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Shoprite - Interim results for the 27 weeks ended December 2004

Release Date: 22/02/2005 08:00
Code(s): SHP
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Shoprite - Interim results for the 27 weeks ended December 2004 Interim results for the 27 weeks ended December 2004 Shoprite Holdings Limited Registration No 1936/007721/06 ISIN: ZAE000012084 JSE share code: SHP NSX share code: SRH LuSE share code: SHOPRITE "Shoprite" or "the Group" Focused on growth Interim results for the 27 weeks ended December 2004 This interim report covers 27 weeks compared to the 26 weeks of the corresponding period in 2003, a factor that should be taken into consideration when evaluating these results. To make the comparison with the corresponding six months in 2003 meaningful, percentages provided in the section "Key information" below are given for both a 27-week and a 26-week reporting period. Key information * Total turnover increased 14,2% (26 weeks: 10,4%) from R13,360 billion to R15,254 billion. * Non-RSA operations achieved 26,4% (26 weeks: 22,1%) sales growth in stable currency terms. * Operating profit before exchange differences was up 47,7% (26 weeks: 25,2%) to R466,2 million. * Headline earnings per share grew 55,4% to 60,6 cents (26 weeks: up 30,8% to 51,0 cents). * Headline earnings per share, adjusted for exchange differences, rose 39,3% to 61,7 cents (26 weeks: up 17,8% to 52,2 cents). * Dividend per share envisaged increased 33,3% to 22,0 cents. * Net asset value per share increased 22,8% to 464 cents. Whitey Basson, chief executive, commented: "Although experiencing internal food deflation in all our operating chains the Group nevertheless managed turnover growth of 14,1% for the 27 weeks under review compared to the 26 weeks of the corresponding period a year ago. This was achieved by growing the number of customer store visits combined with an increase in basket size. Most pleasing was the strong spurt of 47,7% in operating profit before exchange differences which generated a net profit margin of 3,06%, the highest ever achieved by the Group. Our ambitious new-store programme announced last year is on track and we will continue to grow strongly in all our markets." 21 February 2005 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 082 905 6274 Operating environment In the year since the previous interim report the already very low food inflation dropped even lower - from 2,6% in December 2003 to 1,5% in December 2004 - and there are no market indicators suggesting that this is going to change in the short term. However, consumer confidence continued unabated stimulating sales of particularly durable goods. The Group"s furniture division benefited substantially from this trend. The continued strength of the rand perpetuated the benefits and disadvantages associated with it - cheaper imports but also more expensive exports of South African products to our stores in Africa, forcing the Group to increasingly source merchandise from elsewhere. Comments on the results Income statement Total revenue Total revenue increased by 13,9% from R13,635 billion to R15,529 billion. If the additional week of the current reporting period is disregarded, revenue growth was 10,2%. Gross profit Gross profit was 15,9% higher at R2,178 billion. This is ascribed to greater efficiency in sourcing and replenishment, augmented product ranges and improved sales of higher-margin non-food items. Operating margin The operating margin before exchange differences has shown consistent growth over the past few years. In the year since the end of 2003 it has accelerated from 2,36% to 3,06%, due to the same factors as set under "Gross profit" above, combined with relentless shrinkage control. Exchange losses During the review period the rand strengthened 10,5% against the US dollar compared to 9% in the corresponding period. Exchange losses nevertheless reduced from R31,5 million to R6,9 million due to the Group"s exposure to other currencies. Exceptional items Exceptional items reduced from R80,7 million in 2003 to R18,7 million, mainly due to an end to the amortisation of negative goodwill during the 