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Operational and voluntary trading update (52 weeks ended 28 June 2020)
SHOPRITE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration no. 1936/007721/06)
ISIN no: ZAE000012084
JSE share code: SHP
NSX share code: SRH
LuSE share code: SHOPRITE
("the Group")
Operational and voluntary trading update (52 weeks ended 28 June 2020)
Trading environment
This operational update, inclusive of voluntary earnings per share (EPS) and
headline earnings per share (HEPS) guidance, is more comprehensive than
usual for the purpose of providing shareholders and investors with an
understanding of how the Group has traded during the COVID-19 pandemic.
Despite difficult circumstances, in a year incorporating the COVID-19
lockdown and accompanying regulations governing trade, transport and
operations, the Group increased total sale of merchandise for the 52 weeks
to 28 June 2020 (including the impact of hyperinflation in the prior year)
by 6.4% to approximately R156.9 billion. Like-for-like growth for the year
was 4.4%.
The Shoprite Group remained committed to meeting the demands of our
customers, whilst focusing on value and remaining solution oriented.
This was evidenced, inter alia, by our digital voucher innovation,
ongoing private label development and the conversion of our Checkers
Food Services (CFS) business to include a consumer facing offering. In
addition, the rapid scaling of our innovative Checkers Sixty60 digital
shopping application, which after a test phase introduction in November
2019, was operational from 87 stores nationwide by June 2020.
As a Group, our initiatives pertaining to inventory and capital management
began early in our financial year and carried on unabated despite the
nationwide lockdown. From a liquidity and net debt standpoint, the Group has
managed to meaningfully improve its financial position since reporting in
February 2020 on our first half results. The transaction involving the sale
of our distribution centres to Equites Property Fund Limited is in its final
phase of Competition Commission approval and we anticipate transfer will be
affected during the first half of the 2021 financial year.
Supermarkets RSA's sales growth (inclusive of liquor) of 8.7% for the year
was underpinned by a strong second half, in which sales grew 7.5%,
notwithstanding a high second half base in the prior year during which
fourth quarter sales grew by 9.4%. As a result of lockdown, customer visits
for the year declined by 7.4%, however, average basket spend increased by
18.4%. Superb execution across the business coupled with considerable
efforts from our suppliers resulted in volume growth of 2.3% for the year.
Market share figures insofar as they are available (up to the end of
May 2020) reflect consecutive monthly market share gains for the past
15 months.
In equally, if not more difficult circumstances resulting from COVID-19
lockdown regulations, Supermarkets Non-RSA's second half reported an
increase in sales of 0.1%, resulting in an overall decline in sales of 1.4%
for the year but in constant currency increased by 6.6%.
Nigeria - discontinued operations
Following approaches from various potential investors, and in line with
our re-evaluation of the Group's operating model in Nigeria, the Board has
decided to initiate a formal process to consider the potential sale of all,
or a majority stake, in Retail Supermarkets Nigeria Limited, a subsidiary
of Shoprite International Limited. As such, Retail Supermarkets Nigeria
Limited may be classified as a discontinued operation when Shoprite reports
its results for the year. Any further updates will be provided to the market
at the appropriate time.
Group segmental sales
Segmental sales growth for the twelve months to June 2020 is as follows:
Sales growth % H1 ended H2 ended
Dec 2019 Jun 2020 FY 2020
Supermarkets RSA 9.8 7.5 8.7
Supermarkets Non-RSA -2.7 0.1 -1.4
Furniture -2.7 -23.1 -11.9
Other operating segments 4.4 3.5 3.9
Total continuing operating segments 7.2 5.2 6.2
Discontinued operations
(Nigeria operations) -5.9 -6.7 -6.3
Total operating segments including
discontinued operations 7.0 5.0 6.0
Total continuing consolidated operations* 7.3 5.4 6.4
* Including the impact of hyperinflation in the comparative period.
The following information provides context to the Group's sales growth for
the year:
Supermarkets RSA
- The Group's core business, Supermarkets RSA (including liquor),
contributing 78.0% to Group sales, achieved sales growth of 8.7% for
the year. Like-for-like growth for the year measured 6.8%.
