Spar Group Limited · JSE:SPP
Spar — The SPAR Group — H1 2024 Earnings Presentation
64 slides from Spar's earnings presentation, June 2024
Slide 1: Interim Results presentation, six months ended 31 March 2024
The SPAR Group Ltd Interim Results presentation Six months ended 31 March 2024
Slide 2: Presentation outline
Presentation outline Overview Operational update Financial review Strategic update Agenda Outlook Questions INTERIM RESULTS PRESENTATION 2024
Slide 3: Overview
Overview Angelo Swartz, Group CEO
Slide 4: Overview
Overview The SPAR Group Limited for the year ended 31 March 2024 - continuing operations South R1.4bn cash R77.2bn R1.6bn Africa generated from Turnover Operating profit Stores operations SPAR Poland Discontinued operation +7.9% +0.2% +27 Net new +49.6% Southern Africa Ireland and South West England
Slide 5: Our brands
Our brands Southern Africa Ireland and South West England Switzerland Poland INTERIM RESULTS PRESENTATION 2024
Slide 6: Brand recognition
Brand recognition Ranked as 1st grocery retail brand in the top 10 most valuable brands In 7th place of top 10 most valuable brands in South Africa Source: Brand Finance – South Africa 100, 2024 INTERIM RESULTS PRESENTATION 2024
Slide 7: Brand recognition
Brand recognition • TOPS at SPAR rated South Africa’s favorite liquor store for the 10th year in a row (Beeld Choice Awards) • SPAR voted as 3rd most loved brand in Sri Lanka (LMD Awards) • BWG Group awards won • Operational Excellence Awards • Operational Excellence in Warehousing, 2024 • Irish Log
Slide 8: SPAR's model
SPAR’s model Strong collaborative model between wholesaler and retailer and other stakeholders, making SPAR relevant within the communities it serves Farms and suppliers Wholesale distribution Retail network of stores Consumers and communities centres and central offices We rely on farmers, SPAR’s c
Slide 9: Operational update
Operational update Angelo Swartz, Group CEO Megan Pydigadu Group COO
Slide 10: SPAR Southern Africa
® SPAR Southern Africa
Slide 11: SA wholesale grocery and liquor businesses
SA wholesale grocery and liquor businesses SPAR Grocery and liquor • 1 016 food stores across all brands; 913 TOPS stores Turnover growth • Net new 25 SPAR & TOPS stores H1 FY24 % H1 FY23 % • 115 store upgrades +4.0 +7.9 Wholesale • Gross margin performance impacted by KZN region Retail +7.1 +8.2 •
Slide 12: Retail KPIs
Retail KPIs Footfall / Number of transactions at till Average basket spend SPAR Supermarkets +1.3% SPAR Supermarkets +5.8% TOPS at SPAR liquor +10.7% TOPS at SPAR liquor +2.6% Combined +2.5% Combined +5.5% INTERIM RESULTS PRESENTATION 2024
Slide 13: Build it
Build it • No. 1 for building materials in South Africa • Resilient retail sales performance • Tough market / construction holding back • Consistent quality at affordable prices • 397 Build it stores and 14 store upgrades in H1 H1 FY24 % H1 FY23 % Wholesale (0.4) (3.8) Retail 1.2 1.1 Retail LFL 2.6
Slide 14: S BUYS / Pharmacy at SPAR
S BUYS / Pharmacy at SPAR • Turnover growth of +15% with opex well managed below this • Distribution centre with three main growing revenue channels 1 Wholesaler +11% • Retailer loyalty increasing • 127 quality pharmacy stores (2 net new stores in H1) 2 Courier pharmacy (Scriptwise) +20% 3 Training
Slide 15: BWG Group (Ireland and SW England)
