Spar Group Limited · JSE:SPP
Spar — The SPAR Group — H1 2019 Earnings Presentation
43 slides from Spar's earnings presentation, March 2019
Slide 1: The SPAR Group Ltd Interim Results Presentation
THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 MARCH 2019 1
Slide 2: Agenda
AGENDA OVERVIEW & HIGHLIGHTS Graham O’Connor, CEO FINANCIAL OVERVIEW Mark Godfrey, CFO OPERATIONAL UPDATE Graham O’Connor, CEO OUTLOOK Graham O’Connor, CEO QUESTIONS THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2019 2
Slide 3: Overview & Highlights
OVERVIEW & HIGHLIGHTS GRAHAM O’CONNOR CEO THE SPAR GROUP LTD 3 INTERIM RESULTS PRESENTATION 2019
Slide 4: SPAR International Overview
SPAR INTERNATIONAL OVERVIEW • 48 countries • 246 distribution centres • > 13,000 stores • 13.6m customers served per day • Global wholesale turnover • EUR35.8 billion • +3.8% year-on-year • Ranking in turnover • SPAR SA – 2nd • SPAR IRE – 10th • SPAR SWZ – 17th Independent wholesalers and retailers
Slide 5: The SPAR Group Ltd: At a Glance - H1 FY19
THE SPAR GROUP LTD: AT A GLANCE - H1 FY19 SOUTHERN AFRICA • 2 308 stores • 295 500m2 warehousing space • R37.3bn wholesale turnover • R1 094.9m operating profit IRELAND • 1 381 stores + 26 cash & carry outlets • 34 560m2 warehousing space • R11.9bn wholesale turnover • R270.3m operating profit SWITZ
Slide 6: Performance Summary – H1 FY19
PERFORMANCE SUMMARY – H1 FY19 GROUP • Overall strong performance; turnover up 8.6% to R54.3bn • Continued capital investment in wholesale capacity and retail offering SOUTHERN AFRICA • Strong total turnover growth of 7.7% • Excellent performance from TOPS at SPAR liquor +19.3% • Build it continues t
Slide 7: Financial Highlights
FINANCIAL HIGHLIGHTS Group turnover +8.6% to R54.2bn Southern Africa turnover +7.7% to R37.3bn Group operating profit +5.1% to R1.3bn Normalised* headline earnings per share +7.5% to 525.9 cents Dividend per share +5.2% to 284 cents Net asset value per share +10.1% to 3 662.5 cents *Normalised headl
Slide 8: Financial Overview
FINANCIAL OVERVIEW MARK GODFREY CFO THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2019 8
Slide 9: Summary of Salient Features
SUMMARY OF SALIENT FEATURES H1 2018 Rmillion H1 2019 Change (%) Restated Revenue – sale of merchandise 54 273.2 49 981.5 +8.6 Gross profit 5 650.7 5 244.9 +7.7 Gross profit (%) 10.41% 10.49% - Operating profit 1 382.5 1 314.9 +5.1 Operating margin (%) 2.55% 2.63% - Profit after tax 1 001.2 1 029.4 -
Slide 10: Effect of Restatements – H1 2019
EFFECT OF RESTATEMENTS – H1 2019 As reported WESBANK Rmillion H1 2019 IFRS 15 IAS 2 IAS 39 H1 2019 Revenue – sale of merchandise 54 273.2 (12.2) (53.5) 54 338.9 Cost of Sales (48 622.5) 361.9 (48 984.4) Gross Profit 5 650.7 (12.2) 308.4 5 354.5 Gross Profit % 10.4% 9.9% Revenue – other 975.5 975.5 0
Slide 11: Revenue - Other and Other Income
REVENUE - OTHER AND OTHER INCOME Southern Africa Ireland Switzerland SPAR Group H1 H1 2018 H1 H1 2018 H1 H1 2018 H1 H1 2018 2019 Restated 2019 Restated 2019 Restated 2019 Restated Revenue - other 342.1 344.7 220.8 199.9 412.6 376.6 975.5 921.2 Marketing & services revenue 342.1 344.7 142.1 125.3 315
Slide 12: Key Regional Metrics
