SPAR RESULTS PRESENTATION FOR THE YEAR ENDED 30 SEPTEMBER 2015 - - PowerPoint PPT Presentation

SPAR RESULTS PRESENTATION

FOR THE YEAR ENDED 30 SEPTEMBER 2015

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AGENDA

INTRODUCTION: Graham O’Connor, CEO SPAR GROUP PERFORMANCE SUMMARY SALIENT FEATURES BUSINESS ENVIRONMENT SPAR VALUES AND CULTURES STRATEGIC FOCUS AREAS FINANCIAL OVERVIEW Mark Godfrey, CFO OPERATIONAL OVERVIEW Graham O’Connor, CEO LOOKING FORWARD PROSPECTS QUESTIONS

INTRODUCTION

GRAHAM O’CONNOR, CEO

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SPAR GROUP: FACTS AND FIGURES

SPAR INTERNATIONAL: PRESENT IN 40 COUNTRIES FOLLOWING ENTRY INTO 10 NEW TERRITORIES IN ASIA, AFRICA AND EASTERN EUROPE DURING 2014 AND 2015

• 12 314 stores €32bn p.a. turnover
• South Africa is the second biggest SPAR country by turnover
• Ireland is 10th biggest SPAR country by turnover

SOUTHERN AFRICA: BALANCED PORTFOLIO OF 1 935 STORES ACROSS EIGHT BRANDS WITH R86.9BN RETAIL TURNOVER

• Groceries + fresh produce, liquor, pharmaceuticals and building materials
• Offering spans consumer sectors from high to low LSMs
• Seven (+ satellites) distribution centres: 242 800m³ warehousing space

(including Imports)

• Handle 70% of SPAR’s turnover + 30% directly from third party suppliers
• 219m cases dispatched in 2015 (2014: 211m cases)
• Distance travelled 30.8 m km in 2015 (vs 30.2 m kms travelled in F2014)

Source: SPAR International Annual Report 2014

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SPAR GROUP: FACTS AND FIGURES (continued)

IRELAND/SOUTH WEST ENGLAND: BWG SERVICES >1 330 STORES ACROSS 6 BRANDS, ~€1.4BN (ZAR19.3BN) RETAIL TURNOVER

• Wholesale and distribution of groceries + fresh produce, liquor to retail/catering

sectors

• Well established in convenience market
• 22 300m² stocking 4 600 ambient SKUs, 884 alcohol SKUs and

2 200 in chilled SKUs Ireland*

• 13.5m cases dispatched in the financial year in Ireland

SUPPORT TO INDEPENDENT RETAILERS

• Relationships, marketing and branding, product development,

systems support, property management, retail operations and training

• Financial: Trade credit and access to funding

* Kilcarbery facility only, excludes Appleby Westward

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PERFORMANCE SUMMARY

• First full year operating in a global context
• Steady year-on-year growth from existing store base
• Total retail footprint increased to 3 267 stores
• Efficiency improvements and innovation in warehousing, distribution and logistics
• Acquisition of Londis Group (145 retail stores) completed and integration in progress
• Refinancing of BWG banking facilities concluded in June 2015: Improved financing costs

1 450.5 1 643.6 1 842.2 1 751.1 1 922.6 11 12 13 14 15 NET ASSET VALUE PER SHARE (CENTS) 564.6 623.9 694.8 781.8 835.5 940.0 11 12 13 14 15 HEADLINE EARNINGS PER SHARE (CENTS)

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SALIENT FEATURES

R million 2014 2015 Change (%) Turnover 54 483.0 73 258.8 +34.5 Operating profit 1 864.9 2 294.2 +23.0 Normalised headline earnings per share (cents) 779.8 940.0 +20.5 Dividend per ordinary share (cents) 540.0 632.0 +17.0

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BUSINESS ENVIRONMENT

SOUTH AFRICA IRELAND

• Systemic economic shortcomings, social

instability and infrastructural limitations

• Ongoing pressure on consumer spending
• Internally measured food inflation

relatively low at 5.2%

• Impact of current drought on food prices
• Highly competitive across all segments of

SPAR’s business

• Consistent economic recovery since global

financial crisis

• Retail market showing positive signs of a

return to health ~ but food retail still lagging

• verall market
• Positive trends in labour market

› Expected to spur consumer demand › Impact of 6% increase in minimum wage

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SPAR VALUES AND CULTURE: ETHICAL AND MORAL COMPASS / DECISION-MAKING FOUNDATION

• Commitment to consumers, retailers,

suppliers, brand, etc.

