Spar Group Limited · JSE:SPP
Spar — The SPAR Group — FY2015 Earnings Presentation
55 slides from Spar's earnings presentation, November 2015
Slide 1: SPAR Results Presentation for the Year Ended 30 September 2015
SPAR RESULTS PRESENTATION FOR THE YEAR ENDED 30 SEPTEMBER 2015
Slide 2: Agenda
AGENDA INTRODUCTION: SPAR GROUP PERFORMANCE SUMMARY SALIENT FEATURES Graham O’Connor, CEO BUSINESS ENVIRONMENT SPAR VALUES AND CULTURES STRATEGIC FOCUS AREAS FINANCIAL OVERVIEW Mark Godfrey, CFO OPERATIONAL OVERVIEW Graham O’Connor, CEO LOOKING FORWARD 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 40 COUNTRIES FOLLOWING ENTRY INTO 10 NEW TERRITORIES IN ASIA, AFRICA AND EASTERN EUROPE DURING 2014 AND 2015 • 12 314 stores €32bn p.a. turnover • South Africa is the second biggest SPAR country by turnover • Ireland is 10th biggest SPAR c
Slide 5: SPAR Group: Facts and Figures (continued)
SPAR GROUP: FACTS AND FIGURES (continued) IRELAND/SOUTH WEST ENGLAND: BWG SERVICES >1 330 STORES ACROSS 6 BRANDS, ~€1.4BN (ZAR19.3BN) RETAIL TURNOVER • Wholesale and distribution of groceries + fresh produce, liquor to retail/catering sectors • Well established in convenience market • 22 300m² stock
Slide 6: Performance Summary
PERFORMANCE SUMMARY • First full year operating in a global context • Steady year-on-year growth from existing store base • Total retail footprint increased to 3 267 stores • Efficiency improvements and innovation in warehousing, distribution and logistics • Acquisition of Londis Group (145 retail s
Slide 7: Salient Features
SALIENT FEATURES R million 2014 2015 Change (%) Turnover 54 483.0 73 258.8 +34.5 Operating profit 1 864.9 2 294.2 +23.0 Normalised headline earnings per share (cents) 779.8 940.0 +20.5 Dividend per ordinary share (cents) 540.0 632.0 +17.0 7
Slide 8: Business Environment
BUSINESS ENVIRONMENT SOUTH AFRICA IRELAND • Systemic economic shortcomings, social • Consistent economic recovery since global instability and infrastructural limitations financial crisis • Ongoing pressure on consumer spending • Retail market showing positive signs of a • Internally measured food i
Slide 9: SPAR Values and Culture
SPAR VALUES AND CULTURE: ETHICAL AND MORAL COMPASS / DECISION-MAKING FOUNDATION • Commitment to consumers, retailers, suppliers, brand, etc. • Displaying positive energy and attitude • Enthusiasm • Wanting to do what you currently do 9
Slide 10: SPAR Values and Culture
SPAR VALUES AND CULTURE: ETHICAL AND MORAL COMPASS / DECISION-MAKING FOUNDATION • Creativity and innovation • Problem solving + accountability • Visionary leadership and taking calculated risks • Long-term focus vs short-term gain 10
Slide 11: SPAR Values and Culture
SPAR VALUES AND CULTURE: ETHICAL AND MORAL COMPASS / DECISION-MAKING FOUNDATION • A sense of belonging to SPAR family ~ our people and our retailers • Recognise every person’s contribution • Personalising work/business relationships • Working together for greater good of SPAR 11
Slide 12: Our Commitment Towards Our Family Values
OUR COMMITMENT TOWARDS OUR FAMILY VALUES 12
Slide 13: SPAR Values and Culture: Strategic Objectives
SPAR VALUES AND CULTURE: ETHICAL AND MORAL COMPASS / DECISION-MAKING FOUNDATION • SPAR strategy reviewed in 2015 › Underpinned by values of passion, entrepreneurship and family values Passion • Strategic objectives › Retailer profitability › Excellence in Fresh › Centre of community › Competitive pr
Slide 14: Strategic Objectives: Retailer Profitability
STRATEGIC OBJECTIVES: RETAILER PROFITABILITY • Sale of more SPAR brand – private label – product at higher margins • Joint business planning with our retailers 14
