Aug 24, 2005
In the year to 3 July 2005, the Shoprite group increased headline earnings by 48,5% while total turnover increased 11,9% to R29.813bn. Operating profit rose 27,8% compared to 2004 to R912,2m. These results were achieved in a 53-week trading period compared to 52 weeks the previous year.
In the light of these results the directors have proposed a final dividend of 28c a share to bring the total distribution for the year to 50c a share, an increase of 38,9% on 2004.
Shoprite chief executive Whitey Basson said the group produced excellent results on virtually all fronts. "Turnover was 11,9% outstripping the CPIX of about 4% while food inflation was just 1,6% across the spectrum. The operating margin, forex excluded, for the first time topped 3% (3,06% as against 2,68% in 2004), while the slight weakening of the rand resulted in a small currency gain of R6,1m (2004: loss of R79,3m).
"Our food business in South Africa fared particularly well, supported by better product ranges and availability, and a virtually fully automated replenishment system that greatly advanced product flow from distribution centres to stores. As a result, we were also able to increase market share both in terms of total turnover and on a like-for-like basis."
During the review period, the trading environment for the most part had remained buoyant while cheaper imports and the strong rand supported sales of durable and semi-durable goods. "Food retailing also benefited from the generally higher liquidity while there was a noticeable increase in disposable income among a growing number of consumers in our target market in which a further 1,3 million people joined the LSM 4 to 6 economic group.
"We believe this to be the cumulative effect of the benefits South Africa's new political dispensation has brought to lower-income earners. This greater liquidity is particularly noticeable in the customer base of our Shoprite chain. It is also changing buying patterns, and the typical consumer basket now contains not only more higher-margin food items but also non-food products needed by first-time home-owners.
"In our view no other food retailer is better placed than Shoprite to capitalise on this potential growth at the lower end of the market," Basson said.
Discussing the results of the individual retail chains, Basson said Shoprite, with 327 of the group’s 529 corporate stores fared particularly well in South Africa by increasing turnover 13,2% to R14,213bn, while the number of customers rose 7,8%. To counter the effects of low food inflation, the chain further expanded its higher-margin, non-food offering while the choice of aspirational food products was extended in view of changing buying trends. The chain was to pursue an aggressive new-store programme with 46 supermarkets planned for 2006.
Basson said the repositioning of the Checkers brand to appeal to more affluent consumers was in full swing. Significant attention was being paid to extending the specialty food product ranges and to sourcing store locations more conveniently situated for its new target market.
"The Checkers brand held its own in a fiercely contested sector despite a large number of opposition stores being opened to serve the higher LSM sectors. "Turnover grew 9,5% to R9,470 billion. The brand increased profitability by almost 33%."
Basson said after growing from four small-format stores in 2003 to 59 in 2004, Usave's management opened 25 in the 2005 financial year, using the time for consolidation. "Time was needed to refine this lower-end discount concept. However, the brand is already providing a satisfactory return and we are planning a further 29 stores in 2006."
He said the results of the Group's operations outside South Africa was disappointing, with sales for the 53 weeks growing at 20,2% at constant conversion rates, below last year's 26,2% for 52 weeks. "This weaker performance resulted mainly from the continued strength of the rand which reduced the affordability of South African exports and diluted profit margins."
The 5 500 m² franchise superstore the group opened in Mumbai during the year was expanding its high-income customer base. The store is already achieving a 40% market penetration in its catchment area and has managed to increase its basket size by 23% since opening.
The group is to open its first store in Lagos, Nigeria, in December. The country’s retail potential is enormous and the Group is researching additional sites in the capital.
The furniture division, trading predominantly under the OK Furniture and House & Home brands, returned a solid performance in the group, increasing turnover 16,5% to R1,999bn and operating profit 18,8% to R183,0m. This was achieved despite the trading environment remaining highly competitive. The factors that stimulated the market in 2004 – lower taxes, reduced interest rates and a strong rand also determined sales patterns in the past financial year.
Commenting on the year ahead Basson said food inflation was expected to remain low, with the rand relatively stable at present levels. "The growth in turnover of the past year is being continued in the new financial year, and we plan to support this with an aggressive new-store programme which will see close on 120 new outlets being opened during the year."