Shoprite reviewing its supermarket operations outside South Africa
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The largest supermarket chain in Africa yesterday said it would close stores and negotiate rent reductions after currency devaluations and challenging trading conditions in the continent weighed on its profits.
Chief executive Pieter Engelbrecht said the group would also de-dollarise costs to improve profitability. The group said its trading profit in the continent declined on the back of a R68m reduction in interest income earned on government bonds and bills.
It said that its overall trading margin fell to 5 percent from 5.5 percent.
Capital spent on property, plant and equipment, and software tumbled 30 percent to R2 billion year on year, with R405m spent on leasehold improvements and buying vacant land for future opportunities, R712m on store refurbishments, and R369m on new stores, excluding land and buildings. The remaining R483m was spent on information technology and supply chain projects. It said it sold real estate worth R621m and embarked on a sale and lease-back of its commercial vehicle fleet. Proceeds of the sale amounted to R1.1bn.
Property, plant and equipment, and right-of-use assets included a hyperinflation adjustment of R2.7bn, resulting from the application of IAS 29.
The group said it recorded a 5.3 percent rise in overall earnings before interest, tax and amortisation to R6.8bn. This was, however, satisfactory, given the 1.1 percent market share gain in its home market of South Africa. It said sales grew 9.8 percent and trading profit 9.5 percent to R3.7bn (excluding hyperinflation) during the period. The group said it did not foresee a risk of the coronavirus to the business.
Net cash improved by R3.2bn to R8bn due to improved cash flows from operations, the reduction in capital spend and the disposal of assets.
Proceeds on government bonds and treasury bills in Angola to the value of R459m also contributed to the improved cash position.
Sales growth for the first six weeks of the second half of the 2020 financial year had been in line with growth reported for the interim period to December 2019.
Supermarkets Non-RSA’s operating environment was expected to remain challenging.
Engelbrecht said the group achieved a 7 percent increase in merchandise sales to R81.2bn during the period from 4.4percent growth in volume of products sold and 2.1 percent growth in the number of customers.
“Our strategy to capture a larger share of South Africa’s premium food retail segment continues to be one of our drivers of growth as reflected particularly in the Checkers brand, together with Hypers, growing sales by 11.2 percent,” he said.
The Xtra Savings Rewards Programme launched in October had been well received, with 3.8 million customers signed up.
A one-hour grocery delivery service, Sixty60, was launched in November in eight stores.
The Supermarkets Non-RSA operating segment, comprising operations in 14 countries across Africa, recorded sales growth of 4.8 percent in constant currency terms. Sales declined by 3.1 percent in rand terms.
The interim dividend was held at 156 cents per share.
Shoprite shares declined 2.17 percent on the JSE on Tuesday to close at R103.60.