For Anton, heading up finance at Shoprite during Covid-19 and IFRS 16 has been ‘interesting’.
The apocryphal Chinese curse suggests, “May you live in interesting times.” For Shoprite CFO Anton de Bruyn, heading up finance in a 15-country African supermarket business, spanning nine industries, at the time of IFRS 16 implementation, with discontinued operations and hyperinflation, and then Covid-19 arriving, has been ‘interesting’ indeed. But he’d put in many of the hard yards before lockdown hit, and he says his team have supported him through it all.
The Covid-19 pandemic has forever changed the way companies operate. Over and above a heightened focus on ethical values, environmental impact and board effectiveness there has been a clear shift in focus on balance sheet strength, and in particular, cash flow generation since the outbreak started. In the intervening months, various companies have been raising capital to strengthen their balance sheet or settle debt, and the payment of dividends has been questioned by many boards.
“The management of Shoprite has had to deal with many of these questions in the past months,” says Anton, who chatted to CFO Magazine about his appointment on 1 July 2018, and how his challenges in those early months prepared him for the crisis that lay ahead.
He explains that the management team had focused on improving its reporting to its various stakeholders, and wanted to communicate the strategies that had been implemented since Pieter Engelbrecht, CEO of Shoprite, took over from Whitey Basson during 2017. “Shoprite is a big business and seeing the results of the changes was not something that was going to happen overnight,” says Anton, who says that the positive outcome of these actions can be seen in their results for the half-year ended February 2020. “We can already see an improvement in working capital ratios and have given guidance on what we expect to see in our capital allocation for the year, which will impact our return on invested capital in the coming years.”
During the past 24 months, Anton’s tasked himself with matters important to Shoprite’s various stakeholders, and together with the management team implemented measures to address the issues raised. As part of this process, changes were introduced to the Shoprite’s remuneration policy and, working closely with Professor Shirley Zinn, who was chairperson of the remuneration committee during the 2019 financial year, the team managed to get a supporting vote from its shareholders to implement the policy. Changes included a new long term incentive scheme (LTI) and the introduction of a Malus and Clawback provision on the LTI.
Not business as usual
Since March, Anton’s daily routine has had to incorporate managing the impact of Covid-19 on the business. “We have regular Covid-19 meetings with key personnel to manage the operations of the business with a particular focus on health and safety, security, and compliance in terms of the gazetted lockdown regulations. “The situation is very fluid and requires constant decision making. We are the largest corporate employer in South Africa and the safety of our 141,452 employees across our group is of paramount importance.”
"He explains that their focus isn’t just on South Africa, it’s also on the 14 other countries Shoprite trades in. “There’s a lot of various additional costs that you have to weigh up the whole time.” Shoprite’s liquor and furniture businesses remained closed for the initial weeks of lockdown. “We’ve had to do various scenario analyses around those businesses.”
He adds that another topical issue, which has been complicated by the pandemic, is the implementation of IFRS16 and the accounting and disclosures that were required for the financial year ending June 2020. “We will need to educate investors what the impact is of the implemented standard on key measures like headline earnings per share and return on invested capital.”
For Anton work remains very busy despite the Covid-19 restrictions. He is still working from the office two to three days a week. His wife Zyla, who also works in the Shoprite Group on the Sixty60 Project, an on-demand one-hour grocery delivery service at Checkers, is more homebound.
Shoprite started considering allowing people to work from home before Covid-19 and lockdown, but had various reasons why it wasn't implemented. “Now that we’re forced to do it, we’ve come to realise that it actually works extremely well,” Anton says.
As an example, he refers to a public holiday during lockdown when his finance team had to make an urgent payment in Kenya. “Because our staff having ‘dongles’ to connect to the internet and banking platform from home, we could make the payment, whereas in the past we would have had to wait for the next working day.”
He adds that, while everyone is talking about the new normal and speculates how things are going to look when they return to work, he can’t help to think back to the days of being an article clerk. “You followed a hotseat approach, where you didn’t really have a desk. You would just come in to do your timesheets and then go off to meet with clients. And we are currently sitting in the same situation.”
“We have evaluated the teams in the finance community and concluded that in some cases, for example, the internal audit, tax and IFRS teams, can do a lot of work remotely and the dependency on office space will be reduced,” he explains, adding that online portals like Hangouts and Zoom have proven to work “fantastically” and that the company plans to have its upcoming board and committee meetings digitally.
