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SHOPRITE HOLDINGS: PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2009

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 up 28,1% to R2,941 billion.
• Turnover up 24,5% – from R47,652 billion to R59,319 billion.
• Diluted headline earnings per share up 30,9% to 390,8 cents.
• Final dividend per share declared: 130,0 cents.
• Further workforce appointments: 11 000

Whitey Basson, chief executive, commented:

The Group has followed up the excellent results of 2008 with equally good results in 2009 despite a constantly weakening economy. Turnover growth of 24,5% comfortably exceeded food inflation and enabled the Group to increase market share by 1,5%, the biggest gain shown by any food retailer during this period, to 30%. This strong growth required the appointment of a further 11 000 staff members. We continued to sacrifice gross margin to build turnover and to assist our beleaguered customers we put approximately R356 million back into their pockets during the reporting period. Through increased efficiency in managing the cost base, we Succeeded in increasing our trading margin from 4,82% to 4,96%. The continued success of the Group in an intensely contested retail environment is the result of a focused business plan applied consistently over many years by a highly  experienced management team. Central to this business plan is the decision for us to control, to the best of our ability, all aspects of our business. Today we are achieving the benefits of the economies of scale we have accomplished and of our continuous investment in infrastructure and in the development and training of our employees.

24 August 2009

Enquiries:

Shoprite Holdings Limited
Whitey Basson, chief executive
Carel Goosen, deputy managing director
Tel: 021 980 4000

De Kock Communications
Ben de Kock
Tel: 021 422 2690 
Cell: 076 390 7725

OPERATING ENVIRONMENT
The spill over effects of the global credit crisis on the South African economy became more marked in the second half of the year with weakening manufacturing output and increasing unemployment. Higher-income individuals saw their net worth eroded by a sharp drop in investment and property values, while lower-income earners were affected mainly by job losses and the high cost of living. These conditions forced greater austerity on consumers and saw them becoming increasingly price-sensitive. The difficult trading conditions were exacerbated by a worsening security situation. Escalating crime has forced the Group to greatly increase security measures to safeguard our assets and ensure customers shop in a safe environment. 

COMMENTS ON THE RESULTS

Income statement

Total turnover
Total turnover increased by 24,5% from R47,652 billion to R59,319 billion due to an excellent performance from all the Group’s divisions. The growth exceeded internal food inflation, which was higher than the previous financial year.

Gross profit
The Group continued to sacrifice gross profit, especially in respect of staple foods, to increase customer support and assist lower-income earners. As a result, gross margin reduced from 19,9% to 19,3%.

Expenses
Overall, costs were meticulously controlled and grew at a slower rate than turnover. The cost of electricity nevertheless escalated by 35% due to Eskom’s tariff hikes, but also because the shift to fresh and value-added products increases the need for refrigeration, which now accounts for 80% of store energy consumption. The increase of 21,8% in employee benefits resulted primarily from the increase in the staff complement (from 73 000 to 84 000) to support the growth in all areas of the business. Depreciation and amortisation was 26,3% higher due to the net gain of 95 own stores and the ongoing refurbishment of the Group’s 1079 own stores.

Trading margin
The trading margin increased from 4,82% to 4,96% given the greater efficiency with which the business is being managed. It is a factor of the strong growth in turnover which gave rise to a 20,6% increase in gross profit even though the Group reduced gross margin from 19,9% to 19,3%. This, coupled with a slower increase in expenditure of 19,2%, led to an increase in trading profit of 28,1%.

Interest received and finance costs
Net interest received decreased by 15,5% due to lower interest rates, but particularly because of capital expenditure of R1,820 billion and other cashflow items, which was funded out of the Group’s own cash resources.

Dividend declared
The board has declared a final dividend of 130,0 cents per ordinary share to bring the total distribution for the year to 200,0 cents per ordinary share (2008: 155,0 cents), an increase of 29%. 

Balance sheet

Property, plant and equipment
The increase of 19,0% to R5,360 billion was mainly due to refurbishments and new stores opened during the year, the purchase of land and the development of buildings of R347 million, as well as investment in technology of R242 million.

