Shoprite Holdings Limited · JSE:SHP
Shoprite — FY2020 Earnings Presentation
57 slides from Shoprite's earnings presentation, Sep 8, 2020
Slide 1: 2020 Results Presentation
2020 RESULTS PRESENTATION For the 52 weeks ended 28 June 2020
Slide 2: Welcome / Presentation Outline
WELCOME f PRESENTATION OUTLINE 11} OPERATIONAL REVIEW = \—_ Pieter Engelbrecht Ae) a = FINANCIAL RESULTS Anton de Bruyn STRATEGY UPDATE QUESTIONS Pieter Engelbrecht
Slide 3: Operational Review
2020 OPERATIONAL REVIEW Chief Executive Officer PIETER ENGELBRECHT
Slide 4: 2020 The Group in Review
2020 THE GROUP IN REVIEW SALES GROSS PROFIT TRADING PROFIT EXCL. HYPERINFLATION R156.9bn R37.5bn R8.3bn DILUTED HEPS DIVIDEND PER SHARE TOTAL EXPENSES CONTINUING OPERATIONS R32.3bn 765.8c 383.0c +5.8% +16.6%
Slide 5: Key Operational Metrics
KEY OPERATIONAL METRICS HIGHER PROFITABLE VOLUMES MARKET SHARE GAIN 2.3% Supermarkets RSA +1.5% GROUP VOLUME GROWTH +R4.9bn RSA MARKET SHARE GAIN 7.7bn +1.2% PRODUCTS SOLD RSA MARKET SHARE GAIN
Slide 6: Industry-Leading COVID-19 Response
INDUSTRY-LEADING COVID-19 RESPONSE ● Exceptionally proud of the bravery and operational brilliance displayed by our Shoprite team in the face of unprecedented challenges ● Heroic frontline resilience and efforts around additional protocols inspired us all 7
Slide 7: Industry-Leading COVID-19 Response
INDUSTRY-LEADING COVID-19 RESPONSE 31 JANUARY 19 MARCH 24 MARCH 27 MARCH LOCKDOWN IMPLEMENTED - Restricted trade 16 MARCH 30 MARCH
Slide 8: Industry-Leading COVID-19 Response
INDUSTRY-LEADING COVID-19 RESPONSE 5 APRIL 7 APRIL JUNE 3 APRIL 6 APRIL 8 APRIL
Slide 9: COVID-19 Trading Impact
COVID-19 TRADING IMPACT ● Prohibited sale of non-essential categories, furniture, cigarettes and liquor under lockdown level 5 ● 654 610 lost trading hours and R327.2m invested to support and safeguard staff and customers ● Share of stomach benefit with increased at-home consumption ● One-stop shoppi
Slide 10: Proud of Our Frontline Heroes
PROUD OF OUR FRONTLINE HEROES
Slide 11: Supermarkets RSA
SUPERMARKETS RSA ● Strong Supermarkets RSA sales momentum: ○ +8.7% despite Q4 lockdown restrictions ○ Like-for-like sales +6.8% ○ Internal price inflation only 3.0% ● Sales growth outperformed Other Retailers every quarter +R4.9bn Market share gain 16 Months of uninterrupted market share gains Superm
Slide 12: Supermarkets RSA
SUPERMARKETS RSA Brand portfolio effect - each of our supermarket brands gained share: Proximity-to-home advantage and unrivalled affordability Low prices increasingly important, affected by public transport restrictions Share of wallet gains accelerated by successful Checkers Xtra Savings Rewards l
Slide 13: Liquorshop RSA Performance
LIQUORSHOP RSA PERFORMANCE Liquor sales ● ● 1.8% RSA liquor full year market share gain Nielsen, 2020
Slide 14: Supermarkets Non-RSA Performance
SUPERMARKETS NON-RSA PERFORMANCE CONTINUING OPERATIONS ● Complexity in managing COVID-19 regulations across multiple Sales territories negatively impacted H2 Sales growth growth (Constant ○ Lost days, restricted items, liquor closures and public transport bans (ZAR) currency) ANGOLA ○ Supply chain i
