| Tue 17 Feb 2004, 10:03 | | Results For The 6 Months Ended 31 December 2003 |
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Shoprite Holdings Ltd - Interim Results For The 6 Months Ended 31 December 2003
Release Date: 17/02/2004 08:00:01 Code(s): SHP
Shoprite Holdings Ltd - Interim results for the 6 months ended 31 December 2003
Shoprite Holdings Ltd
Interim results for the 6 months ended 31 December 2003
(Reg. No. 1936/007721/06)
(ISIN: ZAE 000012084)
(JSE Share code: SHP)
(NSX Share code: SRH)
(LuSE Share code: SHOPRITE)
("the Group")
Key information
Total revenue increased by 5.8% from R12,694 billion to R13,436 billion.
Non-RSA operations achieved a 28% sales growth in stable currency terms.
Operating profit before exchange differences up by 17.2% to R315,7 million.
Headline earnings per share up by 45.0%.
Dividend per share increased by 17.9% to 16,5 cents.
Net asset value per share increased by 23.0% to 380 cents.
Basket size increased by 1.2% with a customer growth of 4.9%.
Whitey Basson, chief executive, commented:
"The extremely low food inflation following on a period when it was peaking at
18% presented many challenges to the Group. Increasing the operating profit by
17.2% despite a strike action in a deflationary environment is commendable and
indicative of the versatility of a professionally managed company. Within South
Africa we will continue to eschew unprofitable market share in favour of
increased profitability while advancing our business growth elsewhere in Africa
and the Indian Ocean in search of higher returns."
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
Food inflation was extremely low during the review period continuing into
December despite the general expectation that it would start accelerating again.
The drop in interest rates did increase the disposable income of the average
Checkers customer but had little influence on Shoprite customers. However, the
latter did benefit to the extent that lower interest rates tend to stimulate job
creation, which recently for the first time in three years showed signs of
positive growth. The continuing strength of the rand threatens even that small
employment gain as local manufacturers struggle to compete in international
markets.
Comments on the results
Income statement
Total turnover increased by 5.8% from R12,629 billion to R13,360 billion.
Management is satisfied with the results achieved under conditions in which cost
inflation exceeded food inflation. In addition, the nationwide strike in October
and November 2003, following the implementation of the new Sectoral
Determination Act, and the reduced contribution in rand terms by the Group"s non
RSA operations, also put pressure on turnover growth.
The operating margin, excluding foreign exchange differences, grew from 2.13% to
2.36% due to increased efficiencies, improvements in distribution and a further
reduction in the already very low level of shrinkage, partly offset by higher
inflation in overhead costs.
The implementation of the requirements of the Sectoral Determination Act
affected industry wage levels and conditions of employment of both full and part
time employees substantially. In countries other than South Africa, the Group
also granted salary increases commensurate with the high inflation rates
experienced there.
During the period under review the rand strengthened by a further 9% against the
US dollar compared to 15% in the corresponding six months. This slower rate of
strengthening produced a currency loss of R31,5 million as against R61,0 million
in the same period in 2002.
Exceptional items of R80,7 million (2002: R48.0 million) relate mainly to the
amortisation of negative goodwill. The tax payable shows an increase of 40.3% to
R96,5 million but is in line with the growth in profit.
Earnings per share increased by 50.0% to 54,3 cents and headline earnings per
share by 45.0% to 39,0 cents. Once adjusted for exchange differences, headline
earnings per share was 24.5% higher at 44,2 cents.
Balance sheet
Although stock levels increased for the period, procedures are in place to
manage this better over the remainder of this financial year.
The Group ended the review period with cash and cash equivalents of R1,648
billion compared to R1,072 billion at the end of December 2002. The increase in
cash is balanced by the increase in accounts payable.
Operational review
Store 30.06.03 Opened Closed 31.12.03 Prospects
Supermarkets 427 40 6 461 43
Shoprite 305 15 2 318 28
Checkers 86 0 3 83 6
Checkers Hyper 19 0 0 19 0
U-Save 17 25 1 41 9
Hungry Lion 49 3 3 49 0
Furniture Group 165 6 171 0
OK Furniture 144 4 0 148
House & Home 21 2 0 23
Total Own Stores 641 49 9 681 43
OK Franchise 357 14 51 320 8
Hungry Lion
Franchise 1 2 0 3
Total Franchise 358 16 51 323
Total Stores 999 65 60 1 004
Countries outside
South Africa 13 2 0 15
Supermarkets
The combined revenue of the three supermarket brands - Shoprite, Checkers and
Usave and including the non-RSA operations - increased by 4.9% to R12,588
billion. The total number of customers served increased by 4.9%. Due to the
tough economic conditions and low food inflation the increase in basket value
did not match the increase in the number of customers.