Inventories
The increase of 28,3% in inventory to R6,042 billion is higher than the growth in turnover. The following reasons are the most relevant:

• There was a net gain of 59 supermarkets, while a net 28 furniture stores were opened in the 12 months to end June and had to be provisioned.
• Supplier deliveries continued to be erratic forcing the Group to continue stockpiling certain product ranges to avoid out-of-stock situations in our stores.
• Before the financial year-end, stocks had already been received at the distribution centres for the Checkers chain’s successful Golden Celebration promotion in July.

Cash and cash equivalents
Net cash and cash equivalents were slightly lower at R2,811 billion (2008: R3,136 billion) due to the high capital expenditure referred to earlier.

OPERATIONAL REVIEW

Turnover increased by 24,5% to R59,319 billion while trading profit was 28,1% higher at R2,941 billion, up from R2,297 billion in the corresponding period. All our divisions, with the exception of furniture, produced turnover growth well in excess of 20%. In a market characterised by declining disposable income and increasing pressure on consumers across the spectrum, the Group continued to benefit from our positioning as the country’s leading value-provider in food retailing. Our one-stop shopping concept is increasingly gaining favour with consumers who welcome not having to travel to different venues to conduct their business. Our in-store pharmacies, of which the Group now has 81, are playing an important role in bringing new customers into stores and have promoted sales in the beauty and health departments. Well-stocked liquor stores located near to, or at the entrance to supermarkets have stimulated both wine and liquor sales, while Money Market is constantly extending its range of services to now also include flight bookings, travel packages and hotel reservations. The non-RSA business contributed 13,7% to total turnover. 

RSA supermarkets
The Group’s supermarket operation in South Africa, which includes the Shoprite, Checkers and Usave brands, is its primary business generating 78,5% of total turnover. Despite sales weakening in the second half of the year we still grew ahead of the market for the 12 months to end June by increasing sales by 22,8% to R46,551 billion. As a result the Group made strong gains in market share, growing by 1,5 percentage points to 30%. In the course of the year a record net number of 57 stores were added and the Group now owns and operates 593 supermarkets within the borders of South Africa. Much of the success of our supermarket chains is due to the fact that each of them addresses a separate but complementary target audience. Their clear positioning and unambiguous identities allow management to focus on the specific needs and aspirations of the consumers targeted by each chain and satisfy these through the correct product offering. Together the three chains cover virtually the whole South African consumer spectrum.

Shoprite
With 310 stores in South Africa, the Group’s original brand, which now has 12 more outlets than a year ago, is still by far the biggest of our three chains and continues to be the basis of our operations. It increased turnover by 20,9% to R27,180 billion, representing 58,4% of the RSA supermarkets’ turnover.
Research during May 2009 confirmed that Shoprite best delivers on the most important needs of the majority of shoppers. The number of customers grew by 6,2% as more and more higher-income shoppers became value driven. This enabled the chain to grow its share of the food retail market.

Checkers
With its 154 stores, the chain, which now has nine more outlets than a year ago, increased turnover by 23,1% to R17,7 billion. Checkers supermarkets became South Africa’s fastest-growing food retail chain for the 12 months to end June. Focusing on both price and lifestyle, it has identified a clearly defined audience that allows for carefully targeted marketing. The chain showed a strong increase in consumer support and grew the value per customer transaction by 11,8%. This enabled it to grow its share of the food retail market.

Usave
The small-format, limited-range Usave chain operated 129 outlets at the end of the reporting period, experiencing a net gain of 36 stores. Growth continued to be brisk with turnover increasing by 57,7% due partially to the new stores opened. On a like-for-like basis the growth in turnover was 21,3%. The low cost chain, which stocks mainly basic food lines it sells at highly competitive prices, has become increasingly attractive to price conscious consumers as it manages to be cheaper than most supermarkets in South Africa.

