Shoprite Holdings Limited · JSE:SHP
Shoprite — H1 2021 Earnings Presentation
57 slides from Shoprite's earnings presentation, Mar 16, 2021
Slide 1: Interim Results Presentation for the 26 weeks ended 27 December 2020
INTERIM RESULTS PRESENTATION FOR THE 26 WEEKS ENDED 27 DECEMBER 2020
Slide 2: Welcome, Operational Review, Financial Results
WELCOME Wendy Lucas-Bull - Chairman OPERATIONAL REVIEW Pieter Engelbrecht - CEO FINANCIAL RESULTS Anton de Bruyn - CFO STRATEGY UPDATE QUESTIONS Pieter Engelbrecht - CEO
Slide 3: 2021 Interim Operational Review
2021 INTERIM OPERATIONAL REVIEW Chief Executive Officer PIETER ENGELBRECHT
Slide 4: 2021 - The First Half in Review
2021 - THE FIRST HALF IN REVIEW SALES GROSS PROFIT TRADING PROFIT R83.4bn R20.0bn R4.7bn +4.7% Excl. RSA LiquorShop +7.3% +18.3% Excl. Hyperinflation +4.1% Like-for-like +6.3% 24.0% Gross margin 5.6% Trading margin +17.8% TOTAL EXPENSES DILUTED HEPS DIVIDEND PER SHARE CONTINUING OPERATIONS R16.9bn 4
Slide 5: Trading Environment
TRADING ENVIRONMENT Proud of our Team’s ability to adapt to new trading environment ● Hygiene protocols and PPE now integrated into daily operations (H1: R180.1m invested) ● Liquor trading most challenging: impacted by bans and restrictions Maximised average spend per visit as shopping frequency dec
Slide 6: Leveraging Brand Portfolio
LEVERAGING BRAND PORTFOLIO Low prices increasingly important Brand portfolio sales growth for hardest hit consumers. Q2 indexing above Rest of Market acceleration with Xtra Savings launch 287% Proximity-to-home advantage and unrivalled affordability 109% REST OF MARKET Upmarket share of wallet gains
Slide 7: Supermarkets RSA Ahead of Peers
SUPERMARKETS RSA AHEAD OF PEERS ● Strong Supermarkets RSA performance (excl. LiquorShop) ○ Sales +7.8% despite economic headwinds (Like-for-like: +5.7%) ● Continued uninterrupted market share gains over 22 months Rest of market Shoprite Group 15% 0% +R1.3bn Q1 Q2 Q3 Q4 Q1 Q2 H1 Market 2019/2020 2020
Slide 8: Shielding Customers: Inflation Unpacked
SHIELDING CUSTOMERS: INFLATION UNPACKED ● Supermarkets RSA internal inflation H1: 4.3% vs official food inflation 4.9% Shoprite Group Stats SA Supermarkets Food & NAB internal price inflation inflation = 124 products > 60 000 products Fixed weighting updated every 4-5 years Weighted against sales of
Slide 9: Affordability Obsession
AFFORDABILITY OBSESSION Honouring our Low Price Promise ● ‘Super Price Sensitive’ basket selling price inflation +0.7% 4.9% 4.3% 0.7% Stats SA Food & Supermarkets RSA Top 15 Super NAB inflation H1 Internal Price Sensitive sell inflation products Comparison between Stats SA Dec 2020 and Supermarkets
Slide 10: Affordability Obsession: Zero Inflation
AFFORDABILITY OBSESSION ZERO INFLATION FOR 5 YEARS 266 768 LOAVES SUBSIDISED
Slide 11: In a Year of Change, Low Prices Remain Evergreen
IN A YEAR OF CHANGE, LOW PRICES REMAIN EVERGREEN
Slide 12: LiquorShop RSA Performance
LIQUORSHOP RSA PERFORMANCE Liquor sales R3.6bn -21.8% ● H1 trading restricted by lockdown regulations: 79/182 trading days lost ● Online sales growth of 80% despite restricted trading days 19 New stores planned H2
Slide 13: Supermarkets Non-RSA Performance
