| Tue 20 Feb 2007, 7:30 | | SHP - Shoprite Holdings Limited - Interim results |
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SHP
SHP
SHP - Shoprite Holdings Limited - Interim results for the 26 weeks to 31
December 2006
SHOPRITE HOLDINGS LIMITED
(Reg. No. 1936/007721/06)
(ISIN: ZAE000012084)
(JSE Share code: SHP)
(NSX Share code: SRH)
(LuSE Share code: SHOPRITE)
("the Group")
SHOPRITE HOLDINGS: INTERIM RESULTS FOR THE 26 WEEKS TO 31 DECEMBER 2006
Key information
Trading profit was up 27,9% to R717,3 million.
Turnover increased 14,9% - from R16,621 billion to R19,105 billion.
Non-RSA supermarkets achieved 28,0% sales growth.
Diluted headline earnings per share from continued operations rose 26,0% to
82,8 cents.
Dividend per share proposed increased 29,6% to 35,0 cents.
Whitey Basson, chief executive, commented:
Management is satisfied with the growth achieved in the first six months of
the
2007 financial year, especially as this was achieved despite 12 weeks of
industrial action that affected, in particular, the operations of the Shoprite
brand. The Group also managed to substantially recoup the market share lost
during those turbulent times and for December 2006 that share was back to just
fractionally below what it had been in December 2005. Although our primary
business remains food retailing, our offering spans an ever-increasing range
that also encompasses furniture stores, pharmacies, liquor outlets, consumer
convenience services and the country`s most extensive booking facilities for
theatre and entertainment.
20 February 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
Despite interest rates edging up consumer spending remained high with no
noticeable change in spending patterns in the food retail sector. The rapidly
expanding new middle class with its growing disposable income remains the
single most powerful driver of retail growth in South Africa, boosted by the
more than half a million new jobs that came on stream in the previous year.
Credit is still widely available to consumers and the swing away from cash is
only now starting to stabilise in, for instance, the durable and semi-durable
market. The prices of most home entertainment products are still subject to
deflation. On the other hand food inflation, in categories such as meat
products, rose sharply, averaging 8,0% for the period under review as against
2,8% in the corresponding period in 2005. The Group`s own internal inflation
rate rose to 5,6% in the review period from 2,5% in 2005.
Comments on the results
Income statement
Total turnover
Total turnover increased by 14,9% from R16,621 billion to R19,105 billion. The
negative impact of the extended industrial action was countered by rising food
inflation and the turnover generated by the Group`s net gain of 40 new stores
during the period.
Gross profit
Gross profit was boosted by increased turnover in the higher margin perishable
foods and service departments as well as by a larger contribution from non-
food
sales to total turnover.
Expenses
Overhead expenses were well managed and kept within budgeted parameters.
Trading profit
Given the strong growth in turnover, the increased margins achieved and the
strictly contained overhead costs, trading profit advanced 27,9%.
Trading margin
The trading margin of 3,8% was higher than a year ago and is the highest yet
recorded by the Group. It is a function of the growth in gross profit and the
slower increase in overhead costs, supported by an improved performance of the
Group`s non-RSA operations.
Interest received and finance costs
Net interest income was almost unchanged due to the investment in new stores.
Exchange rate differences
The rand`s slight weakening against the US dollar and other currency
fluctuations during the six months resulted in a forex gain of R19,5 million
as
against a forex loss of R28,7 million in the corresponding period.
Income of a capital nature
The income of a capital nature (in previous years referred to as exceptional
items) in the income statement of R21,8 million relates mainly to profit
achieved on the sale of some properties.
Dividend declared
The Board declared an interim dividend of 35,0 cents per ordinary share (2006:
27,0 cents).
Balance sheet
Intangible assets
The increase in intangible assets relates mainly to the investment in the
Group`s new back-office system.
Inventories
The increase of 12,5% in inventory to R4,074 billion was mainly the result of
provisioning a net of 40 new supermarkets opened during the reporting period.
Management also took a strategic decision to buy forward aggressively for the
2007 Back to School campaign and to avoid out-of-stock situations over the
festive season due to reduced supplier services during that period. This
decision was vindicated by the strong surge in turnover during December and
since the start of 2007.
