South Africa's Shoprite reports 17% increase in trading profit as sales grew 14.4% to US$10B; company operates 339 supermarkets in South Africa, 156 in other African nations

WESTERN CAPE, South Africa , August 21, 2012 (press release) – The Shoprite group has increased turnover and profitability in the year to June 2012, despite a highly competitive trading environment. It has reported a 17,0% increase in trading profit to R4,665bn on turnover that rose 14,4% to R82,731bn. The headline earnings per share increased by 19,6% to 607,04c.

With internal food inflation at 4,9%, the 14,3% increase in turnover in its supermarkets represents real growth of more than 9%.

Shoprite Holdings chief executive Whitey Basson said the group’s ability to keep inflation in its supermarkets almost 4 percentage points below the official food inflation rate of 8,8% was the result of strict cost controls throughout the business and an efficient supply chain infrastructure.

“This efficiency is also evident in the fact that trading profit growth exceeded the increase in turnover. Our trading margin increased from 5,51% to its highest level ever at 5,64% and was achieved despite substantial increases in certain operating costs that are beyond our control.”

Based on these results the board has declared a final dividend of 194c per share, to bring the total distribution for the year to 303c per ordinary share (2011: 253c) an increase of 19,8%.

Basson said while market conditions remained largely unchanged, turnover growth had accelerated in the second half of the year - from 13,2% to 15,7%. At the same time, food inflation had shown a temporary drop. This slight buoyancy in the market had persisted after year-end, he said, but was not expected to last.

The group added a net 90 new outlets to its store network of which 61 were supermarkets. It now operates 1 334 own outlets under its various brands. The opening of the new stores resulted in over 7 000 new jobs, enabling the group to appoint its 100 000th employee during the past year.

“Shoprite has become one of the largest employers in Africa. Almost 99% of staff members are recruited from the communities where our stores are located in the 17 countries in which we do business. Most of our employees were previously disadvantaged; all now have a viable financial future.”

Basson said all divisions had improved on their performances in the previous financial year and in most instances outperformed their sectors. “A case in point is Supermarkets RSA which includes the Shoprite, Checkers and Usave chains and represents 78,1% of group turnover. This segment grew turnover by 12,9% while the formal food market as measured by Nielsen, grew by 8,9%.”

He said Shoprite, which according to both the Sunday Times Top Brands awards and The Times/Sowetan Retail Awards in 2011, was rated by South Africans as the No 1 supermarket for the 5th consecutive time and No 1 in all five grocery categories including overall customer experience, respectively, had maintained its strong price positioning and grown turnover by 11,6% in its 339 supermarkets off an already high base. After year-end it was announced that Shoprite was again the winner, for the third consecutive year, in the convenience and grocery store category of the 2012 Sunday Times Top Brands Awards, of which the winners are voted in by consumers.

Since April when it started paying out social grants, it had made more than 3 million payments to recipients who as a group formed an integral part of its target audience.

Checkers maintained its position for the fourth consecutive year as the fastest-growing national food chain in its market segment, despite increased competition. In the period under review it continued to expand its customer base in the higher LSM categories growing turnover in its 162 supermarkets and 28 Hypers by 11,9%.

Basson said Usave had now become a meaningful niche player in domestic food retailing. “Its predominantly small-format stores have remained rigorously focused on value and price. It maintained its fast growth rate of the past, opening a net 24 new outlets and increasing turnover by 19,9%. It now operates 215 stores in South Africa and is planning to open at least an equal number of new stores than last year.

Basson said he was delighted by the strong turnover growth experienced in the group’s supermarket operations outside South Africa where it now operates 156 outlets. “We increased turnover by 25,4% at current exchange rates and by 19,7% at constant currencies. We opened a net 21 new stores – for us one of the highest numbers in a single year – and opened the doors of our first supermarket in the DRC. We are looking forward to another year of growth beyond our borders.”

The group’s furniture division also performed well, increasing sales by 11,1% to R3,4 billion and raising trading profit by 33,5%. The OK Furniture chain was the main contributor to the growth in sales. This was despite on-going price deflation which averaged 5,1% for the year. It now operated from 314 OK Furniture and House & Home outlets and intended opening another 24 in the new financial year.

The OK Franchise division showed strong growth in membership after implementing the acquisition of the Friendly, Seven Eleven and Price Club franchise chains from Metcash. It increased turnover by 19,1% and trading profit by well above that level.

Basson said MediRite, the group’s chain of in-store pharmacies, was becoming a meaningful business in its own right having increased its number of outlets to 136. “Equally important is its strengthening of relationships with a number of medical aid societies for whom the size of its footprint is of material importance for the distribution of chronic medication.”

Looking ahead, Basson said he did not see the trading environment changing in any material way. “Nothing on the horizon suggests that the pressure on consumers’ disposable income will ease. Shoprite will, however, do everything in its power to mitigate the impact on its customers of the severe drought in large parts of the American bread basket on local food prices. ”

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