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SHP - Shoprite Holdings - Results for the 6 months ended December 2010
SHOPRITE HOLDINGS LIMITED
(Reg. No. 1936/007721/06)
(ISIN: ZAE000012084)
(JSE Share code: SHP)
(NSX Share code: SRH)
(LuSE Share code: SHOPRITE)
("the Group")
Key information
Trading profit was up 11,9% to R1,854 billion.
Turnover increased 9,4% - from R33,139 billion to R36,259 billion.
Diluted headline earnings per share rose 13,6% to 236,8 cents.
Dividend per share declared 88,0 cents (2010: 80,0c) an increase of 10,0%.
Whitey Basson, chief executive, commented:
The six months under review were difficult for food retailers, because of the
low food inflation and the growth in operating expenses, over which they have
little control. In the case of our Group, we contended with internal
deflation which averaged 1,2% for the period. During the same time, our
expenditure on electricity, water as well as rates and taxes increased by
36%. This growth in operating expenses was in our case exacerbated by our
continued investment in infrastructure and in new outlets - we opened more
stores during the review period than any of our competitors. On the other
hand, it was this very infrastructure that made it possible for us to obtain
further efficiencies across the spectrum of our business to the extent where
we were able to raise our trading margin to 5,1% by achieving real turnover
growth of 10,6% for the six months.
21 February 2011
Enquiries:
Shoprite Holdings Limited Tel: (021) 980 4000
Whitey Basson, chief executive
Carel Goosen, deputy managing director
De Kock Communications Tel: (021) 422 2690
Ben de Kock Cell: 076 390 7725
OPERATING ENVIRONMENT
South Africa has been relatively slow to recover following the global
economic crisis when compared to other developing countries. Unemployment
remained distressingly high despite sporadic efforts by the government to
stimulate the job market. Market conditions worsened after the Soccer World
Cup when a number of major infrastructural projects came to an end. The
disposable income of millions of consumers remained under pressure and demand
continued to be sluggish, particularly in the semi-durable and durable goods
sectors. This in turn generated strong competition among retailers who
discounted heavily to attract consumers to their stores, thereby placing
profit margins under pressure.
COMMENTS ON THE RESULTS
Statement of Comprehensive Income
Total turnover
Total turnover grew 9,4% from R33,139 billion to R36,259 billion. This growth
was achieved despite internal deflation of 1,2%. This compares with growth of
11,9% in the corresponding six months when inflation averaged 4,3%. During
the period under review the rand strengthened further and this had a
substantial effect on the translation of non-RSA sales to rand. The turnover
growth of 3,1% in non-RSA supermarkets was thus pleasing.
Expenses
Depreciation and amortisation grew 21,3% to R472,8 million due mainly to the
Group`s investment in new stores and information technology infrastructure.
The increase of 15,3% in staff costs to R2,891 billion, a higher increase
than sales growth, was mainly due to the new stores opened, some 2000 new
jobs were created since December 2009.
Trading margin
The trading margin at 5,11% was higher than in the corresponding period
(5,0%) and reflects the efficiencies achieved by management and the benefits
of the Group`s continuing investment in infrastructure.
Exchange rate losses
The exchange rate loss reduced from R33,6 million to R13,4 million due to the
rand strengthening less against the US dollar in the current six months, if
compared to the previous review period, as well as the currencies of most of
the countries in Africa where the Group does business. A positive outflow of
the strong rand was that it enabled the Group to make infrastructure
investments in Africa at a reduced cost.
Finance cost and interest received
The increase in net interest paid was due to the increase in capital
expenditure on new stores, information technology and expansion of the
distribution centres.
Statement of Financial Position
Property, plant and equipment and intangible assets
The increase is due to the investment in 69 new stores, vacant land purchased
for strategic purposes, investment in information technology to support
inventory management, as well as normal asset replacements.
Cash and cash equivalents and bank overdrafts
This item should be seen in conjunction with current liabilities. The
reduction in cash at balance sheet date is due to certain creditors being
paid before balance sheet date in the current year, whereas they were paid
after balance sheet date in the previous year. In addition, the Group spent
R3,045 billion on capital expenditure during the preceding 12 months.
