Shoprite Holdings Limited · JSE:SHP
Shoprite — H1 2020 Earnings Presentation
41 slides from Shoprite's earnings presentation, Feb 25, 2020
Slide 1: Interim Results Presentation
INTERIM RESULTS PRESENTATION
Slide 2: Welcome / Presentation Outline
WELCOME PRESENTATION OUTLINE FIRST HALF REVIEW Pieter Engelbrecht FINANCIAL RESULTS Anton de Bruyn STRATEGY UPDATE QUESTIONS Pieter Engelbrecht
Slide 3: First Half Review
FIRST HALF REVIEW Chief Executive Officer PIETER ENGELBRECHT
Slide 4: First Half 2020 Highlights
FIRST HALF 2020 HIGHLIGHTS SALES GROSS PROFIT TRADING PROFIT R81.2bn R19.1bn R4.0bn +7.0% TOTAL EXPENSES EBITDA DILUTED HEPS R16.5bn R6.8bn 372.4c +13.0% +15.7%
Slide 5: Strong Operational Metrics
STRONG OPERATIONAL METRICS MORE HIGHER PROFITABLE CUSTOMERS VOLUMES MARKET SHARE GAINS +2.1% GROUP CUSTOMER GROWTH +4.4% GROUP VOLUME GROWTH +R2.4bn RSA MARKET SHARE GAIN +12.0m 4.0bn +1.1% CUSTOMER VISITS PRODUCTS SOLD RSA MARKET SHARE GAIN
Slide 6: Core RSA Business Driving Growth
CORE RSA BUSINESS DRIVING GROWTH Supermarkets RSA sales growth ● Accelerated Supermarkets RSA sales growth of 9.8% ○ Like-for-like: 6.6% ○ Internal sell inflation remained low at 2.7% ○ 1.2% space growth (m2), net +102 stores ○ Liquor sales increased 20.5% H2 H1 ● As growth in the rest of the market
Slide 7: Progressive Market Share Gains
PROGRESSIVE MARKET SHARE GAINS ● All our supermarket brands showed growth ahead of peers ● Shoprite’s price leadership remains uncontested 31.6% share for the six months ● Checkers delivered industry-leading growth Other 100% Retailers (Nielsen) Supermarkets RSA Supermarkets RSA brands’ indexed sale
Slide 8: Supermarkets Non-RSA Performance
SUPERMARKETS NON-RSA PERFORMANCE ● Supermarkets Non-RSA operational strength evidenced by ○ 4.8% sales growth in constant currency terms Sales Constant growth currency ○ 10 of 14 countries increased sales in constant currency terms (ZAR) ○ 5.4% volume growth ANGOLA -1.9% -27.5% ○ Zambia sales up 14.
Slide 9: Angola Performance
ANGOLA PERFORMANCE ● Affordability for consumers remains challenging ● Conditions worsened in Q2 ○ 14% VAT introduced in Oct 2019 hurt consumers ○ Further 29.6% devaluation against USD in Q2 drove sharp increase in price inflation USD vs kwanza devaluation (24 months) ● Gross margin percentage mainta
Slide 10: Nigeria Performance
NIGERIA PERFORMANCE ● September protests disrupted footfall in shopping centres Constant currency sales -14% -59% 2 MONTHS PROTEST 2 MONTHS PRIOR ACTION POST
Slide 11: Non-RSA Actions
NON-RSA ACTIONS ● Remain committed to the continent, but not at all cost ● Looking at long-term options, but our focus is on immediate actions ● Alternate operating models and structures are under review ● Reviewing options country by country ● Renewed buying interest in our property portfolio could
Slide 12: Furniture & Other Operating Segments
FURNITURE & OTHER OPERATING SEGMENTS Furniture Other operating sales segments sales ● Closure of 32 unprofitable stores ● OK Franchise division sales +7.5% ○ ● Like-for-like sales growth +0.3% ● 6-week Transpharm strike ● Trading profit +63.9% ●
Slide 13: Financial Results
FINANCIAL RESULTS Chief Financial Officer ANTON DE BRUYN
Slide 14: IFRS Changes Since Dec 2018
IFRS CHANGES SINCE DEC 2018 DECEMBER 2018 DECEMBER 2019 ● Hyperinflation ● Hyperinflation IAS 29: FINANCIAL accounting applied accounting not REPORTING IN ● Net monetary gain of applied HYPERINFLATIONARY R458m included in ● Additional trading profit depreciation of R48m ECONOMIES due to hyperinflation a
