Annual Report 2008
984 2008
2007
2006
2005
2004
2003
2002
REAsons 2001 to be 2000 1999 NUMBER OF548 STORES OWNED BY SHOPRITE HOLDINGS proud 500 600 700 800 900 1000 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Shoprite
Holdings ts various chains operate a total of 984 stores in 17 Icountries, all integrated electronically into a central data Limited base and replenishment system. The Group’s primary is an investment business is food retailing to consumers of all income holdings company whose levels, and there are outlets from Cape Town to Mumbai and on some islands of the Indian Ocean. Management’s combined subsidiaries goal is to provide all communities in Africa with food and constitute the largest fast household items in a first-world shopping environment, at moving consumer goods the lowest prices. At the same time the Group, inextrica- (FMCG) retails operation bly linked to Africa, contributes to the nurturing of stable on the African continent. economies and the social upliftment of its people.
“There is nothing that fills us with the trust consumers put in us to sell
Shoprite Holdings Ltd comprises the following entities:
The Shoprite Checkers supermarket group, which consist of 373 Shoprite supermarkets; 123 Checkers supermarkets; 24 Checkers Hypers; 116 Usave stores; 22 distribution centres supplying group stores with groceries, non-foods and fresh produce; 183 OK Furniture stores; 39 House & Home stores; 14 OK Power Express stores; and 116 Hungry Lion fast-food outlets.
Through its OK Franchise Division the Group distributes stock to 24 OK Foods supermarkets; 64 OK Grocer stores; 31 OK MiniMark convenience stores; 18 OK Value stores, 71 Sentra stores and buying partners; and 44 Megasave wholesale stores. WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Table of Contents
Distribution of Operations 2 Financial Highlights 3 Our Group 4 Board of Directors 6 Chairman’s Report 8 Chief Executive’s Report 10 Value Added Statement 13 Financial Report 14
Operating Review Shoprite 17 Checkers 18 Usave 19 OK Franchise 20 Supermarkets Outside RSA 21 Furniture 24
Value-added Services Money Market 25 MediRite 26 Liquorshop 27 Freshmark 28 a greater sense of pride than Meat Market 29
Group Services at the lowest prices,” CH Wiese, Chairman Information Technology 30 Suppy Chain Management 31 Property 32
Corporate Responsibility Report Sustainability 33 Corporate Governance 44
Annual Financial Statements Contents 47 Notes to the Annual Financial Statements 56
Shareholder Information Shareholder Analysis 111 Notice to Shareholders 112 Form of Proxy 115 Administration IBC Shareholder’s Diary IBC
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 1 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Distribution of Operations and Economic Overview
Uganda
Tanzania
Zimbabwe Madagascar Namibia Mauritius Botswana Mozambique
Swaziland Lesotho South Africa
Checkers OK OK Power House & Hunry OK OK Mini Shoprite Checkers Hyper Usave Furniture Express Home Lion OK Foods Grocer Mark OK Value Megasave Sentra South Africa 302 119 24 91 162 13 37 93 16 54 29 12 32 58 Angola 3 5 1 Botswana 4 1 4 7 5 1 Ghana 1 1 India 1 Lesotho 4 3 4 1 2 1 Madagascar 7 Malawi 2 3 2 Mauritius 1 Mozambique 5 2 Namibia 12 3 11 10 2 3 3 9 2 6 10 13 Nigeria 1 Swaziland 6 2 1 1 1 Tanzania 5 Uganda 2 Zambia 16 7 Zimbabwe 1 Total 373 123 24 116 183 14 39 116 24 64 31 18 44 71
Angola Ghana Lesotho Malawi Mozambique Nigeria Swaziland Uganda Zimbabwe Population 2006 (Millions) 16.6 22.5 1.8 13.2 20.1 144.7 1.1 29.9 13.1 Real GDP Growth % (ave. 2003 – 2007) 15.0 5.9 4.4 5.4 7.6 7.8 2.8 5.7 -5.9 Inflation 2007 (annual percentage change) 12.3 10.5 8.0 7.9 9.2 5.4 8.1 5.8 12,562.7
South Botswana India Madagascar Mauritius Namibia Africa Tanzania Zambia Population 2006 (Millions) 1.9 1,109.8 19.1 1.3 2.1 47.4 39.5 11.9 Real GDP Growth % (ave. 2003 – 2007) 5.2 8.6 6.4 4 4.7 4.7 7.2 5.4 Inflation 2007 (annual percentage change) 7.07 6.4 10.65 9.7 6.7 7.1 7 10.7
2 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Financial Highlights | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
30 June 30 June % 2008 2007 increase R’000 R’000
Sale of merchandise 22.3% 47 651 548 38 949 845 Trading profit 43.7% 2 296 550 1 597 692 Earnings before interest, tax, depreciation and amortisation (EBITDA) 32.4% 2 941 865 2 221 629 Profit before tax 44.1% 2 461 259 1 708 114 Headline earnings 53.7% 1 572 231 1 022 939
PERFORMANCE MEASURES Headline earnings per share (cents) 53.7% 309.9 201.6 Diluted headline earnings per share (cents) 54.1% 298.6 193.8 Dividends per share declared (cents) 53.5% 155.0 101.0 Dividend cover (times) 2.0 2.0 Trading margin (%) 4.8 4.1 Return on average shareholders’ equity (%) 37.3 30.6 Net asset value per share (cents) 30.8% 938.0 717.3 Inventory turn (times) 9.1 8.9
DEFINITIONS Return on average shareholders’ equity: Headline earnings, expressed as a percentage of the average of capital and reserves and interest-bearing borrowings at the beginning and the end of the financial year. Inventory turn: Cost of merchandise sold divided by the average of inventories at the beginning and the end of the financial year.
Shoprite holdings Ltd Share Price Number of corporate stores Sales of merchandise
1,200 50,000 47652
1,100 4500 984 1,000 38950 917 40,000 4000 900 846 33511 766 3500 800 704 29704 30,000 3000 700 642 26641 598 24825 2500 600 21 985 500 R million CENT S 2000 20,000 400 1500 300 1000 10,000 200
500 100
0 0 0 Jun dec Jun dec Jun dec Jun dec Jun dec Jun dec Jun 2002 2003 2004 2005 2006 2007 2008 2002 2003 2004 2005 2006 2007 2008 02 02 03 03 04 04 05 05 06 06 07 07 08 JUNE JUNE
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 3 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Our Group
Positioning The Shoprite chain is the original business of the Group Positioning Acquired in 1991, Checkers is the major brand after and its main brand. It is by far the biggest business unit. It is also the brand Shoprite. It operates stores throughout South Africa and in some neigh- used predominantly outside the borders of South Africa spearheading the bouring countries. It focuses more strongly on fresh produce and offers a Group’s growth into new markets. wider range of choice food items to a more affluent clientele.
Target Customer It draws its customers from the middle to lower- Target Customer The brand has recently been repositioned to cater income consumers in the living standards measurement 4 to 7. for customers in the upper-income groups and targets living standards measurement 7 to 10. Shopping experience Its market positioning has remained unchanged: to provide millions of customers with everyday low prices Shopping experience Checkers has become a preferred shopping while offering the lowest prices on basic foods. destination for time-pressed consumers. It has strongly developed lifestyle departments such as for wine, cheese and meat.
“We introduced a range of services to increasingly offer a one-stop shopping experience and to add value
to the store visits of consumers,” JW Basson, Chief Executive
Positioning The chain, with its wide geographic spread of stores, Positioning It offers a larger selection of contemporary quality offers a range of furniture, electrical appliances and home entertainment furniture, white goods and home entertainment products for more products at discounted prices, for cash or on credit affluent consumers.
Target Customer Living standards measurement 5 to 8. Target Customer Living standards measurement 7 to 10.
Shopping experience The focus is on essential products offered Shopping experience A highly amenable shopping environment with in a standardised in–store environment on easy payment conditions. well displayed products. Customers can also buy online, selecting from an Customers can also buy online, selecting from an extensive catalogue. extensive catalogue.
4 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Positioning Located in areas with high population densities, the Positioning Usave is a no-frills discounter initially focused on the lower positioning of the large-format Checkers Hyper stores is very similar income consumer but now increasingly becoming a preferred shopping to that of the main Checkers brand. However, they carry a much larger destination in its own right. Not only is it an ideal vehicle for the Group’s product range, especially non-foods, and encourage bulk rather than expansion into Africa but also allows far greater penetration on the lower convenience shopping. end of the market within the borders of the country.
Target Customer Its target customer is the same as for Checkers: Target Customer Living standards measurement 1 to 5. living standards measurement 7 to 10. Shopping experience A limited range of essential fast-moving Shopping experience These stores offer the customer low prices on products offered in a functional environment at the lowest possible prices. a wide range of foods and non-food products in a pleasant environment.
“We introduced a range of services to increasingly offer a one-stop shopping experience and to add value
to the store visits of consumers,” JW Basson, Chief Executive
Positioning This new chain of small-format stores located mainly Positioning Through OK Franchise the Group gained a foothold in in high-density areas sell a reduced range of white goods and home smaller, convenience-oriented markets. The OK brand, awarded only to entertainment products in addition to bedding and carpeting. outlets meeting certain requirements, encompasses four retail formats – OK Foods, OK Grocer, OK MiniMark and OK Value apart from its whole- Target Customer Living standards measurement 5 to 8. sale format Megasave.
Shopping experience It offers a pleasing ambience coupled with Target Customer “Every franchise store aims at satisfying the needs compact ranging and personalised service. of the community in which it is located.“
Shopping experience Conveniently located stores offering time- saving shopping at competitive prices.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 5 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Board of Directors
Executive Directors JW Basson (62)* AE Karp (49) BCom CTA CA(SA) General Manager: Furniture Division Chief Executive Mr AE Karp joined OK Bazaars in November 1990. Mr JW Basson joined Pep Stores as financial He is at present the general manager of the Group’s manager in 1971 and in 1975 he was appointed furniture division. He was appointed to the board to the Pepkor Board. He still serves that company of Shoprite Checkers in June 1999 and joined the in this capacity. He is chief executive and managing director of Shoprite Shoprite Holdings Board in September 2005. Holdings and Shoprite Checkers respectively and serves on the remunera- tion committee. EL Nel (59) BCom CTA CA(SA) # CG Goosen (55) * General Manager: Retail Investments BCom Hons CA(SA) Mr EL Nel joined the Group in 1997 and in 1999 he Deputy Managing Director was appointed to the board of Shoprite Checkers. Mr CG Goosen joined the Pepkor Group as financial He was appointed as director of Shoprite Holdings in manager in 1983, and in 1993 he was appointed as September 2005 and currently serves the company as general manager: financial director to the Shoprite Holdings Board. retail investments. He is deputy managing director of Shoprite Holdings, director of Shoprite Checkers and various companies within the Group and serves on the audit and risk management and remuneration committees of Shoprite Holdings. Executive Alternate Directors JAL Basson (32) B Harisunker (56) B Acc Divisional Manager General Manager: Hungry Lion Mr B Harisunker joined Checkers during 1969. Mr JAL Basson joined the Group in 2002. He is at He is at present the divisional manager of the present the general manager of the Hungry Lion fast Company’s KwaZulu-Natal, Indian Ocean Islands foods division. He was appointed to the board of and India operations. He was appointed to the Shoprite Holdings as an alternate director during September 2005. board of Shoprite Checkers in June 1999 and joined the Shoprite Holdings Board during November 2002. M Bosman (51) B Acc Hons CA(SA) AN van Zyl (60) General Manager: Group Finances BCom LLB Mr M Bosman joined the Group during 1993. General Manager: Statutory and Legal Services He serves on the board of Shoprite Checkers Mr AN van Zyl joined Pep Stores in 1981 before as director: finance since June 1999 and is also moving to the Group as company secretary and a director of various companies within the Group. He was appointed property manager in 1987. He was appointed as as alternate director of Shoprite Holdings during 2005. company secretary and director: legal services to the board of Shoprite Holdings in 1997. He is also director of Shoprite Checkers and other companies within the Group. PC Engelbrecht (39) BCompt Hons CA(SA) Chief Operating Officer BR Weyers (56) Mr PC Engelbrecht joined the Group during April General Manager: Marketing 1997. He was appointed as a director of Shoprite Mr BR Weyers joined the Group in 1980 and serves Checkers in August 2003 and as alternate director of on the board of Shoprite Checkers as director: mar- Shoprite Holdings during September 2005. He currently holds the position keting. He was appointed as director of chief operating officer. of Shoprite Holdings during February 1997.
6 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb non-executive Directors CH Wiese (66)*+ JG Rademeyer (59)# BA LLB DCom (hc) BCom CTA CA(SA) Chairman Mr JG Rademeyer is a non-executive director and Dr CH Wiese joined Pep Stores as executive direc- chairman of the audit and risk management commit- tor in 1967. Seven years later he left Pep Stores to tees since 2002. He was a partner and consultant at practice at the Cape Bar. He rejoined Pepkor and a medium and a large accounting and auditing firm, has been executive chairman of Pepkor Ltd since 1981. He is chairman director of various listed companies - mainly in the manufacturing sector - of Shoprite Holdings and serves as chairman of the remuneration and as well as a fulltime and part-time farmer. He is currently mainly involved nomination committees. He is currently chairman of Tradehold Ltd, Invicta in private property development. Holdings Ltd, and Tulca (Pty) Ltd – trading as Mango – and non-executive director of KWV and the PSG Group. Non-executive Alternate Director JJ Fouché (60)#*+ JD Wiese (27) BCom LLB BA (Value and Policy Studies) Mr JJ Fouché joined Pep Stores in 1973 and was Mr JD Wiese was appointed to the board of Shoprite appointed a director of Pepkor in 1987. At present Holdings as an alternate director in September he is a non-executive director of the company. 2005. He is marketing manager of Lourensford and He joined the board of directors of Shoprite the Lanzerac Wine Portfolio and also serves on the Holdings in 1991 and serves on the audit and risk management, board of various companies. He also hold a masters degree in International remuneration and nomination committees of Shoprite Holdings. Economics and Management from Bocconi University in Italy.
TRP Hlongwane (69) Mr TRP Hlongwane was appointed to the board of Shoprite Holdings as a non-executive director during November 2002.
JA Louw (64)*+ BSc Hons B(B&A) Hons Mr JA Louw, a former vice-chairman of Pepkor, joined the board of Shoprite Holdings as non- executive director during 1991 and serves on the remuneration and nomination committees. He presently serves on the board of various companies and is vice- chairman of Pioneer Foods.
JF Malherbe (79) BCom LLB Mr JF Malherbe joined the board of directors of Shoprite Holdings in 1999 as a non-executive director. He is honorary chairman of the law firm, Jan S de Villiers. # Member of Audit and Risk Management Committee * Member of Remuneration Committee + Member of Nomionation Committee
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 7 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Chairman’s Report
CH Wiese Chairman
he financial year 2008 has been one of the best ever in achieved with success, and with its new identity the history of the Group. The growth in turnover and profit entrenched, Checkers quickly became a force at during the period was most gratifying, but what it signifies the top-end of the market. Twe believe is more important. When we discussed a theme for The decision to move into Africa was prob- this year’s report, we decided on “reasons to be proud” because, ably the most far reaching in the history of the Group in terms of how it influenced its future when looking back on the past 29 years, we believe there are development. Management was convinced at several achievements about which we can be justifiably proud. the time that its business model was ideally suit- But it is pride without arrogance; in fact, it is tinged with more ed to the African continent and, in 1995, when than just a little humility and much gratitude. others were looking elsewhere to expand their operations, we moved even further than our Our pride is centred on the fact that so much the struggling Checkers chain with its 169 stores immediate neighbours and opened our first store of what we as a Group planned for, worked for we did so because we couldn’t add trading in Zambia. Today Zambia, with 15 supermarkets and invested in, has started coming together space fast enough in Shoprite to accommodate and two new outlets on the drawing board, is in the past year or two. However, to get to its growth. With the take-over the size of the the Group’s biggest and most mature business where we are today, often required taking on business trebled virtually overnight, presenting beyond South Africa’s borders. challenges that others may have considered management with the daunting task of integrat- Shoprite Holdings now operates 100 top- foolhardy at the time. One need only think back ing the two chains. We kept the two brands quality supermarkets in 16 countries outside to the take-overs of Checkers and OK Bazaars, focused on more or less the same market South Africa and has become the biggest food the move into Africa, the decision to create a segment until well after the acquisition of OK retailer on the continent. Looking back on that network of distribution centres at a time no one Bazaars in 1997 and when the latter’s 157 super- achievement one has to give particular credit else thought of doing so. All these turned out markets had been successfully assimilated, to the vision of Mr Basson who, despite general successful. One of the main reasons is that none mainly into the Shoprite brand, we were well cynicism at the time about the potential of Africa, were tackled without thorough research and a positioned to start channelling the two original believed this continent was where the Group’s careful weighing up of the risks and the rewards. brands into two different demographic streams. future lay. Another is the total commitment with which Management, under the guidance of CEO If we are proud of our operation in Africa, they were taken on. Whitey Basson, started moving the Checkers it is also because we have brought a developed We have always grown both organically and and Shoprite brands apart and repositioning country’s shopping experience to millions of through takeovers. In 1991, when we took over Checkers for higher LSM consumers. This was people in developing countries who have never
8 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb the continent, a knowledge that has permeated our entire business and made us much more resilient. It has given us a different perspective on how to meet the challenges on home ground. In short, Africa has greatly expanded our arsenal of skills, lifted our horizons above the confines of South Africa itself and helped us develop into a meaningful regional player which, despite its substantial size, has not lost its vitality or drive for innovation. Looking back, I believe we have some The development and refinement of our reason for feeling proud of how far we have supply chains brought home to the Group the come. However, there is nothing that fills us importance of controlling the flow of merchan- with a greater sense of pride than the trust dise to our stores. This led to the establishment consumers put in us to sell at the lowest prices. of a network of large, strategically placed distri- When economic conditions in the past year bution centres to which suppliers would deliver really started to bite and disposable income their products and from where fleets of trucks shrank alarmingly, customers flocked to our could service the needs of individual stores on stores, to those of Shoprite in particular, because a high-frequency basis. This decision required a of their belief that the Group offers them the very substantial investment, but in time brought best value. Already 43% of all South African been exposed to trading of this nature, for our added benefits not foreseen at the start. Two consumers do their main grocery shopping stores in Accra or Antananarivo are no different years ago, when market growth outstripped with Shoprite. Our excellent results for the from those in Plumstead or Pretoria, and carry, the production capacity of many suppliers and period were driven by this support. to a large extent, the same product offering. their deliveries became erratic, the distribution A source of equal pride is the fact that we centres could be used for stockpiling to maintain Acknowledgement employ in those stores beyond our borders a smooth flow of merchandise to our stores. Our achievements of the past year would not more than 8 000 local people and through And over the past year the centres provided the have been possible but for the commitment and a system of preferential procurement have capacity for aggressive forward buying so that sacrifices of a great many people from in and nurtured a multitude of small emerging farm- in an environment of escalating food inflation, outside the Group. I want to thank them all for ers to reach the standard of production where lower prices could be held longer to provide the their contribution – every member of the board, they can deliver to our requirements. The point Group with a strategic advantage. every member of management, every member is made elsewhere in this report that during To support the very substantial business of staff. The Group’s achievements are theirs, the past financial year our Zambian operation that was developing, the Group invested in the and when we express our pride in our achieve- became the first outside South Africa to become most sophisticated information technology (IT) ments, we also express our pride in every one fully self-sufficient in terms of its vegetable systems available to the retail industry, and of them. needs, with all fresh produce supplied by recruited talented and highly skilled young local farmers. people, training them and inspiring them to But to be able to operate successfully in manage these challenges. Our IT systems have countries as distant as Nigeria and India we advanced to the point where they reorder auto- had to learn how to trade over vast distances. matically, placing some 490 000 orders electro- We had to develop supply chains that could nically with suppliers every month, and where provision our stores efficiently, not only from they undertake staff scheduling in stores to CH Wiese South Africa, but from anywhere in the world. match sales activity. Chairman We developed the skills needed to source The success of our supermarket operations products across a wide geographic front and outside South Africa is evident from the fact 1 September 2008 manage their delivery. We had to learn to under- that turnover there has in the past financial year stand the cultures of the communities in which grown by more than 38%, with a concurrent rise we trade and to retain our own identity and in trading profit. But what is equally important is standards in those environments. that we have learned to survive elsewhere on
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 9 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Chief Executive’s Report
JW Basson Chief Executive
hen in October 1979 I walked into the offices of the efficiency standards of our total workforce. eight-store Shoprite chain we had just acquired, I had The volumes of merchandise that flow no idea that over the next 29 years we would build it through our 636 supermarkets are substantial. During the past year we sold more than 245 000 intoW a group of the size and stature it is today. During this time the tons of fruit and vegetables alone. The potatoes market capitalisation of the company for which we paid R1 million we sold, required 100 square kilometres or had increased to over R24 billion by the end of August 2008. I was 10 000 hectares of land to produce. We now privileged to share in every disappointment and every triumph. process more than 55 million customer trans- actions per month and more than 6 million We listed the business on the JSE in 1986. further career opportunities. This past financial supplier orders per year. I am particularly proud of the fact that in the year we invested R102 million in training which I believe the innovations introduced by man- 22 years since, the Group achieved compound involved, inter alia, 98 916 training interven- agement over the years reflect quite exceptional turnover growth of 31% and created real growth tions. Apart from advanced courses for senior entrepreneurial skills. By the careful positioning for shareholders by achieving compound earn- management, we also have had 1 325 trainee of our various formats we now have a strong ings growth of 36%. This means that an invest- branch managers in training in the last financial presence in every one of the LSM consumer cat- ment of R10 000 in Shoprite shares in 1986 year while 3 125 of the 7 980 staff members egories. We positioned the Checkers brand at the would be worth more than R3 million today. we employ outside South Africa also received higher end of the market, Shoprite in the main- What gives me most pleasure are the thou- training. In a country with high unemployment stream market, Usave in the limited assortment sands of jobs we saved over the years through and low education levels, I believe this to be an market while OK Franchise members cater for all the takeover of a number of ailing companies important achievement. consumers particularly at the convenience level. – first Grand Bazaars followed by Checkers, In the last decade we have invested heavily Through our significant investments in infor- Sentra and finally OK Bazaars. We also created in training skills and the creation of succession mation technology and infrastructure over the thousands of jobs through the organic growth management teams staffed by well-qualified last several years we greatly improved efficien- of those companies to the point where we now university graduates of whom we now employ cies at all levels of the business. This enabled us have a workforce of 73 373. During the reporting 1 306 in all areas of the business. This level of to achieve a trading margin of 4,8%, the highest period we created 4 096 additional jobs through management is supported by employees from ever in the history of the Group, despite reducing the growth of our business. However, we not all walks of life, many of whom have been pro- our gross margin by almost 1% to plough back only employ people, we also train them exten- moted and fully trained for more senior positions R286 million into the pockets of our customers sively in a great many skills to provide them with through our active programmes of improving the by making staple foods more affordable for par-
10 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb
Operational Review The past year was an excellent one for the Group. Despite global food shortages and higher inflation our overall sales increased by 22,3% to almost R47,7 billion and our trading profit by 43,7% to R2,3 billion. Our operations outside South Africa also continued to grow strongly, now representing 12,4% of the Group’s turnover. The Shoprite brand continues to be the cheapest supermarket brand in South Africa and its stores are visited by more than 55 million customers per month. The increase in customer of all supermarket brands during this period. numbers was a strong response to our decision According to the latest consumer research of in October 2007, based on our understanding the All Media and Products Survey (AMPS 2007), of the market that we serve, to reduce selling the Group’s supermarkets in South Africa again prices of basic foodstuffs. showed the highest patronage amongst shop- Suppliers struggled to meet the increased pers, with 54,4% of the South African adult consumer demand and in many cases inbound population frequenting its stores. Customer service levels deteriorated further. Due to our loyalty was at an all-time high, with 43% of central distribution system we could neverthe- Shoprite’s customers shopping exclusively at less maintain better service levels than most ticularly struggling lower-income earners. its supermarkets. The Shoprite brand was also of our competitors. Management’s entrepreneurial flair is voted South Africa’s number one supermarket in also evident in its decision to capitalise on the the annual Ipsos-Markinor Top Brands business- Supermarkets in growing demand among consumers for add- to-consumer survey. South Africa on services within the supermarket context. Despite initial scepticism in certain quarters, During the year the number of supermarkets We introduced a range of services such as those management’s decision in 1995 to extend the increased by 27. These were opened mainly in of our financial services division, our entertain- Group’s operations into Africa beyond the coun- new growth points and brought the total to 536. ment and transport ticketing facilities and, of try’s immediate neighbours has proved correct The design and lay-out of our tried-and-tested late, also the addition of liquor stores and phar- and the Group today trades in 16 countries out- formats were well accepted. Services offered macies to our supermarkets to increasingly offer side South Africa. Its operations on the continent through our Money Markets to the, mainly a one-stop shopping experience and to add value not only exposes it to a number of economies unbanked, emerging market assisted us to to the store visits of consumers. thereby reducing its dependence on one, but maintain and expand our loyal customer base. All these innovations and accompanying they also, as in the past year, produce even The optimisation of our information techno- investments enabled us, in a year marked by higher turnover growth than the South African logy infrastructure not only helped us control high inflation, the introduction of the National business and provide an average return on costs in a time of strongly rising turnover, but Credit Act, a succession of interest rate increases investment of more than 30%. also further enhanced the automatic replenish- and major pressure on consumer spend, to Of the 16 countries not trading in the rand ment of stock at branch level. This reduced the increase Group turnover by 22,3%, our trading monetary value, the currencies of only two number of out-of-stock situations and greatly profit by 43,7% and diluted headline earnings countries depreciated against the rand, a threat assisted in the scheduling of activities, from per share by 54,1%. of reducing purchase parity which was always night deliveries to ensuring we have the correct As lower-income earners were increasingly levelled at us in our initial phases of investment number of staff on the sales floor to ensure strangled by increases in basic foodstuffs as well outside the borders of South Africa. a high level of customer service. as higher debt-servicing and transport costs, Despite administrative red tape and logistical While providing our lower LSM customers they turned in growing numbers to our brands problems greatly retarding operations in many with cheaper alternatives in basic foodstuffs, we because of their trust in our reputation, built up of the countries we trade in, Africa is certainly also extended our perishable range to bring afford- over many years, for offering the best value in becoming the flavour of the decade. We will able perishables to the mass market in the light of terms of prices. This increased the Group’s mar- therefore use to the full the competitive advan- the greater availability of electricity and thus the ket share by 1,14% to reach a record 28,51% tage we enjoy to increase our business outside ability of those consumers to switch more often which is also the highest market share gain the borders of South Africa. from dry groceries to perishable foods.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 11 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Chief Executive’s Report continued
Shoprite and Checkers brands is now complete theless achieved a turnover increase of 5,6% “What gives me and that the decrease of our LSM 1-5 customers in an environment characterised by virtually no in Checkers and the increase of our LSM 7-10 inflation on imported high-technology white Most pleasure customers were in line with the strategic plan goods and while most of our competitors were ARE the envisaged in our repositioning process. not able to report any real growth. thousands of Checkers operates 24 Hypers and 119 super- markets. We will redefine the Hypers’ strategic Summary JOBS we saved position over the next 24 months as in recent Although we are concerned about high food times specialist stores eroded the buying base inflation, the cost of energy and the unavailability AND created of the traditional hyper store format. of products, we nevertheless believe the long- over the years” term prognosis for the economy is favourable Usave should it manage to weather the current difficult We realised that to enter markets which are too conditions. Government’s investment in infrastructure small for conventional supermarkets, we needed Despite the challenging period ahead with generated a great many jobs for members of a format with a limited assortment, smaller enormous growth in emerging markets such as the lower-middle market. This helped soften the trading space and a very low cost structure that China and India, there are already signs that vast impact of rising prices of certain staple foods due will underscore the Group’s everyday low price underutilised areas in some African countries are to global shortages and spiralling energy costs. policy. Today the Usave division with 91 stores being used more effectively for the production The Group’s brands became known for points is growing at double digit figures. A further 16 of food. This should help relieve some of the of difference such as their branded meat products, stores will be opened in the new financial year. present shortages on global markets. excellent choice of wines and professional MediRite pharmacies with highly qualified staff. Supermarkets outside Acknowledgement South Africa The structures of our management team, the Shoprite The growth rate of 38,1% in the past reporting control of our Company and the culture that The 25,0% turnover increase of Shoprite, period was exceptional as only five stores were has enabled us to take quick but well-motivated the Group’s flagship brand, was still slightly added during the year due to the unavailability of decisions have assisted us to outperform the distorted by the industrial action in the first half premises. The Group now operates 100 super- market over many years. of the 2007 financial year that disrupted trading markets outside South Africa. Our operations in I want to praise every single colleague in the in some of its stores. Shoprite’s AMPS review the majority of countries are now profitable and business, our loyal suppliers and the Board of shows 43% of all consumers – up from 39,6% render a satisfactory return on the investment. Directors who not only supported the aspirations the previous year – now do their main shopping We are also proud of the fact that through of management but through their experience at Shoprite. It also remains by far the most pop- our Africa expansion we have been able to bring added value to the ever demanding intricacies ular second choice of competitors’ customers. formal trade into largely informal markets; offer- of running Africa’s largest supermarket retailer. New customers were attracted by defined ing consumers a first world shopping experi- ranges and low-priced entry-level items which ence. We are also assisting small farmers in were offered to our primary customer base a number of these countries to achieve the without sacrificing the aspirational values of production standards we require. our more sophisticated shoppers. Management intends growing the number OK Franchise of Shoprite stores in the foreseeable future to The franchise division increased its turnover JW Basson derive the maximum benefit from the brand’s by 17,7% and trading profit by 71,6%. It added Chief Executive ever widening appeal. 29 members. Although the convenience store sector appears reasonably mature, we intend 1 September 2008 Checkers further expanding the division’s operations in The lower turnover growth in Checkers – 15,6% the new financial year. as against Shoprite’s 25,0% - reveals the effect of the credit crunch on the more affluent sector Furniture of the market as well as the fact that the chain Despite the constraints imposed by the National was less affected by the industrial action in the Credit Act, a succession of interest rate increases first half of the 2007 financial year. and a general slow-down in spending on We are pleased that the repositioning of the capital goods, the furniture division never-
12 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Value Added Statement | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
30 June 30 June 2008 2007 R’000 % R’000 %
SALES OF MERCHANDISE 47 651 548 38 949 845 INVESTMENT INCOME 211 675 117 044 COST OF GOODS AND SERVICES (40 818 156) (33 427 320) VALUE ADDED 7 045 067 100.0 5 639 569 100.0 EMPLOYED AS FOLLOWS: EMPLOYEES Salaries, wages and service benefits 3 913 308 55.6 3 314 175 58.8 PROVIDERS OF CAPITAL 642 567 9.1 494 493 8.8
Finance costs to providers of funds 59 149 0.8 83 570 1.5 Dividends to providers of share capital 583 418 8.3 410 923 7.3
TAX Tax on profits made 875 570 12.4 622 586 11.0
REINVESTED Reinvested in the Group to finance future expansion and growth 1 613 622 22.9 1 208 315 21.4
Depreciation and amortisation 626 788 8.9 543 167 9.6 Retained earnings 986 834 14.0 665 148 11.8
EMPLOYMENT OF VALUE ADDED 7 045 067 100.0 5 639 569 100.0
Reinvested 21.4%
employees 58.8% 2007 Tax 11%
Providers of capital 8.8%
Reinvested 22.9% employees 55.6% 2008 Tax 12.4%
Providers of capital 9.1%
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 13 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Financial Report
M Bosman General manager: Group finance
Income Statement However, it was substantially higher in (IAS 2: Inventory and IFRIC Circular 9/2006), certain food categories such as meat, dairy the Group deducted settlement discounts and Sale of Merchandise and maize products. rebates received from the cost of inventory. – Total turnover increased by 22,3% to – The contribution from the Group’s super- The Group continued to maintain its price R47,652 billion. The combined sales of the market operations outside South Africa competitiveness in a buoyant market character- three supermarket brands - Shoprite, Checkers showed a positive growth of 38,1% to ised by aggressive food discounting. This com- and Usave and including the non-RSA opera- R5,228 billion. Countries that continued petitiveness was strengthened by the Group’s tions – increased by 23,6% to R43,147 billion, to perform well are Angola, Zambia and decision in October 2007 to reduce margins. up from R34,919 billion in 2007. The period Mozambique, while a meaningful contri- Gross margin for the year was reduced from under review was marked by higher food and bution was also made by Nigeria after being 20,5% to 19,9%. This reduction, however, gave general inflation, the implementation of the in operation for only 30 months. rise to higher turnover. Gross profit increased National Credit Act and a general slowdown – The furniture business performed well by 18,7% to R9,490 billion, due mainly to the in the economy due to higher fuel prices under the circumstances and increased increase in turnover and rebates, efficient as well as higher interest rates. The Group, turnover by 5,6% to R2,258 billion. This replenishment and the continued contribution to however, managed to overcome all these segment came under increased pressure income by service and perishable product depart- negative factors with the strong foundation during the year due to the implementation ments. Shrinkage remains well under control. laid in the past. It was especially the Group’s of the National Credit Act as well as the investment in a world-class supply chain and increase in both interest rates and fuel prices. Other Operating Income its policy of lowest prices that saw it gain on Credit sales continued to decline, specifically Other operating income increased by 23,1% the opposition. Through its own distribution in the House & Home chain, with customers to R982,8 million, mainly due to an increase in centres it could maintain a higher service level struggling with severely reduced cash flows. operating lease income (12,5%) and commission and with its lowest price policy saw it gaining On a positive note the OK Furniture chain, received (24,4%). The increase in the latter was market share with cash strapped consumers that mainly services the lower end of the the result of the continued good performance frequenting the Group’s outlets. market, is continuing to show double-digit by Computicket, acquired in November 2005. – The total number of customers served sales growth. The smaller increase in finance income increased by 10,3%, while transaction value earned (4,7%) and net premiums earned (8,0%) for the 12 months was 12,1% higher. Gross Profit is directly attributable to the reduction in the During the reporting period food inflation, Gross profit comprises primarily gross margin credit participation in the furniture division for as part of CPIX, rose to an average of 13,8%. after markdowns and shrinkage. In line with IFRS reasons stated earlier.
14 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Net Interest Received The Group utilises overnight call facilities for both short-term deposits and borrowings. As in the past, the Group funded all capital projects utilising short-term borrowings and cash reserves. The increase in net interest received was due to the increase in the Group’s profits, resulting in an improved positive cash flow, and the increase in interest rates.
