Oct 14, 2002
In the 12 months to 30 June 2002 Shoprite Holdings increased operating profit by 28.4% to R522,2 million on turnover that grew by 12.8% to R22,109 billion. The group, the largest food retailer in Africa, thereby also exceeded the R20bn mark in turnover for the first time.
Profit before tax was up 62.8% at R548 million.
Exceptional items of R39,3 million mainly represent the portion of negative goodwill (R69,3 million) written back this year that arose with the bringing to book of the assessed tax loss, and a write down of R23,8 million in the value of Shoprite’s investment in Century City Ltd. In terms of accounting statement AC 128, Century City Ltd impaired the cost price of their fixed asset.
Diluted headline earnings per share increased on a weighted basis by 24.2% to 70,4c, and the Board of directors declared a final dividend of 14,5c per share, bringing the total distribution for the year to 25,5c per share.
Mr Whitey Basson, managing director and chief executive of the group, said with the great improvement in the results Shoprite had begun to reap the benefits of effective management, backed by excellent information and logistic systems.
“We succeeded in improving productivity, while stock losses dropped to the lowest level ever in the history of the group. This is reflected in, among other things, the profit margin, which increased from 2.07% to 2.36%. If the rental charges for unused space that arose with the rationalisation of the OK Bazaars take-over were excluded, this percentage would improve even further in the future.
“Because of the saturation of the South African market we are more readily establishing stores outside South Africa. As a result, our local market share based on total stores has decreased somewhat to 29.5%.
“However, our market share based on existing stores remained unchanged and we are highly satisfied with our increase of 4.6% in the number of customers. This brings our total monthly number of customers to more than 33 million.
“Despite the large increase in food inflation, we succeeded in maintaining the momentum that built up in consumer spending in the first half of the year. This was partly due to the fact that in view of the rising inflation we had overstocked the group. We could therefore continue selling at lower prices for a longer period, thereby also softening the impact of the high food inflation on our customers. This was also the main reason why net finance charges and stock holding did not show the expected improvement.”
Basson said the results were also favourably influenced by the increased contribution to turnover and profit made by the group’s operations elsewhere in Africa.
“The African division contributed 10.4% or approximately R2,3 billion to group turnover, as against 8% in 2001. Due to the strengthening of the rand against certain currencies the surpluses for the full year were considerably less than for the first 6 months of the year.”
Shoprite opened its first supermarkets in Uganda and Tanzania in the period under review, and is planning to move into Angola, Ghana and some of the islands in the Indian Ocean in the new financial year. Basson said Shoprite’s operations elsewhere on the continent also yielded considerable benefits for South Africa. “We export some R429 million worth of merchandise to our African stores every year. By doing so we are not only earning valuable foreign exchange but also providing a large number of jobs in the manufacturing and food industry in South Africa.”
In the period under review the group continued to increase trade density in its existing supermarkets and, wherever possible, to scale down its sales area further. This is an ongoing process because of the long-term nature of leases.
In the past year the group opened 24 supermarkets, closed down 9 and rebuilt and renovated 35. The refurbishing and renovation process decreased total sales area by some 30 000m². Of the new supermarkets, 15 are located in South Africa and 9 in other African countries. The group’s total number of stores and franchise memberships now stands at 981.
Basson said OK Furniture did well in a market sector that was under intense pressure. This division, with 137 branches, contributed about R640 million to turnover and R55 million to operating profit. The 21-branch House & Home, previously part of the Hyperama, was combined with OK Furniture in the latter half of the year.
OK Franchise’s operations grew by 19.3% to R1,58 billion during the year. Management’s main emphasis during this period was on rationalising the group’s franchise interests, all of which were brought in under the OK banner. There are now three trading formats: OK Foods, all of whose stores have service departments; the smaller OK Grocer; and OK MiniMart, which previously traded as 8 ‘Till Late.
“Thanks to this rationalization the group now has a solid platform to grow from in the new financial year, and management wants to make full use of the possibilities this offers,” Basson said.
He also referred to the clear distinction now being made between the Shoprite and Checkers trademarks. “We have defined the role of each much more clearly in terms of their respective target groups, and we are finding that Checkers in its new role is enjoying greatly increased consumer support.”
Basson said turnover growth similar to that achieved in the period under review was being maintained in the first weeks of the new financial year. “We believe food inflation, which inevitably has an effect on basket size, will level off and even decrease as a result of the strengthening of the rand. We therefore expect the group to maintain its current growth in turnover in at least the first half of the year, backed by an increasing contribution by its African interests.”
Basson added that the group, with almost 1 000 outlets and an annual turnover of R22 billion, fully realised that it was the zeal and loyalty of its more than 65 000 employees and more than 3 770 suppliers, and the loyal support of its more than 33 million customers per month that had enabled the company to become the largest supermarket group on the African continent.