Shoprite Holdings Limited · JSE:SHP
Shoprite — H1 2008 Earnings Presentation
68 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
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
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
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
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
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
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
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
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
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: Highlights of Results
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: Highlights of Results
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: Highlights of Results
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
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
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
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
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
Furniture • Sales Mix – Merchandise Sales Dec Dec 2006 2007 Home entertainment & 64% 66% appliances Furniture, bedding, patio & 36% 34% carpeting 27
Slide 28: Furniture
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
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
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
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
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
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
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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
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 services
• 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
• 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
• Turnover growth of 17.7% • Like for like members grew at 17% • Growth from a stable and loyal member base 47
Slide 48: Supermarkets
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Slide 49: RSA Overview
RSA Overview • Customer growth of 13.2% • Shoprite positioning captured the shift in disposable income • This is proven by the fact that some geographical divisions grew 30 – 40% • Total Market share growth of 1.08% • Like for like market share increase of 1.29% 49
Slide 50: RSA Overview
RSA Overview • Exceptional growth in food led to decreased Non Food participation • This together with cost price pressure from China pressurised GP margins • However, trading profit margins improved due to cost efficiencies from 3.8% to 4.4% despite being the lowest priced supermarket in SA 50
Slide 51: Supermarkets opened in period
Supermarkets opened in period Total planned for Total opened until Brand Remainder 2007/2008 fiscal December 2007 Shoprite 8 6 2 Checkers 8 3 5 Usave 18 8 10 Total 34 17 17 51
Slide 52: Current Supermarket Stores
Current Supermarket Stores Shoprite 106 Checkers 24 CH Hyper USave 373 119 Total: 622 52
Slide 53: Shoprite
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Slide 54: RSA Shoprite Overview
RSA Shoprite Overview • Sales growth 27.3% • Market leader: 301 stores RSA • 6 new stores opened • Grown customer base 15.55% 54
Slide 55: Market Position – The Shoprite Price!
Market Position – The Shoprite Price! • 33 million customers per month • More shoppers than any other supermarket – now more than 12 million individuals (AMPS 2007) • Highest customer loyalty - 42% of Shoprite customers shop exclusively at Shoprite (Amps 2007) 55
Slide 56: Any Food Shopping
Any Food Shopping (multiple response) 42% of all SA Adults shop at Shoprite whilst more than half of SA Adults shop at either Shoprite or Checkers 60% 52% 50% 42% 40% 30% 30% 28% 26% 20% 14% 10% 0% Shoprite Ch & Hyp Shoprite P'nP Group Spar Group Woolworths Group Source: AMPS (All Media and Products
Slide 57: 2nd Store of choice for competitors' main shoppers
2nd Store of choice for competitors’ main shoppers Shoprite is the most preferred 2nd shopping destination amongst its major competitors loyalist bulk shoppers Pick 'n Pay 36 Spar 34 Woolworths 28 Checkers 23 0 10 20 30 40 50 60 Source: AMPS (All Media and Products Survey) 2007 57
Slide 58: Retailer support in eight informal settlements
Retailer support measured amongst the residents of eight informal settlements Woolworths 4% Q: Who do you support most? (single response) SPAR 7% Checkers 9% Pick 'n Pay 19% 47% Shoprite 0% 10% 20% 30% 40% 50% Source: Infusion My Shopping October 2007 58
Slide 59: Usave
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Slide 60: Usave Number of Stores
Usave Number of Stores Jun 07 - Jun 07 - Jun 06 Total Open Closed RSA 77 8 2 83 Non-RSA 22 1 0 23 Total 99 9 2 106 60
Slide 61: Usave Overview
Usave Overview • Total sales growth 44.1% (GEB 28.2%) • Customer Growth 22.5% • ROI in excess of 25% • GP% consciously reduced by 2% - resulted in positive profit growth • Introduced full automated replenishment which reduced stockholding further • 114 private labels allowed additional GP of 9.5% •
Slide 62: Checkers
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Slide 63: RSA Checkers Overview
RSA Checkers Overview • Sales growth 13.4% • 3 new stores opened • Basket size growth 6.7% • Customer growth 6.3% • Hyper store growth lagging 63
Slide 64: Checkers
Checkers • Now 2nd most loyal shopper count after Shoprite, 32% of Checkers shoppers shop exclusively at Checkers (AMPS 2007) • More than 13 million customers per month • More than 5 million individuals • Continuing to enhance our leadership in key categories: – Wine – Cheese – Meat 64
Slide 65: Checkers Positioning
Checkers Positioning • Still is that we simply give you real reasons why we are different, so that you can put us to the test 65
Slide 66: Better for you, every day!
Better for you, every day! le harmacist —s P in this store HEALTHCARE BETTER AND GETTER Better for you, every day! Lew reson) More than 77] 400 cheeses Better for you, every day! Classic Range Fre Better for you, wery dau! We bring the Wine Route to you Better for you, every day! REASON Fresh produc
Slide 67: Future
Future • Higher Inflation • Value of the Rand •Out run our competitors 67
Slide 68: Questions
Questions