Tax The effective tax rate is higher than the nominal tax rate due to certain non-deductible expenses such as leasehold improvements as well as tax as electricity and water, repairs and mainte- losses in certain non-RSA countries that cannot nance, security and net advertising cost. This be utilised for Group purposes. The tax charge increase is lower than the turnover growth and includes an amount of R55,1 million in respect is despite the fact that the Group was forced of secondary tax on companies. to utilise generators because of erratic power supply, both in South Africa and elsewhere. Diluted Headline The Group has also increased its provision for Earnings per Share Expenses reinstatement of leased buildings where we Diluted headline earnings per share increased There is always the risk of cost increases out- have an obligation to maintain the exterior of 54,1% from 193,8 cents to 298,6 cents and stripping sales growth, especially in times of low such buildings. This increase was mainly due to result mainly from the turnover growth of 22,3% inflation when retailers find themselves locked higher costs associated with reinstatement. and an increase in expenses of only 13,6%. in longer-term contracts, e.g. leases. However, cost management remains a high priority for the Foreign Balance Sheet Group as trading margins are always under pres- Exchange Differences sure due to the stiff competition in food retailing. As stated in the accounting policies, the Non-Current Assets Expenses were well managed over the period. balance sheets of foreign subsidiaries are con- – Depreciation and amortisation. The Group verted to rand at closing rates. These translation Property, Plant and Equipment increased its investment in information tech- differences are recognised in equity in the and Intangible Assets nology in recent years. It is also continuously foreign currency translation reserve (FCTR). During the year the Group spent R1,441 billion opening new stores while simultaneously In essence, most foreign exchange differences on property, plant and equipment and software implementing an ongoing refurbishment progra in the income statement are due to US dollar compared to R1,264 billion in 2007. The Group is mme for older stores. On average, stores are denominated short-term loans of operations also continuing to purchase vacant land for stra- revamped every seven to eight years. outside South Africa and balances in US dollar tegic purposes and building retail premises when – Operating leases. Rental increases for exist- held in offshore accounts. no developers can be found. During the year the ing stores are generally in line with those in the During the financial year the rand weakened Group spent R401,3 million on land and buildings. property market as a whole. A number of new 12,1% against the US dollar compared to a The investment in refurbishments amounted to stores were opened during the year and the strengthening of 0,1% in 2007 (calculated on a R458,1 million while R220,0 million was spent on increase in turnover also saw a commensurate conversion rate of R7,11 on 30 June 2006, R7,10 new stores (excluding land and buildings), R212,9 increase in turnover rentals paid. on 30 June 2007 and R7,96 on 30 June 2008). million on information technologies and the bal- – Employee benefits. The increase in staff costs The exchange rate gain of R33,2 million in 2008 ance on normal replacements. The Group is in at 17,9% was below the turnover growth of was the result of the effective use of foreign the process of upgrading its back-office systems 22,3%. Employee benefits grew by 15,3% for exchange contracts (FECs) during the financial and is planning to spend an additional R58,3 mil- existing stores and the supermarket division year in which the rand fluctuated significantly lion on this over the next two financial years. again increased productivity. against the US dollar, as well as the movement Intangible assets consist mainly of goodwill – Other expenses. These costs, which against the US dollar of major currencies of paid for new acquisitions, trademarks acquired increased by 8,4%, cover expenses such African countries in which the Group operates. and software.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 15 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Financial Report continued
Goodwill represents the premium paid for times). The increase in inventory resulted management and administration of this debtors certain supermarket businesses and is tested mainly from the provisioning of a net of 67 new book is done in-house as the granting of credit is for impairment annually based on the value-in- owned stores opened during the year, buoyant deemed an integral part of selling furniture. use of these businesses, calculated by using sales, higher food inflation and particularly from cash flow projections. the need to stockpile products in the Group’s Shoprite Insurance Software represents the Group’s investment distribution centres to counter the drop in The Group established its own short-term insur- in certain computer software that is used in its supplier service levels. ance company as part of the furniture business in daily operations. Software is amortised over its November 2001. Prior to that date it operated a useful life of three to seven years. Trade and other receivables cell captive at another short-term insurer. During Trademarks represent mainly the purchased Trade and other receivables mainly represent the year under review premiums earned amount- Computicket trademark and is amortised over instalment sale debtors, franchise debtors, ed to R201,0 million compared to R186,0 million 20 years. buy-aid societies and staff debtors. Adequate the previous year. As in the past, the Group provision is made for potential bad debts and the accounts for premiums earned and extended Available-for-sale-investments outstanding debtors book is reviewed regularly. guarantee fees over the life of the policy. 100 “S” class ordinary shares in RMB Global The provisions for impairment and unearned The following provisions are made on an Solutions (Pty) Ltd valued at R37,5 million. This finance income in respect of instalment sales annual basis: represents the Group’s investment in an inter- debtors amounted to 11,7% compared to 18,7% – Outstanding claims payable = average of actual national treasury system that is utilised by the the previous year. This decrease on the back of claims outstanding for the relevant periods Group in its international trade. the turnover growth was made possible by the – Contingency reserve = 10% of net premiums quality of the book. The reduction was also due whereas premiums are earned as per the fol- Loans and receivables to finance charges no longer being capitalised lowing formula: 13 500 000 redeemable, convertible (both at the inception of the debt, but charged on a – Premiums earned = Net premium under certain conditions, such as achieved monthly basis. This had no effect on the recogni- x expired period levels of profitability), cumulative preference tion of finance income in the income statement. – Premiums unearned = Net premium shares in Pick & Buy Ltd, a retailing supermar- x unexpired period. ket group in Mauritius, valued at R39,8 million. Assets held for sale At year-end the insurance company had a These shares were acquired as part of a recipro- Certain land and buildings are classified as solvency margin of 64% (2007: 58%) compared cal arrangement with the owners of Pick & Buy assets held for sale as the Group is currently to the minimum requirement of 15% as per the Ltd, who in turn invested in the Group’s subsidi- in the process of actively seeking buyers for Insurance Act. ary in Mauritius. these properties. This is in line with the Group’s The balance consists mainly of amounts policy of only investing in fixed property when General owing by franchisees for franchises and fixture appropriate rental space is not available. The Group trades in Zimbabwe in a hyperinfla- and fittings sold to them. tionary environment and thus the principles of Cash and cash equivalents IAS 29: Financial Reporting in Hyperinflationary Deferred tax assets and bank overdrafts Economies has been applied during previous Deferred tax is provided, using the liability meth- Net cash and cash equivalents amounted financial years. During the current year under od, for calculated tax losses and temporary differ- to R3,136 billion at year-end, compared to review a decision was taken to deconsolidate the ences between the tax bases of assets and liabili- R1,988 million in 2007, but should be read Zimbabwean operations effective 1 July 2007 ties, and their carrying values for financial report- with the increase in trade and other payables. due to the continuing deterioration of the busi- ing purposes. This asset developed primarily from ness environment in that country. This decision provisions created for various purposes as well as Current Liabilities had no significant effect on the Group’s results. the fixed escalation operating lease accrual. Provisions Current Assets Adequate provision is made for post-retirement medical benefits, reinstatements, onerous lease Inventories contracts, long-term employee benefits and all Inventories amounted to R4,707 billion, outstanding insurance claims. an increase of 27,3% on the previous year. M Bosman The inventory turn, based on sales of merchan- Credit Sales General Manager: Group Finance dise, was 11,3 times (2007: 11,2 times) and, The Group continued to supply credit facilities based on cost of sales, 9,1 times (2007: 8,9 as part and parcel of its furniture business. The 1 September 2008
16 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Operating Review | Shoprite
Cobus Zwenis Andrew Gardener Jaco de swardt Divisional Manager: Divisional Manager: Divisional Manager: Shoprite Northern Division Shoprite Gauteng Northern Cape & Free State
hoprite is the dominant brand and key busi- Sales growth in RSA 25,0% S ness component of the Shoprite Group. It Growth in number of is also the primary name under which the Group customer transactions in RSA 11,2% is expanding outside the borders of the country Number of stores in RSA 302 (2007: 297) and the brand has developed a following in 17 Number of staff in RSA 37 281 (2007: 36 422) countries in total. Its great strength is its posi- tioning at the middle to lower end of the market. prices – confirmed again during the year by internationally and pass on those benefits to The Group is full of pride that its Shoprite brand independent industry research – stood it in good consumers. In addition, it could offer custom- enjoys the strongest customer loyalty of any stead as consumers increasingly found their ers a high level of product availability thanks brand in local food retailing and that in 2008 it disposable income shrinking due to the ever- to its automatic re-ordering systems and the was voted South Africa’s number one supermar- rising cost of living. As early as October 2007 Group’s ability to stockpile merchandise in its ket in the annual Ipsos Markinor Top Brands busi- management decided to reduce selling prices, national network of distribution centres at a time ness to consumer survey. particularly on the staple foods sustaining lower when deliveries by local manufacturers became This consumer loyalty is not limited to a income groups. This was in response to the increasingly erratic. Apart from the provisioning particular sector of the consumer market, but sharp escalation in prices, rising at a higher rate of new stores this need to stockpile also contrib- spreads across all income groups. The most than that of other food categories, as a result of uted to the increase in stock holding above the recent AMPS figures show 43% of all consum- international shortages. This led to the growth food inflation rate. ers do their main shopping at Shoprite. That in value per transaction remaining below the Playing an increasing role in improvement of compares with its nearest competitor’s 32%. food inflation rate. However, these savings also store efficiencies and cost control is the exten- Equally important is the fact that it is also by far brought increasing numbers of consumers into sive information technology-based programme the most popular second choice of its competi- Shoprite’s outlets and the Groups is proud of the Operation Better Store which is being rolled out tors’ customers. fact that Shoprite’s market share increased by to stores at a rate of two stores a week in each In the reporting period it operated 302 stores just over 1% - the biggest in the food retailing of the Group’s seven divisions within South within South Africa and 71 outside its borders sector during this period. With operating costs Africa. The programme, which focuses on areas in the 16 countries in which it trades in Africa, meticulously controlled, the increase in sales such as staff scheduling and cost control in spe- on some Indian Ocean islands and India, having considerably exceeded the increase in expenses cialist departments such as bakeries, has greatly opened a net total of seven new stores during resulting in a strong rise in trading profit. improved the quality of decision-making at store that period. Of these five were in South Africa. There were also other reasons contributing level by providing management with detailed Despite the highly competitive environment to Shoprite’s success. Due to the Group’s abil- real-time information. Shoprite reported sales growth of 25% in RSA. ity to source products anywhere in the world, Its reputation as the chain offering the lowest it was able to buy at the best available prices
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 17 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Operating Review | Shoprite
Operating Review | Checkers and Checkers Hyper
hennie van rooyen Mauritz Alberts johann fourie Divisional Manager: checkers/ Divisional Manager: Divisional Manager: checkers hyper Gauteng Western Cape eastern Cape
heckers is the Group’s second major Sales growth in RSA 15,6% C food retailing brand. Its outlets are of Value per transaction growth in RSA 9,0% two formats; supermarkets, which also include Number of 24 Hypers (2007: 24) a number of smaller convenience stores, and stores in RSA 119 supermarkets (2007: 111) hyper stores. For the convenience of custom- Number of staff in RSA 16 787 (2007: 16 609) ers, the latter offer a substantially larger product range. The brand’s operations are concentrated ing market share with shopper loyalty also on the decreasing supplier service levels while trading within South Africa. increase. To change perceptions by improving hours were extended to enhance the conven- During the reporting period it grew turnover the shopping experience, the accent was placed ience factor. by 15,6% in RSA at a time when internal food on enhancing store ambiance, upgrading product Checkers management is continuing its inflation averaged 10,6% compared to 6% the selection both in terms of ranging and quality, programme of ongoing store refurbishment and previous year. Growth in turnover was restricted and advancing in-store service levels. intends growing strongly in the new financial by the erosion of the disposable income of its The new product ranges also strongly reflect- year in terms of new store openings. The strate- credit-leveraged customer base, as a result of ed the changes in consumer trends and buying gies put in place over the past three years with spiralling interest rates and the escalation in patterns. The focus shifted to freshness and its persistent accent on improved customer bond and transport costs. convenience foods in all its forms and thus also service is expected to increasingly bear fruit in In the 12 months ended June the chain to the improved service departments offering the year ahead. opened a net total of eight new stores to bring everything from takeaway lunches and dinners its total to 143 of which 119 are supermarkets to extensive ranges of delicatessen and bakery and 24 Checkers Hypers. Management is plan- products, microwave-ready meals and special- ning an additional 12 stores in the new financial ity fruit. The Group is satisfied that during the year. Due to its growing status in the market it is reporting period every one of the service depart- increasingly becoming a preferred anchor tenant ments outperformed off-the-shelf merchandise by shopping centre developers. sales and continued their growth momentum. The Group is proud of the transformation of Price competitiveness played an increas- Checkers stores in line with management’s deci- ingly important role in the day-to-day running of sion three years ago to reposition the chain to the business and management bought forward cater for the needs of higher-income shoppers, aggressively to accumulate stock levels and so that has now long been completed. The slower gain a competitive advantage by being able to process of changing consumer perceptions is hold prices longer in a rising market. Out-of-stock well advanced and the chain is consistently gain- situations were also kept at a minimum despite
18 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Operating Review | Usave
Gustave MÖller Divisional Manager: USave
ike the other trading divisions of the Group Sales growth in RSA 48% Usave also had a successful year with both L Customer transaction growth in RSA 22% turnover and trading profit showing substantial growth albeit off a relatively low base. Turnover Number of stores in RSA 91 (2007: 77) grew 30,5% on a like-for-like basis. These results Number of staff in RSA 1 268 (2007: 958) flowed from a management decision to reduce selling prices in return for turnover growth. The Group is satisfied that efficiencies were The limited-range concept that forms the also achieved by consolidating the perishable basis of Usave’s no-frills trading model was supply chain. refined around local trade preferences five years Usave decided very early on in its develop- ago. Where the chain was originally intended to ment to institute private labels that would not cater for a lower-income consumer segment it only provide it with additional margin but also has since developed into a preferred shopping with the level of quality control it desired. destination in its own right. The Group finds it The Group prides itself on its ability to offer gratifying that Usave is now also supported by these products on average at 15% cheaper customers from across the spectrum; consum- than the branded products. In many cases ers intent on reducing their expenditure on food. the private label products within Usave has With good trading conditions suited to hard the higher market share. The specifications for discounting and an embedded trading formula these own labels ensure excellent quality and firmly in hand, a net 17 new outlets were added samples are tested every month by independent during the reporting period of which 14 were laboratories to ensure manufacturers adhere opened within South Africa and three beyond to specifications. its borders. Usave’s total number of stores now Achieving the required margins while meet- proudly stands at 116 with 91 of them inside the ing the promise to consumers of “Where good RSA and 25 outside. food costs less…Everyday” requires rigorous The implementation of an automated replen- cost control, and during the reporting period the ishment system has improved stock turns and cost to sales ratio was once again improved. assisted to alleviate congestion at the back door. Management intends to accelerate expan- The chain now also operates its own central dis- sion and a considerable number of sites are tribution system allowing it to control stock flow under consideration, both within South Africa to outlets to a far greater extent than in the past. and further north on the continent.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 19 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Operating Review | OK Franchise
gerhard kriel tom voges Divisional Manager: marketing Manager: OK franchise OK franchise
anagement continued to build a solid is applied to four different formats, trading as OK M base for the division and to expand the Foods, OK Grocer, OK MiniMark and OK Value, reputation of the brand as one of the foremost and members are encouraged and assisted to food franchise operations in Southern Africa. The conform to the qualifying standards set for the success of this campaign is not only reflected different formats. Of the present members, 137 in the division’s turnover growth but also in the operate under the OK banner and 44 under the addition of 29 new members during the report- wholesale brand Megasave while the remaining Industry, OK Franchise is also investigating ing period about which the division is proud. 71 are Sentra’s and buying partners. several further BEE projects to enable black Turnover increased by 17,7% during the report- During the year OK Franchise extended to its entrepreneurs to open OK Franchise stores in ing time while operating costs were well control- members a number of services similar to those their own communities. The OK Value format led, resulting in a healthy growth in trading profit. available through the Money Markets in Shoprite with its slightly lower entry standards in terms of The debtors’ book continues to be managed very and Checkers supermarkets. Franchisees can positioning was created specially as the vehicle firmly. now also offer their customers the facility of to facilitate such entry. At the end of the reporting period OK making electronic account payments, as well as Franchise had 252 members spread throughout air-time and pre-paid electricity purchases. South Africa, Namibia, Botswana, Swaziland and Much work was also done during the year to Lesotho, most of them based in rural areas but expand and refine OK Franchise’s range of house with a growing number located in larger towns brand products which now number more than and metropolitan neighbourhoods. These mem- 160 and offer both franchisees and their custom- bers are serviced by dedicated staff based in the ers a price benefit. These products are tested on division’s seven regional offices. It is rewarding a regular basis to ensure manufacturers adhere that during the past year the number of unsolicit- to the specifications prescribed by the division’s ed enquiries from potential members increased, technical staff. motivated mainly by the favourable incentive In addition to the extensive product range scheme and credit terms offered and the brand’s on offer to members, the division also supplies growing standing in the retail community. stock to 38 members with liquor licenses. Two of OK Franchise evolved from the strategic these have been converted to the OK Franchise acquisition of the Sentra buying operation several division’s Enjoy liquor brand and several more are years ago. The famous OK name, acquired in an being planned for the 2009 financial year. earlier transaction with what is today SABMiller, In conjunction with Khula, the credit facilita- was chosen for the new undertaking and today tion agency of the Department of Trade and
20 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Operating Review | Supermarkets Outside South Africa
Gerhard fritz Ram Harisunker paul malan general manager: general Manager: Mozambique, General Manager: africa Indian Ocean Islands & India namibia & Angola
frica south of the Sahara is developing the first Hungry Lion outlet was opened, also in Ghana A at an increasing pace given its wealth Luanda, and was receiving wide acceptance. For The Ghanaian economy’s fast rate of develop- of valuable commodities. In many instances, the new year, three new supermarkets are being ment is not only the result of high commodity commodity prices reached levels that justified planned in other parts of the country. prices but also a stable government and a solid the re-opening of previously unprofitable mines Despite its very considerable potential Angola infrastructure. Apart from mining, substantial and thus increasing employment. Most parts of is also an expensive country in which to transact foreign currency is also generated by its tour- Africa also enjoyed a good agricultural year due business. Due to the continuing congestion ism industry. Ghana, often described as the to abundant rains. At the end of the reporting in Luanda’s harbour, the Group is increasingly gateway to West Africa, is seen as an important period, although it had not moved into new parts obliged to use road transport through Namibia growth point. At present the Group operates a of the continent, the Group had extended its and southern Angola which, though much quick- supermarket, opened in November 2007, and African network of supermarket stores to 100. In er than by sea, is also more costly. However, a Usave, both in the capital, Accra. Customer the new financial year, it intends to commence improving the country’s infrastructure, roads support for the supermarket is increasing rapidly construction of two shopping centres in the and harbours in particular, is now a high priority while the Usave, established several years ago, Democratic Republic of Congo, the one in the of government and enormous investments are reported excellent turnover growth. Currently, capital, Kinshasa and the other in Lubumbashi in being made in that area. the the opening of five more supermarkets in the the south, that will each house new supermar- capital are being investigated. The Group exports kets, both scheduled to open in 2010. Botswana certain product ranges from Ghana to its super- As in the case of all commodity-rich countries market in neighbouring Nigeria. Angola in Africa the reporting period was one of strong Increased oil production is leading the surge in growth in the economy with an associated spin- India prosperity in this once war-torn country. Retail off for retail. The diamond industry in the country The Group’s megastore in Mumbai saw turnover is one of the beneficiaries of the growing afflu- is flourishing, and its government is seeking to growing by close on 30% in the reporting period, ence, and the Group’s three supermarkets and ensure a stable economic and political environ- with a comparable increase in the number of five Usaves have all reported turnover growth ment. During the reporting period turnover grew customer transactions as well as in value per exceeding budget. Within its first full year the strongly in all five of the Group’s supermarkets, transaction. Although it is forbidden to advertise turnover generated by the new store in Belas, in with the one in Francistown benefiting in particu- alcoholic beverages, the sale of wine and beer the south of Luanda, was amongst the highest lar from cross-border trading with people from has taken off since the acquisition of a licence in the Group. Like the other two supermarkets, Zimbabwe. Growing the number of supermarkets at the end of the previous reporting period. this large store offers a wide spectrum of mer- in the country is a high priority for management. However, Shoprite’s venture into the subconti- chandise, including white and brown goods and nent will only become profitable once it has been garden furniture. During the reporting period able to open a sufficient number of stores to
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 21 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Operating Review | Supermarkets Outside South Africa continued
achieve critical mass. This will only happen when Madagascar ronment. Due to its long presence in the country the Indian government annuls legislation prohibit- The Group has continued to operate seven it has developed a thorough understanding of ing foreign ownership of retail businesses. The stores on this island of about 19 million people. local conditions and consumer needs, while its Mumbai store, operated on a franchise basis with Of these, five are in the capital, Antananarivo, supply chain is firmly established and costs are local partners, was the first modern-format food where about 50% of the island’s population well controlled. store in India and has made a considerable contri- resides. During the year the lease contracts of bution to changing food shopping in the country’s two of these stores, one in Antananarivo, the Mauritius financial capital by exposing the growing Indian other in Tamatave, expired. They were replaced The Group’s single hyperstore on the island is middle class to Western shopping traditions. It with two larger and more modern outlets. All now profitable. The government further reduced is widely accepted that India is on the brink of a seven stores are profitable. To achieve critical import duties on all foods and non-foods as part retail revolution and that the floodgates will open mass a further two stores are being planned in of an ongoing programme to turn Mauritius into once the government accedes to international the light of an improving economy, stimulated a duty-free island to stimulate the economy. The pressure to change the present situation. by a massive inflow of overseas investment to local rupee also strengthened against the rand fund the mining of a newly discovered range thereby further reducing food prices without Lesotho of valuable mineral deposits. In addition, the impairing profit margins. The Group is the only Despite its lack of major industries, Lesotho still International Monetary Fund has written off the South African foodretailer on the island and is generates sufficient wealth to enable the Group island’s debt while its highly erratic power sup- investigating the opening of two more super- to operate successfully four substantial super- ply, a great handicap to the economy, has been markets in the course of the next financial year. markets in this tiny Mountain Kingdom together much improved. In addition, the Group has also extended its use with three Usaves opened during the reporting of the island’s free port, using it to an extent as period. A further three of the smaller-format Malawi a distribution centre from where it provisions stores are planned for the new financial year. Retail conditions in Malawi, whose economy is its stores in Mozambique and Madagascar, and All four supermarkets reported satisfactory largely dependent on tourism and small-scale soon also those in Uganda and Tanzania, with growth while the new Usaves, located in three agriculture, remained largely unchanged. Growth merchandise sourced in countries as divergent of the smaller towns, quickly gained the support is being stunted by a lack of foreign exchange as Egypt, Malaysia, China and Argentina. of the surrounding communities. Two of the and, in the short to medium term, economic supermarkets are in the capital, Maseru, where prospects are not very encouraging. The two Mozambique a possible third is being investigated, and the supermarkets the Group operates in Malawi – in All five supermarkets have shown a gratifying others in two of the larger outlying towns. Blantyre and Lilongwe respectively – are never- increase in profitability in a fast-growing, stable theless both profitable as are the three Usaves, economy. They are supported by a well-estab- a format that works well in this mainly rural envi- lished infrastructure that achieves a consistent
22 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb product flow to these outlets. The strengthening this nature in Africa. The Group is also investigat- Zambia of the local currency promoted both exports ing the joint development of a shopping centre. Continued high commodity prices achieved on from South Africa and competitive pricing in Although it is an expensive country in which to world markets fuelled investment in new mines the stores. The new supermarket in Matola, a do business, being US$-based, the size of the and secured solid economic growth. Zambia suburb of Maputo, opened in November last year population is such that it cannot be ignored. In remains the Group’s largest and most mature and performed ahead of budget. Another super- view of its own expansion plans and in an effort business outside South Africa. Despite increas- market is on the drawing board. However, the to overcome some government import restric- ing competition from mainly other South African focus in the new financial year will be on estab- tions, the Group is encouraging some of its key retailers, the Group continues to increase rev- lishing the Usave format in the country’s smaller suppliers to establish production units in Nigeria. enue. Its operations comprise 15 supermarkets towns as well as in those areas of Maputo that and one wholesale outlet, all of which exceeded cannot support a full-scale supermarket. Swaziland income projections. The key store in Lusaka The Group successfully operates six supermar- in Manda Hill was considerably enlarged and Namibia kets and two Usaves which are spread through- refurbished to provide for more sophisticated Namibia, where the Group has built an extensive out this small landlocked country between South consumer needs while a start was made with presence over the years, is another of the coun- Africa and Mozambique. Of the six supermar- the building of a new shopping centre in tries in Africa that during the reporting period kets, two were acquired during the previous Livingstone. A further two stores are to open experienced conditions conducive to strong retail reporting period and converted to the Shoprite in rich mining areas. growth, with large investments in mining opera- brand. The new as well as the established super- tions flowing into the country. Economic prosper- markets are doing well and the business contin- Zimbabwe ity was further fuelled by high commodity prices ues to grow year on year. The number of stores The single store in Bulawayo continues to on international markets, a good agricultural year has now reached critical mass allowing the intro- trade under extremely difficult conditions. With and surging tourist numbers. The Group ben- duction of a dedicated management team. rampant inflation, the quality of life of the coun- efited from these conditions through aggressive try’s inhabitants has been severely impaired. marketing and the opening of three new stores, Tanzania Deliveries to the store have become highly one supermarket and two Usaves. It now oper- The Group’s business in Tanzania, where it erratic while the constant price increases have ates 15 supermarkets, 12 under the Shoprite operates three supermarkets and two smaller made forward planning difficult. brand and three under Checkers, as well as convenience stores, is performing satisfactorily. 11 Usaves in smaller towns. The Namibian However, it still lacks the critical mass needed to operation has developed into a well-established, break even. The required growth is expected to successful business enjoying a high level of come in time on the back of extensive new min- acceptance among local consumers. The growth ing operations in the interior which are attracting of the past year is expected to continue in the significant overseas investment. However, the new financial year, and more new supermarkets infrastructure serving the new mining areas is under the Shoprite brand are being planned. not yet sufficiently advanced to justify the open- ing of addisional supermarkets there. Nigeria The economy is still surging ahead on the back Uganda of huge oil revenues. The Group’s single store The Group’s two supermarkets in the capital, in the foremost shopping centre in Lagos con- Kampala, continue to do well as do the fully let tinued to perform well and generate acceptable shopping complexes in which these stores are profits. Its sales were not affected by occasional located and which both are owned by the Group, unrest in the oil fields to the south. While its pro- either wholly or partially. The growth potential of posed extension is still in the pipeline, a number Uganda, where more than 80% of the economi- of new stores are being planned in several loca- cally active population is employed in agriculture, tions in the country. With almost 150 million peo- is limited. Supply lines to Uganda run through ple, Nigeria is the most densely populated coun- Kenya, and these were at times disrupted by the try in Africa. The Group has already committed political violence that followed the elections held itself to 12 additional stores. Most of these are in that country early in the reporting period. likely to open only in 2010 due to administrative complexities which frequently delay projects of
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 23 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Operating Review | Furniture
Aubrey Karp General Manager: OK Furniture
or the furniture division the reporting period Sales R2,258 billion (2007: R2,139 billion) F was a challenging one. In contrast to the Trading profit R155,2 million (2007: R204,8 million) Number of stores: House & Home 39 (2007: 31) food divisions where operations were character- Number of stores: OK Furniture 183 (2007: 170) ised by high inflation, the furniture division con- Number of stores: OK Power Express 14 (2007: 15) tinued to operate in a near deflationary environ- Number of staff 3668 (2007: 3591) ment. At the same time, demand in certain areas of the market for durable goods declined sharply making it extremely difficult to build turnover sively discount prices especially in the appliance tinue growing its footprint in Southern Africa. through higher unit sales. and home entertainment areas. The pressure Management’s intention is focused on open- Of the three chains it was House & Home, on the division’s profit margins was somewhat ing stores in a number of South Africa’s larger geared to the needs of higher-income consum- relieved by the increase in the sale of products towns. To expand its footprint even further, the ers, who found trading conditions most difficult. it imports directly. Despite the weakening of the division is now ready to launch the first House The effects of the introduction of the National rand, these products in most cases provide bet- & Home Express which will carry, albeit in a Credit Act (NCA) in June 2007 were felt here ter margins than those items sourced from local smaller sales format, all the top sellers offered more severely and sales on credit reduced con- importers and agents. Direct sourcing of good by the parent brand. siderably. The furniture division nevertheless quality products at competitive prices therefore The division continues to perform in the succeeded to grow turnover on 2007. remains a high priority for management. countries in which it trades outside South Africa. OK Furniture and OK Power Express chains, Despite the deteriorating credit environment, It now operates 24 stores in five countries hav- on the other hand, continued to trade at the same the Group is pleased that the division managed ing opened a net two outlets during the reporting buoyant levels as before the introduction of the to contain bad debt and that the strong focus period, and it is still pursuing opportunities in NCA and delivered satisfying turnover growth. on collections helped to keep arrears increases Angola and Zambia where it does not as yet have While some of their good sales performance may within acceptable limits. a presence. be attributed to a small portion of higher-income Although the division needed to provision consumers buying down, the main reason for this the net total of 20 new stores opened during growth is because middle to lower-income earn- the reporting period, stock holding continued to ers have less exposure to credit and were thus be tightly monitored and controlled. However, less affected by market changes. sufficient stocks of imported items were built Competition during the year was particu- up as a buffer against long and often uncertain larly severe as everyone in the industry bat- lead times. tled to increase sales volumes and stock-turn. Notwithstanding the current economic Discounters in particular continued to aggres- climate, the furniture division plans to con-
24 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Value-added Services | Money Market
gerhard Hayes general Manager: Money Market
he Money Market concept constitutes collateral the opportunity to send up to R5 000 at T an increasingly important part of the a time to friends, family or business associates sales offering of the Group’s two major chains, at a cost far lower than charged by any financial Shoprite and Checkers. Its main objective is institution. The Money Market can proudly state to save consumers time by enabling them to that the response to the service was overwhelm- undertake most of what they have to do “in ing and in the reporting period income derived town” – buying groceries, settling accounts, from this service more than doubled. reserving seats for a show or a sports event, The acquisition of Computicket during the booking a flight – all in one place. In this way it 2006 financial year, the country’s foremost book- contributes to positioning the Group’s supermar- ing and ticket agency for theatre, entertainment To manage the sustained growth of these kets as destination stores that offer consumers and sporting events, provided a major extension services, to which new ones are being added a unique range of services. The extent to which to the services offered by the Money Market on an ongoing basis, in-store Money Market Money Market provides a much needed service counters. During the year Computicket also counters are being enlarged and the number is evident from the fact that more than 50% of all made major inroads in selling tickets for Premier of terminals extended while dedicated staff shoppers visiting Shoprite and Checkers outlets Soccer League matches that involve all the undergo regular training in the requirements of also make use of its services while in the store. major franchises. It offers everyone a fair oppor- the different services. To avoid congestion at These services have grown since the estab- tunity to obtain tickets for major events and the the counters some of the basic services such as lishment of Money Market. It sells almost 40% Group is especially pleased that this service air-time and account payments will be offered in of all tickets sold in the country for long-distance also extends to previously disadvantaged areas the future at check-out points. Extending these bus travel. During the reporting period it also where the Group operates supermarkets. services across South Africa’s borders is also commenced issuing tickets for Mango, SAA’s Computicket not only provides a valuable being investigated. low-cost airline. By the end of the period Money service to consumers but also to those individu- Market was already handling 15% of all its res- als and organisations active within the entertain- ervations and to date have sold an equivalent ment and sports industries by providing them number of air tickets to fill 323 Boeing 737’s. The with access to a reputable ticketing agency offer- more significant of the services added in the last ing a complete and highly professional service 18 months is the real-time transfer of money to that includes event security, a cash management any Shoprite or Checkers supermarket of the service and on-line reporting. Access to such a Group anywhere in South Africa. The service service is a major benefit to local promoters in is aimed primarily at lower-income consumers their negotiations with the management of inter- without bank accounts, and offer people with no national artists.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 25 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Value-added Services | MediRite
Allan Howard general Manager: MediRite
he Group currently operates 53 in-store pharmacies will be adding about 1 400 additional T MediRite pharmacies, having opened ten healthcare products to their line-up to improve during the reporting period. Ten of the pharma- the consumer offering in the areas comple- cies are located in supermarkets serving previ- mentary to the dispensary. The chain is also ously disadvantaged areas and the Group is embarking on a programme aimed at integrating proud of the fact that it is able to also bring much pharmacies to a larger extent with other store needed pharmaceutical services at lower prices activities, especially on the promotional side, and to these markets. to develop further synergies. Turnover growth has been satisfactory Combining traditional pharmacy services with but profitability is still being hampered by the supermarket prices, MediRite helps to further continued lack of clarity on dispensing pricing. strengthen the concept of one-stop shopping in However, expansion plans are continuing and a secure environment. management is keen to accelerate the roll-out The Group believes MediRite fulfils an impor- of new pharmacies in the 2009 financial year. tant healthcare function, especially in previously While licence applications have been submit- disadvantaged areas where there are few medi- ted to the authorities for Shoprite and Checkers cal practitioners, as its qualified pharmacists are outlets, the rate of growth will be determined well placed to provide valuable medical guidance by the speed with which these applications are to shoppers. For this reason management wants processed. The ultimate objective is to build a to extend the concept to neighbouring countries national network. in which the Group operates and where there Despite many South African pharmacists is an even greater need of pharmacist-initiated having emigrated to countries such as the United healthcare. States, Canada and Australia in the last few years, the Group is now recruiting a sufficient number of qualified pharmacists attracted by the stable, guaranteed employment it offers. To support the intended roll-out, manage- ment will be launching an advertising and mar- keting programme to increase awareness of the brand. In addition to prescription medicines, the
26 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Value-added Services | LiquorShop
Joseph Bronn Project Manager: Liquorshop
he Group operated 32 liquor stores at the stock means it is also positioned as a shopping T end of the reporting period, having opened facility in its own right for consumers seeking a 14 during the 12 months under review. With the liquor purchase destination. exception of two liquor stores in Namibia, all of An important part of the experience is the the existing ones are attached to Shoprite and lifestyle ambience within the store. LiquorShops Checkers supermarkets and Checkers Hypers are attractively designed, with quality finishes, in South Africa. Growth at present is satisfac- effective lighting and a spacious lay-out to create tory and the intention is to open a further 44 in an environment in which any shopper will feel the 2009 financial year to bring the total to 76. comfortable. However, the speed at which new stores can be opened is dependent on the time it takes to process liquor licence applications. The division achieved strong sales growth, improved profitability and kept costs well in hand. The imperative to grow the number of stores is high to attain economies of scale and achieve a consumer perception of the LiquorShop that fits with the price positioning of the Group. LiquorShops are, wherever possible, located at the entrance to supermarkets or Hypers and form an integral part of the store space. This positioning optimises the LiquorShop’s benefit to consumers and the overall costs associated with trading. They do not compete with the wine departments inside the stores, but are comple- mentary to them offering a wider range of wines, beers, ready-to-drink brands (RTDs) and spirits as an added attraction. The wine department within the store is primarily intended for the conven- ience of customers purchasing wine as part of their shopping basket. The LiquorShop’s depth of
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 27 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Value-added Services | Freshmark
Johan van deventer David Hallale general Manager: Freshmark Retail Manager: Freshmark
reshmark, the Group’s wholesale fruit and Profitability improved on several fronts while F vegetables procurement and distribution distribution costs were contained by the efficient division, is the biggest supplier of fruit and scheduling of deliveries to stores with its fleet vegetables in Africa, handling about 259 000 of more than 120 refrigerated trucks. Deliveries tons over the past year, with 93% bought are made from six distribution centres in South directly from producers working to Freshmark’s Africa and five elsewhere in Africa. specifications. These producers range from The Group prides itself on Freshmark’s own the leading export-orientated suppliers to many import department that procures a range of small-scale farmers who are being assisted out-of-season fruits and vegetables from over- to achieve the required standards. In light of seas markets, sourcing from over 20 countries laboratories; one in the north of the country food safety through traceability the number of including Spain, Egypt, Morocco and Italy. and one in the south, which draw samples of products bought on municipal markets is being In the reporting period Zambia was the first fruit and vegetables produced for Freshmark reduced every year. country outside of South Africa to become weekly and apply a battery of microbiological During the reporting period Freshmark completely self-sufficient in terms of vegetables and chemical residue tests to ensure production grew the value of produce distributed by 30% while in the other countries on average about specifications are meticulously followed, to almost R2 billion, supported by aggressive 95% of Freshmark’s needs were sourced from including spraying protocols. national promotions. local farmers. This is long standing goal of the Expenses as a percentage of sales were Group which it is proud of fulfilling at last. reduced during the reporting period, resulting Food safety is managed pro-actively, and in improved trading margins and an increase in remains a guiding principle in all Freshmark’s trading profit. Staff productivity increased by operations. All six of its South African distribution 12,3%, boosted by extensive in-house training. centres again scored above 95% in the annual Towards the end of the reporting period inflation audit of their food manufacturing processes increased rapidly, reaching a peak of 18% and undertaken by an independent, internationally by 24 August the Group already had a deflation accredited standardisation authority. of 4,9% for the month in its fruit and vegetable Over 90% of all suppliers to Freshmark business. Freshmark proudly supplies a range also meet internationally recognised safety of around 450 products, which is revised standards such as EurepGAP while the remain- continually in line with changing consumer ing 10%, mostly small-scale farmers, are all preferences. Packaging follows the latest implementing programmes to achieve these international trends. standards. Freshmark employs two independent
28 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Value-added Services | Meat Market
Dirk Diemont General Manager: Meat market
he trading environment for fresh meat meat inflation has not yet peaked, management T retailing during the year did not escape the intends further promoting and extending the impact of high food inflation and elicited different sale of its branded products to meet consumer consumer spending responses. At the lower end preferences. of the spectrum many down traded to cheaper Our employees face the same financial chal- meat products while at the other end customers lenges as our consumers. Therefore the Group is sought out the more trusted and established proud of this division’s strong focus over the past meat brands thereby reinforcing the Group’s few years on training and development, which decision to focus on maintaining and improving will be intensified in order to further improve the quality offering despite the high inflation. their career opportunities and financial position. In order to assist our lower-income consum- An in-house training school offering courses in ers for whom the pick-up price is becoming meat handling and processing has been estab- increasingly important, some of our meat lines in lished in each of the Group’s seven geographic the Shoprite stores has been re-introduced in a divisions in South Africa and the Group proudly loose-serve format (in addition to pre-packaged) reports that it is the only retailer offering a SETA thereby allowing them to purchase the exact qualification in meat processing. This has already rand amount that they choose. On the other resulted in more staff promotions, increased hand, speciality branded products such as commitment and higher staff retention levels. Steakhouse Classic and Certified Natural Lamb The high level of innovation in the develop- were in high demand in Checkers where they ment of new product ranges has stood Meat sold mostly at full margin despite high input Markets in good stead in the past financial year. costs. The Group finds it satisfying that the sale Management is not only confident that it will of these brands in the Checkers and Checkers be able to continue growing meat sales across Hyper Meat Markets now exceed those of the the spectrum but also that the meat division will equivalent unbranded products. retain and continue growing their top-end cus- The Certified Natural Lamb range in particular tomer when economic conditions improve. has received strong support from our health and environmentally conscious consumers. A comprehensive and detailed audit protocol is strictly implemented and includes the farm, abat- toir and butchery. Despite the general view that
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 29 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Group Services | Information Technology
franz muller manager: information technology
echnology is a key enabler driving the entire delivery of merchandise from the distribution T value chain of the Group’s operation. In centres to the stores. The system addresses addition to the information technology division’s vehicle routing and scheduling, vehicle tracking day-to-day support of business operations, it and management, driver performance and other is currently investigating a number of major management indicators. technology initiatives involving new-generation The existing forecasting system for replen- systems that support critical processes to drive ishment of stores is being replaced by a solution the Group’s future competitiveness. that seamlessly integrates with distribution cen- As part of the process an extensive review of tre (DC) replenishment. This new integrated sys- all merchandise and stock management systems tem for continuous replenishment and inventory is underway as a precursor to the introduction of management allows DC replenishment to be a new merchandising system. To further support driven by actual retail sales activity, rather than the importing process, a new system to manage store orders. It will reduce inventory levels in the all aspects of global sourcing has been chosen. supply chain and improve on-shelf availability. The current focus is on the process leading up Internally known as Operation Better Store, to supplier and product listing. Thereafter order the roll-out of the new back-office system to placement, logistics and financial settlement stores in South Africa is on schedule. Store staff processes will be addressed. The Group prides have adapted to the new system. Margins in the itself on the sophisticated processes it employs food services departments such as the bakery to ensure that the right product mix, optimally and deli have increased and an improvement in priced, is offered to the consumer. The greater item freshness and consistency is also being transparency introduced into these processes experienced in those stores where the pro- promotes pro-active management and the oppor- gramme has already been installed. The real-time tunity to better meet customer needs. nature of the system adds to the optimisation of To further support efficient merchandising, stock levels, reducing the likelihood of lost sales a new buyer portal has been implemented. and over-stock situations. The system is now Highlighting problems and opportunities, the new running in about 200 outlets and the aim is system enables buyers to monitor, in real-time, to complete roll-out to South African stores the performance of items on an exception basis. by the end of 2008. It will be extended to An integrated transport management sys- non-RSA stores during 2009. tem was instituted to increase efficiency in the
30 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Group Services | Supply Chain Management
photy tzellios general Manager: supply chain
etailers worldwide have been seriously expected that prices will escalate well into Notwithstanding the sharp increases in the R affected by unstable fuel and commodity the future. price of fuel, the Group was able to buffer this prices in the year under review. These inflation- – There is a need for flexibility as constraints phenomenon through its centralised distribution ary pressures have created a spiral in demand as arise such as traffic congestion in urban areas, infrastructure and the utilisation of its transport both retailers and vendors competed for product the regulation of traffic flows in municipal areas routing and scheduling package. Store ordering at historically lower prices. This has decreased during day light hours together with regula- processes are continuously being optimised product availability to an all time low. tion and the need to track and trace product thereby preparing the Group for the next phase Despite these challenges, the Group prides throughout the supply chain. of optimisation. itself on its competency to maintain its ability to – A continuing trend in escalating costs, impact- The Group’s international trading capabilities capitalise on its strategic objective of controlling ing negatively on operating costs and hence a strengthened with the introduction of a uni- its supply chain. More than a decade’s worth of retailer’s ability to maintain low prices. fied trading software solution. This initiative is investment in infrastructure, software solutions, These aspects have been taken into consid- expected to enhance trading potential as well skills and knowledge delivered both a mecha- eration and the Group is favourably positioned as own brand development. In addition to this, nism by which to sustain low price points for a well into the future. it provides the foundation for co-ordinating longer duration than competitors, while at the The Group continues to actively manage the activities of all parties in the supply chain. same time maintaining a high level of product and control its value chain while maintaining a Although doing business in Africa is challeng- availability from its own distribution centres. strong drive to improve efficiencies. The focus ing at the best of times, the Group’s in-house During the reporting period the Group main- has been on four primary areas namely inventory skills assisted by allowing it to capitalise on its tained a store delivery service level of up to 20% management, transport optimisation, operational investment. The volume of cross-country trade higher than some of its suppliers. This has been productivity and store processes. These efficien- increased, providing the Group with independ- a winning recipe for maintaining customer loyalty cies and the enhanced functionality introduced ence from its South African structures and the and boosting sales growth at minimal cost. during the year continue to drive costs down and capability to compete with other multinational The Group’s strategy to control the supply improve cash flow. retailers on an equal basis. chain not only provides a distinct competitive Its capability in utilising expert-based inven- The Group’s supply chain strategy is distinctly advantage and an ability to manage risk, but it tory management solutions placed the Group in a rewarding as it has been a critical and successful also has made sound business sense in current position to reach the level of maturity where it is element in its competitive arsenal, differentiating and future scenarios in which: now paying dividends. Although inventory levels it across the three fundamental criteria of impor- – Environmental management is a crucial factor have increased, a scientific approach to forward tance to the consumer in mass-market retailing in order to minimise the depletion of natural buying was adopted. This allowed the Group to of foodstuffs namely quality, price, and availabil- resources and a need to recycle materials. sustain its “low price” position and simultane- ity on a consistent and sustained basis. – Food shortages remain a reality, and it can be ously to achieve high levels of product availability.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 31 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Group Services | Property
danie mÖller philip van der merwe deputy general Manager: general Manager: property property
he Group now operates 636 supermarkets and Lubango in Angola as well as Kinshasa The division achieved great success in reduc- T spread across the vast continent of Africa, and Lubumbashi in the Democratic Republic of ing the number and extent of loss-making head some of its adjacent islands in the Indian Ocean Congo (DRC). The two supermarkets in the DRC lease buildings from the former OK Bazaars and and India. As the Group’s operations grow, the are expected to open in December 2009. Checkers. During the past 10 years the number task of the property division increases expo- The Group is not primarily a property devel- of head lease properties was reduced from 82 to nentially. This task requires this business unit to oper, but the division is frequently obliged to fulfil 57. As part of managing the property portfolio of operate effectively at different levels. that role, especially outside the borders of South mainly shopping centres, it conducts all negotia- Through its business development manage- Africa, when no suitable trading space is avail- tions with existing and new tenants. ment a major part of its brief involves all negotia- able for its brands to conduct business. Under As crucial as the location is the layout of the tions with land and property owners and also those circumstances the Group does undertake stores that must reflect consumer behavioural local authorities that have a bearing on the hous- its own developments through its project devel- patterns and provide for shifts in consumer pref- ing of the Group’s operations now and in the opment management. The Group is proud of erences. Our store development team take cog- future, whether for stores or distribution centres. the fact that over the past 10 years the property nisance of the latest international research into A major thrust of this department’s operations is division added more than 30 new free standing changes in food buying patterns to encompass identifying, in conjunction with line management, supermarkets, shopping centres, distributions these in new store lay-outs. The move to fresh- potential growth areas for future store locations. centres and offices to the Group’s property port- ness and the growth in the demand for value- It then commissions the necessary viability folio at a capital expenditure of more than R1,3 added foods prompted by a pressured modern studies to determine potential profitability and, if billion. When owned properties reach a level lifestyle, for instance, has had a substantial these are positive, commissions architects and of maturity to generate a sustainable income impact on store lay-out, presentation, equipment engineers working in conjunction with its internal stream, they are generally put on the market to and the allocation of space on the sales floor. An design team, to plan new developments and free up capital for further investment. Capital ongoing programme of refurbishment ensures manage their building and construction. expenditure of R860 million has been approved that older stores offer a shopping environment The division has negotiated 58 new super- for new developments during the 2009 financial consistent with that of the latest ones. Over the markets for the coming financial year for the year past 10 years more than 340 outlets were refur- Group. The division is presently engaged in The division also manages its property port- bished at a cost of nearly R1,5 billion. The Group negotiations with owners, notably in West folio, consisting of owned and head lease prop- is pleased that during the past year it was able to Africa, to acquire land for development of new erties, through its regional property and asset equip all stores with standby power at a cost of supermarkets to meet future growth. In recent management offices. This portfolio now consists R49 million to ensure uninterrupted trading. months transactions were successfully conclud- of more than 100 buildings and other properties ed for sites in Port Harcourt in Nigeria, Huambo with a combined value in excess of R4,5 billion.
