February 18, 2004

By Vera von Lieres

Cape Town - Shares in the largest food retailer in Africa, Shoprite, flew 2.2 percent higher yesterday, reflecting positive market sentiment following its half-year results.

A key feature of the numbers was the good operational improvement in the business, commentators said.

Evan Walker, a retail analyst at Andisa Securities, said results outstripped expectations, mainly because of how well Shoprite had managed its gross margin upwards in percentage terms.

This was particularly impressive because pricing pressure in the local market as well as in Africa - where the food group operates in 13 countries, as well as in two Indian Ocean islands - had been hectic over the period.

In Africa, the retailer had countered the effects of pricing pressure through aggressive import substitution.

By comparison, Pick 'n Pay in its interims last year said local gross margin and Australian gross margin were down, in line with its intention to reduce gross margin and push volume.

Shoprite reported a foreign exchange loss of R31.5 million because of the stronger rand, compared with a R61 million loss a year ago but this was downplayed by analysts. 

Exchange rate losses were expected to be fully reversed by the year end, they said.

Another analyst, who preferred not to be named, said that in addition to gross margin improvement the market would also have liked more sales growth.

Revenue for the six months grew 5.8 percent to R13.4 billion.

Headline earnings a share jumped 45 percent to 39c on a 50 percent rise in net profit.

But the analyst welcomed Shoprite's cash pile of R1.6 billion from R1.1 billion a year ago.

"Cash has been better managed, with finance costs down dramatically."

Shoprite's managing director, Whitey Basson, said the emphasis during the period was on products with higher margins.

Internal inflation during the period in local food chains was less than 1 percent in contrast to a year ago, when it hit a high of 18 percent.

Shoprite shares added 19c to end at R8.70 yesterday.