- Shoprite and Usave reported full year sales growth of 6.7% (second
half sales growth: 5.7%) and Checkers and Checkers Hyper reported
full year growth of 13.5% (second half sales growth: 16.1%).
- Second half internal inflation of 3.4% increased marginally from the
2.7% reported for the first six months to average 3.0% for the year.
- Our private label business, spanning our three supermarket chains and
offering better value and range to our customers, managed to increase
its Supermarkets RSA sales participation to 17.1%, up 60 basis points
compared to the previous year.
- South African COVID-19 lockdown regulations implemented from
27 March 2020 restricted trade in several categories within our
supermarket business and as such, impacted the business differently at
different times. However, across the board, our Checkers, Checkers
Hyper, Shoprite and Usave brands performed admirably in what can only be
described as incredibly difficult conditions for both our employees and
customers. The two weeks preceding South Africa's initial 35 days of
Level 5 lockdown resulted in elevated sales growth across all three of
our supermarket brands but noteworthy was the significant growth
reported by our repositioned mid-to-upper end Checkers (including
Checkers Hyper) business which now represents 39.6% of Supermarkets
RSA's sales.
- The sales growth momentum achieved in our liquor business during our
first half continued up to February and accelerated, pre-lockdown,
during March. COVID-19 lockdown regulations required the complete
closure of our liquor business for 66 days and subsequently restricted
trade to four days a week (Monday to Thursday) for the month of June.
The combined result of a first half during which sales grew by 20.5%
followed by a second half during which sales declined by 29.5%,
resulted in a year in which sales declined by 3.3%. Liquor represents
5.8% of Supermarkets RSA's sales.
Supermarkets Non-RSA
- Given the aforementioned comment regarding the pending classification
of Nigeria as a discontinued operation, Supermarkets Non-RSA (excluding
Nigeria) contributing 11.6% to Group sales, recorded a decline in sales
of 1.4% for the year.
- Second half constant currency sales growth of 6.3% was significantly
impacted by lockdown regulations across the 14 African countries in
which we trade. Lockdown restrictions pertaining to store closures;
social distancing; transport restrictions; the movement of people;
trading hours; workforce limitations and trade in alcohol impacted
various regions to differing degrees at different times.
Furniture
- The Group's Furniture segment, representing 3.5% of Group sales,
reported a decline in sales of 11.9% for the year. Like-for-like sales
for the year declined by 10.3%.
- Second half trade was significantly impacted by lockdown regulations
which required our South African store base to close for 52 days and
our Non-RSA regions to close, on average, for 31 days. Consequently,
second half sales declined by 23.1%.
- Debtor book collections were hampered during the lockdown period and
are expected to deteriorate in line with the anticipated economic
downturn. The assessment of expected credit losses for the year is in
the process of being finalised, however, our expectation in accordance
with IFRS 9: Financial Instruments is that the provision against the
debtor book will increase from 35.8% to approximately 50.5% compared
to the previous year. The movement in the provision equates to an income
statement charge of approximately R325 million.
Other operating segments
The Group's Other operating segments, representing 6.9% of Group sales
and comprising OK Franchise, Transpharm, MediRite Pharmacies, CFS and
Computicket, achieved sales growth of 3.9% for the year. This was achieved
despite lockdown limitations impacting CFS, given that its primary
customers (the restaurant and hospitality industry) were closed during
lockdown, as well as Computicket, with lockdown restrictions having a
significant impact on events and travel related ticketing. Notwithstanding
these restrictions, the businesses' ability to adapt and innovate resulted
in second half sales increasing by 3.5%.
COVID-19 costs
The Group believes it is appropriate to highlight the COVID-19 costs
incurred pertaining to compliance with national lockdown regulations
together with managing and protecting our employees, customers, stores,
inventory and distribution infrastructure. In this regard, the Group has
incurred a net total of R327.2 million spent across the areas of health and
safety, security, mobile clinics, personal protective equipment, temperature
scanners, store and distribution centre sanitation, employee meals,
communication costs and remote network access for employees. The most
significant spend pertained to R116.9 million paid to our employees,
inclusive of an appreciation bonus to assist them with the difficulties we
anticipated would accompany the nationwide lockdown.
