Shoprite reports on excellent year

Shoprite Holdings has produced excellent results for the year ended June 2007, with trading profit 27,6% higher at R1,598 billion and sales that increased 16,2% to R38,950 billion. The strong top-line growth, combined with stringent cost control, produced a trading margin which, at 4,1%, is the highest in the history of the group.

Diluted headline earnings per share from continued operations rose 33,3% to 194,3 cents while the net asset value per share increased 19,9% to 717c.

Shoprite CEO Whitey Basson said it had been a year of strong growth across all sectors of the business. “Owing to high consumer spending, the whole of the retail sector grew strongly. In addition, our advanced infrastructure enabled us to maximize opportunities offered by the market and to overcome problem areas that might otherwise have had a negative effect on results.” 

In the light of the group’s performance the board envisages declaring a final dividend of 66,0c per share in October, an increase of 43,5% over the previous year’s 46,0c per share. This will bring the total distribution for the year to 101,0c a share (2006: 73,0c). Dividend cover will remain at two times. 

Basson said that despite industrial action that disrupted operations in South Africa in the first quarter of the financial year, all three food chains – Shoprite, Checkers and Usave – turned in good performances. These chains, which form the core of the business and contribute close on 80% to total turnover, increased sales by 15,0% to R31,134 billion while growing the number of customer transactions by 7,3%. 

“To accommodate the strong upsurge in consumer demand most particularly from the growing back middle class, we continued with our extensive store refurbishment programme which also saw the introduction of a wider range of aspirational and lifestyle products. Twenty-five new supermarkets were added to bring the total number of Shoprite, Checkers, Checkers Hyper and Usave outlets in South Africa to 509. 
 
“During the year we also had to contend with a substantial drop in supplier service levels due to the inability of many manufacturers to keep up with the growth in consumer demand. We overcame this problem by sourcing replacement products internationally, especially for our non-RSA businesses, and by stockpiling merchandise when available to regulate the product flow to our stores. Despite our best efforts these supply problems nevertheless did result in some sales losses and consumer frustration.”

Shoprite, which operates 297 of the group’s supermarkets in South Africa, increased sales by 14,4% to R18,190 billion. Still South Africa’s most frequented food chain, it continues to benefit substantially from government support for lower-income groups while increasingly attracting higher-income consumers to its stores.

The acceptance of Checkers in the higher-income consumer segment increased considerably during the reporting period, as a result of strong marketing and promotional activity. At 15,0% its turnover growth exceeded that of Shoprite while its growth on existing business was also higher at 10,1%.

Although off a much lower base, Usave, which now operates 99 small-format outlets, increased turnover by 35,2%. It grew existing business by 21,0% and the number of customers by 16,9%. It has consistently provided a return on investment of more than 30% per year.    
 
The group’s strong performance at home was echoed by its operations outside South Africa where it now trades from 95 supermarkets in 16 countries. These businesses grew sales at 29,4% in rand terms to R3,785 billion. The best performing countries were Zambia, Namibia and Angola while Nigeria, where the group has been trading for less than 18 months, has also contributed to profits. In the new financial year Shoprite will open its first supermarket in the Democratic Republic of Congo (DRC). 

Basson said while inflation virtually doubled in the food sector during the review period, the group’s furniture division operated for almost all of that time in an environment of virtually no inflation. It continued to focus on low-margin volume business, balancing those sales with the higher returns achieved on direct imports and furniture. It thus could report turnover growth of 14,1% and a contribution to group trading profit of R205 million. 

Commenting on his expectations for the 2008 financial year, Basson said he did not foresee the group maintaining what he considered the exceptional sales and profit growth of 2007. “In the months ahead consumers will increasingly feel the strain of the several interest rate increases of the past year while the cost of living continues to escalate. At the same time, one should bear in mind that food retailing is less affected by fluctuations in the market than other areas of retail. The primary drivers in the economy have not changed and I expect us to increasingly benefit from our substantial investment in people, technology and infrastructure both in South Africa and outside its borders,” Basson said.