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SHP / SRH - Shoprite Holdings - Results For The Year Ended 30 June 2007
(Reg. No. 1936/007721/06)
(ISIN: ZAE000012084)
(JSE Share code: SHP)
(NSX Share code: SRH)
(LuSE Share code: SHOPRITE)
("Shoprite Holdings" or "the Group")
Key information
- Trading profit was up 27,6% to R1,598 billion.
- Turnover increased 16,2% - from R33,511 billion to R38,950 billion.
- Non-RSA supermarkets achieved 29,4% sales growth.
- Diluted headline earnings per share from continued operations rose 33,3% to
194,3 cents.
- Total dividend per share envisaged to increase 38,4% to 101,0 cents.
Whitey Basson, chief executive, commented:
The results of the supermarket division were affected by industrial action
during the first quarter of the financial year. A decline in supplier service
levels affected stock availability, but was somewhat countered by the
performance of our supply chain through our own distribution centres.
Our management and staff have performed exceptionally well under these
conditions and were assisted by a buoyant market.
Our operations outside South Africa are performing well and the results
underpinned our belief that the continent will produce excellent results over
the long term. Our number of stores and geographic spread across Africa are well
positioned for future growth.
28 August 2007
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 076 390 7725
Operating environment
The period under review continued to be a time of high consumer spending in
South Africa, on food but also on durable and semi-durable goods. The spending
spree was fuelled, inter alia, by the growing disposable income of a burgeoning
black middle class, popularly referred to as the "Black Diamonds", which has as
its wellspring the Civil Service and the business community. Cash sales reached
record heights while lenders extended credit facilities to all and sundry in the
months leading up to the introduction of the National Credit Act. Initially
consumers seemed undeterred by the several increases in interest rates, but
towards the end of the period there were signs that spending on particularly
durable goods may have peaked. During the reporting period food inflation as
part of CPIX rose to an average of 8,5%. However, it was substantially higher in
certain food categories such as meat, dairy and maize products.
Comments on the results
Income statement
Total turnover
Total turnover increased by 16,2% from R33,511 billion to R38,950 billion. The
increase resulted mostly from the higher disposable income of a growing black
middle class, new store openings and aggressive promotions in the major chains.
Among lower-income consumers the absence of the National Lottery also channelled
more money into food sales.
Gross profit
Although the Group`s focus remains on basic food items at the most competitive
prices, it also responded to consumers` demand for a more extensive offering of
perishable and value-added products with their higher margins. These contributed
significantly to the 17,7% increase in gross profit, as did the continued strong
sales of non-food lines.
Expenses
A major contributor to the increase in expenses was the aggressive store opening
and refurbishment programme. The 10,1% increase in staff costs was offset by the
growth in staff productivity.
Trading profit and margin
The trading profit growth of 27,6% is the result of the strong growth in
turnover combined with the continuing advances in operational efficiencies.
The trading margin increased to 4,1%, a factor of strong top-line growth and low
cost inflation. Although most pleasing, being the highest ever achieved by the
Group, management cautions against a further improvement thereof should consumer
spending decline.
Interest received and finance costs
Net interest income was up due to the improved cash flows and increases in
interest rates.
Exchange rate gains
These are attributed to the rand`s slight strengthening against the US dollar
and the strengthening of the currencies of certain African countries in which
the Group operates. A gain of R23,7 million as against R8,4 million in 2006 was
achieved in the review period.
Income of a capital nature
The income of a capital nature of R60,9 million relates mainly to profits
realised from the sale of properties and the listed investment in ApexHi
Properties Limited.
Tax
The effective tax rate decreased marginally from the previous year.
Dividend envisaged
It is envisaged that a final dividend of 66,0 cents (2006: 46,0 cents) per share
will be declared during October 2007. The Board is committed to its policy of
two times cover on headline earnings per share.
Balance sheet
Intangible assets
The increase in intangible assets relates mainly to the investment in the
Group`s new back-office computer systems. It is envisaged that this project will
be completed in the next two financial years.
Inventories
The increase of 13,1% in inventory to R3,699 billion resulted primarily from
buoyant sales, the need to provision new stores, higher food inflation and
particularly from the need to stockpile products in the Group`s distribution
centres to counter the drop in supplier service levels.
Cash and cash equivalents
A favourable balance sheet closing date produced a temporary surge in net cash
and cash equivalents from R0,537 billion to R1,988 billion and should be read
with the increase in trade creditors.
