October 2014 - Absaetfcib.absa.co.za/presentations/Choppies - Investor Presentation 20140829...
Transcript of October 2014 - Absaetfcib.absa.co.za/presentations/Choppies - Investor Presentation 20140829...
Investor PresentationOctober 2014
Disclaimer2
The materials set out in this presentation have been provided to you by Choppies Enterprises Limited (“Choppies”) and may not be disclosed or referred to (in whole or in part) or used or relied upon for any other purpose other than as specifically agreed by written agreement with Choppies.
While Choppies has taken reasonable care in preparing these materials, Choppies has not independently verified the information contained in these materials. Choppies, its affiliates and their respective directors, officers or employees (the “Choppies Group”) assume no responsibility for and do not represent or warrant the completeness or accuracy of the information (whether written or oral) including estimates, projections or forecasts (of future financial performance or otherwise) referred to in these materials or that may be supplied in connection with these materials (“Information”).
Choppies is under no obligation to inform you or anyone about any change (whether or not known or apparent to Choppies) to the Information. You must make your own independent judgment with respect to any matter contained in these materials. The Choppies Group will not be responsible for any losses or damages which any person suffers or incurs as a result of relying upon or using these materials or as a result of any information being omitted from these materials.
These materials do not constitute an offer to enter into any transaction, and do not create any legally binding obligations on the Choppies Group. The Choppies Group does not owe any fiduciary or other duties to you or any other person. If you do not accept any of the conditions above, you must immediately return these materials and any copies of it, otherwise, the retention of these materials by you shall evidence your acceptance of such conditions.
A year of profitable growth
FY year ended June 14 was a significant year of growth for Choppies Added 36 stores to our footprint
Expanded into Zimbabwe
Choppies now has 110 stores 69 stores in Botswana, 28 in South Africa and 13 in Zimbabwe
Retail space increased by 50% to 157,555sqm
Excellent financial performance Top line growth of 24%
Same stores sales up 1.13%
Gross profit margin up 112 bps to 22%
South Africa delivered a cash profit despite the platinum strike that impacted 17 of the stores
Strong growth potential in FY15 Store growth in existing expansion markets (SA and Zimbabwe)
Entry into new markets to be announced shortly
3
Consistent growth delivered since IPO
Financials in Pula m At Listing FY June 2013 FY June 2014 Δ 2013-14
Revenues 2 435 4 029 5 012 +24%
Gross Margin 447 822 1 079 +31%
EBITDA 207 274 352 +29%
PAT 124 153 177 +16%
Total stores 58 73 107 +34 (47%)
Botswana 49 55 68 +13 (24%)
South Africa 9 18 26 +8 (44%)
Zimbabwe - - 13 +13
Retail floor space 79 000 104 717 155 955 +49%
Warehouse space 13 000 31 000 41 350 +33%
Employees 3 900 7 200 9 149 +27%
Total vehicles 245 394 550 +40%
4
Summary
Founded in 1986
#1 grocery retailer in Botswana
Listed on the Botswana Stock Exchange in 2012; now the largest non-bank counter
Market cap of c. BWP4,900m / US$550m
110 stores: 69 in Botswana, 28 in South Africa, and 13 in Zimbabwe
Employees 6500 in Botswana,3000 in South Africa, 1000 in Zimbabwe.
