Shoprite Holdings Limited · JSE:SHP
Shoprite — FY2008 Earnings Presentation
71 slides from Shoprite's earnings presentation, 2008
Slide 1: Financial Results for the Year Ended 30 June 2008
Financial Results FOR THE YEAR ENDED 30 JUNE 2008 1
Slide 2: Financial Highlights
Financial Highlights Carel Goosen Deputy Managing Director 2
Slide 3: Size of Operation
Size of Operation June 2008 Turnover R48 bn Owned Outlets 984 Franchise Outlets 256 Countries 17 Employees 73,000 Market Capitalisation R24 bn* *During August 2008 3
Slide 4: Financial Results
Financial Results Turnover + 22.3% R 47,7bn Trading Profit + 43.7 % R 2,3bn Trading Margin From 4.1% to 4.8% Diluted Headline EPS + 54.1% 298.6c Dividend per share Cover = 2x 155.0c 4
Slide 5: Key Information
Key Information •Turnover – Total + 22.3% – RSA Supermarkets + 21.8% – Non-RSA Supermarkets + 38.1% – Furniture + 5.6% – Franchise + 17.7% •Trading profit – Total + 43.7% – RSA Supermarkets + 47.1% – Non-RSA Supermarkets > 100.0% – Furniture - 24.2% – Franchise + 71.6% 5
Slide 6: Key Information
Key Information • Diluted Headline EPS + 54.1% to 298.6c • Dividends per share + 53.5% to 155.0c • NAV per share + 30.8% to 938.0c 6
Slide 7: Value Added Statement (R'm)
Value Added Statement (R’m) •Employees 3 913 •Providers of Capital 643 •Tax 876 •Re-invested 1 614 Re-invested 23% Tax 12% 56% Employees 9% Providers of Capital 7
Slide 8: Sales Growth Analysis
Sales Growth Analysis Existing Net New Total stores stores RSA Supermarkets 17.9% 3.9% 21.8% Non-RSA Supermarkets 30.5% 7.6% 38.1% Furniture (1.1%) 6.7% 5.6% Franchise 21.0% (3.3%) 17.7% 8
Slide 9: Store Portfolios
Store Portfolios July 2007 Opened Closed June 2008 Supermarkets 604 42 (10) 636 Hungry Lion 97 18 (3) 112 Furniture 216 22 (2) 236 Owned Stores 917 82 (15) 984 Franchise 264 29 (37) 256 Total Stores 1,181 111 (52) 1,240 Pharmacies 44 10 (1) 53 Liquor stores 18 14 - 32 Countries 17 - - 17 9
Slide 10: 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 10
Slide 11: Highlights of Results
Highlights of Results Other operating income increased 23.1% Jun 2007 Jun 2008 Growth R’m R’m % Finance income earned 163 171 4.7 Net premiums earned 186 201 8.0 Operating lease income 175 197 12.5 Commissions received 169 210 24.4 Franchise fees received 24 29 20.3 Investment income 8 28 259.7 Sund
Slide 12: Highlights of Results
Highlights of Results • Depreciation and amortisation increased 15.4% – Increased spend on revamps and new branches • Operating lease increased 12.5% – Due to 67 corporate stores opened in financial year – Turnover rentals on high sales growth • Employee benefits increased 17.9% – Resulting staffing
Slide 13: Highlights of Results
Highlights of Results •Trading profit increased 43.7% with turnover increasing by 22.3% – Contained overhead costs – Cut in gross margins resulted in higher sales growth – Higher turnover growth than expense growth – Growth in service departments – Trading margin highest ever: 4.8% – Increased contr
Slide 14: Highlights of Results
Highlights of Results Exchange rate gains increased 39.9% •Jun 2007: R24 million •Jun 2008: R33 million Rand to US Dollar exchange rates (R:$) •June 2006 R7.11 •June 2007 R7.10 •June 2008 R7.96 14
Slide 15: Highlights of Results
Highlights of Results 2007 2008 R’m R’m Capital items 60 7 – Mainly relating to fixed assets in the current year and sale of investments in the previous year Net interest received 25 125 – Higher interest rates and improved cash flows Tax – Normal 597 812 – STC 57 55 – Deferred (31) 9 Total 623 876
Slide 16: Highlights of Results
Highlights of Results Capital Expenditure 2007 R’m 2008 R’m Land and buildings 308 401 Store Refurbishment 463 458 New Stores 239 220 Information Technology 159 213 Other replacements* 95 149 Total 1,264 1,441 *Distribution Centres, Motor Vehicles, Generators & Office Furniture 16
Slide 17: Highlights of Results
Highlights of Results 2007 2008 Growth R’m R’m % Inventory 3,699 4,707 27.3 Provisioning of new stores Avoid “out-of-stock” due to lower supplier service standards Forward buying – global food shortages and higher food inflation Cash balances vs. Trade Creditors Increases due to balance sheet closin
Slide 18: Highlights of Results