Slide 15: Financial Overview
FINANCIAL OVERVIEW 2018 2019 Change Sale of merchandise R75 837m R81 150m 7.0% Gross margin 23.1% 23.5% Total expenses R15 357m R16 545m 7.7% Net monetary gain R458m - - Trading profit R4 196m R4 033m -3.9% Trading margin 5.5% 5.0% Trading profit (excl. hyperinflation) R3 815m R4 081m 7.0% Trading marg
Slide 16: Sales Growth per Segment
SALES GROWTH PER SEGMENT Like-for- Net new Total like stores sales % % % Supermarkets RSA 6.6 3.2 9.8 Supermarkets Non-RSA -7.4 4.3 -3.1 Furniture 0.3 -3.0 -2.7 Other operating segments 5.3 -0.9 4.4 Consolidated 4.2 2.8 7.0
Slide 17: Other Operating Income
OTHER OPERATING INCOME 2018 2019 Change Rm Rm % Finance income earned 140 133 -5.0 Premiums earned 137 124 -9.5 Commissions received 447 477 6.7 Operating lease income 251 257 2.4 Investment income 244 162 -33.6 Franchise fees received 45 52 15.6 Sundry income 301 322 7.0 Total 1 565 1 527 -2.4
Slide 18: Trading Profit by Segment
TRADING PROFIT BY SEGMENT 2019 Trading 2018 2019 Change margin Rm Rm % % Supermarkets RSA 3 412 3 736 9.5 6.1 Supermarkets Non-RSA 154 58 -62.3 0.5 Furniture 177 169 -4.5 5.1 Other operating segments 72 118 63.9 2.2 Total operating segments 3 815 4 081 7.0 5.0 Hyperinflation effect 381 -48 -112.6 - C
Slide 19: Forex
FOREX LOSS GAIN FOREX 2018: R141m loss 2019: R232m gain ● Hedging strategy for Non-RSA was effective ● R2.5bn invested in Angola, forming a natural hedge 2019 Exchange rate losses/gains (Rm)
Slide 20: Items of a Capital Nature
ITEMS OF A CAPITAL NATURE 2018 2019 Rm Rm Profit on disposal of assets held for sale 32 207 Profit on disposal of right-of-use assets - 72 Impairment of PPE and intangible assets -62 -97 Impairment of right-of-use assets -72 -157 Insurance claims receivable 103 6 Other -8 -9 Total (loss)/profit -7 22
Slide 21: Net Finance Costs
NET FINANCE COSTS 2018 2019 Rm Rm Interest received 139 187 Finance costs 1 280 1 467 Net finance costs 1 141 1 280 Less lease liability finance charges -896 -968 Net finance costs excl. lease liability finance 245 312 charges
Slide 22: Assets and Capital Spend
ASSETS AND CAPITAL SPEND CAPITAL SPEND 2018 2019 2018: R2.8bn Rm Rm 2019: R2.0bn Group total assets 84 635 86 219 CAPITAL SPEND Supermarkets Non-RSA NON-RSA 19 639 17 454 R0.5bn total assets Government bonds and bills 3 522 2 512 R2.0bn Inventories 3 733 3 496 RSA R1.5bn PPE and ROU assets 7 435 6 6
Slide 23: Inventories
INVENTORIES INVENTORIES SUPERMARKETS RSA SUPERMARKETS NON-RSA R16.7bn R3.5bn 2018: R21.7bn 2019: R22.5bn FURNITURE R1.6bn OTHER OPERATING SEGMENTS R22.5bn R0.7bn CHANGES IN WORKING CAPITAL 2018: -R0.9bn 2019: R2.0bn INVENTORIES AS % OF LAST 12 MONTHS SALES 2018: 14.9% Inventories by segment 2019: 14
Slide 24: Cash Flows
CASH FLOWS Includes sale of Includes proceeds commercial vehicle from Angola fleet (R1.1bn) and government bonds properties (R621m) and bills (R459m) Cash flows (Rm)
Slide 25: Net Debt
NET DEBT JUN DEC 2019 2019 Rm Rm NET BORROWINGS Net cash position 3 583 8 028 JUN 2019: R8.1bn DEC 2019: R3.3bn Borrowings -11 706 -11 363 Net borrowings -8 123 -3 335 NET BORROWINGS: EBITDA JUN 2019: 0.6 DEC 2019: 0.3 Lease liabilities -21 478 -23 841 NET DEBT: EBITDA Net debt -29 601 -27 176 JUN 2
Slide 26: Property Transaction
