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MR PRICE GROUP LIMITED - Mr Price Group Limited reviewed final results for the 52 weeks ended 28 March 2020 and trading update

Release Date: 25/06/2020 07:05
Code(s): MRP     PDF:  
Wrap Text
Mr Price Group Limited reviewed final results for the 52 weeks ended 28 March 2020 and trading update

MR PRICE GROUP LIMITED
Registration number 1933/004418/06
Incorporated in the Republic of South Africa
ISIN: ZAE 000200457
LEI number: 378900D3417C35C5D733
JSE and A2X share code: MRP 
("Mr Price" or "the company" or "the group")

MR PRICE GROUP LIMITED REVIEWED FINAL RESULTS FOR THE 52 WEEKS ENDED 
28 MARCH 2020 AND TRADING UPDATE

This short-form announcement is the responsibility of the Mr Price
Group Limited board of directors and is a summary of the information 
in the detailed results announcement available on:
https://senspdf.jse.co.za/documents/2020/JSE/ISSE/MRPE/25062020.pdf 
and https://www.mrpricegroup.com and does not contain full or 
complete details. These documents and the results presentation to the 
investment community are available on the group's website at 
www.mrpricegroup.com and copies may be requested from the company 
secretary (jcheadle@mrpg.com or +27 31 310 8000) at the company's 
registered office. Any investment decision in relation to the 
company's shares should be based on the full announcement.

PRESS RELEASE 

Mr Price today released its annual results in which it reported 
improved sales momentum and market share growth in H2 and a strong 
performance post the COVID-19 lockdown. 

Due to the COVID-19 pandemic, a national state of disaster was 
announced by government on 15 March 2020 and a national lockdown was 
implemented from 27 March 2020 until 30 April 2020. The enforcement 
of the lockdown period has been guided by varying levels of 
restrictions in order to encourage social distancing and to slow the 
spread of the virus, which has created unprecedented operational 
disruption and significant uncertainty. The group has taken 
additional impairment provisions on stock, its debtors' book and 
insurance claims. Its associates and stakeholders have worked 
tirelessly to minimise the impact on performance and to safeguard the 
future of the business.

Financial performance 

Annual basic earnings per share decreased 9.5% to 1 042.4c, headline 
earnings per share (HEPS) declined 10.4% to 1 047.0c and diluted HEPS 
decreased 9.9% to 1 029.4c. Excluding the additional COVID-19 
provisions detailed above and the effects of the transition to IFRS 
16, the adjusted normalised diluted headline earnings per share 
decreased by 4.6% to 1 089.3c. On this same basis, H2 diluted HEPS 
of 641.8c were 2.7% lower than the corresponding period last year, a 
meaningful improvement on H1 despite the disruption in the last 2 
weeks of trade.

Total revenue from continuing operations (discontinued operations in 
Poland and Australia) grew 2.1% to R23.0bn with retail sales 
increasing by 1.5% (comparable stores -1.4%) to R21.2bn. Cash sales 
including cellular grew by 2.4% and constitute 84.3% of total sales. 
Annual retail sales excluding the last two weeks of March 2020 grew 
2.7%. In H2 sales grew 3.7% (Q3 +3.5% and Q4 excluding the last two 
weeks of March 2020 +4.2%) and market share increased by 0.2%, led 
by its largest division Mr Price Apparel, whose previously stated 
turnaround initiatives gained traction. This improved performance was 
achieved in a highly promotional trading environment which was 
further disrupted by regular electricity load shedding throughout 
most of the period. In its COVID-19 update issued through the Stock 
Exchange News Service (SENS) on 26 March 2020, the group reported 
sales growth of 8.6% in the first two weeks of March 2020, however 
in the last two weeks, following the announcement of the national 
lockdown on 15 March 2020, sales growth declined 32.9% as consumers 
prioritised essential items.

