Companies / 27 February 2019, 08:00am / Sandile Mchunu
DURBAN – Shoprite has entered into exclusive in-principle discussions with its chairperson Christo Wiese to purchase his deferred shares in a move set to make Africa’s biggest grocery store a more transparent operation to its shareholders.
Chief executive Pieter Engelbrecht said the negotiations were spearheaded by shareholders who also wanted to dilute Wiese’s influence in the retailer.
Engelbrecht said the group would brief the markets on the developments.
“We have started the discussions, but it is the shareholders’ decision and we had to inform the market because the discussions are already taking place,” Engelbrecht said.
The news came as Africa’s biggest retailer yesterday flagged that its full-year earnings would take a knock as a result of sluggish growth and food deflation at its home market of South Africa. Continued sales from the festive season were not enough to ensure full-year profit growth.
It said adjusted earnings which take into account currency-induced hyperinflation from other African operations eased to the lower end of the company’s expected range.
Wiese’s deferred shares carry about 32.3 percent of the voting rights of Shoprite Holdings and are held through Thibault Square Financial Services.
Shoprite capital structure currently consists of two share classes: Shoprite Holdings ordinary shares and Shoprite Holdings deferred shares.
Shoprite said if the proposed transaction becomes successful it would simplify the company’s voting share structure and will align the company with international best corporate governance practice.
However, industry experts said the plans to dilute Wiese’s shares would allow the retailer to forge a separate and transparent identity away from Wiese, who took heavy losses after the near collapse of international furniture retailer Steinhoff.
Ron Klipin, a senior analyst at Cratos Capital, said the purchase of the deferred shares appears to be an opportunity to become a more transparent operation.
“The higher voting structures are being phased out as evidenced by the collapse of the Pick * Pay structure. The funding of this buyback still needs to be finalised and the group needs to keep a growing debt under control in a very difficult operating environment,” Klipin said.
Shoprite reported a 24.1percent decline in diluted headline earnings per share to 398.5cents a share during the period, with Engelbrecht stating that the decline had to be viewed in the context of various critical expansion and technology projects that the group had embarked on in the past five years to ensure future growth and modernise its technology landscape.
“The timing, unfortunately, coincided with the deterioration of the RSA and Non-RSA economies and consumer expenditure levels over this same period. In the external operating environment, economic conditions have left the group’s core customer under significant financial pressure while currency devaluations severely impacted the performance of the Non-RSA operations,” he said.
The Angolan kwanza devalued by 85 percent in 2018.
Total sales increased by 0.2 percent to R75.8 billion, up from R75.7bn, while like-for-like sales declined by 2.7 percent. Supermarkets RSA reported sales growth of 2.6 percent which, on a like-for-like basis, declined by 0.5 percent, while Supermarkets Non-RSA recorded a decline in sales of 13.3 percent with a like-for-like decline of 16.5 percent.
Trading profit decreased by 19percent to R3.3bn and the group declared a dividend of 156c a share, down by 24percent compared to last year’s 205c. Klipin said Shoprite experienced another perfect storm which was well guided by management in most respects. He said the introduction of the new ERP systems caused a substantial disruption resulting in a loss in sales, a lack of product availability in the stores as well as a disruption in the supply chain.
“However, the hyperinflation in Nigeria worsened with the naira depreciating by 85percent against the dollar and GDP declining by 1.60percent,” Klipin said. “This resulted in a major escalation in prices and a lack of affordability by their customer base with sales declining by around 10percent.”
Shoprite shares rose 4.89 percent on the JSE on Tuesday to close at R169.75.