Investor Centre » Interim Reporting

SHOPRITE HOLDINGS: UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED DECEMBER 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 was up 17,5% to R1,656 billion.
• Turnover increased 11,9% from R29,604 billion to R33,139 billion. 
• Diluted headline earnings per share rose 13,3% to 208,5 cents. 
• Dividend per share declared: 80,0 cents (2009: 70,0 cents) – an increase of 14,3%.

Whitey Basson, chief executive, commented:

In a market in which trading conditions remained difficult, the Group performed satisfactorily and continued to outperform the rest of the sector. Turnover growth slowed in line with lower internal food inflation, which during the reporting period averaged 4,2% (2009: 16,9%). The supermarket operations in South Africa - the core of the Group’s business – was the best-performing division while the turnover of Supermarkets Non-RSA slowed due to the impact of the global recession on these countries. The strengthening of the rand against their respective currencies further impacted on the rand results reported. The Group continued to enjoy increased support from cash-strapped consumers across all major chains with core market share increasing by 1,2% to 29,8%. The Furniture Division reported good results taking into consideration the highly competitive environment in which it operates. Due to efficient management of its cost base the Group recorded a trading margin of 5,0% against the 4,8% achieved a year ago.

22 February 2010

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 operating environment remained extremely challenging, with the increase in unemployment putting a further damper on the disposable income of particularly middle and lower-income earners. At the other end of the scale, substantially lower interest rates eased the debt burden on many while at the same time putting the investment income of particularly the older generation under pressure. Despite the fact that the after-effects of the global recession will still be felt for a long time to come, the first tentative signs of a recovery at the end of the reporting period had somewhat buoyed consumers’ outlook.

COMMENTS ON THE RESULTS

Income statement

Total turnover
Total turnover increased by 11,9% from R29,604 billion to R33,139 billion. The slower growth must be seen in relation to the drop in internal food inflation from 16,9% in December 2008 to 4,2%. In addition the stronger rand had a major effect on the translation of Non-RSA sales to rand, with Supermarkets
Non-RSA reflecting a 4,3% decline in sales.

Trading margin
The trading margin increased from 4,8% to 5,0% and reflects the efficiency with which the business was managed during the reporting period.

Exchange rate differences
The exchange rate loss of R33,6 million (2009: a gain of R26,3 million) is a factor of the strengthening of the rand against the currencies of countries in which the Group trades outside of South Africa.

Interest received and finance cost
The decrease in net interest received was due to the interest rate reductions during the past 12 months, as well as the increase in capital expenditure relating to new stores opened and the settlement of employee share incentive schemes.

Diluted headline earnings
The increase of 13,3% in diluted headline earnings per share is lower than the 17,5% increase in trading profit due to a decrease in net interest received as well as exchange rate losses as detailed above.

OPERATIONAL REVIEW

The Group maintained its position as the country’s leading value provider in the food retailing sector. All the divisions in the Group produced acceptable results, with Supermarkets RSA performing the best. Central to the success of the Group is a business formula that increasingly offers a one-stop shopping experience and experienced management at every level capable of adapting rapidly to changing market conditions. Despite the present recession the Group did not scale down its expansion plans, gaining a net 58 new stores during the six months under review. The Group also continued growing its supporting infrastructure, especially in the areas of supply chain management and information technology, to ensure it serves its customers even better. The Group is proud that it was able to employ 5 000 more people to bring its total staff compliment to 89 000 at the end of the review period.

Supermarkets RSA
The operations of the Shoprite, Checkers and Usave brands inside South Africa reported sales growth of 14,5% while the rest of the South African food retailing market increased by 9%. Customer growth was 6,5% while the size of the basket grew by 7,3%. This produced turnover of R26,303 billion for the period compared to R22,963 billion in the corresponding six months and a trading profit that was 27,5% higher at R1,322 billion.
Shoprite, the Group’s flagship brand, increased the value and number of transactions, thereby confirming it had retained its strong customer gains of the previous 18 months. Its turnover growth was above internal food inflation.
Checkers continued to gain support from its higher LSM target market. It increased value per transaction above the inflation rate, as well as the number of customer transactions.
The small-format Usave chain with its strong focus on growth continued its roll-out in South Africa adding a net 27 new stores to bring its total to 157.

Supermarkets Non-RSA
Due to the appreciation of the rand against the major African currencies, food imports from South Africa became more expensive and nullified the 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. In constant currency terms, however, sales increased by 16,3%. To retain its price competitiveness not all increases brought about by the stronger rand could be passed on to the consumer and gross margin came under pressure, leading to a 22,2% drop in trading profit to R193,2 million. In the 6 months to December, Supermarkets Non-RSA gained a net 4 new stores.

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. Like-for-like sales increased 4,5% compared to 2,4% in the corresponding period. The growth is attributed to a number of factors such as the significant interest rate reductions during the 12 months ending December 2009, the improved rand/US dollar exchange rate which reduced the price of imported goods, and the division’s investment in its store expansion programme. However, an escalation in service and other charges put net margin under pressure and trading profit for the period increased by 2,9% to R104,3 million.

Other operating segments
Other operating segments comprise the results of the OK Franchise Division, MediRite and Computicket. These divisions 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. OK Franchise continued to refine its client base which it grew to 269 members who benefit from the Group’s massive buying power. MediRite, whose pharmacies are located inside Shoprite and Checkers supermarkets, is an important focal point of the Group in extending its range of services for the benefit of consumers. MediRite, which operated 81 pharmacies at the end of the 2009 financial year, continued to expand its footprint and opened 19 outlets during the reporting period. Computicket, by far the country’s biggest ticketing service provider, derives its income from commission earned on ticket sales across the entertainment, travel and leisure spectrums. It continued its strong income growth despite the depressed consumer market.

GROUP PROSPECTS AND OUTLOOK
Management accepts that due to the depth of the recession, the recovery of the economy will also be a slow process. The relatively lower growth in basket size shows consumers are still struggling with the benefits of lower food inflation cancelled out by the rise in unemployment. Although there are early signs of recovery in certain sectors, past experience has shown that while food retailing is often the last to be affected by a downswing in the economic cycle it is also 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.

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.By order of the Board

DIRECTORATE AND ADMINISTRATION

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), 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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