Monday, August 03, 2020 / 11:38 AM / By Shoprite Holdings Ltd / Header Image Credit: THISDAYLIVE
This operational update, inclusive of voluntary earnings per share (EPS) and headline earnings per share (HEPS) guidance, is more comprehensive than usual for the purpose of providing shareholders and investors with an understanding of how the Group has traded during the COVID-19 pandemic.
Despite difficult circumstances, in a year incorporating the COVID-19 lockdown and accompanying regulations governing trade, transport and operations, the Group increased total sale of merchandise for the 52 weeks to 28 June 2020 (including the impact of hyperinflation in the prior year) by 6.4% to approximately R156.9 billion. Like-for-like growth for the year was 4.4%.
The Shoprite Group remained committed to meeting the demands of our customers, whilst focusing on value and remaining solution oriented. This was evidenced, inter alia, by our digital voucher innovation, ongoing private label development and the conversion of our Checkers Food Services (CFS) business to include a consumer facing offering. In addition, the rapid scaling of our innovative Checkers Sixty60 digital shopping application, which after a test phase introduction in November 2019, was operational from 87 stores nationwide by June 2020.
As a Group, our initiatives pertaining to inventory and capital management began early in our financial year and carried on unabated despite the nationwide lockdown. From a liquidity and net debt standpoint, the Group has managed to meaningfully improve its financial position since reporting in February 2020 on our first half results. The transaction involving the sale of our distribution centres to Equites Property Fund Limited is in its final phase of Competition Commission approval and we anticipate transfer will be affected during the first half of the 2021 financial year.
Supermarkets RSA's sales growth (inclusive of liquor) of 8.7% for the year was underpinned by a strong second half, in which sales grew 7.5%, notwithstanding a high second half base in the prior year during which fourth quarter sales grew by 9.4%. As a result of lockdown, customer visits for the year declined by 7.4%, however, average basket spend increased by 18.4%. Superb execution across the business coupled with considerable efforts from our suppliers resulted in volume growth of 2.3% for the year. Market share figures insofar as they are available (up to the end of May 2020) reflect consecutive monthly market share gains for the past 15 months.
In equally, if not more difficult circumstances resulting from COVID-19 lockdown regulations, Supermarkets Non-RSA's second half reported an increase in sales of 0.1%, resulting in an overall decline in sales of 1.4% for the year but in constant currency increased by 6.6%.
Nigeria - Discontinued Operations
Following approaches from various potential investors, and in line with our re-evaluation of the Group's operating model in Nigeria, the Board has decided to initiate a formal process to consider the potential sale of all, or a majority stake, in Retail Supermarkets Nigeria Limited, a subsidiary of Shoprite International Limited.
As such, Retail Supermarkets Nigeria Limited may be classified as a discontinued operation when Shoprite reports its results for the year. Any further updates will be provided to the market at the appropriate time.
Group Segmental Sales
Segmental sales growth for the twelve months to June 2020 is as follows:
* Including the impact of hyperinflation in the comparative period.
The following information provides context to the Group's sales growth for the year:
Other Operating Segments
The Group's Other operating segments, representing 6.9% of Group sales and comprising OK Franchise, Transpharm, MediRite Pharmacies, CFS and Computicket, achieved sales growth of 3.9% for the year. This was achieved despite lockdown limitations impacting CFS, given that its primary customers (the restaurant and hospitality industry) were closed during lockdown, as well as Computicket, with lockdown restrictions having a significant impact on events and travel related ticketing. Notwithstanding these restrictions, the businesses' ability to adapt and innovate resulted in second half sales increasing by 3.5%.
The Group believes it is appropriate to highlight the COVID-19 costs incurred pertaining to compliance with national lockdown regulations together with managing and protecting our employees, customers, stores, inventory and distribution infrastructure. In this regard, the Group has incurred a net total of R327.2 million spent across the areas of health and safety, security, mobile clinics, personal protective equipment, temperature scanners, store and distribution centre sanitation, employee meals, communication costs and remote network access for employees. The most significant spend pertained to R116.9 million paid to our employees, inclusive of an appreciation bonus to assist them with the difficulties we anticipated would accompany the nationwide lockdown.
Impairment of Non-financial Assets
Impairments for the year approximate R1.3 billion, mainly in the Supermarkets Non-RSA and Furniture segments as a result of the deterioration in the current and future economic outlook. Impairments, net of income tax, form part of items of a capital nature and as such impact EPS but not HEPS.
Voluntary Trading Update
The following information is supplied in order to assess the impact of the impairments raised and the aforementioned COVID-19 costs on the Group's results for the year.
Furthermore, due to the potential classification of our Nigerian business as a discontinued operation, we present continuing operations excluding Nigeria as an alternative.
For ease of comparison of the like-for-like relative performance of the operations, we have included an adjusted basic HEPS which excludes the after tax effect of exchange rate gains or losses and the impact of hyperinflation. In addition, we have calculated this metric to exclude once-off COVID-19 costs.
*The adjusted basic HEPS and continuing operations information provided, constitutes pro forma financial information in terms of JSE Listing Requirements.
Impact of the Group's pro forma constant currency disclosure
The Group discloses unaudited constant currency information to indicate the Supermarkets Non-RSA operating segment performance in terms of sales growth, excluding the effect of foreign currency fluctuations. To present this information, current year sales for entities reporting in currencies other than ZAR are converted from local currency actuals into ZAR at the prior year's actual average exchange rates on a country-by-country basis.
For the year ended 28 June 2020, the Angolan economy was assessed not to be hyperinflationary, whilst it was assessed to be hyperinflationary during the prior year ended 30 June 2019. As such, in respect of Angola, the constant currency information has been prepared excluding the impact of hyperinflation.
The table below sets out the percentage change in sales, based on the actual results for the financial year, in reported currency and constant currency for the following major currencies. The total impact on Supermarkets Non-RSA is also reflected after consolidating all currencies in this segment.
Statement on pro forma financial information
The pro forma financial information contained in this announcement, which is the responsibility of the Group's directors, has been prepared for illustrative purposes only and may not fairly present the results of operations.
The information contained in this announcement has not been reviewed or reported on by the Group's external auditors.
Group annual results release and presentation update
As experienced by many companies, the lockdown has created practical difficulties in finalising our annual financial statements. Consequently, the Group plans to publish and present its 2020 year end results on Tuesday, 8 September 2020.
Financing Retail Trade in Nigeria - Being a presentation by Olufemi Awoyemi at the CVL International Summit & Honours Award on Retail Trade, Lagos, November 30, 2016.
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