Shoprite Holdings Ltd

Good morning and welcome to the 2024 results presentation for the 52 weeks ended 30 June 2024. Special welcome to our shareholders, fund managers, the media, and also our employees that are joining on this link. I want to use this opportunity before we go into more of the detail. absolutely are indebted to the people of ShopRite. Team ShopRite has once again defied all odds to deliver an exceptional set of results of which I am extremely proud and words is not enough to thank Team ShopRite. Our presentation will have the same format as usual with the exception that From the overall helicopter view of what happened in the past year, I will continue updating you on where our medium-term thinking is, where our attention will be directed to. And then finally, Anton will unpack the financial detail And we did this order change because I know in the end you are very interested in what the numbers are and what they mean and how to interpret them. For the fund managers, it's important to do your modeling on that. So we thought let's leave you with that. And then we end with the questions if you want clarity on things that we did not cover. It is a fairly comprehensive process. attend from us to cover the entire business in as close as an hour as we can. It is a rather large business to cover so quickly, but we will do our best. In summary, it's again a fantastic performance, outperforming the market on a revenue side almost by double. And it is the fifth year in a row that the ShopRite group have managed to outrun the market. We are not going to bore you with excuses and what went wrong and what is difficult. We all face them, so I will not throughout the presentation refer to load shedding, infrastructure problems, high interest rates, low economic growth, customers struggling, affordability, none of that. You all are very familiar with the South African context, so we will rather stick to what we can control. So just a quick summary of the year that was. For us, it remains imperative that we execute with precision what we deem to be our purpose and what we set out there to achieve for customers. Customers drive what we do and their needs and their requirements and changes in behavior. That is what we base our actions on, not the reverse. Very proud to be recognized as a top employer for 2024. We employed almost 6,500 new members to our team. We opened 292 new stores. We have launched first the extra savings subscription model. That was a defensive play for new entrants in the market, and we see very good traction in that, followed by more digital investment on digital. The check is hyper-proposition. News24 named ShopRite Group as company of the year. Extra Savings got some awards. The Employee Trust did payouts worth over $500 million to qualified employees. It means that not only are we customer-focused, but our people are important. That's how we deliver, through people. 6060 continues to really delight and inspire people. Like I mentioned when we started, the revenue or sales for that matter has grown double the market. And with that, by default, another year of very good market share gains. For me, a staggering amount is if we look at the value that's attributed to additional sales for the year, amounts to almost $26 billion. That is incredible. If we talk percentages... Just mentioning there, it's a 12%, but the like-for-like sales, if you look at our internal inflation, it will explain why we had some good volume growth, and I'll get to that now. Gross profit, almost $58 billion in monetary value, up 11.7. And in this very competitive market, and I will also again later on show the numbers that we have, given back in discounts, instant discounts, to consumers at the point, but still managed to be the most affordable retailer and maintain our margins. Slight reduction from 24.1% to 24% for this year, year on year. Trading profit is up a healthy 12.4% above that of the sales growth. And later on, Anton will help clarify the difference between the trading profit growth and that of diluted headline earnings per share, which are equal to the 7.4% growth in the dividend paid this year versus last year. Very pleasing to say we have again, it's now five years in a row, increased our number of customer visits, and basket size growth is actually, in this environment we're in, is exceptional because you will see that customers are much more promotional item focused. And hopefully, I think in the ShopRite environment, because we give such good promotions and so wide for the things that people need, that they save enough to be able to buy an additional item. The volume growth I've referenced to, the first half of the year, we did not grow positively on volumes, but that turned around in the second half, where inflation actually came down, speaking to a little bit of the affordability of consumers or their ability to have discretionary income. And important, I always say this, is that We need to grow volume to assist our suppliers and manufacturers because that is their greatest tool to reduce their input costs. Sometimes it's good to just zoom out a little bit and let's look at a three-year snapshot quickly. Let me just say, where will we be in 2021 and where are we now? And that's just the absolute numbers. It's not year on year on year. It is absolute between 21 and 24 years. And we've listed a few items there. So sales grew by 43%, or let's rather say that is more meaningful for me. It's