Aug 23, 2011
During a difficult trading year, the Shoprite group has consistently improved the efficiency of its operating systems and cost controls to raise profitability. At the same time it is increasingly reaping the benefits of its investment in infrastructure in the past.
In the 52 weeks to June 2011 the Shoprite group grew total turnover by 7,3% to R72,298bn compared to R67,402bn in the 2010 reporting period which consisted of 53 weeks. Shoprite chief executive Whitey Basson said if the additional week in 2010 was disregarded to arrive at a more meaningful comparison, the growth in turnover was 9,7%.
“During the 12 months of our reporting period, our internal food inflation averaged -0,1% as against 2,2% in 2010 which means we have seen real growth of 9,8% for the year if compared to 52 weeks in 2010. Our low internal food inflation as against the official figure of 3,2%, reflects the group’s policy to pass cost savings on to consumers wherever possible.
“On the 7,3% turnover growth we achieved an increase of 14,2% in trading profit to R3,987bn despite the rise in operating costs, thereby increasing the trading margin to 5,5%. This strong increase in trading profit above turnover growth was the direct result of meticulous cost control and the increased efficiencies flowing from the substantial investments in our sourcing and distribution systems,” Basson said.
Diluted headline earnings per share rose 12,4% to 507,6c and the board declared a final dividend that was increased by the same percentage to 165c (2010: 147c) to bring the total distribution for the year to 253c (2010: 227c) per share.
Basson said in the year under review the group added a total of 78 stores to its portfolio of which 54 were supermarkets. “This has led to the creation of more than 7 000 new jobs – over a thousand more than estimated in 2010, increasing our staff complement to over 95 000 people of whom 11 000 are employed in our stores outside South Africa.
“We are proud of the fact that at a time when the economy was shedding jobs, we could provide employment for so many additional people. Our aim is to continue this strong growth in the new financial year and a total of 106 new stores have been confirmed of which 74 will be supermarkets. If they all come to fruition, we should create another 8 000 to 9 000 jobs.”
The Group’s core business, its Supermarkets RSA division, reported positive sales growth of 7,2% (52 weeks: 9,8%) from R53,367bn to R57,214bn. Its three supermarket chains – Shoprite, Checkers and Usave – between them cover the full LSM spectrum.
Applying international best practice to all aspects of the business, management continued to strengthen the low price-positioning of these brands. In doing so, the Group is benefiting from recent AMPS research showing the Group’s chains are now being frequented by 63,5% of all South African shoppers.
Shoprite, the largest of the three, remains the dominant player in the middle to lower income sectors despite fierce competition from an increasing number of participants. During the year it expanded its presence in economically disadvantaged areas with full-service supermarkets, adding a net 11 new stores for a total of 331.
Checkers further entrenched its position in the upper-income consumer market and 53% of its customers now fall within LSM 8-10. It is increasingly becoming the preferred anchor tenant for new shopping centre developments countrywide. It added 15 new stores and now trades from 154 supermarkets and 26 Hypers.
Usave’s low cost structures enable it to consistently sell comparable products at lower prices than its competitors. Its strategic role in an increasingly competitive local market has grown during the reporting period. It intends accelerating its store opening programme in the new financial year.
Basson said management was well satisfied with the performance of the group’s Supermarkets Non-RSA division where it operates 135 outlets. “When converted to rands, turnover increased by 2,1% compared to 2010’s 53 weeks or 4,5% on a 52-week basis. However, when taken at constant currencies, one gets a better impression of its true performance, with turnover growing at 10,2% when compared with 53 weeks and 12,8% when compared with 52.
“We are continuing to expand our operations into Africa and we are improving our supply lines to support the ever increasing number of stores.”
Basson said the furniture division, which operates three chains – OK Furniture, House & Home and OK Power Express – had a difficult year, having to contend with deflation of 15,7% and even higher in certain product categories. The division increased turnover by 1,9% (52 weeks: 4,0%) to R3,060 billion despite these adverse conditions and continued to grow strongly in terms of new outlets, ending the reporting period with 300 stores of which 30 are outside South Africa.
The past year was also a trying time for most of the OK Franchise Division’s (OKFD) members who trade all over South Africa and Namibia as well as in Botswana . It increased turnover by 7,8% while trading profit grew at a considerably higher rate as overhead costs lagged the growth in income. A major development during the reporting period was the offer made for Metcash’s franchise division which will provide OKFD with a further platform to grow its business and franchisees, representing some two years of organic growth without altering its risk profile. The transaction was ratified by the Competition Authority after year-end and will see some 150 members added to OKFD, albeit with a smaller turnover base for the majority of those, compared to existing OKFD franchises.
During the reporting period MediRite, Shoprite’s chain of in-store pharmacies, increased its number of outlets from 104 to 121 and is budgeting for another 22 in the new financial year. Its pharmacies enjoy secure supply lines from its fellow subsidiary, Transfarm Pharmaceutical Wholesalers (with branches now in Cape Town and Gauteng) which provides 93% of their total product range and offers the opportunity of direct purchases from international markets. Basson said these pharmacies “provided additional access for economically disadvantaged communities to prescription and other medicines”.
Computicket, which operates from all Group supermarkets as well as from a number of standalone outlets and some stores in the furniture division, maintained its pre-eminent position in the market and showed strong growth in both turnover and trading profit.
Basson said he did not expect market conditions to change materially in the new financial year. Food inflation was expected to rise although prices were likely to be held in check by the ongoing competition amongst the major food retailers.