Shoprite Holdings Limited · JSE:SHP
Shoprite — FY2006 Earnings Presentation
66 slides from Shoprite's earnings presentation, June 2006
Slide 1: Shoprite Holdings Limited Financial Results – June 2006
1 Shoprite Holdings Limited Financial Results – June 2006
Slide 2: Carel Goosen, Deputy Managing Director
2 Carel Goosen Deputy Managing Director
Slide 3: Size of Operation
3 Size of Operation Jun 2006 Turnover R33.5 bn Owned outlets 846 Franchise outlets 255 Countries 17 Employees 66,000
Slide 4: Financial Results
4 Financial Results Year ended 30 June 2006 Turnover (Rm) 33 511 Turnover Growth (%) 12,8 Trading Profit (Rm) 1 253 Trading Profit Growth (%) 21,3 Trading Margin (%) 3,7 Adjusted Diluted Headline EPS (cents) 145,0 Adjusted Diluted Headline EPS Growth (%) 10,4 Dividend per Share (cents) proposed 73 D
Slide 5: Highlights of Results
5 Highlights of Results Key information (52 wks vs 52 wks) • Turnover – Total +15.1% – Furniture +13.7% – Non-RSA (Rand terms) + 20.9% • Trading profit – Total +31.1% – Furniture +9.0%
Slide 6: Highlights of Results
6 Highlights of Results Key information (52 wks vs 52 wks) • Diluted Headline EPS before exch +19.8% to 145c • Dividends proposed per share +46.0% to 73c • NAV per share +36.5% to 598c
Slide 7: Highlights of Results: Gross margin maintained
7 Highlights of Results Gross margin maintained • Competitive market • Aggressive food discounting • Low food inflation • Increase higher-margins non-food participation • Central Distribution
Slide 8: Other operating income increased 11.2%
8 Highlights of Results Other operating income increased 11.2% Made up as follows: % increase / To R’m (decrease) Commission received 83,3 122,9 Finance income earned (5,3) 156,0 Franchise fees received 11,5 20,9 Operating head-lease income (1,7) 181,7 Net premiums earned 12,5 165,5 Sundry income 27
Slide 9: Depreciation, operating leases and staff cost
9 Highlights of Results Depreciation increased • Increased spend on revamps and new branches Operating Leases increased • Cancellation and maturing of head-leases Staff cost increased • GEB increase • Productivity increased • New stores
Slide 10: Trading profit increased 31.1%
10 Highlights of Results Trading profit increased 31.1% above turnover growth of 15.1% • Higher revenue growth than expense growth • Confirmed growth in financial services • Increase in non-RSA operation
Slide 11: Exchange gains and capital items
11 Highlights of Results Exchange gains increased by R6.5m • Rand to US Dollar exchange rates – June 2004 R6.35 – June 2005 R6.73 – June 2006 R7.11 Capital items R’m • 2006 – Profit on disposal of properties 172 • 2005 – Impairment of goodwill (26) – Impairment of Non-RSA Investments (40) – Profit C
Slide 12: Net investment income and taxation
12 Highlights of Results Net investment income • Lower interest rates • Stock levels • Increase Capital spent Taxation R’m • Normal 433 • STC 35 • Deferred 13 • Capital gains tax 27 • Total 508
Slide 13: Capital expenditure
13 Highlights of Results Capital expenditure R’m • Land & Buildings 288 • Store Refurbishment 516 • New Stores 336 • Information Technology 185 • Other Replacements * 76 • Total 1,401 * Distribution Centres, Motor Vehicles & Office Furniture
Slide 14: Inventory and cash balances
14 Highlights of Results Inventory • Increase of 20.6% • Excluding new stores – stock reduced by R50m • Golden Promotion June/July • Service levels of suppliers deteriorating • Acquisition and new stores • Increased non-food sales • Rising food inflation Cash balances vs Trade Creditors • Balance sh
Slide 15: Debtors
15 Highlights of Results Debtors 2005 2006 R’m R’m Furniture 529 528 Franchise 217 261 Buy aid organisations 99 98 Other receivables 614 555 Total 1,459 1,442
Slide 16: Cashflow reconciliation for the year
16 Highlights of Results Cashflow reconciliation for the year R’m Cash at June 2005 292 Cash from operations 1,712 Changes in working capital 353 Net finance income 18 Dividends paid (282) Tax paid (439) Purchase of fixed assets & other investments (1,486) Proceeds on disposal of fixed assets 344 Ot
Slide 17: Whitey Basson
Whitey Basson SHOPRITE HOLDINGS LTD Ss. 17
Slide 18: Introduction