Some 28 supermarkets were refurbished during the review period.
Shoprite
With its 257 supermarkets within South Africa, the Shoprite brand is still by
far the biggest contributor to group turnover and operating profit. Total sales
growth in Shoprite stores, negatively influenced by inflation of less than 1%
due to their customer profile, product mix and industrial action, was 7.0%. By
the end of the review period several new stores were still coming on stream and
consequently did not contribute significantly to sales. Customer numbers surged
strongly by 5.9%, but the increase in basket size was only 1.1% in value.
The countrywide industrial action in October and November 2003 was particularly
disruptive as most of the stores that closed as a result of the strike, trade
under the Shoprite banner. However, the chain soon recovered and December saw
sales growth of 10.4% as the business started to regain lost ground.
Checkers
The repositioning of the Checkers brand with its own distinct profile is
increasingly bearing fruit. Offering a wider selection of especially perishable
produce in an amenable shopping environment, it is receiving increasing consumer
support. However, in line with group policy, the chain is not pursuing growth at
the expense of profitability. Operating profit grew 34.0% compared to the same
period in 2002.
Suffering from the same industrial action but to a lesser extent than Shoprite,
it nevertheless increased existing store sales by 8.0% during the period under
review. Basket size increased 2.8% in value while customer numbers grew 5.2%.
Stores in the Gauteng area, supported by the new distribution facility in
Centurion, fared particularly well.
Usave
Usave continued with an aggressive new-store programme and 30 outlets were
opened in the past year to bring the total to 41. This no-frills chain with its
limited product range of core consumables is positioned for accelerated growth.
Customers in rural areas have responded favourably to the format, not only in
South Africa but also outside the country"s borders, where 14 of the stores are
located. In the past six months Usave opened its first outlets in Angola and
Ghana. Almost without exception the stores are trading profitably.
Operations outside South Africa
The Group"s non-RSA operations performed well, with a sales growth of 24% on
existing store sales and 28% on total sales at constant conversion rates.
However, the further strengthening of the rand led to sales in rand terms
dipping 3.4% to R1,115 billion for the period under review.
Shoprite now trades in 15 countries outside South Africa. Of these Zambia and
Namibia were the biggest contributors to group income. In both Egypt and
Tanzania progress in achieving breakeven has been slower than anticipated, but
operations are improving month by month. To date trading on the islands in the
Indian Ocean has been lacklustre and the businesses there need time to establish
a solid base.
The Group"s new stores in Angola are performing well and are trading ahead of
budget.
OK Franchise
After a severe shakeout of doubtful debtors during the last financial year that
saw the closure of 80 outlets, the OK Franchise business, which operates in
South Africa, Namibia and Botswana, is now well positioned for future growth off
a solid base of 320 stores. To date 102 supermarkets are trading under the OK
brand, which has retained its high standing amongst the target market.
Furniture
This non-core business, which includes both OK Furniture and House & Home
stores, increased revenue by 22.6% to R847,8 million and operating profit by
34.8% to R73,6 million. The growth in revenue was achieved despite a reduction
in selling prices in most furniture categories due to a stronger rand.
The chain opened six new outlets during the review period when other furniture
retailers tended to consolidate operations. Growing off a low base after being
acquired by the Group, OK Furniture is moving to the point where it is starting
to generate industry acceptable returns.
Group prospects and outlook
No material changes are envisaged in the business environment in which the Group
operates during the second half of the financial year. In the absence of any
industrial action the major supermarket chains are expected to further improve
turnover growth and we are confident that the Group will be able to at least
maintain its present level of profitability.
Corporate governance
Shoprite acts in accordance with the principles as 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.
Thanks to management and staff
To be successful in the highly competitive environment in which the Group
operates, requires bold decision-making and strong leadership, coupled with
total dedication and sheer hard work, not only from management but also from
staff at all levels. That we were able to overcome the challenges facing us is a
tribute to the quality of our people and the level of their commitment. In
thanking them we also want to extend our heartfelt appreciation to our
colleagues on the board for their support and wise counsel.
