BusinessDay

No Nigeria, no problem: Shoprite’s profit jumps despite exit

Shoprite Holdings Ltd.’s exit from Nigeria and some other African markets to focus on its core South African market has not been too costly for Africa’s largest grocer, which has recorded improved profit and margin.

In its first financial report since exiting Nigeria, the Cape Town-based company grew trading profit by 14 percent to 5.4 billion rand ($358 million) in the six months through January 2, 2022, with trading margin improving to 6.0 percent from 5.7 percent six months prior.

Trading profit at its South African supermarket business rose 16 percent to 4.9 billion rand ($319 million) in the period, according to the financial statement released this week, which means it contributed 90.7 percent to the total profit reported by the group.

Headline earnings per share also jumped 25 percent to 519.3 cents while sales increased by 10 percent to R91 billion rand ($6 billion), with its South African supermarket business, which accounted for 80 percent of the group’s sales, leading the charge with an 11 percent jump.

“Shoprite has seen continued momentum in its core local supermarket business in the second half, supported by the return to normal back-to-school trade and unrestricted liquor trading,” Pieter Engelbrecht, chief executive officer of Shoprite, said.

Shoprite discontinued its 16-year-old operations in Nigeria last June after struggling with supply chain disruptions and repatriation of funds caused by an acute dollar shortage in Africa’s largest economy.

The company sold its Nigerian business to Ketron, a company owned by a group of local investors led by property firm Persianas Investment. Ketron retained the name under a franchise arrangement, and said after the deal that it would sell more Nigerian-made products.

In exiting Nigeria, Shoprite followed the steps of other foreign companies from Mr Price Group to Woolworths and Truworths International that had also come unstuck following similar operational challenges.

“Any business based on importation of finished goods will struggle in Nigeria due to the challenges in obtaining foreign exchange,” a senior Nigerian banker told BusinessDay. “Unless you are permanently sourcing dollars from the black market, which foreigners are afraid of since it is illegal.”

Nigeria has never contributed a dominant share to the sales of the group.

The group’s core business, which is the South African unit, has contributed over seven percent to sales and profit every year since at least 2012. In 2020, for instance, Supermarkets RSA contributed 78 percent of group sales. The non-RSA markets, the category for Shoprite’s operations outside South Africa, including Nigeria, accounted for 22 percent.

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The supermarket retailer had expanded aggressively in Africa, surpassing rivals such as Pick n Pay and Walmart’s majority-owned Massmart to become the continent’s leading food retailer, with more than 2,800 stores in 15 countries.

But forays into markets including Angola and Nigeria, were marred by currency volatility, double-digit inflation, high import duties and dollar-based rentals. It also exited Kenya and restricted capital allocations to its supermarkets outside South Africa.

The terms of the sale of the Nigerian business to Ketron also includes an administration and services agreement, which provides the business with administration and technical support from the Shoprite Group for an initial period of five years.

Shoprite said 70 percent of the transaction proceeds had been received at the time of announcing the deal with the balance due in four equal instalments over 30 months.