Operational review
The Group as a whole performed well during the period under review. It
recorded
an increase of 27,9% in trading profit to R717,3 million (2006: R560,9
million). It is increasingly benefiting from its decision to position its
brands as chains of destination stores offering consumers higher levels of
convenience, and the Group`s operations now include a growing number of
in-store pharmacies as well as Money Market kiosks that provide an extensive
range of consumer convenience services as well as booking facilities for
theatre and sporting events countrywide. These additional services play an
important role in bringing growing numbers of consumers into our stores.
The Group`s core target market, was not materially affected by the rise in
interest rates and consumer spending continued unabated.
Number of outlets
JUN 2006 Open Closed DEC Confirmed
2006
New stores
JUN 2007
SUPERMARKETS 574 25 (10) 589 15
- SHOPRITE 348 13 (1) 360 7
- CHECKERS 110 3 (0) 113 2
- CH HYPER 24 0 (0) 24 0
- USAVE 92 9 (9) 92 6
HUNGRY LION 74 19 (1) 92 8
FURNITURE 198 7 (0) 205 10
- OK FURNITURE 171 6 (0) 177 10
- HOUSE & HOME 27 1 (0) 28 0
TOTAL OWN STORES 846 51 (11) 886 33
- OK FRANCHISE 253 24 (14) 263 2
- H/LION FRANCHISE 2 0 (0) 2 0
TOTAL FRANCHISE 255 24 (14) 265 2
TOTAL STORES 1101 75 (25) 1151 35
COUNTRIES OUTSIDE
RSA 16 0 (0) 16 0
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
79,1% of total turnover. Management is satisfied with the performance of this
division which grew turnover by 13,9% to R15,111 billion. The number of
customer transactions increased 6,1% while growth in basket size amounted to
7,3%. Market share lost during the industrial action in the review period was
regained to a large extent by December. The Group is increasingly being
offered
space on a preferential basis in new growth nodes and thus is able to position
new stores in the right locations. However, management believes the slower
growth on existing business confirms its conviction that the market is nearing
saturation.
Shoprite
Shoprite, by far the largest of the three main brands and recently named South
Africa`s number one retail brand in the annual Sunday Times/Markinor Top Brand
survey, increased turnover by 11,8% despite being hardest hit by the
industrial
action referred to earlier. It remains the preferred destination of first-time
home-owners as well as of the rapidly expanding middle class. To satisfy the
aspirations of all these consumers Shoprite recently completed an extensive
store repositioning programme. During the review period Shoprite increased the
number of customer transactions by 4,5% and grew basket size by 6,8%.
Checkers
Checkers is positioning itself more strongly in the higher-income sector and
the differentiation between Shoprite and Checkers customers has grown to the
point where cannibalisation has been virtually eliminated. The differentiation
is mainly in the area of lifestyle while much attention is also being paid to
improving customer relations and service delivery. Consumers are responding
with increasing support. In the six months to end December, Checkers boosted
turnover by 16,1%. It increased the number of customer transactions by 8,6%
and
basket size by 6,9% in its 137 outlets. Since 2005 it has grown its LSM 8 to
10
customer base by 14%.
Usave
This small-format, no-frills discounter of primarily hard groceries
substantially increased its acceptance across the consumer spectrum.
Management
continues to refine and expand the range. Usave`s format allows it to
establish
outlets in areas too small for full- scale supermarkets, thereby promoting the
Group`s penetration of the market. Its primary growth is therefore taking
place
mostly in rural areas and smaller trading nodes.
Operations outside South Africa
The Group`s investments in Africa are increasingly paying off as it grows and
stabilises its presence in the 16 countries in which it operates outside the
RSA. All these countries improved on past contributions and together reported
turnover growth of 28,0%. The Group`s first supermarket in Lagos, Nigeria,
performed well in the first year of operation while its franchise store in
Mumbai in India reported substantial increases in turnover and customer
numbers. The weakening of the rand assisted exports into Africa at acceptable
margins while trading was enhanced by the stability of most major African
currencies.
OK Franchise
This division regained its momentum by growing its member base. During the
period under review it gained 24 new accounts as part of an intensive campaign
to expand its membership base. To balance its strong rural presence, the
membership drive is primarily aimed at strengthening the urban visibility of
its three brands - OK Grocer, OK Foods and OK Minimark. During the period
under
review the division opened its first liquor outlet, under the name Enjoy.
