Shoprite Holdings Limited · JSE:SHP
Shoprite — H1 2006 Earnings Presentation
56 slides from Shoprite's earnings presentation, December 2005
Slide 1: Interim Financial Results – December 2005
Shoprite Holdings Limited Interim Financial Results – December 2005
Slide 2: Interim results for the 26 weeks ended December 2005
Interim results for the 26 weeks ended Registration No 1936/007721/06 ISIN: ZAE 000012084 JSE share code: SHP NSX share code: SRH LuSE share code: SHOPRITE December 2005 (“the Group”) CONDENSED GROUP INCOME STATEMENT CONDENSED GROUP CASH FLOW STATEMENT Unaudited Unaudited Unaudited Unaudited Unaudit
Slide 3: Reconciliation of headline earnings and changes in equity
Proudly South African, proudly African RECONCILIATION OF HEADLINE EARNINGS CONDENSED STATEMENT OF CHANGES IN EQUITY Unaudited Unaudited Audited Unaudited Unaudited Unaudited 26 weeks 27 weeks 53 weeks 26 weeks 27 weeks 53 weeks R’000 ended Dec 05 ended Dec 04 ended Jun 05 R’000 ended Dec 05 ended De
Slide 4: Building a bigger, better business
Building a bigger, better business COMMENT ON THE RESULTS (continued) ACCOUNTABILITY Share-based payments These condensed consolidated interim results have been prepared in accordance with International Financial In terms of IFRS 2: Share-Based Payment, the Group shall, for all future share-based pa
Slide 5: Interim results for the 26 weeks ended December 2005
(Reg. No. 1936/007721/06) (ISIN: ZAE 000012084) (JSE Share code: SHP) (NSX Share code: SRH) (LuSE Share code: SHOPRITE) (“the Group”) INTERIM RESULTS FOR THE 26 WEEKS ENDED DECEMBER 2005 When evaluating these results please note that this interim report covers 26 weeks compared to 27 weeks in the co
Slide 6: Operating environment and comments on the results
2 Enquiries Shoprite Holdings Limited Tel: (021) 980 4000 Whitey Basson, chief executive Carel Goosen, deputy managing director De Kock Communications Tel: (021) 422 2690 Ben de Kock 076 390 7725 Operating environment The South African retail market and the food sector in particular, remained highly
Slide 7: Operational review
3 Exchange rate losses In December 2005 the rand exchange rate against the US dollar was R6,37 compared to R5,69 in December 2004 and R6,73 in June 2005. In accordance with International Financial Reporting Standards (IFRS) only the exchange rate losses on short-term loans and cash balances are refl
Slide 8: Number of outlets and supermarkets
4 Number of outlets: June 2005 Open Closed Dec 2005 Supermarkets 529 53 9 573 - Shoprite 326 29 3 352 - Checkers 96 10 106 - CH Hyper 23 23 - Usave 84 14 6 92 Hungry Lion 57 9 1 65 Furniture 177 10 0 187 - OK Furniture 154 7 161 - House & Home 23 3 26 Total own stores 763 72 10 825 - OK Franchise 24
Slide 9: Checkers and Usave
5 Checkers This chain reported turnover 8,3% (26 weeks: 12,8%) higher at R5,194 billion compared with the corresponding period, while increasing profitability by 11,3% (26 weeks: 29,7%). The number of customers served increased by 5,8% while continued growth in basket size of 6,3% confirmed that the
Slide 10: Group prospects and outlook
6 Group prospects and outlook Retail is expected to gain considerably from the R13,5 billion tax concessions announced in the Budget and which would benefit primarily the lower and middle income groups. This is over and above the Government's recently announced R400 billion investment in infrastruct
Slide 11: Translating foreign operations
7 Translating foreign operations As per the requirements of IAS 21: The Effects of Changes in Foreign Exchange Rates, the Group now translates the results and financial positions of its foreign operations with a functional currency other than rand, to rand using the following procedures: • Assets an