Operational review
The past financial year was a period of strong growth across all sectors of the
business. Despite industrial action that disrupted operations in South Africa in
the first quarter of the financial year, all three retail food chains performed
well while our businesses elsewhere in Africa are consistently increasing their
profit contribution. The shift in demographics which has seen the emergence of
an ever-expanding black middle class in South Africa is continuing to benefit
Shoprite in particular, impacting on both turnover and profitability. To
accommodate the upsurge in demand the Group continued its comprehensive store
refurbishment programme which also saw the introduction of a wider range of
aspirational and lifestyle products. The improved product offering was
complemented by extended service departments and promoted by a robust marketing
programme. The Group also continued opening standalone liquor stores and in-
store pharmacies.
Number of outlets
June Open Closed June Confirmed
2006 2007 new stores
thereafter
SUPERMARKETS 574 41 11 604 66
- SHOPRITE 348 20 2 366 29
- CHECKERS 110 5 115 22
- CH HYPER 24 0 24 1
- USAVE 92 16 9 99 14
HUNGRY LION 74 26 3 97 14
FURNITURE 198 18 0 216 26
- OK FURNITURE 171 14 185 18
- HOUSE & HOME 27 4 31 8
TOTAL OWNED STORES 846 85 14 917 106
- OK FRANCHISE 253 34 27 260 20
- H/LION FRANCHISE 2 2 4
TOTAL FRANCHISE 255 36 27 264 20
TOTAL STORES 1 101 121 41 1 181 126
COUNTRIES OUTSIDE RSA 16 0 0 16 1
RSA supermarkets
The Group`s supermarket operation in South Africa, encompassing three chains -
Shoprite, Checkers and Usave - forms the core of the business and represents
79,9% of total turnover. All three chains performed well, growing turnover by
15,0% to R31,134 billion. The number of customer transactions increased by 7,3%,
while the average growth in value per transaction was 7,1%. However, sales were
hampered by the erratic delivery of supplies by manufacturers many of whom,
underestimating the growth in consumer demand, failed to invest timeously in
additional product capacity. The Group was consequently obliged to stockpile
product in its distribution centres to ensure a more or less consistent flow of
merchandise to stores. These supply problems nevertheless resulted in sales
losses and placed the whole of the food retail sector under pressure in terms of
consumer satisfaction.
Shoprite
Despite being hardest hit of the three retail chains by the industrial action in
the first quarter of the financial year, Shoprite still exceeded its budget for
the year. It increased total sales by 14,4% to R18,190 billion, the number of
customer transactions by 6,5% and the value per transaction by 7,2%. The growth
in existing business was 8,1%. With its 297 stores, 49% of the Group`s total
number of supermarkets, Shoprite remains the country`s most frequented food
chain and continues to benefit substantially from the government`s largesse in
social grants. At the same time support from the black middle class, which now
numbers 2,6 million consumers, is also growing. Considerable potential therefore
still exists for the opening of new stores in the country`s traditional black
areas where developers are now keener to invest in bricks and mortar than in the
past. In August 2006 Shoprite was selected South Africa`s foremost food retailer
when it won the Grocery and Convenience Store category in the annual Top Brands
survey conducted by Markinor in association with the Sunday Times.
Checkers
Acceptance of the repositioned Checkers by members of the higher LSM consumer
segment increased, and support from its target market - the LSM 8 to 10 income
groups - continued to grow during the review period. Buoyed by a high-visibility
marketing campaign, turnover growth exceeded that of Shoprite. Turnover was
15,0% higher while the growth on existing business increased 10,1%. The number
of customer transactions grew by 7,8% while the value per transaction increased
by 6,7%. The service departments within the stores were particularly successful
as the chain further increased its focus on freshness by extending its ranges of
perishable and value-added products. During the reporting period both Checkers
and Shoprite continued to strengthen their individual identities, further
clarifying their positioning and appeal and reducing cannibalisation between
brands.
Usave
The Usave concept of a limited product range forms an integral part of the
Group`s footprint within and outside the borders of South Africa, being a
valuable strategic tool in exploiting business opportunities. The Group`s
smallest format both in store size and number of outlets, it grew turnover
by 35,2% and existing business by 21,0%. Customer transactions increased by
16,9% and the value per transaction by 15,1%. It has a return on capital that
consistently exceeds 30%. Central to its success is its increasing number
of top-quality private labels at highly competitive prices. Focusing mainly
on dry goods, this versatile, low-cost format is equally at home in urban
and rural environments.
Operations outside South Africa
The Group`s non-RSA operations continued their growth throughout the year and
ended the reporting period with turnover 29,4% higher. The biggest contributions
came from Zambia, Namibia and Angola, while Nigeria is soon to join the ranks.
