Boxer Retail Limited (BOX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to this AGM. I'd like to hand you over to your Chairman, Sean Summers.

Good morning, ladies and gentlemen, and welcome to the second Annual General Meeting of the company. I welcome my shareholders, Board members, members of management and all other guests who have joined us this morning. The meeting will be conducted through electronic participation only as provided for in the JSE listing requirements and in terms of the provisions of the Companies Act and the company's memorandum of incorporation. I encourage all our registered shareholders to engage with us using the functions available in the platform, which allows us for both verbal and written engagement. The quorum for this meeting is the presence in-person or by proxy of at least 3 shareholders who are entitled to vote and who collectively hold at least 25% of the voting rights attached to the issued ordinary shares of the company. The company secretary informs me that the necessary quorum is present, and I declare the meeting duly constituted. I will provide a short opening address, which will be followed by a business update from Marek Masojada, our Managing Director. Even although I have been on the Boxer Board since November 2024 listing, I've only occupied the Chair's seat since March '26. I would like to thank my predecessor, James Formby, who ably led Boxer through its first 16 months as a listed entity, including guiding the company through its listing. I look forward to James' invaluable ongoing contribution as a nonexecutive on the Board. As you know, my association with Boxer goes back to 2002 when I led the Pick n Pay acquisition of Boxer. It was already clear at that stage that Boxer had the makings of an exceptional company and was perfectly positioned for incredible growth. Back then, Boxer had just over 35 stores, a far cry from the 576 stores in the estate as of the beginning of this financial year. It so happens that Boxer's CEO, Marek Masojada, led the Boxer negotiation team during that acquisition process, and that is where my long association with Marek began. Marek is a superb leader and has ably led Boxer since appointment as Managing Executive in 2019 following a lengthy 25 years as Head of Finance. As Chair, I would like to absolutely reassure shareholders that Boxer is run with the best interest of all shareholders in mind, not just the controlling shareholder. I would like to acknowledge the efforts of Boxer's independent nonexecutive directors in this regard and in particular, Lead Independent Non-Executive Director, Charlotte Maponya. It gives me great pleasure to note Boxer's deep involvement with the communities that it serves, which goes beyond providing affordable food products to its community that it serves and the growing numbers of employment opportunities and engagement in multiple CSR programs. Boxer has all of the attributes of an excellent retail company, passionate management team deep in the detail of the business on a daily basis, strong rollout and growth opportunity, excellent capital distribution and return on capital invested, deeply ingrained winning culture and low-cost mindset. And as a consequence of these attributes, Boxer cannot help keep on growing and winning in the long term. You will see from the trading update issued today that economic stresses, including the impact of the Iran war on oil prices and consequently, transport costs for Boxer's customers have impacted their ability to spend. I take great comfort from Boxer's executional excellence and track record of successfully managing previous challenging situations, including civil unrest, floods, COVID and the like as the company negotiates this period going forward. I have no doubt that Boxer will be successful in the period that lies ahead. Thank you. I will now hand over to Marek.