• Displaying positive energy

and attitude

• Enthusiasm
• Wanting to do what you currently do

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SPAR VALUES AND CULTURE: ETHICAL AND MORAL COMPASS / DECISION-MAKING FOUNDATION

• Creativity and innovation
• Problem solving +

accountability

• Visionary leadership and

taking calculated risks

• Long-term focus vs

short-term gain

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SPAR VALUES AND CULTURE: ETHICAL AND MORAL COMPASS / DECISION-MAKING FOUNDATION

• A sense of belonging to SPAR family ~
• ur people and our retailers
• Recognise every person’s contribution
• Personalising work/business relationships
• Working together for greater good of SPAR

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OUR COMMITMENT TOWARDS OUR FAMILY VALUES

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SPAR VALUES AND CULTURE: ETHICAL AND MORAL COMPASS / DECISION-MAKING FOUNDATION

• SPAR strategy reviewed in 2015

› Underpinned by values of passion, entrepreneurship and family values

• Strategic objectives

› Retailer profitability › Excellence in Fresh › Centre of community › Competitive pricing › Retail relationships, leadership and support › Supply chain optimisation › World class replenishment and brands › Transformation › New business opportunities Passion Entrepreneurship Family values

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STRATEGIC OBJECTIVES: RETAILER PROFITABILITY

• Sale of more SPAR brand – private

label – product at higher margins

• Joint business planning with our

retailers

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STRATEGIC OBJECTIVES: RETAILER RELATIONSHIPS, LEADERSHIP AND SUPPORT

• Provide expert retail leadership and support through our

service, incentives and training programmes

• Regular interaction with regional DC management and
• perations’ teams
• Regular store visits and monthly performance monitoring

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STRATEGIC OBJECTIVES: COMPETITIVE PRICING

• Group buying reviews, commodity trading

and our revised promotions strategy

• Peer group price surveys

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STRATEGIC OBJECTIVES: CENTRE OF COMMUNITY

• Drawing customers to our stores
• Growing brand awareness
• Fostering positive brand sentiment by

strengthening community leadership, sponsorships, advertising and social media

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STRATEGIC OBJECTIVES: EXCELLENCE IN FRESH

Outperform in highly competitive fresh food/groceries industry

• Key focus on Fresh departments: produce, HMR, bakery

and butchery with store ratio >30%

• Increasing product range and housebrand sales
• Keeping abreast of market trends in range offerings
• Remaining competitive

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STRATEGIC OBJECTIVES: SUPPLY CHAIN OPTIMISATION

• Ensuring we run a lean organisation
• Collaborating closely with retailers and suppliers

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STRATEGIC OBJECTIVES: TRANSFORMATION

• Currently 245 black owned

retail stores with focus on increasing this number

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STRATEGIC OBJECTIVES: NEW BUSINESS OPPORTUNITIES

• Building on the acquisition of BWG

Group in Ireland (August 2014)

• Integrating the acquisition of Londis
• Improving store standards in South

West England

MARK GODFREY, CFO

FINANCIAL OVERVIEW

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FINANCIAL OVERVIEW: TURNOVER

• Impact of BWG: first time inclusion for full year
• SPAR Southern Africa: real growth achieved across all brands
• Build it South Africa reported growth of 9% and 39% in neighbouring countries