Slide 15: Supermarkets Non-RSA Actions
SUPERMARKETS NON-RSA ACTIONS Short-term actions completed: ✓ 48 rental agreements reduced or de-dollarised to reduce the cost of operations ✓ Strict capital allocation limited to existing operations and committed projects ✓ Supermarkets Non-RSA segment remains self-funding
Slide 16: Supermarkets Non-RSA Actions
SUPERMARKETS NON-RSA ACTIONS Short-term actions completed: ✓ 48 rental agreements reduced or de-dollarised to reduce the cost of operations ✓ Strict capital allocation limited to existing operations and committed projects ✓ Supermarkets Non-RSA segment remains self-funding Long-term assessment: 1. R
Slide 17: Furniture & Other Operating Segments
FURNITURE & OTHER OPERATING SEGMENTS Furniture Other operating sales segments sales H2 sales declined 23.1% Severely impacted by lockdown regulations ● ● ○ ● ○ OK Franchise division sales +6.0% ● ●
Slide 18: Financial Results
2020 FINANCIAL RESULTS Chief Financial Officer ANTON DE BRUYN
Slide 19: IFRS Changes Since June 2019
IFRS CHANGES SINCE JUNE 2019 June 2020 June 2019 IAS 29: FINANCIAL REPORTING IN ● Hyperinflation accounting not ● Hyperinflation accounting HYPERINFLATIONARY ECONOMIES applied applied resulting in an increase ● Profit after tax decrease of in profit after tax of R776m R235m IFRS 16: LEASES ● IFRS 16: Le
Slide 20: DHEPS
DHEPS 2020 2019 Change Cents Cents % DHEPS previously reported 779.9 Restated for IFRS 16: Leases -81.4 DHEPS including discontinued operations 755.7 698.5 8.2 Restated for IFRS 5: Discontinued operations 10.1 48.4 DHEPS continuing operations 765.8 746.9 2.5 Adjusted for: Forex -102.2 19.8 Hyperinfla
Slide 21: Financial Overview
FINANCIAL OVERVIEW Restated* Change Continuing operations 2020 2019 % Notes to the results: Sale of merchandise R156.9bn R147.5bn 6.4 Gross margin: 50 basis points increase in gross margin due to improved allowances in Supermarkets RSA Gross margin 23.9% 23.4% Expense growth 6.9% (H1: 8.1%, H2: 5.7%
Slide 22: Sales Growth per Segment
SALES GROWTH PER SEGMENT Net Total Like- new sales for-like stores % % % Supermarkets RSA 8.7 6.8 1.9 SUPERMARKETS RSA CONTRIBUTION Supermarkets Non-RSA -1.4 -6.0 4.6 TO SALES FOR SALES SUPERMARKETS GROWTH RSA Furniture -11.9 -10.3 -1.6 6.7% 54.6% Other operating 3.9 5.3 -1.4 segments 13.5% 39.6% To
Slide 23: Other Operating Income
OTHER OPERATING INCOME 2020 2019 Change Rm Rm % Notes to the results: Commissions received 845 875 -3.4 Computicket commissions negatively impacted by lockdown precluding event & travel related ticket sales Operating lease income 507 504 0.6 Operating lease income impacted by property disposal and C
Slide 24: Interest Revenue
INTEREST REVENUE 2020 2019 Change Rm Rm % Notes to the results: Finance income earned Finance income earned in Furniture segment from instalment sale 255 320 -20.3 Interest received from associates on receivables Resilient Africa (Pty) Ltd loans Interest received from Interest received other include
Slide 25: Trading Profit by Segment
