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Shoprite hit by challenges in Africa's frontier markets
* Diluted HEPS down 24.1 pct in July-Dec
* Strikes, new IT system caused supply constraints in
* Rest of Africa business logs a H1 trading loss
* Shoprite in a deal to buy, redeem or cancel deferred
(Adds analyst comment, detail on frontier markets)
By Nqobile Dludla
JOHANNESBURG, Feb 26 (Reuters) - Africa's largest
supermarket group Shoprite reported on Tuesday its
first half-year earnings decline in over a decade, hit by a
currency devaluation in Angola, highlighting the challenges of
doing business in frontier African markets.
The supermarket and furniture retailer has expanded
aggressively in Africa, surpassing rivals such as Pick n Pay
and Massmart to become the continent's leading
retailer with more than 2,800 stores in 15 countries.
But currency devaluations in markets such as Angola, its
biggest operation outside South Africa, and Nigeria have made it
difficult to operate profitably elsewhere on the continent
touted as the next bright growth spot for retailers.
A number of African countries are short of U.S. dollars,
especially Angola and Nigeria, where weak oil prices have
devalued their currencies, and Zimbabwe. Angola has devalued its
currency by about 85 percent since the beginning of 2018.
Shoprite said diluted headline earnings per share, the main
profit measure, for the 26-weeks to Dec. 30, 2018, came in at
398.5 cents, down from 525.6 cents a year earlier and falling
short of a forecast of 419 cents in a poll of analysts by
That was after the retailer suffered a 61.8 million rand
loss from its outlets elsewhere in Africa mainly due to the weak
trading in Angola. It reported a 552.7 million rand profit for
the same period a year earlier.
Shoprite hasn't been the only South African company facing
challenges in frontier markets, with packaging firm Nampak
blaming limited liquidity in Angola for a weak second
half performance and telecoms group MTN facing constant
However, Shoprite chairman and largest shareholder Christo
Wiese assured investors that the retailer is still committed to
Africa and will continue to invest in the "downturns as well as
"We're not in any form or fashion about to run away," he
said at the firm's half-year result presentation.
Shoprite CEO Chief Executive Pieter Engelbrecht said the
outlook for Angola had improved.
"Our view on Angola, I'm very optimistic about it," he told
the results presentation. "The structural changes currently in
the economy and by the President is all healthy and is
indicative of the long term view on the country."
Sanlam Private Wealth's senior portfolio manager, Greg
Katzenellenbogen, however, said he did not share that optimism.
"In terms of Angola, it's difficult to see the currency
recovering in the short term so that will have an ongoing effect
on all companies that operate there," Katzenellenbogen told
"It would be very difficult for a company to say look we
made a mistake and we're getting out (of) there, but I don't
quite share the same optimism because it will take a long time
for them to recover."
HOME MARKET STRUGGLES
At home things were just as bad, as Shoprite was hit by
deflation in basic food categories and supply constraints
stemming from strikes at its largest distribution centre and the
roll out of a new group-wide IT system that hit product
South African consumers have also been held back by elevated
household debt, higher fuel prices and an increase in
value-added tax to 15 percent, from 14 percent, and the
country's retail sales slumped in December to their lowest in
over a year.
Shoprite's core local supermarket operation increased sales
by 2.6 percent with a decline in trading profit of 15.1 percent.
In a separate statement, the group also said it aimed to
simplify its share structure and was in talks with Thibault
Square Financial Services Proprietary Limited to buy, redeem or
cancel deferred shares held by Thibault, which owns 32.3 percent
of voting rights.
Shoprite's capital structure currently consists of two share
classes - Shoprite Holdings ordinary shares and Shoprite
Holdings deferred shares - which carry about 32.3 percent of the
voting rights of Shoprite, it said.
Furthermore, the deal will ensure that all remaining shares
in the company have equal economic and voting rights, it added.
Thibault is an investment vehicle of Christo Wiese, who is
Shoprite's majority shareholder.
($1 = 13.8597 rand)
(Reporting by Nqobile Dludla, editing by Susan Fenton)
First Published: 2019-02-26 10:29:12
Updated 2019-02-26 18:04:11
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