OPERATIONAL REVIEW
All the divisions in the Group, with the exception of the furniture division,
reported acceptable turnover growth and trading profits. The furniture
division had to contend with an average sales price deflation of 14,5%, which
put extreme pressure on turnover growth and profits. The best performers in
the Group, albeit off a low base, were the value-added services which not
only reported strong growth in turnover, but also continued to promote the
one-stop shopping concept. The supermarket non-RSA division reported sound
growth, although this is masked in the Group`s results by continued rand
strength during the review period.
NUMBER OF OUTLETS
To
JUN 10 OPENED CLOSED DEC 10 June 2012
(Confirmed
new stores)
SUPERMARKETS 886 49 8 927 83
- SHOPRITE 394 10 1 403 35
- CHECKERS 145 11 2 154 16
- CHECKERS HYPER 26 0 0 26 1
- USAVE 195 22 5 212 21
- HUNGRY LION 126 6 0 132 10
FURNITURE 280 20 2 298 20
- OK FURNITURE 216 17 2 231 18
- OK POWER EXPRESS 17 0 0 17 1
- HOUSE & HOME 47 3 0 50 1
TOTAL OWNED STORES 1 166 69 10 1 225 103
- OK FRANCHISE 276 13 16 273 5
- USAVE FRANCHISE 2 0 0 2 2
- HUNGRY LION FRANCHISE 5 0 0 5 0
TOTAL FRANCHISE 283 13 16 280 7
TOTAL STORES 1 449 82 26 1 505 110
COUNTRIES 16 0 0 16 1
Supermarkets RSA
The Group`s core business, its South African supermarket division, reported
positive sales growth of 8,4% from R26,303 billion to R28,515 billion despite
the Group experiencing deflation of 1,2% across the entire product mix. This
produced a trading profit of R1,530 billion (2010: R1,322 billion). Although
overall sales growth slowed, the turnover achieved nevertheless represents
real growth of 9,6% which compares favourably with those of recent reporting
periods when inflation is stripped out. Although market share figures for the
food retailing sector is not available, management believes the Group has
made gains across the spectrum. In line with seasonal trends, strong growth
was experienced during the Christmas period in higher-margin non-food items.
Customer growth, new stores included, increased 4,5% to 58 million shoppers
per month while the average value per transaction increased by 2,9% despite
deflationary prices.
Shoprite was hardest hit by negative market condition, but nevertheless
managed to increase turnover by 5% off a high base by being particularly
price competitive in respect of staple products. It grew its number of
customer transactions by 1,9% while the value per transaction increased on
average by 3%. It remains the major food retailer offering lower prices.
Checkers withstood general market conditions well and increased turnover by
9,8% while growing its customer base by 5,5% and value per transaction by
4,1%. Its specialist departments, particularly for meat and wine, provided
excellent support for its overall product offering. The growth of these
departments was well ahead of overall store growth.
The limited-range Usave, which operates 181 stores, grew turnover by 24,2%
despite a store-wide price deflation of 2%. Usave experienced increasing
customer support, with the number of customer transactions 22,8% higher than
in the corresponding six months. Its aim is to grow increasingly outside
South Africa.
Supermarkets Non-RSA
This division, which opened a net nine stores in the period under review,
reported turnover growth of 13,6% in constant currency terms, which
translated to growth of 3,1% in rand terms. The growth manifested itself both
in the increase in number and value of customer transactions. The Group is
forcefully strengthening its presence in the main countries in which it is
operating at present.
Furniture
The tough market conditions that prevailed at the beginning of 2010 returned
during the latter half of the year. Demand remained sluggish despite ongoing
price deflation in particularly the home entertainment and appliances sectors
and aggressive discounting by competitors, making it extremely difficult to
grow sales. In this environment the OK Furniture and OK Power Express chains
nevertheless showed significant growth but House & Home struggled. Overall
the division reported sales growth of 4,3% to R1,604 billion inclusive of the
turnover of the net 18 new stores added during the period. However, trading
profit for the six months decreased 12,9% to R91 million.
