Spar Group Limited · JSE:SPP
Spar — The SPAR Group — FY2016 Earnings Presentation
59 slides from Spar's earnings presentation, November 2016
Slide 1: SPAR Results Presentation for the year ended 30 September 2016
SPAR RESULTS PRESENTATION for the year ended 30 September 2016
Slide 2: Agenda
AGENDA Introduction Graham O’Connor, CEO Spar Group: Facts and figures Performance summary Salient features Defining the five drivers Culture and values Financial overview Mark Godfrey, CFO Operational overview Graham O’Connor, CEO Looking forward Prospects Questions 2
Slide 3: Introduction
INTRODUCTION GRAHAM O’CONNOR, CEO
Slide 4: SPAR Group: Facts and Figures
SPAR GROUP: FACTS AND FIGURES SPAR International: Present in 42 countries on 4 continents with 7 million m² in sales area • 12 176 stores €33bn p.a. turnover • South Africa is the second biggest SPAR country by turnover • Ireland is 10th biggest SPAR country by turnover • SPAR Switzerland is the 14t
Slide 5: SPAR Group: Facts and Figures – Ireland / South West England
SPAR GROUP: FACTS AND FIGURES | continued Ireland / South West England: BWG services >1 340 stores across six brands, ~€2.2bn (ZAR35.4bn) retail turnover • Wholesale and distribution of groceries + fresh produce, liquor to retail/catering sectors • Well established in convenience market • Three DCs:
Slide 6: SPAR Group: Facts and Figures – Switzerland
SPAR GROUP: FACTS AND FIGURES | continued Switzerland: SPAR Switzerland services 301 stores across three brands + 11 cash-and-carry outlets, CHF39.4m (ZAR5.9bn) wholesale turnover in 2016 • Responsible for operation of 53 corporate stores + 248 independent retailer stores • Modern logistics centre s
Slide 7: Performance Summary
PERFORMANCE SUMMARY • Significant turnover growth • 32% of total turnover generated in foreign currency • Total retail footprint increased to 3 674 stores • Two extremely successful bookbuilds took place and 19.3 million new shares placed • SPAR SA acquired a majority stake in SPAR Switzerland • BWG
Slide 8: Salient Features
SALIENT FEATURES R million 2016 2015 Change % Turnover 90 688.5 73 258.8 +23.8 Operating profit 2 577.3 2 294.2 +12.3 Profit before tax 2 439.2 1 958.2 +24.6 Earnings per share (cents) 1 010.0 820.8 +23.1 Headline earnings per share (cents) 1 020.0 835.5 +22.1 Dividend per ordinary share (cents) 665
Slide 9: Business Environment
BUSINESS ENVIRONMENT SOUTH AFRICA IRELAND SWITZERLAND • Economic growth remains • 4.9% GDP growth projected • GDP on track to grow 1.4% slow for 2016 in 2016 • Continued pressure on • Retail sales +3.8% y-y to • Retail industry under consumers 3 year low (Sept 2016) pressure: 2.9% drop in sales • In
Slide 10: SPAR Values and Culture: Progress on Strategic Objectives
SPAR VALUES AND CULTURE: PROGRESS ON STRATEGIC OBJECTIVES Retailer profitability • Engaged with retailers • Positioned to weather tough economy Excellence in Fresh • Higher “Fresh” ratio of total basket • Good progress with HMR Centre of community • Entrenched retailers at centre of communities Pass
Slide 11: Defining the Five Drivers
DEFINING THE FIVE DRIVERS FUTURE SUSTAINABILITY PEOPLE
Slide 12: Service: Putting the Customer at the Centre of Our Business
SERVICE: PUTTING THE CUSTOMER AT THE CENTRE OF OUR BUSINESS 12