Total retail space of 157,555 sqm
Total warehouse space of 41,350 sqm
45,000 SKUs, including leading international brands and an extensive array of house brands (c. 16% of Botswana revenues)
Choppies today – a snapshot
FY14A contribution by country
Regional footprint
2 DCs
2 DCs
Botswana
69 Stores3 DCs
Zimbabwe
13 Stores1 DC
South Africa
28 Stores2 DCs
Choppies Enterprises Limited
Botswana South Africa Zimbabwe
Rev % 64% 25% 11%
GP % 73% 19% 8%
5
Choppies history
1986 1993 2003 2004 2008 2011 2012 2013
Megasave and Supersave acquisition in Botswana
Acquisition of 10 Zimbabwe stores
Opening of SA DC in Rustenburg
Choppies established in Lobatse
Openings of first store in Zeerust, South Africa
Appointment of Hon. Festus Mogae as Chairman
Listed on the Botswana Stock Exchange
Opened first hyperstore in Gaborone
Bots stores
SA stores
48
9
50
13
56
17
Opened first superstore in Gaborone
1999
Zim stores - - -
Opening of second store in Botswana
Acquisition of Chathley
Acquisition of Food Mart / Multisave2011 Group restructuring ahead of IPO
Largest hyperstore in network opened in Rail Park Mall, Gaborone
2014
68
26
13
Opened 6 new stores in Botswana
Opened 9 new stores in SA
Opened 3 new stores in Zimbabwe
Opened DC in Zimbabwe
6
69
28
13
13
60
9
13
17
26
80
48 50
56
68
90
2011 2012 2013 2014 2018E
Zimbabwe South Africa Botswana
Store evolution in our current markets
Store Growth
7
Botswana – our core market
1 2 48 11 14
20
29
4044 46 46 48 50
56
68 69
Total m2: 950 1,900 3,300 6,200 11,000 15,600 35,400 54,40047,100 54,40052,300 56,500 62,000 71,500 87,16524,500
Store growth
First store opened in 1986 in Lobatse
Strong growth in the late 2000’s
PicknPay’s divestiture of Score gave Choppies an opportunity to take market share in late 2000’s
IPO on the Botswana Stock Exchange in early 2012
Acquisition of Supasave in 2013
31% CAGR
8
Company Stores in Botswana
Est. Market Share
69 34%
All other retailers
n/a 66%
Botswana – strong growth and cash generation 9
2,435
2,731
3,093
3,586 18.3%19.8%
20.7%22.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2011 2012 2013 2014
(% m
arg
in)
(BW
Pm
m)
Revenue GP Margin
187 210
251
319 7.7% 7.7%8.1%
8.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
-
50
100
150
200
250
300
350
2011 2012 2013 2014
(% m
arg
in)
(BW
Pm
m)
EBITDA EBITDA Margin
Revenue & GP Margin
EBITDA & Margin
Botswana is Choppies’ core market
Growth has been strong and consistent
14% CAGR since 2011 and 16% y-o-y
Same-store sales growth of 4%
Potential for 5 new stores by Dec 2014
370 bps increase in GP margin since 2011
Highly cash generative
Operating cash flows of BWP 322m
Free cash flows before Capex of BWP 204m
Profitable growth driven by
World-class product offering (45,000 SKUs)
Convenience (longer store hours)
New revenue lines (e.g. financial services, other agency collection, mobile money, etc.)
Strong private label offering (16% of revenues)
Focus on fresh
Competitive pricing
South Africa – our expansion thesis remains intact
Store growth
8,000 13,1001,350 16,600 25,000 33,600 47,878
1
57
9
13
17
2628
FY08 FY09 FY10 FY11 FY12 FY13 FY14 YTD
Total m2:
First store opened in Zeerust in June 2008
Stable growth in 2009-11 followed by rapid ramp-up in FY2012-13
DC opened in Rustenburg in FY13
Capacity to profitably serve up to 100 stores in a 500km radius of Rustenburg
Expanded to 26 stores in FY14
Currently 28 stores , plans to add 50 other stores.
Economies of scale will deliver profitability in FY15
Fruit & Veg DC operational before calendar year-end 2014
10
81% CAGR
South Africa – mining strike impacts operations11
Revenue & GP Margin
EBITDA & Margin
571
936 1,002
17.8%19.4%
20.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
-
200
400
600
800
1,000
1,200
2012 2013 2014
(% m
arg
in)
(BW
Pm
m)
Revenue GP Margin
14
22
3
2.5% 2.4%
0.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
-
5
10
15
20
25
2012 2013 2014
(% m
arg
in)
(BW
Pm
m)
EBITDA EBITDA Margin
Platinum strike had a strong, negative impact on our South African business
Strike lasted from January to June 2014, the longest and most expensive in SA history
17 of 26 SA stores (as at FY14) are located in the strike- affected areas
Revenues declined 40% on average in these stores
Despite this, our SA operations still made a cash profit
GP margin improved 90 bps y-o-y to 20.3%
Financial performance and profitability has significantly recovered since the end of the strike
12
Zimbabwe – excellent performance
P&L Summary
GP margin comparison
Acquired 10 Spar stores in Zimbabwe at the end of CY 2013
Most stores in/near Bulawayo (190km east of the Botswana border), easily serviced with Choppies’ existing supply chain (house brands, merchandise, etc.)