BWG Group (Ireland and SW England) • 1 475 stores • Ire: 1 153 / UK: 322 • Ireland • Focused on cash preservation • Wholesale performance boosted by acquisitions • Cost initiatives in place to compensate for 12.4% national wage increase, 1 January • Convenience retail brands strong; EUROSPAR impacte
Slide 16: SPAR Switzerland
SPAR Switzerland • 358 stores • Volume declines experienced across the market • Swiss consumer under pressure • Nielsen market share data reflects all retailers in Switzerland are experiencing smaller basket sizes • TopCC cash and carry impacted by industry contraction • Improved profitability throu
Slide 17: SPAR Sri Lanka
SPAR Sri Lanka • Joint Venture with Ceylon Biscuits Limited • Encouraging business and consumer sentiment despite the challenges • Market dominated by informal retail • Two largest formal food retailers have approx. 530 and 130 stores • SPAR has 27 stores across all formats (25 are corporate retail
Slide 18: SPAR Poland disposal
SPAR Poland disposal
Slide 19: SPAR Poland group structure
SPAR Poland group structure Terms of acquisition of Piotr I Pawel • 80% for consideration of €1 The SPAR Group Limited (Republic of South Africa) • Remaining 20% purchased for EUR4m upon completion of 100% sanitation proceedings • Initial funding arrangements: New Polish Investments Sp. z o.o. • €40
Slide 20: Poland business overview
Poland business overview Business includes: • 3 distribution centres • 194 independent retail stores • 1 food production facility - Kuchnia Polki (sells 25% of its production lines to SPAR Poland) Leased distribution Owned Leased centres • Head office Druiskienicka • Czeladz DC (South) • Mortgage –
Slide 21: SPAR Poland - performance
SPAR Poland - performance POLAND (PLN’million) FY19 FY20 FY21 FY22 FY23 H1 FY24 Turnover 0,3 515,2 599,8 648,0 680,6 339,2 Operating profit (8,1) (113,6) (120,8) (109,4) (166,3) (155,2) Note 1 Profit margin -2541,7% -22,1% -20,1% -16,9% -24,4% -45,8% Note 1 The operating loss in Poland in FY23 and H
Slide 22: Poland debt - 31 March 2024
Poland debt - 31 March 2024 Guaranteed by Local currency ZAR Secured parent H1 FY24 2024 Rmillion Term debt Mortgage loan – SBG (PLN) Yes No 8.7 41.1 Mortgage loan – SBG (PLN) Yes No 5.5 26.0 Term loan – Nedbank (EUR) No Yes 38.0 776.7 Term loan – EBRD (EUR) No Yes 25.0 511.0 1 354.8 Short term faci
Slide 23: SA direct investment into SPAR Poland
SA direct investment into SPAR Poland At historical foreign exchange rates Millions EUR ZAR 2021 19,0 326,6 2022 9,2 158,9 2023 32,6 646,6 Total to September 2023 60,8 1 132.1 2024 (to March ) 16,4 333,2 Total 77,2 1 465,3 INTERIM RESULTS PRESENTATION 2024
Slide 24: SAP system
SAP system
Slide 25: SAP system
SAP system • Implementation commenced February 2023 at the KwaZulu-Natal distribution centre • Areas of concern after go live • Gross profit margin impact due to buyers having lack of visibility of pricing, hindering sensible pricing decisions • Inefficiencies of new warehouse management system • Pl
Slide 26: Turnover impact – KZN region
Turnover impact – KZN region Recovery underway but not yet at expected levels of growth SAP go live Feb 2023 INTERIM RESULTS PRESENTATION 2024
Slide 27: Working capital impact – KZN region
Working capital impact – KZN region Working capital cycle impact remains - sustained higher levels of stock SAP go live Feb 2023 Debtors Creditors Inventory INTERIM RESULTS PRESENTATION 2024