32 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Corporate Responsibility Report | Corporate Governance
Corporate Responsibility Report | Sustainability
Introduction South Africa. Of the total number of employees, of whom 76% are black while 73% of assistant The Group takes a long-term approach in 51 800 are black, 14 500 coloured, 3 000 Indian managers and 55% of branch managers are managing and developing its business in a way and 3 700 white. Women represent 65,7% of also black. that will provide shareholders with a continued staff. The Group provides careers in a great competitive return on their investment. To achieve many disciplines and through ongoing training Employee that, the Group must serve the interests of not and advancement from within enables staff to Development only shareholders, but all its stakeholders – and develop their potential to the full. In recruitment AND Training in particular, customers, suppliers, staff and the and advancement it gives preference to people During the year training throughout the Group communities in which it does business. In consid- from previously disadvantaged communities to was intensified to keep pace with the growth in ering the wellbeing of such communities it has to help restore the social imbalances of the past. the Group’s operations. It is satisfying that the pay special attention to the environment in which number of training interventions increased from they live by operating in a way that will not merely Employment Equity 62 210 to 98 816. The focus has been on improv- maintain the status quo but in fact enhance what Employment equity is central to the Group’s ing service delivery in stores and the building of has become a very fragile world. Although as a business philosophy and is treated as a high management capacity. The Group continues to business it exists to generate a profit, the Group is priority. Creating such equity is, however, a major run the largest training operation in the South careful not to pursue profit at the expense of the task as the roots of the historical situation that African wholesale and retail sector. In doing so it community or the environment. brought about the inequity in the first place lie co-operates closely with the Wholesale & Retail The Group is proud that, in many respects, outside the workplace. Equal opportunities in the (W&R) SETA, Foodbev SETA and the Health & it is a force for the good, for through its opera- workplace involve the physically disadvantaged Welfare SETA. tions it creates numerous opportunities for and the advancement of women in management An extensive audit of the entire training employment and career development within positions. The Group is proud that up to now it and development landscape in the Group was the Group as well as at its suppliers. It enables has taken great strides in achieving its equity conducted. As a result, additional training posi- major manufacturers to expand their businesses objectives without in any way compromising tions were created throughout the group. The in the knowledge of an assured volume take-off the effective running of the business. To date training department continues to upgrade exist- while it assists and nurtures smaller suppliers, management has succeeded in annually exceed- ing learning programmes as well as investing in especially from a disadvantaged background, to ing the exacting targets it sets itself. According new courses using the latest training techniques achieve the required production standards. In to the statistics of the Department of Labour, and methods. The Group endeavours to ensure fact, much of its business strategy is aimed at the Group’s equity advancement outperformed human resource development best practice and helping to correct the social imbalances of the the rest of the wholesale and retail sector on all continues to acquire accreditation for its learn- past. It strongly believes that charity begins at levels with regards to blacks (male and female ing programmes. This is done by offering fully home so that much of what it does in this regard combined) as well as females. accredited qualifications that lead to national is focused on communities in South Africa. Recruiting a sufficient number of adequately qualifications with SAQA accreditation. Courses However, as its business grows elsewhere in trained young people to fill the growing number aimed at store staff cover not only retail disci- Africa so does its involvement in the well-being of middle and senior management positions plines but also life skills. Although much of the of those communities. is becoming increasingly difficult, also because training is undertaken on a centralised basis, Wherever it operates the Group provides a of the present skills drain with talented people certain divisions such as furniture, Freshmark consistently First World shopping environment of all population groups deciding to seek their and the distribution centres offer their own train- in which it offers an extensive range of products fortunes elsewhere. To identify at the earliest ing programmes due to the specialised nature of at highly competitive prices to enable increasing stage young graduates with an interest in com- their operations. numbers of consumers to enjoy them. To this merce and retailing in particular, the Group con- Employees working for the Group outside end quality products meeting international food tinued its close involvement with all the tertiary South Africa undergo equally intensive training, safety criteria and manufactured in an environ- institutions in the country. However, because with a special accent on the culture and values mentally responsible manner are sourced all over of its arduous hours, retailing tends not to be of the business. In certain instances staff mem- the world at the best prices. At the same time a popular occupation and other, less demanding bers from elsewhere on the continent are flown local industry and small-scale farmers in particu- professions find it easy to entice away well- to South Africa for training or to neighbouring lar are supported to advance the economies of trained and well-qualified members of staff. countries such as Zambia where there is an the countries in which it operates. As a result, the Group has always believed established infrastructure. Trainers from South It is deeply gratifying that at the end of the in training up its own people and promoting Africa also criss-cross the continent to present reporting period the Group provided employment from within. Such training is provided at many courses in English, Portuguese and French and to more than 73 000 people, including almost different levels. At the end of the reporting peri- also visit the off-shore islands and India for the 8 000 in 16 countries outside the borders of od the Group had 895 trainee managers same purpose.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 33 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Corporate Responsibility Report | Sustainability continued
The Group operates a number of technical the basis on which the store is judged by “ training academies where employees receive mystery shoppers” visiting the individual specialist training in areas such as meat process- supermarkets. ing, fresh produce handling, baking and cooking. There are technical training academies in Cape Succession planning and leadership Town, Durban and Johannesburg while similar development ones in Port Elizabeth and Welkom in the Free Succession planning at senior management level State will open in the new financial year. All are is of vital importance in an operation the size and equipped with state of the art equipment and all complexity of the Group. To ensure the business the courses offered are fully accredited and pro- is able to continue operating at the same level vide those completing their training of efficiency, qualified, experienced successors with the skills needed to apply their trade. were identified for all key positions and receive The Group is full of pride that it was the first ongoing training in the demands of those posi- retail company to receive accreditation to tions to ensure a smooth handover, should that present a diploma-level qualification for butchers. become necessary. To ensure a constant inflow The Group is in the process of registering some of talented people, future executive staff is of its academies as FET (Further Education recruited mainly from tertiary institutions and the Training) colleges with the Department of number of graduates – now 1 306 – employed by Education. More than 2 000 employees have the Group continues to grow at a rewarding pace. completed advanced training to date. Special focus is placed on recruiting these from The roll-out of the new back-office system previously disadvantaged groups. known internally as Operation Better Store was Executives from a number of disciplines have certain disciplines and during the past financial extended to all seven geographical divisions with- been participating in advanced management year 43 completed their practical studies. in South Africa with two stores in each region development interventions, including top inter- The Group is proud of the fact that it is also being equipped with the new technology every national leadership programmes. This will ensure recognised by the South African Institute of week. By the end of the reporting period some that they are equipped and able to deal with the Chartered Accountants as an approved training 200 stores were supported by the multi-faceted challenges presented by the ever-increasing facility for Training Outside Public Practice (TOPP) system that facilitates staff scheduling, product complexity of the business and the challenges up to chartered accountant (CA) level. Since the ordering and stock control as well as ingredient of building the Group into the foremost retail programme’s inception, 42 candidates were standardisation in the Group’s bakeries. Once the regional player. During the reporting period 4 733 accepted for this training. At present 12 articled system has been introduced to all Shoprite and members of management attended one or more clerks are in service, with five joining during the Checkers stores in South Africa, it will be applied of these programmes. past year. In the reporting period, seven of the to outlets in the Usave and furniture brands. As the aim is to provide maximum career eight candidates who sat for the board exam During the year the scope of the Group’s development opportunities for staff across the qualified as chartered accountants. main motivational programme known as BBB board, at least 50% of those selected for entry- was broadened by linking it to a national singing level store management programmes have to be Educational competition that involves well-known local music internal employees. The other 50% are mainly Assistance personalities and engendered a very high level of graduates recruited from tertiary institutions. To help counter the growing skills shortage staff involvement. in South Africa, the Group increased the funds BBB aims to promote service excellence Learnerships it makes available annually as bursaries and through motivation, education and rewards. The In line with its overall training strategy and loans to R4,5 million in the reporting period. unique incentive program underlying BBB allows policy, the Group continued to act as a training The support is available to people who wish to us to facilitate a positive broad based behavioural facility within the context of the National Skills study at tertiary level in sought-after disciplines shift amongst the masses, achieve true perform- Development Strategy. In collaboration with such as accounting, pharmacy and retail busi- ance measurement based on objective judging several SETA’s it offers learnership and skills ness management. During the year 95 students criteria (critical to retail success), as well as programmes in retail management and other were assisted in this way, up from 61 in 2007. acknowledge and reward high achievers. related fields at NQF levels 2, 3, 4 and 6. During These funds were in addition to what was made To participate in the competition the staff the reporting period 581 candidates completed available for the Group’s education assistance of each store decides jointly what they plan learnership programmes. The Group also co-oper- scheme for staff members and their depend- to do to improve customer service and enhance ates with universities and technikons by providing ants, which also includes grants for school fees their shopping experience. The pledge forms practical workplace experience for students in to lower-income employees.
34 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb BBB Top of the Pops 2007 Group winner: Shoprite Makhaza The Group continues to train and capacitate occupational health and safety controls and the peer educators of whom there are currently in quality and hygiene standards applied to the excess of 1500. Brochures, DVDs and other edu- products it sells. cational material are made available to all branch- es to support the work of peer educators. A con- Occupational fidential helpline remains available at all times for Health and Safety those employees who wish to make use of it. The board of directors of Shoprite Holdings has Aids is incurable and treatment can only ultimate responsibility to all its employees and postpone its onset. Once infected, employers customers for compliance with occupational can do little more than create a sympathetic work health and safety standards. These are moni- environment that allows no discrimination against tored at divisional level and the findings of regu- those who live with HIV+/Aids but provides them lar inspections of all locations is reported to and with all the support and understanding possible. reviewed by senior management.
Internal Food Safety Communication Against the background of the exponential Staff members at all levels are kept fully growth in the volumes of food items flowing informed of developments within the business through its 636 supermarkets and the increasing using a range of communication mechanisms to percentage of value-added and perishable items achieve this. They include newsletters, notice in the product mix, the safety of consumers has boards, websites, electronic messaging as become an all-pervading, non-negotiable require- HIV/AIDS well as regular discussion groups at different ment of every aspect of the Group’s operations. The Group continued to strongly focus on educa- management levels. The accent is on two-way To ensure consistency in the application of its tion and prevention in combating the spread of communication to develop a participative work food safety requirements a food safety manual HIV+/Aids. Despite indications that the growth force which understands and supports the busi- was prepared that covers every aspect of food of this pandemic might be stabilising in South ness philosophy and ethics of the company. The handling in stores. The Group is also involved in Africa, it is doing so at very high levels and the Group is proud to report that a high premium is the Food Safety Initiative (FSI) of the Consumer country was recently identified as having the placed on recognising and rewarding achieve- Goods Council of South Africa. highest incidence of this illness, with an estimat- ment and to engender pride in working for the In achieving its objectives, the Group col- ed 5,7 million people living with HIV+/Aids. Group and contributing to its success. laborates closely with producers, manufacturers Its potential impact on a people-intensive and the health authorities. More than 50% of the business such as the Group is therefore enor- Ethical Behaviour total product offering is obtained from the coun- mous. It is calculated statistically that, based on It is required of the management and staff of the try’s foremost food manufacturers who already demographic, lifestyle and age factors, just over Group to maintain the highest level of integrity adhere to the stringent food safety standards 17% of its workforce is infected. This high inci- and honesty in their dealings with customers, that apply internationally. The Group enjoys dence can affect productivity and increase staff suppliers, service providers and their colleagues. a long and close working relationship with all turnover which in turn impacts on the extent of The principles supporting such behaviour are of them. Certain ranges are sourced overseas, training required in the organisation. set out in the Company Rules and in the docu- particularly for the Group’s operations elsewhere The comprehensive educational programme ment Code of Conduct for Shoprite Holdings in Africa, while the balance is obtained from developed in 2005, based on input of a national & Associated Companies. A copy is handed to smaller local manufacturers. in-house Aids Committee consisting of rep- every member of management on joining the Particular attention is paid to product safety resentatives of the trade union as well as of company. Additional copies are available from in respect of the Group’s own brand and private non-unionised staff, was further extended in the the human resource departments in the various label ranges which involves about 640 product light of regular needs analyses. Central to the regions and the Group’s Intranet. lines. These products are acquired only from sup- programme is the role of peer educators identi- Compliance with the code of conduct is the pliers following best manufacturing practices. A fied in each store and trained by independent ultimate responsibility of the company secretary risk analysis process covering risk assessment, specialists. Once trained, the peer educators and the executive directors, with day-to-day risk management and risk communication was conduct training at store level which will enable monitoring delegated to line management developed and, in line with international practice, us to provide a sustainable platform for counsel- supported by personnel officers. The code is all the products are classified as high, medium or ling as the entire HIV programme rolls out for supplemented by the Group’s responsibility low risk. All are tested for safety on a regular basis years to come. philosophy as well as its employment practices, by independent laboratories, with particular atten-
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 35 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Corporate Responsibility Report | Sustainability continued
tion paid to the high-risk category. The system can be extended at any stage to include other products that are considered high risk. Sensory evaluations of relevant products in respect of taste and appearance are carried out on a monthly basis while consumer panels routinely undertake comparative tastings of competitor products. Home-made products supplied to single stores and prepared by individuals or small home industries which are often BBBEE owned, present a problem as they do not fit into the broader food-safety framework. Store managements are keen to support such small enterprises from their immediate vicinity, also The 2008 Shoprite Checkers / SABC2 Woman of the Year Award winners From left to right: Bessie Tugwana (General Manager of SABC2), Prof Sherylle Calder (Winner of Sport category), because they often offer unique and sought-after Ms Roslyn Narain-Mohan (winner of Education category), Dr Veni Naidu (winner of Social Welfare category), items. Although all these suppliers are monitored Ms Janet Buckland (Woman of the Year 2008 and winner of Arts, Culture and Communications category), Prof Claire Penn (winner of Science and Technology category), Prof Lorna Barbara Jacklin (winner of Health category), Ms on a regular basis to ensure compliance with Thabang Molefi (winner of BusinessE ntrepreneurs category), Whitey Basson (CEO of the Shoprite Group) health standards, it is also not possible or realis- tic to apply to them the same standards ensure cleaning routines are adhered to. Frequent Corporate Social set for large suppliers. swab tests are done by independent laboratories. Investment The meticulous implementation of health Negative findings immediately trigger corrective In the reporting period a number of projects measures is standard practice particularly in the action by regional and store management. Pest were undertaken that the Group believes has case of perishable products which represent and rodent control programmes are in operation helped to make a difference to the social and an increasing part of the consumer basket. The in all stores, and waste is processed and removed economic growth of the country. Some of these Group is proud to report that its fruit and vegeta- off-site on a high-frequency basis. are the following: ble division, Freshmark, buys more than 90% of its fresh produce directly from the farm. By far Product Information The Shoprite Checkers / SABC 2 the majority of these suppliers are EurepGap cer- and Labelling Woman of the Year Award tified. Regular farm inspections backed by inde- The Group believes consumers are entitled to This important initiative provides a tangible pendent laboratory assessments ensure produc- accurate and sufficiently detailed information on opportunity for women to grow their own devel- tion, handling and packaging requirements are packaging so that they can take informed deci- opment projects. South African women have fully met and the cold chain maintained between sions about the products they choose. Large long been at the forefront of the movement farm and distribution centre. suppliers already follow international standards to achieve political and social equality in South Another area in which particular care is in the information displayed on their products. Africa. They have worked unceasingly over many exercised is fresh meat. No meat is bought Buyers work closely with smaller suppliers to years for the upliftment and greater prosper- locally unless approved by the SA Meat ensure products delivered to the Group contain ity of their families and communities. Shoprite Industry Company (SAMIC), established by the easily accessible information that complies with Checkers is proud to have initiated the Woman Government to protect the interest of consum- regulatory requirements. The Group is particularly of the Year Award in South Africa in 1996 in rec- ers. Strictly controlled handling procedures, mod- mindful of its responsibility in respect of its house ognition and celebration of their achievements. ern refrigerated trucks and dedicated delivery brand and private label ranges where it has full Now in its thirteenth year, the Award was points at all stores ensure the cold chain is not control over what appears on the packaging. Not the first major initiative to celebrate National compromised only is information displayed in full but, in the case Woman’s Day after Government decided to In-store hygiene is the responsibility of the of products for export, also in the language most honour woman every year with a public holiday individual divisions who apply nationally pre- accessible to consumers in a particular market. on the anniversary of the biggest mass-gathering scribed health and cleaning routines. Cleaning is Sell-by dates on packaging not only assist of women in South Africa on 9 August 1956. On either undertaken by supervised staff or contract- consumers but also enable store staff to identify that day 20 000 women marched in silence to ed out to HACCP accredited firms. Staff working items that have passed their sell-by date. Such protest the carrying of passes. Since its incep- in service departments where value-added prod- food is removed from the shelves and handed tion the Award has identified and paid tribute to ucts are produced on site, receive additional train- to the local health department who issues a the country’s unsung heroines and presented ing in hygiene and cleaning procedures. Regional certificate confirming the items were destroyed them as role models for the rest of South Africa. managers inspect stores on a regular basis to according to municipal regulations. The Award has also brought into focus the many
36 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb issues women grapple with; issues that often which is to become an annual event, collected annual community drive supported by the make life a daily struggle. close on R500 000. On that occasion an award, Group’s two major brands. During March 2008 South Africa’s premier accolade for achieve- The Friend of African Arts, was also made to consumers were urged to donate books at ment by women in 2008 went to Ms Janet Mr Desmond Sampson, chairman of Uhuru their stores and more than 60 000 books were Buckland, who is also the winner of the Arts, Communications and a past chairperson of collected for libraries in South Africa to help Culture and Communications category. Ms SACTU, for his role over many years in the pro- increase literacy in the country. Buckland, or simply known as Mama J to the motion of African arts and crafts. communities in the Eastern Cape, has been The Group is pleased to report that the Broad-Based responsible for the initiation and creation of a project is currently being extended to include Black Economic significant number of very successful arts and selected craft projects supported by the Empowerment (BBBEE) culture projects in the province. She combined Department of Arts & Culture. The web dis- The Group implements a clearly defined pro- her understanding of the value of the arts and playing these works will be promoted through gramme in respect of the codes of the Broad- particularly theatre in the lives of thousands of South African embassies worldwide. Support based Black Economic Empowerment Act (Act South Africans with her skills as a performer, for the project has also been pledged by provin- 53 of 2003). The programme is discussed below director, fund raiser and administrator to direct cial governments and several art days will be in terms of those codes. these projects over a number of years in the arranged by them in the next financial year. Eastern Cape. Black Ownership and Decision-making Soup trucks The codes which set the requirements for Black Strokes of Genius In February 2007 Shoprite launched one of its ownership and decision-making influence are In 2006 Shoprite Checkers approached the most successful corporate social investment the direct responsibility of the board of Shoprite departments of Arts & Culture and Trade & campaigns, the Shoprite Soup Truck Initiative. Holdings. Industry with a concept to promote African fine The campaign was piloted in two divisions with arts to a global market by setting up a web page dedicated staff in each handing out soup and Employment Equity which would serve as a sales platform for local bread to needy children and senior citizens in A five-year strategy, in accordance with the artists and also undertake Internet-based art rural areas and, when natural disasters such as appropriate labour legislation as well as the sales. Both departments pledged support for flooding and fires occur, to the broader com- BBBEE Codes of Good Practice, was implement- the project, indicating closer co-operation as the munity. The Group is proud of the fact that by ed and is delivering according to plan. project progressed. the end of June 2008 more than one million The web page was launched in 2007 under meals had been distributed. A further four trucks Skills Development the name Strokes of Genius, and various events are due for delivery in the 2009 financial year to The Retail Apprentice Project in which a 1 000 in support of the project were held since. operate in other parts of the country. This fleet unemployed youths were placed on a learnership These culminated in a gala event in Pretoria in of trucks will enable Shoprite and its sponsors to in co-operation with the Department of Labour, November 2007 at which works from emerg- provide substantially more meals per month. the W&R SETA and the Department of Trade & ing artists were put on auction. The auction, Industries (DTI), was successfully concluded. Smaller projects Most of the successful candidates were subse- – The Shoprite Community Network was quently employed by the Shoprite and Checkers launched in 2005 as a grassroots upliftment brands, including into management positions. programme supporting community projects. As a result of this success, the Group is The initiative is being promoted on 11 radio proud to be able to launch the 3 000 Learners stations who urge listeners to nominate worthy Project in line with AsgiSA and the Jobs for causes or development projects in their area Growth Programme and with the support of the that need financial assistance. Every month the Deputy President’s Office. It will again also enjoy
BBB Top of the Pops Group donates R10 000 to a project mooted the support of the Department of Labour, the 2007 Solo winner: on each of the 11 stations. Since its inception, W&R SETA and the DTI. It will, over a three-year Desiree Shaw, Shoprite Aliwal North over R4 million was donated to such causes. period, train 3 000 unemployed young people in – Just before the end of the reporting period various skills including retail management, bak- the Shoprite and Checkers chains once again ery skills, butchery skills etc. In addition, hosted Cuppa for Cansa mornings in all stores, the Group will assist various black youth and in support of the Cancer Association of South women’s organisations by training their mem- Africa. A total of R650 000 was collected. bers through this programme. Working with – The RSG / KKNK Book Collection is another these organisations will ensure the inclusion of
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 37 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Corporate Responsibility Report | Sustainability continued
people from the rural areas where the need for shelves of UK retail chains. Initially minimum in gaining access to government and in establish- training is at its greatest. standards are set for those participating and ing relationships at the correct level. Government their adherence closely monitored. Standards has always been considered a partner in the Preferential Procurement are then gradually increased until they meet Group’s efforts to contribute to local economies, The annual study into the BBBEE status of all EurepGap requirements. to provide a First World shopping experience and suppliers completed during the reporting period to help achieve a better quality of life for the peo- confirmed that about 30% of suppliers was black Enterprise Development ple among whom it does business. empowered businesses. Since 2005 the number The Group’s strategy for enterprise develop- of BBBEE companies supplying to the Group’s ment is of a long-term nature and is intended to Investor Relations three main brands increased by on average 25% contribute in a meaningful way to transforma- Shoprite Holdings maintains relevant, ongoing per year. This is the outcome of a pro-active tion. The two main projects in this category are and transparent communication with its share- procurement policy aimed at involving black Nyama-Nyama (discussed below) and Strokes of holders and the investment community at large. businesses. These vary from magazine publish- Genius (see Corporate Social Investment). It does so through, inter alia, the announcement ers whose titles are available in the Group’s in the media of interim and year-end results, the supermarkets to a community initiative which Project Nyama-Nyama publication of trading updates and of its annual now supply chickens to virtually all its stores in The Nyama-Nyama project is now in its first full report, and the dissemination of information northern KwaZulu-Natal. year of operation. It was launched in accordance about important corporate developments. A The Group also operates a green fields pro- with the AsgiSA Programme - managed from the routinely updated interactive website serves as gramme that assists small businesses owned by Deputy President’s Office - and aims to provide a repository for all relevant investor information. members of previously disadvantaged communi- an established and stable market to emerging Regular meetings are held with institutional ties to achieve the production standards required stock farmers all over South Africa. Also involved investors on a group or individual basis while to qualify as suppliers. Much work is being done in the venture are the Department of Agriculture, presentations for financial analysts are done by in this regard in the procurement of fruit and various provincial governments and a great many top management whose members also make vegetables where the limited resources of most local authorities. The Department of Agriculture themselves available to analysts and the media. emerging farmers make it virtually impossible is assisting participants in improving breeding for them to achieve EurepGap certification. To and production methods and certain commer- Environmental assist these farmers Freshmark is proud to have cial farmers have also taken on a mentoring Impact launched a support programme to help more role. In addition, the Group provides some of than 70 of them grow their businesses while the infrastructure and accommodates suppli- Property development achieving and adhering to the required safety ers through favourable payment conditions. The sacredness of the physical environment standards. Commercial farmers supplying to From the Group’s perspective it is a mutually forms one of the cornerstones of the Group’s Freshmark act as mentors and are giving the pro- beneficial project. While providing a market for business philosophy. Its ability to pressurise gramme their enthusiastic support. participants it also gains a sustainable source of developers where it rents space is limited, The programme is backed by the British all types of quality meat. The project also sup- although it insists that, once operational, such government through Commark, which ports the Government’s Kalahari Kid initiative, as a centre be run in an environmentally sensi- helps emerging farmers gain access to the well as various traditional settlements such as tive manner. Where the Group undertakes its the Khomani San in the Kalahari and offers enor- own developments, it does so in a manner that mous scope for growth in the years ahead. causes the least disruption to its surroundings. It fully supports the Government’s highly progres- Government sive environmental and heritage legislation. It Relations will, as a matter of principle, not buy or develop Accepting that the understanding and support of an environmentally sensitive site nor will it government at central, provincial and local level undertake a development that is detrimental to is of vital importance wherever the Group oper- the bio-physical or built surroundings. When the ates or intends operating, management strives Group does develop, the full prescribed environ- to maintain the best possible relations with the mental impact assessment is undertaken under authorities, who are also kept informed of the the guidance of an independent environmental Group’s plans and intentions. Such relationships assessment practitioner. It consults with the
Emerging farmers from the Khomani-San settlement are managed on a strictly professional basis. surrounding community throughout the approval in the Kalahari participates in the Group’s Project Nyama- Independent consultants conversant with local process and, where possible, incorporates the Nyama and supplies prime goat’s meat to its Checkers supermarkets sold under the trade mark Chevon. conditions are employed where needed to assist reasonable needs and desires of that community
38 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb The first Shoprite Strokes ofG enius art auction took place at the Zwartkops Airforce Base in Pretoria in in the final design. This same approach applies infrastructure and services necessary to filter November 2007. Top local artist Kervin Cupido created wherever the Group develops outside the bor- water and toxic material prior to effluent enter- an artwork on stage that was sold in the charity auction at the end of the evening’s procedures. ders of the country even if requirements are far ing municipal lines at retail outlets. The Group less stringent. believes in making this a better and safer world!