TRADING PROFIT BY SEGMENT Trading margin 2020 2019 Change 2020 Rm Rm % % Supermarkets RSA 8 024 7 100 13.0 6.6 Supermarkets Non-RSA -28 -37 24.3 -0.2 Furniture -15 275 -105.5 -0.3 Other operating segments 316 179 76.5 2.9 Total operating segments from 8 297 7 517 10.4 5.3 continuing operations Hyper
Slide 26: Forex
FOREX LOSS GAIN 2020: R566m gain Government bonds 2019: R110m loss and bills 1 374 ● R2.5bn invested in Current Angola government intercompany loan -843 bonds and bills, accounts forming a natural hedge Cash balances 122 ● Hedging strategy for Non-RSA was effective ● Net investment hedge Sundry -87
Slide 27: Items of a Capital Nature
ITEMS OF A CAPITAL NATURE 2020 2019 Rm Rm Notes to the results: Impairment of PPE -694 -127 Non-financial asset 2020 impairments by segment Rm Impairment of right-of-use assets -470 -356 Supermarkets RSA 121 Impairment of intangible assets -99 -40 Supermarkets Non-RSA 705 Furniture 247 Non-financial a
Slide 28: Net Finance Costs
NET FINANCE COSTS Previously Reported 2020 2019 2020 2019 Rm Rm Net finance costs cover 15.3x 16.7x Interest received from banks 443 272 Finance costs cover 8.4x 11.3x Finance costs: lease liabilities -1 920 -1 754 Covenants IAS 17 well within bank limits Finance costs: borrowings -990 -845 of 5.0x a
Slide 29: Balance Sheet Composition
BALANCE SHEET COMPOSITION Rbn 82.7 ROIC 62.7 (BEFORE HYPERINFLATION) Other assets 11.1 5.1 Other liabilities 2020: 9.7% 2019: 8.4% Trade and other Inventories 18.8 20.2 payables NET BORROWINGS: EQUITY 2020: 0.1 Cash and cash equivalents 14.3 14.1 Borrowings and 2019: 0.4 and loans receivable bank ov
Slide 30: Assets and Capital Spend
ASSETS AND CAPITAL SPEND CAPITAL SPEND 2020: R3.2bn LAND, BUILDINGS AND IT LEASEHOLD 2019: R5.3bn IMPROVEMENTS 19.6% 18.7% 2021 GUIDANCE: R4.8bn 2020 CAPITAL SPEND SUPPLY CHAIN NON-RSA STORE 8.2% R0.7bn 2020: MAINTENANCE AND REFURBISHMENTS R3.2bn 41.0% R3.2bn NEW STORES RSA 12.5% R2.5bn CAPITAL SPEN
Slide 31: Inventories
INVENTORIES SUPERMARKETS RSA SUPERMARKETS NON-RSA INVENTORIES R13.9bn R2.8bn 2020: R18.8bn 2019: R20.9bn R2.1bn↓ FURNITURE R1.5bn 2020: OTHER OPERATING INVENTORIES AS % OF SALES SEGMENTS R18.8bn 2020: 12.0% R0.6bn 2020 TARGET: 12.4% 2019: 14.2% 2021 GUIDANCE: 12.0% Inventories by segment
Slide 32: Net Gearing
NET GEARING NET BORROWINGS 2020: R2.0bn 2019: R8.1bn 2020 2019 Rm Rm USD BORROWINGS Net cash position 10 019 3 583 2020: US$433m 2019: US$524m Borrowings -12 009 -11 706 2021 GUIDANCE: Net borrowings -1 990 -8 123 Dec 2020 US dollar borrowings US$80m NET BORROWINGS: EBITDA Lease liabilities -23 271
Slide 33: 2020 Cash Flow Statement
2020 CASH FLOW STATEMENT Rbn Other includes proceeds on sale of PPE, intangible assets and assets held for sale as well as payments and receipts on loans 2.6 (1.9) receivable 0.2 0.5 (1.1) (1.8) 12.5 11.0 (3.2) 1.9 (1.1) 10.6 0.9 (2.6) (0.3) 6.6 EBITDA - EBITDA - Other Changes in Net Income Dividend
Slide 34: Capital Improvement Projects