2004 financial year when the remaining balance of the negative goodwill arising from the OK Bazaars takeover had been fully utilised. The R18,7 million in exceptional items resulted for the most part from the realisation of the Group"s investment in Canal Walk Ltd. Earnings per share Earnings per share increased 17,5% to 63,9 cents and headline earnings per share 55,4% to 60,6 cents. Once adjusted for exchange differences, headline earnings per share were 39,3% higher at 61,7 cents. Balance sheet Stock levels Stock levels rose marginally to R3,198 billion (2003: R3,174 billion) mainly due to the need to provision new outlets and buying for the Christmas season which, for the food industry as a whole, did not meet expectations. Cash and cash equivalents Cash and cash equivalents reduced from R1,650 billion in 2003 to R779,4 million. This was mainly due to the fact that the corresponding reporting period ended on 28 December before the usual major month-end creditor payments were made. The Group was also for the first time since the acquisition in 1997 of OK Bazaars and its assessed tax losses, required to pay provisional tax. Total tax paid during the review period came to R326,2 million compared to R9,3 million in 2003. Borrowings The Group decided to take advantage of the current low interest rate environment to restructure its balance sheet by obtaining longer-term finance to fund future capital commitments. Operational review The reporting period to December 2004 was a successful trading one for the Group, with all the retail divisions reporting good growth in turnover, despite internal food deflation of between 0,3% and 1,3% across the different brands. Turnover growth was helped along by a strong emphasis on higher-margin non-food sales without in the process diluting the Group"s primary focus on food. The Group marginally increased market share despite opening fewer top-end stores within South Africa than its main competitors. Store June 2004 Opened Closed Dec. 2004 Supermarkets 486 29 (5) 510 Shoprite 316 9 (3) 322 Checkers 88 3 0 91 Checkers Hyper 23 0 0 23 Usave 59 17 (2) 74 Hungry Lion 52 5 (1) 56 (joint venture) Furniture Group 167 6 0 173 OK Furniture 145 6 0 151 House & Home 22 0 0 22 Total own stores 705 40 (6) 739 OK Franchise 297 14 (38) 273 Hungry Lion franchise 3 1 0 4 Total franchise 300 15 (38) 277 Total stores 1005 55 (44) 1 016 Countries outside South 15 1 0 16 Africa Supermarkets The Supermarket Division produced satisfactory revenue growth and a strong increase in profitability by good management of the cost and the distribution chain. The combined revenue of the three supermarket brands - Shoprite, Checkers and Usave - increased by 13,5% to R14,418 billion (26 weeks: 9,7% to R13,940 billion). Customer visits to its 510 stores increased 7,2% while basket size across the brands was 3,6% higher. The lower growth in basket size should be seen against the fact that all three chains experienced negative food inflation. Shoprite Shoprite, harder hit than Checkers by internal food deflation, given its mass- market customer profile and product mix, grew turnover on a like-for-like basis by 8,6% and overall by 11,7% on a 26-week comparative basis. The growth of 6,2% in customer visits and 5,2% in basket size also reflected increasing support from South Africa"s emerging middle class. Checkers The Checkers brand continued to reflect the value of its new positioning in its customer support, with turnover growth of 7,3% on a like-for-like basis and 7,2% overall on a 26-week comparative basis. It grew basket size 4,9% compared to a year ago. Usave The roll-out of Usave outlets continued apace to keep up with support for the brand, and a further 15 stores were opened during the review period to bring the total in South Africa to 57 - 30 more than a year ago. Due to its market positioning and all-out focus on price, Usave experienced the highest deflation of the chains, a fact reflected in basket growth of 2,8%. The tempo of new-store openings resulted in the number of customer visits increasing by 144%. Operations outside South Africa The Group"s operations in 16 countries outside South Africa performed to