Investor Centre » Preliminary Reporting

SHOPRITE HOLDINGS: PRELIMINARY RESULTS FOR THE 52 WEEKS ENDED JUNE 2011

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 14,2% to R3,987 billion.
• Turnover increased 7,3% - from R67,402 billion to R72,298 billion. 
• Diluted headline earnings per share rose 12,4% to 507,6 cents. 
• Dividend per share declared 165 cents (2010: 147cents) an increase of 12,2%.

Whitey Basson, chief executive, commented:

In viewing the Group’s results in the year to June 2011, it has to be noted that it was a 52 week reporting period compared to the corresponding period of 2010, which consisted of 53 weeks. An extra week has a material impact on sales and profitability. In a difficult trading period for the food retail sector, the Group increased total turnover by 7,3% to R72,298 billion, compared to the previous year, but if the additional week of 2010 is disregarded, turnover growth was 9,7%. In evaluating these results it must also be borne in mind that during the 2011 reporting period, internal food inflation averaged -0,1% compared to 2,2% during the corresponding 12 months and against an official food inflation rate of 3,2%. On the turnover growth of 7,3% the Group achieved a trading profit growth of 14,2% due to stringent control over the rise in operating costs, thereby increasing the trading margin to 5,5%.
22 August 2011

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 business environment during the reporting period presented many challenges to the retail sector. Against the background of the lacklustre performance of the economy and the continuing increase in unemployment, the disposable income of consumers came under increased pressure from high household debt and the surging cost of essential services. Although the sale of certain durable goods saw a resurgence as more affluent consumers took advantage of more disposable income, spending on fast-moving consumer goods remained depressed with few factors present that could lead to an improvement in the short to medium term.

COMMENTS ON THE RESULTS

Statement of Comprehensive Income

Total turnover
For the 12 months to June 2011, a period of 52 weeks, the Group increased total turnover by 7,3% to R72,298 billion. This is compared to the corresponding 12 months of 2010 which consisted of an extra week. Turnover increased by 9,7% if the extra week is excluded. During the 2011 reporting period, internal food inflation averaged -0,1% compared to 2,2% in the corresponding 12 months.

Expenses
Depreciation and amortisation grew 11,2% to R933,6 million due mainly to the Group’s investment in new stores and related information technology infrastructure. Similarly, the increase of 9,3% in staff costs to R5,762 billion was mainly due to the new stores opened and the subsequent creation of just over 7 000 new jobs.

Trading margin
The trading margin at 5,5% was higher than in the corresponding period (5,2%) and reflects the efficiencies achieved by management and the benefits of the Group’s continuing investment in infrastructure.

Exchange rate losses
The exchange rate loss reduced from R77,8 million to R446 000 due to the rand strengthening less in the period under review against the currencies of the countries outside South Africa where it does business.

Finance cost and interest received
The move from net interest received to net interest paid was due to the increase in capital expenditure on new stores, information technology and expansion of the distribution centres.

Statement of financial position

Property, plant and equipment and intangible assets
The increase is due to the investment in 78 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 reduction in cash at balance sheet date is due to certain creditors being paid before balance sheet date in the current year, whereas they were paid after balance sheet date in the previous year. In addition, capital expenditure during the year was R3 billion.

OPERATIONAL REVIEW

Price competition amongst food retailers in a depressed South African market remained fierce. In this climate all the divisions of the Group, with the exception of the Furniture Division, maintained acceptable levels of growth and profitability. The supermarket non-RSA division reported sound growth, although this is negated by the continued strength of the rand during the review period.  

Supermarkets RSA
The Group’s core business, its South African supermarket division, reported positive sales growth of 7,2% (52 weeks: 9,8%) from R53,367 billion to R57,214 billion. This produced a trading profit of R3,302 billion (2010: R2,755 billion). Wherever possible, cost savings were passed on to consumers who as a result could buy items from more than 40% of the Group’s product categories for the same or lower price than during the previous reporting period.

The three chains have been designed to complement each other in covering the full local LSM spectrum. Shoprite, the largest of the three, remains the dominant player in the middle to lower income markets. It expanded its presence with full-service supermarkets especially in economically disadvantaged residential areas and continues to face fierce competition from an increasing number of participants. It opened a net 11 new stores to bring its total to 331.


