Shoprite Holdings Limited · JSE:SHP
Shoprite — H1 2014 Earnings Presentation
55 slides from Shoprite's earnings presentation, February 2014
Slide 1: For the 6 months ending December 2013
Forthe6months endingDecember2013
Slide 2: Carel Goosen, Deputy Managing Director
CarelGoosen DeputyManagingDirector 2
Slide 3: Size of Operation
SizeofOperation Dec2013 Turnover R51bn TotalStores 1902 Countries 16 Employees 116743 MarketCapitalisation >R77bn 3
Slide 4: Financial Highlights
FinancialHighlights Turnover R51bn TradingProfit R2.7bn TradingMargin 5.3% HeadlineEPS 341c NAVperShare 2983c DividendperShare 132c 4
Slide 5: Key Information per Segment: Turnover
KeyInformationperSegment Turnover – Total + 9.7% – SupermarketsRSA + 7.6% – SupermarketsNonRSA + 28.1% – Furniture + 10.5% – OtherOperatingSegments + 0.4% 5
Slide 6: Sales Growth Analysis
SalesGrowthAnalysis Existing Netnew Total Stores Stores SupermarketsRSA 1.5% 6.1% 7.6% Supermarkets 18.7% 9.4% 28.1% NonRSA Furniture 6.5% 4.0% 10.5% OtherDivisions 9.6% 9.2% 0.4% Total 4.3% 5.4% 9.7% 6
Slide 7: Store Portfolios
StorePortfolios Dec2012 Opened Closed Dec2013 (12months) (12months) SupermarketsRSA 785 68 (5) 848 SupermarketsNonRSA 144 20 (1) 163 HungryLion 165 11 (12) 164 Furniture 327 29 (6) 350 OKFranchise 400 31 (54) 377 TotalStores 1821 159 (78) 1902 Pharmacies 141 9 150 LiquorStores 184 38 (2) 220 7
Slide 8: Key Information per Segment: Trading Profit
KeyInformationperSegment TradingProfit – Total + 7.5% – SupermarketsRSA + 5.4% – SupermarketsNonRSA + 26.5% – Furniture + 10.9% – OtherOperatingSegments 10.5% 8
Slide 9: Highlights of Results: Gross Profit Margin
HighlightsofResults Dec2012 Dec2013 GrossProfitMargin 20.46% 20.39% • Lowernonfoodparticipation • Slowervolumegrowthaffectedrebates 9
Slide 10: Highlights of Results: Other Operating Income
HighlightsofResults OtherOperatingIncome Dec2012 Dec2013 Growth Increasedby15.4% R’m R’m % FinanceIncomeEarned 110 125 13.2 NetPremiumsEarned 162 181 12.0 OperatingLeaseIncome 130 142 9.2 CommissionsReceived 290 308 6.4 FranchiseFeesReceived 24 25 3.0 InvestmentIncome 17 19 8.6 SundryIncome 286 376
Slide 11: Highlights of Results: Operating Expenses
HighlightsofResults Depreciationandamortisationincreasedby8% • Continuedhighspendonrevampsandnewbranches • Spendoninformationtechnology Operatingleasesincreasedby18.2% • Duetonewstoresopenedinthepast12months • Turnoverrentalsonsalesgrowth Employeebenefitsincreasedby5.9% • Resultingstaffrequirementsd
Slide 12: Highlights of Results: Exchange Rate Differences
HighlightsofResults Exchangeratedifferences • Dec2012: R41.38millionloss • Dec2013: R4.25millionprofit RandtoUSDollarexchangerates(R:$) • Dec2011: R8.23 • Dec2012: R8.50 • Dec2013: R10.35 12
Slide 13: Highlights of Results: Interest and Tax
HighlightsofResults Dec2012 Dec2013 R’m R’m NetInterestExpense 69 97 IncomeTaxExpense Normal 708 731 Deferred (4) 40 Total 704 771 Effectivetaxrate 29.2% 29.7% 13
Slide 14: Value Added Statement
ValueAddedStatement Employees R4093m 53% Providers 18% ofCapital R1367m 10% Tax 19% R771m Reinvested R1497m 14
Slide 15: Highlights of Results: Capital Expenditure
HighlightsofResults CapitalExpenditure Dec2012 Dec2013 R’m R’m LandandBuildings 346 195 DistributionCentres 229 137 DCEquipment 111 36 DCVehicles 107 55 StoreRefurbishment 382 291 NewStores 436 774 InformationTechnology 201 228 OtherReplacements* 253 263 Total 2065 1979 *Motorvehiclesandofficefurnit