18 Introduction During the last 12 months our energies were directed to: a) Clearly positioning our 3 distinct formats in supermarket retailing b) Refining our Non-RSA business c) Actively improving the professionalism of our business to meet the challenges of the next decade I trust that today’s pr
Slide 19: Customer & Basket Size Growth
19 Customer & Basket Size Growth • Customer growth of 10.1% • Basket Size growth of 4.1% 12mm June 06 12mm June 2006 CPI - Indices Comparison Sugar 3.5 Milk, cheese and eggs 3.4 Household consumables 3.3 Personal care 2.9 Processed food 2.4 Coffee, tea and cocoa 1.8 Grain products 1.3 Fats and oils
Slide 20: Profitability Gains
20 Profitability Gains • Trading profit growth of 31% (average compounded growth of 33.3% over the last 20 years since listing) • Trading margin increased from 3.4% to 3.7% as a result of – increase in non-food sales participation (Target 4%) – Indent stock up 31% in value (11 600 containers +18%) –
Slide 21: Productivity & Female Equity
21 Productivity & Female Equity • GEB Sales per FTE +8.8 • Ave years of service for full time employees 13yrs Equity Category: Management Female Shoprite W&R Sector 25 20.9 20 15 12.9 % 10.5 10 8.0 6.4 6.6 3.7 2.8 5 - Blacks Coloured Indians White Source: Department of Labour
Slide 22: Male Equity
22 Male Equity Shoprite W&R Sector 50 38.5 40 32.6 30 % 20 15.7 12.5 9.7 10 6.5 6.9 5.8 0 Blacks Coloured Indians White Source: Department of Labour
Slide 23: Value Added Statement 2006
23 Value Added Statement 2006 2006 R’000 Employees R2,933bn 59% Reinvest R1,075bn 22% Tax R518m 11% Employees 59% Providers of capital R368m 8% Reinvest R2,933bn 22% TOTAL R4,894bn 100% R1,075bn Number of employees 65 841 Tax Jobs created (over last 3 years) 12 750 11% Providers of Capital New Jobs
Slide 24: Highest Number Of Employees Trained In Retail Sector
Highest Number Of Employees 24 Trained In Retail Sector • The Shoprite Group is largest training provider in the retail/wholesale sector • 26,442 Employees trained in 2005 /06 • W&R SETA (2001 – 2006) – Skill levy contribution largest in the sector (R85 m) • 3rd biggest employer on the JSE • Directl
Slide 25: Supermarkets Trading Efficiencies
Supermarkets 25 Trading Efficiencies • Upgraded data network reduced data cost by 15% • Increased office automation – 90% of orders and claims paperless • Central Distribution Efficiencies – Highest pick accuracy of 99.8% – Productivity improvement of 20% – More than 3.2m cases per week at 95% servi
Slide 26: Current Supermarket Stores
26 Current Supermarket Stores June 2006 92 Shoprite 24 Checkers CH Hyper USave 110 348 Total: 574
Slide 27: New Supermarkets Opened In 2006
27 New Supermarkets Opened In 2006 Promised: Actual: Brand Difference June 2006 June 2006 Shoprite 46 39 (7) Checkers 20 15 (5) Usave 29 23 (6) Total 95 77 (18)
Slide 28: RSA Checkers Overview
28 RSA Checkers Overview • Sales growth 52 weeks +14.4% • New stores opened – Checkers 15, PnP Supers 28, Spar 22, WW 34 • Increased market share for June by 0.4% • Basket size growth 6.03% • Customer growth 7.7% • Profitability growth as high as 42% in some regions – Housebrand contribution increas
Slide 29: Checkers Customer Profile
29 Checkers Customer Profile • Corporate Marketing successful and appeal to the higher LSM’s and in achieving sales growth of up to 90% • Checkers now a firmly established brand at the higher LSM’s • Golden Celebration : R1bn price promotion (27% growth at year end – had an effect on stockholding) •
Slide 30: RSA Shoprite Overview
30 RSA Shoprite Overview • Sales growth 52 Weeks +14.8% • Market leader: 286 stores • 33 new stores opened • Basket size growth of 3.5% – Low inflation on basic food categories • Customer count growth of 10.6% – Not only has Shoprite grown its customer base, but the next slide shows its ability to r
Slide 31: RSA Shoprite Customer Loyalty
31 RSA Shoprite Customer Loyalty Highest exclusive shopper % Second store of choice for all competitor’s 1st choice shoppers PnP PnP Shoprite Family Super Spar % of Exclusive shoppers 38% 28% 26% 20% Spar Shoprite Shoprite Shoprite 2nd store of choice (% ) (19%) (30%) (37%) (40%) Source: Amps 2005
Slide 32: Shoprite
32 Shoprite • Non-foods participation increased • Destination shop for the emerging market eg – Small Appliances 35 % – Baby 18%
Slide 33: Shoprite Price Perception
