APRIL 2012 MARCH - Mr Price Group
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PRICELESS ( VAT I N C L ) TAKE AN INSIDE LOOK AT OUR MR PRICE FAMILY ONLINE SALES ANNUAL INTEGRATED REPORT PLATFORM LAUNCHED - WWW.MRP.COM APRIL 2012 GROUP POSITIONS MARCH ITSELF FOR THE NEXT PHASE OF ITS GROWTH 2013 Test stores in Nigeria and Ghana deliver strong results
“A celebration WELCOME of the individuals who TO THE make it all happen” MR PRICE STUART BIRD CHIEF EXECUTIVE OFFICER - MR PRICE GROUP LIMITED GROUP LIMITED ANNUAL INTEGRATED REPORT 2013
15 OUR VALUES 06 Scope and Boundary 07 2013 Highlights 08 2013 Under Review 10 Our Business 12 Our Footprint 14 Business Overview 29 26 Stakeholder Engagement 29 Chairman’s Report CHAIRMAN'S 31 CEO's Report REPORT 32 CFO's Report 37 Divisional Performance Indicators 46 Divisional Reviews 38 Report on Our People 60 Corporate Governance 46 44 Stories of Our People 68 Board Risk Committee Report DIVISIONAL 70 Audit and Compliance Committee Report REVIEWS 72 Internal Audit Report 74 Social, Ethics, Transformation and Sustainability Committee Report 78 Social Report 80 Remuneration Report 93 Board of Directors 94 Shareholder Information 95 Declaration of Final Cash Dividend 96 Approval of the Annual Financial Statements 97 Report of the Independent Auditor 98 Report of the Directors 102 Abridged Financial Statements 108 Administration and Contact Details 38 OUR PEOPLE 109 Definitions and Glossary 110 Notice of Annual General Meeting 115 Form of Proxy SHAREHOLDER INFORMATION 94 80 REMUNERATION REPORT
MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: 2013 HIGHLIGHTS 07 Scope HIGHLIGHTS WHERE WE’RE AT... and Boundary 19% About the report The Group is committed to integrating social, environmental and governance performance OPERATING PROFIT with financial performance in accordance with the King Code of Governance for South Africa, 2009 (King III). Issues that have a material impact on the Group have been included. This year's report has been produced in a more concise manner, including only abridged financial statements. Additional information is available on the Group's website (www.mrpricegroup.com). Scope and boundary HEADLINE EARNINGS PER SHARE 26% This Annual Integrated Report, for the 52 week period ended 30 March 2013, includes the consolidated financial results of Mr Price Group Limited trading in South Africa and its 23.5% African operations in Botswana, Namibia, Lesotho, Swaziland, Ghana and Nigeria as well as the income received from its franchise operations trading elsewhere in Africa. Pages 12 27 YEAR CAGR IN HEPS and 13 illustrate the geographical representation of retail operations. The Group’s Strategic Planning Framework and the Global Reporting Initiative (GRI) served as guidance to identify issues material to its long-term sustainability. Relevant disclosures include those pertinent to corporate-owned operations but exclude franchise operations. The Group’s social initiatives are focused on South African national priorities. DIVIDENDS PER SHARE 27% The Annual Financial Statements have been prepared on the historic cost and going concern bases, and are prepared in accordance with the International Financial Reporting Standards (IFRS) and in the manner required by the Companies Act of South Africa (71 of 2008) and the JSE Listings Requirements. RETURN ON EQUITY 51.1% Assurance The Group’s consolidated Annual Financial Statements were audited by the external auditor, Ernst & Young Inc. Their unqualified report can be found online as part of the consolidated Annual Financial Statements. The South African Broad-Based Black Economic Empowerment (B-BBEE) CASH RESOURCES OF R1.2 BILLION accreditation level has been externally verified by a SANAS accredited organisation, BEESCORE (Pty) Ltd. The Board is satisfied with the level of integrated reporting, but recognises that it is premature to subject the Annual Integrated Report to external ASSOCIATES EMPLOYED 19 384 assurance at this point. The Group’s Internal Audit Division has verified the selected disclosures contained in the Social, Ethics, Transformation and Sustainability Committee Report (page 74) and the Report on our People 700 120 (page 38). The external auditors have verified the information in the Remuneration Report (page 80). 600 100 Directors’ responsibility 500 The Board acknowledges its responsibility to ensure the integrity of the integrated report. HEPS and DPS (cents) 80 Share price (rand) The Board has applied its mind to the integrated report and confirms that it addresses 400 all material issues, and presents fairly the integrated performance of the Group and its 60 impacts. The integrated report has been prepared in line with best practice pursuant to the 300 recommendations of the King III Code (principle 9.1). The Board authorised the integrated report for release on 22 May 2013. 40 200 100 20 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Headline earnings per share Dividends per share Share price NG Payne SI Bird MM Blair Chairman Chief Executive Officer Chief Financial Officer
MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: 2013 UNDER REVIEW 09 MaintainedB-BBEE Level 6 Compliance. Exceeded 1 000 corporate-owned stores. R16.4 million paid Successful first year in dividends to Mr Price Partners Share Scheme participants. performance of stores in Ghana and Nigeria AWARDS AND ACCOLADES People Management The Group has invested in smart software solutions (Ceridian Dayforce Human Capital 2012 - Mr Price Group 2012 - Mr Price Group 2012 - Mr Price Group Management System, Cornerstone Learning Management System and VIP Payroll) Ranked 2nd in Sunday Times Ranked 5th in Sunday Times Ranked top of the JSE for enabling world class people support to the business as the Group continues to expand locally and internationally. Top 100 Companies 2012 Top 100 Companies 2012 total shareholder returns (5 year compound growth (10 year compound growth over 10 years by the Sunday rate in share price 43.2%). rate in share price 44.2%). Times in May 2012. Mr Price Online Launched on the 30th July 2012, at a high profile event held at Mr Price Head Office that included South Africa’s who’s-who in the fashion and media industry, www.mrp.com 2012 - Mr Price Group 2012 - Mr Price Group 2012 - Mr Price Group has enjoyed an almost fairy tale experience to date. Constant and positive social media Included in MSCI Emerging Finalist of the World Retail Investment Analyst feedback is testament to the fact that Mr Price has set the benchmark in online shopping in Markets Index from Awards 2012 in the Society Awards 2012 South Africa, so much so that it also became the most searched retail brand on Google in May 2012. Emerging Market Retailer of Mr Price Group was voted South Africa for 2012, despite only launching 7 months into the year. the Year category. leader in corporate reporting in the consumer services sector. Facebook Likes Twitter Followers Site Visits Page Views 209 418 14 768 2 949 827 33 024 760 2012 - RedCap Foundation The RedCap Foundation’s YoungHeroes programme received an Honorable Mention in the Africa category at the IPN Global Best Awards. This award recognises the programme’s achievements under the category of “partnerships that support health, wellbeing and learning in Africa.”
MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: OUR BUSINESS 11 NUMBER OF NUMBER OF STORES DETAILS ASSOCIATES PRODUCT OFFERING CUSTOMERS AND POSITIONING APPAREL 384 10 398 Average store size Clothing, footwear, accessories, underwear Marketing is pitched at 16 to 24 year olds who want to 624m2 and maternitywear keep abreast of the latest international trends at exceptional prices. LSM range 6 to 10. 53 1 224 Average store size Sporting apparel, equipment, footwear and Value-minded sporting families who enjoy performance, 891m2 accessories quality, comfort and fit, whether they are participants or spectators. LSM range 6 to 10. 189 1 964 Average store size Classic and updated women’s clothing, Young-at-heart women aged 40+ years who have fashion 326m2 footwear, intimatewear, cosmetics and sensibility and require differentiated trends that offer style accessories and co-ordination. LSM range 6 to 10. HOME Looking good... 150 3 335 Average store size Home textiles, homeware, furniture and Contemporary lifestyle customers, aged 18 and upwards, 920m2 kids’ merchandise all with a young-at-heart attitude. LSM range 6 to 10. 253 1 597 Average store size Bedroom, living room and bathroomware Middle-income consumers looking to co-ordinate their homes 195m2 tastefully but responsibly. LSM range 5 to 8. FRANCHISE 26 7* Average store size Clothing, footwear, accessories, underwear The franchise stores operate the same business model as 514m2 and maternitywear. Home textiles, homeware the corporate-owned stores. and furniture * Head office associates only FINANCIAL SERVICES 352 Credit and financial services Granting of credit, management and collection of Cards available are as follows: available in all South African and debtors book and identification and marketing of • Mr Pricemoney (Mr Price Apparel, Mr Price Home, Namibian stores financial services products Mr Price Sport) • Miladys • Sheet Street CENTRAL SERVICES 507 Provides the following services to the trading divisions: • Information technology, • Internal audit, • Human resources, • Real estate, • Financial, • Risk and governance, and • Sustainability 1 055 19 384
FOOTPRINT MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: OUR FOOTPRINT 13 GAUTENG LIMPOPO 5 Mr Price Apparel - 16 10 8 l- -5 re Mr Price Home - 8 pa e 3 om Ap -2 H rt e 0 Mr Price Sport - 1 ric o e -7 ric Sp rP rP et 43 e M re ric M Sheet Street - 15 St s- rP dy et M 384 e ila Sh Miladys - 10 M 150 FREE STATE MPUMALANGA 53 NORTH WEST 32 - Mr Price Apparel Mr Price Apparel - 18 253 Mr Price Home - 7 50 STORES 8 - Mr Price Home 1 - Mr Price Sport 189 Mr Price Apparel - 27 Mr Price Sport - 3 Mr Price Home - 7 23 - Sheet Street Sheet Street - 13 1029 Mr Price Sport - 2 18 - Miladys Miladys - 17 Sheet Street - 16 CORPORATE STORES IN AFRICA Miladys - 14 299 STORES 82 STORES Mr Price Apparel Mr Price Home NORTHERN CAPE 66 STORES Mr Price Sport BOTSWANA Sheet Street 9 Miladys 17 13 - Mr Price Apparel 3 3 STORES 4 - Mr Price Home 2 56 - Mr Price Apparel SWAZILAND 1 - Mr Price Sport 17 - Mr Price Home UR 7 - Sheet Street 2 8 - Mr Price Sport 6 2 6 - Miladys 2 31 58 35 - Sheet Street STORES STORES STORES 38 - Miladys NAMIBIA 154 STORES 14 27 3 1 STORES 5 LESOTHO 4 2 4 1 1 149 83 STORES KWAZULU-NATAL STORES STORES NIGERIA 2 2 STORES 54 GHANA l- 4 re -2 pa Ap e 10 1 om e t- H EASTERN CAPE 1 ric 39 or e rP WESTERN CAPE ric Sp - M rP et 22 e STORE tre ric M s- tS rP Miladys - 13 Mr Price Apparel - 33 Mr Price Home - 10 Mr Price Sport - 3 Sheet Street - 24 dy ee FRANCHISE M ila Sh M 19 26 STORES 7
MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: BUSINESS OVERVIEW 15 OVER THE PAST 27 YEARS, THE GROUP HAS DELIVERED STRONG GROWTH IN EARNINGS, DIVIDENDS 600 AND SHARE PRICE 120 PASSION Ordinary people doing extraordinary 500 100 things. Passion is our engine. It is the positive HEPS and DPS (cents) Share price (rand) attitude and enthusiasm of all our associates 400 80 who approach each day bright-eyed, smiling and projecting a positive image – believing 300 60 work is fun. 200 40 VALUE 100 20 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 The heart of our business. The success of our business has been, and will continue HEPS DPS Share Price to be, built on our ability to add value to 27 year compound annual growth rate - HEPS: 23.5% DPS 25.3% our customers’ lives. But it is more than just price. It's about quality, fashionability, being in stock of the wanted item and delighting OUR DREAM our customers by doing more than what is To become a top performing international retailer. expected. OUR PURPOSE To add value to our customers’ lives and worth to our partners’ lives, whilst caring for the communities and the environments in which we operate. PARTNERSHIP Sharing the ownership and success of the OUR VALUES Company with all our associates and WE ARE A HIGH GROWTH fostering solid and long-term partnerships PASSION - VALUE - PARTNERSHIP with our suppliers. Without our customers, SOUTH AFRICAN-BASED The Group retails apparel, homeware and sportswear in 2 business segments of ‘Apparel’ and ‘Home’. These are the 3 key values upon which the Group has been built. They are the we don’t have a business and they are one ‘Apparel’ includes the Mr Price, Mr Price Sport and foundation stones of the business and never change. By staying true to PASSION, of our most valued partners. We partner with FASHION-VALUE RETAILER, SELLING Miladys brands and ‘Home’ includes the Mr Price Home VALUE and PARTNERSHIP we ensure that we are building a sustainable business as our community by investing in strategic and Sheet Street brands. we progress towards our vision of being a top performing international retailer and initiatives that improve the lives of those who PREDOMINANTLY FOR CASH. WITH A fulfilling the dream for our partners – our Mr Price family. are less fortunate, particularly children and The Group launched its online sales platform in July youth. MARKET CAPITALISATION OF 2012 and also offers financial services