Shifting the Group`s focus to the commodity-rich countries of West Africa proved
to be a prescient step. It already operates in Ghana, Nigeria and Angola, and is
soon to open its first supermarket in the Democratic Republic of Congo (DRC).
Although higher margins are achieved than in South Africa, administrative red
tape as well as inadequate infrastructure disrupts the supply chain with lead
times varying from 60 to 120 days.
OK Franchise
The Franchise Division also reported a year of solid growth both in turnover,
which increased 14,1% and trading profit, which was 21,1% higher. The division,
which has 260 members in rural and urban areas in South Africa and some
neighbouring countries, earlier established the OK trademark as an umbrella
brand for now four different formats. The most recent of these, OK Value,
accommodates potential franchisees with limited financial resources by setting
slightly lower entry standards, thereby providing them with a platform from
where they can grow into the larger formats. A new development has been the
creation of a franchise liquor outlet under the trademark Enjoy, a logical
extension of the Group`s franchise brands, given the strong growth in the number
of its own liquor stores.
Furniture
Operating in a difficult trading environment, the Furniture Division
nevertheless had a satisfactory year, with the House & Home chain in particular
growing way beyond the rest of the sector. It increased turnover by 14,1% while
recording growth on existing business of 8,0%. Unlike food retail, which
experienced rising inflation throughout the period, the furniture sector had to
contend during that time with virtually no inflation, largely because of new
technology becoming more affordable as its applications increase. Like its
competitors, the Division continued focusing on low-margin volume business to
achieve its targets, balancing it with the higher returns achieved on direct
imports and furniture sales. The Division is expanding its non-RSA business and
is already operating in Namibia, Botswana, Swaziland, Lesotho and Mozambique,
with Angola and Zambia under consideration.
Group prospects and outlook
Although there are indications that the economy is slowing down, it is not a
matter of great concern as the primary drivers in the economy have not changed
while food retailing in any event tends to be less affected by fluctuations in
the market than other areas of retail. Our confidence, however, is also based on
other factors. We believe our continued investment in people, technology,
infrastructure and store upgrades increasingly provide us with proper returns.
In the rest of Africa our businesses are progressing well. Locally stock
availability should improve while our ability to source internationally has been
greatly expanded. All these factors should enable us to achieve satisfactory
results in 2008.
Corporate governance
The Group is committed to 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 in the Listings
Requirements of the JSE Ltd.
Dividend
It is envisaged that a final dividend of 66,0 cents (2006: 46,0 cents) per share
will be declared during October 2007, making the total dividend for the year
101,0 cents (2006: 73,0 cents).
Auditors` review opinion
The condensed consolidated preliminary results for the year ended June 2007 have
been reviewed by PricewaterhouseCoopers Inc. The auditors` unqualified review
opinion is available for inspection at the company`s registered office.
Accountability
These condensed consolidated preliminary results have been prepared in
accordance with International Financial Reporting Standards ("IFRS") 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 year ended June 2006.
CONDENSED GROUP INCOME STATEMENT
Reviewed Audited
% year ended year ended
R`000 change June 07 June 06
Sale of merchandise 16,2 38 949 845 33 511 287
Cost of sales 15,9 (30 952 417) (26 715 806)
Gross profit 17,7 7 997 428 6 795 481
Other operating income 4,3 798 454 765 180
Depreciation and 19,0 (517 397) (434 866)
amortisation
Operating leases 18,6 (997 735) (841 446)
Employee benefits 10,1 (3 100 627) (2 815 830)
Other expenses 16,5 (2 582 431) (2 215 944)
Trading profit 27,6 1 597 692 1 252 575
Exchange rate gains 180,9 23 725 8 445
Income of a capital nature (63,5) 60 935 166 906
Operating profit 17,8 1 682 352 1 427 926
Interest received 13,4 109 332 96 385
Finance costs (6,9) (83 570) (89 736)
Profit before tax 19,1 1 708 114 1 434 575
Tax 20,1 (622 586) (518 240)