almost $73 billion. We have been speaking quite a bit about how other income is going to grow, probably in excess of what revenue will grow in time to come with all these investments we made now starting to show a return on investment. And this will require us to start looking differently at margins as a percentage. If we look completely only at gross profit margin, I always say that customers don't really mind where the discount comes from, whether we took it from other income or we used some gross margin money to give them a better deal on a promotion. And in time, we will have to adapt to that also. Dividends, I already mentioned, but it's an additional billion almost. Stores grew by 744. It's a lot, I know. And that's why we stay on quite strong capital spent, capital investment in these. Also, not only new stores, but a fair amount of capital being invested in store revamps to make them fresh and new and enticing for people to come. Part of what I reference, why one gets the result of growing your customer base, because it is a pleasant experience. And extra savings globally, this is not only South Africa, globally this is a top class program, and also in absolute numbers, if one takes 31 million adults over the adult population of South Africa, that number is between 70-75%, which is incredible. And they use it. About 85% of our sales is accompanied with an extra savings swipe. 60 60 we all now know what a fantastic story it is 550 percent and now it gets into numbers that it's difficult to comprehend but continuous growth and this year again so I thought it'll just give us a little glimpse of you know where were we and what has happened actually but Again, for me, the absolute numbers is more meaningful than the percentages. Percentages can have a low base and be a high. So in this case, it's a high base and big numbers. So I have mentioned that we've outgrown the market by almost twice. We believe we are winning with our customers because we are so obsessed with what it is our customers need. The other thing that we're obsessed with, if I can use that word twice, is data and I'll get to that also, but it's the data and the fact-driven decisions that we can make based on what we see customers want and how they behave. Just as a reference point, if we exclude the mass-market stores, sales growth would come down to 10.5%. Without question, Checkers is the fastest growing grocery in the premium food segment. We're happy about that. It's almost as if we're currently in a scenario where Checkers and ShopRite is a South Africa incorporated hedge between people that has more discretionary income and giving people that are very price sensitive what they need at the absolute best prices. And In time, depending on how the macroeconomics changes, those two interplay with each other. 60-60, up 58%. USA sales increased for the year, 13.2. Second half of the year grew actually 14.2, so it accelerated. Liquor store, 20% up. Inflation, interesting. I mean, that's why the graph, It looks like there's a decline, but it's the decline in inflation rate. And consistently, you can see our internal inflation has been below official food inflation, ending for the year at 4.2 against the CPI of 5.4. And the food inflation of June only at 3.1%. Now, I know everybody says, you know, high inflation is good for retailers, but we have reached a point where customers have, they out. They cannot anymore. Customers meaning actually consumers. And there's no point in inflation. If I don't have any discretionary income left and prices just keep on going up, I have to buy less. I don't have more money And therefore, we think that lower inflation is not bad for us as a retailer. It's actually, I think it's good for volume growth, certainly. And we will certainly make sure that we give customers, continue to give customers the best possible promotionals and deals. I've said a couple of times before that we don't do knee jerk. We've got a strategy and we... execute against that strategy and for us it's the excellence of execution that surprise and delights the customer and that is our obsession with the customer and make sure that what we have determined is what they need and one is that we do it with operational excellence We've got this multi-year smart shop right data, and I know I probably overemphasize the data and the importance of it, but I just don't see one getting ahead without understanding the consumer better. And take the guessing work out of what to do and where to give your attention. Hence, the building of this data constantly changes. for the last seven, eight years to get a better understanding and then be able to deploy new technologies like artificial intelligence, et cetera, into our tech investments to give not us only a ROI, but a better experience to the consumer, both in-store and digital. We have upgraded the stores. Don't underestimate the in-store experience when you want to go digital omnichannel. It can't be only one. You can't only invest on the digital and you let slip on when customers in store. They still spend more in store. But they use both. So it's complementary. That's why we refer to ourselves as an omnichannel retailer. We continue to invest in technology, a very important part of our capital spent every year, and it will continue to be. As a matter of fact, it will probably increase. We continue to innovate and develop in our fresh food department section of the business for easier, better