Slide 16: Contracted Capital Commitments
HighlightsofResults ContractedCapitalCommitments Dec2012 Dec2013 R’m R’m Stores 742 1040 RSA 495 531 NonRSA 247 509 DistributionCentres 403 481 ITSystems 139 51 Total 1284 1572 16
Slide 17: Net Cash Balances
HighlightsofResults Dec2012 Dec2013 Growth R’m R’m % NetCashBalances 7118 7567 6.3 • Monthendclosingdate • Timingofprovisionaltaxpayments 17
Slide 18: Stockholding
Stockholding Dec2012 Dec2013 Growth R’m R’m % Inventory 10597 13271 25.2 • Provisionfor104netnewcorporatestores • Takingonnewdistributioncapacity(+R137m) • NonFoodbuyinforprofit(+R200m) • WeakerChristmastradingthanexpected • R1bnstockreductioninJanuary 18
Slide 19: Debtors and Other Receivables
HighlightsofResults DebtorsandOther Dec2012 Dec2013 Growth Receivables R’m R’m % FurnitureInstalmentSales 1303 1408 8.1 Franchise 758 785 3.6 BuyaidOrganisations 179 175 2.2 RentalandPropertyDebtors 351 461 31.1 MediRiteandTranspharm 432 423 1.9 MoneyMarketandComputicket 113 74 34.8 OtherReceivables
Slide 20: Highlights of Results: HEPS, Cash EPS, EBITDA per share
HighlightsofResults HEPS CashEPS* EDITDApershare 20
Slide 21: Aubrey Karp, Divisional Director
AubreyKarp DivisionalDirector 21
Slide 22: Furniture – Trading Environment
Furniture– TradingEnvironment • Toughtradingconditionscontinued • Householddisposableincomeremainsunderpressure • Durablesspendingimpacted • Productdeflationduetoeconomiesofscale,demand(TVs) andpricecompetitioncontinued • RanddepreciationhasliftedpricesfromJanuary2014 • Previousfurnitureandmicrolend
Slide 23: Furniture – Overview
Furniture– Overview • Salesgrowthremainedbuoyantat10.5% • Tradingprofitgrowthof10.9% • OKFurnitureandOKPowerExpress– expansion andgrowthcontinues • House&Home– startingtoperformbetter • Debtorsbook– nosignificantchange 23
Slide 24: Furniture – Trading Environment
Furniture– TradingEnvironment Sales R2.1bn+10.5% OKFurniture House&Home Increase 18.1% 3.6% LikeforLike 11.2% 2.9% Internalsellingpricedeflation1.65% SalesMix Dec2012 Dec2013 HomeandEntertainmentAppliances 63% 62% Furniture,Bedding,PatioandCarpeting 37% 38% Cash 69% 68% Credit 31% 32% 24
Slide 25: Furniture – Trading Environment: National Credit Regulator
Furniture– TradingEnvironment NationalCreditRegulator’s– 3rd quarterreportfor2013 • Only51.9%ofthe20.3millionactivecreditcustomersareingoodstanding • 21%oftheseconsumersreflectadverselistingsatthevariousretailers (morethanthreemonthsinarrears) • 14%reflectadverselistingsatthecreditbureaus • 13.1%ref
Slide 26: Furniture continued: Debtors Book
Furniturecontinued DebtorsBook Dec2012 Dec2013 DebtorsBook(Gross)+13.1% R1.4bn R1.6bn NewContracts+8.3% 137284 148704 • Averagerandcontractvalueincreasedby0.4% Arrears Dec2012 Dec2013 ActualArrears 7.4% 7.7% BalanceofContractArrears 20.1% 20.8% BadDebtsProvision 10.6% 10.7% • Highconsumerdebtlevelsc
Slide 27: Furniture continued: Trading Profit
Furniturecontinued TradingProfit:R134m(10.9%increase) Sales 10.5% NetGrossIncome 13.2% TotalExpenses 13.6% ControllableExpenses 13.4% FixedCosts 14.8% • OKFurnitureprofitsincreasedby7.2% • House&Homeprofitsincreasedby40% • Exceptionalresultconsideringcurrentindustrytrends andpricedeflation 27
Slide 28: Furniture continued: Store Numbers
