Shoprite Holdings Limited · JSE:SHP
Shoprite — H1 2019 Earnings Presentation
49 slides from Shoprite's earnings presentation, Feb 26, 2019
Slide 1: Results Presentation for the 26 Weeks to 30 December 2018
RESULTS PRESENTATION FOR THE 26 WEEKS TO 30 DECEMBER 2018
Slide 2: Welcome
WELCOME 1.FINANCIAL OVERVIEW 2.OPERATIONAL OVERVIEW 3.STRATEGIC UPDATE 4.QUESTIONS
Slide 3: Financial Results
FINANCIAL RESULTS ANTON DE BRUYN
Slide 4: Financial Results
FINANCIAL RESULTS 1. Overview of Key Indicators 2. Performance Impacts 3. Unpacking Financial Results 4. New IFRS Standards
Slide 5: Financial Results
FINANCIAL RESULTS
Slide 6: Financial Results
FINANCIAL RESULTS
Slide 7: Hyperinflation
HYPERINFLATION REQUIREMENT FINANCIAL IMPACT SEGMENTS AFFECTED DEC 2018 ● Angola’s economy was assessed to ● Not allocated to a segment, but remain hyperinflationary R2.3bn treated as reconciling item to STATEMENT OF FINANCIAL consolidated results POSITION ● Adjust index from acquisition to reporting
Slide 8: Performance Impacts
PERFORMANCEIMPACTS PERFORMANCE IMPACTS Centurion CenturionDC DCindustrial disruption action profitability profitability impact impact Decline DeclineininSupermarkets SupermarketsNon-RSA Non-RSAtrading tradingprofit profit RMA RMA→→MAC MAC
Slide 9: Supermarkets Non-RSA Performance
SUPERMARKETS NON-RSA PERFORMANCE QUARTERLY SALES GROWTH IN LOCAL CURRENCY ● Angola: Unprecedented currency devaluation ● Nigeria: Impact of the NIFEX rate ● Zambia: Stronger performance ● Kenya: Establishment cost of greenfield Q2 18/19 operation 14.7% ● Closure of Mauritius 9.4% -0.1% -11.1%
Slide 10: RMA → MAC
RMA → MAC IMPACT: STATEMENT OF IMPACT: STATEMENT OF RMA → MAC FINANCIAL POSITION COMPREHENSIVE INCOME ● Both methods ● Inventory adjustment ● Once-off Gross Profit approximate cost all accounted for in adjustment: Debit of June 2018 R95.2m ● Retail Method of Accounting (RMA): ● No further adjustment
Slide 11: Sales Growth per Segment
SALES GROWTH PER SEGMENT Existing Net new Total stores stores Supermarkets RSA -0.5% 3.1% 2.6% 0.2% Supermarkets Non-RSA -16.5% 3.2% -13.3% SALES GROWTH Furniture 4.2% 0.1% 4.3% Other Operating Segments 3.9% 2.6% 6.5% R75.8bn Total Operating Segments -2.7% 2.9% 0.2% Total Including Hyperinflation 0.
Slide 12: Sales: Supermarkets RSA
SALES: SUPERMARKETS RSA ● >R1 billion lost sales due to industrial action and the subsequent SAP ERP system go-live ● Checkers positive growth, Hypers growth still impacted by revamp programme ● Shoprite and Usave brands growth most affected by Centurion DC challenges ● Liquor stores delivered solid
Slide 13: Sales: Supermarkets Non-RSA
SALES: SUPERMARKETS NON-RSA SALES CONSTANT GROWTH CURRENCY Angola -45.0% -9.9% Zambia +0.7% +11.0% Namibia +1.1% +1.1% Nigeria -1.4% +8.4%
Slide 14: Gross Margin
GROSS MARGIN DEC 2017: DEC 2018: 23.8% 23.1% ● Components of gross margin ● Margin intact ● Impact of Non-RSA performance Gross Margin 2018
Slide 15: Other Operating Income
OTHER OPERATING INCOME 2017 2018 Growth Rm Rm Finance income earned 146 140 -4.1% Net premiums earned 177 137 -22.6% Operating lease income 232 251 8.2% Commissions received 431 447 3.7% Franchise fees received 41 45 9.8% Investment income 160 244 52.5% Sundry income 244 301 23.4% Total 1 431 1 565
Slide 16: Cost Analysis
COST ANALYSIS OTHER OPERATING DEPRECIATION OPERATING LEASES EMPLOYEE BENEFITS EXPENSES 9.6% 7.4% 6.2% 3.8% R1.3bn R2.3bn R5.9bn R6.7bn ● Electricity and water ● R49m impact as a result ● RSA like-for-like growth in ● Created 1 758 new jobs increased by 6.1% of the hyperinflation line with CPI since
Slide 17: Trading Profit