33 Shoprite Price Perception Shoprite is the clear leader in low price perception Pick 'n Pay 18 Shoprite 49 Spar 9 0 20 40 60 80 100 Source ACNielsen Trade Search 2006 Base: All informants
Slide 34: Usave Number Of Stores
34 Usave Number Of Stores • RSA Operations - profitable • Number of Stores Jun 05 Jun 06 - Jun 06 - Total Open Closed RSA 62 16 10 68 Non-RSA 22 7 5 24 Total 84 23 15 92
Slide 35: Usave Overview
35 Usave Overview • Total growth 52 weeks +32% • Minimal cost to close (R50k) • Own labels outperforming brand leaders – Vinegar: 100% more than brand leader – Frozen Veg: 90% more than brand leader – Fabric softener: 56% more than brand leader • Additional GP between 6 and 12% on own labels • ROI –
Slide 36: OK Foods
36 OK Foods • Sales GEB Growth +8% • 40 new members, 35 non-profitable members closed • Debtors 42 days • Net income +20% • Hurdles: – Establishing OK Brand in higher urban LSM’s – Competing with Usave
Slide 37: Strategic Business Units: Money Markets
Strategic Business Units 37 Money Markets • R4.5bn Money Collected annually – 210 million transactions annually – Compounded growth since 2002: 36% Money Collected Transactions 5000 250 4500 4000 200 3500 3000 150 2500 2000 100 1500 1000 50 500 0 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006
Slide 38: Money Markets
38 Money Markets • New business: – Computicket - full integration with Shoprite and Checkers stores by end September – Money Transfers launched April 2006 • Next? – Cross Border Money Transfers – Banking
Slide 39: Medirite
39 Medirite • Trading: 33 • New licenses received: 34 • Immediate target: 94 • GEB: 82% • Prescriptions: Growth 152% 341,000 prescriptions p/a • Lack of suitable pharmacists limiting roll-out • B. Pharm students reduced by 50% from two years ago • Foreign pharmacists are required to complete 2 years
Slide 40: Hungry Lion
40 Hungry Lion • Opened 18 stores with a total of 74 • Like-for-like sales increased 21.3% • Total sales growth 41% • Net Profit increased 55% • Selling prices maintained since 2004 (zero inflation) • Planned to open 17 stores in 2006/2007
Slide 41: Status Summary
41 Status Summary Brand Status Shoprite Checkers Usave Money Market Medirite x Hungry Lion
Slide 42: Overview Non-RSA
42 Overview Non-RSA • The R100m profit as promised was achieved • Africa benefited from world wide commodity price boom • GDP growth rates highest in over 30 years (as per IMF) • Currency stability and lower inflation • Opened 9 new stores • Gross profit margins have been maintained • Shrinkage impr
Slide 43: Non-RSA
43 Non-RSA Country Status Country Status Angola Mozambique Botswana x Namibia Ghana x Nigeria India x Swaziland Lesotho Tanzania x Madagascar Uganda x Malawi Zambia Mauritius Zimbabwe
Slide 44: India
44 India • Current Sales Growth 70% • Current Customer Growth 24.7% • Basket size 60% of that of SA • Average item price lower eg. Milk R2.34 vs. R4.20 • Marketing converted consumers successfully i.e. Marketday – 30% of turnover • Most important – replaced MRP with the Shoprite Price representing r
Slide 45: India – Sales Value (Rupee)
July 05 Aug 05 Sept 05 Oct 05 Nov 05 Dec 05 Jan 06 Feb 06 Mrt 06 India – Sales Value (Rupee) Apr 06 May 06 June 06 45
Slide 46: India – Customer Count
July 05 Aug 05 Sept 05 Oct 05 Nov 05 Dec 05 Jan 06 Feb 06 India – Customer Count Mrt 06 Apr 06 May 06 June 06 46
Slide 47: Aubrey Karp Furniture
Aubrey Karp Furniture SHOPRITE HOLDINGS LTD Ss. 47
Slide 48: Furniture: Key highlights
48 Furniture • Key highlights (52 weeks) – Sales increased 13.75% to R1,875bn – Trading profit increased 9.0% to R200.5m – Trading profit margin increased 0.1% – 21 new stores opened – Quality of debtors book remains high
Slide 49: Furniture: Trading environment
49 Furniture • Trading environment – Slowed somewhat following recent interest rate and petrol price increases – Consumer confidence remains positive – Movement into higher LSM’s continues – Product price deflation continued in the plugs departments, with only small increases in the Furniture relate
Slide 50: Furniture: Trading environment continued
50 Furniture • Trading environment continued – Financial Institutions continued to advance substantial amounts of credit, thus limiting opportunities for retail credit growth – Potential for further growth with Government and Parastatel infrastructure investment for the 2010 soccer world cup
