Shoprite Holdings Limited · JSE:SHP
Shoprite — FY2019 Earnings Presentation
63 slides from Shoprite's earnings presentation, Aug 20, 2019
Slide 1: Results Presentation for the 52 weeks ended 30 June 2019
RESULTS PRESENTATION SHOPRITE(S) FOR THE 52 WEEKS ENDED 30 JUNE 2019 HOLDINGS LTD
Slide 2: a ep
a ep Se Se 2 934 OUTLETS any 147 268 EMPLOYEES NO. 1 PRIVATE EMPLOYER IN RSA AFRICA’S LARGEST RETAILER 1.12bn CUSTOMERS SERVED =e EJ 7.6bn PRODUCTS SOLD
Slide 3: Welcome
WELCOME 1. FINANCIAL RESULTS 2. OPERATIONAL OVERVIEW 3. STRATEGIC UPDATE 4. QUESTIONS
Slide 4: Financial Results
FINANCIAL RESULTS ANTON DE BRUYN
Slide 5: Financial Results
FINANCIAL RESULTS 1. KEY MEASURES 2. ITEMS IMPACTING COMPARABLE PERFORMANCE 3. FINANCIAL RESULTS 4. ESTIMATED IFRS 16 IMPACT
Slide 6: Key Measures
KEY MEASURES +7.4% H2 SALES GROWTH 23.5% GROSS PROFIT MARGIN 5.3% TRADING MARGIN: SUPERMARKETS RSA SUPERMARKETS RSA R265m R5.3bn +16.3% TRADING LOSS: CAPEX SPEND INVENTORY SUPERMARKETS NON-RSA 6
Slide 7: Performance Impact
PERFORMANCE IMPACT DEC 2018 JUN 2019 Centurion DC disruption profitability impact >R250m >R250m Movement in Supermarkets Non-RSA trading profit R614.5m R914.9m RMA to MAC R95.2m R95.2m 7
Slide 8: Impact on Results - IFRS 9
IMPACT ON RESULTS - IFRS 9 ● Financial instruments ● Classification, measurement and derecognition of financial assets and liabilities REQUIREMENT ● Introduces new rules for: ○ Hedge accounting ○ Impairment model for financial assets ● Change in accounting policies Statement of financial position FINANC
Slide 9: Impact on Results - IFRS 15
IMPACT ON RESULTS - IFRS 15 ● Revenue from contracts with customers ● Classification, measurement and disclosure of revenue REQUIREMENT ● Recognise revenue over time or at a point in time as or when: ○ Performance obligations satisfied ○ Control transfers 2018 COMPARATIVES: ● Change in accounting poli
Slide 10: Impact on Results - Hyperinflation
IMPACT ON RESULTS - HYPERINFLATION ● Angola’s economy was assessed to remain REQUIREMENT hyperinflationary ● Adjust index from acquisition to reporting date STATEMENT OF FINANCIAL POSITION Primary adjustments: PPE + R2.2bn ● Statement of financial position Reserves + R1.9bn FINANCIAL ● Statement of co
Slide 11: Financial Results
FINANCIAL RESULTS +3.6% 23.5% 4.6% SALES GROWTH GROSS PROFIT TRADING PROFIT MARGIN MARGIN R150.4bn R35.3bn R6.9bn 11
Slide 12: Financial Results
FINANCIAL RESULTS -17.9% -19.6% -34.1% BASIC EPS DILUTED HEPS DIVIDEND PER SHARE 768.2c 779.9c 319.0c 12
Slide 13: Sales Growth per Segment
SALES GROWTH PER SEGMENT Existing Net new Total stores stores Supermarkets RSA 1.9% 3.0% 4.9% Supermarkets Non-RSA -11.9% 4.2% -7.7% +3.6% SALES GROWTH Furniture 5.3% -1.3% 4.0% Other operating segments 6.2% 3.8% 10.0% R150.4bn Total operating segments 0.1% 3.1% 3.2% Consolidated 3.6% 13
Slide 14: Supermarkets RSA
SUPERMARKETS RSA SUPERMARKETS RSA CONTRIBUTION TO GROUP SALES 74.0% 74.9% 2018 2019 SALES GROWTH & +3.2% +4.6% 4.9% & SALES GROWTH TO Rest of SA R112.7bn business +25.7% 14
Slide 15: Supermarkets Non-RSA
SUPERMARKETS NON-RSA SALES CONSTANT GROWTH CURRENCY 7.7% (ZAR) GROWTH SALES DECLINE TO R21.3bn Zambia +0.4% +10.1% CONSTANT Angola -38.4% -12.2% CURRENCY GROWTH 0.9% Namibia +3.9% +3.9% 15.9% 14.2% 2018 2019 -0.0% +5.6% Nigeria SUPERMARKETS NON-RSA CONTRIBUTION TO GROUP SALES Mozambique +7.8% -1.0%
