Shares of the South African retail giant Shoprite traded almost 4 percent higher Wednesday, the day the company announced it had received 70 percent of proceeds from the sale of its troubled Nigerian unit.
At R160.89 a share, Shoprite shares are on track for their best day in about two weeks. The group’s shares have risen almost 15 percent in 2021, and 28 percent since the start of 2020.
Shoprite, one of the first South African companies to expand into Nigeria in the early 1990s, recently completed the sale of its supermarket business in Africa’s largest economy.
Shoprite had announced its exit from Nigeria in August 2020, and has not put a price on the sale of the business, with the group also closing its last stores in Kenya earlier in 2021. The sale is to a subsidiary of Nigerian property group, Persianas Investments.
The company said the Nigerian business environment had become unfavourable for its operations and it would be closing down as a result.
“The Board has decided to initiate a formal process to consider the potential sale of all, or a majority stake, in Retail Supermarkets Nigeria Limited (RSNL), a subsidiary of Shoprite International Limited. As such, RSNL may be classified as a discontinued operation when Shoprite reports its results for the year,” the company had said in a statement released last year.
In a recent publication, the company announced its investment in Africa, particularly Nigeria and Kenya, had not yielded desired gain and it would like to explore new territories.
“We are cognisant that there is no one-size-fits-all approach and, for that reason, we are assessing the future for each investment on an individual country basis.
“Against this backdrop, we have resolved to either find a local partner or sell our Nigerian supermarket business. Furthermore, we have decided we will not allocate any further capital in the pursuit of a Kenyan market greenfields expansion. The region has not met our required return-on-investment targets and, while this factor is in part because the investment is still subscale, we believe now is not the time for Shoprite to lean in and invest further into new territory,” the company said in the report.
The company also revealed that the exchange rate crisis of the dollar and naira led to a 7.9 percent loss in 2020, when compared to 2019.
The terms of the transaction include both a franchise agreement that secures the Nigerian business’s right to continue to use the Shoprite brand. It also includes an agreement that provides for administration and technical support from the Shoprite Group for an initial period of five years.
Shoprite has been trading in the rest of Africa since 1990 and operates in many markets outside South Africa, including Botswana, Madagascar, Mozambique and Angola. The group, under CEO Pieter Engelbrecht, has been assessing the capital needs of its non-South African operations, which generate less than a quarter of group revenue.
In 2013, it considered expansion to 44 Shoprite stores across Nigeria, but halted the expansion project after encountering various challenges in the West African country. In 2019, Engelbrecht said the group would not remain in Nigeria at any cost.
In that year, it faced lower consumer demand in Nigeria as locals boycotted South African brands to protest against xenophobic violence in South Africa.
Shoprite follows Tiger Brands, Woolworths and Mr Price in exiting the country, which is seen as a difficult market to operate, amid oil price and currency volatility, and difficulties in repatriating funds.
Shoprite said on Wednesday that the transaction took effect on May 23, with 70 percent of the transaction proceeds having been received and the balance due in four equal instalments over 30 months.
Shoprite, valued at R95 billion on the JSE, had treated the Nigerian business as a discontinued operation in its half year to end-December, reporting that assets held for sale amounted to R1.4 billion, while the liabilities of these assets stood at R1.56 billion.
At the end of December, its core business, Supermarkets SA, made up 78 percent of group sales, with 1,685 stores under the Shoprite, Usave, Checkers, Checkers Hyper and LiquorShop brands.
It had 417 stores outside South Africa, including its discontinued operations.
The company says it will be focused on investing in technology and its employees.
“We want to focus on further investment in building our information and technology-driven business infrastructure. We are firm believers that the future will be strongly data-led and as such, we are strengthening and future-proofing our business and strategy by investing in our IT ecosystem and our people,” the company said.