KEY REGIONAL METRICS Southern SPAR Rmillion Africa Ireland Switzerland Group Income statement Revenue – sale of merchandise 37 315.7 11 855.1 5 102.4 54 273.2 Gross profit 3 265.2 1 517.1 868.4 5 650.7 Gross profit % 8.8% 12.8% 17.0% 10.4% Operating expenses 2 554.9* 1 478.4* 1 283.5 5 316.8 Profit/
Slide 13: Turnover
TURNOVER Rmillion H1 2019 H1 2018 Change (%) SPAR/TOPS 32 853.2 30 559.7 +7.5 Liquor sales 4 014.9 3 366.7 +19.3 Build it 3 966.9 3 661.7 +8.3 Southern Africa (excl. S Buys) 36 820.1 34 221.4 +7.6 S Buys – Pharmaceutical business 495.6 438.4 +13.0 Total Southern Africa 37 315.7 34 659.8 +7.7 Ireland
Slide 14: Turnover continued
TURNOVER continued Group • Foreign generated turnover in ZAR terms: 31.2% (H1 2018: 30.7%) SPAR Southern Africa • Impacted by constrained consumer spending and low inflation levels SPAR Ireland • SPAR Ireland (EUR): strong growth of +8.0% • +2.5% comparable business • +5.5% newly acquired businesses
Slide 15: Inflation: H1 and Looking Ahead
INFLATION: H1 AND LOOKING AHEAD H1 2019 H1 2018 SPAR wholesale business 1.9% 1.9% Liquor 5.9% 3.9% Build it c.4.0% c.3.4% SPAR Southern Africa • Current trend (regional ranges) 1.3% to 3.0% • Real risk of inflation increasing in the short term • Building material inflation budget at c.4.1% for 2019
Slide 16: Gross Profit Margin
GROSS PROFIT MARGIN H1 2019 (GP%) H1 2019 H1 2018 (GP%) Rmillion Turnover (Rm) Southern Africa 8.7% 36 820.1 8.9% S Buys 9.9% 495.6 9.3% Total Southern Africa 8.8% 37 315.7 8.9% Ireland 12.8% 11 855.1 12.4% Switzerland 17.0% 5 102.4 18.0% Total Group 10.4% 54 273.2 10.5% SPAR Southern Africa • Large
Slide 17: Operating Expenses
OPERATING EXPENSES H1 2019 H1 2018 Expenses Expenses Increase % of Sales % of Sales (Rm) (Rm) (%) Southern Africa (comparable base) 2 506.8* 6.8% 2 386.3 7.0% +5.0% S Buys 48.1 9.7% 40.2 9.2% 19.7% Southern Africa 2 554.9* 6.8% 2 426.5 7.0% +5.3% Ireland 1 478.4 12.5% 1 269.7 12.1% +16.4% Switzerlan
Slide 18: Operating Expenses continued
OPERATING EXPENSES continued SPAR Southern Africa • Well managed, with increase contained to 5%, despite continued pressure from employment costs and rising fuel costs • Fuel costs up 18% (fuel costs represent c.10% of operating expenses) SPAR Ireland • Increase of 9.7% in EUR terms (15% in ZAR term
Slide 19: Cash Flow
CASH FLOW Rmillion H1 2019 H1 2018 Cash flow from operating activities (adjusted for non-cash items) 1 800.3 1 672.2 Working capital changes (1 073.1) (1 643.9) • Increase in inventory (385.8) (250.9) • Increase in trade receivables (226.6) (399.6) • Decrease in trade payables (460.7) (993.4) Cash g
Slide 20: Cash Flow continued
CASH FLOW continued (1,073) • Cash generated from 410 5 3 1,383 operations: significantly higher at R727.2m • Significant decrease in outflows relating to (23) (360) payables in South (884) Africa (payment 1,598 timings) • Significant inflow in trade and other (405) 461 receivables in Ireland (224)
Slide 21: Currency Impacts (vs ZAR)
CURRENCY IMPACTS (VS ZAR) ZAR/€ exchange rate: ZAR/€ exchange rate: Closing Oct 2017 - Mar 2018 Oct 2018 - Mar 2019 Spot Rate 16.24 17,00 17,50 Closing 16,50 17,00 Spot Rate 16,50 16,00 14.57 16,00 15,50 15,50 15,00 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 Oct-17
