Feb 22, 2006
The Shoprite group has reported excellent results in the six months to December 2005, growing turnover by 13,7% to R16,621bn when the extra week in the corresponding period in 2004 is discounted.
In this first half of its 2006 financial year Shoprite’s core businesses did particularly well in a trading environment where food inflation in this period averaged 3% throughout the various businesses.
Shoprite CEO, Whitey Basson, said he was more than satisfied with the results, pointing out an increase in market share with strong growth in the number of customers shopping in the group’s supermarkets. An increase of 8,3% was reflected by the findings of a recent AC Nielsen survey showing that 65% of South African consumers shopped at its stores, up from 62%.
Basson said the group's results must be contributed to high consumer confidence in South Africa, and an increase in the liquidity of the group’s target market. Shoprite's improved operating systems, better ranging and consistent product availability contributed further to these results.
The operating margin improved to 3,3%, up from 3,0% in the comparative 26 weeks. It reported a trading profit, before exchange differences and items of a capital nature, of R560,9 m, 25,3% higher than in the comparable 26 weeks of 2004.
Basson said the South African Government's assistance to lower-income earners through tax concessions and social grants was not only increasing disposable income in the South African market, but was also changing shopping patterns and product choice markedly. The recently pronounced R400 bn investment in infrastructure and essential services will contribute further.
"This has prompted Shoprite to embark on an extensive new-store programme. In the six months under review the group opened a net 62 new outlets of which 44 are supermarkets. The opening of a further 86 supermarkets have been confirmed for the rest of the calendar year,” Basson said.
He ascribed the substantial difference between the 13,7% turnover growth and 25,3% increase in trading profit to the containment of the operating cost to under 10% while turnover grew by almost 14%.
Gross profit was 10,6% higher at R3,201bn. The strong rand continued to benefit the sale of imported non-foods.
Diluted headline earnings per share before forex grew 22,6% to 69,9c (excluding the extra week in 2004) and net asset value per share by 23,7% to 485c. In the light of these results the directors proposed an interim dividend of 27c (2005: 22c) per share. The 22,7% increase was in line with the board's earlier decision to reduce dividend cover to 2 times for the full financial year.
Basson said the Shoprite brand, still the flagship of the group, gained most from the high level of consumer confidence in its target market, the LSM 4 to 7 lifestyle groups, which were also growing strongly in terms of numbers. Operating 352 of the group’s 573 supermarkets, the brand grew turnover in South Africa 13,5% while the number of customers served increased by 8,9%.
Checkers, by contrast, grew the number of customer transactions by 5,8% but basket size by 6,3%. This, said Basson, confirmed that the repositioned chain was increasingly reaching higher-income consumers. Checkers, which increased profitability by 29,7% compared to a 26-week period in 2004, was especially increasing its number of smaller-format convenience stores in affluent new suburbs.
Usave, the third of the group’s food chains, operated 92 outlets in which it focused on a limited range of high volume products including its own label products. Turnover grew 42% while the number of customer transactions jumped by 30%.
Basson said lower turnover growth in the group’s furniture division confirmed market speculation that this sector was slowing down after a three-year boom. Excluding the extra week, the division nevertheless grew turnover by 14,0% in a highly competitive environment while trading profit increased by the same percentage to R108 million.
Outside South Africa the group achieved satisfactory results in the 17 countries in which it operates. Turnover increased by 18,9% at constant conversion rates compared to 26 weeks in 2004 but trading profit was below target.
Shoprite opened its first supermarket in Nigeria in December 2005. “We believe that this country, by far the most populous in Africa, offers enormous potential in the long term,” Basson concluded.