Spar Group Limited · JSE:SPP
Spar — The SPAR Group — H1 2020 Earnings Presentation
51 slides from Spar's earnings presentation, May 2020
Slide 1: The SPAR Group Ltd Interim Results Presentation
THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 MARCH 2020 1
Slide 2: Agenda
AGENDA COVID-19 UPDATE BUSINESS OVERVIEW FINANCIAL OVERVIEW OPERATIONAL UPDATE OUTLOOK QUESTIONS THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2020 2
Slide 3: COVID-19 Update
COVID-19 UPDATE GRAHAM O’CONNOR CEO THE SPAR GROUP LTD 3 INTERIM RESULTS PRESENTATION 2020
Slide 4: Priorities
COVID-19 UPDATE PRIORITIES Safety of our people, retailers, customers & suppliers Managing the supply chain and keeping our retailers’ shelves replenished Support our communities THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2020 4
Slide 5: Culture, values and purpose
COVID-19 UPDATE CULTURE speaks for itself VALUES & PURPOSE Resilience of our retailers Determination of our people at the DCs and HQ Readiness to adapt to change PURPOSE and swift to make a plan To inspire people to do and be more Community is at the heart of what we do IT’S PERSONAL WELL POSITIONED
Slide 6: Business Overview
BUSINESS OVERVIEW GRAHAM O’CONNOR CEO THE SPAR GROUP LTD 6 INTERIM RESULTS PRESENTATION 2020
Slide 7: SPAR International Overview
SPAR INTERNATIONAL OVERVIEW 48 countries Independent wholesalers and retailers 246 distribution centres working together serving communities > 13 000 stores around the world Uniting global 13.5m customers per day partners to be and act BETTER €35.8bn wholesale turnover TOGETHER THE SPAR GROUP LTD So
Slide 8: The SPAR Group Ltd: H1 FY20
THE SPAR GROUP LTD: H1 FY20 S. Africa* Ireland Switzerland Poland** Stores • 2 402 • 1 387 • 345 • 219 Cash & Carry • – • 26 • 11 • – Warehousing • 295 000 m2 • 35 000 m2 • 33 000 m2 • 16 000 m2 Turnover – H1 • R40.2bn • R12.7bn • R5.8bn • R1.0bn * Southern Africa includes distributions to Botswana,
Slide 9: Performance Summary – H1 FY20
PERFORMANCE SUMMARY – H1 FY20 • Decline in earnings Group turnover Operating profit fundamentally impacted by Polish +10.1% -3.4% to losses R59.7bn R1.3 bn • Conservative interim dividend of 200 cents (H1 FY19: 284 cents), owing to uncertainty Normalised diluted Normalised diluted that lies ahead he
Slide 10: Financial Overview
FINANCIAL OVERVIEW MARK GODFREY CFO THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2020 10
Slide 11: Summary of Salient Features
SUMMARY OF SALIENT FEATURES Rmillion H1 2020 H1 2019 Change (%) Revenue – sale of merchandise 59 749.4 54 273.2 +10.1 Gross profit 6 728.5 5 650.7 +19.1 Gross profit (%) 11.26% 10.41% Operating profit 1 334.9 1 382.5 -3.4 Operating margin (%) 2.23% 2.55% Profit after tax 713.8 1 001.2 -28.7 Headline
Slide 12: Impact of Polish Losses on Headline Earnings
IMPACT OF POLISH LOSSES ON HEADLINE EARNINGS Rmillion H1 2020 H1 2019 Change (%) Headline earnings 785.0 1 008.3 -22.1% Adjusted for fair value adjustment to, and foreign exchange effects on financial liabilities, and business 89.3 4.4 acquisition costs Normalised* headline earnings 874.3 1 012.7 -1
Slide 13: Effect of IFRS 16 Adoption – H1 2020
EFFECT OF IFRS 16 ADOPTION – H1 2020 As reported H1 Pre IFRS 16 Rmillion 2020 IFRS 16 H1 2020 H1 2019 Net operating expenses (6 549.4) (67.2) (6 616.6) (5 316.8) Operating Profit 1 334.9 (67.2) 1 267.7 1 382.5 Operating Profit % 2.23% 2.12% 2.55% Other non-operating items (99.6) – (99.6) (3.5) Inter
Slide 14: Effect of IFRS 16 Adoption – H1 2020
EFFECT OF IFRS 16 ADOPTION – H1 2020 As expected at H1 2020 H1 2020 September Rmillion Actual Poland Excl. Poland 2019 Statement of financial position Property, plant and equipment – ROU asset 6 168.7 (977.7) 5 191.0 5 100.0 Finance lease receivable 4 469.0 (214.6) 4 254.4 4 250.0 Net deferred tax a
Slide 15: Key Regional Metrics
