Results Presentation For the year ending June 2010 Financial Highlights Carel Goosen Deputy Managing Director 2 Size of Operation
June 2010
Turnover R67bn
Owned Outlets 1,166
Franchise Outlets 283
Countries 16
Employees 88,000
Market Capitalisation > R40bn
3 Financial Highlights
Turnover R 67,4bn
Trading Profit R 3,5bn
Trading Margin 5.18%
Diluted Headline EPS 451,6c
NAV per share 1,167c
Dividend per share 227,0c
4 Key Information
• Turnover – Total + 13.6% – Supermarkets RSA + 14.6% – Supermarkets Non-RSA - 2.1% – Furniture + 16.7% – Other Operating Segments + 34.3%
• Trading Profit – Total + 18.7% – Supermarkets RSA + 19.6% – Supermarkets Non-RSA + 17.2% – Furniture - 25.8% – Other Operating Segments + 155.0%
5 Value Added Statement
Employees Re-invested Tax R 5,549m R 2,100m R 964m
Providers of Capital R 1,157m
6 Sales Growth Analysis
Existing Net new Total stores stores
Supermarkets RSA 9.2% 5.4% 14.6%
Supermarkets Non-RSA (6.3%) 4.2% (2.1%)
Furniture 10.9% 5.8% 16.7%
Other Divisions 10.3% 24.0% 34.3%
Total 7.5% 6.1% 13.6%
7 Store Portfolios
June June 2009 Opened Closed 2010
Supermarkets RSA 696 74 (8) 762 Supermarkets Non-RSA 119 9 (4) 124 Furniture 264 18 (2) 280 Owned Stores 1,079 101 (14) 1,166 Franchise 270 37 (24) 283 Total Stores 1,349 138 (38) 1,449 Pharmacies 81 23 - 104 Liquor Stores 48 35 - 83 Countries 17 - (1) 16
8 Highlights of Results
2009 2010 Gross profit margin 19.3 % 19.7 %
• Cut margins on basic foods • Higher contribution by non-food items • Efficiencies in systems and logistics infrastructure
9 Highlights of Results
Other operating income June 2009 June 2010 Growth increased by 26.7% R’m R’m %
Finance income earned 198 212 7.0
Net premiums earned 215 228 6.2
Operating lease income 201 209 3.8
Commissions received 278 340 22.3
Sundry income 352 587 66.8
Total 1,244 1,576 26.7
10 Highlights of Results
Depreciation and amortisation increased 11.31% • Increase spend on revamps and new branches Operating lease increased 18.3% • Due to a net 87 corporate stores opened in financial year • Turnover rentals on sales growth Employee benefits increased 18.4% • Resulting staff requirements due to increased turnover • Productivity improvement slowed • New stores Other operating expenses increased 14.0% • In line with turnover growth of 13.6%
11 Highlights of Results
Trading profit increased 18.7% with turnover increasing by 13.6% • Efficiencies in systems and logistics infrastructure • Reduction in stock losses • Growth in in-store services • Effective cost control • Contribution of Non-RSA • Trading margin highest ever: 5.18%
12 Highlights of Results
Exchange rate differences • June 2009: R 3 million gain • June 2010: R 78 million loss
Rand to US Dollar exchange rates (R:$) • June 2008: R 7,96 • June 2009: R 8,02 • June 2010: R 7,75
13 Highlights of Results
2009 2010 R’m R’m
Net interest received 105 12
– Reduction in interest rates – Increased capital expenditure Income tax expense – Normal 912 1,048 – STC 97 104 – Deferred (10) (40) Total 999 1,112
14 Highlights of Results
Capital Expenditure 2009 2010 R’m R’m
Land and Buildings 347 870
Store Refurbishment 606 417
New Stores 334 355
Information Technology 242 279
Other Replacements* 290 596
Total 1,819 2,517
*Distribution Centres, Motor Vehicles, Generators & Office Furniture
15 Highlights of Results
2009 2010 R’m R’m Capital Commitments 337 1,674
Stores 1,078 – RSA 394 – Non-RSA 684 Distribution Centers 462 IT Systems 134 Total 1,674
16 Stockholding
2009 2010 Increase R’m R’m % Inventory 6,042 6,115 1.2 Effective inventory management:
R 6,700 Incl. Net 87 new inflation stores R 6,600 R 6,500
R 6,400 Closing stock: Transfarm R 6,300 Reduction due acquisition R 6,200 to effective R 6,100 stock R 6,000 management
R 5,900 Opening R 5,800 stock R 5,700
17 Highlights of Results
Debtors 2009 2010 Growth R’m R’m % Furniture installment sales 722 752 4.2 Franchise 447 337 (24.6) Buy aid organisations 100 125 25.0 Rental and property debtors 150 199 32.7 MediRite and Transfarm 5 168 >100 Money Market and Computicket 55 36 (34.5) Other receivables 260 382 46.9 Total 1,739 1,999 15.0
