Spar Group Limited · JSE:SPP
Spar — The SPAR Group — FY2019 Earnings Presentation
51 slides from Spar's earnings presentation, September 2019
Slide 1: Results Presentation for the year ended 30 September 2019
THE SPAR GROUP LTD RESULTS PRESENTATION for the year ended 30 September 2019 1
Slide 2: Agenda
AGENDA OUR PURPOSE TO INSPIRE PEOPLE TO DO AND BE MORE INTRODUCTION | Graham O’Connor, CEO FINANCIAL OVERVIEW | Mark Godfrey, CFO OPERATIONAL OVERVIEW UPDATE ON POLAND | Graham O’Connor, CEO PROSPECTS QUESTIONS SPAR GROUP LTD RESULTS PRESENTATION 2019 2
Slide 3: Introduction
INTRODUCTION Graham O’Connor, CEO
Slide 4: SPAR International Overview
SPAR INTERNATIONAL OVERVIEW 48 countries 246 distribution centres > 13,000 stores 13.5m customers served per day BETTER Global wholesale turnover TOGETHER EUR35.8 bn +5.4% growth • Independent wholesalers and retailers working together Ranking in turnover serving communities around the world SOUTHER
Slide 5: The Group – FY19 at a Glance
THE GROUP – FY19 AT A GLANCE The SPAR Group Ltd is the only listed SPAR globally SOUTHERN AFRICA IRELAND SWITZERLAND Warehousing • 315 900 • 37 200 • 33 000 space m2 Stores • 2 349 • 1 360 • 322 + 11 cash & carry Wholesale turnover R’bn • 74.3 • 24.8 • 10.4 Turnover • 8.0% • 10.4% • 6.02% growth % Y
Slide 6: The SPAR Group Ltd Highlights
THE SPAR GROUP LTD HIGHLIGHTS Turnover Operating profit + 8.4% + 7.2% R109.5 bn R3.0 bn Normalised diluted Dividend per share HEPS# + 9.9% + 9.7% 1 160.6 cents 800.0 cents # Headline earnings adjusted for expected future profits and foreign exchange losses on financial liabilities, and business acqu
Slide 7: Review of the Year
REVIEW OF THE YEAR YEAR ENDED 30 SEPTEMBER 2019 GROUP • Strong overall performance with turnover growth of 8.4% to R109.5bn • Continued capital investment in wholesale capabilities and retail offering • Senior management changes SOUTHERN AFRICA • Solid wholesale turnover growth of 8.0% despite headw
Slide 8: Financial Review
FINANCIAL REVIEW Mark Godfrey, CFO
Slide 9: Salient Features
FINANCIAL OVERVIEW SALIENT FEATURES R million 2019 2018 Change % Turnover" 109 477.1 101 018.0 +8.4 Operating profit 2 978.9 2 779.3 +7.2 Profit after tax 2 163.4 1 827.2 +18.4 Earnings per share (cents) 1 124.1 948.9 +18.5 Headline earnings per share (cents) 1 129.1 965.7 +16.9 Normalised* headline
Slide 10: Restatement Effect
FINANCIAL OVERVIEW RESTATEMENT EFFECT Restated Rmillion 2018 IFRS 15 2018 Revenue from sale of merchandise / turnover 101 018.0 – 101 018.0 Cost of sales (90 225.0) (90 225.0) Gross profit 10 793.0 10 793.0 Gross profit % 10.7% 10.7% Revenue other 2 037.5 2 037.5 - Other income 119.4 (1 870.1) 1 989
Slide 11: Key Regional Metrics
FINANCIAL OVERVIEW KEY REGIONAL METRICS Southern Switzer SPAR Rmillion Africa Ireland land Poland Group Income statement Revenue – sale of merchandise 74 283.7 24 835.2 10 357.0 1.2 109 477.1 Gross profit 6 610.5 3 232.0 1 817.3 0.1 11 659.9 Gross profit % 8.9% 13.0% 17.6% - 10.7% Operating expenses
Slide 12: Turnover