expectations, achieving 23,7% sales growth in stable currency terms on a 26-week comparative basis. If currency fluctuations are taken into account, this turnover growth translates into 10,3% in rand terms. During the period under review the Group started trading as a wholesale operation in India and in its first franchised Hyper in a modern shopping centre in Mumbai. Management is excited about the enormous potential for growth in the subcontinent. OK Franchise After substantial write-offs in the previous financial year this division is back on an even keel and performing satisfactorily. During the review period 38 memberships and franchises were terminated and 14 new stores opened. All these businesses are being well managed and operating results are expected to improve in the next six months. Furniture Good growth was again experienced in the Furniture Division. Revenue increased 19,7% for the 27 weeks and 16,3% on a 26-week comparative basis. Operating profit grew strongly by 34,0% to R98,6 million for the 27 weeks and by 24,4% for the 26-week comparative period. These results were achieved in a highly competitive market, characterised by strong consumer demand and lower prices for imported goods given the strength of the rand. Group prospects and outlook We do not foresee any material changes occurring in the next six months in the retail environment in which the Group operates. Food inflation will remain low so we will continue our strategy of increasing and further upgrading our non- food product offering. We are looking forward to continued turnover growth from our major supermarket brands and we are confident that the Group will be able at least to maintain its present level of profitability. Corporate governance Shoprite acts in accordance with the principles embodied in the Code of Corporate Practice and Conduct in the King Report 2002 ("the Code"). The Group complies with the significant requirements incorporated in the Code and the JSE Securities Exchange SA listing requirements. Accountability These condensed consolidated interim results have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice ("GAAP") 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 2004 with the following exception: * With the introduction of new accounting statements IFRS 3, Business Combinations; IAS 36, Impairment of Assets and IAS 38, Intangible Assets, all relevant transactions, assets and liabilities are now accounted for in terms of these statements. These statements require prospective application and had no material effect on the Group"s results. Where necessary, comparative figures have been adjusted to conform to changes in presentation made in the current period. In particular, the cash flow statement and related disclosure for the period ending December 2003 have been adjusted with the elimination of all exchange differences. In accordance with the recommendations of the JSE Securities Exchange South Africa, the Group now consolidates its share incentive scheme to ensure compliance with AC 132: Consolidated financial statements and accounting for investments in subsidiaries. The restatement had no significant effect on earnings or headline earnings per share. Adjusted headline earnings are calculated by excluding the after-tax effect of exchange gains and losses from headline earnings. Dividend It is envisaged that an interim dividend of 22,0 cents per share will be declared towards the end of March 2005. CH Wiese Chairman JW Basson Chief executive 21 February 2005 Condensed group income statement Unaudited Unaudited Audited 27 weeks % 26 weeks 52 weeks R"000 ended Dec 04 change ended Dec 03 ended Jun 04 Revenue 15 529 378 13,9 13 635 118 27 171 644 Sale of merchandise 15 254 123 14,2 13 359 516 26 641 233 Finance income earned 81 701 7,1 76 318 171 322 Franchise fees received 10 131 (2,9) 10 431 19 779 Operating lease income 97 742 (9,7) 108 260 221 187 Net premiums earned 85 681 6,3 80 593 118 123 Gross profit 2 178 038 15,9 1 879 465 4 063 879 Other operating income 1 217 445 12,1 1 085 955 2 263 846 Depreciation (214 290) 15,6 (185 426) (407 382) Operating leases (365 488) 4,8 (348 695) (857 341) Staff costs (1 243 169) 11,9 (1 