Packaging Supply Chain Management Packaging is of major importance to the Group as The Group’s strategic initiative regarding sup- it is resolved to deliver products to the consumer ply chain management is primarily focussed on in a way that is convenient to use, appealing and reducing inefficiencies in moving product from safe to consume the content. Packaging require- source to the merchandising shelves at retail ments outline the desire to achieve efficiencies outlets. These initiatives have a direct bearing from the time of manufacture through to trans- on minimising both the Group’s carbon footprint portation and handling until the merchandising and energy demand. The consolidation of orders of the product on shelves. With this in mind the across hundreds of suppliers at distribution cen- Group aims to assist its vendors in their endeav- tres allows the Group to deliver product to stores our to deliver shelf-ready-packaging. Wherever in fewer vehicles thereby reducing traffic con- possible, returnable transit packaging and recy- gestion, pollution and unnecessary wear and tear clable materials will be used. Following the pur- on the country’s road infrastructure. In line with chasing of the product – as a responsible retailer international best practice, there is a strong drive – the Group’s involvement is to motivate vendors to convert from carton based packaging toward to follow legislation and to utilise environment returnable transit packaging to avoid deforesta- friendly materials. tion. Our policy is to utilise recyclable materials The approach is to collaborate with suppli- wherever possible. ers wherever possible to bring about suitable The Group’s infrastructure that accommo- changes as required. Government legislation dates centralised distribution creates the oppor- and regulatory processes are welcomed and are tunity for small and medium s d enterprises, adhered to, to improve the environment and to which at times are BEE owned, to access the protect the consumers’ interest. Group’s customer base across the continent Packaging standards are made available as without the need to invest in expensive infra- specifications to guide vendors. These standards structure such as warehousing and trans- are in line with sound and well established inter- portation. This centralised infrastructure also enough to power 10 000 average households for national practices outlined by EAN and SABS simplifies the implementation of quality control 12 months. Inter alia, the programme entailed The Group’s retail outlets stock a range of processes. the use of power factor correction equipment as eco-friendly bags that are marketed at the point well as power-saving electronic control gear that of purchase. The sale of these bags increased Energy management replaced fluorescent lighting at stores. by 16% to more than 3 million units during the Energy is a managed resource within the Group Power outages have become a common reporting period. Standard government regulated as it has a direct impact on profitability. Taking phenomenon and to avoid customer disappoint- plastic shopping bags are sold to customers on cognisance of this internal aspect and knowing ment during this unplanned event as well demand. Consumer leaflets are produced and the energy and resource challenges that face as for safety reasons, the installed base of distributed on topics such as waste manage- most countries in which the Group operates, a generator sets has been extended. All of ment, the re-use of plastic bags and littering. responsible approach to energy management the Group’s supermarkets are now equipped has been adopted. with generators and an additional investment of Waste Management It is company policy to select energy efficient more than R49 million has been completed. The Group believes in a responsible and environ- equipment and to implement energy manage- The Group endeavours to optimise its energy ment friendly approach to waste management. ment systems wherever practical and viable. consumption even further and investigations are Compliance to legislation is corporate policy The Group endeavours to stay abreast with currently underway in a number of initiatives. and only municipal approved dumping sites are technological advancements to achieve these These include more environment friendly alterna- used. Certificates of destruction are obtained for aims and it is proud of the fact that over the last tives such as solar power. all edible food stuffs that are disposed of in the three years the implementation of an energy event that it is not suitable for human consump- management programme has led to savings tion. The Group has and continues to invest in exceeding R21 million. The energy saved is
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 39 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Corporate Responsibility Report | Sustainability continued
Upcoming Suppliers Toiletries Bliss Chemicals Adcock Ingram (Tiger Brands Consumer) Established in 2003, Bliss Chemicals has now become one of the leading Consumer Health, a division of Tiger Consumer Brands LTD, is the market manufacturers of washing powder in South Africa. Bliss Chemicals’ first leader or a dominant player in the following categories: insecticides, hand product, MAQ Washing Powder, was initially launched into the South & body, face & hair care, baby toiletries & medicinals, sanitary products as African wholesale market. The brand has subsequently worked its way well as fabric care. into retail and as a new brand on the shelves, it has caused quite a stir in We have a proud heritage with some of our brands dating back over 75 the industry, bringing consumers lower prices and more diversity. Bliss Years (Ingram’s) and over 45 Years (Elizabeth Anne’s). Chemicals’ highly-skilled technical team is continually working on bringing The close working relationship with the Shoprite Group of Companies high quality washing powder using the best raw materials in a state-of-the- allows for these brands to be entrenched in the marketplace through the art plant to South Africa and other African countries. Bliss Chemicals has development of efficient consumer practices within the supply chain of complete confidence in the product and upholds the “try it before you buy the Shoprite Group. As a result of this philosophy, we are very proud of the it” philosophy where free samples are handed to consumers. accolade given to our organisation through our regional account manager As part of its corporate social investment programme, Bliss Chemicals David Monaco. is taking part in an opportunity to improve the educational environment David, whose unique style, together with his colleagues within the of thousands of learners by sponsoring 25 000 desks to distribute in Customer Management team forms the corner stone of the Consumer Rustenburg, Mpumalanga, Eastern Cape and KwaZulu-Natal. Bliss chemi- business. It is a team that Tiger Brands is proud to have on board and that cals and the Lapdesk Project, together with patron Archbishop Desmond blends youth with experience. All driven to assist the Shoprite Group in it’s Tutu, are tackling the shortage of desks, by bringing Lapdesks to learners efforts in developing and achieving the same goal of sustainable profitable all over the country. growth within the participating categories. Jacqueline Jacobs and Bliss Chemicals are extremely proud of receiv- We will continue to strive to deliver exceptional customer service to ing the Shoprite Group Supplier of the Year Award. Since trading with the Shoprite Group the Shoprite Group, our close relationship and the increased support that the retailer provided has helped Bliss Chemicals grow from strength to strength. We will endeavour to meet the level of service, excellence, qual- ity and consumer-driven pricing that has earned us this prestigious award.
David monaco Regional Customer manager: consumer
Jacqueline Jacobs General manager: Marketing
40 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Supplier of the Year
Confectionary and Beverages Contractors and Service Providers Cadbury South Africa Cadbury SA (Pty) Ltd is part of the international Cadbury Group of CTP Web Printers Companies, servicing the South African market with a large number of CTP Web Printers Johannesburg is one of five commercial Web confectionery brands. Cadbury SA operates in the Chocolate, Candy and printing factories making up the CTP Printing Division in the Caxton / CTP Chewing Gum portfolios with winning brands such as Cadbury Dairy Milk, Ltd Group (JSE:CAT). Lunch Bar, PS, Crunchie, Dentyne, Stimorol, Clorets, Chappies and Halls. CTP Printers specialises in high volume, fast turnaround printing of Voted South Africa’s best loved chocolate brand in the Markinor/ advertising leaflets and catalogues for the retail trade, in both Web Off-Set Sunday Times Top Brands survey in 2007, Cadbury is recognised as the and Gravure. The Group’s spread of plants across South Africa minimises market leader in most categories we operate in. transport delays and affords a strategic advantage in the market place. We constantly innovate our products and the way we do business. We For more than twenty years CTP Web Johannesburg has been focus on doing fewer things, but doing them bigger, better and faster than associated with the Shoprite Group in printing the weekly and monthly the competition. promotional catalogues and leaflets. Approximately 2000 colleagues have fun every day, creating or work- The acknowledgement received from the Shoprite Group firstly as a ing with brands people love. They do this in factories in Port Elizabeth, regional winner in Gauteng and then culminating in the Shoprite Group Swaziland, Botswana, Namibia and at our head office in Johannesburg. Supplier of the Year Award in December 2007 is indeed a highlight in The factories each make particular products for distribution locally and into CTP’s history. the rest of Africa. We look forward to strengthening our relationship with the Shoprite We are a performance driven; values led company and are passionate Group in these ever challenging times. about winning. Our commitment to developing the confectionery business through award-winning product innovation and customer service remains a top priority. Cadbury is proud to be associated with the Shoprite Group of Companies and exceptionally proud to be acknowledged as a Shoprite Group Supplier of the Year. Our partnership allows us to develop and grow within all our categories and we thank the Shoprite Group for their continued support. wally blumberg managing director
Patrick Barff Trade channel manager: Retail
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 41 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Corporate Responsibility Report | Sustainability continued
Ambient Groceries Housebrand and Private Labels Tiger Brands Culinary Giants Canning Culinary, a division of consumer brands, has iconic brands within its stable. Giants Canning produces and markets a substantial portion of private label These include All Gold, Fatti’s & Moni’s, Black Cat and KOO. The business canned vegetable ranges in South Africa. The products that we produce covers various food categories such as pasta, canned tomato products, are listed with major chain stores, retailers and wholesalers on a national tomato sauce, peanut butter, jams and canned vegetables just to name a basis as well as abroad. few, and holds a market leadership position in these categories. The brands Divine and Everyday also form part of the Giants Canning Two of these brands have reached key milestones in their cycle, infrastructure. namely All Gold and Fatti’s & Moni’s. The All Gold brand which spans vari- To give us a competitive edge over our competitors our motto is ous categories is 100 years young this year while Fatti’s & Moni’s, which is “Innovation Not Imitation”. We strive to continuously provide a good our key pasta brand and is another centenary brand in our stable, has seen quality product at an affordable price. Giants canning is run with passion, the installation of a state of the art facility to see us through another 100 honesty and integrity. years and more. We take great pride in the products that we produce and strive for The support of the Shoprite Group throughout the years has been a perfection on a daily basis. key contributor in enabling the growth of these brands and seeing them to Giants Canning is a family owned business and was founded in this juncture in their life cycle. This award is a validation of the successful 1999 by Chandu Govind. Great knowledge and highly experienced people partnership that Tiger brands Culinary has with the Shoprite Group, which contribute to the company’s success and without them our goals would is delivering growth for both our businesses. not be attainable. Alan Makinson and his very capable team are committed to ensuring With the assistance of the Shoprite Group, Giants Canning has gone this relationship grows from strength to strength. from being a dwarf to a true Giant within our industry. It was a real honour We are proud to continue to partner with the Shoprite Group to deliver and we were extremely proud of receiving the Shoprite Group Supplier sustainable growth as well as value to the South African consumer. of the Year Award for 2007. Without the guidance and assistance of some truly exceptional individ- uals at the Shoprite Group of Companies it would not have been possible for us to reach a level where we could be considered for this award. The accolade has made a profound impact on our company, as it is not every- day that a company is recognised by a “True Giant”. We at Giants Canning remain forever humble, and strive to go from strength to strength.
alan makinson national customer manager
larissa demetriou sales and marketing director
42 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Supplier of the Year continued
Meat Market Non-Food LAW Group Music For Pleasure (MFP) With the vision to become the leading abattoir in South Africa, LAW MFP has a long & successful relationship with the Shoprite Group as opened its doors in 1993 and in conjunction with the Shoprite Group of the supplier of CDs, DVDs and gaming, bringing the hits to everyone all Companies expanded and created the leading brand in the meat industry, of the time! Our relationship started in the early 70’s. We successfully known as Certified Natural Lamb. continue through our partnerships with the local and international enter- To support the Shoprite Group in delivering quality meat to its custom- tainment industry to supply the latest hits and source the best possible ers, the Company focuses on maintaining an international certification products to suit the needs of the Shoprite and Checkers customer, system known as HACCP. at an affordable price. Independent audits done by SGS ensures that the production of any The Shoprite Group’s entertainment department has seen significant meat product delivered by the abattoir is of the highest standard and growth over the years resulting in the Group representing a significant through this system the dealer and the customer gets the assurance share of the South African market and contributing to the growth of of quality meat and extended shelf life due to the quality of production. Afrikaans and Urban music nationally. In keeping with our vision of creating a meat product that is natural MFP has kept pace with technological developments and remains the and environmentally friendly, the farmers as well as the abattoir are biggest distributor of entertainment products into the mass retail market. responsible for creating the certified natural product which has a duel In 2003 the group diversified into a consumer, media and entertainment function in caring for the nature and the consumer. investment company becoming The MFP Holdings Group, now owning The Company is proud to be known as one of the biggest job a variety of companies all playing a role in the supply of products to the creators in the Northern Cape and products produced are internationally Shoprite Group. sought after. The company owns the distribution rights for Xbox, Kodak and the JNC We are a proud South African based company, which strives for the Brand. Other companies in their stable include: The Adworx Advertising economic growth and development of the red meat industry in conjunc- Agency, M-Works Merchandising Solutions, The Refinery Post Production tion with the Shoprite Group of Companies. Facilities and gaming licenses including Vivendi Games, THQ and Disney Interactive Studios. MFP is confident that the entertainment and gaming industry will con- tinue to grow and that the Shoprite Group will maintain its invaluable con- tribution in meeting the South African consumer’s needs. We are proud to be a part of the Shoprite supplier chain and will continue to improve and enhance product offering and service in the years to come.
wessel van wyk managing director
Neville blignaut chief executive officer
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 43 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Corporate Responsibility Report | Corporate governance continued
Code of Corporate Practice 28 Aug 30 Nov 18 Feb 26 May and Conduct Name of director 2007 2007 2008 2008 Shoprite Holdings Ltd is committed to the principles of effective corporate Executive directors governance as set out in the Code of Corporate Practice and Conduct in JW Basson (chief executive) p p p p the King Report 2002 (“the Code”). CG Goosen p p p p The Board is of the opinion that the Group currently complies with BR Weyers A p p p the significant requirements incorporated in the Code and in the Listing AN van Zyl p p p p Requirements of the JSE Ltd. B Harisunker p p p p EL Nel p p p p Group Structure AE Karp A p p p Shoprite Holdings Ltd is an investment holding company with investments Non-executive directors in various local and international trading subsidiaries, of which the follow- CH Wiese (chairman) p p p p ing are the most important: JJ Fouché (independent) p A p p – Shoprite Checkers (Pty) Ltd JA Louw (independent) p p p p – Shoprite International Ltd JF Malherbe (independent) p p p p – Shoprite Insurance Company Ltd JG Rademeyer (independent) p p p p All subsidiaries of Shoprite Holdings Ltd are committed to the princi- TRP Hlongwane (independent) p p p A ples of effective corporate governance as contained in the Code. A=Absent with apology, P=Present
The Board and Board Committees The Board delegates the day-to-day management of the business to the chief executive assisted by senior management. Senior management The Board of Directors are invited to attend board meetings and facilitates the effective control of At the end of the reporting period, the Board of Shoprite Holdings Ltd all the Group’s operational activities, acting as a medium of communication consisted of thirteen directors, seven of them holding executive positions and co-ordination between all the various business units and subsidiaries. in the Group. The Board takes overall responsibility for the Group, includ- Directors retire by rotation at least once every three years, but can ing responsibility for identifying key risk areas, considering and monitor- make themselves available for re-election by shareholders. In terms of the ing investment decisions, considering significant financial matters, and articles of association, Dr CH Wiese, and Messrs JJ Fouché, JA Louw, AN reviewing the performance of management against budgets and business Van Zyl and BR Weyers retire at the annual general meeting and, with the plans. The Board is also responsible for ensuring that a comprehensive exception of Messrs JJ Fouché and AN Van Zyl, being eligible, offer them- system of internal control policies and procedures is operative, and for selves for re-election. compliance with sound corporate governance principles. The Board appoints the company secretary. The responsibilities of the The Board is chaired by a non-executive director, Dr CH Wiese, who company secretary include assistance to the chairman in co-ordinating has no executive functions. The roles of chairman and chief executive are and administering the operation of the Board, the induction of new non- separate, with each having set responsibilities. executive directors and ensuring the Group complies with all statutory The Board is confident its members have the knowledge, talent and requirements. All directors have access to the company secretary and his experience to lead a listed company. The non-executive directors are inde- services, and may seek independent professional advice if necessary. pendent of management and exercise their independent judgement. With It is the Group’s philosophy to manage and control its business on a their depth of experience, they add value to board deliberations. decentralised basis. Senior management meets with the management The Board meets at least four times a year. Details of directors’ attend- of the decentralised operations on a monthly basis to review the results ance of board meetings during the reporting period are set out adjacent: of each operational division. Senior management also meets on a weekly basis to review operations, key financial indicators and the advertising strategy. Board meetings are held quarterly to discuss and approve the results of the Group’s operating companies. The Board charter raises corporate accountability and assists the Board in fulfilling its purpose whilst incorporating the principles of good corporate governance, such as discipline, transparency, independence, accountabil- ity, responsibility, fairness and social responsibility.
44 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Remuneration Committee ness units. The EWRM is reviewed on a regular basis and the Risk Forum In order to attract, retain and motivate executives of the quality required regularly reports to the committee. No material loss, exposure or misstate- for the business of the Group, sufficient remuneration is provided. ment arising from a material breakdown in the functioning of systems has The Remuneration Committee is a subcommittee of the Board been reported to the directors in respect of the year under review. and comprises: Group assets are insured against loss with appropriate cover being CH Wiese, chairman (non-executive) taken out above pre-determined self-insurance levels. JA Louw (non-executive) The Audit and Risk Committee has fulfilled its responsibilities under its JJ Fouché (non-executive) charter for the year under review. JW Basson (executive) Details of attendance at committee meetings during the reporting CG Goosen (executive) period are set out below: Details of the remuneration of directors are disclosed in note 26, 17 Aug 26 Nov 15 Feb 23 May pages 91 and 92 of the annual report. Name of director 2007 2007 2008 2008 The Group participates annually in market surveys, both locally and Non-executive directors those focusing on the rest of Africa, to ensure market-related salaries are JG Rademeyer (chairman) p p p P paid and market-related trends followed in changes to benefits, while at JJ Fouché p p p P the same time taking into account the intrinsic value of individual contribu- Executive directors tions. A substantial portion of remuneration of all managerial staff, espe- CG Goosen p p p P cially senior management, is linked to the performance of their respective A=Absent with apology, P=Present business units and of the Group as a whole. Risk Management Nomination Committee and Internal Control The Nomination Committee nominates suitable candidates and makes The Board accepts final responsibility for the risk management and internal recommendations with regard to the composition of the Board. control systems of the Group. It is the task of management to ensure ade- The following directors serve on the Nomination Committee, a sub- quate internal financial and operational control systems are developed and committee of the Board: maintained on an ongoing basis to provide reasonable assurance regarding: CH Wiese, chairman (non-executive) – the effectiveness and efficiency of operations; JA Louw (non-executive) – the safeguarding of the Group’s assets (including information); JJ Fouché (non-executive) – compliance with the applicable laws, regulations and supervisory requirements; Audit and Risk Committee – the reliability of the accounting records; The Audit and Risk Committee is chaired by an independent non-executive – business sustainability under normal as well as adverse conditions; and director and consists of two non-executive directors and one executive – responsible behaviour towards all stakeholders. director. The committee meets at least four times per year to evaluate, The efficiency of any internal control system is dependent on the compli- amongst others, accounting practices, internal control systems and auditing ance with prescribed measures. There is always a risk of non-compliance and financial reporting. Its task includes evaluating critical risk areas identi- of such measures by staff. Consequently, even a strict and efficient internal fied with the help of management and to report on these to the Board. control system can provide no more than a reasonable measure of assurance The committee operates under a formal charter approved by the in respect of the abovementioned objectives. Internal auditors monitor the Board. Committee members have unlimited access to all information. operation of the internal control and risk management systems and report to Certain members of management are invited to attend and give management and the Audit and Risk Committee on findings and recommen- feedback at committee meetings. The external auditors, the head of the dations. In addition, there is a self-assessment process supplementing the internal audit department and the company secretary attend these meet- existing structures of evaluating the systems of internal control. This includes ings and have unlimited access to the committee and its chairman. The the signing of a representation letter by the head of each department and chairman of the committee also holds separate meetings with the head of operating division regarding adherence to internal controls. A formal Risk the internal audit department and the external auditors when required, to Forum has been established where high risk issues are being addressed. ensure matters are considered without undue influence. All critical information technology (IT) systems and data are backed up. The Board, working through the committee, supervises the financial The disaster recovery plan has been documented and an automated off- reporting process. The Board is further responsible for ensuring that ade- site disaster recovery facility, focusing on the critical IT systems, has been quate ongoing procedures and processes exist to identify, evaluate, manage established and is operational. and monitor key business risks. This is managed by a formal Risk Forum The Board assessed the internal control systems throughout the finan- consisting of senior executive management and includes an enterprise-wide cial year ended 30 June 2008 and is of the opinion that they met accept- risk management plan (EWRM), which has been implemented in all busi- able criteria.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 45 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Corporate Responsibility Report | Corporate governance continued
Business Ethics in South Africa. The external auditors offer reasonable, but not absolute, and Organisational Integrity assurance on the accuracy of financial disclosure. The Group’s Code of Ethics commits it to the highest standards of integ- Consultation occurs between external and internal auditors to affect rity, conduct and ethics in its dealings with all parties concerned, including an efficient audit process. The external auditors are supplied with and also its directors, managers, employees, customers, suppliers, competitors, consider all reports issued by the internal audit department. investors, shareholders and the public in general. The directors and staff Details of non-audit services provided to the Group by the external are expected to fulfil their ethical obligations in such a manner that the auditors are set out in note 25, page 91 of the annual report. business is run strictly according to fair commercial competitive practice. A notification of the “closed period” regarding trading in the securities Internal Audit of the Group is circulated to all directors and senior executive managers of Internal audit is an independent, objective assurance and consulting activ- the Group and its subsidiaries in June and December every year. Closed ity designed to add value to the Group and improve operations. It helps periods are as follows: the Group accomplish its objectives by bringing a systematic, disciplined Interim results Year-end results approach to evaluate and improve risk management, control and govern- Trading in 25 December until profit 25 June until profit ance processes. securities announcement on SENS announcement on SENS Internal audit plans cover matters identified in risk management Discussions 1 December until profit 1 June until profit assessments as well as issues highlighted by the Board, the Audit and with analysts announcement on SENS announcement on SENS Risk Committee, executive directors and senior management. The internal audit department is responsible to the general manager: All dealings in Shoprite Holdings Ltd shares by both Company and sub- finance on day-to-day matters, but also quarterly reports directly to the sidiary company directors are reported on the JSE News Service (SENS) Audit and Risk Committee. within 48 hours of the trade having been made. All such trades must be The internal audit department comprises qualified personnel with pre-approved by an authorised director of the holding company. appropriate training and experience. The purpose, authority and respon- sibility of the independent internal audit activity are formally defined in an Financial Reporting and Auditing internal audit charter, which is updated regularly and approved by the Audit and Risk Committee. Financial Reporting Significant audit findings are reported to the Audit and Risk Committee. The directors accept final responsibility for the preparation of the annual Steps are taken to address shortcomings in control and other opportuni- financial statements which fairly present: ties for improving the system, whenever they are identified. All significant – the financial position of the Company and the Group as at the end of the business operations are subject to internal audit. year under review; During the year certain high-level internal audit functions are contracted – the financial results of operations; as well as out to external auditors with the approval of the Audit and Risk Committee. – the cash flows for that period. Such projects relate to isolated cases for which the internal audit depart- The responsibility for compiling the annual financial statements was ment does not possess the necessary capacity, skills or experience. delegated to management. The external auditors report on whether the annual financial statements are fairly presented. Going Concern The directors are satisfied that during the year under review: As the directors are of the opinion that the Group has sufficient resources – adequate accounting records were maintained; at its disposal to operate the business for the foreseeable future, the finan- – an effective system of internal controls and risk management, monitored cial statements have been prepared on a going-concern basis. by management, was maintained; The directors’ report, annual financial statements and group annual – appropriate accounting policies, supported by reasonable and prudent financial statements as set out on pages 50 to 110, have been approved judgements and estimates, were used consistently; and by the Board of Directors. – the financial statements were compiled in accordance with International Financial Reporting Standards and in the manner required by the Signed on behalf of the Board of Directors. Companies Act in South Africa. The directors are also satisfied that no material event has occurred between the financial year-end and the date of this report.
External Audit CH Wiese JW Basson The external auditors are responsible for reporting on whether the financial Chairman Chief Executive statements are fairly presented in accordance with International Financial Reporting Standards and in the manner required by the Companies Act 1 September 2008 1 September 2008
46 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Contents 48 Certificate by Company Secretary 48 Currency of Annual Financial Statements 49 auditor’s Report 50 Directors’ Report 52 balance Sheet 53 Income Statement 54 Statement of Changes in Equity 55 Cash Flow Statement 56 Notes to the Annual Financial Statements 56 accounting Policies 66 Segmental Analysis 68 Notes 110 Interests in Subsidiaries
Shoprite Holdings Limited and its Annual Financial Subsidiaries for the year ended Statements 30 June 2008
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 47 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Certificate by the Company Secretary | Shoprite Holdings LTD and its subsidiaries
In my capacity as the company secretary, I hereby confirm, in terms of the South African Companies Act, 1973, that for the year ended 30 June 2008, Shoprite Holdings Limited has lodged with the Registrar of Companies all such returns as are required of a public company in terms of this Act, and that all such returns are, to the best of my knowledge and belief, true, correct and up to date.
A N van Zyl 1 September 2008
Currency of Annual Financial Statements | Shoprite Holdings LTD and its subsidiaries
The annual financial statements are expressed in South African rand. The approximate rand cost of a unit of the following currencies at year-end was:
2008 2007 USA dollar ...... 7.956 ...... 7.100 Pound sterling ...... 15.808 . . . . . 14.225 Euro ...... 12.516 ...... 9.553 Zambia kwacha ...... 0.003 ...... 0.002 Mozambique metical ...... 0.321 ...... 0.273 Botswana pula ...... 1.216 ...... 1.139 Uganda shilling ...... 0.005 ...... 0.005 Malawi kwacha ...... 0.057 ...... 0.052 Mauritian rupee ...... 0.295 ...... 0.228 Angolan kwanza ...... 0.106 ...... 0.095 Indian rupee ...... 0.186 ...... 0.174 Ghanian cedi ...... 7.233 ...... 7.688 Madagascan ariary ...... 0.005 ...... 0.004 Nigerian naira ...... 0.068 ...... 0.056 Tanzania shilling ...... 0.007 ...... 0.006
48 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Independent Auditor’s Report | to the members of shoprite holdings ltd
We have audited the annual financial state- Auditor’s We believe that the audit evidence we have ments and group annual financial statements Responsibility obtained is sufficient and appropriate to provide of Shoprite Holdings Limited, which comprise Our responsibility is to express an opinion on a basis for our audit opinion. the directors’ report, the balance sheet and the these financial statements based on our audit. consolidated balance sheet as at 30 June 2008, We conducted our audit in accordance with Opinion the income statement and the consolidated International Standards on Auditing. Those In our opinion, the financial statements present income statement, the statement of changes standards require that we comply with ethical fairly, in all material respects, the financial in equity and the consolidated statement of requirements and plan and perform the audit position of the company and of the group as of changes in equity, the cash flow statement and to obtain reasonable assurance whether the 30 June 2008, and their financial performance the consolidated cash flow statement for the financial statements are free from material mis- and their cash flows for the year then ended in year then ended, and a summary of significant statement. accordance with International Financial Reporting accounting policies and other explanatory notes, An audit involves performing procedures to Standards and in the manner required by the as set out on pages 50 to 110. obtain audit evidence about the amounts and Companies Act of South Africa. disclosures in the financial statements. The Directors’ procedures selected depend on the auditor’s Responsibility for the judgement, including the assessment of the Financial Statements risks of material misstatement of the financial The company’s directors are responsible for the statements, whether due to fraud or error. In preparation and fair presentation of these finan- making those risk assessments, the auditor cial statements in accordance with International considers internal control relevant to the entity’s PricewaterhouseCoopers Inc Financial Reporting Standards and in the man- preparation and fair presentation of the financial Director: NH Döman ner required by the Companies Act of South statements in order to design audit procedures Registered Auditor Africa. This responsibility includes: designing, that are appropriate in the circumstances, but implementing and maintaining internal control not for the purpose of expressing an opinion on Cape Town relevant to the preparation and fair presentation the effectiveness of the entity’s internal control. 1 September 2008 of financial statements that are free from mate- An audit also includes evaluating the appropri- rial misstatement, whether due to fraud or error; ateness of accounting policies used and the selecting and applying appropriate accounting reasonableness of accounting estimates made policies; and making accounting estimates that by management, as well as evaluating the overall are reasonable in the circumstances. presentation of the financial statements.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 49 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Directors’ Report | Shoprite Holdings LTD and its subsidiaries
NATURE OF BUSINESS statement with reference to the segment report SPECIAL RESOLUTIONS The Company, which is incorporated in the and its financial statements set out on page 52 At the annual general meeting of Shoprite Republic of South Africa and listed on JSE to 110. Holdings Ltd held on 29 October 2007, Limited (“JSE”) is an investment holding shareholders approved the following special company. The attributable interest of Shoprite Holdings Ltd resolutions: in the taxed profits and losses of its subsidiaries The Group comprises for the period is as follows: General approval to the following main repurchase shares trading subsidiaries: 2008 2007 It was resolved that the Company and/or its R’000 R’000 subsidiaries be authorised by way of a general Shoprite Checkers (Pty) Ltd – Total profits 2 386 981 1 324 601 approval contemplated in sections 85(2) and controlling: Total losses 105 525 208 780 85(3) of the Companies Act, to acquire the issued ordinary shares of the Company, upon Supermarkets: The grocery, perishable, fruit DIVIDENDS such terms and conditions and in such amounts and vegetables, meat markets, delicatessen, as the directors of the Company may from time fast foods, non-food, liquor store, pharmacies Preference dividends to time determine, but subject to the Articles and money market activities, trading through Details are reflected in note 28 to the annual of Association of the Company, the provisions Shoprite, Shoprite Hyper, Checkers, Checkers financial statements. of the Act and the JSE Listings Requirements Hyper and Usave in South Africa, Namibia, and any other exchange on which the shares of Lesotho, Swaziland and Mauritius. Ordinary dividends the Company may be quoted or listed, where An interim cash dividend (no. 118) of 49,0 cents applicable. Franchise: The supermarket franchise business per share was paid on 17 March 2008. A final which encompasses three formats – OK Foods, dividend (no. 119) of 106,0 cents per share, Specific approval to OK Grocer and OK Minimark in South Africa, was payable on 29 September 2008, bringing repurchase shares Namibia and Botswana. the total dividends for the year to 155,0 cents It was resolved that the repurchase by the (2007: 101,0 cents) per ordinary share. Company of: Properties: Owns property strategically situated – up to 35 653 533 ordinary shares of 113.4 for its business in South Africa. SHARE CAPITAL cents each from Shoprite Checkers (Pty) Ltd, The authorised share capital remains unchanged a wholly owned subsidiary of the Company; Distribution: Distributes groceries and non- at 650 000 000 ordinary shares of 113,4 cents each. and food merchandise to its supermarket chains There was no movement in the number of – up to 506 036 ordinary shares of 113.4 cents nationally and internationally and fresh produce issued ordinary shares during the year, which each from the Shoprite Holdings Ltd Share to its supermarkets in South Africa. remains at 543 479 460 shares of 113,4 cents Incentive Trust; each. at such times and in such quantities as the Furniture: The retail of furniture through OK The deferred share capital remained directors may determine in their discretion Furniture, OK Power Express and House and Home. unchanged and is reflected in note 14 to the and at the ruling price for the ordinary shares annual financial statements. of the Company on the JSE at the relevant Shoprite International Ltd: time, be approved in terms of section 85 of Controls the retailing activities and owns strate- GOING CONCERN the Companies Act, subject to the Articles of gically situated properties outside South Africa These annual financial statements have been Association of the Company and the JSE Limited apart from the territories referred to above. prepared on a going concern basis. Listing Requirements. Shoprite Holdings Ltd’s interest in its The Board has performed a formal review subsidiaries is set out on page 110 of the annual of the Group’s results and its ability to continue DIRECTORS report. trading as a going concern in the foreseeable Dr C H Wiese, Messrs J J Fouché, J A Louw, future and based on this review, considers that B R Weyers and A N van Zyl retire as directors, GENERAL PREVIEW the presentation of the financial statements on in terms of paragraph 14.1 of the Articles of The Group’s headline earnings per share this basis is appropriate. Association of the Company, at the annual amounts to 309,9 cents for the year (2007: 201,6 general meeting. All the directors, except cents). Details of the profit of Shoprite Holdings Messrs J J Fouché and A N van Zyl, offer Ltd and the Group are contained in the income themselves for re-election as directors of the Company.
50 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Directors’ and alternate director’s interests in ordinary shares
Non- 2008 2007 Beneficial beneficial Total Total CH Wiese 82 352 472 — 82 352 472 77 987 548 JW Basson 4 925 511 — 4 925 511 4 925 511 JJ Fouche 872 171 — 872 171 872 171 CG Goosen 1 023 249 — 1 023 249 1 023 249 B Harisunker 456 360 — 456 360 456 360 TRP Hlongwane 16 557 — 16 557 15 057 AE Karp 60 750 — 60 750 — JA Louw 170 000 — 170 000 200 000 JF Malherbe 64 253 8 200 72 453 72 453 EL Nel 10 000 — 10 000 — JG Rademeyer 10 000 — 10 000 10 000 AN van Zyl 515 799 — 515 799 515 799 BR Weyers 325 000 — 325 000 275 000 JAL Basson 60 530 — 60 530 55 000 M Bosman 95 000 — 95 000 46 260 PC Engelbrecht 61 901 1 039 62 940 30 955 JD Wiese 14 074 — 14 074 14 074
Director’s interest in non-convertible, non-participating, no par value deferred shares
2008 2007 Total Total CH Wiese 276 821 666 276 821 666
AUDITORS HOLDING COMPANY PricewaterhouseCoopers Incorporated will The Company has no holding company. continue in office in accordance with Section 270 An analysis of the main shareholders of the (2) of the Companies Act. Company appears on page 111 of this report.
