Spar Group Limited · JSE:SPP
Spar — The SPAR Group — H1 2018 Earnings Presentation
43 slides from Spar's earnings presentation, May 29, 2018
Slide 1: SPAR Interim Results Presentation for the Six Months Ended 31 March 2018
SPAR INTERIM RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 MARCH 2018
Slide 2: Agenda
AGENDA INTRODUCTION: SPAR GROUP PERFORMANCE SUMMARY Graham O’Connor, CEO SALIENT FEATURES BUSINESS ENVIRONMENT FINANCIAL OVERVIEW Mark Godfrey, CFO OPERATIONAL OVERVIEW Graham O’Connor, CEO PROSPECTS QUESTIONS SPAR INTERIM RESULTS PRESENTATION 2018 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 48 countries with 242 distribution centres and serving 13.5 million customers every day • 12 777 stores €34.5bn p.a. global turnover • South Africa is the second biggest SPAR country by turnover • Ireland is 10th biggest SPAR country by tu
Slide 5: SPAR Group: Facts and Figures (continued) - Ireland
SPAR GROUP: FACTS AND FIGURES (continued) Ireland/South West England: BWG services >1 330 stores across six brands, €681.5m (ZAR10.5bn) wholesale turnover in H1 F2018 • Wholesale and distribution of groceries + fresh produce, liquor to retail/catering/hospitality sectors • Dominant brands in the con
Slide 6: SPAR Group: Facts and Figures (continued) - Switzerland
SPAR GROUP: FACTS AND FIGURES (continued) Switzerland: SPAR Switzerland services 289 stores across three brands + 11 Cash & Carry outlets, CHF365.0m (ZAR4.8bn) wholesale turnover in H1 F2018 • Responsible for operation of 40 corporate stores + 249 independent retailer stores • Modern logistics centr
Slide 7: SPAR Group: Facts and Figures (continued) - Pharmaceutical
SPAR GROUP: FACTS AND FIGURES (continued) • 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 Spec
Slide 8: Performance Summary
PERFORMANCE SUMMARY • The SPAR Group reported strong performance and turnover increased to R50.0bn • SPAR Southern Africa grew wholesale turnover by 6.8%, impacted by early timing of Easter • S Buys pharmaceutical wholesale business acquired October 2017 and trading results included for 6 months • S
Slide 9: Performance Summary
PERFORMANCE SUMMARY NET ASSET VALUE PER SHARE HEADLINE EARNINGS PER SHARE (CENTS) (CENTS) H1 2018 3334,7 H1 2018 509,1 541,2 H1 2017 3005,6 H1 2017 445,1 475,5 H1 2016 504,3 H1 2016 2 002,0 480,0 H1 2015 430,3 H1 2015 1 821,2 455,5 H1 2014 372,0 H1 2014 1 876,9 Normalised H1 H1 SPAR INTERIM RESULTS
Slide 10: Salient Features
SALIENT FEATURES Rmillion H1 2018 H1 2017 Change (%) Turnover 50 026.6 47 353.4 +5.6 Operating profit 1 316.2 1 206.8 +9.1 Profit before tax 1 345.9 1 229.7 +9.4 Earnings per share (cents) 533.7 471.6 +13.2 Headline earnings per share (cents) 541.2 475.5 +13.8 Dividend per ordinary share (cents) 270
Slide 11: Business Environment
BUSINESS ENVIRONMENT SOUTH AFRICA IRELAND SWITZERLAND • Positive changes in • Irish grocery market remains • Improving economic economic and political deflationary indicators landscape • 5.7% GDP growth projected • Private local consumption • Muted 1.7% GDP expected for 2018 remains negative – cross
Slide 12: Financial Overview
FINANCIAL OVERVIEW MARK GODFREY CFO