Thank you, Mr. Chairman, and for your kind remarks. Good morning to everybody attending today's AGM. This morning, we issued a short trading update, giving some insight into our trading performance for our new financial year, which ends in February of FY '26. For the 20 weeks ending the 19th of July 2026, Boxer grew total turnover by 7.2% with a 2.2% increase in like-for-like sales. While our growth in the period is below that of FY '26 and the double-digit levels that we strive for, I'm pleased that Boxer has consistently gained market share over all months within the period, which shows that our execution has continued to be strong despite the constrained market conditions. We have some significant external factors, as mentioned by Sean, that are dampening growth. The first major factor is that deflation has been a consistent negative influence on sales growth over the past 12 months. This is reflected in our internal selling price inflation dipping further in this period to negative 1.9%, which is a further decline from the negative 0.7% reported for H1 last year and the negative 1.6% reported for the second half of FY '26. Our internal selling price inflation remains well below that of Stats SA food and non-alcoholic beverage inflation, which for the period March to June was positive 2.5%. And this shows that we continue to invest in price and offer our consumers great value. This deflation is primarily coming from key commodity categories to which Boxer has a high exposure. In certain categories such as maize meal and rice, we are still experiencing deflation in excess of 20%. And this means that despite healthy volume growth, there is still an overall negative rand growth impact. The second negative influence is the elevated diesel and transport costs, which have added pressure to an already constrained consumer. We've seen over the period a slight reduction in our customer store visits, which is offset by a higher value basket spend as consumers optimize their spending patterns for this changed environment. The past 4 months have also seen elevated levels of promotional activity throughout the market as retailers compete for the limited customer spend, and this has lifted our promotional sales participation. Management of our gross margin under these circumstances is a fine art, and I'm extremely pleased at how our commercial team has been able to manage gross margins proactively and successfully over this period. Taking into account astute gross margin management, effective OpEx control and strong other income growth, which I'll come back to a bit later, the management team is comfortable that Boxer should make margin for H1 of this FY '27 financial year relative to the same period in the prior year. Our store opening pipeline for the year ahead is strong, and we fully expect to achieve the guided 60 new stores this year. Year-to-date, we have already opened 19 stores, including 6 superstores and 13 liquor stores. And I'm happy to say that later on today, we will open a further liquor store up at Lebowakgomo. In line with our policy of constantly reviewing and upgrading our store estate, we have, during the period completed 16 refurbishments, including major and minor across our formats with a further 17 in progress or at planning stage. Our estate is in good shape. Boxer has made further progress onboarding more customers to our B-Inside data analytics portal during the period and has also made substantial progress developing B-Media, our retail media platform we launched earlier this year. This past Sunday, we saw the penultimate showing of our exciting Nyama Battle street cooking TV show, which has been an exciting collaboration with our major supply partners. We have seen great viewership numbers and outstanding brand exposure for our partners involved as we have showcased the hero products and brands, along with the excitement of the competing chefs. Our project teams are deep into building the future platforms that will enhance our customer insights and strengthen our ability to engage more meaningfully with both our commercial suppliers and our customers. We see these as important new business opportunities to drive our existing business as well as opening new income generation opportunities, both of which will strengthen our business model. In summary, while we undoubtedly operate in a challenging environment, we remain focused on those factors that we have control over and which support our long-term goal of growing Boxer, taking our brand and our stores to more communities across South Africa and Eswatini. The Boxer business model has proven to be robust and the team is agile in responding to changing conditions. We are confident in the road ahead and our ability to achieve consistent growth in earnings in FY '27 and the future. In closing, I extend my thanks to Sean and the Boxer Board for their unwavering support and strategic guidance to the Boxer team and to the broader Boxer team who work so hard every day to deliver for our customers. Thank you. Thank you, Sean. Sean, you're on mute.