Profit after tax 18,5 1 085 528 916 335
Loss for the year from - (19 853)
discontinued operation
Profit for the year 21,1 1 085 528 896 482
ATTRIBUTABLE TO:
Equity holders of the 20,9 1 076 071 890 132
Company
Minority interest 48,9 9 457 6 350
1 085 528 896 482
Cents Cents
Earnings per share from
continued
operations 18,2 212,1 179,4
Earnings per share 20,9 212,1 175,4
175.4
Diluted earnings per share
from continued operations 18,1 203,9 172,7
Diluted earnings per share 20,7 203,9 168,9
Ordinary dividend per share 38,4 101,0 73,0
Interim dividend paid 29,6 35,0 27,0
35,0 27,0
Final dividend
envisaged/declared 43,5 66,0 46,0
Number of ordinary shares
(`000) used for calculation
of:
earnings per share (weighted 507 320 507 346
average)
diluted earnings per share
(weighted average) 527 709 526 998
share (weighted average)
CONDENSED GROUP BALANCE SHEET
Reviewed Audited
R`000 June 07 June 06
ASSETS
Non-current assets 4 403 668 3 759 229
Property, plant and equipment 3 804 159 3 248 283
Available-for-sale investments 23 738 13 846
Loans and receivables 43 990 38 817
Deferred tax assets 252 749 219 626
Intangible assets 277 901 235 866
Fixed escalation operating lease accrual 1 131 2 791
Current assets 7 476 005 6 183 163
Inventories 3 699 199 3 269 500
Other current assets 1 538 016 1 492 466
Assets classified as held for sale 220 139 163 876
Available-for-sale investments - 33 592
Loans and receivables 6 425 15 758
Cash and cash equivalents 2 012 226 1 207 971
Total assets 11 879 673 9 942 392
EQUITY AND LIABILITIES
Total equity 3 688 771 3 082 868
Capital and reserves attributable to
equity holders 3 639 181 3 035 863
Minority interest 49 590 47 005
Non-current liabilities 724 188 731 860
Borrowings 2 498 2 464
Deferred tax liabilities 8 803 7 400
Provisions 264 185 269 264
Fixed escalation operating lease accrual 448 702 452 732
Current liabilities 7 466 714 6 127 664
Other current liabilities 7 371 458 5 422 096
Provisions 70 732 34 301
Bank overdraft 24 524 671 267
Total liabilities 8 190 902 6 859 524
Total equity and liabilities 11 879 673 9 942 392
RECONCILIATION OF HEADLINE EARNINGS
Reviewed Audited
% year ended year ended
R`000 change June 07 June 06
Net profit attributable to 1 076 071 890 132
shareholders
Loss for the year from discontinued - 19 853
operation
Earnings from continued operations 1 076 071 909 985
Income of a capital nature after tax (50 506) (141 557)
Profit on disposal of operations - (622)
Profit on disposal of property (22 125) (144 584)
Loss on disposal and scrapping of 3 797 6 613
plant, equipment and intangible
assets
Loss on other investing activities 721 -
Profit on disposal of listed (28 608) -
investment
Insurance claim received for (8 315) (2 006)
buildings
Impairment/(reversal of impairment) 1 398 (1 559)
of property, plant and equipment and
intangible assets
Impairment of goodwill - 1 286
Loss on cancellation of lease 3 060 -
Prescription of amounts owing (434) (685)
Headline earnings from continued 1 025 565 768 428
operations
Add: loss for the year from - (19 853)
discontinued operation
Expenditure of a capital nature after - (4 210)
tax from discontinued operation
Headline earnings 1 025 565 744 365
Cents Cents
Earnings per share from continued 18,2 212,1 179,4
operations
Earnings per share 20,9 212,1 175,4
Diluted earnings per share from 18,1
continued operations 203,9 172,7
Diluted earnings per share 20,7 203,9 168,9
Headline earnings per share from 33,5
continued operations 202,2 151,5
Headline earnings per share 37,8 202,2 146,7
Diluted headline earnings per share 33,3
from continued operations 194,3 145,8
Diluted headline earnings per share 37,6 194,3 141,2
Ordinary dividend per share 38,4 101,0 73,0
Interim dividend paid 29,6 35,0 27,0
Final dividend envisaged/declared 43,5 66,0 46,0
CONDENSED GROUP CASH FLOW STATEMENT
Reviewed Audited
year ended year ended
R`000 June 07 June 06
Cash generated by continued 3 465 407 2 065 366
operations
Operating profit 1 682 352 1 427 926
Less: investment income (7 712) (11 086)
Non-cash items 1 548 150 287 723
Cash settled share options (62 021) -
Changes in working capital 2 1 304 638 360 803
Net interest received 29 652 12 656
Dividends received 3 822 5 079
Dividends paid (417 461) (282 473)
Tax paid (524 352) (438 890)
Cash tilized by discontinued - (23 050)
operation
Cash flows from operating activities 2 557 068 1 338 688
Cash flows tilized by investing (1 109 298) (1 097 877)
activities