Highlights of Results Debtors 2007 2008 Growth R’m R’m % Furniture (net) 571 608 6.5 Franchise 285 375 31.6 Buy aid organisations 96 114 18.8 Other receivables 570 593 4.0 Total 1,522 1,690 11.0 18
Slide 19: Highlights of Results
Highlights of Results Cash flow reconciliation R’m Cash at June 2007 1,988 Cash from operations 2,890 Changes in working capital 397 Net interest received 146 Dividends paid (588) Tax paid (616) Purchase of assets (1,436) Proceeds on disposal of assets 263 Other 92 Cash at June 2008 3,136 19
Slide 20: Highlights of Results
Highlights of Results Cash Earnings* (R’m) 3000 2500 + 45.3% 2000 + 32.5% 2,426 1500 1,670 1000 1,260 500 0 2006 2007 2008 *Cash flows from operating activities excluding dividends paid and changes in working capital 20
Slide 21: Highlights of Results
Highlights of Results HEPS vs Cash EPS* vs EBITDA per share (cents) 700 600 580 500 478 400 438 371 300 330 310 200 248 202 100 152 0 2006 2007 2008 *Cash flows from operating activities excluding dividends paid and changes in working capital 21
Slide 22: Furniture
Furniture Aubrey Karp 22
Slide 23: Furniture
Furniture • Highlights – Sales increase by 5.6% to R2,26bn – Sales and income growth in OK Furniture outstrips inflation – 22 new stores opened – First batch of salespeople learnerships now complete – Trading profit drops by 24,2% to R155,18 million (2006 – R204,84 million) • Significantly affected
Slide 24: Furniture
Furniture • Trading environment – Slowdown in expenditure and disposable income erosion continues in the middle to higher consumer LSM’s – Mainly precipitated by: • Past uncontrolled and excessive credit binges and high levels of consumer credit exposure (78%) • High interest rates and massive incre
Slide 25: Furniture
Furniture Confirmed Stores Opened Total until June 2009 OK Furniture 14 183 16 OK Power Express 0 14 0 House and Home 8 39 7 Total 22 236 23 Target remains 265 stores by June 2009 25
Slide 26: Furniture
Furniture • Sales Growth 2007 2008 (R’bn) (R’bn) Increased by 5.6% 2,139 2,258 • OK Furniture and OK Power Express increased by 13.23% (GEB: 8.39%) • House and Home decreased by 3.20% (GEB: -11.73%) • Reported Department of Statistics furniture and appliance deflation: 0.90% • Furniture division – i
Slide 27: Furniture
Furniture •Sales Mix – Merchandise Sales 2007 2008 Home entertainment & 64% 65% appliances Furniture, bedding, patio & 36% 35% carpeting 27
Slide 28: Furniture
Furniture •Sales Mix – Cash and Credit 2007 2008 Cash 67.90% 69.75% Credit 30.10% 30.25% # of new contracts (4.28% 249 134 238 482 decrease) • OK Furniture credit participation now higher than the previous year • House and Home still significantly down ( - 6.76%) 28
Slide 29: Furniture
Furniture • National Credit Act – Continuing negative effect on credit advancement – particularly in the market serviced by House and Home – Still no specific guidelines on affordability formula standardisation – Debtors reluctant to provide detail of monthly expenditure and sometimes no clear lines
Slide 30: Furniture
Furniture • Trading Profit 2007 2008 (R’000) (R’000) Decreased by 24.2% 204 839 155 181 • Affected by: – Reduced sales and credit in the House & Home – affects all other incomes, (finance, insurance, carpet fitting and contract initiation incomes) – No product inflation and in some cases ongoing def
Slide 31: Furniture
Furniture % Debtors Book 2007 2008 Variance Actual Arrears 4.12% 5.80% 43.42% Balance of Contract Arrears 18.82% 24.20% 28.40% Bad Debt and UFC Provisions 18.72% 11.69% -37.64% House & Home book balance decrease (–34.14%) NCA debt administration process and time lag UFC will eventually reduce to zer
Slide 32: Furniture
Furniture • Prospects Expect slower trading environment and growth to continue – at least until the end of 2009 • As a consequence of: – Remaining negative effects of new Credit Act – The ongoing erosion of consumer disposable income • Caused primarily by: – High debt levels affecting NCA affordabil
Slide 33: Furniture
Furniture • Prospects • Some level of product inflation expected • Due to increased raw material, transport and labour costs caused by: – Petrol price increases – Weaker Rand exchange rates – Weaker currencies in most export countries 33
Slide 34: Furniture