18 Highlights of Results
2009 2010 Growth R’m R’m % Cash balances 2,811 1,345 (52.2)
High capital expenditure on fixed assets of R2,5bn
Acquisition of the Transfarm Group
Decrease in post-retirement Medical provision
Share option settlement
Payment of trade creditors shortly before year end
19 Highlights of Results
Cash earnings (R’m)
3,100 3,187 2,900
2,700 2,756 2,500
2,300 2,426 2,100
1,900
1,700
1,500 2008 2009 2010
20 Highlights of Results
HEPS vs. Cash EPS* vs. EBITDA per share (cents)
900 846 800 732 700 633 600 580 547 Heps 500 478 Cash Heps 455 EBITDA 400 401
300 310
200
100
0 2008 2009 2010
21 *Cash flow from operating activities excluding dividends paid and changes in working capital Operational Overview Whitey Basson Chief Executive Officer Introduction
Let’s revisit what we said a year ago…
23 2009 Outlook *
* Copied from June 2009 presentation outlook • Confirmed 85 store openings (64 Supermarkets) • Job losses • Recession will last longer/Housing loans • Food inflation below 10% • Increased electricity costs and property revaluations • Will not pursue unprofitable market share growth • Don’t change your investment amount, change your portfolio
24 450 Owned Store Growth Over 10 Years
400 395 2010: +101 (83 supermarkets) 350
300
250
200 195 170 150
100
50
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
25 Job losses
• 776,432 jobs were lost • At the minimum wage, equates to R15bn economic impact • Assuming Shoprite’s market share equates to R2,85bn (although some of the effect may be offset by grant earners) • In contrast, Shoprite created 6,802 permanent jobs and accelerated staff training to 144,863 (2009:93,233) training interventions
26 Employment During Recession
14,000
13,800 776,432 job losses since Jan 2009
13,600
13,400
13,200
13,000
12,800
12,600 Q1: 2008 Q2: 2008 Q3: 2008 Q4: 2008 Q1: 2009 Q2: 2009 Q3: 2009 Q4: 2009 Q1: 2010 # of people (m)
27 Source: Stats SA Recession Will Last Longer
• No growth in the home loan market • No real household expenditure growth – 2009 Quarter 3: -3.6% – 2009 Quarter 4: -2.7% – 2010 Quarter 1: -0.1%
28 Source: SARB Quarterly Bulletin) Group’s Selling Price Internal Inflation
20% Important Categories that were in deflation for the year:
Rice: -25% 15% Soap powders: -20% 15.4% Frozen Chicken: -17%
10%
Official CPI: 5.7% 5% -2.3% 0%
-5% July 08 July 10
Average inflation for the period: 2.3% (LY:15.6%)
29 Electricity and Rates
• Shoprite’s customers are worst impacted by electricity tariff increases which reduced consumer wallet R7,9bn (Source: Investec Securities Nov 2009) • 25% rates increase on Group’s own properties resulting from revaluations – an indication of the impact on consumer disposable income
30 Profitable Market Share
• 1.2% market share gain for the year whilst • Net margin increased to record 5.18% level
Market Share Net Margin 32.6 5.18
2009 2009
31.4 2010 4.96 2010
2009 2010 2009 2010
31 Shoprite Share Price – 12 Months
8,500 SHP Closing Price
8,000
7,500 82,00 7,000 50% growth
6,500
6,000
5,500
5,000 55,00
4,500
4,000
1 1 09 July
3009 Oct
30 Apr 30Apr 10 29 Jan 10
2610 Feb
31Dec 09
30Nov 09
31Aug 09
31May 10
31July 09 31Mch 10
30 Sept 09 30 June 30June 10
32 Operational Overview
• The year that’s past
33 Operational Overview
• Virtually no positive macro-economic influences – No real GDP growth – Low food inflation (internal 2.2% vs last year 15.8%) – 45% increase in electricity costs • Despite this Shoprite increased trading profit 18.7% (2009: 28.1% ; 2008: 43.7%) and achieved its highest net margin
34 Supermarkets RSA
• Customer growth 8.1% (2009: 8.9%) • Non-food participation increased whilst stockholding was reduced by R250m • Assortment and range selection relevant to current market trends with a clean in-stock position • 1,2million World Cup items sold - over 90% sell through • Shrinkage improved even further
