ScS Group plc Preliminary Results for the year ended 30 July 2016 4 October 2016 October 2014
ScS Group plc preliminary results for the year ended 30 July 2016 Agenda Agenda Introduction David Knight Chief Executive Officer Financial review Chris Muir Chief Financial Officer Review of the year and outlook David Knight 2
ScS Group plc preliminary results for the year ended 30 July 2016 Agenda Objectives To deliver profitable and sustainable growth Improve quality of earnings Improve business resilience Increase shareholder returns 3
Financial review 4
ScS Group plc preliminary results for the year ended 30 July 2016 Agenda Financial highlights EBITDA EBITDA margin* Operating profit July 16 16.0m 5.1% 11.0m July 15 11.3m 4.1% 6.4m July 14 13.7m 5.6% 6.6m * EBITDA as a % of revenue July 16 July 15 EPS 10.9m 21.8p 5.5m 13.8p Dividend (full year) 14.5p FY15 14.0p Cash 22.4m FY15 21.1m July 14 Chris Muir 7.0m 17.5p 5
11.3m ( 8.5m) ( 0.5m) ( 2.9m) 16.0m 22.0m ( 1.5m) ( 3.9m) ScS Group plc preliminary results for the year ended 30 July 2016 Agenda EBITDA Gross margin 44.6% (FY15 : 43.5%) Distribution costs reduced to 4.9% of revenue Marketing investment increased 3.9m to 23.1m Payroll costs (excluding distribution) increased by 8.5m, 7.1m bonus and commission related EBITDA increase of 4.7m or 42% 6
ScS Group plc preliminary results for the year ended 30 July 2016 Agenda Gross sales ScS - Furniture ScS - Flooring HoF Online July 16 261.3m 38.1m 25.3m 10.0m July 15 230.9m 31.8m 21.2m 8.4m July 14 218.5m 29.6m 3.4m 6.7m ScS Furniture ScS Flooring House of Fraser Online FY 16 increase of 30.4m (13.2%) FY 16 increase of 6.3m (19.9%) FY 16 increase of 4.1m (19.7%) FY 16 increase of 1.6m (19.8%) FY15 increase of 12.4m (5.7%) FY15 increase of 2.2m (7.4%) Concession commenced in FY14 FY15 increase of 1.7m (25.1%) Two year increase of 42.8m (19.6%) Two year increase of 8.5m (28.7%) Two year increase of 3.3m (49.9%) Two year CAGR 9.3% Two year CAGR 13.4% Two year CAGR 22.4% 7
21.1m ( 6.3m) 0.4m 22.4m 16.0m ( 3.4m) ( 3.3m) ( 0.1m) ( 2.0m) ScS Group plc preliminary results for the year ended 30 July 2016 Agenda Cash flow Strong cash position 22.4m (2015: 21.1m) and no debt Week 53 impact, at end of week 52 cash was 31.9m 12.0m committed revolving credit facility extended to October 2018 at improved terms Customer deposits 12.8m (2015: 7.2m) Negative working capital model Cash / card sales, deposits received at point of order, balance settled before delivery. Credit sales, loan provider pays ScS approximately 7 days after delivery Majority of suppliers paid at end of month following delivery into our Distribution Centres 8
Review of the year 9
ScS Group plc preliminary results for the year ended 30 July 2016 Agenda Growth focus Strategy for growth Increasing ScS sales densities Optimising the opportunity with House of Fraser customers Growing online revenue Achieving strong and speedy returns from new store openings 10
ScS Group plc preliminary results for the year ended 30 July 2016 Strategy Agenda for growth (1) Increasing ScS sales densities per square foot 2016 2015 2014 219 194 184 Increase of 19% over the past two years Ongoing use and further introduction of a branded range of products, third party and ScS private label Continued development of our flooring offer Ongoing investment in our online capability Increasing footfall (both physically and digitally) by raising brand awareness Improving sales conversions at our stores Improving the customer journey and experience 11
ScS Group plc preliminary results for the year ended 30 July 2016 Agenda Sofas Choice and value Development of Own Brand products to drive sales and cash margin Develop new products to meet consumer trends and expectations Further capitalise on Third Party Brands Work closely with suppliers to further improve quality and reliability 12
ScS Group plc preliminary results for the year ended 30 July 2016 Agenda Supply chain 15 sofa suppliers All purchases in sterling All have signed Service Level Agreements Key customer to suppliers (normally their number one account) Product exclusivity Far east product is imported through UK suppliers No minimum purchase commitments To check numbers 95% special order, no stock risk % Turnover By Country UK (60.5%) Far East (31.6%) Italy (3.6%) Belgium (1.2%) Spain (3.1%) 13