POST BALANCE SHEET LITIGATION STATEMENT EVENTS Dispute with South African Breweries: The Other than the facts and developments reported dispute between the Group and South African in this annual report, there have been no material Breweries regarding the purchase of OK Bazaars changes in the affairs or financial position of the (1929) Ltd has not yet been resolved. Company and the Group from 30 June 2008 to The directors are not aware of any legal or the date of this report. arbitration proceedings, including proceedings that are pending or threatened, that may have or have had in the recent past, being at least the previous 12 months, a material effect on the Company and Group’s financial position.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 51 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Balance Sheet | Shoprite Holdings LTD and its subsidiaries as at 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 Notes R’000 R’000 ASSETS non-CURRENT ASSETS — — Property, plant and equipment 3 4 502 928 3 804 159 1 392 131 1 518 359 Interests in subsidiaries 5 — — — — available-for-sale investments 6 37 548 23 738 — — Loans and receivables 7 4 056 43 990 56 108 Deferred tax assets 8 248 614 252 749 — — Intangible assets 9 319 825 277 901 — — Fixed escalation operating lease accrual 10 7 993 1 131 1 392 187 1 518 467 5 120 964 4 403 668 current ASSETS — — Inventories 11 4 707 394 3 699 199 2 871 3 353 Trade and other receivables 12 1 689 869 1 521 906 — — Derivative financial instruments 13 4 741 — 38 — Current tax assets 23 817 16 110 — — assets held for sale 4 107 389 220 139 147 205 225 792 Interests in subsidiaries 5 — — — — Loans and receivables 7 43 468 6 425 607 161 603 271 Cash and cash equivalents 3 156 641 2 012 226 757 275 832 416 9 733 319 7 476 005 2 149 462 2 350 883 TOTAL ASSETS 14 854 283 11 879 673 eQUITY capital AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS 616 583 616 583 Share capital 14 616 583 616 583 293 072 293 072 Share premium 293 072 293 072 — — Treasury shares 14 (277 538) (277 538) 1 232 629 1 429 411 Reserves 15 4 126 539 3 007 064 2 142 284 2 339 066 4 758 656 3 639 181 — — Minority interest 60 182 49 590 2 142 284 2 339 066 TOTAL EQUITY 4 818 838 3 688 771 LIABILITIES non-CURRENT LIABILITIES 2 450 2 450 borrowings 16 12 762 2 498 — — Deferred tax liabilities 17 16 241 8 803 — — Provisions 18 316 600 264 185 — — Fixed escalation operating lease accrual 19 439 762 448 702 — — Trade and other payables 20 55 666 — 2 450 2 450 841 031 724 188 current LIABILITIES 3 504 594 Trade and other payables 20 8 622 873 7 152 994 — — borrowings 16 10 137 — — — Derivative financial instruments 13 — 682 — 7 068 Current tax liabilities 425 899 216 224 — — Provisions 18 112 682 70 732 — — bank overdrafts 20 791 24 524 1 224 1 705 Shareholders for dividends 2 032 1 558 4 728 9 367 9 194 414 7 466 714 7 178 11 817 TOTAL LIABILITIES 10 035 445 8 190 902 2 149 462 2 350 883 TOTAL EQUITY AND LIABILITIES 14 854 283 11 879 673
52 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Income Statement | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 Notes R’000 R’000
— — Sale of merchandise 47 651 548 38 949 845 — — Cost of sales (38 161 987) (30 952 417)
— — GROSS PROFIT 9 489 561 7 997 428 174 209 705 430 Other operating income 21 982 770 798 454 — — Depreciation and amortisation 22 (596 841) (517 397) — — Operating leases 23 (1 122 522) (997 735) — — Employee benefits 24 (3 655 978) (3 100 627) (18 043) 2 530 Other expenses (2 800 440) (2 582 431)
156 166 707 960 TRADING PROFIT 2 296 550 1 597 692 (3 922) (56) Exchange rate gains/(losses) 33 187 23 725 5 165 122 811 Income of a capital nature 27 6 756 60 935
157 409 830 715 OPERATING PROFIT 25 2 336 493 1 682 352 51 048 64 363 Interest received 183 915 109 332 (126) (287) Finance costs 28 (59 149) (83 570)
208 331 894 791 PROFIT BEFORE TAX 2 461 259 1 708 114 (68 396) (73 008) Tax 29 (875 570) (622 586)
139 935 821 783 PROFIT FOR THE YEAR 1 585 689 1 085 528
attributable TO: 139 935 821 783 Equity holders of the Company 1 570 252 1 076 071 — — Minority interest 15 437 9 457 139 935 821 783 1 585 689 1 085 528 Earnings per share (cents) 30 309.5 212.1 Diluted earnings per share (cents) 30 298.3 203.9 81.0 115.0 Ordinary dividends per share paid (cents) 31 115.0 81.0
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 53 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Statement of
Changes in Equity | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Attributable to equity holders Total Minority Share Share Treasury Other Retained R‘000 Notes equity Interest Total capital premium shares reserves earnings GROUP bALANCE AT 1 July 2006 3 082 868 47 005 3 035 863 616 583 293 072 (277 318) 278 255 2 125 271
Total recognised income 1 103 845 9 457 1 094 388 — — — 18 317 1 076 071
Profit for the year 1 085 528 9 457 1 076 071 1 076 071 Recognised in equity Net fair value movement on available-for-sale investments 15 30 828 30 828 30 828 Tax effect of net fair value movement on available-for-sale investments 15 382 382 382 Realisation of profits on disposal of listed investment 15 (33 459) (33 459) (33 459) Foreign currency translation differences 15 20 566 20 566 20 566
Cash settlement of share options 14 (79 927) (79 927) (79 927) Net movement in treasury shares 14 (220) (220) (220) Transfer to contingency reserve 15 — — 2 952 (2 952) Dividends distributed to shareholders (417 795) (6 872) (410 923) (410 923) bALANCE AT 30 JUNE 2007 3 688 771 49 590 3 639 181 616 583 293 072 (277 538) 299 524 2 707 540
Total recognised income 1 780 671 15 437 1 765 234 — — — 194 982 1 570 252
Profit for the year 1 585 689 15 437 1 570 252 1 570 252 Recognised in equity Net fair value movement on available-for-sale investments 15 13 810 13 810 13 810 Tax effect of net fair value movement on available-for-sale investments 15 (1 815) (1 815) (1 815) Foreign currency translation differences 15 182 987 182 987 182 987
Cash settlement of share options 14 (62 341) (62 341) (62 341) Transfer to contingency reserve 15 — — 1 731 (1 731) Dividends distributed to shareholders (588 263) (4 845) (583 418) (583 418) bALANCE AT 30 JUNE 2008 4 818 838 60 182 4 758 656 616 583 293 072 (277 538) 496 237 3 630 302
COMPANY BALANCE AT 1 July 2006 2 442 567 2 442 567 616 583 293 072 — 16 505 1 516 407
Total recognised income Profit for the year 139 935 139 935 139 935
Dividends distributed to shareholders (440 218) (440 218) (440 218) bALANCE AT 30 JUNE 2007 2 142 284 2 142 284 616 583 293 072 — 16 505 1 216 124
Total recognised income Profit for the year 821 783 821 783 821 783
Dividends distributed to shareholders (625 001) (625 001) (625 001) bALANCE AT 30 JUNE 2008 2 339 066 2 339 066 616 583 293 072 — 16 505 1 412 906
54 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Cash Flow Statement | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 Notes R’000 R’000
CASH FLOWS FROM/(UTILISED BY) (329 209) 78 170 OPERATING ACTIVITIES 2 235 343 2 557 068
157 409 830 715 Operating profit 2 336 493 1 682 352 (174 209) (705 137) Less: investment income (27 760) (7 712) (983) (122 755) Non-cash items 32.1 709 744 548 150 — — Payments for cash settlement of share options (128 615) (62 021) (161) (3 392) Changes in working capital 32.2 396 885 1 304 638 (17 944) (569) Cash generated from/(utilised by) operations 3 286 747 3 465 407 54 368 64 394 Interest received 205 331 113 222 (126) (287) Interest paid (59 149) (83 570) 170 889 705 106 Dividends received 6 344 3 822 (439 973) (624 520) Dividends paid 32.3 (587 789) (417 461) (96 423) (65 954) Tax paid 32.4 (616 141) (524 352) CASH FLOWS (UTILISED BY)/ 330 748 (82 060) FROM INVESTING ACTIVITIES 32.5 (1 167 589) (1 109 298)
— — CASH FLOWS FROM FINANCING ACTIVITIES 32.6 20 497 99
NET INCREASE/(DECREASE) IN 1 539 (3 890) CASH AND CASH EQUIVALENTS 1 088 251 1 447 869 605 622 607 161 Cash and cash equivalents at the beginning of the year 1 987 702 536 704 — — Effect of exchange rate movements on cash and cash equivalents 59 897 3 129
607 161 603 271 CASH AND CASH EQUIVALENTS AT the END OF THE YEAR 3 135 850 1 987 702
Consisting of: 607 161 603 271 Cash and cash equivalents 3 156 641 2 012 226 — — bank overdrafts (20 791) (24 524) 607 161 603 271 3 135 850 1 987 702
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 55 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
1 accountinG POLICIES The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below and are consistent with those applied in the previous year. The consolidated Group’s and separate Company’s financial statements were authorised for issue by the Board of Directors on 1 September 2008.
1.1 basis of preparation The financial statements are prepared in accordance with and comply with International Financial Reporting Standards (IFRS) and the South African Companies Act (Act No 61 of 1973), as amended. The financial statements are prepared under the historical cost convention, as modified by the revaluation of certain financial instruments to fair value.
1.1.1 use of assumptions and estimates The preparation of the financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are mainly the impairment of tangible and intangible assets; the estimation of useful lives and residual values of property, plant and equipment and intangible assets, and establishing uniform depreciation and amortisation methods; the valuation of inventory using the retail inventory method; the likelihood that deferred and income taxes can be realised; the probability of doubtful debts; parameters for measuring employee benefit provisions; classification of certain operations as discontinued and insur- ance transactions. The key estimates and assumptions relating to these areas are disclosed in the relevant notes to the financial statements. all estimates and underlying assumptions are based on historical experience and various other factors that management believes are reasonable under the circumstances. The results of these estimates form the basis of judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and any affected future periods.
1.1.2 use of adjusted measures The measures listed below are presented as management believes it to be relevant to the understanding of the Group’s financial performance. These measures are used for internal performance analysis and provide additional useful information on underlying trends to equity holders. These measures are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other entities. It is not intended to be a substitute for, or superior to, measures as required by IFRS. a) Trading profit on the face of the income statement, being the Group’s operating results excluding exchange rate differences and income or expenditure of a capital nature. b) Income or expenditure of a capital nature on the face of the income statement, being all re-measurements as taken into account in the calculation of headline earnings per share. The principal items that will be included under this measurement are: gains and losses on disposal and scrapping of property, plant and equipment, intangible assets and assets held for sale; impairments or reversal of impairments; any non-trading items such as gains and losses on disposal of investments, operations and subsidiaries. c) Interest received on the face of the income statement, being only interest received on call and operating bank account balances.
1.2 Group accounting 1.2.1 subsidiaries Subsidiaries are entities (including special purpose entities) which are, directly or indirectly, controlled by the Group. Control is established where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The purchase method of accounting is used to account for the acquisition. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired as well as liabilities and contingent liabilities assumed in a business combination are measured initially at its fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of the acquisition over the fair value of the Group’s share of the identifiable net assets of the subsidiary acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. A subsidiary is consolidated from the date on which control is transferred to the Group and is no longer consolidated from the date that the entity ceases to comply with the definition of a subsidiary. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. All intergroup transactions and balances between Group companies have been eliminated.
1.2.2 joint ventures Joint ventures are those entities over which the Group exercises joint control in terms of a contractual agreement. The Group’s interests in jointly
56 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb controlled entities are accounted for by proportionate consolidation. The Group combines its proportionate share of the assets, liabilities, revenue, income and expenses, on a line-for-line basis, with similar items in the financial statements of the Group. The results of joint ventures are included in the Group’s annual financial statements from the effective date of joint control until the effective date that joint control ceases. Where applicable, accounting policies applied by joint ventures have been changed to ensure consistency with the policies adopted by the Group.
1.3 foreign currency translation 1.3.1 functional and presentation currency all items in the financial statements of the Group’s subsidiaries and joint ventures are measured using the currency of the primary economic environ- ment in which the entity operates (the functional currency). The Group’s consolidated financial statements are presented in rand, which is Shoprite Holdings Ltd’s functional and presentation currency.
1.3.2 transactions and balances Foreign currency transactions are translated into the functional currency using the average exchange rates for the relevant month. These average exchange rates approximate the spot rate at the date of the transaction. Gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at closing rates, are recognised in the income statement.
1.3.3 foreign subsidiaries and joint ventures The results and the financial position of all Group subsidiaries and joint ventures that have a functional currency that is different from the presentation currency of the Group are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (ii) income and expenses for each income statement presented are translated at the average exchange rates for the period presented; and (iii) all resulting translation differences are recognised as a separate component of equity in the foreign currency translation reserve (FCTR).
On consolidation exchange rate differences arising from the translation of the net investment in foreign subsidiaries are also taken to the FCTR. When a foreign operation is sold all related exchange rate differences in the FCTR are recognised in the income statement as part of the profit or loss on the sale of the operation. The Group’s net investment in a subsidiary is equal to the equity investment plus all monetary items that are receivable from the subsidiary, for which settlement is neither planned nor likely to occur in the foreseeable future. Goodwill and fair value adjustments arising on the acquisition of a foreign subsidiary are treated as assets and liabilities of the foreign subsidiary and are translated at the closing rate.
1.4 property, plant and equipment Property, plant and equipment are tangible assets held by the Group for use in the supply of goods, rental to others or administrative purposes and are expected to be used during more than one period. All property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment. The historical cost includes all expenditure that is directly attributable to the acquisition of the buildings, machinery, equipment and vehicles and is depreciated on a straight-line basis, from the date it is available for use, at rates appropriate to the various classes of assets involved, taking into account the estimated useful life and residual values of the individual items. Land is not depreciated, as it has an unlim- ited useful life. Improvements to leasehold properties are shown at cost and written off over the remaining period of the lease. Management determines the estimated useful lives, residual values and the related depreciation charges at acquisition and these are reviewed at each balance sheet date. If appropriate, adjustments are made and accounted for prospectively as a change in estimate.
useful lives: buildings...... 20 years Equipment ...... 5 to 10 years Machinery...... 5 to 10 years Computer equipment...... 3 years Vehicles ...... 5 to 10 years Aeroplane...... 15 years Trolleys...... 3 years
The cost of major refurbishments is capitalised as property, plant and equipment to the extent that it can be recovered from future use of the assets. The capitalised amounts are depreciated over the relevant write-off periods. All other repairs and maintenance are charged to the income statement during the period in which these are incurred. Gains and losses on disposal or scrapping of property, plant and equipment, being the difference between the net proceeds on disposal or scrapping and the carrying amount, are recognised in the income statement.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 57 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
1.5 financial instruments The Group classifies its financial instruments in the following categories: available-for-sale financial assets, loans and receivables, financial liabilities and derivatives at fair value through profit and loss. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition and re-evaluates such designations at each balance sheet date. The Group assesses at each balance sheet date whether there is objective evidence that a financial instrument or a group of financial instru- ments is impaired. Financial instruments carried on the balance sheet include cash and cash equivalents, investments, accounts receivable, instalment sales receiva- bles, accounts payable, borrowings and derivatives. The particular recognition methods adopted are disclosed in the individual policy statements associ- ated with each item. Financial assets are derecognised when the contractual rights to the cash flows from the financial assets expire or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when they are extinguished, i.e. when the contractual obligation is discharged, cancelled or expires.
1.6 Derivative financial instruments Derivatives, being forward foreign exchange rate contracts, categorised as at fair value through profit or loss, are either current assets or current liabili- ties. Purchases and settlements of derivative financial instruments are initially recognised on the trade date at fair value and are subsequently carried at fair value. Transaction costs are expensed as it is incurred. Realised and unrealised gains and losses arising from changes in the fair value of derivative financial instruments are included in the income statement as other income or other expenses in the period in which they arise. The fair value of for- ward foreign exchange rate contracts is determined using exchange rates at the balance sheet date. The Group does not apply hedge accounting.
1.7 available-for-sale financial assets The Group’s listed and unlisted equity investments are classified as financial assets available-for-sale. Purchases and sales of available-for-sale invest- ments are recognised on the trade date at fair value, including transaction costs. Investments are subsequently carried at fair value. Realised and unrealised gains and losses arising from changes in the fair value of these investments are recognised in equity. When available-for-sale investments are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as gains and losses from the disposal of investments. These investments are included in non-current assets, unless management intends to dispose of the investments within 12 months of the balance sheet date. Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of other income. Dividends on available-for-sale equity instruments are recognised in the income statement as part of other income when the Group’s right to receive payments is established. The fair value of these investments are based on quoted transaction prices (for listed investments) or the underlying net asset value (for unlisted investments). If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using recognised valua- tion techniques. For the purposes of impairment testing a significant or prolonged decline in the fair value of the security below its cost is considered as an indica- tor that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the differ- ence between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses on equity instruments recognised in the income statement are not reversed through the income statement.
1.8 loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable and purchases and sales are recognised at trade date at fair value, including transaction costs. Loans and receivables are subsequently carried at amortised cost using the effective-interest method. These financial assets are included under current assets unless it matures later than 12 months after balance sheet date. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the loans and receivables carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate applicable to the relevant loans and receivables. The carrying amount will be reduced and the loss recognised in the income statement. The Group’s investments in preference shares are regarded as loans and receivables and, if denominated in foreign currencies, are translated at closing rates. Gains or losses resulting from the translation are recognised in the income statement. Investment income resulting from preference share investments is recognised in the income statement as interest received.
58 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb 1.9 investments in subsidiaries The Company’s investments in the shares of its subsidiaries are carried at cost less impairment losses and, if denominated in foreign currencies, are translated at historical rates. Purchases and sales of these investments are recognised on the trade date at cost, including transaction costs.
1.10 Deferred tax Deferred tax is provided, using the liability method, for calculated tax losses and temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. However, the deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss. Currently enacted tax rates are used to determine deferred tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which temporary differences can be utilised. Management applies judgement to determine whether sufficient future taxable profit will be available after considering, amongst others, factors such as profit histories, forecasted cash flows and budgets. Deferred tax is provided on temporary differences arising on the consolidation of investments in subsidiaries and joint ventures, except where the timing of the reversal of the temporary difference can be controlled by the Group, and it is probable that the temporary difference will not reverse in the foreseeable future. The Group is subject to taxes in numerous jurisdictions. Significant judgement is required in determining worldwide provision for taxes. There are many transactions and calculations during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recog- nises liabilities for anticipated tax audit issues based on best informed estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
1.11 Intangible assets 1.11.1 Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary or operation at the date of acquisition. Goodwill denominated in a foreign currency is translated at closing rates. Goodwill is tested for impairment annually and whenever there is indication of impairment. Goodwill is carried at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units (CGUs) for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. Each of those CGUs represents the Group’s investment in a trading unit or a group of trading units. Gains and losses on the disposal of an entity that has related goodwill include the carrying amount of the related goodwill.
1.11.2 Software Software represents all costs incurred to acquire the assets and bring it into use. These costs are amortised over the estimated useful life of the relevant software, being between three and seven years, on a straight-line basis. Costs associated with implementing or maintaining software are recognised as an expense when incurred. Costs that are directly associated with the production of identifiable and unique software controlled by the Group, and that will probably generate future economic benefits beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Software’s useful lives are reviewed at each balance sheet date. If appropriate, adjustments are made and accounted for prospectively as a change in estimate.
1.11.3 Trademarks Trademarks and licences are initially shown at historical cost, have a definite useful life and are subsequently measured at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of trademarks and licences over their estimated useful lives, being 20 years. The useful lives are reviewed at each balance sheet date. If appropriate, adjustments are made and accounted for prospectively as a change in estimate.
1.12 Non-current assets held for sale Non-current assets and/or disposal groups are classified as assets held for sale and are stated at the lower of the carrying amount and fair value, less costs to sell if their carrying amount will be recovered principally through a sale transaction rather than through continued use.
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Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
1.13 Inventories Trading inventories are stated at the lower of cost, using the weighted average cost formula, and net realisable value. The weighted average cost formula is determined by applying the retail inventory method. The cost of merchandise is the net of: invoice price of merchandise; insurance; freight; customs duties; an appropriate allocation of distribution costs; trade discounts; rebates and settlement discounts. The retail method approximates the weighted average cost and is determined by reducing the sales value of the inventory by the appropriate percentage gross margin. The percent- age used takes into account inventory that has been marked down below original selling price. An average percentage per retail department is used. Net realisable value is the estimated selling price in the ordinary course of business.
1.14 Trade and other receivables Trade and other receivables are recognised at trade date at fair value. Subsequent recognition is measured at amortised cost using the effective- interest method, less accrual made for impairment of these receivables. An accrual for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial dif- ficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the accrual is the difference between the carrying amount and the recoverable amount, being the present value of the expected cash flows, discounted at the original effective interest rate. Any resulting impair- ment losses are included in other expenses in the income statement. The impairment of instalment sale receivables are done on a collective basis due to the wide-spread customer base. When a receivable is uncollectible, it is written off against the accrual for impairment for receivables. Subsequent recoveries of amounts previously written off are recognised in the income statement.
1.15 Leases 1.15.1 Where the Group is the lessee Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Certain premises and other assets are leased. Payments made in respect of operating leases with a fixed escalation clause are charged to the income statement on a straight-line basis over the lease term. All other lease payments are expensed as they become due. Incentives paid to enter into a lease agreement are expensed in the income statement as operating lease expense over the lease term. Minimum rentals due after year-end are reflected under commitments. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense and any unamortised portion of the fixed escalation lease accrual is recognised in the income statement in the period in which termination takes place.
1.15.2 Where the Group is the lessor Portions of owner-occupied properties and leased properties are leased or subleased out under operating leases. The owner-occupied properties are included in property, plant and equipment in the balance sheet. Rental income in respect of operating leases with a fixed escalation clause is recognised on a straight-line basis over the lease term. Incentives received to enter into a lease agreement are released to the income statement as operating lease income over the lease term. All other rental income is recognised as it becomes due. When an operating lease is terminated before the lease period has expired, any payment received from the lessee by way of penalty is recog- nised as income and any unamortised portion of the fixed escalation lease accrual is recognised in the income statement in the period in which termination takes place.
1.16 Cash and cash equivalents and bank overdrafts Cash and cash equivalents and bank overdrafts are carried at cost and, if denominated in foreign currencies, are translated at closing rates. Cash comprises cash on hand and cash at banks. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. Bank overdrafts are disclosed separately on the face of the balance sheet.
1.17 Share capital Ordinary shares and non-convertible, non-participating deferred shares, including incremental costs directly attributable to the issue of new shares, are both classified as equity. Where entities controlled by the Group purchase the Company’s shares, the consideration paid, including attributable transaction costs net of income taxes, is deducted from capital and reserves attributable to equity holders as treasury shares until they are sold. Where such shares are sub- sequently sold, any consideration received is included in capital and reserves attributable to equity holders. Dividends received on treasury shares are eliminated on consolidation.
60 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb 1.18 Borrowings borrowings are recognised initially at fair value, net of transactions costs incurred. Borrowings are subsequently stated at amortised cost and any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has the unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Preference shares, which carry non-discretionary dividend obligations, are classified as non-current liabilities at amortised cost. Amortised cost is calculated using the effective interest method. The dividends on these preference shares are recognised in the income statement as finance costs.
1.19 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. The Group has discounted provisions to their present value where the effect of the time value of money is material. The notional interest charge rep- resenting the unwinding of the provision discounting is included in the income statement.
1.19.1 Onerous lease contracts The Group recognises a provision for onerous lease contracts when the expected benefits, including subleasing income, to be derived from non-cancella- ble operating lease contracts are lower than the unavoidable costs of meeting the contract obligations. The unavoidable contracted costs are applied over the remaining periods of the relevant lease agreements with an estimated average of three years. The notional interest charge relating to the unwinding of the provisions discounting is included in the income statement as finance costs.
1.19.2 Provision for outstanding insurance claims The Group recognises a provision for the estimated direct cost of settling all outstanding claims at year-end. The provision for outstanding claims at year-end includes a provision for cost of claims incurred but not yet reported at year-end as well as for the cost of claims reported but not yet settled at year-end. The provision for cost of claims incurred but not yet reported (IBNR) at year-end is determined by using established claims patterns. Full provision is made for the cost of claims reported but not yet settled at year-end by using the best information available.
1.19.3 Post-retirement medical benefits Refer accounting policy 1.21.2.
1.19.4 Long-term employee benefits Long-term employee benefits are provided to employees who achieve certain predetermined milestones of service within the Group. The Group’s obli- gation under these plans is valued by independent qualified actuaries at year-end and the corresponding liability is raised. Payments are set off against the liability. Movements in the liability, including notional interest, resulting from the valuation by the actuaries are charged against the income statement as employee benefits upon valuation.
1.19.5 Reinstatement provision Where it has a contractual obligation in respect of certain operating lease agreements, the Group provides for expected reinstatement costs to be incurred at the expiry of the lease. This provision is mainly expected to be utilised within the next financial year.
1.20 Payables Trade and other payables are recognised initially at fair value and subsequently at amortised cost using the effective interest method. Financial guarantee contracts are recognised initially at fair value and subsequently at the higher of: the initially recognised fair value, less appropriate cumulative amortisation recognised on a straight-line basis over the estimated duration of the contract, or an amount calculated in terms of note 1.19. When the financial guarantee contract is issued by the Company to a subsidiary the fair value at initial recognition is capitalised as part of the investment in the relevant subsidiary.
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Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
1.21 Employee benefits 1.21.1 Pension obligations Group companies operate various pension schemes. The schemes are funded through payments to trustee-administered funds in accordance with the plan terms.
Provident fund a defined-contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Group’s contributions to defined contribution plans in respect of services rendered in a particular period are recognised as an expense in that period. Additional contributions are recognised as an expense in the period during which the associated services are rendered by employees.
1.21.2 Post-retirement medical benefits The Group provides for post-retirement medical benefits, where they exist. The expected costs of these benefits are accrued over the period of employment based on past services and charged to the income statement as employee benefits. This post-retirement medical benefit obligation is measured at present value by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid and that have the terms to maturity approximating the terms of the related post-employment liability. The future cash outflows are estimated using amongst others the following assumptions: health-care cost inflation; discount rates; salary inflation and promotions and experience increases; expected mortality rates; expected retirement age; and continuation at retirement. Valuations of this obligation are carried out annually by independent qualified actuaries in respect of past-service liabilities using the projected unit credit method. Actuarial gains or losses are recognised immediately in the income statement as employee benefits.
1.21.3 Equity and cash-settled share-based payments a) Share purchase and share option scheme The Group operates an equity-settled share incentive scheme through The Shoprite Holdings Ltd Share Incentive Trust. Shares are offered under a share purchase and a share option scheme and can be taken up over a period of two to seven years, subject to specific conditions. The beneficiaries under the scheme are executive directors and management. The fair value of the employee services received in exchange for the grant of options is recognised as an expense on a straight-line basis over the vesting period, with a corresponding increase in the share-based payment reserve. The fair value is determined with reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revi- sion of original estimates, if any, in the income statement, and a corresponding adjustment to equity. The proceeds received net of any directly attrib- utable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. If treasury shares are used to equity-settle options the cost of these shares including transaction costs, net of any proceeds received, are recognised as an employee benefit expense in the income statement in the period in which the options are exercised. The effect of all options issued under the share option scheme is taken into account when calculating diluted earnings and diluted headline earn- ings per share. b) Cash-settled share-based payments The Group recognises a liability for cash-settled share-based payments calculated at current fair value determined at each balance sheet date. The fair value is calculated using relevant pricing models. This amount is expensed through the income statement over the vesting periods.
1.21.4 Bonus plans The Group recognises a liability and an expense for bonuses, based on formulas that take into consideration the Group’s trading profit after certain adjust- ments. The accrual for this liability is made where a contractual or constructive obligation exists.
1.22 Impairment of non-financial assets Non-financial assets that have an indefinite life are not subject to depreciation and amortisation and are tested for impairment at each balance sheet date. Assets that are subject to depreciation and amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the full carrying amount may not be recoverable. The determination of whether an asset is impaired requires significant management judgement and, amongst others, the following factors will be considered: duration and extent to which the fair value of the assets is less than its cost; industry, geographical and sector performance; changes in regional economies; and operational and financing cash flows. Where the carrying value of an asset exceeds its estimated recoverable amount, the carrying value is impaired and the asset is written down to its recoverable amount. The recoverable amount is calculated as the higher of the asset’s fair value less cost to sell and the value in use. These calculations
62 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb are prepared based on management’s assumptions and estimates such as forecasted cash flows; management budgets and industry, regional and geo- graphical operational and financial outlooks. For the purpose of impairment testing the assets are allocated to cash-generating units (CGUs) or a group of CGUs. CGUs are the lowest levels for which separately identifiable cash flows can be determined. The related impairment expense is charged to the income statement as expenses of a capital nature. The Group assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for an asset other than goodwill may no longer exists or may have decreased. If any such indication exist the Group will immediately recognise the reversal as income of a capital nature in the income statement. An impairment loss recognised for goodwill shall not be reversed in a subsequent period.
1.23 Revenue recognition Revenue comprises the fair value for the sale of merchandise from ordinary Group-operating activities, net of value added tax, rebates and discounts and after eliminating sales within the Group. Sales are recognised upon delivery of products and customer acceptance. Payment is usually received via cash, debit card or credit card. Related card transaction costs are recognised in the income statement as other expenses. When merchandise are sold under instalment sale agreements, the present value of the instalment sale payments is recognised as a receivable.
1.24 Other operating income Other operating income is recognised as follows:
1.24.1 Finance income earned When merchandise are sold under instalment sale agreements, the present value of the instalment sale payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Finance income is recog- nised over the term of the instalment sale using the effective-interest method, which reflects a constant periodic rate of return.
1.24.2 Rental income Rental income in respect of operating leases with a fixed escalation clause is recognised on a straight-line basis over the lease term. All other rental income is recognised as it becomes due. Refer note 1.15.2.
1.24.3 Franchise fees received Franchise fees received comprises fees received from franchisees and are recognised when the underlying sales, which give rise to the income, occur.
1.24.4 Premium income Premium income is recognised in the period it is earned. Net premiums earned are all written premiums relating to policies incepted during the period less amounts that are unearned at balance sheet date. Refer note 1.30.2.
1.24.5 Interest income Interest income is recognised as it accrues, taking into account the effective yield on the related asset.
1.24.6 Dividend income Dividend income is recognised when the shareholders’ right to receive payment is established.
1.24.7 Gift vouchers and savings stamps Proceeds from the sale of gift vouchers and saving stamps are initially recognised in other payables, deferring the income. The income is recognised as cash sales of goods when the gift vouchers or savings stamps are redeemed.
1.24.8 Commission received The Group acts as a payment office for the services and products provided by a variety of third parties to the Group’s customers. The agent’s commissions received by the Group from the third parties for the payment office service are recognised as other income. Commissions relating to third-party products are recognised when the underlying third-party payments take place. Commissions relating to third-party services are recognised based on the stage of completion by reference to services performed to date as a percentage of the total services to be performed.
1.25 Borrowing costs all borrowing costs, being interest cost incurred by the Group when borrowing funds, are recognised as finance costs and expensed in the period in which it is incurred.
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Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
1.26 Current and deferred income tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group operate and generate taxable income. Dividends declared by South African companies within the Group are subject to secondary tax on companies (“STC”). The STC expense is included in the income statement in the period that the related dividend is paid. Deferred income tax is calculated and recognised in terms of note 1.10.
1.27 Earnings per share Earnings and headline earnings per share are calculated by dividing the profit attributable to equity holders of the Group and headline earnings, respec- tively, by the weighted average number of ordinary shares in issue during the year, excluding the ordinary shares held by the Group as treasury shares. For the diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all ordinary shares with dilutive potential. Share options, issued in terms of the share option scheme, have dilutive potential. For the share options a calculation is done to determine the number of shares that could have been acquired, at the closing market price, based on the monetary value of subscription rights attached to outstanding share options in order to determine the “bonus” element; the “bonus” shares are added to the ordinary shares in issue. No adjustment is made to profit, as the options have no income statement effect.
1.28 Government grants Government grants, being assistance by government in the form of tax allowances and refunds for certain expenditure, are recognised at fair value when the Group complies with the conditions attached to the grants and the grants have been received. The grants are recognised, on a systematic basis, in the income statement as a deduction of the related expense over the periods necessary to match them with the related costs or as a tax allowance deducted from tax in the income statement.
1.29 Dividends distributed to shareholders Dividends are accounted for in the period in which they are approved by the Company’s shareholders.
1.30 Basis of accounting for underwriting activities 1.30.1 Classification of contracts Contracts under which the Group accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder or other beneficiary, are classified as insurance contracts. an insurance risk is deemed significant if, and only if, an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance. If significant additional benefits would be payable in scenarios that have commercial substance, the condition in the previous sentence may be met even if the insured event is extremely unlikely or even if the expected (i.e. probability weighted) present value of contingent cash flows is a small proportion of the expected present value of all the remaining contractual cash flows.
1.30.2 Recognition and measurement of contracts a) Premiums arising from general insurance business Gross written premiums comprise the premiums on insurance contracts entered into during the year. Premiums are disclosed gross of commission payable to intermediaries and exclude taxes and levies based on premiums. Premiums are accounted for as income when the risk related to the insurance policy incepts. b) Unearned premium accrual The accrual for unearned premiums comprises the proportion of gross premiums written which relate to the unexpired period at the reporting date and is estimated to be earned in the following or subsequent financial years. The unearned premium accrual is computed separately for each insurance contract on a time-apportionment basis. c) Claims arising from insurance business Claims incurred in respect of insurance contracts consist of claims and claims-handling expenses paid during the financial year together with the movement in the provision for incurred but not reported claims. Provisions for incurred but not reported claims comprise provisions for claims arising from insured events that incurred before the balance sheet date, but which had not been reported to the Group by that date. d) Contingency reserve a contingency reserve is maintained in terms of the Insurance Act, 1998. The utilisation of this reserve, in case of a catastrophe, is subject to the approval of the Financial Services Board. Transfers to this reserve are reflected in the statement of changes in equity, and are indicated in the balance sheet as a non-distributable reserve under capital and reserves. The contingency reserve is calculated as 10% of net written premiums.
64 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb e) Reinsurance The Group has evaluated its exposure to risk and determined that reinsurance protection is not required. f) Liabilities and related assets under liability adequacy test a t each balance sheet date, liability adequacy tests are performed on the Group’s Insurance entities to ensure the adequacy of the contract liabilities net of related deferred acquisition cost (DAC) and any related assets (i.e. the value of business acquired assets (VOBA)). In performing these tests, current best estimates of future contractual cash flows and claims-handling and administration expenses, as well as investment income from the assets backing such liabilities, are used. Any deficiency is immediately charged to profit or loss initially by writing off DAC or VOBA and by subsequently establishing a provision for losses arising from liability adequacy tests (the unexpired risk provision). g) Other operating income recognition Refer note 1.24.4.
1.31 Related parties Individuals, as well as their close family members, or entities are related parties if one party has the ability, directly or indirectly, to control or jointly control the other party or exercise significant influence over the other party in making financial and/or operating decisions or if the parties are jointly controlled. Key management personnel is defined as all directors of Shoprite Holdings Ltd and the main trading subsidiary (Shoprite Checkers (Pty) Ltd) of the Group.
1.32 Standards, interpretations and amendments that are not yet effective at 30 June 2008 The Group has considered the following new standards, and interpretations and amendments to existing standards, that are not yet effective as at 30 June 2008: – IFRS 8: Operating Segments (effective for the year ending June 2010) – I AS 23: Amendment to Borrowing Costs (effective for the year ending June 2010) – I AS 1: Amendment to IAS 1 Presentation of Financial Statements: Capital Disclosures (effective for the year ending June 2010) – I AS 27: Amendment to IAS 27 Consolidated and Separate Financial Statements (effective for the year ending June 2011) – IFRS 3: Amendment to IFRS 3 Business Combinations (effective for the year ending June 2011) – IFRS 2: Amendment to IFRS 2 Share-Based Payment: Vesting Conditions and Cancellations (effective for the year ending June 2010) – IAS 32 and IAS 1: Amendment to IAS 32 Financial Instruments: Presentation and IAS 1 Presentations of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation (effective for the year ending June 2010) – Improvements to Statements of Generally Accepted Accounting Practice (effective for the year ending June 2010) – IFRIC Interpretation 12: Service Concessions Arrangements (effective for the year ending June 2009) – IFRIC Interpretation 13: Customer Loyalty Programmes (effective for the year ending June 2010) – IFRIC Interpretation 14: IAS 19 – The Limit on a Defined benefit Asset, Minimum Funding Requirements and their Interaction (effective for the year ending June 2009) – amendments to IFRS 1: First-time Adoption of International Financial Reporting Standards and IAS 27: Consolidated and Separate Financial Statements: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective for the year ending June 2010) – IFRIC 15: Agreements for the Construction of Real Estate (effective for the year ending June 2010) – IFRIC 16: Hedges of a Net Investment in a Foreign Operation (effective for the year ending June 2010) The Group has not early adopted any of the above and the application thereof in future financial periods is not expected to have a significant impact on the Group’s reported results, financial position and cash flows. IFRS 8: Operating Segments extends the scope of segmental reporting and will require additional per segment disclosures by the Group.
1.33 Standards, interpretations and amendments effective at 30 June 2008 The following new standards, and interpretations and amendments to existing standards, that are effective as at 30 June 2008 had no effect on the Group’s operations: – IFRIC Interpretation 10: Interim Financial Reporting and Impairment (effective for the year ending June 2008) – IFRIC Interpretation 11: IFRS2 Group and Treasury Share Transactions (effective for the year ending June 2008)
The following new standards, and interpretations and amendments to existing standards, that are effective as at 30 June 2008 had no effect on the Group’s operations, but resulted in additional disclosures with specific reference to sensitivity analysis to market risk and capital management disclosures: – IFRS 7: Financial Instruments: Disclosures (effective for the year ending June 2008) – I AS 1: Amendment to IAS 1 Presentation of Financial Statements: Capital Disclosures (effective for the year ending June 2008)
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Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
2 seGMENTAL ANALYSIS 2.1 Definitions business segment A business segment is a distinguishable component of an entity, engaged in delivering products and services, that are subject to risks and returns that are different from those of other business segments.
Geographical segment a geographical segment is a distinguishable component of an entity, engaged in providing products or services, within a particular economic environ- ment, that are subject to risks and returns that are different from those segments operating in other economic environments.
Segment revenue Segment revenue is all sale of merchandise directly attributable to the segment and includes sale of merchandise of a joint venture.
Segment result Segment result is segment revenue less segment expenses. Segment expenses are all directly attributable expenses resulting from the operating activities of a segment as well as any relevant portion of an expense that can be allocated to the segment on a reasonable basis. This allocation is done on a line-by-line basis considering the driver for each type of expense, e.g. sale of merchandise or employee costs. The unallocated portion comprises items of a capital nature and investment income.
Segment assets Segment assets are the segment’s operating assets and comprise property, plant and equipment, intangible assets, inventories, receivables, assets held for sale, and cash and cash equivalents, and exclude investments, derivative financial instruments, and deferred and income tax assets.
Segment liabilities Segment liabilities are the segment’s operating liabilities and comprise payables and exclude items such as provisions, borrowings, derivative financial instruments, deferred and income tax liabilities and shareholders for dividends.
Capital expenditure Capital expenditure comprises additions to property, plant and equipment and intangible assets.
Non-cash expenses Non-cash expenses are the total amount of all significant non-cash expenses, other than depreciation and amortisation, that were deducted in measuring the segment result.
2.2 Business segment analysis The business segment is the primary reporting format, based on the Group’s management structure.