The group continues to grow its footprint and opened 71 new stores 
and expanded 16. After closing 16 stores and reducing the size of 28, 
total weighted average space was up 2.2%, taking total corporate 
owned stores to 1 378. New store capex was allocated mainly to micro, 
small and medium formats aiding group store growth of 4.2%. This 
supports the group's high trading densities and positions its store 
network favourably post COVID-19.

Merchandise GP% levels improved from 40.7% in H1 to 43.2% in H2. The 
group raised an additional R83m stock provision to account for future 
disruption from COVID-19, excluding which, the second half GP% was 
maintained in line with the corresponding period last year. The annual 
gross profit margin declined 170bps to 41.2%, as a consequence of H1 
performance.

Selling and administration expenses were 2.8% lower. On a normalised 
basis, excluding the transition to IFRS 16, total expenses increased 
3.2% on last year. Profit from operating activities from continuing 
operations was in line with the prior year at R4.0bn. The annual 
operating margin decreased 40bps to 17.4% of retail sales and other 
income (RSOI) and in H2 was maintained in line with the corresponding 
period last year at 18.8%.

The Apparel segment increased RSOI by 1.2% to R15.8bn. Operating 
profit from continuing operations decreased 4.6%, down 13.6% in H1 
but recovered in H2, up 2.5%. The Home segment increased RSOI by 2.4% 
to R5.4bn. Operating profit from continuing operations increased 
10.6%. The Financial Services & Cellular segment reported revenue 
growth of 8.1% to R1.6bn and an operating profit growth of 5.6%.

The group's balance sheet remains healthy, with net asset value per 
share at 3 636c, an increase of 8.7% from the prior year. Cash and 
cash equivalents rose to R4.7bn, of which R615m is not immediately 
accessible, and a +/-R500m provisional tax payment was made after the 
year end cut-off date. Plans to release the temporarily restricted 
funds are well progressed. True to its model, the group continued to 
be highly cash generative, reporting a free cashflow conversion ratio 
(adjusted for lease payments) of 133.3%. Inventory levels were up 
3.7%, well within the targeted single digit range, which enabled the 
group to enter the lockdown period in a better position to manage the 
order book effectively. Heightened promotional activity is 
anticipated as competitors liquidate stock. Due to this future 
uncertainty and further potential disruption, the inventory provision 
was increased to 9.6%, up from 6.6% in the prior year. The total 
debtors' book was 5.2% higher and remains well managed, with a net 
bad debt to book ratio of 6.3%. Anticipated consumer distress has 
resulted in the group increasing its impairment provision from 7.5% 
at the half year to 10.4% at year end. Historically, the group has 
applied strict credit granting criteria to new and existing customers 
which will continue to be reinforced.

Post Year End Trading update – 7 weeks from 1 April to 20 June 2020

In the month of April 2020, all the group's South African stores were 
closed and retail sales were down 89.1% off a base of R1.9bn in April 
2019.  

Following the relaxation of lockdown restrictions to level 4 from 1 
May 2020, high levels of pent up consumer demand were experienced. 
Retail sales for the period 1 May 2020 – 20 June 2020 were up 12.0% 
(Mr Price Apparel +16.1%, Mr Price Sport +7.7%, Miladys -13.8%, Mr 
Price Home +1.3% and Sheet Street +15.2%). Pent up demand for apparel 
in May shifted to homewares in June, as lockdown restrictions on 
merchandise permitted to be sold were fully lifted.

Consumers continue to favour transacting in cash. In May and June 
combined, cash sales increased 16.7% while credit sales declined
9.4%. The group anticipates that the credit landscape will 
deteriorate further positioning it well to capture market share. Cash 
sales contributed 85.6% of total sales in comparison to 82.2% in the 
prior year.

Various factors over this period have led to unusually high levels 
of consumer demand: the need for winter & kids' merchandise, increased 
SASSA grant payments, debt payment holidays, TERS claims and 
constrained spending under restriction level 4 and 5. Negative GDP 
and retail sales growth outlooks (together with rising unemployment) 
is providing caution that current sales growth levels may be 
temporary. Therefore, the order book remains carefully managed and 
stock is expected to decrease by double digits level by the end of 
H1. The group's diversified supply chain strategy will enable it to 
buy into stock, should trading conditions improve. 
 
