Shoprite Holdings Limited · JSE:SHP
Shoprite — H1 2009 Earnings Presentation
48 slides from Shoprite's earnings presentation, February 2009
Slide 1: Shoprite
SHOP
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 2008 Turnover R30 bn Owned Outlets 1,051 Franchise Outlets 286 Countries 17 Employees 81,000 Market Capitalisation R30 bn* *During February 2009 4
Slide 5: Financial Results
Financial Results Turnover + 27.3% R 29,6bn Trading Profit + 38.2 % R 1,4bn Trading Margin From 4.4% to 4.8% Diluted Headline EPS + 43.3% 184.0c Dividend per share + 42.9% 70.0c 5
Slide 6: Key Information
Key Information • Turnover – Total + 27.3% – RSA Supermarkets + 24.5% – Non-RSA Supermarkets + 54.3% – Furniture + 13.3% – Franchise + 28.7% • Trading profit – Total + 38.2% – RSA Supermarkets + 31.1% – Non-RSA Supermarkets >100.0% – Furniture + 5.9% – Franchise + 86.5% 6
Slide 7: Key Information
Key Information • Diluted Headline EPS + 43.3% to 184.0c • Dividends per share + 42.9% to 70.0c • NAV per share + 26.7% to 981.0c 7
Slide 8: Value Added Statement (R million)
Value Added Statement (R million) • Employees 2 840 • Providers of Capital 563 • Tax 542 • Re-invested 809 Re-invested 17% Employees 11% 60% Tax 12% Providers of Capital 8
Slide 9: Sales Growth Analysis
Sales Growth Analysis Existing Net New Total stores stores RSA Supermarkets 20.0% 4.5% 24.5% Non-RSA Supermarkets 50.3% 4.0% 54.3% Furniture 2.4% 10.9% 13.3% Franchise 25.0% 3.7% 28.7% 9
Slide 10: Store Portfolios
Store Portfolios December July 2008 Opened Closed 2008 Supermarkets 636 44 (3) 677 Hungry Lion 112 10 (3) 119 Furniture 236 20 (1) 255 Owned Stores 984 74 (7) 1,051 Franchise 256 34 (4) 286 Total Stores 1,240 108 (11) 1,337 Pharmacies 53 16 - 69 Liquor stores 32 9 - 41 Countries 17 - - 17 10
Slide 11: Highlights of Results
Highlights of Results Gross margin decreased • Cut margins on basic foods • Alleviate impact of high food inflation on consumers • Resulting in high sales volumes 11
Slide 12: Highlights of Results
Highlights of Results Other operating income increased 17.1% Dec 2007 Dec 2008 Growth % R’m R’m Finance income earned 81 93 14.8 Net premiums earned 96 100 4.2 Operating lease income 92 102 10.9 Commissions received 96 143 49.0 Franchise fees received 13 19 46.2 Investment income 6 4 (33.3) Sundry i
Slide 13: Highlights of Results
Highlights of Results • Depreciation and amortisation increased 34.7% – Increase spend on revamps and new branches – Newly implemented branch systems now operational • Operating leases increased 15.9% – Due to 67 corporate stores opened in the last 6 months – Turnover rentals on high sales growth •
Slide 14: Highlights of Results
Highlights of Results • Trading profit increased 38.2% with turnover increasing by 27.3% – Contained overhead costs – Cut in gross margins resulted in higher sales growth – High sales growth improved efficiencies as fixed cost remained the same – Growth in service departments – Increased contributio
Slide 15: Highlights of Results
Highlights of Results Exchange rate gains increased 272.5% • Dec 2007: R7 million • Dec 2008: R26 million Rand to US Dollar exchange rates (R:$) • June 2007 R7.10 • December 2007 R6.89 • June 2008 R7.96 • December 2008 R9.66 15
Slide 16: Highlights of Results
Highlights of Results Dec Dec 2007 2008 R’m R’m Capital items - loss 9.9 4.6 – Mainly relating to the disposal of fixed assets Net interest received 63.0 78.5 – Higher interest rates and improved cash flows Tax – Normal and deferred 371.6 481.3 – STC 30.3 60.9 Total 401.9 542.2 16
Slide 17: Highlights of Results
Highlights of Results Capital Expenditure Dec 2007 Dec 2008 R’m R’m Land and buildings 215.4 271.3 Store Refurbishment 123.0 262.1 New Stores 97.8 228.1 Information Technology 71.4 117.7 Other replacements* 136.8 160.2 Total 644.4 1,039.4 *Distribution Centres, Motor Vehicles, Generators & Office Fu
