Spar Group Limited · JSE:SPP
Spar — The SPAR Group — H1 2016 Earnings Presentation
39 slides from Spar's earnings presentation, May 2016
Slide 1: SPAR Results Presentation for the Six Months Ended 31 March 2016
SPAR RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 MARCH 2016
Slide 2: Agenda
AGENDA INTRODUCTION: SPAR GROUP PERFORMANCE SUMMARY Graham O’Connor, CEO SALIENT FEATURES BUSINESS ENVIRONMENT 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 42 COUNTRIES FOLLOWING ENTRY INTO FOUR NEW TERRITORIES IN ASIA, AFRICA AND MIDDLE EAST DURING 2015 • 12 100 stores €33bn p.a. turnover • South Africa is the second biggest SPAR country by turnover • Ireland is 10th biggest SPAR country by
Slide 5: SPAR Group: Facts and Figures (continued)
SPAR GROUP: FACTS AND FIGURES (continued) IRELAND/SOUTH WEST ENGLAND: BWG SERVICES >1 338 STORES ACROSS SIX BRANDS, €674.5M (ZAR11.1BN) TURNOVER IN H1 F2016 • Wholesale and distribution of groceries + fresh produce, liquor to retail/catering sectors • Well established in convenience market • 22 300m
Slide 6: SPAR Group: Facts and Figures (continued)
SPAR GROUP: FACTS AND FIGURES (continued) SWITZERLAND: SPAR SWITZERLAND SERVICES 305 STORES ACROSS THREE BRANDS + 11 CASH & CARRY OUTLETS, CHF824M (ZAR12.8BN) TURNOVER IN F2015 • Responsible for operation of 58 corporate stores + 247 independent retailer stores • Modern logistics centre supplying 6
Slide 7: Highlights of the Period
HIGHLIGHTS OF THE PERIOD • Solid performance by SPAR Southern Africa in a tough trading environment • Strong €-based organic turnover gains from SPAR Ireland: Boosted by acquisition of Londis brand • Continued investments to enhance merchandising, warehousing and distribution capacity • Acquisition
Slide 8: Salient Features
SALIENT FEATURES R million H1 2015 H1 2016 Change (%) Turnover 36 024.2 42 056.4 +16.7 Operating profit 1 105.9 1 258.1 +13.8 Normalised headline earnings per share (cents) 430.3 504.3 +17.2 Dividend per ordinary share (cents) 239 255 +6.7 Net asset value per share (cents) 1 821.2 2 002.2 +9.9 8
Slide 9: Business Environment
BUSINESS ENVIRONMENT SOUTH AFRICA IRELAND • Economic growth under pressure • Risks relating to sovereign credit rating •7.8% GDP growth in 2015 • Continued pressure on consumer spending • Forecast 4.8% in 2016 • Rising unemployment •Unemployment down: 8.4% in April 2016 • Increasing interest rates •
Slide 10: Financial Overview
FINANCIAL OVERVIEW MARK GODFREY, CFO
Slide 11: Financial Overview: Key Income Statement Metrics
FINANCIAL OVERVIEW: KEY INCOME STATEMENT METRICS SPAR SPAR R million Southern Africa Ireland Group Income statement Turnover 30 967.6 11 088.8 42 056.4 Gross profit 2 512.6 1 146.1 3 658.7 Gross margin 8.1% 10.3% 8.7% Operating expenses 1 674.2 1 147.0 2 821.2 Profit before tax 1 001.2 139.9 1 141.1
Slide 12: Financial Overview: Unpacking Segmental Impact and Comparatives