FINANCIAL OVERVIEW TURNOVER R million 2019 2018 Change % SPAR/TOPS 65 213.1 60 308.6 # +8.1 Liquor sales (SPAR/TOPS) 7 646.9 6 504.3 +17.6 Build it 8 035.1 7 514.5 +6.9 South Africa (Comparable base) 73 248.2 67 823.1 +8.0 S Buys – Pharmaceutical business 1 035.5 930.3 +11.3 Total Southern Africa 74
Slide 13: Regional Turnover
FINANCIAL OVERVIEW REGIONAL TURNOVER R1.2m SPAR Southern Africa R10.4bn R9.8bn 67.8% (2018: 68.1%) R24.9bn R22.5bn SPAR Ireland 22.7% 2019 2018 (2018: 22.2%) SPAR Switzerland 9.5% R74.3bn R68.8bn (2018: 9.7%) Southern Africa Ireland Switzerland Poland SPAR GROUP LTD RESULTS PRESENTATION 2019 13
Slide 14: Gross Margins
FINANCIAL OVERVIEW GROSS MARGINS 2019 Gross 2019 2018 R million Turnover margin (GP%) Change (GP%) Total South Africa 73 248.2 6 519.6 8.90% -11bps 9.01% S Buys 1 035.5 90.9 8.78% +6bps 8.72% Total Southern Africa 74 283.7 6 610.5 8.90% -10bps 9.00% Ireland 24 835.2 3 232.0 13.01% +46bps 12.55% Swit
Slide 15: Expenses
FINANCIAL OVERVIEW EXPENSES 2019 2018* R million Expenses % of sales Expenses % of sales % increase Total South Africa 5 167.5 7.1 4 892.0 7.2 +5.6 S Buys 95.9 9.3 85.6 9.2 +12.0 Total Southern Africa 5 263.4 7.1 4 977.6 7.2 +5.7 Ireland 3 034.1 12.2 2 705.3 12.0 +12.2 Switzerland 2 611.3 25.2 2 487
Slide 16: Reconciliation of Effective Tax
FINANCIAL OVERVIEW RECONCILIATION OF EFFECTIVE TAX Percentage 2019 2018 South African current income tax rate at 28% (2018: 28%) 28.0 28.0 Change in tax rate in Switzerland (1.9) - Contribution to employee share trust - (1.4) Expected future profits, foreign exchange and finance cost adjustments on
Slide 17: H1 vs H2 Comparative Trading
FINANCIAL OVERVIEW H1 VS H2 COMPARATIVE TRADING 2019 TURNOVER (Rm) 2019 OPERATING PROFIT (Rm) SA 36 968 1 145 37 316 SA 1 095 Ireland 12 980 416 11 855 Ireland 270 Switzerland 5 255 5 102 H2 H1 66 Switzerland 17 H2 H1 Growth Growth First half +8.6% First half +5.1% Southern Africa +7.7% Southern Afr
Slide 18: Currency Impacts (vs ZAR)
12 13 14 15 16 17 18 2018-10-03 Average rate 2018-10-10 Year end rate 2018-10-17 2018-10-24 2018-10-31 2018-11-07 2018-11-14 2018-11-21 2018-11-28 2018-12-05 2018-12-12 2018-12-20 2018-12-31 FINANCIAL OVERVIEW 2019-01-08 2019-01-15 2019-01-22 2019-01-29 2019-02-05 2019-02-12 CURRENCY IMPACTS (VS ZAR
Slide 19: Cashflow
FINANCIAL OVERVIEW CASHFLOW Rmillion 2019 2018 Cash flow from operating activities (adjusted for non-cash items) 3 857.8 3 555.4 Working capital changes (2 016.3) 416.3 • (Increase)/decrease in inventory (425.5) 94.7 • Increase in trade receivables (1 110.3) (1 094.0) • (Decrease)/Increase in trade
Slide 20: Cashflow
FINANCIAL OVERVIEW CASHFLOW • Cash generated from operations R1.8bn - significant reduction on prior year, due to working capital payment timings • Dividends of R1.4bn paid to shareholders • Net borrowings of R632m largely represents funding made available to Poland • Business acquisitions of R487m
Slide 21: Capital Expenditure