110 682) (2 273 837) Other operating costs (1 106 295) 10,1 (1 004 941) (2 086 996) Operating profit before exchange losses 466 241 47,7 315 676 702 169 Exchange losses (6 894) (78,1) (31 470) (78 848) Operating profit before exceptional items 459 347 61,6 284 206 623 321 Exceptional items 18 669 (76,9) 80 688 161 594 Operating profit after exceptional items 478 016 31,0 364 894 784 915 Investment income 27 579 25,9 21 910 57 739 Finance costs (6 311) (32,8) (9 385) (30 062) Profit before tax 499 284 32,3 377 419 812 592 Tax (167 491) 73,5 (96 518) (244 107) Profit after tax 331 793 18,1 280 901 568 485 Minority interest (7 765) 54,2 (5 037) (11 674) Net profit 324 028 17,5 275 864 556 811 Earnings per share (cents) 63,9 17,5 54,4 109,8 Diluted earnings per share (cents) 62,2 16,7 53,3 107,7 Headline earnings per share (cents) 60,6 55,4 39,0 79,9 Diluted headline earnings per share (cents) 59,0 54,0 38,3 78,3 Adjusted headline earnings per share (cents) 61,7 39,3 44,3 93,5 Adjusted diluted headline earnings per share (cents) 60,1 38,5 43,4 91,7 Ordinary dividend per share paid (cents) 19,5 18,2 16,5 33,0 Ordinary dividend per share envisaged (cents) 22,0 33,3 16,5 36,0 Number of ordinary shares ("000) used for calculation of : earnings per share 507 387* 507 466* 506 979* : diluted earnings per share 520 914* 517 727* 517 007* (* weighted average) Condensed statement of changes in equity Unaudited Unaudited Audited
27 weeks 26 weeks 52 weeks R"000 ended Dec 04 ended Dec 03 ended Jun 04 Balance at beginning of July 2 128 215 1 732 939 1 732 939 Net movement in treasury shares (164) (3 469) (3 080) Net fair value profits on available-for-sale investments, net of tax 2 769 1 958 8 969 Net profit for the period 324 028 275 864 556 811 Dividends distributed to shareholders (98 942) (83 782) (167 424) Balance at end of December/June 2 355 906 1 923 510 2 128 215 Condensed segment information Unaudited Unaudited Audited 27 weeks % 26 weeks 52 weeks R"000 ended Dec 04 change ended Dec 03 ended Jun 04 Revenue - by business segment - Supermarkets 14 418 020 13,5 12 706 720 25 455 828 - Furniture 1 111 358 19,7 928 398 1 715 816 Total revenue 15 529 378 13,9 13 635 118 27 171 644 Operating profit - by business segment - Supermarkets 360 784 71,3 210 655 469 288 - Furniture 98 563 34,0 73 551 154 033 Total operating profit 459 347 61,6 284 206 623 321 Condensed group balance sheet Unaudited Unaudited Audited
R"000 Dec 04 Dec 03 Jun 04 Assets Non-current assets 2 663 667 2 194 186 2 452 285 Property, plant and equipment 2 339 398 1 972 825 2 178 809 Available-for-sale investments 32 675 57 519 6 980 Loans originated by the enterprise 79 445 72 474 66 537 Deferred tax assets 169 394 133 479 169 620 Intangible assets 42 755 (42 111) 30 339 Current assets 5 941 566 6 709 287 5 479 081 Inventories 3 197 962 3 173 583 2 620 150 Other current receivables 1 952 938 1 823 264 1 651 701 Available-for-sale investments - - 53 624 Loans originated by the enterprise 11 229 62 856 19 538 Cash and cash equivalents 779 437 1 649 584 1 134 068 Total assets 8 605 233 8 903 473 7 931 366 Equity and liabilities Capital and reserves 2 355 906 1 923 510 2 128 215 Minority interest 45 772 36 242 38 007 Non-current liabilities 217 887 222 144 218 325 Borrowings 2 450 2 450 2 450 Deferred tax liabilities 1 998 3 986 1 939 Provisions 213 439 215 708 213 936 Current liabilities 5 985 668 6 721 577 5 546 819 Borrowings 600 000 - - Other current liabilities 5 336 760 6 670 752 5 492 419 Provisions 48 908 50 825 48 567 Bank overdraft - - 5 833 Total equity and liabilities 8 605 233 8 903 473 7 931 366 Reconciliation of headline earnings Unaudited Unaudited Audited 27 weeks 26 weeks 52 weeks