FINANCIAL OVERVIEW: UNPACKING SEGMENTAL IMPACT AND 2016 VS 2015 COMPARATIVES TURNOVER (Rm) OPERATING PROFIT (Rm) PROFIT BEFORE TAX (Rm) Growth Growth Growth First half +16.7% First half +13.8% First half +7.5% South Africa +9.2% South Africa +10.4% South Africa +0.5%** Ireland 44.7% Ireland 41.4% Ir
Slide 13: Financial Overview: Turnover
FINANCIAL OVERVIEW: TURNOVER R million H1 2015 H1 2016 Change (%) SPAR/TOPS 25 442.5 27 641.0 +8.6 Liquor sales (SPAR/TOPS) 2 442.5 2 745.8 +12.4 Build it 2 918.5 3 326.6 +13.9 Total Southern Africa 28 361.0 30 967.6 +9.2 Ireland 7 663.4 11 088.8 +44.7 Total Group 36 024.4 42 056.4 +16.7 • Very plea
Slide 14: Financial Overview: Inflation per Segment
FINANCIAL OVERVIEW: INFLATION PER SEGMENT H1 2015 H1 2016 SPAR business 5.5% 4.5%¹ Liquor 6.8% 7.4% Build it c. 3.0% c. 3.3%² 1. SPAR’s inflation expectations for remainder of 2016: › SA food (as budgeted) +6.4% › Current trend +6.0% › Ireland – Overall annual inflation (0.3%) » Food and non-alcohol
Slide 15: Financial Overview: Gross Margins
FINANCIAL OVERVIEW: GROSS MARGINS * Impact of growth in ex-warehouse sales : 2015 2016 › Warehouse - Dry 46.8% vs 46.8% - Perishables 15.7% vs 16.0% 62.5% vs 62.8% › Dropshipment (Excl. Build it) 37.5% vs 37.2% 15
Slide 16: Financial Overview: Expenses
FINANCIAL OVERVIEW: EXPENSES SPAR Southern Africa Ireland • Warehouse & distribution costs: Up 10.5% to • Expenses below budget: Despite increase of R754.8m 19.4% in €-terms •Fuel and diesel costs: Down 4.1% despite 6.1% • Warehouse cost increased 66%: 37.9% in increase in case volumes €-terms •High
Slide 17: Financial Overview: Reconciliation of Normalised HEPS
FINANCIAL OVERVIEW: RECONCILIATION OF NORMALISED HEPS Change R million H1 2015 H1 2016 (%) Reported headline earnings 788.3 831.0 +5.4 Adjusted for: • Fair value adjustment (not considered necessary in this period) - - - • Foreign exchange charge / (gain) on minority liability (43.6) 42.0 - Normalis
Slide 18: Financial Overview: Reconciliation of Dividend Declaration
FINANCIAL OVERVIEW: RECONCILIATION OF DIVIDEND DECLARATION Rm Reported headline earnings 831.0 Adjusted for: • Forex loss on financial liability (non-cash related) 42.0 Adjusted normalised headline earnings 873.0 Dividend cover (consistant interim level) 1.85 times Dividend declared (total payable R
Slide 19: Financial Overview: Key Balance Sheet Metrics
FINANCIAL OVERVIEW: KEY BALANCE SHEET METRICS SPAR SPAR R million Southern Africa Ireland Group Balance sheet Property, plant and equipment 1 993.5 1 443.0 3 436.6 Goodwill and intangible assets 506.6 3 110.0 3 616.6 Current assets 9 063.3 4 042.4 13 063 0 Current liabilities (8 512.8) (4 560.1) (13
Slide 20: Capital Expenditure: Increasing Distribution Capacity
CAPITAL EXPENDITURE: INCREASING DISTRIBUTION CAPACITY R million H1 2015 H1 2016 Investing to expand operations (150.6) (179.4) Investment to maintain operations (63.3) (122.3) • Replacement of property, plant and equipment (68.1) (126.5) • Proceeds on disposal of property, plant and equipment 4.8 4.