Slide 12: Share-based payments
8 Share-based payments In terms of IFRS 2: Share-Based Payment, the Group shall, for all future share-based payment transactions, expense the related services received over the vesting period with a corresponding increase in equity or creditors. For all equity-settled share-based payment transaction
Slide 13: Lease accounting restatement and dividend
9 As reported in the Group’s results for the year ended 30 June 2005, the accounting for leases was adjusted. All payments in respect of operating leases with a fixed escalation clause are now recognised as an expense or income on a straight-line basis over the lease term. The results for the six mo
Slide 14: Condensed group income statement
10 CONDENSED GROUP INCOME STATEMENT Unaudited Pro forma Unaudited Unaudited 26 weeks % 26 weeks 27 weeks 53 weeks R'000 ended Dec 05 change ended Dec 04 ended Dec 04 ended Jun 05 Revenue 16 925 863 13.4% 14 922 164 15 504 578 30 299 898 Sale of merchandise 16 620 683 13.7% 14 613 160 15 194 297 29 7
Slide 15: Condensed group balance sheet
11 CONDENSED GROUP BALANCE SHEET Unaudited Unaudited Unaudited R’000 Dec 05 Dec 04 Jun 05 ASSETS Non-current assets 3 189 377 2 860 348 2 872 400 Property, plant and equipment 2 686 734 2 448 906 2 490 585 Available-for-sale investments 45 679 32 675 33 100 Loans and receivables 48 319 79 445 61 530
Slide 16: Condensed segment information
12 CONDENSED SEGMENT INFORMATION Unaudited Unaudited Unaudited 26 weeks 27 weeks 53 weeks ended % ended ended R’000 Dec 05 change Dec 04 Jun 05 SEGMENT REVENUE – by business segment – Supermarkets 15 727 730 9,3 14 386 254 28 283 473 – Furniture 1 193 850 7,3 1 112 854 2 003 369 Total segment revenu
Slide 17: Reconciliation of headline earnings
13 RECONCILIATION OF HEADLINE EARNINGS Unaudited Pro forma Unaudited Unaudited 26 weeks 26 weeks 27 weeks 53 weeks ended ended ended ended R'000 Dec 05 Dec 04 Dec 04 Jun 05 Net profit attributable to shareholders 344 953 291 497 344 069 629 613 Loss for the period from discontinued operation 7 622 8
Slide 18: Reconciliation of headline earnings (continued)
14 RECONCILIATION OF HEADLINE EARNINGS (continued) Unaudited Pro forma Unaudited Unaudited 26 weeks % 26 weeks 27 weeks 53 weeks ended ended ended ended Dec 05 change Dec 04 Dec 04 Jun 05 Earnings per share from continued operations (cents) 69.5 17.6% 59.1 69.5 129.2 Earnings per share (cents) 68.0
Slide 19: Condensed group cash flow statement
15 CONDENSED GROUP CASH FLOW STATEMENT Unaudited Unaudited Unaudited 26 weeks 27 weeks 53 weeks ended ended ended R’000 Notes Dec 05 Dec 04 Jun 05 Cash generated by continued operations 969 623 (160 765) 790 821 Operating profit before investment income and income/expenditure of a capital nature 527
Slide 20: Cash flow information (continued)
16 CASH FLOW INFORMATION (continued) Unaudited Unaudited Unaudited 26 weeks 27 weeks 53 weeks ended ended ended R’000 Dec 05 Dec 04 Jun 05 1. Non-cash items Depreciation on property, plant and equipment 207 146 167 650 385 098 Amortisation of intangible assets 6 231 6 829 14 742 Net fair value losse
Slide 21: Supplementary information and changes in equity
17 SUPPLEMENTARY INFORMATION Unaudited Unaudited Unaudited R’000 Dec 05 Dec 04 Jun 05 1. Capital commitments 305 683 344 008 344 438 2. Contingent liabilities 97 790 47 227 53 190 3. Net asset value per share (cents) 485 392 438 4. Total number of shares in issue (adjusted for treasury shares) 507 3
Slide 22: Directorate and administration
18 Directorate and administration Executive directors: JW Basson (chief executive), CG Goosen (deputy managing director), B Harisunker, AE Karp, EL Nel, AN van Zyl, BR Weyers Non-executive directors: CH Wiese (chairman), JJ Fouché, TRP Hlongwane, JA Louw, JF Malherbe, JG Rademeyer Alternate director