Slide 13: Sustainability: Increasingly Affecting Food Retail Industry
SUSTAINABILITY: INCREASINGLY AFFECTING FOOD RETAIL INDUSTRY 13
Slide 14: Future: Understanding the Variables
FUTURE: UNDERSTANDING THE VARIABLES 14
Slide 15: People: Our Most Important Resource
PEOPLE: OUR MOST IMPORTANT RESOURCE 15
Slide 16: Retail: Understanding the Retail Triggers
RETAIL: UNDERSTANDING THE RETAIL TRIGGERS 16
Slide 17: Building Our Business in Uncertain Times
BUILDING OUR BUSINESS IN UNCERTAIN TIMES 17
Slide 18: Culture and Values: The Foundation of Our Business
CULTURE AND VALUES: THE FOUNDATION OF OUR BUSINESS 18
Slide 19: Financial Overview
FINANCIAL OVERVIEW MARK GODFREY, CFO
Slide 20: Financial Overview: Key Regional Metrics
FINANCIAL OVERVIEW: KEY REGIONAL METRICS SPAR SPAR SPAR R million Southern Africa Ireland Switzerland Group Income statement Turnover 61 699.5 23 099.7 5 889.3 90 688.5 Gross profit 5 081.2 2 499.7 826.1 8 407.0 Gross margin 8.24% 10.82% 14.03% 9.27% Operating expenses (3 481.4) (2 438.1) (1 428.1)
Slide 21: Financial Overview: Turnover
FINANCIAL OVERVIEW: TURNOVER R million 2016 2015 Change (%) SPAR/TOPS 54 791.2 50 176.8 +9.2 Liquor sales (SPAR/TOPS) 5 176.5 4 622.5 +12.0 Build it 6 908.3 6 190.8 +11.6 South Africa 61 699.5 56 367.6 +9.5 Ireland 23 099.7 16 891.2 +36.8 Switzerland 5 889.3 - - Total Group 90 688.5 73 258.8 +23.8 •
Slide 22: Financial Overview: Turnover (continued)
FINANCIAL OVERVIEW: TURNOVER | continued Ireland: Sales analysis of growth Solid performance of core business +3.1% Acquisition of Londis business +9.6% Acquisition of Gilletts business +1.7% 14.4% Rand devaluation against euro 22.4% 36.8% Switzerland: Sales analysis by business Ratio Ex-warehouse s
Slide 23: Financial Overview: Inflation per Segment
FINANCIAL OVERVIEW: INFLATION PER SEGMENT 6 months to 2016 March 2016 2015 SPAR business +6.2%¹ +5.5% +5.2% Liquor +6.6% +6.8% +6.4% Build it c. +3.5%² c. +3.0% c. +3.3% 1. SPAR’s budgeted expectations for 2017: 2016: › SA food +6.5% +6.0% › Building materials 4.1% +3.9% 2. Building material inflati
Slide 24: Financial Overview: Inflation per Segment (continued)
FINANCIAL OVERVIEW: INFLATION PER SEGMENT | continued Ireland (per National CPI figures) September 2016 annual change • Supermarkets and convenience Retail sales - value +2.0% Retail sales - volume +2.4% • While not separating convenience still reflects the price pressures Illustration – September m
Slide 25: Financial Overview: Inflation per Segment (continued)
FINANCIAL OVERVIEW: INFLATION PER SEGMENT | continued Switzerland Consumer price index for period April – September 2016 -0.2% • Food and alcoholic beverages and cigarettes +1.6% • Alcoholic beverages -0.7% • Tobacco -0.1% Looking to 2017 › Expectation of inflation moving upward to +0.4% but reversi
Slide 26: Financial Overview: Gross Margins
FINANCIAL OVERVIEW: GROSS MARGINS 2016 R million 2016 (GP%) Turnover (Rm) 2015 (GP%) Total Southern Africa 8.2% 61 699.5 8.2 Ireland 10.8% 23 099.7 10.5 Switzerland 14.0% 5 889.3 - Total Group 9.3% 90 688.5 8.7 Southern Africa Stronger ex-warehouse sales: 2016 2015 2014 Warehouse (excl. Build It) -
Slide 27: Financial Overview: Expenses
