Spar Group Limited · JSE:SPP
Spar — The SPAR Group — FY2017 Earnings Presentation
46 slides from Spar's earnings presentation, November 2017
Slide 1: SPAR Results Presentation for the Year Ended 30 September 2017
SPAR RESULTS PRESENTATION FOR THE YEAR ENDED 30 SEPTEMBER 2017
Slide 2: Introduction
INTRODUCTION GRAHAM O’CONNOR CEO
Slide 3: Geographic Footprint
GEOGRAPHIC FOOTPRINT Geographically balanced portfolio Growing foreign currency income streams • 32.4% of turnover • 22.4% of operating profit BWG Group St. Gallen IRELAND SWITZERLAND UNITED KINGDOM Appleby Westward Group Ltd SOUTH AFRICA IRELAND SWITZERLAND • 2 138 stores served • 1 330 stores serv
Slide 4: Trading Environment
TRADING ENVIRONMENT Extremely tough trading environment in South Africa Strong performance in Ireland Early positive signs of turnaround in Switzerland BWG Group St. Gallen IRELAND SWITZERLAND UNITED KINGDOM Appleby Westward Group Ltd SOUTH AFRICA IRELAND SWITZERLAND Economic and political uncertain
Slide 5: Performance Scorecard: 2017 Priorities
PERFORMANCE SCORECARD: 2017 PRIORITIES Southern Africa • Organic growth and continued revamps throughout SPAR Group’s network 259 store revamps ✔ • Leverage TOPS’ successful marketing and promotional campaigns “Good Advice” campaign ✔ • Investments to expand warehousing and distribution in South Afr
Slide 6: Financial Highlights
FINANCIAL HIGHLIGHTS Headline Gross Dividend NAV per Turnover Gross profit earnings margin per share share per share Up 5.3% Up 14.6% Up 82bp Down 6.6% 675 cents Up 8.7% to to to to annual to R95.5bn R9.6bn 10.1% 952.5 cents* dividend 3 414.6 cents * Impact of additional share issues for Swiss acqui
Slide 7: Financial Overview
FINANCIAL OVERVIEW MARK GODFREY CHIEF FINANCIAL OFFICER
Slide 8: Financial Overview: Turnover
FINANCIAL OVERVIEW: TURNOVER R million 2017 2016 Change % SPAR/TOPS 57 450.7 54 791.2 +4.9 Liquor sales (SPAR/TOPS) 5 757.7 5 176.5 +11.2 Build it 7 050.1 6 908.3 +2.1 South Africa 64 500.8 61 699.5 +4.5 Ireland* 20 528.7 23 099.7 (11.1) Switzerland** 10 431.6 5 889.3 +77.1 Total Group 95 461.1 90 6
Slide 9: Financial Overview: Regional Turnover
FINANCIAL OVERVIEW: REGIONAL TURNOVER R10.4bn R5.9bn R20.5bn 2017 R23.1bn 2016 R61.7bn R64.5bn SPAR Southern Africa SPAR Ireland SPAR Switzerland SPAR RESULTS PRESENTATION 2017 9
Slide 10: Financial Overview: Gross Margins
FINANCIAL OVERVIEW: GROSS MARGINS 2017 Gross R million Turnover margin 2017 (GP%) Change 2016 (GP%) Total South Africa 64 500.8 5 269.0 8.17% 8.24% Ireland 20 528.7 2 487.0 12.11% 10.82% Switzerland 10 431.6 1 874.9 17.97% 14.03% Total Group 95 461.1 9 630.9 10.09% 9.27% REGIONAL MARGIN PROG
Slide 11: Financial Overview: Expenses
FINANCIAL OVERVIEW: EXPENSES 2017 2016 R million Expenses % of sales Expenses % of sales % increase Total South Africa 3 836.4 5.9 3 535.8 5.7 +8.5 Ireland 2 340.4 11.4 2 383.7 11.6 (1.8) Switzerland 2 583.8 24.8 1 428.1 24.3 +80.9 Total Group 8 760.6 9.2 7 347.6 8.1 +19.2 Expenses up 4.3% excluding
Slide 12: Financial Overview: Currency Impacts (vs ZAR)
FINANCIAL OVERVIEW: CURRENCY IMPACTS (VS ZAR) Euro / Swiss Franc vs Rand Euro vs Sterling 16.5 (Oct. 2016 – Sept. 2016) (Oct. 2015 – Sept. 2017) 0.95 16.0 15.5 0.9 15.0 0.85 14.5 0.8 14.0 0.75 13.5 0.7 13.0 12.5 0.65 Swiss Franc Euro 12.0 0.6 Oct-16 Jan-17 Apr-17 Jul-17 Oct-15 Jan-16 Apr-16 Jul-16 O
