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South Africa's Shoprite sees momentum continuing after 12% profit rise

[JOHANNESBURG] South Africa's Shoprite defied a domestic recession with double-digit profit growth on Tuesday, and said it expected the momentum to continue as it pushes upmarket with products such as ready-made gourmet lamb shanks and oxtail stew.

Shares in Africa's biggest grocer jumped more than 5 per cent to 211.35 rand by 1318 GMT, on course for their biggest daily per centage gain in six months.

South African retailers have struggled to lift earnings as high household debts squeeze consumer income in the US$18 billion grocery market, though Shoprite has fared better than others with its focus on budget-conscious consumers, including more than 11 million South Africans on welfare grants.

But job losses in mining, an important industry in its heartland markets, have pressured sales at its Shoprite chain, forcing it to add more than 100 upscale ready meals at its Checkers stores to appeal to South Africa's nearly 2 million more affluent consumers.

"Why are we after this customer? This customer is four times more lucrative than our average customer in terms of basket size," said chief executive Pieter Englebrecht.

The move pits Shoprite, which runs more than 2,600 outlets across Africa, with Woolworths Holdings, which had largely cornered the market among South Africa's deep-pocketed consumers with one of the largest ranges of organic foods in the southern hemisphere.

By end-June 2018, the group plans to add 14 new Checkers outlets to its existing nearly 240 stores, where sales grew at a faster rate than its two other brands, Usave and Shoprite.

The group reported a 12 per cent increase in annual headline earnings per share to 1,007 cents, in line with an average forecast of 1,002 cents from a poll of 11 analysts by Thomson Reuters I/B/E/S. Headline EPS, the most widely watched profit gauge in South Africa, strips out certain one-off items.

Shoprite, which also vies in South Africa with Pick n Pay and Wal-Mart's Massmart unit, said sales increased 8.4 per cent to 141 billion rand (S$14.56 billion).

"We expect the positive sales momentum to continue in South Africa and beyond the country's borders," the company said.

Shoprite's two biggest shareholders, retail tycoon Christo Wiese and South Africa's state pension fund, have said they would sell their combined 23 per cent to furniture retailer Steinhoff International.

The deal, valued at more than 35 billion rand, also includes Mr Wiese's 35 per cent in deferred shares, meaning Steinhoff would control more than 50 per cent of Shoprite.

Mr Englebrecht, who took over from veteran Whitey Basson in January, was unfazed by the prospect of Steinhoff as majority shareholder, saying Shoprite would still be in charge of strategy including potentially opening shops in eastern Europe.