Slide 23: Size of Operation
Carel Goosen Deputy Managing Director 1 Size of Operation Dec 2005 Sales R17 bn Owned outlets 825 Franchise outlets 260 Countries 18 Employees 65,000
Slide 24: Financial Results – Highlights of Results
2 Financial Results Dec 2004 Dec 2005 Growth (26 wks) (26 wks) Revenue (Rm) 14,922 16,926 13,4% Trading Profit (Rm) 447 561 25,3% Trading Margin (%) 3,0 3,3 Adjusted Diluted HEPS (cents) 57,0 69,9 22,6% Dividend per Share (cents) 22 27 22,7% NAV per share (cents) 392 485 23,7% 3 Highlights of Result
Slide 25: Highlights of Results: other income and costs
4 Highlights of Results • Other operating income decreased 1,7% Made up as follows: % increase / (decrease) To R’m Commission received 78,7 54 Finance income earned (3,7) 79 Franchise fees received 1,3 10 Op. head-lease income (19,1) 77 Net premiums earned 6,3 80 Investment income (21,7) 4 Other (2,
Slide 26: Highlights of Results: trading profit and exchange losses
6 Highlights of Results • Trading profit increased 25.3% (revenue growth of 13.4%) – Confirmed growth in financial services – Decrease in uneconomical leases – Stock losses in non-RSA operation 7 Highlights of Results • Exchange losses increased by R14.6m – Rand to US Dollar exchange rates • June 20
Slide 27: Highlights of Results: tax and capital expenditure
8 Highlights of Results • Net investment income reduced – Lower interest rates – Increase Capex spent • Taxation R’m – Normal 153,9 – STC 19,0 – Deferred 13,0 – Total 185,9 9 Highlights of Results • Capital expenditure R’m – Land & Buildings 111.5 – Store Refurbishment 97.7 – New Stores 211.5 – Info
Slide 28: Highlights of Results: inventory and debtors
10 Highlights of Results • Inventory – Increase in line with sales growth • Cash balances vs. Trade Creditors – Increases due to balance sheet closing date 11 Highlights of Results • Debtors 2004 2005 R’m R’m Furniture 723 696 Franchise 286 277 Buy aid organisations 157 162 Other receivables 620 597
Slide 29: Cash flow reconciliation
12 Highlights of Results Cash flow reconciliation for the year R’m Cash at June 2005 292 Cash from operations 767 Changes in working capital 207 Net Finance income 7 Dividends paid (145) Tax paid (151) Purchase of fixed assets & other investments (651) Other 9 Cash at Dec 2005 335 Whitey Basson Chie
Slide 30: Business Overview - RSA
1 Business Overview - RSA • Sales growth +14% • Food inflation +3% • Internal inflation +2,6% • Volume growth Food Inflation 2 SR 80% Basket = 2.6% internal inflation Food Inflation 15.5 12.3 4.9 4.3 2.6 1.87 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O
Slide 31: Consumer Participation and Market Movement
3 Consumer Participation In which of these stores do you currently do your shopping for yourself, your household or your business? 2004 – 62% 65 48 47 30 27 22 9 8 11 6 Shoprite Checkers Checkers Shoprite Pick 'n Pay Pick 'n Pay Pick 'n Pay Pick 'n Pay Spar Group Woolworths Hyper Group Family Superm
Slide 32: Forecast for LSM Groups
Shoprite is growing its consumer base across all LSM 5 Groups. +20.8% +5.4% 64 +16% 56 58 53 +4.9% +25% 50 Sep-04 40 46 41 43 +45.8% Sep-05 35 32 0% +69.2% 24 22 19 19 13 LSM 1-3 LSM 4 LSM 5 LSM 6 LSM 7 LSM 8 LSM 9 LSM 10 6 Forecast for LSM Groups
Slide 33: Ten year LSM Forecast and The Power of the Brand
7 Ten year LSM Forecast • Biggest growth can be expected from LSM5-6 segment (households earning between R2 500 and R6 999) • More than two million people will join this segment over the next ten years • This segment contributes 28.82% (R51.9 million per month) of total food spend • LSM4-7 collectiv
Slide 34: RSA – Shoprite
