Spar Group Limited · JSE:SPP
Spar — The SPAR Group — H1 2017 Earnings Presentation
41 slides from Spar's earnings presentation, May 2017
Slide 1: SPAR Results Presentation
SPAR RESULTS PRESENTATION for the six months ended 31 March 2017
Slide 2: Agenda
AGENDA INTRODUCTION: SPAR GROUP PERFORMANCE SUMMARY Graham O’Connor, CEO SALIENT FEATURES BUSINESS ENVIRONMENT FINANCIAL OVERVIEW Mark Godfrey, CFO OPERATIONAL OVERVIEW Graham O’Connor, CEO PROSPECTS QUESTIONS 2
Slide 3: Introduction
INTRODUCTION GRAHAM O’CONNOR, CEO
Slide 4: SPAR Group: Facts and Figures
SPAR GROUP: FACTS AND FIGURES SPAR International: Present in 44 countries with 240 distribution centres and serving 13 million customers every day • 12 545 stores €33.1bn p.a. global turnover • South Africa is the second biggest SPAR country by turnover • Ireland is 10th biggest SPAR country by turn
Slide 5: SPAR Group: Facts and Figures (continued) - Ireland
SPAR GROUP: FACTS AND FIGURES (continued) Ireland/South West England: BWG services >1 335 stores across six brands, €680.7m (ZAR9.6bn) turnover in H1 F2017 • Wholesale and distribution of groceries + fresh produce, liquor to retail/catering/ hospitality sectors • Well established in convenience mark
Slide 6: SPAR Group: Facts and Figures (continued) - Switzerland
SPAR GROUP: FACTS AND FIGURES (continued) Switzerland: SPAR Switzerland services 301 stores across three brands + 11 Cash & Carry outlets, CHF385.6m (ZAR5.2bn) turnover in H1 F2017 • Responsible for operation of 47 corporate stores + 254 independent retailer stores • Modern logistics centre supplyin
Slide 7: Performance Summary
PERFORMANCE SUMMARY • SPAR Southern Africa defended market position with continued growth in turnover and stable gross margins • Solid €-based organic turnover growth from SPAR Ireland despite deflationary environment • Appointment of new CEO in SPAR Switzerland to drive retail performance • Continu
Slide 8: Salient Features
SALIENT FEATURES R million H1 2017 H1 2016 Change (%) Turnover 47 353.4 42 056.4 +12.6 Operating profit 1 206.8 1 258.1 -4.1 Headline earnings 915.5 831.0 +10.2 Headline earnings per share (cents) 475.5 480.0 -0.9 Dividend per ordinary share (cents) 240 255 -5.9 Net asset value per share (cents) 3 0
Slide 9: Business Environment
BUSINESS ENVIRONMENT SOUTH AFRICA IRELAND SWITZERLAND • Uncertain economic and • 5.0% GDP growth projected • Improving economic political landscape for 2017 indicators • Flat GDP expected for 2017 • Irish grocery market turned • GDP on track to grow 1.6% • Constrained consumer to deflation in 2017 s
Slide 10: Financial Overview
FINANCIAL OVERVIEW MARK GODFREY, CFO
Slide 11: Financial Overview: Key Regional Metrics
FINANCIAL OVERVIEW: KEY REGIONAL METRICS SPAR SPAR SPAR R million Southern Group Ireland Switzerland Africa Income statement Turnover 32 498.2 9 636.7 5 218.5 47 353.4 Gross profit 2 636.9 1 175.7 725.6 4 538.2 Gross margin 8.1% 12.2% 13.9% 9.6% Operating expenses 1 909.3 1 144.7 1 305.2 4 359.2 Pro
Slide 12: Financial Overview: Turnover
FINANCIAL OVERVIEW: TURNOVER R million H1 2017 H1 2016 Change (%) SPAR/TOPS 29 125.0 27 641.0 +5.4 Liquor sales (SPAR/TOPS) 2 989.2 2 745.8 +8.9 Build it 3 373.2 3 326.6 +1.4 Total Southern Africa 32 498.2 30 967.6 +4.9 Ireland 9 636.7 11 088.8 -13.1 Switzerland 5 218.5 - - Total Group 47 353.4 42 0
Slide 13: Financial Overview: Turnover (continued)
FINANCIAL OVERVIEW: TURNOVER | continued Ireland: Sales analysis of growth Solid performance of core business +1.6% Acquisition of Gillett’s business +1.4% +3.0% Reallocation of retail rebates -2.9% Currency -13.2% -13.1% Switzerland: Sales analysis by business H1 2017 2016 ratio ratio Ex-warehouse
Slide 14: Financial Overview: Inflation per Segment
FINANCIAL OVERVIEW: INFLATION PER SEGMENT H1 2017 H1 2016 SPAR wholesale business 8.2% 4.5% Liquor 5.7% 7.4% Build it c.3.3% c. 3.3% SPAR Southern Africa: Inflation expectations for remainder of 2017 • SA food (as budgeted) +6.7% - 6.9% • Current trend (regional ranges) +6.5% - 8.1% • Building mater
Slide 15: Financial Overview: Gross Margins