Impairment of non-financial assets
Impairments for the year approximate R1.3 billion, mainly in the
Supermarkets Non-RSA and Furniture segments as a result of the deterioration
in the current and future economic outlook. Impairments, net of income tax,
form part of items of a capital nature and as such impact EPS but not HEPS.
Voluntary trading update
The following information is supplied in order to assess the impact of the
impairments raised and the aforementioned COVID-19 costs on the Group's
results for the year.
Furthermore, due to the potential classification of our Nigerian business as
a discontinued operation, we present continuing operations excluding Nigeria
as an alternative.
For ease of comparison of the like-for-like relative performance of the
operations, we have included an adjusted basic HEPS which excludes
the after tax effect of exchange rate gains or losses and the impact of
hyperinflation. In addition, we have calculated this metric to exclude
once-off COVID-19 costs.
Restated for
Estimated IFRS 16 Expected
28 Jun 2020 30 Jun 2019 change
cents cents %
Earnings including
discontinued operations:
Basic EPS 601.9 to 652.0 625.3 -3.7 to 4.3
Basic HEPS 748.1 to 804.1 699.2 7.0 to 15.0
Adjusted basic HEPS* 714.5 to 763.1 607.2 17.7 to 25.7
Adjusted basic HEPS
excl. COVID-19 costs 757.6 to 806.2 607.2 24.8 to 32.8
Earnings from
continuing operations:
Basic EPS 594.1 to 649.1 687.6 -13.6 to -5.6
Basic HEPS 735.6 to 795.4 747.7 -1.6 to 6.4
Adjusted basic HEPS 700.2 to 749.3 613.5 14.1 to 22.1
Adjusted basic HEPS
excl. COVID-19 costs 742.9 to 792.0 613.5 21.1 to 29.1
*The adjusted basic HEPS and continuing operations information provided,
constitutes pro forma financial information in terms of JSE Listing
Requirements.
Impact of the Group's pro forma constant currency disclosure
The Group discloses unaudited constant currency information to indicate the
Supermarkets Non-RSA operating segment performance in terms of sales growth,
excluding the effect of foreign currency fluctuations. To present this
information, current year sales for entities reporting in currencies other
than ZAR are converted from local currency actuals into ZAR at the prior
year's actual average exchange rates on a country-by-country basis.
For the year ended 28 June 2020, the Angolan economy was assessed not to be
hyperinflationary, whilst it was assessed to be hyperinflationary during the
prior year ended 30 June 2019. As such, in respect of Angola, the constant
currency information has been prepared excluding the impact of
hyperinflation.
The table below sets out the percentage change in sales, based on the actual
results for the financial year, in reported currency and constant currency
for the following major currencies. The total impact on Supermarkets Non-RSA
is also reflected after consolidating all currencies in this segment.
% Change in sales on prior year 52 weeks Reported Constant
currency currency
Angola kwanza -29.1 -1.2
Nigeria naira -6.3 -12.3
Zambia kwacha 0.2 15.7
Mozambique metical 9.4 3.8
Supermarkets Non-RSA including
discontinued operations -2.0 4.0
Supermarkets Non-RSA continuing operations -1.4 6.6
Statement on pro forma financial information
The pro forma financial information contained in this announcement, which
is the responsibility of the Group's directors, has been prepared for
illustrative purposes only and may not fairly present the results of
operations.
The information contained in this announcement has not been reviewed or
reported on by the Group's external auditors.
Group annual results release and presentation update
As experienced by many companies, the lockdown has created practical
difficulties in finalising our annual financial statements. Consequently,
the Group plans to publish and present its 2020 year end results on Tuesday,
8 September 2020.
The results presentation will be webcast only and further details, including
the webcast registration link, will be communicated via a separate SENS
release during August 2020.
3 August 2020
Cape Town
Sponsor: Nedbank Corporate and Investment Banking
Shoprite Holdings Limited Tel: 021 980 4000
Pieter Engelbrecht, Chief Executive Officer
Anton de Bruyn, Chief Financial Officer
Adele Lambrechts, Corporate affairs and communications
Natasha Moolman, Investor relations
Date: 03-08-2020 07:30:00
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