KEY REGIONAL METRICS Group Southern excl. Rmillion Africa Ireland Switzerland Poland Poland Group Income statement Revenue – sale of merchandise 40 239.7 12 736.7 5 808.6 58 785.0 964.4 59 749.4 Gross profit 3 727.6 1 713.3 1 057.4 6 498.3 230.2 6 728.5 Gross profit % 9.3% 13.5% 18.2% 11.1% 23.9% 11
Slide 16: Turnover
TURNOVER Rmillion H1 2020 H1 2019 Change (%) SPAR/TOPS 35 817.9 32 853.2 +9.0 Liquor sales (TOPS AT SPAR) 4 169.4 4 014.9 +3.9 Build it 3 871.7 3 966.9 -2.4 Southern Africa (excl. S Buys/Encore) 39 689.6 36 820.1 +7.8 S Buys – Pharmaceutical business 546.8 495.6 +10.3 SPAR Encore – Monteagle* 3.3 –
Slide 17: Turnover continued
TURNOVER continued Group • Strong growth in turnover across the group, further boosted by the acquisition of the Polish business which added 1.8% total growth SPAR Southern Africa • Growth in wholesale turnover of 7.8% • Challenging start to the year, boosted by increased buying in advance of the lo
Slide 18: Turnover continued
TURNOVER continued SPAR Southern Africa 67.4% H1 FY20 H1 FY19 (H1FY19: 68.8%) R5.8bn R1.0bn R5.1bn SPAR Ireland 21.3% (H1FY19: 21.8%) R12.7bn R11.9bn SPAR Switzerland 9.7% (H1FY19: 9.4%) R40.2bn R37.3bn SPAR Poland 1.6% (H1FY19: N/A) Southern Africa Ireland Switzerland Poland THE SPAR GROUP LTD INTE
Slide 19: Inflation: H1 and Looking Ahead
INFLATION: H1 AND LOOKING AHEAD H1 2020 H1 2019 SPAR wholesale business 4.1% 1.9% Liquor 3.9% 5.9% Build it c.3.4% c.4.0% SPAR Southern Africa • Current trend: regions ranging from 3.0% to 5.8% • Inflation expected to increase • Building material inflation budget at c.4.1% for 2020 SPAR Ireland • 20
Slide 20: Gross Profit Margin
GROSS PROFIT MARGIN H1 2020 H1 2020 H1 2019 Rmillion (GP%) Turnover (Rm) (GP%) Southern Africa 9.1 39 689.6 8.7 S Buys 9.1 546.8 9.9 SPAR Encore 16.2 3.3 – Total Southern Africa 9.2 40 239.7 8.8 Ireland 13.5 12 736.7 12.8 Switzerland 18.2 5 808.6 17.0 Poland 23.9 964.4 – Total Group 11.3 59 749.4 10
Slide 21: Operating Expenses
OPERATING EXPENSES H1 2020 H1 2019 Expenses Expenses Increase % of Sales % of Sales (Rm) (Rm) (%) Southern Africa (comparable base) 2 800.7 7.0 2 506.8 6.8% +11.7 S Buys 53.0 9.7 48.1 9.7% +10.2 SPAR Encore 34.1* 7.2 – – – Southern Africa 2 887.8* 7.2 2 554.9* 6.8% +13.0 Ireland 1 674.3* 13.1 1 478.
Slide 22: Operating Expenses continued
OPERATING EXPENSES continued SPAR Southern Africa • Increase of 11.7% • 40% of this increase is attributed to costs related to the recently acquired corporate stores • Costs in the wholesale business continue to be well managed: • IT costs increased 15.1% • Fuel costs increased 9.5% (c.6% of total S
Slide 23: Cash Flow
CASH FLOW Rmillion H1 2020 H1 2019 Cash flow from operating activities (adjusted for non-cash items) 2 306.8 1 800.3 Working capital changes (803.2) (1 073.1) Increase in inventory (343.3) (385.8) Increase in trade receivables (1 460.3) (226.6) Increase/(decrease) in trade payables 1 000.4 (460.7) C
Slide 24: Cash Flow continued
CASH FLOW continued • Net outflow on finance leases of R562.6m offset against related increase in cash generated from operations • Dividends of R993.2m paid to shareholders • Business acquisitions of R528.4m • Investment in Capex of R691.1m • Purchase of Irish minority of R884.4m • Net overdraft at
Slide 25: Currency Impacts (vs ZAR)
CURRENCY IMPACTS (VS ZAR) Closing ZAR/€ exchange rate: Spot Rate ZAR/€ exchange rate: 19.72 October 2019 – March 2020 October 2018 – March 2019 20,00 17,50 Closing 19,50 Spot Rate 17,00 16.24 19,00 18,50 18,00 16,50 17,50 17,00 16,00 16,50 16,00 15,50 15,50 15,00 15,00 Oct-19 Nov-19 Dec-19 Jan-20 Fe
Slide 26: Currency Impacts (PLN vs ZAR)
CURRENCY IMPACTS (PLN VS ZAR) Closing ZAR/PLN exchange rate: Spot Rate October 2019 – March 2020 4.32 4,50 4,40 4,30 4,20 4,10 4,00 3,90 3,80 3,70 3,60 3,50 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Average rate: ZAR/PLN FY19 H1 FY20 3.76 3.88 THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2020 26
