Aug 24, 2004
In the year to 30 June, the Shoprite group grew operating profit more than 16% to over R700m in a difficult market. The operating margin increased from 2,43% to 2,64%, the highest in the history of the business. Net profit was 32,6% higher at R556,8m and headline earnings 38,7% to 79,9c a share.
In the light of these results the board declared a final dividend of 19,5c a share to bring the total distribution for the year to 36,0c (2003: 30,5c).
Total sales of the group, which trades in 16 countries, increased 7,3% to R26,641bn (2003: R24,825bn) despite a nation-wide strike at the end of last year which saw its biggest brand, Shoprite, lose 2,7% market share in a single month. However, by year-end the group had more than recouped all lost market share.
Shoprite CEO Whitey Basson said average food inflation of just 3,6% was the biggest challenge the group had to contend with during the year. "Although all retail sectors had to grapple with low inflation and falling prices, this was nowhere as marked as in food sales at the lower end of the market. The biggest price reductions were in staples and, in the case of Shoprite, which operates 316 of the group's 705 outlets, negative internal inflation impacted on 19.2% of its total food sales.
"As a result, turnover growth in our main trading subsidiaries was sluggish and the improved operating profit resulted mainly from greater efficiencies achieved in cost control, in the management of the supply chain and in our ability to source globally.
"During the year we completed the conversion of all our stores to scanning. We are increasingly experiencing the benefits of our substantial investment in the latest information technology, an investment which has brought about a massive improvement in the quality of the management information available to us."
Basson said although turnover in the group's Africa operation was lower than expected, this division nevertheless achieved a 26% sales growth in stable currency terms. Substantial increases in the prices of South African products due to the strengthening of the rand, affected turnover and compelled management to investigate other sources of supply.
In addition to other retail formats, the group operates 68 fully-fledged supermarkets in 13 countries outside South Africa's borders as well as on two islands in the Indian Ocean. All stores are linked by satellite to the group's central database and replenishment system outside Cape Town. Shoprite's first supermarket on the Indian subcontinent opens in Mumbai in November.
Basson said great strides had been made in repositioning Checkers to also reach a higher-income market. The chain, less affected by the nation-wide strike than Shoprite, had fared well, increasing operating profit by 39% and operating margin by 29%.
An equally good performance came from the new Usave format of which there are now 59 stores, with 43 opened during the year. The stores in operation for the full year produced a 35% return on equity. These no-frills, small-format stores enable Shoprite to enter communities too small to support conventional supermarkets. A further 60 units will be opened in the next 18 months.
The group's furniture division of 167 stores performed extremely well ahead of the rest of the retail furniture sector, raising revenue 26% to R1,716bn and operating profit, 108% to R154m. The net debtors' book grew 21%.
During the year Shoprite continued its expansion into Africa. Among the major property developments of the year were the completion of the group's R90m shopping centre and distribution facility in Luanda, Angola, fully operational since August 2003; and the R34m shopping complex in Kampala, Uganda, housing a 4 000 m² Shoprite superstore.
Basson said despite the continuing difficult trading conditions at the lower end of the market, he was confident the stronger turnover growth manifesting itself in the second half of 2004 would continue to gain momentum and lead to improved results for 2005.
"We are going to expand our store base aggressively in the next 18 months, planning close on 90 new supermarkets and 60 Usave stores. In addition, we expect to derive increasing benefits from our very substantial investment in our advanced information technology systems. These same systems will also enable us to achieve further efficiencies in the management of complex supply chains while allowing us to extend our involvement in the area of virtual retailing.
"Africa, too, offers us the opportunity of opening a number of additional stores on the existing infrastructure to achieve economies of scale in certain countries to the north. Within South Africa, the revitalised Checkers chain has potential for further growth in its existing stores. The accelerated rollout of Usave outlets will also enable us to tap into new markets both here and elsewhere on the continent," Basson said.