Shoprite Holdings Limited · JSE:SHP
Shoprite — FY2018 Earnings Presentation
46 slides from Shoprite's earnings presentation, Aug 21, 2018
Slide 1: Results Presentation 52 Weeks Ended 1 July 2018
RESULTS PRESENTATION 52 WEEKS ENDED 1 JULY 2018
Slide 2: Welcome
WELCOME 1. FINANCIAL HIGHLIGHTS 2. OPERATIONAL HIGHLIGHTS 3. STRATEGIC DRIVERS OF GROWTH 4. INNOVATION ROADMAP 5. QUESTIONS
Slide 3: Financial Highlights
'S FINANCIAL HIGHLIGHTS ANTON DE BRUYN
Slide 4: Financial Highlights
FINANCIAL HIGHLIGHTS ● Angola Hyperinflation explained ○ Three main financial impacts ● New SAP ERP system, Moving Average Cost ○ Inventory adjustment ● Investment in IT and distribution co-existence costs
Slide 5: Financial Highlights: Sales Growth Per Segment
FINANCIAL HIGHLIGHTS Sales Growth Per Segment Existing Net new Total stores stores Supermarkets RSA 1.9% 3.8% 5.7% Supermarkets Non-RSA -12.0% 5.0% -7.0% Furniture 9.5% 0.3% 9.8% Other Operating Segments 6.2% -1.0% 5.2% Total Operating Segments -0.1% 3.7% 3.6% Total Including Hyperinflation 3.1%
Slide 6: Financial Highlights
FINANCIAL HIGHLIGHTS Currency Local Rand Supermarkets Non-RSA Supermarkets movement currency sales to ZAR sales growth growth ANGOLA Normalised sales expected, compounded by: 32 -42.8% -9.3% -26.1% ● 50.2% currency devaluation vs USD in H2 NIGERIA Trading throttled by limited ranges, economy 24 4.9%
Slide 7: Financial Highlights
FINANCIAL HIGHLIGHTS ● Gross profit grew +2.7% to R34.7bn ● Near-record margin: ○ Positive Volume growth ○ Shrinkage contained
Slide 8: Financial Highlights
FINANCIAL HIGHLIGHTS 2017 2018 Other Operating Income Growth Rm Rm Finance income earned 325 355 9.5% Net premiums earned 384 327 -14.8% Operating lease income 435 455 4.4% Commissions received 811 845 4.2% Franchise fees received 75 84 12.5% Investment income 189 344 81.8% Sundry income 396 369 -6.
Slide 9: Key Information Per Segment
KEY INFORMATION PER SEGMENT 2017 2018 Trading Profit Growth Rm Rm Supermarkets RSA 6 424 6 539 1.8% Supermarkets Non-RSA 1 407 650 -53.8% Furniture 123 256 108.1% Other Operating Segments 173 250 44.5% Total Operating Segments 8 127 7 695 -5.3% Hyperinflation Effect - 316 Total Including Hyperinflat
Slide 10: Exchange Rate Differences
EXCHANGE RATE DIFFERENCES Rand depreciated against the US Dollar ● June 2017: R13.04/$ ● June 2018: R13.71/$ R251m loss +6.4% 2018 Growth
Slide 11: Financial Highlights
FINANCIAL HIGHLIGHTS 2017 2018 Items of a Capital Nature Rm Rm Impairment of intangibles 70 51 Impairment of assets 19 49 Loss on disinvestment of joint venture* -2 38 Loss on disposal and scrapping of assets & intangibles 79 108 Total 166 246 * Includes profit on disposal of assets held for sale &
Slide 12: Financial Highlights
FINANCIAL HIGHLIGHTS ● Total expense growth: 6.5% ● Employee benefits: 3.4% ○ Previous share scheme ended in June 2017 ● Depreciation and amortisation: 16.3% ○ Cilmor DC, New stores & Hyperinflation ● Operating leases: 11.9% ● Other operating expenses: 5.7% ○ Safeguarding our customers, people and a
Slide 13: Financial Highlights
FINANCIAL HIGHLIGHTS
Slide 14: Inventory Levels
INVENTORY LEVELS Growth in inventory: 1% ● Net 124 new corporate outlets ● RSA: increased distribution capacity ● Improved Non-RSA inventory ● Impact of MAC adjustment
Slide 15: Financial Highlights
FINANCIAL HIGHLIGHTS 2017 2018 Capital Expenditure Rm Rm Land, Buildings and Leasehold Improvements 1 129 900 Store Refurbishment 740 1 060 New Stores 790 710 Information Technology 1 276 1 220 Other Replacements* 1 232 1 446 Total 5 167 5 336 * Includes DC equipment, vehicles and general asset repl
Slide 16: Financial Highlights
FINANCIAL HIGHLIGHTS 2017 2018 Treasury Growth Rm Rm Held to maturity investment 1 311 3 690 181.5% Net Cash Balances 2 709 3 470 28.1% Borrowings -3 274 -6 977 113.1%
Slide 17: Operational Highlights
r te 9 OPERATIONAL HIGHLIGHTS PIETER ENGELBRECHT
Slide 18: We've Been to War
WE'VE BEEN TO WAR Industrial action over Christmas & Easter New Cilmor DC & co-existence Operational Largest SAP Divestment split by retail ERP of non-core banner rollout businesses IN THE LAST 6 MONTHS
Slide 19: Strong Operational Performance
STRONG OPERATIONAL PERFORMANCE Nielsen: Updated Universe May 2018
Slide 20: Jobs Created
147,478 111,338 | i | | JOBS CREATED IN LAST 5 YEARS 2013 2014 2015 2016 2017 2018 Shoprite Group Employees per year
Slide 21: Resilient RSA Growth