Slide 15: Strategic Objectives: Retailer Relationships, Leadership and Support
STRATEGIC OBJECTIVES: RETAILER RELATIONSHIPS, LEADERSHIP AND SUPPORT • Provide expert retail leadership and support through our service, incentives and training programmes • Regular interaction with regional DC management and operations’ teams • Regular store visits and monthly performance monitorin
Slide 16: Strategic Objectives: Competitive Pricing
STRATEGIC OBJECTIVES: COMPETITIVE PRICING • Group buying reviews, commodity trading and our revised promotions strategy • Peer group price surveys 16
Slide 17: Strategic Objectives: Centre of Community
STRATEGIC OBJECTIVES: CENTRE OF COMMUNITY • Drawing customers to our stores • Growing brand awareness • Fostering positive brand sentiment by strengthening community leadership, sponsorships, advertising and social media 17
Slide 18: Strategic Objectives: Excellence in Fresh
STRATEGIC OBJECTIVES: EXCELLENCE IN FRESH Outperform in highly competitive fresh food/groceries industry • Key focus on Fresh departments: produce, HMR, bakery and butchery with store ratio >30% • Increasing product range and housebrand sales • Keeping abreast of market trends in range offerings • R
Slide 19: Strategic Objectives: Supply Chain Optimisation
STRATEGIC OBJECTIVES: SUPPLY CHAIN OPTIMISATION • Ensuring we run a lean organisation • Collaborating closely with retailers and suppliers 19
Slide 20: Strategic Objectives: Transformation
STRATEGIC OBJECTIVES: TRANSFORMATION • Currently 245 black owned retail stores with focus on increasing this number 20
Slide 21: Strategic Objectives: New Business Opportunities
STRATEGIC OBJECTIVES: NEW BUSINESS OPPORTUNITIES • Building on the acquisition of BWG Group in Ireland (August 2014) • Integrating the acquisition of Londis • Improving store standards in South West England 21
Slide 22: Financial Overview
FINANCIAL OVERVIEW MARK GODFREY, CFO
Slide 23: Financial Overview: Turnover
FINANCIAL OVERVIEW: TURNOVER R million 2014 2015 Change (%) SPAR/TOPS 46 225.5 50 176.8 +8.5 Build it 5 509.2 6 190.8 +12.4 Total South Africa 51 734.7 56 367.6 +9.0 Liquor sales (SPAR/TOPS) 4 043.9 4 622.5 +14.3 Ireland 2 748.3 16 891.2 - Total Group 54 483.0 73 258.8 +34.5 • Impact of BWG: first t
Slide 24: Financial Overview: Gross Margins
FINANCIAL OVERVIEW: GROSS MARGINS 2015 R million 2014 (GP%) 2015 (GP%) Turnover (Rm) Normal business 7.9 8.0 55 368.8 Retail division 15.9 16.9 738.9 Imports – Build it 20.6 21.9 259.9 Total South Africa 8.2 8.2 56 367.6 Ireland 10.2 10.5 16 891.2 Total Group 8.3 8.7 73 258.8 • Stronger ex-warehouse
Slide 25: Financial Overview: Inflation per Segment
FINANCIAL OVERVIEW: INFLATION PER SEGMENT 6 months to 2014 March 2015 2015 SPAR business 5.7%¹ 5.5% 5.2% Liquor 5.8% 6.8% 6.4% Build it c. 3.0%² c. 3.0% c. 3.3% 1. SPAR’s budgeted expectations for 2016: › SA food 6.0% › Building materials 3.9% › Ireland (2.0%) – All foods (2.2%) – Alcohol (3.0%) – T
Slide 26: Financial Overview: Expenses
FINANCIAL OVERVIEW: EXPENSES Expenses (Rm) Increase (%) SPAR business 2 844.8 +8.3%¹ Retail division 128.3 +9.8%² Build it division 139.1 (3.3%) Total South Africa 3 112.2 +7.7% Ireland 1 748.0³ * Total Group 4 860.2 +54.2% 1. SPAR: › Impacted by higher employment costs as the business addressed con
Slide 27: Financial Overview: Cash Flow
Opening balance (543.4) Operating profit 2 294.2 Non-cash items 367.4 Loss on disposal of property, equipment 15.0 Net working capital changes 278.0 Net interest paid (118.3) Taxation paid (555.5) Dividends paid (1 011.5) Capital expenditure (525.5) Acquisition of businesses (452.0) FINANCIAL OVERVI