All stores rebranded under the Choppies banner
Three more stores opened since the acquisition, bringing the total to 13 stores
Opened a new 6,850sqm Distribution Center in Bulawayo in May 2014
Opportunity for 60+ stores over the long-term across the country
Excellent GP margin performance
20.5%
19.2%
17.2%
ChoppiesZimbabwe
Avg SA ListedGrocery Comps
Avg ZIM ListedGrocery Comps
in Pula m FY 2014 % group
Revenues 424.3 8.5%
Gross Margin 86.9 8.1%
% margin 20.5%
EBITDA 30.1 8.5%
% margin 7.1%
PAT 18.2 10.3%
% margin 4.3%
Strategy – grow in existing and new markets
Botswana South Africa Zimbabwe New Markets
TZ
ZM
NAM
SA
BW
ZW
Current Markets
High Potential Markets
Other Potential Markets
Extensive logistics infrastructure enables focus on rural expansion
Assuming lower levels of deflation due to the weakening rand, still a large opportunity to expand formal retail
Strong store pipeline of over 30 high-probability locations
Target small towns in Mpumalanga, Limpopo, NW and Northern Free State
Zimbabwe significantly less penetrated by formal retail
Expansion from Bulawayo hub to the north; potential for 30 stores in Harare alone
Strong regional GDP and population growth of c. 5-9% and c. 2-4% respectively
Strong grocery market growth of c. 8-9% High Potential Markets have a range of 3-
6sqm of formal retail for every 1,000 people compared to 94sqm and 150sqm in BW and SA respectively
56
68
90
2013 2014 2018E
Stores
17
26
80
2013 2014 2018E
Stores
13
60
2013 2014 2018E
Stores
13
Sources: McKinsey Institute, IMF
Strategy – the regional growth opportunity
Existing Markets Potential Markets
Botswana South Africa Zimbabwe Namibia Zambia Tanzania Kenya
GDP growth(2014-2019)
4.1% 3.0% 4.3% 4.6% 6.6% 7.0% 6.4%
GDP / capita(USD, nominal, 2013)
7,136 6,621 987 5,667 1,542 703 1,016
Population Growth(2014-2019)
0.9% 0.6% 2.8% 1.8% 3.3% 3.0% 2.5%
Urban Population % 57% 64% 33% 45% 40% 30% 25%
Rate of Urbanization(Est. annual change 2010-15)
2.1% 1.2% 3.4% 3.1% 4.2% 4.8% 4.4%
Formal retail channel 55% 70% 25% 50% 14% 13% n/a
Formal retail penetration (sq meters / capita)
94 150 7 n/a 5 6 n/a
Sources: World Bank, IMF, McKinsey Institute, CIA World Fact Book
14
Strategy – high potential markets
Huge potential for formal retail; currently only 13% of the total retail market
The grocery retail market is expected to grow at a CAGR of 8.9% by 2018
Economy is expected to expand at a real CAGR of 7.0% by 2019
Choppies is assessing opportunities, and may commence operations in H2-FY15
Tanzania
Huge potential for formal retail; currently only 14% of the total retail market
The grocery retail market is expected to grow at a CAGR of 9.1% by 2018
Economy is expected to expand at 6.6% through 2019
Choppies expects to commence retail operations in H1-FY15
Zambia
Similar market to our ‘core’ Botswana base
Formal retail channel makes up c. 50% of the retail market
High GDP/capita and robust expected growth of 4.1% through 2019
Proximity to Botswana and SA operations allow us to leverage existing infrastructure, alongside outsourced distribution
Choppies is assessing entry into the Namibian market
Namibia
15
Butchery
Wholly-owned meat supply business
Daily deliveries to stores
High margin business
Constitutes 5.8% of BW and SA sales
Fruit and Vegetables
Strategy – value-added services drive margins
Bakery
Highest quality fresh fruits and vegetables sourced directly from SA and Botswana farmers
Fruit & Veg DC unique in Botswana Strong support from farming community
leading to better pricing Constitutes 9.5% of BW and SA sales
Wide range of bakery products, such as fresh bread, cakes and patisserie
Constitutes 4.0% of BW and SA sales
Private Label
High quality, affordable products in categories ranging from food and beverages to home cleaning products
Currently 16% of Botswana sales and aiming to reach up to 25% in coming two years