Slide 28: Financial review
Financial review Mark Godfrey, Group CFO
Slide 29: Salient features
Salient features Continuing operations 2024 2023 % H1 H1 2023 Change Rmillion 2024 Re-presented* % Turnover¹ 77 161.4 71 541.4 7.9 Gross profit 9 161.6 8 537.5 7.3 - Gross profit (%) 11.9% 11.9% Operating profit 1 572.0 1 569.5 0.2 - Operating margin (%) 2.0% 2.2% Profit after tax 870.0 968.4 (10.2)
Slide 30: Profit / (loss)
Profit / (loss) Regional metrics Discontinued Southern Continuing operation Total Rmillion Africa Ireland Switzerland Group Poland Group Income statement Revenue – sale of merchandise 49 341.1 19 844.4 7 975.9 77 161.4 1 573.2 78 734.6 Gross profit 4 745.9 2 974.2 1 441.5 9 161.6 358.2 9 519.8 Gross
Slide 31: Discontinued operation – SPAR Poland
Discontinued operation – SPAR Poland Financial performance 2024 2023 FY Rmillion Change % H1 2024 H1 2023 FY 2023 Revenue - sale of merchandise 13.7 1 573.2 1 383.2 2 863.3 Cost of sales (1 215.0) (1 104.8) (2 295.5) Gross profit 28.7 358.2 278.4 567.8 Revenue - other 2.4 2.2 6.6 Other income 15.5 1
Slide 32: Discontinued operation – SPAR Poland
Discontinued operation – SPAR Poland Cashflow information 2024 2023 FY Rmillion Statement of cash flows H1 2024 H1 2023 FY2023 Net cash outflows from operating activities (230.6) (178.2) (384.8) - Operating loss (720.0) (57.5) (699.7) - Impairments of assets held for sale 721.1 - Other non cash item
Slide 33: Discontinued operation – SPAR Poland
Discontinued operation – SPAR Poland Details of disposal group (NPI) held for sale H1 2024 Assets 1 410.9 Property, plant and equipment* 55.0 Right-of-use assets* 88.1 Lease receivable 484.0 Goodwill and intangible assets* 7.3 Loans and other receivables 118.4 Deferred tax 22.6 Inventories 225.2 Tra
Slide 34: Turnover
Turnover Continuing operations 2024 2023 % Change Southern Africa Rmillion H1 2024 H1 2023 % • SPAR & TOPS combined growth of 5.2% • Liquor sales recovery 12.8% across all divisions SPAR – core grocery business 37 720.1 36 256.1 4.0 • Build it sales declined 0.4% TOPS/Liquor sales 6 031.9 5 345.2 12
Slide 35: Indicative inflation
Indicative inflation 2024 2023 South Africa H1 2024 H1 2023 • CPI +5.3% +7.1% FINANCIAL REVIEW • Food and non-alcoholic beverages • Alcohol and tobacco +5.1% +4.5% +14.0% +6.2% Southern Africa Ireland Internally measured wholesale price inflation H1 2024 H1 2023 H1 2024 H1 2023 Mark Godfrey • CPI •
Slide 36: Gross profit margin
Gross profit margin Continuing operations H1 2024 H1 2024 H1 2024 Change H1 2023 Southern Africa Rmillion Turnover Gross margin (GP%) (bps) (GP%) • Decrease in gross profit margin on prior period mainly due to KZN losses estimated at R128m due Southern Africa 49 341.1 4 745.9 9.6 -40 10.0 to SAP/dat
Slide 37: Net operating expenses
Net operating expenses Continuing operations 2024 2023 Southern Africa • Delivery costs decreased by 1.1% H1 2024 H1 2023 • Marketing/Advertising costs decreased by 5.0% • Increase in employee costs of 12.4% % % % • Increase in IT costs of 12.8% Rmillion Expenses of sales Expenses of sales increase
Slide 38: Finance income and costs
Finance income and costs Continuing operations Rmillion H1 2024 H1 2023 Finance income Loans 13.9 16.4 Bank deposits 29.1 20.2 Trade and other 30.0 34.6 Lease receivables – IFRS16 213.2 214.4 • Prolonged higher rates of interest across all 286.2 285.6 regions Finance costs Loans 149.4 97.2 Bank over
