| Tue 24 Aug 2010, 8:30 | | SHP - Shoprite Holdings - Results for the 53 weeks ended June 2010 |
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SHP
SHP
SHP - Shoprite Holdings - Results for the 53 weeks ended June 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 18,7% to R3,490 billion.
Turnover increased 13,6% - from R59,319 billion to R67,402 billion.
Diluted headline earnings per share rose 15,6% to 451,6 cents.
Dividend per share declared 147,0 cents (2009: 130,0 cents) an increase of
13,1%.
Whitey Basson, chief executive, commented:
During the period under review the Group continued to build on its historical
price positioning which is to consistently offer low prices on the most
important basic foods. By sticking to these principles, the Group was able not
only to retain the loyalty and support of customers across the spectrum, but
also to extend its customer base. In doing so it outperformed the rest of the
sector and grew market share further to 32,6%. By controlling costs in all
areas of the business and obtaining further efficiencies from its investment
in systems and logistics infrastructure, the Group managed to increase its
trading margin from 4,96% to 5,18%. Although the after-effects of the
recession will be felt for a long time to come, the Group is investing heavily
for the recovery when it comes. The Group envisages opening 85 new stores in
the new financial year and it will invest more than R3 billion over the next
four years in its systems and logistics infrastructure. In addition to the
added investment in bricks and mortar, the Group has increased expenditure on
training and recruitment and expect to create an estimated additional 5 700
job opportunities during the next financial year.
23 August 2010
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
South African consumers remained price sensitive due to the high rate of
unemployment and personal debt. The benefits of the substantial drop in food
inflation and the highly competitive prices of imported durable goods were
largely offset by the sharp rise in the cost of living expenses across a broad
spectrum, from energy and transport costs to municipal rates and taxes. The
Soccer World Cup, coming at the end of the Group`s reporting period,
engendered in South Africans an invigorating sense of optimism in the future
of the country although the event as such did not have a noticeable effect on
food retailing. Tumbling internal food inflation at 0,2% in the latter half of
the year brought prices back to what they were a year ago. While positive for
consumers, especially those in lower income groups, the virtual absence of
food inflation placed pressure on food retailers in a market of suppressed
sales and escalating costs.
COMMENTS ON THE RESULTS
Statement of Comprehensive Income
Total turnover
Total turnover increased by 13,6% from R59,319 billion to R67,402 billion for
the period under review (11,1% in the case of 52 weeks). This must be seen in
relation to the drop in internal food inflation from 15,8% in 2009 to 2,2%.
Expenses
The 18,7% increase in trading profit compared to a turnover that rose 13,6% is
due to a combination of controlling costs in all areas of the business, solid
customer growth, further efficiencies in the systems and logistics
infrastructure and stringent controls that reduced stock losses due to theft.
Trading margin
The trading margin increased from 4,96% to its highest level of 5,18% and
reflects the efficiencies that management brought to bear during the reporting
period.
Exchange rate losses
During the year the strong rand prevailed - while the currencies of some of
the countries in Africa where the Group does business weakened against the US
dollar, the rand held firm. The result was a currency loss of R77,8 million
compared to a currency profit of R3,0 million in the previous financial year.
Finance cost and interest received
The decrease in net interest received was due to the reduction in interest
rates as well as the increase in capital expenditure.
Statement of Financial Position
Property, plant and equipment
The increase is due to the investment in a net 87 new stores, vacant land
purchased for strategic purposes as well as normal replacements.
Cash and cash equivalents
This item should be seen in conjunction with bank overdrafts and current
liabilities. The reduction in cash at balance sheet date is mainly due to
certain creditors that were paid before year-end in the current year as a
result of closing after 30 June, whereas they were paid after year-end in the
previous year. In addition, the Group spent R2,5 billion on capital
expenditure during the financial year under review.
Intangible assets
These assets increased due to the Group`s continued investment in new SAP
software and the purchase of Transfarm, a drug wholesaler and distributor.
OPERATIONAL REVIEW
Under challenging conditions all the segments showed satisfactory turnover
growth for the 53-week reporting period while, with the exception of the
Furniture Division, all also reported increased profitability. All three
supermarket brands, the core of the Group`s business, increased market share.
To add to shoppers` convenience the Group, without deviating from its primary
function as a food retailer, continued to add to its in-store services and, in
doing so, turned each of the new services into growing profit centres.