Other Operating Segments
These include the results of the OK Franchise Division, MediRite and
Transfarm, the wholesale pharmaceutical acquired in December 2009, as well as
Computicket.
In a low inflation environment the OK Franchise Division grew turnover on
existing business by 14,2%, servicing its stable membership of 280 members
from seven centres. Strict management control of every aspect of the
division`s operations enabled it to report a trading profit substantially
higher than its turnover growth.
The MediRite chain of in-store pharmacies, which now consists of 113 outlets,
grew turnover by 37,0% and on a like-for-like basis by 23,2%, filling more
than 1 million prescriptions during the reporting period. The results of
Transfarm were consolidated for the first time for the full reporting period
and included in the trading results of the other operating segments.
Computicket, which operates from 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 despite
consumers` dwindling disposable income.
GROUP PROSPECTS AND OUTLOOK
In the second half of the financial year, which will consist of 26 trading
weeks compared to 27 in the comparative trading period of 2010, no material
changes in market conditions are expected. Food inflation is expected to
rise, as it has been doing since the start of 2011, as a weakening rand
exposes consumers increasingly to the high food prices reigning on overseas
markets. Escalating energy and transport costs will further erode the
disposable income of consumers. Food prices are, however, expected to be held
in check by the strong competition amongst the major food. However,
management believes the Group is well equipped to deal with the challenges
that will confront it in the second half of the year and expects to maintain
the level of profitability achieved in the first six months.
CORPORATE GOVERNANCE
The Group is committed to the principles embodied in the King Code of
Governance Principles for South Africa 2009 ("the Code"). The Group complies
with the prescriptive requirements incorporated in the Code and the Listings
Requirements of the JSE Ltd, as well as legislation applicable to public
listed companies in South Africa.
DIVIDEND NO 124
The board has declared an interim dividend of 88,0 cents (2010: 80,0 cents)
per ordinary share, payable to shareholders on Tuesday, 22 March 2011. The
last day to trade cum dividend will be Friday, 11 March 2011. As from Monday,
14 March 2011, all trading of Shoprite Holdings Ltd shares will take place ex
dividend. The record date is Friday, 18 March 2011. Share certificates may
not be dematerialised or rematerialised between Monday, 14 March 2011, and
Friday, 18 March 2011, both days inclusive.
ACCOUNTABILITY
These condensed consolidated interim results have been prepared in accordance
with International Financial Reporting Standards ("IFRS"), IAS 34: Interim
Reporting, and Schedule 4 of the South African Companies Act (Act no 61 of
1973), as amended. The accounting policies are consistent with those used in
the annual financial statements for the financial period ended June 2010.
By order of the board
CH Wiese JW Basson
Chairman Chief Executive
Cape Town
21 February 2011
Condensed Group Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months 6 months for the
% ended ended year ended
R`000 change Dec 10 Dec 09 Jun 10
Sale of merchandise 9.4 36 259 130 33 138 535 67 402 440
Cost of sales 8.7 (29 076 055) (26 757 553) (54 147 848)
Gross profit 12.6 7 183 075 6 380 982 13 254 592
Other operating income 28.3 704 967 549 334 1 576 128