ScS Group plc preliminary results for the year ended 30 July 2016 Agenda Flooring Large range with only a small footprint - Over 5000 SKUs Sample only operation no stock costs, with a Just in Time customer delivery system Introducing Own Brands Closely managed, self employed fitting teams Experienced in-house support network structure 14
ScS Group plc preliminary results for the year ended 30 July 2016 Customer Agenda experience Trustpilot introduced in 2014 Introduced across the business Over 31,000 reviews so far Rated Excellent with the maximum score of 5 stars Ongoing focus to continue to improve 15
ScS Group plc preliminary results for the year ended 30 July 2016 Strategy Agenda for growth (2) Optimising the opportunity with House of Fraser customers 2016 2015 2014 25.3m 21.2m 3.4m 19.7% increase in gross sales in the last year Customer preference to shop in department stores / town centres Different customer demographic (mid and premium market segments) Product offering is tailored to customer demands Currently operating from 28 stores across the UK Average concession size 4,000 sq ft Dedicated management structure Low capital investment Sales based commission model 16
ScS Group plc preliminary results for the year ended 30 July 2016 Strategy Agenda for growth (3) Growing online revenue 2016 2015 2014 10.0m 8.4m 6.7m 19.8% increase in gross sales in the last year An increasing number of people carry out research online Increased investment in online platform Website development Digital marketing Fully mobile responsive Improve ease of use and customer navigation Drive store traffic 17
ScS Group plc preliminary results for the year ended 30 July 2016 Strategy Agenda for growth (4) Achieving strong and speedy returns from new stores 2016 2015 2014 97 96 93 Aberdeen opened in September Three further stores targeted this year One new store in FY2016 One closure in August 2016 Aberdeen opened in September 2016 Three further stores to open in FY2017 taking the ScS network to 100 Site selection based on key criteria: Prime location Near to target demographic - using Experian research Close to competitors Meets minimum return requirements Store floor space of 8,000 sq ft with consent for a trading mezzanine floor of 75% cover or more 18
ScS Group plc preliminary results for the year ended 30 July 2016 4/5 days of constant visibility Advertising focused on end of the week Repeat and reinforce Broad media mix: TV Press Radio Digital One day events Very targeted campaigns HoF - AdSmart Showcasing value Driving traffic in store Agenda Marketing Creates awareness and desire ready for weekend shop Push urgency ends soon 19
ScS Group plc preliminary results for the year ended 30 July 2016 ScS The Sofa Carpet Specialist Agenda Current trading and outlook Strategic growth initiatives on track Strong cash generation and EBITDA growth underpins dividend HoF opportunity progressing well Data shows ScS is gaining market share New store openings We are encouraged by our trading performance since the start of the current financial year and this is in line with our expectations. However, we are mindful that the Group continues to face very strong comparatives during the remainder of the year. 20
Appendices 21
ScS Group plc preliminary results for the year ended 30 July 2016 Agenda House of Fraser Network 97 ScS stores 1 Ave. store retail space 14,700 sq ft House of Fraser 28 House of Fraser concessions 10 distribution centres 2 10 ScS stores Distribution Centres 9 3 1 13 14 2 1 8 2 8 18 2 5 6 9 1 10 22
ScS Group plc preliminary results for the year ended 30 July 2016 Agenda Customer demographic Mosaic ScS Core Customers HoF Customers City Prosperity Prestige Positions Country Living Rural Reality Senior Security Suburban Stability Domestic Success Aspiring Homemakers Family Basics Transient Renters Municipal Challenge Vintage Value Modest Traditions Urban Cohesion Rental Hubs Note: Based on 2015 Experian Mosaic profiling of a range of ScS customers and comparison with the UK households 23