Online sales grew strongly and were up 90.1% over the period. Mr 
Price Apparel & Mr Price Sport sales growth exceeded 100%. It is 
still to be seen whether this is a permanent step change in consumer 
behaviour. The group's historic and ongoing investment into its omni-
channel offering has positioned it to take advantage of this trend. 
In addition to the changing online consumer behaviour, a shift in 
store location has been notable. Super regional centres lagged 
smaller formats due to reduced trading hours and customers preferring 
to shop at more convenient locations. The combination of strong online 
sales and store locations which support customer's needs positions 
the group well as a leading omni-channel retailer in this changing 
landscape.

As is common with the rest of the retail sector, a high proportion 
of credit account payments are made in store. Therefore, closure of 
the store base materially impacted collections during lockdown and 
although the monthly trend is improving, they were lower than the 
prior year in May and June combined.

COVID-19

The current and forecast spread of the virus in South Africa remains 
a concern given its impact on society due to loss of life and the 
devastating financial impact on businesses and citizens. It is not 
possible at this stage to quantify the economic impact on the group, 
but ongoing operational disruptions and future uncertainty remain 
significant challenges.

The group anticipates an extremely constrained consumer environment. 
As a result, approximately R300m in budgeted expense reduction has 
been identified as part of group wide austerity activities and cash 
preservation initiatives have been undertaken, including a 23% 
reduction in budgeted capex for FY2021. No final dividend has been 
declared in order to preserve cash considering the uncertainty and 
future potential disruption, resulting in a decrease in annual 
dividends of 57.7%. The group experienced a decline in cash reserves 
of approximately R2bn during the 5-week lockdown period. However, a 
strong, cash-based performance since then has ensured that the 
current financial position remains sound, with cash resources and a 
debt-free balance sheet available to support current business 
operations and future uncertainty.

Opportunities

Amid all the uncertainty, the group is fully focused on efficiency, 
effectiveness, innovation and growth. The way in which the balance 
sheet has historically been managed has put the group in this unique 
position. Plans are well advanced in identifying organic growth 
opportunities, which may be augmented by acquisitions. The group has 
delivered consistently high returns to shareholders over time, 
highlighted by its return on equity of 30.0%.

On 20 May 2020 the group announced on SENS its intent to affect a 
capital raise of up to 10% of the company's ordinary issued shares, 
at an appropriate point in time and as market conditions permit. The 
board and management are of the view that anticipated market 
conditions will allow strong companies to capitalise on growth 
opportunities whilst maintaining financial flexibility. The group 
needs to be well positioned to respond with speed and agility to 
opportunities that may arise and seeks shareholders' support in its 
growth ambitions. 

Partnership

Through this period, the group's focus has been primarily directed 
toward the safety of its associates and communicating with them 
frequently. All associates have been paid in full and thanks must be 
extended to them for the way in which they have pulled together, 
taken decisive action and acted in line with the group's values. 
Extensive safety measures have been implemented to protect customers 
and the group is grateful for their ongoing support and understanding 
during this very challenging time. The group's responsibilities 
extend to a wide set of stakeholders and the way in which it engages 
with each of them will shape its future. The test of any businesses' 
values takes place not when trade is buoyant, but rather when it is 
at its toughest, therefore partnership is a value that is required 
now more than ever before. Consumers will continue to be constrained 
and seek value and the group is confident that its robust cash-based, 
fashion value model, and growth mindset, will enable it to gain 
further market share and emerge from this crisis fit for growth.

ENDS 

Durban
25 June 2020
Sponsor:
Rand Merchant Bank (a division of FirstRand Bank Limited)


Date: 25-06-2020 07:05:00
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