35 Where does SA shop?
*Number of adult shoppers: Total SA adult population 32.5m 19,9m
13,2m
10,5m
1m
Shoprite Group Pick n Pay Group Spar Group Woolworths Group
36 Source: AMPS (Released March 2010) Shoprite Group Indexed Sales Growth
Sales outgrew the rest of the market
Shoprite Group
100%
Rest of Market
12mm June 10 12mm June 10
Source: Nielsen, Market Share results, June 2010 37 Rest of market : PnP Group incl. Score & Boxer, Spar Group & WW Group Strong Sales Growth vs Rest of Market
Shoprite Group
Rest of Market
Source: Nielsen, Market Share results, June 2010 38 Rest of market : PnP Group incl. Score & Boxer, Spar Group & WW Group RSA overview
• No compromise on the Shoprite brand’s low price promise • Consistently cheaper on the top 250 items nationally (Source: RIS) • Largest customer base of all retailers: 16m individual shoppers (AMPS: Released March 2010) • Thus, one in two SA shoppers shop at Shoprite • 6.4% customer growth • 6.6% basket growth (internal inflation 1.1%) • The Shoprite brand achieved its highest ever market share • Trading profit growth exceeding turnover growth
39 Relentless Focus on Price
40 Brand Building Corporate TV Ads
41 RSA Overview
• 33.5% sales growth despite price deflation • Fastest growing store format in Africa, opened 45 stores • An average Usave store has shown a 24.7% compounded sales growth over the last 4 years • Customer count grew by 36.2% • Private Label products are gaining more than 60% share against the best selling branded items • Total RSA stockholding decreased by 7% and sales increased by 27% • ROI >50%
42 Usave 18-month Market Share
Continued Market Share Gain 1.46
0.98
July 08 July 10
43 Source: Nielsen, Market Share results, June 2010 RSA Overview
• The Checkers brand grew at 13.6%, faster than any other supermarket brand in RSA for the 2nd year running • Hypermarket format sales growth is lagging • Fortunately, Checkers Hypers are not stand-alone and have a smaller footprint with lower fixed costs than competition • New in-store concepts showing positive results • Strong 7.5% basket growth well ahead of inflation • 43% of LSM 10’s now shop at Checkers
44 gained higher LSM customers
2007 Checkers profile 2008 Checkers profile 2009 Checkers profile 66% 70% 56% 44% 34% 30%
LSM 1 – 6 LSM 7 – 10
45 Source: AMPS (Released March 2010) Sales Growth Best in Market
Annual indexed sales growth
Shoprite Group
100%
Rest of Market
12mm June 10 12mm June 10
Source: Nielsen, Market Share results, June 2010 46 Rest of market : PnP Group incl. Score & Boxer, Spar Group & WW Group Marketing to Attract Higher LSM’s
47 Marketing to Attract Higher LSM’s
• Famous for our cheese, wine and branded meat – and continue to find new points of differentiation, like our gourmet sosaties
48 LiquorShops & Money Markets
Liquor Shops: • Opened 35 new stores, 83 trading • Turnover doubled • Profitability increased four-fold • Aiming to open a store per week • Changed perception of liquor shopping: 50% of shoppers are female
Money Markets: • 46% growth in money collected • 101% growth in Money Transfers – Transferring R16,920 per minute • The only limit is our imagination (Systems, staff, technology)
49
Other Operating Segments Whitey Basson Chief Executive Officer Other Operating Segments
OK Franchise – 8.9% turnover growth – Exceptional trading profit growth of 84% – 35 new members
– 24% increase in ticket sales – 113% growth in travel sales (air & bus tickets, holiday packages) – Half of all tickets sold are picked up in our supermarkets – R5m additional revenue from Soccer World Cup – Competition Commission referral to the Tribunal – Substantial growth opportunity in ticketing currently not done by Computicket
