Shoprite Holdings Limited · JSE:SHP
Shoprite — FY2014 Earnings Presentation
73 slides from Shoprite's earnings presentation, August 2014
Slide 1: For the year ending June 2014
For the year ending June 2014 1
Slide 2: 2014 Highlights
GREW AT d Prix award as1 \ Overall and best 6 customer experien OPENINGS CREATED IN 2014 BY JUNE 2014 NON-RSA CORPORATE STORE OPENED
Slide 3: Carel Goosen, Deputy Managing Director
Carel Goosen Deputy Managing Director 3
Slide 4: Size of Operation
Size of Operation June 2014 Turnover R 102.2bn Total Stores 1 948 Countries 15 Employees 123 100 Market Capitalisation* ± R 92bn * During August 2014 4
Slide 5: Financial Highlights
Financial Highlights Turnover R102.2bn Trading Profit R5.7bn Trading Margin 5.6% EBITDA R7.4bn Headline EPS 697.6c NAV per Share 3 218c Dividend per Share 350c 5
Slide 6: Key Information per Segment
Key Information per Segment Turnover – Total + 10.5% – Supermarkets RSA + 8.7% – Supermarkets Non-RSA + 26.8% – Furniture + 12.2% – Other Operating Segments + 0.3% 6
Slide 7: Sales Growth Analysis
Sales Growth Analysis Existing Net New Total Stores Stores Supermarkets 4.7% 6.6% 11.3% Furniture 8.1% 4.1% 12.2% Other Divisions 10.7% -10.4% 0.3% Total 5.1% 5.4% 10.5% 7
Slide 8: Store Portfolios
Store Portfolios June 2013 Opened Closed June 2014 (12 months) (12 months) Supermarkets RSA 801 86 (10) 877 Supermarkets Non-RSA 153 20 (4) 169 Hungry Lion 166 8 (7) 167 Furniture 336 39 (7) 368 OK Franchise 380 21 (34) 367 Total Stores 1 836 174 (62) 1 948 Pharmacies 146 5 (1) 150 Liquor Stores 195
Slide 9: Key Information per Segment
Key Information per Segment Trading Profit – Total + 6.0% – Supermarkets RSA + 5.3% – Supermarkets Non-RSA + 12.2% – Furniture + 49.6% – Other Operating Segments - 36.5% 9
Slide 10: Highlights of Results
Highlights of Results June 2013 June 2014 Gross Profit Margin 20.88% 20.81% Exclude: DC and other Costs 0.51 % 0.71% Stores Gross Profit Margin 21.39% 21.52% 10
Slide 11: Highlights of Results
Highlights of Results Other Operating Income June 2013 June 2014 Growth Increased by 8.9% R’m R’m % Finance Income Earned 228 260 14.0 Net Premiums Earned 333 370 11.3 Operating Lease & Head Lease Income* 280 300 7.1 Commissions Received 575 635 10.4 Franchise Fees Received 51 51 1.2 Investment Inco
Slide 12: Highlights of Results
Highlights of Results Depreciation and amortisation increased by 14.1% • High spend on new branches and information technology Operating leases increased by 17.3% • More new stores opened at higher rentals Employee benefits increased by 8.1% • Staff requirements for new stores • Staff costs in exist
Slide 13: Highlights of Results
Highlights of Results Exchange rate differences • June 2013: R3.8 million loss • June 2014: R9.4 million loss Rand to US Dollar exchange rates (R:$) • June 2012: R8.30 • June 2013: R9.96 • June 2014: R10.62 13
Slide 14: Highlights of Results
Highlights of Results June 2013 June 2014 R’m R’m Net Interest Expense* 171 236 Income Tax Expense - Normal 1 531 1 767 - Deferred 45 (40) Total 1 576 1 727 Effective Tax Rate 30.4% 31.6% * Includes interest on convertible bonds: difference between calculated interest expense (IFRS) and actual cost
Slide 15: Value Added Statement
Value Added Statement Employees R8 373m 52% Providers 14% of Capital R2 318m 11% Tax 23% R1 727m Re-invested R3 603m 15
Slide 16: Highlights of Results
Highlights of Results Capital Expenditure June 2013 June 2014 R’m R’m Land and Buildings 324 354 Distribution Centres 264 202 DC Equipment and Vehicles 556 200 Store Refurbishment 414 580 New Stores 980 1 600 - RSA 843 1 047 - Non-RSA 137 553 Information Technology 404 551 Other Replacements* 358 43
Slide 17: Highlights of Results