Depreciation and amortisation 21.3 (472 831) (389 771) (839 208)
Operating leases 12.1 (834 078) (743 893) (1 550 745)
Employee benefits 15.3 (2 891 568) (2 507 779) (5 273 843)
Other expenses 12.4 (1 835 417) (1 632 481) (3 676 483)
Trading profit 11.9 1 854 148 1 656 392 3 490 441
Exchange rate losses (60.2) (13 366) (33 596) (77 824)
Items of a capital nature 466.2 (13 248) (2 340) (25 580)
Operating profit 12.8 1 827 534 1 620 456 3 387 037
Interest received (18.5) 43 911 53 858 105 741
Finance costs 73.0 (61 511) (35 564) (93 690)
Profit before income tax 10.4 1 809 934 1 638 750 3 399 088
Income tax expense 7.3 (612 084) (570 643) (1 111 792)
Profit for the period 12.1 1 197 850 1 068 107 2 287 296
Other comprehensive income,
net of income tax expense (193 350) (157 887) (161 786)
Fair value movements on
available-for-sale investments (2 777) 2 305 8 244
Foreign currency translation
differences (190 573) (160 192) (170 030)
Total comprehensive income
for the period 1 004 500 910 220 2 125 510
Profit attributable to:
Owners of the parent 11.9 1 186 183 1 059 790 2 266 522
Non-controlling interest 40.3 11 667 8 317 20 774
1 197 850 1 068 107 2 287 296
Total comprehensive income attributable to:
Owners of the parent 10.1 992 833 901 903 2 104 736
Non-controlling interest 40.3 11 667 8 317 20 774
1 004 500 910 220 2 125 510
Earnings per share (cents) 10.8 234.4 211.6 450.1
Diluted earnings per
share (cents) 12.6 234.4 208.2 446.4
Ordinary dividend per share (cents)
Final/interim dividend paid 147.0 130.0 80.0
Interim/final dividend declared 88.0 80.0 147.0
Number of weighted average ordinary
shares (`000) used for calculation of:
earnings per share 506 133 500 955 503 523
diluted earnings per share 506 133 509 091 507 775
Condensed Group Statement of Financial Position
Unaudited Unaudited Audited
R`000 Dec 10 Dec 09 Jun 10
ASSETS
Non-current assets 8 596 101 6 889 877 7 548 892
Property, plant and equipment 7 599 588 6 038 485 6 577 677
Available-for-sale investments 54 160 50 483 57 389
Loans and receivables 10 632 5 315 8 553
Deferred income tax assets 266 933 260 845 288 677
Intangible assets 659 229 528 516 611 037
Fixed escalation operating
lease accrual 5 559 6 233 5 559
Current assets 12 298 821 12 607 292 10 416 433
Inventories 7 627 603 6 974 489 6 114 538
Other current assets 2 534 134 2 339 518 2 037 188
Loans and receivables 52 723 69 243 45 841
Cash and cash equivalents 2 084 361 3 224 042 2 218 866
Assets held for sale 77 724 12 329 26 372
Total assets 20 972 646 19 509 498 17 991 697
EQUITY AND LIABILITIES
Total equity 6 204 305 5 166 372 5 972 016
Capital and reserves attributable
to owners of the parent 6 153 650 5 106 904 5 904 832
Non-controlling interest 50 655 59 468 67 184
Non-current liabilities 950 538 925 944 1 034 025
Borrowings 23 725 19 409 21 534
Deferred income tax liabilities 9 826 50 174 18 953
Provisions 281 622 272 294 270 818
Fixed escalation operating
lease accrual 430 948 416 256 418 641
Other non-current liabilities 204 417 167 811 304 079
Current liabilities 13 817 803 13 417 182 10 985 656
Other current liabilities 10 625 402 13 282 027 10 006 552
Provisions 104 832 53 004 104 825
Bank overdraft 3 087 569 82 151 874 279
Total liabilities 14 768 341 14 343 126 12 019 681
Total equity and liabilities 20 972 646 19 509 498 17 991 697
Earnings per Share
Unaudited Unaudited Audited
6 months 6 months for the
% ended ended year ended
R`000 change Dec 10 Dec 09 Jun 10
Profit attributable to owners
of the parent 1 186 183 1 059 790 2 266 522
Re-meassurements 13 248 2 340 25 580