to its customers. R29.4 BILLION AT YEAR END, The Group operates 1 029 corporate-owned stores in GOVERNANCE South Africa, Botswana, Namibia, Swaziland and Good governance and ethical and effective leadership are considered critical to the THE GROUP RANKED 46TH Lesotho with recent corporate store expansion into West Group’s success and sustainability. The Group is therefore committed to “Governance Africa, namely Nigeria and Ghana. The Group has 26 beyond Compliance” and to the adoption, integration and embedding of the spirit and ON THE JSE. franchise operations trading elsewhere in Africa principles of governance as opposed to simply responding to and complying with rule sets namely Kenya, Malawi, Mauritius, Mozambique, and recommended codes. The Group considers good governance to be a natural extension Rwanda, Tanzania, Uganda and Zambia. More of its values and has structured and organised itself in order to give effect to its commitment information on these international operations can be to robust governance. More information on the Group’s governance strategy and activities found in the International Review on page 56. during the period can be found in the Corporate Governance Review on page 60.
VALUE IS AT THE VERY CORE OF THE MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: BUSINESS OVERVIEW 17 GROUP’S EXISTENCE…… OUR FASHION - QUALITY - PRICE Being a value retailer means lower mark-ups in order to offer ‘everyday low OUR JOURNEY The Group has consistently delivered exceptional growth, however it still views itself as a growing company with great prospects. Over the MODEL prices’. This results in large order quantities and higher sales volumes that keep last few years the Group has been heavily focused on driving operational performance and specifically, improving the operating margins VALUE input prices low. of underperforming divisions. Although considerable success has been achieved to date, further margin improvements are expected in the Maintaining a low overhead structure is imperative to delivering acceptable future. The Group has moved into the investment and growth phases of the journey. This will support its dream and includes expansion into operating margins. The Company seeks to balance this with incurring costs new trading formats such as online and new markets beyond South African borders. often ahead of revenue generation which will support future growth. The Group's long-term thinking requires it to invest substantially in information technology and supply chain. This underpins the growth strategy in order to 2010 2011 2012 2013 2014 2015 2016 2017 preserve the proud track record of earnings growth. BUSINESS IN ‘FIX UP’ MODE INVEST IN SYSTEMS, LOGISTICS, SUPPLIERS GROWTH PHASE FIX INVEST GROW OBJECTIVES • Address areas of weakness and • Have a suitable infrastructure in place. • To be an internationally competitive opportunity, particularly in the A powerful engine which is revving retailer, with robust topline growth and underperforming divisions and ready to go foreign revenue increasing at a higher rate than locally • Capture market share, improve trading • Enhanced processes, systems and densities and increase operating infrastructure to support the next phase • Extend track record of HEPS growth margin % of growth of CAGR greater than 20% OUR BUSINESS THE GROUP IS FOCUSED MODEL ON REMAINING A PROGRESS FASHION IS SYNONYMOUS CASH-DRIVEN RETAILER. CASH Since 2010: • Group has committed to R2.5 billion • Research and testing of new markets is WITH OFFERING THE AIM IS TO MAINTAIN • Trading densities have increased from capital expenditure over the next 5 currently underway FASHIONABLE A CASH SALE R18 492m-2 to R24 979m-2 years, including R1 billion for a new ERP system and distribution centre MERCHANDISE AT CONTRIBUTION OF AT • Operating margin has increased from 10.5% to 15.6% EVERYDAY LOW LEAST 75%. THIS YEAR PRICES. CASH SALES WERE 80.4% THIS IS HOW WE SATISFY OUR CUSTOMERS’ NEEDS (81.4%) OF TOTAL SALES. The Group has adopted an integrated approach to strategy, risk management, performance and sustainability. It is committed to the THIS LEVEL OF CASH SALES ENSURES THAT THE alignment of “profit, people and planet” as it pursues its vision to become a top performing international retailer. FOR FASHION: GROUP IS: • Fashion research, specialist trend teams and frequent The following focus areas which are detailed on pages 18 to 24 are relevant to the Group's ability to create and sustain value in the international travel • Less impacted by the cyclical nature of retail longer term, and thereby achieve its vision: • Active dialogues through digital and social media • Less exposed to bad debt (as it does not have the challenge of collecting a large debtors’ book) 1. Sustainable growth in targeted markets • Responding to customers’ changing fashion needs • Thorough product testing before making large • Not dependent on releasing more credit into the 2. Building people capacity merchandise commitments market to drive turnover, particularly during poor economic times 3. Focus on the value model • Slow selling merchandise is marked down and sold to make way for new fresh merchandise. Product is not • Able to fund future growth without gearing. Strong 4. Business systems, supply chain and resourcing capability enhancements accumulated for an ‘end of season’ sale, so there are cash flows will support increased capital everyday low prices expenditure and maintain an appropriate dividend 5. Sustainable local development pay-out ratio