9 RSA • Shoprite – Sales growth +13.5% (26 weeks) – Customer growth +8.9% – Basket growth +4.1% – Shoprite is still the price leader, as acknowledged by 88% of all it’s competitors customers. (Source : AC Nielsen Winning Brands Study) – Excellent profitability driven by change in sales mix (service
Slide 35: RSA – Checkers, Food World and Usave
11 RSA • Checkers – Sales growth +12.8% (26 weeks) – Customer growth +5.8% – Basket growth +6.3% – Increased GP – result of Non Foods sales growth of 20% 12 Food World & Usave • Food World – 13 Stores to be re-branded by the end of March – ± R400m turnover • Usave – ROI +34% – Total growth +42% – R1
Slide 36: Hungry Lion
13 Hungry Lion • Financial Overview – Net profit up 50% – Total turnover has grown by 34% – 0% Selling price inflation for the last 2 years – Plan to open 20+ stores in 2006 – Achieved 9th place in Markinor Top Brands survey (with no top line advertising) Hungry Lion
Slide 37: Medirite Pharmacies
16 Medirite Pharmacies • Trading: 26 • New licenses to date: 19 • Immediate Target: 93 • Health & Beauty Dept growth outstrip that of store • GEB growth of 369% • New pricing policy awaiting end April
Slide 38: Pie – Healthcare
1: Pie __ HEALTHCARE e1
Slide 39: Furniture – Key highlights
Aubrey Karp Divisional Director OK Furniture & House&Home 1 Furniture • Key highlights – Revenue increased 7.28% to R1,194bn – Sales increased 9.47% to R1,033bn (26/27 weeks) and 14.03% (26/26 weeks) – Operating profit increased 4.85% to R107,7m (26/27 weeks) and 14.07% (26/26 weeks) – 10 new stores
Slide 40: Furniture – Trading environment and store expansion
2 Furniture • Trading environment – Current trading environment remains positive – Consumer confidence still high – Low interest rate environment continues – Additional tax reductions provided in recent budget – Product price deflation continues in plugs departments – Consumer credit quality remains
Slide 41: Furniture – Turnover segmentation and product mix
4 Furniture • Turnover segmentation Dec 2004 Dec 2005 Merchandise Sales 85% 87% Insurance Premiums 8% 7% earned Finance Income 7% 8% Sales growth since 2000 – 34.80%, 10,29%, 92.70%, 18.75%, 24.54% and 18.24% 5 Furniture • Product mix Dec 2004 Dec 2005 Home entertainment & 64% 64% appliances Furnitu
Slide 42: Furniture – Merchandise sales and arrears
6 Furniture • Merchandise sales Dec Dec 2004 2005 Cash 61.28% 64.46% Credit 38.72% 35.54% # of new contracts 201,989 185,373 (8.23% decline) 7 Furniture Dec Dec 2004 2005 Variance Actual Arrears 3.33% 3.19% (0,14) Balance Of Contract Arrears 13.38% 12.43% (0,95) Bad Debt and UFC Provisions 20.70% 19
Slide 43: Furniture – Prospects and Growth
8 Furniture • Prospects & Growth – Trading environment remains positive for additional growth – Agreed strategy remains: • Store expansion (Target 200 Stores by June 2006) • Focus on discounted pricing and volume growth • Continually updating and introducing new product ranges • Increasing import co
Slide 44: Business Overview - Non RSA
1 Business Overview - Non RSA • Africa produces 7% of world oil • Concentrate on these countries • GDP growth as high as 14.7% (Angola) • Sales growth in stable currencies +18.9% • GP increased almost 1% 2 Non RSA – Under performers • Egypt – Negotiate selling – Effect on EPS +5.1c (2005) – Retainin
Slide 45: Non RSA – Improved performance and Nigeria
3 Non RSA – Improved performance • Angola – Sales growth +67% – Supply line efficiencies (lead time halved) & pricing strategy increased gross profit +65% • Zambia – Sales growth +35% – Shrinkage best ever – GP +1.2% – Profit +26% 4 Nigeria • Nigeria – The Palms Shopping Centre store opened 16 Decem
Slide 46: India – Investment Review