Furniture
Consumer spending was particularly evident in the durable and semi-durable
markets, enabling the Group`s furniture division to maintain sales growth of
14,2% in an intensely competitive environment, particularly in the appliances
and home entertainment sectors. Margins remained under pressure, but were
maintained with the help of effective cost control and stock management
systems
and the Division reported a profit increase of 14,8%. Like the rest of the
retail furniture sector, the division continued to trade in an environment of
negative price inflation. The swing to cash sales in the business has started
to stabilise despite credit remaining freely available pending the provisions
of the National Credit Act becoming fully operational in June 2007.
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 no 116
The Board has declared an interim dividend of 35,0 cents (2006: 27,0 cents)
per
ordinary share, payable to shareholders on Monday, 19 March 2007. The last day
to trade cum dividend will be Friday, 9 March 2007. As from Monday, 12 March
2007, all trading of Shoprite Holdings Ltd shares will take place ex dividend.
The record date is Friday, 16 March 2007. Share certificates may not be
dematerialised or rematerialised between Monday, 12 March 2007, and Friday, 16
March 2007, both days inclusive.
Accountability
These condensed consolidated interim 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 2006.
Comparative information for the six months ended December 2005 was adjusted to
reflect the recalculation of the impact of hyperinflationary economies on the
Group`s results. This recalculation was done in line with the final review of
the effect of hyperinflation on the Group`s results for the 12 months ended
June 2006. This adjustment had no material impact on the Group`s earnings.
CONDENSED GROUP INCOME STATEMENT
Unaudited Unaudited Audited
6 months 6 months for the year
ended % ended ended
R`000 Dec 06 change Dec 05 Jun 06
Sale of merchandise 19 105 298 14,9% 16 620 683 33 511 287
Cost of sales (15 265 063) 13,8% (13 419 769) (26 715 806)
Gross profit 3 840 235 20,0% 3 200 914 6 795 481
Other operating income 397 710 14,3% 347 850 765 180
Depreciation and
amortisation (247 494) 25,3% (197 521) (434 866)
Operating leases (465 896) 26,5% (368 168) (841 446)
Employee benefits (1 487 189) 11,8% (1 330 250) (2 815 830)
Other expenses (1 320 093) 20,9% (1 091 942) (2 215 944)
Trading profit 717 273 27,9% 560 883 1 252 575
Exchange rate gains/(losses) 19 504 (168,1%) (28 658) 8 445
Income of a capital nature 21 835 167,8% 8 153 166 906
Operating profit 758 612 40,4% 540 378 1 427 926
Interest received 48 755 29,7% 37 578 96 385
Finance costs (46 237) 34,2% (34 460) (89 736)
Profit before tax 761 130 40,0% 543 496 1 434 575
Tax (298 604) 60,6% (185 924) (518 240)
Profit after tax 462 526 29,4% 357 572 916 335
Loss for the period
from discontinued
operation - (7 622) (19 853)
Profit for the period 462 526 32,2% 349 950 896 482
ATTRIBUTABLE TO:
Equity holders of
the Company 455 224 32,0% 344 953 890 132
Minority interest 7 302 46,1% 4 997 6 350
462 526 349 950 896 482
Earnings per share
from continued
operations (cents) 89,7 29,1% 69,5 179,4
Earnings per share (cents) 89,7 31,9% 68,0 175,4
Diluted earnings per
share from
continued operations
(cents) 86,5 28,9% 67,1 172,7
Diluted earnings per
share (cents) 86,5 31,7% 65,7 168,9
Ordinary dividend per
share paid
(cents) 46,0 64,3% 28,0 55,0
Ordinary dividend per
share declared
(cents) 35,0 29,6% 27,0 73,0
Number of ordinary
shares (`000)
used for calculation of:
earnings per share 507 345 507 355* 507 346*
diluted earnings
per share 526 384 525 277* 526 998*
(* weighted average)
RECONCILIATION OF HEADLINE EARNINGS
Unaudited Unaudited Audited
6 months 6 months for the year
ended ended % ended
R`000 Dec 06 Dec 05 change Jun 06
Net profit attributable
to shareholders 455 224 344 953 890 132
Loss for the period