Slide 21: Financial Overview: Cash Flow
FINANCIAL OVERVIEW: CASH FLOW R million H1 2015 H1 2016 Cash flow from operating activities (adjusted for non-cash items) 1 351.7 1 461.9 Working capital changes (1 123.0) (1 411.5) • Increase in inventory (348.8) (263.5) • Increase in trade receivables (74.2) (226.6) • Decrease in trade payables (7
Slide 22: Financial Overview: Cash Flow (continued)
FINANCIAL OVERVIEW: CASH FLOW (continued) • Operating profit up 13.8%: › Strong organic growth in both geographies › Impact of new business (Londis) • Working capital impacted by reduction in payables • Increased capex: › Increased capacity at Western Cape and South Rand DCs › IT infrastructure and
Slide 23: Summary of Salient Features
SUMMARY OF SALIENT FEATURES R million H1 2015 H1 2016 Change (%) Turnover 36 382.5 42 056.4 +16.7 Gross profit 3 089.7 3 658.7 +19.4 Gross profit (%) 8.6% 8.7% Operating profit 1 105.9 1 258.1 +13.8 Profit after tax 783.6 825.4 +5.3 Headline earnings per share (cents) 455.5 480.0 +5.4 Normalised hea
Slide 24: Operational Overview
OPERATIONAL OVERVIEW GRAHAM O’ CONNOR, CEO
Slide 25: Operational Review: Retail Performance: Turnover
OPERATIONAL REVIEW: RETAIL PERFORMANCE: TURNOVER Total growth Like for like SPAR 9.0% 8.1% TOPS 17.2% 12.9% Build it 16.6% 9.4% • Continued uptake of SPAR house brands by cash strapped consumers: up 10.6% • TOPS maintained double digit growth trajectory • Build it delivered excellent performance, de
Slide 26: Operational Performance: SPAR
OPERATIONAL PERFORMANCE: SPAR • Pleasing retail and wholesale growth despite TURNOVER ANALYSIS (Rm) continued pressure on retail environment ▲9.0% › SPAR house brands grew 10.6%: ▲8.2% Exceeds core SPAR business growth › Fresh and meat sales: Increased acceptance among customers • Same store turnove
Slide 27: Operational Performance: TOPS
OPERATIONAL PERFORMANCE: TOPS TURNOVER ANALYSIS (Rm) • Sustained growth trajectory ▲17.2% › Retail turnover up 17.2% ▲12.4% • Same store retail growth of 12.9% • Wholesale turnover up 12.4% • 679 stores in total: 30 new store openings • Revamped 27 stores • Innovative advertising and appeal to women
Slide 28: Operational Performance: Build it
OPERATIONAL PERFORMANCE: BUILD IT • Excellent performance in spite of pressure on TURNOVER ANALYSIS (Rm) consumer spending ▲16.6% › 16.6% retail turnover growth ▲13.9% – SA retail sales up 14% – Cross border retail sales up 24% › Like for like retail turnover up 9.4% • Wholesale turnover growth acce
Slide 29: Operational Performance: BWG Group
OPERATIONAL PERFORMANCE: BWG GROUP • First half performance ahead of budget: ZAR-based turnover growth 44.7% › Total €-denominated turnover growth: 5.4% › Londis included for full period: Contributed of ±17.6% growth › ZAR devaluation against Euro: 21.7% positive impact (+R1.6bn) on turnover growth
Slide 30: 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 30
Slide 31: Extensions Distribution Capacity
EXTENSIONS DISTRIBUTION CAPACITY Western Cape expansion underway Mini-load: South Rand slow moving goods facility Western Cape expansion underway 31
Slide 32: Operational Performance: Distribution (South Africa)
OPERATIONAL PERFORMANCE: DISTRIBUTION (SOUTH AFRICA) • Strong case volume growth: Up 6.1% to 118.6m cases • Progress on major projects: › Expansion of Western Cape dry and perishables facility (completion October 2016) › Crane-system at South Rand DC’s slow moving product facility commissioned • Con
Slide 33: Looking Forward
LOOKING FORWARD GRAHAM O’ CONNOR, CEO
Slide 34: Recap: Acquisition of SPAR Switzerland
RECAP: ACQUISITION OF SPAR SWITZERLAND • Operator and holder of SPAR licence in Switzerland (Member of SPAR International since 1989) › Supplies wide range of food and beverage products to consumers – 58 company-owned SPAR, SPAR Express and convenience stores – 247 independent retailer stores tradin
Slide 35: Looking Forward: Group Priorities
LOOKING FORWARD: GROUP PRIORITIES • Further entrench our values: Passion, Entrepreneurship and Family • Support SPAR’s organic growth › Continue SPAR store upgrades: 150 planned in 2016 › Focus on retailer profitability › Drive Fresh food offering: Fresh produce, HMR, Butchery and Bakery • Further i
Slide 36: Prospects
PROSPECTS • Trading in South Africa expected to remain under pressure › Constrained consumer spending › Food inflation showing signs of increasing as drought effect continues › Unclear economic outlook: Weak currency, increasing interest rates and sovereign credit uncertainty › SPAR maintaining orga
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Slide 38: 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
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