convenience and the investments in our cold chain capabilities continuously to ensure not only in-store, but by the time that you're in your home, your product is the freshest possible. I've made reference to market share before, five years of market share gains. In actual fact, it's 64 months of consecutive market share gains. Sales growth versus the rest of market, if you look at that graph, it looks like it's a diminishing graph. As a matter of fact, it obviously has the reference back to what the inflation is. What's important of that graph is that that gap remains. Now, we pride ourselves on saying we are Africa's most accessible and affordable retailer. It's not a marketing story. It's factual. So much so, and I love this, very creative from our marketing team is to create what it is in the form of the logo. Because affordability for us equals a promise. It's not a statement. It's not a marketing ploy. And if I show you that number now, or we talk about that number of what that meant for the consumer, but that sort of collects For me, what it is that ShopRite in particular stands for. A price promise. Most affordable supermarket in South Africa. We stick to our five grand solutions. My old story of, you know, I can do something small. I can be a car guard for an hour. I can get a five grand coin. I can buy a loaf of bread. Since 2016, we kept the price at five grand. If you compare that with what is currently the average price of bought-in bread, R17.99 around, maybe on promotion R15.99, you understand that we invest a lot to help people actually survive and make a meal, something in the stomach for R5. On top of that, there's no other retailer that I'm aware of that sells products for one rand that is commercially produced and available every day. But the ShopRite group does. You think about that. You can pick up a one rand coin and surprise and delight a kid with a packet of biscuits at one rand. That's what we think about. When I say we're customer obsessed, that's then the result of that. To put it into the bigger picture, for me, a staggering amount. It's almost difficult to believe, but almost 17 billion Rand in instant savings at till point in the last year through our extra savings customer discounts. Customers love it. On the spot. Not... and I redeem it later for a coffee mug. Instantly. And on the products that I need so that I can maybe buy something extra. I can now buy a one-rand suite for my kid also. What has become a very fine balance is the discounts, the promotions, the width of the promotion, balancing that with the gross profit margin. Because you will see that it's the highest contribution of promotional sales to the basket that we've ever had. And it's continuously increasing. It actually varies between brands. Some brands it's higher than that. And still for the ShopRite group to maintain gross profit margin is exemplary. Most of you are familiar with this slide where we illustrate just how we cover the entire spectrum of the consumer market. I especially show this for our international shareholders. It is clear that we are a multi-branded retailer. for the purpose to cover the entire spectrum of the South African consumer market. It goes from USAVE, our franchise model, across the spectrum, checkers at the more affluent market, and ShopRite, just this mass, middle, and price-sensitive market, and with it all, covering the entire customer base. We have of late went into some adjacent categories For very good reason. We are in pet, but there are certain pet products only allowed to be sold in specialized stores. I just quickly want to single out Medirite Plus and Unique Clothing by Checkers. Those were born out of what we saw in consumer behavior. We used to have quite a big clothing section in our hyper stores, and we noticed that people... They'd like to buy those in a specialized store. And understandably, you know, you buy a chicken and then you throw a shirt on top of that and then you wear it to work tomorrow. It doesn't feel right. So customers started to prefer specialized stores. And the same in the health and wellness section of the business. Not total toiletries, just that people feel, I want to buy that at a specialized or seemingly specialized store. And then we also notice that most of those specialized stores are actually in close proximity to our store entrances. So the supermarket does the hard work to attract the customers, and a lot of people feed off it. And hence that we said, because we own, or not own, we have around 140 pharmacy licenses, we can venture into also a wider selection in these specialized stores. ShopRite and YouSave, the brand, just missed this year the $100 billion mark. And that's not excluding liquor. We've added obviously much more. Also double-digit sales growth, very good. 19 million extra savings members, big number. Those value propositions you can see there on the board. Checkers and checkers hyper, hitting almost 80 billion. Very good growth and by the nature of the offering and what customers buy, it comes at a better margin and that's when I refer to It's almost also on a margin level, a bit of a hedge between ShopRite and Checkers. 