Takeaway New Initiatives
Takeaway operations in all stores
Products such as fried chicken, chips, curries and combos
Choppies Fried Chicken (CFC) starting off well
Constitutes 4.4% of BW and SA sales
Third party ATMs
SIM cards/airtime
Mobile money and money transfer
Travel tickets / Local council payments
Pensions and utility payments
Imported non-food products
16
Strategy – Best-in-class distribution and logistics
Choppies operates six Distribution Centers:
Botswana: 10,000m² in Gaborone, 3,000m² in Lobatse and 3,500m²
in Francistown
South Africa: 10,000m² and 8,000m² facilities in Rustenburg
Zimbabwe: 6,850m² in Bulawayo
SA DCs have the capacity to support 100 stores (currently supporting 28 stores) within a 500 km radius of Rustenburg; implies North West, Mpumalanga, Limpopo, Northern Free State, and Northern KZN
Choppies’ logistics subsidiary supports the day-to-day operations of the stores with a fleet of c. 550 commercial vehicles, trailers and forklifts
17
Financial overview
Revenue
EBITDA
Gross Profit
EBIT
2,435
3,302
4,029
5,012
13.7%
35.6%
22.0%24.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
-
1,000
2,000
3,000
4,000
5,000
6,000
2011 2012 2013 2014
(Gro
wth
Rate
)
(BW
Pm
m)
150 168
200
241
6.2%
5.1% 5.0%
4.8%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
-
50
100
150
200
250
300
2011 2012 2013 2014
(EB
IT M
arg
in)
(BW
Pm
m)
447
642
822
1,079
18.3%
19.4%
20.4%
21.5%
16.0%
17.0%
18.0%
19.0%
20.0%
21.0%
22.0%
-
200
400
600
800
1,000
1,200
2011 2012 2013 2014
(GP
Marg
in)
(BW
Pm
m)
207 224
274
352
8.5%
6.8% 6.8%
7.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
-
50
100
150
200
250
300
350
400
2011 2012 2013 2014
(EB
ITD
A M
arg
in)
(BW
Pm
m)
18
Other operational and financial indicators
Employees
ROE
Store Space (sqm)
Debt to Equity
3,702
5,267
7,209
9,149
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2011 2012 2013 2014
73,100
87,000
105,100
155,955
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2011 2012 2013 2014
19
28.3%
20.5% 20.8%22.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2011 2012 2013 2014
0.34x
0.18x
0.12x
0.41x
0.00x
0.05x
0.10x
0.15x
0.20x
0.25x
0.30x
0.35x
0.40x
0.45x
2011 2012 2013 2014
FY 2015 expected capex20
Botswana (BWP mm) South Africa (ZAR mm) Zimbabwe (USD mm)
Number of Stores 6 10 9
Capex – PPE 60.0 130.0 4.5
Capex for Vehicles - 6.0 2.0
Maintenance Capex 8.0 3.0 1.0
Total 68.0 139.0 7.5
Total (in BWP mm)(1) 68.0 114.1 69.4
(1) converted at BWP/ZAR of 0.82 and BWP/USD of 9.26
Botswana: plan to open 6 new stores by the end of FY 2015 with an anticipated total cost of BWP 68.0m
South Africa: plan to open 10 new stores by the end of FY 2015 with an anticipated total cost of BWP 114.1m
Zimbabwe: plan to open 9 new stores by the end of FY 2015 with an anticipated total cost of BWP 69.4m
Dividends – sustained payout21
Dividends Per Share Dividend Payout Ratio
Dividends per share grew 6.1% y-o-y in 2014, and 10.9% CAGR since IPO in 2012
Dividend payout ratio has consistently been above 30% since IPO
Zimbabwe profits are being reinvested for expansion
Over time, we are targeting a payout ratio of 50%
3.67
4.25 4.51
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
2012 2013 2014
(Th
eb
e)
33.4%32.5%
31.6%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2012 2013 2014
(Perc
en
tag
e)
How choppies achieved a dominant market share22
• Shift of sales from wholesale to Retail
•Extended Trading Hours
•Own Logistics ( Warehousing and Transport)
•Extending the business to rural areas. (Taking Business to people)
•Value added services(Pay and Collect)
•Priced Right (Contract farming and Direct Procurement)
South African Market23
• Currently Operating 28 stores and plans to add another 50 stores
•Own Logistics ( Warehousing and Transport)
•Value added services(Pension , Pay and Collect)
•Operating in the 2nd and 3rd tier towns.