FINANCIAL OVERVIEW: EXPENSES 2016 2015 Expenses % Expenses % % (Rm) of sales (Rm) of sales increase South Africa 3 481.4 5.6 3 112.2 5.5 +11.9 Ireland 2 438.1 10.6 1 748.0 10.3 +39.5 Switzerland 1 428.1 24.2 - - - Total Group 7 347.6 8.1 4 860.2 6.6 +51.2 SPAR Southern Africa • Warehouse and distrib
Slide 28: Financial Overview: Expenses (continued)
FINANCIAL OVERVIEW: EXPENSES | continued Ireland • Whole expenses increased +39.5% in rand terms: in euro terms only +16.7% • Excluding impact of Gilletts stores for partial period: euro costs +13.1% • Warehouse costs down in euro terms › Two Londis warehouses closed and all retailers fully integrat
Slide 29: Financial Overview: Cash Flow
Opening balance (38) R million Operating profit 2 577 Non-cash items 637 Loss on disposal of property, equipment 18 Net working capital changes 18 Net interest paid (21) Taxation paid (529) Dividends paid (1 153) Capital expenditure (789) Acquisition of businesses (758) FINANCIAL OVERVIEW: CASH FLOW
Slide 30: Financial Overview: Cash Flow (continued)
FINANCIAL OVERVIEW: CASH FLOW | continued R million 2016 2015 Cash flow from trading 3 232.3 2 676.6 Working capital changes 17.9 278.0 • Increase in inventory (133.6) (114.8) • Increase in trade receivables (722.2) (387.7) • Increase in trade payables 873.7 780.5 Cash generated from operations 3 25
Slide 31: Currency Impacts (vs ZAR)
CURRENCY IMPACTS (VS ZAR) 18 17 16 15 14 13 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Euro Swiss Franc US Dollar Ireland (€) Switzerland (CHF) F2015 F2016 March 2016 F2016 Year end rate 15.53 15.59 15.41 14.38 Average rate 13.75 16.45 n/a 14.93 31
Slide 32: Comparative Trading: H1 vs H2 and SPAR Switzerland Impact
FINANCIAL OVERVIEW: COMPARATIVE TRADING: UNPACKING H1 VS H2 + SPAR SWITZERLAND IMPACT TURNOVER (Rm) OPERATING PROFIT (Rm) PROFIT BEFORE TAX (Rm) F15 F15 F15 F16 F16 F16 0 50 000 100 000 0 1 000 2 000 3 000 0 1 000 2 000 3 000 H1 South Africa H1 Ireland H1 South Africa H1 Ireland H1 South Africa H1 I
Slide 33: Reconciliation of Shares in Issue
RECONCILIATION OF SHARES IN ISSUE New shares Total shares issued in issue Opening balance 1 October 2015 173 261 662 New shares issued: • Ireland and Switzerland acquisitions 6 April 2016 11 891 892 185 153 554 New shares issued: • BBBEE Transaction 23 August 2016 7 415 243 192 568 797 • Other share
Slide 34: Reconciliation of Dividend Declaration
RECONCILIATION OF DIVIDEND DECLARATION R million 2016 Reported headline earnings 1 832.9 Adjusted for: Foreign exchange profit on financial liability (non-cash) ~ ZAR1.7 million Ignored Headline earnings for dividend 1 832.9 Dividend cover (consistent with prior) 1.45 times Dividend declared (total
Slide 35: 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 2 109.5 1 395.5 2 655.3 6 160.3 Goodwill and intangible assets 504.6 3 195.2 308.5 4 008.3 Current assets 10 567.9 3 947.0 2 069.8 16 584.7 Current
Slide 36: Capital Expenditure: Increasing Distribution Capacity
CAPITAL EXPENDITURE: INCREASING DISTRIBUTION CAPACITY R million 2016 2015 Investing to expand operations (441.9) (422.1) Investment to maintain operations (346.8) (103.4) • Replacement of property, plant and equipment (372.6) (111.8) • Proceeds on disposal of property, plant and equipment 25.8 8.4 A
Slide 37: Regional Capital Expenditure