Slide 51: Furniture: Store expansion & refurbishment
51 Furniture • Store expansion & refurbishment – Opened 21 stores – OK Furniture : 17 stores – House & Home : 4 stores Refurbished 19 House & Home and 21 OK Furniture stores – Store numbers – Total 198 – OK Furniture : 158 – OK Power Express : 13 – House & Home : 27
Slide 52: Furniture: Turnover segmentation
52 Furniture • Turnover segmentation 2006 2005 Merchandise sales 85% 85% Insurance Premiums 8% 7% earned Finance income 7% 8% – Sales growths since 2000 - 34.80%, 10.29%, 92.70%, 18.75%, 24.54%, 18.24% and 13.75%
Slide 53: Furniture: Inflation and sales mix
53 Furniture • Inflation – Plugs : -1.5% to -15% – Furniture : 1% to -1% • Sales Mix 2006 2005 Home entertainment & 64% 64% appliances Furniture, bedding, patio & 36% 36% carpeting
Slide 54: Furniture: Trading Profits
54 Furniture • Trading Profits 2006 2005 Increased by 9.0% 200 497 183 899
Slide 55: Furniture: Merchandise sales
55 Furniture • Merchandise sales 2006 2005 Cash 66.23% 62.96% Credit 33.77% 37.04% # of new contracts (6.95% decline) 320 379 344 312
Slide 56: Furniture: Debtors Arrears
56 Furniture % Debtors Arrears 2006 2005 Variance Actual Arrears 3.57% 3.64% 0,07 Balance Of Contract 15.10% 13.91% (1,19) Arrears Bad Debt and UFC 19.94% 21.15% (1,28) Provisions
Slide 57: Furniture: Prospects & Growth
57 Furniture • Prospects & Growth – Movements into higher LSM’s expected to continue – Expect some level of inflation, due to increased raw material costs and weaker exchange rate – Trading environment will slow, but Store openings should provide further growth – Retailers focus will remain on volum
Slide 58: Furniture: Prospects & Growth Continued
58 Furniture • Prospects & Growth Continued • Agreed strategy remains: – Store expansion – Focus on volume growth and discounted pricing – Continually updating and introducing new product ranges – Accelerate staff training programmes – Provide better service to customers • Effects of the National Cr
Slide 59: 2007 And Beyond
59 2007 And Beyond Confirmed store openings until June 2007 RSA Non-RSA Total Shoprite 16 8 24 Checkers 9 9 Usave 20 5 25 Total 45 13 58
Slide 60: Shoppers By Group
60 Shoppers By Group South Africa’s most frequented supermarket chain In which of these stores do you currently do your shopping? 62 43 26 6 Shoprite Group Pick 'n Pay Group Spar Group Woolworths Group Source: ACNeilsen Trade Search May 2006 Base: All informants n=2468, 2487, 2458
Slide 61: Brand Equity
61 Brand Equity No 1 Supermarket -Shoprite has the highest level of brand equity (watch the press) Strong Strong Brands Brands 3+ 3+ Moderate Moderate Brands Brands <3 <3 –– 1> 1> 3.44 2.64 1.40 1.34 1.00 Shoprite Pick'n Pay Spar Checkers Woolworths Base: All Supermarket/ Hypermarket shoppers (n=774
Slide 62: Shoprite 2007 Growth
62 Shoprite 2007 Growth • Shoprite Dominates high growth LSM’s – The Shoprite brand has the highest penetration in LSM 4,5,6,7(over 20% penetration in each) – This is where the heart of the spending power increases exist and where the LSM migration is destined.
Slide 63: Shoprite 2007 Growth
63 Shoprite 2007 Growth • New Store Expansion: 24 Shoprite stores • 28m customers per month •1 can of coke per customer = additional R119m per month • Shoprite’s core market LSM 4-6 is the largest consumer block (46% of SA households) • Government grants increased to R80b (7.8% increase from 05/06)
Slide 64: Checkers 2007 growth
64 Checkers 2007 growth • New store expansion: 9 Checkers Stores • 11.5m customers per month: ability to extract bigger baskets – 1 tub of cottage cheese per customer = additional R80m a month • LSM 7-10 Shoppers: – Checkers: Ave 11 000 per store – Pick ‘n Pay: Ave 8 900 per store Source: Amps 2005
Slide 65: Growth Non RSA
65 Growth Non RSA • Angola • Nigeria • India
Slide 66: Shoprite Group
66 Shoprite Group • Are we positioned to take advantage of current economic growth activity? – Most advanced IT systems – Most advanced Central Distribution Supply Chain – Complete succession management program with a balanced workforce including 1,489 graduates and 717 managers in training – Global