Challenges24
Infrastructure Issues
Trade cost 1: Time costs: the distances and lack of density result in a time costGetting the right solution to remote areas
Trade cost 2: Transport costsNo railway network, only water, and there too, there are no ports for large tankersTransport costs can add 30% above and beyond cost of goodsThe ‘last mile’ is a significant challenge, particularly in delivery to rural areas. To manage this, Choppies has invested heavily in our own fleet of trucks and trailers.Tendering and other process are not transparent so good companies keep away
Technology is a big challenge, e.g. bandwidth connectivity
Challenges25
Supply Chain Issues
Trade cost 3: Transaction costsLack of local mid-level manufacturers who can supply; therefore need to go cross-border
T3.1: Transactional paperwork and operational costs around information gathering, international contract drafting, and contract enforcement
T3.2: Exchange rate fluctuation costs
Trade cost 4: Tariff costsLack of local mid-level manufacturers who can supply; therefore need to go cross-border
This implies import duties
Challenges26
Oligopoly Situation in the high end manufacturing sector, e.g.:
High-quality pasta, convenient/ready to eat meals, etc.Washing powderIn equalityThis implies a local manufacturing monopoly and potentially limited buying power with local manufacturersChoppies may therefore need to approach overseas manufacturers, thereby competing on a global scale with international mass retailers, a class wherein Choppies may have relatively limited buying power
Labour Issues- Mainly in South Africa
Recession mainly in Zimbabwe and South Africa
Challenges
27
BureaucracyThere’s a cost of political capital to doing business in Africa like cost of local partnership in certain countries. Transactional paperwork and bureaucratic red tape add to costs
Cultural & Socioeconomic challengesTraditional media (television and print) does not always reach all market segments. Companies need to be efficient in using their marketing budgets, keeping in mind that traditional media may not have the same impact as in developed markets.Still the most popular mode of media is radio amongst the masses. It really causes a challenge to gain penetrationStrong traditions always difficult to change and bring new stylesSlow progression of educational systems also contributes to the challengeSocial integration-foreign skilled labour moving to Africa with a long-term view Africa is a not a homogeneous market – different countries have different cultural aspects. As Choppies expands across Africa, we will need to customise our offering to local requirements.
