Investor Centre » Preliminary Reporting

SHOPRITE HOLDINGS: PRELIMINARY RESULTS FOR THE 53 WEEKS ENDED JUNE 2010

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 18,7% to R3,490 billion.
• Turnover increased 13,6% - from R59,319 billion to R67,402 billion. 
• Diluted headline earnings per share rose 15,6% to 451,6 cents. 
• Dividend per share declared 147,0 cents (2009: 130,0 cents) an increase of 13,1%.

Whitey Basson, chief executive, commented:

During the period under review the Group continued to build on its historical price positioning which  is to consistently offer low prices on the most important basic foods. By sticking to these principles,  the Group was able not only to retain the loyalty and support of customers across the spectrum, but  also to extend its customer base. In doing so it outperformed the rest of the sector and grew market  share further to 32,6%. By controlling costs in all areas of the business and obtaining  further efficiencies  from its investment in systems and logistics infrastructure, the Group managed to increase its trading margin from 4,96% to 5,18%. Although the after-effects of the recession will be felt for a long time to come, the Group is investing heavily for the recovery when it comes. The Group envisages opening 85 new stores in the new financial year and it will invest more than R3 billion over the next four years in its systems and logistics infrastructure. In addition to the added investment in bricks and mortar, the Group has increased expenditure on training and recruitment and expect to create an estimated additional 5 700 job opportunities during the next financial year.

23 August 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
South African consumers remained price sensitive due to the high rate of unemployment and personal debt. The benefits of the substantial drop in food inflation and the highly competitive prices of imported durable goods were largely offset by the sharp rise in the cost of living expenses across a broad spectrum, from energy and transport costs to municipal rates and taxes. The Soccer World Cup, coming at the end of the Group’s reporting period, engendered in South Africans an invigorating sense of optimism in the future of the country although the event as such did not have a noticeable effect on food retailing. Tumbling internal food inflation at 0,2% in the latter half of the year brought prices back to what they were a year ago. While positive for consumers, especially those in lower income groups, the virtual absence of food inflation placed pressure on food retailers in a market of suppressed sales and escalating costs.

COMMENTS ON THE RESULTS

Statement of Comprehensive Income

Total turnover
Total turnover increased by 13,6% from R59,319 billion to R67,402 billion for the period under review (11,1% in the case of 52 weeks). This must be seen in relation to the drop in internal food inflation from 15,8% in 2009 to 2,2%.

Expenses
The 18,7% increase in trading profit compared to a turnover that rose 13,6% is due to a combination of controlling costs in all areas of the business, solid customer growth, further efficiencies in the systems and logistics infrastructure and stringent controls that reduced stock losses due to theft.

Trading margin
The trading margin increased from 4,96% to its highest level of 5,18% and reflects the efficiencies that management brought to bear during the reporting period.

Exchange rate losses
During the year the strong rand prevailed - while the currencies of some of the countries in Africa where the Group does business weakened against the US dollar, the rand held firm. The result was a currency loss of R77,8 million compared to a currency profit of R3,0 million in the previous financial year.

Finance cost and interest received
The decrease in net interest received was due to the reduction in interest rates as well as the increase in capital expenditure.

Statement of Financial Position

Property, plant and equipment
The increase is due to the investment in a net 87 new stores, vacant land purchased for strategic purposes as well as normal replacements.

Cash and cash equivalents
This item should be seen in conjunction with bank overdrafts and current liabilities. The reduction in cash at balance sheet date is mainly due to certain creditors that were paid before year-end in the current year as a result of closing after 30 June, whereas they were paid after year-end in the previous year. In addition, the Group spent R2,5 billion on capital expenditure during the financial year under review.

Intangible assets
These assets increased due to the Group’s continued investment in new SAP software and the purchase of Transfarm, a drug wholesaler and distributor.

OPERATIONAL REVIEW

Under challenging conditions all the segments showed satisfactory turnover growth for the 53-week reporting period while, with the exception of the Furniture Division, all also reported increased profitability. All three supermarket brands, the core of the Group’s business, increased market share. To add to shoppers’ convenience the Group, without deviating from its primary function as a food retailer, continued to add to its in-store services and, in doing so, turned each of the new services into growing profit centres.

 

Supermarkets RSA
Guided by their need for value at low prices, consumers turned to the Group’s three supermarket chains in increasing numbers. According to the most recent AMPS figures, 60% of the country’s population now shop at Group supermarkets. The segment grew sales by 14,6% while the total South African food retailing market increased by 9,6%. This produced turnover of R53,367 billion for the period compared to R46,551 billion in the 2009 financial year and trading profit was 19,6% higher at R2,755 billion. RSA supermarkets’ results enabled the Group to increase market share for the year from 31,4% to 32,6%, the highest of all South African supermarket groups, according to the revised VAT inclusive information now used by Nielsen.

In the 53-week period, Shoprite found itself ideally positioned to benefit from a declining market. Adding a net 11 stores during the year, it increased total turnover by 13,5%. The number of customer transactions increased by 6,4% while the value per transaction was up 6,6%.

Due to its successful repositioning for higher-income consumers Checkers increased turnover by 13,5%. It grew the number of customer transactions by 5,5% and the value per transaction by 7,5% - the highest of the three chains.