R"000 ended Dec 04 ended Dec 03 ended Jun 04 Net profit attributable to shareholders 324 028 275 864 556 811 Exceptional items after tax (18 647) (80 688) (160 140) Profit on sale of unlisted investment (17 978) - - Profit on sale of listed investment (669) - - Profit on sale of operation - - (68) Reversal of impairment of buildings - - (3 067) Impairment of unlisted investment - - 5 119 Amortisation of negative goodwill - (72 288) (150 036) Reversal of impairment of amounts owing by share incentive trust participants - - (7 946) Payment for lease - - 3 000 cancellation Receipt for lease - (8 400) (6 975) cancellation Prescription of amounts - - (167) owing Other items after tax Loss on disposal and scrapping of plant and 1 868 1 028 3 194 equipment Amortisation of goodwill - 1 959 5 087 Headline earnings 307 249 198 163 404 952 Exchange losses after tax 5 791 26 426 68 988 Adjusted headline earnings 313 040 224 589 473 940 Supplementary information Unaudited Unaudited Audited R"000 Dec 04 Dec 03 Jun 04 1.Capital commitments 344 008 108 873 174 053 2.Contingent liabilities 47 227 46 834 14 707 3.Net asset value per share (cents) 464 378 419 4.Total number of shares in issue (adjusted for treasury shares) 507 387 507 310 507 387 Condensed group cash flow statement Unaudited Unaudited Audited 27 weeks 26 weeks 52 weeks R"000 Notes ended Dec 04 ended Dec 03 ended Jun 04 Cash generated by operations (202 009) 1 337 925 1 341 611 Operating profit before exceptional items 459 347 284 206 623 321 Non-cash items 1 220 016 215 420 499 276 Changes in working capital 2 (881 372) 829 899 213 447 Exceptional items 3 - 8 400 5 567 Net finance costs 21 268 11 283 22 971 Dividends received - 1 242 4 706 Dividends paid (97 370) (83 657) (171 105) Tax paid (326 173) (9 341) (75 012) Cash flows from operating activities (604 284) 1 257 452 1 123 171 Cash flows from investing activities (348 154) (361 213) (736 243) Purchase of property, plant and equipment (387 965) (336 363) (765 960) Proceeds on disposal of investments 50 000 - - Acquisition of subsidiaries/operations (2 329) (13 178) (14 147) Disposal of interest in operation - - 5 200 Other investment activities (7 860) (11 672) 38 664 Net cash flow (952 438) 896 239 386 928 Cash flows from financing activities 599 836 (3 469) (3 080) Acquisition of treasury shares (164) (3 469) (3 703) Proceeds on sale of treasury shares - - 623 Borrowings raised 600 000 - - Movement in cash and cash equivalents (352 602) 892 770 383 848 Effect of exchange rate movements on cash and cash equivalents 3 804 (14 892) (27 319) Net movement in cash and cash equivalents (348 798) 877 878 356 529 Cash flow information 1 Non-cash items Depreciation on property, plant and equipment 214 290 185 426 407 382 Amortisation of goodwill - 1 959 5 087 Loss on disposal and scrapping of plant and equipment 2 670 1 481 4 117
Net fair value losses/(gains) on financial instruments (3 838) (4 916) 3 842 Exchange losses 6 894 31 470 78 848 220 016 215 420 499 276
2 Changes in working capital Inventories (611 412) (631 191) (98 169) Trade and other receivables (333 955) (419 219) (227 341) Trade and other payables 64 151 1 889 724 552 402 Movement in provisions (156) (9 415) (13 445) (881 372) 829 899 213 447 3 Exceptional items Exceptional items per income statement 18 669 80 688 161 594 Profit on sale of unlisted investment (18 000) - - Profit on sale of listed investment (669) - - Profit on disposal of operation - - (97) Reversal of impairment of buildings - - (3 067) Impairment of unlisted investment - - 5 119 Reversal of impairment of amounts owing by share incentive trust participants - - (7 946) Amortisation of negative goodwill - (72 288) (150 036) - 8 400 5 567 Directorate and administration Executive directors: JW Basson (chief executive), CG Goosen (deputy managing director), B Harisunker, BR Weyers, AN Van Zyl Non-executive directors: CH Wiese (chairman), JJ Fouche, TRP Hlongwane, JA Louw, JF Malherbe, JG Rademeyer Company secretary: AN van Zyl 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.shoprite.co.za Auditors: PricewaterhouseCoopers Inc PO Box 2799, Cape Town, 8000, South Africa Transfer secretaries: Computershare Investor Services 2004 (Pty) Ltd PO Box 61051, Marshalltown, 2107, South Africa Telephone +27 (0)11 370 5000 Facsimile +27 (0)11 688 5520 Website: www.computershare.com Sponsor: Nedbank Capital PO Box 1144, Johannesburg, 2000, South Africa Telephone +27 (0)11 295 8602 Facsimile +27 (0)11 294 8602 Website: www.nedbank.com website: www.shoprite.co.za Date: 22/02/2005 08:00:21 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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