SHOPRITE HOLDINGS: UNAUDITED INTERIM RESULTS FOR THE 6 MONTHS ENDED DECEMBER 2011
SHOPRITE HOLDINGS LIMITED
(Reg. No. 1936/007721/06)
(ISIN: ZAE 000012084)
(JSE Share code: SHP)
(NSX Share code: SRH)
(LuSE Share code: SHOPRITE)
- Trading profit was up 16,7% to R2,164 billion.
- Turnover increased 13,2% - from R36,259 billion to R41,054 billion.
- Headline earnings per share rose 18,6% to 280,8 cents.
Whitey Basson, chief executive, commented:
The Group increased turnover by 13,2% during the period under review and by 15,4% during the second quarter in a contested trading environment. The Group enjoyed particularly good sales in December when turnover increased even further by 17,2%. In doing so the Group remained a highly competitive player in the local food retail sector and has, according to Nielsen’s industry growth reports, further increased its market share. Store sales were supported by an increase in the demand for general merchandise. A contributory factor for this strong performance was the fact that merchandise was once again in stores well before the start of the festive season trading period, enabling the Group to reap the maximum benefit from increased consumer spending. The efficient stocking of stores is made possible by a supply chain which operates at a high level of efficiency and the benefits of the Group’s continuous investment in increasing the capacity for its major distribution centres.
20 February 2012
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
The period under review was one of ongoing slow growth of an economy still recovering from the fall-out of a worldwide recession, as well as unemployment, which has reached 25% in South Africa. The plight of consumers, especially at the lower end of the market, has not changed. They are impacted daily by cost increases on all sides ranging from energy and transport to health and education and as such the shrinking disposable income of shoppers has fired increased competition among food retailers. The Group was to an extent protected against this competition by the size of its store footprint and the efficiency of its infrastructure which enabled it to be highly price competitive without sacrificing profitability.
COMMENTS ON THE RESULTS
Statement of Comprehensive Income
Total turnover grew 13,2% from R36,259 billion to R41,054 billion. Internal inflation was 4,6% compared to the official inflation figure of 5,8%. This compares with growth of 9,4% in the corresponding six months when internal deflation averaged 1,2%. During the period under review the rand remained weak against most non-RSA currencies. This had a supporting effect on the conversion to rand of non-RSA sales, which grew 21,2%.
The increase of 12,9% in staff costs to R3,265 billion is below the growth in turnover of 13,2%. It includes new staff appointed for additional stores opened. Other Expenses grew 19,2%, more than turnover growth, mainly due to the escalation in electricity and other energy costs. If one excludes water and electricity costs, then Other Expenses increased by 13,8%, which was in line with the turnover growth.
The trading margin at 5,3% was higher than in the corresponding period (5,1%) and reflects the increasing efficiencies achieved by, inter alia, the recent expansion of the Group’s supply chain infrastructure.
Exchange rate gains
The Group achieved an exchange rate gain of R27,7 million as against an exchange rate loss of R13,4 million in the corresponding period due to the weakness of the rand against the US dollar and other African currencies. Although it helped make prices of South African merchandise more competitive, it did increase the cost of new outlets and supporting infrastructure elsewhere in Africa.
Finance cost and interest received
The increase in net interest paid was due to the continued high capital expenditure on new stores, information technology infrastructure and distribution centres.
Statement of Financial Position
Property, plant and equipment and intangible assets
The increase is due to the investment in new stores, vacant land purchased for strategic purposes, investment in information technology to support inventory management, as well as normal asset replacements.
Cash and cash equivalents and bank overdrafts
This item should be seen in conjunction with current liabilities. The decrease in net overdraft at balance sheet date is due to certain creditors being paid after balance sheet date in the current year, whereas they had been paid before balance sheet date in the previous year. In addition, the Group spent R3 billion on capital goods during the preceding 12 months.
All the divisions experienced satisfactory growth in turnover and trading profit. Growing the Group’s footprint remained a priority and a net 59 owned stores were opened in the period under review while particular attention was paid to maximising the benefits at operational level of the Group’s increased supply-chain capacity.
The Group’s core business, Supermarkets RSA, grew sales 12,3% from R28,515 billion to R32,031 billion and produced a trading profit of R1,788 billion (2010: R1,530 billion). Strict disciplines throughout the business, together with further supply-chain efficiencies, made it possible to restrict internal food inflation to 5,0% on average against the official food inflation figure of 9,3%. The prices of certain basic food stuffs in particular nevertheless rose steeply. Sales of higher-margin general merchandise items showed healthy growth, particularly during December. The average value per transaction was 7,6% higher.