Purchase of property, plant and (1 258 609) (1 318 364)
equipment and intangible assets
Proceeds on disposal of property, 106 061 343 601
plant and equipment and intangible
assets
Proceeds on disposal of listed 54 528 -
investments
Acquisition of operations (14 192) (99 180)
Acquisition of subsidiary - (37 385)
Proceeds on disposal of operations - 2 632
Other investment activities 2 914 10 819
Cash flows from financing activities 99 406
Acquisition of treasury shares (220) (99)
Net proceeds on issue of preference 319 505
shares to joint venture
Movement in cash and cash equivalents 1 447 869 241 217
Effect of exchange rate movements on 3 129 3 066
cash and cash equivalents
Net movement in cash and cash 1 450 998 244 283
equivalents
Reviewed Audited
year ended year ended
R`000 June 07 June 06
CASH FLOW INFORMATION
1. Non-cash items
Depreciation on property, plant and 527 674 447 808
equipment
Amortisation of intangible assets 15 493 14 380
Net fair value losses/(gains) on financial 20 620 (20 091)
instruments
Exchange rate gains (23 725) (8 445)
Share options granted - 764
Profit on disposal of property (23 876) (171 651)
Loss on disposal and scrapping of plant and 6 259 9 257
equipment and intangible assets
Profit on disposal of listed investments (33 459) -
Loss on other investing activities 848 -
Impairment/(reversal of impairment) of 720 (1 559)
property, plant and equipment and intangible
assets
Profit on disposal of operations - (728)
Impairment of goodwill - 1 286
Movement in provisions 32 334 28 204
Movement in cash-settled share-based payment 17 892 6 633
accrual
Movement in fixed escalation operating lease 7 370 (18 135)
accrual
548 150 287 723
2. Changes in working capital
Inventories (419 734) (500 151)
Trade and other receivables (76 463) 23 580
Trade and other payables 1 800 835 837 374
1 304 638 360 803
CONDENSED SEGMENT INFORMATION
Reviewed Audited
% year ended year ended
R`000 change June 07 June 06
SEGMENT REVENUE - by business
segment
- Supermarkets 16,4 36 810 824 31 635 822
- Furniture 14,1 2 139 021 1 875 465
Total segment revenue 16,2 38 949 845 33 511 287
SEGMENT RESULT* - by business
segment
- Supermarkets (including 34,0 1 408 866 1 051 301
unallocated)
- Furniture 3,1 204 839 198 633
Total segment result 29,1 1 613 705 1 249 934
507 Segment result comprises trading profit plus exchange rate losses/gains
less investment income.
SUPPLEMENTARY INFORMATION
Reviewed Audited
R`000 June 07 June 06
1. Capital commitments 311 180 388 775
2. Contingent liabilities 57 593 88 362
3. Net asset value per share (cents) 717 598
4. Total number of shares in issue (adjusted 507 320 507 345
for treasury shares)
CONDENSED STATEMENT OF CHANGES IN EQUITY
Reviewed Audited
year ended year ended
R`000 June 07 June 06
Balance at beginning of July 3 082 868 2 265 877
Net movement in treasury shares (220) (99)
Net fair value movements on available-for- (2 249) 12 452
sale investments, net of tax
Profit for the year 1 085 528 896 482
Employee share option scheme - value of - 764
services provided
Cash settlement of share options (79 927) -
Foreign currency translation differences 20 566 187 545
Dividends distributed to shareholders (417 795) (280 153)
Balance at end of June 3 688 771 3 082 868
Directorate and administration
Executive directors:
JW Basson (chief executive), CG Goosen (deputy managing director), B Harisunker,
AE Karp, EL Nel, AN van Zyl, BR Weyers
Non-executive directors:
CH Wiese (chairman), JJ Fouche, TRP Hlongwane, JA Louw, JF Malherbe, JG
Rademeyer
Alternate directors:
JAL Basson, M Bosman, PC Engelbrecht, JD Wiese
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
Transfer secretaries
South Africa: Computershare Investor Services 2004 (Pty) Ltd, PO Box 61051,
Marshalltown, 2107, South Africa - Telephone: +27 (0)11 370 5000 - Facsimile:
+27 (0)11 688 5238 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)1 223 174 - Facsimile: +260 (0)1 229 868
Sponsors
South Africa: Nedbank Capital, PO Box 1144, Johannesburg, 2000, South Africa
Telephone: +27 (0)11 295 8602 - Facsimile: +27 (0)11 294 8602
Website: www.nedbank.co.za
Namibia: Old Mutual Investment Services (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)1 223 174 - Facsimile: +260 (0)1 229 868
Auditors:
PricewaterhouseCoopers Incorporated
PO Box 2799, Cape Town, 8000, South Africa. - Telephone: +27 (0)21 529 2000 -
Facsimile: +27 (0)21 529 3300
Date: 29/08/2007 08:00:02 Supplied by www.sharenet.co.za
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