12 million extra savings members, very loyal. The rest of the business units, the supermarkets, non-RSA as we refer to it, very happy to say that again this year, now two years going, almost three, hitting our medium-term target of around the 500 million profit contribution. This year, we're good at 631. Typical, what we've become used to in the African context is right at the last month of the year, June, we had some currency devaluations of 50%. So when you convert to REN, gone is the money, but still managed to report a result of 631 money. The other operating segments did well, almost $18 billion in sales, up 21%, which is commendable. What is notable here in other operating segments is OK Franchise. Not that they only go in market share, they increased their loyalty buy from us and they had above 20% purchases from ShopRite directly into business growth, into their business growth. Really a a good momentum we're currently experiencing, and also interest from prospective members to join the franchise team. Now a total of 621 stores. On the furniture side, it's a difficult market for furniture at the moment, but I think the most important point here is that we have scale in food, We certainly don't think we've got scale in furniture per se. To get there and where we come from, it will require substantial investments to really move a dial here. But I am not unhappy with the year on year on the profit line. You will see later, Anton will show that also, around about an 80% profit growth for the year. So it's not that they're not performing, but it is subdued at the moment. This then concludes my operational summary. We're going to continue into just give you a bit of a glimpse into where our headspace is currently for the medium term, where our investments are, what our priorities are. If I just quickly say, this is what we do every day, and it has not changed in the last couple of years, is to uplift lives every day. The lives of people, our customers and our people, our colleagues, our team members. And through all of this, not forgetting also our responsibility to the planet. You're very familiar with this. It's been fairly consistent over the last eight years. But we have to adapt. So we adapt one or two. And this is our priorities for sustainable long-term growth. And if I can just very quickly, I know you know all of these and you can read. But it's in those three columns. A smarter shop, right? And then that slots in there. Places to grow. What can we do? to, as I say, have sustainable long-term growth. If you ever thought, why are we investing in those adjacent new businesses? Because we need to continue to grow. And if you add in a single year $26 billion in additional revenue, you have to look wider than just a single discipline. Also within the core business, there's still a lot of opportunities. investment in the data and how we use it. Winning in the long run, there's that statement of leverage the platform. That is what we do. And if I reference to the flywheel, that's very clear then. Right at the end, I'll show it again, although I know you know it. Just quickly, we thought let's just stop for a moment at USAFE. And USAFE usually gets neglected. When we have a visit from a fund manager, so it's always a bit busy and people don't get to USAFE. They are also always in convenient places. So we've got some USAFE products just behind me. I've got my USAFE shirt on today. And I've got a very personal relationship with USAFE. I incubated it. I opened the first store in 2003. And then over time, it has been adapted to what it is today. And what is it today? It is a true limited assortment discounter, hard discounter. Definitely the cheapest formal retail format. In South Africa, 1,900 products on sale. In some regions, we are over a 40% private label contribution, and it's growing by the day. You will see I did reference the 14.2 of the second half, so accelerated growth. The tougher it gets out there, the less disposable income out there, the more relevant USAID becomes. Because of the interplay that there is between ShopRite, the larger store format, and you save. I know I'm repeating myself. I explained it before, but with the interplay is very simple. That month ends when I have a bit of disposable income. I go to the shop, right? The offering is much wider. There's other services. And anyway, I have to go into town, maybe pay something else in insurance or whatever. And mid-month, I'm a little bit strapped. So I can now save my transport money, which has become very expensive. and I can walk to a YouSafe and get my essentials. That's the interplay. We're also not ignoring digital. We have a digital presence. It doesn't mean we are moving away from a no-fraud business. We're just there on the mediums where our customers are. And certainly I believe that there's room for at least 1,000 of these stores in South Africa over the next five years. And we've got the various formats. The one on that picture is the Ikazi store. We use these formats, especially where we can't own land, like in tribal land areas. And also when there's very limited infrastructure, we can put these down and don't. have these people that live in these areas at a disadvantage and not having access to these products and pricing. And then we have a normal standard USAFE is around about 750 square meters. So we decided to just show you this video clip, give you a little bit of insight of what USAFE is and what customers think of it.

Keeping us in a better environment, you know. Normally to go to the shop you must catch a taxi. So to go to Amherst, it's too far. So if it's better from here, you can just walk to buy something.

From where I stay, I come here, I don't have to pay for transport. It changed our lives.