Slide 22: Earnings and Headline Earnings per Share
EARNINGS AND HEADLINE EARNINGS PER SHARE H1 2019 H1 2018 Change (%) Rmillion Profit for the period attributable to ordinary shareholders 1 001.2 1 029.4 -2.7 Adjusted for: Net loss on disposal of property, plant and equipment 4.6 7.7 Impairment of goodwill 2.5 4.5 Loss / (Profit) on disposal of busi
Slide 23: Reconciliation of Normalised HEPS
RECONCILIATION OF NORMALISED HEPS Rmillion H1 2019 H1 2018 Change (%) Reported headline earnings 1 008.3 1 043.8* -3.4 Adjusted for: • Fair value adjustment (not considered necessary in this period) - - • Foreign exchange loss/(gain) on minority liability 0.9 (105.7) • Business acquisition costs 3.5
Slide 24: Reconciliation of Dividend Declaration
RECONCILIATION OF DIVIDEND DECLARATION H1 Rmillion 2019 Reported headline earnings 1 008.3 Adjusted for: • Forex loss on financial liability measurement (non-cash related) 0.9 Adjusted headline earnings 1 009.2 Dividend cover (consistent with H1 2018) 1.85 times Dividend declared (total payable Rm)
Slide 25: Balance Sheet: Key Regional Metrics
BALANCE SHEET: KEY REGIONAL METRICS Southern SPAR Rmillion Africa Ireland Switzerland Group Balance sheet Property, plant and equipment 2 688.6 1 797.7 2 497.8 6 984.1 Goodwill and intangible assets 617.8 3 604.4 321.5 4 577.4 Current assets 12 199.4 4 340.7 2 154.7 18 498.2 Current liabilities (10
Slide 26: Capital Expenditure: Increasing Distribution Capacity
CAPITAL EXPENDITURE: INCREASING DISTRIBUTION CAPACITY H1 2019 H1 2018 Rmillion Investing to expand operations (212.1) (221.5) Investment to maintain operations (193.2) (163.4) • Replacement of property, plant and equipment (215.5) (185.1) • Proceeds on disposal of property, plant and equipment 22.3
Slide 27: Regional Capital Expenditure
REGIONAL CAPITAL EXPENDITURE Total Rmillion Expansion Replacement H1 FY19 South Africa 50.6 87.8 138.4 Ireland 95.4 82.8 178.2 Switzerland 66.1 44.9 111.0 212.1 215.5 427.6 SPAR Southern Africa • Investment in commercial vehicles • Continuing IT infrastructure upgrades and software development SPAR
Slide 28: Summary of Salient Features
SUMMARY OF SALIENT FEATURES H1 2018 H1 2019 Change (%) Rmillion Restated Revenue – sale of merchandise 54 273.2 49 981.5 +8.6 Gross profit 5 650.7 5 244.9 +7.7 Gross profit (%) 10.4% 10.5% - Operating profit 1 382.5 1 314.9 +5.1 Operating margin (%) 2.5% 2.6% Profit after tax 1 001.2 1 029.4 -2.8 He
Slide 29: Operational Update
OPERATIONAL UPDATE GRAHAM O’CONNOR CEO THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2019 29
Slide 30: Southern Africa
SOUTHERN AFRICA Distributions centres • 5.2% increase in cases volume • 121.4m cases (H1 FY18: 115.4m cases) • Maintained retailer loyalty Supplier relationships • Advantage Grocery mirror survey results 2018 (retailer/supplier survey) • SPAR ranked No.1 relative to peers • Overall performance • Per
Slide 31: Southern Africa continued