SUPERMARKETS NON-RSA PERFORMANCE CONTINUING OPERATIONS ● COVID-19 lockdown regulations continued to constrain multiple Sales territories Sales growth growth (Constant ○ ~20 000 lost trading hours, restricted items and supply chain impediments (ZAR) currency) % % ● Supermarkets Non-RSA sales declined
Slide 14: Non-RSA Position
NON-RSA POSITION ● Profitable portfolio of Non-RSA countries is part of our long-term vision ○ Short-term: strategic shifts made with the Nigeria sale and Kenya closures ● Stringent cost management and capital allocation ○ Limited new capital committed - only to maintain existing operations and pre-
Slide 15: Furniture & Other Operating Segments
FURNITURE & OTHER OPERATING SEGMENTS Furniture Other operating segment sales +15.7% segments sales +10.0% R3.8bn R6.0bn Growth remains robust with strong demand for Impacted by lockdown regulations home improvement ● Computicket & CFS affected by depressed demand ● Credit sales participation decline
Slide 16: Business with Heart
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Slide 17: 2021 Interim Financial Results
2021 INTERIM FINANCIAL RESULTS Chief Financial Officer ANTON DE BRUYN
Slide 18: IFRS Comparative Considerations
IFRS COMPARATIVE CONSIDERATIONS Dec 2020 Dec 2019 IFRS 5: NON-CURRENT ASSETS ● Classify the Group’s Nigeria ● Statement of comprehensive HELD FOR SALE AND subsidiary as discontinued income restated DISCONTINUED OPERATIONS operations ● Statement of financial position ● Statement of comprehensive not
Slide 19: Financial Overview
FINANCIAL OVERVIEW Dec Dec Change Continuing operations 2020 2019 % Notes to the results: Sale of merchandise R83 430m R79 711m 4.7 Gross margin: ● SAP ERP implementation Gross margin 24.0% 23.4% improvements ● Continued supply chain improvements ● Improved shrinkage and waste Total expenses R16 897
Slide 20: Adjusted DHEPS Analysed
ADJUSTED DHEPS ANALYSED Dec Dec 2020 2019 Change Cents Cents % DHEPS previously reported 372.4 Restated for SAICA Circular 1/2019: Headline Earnings relating to the IFRS 16: Leases rule 9.1 DHEPS including discontinued operations 427.7 381.5 12.1 Restated for IFRS 5: Discontinued operations -9.7 -2.
Slide 21: Sales Growth per Segment
SALES GROWTH PER SEGMENT Number Total Like- of net sales for-like new % % stores* Notes to the results: CONTRIBUTION Supermarkets RSA 5.6 4.8 45 TO SUPERMARKETS SALES SUPERMARKETS RSA GROWTH RSA SALES % % Supermarkets Non-RSA -8.4 -8.9 1 Furniture 15.7 17.3 -10 5.6 54.4 Other operating segments 10.0
Slide 22: Other Operating Income
OTHER OPERATING INCOME Dec Dec 2020 2019 Change Rm Rm % Notes to the results: Computicket commissions negatively Commissions received 437 473 -7.6 impacted by lockdown precluding event & travel related ticket sales Operating lease income 249 257 -3.1 Operating lease income impacted by property dispo
Slide 23: Interest Revenue
INTEREST REVENUE Dec Dec 2020 2019 Change Rm Rm % Notes to the results: Instalment sale Finance income earned in Furniture segment receivables 135 133 1.5 Reduction in finance income from government bonds and bills due to Government bonds AOA, USD Index Linked, Angola Government Bonds maturing durin
Slide 24: Trading Profit by Segment