Covid-19 impact on the business
Shoprite has various brands that cover different LSM categories and the sales trends in each of those brands has been a clear indicator of the market’s reaction to Covid-19.
Referring to the company’s results presentations in February, Anton says that Checkers had been performing well. However, as people are faced with reduced salaries and retrenchments due to Covid-19, the Usaves, which is the low-cost limited assortment discount chain, will play an important role in the retail market in South Africa. “Our strategies are based on the performance of the various brands and we are formed around the different brands in those different LSM brackets and each will perform according to the spending power of the customer.”
There are, however, a lot of additional costs during this time. “We’ve all seen the videos on looting taking place, so obviously there’s an amount of additional costs coming into the business from a security point of view.”
In keeping up with Covid-19 health regulations, Shoprite has also had to provide its over 140,000 employees with protective equipment, and equip their portfolio of stores with sanitisers and thermometers. The company has also had to appoint compliance officers in each of their stores to deal with the increasing regulations.
Despite these precautionary methods, some staff members have tested positive for Covid-19. “We have mobile clinics across the country that go to our stores and perform screenings and ensure the safety of our staff,” Anton says.
He explains that there is a checklist of tasks to perform if a case is reported. “We then go through a whole process of cleaning and sanitising the store before the store can open again to trade.”
“Our staff and their health and safety is of paramount importance,” Anton says. “That’s why we paid the appreciation bonus of R116 million to our employees as level 5 lockdown began. It was to thank and support them for their tireless efforts to feed the nation in these unprecedented times. We were the first in the country to do that because we acknowledged the role that our staff would have to play. Whilst the whole country stayed home our people had to find a way to get to work. We are really very proud of the company and its resilience which is part of our culture here at Shoprite.”
From a cash flow point of view, Anton says that there has been a slowdown when you consider the company’s rate of capital expenditure. “There were no building activities taking place during level 4 and 5 of lockdown and the spend in the information technology space has reduced. Even though we keep delivering on the projects that were in the pipeline, the spend has definitely reduced.”
Shoprite, through the use of external consultants, was also fortunate to see what was happening in other countries that were ahead of South Africa’s infection curve. “Consultants were communicating how they’ve seen retail develop in Italy, France, China and Australia as Covid-19 hit their countries, and we were able to adapt and anticipate the buying patterns of their customers. So we could already adjust our supply chain to make sure we were in line with those trends.”
Covid-19 impact on shopping habits
E-commerce and online shopping has seen a significant uptake during Covid-19 and lockdown. “In South Africa, online shopping makes up between 2 to 3 percent of retailing services. The bricks and mortar model is still the dominant way of retailing,” Anton says.
He explains that, where people used to go to the mall as an outing, they’ve become a lot more conscious of social distancing and are going to be more purposeful with their shopping in the future.
“Our Checkers Sixty60 app, launched last year in November, was a well-timed entry into e-commerce. It’s a mission-driven app that’s seen great customer acceptance. Across the board we’ve seen an increase in the sales of fresh produce, prepared meals, baking ingredients to name a few because, with restaurants closed during the initial lockdown, people had to cook and bake more,” he says. “Even with restaurants opening again, people are becoming a lot more conscious in their spending.”
Support from family and team finance
When asked about how he’s balanced his family and team obligations during lockdown, Anton responds: “There’s not a lot of spare time but it certainly helps that Zyla works for Shoprite. When you see how hard everybody in this company works, it goes without saying that you understand why we are all as devoted as we are”. Amid his busy working schedule, Anton’s spare time is allocated to his family with both he and Zyla spending as much time as possible with their two children. They really just enjoy being together but Anton says that they also share a love of camping and travelling.
Anton has a very strong finance team and together, they support each other’s wellness at work during this difficult time. “My finance team at home office is 60 percent female, a stat I am really proud of but I have to say my whole team is world class. I joked the other day we should set the board exam, start with a 15-country African supermarket business spanning nine industries, throw in IFRS16, discontinued operations and hyperinflation. It actually is quite exciting in real life, I must say I love what I do and I think everybody around me does too. That’s all in a day here at Shoprite – being the biggest retailer in South Africa is certainly a team effort.”