Highlights of Results Contracted Capital Commitments June 2013 June 2014 R’m R’m Stores 1 218 2 200 - RSA 517 697 - Non-RSA 701 1 503 Distribution Centres 487 239 IT Systems 32 38 Total 1 737 2 477 17
Slide 18: Highlights of Results
Highlights of Results June 2013 June 2014 Growth R’m R’m % Net Cash Balances 6 114 8 100 32.5 • Month-end closing date • Timing of provisional tax payments 18
Slide 19: Stockholding
Stockholding June 2013 June 2014 Growth R’m R’m % Inventory 10 310 12 344 19.7 • Provision for 125 net new corporate stores 19
Slide 20: Closing Stock
Closing Stock Weakening Rand R'm R'm Sales Growth 15,000 0.1% 4.6% Inflation 14,000 6.0% DC Expansion 0.9% 13,000 8.2% Organic Growth: New Stores 12,000 Opening Stock 80.2% 11,000 10,000 9,000 20
Slide 21: Highlights of Results
Highlights of Results Debtors and Other Receivables June 2013 June 2014 Growth R’m R’m % Furniture Installment Sales 1 257 1 413 12.5 Franchise 541 681 25.9 Buy-aid Organisations 121 119 -1.7 Rental and Property Debtors 396 535 35.1 - Rental Debtors 234 184 -21.4 - Prepaid Rentals 162 351 117 MediRi
Slide 22: Highlights of Results
Highlights of Results HEPS vs Cash EPS* vs EBITDA per share (cents) June 2012 1 384 1 273 June 2013 1 216 1 115 June 2014 884 798 675 698 607 HEPS Cash EPS* EBITDA per share * Cash flow from operating activities excluding dividends paid and changes in working capital 22
Slide 23: Aubrey Karp, Divisional Director
Aubrey Karp Divisional Director 23
Slide 24: Furniture – Overview
Furniture – Overview • Disposable income and durable spending under pressure • Previous credit frenzy and subsequent pull-back is biting and could affect collections in future • Trading remains tough – Furniture retailers face inevitable consolidation – Local manufacturers at risk with some facing c
Slide 25: Furniture – Overview
Furniture – Overview • Sales growth remained buoyant at 12.2% • Overall internal deflation -0.22% • Trading profit growth of 49.6% • OK Furniture performed well • House & Home performing better • No significant change in debtors book • Better performance compared to traditional credit providers 25
Slide 26: Shoprite Furniture Group – Trading
Shoprite Furniture Group – Trading Sales R4.0bn +12.2% OK Furniture House & Home Increase 19.5% -1.3% Like-for-Like 12.0% 0.9% Sales Mix June 2013 June 2014 Home and Entertainment Appliances 63.7% 63.9% Furniture, Bedding, Patio and Carpeting 36.3% 36.1% Cash 69.6% 69.6% Credit 30.4% 30.4% 26
Slide 27: Furniture continued
Furniture continued Trading Profit: R196.2m (49.6% increase) Sales 12.2% Net Gross Income 16.2% Total Expenses 13.2% Controllable Expenses 15.6% Fixed Costs 11.3% 27
Slide 28: Furniture – Debtors
Furniture – Debtors • Credit amnesty has affected the NCR’s quarterly statistics, so comparison is difficult • NCR reports that SA households have average debt levels of +- 75% • High debt levels continue to affect affordability and could slow collections • Draft regulations for changes to affordabi
Slide 29: Furniture – Debtors Book
Furniture – Debtors Book Debtors Book June 2013 June 2014 Debtors Book (Gross) +15.1 % R1.5bn R1.7bn New Contracts +7.3 % 251 040 268 956 Arrears June 2013 June 2014 Actual Arrears 8.2% 9.0% Balance of Contract Arrears 21.8% 23.4% Bad Debts Provision 10.5% 12.0% 29
Slide 30: Furniture continued
Furniture continued Store Numbers Opened Since Total Confirmed July 2013 June 2014 June 2015 OK Furniture 31 295 26 OK Power Express 6 25 1 House & Home 2 48 3 Total 39 368 30 • 7 Stores closed: 4 OK Furniture and 3 House & Home 30
Slide 31: Furniture – Outlook
