Shoprite Holdings Limited · JSE:SHP
Shoprite — H1 2008 Earnings Presentation
47 slides from Shoprite's earnings presentation, February 2008
Slide 1: Interim results for the six months ended December 2007
Interim results for the six months ended December 2007 1
Slide 2: Agenda
Agenda • Financial Highlights • Furniture • Operating Highlights • Business Overview • Questions 2
Slide 3: Financial Highlights
Financial Highlights Carel Goosen Deputy Managing Director 3
Slide 4: Size of Operation
Size of Operation Dec 2007 Turnover R23 bn Owned Outlets 960 Franchised outlets 260 Countries 17 Employees 75,000 4
Slide 5: Financial Results
Financial Results Turnover + 21.7% R 23,3bn Trading Profit + 42.2 % R 1,019bn Trading Margin from 3.8% to 4.4 % Diluted Headline EPS + 55.1% 128.4c Dividend per share + 40.1% 49.0c proposed 5
Slide 6: Key Information
Key Information • Turnover – Total + 21.7% – RSA Supermarkets + 22.1% – Non-RSA Supermarkets + 32.4% – Furniture + 3.2% – Franchise + 17.7% • Trading profit – Total + 42.2% – RSA Supermarkets + 40.5% – Non-RSA Supermarkets > 100.0% – Furniture - 19.0% – Franchise + 63.1% 6
Slide 7: Value Added Statement (R million)
Value Added Statement (R million) • Employees 1 952 • Providers of Capital 361 • Tax 402 • Re-invested 633 Re-invested 19% Employees Tax 12% 58% 11% Providers of Capital 7
Slide 8: Sales Growth Analysis
Sales Growth Analysis Existing New Total stores stores RSA Supermarkets 17.4% 4.7% 22.1% Non-RSA Supermarkets 20.2% 12.2% 32.4% Furniture (3.7%) 6.9% 3.2% Franchise 17.0% 0.7% 17.7% 8
Slide 9: Store Portfolios
Store Portfolios July 2007 Opened Closed Dec 2007 Supermarkets 604 22 4 622 Furniture 216 15 2 229 Hungry Lion 97 12 - 109 Own Store 917 49 6 960 Franchise 264 17 21 260 Total Store 1,181 66 27 1,220 Pharmacies 44 6 1 49 Liquor store 18 7 - 25 Countries 17 - - 17 9
Slide 10: Highlights of Results: Gross margin
Highlights of Results Gross margin Dec 2006 Dec 2007 Margins slightly lower: 20.1% 20.0% • Aggressive retail market • Sacrificed gross margin for turnover growth 10
Slide 11: Highlights of Results: Other operating income
Highlights of Results Other operating income increased 5.9% Dec 2006 Dec 2007 Growth R’m R’m % Finance income earned 78 81 3.8 Net premiums earned 89 96 7.9 Operating head-lease income 86 92 7.0 Commission received 79 96 21.5 Franchise fees received 11 13 18.2 Investment income 6 6 0.0 Sundry income
Slide 12: Highlights of Results: Operating costs
Highlights of Results • Depreciation and amortisation increased 13.0% – Increased spend on revamps and new branches • Operating lease increased 13.1% – Due to 49 corporate stores opened in last 6 months – Turnover rentals on high sales growth • Employee benefits increased 23.7% – Resulting staffing
Slide 13: Highlights of Results: Trading profit
Highlights of Results • Trading profit increased 42.2% with turnover increasing by 21.7% – Contained overhead costs – Growth in service departments – Trading margin 4.4% highest ever – Increased contribution from Non-RSA operations 13
Slide 14: Highlights of Results: Exchange rates
Highlights of Results Exchange rate gains • Dec 2006: R20 million gain • Dec 2007: R 7 million gain Rand to US Dollar exchange rates (R:$) • June 2006 R7.11 • December 2006 R6.97 • June 2007 R7.10 • December 2007 R6.89 14
Slide 15: Highlights of Results: Capital Expenditure
Highlights of Results Capital Expenditure Dec 2006 Dec 2007 R’m R’m Land and buildings 142.8 215.4 Store Refurbishment 160.1 123.0 New Stores 146.0 97.8 Information Technology 26.7 29.6 Other replacements* 183.2 178.6 Total 658.8 644.4 *Distribution Centres, Motor Vehicles & Office Furniture 15
Slide 16: Highlights of Results: Interest and tax