Slide 13: Overview: Key Regional Metrics
FINANCIAL OVERVIEW: KEY REGIONAL METRICS Southern SPAR Rmillion Africa Ireland Switzerland Group Income statement Turnover 34 706.8 10 487.9 4 831.9 50 026.6 Gross profit 2 846.9 1 266.7 854.6 4 968.2 Gross profit % 8.2% 12.1% 17.7% 9.9% Operating expenses 2 119.1 1 236.5 1 209.9 4 565.5 Profit befo
Slide 14: Overview: Turnover
FINANCIAL OVERVIEW: TURNOVER Rmillion H1 2018 H1 2017 Change (%) SPAR/TOPS 30 606.7 29 125.0 +5.1 Liquor sales (SPAR/TOPS) 3 366.7 2 989.2 +12.6 Build it 3 661.7 3 373.2 +8.6 Southern Africa (comparable base) 34 268.4 32 498.2 +5.4 S Buys – Pharmaceutical business 438.4 - - Total Southern Africa 34
Slide 15: Turnover: Ireland Sales Analysis of Growth
FINANCIAL OVERVIEW: TURNOVER | continued Ireland: Sales analysis of growth H1 2018 % H1 2017 Ireland (BWG Group) ZAR9.25bn +9.5 ZAR8.45bn S-W UK (Appleby ZAR1.23bn +3.4 ZAR1.19bn Westward Group) Total Sales ZAR10.48bn +8.8 ZAR9.64bn Effect of exchange rate Ireland (BWG Group) 9.5% Performance of cor
Slide 16: Turnover: Switzerland Sales Analysis of Growth
FINANCIAL OVERVIEW: TURNOVER | continued Switzerland: Sales analysis of growth H1 2018 % H1 2017 Ex-warehouse ZAR2.02bn (2.2) ZAR2.07bn TopCC ZAR1.94bn (4.0) ZAR2.02bn Corporate retail ZAR0.87bn (23.0) ZAR1.13bn Total Sales ZAR4.83bn (7.4%) ZAR5.22bn Effect of exchange rate Total Ex- Top CC Corporat
Slide 17: Overview: Inflation per Segment
FINANCIAL OVERVIEW: INFLATION PER SEGMENT H1 2018 H1 2017 SPAR wholesale business 1.9% 8.2% Liquor 3.9% 5.7% Build it c.3.4% c. 3.3% 1. SPAR Southern Africa: Inflation expectations for remainder of 2018: › Current trend (regional ranges) +1.8% - 3.1% › Real risk of inflation increasing in the short
Slide 18: Overview: Gross Margins
FINANCIAL OVERVIEW: GROSS MARGINS H1 2018 (GP%) H1 2018 H1 2017 (GP%) Rmillion Turnover (Rm) Southern Africa (Comparable base) 8.2% 34 268.4 8.1% S Buys 9.3% 438.4 - Total Southern Africa 8.2% 34 706.8 8.1% Ireland 12.1% 10 487.9 12.2% Switzerland – supplier income renegotiated as 17.7% 4 831.9 13.9
Slide 19: Gross Margins (continued)
FINANCIAL OVERVIEW: GROSS MARGINS | continued Ireland - GP% performance reflected slight decline which was attributable to: - Decrease in the margins of Gilletts corporate stores - Positive trading performances from BWG Foods – growth in perishable business Switzerland - GP% increase attributable to
Slide 20: Overview: Expenses
FINANCIAL OVERVIEW: EXPENSES H1 2018 H1 2017 Expenses Expenses Increase % of Sales % of Sales (Rm) (Rm) (%) Southern Africa (Comparable base) 2 078.9 6.1% 1 909.3 5.9% +8.9% S Buys 40.2 9.2% - - - Southern Africa 2 119.1 6.1% 1 909.3 5.9% +11.0% Ireland 1 236.5 11.8% 1 144.7 11.9% +8.0% Switzerland
Slide 21: Expenses (continued) - Southern Africa
FINANCIAL OVERVIEW: EXPENSES | continued Southern Africa • S Buys consolidated for the first time: Contributed 2.1% to the increase • This business has inherently high cost ratio due to pharmaceutical distribution • Warehouse & distribution expenses contributed 2.9% • Employment costs – Impact of wa
Slide 22: Expenses (continued) - Ireland and Switzerland