SOUTHERN AFRICA continued Retail • Strong motivated independent retailers • Ongoing investments to support retailer profitability through growth across all formats • 175 store refurbishments • 72 net new stores • Total space growth +1.3% (H1 FY18: +2.7%) • 2 308 stores, end of H1 FY19 • Encouraging
Slide 32: Southern Africa – SPAR
SOUTHERN AFRICA – SPAR • Innovation • Private label • Driving value and quality for customers • H1 turnover up +10% to R5.8bn • SPAR Express - 39 • Chikka Chicken offering at deli counter - 398 • Bean Tree - 283 (various formats) • SPAR natural - 32 TURNOVER (R bn) WHOLESALE TURNOVER TURNOVER H1 18
Slide 33: Southern Africa – SPAR continued
SOUTHERN AFRICA – SPAR continued • Retail operations support • Driving retail sales momentum and profitability • Drive on ‘fresh’ through store refurbishments • Customer service - GUEST programme • Ongoing marketing support • Rewards programme refresh • Super Saturdays • January budget booster • Red
Slide 34: Southern Africa: TOPS at SPAR
SOUTHERN AFRICA: TOPS AT SPAR • Retailers can now own more than one TOPS store • Strong marketing initiatives • Brand refresh continues to attract consumers • 42 upgrades • 25 net new stores; 799 stores end of H1 • Gin leads the market TURNOVER (R bn) [IMAGES] WHOLESALE TURNOVER TURNOVER H1 18 3,4 ▲
Slide 35: Southern Africa: Build it
SOUTHERN AFRICA: BUILD IT • Market-leading sales growth performance • Building sector inflation of c.4% • New brand gaining traction • Increased retailer loyalty through improved pricing • Build it house brand sales up +12.4% • 35 upgrades; 13 net new stores • 389 stores at end of H1 TURNOVER (R bn)
Slide 36: SPAR Ireland
SPAR IRELAND • Superb performance in Ireland • World-class convenience retail execution • Upgrades to stores and innovation • Strong growth in all retail formats • Acquisitions (4 Aces Wholesale & Corrib Foods) • 10 net new stores opened during the half • 1 381 stores at end of H1 THE SPAR GROUP LTD
Slide 37: SPAR Switzerland
SPAR SWITZERLAND • Core DC turnover +3.3% • Growth in independent retailers’ turnover • Focus on retail execution • Meat & More butchery concept • Concept methodology • Fresh to go • Bean Tree • In store bakery & snacking • Natural • Trinkgenuss • Additional 12 net new stores • 327 stores in total e
Slide 38: Outlook
OUTLOOK GRAHAM O’CONNOR CEO THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2019 38
Slide 39: Outlook
OUTLOOK SOUTH AFRICA • Consumer and business sentiments expected to improve • Extremely competitive trading environment in medium term • Food inflation likely to increase, but consumer will remain under pressure IRELAND • Ability to adapt to market changes • Management are confident in delivering fu
Slide 40: Outlook continued
OUTLOOK continued GROUP • Opportunities abroad • Sri Lanka • Two stores - beating expectations • Five more stores by March 2020 • Poland • The group has been awarded the SPAR Licence to operate the brand in Poland, by SPAR International • Subject to the approval of the Office of Competition and Cons
Slide 41: Our Purpose
OUR PURPOSE THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2019 41
Slide 42: Questions
QUESTIONS THE SPAR GROUP LTD INTERIM RESULTS PRESENTATION 2019 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