PROPERTY TRANSACTION Salient transaction terms: Propco ● Unlisted property entity to be established with Equites ● Shoprite interest: 49.9% (equity accounted) Consideration ● PropCo shares and cash (R1.2bn) Disposal yield ● 7.5% Distribution centres ● Brackenfell, Centurion and Cilmor included ● Ten
Slide 27: Update on Sale of DCs
UPDATE ON SALE OF DCs Strategic rationale: ✓ In line with the Group’s strategy to optimise ROIC ✓ Release of capital to be deployed into higher yielding retail projects and technology, as opposed to debt reduction ✓ Provides operational and capital flexibility ✓ Results in a strategic partnership wit
Slide 28: Updated Metrics and Guidance
UPDATED METRICS AND GUIDANCE ROIC DILUTED HEPS DIVIDEND 9.6%-11.6% 5%-7% 156 cents GROUP INVENTORIES EFFECTIVE TAX RATE CAPEX GUIDANCE % OF SALES TARGET GUIDANCE R4.8bn 12.4% 31%-33%
Slide 29: Strategy Update
STRATEGY UPDATE Chief Executive Officer PIETER ENGELBRECHT
Slide 30: Strategy Update
STRATEGY UPDATE A SMARTER CLOSING THE GAP WINNING IN THE SHOPRITE IN KEY SEGMENTS LONG TERM
Slide 31: Growth Strategy Update
GROWTH STRATEGY UPDATE Significant milestones in H1 Advancing customer centricity through digital transformation ✓ Launch of Checkers Xtra Savings Rewards Programme ✓ Pioneered 1-hour grocery delivery service Sixty60 Closing headroom opportunity in key segments ✓ Checkers leading market share gains ✓
Slide 32: Customer-First Culture
CUSTOMER-FIRST CULTURE ● Checkers Xtra Savings Rewards Programme launched Oct 2019 ● 3.8m sign ups already, completely paperless ● Record market share achieved during the period ● Enables precision marketing and personalisation SIGN UPS PER SECOND AT LAUNCH
Slide 33: Pioneered 1 Hour Grocery Delivery
PIONEERED 1 HOUR GROCERY DELIVERY ● Sixty60 on demand grocery delivery launched Nov 2019 ● Doing more for customers - ultra fast convenience shopping ● Beta testing performing well - avg. delivery time 50m 10sec ● Positive customer response
Slide 34: Sixty60 video
Sixty60 video 37
Slide 35: Growing Share in Premium and Fresh
GROWING SHARE IN PREMIUM AND FRESH ● Our assault on premium food retail is gathering pace ● Achieved a further R350m fresh share gains for H1 ● Checkers sales growth 2.7x other retailers’ sales growth Other Retailers Checkers indexed sales growth vs Other Retailers for the six months to Dec ‘19 SOUR
Slide 36: Growing Share in Premium and Fresh
GROWING SHARE IN PREMIUM AND FRESH Unveiled FreshX flagship stores in the affluent Sandton and Constantia areas SANDTON OPENED SEPT ‘19 CONSTANTIA OPENED NOV ‘19 More upmarket Basket value vs. rest customer visits of Checkers 40
Slide 37: Leading Growth in Liquor
LEADING GROWTH IN LIQUOR ● Runway for growth (19.9% RSA liquor share vs. 31.6% in grocery) ● 518 Stores - opened more than a store a week 20.6% +1.9% RSA MARKET SHARE SALES GROWTH GAINS SOURCE: Nielsen, 2019 RSA
Slide 38: Winning in the Long Term
WINNING IN WINNING IN THE THE LONG LONGTERM TERM ● Shifting to optimisation phase of our long-term strategy ● Precision retailing and personalisation through Xtra Savings customer platform ● Engineering the next era of growth to unlock new revenue streams SHIFT FROM EXPLOSIVE EXPANSION TO ONE GLOBAL
Slide 39: Outlook
OUTLOOK HOLDINGS LTD
Slide 40: Outlook
OUTLOOK ● Inflation not expected to increase materially ● Sales growth momentum for first 6 weeks in line with H1 ● More demanding RSA sales base, especially in Q4 ● No expected Non-RSA macroeconomic relief, but actions should improve performance ● Supermarket expansion continues in H2, focus on small
Slide 41: Questions
QUESTIONS HOLDINGS LTD