R million 2014 2015 Change (%) SPAR/TOPS 46 225.5 50 176.8 +8.5 Build it 5 509.2 6 190.8 +12.4 Total South Africa 51 734.7 56 367.6 +9.0 Liquor sales (SPAR/TOPS) 4 043.9 4 622.5 +14.3 Ireland 2 748.3 16 891.2

• Total Group

54 483.0 73 258.8 +34.5

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FINANCIAL OVERVIEW: GROSS MARGINS

• Stronger ex-warehouse sales:

› Warehouse

• Dry

46.9% vs 46.6%

• Perishables

15.9% vs 15.5% 62.8% vs 62.1% › Dropshipment 37.2% vs 37.9% R million 2014 (GP%) 2015 (GP%) 2015 Turnover (Rm) Normal business 7.9 8.0 55 368.8 Retail division 15.9 16.9 738.9 Imports – Build it 20.6 21.9 259.9 Total South Africa 8.2 8.2 56 367.6 Ireland 10.2 10.5 16 891.2 Total Group 8.3 8.7 73 258.8

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FINANCIAL OVERVIEW: INFLATION PER SEGMENT

1. SPAR’s budgeted expectations for 2016: › SA food 6.0% › Building materials 3.9% › Ireland (2.0%) – All foods (2.2%) – Alcohol (3.0%) – Tobacco 4.0% 2. Building material inflation budget at c. 3.9% for 2016 with difference between coastal region (c. 4.5%) and inland (c.3.5%) attributed to cement effect 2014 6 months to March 2015 2015 SPAR business 5.7%¹ 5.5% 5.2% Liquor 5.8% 6.8% 6.4% Build it

• c. 3.0%²
• c. 3.0%
• c. 3.3%

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FINANCIAL OVERVIEW: EXPENSES

1. SPAR: › Impacted by higher employment costs as the business addressed contract labour › Net vehicle expenses reduced 5.8% to R313m ~ Impacted by 13.4% reduction in diesel costs › Satisfactory reduction in debt impairment costs 2. Retail division › Launched PRASA Station KWIKSPAR 3. Ireland › Impacted by start up costs of new Kilcarbery chilled facility › Increases in legislated wage rates Expenses (Rm) Increase (%) SPAR business 2 844.8 +8.3%¹ Retail division 128.3 +9.8%² Build it division 139.1 (3.3%) Total South Africa 3 112.2 +7.7% Ireland 1 748.0³ * Total Group 4 860.2 +54.2%

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FINANCIAL OVERVIEW: CASH FLOW

• Operating profit up 23.0%:

Organic turnover growth + full year inclusion of BWG

• Working capital impacted by

lower receivables

• Higher capex: Several

property related projects completed / in progress

• Acquisition of Londis

~ZAR317.0m

Opening balance Operating profit Non-cash items Loss on disposal of property, equipment Net working capital changes Net interest paid Taxation paid Dividends paid Capital expenditure Acquisition of businesses Other investing activities Proceeds of exercise of share options Proceeds from borrowings Share purchases Exchange rate translation Closing balance

(543.4) 2 294.2 367.4 15.0 278.0 (118.3) (555.5) (1 011.5) (525.5) (452.0) (1.0) 78.0 313.2 (228.9) 52.5 (37.8)

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FINANCIAL OVERVIEW: CASH FLOW (continued)

* Includes negative foreign currency translation adjustment of R52.5m

R million 2014 2015 Cash flow from trading 2 077.6 2 676.6 Working capital changes (235.2) 278.0

• Increase in inventory

(179.9) (114.8)

• Increase in trade receivables

(768.0) (387.7)

• Increase in trade payables

712.7 780.5 Cash generated from operations 1 842.4 2 954.6 Interest (22.3) (118.3) Taxation (471.9) (555.5) Dividends (867.0) (1 011.5) Capex spend (221.4) (525.5) Acquisition of business (696.4) (452.0) Other investing activities (6.6) (1.0) Loans/share activity (100.6) 162.3 Net cash movement (544.7) 505.6*

