A man looks on at the newly commissioned Shoprite store at Novare Gateway mall Abuja, Nigeria November 30, 2017. REUTERS/Afolabi Sotunde
Shoprite is feeling the pinch of troubled economies in key markets
Retail group Shoprite that operates in 15 countries in Africa, this week released its results for the financial year ended 30 June 2019.
While sales were up 3.6% to R150.4-billion, and the group opened 126 new stores over the period, trading profits sank 14.3% to R6.9bn from the previous year, and diluted headline earnings per share dropped 19.6% to 779.9c.
Shoprite’s selling price inflation was 1.2% in South Africa, its major market with 74.9% of overall sales. This put a dampener on its South African trading margin, which sat at 5.5% for H2.
The second half of the group’s financial year, however, showed a significant improvement, with Q4 sales in up 9.4%, indicating a mild recovery in its primary market.
Problems in the non-South African business
Shoprite CEO Pieter Engelbrecht in presenting the results said Shoprite’s non-South African business was struck heavily by “on-going forex shortages, currency devaluations and the aftermath of rampant inflation”, particularly in Angola. The non-South Africa businesses recorded a trading loss of R265m, with “no foreseen respite in short-term trading conditions in the region”.
While Engelbrecht said the during his presentation the group was committed to customers in the 14 non-South Africa countries in which it operates, speaking to analysts later he added a “but not at any cost” proviso.
This was a noteworthy change says equity analyst Damon Buss of Electus Fund Managers.
“Management mentioned that Shoprite had exited countries before, and the fact that they even mentioned it means they’ve had those discussions,” he said. “While they have never provided the actual split, their four biggest markets – Angola, Nigeria, Zambia and Mozambique – account for 70% of the non-South Africa business, and Angola alone about 40%, so there’s a long tail from the other ten countries.
“The problem is that their two largest non-SA countries are oil-dependent and under immense pressure. The recent MTN results showed that the Nigerian consumer appears to be going backwards, not improving. Shoprite almost cannot exit its two most problematic territories with the biggest challenges.”
Tough trading environment
Buss says Shoprite’s results were more disappointing than what management had flagged in a July trading update. “However, the hyper-inflation adjustment won’t repeat next year. The dividend being down by a third implies that real earnings in the business were down that much. That’s really weak for the largest and supposedly strongest food retailer in South Africa, and shows just how tough the trading environment is.
Presently the xenophobia crisis is really taking its toll on SHOPRITE as one of their biggest market, Nigeria is under a huge siege. The present crisis will heavily affect SHOPRITE if not quickly resolved between both nations
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