TRADING PROFIT 2017 2018 Growth Rm Rm Supermarkets RSA 3 342 2 839 -15.1% Supermarkets Non-RSA 553 -62 -111.2% Furniture 110 104 -5.5% Other Operating Segments 99 66 -33.3% Total Operating Segments 4 104 2 947 -28.2% Hyperinflation Effect - 376 Total Including Hyperinflation 4 104 3 323 -19.0%
Slide 18: Exchange Rate Losses
EXCHANGE RATE LOSSES DEC 2017: R4.0m gain DEC 2018: R3.4m loss LOSS -4.89GAIN ● Hedging strategy for Non-RSA was effective ● Investments (Angola): R3.5bn Exchange rate (losses)/gains (Rm)
Slide 19: Items of a Capital Nature
ITEMS OF A CAPITAL NATURE 2017 2018 Rm Rm Impairment of assets -40 -62 (Loss)/Profit on sale of assets -16 26 Insurance claims receivable - 103 Profit/(loss) on other investing activities 22 -2 Total -34 65
Slide 20: Net Finance Cost
NET FINANCE COST 2017 2018 Rm Rm Interest received 121 139 Interest paid 189 384 Net finance cost 68 245 Contributing factors to increase in net finance cost (Rm)
Slide 21: Financial Position
FINANCIAL POSITION Ah V— Ole \).0l fn eee
Slide 22: Capital Spend
CAPITAL SPEND DEC 2017: DEC 2018: TO EXPAND OPERATIONS: TO MAINTAIN OPERATIONS: R2.9bn R2.8bn R1.9bn R0.9bn Capital Spend (Rm)
Slide 23: Stockholding
STOCKHOLDING DEC 2017: DEC 2018: -0.3% R21.8bn R21.7bn 72.1% of Group Stock turn DEC 2017: 5.8 DEC 2018: 5.9 Stockholding (Rbn)
Slide 24: Treasury
TREASURY 2017 2018 Rm Rm Cash and cash equivalents 8 466 8 760 Bank overdrafts -5 406 -3 885 Net cash position 3 060 4 875 Short-term borrowings -4 451 -2 968 Long-term borrowings -1 241 -7 077 Net debt -2 632 -5 170
Slide 25: Cash Flow
CASH FLOW Cash generation/ (utilisation) (Rm)
Slide 26: Impact on Results - IFRS 9
IMPACT ON RESULTS - IFRS 9 REQUIREMENT FINANCIAL IMPACT SEGMENTS AFFECTED ● Financial Instruments ● Changes in accounting Retained earnings - 2 Jul 2018 policies ● Classification, SUPERMARKETS RSA ● Comparatives not restated measurement and derecognition of financial ● Opening retained earnings R20m
Slide 27: Impact on Results - IFRS 15
IMPACT ON RESULTS - IFRS 15 REQUIREMENT FINANCIAL IMPACT SEGMENTS AFFECTED ● Revenue from contracts 2 JUL 2017 Retained earnings - 2 Jul 2017 with customers STATEMENT OF FINANCIAL POSITION ● Classification, R10m SUPERMARKETS RSA measurement and disclosure of revenue R9m Opening retained earnings adj
Slide 28: Operational Overview
OPERATIONAL OVERVIEW PIETER ENGELBRECHT
Slide 29: Year of Transition
YEAR OF TRANSITION ‘There is no education like adversity’ Benjamin Disraeli 2018 saw a convergence of extraordinary factors: 1 Completion of multi-year ERP re-platforming (>50% business went live H1) 2 Aftermath from May-June industrial action at our largest DC disrupted supply chain 3 Dramatic Ango
Slide 30: Group Operational Highlights
GROUP OPERATIONAL HIGHLIGHTS
Slide 31: ERP System Re-platforming
ERP SYSTEM RE-PLATFORMING ● Why we did it: ○ Necessary pain to improve global competitiveness ○ New IT system for inventory, master data, ordering and store operations ● What it meant: ○ IT replacement of this size unparalleled, 4 year project ○ Required 81,000 man-days from store teams for training
Slide 32: Impact of Supply Chain Disruption
IMPACT OF SUPPLY CHAIN DISRUPTION ● Labour disruption in our largest DC in May-June 2018 ● Resulted in large order backlog before August ERP go-live ● Compounded inability to meet store demand CENTURION DC STRIKE ● Exacerbated by a record Black Friday ● Direct-to-store supplier deliveries affected d
Slide 33: Cyclical Challenges in Angola
CYCLICAL CHALLENGES IN ANGOLA Angola GDP Growth rate ● -9.9% Constant Currency Sales Growth -1.3% -2.2% -4.5% -1.6% ○ Adversely impacted by 85.1% currency devaluation Q4 ‘17 Q1 ‘18 Q2 ‘18 Q3 ‘18 ○ Hyperinflationary economy in recession Sources: Trading Economics and IMF