Slide 28: Financial Overview: Cash Flow (continued)
FINANCIAL OVERVIEW: CASH FLOW (continued) R million 2014 2015 Cash flow from trading 2 077.6 2 676.6 Working capital changes (235.2) 278.0 • Increase in inventory (179.9) (114.8) • Increase in trade receivables (768.0) (387.7) • Increase in trade payables 712.7 780.5 Cash generated from operations 1
Slide 29: Comparative Trading: H1 vs H2 and BWG Group Impact
FINANCIAL OVERVIEW: COMPARATIVE TRADING: UNPACKING H1 VS H2 + BWG GROUP IMPACT TURNOVER (Rm) OPERATING PROFIT (Rm) PROFIT BEFORE TAX (Rm) F14 F14 F14 F15 F15 F15 0 25 000 50 000 75 000 0 600 1 200 1 800 2 400 0 600 1 200 1 800 2 400 H1 South Africa H1 Ireland H1 South Africa H1 Ireland H1 South Afri
Slide 30: Impact of BWG Group: Key Metrics
FINANCIAL OVERVIEW: IMPACT OF BWG GROUP: KEY METRICS SPAR SPAR R million Southern Africa Ireland Group Income statement Turnover 56 367.6 16 891.2 73 258.8 Gross profit 4 597.4 1 769.2 6 366.6 Gross margin 8.2% 10.5% 8.7% Operating expenses 3 112.2 1 748.0 4 860.2 Profit before tax 1 776.1 182.1 1 9
Slide 31: Reconciliation of Normalised HEPS
FINANCIAL OVERVIEW: RECONCILIATION OF NORMALISED HEPS R million 2014 2015 Change (%) Reported headline earnings 1 351.3 1 446.3 +7.0 Adjusted for: • Fair value adjustment to financial liability - 72.8 • Unrealised foreign exchange loss on translation (3.5) 62.2 of financial liability • Transactions
Slide 32: Reconciliation of Dividend Declaration
FINANCIAL OVERVIEW: RECONCILIATION OF DIVIDEND DECLARATION Per share Rm (cents) Normalised headline earnings 1 627.3 940.0 Adjusted for: • Exceptional items (cash-related) (46.0) (26.6) Adjusted normalised headline earnings 1 581.3 913.4 Dividend cover maintained 1.45 times Dividend declared 632.0 3
Slide 33: Impact of BWG Group: Key Metrics
FINANCIAL OVERVIEW: IMPACT OF BWG GROUP: KEY METRICS SPAR SPAR R million Southern Africa Ireland Group Balance sheet Property, plant and equipment 1 944.1 1 277.2 3 221.3 Goodwill and intangible assets 471.8 2 809.7 3 281.5 Current assets 8 675.4 3 689.2 12 364.6 Current liabilities 8 055.9 4 076.7
Slide 34: Capital Expenditure: Increasing Distribution Capacity
CAPITAL EXPENDITURE: INCREASING DISTRIBUTION CAPACITY R million 2014 2015 Investing to expand operations (106.1) (422.1) Investment to maintain operations (115.3) (103.4) • Replacement of property, plant and equipment (120.8) (111.8) • Proceeds on disposal of property, plant and equipment 5.5 8.4 Ac
Slide 35: Summary of Salient Features
SUMMARY OF SALIENT FEATURES R million 2014 2015 Change (%) Turnover 54 483.0 73 258.8 +34.5 Gross profit 4 497.9 6 366.6 +41.5 Gross profit (%) 8.3 8.7 Operating profit 1 864.9 2 294.2 +23.0 Profit after tax 1 345.0 1 420.9 +5.6 Headline earnings per share (cents) 781.8 835.5 +6.9 Normalised headlin
Slide 36: Operational Overview
OPERATIONAL OVERVIEW GRAHAM O’ CONNOR, CEO
Slide 37: Operational Review: Retail Performance: Turnover
OPERATIONAL REVIEW: RETAIL PERFORMANCE: TURNOVER Total growth Like for like SPAR 7.6% 6.2% TOPS 17.3% 13.5% Build it 14.0% 9.0% • Continued uptake of SPAR house brands by cash strapped consumers: up 13.4% • TOPS maintained double digit growth trajectory • Build it staged a strong recovery 37
Slide 38: Operational Performance: SPAR
OPERATIONAL PERFORMANCE: SPAR • Pleasing performance despite pressure on TURNOVER ANALYSIS (Rm) consumer spending ▲7.6% ▲8.0% › SPAR’s merchandising, logistics and 67.9 distribution capability valued by 63.1 independent retailers and their customers 45.6 42.2 › 13.4% growth from SPAR house brands to