Slide 39: Currency impacts
Currency impacts Vs ZAR EURO/SWISS FRANC VS RAND EURO/SWISS FRANC VS RAND Oct 2023 - Mar 2024 Oct 2022 - Mar 2023 22,5 20,5 22,0 20 21,5 19,5 21,0 19 20,5 18,5 20,0 18 19,5 17,5 19,0 17 EURO: ZAR CHF: ZAR EURO: ZAR CHF: ZAR Linear (EURO: ZAR) Linear (CHF: ZAR) Linear (EURO: ZAR) Linear (CHF: ZAR) Ir
Slide 40: Comparative trading
Comparative trading ZAR TURNOVER (Rm) OPERATING PROFIT (Rm) 47 101,8 1 022,8 SA SA 49 341,1 929,7 17 102,5 436,7 Ireland Ireland 19 844,4 504,6 7 337,1 110,0 Switzerland Switzerland 7 975,9 H1 2023 H1 2024 137,7 H1 2023 H1 2024 H1 2024 Growth H1 2024 Growth Southern Africa 4.8% Southern Africa (9.1%
Slide 41: Comparative trading
Comparative trading Foreign regions in local currency TURNOVER (‘m) OPERATING PROFIT (‘m) 923,5 23,6 Ireland Ireland 976,2 24,8 391,5 5,9 Switzerland Switzerland 373,6 6,4 H1 2023 H1 2024 H1 2023 H1 2024 H1 2024 Growth H1 2024 Growth Ireland 5.7% Ireland 5.3% Switzerland (4.6%) Switzerland 9.9% INTE
Slide 42: Balance sheet
Balance sheet Regional metrics Continuing Rmillion Southern Africa Ireland Switzerland Poland* Group Balance sheet Property, plant and equipment 2 971.9 2 919.0 4 273.4 10 164.3 Right-of-use asset 773.8 3 032.8 4 741.1 8 547.7 Lease receivable – Non-current 4 020.9 118.9 4 139.8 Goodwill and intangi
Slide 43: Group net debt
Group net debt By region Rmillion H1 2024 H1 2023 FY 2023 Southern Africa Bank overdrafts 4 426.3 4 979.3 3 157.9 • Increase in SA overdraft since September 2023 o SAP go-live challenges at KZN Total borrowings 7 760.1 8 537.2 8 265.2 o Financial support to SPAR Poland Bank balances - SPAR (1 106.1)
Slide 44: Leverage ratio by region
Leverage ratio by region Rolling 12 months ending 31 March 2024 Southern Rmillion Group Africa Ireland Switzerland Poland Pre-IFRS16 EBITDA 3 609.3 1 402.3 1 609.7 597.3 Net Debt Bank overdrafts 4 426.3 3 417.9 269.5 738.9 Long term borrowings 7 760.1 122.9 2 961.1 3 317.4 1 358.7 Total debt 12 186.
Slide 45: Cashflow
Cashflow 2024 2023 Rmillion H1 2024 H1 2023 Cash flow from operating activities (adjusted for non-cash items) 2 785.2 2 744.5 Working capital changes : (1 542.0) (1 937.4) - Decrease/(Increase) in inventories 41.4 (455.8) • Cash generated by the Group from - Increase in trade and other receivables (
Slide 46: Cashflow
Cashflow Rmillion INTERIM RESULTS PRESENTATION 2024
Slide 47: Capital expenditure
Capital expenditure 2024 2023 Rmillion H1 2024 H1 2023 Business acquisition net cash Investment to expand operations (424.4) (745.6) outflows arising on: Investment to maintain operations (217.1) (380.8) Replacement of property, plant and equipment and intangibles (256.8) (405.3) • Two South Africa
Slide 48: Salient features
Salient features Continuing operations 2024 2023 % H1 H1 2023 Change Rmillion 2024 Re-presented* % Turnover¹ 77 161.4 71 541.4 7.9 Gross profit 9 161.6 8 537.5 7.3 - Gross profit (%) 11.9% 11.9% Operating profit 1 572.0 1 569.5 0.2 - Operating margin (%) 2.0% 2.2% Profit after tax 870.0 968.4 (10.2)
Slide 49: Strategic update
Strategic update
Slide 50: Key challenges / priorities
Key challenges / priorities SPAR Poland disposal SAP system South African profitability Optimal balance sheet structure Review of European portfolio INTERIM RESULTS PRESENTATION 2024