Key factors for sustainable growth28
Build a Brand
Building a consistent and reliable brand is important. Consumers are brand-conscious and seek value. Value is not purely in price terms, but in terms of the actual product or service experience.Once you establish a brand and are successful make sure you have a share of mind almost every day in the consumer’s life
Understand cultural nuances
Broadening product line to be Africa-specific while having cost excellence…This would require a Lean or Six-Sigma-based operational methodology to pervade the companyThis in turn would require extensive human capital development/trainingBuilding a stable, cost effective supply chain is criticalData is most critical asset in AfricaNo proper data is available there
The Choppies brand as a strategic asset29
We have focussed on building the Choppies brand and ensuring it stands for quality, value and customer satisfaction. We constantly strive to be relevant to the local communities we are present in –through providing employment, local sourcing or CSR activities
Our staff are our brand ambassadors – we ensure employees at all levels are engaged, motivated and feel successful
PMR Awards Outstanding – 1st Overall: in 4
categories Excellent – 2nd Overall: in 1 category
2nd African Youth Games – Platinum Sponsor ($1,000,000)
Lady Khama Charitable Trust Fund My Star Talent Show (Main Sponsor) Kabelano Charity Cup (Associate
Sponsor) University of Botswana (Sans Research
Centre) – Student Tuition Sponsor Presidential Housing Appeal (Biggest
Sponsor) and others…
Enthembeni old age home Mpilo hospital Tsholotsho flood victims Bulawayo Public Library 3 clean-up campaigns
Nkulumane shopping complex Sekusile Nkulumane J.M.N street in the CBD
Meridian Primary – refurbishment TC Esterhuizen hygiene day Vision of hope Race4Rhino – research & kits Lephalale flooding Kindermusik sport exposure Rustenburg – cash assistance during
strike Boshoek School – refurbishment Flunkey Monkey – school fees Sponsored displaced children and others…
Corporate Social Responsibility30
Botswana South Africa Zimbabwe
SADC Statistics 201331
Particulars Measure Botswana Malawi Mozambique Namibia South Africa Zambia Zimbabwe TanzaniaCoverage Area
SADC Average
Mid Year Population in '000's 2,102 15,317 24,366 2,172 52,980 14,580 13,192 45,968 170,677 293,475
GDP at Current Market Prices in Million USD 14,788 5,080 15,764 12,586 349,007 26,835 13,490 33,284 470,834 668,202
Real GDP Growth Rate at Market Price % 5.90 5.40 7.10 4.40 1.90 6.70 4.50 7.00 5.36 4.10
Per Capita GDP (Per Head) USD 7,034 332 647 5,795 6,588 1,841 1,023 724 2,988 2,277
Annual Inflation Rate (period average) % 5.90 27.30 3.50 5.60 5.70 7.00 1.60 7.90 8.06
Imports of Goods and Services in Million USD 8,856 2,984 6,349 7,399 118,509 10,639 7,704 13,725 176,165 253,801
Exports of Goods and Services in Million USD 8,149 1,503 4,747 5,528 108,696 10,982 3,507 8,724 151,836 244,481
Trade Balance in Million USD (706) (1,481) (1,601) (1,871) (9,813) 343 (4,197) (5,001) (24,327) (9,320)
Imports of Goods and Services % of GDP 59.89% 58.74% 40.28% 58.79% 33.96% 39.65% 57.11% 41.20% 49.77% 37.98%
Exports of Goods and Services % of GDP 55.11% 29.59% 30.11% 43.92% 31.14% 40.92% 26.00% 26.20% 36.68% 36.59%
Total External Debt Stock in Million USD 3,223 1,496 5,798 1,121 137,095 3,513 8,934 12,790 173,970 217,040
Debt to GDP ratio % of GDP 21.80% 29.40% 36.80% 8.90% 39.30% 13.10% 66.20% 38.40% 36.90% 32.50%
Official Currency Name of Currency Pula Kwacha Meticias Dollar SA Rand Kwacha Dollar Shillings
Official Exchange Rate Per 1 USD 8.40 369.18 29.90 9.65 9.65 5.39 1.00 1597.60
International reserves Stock in Million USD 7,740 404 2,996 1,619 49,587 2,674 331 4,676 70,027 113,242
Life Expectancy at Birth Number of years 68.0 55.1 53.1 62.6 59.6 53.0 58.0 NA 58.5
Total Fertility Rate Per woman 2.7 5.6 5.4 NA 2.3 5.7 NA NA
Net Enrollment Ratio in Secondary Schools Total NA NA 20.9 NA NA NA NA 32.2
Total Labour Force in '000's 900 6,982 12,624 868 18,444 5,845 5,121 NA 50,784