Profit on disposals of assets
held for sale (576) - (503)
Loss on disposals and scrappings of
plant, equipment and intangible assets 13 825 7 941 14 536
Impairment of property, plant and
equipment and assets held for sale - - 14 632
Insurance claims received - (5 627) (3 657)
(Profit)/loss on other investing
activities (1) 26 572
Income tax effect of remeasurements (843) (699) 1 113
Headline earnings 1 198 588 1 061 431 2 293 215
Earnings per share
(cents) 10.8 234.4 211.6 450.1
Diluted earnings per
share (cents) 12.6 234.4 208.2 446.4
Headline earnings per
share (cents) 11.8 236.8 211.9 455.4
Diluted headline earnings
per share (cents) 13.6 236.8 208.5 451.6
Ordinary dividend per share (cents) 235.0 210.0 227.0
Final/interim dividend paid 147.0 130.0 80.0
Interim/final dividend declared 88.0 80.0 147.0
Condensed Group Statement of Cash Flows
Unaudited Unaudited Audited
6 months 6 months for the
ended ended year ended
R`000 Notes Dec 10 Dec 09 Jun 10
Cash generated by operations 803 000 3 348 282 3 930 369
Operating profit 1 827 534 1 620 456 3 387 037
Less: investment income (9 073) (12 462) (32 662)
Non-cash items 1 733 406 590 684 1 387 610
Settlement of share appreciation
rights (218 037) - -
Payment for settlement of
post-retirement medical benefits
liability - (200 631) (216 860)
Changes in working capital 2 (1 530 830) 1 350 235 (594 756)
Net interest (paid)/received (11 552) 30 728 35 202
Dividends received 3 025 28 9 511
Dividends paid (771 177) (672 102) (1 082 293)
Income tax paid (531 728) (515 578) (1 383 049)
Cash flows (utilised by)/from
operating activities (508 431) 2 191 358 1 509 740
Cash flows utilised by
investing activities (1 768 005) (1 472 951) (2 680 113)
Purchase of property, plant
and equipment and intangible assets (1 797 578) (1 269 398) (2 509 369)
Proceeds on disposal of assets
held for sale, property, plant
and equipment and
intangible assets 45 352 24 139 100 456
Acquisition of operations - (190 000) (255 894)
Other investment activities (15 779) (37 692) (15 306)
Cash flows from/(utilised by)
financing activities 4 431 (238 965) (237 928)
Acquisition of treasury shares - (244 439) (244 439)
Other financing activities 4 431 5 474 6 511
Net movement in cash and cash
equivalents (2 272 005) 479 442 (1 408 301)
Cash and cash equivalents
at the beginning of the period 1 344 587 2 811 465 2 811 465
Cash and cash equivalents
with acquisition of operations - (66 204) -
Effect of exchange rate movements
on cash and cash equivalents (75 790) (82 812) (58 577)
Cash and cash equivalents at the
end of the period (1 003 208) 3 141 891 1 344 587
Unaudited Unaudited Audited
6 months 6 months for the
ended ended year ended
R`000 Dec 10 Dec 09 Jun 10
Cash Flow Information
1. Non-cash items
Depreciation of property,
plant and equipment 474 003 396 086 848 270
Amortisation of intangible assets 27 477 21 212 47 849
Net fair value losses on financial
instruments 1 474 58 017 27 899
Exchange rate losses 13 366 33 596 77 824
Profit on disposals of assets
held for sale (576) - (163)
Loss/(profit) on disposals of property 5 243 - (340)
Loss on disposals and scrappings
of plant, equipment and intangible
assets 8 582 7 766 14 536
(Reversal)/impairment of property,
plant and equipment and assets
held for sale (508) - 14 632
Movement in provisions 11 387 (7 950) 59 317
Movement in cash-settled
share-based payment accrual 186 350 82 331 277 558
Insurance claims received - (5 627) -
Movement in fixed escalation
operating lease accrual 6 608 5 253 20 228
733 406 590 684 1 387 610
