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COMMENTARY

THE GROUP

In a market in which trading conditions remained difficult, the Group performed satisfactorily, maintaining its position as the country’s leading value provider, which resulted in a core market share increase of 1,2% to 29,8%. Despite the recession it did not scale down expansion plans but gained a net 58 new stores during the six months under review. Through the efficient management of its cost base the Group managed to grow trading profit by 17,5% – well ahead of the 11,9% increase in turnover. This resulted in a trading margin of 5,0%, against the 4,8% of a year ago.

 

Supermarkets RSA

Supermarkets RSA was the Group’s best performing division. Its three chains – Shoprite, Checkers and Usave – continued to enjoy increased support from cash-strapped consumers. Turnover grew by 14,6% compared to the rest of the retail market’s 9% and ahead of internal food inflation, which during the reporting period averaged 4,2% as against 16,9% a year ago. The combined customer growth was 6,5% with the value per transaction growing 7,3%.

Both the Shoprite and Checkers chains increased the value of and the number of customer transactions and the small-format Usave chain, with its strong focus on growth, continued its roll-out in South Africa adding a net 27 new stores for a total of 157.

The net result of the above was a turnover growth of R26,303 billion from R22,963 billion in the corresponding six months and a trading profit that was 27,5% higher at R1,322 billion.

Supermarkets Non-RSA

Due to the appreciation of the rand against most other currencies in Africa, food imports from South Africa became more expensive and nullified the benefits of lower food inflation. In addition, Africa has been as hard hit by the global recession due to its dependence on commodity exports. In rand terms sales declined by 4,3% to R3,605 billion, but in constant currency terms, it increased by 16,3%. Gross margin came under pressure due to the increased cost of goods which, in most cases, could not be passed on to consumers, leading to a 22,2% drop in trading profit to R193,2 million.

 

Furniture

Given consumers’ reduced levels of spending on durables and semi-durables, the division’s sales increase of 11,5%, in an environment of virtually no inflation, is satisfactory. Gross margin remained intact, but an escalation in service and other charges put net margin under pressure so that trading profit for the period increased by 2,9% to R104,3 million.

 

Other operating segments

Other operating segments comprising the OK Franchise Division, Computicket and MediRite, showed a 13,3% increase in turnover to R1,692 billion while trading profit grew 63,0% from R22,9 million to R37,3 million.

 

CORPORATE GOVERNANCE

The Group is committed to the principles embodied in the Code of Corporate Practice and Conduct in the King Report 2002 (“the Code”). The Group complies with the significant requirements incorporated in the Code and in the Listings Requirements of the JSE Ltd.

 

DIVIDEND no 122

The board has declared an interim dividend of 80,0 cents (2009: 70,0 cents) per ordinary share, payable to shareholders on Tuesday, 23 March 2010. The last day to trade cum dividend will be Friday, 12 March 2010. As from Monday, 15 March 2010, all trading of Shoprite Holdings Ltd shares will take place ex dividend. The record date is Friday, 19 March 2010. Share certificates may not be dematerialised or rematerialised between Monday, 15 March 2010, and Friday, 19 March 2010, both days inclusive.

 

ACCOUNTABILITY

These condensed consolidated interim results have been prepared in accordance with International Financial Reporting Standards (“IFRS”), IAS 34: Interim Reporting, and Schedule 4 of the South African Companies Act (Act no 61 of 1973), as amended. The accounting policies are consistent with those used in the annual financial statements for the financial period ended June 2009 with the following exceptions.

The Group adopted the revised IAS 1, Presentation of Financial Statements, IFRS 8, Operating Segments and Circular 3/2009 on Headline Earnings during the period under review. The presentation of the financial statements and operating segment disclosures have been changed according to the changes in IAS 1 and IFRS 8 respectively, with no adjustment necessary on the adoption of Circular 3/2009.

PROSPECTS

Management accepts that due to the depth of the recession, the recovery of the economy will be a slow process. Although there are early signs of recovery in certain sectors, past experience has shown that food retailing is frequently the last to benefit from any recovery. Although little change in market conditions is therefore expected, management is confident that the Group will be able to maintain its position as market leader.

By order of the Board

CH Wiese	JW Basson
Chairman	Chief executive

Cape Town
22 February 2010