FINANCIAL OVERVIEW: EXPENSES | continued SPAR Ireland • Expenses grew by 2.1% in EURO terms – Once again very well controlled • Major drivers were: Depreciation +7.9% and Staff costs +5.5% - Retain key staff and additional Gilletts stores • Partly offset by reduction in corporate store costs • Up 8%
Slide 23: Overview: Cash Flow
FINANCIAL OVERVIEW: CASH FLOW Rmillion H1 2018 H1 2017 Cash flow from operating activities (adjusted for non-cash items) 1 672.2 1 488.8 Working capital changes (1 643.9) (1 380.5) • Increase in inventory (250.9) (139.7) • Increase in trade receivables (399.6) 252.0 • Decrease in trade payables (993
Slide 24: Cash Flow (continued)
FINANCIAL OVERVIEW: CASH FLOW (continued) (1,644) 346 10 1,316 • Cash generated from 1,472 (321) (30) operations: down to R28.3m (838) › Significantly decreased (385) payables in South Africa (314) (payment timings) (231) (63) (217) 32 90 (851) (74) › Increased inventories across all operations (Eas
Slide 25: Currency Impacts (vs ZAR)
CURRENCY IMPACTS (VS ZAR) ZAR/€ exchange rate: ZAR/€ exchange rate: October 2016 - March 2017 October 2017 - March 2018 17,00 17,00 16,50 16,50 Closing 16,00 Closing 16,00 Spot Rate 15,50 Spot Rate 15,50 14.57 15,00 14.29 15,00 14,50 14,50 14,00 14,00 13,50 13,50 13,00 13,00 12,50 12,50 12,00 12,00
Slide 26: Earnings and Headline Earnings per Share
EARNINGS AND HEADLINE EARNINGS PER SHARE Change Rmillion H1 2018 H1 2017 (%) Profit for the period attributable to ordinary shareholders 1 027.7 908.0 +13.2 Adjusted for: Net loss on disposal of property, plant and equipment 7.7 13.3 Impairment of goodwill 4.5 5.3 Loss / (Profit) on disposal of busi
Slide 27: Reconciliation of Normalised HEPS
FINANCIAL OVERVIEW: RECONCILIATION OF NORMALISED HEPS Rmillion H1 2018 H1 2017 Change (%) Reported headline earnings 1 042.1 915.5 +13.8 Adjusted for: • Fair value adjustment (not considered necessary in this period) - - • Foreign exchange (gain) on minority liability (65.5) (58.4) • Business acquis
Slide 28: Reconciliation of Dividend Declaration
FINANCIAL OVERVIEW: RECONCILIATION OF DIVIDEND DECLARATION H1 Rmillion 2018 Reported headline earnings 1 042.1 Adjusted for: • Forex gain on financial liability measurement (non-cash related) (65.5) Adjusted headline earnings 976.6 Dividend cover (consistent with H1 2017) 1.88 times Dividend declare
Slide 29: Overview: Key Regional Metrics - Balance Sheet
FINANCIAL OVERVIEW: KEY REGIONAL METRICS Rmillion Southern SPAR Africa Ireland Switzerland Group Balance sheet Property, plant and equipment 2 648.1 1 476.8 2 210.2 6 335.1 Goodwill and intangible assets 647.5 3 004.1 288.4 3 940.0 Current assets 10 879.9 3 756.8 1 695.2 16 331.9 Current liabilities
Slide 30: Capital Expenditure: Increasing Distribution Capacity
CAPITAL EXPENDITURE: INCREASING DISTRIBUTION CAPACITY Rmillion H1 2018 H1 2017 Investing to expand operations (221.5) (299.9) Investment to maintain operations (163.4) (205.6) • Replacement of property, plant and equipment (185.1) (208.9) • Proceeds on disposal of property, plant and equipment 21.7
Slide 31: Regional Capital Expenditure
