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SHOPRITE HOLDINGS LIMITED
(Reg. No. 1936/007721/06)
(ISIN: ZAE 000012084)
(JSE Share code: SHP)
(NSX Share code: SRH)
(LuSE Share code: SHOPRITE)
("the Group")
Key information
- Trading profit was up 27,9% to R717,3 million.
- Turnover increased 14,9% - from R16,621 billion to R19,105 billion.
- Non-RSA supermarkets achieved 28,0% sales growth.
- Diluted headline earnings per share from continued operations rose 26,0% to 82,8 cents.
- Dividend per share declared increased 29,6% to 35,0 cents.
Whitey Basson, chief executive, commented:
Management is satisfied with the growth achieved in the first six months of the 2007 financial year, especially as this was achieved despite 12 weeks of industrial action that affected, in particular, the operations of the Shoprite brand. The Group also managed to substantially recoup the market share lost
during those turbulent times. Although our primary business remains food retailing, our offering spans an ever-increasing range that also encompasses furniture stores, pharmacies, liquor outlets, consumer
convenience services and the country's most extensive booking facilities for theatre and entertainment.
20 February 2007
Enquiries:
Shoprite Holdings Limited Tel: (021) 980 4000
Whitey Basson, chief executive
Carel Goosen, deputy managing director
De Kock Communications Tel: (021) 422 2690
Ben de Kock 076 390 7725
Operating environment
Despite interest rates edging up consumer spending remained high with no noticeable change in spending patterns in the food retail sector. The rapidly expanding new middle class with its growing disposable income remains the single most powerful driver of retail growth in South Africa, boosted by the more than half a million new jobs that came on stream in the previous year. Credit is still widely available to consumers and the swing away from cash is only now starting to stabilise in, for instance, the durable and semi-durable market. The prices of most home entertainment products are still subject to
deflation. On the other hand food inflation, in categories such as meat products, rose sharply, averaging 8,0% for the period under review as against 2,8% in the corresponding period in 2005. The Group's own internal inflation rate rose to 5,6% in the review period from 2,5% in 2005.
Comments on the results
Income statement
Total turnover
Total turnover increased by 14,9% from R16,621 billion to R19,105 billion. The negative impact of the extended industrial action was countered by rising food inflation and the turnover generated by the Group's net gain of 40 new stores during the period.
Gross profit
Gross profit was boosted by increased turnover in the higher margin perishable foods and service departments as well as by a larger contribution from non-food sales to total turnover.
Expenses
Overhead expenses were well managed and kept within budgeted parameters.
Trading profit
Given the strong growth in turnover, the increased margins achieved and the strictly contained overhead costs, trading profit advanced 27,9%.
Trading margin
The trading margin of 3,8% was higher than a year ago and is the highest yet recorded by the Group. It is a function of the growth in gross profit and the slower increase in overhead costs, supported by an improved performance of the Group's non-RSA operations.
Interest received and finance costs
Net interest income was almost unchanged due to the investment in new stores.
Exchange rate differences
The rand's slight weakening against the US dollar and other currency fluctuations during the six months resulted in a forex gain of R19,5 million as against a forex loss of R28,7 million in the corresponding period.
Income of a capital nature
The income of a capital nature (in previous years referred to as exceptional items) in the income statement of R21,8 million relates mainly to profit achieved on the sale of some properties.
Dividend declared
The Board declared an interim dividend of 35,0 cents per ordinary share (2006: 27,0 cents).
Balance sheet
Intangible assets
The increase in intangible assets relates mainly to the investment in the Group's new back-office system.
Inventories
The increase of 12,5% in inventory to R4,074 billion was mainly the result of provisioning a net of 40 new supermarkets opened during the reporting period. Management also took a strategic decision to buy forward aggressively for the 2007 Back to School campaign and to avoid out-of-stock situations over the
festive season due to reduced supplier services during that period. This decision was vindicated by the strong surge in turnover during December and since the start of 2007.
Operational review
The Group as a whole performed well during the period under review. It recorded an increase of 27,9% in trading profit to R717,3 million (2006: R560,9 million). It is increasingly benefiting from its decision to position its brands as chains of destination stores offering consumers higher levels of convenience, and the Group's operations now include a growing number of in-store pharmacies as well as Money Market kiosks that provide an extensive range of consumer convenience services as well as booking facilities for
theatre and sporting events countrywide. These additional services play an important role in bringing growing numbers of consumers into our stores.
The Group's core target market was not materially affected by the rise in interest rates and consumer spending continued unabated.
RSA supermarkets
The Group's supermarket operation in South Africa, encompassing three chains - Shoprite, Checkers and Usave - forms the core of the business and represents 79,1% of total turnover. Management is satisfied with the performance of this division which grew turnover by 13,9% to R15,111 billion. The number of
customer transactions increased 6,1% while growth in basket size amounted to 7,3%. Market share lost during the industrial action in the review period was regained to a large extent by December. The Group is increasingly being offered space on a preferential basis in new growth nodes and thus is able to position
new stores in the right locations. However, management believes the slower growth on existing business confirms its conviction that the market is nearing saturation.
Shoprite
Shoprite, by far the largest of the three main brands and recently named South Africa's number one retail brand in the annual Sunday Times/Markinor Top Brand survey, increased turnover by 11,8% despite being hardest hit by the industrial action referred to earlier. It remains the preferred destination of first-time
home-owners as well as of the rapidly expanding middle class. To satisfy the aspirations of all these consumers Shoprite recently completed an extensive store repositioning programme. During the review period Shoprite increased the number of customer transactions by 4,5% and grew basket size by 6,8%.