Slide 16: Non-RSA Currency Movements
NON-RSA CURRENCY MOVEMENTS 16
Slide 17: Gross Profit Margin
GROSS PROFIT MARGIN 0.3% -0.3% 23.9% -0.4% 23.5% 17
Slide 18: Other Operating Income
OTHER OPERATING INCOME 2018 2019 Change Rm Rm Finance income earned 355 320 -9.9% Net premiums earned 327 267 -18.3% Commission received 856 882 3.0% Operating lease income 455 504 10.8% Investment income 344 444 29.1% Franchise fees received 84 96 14.3% Sundry income 505 705 39.6% Total 2 926 3 218
Slide 19: Cost Analysis
COST ANALYSIS OTHER OPERATING DEPRECIATION OPERATING LEASES EMPLOYEE BENEFITS EXPENSES +4.3% +8.7% +10.6% +5.7% R2.6bn R4.6bn R12.0bn R13.3bn ● R88m impact as a result of the hyperinflation ● RSA like-for-like growth ● Implementation of the ● Electricity and water adjustment in line with CPI minimum
Slide 20: Trading Profit
TRADING PROFIT 2018 2019 Change Rm Rm Supermarkets RSA 6 551 5 952 -9.1% Supermarkets Non-RSA 650 -265 -140.8% Furniture 256 152 -40.6% Other operating segments 251 169 -32.7% Total operating segments 7 708 6 008 -22.1% Hyperinflation effect 316 868 174.7% Consolidated 8 024 6 876 -14.3% 20
Slide 21: Forex
FOREX 2018: R251m loss 2019: R115m gain LOSS GAIN ● Hedging strategy for Non-RSA was effective ● Investments (Angola): R3.0bn Exchange rate losses/gains (Rm) 21
Slide 22: Items of a Capital Nature
ITEMS OF A CAPITAL NATURE 2018 2019 Rm Rm Impairment of assets -49 -144 Loss on disposal and scrapping of assets & intangibles -108 -103 Profit on disposal of assets held for sale 20 101 Insurance claims receivable - 97 Impairment of intangible assets -51 -40 Other -58 9 Total -246 -80 22
Slide 23: Net Finance Cost
NET FINANCE COST 2018 2019 Rm Rm Interest income 215 273 Interest expense 422 845 Net finance cost 207 572 Rm 23
Slide 24: Taxation
TAXATION ● Deferred tax asset not recognised ● Impact on Diluted HEPS due to increase in effective rate: -4.3% ○ Diluted HEPS 2019: -19.6% ○ If effective tax rate remained unchanged at 28.9%, Diluted HEPS: -15.3% 24
Slide 25: Financial Position
FINANCIAL POSITION FIXED & INTANGIBLE ASSETS INVENTORY NET DEBT +1.3% +16.3% +132% R24.5bn R20.9bn R8.1bn 25
Slide 26: Capital Spend
CAPITAL SPEND NON-RSA 2018: 2019: -0.7% R1.4bn R5.3bn R5.3bn RSA R3.9bn TO MAINTAIN OPERATIONS R1.6bn TO EXPAND OPERATIONS Rm R3.7bn 26
Slide 27: Inventory
INVENTORY 2018: 2019: +16.3% R18.0bn R20.9bn +R3bn 2018 2019 Exports Food Stock Turn 13.8 12.9 (times) Cilmor DC Hyperinflation R60m R33m New stores included On shelf availability 74.2% of Group Rbn 27
Slide 28: 2019 Cash Flow
2019 CASH FLOW Cash flow (Rm) 28
Slide 29: Treasury
TREASURY 2018 2019 Rm Rm Cash and cash equivalents 7 465 7 707 Bank overdrafts -3 995 -4 124 Net cash position 3 470 3 583 Short term borrowings -5 606 -2 662 Long term borrowings -1 371 -9 044 Net Debt -3 507 -8 123 29
Slide 30: Debt Analysis
DEBT ANALYSIS DENOMINATION DETAILS R4.1bn ZAR Interest ranges: 8.4% - 8.8% Tenor: 3-5 years R7.4bn ($524.2m) USD Interest: 2.9% - 4.3% Tenor: 1-3 years KENYA: R84m NAMIBIA: R140m OTHER Interest: 9.2% 9.5% DENOMINATIONS Tenor: 3 years Payable on demand 30
Slide 31: IFRS 16 - Accounting for Leases
IFRS 16 - ACCOUNTING FOR LEASES ● Distinction between operating and finance leases removed ● Recognise an asset representing the right of use of leased item REQUIREMENT ● Recognise a financial liability to pay rentals ● Effective from 1 July 2019 ● 2019 comparatives will be restated ● Recognise a right