Furniture – Outlook Low growth environment expected to continue • Low economic growth and high unemployment • Ongoing pressure on disposable income • High debt exposure The Market • Electrical product price competitiveness • Durable market difficult to predict • Furniture store consolidation inevita
Slide 32: Furniture – Outlook
Furniture – Outlook Future growth drivers: • Increased footprint (30 new stores confirmed to June 2015) • Drive volumes – continue with current discounting policy • Maintain strict expense and shrinkage control • Ongoing product range re-freshening • Maintain focus on enhanced customer service level
Slide 33: Whitey Basson, Chief Executive Officer
Whitey Basson Chief Executive Officer 33
Slide 34: Trading Environment: RSA
Trading Environment: RSA • South Africa’s retail sales affected by low GDP growth • R10.7 billion in lost mining wages impacted Shoprite consumers • Unemployment at its highest since 2008 (25.5%) • Consumers’ income eroded by inflation, servicing high debt levels and rising interest rates • South Af
Slide 35: Trading Environment: Non-RSA
Trading Environment: Non-RSA • Natural resources continue to drive economic growth • Filtering down to consumers’ income and spending • Rising middle-class consumerism • The countries we invest in continue to outperform SA’s GDP growth – Angola (7.4%) – Zambia (6.5%) – Mozambique (7%) – Nigeria (5.5
Slide 36: Group Overview
Group Overview • Surpassed R100 billion in turnover for the first time - Turnover has doubled in six years • Invested for the future with record new store openings in a year - 1st time that more than 100 supermarkets were opened • Sales growth of 10.5% ahead of industry - RSA supermarkets gained mar
Slide 37: Group Overview
Group Overview • The Group now employs a total of 123 100 people • 11 762 new jobs just in the last year • Five year growth trend in store expansion and job creation Stores Employees +35 100 123 100 +499 1 948 88 000 1 449 2010 2014 2010 2014 37
Slide 38: Ten Year Turnover and Trading Profit
Ten Year Turnover and Trading Profit Trading profit has doubled in five years 120 6 R5.7bn Trading Profit 5.4 100 102 5 4.7 Trading Profit R billion 4.0 92 Turnover R billion 80 83 4 3.5 2.9 72 67 60 3 Turnover 59 48 40 2 39 34 2.3 30 1.3 20 1 0.91 0.71 0 0 2005 2006 2007 2008 2009 2010 2011 2012 20
Slide 39: Profitability – Overview
Profitability – Overview • Total gross margin stable at 20.8% • Stores’ gross margin improved • 5.6% trading margin remains world-class (Walmart: 3.3%, Sainsbury’s 3.6%, Tesco 4.1%) 39
Slide 40: Profitability
Profitability • Like-for-like stores controllable costs well managed at 8.2% growth • No increase in shrinkage, well controlled and better than world benchmark • Electricity cost up 15.6% with tariff hikes - However, R45 million saved from efficiency initiatives last year alone - Increasing to R100
Slide 41: Profitability – Pharmacy Division
Profitability Other operating segments: Pharmacy Division • Division remains loss making with gross margin under pressure due to medical aid reimbursements • R98m additional trading profit if full 4-tier dispensing fee was applied • Competition Commission inquiry to include medical schemes • Pharmac
Slide 42: RSA Supermarkets
RSA Supermarkets • Opened 86 new supermarkets (previous year: 62) • We now serve 73 customers every second • Subsidised basic foods keeping internal food inflation at 4.7% (SA food inflation 6.1%) • RSA sales affected by - Store closures on 15th December impacted sales by R260 million - Estimated im
Slide 43: RSA Supermarkets – Sales
RSA Supermarkets – Sales • Sales growth for the year 8.7% - Ahead of reported industry growth of 7.9% (Nielsen) - Eight years of uninterrupted market share gains - Very good Q4 sales 18% 2013/14 monthly sales growth RSA Supermarkets 16% 14% 12% 10% 8% 6% 4% 2% Q 1 = 8.3% Q 2 = 7% Q 3 = 7.5% Q 4 = 12