The Group is organised into two main business segments: – Supermarkets (including fresh produce and franchise) – Furniture (including related insurance)
66 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb 2 seGMENTAL ANALYSIS (continued) 2.2 business segment analysis (continued)
30 June 2008 Supermarkets Furniture Consolidated R’000 R’000 R’000 SEGMENT REVENUE 45 393 380 2 258 168 47 651 548 SEGMENT RESULT Operating profit 2 336 493 unallocated (34 516) 2 150 178 151 799 2 301 977 OTHER INFORMATION assets 12 834 208 1 657 831 14 492 039 Liabilities 8 692 131 391 295 9 083 426 Capital expenditure 1 378 674 55 667 1 434 341 Depreciation and amortisation 600 975 25 813 626 788 Non-cash expenses 2 894 733 3 627 Impairment charges 8 427 — 8 427
30 June 2007 Supermarkets Furniture Consolidated R’000 R’000 R’000 SEGMENT REVENUE 36 810 824 2 139 021 38 949 845 SEGMENT RESULT Operating profit 1 682 352 unallocated (68 647) 1 408 866 204 839 1 613 705 OTHER INFORMATION assets 10 022 537 1 514 124 11 536 661 Liabilities 7 412 903 213 317 7 626 220 Capital expenditure 1 230 125 38 484 1 268 609 Depreciation and amortisation 517 886 25 281 543 167 Non-cash expenses 26 907 353 27 260 Impairment charges 720 — 720
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Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
2 seGMENTAL ANALYSIS (continued) 2.3. Geographical segment analysis
The geographical segment is the secondary reporting format.
The Group operates in two main geographical segments: – South Africa – Non-RSA countries 30 June 2008 Non-RSA South Africa countries Consolidated R’000 R’000 R’000 SEGMENT REVENUE 41 756 411 5 895 137 47 651 548 OTHER INFORMATION assets 11 606 039 2 886 000 14 492 039 Capital expenditure 1 231 149 203 192 1 434 341
30 June 2007 Non-RSA South Africa countries Consolidated R’000 R’000 R’000 SEGMENT REVENUE 34 642 975 4 306 870 38 949 845 OTHER INFORMATION assets 9 352 855 2 183 806 11 536 661 Capital expenditure 1 041 554 227 055 1 268 609
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 3 property, PLANT AND EQUIPMENT — — 3.1 land at cost 311 394 171 865
3.2 buildings Cost 1 428 603 1 168 444 accumulated depreciation and impairment 123 353 90 641 — — Carrying value 1 305 250 1 077 803 Details of land and buildings are available for inspection at the registered office of the Company.
3.3 machinery, equipment and vehicles* Cost 4 762 507 4 034 530 accumulated depreciation and impairment 2 086 944 1 666 959 — — Carrying value 2 675 563 2 367 571 * Includes aircraft with a carrying value of R135 million (2007: R135 million).
3.4 improvements to leasehold property Cost 458 323 413 219 accumulated depreciation and impairment 247 602 226 299 — — Carrying value 210 721 186 920 — — Total property, plant and equipment 4 502 928 3 804 159
68 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb 3 property, PLANT AND EQUIPMENT (continued) Reconciliation of carrying values
GROUP
Machinery, equipment and Leasehold R‘000 Land buildings vehicles improvements Total Carrying value at 30 June 2006 137 076 897 284 2 066 699 147 224 3 248 283 additions 49 547 258 068 804 686 93 703 1 206 004 acquisitions of operations (note 32.5.1) — — 5 000 — 5 000 Reclassification to intangible assets (note 9.2) — — (4) — (4) Transfer to assets held for sale (note 4) (10 010) (90 168) — — (100 178) Disposal — — (27 025) (17 435) (44 460)
Proceeds on disposal — — (20 386) (17 876) (38 262) Profit/(loss) on disposal and scrapping — — (6 639) 441 (6 198)
Depreciation — (13 023) (478 120) (36 531) (527 674) Reversal of impairment (note 3.5) — 817 1 529 — 2 346 Impairment (note 3.5) — (1 936) (1 121) — (3 057) Exchange rate differences (4 748) 26 761 (4 073) (41) 17 899 Carrying value at 30 June 2007 171 865 1 077 803 2 367 571 186 920 3 804 159
additions 142 048 251 542 866 897 95 537 1 356 024 acquisitions of operations (note 32.5.1) — — 5 000 — 5 000 Reclassification — 734 1 139 (1 873) — Transfer to assets held for sale (note 4) (2 999) (81 023) — — (84 022) Transfer from assets held for sale (note 4) 4 043 9 018 — — 13 061 Disposal (7 159) — (39 521) (30 329) (77 009)
Proceeds on disposal (7 159) (200) (27 570) (33 090) (68 019) Profit/(loss) on disposal and scrapping — 200 (11 951) 2 761 (8 990)
Depreciation — (15 852) (541 501) (40 433) (597 786) Reversal of impairment (note 3.5) — 3 942 — — 3 942 Impairment (note 3.5) — (5 185) (5 979) (14) (11 178) Exchange rate differences 3 596 64 271 21 957 913 90 737 Carrying value at 30 June 2008 311 394 1 305 250 2 675 563 210 721 4 502 928
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 69 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 3 property, PLANT AND EQUIPMENT (continued) 3.5 impairment/reversal of impairment of property, plant and equipment The recoverable amount of all property, plant and equipment is determined based on the higher of value-in-use and fair value less cost to sell. The assumptions and estimates used by management in determining the recoverable amount of assets, for which there is a significant impairment or reversal of impairment, is detailed below.
In determining the fair value less cost to sell of affected land and buildings, cash flow projections based on projected net market-related rentals covering the next planning period were used. A pre-tax market capitalisation rate of 9,0% (2007: 10,5%) was used.
The fair value less cost to sell of affected assets, other than land and buildings, was based on management’s best estimates taking into account recent selling prices obtained for similar assets in the Group, adjusting these values for the condition of the relevant assets.
The impairment charge of the current financial year arose in the Supermarkets segment of the primary reporting format, mainly due to a significant reduction in the future expected sales of certain Group companies that own the assets, due to a weakening in the general economic conditions as well as fire damage to certain properties. These properties are insured and all relevant insurance receipts are provided for.
The impairment charge in the previous financial year was mainly due to fire damage to certain properties in the Su- permarket segment of the primary reporting format. These properties were insured and all relevant insurance receipts were provided for.
The reversal of impairment was due to improvements in the economic environment in which Group companies, where assets were previously impaired, operate. The original impair- ment charge as well as the reversal is included in the income statement as income/expenses of a capital nature. 4 assets HELD FOR SALE — — Carrying value 107 389 220 139 It is the Group’s policy to invest in fixed property only when appropriate rental space is not available. Certain land and buildings, in the primary reporting segment, have been reclassified as assets held for sale as the Group periodically reconsiders its fixed property holdings in line with this policy. The Group is currently in the process of actively seeking buy- ers for these properties.
During the year under review certain properties were transferred back to property, plant and equipment. The sale of these properties were reconsidered as it was no longer economically viable. This decision to reclassify had no effect on the Group’s results.
70 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 4 assets HELD FOR SALE (continued) 4.1 reconciliation of carrying value Carrying value at the beginning of the year 220 139 163 876 Transfer from property, plant and equipment (note 3) 84 022 100 178 Transfer to property, plant and equipment (note 3) (13 061) — Proceeds on disposal (194 544) (67 791) Profit on disposal 2 034 23 876 additions 7 654 — Reversal of impairment (note 4.2) 1 145 — — — Carrying value at the end of the year 107 389 220 139 4.2 reversal of impairment of assets held for sale The recoverable amount of all assets held for sale is deter- mined based on the fair value less cost to sell. The assump- tions and estimates used by management in determining the recoverable amount of assets held for sale, for which there is a significant reversal of impairment, is detailed below.
In determining the fair value less cost to sell of affected land and buildings, cash flow projections based on projected net market-related rentals covering the next planning period were used. A pre-tax market capitalisation rate of 9,0% was used.
The reversal of the impairment charge in the current financial year arose in the Supermarkets segment of the primary reporting format due to an increase in the relevant market- related rentals. The original impairment charge as well as the reversal is included in the income statement as income/ expenses of a capital nature. 5 interests IN SUBSIDIARIES 211 490 211 490 Investments in ordinary shares 1 426 263 1 429 680 Investments in preference shares 143 990 222 577 amount owing by Shoprite Checkers (Pty) Ltd 3 215 3 215 amounts owing by other subsidiaries (245 622) (122 811) Provision for impairment of interests in subsidiaries (note 5.1) 1 539 336 1 744 151 -— — analysis of total interests in subsidiaries 1 392 131 1 518 359 Non-current 147 205 225 792 Current 1 539 336 1 744 151 — — Detail analysis of the Company’s interests in subsidiaries are given in annexure A.
Investments in preference shares consist of convertible and redeemable, both under certain conditions, non-cumulative preference shares.
The amount owing to the Company by its subsidiary, Shop- rite Checkers (Pty) Ltd, is unsecured and payable on demand. A portion of the amount carried interest at 8,7% in the previ- ous financial year and the remaining balance is interest free.
amounts owing by other subsidiaries of the Company are interest-free, unsecured and are payable on demand.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 71 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 5 interests IN SUBSIDIARIES (continued) 5.1 provision for impairment of interests in subsidiaries The recoverable amount of all investments in subsidiaries is determined based on fair value calculations. These calcula- tions use the fair value of the underlying assets and liabilities of the relevant subsidiaries to determine if an impairment is necessary. The fair value of the underlying assets was determined by using appropriate valuation methods. 6 aVAILABLE-FOR-SALE INVESTMENTS unlisted share investments — — 100 “S” class ordinary shares in RMB Global Solutions (Pty) Ltd 37 548 23 738
This investment is denominated in ZAR and the fair value is based on the underlying net asset value of RMB Global Solutions (Pty) Ltd as it is mainly represented by short-term USD bank deposits at financial institutions with a Moody’s long-term credit rating of Aa1.za. The maximum exposure to credit risk at the reporting date is the carrying value.
The directors’ valuation of the unlisted investments is equal to the carrying value. 7 loans AND RECEIVABLES Preference share investment (note 7.1) 39 781 30 818 amounts owing by franchisees (note 7.2) 5 903 18 421 Other 1 840 1 176 — — 47 524 50 415 analysis of total loans and receivables Non-current 4 056 43 990 Current 43 468 6 425 — — 47 524 50 415
7.1 preference share investment 39 781 30 818 6% 13 500 000 redeemable, under certain conditions, convertible cumulative preference shares in Pick & Buy Ltd (retailing supermarket group – Mauritius) denominated in Mauritian rupees. The maximum exposure to credit risk at the reporting date is the carrying value, which approximates fair value, and no collateral is held as security. These prefer- ence shares are currently redeemable and guaranteed by Ireland Blyth (Mauritius) Ltd a company listed on the Stock Exchange of Mauritius Ltd (SEM).
The directors’ valuation of the preference share investment is equal to the carrying value.
72 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 7 loans AND RECEIVABLES (continued) 7.2 amounts owing by franchisees Gross amount 17 372 18 692 accumulated impairment (11 469) (271) — — 5 903 18 421 The weighted average variable interest rate (linked to the South African prime rate) on these amounts was 12,9% (2007: 11,2%) p.a. and the amounts are repayable between one and five years. The amounts are mainly denominated in ZAR. The maximum exposure to credit risk at the reporting date is the carrying value which approximates fair value. Balances are due within 30 days of statement date and the age analysis of these amounts are reviewed on a monthly basis. All amounts past due 60 days or more are individually impaired. The credit history of all franchisees are verified with an external credit bureau. Notarial and mortgage bonds and bank guarantees to the value of R27,629,000 (2007: R21,541,000) are held as collateral for these amounts.
Reconciliation of accumulated impairment balance at 1 July 271 575 Provision for impairment for the year 11 294 (213) Fair value adjustment (96) (92) — — balance at 30 June 11 469 271 The provision for impairment relates to the following amounts owing by franchisees: Receivable in the next year 7 964 6 613 Receivable between 1 and 3 years 6 265 8 079 Receivable between 3 and 5 years 3 143 4 000 — — 17 372 18 691 amounts owing by franchisees relate to a wide-spread number of franchisees which are individually insignificant.
The individually impaired amounts owing by franchisees relate to franchisees experiencing unexpectedly difficult economic situations. It was assessed that a portion of the receivables is expected to be recovered. Interest of R2,873,000 was accrued on these balances during the year under review. No interest was accrued on these balances during the previous year under review. All balances that were past due were impaired.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 73 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 8 DEFERRED TAX ASSETS 56 108 Provisions and accruals 242 237 222 145 — — allowances on property, plant and equipment (158 911) (178 906) — — Fixed escalation operating lease accrual 140 734 148 389 — — allowances on intangible assets (12 762) (12 671) — — Share-based payment accrual 23 583 12 897 — — unrealised exchange rate differences 7 539 6 460 — — Fair value losses (5 243) (3 427) — — Tax losses 11 437 57 862 56 108 248 614 252 749 The movement in the deferred tax assets is as follows: 112 56 Carrying value at the beginning of the year 252 749 219 626 (56) 52 Income statement charge 9 242 33 363
(56) 54 Provisions and accruals 28 978 33 308 — — Allowances on property, plant and equipment (24 758) (63 117) — — Fixed escalation operating lease accrual (3 060) 487 — — Allowances on intangible assets (640) (2 079) — — Share-based payment accrual 12 569 10 381 — — Unrealised exchange rate differences (856) 1 209 — — Tax losses 6 092 51 610 — (2) Tax rate change (9 083) 1 564
— — Charged to equity (4 127) 382 — — Transfer from deferred tax liability (10 858) (779) — — Exchange rate differences 1 608 157 56 108 Carrying value at the end of the year 248 614 252 749 — — Deferred tax assets to be recovered after more than 12 months (85 525) 9 657 56 108 Deferred tax assets to be recovered within 12 months 334 139 243 092 56 108 248 614 252 749 9 intanGIBLE ASSETS Goodwill (note 9.1) 94 067 95 603 Software (note 9.2) 185 998 140 244 Trademarks (note 9.3) 39 760 42 054 — — 319 825 277 901 9.1 Goodwill Gross amount 125 716 123 040 accumulated impairment losses 31 649 27 437 — — Carrying value 94 067 95 603 Reconciliation of carrying value Carrying value at the beginning of the year 95 603 90 603 acquisitions of operations (note 32.5.1) 800 5 000 Impairment (note 9.1.2) (2 336) — — — Carrying value at the end of the year 94 067 95 603 9.1.1 analysis of goodwill per geographical segment South Africa 89 067 90 603 Non-RSA countries 5 000 5 000 — — 94 067 95 603
74 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 9 intanGIBLE ASSETS (continued) 9.1 Goodwill (continued) 9.1.2 impairment of goodwill Goodwill is allocated to the Group’s cash-generating units (CGUs). The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering five-year planning periods. Cash flows beyond these planning periods are extrapolated using an estimated growth rate of 6,0% (2007: 6,0%). This does not exceed the long-term average growth rate for the busi- ness in which the CGUs operate. The following represent significant assumptions on which management based cash flow projections. Supermarket operations % % Operating margin* 6,1 4,8 Growth rate** 6,1 6,1 Pre-tax discount rate*** 22,3 17,9
Other operations % % Operating margin* 50,7 47,8 Growth rate** 6,2 6,1 Pre-tax discount rate*** 21,2 18,3
*Forecasted operating margin, based on budgets, relating to the specific CGUs to which goodwill is allocated. This rate does not apply to the Group as a whole. **Weighted average sales growth rate ***Pre-tax discount rate applied to the cash flow projections
These key assumptions are used for the analysis of each CGU within the geographical segment. Management deter- mines budgeted sales growth rates and gross profit margins based on past performance and its expectations of the retail market within the relevant country or area. The discount rates used reflect specific risks relating to the relevant seg- ments.
The impairment charge in the current year under review arose in a CGU in the RSA segment. This impairment was the result of a significant reduction in the future expected sales due to a weakening in the general economic conditions in which this CGU operates.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 75 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 9 intanGIBLE ASSETS (continued) 9.2 software Gross amount 242 267 179 391 accumulated amortisation and impairment losses 56 269 39 147 — — Carrying value 185 998 140 244 Reconciliation of carrying value Carrying value at the beginning of the year 140 244 100 915 additions 72 517 52 605 Reclassification from property, plant and equipment (note 3) — 4 Disposal (62) (69)
Proceeds on disposal (2) (8) Loss on disposal and scrapping (60) (61)
amortisation (26 708) (13 199) Impairment — (9) Exchange rate differences 7 (3) — — Carrying value at the end of the year 185 998 140 244 9.3 trademarks Gross amount 168 377 168 377 accumulated amortisation 128 617 126 323 — — Carrying value 39 760 42 054 Reconciliation of carrying value Carrying value at the beginning of the year 42 054 44 348 amortisation (2 294) (2 294) — — Carrying value at the end of the year 39 760 42 054 10 fiXED ESCALATION OPERATING LEASE ACCRUAL Operating lease receipts straight-lined 8 640 2 791 Less: current (included under trade and other receivables: note 12) 647 1 660 — — 7 993 1 131 11 inVENTORIES — — Trading goods 4 707 394 3 699 199 12 traDE AND OTHER RECEIVABLES Instalment sales — — Gross amount (note 12.1) 981 246 982 809 — — accumulated impairment (note 12.2) (86 549) (83 566) — — unearned finance income (28 183) (100 414) Insurance contract accruals — — – Unearned premiums (note 12.3) (258 432) (227 702) — — 608 082 571 127 — — Trade receivables (note 12.4) 554 736 450 840 2 871 3 353 Other receivables (note 12.5) 505 712 482 568 — — Fixed escalation operating lease accrual (note 10) 647 1 660 — — amounts owing by joint ventures (note 12.6) 20 692 15 711 2 871 3 353 1 689 869 1 521 906
76 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 12 traDE AND OTHER RECEIVABLES (continued) 12.1 instalment sales The Group has entered into various instalment sale agree- ments for household furniture. The periods of these contracts range between 1 and 2 years and the weighted average interest rate on these receivables is 26,0% (2007: 19,5%) p.a. The amounts are mainly denominated in ZAR. The maximum exposure to credit risk at the reporting date is the carrying value which approximates fair value. Instalment sales com- prise a wide-spread client base and external credit checks are made to ensure that all instalment sale clients have an ap- propriate credit history. Furniture items, including appliances and electronic products are held as collateral for instalment sale agreements of R668,488,000 (2007: R23,361,000) which were concluded in terms of the National Credit Act no 34 of 2005. No collateral is held for instalments sale agreements of R312,758,000 (2007: R959,448,000), concluded in terms of the Credit Act no 75 of 1980 in South Africa as well as various other credit acts throughout Non-RSA.
Instalment sale receivables Future minimum instalment payments receivable under non-cancellable instalment sale agreements – Not later than 1 year 766 752 740 168 – Later than 1 year not later than 2 years 214 494 242 641 — — 981 246 982 809 12.2 accumulated impairment Reconciliation of accumulated impairment balance at 1 July 83 566 79 965 accrual for impairment for the year 33 276 22 887 Receivables written off during the year as uncollectable (36 003) (23 999) Penalty interest accrued 5 565 4 289 Exchange rate differences 145 424 — — balance at 30 June 86 549 83 566 The accumulated impairment relate to actual arrears, individual repayments that are past due, and the age analysis below reflect the period that these amounts are overdue. 30 days 18 529 13 780 60 days 9 944 7 104 90 days 6 594 4 642 120 days 4 775 3 264 150 days 3 588 2 406 180 days 2 750 1 831 + 180 days 10 696 7 489 — — 56 876 40 516 The accumulated impairment is calculated with reference to actual default history of the Group’s instalment sale receivables on a collective basis and is in line with industry norms. On this basis the provision of R87 million (2007: R84 million) was calculated taking into account the actual arrears of R57 million (2007: R41 million) and an amount of R237 million (2007: R184 million) which represents the maximum exposure if all debtors included in actual arrears continued to default. It was assessed that a portion of the receivables is expected to be recovered. All amounts that have not been impaired are fully performing and have no overdue instal- ments. Based on this the credit quality of these amounts is considered to be satisfactory.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 77 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 12 traDE AND OTHER RECEIVABLES (continued) 12.3 accrual for unearned premiums an analysis of the accrual for unearned premiums are set out below balance at the beginning of the year 227 702 199 338 Premiums written during the year (note 21.3) 231 680 214 372 amortisation charged to income (note 21.3) (200 950) (186 008) — — balance at the end of the year 258 432 227 702 12.4 trade receivables Gross amount 588 567 479 870 accumulated impairment (33 831) (29 030) — — 554 736 450 840 Trade receivables consist mainly of sale of merchandise to franchisees and buying associations. The amounts are mainly denominated in ZAR. The maximum exposure to credit risk at the reporting date is the carrying value which approximates fair value. Balances are due within 30 days of statement date and the age analysis of these amounts are reviewed on a monthly basis. All amounts past due 60 days or more are individually impaired. Franchisees comprise a wide-spread client base and the credit history of all franchi- sees are verified with an external credit bureau. Notarial and mortgage bonds and bank guarantees with a face value of R658,619,000 (2007: R371,935,000) are held as collateral for these amounts. Long standing trading relationships exist with the buying associations and the Group reviews the credit history, based on its own records as well as informa- tion from an external credit bureau, of these associations on a cyclical basis. Based on this the Group considers the credit quality of all fully performing amounts as satisfactory.
Reconciliation of accumulated impairment balance at 1 July 29 030 18 209 Provision for impairment for the year 7 702 27 026 Receivables written off during the year as uncollectable (2 028) (14 212) Exchange rate differences 840 (90) unused amounts reversed (1 713) (1 903) — — balance at 30 June 33 831 29 030 The provision for impairment relates to trade receivables of R33,831,000 (2007: R29,030,000) receivable within the next 12 months.
These individually impaired amounts relate mostly to franchisees experiencing unexpectedly difficult economic situations. It was assessed that a portion of the receivables is expected to be recovered. Interest of R1,694,000 (2007: R1,196,000) was accrued on these balances during the year under review.
Trade receivables of R33,685,000 (2007: R38,660,000) that were past due between 30 and 60 days of statement date were not impaired. These amounts relate to a number of debtors for whom there is no recent history of default.
78 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 12 traDE AND OTHER RECEIVABLES (continued) 2 871 3 353 12.5 other receivables 505 712 482 568 Other receivables consist of various prepayments and op- erational debtors such as rental and municipal deposits and value added taxes refundable. The amounts are mainly de- nominated in ZAR. The maximum exposure to credit risk at the reporting date is the carrying value which approximates fair value. The age analysis of these amounts are reviewed on a monthly basis and no provision for impairment has been made. If the credit risk of any individual receivables is deemed to be material the credit history of the relevant client will be verified with an external credit bureau. No security is held for these balances.
— — 12.6 amounts owing by joint ventures 20 692 15 711 These amounts owing are unsecured, payable on demand and earn interest at an average of 11,0% (2007: 8,6%) p.a. The maximum exposure to credit risk at the reporting date is the carrying value and the Group does not hold any collateral as security. The amounts are denominated mainly in ZAR and are not impaired. 13 DERIVATIVE FINANCIAL INSTRUMENTS Forward foreign exchange rate contracts (note 38.1.1) — — Current liabilities — 682 — — Current assets 4 741 — as at 30 June 2008 the settlement dates on open forward contracts ranged between one and four (2007: two and four) months. The local currency amounts to be received and contractual exchange rates of the Company’s outstanding contracts were: uS dollar rand equivalent (at rates averaging R1 = $0,1267) (2007: R1=$0,1377) Outflow 206 637 76 283 Inflow 208 288 74 585 Euro rand equivalent (at rates averaging R1 = €0,0827) (2007: R1 = €0,1040) Outflow 9 487 2 778 Inflow 9 821 2 760
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 79 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 14 share CAPITAL, TREASURY SHARES AND SHARE INCENTIVE SCHEMES 14.1 ordinary share capital authorised: 650 000 000 (2007: 650 000 000) ordinary shares of 113,4 cents each
Issued: 616 306 616 306 543 479 460 (2007: 543 479 460) ordinary shares of 113,4 cents each 616 306 616 306
Treasury shares held by Shoprite Checkers (Pty) Ltd and The Shoprite Holdings Ltd Share Incentive Trust are netted off against share capital on consolidation. The net number of ordinary shares in issue for the Group are: Number of shares Issued ordinary share capital 543 479 460 543 479 460 Treasury shares (note 14.3) (36 159 569) (36 159 569) 507 319 891 507 319 891 The unissued ordinary shares are under the control of the directors who may issue them on such terms and conditions as they deem fit.
all shares are fully paid up.
14.2 Deferred share capital authorised: 360 000 000 (2007: 360 000 000) non-convertible, non-participating no par value deferred shares
Issued: 276 821 666 (2007: 276 821 666) non-convertible, 277 277 non-participating no par value deferred shares 277 277
The unissued deferred shares are not under the control of the directors, and can only be issued under predetermined circumstances as set out in the Articles of Association of Shoprite Holdings Ltd.
all shares are fully paid up and carry the same voting rights as the ordinary shares 616 583 616 583 616 583 616 583 14.3 treasury shares — — 36 159 569 (2007: 36 159 569) ordinary shares of 113,4 cents each (277 538) (277 538) Reconciliation of movement in number of treasury shares for the Group: Number of shares balance at the beginning of the year 36 159 569 36 134 569 Movement in shares held by The Shoprite Holdings Ltd Share Incentive Trust Shares repurchased from participants — 25 000 balance at the end of the year 36 159 569 36 159 569
80 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 14 share CAPITAL, TREASURY SHARES AND SHARE INCENTIVE SCHEMES (continued) 14.4 share incentive schemes In terms of the rules of The Shoprite Holdings Ltd Share Incentive Trust, the trustees are authorised to acquire and allocate shares which in total may not exceed 20% of the issued ordinary share capital of the Company.
14.4.1 Share purchase scheme Movements in the number of ordinary shares held by The Shoprite Holdings Ltd Share Incentive Trust in terms of the share purchase scheme were as follows: Number of shares balance at the beginning of the year 506 036 1 663 536 Shares released to participants — (1 157 500) balance at the end of the year 506 036 506 036
Movements in the number of ordinary shares vested with eligible participants during the year were as follows:
balance at the beginning of the year — 1 182 500 Shares released to participants — (1 157 500) Shares repurchased from participants* — (25 000) balance at the end of the year — — * Shares are repurchased from a participant on resignation.
R’000 R’000 Fair value of treasury shares held by The Shoprite Holdings Ltd Share Incentive Trust 19 533 16 522
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 81 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 14 share CAPITAL, TREASURY SHARES AND SHARE INCENTIVE SCHEMES (continued) 14.4 share incentive schemes (continued) 14.4.2 Share option scheme Movements in the number of share options held by eligible participants were as follows: Number of shares balance at the beginning of the year 24 531 250 28 800 000 Options exercised (81 250) — Options forfeited* — (387 500) Options cash settled** (3 125 000) (3 881 250) balance at the end of the year 21 325 000 24 531 250 * Options are forfeited when an option holder resigns prior to the vesting date of the options. ** During the year under review, holders of 3,206,250 (2007: 3,881,250) options, out of a possible total of 5,368,750 (2007: 4,668,750), who could exercise their options from 20 to 24 December 2007 and 20 to 24 December 2006 (2007: 20 to 24 December 2006), agreed to accept settlement of these options in cash. The fair value of the cancelled and settled options were accounted for as a deduction from equity, net of related tax (refer statement of changes in equity). All unpaid but exercisable rights of option holders who have elected cash settlement are included in the cash-settled share-based payment accrual (refer note 20).
Options outstanding on 30 June 2008 are unconditional on the following dates or immediately in the case of a deceased estate: average option price Currently exercisable R 6.51 10 000 000 10 000 000 Currently exercisable R 6.22 2 162 500 787 500 20 – 24 December 2007 R 6.22 — 4 581 250 20 – 24 December 2008 R 6.22 9 162 500 9 162 500 21 325 000 24 531 250
82 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb 14 share CAPITAL, TREASURY SHARES AND SHARE INCENTIVE SCHEMES (continued) 14.4 share incentive schemes (continued) 14.4.3 Share options held by executive directors in terms of share option scheme
Accrual Actual Number of Number of Number of available /payment option options at options options at for for cash Director Date granted price 1 July 2007 cash settled 30 June 2008 take-up settlement
JW Basson 22 Aug 2002 R 6.51 10 000 000 10 000 000 Now 10 000 000 — 10 000 000 —
CG Goosen 24 Dec 2001 R 6.19 112 500 (112 500) — 4 049 438 24 Dec 2001 R 6.19 112 500 112 500 Now 24 Dec 2001 R 6.19 225 000 225 000 24 Dec 2008 450 000 (112 500) 337 500 4 049 438
B Harisunker 21 Dec 2001 R 6.22 93 750 (93 750) — 3 020 909 21 Dec 2001 R 6.22 93 750 93 750 Now 21 Dec 2001 R 6.22 187 500 187 500 21 Dec 2008 375 000 (93 750) 281 250 3 020 909
AE Karp 21 Dec 2001 R 6.22 162 500 (162 500) — 5 792 313 21 Dec 2001 R 6.22 162 500 162 500 21 Dec 2008 325 000 (162 500) 162 500 5 792 313
EL Nel 24 Dec 2001 R 6.19 162 500 162 500 Now 24 Dec 2001 R 6.19 162 500 162 500 24 Dec 2008 325 000 — 325 000 —
AN van Zyl 21 Dec 2001 R 6.22 75 000 (75 000) — 2 616 375 21 Dec 2001 R 6.22 150 000 150 000 21 Dec 2008 225 000 (75 000) 150 000 2 616 375
BR Weyers 21 Dec 2001 R 6.22 75 000 (75 000) — 2 840 625 21 Dec 2001 R 6.22 150 000 150 000 21 Dec 2008 225 000 (75 000) 150 000 2 840 625
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 83 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 14 share CAPITAL, TREASURY SHARES AND SHARE INCENTIVE SCHEMES (continued) 14.4 share incentive schemes (continued) 14.4.4 Cash-settled share-based payments The Group has granted cash-settled share-based payments to directors and management. The rights to cash-settled share-based payments entitle the participants to receive cash payments based on the difference between the share price at the date of the exercise of the rights and the strike price which relates to the share price at the date of the grant. The number of shares on which the rights are based as well as the strike prices and the exercise and expiry dates are set out below. As at 30 June 2008 R85,185,495 (2007: R44,472,679) has been recognised in respect of the cash-settled share-based payment liability and included in payables.
Refer note 24 for the expense recognised in the income statement as employee benefits.
average strike Number of shares on price per share which rights are based Movements in rights to cash-settled share-based payments Balance at the beginning of the year R 6,50 / R6,22 2 018 750 1 000 000 Issued during the year as replacement for share options held (note 14.4.2) R 6,22 3 125 000 3 881 250 Exercised during the year R 6,22 (3 650 000) (2 862 500) Issued on 29 Aug 2007 R 31,31 11 875 000 — Balance at the end of the year 13 368 750 2 018 750
Rights to cash-settled share-based payments on 30 June 2008 are unconditional on the following dates or immediately in the case of a deceased estate: Currently exercisable R 6,22 493 750 1 018 750 CH Wiese: refer below R 6,50 1 000 000 1 000 000 29 Aug 2010 R 31,31 3 958 333 — 29 Aug 2011 R 31,31 3 958 333 — 29 Aug 2012 R 31,31 3 958 334 — 13 368 750 2 018 750
84 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb 14 share CAPITAL, TREASURY SHARES AND SHARE INCENTIVE SCHEMES (continued) 14.4 share incentive schemes (continued) 14.4.4 Cash-settled share-based payments (continued)
Cash-settled share-based payments issued to directors Number of average shares on which strike price Director Expiry date Exercise date rights are based per share CH Wiese* 5 Sep 2012 Any time provided that payments shall 1 000 000 R 6,50 only be made after: 5 Sep 2007 in respect of the first 25%; 5 Sep 2008 in respect of the second 25%; 5 Sep 2009 in respect of the remaining 50% of the rights granted. CG Goosen** 24 Dec 2011 Exercised on 5 Dec 2007 112 500 R 6,19 CG Goosen 29 Aug 2010 29 Aug 2010 316 667 R 31,31 CG Goosen 29 Aug 2011 29 Aug 2011 316 667 R 31,31 CG Goosen 29 Aug 2012 29 Aug 2012 316 666 R 31,31 B Harisunker** 21 Dec 2011 Currently exercisable 93 750 R 6,22 B Harisunker 29 Aug 2010 29 Aug 2010 116 667 R 31,31 B Harisunker 29 Aug 2011 29 Aug 2011 116 667 R 31,31 B Harisunker 29 Aug 2012 29 Aug 2012 116 666 R 31,31 AE Karp** 21 Dec 2011 Exercised on 5 Nov 2007 81 250 R 6,22 AE Karp** 21 Dec 2011 Exercised on 21 Apr 2008 81 250 R 6,22 EL Nel 29 Aug 2010 29 Aug 2010 133 333 R 31,31 EL Nel 29 Aug 2011 29 Aug 2011 133 333 R 31,31 EL Nel 29 Aug 2012 29 Aug 2012 133 334 R 31,31 AN van Zyl** 21 Dec 2011 Exercised on 7 Jun 2007 75 000 R 6,22 AN van Zyl** 21 Dec 2011 Exercised on 20 Dec 2007 75 000 R 6,22 BR Weyers** 21 Dec 2011 Exercised on 2 Apr 2008 75 000 R 6,22 BR Weyers** 21 Dec 2011 Exercised on 29 Apr 2008 75 000 R 6,22 BR Weyers 29 Aug 2010 29 Aug 2010 100 000 R 31,31 BR Weyers 29 Aug 2011 29 Aug 2011 100 000 R 31,31 BR Weyers 29 Aug 2012 29 Aug 2012 100 000 R 31,31 * The right to the cash-settled share-based payments have been granted via a management company. **Issued as replacement for share options held. Refer note 14.4.2.