Slide 32: IFRS 16 - Estimated Impact on Statement of Financial Position
IFRS 16 - ACCOUNTING FOR LEASES ESTIMATED IMPACT ON STATEMENT OF FINANCIAL POSITION R15.8bn to R20.7bn to R16.8bn R21.7bn R26.2bn Region of R0.8bn to R19.7bn to R1.4bn R1.0bn R21.9bn 32
Slide 33: IFRS 16 - Estimated Impact on Comprehensive Income
IFRS 16 - ACCOUNTING FOR LEASES ESTIMATED IMPACT ON STATEMENT OF COMPREHENSIVE INCOME R530m to R4.3bn R830m R3.5bn to R3.8bn Includes: ● Trading profit ● Interest ● Forex (R460m - R520m) 33
Slide 34: IFRS 16 - Net Impact
IFRS 16 - NET IMPACT INTEREST & DEPRECIATION 2020 2 2~—_—sa2021 2022 ——“‘<‘«222Beti‘ié« 34
Slide 35: Operational Overview
OPERATIONAL OVERVIEW PIETER ENGELBRECHT
Slide 36: A Transformational Year
A TRANSFORMATIONAL YEAR ● ERP-replatforming necessary to improve global competitiveness ○ More than half of the stores went live during this financial year ○ New IT system for inventory, data, ordering and store ops ● Customer support remains strong despite strike and stock issues ● Price leadership
Slide 37: Supermarkets RSA: A Stronger H2
SUPERMARKETS RSA: A STRONGER H2 ● 4.9% sales growth for the year reflects two contrasting halves ● Back to business in H2 with improved volumes, visits and spend per visit 37
Slide 38: Supermarkets RSA Momentum
SUPERMARKETS RSA MOMENTUM ● Increasing sales momentum to 9.4% in Q4 ○ Regained R282m in market share ● Small uptick in internal inflation, however 9 679 items in deflation in June Internal Sell Inflation: 1.2% QUARTERLY SALES GROWTH SUPERMARKETS RSA RSA INTERNAL SELL INFLATION (36 MONTHS ENDING JUNE 20
Slide 39: Better On-Shelf Availability
BETTER ON-SHELF AVAILABILITY ● 2018 once-offs now behind us ● In-stock level surpasses pre-system implementation RSA IN-STOCK % Jan 2017 - June 2019 Gauteng DC Go-Live 39
Slide 40: Supermarkets Non-RSA
SUPERMARKETS NON-RSA ● Remain Africa’s No. 1 retail brand with growing customer base (+1.3%) ● Relentless trading conditions and extreme currency volatility ● Kenya greenfield operation ● Constant currency growth reflects underlying operational strength Sales Growth in Local Currencies +5.8% Ghana Zam
Slide 41: Angolan Operation
ANGOLAN OPERATION ● Angola operationally sound, but hampered by environmental factors ● Currency collapse and multi-year recession ○ National dependency on food importation -38.4% SUPERMARKETS ○ Gross margin affected by consumer affordability issues SALES GROWTH ○ Letters of Credit introduced impacted
Slide 42: Strong Liquor Performance
STRONG LIQUOR PERFORMANCE 42
Slide 43: Strategic Focus Areas
STRATEGIC FOCUS AREAS
Slide 44: R9.4bn
241 20 000 R9.4bn STORES EMPLOYEES SALES
Slide 45: Stores, Employees, Sales
2 779 147 268 R150.4bn STORES EMPLOYEES SALES
Slide 46: Next Era of Growth
NEXT ERA OF GROWTH 2020 SHIFT FROM i EXPLOSIVE ' ) EXPANSION TO ‘ ) 2022 \ PRECISION GLOBAL RETAILING COMPETITIVENESS . OPTIMISE ,— [GNITE \ 46
Slide 47: Nine Strategic Focus Areas
NINE STRATEGIC FOCUS AREAS 47
Slide 48: 1. A Truly Customer-First Culture
1. A TRULY CUSTOMER-FIRST CULTURE ● Digital Customer Transformation on top of ERP system ○ Deepen customer knowledge and personalised experiences ● Low Price leadership remains our North Star Customer Satisfaction Survey 48 n =10,116 (July 2019)