Slide 44: Non-RSA Supermarkets
Non-RSA Supermarkets • Non-RSA sales growth of 26.8% (16.2% constant currencies) • Contributes 16.5% to the Group’s supermarket turnover • Zambia, Namibia and Angola were the top achievers • Customer growth of 7.8% • High staff costs (+31%) required for training due to absence of retail experience •
Slide 45: Angola Update
Angola Update • Fire at the Shoprite store and distribution centre in Palanca in July • Destruction of a substantial portion of the site, trading ceased • Full disaster recovery plan implemented • All warehouse space and divisional office was operational 48 hours after fire through temporary premise
Slide 46: Other Operating Segments
Other Operating Segments Turnover relatively flat at 0.3% growth • Computicket ticket sales up 7.4% trading from 860 outlets - Travel performing well - Sold enough bus tickets to fill 52 000 busses & flight tickets to fill 1 600 Boeing 737s - Live entertainment tickets subdued at current exchange ra
Slide 47: Other Operating Segments
Other Operating Segments • LiquorShop sales growth 34% to reach R2 billion in sales - 241 stores (47 new) with a ROI > 50% - The largest corporate liquor store chain in South Africa • MediRite sales up 20.1% • Transpharm sales dropped 9.2% - Lost members after change in promotional incentives • OK F
Slide 48: Profitability
Profitability • Trading profit growth of 6% - Accelerated store openings near year-end impacted costs 2013 vs 2014: Group Corporate Store Openings July – December July – December 120 105 109 January – June 100 90 80 January – June 60 55 40 20 0 2013 2014 Gross store openings: Shoprite, Checkers, Che
Slide 49: Profitability
Profitability Investing for the future • 9.8% space growth • Total investment into new stores almost doubled to R1.6 billion • RSA Supermarkets - New stores opened though the economic slowdown - Double the supermarkets opened in second half vs prior year (35 vs 17 stores) ▻ 21 opened in the final mo
Slide 50: EBITDA
EBITDA EBITDA EBITDA up 8.7% – more than doubled over five years More than doubles in 5 years R'm 8 000 7 406 7 000 6 811 * 6 000 5 746 5 000 4 898 4 000 4 260 3 687 3 000 2 942 EBITDA 2 000 2 222 1 884 1 421 1 000 - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 * Restated to exclude Hungry Lion
Slide 51: Profitability: Non-RSA
Profitability: Non-RSA • IFRS provisions affected Non-RSA’s profitability June 2013 June 2014 Growth R’m R’m % Trading Profit R 598 745 R 673 133 12% Management Fees (Internal) R 151 000 R 189 000 - IFRS Stock Adjustments -R 13 600 R 29 446 - Nigeria Cash Deposit Fee* - R 20 000 - Adjusted Trading P
Slide 52: Strategic Areas of Focus
STRATEGIC AREAS OF FOCUS SHOPRITE (9
Slide 53: Capitalise on our Strong Brands
Capitalise on our Strong Brands Multiple brands allows us to play to the complexity of the SA market • Limited assortment of discounted basic foods • Closer to the heart of communities (LSM 2-5) • Consumer champion for low prices of food for middle-class (LSM 4-7) • Value and innovation for discerni
Slide 54: Strategically Defined Brands
Strategically Defined Brands The Consumer Champion 53
Slide 55: R20m Food Subsidy
R20m Food Subsidy 54
Slide 56: Strategically Defined Brands
Strategically Defined Brands Successful LSM 8-10 positioning 55
Slide 57: Product Innovation
Product Innovation Si WORLD'S ses] | VENISON a LETTUCE HARVESTED wea \ LL YEAR-RO BLE ND WITH ITS'ROOTS INTACT ‘HEDDAR —— ‘uu
Slide 58: Control the Supply Chain
Control the Supply Chain • Total of 600 000m² of distribution space • KZN DC facility fully on-stream - Consolidates three previous facilities • Higher availability levels than direct supplier deliveries (95%) • The only SA retailer to be ISO 9001 approved for import and export handling - Credibilit
