Coronavirus impact could mean R100m loss in turnover for Shoprite group - CEO

(Photographer: Dean Hutton/Bloomberg)
(Photographer: Dean Hutton/Bloomberg)

The Shoprite Group [JSE:SHP] estimates that the impact of the Coronavirus on its business could mean a loss of R100 million in turnover, CEO Pieter Engelbrecht told Fin24 on Tuesday.

This might not seem like a potential material impact compared to the group's total turnover of about R170 billion, he said. Nonetheless, Shoprite opted "to take a close look" at the global impact of the virus and quantify what it could mean for the group's business.

An example is having to change orders which would normally go to Chinese companies, to now be placed in other countries like India, Bangladesh, Romania, Ukraine and Poland. Engelbrecht foresees that sourcing items like electrical blankets and heaters for the coming winter could end up being a challenge.

Asked about the recent recall of some cans of pilchards, Engelbrecht said it was simply part of the group's very stringent food safety requirements.

"So far there has not been a single complaint or anyone falling ill. Food safety is critically important to us and we have learnt it is best to act quickly," he said.

As for the general group strategy, Engelbrecht said its aim remains to continue to capture a larger share of South Africa's premium food retail market segment.

The group announced its unaudited group results for the interim period until December 29, 2019, on Tuesday.

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 5.3% to R6.8 billion over the interim period, while the trading profit on a reported basis decreased by 3.9% to R4.0 billion. Diluted headline earnings per share, excluding the impact of hyperinflation in some markets, increased by 15.7% from R3.278 to R3.793. Diluted headline earnings per share declined by 2.6% to R3.724. A dividend per share of R1.56 cents was declared, similar to the one declared in the previous comparable period.

The group's core business, Supermarkets RSA, represents 75.9% of group sales. Over the interim period it achieved 9.8% sales growth (6.6% on a like-for-like basis).

The group trades from 1 632 stores, which include Shoprite, Usave, Checkers and Checkers Hyper. Market share in its SA supermarket operations gained over the interim period reported on, was R2.4 billion (growth of 1.1 percentage points).

Engelbrecht says it helps that, since January last year, all the group's distribution centres are now live on its new IT platform.

"Now we have been able to extract value to define and manage margins better and we have much more data and customer insights to assist us to continue offering great deals," he added.

Growth in customers

For Engelbrecht the most positive aspect over the interim period was the 2.1% growth in customers and the 4.4% growth in volume, since this is critical for the group's suppliers.

"The core business in SA has been outstanding, with Checkers leading the bunch with double-digit growth of over 11%."

In its business outside of South Africa, currency devaluation was the biggest challenge, especially in Angola. In Nigeria, following xenophobic attacks in SA in September last year, the group lost customers. Engelbrecht says it has since regained customers, but not yet at the same level as before.

Regarding profit, Engelbrecht says he is pleased with the 7% sales growth, although the trading profit is down 3.9%. He argues that the impact of hyperinflation should be taken into account, though. Without that, profit would have shown a 7% increase.

As for the dividend of R1.56, he says it might "look like it has not changed compared to the prior comparable period, but if one excludes the hyperinflation impact, the dividend did "increase". "In the full year results you will see it 'rectified'," he added.

Going forward, he said the group is reviewing its operating models on the rest of Africa. In SA, he says the business is at a stage of consolidating in terms of what it deems to be precision retailing, which will allow the group to release additional streams of revenue going forward, while keeping it globally competitive.

"In terms of future strategy, we remain committed to operating on the continent but are limiting future expansion whilst we review our options with regards to alternate operating models," said Engelbrecht.

"Notwithstanding this, we have taken a number of immediate operational actions, all of which are ongoing and include rent reductions, store closures, productivity improvements and 'de-dollarising' costs. We are confident in the absence of further currency devaluations and any unforeseen circumstances that these operational measures will positively impact profitability."

At the end of trade on Tuesday the Shoprite group share price was down 2.17% at R103.60.

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