Shoprite Holdings Limited · JSE:SHP
Shoprite — H1 FY2018 Earnings Presentation
43 slides from Shoprite's earnings presentation, Feb 27, 2018
Slide 1: Unaudited Results for the 26 Weeks Ended 31 December 2017
SHOPRITE(6} HOLDINGS LTD UNAUDITED RESULTS FOR THE 26 WEEKS ENDED 31 DECEMBER 2017
Slide 2: To the Frontline
_— — —— > << lee Oflg TO THE FRONTLINE _— xx e FRESH. STORE § apass daar iii ganaar diane, ;
Slide 3: Agenda
AGENDA 1. FINANCIAL HIGHLIGHTS Marius Bosman NO .OPERATIONAL HIGHLIGHTS gaa Pieter Engelbrecht 3. QUESTIONS Executive Team
Slide 4: Financial Highlights
FINANCIAL HIGHLIGHTS CHIEF FINANCIAL OFFICER
Slide 5: Financial Highlights
FINANCIAL HIGHLIGHTS NOVA GOULD Ee es) ——i, ~— R24 99 0 TURNOVER GROWTH TO R75.8bn TRADING PROFIT GROWTH TO R4.1bn
Slide 6: Trading Margin
EeDING MERON Bam 5.48%! 5.41% | 2016 2017
Slide 7: Financial Highlights
FINANCIAL HIGHLIGHTS 14.2% DILUTED HEPS GROWTH TO 525.2c 13.9% DIVIDEND PER SHARE GROWTH TO j 205c
Slide 8: Financial Highlights: Sales Growth per Segment
FINANCIAL HIGHLIGHTS Existing Net new Sales growth per segment Total stores stores Supermarkets RSA 3.5% 4.3% 7.8% Supermarkets Non-RSA -6.4% 6.0% -0.4% Furniture 11.0% -0.3% 10.7% Other Operating Segments 4.3% 2.4% 6.7% Total 2.0% 4.3% 6.3% • Supermarkets Non-RSA at constant currencies: 1.9%
Slide 9: Gross Profit Margin
GROSS PROFIT MARGIN
Slide 10: Financial Highlights: Other Operating Income
FINANCIAL HIGHLIGHTS 2016 2017 Other operating income Growth Rm Rm Finance income earned 162 146 -9.9% Net premiums earned 192 177 -7.8% Operating lease income 210 232 10.5% Commissions received 398 425 6.8% Franchise fees received 36 41 13.9% Investment income 82 160 95.1% Sundry income *incl. recy
Slide 11: Financial Highlights: Operating Expenses
FINANCIAL HIGHLIGHTS ● Depreciation and amortisation: 11.0% ○ Cilmor DC and new stores ● Operating leases: 13.0% ● Employee benefits: 5.9% ○ Previous share scheme ended in June 2017 ● Other operating expenses: 10.8% ○ Security costs
Slide 12: Key Information per Segment
KEY INFORMATION PER SEGMENT 2016 2017 Trading Profit Growth Rm Rm Supermarkets RSA 2 992 3 342 11.7% Supermarkets Non-RSA 746 553 -25.9% Furniture 95 110 15.8% Other Operating Segments 74 99 33.8% Total 3 907 4 104 5.0%
Slide 13: Exchange Rate Differences
EXCHANGE RATE DIFFERENCES Rand appreciation against the US Dollar ● Dec 2017: R12.41/$ ● June 2017: R13.04/$ ● Dec 2016: R13.64/$
Slide 14: Inventory Levels
INVENTORY LEVELS Growth in inventory: 17.8% ● R1bn new Cilmor DC ● R540m increase in Angola ● Net 121 new corporate outlets in last 12 months
Slide 15: Financial Highlights: Capital Expenditure
FINANCIAL HIGHLIGHTS 2016 2017 Capital expenditure Rm Rm Land, Buildings and Leasehold Improvements 516 565 Store Refurbishment 368 535 New Stores 429 454 Information Technology 683 564 Other Replacements* 587 816 Total 2 583 2 934 * Includes DC equipment, vehicles and general asset replacements
Slide 16: Financial Highlights: Net Cash Balances
FINANCIAL HIGHLIGHTS 2016 2017 Growth Rm Rm Net Cash Balances 6 034 3 060 -49.3% • Buy-back and cancellation of ordinary shares • Investment in USD Index Linked, Angola Government bonds • Investment in Angola treasury bills ○ Higher interest and short-term paper
Slide 17: Overview
OVERVIEW PIETER ENGELBRECHT S OPERATIONAL 8:
Slide 18: Quote: Ordinary People Choose to Be Extraordinary
"| think it is possible for ordinary people to choose to be extraordinary” - ELON MUSK -
Slide 19: Working Harder for Customers
WORKING HARDER FOR CUSTOMERS ● Satisfied with strong performance ● Sales growth continued to outstrip competitors ○ Remain the Low Price reference ○ Continued space growth of 2.5%
Slide 20: Deflation Dilemma
DEFLATION DILEMMA ● Proven track record in response to volatility ● 5,279 products in deflation in RSA ○ Impacted disproportionately given our dominant share of commodities in significant deflation (e.g. Maize: -30%) ● Shifted into volume mode 147 million more products sold 19.2 million more custome
Slide 21: RSA Remains Resilient
RSA REMAINS RESILIENT ● Strong Supermarkets RSA sales growth of 7.8% with the lowest internal inflation in 6 years ● Superior promotional execution and a record Black Friday ● Good festive season despite work stoppage on 22 Dec 2016 2017