REGIONAL CAPITAL EXPENDITURE R million Expansion Replacement Total South Africa 239.6 99.9 339.5 Ireland 157.8 167.8 325.6 Switzerland 44.5 79.1 123.6 441.9 346.8 788.7 37
Slide 38: Summary of Salient Features
SUMMARY OF SALIENT FEATURES R million 2016 2015 2014 Change (%) Turnover 90 688.5 73 258.8 54 483.0 23.8 Gross profit 8 407.0 6 366.6 4 497.9 32.0 Gross profit (%) 9.3 8.7 8.3 - Operating profit 2 577.3 2 294.2 1 864.9 12.3 Profit after tax 1 815.0 1 420.9 1 345.0 27.7 Headline earnings per share (c
Slide 39: Operational Overview
OPERATIONAL OVERVIEW GRAHAM O’ CONNOR, CEO
Slide 40: Operational Review Southern Africa: Retail Turnover
OPERATIONAL REVIEW SOUTHERN AFRICA: RETAIL TURNOVER Total growth Like-for-like SPAR +8.2% +7.9% TOPS +14.6% +10.7% Build it +13.4% +7.4% • SPAR growth driven by uptake of fresh and HMR + extensive promotional and marketing initiatives • TOPS maintained strong organic growth trend • Solid growth from
Slide 41: Operational Performance Southern Africa: SPAR
OPERATIONAL PERFORMANCE SOUTHERN AFRICA: SPAR TURNOVER ANALYSIS Rmillion Strong retail growth in highly competitive WHOLESALE market TURNOVER TURNOVER 15 45,6 ▲8.9% • Combined food & liquor retail sales: +8.9% 16 49,6 • Same store retail turnover: +7.9% • Food inflation: +6.2% 15 67,9 RETAIL ▲8.2% P
Slide 42: Promotional and Marketing Activities: SPAR Rewards
PROMOTIONAL AND MARKETING ACTIVITIES: SPAR Phenomenal results from SPAR Rewards: launched June 2015 • SPAR’s first electronic product coupon programme • Only requires customer’s cellphone • Monthly redemption value growth: R40 000 (June 2015) to R2.5 million (September 2016) • ±200,000 new members j
Slide 43: Promotional and Marketing Activities: Angry Birds Campaign
PROMOTIONAL AND MARKETING ACTIVITIES: SPAR Angry birds campaign • Innovative marketing: departure from simple price proposition • SPAR’s Angry Birds campaign captured imagination of “little” and not so little customers 43
Slide 44: Operational Performance: TOPS at SPAR
OPERATIONAL PERFORMANCE: TOPS AT SPAR TURNOVER ANALYSIS Rmillion Increasing customer support WHOLESALE TURNOVER TURNOVER 15 4,6 • +14.6% increase in retail turnover ▲12.0% • Same store retail growth of +10.7% 16 5,2 • Wholesale turnover up +12.0% 15 7,8 Retained #1 spot in retail liquor RETAIL ▲14.6
Slide 45: Promotional and Marketing Activities: TOPS at SPAR
PROMOTIONAL AND MARKETING ACTIVITIES: TOPS AT SPAR “Minister of Parties and Recreation” extended into “Party Comrades” 45
Slide 46: Promotional and Marketing Activities: TOPS at SPAR – Private Label Wine
PROMOTIONAL AND MARKETING ACTIVITIES: TOPS AT SPAR Private Label Wine and Olive Brook wine • Gaining market share Olive Brook • Several Veritas / Michael Angelo awards Tops and Tales Book Club campaign • First book ever written on Facebook • Printed in TOPS own wine, Olive Brook • Won 3 Loerie Award
Slide 47: Operational Performance: Build it
OPERATIONAL PERFORMANCE: BUILD IT TURNOVER ANALYSIS Rmillion Strong sales growth WHOLESALE TURNOVER TURNOVER 15 6,2 • Defying constrained consumer spending ▲11.6% • Same store growth: +7.4% 16 6,9 • Improved loyalty support 15 10,4 Increasingly competitive market RETAIL ▲13.4% • New independent and
Slide 48: Operational Performance: Distribution (South Africa)
