Jan 23, 2010
Shoprite Holdings reported strong growth with turnover rising 11,9% to R33,139 billion in the six months to end December 2009, despite the recession. This enabled the group to increase its core market share by 1,2 percentage points to 29,8% and for the month of December to 31,1% - the highest for the group in the last nine years.
The group’s sales growth should be seen against its internal food inflation, which averaged 4,2% for the six months compared to 16,9% in the corresponding six months
Trading profit was up 17,5% to R1,656 billion compared to R1,409 billion a year ago. A trading margin of 5,0% was achieved against 4,8% in the corresponding period.
Diluted headline earnings per share rose 13,3% to 208,5c and the board declared an interim dividend of 80c a share (2009: 70c), an increase of 14,3%. The increase in earnings per share is lower than the 17,5% increase in trading profit due to a decrease in net interest received as well as exchange rate losses.
Commenting on the results, the group’s chief executive officer, Whitey Basson, reflected on the group’s continuous ability to create jobs by growing the business. “We are extremely proud of the fact that the group was in a position to employ 5 000 more people to bring its total staff compliment to 89 000 at the end of the period under review.”
Basson said these results were achieved in a challenging environment in which consumers came under increasing pressure to curb spending while the economy corrects itself. “The relief provided by much lower food inflation was to a large extent cancelled out by growing unemployment and rising energy costs.
“That we could achieve a trading profit growth of 17,5% on turnover that grew 11,9% is due to an experienced management team that controls the cost base rigidly while maximising the benefits provided by our advanced infrastructure in information technology and supply chain management.”
Basson said the group’s core business, the South African supermarket operations consisting of the Shoprite, Checkers and Usave chains, was the best-performing division with turnover growth of 14,5% to R26,303 billion compared to the rest of the food retail market’s growth of 9,0%. This division’s trading profit grew by 27,5% to R1,322 billion.
The Supermarkets RSA division added a net 44 new stores during the review period to bring the total number of supermarkets in South Africa to 637. All three of the chains performed well, with Shoprite, still the flagship, consolidating its strong consumer gains of the past 18 months, while Checkers continued to gain support from its higher LSM target market, increasing the value per transaction above the inflation rate. The small-format Usave chain maintained its roll-out, adding a net 27 new outlets in South Africa to bring its total to 157.
Basson said two factors impacted negatively on sales in the group’s 106 supermarkets outside of South Africa. “Firstly, consumers on the continent were increasingly feeling the cumulative effects of the global recession due to the continent’s dependence on commodity exports and, secondly, the strengthening of the rand against most currencies increased the price of goods imported from South Africa. Not all price increases could be passed on to consumers, thus gross margin was sacrificed to assist them.
Sales in constant currency terms rose by 16,3% while it dropped by 4,3% to R3,605 billion in rand terms due to the conversion to a stronger rand.
Turning to the furniture division comprising of OK Furniture and House & Home, Basson said given consumers’ reduced spending on durables, its sales increase of 11,5% was satisfactory, especially as it was achieved in an environment of virtually no inflation. “Like-for-like sales increased 4,5% compared to 2,4% in the corresponding period. An escalation in service and other charges put net margin under pressure. Consequently, trading profit grew 2,9% to R104,3 million.”
Looking ahead Basson said due to the depth of the recession, the economy’s recovery would be unavoidably slow. “We can see daily in our stores how consumers are struggling. And although food retailing is often the last to be affected by a downswing, it is also frequently the last to benefit from any recovery. However, I am confident that as a group we shall be able to maintain our position of market leader,” he concluded.