Slide 27: Earnings and Headline Earnings per Share
EARNINGS AND HEADLINE EARNINGS PER SHARE H1 2020 H1 2019 Change (%) Rmillion Profit for the period attributable to ordinary shareholders 750.4 1 001.2 -25.0 Adjusted for: Net loss on disposal of property, plant and equipment 18.6 4.6 Impairment of goodwill 12.6 2.5 Loss on deemed disposal of associa
Slide 28: Reconciliation of Normalised HEPS
RECONCILIATION OF NORMALISED HEPS Rmillion H1 2020 H1 2019 Change (%) Reported headline earnings 785.0 1 008.3 -22.1 Adjusted for: • Fair value adjustments to financial liabilities 87.9 – • Foreign exchange loss/(gain) on minority liability (10.4) 0.9 • Business acquisition costs 11.8 3.5 Normalised
Slide 29: Reconciliation of Dividend Declaration
RECONCILIATION OF DIVIDEND DECLARATION Rmillion H1 2020 Reported headline earnings 785.0 Adjusted for: • Fair value and forex loss on financial liability measurement (non-cash related) 77.5 Adjusted headline earnings 862.5 Shares ranking for dividend at declaration date (‘000s) 192 389 Adjusted head
Slide 30: Balance Sheet: Key Regional Metrics
BALANCE SHEET: KEY REGIONAL METRICS Rmillion Southern Africa Ireland Switzerland Poland Group Balance sheet Property, plant and equipment 2 696.3 2 312.6 3 385.1 412.5 8 806.5 ROU assets & fin. lease receivables 4 403.2 2 607.7 2 738.8 1 198.2 10 947.9 Goodwill and intangible assets 1 042.7 4 901.9
Slide 31: Capital Expenditure
CAPITAL EXPENDITURE H1 2020 H1 2019 Rmillion Investing to expand operations (474.1) (212.1) Investment to maintain operations (217.0) (193.2) • Replacement of property, plant and equipment (233.7) (215.5) • Proceeds on disposal of property, plant and equipment 16.7 22.3 Acquisition of business/subsi
Slide 32: Regional Capital Expenditure
REGIONAL CAPITAL EXPENDITURE Rmillion Expansion Replacement H1 2020 South Africa 78.5 102.5 181.0 Ireland 101.7 76.4 178.1 Switzerland 115.0 54.8 169.8 Poland 178.9 – 178.9 474.1 233.7 707.8 SPAR Southern Africa • Investment in commercial vehicles, plant and equipment SPAR Ireland • Primarily intern
Slide 33: Summary of Salient Features
SUMMARY OF SALIENT FEATURES H1 2020 H1 2019 Change (%) Rmillion Revenue – sale of merchandise 59 749.4 54 273.2 +10.1 Gross profit 6 728.5 5 650.7 +19.1 Gross profit (%) 11.26% 10.41% Operating profit 1 334.9 1 382.5 -3.4 Operating margin (%) 2.23% 2.55% Profit after tax 713.8 1 001.2 -28.7 Headline
Slide 34: Operational Update
OPERATIONAL UPDATE GRAHAM O’CONNOR CEO THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2020 34
Slide 35: Operational Review: Southern Africa – Distribution Centres
OPERATIONAL REVIEW SOUTHERN AFRICA – DISTRIBUTION CENTRES • Volumes dispatched by DCs • +3.8%; 126.0m cases (H1 FY19: 121.4m) • Driving retailer confidence • Making stores more relevant to communities being served • 163 store upgrades; 83 SPAR stores • 53 new stores across all formats; 19 SPAR store
Slide 36: Operational Review: Southern Africa – Retail
OPERATIONAL REVIEW SOUTHERN AFRICA – RETAIL WHOLESALE V RETAIL TURNOVER RETAIL TURNOVER OVERVIEW SPAR CORE TURNOVER (Rbn) WHOLESALE TURNOVER TURNOVER H1 19 28.8 +9.7% H1 FY20 Growth % LFL% H1 20 31.6 SPAR +9.6% +7.9% H1 19 42.3 TOPS +10.6% +6.8% RETAIL +9.6% BUILD IT +0.9% -0.1% H1 20 46.4 • Wholesa
Slide 37: Operational Review: Southern Africa – Retail
OPERATIONAL REVIEW SOUTHERN AFRICA – RETAIL • Securing the supply chain • Completed acquisition of Encore (Monteagle Africa) for R156.2m (controlling interest) • End-to-end supply chain service • Competition Commission approval – 6 March • Strong growth in house brands • All house brands • R7.5bn +9
Slide 38: Operational Review: Southern Africa – TOPS at SPAR
OPERATIONAL REVIEW SOUTHERN AFRICA – RETAIL – TOPS AT SPAR • Aggressive market activity in the first half • Strong marketing initiatives • Innovative, disruptive and fun • 22 net new stores; 36 refurbs • 844 total stores WHOLESALE V RETAIL TURNOVER (Rbn) WHOLESALE TURNOVER TURNOVER H1 19 4.0 +3.9% H