Slide 18: Highlights of Results
Highlights of Results Dec 2007 Dec 2008 Growth % R’m R’m Inventory 4,650 6,489 39.5 Provisioning of new stores Avoid “out-of-stock” due to lower supplier service standards Forward buying – global food shortages and higher food inflation Depreciation of the rand Cash balances vs. Trade creditors Incr
Slide 19: Highlights of Results
Highlights of Results Debtors Dec 2007 Dec 2008 Growth % R’m R’m Furniture 687 775 12.8 Franchise 393 542 37.9 Buy aid organisations 162 172 6.2 Other receivables 656 627 (4.4) Total 1,898 2,116 11.5 19
Slide 20: Highlights of Results
Highlights of Results Cash flow reconciliation R’m Cash at June 2008 3,136 Cash from operations 1,807 Changes in working capital 956 Net interest received 82 Dividends paid (544) Tax paid (407) Purchase of assets (1,039) Proceeds on disposal of assets 45 Other 30 Cash at December 2008 4,066 20
Slide 21: Highlights of Results
Highlights of Results Cash Earnings* (R’m) 1600 1400 + 61.9% 1,483 1200 + 34.1% 1000 800 916 600 683 400 200 0 Dec 2006 Dec 2007 Dec 2008 *Cash flows from operating activities excluding dividends paid and changes in working capital 21
Slide 22: Highlights of Results
Highlights of Results HEPS vs Cash EPS* vs EBITDA per share (cents) 400 350 358 300 250 292 258 200 195 150 181 190 100 135 134 50 86 0 Dec 2006 Dec 2007 Dec 2008 *Cash flows from operating activities excluding dividends paid and changes in working capital 22
Slide 23: Furniture
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Slide 24: Furniture
Furniture • Highlights – Sales increase by 13.3% to R1,38bn – Sales and income growth in OK Furniture outstrips inflation – 20 new stores opened – Second group of salespeople learnerships now complete – Trading profit grows 5,9% to R106,55m (2007 – R100,61m) • Excellent profit growth in OK Furniture
Slide 25: Furniture
Furniture • Trading environment – Slowdown in consumer expenditure and disposable income erosion accelerated in the middle to higher consumer LSM’s (House and Home trading affected July to October 2008) – Mainly precipitated by: • Past uncontrolled and excessive credit binges and high levels of cons
Slide 26: Furniture
Furniture Confirmed Stores Opened Total until June 2010 OK Furniture 13 195 22 OK Power Express 0 14 0 House and Home 7 46 3 Total 20 255 25 26
Slide 27: Furniture
Furniture • Sales Growth Dec 2007 Dec 2008 (R’bn) (R’bn) Increased by 13.3% 1,218 1,380 • OK Furniture and OK Power Express increased by 14.87% (GEB: 9.84%) • House and Home increased by 11.26% (GEB: -7.66%) • Reported Department of Statistics furniture and appliance inflation: 3.90% • Furniture Div
Slide 28: Furniture
Furniture • Sales Mix – Merchandise Sales Dec 2007 Dec 2008 Home entertainment 66% 65% & appliances Furniture, bedding, patio 34% 35% & carpeting 28
Slide 29: Furniture
Furniture • Sales Mix – Cash and Credit Dec 2007 Dec 2008 Cash 69.39% 67.18% Credit 30.61% 32.82% # Of new contracts – 15 643 128 239 143 882 (12.2% increase) • OK Furniture and OK Power Express credit participation now higher than the previous year (1.53%) • House and Home participation reflects su
Slide 30: Furniture
Furniture • Trading Profit Dec 2007 Dec 2008 (R’000) (R’000) Increased by 5.9% 100 608 106 550 • Affected by: – Low product inflation – Certain expenditure increases above inflation – fuel, electricity and rates – Increased Debtors book balance and arrears increase – increased bad debt provision 30
Slide 31: Furniture
Furniture Dec 2007 Dec 2008 % Debtors Book (R’m) (R’m) Variance Debtors – Increase R88m 686.58 774.58 12.82% • Due to increased contract numbers and increased average purchase price; • Notwithstanding – Slight increase in credit application decline rate (3.1%) – Finance charges debited monthly – Ins
Slide 32: Furniture
