Half year results to 30 September 2015

Presentation to Analysts & Asset Managers12 November 2015

Presentation Outline

Item Presenter

Welcome & Introduction V.W. Zireva

Operating Environment A.R. Katsande

Financials A.E.SiyavoraFinancials A.E.Siyavora

Outlook V.W. Zireva

Questions & Discussions All

Refreshments All

Overview

Deterioration in the general state of the economy

• Deflation continues, ZIMSTATS reported -3.1% by September 2015.

Average Internal food deflation was -4.5% end of September 2015

• A poor 2014/2015 agricultural season

• Company closures and unemployment increased

• Relatively very little FDI into the country

• Tighter liquidity. Limited aggregate demand

• Consumer is stretched

• In general almost all companies reporting declining profits as a

result of negative growth in sales and margins.

Size of operation

H1 F 16 H1 F 15

Conventional stores 30 48

19 0

9 8

4 3

1 1

Total stores 63 60

Number of staff 4 181

Performance Highlights

H1 F16 Change over F 15

Revenue (US$ millions) 213.6 (7.9%)

EBITDA (US$ millions) 5.4 (43.4%)

Attributable Income (US$ millions) 1.2 (71.6%)

Earnings per share (US cents) 0.11 (70.3%)Earnings per share (US cents) 0.11 (70.3%)

Capital expenditure (US$ million) 3.9 (29.8%)

Total assets (US$ million) 137.9 11.5%

Review of operations

Operations Review:-supply & price of goods

• Direct imports reduced as more goods now require import permits & licences. This has allowed the middleman to remain relevant.

• Duties and surtax introduced or increased on many of the imported products

• Local supply still hamstrung by outdated technology, lack & cost of capital, as well as the state and cost of utilities, inter aliacapital, as well as the state and cost of utilities, inter alia

• Own brands contribution is yet to grow. Volume is limited by local industry limitations. Foreign supply hampered by higher import duties and surtax.

• Goods procured in US$. Sales are in multi-currency, but US$ is the dominant currency.

• Both foreign & local suppliers reduced prices to stimulate demand

Operations Review:-sector review

Sector remains very competitive:-

• All major players in both the Supermarket and Wholesale categories

staged heavily incentivized consumer promotions.

• Expansion of new entrants seen ; Meikles Megastore, Choppies, Food Lovers

• Expansion of the Pick n’ Pay brand – Conversions & New sites • Expansion of the Pick n’ Pay brand – Conversions & New sites

• Wholesaler cum retailer; N Richards, Metro Peech, Fortwell , Zapalala also expanding and increasing their reach.

• Informal sector remains alive-; vendor at door step, vehicles in car parks, open markets, residential/house sales.

• Specialist traders; Abattoir owned butcheries,

• Continued grey imports

Operations Review:-capacity enhancement in F16

M2 Trading

New shops

OKmart Mutare 2 584

OK Conventional Zvishavane 1 337

RefurbishmentsRefurbishments

19 stores were partially refurbished and rebranded to OK Value Chain

Operations review:-

Review of growth initiatives

Financial services

Generating commission income from:-•Money transfers•Mobile money •Banking and insurance •Pre-paid electricity coupons

Operations review:-Review of growth initiatives

Kawena :-•Remittances took off •Numbers are increasing significantly, 52K registrations

Operations review:-Growth initiatives

4 Stand Alone Units/ 4 Stand Alone Units/ Departments

OKmart HillsideOKmart KwekweOK MaronderaOK GwandaOK Mbare

Operations review:-Growth initiatives

In-store Bakeries

• Full Bakeries 31

• Bake Off 10

Operations review:-Our brands and our promotions

HOUSE BRANDS

64 SKU’s Across Categories:-

PerishablesDry GroceriesClothing & TextilesHousewares

Top Notch

HOUSE BRANDSHOUSE BRANDS

SHOPPERS CHOICE

Promotions that change people’s lives

Bon MarchePower Walk

CORPORATE SOCIAL RESPONSIBILITY

•Quarterly health PowerWalks

•Quarterly Aerobathonsand Walkerobics

CORPORATE SOCIAL RESPONSIBILITY

Community tree nurseriesMuzogwi - Masvingo ProvinceMasasi - Manicaland “ Mpandashango - MidlandsNtepe - Matebeleland South

H1 F16 Results

Balance Sheet

Cash FlowCash Flow

Statement of Comprehensive Income six months ending 30 September

$ millions H1 F 16 H1 F 15 Change %

Revenue 213.6 232.1 (7.9)

Underlying operating profit 1.4 5.9 (75.7)

Net finance charges (0.11) (0.06) (88.5)

Tax charge (0.1) (1.5) 94.1Tax charge (0.1) (1.5) 94.1

Attributable Income 1.2 4.3 (71.6)

Total comprehensive income for the year

1.2 4.3 (71.6)

Depreciation (3.8) (3.2) (18.3)

EBITDA 5.4 9.5 (43.4)