Slide 39: Operational Review: Southern Africa – Build it
OPERATIONAL REVIEW SOUTHERN AFRICA – RETAIL – BUILD IT • Continuity planning / leadership • Agile and quick to meet customer needs • Consumer opting for small refurbs over alterations • YES WE CAN – brand essence • Strategic initiatives • 1) Drive retailer profitability 2) Improve working capital 3)
Slide 40: Operational Review: SPAR Ireland
OPERATIONAL REVIEW SPAR IRELAND • Market leader in retail convenience • Solid euro-denominated results +3.2% • Once again positively impacted by acquisitions • Complimentary food service meat specialists, Heaney Meats • COVID-19 impact in H1 • Pressure on Dublin city-based stores, value centres and
Slide 41: Operational Review: SPAR Switzerland
OPERATIONAL REVIEW SPAR SWITZERLAND • Getting business organised moving forward • Wholesale turnover growth in CHF +1.5% • Deliveries to 23 PAM stores started in January • COVID-19 impact • Lockdown measures – 13 March • Noticeable change in retail landscape with closure of borders • Consumers optin
Slide 42: Operational Review: SPAR Poland – Why?
OPERATIONAL REVIEW SPAR POLAND – WHY? • Understanding the market opportunity POLAND • One of the better global economies to weather the COVID-19 crisis • GDP growth Q4 2019: +3.9% • Supportive macro environment Population: c.38m • On-going government fiscal stimulus Grocery market: c.€65bn • Low une
Slide 43: Operational Review: SPAR Poland – Progress in H1
OPERATIONAL REVIEW SPAR POLAND – PROGRESS IN H1 • Good progress made in H1 • Strong team in place under leadership of Tomasz Syller and supervision of Rob Philipson • SPAR license officially transferred to group • Secured third distribution centre in Czeladz • Piotr i Paweł / SPAR conversions • Bran
Slide 44: Operational Review: SPAR Poland – At a Glance
OPERATIONAL REVIEW SPAR POLAND – AT A GLANCE Poznań Warsaw Terms of acquiring Piotr i Paweł: • 80% for consideration of €1 • 20% to be acquired for €4m at a future date by minority partner • Funding to stabilise the business • €40m term loan (Overdue head leases, overdue creditors, CAPEX on DCs) • A
Slide 45: Operational Review: SPAR Poland
OPERATIONAL REVIEW SPAR POLAND Key players in food retail Where does SPAR fit in? Supermarkets and proximity Hypermarkets supermarkets 12% • High quality at competitive prices • Quality private label offering Discounters 31% • Good presence of regional suppliers • Differentiated from discounters by
Slide 46: Operational Review: SPAR Poland
OPERATIONAL REVIEW SPAR POLAND • Estimated turnover forecast • FY20: €160m • FY21: €280m • FY22: €350m • FY23: €400m • Margin structure • Expected EBIT margin of 2% to 3% • Break even • Best estimate now 24 months THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2020 46
Slide 47: Outlook
OUTLOOK GRAHAM O’CONNOR CEO THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2020 47
Slide 48: Outlook: Overview of Business Impact Due to COVID-19
OUTLOOK: OVERVIEW OF BUSINESS IMPACT DUE TO COVID-19 COUNTRY IMPACT SALES IMPACT • Southern Africa (4 weeks to end April 2020 compared with prior year) • Closure of stores/prohibited products (c.20 – 25% of turnover) • TOPS c.10% & Build It c.10% -12% to -14% • Cigarettes and Home meal replacement c
Slide 49: Outlook – In Closing
OUTLOOK – IN CLOSING Looking ahead • Expect high levels of uncertainty across all our markets • Trading conditions will remain challenging • Contingency plans are essential to ensure the robustness of our supply chain • Our businesses will continue to adapt to changing consumer behaviour • Impossibl
Slide 50: Questions – Thank You and Stay Safe
QUESTIONS THANK YOU AND STAY SAFE THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2020 50
Slide 51: 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