Thank you, Marek. Apologies. We will now proceed to the formalities beginning with Notice of Meeting. The notice convening this Annual General Meeting has been in the hands of the shareholders for the prescribed period and contains full details of the resolutions to be considered in this meeting. There being no changes to the proposed resolutions, I propose that the notice be taken as read. Are there any objections? I take it there are none. Before we proceed with the matters on the agenda, I wish to advise on how votes will be cast. Please note that only the following participants are entitled to speak and vote at this meeting. Shareholders who are recorded in the company's share register as of the voting record date, shareholders who are in possession of a valid written letter of representation from their CSDP or broker and duly appointed proxy holders whose proxy forms have been submitted in accordance with the requirements set out in the notice of the meeting. A few pointers on how to cast your votes. All shareholders and duly appointed proxies, who requested to vote would have received a link to access the voting platform. The link was sent to either the phone number or e-mail address provided. Please go to the voting tab at the top of your screen in order to cast your vote. The voting platform contains all the resolutions that have been set out in the notice of the meeting. Each participant is required to vote on each resolution individually by selecting the relevant voting option for, against or abstain. Please note, shareholders are able to change their votes while voting is still open and will pop up on your screen confirming that your votes have been received. Voting is now open and will remain open until the question-and-answer session has been completed. However, I urge you to complete your voting after each of the resolutions have been tabled to the meeting. For the purposes of voting at today's meeting, the company's transfer Secretary, Computershare Investor Services, has been appointed as scrutineers. I have arranged for a director who is also a shareholder to second each resolution. Chichi Maponya has agreed to second each motion at today's meeting. In light of this, if there are no objections, I will dispense with the usual formalities of asking for a seconder for the resolutions. In accordance with good governance practice, the voting on each resolution at this meeting will be conducted by poll. Should you have any questions on the matters being voted on in this meeting, please submit these in writing if there are questions which do not specifically relate to the matters being voted on, and we will address these at the end of the meeting. Alternatively, you may pose your questions verbally. To do so, please follow the instructions provided on the home tab of the Lumi platform when we get to the question-and-answer session. You will have the opportunity to ask your question, which will be audible to all participants in the meeting. We will respond to your questions once all of the resolutions have been read out and before voting is closed. The voting is now open and will only be closed once all questions have been answered. Until voting has been closed at the end of the question-and-answer session, voting can be changed on the Lumi platform. Each shareholder or duly appointed proxy will be able to cast a vote for each of the resolutions on the electronic platform. I will announce the results of the voting immediately after the voting is closed and the results have been determined. The results will be posted on SENS after the conclusion of the meeting. Once the minutes of the 2026 AGM have been signed by the Chairman, they will be posted on our website for your review. We shall now proceed with the business of the meeting. I confirm that the electronic system is open for voting, and I now propose the following ordinary and special resolutions as set out in the notice convening this meeting. Given the length of the resolution, I will take them as read and will only provide a summary of each resolution. Please follow the full text of the resolutions in the notice as they are proposed in the order specified. We will now proceed to the presentation of annual financial statements. The consolidated group and separate company audited annual financial statements of the Boxer Retail Limited, the directors' report, the remuneration report and the reports of the Audit, Risk and Compliance Committee and the Social, Ethics and Transformation Committee for the 2026 annual financial period are hereby presented to shareholders as published and available on the Boxer Investor Relations website. We now proceed to ordinary resolutions. Before we proceed, please be advised that ordinary resolutions require the approval of 50% of the voting rights plus 1 vote exercised on each resolution. Special resolutions require the approval of at least 75% of the voting rights exercised on each resolution. Ordinary resolution #1, appointment of external auditors. I propose that Ernst & Young, Inc. be appointed as the external auditors of the company. Ordinary resolutions #2.1 to 2.4, reelection of directors. In terms of the company's MOI, at least 1/3 of the nonexecutive directors are required to retire by rotation at each AGM and may offer themselves for reelection. The Board recommends the reelection of James Formby, Charlotte Maponya, Dineo Molefe, and Cindy Robertson, each for a maximum 3-year term. Ordinary resolution 2.1, James Formby, I hereby propose the reelection of James Formby as a Non-Executive Director of the company for a maximum 3-year term. Ordinary resolution #2.2, Charlotte Maponya. I propose the reelection of Charlotte Maponya as an Independent Non-Executive Director of the company for a maximum 3-year term. Ordinary resolution #2.3 Dineo Molefe. I propose the reelection of Dineo Molefe as an Independent Non-Executive Director of the company for a maximum 3-year term. Ordinary resolution #2.4, Cindy Robertson. I propose the reelection of Cindy Robertson as an Independent Non-Executive Director of the company for a maximum 3-year term. Ordinary resolutions #3.1 to 3.3. Appointment of Audit, Risk and Compliance Committee members for the 2027 annual financial period. As recommended by the Board, I propose the appointment of Cindy Robertson, who will act as Committee Chair, Jesmane Boggenpoel, Dineo Molefe as members of the Audit, Risk and Compliance Committee for the 2027 financial period. Please cast your votes. Ordinary resolution #3.1, Cindy Robertson; Ordinary resolution #3.2, Jesmane Boggenpoel; Ordinary Resolution #3.3, Dineo Molefe. Ordinary resolutions #4.1 to 4.3. Appointment of Social, Ethics and Transformation Committee members for the 2027 annual financial period. As recommended by the Board, I propose the appointment of Jesmane Boggenpoel, who will act as Committee Chair; Charlotte Maponya and Dineo Molefe as members of the Social, Ethics and Transformation Committee for the 2027 annual financial period. Please cast your votes as follows: Ordinary resolution #4.1, Jesmane Boggenpoel. Ordinary resolution #4.2, Charlotte Maponya. Ordinary resolution #4.3, Dineo Molefe. We now move on to ordinary resolutions #5.1 to 5.2, remuneration policy and implementation report for the 2026 annual financial period. The remuneration policy and remuneration implementation report are now binding ordinary resolutions in terms of Section 38(2) of the Companies Act. Ordinary resolution #5.1, approval of the remuneration policy. I propose the approval of the company's remuneration policy as outlined in the remuneration report in accordance with Section 38(2) of the Companies Act. Ordinary resolution #5.2, approval of the remuneration report. I propose the approval of the company's remuneration implementation report as included in the remuneration report in accordance with Section 38-2 of the Companies Act. We now move on to ordinary resolution #6, general authority to repurchase the company's own shares capped at 5% of the company's issued share capital as per previous year's resolution. This is REM and Board approved to purchase the LTIP shares. I propose the approval of the general authority for the company or any of its subsidiaries to acquire issued shares of the company from time to time upon such terms and in such amounts as the directors may determine subject to the MOI, the Companies Act and the JSE listing requirements as amended from time to time. We now proceed to special resolutions. Before we proceed, please be advised that the percentage of voting rights required for special resolution #1 to be adopted is at least 75% of the voting rights exercised on this resolution. Special resolution #1, Directors' fees for the 2027-2028 annual financial periods. I propose that the directors' fees for the 2027 annual financial period as set out in notice of the meeting, be approved and the directors' fees be increased by CPI for the 2028 annual financial period. Where applicable, directors' fees are exclusive of VAT. Item #8 of the notice provides for the transaction of such other business as may be transacted at the Annual General Meeting. Are there any matters not already covered that members wish to raise? I see none have come in, so we will now proceed to the general question-and-answer session. Ladies and gentlemen, we will now respond to all questions from participants on the items under consideration at the meeting. Questions will be answered by a member of the Board or by any of our advisers who may be best suited to answer your questions.