Furniture • Growth • Future focused on organic growth, sales and customers: – Continuation of planned store footprint expansion – Continued range enhancements and product innovation – Increased imported product participation (margin advantage) – Continued achievement of volume growths through discou
Slide 35: Furniture
Furniture • Growth • Future focused on organic growth, sales and customers: – Continual customer service focus and improvement – Enhanced staff training and development programmes to provide better product knowledge and customer service (SETA approved salespeople, store management and other learners
Slide 36: Operating Highlights
Operating Highlights Whitey Basson Chief Executive Officer 36
Slide 37: Performance History
Performance History •The average cumulative growth for the 22 years since listing in 1986: – Sales 30.9% – Trading profit 33.6% – R100 invested in Shoprite Shares in 1986 would be worth R30 000 today – growth of 30% per annum – Market Cap of R24bn 37
Slide 38: Market Capitalisation of Retailers at the end of August 2008
Market Capitalisation of Retailers at the end of August 2008 38
Slide 39: Operational Review
Operational Review • Sales growth of 22.3% – Selling enough sausage that will span the coastline of Africa – 10 000 ha of potatoes – And apples that would stretch from Cape Town to Paris and back – Sugar enough to give each one on earth a double chocolate chip cookie – Processing 6 million orders pe
Slide 40: Operational Review
Operational Review • Lower Supplier Service levels – some were 20% lower than that of the DC - required a larger investment in stock • Direct-to-store service levels have hit an all time low of 67% following capacity constraints and the profits of high inflation • Interesting to note Group uses 15m
Slide 41: % Food Inflation vs % Sales Growth
% Food Inflation vs % Sales Growth Avg 25.0 SR Growth Avg 13.8 Statsa Metropolitan Inflation Avg 10.6 SR Internal Inflation Source: Statistics South Africa, Shoprite Internal Results June 2008 41
Slide 42: Operational review
Operational review • Enjoy the strongest consumer loyalty as 63% (2% more than 12 months before) of adult population does their bulk shopping at any of our RSA Supermarkets (Nielsen: Shopper Trends Plus, June 2008) • 16.6m unique adult shoppers per month - the largest of all retailers (AMPS 2007 AB)
Slide 43: Enjoy more customer support than any other retailer
Enjoy more customer support than any other retailer Source: All Media and Products Survey (AMPS), 2007 43
Slide 44: Non-RSA
—_ Precos boixos em que pace coo!
Slide 45: Non-RSA Overview
Non-RSA Overview 2007 2008 Turnover growth 29.4% 38.1% Non-RSA sales participation 10.8% 12.1% Number of stores 95 100 Profit growth > 50% > 100% 6 premises purchased for own development in the next year 45
Slide 46: Non-RSA Overview
Non-RSA Overview • The good results of Non-RSA was influenced by: – The boom in commodity prices raising GDP growths – Strengthening of currencies against the US Dollar while the Rand weakened – High inflation on average over 10% • Export volumes up 24% in real terms but the supply chain worsened •
Slide 47: Non-RSA Overview
Non-RSA Overview • India, Tanzania and Madagascar not profitable • India: – Progress on FDI and MRP rules have been slower than anticipated and as a result: – Local and international retailers have slowed their India expansion – Evaluating our investment at present • Tanzania: – After some changes d
Slide 48: Supermarket Complimentary Services
Supermarket Complimentary Services 48
Slide 49: Money transfers and ticketing services
• Net income increased by 27% • Money transfers grown over 300% • We sell enough Mango flight tickets to fill 323 Boeing 737’s • Enough bus tickets to fill 21 000 Lux Liners • And event tickets to fill Newlands 200 times • Currently 12 006 events on sale • Latest retail first with 100% no claim cash
Slide 50: Pharmacies
•10 Pharmacies opened, now a total of 53 •Sales growth of 36.8% •Scheduled products make up 74% of sales •Health and Beauty integration showing growths of >100% in some categories •Dispensing on its own not profitable 50
Slide 51: Hungry Lion
•A luxury in a slow economy for LSM 4-6 •Sales growth of 23.2% •Trading profit growth of 10.5% •Opened 116th store 51