CAPITAL IMPROVEMENT PROJECTS COMPLETED IN PROGRESS ✓ Inventory reduction - initial ● Inventory reduction project ongoing WORKING CAPITAL target achieved ✓ US dollar borrowings reduced by ● US dollar borrowings to reduce to US$91m US$80 million by Dec 2020 (cash BORROWINGS flow + ZAR funding) ✓ Non-RS
Slide 35: Strategic Focus Areas
STRATEGIC FOCUS AREAS
Slide 36: Strategy Remains Future-Fit
STRATEGY REMAINS FUTURE-FIT ● Work done over 24 months on ‘Smarter Shoprite’ ensured we are fit for a post COVID-19 world ● Increasing consumer shift to digital has advanced our Digital Transformation Agenda ● We remain focused on optimising our retail Core in existing markets
Slide 37: Customer-First Culture
CUSTOMER-FIRST CULTURE ● Accelerated investment in digital for customers ● Checkers Xtra Savings Rewards Programme exceeding expectations ✓ 5m members to date ✓ R1bn in savings back to consumers ✓ Sales growth 7x ahead of Other Retailers since launch (Nielsen, October 2019-June 2020) ● Personalisati
Slide 38: Developing Future-Fit Channels
DEVELOPING FUTURE-FIT NINE STRATEGIC FOCUSCHANNELS AREAS ● Race for Reach in digital was amplified during COVID-19 ● Once-in-a-generation shift to online ● Checkers Sixty60 app has pioneered 1hr on-demand grocery delivery ○ Rapid growth trajectory continues ○ Created 1 250 new jobs +157% increase in
Slide 39: Checkers Sixty60 press coverage
Cher Checkers grocery gajj772atina de} ‘ com ©mpetitors' ig livery app "eating fin24 fin24 0 ~ ~wS ~w e No 2 Shopping App in SA Top Charts 1 Takealot - Mobile Shopping App Sixty60 Superbalist Fashion Shopping Wish - Shopping Made Fun ZAFUL - BLACK FRIDAY 2019 6 Clicks - ClubCard and Pharmacy Checker
Slide 40: Checkers Sixty60 Weekly Orders
DEVELOPING FUTURE-FIT NINE STRATEGIC FOCUSCHANNELS AREAS Checkers Sixty60 weekly orders Lockdown Level 3 Level 4 Level 5 November December January February March April May June July August 2019 2019 2020 2020 2020 2020 2020 2020 2020 2020
Slide 41: Developing Future-Fit Channels
DEVELOPING FUTURE-FIT NINE STRATEGIC FOCUSCHANNELS AREAS
Slide 42: Enable Precision Retailing
ENABLE NINE PRECISION STRATEGIC RETAILING FOCUS AREAS Data-driven retail unlocking real value Entrenching price leadership ● Real-time insights into consumption ● Customer-led price investment to enhance shifts in lockdown trust in Shoprite’s prices ● Improved availability of essentials (COVID-19 co
Slide 43: Winning in Fresh and Premium Food
WINNING IN FRESH AND NINE STRATEGIC PREMIUM FOCUS AREASFOOD ● Increasing share of wallet from upmarket shoppers ○ Uninterrupted fresh food market share gains totalling R927m* (Nielsen, June 2020) ○ Flagship FreshX stores achieved 1.7x higher like-for-like sales growth (31 now trading) ○ Additional 2
Slide 44: Checkers Unrivaled Innovation & Execution
CHECKERS NINEUNRIVALED STRATEGICINNOVATION & EXECUTION FOCUS AREAS Successful assault on premium food retail - Checkers sales growth vs Other Retailers Checkers and Checkers Hyper RSA 3mm sales growth vs. Other Retailers Nielsen: June, 2020
Slide 45: Trusted, Profitable Private Labels