Highlights of Results Dec 06 Dec 07 R’m R’m Capital items 21.8 (4.6) – Mainly due to disposal of fixed assets Net interest received 2.5 63.0 – Higher interest rates and improved cash flows Tax – Normal and deferred 267.0 371.6 – STC 31.6 30.3 Total 298.6 401.9 16
Slide 17: Highlights of Results: Inventory
Highlights of Results Dec 06 Dec 07 Growth R’m R’m % Inventory 4,074 4,650 14.1 Provisioning of new stores Avoid “out-of-stock” due to low supplier service standards Back to School 2008 Cash balances vs. Trade Creditors Increases due to balance sheet closing date 17
Slide 18: Highlights of Results: Debtors
Highlights of Results Debtors Dec 2006 Dec 2007 Growth R’m R’m % Furniture 672 687 2.2 Franchise 346 393 13.6 Buy aid organisations 162 162 0.0 Other receivables 562 656 16.7 Total 1,742 1,898 9.0 18
Slide 19: Cash flow reconciliation
Highlights of Results Cash flow reconciliation R’m Cash at June 2007 1,988 Cash from operations 1,259 Changes in working capital 497 Net interest received 69 Dividends paid (336) Tax paid (412) Purchase of assets and other investments (650) Proceeds on disposal of assets and investments 207 Other (3
Slide 20: Cash Earnings
Highlights of Results Cash Earnings* (R’m) 1,000 + 34.1% 800 + 10.5% 916 600 683 400 618 200 - 2005 2006 2007 *Cash flows from operating activities excluding dividends paid and changes in working capital 20
Slide 21: HEPS vs Cash EPS vs EBITDA per share
Highlights of Results HEPS vs Cash EPS* vs EBITDA per share (cents) 300 HEPS Cash EPS EBITDA per share 250 258 200 195 150 181 147 100 135 134 122 86 50 68 - 2005 2006 2007 *Cash flows from operating activities excluding dividends paid and changes in working capital 21
Slide 22: Furniture
Furniture Aubrey Karp 22
Slide 23: Furniture: Highlights
Furniture • Highlights – Sales increase by 3.2% to R1.22bn – Sales and income growth in OK Furniture outstrips inflation – 15 new stores opened – First batch of salespeople learnerships almost complete – Trading profit drops by 19.0% to R100.61 million (2007 – R123.72 million) Mainly affected by poo
Slide 24: Furniture: Trading environment
Furniture • Trading environment – Continued slowdown in expenditure in middle to higher Consumer LSM’s leading to less disposable income – Reductions in disposable income precipitated by: Past uncontrolled and excessive credit binge and high levels of Consumer credit exposure Higher interest rates a
Slide 25: Furniture: Stores opened
Furniture Confirmed Stores Opened Total until June 2008 OK Furniture 11 180 4 OK Power Express 0 14 0 House and Home 4 35 4 Total 15 229 8 Target remains 237 stores by June 2008 25
Slide 26: Furniture: Sales Growth
Furniture • Sales Growth Dec 2006 Dec 2007 R’000 R’000 Increased by 3.2% 1 180 431 1 217 707 • OK Furniture increased by 8.45% (GEB 2.49%) • House and Home decreased by 3.20% (GEB – 4.03%) 26
Slide 27: Furniture: Sales Mix – Merchandise Sales
Furniture • Sales Mix – Merchandise Sales Dec Dec 2006 2007 Home entertainment & 64% 66% appliances Furniture, bedding, patio & 36% 34% carpeting 27
Slide 28: Furniture: Sales Mix – Cash and Credit
Furniture • Sales Mix – Cash and Credit Dec Dec 2006 2007 Cash 66.6% 69.4% Credit 33.4% 30.6% # of new contracts (11.5% 144 869 128 239 decrease) 28
Slide 29: Furniture: National Credit Act
Furniture National Credit Act – Expectation of negative effect on credit advancement proved to be valid, particularly in the market serviced by House and Home – Affordability definition still problematic as Act still provides no specific guidelines on formula standardisation – Debtors reluctant to p
Slide 30: Furniture: Trading Profits
Furniture • Trading Profits Dec 2006 Dec 2007 R’000 R’000 Decreased by 19.0% 123 719 100 608 • Affected by: – Low inflation – Ongoing market competitiveness – Affects margins – Slow trading in the House and Home affects all other incomes Contract initiation fees and finance, insurance and carpet fit
Slide 31: Furniture: Debtors Book