Thank you, Mr. Chair. The first question we have from [indiscernible]. This would be for Marek, our CEO. The store rollout strategy at the time of the IPO, management outlined an ambition to double Boxer's store footprint over the next 6 to 7 years through an accelerated rollout program. Could you provide shareholders with an update on the progress against this strategy? Specifically, are you on track to achieve your medium-term rollout targets? And have there been any changes to the pace or the geographic focus of new store openings?

Thanks, [indiscernible]. From the Boxer management side, we remain resolute in pursuing the expansion of Boxer. We still believe that we've got a large amount of areas across the country to expand. I think we always follow a quality over quantity philosophy and each new store is judged on its specific merits, the expected return on investment on the store, and that really is the primary thing that we focus on in the new store, but obviously, going for that long-term target. I'm happy to say, and as I mentioned earlier, that our store pipeline for this year, for next year and the year after is really in probably its strongest state and that we're very confident that we'll be able to deliver the store opening numbers. What's also really solid is that our infrastructure is in place to take on these stores. So we invested last year in an additional distribution center. And we have across our 7 distribution centers capacity to open up to 200 more superstores. So there's no restriction in anything other than landing the site. So geographically, to your question, we're opening stores in all 9 provinces of South Africa. We don't have a specific preference one over the other, but rather follow where the opportunities arise.

The second question also from [indiscernible] relates to the centralized distribution network, stating that it's a key part of its operational model or operating model for the Boxer Group with the business bearing much of the distribution cost. And with the recent volatility in fuel prices, including periods of higher diesel costs following tensions in the Middle East, could management elaborate on the distribution cost dynamics, firstly? And specifically, how easy is Boxer able to pass these higher distribution costs through to customers? And to what extent does the business absorb them in order to maintain its value proposition and competitive pricing? Thanks, Marek.

Thanks, Vaughan and [indiscernible]. Yes, I think the increased energy costs in general are a really unwelcome phenomenon that is affecting individuals, businesses across South Africa from -- as you mentioned, as essentially a high logistics company with our distribution centers and the logistics to and from stores, we are exposed to these higher diesel costs. And at a store level, we're also exposed to them in terms of the generators that we have in our stores, the fork trucks that we use to offload trucks and also in some circumstances, bakeries are paraffin driven. So we're feeling the impact of it. And I think that's where we really have to be agile in managing all elements of our income statement. So gross margin, I've spoken to in managing gross margin, we have to take into account the additional costs. We're in the fortunate position is that we're in the early stages of developing other income opportunities, and we've been successful in this. And to an extent, that's offset some of these additional diesel costs that we've had to incur. And then thirdly, we're on continuous efficiency projects and drives across the business to ensure that we can save costs in other areas where we're able to and obviously cross-subsidize the additional costs. So our last strategy is to pass these sorts of costs on to consumers. And I think that's reflected in the deflation numbers that we've reported, which are still negative. And I think that both through our supply base and ourselves, we have, to a certain extent, absorbed quite a significant portion of these cost increases. Thanks, Vaughan.

Thanks, Marek. The third question is from [ Lwando Ngwane ]. Have your stores realized any impacts on trade or otherwise resulting from the March and March activity?

Lwando, thank you. I think during the lead up to the end of June, so over the first quarter of the year, we did see an increasing level of protest activities and disruptions to trade across many of the towns in which we operate. And in many instances, stores would close during the protest and then reopen. So to answer your question, there has been a disruption to our trade as a result of that. And in addition, there have been many other types of protests that go on across South Africa that all retail is exposed to. We currently have a lot of protests up north on lack of water supply to certain areas. And stores are closed by the communities as a way of exerting leverage on local officials to attend to their problem. So it has been higher levels of disruption over this 4-month period. And yes, hopefully, things will settle in the second half of the year.