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FINANCIAL OVERVIEW: COMPARATIVE TRADING: UNPACKING H1 VS H2 + BWG GROUP IMPACT

25 000 50 000 75 000 F15 F14 H1 South Africa H1 Ireland H2 South Africa H2 Ireland TURNOVER (Rm) Growth First half +40.7% South Africa +10.8% Ireland

• Second half

+28.9% South Africa +7.2% Ireland +235.8% 600 1 200 1 800 2 400 F15 F14 H1 South Africa H1 Ireland H2 South Africa H2 Ireland OPERATING PROFIT (Rm) Growth First half +24.4% South Africa +10.9% Ireland

• Second half

+21.7% South Africa +10.1% Ireland +183.8% PROFIT BEFORE TAX (Rm) Growth First half +16.6% South Africa +9.3% Ireland

• Second half

+14.9% South Africa +8.4% Ireland +134.0%

* Adjusted for minority accounting impacts

600 1 200 1 800 2 400 F15 F14 H1 South Africa H1 Ireland H2 South Africa H2 Ireland

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FINANCIAL OVERVIEW: IMPACT OF BWG GROUP: KEY METRICS

R million SPAR Southern Africa SPAR Ireland Group Income statement Turnover 56 367.6 16 891.2 73 258.8 Gross profit 4 597.4 1 769.2 6 366.6 Gross margin 8.2% 10.5% 8.7% Operating expenses 3 112.2 1 748.0 4 860.2 Profit before tax 1 776.1 182.1 1 958.2 Profit after tax 1 261.9 159.0 1 420.9 Earnings per share (cents) 728.9 91.8 820.8 Headline earnings per share (cents) 738.9 96.6 835.5 Normalised headline earnings per share (cents) 816.9 123.1 940.0

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FINANCIAL OVERVIEW: RECONCILIATION OF NORMALISED HEPS

R million 2014 2015 Change (%) Reported headline earnings 1 351.3 1 446.3 +7.0 Adjusted for:

• Fair value adjustment to financial liability
• 72.8
• Unrealised foreign exchange loss on translation
• f financial liability

(3.5) 62.2

• Transactions and restructuring costs (net of tax)
• 46.0

Normalised headline earnings 1 347.8 1 627.3 +20.7 Normalised headline earnings per share (cents) 779.8 940.0 +20.5 Normalised diluted headline earnings per share (cents) 728.6 865.9 +18.8

1 351.3 95.0 72.8 62.2 46.0 1 627.3

Headline earnings (2014) Reported growth (2015) FV adj. to fin. liab. Unrealised FX loss

• n

translation

• f fin. liab.

Transactions and restructuring costs (net of tax) Normalised headline earnings

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FINANCIAL OVERVIEW: RECONCILIATION OF DIVIDEND DECLARATION

Rm Per share (cents) Normalised headline earnings 1 627.3 940.0 Adjusted for:

• Exceptional items (cash-related)

(46.0) (26.6) Adjusted normalised headline earnings 1 581.3 913.4 Dividend cover maintained 1.45 times Dividend declared 632.0

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FINANCIAL OVERVIEW: IMPACT OF BWG GROUP: KEY METRICS

R million SPAR Southern Africa SPAR Ireland Group Balance sheet Property, plant and equipment 1 944.1 1 277.2 3 221.3 Goodwill and intangible assets 471.8 2 809.7 3 281.5 Current assets 8 675.4 3 689.2 12 364.6 Current liabilities 8 055.9 4 076.7 12 132.6 Long-term liabilities 981.8 2 886.4 3 868.2 Net asset value per share (cents) 1 801.6 121.0 1 922.6

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CAPITAL EXPENDITURE: INCREASING DISTRIBUTION CAPACITY

• Expansion of KZN perishable facility
• Introduction of a chilled facility in Kilcarbery facility in Dublin
• Commencement of slow moving goods warehouse at South Rand Distribution centre
• Acquisition of ADM Londis Plc, a convenience retail chain in Ireland supporting some 145 branded

retailers R million 2014 2015 Investing to expand operations (106.1) (422.1) Investment to maintain operations (115.3) (103.4)