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 15 reserVES 1 216 124 1 412 906 Retained earnings 3 630 302 2 707 540 16 505 16 505 Other reserves (note 15.1) 496 237 299 524 1 232 629 1 429 411 4 126 539 3 007 064 15.1 other reserves 209 209 Reserve on conversion from no par value to par value shares 209 209 1 943 1 943 Capital redemption reserve 1 943 1 943 14 353 14 353 Share-based payments reserve 14 353 14 353 — — Foreign currency translation reserve 424 358 241 371 — — Contingency reserve 23 168 21 437 — — Fair value reserve 32 206 20 211 16 505 16 505 496 237 299 524 as detailed in the Articles of Association of the Company, the directors have the discretion to transfer out of the profits of the Company to other reserves any amounts they deem proper.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 85 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
15 reserVES (continued) 15.1 other reserves (continued)
reconciliation of carrying values of other reserves
Foreign Share-based currency payments translation Contingency Fair value R’000 reserve reserve reserve reserve Other balance at 1 July 2006 14 353 220 805 18 485 22 460 2 152 Foreign currency translation differences 20 566 Transfer from distributable reserves 2 952 Net fair value gains on available-for-sale investments, net of tax 31 210 Realisation of profits on disposal of listed investment (33 459) balance at 30 June 2007 14 353 241 371 21 437 20 211 2 152
Foreign currency translation differences 182 987 Transfer from distributable reserves 1 731 Net fair value gains on available-for-sale investments, net of tax 11 995 balance at 30 June 2008 14 353 424 358 23 168 32 206 2 152
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 16 borrowinGS Consisting of: 2 450 2 450 Shoprite Holdings Ltd preference share capital (note 16.2) 2 450 2 450 — — Shoprite International Ltd preference share capital (note 16.3) 175 48 — — First National Bank of Namibia Ltd (note 16.4) 20 274 — 2 450 2 450 22 899 2 498 16.1 analysis of total borrowings Non-current 12 762 2 498 Current 10 137 — — — 22 899 2 498 16.2 shoprite Holdings Ltd preference share capital authorised: 175 000 (2007: 175 000) 6% non-convertible cumulative preference shares of R2 each 325 000 (2007: 325 000) 5% non-convertible cumulative preference shares of R2 each 225 000 (2007: 225 000) second 5% non-convertible cumulative preference shares of R2 each 1 000 000 (2007: 1 000 000) third 5% non-convertible cumulative preference shares of R2 each
Issued: 175 000 (2007: 175 000) 6% non-convertible cumulative 350 350 preference shares of R2 each 350 350 325 000 (2007: 325 000) 5% non-convertible cumulative 650 650 preference shares of R2 each 650 650 225 000 (2007: 225 000) second 5% non-convertible 450 450 cumulative preference shares of R2 each 450 450 500 0000 (2007: 500 000) third 5% non-convertible 1 000 1 000 cumulative preference shares of R2 each 1 000 1 000 2 450 2 450 2 450 2 450
86 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 16 borrowinGS (continued) 16.3 shoprite International Ltd preference share capital 20 (2007: 19) “Malawi” redeemable under certain conditions, preference shares of USD1,82 each (note 16.3.1) 1 480 1 254 2 (2007: Nil) “Angola” redeemable under certain conditions, preference shares of USD1,82 each (note 16.3.1) 148 — accumulated losses recognised (1 453) (1 206) — — 175 48
16.3.1 Preference dividends on these shares will be subject to and based on the Hungry Lion division’s profits, generated in Malawi and Angola respectively, through relevant trading subsidiaries of the Group. All “Angola” and additional “Malawi” preference shares were issued during the year under review. Refer note 32.6. 16.4 first National Bank of Namibia Ltd This loan is unsecured, will be repaid within the next 24 months in equal instalments and bares interest at an — — average of 12,9% p.a. 20 274 — 17 DEFERRED TAX LIABILITIES allowances on property, plant and equipment 60 702 13 411 Fixed escalation operating lease accrual 580 (466) allowances on intangible assets — 109 Tax losses (42 245) (1 612) unrealised exchange rate differences 1 445 — Provisions and accruals (4 241) (2 639) — — 16 241 8 803 The movement in the deferred tax liabilities is as follows: Carrying value at the beginning of the year 8 803 7 400 Income statement charge 18 704 2 182
allowances on property, plant and equipment 5 138 3 962 Fixed escalation operating lease accrual 2 383 (63) allowances on intangible assets 4 109 Provisions and accruals (442) (614) unrealised exchange rate differences 1 402 — Tax rate change (78) — Tax losses 10 297 (1 212)
Charged to equity (1 068) — Transfer to deferred tax asset (10 858) (779) Exchange rate differences 660 — — — Carrying value at the end of the year 16 241 8 803 Deferred tax liabilities to be recovered after more than 12 months 14 438 11 311 Deferred tax liabilities to be recovered within 12 months 1 803 (2 508) — — 16 241 8 803 18 proVISIONS Provision for post-retirement medical benefits (note 36.2) 181 099 179 811 Provision for onerous lease contracts 16 757 28 780 Provision for outstanding claims 2 325 1 902 Provision for long-term employee benefits 88 404 57 168 Reinstatement provision 140 697 67 256 — — 429 282 334 917
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 87 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
18 proVISIONS (continued) 18.1 reconciliation of carrying values
Post- retirement Onerous Long-term medical lease Outstanding employee Reinstatement R’000 benefits contracts claims benefits provision Total balance at 1 July 2006 183 859 33 273 9 242 52 448 24 743 303 565
additional provisions — 8 136 — 7 527 55 476 71 139 unused amounts reversed (8 120) — (7 340) (61) (277) (15 798) utilised during the year (9 366) (14 194) — (4 142) (12 686) (40 388) accretion of discount 13 438 1 565 — 2 378 — 17 381 Exchange rate differences — — — (982) — (982) balance at 30 June 2007 179 811 28 780 1 902 57 168 67 256 334 917
additional provisions 1 763 10 901 423 25 552 87 275 125 914 unused amounts reversed (4 563) (11 775) — (206) (4 901) (21 445) utilised during the year (9 491) (12 164) — (4 819) (8 933) (35 407) accretion of discount 13 579 1 015 — 2 374 — 16 968 Exchange rate differences — — — 8 335 — 8 335 balance at 30 June 2008 181 099 16 757 2 325 88 404 140 697 429 282 Discount rates used 2007 7.8% 14.0% N/A 7.8% 14.0% 2008 10.5% 15.0% N/A 10.5% 15.0%
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000
18.2 analysis of total provisions Non-current 316 600 264 185 Current 112 682 70 732 — — 429 282 334 917 19 fiXED ESCALATION OPERATING LEASE ACCRUAL Operating lease payments straight lined 505 475 517 490 Less: current (included under trade and other payables: note 20) 65 713 68 788 — — 439 762 448 702 20 traDE AND OTHER PAYABLES — — Trade payables 6 255 634 4 995 033 3 504 594 Other payables and accruals 2 267 811 2 041 968 — — amounts owing to joint ventures (note 20.2) 4 196 2 732 — — Fixed escalation operating lease accrual (note 19) 65 713 68 788 — — Cash-settled share-based payment accrual 85 185 44 473 3 504 594 8 678 539 7 152 994 20.1 analysis of trade and other payables Non-current 55 666 — Current 8 622 873 7 152 994 — — 8 678 539 7 152 994
— — 20.2 amounts owing to joint ventures 4 196 2 732 These loans are unsecured, payable on demand and bares interest at an average of 3,1% (2007: 2,1% p.a.)
88 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 21 other OPERATING INCOME — — Finance income earned 170 648 162 951 174 209 705 137 Investment income (note 21.1) 27 760 7 712 — — Franchise fees received 28 989 24 055 — — Operating lease income (note 21.2) 197 035 175 112 — — Commissions received 210 305 169 074 — — Premiums earned (note 21.3) 200 950 186 008 — 293 Other income 147 083 73 542 174 209 705 430 982 770 798 454 21.1 investment income Interest from participants of The Shoprite — — Holdings Ltd Share Incentive Trust — 729 — — Interest received from joint ventures 3 161 1 032 3 320 31 Interest received other 18 255 2 129 170 856 705 059 Dividends – subsidiaries — — 33 47 – unlisted investments 6 344 1 787 — — – listed investment — 2 035 174 209 705 137 27 760 7 712 21.2 operating lease income The Group has entered into various operating lease agreements as the lessor of property. Leases on properties are contracted for periods of between one and 11 years. Rental comprises mainly minimum monthly payments. Rental escalations vary, but average at a rate of 8,1% (2007: 7,9%) p.a. 21.3 premiums earned Premiums written 231 680 214 372 Change in accrual for unearned premiums (30 730) (28 364) — — 200 950 186 008 22 DEPRECIATION AND AMORTISATION Property, plant and equipment 597 786 527 674 Intangible assets 29 002 15 493 626 788 543 167 Disclosed as cost of sales (29 947) (25 770) — — 596 841 517 397
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 89 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 23 operatinG LEASES The Group has entered into various operating lease agree- ments on property, plant and equipment. Leases on properties are contracted for periods of between three and 15 (2007: three and 20) years with renewal options for a further three to 20 years. Rental comprises minimum monthly payments and contingent payments based on turnover levels. Turnover rentals, where applicable, average 1,9% (2007: 1,8%) of turnover. Rental escalations vary, but average at a rate of 7,0% (2007: 7,1%) p.a.
Operating lease payments – property 1 099 796 975 453 Operating lease payments – equipment 50 744 44 903 1 150 540 1 020 356 Disclosed as cost of sales (28 018) (22 621) — — 1 122 522 997 735 Consisting of: Minimum lease payments 993 138 886 658 Contingent lease payments 157 402 133 698 — — 1 150 540 1 020 356 24 employee BENEFITS Wages and salaries 3 540 069 3 041 693 Cash-settled share-based payments (note 24.1 and 14.4.4) 59 835 17 892 Post-retirement medical benefits (note 36.2) 10 779 5 318 Retirement benefit contributions (note 36.1) 193 528 169 345 3 804 211 3 234 248 Disclosed as cost of sales (148 233) (133 621) — — 3 655 978 3 100 627 24.1 share appreciation rights granted During the year under review the Group granted certain share appreciation rights to senior management. The fair value of these cash-settled share-based payments will be expensed over the vesting period and was calculated using a binomial option pricing model. The expected volatility used in the option-pricing model was determined with reference to the SAFEX MtM and other indices considering historical data. The swap curve data from the interbank market is used to determine the yield curve. The fair value determined was R16,63 per option. The inputs into the model were as fol- lows:
Total amount of share appreciation rights 11,875,000 Grant date 29 Aug 2007 Vesting dates (in equal thirds) 29 Aug 2010; 29 Aug 2011; 29 Aug 2012 Spot rate per share on grant date R31,31 Forfeiture rates 0,0% Expected volatility 36,5% Expected dividend yield 2,8% to 2,9% Expected risk free rate 11,9% to 12,4%
90 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 24 employee BENEFITS (continued) 24.2 Government grants and allowances The Group has, during the year under review, received certain government grants and allowances.
24.2.1 Learnership allowances a tax deduction was granted to the Group by the South African Revenue Service relating to certain learnership agreements with employees registered in terms of the Skills Development Act, No 97 of 1998. This allowance resulted in a tax saving of R5,333,772 (2007: R354,766).
24.2.2 Sector Educational Training Authorities (SETA) grants In terms of the SETA grant in South Africa the Group can recoup Skills Development Levies (SDLs) to the extent that training, as prescribed by SETA, is provided to its employees. This resulted in a reduction in SDLs of R13,857,371 (2007: R16,341,671) for the year under review. The nett amount is taxable at 28% (2007: 29%). 25 operatinG PROFIT Determined after taking into account the following: 40 47 auditors’ remuneration 18 551 19 867
40 47 audit fees – for the year 14 123 12 410 — — – underprovided – previous year 539 1 405 — — Fees for other assurance services 385 1 034 — — Fees for tax compliance services 1 502 1 692 — — Fees for secretarial services 10 10 — — Fees for information technology consulting services 3 529 — — Fees for accounting services 505 330 — — Fees for other consulting services 1 484 2 457
17 903 (2 485) Fees paid for outside services 94 104 97 010
— — administrative 22 775 17 190 12 051 (3 538) Technical 69 534 72 261 5 852 1 053 Secretarial 1 795 7 559
— — Fair value gains/(losses) on financial instruments 5 612 (20 620)
— — – forward foreign exchange rate contracts 5 423 (21 001) — — – loans and receivables 96 92 — — – preference shares 93 289
— — Policyholder claims and benefits paid 16 337 10 599
— — – claims paid 15 914 17 939 — — – movement in accumulated unpaid claims (note 18.1) 423 (7 340)
26 DIRECTORS’ remuneration 35 539 57 208 Executive directors 658 658 Non-executive directors 36 197 57 866 (35 539) (57 208) Less: paid by subsidiaries 658 658 For details of equity and cash-settled share-based payment instruments issued to directors refer note 14.4.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 91 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
26 DIRECTORS’ REMUNERATION (continued) 2008 2007 Retire- Retire- Share ment Share ment Perfor- options and Perfor- options and Remune- mance excer- medical Other Remune- mance excer- medical Other R‘000 ration bonus cised benefits benefits Total ration bonus cised benefits benefits Total Executive directors JW Basson 13 158 — — 3 162 320 16 640 9 929 — — 2 381 328 12 638 CG Goosen 2 215 2 704 4 049 578 155 9 701 2 103 1 910 — 545 161 4 719 B Harisunker 1 420 1 241 — 443 207 3 311 1 343 926 — 423 112 2 804 AE Karp 2 053 2 250 5 792 427 295 10 817 1 928 2 760 — 402 202 5 292 EL Nel 1 449 1 531 — 257 138 3 375 1 368 1 459 — 244 115 3 186 AN van Zyl 979 1 268 2 616 352 113 5 328 927 1 103 1 975 324 114 4 443 BR Weyers 1 062 1 268 5 307 272 127 8 036 940 1 139 — 254 124 2 457 22 336 10 262 17 764 5 491 1 355 57 208 18 538 9 297 1 975 4 573 1 156 35 539
2008 2007 Fees Total Fees Total Non-executive directors TRP Hlongwane 70 70 70 70 JA Louw 70 70 70 70 JF Malherbe 70 70 70 70 JG Rademeyer 175 175 175 175 CH Wiese* 150 150 150 150 JJ Fouché* 123 123 123 123 658 658 658 658 *These non-executive directors are employees of Chaircorp (Pty) Ltd, a management company that renders advisory services to Shoprite Holdings Ltd in return for an annual fee.
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000
27 income OF A CAPITAL NATURE — — Profit on disposal of property (note 3) 200 — — — Profit on disposal of assets held for sale (note 4) 2 034 23 876 Loss on disposal and scrapping of plant, — — equipment and intangible assets (note 3 & 9) (9 250) (6 259) 14 388 122 811 Reversal of impairment of investment in subsidiaries (note 5) — — — — Insurance claims received 21 689 14 053 Impairment of property, plant and equipment and assets — — held for sale (note 3 & 4) (6 091) (720) (9 483) — Subsidiary loan written off — — — — Loss on cancellation of lease — (3 060) — — Impairment of goodwill (note 9.1) (2 336) — 260 — Prescription of capital amounts owing — 434 — — Profit/(loss) on other investing activities 510 (848) Realisation of profits in fair value reserve on — — disposal of listed investment — 33 459 5 165 122 811 6 756 60 935 28 finance COSTS — 161 Interest paid 57 906 81 733 — — Interest paid to joint ventures 102 146 — — accretion of discount on provisions (note 18.1) 1 015 1 565 126 126 Preference dividends 126 126
21 21 6% non-convertible cumulative preference shares 21 21 32 32 5% non-convertible cumulative preference shares 32 32 23 23 Second 5% non-convertible cumulative preference shares 23 23 50 50 Third 5% non-convertible cumulative preference shares 50 50
126 287 59 149 83 570
92 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 29 taX 29.1 classification 68 396 73 008 South African tax 759 523 569 789 — — Foreign tax 116 047 52 797 68 396 73 008 875 570 622 586 29.2 consisting of: 15 837 18 973 Current tax 802 650 552 193 — (445) Prior year tax 1 602 43 314 — — Withholding tax 6 715 1 648 52 503 54 532 Secondary tax on companies 55 141 56 612 68 340 73 060 866 108 653 767 56 (52) Deferred tax 9 462 (31 181) 68 396 73 008 875 570 622 586 29.3 reconciliation of tax 60 416 53 125 South African current tax at 28% (2007: 29%) 689 153 495 353 7 980 19 883 Net adjustments 186 417 127 233
37 37 Preference dividends 37 37 (49 558) (13) Dividend income (1 265) (1 480) — 2 Tax rate change 9 161 — 4 998 (34 174) Other exempt income and non-deductible expenses 28 678 8 489 — (56) Deferred tax asset previously not recognised — (11 243) — — utilisation of temporary differences previously not recognised 22 522 (18 682) — (445) Prior year tax 1 602 43 314 52 503 54 532 Secondary tax on companies 55 141 56 612 — — Effect of foreign tax rates 24 420 26 791 — — Withholding tax 6 715 1 648 — — Deferred tax asset not recognised 39 406 21 747
68 396 73 008 Tax 875 570 622 586 The applicable tax rate for the Group changed form 29% in the previous financial year to 28% in the current financial year due to a change in the South African Revenue Act. 29.4 secondary tax on companies 35 870 57 609 Secondary tax on companies on proposed or envisaged dividends 57 609 35 870 . If the total reserves of the Company of R1,413 million (2007: R1,216 million) were to be declared as dividends, the secondary tax impact at a rate of 10% (2007: 10%) would be R141 million (2007: R122 million). These amounts should be considered tak- ing into account the proposal by the South African Government to replace secondary tax on companies with a dividend tax on shareholders commencing in the next financial year. 29.5 net calculated tax losses and net deductible temporary differences Calculated tax losses and net deductible temporary differences at year-end 1 147 403 1 171 141 applied in the provision for deferred tax 826 058 840 417 — — 321 345 330 724
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 93 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 29 taX (continued) 29.5 net calculated tax losses and net deductible (continued) The utilisation of the tax relief, translated at closing rates, to the value of R131,683,258 (2007: R137,792,944), calculated at cur- rent tax rates on the net calculated tax losses, is dependent on sufficient future taxable income in the companies concerned. The carry forward of all calculated tax losses is indefinite, except for certain African countries, as set out below: Expiry date 30 June 2008 — 11 117 30 June 2009 5 355 9 907 30 June 2010 13 362 9 233 30 June 2011 20 932 12 719 30 June 2012 29 707 21 086 30 June 2013 17 888 23 567 30 June 2014 18 556 13 794 30 June 2015 17 492 9 239 30 June 2016 13 932 — 30 June 2017 12 626 — — — 149 850 110 662 Calculated temporary differences on consolidation associated with investments in subsidiaries for which deferred tax liabilities — — have not been created 38 836 12 730
30 earninGS PER SHARE 2008 R’000 Gross Tax effect Net Profit attributable to equity holders 1 570 252 Profit on disposal of property (note 3) (200) 28 (172) Profit on disposal of assets held for sale (note 4) (2 034) 285 (1 749) Loss on disposal and scrapping of plant, equipment and intangible assets (note 3 & 9) 9 250 54 9 304 Insurance claims received (21 689) 7 591 (14 098) Impairment of property, plant and equipment and assets held for sale (note 3 & 4) 6 091 777 6 868 Impairment of goodwill (note 9.1) 2 336 — 2 336 Loss on other investing activities (510) — (510) Headline earnings (6 756) 8 735 1 572 231
2007 R’000 Gross Tax effect Net Profit attributable to equity holders 1 076 071 Profit on disposal of assets held for sale (note 4) (23 876) 1 751 (22 125) Loss on disposal and scrapping of plant, equipment and intangible assets (note 3 & 9) 6 259 (2 462) 3 797 Insurance claims received (14 053) 5 738 (8 315) Impairment of property, plant and equipment and assets held for sale (note 3 & 4) 720 678 1 398 Profit on other investing activities 848 (128) 721 Realisation of profits in fair value reserve on disposal of listed investment (33 459) 4 852 (28 607) Headline earnings (note 30.1) (63 561) 10 429 1 022 939
94 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb 30 earninGS PER SHARE (continued) NUMBER OF SHARES ’000 ’000 Weighted average number of ordinary shares 507 320 507 320 adjustments for dilutive potential of share options 19 135 20 389 Weighted average number of ordinary shares for diluted earnings per share 526 455 527 709
Number of ordinary shares – In issue 507 320 507 320 – Weighted average 507 320 507 320 – Weighted average adjusted for dilution 526 455 527 709
Earnings per share Cents – Earnings 309.5 212.1 – Diluted earnings 298.3 203.9 – Headline earnings 309.9 201.6 – Diluted headline earnings 298.6 193.8
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 30.1 headline earnings recalculation The calculation for headline earnings was adjusted retrospec- tively in terms of SAICA Circular 8/2007: Headline Earnings. This recalculation had the following effect on the compara- tive information previously presented:
Reconciliation of adjusted headline earnings per share: Headline earnings as previously presented 1 025 565 Add back: loss on cancellation of lease net of tax (3 060) Add back: prescription of capital amounts owing net of tax 434 Headline earnings 1 022 939
Cents Cents Decrease in headline earnings per share 0.6 Decrease in diluted headline earnings per share 0.5 31 DIVIDENDS PER SHARE 31.1 Dividends per share paid No. 117 paid 29 October 2007 (2007: No. 115 paid 46.0 66.0 18 September 2006) 66.0 46.0 35.0 49.0 No. 118 paid 17 March 2008 (2007: No. 116 paid 19 March 2007) 49.0 35.0 81.0 115.0 115.0 81.0 31.2 Dividends per share declared No 119 paid 29 September 2008 (2007: No. 117 66.0 106.0 paid 29 October 2007) 106.0 66.0
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 95 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000
32 cash FLOW INFORMATION 32.1 non-cash items — — Depreciation of property, plant and equipment 597 786 527 674 — — amortisation of intangible assets 29 002 15 493 — — Net fair value (gains)/losses on financial instruments (5 612) 20 620 3 922 56 Exchange rate (gains)/losses (33 187) (23 725) — — Profit on disposal of property (200) — — — Profit on disposal of assets held for sale (2 034) (23 876) Loss on disposal and scrapping of plant, equipment — — and intangible assets 9 250 6 259 (14 388) (122 811) Reversal of impairment of investment in subsidiaries — — Impairment of property, plant and equipment and — — assets held for sale 6 091 720 9 483 — Subsidiary loan written off — — — — Loss on other investing activities — 848 Realisation of profits in fair value reserve on disposal — — of listed investment — (33 459) — — Impairment of goodwill 2 336 — — — Movement in provisions 86 030 32 334 — — Movement in cash-settled share-based payment accrual 59 835 17 892 — — Insurance claims received (21 689) — — — Movement in fixed escalation operating lease accrual (17 864) 7 370 (983) (122 755) 709 744 548 150 32.2 changes in working capital — — Inventories (913 824) (419 734) (2 871) (482) Trade and other receivables (133 276) (76 463) 2 710 (2 910) Trade and other payables 1 443 985 1 800 835 (161) (3 392) 396 885 1 304 638 32.3 Dividends paid (979) (1 224) Shareholders for dividends at the beginning of the year (1 558) (1 224) (440 218) (625 001) Dividends distributed to shareholders (583 418) (410 923) — — Dividends distributed to minorities (4 845) (6 872) 1 224 1 705 Shareholders for dividends at the end of the year 2 032 1 558 (439 973) (624 520) (587 789) (417 461) 32.4 tax paid (28 045) 38 (Payable)/prepaid at the beginning of the year (200 114) (70 699) (68 340) (73 060) Per income statement (866 108) (653 767) — — Tax effect of cash settlement of share options charged to equity 47 999 — (38) 7 068 Payable/(prepaid) at the end of the year 402 082 200 114 (96 423) (65 954) (616 141) (524 352)
96 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 32 cash FLOW INFORMATION (continued) 32.5 cash flows from investing activities — — Purchase of property, plant and equipment and intangible assets (1 436 195) (1 258 609) Proceeds on disposal of property, plant and equipment — — and intangible assets 68 021 38 270 — — Proceeds on disposal of assets held for sale 194 544 67 791 — — Other investing activities 11 950 2 914 (573 575) (780 227) amounts owing paid to subsidiaries — — 1 179 674 701 584 amounts received from subsidiaries — — (275 351) (3 417) Preference share investments — — — — Proceeds on disposal of listed investment — 54 528 — — acquisition of operations (note 32.5.1) (5 909) (14 192) 330 748 (82 060) (1 167 589) (1 109 298) 32.5.1 Acquisition of operations The Group acquired retail business operations in South Africa from Sunburst Trading CC on 14 November 2007. In the previous financial year the Group acquired retail business operations in Swaziland from an individual on 1 December 2006.
The assets and liabilities arising from these acquisitions were as follows: Property, plant and equipment (note 3) 5 000 5 000 Inventories 109 4 192 5 109 9 192 Goodwill (note 9.1) 800 5 000 Total purchase consideration 5 909 14 192 Less: cash and cash equivalents — — — — Cash flow on acquisition net of cash acquired 5 909 14 192 32.6 cash flows from financing activities acquisition of treasury shares — (220) Proceeds on issue of Shoprite International Ltd “Angola” and “Malawi” preference shares to joint venture (note 16.2) 223 331 Increase in borrowings from First National Bank of Namibia Ltd 20 274 — Redemption of Shoprite International Ltd “Mozambique” preference shares (note 16.2) — (12) — — 20 497 99 33 continGENT LIABILITIES amounts arising in the ordinary course of business relating to property and other transactions from which it is anticipated that no material liabilities will arise 34 406 57 593 34 commitments 34.1 capital commitments Contracted for property, plant and equipment 311 843 291 180 Contracted for intangible assets 15 581 20 000 authorised by directors, but not contracted for 1 460 471 1 056 050 — — Total capital commitments 1 787 895 1 367 230 — — Capital commitments for the 12 months after accounting date 1 787 895 1 367 230 Funds to meet this expenditure will be provided from the Group’s own resources and borrowings.
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 97 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 34 commitments (continued) 34.2 operating lease commitments Future minimum lease payments under non-cancellable operating leases – Not later than one year 943 112 860 086 – Later than one year not later than five years 3 005 296 2 798 738 – Later than five years 1 644 335 1 560 305 5 592 743 5 219 129 Less: fixed escalation operating lease accrual (note 19) (505 475) (517 490) — — 5 087 268 4 701 639 34.3 operating lease receivables Future minimum lease payments receivable under non-cancellable operating leases – Not later than one year 174 654 155 530 – Later than one year not later than five years 313 995 307 372 – Later than five years 41 894 51 147 530 543 514 049 Less: fixed escalation operating lease accrual (note 10) (8 640) (2 791) — — 521 903 511 258 35 borrowinG POWERS In terms of the Articles of Association of the Company the borrowing powers of Shoprite Holdings Ltd are unlimited. 36 post-RETIREMENT benefits 36.1 retirement funds Group companies provide post-retirement benefits in accordance with the local conditions and practices in the countries in which they operate.
The Group provides retirement benefits to 61,3% (2007: 64,1%) of employees and 7,1% (2007: 7,0%) of the em- ployees belong to national retirement plans. The monthly contributions are charged to the income statement.
all company funds are defined contribution funds.A ll South African funds are subject to the Pension Fund Act of 1956.
The Retail Retirement Fund is currently giving effect to the surplus apportionment provisions of the Pension Funds Second Amendment Act of 2001. The actuarial surplus was not accounted for in the Group’s results as it is not known at this stage if any of the surplus will be available for allocation to the Group. The last actuarial valuation date of the fund surplus is 30 June 2004.
During the year under review contributions to retirement funding have been calculated as 193 528 169 345
98 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 36 post-RETIREMENT BENEFITS (continued) 36.2 medical benefits Full provision for post-retirement medical benefits, where they exist, are made with reference to actuarial valuations in respect of past services liabilities.
36.2.1 The principal actuarial assumptions used for accounting purposes are as follows: Health-care cost inflation 8.5% 6.8% Discount rate 10.5% 7.8% Salary adjustments – inflation 6.5% 4.8% – promotions and experience increases 1.5% 1.5% Continuation at retirement 95.0% 95.0% Expected retirement age 60 years 60 years
The assumed rates of mortality are as follows: During employment: SA 85-90 (light) ultimate table (2007: SA 85-90 (light) ultimate table) Post-employment: PA (90) ultimate table rated down 2 years plus 1% p.a. improvement from 2006 (2007: PA (90) ultimate table rated down 2 years plus 1% p.a. improvement from 2006)
36.2.2 The movement in the liability recognised in R’000 R’000 the balance sheet (note 18) was as follows: balance at the beginning of the year 179 811 183 859 Total expense charged to the income statement (note 36.2.3) 10 779 5 318 benefits paid (9 491) (9 366) — — balance at the end of the year 181 099 179 811 36.2.3 The amounts recognised in the income statement were as follows: Current service cost 1 763 2 260 Net actuarial gains recognised during the year (4 563) (10 380) Interest cost 13 579 13 438 — — Total included in employee benefits (note 24) 10 779 5 318 The effect of a 1% increase in the assumed health-care cost inflation is as follows: Increase in the current service and interest cost 2 517 2 226 Increase in the post-retirement medical benefit liability 23 439 24 268
The effect of a 1% decrease in the assumed health-care cost inflation is as follows: Decrease in the current service and interest cost 2 095 1 838 Decrease in the post-retirement medical benefit liability 19 589 20 152
benefits expected to be paid to the plan during the next financial year 10 140 9 491
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 99 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
37 financial INSTRUMENTS BY CATEGORY
assets at fair Loans and value through available- R’000 receivables profit and loss for-sale Total
Group 2008 Financial assets as per balance sheet available-for-sale investments 37 548 37 548 Loans and receivables 47 524 47 524 Instalment sales 608 082 608 082 Trade receivables 554 736 554 736 Other receivables excluding prepayments and taxes receivable 397 501 397 501 amounts owing by joint ventures 20 692 20 692 Derivative financial instruments 4 741 4 741 Cash and cash equivalents 3 156 641 3 156 641 4 785 176 4 741 37 548 4 827 465 2007 Financial assets as per balance sheet available-for-sale investments 23 738 23 738 Loans and receivables 50 415 50 415 Instalment sales 571 127 571 127 Trade receivables 450 840 450 840 Other receivables excluding prepayments and taxes receivable 437 325 437 325 amounts owing by joint ventures 15 711 15 711 Cash and cash equivalents 2 012 226 2 012 226 3 537 644 — 23 738 3 561 382
C company 2008 Financial assets as per balance sheet amounts owing by subsidiaries 225 792 225 792 Other receivables excluding prepayments and taxes receivable 3 353 3 353 Cash and cash equivalents 603 271 603 271 832 416 — — 832 416 2007 Financial assets as per balance sheet amounts owing by subsidiaries 147 205 147 205 Other receivables excluding prepayments and taxes receivable 2 871 2 871 Cash and cash equivalents 607 161 607 161 757 237 — — 757 237
100 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Liabilities at fair value Financial through profit R’000 liabilities and loss Total
Group 2008 financial liabilities as per balance sheet borrowings 12 762 12 762 Reinstatement provision 140 697 140 697 Trade payables 6 255 634 6 255 634 Other payables and accruals excluding taxes payable and employee benefit accruals 2 009 622 2 009 622 amounts owing to joint ventures 4 196 4 196 bank overdrafts 20 791 20 791 Shareholders for dividends 2 032 2 032 8 445 734 — 8 445 734
2007 financial liabilities as per balance sheet borrowings 2 498 2 498 Reinstatement provision 67 256 67 256 Trade payables 4 995 033 4 995 033 Other payables and accruals excluding taxes payable and employee benefit accruals 1 880 616 1 880 616 amounts owing to joint ventures 2 732 2 732 Derivative financial instruments 682 682 bank overdrafts 24 524 24 524 Shareholders for dividends 1 558 1 558 6 974 217 682 6 974 899
Company 2008 financial liabilities as per balance sheet borrowings 2 450 2 450 Other payables and accruals excluding taxes payable and employee benefit accruals 594 594 Shareholders for dividends 1 705 1 705 4 749 — 4 749
2007 financial liabilities as per balance sheet borrowings 2 450 2 450 Other payables and accruals excluding taxes payable and employee benefit accruals 3 504 3 504 Shareholders for dividends 1 224 1 224 7 178 — 7 178
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 101 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 38 financial RISK MANAGement 38.1 financial risk factors The Group’s activities expose it to a variety of financial risks, including the effects of changes in debt, foreign currency exchange rates and interest rates. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as foreign ex- change rate contracts as economic hedges, to hedge certain exposures.
Risk management is carried out by a central treasury department under policies approved by the Board of Directors. The treasury department identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as currency risk, interest rate risk, credit risk, use of derivative financial instruments and investing excess liquidity.
38.1.1 Market risk a) Currency risk The Group operates internationally and is exposed to currency risk arising from various currency exposures. The treasury department hedges the Group’s net position in each foreign currency by using call deposits in foreign currencies and derivative financial instruments in the form of forward foreign exchange rate contracts for all cumulative foreign commitments of three months or more. Forward currency rate contracts are not used for speculative purpose.
Currency exposure arising from the net monetary assets in individual countries, held in currencies other than the functional currency of the Group, are managed primarily through converting cash and cash equivalents not required for operational cash flows to US dollar. The US dollar is the preferred currency due to its history of stability, liquidity and availability in most markets.
Material concentrations of currency risk exists within the Group’s cash and cash equivalents. The net cash and cash equivalents are denominated in the following currencies:
607 161 603 271 South African rand 2 727 522 1 710 092 — — uSA dollar 193 324 118 691 — — Zambian kwacha 70 443 62 936 — — Malawi kwacha 50 470 34 083 — — angolan kwanza 24 360 28 092 — — botswana pula 21 687 12 035 — — Other currencies 48 044 21 773 607 161 603 271 3 135 850 1 987 702
102 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 38 financial RISK MANAGEMENT (continued) 38.1 financial risk factors (continued) 38.1.1 Market risk (continued) a) Currency risk (continued) The Group does not have significant foreign creditors as most inventory imports are prepaid.
Where material concentrations of currency risk exists within the Group a sensitivity analysis was performed to calculate what the increase/decrease in profit for the year would have been if the various individual currencies strengthened or weakened against the ZAR and the USD. At 30 June 2008 the total possible decrease in Group post-tax profit, calcu- lated for all possible currency movements, was R2,548,000 with the ZAR/USD exchange rate (with an expected 5,3% incline) contributing R1,403,000 to this number. At 30 June 2007 the total possible increase in Group post-tax profit, calculated for all possible currency movements, was R8,264,000 with the ZAR/USD exchange rate (with an expected 7% decline) contributing R2,737,000 to this number. These changes had no effect on the Group’s equity.
The amounts were calculated with reference to the financial instruments exposed to currency risk at the reporting date and does not reflect the Group’s exposure throughout the reporting period as these balances may vary significantly due to the self funding nature of the Group’s required working capital and cyclical nature of cash received from sale of merchandise and payment to trade and other payables. The possible currency movements were determined based on management’s best estimates taking into account prevailing economic and market conditions and future expectations.
The Group has a number of investments in foreign subsidiaries, whose net assets are exposed to foreign currency translation risk. Although not subject to market risk, the following constituted significant concentrations of net monetary assets/(liabilities), including short-term surplus funds, in currencies other than the reporting currency as at 30 June, subject to translation risk. N e t m o n e ta r y assets/(liabilities) per currency R’000 rand Equivalent Country Foreign currency Angola Kwanza (99 741) (41 264) Botswana Pula 16 670 8 567 DRC Congolese Francs 4 966 — Ghana Cedi 441 1 112 India Rupee (116 433) (70 295) Madagascar Ariary (1 778) (3 714) Malawi Kwacha 34 803 20 391 Mauritius Mauritian rupee 21 112 23 122 Mozambique Metical (1 584) 1 982 Nigeria Naira (9 673) 650 Tanzania Shilling (10 263) (4 453) Uganda Shilling (3 804) 1 670 USA Dollar 155 918 95 259 Zambia Kwacha (41 771) (51 208)
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 103 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 38 financial RISK MANAGEMENT (continued) 38.1 financial risk factors (continued) 38.1.1 Market risk (continued) b) Cash flow and fair value interest rate risk The Group’s interest rate risk arises mainly from daily call accounts and bank overdrafts. These carry interest at rates fixed on a daily basis and expose the Group to cash flow interest rate risk. The Group analyses this interest rate exposure on a dynamic basis. Daily cash flow forecasts are done and combined with interest rates quoted on a daily basis. This information is then taken into consideration when reviewing refinancing/reinvesting and/or renewal/cancella- tion of existing positions and alternative financing/investing. Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate shift. The scena rios are run only for cash/borrowings that represent the major interest-bearing positions. The weighted average effective interest rate on call accounts was 11,1% (2007: 8,7%).
The interest rate on individual instalment sale receivables (refer note 12) is fixed and exposes the Group to fair value interest rate risk which is mitigated by charging appropri- ate margins and the fact that the maximum term of these contracts are 24 months.
For exposure to interest rate risk on other monetary items refer to the following: – Interest-bearing borrowings: note 16 – Amounts owing by joint ventures: note 12 – Loans and receivables: note 7
Where material concentrations of interest rate risk exist within the Group a sensitivity analysis was performed to calculate what the increase/decrease in profit for the year would have been if the various individual interest rates the Group’s financial instruments are subject to strengthened or weakened. At 30 June 2008 the total possible decrease in Group post-tax profit, calculated for all possible interest rate movements, was R9,404,000. The estimated decrease of 50 basis points in the South African prime rate will result in a possible decrease in Group post-tax profit of R8,523,000. At 30 June 2007 the total possible increase in Group post-tax profit, calculated for all possible interest rate movements, was R8,315,000. The estimated increase of 100 points in the South African prime rate would have resulted in a pos- sible increase in Group post-tax profit of R8,302,000. These changes had no effect on the Group’s equity.
The amounts were calculated with reference to the financial instruments exposed to interest rate risk at the reporting date and does not reflect the Group’s exposure throughout the reporting period as these balances may vary significantly due to the self funding nature of the Group’s required work- ing capital and cyclical nature of cash received from sale of merchandise and payment to trade and other payables. The possible interest rate movements were determined based on management’s best estimates taking into account prevailing economic and market conditions and future expectations.
104 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 38 financial RISK MANAGEMENT (continued) 38.1 financial risk factors (continued) 38.1.2 Credit risk Credit risk is managed on a group basis. Potential concentra- tion of credit risk consists primarily of cash and cash equiva- lents, trade and other receivables and investments. Funds are only invested with South African financial institutions with a minimum Moody’s short-term credit rating of P-2 and a minimum Moody’s long-term rating of Baa2. For financial institutions outside South Africa the required minimum Moody’s short-term and long-term credit ratings are P-1 and Aa3 respectively. Due to the Group’s international operational requirements it is forced to transact with financial institu- tions in certain countries where independent credit ratings are not available. In these instances the Group’s exposure to credit risk at each of these financial institutions are evaluated by management on a case by case basis. Cash balances deposited with these financial institutions are kept to an op- erational minimum and are transferred, subject to exchange control regulations and available suitable foreign currency, to financial institutions with acceptable credit ratings. The Group has policies that limit the amount of credit exposure to any one financial institution.
Sales to retail customers are settled in cash or using major credit cards. Except for the total exposure represented by the respective balance sheet items, the Group has no other significant concentration of credit risk. Accounts receivable comprise a wide-spread client base and the Group has poli- cies in place to ensure that all sales of goods and services on credit are made to customers with an appropriate credit his- tory. These policies include reviewing the Group’s own credit history with the customer, verifying the credit history with an external credit bureau, as well as a formalised application process where the creditworthiness of the customer is as- sessed. The Group also obtains security from its franchisees.