By order of the Board
C H Wiese
Chairman
J W Basson
Chief Executive
16 February 2004
Condensed group income statement
Unaudited Unaudited Audited
6 months to % 6 months to l2 months to
R"000 31/12/03 Change 31/12/02 30/06/03
Revenue 13 435 834 5.8 12 694 044 24 971 333
Sale of merchandise 13 359 516 5.8 12 628 571 24 824 516
Gross profit 1 879 465 9.4 1 717 683 3 736 360
Other operating income 1 085 955 11.4 974 901 1 966 343
Depreciation (185 426) 9.2 (169 765) (363 772)
Operating leases (348 695) 11.2 (313 592) (793 347)
Staff costs (1 110 682) 9.8 (1 011 616) (2 017 815)
Other operating costs (1 004 941) 8.3 (928 242) (1 924 464)
Operating profit before
exchange losses 315 676 17.2 269 369 603 305
Exchange losses (31 470) -48.4 (61 021) (132 945)
Operating profit before
exceptional items 284 206 36.4 208 348 470 360
Exceptional items 80 688 68.0 48 034 132 868
Operating profit after
exceptional items 364 894 42.3 256 382 603 228
Investment income 21 910 28.5 17 053 63 076
Finance costs 9 385 -46.7 17 600 63 340
Profit before tax 377 419 47.5 255 835 602 964
Tax 96 518 40.3 68 804 180 585
Profit after tax 280 901 50.2 187 031 422 379
Minority interest 5 037 61.2 3 125 2 317
Net profit 275 864 50.0 183 906 420 062
Earnings per share (cents) 54,3 50.0 36,2 82,7
Diluted earnings per share
(cents) 53,2 47.8 36,0 82,6
Headline earnings per
share (cents) 39,0 45.0 26,9 57,6
Diluted headline earnings
per share (cents) 38,2 42.5 26,8 57,5
Adjusted headline earnings
per share (cents) 44,2 24.5 35,5 80,1
Adjusted diluted headline
earnings per share (cents) 43,3 22.7 35,3 79,9
Ordinary dividend per
share (cents) 16,5 17.9 14,0 30,5
Number of ordinary shares
("000) used for
calculation of:
- earnings per share 507 949* 507 761 507 913*
- diluted earnings per 518 209* 511 112* 508 752*
share
(*weighted average)
Condensed statement of changes in equity
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
R"000 31/12/03 31/12/02 30/06/03
Balance at 1 July 1 736 352 1 459 458 1 459 458
(Acquisition)/disposal of
treasury shares (2 523) - 3 553
Net fair value losses on
available-for-sale investments,
net of tax 1 958 - (1 958)
Net profit for the period 275 864 183 906 420 062
Dividends distributed to
shareholders (83 855) (73 625) (144 763)
Balance at 31 December/30 June 1 927 796 1 569 739 1 736 352
Condensed segment information
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
R"000 31/12/03 31/12/02 30/06/03
Revenue - by business segment
- Supermarkets 12 588 030 12 002 459 23 679 226
- Furniture 847 804 691 585 1 292 107
Total revenue 13 435 834 12 694 044 24 971 333
Operating profit - by business
segment
- Supermarkets 210 655 153 796 396 404
- Furniture 73 551 54 552 73 956
Total operating profit 284 206 208 348 470 360
Condensed group balance sheet
Unaudited Unaudited Audited
R"000 31/12/03 31/12/02 30/06/03
Assets
Non-current assets 2 193 726 1 850 220 1 962 795
Property, plant and equipment 1 972 825 1 721 657 1 822 380
Investments 129 533 104 823 91 013
Deferred tax assets 133 479 250 415 165 853
Intangible assets (42 111) (226 675) (116 451)
Current assets 6 707 309 5 593 955 4 882 721
Inventories 3 173 583 2 733 605 2 585 363
Trade and other receivables 1 883 381 1 784 532 1 487 124
Investments 2 739 4 276 8 798
Cash and cash equivalents 1 647 606 1 071 542 801 436
Total assets 8 901 035 7 444 175 6 845 516
Equity and liabilities
Capital and reserves 1 927 796 1 569 739 1 736 352
Minority interest 36 242 25 836 31 205
Non-current liabilities 222 144 227 290 227 728
Interest-bearing borrowings 2 450 2 450 2 450
Deferred tax liabilities 3 986 3 975 4 224
Provisions 215 708 220 865 221 054
Current liabilities 6 714 853 5 621 310 4 850 231
Other current liabilities 6 664 028 5 561 681 4 795 337
Provisions 50 825 59 629 54 894
Total equity and liabilities 8 901 035 7 444 175 6 845 516
Reconciliation of headline earnings
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
R"000 31/12/03 31/12/02 30/06/03
Net profit attributable to
shareholders 275 864 183 906 420 062
Exceptional items after tax (80 688) (48 034) (132 868)
Impairment of buildings - - 1 742
Impairment of unlisted
investment - - 6 308
Amortisation of negative
goodwill (72 288) (51 638) (153 002)
Write-off of goodwill - 3 604 3 978
Impairment of loan - Share
incentive trust - - 8 161
Payment received for lease
cancellation (8 400) - -
Prescription of amounts owing - - (55)
Other items after tax
Loss on disposal and scrapping
of plant and equipment 1 028 856 2 481