1. SUSTAINABLE GROWTH IN TARGETED MARKETS South African consumers moving up the LSM curve (the rising sector growth and job creation. This will in turn lead to an increase MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: BUSINESS OVERVIEW 19 middle class) have directly benefited the Group’s topline growth, in consumer spending which is expected to grow from US$860 profitability and total shareholder returns. These increases are billion (2011) to US$1.4 trillion by 2020. Other factors such as a expected to continue, mainly in the LSM 4 -10 categories, which faster population growth rate of 875 million (2011) growing to WHERE WE ARE GOING includes the Group’s direct target market, LSM 6 -10. 1.2 billion (2025), urbanisation increasing from 36% (2011) to an estimated 50% (2030) and the rapidly expanding new middle • Grow market share in established markets. South A key consideration in focusing on international growth is to class (growing by over 3.1% per year), will as a result of improved decrease dependence on one specific market and develop a more living standards, increasingly need apparel, homeware and African “home base” is still key to the Group’s diversified business. sportswear. Africa will be the new retail growth story within the future and holds exciting growth prospects. It is the next decade. (Source: Global McKinsey Institute, World Bank, foundation which will fund infrastructure and The trends which have driven economic development in other African Development Bank) expansion; emerging economies are beginning to take hold in Africa. Sub-Saharan Africa (SSA), driven by commodity availability, The growth of the internet has also presented retailers with the a youthful workforce, recent discoveries of oil and gas on the opportunity to enter new markets without the need to commit to • Open further stores in West Africa (Nigeria and Ghana), eastern seaboard and the continued supply of agricultural products building a large and expensive network of stores. The Group’s and research specific African countries for direct to international markets is expected to grow at a faster rate than research is focused on the right business model to enter new the western world. Foreign direct investment into Africa will territories with either online or a mixture of online and bricks and investment opportunities; continue to grow exponentially. This will lead to further private mortar stores. • Research other international markets to identify KEY IMPERATIVE RESPONSE additional growth opportunities; MAXIMISE LOCAL OPPORTUNITIES: • Launch Mr Price Apparel online STORE LOOK New generation store design to be rolled out. The new generation store design is currently being rolled out and has been internationally, with specific focus on positively received by customers. Australia, New Zealand and the UK in the The number of new generation stores that have been opened during the year is first half of the new financial year; as follows: Mr Price Apparel 23 Mr Price International 1 • Launch Mr Price Home, Sheet Street and Mr Price Sport 9 Miladys 12 Mr Price Sport online in South Africa within Mr Price Home 17 the next year; and Sheet Street 42 TRADING SPACE In recent years, the focus has been on improving divisional This process is well underway and the Group now has a greater appetite to take • Enhance the level of marketing, product performance by driving up trading densities. on new attractive trading space – the right sized store with the right rental structure. testing and linking with customers via • Target gross new space of 5% per annum; social media. Gross new trading space was increased by 3.8% (closing) and 3.6% (weighted average) during the current year. However, prior to planned space reductions • Reduce space in oversized stores, (Mr Price Sport and and store closures, new space opened amounted to growth of 6.2% (closing Mr Price Home had many overspaced stores); and space). OUR CHALLENGES AND OPPORTUNITIES OUR RESPONSE Mr Price Sport reduced its store space by 3 095m² and Mr Price Home reduced • Expand stores where trading densities are too high. by 4 158m², the latter remaining a continuing opportunity over the next 5 years. Focused 'research and test' strategy for international markets. This has had a positive impact on store performance, with Mr Price Sport Assessing the emerging market opportunity, including Africa. reducing space in 4 stores by 42% but increasing sales by 8% and profit by 69% Strengthen management teams in key growth areas. (Mr Price Apparel’s trading density of R31 466m² is high by industry standards, especially for a value retailer. Up to a 3rd and Mr Price Home reducing space in 4 stores by 29% but increasing profit by of its stores are considered too small, which negatively impacts 26%. Availability and cost of retail infrastructure and space. Engaging with Multi-channel approach to expansion, which integrates traditional shopper experience and results in lost sales opportunities). the new generation consumer, who is becoming increasingly “switched stores, E-commerce and mobile. Stringent store feasibility process. This year, Mr Price Apparel expanded by 2 781m², evidencing that this will still on” and demands convenience in their shopping. be an opportunity area for many years to come. Maintain focus on target customers and continue to increase market TEST NEW CHANNELS The Mr Price Apparel online site, www.mrp.com, was successfully launched in Increased urbanisation and rising middle class. share. South Africa in July 2012. The objective was clear – make online shopping as convenient for the customer as possible. To this end, the online offer was made Increased globalisation, including increased entry of international Continue to focus on the fashion-value business model, and increased available both on the web and on mobile devices. Multiple delivery methods and retailers into South Africa. product design and test strategy. 6 payment options were offered. The Group’s strategy in terms of building supply chain, systems and INTERNATIONAL RESEARCH ON OWNED STORES IN The corporate ownership model and structure for international operations was Infrastructure, systems and people capacity and maturity. AFRICA established. Test stores were opened in Nigeria and Ghana, which have traded people are well established and clear. very well. South African social and economic landscapes. Sales growth strategy will lessen dependence on one country.