TRADING PROFIT BY SEGMENT Trading margin Dec Dec Dec 2020 2019 Change 2020 Rm Rm % % Supermarkets RSA 4 206 3 736 12.6 6.5 Supermarkets Non-RSA 138 3 >100.0 1.6 Furniture 265 169 56.8 6.9 Other operating segments 132 118 11.9 2.2 Total continuing operating segments 4 741 4 026 17.8 5.7 Hyperinflatio
Slide 25: Forex
FOREX LOSS GAIN Dec 2020: R20m loss Dec 2019: R243m gain Government bonds 219 and bills • R529m invested in AOA, USD Index Linked, Angola Government Bonds Current forming a natural hedge intercompany loan -257 accounts • Hedging strategy for Non- RSA was effective • Net investment hedge Sundry 18 ac
Slide 26: Items of a Capital Nature
ITEMS OF A CAPITAL NATURE Dec Dec 2020 2019 Rm Rm Notes to the results: Non-financial asset Dec Impairment of PPE -610 -61 impairments/(reversals) 2020 by segment Rm Impairment of right-of-use assets -71 -157 Supermarkets RSA 8 Impairment of intangible assets -6 - Supermarkets Non-RSA 306 Non-financ
Slide 27: Net Finance Cost
NET FINANCE COST Dec Dec 2020 2019 Change Rm Rm % Notes to the results: Interest received from JIBAR: 3.5% (Dec 2019: 6.8%) LIBOR: 0.2% (Dec 2019: 2.1%) bank account balances 148 187 -20.9 Overnight Rate: 4.4% (Dec 2019: 7.5%) Borrowings and other Borrowings and other finance charges include R178m b
Slide 28: Balance Sheet Composition
BALANCE SHEET COMPOSITION Rbn 84.1 64.5 SIGNIFICANT EVENTS SINCE JUNE 2020: Other assets 11.8 PPE reduction with sale and 3.6 Other liabilities leaseback of DCs Working capital improvements USD borrowings repaid Government bonds and bills reduction Trade and other Inventories 19.6 27.6 payables ROIC
Slide 29: Inventories
INVENTORIES SUPERMARKETS RSA SUPERMARKETS NON-RSA R15.1bn R2.1bn (Dec 2019: R16.7bn) (Dec 2019: R3.5bn) INVENTORIES Dec 2020: R19.6bn FURNITURE Dec 2019: R22.5bn R1.7bn R2.9bn↓ (Dec 2019: R1.6bn) -13.2% OTHER OPERATING SEGMENTS R0.7bn (Dec 2019: R0.7bn) INVENTORIES AS % OF LAST 12 MONTHS’ SALES Dec
Slide 30: Capital Additions
CAPITAL ADDITIONS CONTRIBUTION TO CAPITAL SPEND CAPITAL SPEND Supply chain (Total operations) 4.5% 9.0% Dec 2020: R1.6bn Land, buildings and leasehold Dec 2019: R2.0bn improvements 9.8% 20.6% -16.7% Information technology 21.8% 16.4% DEC 2020 CAPITAL SPEND New stores 13.0% 18.7% NON-RSA R124m RSA R1
Slide 31: Net Gearing
NET GEARING Dec Dec USD BORROWINGS Dec 2020: US$78.2m 2020 2019 Dec 2019: US$481.8m Rm Rm -83.8% ACHIEVED US$80m Net cash position 12 076 8 028 TARGET Borrowings -5 463 -11 363 DEBT: EQUITY RATIO (excl. lease liabilities) Dec 2020: 0.3 Net cash after borrowings 6 613 -3 335 Dec 2019: 0.5 Lease liabi
Slide 32: Dec 2020 Cash Flow Statement
DEC 2020 CASH FLOW STATEMENT Total operations including Nigeria Rbn -1.1 6.4 -1.4 -1.3 0.5 -0.1 -1.6 10.4 -6.0 10.0 1.6 0.1 0.3 7.0 -1.5 -0.2 2.7 EBITDA - EBITDA - Other Changes Net Income Dividends Cash Capex Proceeds Other Cash flow Net Lease Treasury Net EBITDA - EBITDA - Other Changes Net Income
Slide 33: Capital & Capital Allocation
CAPITAL & CAPITAL ALLOCATION COMPLETED IN PROGRESS WORKING ✓ Inventory to sales target on Inventory remains a key focus area - remembering: CAPITAL - track ● Group’s corporate store operating model INVENTORY ● Group policy wrt maintaining in-stock levels given suboptimal supplier deliveries ● Genera
Slide 34: Capital & Capital Allocation