Furniturecontinued StoreNumbers OpenedSince Total Confirmed June13 Dec13 June2014 OKFurniture 16 282 16 OKPowerExpress 2 21 2 House&Home 47 2 Total 18 350 20 • 4Storesclosed– 2OKFurnitureand2House&Home 28
Slide 29: Furniture – Outlook
Furniture– Outlook Lowgrowthenvironmentexpectedtocontinue • Ongoingpressureonconsumers’disposableincome • Highdebtexposure • Continuingelectricalproductpricecompetitiveness Futuregrowthdrivers: • Increasedstorefootprint(20newstoresconfirmedtoJune2014) • Deepdiscountingofhighvalueproductstodrivevolum
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Slide 31: Trading Environment
TradingEnvironment • Salesgrowthbeatofficialfoodinflationof5.2%fortheperiod • SAeconomyfallingbehindotherAfricancountrieswherewetrade Continuedunrestinminingindustry(over2millionmandayslostuptoSept2013) LowGDPgrowthandnoimprovementunemploymentat(24%) 5% Forecast 4.8% 5% GDP%Growth 4% 3.3% 3.4% 4% 3.
Slide 32: Trading Environment: RSA
TradingEnvironment:RSA • Ourshopperprofilerepresentsthepopulation • TheaverageSAconsumernotingreatshape Lowincomeconsumersspend89%ofnetincometoservicedebt, yetneed70%ofincomejusttocoveressentiallivingexpenses (source:BDLive) Accesstonewcreditalsosloweddown FuelandelectricitycosthikesaloneremovedR9.5
Slide 33: Trading Environment: Non RSA
TradingEnvironment:NonRSA IncontrasttoSA,mostNonRSAoperationshadgood macroeconomicsupport • Naturalresourcescontinuetodriveeconomicgrowth Attractingmoreforeigninvestment Filteringdowntoconsumers’incomeandspending • Middleclassdevelopmentandmigrationtothelargecities is drivingconsumerspend • Angola,Z
Slide 34: Group Overview
GroupOverview • NonRSAoperationscontinuetoperformexceptionallydespite paceofpropertydevelopment • RSAsalesimpactedby: Storeclosureson15th December– saleslossofR260m,3%effectonDecembergrowth Storesinminingareacatchmentsunderperformingasaresultofunrest Lackofinfrastructurespendingpost2010 Manynewcompe
Slide 35: Market Share
MarketShare • Opened634storesinthelast5years • SAMarketsharehasreached34%offormalfoodretail SmallgaininmarketshareannuallytoDecember Marketsharedippedmarginallyforthe6monthperiod Competitorsremainedopenon15December • Sevenyearsofuninterruptedmarketsharegrowth 35
Slide 36: Profitability
Profitability • At5.3%ourTradingMarginremainsinternationallycompetitive Top250globalretailersaverage3.1%(source:Deloitte) • Fuelandelectricityratehikesimpactedcostsnegatively • Controllablecostdisciplineswellmaintained • SavedR125minelectricitycostsin5years fromefficiencyinitiatives 36
Slide 37: Invested through the cycle
Investedthroughthecycle • Maintainedourinvestmentfocusonlongtermgrowth: R1,1bnspentonnewstoresandrevamps Overall5.2%spacegrowthfortheperiod Nowtradingfrom2272outlets • Openedanet98newcorporateoutlets in6months 57supermarketsand41pharmacy,liquor,HungryLionandfurnitureoutlets • TheGroupnowemploysatota
Slide 38: 1000th Corporate Supermarket Opened
1000th CorporateSupermarketOpened CheckersZevenwacht owndevelopment 38
Slide 39: Supermarkets
Supermarkets • Shoprite’sLSM47consumeristhehardesthit bycostoflivingincreases SubsidisedthepriceofbasicfoodstuffsbyR20mtohelpconsumer Priceleadershipmaintained,confirmedbyweeklyindependentpricesurveys • Usave continuestogainmarketshare– morethandoubledin5years Acceleratedstoreopeningsconfirmed(31)fo
Slide 40: Supermarkets continued
