Feb 22, 2005


The Shoprite group boosted operating profit before exchange differences by 47,7% to R466,2m in a reporting period of 27 weeks to end December 2004 compared to 26 weeks in the corresponding period in 2003. Headline earnings per share grew 55,4% from 39,0c to 60,6c. Once adjusted for exchange differences, the increase was 39,3% at 61,7c. 

Turnover grew 14,2% from R13,360bn to R15,254bn despite all three of the group's major brands – Shoprite, Checkers and Usave – experiencing internal food deflation of as much as 1,3%. For the first time the group's net profit margin exceeded 3%, accelerating from 2,36% in the corresponding period to 3,06%. 

When discounting the 27th week of the review period to make comparisons more meaningful, turnover grew 10,4% compared to the same 26 weeks in 2003; operating profit before exchange differences was 25,2% higher; and headline earnings per share gained 30,8%. 

In the light of these results it is envisaged that an interim dividend of 22c a share will be declared, an increase of 33,3% over the 16,5c for the corresponding period. Dividend cover reduced slightly from 2,5 times (June 2004) to 2,3 times based on 26 weeks. 

Shoprite CEO Whitey Basson said he was more than satisfied with the results, even when the extra week's trading was discounted. "The group performed well across the board within South Africa while on the rest of the continent we experienced 26,4% sales growth in stable currency terms for the 27-week period. Although the rand continued to strengthen against the US dollar during the review period, exchange losses reduced from R31,5m to R6,9m due to the group's exposure to other currencies." 

Basson said of all the operating units OK Furniture performed best in terms of sales growth, reflecting the strong support by a buoyant consumer market for durable goods. This division grew operating profit in a highly competitive environment by 34,0% to R98,6m on revenue that increased 19,7% for the 27-week period. 

"However, by far the bulk of our business is in food retailing to lower and middle-income earners and food retailing in our market did not benefit nearly as much from the present high level of consumer confidence as did the durable and semi-durable sectors. At the same time we still also have to contend with virtually non-existent food inflation. Seen against this background the supermarket division in my view performed really well, increasing the number of customer transactions in our 510 stores by 7,2% compared to the corresponding period. 

"To boost profitability in an environment of very low inflation, management extended the chains' non-food ranges because of their higher margins. This was done without shifting the focus from our primary business which is food retailing. In the case of the latter we also extended our offering, especially into value-added products and then most notably in the Checkers chain." 
Shoprite, the group's flagship brand, grew turnover in South Africa 11,7% overall on a 26-week comparative basis and basket size by 5,2%. Checkers continued to reflect the value of its new positioning in its increasing customer support. Turnover in South Africa on a 26-week comparative basis was 7,2% higher overall, while basket size grew 4,9% compared to a year ago. 

The store roll-out of Usave continued, the group's small-format venture located in communities unable to sustain a full-sized supermarket. In the past year 30 outlets were opened to bring the total to 57 in South Africa and 74 in total. 

The group's cash reduced from R1,650bn to R799,4m, mainly because the previous reporting period ended on 28 December, before the usual major month-end creditor payments went though. Having fully utilised the assessed tax losses acquired with OK Bazaars in 1997, the group was for the first time since that date required to pay provisional tax. Total tax paid during the review period amounted to R326,2m, compared to R9,3m in 2003. 

Looking ahead Basson said he did not expect market conditions to change materially in the second half of the year. "With the Governor of the Reserve Bank determined to keep inflation between 3% and 6% we cannot see food inflation growing much above present levels. The general expectation too is that the rand will more or less maintain its present value, forcing down the prices of imported goods and making it increasingly difficult to export local merchandise competitively to our stores elsewhere in Africa. 

"At present we are seeing buying patterns manifested in the first six months continuing into the second half of the year, so we expect to produce results for the year very much in line with what we are reporting for the first half," Basson said.

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