CAPITAL & CAPITAL ALLOCATION COMPLETED IN PROGRESS PROPERTY, ✓ Sale and leaseback of DCs in Medium-term capex guidance: 2.3% of sales PLANT & exchange for cash and 49.9% EQUIPMENT share in Retail Logistics Fund (Pty) Ltd completed CAPITAL Currently determining optimal medium-term ALLOCATION capital
Slide 35: Strategic Focus Areas
STRATEGIC FOCUS AREAS
Slide 36: Strategy Remains Future-Fit
STRATEGY REMAINS FUTURE-FIT • Shoprite is more Customer centric and Digitally fit than ever before • Investments in a ‘‘Smarter Shoprite” have continued to support market share gains • Focus remains on optimising our core retail capabilities in existing markets
Slide 37: Customer-First Culture
CUSTOMER-FIRST CULTURE ● Award-winning Xtra Savings Rewards Programme introduced to Shoprite in Oct 2020 ● Rapid roll-out in 12 months leveraging a common customer technology platform ○ 825 stores roll-out in record time amidst Covid (100% virtual training) ● Exceptional response from customers - 2m
Slide 38: Customer-First Culture
CUSTOMER-FIRST CULTURE Digital & Data Science is powering personalisation to help customers save even more 53.5m Snowflakes Promo alerts Digital till slips Unique personalised offer Allow customers to receive real-time updates Allow customers to track slips and combinations for customers since on sp
Slide 39: Developing Future-Fit Channels
NINE STRATEGIC DEVELOPING FOCUS CHANNELS FUTURE-FIT AREAS ● 100% growth in digital reach for supermarkets’ monthly web visitors ● Rapid adoption of Sixty60, our pioneering on-demand 1 hr grocery delivery app ○ No. 1 grocery delivery app in SA - more than 1m downloads ○ More choice with 15k products
Slide 40: Award-Winning Innovation in 2020/21
NINE STRATEGIC AWARD-WINNING FOCUS AREAS INNOVATION IN 2020/21 BCX 2020 MTN’s People’s Choice MTN’s Best Gold Loerie Memeburn SMARTIES Best Digital Best App of the Year Enterprise App for Services design Best App for 2020 Gold Award Award (Sixty60) Awards (Sixty60) (Sixty60) (Xtra Savings) Innovatio
Slide 41: Enable Precision Retailing
NINE STRATEGIC ENABLE FOCUS PRECISION AREAS RETAILING Enhanced customer data ecosystem unlocking new value operationally & commercially 17 million ~7 billion Products sold annually Rewards members 2 892 7.5 million 6 Petabytes of Stores Digital visitors monthly Information 349 million Financial serv
Slide 42: Unlocking Alternative Revenue
NINE STRATEGIC UNLOCKING FOCUS AREAS ALTERNATIVE REVENUE
Slide 43: Trusted, Profitable Private Labels
NINE STRATEGIC TRUSTED, FOCUS PROFITABLE AREAS PRIVATE LABELS 17.7% ● RSA private label sales participation up 160 BPS to 17.7% 16.1% ● Powerful exclusive brands: 29 > R100m in annual sales ● Need for more value post-covid is driving adoption of private label ○ Ubrand: 3x total store sales growth ○
Slide 44: Winning in Fresh and Premium Food
NINE STRATEGIC WINNING FOCUS IN FRESH AND AREASFOOD PREMIUM ● Checkers and Hypers still leading our growth 2.9x ahead of Rest of Market* ● Accessible quality for all: R400m* Fresh & Perishable share gains in H1 ● Share of stomach opportunity with increased in-home dining ○ 191 new fresh and premium
Slide 45: Winning in Fresh and Premium Food