from discontinued operation - 7 622 19 853
Earnings from continued
operations 455 224 352 575 909 985
Income of a capital
nature after tax (19 519) (7 225) (141 557)
Profit on disposal
of operations - - (622)
Profit on disposal
of property (22 366) (9 264) (144 584)
(Profit)/loss on disposal
and scrapping of
of plant, equipment
and intangible assets (938) 2 039 6 613
Insurance claim received
for building - - (2 006)
Reversal of impairment
- property,
plant and equipment - - (1 559)
Impairment of goodwill 3 785 - 1 286
Prescription of
amounts owing - - (685)
Headline earnings
from continued operations 435 705 345 350 768 428
Add: loss for the
period from
discontinued operation - (7 622) (19 853)
Income of a capital
nature after tax from
discontinued operation - - (4 210)
Headline earnings 435 705 337 728 744 365
Earnings per share
from continued
operations (cents) 89,7 69,5 29,1% 179,4
Earnings per share (cents) 89,7 68,0 31,9% 175,4
Diluted earnings per
share from
continued operations (cents) 86,5 67,1 28,9% 172,7
Diluted earnings per
share (cents) 86,5 65,7 31,7% 168,9
Headline earnings per
share from
continued operations (cents) 85,9 68,1 26,1% 151,5
Headline earnings per
share (cents) 85,9 66,6 29,0% 146,7
Diluted headline
earnings per share
from continued
operations (cents) 82,8 65,7 26,0% 145,8
Diluted headline
earnings
per share (cents) 82,8 64,3 28,8% 141,2
Ordinary dividend per
share paid (cents) 46,0 28,0 64,3% 55,0
Ordinary dividend per
share declared (cents) 35,0 27,0 29,6% 73,0
CONDENSED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
6 months 6 months for the year
ended ended ended
R`000 Dec 06 Dec 05 Jun 06
Balance at beginning of July 3 082 868 2 265 877 2 265 877
Net movement in treasury shares - - (99)
Net fair value profits on
available-for-sale
investments, net of tax 14 982 10 933 12 452
Net profit for the period 462 526 349 950 896 482
Employee share option scheme
- value of
services provided - 764 764
Cash settlement of share options (63 821) - -
Foreign currency
translation differences (45 777) 91 886 187 545
Dividends distributed to
shareholders (235 224) (143 163) (280 153)
Balance at end of December/June 3 215 554 2 576 247 3 082 868
CONDENSED SEGMENT INFORMATION
Unaudited Unaudited Audited
6 months 6 months for the year
ended % ended ended
R`000 Dec 06 change Dec 05 Jun 06
SEGMENT REVENUE - by
business
segment
- Supermarkets 17 924 867 15,0% 15 587 333 31 635 822
- Furniture 1 180 431 14,2% 1 033 350 1 875 465
Total segment revenue 19 105 298 14,9% 16 620 683 33 511 287
SEGMENT RESULT - by
business
segment
- Supermarkets
- (including
unallocated) 606 999 44,5% 420 203 1 051 301
- Furniture 123 719 14,8% 107 739 198 633
Total segment result 730 718 38,4% 527 942 1 249 934
Segment result comprises trading profit plus exchange rate losses/gains less
investment income.
CONDENSED GROUP BALANCE SHEET
Unaudited Unaudited Audited
R`000 Dec 06 Dec 05 Jun 06
ASSETS
Non-current assets 4 062 604 3 261 792 3 759 229
Property, plant and equipment 3 592 185 2 759 149 3 248 283
Available-for-sale investments 18 437 45 679 13 846
Loans and receivables 32 384 48 319 38 817
Deferred tax assets 162 483 232 991 219 626
Intangible assets 255 074 172 337 235 866
Fixed escalation operating
lease accrual 2 041 3 317 2 791
Current assets 7 886 336 6 589 410 6 183 163
Inventories 4 073 930 3 622 068 3 269 500
Other current assets 1 742 495 1 732 397 1 492 466
Assets classified as held for sale 128 236 257 784 163 876
Available-for-sale investments 46 526 - 33 592
Loans and receivables 11 317 18 814 15 758
Cash and cash equivalents 1 883 832 958 347 1 207 971
Total assets 11 948 940 9 851 202 9 942 392
EQUITY AND LIABILITIES
Total equity 3 215 554 2 576 247 3 082 868
Capital and reserves
attributable to equity holders 3 163 099 2 530 595 3 035 863
Minority interest 52 455 45 652 47 005
Non-current liabilities 720 769 754 472 731 860