Slide 13: Financial Overview: Cash Flow
Opening balance 1 533 R million Operating profit 2 583 Non-cash items 697 Net working 13 capital changes Net interest (3) paid Taxation paid (627) FINANCIAL OVERVIEW: CASH FLOW Dividends paid (1 252) Capital (1 091) expenditure Acquisition of (143) businesses Other investing (262) activities Proceed
Slide 14: Financial Overview: H1 vs H2 Comparative Trading
FINANCIAL OVERVIEW: H1 VS H2 COMPARATIVE TRADING 2017 TURNOVER (Rm) 2017 OPERATING PROFIT (Rm) 5 213.1 77.3 Switzerland Switzerland 5 218.5 ( 8.3) 10 892.0 305.7 Ireland Ireland 9 636.7 202.5 Southern 32 002.6 Southern 994.9 Africa Africa 1 010.4 32 498.2 H2 H1 Growth Growth First half +12.6% First
Slide 15: Financial Overview: Regional Key Metrics
FINANCIAL OVERVIEW: REGIONAL KEY METRICS SPAR SPAR SPAR R million Southern Africa Ireland Switzerland Group Balance sheet Property, plant and equipment 2 438.9 1 586.1 2 528.9 6 553.9 Goodwill and intangible assets 565.3 3 281.0 315.9 4 162.2 Current assets 10 552.8 4 125.4 1 953.0 16 631.2 Current
Slide 16: Financial Overview: Capital Expenditure
FINANCIAL OVERVIEW: CAPITAL EXPENDITURE R220.8m R248.8m Capex by Capex by region type R354.1m R516.0m R842.1m SPAR Southern Africa SPAR Ireland SPAR Switzerland Expansion capex Maintenance capex • Southern Africa: Expansion of the Western Cape and North Rand perishables facilities • Ireland and Swit
Slide 17: Financial Overview: Offshore Debt Overview
FINANCIAL OVERVIEW: OFFSHORE DEBT OVERVIEW R million 2017 2016 SPAR Ireland: €-denominated Balance at beginning of year 824.4 729.8 Finance costs recognised in profit or loss (7.2%) 60.1 96.3 Net exchange differences arising during the period 27.7 (1.7) Fair value adjustment 51.6 Balance at end of y
Slide 18: Financial Overview: Summary of Salient Features
FINANCIAL OVERVIEW: SUMMARY OF SALIENT FEATURES R million 2017 2016 Change % Turnover 95 461.1 90 688.5 +5.3 Operating Profit 2 582.5 2 577.3 +0.2 Profit before tax 2 464.7 2 439.2 +1.0 Earnings per share (cents)* 945.2 1 010.0 (6.4) Headline earnings per share (cents)* 952.5 1 020.0 (6.6) Dividend
Slide 19: Operational Overview
OPERATIONAL OVERVIEW GRAHAM O’CONNOR CEO
Slide 20: Operational Review: Southern Africa
OPERATIONAL REVIEW: SOUTHERN AFRICA Total growth % Like-for-like % SPAR +4.5 +4.2 TOPS +12.4 +9.7 Build it +4.3 +1.1 Significant slowdown in sales exposed cost pressures and resulted in net margin contraction SPAR TURNOVER ANALYSIS TOPS TURNOVER ANALYSIS BUILD IT TURNOVER ANALYSIS R billion R billio
Slide 21: Operational Review: Ireland
OPERATIONAL REVIEW: IRELAND Ireland: ZAR sales analysis % Performance of core business +0.33 Impact of Gillett’s: Full year consolidation +1.16 +1.49 Currency impacts: Euro/GBP/ZAR (12.62) (11.13) • SPAR and XL brands reported strong sales growth • Successful integration of Londis business into BWG
Slide 22: Operational Review: Switzerland
OPERATIONAL REVIEW: SWITZERLAND Sales up 94.7% in CHF terms (recognised 12 months vs 6 months in prior year) • Impact of franchising six company-owned SPAR stores: Continue to trade under SPAR brand • Economic environment and competition resulting in negative growth in all distribution lines • Contr
Slide 23: Strategic Review
STRATEGIC REVIEW GRAHAM O’CONNOR CEO
Slide 24: Our Strategic Outcomes