• Replacement of property, plant and equipment

(120.8) (111.8)

• Proceeds on disposal of property, plant and equipment

5.5 8.4 Acquisition of business/subsidiaries (696.4) (452.0)

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SUMMARY OF SALIENT FEATURES

* Adjusted for:

• Fair value adjustment to minority financial liability
• Foreign exchange loss on transaction of financial liability
• Exceptional items incurred relating to transaction and restructuring costs of Londis acquisition

R million 2014 2015 Change (%) Turnover 54 483.0 73 258.8 +34.5 Gross profit 4 497.9 6 366.6 +41.5 Gross profit (%) 8.3 8.7 Operating profit 1 864.9 2 294.2 +23.0 Profit after tax 1 345.0 1 420.9 +5.6 Headline earnings per share (cents) 781.8 835.5 +6.9 Normalised headline earnings per share (cents)* 779.8 940.0 +20.5 Dividend per ordinary share (cents) 540.0 632.0 +17.0 Net asset value per share (cents) 1 751.1 1 922.6 +9.8

OPERATIONAL OVERVIEW

GRAHAM O’ CONNOR, CEO

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OPERATIONAL REVIEW: RETAIL PERFORMANCE: TURNOVER

• Continued uptake of SPAR house brands by cash strapped consumers: up 13.4%
• TOPS maintained double digit growth trajectory
• Build it staged a strong recovery

Total growth Like for like SPAR 7.6% 6.2% TOPS 17.3% 13.5% Build it 14.0% 9.0%

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OPERATIONAL PERFORMANCE: SPAR

• Pleasing performance despite pressure on

consumer spending › SPAR’s merchandising, logistics and distribution capability valued by independent retailers and their customers › 13.4% growth from SPAR house brands to R6.5bn

• Same store turnover up 6.2%

› Food inflation: 5.2% › Individual grocery category: 4.2%

• SPAR maintained organic growth focus

› New store openings: 26 bringing total SPAR stores to 885 › Retail space up 3.2% › 159 store revamps and modernisation

63.1 67.9 42.2 45.6 14 15 14 15 RETAIL TURNOVER WHOLESALE TURNOVER TURNOVER ANALYSIS (Rm)

▲7.6% ▲8.0%

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OPERATIONAL PERFORMANCE: TOPS

• Double digit growth trend extended

› Broad geographic presence and diverse product offering › Strong and vibrant marketing campaigns › 17.3% increase in retail turnover

• Same store retail growth of 13.5%
• Wholesale turnover up 14.3%
• 39 new stores opened: total of 652 stores

at year end

6.6 7.8 4.0 4.6 14 15 14 15 RETAIL TURNOVER WHOLESALE TURNOVER TURNOVER ANALYSIS (Rm)

▲17.3% ▲14.3%

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OPERATIONAL PERFORMANCE: BUILD IT

• Strong H1 performance maintained

› Despite ongoing pressure on consumer spending › 14.0% retail turnover growth

• Solid same store growth of 9.0%
• Wholesale turnover up 12.4%
• Build it house brand import sales up 9.2%
• 320 total stores

› 34 new stores opened

• Entry into DIY market

› First branded TrenDIY store

• pened late in 2015

9.0 10.4 5.5 6.2 14 15 14 15 RETAIL TURNOVER WHOLESALE TURNOVER TURNOVER ANALYSIS (Rm)

▲14.0% ▲12.4%

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TRENDIY BY BUILD IT: ENTRY INTO DIY MARKET

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OPERATIONAL PERFORMANCE: BWG GROUP

• Performed on plan for first 12 month period of consolidation

› Total €-denominated turnover growth of 6.5% in the period › Positive impact of Londis acquisition (3 months): Significant further synergies identified › Tremendous like-for-like organic growth: 2.6% vs reported -2.1% food deflation in convenience market › Kilcarbery chilled facility commissioned in May 2015: volumes steadily increasing and further productivity gains anticipated

