Feb 19, 2008
Shoprite Holdings has reported turnover growth of 21,7% to R23,260 billion and trading profit of 42,2% to R1,020 billion for the six months to December 2007. Every division of the group, with the exception of the furniture business, turned in improved results while its non-RSA supermarkets grew turnover by 32,4%.
Profit for the period was 47,7% higher at R683,3 million compared to R462,5 million in the corresponding period. Diluted earnings per share increased by the same percentage to 127,8 cents (2007: 86,5 cents). On the strength of these results the directors are proposing a 40% increase in the dividend to 49,0 cents per share.
Commenting on the sales growth, Shoprite CEO Whitey Basson said that in a market with rising food inflation management took a conscious decision to sacrifice gross margin for turnover growth. "This enabled us to increase market share by 1,3 percentage points to 28,8%.
"We also managed our cost base well with the result that expenditure grew markedly slower than turnover. Our trading margin improved from 3,8% to 4,4%, the highest in the history of the group.
"Another example of such discipline is the fact that our inventories grew 14,1% while turnover increased by almost 22%. At the same time we also had to provision 38 new supermarkets and 26 furniture stores during the twelve months to December 2007.
"The ability within the group to control its cost base to this extent must be attributed to ongoing investment in every aspect of the business over several years - in the quality and training of our people as well as in up-to-date sophisticated IT systems that support our sourcing, stock control and supply chain management," Basson said.
Referring to the downswing in the economy which is noticeably having an effect on most retail sectors, Basson said the food sector was to a certain extent cushioned against the worst fall-out of such a decline. 'We are not immune to it, but the effects seem to reach us considerably later than the rest of the sector.
"It is illustrated by the difference in trading conditions that prevail at present in the food and the durable goods market. While food is a basic necessity which consumers can't do without, they cut down very quickly on purchases of durable goods when they feel the economic pressures and credit is at a premium.
“This forces the furniture trade, for instance, to discount heavily to move stock – with disastrous results for their margins. This is exactly the experience we have had these past six months in our furniture business although we have a higher cost to credit ratio than other furniture retailers”.
Basson said there is still buoyancy in the food sector primarily in the lower to middle end of the market and an area in which the group trades predominantly.
"Here the growing middle class continued to be a strong economic driver while the interruption in the operations of the national Lotto also channelled some of that income back into retail.
"Having spoken about the influence of external factors it is necessary to point out that the group's wide product and service offering which includes pharmacies, liquor outlets and Money Market services, is appealing more and more to consumers of all ages and income groups," he added.
Basson is of the opinion that the group's South African operations were very well supplemented by its businesses outside the country's borders. "We trade in 16 other countries, and virtually all of them posted excellent results.
"It is particularly our present focus on the oil-rich West-African countries that is reaping benefit”.
Basson said although sales volumes and patterns had continued into the first weeks of the new reporting period he did not expect the results of the first half of the year to be duplicated in the second.
"Consumers' disposable income is being eroded daily by higher bond repayments, excessive fuel prices and rising inflation. The present energy crisis will also increasingly act as a damper on growth in the economy.
"I am, however, confident that the group will be able to manage the energy crisis in such a way that it will have the least effect on our business. We have proactively ensured that all our stores will be able to operate without interruption at all times as we have had experience trading in other African countries where erratic power supply is the order of the day.
"We also launched an extensive energy-saving programme more than a year ago. The electricity saved to date is equivalent to powering 10 000 average households for 12 months," Basson concluded.