2. BUILDING PEOPLE CAPACITY The Group recognises that skilled and committed people, who have MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: BUSINESS OVERVIEW 21 high passion for their work, drive a successful business. The ability of leadership to respond to opportunities and threats, to build strong team structures supporting future expansion, and to effectively rollout the new 3. FOCUS ON THE VALUE MODEL Human Capital Management (HCM) system is key to achieving goals. VALUE is a foundation stone of the business model and this will never change. By staying true to this the Group ensures With ongoing expansion and business systems improvements, that it is building a lean, sustainable business in a more constrained world. Adding value to our customers’ lives is our purpose and this is management of change is an essential competency to ensure that achieved through an ongoing focus on improved efficiencies. company values and corporate ‘DNA’ are retained. Effective communication will be vital to ensure that associates understand and are energised by the various opportunities, in both work and careers. KEY IMPERATIVE RESPONSE KEY IMPERATIVE RESPONSE Continue to improve operational performance by Although the Group’s operating margin has shown strong growth, it was impacted by maintaining low overhead structures and improving the performance of certain divisions. GROW THE HUMAN CAPITAL RESOURCE, operating margins. PRIMARILY: The initial operating margin targets were: The initial targets were achieved with the exception of Mr Price Sport, and revised medium-term targets are: • Emerging leadership and key skills development. • Identified areas that required strengthening and implemented various Mr Price Sport 10% >15% initiatives such as new e-learning modules, internship programmes, and Mr Price Home 10% >15% emerging leader development. Sheet Street 10% >15% Miladys 15% >20% • Improved skills sourcing and attraction. There are still opportunities to further improve the operating margin of • Built a robust succession plan, which is constantly updated as people Mr Price Apparel, however the magnitude of the improvement is not at the same scale development takes place. as the other divisions. • Identified appropriate structures for the key teams impacted by the Group’s Identify cost savings to offset the financial impact of the A number of cost saving initiatives were identified and are currently being progressed, expansion plans. increased investment in business systems and supply including: chain. • Enhanced tender process; • Focused development of previously-disadvantaged • Energy initiatives to reduce cost and consumption; associates for middle and senior management • Actively managed and monitored Employment Equity goals. • Review of sport sponsorships; succession, which will feed the 'pipeline' into top • Rollout of the Ceridian Dayforce Labour Scheduling System, which was implemented management. in 114 stores (aims to better align associate working hours with peak trading periods and thereby improve the customer experience and turnover whilst reducing overtime); and Research and implement new Human Capital Selected an appropriate HCM system and started implementation of the labour • Focus on rental negotiations and a more stringent new store feasibility process. Management (HCM) system. scheduling and payroll components. Conducted workplace training and change management to enable business outcomes. Keep input prices low. Refer to point 4 on page 22. WHERE WE ARE GOING • Focus on leadership development, including Employment Equity; WHERE WE ARE GOING • Build and train new skills required to support the Group’s future growth; • Monitor and manage changes to processes and roles as a result of business systems improvements; and There will be continued emphasis on operating performance to achieve the desired level of margins, despite the Group’s strategic focus • Continue to rollout the HCM system, labour scheduling module to all stores in the next financial year and implement the learning moving to the investment and growth phases. Although these investments are expected to result in higher short-term costs, they represent management module. significant opportunities to further improve efficiencies, costs optimisation and topline growth over the longer term. OUR CHALLENGES AND OPPORTUNITIES OUR RESPONSE OUR CHALLENGES AND OPPORTUNITIES OUR RESPONSE Attraction and retention of key skills. Continued focus on embedding the Group’s values and DNA in order to position the Group as a preferred employer. Continuation of share Significant investment in building future capabilities. Investment in a new Enterprise Resource Planning (ERP) system and schemes, in which all associates can partake, is a strong incentive and distribution centre. retention mechanism. Resourcing model, availability and cost of local manufacturing Continuing to build a robust supply base that focuses on maintaining Leadership development and succession, including senior and Focus on building future leaders and strong pools of talent to feed the capabilities. and developing local suppliers and entering into strategic partnerships. merchant leadership. succession pipeline. Support Centre infrastructure and costs. Continued focus on maintaining a low cost structure and tendering Associate engagement and empowerment. Process re-engineering to improve efficiencies, release capacity and process for larger input costs. enhance the work environment. Availability and cost of retail space. Developing a multi-channel approach to retailing, which includes Transformation. Continued focus on transforming and empowering the workforce. growth in traditional retail space, E-commerce and mobile. The medium to long-term plan is to train and develop middle management levels, rather than to 'buy in' at top levels. Labour efficiency. Implementation of the Ceridian Dayforce Labour Scheduling System.
4. BUSINESS SYSTEMS, SUPPLY CHAIN AND RESOURCING CAPABILITY ENHANCEMENTS MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: BUSINESS OVERVIEW 23 WHERE WE ARE GOING The Group’s future growth and profitability strategies are dependent on an agile and low cost end-to-end supply chain. The Group plans to implement a new Visibility of product throughout the supply chain is crucial in order to create an effective network that responds to changes in Enterprise Resource Planning (ERP) system demand and supply thereby ensuring optimal product availability at acceptable cost. and construct a new and enlarged distribution The major IT projects support the business growth strategy, the centre (DC) facility over the next 3 years, key drivers being: a more flexible and agile supply chain to reduce costs, getting merchandise to market timeously and which will require a significant capital enabling the ability to trade internationally. This enables the Group to trade competitively whilst complying with all local and investment of almost R1 billion. cross border regulations. The underlying technical architecture to support all these new, more complex and distributed applications needs to be The implementation of the 1st ‘test division’ upgraded. for the new ERP system is scheduled for May 2014, with the remainder of the Group’s divisions KEY IMPERATIVE RESPONSE following thereafter. The new distribution facility is Continue to enhance supply chain efficiency, capacity and responsiveness to enable the Group’s expansion • The size of the new single facility distribution centre has been determined and the location identified. The land has been acquired, subject to the necessary scheduled to be operational in August 2015 plans and reduce the impact of rising fuel prices. approvals, which are in progress. Building design and material handling equipment installation planning has commenced. and the project contains several key milestones • International consolidation centres operated by 3rd parties are being used. The consolidation of merchandise at source with shipment directly to point of customer demand is key to reducing cost and lead times. The elimination of the current over this period. double duty scenario whereby import duty is incurred into South Africa and then again in foreign markets is key to reducing selling prices in those territories. • A new 5 year contract, effective 1 April 2013, has been signed with the Group’s outbound store carriage service provider. OUR CHALLENGES AND OPPORTUNITIES OUR RESPONSE Ability to develop a more balanced and sustainable resourcing model. Continue to develop and partner with our suppliers to build a supply Information technology and business systems innovation • A project to define business information needs and business processes was to support business growth and achieve increased chain that provides continuity of supply at best cost whilst being flexible initiated. The outcome was an improved business process model for all aspects of capabilities and efficiencies. merchandise, taking global supply chain and global trading into account. to changing customer demands. • A strategic IT capability assessment was conducted. The key outcome was the IT alignment and capability to support the Group strategy and vision. Continued focus on IT governance, business alignment and strategic IT need for a new ERP backbone and merchandise planning and allocation system, roadmap. both of which will enable efficient processes to be adopted, and global requirements to be met. The application solutions and implementation partners Change impact of migrating to a new ERP system and introducing new Deployed a focused team and partnered with specialists. Robust due have been selected with the project starting in the new financial year. business processes. diligence, project governance and change management processes were undertaken to minimise business disruption. A phased implementation plan is being adopted, with the new system being Product sourcing and enhanced level of engagement The Group is reviewing its resourcing strategy, including building strategic with key suppliers. relationships with key suppliers, to improve on time and in full order delivery rates, tested in a smaller division (Mr Price Sport) before being rolled out to reduce lead times and enhance visibility and flexibility. the remaining areas of the business. DC capacity and change impact on our people of relocating the DC to The new DC project has been set up as a major project, with a focused a new location. team and partnership with specialists. This includes sound due diligence, project governance and change management processes. Skills and proficiency, including leadership, to support planned Continued focus on skills development and/or skills acquisition, changes. including through partnership with specialists.