Slide 51: Southern Africa profitability
Southern Africa profitability
Slide 52: Southern Africa profitability
Southern Africa profitability Strengthened experienced management team • New SA executives for Finance, Marketing, IT and Retail Operations • New Group Executives - CEO and new COO role - challenging existing ways of doing things Assessment of SA business & review of current business model • Review
Slide 53: Southern Africa quarterly operating margin
Southern Africa Quarterly performance – SPAR (incl. Encore) Quarterly operating margin Margin % incl KZN Margin % excl KZN 2,62% 1,86% 1,92% 2,42% 1,64% 2,26% 2,26% 0,61% 1,41% 0,25% Q2 FY23 Q3 FY23 Q4 FY23 Q1 FY24 Q2 FY24 Q2 FY23 Q3 FY23 Q4 FY23 Q1 FY24 Q2 FY24 Note: Adjusted for Poland impairment
Slide 54: Optimal balance sheet structure
Optimal balance sheet structure
Slide 55: Balance sheet restructure
Balance sheet restructure Improved capital Considering Decision to allocation debt sell interests discipline structuring in Poland (Review of options investments- ROIC) Improving Preserve working cash and capital reduce net management debt
Slide 56: ROIC by region – H1 FY24
ROIC by region – H1 FY24 SPAR BWG SPAR Southern Africa Group Switzerland ROIC 14.9% 12.0% 3.2% WACC 11.1% 8.5% 5.0% Calculation of ROIC: Net operating profit after tax ÷ invested capital (ROIC has been calculated on a pre-IFRS 16 basis and has been adjusted for both the impact of SPAR Poland and SAP
Slide 57: Liquidity and debt levers
Liquidity and debt levers In Southern Africa, SPAR has several levers to help manage net debt Sale of Knowles shopping centre – R250m Process underway (see next slide) Leasing of fleet Carrying value FY23 – R480m Distribution centres - total estimated fair value as at July 2023 – R2.4bn 1)
Slide 58: Review of European portfolio
Reviewofof Review Europeanportfolio European portfolio
Slide 59: Review of European portfolio – SPAR Switzerland
Review of European portfolio – SPAR Switzerland • SPAR Switzerland now undergoing strategic review and assessment • Performed strongly during the pandemic (2020, 2021, 2022) with the closure of Swiss borders • Loss of market share since borders reopened and impacted by consumers seeking better value
Slide 60: Review of European portfolio – BWG Group
Review of European portfolio – BWG Group • BWG Group portfolio under review • Proven track record as a Group • Continues to take market share in Ireland BWG Group historical performance Turnover (EUR’m) Operating profit (EUR’m) 2500 1965,4 70 3,5% 2000 1818,8 58,5 1632,9 1690,6 60 54 54,6 3,0% 1535,
Slide 61: Review of European portfolio – BWG Group
Review of European portfolio – BWG Group Turnover (EUR’m) Ireland Operating profit (EUR’m) 1673,7 60 55,4 3,4% 1452,8 1550,1 49,3 3,3% 50 43,7 3,3% 40 3,2% 3,2% 30 3,1% 3,1% 20 3,0% 10 3,0% 2,9% 0 2,9% 2021 2022 2023 2021 2022 2023 United Kingdom Operating profit (EUR’m) Turnover (EUR’m) 12 10,3 5,0
Slide 62: Outlook
Review of Outlook European portfolio
Slide 63: Timeline – key priorities
Timeline – key priorities South African profitability 3% EBIT margin SPAR Poland Debt Europe strategic SAP system Exit restructuring decisions roll out next DC Net debt / EBITDA 1.5X Sep 2024 Dec 2024 Jun 2025 Sep 2025 Sep 2026 INTERIM RESULTS PRESENTATION 2024
Slide 64: Thank You Questions
Thank You Questions