Slide 52: Liquor stores
• Sales and profitability up 3 times • Opened 14 stores now 32 trading • Positive contribution to overall store offering • Combined wine sales with the supermarket increased – no cannibalisation • Excellent penetration in Shoprite market segment • 44 new applications submitted 52
Slide 53: Franchise
•Good turnover growth on existing business of 21% •Overall improvement of cost to income ratio together with the sales improvement increased trading profit by 71.6% •Good debtors book with 95% on 30 days and under •29 newly recruited members 53
Slide 54: Personnel
Personnel 54
Slide 55: Productivity and employment
Productivity and employment •Group: Sales per FTE +13.44% •Employment: Headcount 73 373 •4 096 permanent jobs directly created in the last 12 months •Payroll produces 2 500 000 payslips annually in 17 countries 55
Slide 56: Achievements
Achievements • Substantial increase in volumes: – R102m (14% increase) invested into training – 98 816 training interventions – 821 learnerships – 9 full SETA qualifications • 4 733 Managers attended training programmes • 1 325 Trainee Branch Managers in training during last 6 months • 3 125 employe
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Slide 58: RSA Shoprite Overview
RSA Shoprite Overview • No 1 • Sales growth of 25% • Customer growth of 11.2% • Market leader with 302 stores (7 new) • Relentless low price investment proved a strong success factor during tough economic times • Highest customer loyalty – 43% of customers do their bulk shopping exclusively at Shopr
Slide 59: Shoprite improved its stature as the most preferred shopping destination
Shoprite improved its stature as the most preferred shopping destination when competitors’ main bulk shoppers switch Source: Nielsen Shopper Trends Plus June 2007 and June 2008 59
Slide 60: Emerging Markets
Emerging Markets •Best positioned to capture emerging market •434 000 new jobs in RSA from Sep 2006 to Sep 2007 •Strict definition of unemployment down by 2.5% to 23% •Degrees in low income households with a strong increase in R7000+ segment (AMPS 2007 AB) •Continued growth in participation of emerg
Slide 61: Shoprite gained more customers than any other retailer
On a yearly measure, Shoprite 11.5% gained more customers 12.6% than any other retailer 6.5% 7.7% 7.7% 8.8% 6.5% 17.4% Source: All Media and Products Survey (AMPS), 2005, 2006, 2007 61
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Slide 63: Usave Overview
Usave Overview •Sales growth of 48.2% •Customer growth of 21.9% •Gross margin reduced by 1.3% - overall profitability improved (LESS IS MORE!!) •Private label products now 127 at an average price difference of 15% and a 5% margin gain •Although from a low base, the Usave market share has doubled ove
Slide 64: Shoprite Holdings Ltd
SHOPRITE(3 HOLDINGS LTD
Slide 65: Checkers Overview
Checkers Overview •Sales growth of 15.6% (GEB 12.9%) •Customer growth of 6.2% to 13.3m customers per month •Basket Size growth of 9% •Number of stores 143 (7 new, 1 closed) 65
Slide 66: Checkers Strategy
Checkers Strategy •Main objective of repositioning is to become the preferred shopping destination of LSM 8-10 shoppers •Evidence that strategy is gaining traction: - Highest % growth of all retailers in LSM 8-10 - LSM 8-10 profile now sitting at 47.4% (AMPS 2007 AB) •Total store sales have also gro
Slide 67: Total customer participation divided by LSM for Checkers
Total customer participation divided by LSM for Checkers Source: AMPS 2007 67
Slide 68: Checkers Categories
Checkers Categories • Continue to enhance our leadership in key areas where we are outgrowing the market • Focus categories include: – Wine – Cheese – Meat • Steakhouse Classic • Certified Natural Lamb • Championship Boerewors • Perishable basket grew 20% • Rapidly expanding fresh foods range and re
Slide 69: Succession Management
2009… • Succession Management – How well are you positioned with your people? – No of graduates - 1 306 – Entrepreneurs •SA Demographic for future 69
Slide 70: Demographic spread makes us more resilient than other retailers
Demographic spread makes us more resilient than other retailers Source: AMPS 2007 70
Slide 71: Questions
Questions 71