FINANCIAL OVERVIEW CAPITAL EXPENDITURE Rmillion 2019 2018 Investing to expand operations (685.8) (456.1) Investment to maintain operations (374.0) (316.2) • Replacement of property, plant and equipment (423.5) (352.9) • Proceeds on disposal of property, plant and equipment 49.5 36.7 Acquisition of b
Slide 22: Balance Sheet Regional Key Metrics
FINANCIAL OVERVIEW BALANCE SHEET REGIONAL KEY METRICS Southern R million Africa Ireland Switzerland Poland Group Balance sheet Property, plant and equipment 2 575.5 1 871.1 2 737.4 0.2 7 184.2 Goodwill and intangible assets 935.4 3 711.1 417.5 - 5 064.0 Current assets 12 522.9 4 948.2 2 259.7 36.1 1
Slide 23: Total Financial Liabilities
FINANCIAL OVERVIEW TOTAL FINANCIAL LIABILITIES Offshore debt overview R million 2019 2018 SPAR Ireland: €-denominated Balance at beginning of year 1 216.2 963.8 Finance costs recognised in profit or loss (8.0%) 69.1 72.3 Net exchange differences arising during the period 6.4 40.6 Expected future pro
Slide 24: Total Financial Liabilities Continued
FINANCIAL OVERVIEW TOTAL FINANCIAL LIABILITIES CONTINUED S Buys debt overview Rmillion 2019 2018 Balance at beginning of year 49.2 - Initial recognition - 54.4 Initial recognition reducing non-controlling interest balance - 27.6 Initial recognition in equity reserve - 26.8 Finance costs recognised i
Slide 25: Loans and Other Receivables
FINANCIAL OVERVIEW LOANS AND OTHER RECEIVABLES Rmillion 2019 2018 Advanced by SPAR 804.3 804.4 Loan to Piotr i Pawel Group 456.4 - Advanced by Guild* 59.0 - Loans to subsidiaries, joint ventures and associates** 48.0 - Loan to Group Risk Holdings (Pty) Ltd 0.5 0.4 Total 1 368.2 804.8 * In the prior
Slide 26: Reconciliation of Normalised HEPS
FINANCIAL OVERVIEW RECONCILIATION OF NORMALISED HEPS* Rmillion 2019 2018 Change (%) Reported headline earnings 2 173.0 1 859.6 + 16.9 Adjusted for: • Fair value adjustment to financial liabilities 15.4 127.9 • Foreign exchange (gain)/losses on financial liabilities 43.5 43.5 • Business acquisition c
Slide 27: Reconciliation of Dividend
FINANCIAL OVERVIEW RECONCILIATION OF DIVIDEND Rmillion 2019 Reported headline earnings 2 173.0 Adjusted for: • Forex loss on financial liability measurement (non-cash related) 43.5 • Fair value adjustment to financial liabilities 15.4 Adjusted headline earnings 2 231.9 Dividend cover 1.45 times Divi
Slide 28: Performance Summary
FINANCIAL OVERVIEW PERFORMANCE SUMMARY NET ASSET VALUE PER SHARE HEADLINE EARNINGS PER SHARE (CENTS) (CENTS) 2019 3 879,9 1 166,3 2019 1 129,1 1 063,2 2018 3 692,2 2018 965,7 976,0 2017 3 407,0 2017 952,8 1 033,0 2016 3 140,1 2016 1 020,0 940,0 2015 1 922,6 2015 835,5 779,8 2014 2014 1 751,1 781,8 N
Slide 29: IFRS16 – Accounting for Leases
FINANCIAL OVERVIEW IFRS16 – ACCOUNTING FOR LEASES BACKGROUND • IFRS 16 requires a lessee to recognise: • a right-of-use (ROU) asset – representing the underlying asset • a lease liability – representing the present value of the future minimum rental payments • Depreciation is recognised on the ROU a
Slide 30: IFRS16 – Accounting for Leases