For exposure to credit risk on other monetary items refer to the following: – Trade and other receivables: note 12 – Loans and receivables: note 7
The table below shows the cash invested at the balance sheet date at financial institutions grouped per Moody’s short-term credit rating of the financial institutions.
Rating 600 000 600 000 P-1 2 263 333 1 259 187 7 161 3 271 P-2 292 176 262 260 — — No rating available 186 208 141 894 — — Cash on hand and in transit 394 133 324 361 607 161 603 271 3 135 850 1 987 702
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 105 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 38 financial RISK MANAGEMENT (continued) 38.1 financial risk factors (continued) 38.1.3 Liquidity risk all significant financial liabilities of the Group matures within 12 months of balance sheet date. The risk of illiquidity is managed by using cash flow forecasts; maintaining adequate unutilised banking facilities (2008: R3,024,039,270; 2007: R2,817,927,962) and unlimited borrowing powers. All unuti- lised facilities are controlled by the Group’s treasury depart- ment in accordance with a treasury mandate as approved by the Board of Directors.
The Company has ceded cash and cash equivalents of R600 million as security for banking facilities of its main trading subsidiary, Shoprite Checkers (Pty) Ltd. These facilities were not utilised at the balance sheet date.
The Group’s derivative financial instruments that will be settled on a gross basis are detailed in note 13. The amounts disclosed are the contractual undiscounted cash flows. All balances are due within 12 months and equal their carrying values, as the impact of discounting is not significant. 38.2 insurance risk The Group underwrites insurance products with the following terms and conditions:
Credit protection which covers the risk of the customer being unable to settle the terms of the credit agreement as a result of death, disability or qualifying retrenchment. This cover also includes the repair or replacement of the product due to accidental loss or damage within the terms of the conditions of the policy.
The risk under any one insurance contract is the possibility that an insured event occurs as well as the uncertainty of the amount of the resulting claim. By the very nature of an insur- ance contract, this risk is random and unpredictable.
underwriting risk is the risk that the Group’s actual exposure to short-term risks in respect of policy-holding benefits will exceed prudent estimates. Where appropriate, the above risks are managed by senior management and directors
underwriting risk is the risk that the Group’s actual exposure to short-term risks in respect of policy-holding benefits will exceed prudent estimates. Where appropriate, the above risks are managed by senior management and directors.
Within the insurance process, concentration risk may arise where a particular event or series of events could impact heavily on the Group’s resources. The Group has not formally monitored the concentration risk; however, it has mitigated against concentration risk by structuring event limits in every policy to ensure that the probability of underwriting loss is minimised. Therefore the Group does not consider its con- centration risk to be high.
106 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 38 financial RISK MANAGEMENT (continued) 38.3 fair value estimation The nominal value less estimated credit adjustments of trade and other receivables and payables are assumed to approximate their fair values.
The book value of all other financial instruments approximate the fair values thereof. 39 capital RISK MANAGEMENT The Group’s objectives when managing capital are to safe- guard the Group’s ability to continue as a going concern in or- der to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. Total capital is considered to be equity as shown in the balance sheet.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Due to the cash generative nature of the Group’s operations and current prevailing economic conditions, management has determined that the lowest possible gearing ratio will provide shareholders with the high- est possible return on investment with the lowest possible exposure to financial risk. The gearing ratio is calculated as net debt borrowings divided by equity and was 0,48% (2007: 0,07%) on the balance sheet date.
The Group is currently maintaining a two times dividend cover based on headline earnings per share. 40 relateD-PARTY INFORMATION Related-party relationships exist between the Company, sub- sidiaries, directors, as well as their close family members, and key management of the Company.
During the year under review, in the ordinary course of business, certain Group companies entered into transactions with each other. All these intergroup transactions have been eliminated in the annual financial statements on consolidation.
Certain non-executive directors are employees of Chaircorp (Pty) Ltd, a management company that renders advisory ser- vices to Shoprite Holdings Ltd and Shoprite Checkers (Pty) Ltd in return for an annual fee. The fees relating to services as non-executive directors are included in the directors re- muneration note 26. A further amount of R4,300,748 (2007: R2,642,695) was paid to Chaircorp (Pty) Ltd for advisory services to Shoprite Checkers (Pty) Ltd.
Details of the remuneration of directors, and their shareholding, are disclosed in notes 14 and 26.
Key management personnel compensation Short-term employee benefits 95 606 75 967 Post-employment benefits 10 168 8 364 Share-based payments 52 843 14 158 Directors’ fees 658 658 — — 159 275 99 147
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 107 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 40 relateD-PARTY INFORMATION (continued) During the year key management have purchased goods at the Group’s usual prices less a 15% discount. Discount ranging from 5% to 15% is available to all permanent full-time and flexi-time employees.
During the financial year under review, in the ordinary course of business, certain Group companies purchased certain products and services from certain entities, in which direc- tors JW Basson, CH Wiese, EL Nel and JA Louw have a significant influence. These purchases were concluded at market-related prices and are insignificant in terms of the Group’s total operations for the year.
These purchases and related balances were as follows: Purchase of merchandise 38 065 19 289 Purchase of services 9 833 8 152 Year-end balances 3 348 3 536
The Group has sold certain residential properties to key management personnel at market-related prices. The total value of these transactions was R9,355,000.
The Group has a 50% interest in the Hungry Lion joint venture (refer note 41). The other 50% is indirectly held by alternate director JAL Basson.
The following transactions took place between the Hungry Lion joint venture and the Group during the year under review: Administration fees paid to the Group 3 072 2 397 Rent paid to the Group 1 456 3 639 Interest paid to the Group 6 322 2 064 Interest paid to the joint venture 203 292
The year-end balances relating to the transactions with the joint venture are disclosed in notes 12 and 20.
The Company received the following from its subsidiary, Shoprite Checkers (Pty) Ltd: 3 271 — Interest 988 1 073 Annual administration fee
108 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Company Group
30 June 30 June 30 June 30 June 2007 2008 2008 2007 R’000 R’000 R’000 R’000 41 joint VENTURES The Group holds directly the following interests in joint ventures: Hungry Lion Fast Foods (Pty) Ltd 50% 50% Hungry Lion Mauritius Ltd 50% 50%
The consolidated results include the following amounts relating to the Group’s interest in joint ventures.
income statement Sale of merchandise 177 675 144 126 Profit before tax 12 654 13 920 Tax (4 652) (3 866) Profit for the year 8 002 10 054
balance sheet Non-current assets 39 640 34 423 Current assets 5 827 4 687 Current liabilities 6 031 9 888
Interest-bearing (4 214) 355 Interest-free 10 245 9 533
cash flow statement Net cash flow from operating activities 17 178 15 620 Net cash flow from investing activities (12 140) (8 387) Net cash flow from financing activities — —
Capital commitments 2 930 2 853
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 109 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to the Annual
Financial Statements (continued) | Shoprite Holdings LTD and its subsidiaries for the year ended 30 June 2008
ANNEXURE A – INTERESTS IN SUBSIDIARIES
Issued ordinary and Percentage Investment Amount owing preference shares in shares by/(to) share capital held by 30 June 30 June 30 June 30 June Country of and premium Group 2008 2007 2008 2007 incorporation R’000 % R’000 R’000 R’000 R’000
DIRECT SUBSIDIARIES OK Bazaars (1998) (Pty) Ltd South Africa 2 700 100 — — — — Shoprite Checkers (Pty) Ltd South Africa 1 128 908 100 174 431 174 431 222 577 143 990 Shoprite International Ltd Mauritius 1 429 680 100 1 429 680 1 426 263 — — Shoprite Insurance Company Ltd South Africa 20 230 100 20 230 20 230 — — Shoprite Checkers Properties Ltd South Africa 26 196 100 16 677 16 677 3 365 3 365 Other South Africa 100 150 150 (150) (150) 1 641 168 1 637 751 225 792 147 205
INDIRECT SUBSIDIARIES Africa Supermarkets Ltd* Zambia — 100 Checkers Chatsworth Ltd South Africa 2 000 48 Computicket (Pty) Ltd South Africa 233 100 Megasave Trading (Pvt) Ltd* India 32 796 100 Mercado Fresco de Angola Lda* Angola 342 100 OK Bazaars (Lesotho) (Pty) Ltd Lesotho 300 50 OK Bazaars (Namibia) Ltd Namibia 500 100 OK Bazaars (Swaziland) (Pty) Ltd Swaziland 200 100 OK Bazaars (Venda) Ltd South Africa 2 400 50 Propco Mozambique Lda* Mozambique 432 100 Retail Holdings Botswana (Pty) Ltd* botswana 5 000 100 Retail Supermarkets Nigeria Ltd* Nigeria 522 100 Sentra Namibia Ltd* Namibia 5 880 100 Shophold (Mauritius) Ltd* Mauritius 351 100 Shoprite Angola Imobiliaria Lda* Angola 342 100 Shoprite Checkers Tanzania Ltd* Tanzania — 100 Shoprite Checkers Uganda Ltd* Uganda 8 100 Shoprite Ghana (Pty) Ltd* Ghana 11 507 100 Shoprite Lesotho (Pty) Ltd* Lesotho 1 100 Shoprite Madagascar S.A.* Madagascar 64 970 100 Shoprite (Mauritius) Ltd* Mauritius 9 365 51 Shoprite Namibia (Pty) Ltd* Namibia — 100 Shoprite RDC SPRL* DRC 13 464 100 Shoprite Supermercados Lda* Angola 342 100 Shoprite Too (Pty) Ltd* Tanzania 1 870 100 Shoprite Trading Ltd* Malawi 3 100 1 641 168 1 637 751 225 792 147 205 *Converted at historical exchange rates
NOTE: General information in respect of subsidiaries, as required in terms of paragraph 70 of the Fourth Schedule to the Companies Act, is set out in respect of only those subsidiaries of which the financial position or results are material for a proper appreciation of the affairs of the Group. A full list of subsidiaries is available on request.
110 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Shareholder Analysis | Shoprite Holdings LTD and its subsidiaries as at 30 June 2008
SHAREHOLDER SPREAD No of shareholdings % No of shares % 1 – 1000 shares 4,155 59.25 1,332,430 0.25 1001 – 10000 shares 1,901 27.11 6,622,568 1.22 10001 – 100 000 shares 604 8.61 20,759,344 3.82 100 001 – 1 000 000 shares 273 3.89 92,234,293 16.97 1 000 001 shares and over 80 1.14 422,530,825 77.75 7,013 100.00 543,479,460 100.00
DISTRIBUTION OF SHAREHOLDERS No of shareholdings % No of shares % Banks 117 1.67 60,584,719 11.15 Close Corporations 50 0.71 280,745 0.05 Collateral Account 12 0.17 1,534,194 0.28 Endowment Funds 43 0.61 4,737,036 0.87 Hedge Funds 5 0.07 686,898 0.13 Individuals 5384 76.77 16,320,528 3.00 Insurance Companies 41 0.58 31,470,091 5.79 Investment Companies 23 0.33 38,273,278 7.04 Medical Aid Schemes 5 0.07 382,731 0.07 Mutual Funds 218 3.11 109,950,295 20.23 Nominees and Trusts 646 9.21 35,166,620 6.47 Other Corporations 76 1.08 3,407,123 0.63 Own Holdings 1 0.01 35,653,533 6.56 Pension Funds 208 2.97 132,673,658 24.41 Private Companies 168 2.40 68,555,080 12.61 Public Companies 15 0.21 3,296,895 0.61 Share Trusts 1 0.01 506,036 0.09 7,013 100.00 543,479,460 100.00
PUBLIC / NON – PUBLIC SHAREHOLDERS No of shareholdings % No of shares % Non-Public Shareholders 35 0.50 129,505,876 23.71
Directors and Associates of the Company holdings 33 0.47 93,346,307 17.09 Own Holdings 1 0.01 35,653,533 6.53 Share Trusts 1 0.01 506,036 0.09
Public Shareholders 6,978 99.50 413,973,584 76.29 7,013 100.00 543,479,460 100.00
Beneficial shareholders holding of 1% or more No of shares % Public Investment Corporation 73,139,556 13.46 Titan Nominees 48,813,334 8.98 Shoprite Checkers (Pty) Ltd 35,653,533 6.53 Thibault Square Financial Services (Pty) Ltd 32,000,000 5.89 Sanlam 27,323,731 5.03 Liberty Group 15,315,330 2.82 State Street Bank For The Ben Of Legacy Ibt West 12,848,860 2.36 Allan Gray Equity Fund 12,262,746 2.26 Allan Gray Balanced Fund 11,956,895 2.20 Namibian Government Institutions Pension Fund 11,446,477 2.11 Nedbank Rainmaker Equity Fund 10,885,000 2.00 Old Mutual Life Assurance Company SA 10,761,316 1.98 Allan Gray Global Balanced Portfolio 5,773,474 1.06 Le Roux, JF (Rotrust (Pty) Ltd) 5,465,705 1.01
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 111 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb (Incorporated in the Republic of South Africa) (Registration number 1936/007721/06) Notice to Shareholders JSE share code: SHP NSX share code: SRH Shoprite Holdings LTD LUSE share code: SHOPRITE for the year ended 30 June 2008 ISIN: ZAE000012084 (“Shoprite Holdings” or “the Company”)
If you are in any doubt as to what action you Ordinary resolution number 8 nary shares to be issued pursuant to a rights should take arising from the following resolu- General authority over unissued issue which has been announced, is irrevo- tions, please consult your stockbroker, banker, shares cable and fully underwritten, or an acquisition attorney, accountant or other professional “Resolved that 27,2 million (5% of the issued which has had final terms announced; adviser immediately. share capital that includes treasury shares) of the – this authority be valid until the Company’s next authorised but unissued shares in the capital of Annual General Meeting, provided that it shall NOTICE IS HEREBY GIVEN that the Annual the Company be and are hereby placed under not extend beyond 15 (fifteen) months from General Meeting of Shoprite Holdings Limited the control and authority of the directors of the the date that this authority is given; (“the Company”) will be held in the boardroom Company and that the directors of the Company – a paid press announcement giving full details, of Shoprite’s head office, corner William Dabs be and are hereby authorised and empowered including the impact on the net asset value and Old Paarl Roads, Brackenfell, South Africa to allot, issue and otherwise dispose of such and earnings per share, be published at the on Monday, 27 October 2008 at 09:15 for the shares to such person or persons on such terms time of any issue representing, on a cumula- purpose of considering and, if deemed fit, pass- and conditions and at such times as the directors tive basis within one financial year, 5% (five ing with or without modification, the ordinary and of the Company may from time to time and in percent) of the number of shares in issue prior special resolutions set out below in the manner their discretion deem fit, subject to the provi- to the issue; and required by the Companies Act (Act 61 of 1973) sions of the Act, the Articles of Association of – in determining the price at which an issue of as amended (“the Act”): the Company and JSE Limited (“JSE”) Listings shares may be made in terms of this authority, Requirements, when applicable, and any other the maximum discount permitted will be 10% Ordinary resolution number 1 exchange on which the shares of the Company (ten percent) of the weighted average traded To consider and adopt the annual financial state- may be quoted or listed from time to time, until price on the JSE of those shares over the 30 ments of the Company and the Group for the the Company’s next Annual General Meeting.” (thirty) business days prior to the date that the year ended 30 June 2008 including the reports of price of the issue is determined or agreed by the directors and auditors. Ordinary resolution number 9 the directors of the Company. General authority to issue shares Ordinary resolution number 2 for cash Ordinary resolution number 10 To approve the remuneration of the non-execu- “Resolved that subject to no less than 75% Amendments to the Shoprite Holdings tive directors for the year ended 30 June 2008, (seventy five percent) of the votes cast by those Limited Share Incentive Trust as reflected on page 92 of the annual financial shareholders of the Company present in person “Resolved that subject to the compliance of any statements. or represented by proxy to vote at this Annual other requirements as set out in the trust deed General Meeting voting in favour of this ordinary of the Shoprite Holdings Limited Share Incentive Ordinary resolution number 3 resolution, the directors of the Company be Trust (“the Trust Deed”) the Trust Deed to which To confirm the reappointment of the auditors, and are hereby authorised by way of a general the Company is a party be and is amended upon PricewaterhouseCoopers, for the ensuing year authority, to issue all or any of the authorised but the following terms: and to authorise the directors to determine the unissued shares in the capital of the Company, auditors’ remuneration. for cash, as and when they in their discretion the amplification of the powers of the trustees deem fit, subject to the Act, the Articles of as set out in clause 6.1.2 to read as follows: Ordinary resolution number 4 Association of the Company, the JSE Listings – “to borrow, raise monies and/or accept any To confirm the proposed declaration and Requirements and any other exchange on which contributions or payments from the company payment of the ordinary dividend as recom- the shares of the Company may be quoted from and/or any other member of the group or mended by the directors of the Company. time to time, when applicable, subject to the from third parties for the purposes of the following limitations, namely that: schemes on such terms as they deem fit;” Ordinary resolution number 5 – the equity securities which are the subject of To re-elect Dr CH Wiese, who retires as director the issue for cash must be of a class already The adding of a new clause 19.8 reading as follows: in terms of Article 14.1 of the Articles of in issue, or where this is not the case, must “Notwithstanding any other provisions to the Association of the Company, but being eligible, be limited to such securities or rights that are contrary contained in this trust deed and, if so offers himself for re-election. Dr Wiese’s convertible into a class already in issue; agreed between the trustees and an option abridged curriculum vitae appears on page 7 of – any such issue will only be made to “public holder who exercised an option in pursuance this annual report. shareholders” as defined in the JSE Listings of the provisions of 19.5, the trustees shall be Requirements and not related parties, unless empowered to make payment or cause payment Ordinary resolution number 6 the JSE otherwise agrees; to be made to such option holder of an amount To re-elect Mr JA Louw, who retires as director – the number of shares issued for cash shall in cash, that shall be equivalent to the middle in terms of Article 14.1 of the Articles of not in the aggregate in any one financial year, market price on the last trading date on the JSE Association of the Company, but being eligible, exceed 5% (five percent) of the Company’s on which shares in the company were traded offers himself for re-election. Mr Louw’s issued share capital of ordinary shares. The immediately preceding the date upon which the abridged curriculum vitae appears on page 7 of number of ordinary shares which may be option was exercised, multiplied by the number this annual report. issued shall be based on the number of of option scheme shares, being the subject mat- ordinary shares in issue, added to those that ter of the option that has been exercised, less Ordinary resolution number 7 may be issued in future (arising from the con- the option price payable by the option holder in To re-elect Mr BR Weyers who retires as version of options/convertibles) at the date respect of those option scheme shares, in which director in terms of Article 14.1 of the Articles of of such application, less any ordinary shares event the trustees shall be released from all Association of the Company, but being eligible, issued, or to be issued in future arising from obligation to deliver the option scheme shares, offers himself for re-election. Mr Weyers’ options/convertible ordinary shares issued being the subject matter of the option that has abridged curriculum vitae appears on page 6 of during the current financial year, plus any ordi- been exercised, to the option holder concerned.” this annual report.
112 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb any director of the Company be and is here- continue the operations of the Company and proceedings that are pending or threatened, that by authorised to sign all such documents and the Group 12 months after the date of the may have or have had in the recent past, being at do all such things as may be necessary to give notice of the Annual General Meeting; least the previous 12 (twelve) months, a material effect to the aforegoing. – upon entering the market to proceed with effect on the Group’s financial position. the repurchase, the Company’s sponsor Special resolution number 1 has complied with its responsibilities con- Reason for and effect of General approval to repurchase tained in Schedule 25 of the JSE Listings special resolution number 1 shares Requirements; The reason and effect for special resolution “Resolved that, the Company and/or any subsidi- – after such repurchase the Company will still number 1 is to authorise the Company and/or ary of the Company be and is hereby authorised comply with paragraphs 3.37 to 3.41 of the its subsidiaries by way of a general authority to by way of a general approval contemplated in JSE Listings requirements concerning share- acquire its own issued shares on such terms, sections 85(2) and 85(3) of the Act, to acquire holder spread requirements; conditions and such amounts determined from the issued ordinary shares of the Company, upon – the Company or its subsidiaries will not repur- time to time by the directors of the Company, such terms and conditions and in such amounts chase securities during a prohibited period as subject to the limitations set out above. as the directors of the Company may from time defined in paragraph 3.67 of the JSE Listings The directors of the Company have no spe- to time determine, but subject to the Articles of Requirements; cific intention to effect the provisions of special Association of the Company, the provisions of – when the Company has cumulatively repur- resolution number 1 but will, however, con- the Act and the JSE Listings Requirements and chased 3% (three percent) of the initial tinually review the Company’s position, having any other exchange on which the shares of the number of the relevant class of securities, regard to prevailing circumstances and market Company may be quoted or listed from time to and for each 3% (three percent) in aggregate conditions, in considering whether to effect the time, where applicable, and provided that: of the initial number of that class acquired provisions of special resolution number 1. – the repurchase of securities will be effected thereafter, an announcement will be made; through the main order book operated by the and Special resolution number 2 JSE trading system and done without any prior – the Company only appoints one agent to Specific approval to repurchase understanding or arrangement between the effect any repurchase(s) on its behalf.” shares Company and the counterparty; “Resolved that the Company repurchases: – this general authority shall be valid only until Other disclosures in terms of the – up to 35 653 533 ordinary shares from the Company’s next Annual General Meeting, JSE Listings Requirements Shoprite Checkers (Pty) Ltd, a wholly owned provided that it shall not extend beyond 15 The JSE Listings Requirements require the subsidiary of the Company; and (fifteen) months from the date of passing of following disclosures, some of which are dis- – up to 506 036 ordinary shares from the this special resolution; closed in the annual report of which this notice Shoprite Holdings Limited Share Incentive – in determining the price at which the forms part as set out below: Trust; Company’s ordinary shares are acquired by Directors and management.... pages 6 – 7, 17 – 32 at such times and in such quantities as the the Company in terms of this general author- Major shareholders of the Company.....page 111 directors may determine in their discretion and ity, the maximum premium at which such Directors’ interests in securities ...... page 51 at the ruling price for the ordinary shares of ordinary shares may be acquired will be 10% Share capital of Company ...... page 80 the Company on the JSE at the relevant time, (ten percent) of the weighted average of the be approved as a specific approval in terms of market price at which such ordinary shares are Material change section 85 of the Act, subject to the Articles of traded on the JSE, as determined over the 5 Other than the facts and developments as Association of the Company and the JSE Listing (five) trading days immediately preceding the referred to on page 46 of the annual report, there Requirements. date of the repurchase of such ordinary shares have been no material changes in the affairs or by the Company; financial position of the Company and its sub- The directors of the Company will only – the acquisitions of ordinary shares in the sidiaries since the date of signature of the audit implement the repurchase contemplated in this aggregate in any one financial year do not report and the date of this notice. resolution if, after considering the effect of the exceed 5% (five percent) of the Company’s specific repurchase: issued ordinary share capital from the date of Directors’ responsibility statement – the Company and the Group will be able to the grant of this general authority; The directors, whose names are given on pages 6 pay its debts as they become due in the ordi- – the Company and the Group are in a position to 7 of the annual report, collectively and individu- nary course of business for the period of 12 to repay their debt in the ordinary course of ally accept full responsibility for the accuracy of months after the date of the specific repur- business for the 12 months after the date of the information pertaining to special resolution chase; the notice of the Annual General Meeting; number 1 and certify that to the best of their – the assets of the Company and the Group – the assets of the Company and the Group, knowledge and belief there are no facts that have will be in excess of the liabilities of the being fairly valued in accordance with been omitted which would make any statement Company and the Group after the date of the Generally Accepted Accounting Practice, are false or misleading, and that all reasonable enquir- specific repurchase; in excess of the liabilities of the Company ies to ascertain such facts have been made and – the share capital and the reserves of the and the Group for the 12 months after the that this resolution contains all such information. Company and the Group will be adequate for date of the notice of the Annual General ordinary business purposes for a period of 12 Meeting; Litigation statement months after the date of the specific repurchase; – the ordinary capital and reserves of the In terms of section 11.26 of the JSE Listings – the working capital of the Company and the Company and the Group are adequate for the Requirements, the directors, whose names are Group will be adequate for ordinary business 12 months after the date of the notice of the given on pages 6 to 7 of the annual report of purposes for a period of 12 months after the Annual General Meeting; which this notice forms part, are not aware of date of approval of the specific repurchase; – the available working capital is adequate to any legal or arbitration proceedings, including and
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 113 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notice to Shareholders (continued)
Shoprite Holdings LTD for the year ended 30 June 2008
– they are satisfied that it will have no other Special resolution number 4 Other business detrimental consequences for the Company.” Amendment to Articles of To transact such other business as may be dealt Association with at an Annual General Meeting. Reason for and effect of Resolved that Article 29.3 of the Articles of special resolution number 2 Association of the Company be amplified by Voting and Proxies The reason for special resolution number 2 is the adding of the following sentence at the end A shareholder of the Company entitled to attend, to authorise the Company by way of a specific thereof: speak and vote at the Annual General Meeting is authority to repurchase the shares issued by the “Notwithstanding the aforementioned entitled to appoint a proxy or proxies to attend, Company as specified in the resolution. provisions, the interim report may be despatched speak and vote in his/her stead. The proxy need The effect of the special resolution is that the in electronic format to all members who have not be a shareholder of the Company. A form Company will have a specific authority to repur- agreed thereto in writing, to an address nomi- of proxy is attached for the convenience of any chase the shares specified in the resolution. nated by the member.” certificated shareholder and “own name” reg- Following the implementation of the resolution, istered dematerialised shareholder who cannot the shares so repurchased will be cancelled Reason for and effect of special attend the Annual General Meeting but who as issued shares and restored to the status of resolution number 4 wishes to be represented thereat. authorised but unissued shares. The reason for special resolution number 4 is to Subject to the Articles of Association of the The implementation of the specific repurchase allow the Company to deliver the interim report Company and on a show of hands, every share- will be funded from existing cash resources. in electronic format to all members who have holder of the Company present in person or rep- The effect of the specific repurchase on earn- agreed thereto in writing. resented by proxy shall have one vote only. On a ings per share, headline earnings per share and The effect of special resolution number 4 poll, every shareholder of the Company present net asset value per share will not be material. is to amplify Article 29.3 in order to allow the in person or represented by proxy shall have This special resolution is subject to the Company to deliver the interim report in elec- the vote per share as prescribed by the Articles approval of no less than 75% (seventy five per tronic format, subject to compliance with the and subject to the Articles of Association of the cent) of the votes cast by those shareholders of provisions thereof. Company. the Company present in person or represented Shareholders who have dematerialised their by proxy to vote at this Annual General Meeting, Special resolution number 5 shares through a Central Securities Depository other than the shares held by Shoprite Checkers Amendment to Articles of Participant (“CSDP”) or broker, other than “own (Pty) Ltd and the Shoprite Holdings Ltd Share Association name” registered dematerialised shareholders, Incentive Trust. Subject to the passing of special resolution who wish to attend the Annual General Meeting, number 3, resolved that Article 31 of the Articles must request their CSDP or broker to issue them Special resolution number 3 of Association of the Company be amplified by with a letter of representation, or they must Amendment to Articles of an additional Article 31.11 reading as follows: provide the CSDP or broker with their voting Association “Notwithstanding anything to the contrary con- instructions in terms of the relevant custody Resolved that Article 29.2 of the Articles of tained in this Article 31, if a member elects in agreement/mandate entered into between them Association of the Company be amplified by the terms of Article 29.2 that a copy of the compa- and the CSDP or broker. adding of the following sentence at the end thereof: ny’s annual financial statements be despatched Proxy forms should be lodged, mailed, “Notwithstanding the aforementioned provi- in electronic format and such annual financial e-mailed or faxed to the company secretary at sions, a copy of the company’s annual financial statements include a notice contemplated in this his office, the details of which are set out on the statements, including every document required Article 31, then such notice shall be deemed to notes to proxy form, to reach him by no later by the Statutes to be attached thereto, which is have been validly given by electronic mail if given than 09h15 on Thursday, 23 October 2008. to be laid before the company in general meet- as part of the company’s annual financial state- ing, may be despatched in electronic format to all ments that are delivered in that manner and the For and on behalf members who has agreed thereto in writing, to member shall have deemed to waive his right to Shoprite Holdings Limited an address nominated by the member.” be served with a notice in the manner contem- plated in Article 31.1.” Reason for and effect of special resolution number 3 Reason for and effect of special The reason for special resolution number 3 is resolution number 5 to allow the Company to deliver copies of the – The reason for special resolution number 5 Company’s annual financial statements including is to allow the company to serve a notice by every document required by the Statutes to be electronic mail to the extent that such notice AN van Zyl attached thereto in electronic format to all mem- is included in the annual financial statements Company Secretary bers who have agreed thereto in writing. that are delivered to the member concerned 1 September 2008 The effect of special resolution number 3 who has agreed thereto in writing, by elec- is to amplify Article 29.2 in order to allow the tronic mail. Company to deliver copies of the Company’s – The effect of special resolution number 5 annual financial statements including every is that the company will be authorised to document required by the Statutes to be serve a notice on a member by electronic attached thereto in electronic format, subject mail under the circumstances set out in that to compliance with the provisions thereof. resolution.
114 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb (Incorporated in the Republic of South Africa) (Registration number 1936/007721/06) Form of Proxy JSE share code: SHP NSX share code: SRH LUSE share code: SHOPRITE Shoprite Holdings LTD ISIN: ZAE000012084 (“Shoprite Holdings” or “the Company”)
For use only by certificated shareholders or dematerialised shareholders with “own name” registration.
Dematerialised shareholders holding shares other than with “own name” registration, must inform their CSDP or broker of their intention to attend the Annual General Meeting and request their CSDP or broker to issue them with the necessary letter of representation to attend the Annual General Meeting in person and vote or provide their CSDP or broker with their voting instructions should they not wish to attend the Annual General Meeting in person. These shareholders must not use this form of proxy.
I/We ...... (name/s in block letters) of...... being a shareholder/shareholders of Shoprite Holdings and holding...... ordinary shares in the Company, hereby appoint
1...... of ...... or, failing him/her,
2...... of ...... or, failing him/her,
3. the chairman of the Annual General Meeting, as my/our proxy to attend speak and vote on my/our behalf at the Annual General Meeting of the shareholders of the Company to be held at 09:15 on 27 October 2008 at Brackenfell, and at any adjournment thereof: Number of shares In favour of Against Abstain Ordinary resolution number 1 Adoption of the annual financial statements Ordinary resolution number 2 Approval of non-executive directors’ remuneration Ordinary resolution number 3 Reappointment of PricewaterhouseCoopers as auditors and approval of their remuneration Ordinary resolution number 4 Confirmation of the proposed dividend and payment of ordinary dividend Ordinary resolution number 5 Re-election of Dr CH Wiese Ordinary resolution number 6 Re-election of Mr JA Louw Ordinary resolution number 7 Re-election of Mr BR Weyers Ordinary resolution number 8 To place the unissued shares under the control of the directors Ordinary resolution number 9 Approval to issue shares for cash Ordinary resolution number 10 Amendments to Shoprite Holdings Ltd Share Incentive Trust Special resolution number 1 General authority to repurchase shares Special resolution number 2 Specific authority to repurchase shares Special resolution number 3 Amendment to Art 29.2 of Articles of Association Special resolution number 4 Amendment to Art 29.3 of Articles of Association Special resolution number 5 Amendment to Art 31.11 of Articles of Association
*Please indicate with an “X” in the appropriate spaces above how you wish your votes to be cast. Unless otherwise instructed, my/our proxy may vote as he/she thinks fit.
Signed at (place)...... on (date)...... 2008
...... Please read the notes and instructions overleaf Shareholder’s signature
ANNUAL REPORT 2008 SHOPRITE HOLDINGS LIMITED 115 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Notes to form of proxy
1. This form of proxy must only be used by certificated ordinary shareholders or dematerialised ordinary shareholders who hold dematerialised ordinary shares with “own name” registration.
2. Dematerialised ordinary shareholders are reminded that the onus is on them to communicate with their CSDP or broker.
3. Each shareholder is entitled to appoint one or more proxies (who need not be a shareholder(s) of the Company) to attend, speak and vote in place of that shareholder at the Annual General Meeting.
4. a shareholder may insert the name of a proxy or the names of two alternative proxies of the shareholder’s choice in the space provided, with or without deleting “the chairman of the Annual General Meeting”. The person whose name stands first on the form of proxy and who is present at the Annual General Meeting will be entitled to act as proxy to the exclusion of those whose names follow.
5. a shareholder’s instructions to the proxy must be indicated by the insertion of the relevant number of votes exercisable by that shareholder in the appropriate box(es) provided. Failure to comply with the above will be deemed to authorise the chairman of the Annual General Meeting, if the chairman is the authorised proxy, to vote in favour of the ordinary and special resolutions at the Annual General Meeting, or any other proxy to vote or to abstain from voting at the Annual General Meeting as he/she deems fit, in respect of all the shareholder’s votes exercisable thereat.
6. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy, unless previously recorded by the Company’s transfer office or waived by the chairman of the Annual General Meeting.
7. The chairman of the Annual General Meeting may reject or accept any form of proxy which is completed and/or received other than in accordance with these instructions, provided that he is satisfied as to the manner in which a shareholder wishes to vote.
8. any alterations or corrections to this form of proxy must be initialled by the signatory(ies).
9. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the Annual General Meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such shareholder wish to do so.
10. a minor must be assisted by his/her parent guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by the Company.
11. Where there are joint holders of any shares: – any one holder may sign this form of proxy; – the vote(s) of the senior shareholders (for that purpose seniority will be determined by the order in which the names of shareholders appear in the Company’s register of shareholders) who tenders a vote (whether in person or by proxy) will be accepted to the exclusion of the vote(s) of the other joint shareholder(s).
Forms of proxy should reach the office of the company secretary by no later than 09:15 on Thursday, 23 October 2008.
The Company Secretary Cnr William Dabs and Old Paarl Roads P O Box 215, Brackenfell, 7560 South Africa Facsimile : +27 (0) 21 980 4468 E-mail Adress: [email protected]
116 SHOPRITE HOLDINGS LIMITED ANNUAL REPORT 2008 WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb Administration | Shoprite Holdings LTD
REGISTRATION NUMBER SPONSORS 1936/007721/06 South Africa Nedbank Capital REGISTERED OFFICE PO Box 1144, Johannesburg, 2000, South Africa Physical address: Cnr William Dabs and Old Paarl Roads Telephone: +27 (0)11 295 8602 Brackenfell, 7560, South Africa Facsmile: +27 (0)11 294 8602 Postal address: P O Box 215, Brackenfell, 7561, South Africa Website: www.nedbank.co.za Telephone: +27 (0)21 980 4000 Facsimile: +27 (0)21 980 4050 Namibia Website: www.shopriteholdings.co.za Old Mutual Investment Group (Namibia) (Pty) Ltd PO Box 25549, Windhoek, Namibia TRANSFER SECRETARIES Telephone: +264 (0)61 299 3527 South Africa Facsmile: +264 (0)61 299 3528 Computershare Investor Services (Pty) Ltd P O Box 61051, Marshalltown, 2107, South Africa Zambia Telephone: +27 (0)11 370 5000 Lewis Nathan Advocates Facsmile: +27 (0)11 688 5238 PO Box 37268, Lusaka, Zambia Website: www.computershare.com Telephone: +260 (0)1 223 174 Facsimile: +260 (0)1 229 868 Namibia Transfer Secretaries (Pty) Ltd AUDITORS P O Box 2401, Windhoek, Namibia PricewaterhouseCoopers Incorporated Telephone: +264 (0)61 227 647 PO Box 2799, Cape Town, 8000, South Africa Facsimile: +264 (0)61 248 531 Telephone: +27 (0)21 529 2000 Facsimile: +27 (0)21 529 3300 Zambia Lewis Nathan Advocates BANKERS P O Box 37268, Lusaka, Zambia ABSA Bank Ltd Telephone: +260 (0)1 223 174 Citibank N.A. Facsimile: +260 (0)1 229 868 Commerzbank AG First National Bank Ltd HSBC Ltd Investec Bank Ltd Nedbank Ltd The Standard Bank of South Africa Ltd
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Financial year-end Preliminary results Publishing of Annual General End of financial Interim results Payment of annual report Meeting half-year preference dividend Payment of preference Payment of dividend interim ordinary dividend Payment of final ordinary dividend WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb WorldReginfo - dfcd6b52-d2ed-478c-b847-94cc4d3f14cb