5 India – Investment Review • GEB growth +25% (Inflation 5%) • Buying behaviour changing (MRP) • Increased margin – more Non Foods • Top 25 items – 63% of turnover vs. 19% in Chatsworth • Price Parity – 2X Example : 1l fresh milk – R1.99 vs. R3.89 • Average item price R4.81 Chatsworth R7.25 • Basket
Slide 47: India – Customer Count and Retail Landscape
7 India – Customer Count 140,000 120,000 120,311 100,000 105,588 93,197 80,000 90,522 85,921 79,105 60,000 40,000 20,000 0 July 05 Aug 05 Sept 05 Oct 05 Nov 05 Dec 05 8 India – Retail Landscape • FDI now allowed on single brand retail (e.g. Mont Blanc, Carducci etc.) • Local business – Reliance Indu
Slide 48: Technology - Data Warehouse
9 General • Technology • Personnel 10 Technology - Data Warehouse • Second largest Data Warehouse in the world on a Microsoft Platform • Currently 645 stores monitored – 100 million transactions daily • Data Warehouse stores 11 terabytes of information • Information delivered includes: – Replenishme
Slide 49: e-Commerce Exchange – B2B and Operation Better Store
11 e-Commerce Exchange – B2B • Nearly 90% of company orders take place via B2B • Excess of 333,000 orders per month – R2 bn in value • ± 40,000 (Pricing) Claims per month • Average 1,500 orders per supplier by 14:00 each day • ± 8,500 report requests – resulting in 68,000 on-line reports per month 1
Slide 50: Personnel and Employment cost vs. Efficiency
13 Personnel One of the biggest employers on JSE SA (%) Non RSA Total # of employees 56,616 (87%) 8,157(13%) 64,773 Average Yrs Service (Full Time 13 4 employees) ± 2 million pay slips per annum direct into bank accounts 14 Employment cost vs. Efficiency • Employment cost + 8.85% • Sales/FTE +10.69%
Slide 51: Equity Category: Management Female and Male
15 Equity Category : Management Female Shoprite W&R Sector 25 20.9 20 15 13.4 % 10 8.3 7.4 6.4 6.6 3.6 2.8 5 - Africans Coloured Indians White 16 Equity Category : Management Male Shoprite W&R Sector 45 38.5 40 36.3 35 30 25 % 20 14.7 15 12.5 9.7 10 6.5 6.7 5.8 5 0 Africans Coloured Indians White
Slide 52: Personnel Qualifications and TOPP training
17 Personnel Qualifications Age Category Qualifications <25 >25 Total Certificate 10 61 71 Diploma 90 585 675 Degree 63 423 486 Honors Degree 6 60 66 Masters Degree 58 58 Doctorate 4 4 Total 169 1,191 1,360 One pre-war CA 18 TOPP – Training for Accountants Shoprite has been approved as a training pr
Slide 53: Developing Future Top Management
19 Developing Future Top Management SHOPRITE CHECKERS RETAIL LEADERSHIP ACADEMY • Utilises latest training technologies • Based on Harvard Case Studies • Development of succession management • 109 Successfully completed the training Highest number of employees trained 20 in Retail Sector • The Shopr
Slide 54: Trainee Managers and Retail Apprentice Academy
21 Trainee Managers RSA Non RSA In training (2006) Trainee Managers 474 (70% PDI) 80 Learnerships 275 Total 749 80 Completed (since Trainee Managers 1,310 78 2001) Learnerships 189 Total 1,499 78 22 Retail Apprentice Academy • 1000 Unemployed persons have been employed on a learnership qualification
Slide 55: Supermarket Expansion
23 Supermarket Expansion Shoprite / Checkers / Usave stores – RSA & Non RSA Forecast (18 month ended June 06) 95 Opened between Jul 05 – Dec 05 53 Confirmed store openings Jan 06 – Jun 06 37 TOTAL 90 Delayed 5 Confirmed store openings Jul 06 – Mar 07 32 24 What to expect till June • Threats – Consis
Slide 56: What to expect till June / What's in it for the Shareholders?
25 What to expect till June • Opportunities – Slowly overcoming Africa’s logistical problems – Banking, Bottle stores, Pharmacies – Increasing profitable market share in SA without cannibalising existing business – Capitalising on increase consumer wealth and changing behavior patterns – Best positi