RESILIENT RSA GROWTH ● Supermarkets RSA sales growth of 5.7% ○ Lowest selling price inflation in 7 years Accelerated ○ Down to 0.3% vs. Last Year of 5.9% real growth ○ Market share gain ● Slower Sales growth in H2 (+3.7%) ○ Q4 internal food inflation of -0.7% Official Food Inflation ○ Centurion DC s
Slide 22: We Did It for Our Customers
WE DID IT FOR OUR CUSTOMERS ● Shielded customers from R2bn in price increases ● Low price commitment tested in tough conditions: ○ 13,241 products cheaper than last year ○ Dominant share in basics that are in deflation -36% -30% -25% -24% -19% -13% June 17 R88.99 R42.99 R39.99 R28.95 R79.99 R79.99 J
Slide 23: Affordability Obsession
AFFORDABILITY OBSESSION LOAVES OF BREAD SUBSIDISED R5 DELI MEALS
Slide 24: We Did It for Our Customers
WE DID IT FOR OUR CUSTOMERS @) wwwwy NO. 1 FOR LOW PRICE SATISFACTION 9 out 10 ‘ of our customers are 91% extremely satisfied with our Low Prices 64% 55% SHOPRITE CHECKERSHYPER CHECKERS RETAILER A RETAILER B RETAILER C Brand Health Tracker JULY 2018 | n= 1500
Slide 25: Non-RSA Long-Term Commitment
NON-RSA LONG-TERM COMMITMENT ● Supermarkets Non-RSA sales decreased 7.0% ○ 13.3 percentage points decline in internal inflation ○ Strong base: 10.3% customers, 33.8% sales growth* Retained customer base ● Decline largely driven by Angolan supermarkets ○ Following a 2-year compound sales growth of 65
Slide 26: Growth in Complementary Brands
GROWTH IN COMPLEMENTARY BRANDS ● 440 stores: Largest corporate Liquor retailer ● Strong revenue growth and profitability doubled ● Opened almost a store a week ● Refreshed branding and merchandise offer
Slide 27: Strategic Drivers
[Se STRATEGIC DRIVERS
Slide 28: 6 Drivers of Growth
6 DRIVERS OF GROWTH ie. 2. Growing 3. Developing LSM 8-10 share _ Private Label ee e of wallet rrr S1SIS 4. A Stronger 1. Customer- Franchise first culture Offer So SHOPRITE Be oo 5. Strategic Expansion Advantage
Slide 29: 1. Customer-First Culture
1. CUSTOMER-FIRST CULTURE OUR PURPOSE TO BE AFRICA’S MOST ACCESSIBLE RETAILER
Slide 30: Customer-Led Pricing
CUSTOMER-LED PRICING Investing more in the products most important to our price sensitive shoppers
Slide 31: 2. Growing LSM 8-10 Share of Wallet
2. GROWING LSM 8-10 SHARE OF WALLET
Slide 32: 2. Growing LSM 8-10 Share of Wallet
2. GROWING LSM 8-10 SHARE OF WALLET
Slide 33: 3. Developing Private Label
3. DEVELOPING PRIVATE LABEL ● Private Label sales growth 3x store growth ● RSA Participation +1.6 percentage points of all new products ● 20 Private label brands over R100m ½ addressing upmarket choice Key commodity price points Lower barriers to entry in upmarket categories
Slide 34: Private label satisfaction guarantee
renot completely satisfied Ifyoua purchase, we with your UBrand White Spirit | Vinegar \ will refund your money. No questions asked. PUSSZOPISS Cream Styl Gpestcont
Slide 35: Building for the Future
BUILDING FOR THE FUTURE 4. STRONGER FRANCHISE OFFER ● Rebranding almost complete, gained market share ● Trading Profit up 12.3% 5. STRATEGIC EXPANSION ● Botswana acquisition, Kenyan market entry ● Cilmor DC fully operational ● Backhauling: Largest supplier to our own DC
Slide 36: 6. Leverage African Advantage
6. LEVERAGE AFRICAN ADVANTAGE ● Largest store and distribution network ● Voted Africa’s #1 Retailer brand* ● 1bn+ transactions, 15 countries *Brand Africa
Slide 37: Six Drivers of Growth
i. 2. Growing 3. Developing LSM 8-10 share _ Private Label eee of wallet 1d SSIs) 4. A Stronger 1. Customer- Franchise first culture Offer .- commer | 5. Strategic Expansion 6. Leverage African Advantage
Slide 38: Slide 38
Slide 39: Past Performance Does Not Guarantee Future Success
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE SUCCESS 75 years Life expectancy 15 years 50 years ago Today © 2018 SAP SE or an SAP affiliate company. All rights reserved. ǀ PUBLIC 48
Slide 40: Scaling Intuition & Customer Intimacy
, SCALING INTUITION & » CUSTOMER INTIMACY
Slide 41: Essentials: Purpose-Driven Innovation
ESSENTIALS PURPOSE-DRIVEN INNOVATION AFRICA’S MOST ACCESSIBLE RETAILER ~ ‘(LY tes LIFESTYLE SOLUTIONS ne at) SPECIALIST CATEGORIES
Slide 42: 1M Products Across All Major African Cities
1M PRODUCTS ACROSS ALL MAJOR AFRICAN CITIES AND ACCESS TO 2,843 STORES The Shoprite of Africa
Slide 43: Engineering the Next Era of Growth
ENGINEERING THE NEXT ERA OF GROWTH
Slide 44: Outlook
= OUTLOOK
Slide 45: Outlook
OUTLOOK ● Fight in the short term, invest in the long term ● 88 new supermarkets set to open (18 Non-RSA) ● New Minimum Wage ● What goes down must go up, rising food inflation inevitable
Slide 46: Thank You
S THANK YOU