51 Other Operating Segments
• 104 pharmacies now trading • Sales increased by 60% (Like store growth: 35%) • Prescriptions dispensed up by 50% to 1.9m • New fee dispensation will result in significantly improved ROI • Secured scarce resources via bursaries for pharmacists • Transfarm pharmaceutical wholesaler – Good profitability and ROI – Improved MediRite in-stock and end consumer service – Eradicated losses due to expired stock – Improved price competitiveness through imports & licence agreements
52 Furniture Aubrey Karp Divisional Director Trading Environment
• Toughest year in past decade, accentuated by extreme economic highs and lows • Significant interest rate reductions failed to reduce consumer debt exposure • Erosion of consumers’ disposable income affects spending on durables • Electrical product range competitiveness at an all-time high • Sales driven by aggressive promotions at rock-bottom prices to reduce stocks
54 Trading Environment
• Pricing volatility caused by South African currency strength and across-the-board deflation • Sales growths limited by shortages in imported products, caused by recent harbour strike • Breathtaking surge in worldwide LCD and Plasma TV panel demand, causing severe stock shortages • Dramatic sales increase in LCD and Plasma TV panels just prior to and during Soccer World Cup period
55 Sales
• Sales increased by 16.7% to R3bn • OK Furniture and OK Power Express sales increased by 17.3% (Like store growth: 11.7%) • House & Home sales increased by 15.9% (Like store growth: 9.6%) • Furniture division internal deflation: 5.5%
56 Merchandise Sales Mix
• Slight increase in home entertainment and appliance participation
2009 2010 Home entertainment & 65% 66% appliances Furniture, bedding, patio & 35% 34% carpeting
57 Sales Mix – Cash and Credit
2009 2010
Cash 67.8% 70.1%
Credit 32.2% 29.9%
• OK Furniture and OK Power Express credit participation reduced by 9.0% • House & Home participation reduced by 2.0% • Rand participation increased across all brands by 8.4%
58 Trading Profit
• Trading profit decreased by 25.8% to R131,2m (2009: increased by 1.5%) as a result of: – Gross profit margin reductions of 7.4% – Significant cash sale participation growth across all brands – Above inflation expenditure growths – Small increase in bad debt write-offs – 15.9% bad debt provision increase (accounting policy compliance) – Increased onerous lease provision
59 Store Numbers
• Focus on continued store expansion
Stores Opened Total Confirmed until June 2011
OK Furniture 12 216 14
OK Power Express 3 17 0
House & Home 3 47 2
Total 18 280 16
60 Store Numbers
Debtors Book 2009 2010 % Variance
Debtors R964m R1,037 7.5%
# of new contracts 258,017 247,287 (4.2%)
• Number of new contracts decreased by 4.2% • Average purchase price increase led to a 7.5% increase in the overall debtors book • Achieved despite the following: – A slight increase in the credit application decline rate of 2.0% – Finance charges and insurance premiums debited monthly – Some portion of upfront initiation fee cash payments
61 Store Numbers
Debtors Book 2009 2010 % Variance
Actual arrears 8.7% 9.5% 16.9%
Balance of contract arrears 26.7% 22.9% (7.6%)
Bad debt and UFC provisions 12.9% 13.7% 14.2%
• Overall arrears levels appear to be stabilising (+180 days: no further deterioration in 3 months) • Increased applications for NCA debt administration • Zero UFC in South Africa (In terms of NCA – finance charges now calculated daily and debited monthly)
62 Furniture Outlook
• Low growth environment expected to continue until at least mid 2011, as a consequence of: – Increased pressure on consumers’ disposable income – Strict application of NCA affordability calculation – Continued currency strengthening – Market for electrical items remaining exceptionally competitive