5. SUSTAINABLE LOCAL DEVELOPMENT The Group is identifying opportunities to implement strategic initiatives to develop MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: BUSINESS OVERVIEW 25 the capacity of local suppliers. By building capacity in South Africa, the Group supports the local economy and enables flexibility in the supply chain. Key indicators have been identified to measure the Group’s economic, social and environmental progress. Social investment is made through the Group’s donation to RedCap Foundation and RedCap Sport, which continue to implement innovative solutions to address challenges in the South African education system in partnership with the National Department of Basic Education. The Group has recently joined forces with the JobsFund and other organisations to promote job creation in South Africa. This is being achieved through the Group’s Enterprise Development Strategy and the efforts of RedCap Foundation to support strategic skills development through the JumpStart Programme. Refer to the Social Report on page 78 for further details. KEY IMPERATIVE RESPONSE ECONOMIC Unit 2013 2012 2011 2010 Continue to invest in the community. • RedCap Foundation’s JumpStart Project was awarded its 1st tranche of the JobsFund’s R17.5 million grant to upscale the programme. 745 young people were placed into jobs over a 6 Retail sales R’m 13 266 11 767 10 673 9 454 month period. Headline earnings per share cents 635.5 503.0 418.9 276.9 • The RedCap Centres of Excellence introduced the YoungHeroes Programme (focused on physical Operating margin % 15.6 14.8 13.4 10.5 education and school sport) to 6 provinces in 2012. Dividends per share cents 398.0 314.0 252.0 173.0 • The various initiatives of the RedCap Schools Project produced an improvement in learner results Share price (closing) Rand 116.99 94.34 63.38 39.80 of 10% - 13% and teacher content knowledge by 15% - 17%. Return on net worth % 46.4 43.8 42.2 32.5 • The High School Soccer Programme was implemented in 6 provinces. Cash sales as a % of total sales % 80.4 81.4 83.8 83.9 Build a sustainable local supply base. A loan was made to a local shoe manufacturer to assist them to grow their business output and SOCIAL become a strategic supplier. The impact will be: • Growth in jobs; and Total number of people employed 19 384 17 894 17 887 17 300 • Skills development in the footwear manufacturing industry. Staff turnover % 21.5 22.6 22.1 25.7 Black staff as a % of total permanent staff % 94 91 89 90 Support sustainable B-BBEE. The Group maintained B-BBEE Level 6 Compliance due to its on-going investment in skills development, Promotions of black people as a % of total promotions % 87.1 85.2 78.2 82.7 enterprise development, socio-economic development and local procurement. Investment in people learning and development R’m 30.8 25.1* 9.9 7.0 Black people participating in learning and development % 88 87 83 78 WHERE WE ARE GOING B-BBEE rating Level 6 6 6 Not measured • Continue to invest in RedCap Foundation and RedCap • Identify further Enterprise Development opportunities to Corporate Social Investment R’m 16.7 13.0 11.4 7.4 Sport Programmes; support capacity building and skills needs of local suppliers to the Group; and Enterprise Development Investment R’m 23.2 21.4 1.5 Not measured • Develop the skills of unemployed youth to support the local footwear and clothing manufacturing sector; • Continue to support sustainable B-BBEE taking into consideration the amendments to the BEE Codes of Good ENVIRONMENTAL Practice. Carbon emissions (estimated) CO2e tonnes 210 786 OUR CHALLENGES AND OPPORTUNITIES OUR RESPONSE *2012 onwards, includes capital expenditure as per BEE recognition criteria. Poor education levels and a lack of skills hamper business growth. RedCap Foundation’s JumpStart Project, with regular monitoring and NOTE: The accuracy of the Group’s carbon footprint has been enhanced in 2013 as the data is more complete. It is expected that this evaluation of programme impact. will be further enhanced in 2014 as meters are being installed in stores to accurately record electricity consumption. Refer to the energy Lack of physical education and sport offered in schools. RedCap Sport initiatives with regular monitoring and evaluation of and carbon footprint section of the Social, Ethics, Transformation and Sustainability Committee Report on page 74 for programme impact. more details. Lack of competitiveness and skills in the South African manufacturing Investment and participation in a local retail manufacturing skills OTHER INDICATORS: Additional indicators of the Group’s performance can be found under “Divisional Performance Indicators” on page industry. training facility and Enterprise Development initiatives. 37, and under “The 6 Year Review” which can be found on the Group’s website. Change impact of impending revised Codes of Good Practice. Respond, where possible, to the new Codes of Good Practice and re-align initiatives to ensure compliance.
MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: STAKEHOLDER ENGAGEMENT 27 KEY STAKEHOLDERS HOW WE ENGAGE WHAT WE ENGAGE ON ISSUES RAISED RESPONSES AND OUTCOMES The Group recognises the importance of stakeholder AND WHY THEY ARE DURING THE YEAR engagement to ensure the long-term sustainability of IMPORTANT TO US the business. This process ensures greater transparency, SHAREHOLDERS AND Annual General Meetings Company performance Clarification around The issues requiring clarification have been as key stakeholder issues are identified and addressed. THE INVESTMENT certain issues related to the detailed in the Remuneration Report on page 80 COMMUNITY Meetings throughout Retail sector trends and remuneration of Directors the year with local and issues STAKEHOLDER To provide details international analysts and Growth in unsecured credit The Group's strategy is to remain a cash based regarding company investors Dividend policy and the impact on retailer and in recent times has restricted its credit preformance and the consumers and the growth – refer to the CFO’s Report on page 32 business strategy Results announcements Share price performance Company for details and presentations to the Investment Analysts Society Future prospects Concern regarding the Companies in South Africa have, over the years, in Johannesburg and Cape social and economic developed mechanisms and strategies to cope Town and roadshows to Strategy situation in South Africa with doing business in an environment such as the UK and USA ours and the resultant volatile currency. While this is not ideal, the country has coped with far worse ENGAGEMENT SENS announcements situations. The Group has managed to achieve a compound rate of HEPS growth over the last 27 Trading updates years of 23.5%, and has performed well during periods of Rand weakness and poor economic Group website conditions Annual Integrated Report The Group’s strategy is to grow both locally and internationally, and to reduce dependence on 1 market CUSTOMERS Traditional, digital and Brand perception and Range, availability and Continuously offer core and fashion products, social media expectations quality of products improve availability of wanted merchandise The Group defines stakeholders as those individuals, To understand our groups of individuals or organisations who affect customers’ needs, E-commerce Fashion trends Customer service Continued focus on quality through enhanced increase market share and quality assurance processes and/ or could be affected by the Group’s activities, enhance the brand Customer and market Customer service Credit facilities products, services and performance. Each key surveys Continued focus on associate service levels Customer safety Customer interest in and DEFINITION OF stakeholder group has a business owner who is the Customer service hotline interaction with the Group Responsible credit facilities are available to Community support and via social media qualifying customers individual in the Group primarily accountable for Advertising campaigns and fundraising through the managing the relationship with the particular competitions RedCap Foundation and Launch of www.mrp.com in July 2012 ASSOCIATE AND PARTNER: stakeholder or stakeholder group. Store associates' interaction with customers RedCap Sport The table on page 27 provides information on the ASSOCIATES AND Induction programme People development and Pay and employee benefits Letters distributed to all associates detailing total MUTUAL RESPECT IS PARTNERS training cost to company, including updated share option Group’s key stakeholders. Although we have not listed (our people) Team meetings information the communities in which we operate and certain Health and safety Training and development BASIC TO THE ETHOS OF To enhance associates’ Training needs analyses performance opportunities Increased use of technology to address issue of government departments with whom we have a sense of value and time to train e.g. e-learning, social learning etc. commitment and to align Results presentations Wellness programmes relationship in this table, it is important to note that the associates to the Group New learning management system being MR PRICE GROUP. Group acts in a responsible and compliant manner towards these stakeholders. strategy Performance reviews Remuneration, benefits and incentives implemented to give associates greater access to learning and developmental opportunities Career planning WE THEREFORE REFER TO Social media has become critical to successful Internal media – Red Cap radio and TV Transformation and employment equity Divisional learning development plans aligned to business strategies OUR CO-WORKERS AS engagement in the retail environment. Real-time mass communication can be leveraged as an advantage, for Fireside chats Financial performance Business Code of Conduct Divisional and Group succession plans developed Equity goals and plans set “ASSOCIATES” AND, ONCE Culture survey example to gauge consumer opinion on an issue or Culture survey results Career plan development merchandise, but it can also have the opposite impact Whistleblowers’ hotline THEY OWN SHARES OR Vision, dreams and beliefs Refer to the Report on our People on page 38 for in the event of an unpleasant experience. The Group Awards events detailed engagement activities recognises this importance, in particular the link SHARE OPTIONS, THEY between new technologies and the age profile of its target market. The international trend is for an SUPPLIERS Supplier meetings and negotiations Monitoring and evaluating performance Non-deliveries Investment in supplier performance management systems To provide performance Supplier performance and ARE GENERALLY integrated omni-channel approach to communicating with customers, presenting a consistent look, feel, feedback and information regarding the future direction of the Group Strategic partnerships Quality audits Order quantities and product cost and quality development Product cost and quality Partnership agreements and service level agreements REFERRED TO AS and experience. Several new and exciting initiatives Supplier days Future growth and expectations of the Group Investment in local supply chain Increased strategic supplier meetings Enterprise development and socio-economic are underway, including the recent launch of “PARTNERS”. Distribution Centre (DC) Real estate requirements investment initiatives www.mrp.com. tours and rentals B-BBEE compliance Enterprise development and socio-economic development opportunities DC delivery requirements
MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: CHAIRMAN'S REPORT 29 CHAIRMAN’S REPORT NIGEL PAYNE O n behalf of the Board, I am privileged to report to our shareholders, people, customers, suppliers and all other stakeholders. We believe that the best way to align all interests is by relentlessly pursuing our long-term vision, whilst daily living out the dreams and beliefs that have sustained our compound growth in headline earnings per share over more than a quarter of a century. As I indicated in my 2012 report, the Board has approved a number of significant capital investments in support of the Group’s 5 year Our purpose is to add value to our customers’ lives and worth to our business plans and budgets, specifically in supply chain and logistics partners’ lives. Our dream or vision is to become a top performing in support of internationalisation and the expansion of our channels to international retailer. Our customers continue to be delighted by our market. Greater detail on these initiatives can be found in the CEO’s fashion-value offering, as reflected in our results to March 2013, Report on page 31. thereby enabling us to continue to build momentum towards realising our dream. We value the ongoing support of our ever-increasing Once again, the Board robustly assessed itself, the Board Committees customer base and recognise that we only win when our customers and the contribution of each Director. Whilst the overall assessment win. was positive, areas for improvement were identified and are being addressed. Thank you to Lead Independent Director, Bobby Johnston, The values and ‘golden rules’ in support of our dream are clearly for his tireless efforts in this regard. Significant additional information VALUE defined and widely communicated throughout the Group. These are in relation to our corporate governance is presented in the integrated the foundations upon which our success has been built, and can report and on our website. only be changed after diligent challenge and debate by the Board. This forms the basis of our 'DNA', which harnesses the talents of our A new Memorandum of Incorporation, aligned to the revised South people and enables them to do extraordinary things. African Companies Act, was approved by more than 80% of votes cast at the 2012 Annual General Meeting. The Board has noted that ADD VALUE TO OUR CUSTOMERS’ LIVES The Board strives to strike an appropriate balance between governance and entrepreneurship. This