Who shops at ScS? Suburban Stability Mature suburban owners living settled lives in mid-range housing Who We Are Age 56-65 Household Income 40k- 49k Household Composition Family + other adults Number of Children 1 Child Tenure Owned Property Type Semidetached Key Features: - Older families - Some adult children at home - 3 bedrooms - Suburban mid-range homes - Research on internet - Have lived at same address some years Also HoF customer 24
Who shops at ScS? Aspiring Homemakers Younger households settling down in housing priced within their means Who We Are Age 26-35 Household Income 40k- 49k Household Composition Pseudo Family Number of Children 2 Children Tenure Owned Property Type Semidetached Key Features: - Younger households - Affordable housing costs - Full-time employment - Starter salaries - Private suburbs - Buy and sell on ebay 25
Who shops at ScS? Family Basics Families with limited resources who have a budget to make ends meet Who We Are Age 26-35 Household Income < 15k Household Composition Family + other adults Number of Children 3 Children Tenure Council/HA Property Type Terraced Key Features: - Aged 25 to 40 - Families with children - Limited resources - Some own low cost homes - Some rent from social landlords - Squeezed budgets 26
Who shops at ScS? Transient Renters Single people privately renting low cost homes for the short term Who We Are Age 18-25 Household Income 20k- 29k Household Composition Housesharers + others Number of Children No Children Tenure Rented Property Type Terraced Key Features: - Private renters - Low length of residence - Low cost housing - Singles and sharers - Older terraces - Few landline telephones 27
Who shops at ScS? Modest Traditions Mature homeowners of value homes enjoying stable lifestyles Who We Are Age 56-65 Household Income 20k- 29k Household Composition Family + other adults Number of Children No Children Tenure Owned Property Type Terraced Key Features: - Mature age - Homeowners - Affordable housing - Kids are grown up - Suburban locations - Modest income 28
Who shops at ScS? Senior Security Elderly people with assets who are enjoying a comfortable retirement Who We Are Age 66+ Household Income < 15k Household Composition Single Number of Children No Children Tenure Owned Property Type Bungalow Key Features: - Elderly singles and couples - Homeowners - Comfortable homes - Additional pensions, > state - Don't like new technology - Low mileage drivers Also a HoF customer 29
Who shops at ScS? Vintage Value Elderly people reliant on support to meet financial or practical needs Who We Are Age 66+ Household Income < 15k Household Composition Single Number of Children No Children Tenure Council / HA Property Type Purpose built flats Key Features: - Elderly - Living alone - Low income - Small houses and flats - Need support - Low technology use 30
Who shops at HoF? Prestige Positions Affluent married couples with financial security and spacious home Who We Are Age 56-75 55% have two or more vehicles Household Composition Married Supporting older children Tenure Owned Property Type Detached Key Features: - High value detached homes - Married couples - Managerial & senior roles - Support students & older kids - High assets and investments - Online shopping and banking 31
Who shops at HoF? Country Living Well-off homeowners living in the countryside Who We Are Living in rural areas 38% use central heating oil 18% self - employed 68% own a pet Tenure Owned Property Type Detached Key Features: - Rural locations - Well-off homeowners - Attractive detached homes - Higher self-employment - High car ownership - High use of Internet 32
Who shops at HoF? Domestic Success High- earning families who live affluent lifestyles Who We Are Most likely to be married 35% Work part time or as a housewife Most likely to have opened up a child trust fund Number of Children 2+ Children Tenure Owned (w. Mortgage) Property Type Detached Key Features: - Families with children - Upmarket suburban homes - Owned with a mortgage - 3 or 4 bedrooms - High Internet use - Own new technology 33
Who shops at HoF? Modest Traditions Older people living in inexpensive homes that they own Who We Are Age Mid 50s Household Income 20k - 30k Likely to get a lift or bus to work Older children that live elsewhere Tenure Owned Property Type Terraced Key Features: - Mature age - Homeowners - Affordable housing - Kids are grown up - Suburban locations - Modest income 34