63 Furniture Outlook
Future growth drivers: • Increased footprint (16 new stores confirmed to June 2011) • Increased sales of discounted products to provide accelerated volume sales growth • Further range, product and price enhancements and innovation • Increased imported product sourcing to facilitate higher margins • Further customer service and staff training enhancements
64 Non-RSA Overview Whitey Basson Chief Executive Officer Supermarkets Non-RSA
Overview • Opened 9 new stores, now 124 outlets • 18% sales growth in constant currencies • Most currencies devalued against the rand – Examples • Angola • Mozambique • Namibia • Zambia
66 Angola
Exchange Rate: Angolan kwanza against the rand (monthly averages) 14
12
10
8
6 July 2008 to June 2009 July 2009 to June 2010 4
2
0
67 Mozambique
5 Exchange Rate: Mozambican metical against the rand (monthly averages)
4.5
4
3.5
3
2.5 July 2008 to June 2009 2 July 2009 to June 2010
1.5
1
0.5
0
68 Nigeria
25 Exchange Rate : Nigerian naira against the rand (monthly averages)
July 2008 to June 2009 July 2009 to June 2010 20
15
10
5
0
69 Zambia
800 Exchange Rate: Zambian kwacha against the rand (monthly averages) July 2008 to June 2009 700 July 2009 to June 2010
600
500
400
300
200
100
0
70 Supermarkets Non-RSA
• Pressure on margin as a result of currency devaluations • Largely offset by lower expense growth • RSA export volumes reduced by 30.9% as a result of the stronger Rand • Shrinkage improved further on last year’s good result • Closed the Indian franchise and wholesale operation – Redeployment of capital and resources • Outstanding performance by Namibia, Zambia and Ghana
71 Africa: A Positive Outlook
• Oil-rich countries will continue to benefit from the long-term rise in oil prices • Shoprite will benefit from established operations in Angola and Nigeria, Africa’s most populous country and 2nd largest economy • Uganda will also benefit – will start producing oil by the end of 2011 • 13-year oil price graph
72 (Source: IMF) Oil Price
$75,5
73 Source: OPEC Africa: A Positive Outlook
• Improved copper price should lead to re-opening of more Zambian copper mines* • 3 large mining investments in Mozambique with China investing over a billion dollars in the Tete project*
• However, it still takes an enormous amount of time and effort to secure property and engage property developers for supermarkets in Africa • Competitors entering the African market won’t be underestimated – Spar in Nigeria and PnP in Zambia • First-mover advantage and an established brand to favour Shoprite • 21 committed outlets (16 supermarkets) to open over the next 2 years
74 (*Source: IMF) Outlook
• Little relief for consumers • Rising food inflation – Short supply of wheat will put pressure on prices – Electricity price hikes at farm/production level need to be passed on • The Group will benefit from above inflation wage increases concluded • Recovered exchange rates will benefit Non-RSA profitability in rands • China’s labour problems may create supply line uncertainty going into Christmas • Investment into new SAP merchandising system • External financing required for high capital investment to fund growth: – Own Non-RSA property development – Distribution centre developments and enlargements • 45,000 m2 Centurion extension operational Jan 2011 • 43,000 m2 Brackenfell extension operational July 2011 • 35 ha land acquired for new CT facility • 21 ha land acquired for new KZN facility • 80 ha land acquired for new PE facility • Aggressive expansion plans (109 stores planned) – including USave
75