Furniture % Debtors Book Dec 2006 Dec 2007 Variance Debtors Book Balance R1.06 billion R1.03 billion -2.8 - Decrease 32.7 million Actual Arrears - Increase in House and Home 3.1% 4.7% -1.6 due to reduction in Book Balance Balance of Contract Arrears 12.6% 19.6% -7.0 Bad Debt and UFC Provisions 19.6%
Slide 32: Furniture: Prospects & Growth
Furniture • Prospects & Growth – Slower growth expected to continue – arising from ongoing erosion of disposable income caused by previous (and future?) interest rate increases, rising food, medical and petrol costs and high debt levels affecting NCA affordability – Negative effects of new Credit Ac
Slide 33: Furniture: Prospects & Growth Focus points
Furniture • Prospects & Growth Focus points: – Store footprint expansion – Ongoing customer service improvement – Continued achievement of volume growths through discounted pricing (Other Retailers starting to follow) – Increased imported product participation (margin advantage) – Further staff trai
Slide 34: Operating Highlights
Operating Highlights Whitey Basson Chief Executive Officer 34
Slide 35: Operating Highlights
Operating Highlights • Sales growth of 21.7% • Increase in customers of 13.2% • Market Share of 29.4% • Profit growth of 42.2% • Net Margin the last 3 years – 2005: 3.4% – 2006: 3.8% – 2007: 4.4% 35
Slide 36: Non-RSA
HOLOINGS LTD mt Precos boixos em que prde coals
Slide 37: Non-RSA Supermarkets
Non-RSA Supermarkets 2007 2008 Turnover growth 28% 32% Non-RSA sales participation 11% 12% Number of Stores 95 99 Profit growth > 50% > 100% Good shrinkage maintained 37
Slide 38: Total Non RSA Turnover Growth
Total Non RSA Turnover Growth Dec 04 Dec 05 Dec 06 Dec 07 38
Slide 39: Non-RSA Supermarkets: Required improvements
Non-RSA Supermarkets • Required improvements: – Supply Chain – reduce lead times – Banned products – Nigeria – Reduce security costs – Increase private label product participation 39
Slide 40: Exchange Rates
Exchange Rates Dec % Movement Dec 2007 2006 Change against the Rand Mauritius 4.7 4.1 - 14.0 Strengthens Zambia 629.3 550.0 -12.6 Strengthens Madagascar 298.8 266.3 -10.9 Strengthens Tanzania 180.6 162.4 -10.1 Strengthens India 6.4 5.7 -9.9 Strengthens Mozambique 3.7 3.4 -7.8 Strengthens Nigeria 18.
Slide 41: Supermarket Complimentary Services
Supermarket Complimentary Services 41
Slide 42: Money Transfers and Insurance
• Money Transfers grown 520% (1bn annually) • Insurance successfully launched – a world first top-up life cover • Introduced Mango flight tickets (51% of sales in Shoprite stores – new middle class?) • Latest retail first soon with 100% no claim cash back life cover 42
Slide 43: Computicket
• Sales growth of 40% • Created Computicket in a box (plug ‘n play anywhere) • Now also provide venue Access Control linked to the ticketing system • Biggest long running show – Lion King > R150m • Currently has over 5800 events on sale 43
Slide 44: Pharmacies
• 6 Pharmacies opened, now a total of 49 • GEB growth 17% • 1st Non-RSA pharmacy • Still no finality regarding pricing • Dispensing not profitable • Positive growth in customer count of 33% • Shortage of pharmacists 44
Slide 45: Liquor stores
• 25 stores trading • Trading density 3 times that of supermarkets • Opened 1st Non-RSA store • Positive contribution to overall store offering • Combined with supermarkets - total wine sales increased • Excellent penetration in Shoprite market segment • 50 new applications submitted 45
Slide 46: Hungry Lion
• Opened 12 stores with a total of 113 • Total sales growth 29% • 8th position in the Sunday Times Markinor brand survey • 32 million pieces of chicken sold during 6 months • 350 new jobs created during last year 46
Slide 47: Franchise
• Turnover growth of 17.7% • Like for like members grew at 17% • Growth from a stable and loyal member base 47