STRATEGIC REVIEW: OUR STRATEGIC OUTCOMES Strategic outcomes entrenched in our values 1. World-class replenishment system Passion 2. Compelling pricing 3. Comprehensive range 4. World-class brands Entrepreneurship Family values 5. Best retailers 6. New business growth SPAR RESULTS PRESENTATION 2017 2
Slide 25: Strategic Review: Our Values
STRATEGIC REVIEW: OUR VALUES SPAR RESULTS PRESENTATION 2017 25
Slide 26: Strategic Review: World Class Replenishment
STRATEGIC REVIEW: WORLD CLASS REPLENISHMENT Volumes handled in 2017 • 2.6% decline in SA distribution centres to 224.5 million cases • 8.5% increase in cases dispatched in Ireland to 35.1 million cases Ongoing investments to support growth • Expansion of Western Cape perishable facility (R99.6m) • N
Slide 27: World Class Replenishment: Ex-warehouse Sales
STRATEGIC REVIEW: WORLD CLASS REPLENISHMENT Ex-warehouse sales 2017 2016 % % Warehouse (excl. liquor) – Dry 43.6 44.3 – Perishables 18.7 17.9 62.3 62.2 Dropshipment (excl. Build it and liquor) 37.7 37.8 Category performances: Warehouse +4.4% on 2016 Top Performers: Liquor, bakery and butchery Diffic
Slide 28: Competitive Pricing: SPAR Price Perception Study 2017
STRATEGIC REVIEW: COMPETITIVE PRICING SPAR Price Perception Study 2017 56.6 56.3 46.8 43.7 31.8 32.2 11.9 11.2 9.4 COMPETITIVE MORE EXPENSIVE CHEAPER 2007 2008 2017 Base: South Africa – All informants (2017 n=2 528), (2010 n=2 479), (2008 n=2469), (2007 n=2 457) excluding…do not know! 28
Slide 29: Competitive Pricing: Advertising and Promotions
STRATEGIC REVIEW: COMPETITIVE PRICING Advertising and Promotions • Digital platforms to get more feet into stores My SPAR Rewards added several million new members Launch of SPAR TEXT ME! • September 2017: ±10m sms messages to customers from retailers Uptick in monthly registrations during My Reward
Slide 30: Competitive Pricing: SPAR Money Transfers
STRATEGIC REVIEW: COMPETITIVE PRICING Advertising and Promotions • SPAR Money Transfers launched in South Africa LAUNCH CAMPAIGN CURRENT CAMPAIGN SPAR RESULTS PRESENTATION 2017 30
Slide 31: Competitive Pricing: TOPS Good Advice Campaign
STRATEGIC REVIEW: COMPETITIVE PRICING Advertising and Promotions • Positive consumer response to TOPS’ new “Good Advice” campaign • Offers information and advice while retaining humour SPAR RESULTS PRESENTATION 2017 31
Slide 32: Competitive Pricing: SPAR Ireland Better Choices Campaign
STRATEGIC REVIEW: COMPETITIVE PRICING Advertising and Promotions: SPAR Ireland “Better Choices” campaign launched • New advertising and in-store promotions tapping into Irish shopper trends: “Healthy eating is now part of the national psyche as almost 2 in 3 consumers are buying healthier options no
Slide 33: Competitive Pricing: SPAR Switzerland
STRATEGIC REVIEW: COMPETITIVE PRICING Advertising and Promotions: SPAR Switzerland • Advertising programme focused on convenience driven pricing • Driven by WOW promotions initiative balancing competitive pricing on promotions and retail profitability • Positive initial results SPAR RESULTS PRESENTA
Slide 34: Strategic Review: Comprehensive Range
STRATEGIC REVIEW: COMPREHENSIVE RANGE Continued uptake of house brands in Southern Africa • SPAR house brands up 9.7% to R8.0bn • Total SPAR house brand range now worth ~R10.2bn • Build it house brand sales through the imports facility grew 18.7% to 339m (2016: R285m) SPAR Easter range launch in 201