Ratios and metrics

H1 F16 H1 F15 Change %

Net Sales $ millions 213.2 231.6 (7.9)

Gross margin 17.6% 18.8%

Overheads % sales 16.9% 16.5%

Underlying operating profit 0.7% 2.5%Underlying operating profit margin

0.7% 2.5%

Net Income margin 0.6% 1.9%

EBITDA margin 2.5% 4.1%

Share Performance

H1 F16 H1 F15 Change %

# Ordinary shares in issue (millions) 1 157.9 1 154.9 0.4

Share performance (cents):-

Attributable earnings 0.11 0.37

Headline earnings 0.11 0.37Headline earnings 0.11 0.37

Dividend per share 0 0.19

Net asset value per share 6.18 6.10

• Negative revenue growth of 7.9%:-

1. official deflation September 2015 - 3.1%;

2. internal deflation (average basket) – 4.5% ;

3. less revenue for the same volume

• Gross margin at 16.6% (F15 : 18.0%)

1. product mix slanted towards basic products

2. fierce competition in the market through price

3. the trade-off of margin for volume sales is yet to yield desired results (OK Value concept not fully off the ground)

• Overheads down 5.5% while sales growth was negative. Pressure persists from:-

Commentary

• Overheads down 5.5% while sales growth was negative. Pressure persists from:-

1. cost of power (bakeries using more electricity, more use of generators because of power outages)

2. Cost of security

3. higher depreciation expense from continuing capital expenditure

4. more use of the Distribution Centre to supply branches with imported

product received centrally

• Stock turn down to 7.95 against 9.12 in prior year; i.e. 45 days against internal standard of 30 days) prior year 39 days

• Capital expenditure $3.9 million (F15: $5.5 million)

• Liquidity :- tight, paying down debt but needed use of overdraft at certain times

Shrinkage control

Shrinkage % of sales

Shrinkage $ millions

6 months to 30 September 2015 0.76 0.95

6 months to 30 September 2014 0.81 1.186 months to 30 September 2014 0.81 1.18

International average 1.5%

Summary Statement of Financial Position as at 30 September

$ million H1 F16 H1 F15 Change %

Property, plant & equipment 57.4 55.1 4.2

Inventories 48.9 46.9 4.4

Accounts Receivable 21.1 5.1 311.0

Cash & cash equivalents 5.4 14.6 (63.2)Cash & cash equivalents 5.4 14.6 (63.2)

Deferred tax (9.0) (8.0) (12.6)

Debt (3.4) (3.6) 4.9

Trade and other payables & accruals (53.1) (40.5) (33.1)

Net assets/Shareholders’ equity 71.5 70.4 1.5

Cash Flow at 30 September

$ millions H1 F16 H1 F15

Cash from operating activities 5.4 9.5

Tax payment (0.5) (0.6)

Dividend payment (1.3) (2.5)

Net cash from operations 0.6 8.8Net cash from operations 0.6 8.8

Net cash invested (5.0) (5.6)

Net funding (6.5) 1.4

Cash brought forward 11.9 13.2

Cash balance at year end 5.4 14.6

Outlook

OUTLOOK

Overview

• Economic activity is expected to remain subdued, with liquidity getting tighter

• The market will remain very competitive.

Operational• We are assisting some local suppliers to import raw materials so as to:-

1. Increase local production2. Contribute to improve employment

Overview

• Economic activity is expected to remain subdued, with liquidity getting tighter

• The market will remain very competitive.

Operational• We are assisting some local suppliers to import raw materials so as to:-

1. Increase local production2. Contribute to improve employment2. Contribute to improve employment

• Focus on maintaining market position through the following initiatives:-1. Organisational change programme is under way2. More efficient use of existing capacity3. Continue expanding financial services offering 4. Continue roll-out of own bakeries. 5. Continue pushing growth in fruit & vegetables as well as butcheries6. Continue roll out of Farm it Build it offering

• Emphasis on cost reduction & margin protection

2. Contribute to improve employment

• Focus on maintaining market position through the following initiatives:-1. Organisational change programme is under way2. More efficient use of existing capacity3. Continue expanding financial services offering 4. Continue roll-out of own bakeries. 5. Continue pushing growth in fruit & vegetables as well as butcheries6. Continue roll out of Farm it Build it offering

• Emphasis on cost reduction & margin protection

Outlook:-strategic initiatives

Leverage our brands:-

(A) Supermarkets Division

• OK Conventional Stores

• OK Value Stores

• Bon Marche Stores

(B) OKmart Division

• OKmart Conventional Stores

• OKmart Low Cost (new stores)

Refurbishment and Expansion

The OKmart expansion has proved successful; working on opening more stores in other centres.

Work has started on a new store at Houghton Park and we are

OUTLOOK

Work has started on a new store at Houghton Park and we are evaluating other sites

Thank youThank youTatenda Tatenda SiyabongaSiyabonga

Thank youThank youTatenda Tatenda SiyabongaSiyabongaSiyabongaSiyabongaSiyabongaSiyabonga