Borrowings 2 510 2 450 2 464
Deferred tax liabilities 8 960 9 189 7 400
Provisions 254 079 214 062 269 264
Fixed escalation operating
lease accrual 455 220 528 771 452 732
Current liabilities 8 012 617 6 520 483 6 127 664
Other current liabilities 7 646 308 5 830 384 5 422 096
Provisions 45 743 43 127 34 301
Liabilities classified as
held for sale - 23 160 -
Bank overdraft 320 566 623 812 671 267
Total liabilities 8 733 386 7 274 955 6 859 524
Total equity and liabilities 11 948 940 9 851 202 9 942 392
CONDENSED GROUP CASH FLOW STATEMENT
Unaudited Unaudited Audited
6 months 6 months for the year
ended ended ended
R`000 Notes Dec 06 Dec 05 Jun 06
Cash generated by
continued operations 2 137 506 969 623 2 065 366
Operating profit 758 612 540 378 1 427 926
Less: investment income (6 059) (4 283) (11 086)
Non-cash items 1 242 225 231 350 281 090
Cash-settled share
options (32 977) - -
Changes in working
capital 2 1 175 705 202 178 367 436
Net interest received 6 703 5 862 12 656
Dividends received 1 874 1 539 5 079
Dividends paid (234 933) (145 474) (282 473)
Tax paid (287 321) (150 845) (438 890)
Cash utilised by
discontinued operations - (6 065) (23 050)
Cash flows from
operating activities 1 623 829 674 640 1 338 688
Cash flows from investing
activities (579 455) (619 545) (1 097 877)
Purchase of property,
plant and equipment
and intangible assets (658 754) (526 108) (1 318 364)
Proceeds on disposal of
property,
plant and equipment and
intangible assets 75 799 49 450 343 601
Proceeds on disposal of
listed investments 3 542 - -
Acquisition of
subsidiaries
/operations - (138 200) (136 565)
Proceeds on disposal
of operations - - 2 632
Acquisition of
listed investment (4 407) - -
Other investment
activities 4 365 (4 687) 10 819
Cash flows from
financing activities 303 - 406
Acquisition of treasury
shares - - (99)
Proceeds on issue of
preference
shares to
joint venture 303 - 505
Movement in cash and
cash equivalents 1 044 677 55 095 241 217
Effect of exchange rate
movements on cash
and cash equivalents (18 115) (12 981) 3 066
Net movement in cash
and cash equivalents 1 026 562 42 114 244 283
CASH FLOW INFORMATION
1. Non-cash items
Depreciation on property,
plant and equipment 252 612 207 146 447 808
Amortisation of
intangible assets 7 438 6 231 14 380
Net fair value
losses/(gains)
on financial
instruments 20 689 537 (20 091)
Exchange rate
(gains)/losses (19 504) 28 554 (8 445)
Share options granted - 764 764
Profit on disposal of
property (24 192) (10 958) (171 651)
(Profit)/loss on disposal
and scrapping of
plant and equipment and
intangible assets (1 428) 2 805 9 257
Reversal of impairment of
property, plant
and equipment - - (1 559)
Profit on disposal of
operations - - (728)
Impairment of goodwill 3 785 - 1 286
Loss on disposal of
listed
investment 865 - -
Movement in provisions (3 743) (3 622) 28 204
Movement in fixed
escalation
operating lease accrual 5 703 (107) (18 135)
242 225 231 350 281 090
2. Changes in working
capital
Inventories (826 150) (871 280) (500 151)
Trade and other
receivables (286 034) (265 585) 23 580
Trade and other payables 2 287 889 1 339 043 844 007
1 175 705 202 178 367 436
SUPPLEMENTARY INFORMATION
Unaudited Unaudited Audited
R`000 Dec 06 Dec 05 Jun 06
1. Capital commitments 328 030 305 683 388 775
2. Contingent liabilities 60 004 97 790 88 362
3. Net asset value per share (cents) 623 499 598
4. Total number of shares
in issue (adjusted
for treasury shares) 507 345 507 355 507 345
Group prospects and outlook
The Board expects the economic factors that influenced the Group`s performance
in the first half of the year to continue largely unchanged in the second
half.
By order of the Board
C H Wiese
Chairman
J W Basson
Chief executive
19 February 2007
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 Investments Services (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.
Date: 20/02/2007 07:30:04 Produced by the JSE SENS Department.