Amortisation of goodwill 1 959 - 2 855
Headline earnings 198 163 136 728 292 530
Exchange losses after tax 26 426 43 709 114 111
Adjusted headline earnings 224 589 180 437 406 641
Supplementary information
Unaudited Unaudited Audited
R"000 31/12/03 31/12/02 30/06/03
1. Capital commitments 108 873 109 017 188 805
2. Contingent liabilities 46 834 124 099 64 106
3. Net asset value per share
(cents) 380 309 342
4. Total number of shares in issue
(adjusted for treasury shares) 507 834 507 761 508 212
Condensed group cash flow statement
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
R"000 Notes 31/12/03 31/12/02 30/06/03
Cash generated by
operations 1 321 449 830 382 1 012 777
Operating profit before
exceptional items 284 206 208 348 470 360
Non-cash items 1 229 301 216 274 489 829
Changes in working capital 2 799 542 405 760 52 533
Exceptional items 3 8 400 - 55
Net finance costs 11 283 (547) (5 813)
Dividends received 1 242 - 5 549
Dividends paid (83 730) (74 078) (146 264)
Tax paid (9 341) (33 207) (72 238)
Cash flows from operating
activities 1 240 903 722 550 794 011
Cash flows from investing
activities (379 322) (317 545) (631 951)
Purchase of property,
plant and equipment (336 363) (242 707) (534 221)
Acquisition of
subsidiaries/operations (13 178) (64 386) (74 605)
Acquisition of further
interest in subsidiaries - (11 091) (11 081)
Other investment
activities (29 781) 639 (12 044)
Net cash flow 861 581 405 005 162 060
Cash flows from financing
activities (2 523) - 10 596
(Acquisition)/disposal of
treasury shares (2 523) - 3 553
Proceeds on issue of
additional share capital
to minorities - - 7 043
Movement in cash and cash
equivalents 859 058 405 005 172 656
Acquired through
acquisition of
subsidiaries - 1 363 1 316
Effect of exchange rate
movements on cash and cash
equivalents (12 888) (39 747) (77 457)
Net movement in cash and
cash equivalents 846 170 366 621 96 515
Cash flow information
1. Non-cash items
Depreciation on property,
plant and equipment 185 426 169 765 363 772
Amortisation of goodwill 1 959 - 2 855
Loss on disposal and scrapping
of plant and equipment 1 481 1 225 2 919
Net fair value gains on
financial instruments (4 916) - (213)
Unrealised foreign exchange
losses 45 351 45 284 120 496
229 301 216 274 489 829
2. Changes in working capital
Inventories (631 191) (497 061) (429 392)
Trade and other receivables (428 819) (316 446) 2 814
Trade and other payables 1 868 967 1 228 778 488 920
Movement in provisions (9 415) (9 511) (9 809)
799 542 405 760 52 533
3. Exceptional items
Exceptional items per income
statement 80 688 48 034 132 868
Impairment of buildings - - 1 742
Impairment of unlisted
investment - - 6 308
Impairment of loan - Share
incentive trust - - 8 161
Write-off of goodwill - 3 604 3 978
Amortisation of negative
goodwill (72 288) (51 638) (153 002)
8 400 - 55
Dividend
The Board has declared an interim dividend of 16,5 cents (2003: 14 cents) per
share, payable to shareholders on 15 March 2004. The last day to trade cum
dividend will be 5 March 2004. As from 8 March 2004 all trading of Shoprite
Holdings Ltd shares will take place ex dividend. The record date is 12 March
2004.
Share certificates may not be dematerialised or rematerialised between Monday, 8
March 2004, and Friday, 12 March 2004, both days inclusive.
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 year ended 30 June 2003.
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 31 December 2002, have been
adjusted with the elimination of all unrealised exchange differences.
Adjusted headline earnings is calculated by excluding the after tax effect of
exchange gains and losses from headline earnings.
Directorate and administration
Executive directors: J W Basson (chief executive), C G Goosen (deputy managing
director), B Harisunker, B Rogut, A N van Zyl, B R Weyers
Non-executive directors: C H Wiese (chairman), J J Fouche, T R P Hlongwane, J A
Louw, J F Malherbe, J G Rademeyer
Company secretary: A N 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
Auditors: PricewaterhouseCoopers Inc
1 Waterhouse Place, Century City, 7441, South Africa
PO Box 2799, Cape Town, 8000, South Africa
Transfer secretaries: Computershare Ltd
70 Marshall Street, Johannesburg, 2001, South Africa
PO Box 1053, Johannesburg, 2000, South Africa
Telephone +27 (0) 11 370 5000; Facsimile +27 (0) 11 370 5272
Sponsor: Nedbank Corporate
1 Newton Avenue, Killarney, 2193, South AfricaPO Box 582, Johannesburg, 2000,
South Africa
Telephone +27 (0) 11 480 1780; Facsimile +27 (0) 11 480 1630
