Angolan hyperinflation shock hits Shoprite
By Ann Crotty - Jul 19th 2018, 08:36
Hyperinflation in Angola dragged down Shoprite’s full-year revenue, sending the share price down as much as 6.5% on Wednesday.
Africa’s largest food retailer reported a 3.3% increase in sales to R145.6bn for the 12 months to June, with very high and increasing inflation, as well as a 50% currency devaluation since January, hitting its previously strong Angolan business.
In the 2017 financial year, Angola, where Shoprite has 30 supermarkets, accounted for the largest share of non-South African sales. Non-South African supermarkets accounted for 13% of the group’s trading profit.
Last year Shoprite said Angola, where it had purchased a distribution centre to improve supply chain efficiencies, offered significant growth potential despite concerns about currency depreciation.
The country’s official inflation rate fell to 20.3% year on year in June from 20.7% in May, according to Bloomberg data.
Retail analyst Syd Vianello said investors were spooked by news of hyperinflation in Angola. "There was no sign of it in the first-half results," said Vianello, adding that no other South African company doing business in Angola, such as Nampak, had alerted investors to the problem.
"With hyperinflation, you might as well deconsolidate the results of the Angolan business," said Vianello, describing the difficulties of tracking values in a hyperinflationary environment.
Shoprite’s non-SA performance highlighted the difficulties of operating in countries that are driven by resource prices and volatile exchange rates, Vianello said. "The situation can turn around quickly, they’ve just got to ride it out."
Shoprite’s share price recovered to close 3.73% lower at R212.30.
Shoprite said if Angola were excluded, the non-SA supermarkets achieved a 3% increase in sales. This is a dramatic turnaround from the 32.3% turnover reported by non-SA supermarkets in the previous financial year.
Asief Mohamed, chief investment officer at Aeon Investment Management, said Shoprite’s traditionally strong performance in the rest of Africa, particularly in Angola, had supported a high rating for the group. Wednesday’s operational update highlighting difficulties in the non-SA businesses meant a review of that high rating was inevitable.
Shoprite said excluding Angola, the group managed to increase turnover by 5.5%.
"The group’s internal inflation decreased from 7.3% in the previous year to only 0.5% for the current year."
The group’s core business, supermarkets in SA, achieved 5.7% sales growth with internal inflation dropping to 0.3% from 5.9% the previous year.
"Taking into account internal inflation, the improved real turnover growth combined with positive volume and customer growth reflects a strong underlying performance," the group said in its results.
Mohamed said if new store openings were excluded, the like-for-like sales growth was probably around 3%-3.6% in SA.
"It’s not that good but the economy is in a very difficult space at the moment. All consumers are under pressure and the benefits from previous hikes in social grant payments are no longer available, as government has not been able to afford more increases," said Mohamed.
Vianello said Shoprite had done well given the tough trading conditions and had outperformed its South African competitors such as Pick n Pay and Woolworths.
At the release of the interim results in February, Shoprite CEO Pieter Engelbrecht said the South African performance had been boosted by the continued success of the focus on Checkers’ high-end consumers.
Checkers brings world-class retail to Constantia with new flagship store
27/11/2019 - 13:01
Checkers has opened the doors to its state-of-the-art 2 330 m² flagship supermarket at the Constantia Emporium as the retailer continues to take innovation to new heights.
Woolworths carves out market share in SA
27/11/2019 - 10:11
In Australia, David Jones's sales declined 2.1%, with the company saying a store refurbishment contributed to the decline.
Push and pull strategies work together to keep consumers coming back for more
26/11/2019 - 10:20
The retail sector is under increasing pressure as consumers have shrinking disposable income in a strained economy. Maintaining share of wallet is critical. Relying solely on a push route to market strategy from manufacturers into retailers is not enough to get consumers buying products. A pull strategy needs to coexist with the push to drive brand consumption. Integrating these strategies requires intelligent and insightful decision-making. This, in turn, requires data generated through smart technology which provides line of sight across the value chain from manufacturer to distribution, retailer to the consumer.
Exclusive leases must fall: Commission cracks whip on Shoprite, Pick n pay, Spar, Woolies
26/11/2019 - 09:57
The Competition Commission Inquiry into Grocery Retail, published on Monday, called for an end to the exclusive leases negotiated by national retail chains in all shopping malls across the country in a bid to open up access to markets for smaller players.
Tiger Brands still reeling from listeriosis aftershock
26/11/2019 - 09:41
Tiger Brands continued to feel the effects of the listeriosis outbreak in the year to the end of September after the food producer suffered an impairment charge in its value-added meat products (Vamp), following a slower-than-anticipated recovery in the division.