Number of outlets
JUN 09 Opened Closed JUN 10 JUN 11
Confirmed
new stores
SUPERMARKETS 815 83 12 886 69
- SHOPRITE 381 20 6 395 17
- CHECKERS 135 10 145 18
- CHECKERS HYPER 24 1 25
- USAVE 155 42 2 195 23
- HUNGRY LION 120 10 4 126 11
FURNITURE 264 18 2 280 16
- OK FURNITURE 204 12 216 14
- HOUSE & HOME 46 3 2 47 2
- OK POWER EXPRESS 14 3 17
TOTAL OWNED STORES 1 079 101 14 1 166 85
- OK FRANCHISE 265 35 24 276 13
- USAVE FRANCHISE 2 2 3
- H/L FRANCHISE 5 5 0
TOTAL FRANCHISE 270 37 24 283 16
TOTAL STORES 1 349 138 38 1 449 101
COUNTRIES 17 1 16
Supermarkets RSA
Guided by their need for value at low prices, consumers turned to the Group`s
three supermarket chains in increasing numbers. According to the most recent
AMPS figures, 60% of the country`s population now shop at Group supermarkets.
The segment grew sales by 14,6% while the total South African food retailing
market increased by 9,6%. This produced turnover of R53,367 billion for the
period compared to R46,551 billion in the 2009 financial year and trading
profit was 19,6% higher at R2,755 billion. RSA supermarkets` results enabled
the Group to increase market share for the year from 31,4% to 32,6%, the
highest of all South African supermarket groups, according to the revised VAT
inclusive information now used by Nielsen.
In the 53-week period, Shoprite found itself ideally positioned to benefit
from a declining market. Adding a net 11 stores during the year, it increased
total turnover by 13,5%. The number of customer transactions increased by 6,4%
while the value per transaction was up 6,6%.
Due to its successful repositioning for higher-income consumers Checkers
increased turnover by 13,5%. It grew the number of customer transactions by
5,5% and the value per transaction by 7,5% - the highest of the three chains.
The small-format Usave chain experienced a year of exceptional growth, opening
new stores at a rate of almost one a week. It ended the year with a net 39 new
outlets which enabled it to increase turnover by 33,5% and its customer count
by 36,2%. Due to the heavy reliance on its basket of basic commodities, of
which the prices in some instances dropped to 30% below what it was a year
ago, the value per transaction was 2,0% below last year.
Supermarkets Non-RSA
In constant currency terms, the division grew turnover by 18,0% in a low
inflationary environment while contributing R7,164 billion to Group turnover
after conversion to rand. Due to the strength of the rand relative to the US
dollar and the weakening of most African currencies in which the Group trades,
this translated into a turnover decline of 2,1% in rand terms compared to the
previous year. Growth in store numbers slowed due to a lack of foreign
investment in property development in Africa. As a consequence, a net four
supermarkets were opened during the reporting period to bring the number of
supermarkets outside South Africa to 124. The pace of new store openings is
expected to quicken in the new financial year with a total of 13 outlets being
planned.
Furniture
Spending on durable goods remained a low priority for most consumers. After an
acceptable first half, the market collapsed over the first three months after
Christmas before recovering during the next quarter. Although sales increased
across the board, the momentum was provided by the Soccer World Cup fuelling a
demand for latest technology television sets. This countrywide spurt in sales
enabled the segment to report total turnover growth of 16,7% to R3,003 billion
for the full period with sales in existing stores up 10,9%. The strongest
turnover growth was reported by OK Furniture at 17,3%, which targets middle-
to lower income consumers. This growth was achieved in a mostly deflationary
environment and in a fiercely contested market. To achieve turnover growth
under these conditions, margins were reduced with a consequent negative impact
on its trading profit which dropped to R131,2 million (2009: R176,8 million).
During the year a net 16 new stores were opened to bring the total number of
outlets to 280.
Other operating segments
These include the results of the OK Franchise Division, MediRite and
Transfarm, as well as Computicket. Their combined turnover increased by 34,4%
to R3,869 billion and their trading profit by 155,0% to R118,2 million.
As in the rest of the business, the turnover of the OK Franchise Division, no
longer bolstered by high food inflation, slowed to 8,9%. Strict operating
controls and careful management of resources generated an acceptable trading
profit. It ended the period with 276 members (2009: 265 members).