Furniture Debtors Book Dec 2007 Dec 2008 % Variance Actual Arrears 4.65% 7.21% 55.05 Balance of Contract 19.56% 23.03% 17.74 Arrears Bad Debt and UFC 13.20% 13.30% 0.75 Provisions • Consumer disposable income pressure • UFC (in SA) will eventually reduce to zero 32
Slide 33: Furniture
Furniture • Prospects Expect slower trading environment and growth to continue – at least until the end of 2009 • As a consequence of: – The ongoing erosion of consumer disposable income • Caused primarily by: – Previous interest rate increases – Ongoing food, medical, energy cost increases and prev
Slide 34: Furniture
Furniture • Prospects • Product prices (across all departments) increased dramatically in January 2009 • As a consequence of: – Increased raw material costs caused by: • Weaker rand exchange rates • Weaker currencies in most export countries (China, Malaysia, Korea, Vietnam, etc.) • Increased labour
Slide 35: Furniture
Furniture • Prospects • Business as usual – Focused on organic growth, stores, sales and customers – Continued achievement of volume growths through discounted pricing (other traditional furniture retailers starting to follow) – Continuation of planned store footprint expansion – Continued product i
Slide 36: Furniture
Furniture • Prospects – Continued customer service focus and improvement – Enhanced staff training and development programmes (SETA approved salespeople, store management, carpet estimator and other learnerships) – Focus on costs – squeeze additional reductions through operating efficiencies 36
Slide 37: Operating Highlights
Operating Highlights Whitey Basson Chief Executive Officer 37
Slide 38: Operational Overview
Operational Overview • Sales growth of 27.3% (Like stores: 23.5%) • Market share increased 1.6% to 29.8% • Opened 44 supermarkets – now 677 supermarkets • Trading Profit increased 38.2% to R1.4bn • Trading Profit Margin improved to 4.8% and remained lowest price supermarket • Sales efficiency up 15.
Slide 39: RSA Overview
RSA Overview • Supermarkets achieved sales growth of 24.5% • CPIX food inflation 17.5% (2007:12.1%) • Internal inflation 16.9% (2007: 9.2%) • Total Customer growth of 8.5% • Total Basket Size growth of 15.2% • High food growth result in further drop in non-food participation 39
Slide 40: RSA Supermarkets – Dec '08 Stores
RSA Supermarkets – Dec ‘08 576 Stores Usave 115 Checkers Hyper 24 312 Shoprite 125 Checkers Trading density increased 22.5% 40
Slide 41: Increased Customer Loyalty
Increased Customer Loyalty 57% of all SA Adults shop at either Shoprite or Checkers 60% 57% 2007: 52% 50% 40% 31% 29% 30% 2007: 20% 2007: 26% 20% 10% 3% 0% 2007: 2.7% Shoprite Group P'nP Group Spar Group Woolworths Source: AMPS (All Media and Products Survey) 2008 41
Slide 42: Customer Profile by LSM
Customer Profile by LSM Shoprite Population Divide Pick ‘n Pay SPAR Woolworths Source: AMPS (All Media and Products Survey) 2008 42
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Slide 44: RSA Shoprite Overview
RSA Shoprite Overview • Sales growth of 23.3% • Market leader: 312 stores RSA • 11 new stores opened • Basket size growth of 16.5% • Grown customer base 6.2% • 35m customers per month • More shoppers than any other supermarket – now more than 14.4m individuals (AMPS 2008) 44
Slide 45: 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 Spar 27.9 major competitors loyalist bulk shoppers Pick ‘n Pay 32.3 25 26 27 28 29 30 31 32 33 Source: AMPS (All Media and Products Survey) 2008 45
Slide 46: Capitalising on consumers fuel price perception
Capitalising on consumers fuel price perception Source: AMPS (All Media and Products Survey) 2008 46
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Slide 48: Usave Overview
Usave Overview • Sales growth 63.5% (GEB 32.1%) • Basket size growth 24.8% • Customer growth 31% • Opened 25 stores, now 139 in total • Reduced gross margin further by 0.7% and still increased net profit • Introduced a further 42 private labels, total now 134 • ROI of 70% 48