Checkers
Checkers is positioning itself more strongly in the higher-income sector and the differentiation between Shoprite and Checkers customers has grown to the point where cannibalisation has been virtually eliminated. The differentiation is mainly in the area of lifestyle while much attention is also being paid to
improving customer relations and service delivery. Consumers are responding with increasing support. In the six months to end December, Checkers boosted turnover by 16,1%. It increased the number of customer transactions by 8,6% and basket size by 6,9% in its 137 outlets. Since 2005 it has grown its LSM 8 to 10 customer base by 14%.
Usave
This small-format, no-frills discounter of primarily hard groceries substantially increased its acceptance across the consumer spectrum. Management continues to refine and expand the range. Usave's format allows it to establish outlets in areas too small for fullscale supermarkets, thereby promoting the
Group's penetration of the market. Its primary growth is therefore taking place mostly in rural areas and smaller trading nodes.
Operations outside South Africa
The Group's investments in Africa are increasingly paying off as it grows and stabilises its presence in the 16 countries in which it operates outside the RSA. All these countries improved on past contributions and together reported turnover growth of 28,0%. The Group's first supermarket in Lagos, Nigeria,
performed well in the first year of operation while its franchise store in Mumbai in India reported substantial increases in turnover and customer numbers. The weakening of the rand assisted exports into Africa at acceptable margins while trading was enhanced by the stability of most major African
currencies.
OK Franchise
This division regained its momentum by growing its member base. During the period under review it gained 24 new accounts as part of an intensive campaign to expand its membership base. To balance its strong rural presence, the membership drive is primarily aimed at strengthening the urban visibility of
its three brands OK Grocer, OK Foods and OK Minimark. During the period under review the division opened its first liquor outlet, under the name Enjoy.
Furniture
Consumer spending was particularly evident in the durable and semi-durable markets, enabling the Group's furniture division to maintain sales growth of 14,2% in an intensely competitive environment, particularly in the appliances and home entertainment sectors. Margins remained under pressure, but were maintained with the help of effective cost control and stock management systems and the Division reported a profit increase of 14,8%. Like the rest of the retail furniture sector, the division continued to trade in an environment of negative price inflation. The swing to cash sales in the business has started
to stabilise despite credit remaining freely available pending the provisions of the National Credit Act becoming fully operational in June 2007.
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 116
The Board has declared an interim dividend of 35,0 cents (2006: 27,0 cents) per ordinary share, payable to shareholders on Monday, 19 March 2007. The last day to trade cum dividend will be Friday, 9 March 2007. As from Monday, 12 March 2007, all trading of Shoprite Holdings Ltd shares will take place ex dividend. The record date is Friday, 16 March 2007. Share certificates may not be dematerialised or rematerialised between Monday, 12 March 2007, and Friday, 16 March 2007, 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 2006. Comparative information for the six months ended December 2005 was adjusted to reflect the recalculation of the impact of hyperinflationary economies on the Group's results. This recalculation was done in line with the final review of the effect of hyperinflation on the Group's results for the 12 months ended June 2006. This adjustment had no material impact on the Group's earnings.
Group prospects and outlook
The Board expects the economic factors that influenced the Group's performance in the first half of the year to continue largely unchanged in the second half.
By order of the Board
C H Wiese
Chairman
J W Basson
Chief executive
19 February 2007
Directorate and administration
Executive directors: JW Basson (chief executive), CG Goosen (deputy managing
director), B Harisunker, AE Karp, EL Nel, AN van Zyl, BR Weyers
Non-executive directors: CH Wiese (chairman), JJ Fouche, TRP Hlongwane,
JA Louw, JF Malherbe, JG Rademeyer
Alternate directors: JAL Basson, M Bosman, PC Engelbrecht, JD Wiese
Company secretary: AN van Zyl
Registered office: Cnr William Dabs and Old Paarl Roads, Brackenfell, 7560,
South Africa. PO Box 215, Brackenfell, 7561, South Africa •
Telephone: +27 (0) 21 980 4000 •Facsimile: +27 (0) 21 980 4050
Transfer secretaries
South Africa: Computershare Investor Services 2004 (Pty) Ltd, PO Box 61051,
Marshalltown, 2107, South Africa • Telephone: +27 (0)11 370 5000 • Facsimile:
+27 (0)11 688 5238 • Website: www.computershare.com
Namibia: Transfer Secretaries (Pty) Ltd, PO Box 2401, Windhoek, Namibia
• Telephone: +264 (0)61 227 647 • Facsimile: +264 (0)61 248 531
Zambia: Lewis Nathan Advocates, PO Box 37268, Lusaka, Zambia
• Telephone: +260 (0)1 223 174 • Facsimile: +260 (0)1 229 868
Sponsors
South Africa: Nedbank Capital, PO Box 1144, Johannesburg, 2000, South Africa
• Telephone: +27 (0)11 295 8602 • Facsimile: +27 (0)11 294 8602
• Website: www.nedbank.co.za
Namibia: Old Mutual Investments Services (Pty) Ltd, PO Box 25549, Windhoek,
Namibia
• Telephone: +264 (0)61 299 3527 • Facsimile: +264 (0)61 299 3528
Zambia: Lewis Nathan Advocates, PO Box 37268, Lusaka, Zambia
• Telephone: +260 (0)1 223 174 • Facsimile: +260 (0)1 229 868
Auditors: PricewaterhouseCoopers Incorporated, PO Box 2799, Cape Town, 8000,
South Africa.
• Telephone: +27 (0)21 529 2000 • Facsimile: +27 (0)21 529 3300
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