The MediRite chain of in-store pharmacies, located within the Group`s
supermarkets and hyper stores increasingly placed its in-store pharmacies in
previously disadvantaged areas where healthcare services are limited and grew
turnover strongly with a pricing model which is one of the lowest in the
industry. The division recorded growth on existing business of 35% while total
turnover increased by 60% due to the opening of 23 new pharmacies that brought
the total to 104. Effective 24 December 2009 the Group acquired 100% of the
Transfarm group, a pharmaceutical wholesaler, thereby greatly improving and
securing its supply chain. The consideration paid was R190 million and the
fair value of the net assets acquired was R114,1 million. Computicket,
operating from all Shoprite and Checkers outlets, continued its strong income
growth despite the recession. To enable it to undertake a greater number of
transactions simultaneously, a substantial investment was made in its
supporting technology infrastructure.
GROUP PROSPECTS AND OUTLOOK
Management does not expect market conditions to change markedly in the months
ahead as the country`s economic recovery is expected to remain lacking real
momentum. With most of the country`s major infrastructural projects completed,
job losses are expected to continue. Rising input costs are expected to impact
food inflation which is bound to start rising in the second half of the new
financial year. However, the Group expects to continue growing turnover and
trading profit at comparable levels and to this end continues to invest in
staff development, new stores and infrastructural capabilities.
CORPORATE GOVERNANCE
The Code of Practices as set out in the King Report on Corporate Governance
for South Africa 2002 (King II) was effective until 28 February 2010. The
board is of the opinion that Shoprite Holdings complied with and applied all
the significant and appropriate requirements incorporated in King II and the
JSE Listings Requirements.
The King Code of Governance Principles for South Africa 2009 (King III) took
effect from 1 March 2010. Where appropriate for the Group, the necessary
changes to our governance policies and practices will be made. If any
principles or practices are viewed to be inappropriate for the Group, the
reason for not implementing or not applying with King III`s recommendation
will be disclosed. Shoprite Holdings will report on the application of King
III in its report for the financial year ended 30 June 2011.
DIVIDEND NO 123
The Board has declared a final dividend of 147,0 cents (2009: 130,0 cents) a
share, payable to shareholders on Monday, 20 September 2010. This brings the
total dividend for the year to 227,0 cents per ordinary share (2009: 200,0
cents). The last day to trade cum dividend will be Friday, 10 September 2010.
As from Monday, 13 September 2010, all trading of Shoprite Holdings Ltd shares
will take place ex dividend. The record date is Friday, 17 September 2010.
Share certificates may not be dematerialised or re-materialised between
Monday, 13 September 2010, and Friday, 17 September 2010, both days inclusive.
ACCOUNTABILITY
These condensed consolidated preliminary 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
2009 with the following exceptions.
The Group adopted the revised IAS 1, Presentation of Financial Statements,
IFRS 8, Operating Segments and Circular 3/2009 on Headline Earnings during the
period under review. The presentation of the financial statements and
operating segment disclosures have been changed according to the changes in
IAS 1 and IFRS 8 respectively, with no adjustment necessary on the adoption of
Circular 3/2009.