Slide 49: Customer Target Market
1. A TRULY CUSTOMER-FIRST CULTURE Upmarket CUSTOMER TARGET MARKET Price Sensitive 49 Product Range
Slide 50: 2. Develop Future-Fit Channels
2. DEVELOP FUTURE-FIT CHANNELS Race for Reach ● Accelerating digital presence to match physical footprint ● On-demand liquor home delivery showing great promise with our proximity advantage Establishment Survey 2018 50
Slide 51: 3. Enable Precision Retailing
3. ENABLE PRECISION RETAILING ● Sweat existing assets ○ Investment in analytics ○ Smarter Pricing and Promotions ○ Accelerate stock turn ● Fit-for-the-future talent ○ Customer, E-commerce, Supply Chain, Financial services, Sustainability 51
Slide 52: 4. Trusted, Profitable Private Labels
4. TRUSTED, PROFITABLE PRIVATE LABELS ● SA Private Label participation up 30 bps to 16.5% ● 21 Own brands worth > R100m each in annual sales ● Opportunity remains as we still underindex industry average Private Label Participation RSA Supermarkets three months moving (2016-2019) 52
Slide 53: Low Price Leader, Best Value, Diversified Private Label Portfolio
LOW PRICE LEADER BEST VALUE DIVERSIFIED PRIVATE LABEL PORTFOLIO GENERAL MERCHANDISE PREMIUM & FRESH 53
Slide 54: 5. Grow Share in Premium Food & Fresh
5. GROW SHARE IN PREMIUM FOOD & FRESH ● Opportunity for Checkers in premium food retail remains ● Chasing share of wallet of 1.9m LSM 8-10 cross-shoppers ● More equal access to healthier, value-added foods ● Checkers supermarket format sales up 8.9% in second half 54
Slide 55: 5. Grow Share in Premium Food & Fresh
5. GROW SHARE IN PREMIUM FOOD & FRESH CHECKERS FRESHX CONSTANTIA & SANDTON Open by Dec ‘19 55
Slide 56: 6. A Stronger Franchise Offer
6. A STRONGER FRANCHISE OFFER ● 9.8% like for like growth: market share up by ⅓ in three years ○ 2% of total measured food retail share in SA ● Accelerated integration with Group supply chain ○ Increased Fresh, Non-foods and Private Label ○ Consolidating four DCs ● OK Express forecourt format increa
Slide 57: 7. Preserve African Advantage
7. PRESERVE AFRICAN ADVANTAGE ● Proud of the Non-RSA team’s resilience ● Limit new capex but remain poised for economic upturn ● Committed to the continent but not at all costs ● Replacement value of infrastructure hard to replicate after 25 years ○ 424 stores in 14 countries African working populat
Slide 58: 8. Refocus Capital Allocation
8. REFOCUS CAPITAL ALLOCATION ● Move toward formats closer to customers’ homes ● Create flexibility and agility in capital allocation through the sale of non-strategic assets ○ Rightsize property portfolio, focus on retail ○ DCs at good cap rate with leases to secure useful life ○ Truck fleet ● Invest
Slide 59: 9. Unlock Alternative Revenue
9. UNLOCK ALTERNATIVE REVENUE Monetisation of 2 779 stores, 22m customer visits per week & supply chain strength 59
Slide 60: Nine Strategic Focus Areas
NINE STRATEGIC FOCUS AREAS 60
Slide 61: Outlook
OUTLOOK
Slide 62: Outlook
● Focused on growth opportunities in existing markets ● Return on technology investment and supply chain productivity ● Innovation projects will operationalise in first half ● Internal inflation expected to increase ● Little respite in Non-RSA conditions, but mitigation plans in place ● RSA sales mome
Slide 63: Thank You | Questions
THANK YOU | QUESTIONS SHOPRITE (6)