Supermarketscontinued • Checkers salesgrowthslowedonbackofclosureof15th December Bettercomparable(GEB)storesalesgrowththanShoprite Profitabilitygrowthexceededturnovergrowth • NonRSA salesgrowthof28.1%(14.9%constantcurrencies) Contributes16.1%totheGroup’ssupermarketturnover 26.5%tradingprofitgrowthde
Slide 41: Other Operating Segments
OtherOperatingSegments Turnoverrelativelyflatat0.4%growth • Computicket salesup3.3% Fewerhighprofileliveevents SellR500minflightticketsayear • Pharmacydivisionsalesdown9.4% MediRitesalesup19.8%with2.4mprescriptionsdispensed Transpharm wholesaledeclined10% • CheckersFoodServicessalesgrowth>100% • Liq
Slide 42: Hungry Lion
HungryLion • Rolloutofrefreshedbrandingandstoredesign • NonRSAbusinessshowingstronggrowthat34% 42
Slide 43: Strategic Areas of Focus
| 1 WI yim 7 : =—_ a i. AREAS OF FOCUS = =e, STRATEGIC \ J SHOPRITEG
Slide 44: Leverage our Strong Brands
LeverageourStrongBrands 44
Slide 45: Leverage our Strong Brands
LeverageourStrongBrands Valueformoneymeansdifferentthings todifferentupmarketsegments AUTHENTIC FRENCH CHAMPAGNE 45
Slide 46: Keep Getting Better
Keep Getting Better | SHOPRITE(3
Slide 47: Leverage Customer Insights from Big Data
LeverageCustomerInsightsfromBigData • TheGroupstores70PetaBytesofdata (=1.2bnfilingcabinetsworthoftext) • Dunnhumbyappointedascustomersciencepartner Datainsightsforbetterranging,pricingandpromotionaldecisions • Maximiseopportunitiestogathercustomerdataondigitalchannels: Smartphoneapp Mobileandwebsit
Slide 48: Extend Services in Africa
ExtendServicesinAfrica • 6storesinAngolaandSwaziland performingwell • NigeriaandMozambiquetofollow • MoneyTransferstolaunchinZambia, LesothoandSwaziland • Computicketserviceslaunchedin Botswanaandlaunchingin MozambiqueandSwazilandinApril 48
Slide 49: Position for African Growth
PositionforAfricanGrowth Africa’sinsatiableappetiteforbigbrands • Angola’s19storessoldmorebottlesofJCleRouxthantheentireRSAbusiness • 5ShopritestoresinAngolasoldmoreRedBullthanall382ShopritestoresinRSA 49
Slide 50: Nigeria will have more people than the U.S. by 2050
PositionforAfricanGrowth Nigeria will have more people than the U.S. by 2050 • ThecombinationofNonRSA’srapidpopulationandeconomic growthoffersinfinitegrowthopportunityinformalfoodretail • Africaowns12%oftheworld’soil,40%ofthegoldand90% oftheplatinumreserves(source:UN)
Slide 51: Position for African Growth
PositionforAfricanGrowth • Expansionfocusremainsonresourcerichcountries • Angola: Investmentinowndevelopments,12openingsconfirmeduntilJune2015 • Nigeria: 10storeopeningsconfirmeduntilend2015(4beforeJune2014:Lagos,Kano, AbujaandIbadan) R1.5bnpropertyfundfinalised(Resilient,StandardBankandShoprite) •
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Slide 53: Trading Outlook
TradingOutlook • TradinginJanuaryandFebruaryisstronger thanthereportingperiod • Althoughmutedtradingconditionswillcontinue, weexpectabettersecondhalf • FoodinflationhashistoricallybenefittedShoprite,expectedto risewellabove6% Wheatandmaizepricesup20%betweenAugustandDecember Exchangerateweaknesscausi
Slide 54: Trading Outlook continued
TradingOutlookcontinued • TheGroupwillonlypursueprofitablemarketshare • 74newcorporatesupermarketscommitteduntilJune2014 • Another119newsupermarketsconfirmeduntilJune2015 • R543malreadyinvestedinstrategiclandinSAfordevelopment • 1722TraineeManagersreadytosupportgrowthandstore expansion • Seriousabou
Slide 55: Thank You, Questions?
THANK You Questions? : ' SHOPRITE(3