Slide 22: Short Term Setbacks in Non-RSA
SHORT TERM SETBACKS IN NON-RSA ● Low-water mark in volatile growth cycle ○ Supermarkets Non-RSA sales growth of -0.4% (1.9% constant currencies) ○ Internal inflation 17.3 percentage points lower than last year ○ Trading Profit -25.9%: Increases in cost of employment, supply chain and rentals ○ Angol
Slide 23: Local Currency Sales Performance
LOCAL CURRENCY SALES PERFORMANCE Angola ● Fire at rented DC in May ● 26% currency devaluation in January ‘18 Nigeria ● Harsh import restrictions and forex shortages ● Port Harcourt development with Resilient Zambia ● Surge in competitors and weak consumer spending ● Inflation normalising post curren
Slide 24: Other Brands Performing Well
OTHER BRANDS PERFORMING WELL ● 48 new stores (incl. franchises) ● Lower credit sales: 14.7% ● Strengthened operational team for the six months to Dec 2017 ● Trading Profit improved 15.8% ● Gained market share ● Gained +2.06% share* * Nielsen 6 months to Dec 2017
Slide 25: Strategic Focus Areas
STRATEGIC FOCUS AREAS S
Slide 26: Drivers of Growth
6 DRIVERS OF GROWTH
Slide 27: Customer-First Culture
CUSTOMER-FIRST CULTURE ● “No customer leaves the store unhappy” ○ One escalated complaint for every 33,000 customers served ● Operational teams now aligned to brands ○ More responsive and relevant to consumers ● Customer data powering decisions ○ Category science and execution-ready insights
Slide 28: Simplified Shopping Driven by Data
SIMPLIFIED SHOPPING DRIVEN BY DATA 87 billion different ways customers could shop Personal Care dept. 1 3 2 +2.7% sales uplift
Slide 29: Building Powerful Private Label Brands
BUILDING POWERFUL PRIVATE LABEL BRANDS ● 17 own brands > R100m in annual sales Cumulative monthly Private label participation 2017
Slide 30: Leverage African Advantage
LEVERAGE AFRICAN ADVANTAGE ● Committed to Africa: growing middle class and exploding population ● Results are volatile and cyclical in the short term ● Weaker African economies and currencies ● Our Non-RSA operation remains significant and profitable ● Portfolio effect/hedge
Slide 31: Strategic Expansion
STRATEGIC EXPANSION ● 93 new Supermarkets for the year ● New Cilmor DC primed for growth (incl. Perishables) ● SAP ERP roll-out underway enables scalability ● Expansion beyond borders on our terms ○ Harnessing East Africa’s largest economy ■ Kenya market entry by year end, filling the competition va
Slide 32: Growing Upmarket Share of Wallet
GROWING UPMARKET SHARE OF WALLET ● Significant opportunity remains in premium food retail ● 4 Levers enabling growth in share of LSM 8-10 spend
Slide 33: 1. Enhance Checkers Brand Perception
ww 1. ENHANCE CHECKERS BRAND PERCEPTION “a cosa T
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Slide 35: Nielsen 6 months December 2017
*Nielsen 6 months December 2017
Slide 36: 4. Accelerating Fresh Store Upgrades
4. ACCELERATING FRESH STORE UPGRADES Amplifies fresh: 3.4x Faster sales growth of Fresh departments post launch 22» —/ DA
Slide 37: 4. Accelerating Fresh Store Upgrades
4. ACCELERATING FRESH® STORE UPGRADES Amplifies fresh: Attracts upmarket shoppers: Faster Sic growth of Fresh | More upmarket departments post launch baskets post launch RELAUNCH —> AQ irae dh 528 haha eiadct ictentes = PEPEPEEO OE EEE PEELED
Slide 38: 4. Accelerating Fresh Store Upgrades
4. ACCELERATING FRESH® STORE UPGRADES Amplifies fresh: Attracts upmarket shoppers: Further runway: Faster a growth of Fresh | More upmarket of estate departments post launch baskets post launch RELAUNCH —>
Slide 39: Growing Upmarket Share of Wallet
GROWING UPMARKET SHARE OF WALLET Checkers achieved uninterrupted market share gains 3 months moving indexed Sales Growth: Checkers vs. Other Retailers | Nielsen Dec 2017
Slide 40: Outlook
OUTLOOK 'S
Slide 41: Outlook
OUTLOOK Geared to capitalise on any economic green shoots • Groundswell of optimism and positive political changes • Balanced portfolio of brands will quickly absorb economic improvements • Creating jobs: 4,254 new jobs for the period, totalling 148,056 employees • Above inflation increase in Social
Slide 42: Thank You
THANK YOU c: N QUESTIONS?
Slide 43: Slide 43