Slide 39: Operational Performance: TOPS
OPERATIONAL PERFORMANCE: TOPS • Double digit growth trend extended TURNOVER ANALYSIS (Rm) › Broad geographic presence and diverse ▲17.3% ▲14.3% product offering 7.8 › Strong and vibrant marketing campaigns 6.6 › 17.3% increase in retail turnover 4.6 4.0 • Same store retail growth of 13.5% • Wholesal
Slide 40: Operational Performance: Build it
OPERATIONAL PERFORMANCE: BUILD IT • Strong H1 performance maintained TURNOVER ANALYSIS (Rm) › Despite ongoing pressure on ▲14.0% ▲12.4% consumer spending 10.4 9.0 › 14.0% retail turnover growth 6.2 • Solid same store growth of 9.0% 5.5 • Wholesale turnover up 12.4% • Build it house brand import sale
Slide 41: TRENDIY by Build it: Entry into DIY Market
TRENDIY BY BUILD IT: ENTRY INTO DIY MARKET 41
Slide 42: Operational Performance: BWG Group
OPERATIONAL PERFORMANCE: BWG GROUP • Performed on plan for first 12 month period of consolidation › Total €-denominated turnover growth of 6.5% in the period › Positive impact of Londis acquisition (3 months): Significant further synergies identified › Tremendous like-for-like organic growth: 2.6% v
Slide 43: Operational Performance: Distribution (South Africa)
OPERATIONAL PERFORMANCE: DISTRIBUTION (SOUTH AFRICA) IMPORTS WAREHOUSE NORTH RAND LOWVELD WESTERN CAPE SOUTH RAND EASTERN CAPE KZN DRY KZN PERISHABLES 43
Slide 44: Operational Performance: Distribution (South Africa)
OPERATIONAL PERFORMANCE: DISTRIBUTION (SOUTH AFRICA) • Volumes handled up 3.9%: 219 million cases dispatched • Plans for major extensions underway › Significant extension of Western Cape perishables facility › Purchase of additional land to expand Eastern Cape DC › Complete slow moving warehouse ins
Slide 45: Looking Forward
LOOKING FORWARD GRAHAM O’ CONNOR, CEO
Slide 46: Looking Forward: Group Priorities
LOOKING FORWARD: GROUP PRIORITIES • Further entrench our values: Passion, Entrepreneurship and Family • Drive opening of new stores: SPAR, TOPS and Build it • Support SPAR’s organic growth › Continue SPAR store upgrades: 170 planned in 2016 (159 completed) › Focus on retailer profitability for econo
Slide 47: Drive Fresh Food Offering: Fresh Produce, HMR, Butchery and Bakery
DRIVE FRESH FOOD OFFERING: FRESH PRODUCE, HMR, BUTCHERY AND BAKERY 47
Slide 48: Drive Fresh Food Offering: Fresh Produce, HMR, Butchery and Bakery
DRIVE FRESH FOOD OFFERING: FRESH PRODUCE, HMR, BUTCHERY AND BAKERY 48
Slide 49: Drive Fresh Food Offering: Fresh Produce, HMR, Butchery and Bakery
DRIVE FRESH FOOD OFFERING: FRESH PRODUCE, HMR, BUTCHERY AND BAKERY 49
Slide 50: Drive Fresh Food Offering: Fresh Produce, HMR, Butchery and Bakery
DRIVE FRESH FOOD OFFERING: FRESH PRODUCE, HMR, BUTCHERY AND BAKERY 50
Slide 51: Looking Forward: Group Priorities
LOOKING FORWARD: GROUP PRIORITIES • Further entrench our values: Passion, Entrepreneurship and Family • Drive opening of new stores: SPAR, TOPS and Build it • Support SPAR’s organic growth › Continue SPAR store upgrades: 170 planned in 2016 (159 completed) › Focus on retailer profitability for econo
Slide 52: Prospects
PROSPECTS • Southern African trading environment expected to remain challenging › SPAR’s brands well positioned to continue serving diverse customers • Improving prospects in Ireland › Economic recovery and growth set to continue › Drive the EuroSPAR format • SPAR’s business model remains robust › G
Slide 53: Questions
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Slide 54: 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
Slide 55: Ns) ®
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