Feb 21, 2001
The Shoprite Group of Companies grew turnover ahead of inflation (5,32%) with 6,23% to R10 billion, said managing director Whitey Basson at the announcement of the Group’s financial results for the 6 months ending December 2000. Satisfactory customer growth of 2,5% was negated by an increase in basket spend below that of the average inflation rate. Basson said this reflects the effect of the structural changes in consumer spending, the 14th consecutive quarter of decline in employment and the drop in population growth.
The reduction in uneconomical retail space caused a loss in market share of 0,4%, however, on like-for-like stores the Group gained market share as at the end of December 2000.
Despite the lower than expected turnover growth, the Group’s operating profit for the 6 months rose by 21,2% to R186, 7 million (R154, 1 million). This was achieved through productivity improvements greater than 7% and the containment and reduction of other cost ratios.
Basson said that profit before tax, but after investment income and financing cost after exceptional items, amounted to R224, 5 million, an increase of 18,8% compared to the R189, 1 million achieved during the corresponding period last year.
"The profit after tax amounted to R178, 4 million compared with R152, 3 million during the last 6 months of 1999, representing an increase of 17,1%. In line with new Generally Accepted Accounting Practice, the Group has now capitalised its calculated tax loss retrospectively. As this tax loss is utilised, a notional tax expense is reflected in the results. Actual tax payable amounted to R16 million. Calculated tax losses will still have a positive effect on the Group’s tax liability and cash flow until at least the end of 2002," said Basson.
The headline earnings per share amounted to 26,1 cent per share, an increase of 16,0%. An interim dividend of 9,5 cent (8,5 cent) per share is envisaged to be declared to shareholders. The dividend cover therefore increased marginally from 2,6 times to 2,7 times.
Commenting on the Group’s operations, Basson said that all divisions performed satisfactorily during the period under review with OK Furniture and the Group’s franchise activities contributing the largest percentage growth in turnover.
"OK Furniture is reaching prosperity and we are investigating how best to manage this investment in the future, as we still do not regard it as part of the Shoprite Group’s core business.
The cost of historic bad leases and 164 000 m² of closed space is reducing and is expected to influence profitability until the year 2004.
The operational integration of OK Bazaars has been completed and the Group still awaits final payment from SAB for the outstanding amount".
Elaborating on the Group’s growth, Basson said: "We have to accept that as far as future progress for the Company is concerned, geographical expansion is becoming increasingly difficult as the market in South Africa is steadily reaching saturation point. We see that our newer and smaller formats mainly will render future growth. The group is also set for further advancements in Africa which currently contributes 6,6% to group turnover".
A strategic alliance with the IBL Group in Mauritius saw the Shoprite Group of Companies gaining entry with its brands into yet another foreign market when it acquired 51% of a new development near the capital. The entire project will cover an area of 22 000 m² and will include a Shoprite hypermarket. It is expected to be completed by October 2002.
Last week saw the launch of Shoprite Cairo, the Shoprite Group’s first store in Egypt and ninth country outside of South Africa, where further expansion will be considered based on this store’s future performance.
During the past six months, the Shoprite Group of Companies also opened Shoprite supermarkets in Uganda and Zimbabwe. New outlets will be opened in Malawi and Tanzania, and possibly Angola, during the course of the year.
A new distribution centre covering an area of 54 000 m² is in the process of being erected in the Gauteng area at a cost of some R150 million. It will consolidate 4 of the Group’s current distribution centres in Gauteng, bringing about greater cost efficiencies. This innovative distribution node will also provide infrastructure for exporting and distributing the entire fast moving consumer goods range to outlets in Africa and abroad.
Apart of the strategic repositioning of its brands, Basson said the Group would separate Checkers stores from its division in Gauteng as from 1 March 2001 to effectively cater for the top end of the market.
"With satisfactory operational ratios the emphasis in the second half of the fiscal will be on improving logistics with the aim to upgrade our levels of service and to reach higher cost efficiency. We have set ourselves targets to reduce stock holding considerably and to improve inventory control further.
"In short, we will continue striving to be the biggest and best retailer on the African continent".
Basson concluded by saying he is optimistic about achieving satisfactory operating profit in the remaining half of the fiscal.