Slide 35: Comprehensive Range: New SPAR Branded SKUs
STRATEGIC REVIEW: COMPREHENSIVE RANGE 235 SPAR branded SKUs launched in Extra fat (5% vs 3.4% in 2017 (including all variants) regular full cream milk) has extra energy with long life properties Four new par cooked crumbed products with cheese SPAR double cream Authentic Italian quality meat: SPAR b
Slide 36: Comprehensive Range: HMR Success Stories
STRATEGIC REVIEW: COMPREHENSIVE RANGE HMR success stories underpinning Fresh drive Sales from DC’s Sales from DC’s Sales from DC’s >R4m 12.9% in 2017 36.1% in 2017 In 3m since July 2017 launch SPAR RESULTS PRESENTATION 2017 36
Slide 37: Strategic Review: World Class Brands
STRATEGIC REVIEW: WORLD CLASS BRANDS TOPS at SPAR once again recognised as sector leader • “Best Liquor Store” for 6th consecutive year and “Best place to buy wine” for 7th time (2017 Daily News Your Choice Awards) • “Best liquor and bottle store” for 8th consecutive year (2017 Times Sowetan Shopper
Slide 38: Strategic Review: Best Retailers
STRATEGIC REVIEW: BEST RETAILERS Supporting retailer profitability SPAR South Africa launched new customer care program well received by retailers • GUEST: Greet-Uniform-Engage-Sell-Thank • Changing perception of staff to treat customers as guests SPAR Ireland: • Individual convenience stores regula
Slide 39: Strategic Review: New Business Growth
STRATEGIC REVIEW: NEW BUSINESS GROWTH SPAR Ireland and Switzerland acquisition • 32.4% of 2017 turnover generated offshore • Market share gains across most of SPAR Ireland brands • Early indications of positive turnaround in Switzerland Zambia transaction completed: 47.87% shareholding Solid progres
Slide 40: New Business Growth: S Buys Pharmaceutical Wholesaler
STRATEGIC REVIEW: NEW BUSINESS GROWTH • National pharmaceutical wholesaler Wholesale • Pharmaceutical, frontshop, surgical & consumables and medical devices • Key customer channels: Pharmacies, hospitals and doctors. • National delivery of highly specialised medication to high-risk patients Speciali
Slide 41: New Business Growth: Benefits for Pharmacy at SPAR
STRATEGIC REVIEW: NEW BUSINESS GROWTH Key benefits to grow Pharmacy at SPAR network: • Established platform with all required pharmaceutical related registration & licenses • Providing direct relationships with healthcare suppliers • Securing efficiencies and value: Brings dedicated supply chain int
Slide 42: New Business Growth: Store Numbers
STRATEGIC REVIEW: NEW BUSINESS GROWTH SPAR 14 300 Switzerland 301 73 SPAR Ireland 1 330 1 340 42 Other 134 104 Total 27 Group: 3 768 Build It 368 (2016: 3 674) 348 Total SPAR Southern 51 Africa: 2 138 TOPS 733 (2016: 2 033) 691 28 SPAR 903 890 New stores Stores (30 Sept. 2017) Stores (30 Sept. 2016)
Slide 43: Looking Forward
LOOKING FORWARD GRAHAM O’CONNOR CEO
Slide 44: Looking Forward: Outlook
LOOKING FORWARD: OUTLOOK Southern Africa: Drive key strategic focus areas • Ongoing investments in distribution network, competitive to support retailer profitability pricing and comprehensive product range and deliver real business growth • Adapt to prevailing market conditions Ireland: • Confident
Slide 45: 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
Slide 46: Q&A
Q&A SPAR RESULTS PRESENTATION 2017 46