FINANCIAL OVERVIEW IFRS16 – ACCOUNTING FOR LEASES IMPLEMENTATION • Applies to the Group for FY20 onwards • Interim results for the period ended 31 Mar 2020 will be presented under IFRS 16 in May 2020 • The Group has adopted the modified retrospective approach at transition • A choice under this appr
Slide 31: IFRS16 – Accounting for Leases
FINANCIAL OVERVIEW IFRS16 – ACCOUNTING FOR LEASES IMPLEMENTATION CONTINUED • In Southern Africa, the head lease portfolio includes back-to-back sub lease agreements with independent retailers • IFRS 16 requires SPAR to recognise a lease receivable equal and opposite to the lease liability • Deferred
Slide 32: IFRS16 – Estimated Impact for FY20
FINANCIAL OVERVIEW IFRS16 – ACCOUNTING FOR LEASES ESTIMATED IMPACT FOR FY20 APPROXIMATE R million increase/(decrease) Property, plant and equipment - right of use asset 5 100 Finance lease receivables 4 250 Net deferred tax asset 130 Finance lease liabilities 10 150 Retained earnings (670) Statement
Slide 33: Salient Features – In Closing
FINANCIAL OVERVIEW SALIENT FEATURES – IN CLOSING R million 2019 2018 Change % Revenue – sale of merchandise 109 477.1 101 018.0 +8.4 Operating profit 2 978.9 2 779.3 +7.2 Profit after tax 2 163.4 1 827.2 +18.4 Earnings per share (cents) 1 124.1 948.9 +18.5 Headline earnings per share (cents) 1 129.1
Slide 34: Operational Review
OPERATIONAL REVIEW Graham O’Connor, CEO
Slide 35: Southern Africa – Distribution Centres
OPERATIONAL REVIEW SOUTHERN AFRICA – DISTRIBUTION CENTRES • Strong leadership teams across all DCs • Ongoing investments to support growth • Inland consolidation centre (ICC) for slow- moving goods will be fully operational in 2020, serving North Rand, South Rand & Lowveld DCs • Number of cases thro
Slide 36: Southern Africa – Retail
OPERATIONAL REVIEW SOUTHERN AFRICA – RETAIL • Ongoing demand for SPAR’S No. of stores brand as the home of the independent retailer amid a 937 960 822 competitive retail environment 774 • Driving retailer profitability through 298 store upgrades 376 390 including 181 SPAR stores 149 177 • 113 net ne
Slide 37: Southern Africa – Retail
OPERATIONAL REVIEW SOUTHERN AFRICA – RETAIL RETAIL SALES GROWTH ANALYSIS FY19 Growth % LFL% SPAR 5.5% 4.6% TOPS 14.5% 11.3% BUILD IT 5.7% 3.0% • Combined food and liquor +6.6% • Internally calculated food inflation • FY19 – 3.1% • FY18 – 1.4% GOOD RETAIL PERFORMANCE SALES GROWTH IN CHALLENGING ENVIR
Slide 38: Southern Africa – SPAR
OPERATIONAL REVIEW SOUTHERN AFRICA – SPAR Retail operations support TURNOVER (R’bn) – SPAR • Leveraging SPAR’s compelling FY19 FY18 % advertising & promotional support Wholesale 57.6 53.8 +7.0 • SPAR rewards programme Retail 84.1 79.7 +5.5 • Staff training – retail academy • Drive on customer servic
Slide 39: Southern Africa – SPAR Private Label
OPERATIONAL REVIEW SOUTHERN AFRICA – SPAR Private label • Our strategy is simple • As good as the best for less • On a wholesale basis • All house brands • R13.4bn, +10.1% YoY • 23.3% of core turnover • SPAR private label • R9.2bn, +9.1% YoY • 16.0% of core turnover • Big focus on environmentally fr
Slide 40: Southern Africa – SPAR Private Label