is facilitated by a management some shareholders, particularly those based in the United States of America, voted against the provision for the non-rotation of executive team that is transparent and a strong focus on eliminating under- Directors, which is in line with South African corporate governance performance. The Board continues to work closely with executive guidelines. The Board devotes significant attention to the selection, management in refining strategy. We focus on those risks that are the retention, performance and reward of our executives, and I encourage most crucial to our future and we have a risk appetite that facilitates WORTH shareholders who have comments in this regard to address them to entrepreneurship in pursuit of our dream. However, we are cautious me via the Company Secretary. in the implementation thereof, taking time to test, evaluate, modify where necessary and retest before committing significant capital to implementation. I encourage stakeholders to familiarise themselves with our educational and ADD WORTH TO OUR PARTNERS’ LIVES Our Board Committee structures ensure rigorous debate around, and control over, major issues of strategy and risk, whilst allowing other corporate social investment management the flexibility to act quickly in a dynamic retail environment. Having the founders of the Mr Price Group, Laurie initiatives, as detailed in the Social Chiappini and Stewart Cohen, involved in these processes continues Report on page 78. to add considerable value. We have an unwavering commitment to honest business practices. The global and South African economies remain under pressure. Our daily practices, as well as our contracts with our business However, opportunities exist in Africa and other emerging markets, partners, make it very clear that we do not pay bribes, overtly or where our offering is particularly well suited. Whilst we anticipate covertly, nor do we tolerate third parties doing so on our behalf. Any that the next few years will be challenging, our strong balance sheet, business partner who suspects otherwise is welcome to contact either business model, cash flows and talent pool will enable us to continue the CEO or myself in confidence. to invest for the future. Professor Larry Ring retired from the Board at the end of March, after Our very pleasing operational and financial performance reported 15 years of valuable service. In addition to his input on international on by the CEO, Stuart Bird, and CFO, Mark Blair, reflect the efforts of retailing trends, the Babson principles he taught to our management over 19 000 people, a large portion of whom are shareholders in teams over the years, and which he will continue to teach, have been the Company. Our ‘growth through shared value’ approach serves us a contributing factor in the Group’s success. The Board records its particularly well in tougher economic times, as our people recognise sincere appreciation for the contribution he has made to our Group. that it is our customers who pay their salaries. The Board believes that the Group’s remuneration structures, as detailed in the Remuneration The Board, management and all associates will continue to focus on Report on page 80, remain appropriate, and that they have been adding value to our customers’ lives as we build for the future and fairly applied during the past year. strive towards our vision.
MR PRICE GROUP LIMITED ANNUAL INTEGRATED REPORT 2013: CEO'S REPORT 31 CEO'S REPORT STUART BIRD O ur ambition is to be a top performing international retailer as measured against our global peers. By achieving this, we will not only grow in our existing markets, which have now attracted many new international retailers, but also in Investing for the future We are investing heavily for the future, not just in new stores and our the markets we enter in the future. While the local and global retail online business, but also in our systems and supply chain capabilities. environments continued to bring many challenges, Mr Price Group While our in-house legacy core systems have served us well, we yet again grew sales and profit, delivering a solid performance in a realised that to achieve our future ambitions we would need to difficult environment. consider acquiring an IT solution that would enable all our future plans. We have completed the research, specification and vendor Our formula of great fashion and quality at excellent prices has stood evaluation and selection phases and are now entering the design us in good stead over the years and will continue to be what drives us and implementation phases. The project is expected to be completed as we grow in our existing markets and enter new frontiers. Relentless in 24 months’ time. focus on this is what will maintain our earnings track record into the future. Progress on the development of a new distribution centre is well underway, with the completion of the identification and procurement Current trade of the site. Once zoning is obtained, the build can start. Completion While the Mr Price Apparel division had a difficult trading period in date is expected to be August 2015. The work on resourcing and the 3rd quarter, much of which can be ascribed to internal issues, we shipping from source is also progressing well. This will allow us to are pleased to report that a good recovery was subsequently made. eliminate significant costs in the form of double duties, shipping and The division also successfully spearheaded 2 major projects, being handling, making us more competitive as we enter new markets. the expansion into Africa and the launch of our online business. The Mr Price spirit Our African expansion is not expected to result in a dramatic short- The results achieved in the past, as well as those we hope to achieve term growth; however, we believe that many African countries are on in the future, are and will be, as a direct consequence of our people strong economic growth paths that will see a significant expansion and the culture we have in our business. Our culture is built on of their middle classes, to whom our fashion-value offer will appeal. Passion, Value and Partnership, with a high performance ethos. By establishing our brand and infrastructure early in these growing markets, we see significant potential in the medium to long-term. Investing in our people is critical to our future success. Over the past year we trained over 9 300 of our associates, of whom 88% During the year, a store was opened in Lagos, Nigeria and another were black, completing over 22 000 training courses. One of the in Accra, Ghana. Within their 1st year of trade, these stores have biggest training interventions we undertook last year was about our performed well, even after including the set up and regional costs. culture, with the update of our Dreams and Beliefs together with While our results are pleasing, we intend to further improve our value the Milestones of the past. This was delivered to every one of our proposition through supply chain enhancements. We will open further associates in the Group. new stores in Nigeria this year and another in Ghana early in the next financial year and we are actively looking for additional sites. Good progress has been made in achieving employment equity targets. We do not view our transformation strategy as being one of At the end of July 2012, we launched our online business a quick fix, but a medium-term one of building and investing in our through the Mr Price Apparel division. The launch was internal pool of candidates who can successfully transition to senior ambitious in that the full assortment was available immediately; positions. it was completely omni-channel, fully mobile enabled as well as allowing the customer 6 options to pay. In addition, delivery The way ahead was guaranteed within 48 hours, but in reality it is below There is no doubt that the economic and consumer environment will 24 hours. The launch has been very successful, delivering a dynamic, continue to be a challenge, both at home and abroad. Nonetheless, appealing, world-class site, with South Africa being an important we are confident that our formula of great fashion and quality at environment in which to develop our capability. The way ahead is excellent prices will not only keep our customers happy, but will to now open the site to the global environment, with specific focus attract many more new ones, both in geographies we currently trade on certain countries, as well as bringing the other divisions onto our and in new territories. online offering. In closing, I would like to thank all of our dedicated associates across The other divisions have delivered strong results this past year. They the Group, for not only delighting our customers and achieving the are past their turnaround strategies and have grown well off what results we have, but also for making this such a special environment have now become solid bases and expect further growth ahead. of which to be a part.
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