Retailer promises to generate more cash

CAPE TOWN Mass-market food and furniture retailer Shoprite Holdings grew headline earnings by an impressive 27% in the year to June, despite closing more stores than it opened in the past year and carrying costs of R77m for unusable OK Bazaars retail space.

The group attributed its improved profitability to better use of the available space, effective cost control and a further reduction in stock losses.

On headline earnings of 58c (45,5c) a share, the total dividend for the year was 20,5c (18c).

Shoprite Holdings MD Whitey Basson said yesterday the group closed 18000m² of shopping space in the past year, and since it bought OK Bazaars in 1997, it has closed 364000m² of space. In numerical terms, the group closed eight stores and opened seven in the past year. Only three of those seven new stores were opened in SA and the remainder were launched in the rest of Africa.

Africa is where the group expects most of its future expansion to occur. In the past year, turnover from African operations contributed R1,3bn of total revenue of R19,6bn and it contributed 15,7% of profit. Basson said the group's aim was to derive half of its operating profit from Africa.

The group's franchise business was trading 'nicely', Basson said. There were 368 franchised stores after the group opened 66 in the past year and closed 63.

Basson said about three percentage points of the group's 6,3% turnover growth reflected inflation and the remainder was organic growth. Food sales account for 97% of the group's turnover and 89% of operating profit while furniture sales contribute the remainder.

Sales of financial services products were making a healthy profit, Basson said, but they accounted for less than 3% of total profit.

The figures included an exceptional provision of R127,4m for irrecoverable loans in the group's share incentive scheme. The group was reconsidering this as an incentive for staff in view of volatile share prices and the poor rating of retail shares in particular.

Shoprite's net cash flow grew to R457,7m compared with last year's R63,2m. This was partly because it is not liable for companies tax, only secondary tax on companies and tax on partnership ventures, and also because the process of store refurbishment is almost complete. 'We are a cash-generating business and we will be generating more cash next year,' Basson said.

Trade and receivables on the balance sheet climbed to R1,4bn from R1,1bn previously. Basson said this was mainly the result of consolidating Sentra Namibia with the group, an acquisition made in the past year.

Microlending was also a possibility, as was merging other furniture operations with OK Furniture.

As far as the group's prospects locally were concerned, it was in the hands of the retail developers, Basson said. 'I doubt if there are too many new shopping centres being developed.'