentation contains certain forward-looking statements with respect to the financial condition and results of operations of Holdsport Limited and its subsidiaries, which by their nature involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Page 22