By order of the Board
CH Wiese JW Basson
Chairman Chief Executive
Cape Town
23 August 2010
Condensed Group Statement of Comprehensive Income
Reviewed Audited
53 weeks 52 weeks
% ended ended
R`000 change June 10 June 09
Sale of merchandise 13.6 67 402 440 59 318 559
Cost of sales 13.1 (54 147 848) (47 878 232)
Gross profit 15.9 13 254 592 11 440 327
Other operating income 26.7 1 576 128 1 244 363
Depreciation and amortisation 11.3 (839 208) (753 921)
Operating leases 18.3 (1 550 745) (1 310 522)
Employee benefits 18.4 (5 273 843) (4 453 771)
Other expenses 14.0 (3 676 483) (3 225 562)
Trading profit 18.7 3 490 441 2 940 914
Exchange rate (losses)/gains (77 824) 3 005
Items of a capital nature (18.1) (25 580) (31 227)
Operating profit 16.3 3 387 037 2 912 692
Interest received (44.8) 105 741 191 566
Finance costs 8.8 (93 690) (86 142)
Profit before income tax 12.6 3 399 088 3 018 116
Income tax expense 11.2 (1 111 792) (999 478)
Profit for the year 13.3 2 287 296 2 018 638
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX
Fair value movements on
available-for-sale investments (6.5) 8 244 8 819
Foreign currency translation
differences (12.3) (170 030) (193 856)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 15.9 2 125 510 1 833 601
PROFIT ATTRIBUTABLE TO:
Owners of the parent 13.4 2 266 522 1 998 246
Non-controlling interest 1.9 20 774 20 392
2 287 296 2 018 638
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent 16.1 2 104 736 1 813 209
Non-controlling interest 1.9 20 774 20 392
2 125 510 1 833 601
Condensed Group Statement of Financial Position
Reviewed Audited
R`000 June 10 June 09
ASSETS
Non-current assets 7 548 892 6 048 645
Property, plant and equipment 6 577 677 5 359 587
Available-for-sale investments 57 389 47 804
Loans and receivables 8 553 2 636
Deferred income tax assets 288 677 277 951
Intangible assets 611 037 354 434
Fixed escalation operating lease accrual 5 559 6 233
Current assets 10 416 433 10 685 675
Inventories 6 114 538 6 041 906
Other current assets 2 037 188 1 780 972
Loans and receivables 45 841 37 409
Cash and cash equivalents 2 218 866 2 825 388
Assets held for sale 26 372 5 168
Total assets 17 991 697 16 739 488
EQUITY AND LIABILITIES
Total equity 5 972 016 5 029 295
Capital and reserves attributable to
owners of the parent 5 904 832 4 960 000
Non-controlling interest 67 184 69 295
Non-current liabilities 1 034 025 766 217
Borrowings 21 534 16 677
Deferred income tax liabilities 18 953 26 992
Provisions 270 818 170 231
Fixed escalation operating lease accrual 418 641 414 164
Other non-current liabilities 304 079 138 153
Current liabilities 10 985 656 10 943 976
Other current liabilities 10 006 552 10 567 076
Provisions 104 825 362 977
Bank overdraft 874 279 13 923
Total liabilities 12 019 681 11 710 193
Total equity and liabilities 17 991 697 16 739 488
Earnings per Share
Reviewed Audited
53 weeks 52 weeks
% ended ended
R`000 change June 10 June 09
Profit attributable to owners of
the parent 2 266 522 1 998 246
Re-measurements 25 580 31 227
Profit on disposal of property (503) (3 425)
Loss on disposal and scrapping of plant,
equipment and intangible assets 14 536 23 915
Loss on other investing activities 572 23
Insurance claims received (3 657) -
Impairment of goodwill - 3 608
Impairment of property, plant and equipment,
intangible assets and assets held for sale 14 632 7 106
Income tax effect on re-measurements 1 113 (7 913)
Headline earnings 2 293 215 2 021 560
Earnings per share (cents) 13.5 450.1 396.5
Diluted earnings per share (cents) 15.6 446.4 386.3
Headline earnings per share (cents) 13.5 455.4 401.1
Diluted headline earnings per share
(cents) 15.6 451.6 390.8
Ordinary dividend per share (cents)
Interim dividend paid 14.3 80.0 70.0
Final dividend declared 13.1 147.0 130.0
Total 13.5 227.0 200.0
Number of ordinary shares (`000) used for
calculation of:
earnings per share (weighted average) 503 523 504 030
diluted earnings per share (weighted average) 507 775 517 250
Condensed Group Statement of Cash Flows
Reviewed Audited
53 weeks 52 weeks
ended ended
R`000 Notes June 10 June 09
Cash generated by operations 3 930 369 3 435 736
Operating profit 3 387 037 2 912 692
Less: investment income (32 662) (29 279)
Non-cash items 1 1 387 610 1 065 296
Cash settled share options - (484 896)
Payments for settlement of post-retirement
medical benefits liability (216 860) -
Changes in working capital 2 (594 756) (28 077)