Slide 34: Cyclical Challenges in Angola
CYCLICAL CHALLENGES IN ANGOLA Angola GDP Growth rate ● -9.9% Constant Currency Sales Growth -1.3% -2.2% -4.5% -1.6% ○ Adversely impacted by 85.1% currency devaluation Q4 ‘17 Q1 ‘18 Q2 ‘18 Q3 ‘18 ○ Hyperinflationary economy in recession ● Shielded customers from price increases ● Slower store expansi
Slide 35: Supermarkets Non-RSA Portfolio
SUPERMARKETS NON-RSA PORTFOLIO ● Sales Growth positive in constant currency ● Story of currency devaluations ● Limited hedge ● Smaller countries performing well
Slide 36: Supermarkets RSA
SUPERMARKETS RSA ● 2.6% Sales Growth underperformed the market ● 10,719 items remain in selling price deflation in Dec ‘18 benefiting customers ● 2% customer growth but volume upside constrained by supply Internal Inflation persistently low H1: 0.4% Improved sales growth trend 18 months stagnant inf
Slide 37: Strategic Focus Areas
STRATEGIC FOCUS AREAS
Slide 38: 6 Drivers of Growth
6 DRIVERS OF GROWTH 6, a 2 DEVELOPING ASTRONGER PRIVATE LABEL FRANCHISE OFFER GROW UPMARKET \ / STRATEGIC SHARE OF WALLET —_ \ / _- EXPANSION CUSTOMER- G LEVERAGE FIRST CULTURE AFRICA'S MOST AFRICAN ACCESSIBLE RETAILER ADVANTAGE
Slide 39: 1. Customer First: Our Low Price Promise
1.CUSTOMER FIRST: OUR LOW PRICE PROMISE Low Price leadership uncontested despite increased promotional activity Pricing indexed 100% Weekly indexed price sensitive basket vs key competitors: July - December 2018 Independent price surveys 2018
Slide 40: SA's Most Shopped Retailer
SA’S MOST SHOPPED RETAILER 80% SA market penetration Establishment Survey 2018 A: SEM = Socio-economic measure. Based on Shoprite Group: Shoprite, Checkers, Checkers Hyper, OK, Population 40m. Shopped last month
Slide 41: 2. Growing Upmarket Share of Wallet
2. GROWING UPMARKET SHARE OF WALLET ● Checkers brand still leading our growth ● Market share gains in Fresh and Convenience foods ● FreshX concept store performing ahead of expectations: 20/80 target stores completed ● Healthier Simple Truth range launched: 360k new customers and 3x ave. basket spen
Slide 42: 3. Developing Private Label
3. DEVELOPING PRIVATE LABEL ● Private label growth at double the pace of all brands ○ Participation up +0.6 percentage points to 16% ● 51% product innovation targets upmarket choice
Slide 43: 4. Stronger Franchise Offer
4. STRONGER FRANCHISE OFFER ● Market share gain with 8.3% turnover growth ● 19,000 products available through Shoprite Group backbone ● 35 OK Express forecourt stores (+11 new in H1) Market share source: Nielsen
Slide 44: 5. Strategic Expansion
5. STRATEGIC EXPANSION ● 1.9% supermarket space growth ○ 37 new RSA Supermarkets to open by June (6 Non-RSA) ● Kenya opening marks entry into East Africa’s largest economy ● Liquorshop sales increased 20.3% ● Future-fit formats with lower capex ● Opened a store a week ● New online channels performin
Slide 45: 6. Leverage African Advantage
6. LEVERAGE AFRICAN ADVANTAGE Courage to invest in long term potential
Slide 46: Outlook
OUTLOOK
Slide 47: Engineering the Next Era of Growth
ENGINEERING THE NEXT ERA OF GROWTH
Slide 48: Outlook: Stronger sales growth since Jan 2019
● Stronger sales growth for first 8 weeks since Jan 2019 ● Improving stock availability remains highest priority ● Two year labour agreement ● Food inflation in Maize, Sugar and Chicken before June ● Load shedding and elections risks ● An improved H2 unlikely to fully offset H1 performance ● Predict
Slide 49: Thank You / Questions
THANK YOU) QUESTIONS SHOPRITE|[S) HOLDINGS LTD