FINANCIAL OVERVIEW: GROSS MARGINS H1 2017 R million H1 2017 (GP%) Turnover (Rm) H1 2016 (GP%) Southern Africa 8.1% 32 498.2 8.1% Ireland 12.2% 9 636.7 10.3% Switzerland 13.9% 5 218.5 - Total Group 9.6% 47 353.4 8.7% Southern Africa Stronger ex-warehouse sales: H1 2017 H1 2016 H1 2015 Warehouse (excl
Slide 16: Financial Overview: Gross Margins (continued)
FINANCIAL OVERVIEW: GROSS MARGINS | continued Ireland - Positively influenced by incremental margin contributed from Gilletts stores - Improved BWG trading performance led by - Increased perishables contribution - Positive trading Switzerland - Business is operating in deflationary economy - Increas
Slide 17: Financial Overview: Expenses
FINANCIAL OVERVIEW: EXPENSES H1 2017 H1 2016 Expenses Expenses Increase % of Sales % of Sales (Rm) (Rm) (%) Southern Africa 1 909.3 5.9% 1 701.4 5.5% +12.2% Ireland 1 144.7 11.9% 1 119.8 10.1% +2.2% Switzerland 1 305.2 25.0% - - - Total Group 4 359.2 9.2% 2 821.2 6.7% 54.5%* * Comparable expenses up
Slide 18: Financial Overview: Expenses (continued)
FINANCIAL OVERVIEW: EXPENSES | continued SPAR Southern Africa • Costs associated with defensive purchase of six corporate stores: Contributed 3.1% • Increased marketing and property related costs: Added 1.9% and 0.6% respectively • Higher IT staff costs associated with infrastructure investment SPAR
Slide 19: Financial Overview: Cash Flow
FINANCIAL OVERVIEW: CASH FLOW R million H1 2017 H1 2016 Cash flow from operating activities (adjusted for non-cash items) 1 488.8 1 461.9 Working capital changes (1 380.5) (1 411.5) • Increase in inventory (139.7) (263.5) • Increase in trade receivables 252.0 (226.6) • Decrease in trade payables (1
Slide 20: Financial Overview: Cash Flow (continued)
Opening balance 1 533 Operating profit 1 207 Non-cash items 268 Loss on disposal of property, equipment 14 Net working capital changes (1 381) Net interest paid (9) Taxation paid (301) Dividends paid (790) Capital expenditure (506) Acquisition of businesses (111) Other investing activities 39 Net mo
Slide 21: Currency Impacts (vs ZAR)
CURRENCY IMPACTS (VS ZAR) ZAR/€ exchange rate: ZAR/€ exchange rate: October 2015 - March 2016 October 2016- March 2017 19.0 16.5 18.5 16.0 18.0 17.5 15.5 17.0 15.0 16.5 14.5 16.0 15.5 14.0 15.0 13.5 14.5 14.0 13.0 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Av
Slide 22: Reconciliation of Shares in Issue
RECONCILIATION OF SHARES IN ISSUE Change Cents per share H1 2017 H1 2016 (%) Earnings per share 471.6 476.8 (1.1) Headline earnings per share 475.5 480.0 (0.9) Weighted average number of shares 192.5 173.1 2017 EPS: Adjusted for effect of bookbuild and conversions 524.5 476.8 10.0 2017 HEPS: Adjuste
Slide 23: Financial Overview: Reconciliation of Normalised HEPS
FINANCIAL OVERVIEW: RECONCILIATION OF NORMALISED HEPS R million H1 2017 H1 2016 Change (%) Reported headline earnings 915.5 831.0 +10.2 Adjusted for: • Fair value adjustment (not considered necessary in this period) - - - • Foreign exchange (gain) /charge on minority liability (58.4) 42.0 - Normalis
Slide 24: Financial Overview: Reconciliation of Dividend Declaration
FINANCIAL OVERVIEW: RECONCILIATION OF DIVIDEND DECLARATION Rm Reported headline earnings 915.5 Adjusted for: • Forex gain on financial liability measurement (non-cash related) (58.4) Adjusted normalised headline earnings 857.1 Dividend cover (consistant interim level) 1.85 times Dividend declared (t
Slide 25: Financial Overview: Key Regional Metrics
FINANCIAL OVERVIEW: KEY REGIONAL METRICS SPAR SPAR SPAR R million Group Southern Africa Ireland Switzerland Balance sheet Property, plant and equipment 2 235.6 1 347.3 2 433.0 6 015.9 Goodwill and intangible assets 596.9 2 933.4 282.9 3 813.2 Current assets 9 937.4 3 590.3 1 764.8 15 292.5 Current l
Slide 26: Capital Expenditure: Increasing Distribution Capacity
CAPITAL EXPENDITURE: INCREASING DISTRIBUTION CAPACITY R million H1 2017 H1 2016 Investing to expand operations (299.9) (179.4) Investment to maintain operations (205.6) (122.3) • Replacement of property, plant and equipment (208.9) (126.5) • Proceeds on disposal of property, plant and equipment 3.3
Slide 27: Regional Capital Expenditure
REGIONAL CAPITAL EXPENDITURE R million Expansion Replacement Total South Africa 137.7 74.4 212.1 Ireland 125.2 69.1 194.3 Switzerland 37.0 62.1 99.1 299.9 205.6 505.5 27