OPERATIONAL REVIEW SOUTHERN AFRICA – SPAR PRIVATE LABEL Private label continued • Acquired 50% of Monteagle Africa business from Monteagle International • Monteagle Africa (rebranded Encore) is an exclusive consolidator of private label product to SPAR • Remaining shareholder to retain interest and
Slide 41: Southern Africa – TOPS at SPAR
OPERATIONAL REVIEW SOUTHERN AFRICA – TOPS AT SPAR • SA’s largest liquor business grew by 48 TURNOVER (R’bn) – TOPS stores in FY19 FY19 FY18 % • Innovative and disruptive team Wholesale 7.6 6.5 +17.6 • 2019 ‘Glass Of Not So Serious’ Retail 12.8 11.2 +14.5 marketing campaign brought light relief to So
Slide 42: Southern Africa – Build It
OPERATIONAL REVIEW SOUTHERN AFRICA – BUILD IT • Build IT continues to lead the market TURNOVER (R’bn) – BUIILD IT • Internally measured inflation +4.4% FY19 FY18 % • New brand forging ahead with 14 new Wholesale 8.0 7.5 +6.9 stores & 66 upgrades Retail 14.1 13.3 +5.7 • Management changes SPAR GROUP
Slide 43: Ireland
OPERATIONAL REVIEW IRELAND • Excellent performance in Ireland • XL, Mace, Londis & SPAR retail turnover growth > 3.6% • Strong LFL growth in all retail formats • Positively impacted by acquisitions, 4 Aces Wholesale & Corrib Foods • Award-winning stores across brands • World-class convenience retail
Slide 44: Switzerland
OPERATIONAL REVIEW SWITZERLAND • Improving retailers’ profitability • Core DC turnover +1.2% in CHF terms • 23 store upgrades and 7 net new stores • Opposition now approaching us to join SPAR • Concept methodology gaining traction • Meat & More butchery concept; Fresh to go; Bean Tree; In store bake
Slide 45: Sri Lanka
OPERATIONAL REVIEW SRI LANKA • Joint venture with Ceylon biscuits • 3 stores operational and 4 under construction • Thalawathugoda now profitable • Stores continue to beat expectations • Opportunity in the independent space EXCELLENT PROGRESS WITH GREAT JV PARTNER SPAR GROUP LTD RESULTS PRESENTATION
Slide 46: Update on Poland
UPDATE ON POLAND Graham O’Connor, CEO
Slide 47: Acquisition of Piotr i Pawel
UPDATE ON POLAND ACQUISITION OF PIOTR I PAWEL Overview • Polish family company, founded 1990 • Retail footprint of 66 supermarkets • 1 distribution warehouse (perishable & dry good capabilities) • In business rescue Terms of acquisition: • 80% for consideration of €1 • Remaining 20% to be acquired a
Slide 48: SPAR Poland
UPDATE ON POLAND SPAR POLAND SPAR Poland • SPAR Licence to operate the brand in Poland, by SPAR International • On condition of mediation process being finalised • Poland has been a member country since 1995 • 19th largest SPAR member globally • Established franchisee base of 250 stores • Have ident
Slide 49: Prospects
PROSPECTS SOUTHERN AFRICA IRELAND SWITZERLAND POLAND Drive our retail Opportunity to grow Continued focus on Drive opportunity business still strong retail offering • Drive on purpose • Positive about Irish • Drive store upgrades • Stabilise the existing • Drive on values results despite Brexit • Ef
Slide 50: 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 51: Q&A
Q&A SPAR GROUP LTD RESULTS PRESENTATION 2019 51