REGIONAL CAPITAL EXPENDITURE Rmillion Expansion Replacement Total South Africa 67.5 56.8 124.3 Ireland 108.3 61.6 169.9 Switzerland 45.7 45.0 90.7 221.5 163.4 384.9 SPAR INTERIM RESULTS PRESENTATION 2018 31
Slide 32: Summary of Salient Features
SUMMARY OF SALIENT FEATURES Rmillion H1 2017 H1 2016 Change (%) Turnover 50 026.6 47 353.4 +5.6 Gross profit 4 968.2 4 538.2 +5.6 Gross profit (%) 9.9% 9.6% - Operating profit 1 316.2 1 206.8 +9.1 Profit after tax 1 027.7 908.0 +13.2 Headline earnings per share (cents) 541.2 475.5 +13.8 Normalised h
Slide 33: Operational Overview
OPERATIONAL OVERVIEW GRAHAM O‘ CONNOR CEO
Slide 34: Operational Review: Retail Performance: Turnover
OPERATIONAL REVIEW: RETAIL PERFORMANCE: TURNOVER Total growth Like for like SPAR 4.9% 2.9% TOPS 12.8% 8.6% Build it 10.4% 5.4% • Continued uptake of SPAR house brands by consumers seeking value: Private label sales up 2.9% • TOPS benefited from strong marketing initiatives • Build it turnover driven
Slide 35: Operational Performance Southern Africa: SPAR
OPERATIONAL PERFORMANCE SOUTHERN AFRICA: SPAR TURNOVER ANALYSIS Rmillion Retail turnover remains under pressure with weak consumer spend WHOLESALE TURNOVER TURNOVER H1 18 27.2 • Combined food & liquor retail sales: +5.7% ▲4.2% • Same store retail turnover: +2.9% H1 17 26.1 • Internally measured food
Slide 36: Operational Performance: TOPS at SPAR
OPERATIONAL PERFORMANCE: TOPS AT SPAR TURNOVER ANALYSIS Rmillion Retail turnover impacted by strong marketing WHOLESALE initiatives and brand continued to attract TURNOVER TURNOVER H1 18 3,4 consumers ▲12.6% H1 17 3,0 • +12.8% increase in retail turnover • +8.6% same store retail turnover growth H1
Slide 37: Operational Performance: Build it
OPERATIONAL PERFORMANCE: BUILD IT TURNOVER ANALYSIS Rmillion Sector leading sales growth performance. WHOLESALE TURNOVER TURNOVER H1 18 3,7 Increased retailer loyalty through improved ▲8.6% pricing H1 17 3,4 • Retail turnover growth: +10.4% in South Africa H1 18 6,5 RETAIL ▲10.4% • Building sector i
Slide 38: Operational Performance: SPAR Ireland (BWG Group)
OPERATIONAL PERFORMANCE: SPAR IRELAND (BWG GROUP) BWG Group strong performance with EURO-denominated growth of 2.9% • Recent deflation trends have slowed and reversed in certain product categories • Food and non-alcoholic drinks declined 0.2%, while alcohol and tobacco increased 0.1% • Despite econo
Slide 39: Operational Performance: SPAR Switzerland
OPERATIONAL PERFORMANCE: SPAR SWITZERLAND Retail sales continued to be negatively impacted by low economic growth. Slight inflationary trends noted – prices of food and non-alcoholic beverages increased by 0.9% and alcoholic beverages up 0.4% • In EURO terms, sales of this business declined by 5.3%
Slide 40: Prospects
PROSPECTS GRAHAM O‘ CONNOR CEO
Slide 41: Prospects
PROSPECTS The trading environment in Southern Africa is expected to remain largely unchanged in the medium term • Recent political changes have resulted in increased consumer and business confidence but this is yet to translate into economic growth • Current levels of food price inflation are at ris
Slide 42: Q&A
Q&A SPAR INTERIM RESULTS PRESENTATION 2018 42
Slide 43: 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