Net interest received 35 202 127 129
Dividends received 9 511 7 574
Dividends paid (1 082 293) (902 576)
Income tax paid (1 383 047) (842 045)
Cash flows from operating activities 1 509 742 1 825 818
Cash flows utilised by investing activities (2 680 113) (1 737 303)
Purchase of property, plant and equipment and
intangible assets (2 509 369) (1 820 256)
Proceeds on disposal of property, plant and
equipment and intangible assets 99 445 68 010
Proceeds on disposal of assets held for sale 1 011 13 131
Acquisition of Transfarm Group (255 894) -
Other investment activities (15 306) 1 812
Cash flows utilised by financing activities (237 928) (333 108)
Acquisition of treasury shares (244 439) (383 445)
Proceeds on disposal of treasury shares - 42 510
Increase in borrowings 9 726 7 827
Other financing activities (3 215) -
Net movement in cash and cash equivalents (1 408 299) (244 593)
Cash and cash equivalents at the beginning
of the year 2 811 465 3 135 850
Effect of exchange rate movements on cash
and cash equivalents (58 579) (79 792)
Cash and cash equivalents at the end of
the year 1 344 587 2 811 465
Cash Flow Information
1. Non-cash items
Depreciation on property, plant and equipment 848 270 741 710
Amortisation of intangible assets 47 849 54 743
Net fair value losses on financial instruments 27 899 7 919
Exchange rate losses/(gains) 77 824 (3 005)
Profit on disposal of property (340) -
Profit on disposal of assets held for sale (163) (3 425)
Loss on disposal and scrapping of plant and
equipment, intangible assets and assets
held for sale 14 536 23 915
Impairment of property, plant and equipment,
assets held for sale and intangible assets 14 632 7 106
Impairment of goodwill - 3 608
Movement in provisions 59 317 117 591
Movement in cash-settled share-based
payment accrual 277 558 139 965
Movement in fixed escalation
operating lease accrual 20 228 (24 831)
1 387 610 1 065 296
2. Changes in working capital
Inventories (46 064) (1 464 435)
Trade and other receivables (125 470) (89 157)
Trade and other payables (423 222) 1 525 515
(594 756) (28 077)
Condensed Operating Segment Information
Reviewed Audited
53 weeks 52 weeks
% ended ended
R`000 change June 10 June 09
Sale of merchandise
Supermarkets RSA 14.6 53 367 171 46 550 946
Supermarkets Non-RSA (2.1) 7 163 977 7 315 147
Furniture 16.7 3 002 589 2 572 840
Other operating segments 34.4 3 868 703 2 879 626
13.6 67 402 440 59 318 559
Trading profit
Supermarkets RSA 19.6 2 755 207 2 303 128
Supermarkets Non-RSA 17.2 485 799 414 636
Furniture (25.8) 131 213 176 789
Other operating segments 155.0 118 222 46 361
18.7 3 490 441 2 940 914
The basis for reporting segmental financial information has been changed in
accordance with the requirements of IFRS 8, Operating Segments. Operating
segments were identified based on financial information regularly reviewed by
the Shoprite Holdings Ltd board of directors (identified as the chief
operating decision maker of the Group in terms of the IFRS 8 requirements) for
performance assessments and resource allocations.
Supplementary Information
Reviewed Audited
R`000 June 10 June 09
1. Capital commitments 1 674 508 337 276
2. Contingent liabilities 103 614 138 316
3. Net asset value per share (cents) 1 167 990
4. Total number of shares in issue
(adjusted for treasury shares) 506 133 500 898
Condensed Statement of Changes in Equity
Reviewed Audited
53 weeks 52 weeks
ended ended
R`000 June 10 June 09
Balance at beginning of July 5 029 295 4 818 838
Net movement in treasury shares (244 439) (340 935)
Total comprehensive income 2 125 510 1 833 601
Non-controlling interest purchased (3 215) 757
Treasury shares utilised for share option
take-up, net of income tax 147 413 -
Cash settlement of share options - (379 349)
Dividends distributed to shareholders (1 082 548) (903 617)
Balance at end of June 5 972 016 5 029 295
DIRECTORATE AND ADMINISTRATION
Executive directors
JW Basson (chief executive), CG Goosen (deputy managing director),
B Harisunker, AE Karp, EL Nel, BR Weyers
Executive alternate directors
JAL Basson, M Bosman, PC Engelbrecht
Non-executive director
CH Wiese (chairman),
Independent non-executive directors
EC Kieswetter, JA Louw, JF Malherbe, JG Rademeyer
Non-executive alternate director
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: 24/08/2010 08:30:06 Produced by the JSE SENS Department.
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