TRUSTED, PROFITABLE NINE STRATEGIC PRIVATE FOCUS LABELS AREAS ● RSA Private label sales participation up 60 BPS to 17.1% ● Private label sales growth accelerated in Q4 ○ More than half of all shoppers purchased our value brands ○ Lasting step change as consumers’ obsession with value intensifies 2019
Slide 46: Unlocking Alternative Revenue
UNLOCKING ALTERNATIVE NINE STRATEGIC FOCUS REVENUE AREAS ● Expansion of value-added services ● Investment into data and digital revenue streams Insurance Partnership
Slide 47: Outlook
OUTLOOK
Slide 48: Outlook
OUTLOOK ● New financial year is a 53-week year ● Q1 sales update at Shoprite Holdings Ltd AGM - 16 Nov 2020 ○ Internal food inflation at 4.1% for Jul - Aug 2020 ○ Liquor restrictions notably impacting sales growth ● Remain highly cash generative and in a strong financial position ● Price leadership mak
Slide 49: Questions
QUESTIONS
Slide 50: Additional Information
2020 ADDITIONAL INFORMATION
Slide 51: 2019 Impact of IFRS 16 and IFRS 5 on Profit Before Tax
2019 IMPACT OF IFRS 16 AND IFRS 5 ON PROFIT BEFORE TAX Rm 27 Rm -874 4 189 -1 814 186 6 339 -2 513 5 354 5 540 FY19 Depreciation Operating Net Forex Finance FY19 Discontinued FY19 Profit leases monetary and costs Profit operations Profit before tax- gain capital items before tax - before tax - as resta
Slide 52: 2020 Impact of IFRS 16 on Profit Before Tax
2020 IMPACT OF IFRS 16 ON PROFIT BEFORE TAX Rm -398 4 574 -1 920 5 590 -2 600 5 246 FY20 Depreciation Operating Forex, profit Finance FY20 Profit before leases on lease costs Profit tax- modifications before tax - IAS 17 and as reported capital items
Slide 53: 2020 Adjusted DHEPS Reconciliation
2020 ADJUSTED DHEPS RECONCILIATION Earnings DHEPS* Rm cents DHEPS including discontinued operations 4 186 755.7 Restated for IFRS 5: Discontinued operations 56 10.1 DHEPS continuing operations 4 242 765.8 Adjusted for: Forex -566 -102.2 Hyperinflation 154 27.8 Related income tax effect 143 26.1 Adjus
Slide 54: Trading Profit by Segment
TRADING PROFIT BY SEGMENT 2020 Trading profit per segment 6.6% 2020 2019 Change Rm Rm % Supermarkets RSA 8 024 7 100 13.0 8 024 Supermarkets Non-RSA -28 -37 24.3 2.9% Furniture -15 275 -105.5 Other operating Rm 316 segments 316 179 76.5 -28 -15 Total operating segments from -0.2% -0.3% continuing ope
Slide 55: Assets and Capital Spend
ASSETS AND CAPITAL SPEND CAPITAL SPEND Rm 2020: R3.2bn 2019: R5.3bn 1 778 1 324 1 034 920 873 634 681 604 403 268 Information New stores Store Land, buildings Supply chain technology maintenance and leasehold and improvements refurbishments 2020 Capital spend 2019 Capital spend
Slide 56: Closing Exchange Rates
CLOSING EXCHANGE RATES CONTINUING OPERATIONS DISCONTINUED OPERATIONS Zambia kwacha Angola kwanza Mozambique metical Nigeria naira 8.5% 11.1% -10.7% -7.5% -15.8% -40.0% -41.2% -70.8% ZAR closing (2020 vs 2019) USD closing (2020 vs 2019)
Slide 57: Average Exchange Rates
AVERAGE EXCHANGE RATES CONTINUING OPERATIONS DISCONTINUED OPERATIONS Zambia kwacha Angola kwanza Mozambique metical Nigeria naira 5.1% 8.1% 6.4% -5.6% -9.7% -15.5% -39.3% -42.5% ZAR average (2020 vs 2019) ZAR average (2019 vs 2018)