Checkers entrenched its position further in the upper-income consumer market and 53% of its customers now fall within LSM 8-10. It is increasingly becoming the preferred anchor tenant for new shopping centre developments countrywide. It added a net 15 new stores and now trades from 154 supermarkets and 26 Hypers.

Usave’s low cost structures enable it to consistently sell comparable products at lower prices than its competitors enabling it to increase turnover. Its strategic role in an increasingly competitive local market has grown during the reporting period. It will be intensifying its store opening programme in the new financial year.

Supermarkets Non-RSA
Whilst a rand that remained strong, as well as one week less in the reporting period resulted in reduced profitability, the trading margin achieved was close to that of the South African business. When converted to rand, the turnover of the 135 outlets the Group operates outside the borders of South Africa increased by 2,1% compared to the previous year (4,5% on a 52-week basis). At constant currencies, these operations grew turnover by 10,2% (12,8% on a 52-week basis).The Group continues to expand its operations into Africa and has made great strides in establishing a presence across the continent.

Furniture
The Furniture Division, which operates three chains – OK Furniture, House & Home and OK Power Express - experienced a difficult trading year, contending with deflation of 15,7% and even higher in certain product categories. It increased turnover by 1,9% (52 weeks: 4,0%) to R3,060 billion despite these adverse conditions and continued to grow strongly in terms of new outlets, ending the reporting period with 300 stores of which 30 are outside the borders of South Africa. 

Other operating segments
The year under review was also a trying time for most of the OK Franchise Division’s (OKFD) members who trade all over South Africa and Namibia as well as in Botswana. It increased turnover by 7,8% while trading profit increased due to overhead costs lagging the growth in income. A major development during the reporting period was the offer made for Metcash’s franchise division which will provide OKFD with a further platform to grow its business and franchisees, both in numbers and in turnover. The transaction was ratified by the Competition Authority after year-end.

During the reporting period MediRite increased its number of outlets from 104 to 121 and is budgeting for another 22 in the new financial year. Its pharmacies enjoy secure supply lines from its fellow subsidiary, Transfarm Pharmaceutical Wholesalers, with branches now in Cape Town as well as Gauteng, which now provides 93% of their total product range and offers the opportunity of direct purchases from international markets. They play an important role in providing increased access to prescription and self-medicating remedies for economically disadvantaged communities in which the Group’s supermarkets are located.

Computicket, which operates from all Group supermarkets as well as from a number of standalone outlets and some stores in the furniture division, maintained its pre-eminent position in the market and showed strong growth in both turnover and trading profit. 

GROUP PROSPECTS AND OUTLOOK
The board does not foresee present market conditions to change materially in the new financial year. Food inflation is expected to rise further although prices are likely to be held in check by the ongoing competition amongst the major food retailers. Competition is expected to further intensify. However, we believe the Group is well equipped to deal with the challenges that will confront it in the new financial year.

CORPORATE GOVERNANCE
The Group adheres to the principles embodied in the King Code of Governance Principles for South Africa 2009 (“the Code”). The Group complies with the prescriptive requirements incorporated in the Code and the Listings Requirements of the JSE Ltd, as well as legislation applicable to public listed companies in South Africa.

DIVIDEND NO 125
The board has declared a final dividend of 165,0 cents (2010: 147,0 cents) per ordinary share, payable to shareholders on Monday, 19 September 2011. This brings the total dividend for the year to 253,0 cents per ordinary share (2010: 227,0 cents). The last day to trade cum dividend will be Friday, 9 September 2011. As from Monday, 12 September 2011, all trading of Shoprite Holdings Ltd shares will take place ex dividend. The record date is Friday, 16 September 2011. Share certificates may not be dematerialised or rematerialised between Monday, 12 September 2011, and Friday, 16 September 2011, 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 the South African Companies Act (Act no 71 of 2008), as amended. The accounting policies are consistent with those used in the annual financial statements for the financial period ended June 2010.

AUDITORS REVIEW OPINION
The condensed consolidated preliminary results for the year ended June 2011 have been reviewed by PricewaterhouseCoopers Inc. The auditors’ unqualified review opinion is available for inspection at the Company’s registered office.

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 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 Solution Limited, Plot 5 Katemo Road, Rhodes Park, Zambia • Telephone: +260 (0)211 256 284/5 • Facsimile: +260 (0)211 256 294

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

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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