The small-format Usave chain experienced a year of exceptional growth, opening new stores at a rate of almost one a week. It ended the year with a net 39 new outlets which enabled it to increase turnover by 33,5% and its customer count by 36,2%. Due to the heavy reliance on its basket of basic commodities, of which the prices in some instances dropped to 30% below what it was a year ago, the value per transaction was 2,0% below last year.

Supermarkets Non-RSA
In constant currency terms, the division grew turnover by 18,0% in a low inflationary environment while contributing R7,164 billion to Group turnover after conversion to rand. Due to the strength of the rand relative to the US dollar and the weakening of most African currencies in which the Group trades, this translated into a turnover decline of 2,1% in rand terms compared to the previous year. Growth in store numbers slowed due to a lack of foreign investment in property development in Africa. As a consequence, a net four supermarkets were opened during the reporting period to bring the number of supermarkets outside South Africa to 124. The pace of new store openings is expected to quicken in the new financial year with a total of 13 outlets being planned.

Furniture
Spending on durable goods remained a low priority for most consumers. After an acceptable first half, the market collapsed over the first three months after Christmas before recovering during the next quarter. Although sales increased across the board, the momentum was provided by the Soccer World Cup fuelling a demand for latest technology television sets. This countrywide spurt in sales enabled the segment to report total turnover growth of 16,7% to R3,003 billion for the full period with sales in existing stores up 10,9%. The strongest turnover growth was reported by OK Furniture at 17,3%, which targets middle- to lower income consumers. This growth was achieved in a mostly deflationary environment and in a fiercely contested market. To achieve turnover growth under these conditions, margins were reduced with a consequent negative impact on its trading profit which dropped to R131,2 million (2009: R176,8 million). During the year a net 16 new stores were opened to bring the total number of outlets to 280. 

Other operating segments
These include the results of the OK Franchise Division, MediRite and Transfarm, as well as Computicket. Their combined turnover increased by 34,4% to R3,869 billion and their trading profit by 155,0% to R118,2 million.

As in the rest of the business, the turnover of the OK Franchise Division, no longer bolstered by high food inflation, slowed to 8,9%. Strict operating controls and careful management of resources generated an acceptable trading profit. It ended the period with 276 members (2009: 265 members).

The MediRite chain of in-store pharmacies, located within the Group’s supermarkets and hyper stores increasingly placed its in-store pharmacies in previously disadvantaged areas where healthcare services are limited and grew turnover strongly with a pricing model which is one of the lowest in the industry. The division recorded growth on existing business of 35% while total turnover increased by 60% due to the opening of 23 new pharmacies that brought the total to 104. Effective 24 December 2009 the Group acquired 100% of the Transfarm group, a pharmaceutical wholesaler, thereby greatly improving and securing its supply chain. The consideration paid was R190 million and the fair value of the net assets acquired was R114,1 million.

Computicket, operating from all Shoprite and Checkers outlets, continued its strong income growth despite the recession. To enable it to undertake a greater number of transactions simultaneously, a substantial investment was made in its supporting technology infrastructure.

GROUP PROSPECTS AND OUTLOOK
Management does not expect market conditions to change markedly in the months ahead as the country’s economic recovery is expected to remain lacking real momentum. With most of the country’s major infrastructural projects completed, job losses are expected to continue. Rising input costs are expected to impact food inflation which is bound to start rising in the second half of the new financial year. However, the Group expects to continue growing turnover and trading profit at comparable levels and to this end continues to invest in staff development, new stores and infrastructural capabilities.

CORPORATE GOVERNANCE
The Code of Practices as set out in the King Report on Corporate Governance for South Africa 2002 (King II) was effective until 28 February 2010. The board is of the opinion that Shoprite Holdings complied with and applied all the significant and appropriate requirements incorporated in King II and the JSE Listings Requirements.

The King Code of Governance Principles for South Africa 2009 (King III) took effect from 1 March 2010.
Where appropriate for the Group, the necessary changes to our governance policies and practices will be made. If any principles or practices are viewed to be inappropriate for the Group, the reason for not implementing or not applying with King III’s recommendation will be disclosed. Shoprite Holdings will report on the application of King III in its report for the financial year ended 30 June 2011.

DIVIDEND No. 123
The Board has declared a final dividend of 147,0 cents (2009: 130,0 cents) a share, payable to shareholders on Monday, 20 September 2010. This brings the total dividend for the year to 227,0 cents per ordinary share (2009: 200,0 cents). The last day to trade cum dividend will be Friday, 10 September 2010. As from Monday, 13 September 2010, all trading of Shoprite Holdings Ltd shares will take place ex dividend. The record date is Friday, 17 September 2010. Share certificates may not be dematerialised or re-materialised between Monday, 13 September 2010, and Friday, 17 September 2010, both days inclusive.

AUDITOR'S REVIEW OPINION
The condensed consolidated preliminary results for the year ended June 2010 have been reviewed by PricewaterhouseCoopers Inc. The auditors' unqualified review opinion is available for inspection at the Company's registered office.

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 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.

Sponsors

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 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


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

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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