• Negative impacts on PAT

› Once-off, non-operational costs relating to acquisition and integration of Londis wholesale business › Start up costs of Kilcarbery facility

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IMPORTS WAREHOUSE WESTERN CAPE EASTERN CAPE NORTH RAND KZN DRY LOWVELD SOUTH RAND KZN PERISHABLES

OPERATIONAL PERFORMANCE: DISTRIBUTION (SOUTH AFRICA)

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OPERATIONAL PERFORMANCE: DISTRIBUTION (SOUTH AFRICA)

• Volumes handled up 3.9%: 219 million cases dispatched
• Plans for major extensions underway

› Significant extension of Western Cape perishables facility › Purchase of additional land to expand Eastern Cape DC › Complete slow moving warehouse installation at South Rand DC

• Previously reported planned new facility in Lanseria

› Frustrated by administrative delays › Negotiations underway on alternative site (commencement during 2017)

LOOKING FORWARD

GRAHAM O’ CONNOR, CEO

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LOOKING FORWARD: GROUP PRIORITIES

• Further entrench our values: Passion, Entrepreneurship and Family
• Drive opening of new stores: SPAR, TOPS and Build it
• Support SPAR’s organic growth

› Continue SPAR store upgrades: 170 planned in 2016 (159 completed) › Focus on retailer profitability for economic sustainability › Drive Fresh food offering: Fresh produce, HMR, Butchery and Bakery

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DRIVE FRESH FOOD OFFERING: FRESH PRODUCE, HMR, BUTCHERY AND BAKERY

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DRIVE FRESH FOOD OFFERING: FRESH PRODUCE, HMR, BUTCHERY AND BAKERY

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DRIVE FRESH FOOD OFFERING: FRESH PRODUCE, HMR, BUTCHERY AND BAKERY

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DRIVE FRESH FOOD OFFERING: FRESH PRODUCE, HMR, BUTCHERY AND BAKERY

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LOOKING FORWARD: GROUP PRIORITIES

• Further entrench our values: Passion, Entrepreneurship and Family
• Drive opening of new stores: SPAR, TOPS and Build it
• Support SPAR’s organic growth

› Continue SPAR store upgrades: 170 planned in 2016 (159 completed) › Focus on retailer profitability for economic sustainability › Drive Fresh food offering: Fresh produce, HMR, Butchery and Bakery

• Recruitment of skills: Especially in marketing and finance
• Further investments in warehousing and distribution: effectively support retail growth
• Drive opportunities in BWG

› Chilled distribution efficiencies › Revamp of EUROSPAR, SPAR and MACE stores › Complete Londis integration to unlock inherent distribution efficiencies and synergies

• Finalise arrangements with partners in Zimbabwe and Zambia
• Drive Build it and TRENDIY
• Continue TOPS roll out

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PROSPECTS

• Southern African trading environment expected to remain challenging

› SPAR’s brands well positioned to continue serving diverse customers

• Improving prospects in Ireland

› Economic recovery and growth set to continue › Drive the EuroSPAR format

• SPAR’s business model remains robust

› Grounded in voluntary trading relationship with network of independent retailers

• SPAR’s renewed strategic focus on extracting optimal value

› To the mutual benefit of the group and our stakeholders

• New business prospects

› Opportunities are being investigated

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QUESTIONS

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DISCLAIMER

This presentation contains forward-looking statements about the company’s operations and financial conditions. They are based on SPAR Group Limited’s best estimates and information at the time of writing. They are nonetheless subject to significant uncertainties and contingencies many of which are beyond the control of the company. Unanticipated events will occur and actual future events may differ materially from current expectations due to new business opportunities, changes in priorities by the company or its joint ventures as well as other factors. Any of these factors may materially affect the company’s future business activities and its ongoing financial results.