The flagship Shoprite chain with 339 supermarkets in South Africa, increased sales 11,0% off an already high base. It continued to focus on delivering the lowest prices to continuously strengthen its market positioning, resulting in strong sales for the brand over the festive season in particular. The value-added services, such as money transfers provided through the Group’s Money Market counters, continued to show strong growth despite increased competition in this field.
Checkers, including Checkers Hyper, continued to grow its customer base by 4,6% during the review period, and increased turnover
by 11% and 9,9% on a like-for-like basis. The specialist departments of which the wine department topped the list, continued to be part of its particular appeal for targeted higher-income consumers. It is also constantly extending its offering of well-known international brands such as Starbucks, the world’s best-known coffee brand, which was previously unavailable in South Africa.
Usave now operates 204 stores in South Africa having gained a net 14 outlets in the period under review. It increased sales by 20,9% due to a 10,2% growth in the number of customer transactions and a 9,8% growth in basket size. Usave, selling a limited range of food and non-food products in a no-frills environment, continues to offer customers the lowest prices in the market.
The Group’s non-RSA supermarkets achieved a sales growth of 21,2%, and on a like-for-like basis of 13,9%, due partly to the weakness of the rand against most non-RSA currencies. At constant currencies this represents a rand turnover growth of 16,9% which is partly due to new stores in Nigeria and Angola. The Group now operates 123 stores outside South Africa and is investigating a number of new store locations.
Sales growth of 13,6% was achieved despite continuing difficult trading conditions brought about by the further erosion of consumer disposable income. The turnover growth was generated mainly by the division’s OK Furniture and OK Power Express chains which focus on the middle market. With price deflation averaging 7,4% for the six months, the Division continued its highly competitive pricing policy to increase unit sales and boost turnover in an intensely competitive market.
Other Operating Segments
These include the results of the OK Franchise Division, the pharmacy division as well as Computicket.
The operations of the OK Franchise Division were boosted by the consolidation of the acquired Metcash franchise stores which added 148 stores to its membership base spread throughout the rural areas of South Africa and Namibia. It grew total turnover by 16,7% and by 8,1% on a like-for-like basis and increased profitability as well.
The Group’s pharmacy division consists of MediRite, which at the end of December operated 130 in-store pharmacies in Shoprite and Checkers outlets, as well as Transpharm, a wholesale supplier of pharmaceutical products to both MediRite and external customers. MediRite, which experienced a surge of 25% in the number of prescriptions filled, maintains an ongoing focus on the recruitment of qualified pharmacists to support its expansion.
Computicket, which has extended its network of outlets in supermarkets to include furniture stores, increased its investment in cutting-edge technology to strengthen its position as South Africa’s leading ticketing business. It increased its customer count by 7% and opened its first cross-border outlet in Namibia. The ticketing service is now being piloted in selected OK Franchise member stores.
GROUP PROSPECTS AND OUTLOOK
The board does not expect any material changes to take place in market conditions in the second half of the year as nothing in the economic environment suggests that the pressure on consumers will ease. The Group nevertheless expects to maintain satisfactory growth in turnover and profitability as the benefits of an expanded infrastructure become more apparent.
Due to transitional rules relating to the phasing out of STC (secondary tax on companies) and its replacement with the new Dividends Tax, the board has decided to defer the declaration of an interim dividend until after 1 April 2012, but as soon as reasonably possible thereafter.
These condensed consolidated interim results have been prepared in accordance with International Financial Reporting Standards (“IFRS”), IAS 34: Interim Reporting, the South African Companies Act (Act no 71 of 2008), as amended and the listing requirements of the JSE Limited. The accounting policies are consistent with those used in the annual financial statements for the financial period ended June 2011.
DIRECTORATE AND ADMINISTRATION
Executive directors: JW Basson (chief executive), CG Goosen (deputy managing director), B Harisunker, AE Karp, EL Nel, BR Weyers
Non-executive director: CH Wiese (chairman)
Executive alternate directors: JAL Basson, M Bosman, PC Engelbrecht
Independent non-executive directors: EC Kieswetter, JA Louw, JF Malherbe, JG Rademeyer
Non-executive alternate director : JD Wiese
Company secretary: PG du Preez
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
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 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: ENFIN Solutions Limited, PO Box 320069, Lusaka, Zambia • Telephone: +260 (0)211 256 284/5 • Facsimile: +260 (0)211 256 294
South Africa: Nedbank Capital, PO Box 1144, Johannesburg, 2000, South Africa • Telephone: +27 (0)11 295 8525• Facsimile: +27 (0)11 294 8525 • Website: www.nedbank.co.za
Namibia: Old Mutual Investment Group (Namibia) (Pty) Ltd, PO Box 25549, Windhoek, Namibia • Telephone: +264 (0)61 299 3264 • Facsimile: +264 (0)61 299 3528
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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