2. Changes in working capital
Inventories (1 594 564) (865 109) (46 064)
Trade and other receivables (523 171) (415 528) (125 470)
Trade and other payables 586 905 2 630 872 (423 222)
(1 530 830) 1 350 235 (594 756)
Condensed Group Operating Segment Information
Unaudited Unaudited Audited
6 months 6 months for the
% ended ended year ended
R`000 change Dec 10 Dec 09 Jun 10
Sale of merchandise
Supermarkets RSA 8.4 28 514 676 26 303 456 53 367 171
Supermarkets Non-RSA 3.1 3 715 104 3 604 702 7 163 977
Furniture 4.3 1 603 950 1 538 376 3 002 589
Other operating segments 43.3 2 425 400 1 692 001 3 868 703
9.4 36 259 130 33 138 535 67 402 440
Trading profit
Supermarkets RSA 15.8 1 530 250 1 321 617 2 755 207
Supermarkets Non-RSA (9.4) 175 026 193 172 485 799
Furniture (12.9) 90 900 104 347 131 213
Other operating segments 55.6 57 972 37 256 118 222
11.9 1 854 148 1 656 392 3 490 441
Supplementary Information
Unaudited Unaudited Audited
R`000 Dec 10 Dec 09 Jun 10
1. Capital commitments 2 703 403 1 062 881 1 674 508
2. Contingent liabilities 119 938 64 204 103 614
3. Net asset value per share (cents) 1 216 1 009 1 167
4. Total number of shares in issue
(adjusted for treasury shares) 506 133 506 133 506 133
Condensed Group Statement of Changes in Equity
Unaudited Unaudited Audited
6 months 6 months for the
ended ended year ended
R`000 Dec 10 Dec 09 Jun 10
Balance at beginning of July 5 972 016 5 029 295 5 029 295
Net movement in treasury shares - (244 439) (244 439)
Total comprehensive income 1 004 500 910 220 2 125 510
Treasury shares utilised for share
option take-up, net of income tax - 147 413 147 413
Non-controlling interest purchased - (3 215) (3 215)
Dividends distributed to owners (772 211) (672 902) (1 082 548)
Balance at end of December/June 6 204 305 5 166 372 5 972 016
DIRECTORATE AND ADMINISTRATION
Executive directors: JW Basson (chief executive), CG Goosen (deputy managing
director), B Harisunker, AE Karp, EL Nel, BR Weyers
Non-executive directors: CH Wiese (chairman), EC Kieswetter, JA Louw, JF
Malherbe, JG Rademeyer
Alternate directors: JAL Basson, M Bosman, PC Engelbrecht, JD Wiese
Company secretary: PG du Preez
Registered office: Cnr William Dabs and Old Paarl Roads, Brackenfell, 7560,
South Africa. PO Box 215, Brackenfell, 7561, South Africa Telephone: +27
(0)21 980 4000 Facsimile: +27 (0)21 980 4050. Website:
www.shopriteholdings.co.za
Transfer secretaries
South Africa: Computershare Investor Services (Pty) Ltd, PO Box 61051,
Marshalltown, 2107, South Africa
Telephone: +27 (0)11 370 5000 Facsimile: +27 (0)11 688 5248 Website:
www.computershare.com
Namibia: Transfer Secretaries (Pty) Ltd, PO Box 2401, Windhoek, Namibia
Telephone: +264 (0)61 227 647 Facsimile: +264 (0)61 248 531
Zambia: Lewis Nathan Advocates, PO Box 37268, Lusaka, Zambia
Telephone: +260 (0)211 262 009 Facsimile: +260 (0)211 261 997
Sponsors
South Africa: Nedbank Capital, PO Box 1144, Johannesburg, 2000, South Africa
Telephone: +27 (0)11 295 8525 Facsimile: +27 (0)11 294 8525
Website: www.nedbank.co.za
Namibia: Old Mutual Investment Group (Namibia) (Pty) Ltd, PO Box 25549,
Windhoek, Namibia
Telephone: +264 (0)61 299 3527 Facsimile: +264 (0)61 299 3528
Zambia: Lewis Nathan Advocates, PO Box 37268, Lusaka, Zambia
Telephone: +260 (0)211 262 009 Facsimile: +260 (0)211 261 997
Auditors: PricewaterhouseCoopers Incorporated, PO Box 2799, Cape Town, 8000,
South Africa
Telephone: +27 (0)21 529 2000 Facsimile: +27 (0)21 529 3300
Date: 22/02/2011 08:30:01 Supplied by www.sharenet.co.za
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