Slide 59: Optimising our Portfolio
Optimising our Portfolio Rollout of the African ‘One-stop Shop’ • Money Market services now in 12 countries and growing • Zambia Money Transfers successful after launch in March • Computicket services rolled out to six countries outside South Africa • Six MediRite pharmacies in Non-RSA, another five
Slide 60: Leverage Customer Insights from Big Data
Leverage Customer Insights from Big Data • Improved use of data driven customer insights - Better ranging, pricing and promotional decisions • Investing in the new mobile marketing platforms - Smart phone apps, websites and mobile coupons - Social media: the Group has more than 1.8 million Facebook
Slide 61: Africa’s Consumerism
Africa’s Consumerism • One store in Nigeria sells 350 000 bottles of wine a year - That’s more than the nine stores in the Winelands, the home of wine • Shoprite in Angola sold 35 000 pairs of Havaianas last year - Stacked-up it will be three times higher than the Carlton Centre, the tallest buildin
Slide 62: Africa Expansion
Africa Expansion UNITED STATES INDIA Africa’s untapped potential • One third of 54 African countries showing CHINA GDP growth in excess of 6% • Traditionally underserved e.g.: Nigeria’s formal retail still only 1% of total market • Growing middle-class with consumption appetite - By 2035 Africa will
Slide 63: Africa Expansion
Africa Expansion Aim to remain the largest and most dominant retailer in Africa • Open 30 stores in the next 12 months • Concentrate effort on resource rich high growth countries • Strengthen international trade direct to Non-RSA countries - Cross-country trade by-passing SA increased by 26% • Colla
Slide 64: Africa First Mover Advantage
Africa First Mover Advantage • Shoprite has 17 years of experience and 169 stores – ahead of opposition • Shoprite’s hidden value in Africa - Huge value in the replacement cost of original investment - Angola capital investment’s replacement value has grown - Rand depreciated 39% to US dollar and An
Slide 65: Exchange Rates: Angolan Kwanza vs USD & Rand
Exchange Rates: Angolan Kwanza vs USD & Rand 64
Slide 66: Exchange Rates: Nigerian Naira vs USD & Rand
Exchange Rates: Nigerian Naira vs USD & Rand 65
Slide 67: Africa First Mover Advantage
Africa First Mover Advantage Replicate Zambia’s success story • Zambia sales growth of 28.4% despite more competition than ever before from all five South African competitors 66
Slide 68: Outlook
OUTLOOK
Slide 69: Keep Building for the Future
Keep Building for the Future Brookside Gardens (Pietermaritzburg), November 2014 Sir Lowry’s Pass Village (Somerset West), March 2015 Benguela (Angola), Dec 14 Namibe (Angola), May 2015 68
Slide 70: Trading Outlook
Trading Outlook • No immediate improvement in South African trading conditions - Weak rand and electricity costs will push up price inflation • RSA sales momentum has been maintained in July and August • Remain committed to real price relief for consumers • Continue investing in new stores to derive
Slide 71: Population Projections
Population Projections • Africa and Asia will make up 80% of the World’s population by 2050 2010 2050 * Source: UN Department of Economic and Social Affairs
Slide 72: Trading Outlook
Trading Outlook • Profitability of RSA supermarkets will improve as bulk of new stores mature • Investment priorities shift towards Africa in the new year - RSA: R697 million - Non-RSA: R1.5 billion • 80 new supermarkets committed until June 2015 - RSA: 50 stores openings confirmed – lower than prev
Slide 73: Thank You Questions?
THANK You) = - Questions?