Slide 28: Summary of Salient Features
SUMMARY OF SALIENT FEATURES R million H1 2017 H1 2016 Change (%) Turnover 47 353.4 42 056.4 +12.6 Gross profit 4 538.2 3 658.7 +24.0 Gross profit (%) 9.6% 8.7% - Operating profit 1 206.8 1 258.1 (4.1) Profit after tax 908.0 825.4 +10.0 Headline earnings per share (cents) 475.5 480.0 (0.9) Normalised
Slide 29: Operational Overview
OPERATIONAL OVERVIEW GRAHAM O’ CONNOR, CEO
Slide 30: Operational Review: Retail Performance: Turnover
OPERATIONAL REVIEW: RETAIL PERFORMANCE: TURNOVER Total growth Like for like SPAR 4.5% 3.8% TOPS 9.1% 5.6% Build it 3.6% 1.0% • Continued uptake of SPAR house brands by consumers seeking value: Private label sales up 8.3% • TOPS benefited from continued growth in liquor sales, albeit it at slower pac
Slide 31: Operational Performance Southern Africa: SPAR
OPERATIONAL PERFORMANCE SOUTHERN AFRICA: SPAR TURNOVER ANALYSIS Rmillion Retail turnover impacted by tough market • Combined food & liquor retail sales: +5.0% WHOLESALE TURNOVER TURNOVER H1 16 24.9 ▲5.0% • Same store retail turnover: +3.8% H1 17 26.1 • Internally measured food inflation: +8.2% Whole
Slide 32: Operational Performance: TOPS at SPAR
OPERATIONAL PERFORMANCE: TOPS AT SPAR TURNOVER ANALYSIS Rmillion Retail turnover growth affected by aggressive competitor entry into market WHOLESALE TURNOVER TURNOVER H1 16 2.7 ▲8.9% • +9.1% increase in retail turnover H1 17 3.0 • +5.6% same store retail turnover growth • Wholesale turnover up +8.9
Slide 33: Operational Performance: Build it
OPERATIONAL PERFORMANCE: BUILD IT TURNOVER ANALYSIS Rmillion Sector-wide impact of constrained consumer WHOLESALE TURNOVER TURNOVER H1 16 3.3 spending ▲1.4% • Retail turnover growth: +3.6% in South Africa H1 17 3.4 • Building sector inflation: +3.3% H1 16 5.8 • Wholesale turnover up 1.4% RETAIL ▲2.1
Slide 34: Operational Performance: SPAR Ireland (BWG Group)
OPERATIONAL PERFORMANCE: SPAR IRELAND (BWG GROUP) BWG Group performed ahead of budget: Euro-denominated growth of 1.6% Significant slow-down in Q2 across all customer categories • Largely attributed to new deflation trends • Food and non-alcoholic drinks declined 2.6% and alcohol dropped 5.2% Irish
Slide 35: Operational Performance: SPAR Ireland (BWG Group)
OPERATIONAL PERFORMANCE: SPAR IRELAND (BWG GROUP) Buoyant hospitality sector boosted sales of BWG Food Services (supplies hotels/ restaurants) Good performances from SPAR and Londis retail brands: Sales increased 4.2% and 3.0% respectively • New business growth: Net 11 stores added in Ireland • Mark
Slide 36: Operational Performance: SPAR Switzerland
OPERATIONAL PERFORMANCE: SPAR SWITZERLAND Retail sales impacted by muted economic growth of +0.4% and slightly deflationary environment • Food and non-alcoholic beverage prices down 0.8% and alcoholic beverages down 1.3% • Like-for-like SPAR retail sales down 4.2% in local currency terms Overall war
Slide 37: Operational Performance: SPAR Switzerland
OPERATIONAL PERFORMANCE: SPAR SWITZERLAND Three new stores opened • 184 SPAR and SPAR Express stores serviced Promising expansion into Italian part of Switzerland • First SPAR Express to be launched early in H2 TopCC impacted by negative Swiss restaurant and hospitality sectors’ performance • Retail
Slide 38: Looking Forward
LOOKING FORWARD GRAHAM O’ CONNOR, CEO
Slide 39: Prospects
PROSPECTS Challenging trading environment expected to persist in South Africa in H2 • Political uncertainty causing a lack of consumer and business confidence • Independent retailers are suitably positioned to address challenges • Supported by SPAR’s extensive distribution capacity and SPAR-branded
Slide 40: Q&A
Q&A P SPAR KWIK SPAR | SUPERSPARLY | VALUE CENTRE | Y SOROS PATIL LUE CENTRE &a) a> . O& BWG Londis MACE DS PARIO) imps maxi /// cae
Slide 41: Disclaimer
DISCLAIMER This presentation contains forward-looking statements about the company’s operations and financial conditions. They are based on SPAR Group Limited’s best estimates and information at the time of writing. They are nonetheless subject to significant uncertainties and contingencies many of