Supermarkets outside South Africa
With credit playing a relatively small role, most countries on the continent were less affected by the global credit crisis than South Africa. The Group’s non-RSA supermarkets grew turnover by 39,9% in rand terms (36,7% on a like-for-like basis) compared to the previous year. Only five new stores were added due to the endemic lack of suitable trading space while three were closed and we now operate 102 stores under mainly the Shoprite and Usave banners. Non-RSA sales constituted 13,6% of our total supermarket turnover. Whereas a weaker rand for the first six months provided us with a substantial price advantage, the situation was reversed in the second six months when the currency strengthened.

OK Franchise
The franchise division made strong gains during the year, growing turnover substantially above food inflation to 26,5%. With overhead costs well under control, the division reported a significantly higher trading profit. It showed a net gain of 13 new members, who not only brought the total number of franchisees to 265, but also increased the stature of its membership base. These members, spread throughout South Africa and four neighbouring countries, benefit in particular from the Group’s buying power in obtaining the best prices. The division continued to exercise rigorous credit control and bad debt provisions remained well within acceptable levels.

Furniture
For the furniture division the 12 months to end June was a challenging time with discounters dropping the prices of appliances and home entertainment products further in an attempt to build turnover through increased unit sales. In this deteriorating trading environment the division managed to raise turnover by 13,9%. The mass-market chains OK Furniture and OK Power Express continued to trade at the same levels as before the introduction of the National Credit Act (NCA) in June 2007, but sales in House & Home remained subdued. A welcome development was an increase in the demand for credit, mainly from traditional House & Home customers. Taking a longer-term view, the division continued its strong expansion drive, opening a net of 28 stores to bring the total to 264 outlets. Of these, 27 are located in the BLSN (Botswana, Lesotho, Namibia and Swaziland) countries and Mozambique and the intention is to move further into Africa.

GROUP PROSPECTS AND OUTLOOK
We expect trading conditions in the new financial year to be challenging. There is as yet no substantial evidence that South Africa is starting to move out of the recession and even if that were to be the case, such a recovery will take time to work through the economy as a whole. We are concerned about the increasing number of unemployed people, now at 9 million, and about the Government’s ability, in the light of lower tax revenues, to continue supporting the poor through social grants to the extent it does at present. Food inflation is also coming down rapidly and reached 7,4% in July. Nevertheless, we believe that, because of our value positioning, the Group is still better placed than most to weather the present market conditions and to, once again, achieve satisfactory results.

By order of the Board

17 February 2009

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. 120
The Board has declared a final dividend of 130,0 cents (2008: 106,0 cents) per share, payable to shareholders on Monday, 21 September 2009. This brings the total dividend for the year to 200,0 cents per ordinary share (2008: 155,0 cents). The last day to trade cum dividend will be Friday, 11 September 2009. As from Monday, 14 September 2009 all trading of Shoprite Holdings Ltd shares will take place ex dividend. The record date is Friday, 18 September 2009. Share certificates may not be dematerialised or rematerialised between Monday, 14 September 2009, and Friday, 18 September 2009, both days inclusive.

ACCOUNTABILITY
These condensed consolidated preliminary 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 2008.

AUDITORS' REVIEW OPINION
The condensed consolidated preliminary results for the year ended June 2009 have been reviewed by PricewaterhouseCoopers Inc. The auditors’ unqualified review opinion is available for inspection at the Company’s registered office

DIRECTORATE AND ADMINISTRATION

Executive directors
JW Basson (chief executive), CG Goosen (deputy managing director), B Harisunker, AE Karp, EL Nel, BR Weyers

Non-executive directors
CH Wiese (chairman), TRP Hlongwane, JA Louw, JF Malherbe, JG Rademeyer

Alternate directors
JAL Basson, M Bosman, PC Engelbrecht, JD Wiese

Company secretary
PG du Preez

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.
Website: www.shopriteholdings.co.za

Transfer secretaries

South Africa: Computershare Investor Services (Pty) Ltd, PO Box 61051, Marshalltown, 2107, South Africa
Telephone: +27 (0)11 370 5000 • Facsimile: +27 (0)11 688 5248 • 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)211 262 009 • Facsimile: +260 (0)211 261 997

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 Investment Group (Namibia) (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)211 262 009 • Facsimile: +260 (0)211 261 997

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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