spar results presentation · • impact of bwg: first time inclusion for full year • spar...

SPAR RESULTS PRESENTATIONFOR THE YEAR ENDED 30 SEPTEMBER 2015

2

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 OVERVIEWGraham O’Connor, CEO

LOOKING FORWARD

PROSPECTS

QUESTIONS

INTRODUCTION

GRAHAM O’CONNOR, CEO

4

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

5

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

6

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 4

50

.5

1 6

43.6

1 8

42.2

1 7

51

.1

1 9

22

.6

11 12 13 14 15

NET ASSET VALUE

PER SHARE (CENTS)

56

4.6

62

3.9

69

4.8

78

1.8

83

5.5

94

0.0

11 12 13 14 15

HEADLINE EARNINGS

PER SHARE (CENTS)

7

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

8

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

overall market

• Positive trends in labour market

› Expected to spur consumer demand

› Impact of 6% increase in minimum wage

9

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

10



• Creativity and innovation

• Problem solving +

accountability

• Visionary leadership and

taking calculated risks

• Long-term focus vs

short-term gain

11



• A sense of belonging to SPAR family ~

our people and our retailers

• Recognise every person’s contribution

• Personalising work/business relationships

• Working together for greater good of SPAR

12

OUR COMMITMENT TOWARDS OUR FAMILY VALUES

13



• 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

14

STRATEGIC OBJECTIVES: RETAILER PROFITABILITY

• Sale of more SPAR brand – private

label – product at higher margins

• Joint business planning with our

retailers

15

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

operations’ teams

• Regular store visits and monthly performance monitoring

16

STRATEGIC OBJECTIVES: COMPETITIVE PRICING

• Group buying reviews, commodity trading

and our revised promotions strategy

• Peer group price surveys

17

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

18

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

19

STRATEGIC OBJECTIVES: SUPPLY CHAIN OPTIMISATION

• Ensuring we run a lean organisation

• Collaborating closely with retailers and suppliers

20

STRATEGIC OBJECTIVES: TRANSFORMATION

• Currently 245 black owned

retail stores with focus on

increasing this number

21

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

23

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


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

24

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

25

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%

26

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%

27

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

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(543.4

)

2 2

94.2

367.4

15.0 2

78.0

(118.3

)

(555.5

)

(1 0

11.5

)

(525.5

)

(452.0

)

(1.0

)

78.0 3

13.2

(228.9

)

52.5

(37.8

)

28

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*

29

FINANCIAL OVERVIEW: COMPARATIVE TRADING:

UNPACKING H1 VS H2 + BWG GROUP IMPACT

0 25 000 50 000 75 000

F15

F14

H1 South Africa H1 Ireland


TURNOVER (Rm)

Growth

First half +40.7%

South Africa +10.8%

Ireland -

Second half +28.9%

South Africa +7.2%

Ireland +235.8%

0 600 1 200 1 800 2 400

F15

F14



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

0 600 1 200 1 800 2 400

F15

F14



30

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

31

FINANCIAL OVERVIEW: RECONCILIATION OF NORMALISED HEPS


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

of 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

Headlineearnings(2014)

Reportedgrowth(2015)

FV adj.to fin. liab.

UnrealisedFX loss

ontranslationof fin. liab.

Transactionsand

restructuringcosts

(net of tax)

Normalisedheadlineearnings

32

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

33

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

34

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)

35

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


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

37

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%

38

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 modernisation6

3.1

67

.9

42

.2

45

.6

14 15 14 15

RETAIL TURNOVER WHOLESALE TURNOVER

TURNOVER ANALYSIS (Rm)

▲7.6% ▲8.0%

39

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



▲17.3% ▲14.3%

40

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

opened late in 2015

9.0 10

.4

5.5 6.2

14 15 14 15



▲14.0% ▲12.4%

41

TRENDIY BY BUILD IT: ENTRY INTO DIY MARKET

42

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

43

IMPORTS WAREHOUSE

WESTERN CAPE

EASTERN CAPE

NORTH RAND

KZN DRY

LOWVELD

SOUTH RAND

KZN PERISHABLES

OPERATIONAL PERFORMANCE: DISTRIBUTION (SOUTH AFRICA)

44

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

46

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

47

DRIVE FRESH FOOD OFFERING:

FRESH PRODUCE, HMR, BUTCHERY AND BAKERY

48



49



50



51

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

52

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

53

QUESTIONS

54

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.

spar results presentation · • impact of bwg: first time inclusion for full year • spar...

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