OPERATIONAL PERFORMANCE: DISTRIBUTION (SOUTH AFRICA) IMPORTS WAREHOUSE NORTH RAND LOWVELD WESTERN CAPE SOUTH RAND EASTERN CAPE KZN DRY KZN PERISHABLES 48
Slide 49: Operational Performance: Distribution (South Africa) – Expansions
OPERATIONAL PERFORMANCE: DISTRIBUTION (SOUTH AFRICA) Volumes handled up +3.4%: 226.4 million cases despatched Further expansions to support growth • Eastern Cape: Purchase of additional land to build new dry warehouse • KwaZulu Natal: Purchase of property to accommodate future expansion of dry facil
Slide 50: Operational Performance: SPAR Ireland (BWG Group)
OPERATIONAL PERFORMANCE: SPAR IRELAND (BWG GROUP) Excellent +36.8% increase in turnover to R23.1bn: +14.4% in €-terms • Positive growth from all retail brands • -1.1% food & non-alcoholic beverage deflation / +1.4% alcohol & tobacco product inflation* • Operating profit up +41.4% to R433.4m • Substa
Slide 51: Operational Performance: SPAR Ireland
OPERATIONAL PERFORMANCE: SPAR IRELAND SPAR brand turnover up +8% • +6.0% like-for-like growth • EUROSPAR turnaround continued with strong organic growth BWG Wines and Spirits and BWG Food Service: excellent results: +38% sales growth Appleby Westward: +13.0% turnover growth impacted by Gilletts acqu
Slide 52: Operational Performance: Distribution (Ireland & UK)
OPERATIONAL PERFORMANCE: DISTRIBUTION (IRELAND & UK) Kilcarbery NDC 24 000m2 facility Serving 1 200 retailers 105 vehicles travel 2.1 million km’s p/year 600 deliveries p/day 420 000 cases p/week Appleby (Saltash) DC 7 800m2 dry facility Serving 300 retailers 14 vehicles travel 1.2 million km’s p/ye
Slide 53: Operational Performance: SPAR Switzerland
OPERATIONAL PERFORMANCE: SPAR SWITZERLAND Retail sales industry-wide impacted by adverse weather / flooding in Europe in June/July • H2 sales down -4.1% y-y Reported gross margin of 14.03%: partially shielded the impact of lower sales • Most products distributed ex-warehouse: limited central billing
Slide 54: Operational Performance: Distribution (Switzerland)
OPERATIONAL PERFORMANCE: DISTRIBUTION (SWITZERLAND) 33 000m2 fruit and vegetable, fresh and dry goods facility Serving a total of 392 customers: • 301 SPAR and MAXI retailers • 11 TopCC cash-and-carry outlets • A further 80 unbranded independent retailers 32 vehicles travel 3.4 million km’s p/year 3
Slide 55: Looking Forward
LOOKING FORWARD GRAHAM O’ CONNOR, CEO
Slide 56: Looking Forward: Group Priorities
LOOKING FORWARD: GROUP PRIORITIES Southern Africa • Organic growth and continued revamps throughout SPAR network • Leverage TOPS’ successful marketing and promotional campaigns • Investments to expand warehousing and distribution in South Africa • Conclude Zambia investment Ireland • Bed down Gillet
Slide 57: Prospects
PROSPECTS Uncompromising focus on organic growth in Southern Africa • Support existing and new retailers to ensure their success • Regardless of uncertainty of both economic and political landscape Irish economy remains robust • BWG Group well positioned to extend strong performance • Building on su
Slide 58: 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 59: Q&A
Q&A | SPAR KWIKSPARIQ SUPERSPARYD a Making home building simple PEUROSPARIO &) © BWG Shdis MACE ese@ SE? oy P= 59