NINE STRATEGIC WINNING FOCUS IN FRESH AND AREASFOOD PREMIUM New Checkers FreshX flagships in Rosebank & Brackenfell 38/80 target stores completed 1.3x higher FreshX like-for- like sales growth vs Checkers average
Slide 46: Outlook
OUTLOOK
Slide 47: Outlook
OUTLOOK ● Liquor fully back on stream from March after two months of restrictions ● Supermarkets RSA first eight weeks of H2 (excl. LiquorShop) in line with H1 ● Supermarkets RSA internal inflation: 3.8% (January - February 2021) ● Checkers is up against strong comparable base in March due to pantry
Slide 48: Questions
QUESTIONS HOLDINGS LI
Slide 49: 2021 Interim Additional Information
2021 INTERIM ADDITIONAL INFORMATION Chief Financial Officer ANTON DE BRUYN
Slide 50: H2 2020 Base Effects
H2 2020 BASE EFFECTS HEADWINDS TAILWINDS SUPERMARKETS - Q3 2020 Pantry loading and shift to - LiquorShop: RSA in-home dining - Closed for 66 days then restricted - Main beneficiary: Checkers and to Mon-Thur for June 2020 Checkers Hyper - Shoprite: - H2 2020 shift in spend, closer-to- - Negatively im
Slide 51: Sale and Leaseback Transactions
SALE AND LEASEBACK TRANSACTIONS Summary of transaction effective 4 November 2020: ● Sale and leaseback of Brackenfell and Centurion DC for 49.9% share in Retail Logistics Fund (Pty) Ltd (Retail Logistics) ● Sale and leaseback of Cilmor DC (now Whitey Basson DC) to Retail Logistics for cR1.2bn cash c
Slide 52: Adjusted DHEPS Reconciliation
ADJUSTED DHEPS RECONCILIATION Earnings DHEPS* Dec Dec 2020 2020 Rm cents DHEPS including discontinued operations 2 370 427.7 Restated for IFRS 5: Discontinued operations -53 -9.7 DHEPS continuing operations 2 317 418.0 Adjusted for: Forex 20 3.6 Hyperinflation 35 6.3 Related income tax effect -65 -1
Slide 53: Discontinued Operations
DISCONTINUED OPERATIONS Dec Dec 2020 2019 Rm Rm Sale of merchandise 1 424 1 439 Gross profit 379 379 Depreciation and amortisation - -68 Employee benefits -92 -94 Other operating expenses -198 -162 Trading profit 89 55 Exchange rate losses -17 -11 Profit on lease modifications 20 - Items of a capita
Slide 54: Return on Invested Capital (ROIC)
RETURN ON INVESTED CAPITAL (ROIC) Dec Dec Dec 2020 2019 2018 Rm Rm Rm Last 12 months’ trading profit 8 899 8 175 Effective tax rate at period end 29.2% 31.1% Trading profit after tax 6 297 5 637 Invested capital 52 887 59 440 58 352 Net asset value 19 555 21 464 22 769 Borrowings 5 463 11 363 10 045
Slide 55: Capital Additions
CAPITAL ADDITIONS CAPITAL SPEND Rbn (Total operations) Dec 2020:-38.8% R1.6bn Dec 2019: R2.0bn 0.8 -16.7% 0.7 0.4 0.3 0.4 0.3 0.2 0.2 0.2 0.1 Information New stores Store Land, buildings Supply chain technology maintenance and leasehold and improvements refurbishments Dec 2020 capital spend Dec 2019
Slide 56: Closing Exchange Rates
CLOSING EXCHANGE RATES CONTINUING OPERATIONS DISCONTINUED OPERATIONS Zambia kwacha Angola kwanza Mozambique metical Nigeria naira -7.9% -4.4% -13.9% -17.7% -32.9% -37.4% -48.7% -53.6% ZAR closing (Dec 2020 vs Dec 2019) USD closing (Dec 2020 vs Dec 2019)
Slide 57: Average Exchange Rates
AVERAGE EXCHANGE RATES LOCAL CURRENCY AVERAGE AGAINST ZAR % Devaluation Jun-Dec 2020 vs Jun-Dec 2019 Angola kwanza Zambia -39.7% kwacha 5.1% 8.1% 6.4% -5.6% -9.7% -15.5% -32.7% -39.3% Mozambique -42.5% -3.4% metical